TORONTO, Aug. 10,
2023 /CNW/ - H&R Real Estate Investment Trust
("H&R" or "the REIT") (TSX: HR.UN) is pleased to announce its
financial results for the three and six months ended June 30, 2023.
Q2 2023 HIGHLIGHTS:
- Net operating income increased by 4.4% compared to Q2 2022.
- Same-Property net operating income (cash basis)(1)
increased by 11.7% compared to Q2 2022 driven by healthy gains
across our operating segments:
|
|
•
Residential
|
+22.9 %
|
Driven by strong rent
growth and the strengthening of the U.S. dollar
|
|
|
•
Industrial
|
+18.6 %
|
Driven by strong rent
growth and higher occupancy
|
|
|
•
Retail
|
+9.1 %
|
Driven by the
strengthening of the U.S. dollar
|
|
|
•
Office
|
+2.1 %
|
Driven by the
strengthening of the U.S. dollar
|
- Funds From Operations ("FFO")(1) per Unit grew 4.6%
to $0.30 per Unit compared to
$0.28 per Unit for Q2 2022. The REIT
distributed 50.5%(2) of FFO to Unitholders.
- Cash distributions per unit increased by 11.1% compared to Q2
2022.
- $277.6 million in property
dispositions.
- ($260.7) million fair value
adjustment on real estate assets, driven by capitalization rate
expansion. The following weighted average capitalization rates were
used to value the REIT's investment properties:
|
|
|
|
|
June 30,
2023
|
March 31,
2023
|
|
|
|
|
•
Residential (sunbelt)
|
4.75 %
|
4.50 %
|
|
|
|
|
•
Residential (other)
|
4.08 %
|
4.01 %
|
|
|
|
|
•
Industrial
|
5.28 %
|
5.20 %
|
|
|
|
|
•
Office (general)
|
7.31 %
|
6.99 %
|
|
|
|
|
•
Office (rezoning)
|
4.81 %
|
4.52 %
|
|
|
|
|
•
Retail
|
6.35 %
|
6.40 %
|
- 2.8 million units of the REIT ("Units") were purchased for a
total cost of $29.2 million, at a
weighted average price of $10.26 per
Unit, representing an approximate 51.2% discount to Net Asset Value
("NAV") per Unit(2).
- Unitholders' equity per Unit was $20.09 and NAV per Unit(2) was
$21.04 at June
30, 2023.
- Liquidity was in excess of $900.0
million at June 30, 2023.
(1)
These are non-generally accepted accounting principles ("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 of this news release.
|
"Year to date, our portfolio and team are producing strong
financial and operating results across all our property classes,"
said Tom Hofstedter, Executive Chair
and Chief Executive Officer:
- Residential continues to see strong rental rate growth;
- our high-quality, well located office properties continue to
produce stable cash flow with a weighted average lease term of 7.1
years and 98.7% occupancy;
- industrial properties located in key industrial markets remain
in high-demand as we realize continued rental rate growth; and
- our high-quality grocery-anchored and single-tenant retail
property portfolio is performing well, providing essential services
to their respective communities.
"Given the line of sight we have into our current disposition
pipeline and the demand we are seeing for our properties, we are
reiterating our target to sell at approximately $600 million of non-core assets this year of
which $387 million has been sold to
date."
