InterRent Real Estate Investment Trust (TSX: IIP.UN) is a real estate investment trust focusing on the acquisition, ownership, management, and repositioning of multi-residential properties. The company operations are carried out through the region of Canada.

Key Highlights

• Augmenting financial matrices: Despite the turmoil environment, the company maintained its pace and witnessed spirited performance across its operating revenue, Net Operating Income (NOI), Funds from Operations (FFO) and its NOI margins in Q4 FY 2021 and on FY 2021. The Company is continuously working closely to carry this winning momentum and has witnessed higher scale on the sequential basis, which is appreciable.

• Healthy portfolio along rising occupancy rates: The company has 11,047 suites in the beginning of 2021, meanwhile it has purchased ten income properties (totaling 926 suites) and a 50% ownership stake in twenty properties, bringing total suites to 12,426 at the end of 2021. The management believes that there are substantial opportunities within the portfolio to push rents, reduce operating costs, and streamline operations. As a result, it has increased overall occupancy level to 95.6% in FY 2021, up from 91.3% in the previous fiscal year. The similar rising trend was seen in the same property occupancy level.

• Consecutively increasing monthly rentals: The trust reported elevated average monthly rental revenue across the properties as part of its continuous endeavor to drive rents throughout the portfolio. Furthermore, the REIT is producing good figures on a consistent basis, which is impressive. The average monthly rent throughout the portfolio grew by 5% to CAD 1,381 per suite in December 2021, up from CAD 1,315 in pcp. Additionally, management plans to expand rent organically while also driving various ancillary income streams such as parking, laundry, locker rentals, and cable and telecom revenue share agreements.

• A world of opportunity: The Canadian government has updated its immigration objectives for the next three years. In 2022, 2023, and 2024, Canada intends to receive around 432,000, 447,000, and 451,000 new permanent residents, respectively. Furthermore, Canadian institutions and colleges are becoming increasingly popular among overseas students. The rental market is an appealing choice for students, both international and domestic, as it provides shorter-term housing options that are typically close to college; we believe the REIT will thrive on these opportunities.
  

• Elevated funds from operations: In FY 2021, the REIT’s uplifted its fund from operations to CAD 96.0 million, from CAD 61.9 million in the previous corresponding period. An increase in FFO was primarily driven by the stabilized NOI and higher net income.

• Industry beating margins: The Company kept up the pace and had strong results throughout its operating margin matrix. Furthermore, the fair value adjustment of investment properties enabled them to outperform the industry median operating margin and net margin in FY 2021, demonstrating the company's competitive edge within the sector.

• Consistent dividend distribution: The REIT has a good dividend distribution track record and has grown its payout over the years, demonstrating stability and healthy cash flow creation. Recently it declared a monthly cash distribution of CAD 0.0285 per Unit, which will be paid on May 16, 2022. Furthermore, at the last closing price of CAD 14.92 on April 25, 2022, the company gave a dividend yield of 2.29%, which seemed reasonable given the present macroeconomic and interest rate environment.
  

Financial overview of FY 2021 (In 000’s of CAD)

• Healthy operating revenues: The company’s revenue for Fiscal 2021 increased by 15.8% to CAD 185.1 million, compared with CAD 159.9 million in Fiscal 2020. An increase is attributable to the increases in monthly rents. Moreover, the contributions from acquisitions further contributed to higher operating revenues for the total portfolio.

• Rise in operating expenses: In the reported period of FY 2021, its operating expenses increased to CAD 67.4 million, against CAD 57.8 million in pcp, mainly due to rise in property taxes, property operating cost and higher utilities.

• Increased net operating income: Primarily on the back of elevated revenue, the REIT’s net operating income increased to CAD 117.6 million, against CAD 102.1 million in pcp.

• Elevated net income: Due to above discussed rationales and higher fair value adjustment on investment properties, the REIT’s net income swelled to CAD 369.6 million in FY 2021, against CAD 150.6 million in pcp.
  

Top-5 Shareholders

The company’s top 5 shareholders hold around 14.66% of the total shareholding, where APG Asset Management N.V. is the biggest shareholder, who owns 3.55% of total outstanding shares. Additionally, the company's institutional ownership stood at 32.47%. Higher institutional holding boosts the confidence in the mind of retail investors.  

Valuation Methodology (Illustrative): Price to Earnings based Valuation Metrics 

Risks associated with investment

The REIT's revenue and operating results depend significantly on the occupancy levels and rent collection; hence, the group is subject to general business risks. These risks include government regulation, fluctuations in occupancy levels and business volumes, competition from other players, and general economic conditions.

Stock recommendation

The REIT announced solid operational performance in fiscal year 2021, supported by accretive acquisitions as well as continued robust rental growth and occupancy levels. The Company maintained its pace and had a strong performance in operating revenue, NOI, and FFO. Furthermore, it is constantly strengthening its portfolio through acquisitions and transactions, allowing it to attain greater figures on a variety of fronts, which is a big positive.

With the strong cash flows of CAD 96.0 million and higher occupancy levels, the REIT demonstrated the business's resiliency. Furthermore, the rental market tends to be an attractive option for students, both foreign and domestic, as it offers shorter-term housing options often close to campus, we believe the REIT will definitely bank on these opportunities.

Therefore, based on the above rationales and valuation, we recommend a "Buy" rating on the stock at the at the last closing price of CAD 14.92 as on April 25, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April 25, 2022). Source: REFINITIV, Analysis by Kalkine Group 

 Technical Analysis Summary

Disclaimer

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