TORONTO, Nov. 14,
2023 /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 and nine months ended September 30, 2023.
Q3 2023 HIGHLIGHTS:
- Net operating income increased by 0.7% compared to Q3 2022.
Property dispositions in the last 12 months totaled $443.0 million.
- Same-Property net operating income (cash basis)(1)
increased by 12.6% compared to Q3 2022 driven by healthy gains
across all our operating segments:
|
|
|
•
Residential
|
+19.5 %
|
Driven by strong rent
growth and the strengthening of the U.S. dollar
|
|
|
|
• Industrial
|
+11.1 %
|
Driven by strong rent
growth and higher occupancy
|
|
|
|
• Office
|
+9.9 %
|
Driven by lease
termination payments, bad debt recovery and the strengthening of
the U.S. dollar
|
|
|
|
• Retail
|
+8.8 %
|
Driven by increase in
occupancy at River Landing Miami and the strengthening of the U.S.
dollar
|
- Funds From Operations ("FFO") per Unit(2) grew 39.1%
to $0.42 per Unit compared to
$0.30 per Unit for Q3 2022. The REIT
distributed 35.7%(2) of FFO to Unitholders.
- Cash distributions per unit increased by 9.5% compared to Q3
2022.
- ($112.8) million fair value
adjustment on real estate assets, driven by capitalization rate
expansion. The following weighted average capitalization rates were
used to value the REIT's investment properties at the REIT's
proportionate share(1):
|
|
|
|
|
September 30,
2023
|
|
|
|
• Residential (sun belt)
|
|
4.75 %
|
|
|
|
• Residential (other)
|
|
4.08 %
|
|
|
|
• Industrial
|
|
5.28 %
|
|
|
|
• Office (general)(3)
|
|
7.57 %
|
|
|
|
• Office (rezoning)(3)
|
|
5.16 %
|
|
|
|
• Retail
|
|
6.47 %
|
- Office occupancy at September 30,
2023 was 98.0% and overall portfolio occupancy was
97.0%.
- Unitholders' equity per Unit was $20.62 and NAV per Unit(2) was
$21.49 at September 30, 2023.
- Liquidity was in excess of $1
billion at September 30,
2023.
|
(1)
|
These are non-generally
accepted accounting principles ("GAAP") measures. Refer to the
"Non-GAAP Measures" section of this news release.
|
|
(2)
|
These are non-GAAP
ratios. Refer to the "Non-GAAP Measures" section of this
news release.
|
|
(3)
|
Office (general)
includes 14 properties expected to be sold as part of H&R's
plan to sell office properties. Office (rezoning) includes 8
Canadian properties designated for future
intensification.
|
"H&R's property performance remained strong across all our
property classes with Same-Property net operating income on a cash
basis growth of 12.6%," said Tom
Hofstedter, Executive Chair and Chief Executive Officer.
"Our capital structure continues to be conservative with low
leverage and a low payout ratio. Given the line of sight we have
into our current disposition pipeline we remain confident in our
ability to achieve our disposition target of $600 million, sold or under
contract, of non-core assets this year of which
approximately $432 million has been
sold to date."
FINANCIAL HIGHLIGHTS
|
September
30
|
December 31
|
|
2023
|
2022
|
|
Total assets (in
thousands)
|
$11,064,935
|
$11,412,603
|
|
Debt to total assets
per the REIT's Financial Statements(1)
|
34.1 %
|
34.4 %
|
|
Debt to total assets at
the REIT's proportionate share(1)(2)
|
43.9 %
|
44.0 %
|
|
Debt to Adjusted EBITDA
at the REIT's proportionate share(1)(2)(3)
|
8.7
|
9.6
|
|
Unitholders' equity (in
thousands)
|
$5,400,145
|
$5,487,287
|
|
Units outstanding (in
thousands)
|
261,868
|
265,885
|
|
Exchangeable units
outstanding (in thousands)
|
17,974
|
17,974
|
|
Unitholders' equity per
Unit
|
$20.62
|
$20.64
|
|
NAV per
Unit(2)
|
$21.49
|
$21.80
|
|
3 months ended
September 30
|
9 months ended
September 30
|
|
2023
|
2022
|
2023
|
2022
|
|
Rentals from investment
properties (in millions)
|
$210.4
|
$213.7
|
$641.2
|
$617.8
|
|
Net operating
income (in millions)
|
$149.4
|
$148.4
|
$399.2
|
$386.8
|
|
Same-Property net
operating income (cash basis) (in
millions)(4)
|
$129.7
|
$115.2
|
$382.6
|
$341.4
