TSX:ERE.UN - Post by User
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incomedreamer11on Nov 07, 2024 11:00am
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Post# 36301074
Scotia comments after conference
Scotia comments after conference
Working Towards the Sale of Remaining Assets
OUR TAKE: Positive. At this point, Quarter results are irrelevant (Q3 was in line by the way). Last night, ERES announced that the Board of Trustees will hold a Special Meeting of Unitholders on January 7, 2025, to effectively sell/wind-up/liquidate/dissolve the REIT in the manner they believe is in the best interest of Unitholders, and then distribute the net proceeds in the manner they believe is in the best interest of Unitholders. Basically, this will give the most flexibility to the Board going forward. With the proposed amendments, ERES would be able to act quickly with future property or portfolio disposition opportunities.
Recall, in Sep ’24, ERES announced sale of approximately half of the portfolio. See our note titled ERES: Half Done and Half more to go.
ERES unit price is up 6.8% (vs REIT sector down 10.5%) since Sep 17. Our target is $3.75 which includes $1.13 of Special Distribution and $2.62 of NAVPU of the remaining portfolio (which has not been sold so far). So, clearly, we are moving towards a scenario when ERES ceases to exist as a public REIT in the next 12 months. Conf call tomorrow @ 9am ET (dial in 833-950-0062).
KEY POINTS
In-Line Q: Reported FFOPU came in at €0.040, in line with Scotia and consensus estimate of €0.040. See Exhibit 1 for variance. FFOPU decreased by 4.1% y/y in Q3/24 -5.9% in Q2/24) due to higher y/y current income tax expense and other adjustments - see Exhibit 1 for variance.
FV gains recorded in the quarter: ERES recorded FV gains of €39.4M in Q3 (after FV gains of €11.1M in Q2). Reported IFRS NAVPU increased q/q at €3.01 (C$4.54) vs last quarter at €2.94 (C$4.31). Leverage remains improved from last quarter at 52.3% (down 390bp q/q).
Dispositions were previously announced: On September 15, ERES announced disposition of approximately half of its portfolio (by value) for an aggregate sale price of €748M which implies €232k per residential suite (3,179 suites), and we estimate implied cap rate of ~4.7%. The dispositions will be executed in two separate agreements: i) 2,947 residential suites will be disposed for €695M to a consortium of parties that includes TPG Angelo Gordon, Dream Unlimited Corporation, Stadium Capital Partners, and several co-investment partners; ii) 232 residential suites will be disposed for €44M to an undisclosed party. ERES is expecting to close the transactions around Q1/25. With the announcement, ERES also completed the disposition of one office building in Germany for €9M. In total, ERES has announced dispositions of ~€850M since July, and we estimate disposition sale price to be approximately 2.5% above IFRS valuation (as of Q2/24).
SP rents grew +8.0% (+6.3% y/y in Q2). The growth is a function of higher indexation rate of 5.5% (effective 1st July 2024). Residential portfolio continues to perform very well on the operational side. However, earnings growth is muted due to higher interest rates on debt refinancing.
SPNOI growth was +2.1% (+5.4% y/y in Q2). SPNOI growth was driven by higher rents. SPNOI margins were down by 170bps y/y at 76.7% driven by increase in recoverable service charge expense and R&M costs for the SP portfolio.
Continued strong rent growth on turnovers: Growth remained robust on turnovers (unrestricted rental units). Turnover was 2.5% in Q3/24 (1.9% in Q2/24). ERES’ rent growth on suite turnovers was ~15% in Q3/24. This was driven by rent increases in liberalized suites.
SP Occupancy down 170 bps q/q at 96.1%. Overall residential occupancy is at 95.1%, below its historical 98-99% level. Occupancy for commercial properties decreased to 91.3% due to the expiration of one of the commercial leases.
Leverage improved sequentially: Debt to GBV decreased by 390bp q/q at 52.3%. ~33% of total mortgage is coming due in 2024 & 2025. Weighted avg. effective interest rate was 2.08% as of Q3/24 (down 13bp q/q). Liquidity available of €88.6M cash-in-hand and unused credit facility is significantly improved as ERE used the proceeds from property and suite dispositions to partially repay its credit facility.