TORONTO, May 13, 2021 /CNW/ - H&R Real Estate
Investment Trust ("H&R" or "the REIT") (TSX: HR.UN) announces
its financial results for the three months ended March 31, 2021.
BUSINESS UPDATE
H&R is pleased to report stable and consistent Q1 2021
financial and operating results reflecting the quality of the
REIT's portfolio and the strength of the REIT's balance sheet.
While the extraordinary events that followed the arrival of
the COVID-19 pandemic a year ago have required significant
management attention to ensure the safety and security of the
REIT's employees, tenants, properties and financial condition,
management has continued to invest considerable time and effort
into the REIT's objectives of improving the quality and value of
the REIT's portfolio and improving the profile of an investment in
H&R units.
President & CEO Tom
Hofstedter commented "As we emerge from the past year's
challenging environment, we are pleased with both the REIT's
financial and operating results and the progress we continue to
make in advancing strategic initiatives. In the past year we
have completed substantial dispositions and acquisitions, completed
successful developments and advanced future development projects
which will commence in 2021 and 2022, and expect to complete
further property dispositions in the remainder of 2021. These
activities have laid the foundation for more significant strategic
changes, which we hope to provide more details of in coming
months."
FINANCIAL HIGHLIGHTS
|
3 months ended March
31
|
|
2021
|
2020
|
Rentals from
investment properties (millions)
|
$266.5
|
$279.7
|
Property operating
income (millions)
|
$133.7
|
$140.6
|
Fair value adjustment
on real estate assets (millions)
|
$64.7
|
($1,301.2)
|
Net income (loss)
(millions)
|
$159.5
|
($1,019.8)
|
Funds from operations
("FFO") (millions)(1)
|
$119.7
|
$136.1
|
FFO per Unit
(basic)(1)
|
$0.40
|
$0.45
|
Adjusted Funds from
Operations ("AFFO") (millions)(1)
|
$97.1
|
$120.1
|
AFFO per Unit
(basic)(1)
|
$0.32
|
$0.40
|
Distributions per
Unit
|
$0.17
|
$0.35
|
Payout ratio per Unit
(as a % of FFO)(1)
|
43.5%
|
76.5%
|
Net Asset Value
("NAV") per Unit as at March 31(1)
|
$22.24
|
$22.26
|
(1)
|
These are non-GAAP
measures. See "Non-GAAP Financial Measures" in this press
release. H&R's management discussion and analysis
("MD&A") for the three months ended March 31, 2021 includes a
reconciliation of net income (loss) to FFO and AFFO as well as the
calculation of NAV per Unit. Readers are encouraged to review
the reconciliations and calculation in H&R's
MD&A.
|
Property operating income decreased by $7.0 million for the three months ended
March 31, 2021 compared to the
respective 2020 period primarily due to the Retail segment, which
decreased by $6.6 million due to
factors relating to the COVID-19 pandemic, including: (i) tenant
closures mainly affecting enclosed shopping centres; (ii) temporary
lease amendments reducing rental rates in order to retain tenants
who have faced challenging conditions; and (iii) lower percentage
rent and specialty leasing earned due to government mandated
closures primarily affecting enclosed shopping centres. In
addition, four single-tenant retail properties in the United States were vacated in June 2020, and to date only a portion of the
space has been re-leased at lower rental rates.
Net income (loss) before income taxes increased by approximately
$1.2 billion for the three months
ended March 31, 2021 compared to the
respective 2020 period primarily due to fair value adjustments of
real estate assets. This is primarily due to negative fair value
adjustments taken in Q1 2020 during the onset of COVID-19 as a
result of challenging conditions in the retail landscape and energy
sector volatility affecting office property market fundamentals.
This was partially offset by fair value adjustments on financial
instruments.
