TORONTO,
Nov. 14, 2013 /CNW/ - H&R Real
Estate Investment Trust ("H&R REIT" or the "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 September 30,
2013.
Capital Transaction Highlights
- In September 2013, the REIT
completed its agreement with H&R Property Management Ltd.
("HRPM") to internalize the REIT's property management function
effective July 1, 2013. On closing, a
wholly-owned subsidiary of the REIT, H&R REIT Management
Services LP ("HRRMSLP"), acquired HRPM's REIT-related property
management business in return for 9.5 million limited partnership
units of HRRMSLP, which are exchangeable on a one-for-one basis for
Stapled Units. The purchase price associated with the
internalization did not utilize existing cash resources of the
REIT, and HRPM has agreed to hold the exchangeable units (or
Stapled Units upon exchange) for five years, subject to limited
exceptions. As a result of the internalization, the REIT
saved $5.3 million in management and
incentive fees which would otherwise have been payable to HRPM and
incurred an additional $1.0 million
in property operating costs for the three months ended September 30, 2013.
- In August 2013, the REIT acquired
a one-third interest in ECHO Realty LP ("ECHO"), which focuses on
developing and owning a core portfolio of grocery anchored shopping
centres in the United
States. ECHO's retail portfolio is primarily tenanted
by Giant Eagle, Inc., the leading grocer in the western
Pennsylvania and eastern
Ohio regions. ECHO's
portfolio consists of 171 investment properties, excluding
properties under development and vacant land, totaling
approximately 7.3 million square feet and is expected to generate,
once its existing development projects are completed, in excess of
U.S. $84.0 million in net operating
income annually, with an average remaining lease term of 12.9
years. The ECHO portfolio value amounts to approximately U.S.
$1.2 billion at a weighted average
capitalization rate of 7.3%. The REIT acquired ECHO limited
partnership units issued from treasury for a total purchase price
of approximately U.S. $296.4 million
before closing costs. One-third of this purchase price was
paid on closing, with a further one-third payable 18 months from
closing and the balance payable 30 months from closing. 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. ECHO is accounted for as an equity investment and
will be reporting its financial information to the REIT one month
in arrears. ECHO's August 2013
results have been included in the REIT's results for the nine
months ended September 30,
2013. ECHO's results for August, September, October
and November will be reported in H&R's year end combined
financial statements and Management Discussion and Analysis
("MD&A").
- During the second quarter of 2013, the 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 exchangeable
units of subsidiaries of the 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, the 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. In July 2013, the REIT, through its Primaris
platform, acquired Peter Pond Mall, a leading enclosed shopping
centre in Fort McMurray, Alberta
for $168.5 million, at a
capitalization rate of 6.3% (before property management fee
income). The REIT also sold a 50% non-managing interest in
Place d'Orleans, an enclosed
shopping centre in the Ottawa
region for $110.6 million, at a
capitalization rate of 5.5% before property management fee income.
This transaction leverages the Primaris management platform to act
as both owners and third party managers of regional shopping
centres. The REIT has been pleased with its successful
integration of the Primaris portfolio and platform.
Development Highlights
Effective December 31, 2012, the REIT
reached practical completion on the construction of the Bow, a two
million square foot office building in Calgary, Alberta, 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, which
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. Consistent with the REIT's strategy to secure
long-term fixed rate financing, on June 20,
2013, the 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.
Operating Highlights
H&R REIT's average remaining term to maturity as at
September 30, 2013 was 10.4 years for
leases and 7.2 years for outstanding mortgages. Occupancy at
September 30, 2013 was 98.2%, down
slightly from 98.5% at September 30,
2012. Leases representing only 4.3% of total rentable
area will expire during the balance of 2013 and 2014. As at
September 30, 2013, the ratio of
H&R's debt to fair market value of assets was 49.3% compared to
50.3% as at December 31, 2012.
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 Funds from
Operations ("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 September 30 |
9
months ended September 30 |
2013 |
2012 |
2013 |
2012 |
Rentals from investment properties (millions) |
$305.8 |
$200.0 |
$822.4 |
$582.6 |
Property operating income |
$201.6 |
$135.8 |
$545.3 |
$397.4 |
Net income (loss) (millions) |
($112.0) |
$100.7 |
$208.3 |
$406.2 |
FFO (millions)(1)(2) |
$129.1 |
$78.8 |
$338.5 |
$243.7 |
FFO per Stapled Unit (basic)(2) |
$0.45 |
$0.41 |
$1.35 |
$1.31 |
FFO per Stapled Unit (diluted)(2) |
$0.45 |
$0.40 |
$1.32 |
$1.25 |
Cash provided by operations (millions) |
$220.0 |
$133.4 |
$414.4 |
$374.8 |
Cash distributions (millions) (3) |
$69.3 |
$40.4 |
$186.5 |
$113.9 |
Distributions per Stapled Unit |
$0.33 |
$0.30 |
$1.01 |
$0.86 |
Payout ratio per Stapled Unit (as a % of FFO) |
73.3% |
73.2% |
74.8% |
65.6% |
|
|
|
|
|
|
(1) |
|
H&R's combined MD&A includes reconciliations of: net
income to FFO; FFO to Adjusted Funds from Operations ("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 per Stapled Unit. |
(3) |
|
Cash distributions exclude distributions reinvested in units
pursuant to H&R's unitholder distribution reinvestment
plan. |
Net income (loss) has been reduced for the three
and nine months ended September 30,
2013 due to transaction costs relating to the Primaris
acquisition and the property management internalization by
$198.2 million and $204.8 million, respectively, which were expensed
during these periods.
Included in FFO are the following items which
can be a source of significant variances between different
periods:
|
3
months ended September 30 |
9
months ended September 30 |
In millions |
2013 |
2012 |
2013 |
2012 |
Additional recoveries for capital
expenditures |
$3.0 |
$3.8 |
$7.2 |
$8.5 |
Gain (loss) on extinguishment of debt |
- |
($0.1) |
- |
$10.2 |
Adjustment to straight-lining of contractual
rent |
($0.9) |
($0.3) |
($3.4) |
($0.3) |
Sundry income |
$1.5 |
($1.3) |
$2.9 |
($1.6) |
Excluding the above items, FFO would have been
$125.5 million for the three months
ended September 30, 2013 (Q3 2012 -
$76.7 million) and $0.44 per basic Stapled Unit (Q3 2012 -
$0.40 per basic Stapled Unit).
For the nine months ended September 30,
2013, FFO would have been $331.8
million (nine months ended September
30, 2012 - $226.9 million) and
$1.32 per Stapled Unit (nine months
ended September 30, 2012 -
$1.22 per Stapled Unit).
Subsequent to September 30, 2013, H&R REIT:
- issued, by way of private placement, $235.0 million Series H senior floating rate
unsecured debentures maturing on October 9,
2015. The REIT entered into an interest rate swap to
fix the interest rate at 2.95% per annum.
- issued, by way of private placement, $60.0 million Series I senior floating rate
unsecured debentures maturing on January 23,
2017.
Monthly Distribution Declared
H&R's declared distribution for the month of December is
scheduled as follows:
|
Distribution/Stapled Unit |
Annualized |
Record date |
Distribution date |
December 2013 |
$0.11250 |
$1.35 |
December 13, 2013 |
December 31, 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, 112 industrial and
164 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 171
properties, excluding properties under development and vacant land,
totalling 7.3 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
September 30, 2013, the note
receivable balance is U.S. $219.8
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, 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 Primaris and
ECHO's future financial 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 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