European Residential Real Estate Investment Trust

Hello and welcome to the European Residential Real Estate Investment Trust fourth quarter and year end conference call. My name is Alex and I will be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star one on your telephone keypads. If you'd like to withdraw your question, you may press star two. I will now hand over to your host, Philip Burns, CEO. Over to you, Philip.

Thank you, operator, and good morning, everyone. Before we begin, let me remind everyone that during our conference call this morning, we may include forward-looking statements about our future financial and operating results. I direct your attention to slide two and our other regulatory filings. Joining me today is our CFO, Stephen Koh. After I provide an update on our operational progress during the quarter, Stephen will provide an overview of our financial results and positions. We are proud to be reporting to you today a third year of strong and increasingly profitable operational and financial results across all of ERES' portfolio metrics and business benchmarks. Starting with slide four, on the external growth front, ERES gathered significant momentum throughout the year and closed on five separate acquisitions of an aggregate 499 residential suites across 13 properties, which increased our suite count by 8% since the prior year end. This contributed to assets under management increasing by 26%. In addition to acquisitions and capital expenditure, this included 195 million euros in fair value gains that we recognized for the year end, December 31st, 2021, representing a 15% increase in market value on the same property basis. This was driven by steady and strong portfolio fundamentals resulting in a compression of implied capitalization rates to a weighted average of 3.33% across the REIT's residential properties, which is down 28 basis points from Q4 of 2020. The significant fair value appreciation also reflects the successful execution of the REIT's value-adding capital expenditure program, as well as its exceptional operating metrics, including its continually increasing rental revenues, expanding NOI margins, consistently high occupancy, all of which will be presented in detail shortly. That being said, our market capitalization and public vote increased only modestly by 8% and 9% respectively compared to the prior year and exhibiting the persistent disconnect between eREZ's underlying intrinsic value and its unit price on the TSX, while simultaneously continuing to provide the opportunity for investors to secure the trifecta of value growth and income slide 5 contains an overview of business development during the fourth quarter of 2021 starting with the fair value of our investment properties which increased significantly as i mentioned to 1.86 billion euros at year end which is comprised of 1.76 billion euros in multi-residential properties that constitutes 94 of our portfolio value with the remaining six percent represented by the 100 million euros in commercial properties, which we have located in Germany, Belgium, and the Netherlands. This also includes our latest acquisition of multi-residential properties in the Netherlands, with three closing in the fourth quarter of 2021 for a combined purchase price of 115.5 million, excluding costs and fees, representing an aggregate of 362 residential suites across the different separate properties. This growth trajectory already is continuing into the new year, with the REIT entering into a forward purchase agreement on the 29th of December 2021 to acquire a 201-suite residential property and further closing on a 45-suite residential property on January 31, 2022, both located in the Netherlands. In terms of financing activity and liquidity, during the fourth quarter, we secured mortgage financing for all of our Q4 acquisitions. which was cross-collateralized in combination with the REIT's previous 2021 acquisitions, as well as refinancing of certain existing properties, and the total principal amount of 156.6 million euros. Further to that, we amended and renewed our revolving credit facility, which provides access to up to 100 million euros With undrawn capacity on that facility, combined with cash on hand and our pipeline agreement with CAPREIT that provides access to 165 million euros to acquire properties, the REIT had almost 200 million euros of immediately available acquisition liquidity at year end. Our very strong operating results continued through to the end of the year, culminating in annual FFO and AFO per unit of 15.3 euro cents and 13.6 euro cents as of December 31st, 2021, up 13% and 12% compared to the prior year, powerfully evidencing the REIT's overall accreted financial performance that Stephen will discuss in detail. Slide six contains a high level overview of the key characteristics of our latest acquisitions which closed during the most recent quarter. The Willem property located in Rotterdam in the Randstad region of the Netherlands was acquired on November 30th and is comprised of 63 residential units which are 100% owned by the REIT and currently 94% occupied as at year end. The property which was acquired for 19.1 million euros excluding transaction costs and fees It's situated in a neighborhood characterized by its green space and parks, many nearby amenities, including schools and shopping centers, and with direct access to downtown Rotterdam via road or metro. The Panorama Portfolio was also acquired on November 30th, 2021, and includes one newly built property containing 120 suites located