H&R Real Estate Investment Trust

Good morning and welcome to H&R Real Estate Investment Trust 2022 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 predictions, and the remarks that follow may contain forelooking information, which reflect the current expectations of management regarding future events and performance. and speak only as of today's date. Forward-looking information requires management to make assumptions or rely on certain material factors and is subject to inherent risk and uncertainties, and actual results could 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 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 assess the REIT's underlying performance and provides these additional measures so the investor 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 informed 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 H&R's website and at www.cedar.com. I would now like to introduce Mr. Tom Ofstetter, Chief Executive Officer of H&R Reef. Please go ahead, Mr. Ofstetter.

Good morning, everyone. And I'd like to thank you for joining us today to discuss our third quarter financial and operating results. With me on the call are Philippe Point, President, and Larry Frum, our Chief Financial Officer. Year-to-date, our teams have been executing against our repositioning plan, a plan that we laid out to the investing community just over a year ago today. Since October 27, 2021, we have made great progress and are moving towards our desired outcome of becoming a streamlined, growth-oriented REIT. Already, our company looks very different than it did over a year ago, as is evident by our asset composition, balance sheet, and same-property net operating income growth. In the last year and a half, we have moved over $5 billion of lower-growth office and retail properties and reallocated that capital into higher-growth Sunbelt and Gateway City Residential, alongside buying back our own units at a significant discount to NAV. Our year-to-date results and performance highlight the quality of our properties and the embedded growth that we are surfacing as a result of this transformation. We are continuing our progress with dispositions announced to date, furthering our portfolio simplification strategy. Capital allocation remains our top priority as we drive our plan forward and where our focus remains. Year to date, we have recycled capital out of $455 million of office, retail, and other non-core asset sales, reallocating that capital to the repurchase and cancellation of almost $300 million worth of our units, or to 22.9 million units at a 42 discount to our NAV. Our NCIB has been very accretive to the holders creating 72 cents in NAV per unit. In August, we completed the sale of four office properties and retail properties, totaling $167.8 million. And after quarter end, we sold an additional three properties, totaling $49 million, comprised of two automotive-tenanted retail properties in Arizona, at a weighted average cap rate of 5.8%, and a vacant single-tenanted office property in Burlington, Ontario, for $26 million. These sales are in line with our RFS values, providing further support to our net asset value and aligning to our positioning plan. And lastly, is the 9.1% distribution increase that we announced yesterday, supported by our very strong year-to-date performance and our positive outlook for the future. This increases the monthly distribution to $0.05 per unit, commencing in January 2023. With today's strong quarterly results, we are on our way to creating a simplified, growth-oriented company that will first surface significant value to our unit holders. And with that, I will turn it over to Philippe.

Thank you. Good morning, everyone. I'm happy to be on this call to discuss our Q3 updates and to go over our quarterly highlights. But before I do, I'd like to pause for a moment and highlight some of the recent enhancements that have been made at the H&R Board level and other ESG accomplishments. In accordance with H&R's policies governing board tenure, four new independent trustees were elected in 2021 upon the retirement of two members. Their collective expertise, combined with the existing trustees, has created a well-diversified, independent, and experienced board, which should enhance investor confidence and governance sentiment. Additionally, women currently represent 38% of our board, marking progress on the board's diversity commitments, and achieving the Canada club's aim for better gender balance. The majority independent board and H&R management team are fully committed to continuing to enhance corporate governance and to increase unit holder value. Another material ESG step we made this year was participating in a Gresby real estate assessment, which is an investor-driven global ESG benchmark and reporting framework that enables us to understand the performance against peers and to provide investors with the information they require to make thoughtful investment decisions. In addition to our earnings announcement last night, we also released our annual sustainability report that outlined some of our recent progress. We're also proud to report that 50% of our executives are women, and for the third consecutive year, H&R replaced on the Globe and Mail's Women Lead Year benchmark of executive gender diversity. We understand that health and safety, employment engagement, diversity, equity, and inclusion, And engaging with our tenants and communities are critical for our long-term success as an industry-leading real estate organization. And to that end, we look forward to updating our stakeholders of that progress. On to the LandTower portfolio. The U.S. Sunbelt and Gateway markets continue to experience strong supply and demand fundamentals for multifamily rentals. An additional tailwind that we expect to accelerate those fundamentals is the increase in mortgage rates. With a rate of over 7 percent for the most typical mortgage, the rent versus buy decision will likely push additional households into the renter space. For context, our same-store tenant move-outs due to buying a home decreased from approximately 20% in the second quarter to 12% in the third quarter, a trend that we anticipate will continue. Additionally, this year's same-store Q3 traffic and completed applications are actually higher than the third quarter of last year. Landtower's Sunbelt portfolio has continued to register double-digit renewals and new lease tradeouts as a blender rate for new leases and renewals equated over 15 percent in the third quarter. Therefore, while the rental rate growth acceleration may abate in the coming quarters, our top line growth is still substantially outpacing expense growth and also supporting existing fair market valuations despite potential future increases in cap rates. Moving on to Jackson Park, positive trends in the amount of traffic, renewal rates, and number of leases executed have continued through the third quarter. At the end of the third quarter, Jackson Park's occupancy was 99.5%, reflecting yet another quarter of tremendous operating results from the asset. On the development front, Land Tower West Love in Dallas, Texas is on schedule and on budget. The second level of concrete pours on our podium and parking garage are current this week. Also in Dallas, Texas, Land Tower Midtown is on schedule and on budget with site work completed and the tower crane being erected by next week. We expect limited, if any, variance in the overall budget based on how we are tracking. West Love's hard costs are 99% bought out by our general contractor, while Midtown is 90% bought out with our GMP contracts. While we have elected to postpone the construction starts of some of our development pipeline, we have continued progressing through the different phases of design, drawing, and permitting, as our intent is to be fully prepared to capitalize our development pipeline based on our conviction at the appropriate time. On the JV development front in Hercules, California, phase two called the Grand at Bayfront is 64 percent leased. In Shoreline Gateway, Long Beach's tallest residential tower, 35 stories, has seen stronger rent of demand, is now 80 percent leased, with rents that are matching pro forma. Lastly, before I hand it over to Larry, I want to acknowledge the Landtower Residentials won a National Marketing and Advertising Award presented by the Multifamily Executive Magazine, which is widely recognized as one of the most influential multifamily publications in the U.S. Congratulations are in order to the Landtower operations team for a notable achievement led by COO Emily Watson and President of Property Management Colleen Garan in notching yet another mark on her path to maintaining a best-in-class operating platform. And with that, I will pass along the conversation to Larry.