H&R Reports First Quarter Results; Increases Monthly Distributions

TORONTO, May 14 /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) announced today its financial results for the first quarter ended March 31, 2010.

Financial Highlights

The following table includes non-GAAP (Generally Accepted Accounting Principles) information that should not be construed as an alternative to net earnings 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"), normalized FFO ("NFFO") and adjusted funds from operations ("AFFO") under GAAP.

                                                     3 months ended March 31
                                                          2010          2009
    FFO (millions)*                                    $13.5         $70.4
    FFO per stapled unit (basic)                         $0.09         $0.48
    NFFO (millions)(xx)                                  $52.4         $64.4
    NFFO per stapled unit (basic)(xx)                    $0.35         $0.44
    AFFO (millions)*                                   $12.2         $61.3
    AFFO per stapled unit (basic)                        $0.08         $0.42
    Cash distributions paid (millions)(net of DRIP)      $24.8         $24.6
    Cash distributions per stapled unit                  $0.18         $0.18
    *  H&R's MD&A includes reconciliations of: net earnings to FFO and
         normalized FFO; FFO to AFFO; and AFFO to cash provided by

    (xx) Normalized FFO adjusts FFO for the non-recurring loss on repayment
         of debentures, additional tenant recoveries for capital expenditures
         in excess of items expensed in property operating costs, and the net
         gain (loss) on foreign exchange and swap derivatives.

FFO, AFFO and net earnings (loss) were each reduced by a one-time, non-recurring loss of $38.8 million on early repayment of Fairfax non-convertible debentures. Excluding the one-time debenture repayment loss, AFFO per unit would have been $0.34 for the three months ended March 31, 2010, and net earnings per unit would have been $0.14. The following table includes results reported in accordance with Canadian GAAP.

                                                     3 months ended March 31
                                                          2010          2009
    Rentals from income properties (millions)           $151.2        $156.3
    Net earnings (loss) (millions)                      ($17.3)        $22.1
    Net earnings (loss) per stapled unit (basic)        ($0.12)        $0.16
    Cash provided by operations (millions)               $62.3         $69.5

As at first quarter end 2010, H&R's debt to gross book value (calculated in accordance with the REIT's Declaration of Trust) was 52.6% compared to 52.5% as at December 31, 2009, and non-recourse debt to total debt was 44.6% (44.9% at year end 2009).

SIFT Update

H&R REIT is working toward and anticipates being compliant with the Canadian Specified Investment Flow-Through (SIFT) rules by June 30, 2010, in which case, the future income tax liability of $139.8 million recorded as at March 31, 2010 would be reversed into income in the second quarter this year.

Development Highlights

H&R REIT is currently building The Bow, a two million square foot landmark office building in Calgary's downtown financial district. EnCana Corporation will be head-leasing the entire office tower and all underground parking spaces on a triple-net basis for an initial term of 25 years including annual contractual escalations. As at March 31, 2010, H&R REIT had incurred approximately $748 million of the $1.33-billion budgeted costs (excluding capitalized interest costs for accounting purposes). H&R has effectively locked in 89% of total budgeted costs before contingencies and has successfully secured all of the funds required for completion of this trophy office development.

Operating Highlights

H&R REIT's operating strategy is to stabilize annual income 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 March 31, 2010 was 10.5 years for leases and 8.2 years for mortgages payable, and the REIT's overall portfolio occupancy rate has been consistently maintained at 99%.

Capital Transaction Highlights

During the first quarter 2010:

    -   H&R REIT issued $115 million of 5.2% Series A senior unsecured
        debentures maturing February 3, 2015 and $115 million of 5.9%
        Series B senior unsecured debentures maturing February 3, 2017, and
        repurchased $200 million of outstanding non-convertible 11.5%
        debentures for a total repurchase price of approximately $230 million
        (including accrued interest of approximately $2.2 million). These
        transactions reduced H&R REIT's interest costs, and extended and
        staggered its debt maturity profile.

    -   The REIT acquired four newly constructed retail properties in the
        United States for CAD$61 million, leased for a weighted average
        period of 20 years. H&R REIT assumed CAD$36 million of mortgages at a
        fixed interest rate of 6% for a term of 20 years. H&R REIT's levered
        return from these acquisitions is expected to be approximately 10%.

    -   H&R REIT also completed the sale of two properties for gross proceeds
        of $23 million.

Distribution Policy Adopted

H&R REIT also announced that its trustees have adopted a distribution policy pursuant to which the monthly combined distribution is intended to be increased as shown in the following table.

                                                  Monthly        Annualized
                                               Distribution     Distribution
                                                Per Stapled      Per Stapled
    Distribution Period                            Unit             Unit
    Q2 2010 (April, May and June)                 $0.0600           $0.72
    Q3 2010 (July, August and September)          $0.0700           $0.84
    Q4 2010 (October, November and December)      $0.0725           $0.87
    Q1 2011 (January, February and March)         $0.0750           $0.90
    Q2 2011 (April, May and June)                 $0.0775           $0.93
    Q3 2011 (July, August and September)          $0.0800           $0.96
    Q4 2011 (October, November and December)      $0.0825           $0.99
    Q1 2012 (January, February and March)         $0.0850           $1.02
    Q2 2012 (April, May and June)                 $0.0875           $1.05

H&R's payout ratio is projected to remain one of the lowest in the Canadian REIT sector, even with these anticipated distribution increases. By the end of the second quarter 2012, upon completion and full occupancy of The Bow, the trustees will review this distribution policy taking into account the additional cash being generated by The Bow. The trustees retain the right to re-evaluate this distribution policy from time to time as they consider appropriate. As all distributions remain subject to declaration by the trustees, there is no assurance that the actual distributions declared will be as provided in this distribution policy.

Monthly Distributions Declared

The next declared distributions are scheduled as follows.

                   Distribution/                                Distribution
                   stapled unit    Annualized    Record date        date
    June 2010          $0.06          $0.72        June 16         June 30
    July 2010          $0.07          $0.84        July 16         July 30
    August 2010        $0.07          $0.84       August 17       August 31

New date for Annual General Meeting

Please note that due to the G20 Summit in downtown Toronto on June 26-27, H&R REIT has rescheduled its AGM from June 24 to June 17, at 12:30 pm, in the Gallery room of the TSX Broadcast Centre at The Exchange Tower, 130 King St. West, Toronto.

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 33 office, 118 industrial and 121 retail properties comprising nearly 39 million square feet, with a net book value of $4.1 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. As a result, leases representing only 6.8% of total rentable area will expire from Q2 2010 to Q4 2012, while only 12.5% of H&R REIT's total mortgage payable will mature.

H&R Finance Trust is an unincorporated investment trust, which primarily invests in notes issued by an H&R REIT subsidiary. 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.

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

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 (together, "H&R"), 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 (which takes into account the REIT's covenant to its lenders to not distribute cash in excess of 70% of FFO). 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; 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 is 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.

SOURCE H&R Real Estate Investment Trust

For further information: For further information: Larry Froom, Chief Financial Officer, H&R REIT, (416) 635-7520, or e-mail info@hr-reit.com

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