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, 2024.
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, 2024 can
be found at www.eresreit.com or under ERES's profile at SEDAR+ at
www.sedarplus.ca.
SIGNIFICANT EVENTS AND
HIGHLIGHTS
Capital Recycling Initiatives Update
- On June 18, 2024, the REIT disposed
of one residential property that consists of 66 suites in the
Netherlands for €14.2 million (excluding transaction costs and
other adjustments).
- During the six months ended June
30, 2024, the REIT disposed of 77 individual suites, which
generated €21.9 million in incremental gross proceeds.
- Subsequent to the six months ended
June 30, 2024, the REIT disposed of 19 residential properties that
consist of 464 suites in the Netherlands for gross proceeds of
€100.7 million and one office building being part of a residential
property in the Netherlands for gross proceeds of €1.1
million.
Operating Metrics
- Strong operating results continued
into 2024, fuelled by strong rental growth. Same property portfolio
Occupied Average Monthly Rents ("Occupied AMR") increased by 6.3%,
from €1,018 as at June 30, 2023, to €1,082 as at June 30, 2024,
demonstrating the REIT's continued achievement of rental growth in
excess of its target range.
- Turnover was 1.9% for the three
months ended June 30, 2024, with rental uplift on turnover of
17.3%, compared to rental uplift of 19.9% on turnover of 2.9% for
the same quarter last year. For the six months ended June 30, 2024,
turnover was 5.0% with rental uplift on turnover of 16.3%, compared
to rental uplift of 20.4% on turnover of 6.8% for the same period
last year.
- Occupancy for the residential
properties remained strong at 97.7% as at June 30, 2024, compared
to 98.6% as at June 30, 2023. 85.4% of residential vacancies were
related to suites held vacant for property and suite dispositions,
as a result of the REIT's ongoing capital recycling initiatives.
Occupancy for commercial properties decreased to 92.1%
as at June 30, 2024, from 99.5% as at June 30, 2023, due to the
expiration of one of the commercial
leases.
- Net Operating Income ("NOI")
increased by 4.3% and 5.7% for the three and six months ended June
30, 2024, respectively, compared to the same periods last year,
primarily driven by higher monthly rents on the same property
portfolio and further supported by the REIT's extensive protection
from inflation and strong cost control.
Financial Performance
- Funds from Operations ("FFO") per
Unit decreased by 4.9% and 3.7% for the three and six months ended
June 30, 2024, respectively, compared to the same periods last
year, primarily driven by increases in interest and other financing
costs, partially offset by the positive impact of same property NOI
growth.
- Adjusted Funds From Operations
("AFFO") per Unit decreased by 5.1% and 3.9% for the three and six
months ended June 30, 2024, respectively, compared to the same
periods last year, due to the same reasons mentioned above for FFO
per Unit.
Financial Position and Liquidity
- Liquidity improved significantly
from prior year end by €25,811, as a result of proceeds from
property and suite dispositions being used to partially repay the
Revolving Credit Facility. Subsequent to the six months ended June
30, 2024, liquidity further improved by €35,431 from net proceeds
of the July 2024 property dispositions being used to pay down the
Revolving Credit Facility.
- On April 30, 2024, the REIT renewed
the mortgage financing on one of its commercial properties for a
one-year period ending March 31, 2025, with a total principal
amount of €14,400 and interest rate at three-month Euro Interbank
Offered Rate plus a margin of 2.0%.
- On June 19, 2024, the REIT amended
its Revolving Credit Facility to replace the Canadian Dollar
Offered Rate with the Canadian Overnight Repo Rate Average as the
benchmark interest rate for Canadian dollar borrowings, if any. The
amendment also extends the maturity date of the Revolving Credit
Facility from January 26, 2026 to June 14, 2027
- Debt coverage metrics are within
covenant thresholds, with interest and debt service coverage ratios
of 2.8x and 2.4x, respectively, and adjusted debt to gross book
value ratio standing at 56.2%.
- The REIT's financial position is
additionally supported by its well-staggered mortgage profile, with
a weighted average term to maturity of 2.5 years and a weighted
average effective interest rate of 2.2%.
