Q3 2023 HIGHLIGHTS:
- Net operating income increased by 0.7% compared to Q3 2022. Property dispositions in the last 12 months totaled
$443.0 million . - Same-Property net operating income (cash basis)(1) increased by 12.6% compared to Q3 2022 driven by healthy gains across all our operating segments:
• Residential | +19.5 % | Driven by strong rent growth and the strengthening of the | |||
• Industrial | +11.1 % | Driven by strong rent growth and higher occupancy | |||
• Office | +9.9 % | Driven by lease termination payments, bad debt recovery and the strengthening of the | |||
• Retail | +8.8 % | Driven by increase in occupancy at River Landing Miami and the strengthening of the |
- Funds From Operations ("FFO") per Unit(2) grew 39.1% to
$0.42 per Unit compared to$0.30 per Unit for Q3 2022. The REIT distributed 35.7%(2) of FFO to Unitholders. - Cash distributions per unit increased by 9.5% compared to Q3 2022.
($112.8) million fair value adjustment on real estate assets, driven by capitalization rate expansion. The following weighted average capitalization rates were used to value the REIT's investment properties at the REIT's proportionate share(1):
• Residential (sun belt) | 4.75 % | ||||
• Residential (other) | 4.08 % | ||||
• Industrial | 5.28 % | ||||
• Office (general)(3) | 7.57 % | ||||
• Office (rezoning)(3) | 5.16 % | ||||
• Retail | 6.47 % |
- Office occupancy at
September 30, 2023 was 98.0% and overall portfolio occupancy was 97.0%. - Unitholders' equity per Unit was
$20.62 and NAV per Unit(2) was$21.49 atSeptember 30, 2023 . - Liquidity was in excess of
$1 billion atSeptember 30, 2023 .
(1) | These are non-generally accepted accounting principles ("GAAP") measures. Refer to the "Non-GAAP Measures" section of this news release. |
(2) | These are non-GAAP ratios. Refer to the "Non-GAAP Measures" section of this news release. |
(3) | Office (general) includes 14 properties expected to be sold as part of H&R's plan to sell office properties. Office (rezoning) includes 8 Canadian properties designated for future intensification. |
"H&R's property performance remained strong across all our property classes with Same-Property net operating income on a cash basis growth of 12.6%," said
FINANCIAL HIGHLIGHTS
2023 | 2022 | |
Total assets (in thousands) | ||
Debt to total assets per the REIT's Financial Statements(1) | 34.1 % | 34.4 % |
Debt to total assets at the REIT's proportionate share(1)(2) | 43.9 % | 44.0 % |
Debt to Adjusted EBITDA at the REIT's proportionate share(1)(2)(3) | 8.7 | 9.6 |
Unitholders' equity (in thousands) | ||
Units outstanding (in thousands) | 261,868 | 265,885 |
Exchangeable units outstanding (in thousands) | 17,974 | 17,974 |
Unitholders' equity per Unit | ||
NAV per Unit(2) |
3 months ended | 9 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)(4) | ||||
Net income (loss) from equity accounted investments (in millions) | ( | ( | ( | |
Fair value adjustment on real estate assets (in millions) | ( | ( | ( | |
Net income (loss) (in millions) | ( | |||
FFO (in millions)(4) | ||||
Adjusted funds from operations ("AFFO") (in millions)(4) | ||||
Weighted average number of Units and exchangeable units for FFO (in 000's) | 280,205 | 284,734 | 282,480 | 293,115 |
FFO per basic Unit(2) | ||||
AFFO per basic Unit(2) | ||||
Cash Distributions per Unit | ||||
Payout ratio as a % of FFO(2) | 35.7 % | 45.4 % | 43.9 % | 46.5 % |
Payout ratio as a % of AFFO(2) | 41.6 % | 53.7 % | 52.0 % | 52.4 % |
(1) | Debt includes mortgages payable, debentures payable, unsecured term loans, lines of credit and liabilities classified as held for sale. |
(2) | These are non-GAAP ratios. Refer to the "Non-GAAP Measures" section of this news release. |
(3) | Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") is calculated by taking the sum of net operating income (excluding straight-lining of contractual rent, IFRIC 21, as well as the Bow and 100 Wynford non-cash rental adjustments) and finance income and subtracting trust expenses (excluding the fair value adjustment to unit-based compensation) for the last 12 months. |
(4) | These are non-GAAP measures. Refer to the "Non-GAAP Measures" section of this news release. |
Included in net income, FFO and AFFO for the three and nine months ended
SUMMARY OF SIGNIFICANT Q3 2023 ACTIVITY
2023 Net Operating Income Highlights:
Three months ended | Nine months ended | |||||
(in thousands of Canadian dollars) | 2023 | 2022 | % Change | 2023 | 2022 | % Change |
