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

Hello, everyone, and welcome to the European Residential Real Estate Investment Trust Fourth Quarter 2022 Results Conference Call. My name is Bruno and I will be operating your call today. [Operator Instructions]. I will now hand over to your host, Mr. Phillip Burns. Mr. Phillip, please go ahead.

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, Jenny Chou. After I provide an update on our operational progress during the quarter, Jenny will provide an overview of our financial results and position. 2022 was yet another year of unprecedented circumstances, and so we are especially pleased to reporting another year of strong performance despite the many challenges. Slide 4 provides an overview of ERES' growth since inception, where you can see that we have more than tripled our suite count, having increased our asset base at a compounded rate of 37% per annum. This includes the 6 high-quality, multi-residential properties in the Netherlands, which we added to our portfolio this past year, demonstrating our ability to accretively grow by acquisition even amid adverse conditions. This accounts for the annual increase of the market value over the portfolio, which was offset by widespread interest rate impact on fair values. As a result, our NAV decreased compared to the prior year-end to EUR 3.87 per unit. Nevertheless, it still remains well above the pricing of our publicly traded units, therefore, prolonging the opportunity for investors to participate in a clear value play, which ERES currently offers. Slide 5 contains a snapshot of the fourth quarter. And as explained, our fair values declined by approximately 4%, landing at EUR 1.9 billion at December 31, 2022, of which 95% represents our residential properties in the Netherlands. That said, we were able to close out the year operationally strong, having grown both FFO and AFO per unit by 10% annually. This was attributable to the success of our selective external growth earlier in the year, alongside major organic growth achieved throughout the year with sizable quarter-over-quarter increases in same-property NOI contribution, which I will elaborate on shortly. We are exercising caution when it comes to new acquisitions and prioritizing the preservation of our acquisition liquidity, which supplements our solid financial position. As at year-end, we had EUR 156 million in immediately available liquidity through cash and unused credit that translates into a theoretical acquisition capacity of approximately EUR 350 million. This was reinforced last month by the amendment of our revolving credit facility, which increased the commitment from EUR 100 million to EUR 125 million for a 3 year period. This further strengthened our financial profile and liquidity, which Jenny will expand on. Turning to Slide 6. We are pleased to showcase the effective execution of our rent maximization strategy in the Netherlands, our core market that is characterized by increasingly favorable and robust long-term fundamentals. Our net and occupied average monthly rent increased last year by 5.3% and 5.4%, respectively, on a total portfolio and same-property basis. These are the highest increases achieved to date. And further to that, they are significantly in excess of our target rental growth range of 3% to 4%. Notably, since inception, we have been able to achieve a constant annual growth rate in AMR in excess of 4%. These strong gains demonstrate the success of our rent growth strategy comprised of increasing rents on indexation, securing market uplifts on turnover and our value-add capital expenditure program, including the conversion of regulated suites to liberalized. We recorded an average uplift on turnover of 23.8% and 22% during the past quarter and year, respectively, which included an exceptional 82.2% and 65% increase, which we realized on conversion for the fourth quarter and fiscal 2002, respectively. For context, in 2021, our turnover rate was modestly higher while we achieved an average uplift of 16.3%, which is still significant, but a 6 percentage points or 1/3 lower than the average achieved in 2022. Indexation then adds an additional tailwind. As of July 1, 2022, the REIT served tenant notices to 96% of the residential portfolio across which the average rental increase due to indexation was 2.95%. This was in line with Dutch government's cap on indexation for regulated and liberalized units, which was set at 2.3% and 3.3%, respectively, in 2022. In relation to the record growth we achieved last year, we are stepping into 2023 on positive footing with the Dutch government having set maximum indexation for the coming year at 3.1% for regulated units and 4.1% for liberalized units effective for the upcoming year. We expect this alone to drive rental growth in 2023 toward the high end of our target range, excluding the effects of turnover, which, as demonstrated, contribute significantly to additional growth. It is important to acknowledge that these rental revenue accomplishments were all achieved within a regulatory regime influx. Dutch housing regulations have historically been fluid and iterative in nature and their ever-changing and complex parameters continue to evolve over the year. ERES has specialized in being able to profitably operate and grow rents within this framework, a skill that constitutes one of its key competitive advantages. In the face of regulatory evolution and change that based on precedent we can expect going forward, we will remain strategic, adaptable and proactive in preserving our positive trajectory on our rent maximization strategy and targets. Moving on to Slide 7. You can see that our commercial occupancy was near full at 99.5%, while our residential occupancy remained high at 98.4% at year-end. This is again at the higher end of our target occupancy range, which is where we've constantly held it since inception. This further underscores the fundamentals of the Dutch residential market and its ability to transcend economic headwinds even during the pandemic. Spearheaded by strong rent growth and high occupancies, along with contribution from our acquisitions, we increased our net operating income by 16% to $69 million for the year ended December 31, 2022. As Jenny will discuss shortly, strong cost control also played a key role, contributing to the substantial 100 basis points increase in our NOI margin, excluding fully recoverable service charges, which expanded to 83.1% for the year, up from 82.1% in 2021. Importantly, this highlights another critical cornerstone of ERES' unparalleled platform, that being its limited exposure to inflationary pressures. As I have reiterated throughout the past year of high inflation, our tenants are responsible for all 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 on historical cost with no allowance for inflation. In the context of a particularly challenging macroeconomic environment, this represents an invaluable safeguard and ensures our ability to continue delivering organic growth. Slide 8 serves as a reminder of the unique diversification that characterizes our high-quality portfolio. Approximately 2/3 of our portfolio was currently liberalized with over 40% of our properties located in the high-growth [ counterbation ] of the Randstad region. Moreover, approximately 1/3 of our portfolio was comprised of single-family homes, also known as Dutch row houses, a segment that is even further protected from inflation as tenants perform the majority of the R&M work themselves, thus resulting in higher margins. With that, I will now turn the call over to Jenny.

