In financial filings this week, InterRent REIT and Minto Apartment REIT both reported big jumps in revenues compared with a year earlier – although headwinds such as rising interest rates have boosted the cost of financing their holdings and eaten into their bottom lines.
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Ottawa’s two biggest real estate investment trusts say occupancy rates in their portfolios have returned to pre-pandemic levels as a surge in immigration, the “growing affordability gap” between renting and owning as well as other factors have combined to rekindle demand for rental housing.
In financial filings this week, InterRent REIT and Minto Apartment REIT both reported big jumps in revenues compared with a year earlier – although headwinds such as rising interest rates have boosted the cost of financing their holdings and eaten into their bottom lines.
InterRent, which owns or manages more than 12,600 suites in Ontario, Quebec and British Columbia, said 96.8 per cent of its units were occupied at the end of December, up from 95.6 per cent a year earlier.
Average rents, meanwhile, rose 7.1 per cent to $1,479, helping push the firm’s fourth-quarter operating revenues to $56.8 million, a gain of 13.1 per cent compared with the previous year. InterRent’s net operating income was $36.7 million, up from $32.1 million in the fourth quarter of 2021.
At the same time, however, the REIT’s funds from operations – a key measure of its cash flow – fell nearly five per cent year-over-year to $18.7 million.
InterRent’s net income for fiscal 2022 also plummeted 70 per cent compared with the previous year to $104 million. The firm blamed the drop on two main factors: a fair value loss on investment properties of $8.3 million in 2022 as compared to a fair value gain of $327.2 million in 2021 and the unrealized gain of $36.5 million on financial liabilities in 2022 versus the unrealized loss on financial liabilities of $29.2 million in 2021.
In a news release, InterRent president and CEO Brad Cutsey called 2022 “a year of nearly unprecedented volatility” for his firm.
“From persistent COVID concerns to one of the steepest interest rate increases on record, the year presented no shortage of challenges,” he said.
Meanwhile, Minto Apartment REIT also saw occupancy rates rise significantly compared with 2021 at its 8,300 suites in Ottawa, Toronto, Montreal, Calgary and Edmonton.
Minto said 97.1 per cent of its unfurnished units had tenants at the end of December, up from 95 per cent a year earlier. Average monthly rents, meanwhile, rose 5.1 per cent to $1,732.
The REIT signed 423 new leases in the fourth quarter, realizing an average gain of 16.6 per cent in rents charged to new tenants – the second-highest quarterly increase in the REIT’s history.
“The Canadian urban rental market maintained its strong performance during the quarter, supported by increased immigration, the growing affordability gap between rentals and home ownership, increasing acceptance of renting versus owning, the return to in-person learning at downtown post-secondary schools, and a broad return to downtown living,” the company said in a release.
“As a result of increased demand for rentals, the REIT has increased rental rates and reduced the use of promotions to drive occupancy.”
Minto’s revenues rose nearly 17 per cent year-over-year to $37.9 million on the strength of rising occupancy, higher rents and new acquisitions in Montreal, Toronto and Calgary.
But like InterRent, Minto’s bottom line took a hit as rising interest rates drove up financing costs for the REIT’s variable-rate mortgages and credit facility by nearly 50 per cent.
Minto’s funds from operations fell nearly three per cent from the previous year to $12.9 million. Meanwhile, the firm reported a net loss of $32.4 million in the fourth quarter, compared with net income of $24.9 million in the same period in 2021.
Minto attributed the deficit to non-cash, fair value losses on investment properties and Class-B limited-partnership units in the fourth quarter compared with non-cash gains in those areas the previous year.
Still, chief executive Michael Waters said the firm was pleased with its overall performance in 2022 and is hoping to accelerate its growth under new CEO Jonathan Li, who takes over the top job on April 3.
“Looking ahead, we believe the outlook for our rental markets remains highly positive due to factors including continued growth in immigration and the high interest rate environment, which has widened the affordability gap between owning and renting a home,” Waters said in a statement.
“We will continue to focus on operational efficiencies, cost reductions and reducing our variable-rate debt exposure, while making prudent capital allocation decisions in order to maximize (funds from operations) and (adjusted funds from operations) per unit.”
