European Residential REIT
(ERE.UN-T) C$3.75
Q2/22 First Look: Results In-Line; 12% Y/Y AFFO/Unit Growth Event
Q2/22 results. A conference call will be held at 9:00 a.m. ET today (1-833-950-0062; passcode: 100174).
Impact: NEUTRAL
FFO/unit (f.d.) of €0.043 was +13% versus Q2/21 and in-line with our estimate. AFFO/unit of €0.037 was +12% y/y and also in line (Exhibit). The gains were on higher stabilized NOI and accretive acquisitions completed over the last year.
ERES continued its strong earnings momentum into Q2, benefiting from solid rental growth and improving apartment market fundamentals. Residential same-property occupancy was +40bps y/y to 98.4%, stabilized net AMR increased +4.6%, while SP residential margins (excluding service charge income/expense) were +40bps to 81.6%.
Q2 acquisitions include the previously announced Rotterdam assets (5 multi- residential properties, 110 units) at €25.7mm, or ~€233,000/suite. While the current macro environment has slowed the transaction market, we expect the REIT to remain active on the acquisition front for the remainder of H2/22.
During Q2, the Dutch government announced its intention to regulate the mid-market rental sector (suites with maximum starting rents of €1,000-1,250), beginning on January 1, 2024. The proposition would extend the Housing Evaluation System with a yet-to-be determined surcharge percentage. With limited firm details, the impact that this may have on the REIT remains uncertain.
Residential Operating Highlights
Q2 Residential Stabilized NOI was +4.5% y/y led by a 5.2% increase in revenues and offset by a 9.8% increase in operating expenses (higher service charges). Stabilized residential NOI margin was -110bps y/y to 76.5% (+40bps excluding service charge pass throughs). Stabilized residential net AMR was +4.6% y/y to €931, led by gains in the Randstad (+7.4%). Occupancy increased slightly to 98.4% (+40bps y/y). Commercial SPNOI was +0.1% y/y.
Achieved 22.4% (17.1% in Q2/21) in rent uplifts on turnover, including 18.7% on liberalized suites (2.1% of suites), 1.8% on regulated suites (0.2% of suites), and 60.8% on suites converted to liberalized (0.3% of suites).
Balance Sheet/Other
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Q2/22 leverage was 48.8%, +100bps q/q (WAIR: 1.77%; WADM: 3.94 years). As at June 30, ERES had liquidity of ~€34mm (€16mm of cash; €18mm undrawn on credit lines), a modest decline from €44mm in Q1/22.
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IFRS NAV -0.7% versus Q1/22 to €4.28.