H&R REIT Reports Second Quarter 2022 Results
TORONTO, Aug. 11, 2022 /CNW/ - H&R Real Estate Investment Trust ("H&R" or "the REIT") (TSX: HR.UN) announces its financial results for the three and six months ended June 30, 2022. The 2022 Second Quarter Report to Unitholders is available in the Investor Relations section of H&R's website at www.hr-reit.com and has been filed on SEDAR at www.sedar.com.
HIGHLIGHTS FOR THE SECOND QUARTER ENDED JUNE 30, 2022:
- 18.8% growth in Same‐Property net operating income (cash basis)(1) compared to Q2 2021;
- Net operating income per the REIT's Financial Statements decreased 17.0% compared to Q2 2021 due to the spin-off of Primaris REIT and property dispositions during the 18 months ended June 30, 2022;
- $406.0 million in dispositions at the REIT's proportionate share(1) comprised of:
- 11 properties totalling $238.3 million were sold during the six months ended June 30, 2022; and
- Four properties totalling $167.7 million are under binding agreements to be sold.
- 22,125,300 Units of the REIT ("Units") repurchased since January 1, 2022 under the REIT's normal course issuer bid ("NCIB") at a weighted average cost of $12.97 per Unit, an approximate 41% discount to Net Asset Value ("NAV") per Unit(3), for a total cost of $287.1 million;
- 10,516,100 Units repurchased during the quarter at a weighted average price of $13.01 per Unit, for a total cost of $136.8 million.
- $22.14 NAV per Unit(3) at June 30, 2022 an increase of $1.08 from March 31,2022 primarily due to the repurchase of Units and the stronger U.S. dollar;
- $20.94 unitholders' equity per Unit at June 30,2022, an increase of $1.06 from March 31, 2022;
- 35.4% Debt to total assets per the REIT's Financial Statements(2);
- 44.0% Debt to total assets at the REIT's proportionate share(2)(3);
- $4.6 billion unencumbered property pool; and
- $691.3 million in liquidity comprised of $71.7 million in cash and cash equivalents and $619.6 million available to be drawn under the REIT's credit facilities.
(1) |
These are non-GAAP measures defined in the "Non-GAAP Measures" section of this news release. |
(2) |
Debt includes mortgages payable, debentures payable, unsecured term loans and lines of credit. |
(3) |
These are non-GAAP ratios. Refer to the "Non-GAAP Measures" section of this news release. |
"Our second quarter results highlight the quality of our properties and the embedded growth within our portfolio," said Tom Hofstedter, H&R's Chief Executive Officer. "Our portfolio's organic growth coupled with our Unit buybacks are creating value for our Unitholders, with dispositions announced to date furthering our portfolio simplification strategy. Equipped with a strong balance sheet, significant liquidity, enhanced portfolio concentration to large primary markets with strong population and economic growth, we are well positioned to take advantage of value-creating opportunities."
FINANCIAL HIGHLIGHTS
June 30, |
December 31, |
|
2022 |
2021 |
|
Total assets (in thousands) |
$11,683,271 |
$10,501,141 |
Debt to total assets per the REIT's Financial Statements(1) |
35.4 % |
37.1 % |
Debt to total assets at the REIT's proportionate share(1)(2) |
44.0 % |
46.6 % |
Unitholders' equity (in thousands) |
$5,623,048 |
$4,773,833 |
Units outstanding (in thousands) |
268,546 |
288,440 |
Exchangeable units outstanding (in thousands) |
18,280 |
13,344 |
Unitholders' equity per Unit |
$20.94 |
$16.55 |
NAV per Unit(2) |
$22.14 |
$17.70 |
3 months ended June 30 |
6 months ended June 30 |
|||
2022 |
2021 |
2022 |
2021 |
|
Rentals from investment properties (in millions) |
$202.4 |
$264.3 |
$404.1 |
$530.8 |
Net operating income (in millions) |
$146.0 |
$175.9 |
$238.5 |
$309.6 |
Same-Property net operating income (cash basis) (in millions)(3) |
$120.5 |
$101.4 |
$243.2 |
$204.5 |
Net income from equity accounted investments (in millions) |
$8.9 |
$5.6 |
$53.7 |
$12.8 |
Fair value adjustment on real estate assets (in millions) |
($16.8) |
$7.5 |
$1,005.8 |
$72.2 |
Net income (in millions) |
$112.5 |
$94.9 |
$1,082.4 |
$254.4 |
Funds from operations ("FFO") (in millions)(3) |
$83.0 |
$115.7 |
$167.4 |
$235.4 |
Adjusted funds from operations ("AFFO") (in millions)(3) |