FINANCIAL HIGHLIGHTS
|
June
30
|
December 31
|
|
2023
|
2022
|
Total assets (in
thousands)
|
$11,080,621
|
$11,412,603
|
Debt to total assets
per the REIT's Financial Statements(1)
|
35.2 %
|
34.4 %
|
Debt to total assets at
the REIT's proportionate share(1)(2)
|
44.8 %
|
44.0 %
|
Unitholders' equity (in
thousands)
|
$5,286,373
|
$5,487,287
|
Units outstanding (in
thousands)
|
263,172
|
265,885
|
Exchangeable units
outstanding (in thousands)
|
17,974
|
17,974
|
Unitholders' equity per
Unit
|
$20.09
|
$20.64
|
NAV per
Unit(2)
|
$21.04
|
$21.80
|
|
3 months ended June
30
|
6 months ended June
30
|
|
2023
|
2022
|
2023
|
2022
|
Rentals from investment
properties (in millions)
|
$212.5
|
$202.4
|
$430.8
|
$404.1
|
Net operating income
(in millions)
|
$152.5
|
$146.0
|
$249.8
|
$238.5
|
Same-Property net
operating income (cash basis) (in
millions)(3)
|
$128.0
|
$114.6
|
$255.5
|
$229.1
|
Net income from equity
accounted investments (in millions)
|
$1.3
|
$8.9
|
$11.2
|
$53.7
|
Fair value adjustment
on real estate assets (in millions)
|
($260.7)
|
($16.8)
|
($175.7)
|
$1,005.8
|
Net income (loss) (in
millions)
|
($59.4)
|
$112.5
|
$35.4
|
$1,082.4
|
Funds from operations
("FFO") (in millions)(3)
|
$84.1
|
$83.0
|
$172.0
|
$167.4
|
Adjusted funds from
operations ("AFFO") (in millions)(3)
|
$69.6
|
$75.0
|
$143.3
|
$152.2
|
Weighted average number
of Units and exchangeable units for FFO (in thousands)
|
283,384
|
292,353
|
283,637
|
297,375
|
FFO per basic
Unit(2)
|
$0.297
|
$0.284
|
$0.606
|
$0.563
|
AFFO per basic
Unit(2)
|
$0.246
|
$0.257
|
$0.505
|
$0.512
|
Cash Distributions per
Unit
|
$0.150
|
$0.135
|
$0.300
|
$0.265
|
Payout ratio as a % of
FFO(2)
|
50.5 %
|
47.5 %
|
49.5 %
|
47.1 %
|
Payout ratio as a % of
AFFO(2)
|
61.0 %
|
52.5 %
|
59.4 %
|
51.8 %
|
|
(1)
Debt includes mortgages payable, debentures payable, unsecured term
loans, lines of credit and liabilities classified as held for
sale.
|
(2)
These are non-GAAP ratios. Refer to the "Non-GAAP Measures"
section of this news release.
|
(3)
These are non-GAAP measures. Refer to the "Non-GAAP
Measures" section of this news release.
|
SUMMARY OF SIGNIFICANT Q2 2023 ACTIVITY
2023 Net Operating Income Highlights:
|
Three months ended June
30
|
Six months ended June
30
|
(in thousands of
Canadian dollars)
|
2023
|
2022
|
% Change
|
2023
|
2022
|
% Change
|
Operating
Segment:
|
|
|
|
|
|
|
Same-Property net
operating income (cash basis) -
Residential(1)
|
$41,298
|
$33,601
|
22.9 %
|
$81,459
|
$66,712
|
22.1 %
|
Same-Property net
operating income (cash basis) - Industrial(1)
|
18,040
|
15,213
|
18.6 %
|
34,528
|
30,169
|
14.4 %
|
Same-Property net
operating income (cash basis) - Office(1)
|
44,701
|
43,777
|
2.1 %
|
91,216
|
87,291
|
4.5 %
|
Same-Property net
operating income (cash basis) - Retail(1)
|
23,974
|
21,983
|
9.1 %
|
48,291
|
44,887
|
7.6 %
|
Same-Property net
operating income (cash basis)(1)
|
128,013
|
114,574
|
11.7 %
|
255,494
|
229,059
|
11.5 %
|
Net operating income
(cash basis) from Transactions at the REIT's proportionate
share(1)
|
32,884
|
37,750
|
(12.9) %
|
68,682
|
76,030
|
(9.7) %
|
Realty taxes in
accordance with IFRIC 21 at the REIT's proportionate
share(1)(2)
|
15,528
|
16,246
|
(4.4) %
|
(30,270)
|
(24,656)
|
(22.8) %
|
Straight-lining of
contractual rent at the REIT's proportionate
share(1)
|
4,313
|
(240)
|
1897.1 %
|
8,071
|
(86)
|
9484.9 %
|
Net operating income
from equity accounted investments(1)
|
(28,210)
|
(22,283)
|
(26.6) %
|
(52,149)
|
(41,877)
|
(24.5) %
|
Net operating income
per the REIT's Financial Statements
|
$152,528
|
$146,047
|
4.4 %
|
$249,828
|
$238,470
|
4.8 %
|
|
(1)
These are non-GAAP measures. Refer to the "Non-GAAP
Measures" section of this news release.