"We're pleased to be executing on our previously
stated commitment to surface value and enhance returns for our
Unitholders, and we're proud of the meaningful strides we've made
on that mission so far this year,” commented Mark Kenney, Chief
Executive Officer. “Since the first quarter, we've completed €116
million in strategic portfolio sales and we've generated €15.1
million in additional liquidity from individual suite dispositions.
We're using the net proceeds primarily to pay down debt, in order
to lower our leverage, reduce our exposure to interest rate risk
and strengthen our balance sheet."
"We're performing on our operational objectives
as well, with low vacancies and robust rent growth again achieved
in excess of the REIT's target range,” added Jenny Chou, Chief
Financial Officer. “However, as per previous periods, this organic
growth was largely offset by elevated interest incurred on our
Revolving Credit Facility and mortgages payable. As a result, our
FFO was flat versus the first quarter of 2024 at €0.039 per Unit
(diluted). Going forward, we'll continue to actively source and
evaluate potential opportunities to unlock
incremental liquidity for the REIT and its Unitholders in the
quarters to come."
OPERATING RESULTS
Rental Rates
Total Property Portfolio |
Suite Count |
Occupied AMR/ABR1 |
Occupancy % |
As at June 30, |
2024 |
2023 |
2024 |
2023 |
AMR |
|
2024 |
2023 |
|
|
|
€ |
€ |
% Change |
|
|
|
Residential Properties |
6,743 |
6,899 |
1,072 |
1,009 |
6.2 |
|
97.7 |
98.6 |
Commercial Properties2 |
|
|
17.4 |
19.3 |
(9.8 |
) |
92.1 |
99.5 |
1 Average In-Place Base Rent ("ABR").2
Represents 450,911 square feet of commercial gross leasable
area.
Same Property Portfolio |
Suite Count1 |
Occupied AMR/ABR |
Occupancy % |
As at June 30, |
|
2024 |
2023 |
AMR |
|
2024 |
2023 |
|
|
€ |
€ |
% Change |
|
|
|
Residential Properties |
6,279 |
1,082 |
1,018 |
6.3 |
|
97.8 |
98.6 |
Commercial Properties2 |
|
17.4 |
19.3 |
(9.8 |
) |
92.1 |
99.5 |
1 Same property suite count includes all suites
owned by the REIT as at both June 30, 2024 and June 30, 2023, but
excludes the property and suites disposed between June 30, 2023 and
June 30, 2024 and properties classified as assets held for sale as
at June 30, 2024. 2 Represents 450,911 square feet of commercial
gross leasable area.
Occupied AMR for the total portfolio increased
by 6.2%, while Occupied AMR for the same property portfolio
increased by 6.3%, compared to the prior year periods. 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 5% demonstrates its ability to
consistently operate in a complex and fluid regulatory regime. The
Occupied ABR for the commercial properties for both the total and
same property portfolio decreased from €19.3 as at June 30, 2023 to
€17.4 as at June 30, 2024 due to a reduction in rent after lease
renewal in one of the commercial properties.
Suite Turnovers
For the Three Months Ended June 30, |
2024 |
2023 |
|
Change in Monthly Rent |
Turnovers2 |
Change in Monthly Rent |
Turnovers2 |
|
% |
% |
% |
% |
Regulated suites turnover1 |
7.2 |
0.1 |
13.0 |
0.2 |
Liberalized suites turnover1 |
12.7 |
1.5 |
17.3 |
2.2 |
Regulated suites converted to liberalized suites1 |
64.7 |
0.2 |
50.8 |
0.5 |
Weighted average turnovers1 |
17.3 |
1.9 |
19.9 |
2.9 |
Weighted average turnovers excluding service charge
income |
18.4 |
1.9 |
19.0 |
2.9 |
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, |
2024 |
2023 |
|
Change in Monthly Rent |
Turnovers2 |
Change in Monthly Rent |
Turnovers2 |
|
% |
% |
% |
% |
Regulated suites turnover1 |
9.6 |
0.5 |
8.0 |
0.5 |
Liberalized suites turnover1 |
13.6 |
3.9 |
17.0 |
5.3 |
Regulated suites converted to liberalized suites1 |
49.5 |
0.5 |
55.0 |
0.9 |
Weighted average turnovers1 |
16.3 |
5.0 |
20.4 |
6.8 |
Weighted average turnovers excluding service charge
income |
17.0 |
5.0 |
19.6 |
6.8 |
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 Renewals
Lease renewals generally occur on July 1 for
residential suites. Other than the household income adjustment,
maximum rent indexation from July 1, 2024 up to and including June
30, 2025 for all Regulated Units is set at the annual wage
development figure of 5.8%. For the period from January 1, 2024 to
December 31, 2024, the rental cap limits indexation for Liberalized
Suites to annual inflation number ("CPI") + 1.0%, resulting in a
maximum indexation of 5.5%.
