HR.UN H and R Real Estate Investment Trust

TORONTO, Feb. 12, 2025 /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 months and year ended December 31, 2024.

Tom Hofstedter, Executive Chair and Chief Executive Officer said "We continue to successfully execute our strategic plan to reposition 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 58 properties totaling approximately $5.3 billion. As a result of these sales, H&R's residential and industrial segments combined have grown from 35% of the total portfolio to 67% and geographically, our real estate assets in the United States have grown from 44% of the total portfolio to 70%. In 2024, properties sold together with properties under contract to be sold, totalled approximately $488.9 million."    

STRATEGIC REPOSITIONING HIGHLIGHTS SINCE JUNE 30, 2021⁽¹⁾

• H&R completed a spin off, on a tax-free basis, of 27 properties including all of the REIT's enclosed shopping centres to a new publicly-traded REIT, Primaris REIT, which properties were valued at approximately $2.4 billion at the time of the spin off;
• H&R sold 58 real estate assets totaling approximately $2.9 billion, including the Bow and 100 Wynford;
• H&R to date has sold or contracted to sell a further $59.9 million of properties in 2025;
• H&R reduced its office portfolio at the REIT's proportionate share⁽²⁾ including assets classified as held for sale, from approximately $5.1 billion as at June 30, 2021 to approximately $1.9 billion as at December 31, 2024 (excluding the Bow and 100 Wynford);
• H&R reduced its retail portfolio at the REIT's proportionate share⁽²⁾ including assets classified as held for sale, from approximately $4.0 billion as at June 30, 2021 to approximately $1.6 billion as at December 31, 2024;
• H&R increased its percentage of residential and industrial real estate assets at the REIT's proportionate share⁽²⁾ including assets classified as held for sale, from 35% as at June 30, 2021 to 67% as at December 31, 2024;
• H&R increased its percentage of real estate assets held in the United States at the REIT's proportionate share⁽²⁾ including assets classified as held for sale, from 44% as at June 30, 2021 to 70% as at December 31, 2024 (excluding the Bow and 100 Wynford);
• H&R completed four single tenant industrial developments in the Greater Toronto Area totalling 519,568 square feet and two residential developments in Dallas, TX, totalling 763 residential rental units;
• H&R increased average contractual rent for residential properties from U.S. $21.16 per square foot as at June 30, 2021 to U.S. $26.84 per square foot as at December 31, 2024;
• H&R increased average contractual rent for industrial properties from $7.17 per square foot as at June 30, 2021 to $9.66 per square foot as at December 31, 2024;
• H&R grew overall portfolio occupancy from 93.7% as at June 30, 2021 to 95.5% as at December 31, 2024;
• H&R reduced debt per the REIT's Financial Statements⁽³⁾ from approximately $6.1 billion as at June 30, 2021 to approximately $3.6 billion as at December 31, 2024;
• H&R improved debt to total assets at the REIT's proportionate share⁽³⁾⁽⁴⁾ from 50.0% as at June 30, 2021 to 43.7% as at December 31, 2024;
• H&R improved its unencumbered asset to unsecured debt coverage ratio⁽⁵⁾ from 1.65x as at June 30, 2021 to 2.32x as at December 31, 2024;
• H&R improved debt to adjusted EBITDA (based on trailing 12 months) at the REIT's proportionate share^(3)(4)(6) from 10.4x as at June 30, 2021 to 9.4x as at December 31, 2024.

FINANCIAL HIGHLIGHTS 

Net income (loss) for the three months and year ended December 31, 2024 included the following fair value adjustments of real estate assets:

Net Income (loss) and FFO

Net income (loss) and FFO (a non-GAAP measure, refer to the "Non-GAAP Measures" section of this news release) for the year ended December 31, 2023 included a gain on disposal of a purchase option of $30.6 million. Excluding this gain, net income for the year ended December 31, 2023 would have been $31.1 million. 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 year ended December 31, 2023 would have been $342.8 million and $1.216 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 practical 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 practical 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 practical completion is expected in Q2 2025. As at December 31, 2024, the total development budget for this property was approximately $43.6 million with costs remaining to complete the new building of approximately $9.1 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 commenced in Q1 2025. H&R 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 practical completion and was transferred from properties under development to investment properties. The REIT recognized a fair value increase of $31.3 million (U.S. $23.2 million). The property was completed on budget with costs remaining to complete of $9.2 million (U.S. $6.4 million), and the stabilized yield on budgeted cost is expected to be 5.7%. As at December 31, 2024, there were 210 residential rental units leased, of which 198 residential rental units were occupied. As at February 4, 2025, there were 240 residential rental units leased, of which 225 residential rental units were occupied.

