Call 800 665 0411 to learn about our services for your stock

Search   Follow Investorideas on Twitter   Investorideas is on Facebook   Investorideas is on Youtube   Investorideas is on Pinterest  Investorideas is on stocktwits   Investorideas is on tumblr   Investorideas is on LinkedIn   Investorideas Instagram   Investorideas Telegram   Investorideas Gettr   Investorideas RSS

Share on StockTwits

Reit's NOI up in Q1/23, but Interest Expense Is Too

Source: David Chrystal

May 19, 2023 ( Newswire) Though continued net operating income growth is expected, management is considering ways to maximize shareholder value, noted an Echelon Capital Markets report.

During Q1/23, European Residential REIT (ERE.UN:TSE) outperformed operationally, but higher interest expense offset net operating income (NOI) growth, reported Echelon Capital Markets analyst David Chrystal in a May 11 research note.

Given the quarterly results, which were as anticipated, Chrystal wrote that Echelon revised some of its estimates on this Canadian owner of residential units in the Netherlands. Ultimately, Echelon lowered its target price on the REIT to CA$4.50 per share from CA$4.90.

Attractive Investment Opportunity

However, Echelon expects the REIT will continue delivering consistent organic NOI growth, Chrystal highlighted. At its current share price of about CA$3.09, he added, the company is still trading "at a steep net asset value (NAV) discount (38%) versus the Canadian multifamily peer group at (13%)."

Therefore, the European Residential REIT is a compelling investment opportunity, offering a roughly 50% return.

Accordingly, it is a Buy.

NOI Growth Continues

The REIT's portfolio performed solidly during Q1/23, posting "organic NOI growth supported by strong rent lifts on turnover, modest lifts on renewal and elevated occupancy," Chrystal wrote.

Specifically, same-property NOI rose 5.2%, and revenue increased 5.4% during Q1/23.

"Slightly higher rental caps in 2023 (3.1% on regulated, 4.1% on liberalized) should allow the REIT to continue to deliver year-over-year rent growth in excess of its 3-4% target range," wrote Chrystal.

Interest Expense a Headwind

As for costs, operating expenses in Q1/23 were up 6.3%, notable among them persisting higher interest. Consequently, funds from operations per unit (FFO/unit) were down by about 6% over FFO/unit in Q1/22.

If the REIT's interest expense remains where it is, in the high 4% range for long-term mortgage debt, Chrystal purported, it will continue impacting the company's NOI growth "over the next few years."

Asset Divestment Possible

Chrystal reported that the REIT's management, at this time, is looking into and considering all possible ways to maximize shareholder value.

"Given the significant NAV discount and elevated interest rate environment, we could see asset dispositions, with proceeds earmarked for debt reduction," Chrystal wrote but added such a transaction would take time to carry out and to have an effect.

Changes to Estimates

To reflect the company's Q1/23 results, Echelon revised some of its estimates on European Residential REIT.

Given the higher interest expense, the wealth management firm lowered, by 1% each, its FFO and adjusted funds from operations forecasts on the REIT for the full year of 2023. It also slightly raised the cap rate it uses to determine NV to 4.25% from 4.15%.

As a result, NAV stayed about the same.

More Info: Newswire

This news is published on the Newswire - a global digital news source for investors and business leaders

Disclaimer/Disclosure: is a digital publisher of third party sourced news, articles and equity research as well as creates original content, including video, interviews and articles. Original content created by investorideas is protected by copyright laws other than syndication rights. Our site does not make recommendations for purchases or sale of stocks, services or products. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. All investing involves risk and possible losses. This site is currently compensated for news publication and distribution, social media and marketing, content creation and more. Disclosure is posted for each compensated news release, content published /created if required but otherwise the news was not compensated for and was published for the sole interest of our readers and followers. Contact management and IR of each company directly regarding specific questions.

More disclaimer info: Learn more about publishing your news release and our other news services on the newswire

Global investors must adhere to regulations of each country. Please read privacy policy:

That's all it takes to get an article published on Investor Ideas - Learn More

Get more Homebuilder Stock Investor Ideas - news, articles, and stock directories