|
|
Net income (loss) from
equity accounted investments (in
millions)
|
($11.0)
|
($60.1)
|
$0.1
|
($6.3)
|
|
Fair value adjustment
on real estate assets (in millions)
|
($112.8)
|
($235.2)
|
($288.5)
|
$770.6
|
|
Net income
(loss) (in millions)
|
$37.6
|
($121.5)
|
$73.0
|
$961.0
|
|
FFO (in
millions)(4)
|
$117.7
|
$85.9
|
$289.7
|
$253.3
|
|
Adjusted funds from
operations ("AFFO") (in millions)(4)
|
$101.2
|
$72.7
|
$244.5
|
$224.9
|
|
Weighted average number
of Units and exchangeable units for FFO (in 000's)
|
280,205
|
284,734
|
282,480
|
293,115
|
|
FFO per basic
Unit(2)
|
$0.420
|
$0.302
|
$1.026
|
$0.864
|
|
AFFO per basic
Unit(2)
|
$0.361
|
$0.255
|
$0.866
|
$0.767
|
|
Cash Distributions per
Unit
|
$0.150
|
$0.137
|
$0.450
|
$0.402
|
|
Payout ratio as a % of
FFO(2)
|
35.7 %
|
45.4 %
|
43.9 %
|
46.5 %
|
|
Payout ratio as a % of
AFFO(2)
|
41.6 %
|
53.7 %
|
52.0 %
|
52.4 %
|
|
(1)
|
Debt includes mortgages
payable, debentures payable, unsecured term loans, lines of credit
and liabilities classified as held for sale.
|
|
(2)
|
These are non-GAAP
ratios. Refer to the "Non-GAAP Measures" section of this
news release.
|
|
(3)
|
Adjusted earnings
before interest, taxes, depreciation and amortization ("Adjusted
EBITDA") is calculated by taking the sum of net operating income
(excluding straight-lining of contractual rent, IFRIC 21, as well
as the Bow and 100 Wynford non-cash rental adjustments) and finance
income and subtracting trust expenses (excluding the fair value
adjustment to unit-based compensation) for the last 12
months.
|
|
(4)
|
These are non-GAAP
measures. Refer to the "Non-GAAP Measures" section of
this news release.
|
Included in net income, FFO and AFFO for the three and nine
months ended September 30, 2023 is
$30.6 million (U.S. $22.6 million) related to the proceeds on
disposal of a purchase option. H&R had a mortgage receivable of
approximately $37.2 million (U.S
$27.6 million) which was repaid in
August 2023. In addition, H&R
sold its option to purchase the land. The combined proceeds from
the mortgage receivable and the sale of the option amounted to
$67.8 million (U.S. $50.2 million). As a result, H&R recorded
$30.6 million (U.S. $22.6 million) as proceeds on disposal of
purchase option.
SUMMARY OF SIGNIFICANT Q3 2023 ACTIVITY
2023 Net Operating Income Highlights:
|
Three months ended
September 30
|
Nine months
ended September 30
|
|
(in thousands of
Canadian dollars)
|
2023
|
2022
|
% Change
|
2023
|
2022
|
% Change
|
|
Operating
Segment:
|
|
|
|
|
|
|
|
Same-Property net
operating income (cash basis) -
Residential(1)
|
$38,836
|
$32,492
|
19.5 %
|
$120,295
|
$99,204
|
21.3 %
|
|
Same-Property net
operating income (cash basis) - Industrial(1)
|
17,408
|
15,663
|
11.1 %
|
51,936
|
45,832
|
13.3 %
|
|
Same-Property net
operating income (cash basis) - Office(1)
|
49,247
|
44,793
|
9.9 %
|
140,124
|
131,766
|
6.3 %
|
|
Same-Property net
operating income (cash basis) - Retail(1)
|
24,244
|
22,284
|
8.8 %
|
70,206
|
64,596
|
8.7 %
|
|
Same-Property net
operating income (cash basis)(1)
|
129,735
|
115,232
|
12.6 %
|
382,561
|
341,398
|
12.1 %
|
|
Net operating income
(cash basis) from Transactions at the REIT's proportionate
share(1)(2)
|
32,491
|
39,902
|
(18.6) %
|
103,841
|
118,825
|
(12.6) %
|
|
Realty taxes in
accordance with IFRIC 21 at the REIT's proportionate
share(1)(3)
|
15,324
|
12,056
|
27.1 %
|
(14,946)
|
(12,600)
|
(18.6) %
|
|
Straight-lining of
contractual rent at the REIT's proportionate
share(1)
|
1,406
|
3,388
|
(58.5) %
|
9,477
|
3,302
|
187.0 %
|
|
Net operating income
from equity accounted investments(1)
|
(29,540)
|
(22,211)
|
(33.0) %
|
(81,689)
|
(64,088)
|
(27.5) %
|
|
Net operating
income per the REIT's Financial
Statements
|
$149,416
|
$148,367
|
0.7 %
|
$399,244
|
$386,837
|
3.2 %
|
|
(1)
|
These are non-GAAP
measures. Refer to the "Non-GAAP Measures" section of this
news release.
