European Residential REIT T.ERE.UN

TD

[retiredcf]

This is a flash report so they might raise their current target of $5.50. GLTA

European Residential REIT

(ERE.UN-V) C$4.26

Q4/21 First Look: Results Ahead; Distribution +9% Event

Q4/21 results. A conference call will be held at 9:00 a.m. ET today (1-833-950-0062; passcode: 100174).

Impact: SLIGHTLY POSITIVE

FFO/unit (f.d.) of €0.041 was +17% versus Q4/20, and nicely ahead of our €0.038 estimate. AFFO/unit of €0.037 was also ahead (Exhibit). The beat was on higher- than-expected NOI.

Distribution Bump. ERES announced a 9% increase in its annual distribution to €0.12 from €0.11. This was ahead of the 4% increase we modelled.

Q4 was another strong operational quarter, underscoring the stability of the REIT's portfolio and the strength of the Dutch multi-residential fundamentals. Residential same-property occupancy was +40bps y/y to 98.7%. The REIT also reported a 4.1% increase in stabilized net AMR, including 19.1% on turnovers, the highest in its history. Additionally the regulated rent increase is estimated to be 2.3% for 2022 (2021: 0%).

Acquisition activity picked up in Q4, with three acquisitions for €115.5mm aggregating 362 suites, or ~€319,100/suite (link, link). Post-Q4, ERES announced two additional acquisitions totaling €65mm (link), bringing pro forma suites to 6,791. We continue to view acquisitions positively and believe the REIT has an additional ~€200mm of acquisition capacity while still remaining in the low-50% leverage range.

Residential Operating Highlights

• Q4 Residential Stabilized NOI was +8.0% y/y (YTD: +4.9%) as a 7.1% increase in revenues more than offset a 4.3% increase in costs. Stabilized residential NOI margin was +60bps y/y to 77.4%. Stabilized residential net AMR was +4.1% y/ y to €918, led by gains in Randstad (+5.8%) and Netherlands East (+3.1%). Commercial SPNOI was -5.5% y/y (higher costs).

• Achieved 19.1% (12.3% in Q4/20) in rent uplifts on turnover, including 16.4% on liberalized suites (2.3% of suites), 2.8% on regulated suites (0.4% of suites), and 56.7% on suites converted to liberalized (0.3% of suites).

  Balance Sheet/Other

• Q4/21 leverage was 46.8%, -40bps q/q (WAIR: 1.52%; WADM: 3.93 years). As at December 31, ERES had liquidity of ~€39mm (€10mm of cash; €29mm undrawn on credit lines), down from €98mm in Q3/21, owing to Q4 acquisition activity.

• Recognized a Q4 IFRS FV gain of €86.7mm, €0.37/unit (2021: €194.6mm). Residential cap rate declined to 3.33%.