H&R REIT Reports Third Quarter 2024 Results
TORONTO, Nov. 12, 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 nine months ended September 30, 2024.
H&R continues to successfully execute on its strategic repositioning plan with real estate assets sold or under contract to be sold totalling approximately $438.4 million, as at September 30, 2024. During the nine months ended September 30, 2024, H&R sold ownership interests in 12 real estate assets for gross proceeds of $368.3 million. Subsequent to September 30, 2024, H&R sold a 372,207 square foot industrial property in Brampton, ON for approximately $60.7 million, at H&R's 50% ownership interest.
(1) |
At the REIT's proportionate share, including assets classified as held for sale. Refer to the "Non-GAAP Measures" section of this news release. |
(2) |
Q2 2021 has been used as a benchmark since H&R's Strategic Repositioning Plan was announced prior to the release of Q3 2021 results. |
(3) |
Excludes the Bow and 100 Wynford, which were legally sold in October 2021 and August 2022, respectively. |
(4) |
Includes four office properties advancing through the process of rezoning 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 57 properties totaling approximately $5.2 billion. As a result of these sales, H&R's residential and industrial segments combined have grown from 35% of the total portfolio to 66% and geographically, our real estate assets in the United States have grown from 44% of the total portfolio to 68%. 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
September 30 |
December 31 |
|
2024 |
2023 |
|
Total assets (in thousands) |
$10,216,943 |
$10,777,643 |
Debt to total assets per the REIT's Financial Statements(1) |
34.6 % |
34.2 % |
Debt to total assets at the REIT's proportionate share(1)(2) |
44.9 % |
44.0 % |
Debt to Adjusted EBITDA at the REIT's proportionate share(1)(2)(3) |
9.1x |
8.5x |
Unitholders' equity (in thousands) |
$4,925,303 |
$5,192,375 |
Units outstanding (in thousands) |
262,016 |
261,868 |
Exchangeable units outstanding (in thousands) |
17,974 |
17,974 |
Unitholders' equity per Unit |
$18.80 |
$19.83 |
NAV per Unit(2) |
$19.64 |
$20.75 |
3 months ended September 30 |
9 months ended September 30 |
|||
2024 |
2023 |
2024 |
2023 |
|
Rentals from investment properties (in millions) |
$200.3 |
$210.4 |
$614.6 |
$641.2 |
Net operating income (in millions) |
$140.1 |
$149.4 |
$378.8 |
$399.2 |
Same-Property net operating income (cash basis) (in millions)(4) |
$121.8 |
$123.6 |
$368.8 |
$366.3 |
Net income (loss) (in millions) |
($9.7) |
$37.6 |
($250.6) |
$73.0 |
Funds from operations ("FFO") (in millions)(4) |
$82.3 |
$117.7 |
$251.0 |
$289.7 |
Adjusted funds from operations ("AFFO") (in millions)(4) |
$67.8 |
$101.2 |
$205.4 |
$244.5 |
Weighted average number of Units and exchangeable units for FFO (in 000's) |
279,990 |
280,205 |
279,914 |
282,480 |
FFO per basic and diluted Unit(2) |
$0.294 |
$0.420 |
$0.897 |
$1.026 |
AFFO per basic and diluted Unit(2) |
$0.242 |
$0.361 |
$0.734 |
$0.866 |
Cash Distributions per Unit |
$0.150 |
$0.150 |
$0.450 |
$0.450 |
Payout ratio as a % of FFO(2) |
51.0 % |
35.7 % |
50.2 % |
43.9 % |
Payout ratio as a % of AFFO(2) |
62.0 % |
41.6 % |
61.3 % |
52.0 % |
(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 nine months ended September 30, 2024 included the following fair value adjustments of real estate assets:
Fair Value Adjustment on Real Estate Assets |
3 months ended September 30 |
9 months ended September 30 |
||
(in thousands of Canadian dollars) |
2024 |
2023 |
2024 |
2023 |
Operating Segment: |
||||
Residential |
($11,855) |
($25,976) |
($95,411) |
($122,028) |
Industrial |
9,690 |
14,354 |
(30,097) |
8,117 |
Office |
(28,260) |
(98,979) |
(238,863) |
(210,403) |
Retail |
2,789 |
(29,332) |
(100,299) |
(42,579) |
Land and properties under development |
4,293 |
— |
(27,663) |
38,000 |
Fair value adjustment on real estate assets per the REIT's proportionate share(1) |
(23,343) |
(139,933) |
(492,333) |
(328,893) |
Less: equity accounted investments |
(2,799) |
27,109 |
119,714 |
40,376 |
Fair value adjustment on real estate assets per the REIT's Financial Statements |
