H&R Real Estate Investment Trust

Good morning and welcome to H&R REAP's Q4 2023 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 as of today's date. Forward-looking information requires management to make assumptions or rely on certain material factors, and the subject to inherent risks 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 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 and 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 H&R's website and www.cdar.com. I would now like to introduce Mr. Tom Hofstadter, Chief Executive Officer of H&R REIT. Please go ahead, Mr. Hofstadter.

Thank you. Good morning, everyone. Thanks for joining us today to discuss H&R's fourth quarter and year-end 2023 results. With me on the call are Larry Frum, our Chief Financial Officer, and Emily Watson, Chief Operating Officer of our Land Tower Division. I'm pleased to report that we have continued to successfully execute on our five-year strategic plan to reposition the portfolio to a more simplified and growth-oriented reach, as was highlighted in our most recent press release. Since announcing our strategic re-resisting plan two and a half years ago, we have made considerable progress, having successfully completed the spin-off of Primaris Reef, valued at approximately $2.4 billion. And we have completed, to date, the sale of an additional 45 properties, totaling $2.4 billion, with a further $300 million of sales still to flow later this year. We have re-purchased today 27 million units for $340 million and have decreased our debt from $6.1 billion to approximately $3.7 billion at year-end, thereby improving our debt to total assets from 50% to 44% as of December 31, 2023. Importantly, at year-end 2023, our total office exposure was reduced to 17% of real estate assets, plus nine additional properties representing a further 7% that are advancing through the zoning and intensification process. We expect to continue the strong momentum with an announced sale this year of a further $293 million of properties, including the sale of $232 million of 25 Dobson Drive, an office building by the Waterfront in downtown Toronto. Our recent board initiatives, including independently Trustee Nadek Lo, Lindsey Brandt, and Leonard Hrabowski, underscored our dedication to effective governance and strategic advancement, and we look forward to working with them to help us achieve our objectives. And with that, I'll hand it over to Liz.

Thank you, Tom, and good morning, everyone. In my comments to follow, references to growth and increases in operating results are in reference to the year ended December 31st, 2023, compared to the year ended December 31st, 2022. H&R's same property net operating income on a cash basis increased by 10.3%. Breaking this growth down between our segments, Landtower, our residential division, led the way with an 18.7% increase or a 14.3% increase in US dollars. Emily will provide more details on this shortly. Industrial same property NOI on a cash basis increased by 12.5%, driven by rent increases for new and renewed tenants. The tenants at our two new industrial developments in Mississauga, totaling 336,800 square feet, took possession this month and will begin paying rent in Q2. Office same property net operating income on a cash basis increased by 5.2%. This increase was largely attributable to lease termination payments, bad debt recoveries and the strengthening US dollar. H&R received lease termination payments from office tenants in 2023 amounting to $5.2 million. $3.4 million of this relates to 6900 Moritz Drive in Mississauga where the current 105,000 square foot office property will be converted into a brand new 122,000 square foot industrial building. Demolition has already begun and construction on the new building is expected to begin in the spring. And lastly, retail same property net operating income on a cash basis increased by 5.7%, primarily driven by increased occupancy at River Landing and the strengthening of the US dollar. Q4 2023's FFO was 30 cents per unit compared to 31 cents per unit in Q4 2022. FFO for the year ended 2023 was $1.33 per unit compared to $1.17 per unit for the year ended 2022. Included in FFO for 2023 is $30.6 million of proceeds from the sale for an option to purchase land. Excluding this item and other non-recurring items such as these termination fees, FFO would have been $345.4 million for the year end of 2023, or $1.23 per unit, an increase of 3.9% compared to 2022. H&R's cash distributions of 70 cents per unit was 18.6% higher than the cash distributions of 59 cents in 2022. H&R's 2023 pay-up rate shows remained healthy, at 52.8% of FFO and 63% of AFFO, notwithstanding the increase in distributions. Net asset value per unit as of December 31st, 2023 was $20.75 per unit, a decrease from $21.80 at the end of 2022. H&R recorded a downward fair value adjustment of $197.6 million for Q4 2023 at the reached proportionate share, and the downward fair value adjustment for the year ended December 31st, 2023 was $486.1 million at the reached proportionate share. Debt to adjusted EBITDA improved from 9.6 times at the end of 2022 to 8.5 times at the end of 2023. Debt to total assets at the risk proportionate share on December 31st, 2023 was 44%, unchanged from the end of 2022. And liquidity at December 31st, 2023 was in excess of $950 million with an unencumbered property pool of approximately $4.2 billion. And with that, I'll now turn the call over to Emily.