European Residential Real Estate Investment Trust (EREUN) Earnings Call Transcript & Summary

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. [Operator Instructions] I will now hand over to your host, Phillip Burns, CEO. Over to you, Phillip.

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 2 and our other regulatory filings. Joining me today is our CFO, Stephen Co. After I provide an update on our operational progress during the quarter, Stephen will provide an overview of our financial results and position. We are proud to be reporting to you today a third year of strong and increasingly profitable operational and financial results across all of U.S. portfolio metrics and business benchmarks. Starting with Slide 4, 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 EUR 195 million in fair value gains that we recognized for the year end December 31, 2021, representing a 15% increase in market value on a 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. A significant fair value appreciation also reflects the successful execution of the REIT's value-adding capital expenditure program as well as exceptional operating metrics, including its continually increasing rental revenues, expanding NOI margins and consistently high occupancy, all of which will be presented in detail shortly. That being said, our market capitalization and public boat increased only modestly by 8% and 9%, respectively, compared to the prior year end, exhibiting the persistent disconnect between ERES' 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 EUR 1.86 billion at year-end, which is comprised of EUR 1.76 billion in multi-residential properties that constitutes 94% of our portfolio value, with the remaining 6% represented by the EUR 100 million 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 cost and fees, representing an aggregate of 362 residential suites across the levering 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 EUR 156.6 million. Further to that, we amended and renewed our revolving credit facility, which provides access to up to EUR 100 million. With undrawn capacity on that facility, combined with cash on hand in our pipeline agreement with CAPREIT that provides access to EUR 165 million to acquire properties, the REIT had almost EUR 200 million of immediately available acquisition liquidity at year-end. Our very strong operating results continued through to the end of the year, culminating an annual FFO and AFO per unit of EUR 15.3 and EUR 13.6 as of December 31, 2021, up 13% and 12% compared to the prior year, powerfully evidencing the REIT's overall accretive financial performance that Stephen will discuss in detail. Slide 6 contains a high-level overview of the key characteristics of our latest acquisitions, which closed during the most recent quarter. The William 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 EUR 19.1 million, excluding transaction costs to fee is situated in a neighborhood characterized by its green space in parks, many nearby amenities, including schools and shopping centers and with direct access to downtown Rotterdam via Rotter Metro . The Panorama portfolio was also acquired in November 30 -- what was also acquired on November 30, 2021, and includes one newly built property containing 120 suites located in Rijswijk and a separate 42 suite property located in Almere. The portfolio was acquired for a total purchase price of EUR 60.1 million, excluding cost and fees, and is 100% liberalized and 98% occupied at December 31. The REIT's acquisition, which recently closed on January 31, 2022, acquired a further 45 residential suites, three commercial units, and 26 parking spaces and the same newly built Rijswijk building, bringing the REIT's ownership of this billing to 83%, while the Almere building is 100% owned by the REIT. The Octo 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 at 99% occupied as of December 31, 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 nonregulated and Randstad diversification. All of the recently acquired properties are strategically well located nearby other assets within ERES' existing portfolio, allowing for operational efficiency and synergies with the properties being managed by ERES, our existing asset and property manager established in the Netherlands. On Slide 7, you can see that our strong operating results accelerated throughout the year-end ending December 31, 2021. At the forefront of this, rental revenues have increased significantly. Total portfolio occupied average monthly rent increased by 5% from EUR 896 at Q4 2020 to EUR 941 at December 31, 2021. On a stabilized basis, occupied AMR increased by 3.8% versus the prior year-end. The increases were attributable to the REIT's TriPhone 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 ended December 31, 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 in 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 ended December 31, 2020. As you can see, the REIT's achievement of growth in rental revenue is at the high end of its target range of 3% to 4% demonstrated its ability to consistently and profitably operate in a complex and fluid regulatory regime. Moving to Slide 8, occupancy for our commercial properties remained stable at 100% at December 31, 2021 and 2020. Occupancy of 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 ended December 31, 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 congregation of the Randstad with approximately 25% directly located in the cities of Amsterdam, Rotterdam, The Hague and Utrecht. The rest of the portfolio was 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 Real 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 Debelis, providing balanced growth in rents on turnover and indexation as well as the opportunities to liberalize more suites. We are diversified by number of bedrooms, ensuring we meet the demand for smaller units as well as for family, 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 Stephen.

