TORONTO, Aug. 02, 2023 (GLOBE NEWSWIRE) -- European Residential Real Estate Investment Trust ("ERES" or the "REIT") (TSX: ERE.UN) announced today its results for the three and six months ended June 30, 2023.
ERES’s unaudited condensed consolidated interim financial statements and management's discussion and analysis ("MD&A") for the three and six months ended June 30, 2023 can be found at www.eresreit.com or under ERES's profile at www.sedarplus.ca.
SECOND QUARTER SNAPSHOT
- High residential occupancy held strong at nearly 99% at period end, relatively consistent with the prior year period
- Robust rent growth continues with a 6% increase in Occupied Average Monthly Rents ("AMR") from the prior year period on both the total and same property portfolio
- Same property Net Operating Income ("NOI") margin expands to 79.5% in the second quarter, as compared to 77.1% in the comparable period
- Secured €76.5 million in new mortgage financing and re-financings, bearing a fixed contractual interest rate of 4.7% for a six-year term to maturity
SIGNIFICANT EVENTS AND HIGHLIGHTS
Business Update
- On January 24, 2023 the REIT amended and renewed its existing revolving credit facility, providing up to €125 million for a three-year period ending on January 26, 2026, as well as an accordion feature to increase the limit a further €25 million upon satisfaction of conditions set out in the agreement and consent of applicable lenders.
- On March 31, 2023, pursuant to the departure of Phillip Burns, Mark Kenney assumed the role of Chief Executive Officer and trustee. Mr. Kenney is currently also the Chief Executive Officer and President of CAPREIT.
- On June 16, 2023, the REIT announced that it is working with CBRE, as financial and real estate advisor, to advise it in connection with a strategic review of ERES.
- On June 26, 2023, the REIT secured mortgage financing on its May 2, 2022 acquisition property, combined with refinancing of certain existing properties, in the total principal amount of €76.5 million (excluding transaction costs and fees). The new mortgage financing matures on June 26, 2029, and carries a fixed contractual interest rate of 4.66%.
Outperforming Operating Metrics
- Strong operating results continued into 2023, fuelled by strong rental growth. Same property portfolio Occupied AMR, increased by 6.0%, from €952 as at June 30, 2022, to €1,009 as at June 30, 2023, demonstrating the REIT's continued achievement of rental growth in excess of its target range.
- Turnover was 6.8% for the six months ended June 30, 2023, with rental uplift on turnover remaining strong at 20.4%, compared to rental uplift of 21.6% on turnover of 5.1% for the six months ended June 30, 2022.
- Occupancy for the residential properties remained high and stable at 98.6% as at June 30, 2023, relatively consistent with occupancy of 98.4% as at June 30, 2022 and at the high end of the REIT's target range. Moreover, 55.1% of residential vacancies are attributable to suites undergoing renovation upon turnover, which should provide for further rental uplifts once the suites are leased.
- NOI increased by 8.5% for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily driven by the aforementioned higher monthly rents, further supported by the REIT's extensive protection from inflation.
Financial Performance
- Funds From Operations ("FFO") per Unit decreased by 4.7% to €0.041 for the three months ended June 30, 2023, compared to €0.043 for the three months ended June 30, 2022, primarily driven by increase in interest and other financing costs and current income tax expense, partially offset by the positive impact of increased same property NOI.
- Adjusted Funds From Operations ("AFFO") per Unit increased by 2.7% to €0.038 for the three months ended June 30, 2023, compared to €0.037 for the three months ended June 30, 2022.
Strong Financial Position with Ample Liquidity
- Overall, liquidity improved from prior year due to the amendment of the Revolving Credit Facility increasing the limit by €25.0 million, with immediately available liquidity of €30.4 million as at June 30, 2023, excluding the €25.0 million accordion feature on the Revolving Credit Facility, acquisition capacity on the Pipeline Agreement and alternative promissory note arrangements with CAPREIT.
- Debt coverage metrics are robust, with interest and debt service coverage ratios of 3.3x and 2.7x, respectively, and adjusted debt to gross book value ratio currently standing at 55.7%.
- The REIT's financial position is additionally supported by its well-staggered mortgage profile, with an approximate three and a half-year weighted average term to maturity and a weighted average effective interest rate of 2.07%.
"ERES again delivered robust operational results in the second quarter of 2023, with near-full occupancies and strong rent growth driving the expansion in our same property NOI margin to 79.5%,” commented Mark Kenney, Chief Executive Officer. “Strategically, we remain focused on our commitment to maximizing value for all of ERES's Unitholders, and we continue to actively explore every possible avenue to achieve that."
"Our sound financial profile supports this mission, and we have immediately available liquidity of over €30 million in cash and capacity on our credit facility, which excludes the additional €25 million accessible via accordion feature and €165 million through the Pipeline Agreement or alternative promissory note arrangements with CAPREIT,” added Jenny Chou, Chief Financial Officer. “Although we continue to absorb higher interest rates as compared to the prior year, we recorded a diluted FFO per Unit of €0.041 for the second quarter, which is up as compared to the previous quarter."