Operating Segment: | ||||||
Same-Property net operating income (cash basis) - Residential(1) | 19.5 % | 21.3 % | ||||
Same-Property net operating income (cash basis) - Industrial(1) | 17,408 | 15,663 | 11.1 % | 51,936 | 45,832 | 13.3 % |
Same-Property net operating income (cash basis) - Office(1) | 49,247 | 44,793 | 9.9 % | 140,124 | 131,766 | 6.3 % |
Same-Property net operating income (cash basis) - Retail(1) | 24,244 | 22,284 | 8.8 % | 70,206 | 64,596 | 8.7 % |
Same-Property net operating income (cash basis)(1) | 129,735 | 115,232 | 12.6 % | 382,561 | 341,398 | 12.1 % |
Net operating income (cash basis) from Transactions at the REIT's proportionate share(1)(2) | 32,491 | 39,902 | (18.6) % | 103,841 | 118,825 | (12.6) % |
Realty taxes in accordance with IFRIC 21 at the REIT's proportionate share(1)(3) | 15,324 | 12,056 | 27.1 % | (14,946) | (12,600) | (18.6) % |
Straight-lining of contractual rent at the REIT's proportionate share(1) | 1,406 | 3,388 | (58.5) % | 9,477 | 3,302 | 187.0 % |
Net operating income from equity accounted investments(1) | (29,540) | (22,211) | (33.0) % | (81,689) | (64,088) | (27.5) % |
Net operating income per the REIT's Financial Statements | 0.7 % | 3.2 % |
(1) | These are non-GAAP measures. Refer to the "Non-GAAP Measures" section of this news release. |
(2) | Transactions includes acquisitions, dispositions, and transfers of investment properties to or from properties under development during the 21-month period ended |
(3) | IFRIC 21 is defined in the "Non-GAAP Measures" section of this news release. |
Transaction Highlights
Property Dispositions
In
In
In
In
2023 non-core property sales to date total
Leasing Highlights:
In Q1 2023, H&R entered into a lease amendment with its tenant at
Development Update
The REIT currently has two industrial properties under development located at
The REIT commenced construction on two
Future Intensification
H&R is addressing comments for
In
In
Normal Course Issuer Bid
During the three months ended
2023 Distributions
H&R increased its monthly distributions to
The 2022 special distribution of
As a result of the recently announced property sales, H&R expects to make a special distribution in 2023. The amount and nature of such distribution will be determined in Q4 2023.
For the three and nine months ended
Debt & Liquidity Highlights
Unsecured Term Loans
In
In
Lines of Credit
In
In
As at
As at
MONTHLY DISTRIBUTION DECLARED
H&R today declared a distribution for the month of November 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 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
Forward-Looking Disclaimer
Certain information in this news release contains forward‐looking information within the meaning of applicable securities laws (also known as forward‐looking statements) including, among others, statements made or implied under the heading "Summary of Significant Q3 2023 Activity" relating to H&R's objectives, beliefs, plans, estimates, targets, projections and intentions and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts, including with respect to H&R's future plans and targets, the REIT's ability to take advantage of value-creating opportunities, H&R's strategy to grow its exposure to residential assets in
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 nine 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 nine months ended September 30, 2023 available at www.hr‐reit.com and on the REIT's profile on SEDAR at www.sedarplus.com, which is incorporated by reference into this news release.
Financial Position
The following table reconciles the REIT's Statement of Financial Position from the REIT's Financial Statements to the REIT's proportionate share (a non-GAAP Measure):
(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 | 1,066,863 | 126,621 | 1,193,484 | 880,778 | 89,912 | 970,690 |
9,442,075 | 2,201,709 | 11,643,784 | 9,680,095 | 2,218,218 | 11,898,313 | |
Equity accounted investments | 1,055,883 | (1,055,883) | — | 1,060,268 | (1,060,268) | — |
Assets classified as held for sale | 43,656 | — | 43,656 | 294,028 | — | 294,028 |
Other assets | 377,450 | 22,278 | 399,728 | 301,325 | 21,892 | 323,217 |
Cash and cash equivalents | 145,871 | 33,656 | 179,527 | 76,887 | 38,443 | 115,330 |
Liabilities and Unitholders' Equity | ||||||
Liabilities | ||||||
Debt | ||||||
Exchangeable units | 165,902 | — | 165,902 | 217,668 | — | 217,668 |
