TORONTO, Nov. 14,
2022 /CNW/ - H&R Real Estate Investment Trust
("H&R" or "the REIT") (TSX: HR.UN) announces its financial
results for the three and nine months ended September 30, 2022.
HIGHLIGHTS:
- 11.5% growth in Same-Property net operating income (cash
basis)(1) compared to Q3 2021;
- Net operating income per the REIT's Financial Statements
decreased by 18.6% compared to Q3 2021 primarily due to the
spin-off of Primaris REIT and property dispositions during the
21‐month period ended September 30,
2022;
- $455.4 million in property
dispositions at the REIT's proportionate share(1)
comprised of:
-
- 15 properties totalling $406.1
million sold during the nine months ended September 30, 2022; and
- Three properties totalling $49.3
million sold in October
2022;
- 22.9 million Units of the REIT ("Units") have been repurchased
since January 1, 2022 for a total
cost of $297.1 million, at a weighted
average price of $12.99 per Unit,
representing an approximate 42.5% discount to Net Asset Value
("NAV") per Unit(3);
- 3.0 million Units were repurchased during the quarter for a
total cost of $38.3 million, at a
weighted average price of $12.91 per
Unit, representing an approximate 42.8% discount to NAV per
Unit(3).
- $22.58 NAV per Unit(3)
at September 30, 2022, an increase of
$0.44 from June 30, 2022; primarily due to the stronger U.S.
dollar and the repurchase of Units offset by $307.2 million unfavourable fair value
adjustments;
- $21.53 unitholders' equity per
Unit at September 30, 2022, an
increase of $0.59 from June 30, 2022;
- 34.1% Debt to total assets per the REIT's Financial
Statements(2);
- 43.6% Debt to total assets at the REIT's proportionate
share(2)(3);
- $5.0 billion of unencumbered
properties;
- $712.1 million in liquidity
comprised of $65.8 million in cash or
cash equivalents and $646.3 million
available to be drawn under the REIT's credit facilities;
- A special cash distribution of $0.40 per Unit payable in Units ($0.35 per Unit) and cash ($0.05 per Unit) to Unitholders of record as at
December 30, 2022; and
- 9.1% increase in distributions to commence in January 2023.
"H&R's third quarter results highlight the quality of our
properties and the embedded growth that we are surfacing as a
result of the increasing focus on higher growth assets," said
Tom Hofstedter, H&R's Chief
Executive Officer. "The distribution increase is supported by our
strong year to date performance and outlook for the future. Organic
growth coupled with our Unit buybacks are creating value for our
Unitholders, with dispositions announced to date furthering our
portfolio simplification strategy."
(1)
|
These are non-GAAP
measures. Refer to 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.
|
Philippe Lapointe, H&R's
President added "The strong results that we are announcing today
are a direct result of the repositioning plan that we put in place
over a year ago. As evidenced by our recent results, there is
significant growth within our portfolio. Recognizing that there is
still important work ahead of us, we are well on our way to
creating a simplified, growth-oriented company that will produce
significant value for our unitholders."