|
|
(2)
|
Transactions includes
acquisitions, dispositions, and transfers of investment properties
to or from properties under development during the 21-month period
ended September 30, 2023.
|
|
(3)
|
IFRIC 21 is defined in
the "Non-GAAP Measures" section of this news
release.
|
Transaction Highlights
Property Dispositions
In April 2023, H&R sold 160
Elgin Street ("160 Elgin"), a
973,661 square foot office property in Ottawa, ON for $277.0
million. H&R received $67.0
million on closing and provided two vendor take-back
mortgages ("VTB") to the purchaser: (i) $30.0 million which is subordinate to the first
mortgage on the property, bearing interest at 4.5% per annum,
maturing April 20, 2028 and (i)
$180.0 million secured by a first
mortgage on the property, bearing interest at 6.5% per annum, which
was repaid in Q3 2023. The VTB proceeds of $180.0 million were used to repay debt, including
a $125.0 million unsecured term loan,
originally scheduled to mature on November
30, 2024.
In July 2023, H&R sold four
single tenanted retail properties in Québec totalling 476,802
square feet for $68.0 million. These
properties were classified as held for sale at June 30, 2023. The proceeds were used to repay
debt and repurchase Units under the REIT's normal course
issuer bid ("NCIB").
In August 2023, H&R sold a
85,725 square foot single tenanted office property in Temple Terrace, FL for U.S. $13.3 million. The property was classified as
held for sale as at June 30, 2023.
The tenant's lease expired on June 30,
2023 and the property was vacant at closing.
In August 2023, H&R sold a
13,510 square foot automotive-tenanted retail property in
Roswell, GA for approximately U.S.
$3.6 million. The property was 37.5%
occupied as at June 30, 2023 and at
closing.
2023 non-core property sales to date total $431.7 million.
Leasing Highlights:
In Q1 2023, H&R entered into a lease amendment with its
tenant at 6900 Maritz Drive in Mississauga, ON to terminate their lease in
December 2023. The terms of the
rental payments to December 2023 have
not changed. The previous lease term would have ended in
May 2031. H&R received a lease
termination fee of approximately $0.9
million in Q1 2023 and received an additional $2.5 million in Q3 2023. IFRS 16, Leases
("IFRS 16") requires revenue from leases to be recognized on a
straight-line basis over the contractual term of the lease. As a
result of this lease amendment, non-cash adjustments to
straight-lining of contractual rent of nil, $0.8 million, and ($1.8)
million were recorded in Q1 2023, Q2 2023, and Q3 2023,
respectively. In addition, $0.8
million will be recorded in Q4 2023. Refer to the "Future
Intensification" section below for further details regarding
H&R's plans to rezone this property from office to industrial
use.
Development Update
Canadian Properties under Development
The REIT currently has two industrial properties under
development located at 1965 Meadowvale Boulevard and 1925
Meadowvale Boulevard in Mississauga,
ON totalling 336,800 square feet, which are expected to be
completed in Q4 2023 and Q1 2024, respectively. The REIT expects
the construction costs for these two properties under development
to be approximately $14.1 million for
the remainder of 2023 and $4.4
million in 2024. In February
2023, H&R entered into a lease agreement to fully lease
1965 Meadowvale Boulevard, totalling 187,290 square feet, for a
term of 10 years at market rents with annual contractual rental
escalations. In March 2023, H&R
entered into a lease agreement to fully lease 1925 Meadowvale
Boulevard, totalling 149,510 square feet, for a term of 12.5 years
at market rents with annual contractual rental escalations.
U.S. Properties under Development
The REIT commenced construction on two U.S. residential
development properties in 2022. The total development budget to
complete these two properties is approximately U.S. $110.0 million. The REIT expects its construction
costs for these two properties under development to be
approximately U.S. $27.9 million for
the remainder of 2023 and U.S. $82.1
million in 2024.
Future Intensification
H&R is addressing comments for 53 and 55 Yonge Street
received from the City of Toronto
in September 2023 on the
re-submission made to clear conditions that were set by the Ontario
Land Tribunal. H&R expects to have rezoning approval in place
by Q1 2024 for a 66-storey mixed use tower, including 511
residential units with approximately 159,000 square feet of
replacement office area and approximately 13,000 square feet of
retail area.
