Mr. Mark Kenney reports

EUROPEAN RESIDENTIAL REIT REPORTS FIRST QUARTER 2023 RESULTS

European Residential Real Estate Investment Trust has released its results for the three months ended March 31, 2023.

European Residential's unaudited condensed consolidated interim financial statements and management's discussion and analysis (MD&A) for the three months ended March 31, 2023, can be found at European Residential's website or under European Residential's profile at SEDAR.

First quarter snapshot

• Growth in occupied average monthly rents (AMR) of 6 per cent from the prior-year period on both the total and same property portfolio;
• Increase in net operating income (NOI) of 9 per cent compared with the prior-year period, with 5 per cent growth on the same property portfolio;
• Strong occupancy level for residential properties at 99 per cent, consistent with the prior-year period;
• Significant euros 25 million improvement in liquidity through increased capacity on the revolving credit facility.

Significant events and highlights

Business update

• On Jan. 24, 2023, the REIT amended and renewed its existing revolving credit facility, providing up to 125 million euros for a three-year period ending on Jan. 26, 2026, as well as an accordion feature to increase the limit a further 25 million euros 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.

Outperforming operating metrics

• Strong operating results continued into 2023, fuelled by strong rental growth. Same property portfolio occupied AMR, increased by 5.9 per cent, from 949 euros as at March 31, 2022, to 1,005 euros as at March 31, 2023, demonstrating the REIT's continued achievement of rental growth in excess of its target range.
• Turnover was 3.9 per cent for the three months ended March 31, 2023, with rental uplift on turnover remaining strong at 20.7 per cent, compared with rental uplift of 20.7 per cent on turnover of 2.6 per cent for the three months ended March 31, 2022.
• Occupancy for the residential properties remained high and stable at 98.7 per cent as at March 31, 2023, relatively consistent with occupancy of 98.6 per cent as at March 31, 2022, and at the high end of the REIT's target range. Moreover, 71.4 per cent of residential vacancies are attributable to suites undergoing renovation upon turnover, which should provide for further rental uplifts once the suites are leased.
• NOI increased by 9.4 per cent for the three months ended March 31, 2023, primarily driven by the aforementioned higher monthly rents, further supported by the REIT's extensive protection from inflation.

Financial performance

• Funds from operations (FFO) per unit decreased by 4.8 per cent to four euro cents for the three months ended March 31, 2023, compared with 4.2 euro cents in the prior-year period, primarily driven by increase in interest and other financing costs and current income tax expense, partially offset by the positive impact of increased same property NOI contribution.
• Adjusted funds from operations (AFFO) per unit decreased by 5.4 per cent to 3.5 euro cents for the three months ended March 31, 2023, compared with 3.7 euro cents in the three months ended March 31, 2022.

Strong financial position with ample liquidity

• Over all, liquidity improved during the quarter due to the amendment of the revolving credit facility increasing the limit by 25.0 million euros, with immediately available liquidity of 43.1 million euros as at March 31, 2023, excluding acquisition capacity on the pipeline agreement or alternative promissory note arrangements with CAPREIT.
• Debt metrics are conservative, with an adjusted debt to gross book value ratio at 54.3 per cent, and interest and debt service coverage ratios of 3.5 times and 2.9 times, respectively.
• The REIT's financial position is additionally supported by its well-staggered mortgage profile, with an approximate three-year weighted average term to maturity and a weighted average effective interest rate of 1.77 per cent.

"This past quarter wraps up four solid years of growth and peer-leading operational performance by our European platform, which was commendably achieved despite a challenging backdrop," commented Mark Kenney, chief executive officer. "I am thrilled to now be leading ERES forward, as we continue to build upon its strong track record established to date."

"The tight Dutch market continues to drive robust rent growth in tandem with near-full occupancies, with the majority of our vacancy intentionally offline for value-add improvements," added Jenny Chou, chief financial officer. "Although our financial performance was flatter this quarter as we absorb the higher interest rates we've encountered in the past year, we remain operationally and financially sound. Having fortified our liquidity position this quarter with increased capacity on our credit facility, we are well positioned for the future."

For residential properties, occupied AMR increased by 5.6 per cent, while occupied AMR for the same property portfolio, increased by 5.9 per cent compared with the prior-year period. The increases were mainly driven by increased rents on annual indexation, turnover and 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 per cent to 4 per cent demonstrates its ability to consistently operate in a complex and fluid regulatory regime.

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 in the current period relate to (i) acquisition research costs, (ii) mortgage refinancing costs, and (iii) senior management termination and retirement costs. FFO and AFFO may not, however, be comparable with 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.

A reconciliation of net income (loss) to FFO is as shown in the attached table.

The attached table illustrates a reconciliation of the REIT's FFO and AFFO.

The decrease in FFO and AFFO per unit for the three months ended March 31, 2023, is primarily due to increase 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

NAV represents total unitholders' equity per the REIT's consolidated statements of financial position, 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 a continuing basis. Management believes that this measure reflects the residual value of the REIT to its unitholders on a continuing 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.

A reconciliation of unitholders' equity to net asset value (NAV) is as shown in the attached table.

Distributions

During the three months ended March 31, 2023, the REIT declared monthly distributions of one euro cent per unit (equivalent to 12 euro cents 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 Mr. Kenney, chief executive officer, and Ms. Chou, chief financial officer, will be held on Thursday, May 11, 2023, at 9 a.m. ET. The telephone numbers for the conference call are Canadian toll-free: 833-950-0062/international: 1-929-526-1599. The pass code for the call is 119808.

The call will also be webcast live and accessible through the European Residential website. A replay of the webcast will be available for one year after the webcast.

The slide presentation to accompany management's comments during the conference call will be available on the European Residential an hour and a half prior to the conference call.

About European Residential Real Estate Investment Trust

European Residential is an unincorporated, open-ended real estate investment trust. European Residential's REIT units are listed on the Toronto Stock Exchange under the symbol ERE.UN. European Residential is Canada's only European-focused multiresidential REIT, with a current initial focus on investing in high-quality, multiresidential real estate properties in the Netherlands. As at March 31, 2023, European Residential owns a portfolio of 158 multiresidential properties, comprising approximately 6,900 suites and ancillary retail space located in the Netherlands, and owns one office property in Germany and one office property in Belgium.

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