$75.0 |
$90.3 |
$152.2 |
$187.4 |
Weighted average number of Units and exchangeable units for FFO (in thousands) |
292,353 |
301,775 |
297,375 |
301,767 |
FFO per basic Unit(2) |
$0.284 |
$0.384 |
$0.563 |
$0.780 |
AFFO per basic Unit(2) |
$0.257 |
$0.299 |
$0.512 |
$0.621 |
Cash Distributions per Unit(4) |
$0.135 |
$0.173 |
$0.265 |
$0.345 |
Payout ratio as a % of FFO(2) |
47.5 % |
45.1 % |
47.1 % |
44.2 % |
Payout ratio as a % of AFFO(2) |
52.5 % |
57.9 % |
51.8 % |
55.6 % |
(1) |
Debt includes mortgages payable, debentures payable, unsecured term loans and lines of credit. |
(2) |
These are non-GAAP ratios. Refer to the "Non-GAAP Measures" section in this news release. |
(3) |
These are non-GAAP measures. Refer to the "Non-GAAP Measures" section in this news release. |
(4) |
H&R's current monthly distribution is $0.0458 per Unit, which increased from $0.0433 per Unit in May 2022. Following the Primaris Spin-Off on December 31, 2021, Primaris REIT announced a monthly distribution of $0.067 per Primaris REIT unit, reflecting $0.80 per Primaris REIT unit on an annualized basis (equivalent to $0.20 per Unit annually prior to the Primaris Spin-Off and 4:1 consolidation of Primaris REIT units). The Primaris REIT distribution, together with H&R's intended annual distribution for 2022 of $0.54 per Unit equates to a combined distribution of $0.74 per Unit for those investors that held Units as at December 31, 2021 and continue to hold both their Units and Primaris REIT units, which is a 7.2% increase over the $0.69 per Unit paid by H&R in 2021. |
SUMMARY OF SIGNIFICANT Q2 2022 ACTIVITY
2022 Net Operating Income Highlights:
Three months ended June 30 |
Six months ended June 30 |
||||||
(in thousands) |
2022 |
2021 |
% Change |
2022 |
2021 |
% Change |
|
Operating Segment: |
|||||||
Same-Property net operating income (cash basis) - Residential(1) |
$30,470 |
$21,200 |
43.7 % |
$61,300 |
$44,590 |
37.5 % |
|
Same-Property net operating income (cash basis) - Industrial(1) |
14,207 |
13,537 |
4.9 % |
28,186 |
26,874 |
4.9 % |
|
Same-Property net operating income (cash basis) - Office(1) |
52,752 |
42,829 |
23.2 % |
106,805 |
86,326 |
23.7 % |
|
Same-Property net operating income (cash basis) - Retail(1) |
23,035 |
23,870 |
(3.5 %) |
46,948 |
46,740 |
0.4 % |
|
Same-Property net operating income (cash basis)(1) |
120,464 |
101,436 |
18.8 % |
243,239 |
204,530 |
18.9 % |
|
Net operating income (cash basis) from Transactions(2) at |
31,860 |
71,579 |
(55.5 %) |
61,850 |
140,516 |
(56.0 %) |
|
Realty taxes in accordance with IFRIC 21 at the REIT's proportionate |
16,246 |
11,441 |
42.0 % |
(24,656) |
(23,969) |
(2.9 %) |
|
Straight-lining of contractual rent at the REIT's proportionate share(1) |
(240) |
9,120 |
102.6 % |
(86) |
20,468 |
100.4 % |
|
Net operating income from equity accounted investments(1) |
(22,283) |
(17,681) |
(26.0 %) |
(41,877) |
(31,972) |
(31.0 %) |
|
Net operating income per the REIT's Financial Statements |
$146,047 |
$175,895 |
(17.0 %) |
$238,470 |
$309,573 |
(23.0 %) |
|
(1) |
These are non-GAAP measures. Refer to the "Non-GAAP Measures" section of this news release. |
(2) |
Transactions include properties acquired, or sold, or transferred to or from properties under development, during the 18-month period ended June 30, 2022. |
Net operating income per the REIT's Financial Statements decreased 17.0% and 23.0%, respectively, for the three and six months ended June 30, 2022 compared to the respective 2021 periods, primarily due to the spin-off of Primaris REIT and property dispositions during the 18 months ended June 30, 2022.
Same-Property net operating income (cash basis) from residential properties increased by 43.7% and 37.5%, respectively, for the three and six months ended June 30, 2022 compared to the respective 2021 periods, primarily due to an increase in occupancy at Jackson Park in New York. Excluding Jackson Park, Same-Property net operating income (cash basis) from residential properties increased by 24.8% and 17.7%, respectively, for the three and six months ended June 30, 2022 compared to the respective 2021 periods, primarily due to strong rental rate growth.
