TSX:IIP.UN - Post by User
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retiredcfon May 11, 2022 8:45am
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Post# 34673357
TD
TD InterRent REIT
(IIP.UN-T) C$12.57
Well-positioned Heading Into Strong Leasing Period
Event
Forecast update. For operating highlights, click here.
Impact: SLIGHTLY NEGATIVE
InterRent saw continued momentum in key operating metrics following the strong Q4/21 results, inclusive of +12.1% SPNOI growth and +120bps of SP margin expansion y/y. Occupancy held in nicely on a portfolio basis at 95.5% that was essentially flat q/q and remained near pre-pandemic levels despite the seasonally weaker leasing period (generally slips 50-100bps in Q1). We believe this positions the REIT well heading into the stronger summer/fall period, where we expect continued strength from the Toronto, Vancouver, and Other Ontario markets, and a more pronounced recovery in Ottawa and Montreal as the return of international students provides further upside to demand. The management continues to estimate a current mark-to-market of ~20% between in-place and market rents.
On the cost front, given the inflationary environment, the management pointed to higher operating costs going forward, but reiterated that it expects to protect margins through a combination of strong top-line growth and controllable cost management. For utility costs, the management believes that the elevated utility expense incurred in Q1/22 (+19.1% on an SP basis) has reached its peak, and pointed to the possibility of entering hedging programs to mitigate this risk later in the year. Overall, we are forecasting SPNOI growth of +7.4% in 2022 and +6.8% in 2023.
The management expects to remain active on the acquisition front, and noted no meaningful change in private market valuations given the increase in interest rates. We have lowered our 2022 forecast of unannounced acquisitions for the REIT to $100mm from $150mm.
Forecasts. Our 2022 AFFO/unit declines ~4%, while our 2023 AFFO/unit is ~9% lower largely on higher interest expense assumptions and modestly lower NOI (less assumed acquisitions). Our $17.20 NAV/unit is ~2% higher.
TD Investment Conclusion
We believe InterRent is well-positioned to accelerate earnings growth and push occupancy as it heads into the stronger Q2/22 and Q3/22 leasing periods. We also continue to see significant earnings and NAV upside through the successful execution of its acquisition, repositioning, and development programs. With a ~46% total return to our revised $18.00 target price (previously $20.00), we are reiterating our BUY recommendation.