Q2 2023 HIGHLIGHTS:
- Net operating income increased by 4.4% compared to Q2 2022.
- Same-Property net operating income (cash basis)(1) increased by 11.7% compared to Q2 2022 driven by healthy gains across our operating segments:
• Residential | +22.9 % | Driven by strong rent growth and the strengthening of the | ||
• Industrial | +18.6 % | Driven by strong rent growth and higher occupancy | ||
• Retail | +9.1 % | Driven by the strengthening of the | ||
• Office | +2.1 % | Driven by the strengthening of the |
- Funds From Operations ("FFO")(1) per Unit grew 4.6% to
$0.30 per Unit compared to$0.28 per Unit for Q2 2022. The REIT distributed 50.5%(2) of FFO to Unitholders. - Cash distributions per unit increased by 11.1% compared to Q2 2022.
$277.6 million in property dispositions.($260.7) million fair value adjustment on real estate assets, driven by capitalization rate expansion. The following weighted average capitalization rates were used to value the REIT's investment properties:
• Residential (sunbelt) | 4.75 % | 4.50 % | ||||
• Residential (other) | 4.08 % | 4.01 % | ||||
• Industrial | 5.28 % | 5.20 % | ||||
• Office (general) | 7.31 % | 6.99 % | ||||
• Office (rezoning) | 4.81 % | 4.52 % | ||||
• Retail | 6.35 % | 6.40 % |
- 2.8 million units of the REIT ("Units") were purchased for a total cost of
$29.2 million , at a weighted average price of$10.26 per Unit, representing an approximate 51.2% discount to Net Asset Value ("NAV") per Unit(2). - Unitholders' equity per Unit was
$20.09 and NAV per Unit(2) was$21.04 atJune 30, 2023 . - Liquidity was in excess of
$900.0 million atJune 30, 2023 .
(1) These are non-generally accepted accounting principles ("GAAP") measures. Refer to the "Non-GAAP Measures" section of this news release. |
(2) These are non-GAAP ratios. Refer to the "Non-GAAP Measures" section of this news release. |
"Year to date, our portfolio and team are producing strong financial and operating results across all our property classes," said
- Residential continues to see strong rental rate growth;
- our high-quality, well located office properties continue to produce stable cash flow with a weighted average lease term of 7.1 years and 98.7% occupancy;
- industrial properties located in key industrial markets remain in high-demand as we realize continued rental rate growth; and
- our high-quality grocery-anchored and single-tenant retail property portfolio is performing well, providing essential services to their respective communities.
"Given the line of sight we have into our current disposition pipeline and the demand we are seeing for our properties, we are reiterating our target to sell at approximately
FINANCIAL HIGHLIGHTS
2023 | 2022 | |
Total assets (in thousands) | ||
Debt to total assets per the REIT's Financial Statements(1) | 35.2 % | 34.4 % |
Debt to total assets at the REIT's proportionate share(1)(2) | 44.8 % | 44.0 % |
Unitholders' equity (in thousands) | ||
Units outstanding (in thousands) | 263,172 | 265,885 |
Exchangeable units outstanding (in thousands) | 17,974 | 17,974 |
Unitholders' equity per Unit | ||
NAV per Unit(2) |
3 months ended | 6 months ended | |||
2023 | 2022 | 2023 | 2022 | |
Rentals from investment properties (in millions) | ||||
Net operating income (in millions) | ||||
Same-Property net operating income (cash basis) (in millions)(3) | ||||
Net income from equity accounted investments (in millions) | ||||
Fair value adjustment on real estate assets (in millions) | ( | ( | ( | |
