TORONTO, Nov. 22, 2024 (GLOBE NEWSWIRE) -- European Residential Real Estate Investment Trust (“ERES” or “the REIT”) (TSX:ERE.UN) announced today an update on the expected closing of its previously disclosed strategic dispositions, and timing of its anticipated special distribution and distribution reduction, as announced in its press release dated September 16, 2024.
Strategic Dispositions
As disclosed on September 16, 2024, ERES Limited Partnership (“ERES LP”) and certain other subsidiaries of ERES have entered into an agreement with an entity owned by a consortium of parties that includes TPG Angelo Gordon, Dream Unlimited Corporation, Stadium Capital Partners, and several co-investment partners (the “Purchaser”), to sell certain entities owning 2,947 residential suites in the Netherlands for proceeds, net of certain estimated adjustments, of approximately €695 million (the “Disposition I”). Approval for Disposition I has been received from the Dutch competition authority (ACM), and the Purchaser has notified ERES of an expected closing date of December 16, 2024.
Also as previously announced, certain other subsidiaries of ERES have entered into a separate agreement to sell 232 residential suites in the Netherlands for gross proceeds of approximately €44 million (the “Disposition II”, and together with Disposition I, the “Dispositions”), which ERES expects will close on December 2, 2024. There can be no assurance that all requirements for closing of the Dispositions will be obtained, satisfied or waived, nor that the Dispositions will close on the dates disclosed herein.
Special Distribution
Subject to the completion of the Dispositions in accordance with the terms and timing described above, ERES intends to declare a special cash distribution of an estimated €0.75 per Unit and ERES LP’s exchangeable Class B LP Unit (equivalent to an estimated C$1.10 based on the foreign exchange rate of 1.47 on November 21, 2024), payable to holders of the REIT’s Units and ERES LP’s Class B LP Units of record at the close of business on December 23, 2024, with payment on December 31, 2024 (the “Special Distribution”). For Canadian income tax purposes, the Special Distribution is estimated to be comprised of a return of capital in the range of approximately 55-65%. The Special Distribution will not qualify for the REIT’s Distribution Reinvestment Plan. It is expected that the Toronto Stock Exchange will implement its “due bill” trading procedures with respect to the Special Distribution. Further details relating to the Special Distribution, if declared, will be provided at a later date. The Special Distribution has not yet been declared and there can be no assurance as to the timing, quantum or composition for Canadian income tax purposes of any such distribution.
Distribution Reduction
Furthermore, as previously announced, given the expected completion of the sale of approximately half of the REIT’s residential suites in 2024 and payment of the Special Distribution, the Board of Trustees intends to reduce its monthly distribution by approximately 50% (the “Distribution Reduction”) to better align distributions with ERES’s remaining portfolio. Subject to the completion of the Dispositions in accordance with the timing described above, and subsequent to the payment of the Special Distribution, ERES expects the Distribution Reduction to become effective for its January 2025 distribution, payable in February 2025. Further details relating to the Distribution Reduction, if implemented, will be provided at a later date. There can be no assurance as to the timing or magnitude of any future distributions by the REIT.
Property Management Update
In addition, with the significant decrease in portfolio size upon anticipated closing of the Dispositions and the associated diseconomies of scale, ERES announced that it has entered into an approximately fee-neutral agreement to transfer property management services for the REIT’s remaining portfolio in the Netherlands to a third party, expected to enter into effect on or about January 15, 2025. Canadian Apartment Properties Real Estate Investment Trust will continue to act as the REIT’s asset manager.
Proposed Netherlands Tax Amendment
Finally, ERES provided an update on the Dutch government’s legislative proposal to amend the earnings stripping rule (by abolishing the €1 million threshold for real estate entities), as published on September 17, 2024. Further to previous disclosure, on November 14, 2024, the Dutch House of Representatives passed an amendment to the legislative proposal pursuant to which the taxable EBITDA threshold would be increased to 24.5% and the €1 million threshold for real estate entities would, however, be retained. Such amendment would maintain the current ability of the REIT’s subsidiaries to deduct net financing expenses for Dutch corporate income tax purposes. The revised legislative proposal is subject to approval by the Dutch Senate, expected by mid-December, and is projected to become effective as of January 1, 2025. There is no assurance that the potential amendment will ultimately be enacted by the Dutch government or enter into force as per the timeline indicated. As such, it is subject to change, and such change (and the impact of such change on the REIT) may be significant.
Should the potential amendment be implemented as described above, and after adjusting for the estimated effect of previously disclosed dispositions, the REIT’s forecasted current income tax expense for the year ending December 31, 2025 for the remaining portfolio is approximately €4 million. This assumes ongoing rental operations, however, ERES will continue to explore all available opportunities to drive value, including the possibility for future strategic property sales, which would alter the estimated current income tax expense for the REIT’s residual portfolio.
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 portfolio of high-quality, multi-residential real estate properties in the Netherlands. As at September 30, 2024, ERES owned approximately 6,300 residential suites, including approximately 3,200 suites classified as assets held for sale, and ancillary retail space located in the Netherlands, and owned one commercial property in Germany and one commercial property in Belgium, with a total fair value of approximately €1.6 billion, including approximately €0.7 billion of assets held for sale. For more information about ERES, its business and its investment highlights, please visit our website at www.eresreit.com and our public disclosure which can be found under our profile on SEDAR+ at www.sedarplus.ca.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION Certain statements contained in this press release constitute forward-looking information, future-oriented financial information, or financial outlooks (collectively, “forward-looking information”) within the meaning of applicable Canadian securities laws, which reflect ERES’s current expectations and projections about future results. Forward-looking information 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 information in this press release relates 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 information contained in this press release. Any number of factors could cause actual results to differ materially from this forward-looking information. Although ERES believes that the expectations reflected in forward-looking information are reasonable, it can give no assurance that the expectations of any forward-looking information will prove to be correct. Such forward-looking information is based on a number of assumptions that may prove to be incorrect, including regarding the expected completion and timing of the Dispositions, the satisfaction of closing conditions with respect to the Dispositions, the amount, timing and composition of the Special Distribution, the amount and timing of the Distribution Reduction, the expected externalization of property management services, the expected enactment of the proposed tax amendment, and the timing and details of the potential legislation (including that the amendment to the earnings stripping rule will include only the increase of the maximum interest expense deductibility to 24.5% of the taxpayer’s taxable EBITDA, effective January 1, 2025). Accordingly, readers should not place undue reliance on forward-looking information.
Forward looking information in this press release is subject to certain risks and uncertainties that could result in actual results differing materially from this forward-looking information, including with respect to the expected closing of the Dispositions, the payment of the Special Distribution, and the implementation of the Distribution Reduction. Risks and uncertainties pertaining to ERES are more fully described in regulatory filings that can be obtained on SEDAR+ at www.sedarplus.ca.
Except as specifically required by applicable Canadian securities law, ERES does not undertake any obligation to update or revise publicly any forward-looking information, whether as a result of new information, future events or otherwise, after the date on which the information is provided or to reflect the occurrence of unanticipated events. This forward-looking information should not be relied upon as representing ERES’s views as of any date subsequent to the date of this press release.
