H&R Real Estate Investment Trust

Good morning and welcome to H&R Real Estate Investment Trust 2024 Fourth 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 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 as 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.

Good morning, everybody, and thanks for joining us. We have with us Larry Froome, CFO of H&R, and Emily Watson, President of LandTower. I'll hand it over to Larry to bring you up to date.

Thank you, Tom, and good morning, everyone. My comments to follow references to growth and increases in operating results, unless stated otherwise, are in reference to the 12 months ended December 31st, 2024, compared to the 12 months ended December 31st, 2023. We continue to execute on the strategic repositioning plan. In 2023, we sold $432.9 million of income-producing properties, and in 2024, we sold $429 million of real estate assets. On January 6, 2025, we sold a further $49.8 million. 70% of our real estate assets by value is now in the United States. Overall, given the headwinds we faced at the end of last year with multifamily supply concerns, a weak office market, inflation and rising interest rates, we are very pleased with our results. Breaking down the results between our segments, our office segments spent property net operating income on a cash basis decreased by 2.8%. There has been a slate of back to the office policies from different companies and it seems clear that more and more employees are headed back to the office, which is positive for the sector as a whole. Our office portfolio of 16 properties, which includes 4 properties with residential rezoning opportunities, now only comprises 18% 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 December 31, 2024 was 96.8%, with an average remaining lease term of 6 years, so the portfolio will continue to provide a solid cash flow. Our three 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 7.76%. Residential segment same property net operating income on a cash basis increased by 0.5% in U.S. dollars. The new supply added to our residential markets has been absorbed. 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 30, 2021, to $26.84 per square foot at the end of the year, December 31, 2024, in U.S. dollars. Our residential portfolio at December 31st, 2024 comprised 49% of H&R's overall portfolio. Land Tower West Love in Dallas was substantially completed and transferred from a property under development to an investment property in Q3 of 2024. Land Tower Midtown, also in Dallas, was transferred to investment properties in Q2 2024 and has become our 26th residential investment property. We have an additional two residential developments currently under construction, which are expected to be completed in 2026. H&R's ownership interest in these two new developments is 29.1%. Our retail portfolio at December 31st, 2024 comprises 15% of H&R's overall portfolio. Retail segment same property net operating income increased 5% due to occupancy gains at River Landing and foreign exchange. The tenants in our retail portfolio are predominantly grocers and the portfolio has been very stable. Our largest retail tenant is Giant Eagle, who has 193 locations in our portfolio. Giant Eagle recently announced that they are selling the get-go convenience stores and leases to credit cards, which are expecting to close in Q2. This will further diversify our tenant mix with CouchTard comprising about 1.7% of our revenue. Giant Eagle then comprises about 3.9% of our revenue. Industrial segment same property net operating income on a cash basis increased 6.3%. Industrial portfolio of 65 properties at December 31st, 2024 comprises 18% 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 $9.66 per square foot as at December 31st, 2024. In addition, industrial properties located in the GTA made up 59% of H&R's portfolio at June 30th, 2021 compared to 70% now at December 31st, 2024. We continue to grow our industrial portfolio and added two newly constructed properties at the beginning of 2024. We currently have one industrial property and 50% interest in two industrial properties under construction scheduled to be completed later this year. Headline FFO per unit for Q4 2024 was 29.8 cents compared to 29.9 cents in Q4 2024. Our balance sheet remains strong. Debt to total assets at the REITs proportion of share December 31, 2024 was 43.7% and debt to EBITDA was a healthy 9.4 times. Liquidity at December 31st, 2024 was in excess of $900 million, with an unencumbered property pool of approximately $4.4 billion. Our unencumbered asset to unsecured debt coverage ratio was 2.3 times at December 31st, 2024. And with that, I will now turn the call over to Emily.