TORONTO, Feb. 13,
2023 /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 months and year ended December 31, 2022.
HIGHLIGHTS:
- Same-Property net operating income (cash basis)(1)
growth of 10.9% and 14.9%, respectively, for the three months and
year ended December 31, 2022 compared
to the respective periods in 2021;
- Net operating income per the REIT's Financial Statements
decreased by 12.8% and 19.1%, respectively, for the three months
and year ended December 31, 2022
compared to the respective periods in 2021 primarily due to the
spin-off of Primaris REIT completed on December 31, 2021 and property dispositions
during the two-year period ended December
31, 2022;
- $463.2 million in property
dispositions at the REIT's proportionate share(1),
including 100 Wynford Drive in Toronto,
ON ("100 Wynford");
- 22.9 million units of the REIT ("Units") were repurchased in
2022 for a total cost of $297.1
million, at a weighted average price of $12.99 per Unit, representing an approximate
40.4% discount to Net Asset Value ("NAV") per
Unit(3);
- $21.80 NAV per Unit(3)
at December 31, 2022, an increase of
$4.10 per Unit from December 31, 2021; primarily due to net fair
value adjustments, the stronger U.S. dollar and the repurchase of
Units;
- $20.64 unitholders' equity per
Unit at December 31, 2022, an
increase of $4.09 per Unit from
December 31, 2021;
- 44.0% debt to total assets at the REIT's proportionate
share(2)(3), an improvement compared to 46.6% at
December 31, 2021;
- 34.4% debt to total assets as per the REIT's Financial
Statements(2), an improvement compared to 37.1% at
December 31, 2021;
- $4.9 billion of unencumbered
properties; and
- In excess of $1.0 billion in
liquidity comprised of $76.9 million
in cash and cash equivalents and $930.4
million available to be drawn under the REIT's credit
facilities.
"2022 was a very important year for H&R REIT. Despite the
volatility in the public markets, our teams achieved many
substantial milestones aligned with our simplification strategy
through capital recycling, unit buy backs, a distribution increase
and a renewed focus on our investor communication program," said
Tom Hofstedter, CEO. "Through these
actions, we have enhanced our geographical exposure, asset mix,
tenant diversification and enhanced our balance sheet with reduced
leverage, driving strong operating and financial results, while
also strengthening relationships with the investment
community."
Philippe Lapointe, President
added "We are very proud of what we accomplished in 2022, and we
thank our loyal and hard-working employees for their tireless
commitment and dedication throughout this considerable period of
change at H&R. The past year has once again demonstrated to us
just how critical our team members are to the success of our
company and we are excited about what's to come in 2023."
(1)
These are non-GAAP measures. Refer to the "Non-GAAP
Measures" section of this news release.
|
(2)
Debt includes mortgages payable, debentures payable, unsecured term
loans and lines of credit.
|
(3)
These are non-GAAP ratios. Refer to the "Non-GAAP Measures"
section of this news release.
|
FINANCIAL HIGHLIGHTS
|
December
31
|
December 31
|
|
2022
|
2021
|
Total assets (in
thousands)
|
$11,412,603
|
$10,501,141
|
Debt to total assets
per the REIT's Financial Statements(1)
|
34.4 %
|
37.1 %
|
Debt to total assets at
the REIT's proportionate share(1)(2)
|
44.0 %
|
46.6 %
|
Unitholders' equity (in
thousands)
|
5,487,287
|
4,773,833
|
Units outstanding (in
thousands)
|
265,885
|
288,440
|
Exchangeable units
outstanding (in thousands)
|
17,974
|
13,344
|
Unitholders' equity per
Unit
|
$20.64
|
$16.55
|
NAV per
Unit(2)
|
$21.80
|
$17.70
|
|
3 months ended December
31
|
Year ended
December 31
|
|
2022
|
2021
|
2022
|
2021
|
Rentals from investment
properties (in millions)
|
$216.8
|
$265.8
|
$834.6
|
$1,065.4
|
Net operating
income (in millions)
|
$148.1
|
$169.8
|
$534.9
|
$661.6
|
Same-Property net
operating income (cash basis) (in
millions)(3)
|
$124.7
|
$112.5
|
$477.1
|
$415.2
|
Net income from equity
accounted investments (in
millions)
|
$53.5
|
$89.3
|
$47.1
|
$125.6
|
Fair value adjustment
on real estate assets (in millions)
|
($224.5)
|
($13.0)
|
$546.1
|
$13.0
|
Net income
(in millions)
|
($116.1)
|
$208.2
|
$844.8
|
$597.9
|
Funds from operations
("FFO") (in millions)(3)
|
$87.9
|
$104.6
|
$341.2
|
$461.4
|
Adjusted funds from
operations ("AFFO") (in millions)(3)
|
$62.5
|
$76.2
|
$287.3
|
$365.8
|
Weighted average number
of Units and exchangeable units for FFO (in 000's)
|
283,859
|
301,779
|
290,782
|
301,772
|
FFO per basic
Unit(2)
|
$0.310
|
$0.347
|
$1.173
|
$1.529
|
AFFO per basic
Unit(2)
|
$0.220
|
$0.253
|
$0.988
|
$1.212
|
Cash Distributions per
Unit
|
$0.188
|
$0.272
|
$0.590
|
$0.790
|
Payout ratio as a % of
FFO(2)
|
60.6 %
|
78.4 %
|
50.3 %
|
51.7 %
|
Payout ratio as a % of
AFFO(2)
|
85.5 %
|
107.5 %
|
59.7 %
|
65.2 %
|
|
(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 in this news release.