Net income (loss) (in millions) | ( | |||
Funds from operations ("FFO") (in millions)(3) | ||||
Adjusted funds from operations ("AFFO") (in millions)(3) | ||||
Weighted average number of Units and exchangeable units for FFO (in thousands) | 283,384 | 292,353 | 283,637 | 297,375 |
FFO per basic Unit(2) | ||||
AFFO per basic Unit(2) | ||||
Cash Distributions per Unit | ||||
Payout ratio as a % of FFO(2) | 50.5 % | 47.5 % | 49.5 % | 47.1 % |
Payout ratio as a % of AFFO(2) | 61.0 % | 52.5 % | 59.4 % | 51.8 % |
(1) Debt includes mortgages payable, debentures payable, unsecured term loans, lines of credit and liabilities classified as held for sale. |
(2) These are non-GAAP ratios. Refer to the "Non-GAAP Measures" section of this news release. |
(3) These are non-GAAP measures. Refer to the "Non-GAAP Measures" section of this news release. |
SUMMARY OF SIGNIFICANT Q2 2023 ACTIVITY
2023 Net Operating Income Highlights:
Three months ended | Six months ended | |||||
(in thousands of Canadian dollars) | 2023 | 2022 | % Change | 2023 | 2022 | % Change |
Operating Segment: | ||||||
Same-Property net operating income (cash basis) - Residential(1) | 22.9 % | 22.1 % | ||||
Same-Property net operating income (cash basis) - Industrial(1) | 18,040 | 15,213 | 18.6 % | 34,528 | 30,169 | 14.4 % |
Same-Property net operating income (cash basis) - Office(1) | 44,701 | 43,777 | 2.1 % | 91,216 | 87,291 | 4.5 % |
Same-Property net operating income (cash basis) - Retail(1) | 23,974 | 21,983 | 9.1 % | 48,291 | 44,887 | 7.6 % |
Same-Property net operating income (cash basis)(1) | 128,013 | 114,574 | 11.7 % | 255,494 | 229,059 | 11.5 % |
Net operating income (cash basis) from Transactions at the REIT's proportionate share(1) | 32,884 | 37,750 | (12.9) % | 68,682 | 76,030 | (9.7) % |
Realty taxes in accordance with IFRIC 21 at the REIT's proportionate share(1)(2) | 15,528 | 16,246 | (4.4) % | (30,270) | (24,656) | (22.8) % |
Straight-lining of contractual rent at the REIT's proportionate share(1) | 4,313 | (240) | 1897.1 % | 8,071 | (86) | 9484.9 % |
Net operating income from equity accounted investments(1) | (28,210) | (22,283) | (26.6) % | (52,149) | (41,877) | (24.5) % |
Net operating income per the REIT's Financial Statements | 4.4 % | 4.8 % |
(1) These are non-GAAP measures. Refer to the "Non-GAAP Measures" section of this news release. |
(2) IFRIC 21 is defined in the "Non-GAAP Measures" section of this news release. |
Property Dispositions
In
In
As at
2023 non-core property sales to date total
Leasing Highlights:
In Q2 2023, H&R leased 74,689 vacant square feet at a multi-tenanted industrial property in
In Q1 2023, H&R entered into a lease amendment with its tenant at
Unitholder Activism and Severance Costs
In
In
Development Update
The REIT currently has two industrial properties under development located at
The REIT commenced construction on two
Future Intensification
In
In
H&R is preparing a Site Plan Approval application for submission to the
2023 Distribution
H&R increased its monthly distributions to
The 2022 special distribution of
For the three and six months ended
Debt & Liquidity Highlights
As at
As at
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 | |
CONFERENCE CALL AND WEBCAST
Management will host a conference call to discuss the financial results of the REIT on
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 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 https://www.hr-reit.com/investor-relations/#investor-presentation.
