TORONTO, Aug. 10, 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 and
six months ended June 30,
2017.
Financial Highlights
H&R continued its strategy of redeploying capital by selling
certain investment properties between January 1, 2016 and June
30, 2017 for total proceeds of $1.03
billion and acquiring $528.6
million in new properties and land held for development, at
the Trusts' proportionate share during such period. These
acquisitions were primarily in the multi-family segment in the
U.S. The net proceeds from these dispositions have been used
to strengthen H&R's balance sheet by reducing debt. As at
June 30, 2017, the debt to total
asset ratio per the Trusts' Financial Statements was 43.5% compared
to 46.2% at January 1,
2016.
- Property operating income decreased by $4.2 million and $16.9
million for the three and six months ended June 30, 2017 compared to the respective 2016
periods, primarily due to net property dispositions disclosed
above.
- Same-Asset property operating income (cash basis) increased by
$3.9 million (2.2%) and $5.5 million (1.5%) for the three and six months
ended June 30, 2017 compared to the
respective 2016 periods.
- Net income increased by $49.0
million and $129.6 million for
the three and six months ended June 30,
2017 compared to the respective 2016 periods primarily due
to lower deferred income taxes.
- FFO (as defined below) per unit was $0.47 per unit and $0.93 per unit for the three and six months ended
June 30, 2017, respectively, compared
to $0.53 per unit and $1.03 per unit for the three and six months ended
June 30, 2016, respectively. The
decreases are primarily due to $18.9
million received as a one-time lease settlement payment from
Target in 2016 and the net property dispositions discussed
above.
|
3 months ended June
30
|
6 months ended June
30
|
2017
|
2016
|
2017
|
2016
|
Rentals from
investment properties (millions)
|
$287.0
|
$289.8
|
$580.8
|
$593.3
|
Property operating
income (millions)
|
$191.6
|
$195.8
|
$346.7
|
$363.6
|
Net income before
income taxes (millions)
|
$169.1
|
$203.7
|
$291.0
|
$250.5
|
Funds from Operations
("FFO") (millions)(1)
|
$142.4
|
$156.9
|
$281.7
|
$304.5
|
FFO per Stapled Unit
(basic)(1)
|
$0.47
|
$0.53
|
$0.93
|
$1.03
|
FFO per Stapled Unit
(diluted)(1)
|
$0.46
|
$0.52
|
$0.92
|
$1.01
|
Distributions per
Stapled Unit
|
$0.35
|
$0.34
|
$0.69
|
$0.68
|
Payout ratio per
Stapled Unit (as a % of FFO)(1)
|
74.5%
|
64.2%
|
74.2%
|
66.0%
|
Interest coverage
ratio(1)
|
2.98
|
2.73
|
3.00
|
2.75
|
Debt to total assets
as at June 30(2)
|
43.5%
|
45.8%
|
43.5%
|
45.8%
|
(1)
|
These are non-GAAP
measures. 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.
|
(2)
|
Debt includes
mortgages payable, debentures payable and bank
indebtedness.
|
Operating Highlights
Occupancy as at June 30, 2017 was
96.3% compared to 95.6% as at June 30,
2016. Commercial leases representing only 1.7% of total
rentable area will expire during the remainder of 2017 and
H&R's average remaining lease term to maturity as at
June 30, 2017 was 9.4
years.
Developments
Construction is progressing on the development of 1,871 luxury
residential rental units known as "Jackson Park" in Long Island City, NY, in which H&R has a
50% ownership 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 June 30, 2017, total project costs incurred
amounted to U.S. $821.5 million, of
which U.S. $80.2 million was incurred
during Q2 2017. The remaining costs (of which 75.3% have been
contractually fixed) are expected to be funded through the
construction financing facility. Upon completion and
stabilized occupancy, the first year's property operating income at
H&R's ownership interest is projected to be U.S. $36.9 million.
