TORONTO, Aug. 11,
2022 /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, 2022. The 2022 Second Quarter Report to
Unitholders is available in the Investor Relations section of
H&R's website at www.hr-reit.com and has been filed on SEDAR at
www.sedar.com.
HIGHLIGHTS FOR THE SECOND QUARTER ENDED JUNE 30, 2022:
- 18.8% growth in Same‐Property net operating income (cash
basis)(1) compared to Q2 2021;
- Net operating income per the REIT's Financial Statements
decreased 17.0% compared to Q2 2021 due to the spin-off of Primaris
REIT and property dispositions during the 18 months ended
June 30, 2022;
- $406.0 million in dispositions at
the REIT's proportionate share(1) comprised
of:
-
- 11 properties totalling $238.3
million were sold during the six months ended June 30, 2022; and
- Four properties totalling $167.7
million are under binding agreements to be sold.
- 22,125,300 Units of the REIT ("Units") repurchased since
January 1, 2022 under the REIT's
normal course issuer bid ("NCIB") at a weighted average cost of
$12.97 per Unit, an approximate 41%
discount to Net Asset Value ("NAV") per Unit(3), for a
total cost of $287.1 million;
-
- 10,516,100 Units repurchased during the quarter at a weighted
average price of $13.01 per Unit, for
a total cost of $136.8 million.
- $22.14 NAV per Unit(3)
at June 30, 2022 an increase of
$1.08 from March 31,2022 primarily due to the repurchase of
Units and the stronger U.S. dollar;
- $20.94 unitholders' equity per
Unit at June 30,2022, an increase of
$1.06 from March 31, 2022;
- 35.4% Debt to total assets per the REIT's Financial
Statements(2);
- 44.0% Debt to total assets at the REIT's proportionate
share(2)(3);
- $4.6 billion unencumbered
property pool; and
- $691.3 million in liquidity
comprised of $71.7 million in cash
and cash equivalents and $619.6
million available to be drawn under the REIT's credit
facilities.
(1)
|
These are non-GAAP
measures defined in the "Non-GAAP Measures" section of this news
release.
|
(2)
|
Debt includes mortgages
payable, debentures payable, unsecured term loans and lines of
credit.
|
(3)
|
These are non-GAAP
ratios. Refer to the "Non-GAAP Measures" section of this news
release.
|
"Our second quarter results highlight the quality of our
properties and the embedded growth within our portfolio," said
Tom Hofstedter, H&R's Chief Executive Officer. "Our
portfolio's organic growth coupled with our Unit buybacks are
creating value for our Unitholders, with dispositions announced to
date furthering our portfolio simplification strategy. Equipped
with a strong balance sheet, significant liquidity, enhanced
portfolio concentration to large primary markets with strong
population and economic growth, we are well positioned to take
advantage of value-creating opportunities."
FINANCIAL HIGHLIGHTS
|
June
30,
|
December
31,
|
|
2022
|
2021
|
Total assets (in
thousands)
|
$11,683,271
|
$10,501,141
|
Debt to total assets
per the REIT's Financial Statements(1)
|
35.4 %
|
37.1 %
|
Debt to total assets at
the REIT's proportionate
share(1)(2)
|
44.0 %
|
46.6 %
|
Unitholders' equity (in
thousands)
|
$5,623,048
|
$4,773,833
|
Units outstanding (in
thousands)
|
268,546
|
288,440
|
Exchangeable units
outstanding (in thousands)
|
18,280
|
13,344
|
Unitholders' equity per
Unit
|
$20.94
|
$16.55
|
NAV per
Unit(2)
|
$22.14
|
$17.70
|
|
3 months ended June
30
|
6 months ended June
30
|
|
2022
|
2021
|
2022
|
2021
|
Rentals from investment
properties (in millions)
|
$202.4
|
$264.3
|
$404.1
|
$530.8
|
Net operating income
(in millions)
|
$146.0
|
$175.9
|
$238.5
|
$309.6
|
Same-Property net
operating income (cash basis) (in
millions)(3)
|
$120.5
|
$101.4
|
$243.2
|
$204.5
|
Net income from equity
accounted investments (in millions)
|
$8.9
|
$5.6
|
$53.7
|
$12.8
|
Fair value adjustment
on real estate assets (in millions)
|
($16.8)
|
$7.5
|
$1,005.8
|
$72.2
|
Net income (in
millions)
|
$112.5
|
$94.9
|
$1,082.4
|
$254.4
|
Funds from operations
("FFO") (in millions)(3)
|
$83.0
|
$115.7
|
$167.4
|
$235.4
|
Adjusted funds from
operations ("AFFO") (in millions)(3)
|
$75.0
|
$90.3
|
$152.2
|
$187.4
|
Weighted average number
of Units and exchangeable units for FFO (in thousands)
|
292,353
|
301,775
|
297,375
|
301,767
|
FFO per basic
Unit(2)
|
$0.284
|
$0.384
|
$0.563
|
$0.780
|
AFFO per basic
Unit(2)
|
$0.257
|
$0.299
|
$0.512
|
$0.621
|
Cash Distributions per
Unit(4)
|
$0.135
|
$0.173
|
$0.265
|
$0.345
|
Payout ratio as a % of
FFO(2)
|
47.5 %
|
45.1 %
|
47.1 %
|
44.2 %
|
Payout ratio as a % of
AFFO(2)
|
52.5 %
|
57.9 %
|
51.8 %
|
55.6 %
|
|
|
(1)
|
Debt includes mortgages
payable, debentures payable, unsecured term loans and lines of
credit.
