Minto Apartment REIT Announces Agreement to Terminate the Fifth + Bank Option to Purchase

? Proceeds from the repayment of the $30 million Convertible Development Loan to be used to repay its revolving credit facility ?

OTTAWA, ON, June 7, 2023 /CNW/ - Minto Apartment Real Estate Investment Trust (the "REIT") (TSX: MI.UN) today announced an agreement with Minto Properties Inc. ("MPI", a subsidiary of the Minto Group), to terminate the REIT's option to purchase Fifth + Bank ("Option to Purchase") effective immediately. The REIT's cost of capital in the current high interest rate environment is too high relative to the anticipated purchase capitalization rate of the asset. The future prospect that interest rates move materially lower prior to the expiry of the Option to Purchase is unlikely and, acting in good faith, the REIT wants to provide MPI with advanced notice so it may evaluate its alternatives with respect to the asset. 

The $30 million convertible development loan related to Fifth + Bank (the "CDL") matures on January 31, 2024, and the REIT will work to negotiate an option for MPI to prepay earlier, should circumstances permit. The REIT will use the proceeds from the repayment of the CDL to repay a portion of its revolving credit facility. As previously announced, the coupon payable under the CDL commencing July 1, 2023 will be equal to the all-in interest rate the REIT pays from time to time on its revolving credit facility (subject to a collar of between 5% and 7% per annum), which is approximately 6.75%. 

The REIT's rationale for not exercising the Option to Purchase includes the following:

• The REIT is focused on maximizing FFO per unit, and given the REIT's current cost of capital, exercising the Option to Purchase does not represent an attractive allocation of capital, despite the high-quality and strong expected performance of the property
• Allows the REIT to reduce its variable rate debt exposure by $30 million, consistent with its stated strategy
• The REIT is committed to maximizing its unit price by removing uncertainty related to the prospective purchase of Fifth + Bank

"Fifth + Bank is a new, attractive urban asset that any apartment owner would like to have in its portfolio." said Jonathan Li, the REIT's President and Chief Executive Officer. "However, current market conditions plus our cost of capital must be factored into any decision, and as a result, we believe it's in the best interest of the REIT to terminate the Option to Purchase. The CDL pipeline is a strategic program that gives the REIT access to newly-constructed multi-family assets in major, urban markets, and we remain hopeful that once market conditions are more favourable, the REIT will be better positioned to execute on opportunities arising from the CDL pipeline, which is a strategic advantage for the REIT. The decision to terminate the Option to Purchase is not related to our capital recycling program, which continues to be a strategic priority for the REIT."

Allan Kimberley, lead independent trustee of the REIT, commented, "The decision to terminate the Option to Purchase is a clear representation that we will make decisions that we believe to be in the best interest of the REIT and its unitholders."

Michael Waters, Chief Executive Officer of Minto Group added, "Fifth + Bank is an asset that MPI will retain ? brand new assets of this quality in urban locations are irreplaceable. MPI will evaluate its alternatives and although not guaranteed, MPI will endeavour to preserve an ability for the REIT to purchase the property at some point in the future."

Fifth + Bank is a newly constructed, mixed-use multi-residential rental and retail property located at 99 Fifth Avenue in the Glebe neighbourhood of Ottawa, Ontario. Construction of the 163-suite property was completed in Q3 2021. The property is 100% leased and is not subject to rent control because it was delivered after November 2018.

Minto Apartment Real Estate Investment Trust is an unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario to own income-producing multi-residential properties located in urban markets in Canada. The REIT owns a portfolio of high-quality income-producing multi-residential rental properties and developments located in Toronto, Montreal, Ottawa, Vancouver, Victoria, Calgary and Edmonton. For more information on Minto Apartment REIT, please visit the REIT's website at https://www.mintoapartmentreit.com.

This news release may contain forward-looking information within the meaning of applicable securities legislation, which reflects the REIT's current expectations regarding future events and in some cases can be identified by such terms as "will" and "expects". Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the REIT's control that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information. In this news release, forward-looking information includes the fact that there is no certainty that the option to purchase the Fifth + Bank property will be exercised. Other such risks and uncertainties include, but are not limited to, the factors discussed under "Risk Factors" in the REIT's Annual Information Form dated March 8, 2023, which is available on SEDAR (www.sedar.com). The REIT does not undertake any obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law. This forward-looking information speaks only as of the date of this news release.

This news release contains a financial measure which is not defined under International Financial Reporting Standards ("IFRS") and may not be comparable to similar measures presented by other real estate investment trusts or enterprises. FFO per unit is a measure of financial position used by the REIT's management and real estate businesses. This measure is not defined by IFRS and does not have a standardized meaning prescribed by IFRS. See the REIT's Management Discussion & Analysis dated May 9, 2023 for further discussion of this and other non-IFRS financial measures.

SOURCE Minto Apartment Real Estate Investment Trust