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InterRent REIT: Unlocking Value Through Disciplined Capital Recycling and Aggressive Buybacks

Harrison BrooksTuesday, May 20, 2025 2:33 pm ET

3min read

In an era where real estate investment trusts (REITs) face rising interest rates and shifting market dynamics, few have executed with the precision of InterRent REIT. By pairing a surgical capital recycling program with accretive unit buybacks, the REIT has positioned itself to capitalize on a glaring valuation gap—its shares trade at just half of management’s estimated intrinsic value. For investors seeking undervalued opportunities with a clear path to upside, InterRent offers a compelling case for immediate action.

Capital Recycling: Pruning to Grow Stronger

InterRent’s capital recycling strategy has been nothing short of masterful. In Q1 2025 alone, the REIT disposed of 10 properties (552 suites) across markets like Ottawa, Montreal, and Hamilton, all at prices above their IFRS values. Notably, the Montreal community sold for a 4% premium, while Hamilton dispositions averaged $249,400 per suite—a testament to the intrinsic value of its portfolio. These sales reduced total suites by 3.3% to 12,133, enabling the REIT to reinvest in higher-growth assets.

The result? A leaner, more focused portfolio. Dispositions have prioritized non-core assets, allowing InterRent to concentrate on prime markets like Vancouver and Montreal, where rent growth has surged above 6% year-over-year. This disciplined approach not only strengthens the balance sheet but also aligns with the REIT’s long-term goal: closing the valuation gap by deploying capital where returns are most compelling.

Buybacks: Buying at a 50% Discount

InterRent’s buyback program is a textbook example of value creation. Through Q1 and April 2025, the REIT repurchased 6.7 million units—4.4% of the public float—at an average price of $10.45, far below its intrinsic value of $16.23/unit. As of May 2025, shares traded at $7.97, marking a 50% discount to management’s estimate.

The math is unequivocal: every dollar spent on buybacks compounds value. Consider this: repurchases reduce the public float, boosting FFO and AFFO per unit. With $49.5 million spent in Q1 alone and an NCIB renewal imminent, InterRent is accelerating this accretive process. The goal? To narrow the valuation gap by buying units at a third of their true worth.

Financial Fortitude: A Cushion for Growth

While executing these strategies, InterRent has maintained robust financial health. Its debt-to-gross book value ratio of 40.9% remains conservative, with 91% of debt CMHC-insured and a weighted average interest rate of just 3.31%. Liquidity stands at $236 million, ensuring flexibility to weather volatility.

Improved coverage ratios—interest coverage rose to 2.59x and debt service coverage to 1.69x—signal a stronger balance sheet. This stability underpins the buyback program, allowing InterRent to pursue accretive opportunities without overleveraging.

Operational Resilience: Rents Rise, Occupancy Holds

Despite macroeconomic headwinds, InterRent’s operational metrics are resilient. Same-property occupancy climbed to 96.9%, while total portfolio occupancy remained steady at 96.8%. Average monthly rents rose 5% year-over-year to $1,722, with Vancouver and Montreal leading gains.

Even utility cost pressures, which dented NOI margins by 110 basis points, were offset by strategic pricing. Gains-on-lease averaged 8.5%, contributing incremental revenue. The result? FFO per unit rose 4.2% to $0.15, and AFFO per unit inched up 0.8% to $0.127—proof that the REIT’s fundamentals remain intact.

The Case for Immediate Investment: Closing the Valuation Gap

The numbers speak for themselves: InterRent trades at a 50% discount to its intrinsic value, with buybacks executed at a 34% discount. This gap is unsustainable. As the REIT continues to recycle capital and repurchase units, per-unit metrics will expand, attracting buyers and pushing the price toward $16.23.

Investors ignoring this opportunity risk missing a rare confluence of factors:
1. Undervalued Assets: A portfolio marked at $16.23/unit but trading at $7.97.
2. Buyback Momentum: An NCIB renewal and AUPP program ensure continued accretive repurchases.
3. Operational Strength: Rent growth and occupancy stability provide a cash flow moat.

Conclusion: A Rare Opportunity in Real Estate

InterRent REIT is not just surviving—it is thriving. Its disciplined capital recycling and aggressive buybacks are closing the valuation gap, and the market is poised to recognize this. With shares at half their intrinsic value and a fortress balance sheet, now is the time to act. This is a rare chance to invest in a REIT with clear upside, solid execution, and a management team committed to unlocking value.

The question is not whether InterRent will recover its intrinsic value—it will. The only question is whether you’ll be on the right side of this opportunity.

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