OPERATING METRICS CONTINUE TO STRENGTHEN
| Rental Rates | |||||||
| Total and Same Property Portfolio | Suite Count | Occupied AMR/ABR1 | Occupancy % | ||||
| As at June 30, | 2023 | 2022 | 2023 | 2022 | AMR | 2023 | 2022 |
| € | € | % Change | |||||
| Residential Properties | 6,899 | 6,901 | 1,009 | 952 | 6.0 | 98.6 | 98.4 |
| Commercial Properties2 | 19.3 | 18.0 | 7.2 | 99.5 | 99.0 | ||
1 Average In-Place Base Rent ("ABR").
2 Represents 450,911 square feet of commercial gross leasable area.
Occupied AMR increased by 6.0% for both the total multi-residential portfolio and the same property portfolio, compared to the prior year period. The increases were mainly driven by indexation, turnover and the conversion of regulated suites to liberalized suites. The REIT's achievement of growth in rental revenues significantly in excess of its target range of 3% to 4% demonstrates its ability to consistently operate in a complex and fluid regulatory regime.
| Suite Turnovers | ||||
| For the Three Months Ended June 30, | 2023 | 2022 | ||
| Change in Monthly Rent | Turnovers2 | Change in Monthly Rent | Turnovers2 | |
| % | % | % | % | |
| Regulated suites turnover1 | 13.0 | 0.2 | 1.8 | 0.2 |
| Liberalized suites turnover1 | 17.3 | 2.2 | 18.7 | 2.1 |
| Regulated suites converted to liberalized suites1 | 50.8 | 0.5 | 60.8 | 0.3 |
| Weighted average turnovers1 | 19.9 | 2.9 | 22.4 | 2.6 |
| Weighted average turnovers excluding service charge income | 19.0 | 2.9 | 23.2 | 2.6 |
1 Represents the percentage increase in monthly rent inclusive of service charge income.
2 Percentage of suites turned over during the period based on the weighted average number of residential suites held during the period.
| For the Six Months Ended June 30, | 2023 | 2022 | ||
| Change in Monthly Rent | Turnovers2 | Change in Monthly Rent | Turnovers2 | |
| % | % | % | % | |
| Regulated suites turnover1 | 8.0 | 0.5 | 1.3 | 0.6 |
| Liberalized suites turnover1 | 17.0 | 5.3 | 18.3 | 3.9 |
| Regulated suites converted to liberalized suites1 | 55.0 | 0.9 | 55.3 | 0.7 |
| Weighted average turnovers1 | 20.4 | 6.8 | 21.6 | 5.1 |
| Weighted average turnovers excluding service charge income | 19.6 | 6.8 | 22.2 | 5.1 |
1 Represents the percentage increase in monthly rent inclusive of service charge income.
2 Percentage of suites turned over during the period based on the weighted average number of residential suites held during the period.
Suite turnovers in the residential portfolio during the three and six months ended June 30, 2023, resulted in monthly rent increasing by approximately 19.9% and 20.4%, respectively, compared to 22.4% and 21.6%, respectively, for the same periods last year. Rental uplifts on conversions were 50.8% and 55.0% for the three and six months ended June 30, 2023, respectively, compared to 60.8% and 55.3% for the three and six months ended June 30, 2022, respectively.
| Suite Renewals |
Lease renewals generally occur on July 1st for residential suites. Other than the household income adjustment previously mentioned, for the period July 1, 2023 to June 30, 2024, the indexation of all Regulated Units is set at wage inflation of 3.1%. Annual rental increases due to indexation for Liberalized Suites are also capped, as per the previously enacted Dutch government legislation, effective for an initial period of three years from May 1, 2021 up to and including April 30, 2024. For the period from January 1, 2023 to January 1, 2024, the rental cap limits indexation for Liberalized Suites to the annual wage development figure + 1.0%, resulting in a maximum indexation of 4.1% based on the annual wage development figure of 3.1%.
Accordingly, for rental increases due to indexation beginning on July 1, 2023, the REIT served tenant notices to 6,659 suites, representing 97% of the residential portfolio, across which the average rental increase due to indexation and household income adjustments is 4.0%. In the prior year period, the REIT served tenant notices to 6,499 suites, representing 96% of the residential portfolio, across which the average rental increase due to indexation and household income adjustments is 3.0%.