In July 2023, the final report
recommending approval of the rezoning application for 310 Front
Street was adopted by Toronto City Council. The statutory appeal
period for the passing of the zoning by-law was completed in
August 2023, and the rezoning came
into force and became binding. The rezoning approval is for a
65-storey mixed use tower including, 578 residential units,
approximately 119,000 square feet of replacement office area and
approximately 2,000 square feet of retail area.
In October 2023, H&R submitted
a Site Plan Approval application to the City of Mississauga for a new single
story 122,400 square foot industrial building at 6900 Maritz
Drive in Mississauga, ON, which
would replace the existing 104,689 square foot office building.
Demolition is expected to commence in Q4 2023 and Site Plan
approval is expected by Q1 2024.
Normal Course Issuer Bid
During the three months ended September
30, 2023, the REIT purchased and cancelled 1,304,900 Units
at a weighted average price of $10.38
per Unit, for a total cost of $13.6
million, representing an approximate 51.7% discount to NAV
per Unit (a non-GAAP ratio, refer to the "Non-GAAP Measures"
section of this news release). During the nine months ended
September 30, 2023, the REIT
purchased and cancelled 4,147,200 Units at a weighted average price
of $10.30 per Unit, for a total cost
of $42.7 million, representing an
approximate 52.1% discount to NAV per Unit (a non-GAAP ratio, refer
to the "Non-GAAP Measures" section of this news
release).
2023 Distributions
H&R increased its monthly distributions to $0.05 per Unit commencing January 2023. This equates to $0.60 per Unit annually, an 11.1% increase from
the 2022 distribution of $0.54 per
Unit, excluding the 2022 special cash distribution.
The 2022 special distribution of $0.40 per Unit was comprised of $0.05 per Unit in cash and $0.35 per Unit in additional Units, which were
immediately consolidated such that there was no change in the
number of outstanding Units.
As a result of the recently announced property sales, H&R
expects to make a special distribution in 2023. The amount and
nature of such distribution will be determined in Q4 2023.
For the three and nine months ended September 30, 2023, H&R's payout ratio as a
percentage of AFFO (a non-GAAP ratio, refer to the "Non-GAAP
Measures" section of this news release) was 41.6% and 52.0%,
respectively.
Debt & Liquidity Highlights
Unsecured Term Loans
In August 2023, H&R secured a
one-year extension on a $250.0
million unsecured term loan which will now mature
March 7, 2025.
In August 2023, H&R repaid a
$125.0 million unsecured term loan,
originally scheduled to mature on November
30, 2024.
Lines of Credit
In August 2023, H&R secured a
one-year extension on its $150.0
million revolving unsecured line of credit which will now
mature on September 20, 2024.
In September 2023, H&R secured
a one-year extension on its $750.0
million revolving unsecured line of credit which will now
mature on December 14, 2027.
As at September 30, 2023, debt to
total assets per the REIT's Financial Statements was 34.1% compared
to 34.4% as at December 31, 2022. As
at September 30, 2023, 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 43.9%
compared to 44.0% as at December 31,
2022.
As at September 30, 2023, H&R
had cash and cash equivalents of $145.9
million, $918.4 million
available under its unused lines of credit and an unencumbered
property pool of approximately $4.1
billion.
MONTHLY DISTRIBUTION DECLARED
H&R today declared a distribution for the month of November
scheduled as follows:
|
Distribution/Unit
|
Annualized
|
Record date
|
Distribution
date
|
|
November
2023
|
$0.05
|
$0.60
|
November 30,
2023
|
December 15,
2023
|
CONFERENCE CALL AND WEBCAST
Management will host a conference call to discuss the financial
results of the REIT on Wednesday, November
15, 2023 at 9.30 a.m. Eastern
Time. Participants can join the call by dialing
1‐888‐886‐7786 or 1‐416‐764‐8658. 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
1‐416‐764‐8692 or 1‐877‐674‐7070 and enter the passcode 444964
followed by the "#" key. The telephone replay will be available