in Reisvig and a separate 42-suite property located in Alnir. The portfolio was acquired for a total purchase price of 60.1 million euros, excluding cost and fee, and is 100% liberalized and 98% occupied at December 31st. The REITs acquisition, which recently closed on January 31st, 2022, acquired a further 45 residential suites, three commercial units, and 26 parking spaces in the same newly built Wrightsville building, bringing the REITs ownership of this building to 83%. while the Almere building is 100% owned by the REIT. The OCTA portfolio is comprised of eight properties containing an aggregate 137 single-family homes located throughout the Netherlands. The portfolio, which was acquired on the 22nd of December for a combined purchase price of $36.3 million, is 100% owned by the REIT and 99% occupied as of December 31st, 2021. This acquisition increases the single-family home component of our portfolio, which is currently at approximately 35%, that we believe adds further positive diversification in addition to our regulated, non-regulated, and RANSVAD, non-RANSVAD diversification. All of the recently acquired properties are strategically well-located nearby other assets within eREZ's existing portfolio, allowing for operational efficiency and synergies with the properties being managed by eREZM, our existing asset and property manager established in the Netherlands. On slide seven, you can see that our strong operating results accelerated throughout the year end, ending December 31st, 2021. At the forefront of this, rental revenues have increased significantly. Total portfolio occupied average monthly rent increased by 5% from 896 euros at Q4 2020 to 941 euros at December 31st, 2021. On a stabilized basis, occupied AMR increased by 3.8% versus the prior year end. The increases were attributable to the REIT's trifold rent maximization strategy comprised of its value-adding CapEx expenditure program, including the conversion of regulated suites to liberalized, as well as increasing rents on indexation and turnover. Regarding the latter, for the three months and year end of December 31st, 2021, turnover was 3% and 13.9% respectively, with average uplift of 19.1% and 16.3%. This compares exceptionally well to average rental uplift of only 12.3% and 9.9% on fairly stable turnover of 13.4% and 14.2% in the three months and year ended December 31, 2020. Rental upwards were significantly higher on conversions at 56.7% and 45.2% for the current quarter and year, compared to 49% and 36.8% for the three months and year-end of December 31, 2020. As you can see, the REIT's achievement of growth in rental revenues at the high end of its target range of 3% to 4% demonstrate its ability to consistently and profitably operate in a complex and fluid regulatory regime. Moving to slide eight, occupancy for our commercial properties remained stable at 100% at December 31st, 2021 and 2020. Occupancy for the residential properties increased to 98.6% at 31st December, 2021, compared to 98.3% for the prior year. On top of that increase, a significant portion of residential vacancy in the current period, 76%, is due to renovation which will provide further rental uplifts once the suites are leased. Further, given the diversified nature of the REIT's asset mix and tenant profile, alongside the ongoing strength and resilience of the Dutch economy, it is also important to report that the rent collections and vacancy rates have continued to transcend the challenges resulting from the COVID-19 pandemic. For the three months and year end of December 31st, 2021, net operating income increased by 13% and 12%, respectively, due to the contribution from acquisitions, higher monthly rents on stabilized property, and strong cost control. Total portfolio NOI margin, accordingly, increased to 78.1% through the fourth quarter of 2021, demonstrating significant margin expansion that the REIT considers will be indicative of long-run performance, which Stephen will discuss shortly. This is further supported by the fact that the REIT's property operating costs are largely insulated from inflation. Tenants are responsible for the majority of their own energy and other utility costs. The REIT has no employees and therefore no wage costs, and property management fees are a fixed percentage of operating revenues. Slide 9 serves as a reminder of the inherent and unique diversification within our high-quality portfolio. you can see that over 40% of our current properties are located in the high-growth conurbation of the Randstad, with approximately 25% directly located in the cities of Amsterdam, Rotterdam, The Hague, and Utrecht. The rest of the portfolio is situated in smaller urban areas throughout the country. Approximately 35% of our portfolio is comprised of single-family homes, as I previously mentioned, also known as Dutch row houses, a segment which represents an additionally unique contributor to our portfolio mix. We also are nearly evenly divided between regulated and liberalized with a modest weighting toward liberalized, providing balanced growth in rents on turnover and indexation, as well as the opportunities to liberalize more suites. We are diversified by the number of bedrooms, ensuring we meet the demand for smaller units as well as for families. And with approximately half of the current portfolio constructed since 1990, providing an average building age of under 40 years, we have lower ongoing repairs and maintenance costs, thus driving higher margins and asset values. With that, I will now turn the call over to Steven.

