Minto Apartment REIT boss bullish on future as firm spends $200M on pair of acquisitions

Niagara West
Minto Apartment REIT has acquired a 28.35 per cent interest in Niagara West, a two-tower multi-residential development in downtown Toronto. Photo courtesy Minto Apartment REIT

After a tough two-year stretch that saw seemingly everything work against his business, Minto Apartment REIT chief executive Michael Waters feels like the ceiling is finally lifting on the firm’s growth prospects.

To say the past 24 months weren’t kind to companies like Minto that make their money from renting apartments in urban cores would be an understatement. 

The pandemic kept students at home and slowed the flow of new immigrants – another key customer segment – to a trickle. 

Meanwhile, restrictions aimed at reining in COVID-19 sucked the life out of downtowns, making them less desirable destinations for new tenants. And the Ontario government’s move to freeze rents last year and limit increases to 1.2 per cent this year meant Minto and other REITs could do little to make up for rising vacancy rates by getting more income from existing tenants.

But Waters says the industry’s gloomy outlook is brightening, and his company is doing everything it can to take full advantage of what it hopes will be a coming rental resurgence.

Fresh off a deal last month that saw it join forces with sister firm Minto Properties to buy into a mixed-use development on Vancouver Island, Minto announced Tuesday it’s pulling the trigger on a pair of blockbuster acquisitions aimed at diversifying its portfolio in two of Canada’s biggest markets.

The REIT is shelling out $114.5 million – most of it in the form of shares and taking over existing mortgage financing – to acquire a 28.35 per cent interest in Niagara West, a two-year-old development in downtown Toronto. 

High-end amenities

Minto will manage the property, which includes two towers of 14 and 19 storeys containing 501 rental units and more than 50,000 square feet of retail space – including a food store operated by another well-known Ottawa company, Farm Boy.

In addition, the REIT is paying $86.5 million – which includes a cash payment of $24.3 million and the assumption of $62.2 million in existing mortgage financing – for The International, a downtown Calgary property that was built in 1970 and fully renovated in 2015. The building now includes 247 luxury rental suits as well as five penthouse units.

Both buildings have all the attributes of highly coveted downtown rental properties, including proximity to public transit and high-end amenities such as fitness centres, saunas and pools. The International has the added advantage of being connected to the Plus 15 Skywalk, an 18-kilometre above-ground weatherproof walkway that winds through Calgary’s central business district.

The deals are expected to close by early next month. As Minto looks to rebound from a 2021 in which its funds from operations fell by 2.9 per cent to $48.5 million and its net income plummeted nearly 50 per cent, properties like the Niagara West and The International will be a key part of its recovery.

"All of these people need to live somewhere, and … we’re just supplying enough new homes, so rental housing providers like Minto, I think are well-situated."

Niagara West’s suites have an average rental rate of $2,573 per month – well above the REIT’s 2021 average of $1,641 – and an occupancy rate of 95 per cent. The International, meanwhile, brings in average rents of $1,699 per month and is 99 per cent occupied.

Those are the kind of numbers that make Waters smile. But they’re not the only thing that’s got him bullish on what the rest of 2022 could have to offer.

Waters says the federal government’s push to raise the number of immigrants entering the country to more than 400,000 annually will help fill the REIT’s empty suites, as will the gradual revitalization of downtowns as COVID restrictions continue to ease.

“All of these people need to live somewhere, and … we’re just supplying enough new homes, so rental housing providers like Minto, I think are well-situated,” he told OBJ on Tuesday. “We feel like there’s lots of grounds for optimism here.”

Indeed, Waters is now confident enough to predict that the occupancy rate in Minto’s suites will climb to around 97 per cent by year’s end – a far cry from its low point of 91 per cent in the first quarter of 2021 and just a hair below its mark of 98 per cent in 2019.

Minto is also investing heavily in new projects that will pay immediate dividends in terms of its ability to charge higher rents. Those include a $91-million, 163-suite development that’s nearing completion at Bank Street and Fifth Avenue in the Glebe, and a $123-million project in New Edinburgh that will add 227 apartments to its portfolio by 2024.

Apartment upgrades

The REIT is also reaping the benefits of an aggressive campaign to upgrade aging units as tenants move out, further burnishing its ability to charge market rents. 

Minto renovated 367 suites last year, spending an average of $50,000 on each makeover. Those investments should pay off handsomely in the long run, as they’ve allowed the firm to charge nearly $4,500 more per year for each unit. Waters says Minto expects to upgrade an additional 250-300 units in 2022.

“That’s a big priority for us and probably the best use of capital that we can devote in our portfolio,” he explained.

With the spate of recent acquisitions and 2,300 units in its construction pipeline, the REIT will boast a total inventory of more than 10,000 apartments by the time all the projects are complete. That’s up dramatically from just 4,200 units when the company went public four years ago.

Minto REIT is also a much more geographically diverse firm today than it was at the time of its $200-million IPO in 2018. 

Back then, about 70 per cent of its suites were located in its home base of Ottawa. Once the latest buys are on the books, Ottawa will account for about 38 per cent of its 8,277 apartments, with Toronto being home to a third. Another 20 per cent are located in Montreal, while seven per cent are in Calgary and the remaining two per cent in Edmonton.

Waters says the firm’s bid to spread out its footprint bodes well for its future as cities like Calgary start to regain some of their old mojo.

“It’s a much more varied portfolio,” he said. “Ottawa is a fantastic market. But that said, we don’t want to have all our eggs in one basket. It’s good to have a bit of a mix.”

All that, plus the widening gulf between rent increases and housing affordability, should help beef up the REIT’s stock price, Waters adds. Minto’s units were trading at $20.05 at Tuesday’s market close, down from around $28 on the eve of the pandemic in March 2020.

Of course, there is one wild card that could turn all those rosy projections on their head. COVID remains an ever-present threat, and Waters knows the virus can’t be trifled with. 

“I’m hoping that this (sixth) wave will die in the next six to eight weeks,” he said. “Maybe I’ve got PTSD about COVID, but that's something I’m keeping an eye on, for sure.”