TORONTO, Nov. 04, 2021 (GLOBE NEWSWIRE) — European Residential Real Estate Investment Trust (“ERES” or the “REIT”) (TSX: ERE.UN) announced today its results for the three and nine months ended September 30, 2021.
ERES’s unaudited consolidated financial statements and management’s discussion and analysis (“MD&A”) for the three and nine months ended September 30, 2021 can be found at www.eresreit.com or under ERES’s profile at www.sedar.com.
HIGHLIGHTS
Business Update
- On June 30, 2021, the REIT closed on two acquisitions in the Netherlands for a combined purchase price of €47.0 million (excluding transaction costs and fees), representing an aggregate 137 residential units.
- On September 29, 2021, the REIT secured mortgage financing on its June 30, 2021 acquisition properties, combined with refinancing of certain existing properties, in the total principal amount of €91.75 million, bearing a six-year term to maturity with a weighted average interest rate of 1.12% over the term of the mortgage. This lowered the REIT’s weighted average effective interest rate to 1.53%.
- On March 10, 2021, the REIT extended its €165 million Pipeline Agreement with CAPREIT for an additional two-year period ending on March 29, 2023, under the same terms and conditions.
- On February 23, 2021, the Board of Trustees approved an increase of 4.8% to the REIT’s monthly distribution from its previous rate of €0.00875 per Unit (equivalent to €0.105 per Unit annualized) to €0.00917 per Unit (equivalent to €0.110 per Unit annualized).
Outperforming Operating Metrics
- Strong operating results continued for the three months ended September 30, 2021, fueled by accretive acquisitions and ongoing strong rental growth, with a 3.6% increase in stabilized Occupied Average Monthly Rent (“AMR”), from €895 as at September 30, 2020, to €927 as at September 30, 2021.
- Turnover was 3.5% for the three months ended September 30, 2021, with rental uplift on turnover of 16.3% for the period, compared to turnover of 3.2% and rental uplift on turnover of 8.2% in the comparable prior year period.
- Occupancy for commercial properties remained stable at 100.0% as at September 30, 2021, while occupancy for the residential properties also remained strong at 98.2% as at September 30, 2021, compared to 98.4% as at September 30, 2020. A significant proportion of residential vacancy in the current period is due to renovation, which will provide further rental uplifts once the suites are leased out again.
- Net Operating Income (“NOI”) increased by 13% for the three months ended September 30, 2021, primarily driven by contribution from accretive acquisitions as well as the aforementioned higher monthly rents and lower property operating costs as a percentage of revenues, in aggregate supporting a strong increase in NOI margin to 77.9% compared to 75.6% for the three months ended September 30, 2020.
Consistent Fair Value Appreciation on Portfolio
- The fair value of the REIT’s property portfolio increased to €1.64 billion as at September 30, 2021, consisting of €1.54 billion in multi-residential properties and €0.10 billion in commercial properties, resulting in a significant gain of €76.9 million for the three months ended September 30, 2021. The increase in market value was driven by steady and strong portfolio fundamentals resulting in a compression of capitalization rates, the successful execution of the REIT’s value-adding capital expenditure program and the REIT’s exceptional operating metrics, including its continually increasing rental revenues and consistently high occupancy.
Accretive Financial Performance
- FFO per Unit increased significantly by 15% to €0.039 for the three months ended September 30, 2021, compared to €0.034 in the prior year period, predominantly due to the positive impact of accretive acquisitions.
- AFFO per Unit similarly increased significantly by 13% to €0.034 for the three months ended September 30, 2021, compared to €0.030 in the three months ended September 30, 2020.
- Distributions Declared per Unit increased by 4.8% to €0.028 for the three months ended September 30, 2021, up from €0.026 in the prior year period, due to an increase in the REIT’s monthly distribution effective March 2021 onward.
- AFFO Payout Ratio was 80.4% for the three months ended September 30, 2021, at the lower end of the REIT’s long-term target range and down from 87.6% in the comparative prior year period.
Strong Financial Position with Ample Liquidity
- Liquidity and leverage remain strong, supported by the REIT’s staggered mortgage profile with a four-year weighted average term to maturity and a weighted average effective interest rate of 1.53%. The REIT has immediately available liquidity of €98 million as at September 30, 2021, and its total debt to gross book value is 47.2%.
Subsequent Events
- In the subsequent period to November 4, 2021, the REIT’s recently acquired newly built property was fully leased at rental levels exceeding the REIT’s business plan.
- On October 1, 2021, the REIT repaid a portion of the draw on its Revolving Credit Facility and Bridge Credit Facility in the amount of €48,200, leaving a balance of €15,223 outstanding on the credit facilities at that time.
