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TORONTO, July 30, 2013 /CNW/ - H&R Real Estate Investment Trust ("H&R REIT", "H&R" or the "REIT") (TSX: HR.UN; HR.DB.D; HR.DB.E and HR.DB.H) announced today that it has
entered into an agreement with H&R Property Management Ltd., the REIT's
external property manager (the "Property Manager"), to internalize the REIT's property management function (the "Internalization" or the "Transaction"). Closing is expected to occur in September 2013 with economic effect
from July 1, 2013.
Upon closing of the Transaction, a subsidiary of the REIT will acquire
the Property Manager's REIT-related property management business in
return for 9.5 million limited partnership units of that subsidiary,
such units to be exchangeable on a one-for-one basis for stapled units
of the REIT and H&R Finance Trust. The terms of the Transaction were
negotiated and unanimously recommended for approval by the independent
trustees of the REIT (the "Independent Trustees").
The Independent Trustees and the Property Manager have been discussing
the amendment, replacement or termination of the existing property
management agreement for several months. Given H&R's recent acquisition
of Primaris Retail Real Estate Investment Trust ("Primaris") and the inherent potential conflicts between the REIT and the
Property Manager that now exist as a result of Primaris' internal
management structure and other financial benefits as noted below, it
became clear to the Independent Trustees that internalizing the
property management business at an appropriate price was in the best
interests of H&R and its unitholders. The consideration being paid for
the Property Manager's H&R-related property management business closely
approximates the amount that would otherwise have been payable to the
Property Manager, net of the Property Manager's costs, under the
current property management agreement (based upon certain assumptions
considered by the Independent Trustees to be reasonable) which expires
in January 2020. The REIT will incur a one-time charge equal to the
value of the issued units on closing.
The Independent Trustees considered a number of factors in recommending
approval of the Internalization, including the key reasons set forth
below.
Key Reasons for Internalization:
-
Results in the internalization of the existing management contract which
was negotiated at a time when the REIT was significantly smaller and
the fixed costs of management relative to the size of the REIT's
balance sheet were higher.
-
Eliminates any potential management conflict resulting from the Primaris
acquisition. Currently owned Primaris properties and any enclosed
shopping centers acquired by H&R in the future would be internally
managed, while existing office and industrial properties and those
acquired in the future would have been subject to the external property
management agreement and its associated fees.
-
Eliminates exposure to acquisition fees payable to the Property Manager
at a time when the REIT has the size, breadth and balance sheet
strength to be a significant acquirer and consolidator both in Canada
and the U.S.
-
Responds to the market's preference for internally managed REITs.
-
Reduces the REIT's property operating expenses and increases the REIT's
net operating income. The REIT will save fees previously payable to
the Property Manager and expects to incur approximately $5 million
annually of additional salaries and overhead as a result of the
Internalization.
-
The purchase price associated with the Internalization does not utilize
existing cash resources of the REIT and the Property Manager has agreed
to hold the exchangeable units, or stapled units into which they are
exchangeable, which it will receive for five years, subject to limited
exceptions.
Commenting on the Internalization, Independent Trustee Mr. Ronald Rutman
stated:
"After considerable deliberation over the last few months, the Board of
Trustees has unanimously decided that it is in the best interests of
H&R and its unitholders to fully internalize property management and
remove any potential conflict between the REIT and the Property Manager
going forward". Mr. Rutman added; "The Independent Trustees felt
strongly that this was the right window of opportunity to eliminate the
existing management contract. The consideration being paid is fair and
this transaction should positively affect the trading price of H&R's
stapled units and allow for an increased valuation multiple."
Internal Property Management Team
Upon closing of the Transaction, the REIT's subsidiary will hire those
individuals at the Property Manager who are currently providing the
various property management services for the REIT's properties.
Certain office equipment used in the business and an office lease will
also be transferred and assigned to the REIT's subsidiary.
