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European Residential REIT (ERES.UN-T) has closed on the sales of 530 rental apartments and an office property in the Netherlands for approximately $173 million (all figures Canadian unless otherwise noted) as management follows through on a pledge to lower debt levels.
ERES CEO Mark Kenney told RENX the Toronto-based REIT began looking at ways to lower its leverage following a strategic review initiated in 2023. Proceeds from these sales will be used to pay down the REIT’s most expensive debt, its revolving credit facility.
“ERES unitholders have a strong commitment from me to execute on surfacing value at NAV or above,” Kenney said. “Following on the strategic review I have taken that mission very seriously and will not, if it is within my capabilities, will not fail ERES unitholders.”
Kenney said he could not comment on the buyer, but RENX has confirmed entities of Rubens Capital Partners, an Amsterdam-based investment firm, are making the acquisitions.
Proceeds to pay mortgages, other debt
The sales are broken into three transactions, and in each case a portion or all of the proceeds will also be used to pay existing mortgages on the properties. Kenney said all the properties were sold above current IFRS values.
The residential dispositions comprise $171.3 million of the total, with approximately $69.8 million of that being used to repay mortgage principal.
The office transaction involves a building which is integrated into one of the residential properties. The entire $1.64 million from that transaction will be used to pay down an existing mortgage.
The announcement of the transactions came just hours after ERES major investor and manager CAPREIT also announced a sale, as it will divest its 75 Canadian manufactured homes communities to U.S.-based investor TPG for $740 million.
Kenney, who acts as CEO of both REITs in the wake of last year’s strategic review of ERES, said the timing of the two announcements was not intentional.
“Deals take time,” he said, noting both transactions had been in the pipeline for some time. “It would be coincidental, but again, it’s a de-levering.
“This one (ERES) is more clear, it is on the de-levering front, not on the acquisition front. I am living up to my promise of delivering value to ERES unitholders through any means possible. Achieving above-IFRS value proves out how discounted ERES truly is.”
ERES and CAPREIT financial situations
The divestment by CAPREIT is intended to not only lower its revolving credit facility debt, but also to inject additional liquidity into the trust for pending acquisitions, and to bolster the trust’s share buyback program.
CAPREIT had a debt-to-gross-book-value ratio of 48.1 per cent in its Q1 2024 financial report, while ERES had an adjusted debt ratio of 57.3 per cent at the end of Q1.
ERES portfolio at the end of Q1 included 160 properties totalling 6,862 housing units in Germany, Belgium and the Netherlands. Two commercial properties were included in the total. It was valued at approximately $2.49 billion.
“We’ve also been surfacing capital through our suite-by-suite privatization program, as we’ve completed the sale of an additional 53 individual suites during the second quarter of 2024, which generated €14.2 million (C$21.26 million) in incremental gross proceeds,” Jenny Chou, the chief financial officer of ERES, said in the announcement. “We’re pleased to be executing on our commitment to maximize unitholder value through all possible means, and we remain focused on this mission going forward.”
Kenney also noted that as the operator of ERES REIT, lowering its debt level also reflects on CAPREIT’s finances.
“The de-levering exercise at ERES helps the overall debt levels at CAPREIT. So we are pushing our leverage down at a time when debt is expensive.”
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