There were no lease renewals in the REIT's commercial portfolio during the six months ended June 30, 2023 and June 30, 2022.
| Total Portfolio Performance | Three Months Ended, | Six Months Ended | ||||||||||
| June 30, | June 30, | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Total Operating Revenues (000s) | € | 23,373 | € | 22,236 | € | 46,753 | € | 43,490 | ||||
| NOI (000s) | € | 18,529 | € | 17,199 | € | 36,379 | € | 33,521 | ||||
| NOI Margin1 | 79.3 | % | 77.3 | % | 77.8 | % | 77.1 | % | ||||
| Weighted Average Number of Suites | 6,899 | 6,864 | 6,900 | 6,721 | ||||||||
1 Excluding service charge income and expense, the total portfolio NOI margin for the three and six months ended June 30, 2023 was 84.5% and 83.2%, respectively (three and six months ended June 30, 2022 — 83.3% and 83.0%, respectively).
Total operating revenues increased by 5.1% and 7.5% for the three and six months ended June 30, 2023, respectively, compared to the same periods last year, primarily due to increase in monthly rents.
NOI increased by 7.7% and 8.5% for the three and six months ended June 30, 2023, respectively, versus the same periods last year, primarily driven by higher operating revenues from increased total portfolio occupied AMR and reduction in onsite costs, partially offset by increases in advertising expenses. For the three months ended June 30, 2023, the NOI margin on the total portfolio increased to 79.3% compared to 77.3% for the comparable quarter (excluding service charges, total portfolio NOI margin increased to 84.5% from 83.3% for the comparable quarter). For the six months ended June 30, 2023, the NOI margin on the total portfolio increased to 77.8% compared to 77.1% for the comparative period (excluding service charges, total portfolio NOI margin increased to 83.2% from 83.0% for the comparative period). Service charge expenses are fully recoverable from tenants via service charge income and therefore have a nil net impact on NOI.
| Same Property Portfolio Performance | Three Months Ended, | Six Months Ended | ||||||||||
| June 30, | June 30, | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Total Operating Revenues (000s) | € | 22,239 | € | 21,312 | € | 44,511 | € | 42,434 | ||||
| NOI (000s) | € | 17,670 | € | 16,427 | € | 34,725 | € | 32,642 | ||||
| NOI Margin1 | 79.5 | % | 77.1 | % | 78.0 | % | 76.9 | % | ||||
| Same Property Number of Suites2 | 6,543 | 6,545 | 6,543 | 6,545 | ||||||||
1 Excluding service charge income and expense, the same property portfolio NOI margin for the three and six months ended June 30, 2023 was 84.5% and 83.3%, respectively (three and six months ended June 30, 2022 — 83.2% and 82.9%, respectively).
2 Includes all properties owned by the REIT continuously since December 31, 2021, and therefore does not take into account the impact of property acquisitions or property dispositions completed during 2022 and 2023.
The increases in same property NOI contribution by 7.6% and 6.4% for the three and six months ended June 30, 2023, respectively, compared to the same periods last year, were primarily driven by higher operating revenues from increased same portfolio occupied AMR and aforementioned changes in onsite costs and advertising expenses. For the three months ended June 30, 2023, same property NOI margin increased to 79.5% compared to 77.1% for the comparable quarter (excluding service charges, same property NOI margin increased to 84.5% from 83.2% for the comparable quarter). For the six months ended June 30, 2023, same property NOI margin increased to 78.0% compared to 76.9% for the comparable period (excluding services charges, same property NOI margin increased to 83.3% compared to 82.9% for the comparable period).
The REIT is focused on continuing to further improve NOI and NOI margin through a combination of rental growth and cost control, and investment in capital programs to enhance the quality and value of its portfolio. In addition, the REIT notes that its property operating costs are largely insulated from inflation, as tenants are responsible for all of their own energy and other utility costs, the REIT incurs no wage costs, and property management fees are a fixed percentage of operating revenues. This further preserves the REIT's property operating costs and, combined with its strong growth in rental revenues, improves its normalized NOI margin.
| Financial Performance |
FFO is a measure of operating performance based on the funds generated by the business before reinvestment or provision for other capital needs. AFFO is a supplemental measure which adjusts FFO for costs associated with certain capital expenditures, leasing costs and tenant improvements. FFO and AFFO as presented are in accordance with the recommendations of the Real Property Association of Canada ("REALpac") as published in January 2023, with the exception of certain adjustments made to the REALpac defined FFO, which relate to (i) acquisition research costs, (ii) mortgage refinancing costs, (iii) senior management termination and retirement costs, and (iv) costs related to the strategic review of the REIT. FFO and AFFO may not, however, be comparable to similar measures presented by other real estate investment trusts or companies in similar or different industries. Management considers FFO and AFFO to be important measures of the REIT’s operating performance. Please refer to "Basis of Presentation and Non-IFRS Measures" within this press release for further information.