Accordingly, for rental increases due to
indexation beginning on July 1, 2024, the REIT served tenant
notices to 6,572 suites, representing 96% of the residential
portfolio, across which the average rental increase due to
indexation and household income adjustments is 5.6%. In the prior
year period, 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 was 4.0%.
There was no lease renewal in the REIT's
commercial portfolio during the six months ended June 30, 2024 and
June 30, 2023.
Total Portfolio Performance
|
Three Months Ended, |
Six Months Ended |
|
June 30, |
June 30, |
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
Operating Revenues (000s) |
€ |
24,456 |
|
€ |
23,373 |
|
€ |
48,895 |
|
€ |
46,753 |
|
NOI (000s) |
€ |
19,333 |
|
€ |
18,529 |
|
€ |
38,446 |
|
€ |
36,379 |
|
NOI Margin1 |
|
79.1 |
% |
|
79.3 |
% |
|
78.6 |
% |
|
77.8 |
% |
Weighted Average Number of Suites |
|
6,811 |
|
|
6,899 |
|
|
6,842 |
|
|
6,900 |
|
1 Excluding service charge income and
expense, the total portfolio NOI margin for the three and six
months ended June 30, 2024 was 84.3% and 83.9%, respectively (three
and six months ended June 30, 2023 — 84.5% and 83.3%,
respectively).
Operating revenues increased by 4.6% for the
three and six months ended June 30, 2024, respectively, compared to
the same periods last year, primarily due to increase in monthly
rents on the same property portfolio.
NOI increased by 4.3% and 5.7% for the three and
six months ended June 30, 2024, respectively, versus the same
periods last year. For the three months ended June 30, 2024, the
NOI margin on the total portfolio decreased slightly to 79.1% from
79.3% for the comparable quarter, mainly due to increase in
insurance expenses, repairs and maintenance costs and realty taxes,
whereas the NOI margin on the total portfolio for the six months
ended June 30, 2024 increased to 78.6% from 77.8% for the
comparative period, primarily driven by higher operating revenues
from increased total portfolio occupied AMR and decline in
advertising and bad debt expenses. Service charge expenses are
fully recoverable from tenants via service charge income and
therefore have a nil net impact on NOI.
The following table reconciles same property NOI
and NOI from dispositions and assets held for sale to total NOI,
for the three and six months ended June 30, 2024 and June 30,
2023.
(€ Thousands) |
Three Months Ended |
Six Months Ended |
|
June 30, |
June 30, |
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
Same property NOI |
€ |
18,087 |
€ |
17,168 |
€ |
35,881 |
€ |
33,699 |
NOI from dispositions and assets held for sale |
|
1,246 |
|
1,361 |
|
2,565 |
|
2,680 |
Total NOI |
€ |
19,333 |
€ |
18,529 |
€ |
38,446 |
€ |
36,379 |
Same Property Portfolio
Performance1
|
Three Months Ended, |
Six Months Ended |
|
June 30, |
June 30, |
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
Operating Revenues (000s) |
€ |
22,953 |
|
€ |
21,695 |
|
€ |
45,762 |
|
€ |
43,411 |
|
NOI (000s) |
€ |
18,087 |
|
€ |
17,168 |
|
€ |
35,881 |
|
€ |
33,699 |
|
NOI Margin2 |
|
78.8 |
% |
|
79.1 |
% |
|
78.4 |
% |
|
77.6 |
% |
1 Same property portfolio includes
all suites continuously owned by the REIT since December 31, 2022,
and excludes the impact of property and suite dispositions since
December 31, 2022 and properties classified as assets held for sale
as at June 30, 2024. For the three and six months ended June 30,
2024 and 2023, same property portfolio includes 6,279
suites.2 Excluding service charge income and expense,
the same property portfolio NOI margin for the three and six months
ended June 30, 2024 was 84.4% and 84.0%, respectively (three and
six months ended June 30, 2023 - 84.7% and 83.4%,
respectively).
