H&R Real Estate Investment Trust completed a number of acquisitions and divestitures during a busy second quarter that included an 18.8% growth in same property NOI.
H&R (HR-UN-T) had total assets of approximately $11.7 billion as of June 30. It holds interests in a North American portfolio consisting of residential, industrial, office and retail properties with an area of more than 29.3 million square feet.
It is undergoing a five-year strategic repositioning to focus on residential and industrial properties.
Net profit was $112.5 million for the quarter and $1.082 billion for the first six months of the year, the latter mainly due to a fair value adjustment of $1 billion. dollars on its assets earlier in 2022.
Net operating income from residential properties increased 43.7% and 37.5%, respectively, for the three and six months ended June 30 compared to the respective periods of 2021. This was primarily due to an increase of the occupancy rate in its new Jackson Park luxury property in New York.
NOI of the same ownership of CRE sectors
Same property NOI from industrial properties increased 4.9% year-over-year for the three and six-month periods ended June 30, primarily due to an increase in the occupancy and the contractual increase in rents.
Comparable office property NOI increased 23.2% and 23.7% year-over-year, respectively, for the three and six months ended June 30, primarily due to the 2021 free rental period granted to Hess Company as part of the extension of his lease.
“Our office properties are located in strong city centers with a weighted average lease term of 8.5 years and leased to strong, creditworthy tenants,” Chief Financial Officer Larry Froom said in an Aug. 12 conference call covering H&R’s performance in the second quarter.
Only 5% of H&R’s total office space is subject to lease expirations by the end of 2023.
Same-property NOI from commercial properties decreased 3.5% and increased 2.4%, respectively, for the three and six-month periods ended June 30 compared to the respective periods of 2021.
H&R bought shares
Since January 1, 22.13 million units of the REIT have been redeemed at a weighted average cost of $12.97 per unit, representing a discount of approximately 41% on the net asset value (NAV) per unit, for a cost total of $287.1 million.
Net asset value per unit of $22.14 as of June 30 was $1.08 higher than the previous three months, primarily due to unit redemptions and the stronger US dollar.
“We are very pleased with our second quarter results and our portfolio of high quality properties is well positioned to deliver strong operating results going forward,” Froom said.
In addition to a pool of unencumbered properties of $4.6 billion, H&R had $71.7 million in cash and cash equivalents and $619.6 million available to be drawn on its credit facilities. at the end of the second trimester.
“Our results highlight the quality of our properties and the integrated growth of our portfolio,” Executive Chairman and CEO Tom Hofstedter said on the call.
“The organic growth of the portfolio, coupled with unit redemptions, has created value for our unitholders.
Acquisitions and disposals
H&R acquired 6.8 acres of land in Clearwater, Florida for US$17.1 million in April. It is expected to be developed into 425 rental residential units. The REIT acquired 16.3 acres in Orlando, Florida for US$15.5 million in June, where it plans to develop 380 residential rental units.
These two acquisitions align with H&R’s strategy to increase its exposure to residential assets in the US Sunbelt and hub cities.
Eleven properties totaling $238.3 million were sold during the six months ended June 30 and four properties totaling $167.7 million are subject to binding sales agreements.
H&R sold a 312-unit residential rental property in San Antonio, Texas for US$69.3 million in June. She acquired the property in November 2016 for US$56.8 million. This was H&R’s only residential asset in San Antonio and there are no plans to allocate further capital to the market.
The REIT sold seven U.S. retail properties with automotive tenants, totaling 94,205 square feet, for approximately US$58.1 million in June.
H&R sold its 50% share in a 21,493 square foot single-tenant industrial property in Calgary for $3.5 million in June.
The trust has entered into an agreement to sell an office building at 100 Wynford Dr. in Toronto, including 100% of the future revenues of the Bell lease until the end of the term in April 2036, for approximately $120.7 million in July.
The off-market deal is expected to close in September.
H&R retains an option to buy back the property for approximately $159.5 million in 2036, or earlier, under certain circumstances.
In addition, the REIT entered into an agreement to sell a Canadian office property and two Canadian retail properties for approximately $47 million. The transaction is expected to close in September.
Industrial, office and residential rental
H&R has leased 2121 Cornwall Rd., a vacant industrial property in Oakville totaling 157,083 square feet to H&R’s equity interest, for a 10-year term commencing September 1 at current market rents with annual increases.
The REIT has completed the renewal of the five-year lease of an industrial building located at 2300 Senkus Street in Montreal, totaling 371,000 square feet in H&R’s interest. The original lease was due to expire in December 2022 and the rent will increase by 125% starting in January 2023, with annual increases.
H&R has leased approximately 76.7% of office space at River Landing Commercial in Miami, Florida. The two major tenants are Miami-Dade County for the State’s Attorney’s Office, Eleventh Judicial Circuit, which will occupy 49,379 square feet, and Health Trust of Miami-Dade County, which will occupy 63,007 square feet.
Despite substantial growth in rental rates in all US Sunbelt markets, the rent-to-income ratio of H&R purpose-built apartments was around 20%. This is well below the benchmark for affordability.
“We are confident that we will continue to see strong future growth in rents, but not at the expense of our residents’ ability to pay,” President Philippe Lapointe said on the conference call. “There just isn’t enough supply to meet the demand. So what we’re seeing are very healthy increases across the board.
Lapointe added that H&R continues to see positive trends in renewal rates and the number of leases executed.
Canadian development activity
Two Canadian properties under development in H&R’s industrial park in Caledon, Ontario. should be completed this quarter.
H&R fully leased the 105,014 square foot property located at 34 Speirs Giffen Ave. at Lindstrom attachment (Canada) for 10 years.
He rented the 77,754 square foot property at 140 Speirs Giffen Ave. to Coast Holding Limited Partnership for 10 years. Both are scheduled to start in October.
The trust plans to begin construction over the next 12 months on two industrial projects in Mississauga, Ontario. Upon completion, they will add 586,069 square feet to the portfolio at its stake.
The City of Toronto I accepted the rezoning application for 145 Wellington Street West in July. The approval allows for the redevelopment of a 13-story office building into a 60-story mixed-use building comprising 512 residential units, 149,000 square feet of office space and 1,000 square feet of retail space.
Hofstedter said there are no imminent plans to redevelop or sell the property at 145 Wellington St. W.
Development activity in the United States
H&R owns a 31.2% non-management stake in Shoreline in Long Beach, Calif., which was substantially completed in June. The occupancy rate was 50.2% and the committed occupancy rate was 61.9% as of June 30.
The REIT also owns a 31.7% non-management stake in The Grand at Bayfront in Hercules, Calif., which was substantially completed in June. The occupancy rate was 44.4% and the committed occupancy rate was 54.3% as of June 30.
H&R plans to sell its interests in Shoreline and The Grand at Bayfront since they are not among the REIT’s core markets, but will likely wait until the properties stabilize.
“There will be no shortage of buyers for this type of product,” Lapointe said.
H&R began construction this year on two residential development properties in Dallas, Texas, and plans to begin construction on a 271-unit apartment in Tampa, Florida in the third quarter.