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    HR.UN   CA4039254079

H&R REAL ESTATE INVESTMENT TRUST

(HR.UN)
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H&R Real Estate Investment Trust : Q3 2021

11/15/2021 | 05:17pm EST

H&R Real Estate Investment Trust

Q3 2021 Quarterly Report to Unitholders

For the Three and Nine Months Ended September 30, 2021

Front St., Toronto

Jackson Park, New York

Airport Road, Brampton - Sleep Country

H&R Profile

H&R REIT is one of Canada's largest real estate investment trusts with total assets of approximately $13.1 billion at September 30, 2021. H&R REIT has ownership interests in a North American portfolio of high quality office, retail, industrial and residential properties comprising over 40 million square feet. H&R REIT is currently undergoing a five-year, transformational strategic repositioning to create a simplified, growth- oriented company focusing on multi-residential and industrial properties to surface significant value for unitholders.

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

Fair Value of Investment Properties

Fair Value of Investment Properties

by Geographic region

by Type of Asset

Alberta 20%

Residential 23%

Other Canadian

Provinces 9%

Industrial 9%

Ontario 27%

Retail 33%

United States 44%

Office 35%

Primary Objectives

H&R's objective is to maximize NAV per Unit through ongoing active management of H&R's assets and the development and construction of projects. H&R's strategy to accomplish this objective is to accumulate a diversified portfolio of high-quality investment properties in Canada and the United States leased by creditworthy tenants.

Stability and Growth through Discipline

Since inception in 1996, H&R has executed a disciplined and proven strategy that has provided stable cash flow from a high quality portfolio. We achieve our primary objectives and mitigate risks through long-term property leasing and financing, combined with conservative management of assets and liabilities.

SUMMARY REPORT TO UNITHOLDERS - THIRD QUARTER 2021

TRANSFORMATIONAL STRATEGIC REPOSITIONING PLAN

On October 27, 2021, H&R announced its transformational strategic repositioning plan to create a simplified, growth- oriented company focusing on multi-residential and industrial properties to surface significant value for unitholders. H&R's target is to be a leading owner, operator and developer of multi-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 will fund this growth through dispositions, synchronizing asset sales with capital requirement.

"I am very pleased to report strong third quarter results, reflecting the quality of H&R's portfolio and strength of our balance sheet," said Tom Hofstedter, President and CEO. "Our transformational strategic repositioning plan, announced just a few weeks ago, provides a clear path forward to simplifying H&R's business model creating significant value and growth for unitholders. With our path forward now clearly established, our teams have turned to the implementation phase, where we are committed to efficiently and effectively executing on our plan."

Execution Highlights

  • Sale of Bow and Bell Office Campus: previously announced sale of the Bow and Bell office Campus significantly reduced Calgary office exposure, enhanced tenant diversification, and created the liquidity and strengthened balance sheet to enable the next steps.
  • Primaris REIT Spinout: previously announced proposed tax-freespin-off (the "Spin-Off") of the REIT's Primaris properties including all of H&R's enclosed malls into a new, completely independent, stand-alone, publicly traded REIT ("Primaris").
  • Exit Retail and Office: previously announced Disposition plan (the "Strategic Dispositions") of H&R's remaining retail properties including its investment in ECHO Realty, and all office properties other than those with significant near-term redevelopment potential. These Strategic Dispositions are expected to generate proceeds of approximately $3.4 billion over the next five years.
  • Focus on Multi-Residentialand Industrial: synchronize Strategic Disposition proceeds to fund greenfield development and office redevelopment into class A multi-residential and industrial properties.

