ERE.UN European Residetial Real Estate Investment Trust

European Residential Real Estate Investment Trust (TSX:ERE.UN, “ERES” or the “REIT”) announced today that on December 9, 2022, the Minister of Housing published details regarding the proposed regulation of mid-priced rental homes in the Netherlands and amendments to the Housing Evaluation System, to become effective from January 1, 2024.

The proposed legislation will further divide the residential rental market into three segments: (1) the pre-existing regulated segment; (2) a new regulated mid-market segment; and (3) the remaining unregulated, or liberalized, segment. The new mid-market regulation will apply to units with up to 187 “Points” as per the Housing Evaluation System (woningwaarderingsstelsel or “WWS”), effective for all new leases commencing on or after January 1, 2024 (i.e., for occupied units, the regulation will only take effect upon turnover). Pertinent specifications of the envisaged regulation of mid-priced rental homes, as announced through the Minister of Housing’s letter to Parliament, are detailed as follows:

• The maximum starting rent that can be charged for a mid-market rental unit will be determined by the number of Points allocated to such unit, pursuant to the parameters of the existing Housing Evaluation System (as amended, as outlined below).
• With maximum rents subject to regular indexation on July 1st of every year to adjust for inflation, it is expected that 187 Points will correspond to a starting rent ceiling of approximately €1,100 per month, in accordance with the Points system that will be in effect on January 1, 2024.
• Indexation of the mid-market rental segment will be capped at the annual wage development figure (loonontwikkelingscijfer) + 0.5% (but not to exceed the rent ceiling as determined by the WWS Points).

Furthermore, the current Housing Evaluation System will be amended by the following key modifications:

• More Points will be awarded for units with an energy label of A or higher, while Points will be deducted for units with an energy label of E, F or G (potentially mitigated by a subsidy that will be made available to landlords for the purpose of improving the sustainability of existing units).
• Additional Points will be attributed to individual outdoor spaces by using a graduated scale with increments of 5 square metres (previously 25 square metres).
• The cap on the number of Points which can be contributed from property value (based on the Wet Waardering Onroerende Zaken or “WOZ” value) at 33% of the total number of Points of the unit will be made applicable to rental units with 187 Points or more (an increase from its current application to rental units with 142 Points or more, thereby additionally exempting the new mid-market sector).
• Effective for a temporary period of 10 years, a surcharge of 5% on the maximum starting rents as per the Housing Evaluation System will apply to newly-built units classified in the mid-market segment, for which construction commenced before January 1, 2025, and was completed after January 1, 2024.

The REIT has assessed the impact of the above developments and determined that approximately one-quarter of its portfolio would be affected by the mid-market measures. On implementation to new leases from January 1, 2024 onward, the expected rent differential, representing approximately 4% of annualized in-place rent for the total portfolio, will be incurred upon turnover of the mid-market units, and absorbed over an estimated period of three to five years. Notwithstanding the regulatory changes highlighted above, the REIT anticipates that it will continue to achieve rent growth within or in excess of its target range of 3% to 4%.

In step with the historically progressive nature of the Dutch regulatory regime, the proposed mid-market regulation is intended to be temporary, to apply only as long as necessary to alleviate the worsening of the housing shortage. As the proposals prescribed in the letter to Parliament have yet to be adopted by the Dutch government, they may be subject to change. Draft legislation is expected to be published in early 2023.

The REIT also announced today that on January 1, 2023, legislation entered into force pursuant to which indexation for Liberalized Suites will be capped at the lower of (i) CPI + 1% or (ii) the annual wage development figure (loonontwikkelingscijfer) + 1% (effective until April 30, 2024). In line with this development and given the high inflation rates prevalent throughout the past year, the Dutch government determined that the maximum rent indexation as of July 1, 2023, will be set at (i) 3.1% for Regulated Suites, equivalent to the annual wage development figure, and (ii) 4.1% for Liberalized Suites, based on the annual wage development figure + 1%.

In accordance with the above, the REIT expects to realize an average rental increase due to indexation of approximately 3.8% across the total residential portfolio (inclusive of all Regulated Suites and Liberalized Suites), driving rent growth in 2023 toward the high end of its target range. This excludes the effects of turnover which, historically, have contributed significantly to additional growth.

Ultimately, the REIT anticipates that it will continue to achieve a net operating income margin within its presently projected range of 76% to 79% of operating revenues (including service charges), which is even further reinforced by the abolition of the landlord levy tax that became effective on January 1, 2023.

“One of the cornerstones of ERES’s competitive edge is its demonstrated proficiency in profitably navigating an extremely complex residential regulatory framework, and notably one which has been continuously evolving,” commented Phillip Burns, Chief Executive Officer. “These iterations characterize the next chapters of that ongoing evolution. In parallel, ERES will continue to leverage its experience and platform capabilities to adapt and drive robust rent growth, as we have accomplished to date.”

About ERES

ERES is an unincorporated, open-ended real estate investment trust. ERES’s 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. ERES owns a portfolio of 158 multi-residential properties, comprised of 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.

Cautionary Statements Regarding Forward-Looking Statements

All statements in this press release that do not relate to historical facts constitute forward-looking statements. These statements represent ERES’s intentions, plans, expectations and beliefs and are subject to certain risks and uncertainties that could result in actual results differing materially from these forward-looking statements. These risks and uncertainties are more fully described in regulatory filings that can be obtained on SEDAR at www.sedar.com.

For further information

ERESMr. Phillip BurnsChief Executive Officer416.354.0167p.burns@eresreit.com

ERESMs. Jenny ChouChief Financial Officer416.354.0188j.chou@eresreit.com