Mr. Phillip Burns reports

ERES REIT ANNOUNCES OFFERING OF APPROXIMATELY C$105MM OF TRUST UNITS AND 105MM EURO NETHERLANDS PROPERTY ACQUISITION

European Residential Real Estate Investment Trust has agreed to sell, subject to regulatory approval, 22,582,000 trust units at a price of $4.65 per unit for gross proceeds of approximately $105-million to a syndicate of underwriters led by RBC Capital Markets on a bought deal basis. European Residential has granted the underwriters an overallotment option, exercisable in whole or in part up to 30 days after closing of the offering, to purchase up to an additional 3,387,300 units to cover overallotments, if any. Closing of the offering is expected on or about Dec. 18, 2019.

European Residential has also agreed to acquire a Netherlands property for approximately 105 million euros (excluding transaction costs and other adjustments) (the Kameleon property), representing approximately 172 million euros of aggregate acquisitions when combined with the approximately 67-million-euro Netherlands portfolio acquisition announced on Oct. 30, 2019 (the Gazelle portfolio). European Residential also agreed on the disposition of one of its legacy commercial properties, located in Dusseldorf, Germany, for approximately 17 million euros of gross proceeds.

Kameleon property acquisition

European Residential has agreed to acquire a 17-storey property, consisting of 222 residential suites, approximately 9,900 square metres of ancillary retail space and 432 indoor parking spaces. The property, which was built in 2012, is located in southeast Amsterdam, in close proximity to the city centre, and has direct access to the city's extensive train network.

The 222 residential suites, which are located on floors four through 17 of the property, are 95 per cent occupied with a weighted-average monthly rent of 1,117 euros per suite, excluding service charges. Approximately 44 per cent of the suites have been recently upgraded, and 98 per cent of the suites are considered liberalized, providing flexibility with respect to rental increases upon annual renewal and turnover. The ancillary retail space, which is located on the first two floors of the property, is 100 per cent leased to 28 tenants with a weighted-average lease term of seven years, anchored by Albert Heijn, the Netherland's largest grocery retailer.

European Residential intends to acquire the Kameleon property for a purchase price (excluding transaction costs and other adjustments) of approximately 105 million euros, representing an estimated forward capitalization rate of approximately 4.0 per cent. The Kameleon property acquisition is expected to close on Dec. 16, 2019, is subject to customary closing conditions, and will be initially financed with: (i) a promissory note issued to CAPREIT in the principal amount of approximately 37 million euros; (ii) a draw on European Residential's existing credit facility of approximately 20 million euros; and (iii) a 50-million-euro draw on a new one-year 50-million-euro credit facility that European Residential has entered into with two Canadian chartered banks, which will become available upon satisfaction of certain customary conditions precedent. The blended interest rate on these sources of short-term debt financing is expected to be approximately 1.2 per cent, based on current market conditions.

Upon closing of the offering, which is expected to occur on about Dec. 18, 2019, European Residential expects to use the approximately 69 million euros of net proceeds from the offering to repay the 50 million euros to be drawn on the new credit facility, and to repay 19 million euros drawn on European Residential's existing credit facility.

By the end of first quarter 2020, European Residential expects to obtain mortgage financing of approximately 63 million euros on the Kameleon property, based on an estimated 60-per-cent loan to value. Any proceeds from the Kameleon mortgage are expected to be used to repay amounts outstanding on European Residential's existing credit facility, to partially repay the amount outstanding on the CAPREIT promissory note and for general trust purposes. The Kameleon mortgage will be split between the retail and residential portion. Based on current market conditions, the retail mortgage is estimated to be approximately 17 million euros, bearing a four-year term with an estimated rate of approximately 1.2 per cent, and the residential mortgage is estimated to be approximately 46 million euros, bearing a seven-year term with an estimated rate of approximately 1.4 per cent.

CAPREIT will manage the residential portion of the Kameleon property. European Residential intends to engage a local arm's-length manager to manage the retail portion of the Kameleon property, at market terms.

Gazelle portfolio acquisition

As announced on Oct. 30, 2019, European Residential acquired a multiresidential portfolio comprising 294 residential suites in nine properties located in five attractive locations in the Netherlands. Occupancy in the Gazelle portfolio, when it was acquired, was approximately 97 per cent, and the weighted-average monthly rent was 937 euros per suite. Approximately 75 per cent of the suites are considered liberalized.

European Residential acquired the Gazelle portfolio for a purchase price (excluding transaction costs) of approximately 67 million euros, representing an estimated forward capitalization rate of approximately 3.9 per cent. European Residential financed the purchase price with: (i) new mortgage financing of approximately 40 million euros (net of financing fees) with a seven-year term; (ii) a 26-million-euro draw on European Residential's existing credit facility; and (iii) cash on hand. The interest rate on the new mortgage is 1.55 per cent.

The offering

Within the next few days, European Residential expects to file with the securities commissions and other similar regulatory authorities, in each of the provinces and territories of Canada, a prospectus supplement to its short-form base-shelf prospectus dated Aug. 19, 2019, relating to the issuance of the trust units. Closing of the offering is subject to customary closing conditions, including listing of the trust units on the TSX Venture Exchange, and any other required approvals, and is expected to occur on or about Dec. 18, 2019.

RBC Capital Markets is acting as the sole bookrunner in connection with the offering, which will be conducted through a syndicate of underwriters. European Residential intends to use the net proceeds from the offering to repay debt to be used to finance the Kameleon property acquisition as described herein. If the overallotment option is exercised by the underwriters, the net proceeds resulting from such exercise will be used to repay indebtedness, to finance future acquisitions and for general trust purposes.

