TORONTO,
Aug. 14, 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 its financial results for the
six months ended June 30, 2014.
Summary of Significant Q2 2014 Activity
Long Island City Project
In June 2014, the
REIT purchased a 50% interest to develop a landmark luxury
residential rental development (the "Long Island City Project") in
Long Island City, NY. Tishman Speyer, a U.S. real estate company, will
act as the developer and manager of the Long Island City Project.
The parcel is zoned for 1.2 million square feet of mixed-used
development, potentially accommodating up to approximately 1,600
residential rental units and approximately 30,000 square feet of
retail space developed in three phases. The site is located
adjacent to the REIT's 2 Gotham Center office property. In the
initial phase, the REIT and Tishman
Speyer plan to construct a 42-storey tower, which will
include 700 rental apartment units. Construction is expected to
begin in 2015 with occupancy expected to commence in 2017. The
REIT's share of the total land cost is U.S. $55.6 million which was at a substantial discount
to appraised value. The total Long Island City Project cost of all
phases at the 100% level is expected to be approximately U.S.
$875 million.
Primaris Portfolio Dispositions
In Q2 2014, the REIT sold a 50% non-managing
interest in three enclosed shopping centres: Regent Mall in
Fredericton, NB; McAllister Place in Saint John, NB; and Grant Park in Winnipeg, MB for a total price of $219.0 million, at a capitalization rate of 5.6%
before property management fee income. The purchaser assumed
50% of the existing mortgages. Net proceeds were
approximately $111.6 million.
This transaction, as well as the sale of a 50% non-managing
interest in Place d'Orleans in
Orleans, ON in 2013, further
leverages the Primaris management platform to act as both owners
and third party managers of regional shopping centres.
H&R Portfolio Dispositions
In June 2014, the
REIT sold a 50% non-managing interest in 3777 Kingsway St. in
Burnaby, B.C., a 686,170 square
foot office property, for $86.5
million, at a capitalization rate of 6.2% before property
management fee income. The purchaser assumed 50% of the
existing mortgage. Net proceeds were approximately
$31.0 million.
In June 2014, the
REIT sold two industrial properties in Calgary, AB with an aggregate square footage
of 228,400 for $39.4 million at a
capitalization rate of 6.4%. The REIT had purchased these
properties in March 2002 for
$20.2 million. Prior to the closing
of this sale, the REIT transferred the two first mortgages on these
properties to two other properties within the REIT's portfolio.
In May 2014, the
REIT also sold 115 Belfield Rd., a 47,990 square foot industrial
building in Toronto, ON for
$3.4 million.
Development of Airport Road Project
The development of the 740,000 square foot
state-of-the-art, built-to-suit distribution centre on the Airport
Road lands in Mississauga, ON, is
ahead of schedule, and is expected to be substantially completed by
the end of September 2014.
Unilever Canada Inc. has agreed to lease the property for 10 years
providing the REIT with an anticipated 7% return on capital
invested before financing.
Mortgage Financing and Unencumbered Pool
In June 2014, the
REIT repaid two mortgages totalling $13.6
million which were bearing interest at a weighted average
interest rate of 5.8%. As at June 30,
2014, excluding equity accounted investments, the REIT has
48 unencumbered properties with a fair value of approximately
$1.3 billion. Also, due to the
REIT's 18 year history and management's conservative strategy of
securing long-term financing on individual properties, the REIT has
numerous other properties with very low loan to value ratios. As at
June 30, 2014, the REIT has 25
properties valued at approximately $1.6
billion which are encumbered with mortgages totaling
$380.2 million. In this pool of
assets, the average loan to value is 23.3%, the maximum loan to
value is 28.8% and the minimum loan to value is 8.8%. These
mortgages have a weighted average remaining term to maturity of 5.4
years. The unencumbered pool of properties is therefore
expected to grow substantially over the next five years.
Operating Highlights
H&R REIT's average remaining term to
maturity as at June 30, 2014 was 10.0
years for leases and 6.5 years for outstanding mortgages. As
at June 30, 2014, the ratio of
H&R's debt to total assets was 48.0% compared to 49.2% as at
December 31, 2013.
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 June
30 |
6 months ended June
30 |
2014 |
2013 |
2014 |
2013 |
Rentals from investment properties
(millions) |
$304.9 |
$294.1 |
$616.8 |
$516.7 |
Property operating income |
$208.6 |
$198.9 |
$390.2 |
$329.8 |
Net income (millions) |
$37.3 |
$189.0 |
$150.5 |
$321.1 |
FFO (millions)(1) |
$135.2 |
$119.5 |
$270.4 |
$209.5 |
FFO per Stapled Unit (basic) |
$0.47 |
$0.45 |
$0.94 |
$0.90 |
FFO per Stapled Unit (diluted) |
$0.46 |
$0.44 |
$0.93 |
$0.87 |
Cash provided by operations
(millions) |
$170.2 |
$56.6 |
$359.9 |
$193.7 |
Distributions per Stapled Unit |
$0.34 |
$0.34 |
$0.68 |
$0.68 |
Payout ratio per Stapled Unit (as a %
of FFO) |
72.3% |
75.6% |
72.3% |
75.6% |
(1) H&R's combined MD&A includes a
reconciliation of property operating income to
FFO. Readers
are encouraged to review the reconciliation in the combined
MD&A. |
Subsequent Events
Subsequent to June 30,
2014, the REIT repaid two mortgages totalling $92.7 million which were bearing interest at a
weighted average interest rate of 6.4%.
In July 2014, the
REIT sold 50 Cambridge St., a retail property in Worcester, MA for approximately U.S.
$16.0 million.
In August 2014,
the REIT has agreed to purchase a 50% managing interest in Kildonan
Place, a 454,120 square foot shopping centre in Winnipeg, MB for approximately $69.3 million. Closing is expected to occur
in September 2014.
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 2014 |
$0.11250 |
$1.35 |
September 12, 2014 |
September 30, 2014 |
About H&R REIT and H&R Finance
Trust
H&R REIT is Canada's largest diversified real estate
investment trust with a total capitalization of approximately
$13.1 billion as at June 30, 2014. H&R REIT is a fully
internalized REIT and has ownership interests in a North American
portfolio of high quality office, retail and industrial properties
comprising over 54 million square feet.
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. The
current 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, 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; development and financing relating to the Airport
Road Project, 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