1 | H&R REIT Annual Report 2022
H&R REIT
2024 ANNUAL REPORT
2 | H&R REIT Annual Report 2022
2 | H&R REIT 2024 Annual Report
Lantower West Love
Dallas, TX
ABOUT THE COVER
Lantower West Love is a premier residential
community in Dallas, TX, designed for modern
living. This newly built, five-storey property
features
413
thoughtfully
designed
suites,
upscale amenities, and seamless connectivity to
the city. Residents enjoy a resort-style pool, co-
working spaces, micro-offices, and a double-
volume fitness center with a spin room, yoga
studio, and on-demand classes—all within a
National
Green
Building
Standard
Silver-
certified community. Unique perks like a Grab &
Go Market and a self-serve table tap system with
cold brew coffee add an elevated touch to daily
life. Ideally located near Dallas Love Field Airport
and major highways, Lantower West Love is part
of the vibrant West Love district, offering easy
access to retail, dining, and entertainment. As
Dallas-Fort Worth continues to grow, Lantower
West Love delivers a dynamic living experience
in one of the city’s most exciting locations.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF H&R REAL ESTATE INVESTMENT TRUST
For the year ended December 31, 2024
Dated: February 12, 2025
TABLE OF CONTENTS
SECTION I ......................................................................................................................................................................................
1
Basis Of Presentation .................................................................................................................................................................
1
Forward-Looking Disclaimer .......................................................................................................................................................
1
Overview and Strategy ...............................................................................................................................................................
2
Strategic Repositioning Highlights Since Q2 2021 ......................................................................................................................
4
Environmental, Social and Governance .....................................................................................................................................
4
SECTION II .....................................................................................................................................................................................
7
Summary of Significant 2024 Activity .........................................................................................................................................
7
Portfolio Summary .....................................................................................................................................................................
12
Key Performance Drivers ............................................................................................................................................................
13
Portfolio Overview ......................................................................................................................................................................
14
Lease Maturity Profile ................................................................................................................................................................
15
Top Twenty Sources of Revenue by Tenant ...............................................................................................................................
16
Financial Highlights .....................................................................................................................................................................
17
SECTION III ....................................................................................................................................................................................
18
Financial Position ........................................................................................................................................................................
18
Investment Properties ................................................................................................................................................................
19
Valuation of Real Estate Assets ..................................................................................................................................................
21
Intensification Opportunities .....................................................................................................................................................
22
Properties Under Development .................................................................................................................................................
23
Equity Accounted Investments ...................................................................................................................................................
25
Debt ............................................................................................................................................................................................
28
Other Liabilities ..........................................................................................................................................................................
30
Unitholders’ Equity .....................................................................................................................................................................
33
Results of Operations .................................................................................................................................................................
35
Net Operating Income ................................................................................................................................................................
37
Segment Information .................................................................................................................................................................
38
Net Income, FFO And AFFO From Equity Accounted Investments ............................................................................................
41
Income and Expense Items .........................................................................................................................................................
42
Funds From Operations and Adjusted Funds From Operations .................................................................................................
46
Liquidity and Capital Resources ..................................................................................................................................................
48
Off-Balance Sheet Items .............................................................................................................................................................
52
Derivative Instruments ...............................................................................................................................................................
53
Selected Financial Information ...................................................................................................................................................
53
SECTION IV ....................................................................................................................................................................................
55
Non-GAAP Measures and Non-GAAP Ratios ..............................................................................................................................
55
Critical Accounting Estimates and Judgements ..........................................................................................................................
58
Disclosure Controls and Procedures and Internal Control over Financial Reporting ................................................................
59
Risks and Uncertainties ..............................................................................................................................................................
59
Outstanding Unit Data ................................................................................................................................................................
72
Additional Information ...............................................................................................................................................................
72
Subsequent Event .......................................................................................................................................................................
72
SECTION I
BASIS OF PRESENTATION
Management’s Discussion and Analysis (“MD&A”) of the results of operations and financial position of H&R Real Estate Investment
Trust (“H&R” or “the REIT”) for the year ended December 31, 2024 includes material information up to February 12, 2025. Financial
data for the years ended December 31, 2024 and 2023 have been prepared in accordance with IFRS Accounting Standards (“IFRS”) as
issued by the International Accounting Standards Board. This MD&A should be read in conjunction with the audited consolidated
financial statements of the REIT and related notes for the year ended December 31, 2024 (“REIT’s Financial Statements”). All
amounts in this MD&A are in thousands of Canadian dollars, except where otherwise stated. Historical results, including trends
which might appear, should not be taken as indicative of future operations or results.