FINANCIAL HIGHLIGHTS
|
September
30
|
December
31
|
|
2022
|
2021
|
Total assets (in
thousands)
|
$11,708,119
|
$10,501,141
|
Debt to total assets
per the REIT's Financial Statements(1)
|
34.1 %
|
37.1 %
|
Debt to total assets at
the REIT's proportionate share(1)(2)
|
43.6 %
|
46.6 %
|
Unitholders' equity (in
thousands)
|
5,725,118
|
4,773,833
|
Units outstanding (in
thousands)
|
265,885
|
288,440
|
Exchangeable units
outstanding (in thousands)
|
17,974
|
13,344
|
Unitholders' equity per
Unit
|
$21.53
|
$16.55
|
NAV per
Unit(2)
|
$22.58
|
$17.70
|
|
3 months ended
September 30
|
9 months ended
September 30
|
|
2022
|
2021
|
2022
|
2021
|
Rentals from investment
properties (in millions)
|
$213.7
|
$268.8
|
$617.8
|
$799.6
|
Net operating
income (in millions)
|
$148.4
|
$182.2
|
$386.8
|
$491.7
|
Same-Property net
operating income (cash basis) (in
millions)(3)
|
$121.2
|
$108.7
|
$358.1
|
$307.1
|
Net income (loss) from
equity accounted investments (in
millions)
|
($60.1)
|
$23.5
|
($6.3)
|
$36.4
|
Fair value adjustment
on real estate assets (in millions)
|
($235.2)
|
($46.2)
|
$770.6
|
$26.0
|
Net income
(loss) (in millions)
|
($121.5)
|
$135.3
|
$961.0
|
$389.7
|
FFO (in
millions)(3)
|
$85.9
|
$121.4
|
$253.3
|
$356.8
|
Adjusted funds from
operations ("AFFO") (in millions)(3)
|
$72.7
|
$102.2
|
$224.9
|
$289.6
|
Weighted average number
of Units and exchangeable units for FFO (in 000's)
|
284,734
|
301,775
|
293,115
|
301,770
|
FFO per basic
Unit(2)
|
$0.302
|
$0.402
|
$0.864
|
$1.182
|
AFFO per basic
Unit(2)
|
$0.255
|
$0.338
|
$0.767
|
$0.960
|
Cash Distributions per
Unit
|
$0.137
|
$0.173
|
$0.402
|
$0.518
|
Payout ratio as a % of
FFO(2)
|
45.4 %
|
43.0 %
|
46.5 %
|
43.8 %
|
Payout ratio as a % of
AFFO(2)
|
53.7 %
|
51.2 %
|
52.4 %
|
54.0 %
|
(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.
|
Primaris Spin-Off
H&R's 2022 financial results were significantly impacted due
to the 27 properties transferred by H&R to Primaris REIT on
December 31, 2021 (the "Primaris
Spin-Off"). The impact of the Primaris Spin-Off on certain of
H&R's financial results is shown in the table below:
|
3 months ended
September 30
|
9 months ended
September 30
|
|
2022
|
2021
|
2022
|
2021
|
Rentals from investment
properties (in millions)
|
$—
|
$63.3
|
$—
|
$186.7
|
Net operating income
(in millions)
|
$—
|
$35.2
|
$—
|
$99.5
|
Net income (in
millions)
|
$—
|
$208.9
|
$—
|
$341.8
|
FFO (in
millions)(1)
|
$—
|
$30.8
|
$—
|
$86.2
|
AFFO (in
millions)(1)
|
$—
|
$23.9
|
$—
|
$67.4
|
FFO per basic
Unit(2)
|
$—
|
$0.102
|
$—
|
$0.286
|
AFFO per basic
Unit(2)
|
$—
|
$0.079
|
$—
|
$0.223
|
(1)
|
These are non-GAAP
measures. Refer to the "Non-GAAP Measures" section of this
news release.
|
(2)
|
These are non-GAAP
ratios. Refer to the "Non-GAAP Measures" section in this news
release.
|
SUMMARY OF SIGNIFICANT Q3 2022 ACTIVITY
The following tables show the larger income statement items
split between the various operating segments. For further
commentary on these tables, please see the REIT's Management
Discussion and Analysis for the three and nine months ended
September 30, 2022 available at
www.hr‐reit.com.
2022 Net Operating Income
|
Three months ended
September 30
|
Nine months
ended September 30
|
(in thousands of
Canadian dollars)
|
2022
|
2021
|
% Change
|
2022
|
2021
|
% Change
|
Operating
Segment:
|
|
|
|
|
|
|
Same-Property net
operating income (cash basis) -
Residential(1)
|
$29,888
|
$21,895
|
36.5 %
|
$91,189
|
$66,485
|
37.2 %
|
Same-Property net
operating income (cash basis) - Industrial(1)
|
14,638
|
13,692
|
6.9 %
|
42,824
|
40,567
|
5.6 %
|
Same-Property net
operating income (cash basis) - Office(1)
|
52,668
|
50,082
|
5.2 %
|
154,220
|
131,420
|
17.3 %
|
Same-Property net
operating income (cash basis) - Retail(1)
|
24,043
|
23,070
|
4.2 %
|
69,895
|
68,628
|
1.8 %
|
Same-Property net
operating income (cash basis)(1)
|
121,237
|
108,739
|
11.5 %
|
358,128
|
307,100
|
16.6 %
|
Adjusted
for:
|
|
|
|
|
|
|
Net operating income
(cash basis) from Transactions at the REIT's proportionate
share(1)(2)
|
33,897
|
75,667
|
(55.2) %
|
102,095
|
222,352
|
(54.1) %
|
Realty taxes in
accordance with IFRIC 21 at the REIT's proportionate
share(1)
|
12,056
|
11,777
|
2.4 %
|
(12,600)
|
(12,192)
|
(3.3) %
|
Straight-lining of
contractual rent at the REIT's proportionate
share(1)
|
3,388
|
2,139
|
58.4 %
|
3,302
|
22,607
|
(85.4) %
|
Net operating income
from equity accounted investments(1)
|
(22,211)
|
(16,154)
|
(37.5) %
|
(64,088)
|
(48,126)
|
(33.2) %
|
Net operating
income per the REIT's Financial
Statements
|
$148,367
|
$182,168
|
(18.6) %
|
$386,837
|
$491,741
|
(21.3) %
|
(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 21‐month period ended September 30,
2022.
