European Residential Real Estate Investment Trust ("ERES" or the
"REIT") (TSX: ERE.UN) announced today its results for the year
ended December 31, 2023.
ERES’s audited consolidated annual financial
statements and management's discussion and analysis ("MD&A")
for the year ended December 31, 2023 can be found at
www.eresreit.com or under ERES's profile at SEDAR+ at
www.sedarplus.ca.
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 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 was working with CBRE, as financial and real
estate advisor, to advise it in connection with a strategic review
of ERES. On December 20, 2023, the REIT announced that the
strategic review process has been concluded and the proposed
transactions would not be proceeded with.
- 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 financing costs
and fees). The new mortgage financing matures on June 26, 2029, and
carries a fixed contractual interest rate of 4.66%.
Operating Metrics
- Strong operating results continued
into 2023, fuelled by strong rental growth. Same property portfolio
Occupied Average Monthly Rents ("Occupied AMR") increased by 7.2%,
from €992 as at December 31, 2022, to €1,063 as at December 31,
2023, demonstrating the REIT's continued achievement of rental
growth in excess of its target range.
- Turnover was 13.8% for the year
ended December 31, 2023, with rental uplift on turnover remaining
strong at 20.4%, compared to rental uplift of 22.0% on turnover of
12.4% for the year ended December 31, 2022.
- Occupancy for the residential and
commercial properties increased to 98.5% and 100.0%, respectively,
as at December 31, 2023, compared to 98.4% and 99.5%, respectively
as at December 31, 2022, and is at the high end of the REIT's
target range. Moreover, 50.5% of residential vacancies are
attributable to suites undergoing renovation upon turnover, and
27.7% of residential vacancies are due to suites held for potential
sale relating to the REIT's ongoing capital recycling
initiatives.
- Net Operating Income ("NOI")
increased by 8.9% for the year ended December 31, 2023 compared to
the year ended December 31, 2022, primarily driven by higher
monthly rents on the same property portfolio, further supported by
the REIT's extensive protection from inflation and strong cost
control.
Financial Performance
- Funds From Operations ("FFO") per
Unit decreased by 4.7% to €0.161 for the year ended December 31,
2023, compared to €0.169 for the year ended December 31, 2022,
primarily driven by increases 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 decreased by 2.7% to €0.146 for the year ended
December 31, 2023, compared to €0.150 for the year ended December
31, 2022, due to the same reasons mentioned above for FFO per
Unit.
Financial Position and 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 €28.9 million as at December 31, 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 within
covenant thresholds, with interest and debt service coverage ratios
of 2.9x and 2.4x, respectively, and adjusted debt to gross book
value ratio currently standing at 57.6%.
- The REIT's financial position is
additionally supported by its well-staggered mortgage profile, with
a weighted average term to maturity of 2.9 years and a weighted
average effective interest rate of 2.07%.
"With growing demand for housing in the
Netherlands continuing to outstrip the pace of new supply, we're
experiencing increasingly tight rental market fundamentals which
keep strengthening ERES's operational performance, as we saw again
in 2023,” commented Mark Kenney, Chief Executive Officer.
“Consistent with our track record to date, we're pleased to report
that our occupancies remained as high as possible, while our same
property NOI margin expanded to 78.6% for 2023. This year, we also
proved our commitment to maximizing value for Unitholders in any
way that we can, and we're confident that our current strategy
achieves that objective. Looking ahead, we remain focused on
optimizing our portfolio, enhancing our operational performance and
fortifying our platform, and we're excited to continue making
progress on each of these initiatives."
"We secured €76.5 million in mortgage financing
during 2023, and the weighted average effective interest rate on
our mortgage portfolio remains low at 2.1% today,” added Jenny
Chou, Chief Financial Officer. “This reflects our conservative
financing strategy as we fix 100% of our mortgage interest costs
and stagger our renewals. As such, we're well positioned for next
year with only 9% of our mortgage debt coming due in 2024. We'll
continue to manage our debt and capital structure proactively and
prudently going forward, and we have liquidity-generating programs
in place to strengthen our balance sheet, reduce volatility and
mitigate the impact of mortgages maturing in future years."
