TORONTO,
Aug. 7, 2013 /CNW/ - H&R Real
Estate Investment Trust ("H&R REIT") (TSX: HR.UN; HR.DB.D;
HR.DB.E; HR.DB.H) is pleased to announce that it has acquired a
one-third interest in ECHO Realty LP ("ECHO"). ECHO will be
accounted for as an equity investment and will be immediately
accretive on a Funds from Operations ("FFO") and Adjusted Funds
from Operations ("AFFO") basis. In accordance with the
management internalization announced last week, there will be no
external acquisition or property management fees payable on this
transaction.
Since the formation of ECHO in March 2000, ECHO has focused on two primary areas
of business: (i) developing and owning a core portfolio of real
estate, tenanted by Giant Eagle, Inc. ("Giant Eagle"), the leading
grocer in the western Pennsylvania
and eastern Ohio regions operating
under the Giant Eagle, Market District, GetGo and Good Cents
banners; and (ii) developing and selling shopping centres anchored
by other large national retailers throughout the Eastern United States. ECHO is the
largest landlord for Giant Eagle.
ECHO's portfolio consists of 176 properties,
totaling approximately 7.4 million square feet and is expected to
generate in excess of $84 million in
net operating income annually with an average remaining lease term
of 12.9 years. ECHO's portfolio is comprised of five property
types: 160 retail assets, four office buildings, six industrial
properties, four retail development projects, and two land
parcels.
Giant Eagle is a tenant in 161 of the properties
and contributes approximately 79% to ECHO's total annual
revenue. Giant Eagle had revenue of $9.9 billion for their fiscal year ended
June 2012 and has a mortgage bond
rating of NAIC 2. The average annual sales per square foot of the
Giant Eagle supermarkets in ECHO's portfolio is in excess of
$600 per square foot.
The portfolio value amounts to approximately
$1.165 billion at a weighted average
cap rate of 7.3%. The portfolio has first mortgages totalling
$410 million with an average
remaining term of 10 years at an average annual interest rate of
6.1%. H&R will acquire limited partnership units from
treasury in consideration for a total purchase price of
approximately $294 million for
H&R REIT's one-third share in ECHO. One-third of this
purchase price was paid on closing, with a further one-third
payable in 18 months from closing and the balance payable in 30
months. The second and third installments of the purchase
price will bear interest at 3% per annum. H&R REIT will
have the right to appoint two of the six ECHO board members.
The proceeds from this transaction will be used by ECHO to further
expand its retail portfolio by acquiring additional retail
properties in the Eastern United
States. H&R REIT also has a 5-year conditional
option to acquire additional units resulting in H&R REIT owning
up to 49.9% of ECHO at a purchase price no greater than fair market
value.
H&R REIT's President and CEO, Tom Hofstedter states: "H&R is thrilled to
be a partner in ECHO which provides H&R with a professional
platform to consolidate and expand its U.S. retail holdings with a
seasoned and well respected management team who shares H&R's
disciplined approach to investing in real estate with a
conservative outlook in leasing and financing long term."
ABOUT THE ECHO TEAM
Thomas Karet
currently serves as Chief Executive Officer of ECHO Realty.
Mr. Karet was the founding officer of ECHO Real Estate Services
Company and has served in several of the company's senior
leadership positions throughout the past thirteen years. Prior to
joining ECHO Realty, Mr. Karet was a partner in the Chicago office of the law firm of Katten
Muchin Rosenman LLP and was associated with the New York City office of the law firm of
Morgan Lewis & Bockius LLP. Mr.
Karet is a graduate of Phillips Academy Andover, Amherst College and Georgetown
University Law Center.
Dr. Howard Biel
currently serves as Senior Vice President of Acquisitions and
Development for ECHO Realty. Prior to joining ECHO, he was the
Senior Managing Director at Faison where he was responsible for the
real estate acquisitions and development for the Northeast /
Mid-Atlantic region. Dr. Biel also served as Chief Development
Officer at Federal Realty Investment Trust, President of Palisades
Realty and Development, Executive Vice President at Western
Development, and Senior Vice President for Development at Edward J.
DeBartolo Corporation.
Drew Gorman
currently serves as Senior Vice President of Acquisitions and
Development for ECHO Realty. Prior to joining ECHO, he was the
Managing Director for Faison where he was responsible for all
leasing and sales activities for the Northeast / Mid-Atlantic
region. He also served as Senior Vice President of Development for
Palisades Realty & Development and Chief Operating
Officer-Northeast Region for Federal Investment Realty Trust.
Aaron Savin
currently serves as Senior Vice President of Leasing and is
currently responsible for ECHO Realty's retail brokerage group. He
has conducted successful rollouts of Western Pennsylvania area stores for Pier 1
Imports, Michaels, Best Buy, Office Max, and ULTA. Mr. Savin has
also overseen disposition efforts for K-Mart and Giant Eagle
throughout Ohio and Pennsylvania. Since joining ECHO Realty, he
has overseen the leasing of over 2 million square feet of shopping
center space and represents several national retailers in
connection with their expansion strategies.
