H&R Real Estate Investment Trust (HR-UN-T) says it will sell 63 U.S. retail properties for $633 million US and use a “significant share” of the proceeds to fund acquisitions for its Lantower Residential division.

H&R REIT has sold 63 U.S. retail properties and will use a portion of the funds to expand its Lantower Residential portfolio, the trust says. (Google Streetview image)

The sale includes all of H&R REIT’s retail properties in the United States, with the exception of  16 gas stations and convenience stores. The buyer has not been disclosed.

“This transaction follows through on our strategy of narrowing and streamlining our focus, while enhancing the quality and growth profile of our portfolio,” said H&R’s president and CEO Thomas Hofstedter in a release.

“A significant share of the net proceeds will be used to further grow our Lantower Residential division which, since its inception a little over three years ago, has grown to approximately 15 per cent of our real estate assets today.”

The sale price equates to a 7.3 per cent capitalization rate on 2018 forecasted property operating income.

Closing is expected to occur in June.

Repay mortgages, buy back stock

Part of the proceeds from the sale will be used to repay $205.9 million US of mortgage debt on the portfolio. Another portion of the proceeds will be used to repurchase units under H&R REIT’s normal course issuer bid.

As a result of the sale, H&R REIT expects stronger long-term funds from operations growth and net asset value growth.

Following the sale of the portfolio, H&R REIT says about 47 per cent of its investment properties and properties under development will be in the office sector; 20.3 per cent in its Primaris retail division; 14.8 per cent Lantower Residential; 7.8 per cent industrial; 5.9 per cent within Echo Realty LP; and 4.1 per cent in its H&R Retail component.

Lantower Residential is a vertically integrated subsidiary of H&R REIT which specializes in the acquisition, ownership and asset management of multi-family communities in the U.S. With an emphasis on southern markets such as Dallas, Houston, Austin, and Orlando, the company says it continues to see favourable acquisition opportunities in other markets.

Since its recent inception in 2014, Lantower has acquired 13 properties totalling 4,577 units in seven major markets across Texas, Florida and North Carolina.

Its most recent purchases came in Q4 2017, when Lantower acquired the 450-unit Brandon Crossroads in Brandon, Fla.; the 282-unit Grande Pines in Orlando, Fla.; and 451-unit Seneca at Cypress Creek in North Tampa, Fla.

About H&R REIT

H&R REIT is one of Canada’s largest real estate investment trusts with total assets of approximately $14.5 billion at March 31.  H&R REIT has ownership interests in office, retail, industrial and residential properties across North America, comprising more than 45 million square feet.

The portfolio consists of 37 office properties, 152 retail properties (prior to the sale), 91 industrial properties, 17 residential properties and four development projects comprising more than 42 million square feet. In addition, H&R REIT has a 33.6 per cent interest in ECHO Realty LP which owns 228 properties, excluding properties under development and vacant land, comprising over 9.4 million square feet.