Same-Property net operating income (cash basis) from industrial properties increased by 4.9% for both the three and six months ended June 30, 2022 compared to the respective 2021 periods, primarily due to an increase in occupancy and contractual rental escalations.
Same-Property net operating income (cash basis) from office properties increased by 23.2% and 23.7%, respectively, for the three and six months ended June 30, 2022 compared to the respective 2021 periods, primarily due to the 2021 free rent period granted to Hess Corporation as part of the extension of its lease. Excluding the impact of the Hess Corporation lease, Same-Property net operating income (cash basis) from office properties increased by 1.5% and 2.2%, respectively, primarily due to contractual rental escalations.
Same-Property net operating income (cash basis) from retail properties decreased by 3.5% and increased by 2.4%, respectively, for the three and six months ended June 30, 2022 compared to the respective 2021 periods, primarily due to River Landing Commercial in Miami, FL which was negatively impacted due to the following: (i) higher non-recoverable operating expenses including property taxes and insurance mainly as a result of vacant units, including the office component of River Landing Commercial, the occupancy of which is expected to commence in Q4 2022, as well as several retail units which have been leased but were not occupied as of June 30, 2022; and (ii) the three months ended June 30, 2021 included additional catch-up rent relating to co-tenancy clauses and the settlement of rent commencement dates with certain retail tenants. Excluding River Landing Commercial, Same-Property net operating income (cash basis) from retail properties would have increased by 1.5% and 1.0%, respectively.
Land Acquisitions
In April 2022, H&R acquired 6.8 acres of land in Clearwater, FL for U.S. $17.1 million, which is expected to be developed into 425 residential rental units. The site is adjacent to U.S. Highway 19, minutes away from Tech Data Corporation's headquarters and the Gateway office submarket.
In June 2022, H&R acquired 16.3 acres of land in Orlando, FL for U.S. $15.5 million, which is expected to be developed into 380 residential rental units. The site is located at the main entrance of NeoCity, a 500-acre mixed-use tech campus.
These land acquisitions align with H&R's strategy to grow its exposure to residential assets in U.S. sunbelt and gateway cities.
Dispositions
In June 2022, H&R sold a 312 residential rental unit property in San Antonio, TX for U.S. $69.3 million at a capitalization rate of 3.6%. H&R acquired this property in November 2016 for U.S. $56.8 million. This was H&R's only residential asset in the San Antonio, TX sub-market and H&R does not plan to allocate any further capital to this sub-market of Texas.
In June 2022, H&R sold seven automotive-tenanted retail properties in the United States totalling 94,205 square feet for approximately U.S. $58.1 million at a weighted average capitalization rate of 5.2%.
A portion of the proceeds from these sales was used to acquire the land parcels noted above.
In June 2022, H&R sold a 21,493 square foot single tenanted industrial property in Calgary, AB for $3.5 million, all at H&R's 50% ownership interest. This property had been vacant since May 2022. H&R chose to sell this property to an end user given the size of the building and its unique usage for document storage.
In July 2022, the REIT entered into an agreement to sell 100 Wynford Drive, an office property in Toronto, ON including 100% of the future income stream derived from the Bell lease ("Bell lease") until the end of the lease term in April 2036 to an arm's length third party, for approximately $120.7 million which approximates the June 30, 2022 IFRS values. Closing of the sale remains subject to certain customary conditions being satisfied and is expected to occur in September 2022. Although the REIT will legally sell the property, the transaction will not meet the criteria of a transfer of control under IFRS 15 Revenue from Contracts with Customers, as the REIT will have an option to repurchase 100% of the property for approximately $159.5 million in 2036 or earlier under certain circumstances. As such, the REIT will continue to recognize the income producing property in the statements of financial position.
In July 2022, the REIT entered into an agreement to sell one Canadian office property and two Canadian retail properties for aggregate gross proceeds of approximately $47.0 million, which approximates the June 30, 2022 IFRS values. Closing of the sale remains subject to certain customary conditions being satisfied and is expected to occur in September 2022.
Leasing
In Q2 2022, H&R leased 2121 Cornwall Rd., in Oakville, ON, a vacant industrial property totalling 157,083 square feet, at H&R's ownership interest, for a 10-year term commencing September 1, 2022 at current market rents with annual contractual rental escalations.
In Q2 2022, H&R completed a 5-year lease renewal at 2300 Rue Senkus in Montreal, QC, an industrial property totalling 371,000 square feet, at H&R's ownership interest. The original lease was set to expire in December 2022 and rent will increase by 125% commencing in January 2023 with annual contractual rent escalations.
