H&R REIT Reports Third Quarter 2024 Results
TORONTO, Nov. 12, 2024 /CNW/ - H&R Real Estate Investment Trust ("H&R" or "the REIT") (TSX:HR) is pleased to announce its financial results for the three and nine months ended September 30, 2024.
H&R continues to successfully execute on its strategic repositioning plan with real estate assets sold or under contract to be sold totalling approximately $438.4 million, as at September 30, 2024. During the nine months ended September 30, 2024, H&R sold ownership interests in 12 real estate assets for gross proceeds of $368.3 million. Subsequent to September 30, 2024, H&R sold a 372,207 square foot industrial property in Brampton, ON for approximately $60.7 million, at H&R's 50% ownership interest.
(1)
At the REIT's proportionate share, including assets classified as held for sale. Refer to the "Non-GAAP Measures" section of this news release.
(2)
Q2 2021 has been used as a benchmark since H&R's Strategic Repositioning Plan was announced prior to the release of Q3 2021 results.
(3)
Excludes the Bow and 100 Wynford, which were legally sold in October 2021 and August 2022, respectively.
(4)
Includes four office properties advancing through the process of rezoning into residential properties.
Tom Hofstedter, Executive Chair and Chief Executive Officer said "We are pleased with our progress in executing our strategic plan over the past three years, repositioning H&R to be a more simplified growth and income-oriented REIT focused on residential and industrial properties. Since the announcement of this plan, H&R completed the spin-off of the REIT's 27 enclosed shopping centres and sold ownership interests in 57 properties totaling approximately $5.2 billion. As a result of these sales, H&R's residential and industrial segments combined have grown from 35% of the total portfolio to 66% and geographically, our real estate assets in the United States have grown from 44% of the total portfolio to 68%. The value and timing of these sales have exceeded our expectations given the challenging economic environment and volatility in the capital and real estate markets."
FINANCIAL HIGHLIGHTS
September 30
December 31
2024
2023
Total assets (in thousands)
$10,216,943
$10,777,643
Debt to total assets per the REIT's Financial Statements(1)
34.6 %
34.2 %
Debt to total assets at the REIT's proportionate share(1)(2)
44.9 %
44.0 %
Debt to Adjusted EBITDA at the REIT's proportionate share(1)(2)(3)
9.1x
8.5x
Unitholders' equity (in thousands)
$4,925,303
$5,192,375
Units outstanding (in thousands)
262,016
261,868
Exchangeable units outstanding (in thousands)
17,974
17,974
Unitholders' equity per Unit
$18.80
$19.83
NAV per Unit(2)
$19.64
$20.75
3 months ended September 30
9 months ended September 30
2024
2023
2024
2023
Rentals from investment properties (in millions)
$200.3
$210.4
$614.6
$641.2
Net operating income (in millions)
$140.1
$149.4
$378.8
$399.2
Same-Property net operating income (cash basis) (in millions)(4)
$121.8
$123.6
$368.8
$366.3
Net income (loss) (in millions)
($9.7)
$37.6
($250.6)
$73.0
Funds from operations ("FFO") (in millions)(4)
$82.3
$117.7
$251.0
$289.7
Adjusted funds from operations ("AFFO") (in millions)(4)
$67.8
$101.2
$205.4
$244.5
Weighted average number of Units and exchangeable units for FFO (in 000's)
279,990
280,205
279,914
282,480
FFO per basic and diluted Unit(2)
$0.294
$0.420
$0.897
$1.026
AFFO per basic and diluted Unit(2)
$0.242
$0.361
$0.734
$0.866
Cash Distributions per Unit
$0.150
$0.150
$0.450
$0.450
Payout ratio as a % of FFO(2)
51.0 %
35.7 %
50.2 %
43.9 %
Payout ratio as a % of AFFO(2)
62.0 %
41.6 %
61.3 %
52.0 %
(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 of this news release.
(3)
Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") is calculated by taking the sum of net operating income (excluding straight-lining of contractual rent, IFRIC 21, as well as the Bow and 100 Wynford non-cash rental adjustments) and finance income and subtracting trust expenses (excluding the fair value adjustment to unit-based compensation) for the trailing 12 months. Refer to the "Non-GAAP Measures" section of this news release.