until Wednesday, November 22, 2023 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 $11.1 billion as at
September 30, 2023. H&R REIT has
ownership interests in a North American portfolio comprised of
high-quality residential, industrial, office and retail properties
comprising over 27.1 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, Vancouver, 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 made or implied under the
heading "Summary of Significant Q3 2023 Activity" 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 ability to take
advantage of value-creating opportunities, H&R's strategy to
grow its exposure to residential assets in U.S. sunbelt and gateway
cities, leasing of the REIT's investment properties, including
expected lease expiration dates, H&R's expectation regarding
the sale of non-core assets including the intent to sell an
additional $170 million of properties
during the balance of 2023, H&R's expectations with respect to
the activities of its development properties, including the
building of new properties, the use of such properties, the timing
of construction and completion, expected construction plans and
costs, anticipated square footage, expected approvals and the
timing thereof, future intensification opportunities;
capitalization rates and cash flow models used to estimate fair
values, expectations regarding future operating fundamentals,
H&R's intention to repurchase Units in the open market,
H&R's beliefs regarding the benefits of persons who hold Units,
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 effects of increased
inflation; debt markets continue to provide access to capital at a
reasonable cost, notwithstanding rising interest rates; 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; credit risk and tenant concentration; lease rollover
risk; interest rate and other debt‐related risk; development risks;
residential rental risk; capital expenditures risk; currency risk;
liquidity risk; risks associated with disease outbreaks; cyber
security risk; financing credit risk; ESG and climate change risk;
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; Unit price risk; potential conflicts
of interest; availability of cash for distributions; credit
ratings; ability to access capital markets; dilution; unitholder
liability; redemption right risk; risks relating to debentures; tax
risk; additional tax risks applicable to unitholders; investment
eligibility; and statutory remedies. 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 November 14, 2023
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 unaudited condensed consolidated financial statements of the
REIT and related notes for the three and nine months ended
September 30, 2023 (the "REIT's
Financial Statements") were prepared in accordance with
International Accounting Standard 34, Interim Financial
Reporting. However, H&R's management uses a number of
measures, including NAV per Unit, FFO, AFFO, payout ratio as a % of
FFO, payout ratio as a % of AFFO and debt to total assets at the
REIT's proportionate share, debt to Adjusted EBITDA 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 three and nine months ended September 30, 2023 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):
|
September 30,
2023
|
December 31,
2022
|
|
(in thousands of
Canadian dollars)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share
|
|
Assets
|
|
|
|
|
|
|
|
Real estate
assets
|
|
|
|
|
|
|
|
Investment
properties
|
$8,375,212
|
$2,075,088
|
$10,450,300
|
$8,799,317
|
$2,128,306
|
$10,927,623
|
|
Properties under
development
|
1,066,863
|
126,621
|
1,193,484
|
880,778
|
89,912
|
970,690
|
|
9,442,075
|
2,201,709
|
11,643,784
|
9,680,095
|
2,218,218
|
11,898,313
|
|
Equity accounted
investments
|
1,055,883
|
(1,055,883)
|
—
|
1,060,268
|
(1,060,268)
|
—
|
|
Assets classified as
held for sale
|
43,656
|
—
|
43,656
|
294,028
|
—
|
294,028
|
|
Other assets
|
377,450
|
22,278
|
399,728
|
301,325
|
21,892
|
323,217
|
|
Cash and cash
equivalents
|
145,871
|
33,656
|
179,527
|
76,887
|
38,443
|
115,330
|
|
$11,064,935
|
$1,201,760
|
$12,266,695
|
$11,412,603
|