About H&R REIT
H&R REIT is one of
Forward-Looking Disclaimer
Certain information in this news release contains forward‐looking information within the meaning of applicable securities laws (also known as forward‐looking statements) including, among others, statements made or implied under the heading "Summary of Significant Q2 2023 Activity" relating to H&R's objectives, beliefs, plans, estimates, targets, projections and intentions and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts, including with respect to H&R's future plans and targets, the REIT's ability to take advantage of value-creating opportunities, H&R's strategy to grow its exposure to residential assets in
Forward‐looking statements are provided for the purpose of presenting information about management's current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. These statements are not guarantees of future performance and are based on H&R's estimates and assumptions that are subject to risks, uncertainties and other factors including those risks and uncertainties discussed in H&R's materials filed with the Canadian securities regulatory authorities from time to time, which could cause the actual results, performance or achievements of H&R to differ materially from the forward‐looking statements contained in this news release. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward‐looking statements include assumptions relating to the general economy, including the effects of increased inflation; debt markets continue to provide access to capital at a reasonable cost, notwithstanding rising interest rates; and assumptions concerning currency exchange and interest rates. Additional risks and uncertainties include, among other things, risks related to: real property ownership; the current economic environment; credit risk and tenant concentration; lease rollover risk; interest rate and other debt‐related risk; development risks; residential rental risk; capital expenditures risk; currency risk; liquidity risk; risks associated with disease outbreaks; cyber security risk; financing credit risk; ESG and climate change risk; co‐ownership interest in properties; general uninsured losses; joint arrangement and investment risks; dependence on key personnel and succession planning; potential acquisition, investment and disposition opportunities and joint venture arrangements; potential undisclosed liabilities associated with acquisitions; competition for real property investments; Unit price risk; potential conflicts of interest; availability of cash for distributions; credit ratings; ability to access capital markets; dilution; unitholder liability; redemption right risk; risks relating to debentures; tax risk; additional tax risks applicable to unitholders; investment eligibility; and statutory remedies. H&R cautions that these lists of factors, risks and uncertainties are not exhaustive. Although the forward‐looking statements contained in this news release are based upon what H&R believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward‐looking statements.
Readers are also urged to examine H&R's materials filed with the Canadian securities regulatory authorities from time to time as they may contain discussions on risks and uncertainties which could cause the actual results and performance of H&R to differ materially from the forward‐looking statements contained in this news release. All forward‐looking statements contained in this news release are qualified by these cautionary statements. These forward‐looking statements are made as of
Non‐GAAP Measures
The unaudited condensed consolidated financial statements of the REIT and related notes for the three and six months ended
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, 2023 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 (a non-GAAP Measure):
(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 | ||||||
Properties under development | 1,005,328 | 121,038 | 1,126,366 | 880,778 | 89,912 | 970,690 |
9,389,058 | 2,157,040 | 11,546,098 | 9,680,095 | 2,218,218 | 11,898,313 | |
Equity accounted investments | 1,044,683 | (1,044,683) | — | 1,060,268 | (1,060,268) | — |
Assets classified as held for sale | 78,120 | — | 78,120 | 294,028 | — | 294,028 |
Other assets | 515,016 | 19,743 | 534,759 | 301,325 | 21,892 | 323,217 |