|
(2)
|
These are non-GAAP
ratios. Refer to the "Non-GAAP Measures" section in this news
release.
|
(3)
|
These are non-GAAP
measures. Refer to the "Non-GAAP Measures" section in this
news release.
|
(4)
|
H&R's current
monthly distribution is $0.0458 per Unit, which increased from
$0.0433 per Unit in May 2022. Following the Primaris Spin-Off on
December 31, 2021, Primaris REIT
announced a monthly distribution of $0.067 per Primaris REIT unit,
reflecting $0.80 per Primaris REIT unit on an annualized basis
(equivalent to $0.20 per Unit annually prior to the Primaris
Spin-Off and 4:1 consolidation of Primaris REIT units). The
Primaris REIT distribution, together with H&R's intended annual
distribution for 2022 of $0.54 per Unit equates to a combined
distribution of $0.74 per Unit for those investors that held Units
as at December 31, 2021 and continue to hold both their Units and
Primaris REIT units, which is a 7.2% increase over the $0.69 per
Unit paid by H&R in 2021.
|
SUMMARY OF SIGNIFICANT Q2 2022 ACTIVITY
2022 Net Operating Income Highlights:
|
Three months ended June
30
|
Six months ended June
30
|
(in
thousands)
|
2022
|
2021
|
% Change
|
2022
|
2021
|
% Change
|
Operating
Segment:
|
|
|
|
|
|
|
Same-Property net
operating income (cash basis) -
Residential(1)
|
$30,470
|
$21,200
|
43.7 %
|
$61,300
|
$44,590
|
37.5 %
|
Same-Property net
operating income (cash basis) - Industrial(1)
|
14,207
|
13,537
|
4.9 %
|
28,186
|
26,874
|
4.9 %
|
Same-Property net
operating income (cash basis) - Office(1)
|
52,752
|
42,829
|
23.2 %
|
106,805
|
86,326
|
23.7 %
|
Same-Property net
operating income (cash basis) - Retail(1)
|
23,035
|
23,870
|
(3.5 %)
|
46,948
|
46,740
|
0.4 %
|
Same-Property net
operating income (cash basis)(1)
|
120,464
|
101,436
|
18.8 %
|
243,239
|
204,530
|
18.9 %
|
Net
operating income (cash basis) from Transactions(2)
at
the REIT's proportionate
share(1)
|
31,860
|
71,579
|
(55.5 %)
|
61,850
|
140,516
|
(56.0 %)
|
Realty taxes in accordance with IFRIC 21 at the REIT's
proportionate
share(1)
|
16,246
|
11,441
|
42.0 %
|
(24,656)
|
(23,969)
|
(2.9 %)
|
Straight-lining of contractual rent at the REIT's
proportionate share(1)
|
(240)
|
9,120
|
102.6 %
|
(86)
|
20,468
|
100.4 %
|
Net operating income
from equity accounted investments(1)
|
(22,283)
|
(17,681)
|
(26.0 %)
|
(41,877)
|
(31,972)
|
(31.0 %)
|
Net operating income
per the REIT's Financial Statements
|
$146,047
|
$175,895
|
(17.0 %)
|
$238,470
|
$309,573
|
(23.0 %)
|
|
|
(1)
|
These are
non-GAAP measures. Refer to the "Non-GAAP Measures" section of this
news release.
|
(2)
|
Transactions
include properties acquired, or sold, or transferred to or from
properties under development, during the 18-month period ended June
30, 2022.
|
Net operating income per the REIT's Financial Statements decreased
17.0% and 23.0%, respectively, for the three and six months ended
June 30, 2022 compared to the
respective 2021 periods, primarily due to the spin-off of Primaris
REIT and property dispositions during the 18 months ended
June 30, 2022.
Same-Property net operating income (cash basis) from residential
properties increased by 43.7% and 37.5%, respectively, for the
three and six months ended June 30,
2022 compared to the respective 2021 periods, primarily due
to an increase in occupancy at Jackson Park in New York. Excluding Jackson Park,
Same-Property net operating income (cash basis) from residential
properties increased by 24.8% and 17.7%, respectively, for the
three and six months ended June 30,
2022 compared to the respective 2021 periods, primarily due
to strong rental rate growth.
Same-Property net operating income (cash basis) from industrial
properties increased by 4.9% for both the three and six months
ended June 30, 2022 compared to the
respective 2021 periods, primarily due to an increase in occupancy
and contractual rental escalations.
Same-Property net operating income (cash basis) from office
properties increased by 23.2% and 23.7%, respectively, for the
three and six months ended June 30,
2022 compared to the respective 2021 periods, primarily due
to the 2021 free rent period granted to Hess Corporation as part of
the extension of its lease. Excluding the impact of the Hess
Corporation lease, Same-Property net operating income (cash basis)
from office properties increased by 1.5% and 2.2%, respectively,
primarily due to contractual rental escalations.