The Bow office property in Calgary, AB (the “Bow”) was legally disposed of in October 2021. The 100 Wynford office property in
Toronto, ON (“100 Wynford”) was legally disposed of in August 2022. These transactions did not meet the criteria of a transfer of
control under IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) as the REIT has an option to repurchase 100% of both of
these properties for a fixed price in 2038 and 2036, respectively, or earlier under certain circumstances. As such, the REIT continues
to recognize these income producing properties in the REIT’s Financial Statements and MD&A. Certain operating metrics within this
MD&A have been adjusted to exclude the impact of the Bow and 100 Wynford and H&R has identified these disclosures accordingly.
Refer to the “Other Liabilities - Deferred Revenue” section of this MD&A for further information.
FORWARD-LOOKING DISCLAIMER
Certain information in this MD&A contains forward-looking information within the meaning of applicable securities laws (also known
as forward-looking statements) including, among others, statements made or implied under the headings “Investment Properties”,
“Intensification Opportunities”, “Other Liabilities”, “Liquidity and Capital Resources”, “Environmental, Social and Governance”,
“Properties Under Development”, and “Equity Accounted Investments” relating to H&R’s objectives, beliefs, plans, estimates,
targets, projections and intentions and similar statements concerning anticipated future events, results, circumstances, performance
or expectations that are not historical facts, including the statements made under the heading “Summary of Significant 2024
Activity” including with respect to H&R’s future plans and targets, H&R's intention to continue disposing of office and retail
properties, the expected timing of, and gross proceeds from, properties under contract to be sold, H&R's strategy to grow its
exposure to residential assets in U.S. sun belt and gateway cities, the ability of H&R to capture potential upside in the Calgary office
market, leasing of the REIT's investment properties and the termination and expiry of existing leases, H&R’s expectation with respect
to the future developments and activities of its development properties, including the acquisition, development and use of new
properties, the expected yield on cost from the REIT’s development properties, the timing of approvals, construction and
completion, expected construction costs and funding thereof, anticipated number of units and square footage, H&R’s expectations
and intentions with respect to zoning and rezoning applications, expected credit losses, the impact of the REIT’s commitment to
sustainability on its portfolio, the value of assets and liabilities held for sale, capitalization rates and cash flow models used to
estimate fair values, expectations regarding future operating fundamentals, management’s expectations regarding future
distributions by the REIT, and management’s expectation to be able to meet all of the REIT’s ongoing obligations. Forward-looking
statements generally can be identified by words such as “outlook”, “objective”, “may”, “will”, “expect”, “intend”, “estimate”,
“anticipate”, “believe”, “should”, “plans”, “project”, “budget” or “continue” or similar expressions suggesting future outcomes or
events. Such forward-looking statements reflect H&R’s current beliefs and are based on information currently available to
management.
Forward-looking statements are provided for the purpose of presenting information about management’s current expectations and
plans relating to the future, and readers are cautioned that such statements may not be appropriate for other purposes. These
statements are not guarantees of future performance and are based on H&R’s estimates and assumptions that are subject to risks,
uncertainties and other factors including those risks and uncertainties described below under “Risks and Uncertainties” and those
discussed in H&R’s materials filed with the Canadian securities regulatory authorities from time to time, which could cause the
actual results, performance or achievements of H&R to differ materially from the forward-looking statements contained in this
MD&A. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-
looking statements include assumptions relating to the general economy, including debt markets continuing to provide access to
capital at a reasonable cost; and assumptions concerning currency exchange and interest rates. Additional risks and uncertainties
include, among other things, those related to: real property ownership; the current economic environment; strategic
transformational repositioning plan; credit risk and tenant concentration; lease rollover risk; interest rate and other debt-related
H&R REIT - MD&A - December 31, 2024
Page 1 of 72
risks; inflation risk; development risks; residential rental risk; capital expenditure risk; currency risk; liquidity risk; cyber security risk;
financing credit risk; ESG and climate change risk; risks associated with disease outbreaks; co-ownership interest in properties;
general uninsured losses; joint arrangement and investment risks; dependence on key personnel and succession planning; potential
acquisition, investment and disposition opportunities and joint venture arrangements; potential undisclosed liabilities associated
with acquisitions; competition for real property investments; potential conflicts of interest; litigation and regulatory risk; Unit prices;
availability of cash for distributions; credit ratings; ability to access capital; dilution; unitholder liability; redemption right; investment
eligibility; debentures; statutory remedies; tax risk; and additional tax risks applicable to the REIT and to unitholders. H&R cautions
that these lists of factors, risks and uncertainties are not exhaustive. Although the forward-looking statements contained in this
MD&A are based upon what H&R believes are reasonable assumptions, there can be no assurance that actual results will be
consistent with these forward-looking statements.
