TORONTO, Aug. 12, 2021 /CNW/ - H&R Real Estate
Investment Trust ("H&R" or "the REIT") (TSX: HR.UN) announces
its financial results for the three and six months ended
June 30, 2021.
"I am very pleased to report H&R's second quarter financial
results, reflecting the quality of our portfolio and strength of
our balance sheet" said Tom
Hofstedter, President and CEO. "Our announcement
earlier this week of the $1.5 billion
sale of the Bow Office Tower in Calgary and the Bell Office Campus in
Mississauga will notably improve
our tenant concentration profile, reduce our exposure to the
Calgary office market, and most
importantly, will enhance our financial flexibility allowing us to
advance our strategic initiatives."
FINANCIAL HIGHLIGHTS
|
June
30
|
December
31
|
|
2021
|
2020
|
Total assets
(millions)
|
$13,135
|
$13,355
|
Debt to total assets
per the REIT's Financial Statements(1)
|
46.3%
|
47.7%
|
Debt to total assets
at the REIT's proportionate share(1)(2)
|
50.0%
|
51.1%
|
Unitholders' equity
(millions)
|
$6,170
|
$6,071
|
Units outstanding (in
thousands of Units)
|
288,340
|
286,863
|
Unitholders' equity
per Unit
|
$21.40
|
$21.16
|
Net Asset Value
("NAV" per unit)(2)
|
$22.29
|
$21.93
|
Unit price
|
$16.00
|
$13.29
|
|
3 months ended June
30
|
6 months ended June
30
|
|
2021
|
2020
|
2021
|
2020
|
Rentals from
investment properties (millions)
|
$264.3
|
$269.9
|
$530.8
|
$549.6
|
Property operating
income (millions)
|
$175.9
|
$163.6
|
$309.6
|
$304.3
|
Fair value adjustment
on real estate assets (millions)
|
$7.5
|
($57.7)
|
$72.2
|
($1,358.9)
|
Net income (loss)
(millions)
|
$94.9
|
$35.8
|
$254.4
|
($984.1)
|
Funds from operations
("FFO") (millions)(2)
|
$115.7
|
$115.0
|
$235.4
|
$251.2
|
FFO per Unit
(basic)(2)
|
$0.38
|
$0.38
|
$0.78
|
$0.83
|
Adjusted Funds from
Operations ("AFFO") (millions)(2)
|
$90.3
|
$89.0
|
$187.4
|
$209.1
|
AFFO per Unit
(basic)(2)
|
$0.30
|
$0.30
|
$0.62
|
$0.69
|
Distributions per
Unit
|
$0.17
|
$0.23
|
$0.35
|
$0.58
|
Payout ratio per Unit
(as a % of FFO)(2)
|
44.9%
|
60.4%
|
44.2%
|
69.0%
|
(1)
|
Debt includes
mortgages payable, debentures payable, unsecured term loans and
lines of credit.
|
(2)
|
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 and six months ended June 30, 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.
|
Properties in Lease-up
Property
|
Q2 2021
Property
operating income
(cash
basis) (in
millions)*
|
Annualized Q2
2021
Property
operating
income (cash
basis)
(in millions)*
|
Expected
Stabilized
Property
operating
income (cash
basis)
(in millions)*
|
Expected Increase
in
Property
operating
income (cash
basis)
(in millions)*
|
River Landing,
Miami, FL
|
U.S. $2.3
|
U.S. $9.2
|
U.S. $24.8
|
U.S. $15.6
|
Jackson Park,
Long Island City, NY
|
U.S. $2.3
|
U.S. $9.2
|
U.S. $32.0
|
U.S. $22.8
|
*
|
At H&R's
ownership interest.
|
River Landing, Miami, FL
At June 30, 2021, retail occupancy
was 77.2%. Committed occupancy was 87.8% as of August 2, 2021. The remaining retail lease-up is
expected to occur during 2021.
During Q2 2021, the REIT signed a lease with the Office of the
State Attorney – Miami-Dade County
to occupy approximately 50,000 square feet of office space,
bringing committed office occupancy to approximately 34.9% as of
August 2, 2021. The REIT is
continuing negotiations with multiple parties on the remaining
office space.
In Q2 2021, the second residential tower at River Landing
reached substantial completion and was transferred from properties
under development to investment properties. The total amount
transferred for the two residential towers was U.S. $201.6 million. As at June
30, 2021, occupancy was 59.1% and committed occupancy was
86.6% as of August 2, 2021, exceeding
management's expectations on leasing velocity.
