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

¹  Average In-Place Base Rent ("ABR").
² Represents 450,911 square feet of commercial gross leasable area.

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

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.  

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

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.

Same Property Portfolio Performance¹

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:

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.

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.

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

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

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:

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:

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.

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.

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:

Category: Earnings