TORONTO, Feb. 17, 2015 /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 three months
and year ended December 31, 2014.
Operating Highlights
H&R REIT's occupancy as at December
31, 2014 was 97.8% compared to 98.1% as at December 31, 2013. H&R REIT's average
remaining term to maturity as at December
31, 2014 was 9.8 years for leases and 6.4 years for
outstanding mortgages. H&R has significantly increased
the strength of its balance sheet by reducing the ratio of debt to
total assets from 49.2% as at December 31,
2013 to 46.3% as at December
31, 2014.
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 Management Discussion and
Analysis ("MD&A") for further discussion of non-GAAP
information presented.
|
3 months ended
December 31
|
Year ended December
31
|
2014
|
2013
|
2014
|
2013
|
Rentals from
investment properties (millions)
|
$308.6
|
$314.6
|
$1,227.8
|
$1,137.0
|
Property operating
income (millions)
|
$208.3
|
$212.3
|
$803.3
|
$749.9
|
Net income
(millions)
|
$137.7
|
$113.7
|
$424.7
|
$323.6
|
FFO
(millions)(1)
|
$138.5
|
$134.1
|
$543.0
|
$472.4
|
FFO per Stapled Unit
(basic)
|
$0.48
|
$0.47
|
$1.88
|
$1.82
|
FFO per Stapled Unit
(diluted)
|
$0.47
|
$0.46
|
$1.86
|
$1.78
|
Cash provided by
operations (millions)
|
$198.3
|
$203.0
|
$765.9
|
$617.4
|
Distributions per
Stapled Unit
|
$0.34
|
$0.34
|
$1.35
|
$1.35
|
Payout ratio per
Stapled Unit (as a % of FFO)
|
70.8%
|
72.3%
|
71.8%
|
74.2%
|
(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.
|
Summary of Significant 2014 Activity
New Industrial Platform
In December 2014, the REIT entered
into agreements to sell to an affiliate of the Public Sector
Pension Investment Board ("PSP") and affiliates of Crestpoint Real
Estate Investments Ltd. ("Crestpoint") (collectively, "CrestPSP") a
50% interest in a portfolio of Canadian industrial properties and a
49.5% interest in a portfolio of U.S. industrial properties
(collectively the "Industrial Portfolio") for a total selling price
of approximately $559.8 million for
the Canadian industrial properties and U.S. $150.5 million for the U.S. industrial
properties. H&R REIT Management Services LP will remain the
property manager and collect industry standard fees. The Portfolio
consists of a total of 101 properties comprising approximately 19.5
million square feet of industrial space located in Canada and in the
United States. On December 22,
2014, the REIT sold interests in 84 of the 85 Canadian
properties ("Tranche 1") to CrestPSP for a total selling price of
approximately $508.3 million.
CrestPSP assumed mortgages of approximately $161.7 million and received a mark-to-market
adjustment on the assumed mortgages of approximately $11.1 million. The REIT provided CrestPSP
with a vendor take-back mortgage of approximately $62.0 million. The net proceeds of
$273.5 million were used to repay
bank
indebtedness.
The remaining properties to be sold ("Tranche 2") will be
comprised of interests in 16 U.S. properties and one Canadian
property. The Tranche 2 sale is expected to close in Q1 2015
and CrestPSP is expected to assume mortgages of approximately U.S
$57.0 million. The expected net
proceeds will be used to repay bank indebtedness. The REIT
plans to build on this strategic alliance with PSP and Crestpoint
by expanding on this new industrial platform.
Development of Airport Road Project
The development of the 744,413 square foot state-of-the-art,
built-to-suit distribution centre on the Airport Road lands in
Mississauga, ON was completed
ahead of schedule, and as a result, the property is now classified
in H&R's combined annual financial statements as an investment
property. Unilever Canada Inc.'s lease for 10 years commenced
October 1, 2014 and the REIT is
expected to earn a 7% unlevered return on its cost. As it is
part of the Industrial Portfolio sale to CrestPSP, a 50% interest
in this property is classified as an asset held for sale as at
December 31, 2014.
Primaris Portfolio Activity
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 management fee income. The purchaser assumed 50% of
the outstanding mortgages. Net proceeds were approximately
$111.6 million. In September 2014, the REIT acquired a 50% managing
interest in Kildonan Place, an enclosed shopping centre in
Winnipeg, MB for $69.7 million, at an effective capitalization
rate of 6.0% including property management fee income. Kildonan
Place is the third largest enclosed shopping centre in Winnipeg, MB. The site has approximately
7.5 acres of excess lands which after rezoning would result in
total excess density of approximately 100,000 square feet for
potential future development. These transactions continue to
leverage the Primaris management platform as an owner and third
party manager of regional shopping centres.