|
Fair Value Adjustment on Real Estate Assets and September 30, 2022 Capitalization Rates
Operating
Segment
|
Q3 2022
Fair Value Adjustment
(in thousands)
|
Capitalization
Rate as at
September 30, 2022
|
Residential
|
($71,394)
|
4.06 %
|
Industrial
|
(14,442)
|
5.12 %
|
Office
|
(195,720)
|
6.17 %
|
Retail
|
(25,612)
|
6.28 %
|
Fair value adjustment
on real estate assets per the REIT's proportionate
share(1)
|
(307,168)
|
5.24 %
|
Less: equity accounted
investments
|
71,976
|
|
Fair value adjustments
on real estate assets per the REIT's Financial
Statements
|
($235,192)
|
|
(1)
|
This is a non-GAAP
measure. Refer to the "Non-GAAP Measures" section of this
news release.
|
Property Dispositions
2022 property sales to date at the REIT's proportionate share
total $455.4 million, including
100 Wynford Drive in Toronto, ON
("100 Wynford").
On August 31, 2022, H&R
completed the sale of two Canadian office properties including 100
Wynford, and two Canadian retail properties for gross proceeds of
$167.8 million at a weighted average
capitalization rate of 6.9%.
H&R has the option to repurchase 100 Wynford for
approximately $159.7 million in 2036 or earlier under
certain circumstances. Due to the repurchase option in favour of
H&R, the transaction did not meet the criteria of a transfer of
control under International Financial Reporting Standards ("IFRS")
15 Revenue from Contracts with Customers ("IFRS 15"). As
such, 100 Wynford will continue to be recorded as an income
producing property in the statements of financial position, with
proceeds received from the sale recorded as deferred revenue and
amortized over the term of the lease with Bell Canada. In Q3 2021, H&R submitted an
Employment Conversion Request to the City
of Toronto for 100 Wynford. Given the property's proximity
to two future transit lines (the Eglinton LRT and the Ontario
Line), H&R believes there is an opportunity for future
redevelopment of the existing parking lot into a multi-phased
project that introduces residential uses. H&R envisions a land
use conversion from the existing Employment Land designation to
Mixed Use designation, similar to the process undertaken at a
nearby property at the intersection of Don Mills Road and Eglinton
Avenue East formerly owned by Celestica Inc.
Subsequent to September 30, 2022,
H&R sold two automotive-tenanted retail properties in
Arizona totaling 25,309 square
feet for U.S. $17.0 million at a
weighted average capitalization rate of 5.8%. In addition, H&R
sold a 123,000 square foot single tenanted office property in
Burlington, ON for $26.0 million. Prior to the sale, H&R
received a $2.3 million lease
termination fee in Q3 2022 and the property was vacant as at
September 30, 2022. H&R chose to
sell this property to an end user given the size of the building
and its unique usage for flex-office space in a suburban market
Leasing
H&R has leased approximately 76.7% of the office space at
River Landing Commercial in Miami,
FL. The two major tenants are: (i) the Office of the State
Attorney, Eleventh Judicial Circuit of Miami-Dade County, whose lease commenced in
October 2022 and is occupying 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.
