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ERES REIT announces offering of approximately C$105MM of trust units and €105MM Netherlands property acquisition

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

TORONTO , Dec. 9, 2019 /CNW/ - European Residential Real Estate Investment Trust (TSX-V:ERE.UN, "ERES") announced today that it 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 C$105 million (the "Offering") to a syndicate of underwriters led by RBC Capital Markets on a bought-deal basis.  ERES has granted 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 3,387,300 units to cover over-allotments, if any.  Closing of the Offering is expected on or about December 18, 2019 .

ERES has also agreed to acquire a Netherlands property for approximately €105 million (excluding transaction costs and other adjustments) (the "Kameleon Property"), representing approximately €172 million of aggregate acquisitions when combined with the approximately €67 million Netherlands portfolio acquisition announced on October 30, 2019 (the "Gazelle Portfolio").  ERES also agreed on the disposition of one of its legacy commercial properties, located in Düsseldorf, Germany , for approximately €17 million of gross proceeds (the "Commercial Property Disposition").

Kameleon Property Acquisition

ERES has agreed to acquire a 17-storey property, consisting of 222 residential suites, approximately 9,900 square meters of ancillary retail space and 432 indoor parking spaces (the "Kameleon Property Acquisition").  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 4 through 17 of the property, are 95% occupied with a weighted average monthly rent of €1,117 per suite, excluding service charges.  Approximately 44% of the suites have been recently upgraded, and 98% 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 2 floors of the property, is 100% leased to 28 tenants with a weighted average lease term of 7 years, anchored by Albert Heijn , the Netherland's largest grocery retailer.

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

Upon closing of the Offering, which is expected to occur on about December 18, 2019 , ERES expects to use the approximately €69 million of net proceeds from the Offering to repay the €50 million to be drawn on the New Credit Facility, and to repay €19 million drawn on ERES' existing credit facility.

By the end of Q1-2020, ERES expects to obtain mortgage financing of approximately €63 million on the Kameleon Property, based on an estimated 60% loan-to-value (the "Kameleon Mortgage").  Any proceeds from the Kameleon Mortgage are expected to be used to repay amounts outstanding on ERES' 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, bearing a four-year term with an estimated rate of approximately 1.2%, and the residential mortgage is estimated to be approximately €46 million, bearing a seven-year term with an estimated rate of approximately 1.4%.

CAPREIT will manage the residential portion of the Kameleon Property.  ERES intends to engage a local arms-length manager to manage the retail portion of the Kameleon Property, at market terms.

Gazelle Portfolio Acquisition

As announced on October 30, 2019 , ERES acquired a multi-residential portfolio comprising 294 residential suites in 9 properties located in five attractive locations in the Netherlands.  Occupancy in the Gazelle Portfolio, when it was acquired, was approximately 97% and the weighted average monthly rent was €937 per suite.  Approximately 75% of the suites are considered liberalized.

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

The Offering

Within the next few days, ERES 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 August 19, 2019 (the "Base Shelf Prospectus") 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-V, and any other required approvals, and is expected to occur on or about December 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.  ERES intends to use the net proceeds from the Offering to repay debt to be used to finance the Kameleon Property Acquisition as described above.  If the over-allotment option is exercised by the underwriters, the net proceeds resulting from such exercise will be used to repay indebtedness, fund 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 C$25 million .  CAPREIT currently holds a 74% effective interest in ERES through ownership of trust units and Class B LP 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%.

Copies of the 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 prospectus supplement will contain, important detailed information about ERES and the Offering. Prospective investors should read the prospectus supplement and accompanying Base Shelf Prospectus and the other documents ERES has filed before making an investment decision.

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 December 2019 , with a record date of December 31, 2019 and a payment date of January 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 following table demonstrates the aggregate sources and uses of the Kameleon Property Acquisition and the Gazelle Portfolio acquisition (the "Acquisitions"), the Kameleon Mortgage and the Offering:

USES

(1)

C$(1)

Gazelle Portfolio Acquisition(2)

€70MM

C$103MM

Kameleon Property Acquisition(2)

€107MM

C$157MM

TOTAL USES                

€177MM

C$259MM

SOURCES



Gazelle Mortgage Financing(3) 

€40MM

C$58MM

Equity Offering(3,4)

€69MM

C$101MM

Kameleon Mortgage Financing(3,5) 

€63MM

C$92MM

CAPREIT Promissory Note & Cash on Hand

€6MM

C$9MM

TOTAL SOURCES

€177MM

C$259MM

1.

