Mr. Brad Cutsey reports
INTERRENT REIT REPORTS Q1 2023 SAME PROPERTY NOI GROWTH OF 11.4%, THIRD CONSECUTIVE QUARTER WITH DOUBLE DIGIT GROWTH
InterRent Real Estate Investment Trust has released its financial results for the first quarter ended March 31, 2023.
AMR (average monthly rent) growth and occupancy gains drive robust NOI (net operating income) margin expansion of 90 bps (basis points) over Q1 2022:
Same-property occupancy for March, 2023, was 96.9 per cent, an increase of 140 basis points when compared with March, 2022, in line with December, 2022, helped drive same-property NOI for the quarter to $35.8-million, an increase of $3.7-million, or 11.4 per cent, over Q1 2022.
Total occupancy for March, 2023, was 96.8 per cent, an increase of 130 basis points when compared with March, 2022, which helped push proportionate NOI for the quarter to $36.3-million, an increase of $4.2-million, or 12.9 per cent, over Q1 2022.
Total portfolio and same-property NOI margin of 62.9 per cent for the quarter is a 90 bps expansion over Q1 2022.
Strong demand continued through the quarter, resulting in average monthly rent (AMR) growth in March, 2023, of 7.1 per cent for the total portfolio and 6.7 per cent for the same-property portfolio, as compared with March, 2022.
Funds from operations (FFO) of $18.9-million (13 cents per unit -- diluted) in Q1 2023 is down 0.8 per cent over all and 2.3 per cent on a per-unit basis compared with Q1 2022, as a result of interest rate increases through 2022 and into the first quarter of 2023.
Reported on 2022 sustainability objectives and goals with the concurrent release of the third annual InterRent sustainability report, sharing the progress made as the REIT continues to execute on its sustainability strategy.
Strong revenue and NOI growth helps offset new norm of higher financing costs
As of March 31, 2023, InterRent had proportionate ownership in 12,689 suites, up 2 per cent from 12,445 as of March, 2022. Including properties that the REIT owns in its joint ventures, InterRent owned or managed 13,840 suites at March 31, 2023. At 96.8 per cent, the March, 2023, occupancy rate in InterRent's portfolio improved 130 bps over March, 2022, and is flat from December, 2022. Within the same-property portfolio, March, 2023, occupancy was 96.9 per cent, an increase of 140 bps from March, 2022, and a 10 bps decrease from December, 2022. AMR growth across the total portfolio was 7.1 per cent for March, 2023, as compared with March, 2022, while same-property AMR increased by an impressive 6.7 per cent for the same period.
With record setting immigration in 2022 and continuing ambitious federal targets for 2023, strong leasing demand continues to drive AMR growth and strong occupancy numbers, resulting in total portfolio operating revenue growth of 11.3 per cent over Q1 2022. Within the same-property portfolio, these same factors have grown operating revenues by 9.8 per cent compared with Q1 2022. NOI margin for the overall and same-property portfolios were 62.9 per cent for the quarter, a 90 bps expansion over the same period last year.
In the quarter, the REIT increased its share of CMHC (Canada Mortgage and Housing Corp.)-insured mortgages to 83 per cent, from 82 per cent at December, 2022, and 71 per cent at March, 2022, providing added protection against any liquidity risks in the market. The average term to maturity for the mortgages sits at 5.1 years, a marginal decrease from 5.2 years at December, 2022, and up from 4.5 years at March, 2022. Despite a large rate swap maturing during the quarter, the REIT's variable rate exposure ended the quarter at 4 per cent, a decrease from the 16 per cent exposure at the end of Q1 2022. Financing activities during the quarter and changes to variable rates have resulted in the weighted average cost of mortgage debt increasing to 3.38 per cent (plus-16 bps from December, 2022). Financing costs in Q1 2023 were consistent with Q4 2022 and came in at $13.9-million relative to $9.7-million in Q1 2022. The REIT has the majority of its remaining 2023 maturing mortgages at various stages of the review/approval process with CMHC. With the changes CMHC recently announced to its insurance programs (including MLI Select), the pro-active management of renewals and up-financings will minimize the impact of the change in premiums for 2023.
Net income for the quarter was $82.8-million, a decrease of $11.9-million compared with Q1 2022. This difference was due primarily to a $16-million difference in the unrealized gain/(loss) on the revaluation of financial liabilities (moving from a $10-million gain to a $6-million loss) and a $4.2-million increase in financing costs, offset by the increase in NOI and a $4.3-million increase in fair value gain on investment properties.
As a result of seasonality, FFO and AFFO (adjusted funds from operations) typically decrease from Q4 to Q1, but both are up from 12.9 cents and 11 cents per unit (diluted) recorded for Q4 2022. FFO on a per unit (diluted) basis for the three months ended March 31, 2023, shrunk by 2.3 per cent to 13 cents per unit (diluted) compared with Q1 2022. Similarly, AFFO for the three months ended March 31, 2023, decreased by 5.8 per cent to 11.3 cents per unit (diluted) compared with 2022.
The Slayte development in Ottawa, the REIT's first office conversion project, is nearing completion with occupancy quickly approaching the 50-per-cent mark despite lease-up having mainly occurred during the weaker winter rental months. There continues to be strong momentum postquarter, and demand is anticipated to continue and strengthen during the summer months. Takeout financing is under way with CMHC under its MLI Select program, where the community achieved the highest level in the program by scoring on all three criteria: energy efficiency, accessibility and affordability.
Two thousand twenty-two sustainability report highlights the REIT's significant progress
InterRent is concurrently publishing its 2022 sustainability report alongside its Q1 2023 results. The intent with this report is to provide a status update on the social and environment goals initially established in its inaugural 2020 report and subsequent updates in its 2021 report. The report is available for download in the sustainability section of InterRent's website.
Commenting on the results published today, Brad Cutsey, president and chief executive officer of InterRent, said: "We are pleased to have returned to double-digit same-property NOI growth during the quarter, with our core markets stronger than ever. The Slayte is off to a promising start, already reaching 50-per-cent occupancy and with the strong summer leasing months yet to come.
"Despite facing headwinds from higher financing costs, we have taken incremental steps to improve the resiliency of our debt portfolio. We are pleased to see further signs of market improvement with the Bank of Canada pausing rate hikes, and a modest pick-up in transaction activity.
"We are also delighted to have published our third annual sustainability report, which highlights the significant progress we've made toward our goals. We will continue to enhance and execute on our sustainability strategy that will not only benefit our communities and the environment, but also drive returns for our stakeholders."
Management will host a webcast and conference call to discuss these results and current business initiatives on Tuesday, May 9, 2023, 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 same link. The telephone numbers for the conference call are 1-888-886-7786 (toll-free) and 416-764-8687 (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.
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