Mr. Mark Kenney reports

EUROPEAN RESIDENTIAL REIT REPORTS SECOND QUARTER 2023 RESULTS

European Residential Real Estate Investment Trust has released its results for the three and six months ended June 30, 2023.

ERES's unaudited condensed consolidated interim financial statements and management's discussion and analysis (MD&A) for the three and six months ended June 30, 2023, can be found at the company's website or under ERES's profile on SEDAR+.

Second quarter snapshot

• High residential occupancy held strong at nearly 99 per cent at period end, relatively consistent with the prior-year period;
• Robust rent growth continues with a 6-per-cent increase in occupied average monthly rents (AMR) from the prior-year period on both the total and same property portfolio;
• Same-property net operating income (NOI) margin expands to 79.5 per cent in the second quarter, as compared with 77.1 per cent in the comparable period;
• Secured 76.5 million euros in new mortgage financing and refinancings, bearing a fixed contractual interest rate of 4.7 per cent for a six-year term to maturity.

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.
• On June 16, 2023, the REIT announced that it is working with CBRE, as financial and real estate adviser, to advise it in connection with a strategic review of ERES.
• On June 26, 2023, the REIT secured mortgage financing on its May 2, 2022, acquisition property, combined with refinancing of certain existing properties, in the total principal amount of 76.5 million euros (excluding transaction costs and fees). The new mortgage financing matures on June 26, 2029, and carries a fixed contractual interest rate of 4.66 per cent.

Outperforming operating metrics

• Strong operating results continued into 2023, fuelled by strong rental growth. Same-property portfolio occupied AMR, increased by 6.0 per cent, from 952 euros as at June 30, 2022, to 1,009 euros as at June 30, 2023, demonstrating the REIT's continued achievement of rental growth in excess of its target range.
• Turnover was 6.8 per cent for the six months ended June 30, 2023, with rental uplift on turnover remaining strong at 20.4 per cent, compared with rental uplift of 21.6 per cent on turnover of 5.1 per cent for the six months ended June 30, 2022.
• Occupancy for the residential properties remained high and stable at 98.6 per cent as at June 30, 2023, relatively consistent with occupancy of 98.4 per cent as at June 30, 2022, and at the high end of the REIT's target range. Moreover, 55.1 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 (net operating income) increased by 8.5 per cent for the six months ended June 30, 2023, compared with the six months ended June 30, 2022, 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 4.7 per cent to 4.1 euro cents for the three months ended June 30, 2023, compared with 4.3 euro cents for the three months ended June 30, 2022, 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.
• Adjusted funds from operations (AFFO) per unit increased by 2.7 per cent to 3.8 euro cents for the three months ended June 30, 2023, compared with 3.7 euro cents for the three months ended June 30, 2022.

Strong financial position with ample liquidity

• Over all, liquidity improved from prior year due to the amendment of the revolving credit facility increasing the limit by 25.0 million euros, with immediately available liquidity of 30.4 million euros as at June 30, 2023, excluding the 25.0 million euros accordion feature on the revolving credit facility, acquisition capacity on the pipeline agreement and alternative promissory note arrangements with CAPREIT.
• Debt coverage metrics are robust, with interest and debt service coverage ratios of 3.3 times and 2.7 times, respectively, and adjusted debt to gross book value ratio currently standing at 55.7 per cent.
• The REIT's financial position is additionally supported by its well-staggered mortgage profile, with an approximate 3.5-year weighted average term to maturity and a weighted average effective interest rate of 2.07 per cent.

"ERES again delivered robust operational results in the second quarter of 2023, with near-full occupancies and strong rent growth driving the expansion in our same property NOI margin to 79.5 per cent," commented Mark Kenney, chief executive officer. "Strategically, we remain focused on our commitment to maximizing value for all of ERES's unitholders, and we continue to actively explore every possible avenue to achieve that."

"Our sound financial profile supports this mission, and we have immediately available liquidity of over 30 million euros in cash and capacity on our credit facility, which excludes the additional 25 million euros accessible via accordion feature and 165 million euros through the pipeline agreement or alternative promissory note arrangements with CAPREIT," added Jenny Chou, chief financial officer. "Although we continue to absorb higher interest rates as compared with the prior year, we recorded a diluted FFO per unit of 4.1 euro cents for the second quarter, which is up as compared with the previous quarter."

Occupied AMR increased by 6.0 per cent for both the total multiresidential portfolio and the same property portfolio, compared with the prior-year period. The increases were mainly driven by indexation, turnover and the 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.

Suite turnovers in the residential portfolio during the three and six months ended June 30, 2023, resulted in monthly rent increasing by approximately 19.9 per cent and 20.4 per cent, respectively, compared with 22.4 per cent and 21.6 per cent, respectively, for the same periods last year. Rental uplifts on conversions were 50.8 per cent and 55.0 per cent for the three and six months ended June 30, 2023, respectively, compared with 60.8 per cent and 55.3 per cent for the three and six months ended June 30, 2022, respectively.

Suite renewals

Lease renewals generally occur on July 1 for residential suites. Other than the household income adjustment previously mentioned, for the period July 1, 2023, to June 30, 2024, the indexation of all regulated units is set at wage inflation of 3.1 per cent. Annual rental increases due to indexation for liberalized suites are also capped, as per the previously enacted Dutch government legislation, effective for an initial period of three years from May 1, 2021, up to and including April 30, 2024. For the period from Jan. 1, 2023, to Jan. 1, 2024, the rental cap limits indexation for liberalized suites to the annual wage development figure plus 1.0 per cent, resulting in a maximum indexation of 4.1 per cent based on the annual wage development figure of 3.1 per cent.

Accordingly, for rental increases due to indexation beginning on July 1, 2023, the REIT served tenant notices to 6,659 suites, representing 97 per cent of the residential portfolio, across which the average rental increase due to indexation and household income adjustments is 4.0 per cent. In the prior-year period, the REIT served tenant notices to 6,499 suites, representing 96 per cent of the residential portfolio, across which the average rental increase due to indexation and household income adjustments is 3.0 per cent.

There were no lease renewals in the REIT's commercial portfolio during the six months ended June 30, 2023, and June 30, 2022.

Net asset value

Net asset value (NAV) represents total unitholders' equity per the REIT's consolidated balance sheets, 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. While NAV is calculated based on items included in the consolidated financial statements or supporting notes, NAV itself is not a standardized financial measure under IFRS (international financial reporting standards) and may not be comparable with similarly termed financial measures disclosed by other real estate investment trusts or companies in similar or different industries.

A reconciliation of unitholders' equity to NAV is as shown in the attached table.

Distributions

During the six months ended June 30, 2023, the REIT declared monthly distributions of one euro cent per unit (being 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 Mark Kenney, chief executive officer, and Jenny Chou, chief financial officer, will be held on Thursday, Aug. 3, 2023, at 9 a.m. ET. The telephone numbers for the conference call are North America toll-free: 888-210-3454/international toll: 1-646-960-0130. The conference ID is 3682517.

The call will also be webcast live and accessible through the ERES website - - click on "investor info" and follow the link at the top of the page. A replay of the webcast will be available for one 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

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 June 30, 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.

European Residential's registered and principal business office is located at 11 Church St., suite 401, Toronto, Ont., M5E 1W1.

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