In Q3 2022, H&R entered into a lease amendment with
Bell Canada to terminate their lease
at 200 Bouchard Boulevard, Montreal,
QC in December 2026. The
previous lease term would have ended in April 2036. H&R will receive a lease
termination fee of approximately $70.0
million in 2026. The terms of the rental payments to 2026
have not changed. IFRS 16 Leases ("IFRS 16") requires
revenue from leases to be recognized on a straight-line basis over
the contractual term of the lease. As a result of this lease
amendment, a non-cash adjustment to straight-lining of contractual
rent of approximately $3.5 million
was recorded in Q3 2022 and will continue to be recorded every
quarter until the end of the lease. This resulted in a $3.5 million increase to net operating income and
FFO. Same-Property net operating income (cash basis) and AFFO were
not impacted as H&R deducts non-cash items, including
straight-lining of contractual rent, in calculating these amounts.
H&R is working with the city of Montreal as they update their master plan, and
has provided a plan to convert this existing office property into
approximately 850 residential units resulting in approximately 1.1
million square feet of new residential development. These plans
will continue to evolve, along with the City's master plan, with a
targeted approval date of Q1 2024.
Development Update
Canadian Properties under Development
In September 2022, two Canadian
properties under development in the REIT's industrial business park
in Caledon, ON were substantially
completed and transferred to investment properties. 34 Speirs
Giffen Avenue totalling 105,014 square feet, has been leased to
Lindstrom Fastener (Canada) Ltd. for a term of 10 years and the
lease will commence in December 2022.
As at September 30, 2022, 34 Speirs
Giffen Avenue, was valued at approximately $29.3 million compared to costs incurred of
approximately $16.6 million,
resulting in a fair value increase of approximately $12.7 million since the start of the project. 140
Speirs Giffen Avenue, totalling 77,754 square feet, has been leased
to Coast Holding Limited Partnership for a term of 10 years and the
lease will commence in December 2022.
As at September 30, 2022, 140 Speirs
Giffen. Avenue, was valued at approximately $35.6 million compared to costs incurred of
approximately $14.8 million,
resulting in a fair value increase of approximately $20.8 million since the start of the project.
This now completes the first phase of H&R's Caledon industrial park.
The REIT currently has two industrial properties under
development located at 1965 Meadowvale Boulevard and 1925
Meadowvale Boulevard in Mississauga,
ON, totalling 336,800 square feet, which are expected to be
completed in 2023. The total development budget to complete these
two properties is approximately $57.9
million. Subsequent to September 30,
2022, H&R entered into a binding agreement with Armour
Transport Inc. to fully lease 1965 Meadowvale Boulevard, totalling
187,290 square feet, for a term of 10 years at current market rents
with annual contractual rental escalations.
U.S. Properties under Development
The REIT has commenced construction on two U.S. residential
development properties in 2022. The total development budget to
complete these two properties is approximately U.S. $176.6 million. The REIT expects its construction
costs for these two properties under development to be
approximately U.S. $11.7 million for
the balance of 2022 and U.S. $117.1
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.
In September 2022, H&R
submitted a combined Official Plan Amendment and Rezoning
Application for 69 Yonge Street in Toronto, ON for adaptive reuse of this
15-storey heritage building. The existing building will be retained
in its entirety, with additional floor area added to all existing
floors as well as a new 5-storey addition on the roof. The existing
office use will be replaced by residential uses, the existing grade
related retail space will be retained and new retail space will be
added below grade. Overall, H&R expects to receive approval for
approximately 125 residential units encompassing approximately
125,000 square feet.
MONTHLY DISTRIBUTIONS DECLARED
H&R today declared distributions for the months of November
and December scheduled as follows:
|
Distribution/Unit
|
Annualized
|
Record
date
|
Distribution
date
|
November
2022
|
$0.0458
|
$0.550
|
November 30,
2022
|
December 15,
2022
|
December
2022
|
$0.0458
|
$0.550
|
December 30,
2022
|
January 16,
2023
|
2022 SPECIAL DISTRIBUTION
The REIT also announced today that it has declared a special
distribution of $0.40 per Unit. The
distribution will be payable in Units ($0.35 per Unit) and cash ($0.05 per Unit) to Unitholders of record as at
December 30, 2022.
The special distribution is principally being made to distribute
to Unitholders the taxable income realized by the REIT from
transactions completed during the year ended December 31, 2022. The REIT is making the special
distribution payable partially in cash and partially in Units, in
order to provide Unitholders with cash to help fund any additional
tax that may arise associated with the special distribution.
