TORONTO, May 11, 2018 /CNW/ - H&R Real Estate
Investment Trust ("H&R") and H&R Finance Trust ("Finance
Trust") (collectively, the "Trusts") (TSX: HR.UN) today announced
strong combined financial results for the three months ended
March 31, 2018.
Thomas Hofstedter, H&R REIT's
President & CEO said "We are pleased with the steady, gradual
growth our portfolio continues to deliver, providing stability and
flexibility as we continue to recycle capital to increase the
REIT's internal growth profile and take advantage of value creating
development opportunities."
STRATEGY UPDATE
Over the past 22 years, H&R has accumulated a large
portfolio of high-quality properties, emphasizing the benefits of
scale, quality and diversification. With this large scale and
quality, H&R has turned its focus to enhancing its FFO and net
asset value ("NAV") growth profile. Recent examples include
H&R's growing investment in Lantower Residential, its sizable
development opportunity portfolio, sales of lower growth assets,
and the repurchase of Stapled Units at a significant discount to
NAV under the Trusts' Normal Course Issuer Bid ("NCIB").
In 2017, H&R made the strategic decision to narrow its focus
by streamlining its property portfolio. In November 2017, H&R announced plans to sell
all 79 of its wholly-owned U.S. retail properties and, together
with its partners, its 12 remaining U.S. industrial properties.
During Q4 2017, H&R sold six U.S. industrial properties for
U.S. $106.1 million, at H&R's
ownership interest. Management continues to pursue sales of
US retail and the remaining U.S. industrial properties and expects
to be in a position to announce the sale of most of its U.S. retail
assets in the very near future.
Management and the board of trustees of H&R will continue to
evaluate all aspects of the business on an ongoing basis, looking
for ways to create unitholder value, best position H&R for
long-term success and enhance the profile of H&R among
investors. In the pursuit of these objectives, H&R will
continue to be guided by its core goal of building a high-quality
portfolio of real estate in order to deliver strong per unit
performance over the long term.
FINANCIAL
HIGHLIGHTS
|
3 months ended March
31
|
2018
|
2017
|
% Change
|
Rentals from
investment properties (millions)
|
$298.6
|
$293.9
|
1.6%
|
Property operating
income (millions)
|
$154.5
|
$155.2
|
(0.4%)
|
Same-Asset property
operating income (cash basis) - Canada(1)
|
$133.0
|
$131.9
|
0.8%
|
Same-Asset property
operating income (cash basis) - U.S. in U.S.
dollars(1)
|
$50.1
|
$49.4
|
1.5%
|
Same-Asset property
operating income (cash basis) total in Canadian
dollars(1)
|
$196.1
|
$197.0
|
(0.5%)
|
Net income
|
$63.1
|
$110.8
|
(43.1%)
|
Funds from Operations
("FFO") (millions)(1)
|
$135.7
|
$139.3
|
(2.6%)
|
FFO per Stapled Unit
(basic and diluted)(1)
|
$0.44
|
$0.46
|
(3.6%)
|
Distributions per
Stapled Unit
|
$0.35
|
$0.35
|
-
|
Payout ratio per
Stapled Unit (as a % of FFO)(1)
|
77.7%
|
74.8%
|
2.9%
|
(1)
|
These are non-GAAP
measures. See "Non-GAAP Financial Measures" in this press
release. The Trusts' combined MD&A includes a
reconciliation of property operating income to Same-Asset property
operating income (cash basis) and net income to FFO. Readers
are encouraged to review the reconciliation in the combined
MD&A.
|
H&R's portfolio generated positive growth in Same-Asset
property operating income (cash basis). Despite positive
growth in both the Canadian and U.S. portfolios in local currency
terms, consolidated Same-Asset property operating income (cash
basis) declined 0.5% in Canadian dollars compared to the three
months ended March 31, 2017, as
Canadian dollar strength reduced the contribution of U.S.
growth. The growth in Same-Asset property operating income
(cash basis) on a constant currency basis was led by Lantower
Residential at 5.6% and Office at 1.7% which accounts for almost
half the portfolio by value.
Financial results were impacted by the strengthening of the
Canadian dollar compared to the U.S. dollar. The average exchange
rate for the three months ended March 31,
2018 was $1.26 for each U.S.
$1.00 (March
31, 2017 - $1.32).
Net income decreased by $47.7
million for the three months ended March 31, 2018 compared to the three months ended
March 31, 2017. Excluding
non-cash items, which consist of fair value adjustments and gain
(loss) on foreign exchange and real estate asset sales, net income
increased by $0.4 million from
$88.8 million at March 31, 2017 to $89.2
million at March 31, 2018.
SUMMARY OF SIGNIFICANT Q1 2018
ACTIVITY
Developments
H&R continues to make significant progress with its value
creating development program. "Jackson Park", the 1,871 suite
residential development in Long Island
City, NY, in which H&R has a 50% ownership interest, is
nearing completion. This trophy project is on budget and slightly
ahead of the development lease-up schedule with rental rates
slightly higher than projected. As at April 30, 2018, 864 units had received
certificates of occupancy, 353 leases had been signed and 241 units
were occupied. The remaining lease-up is expected to occur
throughout 2018 and 2019 and stabilized occupancy is expected to be
achieved by Q4 2019. Upon stabilized occupancy of all three
towers, the first year's property operating income at H&R's
ownership interest is projected to be U.S. $36.9 million, equating to a 6.1% yield on
budgeted cost.