H&R has leased approximately 76.7% of the office space at River Landing Commercial in Miami, FL. The two major tenants are: (i) Miami-Dade County for the Office of the State Attorney, Eleventh Judicial Circuit, whose lease is expected to commence in Q4 2022 and will occupy 49,379 square feet; and (ii) Public Health Trust of Miami-Dade County, whose lease is expected to commence in Q1 2023 and will occupy 63,007 square feet.
Canadian Properties under Development
The REIT currently has two Canadian properties under development at its industrial business park in Caledon, ON which are expected to be completed in Q3 2022. As at June 30, 2022, the total development budget is approximately $31.4 million, with $23.3 million in costs incurred to date and $8.1 million in costs remaining to complete. H&R has fully leased both of these properties: 34 Speirs Giffen Ave., totalling 105,014 square feet to Lindstrom Fastener (Canada) Ltd. for a term of 10 years expected to commence in October 2022, and 140 Speirs Giffen Ave, totalling 77,754 square feet to Coast Holding Limited Partnership for a term of 10 years expected to commence in October 2022.
The REIT expects to commence construction in the next 12 months on two industrial projects in Mississauga, ON which, upon completion, will add 586,069 square feet to the REIT's industrial portfolio at H&R's ownership interest. The total development budget to complete these two properties under development is approximately $115.5 million at H&R's ownership interest.
U.S. Properties under Development
H&R has a 31.2% non-managing ownership interest in Shoreline in Long Beach, CA. In June 2022, the project reached substantial completion and was transferred from properties under development to investment properties within equity accounted investments. As at June 30, 2022, occupancy was 50.2% and committed occupancy was 61.9%. As at June 30, 2022, Shoreline was valued at approximately U.S. $87.4 million compared to costs incurred of approximately U.S. $68.4 million, resulting in a fair value increase of approximately U.S. $19.0 million since the start of the project, all at H&R's ownership interest.
H&R has a 31.7% non-managing ownership interest in The Grand at Bayfront in Hercules, CA. In June 2022, the project reached substantial completion and was transferred from properties under development to investment properties within equity accounted investments. As at June 30, 2022, occupancy was 44.4% and committed occupancy was 54.3%. As at June 30, 2022, The Grand at Bayfront was valued at approximately U.S. $34.4 million compared to costs incurred of approximately U.S. $31.4 million, resulting in a fair value increase of approximately U.S. $3.0 million since the start of the project, all at H&R's ownership interest.
The REIT has commenced construction on two residential development properties in 2022 and expects to commence construction on a third in Q3 2022. The total development budget to complete these three properties is approximately U.S. $261.5 million. The REIT expects its construction costs, for these three properties under development, to be approximately U.S. $34.6 million for the balance of 2022 and U.S. $160.1 million in 2023.
Future Intensification
In July 2022, the City of Toronto adopted the final report recommending approval of the rezoning application for 145 Wellington St. W., which provides for the re-development of the current 13 storey office property into a 60-storey mixed-use property consisting of 512 residential units, 149,000 square feet of office space and 1,000 square feet of retail space.
Normal Course Issuer Bid
On December 13, 2021, the REIT received approval from the Toronto Stock Exchange (the "TSX") for the renewal of its NCIB allowing the REIT to purchase for cancellation up to a maximum of 14,000,000 Units. On April 19, 2022, the REIT received approval from the TSX to increase the maximum number of Units allowed to be repurchased on the open market to 28,269,228 Units. The NCIB will expire on the earlier of December 15, 2022 or the date on which the REIT purchases the maximum number of Units permitted under the NCIB. During the three months ended June 30, 2022, the REIT purchased and cancelled 10,516,100 Units at a weighted average price of $13.01 per Unit, for a total cost of $136.8 million. During the six months ended June 30, 2022, the REIT purchased and cancelled 19,906,600 Units at a weighted average price of $13.00 per Unit, for a total cost of $258.8 million. During the year ended December 31, 2021, the REIT did not purchase any Units for cancellation.
From July 1, 2022 to August 5, 2022, the REIT purchased and cancelled 2,218,700 additional Units at a weighted average price of $12.76 per Unit, for a total cost of $28.3 million.
Management and the Board of Trustees of the REIT believe that the Units continue to trade at a significant discount to the REIT's NAV per Unit and repurchasing Units is an optimal use of capital which will ultimately provide positive returns to unitholders.
As at June 30, 2022, debt to total assets per the REIT's Financial Statements was 35.4% compared to 37.1% as at December 31, 2021. As at June 30, 2022, debt to total assets at the REIT's proportionate share (a non-GAAP ratio) was 44.0% compared to 46.6% as at December 31, 2021. The weighted average interest rate of H&R's debt as at June 30, 2022 was 3.6% with an average term to maturity of 3.6 years. The weighted average interest rate of H&R's debt as at December 31, 2021 was 3.7% with an average term to maturity of 4.0 years.