Thank you, Philip. As you can see on slide 11, operationally, we are continuing to raise the bar higher as we accelerate forward. On the total portfolio, operating revenues increased by 11% for the quarter ended December 31st, 2021, primarily due to accretive acquisitions since the prior year period and the increase in monthly rents on the stabilized portfolio, as Philip has already discussed. NOI increased by an even greater 13% for the three months ended December 31st, 2021. Likewise, driven by the higher operating revenues, which I just mentioned, as well as strong cost control. Property operating costs decreased as a percentage of operating revenues due in part to the recognition of a landlord levy rebate from the government. In aggregate, this drove a strong increase in total portfolio NOI margin to 78.1% for the fourth quarter, up significantly from 77.1% in the prior year period. Excluding the impact of the landlord levy rebate, NOI margin on the total portfolio still increased to 77.3% for Q4. This all translated into accretive returns for unit holders, which have continued to strengthen during the past year ended December 31st, 2021. eRES realized very significant increases in FFO per unit and AFFO per unit for the quarter ended December 31st, 2021, up by 17% and 19% respectively compared to the prior year periods. Moving to slide 12, we can see how the REIT superior financial results strengthened not only during Q4, but throughout all of 2021. NOI increased by 12%, fueled by accretive acquisitions, strong rental growth, and margin expansion, as just discussed for our quarterly returns. This supported the strong increase in NOI margin to 77.4% for fiscal 2021, compared to 76.2% in the prior year. Excluding the impact of the landlord levy rebate from the government, NOI margin on the total portfolio still increased to 76.6% for the current year end. Importantly, effective January 1st, 2022, the landlord levy tax rate has been reduced and there is potential for its permanent abolishment in the medium term. At the end of the year, the REIT also purchased an additional landlord levy credit that will be utilized in 2022 with access for the following year if required. As such, the REIT considers that its actual NOI margin for 2021 will be indicative of long-run performance with the expectation that it will achieve an annual NOI margin in the increased range of 76% to 79% of operating revenues. This margin expansion is further reinforced by the fact that the REIT's property operating costs are largely insulated from inflation, as Philip has mentioned. Tenants are responsible for a majority of their own energy and other utility costs. The REIT has no employees and therefore no wage costs. And the property management fees are a fixed percentage of operating revenues. In addition, our overhead is also protected from inflation, with the largest contributor being asset management fees. which are based exclusively on historical costs with no inflation component. FFO per unit and AFFO per unit increased significantly by 13% and 12% respectively compared to the prior year, driven by the positive impact of increased stabilized NOI and accretive acquisitions, while the AFFO payout ratio came to 80.4% for the year ended December 31st, 2021. sitting at the bottom end of its long-term target range. As highlighted on the previous slide, it further declined to 75% for the fourth quarter of 2021, meaningfully below our targeted range. On slide 13, you will see the REIT's strong performance demonstrated on a stabilized basis, with all metrics improving year over year. Stabilized residential occupancy increased to 98.7%, while stabilized occupied AMR and operating revenues both increased by 3.8%, which is at the high end of the REITs target range of 3% to 4% that Philip previously mentioned. Stabilized NOI increased by 5.2% for fiscal 2021 compared to the prior year, which was primarily driven by the higher operating revenues from increased monthly rents. as well as the reduction in operating expenses as a percentage of operating revenues, partly due to the recognition of the landlord levy rebate, but also strong cost control. This drove the increase in stabilized NOI margin to 77.4% for the year, up from 76.4% achieved during the prior year. Similar to the total portfolio, excluding the impact of the landlord levy rebate, stabilized NOI margins still increase to 76.6% for the year. As mentioned previously, we expect this margin expansion to continue going forward and anticipate an annual NOI margin in the range of 76% to 