As you can see on Slide 10, our quarterly results were solid. Operationally, our performance was strong with operating revenues increasing by 14.5% and NOI up by 12.2%. This was attributable to our accretive acquisitions as well as the increase in monthly rent on a stabilized portfolio as outlined by Phillip. Our NOI margin remained high and relatively level with the fourth quarter of 2021, while our FFO per unit decreased by 2.4% to EUR 0.04 per unit. This was primarily a result of higher interest being occurred on our revolving credit facility, which was likewise the main driver of the decrease in the REIT's quarterly AFFO per unit. However, our AFFO payout ratio was at almost 85% for the 3 months ended December 31, 2022, which is exactly within our target range of 80% to 90%. Slide 11 shows the strong results we achieved on an annual basis. For the total portfolio, operating revenue and NOI were both up by 16% for reasons already outlined. This was combined with a decrease in property operating cost as a percentage of operating revenue that was driven by lower repairs and maintenance costs as well as the reduction in landlord levy expense, the latter as a result of lower levy tax rate effective in 2022. In aggregate this increased our NOI margin to 83.1% for the year ended December 31, 2022, up from 82.1% last year. This excludes service charges, which have a net zero impact on NOI as they are fully recoverable from tenants. Since the Dutch government abolished the landlord levy tax effect of January 1, 2023, we anticipate being able to maintain this expanded margin on a normalized basis. Which is further reinforced by the fact that the REIT's property operating costs are largely insulated from inflation as explained. This all trickled into improved financial returns for our unitholders with FFO and AFFO per unit, both up by 10% compared to the prior year. Slide 12 exhibits the REIT's outperformance on a stabilized basis as well. Residential occupancy was high and relatively stable with the majority of our vacancy being delivered and attributable to suites undergoing renovations upon turnover pursuant to our productive capital investment program. As at December 31, 2022, 71% of our residential units were offline for this reason, which should provide for further rental lifts when the suites are leased. As a testament to that assertion, I will remind everyone on the high uplifted rent which we secured on turnover throughout this past year, as Phillip highlighted earlier. Stabilized occupied AMR grew from EUR 940 as at December 31, 2021, to EUR 991 at the end of the current period end, representing an increase of 5.4% that is significantly in excess of our target range of 3% to 4%, again, demonstrating our success at executing on a robust rent maximization strategy. This field increases in operating revenues and NOI of approximately 5%. Combined with our focus on cost control and mitigation and our limited exposure to inflation, we expanded our same-property NOI margin to 83.2%, excluding service charges. I am pleased to be reporting that this 100 basis points margin growth on both the total portfolio as well as the stabilized basis, which is indicative of its recurring nature and long-term inclination. Slide 13 represents the increasingly accretive results, which we are achieving as regrowth. Through higher stabilized NOI, well considered and accretive acquisitions, margin expansion and strong cost control, you can see that our FFO and AFFO per unit continues to rise. Alongside that, through rigorously growing our revenues, we were able to increase our monthly distribution by 9% in the first quarter of 2022, establishing ERES as a sector leader in terms of distribution yield. In spite of this, our AFFO payout ratio fell below its long-term target range to 78.9% for the year ended December 31, 2022, a result of the REIT surpassing its performance expectations. As we turn to Slide 14, I will reemphasize the importance that we attribute to maintaining a conservative and flexible financial position, which forms a pillar upon which the REIT's best-in-class platform stands. We have immediately available liquidity of over EUR 21 million, comprised of cash on hand and unused capacity on our revolving credit facility. Although we are looking at external growth through a cautious length, this does exclude additional acquisition capacity available to us through the pipeline agreement or alternative promissory note arrangements with CAPREIT. This also excludes additional capacity, which we secured through the post year-end amendment of our revolving credit facility, which Phillip mentioned earlier, that increased the commitment by EUR 25 million and provided an additional EUR 25 million assessable via the Accordion feature. Further to this, our debt metrics remain conservative with an adjusted debt to portfolio market value ratio of 51% effect year-end, which is well below the 60% covenant prescribed by our revolving credit facility. Our coverage ratios also remain high and slightly in excess of covenant thresholds. And finally, Slide 15 completes the well-staggered disposition of our mortgage profile, which is critically important in today's interest rate environment as it minimizes our renewal risk while also sustaining our liquidity. The majority of our margins are nonamortizing and 100% are financed with terms and arrangements that results in fixed interest payments. With a weighted average term to maturity of 3.5 years, combined with the fact that we have less than 10% of our mortgage debt maturing in each of the upcoming 2 years, we are well positioned to withstand ongoing macroeconomic and interest rate volatility in the medium term. On that note, I will thank you for this time this morning and turn things back to Phillip to wrap up.