|
(2)
IFRIC 21 is defined in the "Non-GAAP Measures" section of this
news release.
|
|
Property Dispositions
In April 2023, H&R sold 160
Elgin Street ("160 Elgin"), a
973,661 square foot office property in Ottawa, ON, for $277.0
million. H&R provided two vendor take-back mortgages
("VTB") to the purchaser upon closing: (i) $180.0 million secured by a first mortgage on the
property, bearing interest at 6.5% per annum, maturing July 20, 2023 and (ii) $30.0 million which is subordinate to the first
mortgage on the property, bearing interest at 4.5% per annum,
maturing April 20, 2028. The
remaining proceeds of $67.0 million
were primarily used to repay debt and repurchase Units under the
REIT's normal course issuer bid ("NCIB"). On July 20, 2023, the REIT received $10.0 million towards the outstanding
$180.0 million VTB and provided a
four-week maturity date extension.
In May 2023, H&R entered into
an agreement to sell four Quebec
retail properties for aggregate gross proceeds of $68.0 million. These properties were classified
as held for sale at June 30, 2023 and
the sale closed in July 2023. The
proceeds were used to repay debt and repurchase Units under the
REIT's NCIB.
As at June 30, 2023, $29.2 million had been used to repurchase Units,
which are currently trading at a significant discount to the REIT's
NAV per Unit, under the REIT's NCIB.
2023 non-core property sales to date total $387.0 million.
Leasing Highlights:
In Q2 2023, H&R leased 74,689 vacant square feet at a
multi-tenanted industrial property in Toronto, ON, at H&R's ownership interest,
for a 5.5 year term commencing September 1,
2023 at market rents with annual contractual rental
escalations. Previous tenants occupying 37,717 and 36,798 square
feet, respectively, both at H&R's ownership interest, vacated
in February 2023 and May 2023, respectively. On average, annual
contractual rent increased by $12.94
per square foot. In addition, H&R completed a 5 year lease
renewal on 49,535 square feet at the same property, at H&R's
ownership interest. The original lease expired in March 2023 and annual contractual rent increased
by $12.40 per square foot commencing
in April 2023 with annual contractual
rent escalations. With these new leases, occupancy at this property
will increase from 53.1% as at June 30,
2023 to 100.0% as at September 30,
2023.
In Q1 2023, H&R entered into a lease amendment with its
tenant at 6900 Maritz Drive in Mississauga, ON to terminate their lease in
December 2023. The terms of the
rental payments to December 2023 have
not changed. The previous lease term would have ended in
May 2031. H&R received a lease
termination fee of approximately $0.9
million in Q1 2023 and will receive an additional
$2.5 million in Q3 2023. 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 nil was
recorded in Q1 2023 and $0.8 million
was recorded in Q2 2023. In addition, ($1.8)
million and $0.8 million will
be recorded in Q3 2023 and Q4 2023, respectively. Refer to the
"Future Intensification" section below for further details
regarding H&R's plans to rezone this property from office to
industrial use.
Unitholder Activism and Severance Costs
In April 2023, H&R entered
into a support agreement (the "Support Agreement") with the K2
Principal Fund L.P. and K2 & Associates Investment Management
Inc. (collectively, "K2"). Among other stipulations in the Support
Agreement, K2 withdrew its four nominees for election at the
meeting of unitholders on June 15,
2023 ("Unitholder Meeting"). K2 also agreed with H&R to
support the election of two additional, mutually agreed upon,
independent trustees to H&R's Board, Lindsay Brand and Leonard Abramsky, with the size of the Board
increasing by two to 10 trustees, and also agreed to vote in favour
of the balance of the trustees slated for re-election. Mr. Abramsky
and Ms. Brand were elected to the REIT's Board at the Unitholder
Meeting.
