InterRent Real Estate Investment Trust T.IIP.UN

Alternate Symbol(s): IIPZF

InterRent Real Estate Investment Trust is a real estate investment trust. It is engaged in acquisition, ownership, management and repositioning of strategically located, income-producing, multi-residential properties. Its primary objectives are to grow both funds from operations per Unit and net asset value per Unit through investments in a diversified portfolio of multi-residential properties; to provide Unitholders with sustainable and growing cash distributions, payable monthly, and to maintain a conservative payout ratio and balance sheet. The Company's portfolio of properties is located across various locations, such as Ajax, Brossard, Gatineau, Hamilton, Mississauga, Montreal, Oakville, Ottawa, St. Catharines, Stratford, Toronto, Trenton, and Vancouver. Its properties include 10 - 14 REID DRIVE, 100 MAIN STREET, 1015 ORCHARD, 1170 FENNELL AVENUE, 1276 DORCHESTER AVENUE, and 15 DON STREET. It also owns a 605-suite apartment community at 2 & 4 Hanover Road in Brampton, Ontario.

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InterRent Real Estate Investment Trust

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Post by incomedreamer11on Oct 10, 2024 9:15am

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Near-Term Apartment REIT Outperformance Looks More Uncertain

OUR TAKE: Mixed. Yesterday’s Rentals.ca September Rental data showed an est. 0.2% 2-BR asking rent erosion (i.e., September vs. August) vs. +0.7% in August vs. July (Exhibit 2); 1BR was +0.2% though (Exhibit 3). While the validity of the monthly data is strongly debated, a broadening of peak asking rents seems to be surfacing with Ottawa & GTA West joining in September.

We estimate KMP markets saw avg. 0.7% m/m asking rent growth (due to smaller non-Halifax Atlantic markets), with BEI at +0.4% and IIP, CAR, MI all down 0.6%-0.7% (Exhibit 1)

Net-net, building on the more cautious take in our August Rentals.ca report, we believe further Apartment REIT outperformance (barring hard landing) will be challenged in the next ~3 months on a possible deepening in breadth of markets with falling asking rents heading into a seasonally slower leasing period (investors seem more interested in asking rents than strong blended rent growth; Exhibit 1) and increased headline risk (Federal immigration policies heading into an Election; Exhibits 8-9). For those with shorter investment horizons convinced of a soft (or no) landing scenario, we think reallocating some multi-family weight into Seniors Housing, Office, and select Retail makes sense.

KEY POINTS

Only market with higher 2-BR asking rents = Edmonton and Quebec City (Exhibits 2-5). Vancouver still has the most pressure (-4% vs. August), presumably due to arguably the highest rent-to-income ratios in Canada (i.e., affordability). GTA West and Ottawa 2-BR turned negative for the 1st time since June, respectively, while asking rent erosion decelerated in Toronto, Calgary, and Montreal (unfortunately, we do not believe “less bad” is “good” at this stage in terms of the “2nd derivative”). It was interesting to us that 1-BR rents actually modestly outperformed 2-BR asking rents at the National level, primarily due to Edmonton and Vancouver.

We think the foreign student effect is overblown for IIP in particular, but the narrative remains tough to battle. Exposure to foreign students took up a lot of oxygen at our September Meet the REITs Conference (especially for IIP) given some of the extreme press headlines (re: magnitude of erosion). Exhibit 4 attempts 3 points. First, we believe demand erosion has been less significant than portrayed (national July YTD permits down ~5% y/y). Second, we believe REIT direct exposure to foreign students is a negligible 1%-3%, aside from IIP at our est. 6%-7%. Third, and sticking to IIP, we estimate the y/y change in its markets is comparable to National average, as no exposure to Halifax (down 27% y/y) and Alberta (+25% y/y) offset.