The increases in same property NOI by 5.4% and
6.5% for the three and six months ended June 30, 2024,
respectively, compared to the same periods last year, were
primarily driven by higher operating revenues from increased
monthly rents on the same property portfolio. Same Property NOI
margin decreased slightly to 78.8% for the three months ended June
30, 2024, compared to 79.1%, for the comparable quarter, whereas
the Same Property NOI margin for the six months ended June 30,
2024, increased to 78.4% from 77.6%, compared to the same period
last year. The changes in the same property NOI margin for the
three and six months ended June 30, 2024 are primarily driven by
the same reasons for the changes in the total portfolio NOI margin
as mentioned above.
The REIT is focused on continuing to further
improve same property 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 NOI margin.
FINANCIAL PERFORMANCE
Funds from Operations and Adjusted Funds
from Operations
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 most recent recommendations
of the Real Property Association of Canada ("REALpac"), with
the exception of certain adjustments made to the REALpac defined
FFO, which relate to (i) senior management termination and
retirement costs; (ii) gain from Unit Options forfeited on senior
management termination; and (iii) mortgage repayment costs. 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:
(€ Thousands, except per Unit amounts) |
Three Months Ended |
Six Months Ended |
|
June 30, |
June 30, |
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
Net income (loss) and comprehensive income (loss) for the
period |
€ |
17,407 |
|
€ |
3,252 |
|
€ |
40,228 |
|
€ |
(103,096 |
) |
Adjustments: |
|
|
|
|
Net movement in fair value of investment properties |
|
(11,107 |
) |
|
45,398 |
|
|
(8,797 |
) |
|
170,124 |
|
Net movement in fair value of Class B LP Units |
|
(5,506 |
) |
|
(31,964 |
) |
|
(24,771 |
) |
|
(15,178 |
) |
Fair value adjustments of Unit-based compensation liabilities |
|
(226 |
) |
|
(513 |
) |
|
952 |
|
|
(654 |
) |
Interest expense on Class B LP Units |
|
4,261 |
|
|
4,261 |
|
|
8,522 |
|
|
8,522 |
|
Deferred income tax expense (recovery) |
|
2,817 |
|
|
(10,882 |
) |
|
2,147 |
|
|
(42,809 |
) |
Foreign exchange loss (gain)1 |
|
228 |
|
|
210 |
|
|
442 |
|
|
(1,005 |
) |
Net loss (gain) on derivative financial instruments |
|
198 |
|
|
(728 |
) |
|
(440 |
) |
|
2,300 |
|
Transaction costs and other activities2 |
|
380 |
|
|
618 |
|
|
505 |
|
|
618 |
|
Tax on property and suite dispositions3 |
|
731 |
|
|
— |
|
|
1,120 |
|
|
— |
|
Mortgage repayment costs4 |
|
(38 |
) |
|
— |
|
|
(38 |
) |
|
— |
|
Gain from Unit Options forfeited on senior management
termination5 |
|
— |
|
|
— |
|
|
(1,552 |
) |
|
— |
|
Senior management termination and retirement costs6 |
|
— |
|
|
— |
|
|
— |
|
|
74 |
|
FFO |
€ |
9,145 |
|
€ |
9,652 |
|
€ |
18,318 |
|
€ |
18,896 |
|
FFO per Unit – diluted7 |
€ |
0.039 |
|
€ |
0.041 |
|
€ |
0.078 |
|
€ |
0.081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions declared |
€ |
7,018 |
|
€ |
6,982 |
|
€ |
14,030 |
|
€ |
13,956 |
|
FFO payout ratio |
|
76.7 |
% |
|
72.3 |
% |
|
76.6 |
% |
|
73.9 |
% |
1 Relates to foreign exchange movements
recognized on remeasurement of Unit-based compensation liabilities
as well as on remeasurement of the REIT's US$ draw on the Revolving
Credit Facility as part of effective hedging. 2 Represent
transaction costs incurred on property and suite dispositions and
costs associated with the concluded strategic review of the
REIT.3 Included in current income tax expense in the
consolidated interim statements of net income (loss) and
comprehensive income (loss).4 Relates to write-off of deferred
financing costs and fair value adjustment on mortgage payable due
to mortgage repayment resulting from the property
dispositions.5 Represents Unit-based compensation financial
liabilities written off during the six months ended June 30, 2024
due to 3,000,000 Unit Options forfeited as a result of senior
management termination.6 Relate to €59 of accelerated vesting
of previously granted Unit Options and €15 in associated legal fees
for the six months ended June 30, 2023.7 Includes Class B LP
Units and the dilutive impact of unexercised Unit Options and
RURs.