Thank you, Phillip. 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 31, 2021, primarily due to accretive acquisitions since the prior year period and the increase in monthly rents on the stabilized portfolio, as Phillip has already discussed. NOI increased by even greater 13% for the three months ended December 31, 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 unitholders, which have continued to strengthen during the past year, ended December 31, 2021. ERES realized very significant increases in FFO per unit and AFFO per unit for the quarter ended December 31, 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 1, 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 excess for the following year if required. As such, the REIT considers that its actual NOI margin for 2021 will be an indicative of long-run performance with the expectation that we'll 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 Phillip 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 in accretive acquisitions, while the REIT's AFFO payout ratio came to 80.4% for the year ended December 31, 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 REIT's target range of 3% to 4% that Phillip 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 levied rebate, stabilized NOI margin still increased 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 EUR 4.01 and EUR 3.07 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, unitholders can expect a strong trend line of accretive growth and margin expansion to accelerate into the ERES future. Further evidenced on Slide 14, is the fact that the REIT's AFFO payout ratio remains strong even with the REIT's growing distributions. On February 23, 2021, the Board of Trustees had approved an increase of 5% to the REIT's monthly distribution effective for March 2021 onward. Against the 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 Chusses 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 onwards. 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 REIT 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 31, 2021, as you can see on Slide 15. Notably, the REIT has been able to lower debt to gross book value by 4 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 9 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 EUR 165 million pipeline agreement with CAPREIT for an additional 2-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 EUR 100 million for a 3-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 EUR 200 million in immediate available liquidity that provides acquisition capacity of approximately $430 million, guaranteeing the ability of the REIT to act quickly to season 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 the REIT's 2021 acquisition properties, combined with the refinancing of certain existing properties and the total principal amount of EUR 156.6 million. The new mortgage financings mature on October 1, 2027, and carry a weighted average stated interest rate of 1.16%, which lowered the REIT's overall mortgage effective interest rate by 9 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 nonamortizing. Thank you for your time this morning, and I will now turn things back to Phillip to wrap up.

Thank you, Stephen. On the whole, this past year has demonstrated ERES' ability to stay one step ahead as we continue to consistently outperform on its ambitious benchmarks and targets. We achieved accretive growth both organically and externally despite confronting many economic, regulatory and social challenges. We increased our distribution yields to one of the highest in the realm of residential real estate investment trust, while simultaneously creating meaningful value quarter-over-quarter. It is in this respect that we emphasize how ERES offers an extremely compelling investment opportunity that is predicated upon the trifecta of growth, income, and value. This is further underpinned by our investment highlights as outlined on the next slide. All of the successes mentioned during this morning's call have been made possible through excellent operational and financial management by our experienced management team, a liquid balance sheet, and an aligned partnership with CAPREIT, each of which forms the central pillars of our platform. It is through these channels that we are able to transform our fundamental strategic mission, objectives, and competitive advantage to tangible net worth, having increased our net asset value by 27% over the course of the year. In summary, ERES performed exceptionally well during this past year, and we believe that this performance is dwarfed by its untapped potential for future growth in the Netherlands and throughout Europe. With the ongoing support of our unitholders and Board of Trustees as well as the sponsorship from CAPREIT, we will continue to create value and maximize asset performance to deliver stable, attractive returns to investors. With that, I would like to thank you for your time this morning, and we would now be pleased to take any questions you may have. Operator, over to you, please.

Thank you. We will now begin the Q&A. [Operator Instructions] Our first question for today comes from Jonathan Kelcher of TD Securities. Jonathan your line is now open.

Thanks, good morning. First question, just on the revenue, I guess in the MD&A, you guys for 2022, it looks like you'll be allowed to do 3.3% for liberalized suites. Is that correct?

Correct.

That's correct.

Okay. And I also noticed that for certain regulated suites, you'll be able to do 2.3%. Do you know -- how many of those you have where the tenants meet the income threshold?

