H&R Real Estate Investment Trust (HR) Q3 2024 earnings summary

Executive summary

• Headline FFO per unit for Q3 2024 was $0.2940, down from $0.420 in Q3 2023, with last year's figure including a $30.6M gain on a purchase option disposal; excluding this, FFO would have been $0.310 per unit in Q3 2023.

• Strategic repositioning advanced with $438.4M in assets sold or under contract in 2024, focusing on residential and industrial growth and reducing office and retail exposure.

• Residential and industrial segments now comprise 66% of the portfolio, up from 35% in 2021, with U.S. assets representing 68% of the total.

• Strong operational performance with 95.9% portfolio occupancy as of September 30, 2024.

• Multifamily fundamentals remain strong despite supply headwinds, with positive absorption and stable demand.

Financial highlights

• Total assets at $10.2B as of September 30, 2024, with $8.8B fair value portfolio: $3.8B residential, $1.6B industrial, $1.4B office, $1.5B retail, $0.5B rezoning.

• Q3 2024 FFO of $82.3M ($0.294/unit), AFFO of $67.8M ($0.242/unit), and Q3 2024 net loss of $9.7M.

• Sold or under contract CAD 438.4M of real estate assets in 2024, with YTD sales of CAD 344.8M.

• Debt to total assets at 44.9% (proportionate share), debt to Adjusted EBITDA at 9.1x, and liquidity exceeds CAD 900M.

• Unencumbered property pool is about CAD 4.1B, with a 2.2x unencumbered asset to unsecured debt coverage ratio.

Outlook and guidance

• Focus remains on growing Class A residential and industrial property exposure in high-growth U.S. gateway and Sunbelt cities.

• Disposition activity is expected to remain opportunistic and limited due to market uncertainty and lack of debt availability.

• Multifamily NOI growth is anticipated to remain muted through 2025, with a more robust recovery expected in 2026.

• Ongoing advancement of rezoning $487M in office properties to upscale residential in growing markets.

• Management expects to meet ongoing obligations and continue monthly distributions.