|
(3)
These are non-GAAP measures. Refer to the "Non-GAAP
Measures" section in this news release.
|
Primaris Spin-Off
H&R's 2022 financial results were significantly impacted due
to the 27 properties transferred by H&R to Primaris REIT on
December 31, 2021 (the "Primaris
Spin-Off"). The impact of the Primaris Spin-Off on certain of
H&R's financial results is shown in the table below:
|
3 months ended December
31
|
9 months ended December
31
|
|
2022
|
2021
|
2022
|
2021
|
Rentals from investment
properties (in millions)
|
$—
|
$67.2
|
$—
|
$254.0
|
Net operating income
(in millions)
|
$—
|
$34.6
|
$—
|
$134.1
|
Net income (in
millions)
|
$—
|
$13.3
|
$—
|
$355.1
|
FFO (in
millions)(1)
|
$—
|
$30.2
|
$—
|
$116.4
|
AFFO (in
millions)(1)
|
$—
|
$20.4
|
$—
|
$87.8
|
FFO per basic
Unit(2)
|
$—
|
$0.100
|
$—
|
$0.386
|
AFFO per basic
Unit(2)
|
$—
|
$0.068
|
$—
|
$0.291
|
|
(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 in this news release.
|
SIGNIFICANT 2022 ACTIVITY
Transformational Strategic Repositioning Plan:
On October 27, 2021, H&R
announced its Transformational Strategic Repositioning Plan to
create a simplified, growth-oriented business focused on
residential and industrial properties in order to surface
significant value for unitholders. 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, Vancouver, and high growth U.S. sunbelt and
gateway cities.
H&R has executed on and completed a number of significant
transactions and initiatives in furtherance of its strategic
repositioning plan:
October 2021: $1.67
billion in strategic transactions completed with the sale of the
Bow in Calgary, AB and
Bell Office Campus in Mississauga, ON which significantly reduced
Calgary office exposure, enhanced
tenant diversification and created the liquidity and strengthened
balance sheet to enable the Primaris Spin-Off.
December 2021: $2.4 billion tax-free spin-off of the REIT's
Primaris properties on December 31,
2021, including all of H&R's enclosed malls into a new,
completely independent, stand-alone, publicly traded REIT, known as
Primaris REIT.
May 2022: Enhanced
senior leadership team with appointment of Philippe Lapointe as President of H&R.
August 2022: Strategic
sales of office and retail properties valued at $167.8 million, including 100 Wynford.
December 2022: Reduced
leverage to 44.0% debt to total assets at the REIT's proportionate
share(2)(3), an improvement compared to 46.6% at
December 31, 2021.
Total 2022 non-core property sales at the REIT's
proportionate share totalled $463.2 million, including 100
Wynford.
The REIT has entered into an agreement to sell 160 Elgin Street
("160 Elgin"), an office property
in Ottawa, ON, for $277.0 million. The selling price is in line with
160 Elgin's value recorded at December 31,
2022. 160 Elgin was classified as held for sale at
December 31, 2022. Closing is
expected to occur in April 2023.
The following tables provide a breakdown of certain income
statement items between operating segments. For further commentary
on these tables, please see the REIT's management's discussion and
analysis for the three and twelve months ended December 31, 2022 available at
www.hr–reit.com.
(2)
Debt includes mortgages payable, debentures payable, unsecured term
loans and lines of credit.
|
(3)
These are non-GAAP ratios. Refer to the "Non-GAAP Measures"
section of this news release.
|
2022 Net Operating Income
|
Three months ended
December 31
|
Year
ended December 31
|
(in thousands of
Canadian dollars)
|
2022
|
2021
|
% Change
|
2022
|
2021
|
% Change
|
Operating
Segment:
|
|
|
|
|
|
|
Same-Property net
operating income (cash basis) -
Residential(1)
|
$34,059
|
$29,351
|
16.0 %
|
$125,248
|
$95,837
|
30.7 %
|
Same-Property net
operating income (cash basis) - Industrial(1)
|
15,222
|
13,583
|
12.1 %
|
58,046
|
54,149
|
7.2 %
|
Same-Property net
operating income (cash basis) - Office(1)
|
49,669
|
47,862
|
3.8 %
|
200,073
|
176,649
|
13.3 %
|
Same-Property net
operating income (cash basis) - Retail(1)
|
25,719
|
21,660
|
18.7 %
|
93,742
|
88,572
|
5.8 %
|
Same-Property net
operating income (cash basis)(1)
|
124,669
|
112,456
|
10.9 %
|
477,109
|
415,207
|
14.9 %
|
Adjusted
for:
|
|
|
|
|
|
|
Net operating income
(cash basis) from Transactions at the REIT's proportionate
share(1)(2)
|
35,249
|
68,121
|
(48.3) %
|
143,032
|
294,822
|
(51.5) %
|
Realty taxes in
accordance with IFRIC 21 at the REIT's proportionate
share(1)(3)
|
12,600
|
12,192
|
3.3 %
|
—
|
—
|
— %
|
Straight-lining of
contractual rent at the REIT's proportionate
share(1)
|
3,588
|
1,057
|
239.5 %
|
6,890
|
23,664
|
(70.9) %
|
Net operating income
from equity accounted investments(1)
|
(27,994)
|
(23,985)
|
(16.7) %
|
(92,082)
|
(72,111)
|
(27.7) %
|
Net operating
income per the REIT's Financial
Statements
|
$148,112
|
$169,841
|
(12.8) %
|
$534,949
|
$661,582
|
(19.1) %
|
For 2023, we are expecting Same-Property net operating income (cash
basis) growth between 2% and 5%. 2023 net operating income will be
largely dependent on dispositions during the year.