Cash and cash equivalents | 53,744 | 35,070 | 88,814 | 76,887 | 38,443 | 115,330 |
Liabilities and Unitholders' Equity | ||||||
Liabilities | ||||||
Debt | ||||||
Exchangeable units | 184,236 | — | 184,236 | 217,668 | — | 217,668 |
Deferred Revenue | 967,312 | — | 967,312 | 986,243 | — | 986,243 |
Deferred tax liability | 443,567 | — | 443,567 | 483,048 | — | 483,048 |
Accounts payable and accrued liabilities | 303,378 | 60,199 | 363,577 | 309,505 | 58,502 | 368,007 |
Liabilities classified as held for sale | — | — | — | 6,323 | — | 6,323 |
Non-controlling interest | — | 16,594 | 16,594 | — | 22,573 | 22,573 |
5,794,248 | 1,167,170 | 6,961,418 | 5,925,316 | 1,218,285 | 7,143,601 | |
Unitholders' equity | 5,286,373 | — | 5,286,373 | 5,487,287 | — | 5,487,287 |
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 | Three months ended | |||||
(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 | ||||||
Property operating costs | (59,973) | (8,538) | (68,511) | (56,347) | (8,024) | (64,371) |
Net operating income | 152,528 | 28,210 | 180,738 | 146,047 | 22,283 | 168,330 |
Net income from equity accounted investments | 1,260 | (941) | 319 | 8,884 | (8,746) | 138 |
Finance costs - operations | (54,944) | (12,100) | (67,044) | (53,985) | (9,306) | (63,291) |
Finance income | 4,699 | 100 | 4,799 | 4,633 | 5 | 4,638 |
Trust expenses | (6,368) | (1,497) | (7,865) | (6,493) | (728) | (7,221) |
Fair value adjustment on financial instruments | 65,912 | (379) | 65,533 | 29,418 | 1,293 | 30,711 |
Fair value adjustment on real estate assets | (260,684) | (13,280) | (273,964) | (16,784) | (3,959) | (20,743) |
Gain (loss) on sale of real estate assets, net of related costs | (2,152) | 98 | (2,054) | 11,539 | (521) | 11,018 |
Net income (loss) before income taxes and non-controlling interest | (99,749) | 211 | (99,538) | 123,259 | 321 | 123,580 |
Income tax (expense) recovery | 40,354 | (27) | 40,327 | (10,802) | (86) | (10,888) |
Net income (loss) before non-controlling interest | (59,395) | 184 | (59,211) | 112,457 | 235 | 112,692 |
Non-controlling interest | — | (184) | (184) | — | (235) | (235) |
Net income (loss) | (59,395) | — | (59,395) | 112,457 | — | 112,457 |
Other comprehensive income (loss): | ||||||
Items that are or may be reclassified subsequently to net income (loss) | (96,367) | — | (96,367) | 136,124 | — | 136,124 |
Total comprehensive income (loss) attributable to unitholders | ( | $— | ( | $— |
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 | Six months ended | |||||
(in thousands of Canadian dollars) | REIT's Financial Statements | Equity investments | REIT's | REIT's Financial Statements | Equity investments | REIT's |
Rentals from investment properties | ||||||
Property operating costs | (180,968) | (22,193) | (203,161) | (165,626) | (19,284) | (184,910) |
Net operating income | 249,828 | 52,149 | 301,977 | 238,470 | 41,877 | 280,347 |
Net income from equity accounted investments | 11,156 | (10,792) | 364 | 53,737 | (53,580) | 157 |
Finance costs - operations | (109,915) | (23,995) | (133,910) | (109,271) | (18,105) | (127,376) |
Finance income | 6,456 | 160 | 6,616 | 7,179 | 8 | 7,187 |
Trust expenses | (14,459) | (2,251) | (16,710) | (13,742) | (1,504) | (15,246) |
Fair value adjustment on financial instruments | 46,035 | (79) | 45,956 | 28,827 | 1,969 | 30,796 |
Fair value adjustment on real estate assets | (175,693) | (13,267) | (188,960) | 1,005,753 | 29,824 | 1,035,577 |
Gain (loss) on sale of real estate assets, net of related costs | (2,649) | (1,531) | (4,180) | 11,511 | 212 | 11,723 |
Net income before income taxes and non-controlling interest | 10,759 | 394 | 11,153 | 1,222,464 | 701 | 1,223,165 |
Income tax (expense) recovery | 24,648 | (39) | 24,609 | (140,016) | (166) | (140,182) |
Net income before non-controlling interest | 35,407 | 355 | 35,762 | 1,082,448 | 535 | 1,082,983 |
Non-controlling interest | — | (355) | (355) | — | (535) | (535) |
Net income | 35,407 | — | 35,407 | 1,082,448 | — | 1,082,448 |
Other comprehensive income (loss): | ||||||
Items that are or may be reclassified subsequently to net income | (129,239) | — | (129,239) | 99,022 | — | 99,022 |
Total comprehensive income (loss) attributable to unitholders | ( | $— | ( | $— |
Same-Property net operating income (cash basis)
The following table reconciles net operating income per the REIT's Financial Statements to Same-Property net operating income (cash basis):
