TORONTO,
Aug. 6, 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 and six months ended June 30,
2015.
Summary of Significant 2015 Activity
During the 18 months ended June 30,
2015, the REIT has sold properties for approximately
$1.3 billion while acquiring
approximately $0.4 billion of
assets. Through these dispositions the REIT has formed
strategic relationships with its new co-owners and has
significantly strengthened its balance sheet by reducing its debt
to total asset ratio from 49.2% at January
1, 2014 to 45.8% at June 30,
2015. Despite the dilutive impact of these sales, H&R
grew FFO per unit by 4.3% in Q2 2015 as compared to Q2 2014,
primarily due to the strengthening of the U.S. dollar. These
results are a testament to the quality of the REIT's portfolio and
the REIT's strategy of diversification both by asset class and
geographic location.
New Industrial Platform
Following the sale to an affiliate of the Public Sector Pension
Investment Board ("PSP") and affiliates of Crestpoint Real Estate
Investments Ltd. ("Crestpoint") (collectively, "CrestPSP") of a 50%
interest in 84 Canadian industrial properties on December 22, 2014, the REIT sold a 49.5% interest
in 16 U.S. properties to CrestPSP for a selling price of
approximately U.S. $150.5 million on
March 24, 2015. CrestPSP
assumed mortgages of approximately U.S. $56.2 million and received a mark-to-market
adjustment on the assumed mortgages of approximately U.S.
$3.5 million. The REIT provided
CrestPSP with a vendor take-back mortgage of approximately U.S.
$10.1 million. Equity
accounting has been applied to this joint venture arrangement for
the U.S. properties. In addition, on March 24, 2015, the REIT sold a 50% interest in
one Canadian industrial property to CrestPSP for approximately
$51.5 million and provided CrestPSP
with a vendor take-back mortgage of approximately $23.2 million. The REIT plans to build on
this strategic alliance with PSP and Crestpoint by expanding on
this new industrial
platform.
U.S. Residential
During the six months ended June 30,
2015, the REIT acquired three residential properties in
Texas and Florida comprising 1,105 residential units for
U.S. $155.2 million at an average
expected capitalization rate of 5.5%. At the date of
acquisition, average occupancy for these three properties was 93.1%
and average monthly rent was U.S. $1,095 per unit. With these latest
acquisitions, the REIT now has a portfolio of 1,808 residential
units. In addition, construction commenced on the REIT's
project in Long Island City, NY
with Tishman Speyer as its partner
for the development of 1,884 rental units. The total budget
at the 100% ownership level is expected to be U.S. $1.2 billion with occupancy scheduled to begin at
the end of 2017.
Alberta Office Exposure
The REIT has five office properties in Alberta which comprise 16.5% of the REIT's
total property operating income. Of this amount, 72.5%
relates to the Bow which is leased to Encana Corporation until 2038
and 19.4% relates to TransCanada Pipelines Tower which is leased to
TransCanada Pipelines Limited until 2021. The REIT has two office
properties, 2767 2nd Avenue and a 50% interest in 2611
3rd Avenue in Alberta
which comprise 1.8% of the REIT's total property operating income
earned in Alberta with both
properties leased to Alta Link LP until 2021 and 2026,
respectively. The REIT also has a 50% interest in Telus Tower
where Telus Communications will be vacating 186,509 square feet (at
the REIT's ownership interest) in 2016 which represents 1.4% of the
REIT's total office square footage. The property has recently
completed a $14.6 million renovation
including a new lobby and a connection to Telus Tower and the Bow
through Calgary's Plus 15 Skywalk
system.
Primaris: Exposure to Alberta and Target
The Primaris properties in Alberta that comprise 8.9% of the REIT's total
property operating income, continue to show strong sales
performance with average store sales (excluding anchor tenants) at
$571 per square foot for the rolling
twelve months ended May 31, 2015
compared to the entire Primaris portfolio average at $519 per square foot.
Primaris has an interest in nine malls where Target Canada Co.
("Target") was 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 of
which two of the three properties are held in a joint
venture. Of these nine locations, Target disclaimed eight of
their leases. The location at Grant Park shopping centre was not
disclaimed and the space has been taken over by Canadian Tire
Corporation. At June 30, 2015,
occupancy for Primaris was 87.4%. Excluding the Target space
that has been returned to Primaris, occupancy would have been 96.6%
compared to 96.2% in Q2 2014. The Target stores were well
positioned in these malls and were leased at an average net rent of
$5.58 per square foot which provides
an opportunity to subdivide and remerchandise at higher rents.
Mortgage Financing and Unencumbered Pool
During the six months ended June 30,
2015, the REIT repaid seven mortgages upon maturity
totalling $97.5 million which had a
weighted average interest rate of 5.3%. As at June 30, 2015, excluding real estate assets
reported in H&R's equity accounted investments, the REIT had 74
unencumbered properties with a fair value of approximately
$1.6 billion and numerous other
properties with very low loan to value ratios. As at
June 30, 2015, excluding real estate
assets reported in H&R's equity accounted investments, the REIT
had 41 properties valued at approximately $1.6 billion which are encumbered with mortgages
totaling $341.6 million. In
this pool of assets, the average loan to value is 21.0%, the
minimum loan to value is 7.0% and the maximum loan to value is
28.5%.
Operating Highlights
H&R REIT's average remaining term to maturity as at
June 30, 2015 was 9.8 years for
leases and 6.2 years for outstanding mortgages. Occupancy at
June 30, 2015 was 95.9%, compared to
97.8% at December 31, 2014 and
June 30, 2014. Leases
representing only 1.6% of total rentable area will expire during
the remainder of 2015.
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 June
30
|
6 months ended June
30
|
2015
|
2014
|
2015
|
2014
|
Rentals from
investment properties (millions)
|
$295.7
|
$304.9
|
$595.0
|
$616.8
|
Property operating
income
|
$200.4
|
$208.6
|
$370.6
|
$390.2
|
Net income
(millions)
|
$119.6
|
$37.3
|
$213.7
|
$150.5
|
FFO
(millions)(1)
|
$142.8
|
$135.1
|
$282.7
|
$270.2
|
FFO per Stapled Unit
(basic)
|
$0.49
|
$0.47
|
$0.97
|
$0.94
|
FFO per Stapled Unit
(diluted)
|
$0.48
|
$0.46
|
$0.95
|
$0.93
|
Cash provided by
operations (millions)
|
$173.3
|
$170.2
|
$353.2
|
$359.9
|
Distributions per
Stapled Unit
|
$0.34
|
$0.34
|
$0.68
|
$0.68
|
Payout ratio per
Stapled Unit (as a % of FFO)
|
69.4%
|
72.3%
|
70.1%
|
72.3%
|
|
|
(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.
|
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
2015
|
$0.11250
|
$1.35
|
September 16,
2015
|
September 30,
2015
|
Subsequent Event
In July 2015, the REIT issued
$200.0 million principal amount of
Series K floating rate unsecured debentures maturing on
March 1, 2019. The proceeds
were used to repay bank indebtedness.
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 $13.6 billion as at
June 30, 2015. H&R REIT is a
fully internalized REIT and has ownership interests in a North
American portfolio of high quality office, retail, industrial and
residential properties comprising over 46 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. $220.4 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, the REIT's
plans to build on the strategic alliance with CrestPSP, the
expected occupancy of the REIT's project in Long Island City, NY, the REIT's exposure to
the Alberta office market and the
opportunity to subdivide and remerchandise space formerly rented by
Target. 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