H&R REIT Reports Second Quarter 2024 Results
TORONTO, Aug. 14, 2024 /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 six months ended June 30, 2024.
Q2 2024 HIGHLIGHTS:
- Overall portfolio occupancy was 96.9% at June 30, 2024.
- Net operating income decreased by 5.3% compared to Q2 2023 primarily due to $776.4 million of property sales between January 1, 2023 and June 30, 2024.
- Same-Property net operating income (cash basis)(1) increased by 1.7% compared to Q2 2023 driven by various factors across H&R's operating segments:
• Residential |
0.3 % |
Strengthening of the U.S. dollar |
|
• Industrial |
4.7 % |
Higher rent and occupancy |
|
• Office |
(1.8 %) |
Lower occupancy primarily from properties advancing through rezoning |
|
• Retail |
7.9 % |
Increase in occupancy at River Landing Commercial, Miami, FL |
- Funds From Operations ("FFO") per Unit(2) was $0.31 per Unit compared to $0.30 per Unit in Q2 2023. The REIT's payout ratio as a % of FFO(2) was 49.0%
- compared to 50.5% in Q2 2023.
- Unitholders' equity per Unit was $19.23 and Net Asset Value ("NAV") per Unit(2) was $19.94 at June 30, 2024.
- The REIT had $943 million in liquidity at June 30, 2024.
- Unencumbered assets to unsecured debt coverage(3) was 2.2x at June 30, 2024.
- At June 30, 2024, properties sold or under contract to be sold in 2024 totaled $429.0 million.
- H&R's real estate assets at the REIT's proportionate share(1)(4) at June 30, 2024 is as follows:
(1) |
These are non-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) |
Unencumbered assets are investment properties and properties under development without encumbrances for mortgages or lines of credit. Unsecured debt includes debentures payable, unsecured term loans and unsecured lines of credit. |
(4) |
Excludes the Bow and 100 Wynford, which were legally sold in October 2021 and August 2022, respectively. |
(5) |
Includes six office properties advancing through the rezoning and intensification process to be developed into residential properties. |
Tom Hofstedter, Executive Chair and Chief Executive Officer said "We are pleased with our progress in executing our strategic plan over the past three years, repositioning H&R to be a more simplified growth and income-oriented REIT focused on residential and industrial properties. Since the announcement of this plan, H&R completed the spin-off of the REIT's 27 enclosed shopping centres and sold ownership interests in 56 properties totaling approximately $5.2 Billion. The value and timing of these sales have exceeded our expectations given the challenging economic environment and volatility in the capital and real estate markets."
FINANCIAL HIGHLIGHTS
June 30 |
December 31 |
|
2024 |
2023 |
|
Total assets (in thousands) |
$10,321,597 |
$10,777,643 |
Debt to total assets per the REIT's Financial Statements(1) |
34.4 % |
34.2 % |
Debt to total assets at the REIT's proportionate share(1)(2) |
44.8 % |
44.0 % |
Debt to Adjusted EBITDA at the REIT's proportionate share(1)(2)(3) |
8.5x |
8.5x |
Unitholders' equity (in thousands) |
$5,037,363 |
$5,192,375 |
Units outstanding (in thousands) |
262,016 |
261,868 |
Exchangeable units outstanding (in thousands) |
17,974 |
17,974 |
Unitholders' equity per Unit |
$19.23 |
$19.83 |
NAV per Unit(2) |
$19.94 |
$20.75 |
Three months ended June 30 |
6 months ended June 30 |
|||
2024 |
2023 |
2024 |
2023 |
|
Rentals from investment properties (in millions) |
$204.8 |
$212.5 |
$414.3 |
$430.8 |
Net operating income (in millions) |
$144.5 |
$152.5 |
$238.7 |
$249.8 |
Same-Property net operating income (cash basis) (in millions)(4) |
$124.4 |
$122.4 |
$248.2 |
$243.9 |
Net income (loss) (in millions) |
($272.7) |
($59.4) |
($240.9) |
$35.4 |
FFO (in millions)(4) |
$85.6 |
$84.1 |
$168.7 |
$172.0 |
Adjusted funds from operations ("AFFO") (in millions)(4) |
$68.8 |
$69.6 |
$137.6 |
$143.3 |