- Subsequently, on October 29, 2021, the REIT amended and renewed its existing Revolving Credit Facility with the same two Canadian chartered banks, providing up to €100,000 for a three-year period ending on October 29, 2024, which resulted in (i) combining the credit facility and bridge facility into one facility; (ii) lower interest rates and fees, (iii) certain modifications to CAPREIT’s financial covenants; and (iv) a negative pledge of an unencumbered property pool provided by CAPREIT, such that it represents 1.50x the facility amount of €100,000.
- On October 29, 2021, the REIT entered into a purchase agreement to acquire a multi-residential property comprised of 63 suites located in Rotterdam, the Netherlands, for a purchase price of €19.1 million (excluding transaction costs and fees).
“ERES has proven its ability to consistently deliver both value and growth via operational performance and an accretive strategy that remains robustly successful even in adverse circumstances, as we have repeatedly reaffirmed and evidenced to date,” commented Phillip Burns, Chief Executive Officer. “These strong performance fundamentals continue to showcase ERES’s value-creation strategy throughout the Netherlands, fueled by a host of attractive opportunities that characterize markets which are very conducive to ERES’s operational and strategic initiatives. Ultimately, ERES has and will continue to excel at execution of its strategy, and we remain optimistic about its near term future, and long-run prospects.”
OPERATING METRICS CONTINUE TO STRENGTHEN
| Total Portfolio | Suite Count | Net AMR/ABR | Occupied AMR/ABR | Occupancy % | ||||||||||||||||
| As at September 30, | 2021 | 2020 | 2021 | 2020 | AMR | 2021 | 2020 | AMR | 2021 | 2020 | ||||||||||
| € | € | % Change | € | € | % Change | |||||||||||||||
| Residential Properties | 6,183 | 5,752 | 912 | 882 | 3.4 | 928 | 895 | 3.7 | 98.2 | 98.4 | ||||||||||
| Commercial Properties1 | 17.6 | 17.6 | — | 17.6 | 17.6 | — | 100.0 | 100.0 | ||||||||||||
| 1 | Represents 450,911 square feet of commercial gross leasable area. |
| Stabilized Portfolio | Suite Count1 | Net AMR/ABR | Occupied AMR/ABR | Occupancy % | |||||||||||||
| As at September 30, | 2021 | 2020 | AMR | 2021 | 2020 | AMR | 2021 | 2020 | |||||||||
| € | € | % Change | € | € | % Change | ||||||||||||
| Residential Properties | 5,751 | 913 | 882 | 3.5 | 927 | 895 | 3.6 | 98.5 | 98.4 | ||||||||
| Commercial Properties2 | 17.6 | 17.6 | — | 17.6 | 17.6 | — | 100.0 | 100.0 | |||||||||
| 1 | Represents all properties owned by the REIT continuously since September 30, 2020, and therefore excludes 9 residential properties (432 suites) acquired in the subsequent period to date. |
| 2 | Represents 450,911 square feet of commercial gross leasable area. |
Net and Occupied AMR for the total multi-residential portfolio increased by 3.4% and 3.7%, respectively, while Net and Occupied AMR for the stabilized portfolio increased by 3.5% and 3.6%, respectively, compared to the prior year period. The increases were driven by increased rents on annual indexation, turnover and conversion of regulated suites to liberalized suites.
| Weighted Average Turnovers | 2021 | 2020 | ||||
| Change in Monthly Rent |
Turnovers | Change in Monthly Rent |
Turnovers | |||
| € | % | % | € | % | % | |
| For the three months ended September 30, | 137 | 16.3 | 3.5 | 71 | 8.2 | 3.2 |
| For the nine months ended September 30, | 129 | 15.5 | 10.9 | 79 | 9.1 | 10.8 |
| Total Portfolio Performance | Three Months Ended | Nine Months Ended | ||||||||||
| September 30, | September 30, | |||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Operating Revenues (000s) | € | 19,277 | € | 17,562 | € | 56,843 | € | 51,863 | ||||
| NOI (000s) | € | 15,015 | € | 13,269 | € | 43,878 | € | 39,378 | ||||
| NOI Margin | 77.9 | % | 75.6 | % | 77.2 | % | 75.9 | % | ||||
| Weighted Average Number of Suites | 6,184 | 5,671 | 6,094 | 5,645 | ||||||||
Operating revenues increased by 10% for both the three and nine months ended September 30, 2021, primarily due to accretive acquisitions since the prior year periods and an increase in AMR on the stabilized portfolio, as described above.
