Mr. Brad Cutsey reports
INTERRENT REIT'S OPERATIONAL SUCCESS DRIVES STRONG NOI GROWTH
InterRent Real Estate Investment Trust has released financial results for the fourth quarter and the year ended Dec. 31, 2022.
Occupancy gains and strong AMR (average monthly rent) growth results in robust operating performance:
Total portfolio occupancy improvement of 120 basis points resulted in an occupancy rate of 96.8 per cent for December, 2022, as compared with 95.6 per cent for both December, 2021, and September, 2022.
Same-property occupancy improvement of 110 basis points over September, 2022, and 80 basis points over December, 2021, resulted in an occupancy rate of 97.0 per cent for December, 2022.
Strong leasing activity led to continued reduction in both vacancy and lease incentives (rebates). Vacancy and rebates for Q4 2022 improved by $1.3-million compared with Q4 2021 and improved by $4.8-million for the year compared with 2021.
Demand driven by the return of foreign students and real net new immigration results in AMR growth of 7.1 per cent for the total portfolio and 6.0 per cent for the same-property portfolio for December, 2022, as compared with December, 2021.
Same-property NOI (net operating income) of $31.6-million for the quarter represents an increase of 8.4 per cent compared with Q4 2021 and NOI of $122-million for the year ended December, 2022, represents an increase of 10.4 per cent growth over 2021.
Refinancing activity reduced the variable interest rate exposure to below 5 per cent as at Dec. 31, 2022, from 20 per cent one year ago and increased share of CMHC-insured (Canada Mortgage and Housing Corp.) mortgages to 82 per cent from 63 per cent over the same period. Refinancing activity increased the weighted average interest rate by 84 basis points from 2.38 per cent (December, 2021) to 3.22 per cent (December, 2022).
FFO (funds from operation) of $18.7-million (12.9 cents per unit -- diluted) in Q4 2022 is down 4.6 per cent over all and 5.8 per cent on a per-unit basis compared with Q4 2021. FFO of $76.9-million (53.2 cents per unit -- diluted) for the year is up 5.6 per cent over all and 4.3 per cent on a per-unit basis compared with 2021.
Industry-leading NOI growth is offset by higher financing costs
As of Dec. 31, 2022, InterRent had 100 per cent ownership in 12,610 suites, up 1.5 per cent from 12,426 as of December, 2021. Including properties that the REIT owns in its joint operations, InterRent owned or managed 13,217 suites as of Dec. 31, 2022. At 96.8 per cent, the December, 2022, occupancy rate in InterRent's portfolio improved 120 basis points over December, 2021, and September, 2022, both at 95.6 per cent. Within the same property portfolio, December, 2022, occupancy was 97.0 per cent, an increase of 110 basis points and 80 basis points relative to September, 2022, (95.9 per cent) and December, 2021, (96.2 per cent). The Greater Montreal Area (GMA) portfolio saw significant improvement in Q4 with occupancy improving by 630 basis points over Q3 2022. The strong demand in both the GMA and National Capital Region (NCR) portfolios improved occupancy in both regions by 210 basis points by Dec. 31, 2022, over Dec. 31, 2021. AMR growth across the total portfolio was 7.1 per cent for December, 2022, as compared with December, 2021, while same property AMR increased by an impressive 6.0 per cent for the same period.
With occupancy returning back to pre-pandemic levels and leasing demand driving AMR growth, total portfolio operating revenues in Q4 2022 grew by 13.1 per cent over Q4 2021 and 16.9 per cent for the year compared with 2021. Within the same property portfolio, operating revenues grew by 8.7 per cent in Q4 2021 and by 9.4 per cent for the year as compared with 2021. While continued inflationary pressures were seen on operating expenses both in the quarter and for the year, the improvement in occupancy, reduction in leasing incentives and AMR growth still lead to positive NOI margin expansion. NOI margin for the overall portfolio was 64.6 per cent for the quarter and 64.3 per cent for the year and 64.1 per cent and 64.3 per cent for the same store portfolio for the same periods.
Over the course of the year, the REIT increased its average term to maturity to 5.2 years, as compared with 3.6 years, and increased the share of CMHC insured mortgages to 82 per cent from 63 per cent for December, 2022, over December, 2021. The REIT also decreased its variable rate exposure to below 5 per cent at the end of 2022 from 20 per cent at the end of 2021. Financing activities over the year resulted in the weighted average cost of mortgage debt increasing to 3.22 per cent, or 84 basis points from , from the 2.38 per cent in December, 2021. Financing costs in Q4 2022 came in at $13.9 million relative to $8.5 million in Q4 2021, reflecting both a higher mortgage base ($1.65 billion at the end of 2022 vs $1.37 billion at the end of 2021) and a higher rate environment. For the year, financing costs increased to $46.4 million, or by $15.7 million over 2021.
Income before other income and expenses was relatively inline quarter over quarter and year over year however net income for 2022 decreased by $265.7 million to $104.0 million compared with 2021. This difference was due primarily to two factors: the fair value loss on investment properties of $8.3 million in 2022, as compared with a fair value gain of $327.2 million in 2021; and, the unrealized gain of $36.5 million on financial liabilities in 2022 versus the unrealized loss on financial liabilities of $29.2 million in 2021. The change in fair values results mostly from a capitalization rate expansion of 18 basis points since the beginning of 2022 while the change in unrealized gain/(loss) on financial liabilities is as a result of the revaluation of financial instruments, the Class B unit liabilities, and unit-based compensation liabilities due to movement in the REIT's unit price.
FFO for the 12 months ended Dec. 31, 2022, grew by 4.3 per cent to $0.532 per unit (diluted) compared with 2021. For the Quarter, FFO decreased by 5.8 per cent to $0.129 per unit (diluted) compared with Q4 2021. Similarly, AFFO for the 12 months ended Dec. 31, 2022, grew 2.4 per cent to $0.466 per unit (diluted) compared with 2021 while AFFO for the quarter decreased 9.8 per cent to $0.110 per unit (diluted) compared with Q4 2021.
On the sustainability front, the REIT continued to make progress on several initiatives including voluntarily disclosing climate-related initiatives and performance through the CDP's climate questionnaire and establishing science-based GHG emission reduction targets. We look forward to sharing our 2022 progress as well as our commitments for the future with you as part of our 2022 Sustainability Report later this spring.
Commenting on the results published today, Brad Cutsey, President & CEO of InterRent, said: "2022 was a year of nearly unprecedented volatility. From persistent COVID concerns to one of the steepest interest rate increases on record, the year presented no shortage of challenges. However, by focusing on our strategy, we were able to adapt despite the continued changes around us. We're proud of our accomplishments in a difficult 2022 climate, and we look to the future with renewed focus on finding tangible ways to deliver value to all our stakeholders."
Management will host a webcast and conference call to discuss these results and current business initiatives on Thursday, March 7, 2023 at 10:00 AM EST. The webcast will be accessible at: https://www.interrentreit.com/2022-q4-results.
A replay will be available for 7 days after the webcast at the same link. The telephone numbers for the conference call are 1-888-886-7786 (toll free) and 416-764-8658 (international). No access code required.
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 multi-residential 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 multi-residential 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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