TSX:ERE.UN - Post by User
Post by
retiredcfon Aug 05, 2022 8:52am
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Post# 34873527
TD 2
TD 2 European Residential REIT
(ERE.UN-T) C$3.75
Strong Fundamentals Continue to Drive Solid Operating Results Event
Forecast update. For our initial thoughts, click here. Impact: NEUTRAL
Regulatory changes. Much of the call focused on potential changes in the Dutch rental regulatory system. The government has released high level proposals but no legislation as of yet. Changes to benefit mid-market renters (€1,000-€1,250) would likely be made through the point system by modifying the number of points needed to qualify for liberalized status. This could potentially put some liberalized suites back to regulated on turnover. Management estimates ~1/3 of its liberalized suites could be impacted. However, changes to the point system to encourage energy retrofits could add points to many of these same suites, keeping them in the liberalized bucket. Our view: While something to keep an eye on, given that these changes would only apply to at most 1/6th of the portfolio and only on turnover (currently ~10%) beginning in 2024, we would expect a very modest slowdown in rental rate growth, if any at all.
Fundamentals Remain Strong. Management believes that it can continue to generate 20%+ average uplifts on turnover. Combined with the July 1 2.95% weighted average increase on renewals, we believe the REIT can generate ~5% AMR growth on its existing portfolio in 2022, nicely above the 3%-4% longer- term target. With minimal exposure to inflation on the cost side (tenants pay utilities, property management is set as a percentage of revenue), expected ~3% allowable increases on renewals and 15-20% increases on turnover still translates into same property NOI growth in the 4-5% range for 2023/24.
Acquisitions. While management's €200mm 2022 acquisition target is unchanged (€85.4mm YTD), management is being more cautious given the current macro and regulatory environment. Our forecast has €65mm of unannounced acquisitions over the balance of 2022.
Forecast largely unchanged. Our 2022/23 AFFO/unit estimates decline slightly (2%/3%) to reflect a slower pace of acquisitions and a weaker economic environment. We also introduced our 2024 estimate and expect 2022-24 average AFFO/unit growth of 9%. Our NAV decreases 2.4% to €4.00, although given the recent weakness in the EUR, our CAD NAV declines 5.5% to $5.20.
TD Investment Conclusion
We are maintaining our BUY rating and $5.50 target price.