OPERATING RESULTS
Rental Rates
Total and Same Property Portfolio |
Suite Count1 |
Occupied AMR/ABR2 |
Occupancy % |
As at December 31, |
2023 |
2022 |
2023 |
2022 |
AMR |
2023 |
2022 |
|
|
|
€ |
€ |
% Change |
|
|
Residential Properties |
6,886 |
6,900 |
1,063 |
992 |
7.2 |
98.5 |
98.4 |
Commercial Properties3 |
|
|
19.4 |
18.2 |
6.6 |
100.0 |
99.5 |
1 |
Same property suite count only includes the properties owned by the
REIT as at both December 31, 2023 and December 31, 2022, and
therefore does not take into account the impact of any property
acquisitions completed between the two dates. |
2 |
Average In-Place Base Rent ("ABR"). |
3 |
Represents 450,911 square feet of commercial gross leasable
area. |
|
|
Occupied AMR increased by 7.2% for both the
total and same property multi-residential portfolios, compared to
the prior year. The increase was 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.
Suite Turnovers
For the Three Months Ended December 31, |
2023 |
2022 |
|
Change in Monthly Rent |
Turnovers2 |
Change in Monthly Rent |
Turnovers2 |
|
% |
% |
% |
% |
Regulated suites turnover1 |
11.9 |
0.3 |
2.2 |
0.4 |
Liberalized suites turnover1 |
18.6 |
2.7 |
18.5 |
3.2 |
Regulated suites converted to liberalized suites1 |
41.8 |
0.4 |
82.2 |
0.4 |
Weighted average turnovers1 |
20.3 |
3.4 |
23.8 |
3.9 |
Weighted average turnovers excluding service charge
income |
19.2 |
3.4 |
23.1 |
3.9 |
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 Year Ended December 31, |
2023 |
2022 |
|
Change in Monthly Rent |
Turnovers2 |
Change in Monthly Rent |
Turnovers2 |
|
% |
% |
% |
% |
Regulated suites turnover1 |
10.5 |
1.1 |
1.7 |
1.3 |
Liberalized suites turnover1 |
17.7 |
11.0 |
18.6 |
9.7 |
Regulated suites converted to liberalized suites1 |
51.8 |
1.6 |
65.0 |
1.4 |
Weighted average turnovers1 |
20.4 |
13.8 |
22.0 |
12.4 |
Weighted average turnovers excluding service charge
income |
19.5 |
13.8 |
21.4 |
12.4 |
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 1st for
residential suites. Other than the household income adjustment,
maximum rent indexation from July 1, 2023 to June 30, 2024 for all
Regulated Units is set at the annual wage development figure of
3.1%. For the period from July 1, 2024 up to and including June 30,
2025, the indexation for all Regulated Units has been set at the
annual wage development figure of 5.8% with a monthly rent of more
than €300. 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.
The indexation for the period from January 1, 2023 to January 1,
2024 has been capped 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%. For the
period from January 1, 2024 to January 1, 2025, the rental cap
limits indexation for Liberalized Suites to the annual inflation
number ("CPI") + 1.0%, resulting in a maximum indexation of 5.5%
based on CPI of 4.5%.
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, 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 was
3.0%.
There was one lease renewal in the REIT's
commercial portfolio during the year ended December 31, 2023 (year
ended December 31, 2022 — three lease renewals).
Total Portfolio Performance
|
Three Months Ended, |
Year Ended |
|
December 31, |
December 31, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
Operating Revenues (000s) |
€ |
24,717 |
|
€ |
22,932 |
|
€ |
95,684 |
|
€ |
89,252 |
|
NOI (000s) |
€ |
19,505 |
|
€ |
17,546 |
|
€ |
75,131 |
|
€ |
68,980 |
|
NOI Margin1 |
78.9 |
% |
76.5 |
% |
78.5 |
% |
77.3 |
% |
Weighted Average Number of Suites |
6,894 |
|
6,900 |
|
6,898 |
|
6,811 |
|
1 |
Excluding service charge income and expense, the total portfolio
NOI margin for the three months and year ended December 31, 2023
was 84.2% and 83.8%, respectively (three months and year ended
December 31, 2022 — 82.1% and 83.1%, respectively). |
|
|
Operating revenues increased by 7.8% and 7.2%
for the three months and year ended December 31, 2023,
respectively, compared to the same periods last year, primarily due
to increase in monthly rents on the same property portfolio.
