Mr. Brad Cutsey reports
INTERRENT REIT REPORTS 15% SAME PROPERTY NOI GROWTH AND ACCELERATED NOI MARGIN EXPANSION IN Q2 2023
InterRent Real Estate Investment Trust has released reported financial results for the second quarter ended June 30, 2023.
Operational and Financial Highlights:
Same Property and Total Portfolio occupancy for June 2023 were 95.4 per cent, an increase of 30 basis points compared to the same period last year.
Average Monthly Rent ("AMR") of $1,531 for the Total Portfolio and $1,523 for the same property portfolio, an increase of 6.8 per cent and 6.5 per cent year-over-year ("YoY") respectively.
Same Property Net Operating Income ("NOI") for Q2 was $38.3 million, an increase of $5.0 million or 15.0 per cent YoY.
Total Portfolio NOI was $39.1 million, an increase of $5.6 million, or 16.8 per cent YoY.
NOI margin for the Same Property Portfolio and Total Portfolio were 66.3 per cent, reflecting increases of 300 bps YoY.
Funds from Operations ("FFO") of $19.6 million, a 3.7 per cent increase from Q2 2022. FFO per unit (diluted) of $0.134, an increase of 2.3 per cent YoY.
Adjusted Funds from Operations ("AFFO") of $16.9 million, an increase of 3.8 per cent YoY, and AFFO per unit (diluted) of $0.116, an increase of 2.7 per cent YoY.
Strong financial position with $282 million of available liquidity with Debt-to-Gross Book Value ("GBV") of 37.7 per cent.
Committed to sell a 54-suite property in Ottawa, Ontario for a sale price of $11.5 million, exceeding IFRS value.
Purchased 26,300 units under the Normal Course Issuer Bid ("NCIB"), and subsequent to the quarter, purchased 130,900 units under an Automatic Unit Purchase Plan ("AUPP"), representing a total of 157,200 units at a weighted average per-unit price of $12.71.
Brad Cutsey, President and CEO of InterRent REIT, commented on the results:
"We're pleased to report on another solid quarter marked by back-to-back double-digit NOI growth and sustained expansion of NOI margins. AMR growth remained steady across our core markets, benefitting from the robust industry fundamentals that are showing no signs of slowing down. Our capital recycling program is now in motion, as we are committed to sell a non-strategic property at a price higher than its IFRS value. We continue to explore capital recycling opportunities and have identified various assets that could potentially provide net proceeds of over $75 million. While the completion of such transactions is subject to various factors and cannot be assured, we are confident that our well-defined disposition strategy will strengthen our balance sheet, help fund further growth opportunities, and allow us to continue to be active in our NCIB."
(1) Represents 12,041 (2022 - 11,965) suites fully owned by the REIT, 1,214 (2022 - 1,214) suites owned 50 per cent by the REIT, and 605 (2022 - nil) suites owned 10 per cent by the REIT.
Disciplined portfolio growth underpinned by industry fundamentals
As of June 30, 2023, InterRent had proportionate ownership in 12,709 suites, up 1.1 per cent from 12,573 as of June 2022. Including properties that the REIT owns in its joint ventures, InterRent owned or managed 13,860 suites at June 30, 2023. At 95.4 per cent, the June 2023 occupancy rate in InterRent's same property and total portfolios improved 30 bps over June 2022. Total portfolio occupancy is 140 bps lower than March 2023, and same property occupancy is 150 bps lower, this is due to seasonal fluctuations and is in line with the long-term average for June. AMR growth across the total portfolio was 6.8 per cent for June 2023 as compared to June 2022, while same property AMR increased by an impressive 6.5 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 11.6 per cent over Q2 2022. Within the same property portfolio, these same factors have grown operating revenues by 9.7 per cent compared to Q2 2022. NOI margin expansion for the overall portfolio and same property portfolio both accelerated to 300 basis points, reaching 66.3 per cent during the quarter.
Strong debt profile, focused on optimizing mortgages
Financing costs in Q2 2023 came in at $15.0 million, compared to $10.4 million in Q2 last year, reflecting the impact from the Bank of Canada's interest rate increases between March of 2022 and June of 2023.
Weighted average cost of mortgage debt increased marginally from March 2023 to 3.43 per cent, and variable rate exposure ended the quarter at 5 per cent, a marginal increase from 4 per cent at the prior quarter but decreased substantially from the same period last year at 14 per cent. The REIT has continued to actively manage its mortgage ladder, with its share of CMHC insured mortgages at 83 per cent, consistent with March 2023.
Debt-to-GBV was at 37.7 per cent, an increase of 40 basis points year over year and a decrease of 30 basis points when compared to March. With a conservative debt-to-GBV and $282 million of available liquidity, the REIT has significant financial flexibility for future capital programs, development opportunities and acquisitions.
Net income affected by fair value adjustments
Net income for the quarter was $36.8 million, a decrease of $40.8 million compared to Q2 2022. This decrease was primarily due to a $20.4 million difference in fair value adjustments of investment properties (moving from a $27.8 million gain to a $7.4 million gain). These fair value adjustments reflect an expansion of capitalization rates during the year. The REIT's weighted average capitalization rate used across the portfolio at the end of Q2 2023 was 4.07 per cent, an expansion of 3 basis points from Q1 2023, driven by greater cap rate increase in the suburban Other Ontario region.
The decrease in net income during Q2 2023 is also attributable to a $21.1 million drop in unrealized gain on financial liabilities (a $10.1 million gain compared to a $31.2 million gain during the same period last year).
FFO increased 3.7 per cent from last year to $19.6 million and on a per unit basis increased 2.3 per cent to $0.134. AFFO during the quarter increased 3.8 per cent to $16.9 million, and on a per unit basis increased 2.7 per cent on a per unit basis to $0.116.
Momentum at the Slayte remains strong
The Slayte development in Ottawa, the REIT's first office conversion project, has reached the final stages of its interior construction. Located near LRT lines and steps to the Parliament, the building has captured considerable attention. The lease rate has surpassed 60 per cent and the REIT is optimistic that the leasing momentum will continue throughout the rest of the leasing season.
Management will host a webcast and conference call to discuss these results and current business initiatives on Wednesday, August 2, 2023 at 10:00 AM EST. The webcast will be accessible at: https://www.interrentreit.com/2023-q2-results.
A replay will be available for 7 days after the webcast at the same link. The telephone numbers for the conference call are 1-888-396-8049 (toll free) and 416-764-8646 (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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