($26,142) |
($112,824) |
($372,619) |
($288,517) |
(1) |
The REIT's proportionate share is a non-GAAP measure defined in the "Non-GAAP Measures" section of this news release. |
Net Income (loss) and Funds from Operations
Net income and FFO (a non-GAAP measure, refer to the "Non-GAAP Measures" section of this news release) for the three and nine months ended September 30, 2023 included a gain on disposal of a purchase option of $30.6 million. Excluding this gain, net income for the three and nine months ended September 30, 2023 would have been $7.0 million, and $42.4 million, respectively. Excluding this gain, FFO and FFO per basic and diluted Unit (a non-GAAP Ratio, refer to the "Non-GAAP Measures" section of this news release), for the three and nine months ended September 30, 2023 would have been $87.1 million and $259.1 million, respectively, and $0.311 per Unit and $0.917 per Unit, respectively.
Development Update
Canadian Properties under Development
In January 2024, development of two of the REIT's industrial properties, 1965 and 1925 Meadowvale Boulevard in Mississauga, ON reached substantial completion and the properties were transferred from properties under development to investment properties. The properties are fully leased with annual contractual rental escalations; both leases commenced in February 2024 and will expire in May 2036 and March 2037, respectively. The REIT recognized a fair value increase of $19.3 million on these properties between the start of construction and substantial completion.
In Q1 2024, H&R transferred 6900 Maritz Drive in Mississauga, ON from investment properties to properties under development. 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 122,367 square foot industrial building. Demolition of the existing office building was completed in April 2024. The property will include sustainability elements such as EV charging stations and solar panel readiness and is targeted to achieve LEED Gold certification. Construction has commenced and substantial completion is expected in Q1 2025. As at September 30, 2024, the total development budget for this property was approximately $43.6 million with costs remaining to complete the new building of approximately $14.7 million.
In Q3 2024, H&R transferred 53 & 55 Yonge Street in Toronto, ON from investment properties to properties under development. The buildings are fully vacant and demolition is expected to commence in Q4 2024. H&R has elected to demolish both buildings in order to reduce property operating costs. H&R will continue to advance the rezoning process for these properties, but does not have any plans to start re-developing these properties in the near future.
U.S. Properties under Development
In Q3 2024, Lantower West Love, a 413 residential rental unit property in Dallas, TX reached substantial completion and was transferred from properties under development to investment properties. Lantower West Love received National Green Building Standard Silver certification. The REIT recognized a fair value increase of $31.3 million (U.S. $23.2 million). The property is expected to be completed on budget with costs remaining to complete of $9.4 million (U.S. $7.0 million), and the stabilized yield on budgeted cost is expected to be 5.7%. As at September 30, 2024, there were 164 residential rental units leased of which 148 residential rental units were occupied. As at November 5, 2024, there were 177 residential rental units leased of which 166 residential rental units were occupied.
Lantower Midtown, a 350 residential rental unit property under development in Dallas, TX is currently under construction and is expected to reach substantial completion in Q4 2024. As at September 30, 2024, the total development budget for Lantower Midtown was approximately $140.6 million (U.S. $104.1 million) with costs remaining to complete of approximately $16.5 million (U.S. $12.2 million). As at September 30, 2024, Lantower Midtown received certificates of occupancy for 152 of the 350 residential rental units. As of November 5, 2024, there were 86 residential rental units leased of which 52 residential rental units were occupied.