Readers are also urged to examine H&R’s materials filed with the Canadian securities regulatory authorities from time to time as
they may contain discussions on risks and uncertainties which could cause the actual results and performance of H&R to differ
materially from the forward-looking statements contained in this MD&A. All forward-looking statements in this MD&A are qualified
by these cautionary statements. These forward-looking statements are made as of February 12, 2025 and the REIT, except as
required by applicable Canadian law, assumes no obligation to update or revise them to reflect new information or the occurrence
of future events or circumstances.
OVERVIEW AND STRATEGY
H&R is one of Canada’s largest real estate investment trusts with total assets of approximately $10.6 billion as at December 31,
2024. H&R has ownership interests in a North American portfolio comprised of high-quality residential (operating as Lantower
Residential), industrial, office and retail properties totalling approximately 26.0 million square feet. H&R is an unincorporated open-
ended trust created by a declaration of trust (“H&R’s Declaration of Trust”) and governed by the laws of the Province of Ontario.
H&R’s units (“Units”) are listed and posted for trading on the Toronto Stock Exchange (“TSX”) under the symbol HR.UN. H&R’s
objective is to maximize net asset value (“NAV”) per Unit through ongoing active management of H&R’s assets and the development
and construction of projects.
H&R’s strategy is to create a simplified, growth-oriented business focused on residential and industrial properties in order to create
sustainable long-term value for unitholders. H&R is currently undergoing a repositioning plan and intends to sell its office and retail
properties as market conditions permit. H&R’s vision is to be a leading owner, operator and developer of residential and industrial
properties, creating value through redevelopment and greenfield development in prime locations within Toronto and high growth
U.S. sun belt and gateway cities.
H&R REIT - MD&A - December 31, 2024
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Since the announcement of H&R’s Strategic Repositioning Plan, H&R has sold ownership interests in 58 real estate assets totalling
approximately $2.9 billion, including the Bow and 100 Wynford. In addition, H&R completed a spin off, on a tax-free basis, of 27
properties including all of the REIT’s enclosed shopping centres to a new publicly-traded REIT, Primaris REIT, valued at approximately
$2.4 billion at the time of the spin off.
Real Estate Assets (Fair Value by Segment)(1)
June 30, 2021⁽²⁾
Residential
25%
Industrial
10%
Office
36%
Retail
29%
December 31, 2024⁽³⁾
Residential
49%
Industrial
18%
Rezoning⁽⁴⁾
4%
Office
14%
Retail
15%
Real Estate Assets (Fair Value by Region)(1)
June 30, 2021⁽²⁾
Canada
56%
United States
44%
December 31, 2024⁽³⁾
Canada
30%
United States
70%
(1)
At the REIT’s proportionate share. Refer to the “Non-GAAP Measures” section of this MD&A.
(2)
June 30, 2021 has been used as a benchmark since H&R’s Strategic Repositioning Plan was announced prior to the release of H&R’s Q3 2021 results.
(3)
Excludes the Bow and 100 Wynford, which were legally sold in October 2021 and August 2022, respectively.
(4)
Includes four office properties advancing through the process of rezoning into residential properties.
H&R REIT - MD&A - December 31, 2024
Page 3 of 72
STRATEGIC REPOSITIONING HIGHLIGHTS SINCE JUNE 30, 2021(1)
•
H&R completed a spin off, on a tax-free basis, of 27 properties including all of the REIT’s enclosed shopping centres to a new
publicly-traded REIT, Primaris REIT, which properties were valued at approximately $2.4 billion at the time of the spin off;
•
H&R sold 58 real estate assets totaling approximately $2.9 billion, including the Bow and 100 Wynford;
•
H&R to date has sold or contracted to sell a further $59.9 million of properties in 2025;
•
H&R reduced its office portfolio at the REIT’s proportionate share(2) including assets classified as held for sale, from
approximately $5.1 billion as at June 30, 2021 to approximately $1.9 billion as at December 31, 2024 (excluding the Bow and
100 Wynford);
•
H&R reduced its retail portfolio at the REIT’s proportionate share(2) including assets classified as held for sale, from
approximately $4.0 billion as at June 30, 2021 to approximately $1.6 billion as at December 31, 2024;
•
H&R increased its percentage of residential and industrial real estate assets at the REIT’s proportionate share(2) including
assets classified as held for sale, from 35% as at June 30, 2021 to 67% as at December 31, 2024;
•
H&R increased its percentage of real estate assets held in the United States at the REIT’s proportionate share(2) including
assets classified as held for sale, from 44% as at June 30, 2021 to 70% as at December 31, 2024 (excluding the Bow and 100
Wynford);
•
H&R completed four single tenant industrial developments in the Greater Toronto Area totalling 519,568 square feet and two
residential developments in Dallas, TX, totalling 763 residential rental units;
•
H&R increased average contractual rent for residential properties from U.S. $21.16 per square foot as at June 30, 2021 to U.S.
