Canaccord Upgrade The recent underperformance by InterRent Real Estate Investment Trust “presents a more attractive entry point,” according to Canaccord Genuity analyst Mark Rothschild.
That led him to raise his recommendation for the Ottawa-based REIT to “buy” from “hold” on Wednesday.
“Over the past two months, the REIT’s units have generated a total return of negative 9.2 per cent, compared to the return of, on average, 1.5 per cent for its Canadian residential REIT peers,” he said. “In particular, both CAP REIT and Boardwalk REIT have posted positive returns over this period.”
Before the bell on Tuesday, InterRent reported first-quarter results that largely fell in line with Mr. Rothschild’s expectations. Adjusted funds from operations of 11.3 cents was a decline of 5.8 per cent year-over-year but narrowly higher than the analyst’s 11.1-cent projection.
“InterRent REIT reported robust operating results in Q1/23, as higher rental rates and improvements in occupancy drove internal growth of 11.4 per cent,” he said. “However, cash flow growth in the quarter was offset by higher interest costs, given an increase in the REIT’s weighted average interest rate and a modest uptick in leverage. Going forward, we expect the impact of further increases in interest rates to be relatively muted, as the REIT’s outstanding debt is almost entirely secured at fixed rates, driving our outlook for solid cash flow growth, largely from marking in-place leases to market on turnover.
“Following Q1/23 results, we continue to utilize a cap rate of 4.55 per cent to value the REIT’s portfolio and our NAV estimate is essentially unchanged at $14.96, from $14.95.”
Mr. Rothschild maintained a target of $15.75 per unit. The average on the Street is $15.44.