Rent Collection
Rent collection has been a key focus during the pandemic and one
where H&R believes it has performed well while also
accommodating the needs of its tenants. As of May 7, 2021, H&R's rent collections are as
follows:
Tenant
Type(1)
|
|
|
Share of
Rent(2)
|
Q4 2020
Collection(2)
|
Q1 2021
Collection(2)
|
April 2021
Collection(2)
|
Office
|
|
|
44%
|
100%
|
99%
|
99%
|
Retail:
|
|
|
|
|
|
|
|
Enclosed
|
|
|
20%
|
87%
|
89%
|
81%
|
|
Other
|
|
|
14%
|
96%
|
96%
|
94%
|
Total
Retail
|
|
|
34%
|
90%
|
92%
|
86%
|
Residential
|
|
|
16%
|
97%
|
96%
|
96%
|
Industrial
|
|
|
6%
|
100%
|
100%
|
100%
|
Total
|
|
|
100%
|
96%
|
96%
|
94%
|
(1)
|
Retail tenants in an
office property for the purpose of this table have been classified
as retail.
|
(2)
|
The average share of
rent and collections includes monthly billings for base rent and
property operating costs.
|
H&R's high-quality, long-term leased office portfolio
delivered strong rent collection consistent with the profile of the
tenant base, with 85.8% of revenues coming from investment-grade
rated tenants. Rent collection was also stable in H&R's
industrial and residential portfolios, reflecting the
stronger-than-average credit profile of the REIT's tenant base
across both of these portfolios.
H&R has recorded a bad debt expense for the three months
ended March 31, 2021 of $1.0 million compared to $3.2 million for Q4 2020 and $0.3 million for the three months ended
March 31, 2020.
Liquidity
As at March 31, 2021, H&R had
ample liquidity including cash on hand of $54.5 million, $1.4
billion available under its unused lines of credit and an
unencumbered property pool of approximately $3.9 billion.
SUMMARY OF SIGNIFICANT Q1 2021 ACTIVITY
Developments
H&R's active development pipeline in the United States currently comprises five
residential developments with a total development budget of U.S.
$241.6 million. As at March 31, 2021, U.S. $214.9 million had been spent on properties under
development with U.S. $26.7 million
of budgeted costs remaining to be spent. The REIT has U.S.
$30.6 million available to be funded
through secured construction facilities, in each case at the REIT's
proportionate share.
The REIT's largest current development project is River Landing,
an urban in-fill mixed use development site in Miami, FL, which is adjacent to the Health
District with approximately 1,000 feet of waterfront on the Miami
River, two miles from downtown Miami. River Landing includes approximately
339,000 square feet of retail space, approximately 125,000 square
feet of office space and 528 residential rental units.
In Q4 2020, the retail and office portion of this project known
as "River Landing Commercial", reached substantial completion and
was transferred from properties under development to investment
properties. Retail occupancy was 74.6% as at March 31, 2021, which includes the following
major tenants: Publix Super Markets Inc., Hobby Lobby, Burlington, Ross Stores Inc., T.J. Maxx, Old
Navy and Planet Fitness. Committed occupancy for retail space as at
March 31, 2021 was 81.7% with the
remaining retail lease-up expected to occur during 2021. The REIT
is continuing negotiations with multiple parties on the office
space.
In Q1 2021, the first of two residential towers at River Landing
reached substantial completion and was transferred from properties
under development to investment properties. As at March 31, 2021, 228 residential leases in the
first tower had been entered into and occupancy was 62.9%,
exceeding management's expectations on leasing velocity. The
second residential tower, with the remaining 218 of 528 total
residential rental units, is expected to be transferred from
properties under development to investment properties in Q2 2021.
The total cost of the project is expected to be completed on budget
at approximately U.S. $495.9 million
of which U.S. $294.3 million was
allocated to River Landing Commercial and the remaining U.S.
$201.6 million has been allocated to
the residential towers. As at March 31,
2021, U.S. $412.7 million has
been included in investment properties and U.S. $80.6 million has been included in properties
under development.
In January 2021, H&R acquired
12.4 acres of vacant land in Jersey City,
NJ for U.S. $162.0 million and
H&R received approximately U.S. $146.2
million for the repayment of the outstanding mortgage
receivable secured by this land which bore interest at 10% per
annum.
In January 2021, H&R acquired
4.2 acres of land in Dallas, TX
for U.S. $9.1 million, which is
expected to be developed into 352 residential rental units. The
site is located adjacent to US Hwy 75 with proximity to downtown
Dallas and other major
thoroughfares including I-635 and the Dallas North Tollway.
