On Monday, Minto Apartment REIT (TSX: MI.UN) announced that it has entered into an agreement to acquire a 50% managing interest in Lonsdale Square in North Vancouver, in what will be the REIT's first property in the Metro Vancouver market.
Lonsdale Square is a six-storey purpose-built rental building with 113 units located at 126 E 21st Street in the City of North Vancouver. The rental building was constructed as the first phase of the Harry Jerome Lands redevelopment and was completed in Q1 2024. The property's residential occupancy is at 93% and its commercial component — consisting of approximately 8,000 sq. ft — is 100% leased to a brewpub, a pharmacy, and a vitamin/nutrition retailer.
The project was developed by North Vancouver-based Darwin Construction and Minto Apartments, a sister company also belonging to Minto Group. The property is currently held under Darwin/Minto Properties (M4 At Lonsdale Square), according to BC's Land Owner Transparency Registry.
On Monday, the REIT announced that it will be acquiring an 50% controlling interest in Lonsdale Square for $52.96 million, which it said represents a 5% discount on the undiscounted purchase price of $111.5 million.
The REIT noted that the 5% discount was made possible by its original purchase option in the property and that a "national Canadian life insurance company" has agreed to purchase the other 50% stake in the project. Minto Apartment REIT did not name its partner, but noted that the REIT was acquiring its stake from Minto Apartments, suggesting its partner will be acquiring its stake from Darwin Construction.
"The REIT will fund its portion of the purchase price by entirely assuming and being solely responsible for a $52.96 million mortgage which is equal to 100% of the REIT's discounted share of the purchase price," the REIT added in its press release. "The mortgage is CMHC-insured, bears an annual interest rate of 3.9% and has a maturity date of December 1, 2034."
The exterior (left) and interior (right) of Lonsdale Square at 126 E 21st Street. / Darwin Construction
Furthermore, the REIT says that upon completion of the transaction, the REIT will also receive full repayment of the $14 million convertible development loan associated with Lonsdale Square, which the REIT will then use to repay a portion of its revolving credit facility.
As the holder of the managing interest, the REIT will also receive customary asset management and property management fees.
Minto Apartment REIT says the acquisition of Lonsdale Square reduces the overall age of its portfolio, carries ESG benefits because it is energy-efficient and has a smaller carbon footprint than older buildings, and was made possible without diluting cash flow per unit.
"Our team worked hard to design and implement a transaction that is beneficial to unit-holders," said Jonathan Li, President and CEO of the REIT. "The Transaction adds a newly-built asset in the attractive Metro Vancouver market to our portfolio in a manner that is accretive to FFO per unit. We did not have to access expensive and dilutive new equity capital to fund any portion of the Transaction because we implemented a financing structure that fully funds it with CMHC financing, at a significantly lower interest rate compared to our revolving credit facility."
The transaction is expected to complete in January 2025.