As a part of the offering, CAPREIT has agreed to purchase 5,377,000 of the trust units being offered, representing approximately $25-million. CAPREIT currently holds a 74-per-cent effective interest in European Residential through ownership of trust units and Class B limited partnership units (assuming all the Class B LP units are converted into trust units). After the offering closes, CAPREIT expects its effective ownership interest to be approximately 69 per cent.

Copies of the prospectus supplement, following filing thereof, and accompanying base-shelf prospectus, may be obtained on SEDAR. The base-shelf prospectus contains, and the prospectus supplement will contain, important detailed information about European Residential and the offering. Prospective investors should read the prospectus supplement, accompanying base-shelf prospectus and the other documents European Residential has filed before making an investment decision.

European Residential intends to make monthly cash distributions to unitholders of record on each record date, on or about the 15th day of the month following the record date. European Residential's current monthly cash distribution is 0.00875 euro per unit (0.105 euro annually). The first cash distribution to which purchasers of the trust units under this offering will be entitled to participate will be for the month of December, 2019, with a record date of Dec. 31, 2019, and a payment date of Jan. 15, 2020.

The euro-denominated monthly cash distribution will be paid in Canadian dollars based on the exchange rate on the date of payment. Registered unitholders will be provided with an option to elect to receive such distribution in euros rather than Canadian dollars. If no such election is made, registered unitholders will be paid the distribution in Canadian dollars based on the above exchange rate mechanism. Beneficial unitholders will not have an option to elect to receive the distribution in euros.

Impact of the acquisitions and the offering

The attached table demonstrates the aggregate sources and uses of the Kameleon property acquisition and the Gazelle portfolio acquisition, the Kameleon mortgage, and the offering.

                              USE OF PROCEEDS
Uses                                                  Euros (1)           $ (1)

Gazelle portfolio acquisition (2)                    70M euros           $103M
Kameleon property acquisition (2)                   107M euros           $157M
Total uses                                          177M euros           $259M
Sources
Gazelle mortgage financing (3)                       40M euros            $58M
Equity offering (3, 4)                               69M euros           $101M
Kameleon mortgage financing (3, 5)                   63M euros            $92M
CAPREIT promissory note and cash on hand              6M euros             $9M
Total sources                                       177M euros           $259M

(1) Sources and uses table based on an illustrative foreign exchange rate 
of $1.47 per 1.00 euro. Totals may not add due to rounding. 
(2) Including estimated transaction costs.
(3) Net of estimated financing costs.
(4) Expected proceeds from the offering would be used to repay 50 million 
euros to be drawn on the new credit facility, and 19 million euros drawn 
on the existing credit facility both in connection with the Kameleon 
property, which is expected to close on or about Dec. 16, 2019.   
(5) Expected proceeds from the Kameleon mortgage will be used to repay 35 
million euros of the CAPREIT promissory note to be issued to CAPREIT and 
27 million euros drawn on European Residential's existing credit facility, 
incurred to partially finance the acquisition of the Kameleon property 
and the Gazelle portfolio.

Upon closing of the offering, and after giving effect to the Kameleon property acquisition, the Gazelle portfolio acquisition and European Residential's anticipated use of proceeds from the offering, European Residential's debt to gross book value ratio is expected to be approximately 49 per cent.

The acquisitions have a blended acquisition capitalization rate of approximately 4.0 per cent (excluding transaction costs) and are expected to be accretive to European Residential's forward 12-month adjusted funds from operations (AFFO) per unit due to CAPREIT's strong operating platform and the impact of the associated low-cost mortgage financing.

The offering represents European Residential's second public equity offering in 2019 and increases its public float from approximately $250-million to approximately $330-million.

"ERES is thrilled to announce its second public equity offering and to be adding two high-quality Netherlands multiresidential portfolios on an accretive basis. The properties are located in attractive municipalities in the Netherlands, which are supported by very strong underlying fundamentals. These acquisitions, which enhance the overall quality of ERES's portfolio, will grow ERES's total assets to approximately 1.4 billion euros and 5,632 suites," commented Phillip Burns, chief executive officer of European Residential.

Mark Kenney, president and chief executive officer of CAPREIT, added: "CAPREIT is proud to invest alongside ERES's public unitholders, as ERES capitalizes on its incredible growth prospects. CAPREIT looks forward to continuing to support ERES in the future as a long-term strategic unitholder."

Commercial property disposition

European Residential has entered into an agreement with a third party to dispose of one of its three legacy commercial properties. The office property is located in Dusseldorf, Germany, and will be sold for a gross price of approximately 17 million euros, representing an approximately 4.0-per-cent forward capitalization rate, and a premium to the 15-million-euro international financial reporting standard value recorded on its balance sheet. At closing, the associated seven-million-euro mortgage will be repaid, resulting in net cash proceeds to European Residential of approximately eight million euros, after disposition costs. European Residential expects the transaction to close in first quarter 2020, which is subject to customary closing conditions, including the expiry or waiver of a pre-emption right by the Municipality of Dusseldorf to purchase the office property. European Residential intends to use the net proceeds to reinvest in multiresidential assets. The disposition is consistent with European Residential's intentions to focus on the European multiresidential sector.

About European Residential Real Estate Investment Trust

European Residential is an unincorporated, open-ended real estate investment trust. European Residential is Canada's only European-focused multiresidential REIT, with an initial focus on investing in high-quality multiresidential real estate properties in the Netherlands. European Residential currently owns a portfolio of 131 multiresidential properties, composed of 5,410 suites located in the Netherlands, and owns two office properties in Germany and one office property in Belgium.

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