Subsequent to March 31, 2021,
H&R completed a 10-year lease with an industrial tenant to
occupy 105,133 square feet at 34 Speirs Giffen Ave., Caledon, ON, a single-tenant property
currently under development. The total development budget is
$16.3 million and the expected yield
on budgeted cost is approximately 7.0%. Occupancy is expected
to commence in Q2 2022. This will be the second property
constructed at H&R's industrial business park in Caledon which consists of approximately 144
acres.
Properties in Lease-up
H&R currently has three properties in lease-up: River
Landing, Phase 1 of the Hercules Project and Jackson Park.
As noted above, River Landing Commercial was transferred from
properties under development to investment properties in Q4 2020
and in Q1 2021, the first of two residential towers at River
Landing reached substantial completion and was transferred from
properties under development to investment properties. Property
operating income (cash basis) (a non-GAAP measure - see "Non-GAAP
Financial Measures" in this press release) from River Landing for
the three months ended March 31, 2021
was approximately U.S. $0.6 million.
The pro forma unlevered yield on cost is expected to be
approximately 5.0% based on a total budget of U.S. $495.9 million. As at March 31 2021, U.S. $412.7
million has been included in investment properties and U.S.
$80.6 million has been included in
properties under development.
Phase 1 of the Hercules Project in Hercules, CA reached substantial completion in
Q4 2020 and was transferred from properties under development to
investment properties. Property operating income (cash basis) for
the three months ended March 31, 2021
was approximately U.S. $0.3 million
at H&R's ownership interest. The pro forma unlevered yield on
cost is expected to be approximately 5.4% based on a total budget
of U.S. $25.7 million, at H&R's
ownership interest.
Jackson Park in Long Island City, NY has been negatively
impacted by COVID-19 with higher vacancy and lower than average
lease renewals. Property operating income (cash basis) for
the three months ended March 31, 2021
was approximately U.S. $3.0 million
at H&R's ownership interest. Prior to the onset of COVID-19,
property operating income (cash basis) for Jackson Park for the three months ended
March 31, 2020 was approximately U.S.
$8.0 million, at H&R's ownership
interest.
Office
In January 2021, H&R sold a
172,039 square foot single-tenanted property in Culver City, CA for approximately U.S.
$165.0 million. Upon closing, the
REIT repaid the two associated mortgages totalling U.S.
$13.0 million, bearing interest at a
weighted average rate of 5.7%. The REIT acquired this property in
May 2004 for U.S. $60.3 million. This property was classified as
held for sale as at December 31,
2020.
Same-Asset property operating income (cash basis) (a non-GAAP
measure - see "Non-GAAP Financial Measures" in this press
release) from office properties decreased by 10.0% for the
three months ended March 31, 2021
compared to the respective 2020 period, primarily due to Hess
Corporation ("Hess") receiving a seven-month free rent period
(commencing December 2020) as part of
a lease extension and amending agreement completed in November 2020 for its premises in Houston, TX, the ("Hess Lease Amendment")
under which Hess agreed to extend the term of its lease on
approximately two-thirds of the building for an additional term of
10 years beyond its current expiry of June
30, 2026. Excluding the impact of Hess Lease Amendment,
Same-Asset property operating income (cash basis) increased by
2.0%.
Industrial
In March 2021, H&R sold a 50%
ownership interest in a 39,294 square foot multi-tenanted property
in Richmond Hill, ON for
approximately $9.6 million. This
property was previously classified as held for sale as at
December 31, 2020.
Same-Asset property operating income (cash basis) from
industrial properties decreased by 2.3% for the three months ended
March 31, 2021 compared to the
respective 2020 period, primarily due to the decrease in Same-Asset
occupancy from 98.9% as at March 31,
2020 to 96.6% as at March 31,
2021.