NOI increased by 11.2% and 8.9% for the three
months and year ended December 31, 2023, respectively, versus the
same periods last year. Moreover, for the three months ended
December 31, 2023, the NOI margin on the total portfolio increased
to 78.9% from 76.5% for the comparable quarter (excluding service
charges, total portfolio NOI margin increased to 84.2% from 82.1%
for the comparable quarter). For the year ended December 31, 2023,
the NOI margin on the total portfolio increased to 78.5% from 77.3%
for the prior year (excluding service charges, total portfolio NOI
margin increased to 83.8% from 83.1% for the prior year). The
increases were primarily driven by higher operating revenues from
increased total portfolio occupied AMR and substantial reduction in
onsite costs, as a result of the abolishment of landlord levy tax.
Service charge expenses are fully recoverable from tenants via
service charge income and therefore have a nil net impact on NOI.
The increase in the total portfolio NOI margin excluding service
charges reflects the REIT's ability to successfully control costs
as well as its limited exposure to inflationary pressures
Same Property Portfolio
Performance
|
Three Months Ended, |
Year Ended |
|
December 31, |
December 31, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
Operating Revenues (000s) |
€ |
23,522 |
|
€ |
21,887 |
|
€ |
91,162 |
|
€ |
86,076 |
|
NOI (000s) |
€ |
18,576 |
|
€ |
16,799 |
|
€ |
71,680 |
|
€ |
66,492 |
|
NOI Margin1 |
79.0 |
% |
76.8 |
% |
78.6 |
% |
77.2 |
% |
Same Property Number of Suites2 |
6,542 |
|
6,545 |
|
6,542 |
|
6,545 |
|
1 |
Excluding service charge income and expense, the same property
portfolio NOI margin for the three months and year ended December
31, 2023 was 84.2% and 83.9%, respectively (three months and year
ended December 31, 2022 — 82.4% and 83.1%, respectively). |
2 |
The number of suites for same property NOI is based on the weighted
average number of suites owned by the REIT during the current and
comparative prior year periods, respectively, excluding property
acquisitions or property dispositions completed during 2022 and
2023. |
|
|
The increases in same property NOI by 10.6% and
7.8% for the three months and year ended December 31, 2023,
respectively, compared to the same periods last year, were
primarily driven by higher operating revenues from increased
monthly rents and reduction in onsite costs, as a result of the
abolishment of landlord levy tax. The increases in same property
NOI margin including and excluding service charges for the three
months and year ended December 31, 2023 are primarily driven by the
same reasons for the increases in same property NOI mentioned
above.
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 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, (iv) costs related to the
concluded strategic review of the REIT, and (v) expired base shelf
prospectus fees. 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 (loss) income and
comprehensive (loss) income to FFO is as follows:
(€ Thousands, except per Unit amounts) |
Three Months Ended |
Year Ended |
|
December 31, |
December 31, |
|
2023 |
2022 |
2023 |
2022 |
Net (loss) income and comprehensive (loss) income for the
period |
€ |
(35,917 |
) |
€ |
(48,790 |
) |
€ |
(114,229 |
) |
€ |
116,416 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Net movement in fair value of investment properties |
35,337 |
|
93,599 |
|
230,229 |
|
79,449 |
|
Net movement in fair value of Class B LP Units |
8,218 |
|
(15,443 |
) |
(46,299 |
) |
(148,289 |
) |
Fair value adjustments of Unit Option liabilities |
(194 |
) |
(1 |
) |
(1,311 |
) |
(1,850 |
) |
Interest expense on Class B LP Units |
4,261 |
|
4,261 |
|
17,044 |
|
16,809 |
|
Deferred income taxes |
(10,538 |
) |
(22,944 |
) |
(59,679 |
) |
(10,240 |
) |
Foreign exchange loss (gain)1 |
224 |
|
1,148 |
|
(568 |
) |
10,544 |
|