I think a good assumption is to assume that most of our flats will be 2.3% because then for the ones who exceed the threshold, it's actually going to -- it's fixed dollar amounts, which are the maximum, which would then be significantly above the 2.3%. So I think if you assume 2.3% for our regulated portfolio, that would put you in a good direction, and I would expect us to do slightly better than that.

Okay. And then on turnover, do you expect similar uplifts to what you've got near the end of 2021?

Yes. I mean, as you saw in the quarter, definitely continue to accelerate, whether it leads at that level, we'll see. But I think it should at least stay on what it was per average across 2021. So 16%, we went as high as 19%. Even in December, it was up above 20%. Whether that's sustainable, we'll see. But again, in the high teens, I think, is very sustainable going forward.

Okay. So comfortably, your revenue growth next year should be, I think, your 3% to 4% target, you should be, again, pretty close or meeting above the top end of that, that be fair to say?

Yes, yes, I think we're going to be above it. I mean if you just say that our blended average indexation last year was 1.5-ish -- and if you just blend out our portfolio in the boundaries of 3.3 and 2.3, it's going to be close to 2.8%. So that's going to be a very good tailwind for us. And on top of turnover uplifts that we expect to be the same. I think the confidence that we exceed our range is high.

Okay. Sounds good. And then secondly, just -- and I don't think this is going to impact you guys a lot, but you put in something on a buy-to-let legislation that's come in, in the Netherlands. Can you maybe give a little bit more color on that? Like would that apply to apartment buildings or is it sort of single family or condo type properties that that's needed for?

Yes, it's very undefined at the moment. So just what happened is the federal government passed a law because housing is a federal issue, not a municipal issue or a provincial issue. So they passed a law that says municipalities are permitted to implement by the control -- or buy the let restrictions so long as they're well defined in terms of setting thresholds and where they apply, et cetera, and they left it at that. There's been lots of municipalities who've announced their intention to do this. And Amsterdam as usual, is ahead of the curve and they publish their legislation. And we and along with others, responded to that legislation. And the first draft was very, very big, and it would have captured almost all residential, no real differentiation in terms of size of the landlord or anything like that, there was a price limit -- but through the consultation period, they've actually republished it and they are being quite pragmatic and sensible about what it applies to, and it will exclude large portfolios is what it appears now. They haven't finally passed it, but they're being quite pragmatic about the application of that, Amsterdam. And one would expect the other cities to probably do something quite similar. So the government passed the law, allowing the municipalities to do it. There's a lot who said they're going to, but they don't seem to be going to focus on portfolio style transactions, which is great for us. But again, just to be clear, it has no impact whatsoever on any of our existing assets. It only potentially has an impact if we were to buy a portfolio that had some vacancy in it because it only focuses on assets that turn over or assets that trade that are vacant -- but again, even if that were to happen, it looks only at the transfer of title in the register, and so we could do share deals, which we've done in the past. And so structurally, and practically speaking, even if it were more restricted than it appears to be today, it will have virtually no impact on us whatsoever.

Okay. That's helpful. I'll turn it back.

Thank you, Jonathan. Our next question comes from Brad Sturges of Raymond James.

Just maybe starting just back to the turnover for a second, would you be expecting turnover rates for 2022 to be similar to 2021? Or can we see turnover rates fall a bit?

I think they're going to be generally the same. We've been running around the 13%, 14% for the past years. December was three. So we'll see. But again, I don't see it changing materially downward. If it were 12 -- between 12% and 13%. That's not unexpected for us. But again, we don't see any material downward movement in turnover rates.

Okay. And in terms of the fair value gain put through in the quarter, is that based on external appraisals? Or can you talk through maybe some of the changes in the input assumptions there?

So yes, they're based out of appraisals that we have our third-party valuator complete. I mean a lot of it is driven by cap rate compression, but also some of the stabilized NOI assumptions. And we have seen significant to say, increases in home prices that also influences the multires trading as well and the valuation approach.

For the cap rate adjustment, is that more broadly speaking in the market? Or were there specific larger transactions that you could point towards?