(1)
These are non-GAAP measures. Refer to the "Non-GAAP
Measures" section of this news release.
|
(2) Transactions are defined
in the "Non-GAAP Measures" section of this news
release.
|
(3)
IFRIC 21 is defined in the "Non-GAAP
Measures" section of this news release.
|
Fair Value Adjustment on Real Estate Assets and December 31, 2022 Capitalization Rates
Operating
Segment
|
Q4 2022
Fair Value
Adjustment
(in thousands)
|
Investment
Properties
at December 31, 2022
|
Capitalization Rate
as
at 2022
|
Residential
|
$61,982
|
$3,877,344
|
4.20 %
|
Industrial
|
11,951
|
1,488,751
|
5.16 %
|
Office
|
(193,873)
|
3,843,157
|
6.43 %
|
Retail
|
(67,190)
|
1,718,371
|
6.40 %
|
At the REIT's
proportionate share(1)
|
(187,130)
|
10,927,623
|
5.37 %
|
Less: equity accounted
investments
|
(37,350)
|
(2,128,306)
|
|
Total per the REIT's
Financial Statements
|
($224,480)
|
$8,799,317
|
|
|
(1) This is a non-GAAP
measure. Refer to the "Non-GAAP Measures" section of
this news release.
|
Transaction Highlights
Acquisitions
In October 2022, H&R acquired
a 50% ownership interest in 7-21, 23-31 Prince Andrew Place, a multi-tenanted industrial
property in Toronto, ON, totalling
36,999 square feet for $10.5 million
at H&R's ownership interest. This site is adjacent to H&R's
50% ownership interest in 1,4,8 Prince Andrew Place and was acquired to provide H&R
and its partners with redevelopment intensification opportunities
in the future given the close proximity to two future transit lines
(the Eglinton LRT and the Ontario Line).
In December 2022, H&R acquired
a 92,818 square foot office property in Dallas, TX for U.S. $49.0 million. This property was strategically
acquired due to it being partially occupied by Lantower
Residential, H&R's residential division, and it is adjacent to
a 3.3 acre land parcel already owned by H&R which is being held
for future residential development. The property was acquired
through a Section 1031 property exchange under the U.S. Internal
Revenue Code and the majority of the Section 1031 proceeds that
were used to fund this acquisition came from the sale of
Alamo Heights in San Antonio, TX, which was sold at a 3.6%
capitalization rate.
Major Leasing Transactions and Updates in Q4 2022:
H&R has leased approximately 76.7% of the office space at
River Landing Commercial in Miami,
FL. The two major tenants are: (i) the Office of the State
Attorney, Eleventh Judicial Circuit of Miami-Dade County, whose lease commenced in
October 2022 occupying 49,379 square
feet; and (ii) Public Health Trust of Miami-Dade County, who will occupy a total of
63,007 square feet, of which 43,351 square feet is expected to be
occupied in Q1 2023 and the remaining 19,656 square is expected to
be occupied later this year.
H&R leased 2121 Cornwall Road in Oakville, ON, a vacant industrial property
totalling 157,083 square feet, at H&R's ownership interest, for
a 10-year term commencing September 1,
2022 at current market rents with annual contractual rental
escalations.
H&R completed a 5-year lease renewal at 2300 Rue Senkus in
Montreal, QC, an industrial
property totalling 371,000 square feet, at H&R's ownership
interest. The original lease was set to expire in December 2022 and rent will increase by 125%
commencing in January 2023 with
annual contractual rent escalations.
H&R completed a 10-year lease renewal at 170 Butts Street in
South Hill, VA, an industrial
property totalling 412,585 square feet, at H&R's ownership
interest. The original lease was set to expire in April 2023 and rent will increase by 10%
commencing in May 2023 with annual
contractual rental escalations.
Development Update
Canadian Properties under Development
In September 2022, two Canadian
properties under development in the REIT's industrial business park
in Caledon, ON were substantially
completed and transferred to investment properties. 34 Speirs
Giffen Avenue, totalling 105,014 square feet, has been leased to
Lindstrom Fastener (Canada) Ltd.
for a term of 10 years which commenced in January 2023. 140
Speirs Giffen Avenue, totalling 77,754 square feet, has been leased
to Coast Holding Limited Partnership for a term of 10 years which
commenced in December 2022. This now
completes the first phase of H&R's Caledon industrial park.