Net loss (gain) on derivative financial instruments |
6,304 |
|
(2,496 |
) |
9,244 |
|
(34,252 |
) |
Other activities and loss on transactions2 |
950 |
|
— |
|
2,765 |
|
— |
|
Tax on suite dispositions3 |
234 |
|
— |
|
314 |
|
— |
|
Senior management termination and retirement costs4 |
— |
|
— |
|
74 |
|
— |
|
Impairment of goodwill |
— |
|
— |
|
— |
|
10,541 |
|
Mortgage refinancing costs5 |
— |
|
— |
|
— |
|
121 |
|
Acquisition research costs |
— |
|
— |
|
— |
|
11 |
|
FFO |
€ |
8,879 |
|
€ |
9,334 |
|
€ |
37,584 |
|
€ |
39,260 |
|
FFO per Unit – diluted6 |
€ |
0.038 |
|
€ |
0.040 |
|
€ |
0.161 |
|
€ |
0.169 |
|
|
|
|
|
|
|
|
|
|
Total distributions declared |
€ |
7,002 |
|
€ |
6,967 |
|
€ |
27,949 |
|
€ |
27,434 |
|
FFO payout ratio |
78.9 |
% |
74.6 |
% |
74.4 |
% |
69.9 |
% |
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 hedging. |
2 |
Relate to costs associated with the concluded strategic review of
the REIT, loss on suite dispositions, and expired base shelf
prospectus fees. |
3 |
Included in current income tax expense in the consolidated
statements of net (loss) income and comprehensive (loss)
income. |
4 |
For the three months and year ended December 31, 2023, includes nil
and €59, respectively, of accelerated vesting of previously granted
Unit Options and nil and €15, respectively, in associated legal
fees (three months and year ended December 31, 2022 — nil). |
5 |
Relate to accelerated amortization of deferred financing costs for
the year ended December 31, 2022 associated with the refinancing
component of the REIT's mortgage, which closed on June 14,
2022. |
6 |
Includes Class B LP Units and the dilutive impact of unexercised
Unit Options, calculated based on the treasury method. |
|
|
The table below illustrates a reconciliation of the REIT's FFO and
AFFO: |
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Year Ended |
(€ Thousands, except per Unit amounts) |
December 31, |
December 31, |
|
2023 |
2022 |
2023 |
2022 |
FFO |
€ |
8,879 |
|
€ |
9,334 |
|
€ |
37,584 |
|
€ |
39,260 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Non-discretionary capital expenditure reserve1 |
(769 |
) |
(988 |
) |
(3,073 |
) |
(3,951 |
) |
Leasing cost reserve2 |
(139 |
) |
(129 |
) |
(556 |
) |
(518 |
) |
AFFO |
€ |
7,971 |
|
€ |
8,217 |
|
€ |
33,955 |
|
€ |
34,791 |
|
AFFO per Unit – diluted3 |
€ |
0.034 |
|
€ |
0.035 |
|
€ |
0.146 |
|
€ |
0.150 |
|
|
|
|
|
|
|
|
|
|
Total distributions declared |
€ |
7,002 |
|
€ |
6,967 |
|
€ |
27,949 |
|
€ |
27,434 |
|
AFFO payout ratio |
87.8 |
% |
84.8 |
% |
82.3 |
% |
78.9 |
% |
1 |
Non-discretionary capital expenditure reserve is determined based
on 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 €445 and €580, respectively. The estimated full year
weighted average number of residential suites as at December 31,
2023 and December 31, 2022 is 6,898 and 6,811, 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 and the dilutive impact of unexercised
Unit Options, calculated based on the treasury method. |
|
|
FFO per Unit and AFFO per Unit for the three
months and year ended December 31, 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.
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 annual 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 |
December 31, 2023 |
|
December 31, 2022 |
|
Unitholders' equity |
€ |
427,247 |
|
€ |
550,147 |
|
Class B LP Units |
250,554 |
|
296,853 |
|
Unit-based compensation financial liabilities |
187 |
|
554 |
|
Net deferred income tax liability1 |
14,869 |
|
74,543 |
|
Net derivative financial asset2 |
(15,901 |
) |
(22,931 |
) |
NAV |
€ |
676,956 |
|
€ |
899,166 |
|
NAV per Unit – diluted3 |
€ |
2.90 |
|
€ |
3.87 |
|
NAV per Unit – diluted (in
C$)3,4 |
C$ |
4.24 |
|
C$ |
5.61 |
|
1 |
Represents deferred income tax liabilities of €28,217 net of
deferred income tax assets of €13,348 as at December 31, 2023
(December 31, 2022 — deferred income tax liabilities of €77,474 net
