TSX:ERE.UN - Post by User
Post by
incomedreamer11on Nov 09, 2021 8:43am
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Post# 34103850
More update from Scotia after conference
More update from Scotia after conferencePotential for Asymmetrical Returns in 2022: Target Increased to $5.50
OUR TAKE: Positive.
Our target is increased to $5.50 (+$0.50), and our NAVPU increased to $5.05 (at EUR/CAD = 1.44) versus IFRS NAVPU at $5.50 (up ~10% q/ q). Our 1-yr fwrd NAVPU is $5.50
. Our target is based on 24x 2023 AFFO multiple as we roll-forward our 2023 estimates. We forecast superior growth profile for ERES with AFFOPU CAGR of +10% in 2020A-2023E. ERES is the only name with double-digit discount to NAV (12% discount to NAV) and double-digit AFFO growth profile (+11.6% 2020-2022E AFFOPU CAGR).
We think there is a potential for asymmetrical returns in 2022. Our target price implies 27% total return potential in one year. A 15% discount to NAV (worst case scenario) will imply a total downside of 3% in next one year. The reason this opportunity exists is because ERES is listed in Canada but owns foreign assets (in the Netherlands), and units are not widely traded (due to 66% ownership by CAPREIT).
Catalysts: (1) +3.5% rent growth in 2022 vs. market pricing in -6%,
(2) Portfolio transactions/ M&A in Dutch multi-family markets providing validation to our NAV.
KEY POINTS Rent growth guidance of 3% to 4% in 2022 (y/y) looks very reasonable to us: We note that liberalized portfolio can achieve a rent growth of CPI +1%. Due to pick-up in inflation recently, we assume Dutch CPI to be 2% for 2022 and accordingly model 3% rent growth on liberalized portfolio. We note that rental indexation limitation at 0% on regulated suites is likely to end on June 30, 2022 (although no clarity on this regulation yet). If rent growth restriction on regulated suites is lifted, and assuming it goes back to CPI levels (conservatively), and assuming 15% rent growth on total turnovers, we think a 3% to 4% rent growth is very achievable for this portfolio despite all the regulatory restrictions.
Cheap Debt Financing helping cap rate compression; Transaction Volume Likely to Pick Up: IFRS cap rate was reduced to 3.53% (down 9 bp q/q) vs. Scotia NAV cap rate of 3.60%. Management noted that external appraisals are done on quarterly basis, and cap rates have compressed this year as investor appetite for multi-residential properties remains robust in the Netherlands.
ERES secured a €91.8M mortgage during the quarter at a weighted average interest rate of 1.12%, bringing down ERE's overall interest rate on mortgages to 1.53% from 1.61% last quarter.