Benefits of the transformational strategic repositioning are expected to include

  • Greater concentration to higher growth multi-residential and industrial assets, with reduced exposure to retail and office properties.
  • Enhanced major market presence in the Greater Toronto Area, high-growth U.S. sunbelt and gateway cities and immediate reduction of Alberta exposure to 7% of investment properties post Spin-Off.
  • Increasing exposure to H&R's significant 12,700 class A multi-residential and industrial development pipeline to drive growth.
  • Improved proforma balance sheet enhances financial flexibility to execute on growth while maintaining H&R's current investment grade credit rating.
  • Upon completion of the Spin-Off, the combined annual distributions of H&R REIT and Primaris are anticipated to equal $0.72, up 4.3% from the current $0.69 per H&R unit. H&R is anticipated to distribute $0.52 per annum while Primaris is anticipated to distribute $0.20 per Primaris unit (assuming that one Primaris unit is issued for every H&R unit in the Spin-Off).

1 | P a g e

Further details are included in H&R's material change report filed on November 5, 2021 and investor presentation which can be found at www.hr-reit.com.

The Bow and Bell Campus Sale

On August 3, 2021, H&R announced it had entered into agreements to sell a 100% ownership interest in the land and building of the 2.0 million square foot Bow office property ("the Bow") in Calgary, AB and an 85% effective interest in the net rent payable under the Ovintiv Inc. ("Ovintiv") lease through expiry in May 2038. In addition, H&R also entered into an agreement to sell a 100% ownership interest in the 1.1 million square foot Bell office campus ("Bell Campus") located in Mississauga, ON. Total gross proceeds from these dispositions were approximately $1.47 billion. The closing of these transactions ("the Bow and Bell Transaction") occurred on October 7, 2021. The Bow's property operating income for Q3 2021 was $25.1 million. The Bell Campus property operating income for Q3 2021 was $8.6 million.

H&R effectively retains a 15% interest in the net rent payable under the Ovintiv lease to the expiry of the lease in May 2038, and will continue to manage the Bow and earn management fees. The retained interest in the cash flow from the Ovintiv lease and management fees total approximately $18 million annually. H&R will also continue to manage the Bell Campus for the remainder of the term of the existing Bell Campus leases, earning management fees of approximately $1.6 million annually.

The sale includes an option in favour of H&R to repurchase 100% ownership of the land and building of the Bow at expiry of the Ovintiv lease in May 2038 for approximately $735 million ($368 per sq.ft.), substantially below the current sale proceeds of $1.031 billion ($515 per sq.ft.). This option provides H&R the ability to capture potential upside in the Calgary office market over an extended time frame (of approximately 17 years).

As part of the Bow and Bell Transaction, in October 2021, H&R redeemed its Bow Centre Street Limited Partnership Series B and Series C Secured Bonds secured by the Bow for a combined redemption amount of $524 million, inclusive of pre-payment penalties. H&R has also repaid $25 million of mortgages secured by the Bell Campus, inclusive of pre-payment penalties, while another $97 million of associated mortgage debt was assumed by the buyer. Combined proceeds after the above debt repayments, mortgage assumption and transaction costs amounted to approximately $800 million. These proceeds were used to be repay lines of credit and the mortgage secured against Two Gotham Centre, Long Island City, NY totalling $419.0 million. The remaining proceeds were used to redeem the $325.0 million principal amount outstanding 2.923% Series L Senior Debentures of the REIT in November 2021.

Spin-Off of Primaris

On October 27, 2021, H&R announced its intention to spin-off its enclosed mall portfolio and together with Healthcare of Ontario Pension Plan ("HOOPP") create Primaris. Primaris' size, scale, portfolio composition, and capital structure were designed to allow Primaris to grow and thrive in the new retail landscape. Primaris will own interests in 35 shopping centres with an appraised value of approximately $3.2 billion encompassing 11.4 million square feet of gross leasable area ("GLA") at Primaris' share. H&R will contribute 27 properties with an appraised value of approximately $2.4 billion and HOOPP will contribute eight properties with an appraised value of approximately $0.8 billion. H&R's secured debt will be reduced by approximately $579 million in respect of the mortgages to be assumed by Primaris.

Primaris will have substantial scale, a differentiated low leverage financial model and a full service, vertically integrated management platform. Primaris' board of trustees and management will be independent with no overlap with H&R's board of trustees and management, and will operate as a distinct and separate publicly-traded entity upon completion of the Spin-Off. Immediately following the Spin-Off, H&R unitholders will directly own approximately 74% of Primaris units outstanding, and HOOPP will own approximately 26% of Primaris units outstanding.

