H&R Real Estate Investment Trust

Good morning and welcome to H&R Real Estate Investment Trust's 2024 Second 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 as of today's date. Forward-looking information requires management to make assumptions or rely on certain material factors and is subject to inherit 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 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 H&R's website and www.cedarplus.com. I would now like to introduce Mr. Tom Hofstetter, Chief Executive Officer of H&R REIT. Please go ahead, Mr. Hofstetter.

Thank you. Good morning, everybody. Joining me today is Jason Birkin, VP of Finance, and Emily Watson, Chief Operating Officer of Land Tower. Larry Froome cannot be with us today. He's traveling. On that note, I'll hand it over to Jason.

Thank you, Tom, and good morning, everyone. I'm very excited to be here today. In my comments to follow, references to growth and increases in operating results are in reference to the three months end of June 30th, 2024, compared to the three months end of June 30th, 2023. H&R's total same property net operating income on a cash basis increased by 1.7%. Breaking the growth down between our segments, Landtower, our residential division, recorded a 0.3% increase, which was primarily driven by the stronger US dollar. Emily will provide more details on this shortly. Industrial same property NOI on a cash basis increased by 4.7%, driven by rent increases for new and renewed tenants, as well as an increase in occupancy. The tenants that are newly completed industrial properties totaling 336,800 square feet in Mississauga are in occupancy. Their free rent period has ended and are now paying rent. We have started construction on three new industrial developments totaling 357,500 square feet at H&R's ownership share. The average rent on our Canadian industrial portfolio at June 30th, 2024 was $8.97 per square foot and is well below market rent, which bodes well for our industrial portfolio continuing to deliver strong results. During the quarter, we completed four industrial lease renewals, totaling approximately $227,000 per feet at H&R's ownership share, and achieved an average rent increase of $7.73 per square foot. Office-stained property NOI on a cash basis decreased by 1.8%. This decrease was largely attributable to a decrease in occupancy at our properties slated for future redevelopment. Our office properties are in strong urban centers with a weighted average lease term of approximately 6.3 years and leased to strong, credit-worthy tenants with 88.5% of office revenue coming from tenants with investment-grade ratings. I would like to draw investors' attention to the 7.9% cap rate on our remaining nine Canadian office properties that are not slated for redevelopment. The cap rate jumps from 7.08% last quarter, primarily due to the sale of course. We also increased the cap rate on our remaining three U.S. properties from an average of 7.68% last quarter to an average of 9.02% this quarter. And lastly, retail same property NOI on a cash basis increased by 7.9%, primarily driven by increased occupancy at River Landing Commercial. In accordance with our strategic plan, we have sold 800 million of property in 2023 in the first six months of 2024. We are very pleased that despite these property sales and the headwinds facing the real estate sector in general, Q2 2024's FFO was $0.306 per unit compared to $0.297 per unit in Q2 2023. H&R's cash distributions of $0.15 per unit for the quarter resulted in an FFO payout ratio of 49% and an AFFO payout ratio of 61%. Net asset value per unit as of June 30, 2024, was $19.94 per unit, a decrease from $21.05 as of March 31st, 2024. This was attributable to $427.2 million of fair value adjustments during Q2 of 2024. Debt to total assets at the REIT proportionate share at June 30th, 2024 was 44.8%, and debt to EBITDA was a healthy 8.5 times. Liquidity at June 30th, 2024 was in excess of $900 million, with an unencumbered property pool of approximately $4.1 billion. Our unencumbered asset to unsecured debt coverage ratio was 2.2 times at June 30, 2024. And with that, I will now turn the call over to Emily.