Weighted average number of Units and exchangeable units for FFO (in 000's) |
279,905 |
283,384 |
279,876 |
283,637 |
FFO per basic and diluted Unit(2) |
$0.306 |
$0.297 |
$0.603 |
$0.606 |
AFFO per basic and diluted Unit(2) |
$0.246 |
$0.246 |
$0.492 |
$0.505 |
Cash Distributions per Unit |
$0.150 |
$0.150 |
$0.300 |
$0.300 |
Payout ratio as a % of FFO(2) |
49.0 % |
50.5 % |
49.8 % |
49.5 % |
Payout ratio as a % of AFFO(2) |
61.0 % |
61.0 % |
61.0 % |
59.4 % |
(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 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 trailing 12 months. Refer to the "Non-GAAP Measures" section of this news release. |
(4) |
These are non-GAAP measures. Refer to the "Non-GAAP Measures" section of this news release. |
The net loss for the three and six months ended June 30, 2024 was due to the fair value adjustment of real estate assets:
Fair Value Adjustment on Real Estate Assets |
Three months ended June 30 |
Six months ended June 30 |
||
(in thousands of Canadian dollars) |
2024 |
2023 |
2024 |
2023 |
Operating Segment: |
||||
Residential |
($75,363) |
($113,309) |
($83,556) |
($96,052) |
Industrial |
(21,268) |
(3,222) |
(39,787) |
(6,237) |
Office |
(204,563) |
(147,432) |
(210,603) |
(111,424) |
Retail |
(95,494) |
(10,001) |
(103,088) |
(13,247) |
Land and properties under development |
(30,475) |
— |
(31,956) |
38,000 |
Fair value adjustment on real estate assets per the REIT's proportionate share(1) |
(427,163) |
(273,964) |
(468,990) |
(188,960) |
Less: equity accounted investments |
124,853 |
13,280 |
122,513 |
13,267 |
Fair value adjustment on real estate assets per the REIT's Financial Statements |
($302,310) |
($260,684) |
($346,477) |
($175,693) |
(1) |
The REIT's proportionate share is a non-GAAP measure defined in the "Non-GAAP Measures" section of this news release. |
Q2 2024 Transaction Highlights
Property Dispositions
In December 2023, H&R announced it had entered into an agreement to sell 25 Dockside Drive for $232.5 million. The property is an office property located directly on the waterfront in downtown Toronto, comprising 479,437 square feet and is substantially leased to Corus Entertainment. The sale closed in April 2024. The property was encumbered with a $60.0 million mortgage bearing interest at 4.9%, which was repaid on closing. H&R used the remaining proceeds to repay its lines of credit. H&R will continue to manage the property and earn third-party property management fees from the purchaser.
In May 2024, H&R sold 20.3 acres of vacant land held for future residential use in Prosper, TX for approximately $16.0 million (U.S. $11.7 million).
In May 2024, H&R sold a 123,090 square foot single tenanted industrial property in Morton, IL for approximately $8.5 million (U.S. $6.3 million). H&R owns one remaining industrial property in the U.S. in which it holds a 50.5% ownership interest.
In June 2024, H&R sold its 50% ownership interest in 3777/3791 Kingsway, Burnaby, BC (the "Kingsway Property") for $82.5 million. The Kingsway Property comprises 335,778 of office space and approximately 0.6 acres of adjacent vacant land, at H&R's ownership interest. 3777 Kingsway was encumbered with a $24.8 million mortgage at H&R's 50% ownership interest bearing interest at 5.8%, which was assumed by the purchaser on closing. H&R provided two vendor take-back mortgages to the purchaser totaling approximately $34.7 million. H&R used the remaining proceeds to repay its lines of credit.
In addition, a tenant exercised their option to purchase one Canadian industrial property. Gross proceeds at H&R's 50% ownership interest are expected to be $60.7 million and closing is expected to occur in Q4 2024.
H&R continues to successfully execute on its strategic repositioning plan with properties and land parcels sold or under contract to be sold in 2024 totaling approximately $429.0 million.