Equity Accounted Investments
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. Both will include sustainability elements such as EV charging stations and solar panel readiness and are targeted to achieve LEED Gold certification. As at September 30, 2024, the total budget for 560 & 600 Slate Drive was approximately $66.3 million with costs remaining to complete of $41.8 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.
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. The REDT raised U.S. $52.0 million of equity capital from investors to acquire an interest in and fund the development of two development projects ("the REDT Projects") in Florida totalling 601 residential rental units. The REIT contributed the land to Lantower Residential REDT (No 1) JVLP (" REDT JVLP") 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. 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. As at September 30, 2024, the total budget for the REDT Projects was approximately $82.3 million (U.S. $61.0 million) with costs remaining to complete of $65.7 million (U.S. $48.7 million), all at H&R's ownership interest. The REDT Projects are expected to be completed in mid-2026.
Debt & Liquidity Highlights
As at September 30, 2024, debt to total assets per the REIT's Financial Statements was 34.6% compared to 34.2% as at December 31, 2023. As at September 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 44.9% compared to 44.0% as at December 31, 2023.
As at September 30, 2024, H&R had cash and cash equivalents of $68.4 million, $863.6 million available under its unused lines of credit and an unencumbered property pool of approximately $4.1 billion.
Environmental, Social and Governance
The REIT's 2023 Sustainability report highlights how the REIT's commitment to sustainability is manifesting itself in its portfolio and resulting in lasting changes for its properties, tenants, employees, stakeholders and communities at large.
In August 2024, H&R's 6900 Maritz Drive industrial development site in Mississauga, ON was shortlisted for a World Demolition Award in the Recycling & Environmental category. The project involved the demolition of a 104,689-square-foot steel structure office building with a total weight of 8,758 tonnes. The waste diversion program recycled all of the steel and concrete equaling 8,113 tonnes (93%) of the total material weight. The project was completed with zero safety incidents and zero lost-time injuries. Being recognized in this category underscores H&R's continued commitment to sustainable practices and environmental stewardship.
MONTHLY DISTRIBUTIONS DECLARED
H&R today declared a distribution for the month of November scheduled as follows:
Distribution/Unit |
Annualized |
Record date |
Distribution date |
|
November 2024 |
$0.05 |
$0.60 |
November 29, 2024 |
December 16, 2024 |
CONFERENCE CALL AND WEBCAST
Management will host a conference call to discuss the financial results of the REIT on Wednesday, November 13, 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 97269 followed by the "#" key. The telephone replay will be available until Wednesday, November 20, 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 $10.2 billion as at September 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 26.1 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, 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 November 12, 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 nine months ended September 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 nine months ended September 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):