of deferred income tax assets of €2,931). |
2 |
Represents non-current derivative financial assets of €15,901 as at
December 31, 2023 (December 31, 2022 — non-current derivative
financial assets of €23,771, net of current derivative financial
liabilities of €840). |
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 1.4626 on December 31,
2023 (foreign exchange rate of 1.4498 on December 31, 2022). |
|
|
Other Financial Highlights
|
Three Months Ended |
Year Ended |
|
December 31, |
December 31, |
|
2023 |
2022 |
2023 |
2022 |
Weighted Average Number of Units – Diluted (000s)1, 2 |
233,348 |
232,179 |
232,867 |
231,870 |
As at |
December 31, 2023 |
December 31, 2022 |
Closing Price of REIT Units3 |
€ |
1.76 |
€ |
2.09 |
Closing Price of REIT Units (in C$) |
C$ |
2.58 |
C$ |
3.03 |
Market Capitalization (millions)1, 3 |
€ |
412 |
€ |
486 |
Market Capitalization (millions in C$)1 |
C$ |
602 |
C$ |
704 |
1 |
Includes Class B LP Units. |
2 |
Dilutive impact of unexercised Unit Options is calculated based on
the treasury method. |
3 |
Based on the foreign exchange rate of 1.4626 on December 31,
2023 (rate of 1.4498 on December 31, 2022). |
|
|
FINANCIAL POSITION
As at |
December 31, 2023 |
|
December 31, 2022 |
|
Ratio of Adjusted Debt to Gross Book Value1 |
57.6 |
% |
51.0 |
% |
Weighted Average Mortgage Effective Interest Rate4 |
2.07 |
% |
1.77 |
% |
Weighted Average Mortgage Term (years) |
2.9 |
|
3.4 |
|
Debt Service Coverage Ratio (times)1,2 |
2.4 |
x |
3.1 |
x |
Interest Coverage Ratio (times)1,2 |
2.9 |
x |
3.8 |
x |
Available Liquidity (000s)3 |
€ |
28,893 |
|
€ |
21,386 |
|
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 €6.9 million and unused
credit facility capacity of €22.0 million as at December 31,
2023 (cash and cash equivalents of €10.9 million and unused credit
facility capacity of €10.5 million as at December 31, 2022). |
4 |
Includes impact of deferred financing costs, fair value adjustment
and interest rate swaps. |
|
|
For the year ended December 31, 2023, ERES's
liquidity improved, as compared to the prior year, primarily driven
by the amended revolving credit facility agreement, which increased
the limit by €25.0 million, with immediately available liquidity of
€28.9 million as at December 31, 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. The REIT's financial position is
additionally strengthened by its well-staggered mortgage profile,
with a weighted average term to maturity of 2.9 years and fixed
interest payment terms for 100% of its mortgages at a low weighted
average effective interest rate of 2.07%. This is further
reinforced by compliant debt coverage metrics, with interest and
debt service coverage ratios of 2.9x and 2.4x, respectively, and
adjusted debt to gross book value ratio within its target range at
57.6%.
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 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 year ended December 31, 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, February 22, 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 380011.
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
December 31, 2023, ERES owned 158 multi-residential properties,
comprised of approximately 6,900 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 audited consolidated annual
financial statements and the notes thereto for the year ended
December 31, 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 audited consolidated annual financial statements
and MD&A for the year ended December 31, 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 year ended December 31, 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 and Revolving
Credit Facility 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.
A reconciliation from total debt is as
follows:
(€ Thousands) |
|
|
As at |
December 31, 2023 |
|
December 31, 2022 |
|
Mortgages payable1 |
€ |
889,749 |
|
€ |
875,615 |
|