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, |
|
|
2024 |
|
|
2023¹ |
|
|
2024 |
|
|
2023¹ |
|
FFO |
€ |
9,145 |
|
€ |
9,652 |
|
€ |
18,318 |
|
€ |
18,896 |
|
Adjustments: |
|
|
|
|
Actual non-discretionary capital investments |
|
(359 |
) |
|
(344 |
) |
|
(731 |
) |
|
(630 |
) |
Leasing cost reserve2 |
|
(128 |
) |
|
(139 |
) |
|
(255 |
) |
|
(278 |
) |
AFFO |
€ |
8,658 |
|
€ |
9,169 |
|
€ |
17,332 |
|
€ |
17,988 |
|
AFFO per Unit – diluted3 |
€ |
0.037 |
|
€ |
0.039 |
|
€ |
0.074 |
|
€ |
0.077 |
|
|
|
|
|
|
Total distributions declared |
€ |
7,018 |
|
€ |
6,982 |
|
€ |
14,030 |
|
€ |
13,956 |
|
AFFO payout ratio |
|
81.1 |
% |
|
76.1 |
% |
|
80.9 |
% |
|
77.6 |
% |
1 Certain 2023 comparative figures have been
restated to conform with current period presentation.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 and the dilutive impact of unexercised Unit Options and
RURs.
FFO per Unit and AFFO per Unit for the three and
six months ended June 30, 2024 decreased from the same periods last
year primarily due to increases in interest and other financing
costs, partially offset by the positive impact of increased same
property NOI.
Net Asset Value
Net Asset Value ("NAV") represents total
Unitholders' equity per the REIT's consolidated balance sheets,
adjusted to include or exclude certain amounts in order to provide
what management considers to be a key measure of the residual value
of the REIT to its Unitholders as at the reporting date. NAV 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, 2024 |
|
|
December 31, 2023 |
|
|
June 30, 2023 |
|
Unitholders' equity |
€ |
462,785 |
|
€ |
427,247 |
|
€ |
442,744 |
|
Class B LP Units |
|
225,783 |
|
|
250,554 |
|
|
281,675 |
|
Unit-based compensation financial liabilities |
|
81 |
|
|
187 |
|
|
373 |
|
Net deferred income tax liability1 |
|
17,016 |
|
|
14,869 |
|
|
31,741 |
|
Net derivative financial asset2 |
|
(16,341 |
) |
|
(15,901 |
) |
|
(22,845 |
) |
NAV |
€ |
689,324 |
|
€ |
676,956 |
|
€ |
733,688 |
|
NAV per Unit – diluted3 |
€ |
2.94 |
|
€ |
2.90 |
|
€ |
3.15 |
|
NAV per Unit – diluted (in
C$)3,4 |
C$ |
4.31 |
|
C$ |
4.24 |
|
C$ |
4.54 |
|
1 Represents deferred income tax
liabilities of €30,522 net of deferred income tax assets of €13,506
as at June 30, 2024 (December 31, 2023 — deferred income tax
liabilities of €28,217 net of deferred income tax assets of
€13,348, June 30, 2023 — deferred income tax liabilities of €39,533
net of deferred income tax assets of €7,792).2 Represents
non-current derivative financial assets of €15,985 and current
derivative financial assets of €356 as at June 30, 2024 (December
31, 2023 — non-current derivative financial assets of €15,901, June
30, 2023 — non-current derivative financial assets of €22,845).
