TORONTO, May 15, 2017 /CNW/ - H&R Real Estate
Investment Trust ("H&R") and H&R Finance Trust
(collectively, "the Trusts") (TSX: HR.UN; HR.DB.D; and HR.DB.H)
today announced their combined financial results for the three
months ended March 31, 2017.
Financial Highlights
H&R continued to strategically sell certain investment
properties between January 1, 2016
and March 31, 2017 for total proceeds
of $1.03 billion and acquired
$380.6 million in new properties and
developments primarily in the multi-family segment in the
U.S. The net proceeds have been used to strengthen H&R's
balance sheet by reducing debt. As at March 31, 2017, the debt to total asset ratio was
43.5% compared to 46.4% at March 31,
2016. The interest coverage ratio was 3.04 for the three
months ended March 31, 2017 compared
to 2.82 for the three months ended March
31, 2016. These sales resulted in reduced rentals from
investment properties, property operating income and FFO (as
defined below).
|
3 months ended March
31
|
2017
|
2016
|
Rentals from
investment properties (millions)
|
$293.9
|
$303.4
|
Property operating
income (millions)
|
$155.2
|
$167.9
|
Net income before
income taxes (millions)
|
$121.8
|
$46.8
|
Funds from Operations
("FFO") (millions)(1)
|
$139.3
|
$147.6
|
FFO per Stapled Unit
(basic)
|
$0.46
|
$0.50
|
FFO per Stapled Unit
(diluted)
|
$0.46
|
$0.49
|
Distributions per
Stapled Unit
|
$0.3450
|
$0.3375
|
Payout ratio per
Stapled Unit (as a % of FFO)
|
75.0%
|
67.5%
|
|
|
(1)
|
FFO is a non-GAAP
measure. See "Non-GAAP Financial Measures" in this press
release. The Trusts' combined MD&A includes a reconciliation of
net income to FFO. Readers are encouraged to review the
reconciliation in the combined MD&A.
|
Operating Highlights
Occupancy as at March 31, 2017 was
95.5% compared to 95.8% as at March 31,
2016. Leases representing only 2.4% of total rentable area
will expire during 2017 and H&R's average remaining lease term
to maturity as at March 31, 2017 was
9.5 years.
Developments
Construction is progressing on the development of 1,871 luxury
residential rental units for the Long
Island City, NY project ("LIC Project") in which H&R has
a 50% interest. The total budget at the 100% ownership level
is expected to be approximately U.S. $1.2
billion with occupancy in the first tower scheduled to begin
in early 2018. As at March 31,
2017, total project costs incurred amounted to U.S.
$741.3 million, of which U.S.
$86.0 million was incurred during Q1
2017. The remaining costs are expected to be funded through
the construction financing facility. 100.0% of total hard
costs and 91.7% of total project costs have been fixed. Upon
completion and stabilized occupancy, the contribution to FFO from
the LIC Project at H&R's interest is projected to be U.S.
$23.0 million, which equates to an
approximate 8.8% year one yield on H&R's cash investment.
In January 2017, H&R acquired
a mortgage receivable secured against nine acres of land in the
principal amount of approximately U.S. $34.0
million. The site, known as River
Landing, is on the Miami River adjacent to the Health
District in the City of Miami,
Florida and is zoned for approximately 425,000 square feet
of retail space and 500 multi-family units.
Office
Alberta Office Exposure:
The weighted average lease
term remaining in H&R's Alberta office portfolio is 17.0 years.
The leases expiring between April 1,
2017 and December 31, 2018 in
H&R's Alberta office portfolio
total 18,507 square feet. As at March
31, 2017, H&R's Alberta
office portfolio had approximately 171,000 square feet of vacant
space, at H&R's ownership share, all of which is in F1RST Tower
(formerly Telus Tower). Due to the long-term leases with
contractual rental increases, H&R expects cash flow from the
Alberta Office portfolio to continue to increase over the next few
years.
Lantower Residential
As at March 31, 2017, Lantower
Residential had a portfolio of 12 properties, comprised of an
aggregate of 3,832 units with an average age of 13 years.