September 30, 2024 |
December 31, 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 |
Assets |
||||||
Real estate assets |
||||||
Investment properties |
$7,663,475 |
$2,076,336 |
$9,739,811 |
$7,811,543 |
$2,148,012 |
$9,959,555 |
Properties under development |
1,080,449 |
178,431 |
1,258,880 |
1,074,819 |
135,635 |
1,210,454 |
8,743,924 |
2,254,767 |
10,998,691 |
8,886,362 |
2,283,647 |
11,170,009 |
|
Equity accounted investments |
1,127,556 |
(1,127,556) |
— |
1,165,012 |
(1,165,012) |
— |
Assets classified as held for sale |
70,100 |
— |
70,100 |
293,150 |
— |
293,150 |
Other assets |
206,934 |
30,105 |
237,039 |
369,008 |
21,866 |
390,874 |
Cash and cash equivalents |
68,429 |
50,151 |
118,580 |
64,111 |
36,933 |
101,044 |
$10,216,943 |
$1,207,467 |
$11,424,410 |
$10,777,643 |
$1,177,434 |
$11,955,077 |
|
Liabilities and Unitholders' Equity |
||||||
Liabilities |
||||||
Debt |
$3,533,927 |
$1,121,593 |
$4,655,520 |
$3,686,833 |
$1,097,839 |
$4,784,672 |
Exchangeable units |
205,625 |
— |
205,625 |
177,944 |
— |
177,944 |
Deferred Revenue |
916,943 |
— |
916,943 |
947,671 |
— |
947,671 |
Deferred tax liability |
367,312 |
— |
367,312 |
437,214 |
— |
437,214 |
Accounts payable and accrued liabilities |
267,833 |
66,609 |
334,442 |
335,606 |
60,176 |
395,782 |
Non-controlling interest |
— |
19,265 |
19,265 |
— |
19,419 |
19,419 |
5,291,640 |
1,207,467 |
6,499,107 |
5,585,268 |
1,177,434 |
6,762,702 |
|
Unitholders' equity |
4,925,303 |
— |
4,925,303 |
5,192,375 |
— |
5,192,375 |
$10,216,943 |
$1,207,467 |
$11,424,410 |
$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):
September 30 |
December 31 |
|
(in thousands of Canadian dollars) |
2024 |
2023 |
Debt per the REIT's Financial Statements |
$3,533,927 |
$3,686,833 |
Debt - REIT's proportionate share of equity accounted investments |
1,121,593 |
1,097,839 |
Debt at the REIT's proportionate share |
4,655,520 |
4,784,672 |
(Figures below are for the trailing 12 months) |
||
Net income (loss) per the REIT's Financial Statements |
(261,909) |
61,690 |
Net income from equity accounted investments (within equity accounted investments) |
(319) |
(426) |
Finance costs - operations |
290,951 |
266,795 |
Fair value adjustments on financial instruments and real estate assets |
650,180 |
363,547 |
Loss on sale of real estate assets, net of related costs |
13,667 |
9,420 |
Loss on foreign exchange (within equity accounted investments) |
79 |
— |
Income tax recovery |
(75,203) |
(30,484) |
Non-controlling interest |
1,709 |
1,254 |
Adjustments: |
||
The Bow and 100 Wynford non-cash rental income adjustments |
(93,533) |
(92,920) |
Straight-lining of contractual rent |
(17,352) |
(12,100) |
IFRIC 21 - realty tax adjustment |
(260) |
— |
Fair value adjustment to unit-based compensation |
2,205 |
(5,134) |
Adjusted EBITDA at the REIT's proportionate share |
$510,215 |
$561,642 |
Debt to Adjusted EBITDA at the REIT's proportionate share |
9.1x |
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 September 30, 2024 |
Three months ended September 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 |
$200,344 |
$39,013 |
$239,357 |
$210,446 |
$37,923 |
$248,369 |
Property operating costs |
(60,232) |
(9,751) |
(69,983) |
(61,030) |
(8,383) |
(69,413) |
Net operating income |
140,112 |
29,262 |
169,374 |
149,416 |
29,540 |
178,956 |
Net income (loss) from equity accounted investments |
16,478 |
(16,385) |
93 |
(11,017) |
11,051 |
34 |
Finance costs - operations |
(82,981) |
(12,403) |
(95,384) |
(54,107) |
(12,338) |
(66,445) |
Finance income |
3,425 |
306 |
3,731 |
4,068 |
78 |
4,146 |
Gain on disposal of purchase option |
