InterRent Real Estate Investment Trust

Condensed Consolidated Interim Financial Statements

September 30, 2023 (unaudited)

InterRent Real Estate Investment Trust

Condensed Consolidated Interim Balance Sheets

Unaudited (Cdn $ Thousands)

September 30,

December 31,

Note

2023

2022

Assets

Investment properties

3

$

4,315,966

$

4,253,924

Investment in joint ventures

6

46,243

31,160

Prepaids and deposits

7,255

2,639

Receivables and other assets

8

25,449

23,603

Cash

3,758

4,267

Total assets

$

4,398,671

$

4,315,593

Liabilities

Mortgages payable

9

$

1,676,475

$

1,654,449

Credit facilities

10

21,747

-

Class B LP unit liability

12

26,988

43,658

Unit-based compensation liabilities

13

55,681

54,131

Lease liabilities

1,739

1,903

Tenant rental deposits

19,835

18,226

Accounts payable and accrued liabilities

11

41,787

45,850

Total liabilities

1,844,252

1,818,217

Unitholders' equity

Unit capital

15

1,083,508

1,052,858

Retained earnings

1,470,911

1,444,518

Total unitholders' equity

2,554,419

2,497,376

Total liabilities and unitholders' equity

$

4,398,671

$

4,315,593

Commitments and contingencies (note 25)

Subsequent events (note 26)

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

On behalf of the Trust

Ronald Leslie

Brad Cutsey

Trustee

Trustee

2

InterRent Real Estate Investment Trust

Condensed Consolidated Interim Statements of Income

For the three and nine months ended September 30

Unaudited (Cdn $ Thousands)

Three months ended

Nine months ended

September 30

September 30

Note

2023

2022

2023

2022

Operating revenues

Revenue from investment properties

16

$

59,249

$

54,851

$

175,609

$

159,545

Operating expenses

Property operating costs

9,817

9,327

28,429

26,679

Property taxes

6,257

6,016

18,746

17,944

Utilities

3,099

3,209

13,187

13,029

Total operating expenses

19,173

18,552

60,362

57,652

Net operating income

40,076

36,299

115,247

101,893

Financing costs

17

14,720

12,478

43,513

32,512

Administrative costs

4,251

3,481

12,215

10,835

Income before other income and expenses

21,105

20,340

59,519

58,546

Other income and expenses

Fair value adjustments on investment properties

3

(77,208)

5,705

(2,690)

99,389

Other income and fees

560

384

1,408

890

Income from investment in joint ventures

6

411

7

3,583

26

Loss on sale of investment properties

5

(32)

-

(32)

-

Other fair value gains

18

1,254

6,948

5,315

48,140

Interest on units classified as financial liabilities

19

(650)

(714)

(2,116)

(2,082)

Net income (loss) for the period

$

(54,560)

$

32,670

$

64,987

$

204,909

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

3

InterRent Real Estate Investment Trust

Condensed Consolidated Interim Statements of Changes in Unitholders' Equity For the nine months ended September 30

Unaudited (Cdn $ Thousands)

Cumulative

Total

Cumulative

distributions

Retained

Unitholders'

Trust units

profit

to Unitholders

earnings

equity

Balance, January 1, 2022

$

1,030,780

$

1,620,761

$

(231,538)

$

1,389,223

$

2,420,003

Units issued

16,769

-

-

-

16,769

Net income for the period

-

204,909

-

204,909

204,909

Distributions declared to Unitholders

-

-

(36,122)

(36,122)

(36,122)

Balance, September 30, 2022

$

1,047,549

$

1,825,670

$

(267,660)

$

1,558,010

$

2,605,559

Balance, January 1, 2023

$

1,052,858

$

1,724,720

$

(280,202)

$

1,444,518

$

2,497,376

Units purchased and cancelled (note 15)

(1,998)

-

-

-

(1,998)

Units issued (note 15)

32,648

-

-

-

32,648

Net income for the period

-

64,987

-

64,987

64,987

Distributions declared to Unitholders

-

-

(38,594)

(38,594)

(38,594)

Balance, September 30, 2023

$

1,083,508

$

1,789,707

$

(318,796)

$

1,470,911

$

2,554,419

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

4

InterRent Real Estate Investment Trust

Condensed Consolidated Interim Statements of Cash Flows

For the three and nine months ended September 30

Unaudited (Cdn $ Thousands)

Three months ended

Nine months ended

September 30

September 30

Note

2023

2022

2023

2022

Cash flows from (used in) operating activities

Net income (loss) for the period

$

(54,560)

$

32,670

$

64,987

$

204,909

Add items not affecting cash

Income from investment in joint ventures

6

(411)