$26.84 per square foot as at December 31, 2024;
•
H&R increased average contractual rent for industrial properties from $7.17 per square foot as at June 30, 2021 to $9.66 per
square foot as at December 31, 2024;
•
H&R grew overall portfolio occupancy from 93.7% as at June 30, 2021 to 95.5% as at December 31, 2024;
•
H&R reduced debt per the REIT’s Financial Statements(3) from approximately $6.1 billion as at June 30, 2021 to approximately
$3.6 billion as at December 31, 2024;
•
H&R improved debt to total assets at the REIT’s proportionate share(3)(4) from 50.0% as at June 30, 2021 to 43.7% as at
December 31, 2024;
•
H&R improved its unencumbered asset to unsecured debt coverage ratio(5) from 1.65x as at June 30, 2021 to 2.32x as at
December 31, 2024;
•
H&R improved debt to adjusted EBITDA (based on trailing 12 months) at the REIT’s proportionate share(3)(4)(6) from 10.4x as at
June 30, 2021 to 9.4x as at December 31, 2024.
(1)
June 30, 2021 has been used as a benchmark as H&R’s Strategic Repositioning Plan was announced prior to the release of Q3 2021 results.
(2)
These are non-GAAP measures. Refer to the “Non-GAAP Measures” section of this MD&A.
(3)
Debt includes mortgages payable, debentures payable, unsecured term loans, lines of credit and liabilities classified as held for sale.
(4)
These are non-GAAP ratios. Refer to the “Non-GAAP Measures” section of this MD&A.
(5)
Unencumbered assets are investment properties and properties under development without encumbrances for mortgages or lines of credit. Unsecured debt
includes debentures payable, unsecured term loans and unsecured lines of credit.
(6)
Adjusted EBITDA is defined in the “Debt” section of this MD&A. Debt as at December 31, 2024 was calculated using the U.S. dollar to Canadian dollar
exchange rate of $1.44. Adjusted EBITDA for the year ended December 31, 2024 was calculated using the U.S. dollar to Canadian dollar exchange rate of
$1.37.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
As one of Canada’s largest real estate investment trusts, H&R strives to lead by example and be a part of the ever-changing journey
to a more sustainable future. Having an integrated and forward-thinking sustainability program is of utmost importance. H&R
formally implemented its Sustainability Policy and established its Sustainability Committee in 2019. The REIT views sustainability as
its responsibility to its unitholders in terms of transparency, to its employees in terms of communication, collaboration and
opportunity, to its tenants in terms of providing healthy working and living environments and to the greatest extent, to the
communities in which the REIT’s employees live and the REIT does business.
H&R REIT - MD&A - December 31, 2024
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H&R is committed to, among other things, investing responsibly, monitoring its use of resources and associated emissions, reducing
consumption and pollution, increasing energy efficiency and integrating sustainability into the REIT’s business, including the REIT’s
decision-making processes.
H&R published its 2023 Sustainability Report in 2024, highlighting Environmental, Social and Governance (“ESG”) initiatives that
exemplify how the REIT’s commitment to sustainability is manifesting itself in its portfolio and resulting in lasting changes for its
properties, tenants, employees, stakeholders and communities at large. This Sustainability Report outlines the REIT’s ESG framework
and the REIT’s commitment to drive sustainable performance and improvement. H&R continues to work alongside Brightly Software
Canada Inc. (“Brightly Software”), a global leader in intelligent asset management solutions, to benchmark the REIT’s performance
within the real estate investment trust industry, ensuring transparency and continuous improvement year-over-year.
The REIT’s Compensation, Environmental, Social & Governance and Nominating Committee (the “CESG&N Committee”), currently
comprised of Brenna Haysom (Chair), Lindsay Brand, Donald Clow and S. Stephen Gross, is responsible for ESG oversight at the REIT.
