Investors give Minto REIT go-ahead to step up T.O. redevelopment projects

Investors have given Ottawa’s Minto Apartment REIT the green light to redevelop a bigger share of its rental properties as the organization looks to add to its stable of rental suites in the Toronto area.

Under its declaration of trust with the province of Ontario, the REIT had previously been allowed to redevelop a maximum of 10 per cent of the total book value of its investments at any one time.

Earlier this week, the REIT’s unitholders voted to raise that limit to 20 per cent, effectively giving the company the go-ahead to add many more new doors to its existing properties in a single round of development.

Dan Dixon, Minto Group’s senior vice-president of finance and investor relations, said the REIT is currently looking at building a significant number of new apartment units at three of its existing Toronto sites. All three projects are in the planning stages, but Dixon said under the old limits the organization would have had to spread the redevelopments out over a longer period.

“We very much want to move forward with the development of those projects, but we would have to do them one at a time,” he said. “That gives us the capacity to do those projects and others like them as they come down the pipe.” 

The current gross book value of Minto REIT’s properties is about $2.16 billion, meaning the company will now be able to redevelop roughly $430 million worth of assets at any given time.

Dixon said REITs came to prominence in the early 1990s as a means of providing steady income streams for investors, and caps were put in place to prevent them from delving too deeply into more volatile development activities. 

But today’s unitholders are looking for higher rates of return, he says, meaning they’re more willing to loosen the reins on investment trusts. 

“Investors are much more comfortable with REITs today doing some development,” Dixon said.

He said Minto, which launched in 2018, chose the 10 per cent limit because it was the industry standard at the time.

“To be honest, we just didn’t think we would get tripped up by it,” Dixon explained.

Minto’s unitholders also approved raising the maximum share of investments the REIT can hold in mortgages and other loans from 15 to 20 per cent. 

That will allow the organization to invest in more projects such as Minto Group’s 99 Fifth Avenue proposal, which calls for about 160 purpose-built rental units at the corner of Bank Street and Fifth Avenue in the Glebe. 

Minto REIT has loaned Minto Group, its privately owned sister company, money to finance the Fifth Avenue project. In exchange, the REIT has the option to purchase the development for 95 per cent of its fair value once construction is completed.

Dixon said the investment trust is also looking at upgrading and adding more suites at its existing rental properties in the National Capital Region.

“The Ottawa market has been incredibly strong, and we would love to do more intensification here if possible,” he said.

Earlier this month, Minto REIT said it remained in a “strong financial position” despite the COVID-19 crisis. 

Minto said its funds from operations – a key cash-flow metric for REITs – rose more than 65 per cent in the first quarter of 2020 to $12.1 million compared with $7.3 million a year earlier. Average monthly rents on the more than 4,500 properties the REIT has owned for at least a year jumped 12.8 per cent from $1,417 in March 2019 to $1,599 in March of this year. 

Minto REIT owns 29 multi-residential properties in Ottawa, Toronto, Montreal, Calgary and Edmonton with more than 7,200 apartment units. The company’s shares were down eight cents to $19.88 in mid-afternoon trading on the Toronto Stock Exchange.