The REIT currently has two industrial properties under
development located at 1965 Meadowvale Boulevard and 1925
Meadowvale Boulevard in Mississauga,
ON, totalling 336,800 square feet, which are expected to be
completed in 2023. The total development budget to complete these
two properties is approximately $52.6
million. In October 2022,
H&R entered into a binding agreement with Armour Transport Inc.
to fully lease 1965 Meadowvale Boulevard, totalling 187,290 square
feet, for a term of 10 years at current market rents with annual
contractual rental escalations.
In Q4 2022, H&R reached a settlement agreement with the
City of Toronto for 53 & 55
Yonge Street in Toronto, ON for a
66-storey mixed use tower, including 511 residential units.
Subsequently, the settlement agreement was endorsed by City Council
on December 14, 2022. The application
is scheduled for a 5-day hearing at the Ontario Land Tribunal
("OLT") commencing on February 27,
2023. H&R expects to have rezoning finalized in Q3 2023
following the completion of the OLT hearing.
U.S. Properties under Development
The REIT commenced construction on two U.S. residential
development properties in 2022. The total development budget to
complete these two properties is approximately U.S. $167.8 million. The REIT expects its construction
costs for these two properties under development to be
approximately U.S. $118.6 million in
2023 and U.S. $49.2 million in
2024.
H&R has a 31.2% non-managing ownership interest in Shoreline
in Long Beach, CA. In June 2022, the project reached substantial
completion and was transferred from properties under development to
investment properties within equity accounted investments. As at
December 31, 2022, occupancy was
82.2% and committed occupancy was 84.8%.
H&R has a 31.7% non-managing ownership interest in The Grand
at Bayfront in Hercules, CA. In
June 2022, the project reached
substantial completion and was transferred from properties under
development to investment properties within equity accounted
investments. As at December 31, 2022,
occupancy was 60.8% and committed occupancy was 62.1%.
Normal Course Issuer Bid
H&R today announced receipt of final acceptance from the
Toronto Stock Exchange ("TSX") of H&R's notice of intention to
make a normal course issuer bid ("NCIB"). Under the NCIB, H&R
will have the ability to purchase for cancellation up to a maximum
of 26,028,249 units of H&R ("Units") on the open market,
representing 10% of the public float as of January 31, 2023. As at January 31, 2023, H&R had 265,884,526
outstanding Units.
The NCIB will commence on February 16,
2023 and remain in effect until the earlier of February 15, 2024 and the date on which H&R
has purchased the maximum number of Units permitted under the NCIB.
Purchases of Units under the NCIB will be made in accordance with
TSX rules and policies through the facilities of the TSX, and
through alternative trading systems. The Units so purchased will be
cancelled. The price paid for any repurchased Units will be the
market price of such Units at the time of acquisition. The average
daily trading volume of the Units over the prior six months
(adjusted to account for Units purchased by H&R over such
period) was 544,315 and accordingly daily purchases will be limited
to 136,078 Units other than block purchase exemptions.
H&R believes that its outstanding Units represent an
attractive investment, and the ongoing purchase of its outstanding
Units may benefit all persons who continue to hold Units by
increasing their equity interest in H&R.
H&R may establish an automatic purchase plan under which its
broker may purchase Units according to a prearranged set of
criteria. The plan would enable the purchase of Units at any time,
including when H&R would not ordinarily be active in the market
because of internal trading blackout periods, insider trading rules
or otherwise. The plan will terminate on the earliest of: the date
on which the purchase limits specified in the plan have been
attained, the date on which the NCIB terminates or the date on
which the plan is terminated by a party in accordance with its
terms. To H&R's knowledge, after reasonable inquiry, none of
the trustees, officers or other insiders of H&R or any
associate of any such persons, or any associate or affiliate of
H&R currently intends to sell Units to H&R during the
course of the issuer bid.
Under its previous normal course issuer bid approved by the TSX
on December 13, 2021 and amended on
April 19, 2022 to increase the number
of Units that could by repurchased for cancellation to 28,269,228
Units, H&R completed the purchase for cancellation through the
facilities of the TSX of 22,873,800 Units at a weighted average
price of $12.99 per Unit. H&R's
previous normal course issuer bid expired on December 15, 2022.
MONTHLY DISTRIBUTIONS DECLARED
H&R today declared distributions for the months of February
and March scheduled as follows:
|
Distribution/Unit
|
Annualized
|
Record date
|
Distribution
date
|
February
2023
|
$0.05
|
$0.60
|
February 28,
2023
|
March 15,
2023
|
March 2023
|
$0.05
|
$0.60
|
March 31,
2023
|
April 14,
2023
|
2022 TAXATION CONSEQUENCES FOR TAXABLE CANADIAN UNITHOLDERS
H&R's cash distributions amounted to $0.59 per Unit during 2022 (including a
$0.05 per Unit special cash
distribution to unitholders of record on December 30, 2022). The REIT also made a special
distribution to unitholders of record on December 30, 2022 of $0.35 per Unit payable in additional Units, which
were immediately consolidated such that there was no change in the
number of outstanding Units. The cash portion of the special
distribution was intended to provide liquidity to unitholders to
cover all or part of an income tax obligation that may arise from
the additional taxable income being distributed via the special
distribution. The amount of the special distribution payable in
Units ($0.35 per Unit) will increase
the adjusted cost basis of unitholders' consolidated Units.
