Mr. Brad Cutsey reports
INTERRENT REIT ACHIEVES SAME PROPERTY NOI GROWTH OF 12.4% LEADING TO 11TH CONSECUTIVE YEAR OF DISTRIBUTION INCREASES
InterRent Real Estate Investment Trust has released financial results for the third quarter ended Sept. 30, 2022.
InterRent REIT executes on operating platform to achieve 12.4-per-cent same-property NOI (net operating income) growth in Q3 2022:
Same property occupancy of 95.9 per cent in September, 2022, an increase of 100 bps (basis points) compared with September, 2021, paired with a reduction in rebates led to a 35-per-cent decrease of vacancy and rebates year-over-year, helping to drive operating revenues up $4.2-million (or 9.5 per cent) over Q3 2021;
Same property NOI of $31.8-million, 12.4-per-cent growth over Q3 2022, resulting in an NOI margin of 66.4 per cent, up 170 bps over Q3 2021;
Refinancing activity in the quarter reduces variable interest rate exposure to 6 per cent from 14 per cent at Q2 2022, and increases share of CMHC (Canada Mortgage and Housing Corp.)-insured mortgages to 74 per cent;
FFO (funds from operations) of $20.3-million (14 cents per unit -- diluted) in Q3 2022; growth of 5.3 per cent overall and 3.7 per cent on a per-unit basis compared with Q3 2021;
The REIT shows positive momentum on ESG (environmental, social and governance) commitments with 10-per-cent increase in 2022 GRESB (global real estate sustainability benchmark) score compared with 2021;
Board of trustees has approved a 5.3-per-cent increase to the distribution, from 34.2 cents per unit to 36 cents per unit, marking the 11th consecutive year that the REIT has grown its distribution by 5 per cent or more.
Occupancy gains result in strong operating revenue growth to help offset higher expense base:
As of Sept. 30, 2022, InterRent had 100-per-cent ownership in 12,573 suites, up 5.7 per cent from 11,897 as of Q3 2021. Including properties that the REIT owns in its joint operations, InterRent owned or managed 13,180 suites as of Sept. 30, 2022. At 95.6 per cent, the September, 2022, occupancy rate in InterRent's portfolio improved 120 bps over September, 2021 (94.4 per cent), and 50 bps over June, 2022 (95.1 per cent).
Within the same property portfolio, September, 2022, occupancy increased 30 bps relative from June, 2022 (95.6 per cent), largely driven by a 390 bps improvement in the national capital region. The Greater Montreal Area continued to show relative softness throughout Q3 but is showing strong demand postquarter, which should support an improved figure in Q4.
Total portfolio operating revenues in Q3 2022 were up plus 17 per cent over Q3 2021 following a strong year of external growth in 2021. Narrowing to the same property portfolio, operating revenues grew 9.5 per cent in Q3 2022 to $47.8-million, driven by improvements to occupancy (plus 100 bps) and average rent per suite (plus 6.1 per cent). Though the current inflationary environment is impacting every aspect of the company, year-to-date 2022, the REIT has been able to reduce operating expenses by 80 bps versus 2021 as a percentage of operating revenues for both overall and same property portfolios. Off the back of strong operating revenue growth, total and same property portfolios both saw substantial NOI margin growth of 200 bps and 170 bps, respectively, relative to Q3 2021, and year-over-year NOI growth of 20.7 per cent and 12.4 per cent, respectively, in the quarter.
Financing costs in Q3 2022 came in at $12.5-million, reflecting both a higher mortgage base and a higher rate environment relative to Q3 2021 ($7.8-million). During the quarter, the trust renewed five mortgages totalling $141.5-million, closed on four up-financings totalling gross proceeds of $35.5-million (maturing loans totalled $8.2-million), assumed one $600,000 mortgage as part of an acquisition of an additional economic stake in an existing property and repaid a $5.7-million mortgage. As a result, the REIT maintained its average term to maturity compared with June 30, 2022, of approximately 4.8 years, increased the share of mortgage debt backed by CMHC insurance to 74 per cent at the end of Q3 2022 and decreased its variable-rate exposure from 14 per cent at the end of Q2 2022 to 6 per cent at the end of Q3 2022. These financing activities saw the weighted-average-cost of mortgage debt increase to 3.08 per cent, nine basis points higher than the company's July 31 ending balance presented during the company's second quarter investor call presentation. Subsequent to the quarter, the REIT has continued to work through its remaining 2022 mortgage maturities with only $64.8-million of 2022 maturities remaining, of which $30-million is already committed for CMHC funding later in November, for which the REIT has already entered forward rate locks.
