Post by
incomedreamer11 on Dec 23, 2021 10:08am
TD comments
European Residential REIT (ERE.UN-V) C$4.34 ERES Announces €36.3mm Acquisition of Single-Family Rentals Jonathan Kelcher, CFA Lorne Kalmar, CPA, CA Event ERES acquired the Octo Portfolio, consisting of eight properties aggregating 137 single-family homes for €36.3mm (~€265,000/unit), located throughout the Netherlands. We estimate a low 3% year one cap rate.
Impact: SLIGHTLY POSITIVE
Our Take: The REIT continues to have a busy Q4 on the acquisition front. This portfolio brings YTD acquisitions to €162.4mm for 499 units, or €325,651/unit. Q4/21 acquisition activity now totals €115.5mm, ahead of both our €54.0mm Q4/21 forecast and our 2022 forecast for €25mm, which we view positively given our expectation that acquisitions should continue to be a positive catalyst for the REIT's unit price. As a reminder, on November 30, the REIT acquired the Willem Property and Panorama Portfolio (link).
The Octo Portfolio properties are located in the municipalities of Leiderdorp, Voorhout, Boskoop, Wierden, Amersfoort, Vlijmen, and Middelburg. Approximately 55% of the units are in the Randstad region and all of the properties are located in close proximity to other ERES assets. This should allow for some operating synergies as the homes will managed by ERES’s existing property managers in the regions. The portfolio is currently 99% occupied. Approximately 70% of the units are liberalized, with the majority of remaining units eligible for liberalization upon turnover. This should provide significant rent uplift potential, in our view. We note that YTD, the REIT has achieved 42.7% rent uplifts on conversions from regulated to liberalized. Pro forma this acquisition (and related financing), we estimate the REIT has ~ €350mm+ of acquisition capacity (~€25mm on its credit facilities plus the €165mm CAP REIT acquisition facility).
We expect the REIT to continue to be active on the acquisition front into the beginning of 2022. The acquisitions are being initially financed by drawings on the REIT's credit facility, which will be replaced in part by long-term mortgage financing to be arranged in combination with the REIT's other Q4/21 acquisitions. We estimate current rates in the 1.25% range (six-year term), providing an attractive spread to the ~3% average cap rate of Q4 acquisitions.
Valuation. ERES is trading at 20.1x 2022F AFFO/unit, which compares with its European and Canadian peers at 21.2x and 25.9x, respectively