3 Includes Class B LP Units and the dilutive impact of
unexercised Unit Options and RURs.4 Based on the foreign
exchange rate of 1.4658 on June 30, 2024 (foreign exchange
rate of 1.4626 on December 31, 2023 and 1.4422 on June 30,
2023).
Other Financial Highlights
|
Three Months Ended |
Six Months Ended |
|
June 30, |
June 30, |
|
2024 |
2023 |
2024 |
2023 |
Weighted Average Number of Units – Diluted (000s)1 |
234,225 |
232,687 |
233,989 |
232,562 |
As at |
June 30, 2024 |
December 31, 2023 |
June 30, 2023 |
Closing Price of REIT Units3 |
€ |
1.59 |
€ |
1.76 |
€ |
1.98 |
Closing Price of REIT Units (in C$) |
C$ |
2.33 |
C$ |
2.58 |
C$ |
2.86 |
Market Capitalization (millions)2, 3 |
€ |
371 |
€ |
412 |
€ |
462 |
Market Capitalization (millions in C$)2 |
C$ |
544 |
C$ |
602 |
C$ |
666 |
1 Includes Class B LP Units and the
dilutive impact of unexercised Unit Options and
RURs. 2 Includes
Class B LP Units.3 Based on the foreign exchange rate of
1.4658 on June 30, 2024 (foreign exchange rate of 1.4626 on
December 31, 2023 and 1.4422 on June 30, 2023).
FINANCIAL POSITION
As at |
|
June 30, 2024 |
|
|
December 31, 2023 |
|
|
June 30, 2023 |
|
Ratio of Adjusted Debt to Gross Book Value1 |
|
56.2 |
% |
|
57.6 |
% |
|
55.7 |
% |
Weighted Average Mortgage Effective Interest Rate4 |
|
2.21 |
% |
|
2.07 |
% |
|
2.07 |
% |
Weighted Average Mortgage Term (years) |
|
2.5 |
|
|
2.9 |
|
|
3.4 |
|
Debt Service Coverage Ratio (times)1,2 |
|
2.4 |
x |
|
2.4 |
x |
|
2.7 |
x |
Interest Coverage Ratio (times)1,2 |
|
2.8 |
x |
|
2.9 |
x |
|
3.3 |
x |
Available Liquidity (000s)3 |
€ |
54,704 |
|
€ |
28,893 |
|
€ |
30,421 |
|
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 €8.5 million
and unused credit facility capacity of €46.3 million as at
June 30, 2024 (cash and cash equivalents of €6.9 million and
unused credit facility capacity of €22.0 million as at December 31,
2023, cash and cash equivalents of €10.4 million and unused credit
facility of 20.0 million as at June 30, 2023). 4 Includes
impact of deferred financing costs, fair value adjustment and
interest rate swaps.
For the six months ended June 30, 2024, ERES's
liquidity substantially improved by €25.8 million, as compared to
the prior year end, as a result of net proceeds from property and
suite dispositions being used to pay down the Revolving Credit
Facility balance. The REIT's immediately available liquidity of
€54.7 million as at June 30, 2024 excludes the €25.0 million
accordion feature on the Revolving Credit Facility, acquisition
capacity on the Pipeline Agreement and alternative promissory note
arrangements with CAPREIT. The REIT's financial position is
additionally strengthened by its well-staggered mortgage profile,
with a weighted average term to maturity of 2.5 years and fixed
interest payment terms for substantially all of its mortgages at a
low weighted average effective interest rate of 2.21%. This is
further reinforced by compliant debt coverage metrics, with
interest and debt service coverage ratios of 2.8x and 2.4x,
respectively, and adjusted debt to gross book value ratio within
its target range at 56.2%.
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
fifth amended and restated declaration of trust dated May 2, 2024
(the "Declaration of Trust") and the amended and renewed credit
agreement dated June 19, 2024 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 facility and available cash
on hand to fund its ongoing operational and capital commitments and
distributions to Unitholders, and to provide for future growth in
its business.
