H&R Real Estate Investment Trust

Good morning and welcome to H&R Real Estate Investment Trust 2025 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 reflects 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 and 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 route'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, and good morning, everybody. Thank you for joining us today. With me are Larry Frum, CFO for H&R REIT, and Emily Watson with Lantau Residential. Larry, I guess we can start.

Thank you, Tom, and good morning, everyone. In my comments to follow, references to growth and increases in operating results unless stated otherwise are in reference to the three months ended June 30th, 2025 compared to the three months ended June 30th, 2024. We have sold 64.7 million of real estate assets in the first six months of 2025 and at June 30th, 2025 we had a further 56.9 million of investment properties under contract to be sold. As at June 30th, 2025 the value of our real estate assets broken down between our segments are as follows. Residential is our largest segment at 48%, industrial 19%, office 18%, and retail 15%. By geography, 70% of our real estate assets by value are now located in the United States. Overall, given the headwinds we face with multifamily supply concerns, a weak office market, inflation, as well as the tariff wall creating general market uncertainty, we are very pleased with our results and in particular the 3.4% growth in same property net operating income on a cash basis for the six months ended June 30th compared to the same period last year. For the three months ended June 30th, 2025, FFO was 31.4 cents per unit, a 2.6% increase from the same period last year. Breaking down the three months in the June 30th, 2025 between our segments, the residential segment same property net operating income on a cash basis increased by 0.3% in US dollars. Emily will provide more details on Land Tower's results shortly. Our office segment same property net operating income on a cash basis increased 2% primarily due to the strengthening of the US dollar. There's been a slate of back-to-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. 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 June 30, 2025, was 96.8%, with an average remaining lease term of 5.5 years. Subsequent to the quarter, we sold 69 Yonge Street in Toronto for $20.2 million. At June 30th, 2025, 69 Yonge Street was 81.4% occupied, with a weighted average term for maturity of 3.4 years. Our office portfolio now consists of 15 properties, which includes three properties with residential rezoning opportunities. The retail segment's same property net operating income on a cash basis increased by 8.2% due to occupancy gains at River Landing and foreign exchange differences. The tenants in our retail portfolio are predominantly grocers. Our largest retail grocer, Giant Eagle, sold their get-go leases to Max Convenience Stores LLC, a wholly owned subsidiary of Alimentation Couchetard. Giant Eagle is still our largest retail grocer, comprising 3.6% of our gross revenue and MEX convenience stores now comprise 1.8% of our gross revenue. Industrial segments, same property, net operating income decreased 2.4%. Industrial occupancy decreased from 98.9% at December 31st, 2024 to 89.9% at June 30th, 2025 due to three properties totaling approximately 626,000 square feet at H&R's ownership share becoming available for rent. The weighted average contractual rent on lease expiry at these three properties was $6.30 per square foot. This represents a significant opportunity to grow rents. In addition, the redevelopment of our former office property at 6900 Moritz Drive, Mississauga into a 122,000 square foot industrial building was completed. and transferred from property under development to investment properties. This property is also currently available for lease. Industrial properties located in the GTA made up 69% of H&R's industrial portfolio as of June 30th, 2025. I would like to reiterate our headline FFO per unit for the six months end of June 30th, 2025. which was 61 cents per unit compared to 60 cents for the same period last year. We are pleased with these results as we have sold $470 million of revenue-producing properties in the 18 months since January 1, 2024. Our FFO payout ratio was a healthy 49.2% for the six months ended June 30, 2025, and our ASFO payout ratio was also healthy at 59.4%. sheet remains strong. Debt to total assets of the REITs proportionate share June 30th, 2025 was 45.5% and debt to EBITDA was 9.2 times. Our unencumbered property pool totaled approximately $4.3 billion. Our unencumbered assets to unsecured debt coverage ratio was 2.2 times at June 30th, 2025. Regarding the special committee process. The Special Committee of Independent Trustees, together with its financial and legal advisors, continues to evaluate value-maximizing alternatives and determine the best path forward for the REIT and its unit holders. The Special Committee was formed in February 2025 following receipt of an unsolicited expression of interest. Since that time, it has received additional interest and is currently engaged in discussions with multiple parties. The REIT continues to believe in the long-term strategy, including the strategic repositioning plan, and the Board will only pursue a potential transaction that is in the best interest of the REIT and its unit holders. At this time, there's no certainty that a transaction will result, nor is there a defined timeline for the process to conclude. During the three and six months ended June 30th, 2025, H&R incurred $8.7 million in transaction costs related to the potential transaction, which primarily consists of legal and advisor fees for the REIT and the special committee. With that, I will turn the call over to Emily for an update from the LandTower residential segments.