In May 2023, Philippe Lapointe stepped down as President of
H&R and as an officer of H&R's subsidiary, Lantower
Residential. Emily Watson,
Lantower's Chief Operating Officer, was appointed to lead the
Lantower Residential division. The REIT congratulates Emily on
being named Executive of the Year at the 2023 Apartment Association
of Greater Dallas's Sapphire
Awards. This well-deserved accolade is a testament to Emily's
outstanding leadership, strategic vision, and unwavering commitment
to excellence.
Development Update
Canadian Properties under Development
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 Q4 2023 and Q1 2024, respectively. The REIT expects
the construction costs for these two properties under development
to be approximately $26.8 million for
the remainder of 2023 and $4.4
million in 2024. In October
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 market rents with
annual contractual rental escalations. The lease was finalized and
entered into in February 2023. In
March 2023, H&R entered into a
lease agreement with UAP Inc. to fully lease 1925 Meadowvale
Boulevard, totalling 149,510 square feet, for a term of 12.5 years
at market rents with annual contractual rental escalations.
U.S. Properties under Development
The REIT commenced construction on two U.S. residential
development properties in 2022. The total development budget to
complete these two properties is approximately U.S. $129.5 million. The REIT expects its construction
costs for these two properties under development to be
approximately U.S. $63.4 million for
the remainder of 2023 and U.S. $66.1
million in 2024.
Future Intensification
In June 2023, H&R made a
re-submission to the City of
Toronto for 53 and 55 Yonge Street to satisfy the conditions
that were set by the Ontario Land Tribunal to finalize the rezoning
approval for a 66-storey mixed use tower including 511 residential
units with approximately 159,000 square feet of replacement office
area and approximately 13,000 square feet of retail area. H&R
expects to have the zoning by-law binding and in force in Q3
2023.
In June 2023, Toronto East York
Community Council approved the settlement agreement reached between
H&R and the City of Toronto
for 310 Front Street. The agreement was subsequently adopted at
City Council on July 19, 2023. The
rezoning approval will be binding and in force upon completion of
the statutory appeal period initiated once a notice of the passing
of the by-law is issued by the City of
Toronto. The approval is for a 65-storey mixed use tower
including 578 residential units, approximately 119,000 square feet
of replacement office area and approximately 2,000 square feet of
retail area.
H&R is preparing a Site Plan Approval application for
submission to the City of
Mississauga for a new single story 122,400 square foot
industrial building at 6900 Maritz Drive in Mississauga, ON, which would replace the
existing 104,689 square foot office building. Site Plan approval is
expected by Q4 2023.
2023 Distribution
H&R increased its monthly distributions to $0.05 per Unit commencing January 2023. This equates to $0.60 per Unit annually, an 11.1% increase from
the 2022 distribution of $0.54 per
Unit, excluding the 2022 special cash distribution.
The 2022 special distribution of $0.40 per Unit was comprised of $0.05 per Unit in cash and $0.35 per Unit in additional Units, which were
immediately consolidated such that there was no change in the
number of outstanding Units. As a result of the recently announced
property sales, H&R expects to make a special distribution in
2023. The amount and nature of such distribution will be determined
in Q4 2023.
For the three and six months ended June
30, 2023, H&R's payout ratio as a percentage of AFFO was
61.0% and 59.4%, respectively.
Debt & Liquidity Highlights
As at June 30, 2023, debt to total
assets per the REIT's Financial Statements was 35.2% from 34.4% as
at December 31, 2022. As at
June 30, 2023, debt to total assets
at the REIT's proportionate share (a non-GAAP ratio) was 44.8%
compared to 44.0% as at December 31,
2022.
As at June 30, 2023, H&R had
cash and cash equivalents of $53.7
million, $891.9 million
available under its unused lines of credit and an unencumbered
property pool of approximately $4.1
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 2023
|
$0.05
|
$0.60
|
August 31,
2023
|
September 15,
2023
|
September
2023
|
$0.05
|
$0.60
|
September 29,
2023
|
October 16,
2023
|
CONFERENCE CALL AND WEBCAST
Management will host a conference call to discuss the financial
results of the REIT on Friday, August 11,
2023 at 9.30 a.m. Eastern
Time. Participants can join the call by dialing
1‐888‐886‐7786 or 1‐416‐764‐8658. 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 614466
followed by the "#" key. The telephone replay will be available
until Friday, August 18, 2023 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 $11.1 billion as at
June 30, 2023. H&R REIT has
ownership interests in a North American portfolio comprised of
high-quality residential, industrial, office and retail properties
comprising over 27.7 million square feet. H&R's strategy is to
create a simplified, growth-oriented business focused on
residential and industrial properties in order to create
sustainable long term value for unitholders. H&R plans to sell
its office and retail properties as market conditions permit.
