TORONTO, Feb. 17, 2016 /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, 2015.
Operating Highlights
H&R REIT's occupancy as at December
31, 2015 was 95.9% compared to 97.7% as at December 31, 2014 which decreased primarily due
to Target Canada Co. ("Target") disclaiming their leases.
H&R REIT's average remaining term to maturity as at
December 31, 2015 was 9.9 years for
leases and 6.2 years for outstanding mortgages.
Liquidity
In December 2015, the REIT
increased its liquidity by replacing its $300 million secured operating line with a new
$500 million senior unsecured
revolving credit facility with a syndicate of lenders which will
mature in December 2018. The REIT, through its wholly-owned
subsidiary PRR Trust, also amended its senior unsecured credit
facility by increasing the line from $200
million to $300 million and extending the maturity date to
December 2017. As at December 31,
2015, $433.8 million was
available under these facilities.
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. H&R's
Combined Financial Statements and MD&A for the year ended
December 31, 2015 are posted on
H&R's website at www.hr-reit.com. Readers are encouraged
to review these documents for a more fulsome discussion on
H&R's results.
|
3 months ended
December 31
|
Year ended December
31
|
2015
|
2014
|
2015
|
2014
|
Rentals from investment
properties (millions)
|
$296.2
|
$308.6
|
$1,188.3
|
$1,227.8
|
Property operating
income (millions)
|
$202.1
|
$208.3
|
$773.5
|
$803.3
|
Net income (loss)
(millions)
|
($39.5)
|
$137.7
|
$340.1
|
$424.7
|
FFO
(millions)(1)
|
$142.9
|
$138.5
|
$569.9
|
$543.0
|
FFO per Stapled Unit
(basic)
|
$0.48
|
$0.48
|
$1.95
|
$1.88
|
FFO per Stapled Unit
(diluted)
|
$0.48
|
$0.47
|
$1.92
|
$1.86
|
Cash provided by
operations (millions)
|
$234.2
|
$198.3
|
$771.5
|
$765.9
|
Distributions per
Stapled Unit
|
$0.34
|
$0.34
|
$1.35
|
$1.35
|
Payout ratio per
Stapled Unit (as a % of FFO)
|
70.8%
|
70.8%
|
69.2%
|
71.8%
|
|
|
(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 two-year period ended December
31, 2015, the REIT has sold properties (including partial
interest in properties) for approximately $1.4 billion while acquiring approximately
$0.6 billion of assets. Through
these partial interest dispositions, the REIT has formed strategic
relationships with its new partners and has significantly
strengthened its balance sheet by reducing its debt to total asset
ratio from 49.2% at January 1, 2014
to 46.2% at December 31, 2015.
Despite the dilutive impact of these sales, the Trusts' FFO per
unit grew by 3.7% in 2015 primarily due to the strengthening of the
U.S. dollar.
Included in net income (loss) is a fair value adjustment on real
estate assets of ($148.1 million) and
($178.9 million) for the three months
and year ended December 31, 2015,
respectively. The large adjustment was primarily due to a
decrease in the fair value of properties in Alberta. Without
this adjustment, net income would have been $108.6 million and $519.0
million, respectively.
Alberta Exposure
The REIT's properties in Alberta comprise 28.3% of the REIT's adjusted
same-asset property operating income, which is further discussed by
segment below.
Alberta Office Segment:
The Alberta properties in the
REIT's office segment are listed in the table below. They
collectively comprised 17.4% of the REIT's same-asset adjusted
property operating income in 2015.
Address
|
City
|
Ownership
Interest
|
Total Property
Area (Sq.Ft.)
|
% of the REIT's
adjusted same-
asset property
operating income
in 2015
|
Average
Remaining
Lease Term
(years)
|
Major
Tenant
|
S&P Tenant
Credit
Rating
|
5th Ave.
at Centre St.
|
Calgary
|
100%
|
2,024,182
|
12.6
|
22.2
|
Encana
Corporation
|
BBB Stable
|
450-1st St.,
S.W.
|
Calgary
|
100%
|
931,187
|
3.3
|
15.3
|
TransCanada PipeLines
Limited
|
A- Stable
|
411-1st St.,
S.E.(1)
|
Calgary
|
50%
|
709,877
|
1.2
|
2.1
|
Telus
Communications
|
BBB+
Stable
|
2611-3rd
Ave.
|
Calgary
|
50%
|
95,225
|
0.1
|
10.8
|
Alta Link
LP
|
A- Stable
|
2767-2nd
Ave.
|
Calgary
|
100%
|
69,793
|
0.2
|
6.0
|
Alta Link
LP
|
A- Stable
|
Total
|
|
|
3,830,264
|
17.4
|
19.4
|
|
|
|
(1)
411-1st St., S.E. is a multi-tenanted
property.
|
Alberta Retail Segment:
The retail properties in Alberta comprise 9.4% of the REIT's adjusted
same-asset property operating income in 2015 and continue to show
strong sales performance with average store sales (excluding anchor
tenants) at $563 per square foot for
the rolling 12 months ended December 31,
2015 compared to the entire Primaris portfolio average at
$534 per square foot. The
weighted average remaining term to lease is 4.5 years.