Looking back on 2022, we are pleased with the strong results which we have achieved in a globally difficult operating environment and proved again not just our ability to survive but to thrive amid the adversity. We operationally outperformed relative to our targets as well as in relation to our peer universe. We further prove the quality and resolve of our platform and team and an exacerbated housing crisis in our core market that is projected only to worsen further strengthening our industry fundamentals. Substantiating our sentiment, CAPREIT continues to act as our largest sponsor and has maintained the entirety of its majority ownership position, reflecting their own view of our REIT's long-term prospects. As we look ahead, we will continue to go the extra mile in executing on our strategic objectives while remaining operationally robust regardless of any potential change or uncertainty on the macroeconomic or regulatory front. We have demonstrated this to date, and we will continue to prove it in practice. 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, back over to you, please.

[Operator Instructions] Our first question is from Jonathan Kelcher from TD Securities.

First question just on the same property NOI growth in the quarter was 2.7%, which is a step down from previous quarters. Can you maybe provide a little bit of color on that? Was there anything onetime in the cost or anything in there?

It's primarily due to the timing of R&M. If you look at our Q3 results, you'll see that operating costs were slightly on the lighter end with a catch-up happening in Q4.

If we're looking ahead to 2023, it sounds margins are going to be pretty stable to what they, in that sort of 83% range, and we should just think about revenue growth translating into same property NOI growth. Is that a good way to think about it?

Yes. Our stabilized NOI growth on an annual basis would be a good benchmark.

And then on the revenue side, you did well on uplifts in 2022. Is there anything to think about for 2023 that suggests that it will be any different?

No. Again, the only thing I would say is you might have noticed that, our turnover was a bit elevated in Q4, but that's a really more, if you look at it on an annualized basis because it was a bit lower in Q2 and Q3. We're still going to see that turnover in the 11% to 13% range. And there's nothing that we see that is softening the overall market dynamics. There's been new research that have come out as early as this week that demonstrate how the shortage of housing is getting worse, how the construction deliveries are declining, the permits are declining. We see no reason why for 2023, we can't continue that level of top line performance.