Subsequent to March 31, 2017,
Lantower Residential acquired a multi-family property in
Austin, TX, comprising 375 units
for a total purchase price of U.S. $51.9
million.
Primaris and Target Update
Primaris:
In January
2017, H&R sold a 50% non-managing interest in two
enclosed shopping centres; Cataraqui Town Centre in Kingston, ON and Place du Royaume in
Chicoutimi, QC for $211.6 million. The purchaser assumed 50% of the
existing financing on the properties of approximately $126.6 million. These properties were classified
as held for sale at December 31,
2016. The net proceeds of approximately $81.0 million have been used to repay debt.
Target Update:
Redevelopment of the
former Target stores has commenced, however, the space has not been
transferred to properties under development as the space is part of
existing, already developed properties. For the three months
ended March 31, 2017, H&R spent
approximately $17.8 million in
redevelopment. The following table is a summary of H&R's
leasing progress on the former Target space:
|
Square Feet at
100%
|
Square Feet at
H&R's Interest
|
Annual Base Rent
at
H&R's interest
($ Millions)
|
Former Target Canada
space
|
1,062,676
|
774,035
|
$4.0
|
Backfill
progress:
|
|
|
|
Committed
space
|
609,562
|
418,794
|
6.7
|
Conditional
agreements
|
91,447
|
83,947
|
1.5
|
Advanced
discussions
|
82,612
|
67,291
|
1.3
|
Total backfill
progress
|
783,621
|
570,032
|
9.5
|
Space currently being
marketed
|
45,671
|
27,508
|
0.6
|
Total gross
leasable area ("GLA") upon completion of
redevelopment
|
829,292
|
597,540
|
$10.1
|
Expected GLA to be
converted to common area
|
175,543
|
147,574
|
N/A
|
Space for
demolition/potential redevelopment
|
57,841
|
28,921
|
N/A
|
Total
|
1,062,676
|
774,035
|
|
H&R expects that, once the above leasing is complete, the
new tenants will contribute approximately $10.1 million annually or 253% of the total base
rental revenue lost through Target's departure. H&R expects
most of the remaining leases will be entered into by Q2 2017, with
most occupancy occurring between late 2017 and early 2019.
During Q1 2017, committed space tenants occupied 81,237 square feet
and contributed $0.2 million in base
rent at H&R's interest. The total remaining cost of
subdividing and re-leasing the premises is expected to be
approximately $81.1 million at
H&R's ownership interest.
Debt
H&R continued to actively manage its capital structure in Q1
2017, and had available liquidity of $647.9
million as at March 31,
2017. In January 2017, H&R
repaid its Series I Senior Debentures of $60.0 million and in February 2017, repaid its Series B Senior
Debentures of $115.0 million.
In January 2017, H&R issued
$150.0 million of floating rate
Series M Senior Debentures maturing July 23,
2019 and $200.0 million of
3.369% Series N Senior Debentures maturing January 30, 2024. The Series M Senior Debentures
bear interest at a per annum interest rate equal to the applicable
Canadian Dealer Offered Rate ("CDOR") plus 1.23%.
Subsequent to March 31, 2017,
H&R issued an additional $150.0
million principal amount of 3.369% Series N Senior
Debentures bringing the total principal amount outstanding to
$350.0 million.
In March 2017, H&R, through
Primaris, extended the maturity date of its $300.0 million secured operating facility which
was originally due in December 2017
to July 2019.
Monthly Distribution Declared
The Trusts declared a distribution for the month of June is
scheduled as follows:
|
Distribution/Stapled
Unit
|
Annualized
|
Record
date
|
Distribution
date
|
June 2017
|
$0.11500
|
$1.38
|
June 16,
2017
|
June 30,
2017
|
Conference Call
Management will host a conference call to discuss the financial
results for H&R on Tuesday, May 16,
2017 at 9:30 a.m. Eastern
Time. Participants can join the call by dialing
647-427-7450 or 1-888-231-8191. For those unable to participate in
the conference call at the scheduled time, it will be archived for
replay beginning approximately one hour following completion of the
call. To access the archived conference call by telephone, dial
416-849-0833 or 1-855-859-2056 and enter the passcode 89675181
followed by the pound key. The telephone replay will be
available until Tuesday, May 23, 2017
at midnight.