A reconciliation of net income (loss) and comprehensive income (loss) to FFO is as follows:
| Three Months Ended | Six Months Ended | |||||||||||
| (€ Thousands, except per Unit amounts) | June 30, | June 30, | ||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Net income (loss) and comprehensive income (loss) for the period | € | 3,252 | € | 126,935 | € | (103,096) | € | 95,206 | ||||
| Adjustments: | ||||||||||||
| Net movement in fair value of investment properties | 45,398 | 9,790 | 170,124 | (22,249 | ) | |||||||
| Net movement in fair value of Class B LP Units | (31,964 | ) | (133,499 | ) | (15,178 | ) | (67,710 | ) | ||||
| Fair value adjustments of Unit Option liabilities | (513 | ) | (2,258 | ) | (654 | ) | (1,167 | ) | ||||
| Interest expense on Class B LP Units | 4,261 | 4,262 | 8,522 | 8,287 | ||||||||
| Deferred income taxes | (10,882 | ) | (335 | ) | (42,809 | ) | 11,316 | |||||
| Foreign exchange loss (gain)1 | 210 | 5,003 | (1,005 | ) | 6,700 | |||||||
| Net gain (loss) on derivative financial instruments | (728 | ) | (10,649 | ) | 2,300 | (21,371 | ) | |||||
| Impairment of goodwill and other costs2 | 618 | 10,541 | 618 | 10,541 | ||||||||
| Mortgage refinancing costs3 | — | 91 | — | 91 | ||||||||
| Senior management termination and retirement costs4 | — | — | 74 | — | ||||||||
| Acquisition research costs | — | — | — | 11 | ||||||||
| FFO | € | 9,652 | € | 9,881 | € | 18,896 | € | 19,655 | ||||
| FFO per Unit – diluted5 | € | 0.041 | € | 0.043 | € | 0.081 | € | 0.085 | ||||
| Total distributions declared | € | 6,982 | € | 6,950 | € | 13,956 | € | 13,509 | ||||
| FFO payout ratio | 72.3 | % | 70.3 | % | 73.9 | % | 68.7 | % | ||||
1 Relates to foreign exchange movements recognized on remeasurement of Unit Option liabilities as well as on remeasurement of the REIT's US Dollar draw on the Revolving Credit Facility as part of effective hedge.
2 Other costs relate to costs associated with the previously announced strategic review of the REIT.
3 Relates to accelerated amortization of deferred financing costs for the three and six months ended June 30, 2022 associated with the refinancing component
of the REIT's mortgage which closed on June 14, 2022.
4 For the three and six months ended June 30, 2023, includes nil and €59, respectively, of accelerated vesting of previously granted Unit Options and nil and €15, respectively, in associated legal fees (three and six months emded June 30, 2022 — nil).
5 Includes Class B LP Units.
| The table below illustrates a reconciliation of the REIT's FFO and AFFO: | ||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||
| (€ Thousands, except per Unit amounts) | June 30, | June 30, | ||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| FFO | € | 9,652 | € | 9,881 | € | 18,896 | € | 19,655 | ||||
| Adjustments: | ||||||||||||
| Non-discretionary capital expenditure reserve1 | (701 | ) | (1,060 | ) | (1,620 | ) | (2,115 | ) | ||||
| Leasing cost reserve2 | (139 | ) | (129 | ) | (278 | ) | (259 | ) | ||||
| AFFO | € | 8,812 | € | 8,692 | € | 16,998 | € | 17,281 | ||||
| AFFO per Unit – diluted3 | € | 0.038 | € | 0.037 | € | 0.073 | € | 0.075 | ||||
| Total distributions declared | € | 6,982 | € | 6,950 | € | 13,956 | € | 13,509 | ||||
| AFFO payout ratio | 79.2 | % | 80.0 | % | 82.1 | % | 78.2 | % | ||||
1 Non-discretionary capital expenditure reserve is determined based on the management's best estimate of expected annual non-discretionary capital expenditure requirements per suite, divided by four for the quarter, and multiplied by the weighted average number of residential suites during the period. The estimated annual non-discretionary capital expenditure reserve per suite for 2023 and 2022 is €470 and €621, respectively. The estimated full year weighted average number of residential suites as at June 30, 2023 and June 30, 2022 is 6,899 and 6,812, respectively.
2 Leasing cost reserve is based on annualized 10-year forecast of external leasing costs on the commercial properties.
3 Includes Class B LP Units.
FFO per Unit for the three and six months ended June 30, 2023 decreased from the same periods last year primarily due to increases in interest and other financing costs and current income tax expense, partially offset by the positive impact of increased same property NOI. AFFO per Unit for the three months ended June 30, 2023 increased from the comparable quarter due to decrease in the non-discretionary capital expenditure reserve. AFFO per Unit for the six months ended June 30, 2023 decreased from the comparable period primarily due to increases in interest and other financing costs and income tax expense, as described above.