In January 2017, H&R acquired
a mortgage receivable for U.S. $34.0
million secured against nine acres of land in Miami, FL. The site, known as
River Landing, is on the Miami River
adjacent to the Health District and is zoned for approximately
420,000 square feet of retail space and over 500 multi-family
units. As at June 30, 2017, the
mortgage receivable outstanding was U.S. $43.5 million.
In Q2 2017, the developments of two industrial properties in the
Airport Road Business Park in Brampton,
ON reached substantial completion and were transferred from
properties under development to investment properties. These
properties have been pre-leased for 15 years to Solutions 2 Go Inc.
and Sleep Country Canada. The net leasable area of the
property leased to Solutions 2 Go Inc. is 215,020 square feet and
the tenant's lease commenced in May
2017. The net leasable area of the property leased to Sleep
Country Canada is 126,772 square feet and the tenant's lease is
expected to commence in September 2017.
As at June 30, 2017, H&R owns
a mortgage receivable of U.S. $38.1
million secured against a property and an adjacent 4.8 acres
of land located in Dallas,
TX. This project includes the re-development of a 93,000
square foot existing historical building into state-of-the-art
office space with completion expected by Q1 2018. To date,
approximately 63.0% has been pre-leased. The 4.8 acres of
land is expected to be developed into a multi-family residential
property. H&R has an option to purchase both sites upon
completion.
Subsequent to June 30, 2017,
H&R acquired a 33.3% non-managing interest in approximately 5.0
acres of land in Austin, TX for
the future development of 391 multi-family residential units with
construction expected to commence mid-2018. The initial
investment to purchase the land was approximately U.S. $4.9 million (at H&R's ownership
interest).
Office
Alberta Office Exposure:
The weighted average lease
term remaining in H&R's Alberta office portfolio is 16.9 years.
As at June 30, 2017, H&R's
Alberta office portfolio had
approximately 171,000 square feet of vacant space, at H&R's
ownership interest, all of which is in F1RST Tower (formerly Telus
Tower). H&R's exposure to lease expiries in Alberta between July 1,
2017 and December 31, 2018
totals 18,507 square feet.
H&R Retail
In May 2017, Marsh Supermarkets, a
tenant at seven of H&R's properties in the U.S., filed for
Chapter 11 bankruptcy protection. Six of these locations have
been re-leased to Fresh Encounter and Kroger. In Q2 2017,
H&R wrote off the accrued rent receivable for these seven
properties which totalled U.S. $4.2
million.
Primaris
Sears:
Sears Canada
("Sears") currently occupies 675,613 square feet at H&R's
ownership interest at nine properties across the Primaris portfolio
with an average net rent payable at the rate of $3.47 per square foot per annum. In
June 2017, Sears obtained creditor
protection under the Companies' Creditors Arrangement Act
(the "CCAA") and announced it was closing 59 stores in Canada. Two of these stores scheduled for
closing are located at Medicine Hat Mall and McAllister Place, where the applicable gross
rent is approximately $0.9 million
per annum, at H&R's ownership interest.
Target:
For the six months ended
June 30, 2017, H&R spent
approximately $42.5 million in
redeveloping the former Target stores. The following table is
a summary of H&R's leasing progress on the former Target
space:
|
Square Feet
at
100%
|
Square Feet
at
H&R's Interest
|
Annual Base Rent
at
H&R's interest
($ Millions)
|
Former Target Canada
space
|
1,062,676
|
774,035
|
$4.0
|
Backfill
progress:
|
|
|
|
Committed space and
in occupancy
|
354,319
|
248,522
|
3.6
|
Committed space not
yet in occupancy
|
277,636
|
185,165
|
3.5
|
Conditional
agreements
|
87,087
|
79,587
|
1.4
|
Advanced
discussions
|
65,485
|
57,262
|
1.1
|
Total backfill
progress
|
784,527
|
570,536
|
9.6
|
Space currently being
marketed
|
44,867
|
27,106
|
0.5
|
Total gross
leasable area ("GLA") upon completion of
redevelopment
|
829,394
|
597,642
|
$10.1
|
Expected GLA to be
converted to common area
|
175,441
|
147,472
|
N/A
|
Space for
demolition/potential redevelopment
|
57,841
|
28,921
|
N/A
|
Total
|
1,062,676
|
774,035
|
|
H&R expects most of the remaining leases will be entered
into by the end of 2017, with most occupancy occurring between late
2017 and Q3 2019. The total remaining cost of subdividing and
re-leasing the premises is expected to be approximately
$56.3 million at H&R's ownership
interest.
