TORONTO,
March 8, 2013 /CNW/ - H&R Real
Estate Investment Trust ("H&R REIT") and H&R Finance Trust
(collectively, "H&R") (TSX: HR.UN; HR.DB.C; HR.DB.D; HR.DB.E)
announced their financial results for the year ended December 31, 2012.
Operating Highlights
H&R REIT's average remaining term to maturity as at
December 31, 2012 was 12.5 years for
leases and 7.7 years for outstanding mortgages. Occupancy at
December 31, 2012 was 98.7%, down
slightly from 99.1% at December 31,
2011. Leases representing 1.9% of total rentable area
will expire during 2013. As at December 31, 2012, the ratio of H&R's debt to
fair market value was 51.6% compared to 53.6% as at December 31, 2011. H&R's debt excluding
convertible debentures to fair market value ratio was 48.3%
compared to 47.1% as at December 31,
2011.
Capital Transaction Highlights
During the fourth quarter of 2012, H&R REIT:
- completed a public offering of $150.1
million of Stapled Units;
- purchased two grocery anchored retail properties totalling
135,200 square feet in Florida,
United States for an aggregate
purchase price of U.S. $19.7 million,
at a weighted average capitalization rate of 7.2% and a levered
return of 11.2%. H&R REIT assumed a U.S. $6.5 million mortgage bearing interest at 5.75%
per annum for a 9-year term and subsequently closed a U.S.
$5.8 million mortgage bearing
interest at 3.35% per annum for a 6.75-year term.
Property Address |
Anchor |
Square Feet |
Occupancy |
1491-1575 Main St., Dunedin, Florida |
Publix |
74,200 |
87% |
955 State Road 16, St. Augustines, Florida |
Publix |
61,000 |
93% |
Total |
|
135,200 |
|
- acquired a 50% interest in a 84,100 square foot retail property
in Thunder Bay, Ontario for a
purchase price of $1.4 million;
- sold four retail properties in Georgia, United
States for gross proceeds of approximately U.S. $51.4 million; and
- sold an industrial property and a parcel of land held for
development in Ontario for gross
proceeds of $22.7 million.
Development Highlights
H&R REIT has reached practical completion on the construction
of a two million square foot office building in Calgary, Alberta (the "Bow"), which is fully
pre-leased to Encana Corporation for a 25-year term. Floors 3 to 57
were delivered to Encana Corporation in tranches between
May 2, 2012 and February 22, 2013. The 25-year lease term is
expected to commence on March 15,
2013 upon the anticipated delivery of the final two floors
to Encana Corporation. Rent escalations will be at 0.75% per annum
on the office space and 1.5% per annum on the parking income for
the full 25-year term. H&R REIT estimates a further
$48.2 million in costs will be
incurred to complete the project, including capitalized
interest. As at December 31,
2012, the total cost incurred on the project amounted to
$1.67 billion (December 31, 2011 - $1.48
billion). This amount includes the costs for the
construction of 1,358 parking stalls. Encana Corporation is
entitled to a 60-day free rent fixturing period and a rent credit
equal to the delay penalty of approximately $32.5 million. As at December 31, 2012, the unused portion of the rent
credit balance relating to the delay penalty was approximately
$15.2 million. This rent free period,
combined with the interest expense that was no longer capitalized
as tranches of the project became available for their intended use,
resulted in an FFO loss of $1.3
million and an AFFO loss of $31.0
million in 2012 as shown in the table below. The table
below also provides an estimate of FFO and AFFO for the first three
quarters in 2013.
|
Actual |
Estimate(2) |
In Millions |
Q4 2012(1) |
Total 2012 |
Q1 2013 |
Q2 2013 |
Q3 2013 |
Basic rent |
$ - |
$ - |
$2.2 |
$22.4 |
$23.3 |
Straight-lining of contractual rent |
15.4 |
29.7 |
22.6 |
2.7 |
1.9 |
Interest no longer
capitalized(3) |
(14.0) |
(25.1) |
(3.1) |
(4.3) |
(4.3) |
Mortgage interest |
(3.4) |
(5.9) |
(4.4) |
(4.6) |
(4.6) |
Expected Bow impact on
FFO(4) |
(2.0) |
(1.3) |
17.3 |
16.2 |
16.3 |
Expected Bow impact on
AFFO(4) |
(17.4) |
(31.0) |
(5.3) |
13.5 |
14.4 |
(1) |
Results varied from previously reported estimates due to a
delay in the projected completion date. |
(2) |
This information is being provided so that investors are able
to understand the expected impact of the Bow to H&R REIT's
operations. This information may not be appropriate for other
purposes. |
(3) |
The estimates for Q1 and Q2 2013 supersede the estimates
previously provided by H&R since, in particular, the interest
no longer capitalized is now being compared to Q4 2012's
capitalized interest whereas it had previously been compared to
2011's. |
(4) |
H&R's combined Management Discussion and Analysis
("MD&A") includes reconciliations of: net income to FFO; FFO
and AFFO; and AFFO to cash provided by operations. Readers
are encouraged to review such reconciliations in the combined
MD&A. |
Financial Highlights
The following table includes non-Generally Accepted Accounting
Principles ("GAAP") information that should not be construed as an
alternative to comprehensive income (loss) or cash provided by
operations and may not be comparable to similar measures presented
by other issuers as there is no standardized meaning of FFO under
GAAP. Management believes that these are meaningful measures
of operating performance. Readers are encouraged to refer to
H&R's combined MD&A for further discussion of non-GAAP
information presented.
