TSX:ERE.UN - Post by User
Post by
incomedreamer11on Feb 22, 2024 9:16am
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Post# 35892897
Scotia comments on results
Scotia comments on results
Q4 Glance: Miss; Another FV Write-down; Operational Portfolio Performing Well Though
OUR TAKE: Mixed. Reported FFOPU came in at €0.038, below Scotia estimate of €0.041, and consensus estimate of €0.040. Miss was due to current income tax expense - Exhibit 2 for variance. FFOPU decreased 5.3% y/y in Q4/23 (similar to 4.9% decrease in Q3/23) due to higher interest expense and current income tax expense, partially offset by higher NOI and lower G&A expense.
ERES continued with the suite-by-suite privatization program as articulated previously on Q2 conf call. In total, 14 individual suites were sold in 2023 for €5.1M. ERES mentioned that they plan to accelerate their progress on this initiative in 2024. Post quarter, ERES disposed 14 more individual suites for €4.8M. Will look for more update on the conference call tomorrow @ 9 am.
Another quarter of FV write-down (=9.2% of current price): ERES recorded FV loss of €35.3M or C$0.22 per unit in Q4 (FV loss of €230.2M in 2023 or C$1.45). Reported IFRS NAVPU down slightly q/q at €2.90 (C$4.24) vs last quarter at €3.05 (C$4.38). Cap rates continued to expand. IFRS cap rate (residential) was adjusted 20bp higher on q/q basis to 4.39% vs Scotia cap rate of 4.75%. Leverage remains elevated at 57.6% (up 110bp q/q).
SP rents grew a solid +7.2% y/y in 2023. This was above management’s target range of 3% to 5%. The higher growth is also a function of higher indexation rate of 4.0% (effective 1st July 2023) versus 3.0% last year. In addition, suite conversions and capturing mark-to-market uplifts on turnover played an important role here. Needless to say, portfolio is performing very well on operation side.
SPNOI growth was +7.8% y/y in 2023. Acceleration on SPNOI growth was driven by higher revenues from increased SP rents and largely flat operating expenses. SPNOI margins were up by 140bp y/y at 78.6% (77.2% in 2022).
Continued strong rent growth on turnovers: Growth remained robust on turnovers (unrestricted rental units). Turnover was 13.8% in 2023 (12.4% in 2022). ERES’ rent growth on suite turnovers was ~20% in 2023 (similar to 2022). This was driven by rent increases in liberalized suites.
SP Occupancy at 98.5%, down 20bp from 98.7% last quarter. Overall occupancy has consistently remained strong at the 98-99% level (Exhibit 1). We note that 50% of vacancies are due to ongoing renovations upon turnover, these suites will provide uplifts once leased.
Leverage remains elevated: Debt to GBV increased by 110bp q/q at 57.6% – this was mainly due to write down on the portfolio value. ~35% of total mortgage is coming due in 2024 & 2025. Weighted avg. effective interest rate was 2.07% as of Q4/23 (unchanged q/q). Liquidity available of €29M cash-in-hand and unused credit facility.