I think it's a broad, you can say, assumption that is applying to the entire market. We've seen that there has been -- there has been very low supply, but there's been a lot of demand for multi-res product. And those are what's trading and you can see that in some of the assets that we purchased in the Q4 that they're in and around that type of cap rates.

And with the transactions closing at the end of the year and then in the early next year, what type of going in cap rates would were those transactions been done at?

There is a range, I mean, the tightest one would be close to 3% and the widest one would be like 3.85. So again, it depends upon where you're at and what you're buying. But I mean, overall, both on the transaction side, the cap rates have been compressing and that is what is basically driving the valuers data comps is looking at recently transacted comparables. Ours as well as others.

Yes, it makes sense. I will turn it back, thanks.

Our next question comes from Himanshu Gupta of Scotiabank.

Thank you and good morning. So on NOI margin expansion, what are you expecting in 2022? And do you see a further bump in 2023 because of this land or levy EBIT?

Yes. I think we put out the range of updated range. I think we're going to see if there is an abolishment of the landlord levy, you could say, tax, we will see close to 100 basis point increase in our margin. So -- and in addition, we also saw a lower rate in 2022 compared to 2021. And we're going to be utilizing that landlord levy vehicle that we've similarly applied in 2021. So I think you're going to see -- if you use 2021 as a benchmark, you would definitely will be able to see close to 100 basis points increase in margins in 2023. So it will just build up from there.

So Stephen, it could be something like 100 basis points in 2022, another 100 basis points in '23?

What I meant was sorry, what I meant was if you use 2021 as a basis, by 2023, you should see a 100 basis point increase in NOI margin. So it will take this year is a lower -- yes, in total. Yes. So it'll trickle up. So maybe not a full 100 basis points this year, maybe 50 to 60, but you'll see a full result in 2022.

Got it. Okay. And then based on your kind of rent guidance or our expectation of 3% to 4%. And then combined with the NOI margin expansion as well. I mean, do you think the same-store NOI growth will look like 5% plus? Any thoughts there?

I think your number is reasonable. I mean if you back into it, I think that you will likely get above the 5% NOI growth.

Yes. I mean or said differently if we delivered 5% last year and we're going to get higher growth and higher margins, I would expect that it would be skewed to the upside.

Got it. Okay. And then on the distribution growth of 9% announced, is that a reflection of your expectation of, let's say, AFFO growth this year? I mean, idea is to keep the payout ratio same and -- I mean, given your same-store in 5%-plus range, your FFO could look like 9%, 10%.

Yes. I think it's -- as we just discussed, if we can get NOI growth of in excess of 5% and then you add leverage to it, we can definitely be in the high single digits of AFFO growth and which will translate were trying to maintain that range of 80% to 90% payout ratio. So it's a safe assumption.

Just to be clear, I mean, the increase that we did does not take our payout ratio up to the high end of the range. We left ourselves incredible amounts of room. Keep in mind that our payout ratio in Q4 was only 75%. So the Board thinks it was very supportive and thought it was the right thing to do to return it to shareholders. But in no way is it stressing the business? Or does it require us to do anything extraordinary to deliver that distribution growth. We're still very much in the lower half of our stated range.

Got it. Okay. And then on -- just on the landlord levy. I mean, assuming this is abolished, will it become relatively more attractive to buy regulated units now? I mean if I look at what you have bought in the last 6, 12 months, it's mostly literalized units. Do you think now regulator will start becoming more extracted?

Well, it's not so much that we've been avoiding them. It's a product of what comes to market. And the overall investment volume was down last year compared to the prior two years. You'd sort of go back to 2018 to see a similar level. We got up to $9 billion, $10 billion, $11 billion, and last year came down to the high $7 billion. So good volume, but it just happened to be a lot of that was newer style product more in the Randstad. Again, we did one brand-new purchase. We've now done a forward purchase to deliver Q1. So we're not explicitly avoiding regulated. It just depends upon what product comes and that's typically cheaper. The margin is definitely lower to reflect the landlord levy. It's also a bit lower because you have lower rents as well. But again, we would still be keen depending upon what product is out there and the pricing to buy regulated. It's very stable, consistent, no volatility as the economy goes up and down. So we like that as a product. It used to be 50% of our portfolio, and it hasn't been a specific intention for us to bring it down to 40. It's just really a product of what's out there. So we're in plus it replenishes the pool of stuff that potentially can be liberalized as well. And you can see the acceleration of our uplift we're getting on our liberalization program. So very happy to buy regulated. It just depends upon what the sellers are bringing to market.

