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

Good morning. Thank you for attending today's European Residential Real Estate Investment Trust First Quarter 2022 Conference Call. My name is Nate and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call. There will be an opportunity for questions and answers at the end. [Operator Instructions] I'd like to now pass the conference over to our host, Phillip Burns with European Residential. Phillip, please go ahead.

Thank you, operator, and good morning, everyone. Before we begin, let me remind everybody 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. During the first quarter of 2022, European Residential REIT once again demonstrated our ability to pair strong organic growth with accretive acquisitions that has resulted in the REIT's continued outperformance on all its key operational and financial targets. At the forefront of this growth on Slide 4, you will see that our suite count has increased by 12% since the prior year period to 6,791 units owned as at March 31, 2022. Growth in market value of the portfolio is significantly higher, increasing by 33% to EUR 1.96 billion since Q1 2021, which reflects the substantial fair value appreciation we have realized over the past year that is driven by steady and strong market and portfolio fundamentals, the successful execution of our value-enhancing capital expenditure program and our exceptional operating metrics, which we will highlight to you in the coming slides. Further, these numbers as at March 31, 2022, exclude our latest acquisition of 110 suites in Rotterdam for a purchase price of $23 million, excluding costs and fees, which just closed yesterday, demonstrating the continuation of our external growth trajectory into the second quarter of 2022. Our strong operational and financial results are reflected in the 32% increase in our net asset value per unit compared to the prior year period, which stands at EUR 4.31 as at the current period end compared to EUR 3.27 as at March 31, 2021. Our market capitalization as well as our public float increased more modestly, both up by only 16% since the prior year period. We continue to see the persistent disconnect between ERES' underlying intrinsic value and its unit price, but at the same time, it continues to provide the opportunities for investors to secure the trifecta of growth, income and value. Slide 5 contains an overview of business development during the first quarter of 2022, starting with the fair value of our investment portfolios, which increased significantly, as I just mentioned, to EUR 1.96 billion as at 31st of March 2022, of which 95% is comprised of our multi-residential properties, with the remaining EUR 100 million represented by commercial properties, which we have located in Germany, Belgium and the Netherlands. The 6% increase in port value since year-end 2021 includes our 2 multi-residential property acquisitions, which closed during the quarter, which were acquired for a combined purchase price of EUR 62.4 million, excluding cost and fees and represent an aggregate of 246 residential suites, details of which I will highlight shortly. This portfolio value increase does not yet include the REIT's acquisition of a further 110 residential suites in Rotterdam that closed yesterday. Also during the quarter, the REIT's Board of Trustees approved another increase to its monthly distribution rate up 9% to EUR 0.01 per unit that is equivalent to EUR 0.12 per unit annualized, which was effective for the REIT's distribution with respect to March 2022. This demonstrates the REIT's strong financial management of its accretive returns, which enables the REIT to pass those returns on or to its unitholders. On the financing front, as of March 31, 2022, the REIT had EUR 133 million of immediately available liquidity through a combination of cash as well as capacity on its credit facility and pipeline or promissory note arrangements with CAPREIT that translates into acquisition capacity of approximately EUR 300 million, which will support the REIT's external growth ambitions in 2022. The REIT's accretive returns, which I just mentioned our [indiscernible] was a 17% increase in its FFO per unit to EUR 0.42 as of March 31, 2022, as well as the 16% increase in its AFFO per unit to EUR 0.037 as at the current period end, which Stephen will discuss later in detail. Slide 6 contains a high-level overview of some of the key characteristics of our latest acquisitions, which closed so far this year. The newly developed De Generaal 2 Property located in Rijswijk in the Randstad region was acquired for a purchase price of EUR 19.5 million, excluding fees and costs and increases the REIT's ownership of that billing to 83%, with the REIT having previously purchased 120 suite as part of the Panorama transaction, which closed in Q4 of 2021. As of March 31, 2022, that the De Generaal 2 asset is 100% occupied and 100% liberalized. The 51 property is a high-quality redevelopment comprised of 201 residential apartments that are 100% owned by the REIT and 100% occupied as of 31st of March 2022. The 51 property, which was acquired for EUR 42.9 million, excluding costs and fees, is located 15 minutes by cycle, south of