(4)
These are non-GAAP measures. Refer to the "Non-GAAP Measures" section of this news release.
The net loss for the three and nine months ended September 30, 2024 included the following fair value adjustments of real estate assets:
Fair Value Adjustment on Real Estate Assets
3 months ended September 30
9 months ended September 30
(in thousands of Canadian dollars)
2024
2023
2024
2023
Operating Segment:
Residential
($11,855)
($25,976)
($95,411)
($122,028)
Industrial
9,690
14,354
(30,097)
8,117
Office
(28,260)
(98,979)
(238,863)
(210,403)
Retail
2,789
(29,332)
(100,299)
(42,579)
Land and properties under development
4,293
—
(27,663)
38,000
Fair value adjustment on real estate assets per the REIT's proportionate share(1)
(23,343)
(139,933)
(492,333)
(328,893)
Less: equity accounted investments
(2,799)
27,109
119,714
40,376
Fair value adjustment on real estate assets per the REIT's Financial Statements
($26,142)
($112,824)
($372,619)
($288,517)
(1)
The REIT's proportionate share is a non-GAAP measure defined in the "Non-GAAP Measures" section of this news release.
Net Income (loss) and Funds from Operations
Net income and FFO (a non-GAAP measure, refer to the "Non-GAAP Measures" section of this news release) for the three and nine months ended September 30, 2023 included a gain on disposal of a purchase option of $30.6 million. Excluding this gain, net income for the three and nine months ended September 30, 2023 would have been $7.0 million, and $42.4 million, respectively. Excluding this gain, FFO and FFO per basic and diluted Unit (a non-GAAP Ratio, refer to the "Non-GAAP Measures" section of this news release), for the three and nine months ended September 30, 2023 would have been $87.1 million and $259.1 million, respectively, and $0.311 per Unit and $0.917 per Unit, respectively.
Development Update
Canadian Properties under Development
In January 2024, development of two of the REIT's industrial properties, 1965 and 1925 Meadowvale Boulevard in Mississauga, ON reached substantial completion and the properties were transferred from properties under development to investment properties. The properties are fully leased with annual contractual rental escalations; both leases commenced in February 2024 and will expire in May 2036 and March 2037, respectively. The REIT recognized a fair value increase of $19.3 million on these properties between the start of construction and substantial completion.
In Q1 2024, H&R transferred 6900 Maritz Drive in Mississauga, ON from investment properties to properties under development. In January 2024, H&R received approval from the City of Mississauga to replace the existing 104,689 square foot office building on the property with a new 122,367 square foot industrial building. Demolition of the existing office building was completed in April 2024. The property will include sustainability elements such as EV charging stations and solar panel readiness and is targeted to achieve LEED Gold certification. Construction has commenced and substantial completion is expected in Q1 2025. As at September 30, 2024, the total development budget for this property was approximately $43.6 million with costs remaining to complete the new building of approximately $14.7 million.
In Q3 2024, H&R transferred 53 & 55 Yonge Street in Toronto, ON from investment properties to properties under development. The buildings are fully vacant and demolition is expected to commence in Q4 2024. H&R has elected to demolish both buildings in order to reduce property operating costs. H&R will continue to advance the rezoning process for these properties, but does not have any plans to start re-developing these properties in the near future.
U.S. Properties under Development
In Q3 2024, Lantower West Love, a 413 residential rental unit property in Dallas, TX reached substantial completion and was transferred from properties under development to investment properties. Lantower West Love received National Green Building Standard Silver certification. The REIT recognized a fair value increase of $31.3 million (U.S. $23.2 million). The property is expected to be completed on budget with costs remaining to complete of $9.4 million (U.S. $7.0 million), and the stabilized yield on budgeted cost is expected to be 5.7%. As at September 30, 2024, there were 164 residential rental units leased of which 148 residential rental units were occupied. As at November 5, 2024, there were 177 residential rental units leased of which 166 residential rental units were occupied.