Same-Property net operating income (cash basis) from retail
properties decreased by 3.5% and increased by 2.4%, respectively,
for the three and six months ended June 30,
2022 compared to the respective 2021 periods, primarily due
to River Landing Commercial in Miami,
FL which was negatively impacted due to the following: (i)
higher non-recoverable operating expenses including property taxes
and insurance mainly as a result of vacant units, including the
office component of River Landing Commercial, the occupancy of
which is expected to commence in Q4 2022, as well as several retail
units which have been leased but were not occupied as of
June 30, 2022; and (ii) the three
months ended June 30, 2021 included
additional catch-up rent relating to co-tenancy clauses and the
settlement of rent commencement dates with certain retail tenants.
Excluding River Landing Commercial, Same-Property net operating
income (cash basis) from retail properties would have increased by
1.5% and 1.0%, respectively.
Transaction Highlights
Land Acquisitions
In April 2022, H&R acquired
6.8 acres of land in Clearwater,
FL for U.S. $17.1 million,
which is expected to be developed into 425 residential rental
units. The site is adjacent to U.S. Highway 19, minutes away from
Tech Data Corporation's headquarters and the Gateway office
submarket.
In June 2022, H&R acquired
16.3 acres of land in Orlando, FL
for U.S. $15.5 million, which is
expected to be developed into 380 residential rental units. The
site is located at the main entrance of NeoCity, a 500-acre
mixed-use tech campus.
These land acquisitions align with H&R's strategy to grow
its exposure to residential assets in U.S. sunbelt and gateway
cities.
Dispositions
In June 2022, H&R sold a 312
residential rental unit property in San
Antonio, TX for U.S. $69.3
million at a capitalization rate of 3.6%. H&R acquired
this property in November 2016 for
U.S. $56.8 million. This was
H&R's only residential asset in the San Antonio, TX sub-market and H&R does
not plan to allocate any further capital to this sub-market of
Texas.
In June 2022, H&R sold seven
automotive-tenanted retail properties in the United States totalling 94,205 square feet
for approximately U.S. $58.1 million
at a weighted average capitalization rate of 5.2%.
A portion of the proceeds from these sales was used to acquire
the land parcels noted above.
In June 2022, H&R sold a
21,493 square foot single tenanted industrial property in
Calgary, AB for $3.5 million, all at H&R's 50% ownership
interest. This property had been vacant since May 2022. H&R chose to sell this property to
an end user given the size of the building and its unique usage for
document storage.
In July 2022, the REIT entered
into an agreement to sell 100 Wynford Drive, an office property in
Toronto, ON including 100% of the
future income stream derived from the Bell lease ("Bell lease")
until the end of the lease term in April
2036 to an arm's length third party, for approximately
$120.7 million which approximates the
June 30, 2022 IFRS values. Closing of
the sale remains subject to certain customary conditions being
satisfied and is expected to occur in September 2022. Although the REIT will legally
sell the property, the transaction will not meet the criteria of a
transfer of control under IFRS 15 Revenue from Contracts with
Customers, as the REIT will have an option to repurchase 100%
of the property for approximately $159.5
million in 2036 or earlier under certain circumstances. As
such, the REIT will continue to recognize the income producing
property in the statements of financial position.
In July 2022, the REIT entered
into an agreement to sell one Canadian office property and two
Canadian retail properties for aggregate gross proceeds of
approximately $47.0 million, which
approximates the June 30, 2022 IFRS
values. Closing of the sale remains subject to certain customary
conditions being satisfied and is expected to occur in September 2022.
Leasing
In Q2 2022, H&R leased 2121 Cornwall Rd., in Oakville, ON, a vacant industrial property
totalling 157,083 square feet, at H&R's ownership interest, for
a 10-year term commencing September 1,
2022 at current market rents with annual contractual rental
escalations.
In Q2 2022, H&R completed a 5-year lease renewal at 2300 Rue
Senkus in Montreal, QC, an
industrial property totalling 371,000 square feet, at H&R's
ownership interest. The original lease was set to expire in
December 2022 and rent will increase
by 125% commencing in January 2023
with annual contractual rent escalations.
H&R has leased approximately 76.7% of the office space at
River Landing Commercial in Miami,
FL. The two major tenants are: (i) Miami-Dade County for the Office of the State
Attorney, Eleventh Judicial Circuit, whose lease is expected to
commence in Q4 2022 and will occupy 49,379 square feet; and (ii)
Public Health Trust of Miami-Dade
County, whose lease is expected to commence in Q1 2023 and
will occupy 63,007 square feet.
Development Update
Canadian Properties under Development
The REIT currently has two Canadian properties under development
at its industrial business park in Caledon, ON which are expected to be completed
in Q3 2022. As at June 30, 2022, the
total development budget is approximately $31.4 million, with $23.3
million in costs incurred to date and $8.1 million in costs remaining to complete.
H&R has fully leased both of these properties: 34 Speirs Giffen
Ave., totalling 105,014 square feet to Lindstrom Fastener
(Canada) Ltd. for a term of 10
years expected to commence in October
2022, and 140 Speirs Giffen Ave, totalling 77,754 square
feet to Coast Holding Limited Partnership for a term of 10 years
expected to commence in October
2022.