H&R's target is to be a leading owner, operator and developer
of residential and industrial properties, creating value through
redevelopment and greenfield development in prime locations within
Toronto, Montreal, Vancouver, and high growth U.S. sunbelt and
gateway cities.
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
heading "Summary of Significant Q2 2023 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 its exposure to residential assets in U.S. sunbelt and gateway
cities, leasing of the REIT's investment properties, including
expected lease expiration dates, H&R's expectation regarding
the sale of non-core assets including the intent to sell an
additional $250 million of properties
during the balance of 2023, 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 square footage, expected approvals and the
timing thereof, future intensification opportunities;
capitalization rates and cash flow models used to estimate fair
values, expectations regarding future operating fundamentals,
H&R's intention to repurchase Units in the open market,
H&R's beliefs regarding the benefits of persons who hold Units,
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 assumptions relating
to the general economy, including the effects of increased
inflation; debt markets continue to provide access to capital at a
reasonable cost, notwithstanding rising interest rates; and
assumptions concerning currency exchange and interest rates.
Additional risks and uncertainties include, among other things,
risks related to: 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; capital expenditures risk; currency risk;
liquidity risk; risks associated with disease outbreaks; cyber
security risk; financing credit risk; ESG and climate change risk;
co‐ownership interest in properties; general uninsured losses;
joint arrangement and investment risks; dependence on key personnel
and succession planning; potential acquisition, investment and
disposition opportunities and joint venture arrangements; potential
undisclosed liabilities associated with acquisitions; competition
for real property investments; Unit price risk; potential conflicts
of interest; availability of cash for distributions; credit
ratings; ability to access capital markets; dilution; unitholder
liability; redemption right risk; risks relating to debentures; tax
risk; additional tax risks applicable to unitholders; investment
eligibility; 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 10, 2023 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 financial statements of the
REIT and related notes for the three and six months ended
June 30, 2023 (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 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's discussion and analysis as at
and for the three and six months ended June
30, 2023 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 (a non-GAAP Measure):
|
June 30,
2023
|
December 31,
2022
|
(in thousands of
Canadian dollars)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share
|
Assets
|
|
|
|
|
|
|
Real estate
assets
|
|
|
|
|
|
|
Investment
properties
|
$8,383,730
|
$2,036,002
|
$10,419,732
|
$8,799,317
|
$2,128,306
|
$10,927,623
|
Properties under
development
|
1,005,328
|
121,038
|
1,126,366
|
880,778
|
89,912
|
970,690
|
|
9,389,058
|
2,157,040
|
11,546,098
|
9,680,095
|
2,218,218
|
11,898,313
|
Equity accounted
investments
|
1,044,683
|
(1,044,683)
|
—
|
1,060,268
|