ESG REPORTING
H&R also previously announced the launch of its Green
Financing Framework, which has been designed to support the REIT's
sustainability strategy as the REIT continues to expand its
building portfolio in an environmentally and socially responsible
way. A copy of the Green Financing Framework can be found on its
website at
https://www.hr-reit.com/wp-content/uploads/2022/12/HR-REIT-Green-Financing-Framework.pdf.
During 2022, H&R also implemented a human rights policy
which can be found on H&R's website at
https://www.hr-reit.com/wp-content/uploads/2022/11/Human-Rights-Policy.pdf and
filed its 2021 Sustainability Report which can be found on
H&R's website at
https://www.hr-reit.com/wp-content/uploads/2022/11/HR-REIT-2021-Sustainability-Report.pdf.
CONFERENCE CALL AND WEBCAST
Management will host a conference call to discuss the financial
results of the REIT on Tuesday, February 14, 2023 at
9.30 a.m. Eastern Time. Participants
can join the call by dialing 1–888–396–8049 or 1–416–764–8646. 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 1–416–764–8692 or 1–877–674–7070 and enter the
passcode 280030 followed by the "#" key. The telephone replay will
be available until Tuesday, February 21,
2023 at midnight.
A live audio webcast will be available through
https://www.hr-reit.com/investor-relations/#investor-events. Please
connect at least 15 minutes prior to the conference call to 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 Canada's
largest real estate investment trusts with total assets of
approximately $11.4 billion as at
December 31, 2022. H&R REIT has
ownership interests in a North American portfolio comprised of
high-quality residential, industrial, office and retail properties
comprising over 28.7 million square feet.
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 "Significant 2022 Activity" relating to H&R's
objectives, beliefs, plans, estimates, targets, projections and
intentions and similar statements concerning anticipated future
events, results, circumstances, performance or expectations that
are not historical facts, including with respect to H&R's
future plans and targets, the REIT's ability to create a
simplified, growth-oriented company and surface significant value
for Unitholders, H&R's strategy to grow its exposure to
residential assets in U.S. sunbelt and gateway cities, leasing of
the REIT's investment properties, including expected lease
commencement dates and square footage to be occupied, H&R's
expectations with respect to the activities of its development
properties, including the building of new properties, the use of
such properties, the timing of construction and completion,
expected construction plans and costs, anticipated square footage,
expected approvals and the timing thereof, capitalization rates and
cash flow models used to estimate fair values, expectations
regarding future operating fundamentals, future growth in
Same-Property net operating income (cash basis), H&R's
intention to repurchase Units in the open market, H&R's beliefs
regarding the benefits of persons who hold Units, 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 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
including, for the purposes of expected Same-Property net operating
income (cash basis) growth, that there won't be any change in the
currency exchange rate. 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 February 13, 2023
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 audited consolidated financial statements of the REIT and
related notes for the year ended December
31, 2022 (the "REIT's Financial Statements") were prepared
in accordance with International Financial Reporting Standards
("IFRS"). However, H&R's management uses a number of measures,
including NAV per Unit, FFO, AFFO, payout ratio as a % of FFO,
payout ratio as a % of AFFO and debt to total assets at the REIT's
proportionate share, Same–Property net operating income (cash
basis) and the REIT's proportionate share, which do not have
meanings recognized or standardized under IFRS or Canadian
Generally Accepted Accounting Principles ("GAAP"). These non–GAAP
measures and non–GAAP ratios should not be construed as
alternatives to financial measures calculated in accordance with
GAAP. Further, H&R's method of calculating these supplemental
non–GAAP measures and ratios may differ from the methods of other
real estate investment trusts or other issuers, and accordingly may
not be comparable. H&R uses these measures to better assess
H&R's underlying performance and provides these additional
measures so that investors may do the same.
For information on the most directly comparable GAAP measures,
composition of the measures, a description of how the REIT uses
these measures and an explanation of how these measures provide
useful information to investors, refer to the "Non–GAAP Measures"
section of the REIT's management's discussion and analysis as at
and for the three months and year ended December 31, 2022, available at
www.hr–reit.com and on the REIT's profile on SEDAR at
www.sedar.com, which is incorporated by reference into this news
release.
