InterRent REIT’s Capital Recycling Masterclass: Why Now Is the Time to Buy

Amid a challenging rental market, InterRent Real Estate Investment Trust (IRE.U) has executed a textbook example of disciplined capital allocation, turning non-core asset sales into share buybacks at a discount to intrinsic value. Q1 2025 results reveal a REIT positioned to capitalize on a narrowing rental gap, robust balance sheet flexibility, and a strategy that promises to close the gap between its trading price and asset value—making it a compelling contrarian play.

The Disposition-Driven Buyback Machine

InterRent’s capital recycling strategy is its most potent value-creation lever. In Q1 alone, it sold a 28-suite Ottawa community for $9.5 million—4% above its fair market value—and followed with two additional post-quarter dispositions in Montreal and Hamilton, totaling $55.9 million in proceeds. These non-core asset sales, which reduced portfolio suites by 3.3% year-over-year, were channeled directly into repurchasing its own units.

By April 2025, InterRent had spent $70 million on buybacks, repurchasing 4.4% of its public float at an average price of $10.45 per unit—a 26% discount to its IFRS net asset value (NAV) of $14.18 per unit. This is no one-off: the current Normal Course Issuer Bid (NCIB), expiring May 22, is expected to be renewed, signaling further accretive buybacks ahead.

Resilient Rent Growth Amid Macro Headwinds

Despite a moderation in national rent growth, InterRent’s in-place rents are outperforming. Same-property average monthly rent (AMR) rose 5.0% year-over-year to $1,722, with markets like Montreal and Vancouver leading with over 6% growth. Turnover (excluding disposed properties) held steady at 24.1%, while expiring rents increased 13.8% versus prior terms.

The narrowing rental gap—now at 23%—is a critical inflection point. This metric reflects the difference between in-place rents and current market rates, and its contraction signals InterRent’s ability to close the gap organically through disciplined leasing. While this reduces near-term upside, it also confirms the portfolio’s alignment with market realities—a vote of confidence in its pricing power.

Balance Sheet: Fortified for the Long Haul

InterRent’s financial fortitude underpins its buyback ambitions. Debt-to-gross book value (GBV) rose to 40.9%, but this reflects opportunistic dispositions and buybacks rather than over-leverage. 91% of its $1.7 billion mortgage debt is CMHC-insured, with an ultra-low 3.31% weighted average interest rate and 4.6-year average term to maturity. Liquidity remains robust at $236 million, and coverage ratios improved: interest coverage rose to 2.59x, while debt service coverage hit 1.69x—both well above industry norms.

This conservative structure allows InterRent to weather macro uncertainty while continuing its buyback program. Even after repurchasing nearly 5% of its float in six months, its debt metrics remain comfortably within policy limits.

Embedded NOI Upside: The Unseen Catalyst

While the rental gap narrows, InterRent’s NOI has $0.8 million in incremental annualized revenue from Q1’s leasing activity alone, driven by an 8.5% average gain-on-lease. Crucially, its same-property NOI margin—though pressured by a 16.6% spike in utility costs—remains 64.1%, a testament to operational resilience.

The CEO’s emphasis on a “healthy mark-to-market gap” hints at future NOI upside. Even at 23%, this gap leaves room for further rent growth as expiring leases align with higher market rates. With 96.8% total portfolio occupancy, InterRent is positioned to capitalize on this embedded value without aggressive tenant turnover.

Why Act Now?

InterRent’s shares trade at a 26% discount to NAV, a historically steep discount even for REITs. This creates a rare opportunity to buy into a portfolio of 12,133 units—primarily in high-growth Canadian markets—with a REIT that is systematically reducing its share count at bargain prices.

The catalysts are clear:
1. Buybacks at NAV discounts will shrink the float and amplify FFO per unit growth.
2. Stable occupancy and rent growth prove demand resilience.
3. Balance sheet flexibility ensures no forced asset sales, even in a downturn.

Final Call: Buy the Discount, Own the Upside

InterRent’s Q1 results are a masterclass in value creation. By recycling non-core assets into buybacks at a steep discount to NAV, it’s executing the rarest of REIT strategies—shrinking itself to grow. With embedded NOI upside, fortress-like balance sheet metrics, and a narrowing rental gap that validates its pricing power, this is a rare opportunity to invest in a fundamentally strong asset at a distressed price.

The stock’s disconnect from intrinsic value won’t last. Investors who act now could reap outsized rewards as InterRent’s shares rebound toward NAV—and beyond.