John Palovsky is
Vice President of Construction. Mr. Palovsky is currently
responsible for ECHO Realty's construction management group and has
been instrumental in the development of thirteen major retail
projects totaling over 3 million square feet. Mr. Palovsky is a
twenty-eight-year veteran of the real estate development and
construction industry and served in various engineering,
construction, and maintenance positions at Phar-Mor, Inc. Crown
American Corporation, K-Mart Corporation, and J.C. Penney
Company.
John Thomas
currently serves as Vice President of Finance. Mr. Thomas has over
seventeen years of public and private sector accounting experience
with an emphasis on real estate syndication modeling, tax,
financial due diligence, and business valuation. Mr. Thomas was
formerly a special projects consultant for Louis Plung & Company where he was involved
in various projects, including consulting for Giant Eagle and ECHO.
Mr. Thomas is a graduate of Pennsylvania State
University's Behrend College where he received a BS in
Accounting. He is also a Certified Public Accountant in the
State of Pennsylvania.
Philip Bishop
currently serves as Vice President of Engineering. Mr. Bishop has
over twenty five years of experience in the real estate development
and engineering industry. While at ECHO Realty, Mr. Bishop has
completed the design and development of numerous Target stores,
Giant Eagle grocery stores, GetGo convenience stores, and other
retail developments throughout the eastern United States. Prior to joining ECHO Realty,
Mr. Bishop was a manager at Civil & Environmental Consultants,
Inc. where he managed the design efforts for projects such as the
Pittsburgh Mills Galleria Mall and The Waterfront.
SALE OF 50% NON MANAGING INTEREST IN PLACE
D'ORLEANS
H&R REIT is also pleased to announce that it
has, through its Primaris retail division, entered into an
agreement to sell a 50% non-managing interest in Place
d'Orleans, an approximately
760,000 square foot enclosed shopping centre in the Ottawa region, to a fund managed by Montez
Corporation ("Montez"). Montez will be assuming 50% of the
outstanding mortgage balance on the shopping centre being
$55.1 million at an annual interest
rate of 5.3% maturing in January
2018. The sale price for the 50% interest is approximately
$110 million (before mark to market
adjustment on the mortgage) which sale price represents a
capitalization rate of approximately 5.5% before management fee
income. The sale is expected to close mid-August.
"This sale of a non-managing 50% interest in
Place d'Orleans is consistent with
H&R's strategy to leverage the Primaris platform, to act as
both owners of regional shopping centres and as third-party
managers, where appropriate" said Tom
Hofstedter, CEO of H&R REIT. "We have said all along
that the Primaris management platform is uniquely poised to add
value and this transaction is a fulfillment of that vision. The
sale proceeds will provide H&R with a significant portion of
the current funds required for the acquisition of its interest in
ECHO. In addition, we are very pleased to be partnering with Montez
Corporation, a company known for its similar disciplined investment
philosophy and focus on long-term real estate value. We are
confident that this is just the beginning of what will be a lasting
and mutually rewarding relationship for both companies."
About MONTEZ
Montez Corporation, incorporated in 2002, is a
diversified investment organization specializing in pension fund
real estate investment management with properties in the shopping
centre, office and industrial categories. Over the past
11 years, Montez Corporation has created 5 funds and 2 special
purpose companies and currently manages assets of approximately
$2 billion.
About H&R REIT
H&R REIT is an open-ended real estate
investment trust, which owns a North American portfolio of 41
office, 112 industrial and 165 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 long term to
creditworthy tenants and strives to match those leases with
primarily long-term, fixed-rate financing.
Forward-looking Statements
Certain statements in this news release contain
forward-looking information within the meaning of applicable
securities laws (also known as forward-looking statements).
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
risks 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, 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 of the REIT's properties; changes in
legislation and indebtedness of H&R; intended use of proceeds
by and expected financial performance of ECHO; and completion of
the sale of the interest in Place d'Orleans. 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.
Non-GAAP Measures
H&R REIT's consolidated financial statements
are prepared in accordance with international financial reporting
standards ("IFRS"). However, in this press release, a number
of measures which do not have a meaning recognized under IFRS or
Canadian Generally Accepted Accounting Principles ("GAAP") are
presented. FFO and AFFO are non-GAAP financial measures widely used
in the real estate industry as a measure of operating
performance. Management believes FFO to be a useful measure
for investors as it adjusts for items included in net income that
are not recurring including gain (loss) on sale of real estate
assets, as well as non-cash items such as the fair value
adjustments on investment properties. FFO should not be
construed as an alternative to net income or cash flows provided by
operating activities calculated in accordance with IFRS. AFFO
is calculated by adjusting FFO for non-cash items such as:
straight-lining of contractual rent, rent amortization of tenant
inducements, effective interest rate accretion and unit-based
compensation. Non-recurring costs that impact operating cash
flow may be adjusted, and capital and tenant expenditures incurred
and capitalized in the period by H&R REIT are deducted.
There is no standard industry definition of AFFO.
Neither of these non-GAAP financial measures
should be construed as alternative to financial measures calculated
in accordance with GAAP. Further, H&R REIT's method of
calculating these supplemental non-GAAP financial measures may
differ from the methods of other real estate investment trusts or
other issuers, and accordingly, these measures may not be
comparable to those measures presented by other real estate
investment trusts or issuers.
SOURCE H