TORONTO, Aug. 14, 2013 /CNW/ - H&R Real Estate Investment Trust ("H&R
REIT") and H&R Finance Trust (collectively, "H&R") (TSX: HR.UN;
HR.DB.D; HR.DB.E and HR.DB.H) today announced their financial results
for the quarter ended June 30, 2013.
Capital Transaction Highlights
During the second quarter of 2013, H&R REIT acquired 100% of Primaris
Retail Real Estate Investment Trust ("Primaris") which consisted of 26
properties valued at $3.1 billion. The acquisition was funded through
the issuance of 62.5 million Stapled Units with a value of $1.4 billion
and the assumption of Primaris' outstanding mortgages, convertible
debentures and bank indebtedness totalling $1.6 billion. In addition,
holders of 2.1 million exchangeable units of certain subsidiaries of
Primaris received the same number of Class B units of subsidiaries of
H&R REIT, each of which is exchangeable for 1.166 Stapled Units. The
increased market capitalization relating to the acquisition of Primaris
has substantially enhanced liquidity for unitholders. Through this
transaction, H&R REIT has achieved broader diversification by
geographic region and tenant base into the enclosed shopping centre
asset class at a time when U.S. and international retailers are
expanding into Canada. H&R is pleased with its successful integration
of the Primaris portfolio and platform all in accordance with H&R's
proforma budgets. The property operating income of $41.0 million
attributable to the Primaris portfolio for Q2 2013 was in line with H&R
REIT management's expectation at the time of the Primaris acquisition
and it is expected that such property operating income will increase
for Q3 and Q4 2013.
Operating Highlights
H&R REIT's average remaining term to maturity as at June 30, 2013 was
10.3 years for leases and 7.3 years for outstanding mortgages.
Occupancy at June 30, 2013 was 98.7%, up slightly from 98.0% at June
30, 2012. Leases representing only 4.9% of total rentable area will
expire during the balance of 2013 and 2014. As at June 30, 2013, the
ratio of H&R's debt to fair market value of assets was 48.5% compared
to 50.3% as at December 31, 2012.
Development Highlights
Effective December 31, 2012, H&R REIT reached practical completion on
the construction of a two million square foot office building in
Calgary, Alberta (the "Bow"), which is fully leased to Encana
Corporation for a 25-year term. On March 15, 2013, the final floors
were delivered to Encana Corporation and the 25-year lease term
commenced, and will continue until May 14, 2038. Rent escalations will
be at 0.75% per annum on the office space and 1.5% per annum on the
parking income for the full 25-year term. H&R REIT estimates a further
$12.5 million in costs will be incurred to fully complete this
project. As at June 30, 2013, the total cost incurred on the project,
including the South Block, amounted to $1.70 billion (December 31, 2012
- $1.67 billion) which includes the costs for construction of 1,358
underground parking stalls. Consistent with H&R's strategy to secure
long-term fixed rate financing, on June 20, 2013, H&R REIT issued
$300.0 million, Series C bonds at an annual rate of 3.797%, due June
13, 2023. These bonds rank pari passu to the $250.0 million, 3.690%
Series A bonds due June 14, 2021 and the $250.0 million, 3.693% Series
B bonds due June 14, 2022, which were both issued on June 14, 2012.
Encana Corporation was entitled to a 60-day free rent fixturing period
and an additional rent credit equal to the delay penalty of
approximately $32.0 million for delays in delivering the tranches. As
at June 30, 2013, there is no more rent credit due to the tenant. For
the three months ended June 30, 2013, the Bow has contributed $16.1
million to AFFO. Although mortgage interest will increase due to the
issuance of the Series C bonds, the REIT expects the Bow to generate
approximately the same amount of AFFO going forward.
The table below also provides an estimate of FFO and AFFO to be
generated by the Bow for the remainder of 2013:
|
Actual
|
Six months ended
|
Estimate(1)(2) |
In Millions
|
Q1 2013
|
Q2 2013
|
June 30, 2013
|
Q3 2013
|
Q4 2013
|
Basic rent
|
$2.2
|
$21.3
|
$23.5
|
$23.3
|
$23.3
|
Straight-lining of contractual rent
|
20.6
|
3.3
|
23.9
|
1.8
|
1.8
|
Interest capitalized
|
0.5
|
-
|
0.5
|
-
|
-
|
Mortgage interest
|
(4.4)
|
(5.2)
|
(9.6)
|
(7.3)
|
(7.3)
|
Expected Bow impact on FFO(3) |
18.9
|
19.4
|
38.3
|
17.8
|
17.8
|
Expected Bow impact on AFFO(3) |
(1.7)
|
16.1
|
14.4
|
16.0
|
16.0
|
(1) |
This information is being provided so that investors are able to
understand the expected impact of the Bow to H&R REIT's operations.
This information may not be appropriate for other purposes.
|
(2) |
The estimates for Q3 and Q4 2013 supersede the estimates previously
provided by H&R REIT.
|
(3) |
H&R's combined MD&A includes reconciliations of: net income to FFO; FFO
to AFFO; and AFFO to cash provided by operations. Readers are
encouraged to review such reconciliations in the combined MD&A.
|
Financial Highlights
The following table includes non-Generally Accepted Accounting
Principles ("GAAP") information that should not be construed as an
alternative to comprehensive income (loss) or cash provided by
operations and may not be comparable to similar measures presented by
other issuers as there is no standardized meaning of FFO under GAAP.