As at June 30, 2022, H&R had cash on hand of $71.7 million, $619.6 million available under its unused lines of credit and an unencumbered property pool of approximately $4.6 billion.
H&R today declared distributions for the months of August and September scheduled as follows:
Distribution/Unit |
Annualized |
Record date |
Distribution date |
|
August 2022 |
$0.0458 |
$0.550 |
August 31, 2022 |
September 15, 2022 |
September 2022 |
$0.0458 |
$0.550 |
September 30, 2022 |
October 14, 2022 |
Management will host a conference call to discuss the financial results of the REIT on Friday, August 12, 2022 at 9.30 a.m. Eastern Time. Participants can join the call by dialing 1-888-510-2507 or 1-289-514-5065. 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 1-647-362-9199 or 1-800-770-2030 and enter the passcode 3504623 followed by the "#" key. The telephone replay will be available until Friday, August 19, 2022 at midnight.
A live audio webcast will be available through https://www.hr-reit.com/investor-relations/#investor-events. Please connect at least 15 minutes prior to the conference call to leave 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 https://www.hr-reit.com/investor-relations/#investor-presentation
H&R REIT is one of Canada's largest real estate investment trusts with total assets of approximately $11.7 billion as at June 30, 2022. H&R REIT has ownership interests in a North American portfolio comprised of high-quality residential, industrial, office and retail properties comprising over 29.3 million square feet. H&R is currently undergoing a five-year, strategic repositioning to transform into a simplified, growth-oriented company focusing on residential and industrial properties to surface significant value for unitholders.
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 headings "Highlights for the Second Quarter Ended June 30, 2022" "Financial Highlights" and "Summary of Significant Q2 2022 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 exposure to the residential market in U.S. sunbelt and gateway cities, the continued execution and expected benefits of Unit repurchases, significant development projects, leasing of the REIT's investment properties, H&R's expectation with respect to the future developments and activities of its development properties, including the building of new properties, the expected yield on cost from the REIT's development properties, the timing of construction and completion, expected construction costs, anticipated number of units and square footage, expected timing of approvals, the disposition of assets, capitalization rates and cash flow models used to estimate fair values, expectations regarding future operating fundamentals, 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 that the general economy is gradually recovering as a result of the COVID-19 pandemic, the extent and duration of which is unknown; debt markets continue to provide access to capital at a reasonable cost, notwithstanding the ongoing economic downturn; and assumptions concerning currency exchange and interest rates. Additional risks and uncertainties include, among other things, risks related to: disease outbreaks and COVID-19; 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; currency risk; capital expenditures risk; liquidity risk; cyber security risk; financing credit risk; environmental and climate change risk; general uninsured losses; co-ownership interest in properties; joint arrangement and investment risks; dependence on key personnel; potential acquisition, investment and disposition opportunities and joint venture arrangements; potential undisclosed liabilities associated with acquisitions; competition for real property investments; potential conflicts of interest; Unit price risk; availability of cash for distributions and investment; credit ratings; ability to access capital markets; tax risk; additional tax risks applicable to unitholders; dilution; unitholder liability; redemption right risk; investment eligibility; risks relating to debentures and the inability of the REIT to purchase senior debentures on a change of control; 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 August 11, 2022 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.