| Net Asset Value |
Net Asset Value ("NAV") represents total Unitholders' equity per the REIT's consolidated balance sheets, adjusted to exclude certain amounts in order to provide what management considers to be a key measure of the intrinsic value of the REIT on an ongoing basis. Management believes that this measure reflects the residual value of the REIT to its Unitholders on an ongoing basis and is therefore used by management on both an aggregate and per Unit basis to evaluate the net asset value attributable to Unitholders, and changes thereon based on the execution of the REIT's strategy. While NAV is calculated based on items included in the consolidated financial statements or supporting notes, NAV itself is not a standardized financial measure under IFRS and may not be comparable to similarly termed financial measures disclosed by other real estate investment trusts or companies in similar or different industries. Please refer to the "Basis of Presentation and Non-IFRS Measures" section within this press release for further information.
| A reconciliation of Unitholders' equity to NAV is as follows: | |||||||||
| (€ Thousands, except per Unit amounts) | |||||||||
| As at | June 30, 2023 | December 31, 2022 | June 30, 2022 | ||||||
| Unitholders' equity | € | 442,744 | € | 550,147 | € | 533,084 | |||
| Class B LP Units | 281,675 | 296,853 | 377,432 | ||||||
| Unit-based compensation financial liabilities | 373 | 554 | 1,081 | ||||||
| Net deferred income tax liability1 | 31,741 | 74,543 | 96,100 | ||||||
| Net derivative financial asset2 | (22,845 | ) | (22,931 | ) | (15,335 | ) | |||
| NAV | € | 733,688 | € | 899,166 | € | 992,362 | |||
| NAV per Unit – diluted3 | € | 3.15 | € | 3.87 | € | 4.28 | |||
| NAV per Unit – diluted (in C$)3,4 | C$ | 4.54 | C$ | 5.61 | C$ | 5.77 | |||
1 Represents deferred income tax liability of €39,533 net of deferred income tax asset of €7,792 as at June 30, 2023 (December 31, 2022 — deferred income tax liability of €77,474 net of deferred income tax asset of €2,931; June 30, 2022 — deferred income tax liability of €98,425 net of deferred income tax asset of €2,325).
2 Represents non-current derivative financial assets of €22,845 as at June 30, 2023 (December 31, 2022 — non-current derivative financial assets of €23,771, net of current derivative financial liabilities of €840; June 30, 2022 — non-current and current derivative financial assets of €14,942 and €393, respectively).
3 Includes Class B LP Units and the dilutive impact of unexercised Unit Options, calculated based on the treasury method.
4 Based on the foreign exchange rate of 1.4422 on June 30, 2023 (foreign exchange rate of 1.4498 on December 31, 2022; foreign exchange rate of 1.3473
on June 30, 2022).
| Other Financial Highlights | Three Months Ended | Six Months Ended | ||
| June 30, | June 30, | |||
| 2023 | 2022 | 2023 | 2022 | |
| Weighted Average Number of Units – Diluted (000s)1, 3 | 232,687 | 231,905 | 232,562 | 231,783 |
| As at | June 30, 2023 | December 31, 2022 | June 30, 2022 | |||
| Closing Price of REIT Units2 | € | 1.98 | € | 2.09 | € | 2.66 |
| Closing Price of REIT Units (in C$) | C$ | 2.86 | C$ | 3.03 | C$ | 3.58 |
| Market Capitalization (millions)1, 2 | € | 462 | € | 486 | € | 616 |
| Market Capitalization (millions in C$)1 | C$ | 666 | C$ | 704 | C$ | 830 |
1 Includes Class B LP Units.
2 Based on the foreign exchange rate of 1.4422 on June 30, 2023 (rate of 1.4498 on December 31, 2022; rate of 1.3473 on June 30, 2022).
3 Dilutive impact of unexercised Unit Options is calculated based on the treasury method.
FINANCIAL POSITION REMAINS FIRM
| As at | June 30, 2023 | December 31, 2022 | June 30, 2022 | ||||||
| Ratio of Adjusted Debt to Gross Book Value1 | 55.7 | % | 51.0 | % | 48.8 | % | |||
| Weighted Average Mortgage Effective Interest Rate4 | 2.07 | % | 1.77 | % | 1.77 | % | |||
| Weighted Average Mortgage Term (years) | 3.4 | 3.4 | 3.9 | ||||||
| Debt Service Coverage Ratio (times)1,2 | 2.7x | 3.1x | 3.4x | ||||||
| Interest Coverage Ratio (times)1,2 | 3.3x | 3.8x | 4.2x | ||||||
| Available Liquidity (000s)3 | € | 30,421 | € | 21,386 | € | 33,930 | |||
1 Please refer to the "Basis of Presentation and Non-IFRS Measures" section of this press release for further information.
2 Based on trailing four quarters.
3 Includes cash and cash equivalents of €10.4 million and unused credit facility capacity of €20.0 million as at June 30, 2023 (cash and cash equivalents of €10.9 million and unused credit facility capacity of €10.5 million as at December 31, 2022; cash and cash equivalents of €15.6 million and unused credit facility capacity of €18.4 million as at June 30, 2022).