Three months ended | Six months ended | |||||
(in thousands of Canadian dollars) | 2023 | 2022 | Change | 2023 | 2022 | Change |
Rentals from investment properties | ||||||
Property operating costs | (59,973) | (56,347) | (3,626) | (180,968) | (165,626) | (15,342) |
Net operating income per the REIT's Financial Statements | 152,528 | 146,047 | 6,481 | 249,828 | 238,470 | 11,358 |
Adjusted for: | ||||||
Net operating income from equity accounted investments(1) | 28,210 | 22,283 | 5,927 | 52,149 | 41,877 | 10,272 |
Straight-lining of contractual rent at the REIT's proportionate share(1) | (4,313) | 240 | (4,553) | (8,071) | 86 | (8,157) |
Realty taxes in accordance with IFRIC 21 at the REIT's proportionate share(1) | (15,528) | (16,246) | 718 | 30,270 | 24,656 | 5,614 |
Net operating income (cash basis) from Transactions at the REIT's proportionate share(1) | (32,884) | (37,750) | 4,866 | (68,682) | (76,030) | 7,348 |
Same-Property net operating income (cash basis)(1) |
(1) These are non-GAAP measures . |
NAV per Unit (a non-GAAP Measure)
The following table reconciles Unitholders' equity per Unit to NAV per Unit:
Unitholders' Equity per Unit and NAV per Unit | ||
(in thousands except for per Unit amounts) | 2023 | 2022 |
Unitholders' equity | ||
Exchangeable units | 184,236 | 217,668 |
Deferred tax liability | 443,567 | 483,048 |
Total | ||
Units outstanding | 263,172 | 265,885 |
Exchangeable units outstanding | 17,974 | 17,974 |
Total | 281,146 | 283,859 |
Unitholders' equity per Unit(1) | ||
NAV per Unit |
(1) Unitholders' equity per Unit is calculated by dividing unitholders' equity by Units outstanding. |
Funds from Operations and Adjusted Funds from Operations
The following table reconciles net income (loss) per the REIT's Financial Statements to FFO and AFFO:
FFO AND AFFO | Three Months ended | Six months ended | ||
(in thousands of Canadian dollars except per Unit amounts) | 2023 | 2022 | 2023 | 2022 |
Net income (loss) per the REIT's Financial Statements | ( | |||
Realty taxes in accordance with IFRIC 21 | (14,278) | (15,433) | 27,903 | 22,115 |
FFO adjustments from equity accounted investments | 12,311 | 2,824 | 17,244 | (28,504) |
Exchangeable unit distributions | 2,696 | 2,465 | 5,392 | 4,840 |
Fair value adjustments on financial instruments and real estate assets | 194,772 | (12,634) | 129,658 | (1,034,580) |
Fair value adjustment to unit-based compensation | (3,933) | 862 | (2,637) | 3,996 |
(Gain) loss on sale of real estate assets, net of related costs | 2,152 | (11,539) | 2,649 | (11,511) |
Deferred income tax expense (recoveries) applicable to | (41,225) | 10,500 | (25,847) | 139,350 |
Incremental leasing costs | 581 | 617 | 1,168 | 1,234 |
The Bow and 100 Wynford non-cash rental income and accretion adjustments | (9,567) | (7,137) | (18,931) | (12,002) |
FFO(1) | ||||
Straight-lining of contractual rent | (4,266) | 362 | (7,890) | 168 |
Rent amortization of tenant inducements | 1,130 | 1,160 | 2,253 | 2,320 |
Capital expenditures | (7,907) | (6,970) | (17,139) | (11,967) |
Leasing expenses and tenant inducements | (1,543) | (623) | (2,303) | (2,464) |
Incremental leasing costs | (581) | (617) | (1,168) | (1,234) |
AFFO adjustments from equity accounted investments | (1,320) | (1,250) | (2,460) | (2,055) |
AFFO(1) | ||||
Weighted average number of Units and exchangeable units (in thousands of Units)(2) | 283,384 | 292,353 | 283,637 | 297,375 |
Diluted weighted average number of Units and exchangeable units (in thousands of Units)(2)(3) | 284,219 | 293,199 | 284,472 | 298,221 |
FFO per basic Unit(4) | ||||
FFO per diluted Unit(4) | ||||
AFFO per basic Unit(4) | ||||
AFFO per diluted Unit(4) | ||||
Cash Distributions per Unit | ||||
Payout ratio as a % of FFO(4) | 50.5 % | 47.5 % | 49.5 % | 47.1 % |
Payout ratio as a % of AFFO(4) | 61.0 % | 52.5 % | 59.4 % | 51.8 % |
(1) | These are non-GAAP measures defined in the "Non-GAAP Measures" section of this news release. |
(2) | For the three and six months ended |
(3) | For the three and six months ended |
(4) | These are non-GAAP ratios defined in the "Non-GAAP Measures" section of this news release. |
Additional information regarding H&R is available at www.hr-reit.com and on www.sedar.com
SOURCE
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