(1,060,268)
|
—
|
Assets classified as
held for sale
|
78,120
|
—
|
78,120
|
294,028
|
—
|
294,028
|
Other assets
|
515,016
|
19,743
|
534,759
|
301,325
|
21,892
|
323,217
|
Cash and cash
equivalents
|
53,744
|
35,070
|
88,814
|
76,887
|
38,443
|
115,330
|
|
$11,080,621
|
$1,167,170
|
$12,247,791
|
$11,412,603
|
$1,218,285
|
$12,630,888
|
Liabilities and
Unitholders' Equity
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Debt
|
$3,895,755
|
$1,090,377
|
$4,986,132
|
$3,922,529
|
$1,137,210
|
$5,059,739
|
Exchangeable
units
|
184,236
|
—
|
184,236
|
217,668
|
—
|
217,668
|
Deferred
Revenue
|
967,312
|
—
|
967,312
|
986,243
|
—
|
986,243
|
Deferred tax
liability
|
443,567
|
—
|
443,567
|
483,048
|
—
|
483,048
|
Accounts payable and
accrued liabilities
|
303,378
|
60,199
|
363,577
|
309,505
|
58,502
|
368,007
|
Liabilities classified
as held for sale
|
—
|
—
|
—
|
6,323
|
—
|
6,323
|
Non-controlling
interest
|
—
|
16,594
|
16,594
|
—
|
22,573
|
22,573
|
|
5,794,248
|
1,167,170
|
6,961,418
|
5,925,316
|
1,218,285
|
7,143,601
|
Unitholders'
equity
|
5,286,373
|
—
|
5,286,373
|
5,487,287
|
—
|
5,487,287
|
|
$11,080,621
|
$1,167,170
|
$12,247,791
|
$11,412,603
|
$1,218,285
|
$12,630,888
|
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 (a non-GAAP Measure):
|
Three months ended June
30, 2023
|
Three months ended June
30, 2022
|
(in thousands of
Canadian dollars)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share
|
Rentals from investment
properties
|
$212,501
|
$36,748
|
$249,249
|
$202,394
|
$30,307
|
$232,701
|
Property operating
costs
|
(59,973)
|
(8,538)
|
(68,511)
|
(56,347)
|
(8,024)
|
(64,371)
|
Net operating
income
|
152,528
|
28,210
|
180,738
|
146,047
|
22,283
|
168,330
|
Net income from equity
accounted investments
|
1,260
|
(941)
|
319
|
8,884
|
(8,746)
|
138
|
Finance costs -
operations
|
(54,944)
|
(12,100)
|
(67,044)
|
(53,985)
|
(9,306)
|
(63,291)
|
Finance
income
|
4,699
|
100
|
4,799
|
4,633
|
5
|
4,638
|
Trust
expenses
|
(6,368)
|
(1,497)
|
(7,865)
|
(6,493)
|
(728)
|
(7,221)
|
Fair value adjustment
on financial instruments
|
65,912
|
(379)
|
65,533
|
29,418
|
1,293
|
30,711
|
Fair value adjustment
on real estate assets
|
(260,684)
|
(13,280)
|
(273,964)
|
(16,784)
|
(3,959)
|
(20,743)
|
Gain (loss) on sale of
real estate assets, net of related costs
|
(2,152)
|
98
|
(2,054)
|
11,539
|
(521)
|
11,018
|
Net income (loss)
before income taxes and non-controlling interest
|
(99,749)
|
211
|
(99,538)
|
123,259
|
321
|
123,580
|
Income tax (expense)
recovery
|
40,354
|
(27)
|
40,327
|
(10,802)
|
(86)
|
(10,888)
|
Net income (loss)
before non-controlling interest
|
(59,395)
|
184
|
(59,211)
|
112,457
|
235
|
112,692
|
Non-controlling
interest
|
—
|
(184)
|
(184)
|
—
|
(235)
|
(235)
|
Net income
(loss)
|
(59,395)
|
—
|
(59,395)
|
112,457
|
—
|
112,457
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
Items that are or may
be reclassified subsequently to net income (loss)
|
(96,367)
|
—
|
(96,367)
|
136,124
|
—
|
136,124
|
Total comprehensive
income (loss) attributable to unitholders
|
($155,762)
|
$—
|
($155,762)
|
$248,581
|
$—
|
$248,581
|
The following table reconciles the REIT's Results of Operations
from the REIT's Financial Statements to the REIT's proportionate
share (a non-GAAP Measure):
|
Six months ended June
30, 2023
|
Six months ended June
30, 2022
|
(in thousands of
Canadian dollars)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share
|