Creation of Lantower Real Estate Development Trust (No. 1)
In February 2024, the REIT created Lantower Residential Real Estate Development Trust (No. 1) (the "REDT") which completed an initial public offering in April 2024 and raised U.S. $52.0 million of equity capital from investors to acquire an interest in and fund the development of two residential development projects ("the REDT Projects") in Florida that had been wholly-owned by a subsidiary of the REIT. The REDT Projects are expected to contain an aggregate of 601 residential rental units. The REIT contributed the REDT Projects at a cost of $28.8 million (U.S $21.3 million) to Lantower Residential REDT (No.1) JV LP ("REDT JV LP"), a joint venture with the REDT, in exchange for a 29.1% ownership interest in the REDT JV LP. The REIT is accounting for its ownership interest in the REDT Projects as an equity accounted investment. The REDT is using the proceeds of the initial public offering, together with debt financing to develop the assets, commence lease-up and operate the REDT Projects, and subsequently achieve a liquidity event. H&R retains an option to acquire the REDT Projects. H&R is earning a development fee of 4% of the total hard and soft costs of the REDT Projects (excluding land and financing costs) and is expecting to earn a 1% asset management fee on gross proceeds raised by the REDT. H&R will also be entitled to 20% of the distribution proceeds over and above its pro-rata share of the equity after investors receive an 8% internal rate of return and 30% after investors receive a 15% internal rate of return.
Leasing Highlights:
In Q2 2024, H&R completed a 10-year lease renewal on a 63,395 square foot industrial property in Mississauga, ON, at H&R's 50% ownership interest. The original lease was set to expire in August 2024 and annual rent will increase by $12.50 per square foot commencing in September 2024 with annual contractual rent escalations. The tenant has a free rent period from September 2024 to January 2025.
In Q2 2024, H&R completed a 5-year lease renewal on a 93,397 square foot industrial property in Boucherville, QC at H&R's 50% ownership interest. The original lease was set to expire in June 2024 and annual rent will increase by $7.50 per square foot commencing in July 2024 with annual contractual rent escalations. The tenant has a free rent period from July 2024 to September 2024.
In Q2 2024, H&R completed a 5-year lease renewal on a 22,250 square foot industrial property in Brantford, ON, at H&R's 50% ownership interest. The original lease was set to expire in August 2024 and annual rent will increase by $9.35 per square foot commencing in September 2024 with annual contractual rent escalations.
Development Update
Canadian Properties under Development
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. In January 2024, H&R received approval from the City of Mississauga to replace the existing 104,689 square foot office building on the property with a new 122,413 square foot industrial building. The property was transferred from investment properties to properties under development during Q1 2024. Demolition of the existing office building was completed in April 2024. Construction has commenced and substantial completion is expected in Q1 2025. As at
June 30, 2024, the total development budget for this property isapproximately $43.6 millionwith costs remaining to complete the new building of approximately $20.3 million.
560 & 600 Slate Drive (Equity Accounted Investment)
H&R has a 50% managing ownership interest in 560 & 600 Slate Drive, a 26.6 acre land site in Mississauga, ON, located next to Toronto Pearson International Airport and in close proximity to access points on the 410, 401 and 407 Highways. The partnership through which H&R owns its interest submitted a Site Plan Approval application in 2022 to develop two single storey industrial buildings totalling 309,727 square feet and 160,485 square feet respectively. Both buildings have been designed with flexibility such that they can accommodate either single or multiple tenants. As at June 30, 2024, the total budget for 560 & 600 Slate Drive is approximately $66.3 million with costs remaining to complete of $45.8 million, all at H&R's ownership interest. The yield on cost for the overall project is expected to be approximately 6.6% with completion expected in Q3 2025. H&R is the development and leasing manager for this project and expects to earn approximately $2.4 million in aggregate for these services over the development period of the project.
U.S. Properties under Development
In 2022, the REIT commenced construction on two U.S. residential development properties in Dallas, TX. As at June 30, 2024, the total development budget for these two properties is approximately $287.4 million (U.S. $209.8 million) with costs remaining to complete of approximately $56.5 million (U.S. $41.2 million). Both properties are expected to be completed on budget in the latter half of 2024.
As at June 30, 2024, Lantower West Love received certificates of occupancy for 216 of the 413 residential rental units. As at August 7, 2024, there were 127 residential rental units leased of which 91 residential rental units were occupied.