Jackson Park, Long Island City, NY
As at June 30, 2021, occupancy was
61.6%. Committed occupancy was 96.8% as at August 2, 2021.
SUMMARY OF SIGNIFICANT Q2 2021 ACTIVITY
Office
In June 2021, H&R repaid the
first series of first mortgage bonds secured by The Bow office
complex in Calgary, AB totalling
$250.0 million at an interest rate of
3.69%, upon maturity. The repayment was funded using H&R's
lines of credit.
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 9.9% and 10.0%, respectively
for the three and six months ended June 30,
2021 compared to the respective 2020 periods, 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 two-thirds of the building for an additional term of 10 years
beyond its current expiry of June 30,
2026. Excluding the impact of the Hess Lease Amendment,
Same-Asset property operating income (cash basis) increased by 2.5%
and 2.2%, respectively.
Subsequent to June 30, 2021,
H&R entered into agreements to sell the Bow office tower and
Bell office campus (see "Subsequent Event – Offices Sales" in this
press release) for $1.5 billion.
Industrial
In June 2021, H&R sold its 50%
ownership interest in a portfolio of five single tenanted
properties totalling 215,079 square feet located throughout
Atlantic Canada for approximately
$21.3 million. In addition, H&R
sold its 50% ownership interest in a 36,562 square foot
multi-tenanted property located in Kitchener, ON for $12.0
million.
Subsequent to June 30, 2021,
H&R sold its 50% ownership interest in a portfolio of nine
single tenanted cold storage properties located across Canada for $117.5
million.
The above transactions resulted in H&R disposing of a 50%
ownership interest in 15 industrial properties for total proceeds
of approximately $150.8 million,
compared to H&R's IFRS fair value of $121.3 million as at March
31, 2021. The weighted average overall capitalization rate
for these dispositions was approximately 4.1%.
Same-Asset property operating income (cash basis) from
industrial properties decreased by 3.4% and 2.8%, respectively, for
the three and six months ended June 30,
2021 compared to the respective 2020 periods, primarily due
to the decrease in same-asset occupancy from 98.9% as at
June 30, 2020 to 97.6% as at
June 30, 2021.
Residential
Same-Asset property operating income (cash basis) from
residential properties in U.S. dollars decreased by 17.5% and
18.1%, respectively, for the three and six months ended
June 30, 2021 compared to the
respective 2020 periods, 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. Recent leasing data has confirmed this decline is
temporary and H&R expects operating fundamentals to improve in
the second half of 2021. Excluding Jackson Park, Same-Asset
property operating income (cash basis) from residential properties
in U.S. dollars increased by 5.7% and 4.9%, respectively, for the
three and six months ended June 30,
2021 compared to the respective 2020 periods, primarily due
to an increase in revenue.
Retail
Same-Asset property operating income (cash basis) from retail
properties increased by 39.9% and 7.4%, respectively, for the three
and six months ended June 30, 2021
compared to the respective 2020 periods, primarily due to higher
bad debt expenses recorded during the onset of COVID-19 in Q2
2020.
Development Activity
In April 2021, H&R entered
into a 10-year lease with an industrial tenant to occupy 105,014
square feet at 34 Speirs Giffen Ave., Caledon, ON, a single-tenant property
currently under development. The total development budget for this
property is approximately $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,
ON. In addition, 140 Speirs Giffen Ave., Caledon, ON, a 77,875 square foot industrial
building is also under construction which is expected to be
completed in Q2 2022, completing the first phase of H&R's
Caledon industrial
development. There is approximately 117.6 acres of remaining
land which is held for future development.
H&R's active development pipeline in the United States currently comprises four
residential developments with a total development budget of U.S.
$159.7 million. As at June 30, 2021, U.S. $143.3
million had been spent on properties under development with
U.S. $16.4 million of budgeted costs
remaining to be spent. The REIT has U.S. $19.6 million available to be funded through
secured construction facilities, in each case at the REIT's
proportionate share.
Funds from Operations and Adjusted Funds from
Operations
FFO per Unit in Q2 2021 was $0.38 compared to $0.40 in Q1 2021 and $0.38 in Q2 2020. AFFO per Unit was
$0.30 in Q2 2021 compared to
$0.32 in Q1 2021 and $0.30 in Q2 2020. Distributions paid as a
percentage of AFFO was 57.7% in Q2 2021, resulting in significant
retained cash flow.
Liquidity
As at June 30, 2021, H&R had
ample liquidity including cash on hand of $59.4 million, $989.5
million available under its unused lines of credit and an
unencumbered property pool of approximately $4.0 billion.