The REIT expects to commence construction in the next 12 months
on two industrial projects in Mississauga, ON which, upon completion, will
add 586,069 square feet to the REIT's industrial portfolio at
H&R's ownership interest. The total development budget to
complete these two properties under development is approximately
$115.5 million at H&R's ownership
interest.
U.S. Properties under Development
H&R has a 31.2% non-managing ownership interest in Shoreline
in Long Beach, CA. In June 2022, the project reached substantial
completion and was transferred from properties under development to
investment properties within equity accounted investments. As at
June 30, 2022, occupancy was 50.2%
and committed occupancy was 61.9%. As at June 30, 2022, Shoreline was valued at
approximately U.S. $87.4 million
compared to costs incurred of approximately U.S. $68.4 million, resulting in a fair value increase
of approximately U.S. $19.0 million
since the start of the project, all at H&R's ownership
interest.
H&R has a 31.7% non-managing ownership interest in The Grand
at Bayfront in Hercules, CA. In
June 2022, the project reached
substantial completion and was transferred from properties under
development to investment properties within equity accounted
investments. As at June 30, 2022,
occupancy was 44.4% and committed occupancy was 54.3%. As at
June 30, 2022, The Grand at Bayfront
was valued at approximately U.S. $34.4
million compared to costs incurred of approximately U.S.
$31.4 million, resulting in a fair
value increase of approximately U.S. $3.0
million since the start of the project, all at H&R's
ownership interest.
The REIT has commenced construction on two residential
development properties in 2022 and expects to commence construction
on a third in Q3 2022. The total development budget to complete
these three properties is approximately U.S. $261.5 million. The REIT expects its construction
costs, for these three properties under development, to be
approximately U.S. $34.6 million for
the balance of 2022 and U.S. $160.1
million in 2023.
Future Intensification
In July 2022, the City of Toronto adopted the final report
recommending approval of the rezoning application for 145
Wellington St. W., which provides for the re-development of the
current 13 storey office property into a 60-storey mixed-use
property consisting of 512 residential units, 149,000 square feet
of office space and 1,000 square feet of retail space.
Normal Course Issuer Bid
On December 13, 2021, the REIT
received approval from the Toronto Stock Exchange (the "TSX") for
the renewal of its NCIB allowing the REIT to purchase for
cancellation up to a maximum of 14,000,000 Units. On April 19, 2022, the REIT received approval from
the TSX to increase the maximum number of Units allowed to be
repurchased on the open market to 28,269,228 Units. The NCIB will
expire on the earlier of December 15,
2022 or the date on which the REIT purchases the maximum
number of Units permitted under the NCIB. During the three
months ended June 30, 2022, the REIT
purchased and cancelled 10,516,100 Units at a weighted average
price of $13.01 per Unit, for a total
cost of $136.8 million. During the
six months ended June 30, 2022, the
REIT purchased and cancelled 19,906,600 Units at a weighted average
price of $13.00 per Unit, for a total
cost of $258.8 million. During the
year ended December 31, 2021, the
REIT did not purchase any Units for cancellation.
From July 1, 2022 to August 5, 2022, the REIT purchased and cancelled
2,218,700 additional Units at a weighted average price of
$12.76 per Unit, for a total cost of
$28.3 million.
Management and the Board of Trustees of the REIT believe that
the Units continue to trade at a significant discount to the REIT's
NAV per Unit and repurchasing Units is an optimal use of capital
which will ultimately provide positive returns to unitholders.
Debt & Liquidity
Highlights
As at June 30, 2022, debt to total
assets per the REIT's Financial Statements was 35.4% compared to
37.1% as at December 31, 2021. As at
June 30, 2022, debt to total assets
at the REIT's proportionate share (a non-GAAP ratio) was 44.0%
compared to 46.6% as at December 31,
2021. The weighted average interest rate of H&R's debt
as at June 30, 2022 was 3.6% with an
average term to maturity of 3.6 years. The weighted average
interest rate of H&R's debt as at December 31, 2021 was 3.7% with an average term
to maturity of 4.0 years.
As at June 30, 2022, H&R had
cash on hand of $71.7 million,
$619.6 million available under its
unused lines of credit and an unencumbered property pool of
approximately $4.6 billion.
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 2022
|
$0.0458
|
$0.550
|
August 31,
2022
|
September 15,
2022
|
September
2022
|
$0.0458
|
$0.550
|
September 30,
2022
|
October 14,
2022
|
CONFERENCE CALL AND
WEBCAST
Management will host a conference call to discuss the financial
results of the REIT on Friday, August 12,
2022 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, a replay will be
available 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 "#" key. The telephone replay will be available
until Friday, August 19, 2022 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 leave
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 $11.7 billion as at
June 30, 2022. H&R REIT has
ownership interests in a North American portfolio comprised of
high-quality residential, industrial, office and retail properties
comprising over 29.3 million square feet. H&R is currently
undergoing a five-year, strategic repositioning to transform into a
simplified, growth-oriented company focusing on residential and
industrial properties to surface significant value for
unitholders.