Financial Position
The following table reconciles the REIT's Statement of Financial
Position from the REIT's Financial Statements to the REIT's
proportionate share:
|
December 31,
2022
|
December 31,
2021
|
(in thousands of
Canadian dollars)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share(1)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share(1)
|
Assets
|
|
|
|
|
|
|
Real estate
assets
|
|
|
|
|
|
|
Investment
properties
|
$8,799,317
|
$2,128,306
|
$10,927,623
|
$8,581,100
|
$1,824,609
|
$10,405,709
|
Properties under
development
|
880,778
|
89,912
|
970,690
|
481,432
|
165,187
|
646,619
|
|
9,680,095
|
2,218,218
|
11,898,313
|
9,062,532
|
1,989,796
|
11,052,328
|
Equity accounted
investments
|
1,060,268
|
(1,060,268)
|
—
|
992,679
|
(992,679)
|
—
|
Assets classified as
held for sale
|
294,028
|
—
|
294,028
|
—
|
57,309
|
57,309
|
Other assets
|
301,325
|
21,892
|
323,217
|
321,789
|
13,557
|
335,346
|
Cash and cash
equivalents
|
76,887
|
38,443
|
115,330
|
124,141
|
40,499
|
164,640
|
|
$11,412,603
|
$1,218,285
|
$12,630,888
|
$10,501,141
|
$1,108,482
|
$11,609,623
|
Liabilities and
Unitholders' Equity
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Debt
|
$3,922,529
|
$1,137,210
|
$5,059,739
|
$3,894,906
|
$1,026,836
|
$4,921,742
|
Exchangeable
units
|
217,668
|
—
|
217,668
|
216,841
|
—
|
216,841
|
Deferred
Revenue
|
986,243
|
—
|
986,243
|
896,801
|
—
|
896,801
|
Deferred tax
liability
|
483,048
|
—
|
483,048
|
350,501
|
—
|
350,501
|
Accounts payable and
accrued liabilities
|
309,505
|
58,502
|
368,007
|
368,259
|
59,130
|
427,389
|
Liabilities classified
as held for sale
|
6,323
|
—
|
6,323
|
—
|
—
|
—
|
Non-controlling
interest
|
—
|
22,573
|
22,573
|
—
|
22,516
|
22,516
|
|
5,925,316
|
1,218,285
|
7,143,601
|
5,727,308
|
1,108,482
|
6,835,790
|
Unitholders'
equity
|
5,487,287
|
—
|
5,487,287
|
4,773,833
|
—
|
4,773,833
|
|
$11,412,603
|
$1,218,285
|
$12,630,888
|
$10,501,141
|
$1,108,482
|
$11,609,623
|
|
(1)
The REIT's proportionate share is a non-GAAP measure.
|
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:
|
Three months ended
December 31, 2022
|
Three months ended
December 31, 2021
|
(in thousands of
Canadian dollars)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share(1)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share(1)
|
Rentals from investment
properties
|
$216,835
|
$37,471
|
$254,306
|
$265,794
|
$30,316
|
$296,110
|
Property operating
costs
|
(68,723)
|
(9,477)
|
(78,200)
|
(95,953)
|
(6,331)
|
(102,284)
|
Net operating
income
|
148,112
|
27,994
|
176,106
|
169,841
|
23,985
|
193,826
|
Net income from equity
accounted investments
|
53,473
|
(52,719)
|
754
|
89,298
|
(89,139)
|
159
|
Finance costs -
operations
|
(55,625)
|
(11,736)
|
(67,361)
|
(61,922)
|
(9,115)
|
(71,037)
|
Finance
income
|
3,204
|
60
|
3,264
|
3,014
|
3
|
3,017
|
Trust
expenses
|
(11,012)
|
(1,100)
|
(12,112)
|
(4,780)
|
(2,021)
|
(6,801)
|
Fair value adjustment
on financial instruments
|
(30,234)
|
481
|
(29,753)
|
50,804
|
393
|
51,197
|
Fair value adjustment
on real estate assets
|
(224,480)
|
37,350
|
(187,130)
|
(13,005)
|
76,033
|
63,028
|
Gain (loss) on sale of
real estate assets, net of related costs
|
(3,322)
|
(89)
|
(3,411)
|
3,192
|
97
|
3,289
|
Net income (loss)
before income taxes and non-controlling interest
|
(119,884)
|
241
|
(119,643)
|
236,442
|
236
|
236,678
|
Income tax (expense)
recovery
|
3,755
|
(18)
|
3,737
|
(28,247)
|
(23)
|
(28,270)
|
Net income (loss)
before non-controlling interest
|
(116,129)
|
223
|
(115,906)
|
208,195
|
213
|
208,408
|
Non-controlling
interest
|
—
|
(223)
|
(223)
|
—
|
(213)
|
(213)
|
Net income
(loss)
|
(116,129)
|
—
|
(116,129)
|
208,195
|
—
|
208,195
|
Other comprehensive
loss:
|
|
|
|
|
|
|
Items that are or may
be reclassified subsequently to net income (loss)
|
(71,875)
|
—
|
(71,875)
|
(24,996)
|
—
|
(24,996)
|
Total comprehensive
income (loss) attributable to unitholders
|
($188,004)
|
$—
|
($188,004)
|
$183,199
|
$—
|
$183,199
|
|
(1)
The REIT's proportionate share is a non-GAAP measure.