Debt & Liquidity Highlights
As at June 30, 2024, debt to total assets per the REIT's Financial Statements was 34.4% compared to 34.2% as at December 31, 2023. As at June 30, 2024, 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 44.8% compared to 44.0% as at December 31, 2023.
As at June 30, 2024, H&R had cash and cash equivalents of $74.5 million, $868.5 millionavailable under its unused lines of credit and an unencumbered property pool of approximately $4.1 billion
MONTHLY DISTRIBUTIONS DECLARED
H&R today declared distributions for the months of August and September scheduled as follows:
Distribution/Unit |
Annualized |
Record date |
Distribution date |
|
August 2024 |
$0.05 |
$0.60 |
August 30, 2024 |
September 16, 2024 |
September 2024 |
$0.05 |
$0.60 |
September 27, 2024 |
October 15, 2024 |
CONFERENCE CALL AND WEBCAST
Management will host a conference call to discuss the financial results of the REIT on Thursday, August 15, 2024 at 9.30 a.m. Eastern Time. Participants can join the call by dialing 1‐800‐717‐1738 or 1‐289‐514‐5100. 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 1‐289‐819‐1325 or 1‐888‐660‐6264 and enter the passcode 22332 followed by the "#" key. The telephone replay will be available until Wednesday, August 22, 2024 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 $10.3 billion as at June 30, 2024. H&R REIT has ownership interests in a North American portfolio comprised of high-quality residential, industrial, office and retail properties comprising over 25.9 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, 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 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 strategic repositioning plan to create sustainable long-term value for unitholders, H&R's strategy to grow its exposure to residential assets in U.S. sunbelt and gateway cities, the sale of assets held for sale, H&R's expectations with respect to the activities of its development properties, including the building of new properties and the redevelopment of existing properties, the use of such properties, the timing of construction and completion, expected construction plans and costs, yield on cost, anticipated square footage, future intensification opportunities, expectations with respect to the REDT and the REDT Projects, 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 continuing effects of inflation; debt markets continue to provide access to capital at a reasonable cost; 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 August 14, 2024 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 six months ended June 30, 2024 (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, FFO per Unit, AFFO per Unit, payout ratio as a % of FFO, payout ratio as a % of AFFO, debt to total assets 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 six months ended June 30, 2024 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):
June 30, 2024 |
December 31, 2023 |
|||||
(in thousands of Canadian dollars) |
REIT's Financial Statements |
Equity investments |
REIT's |
REIT's Financial Statements |
Equity investments |
REIT's |
Assets |
||||||
Real estate assets |
||||||
Investment properties |
$7,662,133 |
$2,099,548 |
$9,761,681 |
$7,811,543 |
$2,148,012 |
$9,959,555 |
Properties under development |
1,114,739 |
173,998 |
1,288,737 |
1,074,819 |
135,635 |
1,210,454 |
8,776,872 |
2,273,546 |
11,050,418 |
8,886,362 |
2,283,647 |
11,170,009 |
|
Equity accounted investments |
1,122,621 |
(1,122,621) |
— |
1,165,012 |
(1,165,012) |
— |
Assets classified as held for sale |
62,000 |
— |
62,000 |
293,150 |
— |
293,150 |
Other assets |
285,585 |
24,551 |
310,136 |
