TORONTO,
Aug. 14, 2013 /CNW/ - H&R Real
Estate Investment Trust ("H&R REIT") and H&R Finance Trust
(collectively, "H&R") (TSX: HR.UN; HR.DB.D; HR.DB.E and
HR.DB.H) today announced their financial results for the quarter
ended June 30, 2013.
Capital Transaction Highlights
During the second quarter of 2013, H&R REIT acquired 100% of
Primaris Retail Real Estate Investment Trust ("Primaris") which
consisted of 26 properties valued at $3.1
billion. The acquisition was funded through the
issuance of 62.5 million Stapled Units with a value of $1.4 billion and the assumption of Primaris'
outstanding mortgages, convertible debentures and bank indebtedness
totalling $1.6 billion. In
addition, holders of 2.1 million exchangeable units of certain
subsidiaries of Primaris received the same number of Class B units
of subsidiaries of H&R REIT, each of which is exchangeable for
1.166 Stapled Units. The increased market capitalization
relating to the acquisition of Primaris has substantially enhanced
liquidity for unitholders. Through this transaction, H&R
REIT has achieved broader diversification by geographic region and
tenant base into the enclosed shopping centre asset class at a time
when U.S. and international retailers are expanding into
Canada. H&R is pleased
with its successful integration of the Primaris portfolio and
platform all in accordance with H&R's proforma budgets.
The property operating income of $41.0
million attributable to the Primaris portfolio for Q2 2013
was in line with H&R REIT management's expectation at the time
of the Primaris acquisition and it is expected that such property
operating income will increase for Q3 and Q4 2013.
Operating Highlights
H&R REIT's average remaining term to maturity as at
June 30, 2013 was 10.3 years for
leases and 7.3 years for outstanding mortgages. Occupancy at
June 30, 2013 was 98.7%, up slightly
from 98.0% at June 30, 2012.
Leases representing only 4.9% of total rentable area will expire
during the balance of 2013 and 2014. As at June 30, 2013, the ratio of H&R's debt to
fair market value of assets was 48.5% compared to 50.3% as at
December 31, 2012.
Development Highlights
Effective December 31, 2012, H&R
REIT reached practical completion on the construction of a two
million square foot office building in Calgary, Alberta (the "Bow"), which is fully
leased to Encana Corporation for a 25-year term. On March 15, 2013, the final floors were delivered
to Encana Corporation and the 25-year lease term commenced, and
will continue until 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 $12.5 million in costs will be incurred to fully
complete this project. As at June 30,
2013, the total cost incurred on the project, including the
South Block, amounted to $1.70
billion (December 31, 2012 -
$1.67 billion) which includes the
costs for construction of 1,358 underground parking stalls.
Consistent with H&R's strategy to secure long-term fixed rate
financing, on June 20, 2013, H&R
REIT issued $300.0 million, Series C
bonds at an annual rate of 3.797%, due June
13, 2023. These bonds rank pari passu to the
$250.0 million, 3.690% Series A bonds
due June 14, 2021 and the
$250.0 million, 3.693% Series B bonds
due June 14, 2022, which were both
issued on June 14, 2012. Encana
Corporation was entitled to a 60-day free rent fixturing period and
an additional rent credit equal to the delay penalty of
approximately $32.0 million for
delays in delivering the tranches. As at June 30, 2013, there is no more rent credit due
to the tenant. For the three months ended June 30, 2013, the Bow has contributed
$16.1 million to AFFO. Although
mortgage interest will increase due to the issuance of the Series C
bonds, the REIT expects the Bow to generate approximately the same
amount of AFFO going forward.
The table below also provides an estimate of FFO
and AFFO to be generated by the Bow for the remainder of 2013:
|
Actual |
Six months ended |
Estimate(1)(2) |
In Millions |
Q1 2013 |
Q2 2013 |
June 30, 2013 |
Q3 2013 |
Q4 2013 |
Basic rent |
$2.2 |
$21.3 |
$23.5 |
$23.3 |
$23.3 |
Straight-lining of contractual
rent |
20.6 |
3.3 |
23.9 |
1.8 |
1.8 |
Interest capitalized |
0.5 |
- |
0.5 |
- |
- |
Mortgage interest |
(4.4) |
(5.2) |
(9.6) |
(7.3) |
(7.3) |
Expected Bow impact on
FFO(3) |
18.9 |
19.4 |
38.3 |
17.8 |
17.8 |
Expected Bow impact on
AFFO(3) |
(1.7) |
16.1 |
14.4 |
16.0 |
16.0 |
(1) |
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. |
(2) |
The estimates for Q3 and Q4 2013 supersede the estimates
previously provided by H&R REIT. |
(3) |
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. |
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 management discussion and analysis ("MD&A")
for further discussion of non-GAAP information presented.
