TORONTO,
May 13, 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,
HR.DB.F and HR.DB.H) announced their financial results for the
three months ended March 31,
2013.
Operating Highlights
H&R REIT's average remaining term to maturity as at
March 31, 2013 was 11.9 years for
leases and 7.5 years for outstanding mortgages. Occupancy at
March 31, 2013 was 99.0%, down
slightly from 99.1% at March 31,
2012. Leases representing 1.7% of total rentable area
will expire during 2013. As at March
31, 2013, the ratio of H&R's debt to fair market value
of assets was 49.5% compared to 50.3% as at December 31, 2012. H&R's debt excluding
convertible debentures to fair market value of assets ratio was
46.0% compared to 46.9% as at December 31,
2012.
Capital Transaction Highlights
During the first quarter of 2013, H&R REIT sold three Canadian
industrial properties and one Canadian office property totalling
427,029 square feet for gross proceeds of approximately
$37.5 million; and repaid one
Canadian mortgage totalling $69.5
million bearing interest at a rate of 8.16%.
Development Highlights
H&R REIT's new 58-storey, downtown office complex in
Calgary's financial district (The
"Bow") has recently been recognized as one of the world's most
spectacular corporate buildings. Germany-based Emporis, with its
internationally renowned database of building and construction
project information, formed a jury of building experts to select
the world's most dazzling buildings in terms of innovative design,
visual impact and function of significant corporate architecture.
Among the 16 buildings selected, The Bow is the most recently built
and the only Canadian property. The Bow is a
two-million-square-foot, Class AAA skyscraper with a unique, energy
efficient, bow-shaped building footprint, and three "Sky Garden"
common areas with trees. The Emporis Skyscraper Award is the
world's most renowned prize for high-rise architecture.
On March 15, 2013,
the final floors of The Bow were delivered to Encana Corporation
and its 25-year lease term will mature on May 14, 2038. 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 $36.0 million in costs will
be incurred to complete this project. As at March 31, 2013, the total cost incurred on the
project, including the South Block, amounted to $1.68 billion (December
31, 2012 - $1.67 billion)
which includes the costs for the construction of 1,358 underground
parking stalls. Encana Corporation was entitled to a 60-day
free rent fixturing period and a rent credit equal to the delay
penalty of approximately $32.0
million. As at March 31,
2013, this rent credit has been fully utilized by the
tenant. This rent free period, combined with the interest expense
that was capitalized, resulted in an AFFO loss of $1.7 million in Q1 2013 as shown in the table
below. The table below also provides an estimate of FFO and
AFFO for the next two quarters in 2013.
|
Actual |
Estimate
(2)(3) |
In Millions |
Q1 2013 |
Q2 2013 |
Q3 2013 |
Basic rent |
$2.2 |
$21.9 |
$23.3 |
Straight-lining of contractual
rent |
20.6 |
3.0 |
1.9 |
Interest capitalized |
0.5 |
- |
- |
Mortgage interest |
(4.4) |
(4.6) |
(4.6) |
Expected Bow impact on
FFO(1) |
18.9 |
20.3 |
20.6 |
Expected Bow impact on
AFFO(1) |
(1.7) |
17.3 |
18.7 |
(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) |
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 Q2 2013 and Q3 2013
supersede the estimates previously provided by H&R REIT. |
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 March 31 |
2013 |
2012 |
Rentals from investment properties (millions) |
$222.6 |
$183.0 |
Net income (millions) |
$132.1 |
$199.3 |
FFO (millions)(1)(2) |
$90.0 |
$72.4 |
FFO per Stapled Unit (basic)(2) |
$0.45 |
$0.40 |
Cash provided by operations (millions) |
$137.1 |
$140.7 |
Distributions (millions) (3) |
$49.2 |
$35.1 |
Distributions per Stapled Unit |
$0.34 |
$0.27 |
(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 exclude
distributions reinvested in units pursuant to H&R's unitholder
distribution reinvestment plan. |
Included in net income is the fair value adjustment on real estate
assets which could be subject to large fluctuations. The fair
value adjustment on real estate assets was $38.6 million for the three months ended
March 31, 2013 (Q1 2012 -
$127.0 million).
Included in FFO are the following items which
can be a source of significant variances between different
periods:
|
3 months ended March
31 |
In millions |
2013 |
2012 |
Additional recoveries for capital
expenditures |
$2.1 |
$1.0 |
Incentive fee waived by the Property Manager |
$1.1 |
- |
|
$3.2 |
$1.0 |
Excluding the above items, FFO would have been $86.8 million for the three months ended
March 31, 2013 (Q1 2012 -
$71.4 million) and $0.43 per basic Stapled Unit (Q1 2012 -
$0.40 per basic Stapled Unit).
Subsequent to March
31, 2013, H&R REIT:
- Completed the acquisition of 27 properties from Primaris Retail
Real Estate Investment Trust ("Primaris") with a fair value of
approximately $3.1 billion, and
assumed indebtedness of approximately $1.4
billion of which $339.0
million was subsequently repaid. In relation to this
acquisition, H&R REIT and Finance Trust issued approximately
62.5 million Stapled Units for delivery to certain Primaris
unitholders, and H&R REIT assumed the 6.75% convertible
debentures (the "6.75% Debentures") (remaining aggregate principal
amount outstanding is approximately $1.2
million, as of April 4, 2013),
6.30% convertible debentures (the "6.30% Debentures") (remaining
aggregate principal amount outstanding is approximately
$7.7 million, as of April 4, 2013) and 5.40% convertible debentures
(remaining aggregate principal amount outstanding is approximately
$75.0 million, as of April 4, 2013) issued by Primaris. On
April 8, 2013, H&R REIT issued
notices of intent to redeem all the remaining 6.75% Debentures on
May 27, 2013 and 6.30% Debentures on
May 13, 2013 in accordance with their
terms. In connection with the Primaris transaction, holders
of approximately 2.1 million exchangeable units of certain
subsidiaries of Primaris now hold an equal number of exchangeable
units of certain subsidiaries of H&R REIT each of which is
exchangeable for 1.166 Stapled Units.
- Sold 1235 Bay St., an office property in Toronto, ON for gross proceeds of
approximately $25.0 million.
- Repaid two U.S. mortgages totalling U.S. $22.8 million bearing interest at an average rate
of 5.95%.
June's Monthly Distributions Declared
June's declared distribution is scheduled as follows:
|
Distribution/Stapled Unit |
Annualized |
Record date |
Distribution date |
June 2013 |
$0.11250 |
$1.35 |
June 14, 2013 |
June 28, 2013 |
2013 Annual and Special Unitholders' Meeting
H&R will host their Annual and Special Unitholders' meeting
this year on Thursday, June 20 at
1:00 pm at the TSX Gallery, 130 King
Street West, Toronto, Ontario.
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 40 office, 112 industrial and
163 retail properties comprising over 53 million square feet and 3
development projects, with a fair value of approximately
$13 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 for long terms 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
March 31, 2013, the note receivable
balance is U.S. $163.2 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, H&R REIT's expectation in connection with the
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