Lantower Residential
As at June 30, 2017, Lantower
Residential had a portfolio of 13 properties in the U.S. comprised
of an aggregate of 4,207 units, with an average age of 12 years and
two properties comprising 2,241 units currently under
construction.
In Q2 2017, Lantower Residential acquired a multi-family
property in Austin, TX which was
completed in 2016. The property, known as "NXNE", is comprised of
375 units and was purchased for U.S. $51.9
million. In addition, Lantower Residential purchased a
second property adjacent to NXNE which is currently under
development and is expected to be completed in November 2017. Upon completion, this property
will be comprised of 370 units for a total cost of U.S.
$52.8 million. These two acquisitions
will provide Lantower Residential with a significant presence in
the Techridge submarket of Austin.
Debt and Liquidity Highlights
In April 2017, H&R issued
$150.0 million principal amount of
3.37% Series N Senior Debentures maturing January 30, 2024 which is in addition to the
$200.0 million principal amount
issued in January 2017, bringing the
total principal amount of Series N Senior Debentures to
$350.0 million.
The weighted average interest rate on mortgages and debentures
payable as at June 30, 2017 was 4.1%
with an average term to maturity of 5.1 years, at the Trusts'
proportionate share.
Normal Course Issuer Bid ("NCIB")
H&R also announced today receipt of final acceptance from
the Toronto Stock Exchange ("TSX") of H&R's notice of intention
to make a normal course issuer bid ("NCIB"). Under the NCIB,
H&R REIT will have the ability to purchase for cancellation up
to a maximum of 5,000,000 Stapled Units on the open market,
representing approximately 1.76% of the public float as of
August 1, 2017. As at
August 1, 2017, H&R had
289,686,775 outstanding Stapled Units.
The NCIB will commence on August 15,
2017 and remain in effect until the earlier of August 14, 2018 and the date on which H&R
REIT has purchased the maximum number of Stapled Units permitted
under the NCIB. Purchases of Stapled Units under the NCIB will be
made in accordance with TSX by-laws, rules and policies through the
facilities of the TSX, and through alternative trading systems. The
Stapled Units so purchased will be cancelled. The price paid for
any repurchased units will be the market price of such Stapled
Units at the time of acquisition. Daily purchases will be limited
to 113,640 Stapled Units other than block purchase exemptions.
H&R believes that its outstanding Stapled Units represent an
attractive investment, and the ongoing purchase of its outstanding
Stapled Units may benefit all persons who continue to hold Stapled
Units by increasing their equity interest in H&R.
H&R may establish an automatic purchase plan under which its
broker may purchase Stapled Units according to a prearranged set of
criteria. The plan would enable the purchase of Stapled Units at
any time, including when H&R would not ordinarily be active in
the market because of internal trading blackout periods, insider
trading rules or otherwise. The plan would terminate on the
earliest of: the date on which the purchase limits specified in the
plan have been attained, the date on which the normal course issuer
bid terminates or the date on which the plan is terminated by a
party in accordance with its terms. To H&R's knowledge, after
reasonable inquiry, none of the directors, officers or other
insiders of H&R or any associate of any such persons, or any
associate or affiliate of H&R currently intends to sell Stapled
Units to H&R during the course of the issuer bid.
H&R did not make any purchases of Stapled Units under its
previous normal course issuer bid through the facilities of the TSX
which was approved by the TSX on July 8,
2016 and expired July 13,
2017.