369,008 |
21,866 |
390,874 |
Cash and cash equivalents |
74,519 |
54,161 |
128,680 |
64,111 |
36,933 |
101,044 |
$10,321,597 |
$1,229,637 |
$11,551,234 |
$10,777,643 |
$1,177,434 |
$11,955,077 |
|
Liabilities and Unitholders' Equity |
||||||
Liabilities |
||||||
Debt |
$3,550,692 |
$1,146,473 |
$4,697,165 |
$3,686,833 |
$1,097,839 |
$4,784,672 |
Exchangeable units |
160,869 |
— |
160,869 |
177,944 |
— |
177,944 |
Deferred Revenue |
927,395 |
— |
927,395 |
947,671 |
— |
947,671 |
Deferred tax liability |
385,564 |
— |
385,564 |
437,214 |
— |
437,214 |
Accounts payable and accrued liabilities |
259,714 |
63,698 |
323,412 |
335,606 |
60,176 |
395,782 |
Non-controlling interest |
— |
19,466 |
19,466 |
— |
19,419 |
19,419 |
5,284,234 |
1,229,637 |
6,513,871 |
5,585,268 |
1,177,434 |
6,762,702 |
|
Unitholders' equity |
5,037,363 |
— |
5,037,363 |
5,192,375 |
— |
5,192,375 |
$10,321,597 |
$1,229,637 |
$11,551,234 |
$10,777,643 |
$1,177,434 |
$11,955,077 |
|
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):
June 30 |
December 31 |
|
(in thousands of Canadian dollars) |
2024 |
2023 |
Debt per the REIT's Financial Statements |
$3,550,692 |
$3,686,833 |
Debt - REIT's proportionate share of equity accounted investments |
1,146,473 |
1,097,839 |
Debt at the REIT's proportionate share |
4,697,165 |
4,784,672 |
(Figures below are for the trailing 12 months) |
||
Net income (loss) per the REIT's Financial Statements |
(214,591) |
61,690 |
Net income from equity accounted investments (within equity accounted investments) |
(260) |
(426) |
Finance costs - operations |
262,012 |
266,795 |
Fair value adjustments on financial instruments and real estate assets |
670,594 |
363,547 |
Loss on sale of real estate assets, net of related costs |
18,032 |
9,420 |
Gain on foreign exchange (within equity accounted investments) |
(138) |
— |
Income tax recovery |
(72,682) |
(30,484) |
Non-controlling interest |
1,583 |
1,254 |
Adjustments: |
||
The Bow and 100 Wynford non-cash rental income adjustments |
(93,328) |
(92,920) |
Straight-lining of contractual rent |
(14,453) |
(12,100) |
IFRIC 21 - realty tax adjustment |
(827) |
— |
Fair value adjustment to unit-based compensation |
(4,086) |
(5,134) |
Adjusted EBITDA at the REIT's proportionate share |
$551,856 |
$561,642 |
Debt to Adjusted EBITDA at the REIT's proportionate share |
8.5x |
8.5x |
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 June 30, 2024 |
Three months ended June 30, 2023 |
|||||
(in thousands of Canadian dollars) |
REIT's Financial Statements |
Equity accounted investments |
REIT's proportionate |
REIT's Financial Statements |
Equity accounted investments |
REIT's proportionate |
Rentals from investment properties |
$204,775 |
$38,858 |
$243,633 |
$212,501 |
$36,748 |
$249,249 |
Property operating costs |
(60,305) |
(9,067) |
(69,372) |
(59,973) |
(8,538) |
(68,511) |
Net operating income |
144,470 |
29,791 |
174,261 |
152,528 |
28,210 |
180,738 |
Net income (loss) from equity accounted investments |
(108,859) |
109,128 |
269 |
1,260 |
(941) |
319 |
Finance costs - operations |
(50,755) |
(12,538) |
(63,293) |
(54,944) |
(12,100) |
(67,044) |
Finance income |
2,847 |
233 |
3,080 |
4,699 |
100 |
4,799 |
Trust expenses |
(4,422) |
(1,481) |
(5,903) |
(6,368) |
(1,497) |
(7,865) |
Fair value adjustment on financial instruments |
94 |
(23) |
71 |
65,912 |
(379) |
65,533 |
Fair value adjustment on real estate assets |
(302,310) |
(124,853) |
(427,163) |
(260,684) |
(13,280) |
(273,964) |
Gain (loss) on sale of real estate assets, net of related costs |
(13,671) |
3 |
(13,668) |
(2,152) |
98 |
(2,054) |
Gain on foreign exchange |
— |
138 |
138 |
— |
— |