the city center of Arnhem and enjoys excellent accessibility to highways, public transportation and amenities. The redeveloped building is highly sustainable and energy-efficient with approximately 100% of the units liberalized. Last but not least is our very recent acquisition of GWD-Rotterdam portfolio that closed only yesterday, in which we acquired 110 multi-residential suites across 5 properties for a purchase price of $23 million, excluding costs and fees. The portfolio is 100% owned and currently 97% occupied and with 93% of the suites regulated, they provide significant potential for uplifts on conversion. On Slide 7, you can see that our strong operating results accelerated into 2022 as we previously projected. Rental revenues again increased significantly compared to the prior year period. Total portfolio occupied average monthly rent increased by 5.3% and EUR 949 as of March 31 compared to EUR 901 as at Q1 2021. On a stabilized basis, occupied AMR increased by 3.8% versus the prior period. These increases are attributable to the REIT's trifold rent maximization strategy comprised of its value-adding capital expenditure program, including the conversion of regulated suites to liberalized as well as increasing rents on indexation and turnover. Regarding the latter, for the 3 months ended March 31, 2022, turnover was 2.6% with average rental uplift of 20.7%. This compares exceptionally well to average rental uplifts of only 13.3% on turnover of 3.8% in the prior year period. Rental uplifts were significantly higher on conversions at 55.1% for the current quarter compared to 33.4% for the 3 months ended March 31, 2021. As you can see, the REIT's achievement of its rental revenues was at the high end of its targeted range of 3% to 4%, demonstrating the ability of the REIT to consistently and profitably operate in a complex and fluid regulatory regime. Further to that, for the rental increases due to indexation beginning on July 1, 2022, the REIT served notices to 6,499 suites, representing 96% of the residential portfolio across which the average rental increase due to indexation is 2.95%, which will further stimulate the REIT's organic rental growth in 2022. Moving to Slide 8. Occupancy for our commercial properties remained strong at 99%, as of March 31, while occupancy for the residential portfolio increased to 98.6% as of Q1 '22 compared to 98.3% as at March 31, 2021. Moreover, a significant portion of residential vacancy in the current period is due to renovation with 80% of vacant suites offline for that reason, which should provide further rental uplifts once the suites are leased. For the 3 months ended March 31, 2022, net operating income increased by a significant 15% to EUR 16.3 million due to contribution from acquisitions, higher monthly rents on stabilized property and strong cost control. Total portfolio NOI margin increased to 76.8% for the first quarter of 2022, up substantially from 75.5% in Q1 of 2021, which demonstrates the significant margin expansion that the REIT considers will be indicative of the long-run performance, which Stephen will discuss in detail 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. Our overhead is also protected from inflation with the largest contributor being asset management fees, which are based exclusively on historical cost with no allowance for inflation. Slide 9 serves as a reminder of the inherent and unique diversification within our high-quality portfolio. We maintain an approximately 60-40 split between liberalized and regulated units, providing balanced growth in rents on turnover and indexation as well as the opportunity to liberalize more suites. In addition, you can see that over 40% of our current properties are located in the high-growth counter basin of Randstad with approximately 1/4 of the portfolio 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. And further to all of this, approximately 35% of our portfolio is comprised of single-family homes, also known as Dutch row houses, a segment, which represents an additional unique contributor to our portfolio mix. Finally, with approximately half of the current portfolio constructed since 1980, 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 overachieve with respect to our KPI targets as we accelerate into this new year. On a total portfolio basis, operating revenues increased by 13% versus the comparative quarter, primarily due to accretive acquisitions since that period as well as increase in monthly rents on the stabilized portfolio, as Phillip has already discussed. Net operating income increased by an even greater 15% for the 3 months ended March 31, 2022. Likewise, driven by the higher operating revenues, which I just mentioned as well as strong cost control, predominantly due to lower repairs and maintenance costs as well as reduction in landlord levy expense. In aggregate, total portfolio NOI margin accordingly increased substantially to 76.8% for the 3 months ended March 31, 2022, compared to 75.5% in the prior year period. Given the REIT's intention to consistently purchase landlord levy government rebates, along with the reduction in the landlord levy tax rate, which was effective January 1, 2022, and its potential