Deferred Revenue | 957,551 | — | 957,551 | 986,243 | — | 986,243 |
Deferred tax liability | 446,860 | — | 446,860 | 483,048 | — | 483,048 |
Accounts payable and accrued liabilities | 318,828 | 59,540 | 378,368 | 309,505 | 58,502 | 368,007 |
Liabilities classified as held for sale | — | — | — | 6,323 | — | 6,323 |
Non-controlling interest | — | 15,977 | 15,977 | — | 22,573 | 22,573 |
5,664,790 | 1,201,760 | 6,866,550 | 5,925,316 | 1,218,285 | 7,143,601 | |
Unitholders' equity | 5,400,145 | — | 5,400,145 | 5,487,287 | — | 5,487,287 |
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):
2023 | 2022 | |
Debt per the REIT's Financial Statements | ||
Debt - REIT's proportionate share of equity accounted investments | 1,126,243 | 1,137,210 |
Debt at the REIT's proportionate share | 4,901,892 | 5,066,062 |
(Figures below are for the trailing 12 months) | ||
Net income (loss) per the REIT's Financial Statements | (43,126) | 844,823 |
Net income from equity accounted investments (within equity accounted investments) | (1,152) | (1,132) |
Finance costs - operations | 267,716 | 260,288 |
Fair value adjustments on financial instruments and real estate assets | 471,286 | (582,538) |
(Gain) loss on sale of real estate assets | 11,211 | (7,493) |
Income tax (recovery) expense | (38,057) | 101,634 |
Non-controlling interest | 771 | 967 |
Adjustments: | ||
The Bow and 100 Wynford non-cash rental income adjustments | (92,717) | (86,555) |
Straight-lining of contractual rent | (13,065) | (6,890) |
IFRIC 21 - realty tax adjustment | 2,346 | — |
Fair value adjustment to unit-based compensation | 813 | 2,172 |
Adjusted EBITDA at the REIT's proportionate share | ||
Debt to Adjusted EBITDA at the REIT's proportionate share | 8.7 | 9.6 |
RESULTS OF OPERATIONS
The following table reconciles the REIT's Results of Operations from the REIT's Financial Statements to the REIT's proportionate share (a non-GAAP Measure):
Three months ended | Three 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 | (61,030) | (8,383) | (69,413) | (65,342) | (9,469) | (74,811) |
Net operating income | 149,416 | 29,540 | 178,956 | 148,367 | 22,211 | 170,578 |
Net income (loss) from equity accounted investments | (11,017) | 11,051 | 34 | (60,071) | 60,292 | 221 |
Finance costs - operations | (54,107) | (12,338) | (66,445) | (55,366) | (10,185) | (65,551) |
Finance income | 4,068 | 78 | 4,146 | 4,410 | 20 | 4,430 |
Proceeds on disposal of purchase option | 30,568 | — | 30,568 | — | — | — |
Trust (expenses) recoveries | (2,872) | (1,290) | (4,162) | 2,633 | (638) | 1,995 |
Fair value adjustment on financial instruments | 28,126 | 408 | 28,534 | 39,756 | 460 | 40,216 |
Fair value adjustment on real estate assets | (112,824) | (27,109) | (139,933) | (235,192) | (71,976) | (307,168) |
Gain (loss) on sale of real estate assets, net of related costs | (3,479) | (141) | (3,620) | (857) | 38 | (819) |
Net income (loss) before income taxes and non-controlling interest | 27,879 | 199 | 28,078 | (156,320) | 222 | (156,098) |
Income tax (expense) recovery | 9,717 | (6) | 9,711 | 34,824 | (13) | 34,811 |
Net income (loss) before non-controlling interest | 37,596 | 193 | 37,789 | (121,496) | 209 | (121,287) |
Non-controlling interest | — | (193) | (193) | — | (209) | (209) |
Net income (loss) | 37,596 | — | 37,596 | (121,496) | — | (121,496) |
Other comprehensive income: | ||||||
Items that are or may be reclassified subsequently to net income (loss) | 129,027 | — | 129,027 | 294,423 | — | 294,423 |
Total comprehensive income attributable to unitholders | $— | $— |
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 | Nine 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 | (241,998) | (30,576) | (272,574) | (230,968) | (28,753) | (259,721) |
Net operating income | 399,244 | 81,689 | 480,933 | 386,837 | 64,088 | 450,925 |
Net income (loss) from equity accounted investments | 139 | 259 | 398 | (6,334) | 6,712 | 378 |
Finance costs - operations | (164,022) | (36,333) | (200,355) | (164,637) | (28,290) | (192,927) |
Finance income | 10,524 | 238 | 10,762 | 11,589 | 28 | 11,617 |
Proceeds on disposal of purchase option | 30,568 | — | 30,568 | — | — | — |
Trust expenses | (17,331) | (3,541) | (20,872) | (11,109) | (2,142) | (13,251) |
Fair value adjustment on financial instruments | 74,161 | 329 | 74,490 | 68,583 | 2,429 | 71,012 |
Fair value adjustment on real estate assets | (288,517) | (40,376) | (328,893) | 770,561 | (42,152) | 728,409 |
