InterRent Real Estate Investment Trust

InterRent Real Estate Investment Trust (TSX: IIP.UN) is a growth-oriented real estate investment trust engaged in increasing Unitholder value and creating a growing and sustainable distribution through the acquisition and ownership of multi-residential properties.

Key Highlights:

• Growth in total assets: Over the years, the company followed a prudent capital management approach and disposed low income generating properties, which is encouraging. Recently, the company added 3,024 suites under its portfolio. Moreover, the company’s total assets recorded a CAGR of 25% since 2010.

Source: Company

• Improved financial flexibility: Over the years, the group has made improvement in its financial flexibility. Debt to Gross Book Value (GBV) declined to ~31% at the end for FY20 from ~55% at the end of FY16. Interest coverage ratio also improved to ~3.5x in 2020 from ~2.5x in 2016.             

Source: Company Presentation

• Growth in Average rent: The company’s properties are strategically located in the prime areas while the rent payers received exceptional amenities and best-in-class service, which has resulted to a constant growth in average rent. Average rent grew at a CAGR of 5.7% since 2015.         

Source: Company Reports

• Event Update: The company would disclose its Q1FY21 result on May 11, 2021.

FY20 Financial Highlights:

• The trust announced its full year result, wherein the company posted revenue from the investment properties of CAD 159.955 million, higher than CAD 145.302 million in FY19.
• Net operating income grew to CAD 102.139 million, higher than CAD 96.194 million in the previous year. The period was marked by higher property operating costs (CAD 26.550 million v/s CAD 20.988 million in pcp), higher property taxes (CAD 19.405 million v/s CAD 17.443 million in FY19).
• The company reported a decline in its net income to CAD 150.648 million as compared to CAD 384.889 million in FY19, due to a higher gain from fair value adjustments on investment properties amounting to CAD 353.160 million in FY19 v/s CAD 70.110 million in the current period.
• Cash and cash equivalent were recorded at CAD 51.642 million, while total assets stood at CAD 3,214.047 million.

Source: Company Report

Risks: Due to an economic slowdown, most of the REITs companies witness a fall in the fair value of invested properties, which impacts their bottom line. Moreover, a fall in occupancy rate coupled with lower rent collection may dampen the company’s overall performance.

Valuation Methodology (Illustrative): Price to Earnings-based

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

The company reported residential rents collection of more than 99% during the month of October, November and December and the current trend for January and February is in line with previous months, which is a key positive. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a lower-double-digit upside (in percentage terms). For the said purposes, we have considered peers like Killam Apartment REIT, European Residential REIT etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the last closing price of CAD 15.28 on April 28, 2021.

One-Year Price Chart (as on April 28, 2021). Source: Refinitiv (Thomson Reuters)

Cominar Real Estate Investment Trust

Cominar Real Estate Investment Trust (TSX: CUF.UN) is a Canadian REIT, which operates in ownership and management of properties across the Canadian provinces. 

Key Highlights:

• An Income Play: The company paid a consistent dividend to its shareholders, backed by stable cash flows, which is a key positive. At the last closing price, the stock was offering a dividend yield of ~3.7%, which is decent considering the current interest rate scenario.

Five years dividend history (Source: Thomson Reuters)

• Improved performance from industrial and flex portfolio amidst turbulent times: Despite a tepid economic scenario, the industrial and flex portfolio showed resilience and reported an increase in the average in-place occupancy. During the fourth quarter of FY20 and full year FY20, the same property industrial and flex NOI was increased by 4.9% and 3.3% over Q4FY19 and FY19, respectively. The increase was further supported by reductions in operating costs and realty taxes and services. 

Source: Company Reports

• Bullish Technical Indicator: The stock of CUF.UN closed above the long-term support levels of 100-days, 150-days and 200-days, which indicates a bullish trend. Moreover, it appreciated ~31 and ~19% in the last six months and nine months, respectively.

FY20 Financial Highlights:

• The trust announced its full year result, wherein the company posted operating revenues of CAD 661.320 million, down 6.1% from FY19.
• Net Operating Income slide 8.7% y-o-y to CAD 327.187 million. The decline was primarily due to lower rent collection on account of the COVID 19 pandemic. Same property net operating income decreased by 5.1% on y-o-y basis.
• The company reported a net income and comprehensive loss of CAD 329.277 million, as compared to a net income of CAD 462.504 million in FY19. The major difference was primarily aided by a loss from the change in fair value of investment properties amounting to CAD 469.763 million, v/s a gain of CAD 276.475 million in the previous year.

Source: Company Report

Risks: Due to the unfavorable scenario, the group has witnessed a fall in rent collection in Q4FY20. Continuation of such trend might lead to higher losses for the company.

Valuation Methodology (Illustrative): EV to EBITDA

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

The company has a balanced portfolio and has operations across office, retail and industrial and flex segments. The company is nor relying on a single segment, which is a key positive as it diversifies the revenue base.

Source: Company

Despite a slide in rent collection to 95.8% in Q4FY20, the company reported its overall rent collection at 97.2% in FY20, which is encouraging considering the current economic scenario. Moreover, the group recorded a 5.6% y-o-y growth in same property NOI from Quebec City portfolio. We expect the growth in same property NOI and rent collection as economy is on the path of recovery. We have valued the stock using EV to EBITDA based relative valuation method and have arrived at a lower-double-digit upside (in percentage terms). For the said purposes, we have considered peers like Allied Properties Real Estate Investment Trust, Killam Apartment REIT etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 9.70 on April 28, 2021.

One-Year Price Chart (as on April 28, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.