The unaudited condensed consolidated interim financial statements of the REIT and related notes for the three and six months ended June 30, 2022 (the "REIT's Financial Statements") were prepared in accordance with International Financial Reporting Standards ("IFRS"). 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, Same-Property net operating income (cash basis) and the REIT's proportionate share, which do not have meanings recognized or standardized under IFRS or Canadian Generally Accepted Accounting Principles ("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 discussion and analysis as at and for the three and six months ended June 30, 2022, available at www.hr-reit.com and on the REIT's profile on SEDAR at www.sedar.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:
June 30, 2022 |
December 31, 2021 |
|||||
(in thousands of Canadian dollars) |
REIT's |
Equity |
REIT's |
REIT's |
Equity |
REIT's |
Assets |
||||||
Real estate assets |
||||||
Investment properties |
$9,256,112 |
$2,021,095 |
$11,277,207 |
$8,581,100 |
$1,824,609 |
$10,405,709 |
Properties under development |
812,697 |
43,660 |
856,357 |
481,432 |
165,187 |
646,619 |
10,068,809 |
2,064,755 |
12,133,564 |
9,062,532 |
1,989,796 |
11,052,328 |
|
Equity accounted investments |
1,016,034 |
(1,016,034) |
- |
992,679 |
(992,679) |
- |
Assets classified as held for sale |
- |
- |
- |
- |
57,309 |
57,309 |
Other assets |
526,737 |
17,228 |
543,965 |
321,789 |
13,557 |
335,346 |
Cash and cash equivalents |
71,691 |
42,255 |
113,946 |
124,141 |
40,499 |
164,640 |
$11,683,271 |
$1,108,204 |
$12,791,475 |
$10,501,141 |
$1,108,482 |
$11,609,623 |
|
Liabilities and Unitholders' Equity |
||||||
Liabilities |
||||||
Debt |
$4,139,487 |
$1,032,173 |
$5,171,660 |
$3,894,906 |
$1,026,836 |
$4,921,742 |
Exchangeable units |
227,580 |
- |
227,580 |
216,841 |
- |
216,841 |
Bow deferred revenue |
884,799 |
- |
884,799 |
896,801 |
- |
896,801 |
Deferred tax liability |
500,391 |
- |
500,391 |
350,501 |
- |
350,501 |
Accounts payable and accrued liabilities |
307,966 |
53,426 |
361,392 |
368,259 |
59,130 |
427,389 |
Non-controlling interest |
- |
22,605 |
22,605 |
- |
22,516 |
22,516 |
6,060,223 |
1,108,204 |
7,168,427 |
5,727,308 |
1,108,482 |
6,835,790 |
|
Unitholders' equity |
5,623,048 |
- |
5,623,048 |
4,773,833 |
- |
4,773,833 |
$11,683,271 |
$1,108,204 |
$12,791,475 |
$10,501,141 |
$1,108,482 |
$11,609,623 |
|
(1) |
The REIT's proportionate share is a non-GAAP measure. |
The following table reconciles the REIT's Results of Operations from the REIT's Financial Statements to the REIT's proportionate share:
Three months ended June 30, 2022 |
Three months ended June 30, 2021 |
|||||
(in thousands of Canadian dollars) |
REIT's |
Equity |
REIT's |
REIT's |
Equity |
REIT's |
Rentals from investment properties |
$202,394 |
$30,307 |
$232,701 |
$264,327 |
$24,569 |
$288,896 |
Property operating costs |
(56,347) |
(8,024) |
(64,371) |
(88,432) |
(6,888) |
(95,320) |
Net operating income |
146,047 |
22,283 |
168,330 |
175,895 |
17,681 |
193,576 |
Net income from equity accounted investments |
8,884 |
(8,746) |
138 |
5,628 |
(5,587) |
41 |
Finance costs - operations |
(53,985) |
(9,306) |
(63,291) |
(59,016) |
(9,016) |
(68,032) |
Finance income |
4,633 |
5 |
4,638 |
4,333 |
52 |
4,385 |
Trust expenses |
(6,493) |
(728) |
(7,221) |
(13,715) |
(460) |
(14,175) |
Fair value adjustment on financial instruments |
29,418 |
1,293 |
30,711 |
(28,890) |
128 |
(28,762) |
Fair value adjustment on real estate assets |
(16,784) |
(3,959) |
(20,743) |
7,514 |
(2,444) |
5,070 |
Gain (loss) on sale of real estate assets, net of related costs |
11,539 |
(521) |
11,018 |
8,149 |
(54) |
8,095 |
Net income before income taxes and non-controlling interest |
123,259 |
321 |
123,580 |
99,898 |
300 |
100,198 |
Income tax expense |
(10,802) |
(86) |
(10,888) |
(5,045) |
(65) |
(5,110) |
Net income before non-controlling interest |
112,457 |
235 |
112,692 |
94,853 |
235 |
95,088 |
Non-controlling interest |
- |
(235) |
(235) |
- |
(235) |
(235) |
Net income |
112,457 |
- |
112,457 |
94,853 |
- |
94,853 |
Other comprehensive income (loss): |
||||||
Items that are or may be reclassified subsequently to net income |
136,124 |
- |
136,124 |
(55,413) |
- |
(55,413) |
Total comprehensive income attributable to unitholders |
$248,581 |
$ - |
$248,581 |
$39,440 |
$ - |
$39,440 |
(1) |
The REIT's proportionate share is a non-GAAP measure. |
Net operating income per the REIT's Financial Statements decreased by $29.8 million for the three months ended June 30, 2022 compared to the respective 2021 period, primarily due to the Primaris Spin-Off and property dispositions.
Net income before income taxes per the REIT's Financial Statements increased by $23.4 million for the three months ended June 30, 2022 compared to the respective 2021 period primarily due to fair value adjustments on financial instruments. This was partially offset by the decrease in net operating income noted above.
