Interrent REIT recycles capital

 On April 27,2016 Interrent REIT came out with a very important press release.Thye announced that they had an unconditional sale of properties in Kingston, Ontario for combined proceeds of $21.2 million; this comes in at $105,000 per suite.Interrent also announced that they have sold in total 461 suites recently (in Belleville, Brantford,Brampton and Kingston) for  combined  proceeds of $52.5 million or $113,500 per suite.So the price per suite for the Kingston properties was slightly below the average in the other non-core properties.This is part of their asset allocation strategy that will put more capital into the core areas of Ontario and Quebec.It was not clear from the press release if there remains a significant amount of non-core assets yet and whether they will all be sold.                       

         The Strategy
  As the picture above shows Interrent realizes that only the core areas like Toronto and Montreal and Ottawa will get above average growth in rents and asset values.The outlying areas like Kingston and Brampton and Belleville will only get average increases that are in line with their historical growth.Interent announced in their press release that this strategy is expected to increase both occupancy and rent per suite.This blog believes that this is correct.For example, rental revenue has increased since 2015 by 20% and by more than 50% since 2012.Also operating income was constant since 2015 but increased by about 48% since 2012.Interent has consistently recycled capital since 2012.As a result the stock price has reflected these better financial numbers as it has moved from $6.50 per share in February to the present price of $7.80.
              Conclusion
   Sometimes important pieces of business strategy can be revealed in a single press release.This is the case here as Interrent revealed that they are recycling $52.5 million.This is only about 4% of their total asset base of $1.23 billion but it will have an effect and it is very likely that more of their non-core assets will be sold off.In addition, they made almost $10 million of net proceeds on these sales.Operating income was $40 million in 2015 and is on track to hit $48 to $50 million for 2016.This should be good enough to move the stock closer to $9 per share by Christmas.        use Workathon for analysis of Cdn. reits;get clearer analysis of Cdn. reits