DISTRIBUTIONS
During the six months ended June 30, 2024, 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 Wednesday, August 7, 2024 at 9:00 am EST. The
telephone numbers for the conference call are: Canadian Toll Free:
+1 (833) 950-0062 / International Toll: +1 (929) 526-1599. The
conference call access code is 221633.
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 one 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 portfolio of high-quality,
multi-residential real estate properties in the Netherlands. As at
June 30, 2024, ERES owned 157 multi-residential properties,
comprised of approximately 6,750 residential suites and ancillary
retail space located in the Netherlands, and owned one commercial
property in Germany and one commercial 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, 2024, 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 unaudited condensed consolidated
interim financial statements and MD&A for the three and six
months ended June 30, 2024, 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,
2024.
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 and Revolving
Credit Facility require 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.
A reconciliation from total debt is as
follows:
(€ Thousands) |
|
As at |
|
June 30, 2024 |
|
|
December 31, 2023 |
|
|
June 30, 2023 |
|
Mortgages payable1 |
€ |
880,794 |
|
€ |
889,749 |
|
€ |
890,719 |
|
Credit facility |
|
78,440 |
|
|
102,741 |
|
|
104,670 |
|
Total Debt |
€ |
959,234 |
|
€ |
992,490 |
|
€ |
995,389 |
|
|
|
|
|
Fair value adjustment on mortgages payable |
|
(570 |
) |
|
(816 |
) |
|
(1,016 |
) |
Total Debt Adjusted for Declaration of Trust |
€ |
958,664 |
|
€ |
991,674 |
|
€ |
994,373 |
|
Ratio of Adjusted Debt to Gross Book
Value2 |
|
56.2 |
% |
|
57.6 |
% |
|
55.7 |
% |
1 Represents non-current and current
mortgages payable of €691,048 and €189,746, respectively, as at
June 30, 2024 (December 31, 2023 — €809,215 and €80,534,
respectively, June 30, 2023 — €855,008 and €35,711,
respectively).2 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 and assets held for sale.
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 24 |
|
|
Q1 24 |
|
|
Q4 23 |
|
|
Q3 23 |
|
|
Q2 23 |
|
|
Q1 23 |
|
|
Q4 22 |
|
|
Q3 22 |
|
Net income (loss) and comprehensive income (loss) |
€ |
17,407 |
|
€ |
22,821 |
|
€ |
(35,917) |
|
€ |
24,784 |
|
€ |
3,252 |
|
€ |
(106,348) |
|
€ |
(48,790) |
|
€ |
70,000 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Net movement in fair value of investment properties |
|
(11,107 |
) |
|
2,310 |
|
|
35,337 |
|
|
24,768 |
|
|
45,398 |
|
|
124,726 |
|
|
93,599 |
|
|
8,099 |
|
Net movement in fair value of Class B LP Units |
|
(5,506 |
) |
|
(19,265 |
) |
|
8,218 |
|
|
(39,339 |
) |
|
(31,964 |
) |
|
16,786 |
|
|
(15,443 |
) |
|
(65,136 |
) |
Fair value adjustments of Unit-based compensation liabilities |
|
(226 |
) |
|
1,178 |
|
|
(194 |
) |
|
(463 |
) |
|
(513 |
) |
|
(141 |
) |
|
(1 |
) |
|
(682 |
) |
Net loss (gain) on derivative financial instruments |
|
198 |
|
|
(638 |
) |
|
6,304 |
|
|
640 |
|
|
(728 |
) |
|
3,028 |
|
|
(2,496 |
) |
|
(10,385 |
) |
Foreign exchange loss (gain) |
|
228 |
|
|
214 |
|
|
224 |
|
|
213 |
|
|
210 |
|
|
(1,215 |
) |
|
1,148 |
|
|
2,696 |
|
Interest expense on Class B LP Units |
|
4,261 |
|
|
4,261 |
|
|
4,261 |
|
|
4,261 |
|
|
4,261 |
|
|
4,261 |
|
|
4,261 |
|
|
4,261 |
|
Interest on mortgages payable |
|
4,832 |
|
|
4,558 |
|
|
4,608 |
|
|
4,607 |
|
|
3,843 |
|
|
3,777 |
|
|
3,832 |
|
|
3,862 |
|
Interest on credit facility |
|
1,210 |
|
|
1,335 |
|
|
1,422 |
|
|
1,336 |
|
|
1,237 |
|
|
797 |
|
|
576 |
|
|
262 |
|
Interest on promissory notes |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
70 |
|
|
234 |
|
|
197 |
|
|
97 |
|