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 "Highlights for the Second Quarter Ended June 30, 2022" "Financial Highlights" and
"Summary of Significant Q2 2022 Activity" relating to H&R's
objectives, beliefs, plans, estimates, targets, projections and
intentions and similar statements concerning anticipated future
events, results, circumstances, performance or expectations that
are not historical facts, including with respect to H&R's
future plans and targets, the REIT's ability to take advantage of
value-creating opportunities, H&R's strategy to grow exposure
to the residential market in U.S. sunbelt and gateway cities, the
continued execution and expected benefits of Unit repurchases,
significant development projects, leasing of the REIT's investment
properties, H&R's expectation with respect to the future
developments and activities of its development properties,
including the building of new properties, the expected yield on
cost from the REIT's development properties, the timing of
construction and completion, expected construction costs,
anticipated number of units and square footage, expected timing of
approvals, the disposition of assets, capitalization rates and cash
flow models used to estimate fair values, expectations regarding
future operating fundamentals, management's expectations regarding
future distributions by the REIT, 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 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 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; and assumptions
concerning currency exchange and interest rates. Additional risks
and uncertainties include, among other things, risks related to:
disease outbreaks and COVID-19; real property ownership; the
current economic environment; credit risk and tenant concentration;
lease rollover risk; interest rate and other debt-related risk;
development risks; residential rental risk; currency risk; capital
expenditures risk; liquidity risk; cyber security risk; financing
credit risk; environmental and climate change risk; general
uninsured losses; co-ownership interest in properties; joint
arrangement and investment risks; dependence on key personnel;
potential acquisition, investment and disposition opportunities and
joint venture arrangements; potential undisclosed liabilities
associated with acquisitions; competition for real property
investments; potential conflicts of interest; Unit price risk;
availability of cash for distributions and investment; credit
ratings; ability to access capital markets; tax risk; additional
tax risks applicable to unitholders; dilution; unitholder
liability; redemption right risk; investment eligibility; risks
relating to debentures and the inability of the REIT to purchase
senior debentures on a change of control; and statutory remedies.
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 contained in this news
release are qualified by these cautionary statements. These
forward-looking statements are made as of August 11, 2022 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 Measures
The unaudited condensed consolidated interim financial
statements of the REIT and related notes for the three and six
months ended June 30, 2022 (the
"REIT's Financial Statements") were prepared in accordance with
International Financial Reporting Standards ("IFRS"). However,
H&R's management uses a number of measures, including NAV per
Unit, FFO, AFFO, payout ratio as a % of FFO, payout ratio as a % of
AFFO and debt to total assets at the REIT's proportionate share,
Same-Property net operating income (cash basis) and the REIT's
proportionate share, which do not have meanings recognized or
standardized under IFRS or Canadian Generally Accepted Accounting
Principles ("GAAP"). These non-GAAP measures and non-GAAP ratios
should not be construed as alternatives to financial measures
calculated in accordance with GAAP. Further, H&R's method of
calculating these supplemental non-GAAP measures and ratios may
differ from the methods of other real estate investment trusts or
other issuers, and accordingly may not be comparable. H&R uses
these measures to better assess H&R's underlying performance
and provides these additional measures so that investors may do the
same.
For information on the most directly comparable GAAP measures,
composition of the measures, a description of how the REIT uses
these measures and an explanation of how these measures provide
useful information to investors, refer to the "Non-GAAP Measures"
section of the REIT's management discussion and analysis as at and
for the three and six months ended June 30,
2022, available at www.hr-reit.com and on the REIT's
profile on SEDAR at www.sedar.com, which is incorporated by
reference into this news release.
FINANCIAL POSITION
The following table reconciles the REIT's Statement of Financial
Position from the REIT's Financial Statements to the REIT's
proportionate share:
|
June 30,
2022
|
December 31,
2021
|
(in thousands of
Canadian dollars)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share(1)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share(1)
|
Assets
|
|
|
|
|
|
|
Real estate
assets
|
|
|
|
|
|
|
Investment properties
|
$9,256,112
|
$2,021,095
|
$11,277,207
|
$8,581,100
|
$1,824,609
|
$10,405,709
|
Properties under development
|
812,697
|
43,660
|
856,357
|
481,432
|
165,187
|
646,619
|
|
10,068,809
|
2,064,755
|
12,133,564
|
9,062,532
|
1,989,796
|
11,052,328
|
Equity accounted
investments
|
1,016,034
|
(1,016,034)
|
-
|
992,679
|
(992,679)
|
-
|
Assets classified as
held for sale
|
-
|
-
|
-
|
-
|
57,309
|
57,309
|
Other assets
|
526,737
|
17,228
|
543,965
|
321,789
|
13,557
|
335,346
|
Cash and cash
equivalents
|
71,691
|
42,255
|
113,946
|
124,141
|
40,499
|
164,640
|
|
$11,683,271
|
$1,108,204
|
$12,791,475
|
$10,501,141
|
$1,108,482
|
$11,609,623
|
Liabilities and
Unitholders' Equity
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Debt
|
$4,139,487
|
$1,032,173
|
$5,171,660
|
$3,894,906
|
$1,026,836
|
$4,921,742
|
Exchangeable units
|
227,580
|
-
|
227,580
|
216,841
|
-
|
216,841
|
Bow
deferred revenue
|
884,799
|
-
|
884,799
|
896,801
|
-
|
896,801
|
Deferred tax liability
|
500,391
|
-
|
500,391
|
350,501
|
-
|
350,501
|
Accounts payable and accrued liabilities
|
307,966
|
53,426
|
361,392
|
368,259
|
59,130
|
427,389
|
Non-controlling interest
|
-
|
22,605
|
22,605
|
-
|
22,516
|
22,516
|
|
6,060,223
|
1,108,204
|
7,168,427
|
5,727,308
|
1,108,482
|
6,835,790
|
Unitholders'
equity
|
5,623,048
|
-
|
5,623,048
|
4,773,833
|
-
|
4,773,833
|
|
$11,683,271
|
$1,108,204
|
$12,791,475
|
$10,501,141
|
$1,108,482
|
$11,609,623
|
|
|
(1)
|
The REIT's
proportionate share is a non-GAAP measure.
