TORONTO,
Feb. 27, 2014 /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 year ended December 31, 2013 and
further announced that, subject to the approval of the Toronto
Stock Exchange (the "TSX"), H&R intends to launch a normal
course issuer bid through the facilities of the TSX to repurchase
up to 25,000,000 Stapled Units on the open market. As
at February 26, 2014, H&R had
270,303,206 outstanding Stapled Units and the maximum number of
Stapled Units to be purchased under the bid represents
approximately 9.4% of the public float (determined in accordance
with the applicable rules of the TSX) of 265,574,442 Stapled
Units. H&R will file a notice of intention with the TSX
in this regard and may commence purchases for a period of a year
after the TSX has accepted the notice of intention.
Purchases of Stapled Units under the normal
course issuer bid will be made primarily through the facilities of
the TSX in accordance with TSX by-laws, rules and policies. The
Stapled Units so purchased will be cancelled. The price paid for
any repurchased units will be the market price of such Stapled
Units at the time of acquisition.
"Management believes the repurchase of Stapled
Units is an appropriate use of H&R's general funds in order to
increase unitholder value," said Thomas
Hofstedter, President and CEO of H&R. "We are currently
exploring the sale and joint venturing of certain assets the
proceeds of which may be added to H&R's general funds for use
to repurchase Stapled Units under this bid. The normal course
issuer bid is a reflection of the confidence we have in the company
and the commitment we have to using our balance sheet strength to
sustain growth and generate economic value."
2013 Highlights include:
- Internalization of property management.
- Acquisition of a 1/3rd interest in ECHO Realty LP
("ECHO").
- Acquisition of Primaris Retail Real Estate Investment Trust
("Primaris").
- Completion of the Bow and commencement of the 25-year lease
with Encana.
- Issuance of the final tranche of Bond Financing on the Bow.
- Construction launch of a 740,000 square foot distribution
centre, fully pre-leased to Unilever Canada Inc. ("Unilever").
- 8% increase in funds from operations ("FFO") per stapled Unit
(excluding 2012's $10.2 million gain
on extinguishment of debt).
- 14% increase in distributions per Stapled Unit.
- Reduction in debt to total assets from 50.3% in 2012 to
49.2%.
- Increase in total assets from $9.9
Billion in 2012 to $13.6
Billion.
- Increase in unencumbered asset pool to $1.3 billion.
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. 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 $11.9 million in management and
incentive fees which would otherwise have been payable to HRPM and
incurred only an additional $2.2
million in property operating costs for the six months ended
December 31, 2013.
- In August 2013, the REIT acquired
a one-third interest in ECHO, owner and developer of 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, with an
average remaining lease term of 12.9 years. ECHO's portfolio
consists of 173 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. The total ECHO portfolio was valued at U.S.
$1.2 billion which equated to 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 in cash on closing, with
a further one third due 18 months from closing and the final one
third due 30 months from closing. However, should ECHO
require funds for qualified asset acquisitions, a portion of the
full outstanding deferred payment would be payable on accelerated
demand at ECHO's option. The proceeds received from the REIT
will be used by ECHO to further expand its retail portfolio by
acquiring additional retail properties in the eastern United States. As part of the transaction, the
REIT has appointed two directors to the ECHO board. ECHO is
accounted for as an equity investment and will be reporting its
financial information to the REIT one month in arrears.
ECHO's results for August, September, October and November 2013 have been reported in H&R's
year end combined financial statements and the management
discussion and analysis ("MD&A").
- During the second quarter of 2013, the REIT acquired 100% of
Primaris which consisted of 26 properties valued at $3.2 billion, and a highly skilled professional
management platform. The acquisition was funded through the
issuance of 62.5 million Stapled Units with a value of $1.4 billion, the assumption of Primaris'
outstanding mortgages, convertible debentures and bank indebtedness
totalling $1.6 billion and other
working capital. 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 resulting from the acquisition of
Primaris has enhanced liquidity for unitholders. Through this
transaction, the REIT has also achieved broader diversification by
geographic region and has taken a dominant position in the enclosed
shopping centre asset class at a pivotal time when significant U.S.
and international retailers are actively expanding into
Canada. In July 2013, the REIT, through Primaris, acquired
Peter Pond Mall, the leading enclosed shopping centre in
Fort McMurray, Alberta for
$168.5 million, at a capitalization
rate of 6.3% (before property management fee income). In
addition, the REIT 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 management platform.