Our next question is from Brad Sturges from Raymond James.

Just a follow-up along the same line of questions there. Just on the rent growth on suite and for liberalized suites, where do you think that could trend to this year? Do you think that is still around the 20% mark? Or do you see that further expanding?

Yes. For the past couple of quarters and even for the year, we've been at or above 20%. I think staying at that level is certainly what we expect to deliver. Obviously, we're always trying to maximize it as much as possible. And again, as I just mentioned to Jonathan, there is nothing to suggest to us that supply is going to increase. We think the tightness in the market will continue. As market rents continue to trend upward, maybe we can take advantage of that. But I think expecting us to continue to deliver, on average, 20% or above uplift is fair.

Switching over to the IFRS valuation. It took cap rates up again this quarter. Just curious if that's tied to transactions you're seeing in the market and maybe just generally what your expectations around pricing and transactions will be for the year. But if not, just walk through maybe the assumption changes there.

Yes. I mean there continues to be a very limited number of observable transaction comps. And in absolute, there was a substantial amount of activity that did take place last year, but you saw the housing associations dramatically increased their participation in the transaction volume. And of course, they're generally looking at affordable or regulated only properties and they're unlevered buyers. Not certain that those are necessarily great comparables for us. For the few transactions that were out there, particularly in Q4, there was not a meaningful notice of CAPREIT widening. Most of the adjustment from our portfolio came more from the discount rates, just reflecting the current interest rate environment now versus where it has been historically offset, of course, by our NOI growth.

Our next question is from Kyle Stanley from Desjardins.

Maybe just kind of sticking along Brad's line of questions there. Can you just comment more broadly on the residential investment environment in the Netherlands right now? I mean, has there been a shift over the last few months as maybe the economic outlook in Europe has improved. We've now got obviously some certainty on the regulatory side. Just curious if the investment environment is changing at all, if you're seeing maybe some investors who had been on the sidelines starting to come back?

Yes. We haven't observed sideline investors coming back. If you break it into new deliveries, there are new deliveries happening with things that were in train, but what you're more seeing on potential new build opportunities is those are being put on hold, delayed, stopped because you have rising cost, inflation, labor shortages, you also have increased environmental issues and cost of carry issues. And with the new to be implemented next year, mid-market rents, that's put an incredible damper on the new supply delivery. In terms of the existing supply, I don't see people coming back in great quantity. Again, the housing associations have been more active than they had been historically. But if you look at even the levered buyers, any of those are largely sitting on the sideline because of the increased cost of financing. But even the unlevered buyers, they are not rushing back into the market either simply because although they don't need to finance with debt, there's just limited price discovery. And although they could probably afford to play existing cap rates, they want to know to see if or at all, they're going to move before they come in, in any significant volume. It's still although the environment is more positive than it would have been in Q4. It's been very volatile. If you just look at the interest rate expectations, they were reasonably high in November, December, then they softened in January when people thought that the ECB was going to take their foot off the gas. Now they've gone back up to where they were. And I think the, although the regulatory uncertainty having largely been clarified is a positive, there's still a pretty big uncertainty in terms of what the interest rate environment looks like in the next 12 to 18 months.

Maybe just on that note, where is the current cost of debt on 5, 7 year money currently?

I would say it would be mid 4 plus.

Phillip, you mentioned, obviously, the regulation on the mid-market, now that we do have that certainty. Have there been any changes to your capital allocation plans? I think you've discussed in the past maybe focusing a little more on the affordable side to limit your exposure to the mid-market when we didn't have the certainty, but just curious if there's been any changes?

