InterRent REIT: A 35% Premium Takeover Offers Clear Exit Strategy for Long-Term Holders

The maturing lifecycle of a real estate investment trust (REIT) often presents a critical juncture for investors: hold for incremental growth or exit to crystallize value. For InterRent REIT (TSX: IIP.UN), the decision is no longer hypothetical. The REIT's proposed all-cash acquisition by Carriage Hill Properties Acquisition Corp.—a $4 billion deal offering $13.55 per unit—presents a compelling case for unitholders to prioritize capital preservation and strategic timing. With the voting deadline set for August 21, 2025, the question is no longer if to exit, but how to act decisively in a market where premiums are rare and certainty is scarce.

Resilient Operations, But a Maturing Portfolio

InterRent's second-quarter 2025 results underscore its operational resilience. Same-property average monthly rent (AMR) rose 4.0% year-over-year to $1,732, while total portfolio AMR climbed 4.6% to $1,736. Post-quarter occupancy rebounded to 95.8% in August, the second-highest level in eight years, driven by a 68% surge in July leasing applications. These metrics reflect a REIT adept at navigating a competitive rental market. However, the 90-basis-point decline in year-over-year occupancy (to 95.3% in June) and a 2.4% increase in same-property net operating income (NOI) to $41.1 million mask underlying pressures: rising operating costs, a 16.6% year-over-year spike in utility expenses, and a narrowing 23% market rent gap.

The REIT's balance sheet remains robust, with a Debt-to-Gross Book Value (GBV) of 41.7% as of June 30, 2025, and $210 million in liquidity. Its weighted average interest rate of 3.33% and strong coverage ratios (2.61x interest coverage, 1.70x debt service coverage) suggest financial discipline. Yet, the $65.5 million in dispositions over the past 12 months and a 4.4% reduction in public float signal a shift toward capital recycling—a hallmark of a maturing REIT.

The Premium Offer: A Strategic Exit in a Volatile Market

The $13.55-per-unit offer represents a 35% premium to the REIT's unaffected closing price on March 7, 2025, and a 29% premium to its 90-day volume-weighted average price. This valuation premium is not arbitrary. It reflects InterRent's intrinsic value, as validated by a formal valuation range of $12.75–$14.00 per unit from National Bank Financial Inc., and the absence of superior bids during a 40-day go-shop period. The board's unanimous endorsement, coupled with financial fairness opinions from BMO Capital Markets and National Bank Financial Markets, adds credibility to the transaction's fairness.

For long-term holders, the offer provides immediate liquidity in a market where REIT valuations are increasingly sensitive to macroeconomic headwinds. Rising interest rates, regional supply pressures, and margin compression from operating costs (e.g., utilities up 16.6% YoY) pose risks to future earnings. Locking in a 35% premium now mitigates exposure to these uncertainties while preserving capital.

The Trade-Off: Growth vs. Certainty

Critics may argue that holding for future growth could yield higher returns, particularly given InterRent's 5.7% NFFO per unit growth in Q2 2025 and its 3.6% NAFFO per unit increase. However, the REIT's lifecycle suggests diminishing growth potential. Its capital recycling program—disposing of 222 units for $55.9 million in Q2 2025—indicates a focus on portfolio optimization over expansion. Meanwhile, the acquisition by CLV Group and GIC—a partnership combining 50 years of operational expertise with long-term institutional capital—positions the REIT for sustained value creation post-merger.

The key question is whether unitholders can outperform the $13.55 offer by holding. Given the REIT's maturing portfolio, margin pressures, and the absence of a clear growth catalyst (e.g., new developments or acquisitions), the answer leans toward the offer being a more prudent choice. The 35% premium effectively caps the REIT's intrinsic value, offering a risk-free exit in a volatile environment.

Action Plan for Unitholders

1. Vote in Favor by August 21: The board's unanimous recommendation and the absence of superior bids make this a high-probability transaction. Delays risk regulatory hurdles or market volatility eroding the premium.
2. Reinvest Proceeds Strategically: The $13.55 per unit provides liquidity for unitholders to diversify into sectors with higher growth potential (e.g., tech or renewable energy) or to rebalance portfolios toward defensive assets.
3. Monitor Post-Closing Performance: If the transaction closes in late 2025, the combined entity's operational and capital structure synergies could unlock further value. However, this requires active management and may not be suitable for passive investors.

Conclusion

InterRent REIT's $13.55-per-unit takeover offer is a rare combination of premium valuation, operational resilience, and strategic alignment with a maturing REIT lifecycle. For unitholders prioritizing capital preservation and risk mitigation, the decision to accept the offer is clear. While the REIT's standalone growth metrics remain robust, the certainty of a 35% premium in a volatile market makes this a compelling exit strategy. As the August 21 voting deadline approaches, investors would be wise to act decisively—locking in gains while positioning portfolios for the next phase of market cycles.

Final Note: The REIT's units will delist post-transaction, making this the last opportunity to realize value at a premium. Time, as always, is a critical factor in capital preservation.