|
3
months ended December 31 |
Year
ended December 31 |
2012 |
2011 |
2012 |
2011 |
Rentals from investment properties (millions) |
$230.5 |
$178.2 |
$835.3 |
$656.9 |
Net income (millions) |
$102.6 |
$24.6 |
$508.9 |
$338.0 |
FFO
(millions)(1)(2) |
$85.2 |
$67.8 |
$329.0 |
$261.5 |
FFO per Stapled Unit
(basic)(2) |
$0.44 |
$0.40 |
$1.74 |
$1.64 |
Cash provided by operations (millions) |
$153.8 |
$104.0 |
$551.4 |
$404.6 |
Cash distributions paid (millions)
(3) |
$46.2 |
$31.7 |
$164.8 |
$119.4 |
Distributions per Stapled Unit |
$0.31 |
$0.26 |
$1.18 |
$0.98 |
(1) |
H&R's combined MD&A includes reconciliations of: net
income to FFO; FFO to AFFO; and AFFO to cash provided by
operations. Readers are encouraged to review such
reconciliations in the combined MD&A. |
(2) |
See below for significant and non-recurring items included in
FFO and FFO per Stapled Unit. |
(3) |
Cash distributions paid exclude distributions reinvested in
units pursuant to H&R's unitholder distribution reinvestment
plan and include distributions paid to the Class B Limited
Partnership unitholders who can exchange their units for Stapled
Units. |
Beginning in Q4 2012, H&R REIT has elected
to record investment properties at fair value. This change in
accounting policy has been adopted on a retrospective basis and the
comparative 2011 results have been restated accordingly. This
change resulted in an increase to unitholder's equity of
$997.9 million as at January 1, 2011. The fair value adjustment
on real estate assets was $30.7
million for the three months ended December 31, 2012 (Q4 2011 - $38.3 million) and $253.1
million for the year ended December
31, 2012 (December 31, 2011 -
$199.9 million). Under
International Financial Reporting Standards at each reporting
period, H&R REIT fair values its convertible debentures and
exchangeable units using closing market prices. This is shown
as a gain (loss) on change in fair value. Also included in
the gain (loss) on change in fair value is the net gain (loss) on
derivative instruments. The total gain (loss) on change in
fair value was $17.7 million for the
three months ended December 31, 2012
(Q4 2011 - ($69.2 million)) and
($7.7 million) for the year ended
December 31, 2012 (December 31, 2011 - ($108.4 million)). Excluding the fair value
adjustment on real estate assets and the gain (loss) on change in
fair value net income would have been $54.2
million for the three months ended December 31, 2012 (Q4 2011 - $55.5 million) and $263.5
million for the year ended December
31, 2012 (December 31, 2011 -
$246.5 million).
Included in FFO are the following items which
can be a source of significant variances between different
periods:
|
3 months ended
December 31 |
Year
ended December 31 |
In millions |
2012 |
2011 |
2012 |
2011 |
Additional recoveries for capital
expenditures |
$5.3 |
$4.4 |
$13.8 |
$7.1 |
Gain (loss) on extinguishment of debt |
(0.1) |
$0.2 |
$10.1 |
$9.3 |
One-time non-recurring items* |
$0.1 |
- |
($1.5) |
$1.9 |
The Bow |
(2.0) |
- |
($1.3) |
- |
|
$3.3 |
$4.6 |
$21.1 |
$18.3 |
* |
One-time non-recurring items may include lease termination
payments, mortgage pre-payment penalties, sundry income, one-time
occupancy and realty tax adjustments and unusual trust
expenses. |
Excluding the above items, FFO would have been
$81.9 million for the three months
ended December 31, 2012 (Q4 2011 -
$63.1 million) and $0.42 per basic Stapled Unit (Q4 2011 -
$0.38 per basic Stapled Unit).
For the year ended December 31, 2012,
FFO would have been $307.9 million
(December 31, 2011 - $243.2 million) and $1.63 per basic Stapled Unit (December 31, 2011 - $1.52 per basic Stapled Unit).
