InterRent REIT's May 2025 Distribution: A Beacon of Stability in a Shifting Housing Landscape?

Investors in residential real estate investment trusts (REITs) are navigating a precarious balancing act in 2025: sustaining dividend payouts amid rising borrowing costs, moderating rent growth, and regional occupancy pressures. InterRent REIT’s May 2025 distribution announcement—$0.033075 per unit, annualizing to $0.3969—offers a critical lens to assess whether this payout signals enduring resilience or the beginning of a decline in an uncertain housing cycle.

Occupancy and Rent Growth: A Mixed Picture of Strength

InterRent’s Q1 2025 results reveal a nuanced story. Total portfolio occupancy held steady at 96.8%, while same-property occupancy rose 10 basis points to 96.9%, underscoring operational discipline. Notably, Other Ontario saw a 90-basis-point occupancy jump, while Greater Vancouver lagged due to new supply from short-term rentals and conventional units. However, Vancouver’s occupancy improved quarter-over-quarter to 95%, hinting at stabilization.

Rent growth remains robust: same-property average monthly rent (AMR) rose 5% year-over-year to $1,722, with expiring rents up 13.8% and an 8.5% average gain-on-lease. These metrics are vital, as InterRent’s market rental gap—the difference between in-place rents and current market rates—narrowed to 23%, reducing upside potential for future rent hikes.

Capital Recycling and Buybacks: A Strategic Edge

InterRent’s disposition program continues to drive value. In Q1, it sold properties for $9.5 million in Ottawa and $55.9 million post-quarter in Montreal and Hamilton, all above fair market value. Proceeds funded $69.6 million in unit buybacks through April, canceling 4.4% of the public float. This strategy aims to close the gap between intrinsic value and trading price, a critical move as the REIT’s units trade at a discount.

CEO Brad Cutsey emphasized that capital recycling is “accretive to value”, with $236 million in liquidity and a 40.9% debt-to-GBV ratio offering flexibility. However, rising utility costs—up 16.6% due to colder weather and carbon taxes—compressed NOI margins by 110 basis points to 64.1%, a red flag for cost management.

Dividend Sustainability: Peer Comparisons and Risks

To gauge InterRent’s dividend health, we compare it to peers like Boardwalk REIT and RioCan REIT:

Metric	InterRent	Boardwalk	RioCan
Dividend Yield (May)	~3.8% (at $10.46/unit)	2.5% (at $65/unit)	6.5% (at $22/unit)
Payout Ratio (Est.)	66% (FFO basis)	35.3%	61%
Debt-to-GBV	40.9%	39.9%	9.99x Debt/EBITDA

InterRent’s yield sits mid-range versus peers, while its 66% payout ratio—calculated using its $0.3969 annualized distribution and Q1 FFO per unit ($0.15)—is higher than Boardwalk’s but comparable to RioCan’s. This raises questions: Can InterRent sustain this payout if FFO growth slows?

Key Risks on the Horizon

1. Interest Rate Pressures: With 3.31% weighted average interest rates and 4% variable-rate debt exposure, rising rates could squeeze margins further.
2. Regional Vulnerabilities: Vancouver’s occupancy struggles highlight reliance on supply-demand dynamics, which could worsen if new developments flood the market.
3. Cost Inflation: Utility expenses rose 7.8% year-over-year for same-property portfolios, signaling persistent operational headwinds.

The Investment Thesis: Buy the Dip or Wait for Clarity?

InterRent’s May distribution underscores its commitment to rewarding shareholders, even as it navigates a tougher environment. The unit buybacks at discounts to NAV suggest management believes in intrinsic value, while occupancy stability and disciplined capital recycling provide a floor.

However, risks are mounting. A 66% payout ratio leaves less room for error if FFO growth slows—a plausible scenario as rent gaps shrink and costs rise. Peers like RioCan, with a 6.5% yield, offer higher income potential but come with their own risks (e.g., retail sector exposure).

Final Analysis: A Wait-and-See Buy

The June 16 payout is not a peak but a test of InterRent’s mettle. Investors should view it as a buy the dip opportunity, provided they accept the risks. Key catalysts to watch include:
- Q2 occupancy trends, especially in Vancouver.
- Utility cost management and NOI margin recovery.
- Disposition proceeds to fund further buybacks.

At a 3.8% yield and with a 40.9% debt-to-GBV ratio, InterRent balances risk and reward. For income seekers willing to endure volatility, this could be a strategic entry point—but stay vigilant as housing markets evolve.

Act now, but with caution.