Over the past decade and a half, InterRent REIT has quietly become one of Canada’s top performers in its field, amassing rental properties across three provinces under the guidance of a low-key management team that’s largely stayed out of the headlines.
So it’s really no surprise, then, that InterRent’s new shakeup at the top is, in many ways, a signal that it's business as usual for the Ottawa-based firm.
InterRent announced late last month that Brad Cutsey, who’s served as the REIT's president since 2015, would be taking over as chief executive effective May 1 from Mike McGahan, who’s stepping aside after 12 years at the helm.
As corporate successions go, this one is about as uncontroversial as they come. Cutsey notes that InterRent has always embraced the management-by-committee approach, and he intends to keep it that way.
“I don’t think you're going to see much change on that front,” the 49-year-old former investment banker, who splits his time between offices in the Greater Toronto Area and Ottawa, told OBJ in a recent interview.
“I wouldn't be where I am right now if we didn’t have a great team. This is really as much about my fellow team members as it is about me.”
"I wouldn't be where I am right now if we didn’t have a great team. This is really as much about my fellow team members as it is about me."
The former leader of that team isn’t going far. McGahan is staying on with the firm as executive chairman and will continue to have a big say in InterRent’s operations – a fact that delights his successor.
“He’s still going to play a really active role, which I’m happy about,” Cutsey said of his longtime boss. “Mike is just a phenomenal guy at getting things done. When Mike puts his mind to something, I say, ‘Watch out.’ We’re lucky to have him.”
Cutsey’s aw-shucks attitude fits right in at InterRent, which was founded in 2006 and really hit its stride when McGahan took over three years later.
Over the next decade, the REIT more than doubled its total suite count to nearly 9,000 and became one of Canada’s more reliable market plays, with annualized returns in the 14 per cent range.
It accomplished all that with little fanfare in its hometown, or anywhere else for that matter. But observers who followed the industry closest knew what McGahan and Co. were building. In 2018, one real estate analyst told the Globe and Mail that InterRent was a “go-to name in the Canadian REIT space for investors who prioritize organic growth.”
From May 2017 to March 2020, InterRent’s stock unit price more than doubled from less than $8 to nearly $19 as rising immigration and tighter mortgage-qualifying rules fuelled demand for rental units that new construction couldn’t meet.
Then COVID changed everything.
The pandemic hasn’t been kind to real estate operations like InterRent that rely heavily on a steady flow of new immigrants and post-secondary students to fill their buildings. The REIT’s growth profile, which used to resemble a hockey stick, has looked more like the foothills of the Rockies over the past couple of years.
Unit price down
As of Monday afternoon's close on the Toronto Stock Exchange, InterRent’s unit price stood at $13.50, down about 14 per cent over the past 12 months. But Cutsey thinks InterRent is poised to once again fire up its growth engines – thanks in part to a slight shift in corporate philosophy.
Up to now, InterRent has employed a simple, yet effective formula for success: buy up apartment buildings that were getting a little long in the tooth or were poorly managed, pour money into upgrading the suites and common areas, make the structures more energy-efficient and boost rents at the rejuvenated properties.
The REIT’s floor-to-ceiling renovation of a 440-unit apartment complex on Bell Street in Centretown West is a case in point. InterRent purchased the building for nearly $40 million in 2013, and proceeded to gut the aging structure and reposition it as a higher-end property aimed at young professionals – another key customer segment.
“Essentially, what we’ve done is taken assets that have been either tired physically or mismanaged from a leasing and marketing perspective and then repositioned them and (helped) bring (them) back to life,” Cutsey said. “That's been our bread and butter.”
That rebuild-and-revitalize approach will remain a key plank in InterRent’s long-term growth strategy, the new CEO says. But in recent years, the REIT has also begun to partner with developers on new projects, such as Trinity Development Group’s plan to build three mixed-use towers at 900 Albert St., across from the Bayview LRT station.
Cutsey says he’s sensing a new willingness among governments at all levels to cut red tape and make it easier for builders to get multi-family developments approved and constructed as Canada grapples with an ongoing housing affordability crisis.
Clearly, he wants InterRent to play a leading role in what he hopes will be a new rental construction boom.
“You need the private sector to be involved and, as a public company, we want to be part of the solution,” he said.
“We want newcomers to be able to continue to come to Canada and help grow our country. So we’ve got to figure out the housing part. Stricter rent controls aren't going to get you there. What’s going to get you there is new supply.”
Office building conversions
The Bishop’s University economics grad – who spent years working on Bay Street as an equities analyst and head of real estate investment banking at Dundee Securities before joining InterRent – also sees a new path for growth in transforming aging C-class commercial buildings into residential properties.
To that end, InterRent purchased the Trebla Building – a 50-year-old, 11-storey office complex at 473 Albert St. – in 2019 for $21.8 million.
The REIT has spent the past two-plus years converting the outdated structure into a mixed-use building that will feature more than 150 rental apartment units as well as nearly 4,000 square feet of ground-floor commercial space. Cutsey said the first suites should be ready for occupancy before the end of the year.
“We’re really excited about that,” he said. “You’re not adding to carbon emissions and supplying more homes to market.”
After adding a record total of more than 1,800 suites to its portfolio in 2021, InterRent now manages more than 12,000 apartment units in the National Capital Region, southern Ontario, Montreal and Vancouver. The REIT’s overall occupancy rate rebounded from about 91 per cent in 2020 to 95.6 per cent last year, almost on par with pre-pandemic levels.
Cutsey is confident that the rental market has turned the corner as immigration ramps up, students return to in-person classes and tech hubs, with their steady influx of well-educated young professionals, continue to flourish.
“I think everything is tracking in the right direction,” he said. “I think we have a really bright future ahead.”