|
The following table reconciles the REIT's Results of Operations
from the REIT's Financial Statements to the REIT's proportionate
share:
|
Year
ended December 31, 2022
|
Year
ended December 31, 2021
|
(in thousands of
Canadian dollars)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share(1)
|
REIT's
Financial
Statements
|
Equity
accounted
investments
|
REIT's
proportionate
share(1)
|
Rentals from investment
properties
|
$834,640
|
$130,312
|
$964,952
|
$1,065,380
|
$106,990
|
$1,172,370
|
Property operating
costs
|
(299,691)
|
(38,230)
|
(337,921)
|
(403,798)
|
(34,879)
|
(438,677)
|
Net operating
income
|
534,949
|
92,082
|
627,031
|
661,582
|
72,111
|
733,693
|
Net income from equity
accounted investments
|
47,139
|
(46,007)
|
1,132
|
125,649
|
(125,555)
|
94
|
Finance costs -
operations
|
(220,262)
|
(40,026)
|
(260,288)
|
(236,878)
|
(36,302)
|
(273,180)
|
Finance
income
|
14,793
|
88
|
14,881
|
17,229
|
16
|
17,245
|
Trust
expenses
|
(22,121)
|
(3,242)
|
(25,363)
|
(27,936)
|
(4,150)
|
(32,086)
|
Fair value adjustment
on financial instruments
|
38,349
|
2,910
|
41,259
|
43,859
|
1,282
|
45,141
|
Fair value adjustment
on real estate assets
|
546,081
|
(4,802)
|
541,279
|
12,984
|
72,729
|
85,713
|
Gain on sale of real
estate assets, net of related costs
|
7,332
|
161
|
7,493
|
6,957
|
20,874
|
27,831
|
Net income before
income taxes and non-controlling interest
|
946,260
|
1,164
|
947,424
|
603,446
|
1,005
|
604,451
|
Income tax
expense
|
(101,437)
|
(197)
|
(101,634)
|
(5,539)
|
(104)
|
(5,643)
|
Net income before
non-controlling interest
|
844,823
|
967
|
845,790
|
597,907
|
901
|
598,808
|
Non-controlling
interest
|
—
|
(967)
|
(967)
|
—
|
(901)
|
(901)
|
Net income
|
844,823
|
—
|
844,823
|
597,907
|
—
|
597,907
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
Items that are or may
be reclassified subsequently to net income
|
321,570
|
—
|
321,570
|
(23,575)
|
—
|
(23,575)
|
Total comprehensive
income attributable to unitholders
|
$1,166,393
|
$—
|
$1,166,393
|
$574,332
|
$—
|
$574,332
|
|
(1)
The REIT's proportionate share is a non-GAAP measure.
|
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
December 31
|
Year
ended December 31
|
(in thousands of
Canadian dollars)
|
2022
|
2021
|
Change
|
2022
|
2021
|
Change
|
Rentals from investment
properties
|
$216,835
|
$265,794
|
($48,959)
|
$834,640
|
$1,065,380
|
($230,740)
|
Property operating
costs
|
(68,723)
|
(95,953)
|
27,230
|
(299,691)
|
(403,798)
|
104,107
|
Net operating
income per the REIT's Financial
Statements
|
148,112
|
169,841
|
(21,729)
|
534,949
|
661,582
|
(126,633)
|
Adjusted
for:
|
|
|
|
|
|
|
Net operating income
from equity accounted investments(1)
|
27,994
|
23,985
|
4,009
|
92,082
|
72,111
|
19,971
|
Straight-lining of
contractual rent at the REIT's proportionate
share(1)
|
(3,588)
|
(1,057)
|
(2,531)
|
(6,890)
|
(23,664)
|
16,774
|
Realty taxes in
accordance with IFRIC 21 at the REIT's proportionate
share(1)(2)
|
(12,600)
|
(12,192)
|
(408)
|
—
|
—
|
—
|
Net operating income
(cash basis) from Transactions at the REIT's proportionate
share(1)(3)
|
(35,249)
|
(68,121)
|
32,872
|
(143,032)
|
(294,822)
|
151,790
|
Same-Property net
operating income (cash basis)(1)
|
$124,669
|
$112,456
|
$12,213
|
$477,109
|
$415,207
|
$61,902
|
|
|
(1)
|
These are non-GAAP
measures.
|
(2)
|
Realty taxes accounted
for under IFRS Interpretations Committee Interpretation 21, Levies
("IFRIC 21"), which relates to the timing of the liability
recognition for U.S. realty taxes. By excluding the impact of IFRIC
21, U.S. realty tax expenses are evenly matched with realty
recoveries received from tenants throughout the period.
|
(3)
|
Acquisitions, business
combinations, dispositions, spin-offs, and transfers of investment
properties to or from properties under development during the
two-year period ended December 31, 2022 (collectively,
"Transactions").
|
NAV per Unit
The following table reconciles Unitholders' equity per Unit to
NAV per Unit(2):
Unitholders' Equity
per Unit and NAV per Unit
|
December
31
|
December 31
|
(in thousands except
for per Unit amounts)
|
2022
|
2021
|
Unitholders'
equity
|
$5,487,287
|
$4,773,833
|
Exchangeable
units
|
217,668
|
216,841
|
Deferred tax
liability
|
483,048
|
350,501
|
Total
|
$6,188,003
|
$5,341,175
|
|
|
|
Units
outstanding
|
265,885
|
288,440
|
Exchangeable units
outstanding
|
17,974
|
13,344
|
Total
|
283,859
|
301,784
|
Unitholders' equity per
Unit(1)
|
$20.64
|
$16.55
|
NAV per
Unit(2)
|
$21.80
|
$17.70
|
|
(1)
Unitholders' equity per Unit is calculated by dividing unitholders'
equity by Units outstanding.
|
(2)
This is a Non-GAAP ratio.
