Analysts update National Bank Financial analyst Matt Kornack sees H&R Real Estate Investment Trust’s (HR.UN-T) $277-million sale of its only office property in Ottawa is “a positive in light of market concerns over office real estate generally but also given the progress it represents in moving towards the REIT’s strategic goal of owning a portfolio of primarily residential and industrial properties.”
Mr. Kornack thinks the sale of 160 Elgin Street to Groupe Mach, a private Montreal-based real estate firm, helps H&R with its tranformation. He noted the property represented 19 per cent of its Canadian office portfolio’s gross leasable area (GLA) and reduces the total office exposure on a fair value (FV) basis to 28 per cent (was 30 per cent) with “roughly a third of this is downtown Toronto properties with redevelopment upside potential.”
“While the purchaser still needs to finance a portion of the deal, they will be highly motivated by the $67-million first tranche paid on close,” he said.
“Management noted that sale proceeds ($67-million) would be used to repay debt and buy back units. Given added clarity from the completion of the sale, we are now modelling unit repurchases and anticipate the REIT further utilize its NCIB as a mechanism for earnings growth as cash comes in from asset sales.”
Reiterating an “outperform” recommendation for H&R units, Mr. Kornack increased his target to $15.75 from $15.25 to “reflect the positive earnings implications as the transaction outcome has been de-risked.” The average on the Street is $15.83.