H&R Real Estate Investment Trust

Good morning and welcome to H&R Real Estate Investment Trust's 2021 Third Quarter Earnings Conference Call. Before beginning the call, H&R would like to remind listeners that certain statements, which may include predictions, conclusions, forecasts, or projections, and the remarks that follow may contain forward-looking information which reflect the current expectations of management regarding future events and performance and speak only of today's date. Forward-looking information requires management to make assumptions or rely on certain material factors and is subject to inherent risks and uncertainties and could cause actual results to differ materially from the statements in the forward-looking information. In discussing H&R's financial and operating performance and in responding to your questions, we may reference certain financial measures which do not have a meaning recognized or standardized under IFRS or Canadian Generally Accepted Accounting Principles. and are therefore unlikely to be comparable to similar measures presented by other reporting issuers. Non-GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of H&R's performance, liquidity, cash flows, and profitability. H&R's management uses these measures to aid in assessing the REIT's underlying performance and provides these additional measures so that investors can do the same. Additional information about the material factors, assumptions, risks, and uncertainties that could cause actual results to differ materially from the statements in the forward-looking information and the material factors or assumptions that may have been applied in making such statements, together with details on H&R's use of non-GAAP financial measures, are described in more detail in H&R's public filings, which can be found on our website and www.cdar.com. I would now like to introduce Mr. Tom Hofstetter. Chief Executive Officer of H&R REIT. Please go ahead, Mr. Hofstetter.

Thank you, operator, and good morning, everyone. I'm Tom Hofstetter, H&R's CEO, and I'd like to thank you for joining us today to discuss our third quarter financial and operating results and an update on our strategic repositioning plan. With me on the call are Larry Frum, our CFO, Alex Avery, Executive Vice President, Asset Management and Strategic Initiatives and future CEO of Primaris REIT, Pat Sullivan, COO of H&R's Primaris Division and future President and COO of Primaris REIT, and Philippe Lapointe, President of Landtower Residential. I'm very pleased to report strong third quarter results reflecting the quality of our portfolio and strength of our balance sheet. Our transformational strategic repositioning plan announced just a few weeks ago provides a clear path forward to simplifying our business model, creating significant value and growth for our unit holders. With our path forward now clearly established, our teams have turned to execution. We are committed to executing efficiently and effectively on our plan to create a simplified growth-oriented company focusing on multi-residential industrial properties to surface significant value for our unit holders. Our target is to be a leading owner, operator, and developer of multi-residential industrial properties creating value through redevelopment and greenfield development in prime locations within Toronto, Montreal, Vancouver, and high-growth U.S. Sunbelt and Gateway cities. As a reminder, our strategic repositioning plan comprises four key steps. The tax-free spinoff of primaries to our unit holders, including all of H&R's enclosed malls. Exiting over time H&R's remaining retail assets by selling our grocery-accurate essential service retail properties and our interest in Echo Realty. Exiting all office properties that do not have any significant near-term future redevelopment potential. growing our multi-residential industrial portfolio through development and redevelopment of properties in prime locations, primarily within the GTA and high-growth U.S. Sunbelt and Gateway cities. Our $3.4 billion disposition program is ambitious and achievable. Our $600 million grocery, anchored, and essential service disposition portfolio is comprised of high-quality properties anchored by strong covenant tenants such as Lowe's, Metro, Sobeys, and Wal-Mart. This 56 property, 2.8 million square foot portfolio, primarily located in Ontario, is 98.5% leased and is a ready source of capital that favorables pricing. In fact, following our press release last month, we have had numerous inquiries from retail property owners and investors looking to buy our retail assets individually or as a portfolio, and the indicative pricing is very attractive. Our investment in Netco Realty LP comprises 236 grocery, anchorage, shopping centers, which is 95.9% occupied primarily by Giant Eagle, the largest supermarket chain in the Ohio-Pittsvania markets. We recognize there may be some questions about the timing and pricing of the planned disposition of our $2.3 billion office portfolio. There are two important things to note in this regard. Number one, H&R owns uniquely high-quality office properties located in key business districts in major cities across the United States and Canada. The 15 properties included in this business portfolio are 99% occupied with a very long weighted average remaining lease term of nine and a half years, leased to strong investment grade credit rated tenants. And number two, we recently commenced the execution of our strategy to exit the office market with the successful sale of the Vaux, the two million square foot office building in Calgary, Alberta, as well as our Bell Campus in Mississauga, Ontario. Selling the remainder of this disposition portfolio should be relatively straightforward compared to what we have already accomplished. Our disposition program will carefully synchronize property sales to match our capital funding requirements. We evaluate each disposition opportunity, whether a one-off asset sale or a portfolio sale, while considering and managing tax implications, our investment grade credit rating, and the impact on our earnings. Our strategic repositioning will create a more compelling investment profile for unit holders. By exiting retail and office, we are streamlining our operating platform, expanding our exposure to high-growth, multi-residential industrial properties. Our exposure to major markets will increase over time as our development pipeline completions begin to come online. This streamlined operating platform will allow us to focus on development and redevelopment opportunities in our existing portfolio to drive future growth. I'll turn it over now to our team to provide details of the third quarter financial and operating results and to provide an update on our strategic repositioning plan executions to date. Alex and Pat will provide an update on the primary spin-out and its performance. Philippe will follow with a review of our multi-residential operations. followed by Larry, who will provide a brief update on office and industrial portfolios before providing some context for our financial results. And finally, I'll make some closing remarks. Over to you, Alex.

Thank you, Tom, and good morning. We are very excited about the upcoming spinoff expected to close December 31, 2021. Primaris REIT will be exceptionally well positioned to take advantage of market opportunities at an extraordinary moment in the evolution of the Canadian retail property landscape. The REIT will have significant scale with a $3.2 billion national portfolio of enclosed shopping centers that are dominant in their trade areas. Economies of scale are achieved through its full-service internal national management platform, which will comprise over 300 dedicated team members. The spinoff will result in H&R and Primaris becoming two completely independent entities. The Primaris business plan is anchored in beginning with and maintaining a very well-capitalized financial position. This will limit the REIT's reliance on external capital sources and allow the REIT to grow with an optimal cost of capital. We anticipate leverage to be one of the lowest amongst its Canadian peers, with a debt gross book value of 29%, forecast debt to EBITDA of just 5.3 times, and are targeting an FFO payout ratio in the range of 45% to 50%. These metrics reflect a clearly differentiated financial profile. Our size, scale, portfolio composition, and capital structure were designed to allow Primaris REIT to grow and thrive in the new retail landscape. Primaris' strategy will focus on three key strategic pillars. Number one, providing affordable retail space to profitable retailers. Number two, the disciplined internal capital allocation across investment opportunities. And number three, consolidation of retail assets in a market with limited institutional competition. The Primaris spinoff is proceeding as planned with a broad variety of activities underway to deliver on our year-end closing. We have advanced our financing plans towards final commitments and are pursuing a credit rating. H&R's management information circular relating to the Primaris spinoff was filed on CDAR on November 11th. and the unit holder meeting is scheduled for December 13th, 2021. We've applied to TSX for the listing of Primaris and expect the stock to trade under the ticker symbol PMZ.UN in the new year. Since our announcement, we've received a warm reception from the investment community with interest in our strategy, our unique positioning within the market, and our exceptionally low leverage structure. We've also caught the attention of institutional investors as a well-capitalized owner of enclosed shopping centers. The team and I are very excited about the future of Primaris REIT. We are ready to tackle the opportunities and challenges ahead at such a unique and exciting time in the Canadian retail property environment. With that, I will turn it over to Pat.