|
Funds from Operations and Adjusted Funds from Operations
The following table reconciles net income per the REIT's
Financial Statements to FFO and AFFO:
FFO AND
AFFO
|
Three Months ended
December 31
|
Year
ended December 31
|
(in thousands of
Canadian dollars except per Unit amounts)
|
2022
|
2021
|
2022
|
2021
|
Net
income per the REIT's Financial
Statements
|
($116,129)
|
$208,195
|
$844,823
|
$597,907
|
Realty taxes in
accordance with IFRIC 21
|
(11,284)
|
(11,014)
|
—
|
—
|
FFO adjustments from
equity accounted investments
|
(39,685)
|
(77,139)
|
2,064
|
(92,217)
|
Exchangeable unit
distributions
|
3,368
|
3,636
|
10,692
|
11,088
|
Fair value adjustments
on financial instruments and real estate assets
|
254,714
|
(37,799)
|
(584,430)
|
(56,843)
|
Fair value adjustment
to unit-based compensation
|
6,476
|
(64)
|
2,172
|
5,083
|
(Gain) loss on sale of
real estate assets, net of related costs
|
3,322
|
(3,192)
|
(7,332)
|
(6,957)
|
Deferred income tax
expense (recoveries) applicable to U.S. Holdco
|
(4,096)
|
27,957
|
100,108
|
4,458
|
Incremental leasing
costs
|
411
|
1,568
|
2,252
|
6,422
|
The Bow and 100 Wynford
non-cash rental income and accretion adjustments
|
(9,223)
|
(7,576)
|
(29,166)
|
(7,576)
|
FFO(1)
|
$87,874
|
$104,572
|
$341,183
|
$461,365
|
Straight-lining of
contractual rent
|
(3,280)
|
(1,261)
|
(6,512)
|
(23,581)
|
Rent amortization of
tenant inducements
|
1,209
|
1,149
|
4,691
|
4,557
|
Capital
expenditures
|
(15,731)
|
(18,574)
|
(35,582)
|
(47,089)
|
Leasing expenses and
tenant inducements
|
(4,874)
|
(6,737)
|
(8,516)
|
(18,865)
|
Incremental leasing
costs
|
(411)
|
(1,568)
|
(2,252)
|
(6,422)
|
AFFO adjustments from
equity accounted investments
|
(2,304)
|
(1,354)
|
(5,676)
|
(4,140)
|
AFFO(1)
|
$62,483
|
$76,227
|
$287,336
|
$365,825
|
Weighted average number
of Units and exchangeable units (in thousands of
Units)(2)
|
283,859
|
301,779
|
290,782
|
301,772
|
Diluted weighted
average number of Units and exchangeable units (in thousands of
Units)(2)(3)
|
285,076
|
302,612
|
291,999
|
302,605
|
FFO per basic
Unit(4)
|
$0.310
|
$0.347
|
$1.173
|
$1.529
|
FFO per diluted
Unit(4)
|
$0.308
|
$0.346
|
$1.168
|
$1.525
|
AFFO per basic
Unit(4)
|
$0.220
|
$0.253
|
$0.988
|
$1.212
|
AFFO per diluted
Unit(4)
|
$0.219
|
$0.252
|
$0.984
|
$1.209
|
Cash Distributions per
Unit(5)
|
$0.188
|
$0.272
|
$0.590
|
$0.790
|
Payout ratio as a % of
FFO(4)
|
60.6 %
|
78.4 %
|
50.3 %
|
51.7 %
|
Payout ratio as a % of
AFFO(4)
|
85.5 %
|
107.5 %
|
59.7 %
|
65.2 %
|
|
|
(1)
|
These are non-GAAP
measures.
|
(2)
|
For the three months
and year ended December 31, 2022, included in the weighted average
and diluted weighted average number of Units are exchangeable units
of 17,974,186 and 18,110,844, respectively. For the three months
and year ended December 31, 2021, included in the weighted average
and diluted weighted average number of Units are exchangeable units
of 13,350,995 and 14,112,090, respectively.
|
(3)
|
For the three months
and year ended December 31, 2022, included in the determination of
diluted FFO and AFFO with respect to H&R's Incentive Unit Plan
are 1,216,801 Units. For the three months and year ended December
31, 2021, included in the determination of diluted FFO and AFFO
with respect to H&R's Incentive Unit Plan are 832,976
Units.
|
(4)
|
These are non-GAAP
ratios.
|
(5)
|
H&R's current
monthly distribution was $0.0458 per Unit as at December 31, 2022,
which increased from $0.0433 per Unit in May 2022. Following the
Primaris Spin-Off on December 31, 2021, Primaris REIT announced a
monthly distribution of $0.067 per Primaris REIT unit, reflecting
$0.80 per Primaris REIT unit on an annualized basis (equivalent to
$0.20 per Unit annually prior to the Primaris Spin-Off and 4:1
consolidation of Primaris REIT units). The Primaris REIT
distribution, together with H&R's intended annual distribution
for 2022 of $0.54 per Unit equates to a combined distribution of
$0.74 per Unit for those investors that held Units as at December
31, 2021 and continue to hold both their Units and Primaris REIT
units, which is a 7.2% increase over the $0.69 per Unit paid by
H&R in 2021.
|
Additional information regarding H&R is available
at www.hr-reit.com and on www.sedar.com
SOURCE H&R Real Estate Investment Trust