Management believes that these are meaningful measures of operating
performance. Readers are encouraged to refer to H&R's combined
management discussion and analysis ("MD&A") for further discussion of
non-GAAP information presented.
|
3 months ended June 30
|
6 months ended June 30
|
2013
|
2012
|
2013
|
2012
|
Rentals from investment properties (millions)
|
$294.1
|
$199.6
|
$516.7
|
$382.6
|
Net income (millions)
|
188.1
|
106.2
|
320.3
|
305.5
|
FFO (millions)(1)(2) |
119.5
|
92.6
|
209.5
|
165.0
|
FFO per Stapled Unit (basic)(2) |
0.45
|
0.49
|
0.90
|
0.90
|
Cash provided by operations (millions)
|
57.2
|
100.7
|
194.3
|
241.4
|
Cash distributions (millions) (3) |
68.0
|
38.5
|
117.2
|
73.6
|
Distributions per Stapled Unit
|
0.34
|
0.29
|
0.68
|
0.56
|
(1) |
H&R's combined MD&A includes reconciliations of: net income to FFO; FFO
to AFFO; and AFFO to cash provided by operations. Readers are
encouraged to review such reconciliations in the combined MD&A.
|
(2) |
See below for significant and non-recurring items included in FFO and
AFFO per Stapled Unit.
|
(3) |
Cash distributions exclude distributions reinvested in units pursuant to
H&R's unitholder distribution reinvestment plan.
|
Included in FFO are the following items which can be a source of
significant variances between different periods:
|
3 months ended June 30
|
6 months ended June 30
|
In millions
|
2013
|
2012
|
2013
|
2012
|
Additional recoveries for capital expenditures
|
$2.1
|
$3.8
|
$4.2
|
$4.8
|
Gain on extinguishment of debt
|
-
|
10.3
|
-
|
10.3
|
Adjustment to straight-lining of contractual rent
|
(2.4)
|
-
|
(2.4)
|
-
|
Sundry income
|
1.4
|
-
|
1.4
|
0.2
|
Incentive fee waived by the Property Manager
|
-
|
-
|
1.1
|
-
|
Excluding the above items, FFO would have been $118.4 million for the
three months ended June 30, 2013 (Q2 2012 - $78.5 million) and $0.45
per basic Stapled Unit (Q2 2012 - $0.42 per basic Stapled Unit). For
the six months ended June 30, 2013, FFO would have been $205.2 million
(six months ended June 30, 2012 - $149.7 million) and $0.88 per Stapled
Unit (six months ended June 30, 2012 - $0.81 per Stapled Unit).
Subsequent to June 30, 2013, H&R REIT:
-
purchased a 200,145 square foot retail shopping centre in Fort McMurray,
Alberta for $168.5 million.
-
announced its agreement with the Property Manager to internalize H&R
REIT's property management function effective July 1, 2013. Upon
closing of the transaction, a subsidiary of H&R REIT will acquire the
Property Manager's H&R-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.
-
entered into an agreement to sell a 50% non-managing interest in Place
d'Orleans Mall, a 759,462 square foot retail shopping centre in
Orleans, Ontario for gross proceeds of $110.6 million.
-
acquired a one-third interest in ECHO Realty LP for U.S. $294 million.
ECHO Realty LP's portfolio consists of 176 properties totalling
approximately 7.4 million square feet with an average remaining lease
term of 12.9 years. Giant Eagle Inc. is a tenant in 161 of the
properties and contributes approximately 79% of ECHO's annual revenue.
Monthly Distribution Declared
H&R's declared distribution for the month of September is scheduled as
follows:
|
Distribution/Stapled Unit
|
Annualized
|
Record date
|
Distribution date
|
September 2013
|
$0.11250
|
$1.35
|
September 10, 2013
|
September 30, 2013
|
About H&R REIT and H&R Finance Trust
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. In addition,
H&R REIT has a one-third interest in ECHO Realty LP which owns 176
properties totalling 7.4 million square feet. 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.
H&R Finance Trust is an unincorporated investment trust, which primarily
invests in notes issued by a U.S. corporation which is a subsidiary of
H&R REIT. As at June 30, 2013, the note receivable balance 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 statements in this news release contain 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 and H&R Finance
Trust, strategies to achieve those objectives, H&R's beliefs, plans,
estimates, and intentions, and similar statements concerning
anticipated future events, results, circumstances, performance or
expectations that are not historical facts including, H&R REIT's
expectation in connection with the financial impact of The Bow and the amount of distributions to unitholders. 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. These
statements are not guarantees of future performance and are based on
H&R's estimates and assumptions that are subject to risks and
uncertainties, including those discussed in H&R's materials filed with
the Canadian securities regulatory authorities from time to time, which
could cause the actual results and performance of H&R to differ
materially from the forward-looking statements contained in this news
release. Those risks and uncertainties include, among other things, H&R
REIT's expectation with respect to the Bow and Primaris' Q3 and Q4 2013
results, risks related to: prices and market value of securities of H&R
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. 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
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 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, 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 REIT, 416-635-7520, or e-mail info@hr-reit.com.