H&R Real Estate Investment Trust (HR) Q2 2024 earnings summary

Executive summary

• The portfolio has undergone a transformational repositioning, shifting focus from office and retail to residential and industrial assets, now comprising 65% of holdings as of June 30, 2024.

• Over $5.2 billion in property sales have been completed since Q2 2021, including major office and retail divestitures and the Primaris REIT spinout.

• Q2 2024 saw a 1.7% year-over-year increase in same property NOI, with industrial and retail segments leading growth.

• Portfolio occupancy reached 96.9% as of June 30, 2024, reflecting strong leasing activity.

• Net loss for Q2 2024 was $272.7 million, mainly due to fair value adjustments on real estate assets.

Financial highlights

• Q2 2024 FFO per unit was CAD 0.306, up from CAD 0.297 in Q2 2023, with a payout ratio of 49% and AFFO payout ratio of 61%.

• Net asset value per unit was CAD 19.94 as of June 30, 2024, down from CAD 21.05 as of March 31, 2024, due to fair value adjustments.

• Liquidity exceeded CAD 900 million, with $943 million in liquidity and an unencumbered property pool of approximately CAD 4.1 billion.

• $429 million in properties and land parcels sold or under contract in 2024.

• Q2 2024 net operating income decreased 5.3% year-over-year, impacted by $776.4 million in property sales.

Outlook and guidance

• Management expects continued strong performance in industrial and retail, with residential positioned for growth as new supply declines and demand remains steady.

• Ongoing exit from office and retail, with proceeds funding residential and industrial growth, especially in U.S. Sunbelt and Canadian gateway cities.

• Major development projects in Canada and the U.S. are expected to complete on budget in late 2024 and early 2025.

• Ongoing rezoning of $567 million in office assets to upscale residential, with several Toronto projects approved or in progress.

• Distributions of $0.05 per unit per month declared for August and September 2024.