I wouldn't say there's been significant changes. We would expect to still deploy the same amount of in-suite CapEx, particularly for 2023 that we had anticipated. What we're doing is, not that we always haven't been an incredibly scrutinizing of any capital that we deliver on ROI metrics, et cetera. But we're trying to be much more dynamic, recognizing that this mid-market regulation is anticipated to come in. We might change our strategy where we are going into a full refurb, maybe we'll do a slightly lighter refurb and not deploy capital, and I'm just making up the numbers, get 70% of the rental growth that we would have got if we would have done refurb. And both of those situations, satisfying our ROI criteria. But we're just trying to be even more dynamic than we were before, but we still see a lot of opportunity to do our value-add in-suite program, both on conversion and not conversion. I don't see a big change there for us going through the rest of this year. In terms of the regulatory environment, there's been no changes announced, but there is currently a very robust debate in terms of how destructive these changes will be. There has been a very, very forceful industry blowback. The government is listening. But personally, from our perspective, we don't see the government making any material changes between what they've announced and what we fully anticipate coming in, in 2024. They may make some changes on the margin that allow them to suggest they've been listening to the industry. We believe that what they've announced, what we articulated at the beginning of the year is probably the new regime and certainly worst case, there may be some tweaks on the margin that could provide some modest positive benefits, but versus what we expect. But again, everything the government is saying publicly is this is in train, it's going to happen January 1, 2024. The one thing, again, we had a very long discussion with some of you in our press release. We indicated that we thought the overall exposure for us was about 4% of our total rent over a 3 to 5 year period because at that point in time, we were using the old matrix. The government has stated that the new matrix will go up this year by inflation. If we were to redo that sensitivity, we would expect the exposure of our portfolio instead of being something close to 4% overall, it would be something closer to 3% overall, still coming in over that 3 to 5 year period. Looking for our growth rates out to 2024 and beyond, if we're going to grow at or above that 4%, maybe even 5%, the drag from that as some of our units are reconverted, we would expect to be slightly lighter than what we articulated in January.

Our next question is from Khing Shan from RBC Capital Markets.

Just on the mid-market rule, the 25% impacted, would they be disproportionately in certain markets or certain buildings or certain type of units? And I guess the question is, would it make sense to look at disposing them into the end user market? Would that be a strategy that you'd be contemplating at this point?

I would have to see the exact data, but it would probably be happening more outside the Randstad than within the Randstad. Simply because within the Randstad, you have a higher value generally per square meter than you, the municipal tax value, which forms part of the points calculation. Again, I would have to come back to you more specifically, but I would expect it to be slightly more outside the Randstad than within the Randstad. Would we potentially sell assets? If we had assets that required a significant amount of capital expenditure, and we would not be able to be sufficiently rewarded for that, i.e., you have to invest tens of thousands of euros, but yet you're not going to be able to be regulated, then the ROI on that would be very, very low or the payback period would be incredibly extended, we would potentially sell those units. Again, we sold 2 units in the past couple of years. And the exact reason we did that was the CapEx expected was so far and above what we would have anticipated the payback being we sold those. Having said all of that, the privatization market, as this is often referred to, is less robust today than it has been historically because those owner occupiers have mortgage costs that have quadrupled. The affordability for them to buy versus rent is a dramatically different calculation than it would have been over the past several years.

And I assume in your estimation that most of those assets will be outside Randstad, I imagine that the end user market outside the Randstad would be weaker than those in Randstad, I imagine?

Not necessarily. I mean they will not have had the historic run-up in value that you would have had within the Randstad. Any softening in price would be less as well. But again, they would have the same affordability challenges of somebody within the Randstad or without around Randstad. The mortgage rates don't really change geographically within the Netherlands.

And then you had mentioned the housing associations were fairly active buying regulated units. Have you noticed any changes in values there?

No. No. Again, as I mentioned, whether you're looking at the transaction activity at the housing associate level or the regulated level or more broadly, we are unable to observe a meaningful change in cap rates so far, based upon completed transactions.

[Operator Instructions] Our next question is from Matt Kornack from National Bank.

Just want to understand with regards to the conversions that you're currently doing, you're moving to liberalize, would those now fall into that mid-market segment? And how do you think about doing conversions through this year, given that obviously, it's on turnover thereafter, but just your thoughts around that whole process, given the new rules?