Subsequent to December
31, 2012, H&R REIT:
- sold two industrial properties in Ontario for gross proceeds of approximately
$20.5 million;
- repaid a Canadian mortgage of approximately $69.5 million bearing interest at a rate of 8.16%
and
- entered into an amended and restated arrangement agreement with
Primaris Retail Real Estate Investment Trust ("Primaris") and PRR
Investments Inc. to acquire all the property of Primaris remaining
following the sale by Primaris of 18 properties to a consortium led
by KingSett Capital and to become the sole unitholder of
Primaris. In connection with the transaction, H&R expects
to issue approximately 65.2 million stapled units for delivery to
certain existing Primaris unitholders and H&R REIT expects to
assume certain outstanding convertible debentures of Primaris. It
is expected that H&R REIT will acquire 26 properties from
Primaris with a fair value of $3.1
billion along with assumed indebtedness of approximately
$1.4 billion. The transaction is
subject to approval by the unitholders of H&R REIT, Finance
Trust and Primaris at meetings to be held on March 22, 2013 as well as other customary closing
conditions. Assuming all conditions to closing are satisfied or
waived, closing is expected to occur in early April 2013.
March's Monthly Distributions
Declared
March's declared distribution is scheduled as follows:
|
Distribution/Stapled Unit |
Annualized |
Record date |
Distribution date |
March 2013 |
$0.11250 |
$1.35 |
March 19, 2013 |
April 2, 2013 |
About H&R REIT and H&R Finance
Trust
H&R REIT is an open-ended real estate investment trust, which
owns a North American portfolio of 42 office, 113 industrial and
138 retail properties comprising over 44 million square feet and 2
development projects, with a fair value of approximately
$10 billion. The foundation of
H&R REIT's success since inception in 1996 has been a
disciplined strategy that leads to consistent and profitable
growth. H&R REIT leases its properties long term to
creditworthy tenants and strives to match those leases with
primarily long-term, fixed-rate financing.
H&R Finance Trust is an unincorporated
investment trust, which primarily invests in notes issued by a U.S.
corporation which is a subsidiary of H&R REIT. As at
December 31, 2012, the note
receivable balance is U.S. $162.5
million. In 2008, H&R REIT completed an internal
reorganization which resulted in each issued and outstanding
H&R REIT unit trading together with a unit of H&R Finance
Trust as a "Stapled Unit" on the Toronto Stock Exchange.
Forward-looking Statements
Certain information in this news release contains forward-looking
information within the meaning of applicable securities laws (also
known as forward-looking statements) including, among others,
statements relating to the objectives of H&R REIT and H&R
Finance Trust, strategies to achieve those objectives, H&R's
beliefs, plans, estimates, and intentions, and similar statements
concerning anticipated future events, results, circumstances,
performance or expectations that are not historical facts
including, in particular, the acquisition of Primaris by H&R,
H&R REIT's expectation regarding future developments in
connection with and financial impact of The Bow and the
amount of distributions to unitholders. Forward-looking
statements generally can be identified by words such as "outlook",
"objective", "may", "will", "expect", "intend", "estimate",
"anticipate", "believe", "should", "plans", "project", "budget" or
"continue" or similar expressions suggesting future outcomes or
events. Such forward-looking statements reflect H&R's current
beliefs and are based on information currently available to
management. These statements are not guarantees of future
performance and are based on H&R's estimates and assumptions
that are subject to risk and uncertainties, including those
discussed in H&R's materials filed with the Canadian securities
regulatory authorities from time to time, which could cause the
actual results and performance of H&R to differ materially from
the forward-looking statements contained in this news release.
Those risks and uncertainties include, among other things, the
completion of the acquisition of Primaris, risks related to: prices
and market value of securities of H&R; availability of cash for
distributions; restrictions pursuant to the terms of indebtedness;
liquidity; credit risk and tenant concentration; interest rate and
other debt related risk; tax risk; ability to access capital
markets; dilution; lease rollover risk; construction risks;
currency risk; unitholder liability; co-ownership interest in
properties; competition for real property investments;
environmental matters; reliance on one corporation for management
of substantially all H&R REIT's properties; and changes in
legislation and indebtedness of H&R. Material factors or
assumptions that were applied in drawing a conclusion or making an
estimate set out in the forward-looking statements include that the
general economy is stable; local real estate conditions are stable;
interest rates are relatively stable; and equity and debt markets
continue to provide access to capital. H&R cautions that this
list of factors is not exhaustive. Although the forward-looking
statements contained in this news release are based upon what
H&R believes are reasonable assumptions, there can be no
assurance that actual results will be consistent with these
forward-looking statements. All forward-looking statements in this
news release are qualified by these cautionary statements. These
forward-looking statements are made as of today, and H&R,
except as required by applicable law, assumes no obligation to
update or revise them to reflect new information or the occurrence
of future events or circumstances.
SOURCE H&R Real Estate Investment Trust