Got it. Fair enough. And then maybe a related question between a big CapEx compression in the last six months, I mean, based on your fair value gains and looks like pretty consistent across Randstad and non-Randstad. But did the value appreciation was different between regulated and unregulated. Did nonregulated outperformed way better than regulated in the last six months?

No. It's been very consistent across the asset classes and the regions. It's been happening across the country. And I'd also say that I think the regulators accelerated towards the end of the year, but also -- or not the regulators, I'm sorry, the valuers, they very much rely on external data, and there just wasn't a lot of external data in the first half of the year because so much stuff could come at the year-end 2020. And so then you had a dearth or paucity of transaction comps, so they were slow to adjust. And plus, I think when they adjusted, they were too harsh at the end of the year before because of the tax, et cetera. So I think, although it accelerated in terms of our yield compression and asset value uplift, I think if you looked at it on straight-lining it across the other -- the entire year, it wouldn't look out of line in any way. I just think the valuers were a little bit slow to catch up to where the market is. But it was broad-based.

Got it. Okay. So one final question, again, on regulated suite share. So the indexation is still 0%, I mean, after July, but you have found an option to charge up to 2.3%, which is the CPI 10 -- but the valuation is still very much…

No, no, no. So the regulator for regulated suites announces every year around this time, the framework for which you can index your regulated suites. Last year, the regulator or the Housing Minister set 0. This year, there's a framework. It's got some income components to it, but generally speaking, it's 2.3%. So we can index all of our regulated suites by 2.3% so long as we don't go over the statutory maximum. So we've actually gone back to what has historically been the case, except for 2021 when they did 0. It used to be CPI plus 2.5 and CPI plus 4. It's more simplified this year, and it's just 2.3%, which is CPI effectively. But no, there isn't -- the 0 bound does not exist anymore.

Awesome. So basically, relaxed that restruction. Okay, thank you, thank you, everyone and I'll turn back.

Thank you. Our next question comes from Jimmy Shan of RBC Capital Markets.

So just to be crystal clear on that indexation for the regulated units, we should be assuming that you're going to get 2.3% in 2022?

Generally, again, yes, that's the assumption you should take. It's slightly more complicated than that, but you can take that as a good assumption.

Okay. The 2.3% on the regulated and then on the liberalized, you will be getting 3.3%. And then turnaround would be in the teens. Okay.

Correct.

And then also clarification on the restriction buy-to-let. Does this only relate to vacant units?

Correct.

Okay.

Yes, if you buy a vacant unit, then you're not supposed to rent it out, you're supposed to live in it. That's the broadest sense of the word, but then they had to define it around price levels, et cetera. But now Amsterdam seems to have recognized a lot of the commentary and they're going to make exceptions for portfolios, et cetera. But again, it's only purchased vacancy.

Right. And the value threshold that they put on there, I presume like the assets that you're buying would be under that threshold or no?

Probably. Again, the federal government did not define the value. They left that to the municipalities to do because what -- because where they wanted to break, they're not trying to focus on high-level houses. They're trying to focus on mid-level and down, right? And that absolute euro number would be different in every community. So that is for the community to decide. But if they put it too high, then people can challenge it and the federal or housing ministry might say, well, that's ridiculous. But again, Amsterdam is the one that's ahead of everybody, and they're in the process of finalizing. So it's still waiting to be clear. But I have to be very frank about this. For us, it doesn't matter. It doesn't affect any of our existing portfolio at all. And it could only be implicated if we bought something with vacancy. And even if that were the case, then we would just simply turn around and do a share deal and avoid this together.

I was more thinking on the impact on the market as it relates to liquidity and how people are thinking about how to -- how to trade those assets?

Well, I mean, again, for institutional traders, they're going to know that the buyers can do a share deal. So I don't think it trades it anyway. What it ultimately does is it's going to take more rental stock out of the market.

