Interrent buys more property

 On November 27, 2015 Interrent announced that it had an unconditional agreement to acquire a property in  the Le Plateau-Mont-Royal area of Montreal and it had an unconditional agreement to sell a property in Brampton.Interent is a reit with properties in  Quebec and Ontario.The property being acquired is 127 units and worth $21,550,000 while the property being disposed of had 44 units and worth $8.7 million.These actions are taken after it had a good third quarter report.Their dividend had just been raised by 5% and net operating income went from $10.2 million to $13.3 million for Q3 in 2015.Also their AFFO went from $4.6 million in 2014 to $6.4 million in the third quarter of 2015.More importantly their AFFO per share (earnings per share) went from $.08 per share to $.09 per share.
       Growth Strategy
 The first part of their strategy is to have good operational statistics.Their third quarter report showed that they indeed have good operating metrics.Gross rental income increased by $5 million or 30% while average monthly rentals increased by 6%.Net operating income increased by 31% over the same quarter in 2014.Their weighted average interest rate was down a few basis points from Q3 in 2014.And lastly their debt to gross book value of debt  only moved from 50.5% in 2014 to 51%.Interrent is watching it's debt ratios very closely.
 The second part of their strategy is to pare down properties with low growth possibilities and low capitalization rates.Their property in Brampton was a small one at 44 units and the capitalization rate (although it increased) was only 4.4% at the time of sale.This property brought in a small amount of net operating income but had accrued a significant amount of capital gains as the value at the time of sale was $197,000 per suite.This is a nice gain and the capital can be better deployed in a property with higher leverage and a higher capitalization rate.In addition, Brampton is an industrial town and not likely to have greater increases in rent nor valuation. The second property is in a quite good part of Montreal and has a low going- in cap rate of 4.6%.This shows good potential for increases in an influential part of town.
       Summary
          Interrent did report a good quarter as AFFO went up by almost 40% and AFFO per share went up from $.08 to $.09 per share.But they are also deploying their capital smartly.Too many other reits acquire properties and hold on to them;they don't divest when there is little growth potential left in them.Interrent shows itself to be an active rather than a passive manager and adept at improving their portfolio.This blog hopes that other reits are watching and learning from Interrent.                 

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