Immediately following the special distribution, the outstanding
Units of the REIT will be consolidated such that each Unitholder
will hold, after the consolidation, the same number of Units as
such Unitholder held before the special distribution. The amount of
the special distribution payable in Units will increase the tax
cost basis of Unitholders' consolidated Units. The remaining
portion of the special distribution will be paid in cash on
January 16, 2023.
The REIT cautions that the foregoing comments are not intended
to be, and should not be construed as, legal or tax advice to any
Unitholder. The REIT recommends that Unitholders consult their own
tax advisors regarding the income tax consequences to them of this
anticipated special distribution and related Unit
consolidation.
2023 DISTRIBUTION INCREASE
The REIT is pleased to announce that it intends to increase its
monthly distributions to $0.05 per
Unit commencing in January 2023. This
amounts to $0.60 per Unit annually, a
9.1% increase from the current annual amount of $0.55 per Unit.
ESG REPORTING
- H&R is pleased to announce it has filed its 2021
Sustainability Report which can be found on H&R's website at
https://www.hr-reit.com/wp-content/uploads/2022/11/HR-REIT-2021-Sustainability-Report.pdf.
- H&R has also implemented a human rights policy which can be
found at
https://www.hr-reit.com/wp-content/uploads/2022/11/Human-Rights-Policy.pdf.
- H&R expects to finalize its green financing framework
before the end of the year.
CONFERENCE CALL AND WEBCAST
Management will host a conference call to discuss the financial
results of the REIT on Tuesday, November 15, 2022 at
9.30 a.m. Eastern Time. Participants
can join the call by dialing 1‐888‐396‐8049 or 1‐416‐764‐8646. 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 1‐416‐764‐8692 or 1‐877‐674‐7070 and enter the
passcode 843309 followed by the "#" key. The telephone replay will
be available until Tuesday, November 22,
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 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 $11.7 billion as at September 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 28.7 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" and "Summary of Significant Q3 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 create a simplified, growth-oriented company and
surface significant value for Unitholders, the accounting treatment
of 100 Wynford, leasing of the REIT's investment properties,
including expected lease commencement dates and square footage to
be occupied, H&R's expectations with respect to future
developments, including land use conversions and the anticipated
use of such developments, H&R's expectations with respect to
the activities of its development properties, including the
building of new properties, the use of such properties, the timing
of construction and completion, expected construction plans and
costs, anticipated number of units and square footage, expected
approvals and the timing thereof, 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, including the proposed increase
to the distribution commencing in 2023, 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 November 14, 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 nine
months ended September 30, 2022
(the "REIT's Financial Statements") were prepared in accordance
with International Accounting Standard 34, Interim Financial
