H&R Reports Solid Q3 Results and Increases Distributions for the 8th Consecutive Quarter

TORONTO, Nov. 14, 2011 /CNW/ - H&R Real Estate Investment Trust ("H&R REIT") and H&R Finance Trust (collectively, "H&R") (TSX: HR.UN; HR.DB; HR.DB.B; HR.DB.C; HR.DB.D) announced its financial results for the third quarter ended September 30, 2011.

Financial Highlights
The following table includes non-International Financial Reporting Standards ("IFRS") information that should not be construed as an alternative to comprehensive income (loss) or cash provided by operations and may not be comparable to similar measures presented by other issuers as there is no standardized meaning of funds from operations ("FFO"), and adjusted funds from operations ("AFFO") under IFRS.  Management believes that these are meaningful measures of operating performance.  Readers are encouraged to refer to H&R's combined MD&A for further discussion of non-IFRS information presented.

    3 months ended September 30 9 months ended September 30
  2011 2010 2011 2010
  Rentals from investment properties (millions) $169.6 $152.8 $478.7 $456.7
  Net income (loss) $58.3 ($12.1) $36.1 $436.0
  FFO (millions) (1) $70.2 $74.2 $204.1 $153.3
  FFO per Stapled Unit (basic) $0.43 $0.50 $1.30 $1.03
  AFFO (millions) (1) $62.9 $55.2 $177.3 $162.0
  AFFO per Stapled Unit (basic) $0.39 $0.37 $1.13 $1.08
  Cash provided by operations (millions) $104.1 $82.7 $300.5 $274.7
  Cash distributions paid (millions) (2) $31.1 $27.1 $87.8 $75.2
  Distributions per Stapled Unit $0.25 $0.21 $0.71 $0.57
(1)      H&R's MD&A includes reconciliations of: net earnings to FFO; FFO to AFFO; and AFFO to cash provided by operations.  Readers are encouraged to review such reconciliations in the MD&A.
(2)      Cash distributions paid exclude distributions reinvested in units pursuant to H&R's unitholder distribution reinvestment plan and include the distributions paid to the Class B Limited Partnership unitholders who can exchange their units for Stapled Units.

Included in FFO and AFFO were lease terminations and sundry income of $1.0 million for the three months ended September 30, 2011 (2010 - nil) and $1.5 million for the nine months ended September 30, 2011 (2010 - $2.3 million).

Included in FFO and AFFO were additional recoveries for capital expenditures in excess of items expensed in property operating costs of $1.6 million for the three months ended September 30, 2011 (2010 - $2.0 million) and $2.6 million for the nine months ended September 30, 2011 (2010 - $7.6 million).

Included in FFO was a gain (loss) on extinguishment of debt of $5.0 million for the three months ended September 30, 2011 (2010 - $16.0 million) and $19.6 million for the nine months ended September 30, 2011 (2010 - ($21.2 million)).

Excluding the above items, FFO would have been $62.6 million ($0.38 per Stapled Unit) compared to $56.2 million ($0.38 per Stapled Unit) for the three months ended September 30, 2011 and 2010, respectively, and $180.4 million ($1.15 per Stapled Unit) compared to $164.6 million ($1.10 per Stapled Unit) for the nine months ended September 30, 2011 and 2010, respectively.

Excluding the above items, AFFO would have been $60.3 million ($0.37 per Stapled Unit) compared to $53.2 million ($0.35 per Stapled Unit) for the three months ended September 30, 2011 and 2010, respectively, and $173.2 million ($1.10 per Stapled Unit) compared to $152.1 million ($1.02 per Stapled Unit) for the nine months ended September 30, 2011 and 2010, respectively.

Operating Highlights
H&R REIT's operating strategy is to stabilize annual earnings and minimize market risk by leasing and mortgaging its properties on a long-term basis. As a result, the average remaining term to maturity as at September 30, 2011 was 10.3 years for leases and 7.8 years for mortgages payable.  Leases representing only 2.7% of total rentable area will expire between September 2011 and the end of 2012.  As at September 30, 2011, the ratio of H&R's debt to gross book value (calculated in accordance with H&R REIT's Declaration of Trust) was 48.9% compared to 47.3% as at December 31, 2010.

Capital Transaction Highlights
During the third quarter 2011, H&R REIT:

  • purchased a retail property in South Carolina, U.S. for U.S. $11.3 million;
  • purchased an additional piece of land held for development for the Heart Lake project in Caledon, Ontario for $5.3 million; and
  • sold four industrial properties for gross proceeds of $17.1 million for a net gain on sale of $3.3 million.

Subsequent to September 30, 2011, H&R REIT:

  • acquired a state-of-the-art office tower in Long Island City, New York known as Two Gotham Center for U.S. $415.5 million.  The recently completed 22 storey Class A office tower comprises 661,000 rentable square feet of office space, 100% leased to the City of New York for an initial term of 20 years with contracted rental escalations of approximately 10% every 5 years, providing a bondable income stream secured by the superior AA credit of the City of New York, as well as an additional 9,000 square feet of prime ground floor retail space.  The REIT secured a mortgage commitment of U.S. $250 million for a ten year term at an attractive annual fixed interest rate of 4.25% reflecting the high quality and security of the cash flow;
  • completed a public offering of $100 million of 4.90% Series E Senior Debentures due in February 2018;
  • and Finance Trust agreed to sell to a syndicate of underwriters, on a bought deal basis, 8,500,000 Stapled Units for gross proceeds of $187 million and $75 million of 4.50% unsecured convertible debentures due December 31, 2016.  Closing of these offerings is expected to occur in the latter part of November 2011.