Monthly Distribution Declared
The Trusts have previously declared a distribution for the month
of August and today declared a distribution for the month of
September scheduled as follows:
|
Distribution/Stapled
Unit
|
Annualized
|
Record
date
|
Distribution
date
|
August
2017
|
$0.11500
|
$1.38
|
August 17,
2017
|
August 31,
2017
|
September
2017
|
$0.11500
|
$1.38
|
September 15,
2017
|
September 29,
2017
|
Conference Call
Management will host a conference call to discuss the financial
results for H&R on Friday, August 11,
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 49488890
followed by the pound key. The telephone replay will be
available until Friday, August 18,
2017 at midnight.
Webcast
A live audio webcast will be available through
http://hr-reit.com/Investor-Relations/InvestorEvents.aspx.
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.
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
June 30, 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 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. $222.7 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 information in this press release contains
forward-looking information within the meaning of applicable
securities laws (also known as forward-looking statements)
including, among others, statements made or implied under the
headings "Results of Operations", "Liquidity and Capital
Resources", "Risks and Uncertainties" and "Subsequent Events"
relating to the Trusts' objectives, strategies to achieve those
objectives, the Trusts' beliefs, plans, estimates, projections and
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, H&R's expectation with respect to the activities
of H&R's development properties, including redevelopment of
existing properties and building of new properties, the expected
budget, financing and occupancy of Jackson Park, the first year's
property operating income from Jackson
Park, the expected occupancy date of the industrial
properties at Airport Road Business Park, contributions to rental
revenue by new tenants in former Target locations, the timing of
completion and occupancy of any leases relating to premises vacated
by Target and the cost of subdividing and re-leasing premises
vacated by Target, management's belief that H&R has sufficient
funds for future commitments and management's expectation to be
able to meet all of the Trusts' ongoing obligations and to finance
short-term development commitments through the Trusts' general
operating facilities and the adoption of new accounting
policies. 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 the Trusts' current beliefs and are based on
information currently available to management.
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,
uncertainties and other factors 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,
performance or achievements of the Trusts to differ materially from
the forward-looking statements contained in this press release.
Factors that could cause actual results, performance or
achievements to differ materially from those expressed or implied
by forward-looking statements include, but not are limited to, 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. Additional risks and
uncertainties include, among other things, risks related to: real
property ownership, credit risk and tenant concentration; lease
rollover risk, interest and other debt-related risk; construction
risks; currency risk; liquidity risk, financing credit risk,
environmental risk; co-ownership interest in properties, joint
arrangement risks; unit price risk; availability of cash for
distributions; ability to access capital markets; dilution;
unitholder liability; redemption right risk; risks relating to
debentures, tax risk and tax consequences to U.S. holders. The
Trusts caution that these lists of factors, risks and uncertainties
are 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. Readers are also urged to examine H&R and
Finance Trust's materials filed with the Canadian securities
regulatory authorities from time to time as they may contain
discussions on risks and uncertainties which could cause the actual
results and performance of H&R and Finance Trust to differ
materially from the forward-looking statements contained in this
press release. Neither Finance Trust nor any of its trustees
or officers, assumes any responsibility for the completeness of the
information contained in H&R's materials filed with the
Canadian securities regulatory authorities or for any failure of
H&R or its trustees or officers to disclose events or facts
which may have occurred or which may affect the significance or
accuracy of any such information. Neither H&R nor any of
its trustees or officers, assumes any responsibility for the
completeness of the information contained in Finance Trust's
materials filed with the Canadian securities regulatory authorities
or for any failure of Finance Trust or its trustees or officers to
disclose events or facts which may have occurred or which may
affect the significance or accuracy of any such information.
All forward-looking statements in this press release are
qualified by these cautionary statements. These
forward-looking statements are made as of today and the Trusts,
except as required by applicable Canadian law, assume 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' interim condensed combined Financial Statements are
prepared in accordance with IAS 34. 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 non-GAAP measures FFO, Same-Asset
property operating income (cash basis), Interest Coverage Ratio,
Payout Ratio per Stapled Unit and Trusts' proportionate share as
well as other non-GAAP 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 as at and for the three and six months
ended June 30, 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