Reporting. 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 nine months ended September 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:
|
September 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
|
$9,286,747
|
$2,086,798
|
$11,373,545
|
$8,581,100
|
$1,824,609
|
$10,405,709
|
Properties under
development
|
835,270
|
83,813
|
919,083
|
481,432
|
165,187
|
646,619
|
|
10,122,017
|
2,170,611
|
12,292,628
|
9,062,532
|
1,989,796
|
11,052,328
|
Equity accounted
investments
|
1,027,428
|
(1,027,428)
|
—
|
992,679
|
(992,679)
|
—
|
Assets classified as
held for sale
|
49,322
|
—
|
49,322
|
—
|
57,309
|
57,309
|
Other assets
|
443,543
|
25,712
|
469,255
|
321,789
|
13,557
|
335,346
|
Cash and cash
equivalents
|
65,809
|
60,108
|
125,917
|
124,141
|
40,499
|
164,640
|
|
$11,708,119
|
$1,229,003
|
$12,937,122
|
$10,501,141
|
$1,108,482
|
$11,609,623
|
Liabilities and
Unitholders' Equity
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Debt
|
$3,993,890
|
$1,146,243
|
$5,140,133
|
$3,894,906
|
$1,026,836
|
$4,921,742
|
Exchangeable
units
|
186,932
|
—
|
186,932
|
216,841
|
—
|
216,841
|
Deferred
Revenue
|
995,466
|
—
|
995,466
|
896,801
|
—
|
896,801
|
Deferred tax
liability
|
496,227
|
—
|
496,227
|
350,501
|
—
|
350,501
|
Accounts payable
and accrued liabilities
|
310,486
|
59,668
|
370,154
|
368,259
|
59,130
|
427,389
|
Non-controlling
interest
|
—
|
23,092
|
23,092
|
—
|
22,516
|
22,516
|
|
5,983,001
|
1,229,003
|
7,212,004
|
5,727,308
|
1,108,482
|
6,835,790
|
Unitholders'
equity
|
5,725,118
|
—
|
5,725,118
|
4,773,833
|
—
|
4,773,833
|
|
$11,708,119
|
$1,229,003
|
$12,937,122
|
$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
September 30, 2022
|
Three months ended
September 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
|
$213,709
|
$31,680
|
$245,389
|
$268,792
|
$26,349
|
$295,141
|
Property operating
costs
|
(65,342)
|
(9,469)
|
(74,811)
|
(86,624)
|
(10,195)
|
(96,819)
|
Net operating
income
|
148,367
|
22,211
|
170,578
|
182,168
|
16,154
|
198,322
|
Net income (loss) from
equity accounted investments
|
(60,071)
|
60,292
|
221
|
23,532
|
(23,714)
|
(182)
|
Finance costs -
operations
|
(55,366)
|
(10,185)
|
(65,551)
|
(56,449)
|
(8,950)
|
(65,399)
|
Finance
income
|
4,410
|
20
|
4,430
|
4,008
|
(91)
|
3,917
|
Trust expenses
(recoveries)
|
2,633
|
(638)
|
1,995
|
(4,122)
|
(996)
|
(5,118)
|
Fair value adjustment
on financial instruments
|
39,756
|
460
|
40,216
|
8,819
|
(238)
|
8,581
|
Fair value adjustment
on real estate assets
|
(235,192)
|
(71,976)
|
(307,168)
|
(46,228)
|
(2,773)
|
(49,001)
|
Gain (loss) on sale of
real estate assets, net of related costs
|
(857)
|
38
|
(819)
|
(467)
|
20,828
|
20,361
|
Net income (loss)
before income taxes and non-controlling interest
|
(156,320)
|
222
|
(156,098)
|
111,261
|
220
|
111,481
|
Income tax (expense)
recovery
|
34,824
|
(13)
|
34,811
|
24,059
|
(3)
|
24,056
|
Net income (loss)
before non-controlling interest
|
(121,496)
|
209
|
(121,287)
|
135,320
|
217
|
135,537
|
Non-controlling
interest
|
—
|
(209)
|
(209)
|
—
|
(217)
|
(217)
|
Net income
(loss)
|
(121,496)
|
—
|
(121,496)
|
135,320
|
—
|
135,320
|
Other comprehensive
income:
|
|
|
|
|
|
|
Items that are or may
be reclassified subsequently to net income (loss)
|
294,423
|
—
|
294,423
|
82,747
|
—
|
82,747
|
Total comprehensive
income attributable to unitholders
|
$172,927
|
$—
|
$172,927
|
$218,067
|
$—
|
$218,067
|
(1)
|
The REIT's
proportionate share is a non-GAAP measure.