|
3 months ended June
30 |
6 months ended June
30 |
2013 |
2012 |
2013 |
2012 |
Rentals from investment properties
(millions) |
$294.1 |
$199.6 |
$516.7 |
$382.6 |
Net income (millions) |
188.1 |
106.2 |
320.3 |
305.5 |
FFO
(millions)(1)(2) |
119.5 |
92.6 |
209.5 |
165.0 |
FFO per Stapled Unit
(basic)(2) |
0.45 |
0.49 |
0.90 |
0.90 |
Cash provided by operations
(millions) |
57.2 |
100.7 |
194.3 |
241.4 |
Cash distributions (millions)
(3) |
68.0 |
38.5 |
117.2 |
73.6 |
Distributions per Stapled
Unit |
0.34 |
0.29 |
0.68 |
0.56 |
(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 AFFO per Stapled Unit. |
(3) |
Cash distributions exclude distributions reinvested in units
pursuant to H&R's unitholder distribution reinvestment
plan. |
Included in FFO are the following items which
can be a source of significant variances between different
periods:
|
3 months ended June
30 |
6 months ended June
30 |
In millions |
2013 |
2012 |
2013 |
2012 |
Additional recoveries for capital
expenditures |
$2.1 |
$3.8 |
$4.2 |
$4.8 |
Gain on extinguishment of debt |
- |
10.3 |
- |
10.3 |
Adjustment to straight-lining of contractual
rent |
(2.4) |
- |
(2.4) |
- |
Sundry income |
1.4 |
- |
1.4 |
0.2 |
Incentive fee waived by the Property Manager |
- |
- |
1.1 |
- |
Excluding the above items, FFO would have been
$118.4 million for the three months
ended June 30, 2013 (Q2 2012 -
$78.5 million) and $0.45 per basic Stapled Unit (Q2 2012 -
$0.42 per basic Stapled Unit).
For the six months ended June 30,
2013, FFO would have been $205.2
million (six months ended June 30,
2012 - $149.7 million) and
$0.88 per Stapled Unit (six months
ended June 30, 2012 - $0.81 per Stapled Unit).
Subsequent to June 30,
2013, H&R REIT:
- purchased a 200,145 square foot retail shopping centre in
Fort McMurray, Alberta for
$168.5 million.
- announced its agreement with the Property Manager to
internalize H&R REIT's property management function effective
July 1, 2013. Upon closing of
the transaction, a subsidiary of H&R REIT will acquire the
Property Manager's H&R-related property management business in
return for 9.5 million limited partnership units of that
subsidiary, such units to be exchangeable on a one-for-one basis
for Stapled Units.
- entered into an agreement to sell a 50% non-managing interest
in Place d'Orleans Mall, a 759,462 square foot retail shopping
centre in Orleans, Ontario for
gross proceeds of $110.6
million.
- acquired a one-third interest in ECHO Realty LP for U.S.
$294 million. ECHO Realty LP's
portfolio consists of 176 properties totalling approximately 7.4
million square feet with an average remaining lease term of 12.9
years. Giant Eagle Inc. is a tenant in 161 of the properties
and contributes approximately 79% of ECHO's annual revenue.
Monthly Distribution Declared
H&R's declared distribution for the month of September is
scheduled as follows:
|
Distribution/Stapled Unit |
Annualized |
Record date |
Distribution date |
September 2013 |
$0.11250 |
$1.35 |
September 10, 2013 |
September 30, 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 41 office, 112 industrial and
165 retail properties comprising over 53 million square feet and 2
development projects, with a fair value of approximately
$13 billion. In addition, H&R
REIT has a one-third interest in ECHO Realty LP which owns 176
properties totalling 7.4 million square feet. 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
June 30, 2013, the note receivable
balance is U.S. $216.6 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 statements in this news release contain 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 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, H&R REIT's expectation with
respect to the Bow and Primaris' Q3 and Q4 2013 results, 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