Exposure to Target
Target Corporation has announced it is planning to discontinue
operating stores in Canada through
its subsidiary Target Canada Co. ("Target"). Primaris
has an interest in nine malls where Target is a tenant: a 50%
interest in four of these malls and a 100% interest in the other
five malls. Three of the leases are guaranteed by Target
Corporation, the U.S. parent of Target. The total 2014 annual
gross rent from Target represents 0.6% of the Trusts' rentals from
investment properties (including equity accounted investments) of
$1.3 billion. The Target stores
are well positioned in these malls and leased at an average net
rent of $5.58 per square foot which
provides the opportunity to subdivide and remerchandise for higher
rents, should Target disclaim their leases.
Leasing Activity
Effective December 31, 2014, Royal
Bank of Canada vacated 274,100
square feet at the REIT's Front Street office property in
Toronto, ON. The REIT is
pleased to announce it has leased 231,170 square feet to Toronto
Dominion Bank for an average term of approximately 11 years,
commencing in three phases: 96,090 square feet effective
June 1, 2015; 99,312 square
feet effective October 1, 2015; and,
35,768 square feet effective August
1, 2016. The REIT has also leased a further
53,500 square feet to Penguin Random House Canada effective
November 2015 for 10.5
years.
In addition, Gowlings Canada Inc. has renewed, for a further 15
years, its 130,274 square foot lease at 160 Elgin St., Ottawa, ON, which was to expire in 2016.
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. The site is located adjacent to the REIT's 2
Gotham Center office property. Construction is scheduled to begin
in 2015 with occupancy expected to commence in late 2017. The
REIT's share of the total land cost is U.S. $55.6 million. The total Long Island City
Project cost of all phases at the 100% level is expected to be
approximately U.S. $875 million.
U.S. Residential Apartments
In November 2014, the REIT
acquired two residential properties in Houston, TX for U.S. $44.7 million (U.S. $64,152 per unit) at an average expected
capitalization rate of 6.5%. The two properties consist of 696
rental apartment units representing net rentable area of 543,516
square feet. As at December 31, 2014,
average occupancy was 93.1% and average monthly rent was U.S.
$766 per unit. On February 10, 2015, the REIT acquired another
residential property in Dallas, TX
for U.S. $52.3 million at an expected
capitalization rate of 5.6%. The property consists of 398
rental apartment units representing net rentable area of 362,785
square feet. Average occupancy is 95.0% and average monthly
rent is U.S. $1,140 per unit.
H&R Portfolio Dispositions
Excluding the Industrial Portfolio and Primaris dispositions
discussed above, the REIT also disposed of non-core assets both in
Canada and the United States totaling approximately
$230.5 million, representing
approximately 1.1 million square feet. Refer to the "2014
Dispositions" table in H&R's MD&A for a full list of
properties sold.
Mortgage Financing and Unencumbered Pool
In 2014, the REIT repaid 27 mortgages totalling $245.5 million which were bearing interest at a
weighted average interest rate of 6.0%. As at December 31, 2014, excluding the Trusts'
interests in real estate assets included in equity accounted
investments, the REIT had 78 unencumbered properties with a fair
value of approximately $1.7
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 had numerous other properties
with very low loan to value ratios. As at December 31, 2014, the REIT had 42 properties
valued at approximately $1.6 billion
which are encumbered with mortgages totaling $364.5 million. In this pool of assets, the
average loan to value is 22.3%, the maximum loan to value is 29.9%
and the minimum loan to value is 7.8%. In August 2014, DBRS Limited ("DBRS") upgraded the
Trusts' credit rating from BBB with a Stable trend to BBB (high)
with a Stable trend. The REIT believes the rating upgrade is
primarily due to the stabilization of the Bow, the successful
integration of Primaris and recent high-quality property
investments, which have resulted in significant operating income
and portfolio growth, lower debt levels, a growing unencumbered
asset pool and an increase in the Trusts' coverage ratios.
Subsequent Events
In January 2015, the REIT sold an
industrial property in Ontario,
which was classified as held for sale as at December 31, 2014, for gross proceeds of
approximately $70.2 million and
repaid the mortgage payable of approximately $42.6 million bearing interest at 5.2% per
annum.
In February 2015, the REIT issued,
by way of private placement, U.S. $125.0
million aggregate principal amount of Series J senior
floating rate unsecured debentures maturing on February 9, 2018.
In February 2015, the REIT
acquired a residential property in Dallas, TX for a purchase price of
approximately U.S. $52.3 million.
Monthly Distribution Declared
H&R's declared distribution for the month of March is
scheduled as follows:
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Distribution/Stapled
Unit
|
Annualized
|
Record
date
|
Distribution
date
|
March 2015
|
$0.11250
|
$1.35
|
March 17,
2015
|
March 31,
2015
|
About H&R REIT and H&R Finance Trust
H&R REIT is Canada's
largest diversified real estate investment trust with total assets
of approximately $13.4 billion as at
December 31, 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 49 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. $220.5 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; 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.
Additional information regarding H&R REIT and H&R
Finance Trust is available at www.hr-reit.com and on
www.sedar.com.
SOURCE H&R Real Estate Investment Trust