European Commercial REIT Delivers Strong Operating Performance in 2018
TORONTO, March 26, 2019
Expects to Acquire 2,091 Rental Residential Suites in the Netherlands to Accelerate Growth
TORONTO, March 26, 2019 /CNW/ - European Commercial Real Estate Investment Trust ("ECREIT" or the "REIT") (TSX-V: ERE.UN) announced today strong operating performance for the year ended December 31, 2018.
2018 HIGHLIGHTSPortfolio growth and operating performance generate strong results: Property revenues up 88% from 2017 to $12.2 million on acquisitions; Full-year contribution from portfolio and rental growth drive strong increases in FFO and AFFO; Growth accretive as FFO and AFFO per Unit up 34% and 40%, respectively, from 2017; $5.9 million fair value gain in portfolio value; and Occupancy remains strong at 99.9% with 6.0 year weighted average lease term.Maintaining strong financial position: Leverage remains conservative with total debt to gross book value at 50.0%; and Low weighted average interest rate on property debt of 1.82% with 5.6 years term to maturity.Unitholder cash distributions of $0.35 per Unit generated solid yield.
A TRANSFORMATIVE TRANSACTION EXPECTED TO CLOSE MARCH 29To indirectly acquire 41 multi-residential rental properties well-located in growing Netherlands market; Purchase price of approximately $634 million funded by approximately $327 million by way of issuance of Class B limited partnership units ("Class B LP Units") of ECRE Limited Partnership and $307 million in assumed mortgages based on a CAD/Euro exchange rate of 1.502; Upon completion, the value of the REIT's investment properties to increase to approximately $820 million based on December 31, 2018 valuation; New focus on multi-residential sector with growth driven by strong fundamentals; Partnering with Canadian Apartment Properties Real Estate Investment Trust ("CAPREIT"), best-in-class property manager with 21-year track record of success; Pipeline agreement provides access to future acquisitions and growth financing; Special distribution of $0.50 per Unit to be distributed post-closing; Name change to European Residential REIT ("ERES REIT") to be effective on closing.
"On closing of the acquisition of 2,091 rental suites, and our new partnership with CAPREIT, we will have taken a significant and transformative step in size, scale, and our ability to generate long-term value for our Unitholders" commented Phillip Burns, Chief Executive Officer. "We will have created Canada's first Europe-focused multi-residential REIT with properties well-positioned in growth markets possessing strong fundamentals. With our new pipeline agreement with CAPREIT, we also will have access to additional properties in the Netherlands for acquisition and will have a strong institutional-quality partner with a majority ownership interest in the REIT. We are very excited about the significant benefits this transaction brings to our Unitholders and look to continue building value in the years ahead."
PORTFOLIO CONTINUES TO PERFORM WELL For the year ended December 31, 2018, property revenues were $12.2 million, up from $6.5 in 2017. The increase from the prior year is due primarily to the full year's contribution from the Brussels and Landshut properties acquired in 2017.
Net Operating Income ("NOI") was $9.4 million for the year ended December 31, 2018, up from $4.7 million in 2017 due primarily to portfolio growth over the prior twelve months and strong operating performance.
Funds from Operations ("FFO") for the year ended December 31, 2018 were $6.6 million ($0.39 per Unit) compared to $3.0 million ($0.29 per Unit) in 2017. Adjusted Funds from Operations ("AFFO") were $5.9 million ($0.35 per Unit) in 2018, up significantly from $2.6 million ($0.25 per Unit) in 2017. The increases were primarily due to the REIT's portfolio growth over the prior twelve months and strong operating performance.
The REIT reported net income of $8.2 million for the twelve months ended December 31, 2018 compared to a net loss of $2.2 million in 2017. During 2018, the REIT recognized a fair value gain on the value of its commercial investment properties of $5.9 primarily due to the compression of capitalization rates and increases in market rents in the Brussels market.
STRONG AND CONSERVATIVE FINANCIAL POSITIONAs at December 31, 2018, ECREIT's leverage (total debt to gross book value) stood at 50.0%, an improvement from 53.6% as at December 31, 2017. The weighted average all-in interest rate on total property debt was 1.82% with a weighted average debt term to maturity of 5.6 years, which broadly matches ECREIT's weighted average lease term of 6.0 years and further highlights the stability and sustainability of the REIT's cash distributions.