NOI increased by 13% and 11% for three and nine months ended September 30, 2021, respectively, likewise driven by contribution from acquisitions since the prior year periods as well as higher monthly rents on stabilized properties. This was complemented by a decrease in property operating costs as a percentage of operating revenues, predominantly due to the recognition of a non-recurring rebate from the government for landlord levies. In aggregate, total portfolio NOI margin increased to 77.9% and 77.2% for the three and nine months ended September 30, 2021, compared to 75.6% and 75.9% in the comparable prior year periods. Excluding the impact of the landlord levy rebate, NOI margin on the total portfolio still increased to 77.1% and 76.4% for the three and nine months ended September 30, 2021, respectively.
| Stabilized Portfolio Performance | Three Months Ended | Nine Months Ended | ||||||||||
| September 30, | September 30, | |||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Operating Revenues (000s) | € | 17,877 | € | 17,449 | € | 53,400 | € | 51,648 | ||||
| NOI (000s) | € | 13,939 | € | 13,185 | € | 41,201 | € | 39,270 | ||||
| NOI Margin | 78.0 | % | 75.6 | % | 77.2 | % | 76.0 | % | ||||
| Stabilized Number of Suites1 | 5,631 | 5,631 | 5,631 | 5,631 | ||||||||
| 1 | Includes all properties owned by the REIT continuously since December 31, 2019, and therefore does not take into account the impact of acquisitions or dispositions completed during 2020 or 2021. |
The increases in stabilized NOI contribution by 5.7% and 4.9% for the three and nine months ended September 30, 2021, compared to the prior year periods, were primarily driven by higher operating revenues from increased AMR, as well as a reduction in operating expenses as a percentage of operating revenues, predominantly due to the recognition of the landlord levy rebate. Excluding the impact of the landlord levy rebate, stabilized NOI margin still increased to 77.2% and 76.3% for the three and nine months ended September 30, 2021, respectively.
| Financial Performance | Three Months Ended | Nine Months Ended | ||||||||||
| September 30, | September 30, | |||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||
| FFO | € | 8,933 | € | 7,753 | € | 25,943 | € | 23,106 | ||||
| FFO per Unit – Basic | € | 0.039 | € | 0.034 | € | 0.112 | € | 0.100 | ||||
| FFO payout ratio | 71.2 | % | 78.1 | % | 72.7 | % | 78.6 | % | ||||
| AFFO | € | 7,914 | € | 6,912 | € | 22,878 | € | 20,585 | ||||
| AFFO per Unit – Basic | € | 0.034 | € | 0.030 | € | 0.099 | € | 0.089 | ||||
| AFFO payout ratio | 80.4 | % | 87.6 | % | 82.5 | % | 88.2 | % | ||||
| Distributions declared per Unit | € | 0.028 | € | 0.026 | € | 0.082 | € | 0.079 | ||||
The increases in FFO and AFFO were driven by the positive impact of increased stabilized NOI and accretive acquisitions since the prior year period, in addition to the REIT’s partial recognition of a rebate from the government for landlord levies payable. FFO and AFFO are calculated in accordance with the recommendations of the Real Property Association of Canada (“REALpac”) as published in its white paper in February 2019 with the exception of certain adjustments which are: (i) general and administrative expenses related to structuring, (ii) acquisition research costs and (iii) mortgage refinancing costs.
| Other Financial Highlights | Three Months Ended | Nine Months Ended | ||||||||
| September 30, | September 30, | |||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||
| Weighted Average Number of Units – Basic1 (000s) | 231,113 | 230,666 | 230,956 | 230,623 | ||||||
| Closing Price of REIT Units2, 3 | € | 2.97 | € | 2.74 | ||||||
| Closing Price of REIT Units (in C$)2 | $ | 4.40 | $ | 4.28 | ||||||
| Market Capitalization (millions)1, 2, 3 | € | 687 | € | 632 | ||||||
| Market Capitalization (millions in C$)1, 2 | $ | 1,017 | $ | 987 | ||||||
| 1 | Includes Class B LP Units. |
| 2 | As at September 30. |
| 3 | Based on the foreign exchange rate of 1.4801 on September 30, 2021 (foreign exchange rate of 1.5631 on September 30, 2020). |
FINANCIAL POSITION REMAINS ROBUST AND CONSERVATIVE
| As at | September 30, 2021 | September 30, 2020 | ||||
| Total Debt to Gross Book Value | 47.2 | % | 46.2 | % | ||
| Weighted Average Mortgage Effective Interest Rate | 1.53 | % | 1.65 | % | ||
| Weighted Average Mortgage Term (years) | 4.02 | 4.68 | ||||
| Debt Service Coverage Ratio (times) | 3.50 | 3.40 | ||||
| Interest Coverage Ratio (times) | 4.16 | 3.76 | ||||
| Available Liquidity | € | 98,317 | € | 119,587 | ||
ERES’s liquidity and leverage remain strong, supported by the REIT’s staggered mortgage profile with a four-year weighted average term to maturity and a weighted average effective interest rate of 1.53%. The majority of the REIT’s mortgages are also non-amortizing, with no maturities occurring until December 2022. The REIT has immediately available liquidity of €98 million as at September 30, 2021, and its total debt to gross book value is 47.2%.
