Post by
incomedreamer11 on May 05, 2021 1:17pm
Comments from Scotia
OUR TAKE: Neutral.
While Q1/21 operating metrics were impressive, market focus will be on next year's growth outlook.
Although there have been some restrictive rental growth policies in the Netherlands (i.e., 0% rent growth on regulated units [previously disclosed] and indexation limit of CPI + 1% for liberalized suites [new disclosure]), we note IFRS NAVPU (including deferred income tax liability) came in at $4.90 (€3.31/ unit) versus last quarter at $5.10 (€3.32/unit). Q1 numbers look good in the context of ERES discounted valuation (i.e., trading at ~12% discount to IFRS NAV with a distribution yield of 3.8%).
KEY POINTS In Line Quarter: ERES reported fully diluted Q1/21 FFOPU of €0.036 (vs. €0.033 last year), and largely in line with our estimate of €0.037 and consensus estimate of €0.039. NOI came in marginally below our forecasts, which led to the variance. Good Operating Metrics: Total portfolio occupancy was 98.3% in Q1/21 vs 98.3% in Q4/20 (& 98.4% in Q3/20), and remained high throughout the crisis so far. SP rents grew +3.9% y/y and SP occupancy was flat y/y. SP NOI grew +3.7% y/y in Q1/21 (vs +3.9% in full-year 2020). Rent collections remained in line with historical averages in 2021 so far and throughout the last year.
IFRS NAVPU at €3.31/unit (or C$4.90 on current f/x rate): IFRS cap rate on residential portfolio was 3.61%, unchanged from last quarter vs. Scotia NAV cap rate of 3.70%. ERES recorded FV loss of €3.9M in Q1/21 or €0.01/unit versus FV gains of €4.4M in Q4/20 or €0.02/unit (vs. €21.5M in Q3/20 or $0.14/unit) and €46M (or $0.20/ unit) in 2020.
Restrictive Rental Growth Policies in the Netherlands: As previously disclosed, rent growth on Regulated suites has been set at 0% for one year from 1st July'21 to 30th June'22. Moreover, government has enacted rental cap on annual indexation for Liberalized suites at CPI + 1% for three years (1st May'21 to 30th Apr'24). This has been disclosed by ERES for the first time. Although there was some discussions, it was uncertain whether such a measure would be taken by the coalition government. Rent increases still can be realized on turnovers (for liberalized suites). In the light of restrictive policies, rent growth (effective July 2021) could look like 1.5% p.a. vs current rate of 3.5% to 4.0% p.a. Will look for more details on the conference call tomorrow.
No acquisitions so far in 2021: ERES completed acquisitions with a total of €80.9M at an average cap rate of ~4% in second half of 2020, and financed the same with average cost of debt at 0.97%. In March 2021, ERES announced extension of its Pipeline Agreement with CAPREIT for additional two-year period ending March 2023, which makes available a further €165M to acquire properties.
Liquidity and leverage: Currently ERES has a total liquidity of €101M with no debt maturities until December 2022. Overall, leverage looks reasonable with Debt to GBV at 47.3% (vs 47.2% in Q4/20).