Post by
incomedreamer11 on Nov 08, 2021 8:04am
Scotia comments
Q3/21 Glance: In Line Q; IFRS NAVPU at $5.50 (Up ~10% Q/Q)
OUR TAKE: Slight Positive.
Overall a mostly in-line quarter with strong performance across key operating metrics.
Despite strong operating performance YTD, ERES is still one of the most discounted names in our coverage. ERES is currently trading at a 10% discount to Scotia NAV and ~20% discount to IFRS NAV vs. the REIT Sector at 4% premium to NAV and CAD multifamily sector at 10% premium to NAV.
IFRS NAVPU grew ~10% q/q to €3.81/unit (C$5.50 at current f/x rate): ERES recorded FV gains of €76.9M in Q3/21 (€0.33/unit), well above €34.9M of gains reported in Q2/21 (€0.15/unit) and €4.0M FV loss in Q1/21 (€0.02/unit). IFRS cap rates on the residential portfolio were reduced by 9 bps to 3.53% this quarter vs. 3.62% in Q2/21. We note our Scotia NAV cap rate of 3.65%.
Largely In-Line Quarter: Q3 FFOPU was €0.039 (vs. €0.034 last year) and in line with Scotia and consensus estimate of €0.039. Excluding the one-time landlord levy rebate (€152k), FFOPU came in at €0.038, implying y/y growth of 13%.
Occupancy up slightly over last quarter: Total portfolio occupancy came in at 98.2% in Q3/21, up slightly from 98.0% in Q2/21 and mostly in line with 98.3% occupancy levels in Q1/21 and Q4/20. SP occupancy was steady at 98.5% this quarter. SP rents grew 3.6% y/y this quarter vs. +4.0% in Q2/21. SP NOI was up 5.7% y/y this quarter vs. +5.3% in Q2/21. Excluding the one-time landlord levy rebate, SP NOI was +4.6% (our estimate). ERES reiterated that rent collections throughout the pandemic remain in line with historical average.
Strong Rent Growth on Turnovers: growth remained strong on turnovers (unrestricted rental units). ERES' rent growth was +16% y/y on turnovers in Q3/21, mostly in line with +17% growth last quarter. As a reminder, rent growth on regulated suites has been set at 0% for July 1, 2021 to June 30, 2022. The government has set a rental cap on annual indexation for Liberalized suites at CPI +1% for three years (May 1, 2021 to 30 April, 2024). Turnovers remain a key source of rental revenue growth moving forward.
Acquisition Activity: post-quarter, ERES entered into an agreement to purchase a 63 suite property in Rotterdam for €19.1M. Refinancing activity, falling interest rates: ERES secured a €91.8M mortgage on its acquired property in June 2021 at a 1.12% weighted average interest rate. Overall weighted average interest rates on mortgages fell to 1.53% this quarter from 1.61% in Q2/21. Post-quarter, ERES repaid €48.2M of its credit facility, resulting in a balance of €15.2M (vs. €63.4M at Q-end). In October, ERES also extended its €100M existing credit facility to 2024.
Strong Balance Sheet: current liquidity remained strong at €98M (up from €47.3M last quarter). Debt maturities have been taken care of for the remainder of the year, with ERES' next maturity not coming until the end of 2022. Leverage fell slightly this quarter to 47.2% (debt/GBV) vs. 47.9% in Q2/21