Minto Apartment Real Estate Investment Trust T.MI.UN

Conflict of interest

[incomedreamer11]

For your inerest from Scotia:. 

MI terminated the the agreement to buy Fifth & Bank (100%-occupied new rental building in Ottawa) from the Minto Group. MI will now recycle the $30M loan receivable from Minto Group to credit facility repayment (floating; cost = ~6.75%). Recall, it had extended the option to buy by six months to Q4/23 in March. We were pleased (then – see link) to hear MI specifically say acquisitions at cap rates < the cost of debt were a “no-go” for the REIT, which was reiterated in yesterday’s announcement. It sounds like Minto Group has left the door open for a future acquisition of the asset (with no associated 5% discount), but the math needs to line-up for the REIT. We view the termination as a slight positive development given the REIT unit price faced significant pressure post its acquisition (from the Minto Group) of 39 Niagara and The International (see link to our note) at a cap rate below financing cost at the time (i.e., dilutive); the related-party nature of the transaction also didn’t help sentiment, in our view. Since that announced deal (on April 11, 2022), MI has been the worst performing CAD Apartment REIT (Exhibit 1; to be clear, we don’t attribute all of the underperformance to the deal). With MI marginal debt cost (i.e. on facilities) way above the Fifth & Bank acquisition cap rate (i.e., 6.75% vs. our estimated ~4.0%), we felt another acquisition below financing cost could prove punitive for market sentiment, particularly considering it would be the first acquisition under new CEO, Mr. Jonathan Li. On the last point, we think the terminated agreement should help with market sentiment over the “independence” of the REIT from the Minto Group (there are still several potential acquisitions of completed developments down the road, including even Fifth & Bank...if it makes sense for the REIT).

[jollynik6]

What is the Problem with Minto   really crashing