Webcast
A live audio webcast will be available through
http://hr-reit.com/Investor-Relations/InvestorEvents.aspx or
http://event.on24.com/r.htm?e=1390265&s=1&k=BF999549A62C6F72CF4C6DF8E4AE03D9.
Please connect at least 15 minutes prior to the conference call to
ensure adequate time for any software download that may be required
to join the webcast. The webcast will be archived on H&R's
website following the call date.
2017 Annual Unitholders' Meeting
H&R will host its annual Unitholders' meeting at
1pm on Monday,
June 19, 2017 at the TSX Gallery, 130 King Street West,
Toronto, Ontario.
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 $14.1 billion at
March 31, 2017. 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 45
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. $221.7 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 Disclaimer
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, including
future increases to distributions, H&R's expectation with
respect to contributions to rental revenue by new tenants in former
Target locations, the timing of completion and occupancy of any
leases relating to such premises and the cost of subdividing and
re-leasing such premises, the expected budget, financing, and
occupancy of the LIC Project, expected cash flow and contribution
to FFO from the LIC Project, the expected net leasable area,
occupancy date, expected cash flow and contribution to FFO and the
remaining costs to complete from the industrial properties at
Airport Road Business Park and the expected cash flow from the
Alberta office portfolio.
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. Forward-looking statements are provided
for the purpose of presenting information about management's
current expectations and plans relating to the future and readers
are cautioned that such statements may not be appropriate for other
purposes. These statements are not guarantees of future
performance and are based on the Trusts' estimates and assumptions
that are subject to risks and uncertainties, including those
described below under "Risks and Uncertainties" and those discussed
in the Trusts' materials filed with the Canadian securities
regulatory authorities from time to time, which could cause the
actual results and performance of the Trusts to differ materially
from the forward-looking statements contained in this press
release. Those risks and uncertainties include, among other
things, risks related to: unit prices; credit risk and tenant
concentration; real property ownership; liquidity; financing credit
risk; credit risk and tenant concentration; interest and other
debt-related risk; ability to access capital markets; lease
rollover risk; co-ownership interest in properties; joint
arrangements risk; currency risk; construction risks; availability
of cash for distributions; environmental risk; tax risk; tax
consequences to U.S. holders; dilution; unitholder liability;
redemption right risk and risks relating to debentures.
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 other than in
Alberta; local real estate
conditions are stable other than in Alberta; interest rates are relatively stable;
and equity and debt markets continue to provide access to capital.
The Trusts caution that this list of factors is not
exhaustive. Although the forward-looking statements contained
in this press release are based upon what the Trusts believe are
reasonable assumptions, there can be no assurance that actual
results will be consistent with these forward-looking
statements. These forward-looking statements are made as of
today, and the Trusts, 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.
Non-GAAP Financial Measures
The Trusts' Financial Statements are prepared in accordance with
IFRS. The Trusts' management uses a number of measures which do not
have a meaning recognized or standardized under IFRS or Canadian
Generally Accepted Accounting Principles ("GAAP"). The
following measures, FFO, Interest Coverage Ratio and Trusts'
proportionate share as well as other measures discussed elsewhere
in this release, should not be construed as an alternative to
financial measures calculated in accordance with GAAP. Further, the
Trusts' method of calculating these supplemental non-GAAP financial
measures may differ from the methods of other real estate
investment trusts or other issuers, and accordingly may not be
comparable. The Trusts' use these measures to better assess the
Trusts' underlying performance and provide these additional
measures so that investors may do the same. These non-GAAP
Financial Measures are more fully defined and discussed in the
Trusts' combined MD&A for the three months ended March 31, 2017, available at www.hr-reit.com and
on www.sedar.com.
Additional information regarding H&R and H&R Finance
Trust is available at www.hr-reit.com and on www.sedar.com.
SOURCE H&R Real Estate Investment Trust