TORONTO, Dec. 16, 2024 (GLOBE NEWSWIRE) -- European Residential Real Estate Investment Trust (“ERES” or “the REIT”) (TSX:ERE.UN) announced today that it has closed on the previously announced dispositions of an aggregate 3,179 residential suites in the Netherlands for gross proceeds, net of estimated adjustments, of approximately €739 million. Please refer to the REIT’s press releases dated September 16, 2024 and November 22, 2024 for additional details. All amounts disclosed herein exclude transaction costs and other customary adjustments.
“We’re very pleased to have completed these dispositions, which surfaced significant capital for the benefit of the REIT and its unitholders,” commented Mark Kenney, Chief Executive Officer. “ERES is concluding the year in a stronger position as compared to its start, and we’ll continue to actively explore all possible opportunities to surface additional value.”
ERES further announced that, through certain of its subsidiaries, it has closed on the sale of one 25-suite property, and has entered into several agreements to sell a total of 374 residential suites in the Netherlands, for combined gross consideration of approximately €83.7 million (the “Pending Dispositions”). Proceeds are expected to be partially used to pay down associated mortgage debt of approximately €46.2 million. Closing dates are anticipated to occur between December 2024 through to the first quarter of 2025. There can be no assurance that all requirements for closing of the Pending Dispositions will be obtained, satisfied or waived.
After paying down associated mortgage debt, net cash proceeds from the Pending Dispositions and a portion of the net cash proceeds from the closed dispositions are expected to be used for the repayment of amounts outstanding on the revolving credit facility and the prepayment of certain mortgages maturing in the near term, in order to lower the REIT’s leverage and strengthen its financial position. Remaining net cash proceeds from the closed dispositions are being used to fund a special cash distribution, as outlined below, that will return a meaningful amount of capital to ERES’s unitholders.
Special Distribution
In connection with the closed dispositions, the Board of Trustees of the REIT (the “Board”) today declared a special distribution to the holders (“Unitholders”) of the trust units of the REIT (“Units”) of €1.00 per Unit, payable in cash (the “Special Distribution”). The incremental capital expected to be received from the Pending Dispositions, which is expected to be used to further pay down debt, has provided the REIT with the opportunity to responsibly increase the amount of the Special Distribution, as compared to the estimated €0.75 per Unit that was previously provided in its press releases, while still paying down a meaningful amount of debt. The Special Distribution will be payable to Unitholders of record at the close of business on December 23, 2024 (the “Record Date”), with payment on December 31, 2024 (the “Payment Date”). The Special Distribution will not qualify for the REIT’s Distribution Reinvestment Plan (the “DRIP”). A corresponding €1.00 per unit distribution has been declared on the exchangeable Class B LP units of ERES Limited Partnership (“Class B LP Units”), which will be payable to holders of record of the Class B LP Units on the Record Date and paid on the Payment Date. See “Due Bills” below for additional details regarding trading of Units and the Special Distribution.
The Euro-denominated Special Distribution will be paid in Canadian dollars based on the foreign exchange rate on the Payment Date (estimated C$1.49 per Unit based on the foreign exchange rate of 1.49 on December 13, 2024, applicable throughout this press release). Registered Unitholders will be provided with an option to elect to receive the Special Distribution in Euros rather than Canadian dollars. If no such election is made, registered Unitholders will be paid the Special Distribution in Canadian dollars based on the above exchange rate mechanism. Beneficial Unitholders will not have an option to elect to receive the Special Distribution in Euros.
“We’re using net proceeds from the sale of this large portion of our residential portfolio to pay the Special Distribution, and corresponding special distribution to the holders of Class B LP Units, while also reducing the REIT’s indebtedness, and we believe this will result in both value for our Unitholders and a stronger balance sheet for ERES moving forward,” added Jenny Chou, Chief Financial Officer.
“The declaration of this Special Distribution is consistent with the Board’s mission to maximize returns for the REIT’s Unitholders,” said Gina Parvaneh Cody, Chair of the Board. “Looking ahead into 2025, we remain committed to making continued progress on the execution of our value-maximization strategy.”
For Canadian income tax purposes, the Special Distribution will be partially comprised of a return of capital in the range of approximately 70-75%. The remainder of the Special Distribution is principally being made to distribute to Unitholders a portion of the net capital gains of ERES realized during the twelve-month period ending December 31, 2024, and will therefore be in the form of a capital gain in the range of approximately 20-25%, with the remainder comprising ordinary income in the range of approximately 0-5%. Taxable Canadian-resident Unitholders will generally be required to include their proportionate share of ERES’s net taxable capital gain and income, as allocated and designated by ERES, in computing their respective income for the tax year that includes the year end of ERES (i.e., December 31, 2024). Unitholders who are not resident in Canada for Canadian federal income tax purposes may be subject to applicable withholding taxes in connection with the payment of the Special Distribution. ERES cautions that the foregoing comments are not intended to be, and should not be construed as, legal or tax advice to any Unitholder. ERES recommends that Unitholders consult their own tax advisors regarding the income tax consequences to them of this anticipated Special Distribution.