Right.

At the mom-and-pop level, if they bring this portfolio exclusion in. So mom-and-pops that might have 1, 2, 3, 4 houses that we're buying them, that now will no longer be in the rental market. And you already have a housing crisis in the Netherlands as exhibited by double-digit house price inflation as exhibited by our rental uplift as a decent proxy for the market. So although they think they're protecting people, I think it could be adverse consequences, which is exactly what they didn't want to happen, and you're going to be reducing rental stock that can only have one effect.

Yes. You see that's what happens. Okay. So then just last one for me. Anything else you're watching on the regulatory front that could have a material impact going forward?

I mean, again, the government is now formed, the ministers are all appointed and there's been various things that I've discussed in the past that you can read about in the newspapers about is there going to be a municipal value cap in terms of the contribution to your point. They talked about it for two years. It's supposed to be coming, but if it comes, it's very immaterial for us as well. There's other people have had in their various housing mandates, what may or may not come. But again, I take some level of optimism about what has just happened and that Amsterdam seems to be listening to people with accepting some qualitative input under legislation, that EMEA is a positive. And I also think it's a positive that the housing minister has done something above 0 for regulated right? So they're recognizing that they can't just be draconian across the board in the housing market because I'm not saying they're going to do intelligent things necessarily, but they've showed some level of rational approach to some changes. So there could be more things coming. It's very dynamic. It's certainly not benign, but the most recent data point demonstrates to me that they are trying to be aware of other people's voices.

And you can see we accepted and worked through the regulatory changes from last year and ended up at almost 4% top line growth on a same-store property. So again, I think that's where our experience in the CAPREIT platform comes into place. The regulatory pendulum swings constantly. And I think the key is being able to operate effectively no matter where that pendulum is. I think it was probably swinging and maybe still is swinging to the more heavily regulated, but we're still performing.

Thank you. Our next question comes from Matt Kornack of National Bank Financial. Your line is now open.

Hi guys. I just wanted to start off by saying congrats. I didn't think it was possible to have a positive catalyst given how strong your results have been over the last two years, but this quarter definitely seems like it is one. So -- great to see -- and then question-wise, looking at this cumulative home price appreciation versus rental growth, do you have a sense that market rents are maybe tracking closer to home price in terms of where it would be on a free market basis for liberalized suites or have rents generally been growing at lower rates in the housing market?

I don't think rents are growing at teens annually. But again, if you look at what we're doing on our turnover uplift, that is high teens, right? Now again, that would be accumulated market rental growth. It's not year-on-year, but the average rental growth in the Netherlands is sub-10%. And I think it's very market-oriented. But I mean if we had the operations teams on, it used to be very much pronounced in the Randstad when you were seeing the uplift or the conversion uplift. But we're seeing it broad-based now. I think it is just -- you had the COVID noise. I don't want to be insensitive to COVID. I'm sorry for putting it that way. But you had the impact of COVID, which was really clouding it a bit. But now all the restrictions are coming off by mid-March, et cetera. And we're just seeing across-the-board strength because it's fundamentally a shortage. -- and it only results in house prices and rents going up. But I don't think rents are tracking the retail house price inflation, one for one. I would think it would be softer than that.

Fair enough. And then it's a bit of a different question, but some investors have kind of commented that there's a lack of liquidity given your large shareholder and limited float. How should we think about if that issue gets addressed, and again, share price is up 5% today, which is nice to see. But what are your thoughts on kind of floating equity into the market? And what sort of discount, if any, would you be willing to execute on to grow this entity a bit.

