Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Residential occupancies were high at 97.7% at period end.
- Occupied average rent for the residential portfolio increased by 6.2% compared to June 30, 2023.
- The REIT disposed of an additional 56 suites for EUR 15.1 million in gross proceeds since Q1.
- Fair value gain of EUR 11.1 million for Q2 due to higher forward NOI and a recovering transactional market in the Netherlands.
- Diluted NAV per unit increased modestly to EUR 2.94 at period end.
Negative Points
- Residential occupancy slightly decreased from the first quarter due to the optimization program.
- Total portfolio operating costs increased by 4.8% versus the comparative period, impacting margins.
- Diluted FFO per unit was down by 4.9% versus the comparative period to EUR 0.39 for the three months ended June 30, 2024.
- Higher interest rates incurred on credit facilities and mortgages payable, leading to a decrease in FFO and AFFO per unit diluted by 3.7% and 3.9%, respectively.
- The fair value of the property portfolio was down overall due to the disposition program.
Q & A Highlights
Q: Are there discussions underway for other portfolio sales similar to the recent ones?
A: The market is improving, and we are committed to surfacing value for ERES unitholders. However, there is nothing specific to report at this point. - Mark Kenney, CEO
Q: How would you characterize the overall market, given some European peers suggest values have troughed?
A: The Netherlands is working through a housing crisis, similar to Canada. The unit-by-unit privatization program is revealing value, and the family office segment is showing buoyancy. If interest rates stabilize, the valuation trough is likely behind us. - Mark Kenney, CEO
Q: Are you seeing market activity more on the single unit side or portfolios?
A: There is definitely a market for single-family homes, driven by the housing crisis in the Netherlands. The family office market is also showing signs of activity, with transactions happening in the apartment segment, typically involving smaller family offices. - Mark Kenney, CEO
Q: With the optimization strategy, where do you expect occupancy to go from here?
A: We are not pursuing occupancy maximization. Units sold after vacancy often require extensive rehab, leading to higher but not alarming vacancy levels. We focus on the highest and best use of every unit. - Mark Kenney, CEO
Q: What are the current refinancing rates for debt maturing in 2025, and are the maturities staggered?
A: Five-year money is in the low to mid-4s, around 4.3%. The 2025 maturities are roughly half in Q1 and the other half in Q4. - Jenny Chou, CFO
Q: How do you think about the cadence of the unit privatization program for the rest of the year?
A: We aim to establish a predictable run rate. The pace will depend on the market turnover of privatization-viable units versus non-viable ones. We need another quarter or two to predict volumes more steadily. - Mark Kenney, CEO
Q: Are investors looking past regulatory risks, or is it the improving interest rate environment driving capital back?
A: Stability in the regulatory regime and a favorable interest rate environment are both contributing factors. The housing market pricing is stabilizing, and the interest rate environment is viewed positively. - Mark Kenney, CEO
Q: Can you provide more details on the portfolio transaction in July, such as cap rate and asset quality?
A: The portfolio included more single-family homes, which are easier to privatize. We were happy with the pricing, which was above NAV, and believe pricing has improved further since. - Mark Kenney, CEO
Q: What is contributing to the record low turnover this quarter?
A: The low turnover is somewhat seasonal and not indicative of any particular trend. - Mark Kenney, CEO
Q: How should we model the impact of the mid-rent segment regulation on your portfolio?
A: The best way to model it is to reduce the top-line rent increase by about 1% per year for the next few years. - Mark Kenney, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