Pro Forma
The following table sets out consolidated financial metrics of the REIT as of the date of the latest interim financial statements, and after adjusting as outlined below:
September 30, 2024, after adjusting for the estimated effect of the completed dispositions and payment of the Special Distribution and corresponding special distribution to the holders of Class B LP Units; and
September 30, 2024, after adjusting for the estimated effect of the completed dispositions, payment of the Special Distribution and corresponding special distribution to the holders of Class B LP Units, and the Pending Dispositions.
September 30, 2024
Pro Forma A
Pro Forma B
Total residential suite count
6,276
3,072
2,698
Total portfolio IFRS fair value
€1.59 billion
€0.84 billion
€0.75 billion
Mortgage debt principal balance
€0.81 billion
€0.36 billion
€0.29 billion
Mortgage debt weighted average effective interest rate
2.1%
2.2%
2.3%
Mortgage debt weighted average term to maturity
2.2 years
2.8 years
3.1 years
Amounts outstanding on the revolving credit facility
€0.05 billion
€nil
€nil
Ratio of adjusted debt to gross book value
52%
40-42%
35-37%
Due Bills
The Toronto Stock Exchange (the “TSX”) has determined to implement its “due bill” trading procedures with respect to the Special Distribution. Due bills attach to the underlying listed securities between the record date and the payment date, allowing the underlying listed securities to carry the value of the entitlement until it is paid. When due bills are used, the ex-distribution date is deferred to the first trading day after the payment date.
For trading purposes, due bills will attach to the Units from the opening of business on the Record Date, until the close of business on the Payment Date (the “Due Bill Period”). This means that buyers of the Units through the facility of the TSX during the Due Bill Period will receive the Special Distribution payment, provided they continue to be holders of the applicable Units on the Payment Date.
The Units will commence trading on an ex-distribution basis from the opening of business on January 2, 2025, as of which date purchasers of the Units will no longer have an attaching entitlement to payment of the Special Distribution. The due bill redemption date will be January 2, 2025. As a result of the Units trading on a due bill basis during the Due Bill Period, Unitholders entitled to be paid the Special Distribution owing on the due bills should expect to receive that payment on or about the due bill redemption date of January 2, 2025. Unitholders prior to the Due Bill Period who do not purchase or sell Units during the Due Bill Period will not have their applicable Special Distribution payment impacted by the due bill process.
December 2024 Monthly Distribution
ERES is pleased to further announce that the Board has declared the December 2024 monthly cash distribution of €0.01 per Unit (the “December 2024 Distribution”), being equivalent to €0.12 per Unit annualized. The December 2024 Distribution will be payable to holders of the Units and Class B LP Units of record on December 31, 2024, with payment on January 15, 2025.
The Euro-denominated December 2024 Distribution will be paid in Canadian dollars based on the exchange rate on the date of payment (estimated C$0.01485 per Unit). Registered Unitholders will be provided with an option to elect to receive the December 2024 Distribution in Euros rather than Canadian dollars. If no such election is made, registered Unitholders will be paid the December 2024 Distribution in Canadian dollars based on the above exchange rate mechanism. Beneficial Unitholders will not have an option to elect to receive the December 2024 Distribution in Euros. The final cash distribution in respect of November 2024 was C$0.01485 per Unit.
Unitholders registered in the REIT’s DRIP will receive an additional amount equal to 5% of their December 2024 Distribution paid in the form of additional Units.
Termination of DRIP
The REIT also announced today that its DRIP will be terminated effective January 16, 2025. As a result, the DRIP will not be available for the REIT’s monthly distributions paid on and after January 16, 2025. The last distribution record date that will be eligible for the DRIP will be December 31, 2024, with payment on January 15, 2025. As noted above, the Special Distribution will not be eligible for the REIT’s DRIP.
Distribution Reduction
Given the sale of approximately half of the REIT’s residential suites in 2024 and following payment of the Special Distribution and corresponding special distribution to the holders of Class B LP Units, the Board has approved a 50% reduction in ERES’s monthly cash distributions to €0.005 per Unit, being equivalent to €0.06 per Unit annualized (the “Distribution Reduction”) to better align distributions with its remaining portfolio. Subject to the discretion of the Board, ERES intends to continue to make regular monthly distributions. Accordingly, the Distribution Reduction would first become effective for its distribution to be declared in January 2025 and payable in February 2025.
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 assurances 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 with regards to the expected completion and timing of the Pending Dispositions, the satisfaction of closing conditions with respect to the Pending Dispositions, the intended use of proceeds of the Pending Dispositions, the Special Distribution, including the estimated per Unit amounts of return of capital, capital gain and ordinary income, the use of due bills and timing of payment, the timing and amount of debt repayment and the declaration and payment of future distributions. 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. 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.
For more information, please contact:
ERES Dr. Gina Parvaneh Cody Chair of the Board of Trustees (437) 219-1765
ERES Mr. Mark Kenney Chief Executive Officer (416) 861-9404