Key programs and initiatives include:
Environmental
•
H&R continues to implement programs to reduce carbon emissions, energy use, water use and waste;
•
H&R has tracked and reported on investor grade utility data and emissions for the majority of H&R office properties since 2013;
•
In 2020, H&R expanded its reporting boundary to report utility consumption and emissions wherever H&R has control over
utility use and/or is able to access utility data; the result was an increase in data coverage from 22% of 2018 usage (Carbon
Disclosure Project (“CDP”) 2019 Reporting) to 83% of 2023 usage (CDP 2024 Reporting);
•
For the 2021 reporting period, H&R updated its reporting boundary to follow the ‘Operational Control’ approach, as defined by
the Greenhouse Gas (“GHG”) Protocol, to align with recent industry trends and the latest reporting guidance for real estate
organizations. Under the operational control approach, 100% of emissions are reported from operations in which H&R or one of
its subsidiaries has operational control;
•
For the 2023 reporting period, H&R updated its reporting base year from a rolling base year to a fixed base year of 2019, which
is the first year H&R expanded its GHG inventory coverage to include retail, industrial, and residential properties in addition to
major commercial office properties;
•
H&R is reporting on select Global Reporting Initiative (GRI) indicators, as well as select Sustainability Accounting Standards
Board (SASB) indicators. Both frameworks provide H&R the capacity to benchmark its performance within the REIT industry,
ensuring transparency;
•
H&R’s like-for-like energy use decreased by 9.2% in 2023 compared to 2022;
•
H&R’s like-for-like water use decreased by 5.0% in 2023 compared to 2022;
•
Through continued progress in energy efficiency, H&R’s market based GHG emissions decreased by 8.2% in 2023 compared to
2022, resulting in an overall year-over-year reduction of 7.9% in comparison to the base year of 2019;
•
H&R is confident that the continued efficiency improvements the REIT has implemented will be reflected in its energy and utility
performance in future years;
•
To further expand utility data coverage, H&R implemented waste tracking at H&R managed properties in 2021 wherever H&R
manages waste collection and is able to access diversion reports;
•
H&R engaged KPMG LLP (“KPMG”) to provide limited assurance over selected Scope 1, 2 and 3 data for GHG emissions included
in the Sustainability Report Supplement for the year ended December 31, 2023. The scope of KPMG's engagement and their
assurance report can be found in the Sustainability Report Supplement, available on the REIT’s website;
•
Green building certifications, such as LEED and BOMA BEST, provide third-party validation of property management,
environmental programs and development practices within building portfolios. As at December 31, 2023, 69% of H&R's Office
portfolio (based on net rentable area) was LEED, BOMA Best and/or ENERGY STAR Certified;
•
H&R utilized ENERGY STAR® Portfolio Manager, a cloud-based software program utilized by Natural Resources Canada and the
United States Environmental Protection Agency, to benchmark the energy performance of H&R’s properties. As at December 31,
2023, 78% of H&R’s Office Portfolio is actively tracked on ENERGY STAR® Portfolio Manager, and 100% of H&R’s Lantower
Residential Division is actively tracked on ENERGY STAR® Portfolio Manager;
•
H&R partnered with Brightly Software to develop an Environmental Management System (“EMS”), formalizing its strategic ESG
approach. H&R follows the International Organization for Standardization (“ISO”) 14001-aligned Plan-Do-Check-Act model.