$1,218,285
|
$12,630,888
|
|
Liabilities and
Unitholders' Equity
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Debt
|
$3,775,649
|
$1,126,243
|
$4,901,892
|
$3,922,529
|
$1,137,210
|
$5,059,739
|
|
Exchangeable
units
|
165,902
|
—
|
165,902
|
217,668
|
—
|
217,668
|
|
Deferred
Revenue
|
957,551
|
—
|
957,551
|
986,243
|
—
|
986,243
|
|
Deferred tax
liability
|
446,860
|
—
|
446,860
|
483,048
|
—
|
483,048
|
|
Accounts payable and
accrued liabilities
|
318,828
|
59,540
|
378,368
|
309,505
|
58,502
|
368,007
|
|
Liabilities classified
as held for sale
|
—
|
—
|
—
|
6,323
|
—
|
6,323
|
|
Non-controlling
interest
|
—
|
15,977
|
15,977
|
—
|
22,573
|
22,573
|
|
5,664,790
|
1,201,760
|
6,866,550
|
5,925,316
|
1,218,285
|
7,143,601
|
|
Unitholders'
equity
|
5,400,145
|
—
|
5,400,145
|
5,487,287
|
—
|
5,487,287
|
|
$11,064,935
|
$1,201,760
|
$12,266,695
|
$11,412,603
|
$1,218,285
|
$12,630,888
|
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):
|
September
30
|
December 31
|
|
2023
|
2022
|
|
Debt per the REIT's
Financial Statements
|
$3,775,649
|
$3,928,852
|
|
Debt - REIT's
proportionate share of equity accounted investments
|
1,126,243
|
1,137,210
|
|
Debt at the REIT's
proportionate share
|
4,901,892
|
5,066,062
|
|
|
|
|
(Figures below are
for the trailing 12 months)
|
|
|
|
Net income (loss)
per the REIT's Financial Statements
|
(43,126)
|
844,823
|
|
Net income from equity
accounted investments (within equity accounted
investments)
|
(1,152)
|
(1,132)
|
|
Finance costs -
operations
|
267,716
|
260,288
|
|
Fair value adjustments
on financial instruments and real estate assets
|
471,286
|
(582,538)
|
|
(Gain) loss on sale of
real estate assets
|
11,211
|
(7,493)
|
|
Income tax (recovery)
expense
|
(38,057)
|
101,634
|
|
Non-controlling
interest
|
771
|
967
|
|
Adjustments:
|
|
|
|
The Bow and 100 Wynford
non-cash rental income adjustments
|
(92,717)
|
(86,555)
|
|
Straight-lining of
contractual rent
|
(13,065)
|
(6,890)
|
|
IFRIC 21 - realty tax
adjustment
|
2,346
|
—
|
|
Fair value adjustment
to unit-based compensation
|
813
|
2,172
|
|
Adjusted EBITDA at
the REIT's proportionate share
|
$566,026
|
$525,276
|
|
Debt to Adjusted EBITDA
at the REIT's proportionate share
|
8.7
|
9.6
|
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):
|
Three months ended
September 30, 2023
|
Three months ended
September 30, 2022
|
|
(in thousands of
Canadian dollars)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share
|
|
Rentals from investment
properties
|
$210,446
|
$37,923
|
$248,369
|
$213,709
|
$31,680
|
$245,389
|
|
Property operating
costs
|
(61,030)
|
(8,383)
|
(69,413)
|
(65,342)
|
(9,469)
|
(74,811)
|
|
Net operating
income
|
149,416
|
29,540
|
178,956
|
148,367
|
22,211
|
170,578
|
|
Net income (loss) from
equity accounted investments
|
(11,017)
|
11,051
|
34
|
(60,071)
|
60,292
|
221
|
|
Finance costs -
operations
|
(54,107)
|
(12,338)
|
(66,445)
|
(55,366)
|
(10,185)
|
(65,551)
|
|
Finance
income
|
4,068
|
78
|
4,146
|
4,410
|
20
|
4,430
|
|
Proceeds on disposal of
purchase option
|
30,568
|
—
|
30,568
|
—
|
—
|
—
|
|
Trust (expenses)
recoveries
|
(2,872)
|
(1,290)
|
(4,162)
|
2,633
|
(638)
|
1,995
|
|
Fair value adjustment
on financial instruments
|
28,126
|
408
|
28,534
|
39,756
|
460
|
40,216
|
|
Fair value adjustment
on real estate assets
|
(112,824)
|
(27,109)
|
(139,933)
|
(235,192)
|
(71,976)
|
(307,168)
|
|
Gain (loss) on sale of
real estate assets, net of related costs
|
(3,479)
|
(141)
|
(3,620)
|
(857)
|
38
|
(819)
|
|
Net income (loss)
before income taxes and non-controlling interest
|
27,879
|
199
|
28,078
|
(156,320)
|
222
|
(156,098)
|
|
Income tax (expense)
recovery
|
9,717
|
(6)
|
9,711
|
34,824
|
(13)
|
34,811
|
|
Net income (loss)
before non-controlling interest
|
37,596
|
193
|
37,789
|
(121,496)
|
209
|
(121,287)
|
|
Non-controlling
interest
|
—
|
(193)
|
(193)
|
—
|
(209)
|
(209)
|
|
Net income
(loss)
|
37,596
|
—
|
37,596
|
(121,496)
|
—
|
(121,496)
|
|
Other comprehensive
income:
|
|
|
|
|
|
|
|
Items that are or may
be reclassified subsequently to net income (loss)
|
129,027
|
—
|
129,027
|
294,423
|
—
|
294,423
|
|
Total comprehensive