|
RESULTS OF OPERATIONS
The following table reconciles the REIT's Results of Operations
from the REIT's Financial Statements to the REIT's proportionate
share:
|
Three months ended June
30, 2022
|
Three months ended June
30, 2021
|
(in thousands of
Canadian dollars)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share(1)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share(1)
|
Rentals from investment
properties
|
$202,394
|
$30,307
|
$232,701
|
$264,327
|
$24,569
|
$288,896
|
Property operating
costs
|
(56,347)
|
(8,024)
|
(64,371)
|
(88,432)
|
(6,888)
|
(95,320)
|
Net operating
income
|
146,047
|
22,283
|
168,330
|
175,895
|
17,681
|
193,576
|
Net income from equity
accounted investments
|
8,884
|
(8,746)
|
138
|
5,628
|
(5,587)
|
41
|
Finance costs -
operations
|
(53,985)
|
(9,306)
|
(63,291)
|
(59,016)
|
(9,016)
|
(68,032)
|
Finance
income
|
4,633
|
5
|
4,638
|
4,333
|
52
|
4,385
|
Trust
expenses
|
(6,493)
|
(728)
|
(7,221)
|
(13,715)
|
(460)
|
(14,175)
|
Fair value adjustment
on financial instruments
|
29,418
|
1,293
|
30,711
|
(28,890)
|
128
|
(28,762)
|
Fair value adjustment
on real estate assets
|
(16,784)
|
(3,959)
|
(20,743)
|
7,514
|
(2,444)
|
5,070
|
Gain (loss) on sale of
real estate assets, net of related costs
|
11,539
|
(521)
|
11,018
|
8,149
|
(54)
|
8,095
|
Net income before
income taxes and non-controlling interest
|
123,259
|
321
|
123,580
|
99,898
|
300
|
100,198
|
Income tax
expense
|
(10,802)
|
(86)
|
(10,888)
|
(5,045)
|
(65)
|
(5,110)
|
Net income before
non-controlling interest
|
112,457
|
235
|
112,692
|
94,853
|
235
|
95,088
|
Non-controlling
interest
|
-
|
(235)
|
(235)
|
-
|
(235)
|
(235)
|
Net income
|
112,457
|
-
|
112,457
|
94,853
|
-
|
94,853
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
Items that are or may be reclassified subsequently to net
income
|
136,124
|
-
|
136,124
|
(55,413)
|
-
|
(55,413)
|
Total comprehensive
income attributable to unitholders
|
$248,581
|
$
-
|
$248,581
|
$39,440
|
$
-
|
$39,440
|
|
|
(1)
|
The REIT's
proportionate share is a non-GAAP measure.
|
Net operating income per the REIT's Financial Statements
decreased by $29.8 million for the
three months ended June 30, 2022
compared to the respective 2021 period, primarily due to the
Primaris Spin-Off and property dispositions.
Net income before income taxes per the REIT's Financial
Statements increased by $23.4 million
for the three months ended June 30,
2022 compared to the respective 2021 period primarily due to
fair value adjustments on financial instruments. This was partially
offset by the decrease in net operating income noted above.