Yes. I mean, I think, listen, whether you're talking to me or to Mark Kenney, I mean CAPREIT was fundamental in creating this program or this company, this platform, it was never intended to be a mechanism for them to sell down. So that's why they haven't sold down. They like Europe. They like deploying capital. They think it's on a relative basis to some of the other places they can invest. We think it's very attractive. So I think if the market is necessarily waiting for CAPREIT to sell some shares into the market, I think that could be a long wait. But I think if people have courage to come in now, as I mentioned in my speech, I really think it's the trifecta. They can still buy a credit pool discount to NAV, which I can't profess to understand. Now we're even more ahead of the others in terms of the income and look at the way we grew. So I mean, the biggest thing for people to do now is come into it before it recovers meaningfully. And when it recovers meaningfully is when we would issue equity. I mean, we're not going to issue equity at 25% discount to NAV and plus if we need to. We managed to grow last year, $170 million worth of acquisitions, which was double the year before without equity because we have capacity on our lines, and we have capacity through the pipeline agreement with CAPREIT. So I mean, we would very, very much like to issue equity so that we can help increase the flow, help make it easier for people to participate in the platform, but I can't see a world where we're going to issue equity to 25% discount to NAV.

Fair enough. And congrats again. It was really a standout quarter so far.

Thank you. [Operator Instructions] Our next question comes from Dean Wilkinson of CIBC. Dean, your line is now open.

Thanks, good morning guys. I'm sure Mark Kenney is listening. I'd imagine -- I'm sure Mark Kenney is listening, I'm imagining we're going to get a restriction on people buying rental properties in Canada, too. Never let one country follow another one. Just can we talk a little about the debt markets? It looks like you were able to put on some very favorable financing in light of people being scared that interest rates are going up. Have you seen any change to the debt markets vis-a-vis your new acquisitions? And is that still sort of around that 1.1, 1.2 level for 5 to 10 year money?

So I would say that we're not in a rush to put in financing. What we have seen is our margins are very constant. Some of the lenders margins are coming down a bit. But there's been some -- if you look at the forward curve, it's been quite unstable, and there have been some announcements from ECB. So there's been some volatility, but we're not in a rush, but we're going to -- we make sure that once the markets have settled down, that's when we will put financing in place. But I mean, I think to be realistic, are we going to be at the 1% range the year before, we were at 97%. This was at 1.1. I think there is going to be some movement out on the interest rates. It's not necessarily driven by the ECB. I think it's going to be very difficult for the ECB to raise rates. This is -- I'm not an economist, but they weren't able to raise rates very successfully when things were good given that you have 19 different countries or whatever it is in a monetary union. They all have different fiscal policies. Everybody is moving in a different speed. Very hard for them to raise rates. So I think what you see now is a lot of noise in the market. Are they not going to, as Stephen said, because we're borrowing floating and then swapping, right? So the base rate hasn't changed. It's the forward curve, which is where the swaps are predicated that is all over the place right now because one day, they sold bearish, the next day, they sell bullish, talkish whatever it is. So again, we're just going to be calm and wait it out. I think we'll probably see some widening in our total costs, but nothing like what you're seeing in North America where interest rates are a certainty. I think that's far from the case in Europe.

So that historical 200-and-change basis point spread over a low to mid-3% cap rate. I mean it sounds expensive, but it's normal, right? Like it's not -- it shouldn't be return…

Yes. I mean we've been delivering at or 200 and sometimes we're at 300, right? So it depends the last deal we closed the cap rate -- or the last year, we announced cap rate was 385, right? So I'm pretty confident we're going to get our 200 basis point spread on that when we put permanent financing on. And if we're talking about a cap rate 3% to 3.25%, maybe not. But then I'm okay with that, that's your 1 cap rate anyway. And in year 2, the way our top line is growing, we're going to be there. So 200 basis points was us was always a benchmark that we were achieving, delivering, but I don't think it's a line in the sand that we wouldn't do something at 175, particularly if you have great top line growth and you're just going to catch back up to next year. Again, we started out financing 2, 3 years ago, above 2. It worked it all the way back down to below 1. I don't think we go all the way back up again. But if we're in the mid-ones I still think versus any place else that you could find permanent debt financing, that's really, really good. And our cap rates are at or about the same as other people. So our yield spread is always going to be better on a relative basis, particularly in North America.

Absolutely. No question about it. That's all I have had. I will turn it back. Thanks guys.

Thanks, Dean.

Thank you. We have no further questions. So I will hand it back to Phillip Burns for any closing remarks.

Again, thank you for joining us this morning. As always, if you have any further questions, please do not hesitate to contact either Stephen or myself. And thank you for your time. And everybody, have a great weekend.

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