income attributable to unitholders
|
$166,623
|
$—
|
$166,623
|
$172,927
|
$—
|
$172,927
|
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):
|
Nine months
ended September 30, 2023
|
Nine months
ended September 30, 2022
|
|
(in thousands of
Canadian dollars)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share
|
|
Rentals from investment
properties
|
$641,242
|
$112,265
|
$753,507
|
$617,805
|
$92,841
|
$710,646
|
|
Property operating
costs
|
(241,998)
|
(30,576)
|
(272,574)
|
(230,968)
|
(28,753)
|
(259,721)
|
|
Net operating
income
|
399,244
|
81,689
|
480,933
|
386,837
|
64,088
|
450,925
|
|
Net income (loss) from
equity accounted investments
|
139
|
259
|
398
|
(6,334)
|
6,712
|
378
|
|
Finance costs -
operations
|
(164,022)
|
(36,333)
|
(200,355)
|
(164,637)
|
(28,290)
|
(192,927)
|
|
Finance
income
|
10,524
|
238
|
10,762
|
11,589
|
28
|
11,617
|
|
Proceeds on disposal of
purchase option
|
30,568
|
—
|
30,568
|
—
|
—
|
—
|
|
Trust
expenses
|
(17,331)
|
(3,541)
|
(20,872)
|
(11,109)
|
(2,142)
|
(13,251)
|
|
Fair value adjustment
on financial instruments
|
74,161
|
329
|
74,490
|
68,583
|
2,429
|
71,012
|
|
Fair value adjustment
on real estate assets
|
(288,517)
|
(40,376)
|
(328,893)
|
770,561
|
(42,152)
|
728,409
|
|
Gain (loss) on sale of
real estate assets, net of related costs
|
(6,128)
|
(1,672)
|
(7,800)
|
10,654
|
250
|
10,904
|
|
Net income before
income taxes and non-controlling interest
|
38,638
|
593
|
39,231
|
1,066,144
|
923
|
1,067,067
|
|
Income tax (expense)
recovery
|
34,365
|
(45)
|
34,320
|
(105,192)
|
(179)
|
(105,371)
|
|
Net income before
non-controlling interest
|
73,003
|
548
|
73,551
|
960,952
|
744
|
961,696
|
|
Non-controlling
interest
|
—
|
(548)
|
(548)
|
—
|
(744)
|
(744)
|
|
Net income
|
73,003
|
—
|
73,003
|
960,952
|
—
|
960,952
|
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
Items that are or may
be reclassified subsequently to net income
|
(212)
|
—
|
(212)
|
393,445
|
—
|
393,445
|
|
Total comprehensive
income attributable to unitholders
|
$72,791
|
$—
|
$72,791
|
$1,354,397
|
$—
|
$1,354,397
|
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):
|
Three months ended
September 30
|
Nine months
ended September 30
|
|
(in thousands of
Canadian dollars)
|
2023
|
2022
|
Change
|
2023
|
2022
|
Change
|
|
Rentals from investment
properties
|
$210,446
|
$213,709
|
($3,263)
|
$641,242
|
$617,805
|
$23,437
|
|
Property operating
costs
|
(61,030)
|
(65,342)
|
4,312
|
(241,998)
|
(230,968)
|
(11,030)
|
|
Net operating
income per the REIT's Financial
Statements
|
149,416
|
148,367
|
1,049
|
399,244
|
386,837
|
12,407
|
|
Adjusted
for:
|
|
|
|
|
|
|
|
Net operating income
from equity accounted investments(1)
|
29,540
|
22,211
|
7,329
|
81,689
|
64,088
|
17,601
|
|
Straight-lining of
contractual rent at the REIT's proportionate
share(1)
|
(1,406)
|
(3,388)
|
1,982
|
(9,477)
|
(3,302)
|
(6,175)
|
|
Realty taxes in
accordance with IFRIC 21 at the REIT's proportionate
share(1)
|
(15,324)
|
(12,056)
|
(3,268)
|
14,946
|
12,600
|
2,346
|
|
Net operating income
(cash basis) from Transactions at the REIT's proportionate
share(1)
|
(32,491)
|
(39,902)
|
7,411
|
(103,841)
|
(118,825)
|
14,984
|
|
Same-Property net
operating income (cash basis)(1)
|
$129,735
|
$115,232
|
$14,503
|
$382,561
|
$341,398
|
$41,163
|
|
(1) These are non-GAAP
measures . Refer to the "Non-GAAP Measures" section of this
news release.
|
NAV per Unit (a non-GAAP Ratio)
The following table reconciles Unitholders' equity per Unit to
NAV per Unit:
|
Unitholders' Equity
per Unit and NAV per Unit
|
September
30
|
December 31
|
|
(in thousands except
for per Unit amounts)
|
2023
|
2022
|
|
Unitholders'
equity
|
$5,400,145
|
$5,487,287
|
|
Exchangeable
units
|
165,902
|
217,668
|
|
Deferred tax
liability
|
446,860
|
483,048
|
|
Total
|
$6,012,907
|
$6,188,003
|
|
|
|
|
Units
outstanding
|
261,868
|
265,885
|
|
Exchangeable units
outstanding
|
17,974
|
17,974
|
|
Total
|
279,842
|
283,859
|
|
Unitholders' equity per
Unit(1)
|
$20.62
|
$20.64
|
|
NAV per Unit
|
$21.49
|
$21.80
|
|
(1)
Unitholders' equity per Unit is calculated by dividing
unitholders' equity by Units outstanding.
