InterRent REIT plays coy on offers from potential buyers
Larger rivals and an activist hedge fund are stalking InterRent Real Estate Investment Trust IIP-UN-T and the $1.6-billion apartment owner is staying silent on their overtures.
Ottawa-based InterRent reported financial results Thursday, with a longer-than-normal gap after the end of the quarter, and the numbers were slightly better than analysts’ expectations.
However, InterRent’s executives surprised analysts by consistently declining to comment on activist Anson Funds’ push for a sale of the REIT, and on Wall Street asset manager Blackrock Inc.‘s steadily growing stake.
“An uncharacteristically tardy first quarter report, management information circular still yet to be filed combined with recent price action suggest to us that perhaps the market was anticipating news bigger than just a simple earnings update,” analyst Jimmy Shan at RBC Capital Markets said in a report.
“Given the number of investor questions we got on InterRent’s late reporting date, we suspect an expectation for ‘news’ on top of quarterly results was building,” analyst Mario Saric at Bank of Nova Scotia said in a report.
Anson went public in March with news it had built a 9-per-cent stake in InterRent, which owns 12,000 apartment units in 18 cities in British Columbia, Ontario and Quebec. In recent weeks, Blackrock increased its holding in InterRent by 80,000 units to 8.8 million units, and now owns a 6-per-cent stake worth roughly $100-million.
In recent months, InterRent’s board has turned down takeover proposals from a number of suitors, including Blackrock, according to three sources familiar with the REIT. The Globe and Mail agreed not to name the sources because they are not permitted to speak for the company.
On Friday, InterRent’s unit price closed at $11.64 on the Toronto Stock Exchange. Mr. Shan said the REIT’s book value is $16.40 a unit.
InterRent’s board wants to avoid engaging in negotiations with a potential buyer when its units trade at a significant discount to their book value, according to one of the sources familiar with the REIT.
The price of InterRent units is up 15.7 per cent so far this year, partly because of takeover speculation. The benchmark S&P/TSX Capped REIT Index, by comparison, is up just 0.7 per cent year-to-date.
On Thursday, InterRent was the last domestic REIT to report quarterly results. The company highlighted $65.4-million of property sales, at prices above their book value. InterRent spent $49.5-million buying back its own units, “to address the disconnect between the intrinsic value of its units and their trading price,” it said in a press release.
InterRent chief executive officer Brad Cutsey said in a conference call on Friday that selling properties for more than their book value and using the cash to buy back units was a “no-brainer“ strategy with the REIT’s current valuation. Mr. Cutsey said the company had no further strategic initiatives to announce and declined to comment on questions about Anson’s activist campaign.
The REIT increased the rent it charged tenants by 5 per cent, year-over-year, and InterRent’s 96.9-per-cent occupancy rate was up slightly compared with the same period last year. Mr. Saric said: “Both occupied rent and occupancy exceeded our forecast.”
Potential InterRent suitors include Blackrock and Canadian Apartment Properties Real Estate Investment Trust, the country’s largest multifamily property REIT, with a $6.6-billion market capitalization, according to the sources. At least two of the country’s “Maple Eight” large pension funds have also looked at InterRent, the sources said.
Last year, Blackstone Inc., one of the world’s largest property investors, acquired Toronto-based apartment owner Tricon Residential Inc. for US$3.5-billion.
In 2022, Blackstone opened an office in Toronto and hired Jenny Lin to expand its domestic real estate platform. Ms. Lin previously served as chief investment officer for retirement-home chain Revera Inc. and held executive roles at the Canada Pension Plan Investment Board. Blackstone owns approximately $18-billion of real estate in Canada.
Anson, a $3-billion fund manager with a track record for successful activist campaigns at REITs, is pushing for change at InterRent at a time when private equity funds are considering acquiring publicly traded residential property companies, on the theory that retail investors who own the bulk of REIT units are overly pessimistic about the outlook for the sector.
Across the real estate industry, REIT boards and executives are frustrated their portfolios are trading for well below their net asset value while the companies are consistently able to sell properties at significant premiums to these valuations, Adam Jacobs, Colliers Canada’s head of research, said in a recent report. He said more REITs are likely to be sold if the situation persists.
In late February, Mr. Cutsey announced plans to sell up to $250-million worth of properties over the next 12 months, which would generate up to $140-million in proceeds for the REIT. He said the money would be used to pay down loans and buy back units.
Editor’s note: A previous version of this story incorrectly identified Blackstone Inc. as a 6 per cent shareholder in InterRent Real Estate Investment Trust. Blackrock Inc. owns a 6 per cent stake in InterRent REIT.