The following table reconciles the REIT's Results of Operations from the REIT's Financial Statements to the REIT's proportionate share:
Six months ended June 30, 2022 |
Six months ended June 30, 2021 |
|||||||
(in thousands of Canadian dollars) |
REIT's |
Equity |
REIT's |
REIT's |
Equity |
REIT's |
||
Rentals from investment properties |
$404,096 |
$61,161 |
$465,257 |
$530,794 |
$50,325 |
$581,119 |
||
Property operating costs |
(165,626) |
(19,284) |
(184,910) |
(221,221) |
(18,353) |
(239,574) |
||
Net operating income |
238,470 |
41,877 |
280,347 |
309,573 |
31,972 |
341,545 |
||
Net income from equity accounted investments |
53,737 |
(53,580) |
157 |
12,819 |
(12,702) |
117 |
||
Finance costs - operations |
(109,271) |
(18,105) |
(127,376) |
(118,507) |
(18,237) |
(136,744) |
||
Finance income |
7,179 |
8 |
7,187 |
10,207 |
104 |
10,311 |
||
Trust expenses |
(13,742) |
(1,504) |
(15,246) |
(19,034) |
(1,133) |
(20,167) |
||
Fair value adjustment on financial instruments |
28,827 |
1,969 |
30,796 |
(15,764) |
1,127 |
(14,637) |
||
Fair value adjustment on real estate assets |
1,005,753 |
29,824 |
1,035,577 |
72,217 |
(531) |
71,686 |
||
Gain (loss) on sale of real estate assets, net of related costs |
11,511 |
212 |
11,723 |
4,232 |
(51) |
4,181 |
||
Net income before income taxes and non-controlling interest |
1,222,464 |
701 |
1,223,165 |
255,743 |
549 |
256,292 |
||
Income tax expense |
(140,016) |
(166) |
(140,182) |
(1,351) |
(78) |
(1,429) |
||
Net income before non-controlling interest |
1,082,448 |
535 |
1,082,983 |
254,392 |
471 |
254,863 |
||
Non-controlling interest |
- |
(535) |
(535) |
- |
(471) |
(471) |
||
Net income |
1,082,448 |
- |
1,082,448 |
254,392 |
- |
254,392 |
||
Other comprehensive income (loss): |
||||||||
Items that are or may be reclassified subsequently to net income |
99,022 |
- |
99,022 |
(81,326) |
- |
(81,326) |
||
Total comprehensive income attributable to unitholders |
$1,181,470 |
$ - |
$1,181,470 |
$173,066 |
$ - |
$173,066 |
||
(1) |
The REIT's proportionate share is a non-GAAP measure. |
Net operating income per the REIT's Financial Statements decreased by $71.1 million, for the six months ended June 30, 2022 compared to the respective 2021 period, primarily due to the Primaris Spin-Off and property dispositions.
Net income before income taxes per the REIT's Financial Statements increased by $966.7 million for the six months ended June 30, 2022 compared to the respective 2021 period primarily due to fair value increases to real estate assets totalling $1.0 billion. This was partially offset by the decrease in net operating income noted above.
Same-Property net operating income (cash basis)
Three months ended June 30 |
Six months ended June 30 |
|||||
(in thousands of Canadian dollars) |
2022 |
2021 |
Change |
2022 |
2021 |
Change |
Rentals |
$202,394 |
$264,327 |
($61,933) |
$404,096 |
$530,794 |
($126,698) |
Property operating costs |
(56,347) |
(88,432) |
32,085 |
(165,626) |
(221,221) |
55,595 |
Net operating income per the REIT's Financial Statements |
146,047 |
175,895 |
(29,848) |
238,470 |
309,573 |
(71,103) |
Adjusted for: |
||||||
Net operating income from equity accounted investments(1) |
22,283 |
17,681 |
4,602 |
41,877 |
31,972 |
9,905 |
Straight-lining of contractual rent at the REIT's proportionate share(1) |
240 |
(9,120) |
9,360 |
86 |
(20,468) |
20,554 |
Realty taxes in accordance with IFRIC 21 at the REIT's proportionate share(1)(2) |
(16,246) |
(11,441) |
(4,805) |
24,656 |
23,969 |
687 |
Net operating income (cash basis) from Transactions at the REIT's proportionate |
(31,860) |
(71,579) |
39,719 |
(61,850) |
(140,516) |
78,666 |
Same-Property net operating income (cash basis)(1) |
$120,464 |
$101,436 |
$19,028 |
$243,239 |
$204,530 |
$38,709 |
(1) |
These are non-GAAP measures. |
(2) |
The allocation of realty taxes in accordance with IFRIC 21 (in thousands of Canadian dollars) at the REIT's proportionate share by operating segment for the six months |
NAV per Unit