Lantower Midtown, a 350 residential rental unit property under development in Dallas, TX is currently under construction and is expected to reach substantial completion in Q4 2024. As at September 30, 2024, the total development budget for Lantower Midtown was approximately $140.6 million (U.S. $104.1 million) with costs remaining to complete of approximately $16.5 million (U.S. $12.2 million). As at September 30, 2024, Lantower Midtown received certificates of occupancy for 152 of the 350 residential rental units. As of November 5, 2024, there were 86 residential rental units leased of which 52 residential rental units were occupied.
Equity Accounted Investments
H&R has a 50% managing ownership interest in 560 & 600 Slate Drive, a 26.6 acre land site in Mississauga, ON, located next to Toronto Pearson International Airport and in close proximity to access points on the 410, 401 and 407 Highways. The partnership through which H&R owns its interest submitted a Site Plan Approval application in 2022 to develop two single storey industrial buildings totalling 309,727 square feet and 160,485 square feet respectively. Both buildings have been designed with flexibility such that they can accommodate either single or multiple tenants. Both will include sustainability elements such as EV charging stations and solar panel readiness and are targeted to achieve LEED Gold certification. As at September 30, 2024, the total budget for 560 & 600 Slate Drive was approximately $66.3 million with costs remaining to complete of $41.8 million, all at H&R's ownership interest. The yield on cost for the overall project is expected to be approximately 6.6% with completion expected in Q3 2025. H&R is the development and leasing manager for this project and expects to earn approximately $2.4 million in aggregate for these services over the development period of the project.
In February 2024, the REIT created Lantower Residential Real Estate Development Trust (No. 1) (the "REDT") which completed an initial public offering in April 2024. The REDT raised U.S. $52.0 million of equity capital from investors to acquire an interest in and fund the development of two development projects ("the REDT Projects") in Florida totalling 601 residential rental units. The REIT contributed the land to Lantower Residential REDT (No 1) JVLP (" REDT JVLP") in exchange for a 29.1% ownership interest in the REDT JV LP. The REIT is accounting for its ownership interest in the REDT Projects as an equity accounted investment. H&R retains an option to acquire the REDT Projects. H&R is earning a development fee of 4% of the total hard and soft costs of the REDT Projects (excluding land and financing costs) and is expecting to earn a 1% asset management fee on gross proceeds raised by the REDT. H&R will also be entitled to 20% of the distribution proceeds over and above its pro-rata share of the equity after investors receive an 8% internal rate of return and 30% after investors receive a 15% internal rate of return. As at September 30, 2024, the total budget for the REDT Projects was approximately $82.3 million (U.S. $61.0 million) with costs remaining to complete of $65.7 million (U.S. $48.7 million), all at H&R's ownership interest. The REDT Projects are expected to be completed in mid-2026.
Debt & Liquidity Highlights
As at September 30, 2024, debt to total assets per the REIT's Financial Statements was 34.6% compared to 34.2% as at December 31, 2023. As at September 30, 2024, debt to total assets at the REIT's proportionate share (a non-GAAP ratio, refer to the "Non-GAAP Measures" section of this news release) was 44.9% compared to 44.0% as at December 31, 2023.
As at September 30, 2024, H&R had cash and cash equivalents of $68.4 million, $863.6 million available under its unused lines of credit and an unencumbered property pool of approximately $4.1 billion.
Environmental, Social and Governance
The REIT's 2023 Sustainability report highlights how the REIT's commitment to sustainability is manifesting itself in its portfolio and resulting in lasting changes for its properties, tenants, employees, stakeholders and communities at large.
In August 2024, H&R's 6900 Maritz Drive industrial development site in Mississauga, ON was shortlisted for a World Demolition Award in the Recycling & Environmental category. The project involved the demolition of a 104,689-square-foot steel structure office building with a total weight of 8,758 tonnes. The waste diversion program recycled all of the steel and concrete equaling 8,113 tonnes (93%) of the total material weight. The project was completed with zero safety incidents and zero lost-time injuries. Being recognized in this category underscores H&R's continued commitment to sustainable practices and environmental stewardship.
MONTHLY DISTRIBUTIONS DECLARED
H&R today declared a distribution for the month of November scheduled as follows:
Distribution/Unit
Annualized
Record date
Distribution date
November 2024
$0.05
$0.60
November 29, 2024