abolishment in 2023, the REIT considers that NOI margin of 76% to 79% annually will be indicative of long-run performance. This margin expansion is further reinforced by the fact that the REIT's property operating costs are largely insulated from inflation, as Philip explained. This all translated into accretive returns for unit orders, which has continued to strengthen quarter-over-quarter. ERES again realized very significant increases to FFO per unit and AFFO per unit for the quarter ended March 31, 2022, up by 17% and 16%, respectively, compared to the prior year period, driven by the positive impact of increased stabilized NOI and accretive acquisitions. The REIT's AFFO payout ratio was 76.4% for the 3 months ended March 31, 2022, down from 83.9% in the prior year period and currently below its long-term target range despite our regular increases to monthly distribution. Moving to Slide 12. We can see that the REIT outperformed on a stabilized basis as well. Similar to the total portfolio, stabilized residential occupancy increased to 98.6% compared to 98.3% as at March 31, 2021. Stabilized occupied average monthly rent and operating revenues both increased by 3.8%, which again is at the high end of the REIT's target range of 3% to 4% that Phillip previously mentioned. Stabilized NOI increased by 5.3% for the quarter ended March 31, 2022, versus the prior year period for the same reasons as described for the total portfolio. This resulted in significant margin expansion with stabilized NOI margin increasing to 76.6% for the 3 months ended March 31, 2022, compared to 75.5% in the quarter ended March 31, 2021. Slide 13 showcases the continuous growth of our accretive returns and strong financial management. FFO and AFFO per unit were both up significantly versus the prior year period to EUR 0.42 and EUR 0.037 for the Q1 of 2022, representing increases of 17% and 16%, respectively compared to Q1 of 2021. As mentioned, these large increases in FFO and AFFO were primarily driven by higher stabilized NOI, profitable acquisitions, margin expansion, and strong cost control. Our AFFO payout ratio also remains strong, even in the context of the REIT's growing distributions. In addition to the 5% increase in the REIT's distribution rate, which was effective March 2021 onward, on February 17, 2022, the REIT's Board of Trustees approved a further increase of 9% to the REIT's monthly distribution, which was effective for March 2022 onward. This preserves ERES' reputation for its relatively high and regularly increasing distribution yield. With the REIT able to continuously pass on its accomplishments to unitholders via increases to its distribution rate, it also simultaneously has maintained a strong and flexible financial position and consistently conservative debt metrics as you can see on Slide 14. Our debt to gross book value was 47.7% as of March 31, 2022, while our weighted average mortgage effective interest rate decreased by 9 basis points since Q1 of 2021 to 1.52% as at current period end. We had immediate available liquidity of approximately $133 million as at March 31, 2022, comprised of cash on hand in excess of that set aside for ongoing operational and capital expenditure requirements as well as unused capacity on the REIT's revolving credit facility and its pipeline or promissory note arrangements with CAPREIT. Assuming an LTV of 55%, this provides capacity to acquire approximately EUR 300 million, which will support the REIT's growth endeavors throughout 2022. Slide 15 demonstrates the REIT's track record for maintaining this extremely conservative debt metrics. Both its debt service coverage ratio and interest coverage ratio has remained significantly higher than the minimum thresholds prescribed by our revolving credit facility. You can also see the REIT has historically maintained its debt to gross book value consistently within its target range of 45% to 50%. Over the past years, ERES' ability to successfully execute on its strategic objectives has fundamentally relied on its robust yet flexible financial position, which itself, therefore, constitutes a core pillar supporting the REIT's track record for exceeding expectations. Going forward, the REIT will ensure that it continues to fortify and strengthen its financial position as it grows its portfolio. And finally, Slide 16 displays some further detail on our well-staggered mortgage profile, which currently has a weighted average term to maturity of 3.7 years. The staggering of our mortgage profile not only reduces renewal risk, but also stimulates liquidity with the majority of our mortgages being in non-amortizing. We are in the process of currently securing mortgage financing on our Q1 acquisitions alongside early refinancing of the REIT mortgage maturing in 2022 that will have a stated contractual interest rate of approximately 2.5%. Proceeds from this mortgage financing will be used to repay in full the promissory notes due to CAPREIT that were arranged to initially fund the acquisitions, which bear interest at a rate of 1.3%. We expect this new mortgage financing to close in early 2022 -- June of 2022. Thank you for your time this morning, and I will now turn things back to Phillip to wrap up.

