Minto Apartment REIT
(MI.UN-T) C$13.00
Minto Investor Day and Property Tour Highlights Event
Yesterday, Minto held an investor day and hosted a property tour in Montreal, Quebec.
Impact: NEUTRAL
Minto's tour and investor day largely focused on the strong growth potential of the suite repositioning program, and also gave us an opportunity to view the REIT's Montreal portfolio. The assets are well located with good walk scores and are in close proximity to each other. As of Q2, the Montreal portfolio also had the highest mark-to-market at ~12%.
Capital Allocation. Management reaffirmed its capital allocation strategy with proceeds from capital recycling being redirected to its development program, repositioning program, and convertible development loan projects. We expect NCIB purchases to remain a low priority going forward. The REIT currently has its three property Edmonton portfolio listed for sale and we believe it could also sell (or JV) additional non-core assets.
NCIB and Insider Trading. Minto has repurchased ~182,000 units for $2.7mm at (average price of $15.15) under its NCIB since mid-July. More notable has been the recent insider transaction activity. Since May, insiders at Minto have purchased just over 565,000 units for an aggregate ~$8.4mm. We highlight that most of the activity was completed more recently in September and note that Roger Greenberg (Board Chair) alone purchased ~417,000 units. In our view, the strong insider activity underscores management's confidence in the underlying fundamentals and gives us further comfort in our positive outlook for the business.
Current Valuation Presents Compelling Buying Opportunity. Minto is currently trading at a 5.2% implied cap rate. On a P/NAV basis, Minto is trading at a 48% discount to our NAV and a 46% discount to IFRS NAV. The current 52% P/NAV also represents the lowest valuation since the REIT's IPO in 2018 and is well below the previous low of 68% reached in October 2020. On a P/forward AFFO basis Minto is trading at 17.5x versus the historical average of 25.3x and its pandemic-low valuation of 20.0x. We see the current valuation as excessively discounted.
TD Investment Conclusion
Looking forward we believe Minto is well-positioned to benefit from strengthening market fundamentals, particularly given its urban focus. We are maintaining our BUY rating and $22.00 target price.