Amortization |
|
138 |
|
|
144 |
|
|
246 |
|
|
150 |
|
|
202 |
|
|
173 |
|
|
130 |
|
|
149 |
|
Transaction costs on dispositions |
|
380 |
|
|
125 |
|
|
58 |
|
|
19 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Income tax expense (recovery) |
|
5,253 |
|
|
1,308 |
|
|
(8,143 |
) |
|
(5,081 |
) |
|
(9,647 |
) |
|
(30,718 |
) |
|
(21,926 |
) |
|
2,371 |
|
EBITDAFV |
€ |
17,068 |
|
€ |
18,351 |
|
€ |
16,424 |
|
€ |
15,895 |
|
€ |
15,621 |
|
€ |
15,360 |
|
€ |
15,087 |
|
€ |
15,594 |
|
Cash taxes |
|
2,436 |
|
|
1,978 |
|
|
2,395 |
|
|
1,251 |
|
|
1,235 |
|
|
1,209 |
|
|
1,018 |
|
|
983 |
|
Tax on property and suite dispositions |
|
(731 |
) |
|
(389 |
) |
|
(234 |
) |
|
(80 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
EBITDAFV less cash taxes |
€ |
15,363 |
|
€ |
16,762 |
|
€ |
14,263 |
|
€ |
14,724 |
|
€ |
14,386 |
|
€ |
14,151 |
|
€ |
14,069 |
|
€ |
14,611 |
|
|
|
|
|
|
|
|
|
|
Principal repayments1 |
€ |
444 |
|
€ |
444 |
|
€ |
550 |
|
€ |
550 |
|
€ |
549 |
|
€ |
549 |
|
€ |
548 |
|
€ |
548 |
|
1 For use in the 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, credit facility 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, 2024 |
December 31, 2023 |
June 30, 2023 |
EBITDAFV less cash taxes1 |
€ |
61,112 |
€ |
57,524 |
€ |
57,217 |
Debt service payments1,2 |
€ |
25,896 |
€ |
24,129 |
€ |
20,978 |
Debt Service Coverage Ratio (times) |
2.4x |
2.4x |
2.7x |
1 For the trailing 12 months
ended.2 Include principal repayments as well as interest
on mortgages payable, credit facility and promissory notes, and
exclude 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, credit facility 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, 2024 |
December 31, 2023 |
June 30, 2023 |
EBITDAFV1 |
€ |
67,738 |
€ |
63,300 |
€ |
61,662 |
Interest expense1,2 |
€ |
23,908 |
€ |
21,931 |
€ |
18,784 |
Interest Coverage Ratio (times) |
2.8x |
2.9x |
3.3x |
1 For the trailing 12 months
ended.2 Includes interest on mortgages payable, credit
facility and promissory notes, and excludes interest expense on
Class B LP Units.
FORWARD-LOOKING DISCLAIMER
Certain statements contained in this press
release constitute forward-looking statements within the meaning of
applicable Canadian securities laws which reflect the REIT’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. Management's estimates, beliefs and assumptions
are inherently subject to significant business, economic,
competitive and other uncertainties and contingencies regarding
future events and, as such, are subject to change. Although the
forward-looking statements contained in this press release are
based on assumptions and information that are available to
management as of the date on which the statements are made in this
press release, including current market conditions and management's
assessment of disposition and other opportunities that are or may
become available to the REIT, which are subject to change,
management believes these statements have been prepared on a
reasonable basis, reflecting the REIT's best estimates and
judgement. However, there can be no assurance that forward-looking
statements will prove to be accurate, as actual results and future
events could differ materially from those anticipated in this press
release. Accordingly, readers should not place undue reliance on
forward-looking statements. For a detailed discussion of risks and
uncertainties affecting the REIT, refer to the Risks and
Uncertainties section in the MD&A contained in the REIT's 2023
Annual Report.
Except as specifically required by applicable
Canadian securities law, the REIT 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 the REIT’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 |
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