Thank you, Stephen. We previously announced that we would accelerate into the future and our results for the first quarter of 2022 have demonstrated exactly that. Our overachievement is not an idea which we preach in theory. Over the past 3 years, despite unprecedented market conditions, ERES has quarter-over-quarter proven its strategic platform is operationally accretive and financially robust with Q1 of 2022 being no exception. Further, with the current underappreciation of ERES in the capital markets, it affords the opportunity to investors to capture a unique combination of growth, value and income. It is in this context, we emphasize again that ERES offers an extremely compelling investment opportunity summarized by our investment highlights as outlined on the next slide, which includes excellent operational and financial management by our experienced team, a liquid balance sheet and an aligned partnership with CAPREIT. ERES is poised to continue to accelerate this momentum forward throughout the remainder of 2022 and thereafter. To that end, I will reiterate that the best is yet to come. 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 Instructions] Our first question goes to Jonathan Kelcher with TD Securities.

First question, just on the Rotterdam acquisitions you announced yesterday, and I think you might have hinted at this in the prepared remarks. But is there a chance to convert all of the units there to liberalized over time or just some of them?

Yes. We think we can convert all of them. And we think that the discount to market value of where it is today, the ERV versus a converted suite is very, very substantial.

Like your typical ones that you've been doing or better still?

Well in excess of what we did this past quarter.

Okay. That's good news. And then on the 2.95% on the renewals. A couple of questions there. Did you get any pushback from tenants on that?

It's still a bit early, to be honest, simply because they went out. Again, we used a very specific order. We say we've served the notices because we did, indeed, you have to serve them 60 days before they're effective. So they went out a couple of weeks ago. So it's still early days, but our past history has been to operate right in the middle of the road. So we have very few challenges, and we've never lost one to the extent that it goes all the way to a tribunal. So we feel comfortable with what we've served.

And then just I guess in the MD&A, you talked about the regulated suites and the ability to charge more for middle high and high income tenants. Do you have many of those?

I don't have the exact number, but just to give you a flavor is the regulatory guidance that came out suggested that it would be 2.3% for regulated, but then they had some separate provisions that said if you made above x amount of money, you could raise it EUR 50. If it made even more money than you could raise it as much as EUR 100. And those numbers would be significantly higher than 2.3% in the regulated units. And so in terms of the average, our average for regulated was 2.6 where the regulator says, it's generally 2.3. And unless, of course, you have some higher income people in your regulated suites and then you can raise that higher, but you still can't go above the regulated maximum. So what that tells you that in some of our suites, we had people that were within those revenue thresholds and there was simultaneously incremental room between where their rents were and what the regulated maximum is. And that's why, on an average basis for regulated, we were at 2.61.

Our next question goes to Himanshu Gupta with Scotiabank.

So just on the rent growth outlook in the second half of this year. So with indexation increasing to 2.95% from July 1, what would rent growth look like for the 12-month period starting from 1st July?

We think our rent growth will be above the 3% to 4% range, meaningfully above 4%.

So with 1.5% indexation you did almost 3.5% to 4%. So I guess it could be well above 4%. Is that how you're funding it?

Yes. I mean if we already have 2.95% coming from the indexation and you're seeing that we're getting 20% uplifts on turnover then yes, your math and our math is similar, it will be above 4%.

And if I look further 1 year out, like the July indexation is based on 2021 CPI. But CPI is tracking much higher in 2022. So if I take another 1 year forward, it could be even higher than what we are talking right now. So indexation would be much higher than 2.95% for July 2023. Is it that as well?

I would emphasize some caution there, either during our last quarterly call or some of individual calls I may have had with you, Himanshu or others. I just don't -- even though the regulator has always and continues to have the latitude to send the RET index, the rental indexation for regulated as he or she wants. Last year it was 0. This year, it was 2.3%. For the liberalized, they put in a new law last year that will expire in 2024 that says at CPI plus 1. This year, that wasn't so bad because CPI was 2.3%, so we got 3.3. If CPI for calendar year 2022 were to be 5% or 7%, I don't think it's a good plan or a good approach to assume that they're just going to let that flow directly through. That's what I said earlier and I still believe that to be the case, and there happens to be a discussion in parliament about that right now. Given they just created this new law, how should they tweak that law potentially to ensure that it's not 7 plus 1 or 5 plus 1, which would be unpalatable for the regulator. So I don't -- I think there is a level of acceptance of rental growth that they will allow them to go through, but I don't think it will necessarily have to track CPI. They could easily change the law that they just put in place last year.

So there could be an upper limit cap there, but still the rent outlook continue to look stronger than what it was last year, for example.

