Q3/24: RESULTS IN LINE; NO NEW DISPOSITIONS
THE TD COWEN INSIGHT
H&R delivered an in-line quarter that largely matched our estimate/consensus. Occupancy
took a dip in the quarter, although this was largely owing to the completion of Lantower
West Love in the residential portfolio, which is currently in lease-up. We continue to view
the near ~6% distribution yield as attractive as we wait for both disposition activity and
SPNOI growth to pick up.
Impact: NEUTRAL
Q3/24 Results: FFO/unit of $0.294 was in line with our estimate (cons: $0.30). FFO/unit
was down slightly y/y (after excl. the $30.6mm gain in Q3/23), owing to lower NOI as a
result of dispos.
Operations: Total occupancy was -100bps q/q to 95.9%. Residential was -50bps to 94.1%
(excl. Lantower West Love, which is in lease-up), while Retail and Office saw modest
+40bps/+50bps increases. Industrial was -50bps to 98.9%. We estimate constant-currency
SPNOI growth was -1.6% (vs. +1.6% in Q2) as growth in Industrial and Retail was more than
offset by declines in Residential and Office.
Avg. residential rent was US$2,056/month (largely flat q/q).
Lantower West Love reached substantial completion in Q3 and was transferred to
investment properties (stabilized yield ~5.7%). As of Nov 5, 177 rental units were leased
out of 413 total (43%). Recognized a US$23.2mm FV gain (22% of cost).
At 53 & 55 Yonge Street, the buildings were transferred to PUD, and mgmt has decided
to proceed with demolition in Q4 (saving carrying costs). H&R will continue to advance
the rezoning process for these two buildings but does not have any plans to begin redevelopment
in the near future.
Industrial continues to see strong rental uplifts.
Post Q3, H&R completed the previously announced sale of 50% interest in a ~372k sf
industrial asset in Brampton for $60.7mm ($326/sf). Sales completed/announced YTD
2024 total $438mm.
Balance Sheet: IFRS NAV/unit was -1.5% q/q to $19.64 (TDS: $18.00 NAV). Q3 fair value
reductions of $23mm were largely concentrated in Office (-$28mm) and Residential (-
$12mm), and offset by small gains elsewhere. Also, carrying values for two VTBs (on office
properties previously sold in Calgary and Ottawa) were reduced by a total of $32mm.
Overall cap rates were higher (+5bps q/q to 5.93%) on a +19bps increase in Office to
8.86%. The Canadian office cap rate was +28bps to 9.30% while U.S. office was unchanged.
Industrial cap rates were +19bps to 5.49% while for Retail they were stable. Liquidity was ~
$932mm (Q2/24: $943mm), while Debt/Assets (proportionate share) was 44.9% (+10bps q/
q).