Debt Highlights
As at June 30, 2021, debt to total
assets was 46.3% compared to 47.7% as at December 31, 2020. The weighted average interest
rate of H&R's debt as at June 30,
2021 was 3.5% with an average term to maturity of 3.9
years.
Mortgages:
During Q2 2021, H&R secured three new
mortgages totalling $237.0 million
and repaid five mortgages totalling $489.4
million.
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 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.
SUBSEQUENT EVENT - OFFICE SALES
H&R has been executing on its strategic plan to better align
the REIT's business model with investor preferences. On
August 3, 2021, the REIT announced it
had entered into agreements to sell a $1.5
billion office portfolio, comprised of the Bow office tower
(the "Bow") located in Calgary,
AB, and the Bell office campus (the "Bell Campus") located
in Mississauga, ON. This
transaction ("Transaction") is a critical step forward for H&R
in achieving a more simplified structure and is evidence of the
REIT's commitment to its strategic repositioning.
Highlights:
- Significantly reduces Calgary
office exposure from 9% to 3% on a fair value basis.
- Reduces tenant concentration to Ovintiv Inc. ("Ovintiv") from
12% to 2%.
- Provides approximately $800
million of cash proceeds, net of associated mortgage
repayments and closing costs.
- Reduces debt to total assets from 50.0% to 43.7%.
- Enhances financial flexibility to facilitate the potential for
further significant strategic changes.
Transaction overview:
- Sale of 100% ownership of the land and building of the Bow,
together with a 40% interest in the net rent payable under the
Ovintiv lease to expiry in May 2038,
to Oak Street, for gross proceeds of approximately $613 million.
- Effective sale of a 45% interest in the net rent payable under
the Ovintiv lease to expiry in May
2038, to Deutsche Bank Credit Solutions and Direct Lending
through a secured lease financing structure for gross proceeds of
$418 million.
- Sale of 100% of the Bell Campus to Oak Street for gross
proceeds of approximately $439
million.
- H&R retains an option to repurchase 100% ownership interest
in the land and building of the Bow for $368 per sq. ft., being 60% of the total Bow
transaction value.
- H&R retains management contracts for both the Bow and Bell
Campus properties until lease expiries.
For more information on the Transaction, please refer to the
REIT's press release dated August 3,
2021, available at www.hr-reit.com and on
www.sedar.com.
Environmental, Social and Governance "ESG" Update
In August 2021, H&R released
its Second Annual Sustainability Report for the 2020 calendar year.
The REIT continues to embed sustainability in every facet of its
business and advance its long-term ESG strategy. In 2020, H&R
reduced use of resources and promoted energy efficiency at
properties through building operations, management and fostering
cooperative tenant relationships.
H&R is progressing on increasing utility data coverage for
its portfolio, and in 2020, the REIT expanded its reporting
boundary to report utility consumption and emissions wherever
H&R has control over utility use, and/or is able to access
utility data. The result was an increase in data coverage from 22%
of 2018 usage, to 62% of 2019 usage. In 2020, data coverage has
been further increased to 65%. H&R REIT's like-for-like
Greenhouse Gas (GHG) market-based emissions decreased by over 10%
in 2020 compared to 2019.
Monthly Distributions Declared
H&R today declared distributions for the months of August
and September scheduled as follows:
|
Distribution/Unit
|
Annualized
|
Record
date
|
Distribution
date
|
August
2021
|
$0.0575
|
$0.690
|
August 25,
2021
|
September 9,
2021
|
September
2021
|
$0.0575
|
$0.690
|
September 21,
2021
|
October 5,
2021
|
Conference Call and Webcast
Management will host a conference call to discuss the financial
results for H&R REIT on Friday, August
13, 2021 at 9.30 a.m. Eastern
Time. Participants can join the call by dialing
1-888-510-2507 or 1-289-514-5065. 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
1-647-362-9199 or 1-800-770-2030 and enter the passcode 3504623
followed by the pound key. The telephone replay will be
available until Monday, September 13,
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 $13.1 billion at
June 30, 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 "Financial Highlights" and "Summary of Significant Q2 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, expected stabilized property operating income and
increases in property operating income from River Landing and
Jackson Park, 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, the Transaction, including the
closing thereof, the amount and use of proceeds, and the resulting
changes to the REIT's operational and financial metrics, the REIT's
strategic plans, including surfacing value for unitholders,
management's expectations regarding future distributions,
management's belief that H&R has sufficient funds and liquidity
for future commitments 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 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
gradually recovering as a result of the COVID-19 pandemic, the
extent and duration of which is unknown; 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 August 12, 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 and six months
ended June 30, 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