We're currently experiencing a tailwind rather than a headwind, which is what we had last year.

And then just a follow-up on that GW Rotterdam acquisition. How long or how many years will it take to convert all the units to liberalized? Like what are you underwriting?

Again, it has a lower turnover rate than what you'd see in our portfolio on average. And again, we can't convert until they turn over. But even if they were to turn over at our average of 10% or 12%, it's still going to take you 10 years to fully capture all of that upside, but it is a very, very significant upside.

And maybe the last question is on the debt financing. I think if I heard correctly, you're looking for the financing rate of 2.5% on the acquisitions done in this year. So how much cost of financing has gone up in the last 6 months? Like if you could have done this like 6 months back? Just wondering like what is the impact of change in cost of financing.

Back in 2021, when we closed on our financing, we had around -- one of the mortgages was at 1%. And then at the end, it was close to 1.15%. We've seen, you can say, interest rates rise by approximately 100 basis points, 130 basis points. So right now, we're seeing the 7-year and 6 and 7 years around the 2.5% rate.

And is this fixed like 2.5% like 6, 7 year term?

Yes. That's the intention.

And maybe just a last question from my side. Do you see more deal volume coming to the market as a result of cost of financing going up?

Again, I mean cost of financing has gone up. I think it's very important to emphasize, we are still able to buy additional assets at positive yield spreads. It might not be the 200 basis points plus that we were doing 18 months ago, but we're still getting substantial yield spreads even with financing at 2.5%. And as a result of that, honestly speaking, there's been no let off in the deal pipeline and product being offered into the market at all.

Our next question goes to Kyle Stanley with Desjardins.

Just sticking on the last line of questioning on the M&A market at the moment. So I believe in the past, you mentioned there was a number of large portfolios for sale in the Netherlands. Just wondering you just mentioned that there's been quite a bit of deal flow available. Just wondering, has there been any changes in pricing expectations with some of those portfolios?

No. It's still very robust. Cap rates remain sharp and that market has not changed to reflect increasing financing costs.

So it sounds like there could potentially be a bit of a gap between buyer and seller expectations. So would you expect maybe deal volumes to slow in the near term?

We're not seeing that. I would say versus last year where the first half of the year was very quiet, the first half of this year has been very active. And again, there are the big portfolios out there that are being marketed as we speak, plus there is the more typical portfolios in the $20 million to $75 million range. And I know sometimes people believe it's counterintuitive, but these are very strong performing assets, great top line profile. We're having expanding margins. And even though the interest rate environment is going up, we're still putting new assets on the books at positive yield spreads. So we do our underwriting. We aren't changing our underwriting standards. We're not making them more aggressive, but we do reflect the cost of the financing, but other places for people to deploy capital in the market, this remains a very attractive asset class and geography. So we see nothing that's going to indicate a slowdown in supply or that pricing is going to back off.

Would you say then the $200 million maybe acquisition target is still very much intact for 2022?

Well, it's May 3, and we're almost halfway there. So we still feel comfortable with that.

And then just the last one for me. Turnover was down a bit this quarter. Could you provide your thoughts on that? Was there any maybe Omicron wave impact or has affordability kept tenants in place longer? Just I guess, general thoughts on the turnover.

Yes. I mean, of course, we noticed that as well, and so we did some internal work on that, just to make certain that we saw what was going on. And in fact, what's happening is we're reverting to what would be our more historical norms. So we went back, basically since CAPREIT has been in the Netherlands in 2017 end of '16, beginning of '17 and looked at what the general turnover rate had been annually, and it was running generally between 10% and 12%. And then in 2020, in 2021, it actually ticked up so that it was closer to the 12% to 14%. And again, you could argue that, that would have been more driven by COVID and people moving or trying to get bigger spaces, more spaces, more suburban spaces. I mean we don't have any empirical data that demonstrates that. But what we do see now is moving closer back to the 10% to 12% in which we were running at for '17, '18 and '19. So we think that 10% to 12% is probably where it's going to level out for now. But again, as I'm sure you noticed, our uplift versus that prior period are multiples and even our uplifts in Q4 of last year and Q1 of this year are dramatically higher than what our average was for all of last year. So we're at 20% now, and we were running at 16% on average for all of 2021.

our next question goes to Matt Kornack with National Bank Financial.