79% of operating revenues. Moving to slide 14, you will see the continuously strengthening financial results which eRES has been consistently generating. On a quarterly basis, FFO and AFFO per unit were 4.1 cents euro and 3.7 cents euro for the fourth quarter of 2021, representing increases of 17% and 19% respectively compared to Q4 of 2020, for all the reasons mentioned earlier. As demonstrated historically, Unihotus can expect a strong trend line of accretive growth and margin expansion to accelerate into E-Res' future. Further evidence on slide 14 is the fact that the REITs ASFO payer ratio remains strong, even with the REITs growing distributions. On February 23rd, 2021, the Board of Trustees had approved an increase of 5% to the REITs monthly distribution effective for March 2021 onward. Against a backdrop of unprecedented uncertainty and financial market volatility, this highlights the absolute stability and abundant liquidity inherent in the REIT's established platform. Showcasing this further, yesterday the Board of Trustees approved an additional increase to the REIT's monthly distribution to $0.01 per unit, which is equivalent to $0.12 per unit annualized, representing an increase of 9% that will be effective for March 2022 onward. eRES has demonstrated its commitment to unitholders through passing on its achievements via these increases to its distribution over the past year. Considering our distribution increase announced yesterday, the REITs distribution yield will be in excess of 4%. eRES is industry-leading and expects to continue to lead the way forward with consistent and continuous increases to its distribution. eRES has historically maintained a robust and conservative balance sheet, and that was further solidified throughout the year ended December 31st, 2021, as you can see on slide 15. Notably, the REIT has been able to lower debt to gross value by four basis points to 46.8% as at year end, while also obtaining mortgage financing for all its 2021 acquisition properties, plus profitably refinancing certain existing properties. This lowered the REIT's weighted average effective interest rate by nine basis points to 1.52% as at year end. evidencing the comparatively low interest rate environment in Europe that continues to persist, and the REIT's ability to thereby secure strong yield spreads on acquisitions. Also during 2021, the REIT extended its €165 million pipeline agreement with Capri for an additional two-year period ending on March 29, 2023, under the same terms and conditions. Further to that, on October 29, 2021, the REIT amended and renewed its existing revolving credit facility, providing up to 100 million euros for a three-year period ending on October 29, 2024, which resulted in lower interest rates and fees, among other things. Taking this all into account, as at year-end, even with outstanding draws on the revolving credit facility, the REIT had almost 200 million euros in immediate available liquidity that provides acquisition capacity of approximately $430 million, guaranteeing the ability of the REIT to act quickly to seize and capitalize on opportunities throughout the new year. Slide 16 demonstrates the REIT's track record for maintaining its consistently conservative debt metrics. Both its debt service coverage ratio and interest coverage ratios have remained significantly higher than the minimum thresholds dictated by the REIT's revolving credit facility. The REIT has been able to maintain its debt to GBV within its target range of 45 to 50%, while simultaneously lowering its weighted average mortgage effective interest rate quarter over quarter. Going forward, the REIT will ensure that it continues to fortify and strengthen its financial position as it grows its position. This brings me to slide 17, which provides more detail on our staggered mortgage portfolio. including the latest mortgage financing which was secured for all of the REITs 2021 acquisition properties, combined with the refinancing of certain existing properties, and the total principal amount of 156.6 million euros. The new mortgage financings mature on October 1st, 2027, and carry a weighted average stated interest rate of 1.16%. which lowered the REIT's overall mortgage effective interest rate by nine basis points to 1.52%, as previously mentioned. This well-staggered mortgage profile not only reduces renewal risk, but also stimulates liquidity, with the majority of our mortgages being non-amortizing. Thank you for your time this morning, and I will now turn things back to Philip to wrap up.