Development Highlights
- The REIT has now completed 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. Office rent escalates at 0.75% per annum and
parking income escalates at 1.5% per annum throughout 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 the final $300.0 million tranche of 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.
- The REIT has commenced construction of a state-of-the-art
740,000 square foot distribution centre on the REIT's Airport Road
lands in Mississauga,
Ontario. Unilever has leased the entire facility for a
10 year term providing the REIT with an anticipated 7% return on
capital invested before financing. It is expected that the
development will be completed by the end of 2014.
Operating Highlights
H&R REIT's average remaining term to
maturity as at December 31, 2013 was
10.3 years for leases and 7.0 years for outstanding
mortgages. Occupancy at December 31,
2013 was 98.1%, down slightly from 98.7% at December 31, 2012. Leases representing only
3.5% of total rentable area will expire during 2014. As at
December 31, 2013, the ratio of
H&R's debt to total assets was 49.2% 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 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 |
2013 |
2012 |
2013 |
2012 |
Rentals from investment properties
(millions) |
$314.6 |
$216.6 |
$1,137.0 |
$799.2 |
Property operating income |
$204.6 |
$145.0 |
$749.9 |
$256.7 |
Net income (millions) |
$113.7 |
$102.6 |
$323.6 |
$508.9 |
FFO (millions)(1)(2) |
$134.3 |
$85.2 |
$472.8 |
$329.0 |
FFO per Stapled Unit (basic)(2) |
$0.47 |
$0.44 |
$1.82 |
$1.74 |
FFO per Stapled Unit (diluted)(2) |
$0.46 |
$0.43 |
$1.79 |
$1.67 |
Cash provided by operations (millions) |
$203.0 |
$144.5 |
$617.4 |
$519.3 |
Cash distributions (millions) (3) |
$70.3 |
$44.5 |
$256.8 |
$158.4 |
Distributions per Stapled Unit |
$0.34 |
$0.31 |
$1.35 |
$1.18 |
Payout ratio per Stapled Unit (as
a % of FFO) |
72.3% |
70.5% |
74.2% |
67.8% |
(1) |
H&R's combined MD&A includes a reconciliation of net
income to FFO. Readers are encouraged to review the
reconciliation 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 for the year ended December 31, 2013 has been reduced by
$204.8 million due to transaction
costs relating to the Primaris acquisition and the property
management internalization which were expensed during the year.
During the year ended December 31, 2012, there was a gain on
extinguishment of debt of $10.2
million. Excluding this gain, FFO would have been
$318.8 million and $1.69 per Stapled Unit (basic). This
equates to an increase in FFO per Stapled Unit of 8% in 2013.
Monthly Distribution Declared
H&R's declared distribution for the month of
March is scheduled as follows:
|
Distribution/Stapled Unit |
Annualized |
Record date |
Distribution date |
March 2014 |
$0.11250 |
$1.35 |
March 17, 2014 |
March 31, 2014 |
Recent Appointments
H&R REIT is pleased to announce the
following new appointments:
(a) Cheryl Fried has been appointed Executive Vice
President, Finance,
(b) Blair
Kundell has been appointed Vice President, Operations;
and
(c) Jason Birken has been appointed
Vice President, Finance.
Cheryl Fried
Cheryl previously served as H&R REIT's
VP-Accounting. In her new role, she will oversee corporate
finance, accounting and public reporting responsibilities for
H&R REIT. Cheryl earned a Bachelor of Arts at The
City University of New York and holds a
Chartered Accountant designation.
Blair Kundell
Blair previously served as H&R REIT's
General Manager, Operations. In his new role, he will be
responsible for building operations, tenant services and joint
health and safety. Blair holds a degree in Economics from the
University of Western Ontario.
Jason Birken
Jason previously served as H&R REIT's
Controller. In his new role, he will be responsible for
financial reporting, finance and compliance functions of the Trust,
cash and treasury management and investor relations. Jason earned a
Bachelor of Business Administration at Wilfrid
Laurier University and holds a Chartered Accountant
designation.
2014 Annual Unitholders' Meeting
H&R will host their Annual Unitholders'
meeting this year on Thursday, June
19 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 42
office, 112 industrial and 167 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 owns a 33.7% interest in ECHO Realty LP
which owns 173 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
December 31, 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, risks related to: prices and market
value of securities of H&R; real property ownership;
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; joint arrangements risk; 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