H&R Real Estate Investment Trust

Good morning and welcome to H&R Real Estate Investment Trust's 2024 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 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 overlooking 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 Hofstadter, Chief Executive Officer of H&R REIT. Please go ahead, Mr. Hofstadter.

Thank you, operator, and good morning, everyone. Thanks for joining us today with Mayor Larry Frum and Emily Watson. I'll hand it over to Larry to give his recap of the report.

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 three-month end of September 30th, 2024 compared to the three months end of September 30th, 2023. Headline FFO per unit for Q3 2024 was 29.4 cents compared to 42 cents in Q3 2023. As a reminder, FFO in Q3 2023 included a $30.6 million gain on disposal of a purchase option held via a mortgage receivable. Excluding this gain, FFO would have been $87.1 million or $0.31 per share in Q3 2023. Overall, given the headwinds we faced at the end of last year with multifamily supply concerns, a weak office market, inflation, rising interest rates, we are pleased with our results. We continue to execute on a strategic repositioning plan. we sold $432.9 million of income-producing properties, and this year, to September 30th, 2024, we have sold $344.8 million of income-producing properties. We expect to end the year with approximately $440 million of real estate sales this year. I would now like to spend a few minutes providing commentary on each of our segments, starting with office. We are hearing of more back to the office policies from different companies, and it seems clear that more and more employees are heading back to the office, which is positive for the sector as a whole. Our office portfolio of 16 properties, which includes four properties with residential rezoning opportunities, now only comprises 19% of H&R's total portfolio. 87.6% of our office revenue comes from investment-grade tenants. a testament to the quality and location of our office properties. Our office occupancy at September 30th was 96.8%, with an average remaining lease term of 6.1 years. Lease expiries between September 30th, 2024 and December 31st, 2025 only approximate 400,000 square feet, so the portfolio will continue to provide solid cash flow. Our downtown Toronto office properties with residential rezoning opportunities are valued at $140 per square foot, which is less than half the value they were at the peak of the market, and the rest of the portfolio has a weighted average cap rate of 8.86%. Our office properties are valued at approximately $1.9 billion, and there are only two mortgages totaling $140 million. the net of which equates to $6.24 per unit. Excluding our office portfolio in its entirety, our NAV per unit would be $13.42, which is significantly higher than our current share price. Our sales of office properties to date of $2.3 billion since the announcement of the strategic plan demonstrate that there is value to our office portfolio. On the residential segment, While there has been a lot of new supply added in our residential markets, the positive immigration trends have continued and our tenants are also staying longer. Since the announcement of H&R's strategic plan, H&R's average U.S. residential rents increased from $21.16 per square foot as of June 30th, 2021 to $26.97 per square foot at September 30th, 2024 in U.S. dollars. Our residential portfolio of September 30th, 2024 comprised 47% of H&R's overall portfolio and is continuing to grow. Land Tower West Love in Dallas reached substantial completion and was transferred from a property under development to an investment property. West Love has become the 25th residential income producing property in our portfolio. Land Tower Midtown also in Dallas is not far behind and will become our 26th investment property very soon. In addition, we have another two residential developments currently under construction and expected to be completed in 2026. H&R's ownership interest in these two new developments is 29.1%. Our retail portfolio of September 30th, 2024 comprises 15% of H&R's overall real estate assets. The tenants in our retail portfolio are mostly grocers and the portfolio has been very stable with growth in rent and net operating income occurring from the lease up at River Landing in Miami. Our largest retail tenant is John Eagle, who has close to 200 locations in our portfolio. John Eagle recently announced that they are selling their get-go convenience stores and leases to CouchTard. This will further diversify our tenant mix, with CouchTard comprising about 1.7% of our revenue. Giant Eagle will then comprise about 3.9% of our revenue. Our industrial portfolio of 66 properties of September 30th, 2024 comprises 19% of H&R's total real estate assets and continues to perform well. Since the announcement of H&R's strategic plan, H&R's average Canadian industrial rents increased from $7.17 per square foot as at June 30th, 2021 to $9.42 per square foot as at September 30th, 2024. In addition, industrial properties located in the GTA made up 35% of H&R's industrial portfolio as at June 30th, 2021, compared to 50% of H&R's industrial portfolio as at September 30th, 2024. We continue to grow our industrial portfolio and added two newly constructed properties at the beginning of this year. We currently have one industrial property and a 50% interest in two industrial properties under construction scheduled to be completed in 2025. Our balance sheet remains strong. Debt to total assets of the REITs proportionate share at September 30th, 2024 was 44.9% and debt to EBITDA was a healthy 9.1 times. Liquidity at September 30th, 2024 was in excess of $900 million. with an unencumbered property pool of approximately $4.1 billion. Our unencumbered assets to unsecured debt coverage ratio was 2.2 times at September 30th, 2024. In summary, we are well positioned to continue executing the strategic plan to sell office and retail properties as and when the market allows, and management remains committed to doing so. On the ESG front, we are pleased to report that our project at 6,900 marits in the GTA was shortlisted for the World Demolition Award in the recycling and environmental category. The previous 104,000 square foot steel structure office property had a total weight of 8,758 tons. The waste diversion program recycled 8,113 tons of steel and concrete or 93% of the total material weight. In addition, our Land Tower West love development in Dallas reached substantial completion and received the National Green Buildings Silver Certification. And with that, I would like to turn the call over to Emily. Emily?