The following table reconciles the REIT's Results of Operations
from the REIT's Financial Statements to the REIT's proportionate
share:
|
Six months ended June
30, 2022
|
Six months ended June
30, 2021
|
(in thousands of
Canadian dollars)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share(1)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share(1)
|
Rentals from investment
properties
|
$404,096
|
$61,161
|
$465,257
|
$530,794
|
$50,325
|
$581,119
|
Property operating
costs
|
(165,626)
|
(19,284)
|
(184,910)
|
(221,221)
|
(18,353)
|
(239,574)
|
Net operating
income
|
238,470
|
41,877
|
280,347
|
309,573
|
31,972
|
341,545
|
Net income from equity
accounted investments
|
53,737
|
(53,580)
|
157
|
12,819
|
(12,702)
|
117
|
Finance costs -
operations
|
(109,271)
|
(18,105)
|
(127,376)
|
(118,507)
|
(18,237)
|
(136,744)
|
Finance
income
|
7,179
|
8
|
7,187
|
10,207
|
104
|
10,311
|
Trust
expenses
|
(13,742)
|
(1,504)
|
(15,246)
|
(19,034)
|
(1,133)
|
(20,167)
|
Fair value adjustment
on financial instruments
|
28,827
|
1,969
|
30,796
|
(15,764)
|
1,127
|
(14,637)
|
Fair value adjustment
on real estate assets
|
1,005,753
|
29,824
|
1,035,577
|
72,217
|
(531)
|
71,686
|
Gain (loss) on sale of
real estate assets, net of related costs
|
11,511
|
212
|
11,723
|
4,232
|
(51)
|
4,181
|
Net income before
income taxes and non-controlling interest
|
1,222,464
|
701
|
1,223,165
|
255,743
|
549
|
256,292
|
Income tax
expense
|
(140,016)
|
(166)
|
(140,182)
|
(1,351)
|
(78)
|
(1,429)
|
Net income before
non-controlling interest
|
1,082,448
|
535
|
1,082,983
|
254,392
|
471
|
254,863
|
Non-controlling
interest
|
-
|
(535)
|
(535)
|
-
|
(471)
|
(471)
|
Net income
|
1,082,448
|
-
|
1,082,448
|
254,392
|
-
|
254,392
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
Items that are or may be reclassified subsequently to net
income
|
99,022
|
-
|
99,022
|
(81,326)
|
-
|
(81,326)
|
Total comprehensive
income attributable to unitholders
|
$1,181,470
|
$
-
|
$1,181,470
|
$173,066
|
$
-
|
$173,066
|
|
|
(1)
|
The REIT's
proportionate share is a non-GAAP measure.
|
Net operating income per the REIT's Financial Statements decreased
by $71.1 million, for the six months
ended June 30, 2022 compared to the
respective 2021 period, primarily due to the Primaris Spin-Off and
property dispositions.
Net income before income taxes per the REIT's Financial
Statements increased by $966.7
million for the six months ended June
30, 2022 compared to the respective 2021 period primarily
due to fair value increases to real estate assets totalling
$1.0 billion. This was partially
offset by the decrease in net operating income noted
above.
Same-Property net operating income (cash basis)
|
Three months ended June
30
|
Six months ended June
30
|
(in thousands of
Canadian dollars)
|
2022
|
2021
|
Change
|
2022
|
2021
|
Change
|
Rentals
|
$202,394
|
$264,327
|
($61,933)
|
$404,096
|
$530,794
|
($126,698)
|
Property operating
costs
|
(56,347)
|
(88,432)
|
32,085
|
(165,626)
|
(221,221)
|
55,595
|
Net operating income
per the REIT's Financial Statements
|
146,047
|
175,895
|
(29,848)
|
238,470
|
309,573
|
(71,103)
|
Adjusted
for:
|
|
|
|
|
|
|
Net
operating income from equity accounted
investments(1)
|
22,283
|
17,681
|
4,602
|
41,877
|
31,972
|
9,905
|
Straight-lining of contractual rent at the REIT's
proportionate share(1)
|
240
|
(9,120)
|
9,360
|
86
|
(20,468)
|
20,554
|
Realty taxes in accordance with IFRIC 21 at the REIT's
proportionate share(1)(2)
|
(16,246)
|
(11,441)
|
(4,805)
|
24,656
|
23,969
|
687
|
Net
operating income (cash basis) from Transactions at the REIT's
proportionate
share(1)
|
(31,860)
|
(71,579)
|
39,719
|
(61,850)
|
(140,516)
|
78,666
|
Same-Property net
operating income (cash basis)(1)
|
$120,464
|
$101,436
|
$19,028
|
$243,239
|
$204,530
|
$38,709
|
|
|
(1)
|
These are non-GAAP
measures.
|
(2)
|
The allocation of
realty taxes in accordance with IFRIC 21 (in thousands of Canadian
dollars) at the REIT's proportionate share by operating segment for
the six months
ended June 30, 2022 is as follows: (i) Residential: $13,608; (ii)
Industrial: $228; (iii) Office: $6,091; and (iv) Retail:
$4,729.
|
|
|
NAV per Unit
The following table reconciles Unitholders' equity per Unit to
NAV per Unit:
Unitholders' Equity
per Unit and NAV per Unit
|
June
30,
|
December 31,
|
(in thousands except
for per Unit amounts)
|
2022
|
2021
|
Unitholders'
equity
|
$5,623,048
|
$4,773,833
|
Exchangeable
units
|
227,580
|
216,841
|
Deferred tax
liability
|
500,391
|
350,501
|
Total
|
$6,351,019
|
$5,341,175
|
|
|
|
Units
outstanding
|
268,546
|
288,440
|
Exchangeable units
outstanding
|
18,280
|
13,344
|
Total
|
286,826
|
301,784
|
Unitholders' equity per
Unit(1)
|
$20.94
|
$16.55
|
NAV per
Unit(2)
|
$22.14
|
$17.70
|
|
|
(1)
|
Unitholders' equity per
Unit is calculated by dividing unitholders' equity by Units
outstanding.
|
(2)
|
This is a Non-GAAP
ratio.