The following table reconciles Unitholders' equity per Unit to NAV per Unit:
Unitholders' Equity per Unit and NAV per Unit |
June 30, |
December 31, |
(in thousands except for per Unit amounts) |
2022 |
2021 |
Unitholders' equity |
$5,623,048 |
$4,773,833 |
Exchangeable units |
227,580 |
216,841 |
Deferred tax liability |
500,391 |
350,501 |
Total |
$6,351,019 |
$5,341,175 |
Units outstanding |
268,546 |
288,440 |
Exchangeable units outstanding |
18,280 |
13,344 |
Total |
286,826 |
301,784 |
Unitholders' equity per Unit(1) |
$20.94 |
$16.55 |
NAV per Unit(2) |
$22.14 |
$17.70 |
(1) |
Unitholders' equity per Unit is calculated by dividing unitholders' equity by Units outstanding. |
(2) |
This is a Non-GAAP ratio. |
Funds from Operations and Adjusted Funds from Operations
The following table reconciles net income per the REIT's Financial Statements to FFO and AFFO:
FFO AND AFFO |
Three Months Ended June 30 |
Six Months ended June 30 |
||
(in thousands of Canadian dollars except per Unit amounts) |
2022 |
2021 |
2022 |
2021 |
Net income per the REIT's Financial Statements |
$112,457 |
$94,853 |
$1,082,448 |
$254,392 |
Realty taxes in accordance with IFRIC 21 |
(15,433) |
(10,149) |
22,115 |
21,498 |
FFO adjustments from equity accounted investments |
2,824 |
1,721 |
(28,504) |
3,432 |
Exchangeable unit distributions |
2,465 |
2,568 |
4,840 |
5,135 |
Fair value adjustments on financial instruments and real estate assets |
(12,634) |
21,376 |
(1,034,580) |
(56,453) |
Fair value adjustment to unit-based compensation |
862 |
7,138 |
3,996 |
7,540 |
Gain on sale of real estate assets |
(11,539) |
(8,149) |
(11,511) |
(4,232) |
Deferred income tax recoveries applicable to U.S. Holdco |
10,500 |
4,794 |
139,350 |
860 |
Incremental leasing costs |
617 |
1,591 |
1,234 |
3,261 |
The Bow non-cash rental and accretion adjustment |
(7,137) |
- |
(12,002) |
- |
FFO(1) |
$82,982 |
$115,743 |
$167,386 |
$235,433 |
Straight-lining of contractual rent |
362 |
(9,065) |
168 |
(20,270) |
Rent amortization of tenant inducements |
1,160 |
1,119 |
2,320 |
2,258 |
Capital expenditures |
(6,970) |
(9,938) |
(11,967) |
(16,367) |
Leasing expenses and tenant inducements |
(623) |
(5,248) |
(2,464) |
(8,750) |
Incremental leasing costs |
(617) |
(1,591) |
(1,234) |
(3,261) |
AFFO adjustments from equity accounted investments |
(1,250) |
(680) |
(2,055) |
(1,595) |
AFFO(1) |
$75,044 |
$90,340 |
$152,154 |
$187,448 |
Weighted average number of Units and exchangeable units (in thousands of Units)(2) |
292,353 |
301,775 |
297,375 |
301,767 |
Diluted weighted average number of Units and exchangeable units (in thousands of Units)(2)(3) |
293,199 |
302,253 |
298,221 |
302,244 |
FFO per basic Unit (adjusted for conversion of exchangeable units)(4) |
$0.284 |
$0.384 |
$0.563 |
$0.780 |
FFO per diluted Unit(4) |
$0.283 |
$0.383 |
$0.561 |
$0.779 |
AFFO per basic Unit (adjusted for conversion of exchangeable units)(4) |
$0.257 |
$0.299 |
$0.512 |
$0.621 |
AFFO per diluted Unit(4) |
$0.256 |
$0.299 |
$0.510 |
$0.620 |
Cash Distributions per Unit(5) |
$0.135 |
$0.173 |
$0.265 |
$0.345 |
Payout ratio as a % of FFO(4) |
47.5 % |
45.1 % |
47.1 % |
44.2 % |
Payout ratio as a % of AFFO(4) |
52.5 % |
57.9 % |
51.8 % |
55.6 % |
(1) |
These are non-GAAP measures. |
(2) |
For the three and six months ended June 30, 2022, included in the weighted average and diluted weighted average number of Units are exchangeable units of |
(3) |
For the three and six months ended June 30, 2022, included in the determination of diluted FFO and AFFO with respect to H&R's Incentive Unit Plan are 845,906 |
(4) |
These are non-GAAP ratios. |
(5) |
H&R's current monthly distribution is $0.0458 per Unit, which increased from $0.0433 per Unit in May 2022. Following the Primaris Spin-Off on December 31, 2021, |
Additional information regarding H&R is available at www.hr-reit.com and on www.sedar.com
SOURCE H&R Real Estate Investment Trust
Philippe Lapointe, President, 1-214-421-4400, or e-mail [email protected]
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