|
The following table reconciles the REIT's Results of Operations
from the REIT's Financial Statements to the REIT's proportionate
share:
|
Nine months
ended September 30, 2022
|
Nine months
ended September 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
|
$617,805
|
$92,841
|
$710,646
|
$799,586
|
$76,674
|
$876,260
|
Property operating
costs
|
(230,968)
|
(28,753)
|
(259,721)
|
(307,845)
|
(28,548)
|
(336,393)
|
Net operating
income
|
386,837
|
64,088
|
450,925
|
491,741
|
48,126
|
539,867
|
Net income (loss) from
equity accounted investments
|
(6,334)
|
6,712
|
378
|
36,351
|
(36,416)
|
(65)
|
Finance costs -
operations
|
(164,637)
|
(28,290)
|
(192,927)
|
(174,956)
|
(27,187)
|
(202,143)
|
Finance
income
|
11,589
|
28
|
11,617
|
14,215
|
13
|
14,228
|
Trust
expenses
|
(11,109)
|
(2,142)
|
(13,251)
|
(23,156)
|
(2,129)
|
(25,285)
|
Fair value adjustment
on financial instruments
|
68,583
|
2,429
|
71,012
|
(6,945)
|
889
|
(6,056)
|
Fair value adjustment
on real estate assets
|
770,561
|
(42,152)
|
728,409
|
25,989
|
(3,304)
|
22,685
|
Gain on sale of real
estate assets, net of related costs
|
10,654
|
250
|
10,904
|
3,765
|
20,777
|
24,542
|
Net income before
income taxes and non-controlling interest
|
1,066,144
|
923
|
1,067,067
|
367,004
|
769
|
367,773
|
Income tax (expense)
recovery
|
(105,192)
|
(179)
|
(105,371)
|
22,708
|
(81)
|
22,627
|
Net income before
non-controlling interest
|
960,952
|
744
|
961,696
|
389,712
|
688
|
390,400
|
Non-controlling
interest
|
—
|
(744)
|
(744)
|
—
|
(688)
|
(688)
|
Net income
|
960,952
|
—
|
960,952
|
389,712
|
—
|
389,712
|
Other comprehensive
income
|
|
|
|
|
|
|
Items that are or may
be reclassified subsequently to net income
|
393,445
|
—
|
393,445
|
1,421
|
—
|
1,421
|
Total comprehensive
income attributable to unitholders
|
$1,354,397
|
$—
|
$1,354,397
|
$391,133
|
$—
|
$391,133
|
(1)
|
The REIT's
proportionate share is a non-GAAP measure.
|
Same-Property net operating income (cash basis)
The following table reconciles net operating income per the
REIT's Financial Statements to Same-Property net operating income
(cash basis):
|
Three months ended
September 30
|
Nine months
ended September 30
|
(in thousands of
Canadian dollars)
|
2022
|
2021
|
Change
|
2022
|
2021
|
Change
|
Rentals from investment
properties
|
$213,709
|
$268,792
|
($55,083)
|
$617,805
|
$799,586
|
($181,781)
|
Property operating
costs
|
(65,342)
|
(86,624)
|
21,282
|
(230,968)
|
(307,845)
|
76,877
|
Net operating
income per the REIT's Financial
Statements
|
148,367
|
182,168
|
(33,801)
|
386,837
|
491,741
|
(104,904)
|
Adjusted
for:
|
|
|
|
|
|
|
Net income (loss) from
equity accounted investments(1)
|
22,211
|
16,154
|
6,057
|
64,088
|
48,126
|
15,962
|
Straight-lining of
contractual rent at the REIT's proportionate
share(1)
|
(3,388)
|
(2,139)
|
(1,249)
|
(3,302)
|
(22,607)
|
19,305
|
Realty taxes in
accordance with IFRIC 21 at the REIT's proportionate
share(1)(2)
|
(12,056)
|
(11,777)
|
(279)
|
12,600
|
12,192
|
408
|
Net operating income
(cash basis) from Transactions at the REIT's proportionate
share(1)
|
(33,897)
|
(75,667)
|
41,770
|
(102,095)
|
(222,352)
|
120,257
|
Same-Property net
operating income (cash basis)(1)
|
$121,237
|
$108,739
|
$12,498
|
$358,128
|
$307,100
|
$51,028
|
(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 nine months ended September 30, 2022 is as follows: (i)
Residential: $7,317; (ii) Industrial: $114; (iii) Office: $3,069;
and (iv) Retail: $2,100.