Net income for Q3 2022 was $32.7-million, a decrease of $71.8-million compared with Q3 2021. This difference was due primarily to a modest fair-value gain on investment properties of $5.7-million in Q3 2022 versus $85.5-million in Q3 2021. The Q3 2022 fair-value gain is fully attributable to NOI improvements which acted as a counterbalance to the 14 bps increase in the capitalization rate versus Q2 2022. Also contributing to the net income change was other fair-value gains of $6.9-million in Q3 2022 versus a small gain in Q3 2021. This was driven by the revaluation of rate swaps and forward rate locks against a rising rate environment, and the revaluation of Class B and unit-based compensation liabilities due to movement in the REIT's unit price.
At $20.3-million (14 cents per unit -- diluted), FFO increased by 5.3 per cent compared with Q3 2021 ($19.3-million or 13.5 cents per unit -- diluted), resulting in 3.7-per-cent growth on a per-unit basis. Adjusted FFO (AFFO) grew from $17.3-million (12 cents per unit -- diluted) in Q3 2021 to $17.8-million (12.3 cents per unit -- diluted) in Q3 2022, representing 3.3-per-cent and 2.5-per-cent growth on an absolute and per-unit basis, respectively.
GRESB score improvement demonstrates continuing commitment to sustainability
The REIT participated in the GRSEB real estate assessment and is pleased to report a 10-per-cent increase in its 2022 GRESB score compared with 2021. The REIT maintained its green star rating, signaling continued strong ESG performance across the company. Gains were seen across the REIT, and management has already identified target improvement areas to keep the positive momentum going for the 2023 submission. Management encourages all stakeholders to join the sustainability conversation.
Eleven consecutive years of distribution increases of 5 per cent or more
With the REIT's portfolio continuing to demonstrate strong, sustainable results, the board of trustees has approved a 5.3-per-cent increase in the monthly distribution. This is the 11th consecutive year that the REIT has grown its distribution by 5 per cent or more. The increase is effective for the November, 2022, distribution to be paid in December, 2022, and increases the annualized distribution to 36 cents per unit from 34.2 cents per unit.
Commenting on the results published today, Brad Cutsey, president and chief executive officer of InterRent, said: "I am very proud of our team and the effort that has been put forth by everyone all year to get us to the point. We know we still have more to do and we can always improve, however I believe these results are a big step forward on the occupancy front, they demonstrate our commitment to controlling costs, and highlight the continued strong demand for safe and secure housing.
Although we continue to navigate short-term challenges of inflation and interest rate volatility, we remain steadfast in our mission to create communities where people are proud to call home."
Management will host a webcast and conference call to discuss these results and current business initiatives on Thursday, Nov. 10, 2022, at 10 a.m. ET. The webcast will be accessible at the company's website.
A replay will be available for seven days after the webcast at the company's website. The telephone numbers for the conference call are 1-888-886-7786 (toll-free) and 416-764-8658 (international). No access code is required.
Real Estate Investment Trust
InterRent REIT is a growth-oriented real estate investment trust engaged in increasing unitholder value, and creating a growing and sustainable distribution through the acquisition and ownership of multiresidential properties.
InterRent's strategy is to expand its portfolio primarily within markets that have exhibited stable market vacancies, sufficient suites available to attain the critical mass necessary to implement an efficient portfolio management structure, and offer opportunities for accretive acquisitions.
InterRent's primary objectives are to use the proven industry experience of the trustees, management and operational team to: (i) grow both funds from operations per unit and net asset value per unit through investments in a diversified portfolio of multiresidential properties; (ii) provide unitholders with sustainable and growing cash distributions, payable monthly; and (iii) maintain a conservative payout ratio and balance sheet.
We seek Safe Harbor.
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