4 Includes impact of deferred financing costs, fair value adjustment and interest rate swaps.
For the six months ended June 30, 2023, ERES's liquidity improved and leverage remained firm, as compared to the prior year, primarily driven by the amended revolving credit facility agreement, additionally supported by the REIT's staggered mortgage profile with an approximate three and a half-year weighted average term to maturity and a weighted average effective interest rate of 2.07%. The REIT has immediately available liquidity of €30 million as at June 30, 2023, excluding the €25.0 million accordion feature on the Revolving Credit Facility, acquisition capacity on the Pipeline Agreement and alternative promissory note arrangements with CAPREIT, reinforced by robust debt coverage metrics, with interest and debt service coverage ratios of 3.3x and 2.7x, respectively, and adjusted debt to gross book value ratio within its target range at 55.7%.
Management aims to maintain an optimal degree of debt to gross book value of the REIT’s assets, depending on a number of factors at any given time. Capital adequacy is monitored against investment and debt restrictions contained in the REIT’s fourth amended and restated declaration of trust dated April 28, 2020 (the "Declaration of Trust") and the amended and renewed credit agreement dated January 24, 2023, between the REIT and three Canadian chartered banks, providing access to up to €125.0 million with an accordion feature to increase the limit a further €25.0 million upon satisfaction of conditions set out in the agreement and the consent of applicable lenders (the "Revolving Credit Facility").
The REIT manages its overall liquidity risk by maintaining sufficient available credit facilities and available cash on hand to fund its ongoing operational and capital commitments and distributions to Unitholders, and to provide future growth in its business.
DISTRIBUTIONS
During the six months ended June 30, 2023, the REIT declared monthly distributions of €0.01 per Unit (being equivalent to €0.12 per Unit annualized). Such distributions are paid to Unitholders of record on each record date, on or about the 15th day of the month following the record date. The REIT intends to continue to make regular monthly distributions, subject to the discretion of its Board of Trustees.
CONFERENCE CALL
A conference call hosted by Mark Kenney, Chief Executive Officer and Jenny Chou, Chief Financial Officer, will be held on Thursday, August 3, 2023 at 9:00 am EST. The telephone numbers for the conference call are North America Toll Free: (888) 210-3454 / International Toll: +1 (646) 960-0130. The Conference ID is 3682517.
For international access numbers: https://events.q4irportal.com/custom/access/2324/
The call will also be webcast live and accessible through the ERES website at www.eresreit.com — click on "Investor Info" and follow the link at the top of the page. A replay of the webcast will be available for 1 year after the webcast at the same link.
The slide presentation to accompany management's comments during the conference call will be available on the ERES website an hour and a half prior to the conference call.
About European Residential Real Estate Investment Trust
ERES is an unincorporated, open-ended real estate investment trust. ERES's REIT Units are listed on the TSX under the symbol ERE.UN. ERES is Canada’s only European-focused multi-residential REIT, with a current initial focus on investing in high-quality, multi-residential real estate properties in the Netherlands. As at June 30, 2023, ERES owns a portfolio of 158 multi-residential properties, comprised of approximately 6,900 suites and ancillary retail space located in the Netherlands, and owns one office property in Germany and one office property in Belgium.
ERES’s registered and principal business office is located at 11 Church Street, Suite 401, Toronto, Ontario M5E 1W1.
For more information please visit our website at www.eresreit.com.
Basis of Presentation and Non-IFRS Measures
Unless otherwise stated, all amounts included in this press release are in thousands of Euros, the functional currency of the REIT. The REIT's unaudited condensed consolidated interim financial statements and the notes thereto for the three and six months ended June 30, 2023, are prepared in accordance with International Financial Reporting Standards ("IFRS"). Financial information included within this press release does not contain all disclosures required by IFRS, and accordingly should be read in conjunction with the REIT's Interim Financial Statements and MD&A for the three and six months ended June 30, 2023, which are available on the REIT's website at www.eresreit.com and on SEDAR+ at www.sedarplus.ca.
Consistent with the REIT's management framework, management uses certain financial measures to assess the REIT's financial performance, which are not in accordance with IFRS ("Non-IFRS Measures"). Since these Non-IFRS Measures are not recognized under IFRS, they may not be comparable to similar measures reported by other issuers. The REIT presents Non-IFRS Measures because management believes Non-IFRS Measures are relevant measures of the ability of the REIT to earn revenue, generate sustainable economic earnings, and to evaluate its performance and financial condition. The Non-IFRS Measures should not be construed as alternatives to the REIT's financial position, net income or cash flows from operating activities determined in accordance with IFRS as indicators of the REIT’s performance or the sustainability of distributions. For full definitions of these measures, please refer to "Non-IFRS Measures" in Section I and Section IV of the REIT's MD&A for the three and six months ended June 30, 2023.
