Press Release

ERES REIT Announces Offering of Approximately C$145MM of Trust Units and €227MM Netherlands Multi-residential Portfolio Acquisition

Company Release - 9/16/2019 3:03 PM ET

/NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES/

TORONTO, Sept. 16, 2019 /CNW/ - European Residential Real Estate Investment Trust (TSX-V:ERE.UN, "ERES") announced today that it is undertaking an overnight marketed underwritten public equity offering (the "Offering"), in which it intends to sell approximately C$145MM of trust units under its short form base shelf prospectus dated August 19, 2019 (the "Base Shelf Prospectus").  RBC Capital Markets and Scotiabank are acting as joint bookrunners in connection with the Offering, which will be conducted through a syndicate of underwriters.  ERES also announced the acquisition of a Netherlands multi-residential portfolio for approximately €164 million (the "Eagle Portfolio"), representing approximately €227 million of aggregate acquisitions when combined with the approximately €63 million Netherlands multi-residential portfolio acquisition announced on September 16, 2019 (the "Additional Portfolio").

Eagle Portfolio Acquisition

ERES has agreed to acquire 942 residential suites in 18 properties located in seven urban centres in the Netherlands.  The Eagle Portfolio is being purchased from Canadian Apartment Properties Real Estate Investment Trust ("CAPREIT") (TSX:CAR.UN), pursuant to the previously announced pipeline agreement dated March 29, 2019 between ERES and CAPREIT Limited Partnership.  The Eagle Portfolio is 97% occupied with a weighted average monthly rent of €763 per suite. 

Approximately 37% of the Eagle Portfolio's suites are considered liberalized, such that they are not subject to Dutch rent control regulations. Of the suites that are not liberalized, ERES believes that the majority can be liberalized upon tenant turnover, which should provide considerable potential upside benefit, supporting ERES' rent maximization strategy.  Upon liberalization, suites are no longer subject to Dutch rent control regulations, providing greater flexibility with respect to rental increases upon annual renewal and upon turnover.

ERES intends to acquire the Eagle Portfolio for a purchase price (excluding transaction costs, of which a portion is reimbursable to CAPREIT) of approximately €164 million, representing an estimated forward capitalization rate of approximately 4.1%.  ERES intends to finance the purchase price with (i) a promissory note issued to CAPREIT in the principal amount of approximately €99 million, which ERES intends to replace with mortgage financing in the short-term, (ii) the issuance of approximately C$5 million of class B limited partnership units of ERES Limited Partnership ("Class B LP Units") which are exchangeable for trust units of ERES, at a price per Class B LP Unit equal to the weighted average trading price of the trust units on the TSX Venture Exchange (the "TSX-V") for the five trading days immediately preceding the closing of the Eagle Portfolio, subject to TSX-V approval, (iii) proceeds from the Offering, and (iv) a draw on ERES' existing credit facility, if needed.  The promissory note will bear interest at approximately 1.4% for a term of six months, and can be repaid at any time by ERES without penalty.

Closing of the acquisition of the Eagle Portfolio is expected to occur on September 30, 2019. The timing of the anticipated closing of the acquisition of the Eagle Portfolio is contingent on the closing of the Offering. If the Offering does not close, then the closing of the Eagle Acquisition may be delayed subject to ERES obtaining alternative sources of funding.

Additional Portfolio Acquisition

As previously announced, ERES has agreed to acquire from an arm's-length institutional owner based in the Netherlands a multi-residential portfolio comprised of 315 residential suites in 16 properties located in eight municipalities in the Netherlands.  The Additional Portfolio is 91% occupied with a weighted average monthly rent of €904 per suite.  Approximately 81% of the suites are considered liberalized.

ERES intends to acquire the Additional Portfolio for a purchase price (excluding transaction costs) of approximately €63 million, representing an estimated forward capitalization rate of approximately 4.2%.  ERES intends to finance the purchase price with (i) new mortgage financing of approximately €54 million (excluding financing fees), (ii) proceeds from the Offering, and (iii) a draw on ERES' existing credit facility, if needed.  Based on a seven-year term, and current pricing, the interest rate on the new mortgage financing would be approximately 1.45%.  The actual term and interest rate on the new mortgages will be determined prior to closing.

