QUICK TAKE: EARNINGS UPDATE
Q3/24: RESULTS IN-LINE; ANNOUNCES $107MM MONTREAL ACQUISITION (50/50 JV)
THE TD COWEN INSIGHT
InterRent delivered an in-line quarter that matched our estimate/consensus. Operating metrics were strong, with +5.6% AMR growth leading to +8.7% SPNOI. Y/Y occupancy improved 120bps to 96.4% (middle of IIP's 96%-97% target range) which we believe should alleviate some investor concerns over the impact of the reduction in foreign students.
Impact: NEUTRAL
Q3/24 Results: FFO/unit of $0.159 was +9% y/y, and largely in line with our estimate/
consensus. AFFO/unit of $0.135 was also largely in line versus our estimate (see Figure 1 on page 2).
With Q3 results InterRent also announced a 5% distribution increase to $0.3969/unit annualized (in line with our forecast).
Operational Highlights
Q3/24 SPNOI growth was +8.7%, moderating slightly vs +9.7% in Q2/24. SP AMR growth was +5.6% (to $1,686), while SP occupancy moved to 96.4% (+20bps q/q and +120bps y/ y). SP expenses were +6.3% y/y (higher opex and property taxes, which we believe could partially be timing related as YTD expenses were a more reasonable +3.6%), leading to a +40bps y/y SP operating margin gain to 68.2%. Achieved 11.4% average gain-on-lease on 1,279 leases during Q3/24. Management estimated the mark-to-market on the portfolio at 27% (previously 30%) but did note that “growth in market rent has moderated from last year's peak.”
Developments
Target completion dates were unchanged at the REIT's development projects with 360 Laurier being the only one “in the ground” and expected to be delivered in Q3/25.
Acquisitions (see Figure 2 on page 3)
Post Q3, InterRent closed on a 50/50 JV acquisition (partner not disclosed) for a newly- constructed 248-suite apartment in downtown Montreal (170 Rene-Levesque Boulevard East) for $107mm or $431k/door (pricing below replacement cost). The apartment includes ~7,000sf of commercial space on the ground floor and is currently leased to a financial institution and established national retail brand.
Balance Sheet
Leverage was 38.5%, +70bps versus Q2. The REIT was active on its NCIB, acquiring ~405k shares for $5.0mm (avg. price $12.33). At current levels we expect InterRent to continue utilizing its NCIB. The REIT recorded a $93.5mm fair value loss in Q3/24 (cap rate +9bps q/q at 4.34%).
Conference call Nov 5 at 10:00 AM (1-800-717-1738;