InterRent REIT Stock Q1 2022 Earnings Results: Investor Takeaways

Long-term investors looking for a solid growth stock should take a closer look at undervalued InterRent (TSX:IIP.UN) stock. It also yields 2.7%.

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Few stocks are left unscathed in the current market downturn. Unfortunately, InterRent REIT (TSX:IIP.UN) stock is not one of them, but that’s good for long-term investors, because it now provides a compelling buying opportunity in the solid real estate investment trust (REIT).

The monthly dividend stock is oversold right now, having fallen more than 31% from its 52-week high. However, its recent business results aren’t half as bad.

InterRent REIT stock Q1 2022 results

InterRent REIT reported its first-quarter (Q1) 2022 financial results yesterday. On the day, the stock bounced 1.8%, suggesting that the stock is oversold while the business fundamentals are stable.

For the quarter, the company’s operating revenues increased by 20.5% to $51.9 million, while its property operating costs rose at a lower pace of 14.3%, helped by management lowering the same-property operating costs by 1.0% to 14.4% of operating revenues. Property taxes and utility costs that are uncontrollable costs rose 10.2% and 31.8%, respectively, year over year. Consequently, the total operating expenses ended up increasing 17.8% to $19.5 million versus Q1 2021.

Here is some key information from the Q1 2022 earnings report:

  • Total suites increased by 8.5% to 12,445, including 960 that the REIT has a 50% stake in.
  • Average rent per suite increased by 6.0% to $1,404 in March 2022 versus March 2021.
  • Occupancy rate improved 4.2% to 95.5% in March 2022 versus March 2021.
  • Net operating income (NOI) increased 22.2% to $32.4 million.
  • Funds from operations (FFO) increased by 17.8% to $19.1 million.
  • FFO per unit increased by 16.7% to $0.133, resulting in an FFO payout ratio of about 64% for the quarter.

The same-property metrics shown in the bullet points below are also telling, as they show performance without impacts from new asset contributions:

  • Same-property average rent per suite increased by 5.3% to $1,391 in March 2022.
  • Same-property occupancy improved 4.8% year over year to 96.4% in March 2022.
  • Same-property NOI margin improved 1.2% to 62.8% in Q1 2022 versus Q1 2021.
  • Same-property NOI of $28.9 million for the quarter increased 12.1% compared to Q1 2021.

Valuation and dividend

At $12.57 per unit at writing, InterRent REIT stock yields 2.7%. Its payout ratio is estimated to be about 59% this year. So, investors can expect its dividend-growth streak to continue. For reference, the defensive REIT increased its cash distribution at a compound annual growth rate of 5.8% in the past five years. The stock is undervalued meaningfully by 35% according to the 12-month analyst consensus price target on Yahoo Finance, which implies near-term upside potential of approximately 54%!

Foolish investor takeaway

InterRent REIT’s interest coverage and debt service coverage were 3.31 times and 1.84 times, respectively, at the end of Q1 2022. They are slightly lower than a year ago but still healthy.

The market correction is a good time to build a position in undervalued InterRent REIT stock. As a smaller player in the residential REIT space, it has greater price appreciation potential when the stock market turns around — whenever that may be.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Kay Ng owns shares of InterRent REIT.

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