TORONTO, Nov. 5, 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
nine months ended September 30,
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
September 30
|
9 months ended
September 30
|
2015
|
2014
|
2015
|
2014
|
Rentals from investment
properties (millions)
|
$297.1
|
$302.4
|
$892.1
|
$919.2
|
Property operating
income
|
$200.8
|
$204.8
|
$571.4
|
$595.0
|
Net income
(millions)
|
$165.9
|
$136.5
|
$379.6
|
$286.9
|
FFO
(millions)(1)
|
$144.3
|
$134.3
|
$427.1
|
$404.5
|
FFO per Stapled Unit
(basic)
|
$0.49
|
$0.46
|
$1.46
|
$1.40
|
FFO per Stapled Unit
(diluted)
|
$0.49
|
$0.46
|
$1.44
|
$1.39
|
Cash provided by
operations (millions)
|
$184.2
|
$207.7
|
$537.4
|
$567.6
|
Distributions per
Stapled Unit
|
$0.33
|
$0.33
|
$1.01
|
$1.01
|
Payout ratio per
Stapled Unit (as a % of FFO)
|
67.3%
|
71.7%
|
69.2%
|
72.1%
|
(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.
During the 21 months ended September 30,
2015, the REIT sold properties (including partial interests
in properties) totalling approximately $1.4
billion while acquiring approximately $0.5 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 45.3% at
September 30, 2015. Despite the
dilutive impact of these sales, H&R's FFO per unit grew by 6.5%
in Q3 2015 as compared to Q3 2014 primarily due to the
strengthening of the U.S. dollar.
Operating Highlights
Occupancy at September 30, 2015
was 96.0%, compared to 97.8% at December 31,
2014 and 98.4% as at September
30, 2014. Leases representing only 5.7% of total
rentable area will expire during the remainder of 2015 and
2016. H&R REIT's average remaining term to maturity as at
September 30, 2015 was 10.1 years for
leases.
Debt Highlights
During the quarter, the REIT issued $200
million of senior debentures maturing in March 2019 bearing interest at a rate equal to
the 3 month Canadian Dealer Offered Rate plus 143 basis
points. The current weighted average interest rate on
existing mortgages is 4.7% with a weighted average term to maturity
of 6.1 years. During the nine months ended September 30, 2015, the REIT secured ten
mortgages totalling $175.3 million at
a weighted average interest rate of 3.7% for an average term of 9.3
years and repaid 11 mortgages upon maturity totalling $177.1 million which had a weighted average
interest rate of 5.3%.
As at September 30, 2015,
excluding real estate assets reported in H&R's equity accounted
investments, the REIT had 73 unencumbered properties with a fair
value of approximately $1.7
billion. In addition, the REIT had 39 properties
valued at approximately $1.6 billion
which are encumbered with mortgages totaling $316.7 million. In this pool of assets, the
average loan to value is 20.2%, the minimum loan to value is 6.6%
and the maximum loan to value is 27.8%.
Summary of Significant 2015 Activity
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.
Significant Acquisitions and Dispositions
In July 2015, ECHO Realty LP, a
privately held real estate and development company of which the
REIT owns a 33.6% interest, purchased a grocery anchored portfolio
consisting of eight properties located in the Southeastern United States totalling 546,462
square feet (REIT's share - 183,461 square feet) for a total
purchase price of U.S. $124.8 million
(REIT's share - U.S. $41.9
million).
In September 2015, the REIT sold
its 100% interest in a 314,033 square foot retail property located
in Richmond, B.C., for
$103.0 million at a capitalization
rate of 6.0%. Upon closing, the REIT repaid the mortgage on
the property of $47.3 million which
had an interest rate of 5.1%.
U.S. Residential
During the nine months ended September
30, 2015, the REIT acquired three residential properties in
Texas and Florida comprising 1,112 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. $1,105 per unit. With these latest
acquisitions, the REIT now has a portfolio of 1,808 rental
units. Subsequent to September 30,
2015, the REIT acquired three residential properties in
Texas comprising 778 residential
units for U.S. $105.3 million at an
average expected capitalization rate of 5.3%. At the date of
acquisition, average occupancy for these three properties was 96.3%
and average monthly rent was U.S. $1,076 per unit.
Construction commenced on the REIT's 50% joint venture project
in Long Island City, NY with
Tishman Speyer as the operating
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.
Significant Q3 Leasing Activity:
In the REIT's office portfolio:
- An existing tenant in a 104,689 square foot lease in the
Greater Toronto Area ("GTA") was
renewed for a further 5 years to 2021.
- An existing tenant in a 931,187 square foot lease in
Calgary, AB was extended for a
further 10 years to April 2031.
- A new tenant was signed for a 15-year lease commencing
August 1, 2016 for 41,548 square feet
at 145 Wellington St. W., Toronto,
ON.
In the REIT's industrial portfolio:
- An existing tenant in a 358,771 square foot lease in
Georgia renewed for a further 10
years to 2028 and a 100,000 square foot expansion will be built for
them which is expected to be completed by December 2016.
- An existing tenant in a 738,102 square foot lease in the GTA
extended their lease expiring April 28,
2019 to July 31, 2025.
Alberta Office Exposure
The REIT has five office properties in Alberta which collectively comprise 16.5% of
the REIT's total property operating income. Of this amount,
71.7% relates to the Bow which is leased to Encana Corporation
until 2038 and 19.3% relates to TransCanada Pipelines Tower which
is leased to TransCanada Pipelines Limited until 2031. 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 which comprise 8.4% of the REIT's
total property operating income, continue to show strong sales
performance with average store sales (excluding anchor tenants) at
$576 per square foot for the rolling
12 months ended August 31, 2015
compared to the entire Primaris portfolio average at $527 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 totalling 771,417 square feet at the REIT's ownership
interest. The location at Grant Park shopping centre was not
disclaimed and the space has been taken over by Canadian Tire
Corporation. 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 the premises and remerchandise at higher
rents. The REIT is in active negotiations on a combined
599,604 square feet at the REIT's ownership interest. The REIT
expects to have these leases binding subject to development permits
by the end of Q1 2016 with occupancy occurring between the fall of
2016 and Q2 2017. At September 30,
2015, occupancy in the Primaris segment was
87.2%. Excluding the Target space that has been returned to
Primaris, occupancy would have been 96.4% compared to 96.8% in Q3
2014.
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
2015
|
$0.11250
|
$1.35
|
December 16,
2015
|
December 31,
2015
|
Subsequent Events
In October 2015, the REIT acquired
one residential property in Austin,
TX for a purchase price of approximately U.S. $47.3 million and assumed a mortgage of
approximately U.S. $33.5 million for
a term of nine years.
In October 2015, the REIT acquired
two residential properties in Dallas,
TX for an aggregate purchase price of approximately U.S.
$58.0 million and entered into two
mortgages in aggregate of U.S. $41.2
million for a term of 10 years.
In October 2015, upon the maturity
of a mortgage on Place du Royaume Mall in Chicoutimi, QC of approximately $63.3 million, the REIT secured a new
$167.0 million mortgage for a term of
12 years.
In October 2015, the REIT repaid
all of its outstanding Series H Senior Debentures upon maturity for
a total cash payment of $235.0
million.
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 $13.8 billion as at
September 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.
SOURCE H&R Real Estate Investment Trust