European Residential Real Estate Investment Trust (ERE-UN.TO) Earnings Call Transcript & Summary

Hello, and welcome to the European Residential REIT Second Quarter 2025 Results Conference Call. My name is Alex. I'll be coordinating today's call. [Operator Instructions] I'll now hand it over to Nicole Dolan, Investor Relations, to begin. Please go ahead.

Thank you, operator, and good morning, everyone. Before we begin, let me remind everyone that during our conference call this morning, we may include forward-looking statements about expected future events and the financial and operating results of ERES, which are subject to certain risks and uncertainties. We direct your attention to Slide 2 and our other regulatory filings for important information about these statements. I will now turn the call over to Mark Kenney, Chief Executive Officer.

Thanks, Nicole, and good morning, everyone. Joining me this morning is Jenny Chou, our Chief Financial Officer. Let's get started with an update on the year so far, as highlighted on Slide 4. In 2025, we've completed the sale of an aggregate 417 residential suites and 1 commercial property for combined gross proceeds of EUR 115 million, and we've committed to an additional EUR 366 million in dispositions expected to close later in the third quarter. We've been using part of the net proceeds to repay debt and have maintained a low adjusted debt to gross book value ratio of 35.8% as of June 30, 2025. We've also using net proceeds to return capital to investors, and we've announced an anticipated special cash distribution of an estimated EUR 0.90 per unit payable in September 2025, subject to the completion of certain pending dispositions. Operationally, we continue to realize robust rent growth with our same-property occupied AMR increasing by 6.8% to EUR 1,303 on June 30, 2025. Despite that, our same-property NOI margin was down to 73.9% for the 6 months ended June 30, 2025, which Jenny will speak to shortly. Turning to Slide 5. You will note a further decrease in our occupancies to 91% on the total residential portfolio as of period end. This continues to be driven by our disposition strategy as we're intentionally maintaining elevated vacancy levels at certain buildings. With that introduction, I will now turn the call over to Jenny to walk through our financial performance in greater detail.

Thanks, Mark. Slide 7 provides some key performance metrics for the second quarter of 2025. Due to elevated vacancies, our same-property operating revenues were down by 3.9% and combined with an increase in repairs and maintenance costs, the REIT's same-property NOI margin was down to 73.6% for the quarter. Our diluted FFO per unit was EUR 0.02 for the 3 months ended June 30, 2025. This is down from the EUR 0.039 per unit for the comparable period due to all the property sales that have been completed since that time. However, it is up from the EUR .018 per unit earned in the first quarter of 2025, which is mainly the result of lower interest costs. We've highlighted our financial position and liquidity on Slide 8. As mentioned, we've repaid a significant amount of debt using proceeds from our dispositions, and our leverage was lowered to 36% as of current period end, down significantly from 57% as of June 30, 2024. Available liquidity was also down this quarter to EUR 23 million as we reduced our borrowing capacity on the revolving credit facility to better align it with ERES' current strategy and to save on standby fees. On Slide 9, you'll see that we only have EUR 7 million in mortgages maturing over the remainder of 2025 and no maturities in 2026. This provides us with the financial flexibility that we need to achieve our strategic objectives. On that note, I will hand the call back to Mark.

Thanks, Jenny. This past quarter, we announced the launch of a sale process for all or a portion of the REIT's remaining portfolio in order to surface its residual value and distribute the proceeds to unitholders, net of taxes, wind-up costs and other transaction fees and expenses, which could be significant. This process is underway, and ERES is continuing to work with its financial and real estate advisers to meet the objective of returning maximum value to its investors. We caution all unitholders that there can be no assurance that the process will result in the successful completion of the sale of any portion of the remaining portfolio or that any such sales will be completed at or above reported IFRS fair value. In addition, given that the REIT has completed or committed to the disposition of approximately 2/3 of its portfolio since the start of the year, along with the ongoing sale process for the balance of the portfolio, we have announced an intention to cease ERES's regular monthly distributions, subject to the closing of certain pending dispositions. We're planning to make this decision in line with our commitment to maximize return for unitholders with a view to executing on this objective through our value surfacing liquidation strategy, combined with prudent financial management. We will announce a further update on our progress once available. And until then, I would like to thank all unitholders for their ongoing support. With that, we would now be pleased to take any questions you may have.

Our first question for today comes from Alexander Leon of Desjardins.

I'd like to just start with the process for the remaining portfolio. I'm wondering if you're able to provide any color on any expectation for potential timing? And then maybe as a part 2 of that question, how interest has been for what's left?

Yes. As I've said before, we're working through this process in Q3. Like I said in the presentation, there really can't be any assurance of the expected outcome. What we have described is a process that we will look at all type of proposals, whether it be for entity part of or individual assets. And there's varied interest for each one of those categories as best I can describe it. But it's really too early to say in terms of what we think the outcome will be as we work through the process.

Okay. And then maybe just a follow-on. Has the interest that you're seeing now, is that any different than maybe what you were seeing when you started this process a few months ago?

No, I would say the temperature of interest is the same. It's clearly -- there are different parts of the market. When it comes to selling assets, there's a clear market for that. when it comes to selling groups of assets or the bigger the deal, I'm going to say, the more complicated the market can become. And -- but no real change at all in terms of the interest in the real estate.