— |
Net income (loss) before income taxes and non-controlling interest |
(332,606) |
398 |
(332,208) |
(99,749) |
211 |
(99,538) |
Income tax (expense) recovery |
59,940 |
(78) |
59,862 |
40,354 |
(27) |
40,327 |
Net income (loss) before non-controlling interest |
(272,666) |
320 |
(272,346) |
(59,395) |
184 |
(59,211) |
Non-controlling interest |
— |
(320) |
(320) |
— |
(184) |
(184) |
Net loss |
(272,666) |
— |
(272,666) |
(59,395) |
— |
(59,395) |
Other comprehensive income (loss): |
||||||
Items that are or may be reclassified subsequently to net loss |
64,448 |
— |
64,448 |
(96,367) |
— |
(96,367) |
Total comprehensive loss attributable to unitholders |
($208,218) |
$— |
($208,218) |
($155,762) |
$— |
($155,762) |
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):
Six months ended June 30, 2024 |
Six months ended June 30, 2023 |
|||||
(in thousands of Canadian dollars) |
REIT's Financial Statements |
Equity investments |
REIT's proportionate |
REIT's Financial Statements |
Equity investments |
REIT's |
Rentals from investment properties |
$414,296 |
$76,833 |
$491,129 |
$430,796 |
$74,342 |
$505,138 |
Property operating costs |
(175,639) |
(22,246) |
(197,885) |
(180,968) |
(22,193) |
(203,161) |
Net operating income |
238,657 |
54,587 |
293,244 |
249,828 |
52,149 |
301,977 |
Net income (loss) from equity accounted investments |
(96,309) |
96,507 |
198 |
11,156 |
(10,792) |
364 |
Finance costs - operations |
(104,269) |
(24,858) |
(129,127) |
(109,915) |
(23,995) |
(133,910) |
Finance income |
5,193 |
348 |
5,541 |
6,456 |
160 |
6,616 |
Trust expenses |
(10,836) |
(3,312) |
(14,148) |
(14,459) |
(2,251) |
(16,710) |
Fair value adjustment on financial instruments |
18,984 |
(45) |
18,939 |
46,035 |
(79) |
45,956 |
Fair value adjustment on real estate assets |
(346,477) |
(122,513) |
(468,990) |
(175,693) |
(13,267) |
(188,960) |
Gain (loss) on sale of real estate assets, net of related costs |
(12,805) |
13 |
(12,792) |
(2,649) |
(1,531) |
(4,180) |
Gain on foreign exchange |
— |
138 |
138 |
— |
— |
— |
Net income (loss) before income taxes and non-controlling interest |
(307,862) |
865 |
(306,997) |
10,759 |
394 |
11,153 |
Income tax (expense) recovery |
66,988 |
(181) |
66,807 |
24,648 |
(39) |
24,609 |
Net income (loss) before non-controlling interest |
(240,874) |
684 |
(240,190) |
35,407 |
355 |
35,762 |
Non-controlling interest |
— |
(684) |
(684) |
— |
(355) |
(355) |
Net income (loss) |
(240,874) |
— |
(240,874) |
35,407 |
— |
35,407 |
Other comprehensive income (loss): |
||||||
Items that are or may be reclassified subsequently to net income (loss) |
163,026 |
— |
163,026 |
(129,239) |
— |
(129,239) |
Total comprehensive loss attributable to unitholders |
($77,848) |
$— |
($77,848) |
($93,832) |
$— |
($93,832) |
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) (a non-GAAP measure):
Three months ended June 30 |
Six months ended June 30 |
|||||
(in thousands of Canadian dollars) |
2024 |
2023 |
Change |
2024 |
2023 |
Change |
Rentals from investment properties |
$204,775 |
$212,501 |
($7,726) |
$414,296 |
$430,796 |
($16,500) |
Property operating costs |
(60,305) |
(59,973) |
(332) |
(175,639) |
(180,968) |
5,329 |
Net operating income per the REIT's Financial Statements |
144,470 |
152,528 |
(8,058) |
238,657 |
249,828 |
(11,171) |
Adjusted for: |
||||||
Net operating income from equity accounted investments |
29,791 |
28,210 |
1,581 |
54,587 |
52,149 |
2,438 |
Straight-lining of contractual rent at the REIT's proportionate share |
(5,448) |
(4,313) |
(1,135) |
(10,424) |
(8,071) |
(2,353) |
Realty taxes in accordance with IFRIC 21 at the REIT's proportionate share(1) |
(14,378) |