— |
— |
— |
30,568 |
— |
30,568 |
Trust expenses |
(7,829) |
(1,163) |
(8,992) |
(2,872) |
(1,290) |
(4,162) |
Fair value adjustment on financial instruments |
(66,453) |
(1,189) |
(67,642) |
28,126 |
408 |
28,534 |
Fair value adjustment on real estate assets |
(26,142) |
2,799 |
(23,343) |
(112,824) |
(27,109) |
(139,933) |
Gain (loss) on sale of real estate assets, net of related costs |
1,383 |
(638) |
745 |
(3,479) |
(141) |
(3,620) |
Loss on foreign exchange |
— |
(217) |
(217) |
— |
— |
— |
Net income (loss) before income taxes and non-controlling interest |
(22,007) |
372 |
(21,635) |
27,879 |
199 |
28,078 |
Income tax (expense) recovery |
12,285 |
(53) |
12,232 |
9,717 |
(6) |
9,711 |
Net income (loss) before non-controlling interest |
(9,722) |
319 |
(9,403) |
37,596 |
193 |
37,789 |
Non-controlling interest |
— |
(319) |
(319) |
— |
(193) |
(193) |
Net income (loss) |
(9,722) |
— |
(9,722) |
37,596 |
— |
37,596 |
Other comprehensive income (loss): |
||||||
Items that are or may be reclassified subsequently to net income (loss) |
(63,036) |
— |
(63,036) |
129,027 |
— |
129,027 |
Total comprehensive income (loss) attributable to unitholders |
($72,758) |
$— |
($72,758) |
$166,623 |
$— |
$166,623 |
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, 2024 |
Nine months ended September 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 |
$614,640 |
$115,846 |
$730,486 |
$641,242 |
$112,265 |
$753,507 |
Property operating costs |
(235,871) |
(31,997) |
(267,868) |
(241,998) |
(30,576) |
(272,574) |
Net operating income |
378,769 |
83,849 |
462,618 |
399,244 |
81,689 |
480,933 |
Net income (loss) from equity accounted investments |
(79,831) |
80,122 |
291 |
139 |
259 |
398 |
Finance costs - operations |
(187,250) |
(37,261) |
(224,511) |
(164,022) |
(36,333) |
(200,355) |
Finance income |
8,618 |
654 |
9,272 |
10,524 |
238 |
10,762 |
Gain on disposal of purchase option |
— |
— |
— |
30,568 |
— |
30,568 |
Trust expenses |
(18,665) |
(4,475) |
(23,140) |
(17,331) |
(3,541) |
(20,872) |
Fair value adjustment on financial instruments |
(47,469) |
(1,234) |
(48,703) |
74,161 |
329 |
74,490 |
Fair value adjustment on real estate assets |
(372,619) |
(119,714) |
(492,333) |
(288,517) |
(40,376) |
(328,893) |
Loss on sale of real estate assets, net of related costs |
(11,422) |
(625) |
(12,047) |
(6,128) |
(1,672) |
(7,800) |
Loss on foreign exchange |
— |
(79) |
(79) |
— |
— |
— |
Net income (loss) before income taxes and non-controlling interest |
(329,869) |
1,237 |
(328,632) |
38,638 |
593 |
39,231 |
Income tax (expense) recovery |
79,273 |
(234) |
79,039 |
34,365 |
(45) |
34,320 |
Net income (loss) before non-controlling interest |
(250,596) |
1,003 |
(249,593) |
73,003 |
548 |
73,551 |
Non-controlling interest |
— |
(1,003) |
(1,003) |
— |
(548) |
(548) |
Net income (loss) |
(250,596) |
— |
(250,596) |
73,003 |
— |
73,003 |
Other comprehensive income (loss): |
||||||
Items that are or may be reclassified subsequently to net income (loss) |
99,990 |
— |
99,990 |
(212) |
— |
(212) |
Total comprehensive income (loss) attributable to unitholders |
($150,606) |
$— |
($150,606) |
$72,791 |
$— |
$72,791 |
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 September 30 |
Nine months ended September 30 |
|||||
(in thousands of Canadian dollars) |
2024 |
2023 |
Change |
2024 |
2023 |
Change |
Rentals from investment properties |
$200,344 |
$210,446 |
($10,102) |
$614,640 |
$641,242 |
($26,602) |
Property operating costs |
(60,232) |
(61,030) |
798 |
(235,871) |
(241,998) |
6,127 |
Net operating income per the REIT's Financial Statements |
