InterRent Real Estate Investment Trust (TSX: IIP.UN) is a real estate investment trust engaged in the acquisition and ownership of multi-residential properties across Canada. The company derives revenue from investment properties which includes rents from tenants under leases, parking, laundry, and other ancillary services.

Key Updates:

• Elevated Operating metrics: In Q1FY22, the company purchased a 50% ownership stake in two properties with 57 suites in Vancouver, and also added one suite in Hamilton, Ontario. Moreover, the company moved 10 suites in Ottawa, Ontario from income-producing to properties under development. At the end of Q1FY22, the group owned 12,445 suites, which is higher than 11,468 suites in pcp. The company continuously review its ongoing portfolio and look for organic rent growth, to reduce operating costs, and to further streamline operations. Notably, in Q1FY22, the group stated higher occupancy rate of 95.5% than 91.3% in Q1FY21 along with  6% higher average rent per suite of CAD 1,404 in Q1FY22 over pcp.

Source: Company Report

• Increase in Funds from Operations: In Q1FY22, the company reported a significantly higher funds from operations of CAD 19.06 million, as compared to CAD 16.19 million in pcp. An increase in the FFO was primarily driven by the stabilized Net Operating Income (NOI) coupled with unrealized gain on financial instruments.

  Source: Company Reports

• Positive macros: During the month of February 2022, the share of new immigrants in Canada rose to 40% after hitting a low of 18% in August 2021, supported by constant addition of new permanent residents in every month. The management anticipates the continuation of the above momentum throughout 2022 which is likely to boost the company’s occupancy rate and average rent per suite.

• Change in Management: On April 26, 2022, the company announced the appointment of Brad Cutsey for the post of President & CEO as Mike McGahan has stepped down from the role of CEO and become Executive Chairman of the Board.

Risk Associated with the Investment:

The company’s operation would be hindered from a fall in occupancy level due to various macro events. Moreover, the group’s profitability might be dampened due to the volatility in the property rates. 

Q1FY22 Financial Highlights:

   Q1FY22 Income Statement Highlights (Source: Company Report)

• In Q1FY22, the company reported its revenue from investment properties of CAD 51.8 million, as compared to CAD 43.0 million in pcp. The growth was supported by higher lease income due to an increase income from average suits coupled with higher occupancy level.
• The quarter was marked by higher property operating costs, increase in utilities expense and higher property taxes. Net operating income stood at CAD 32.3 million, stood higher than CAD 26.4 million in pcp, supported by higher revenue.
• Fair value of investment properties stood higher at CAD 65.8 million, slide from CAD 97.6 million in pcp. However, the company’s profitability was boosted by other fair value gain of CAD 10.0 million, as compared to a loss of CAD 8.8 million.
• The company reported a net income for the period stood at CAD 94.6 million, as compared to CAD 104.7 million.
  

Valuation Methodology (Illustrative): Price to Earnings based

Analysis by Kalkine Group

Stock Recommendation:

The company ended the first quarter of FY22 on a positive note, while the management expects the trend to continue in the rest of FY22 supported by the organic growth in rent income. Moreover, other ancillary revenue streams such as parking, laundry, locker rentals, and cable and telecom revenue share agreements are also expected to grow in coming days and is likely to boost the overall performance of the company. We have valued the stock using the Price to earnings based relative valuation approach and arrived at a target price, which suggests a double-digit upside potential (in % terms). For the said purpose, we have considered peers like Canadian Apartment Properties Real Estate Investment Trust, Killam Apartment REIT etc. Hence, considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the last closing price of CAD 12.57 on May 10, 2022. 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 May 10, 2022). Source: REFINITIV, Analysis by Kalkine Group 

 Technical Analysis Summary

Disclaimer

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