The Trusts' Internal Reorganization - Unwinding of Stapled Unit
Structure Expected in Q3 2018
The Trusts' previously announced amended reorganization, whereby
the Stapled Unit structure will be unwound, remains subject to the
receipt by the Trusts of an advance income tax ruling from the
Canada Revenue Agency and other customary closing conditions. The
reorganization is expected to be implemented by August 2018 and will return H&R to a
simplified REIT structure.
Debt and Liquidity Highlights
In January 2018, H&R obtained
an additional $200.0 million
unsecured revolving operating facility maturing in January 2023. As at March 31, 2018, the Trusts' debt to total assets
was 44.8%. As at March 31,
2018, the Trusts had $44.7
million of cash on hand, $600.2
million available under their bank credit facilities and an
unencumbered property pool of approximately $3.5 billion.
NCIB
H&R has historically not acquired material amounts of its
own units under NCIBs, in part due to the availability of
attractive acquisition and development opportunities, combined with
limited amounts of excess capital in H&R. However, as
management has increased its focus on capital recycling into higher
growth assets and higher return investments, a combination of
excess capital and a significantly discounted unit price have led
to the purchase and cancellation of 3,609,720 Stapled Units at a
weighted average price of $20.83 per
Stapled Unit, for a total cost of $75.2
million during the three months ended March 31, 2018.
2018 OUTLOOK
H&R's plans for 2018 include significant development
projects, dispositions and acquisitions designed to enhance FFO
growth and NAV growth per unit, which management expects to
influence quarterly and annual financial performance in both 2018
and 2019.
As units in Jackson Park become available for occupancy, IFRS
requires H&R to report the associated revenue and expenses in
net income and to cease to capitalize costs associated with these
units. The largest impact will arise from interest expense which
will no longer be allowed to be capitalized. Although the
accounting impact of these changes will reduce net income and
reported FFO during 2018, these changes will not have a cash impact
on H&R. As a result of these accounting changes,
management expects a reduction in reported FFO for the balance of
fiscal 2018 of approximately U.S. $15.5
million translating into approximately C$0.06 to C$0.07
per Stapled Unit. Details can be found on page 14 of the
MD&A. Management expects Jackson
Park to deliver NAV growth through the completion of this
development, and once stabilized to contribute to higher FFO and
NAV growth over time.
Management expects to be in a position to announce the sale of
most of its U.S. retail assets in the very near future.
Proceeds from the asset sales will be used to repay debt, fund
Lantower Residential acquisitions and repurchase Stapled Units
under the Trusts' NCIB.
Management expects positive Same Asset property operating income
(cash basis) growth led by Lantower Residential in 2018 and 2019
and from Primaris in 2019.
Monthly Distribution Declared
The Trusts previously declared a distribution for the month of
May and today declared a distribution for the month of June
scheduled as follows:
|
Distribution/Stapled
Unit
|
Annualized
|
Record
date
|
Distribution
date
|
May 2018
|
$0.11500
|
$1.38
|
May 16,
2018
|
May 31,
2018
|
June 2018
|
$0.11500
|
$1.38
|
June 15,
2018
|
June 29,
2018
|
Conference Call
Management will host a conference call to discuss the financial
results for the Trusts on Monday, May 14,
2018 at 3:00 p.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 9084869#. The
telephone replay will be available until Monday, May 21, 2018 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 one of Canada's
largest fully internalized real estate investment trusts with total
assets of approximately $14.5 billion
at March 31, 2018. H&R REIT 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. $223.9 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 news 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 "Summary of Significant Q1 2018 Activity", "Strategy
Update" and "2018 Outlook" 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 statements with respect to the streamlining of
H&R's operations, expectations for Same Asset property
operations income (cash basis) from Lantower Residential and
Primaris, H&R's intentions and expectations regarding, and
timing of, future U.S. industrial and U.S. retail dispositions,
including, without limitation, the use of proceeds of such
dispositions, H&R's expectations with respect to H&R's
development properties, including Jackson
Park, the expected interest expense and lease-up of Jackson
Park, the expected stabilized property operating income from
Jackson Park, the anticipated
reduction in net income and reported FFO in 2018 resulting from
Jackson Park, expected future NAV
growth and contribution to FFO from Jackson
Park, that all necessary conditions will be met for the
completion of the amended reorganization and the expected timing
for implementation of the amended reorganization, H&R's plans
for 2018, including significant development projects, dispositions
and acquisitions and management's belief that these transactions
will enhance per unit FFO and NAV growth, 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. 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 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
news 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; local real estate conditions are
stable; 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, cyber security 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 news 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 news 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 news
release are qualified by these cautionary statements. These
forward-looking statements are made as of May 11, 2018 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' annual audited combined 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 non-GAAP measures FFO, Debt to total
assets, Payout Ratio per Stapled Unit, Same-Asset property
operating income (cash basis) 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 for the three months ended March 31, 2018, 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