H&R REIT continues to execute its plan to become a more simplified growth and income-oriented REIT focused on residential and industrial properties.

H&R executives provided a progress report in a Feb. 13 conference call for investors and analysts to present the REIT’s 2024 year-end results.

“Given the headwinds we faced at the end of last year, with multifamily supply concerns, a weak office market, inflation and rising interest rates, we are very pleased with our results,” said chief financial officer Larry Froom.

Last year H&R sold, or put under contract to be sold, properties worth $488.9 million. Another $49.8 million in assets was sold on Jan. 5.

Repositioning strategy

The repositioning strategy began in mid-2021 and the trust has since completed the spin-off of 27 enclosed shopping centres and sold ownership interests in 58 properties totalling approximately $5.3 billion. 

H&R's residential and industrial segments combined have subsequently grown from 35 per cent of the total portfolio to 67 per cent (based on property values). Its assets in the United States have grown from 44 per cent of the portfolio to 70 per cent.

H&R’s total portfolio was comprised of 267 retail properties, 65 industrial properties, 26 multiresidential properties and 16 office properties that combined to encompass 26.02 million square feet and had a fair market value of $9.29 billion as of Dec. 31.

Residential and industrial

Residential’s share of H&R’s portfolio has grown to 49 per cent. Two more multifamily developments are under construction and expected to be completed in 2026.

Industrial comprises 18 per cent of the total portfolio. Same property net operating income (NOI) increased by 6.3 per cent from 2023 to 2024. Seventy per cent of H&R’s industrial properties are in the Greater Toronto Area (GTA).

Industrial rents average $9.66 per square foot, with renewals in the $14 to $15 range, according to Froom.

Executive chairman and chief executive officer Thomas Hofstedter said there are no plans to sell any industrial properties this year.

Office and retail

Office comprises 18 per cent of H&R’s portfolio. Occupancy on Dec. 31 was 96.8 per cent and there was an average remaining lease term of six years so the portfolio will continue to provide solid cash flow.

Retail’s share of the portfolio is down to 15 per cent. Same property NOI increased by five per cent year-over-year.

“Until interest rates come down, we're not planning on selling any more retail assets,” Hofstedter said, noting that much of the portfolio is grocery-based and leased to "quality" tenants.

U.S.-based food, fuel and pharmacy provider Giant Eagle is H&R’s biggest retail tenant with 193 locations.

Hofstedter said lower interest rates should boost overall transaction activity but, at the moment, there are few trades since the spread between bid and ask prices is too wide.

Mississauga industrial development

H&R completed two industrial properties, at 1965 and 1925 Meadowvale Blvd. in Mississauga. They’re fully leased with annual rent escalations that expire in May 2036 and March 2037 respectively.

The REIT has one industrial property and a 50 per cent interest in two industrial properties under construction and scheduled to be completed later this year.

H&R demolished a 104,689-square-foot office building at 6900 Maritz Dr. in Mississauga in April and is replacing it with a 122,367-square-foot industrial building.

GTA office redevelopment

Demolition of vacant five- and 12-storey buildings at 53 and 55 Yonge St. in Toronto began this quarter to reduce operating costs. H&R is advancing the rezoning process to develop a 68-storey mixed-use tower with 836 residential units and retail at grade.

The REIT anticipates amended zoning will come into effect by the end of this quarter, enabling it to convert a 15-storey heritage office building at 69 Yonge St. to 127 residential units. It would add density through infilling and adding five floors.

H&R submitted rezoning applications for 145 Wellington St. W. and 310 and 330 Front St. W. to remove the current approved replacement office density and replace the office area with residential uses. It has proposed 70- and 65-storey mixed-use towers to replace the eight- and 12-storey buildings on Front Street.

U.S. multi-family development

Dallas, Texas-based Lantower Residential, a subsidiary of H&R, is a vertically integrated real estate company focused on acquiring, developing, financing and managing multifamily communities in the U.S. 

“We remain focused on the fundamentals of our business and creating NOI expansion through our repositioning opportunities, development pipeline and other innovative value-add strategies that add to our bottom line,” COO Emily Watson said.

Lantower West Love, a 413-unit property in Dallas, was completed in Q3. H&R recognized a fair value increase of $31.3 million and 240 units were leased as of Feb. 4.

Lantower Midtown, a 350-unit property in Dallas, was completed in the fourth quarter. H&R recognized a fair value increase of $23 million and 160 units were leased as of Feb. 4.

H&R created Lantower Residential Real Estate Development Trust last February and completed an IPO that raised US$52 million. The money was used to acquire an interest in and fund the development of two projects in Florida totalling 601 rental units.

Financial highlights

H&R recorded a net loss of $119.7 million last year, compared to a net profit of $61.7 million in 2023. NOI dropped to $519.9 million from $546.6 million.

The trust had cash and cash equivalents of $100.4 million, $843.6 million available under its unused lines of credit, and an unencumbered property pool of approximately $4.4 billion on Dec. 31.

H&R’s debt-to-assets ratio slid to 33.4 per cent from 34.2 per cent year-over-year.