Credit facility2 |
102,741 |
|
89,259 |
|
Promissory note |
— |
|
25,650 |
|
Total Debt |
€ |
992,490 |
|
€ |
990,524 |
|
|
|
|
|
|
Fair value adjustment on mortgages payable |
(816 |
) |
(1,215 |
) |
Total Debt Adjusted for Declaration of Trust |
€ |
991,674 |
|
€ |
989,309 |
|
Ratio of Adjusted Debt to Gross Book
Value3 |
57.6 |
% |
51.0 |
% |
1 |
Represents non-current and current mortgages payable of €809,215
and €80,534, respectively, as at December 31, 2023 (December
31, 2022 — €813,733 and €61,882, respectively). |
2 |
Comparative figure was restated to conform with current year
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, |
Q4 23 |
|
Q3 23 |
|
Q2 23 |
|
Q1 23 |
|
Q4 22 |
|
Q3 22 |
|
Q2 22 |
|
Q1 22 |
|
Net (loss) income and comprehensive (loss) income |
€ |
(35,917 |
) |
€ |
24,784 |
|
€ |
3,252 |
|
€ |
(106,348 |
) |
€ |
(48,790 |
) |
€ |
70,000 |
|
€ |
126,935 |
|
€ |
(31,729 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net movement in fair value of investment properties |
35,337 |
|
24,768 |
|
45,398 |
|
124,726 |
|
93,599 |
|
8,099 |
|
9,790 |
|
(32,039 |
) |
Net movement in fair value of Class B LP Units |
8,218 |
|
(39,339 |
) |
(31,964 |
) |
16,786 |
|
(15,443 |
) |
(65,136 |
) |
(133,499 |
) |
65,789 |
|
Fair value adjustments of Unit Option liabilities |
(194 |
) |
(463 |
) |
(513 |
) |
(141 |
) |
(1 |
) |
(682 |
) |
(2,258 |
) |
1,091 |
|
Net loss (gain) on derivative financial instruments |
6,304 |
|
640 |
|
(728 |
) |
3,028 |
|
(2,496 |
) |
(10,385 |
) |
(10,649 |
) |
(10,722 |
) |
Foreign exchange loss (gain) |
224 |
|
213 |
|
210 |
|
(1,215 |
) |
1,148 |
|
2,696 |
|
5,003 |
|
1,697 |
|
Interest expense on Class B LP Units |
4,261 |
|
4,261 |
|
4,261 |
|
4,261 |
|
4,261 |
|
4,261 |
|
4,262 |
|
4,025 |
|
Interest on mortgages payable |
4,608 |
|
4,607 |
|
3,843 |
|
3,777 |
|
3,832 |
|
3,862 |
|
3,186 |
|
3,046 |
|
Interest on credit facility |
1,422 |
|
1,336 |
|
1,237 |
|
797 |
|
576 |
|
262 |
|
167 |
|
150 |
|
Interest on promissory notes |
— |
|
— |
|
70 |
|
234 |
|
197 |
|
97 |
|
256 |
|
50 |
|
Amortization |
246 |
|
150 |
|
202 |
|
173 |
|
130 |
|
149 |
|
207 |
|
231 |
|
Loss on suite dispositions |
58 |
|
19 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
Impairment of goodwill |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
10,541 |
|
— |
|
Income tax (recovery) expense |
(8,143 |
) |
(5,081 |
) |
(9,647 |
) |
(30,718 |
) |
(21,926 |
) |
2,371 |
|
540 |
|
12,302 |
|
EBITDAFV |
€ |
16,424 |
|
€ |
15,895 |
|
€ |
15,621 |
|
€ |
15,360 |
|
€ |
15,087 |
|
€ |
15,594 |
|
€ |
14,481 |
|
€ |
13,891 |
|
Cash taxes |
2,395 |
|
1,251 |
|
1,235 |
|
1,209 |
|
1,018 |
|
983 |
|
875 |
|
651 |
|
Tax on suite dispositions |
(234 |
) |
(80 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
EBITDAFV less cash taxes |
€ |
14,263 |
|
€ |
14,724 |
|
€ |
14,386 |
|
€ |
14,151 |
|
€ |
14,069 |
|
€ |
14,611 |
|
€ |
13,606 |
|
€ |
13,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments1 |
€ |
550 |
|
€ |
550 |
|
€ |
549 |
|
€ |
549 |
|
€ |
548 |
|
€ |
548 |
|
€ |
547 |
|
€ |
547 |
|
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 |
December 31, 2023 |
|
December 31, 2022 |
|
EBITDAFV less cash taxes1 |
€ |
57,524 |
|
€ |
55,526 |
|
Debt service payments1,2 |
€ |
24,129 |
|
€ |
17,871 |
|
Debt Service Coverage Ratio (times) |
2.4 |
x |
3.1 |
x |
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 |
December 31, 2023 |
|
December 31, 2022 |
|
EBITDAFV1 |
€ |
63,300 |
|
€ |
59,053 |
|
Interest expense1,2 |
€ |
21,931 |
|
€ |
15,681 |
|
Interest Coverage Ratio (times) |
2.9 |
x |
3.8 |
x |
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 acquisition, 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 |
|
|
Category: Earnings
European Residetial Real... (TSX:ERE.UN)
Historical Stock Chart
From Apr 2024 to May 2024
European Residetial Real... (TSX:ERE.UN)
Historical Stock Chart
From May 2023 to May 2024