H&R REIT Reports Q4 2023 Results, Solidifying Growth Strategy
H&R REIT (TSX: HR.UN) has unveiled its Q4 2023 financial results, showcasing significant progress in its five-year plan to transform into a growth-focused real estate investment trust. The company's update highlights a surge in same-property net operating income across its diverse portfolio, including residential, industrial, office, and retail segments, all of which experienced gains. Furthermore, funds from operations (FFO) for the quarter were $0.30 per unit, resulting in a total of $1.33 per unit for the entire year. H&R REIT also saw an 18.6% increase in cash distribution per unit, reaching $0.70. The company's efforts in reducing debt and boosting liquidity have set the stage for future sales and acquisitions.
Key Achievements
H&R REIT has successfully completed key milestones outlined in its strategic blueprint, which included the spinoff of Primaris REIT and significant investments in sustainable properties totaling $2.4 billion. The company also managed to significantly reduce its debt by repurchasing 27 million units, amounting to $340 million. The update further revealed a noteworthy increase in same-property net operating income across all property types, with the residential sector leading the way with an 18.7% rise. The total FFO for Q4 2023 stood at $0.30 per unit, contributing to an annual total of $1.33 per unit. Additionally, cash distributions saw a substantial 18.6% hike, reaching $0.70 per unit. With liquidity surpassing $950 million and an unencumbered property pool valued at approximately $4.2 billion, H&R REIT is in a strong position to pursue future opportunities.
Future Outlook
Building on its momentum, H&R REIT plans to offload properties worth $293 million in 2024. The company expects low cap rates to persist for Sunbelt multifamily assets. Additionally, H&R REIT aims to achieve property sales comparable to the $430 million achieved in the previous year.
Challenges and Opportunities
The Greater Toronto Area has witnessed a decline of 40% to 50% in residential property values, posing challenges for H&R REIT. The market for acquisitions remained lukewarm in Q4 2023, although a rebound is anticipated in the second half of 2024, contingent on a decrease in interest rates. Lantower's residential division reported a 12.6% increase in same-asset net operating income, indicating some optimism for 2024 without providing explicit guidance.
The company did not disclose specific disposition targets for 2024, nor did it provide guidance for Lantower's same-store revenue, expenses, and net operating income for 2024. The potential impact of the Hess and Chevron merger on the disposition of Hess Tower remains uncertain. Nonetheless, H&R REIT is navigating a transformative phase, with strategic divestitures and investments shaping its future growth trajectory. Despite market challenges, the company's improved financial position and focus on growth-oriented assets lay a solid foundation for continued advancement in 2024.
Analyst comment
Positive news. H&R REIT reported strong Q4 2023 results, with net operating income and cash distributions per unit increasing. They also reduced debt and improved liquidity, setting the stage for future sales and acquisitions. The outlook includes plans to offload properties and expectations of a rebound in the acquisitions market. Challenges include declining residential property values in the Greater Toronto Area. Overall, H&R REIT’s enhanced financial standing and growth-oriented assets position them for continued advancement in 2024.