Alberta Industrial Segment:
The REIT has a 50% ownership interest in 16 industrial
properties in Alberta and a 100%
ownership interest in one industrial property in Alberta which, collectively, comprised 1.5% of
the REIT's adjusted same-asset property operating income in 2015.
The REIT owns 1,762,937 square feet of industrial space in
Alberta, of which 1,413,866 square
feet is leased to creditworthy tenants such as Canadian Tire
Corporation, Finning International Inc. and Purolator Inc. on a
long-term basis. The weighted average remaining term to lease
is 9.2 years and leases representing only 2,309 square feet will
expire during 2016 and 2017.
Target Update
Primaris has an interest in nine malls where 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
these three properties are held in a joint venture.
Primaris's claims in respect of the Target leases are being handled
through the Companies' Creditors Arrangement Act
(Canada). The potential
settlement has not been accrued for in H&R's Financial
Statements. These nine locations totalled 831,688 square feet
at the REIT's ownership interest. The Target stores were well
positioned in these malls and were leased at an average net rent of
$5.58 per square foot providing an
opportunity to subdivide the premises and remerchandise at higher
rents. It is currently expected that once the space has been
subdivided there will be approximately 709,000 square feet of
leasable area at the REIT's ownership interest. Primaris has
entered into new leases for 63,883 square feet and leases are in
process for a further 367,804 square feet at the REIT's ownership
interest. Primaris is also in active negotiations with
potential tenants on a combined 199,653 square feet at the REIT's
ownership interest. The REIT expects most of these leases
will be binding, subject to development permits, by the end of Q1
2016 with occupancy occurring between the summer of 2016 and the
end of 2017. The cost of subdividing and re-leasing the
premises is expected to be approximately $109.0 million at the REIT's ownership
interest. At December 31, 2015,
occupancy in the Primaris segment was 87.1%. Excluding the
Target space that has been returned to Primaris, occupancy would
have been 96.3% compared to 97.5% at December 31, 2014. As at
December 31, 2015, the Target stores
have not been transferred to properties under development and no
expenses have been capitalized for accounting purposes.
Lantower Residential
In accordance with the REIT's strategy of diversification both
by asset class and geography, the REIT is continuing to expand into
residential rental units in Texas
and Florida under the branding of
"Lantower Residential". During the year ended December 31, 2015, Lantower Residential acquired
six residential properties in Texas and Florida comprising 1,890 units for U.S.
$260.4 million at an average expected
capitalization rate of 5.4%. At the date of each respective
acquisition, average occupancy for these six properties was 94.3%
and average monthly rent was U.S. $1,086 per unit. Including these
acquisitions, Lantower Residential has a portfolio of 2,586 rental
units.
Construction commenced on the development of 1,871 rental units
in Long Island City, NY ("LIC
Project"), in which the REIT has a 50% interest and Tishman Speyer is the operating partner.
The total budget at the 100% ownership level is expected to be
approximately U.S. $1.2 billion with
occupancy scheduled to begin in late 2017. Construction
financing for up to U.S. $640 million
has been secured through a syndicate of lenders co-led by two U.S.
banks. As a condition to the financings, the REIT will have
to contribute a further U.S. $64.4
million to the project which will increase its total
investment to U.S. $260.7
million. Trade contracts for approximately 73% of
total hard costs have been awarded.
Office Segment:
During 2015, the REIT entered into new leases and/or renewed
expiring leases totalling approximately 1.8 million square
feet. Major tenants of these leases include TransCanada
PipeLines Limited, TD Bank, Gowlings, Ontario Realty Corporation
and Public Works and Government Services, Canada.
H&R's declared distribution for the month of March is
scheduled as follows:
|
Distribution/Stapled
Unit
|
Annualized
|
Record
date
|
Distribution
date
|
March 2016
|
$0.11250
|
$1.35
|
March 16,
2016
|
March 31,
2016
|
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 $14.0 billion as at
December 31, 2015. H&R REIT is a
fully internalized real estate investment trust and has ownership
interests in a North American portfolio of high quality office,
retail, industrial and residential properties comprising over 47
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
expectation with respect to the square feet of leasable area for
the malls where Target was a tenant, the timing of completion of
any leases relating to such premises and the cost of subdividing
and re-leasing such premises and the expected budget and occupancy
of the LIC Project. 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