Residential
Same-Asset property operating income (cash basis) from
residential properties in U.S. dollars decreased by 18.6% for the
three months ended March 31, 2021
compared to the respective 2020 period, primarily due to Jackson
Park in New York which has been
negatively impacted by COVID-19 with higher vacancy and lower than
average lease renewals. H&R believes this decline is temporary
and expects operating fundamentals to improve in the second half of
2021. Further to this expectation, property operating income
(cash basis) for Jackson Park
increased by 7.7% from Q4 2020 to Q1 2021. Excluding Jackson Park, Same-Asset property operating
income (cash basis) from residential properties in U.S. dollars
increased by 4.1% for the three months ended March 31, 2021 compared to the respective 2020
period, primarily due to an increase in revenue and the
stabilization of various assets in the portfolio.
Retail
Same-Asset property operating income (cash basis) from retail
properties decreased by approximately $8.3
million or 13.4% for the three months ended March 31, 2021 compared to the respective 2020
period, primarily due to factors relating to the COVID-19 pandemic,
including: (i) tenant closures; (ii) temporary lease amendments
reducing rental rates in order to retain tenants who have faced
challenging conditions; and (iii) lower percentage rent and
specialty leasing earned due to government mandated closures.
Of the $8.3 million decline,
enclosed shopping centres accounted for $6.6
million. Temporary rent reductions accounted for 34% of
this decline, 28% related to rent reductions that remain in place
until lease maturity, 11% related to lower percentage rents,
specialty leasing and miscellaneous revenues (including a greater
number of leases with percentage rent clauses, but lower tenant
sales due to centre closures), and the remaining 27% was due to the
impact of vacancies net of replacement leasing, much of which has
yet to commence.
The remainder of the decline is split evenly between ECHO and
the REIT's other retail properties. Notably, four
single-tenant retail properties in the
United States were vacated in June
2020, and to date only a portion of the space has been
re-leased.
Funds from Operations and Adjusted Funds from
Operations
FFO per Unit in Q1 2021 was $0.40 compared to $0.42 in Q4 2020 and $0.45 in Q1 2020. AFFO per Unit was
$0.32 in Q1 2021 compared to
$0.22 in Q4 2020 and $0.40 in Q1 2020. Distributions paid as a
percentage of AFFO was 53.6% in Q1 2021, resulting in significant
retained cash flow.
Debt Highlights
As at March 31, 2021, debt to
total assets was 46.7% compared to 47.7% as at December 31, 2020. The weighted average interest
rate of H&R's debt as at March 31,
2021 was 3.6% with an average term to maturity of 3.6
years.
Mortgages:
As at March 31,
2021, H&R had $818.2
million in mortgage principal maturing during the remainder
of 2021. Of this amount, H&R completed renewals for
$237.5 million subsequent to
March 31, 2021, $250.0 million is expected to be repaid from
H&R's unused lines of credit and $0.9
million relates to final payments for mortgages fully
amortized upon maturity.
Debentures:
In February
2021, H&R issued $300.0
million principal amount of 2.633% Series S Senior
Debentures maturing February 19,
2027. The proceeds were used to repay the term loan noted
below as well as lines of credit.
Unsecured Term Loans:
In March
2021, the REIT repaid its $200.0
million unsecured term loan. The REIT had entered into an
interest rate swap to fix the interest rate at 2.56% per annum on
U.S. $130.0 million of the U.S.
dollar denominated borrowing of this facility, which settled in
March 2021.
Lines of Credit:
In April
2020, at the onset of COVID-19, H&R bolstered its
liquidity by securing a $500.0
million unsecured line of credit for a one-year term. With
the vaccine rollout expanding throughout Canada and the
United States and the Canadian economy slowly reopening,
H&R believes it has sufficient liquidity to withstand the
remainder of the pandemic and has therefore opted to reduce the
amount of this facility. Therefore, in April
2021, the REIT secured a one-year extension on the unsecured
line of credit from a syndicate of five Canadian banks for
$300.0 million. The maturity date was
extended to April 17, 2022.
In April 2021, the REIT secured a
one-year extension on the H&R and CrestPSP revolving secured
line of credit for $62.5 million at
H&R's ownership interest. The maturity date was extended to
April 30, 2022.