Where not otherwise disclosed, reconciliations for certain Non-IFRS Measures included within this press release are provided below.
Adjusted Debt and Adjusted Debt Ratio
The REIT's Declaration of Trust requires compliance with certain financial covenants, including the Ratio of Adjusted Debt to Gross Book Value. Management uses Total Debt Adjusted for Declaration of Trust and the Ratio of Adjusted Debt to Gross Book Value as indicators in assessing if the debt level maintained is sufficient to provide adequate cash flows for distributions and for evaluating the need to raise funds for further expansion.
A reconciliation from total debt is as follows:
| (€ Thousands) | |||||||||
| As at | June 30, 2023 | December 31, 2022 | June 30, 2022 | ||||||
| Mortgages payable1 | € | 890,719 | € | 875,615 | € | 881,043 | |||
| Bank indebtedness2 | 104,670 | 89,259 | 81,328 | ||||||
| Promissory note | — | 25,650 | 25,650 | ||||||
| Total Debt | € | 995,389 | € | 990,524 | € | 988,021 | |||
| Fair value adjustment on mortgages payable | (1,016 | ) | (1,215 | ) | (1,412 | ) | |||
| Total Debt Adjusted for Declaration of Trust | € | 994,373 | € | 989,309 | € | 986,609 | |||
| Ratio of Adjusted Debt to Gross Book Value3 | 55.7 | % | 51.0 | % | 48.8 | % | |||
1 Represents non-current and current mortgages payable of €855,008 and €35,711, respectively, as at June 30, 2023 (December 31, 2022 — €813,733 and €61,882, respectively; June 30, 2022 — €818,849 and €62,194, respectively).
2 Comparative figures were re-arranged to conform with current period presentation.
3 Gross book value is defined by the REIT's Declaration of Trust as the gross book value of the REIT's assets as per the REIT's financial statements, determined on a fair value basis for investment properties.
Earnings Before Interest, Tax, Depreciation, Amortization and Fair Value
Earnings Before Interest, Tax, Depreciation, Amortization and Fair Value ("EBITDAFV") is calculated as prescribed in the REIT's Revolving Credit Facility for the purpose of determining the REIT's Debt Service Coverage Ratio and Interest Coverage Ratio, and is defined as net income (loss) attributable to Unitholders, reversing, where applicable, income taxes, interest expense, amortization expense, depreciation expense, impairment, adjustments to fair value and other adjustments as permitted in the REIT's Revolving Credit Facility. Management believes EBITDAFV is useful in assessing the REIT's ability to service its debt, finance capital expenditures and provide for distributions to its Unitholders.
A reconciliation of net income (loss) and comprehensive income (loss) to EBITDAFV is as follows:
| (€ Thousands) | ||||||||||||||||||||||||
| For the Three Months Ended, | Q2 23 | Q1 23 | Q4 22 | Q3 22 | Q2 22 | Q1 22 | Q4 21 | Q3 21 | ||||||||||||||||
| Net income (loss) and comprehensive income (loss) | € | 3,252 | € | (106,348 | ) | € | (48,790 | ) | € | 70,000 | € | 126,935 | € | (31,729 | ) | € | 45,204 | € | 58,616 | |||||
| Adjustments: | ||||||||||||||||||||||||
| Net movement in fair value of investment properties | 45,398 | 124,726 | 93,599 | 8,099 | 9,790 | (32,039 | ) | (86,748 | ) | (76,908 | ) | |||||||||||||
| Net movement in fair value of Class B LP Units | (31,964 | ) | 16,786 | (15,443 | ) | (65,136 | ) | (133,499 | ) | 65,789 | 22,352 | 2,868 | ||||||||||||
| Fair value adjustments of Unit Option liabilities | (513 | ) | (141 | ) | (1 | ) | (682 | ) | (2,258 | ) | 1,091 | 129 | 200 | |||||||||||
| Net gain (loss) on derivative financial instruments | (728 | ) | 3,028 | (2,496 | ) | (10,385 | ) | (10,649 | ) | (10,722 | ) | (987 | ) | (1,264 | ) | |||||||||
| Impairment of goodwill | — | — | — | — | 10,541 | — | — | — | ||||||||||||||||
| Foreign exchange loss (gain) | 210 | (1,215 | ) | 1,148 | 2,696 | 5,003 | 1,697 | 285 | 1,541 | |||||||||||||||
| Interest expense on Class B LP Units | 4,261 | 4,261 | 4,261 | 4,261 | 4,262 | 4,025 | 3,907 | 3,908 | ||||||||||||||||
| Interest on mortgages payable | 3,843 | 3,777 | 3,832 | 3,862 | 3,186 | 3,046 | 2,899 | 2,830 | ||||||||||||||||
| Interest on bank indebtedness | 1,237 | 797 | 576 | 262 | 167 | 150 | 143 | 203 | ||||||||||||||||
| Interest on promissory notes | 70 | 234 | 197 | 97 | 256 | 50 | 15 | — | ||||||||||||||||
| Amortization | 202 | 173 | 130 | 149 | 207 | 231 | 90 | 234 | ||||||||||||||||
| Income tax (recovery) expense | (9,647 | ) | (30,718 | ) | (21,926 | ) | 2,371 | 540 | 12,302 | 25,715 | 20,526 | |||||||||||||
| EBITDAFV | € | 15,621 | € | 15,360 | € | 15,087 | € | 15,594 | € | 14,481 | € | 13,891 | € | 13,004 | € | 12,754 | ||||||||
| Cash taxes | 1,235 | 1,209 | 1,018 | 983 | 875 | 651 | 1,088 | 741 | ||||||||||||||||
| EBITDAFV after cash taxes | € | 14,386 | € | 14,151 | € | 14,069 | € | 14,611 | € | 13,606 | € | 13,240 | € | 11,916 | € | 12,013 | ||||||||
| Principal repayments1 | € | 549 | € | 549 | € | 548 | € | 548 | € | 547 | € | 547 | € | 546 | € | 546 | ||||||||