(7)

(3,583)

(26)

Amortization

209

319

806

884

Loss on sale of investment properties

5

32

-

32

-

Fair value adjustments on investment properties

3

77,208

(5,705)

2,690

(99,389)

Other fair value (gains)/losses

18

(1,254)

(6,948)

(5,315)

(48,140)

Unit-based compensation expense

13

1,280

1,210

5,541

6,351

Financing costs

17

14,720

12,478

43,513

32,512

Interest expense

17

(14,178)

(11,754)

(42,056)

(30,483)

Tenant inducements

509

838

1,612

3,652

23,555

23,101

68,227

70,270

Net income items related to financing activities

19

194

292

770

876

Changes in non-cash operating assets and liabilities

20

(3,343)

5,638

(13,263)

(7,828)

Cash from operating activities

20,406

29,031

55,734

63,318

Cash flows from (used in) investing activities

Acquisition of investment properties

4

-

(1,861)

-

(72,730)

Investment in joint ventures

6

(1,037)

(237)

(11,500)

(1,284)

Other investments

-

-

-

(250)

Proceeds from sale of investment properties

5

9,102

-

9,102

-

Additions to investment properties

3

(28,333)

(39,095)

(72,046)

(95,290)

Cash used in investing activities

(20,268)

(41,193)

(74,444)

(169,554)

Cash flows from (used in) financing activities

Mortgage and loan repayments

20

(24,076)

(31,475)

(76,621)

(217,465)

Mortgage advances

20

75,766

35,425

100,959

479,671

Financing fees

(554)

(2,274)

(1,696)

(15,681)

Credit facility advances/(repayments)

20

(40,060)

14,990

21,747

(115,475)

Principal repayments on lease liabilities

(71)

(48)

(176)

(144)

Trust units issued, net of issue costs

13, 15

77

-

715

414

Trust units purchased and cancelled

15

(1,670)

-

(1,998)

-

Deferred units purchased and cancelled

13, 15

(388)

(576)

(1,086)

(1,311)

Interest paid on units classified as financial liabilities

19

(194)

(292)

(770)

(876)

Distributions paid

20

(7,606)

(7,511)

(22,873)

(22,624)

Cash from financing activities

1,224

8,239

18,201

106,509

Increase (decrease) in cash during the period

1,362

(3,923)

(509)

273

Cash at the beginning of period

2,396

6,260

4,267

2,064

Cash at end of period

$

3,758

$

2,337

$

3,758

$

2,337

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

5

InterRent Real Estate Investment Trust

Notes to Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023 and 2022 and as at December 31, 2022 Unaudited (Cdn $ Thousands except unit amounts)

  1. ORGANIZATIONAL INFORMATION
    InterRent Real Estate Investment Trust (the "Trust" or the "REIT") is an unincorporated, open-ended real estate investment trust created pursuant to a Declaration of Trust, dated October 10, 2006, and most recently amended and restated on May 21, 2019, under the laws of the Province of Ontario.
    The Trust was created to invest in income producing residential properties within Canada. InterRent REIT Trust Units are listed on the Toronto Stock Exchange under the symbol IIP.UN. The registered office of the Trust and its head office operations are located at 485 Bank Street, Suite 207, Ottawa, Ontario, K2P 1Z2.
    These condensed consolidated interim financial statements for the period ended September 30, 2023 were authorized for issuance by the Trustees of the Trust on November 1, 2023.
  2. BASIS OF PRESENTATION Statement of compliance
    These condensed consolidated interim financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting" as issued by the International Accounting Standards Board ("IASB"). Accordingly, certain information and footnote disclosure normally included in the annual financial statements prepared in accordance with International Financial Reporting
    Standards ("IFRS"), as issued by the IASB, have been omitted or condensed.
    The financial statements have been presented in Canadian dollars, which is the Trust's functional currency, rounded to the nearest thousand unless otherwise indicated.
    These condensed consolidated interim financial statements should be read in conjunction with the Trust's annual consolidated financial statements for the year ended December 31, 2022.
    Basis of presentation
    The Trust presents its consolidated balance sheets based on the liquidity method, whereby all assets and liabilities are presented in increasing order of liquidity.
    These condensed consolidated interim financial statements have been prepared on a historical cost basis except for:
    1. Investment properties, which are measured at fair value (except for investment properties under development where fair value is not reliably determinable);
    2. Financial assets and financial liabilities classified as "fair value through profit and loss", which are measured at fair value; and
    3. Unit-basedcompensation liabilities and Class B LP Unit liability, which are measured at fair value.

