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 | $ | 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 |
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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 | (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 | (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.
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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.
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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 | 32 | - | 32 | - | |||||
Fair value adjustments on investment properties | 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 | - | (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 | 9,102 | - | 9,102 | - | |||||
Additions to investment properties | (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.
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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)
- 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. - 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: - Investment properties, which are measured at fair value (except for investment properties under development where fair value is not reliably determinable);
- Financial assets and financial liabilities classified as "fair value through profit and loss", which are measured at fair value; and
- Unit-basedcompensation liabilities and Class B LP Unit liability, which are measured at fair value.
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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)
- 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. - 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 |
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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% |
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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) | |
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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 |
- The total acquisition costs and mortgage funding represent the Trust's ownership interest.
- 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 | $ | - | |
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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.