Closing of the acquisition of the Additional Portfolio is not conditional on completion of the Offering.  Should the Offering not occur, the Additional Portfolio will be financed using new mortgage financing and a draw on ERES' existing credit facility, if needed.  Closing is expected to occur by September 30, 2019.

The Offering

ERES today will file a preliminary prospectus supplement to its Base Shelf Prospectus in connection with its intention to offer approximately C$145 million of trust units through an overnight marketed underwritten equity offering. The Offering will be priced in the context of the market with the number and pricing of the trust units to be determined at the time of pricing, and there can be no assurance as to whether or when the Offering will be completed, or as to the actual size or terms of the Offering.

RBC Capital Markets and Scotiabank are acting as joint bookrunners in connection with the Offering, which will be conducted through a syndicate of underwriters.  ERES expects to grant the underwriters an over-allotment option, exercisable in whole or in part up to 30 days after closing of the Offering, to purchase up to an additional 15% of the numbers of trust units sold in the Offering, on the same terms and conditions.

As a part of the Offering, CAPREIT has agreed to purchase approximately C$20 million of the trust units being offered at the offering price.  CAPREIT currently holds an 89% effective interest in ERES through ownership of trust units and Class B LP Units.  Assuming C$145 million is successfully raised, CAPREIT expects its ownership interest to be approximately 76% upon completion of the Offering.

ERES intends to use the net proceeds from the Offering to partially finance the acquisition of the Eagle Portfolio and the Additional Portfolio (the "Acquisitions"), and to partially repay the approximately €22.5 million outstanding balance on ERES' existing credit facility, if there are excess proceeds.  If the Offering results in insufficient proceeds being raised to fund the Acquisitions, ERES will draw on its existing credit facility for any additional required funds.  Should the Offering generate less than C$80 million of demand, the Eagle Portfolio acquisition will be postponed and the Additional Portfolio will be funded using mortgage financing and a draw on ERES' existing credit facility, if needed.

The trust units will be offered in each of the provinces and territories of Canada pursuant to a final prospectus supplement to the Base Shelf Prospectus, and may also be offered by way of private placement in the United States to "qualified institutional buyers". The terms of the Offering will be described in the final prospectus supplement.

Copies of the preliminary and final prospectus supplement, following filing thereof, and accompanying Base Shelf Prospectus may be obtained on SEDAR at www.sedar.com. The Base Shelf Prospectus contains, and the preliminary and final prospectus supplement will contain, important detailed information about ERES and the Offering. Prospective investors should read the final prospectus supplement and accompanying Base Shelf Prospectus and the other documents ERES has filed before making an investment decision.

Closing of the Offering is subject to customary closing conditions, including listing of the trust units on the TSX-V, and any other required approvals.  Closing of the Offering is expected to occur by September 24, 2019.

Impact of the Acquisitions and the Offering

The following table demonstrates the sources and uses of the Acquisitions and the Offering (assuming that C$145 million is successfully raised):

USES

(1)

$C(1)

Eagle Portfolio Acquisition(2)

€171MM

C$250MM

Additional Portfolio Acquisition(2)

€65MM

C$95MM

Credit Facility Repayment

€13MM

C$20MM

TOTAL USES                

€249MM

C$365MM

SOURCES



Eagle Portfolio Promissory Note(3)

€98MM

C$144MM

Additional Portfolio New Mortgage Financing(3)  

€54MM

C$79MM

Equity Offering(3)

€94MM

C$138MM

Class B LP Units Issued to CAPREIT for the Eagle Portfolio

€3MM

C$5MM

TOTAL SOURCES

€249MM

C$365MM

1. Sources and Uses Table based on an illustrative foreign exchange rate of C$1.47 per €1.00.

2. Including estimated transaction costs.

3. Net of estimated financing costs.

 

Upon closing of the Acquisitions and the Offering (assuming C$145 million is raised), the REIT's Debt to Gross Book Value ratio is expected to be approximately 49%.  The Acquisitions, which are being acquired at a blended capitalization rate of approximately 4.1% (excluding transaction costs), are expected to be accretive to the REIT's forward 12-month adjusted funds from operations ("AFFO") per unit due to CAPREIT's strong operating platform and the impact of the low-cost mortgage financing being raised. 

