TSX:IIP.UN - Post by User
Post by
retiredcfon Nov 11, 2022 8:48am
88 Views
Post# 35090904
TD
TD InterRent REIT
(IIP.UN-T) C$11.48
Strong Rental Growth Expected to Outweigh Inflationary Pressures
Event
Forecast update. For our initial thoughts on the quarter click here.
Impact: NEUTRAL
InterRent delivered an in-line quarter led by +12.4% SPNOI growth. SP margins increased 170bps to 66.4% with management expecting flat to modest improvements for 2023. Overall portfolio occupancy was +120bps y/y to 95.6% and post quarter is now through 96% with management noting the seasonally strong fall leasing season has been extended through the early part of November. Additionally, many international students faced delays in the visa process during the summer, and we expect this demand to come back this quarter as they return with the target being the January semester.
Operating costs remain challenging (SP operating costs +7.1% YTD) with inflationary pressures on wages and utilities. That said, we note that the REIT has ~50% of its natural gas demand hedged for the next 12 months at rates slightly below current which should temper 2023 cost growth. Our forecast has operating margins improving ~100bps in 2023 to 65.4%, which we note is still shy of pre- pandemic levels of 66%+.
Capital Allocation. We expect the pace of net acquisitions to slow considerably over the next few quarters and believe the REIT could potentially be a net seller as several assets remain earmarked for disposition, dependent upon pricing. The 473 Albert Street development is close to completion (H1/23 forecast) and we do not expect InterRent to break ground on any of the three projects in its development pipeline until at least H2/23. That said, with leverage (D/GBV) of 37.4% and ~$200mm of near term liquidity, the REIT's balance sheet is well-positioned to take advantage of any potential opportunities.
Forecast. Our estimates are largely unchanged with higher forecast NOI being offset by higher interest costs. Our $15.70 NAV/unit estimate is -5% owing to an 18bps bump in our estimated cap rate (3.9%).
TD Investment Conclusion
We believe InterRent is well-positioned to capture the growing demand in its core markets. We also continue to see significant earnings and NAV upside through the successful execution of its acquisition, repositioning, and development programs. We are reiterating our BUY recommendation and $14.50 target price.