Yes. As we look at conversions now, anything that we're going to be converting, we need to ensure that we get the right ROI. It becomes much more as I was explaining at the beginning, perhaps not as well as I could. It's much more dynamic now. If the breakeven point was 141-145, it sort of varies year-to-year, we would have taken something into the 160s to make certain there's a buffer there. But again, it's not so much that it gets converted, it's that the return on invested capital is appropriate for us. Now it certainly is a higher benchmark to get above 187, but we might be doing a material investment in a unit this year, even though we might not get it all to way to liberalize. If it's got below 140 now, it's regulated and we can get it to 175, that's still going to be a material uplift in rent, but we're just going to have to adjust our capital investment program to make certain that it meets the criteria. We just have to be more dynamic in terms of what we're doing this year to make certain that it doesn't get undone next year. But again, it's never going to get undone all in once next year either. Depends upon how much people move out of those flats that are candidates to be reclassified. Also, there is the difficulty in the market where expecting everybody to move out of their flat so they can go get a cheaper one because their flat is just now, or potentially can be reclassified. I ask myself, where they're going to move to? Because there's just a shortage but we're also doing more dynamic analysis, too, where if the rent would have been 1,500 with a full conversion, and it was going to go back to 1,100, maybe we do slightly less than a full conversion, and we take the rents to 1,250 with the idea that it's highly likely that somebody would be more inclined to move out if they're paying 1,500 and they get something similar for 1,100, but they're less likely to move out if their rent is 1,250 and they could only go down to 1,100. Or as we've explained to you guys before, we always used to paint and put in floors because we got incredible payback periods on those. Well, now maybe we'll put in less paint and fewer floors because we're not going to get remunerated for it. But if we can charge higher rents in 2023, then might be due next year under the reclassification, people are pretty unlikely to move out if the rental savings they're going to achieve are more limited, and they just paid for their own floors. It's much more dynamic this year than it would have been historical just because you have this gray area. But as I mentioned in somebody else's question, we still anticipate spending a similar amount in terms of in-suite, i.e., value-add CapEx without changing our ROI expectations or requirements.

We've seen a little bit of an increase in your CapEx profile as a result of some of these conversions, but you've seen kind of conversions generating somewhere in the mid-30s, rent increases. I think this quarter, it was up to 82%. Have the returns improved essentially on that? Or how should we think about it? And is that 82% an anomalous number for this quarter? The trend is kind of moving in that direction?

One, I would say 82%, I don't love the word anomalous, but I wouldn't say that's going to be our run rate going forward. You would see historically, we've been getting better and better returns on conversions because the market rents have continued to go up, go up, go up, go up, where we would have been doing a conversion that was driving us to EUR 1,100 a month 3 years ago, then went to EUR 1,300 a month 1.5 years ago, today, ignoring the mid-market stuff, that same flat would be getting 1,500. And our required investment has not been inflating that rapidly. We've definitely on conversion seen the trend generally going higher, but again, I think in the 30% to 50% range is where I would expect to generally see it over time. Very happy that we got much higher than that the past quarter, but it also depends upon which unit you are, which markets you are, what the investment looks like versus the post-investment state. It's very much depending upon the stock that's being addressed at that point in time. But the uplift continue to be very material and generally trending upward just because the market rents are also trending upward.

You just need to work on the ECB a bit.

Yes. If you could do that, Matt, I'll send you a nice gift. I don't know what it will be, but it will be nice.

Our next question is from David Chrystal from National Capital Markets.

It sounds your next dollar of capital is really best served reinvested in your existing portfolio, even if it might be a little bit more targeted based on the kind of upcoming legislation. But beyond that dollar, are you seeing investment opportunities within your existing markets? Are you looking at potential acquisitions in any new markets at this juncture? Are you a little bit off the acquisition train for now?

Yes. I mean I think we have to be very transparent about this. I mean I see in an interest rate environment as we have today, I see unlikely that we'd be acquiring in this type of environment, again, we have to know that we can finance it attractively, appropriately vis-a-vis the cap rate or the asset yield. And right now, it's very difficult to know where the stabilized or normalized debt rates are going to be. I think we have to be very, very cautious. And in such a cautious environment, I think the bar would be even higher for us to go to a new geography. 18 months ago when we were performing well, on all metrics, I would have thought that we were very close to going to a new geography, but don't we all know that the world has changed quite dramatically in the past 12 to 18 months. From external growth perspective, I just see it unrealistic for us at the moment, and we will continue to deploy capital to drive our organic rental growth.