Gain (loss) on sale of real estate assets, net of related costs | (6,128) | (1,672) | (7,800) | 10,654 | 250 | 10,904 |
Net income before income taxes and non-controlling interest | 38,638 | 593 | 39,231 | 1,066,144 | 923 | 1,067,067 |
Income tax (expense) recovery | 34,365 | (45) | 34,320 | (105,192) | (179) | (105,371) |
Net income before non-controlling interest | 73,003 | 548 | 73,551 | 960,952 | 744 | 961,696 |
Non-controlling interest | — | (548) | (548) | — | (744) | (744) |
Net income | 73,003 | — | 73,003 | 960,952 | — | 960,952 |
Other comprehensive income (loss): | ||||||
Items that are or may be reclassified subsequently to net income | (212) | — | (212) | 393,445 | — | 393,445 |
Total comprehensive income attributable to unitholders | $— | $— |
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 | Nine months ended | |||||
(in thousands of Canadian dollars) | 2023 | 2022 | Change | 2023 | 2022 | Change |
Rentals from investment properties | ( | |||||
Property operating costs | (61,030) | (65,342) | 4,312 | (241,998) | (230,968) | (11,030) |
Net operating income per the REIT's Financial Statements | 149,416 | 148,367 | 1,049 | 399,244 | 386,837 | 12,407 |
Adjusted for: | ||||||
Net operating income from equity accounted investments(1) | 29,540 | 22,211 | 7,329 | 81,689 | 64,088 | 17,601 |
Straight-lining of contractual rent at the REIT's proportionate share(1) | (1,406) | (3,388) | 1,982 | (9,477) | (3,302) | (6,175) |
Realty taxes in accordance with IFRIC 21 at the REIT's proportionate share(1) | (15,324) | (12,056) | (3,268) | 14,946 | 12,600 | 2,346 |
Net operating income (cash basis) from Transactions at the REIT's proportionate share(1) | (32,491) | (39,902) | 7,411 | (103,841) | (118,825) | 14,984 |
Same-Property net operating income (cash basis)(1) |
(1) These are non-GAAP measures . Refer to the "Non-GAAP Measures" section of this news release. |
NAV per Unit (a non-GAAP Ratio)
The following table reconciles Unitholders' equity per Unit to NAV per Unit:
Unitholders' Equity per Unit and NAV per Unit | ||
(in thousands except for per Unit amounts) | 2023 | 2022 |
Unitholders' equity | ||
Exchangeable units | 165,902 | 217,668 |
Deferred tax liability | 446,860 | 483,048 |
Total | ||
Units outstanding | 261,868 | 265,885 |
Exchangeable units outstanding | 17,974 | 17,974 |
Total | 279,842 | 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 | Nine 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 | (14,141) | (10,831) | 13,762 | 11,284 |
FFO adjustments from equity accounted investments | 25,659 | 70,253 | 42,903 | 41,749 |
Exchangeable unit distributions | 2,696 | 2,484 | 8,088 | 7,324 |
Fair value adjustments on financial instruments and real estate assets | 84,698 | 195,436 | 214,356 | (839,144) |
Fair value adjustment to unit-based compensation | (3,026) | (8,300) | (5,663) | (4,304) |
(Gain) loss on sale of real estate assets, net of related costs | 3,479 | 857 | 6,128 | (10,654) |
Deferred income tax expense (recoveries) applicable to | (10,075) | (35,146) | (35,922) | 104,204 |
Incremental leasing costs | 570 | 607 | 1,738 | 1,841 |
The Bow and 100 Wynford non-cash rental income and accretion adjustments | (9,761) | (7,941) | (28,692) | (19,943) |
FFO(1) | ||||
Straight-lining of contractual rent | (1,061) | (3,400) | (8,951) | (3,232) |
Rent amortization of tenant inducements | 1,131 | 1,162 | 3,384 | 3,482 |
Capital expenditures | (13,148) | (7,884) | (30,287) | (19,851) |
Leasing expenses and tenant inducements | (1,464) | (1,178) | (3,767) | (3,642) |
Incremental leasing costs | (570) | (607) | (1,738) | (1,841) |
AFFO adjustments from equity accounted investments | (1,388) | (1,317) | (3,848) | (3,372) |
AFFO(1) | ||||
Weighted average number of Units and exchangeable units (in thousands of Units)(2) | 280,205 | 284,734 | 282,480 | 293,115 |
Diluted weighted average number of Units and exchangeable units (in thousands of Units)(2)(3) | 281,143 | 285,751 | 283,418 | 294,132 |
FFO per basic Unit(4) | ||||
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) | 35.7 % | 45.4 % | 43.9 % | 46.5 % |
Payout ratio as a % of AFFO(4) | 41.6 % | 53.7 % | 52.0 % | 52.4 % |
(1) | These are non-GAAP measures defined in the "Non-GAAP Measures" section of this news release. |
(2) | For the three and nine months ended |
(3) | For the three and nine 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.sedarplus.com
SOURCE
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