Just a follow-up on the acquisition side of things. Given the rise in financing costs, has it changed at all the type of assets that you're targeting, whether that be liberalized versus regulated or even kind of entice you to look at other markets or Randstad versus outside the Randstad. Just your thoughts as to whether anything changes or if it's still status quo?

Yes. I mean, we always have to be aware, and as we've mentioned, we don't have preset targets of how much liberalized versus how much regulated we need. We do like liberalized 2 out of the 3 acquisitions that we recently bought are liberalized. That's going to generally have higher market level growth, which is a good thing. But then again, if you go to the Rotterdam acquisition, which is nearly 100% regulated, that's outstanding as well because once we put in our refurbishment program, we're going to get dramatic rental growth. So it's very much on a deal-by-deal basis. We underwrite it specific to that portfolio, and we don't have the set in stone targets that we have to be 50-50 lib, 50-50 reg or 60-40. We take a look at what product is out there. We underwrite it according to our standards and what our views on the market are, and we put in our best bid, but it's not causing us to shift one way or the other. But of course, what you can do with the top line is always important. And that dynamic is different in each of the sub-asset classes of liberalized and regulated. So a long answer to an easy question. We're not going to change dramatically. We will look at both and underwrite them accordingly.

Fair enough. Makes sense. On Rotterdam, and I may have missed it if you disclosed it, but did you provide a going-in cap rate for that transaction? And given the mark-to-market opportunity, I mean, do you just take that 10% and assume it over a period of time and do a DCF? Or how do you ultimately arrive at a purchase price for that type of assets?

Yes. I mean we have multiple ways of doing it. So one, we look at what we think it's going to provide on a running yield basis. But again, in an asset like this, which would be very much closer to a value-add asset, it's not always the best way to evaluate it looking in place yield. We also look at what it is on an accretive basis versus the rest of the portfolio. But again, if you have something that has high value add on this, then you do have to do it more on a DCF basis or what we make certain that we do is when we're doing our cash flow models, we understand how much CapEx is going to go into each conversion, and we have to make certain that we continue to meet our ROI, which is 10% unlevered on that incremental investment. So there's a lot of different ways that we triangulate the price. We didn't disclose the cap rate on that transaction, but it would be 3.35%. Again, that's on in place, but then if you start factoring in what that will look like over time as we extract the value through our investment program and the conversion, it's going to go up dramatically.

Fair enough. And still almost 100 basis points to financing costs in terms of spread there.

Exactly.

That's very helpful. And again, congrats on continued good quarters here.

[Operator Instructions] Our final question at this time goes to Jimmy Shan with RBC Capital Markets.

I just have one follow-up to that M&A question. So I understand you're not really changing much in terms of your strategy, but are you changing your hurdle rate at all? And sort of what does your investment stance look like today versus a few months ago when the rate was -- interest cost was meaningfully different?

Yes. I mean I wouldn't say that we are with the accelerator on the floorboard full steam ahead because again, it is an uncertain world and an uncertain interest rate environment. But again, we've already seen a dramatic increase. I think the forward-looking curve in the Euroland is already pricing in some interest rate movement by the ECB. Again, my crystal ball is no better than anybody else's. But what's very important to us is what do we believe we can do on the top line. Again, we have increased our assumed interest rate for any of our new acquisitions versus what we would have been doing last year. So of course, that makes the bar higher for us. But again, it's not any one thing, but we are very aware of the interest rate environment. Will it go up more? We don't know. Does it plateau here? We don't know. But again, we take each deal as we see it. We put in financing as quickly as we can. We keep our mortgage profile staggered. And even though this one is substantially higher at 2.5-ish percent. Our blended mortgage rate is still extraordinarily low, and we're still at sort of historic very good pricing. So we are not blind to the environment. We're not accelerating as fast as possible to get as many assets on the books as possible. We just want to be very considered and thoughtful including the uncertainty in the interest rate environment. But I think very different from North America, I mean, our -- we are still able to deploy capital at very positive yield spreads and with growth, good top line growth metrics. So that is generally thought to be a good thing to do, but we have to be, of course, cautious.

There are currently no further questions registered at this time. So I'll turn the conference back over to Phillip for any closing remarks.

Again, thank you all for joining us this morning. And if you have any further questions, as always, please do not hesitate to contact either myself or Stephen directly. And thank you very much.

That concludes today's call. Thank you for your participation. You can now disconnect your lines.