Unlocking Hidden Value: Why InterRent REIT Presents a Rare Accrual Opportunity in a Maturing Rental Market

In a rental market transitioning from rapid growth to a more mature phase, investors are increasingly drawn to companies that can deliver resilience through disciplined strategy and balance sheet strength. InterRent Real Estate Investment Trust (TSX: IIP.UN) stands out as a prime candidate, leveraging its strategic capital recycling program, unit buybacks at a steep discount to intrinsic value, and resilient operating metrics to create a compelling risk-reward profile. With its shares trading at a 50% discount to management’s intrinsic value estimate ($16.23/unit vs. a recent buyback price of $10.67/unit), now is the time to capitalize on this undervaluation before the gap narrows further.

The Power of Disciplined Dispositions

InterRent’s capital recycling program is a masterclass in portfolio optimization. In Q1 2025 alone, the REIT sold non-core assets—such as a 28-suite Ottawa community—at a 4% premium to fair market value, generating proceeds to fund accretive unit buybacks. These dispositions target underperforming properties, freeing capital to redeploy into higher-growth markets like Greater Montreal and Greater Vancouver, where rent growth exceeds 6% YoY. By prioritizing asset quality over quantity, InterRent ensures its portfolio remains a magnet for tenants and investors alike.

Accretive Buybacks at a 34% Discount to NAV

The Normal Course Issuer Bid (NCIB) and Automatic Unit Purchase Plan (AUPP) are the engine of InterRent’s value-creation strategy. As of May 2025, the REIT has repurchased 6.7 million units since the start of the year, canceling them at an average cost of $10.23–$10.67 per unit—a 34% discount to its December 2024 intrinsic value of $16.23/unit. This math is irrefutable: every repurchased unit reduces dilution, lifts per-unit metrics, and narrows the gap between market price and NAV.

The recent dip in shares to $7.97 on May 14—even below April’s buyback prices—presents an extraordinary entry point. Management’s confidence is clear: the NCIB, set to expire on May 22, will almost certainly be renewed, ensuring continued buybacks at these historically low prices.

Resilient NOI Growth Amid Rising Costs

Despite a 16.6% YoY spike in utilities expenses (driven by colder winters and carbon tax hikes), InterRent’s same-property NOI grew 3.1% to $39.7 million in Q1 2025. Strong rent growth of 5.0% to $1,722/month offset margin pressures, while total portfolio occupancy held steady at 96.8%. The Greater Montreal and Vancouver markets are key drivers, with rent increases outpacing inflation—a testament to InterRent’s focus on high-demand, job-rich cities.

The FFO per unit rose 4.2% YoY to $0.150, and distributions increased 5.0% to $0.0992/unit. Even the slight dip in AFFO per unit (0.8% growth) is a minor hurdle in the face of such operational stability.

A Conservative Balance Sheet, Built to Last

InterRent’s financial fortress is its 40.9% debt-to-GBV ratio, supported by 91% CMHC-insured mortgages and a $236 million liquidity buffer. With variable rate exposure capped at 4%, the REIT is insulated from rising interest rates, while its 2.59x interest coverage ratio and 1.69x debt service coverage ratio underscore financial flexibility.

This conservative structure allows InterRent to aggressively repurchase units without overleveraging. As of April 2025, buybacks had already reduced the public float by 4.4%, a trend that will accelerate as the NCIB renews.

The Disconnect Between Price and Value—And How to Profit

The market’s $7.97/unit price as of May 14 is a stark contrast to InterRent’s $16.23 intrinsic value and its buyback prices of $10.67. This discrepancy is a buy signal, not a red flag. Management is actively closing the gap via:
1. Capital recycling: Reinvesting disposition proceeds into buybacks.
2. Tenant demand: Strong rental growth in core markets will underpin NOI resilience.
3. Balance sheet strength: No need to cut distributions (currently yielding 6.9%) or slow buybacks.

Act Now—Before the Gap Narrows

The accrual opportunity here is rare. InterRent’s units offer:
- A 50% discount to NAV with embedded price appreciation potential.
- A 6.9% yield secured by steady cash flows and rising rents.
- A proven capital recycling engine that converts undervalued shares into long-term value.

The risk? Limited. With a fortress balance sheet and a CEO (Brad Cutsey) who has doubled the portfolio’s size since 2015, InterRent is primed to outperform in any market.

Final Call to Action

The writing is on the wall: InterRent’s shares are undervalued, and its buyback program is closing the gap. With $16.23 intrinsic value and a $7.97 market price, this is a once-in-a-cycle opportunity to buy a high-quality REIT at a 50% discount. Act now—before the market catches on.

Gary’s Bottom Line: Buy IIP.UN now. The math, the strategy, and the management all align for outsized returns.