Included in property operating income for the three months ended September 30, 2021 was $35.2 million relating to the 27 properties being contributed by H&R to Primaris.

2 | P a g e

H&R has applied to the TSX for the listing of Primaris units on the TSX with the ticker PMZ.UN, following the expected closing in late December 2021 or early 2022. The listing will be subject to the TSX's customary listing approval requirements.

Further details on the Spin-Off of Primaris can be found in H&R's management information circular dated November 5, 2021 relating to the unitholder meeting to be held on December 13, 2021 to consider the plan of arrangement giving effect to the Spin-Off which circular is available at www.hr-reit.comand www.sedar.com.

FINANCIAL HIGHLIGHTS

September 30

December 31

2021

2020

Total assets (millions)

$13,123

$13,355

Debt to total assets per the REIT's Financial Statements(1)

44.8%

47.7%

Debt to total assets at the REIT's proportionate share(1)(2)

48.5%

51.1%

Unitholders' equity (millions)

$6,338

$6,071

Units outstanding (in thousands of Units)

288,340

286,863

Unitholders' equity per Unit

$21.98

$21.16

Net Asset Value ("NAV" per unit)(2)

$22.77

$21.93

Unit price

$15.63

$13.29

3 months ended September 30

9 months ended September 30

2021

2020

2021

2020

Rentals from investment properties (millions)

$268.8

$271.6

$799.6

$821.2

Property operating income (millions)

$182.2

$175.8

$491.7

$480.1

Fair value adjustment on real estate assets (millions)

($46.2)

$93.0

$26.0

($1,265.9)

Net income (loss) (millions)

$135.3

$247.8

$389.7

($736.2)

Funds from operations ("FFO") (millions)(2)

$121.4

$124.5

$356.8

$375.7

FFO per Unit (basic)(2)

$0.40

$0.41

$1.18

$1.25

Adjusted Funds from Operations ("AFFO") (millions)(2)

$102.2

$107.4

$289.6

$316.5

AFFO per Unit (basic)(2)

$0.34

$0.36

$0.96

$1.05

Distributions per Unit

$0.17

$0.17

$0.52

$0.75

Payout ratio per Unit (as a % of AFFO)(2)

50.0%

47.2%

54.2%

71.4%

  1. Debt includes mortgages payable, debentures payable, unsecured term loans and lines of credit.
  2. These are non-GAAP measures. See "Non-GAAP Financial Measures" in this press release. H&R's management discussion and analysis ("MD&A") for the three and nine months ended September 30, 2021 includes a reconciliation of net income (loss) to FFO and AFFO as well as the calculation of NAV per Unit. Readers are encouraged to review the reconciliations and calculation in H&R's MD&A.

3 | P a g e

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

H&R Real Estate Investment Trust published this content on 15 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 November 2021 22:14:03 UTC.


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Net income 2021 514 M 412 M 412 M
Net Debt 2021 - - -
P/E ratio 2021 7,48x
Yield 2021 5,24%
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Capi. / Sales 2021 3,34x
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Nbr of Employees 728
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H&R Real Estate Investment Trust Technical Analysis Chart | HR.UN | CA4039254079 | MarketScreener
Technical analysis trends H&R REAL ESTATE INVESTMENT TRUST
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TrendsBearishBearishNeutral
Income Statement Evolution
Consensus
Sell
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Mean consensus OUTPERFORM
Number of Analysts 7
Last Close Price 13,17 CAD
Average target price 16,18 CAD
Spread / Average Target 22,8%
EPS Revisions
Managers and Directors
Thomas J. Hofstedter President, Chief Executive Officer & Trustee
Larry Froom Chief Financial Officer
Ronald C. Rutman Chairman
Blair Kundell Executive Vice President-Operations
Brenna Haysom Independent Trustee
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