"Our strong balance sheet and conservative financial position reflect the growth of our property platform since inception. Going forward, with the completion of the transaction approved by Unitholders on March 21, 2019, our assets will grow to approximately $820 million, a significant increase in size and scale for the REIT," stated Ian Dyke, Chief Financial Officer. "In addition, our new pipeline agreement with CAPREIT provides access to up to $250 million in growth financing and a solid portfolio of additional property acquisition opportunities in the Netherlands market. We look forward to delivering further growth in the quarters ahead."
SUBSEQUENT EVENTOn December 11, 2018, the REIT announced that it had entered into an agreement to acquire, indirectly, from CAPREIT a portfolio of multi-residential properties located in the Netherlands (the "Acquisition Properties"), comprising 2,091 suites in 41 properties for an aggregate purchase price of approximately $634 million subject to certain purchase price adjustments (the "Transaction"). The Transaction will be funded by a combination of:
The assumption of approximately $307 million aggregate principal amount of existing mortgage debt relating to the Acquisition Properties and all other liabilities associated with the entities (including subsidiaries) that hold the Acquisition Properties; and
Approximately $327 million, by the issuance of 81,641,210 Class B LP Units to CAPREIT at a deemed issue price of $4.00 per Class B LP Unit.
The value at which the REIT is acquiring the Acquisition Properties is based on a December 2019 independent appraisal value of €421,830,000 and a CAD/Euro exchange rate of 1.502.
Unitholders approved the Transaction on March 21, 2019. In connection with the closing of the Transaction (the "Closing"), which is expected to occur on or about March 29, 2019, Unitholders will receive a one-time special distribution of $0.50 per Unit, funded by a cash payment of approximately $8.5 million from CAPREIT to the REIT (the "Special Distribution"). The record date for the determining the Unitholders that will be eligible to receive the Special Distribution is expected to be shortly after Closing. As well, CAPREIT will act as the external asset and property manager for the REIT and certain of its subsidiaries other than in connection with the REIT's existing commercial properties in Dusseldorf, Landshut and Brussels, for which Maple Knoll Capital Ltd. will remain the asset manager. Further details can be found in the management information circular issued by the REIT dated February 22, 2019, as supplemented on March 11, 2019 (the "Circular") on www.sedar.com.
FINANCIAL AND OPERATING HIGHLIGHTS
Three Months Ended
Dec. 31, 2018
Dec. 31, 2017
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Dec. 31, 2017
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Wtd. average lease term (yrs)
Portfolio fair market value (€M)
Portfolio fair market value ($M)
Debt to fair market value
Debt to gross book value
Weighted average interest rate
Net income (loss) ($,000)
FFO per Unit
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Wtd. Avg. Units outstanding (000)
ECREIT's Annual Management Discussion and Analysis and Audited Financial Statements can be found at www.ecreit.com or www.sedar.com.
About European Commercial Real Estate Investment TrustECREIT is an unincorporated, open-ended real estate investment trust focused on aggregating a bespoke portfolio of high-quality, non-prime commercial real estate assets in key European markets with strong fundamentals. ECREIT's units are listed on the TSX Venture Exchange (the "TSX-V") under the symbol ERE.UN. For more information, please visit our website at www.ECREIT.com.
Upon Closing, the REIT will change its name to European Residential Real Estate Investment Trust. It will be Canada's first European-focused multi-residential REIT, with an initial primary focus on investing in high-quality multi-family real estate properties in the Netherlands.
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", "intent", "estimate", "anticipate", "believe", "consider", "should", "plans", "predict", "estimate", "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. Such forward-looking statements are based on a number of assumptions that may prove to be incorrect.
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. 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 such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
The REIT uses financial measures regarding itself, such as adjusted funds from operations, that do not have standardized meaning under the International Financial Reporting Standards ("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 the Circular under the heading "Non-IFRS Measures" and "Non-IFRS Reconciliation".
Completion of the Transaction is subject to a number of conditions. There can be no assurance that the Transaction will be completed as proposed or at all.
Investors are cautioned that, except as disclosed in the Circular, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon.
Neither TSX Venture Exchange Inc. nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange Inc.) accepts responsibility for the adequacy or accuracy of this release.
SOURCE European Commercial Real Estate Investment Trust (ECREIT)