InterRent Properties Ltd., an Ottawa-based residential real estate investment trust (REIT), is in the latter stages of a repositioning, focusing on growth and expansion in Ottawa.
The transitional strategy began when current CEO Mike McGahan joined the company in late 2009.
Under McGahan, the company began to focus on a specific niche market. It’s a transition that required selling the properties it owned at the time and reinvesting elsewhere.
Today, InterRent gears its efforts towards medium-sized properties that have the potential to be renovated and improved upon, specifically in mid-sized markets. Over a quarter of the REIT’s 8,059 property units are located in Ottawa with other property units located across the province from London to Trenton as well as recent expansion into Quebec.
During this transition, InterRent partnered with CLV Group, an Ottawa-based property management company that looks after all the buildings InterRent owns.
Fixer-uppers produce a return
CLV Group general manager Bob Jarrett said the idea behind the change in direction is to purchase smaller buildings requiring work and get a quick return through efficient management and operation of the properties.
“They became a REIT that expanded by purchasing properties that are off the main areas like downtown Toronto that have potential to be renovated and improve the buildings to become the best in the area,” he said.
Since the shift, the REIT’s unit price has significantly increased all the way up to $8.61 earlier this year from less than $2 before 2009, before settling in the mid-$7 range.
As a result of several property purchases, the company has suffered a $13.6-million decrease in net income with a $1.2-million increase in the company’s operating expenses in the third quarter ending Sept. 30. But not all is gloomy for the transitioning company. InterRent’s revenue has increased $2.5 million to $24 million from $21.5 million in the previous year because of the higher number of rental properties. Due to the higher revenue, the net operating income in the most recent quarter is $1.4 million higher than in the previous third quarter as well.
Before this repositioning, InterRent was not centred in Ottawa with this structure.
Starting in Toronto
In 1997, G. Michael Newman founded InterRent, after working several years with an electronics company, found himself drawn to real estate. He wanted to focus on the Toronto-area of Parkdale and the first acquisition was a nine-unit apartment building on the corner of Lansdowne Avenue and Bloor Street. Newman said the development of the first building went extremely well and it was immediately evident there was potential for further success.
He approached a couple of his friends and they privately invested in the business by purchasing more small buildings in the Parkdale area. Move ahead two years and InterRent owned and operated six buildings and wanted to expand.
With his previous involvement with public companies, Newman wanted to list this new real estate venture on the market and found an Ottawa-based company around which to construct a reverse takeover. InterRent investors bought shares in the public mining company Golden Hart Exploration Inc. making InterRent the controlling shareholder of the company.
Looking for larger opportunities
In November 1999 at the annual shareholders meeting, the controlling shareholders officially changed the company name to InterRent Properties Ltd. The shareholders of the mining company at the time then automatically became shareholders of InterRent, making it a public company traded on the CDN stock exchange, now the TSX Venture Exchange. Newman became CEO of the company, a position he held until 2009 when he left on good terms and McGahan took over.
Newman said it was important for InterRent to be a public company because it made it easier to raise capital for growth, which was essential to the company in its early stages.
He applauded this recent transition by InterRent under McGahan as a well thought-out approach to renovate and move properties up market.
“They’ve crystallized their profits out of those smaller buildings and re-invested them in much better and larger buildings in Ottawa,” he said.
With the real estate market always changing, Jarrett said that thinking ahead and looking at news ways of operating is one of the best attributes of InterRent.
Like every company trading on the stock market, InterRent is susceptible to ups and downs, especially with the effects the real estate market can have on the trading of the stock. But former National Post business and markets reporter John Shmuel said REITs are seen as the most stable investments as they typically provide a good return to investors and aren’t high-risk.
Interest rate risk?
When the market is down and the economy overall is poor, REITs are a good defensive choice. However, the recent election of Donald Trump in the United States raises many questions about what effect that will have on the market.
Shmuel said Trump’s policies may accelerate inflation, which could be damaging to REITs as they typically thrive when interest rates are low. But, Shmuel said the housing market also has an impact on the success of REITs. Currently, Canada’s real estate bubble shows no signs of bursting which is good news for InterRent as it considers expanding across several provinces.
As the company continues to grow, Jarrett said InterRent plans to spread out and purchase more properties across Ontario with even further expansion possible in Western Canada.