European Residential REIT T.ERE.UN

TD comments

[incomedreamer11]

After a quiet start to the year, we are encouraged to see a resumption in acquisition activity. Both properties are new/recently-renovated assets that should require little or no near-term capex and are nearly fully liberalized. These assets are also located in close proximity to existing clusters of ERES' properties which should provide for operational synergies. We had forecast €75.0mm of acquisitions in H2/21. Management noted it is beginning to see more assets come to market and we expect the second half of the year to be more active.

We maintain that acquisitions should be a positive catalyst for the REIT's unit price. 

The Villa Property will be acquired for €28.5mm (C$41.9mm), or ~€274,000/ suite. This asset contains 104 suites (97% liberalized) and is located in Velperweg (Arnhem). The property was renovated in 2019. It is currently 98% leased at an occupied AMR of €922. Management sees good rent upside through both organic turnover and the upgrade of remaining regulated suites to liberalized. The Villa Property is located near three existing ERES assets.

The De Horizon Property aggregates 33 suites and will be acquired for €18.5mm (C$27.1mm), or ~€560,600/suite. The asset, which is located in the Oostenburg district of Amsterdam, was completed in November 2020 and ERES will be responsible for the majority of the lease up. It is located in close proximity to Amsterdam Central Station and major highways, as well as near many of ERES' existing Amsterdam assets.

The acquisitions will initially be financed by drawings on the REIT's credit facility, which will be replaced in part by long term mortgage financing. We estimate current rates in the 1.00% range (four-year term), providing an attractive spread to the mid-3% cap rate. 

Valuation. ERES is trading at 20.6x 2021F AFFO/unit