In Q4 2024, Lantower Midtown, a 350 residential rental unit property in Dallas, TX, reached practical completion and was transferred from properties under development to investment properties. The REIT recognized a fair value increase of $23.0 million (U.S. $16.0 million). The property was completed on budget with costs remaining to complete of approximately $10.6 million (U.S. $7.4 million), and the stabilized yield on budgeted cost is expected to be 5.7%. As at December 31, 2024, there were 120 residential rental units leased, of which 87 residential rental units were occupied. As at February 4, 2025, there were 160 residential rental units leased, of which 125 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 December 31, 2024, the total budget for 560 & 600 Slate Drive was approximately $66.3 million with costs remaining to complete of $27.2 million, all at H&R's ownership interest. In Q3 2024, H&R obtained an external appraisal and recognized a fair value increase of $8.4 million at H&R's ownership interest primarily due to strong industrial demand given the close proximity to the airport and access points to the three major highways. 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 residential development projects (the "REDT Projects") in Florida totalling 601 residential rental units. The REIT contributed the land to Lantower Residential REDT (No.1) JV LP ("REDT JV LP"), 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, subject to approval by the investors of the REDT. 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 December 31, 2024, the total budget for the REDT Projects was approximately $87.8 million (U.S. $61.0 million) with costs remaining to complete of $67.1 million (U.S. $46.6 million), all at H&R's ownership interest. The REDT Projects are expected to be completed in mid-2026.

Future Intensification

In January 2024, the Toronto East York Community Council approved H&R's official plan and zoning by-law amendment application at 69 Yonge Street to convert the existing heritage building from office use to 127 residential units. The approval facilitates adaptive reuse of the existing 15-storey building, while adding density through infilling the southeast corner of the building and adding 5 residential floors to the overall height. H&R is addressing the conditions outlined by the Toronto East York Community Council and anticipates that the zoning by-law amendment will come into effect by the end of Q1 2025.

In February 2024, following the final reading of the New Urban Plan, the City of Dorval enacted new by-laws and zoning regulations, amending the allowable density and permitted uses at 200 Bouchard Boulevard to include residential development.

In October 2024, H&R submitted rezoning applications to the City of Toronto for 53 & 55 Yonge St., 145 Wellington St. W., and 310 Front St. W., to remove the current approved replacement office density and instead replace the office area with residential uses, including some affordable housing. H&R submitted these new applications given the changes in the office market over the past few years including the rise of hybrid work and reduced demand for office space. H&R anticipates receiving approval for these applications in Q4 2025. Along with the changes proposed to 310 Front St. W., H&R also submitted a rezoning application to replace the existing 12-storey office building at 330 Front St W., with a 65-storey mixed use tower. 

2024 Cash Distributions

H&R's cash distributions amounted to $0.72 per Unit during 2024 (2023 - $0.70 per Unit) which comprised: (i) monthly cash distributions in aggregate of $0.60 per Unit (2023 - $0.60 per Unit); and (ii) a special cash distribution of $0.12 per Unit, further described below (2023 - $0.10 per Unit).

For the year ended December 31, 2024, H&R's payout ratio as a percentage of Adjusted Funds from Operations ("AFFO") (a non-GAAP ratio, refer to the "Non-GAAP Measures" section of this news release) was 75.5% (2023 - 63.0%).

2024 Taxation Consequences for Taxable Canadian Unitholders

H&R's cash distributions amounted to $0.72 per Unit during 2024 (including a $0.12 per Unit special cash distribution to unitholders of record on December 31, 2024). The REIT also made a special distribution to unitholders of record on December 31, 2024 of $0.60 per Unit payable in additional Units, which were immediately consolidated such that there was no change in the number of outstanding Units. The cash portion of the special distribution was intended to provide liquidity to unitholders to cover all or part of an income tax obligation that may arise from the additional taxable income being distributed via the special distribution. The amount of the special distribution payable in Units ($0.60 per Unit) will increase the adjusted cost basis of unitholders' consolidated Units.

Debt & Liquidity Highlights

Mortgages

During the year ended December 31, 2024, H&R repaid four mortgages and one mortgage was assumed by a purchaser totalling $146.2 million at a weighted average interest rate of 4.6%.

Debentures

In January 2024, H&R redeemed all of its $350.0 million Series N Senior Debentures, which bore interest at 3.369% per annum.

In February 2024, H&R completed a private placement of $250.0 million Series T Senior Debentures, bearing interest at 5.457% and maturing February 28, 2029.

Unsecured Term Loans

In March 2024, H&R secured a two-year extension on a $250.0 million unsecured term loan which will now mature on March 7, 2027.

In April 2024, H&R secured a one-year extension on a $125.0 million unsecured term loan which will now mature on November 30, 2026.

Lines of Credit

In March 2024, H&R secured a two-year extension on its $150.0 million revolving unsecured line of credit which will now mature on September 20, 2026. In October 2024, H&R secured a one-year extension on this revolving unsecured line of credit which will now mature on September 20, 2027.