Sources and Uses Table based on an illustrative foreign exchange rate of C$1.47 per €1.00.  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 to be drawn on the New Credit Facility, and €19 million drawn on the existing credit facility both in connection with the Kameleon Property, which is expected to close on or about December 16, 2019.

5.

Expected proceeds from the Kameleon Mortgage will be used to repay €35 million of the CAPREIT Promissory Note to be issued to CAPREIT and €27 million drawn on ERES' 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 ERES' anticipated use of proceeds from the Offering, ERES' Debt to Gross Book Value ratio is expected to be approximately 49%.

The Acquisitions have a blended acquisition capitalization rate of approximately 4.0% (excluding transaction costs) and are expected to be accretive to ERES' 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 ERES' second public equity offering in 2019, and increases its public float from approximately C$250 million to approximately C$330 million .

"ERES is thrilled to announce its second public equity offering and to be adding two high-quality Netherlands multi-residential 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' portfolio, will grow ERES' total assets to approximately €1.4 billion and 5,632 suites," commented Phillip Burns , CEO of ERES.

Mark Kenney , President and CEO of CAPREIT, added, "CAPREIT is proud to invest alongside ERES' 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

ERES 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 Düsseldorf, Germany , and will be sold for a gross price of approximately €17 million, representing an approximately 4.0% forward capitalization rate, and a premium to the €15 million IFRS value recorded on its balance sheet.  At closing, the associated €7 million mortgage will be repaid, resulting in net cash proceeds to ERES of approximately €8 million, after disposition costs.  ERES expects the transaction to close in Q1-2020, which is subject to customary closing conditions, including the expiry or waiver of a pre-emption right by the municipality of Düsseldorf to purchase the office property. ERES intends to use the net proceeds to reinvest in multi-residential assets. The disposition is consistent with ERES' intentions to focus on the European multi-residential sector.

This press release shall not constitute 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 131 multi-residential properties, comprised of 5,410 suites located in the Netherlands , and owns two office properties in Germany and one office property in Belgium .

ERES' 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

CAPREIT is a growth-oriented investment trust managing 64,028 suites and sites across Canada , the Netherlands and Ireland . It owns interests directly in Canada and indirectly in the Netherlands through its investment in ERES a total of 60,362 residential units, comprising 48,687 residential suites and 72 manufactured home communities comprising 11,675 sites, all located in and near major urban centres. 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, including but not limited to: the completion of the Kameleon Property Acquisition on the terms described herein, the completion of the Commercial Property Disposition on the terms described herein, the anticipated closing date of the Kameleon Property Acquisition, the anticipated closing date of the Commercial Property Disposition, the provision of the Kameleon Mortgage on the terms and within the time frame described herein, the use of funds acquired from the Kameleon Mortgage, the management of the Kameleon Property by CAPREIT if the Kameleon Property is acquired by ERES as described herein, the filing of the prospectus supplement relating to the issuance of the units within the time frame described herein, the intended use of the proceeds from the Offering by ERES, including proceeds acquired from exercise of the over-allotment option, the purchase of 5,377,000 trust units by CAPREIT pursuant to the Offering and its effective ownership interest upon closing of the Offering, ERES' approximate Debt to Gross Book Value upon closing of the Offering and the Kameleon Property Acquisition, and the accretive impact of the Acquisitions to ERES' forward 12-month AFFO per unit. 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' 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 Offering, the Kameleon Property Acquisition, the Commercial Property Disposition, and the provision of Kameleon Mortgage, are subject to a number of conditions. There can be no assurance that the Offering, the Kameleon Property Acquisition, the Commercial Property Disposition, or the provision the Kameleon Mortgage, will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the prospectus supplement or the Base Shelf Prospectus, any information released or received with respect to the Offering, the Acquisitions, the Commercial Property Disposition, and the provision of the Kameleon Mortgage, 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


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