|
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:
|
FFO AND
AFFO
|
Three Months ended
September 30
|
Nine months
ended September 30
|
|
(in thousands of
Canadian dollars except per Unit amounts)
|
2023
|
2022
|
2023
|
2022
|
|
Net income
(loss) per the REIT's Financial
Statements
|
$37,596
|
($121,496)
|
$73,003
|
$960,952
|
|
Realty taxes in
accordance with IFRIC 21
|
(14,141)
|
(10,831)
|
13,762
|
11,284
|
|
FFO adjustments from
equity accounted investments
|
25,659
|
70,253
|
42,903
|
41,749
|
|
Exchangeable unit
distributions
|
2,696
|
2,484
|
8,088
|
7,324
|
|
Fair value adjustments
on financial instruments and real estate assets
|
84,698
|
195,436
|
214,356
|
(839,144)
|
|
Fair value adjustment
to unit-based compensation
|
(3,026)
|
(8,300)
|
(5,663)
|
(4,304)
|
|
(Gain) loss on sale of
real estate assets, net of related costs
|
3,479
|
857
|
6,128
|
(10,654)
|
|
Deferred income tax
expense (recoveries) applicable to U.S. Holdco
|
(10,075)
|
(35,146)
|
(35,922)
|
104,204
|
|
Incremental leasing
costs
|
570
|
607
|
1,738
|
1,841
|
|
The Bow and 100 Wynford
non-cash rental income and accretion adjustments
|
(9,761)
|
(7,941)
|
(28,692)
|
(19,943)
|
|
FFO(1)
|
$117,695
|
$85,923
|
$289,701
|
$253,309
|
|
Straight-lining of
contractual rent
|
(1,061)
|
(3,400)
|
(8,951)
|
(3,232)
|
|
Rent amortization of
tenant inducements
|
1,131
|
1,162
|
3,384
|
3,482
|
|
Capital
expenditures
|
(13,148)
|
(7,884)
|
(30,287)
|
(19,851)
|
|
Leasing expenses and
tenant inducements
|
(1,464)
|
(1,178)
|
(3,767)
|
(3,642)
|
|
Incremental leasing
costs
|
(570)
|
(607)
|
(1,738)
|
(1,841)
|
|
AFFO adjustments from
equity accounted investments
|
(1,388)
|
(1,317)
|
(3,848)
|
(3,372)
|
|
AFFO(1)
|
$101,195
|
$72,699
|
$244,494
|
$224,853
|
|
Weighted average number
of Units and exchangeable units (in thousands of
Units)(2)
|
280,205
|
284,734
|
282,480
|
293,115
|
|
Diluted weighted
average number of Units and exchangeable units (in thousands of
Units)(2)(3)
|
281,143
|
285,751
|
283,418
|
294,132
|
|
FFO per basic
Unit(4)
|
$0.420
|
$0.302
|
$1.026
|
$0.864
|
|
FFO per diluted
Unit(4)
|
$0.419
|
$0.301
|
$1.022
|
$0.861
|
|
AFFO per basic
Unit(4)
|
$0.361
|
$0.255
|
$0.866
|
$0.767
|
|
AFFO per diluted
Unit(4)
|
$0.360
|
$0.254
|
$0.863
|
$0.764
|
|
Cash Distributions per
Unit
|
$0.150
|
$0.137
|
$0.450
|
$0.402
|
|
Payout ratio as a % of
FFO(4)
|
35.7 %
|
45.4 %
|
43.9 %
|
46.5 %
|
|
Payout ratio as a % of
AFFO(4)
|
41.6 %
|
53.7 %
|
52.0 %
|
52.4 %
|
|
(1)
|
These are non-GAAP
measures defined in the "Non-GAAP Measures" section of this news
release.
|
|
(2)
|
For the three and nine
months ended September 30, 2023, included in the weighted average
and diluted weighted average number of Units are exchangeable units
of 17,974,186. For the three and nine months ended September 30,
2022, included in the weighted average and diluted weighted average
number of Units are exchangeable units of 18,130,185 and
18,156,897, respectively.
|
|
(3)
|
For the three and nine
months ended September 30, 2023, included in the determination of
diluted FFO and AFFO with respect to H&R's Incentive Unit Plan
are 938,095 Units. For the three and nine months ended September
30, 2022, included in the determination of diluted FFO and AFFO
with respect to H&R's Incentive Unit Plan are 1,016,994
Units.
|
|
(4)
|
These are non-GAAP
ratios defined in the "Non-GAAP Measures" section of this news
release.
|
Additional information regarding H&R is available at
www.hr-reit.com and on www.sedarplus.com
SOURCE H&R Real Estate Investment Trust