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Minto Chief Executive Talks Company Growth with CoStar News

Michael Waters in Exclusive Interview on What He Sees For REIT That Has Been Red Hot with Investors
July 3, 2018
Pictured: Michael Waters, chief executive of Minto Apartment Real Estate Investment Trust.

You could argue the initial public offering of Minto Apartment Real Estate Investment Trust, which started trading Tuesday, was years in the making.

The Ottawa-based company raised $200 million on Bay Street for what is the first foray of the city's famed Greenberg family and its Minto empire into the capital markets -- an apartment REIT that starts life with 4,279 suites in Edmonton, Calgary, Toronto and Ottawa.

In an exclusive interview with CoStar News, chief executive Michael Waters explains taking the company public finally made sense as it pursued growth.

"At points in the past decade, maybe longer, periodically we have revisited the idea of taking a portion of our business public through a REIT IPO. At those points in time it didn't make sense," said Waters, adding the idea finally gained traction in the first quarter of 2017. "We had been looking for sources of capital to finance our growth. We have been working since 2010 with large Canadian pension funds and have done a tremendous amount of business with large pension funds, but we were also looking for an open-ended discretionary type of vehicle."

Minto was established in 1955 by the by four brothers Gilbert, Irving, Lorry and Louis Greenberg. Roger Greenberg, the son of Louis, remains chairman of the Minto board and will be executive chairman of the REIT.

The family still controls the REIT. Minto Group, which has built 85,000 homes in its history, manages 13,000 rental apartments, has 2.5 million square feet of commercials space and a $4.1 billion investment portfolio, said in a filing it would have as much as a 62 per cent stake, which could shrink to 56 per cent if overallotment rights are exercised.

Since 2010, Minto has been acting as manager in shared investments with eight pension funds, including the Canada Pension Plan Investment Board. "It's given us a clear understanding of our role as the manager working on behalf of investors. The REIT is really no different; it's public markets as opposed to institutions," said Waters.

As part of the new structure, Waters, who has been with Minto since 2007, will continue to act as chief executive for the privately held holding company.

"What we have is a structure where we embedded within the REIT 195 employees who will perform all the key strategic structures of the REIT," said Waters, adding 90 of the employees have a dual role with the holding company. "Part of it is just the scale of the REIT. At $1.1 billion of gross book value, it's not of the size it can afford the luxury of all of those roles on its own."

He says the REIT will get growth from natural progressions of rising rents as tenant turnover results in rents moving closer to market levels. Waters sees potential to develop at existing sites owned by the REIT, which will also benefit from its relationship with Minto Group as it produces more multifamily structures.

Acquisitions should also drive growth, but Waters acknowledged the market is tough to break into places like Toronto where you are "fighting with 10 other bidders," but the company also plans to look to Montreal for future growth. Vancouver isn't ruled out, but the chief executive acknowledges pricing in that market makes expansion there unlikely.

The REIT has a heavy Ottawa component with 3,060 suites in the nation's capital, but that wasn't the result of cherry-picking. Minto only vended buildings into the REIT that were 100 per cent owned by the holding company into the publicly-traded vehicle, and at the end of the day that meant just four Toronto properties and 824 units.

"Ottawa is a great housing market. It is very stable because a significant portion of its employment base is government or government-related," Waters said. "We like Ottawa as a component of any well-balanced portfolio. It doesn't have the dynamic nature of [the Greater Toronto Area] or other markets, but it compensates for that with stability."

While yield is essential in the REIT world, Minto positioned itself on the lower end of payout ratios, dishing out to investors only 65 per cent of adjusted funds from operations. Comparable companies are distributing past 70 per cent, and Minto's yield at issue was slightly less than 3 per cent at the launch of the IPO.

"Our reason is we want to retain relatively more of our earnings to redeploy in the portfolio," said Waters. "We don't want to simply be a yield-oriented vehicle. We want growth in net asset value."

Waters wouldn't specifically address whether the recent Ontario provincial election, which just saw the Tories win a majority, might have changed views on the IPO if an NDP government had won and focused on more rent controls. He says it's fair to see everyone was "watching the election closely," and his hope is now for a government focused on increasing supply.

Garry Marr, Toronto Market Reporter  CoStar Group   
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