Monthly Distributions Declared
H&R today declared distributions for the months of May and
June scheduled as follows:
|
Distribution/Unit
|
Annualized
|
Record
date
|
Distribution
date
|
May 2021
|
$0.0575
|
$0.690
|
May 26,
2021
|
June 8,
2021
|
June 2021
|
$0.0575
|
$0.690
|
June 22,
2021
|
July 7,
2021
|
Conference Call and Webcast
Management will host a conference call to discuss the financial
results for H&R REIT on Friday, May 14,
2021 at 9.30 a.m. Eastern
Time. Participants can join the call by dialing
1-833-282-0020 or 1-236-714-3488. 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
416-621-4642 or 1-800-585-8367 and enter the passcode 8947468
followed by the pound key. The telephone replay will be
available until Friday, May 21, 2021
at midnight.
A live audio webcast will be available through
https://www.hr-reit.com/investor-relations/#investor-events.
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.
The investor presentation is available on H&R's website at
https://www.hr-reit.com/investor-relations/#investor-presentation
About H&R REIT
H&R REIT is one of Canada's
largest real estate investment trusts with total assets of
approximately $13.2 billion at
March 31, 2021. H&R REIT has
ownership interests in a North American portfolio of high quality
office, retail, industrial and residential properties comprising
over 40 million square feet.
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 relating to
H&R's objectives, 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 made under the
headings "Business Update", "Financial Highlights" and "Summary of
Significant Q1 2021 Activity" including with respect to H&R's
future plans, including future property dispositions and
significant strategic changes, significant development projects,
H&R's expectation with respect to the activities of its
development properties, including the building of new properties,
the timing of construction, the timing of occupancy and lease-up,
the expected total cost and yield on cost from development
properties and the timing of transfer from properties under
development to investment properties, the impact of the COVID-19
virus on the REIT and the REIT's tenants, the REIT's bad debt
expense, management's expectations regarding the REIT's leverage
and portfolio quality, management's belief that Jackson Park's decline is temporary and
expectations regarding future operating fundamentals, management's
expectations regarding future distributions, management's belief
that H&R has sufficient funds and liquidity for future
commitments and to withstand the remainder of the pandemic and
management's expectation to be able to meet all of the REIT's
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 H&R's 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 H&R's estimates and assumptions that are subject to risks,
uncertainties and other factors including those risks and
uncertainties described below under "Risks and Uncertainties" and
those discussed in H&R's materials filed with the Canadian
securities regulatory authorities from time to time, which could
cause the actual results, performance or achievements of H&R to
differ materially from the forward-looking statements contained in
this news release. 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 currently volatile and in an economic downturn as a result of
the COVID-19 pandemic and fluctuations in oil and gas prices, the
extent and duration of which is unknown; interest rates are
volatile as a result of general economic conditions; and debt
markets continue to provide access to capital at a reasonable cost,
notwithstanding the ongoing economic downturn. Additional risks and
uncertainties include, among other things, risks related to: real
property ownership; the current economic environment; COVID-19;
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 and climate change risk; co-ownership interest in
properties; joint arrangement and investment risks; Unit price
risk; availability of cash for distributions; ability to access
capital markets; dilution; unitholder liability; redemption right
risk; risks relating to debentures and the inability of the REIT to
purchase senior debentures on a change of control; tax risk, and
additional tax risk applicable to unitholders. H&R cautions
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 H&R believes 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'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 to differ
materially from the forward-looking statements contained in this
news release. All forward-looking statements in this news
release are qualified by these cautionary statements. These
forward-looking statements are made as of May 13, 2021 and the REIT, except as required by
applicable Canadian 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 REIT's financial statements are prepared in accordance with
International Financial Reporting Standards ("IFRS"). H&R's
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 NAV per Unit, FFO, AFFO, Payout Ratio per Unit, property
operating income (cash basis), Same-Asset property operating
income (cash basis) and the REIT's proportionate share as well as
other non-GAAP measures discussed elsewhere in this news release,
should not be construed as an alternative to financial measures
calculated in accordance with GAAP. Further, H&R's 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. H&R use
these measures to better assess H&R's 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 H&R's MD&A as at the three months ended
March 31, 2021, available at
www.hr-reit.com and on www.sedar.com.
Additional information regarding H&R is available at
www.hr-reit.com and on www.sedar.com.
SOURCE H&R Real Estate Investment Trust