140,112 |
149,416 |
(9,304) |
378,769 |
399,244 |
(20,475) |
Adjusted for: |
||||||
Net operating income from equity accounted investments |
29,262 |
29,540 |
(278) |
83,849 |
81,689 |
2,160 |
Straight-lining of contractual rent at the REIT's proportionate share |
(4,305) |
(1,406) |
(2,899) |
(14,729) |
(9,477) |
(5,252) |
Realty taxes in accordance with IFRIC 21 at the REIT's proportionate share(1) |
(14,757) |
(15,324) |
567 |
14,686 |
14,946 |
(260) |
Net operating income (cash basis) from Transactions at the REIT's proportionate share |
(28,539) |
(38,636) |
10,097 |
(93,797) |
(120,122) |
26,325 |
Same-Property net operating income (cash basis) |
$121,773 |
$123,590 |
($1,817) |
$368,778 |
$366,280 |
$2,498 |
(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 nine months ended September 30, 2024 is as follows: (i) Residential: $9,033; (ii) Industrial: nil; (iii) Office: $3,484; and (iv) Retail: $2,169. |
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) |
2024 |
2023 |
Unitholders' equity |
$4,925,303 |
$5,192,375 |
Exchangeable units |
205,625 |
177,944 |
Deferred tax liability |
367,312 |
437,214 |
Total |
$5,498,240 |
$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) |
$18.80 |
$19.83 |
NAV per Unit |
$19.64 |
$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 September 30 |
Nine months ended September 30 |
||
(in thousands of Canadian dollars except per Unit amounts) |
2024 |
2023 |
2024 |
2023 |
Net income (loss) per the REIT's Financial Statements |
($9,722) |
$37,596 |
($250,596) |
$73,003 |
Realty taxes in accordance with IFRIC 21 |
(13,548) |
(14,141) |
13,474 |
13,762 |
FFO adjustments from equity accounted investments |
(961) |
25,659 |
124,321 |
42,903 |
Exchangeable unit distributions |
2,696 |
2,696 |
8,088 |
8,088 |
Non-cash loss on mortgages receivable |
32,000 |
— |
32,000 |
— |
Fair value adjustments on financial instruments and real estate assets |
92,595 |
84,698 |
420,088 |
214,356 |
Fair value adjustment to unit-based compensation |
3,265 |
(3,026) |
1,676 |
(5,663) |
(Gain) loss on sale of real estate assets, net of related costs |
(1,383) |
3,479 |
11,422 |
6,128 |
Deferred income tax recovery applicable to U.S. Holdco |
(12,716) |
(10,075) |
(80,429) |
(35,922) |
Incremental leasing costs |
539 |
570 |
1,694 |
1,738 |
The Bow and 100 Wynford non-cash rental income and accretion adjustments |
(10,452) |
(9,761) |
(30,728) |
(28,692) |
FFO |
$82,313 |
$117,695 |
$251,010 |
$289,701 |
Straight-lining of contractual rent |
(4,109) |
(1,061) |
(14,308) |
(8,951) |
Rent amortization of tenant inducements |
1,136 |
1,131 |
3,407 |
3,384 |
Capital expenditures |
(9,085) |
(13,148) |
(26,481) |
(30,287) |
Leasing expenses and tenant inducements |
(541) |
(1,464) |
(2,697) |
(3,767) |
Incremental leasing costs |
(539) |
(570) |
(1,694) |
(1,738) |
AFFO adjustments from equity accounted investments |
(1,399) |
(1,388) |
(3,869) |
(3,848) |
AFFO |
$67,776 |
$101,195 |
$205,368 |
$244,494 |
Basic and diluted weighted average number of Units and exchangeable units (in thousands of Units)(1) |
279,990 |
280,205 |
279,914 |
282,480 |
FFO per basic and diluted Unit |
$0.294 |
$0.420 |
$0.897 |
$1.026 |
AFFO per basic and diluted Unit |
$0.242 |
$0.361 |
$0.734 |
$0.866 |
Cash Distributions per Unit |
$0.150 |
$0.150 |
$0.450 |
$0.450 |
Payout ratio as a % of FFO |
51.0 % |
35.7 % |
50.2 % |
43.9 % |
Payout ratio as a % of AFFO |
62.0 % |
41.6 % |
61.3 % |
52.0 % |
(1) |
For the three and nine months ended September 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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