A C$145 million equity offering, in which C$125 million is raised from the public, would significantly increase ERES' public float from approximately C$70 million to C$200 million and would also result in CAPREIT's ownership decreasing from approximately 89% to approximately 76%.

"ERES is very excited to announce its inaugural public equity offering, which will be used to fund the accretive acquisitions of two high-quality Netherlands multi-residential portfolios that are highly complementary to ERES' existing portfolio.  Once the Acquisitions are completed, ERES' total assets will grow to approximately €1.2 billion and the total suite count will increase to 5,116 suites," commented Phillip Burns, CEO of ERES.  "The Offering is expected to almost triple ERES' public float, significantly enhancing the trading liquidity."

Mark Kenney, President and CEO of CAPREIT, added, "CAPREIT remains fully committed to its investment in ERES, which we intend to hold for the long-term.  This transaction also highlights the strong value of the pipeline agreement between ERES and CAPREIT, while providing public unitholders with a meaningful ability to participate alongside CAPREIT in this attractive investment opportunity."

ERES 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. ERES' current monthly cash distribution is €0.00875 per unit (€0.105 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 September 2019, with a record date of September 30, 2019 and a payment date of October 15, 2019.

The Euro-denominated 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.

an offer to sell, or the solicitation of an offer to buy, any securities of ERES in any jurisdiction in which such offer, solicitation or sale would be unlawful. The securities being offered have not been and will not be registered under the U.S. Securities Act of 1933 as amended and may not be offered or sold in the United States absent registration or pursuant to applicable exemption from registration.

ABOUT ERES
ERES is an unincorporated, open-ended real estate investment trust. ERES' Units are listed on the TSX-V under the symbol ERE.UN. ERES is Canada's only European-focused multi-residential REIT, with an initial focus on investing in high-quality multi-residential real estate properties in the Netherlands. ERES currently owns a portfolio of 88 multi-residential properties, comprised of 3,859 suites located in the Netherlands, and owns two office properties in Germany and one office property in Belgium.

ERES's registered and principal business office is located at 11 Church Street, Suite 401, Toronto, Ontario M5E 1W1.

For more information, please visit our website at www.eresreit.com.

ABOUT CAPREIT
As one of Canada's largest residential landlords, CAPREIT is a growth-oriented investment trust managing 62,645 suites and sites across Canada, the Netherlands and Ireland. It owns 59,023 residential units, comprising of 47,346 residential suites and 72 manufactured home communities comprising 11,677 land leases sites located in and near major urban centres across Canada and The Netherlands. For more information about CAPREIT, its business and its investment highlights, please refer to our website at www.caprent.com or www.capreit.net and our public disclosure which can be found under our profile at www.sedar.com.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this press release constitute forward-looking statements within the meaning of applicable Canadian securities laws which reflect ERES' 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", "forward", "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, ERES 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 ERES'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.

Completion of the Acquisitions and the Offering is subject to a number of conditions, including but not limited to, acceptance by TSX Venture Exchange Inc. There can be no assurance that the Acquisitions or the Offering will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the final prospectus supplement or the Base Shelf Supplement, any information released or received with respect to the Acquisitions or the Offering may not be accurate or complete and should not be relied upon.

Neither the TSX-V nor its Regulation Services Provider (as that term is defined in the policies of the TSX-V) have in no way passed upon the merits of the Acquisitions or the Offering and have neither approved nor disapproved the contents of this news release.

SOURCE European Residential Real Estate Investment Trust

ERES, Mr. Phillip Burns, Chief Executive Officer, (416) 354-0167, p.burns@eresreit.com; ERES, Mr. Scott Cryer, Chief Financial Officer, (416) 861-5771, s.cryer@eresreit.com; CAPREIT, Mr. Mark Kenney, President & CEO, (416) 861-9404, m.kenney@capreit.net

Contact Us

11 Church Street, Suite 401
Toronto, Ontario, Canada
M5E 1W1

Phillip Burns
Chief Executive Officer
p.burns@eresreit.com
+1 416 354 0167

Scott Cryer
Chief Financial Officer
s.cryer@eresreit.com
+1 416 861 5771