Release Date: November 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- InterRent Real Estate Investment Trust (IIPZF, Financial) reported strong year-over-year increases in key operating numbers, leading to solid top-line growth.
- The company achieved a high occupancy rate of 96.4% in September, with 1,279 new leases signed during the quarter.
- Average monthly rent for the total portfolio increased by 7% year-over-year, with same property AMR growth of 5.6%.
- InterRent successfully reduced financing costs by 6.4% year-over-year, contributing to a 9.7% increase in FFO.
- The company maintains a strong balance sheet with a debt-to-gross book value ratio of 38.5% and significant available liquidity.
Negative Points
- The rental market is expected to experience more moderate growth due to changes in immigration policies, potentially impacting future revenue growth.
- InterRent recorded a fair value loss of $93.5 million on a proportionate basis due to cap rate adjustments in several regional markets.
- Operating expenses increased by 6.3% in the quarter, driven by higher marketing expenses and property tax increases.
- The company anticipates property tax increases of around 5% in 2025, which could impact future profitability.
- There is uncertainty regarding the impact of federal and provincial policy changes on student demand, particularly in Montreal.
Q & A Highlights
Q: With the recent immigration policy changes, what are your expectations for leasing spreads and revenue growth over the next 12 to 24 months?
A: Curt Millar, CFO: The immigration policy changes have introduced significant unpredictability. If the planned policy results in negative population growth, it would be unprecedented since World War II. This creates uncertainty in rental demand. However, InterRent has a strong operating platform, and we believe in the resilience of our portfolio. We are prepared to adapt to market conditions, focusing on quality and location to maintain our competitive edge.
Q: Can you provide more details on the Montreal acquisition, specifically regarding occupancy and potential rent growth?
A: Curt Millar, CFO: The Montreal acquisition is a strategic addition to our portfolio, located in a prime area. We expect yield expansion of 50 to 75 basis points over the going-in yield. The property benefits from a five-year rent control holiday, and we anticipate stabilizing the yield within 2.5 to 3 years, aiming for a yield north of 5%.
Q: Do you believe the mark-to-market gap remains close to 30% given current market rates?
A: Curt Millar, CFO: We are confident in the 27% mark-to-market gap. While rental rates have moderated, the gap remains healthy. Market rents would need to decrease significantly for this cushion to disappear.
Q: How do you view the potential for buybacks given the current trading discount to NAV?
A: Curt Millar, CFO: With the current trading discount, buybacks are an attractive option. However, our capital allocation decisions are contingent on our disposition program. We aim to remain disciplined, balancing buybacks with other opportunities like acquisitions and developments.
Q: What is your outlook for organic growth and repositioning opportunities in the current market environment?
A: Curt Millar, CFO: While we are cautious about predicting rent growth due to the unprecedented population decline, we remain confident in our portfolio's quality and location. We continue to see value in repositioning opportunities and will evaluate all investment options to maximize returns for our unit holders.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