Rentals from investment
properties
|
$430,796
|
$74,342
|
$505,138
|
$404,096
|
$61,161
|
$465,257
|
Property operating
costs
|
(180,968)
|
(22,193)
|
(203,161)
|
(165,626)
|
(19,284)
|
(184,910)
|
Net operating
income
|
249,828
|
52,149
|
301,977
|
238,470
|
41,877
|
280,347
|
Net income from equity
accounted investments
|
11,156
|
(10,792)
|
364
|
53,737
|
(53,580)
|
157
|
Finance costs -
operations
|
(109,915)
|
(23,995)
|
(133,910)
|
(109,271)
|
(18,105)
|
(127,376)
|
Finance
income
|
6,456
|
160
|
6,616
|
7,179
|
8
|
7,187
|
Trust
expenses
|
(14,459)
|
(2,251)
|
(16,710)
|
(13,742)
|
(1,504)
|
(15,246)
|
Fair value adjustment
on financial instruments
|
46,035
|
(79)
|
45,956
|
28,827
|
1,969
|
30,796
|
Fair value adjustment
on real estate assets
|
(175,693)
|
(13,267)
|
(188,960)
|
1,005,753
|
29,824
|
1,035,577
|
Gain (loss) on sale of
real estate assets, net of related costs
|
(2,649)
|
(1,531)
|
(4,180)
|
11,511
|
212
|
11,723
|
Net income before
income taxes and non-controlling interest
|
10,759
|
394
|
11,153
|
1,222,464
|
701
|
1,223,165
|
Income tax (expense)
recovery
|
24,648
|
(39)
|
24,609
|
(140,016)
|
(166)
|
(140,182)
|
Net income before
non-controlling interest
|
35,407
|
355
|
35,762
|
1,082,448
|
535
|
1,082,983
|
Non-controlling
interest
|
—
|
(355)
|
(355)
|
—
|
(535)
|
(535)
|
Net income
|
35,407
|
—
|
35,407
|
1,082,448
|
—
|
1,082,448
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
Items that are or may
be reclassified subsequently to net income
|
(129,239)
|
—
|
(129,239)
|
99,022
|
—
|
99,022
|
Total comprehensive
income (loss) attributable to unitholders
|
($93,832)
|
$—
|
($93,832)
|
$1,181,470
|
$—
|
$1,181,470
|
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 June
30
|
Six months ended June
30
|
(in thousands of
Canadian dollars)
|
2023
|
2022
|
Change
|
2023
|
2022
|
Change
|
Rentals from investment
properties
|
$212,501
|
$202,394
|
$10,107
|
$430,796
|
$404,096
|
$26,700
|
Property operating
costs
|
(59,973)
|
(56,347)
|
(3,626)
|
(180,968)
|
(165,626)
|
(15,342)
|
Net operating income
per the REIT's Financial Statements
|
152,528
|
146,047
|
6,481
|
249,828
|
238,470
|
11,358
|
Adjusted
for:
|
|
|
|
|
|
|
Net operating income
from equity accounted investments(1)
|
28,210
|
22,283
|
5,927
|
52,149
|
41,877
|
10,272
|
Straight-lining of
contractual rent at the REIT's proportionate
share(1)
|
(4,313)
|
240
|
(4,553)
|
(8,071)
|
86
|
(8,157)
|
Realty taxes in
accordance with IFRIC 21 at the REIT's proportionate
share(1)
|
(15,528)
|
(16,246)
|
718
|
30,270
|
24,656
|
5,614
|
Net operating income
(cash basis) from Transactions at the REIT's proportionate
share(1)
|
(32,884)
|
(37,750)
|
4,866
|
(68,682)
|
(76,030)
|
7,348
|
Same-Property net
operating income (cash basis)(1)
|
$128,013
|
$114,574
|
$13,439
|
$255,494
|
$229,059
|
$26,435
|
|
(1)
These are non-GAAP measures .
|
NAV per Unit (a non-GAAP Measure)
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)
|
2023
|
2022
|
Unitholders'
equity
|
$5,286,373
|
$5,487,287
|
Exchangeable
units
|
184,236
|
217,668
|
Deferred tax
liability
|
443,567
|
483,048
|
Total
|
$5,914,176
|
$6,188,003
|
|
|
|
Units
outstanding
|
263,172
|
265,885
|
Exchangeable units
outstanding
|
17,974
|
17,974
|
Total
|
281,146
|
283,859
|
Unitholders' equity per
Unit(1)
|
$20.09
|
$20.64
|
NAV per Unit
|
$21.04
|
$21.80
|
|
(1)
Unitholders' equity per Unit is calculated by dividing unitholders'
equity by Units outstanding.