(15,528) |
1,150 |
29,443 |
30,270 |
(827) |
Net operating income (cash basis) from Transactions at the REIT's proportionate share |
(30,036) |
(38,525) |
8,489 |
(64,087) |
(80,311) |
16,224 |
Same-Property net operating income (cash basis) |
$124,399 |
$122,372 |
$2,027 |
$248,176 |
$243,865 |
$4,311 |
(1) |
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 ended June 30, 2024 is as follows: (i) Residential: $18,143; (ii) Industrial: nil; (iii) Office: $6,959; and (iv) Retail: $4,341. |
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 |
June 30 |
December 31 |
(in thousands except for per Unit amounts) |
2024 |
2023 |
Unitholders' equity |
$5,037,363 |
$5,192,375 |
Exchangeable units |
160,869 |
177,944 |
Deferred tax liability |
385,564 |
437,214 |
Total |
$5,583,796 |
$5,807,533 |
Units outstanding |
262,016 |
261,868 |
Exchangeable units outstanding |
17,974 |
17,974 |
Total |
279,990 |
279,842 |
Unitholders' equity per Unit(1) |
$19.23 |
$19.83 |
NAV per Unit |
$19.94 |
$20.75 |
(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 (non-GAAP measures):
FFO AND AFFO |
Three Months ended June 30 |
Six months ended June 30 |
||
(in thousands of Canadian dollars except per Unit amounts) |
2024 |
2023 |
2024 |
2023 |
Net income (loss) per the REIT's Financial Statements |
($272,666) |
($59,395) |
($240,874) |
$35,407 |
Realty taxes in accordance with IFRIC 21 |
(13,199) |
(14,278) |
27,022 |
27,903 |
FFO adjustments from equity accounted investments |
124,010 |
12,311 |
125,282 |
17,244 |
Exchangeable unit distributions |
2,696 |
2,696 |
5,392 |
5,392 |
Fair value adjustments on financial instruments and real estate assets |
302,216 |
194,772 |
327,493 |
129,658 |
Fair value adjustment to unit-based compensation |
(1,067) |
(3,933) |
(1,589) |
(2,637) |
Loss on sale of real estate assets, net of related costs |
13,671 |
2,152 |
12,805 |
2,649 |
Deferred income tax recovery applicable to U.S. Holdco |
(60,326) |
(41,225) |
(67,713) |
(25,847) |
Incremental leasing costs |
540 |
581 |
1,155 |
1,168 |
The Bow and 100 Wynford non-cash rental income and accretion adjustments |
(10,244) |
(9,567) |
(20,276) |
(18,931) |
FFO |
$85,631 |
$84,114 |
$168,697 |
$172,006 |
Straight-lining of contractual rent |
(5,370) |
(4,266) |
(10,199) |
(7,890) |
Rent amortization of tenant inducements |
1,141 |
1,130 |
2,271 |
2,253 |
Capital expenditures |
(8,813) |
(7,907) |
(17,396) |
(17,139) |
Leasing expenses and tenant inducements |
(1,941) |
(1,543) |
(2,156) |
(2,303) |
Incremental leasing costs |
(540) |
(581) |
(1,155) |
(1,168) |
AFFO adjustments from equity accounted investments |
(1,303) |
(1,320) |
(2,470) |
(2,460) |
AFFO |
$68,805 |
$69,627 |
$137,592 |
$143,299 |
Basic and diluted weighted average number of Units and exchangeable units (in thousands of Units)(1) |
279,905 |
283,384 |
279,876 |
283,637 |
FFO per basic and diluted Unit |
$0.306 |
$0.297 |
$0.603 |
$0.606 |
AFFO per basic and diluted Unit |
$0.246 |
$0.246 |
$0.492 |
$0.505 |
Cash Distributions per Unit |
$0.150 |
$0.150 |
$0.300 |
$0.300 |
Payout ratio as a % of FFO |
49.0 % |
50.5 % |
49.8 % |
49.5 % |
Payout ratio as a % of AFFO |
61.0 % |
61.0 % |
61.0 % |
59.4 % |
(1) |
For the three and six months ended June 30, 2024 and 2023, included in the weighted average and diluted weighted average number of Units are exchangeable units of 17,974,186. |
Additional information regarding H&R is available at www.hr-reit.com and on www.sedarplus.com
SOURCE H&R Real Estate Investment Trust
For further information: Larry Froom, Chief Financial Officer, 416-635-7520, or e-mail [email protected]
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