“As at period end, ERES had approximately €255 million in immediately available liquidity through cash on hand, undrawn credit facilities and the Pipeline Agreement, providing significant acquisition capacity that is supported by its conservative debt profile, with our well-staggered mortgage maturities and their 4-year weighted average term to maturity,” commented Stephen Co, Chief Financial Officer. “Our latest mortgage financing which closed during the period further reinforces the aforementioned strength of our liquidity and financial position, having lowered our weighted average mortgage effective interest rate by eight basis points to 1.53%, and evidences ERES’s continued ability to capitalize on the persistently low interest rate environment to thereby secure strong yield spreads on acquisitions.”
DISTRIBUTIONS
During the nine months ended September 30, 2021, the REIT declared monthly distributions of €0.00875 per Unit (equivalent to €0.105 per Unit annualized) in respect of January and February, and €0.00917 per Unit (equivalent to €0.110 per Unit annualized) thereafter, following an increase in the REIT’s monthly distribution rate. 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 Phillip Burns, Chief Executive Officer and Stephen Co, Chief Financial Officer, will be held on Friday, November 5, 2021 at 9:00 am EST. The telephone numbers for the conference call are Canadian Toll Free: 1 (833) 950-0062 / International: +1 (929) 526-1599. The Passcode for the call is 562002.
A replay of the call will be available for 7 days after the call, until Friday, November 12, 2021. The telephone numbers to access the replay are Canadian Toll Free: 1 (226) 828-7578 or International +44 (204) 525-0658. The Passcode for the replay is 697290.
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. The webcast will also be available by clicking on the link below:
https://event.on24.com/wcc/r/3477765/B6F5D71DC8FECA5DD764BD9E938053BB
A replay of the webcast will be available for 1 year after the webcast at the same link.
The slide presentation to accompany management’s comments during the conference call will be available on the ERES website an hour and a half prior to the conference call.
About European Residential Real Estate Investment Trust
ERES is an unincorporated, open-ended real estate investment trust. ERES’s REIT Units are listed on the TSX under the symbol ERE.UN. ERES is Canada’s only European-focused multi-residential REIT, with a current initial focus on investing in high-quality multi-residential real estate properties in the Netherlands. ERES owns a portfolio of 141 multi-residential properties, comprised of 6,183 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.
| For further information: | |
| Phillip Burns | Stephen Co |
| Chief Executive Officer | Chief Financial Officer |
| Email: p.burns@eresreit.com | Email: s.co@eresreit.com |
Category: Earnings
Certain statements contained in this press release constitute forward-looking statements within the meaning of applicable Canadian securities laws which reflect ERES’s current expectations and projections about future results. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “outlook”, “objective”, “may”, “will”, “expect”, “intent”, “estimate”, “anticipate”, “believe”, “consider”, “should”, “plans”, “predict”, “estimate”, “forward”, “potential”, “could”, “likely”, “approximately”, “scheduled”, “forecast”, “variation” or “continue”, or similar expressions suggesting future outcomes or events. The forward-looking statements made in this press release relate only to events or information as of the date on which the statements are made in this press release. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this press release. Any number of factors could cause actual results to differ materially from these forward-looking statements as well as future results. Although ERES believes that the expectations reflected in forward-looking statements are reasonable, it can give no assurances that the expectations of any forward-looking statements will prove to be correct. Such forward-looking statements are based on a number of assumptions that may prove to be incorrect. Accordingly, readers should not place undue reliance on forward-looking statements.
Except as specifically required by applicable Canadian securities law, ERES does not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. These forward-looking statements should not be relied upon as representing ERES’s views as of any date subsequent to the date of this press release.
ERES uses financial measures regarding itself, such as adjusted funds from operations, that do not have standardized meaning under IFRS and may not be comparable to similar measures presented by other entities (“non-IFRS measures”). Further information relating to non-IFRS measures, is set out in ERES’s annual information form dated March 30, 2021 under the heading “Non-IFRS Measures” and in ERES’s MD&A under the heading “Non-IFRS Financial Measures.”