|
Funds from Operations and Adjusted Funds from
Operations
The following table reconciles net income per the REIT's
Financial Statements to FFO and AFFO:
FFO AND
AFFO
|
Three Months Ended June
30
|
Six Months ended June
30
|
(in thousands of
Canadian dollars except per Unit amounts)
|
2022
|
2021
|
2022
|
2021
|
Net income per the
REIT's Financial Statements
|
$112,457
|
$94,853
|
$1,082,448
|
$254,392
|
Realty taxes in accordance with IFRIC 21
|
(15,433)
|
(10,149)
|
22,115
|
21,498
|
FFO
adjustments from equity accounted investments
|
2,824
|
1,721
|
(28,504)
|
3,432
|
Exchangeable unit distributions
|
2,465
|
2,568
|
4,840
|
5,135
|
Fair value adjustments on financial instruments and real
estate assets
|
(12,634)
|
21,376
|
(1,034,580)
|
(56,453)
|
Fair value adjustment to unit-based compensation
|
862
|
7,138
|
3,996
|
7,540
|
Gain on sale of real estate assets
|
(11,539)
|
(8,149)
|
(11,511)
|
(4,232)
|
Deferred income tax recoveries applicable to U.S.
Holdco
|
10,500
|
4,794
|
139,350
|
860
|
Incremental leasing costs
|
617
|
1,591
|
1,234
|
3,261
|
The
Bow non-cash rental and accretion adjustment
|
(7,137)
|
-
|
(12,002)
|
-
|
FFO(1)
|
$82,982
|
$115,743
|
$167,386
|
$235,433
|
Straight-lining of contractual rent
|
362
|
(9,065)
|
168
|
(20,270)
|
Rent amortization of tenant inducements
|
1,160
|
1,119
|
2,320
|
2,258
|
Capital expenditures
|
(6,970)
|
(9,938)
|
(11,967)
|
(16,367)
|
Leasing expenses and tenant inducements
|
(623)
|
(5,248)
|
(2,464)
|
(8,750)
|
Incremental leasing costs
|
(617)
|
(1,591)
|
(1,234)
|
(3,261)
|
AFFO adjustments from equity accounted investments
|
(1,250)
|
(680)
|
(2,055)
|
(1,595)
|
AFFO(1)
|
$75,044
|
$90,340
|
$152,154
|
$187,448
|
Weighted average number
of Units and exchangeable units (in thousands of
Units)(2)
|
292,353
|
301,775
|
297,375
|
301,767
|
Diluted weighted
average number of Units and exchangeable units (in thousands of
Units)(2)(3)
|
293,199
|
302,253
|
298,221
|
302,244
|
FFO per basic Unit
(adjusted for conversion of exchangeable
units)(4)
|
$0.284
|
$0.384
|
$0.563
|
$0.780
|
FFO per diluted
Unit(4)
|
$0.283
|
$0.383
|
$0.561
|
$0.779
|
AFFO per basic Unit
(adjusted for conversion of exchangeable
units)(4)
|
$0.257
|
$0.299
|
$0.512
|
$0.621
|
AFFO per diluted
Unit(4)
|
$0.256
|
$0.299
|
$0.510
|
$0.620
|
Cash Distributions per
Unit(5)
|
$0.135
|
$0.173
|
$0.265
|
$0.345
|
Payout ratio as a % of
FFO(4)
|
47.5 %
|
45.1 %
|
47.1 %
|
44.2 %
|
Payout ratio as a % of
AFFO(4)
|
52.5 %
|
57.9 %
|
51.8 %
|
55.6 %
|
|
|
(1)
|
These are non-GAAP
measures.
|
(2)
|
For the three and six
months ended June 30, 2022, included in the weighted average and
diluted weighted average number of Units are exchangeable units
of
18,279,546 and 18,170,475, respectively. For the three and six
months ended June 30, 2021, included in the weighted average and
diluted weighted average number
of units are exchangeable units of 14,803,505 and 14,843,065,
respectively.
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(3)
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For the three and six
months ended June 30, 2022, included in the determination of
diluted FFO and AFFO with respect to H&R's Incentive Unit Plan
are 845,906
Units. For the three and six months ended June 30, 2021, included
in the determination of diluted FFO and AFFO with respect to
H&R's Incentive Unit Plan are
477,204 Units.
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(4)
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These are non-GAAP
ratios.
|
(5)
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H&R's current
monthly distribution is $0.0458 per Unit, which increased from
$0.0433 per Unit in May 2022. Following the Primaris Spin-Off on
December 31, 2021,
Primaris REIT announced a monthly distribution of $0.067 per
Primaris REIT unit, reflecting $0.80 per Primaris REIT unit on an
annualized basis (equivalent to $0.20
per Unit annually prior to the Primaris Spin-Off and 4:1
consolidation of Primaris REIT units). The Primaris REIT
distribution, together with H&R's intended annual
distribution for 2022 of $0.54 per Unit equates to a combined
distribution of $0.74 per Unit for those investors that held Units
as at December 31, 2021 and continue
to hold both their Units and Primaris REIT units, which is a 7.2%
increase over the $0.69 per Unit paid by H&R in
2021.
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Additional information regarding H&R is available
at www.hr-reit.com and on www.sedar.com
SOURCE H&R Real Estate Investment Trust