1 For use in Debt Service Coverage Ratio calculation.
Debt Service Coverage Ratio
The Debt Service Coverage Ratio is defined as EBITDAFV less cash taxes, divided by the sum of interest expense (including on mortgages payable, bank indebtedness and promissory notes) and all regularly scheduled principal payments made with respect to indebtedness during the period (other than any balloon, bullet or similar principal payable at maturity or which repays such indebtedness in full). The Debt Service Coverage Ratio is calculated as prescribed in the REIT's Revolving Credit Facility, and is based on the trailing four quarters. Management believes the Debt Service Coverage Ratio is useful in determining the ability of the REIT to service the principal and interest requirements of its outstanding debt.
| (€ Thousands) | ||||||
| As at | June 30, 2023 | December 31, 2022 | June 30, 2022 | |||
| EBITDAFV after cash taxes1 | € | 57,217 | € | 55,526 | € | 50,775 |
| Debt service payments1,2 | € | 20,978 | € | 17,871 | € | 15,131 |
| Debt Service Coverage Ratio (times) | 2.7x | 3.1x | 3.4x | |||
1 For the trailing 12 months ended.
2 Includes principal repayments as well as interest on mortgages payable, bank indebtedness and promissory notes, and excludes interest expense on Class B LP Units.
Interest Coverage Ratio
The Interest Coverage Ratio is defined as EBITDAFV divided by interest expense (including on mortgages payable, bank indebtedness and promissory notes). The Interest Coverage Ratio is calculated as prescribed in the REIT's Revolving Credit Facility, and is based on the trailing four quarters. Management believes the Interest Coverage Ratio is useful in determining the REIT's ability to service the interest requirements of its outstanding debt.
| (€ Thousands) | ||||||
| As at | June 30, 2023 | December 31, 2022 | June 30, 2022 | |||
| EBITDAFV1 | € | 61,662 | € | 59,053 | € | 54,130 |
| Interest expense1,2 | € | 18,784 | € | 15,681 | € | 12,945 |
| Interest Coverage Ratio (times) | 3.3x | 3.8x | 4.2x | |||
1 For the trailing 12 months ended.
2 Includes interest on mortgages payable, bank indebtedness and promissory notes, and excludes interest expense on Class B LP Units.
Forward-Looking Information
Certain statements contained in this press release constitute forward-looking statements within the meaning of applicable Canadian securities laws which reflect ERES’s current expectations and projections about future results. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “outlook”, “objective”, “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “consider”, “should”, "plan", “predict”, “forward”, “potential”, “could”, "would", "should", "might", “likely”, “approximately”, “scheduled”, “forecast”, “variation”, "project", "budget" or “continue”, or similar expressions suggesting future outcomes or events. The forward-looking statements made in this press release relate only to events or information as of the date on which the statements are made in this press release. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this press release. Any number of factors could cause actual results to differ materially from these forward-looking statements as well as future results. Although ERES believes that the expectations reflected in forward-looking statements are reasonable, it can give no assurances that the expectations of any forward-looking statements will prove to be correct. Such forward-looking statements are based on a number of assumptions that may prove to be incorrect. Accordingly, readers should not place undue reliance on forward-looking statements.
Except as specifically required by applicable Canadian securities law, ERES does not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. These forward-looking statements should not be relied upon as representing ERES’s views as of any date subsequent to the date of this press release.
For further information:
| Mark Kenney | Jenny Chou |
| Chief Executive Officer | Chief Financial Officer |
| Email: m.kenney@capreit.net | Email: j.chou@capreit.net |
Category: Earnings
