InterRent REIT: A Steady Income Machine with Undervaluation-Fueled Buybacks

In a world of rising costs and economic uncertainty, investors crave assets that deliver consistent income while shielding capital from volatility. InterRent REIT (TSX: IIP.UN) is proving to be just that—a resilient income generator with a strategic playbook to close the gap between its undervalued unit price and intrinsic value. Let’s dissect why this Canadian residential REIT is a top pick for income seekers today.

1. Dividends That Outperform the Headwinds

While many REITs struggle with inflation-driven expenses, InterRent’s 40% payout ratio underscores its ability to grow distributions sustainably. For Q1 2025, the Trust declared a monthly dividend of $0.033075, annualizing to $0.3969 per unit—a 5% increase over 2024. This growth is well-covered by earnings:

• FFO per unit rose 4.2% YoY to $0.150, supporting an annualized FFO of $1.80 per unit.
• AFFO per unit grew 0.8% to $0.127, providing a 1.28x coverage multiple for distributions.

Even as utilities expenses spiked 16.6% (due to colder winters and carbon tax hikes), InterRent’s cost discipline—trimming financing costs by 3.8% and administrative expenses by 2.6%—kept cash flows intact.

2. Buybacks: Closing the Intrinsic Value Gap

InterRent’s $69.6 million in YTD buybacks (4.4% of the public float) are not just about boosting per-unit metrics—they’re a direct response to its units trading at a discount to intrinsic value. Proceeds from asset sales, like the $29.4 million Hamilton dispositions, are being redeployed to repurchase units at prices below IFRS values.

The Trust’s Normal Course Issuer Bid (NCIB), expiring May 22, is likely to be renewed, with management emphasizing:
> “Unit repurchases align market price with intrinsic value.”

3. Debt Resilience: A Fortress Balance Sheet

With 91% of debt CMHC-insured and a 40.9% Debt-to-Gross Book Value ratio, InterRent’s balance sheet is bulletproof. Key stats:
- $236 million in liquidity ensures flexibility for opportunistic buybacks.
- Interest coverage of 2.59x and debt service coverage of 1.69x beat peers, even as rates rise.
- 96.8% portfolio occupancy and 5% YoY rent growth fuel NOI stability.

4. Total Shareholder Yield: 4.5% and Growing

Combine InterRent’s 3.5% dividend yield with its 1% buyback yield, and you get a 4.5% total shareholder yield—a compelling payout in a low-yield world. Meanwhile, its 23% market rental gap (the spread between in-place rents and current market rates) signals future NOI upside as leases roll over.

Why Invest Now?

• Safety: A 40% payout ratio and fortress balance sheet ensure income reliability.
• Value: Buybacks at a discount to IFRS NAV close the valuation gap.
• Growth: Embedded NOI growth from rent hikes and a narrowing rental gap.

The $10.23 average buyback price (vs. $12.50+ IFRS NAV/unit) suggests the market is undervaluing InterRent’s asset quality. With a renewed NCIB and accretive dispositions in the pipeline, this is a buy at current levels.

Final Verdict: A Rare Blend of Income and Value

InterRent REIT offers a rare combination: a dividend machine with a 4.5% total yield, a conservative balance sheet, and a disciplined capital strategy to bridge its undervaluation. For income investors, this is a no-brainer.

Why wait? With buybacks accelerating and intrinsic value on your side, now is the time to lock in this resilient income stream.