Steady As She Goes Our Conclusion
IIP reported an as-expected and operationally strong in-line quarter, reflecting
a strong leasing environment driving increased occupancy and healthy rental
gains, which drove another quarter of margin growth. While we do anticipate
that portfolio turnover (a key driver of growth) is likely to decline for all
apartment owners going forward, we’d be remiss not to acknowledge the over
20% increase in rents the REIT has achieved on re-let suites as a key driver of
growth going forward. A chronic undersupply of affordable housing, coupled
with rapidly increasing home ownership costs, continues to expand the
propensity, and indeed duration, to rent, a tailwind afforded to all of the
apartment operators.
While we recognize that IIP units are trading below their historical average
valuation, the units do trade at a deserved premium to the peers. We maintain
our NAV at $15.00 and our NAV-parity price target.
Key Points
Earnings Results: IIP reported diluted FFO per unit of $0.14, in line with
consensus. Same property proportionate NOI increased ~11.7% Y/Y, driven
by a 230 bps increase in SPNOI margins and a 10 bps increase in SP
occupancy to 96.8%.
Disposition Activity: During the quarter, IIP disposed of five non-core
properties located in Quebec, totalling 224 suites, for ~$46MM or $250k per
suite. Additionally, the REIT has committed to sell four additional properties
and one vacant parcel of land (all located within Quebec) for a sale price of
$92MM, or $185k per suite. The sale is expected to close in Q2/24 and
proceeds from the sale may be used to fund the REIT’s capital requirements,
pay down debt or repurchase units.
Balance Sheet: The REIT reported D/GBV at 37.5%, a decrease of 50 bps
Y/Y, and total liquidity of ~$230MM at quarter-end (as measured by cash and
available facilities). During the quarter, the REIT successfully up-financed four
CMHC mortgages for gross proceeds of ~$84MM, converted 16 conventional
mortgages to CMHC mortgages for gross proceeds of ~$110MM, and repaid
three mortgages for a total of ~$25MM. The net result is an increase in the
overall term to maturity to 5.1 years (previously 4.7), a decrease in the
weighted-average cost of mortgage debt to 3.37% (previously 3.5%), and an
increase in CMHC-backed mortgage debt from 83% to 90%.
Debt And The Rate Environment: As the interest rate environment continues
to stabilize, we are presented with a more normalized view of what to expect in
terms of debt rolls. InterRent’s current weighted-average interest rate of 3.37%
compares to current CMHC financing in the mid- to high-4% range. IIP has
~$107MM of mortgage debt maturing in 2024 at a 5.2% weighted-average
interest rate that will, all else equal, provide a tailwind going into 2025.