In December 2024, H&R secured a two-year extension on $520.0 million of its $750.0 million revolving unsecured line of credit which will now mature on December 14, 2029. The remaining $230.0 million will mature on December 14, 2027.

Liquidity

As at December 31, 2024, H&R had cash and cash equivalents of $100.4 million, $843.6 million available under its unused lines of credit and an unencumbered property pool of approximately $4.4 billion.

As at December 31, 2024, debt to total assets per the REIT's Financial Statements was 33.4% compared to 34.2% as at December 31, 2023. As at December 31, 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 43.7% compared to 44.0% as at December 31, 2023.

Environmental, Social and Governance

H&R published its 2023 Sustainability Report in 2024, highlighting ESG initiatives that exemplify 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.

In Q4 2024, Lantower West Love in Dallas, TX and Lantower Midtown in Dallas, TX, two of the REIT's development projects that were completed in 2024, each received a Silver certification from the National Green Building Standard.

Throughout 2024, H&R's Lantower Residential division won the following workplace awards: (i) Best Places to Work by Glassdoor; (ii) Best Workplaces in Texas by FORTUNE in partnership with Great Place to Work Certified Institute; (iii) Great Place to Work Certified by Great Place to Work Certified Institute; and (iv) Best Places to Work in Multifamily, Best Places to Work in Multifamily for Women, Best Places to Work in Florida and Best Places to Work in Texas, all by Best Companies Group.

MONTHLY DISTRIBUTIONS DECLARED

H&R today declared a distribution for the month of February scheduled as follows:

CONFERENCE CALL AND WEBCAST

Management will host a conference call to discuss the financial results of the REIT on Thursday, February 13, 2025 at 10.00 a.m. Eastern Time. Participants can join the call by dialing 1‐800‐717‐1738 or 1‐289‐514‐5100. 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 1‐289‐819‐1325 or 1‐888‐660‐6264 and enter the passcode 21517 followed by the "#" key. The telephone replay will be available until Thursday, February 20, 2025 at midnight.

A live audio webcast will be available through 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 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 $10.6 billion as at December 31, 2024. H&R REIT has ownership interests in a North American portfolio comprised of high-quality residential, industrial, office and retail properties comprising over 26.0 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,  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 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 strategic repositioning plan to create sustainable long-term value for unitholders, H&R's strategy to grow its exposure to residential assets in U.S. sunbelt and gateway cities, the sale of assets held for sale, H&R's expectations with respect to the activities of its development properties, including the building of new properties and the redevelopment of existing properties, the use of such properties, the timing of construction and completion, expected construction plans and costs, yield on cost, anticipated square footage, future intensification opportunities, expectations with respect to the REDT and the REDT Projects, 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 continuing effects of inflation; debt markets continue to provide access to capital at a reasonable cost; 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; strategic transformational repositioning plan; credit risk and tenant concentration; lease rollover risk; interest rate and other debt-related risks; inflation risk; development risks; residential rental risk; capital expenditure risk; currency risk; liquidity risk; cyber security risk; financing credit risk; ESG and climate change risk; risks associated with disease outbreaks; 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; potential conflicts of interest; litigation and regulatory risk; Unit prices; availability of cash for distributions; credit ratings; ability to access capital; dilution; unitholder liability; redemption right; investment eligibility; debentures; statutory remedies; tax risk; and additional tax risks applicable to the REIT and to unitholders. H&R cautions that these lists of factors, risks and uncertainties are not exhaustive. Although the forward‐looking statements contained in this news release are based upon what H&R believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward‐looking statements.

Readers are also urged to examine H&R's materials filed with the Canadian securities regulatory authorities from time to time as they may contain discussions on risks and uncertainties which could cause the actual results and performance of H&R to differ materially from the forward‐looking statements contained in this news release. All forward‐looking statements contained in this news release are qualified by these cautionary statements. These forward‐looking statements are made as of February 12, 2025 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 audited consolidated financial statements of the REIT and related notes for the three months and year ended December 31, 2024 (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, FFO and AFFO per basic and diluted Unit, payout ratio as a % of FFO, payout ratio as a % of AFFO, debt to total assets at the REIT's proportionate share, debt to Adjusted EBITDA 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 year ended December 31, 2024  available at www.hr‐reit.com and on the REIT's profile on SEDAR at www.sedarplus.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):

Debt to Adjusted EBITDA at the REIT's Proportionate Share

The following table provides a reconciliation of Debt to Adjusted EBITDA at the REIT's proportionate share (a non-GAAP ratio):

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):

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):

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) (a non-GAAP measure):

NAV per Unit (a non-GAAP Ratio)

The following table reconciles Unitholders' equity per Unit to NAV per Unit:

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 (non-GAAP measures):

Additional information regarding H&R is available at www.hr-reit.com and on www.sedarplus.com 

SOURCE H&R Real Estate Investment Trust