And on the debt side, obviously, the cost you, I think, Jenny, you had some commentary earlier. But is debt availability an issue? Or is it kind of widely available? Are you just paying the higher cost today?

It's the latter. It's still readily available. It's just the cost of that money.

And have you had any discussions on your 23 maturities? Or where do those fall in the year?

We've already started in discussions with a lot of our lenders. It's in that mid-4 plus range that I mentioned earlier.

And that comes due at the end of June. We'll be executing that in the coming weeks, months.

Our next question is from Himanshu Gupta from Scotiabank.

I was just saying that I just joined the call, so I'm not sure if my questions are already covered. In terms of my question is really on IFRS cap rates, around 3.64%, up 30 basis points year-over-year. Are you done making the cap rate adjustments? I mean do you think the IFRS value is reflecting current environment?

Again, as we discussed it with, the previous question. There's been very limited transaction comparables by which the valuers and in turn, we can observe a meaningful cap rate expansion. The biggest driver of our downward movement in fair value has been due to the discount rate, which is being driven largely by the interest rate environment, offset in part by our NOI growth. We believe that looking forward at the interest rate environment, which remains very uncertain to us, that will have the biggest driver of the future profile of our fair values.

And would you say that to justify the current debt financing cost, you could expect more cap rate expansion here, or are we still in a period of transition and still figuring out how much cap it needs to expand further from there?

That's the million-dollar, million-euro question is, there's just significantly lower volume of transaction activity in the lessened transaction volume, we don't see yet a material movement in cap rates, but there's just an enormous price discovery or lack of price discovery on both the buyer and the seller side. I don't think this is unique to multi-residential in the Netherlands. I think that's a phenomenon or a situation that pretty much is prevalent in real estate globally. It's very hard for us to speculate what's going to happen on the interest rate side and what the knock-on effect is going to be on our cap rates. We're very comfortable with what we published for this quarter. But again, I mean, I don't quite have the ability to forecast what the ECB is going to do, and that has an impact for sure.

And then on the acquisitions, obviously, you have been on a pause for 6 months. How do we approach now? And the question is really, do you see any capital recycling opportunity here? Can you monetize on property where value has been done and that proceeds could be used to recycle into other opportunities?

I'm not certainly maybe it's David who asked the question, but I don't see us being externally acquisitive until there's more clarity in the interest rate environment and our cost of capital. We will be continuing to be laser-focused on our value-add investment programs and driving our organic growth. And again, some people are doing it here in North America, including our largest shareholder, recycling assets, high-grading, et cetera. But our portfolio is not homogenous, but much more homogenous where we don't have low vacancy assets that need lots of structural CapEx, et cetera, where we could sell them for very tight cap rates and then turn around and redeploy that at more attractive cap rates. I mean our portfolio has a very different makeup than that. I don't see us churning our portfolio of selling off certain assets to redeploy in the market. Because, again, in the market, at least our market, there remains a big lack of price discovery and where the true clearing pricing is if you were to go out and buy new assets or buy different assets, I should say.

Which segment is more subtractive today? Or are the least attractive today between regulated mid-market or liberalized? I mean, in terms of cash and cash returns. Which one is least, which one is most subtractive?

Again, I would only be able to answer that question, depending upon what I could buy each of those units for, right? Historically, we have, several years ago, we were buying more regulated stuff at wider cap rates, and we refine with that, you get a, call it, a better pricing going in on a relative basis, although your top line was growing less robustly. The whole market had yield compression. And when you were at sort of the bottom of that yield compression, we saw better value in paying a tighter cap rate for newer assets, more liberalized assets that had a dramatically higher top line growth rate. Again, if we were in an acquisitive mode, we would have to price each one separately. Again, we have always and would continue if we were in an acquisitive mode to like both asset classes, so long as they are priced appropriately and they certainly would be priced differently. But you'll also recall that it's pretty rare that you would buy a meaningful-sized portfolio that's 100% one or the other. We had historically been buying mixed portfolios.

We currently have no further questions. I will now hand back to our speaker for final comments, Mr. Phillip Burns.

Thank you, operator, and thank you all for joining us this morning. As ever, if you have any questions, please do not hesitate to contact either Jenny or myself at any time. Thank you very much for joining, and have a great day.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you.