ERES REIT Provides Business Update Related to COVID-19
The REIT is monitoring closely the evolving impact of the COVID-19 pandemic and continues to prioritize the safety and security of staff and tenants during this challenging time. To this end, additional protective measures have been implemented to ensure their well-being and to safeguard the operations of the REIT against adverse impacts that may materialize going forward. Please refer to the Statement from the Office of the CEO dated March 20, 2020, “Navigating through COVID-19” on the REIT’s website for further details. “ERES came into this crisis with a strong balance sheet, including substantial liquidity and conservative leverage, supported by a seasoned financial management team and a strong partnership with CAPREIT, both of which bring substantial crises experience,” commented Phillip Burns, CEO of ERES. “With the platform provided by CAPREIT, combined with the resources and strategies deployed by the REIT to manage these circumstances, we are confident that we have the flexibility and tools necessary to continue responding quickly and adapting effectively to this fluid situation”.Liquidity UpdateERES has closed on the previously announced €63 million mortgage (the “April Mortgage”). The REIT used the proceeds of the April Mortgage to: (i) fully repay remaining amounts outstanding on its credit facility; and (ii) fully repay its promissory note to CAPREIT. The €34 million remaining was maintained as cash on hand, to be used for general trust purposes and to reinforce the REIT’s strong liquidity position going forward, particularly in the context of the ongoing uncertainty related to the COVID-19 pandemic. As a result, the REIT made available €146 million of liquidity through a combination of €46 million of cash and €100 million of undrawn lines of credit.ERES has a well-staggered mortgage profile with a 5-year weighted average term to maturity. The majority of the REIT’s mortgages are non-amortizing, with no maturities occurring until 2022, further enhancing its strong liquidity position. The REIT’s debt to gross book value increased to approximately 47% following the above.The REIT intends to continue making regular monthly distributions of €0.00875 per Unit (equivalent to €0.105 per Unit annualized), subject to the discretion of the Board of Trustees.Residential PropertiesThe multi-residential real estate sector is considered a highly defensive and counter-cyclical asset class that can withstand broad market swings and, coupled with substantial government measures in the Netherlands implemented to protect enterprises and employees, the REIT is well positioned to withstand the operating environment resulting from the COVID-19 pandemic.Some of the assistance programs enacted by the government in the Netherlands to help individuals and businesses affected by the COVID-19 pandemic include:Businesses expecting a revenue loss of at least 20% for a period of three months can receive a contribution towards wage costs (up to a maximum of 90%);Smaller companies with financing of up to €2.5 million can be granted a six-month extension to paying off their loans with various banks;Government support of companies in international trade with an extension of measures for export credits, meaning that payment risks can be better insured to combat protectionism at the European level;Leniency for businesses with respect to paying pension contributions for their staff; Self employed workers without employees in certain sectors can receive a one-time allowance of up to €4,000 under certain conditions;Self employed workers without employees may also, under certain conditions, request additional income support for maintenance to the social minimum from the municipalitie for 3 months, which does not have to be repaid;For certain temporary residential leases with terms of 2 years or less, the ability to extend the lease term for 1-3 months, without the requirement to provide tenancy protection; andExtension of the previously introduced tax deferral scheme, allowing for extended postponement of tax payments including, but not limited to, income tax, corporate tax, payroll tax and VAT.The above list is not exhaustive and reflects only certain assistance programs currently introduced or provided by the government, with each support package being subject to detailed technical requirements and conditions. As the COVID-19 pandemic and related impact on the global and local economies continues to evolve, the assistance programs offered by the government may be subject to change. With the above assistance programs in place, the REIT believes the government in the Netherlands has taken necessary steps to protect the welfare of its people and, in particular, incomes. In turn, ERES expects these measures to provide some assistance to tenants during these challenging times to maintain their rental payments, even if they have experienced job disruption. The REIT also will continue to work with residents on a case-by-case basis to support those who are facing financial hardships due to the COVID-19 pandemic and has suspended evictions for non-payment (absent behavioural issues).As of April 30, 2020, the REIT has received approximately 100% of residential rental revenue due for the month of April. However, this may not be indicative of the REIT’s rate of rent collection in the upcoming months given the ongoing uncertainty related to the COVID-19 pandemic, including uncertainty surrounding governmental measures taken to mitigate the economic impacts.Residential occupancy has increased from 97.2% at December 31, 2019 to 98.3% at March 31, 2020, and remains high and stable at 98.4% as of April 30, 2020. The REIT also continues positive leasing activity, with turnovers throughout April in line with the REIT’s monthly average for 2020.Finally, for rental increases due to indexation beginning on July 1, 2020, the REIT has finalized tenant notices for 5,352 suites, representing 95% of the portfolio, across which the weighted average rental increase due to indexation is 2.4%, based on the government’s allowed inflation for 2020 regulated unit indexation of 2.6%. This overall indexation increase is lower than management’s intended increase for 2020, but reflects the uncertain environment and potential stresses being experienced by some of our tenants due to the COVID-19 pandemic, and related governmental or similar measures limiting economic activity to essential services and imposing physical distancing restrictions. Additionally, this indexation approach is comparable to indexation increases being implemented by other large property management companies in the Netherlands on July 1, 2020, according to management’s understanding.Commercial PropertiesThe German and Belgian office properties are occupied by a Global 500 utilities company and a federal government tenant, respectively, under long term leases. ERES has not received any indication that either of the two tenants will not be able to pay their rent in the upcoming months, with one of the tenants having already prepaid six months of rent up until July 2020. Overall, ERES is confident the two commercial properties will continue to provide stable and consistent cash flows for the foreseeable future.ERES also owns one multi-residential property in Amsterdam that has a significant retail component located on the first two floors, where the retail portion contributes approximately 3% of the REIT’s total NOI. As of April 30, 2020, seventeen tenants, which represent 72% of the NOI of the retail component of the property, have not been significantly affected by the pandemic as they provide goods and services currently classified as essential, such as pharmaceutical and groceries. For those tenants that are affected (representing approximately 1% of the REIT’s total NOI), the REIT has been working one-on-one with such tenants to create individualized rent deferral programs, where needed.The REIT will continue to work closely with all stakeholders during these unprecedented times. Absent material changes in our business, we do not anticipate providing business updates on a regular basis outside of our normal continuous disclosure. For more information on the REIT’s response to the COVID-19 pandemic and details on the steps taken within the organization to support tenants and staff, please visit the REIT’s website at www.eresreit.com.