|
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 June
30
|
Six months ended June
30
|
(in thousands of
Canadian dollars except per Unit amounts)
|
2023
|
2022
|
2023
|
2022
|
Net income (loss)
per the REIT's Financial Statements
|
($59,395)
|
$112,457
|
$35,407
|
$1,082,448
|
Realty taxes in
accordance with IFRIC 21
|
(14,278)
|
(15,433)
|
27,903
|
22,115
|
FFO adjustments from
equity accounted investments
|
12,311
|
2,824
|
17,244
|
(28,504)
|
Exchangeable unit
distributions
|
2,696
|
2,465
|
5,392
|
4,840
|
Fair value adjustments
on financial instruments and real estate assets
|
194,772
|
(12,634)
|
129,658
|
(1,034,580)
|
Fair value adjustment
to unit-based compensation
|
(3,933)
|
862
|
(2,637)
|
3,996
|
(Gain) loss on sale of
real estate assets, net of related costs
|
2,152
|
(11,539)
|
2,649
|
(11,511)
|
Deferred income tax
expense (recoveries) applicable to U.S. Holdco
|
(41,225)
|
10,500
|
(25,847)
|
139,350
|
Incremental leasing
costs
|
581
|
617
|
1,168
|
1,234
|
The Bow and 100 Wynford
non-cash rental income and accretion adjustments
|
(9,567)
|
(7,137)
|
(18,931)
|
(12,002)
|
FFO(1)
|
$84,114
|
$82,982
|
$172,006
|
$167,386
|
Straight-lining of
contractual rent
|
(4,266)
|
362
|
(7,890)
|
168
|
Rent amortization of
tenant inducements
|
1,130
|
1,160
|
2,253
|
2,320
|
Capital
expenditures
|
(7,907)
|
(6,970)
|
(17,139)
|
(11,967)
|
Leasing expenses and
tenant inducements
|
(1,543)
|
(623)
|
(2,303)
|
(2,464)
|
Incremental leasing
costs
|
(581)
|
(617)
|
(1,168)
|
(1,234)
|
AFFO adjustments from
equity accounted investments
|
(1,320)
|
(1,250)
|
(2,460)
|
(2,055)
|
AFFO(1)
|
$69,627
|
$75,044
|
$143,299
|
$152,154
|
Weighted average number
of Units and exchangeable units (in thousands of
Units)(2)
|
283,384
|
292,353
|
283,637
|
297,375
|
Diluted weighted
average number of Units and exchangeable units (in thousands of
Units)(2)(3)
|
284,219
|
293,199
|
284,472
|
298,221
|
FFO per basic
Unit(4)
|
$0.297
|
$0.284
|
$0.606
|
$0.563
|
FFO per diluted
Unit(4)
|
$0.296
|
$0.283
|
$0.605
|
$0.561
|
AFFO per basic
Unit(4)
|
$0.246
|
$0.257
|
$0.505
|
$0.512
|
AFFO per diluted
Unit(4)
|
$0.245
|
$0.256
|
$0.504
|
$0.510
|
Cash Distributions per
Unit
|
$0.150
|
$0.135
|
$0.300
|
$0.265
|
Payout ratio as a % of
FFO(4)
|
50.5 %
|
47.5 %
|
49.5 %
|
47.1 %
|
Payout ratio as a % of
AFFO(4)
|
61.0 %
|
52.5 %
|
59.4 %
|
51.8 %
|
|
|
(1)
|
These are non-GAAP
measures defined in the "Non-GAAP Measures" section of this news
release.
|
(2)
|
For the three and six
months ended June 30, 2023, included in the weighted average and
diluted weighted average number of Units are exchangeable units of
17,974,186. 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.
|
(3)
|
For the three and six
months ended June 30, 2023, included in the determination of
diluted FFO and AFFO with respect to H&R's Incentive Unit Plan
are 834,973 Units. 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.
|
(4)
|
These are non-GAAP
ratios defined in the "Non-GAAP Measures" section of this news
release.
|
Additional information regarding H&R is available at
www.hr-reit.com and on www.sedar.com
SOURCE H&R Real Estate Investment Trust