6

InterRent Real Estate Investment Trust

Notes to Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023 and 2022 and as at December 31, 2022 Unaudited (Cdn $ Thousands except unit amounts)

  1. BASIS OF PRESENTATION (Continued) Material accounting policies
    The condensed consolidated interim financial statements have been prepared using the same accounting policies and methods as those used in the consolidated financial statements for the year ended December 31, 2022.
    Basis of consolidation
    The condensed consolidated interim financial statements include the accounts of the Trust and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation. Subsidiaries are entities over which the Trust has control and are consolidated from the date control commences until control ceases. Control is achieved when the Trust has power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns.
    Critical accounting estimates and judgments in applying accounting policies
    The preparation of financial statements in accordance with IAS 34 requires the use of certain critical accounting estimates. It also requires management to exercise judgment when applying the Trust's accounting policies. The critical accounting estimates and judgments have been set out in notes 2 and 3 to the Trust's consolidated financial statements for the year ended
    December 31, 2022.
    Comparative information
    Certain comparative figures have been reclassified to conform to the current year's presentation.
    These reclassifications had no effect on the reported net income. An adjustment has been made to the Consolidated Balance Sheet, Consolidated Statements of Cash Flows, and the relevant accompanying notes for the fiscal year ended December 31, 2022 to reclassify certain transaction and other costs from the carrying value of joint ventures to investment properties. $880 was moved from investment in joint ventures to investment properties to improve the clarity of the disclosure around the Trust's share of the net assets of the joint ventures.
  2. INVESTMENT PROPERTIES
    Investment properties include income properties, properties under development and land held for development.

September 30, 2023

December 31, 2022

Income properties

$

4,277,878

$

4,152,141

Properties under development

38,088

101,783

$

4,315,966

$

4,253,924

Income properties:

September 30, 2023

December 31, 2022

Balance, beginning of year

$

4,152,141

$

3,998,193

Acquisitions (note 4)

-

72,600

Dispositions (note 5)

(10,892)

-

Transfers from properties under development

70,173

-

Property capital investments

69,146

89,673

Fair value adjustments

(2,690)

(8,325)

$

4,277,878

$

4,152,141

7

InterRent Real Estate Investment Trust

Notes to Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023 and 2022 and as at December 31, 2022 Unaudited (Cdn $ Thousands except unit amounts)

3. INVESTMENT PROPERTIES (Continued)

Properties under development:

Properties that are undergoing a significant amount of development work to prepare the property for use as income properties.

September 30, 2023

December 31, 2022

Balance, beginning of year

$

101,783

$

64,907

Acquisitions (note 4)

-

2,431

Transfer to income properties

(70,173)

-

Property capital investments

6,478

34,445

$

38,088

$

101,783

The fair value of the income properties is determined internally by the Trust. The fair value methodology of the Trust's income properties is considered a level 3 valuation as significant unobservable inputs are required to determine fair value.

The Trust determined the fair value of each income property internally based upon the direct capitalization income approach method of valuation. The fair value was determined by applying a capitalization rate ("Cap Rate") to forecasted stabilized net operating income ("SNOI"), which incorporates turnover estimates, market rent adjustments, allowances for vacancy, management fees, labour and repairs and maintenance for the property. In order to substantiate management's valuation, the Trust engaged a leading independent national real estate appraisal firm to provide appraisals for substantially all of the portfolio at December 31, 2022. The Trust engaged the firm once again to review and advise of any significant changes in any of the key input assumptions in the model (such as Cap Rate, turnover estimate and market rent adjustments) as at September 30, 2023, in order for the Trust to complete its internal valuations.

The capitalization rate assumptions for the income properties are included in the following table:

September 30, 2023

December 31, 2022

Range

Weighted average

Range

Weighted

average

Capitalization rate

3.25% - 6.25%

4.22%

3.00% - 5.75%

4.04%

8

InterRent Real Estate Investment Trust

Notes to Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023 and 2022 and as at December 31, 2022 Unaudited (Cdn $ Thousands except unit amounts)

3. INVESTMENT PROPERTIES (Continued)

The direct capitalization income approach method of valuation requires that SNOI be divided by a Cap Rate to determine a fair value. As such, changes in both SNOI and Cap Rate could significantly alter the fair value of the investment properties. The tables below summarize the impact of changes in both SNOI and Cap Rate on the Trust's fair value of the income properties:

As at September 30, 2023

Forecasted stabilized net

-3%

-1%

As estimated

+1%

+3%

operating income

$

175,110

$

178,721

$

180,526

$

182,331

$

185,942

Capitalization rate

-0.25%

3.97%

$

4,410,837

$

4,501,782

$

4,547,254

$

4,592,727

$

4,683,672

Cap rate used

4.22%

$

4,149,531

$

4,235,089

$

4,277,878

$

4,320,646

$

4,406,203

+0.25%

4.47%

$

3,917,455

$

3,998,227

$

4,038,613

$

4,078,999

$

4,159,771

As at December 31, 2022

Forecasted stabilized net

-3%

-1%

As estimated

+1%

+3%

operating income

$

162,714

$

166,069

$

167,746

$

169,423

$

172,778

Capitalization rate

-0.25%

3.79%

$

4,293,235

$

4,381,756

$

4,426,016

$

4,470,276

$

4,558,796

Cap rate used

4.04%

$

4,027,565

$

4,110,607

$

4,152,141

$

4,193,650

$

4,276,693

+0.25%

4.29%

$

3,792,858

$

3,871,062

$

3,910,163

$

3,949,265

$

4,027,468

The two (2022 - three) properties under development are valued at acquisition cost plus development costs. The direct capitalization income approach method of valuation is not a reliable measure as the properties are undergoing a significant amount of work which will affect multiple components of the estimated net operating income as well as the Cap Rate. The Trust expects the fair value of the properties to be reliably determinable when development is substantially complete, and will measure both investment properties under development at cost until either its fair value becomes reliably determinable or development is completed (whichever is earlier).

Cash outflow used for additions to investment properties for the three and nine months ended:

Three months ended

Nine months ended

September 30

September 30

2023

2022

2023

2022

Property capital investments

$

(29,944)

$

(37,241)

$

(75,624)

$

(99,062)

Changes in non-cash investing accounts payable and

accrued liabilities

1,611

(1,854)

3,578

3,772

$

(28,333)

$

(39,095)

$

(72,046)

$

(95,290)

9

InterRent Real Estate Investment Trust

Notes to Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2023 and 2022 and as at December 31, 2022 Unaudited (Cdn $ Thousands except unit amounts)

4. INVESTMENT PROPERTY ACQUISITIONS

During the nine months ended September 30, 2023, the Trust did not complete any investment property acquisitions.

During the nine months ended September 30, 2022, the Trust completed the following investment property acquisitions:

Suite

Ownership

Total Acquisition

Mortgage

Interest

Acquisition Date

Count

Interest

Costs(1)

Funding(1)

Rate

Maturity Date

January 24, 2022

36

50%

$

8,722

$

5,363

BA + 1.35%

January 28, 2023

February 28, 2022

21

50%

4,845

2,965

BA + 1.35%

January 28, 2023

June 30, 2022

254

50%

57,370

34,191

4.02%

December 1, 2027

September 8, 2022(2)

0

2.5%

2,431

638

BA + 1.00%

December 31, 2022

311

$

73,368

$

43,157

  1. The total acquisition costs and mortgage funding represent the Trust's ownership interest.
  2. During Q3 2022, the Trust acquired an additional 2.5% stake in the development site at 900 Albert Street, Ottawa bringing the Trust's direct economic ownership up to 16.67%. In total, the Trust owns a 50% stake in the development property through a combination of its direct investment in the project and its ownership in the TIP Albert Limited Partnership joint venture. See notes 6 and 7 for more information.

Cash outflow used for investment property acquisitions for the three and nine months ended September 30, 2023 were nil (September 30, 2022 - $1,861 and $72,730 respectively).

5. INVESTMENT PROPERTY DISPOSITIONS

During the nine months ended September 30, 2023, the Trust completed the following investment property disposition. This disposition does not meet the definition of discontinued operations under IFRS:

Suite

Ownership

Mortgage

Disposition Date

Count

Interest

Sale Price

Net Proceeds

Discharged

August 28, 2023

54

100%

$

11,500

$

10,860

$

6,927

During the nine months ended September 30, 2022 the trust did not dispose of any investment properties.

A loss of $32 was recognized for the nine months ended September 30, 2023 in connection with this disposition. The loss represents the difference between the net proceeds (sale price less closing costs) and the carrying value of the properties at the date of disposition.

Cash inflow received from the sale of investment properties for the three and nine months ended:

Three months ended

Nine months ended

September 30

September 30

2023

2022

2023

2022

Net Proceeds

$

10,860

$

-

$

10,860

$

-

Vendor take-back mortgage issued

(1,500)

-

(1,500)

-

Promissory note issued

(500)

-

(500)

-

Non-cash closing costs

242

-

242

-

$

9,102

$

-

$

9,102

$

-

10

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InterRent Real Estate Investment Trust published this content on 31 October 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 02 November 2023 08:31:49 UTC.