The Exchangeable Limited Partnership Units
The exchangeable limited partnership units to be issued to the Property
Manager at closing will carry an entitlement to distributions equal to
the distributions paid on H&R's stapled units. In order to provide the
Property Manager with a voting entitlement approximately equivalent to
the stapled units, the REIT has also agreed to seek the approval of the
REIT's unitholders at the next annual meeting of unitholders to
authorize the issuance to the Property Manager of 9.5 million special
voting units of the REIT (which would be transferrable only together
with the accompanying limited partnership units). The special voting
units would entitle the Property Manager to one vote per special voting
unit at meetings of the unitholders of the REIT. The Property Manager
has agreed to hold the exchangeable limited partnership units, or the
stapled units into which they are exchangeable, until the fifth
anniversary of the Transaction, subject to early release in the event
of certain "change of control" transactions affecting the REIT.
The Toronto Stock Exchange ("Exchange") has conditionally approved
listing of the 9.5 million stapled units issuable upon exchange of the
exchangeable limited partnership units, subject to satisfaction of the
Exchange's standard listing requirements.
Financial Advisor and Counsel
The Independent Trustees engaged Trimaven Capital Advisors Inc. to act
as financial advisor and Osler, Hoskin & Harcourt LLP as independent
counsel in connection with the Internalization. Blake, Cassels &
Graydon LLP acts as counsel to H&R in connection with the
Internalization.
About H&R REIT
H&R REIT is an open-ended real estate investment trust, which owns a
North American portfolio of 41 office, 112 industrial and 165 retail
properties comprising over 53 million square feet and 2 development
projects, with a fair value of approximately $13 billion. The
foundation of H&R REIT's success since inception in 1996 has been a
disciplined strategy that leads to consistent and profitable growth.
H&R REIT leases its properties for long terms to creditworthy tenants
and strives to match those leases with primarily long-term, fixed-rate
financing.
About H&R Finance Trust
H&R Finance Trust is an unincorporated investment trust, which invests
in notes issued by a U.S. corporation which is a subsidiary of H&R
REIT. The current note receivable is U.S. $216.6 million. In 2008, H&R
REIT completed an internal reorganization which resulted in each issued
and outstanding H&R REIT unit trading together with a unit of H&R
Finance Trust as a "Stapled Unit" on the Toronto Stock Exchange.
Forward-looking Statements
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 the objectives of H&R REIT, strategies to
achieve those objectives, H&R REIT's beliefs, plans, estimates, and
intentions, and similar statements concerning anticipated future
events, results, circumstances, performance or expectations that are
not historical facts. 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 REIT's current beliefs and are based on information
currently available to management. These statements are not guarantees
of future performance and are based on H&R REIT's estimates and
assumptions that are subject to risk and uncertainties, including those
discussed in H&R REIT's materials filed with the Canadian securities
regulatory authorities from time to time, which could cause the actual
results and performance of H&R REIT to differ materially from the
forward-looking statements contained in this news release. Those risks
and uncertainties include, among other things, risks related to: prices
and market value of securities of H&R REIT; availability of cash for
distributions; restrictions pursuant to the terms of indebtedness;
liquidity; credit risk and tenant concentration; interest rate and
other debt related risk; tax risk; ability to access capital markets;
dilution; lease rollover risk; construction risks; currency risk;
unitholder liability; co-ownership interest in properties; competition
for real property investments; environmental matters; reliance on one
corporation for management of substantially all H&R REIT's properties;
and changes in legislation and indebtedness of H&R REIT. Material
factors or assumptions that were applied in drawing a conclusion or
making an estimate set out in the forward-looking statements include
that the general economy is stable; local real estate conditions are
stable; interest rates are relatively stable; and equity and debt
markets continue to provide access to capital. H&R REIT cautions that
this list of factors is not exhaustive. Although the forward-looking
statements contained in this news release are based upon what H&R REIT
believes are reasonable assumptions, there can be no assurance that
actual results will be consistent with these forward-looking
statements. All forward-looking statements in this news release are
qualified by these cautionary statements. These forward-looking
statements are made as of today, and H&R REIT, except as required by
applicable law, assumes no obligation to update or revise them to
reflect new information or the occurrence of future events or
circumstances.
SOURCE: H&R Real Estate Investment Trust
Additional information regarding H&R REIT and H&R Finance Trust is available at www.hr-reit.com and on www.sedar.com. For more information, please contact Larry Froom, Chief Financial Officer, H&R Real Estate Investment Trust, 416-635-7520, or e-mail info@hr-reit.com.