Apartment owner InterRent faces activist campaign led by hedge fund Anson

Activist investor Anson Funds has launched a campaign for change at InterRent Real Estate Investment Trust that potentially puts the Ottawa-based apartment owner up for sale, as acquisition-hungry private equity funds place a greater value on rental properties than public markets.

Toronto-based Anson holds approximately 9 per cent of InterRent, which owns 13,000 apartment units in British Columbia, Ontario and Quebec and has a $1.45-billion market capitalization.

In recent months, Anson pushed InterRent’s board and management to stop acquiring properties and instead focus on selling apartment buildings to pay down debt, according to two sources familiar with the matter. The Globe and Mail agreed not to name the sources because they are not authorized to speak for their companies.

Executives at InterRent and Anson declined to comment. Bloomberg first reported Anson’s stake in InterRent earlier this week.

Over the past 12 months, InterRent’s unit price fell by 28 per cent, and the Toronto Stock Exchange-listed REIT now trades at a 30-per-cent discount to the value of its assets. Over the same period, the S&P/TSX capped REIT index declined by 5.3 per cent.

InterRent’s unit price fell after the REIT acquired numerous apartment buildings over the past four years, and debt rose to $1.6-billion at the end of 2024.

In late February, InterRent chief executive officer Brad 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. Mr. Cutsey said the money would be used to pay down loans and buy back units.

The shift in strategy won praise from analysts. Mario Saric at Bank of Nova Scotia said in a report that “concretely killing the idea of InterRent as a net buyer of assets should help” the REIT’s unit price.

In 2024, InterRent sold 10 buildings for a total of $143.5-million, at prices at or above their values on the company’s balance sheet, and used part of the money to buy back units.

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 targeting 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.

Anson’s portfolio manager on its REIT investments is Michael Missaghie. He is also president of Arch Corp., a private real estate investment fund with $3-billion of assets under management.

Last year, New York-based Blackstone Inc., one of the world’s largest property investors, purchased apartment owner Tricon Residential Inc. for US$3.5-billion in a friendly takeover, paying a 30-per-cent premium to the Toronto-based company’s share price. As part of the transaction, Blackstone committed US$4.5-billion to expanding Tricon’s rental property portfolio.

In 2024, Blackstone also acquired Denver-based Northview Apartment REIT for US$10-billion.

After Anson, Blackrock is the second-largest unit holder in InterRent, with a 5.8-per-cent stake, according to regulatory filings. The REIT’s founder, executive chair Michael McGahan, owns 3.9 per cent.

InterRent’s plan to sell up to $250-million of apartments is a part of a ”strategy of opportunistically arbitraging public/private market disconnect” by selling buildings to institutional investors such as private equity funds and pension plans, analyst Jimmy Shan at RBC Capital Market said in a report. The same gap between the price that retail investors put on rental properties and what institutions are willing to pay could lead to a bid for the entire REIT.

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.

“The predicted wave of REIT acquisitions, privatizations and mergers hasn’t materialized, as this requires large-scale borrowing,” Mr. Jacobs said. “A better financing environment may kick-start some more deal-making in this sector.”