Development Highlights
The REIT is currently developing the Bow in Calgary, AB.  The Bow is a 2-million square foot head office complex pre-leased, on a triple net basis, to EnCana Corporation for a term of 25 years.  The total annualized year one projected income from the Bow is expected to be approximately $94 million.  Rent escalations will be 0.75% per annum on the office space and 1.5% per annum on the parking income for the full 25-year term.  Occupancy is currently expected to occur in tranches commencing in the first quarter of 2012 with full occupancy expected by the fourth quarter of 2012.  The North Block budget has been revised to $1.61 billion to reflect IFRS changes and costs associated with the revised estimated occupancy tranches.  As at September 30, 2011, H&R REIT had incurred approximately $1.21 billion of the $1.38-billion budgeted costs (excluding interest costs capitalized for accounting purposes).

Distribution Policy Adopted
H&R previously announced that the trustees have adopted a distribution policy pursuant to which the monthly combined distribution is intended to be increased as shown in the following table:

Distribution Period Intended Monthly Distribution Per Stapled Unit Intended Annualized Distribution Per Stapled Unit
Q4 2011 (October, November and December) $0.08750 $1.05
Q1 2012 (January, February and March) $0.09167 $1.10
Q2 2012 (April, May and June) $0.09583 $1.15
Q3 2012 (July, August and September) $0.10000 $1.20
Q4 2012 (October, November and December) $0.10417 $1.25

The trustees retain the right to re-evaluate the distribution policy from time to time as they consider appropriate. As all distributions remain subject to the discretion, approval and declaration by the REIT's trustees, there is no assurance that the actual distributions declared will be as provided in the distribution policy.

Monthly Distributions Declared
The next declared distributions are scheduled as follows:

  Distribution/Stapled Unit Annualized Record date Distribution date
December 2011 $0.08750 $1.05 December 14, 2011 December 30, 2011
January 2012 $0.09167 $1.10 January 17, 2012 January 31, 2012
February 2012 $0.09167 $1.10 February 14, 2012 February 29, 2012

About H&R REIT and H&R Finance Trust
H&R REIT is an open-ended real estate investment trust, which owns a North American portfolio of 38 office, 117 industrial and 133 retail properties comprising over 42 million square feet, with a net book value of approximately $5.4 billion. The foundation of H&R REIT's success since inception in 1996 has been a disciplined strategy that leads to consistent and profitable growth. H&R REIT leases its properties long term to creditworthy tenants and strives to match those leases with primarily long-term, fixed-rate financing.

H&R Finance Trust is an unincorporated investment trust, which primarily invests in notes issued by a U.S. corporation which is a subsidiary of H&R REIT. The current note receivable is U.S. $131.1 million.  In 2008, H&R REIT completed an internal reorganization which resulted in each issued and outstanding H&R REIT unit trading together with a unit of H&R Finance Trust as a "Stapled Unit" on the Toronto Stock Exchange.

Forward-looking Statements
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 the objectives of H&R REIT and H&R Finance Trust, strategies to achieve those objectives, H&R's beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts including, in particular, H&R REIT's expectation regarding future developments in connection with The Bow, and the amount of actual distributions to unitholders notwithstanding the trustees adoption of a distribution policy.  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. These statements are not guarantees of future performance and are based on H&R's estimates and assumptions that are subject to risk and uncertainties, including those discussed in H&R's materials filed with the Canadian securities regulatory authorities from time to time, which could cause the actual results and performance of H&R to differ materially from the forward-looking statements contained in this news release. Those risks and uncertainties include, among other things, risks related to: prices and market value of securities of H&R availability of cash for distributions; development and financing relating to The Bow development; restrictions pursuant to the terms of indebtedness; liquidity; credit risk and tenant concentration; interest rate and other debt related risk; tax risk; ability to access capital markets; dilution; lease rollover risk; construction risks; currency risk; unitholder liability; co-ownership interest in properties; competition for real property investments; environmental matters; reliance on one corporation for management of substantially all H&R REIT's properties; and changes in legislation and indebtedness of H&R. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking statements include that the general economy is stable; local real estate conditions are stable; interest rates are relatively stable; and equity and debt markets continue to provide access to capital. H&R cautions that this list of factors is 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. All forward-looking statements in this news release are qualified by these cautionary statements. These forward-looking statements are made as of today, and H&R, except as required by applicable law, assumes no obligation to update or revise them to reflect new information or the occurrence of future events or circumstances.

Additional information regarding H&R REIT and H&R Finance Trust is available at www.hr-reit.com and on www.sedar.com.







For further information:

please contact Larry Froom, Chief Financial Officer, H&R REIT, 416-635-7520, or e-mail info@hr-reit.com.


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