TSX:ERE.UN - Post by User
Post by
retiredcfon May 04, 2022 8:24am
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Post# 34654146
TD
TD European Residential REIT
(ERE.UN-T) C$4.81
Solid Dutch Fundamentals Set Stage for 5% Top Line Growth Event
Forecast update. For our initial thoughts on the quarter, click here. Impact: SLIGHTLY POSITIVE
Fundamentals Remain Strong. Management believes that it can continue to generate 20%+ average uplifts on turnover. Combined with the inflation-based 2.95% weighted average increase on renewals that take effect July 1, we believe the REIT can generate close to 5% AMR growth on its existing portfolio in 2022, nicely above the 3%-4% longer-term target. While inflation is running ahead of 2021 levels thus far in 2022 (~7.4% through March), we do not believe the regulator will allow that to flow through to 2023 allowable rent increases. That said, with minimal exposure to inflation on the cost side (tenants pay utilities, property management is set as a percentage of revenue), ~3% allowable increases on renewals and 15-20% increases on turnover still translates into same property NOI growth in the 5%+ range.
Acquisition activity remains robust. The REIT has completed €85.4mm of acquisitions year-to-date. While interest rates have increased ~100bps (management locked in 2.5% rates for acquisitions completed in Q1), investing spreads remain positive. Management noted a good amount of deal flow and remains comfortable with a target of €200mm of acquisitions for 2022. Pro forma YTD activity, we estimate the REIT has ~€250mm of acquisition capacity. Our forecast has €100mm in unannounced acquisitions over the back half of 2022.
Forecast increased. After bumping our 2022/23 AFFO estimates by 4%/7% following Q4 results, and despite using financing/refinancing mortgage rates that are 100bps higher, we are again raising our forecast earnings following the Q1 beat and solid fundamental outlook. Our 2022 AFFO estimate increases 4% while our 2023 estimate is +3%. Our NAV increases 7.5% to €4.30 on the back of a lower residential cap rate (-15bps to 3.35%) and better NOI forecast, although given the recent weakness in the EUR, our CAD NAV is unchanged at $5.80.
TD Investment Conclusion
We continue to like ERES' combination of strong internal growth potential and ability to grow through acquisitions. We are maintaining our BUY rating and $6.00 target price.