|
NAV per Unit
The following table reconciles Unitholders' equity per Unit to
NAV per Unit(2):
Unitholders' Equity
per Unit and NAV per Unit
|
September
30
|
December
31
|
(in thousands except
for per Unit amounts)
|
2022
|
2021
|
Unitholders'
equity
|
$5,725,118
|
$4,773,833
|
Exchangeable
units
|
186,932
|
216,841
|
Deferred tax
liability
|
496,227
|
350,501
|
Total
|
$6,408,277
|
$5,341,175
|
|
|
|
Units
outstanding
|
265,885
|
288,440
|
Exchangeable units
outstanding
|
17,974
|
13,344
|
Total
|
283,859
|
301,784
|
Unitholders' equity per
Unit(1)
|
$21.53
|
$16.55
|
NAV per
Unit(2)
|
$22.58
|
$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 (loss) per the REIT's
Financial Statements to FFO and AFFO:
FFO AND
AFFO
|
Three Months ended
September 30
|
Nine months
ended September 30
|
(in thousands of
Canadian dollars except per Unit amounts)
|
2022
|
2021
|
2022
|
2021
|
Net income
(loss) per the REIT's Financial
Statements
|
($121,496)
|
$135,320
|
$960,952
|
$389,712
|
Realty taxes in
accordance with IFRIC 21
|
(10,831)
|
(10,484)
|
11,284
|
11,014
|
FFO adjustments
from equity accounted investments
|
70,253
|
(18,510)
|
41,749
|
(15,078)
|
Exchangeable
unit distributions
|
2,484
|
2,317
|
7,324
|
7,452
|
Fair value
adjustments on financial instruments and real estate
assets
|
195,436
|
37,409
|
(839,144)
|
(19,044)
|
Fair value
adjustment to unit-based compensation
|
(8,300)
|
(2,393)
|
(4,304)
|
5,147
|
(Gain) loss on
sale of real estate assets, net of related costs
|
857
|
467
|
(10,654)
|
(3,765)
|
Deferred income
tax (expense) recovery applicable to U.S. Holdco
|
(35,146)
|
(24,359)
|
104,204
|
(23,499)
|
Incremental
leasing costs
|
607
|
1,593
|
1,841
|
4,854
|
The Bow and 100
Wynford non-cash rental income and accretion adjustment
|
(7,941)
|
—
|
(19,943)
|
—
|
FFO(1)
|
$85,923
|
$121,360
|
$253,309
|
$356,793
|
Straight-lining
of contractual rent
|
(3,400)
|
(2,050)
|
(3,232)
|
(22,320)
|
Rent
amortization of tenant inducements
|
1,162
|
1,150
|
3,482
|
3,408
|
Capital
expenditures
|
(7,884)
|
(12,148)
|
(19,851)
|
(28,515)
|
Leasing expenses
and tenant inducements
|
(1,178)
|
(3,378)
|
(3,642)
|
(12,128)
|
Incremental
leasing costs
|
(607)
|
(1,593)
|
(1,841)
|
(4,854)
|
AFFO adjustments
from equity accounted investments
|
(1,317)
|
(1,191)
|
(3,372)
|
(2,786)
|
AFFO(1)
|
$72,699
|
$102,150
|
$224,853
|
$289,598
|
Weighted average number
of Units and exchangeable units (in thousands of
Units)(2)
|
284,734
|
301,775
|
293,115
|
301,770
|
Diluted weighted
average number of Units and exchangeable units (in thousands of
Units)(2)(3)
|
285,751
|
302,338
|
294,132
|
302,332
|
FFO per basic
Unit(4)
|
$0.302
|
$0.402
|
$0.864
|
$1.182
|
FFO per diluted
Unit(4)
|
$0.301
|
$0.401
|
$0.861
|
$1.180
|
AFFO per basic
Unit(4)
|
$0.255
|
$0.338
|
$0.767
|
$0.960
|
AFFO per diluted
Unit(4)
|
$0.254
|
$0.338
|
$0.764
|
$0.958
|
Cash Distributions per
Unit(5)
|
$0.137
|
$0.173
|
$0.402
|
$0.518
|
Payout ratio as a % of
FFO(4)
|
45.4 %
|
43.0 %
|
46.5 %
|
43.8 %
|
Payout ratio as a % of
AFFO(4)
|
53.7 %
|
51.2 %
|
52.4 %
|
54.0 %
|
(1)
|
These are non-GAAP
measures.
|
(2)
|
For the three and nine
months ended September 30, 2022, included in the weighted average
and diluted weighted average number of Units are exchangeable units
of 18,130,185 and 18,156,897, respectively. For the three and nine
months ended September 30, 2021, included in the weighted average
and diluted weighted average number of Units are exchangeable units
of 13,435,071 and 14,368,576, respectively.
|
(3)
|
For the three and nine
months ended September 30, 2022, included in the determination of
diluted FFO and AFFO with respect to H&R's Incentive Unit Plan
are 1,016,994 Units. For the three and nine months ended September
30, 2021, included in the determination of diluted FFO and AFFO
with respect to H&R's Incentive Unit Plan are 562,485
Units.
|
(4)
|
These are non-GAAP
ratios.
|
(5)
|
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