While not ISO 14001 certified, this EMS mirrors its structure, ensuring comparable functionality. The EMS, based on H&R's
Sustainability Policy, is planned to be continuously updated to inform decision making and enhance ESG performance;
H&R REIT - MD&A - December 31, 2024
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•
H&R has created an initial materiality matrix, ranking the topics of Sustainability based on their impact of issue on Environment
and Society, as well as their importance to stakeholders;
•
H&R recognizes the risks posed by climate change and extreme weather events to its real estate portfolio, encompassing both
physical and transitional risks, and strives to build resilience into its business. In 2023, H&R partnered with FM Global to perform
a comprehensive physical climate-related risk and exposure study on 54 properties, covering 47% of the gross floor area of the
entire portfolio. This study helps H&R understand event-driven climate risks across five key climate perils, including extreme
precipitation, wind, temperature, drought, and sea level rise;
•
H&R has reported to the CDP since 2016, reflecting 2015 performance onwards. In 2023 (CDP 2022 Reporting), H&R scored the
same or better than all but two of 16 Canadian real estate investment trusts;
•
Global Real Estate Sustainability Benchmark (“GRESB”) is an independent organization providing validated ESG performance
data and peer benchmarks for investors and managers to improve business intelligence, industry engagement and decision-
making. H&R submitted to the GRESB Real Estate Assessment again in 2024 (based on 2023 performance and data),
exemplifying the REIT’s continued commitment to embed sustainability in every facet of the REIT’s business and advance the
REIT’s long-term ESG strategy; H&R exceeded its peer average in areas including Reporting, Targets and Data Monitoring and
Review;
•
In the fall of 2022, H&R launched its Green Financing Framework, designed to support the REIT’s sustainability strategy as it
continues to expand its building portfolio in an environmentally and socially responsible way. In support of H&R’s strategy, H&R
has established a Green Financing Framework (“the Framework”) which aligns with the Green Bond Principles (the “GBP”)
developed by the International Capital Markets Association as of June 2021 and the Green Loan Principles (the “GLP”)
developed by the Loan Market Association as of February 2021. Morningstar Sustainalytics supplied a Second-Party Opinion
confirming the Framework is credible, impactful and aligns with the four core components of the GBP and the GLP, each
published in 2021; and
•
H&R has well established governance structures such as the Investment Committee of the Board of Trustees of the REIT (the
“Board”) to oversee and approve acquisitions in line with the REIT's strategic plan. H&R conducts environmental due diligence
prior to acquiring a property, obtains and/or peer reviews Phase I Environmental Site Assessment reports conducted by
independent and experienced consultants and, if recommended, undertakes further remedial action and monitoring.
Social
•
As at December 31, 2024, 50% of H&R’s Tier 1 and 2 Executives and 46% of H&R’s Tier 3 Executives were women. Overall, 41%
of H&R’s workforce were women.
•
H&R is proud to have been recognized in 2024 by The Globe & Mail’s “Women Lead Here” highlighting the emphasis H&R places
on diversity and inclusion and has been recognized for the fifth consecutive year;
•
H&R has programs to encourage volunteer hours, continuing education and physical fitness;
•
H&R’s corporate and on-site staff participate in employee and community charity initiatives and programs. In addition, H&R is
proud to support the efforts of its Lantower Residential division with its Live to Give program, which works with several
reputable charitable organizations to provide food, shelter and resources to local communities where Lantower Residential
properties are located;
•
H&R’s Lantower Residential Division was again named among the“Best Places to Work” by Glassdoor; “Best Workplaces in
Texas” by FORTUNE in partnership with Great Place to Work Certified Institute; “Great Place to Work Certified” by Great Place
to Work Certified Institute; “Best Places to Work in Multifamily”, “Best Places to Work in Multifamily for Women”, “Best Places
to Work in Florida” and “Best Places to Work in Texas”, all by Best Companies Group;
•
Employee and professional advancement is encouraged with first consideration given to existing staff. This allows movement
and growth within the organization, thus enabling our employees to acquire new skills and achieve personal development;
•
H&R offers a Group Retirement Savings Program with a corporate match to encourage employee savings;
•
H&R offers professional fee reimbursement and contributions to relevant professional development courses;
•
H&R has assisted employees with time off, flexible hours and extended leaves of absence to promote good health and pursue
their outside interests and goals; and
•
H&R has a human rights policy and diversity policy which can be found on H&R's website.
Governance
•
Use of an independent Lead Trustee to encourage independent leadership among the Trustees of the REIT (“Trustees”);
•
Use of a minimum unit ownership requirement for Trustees and named executive officers;
•
Majority independent Board, with 80% of the Board being fully independent as at December 31, 2024;
•
Trustees are subject to 10-year term limits (subject to the Board’s ability to waive such limit);
H&R REIT - MD&A - December 31, 2024
Page 6 of 72
•
40% of the members of the Board were women, exceeding the 30% Club Canada’s aim for better gender balance at the board
level;
•
Short term incentive plan for the Chief Executive Officer (“CEO”) and Chief Financial Officer’s (“CFO”) of the REIT is based on
corporate performance inclusive of strategic and ESG objectives;
•
Use of a clawback policy applicable to all incentive compensation;
•
Use of a “Say on Pay” vote and independent compensation advisor retained by the CESG&N Committee;
•
Use of a Code of Business Conduct and Ethics, Whistleblower Policy, Trading Policy, Disclosure and Social Media Policy and
Human Rights Policy (“Corporate Policies”);
•
On an annual basis, each employee acknowledges that they have reviewed the REIT’s Corporate Policies and that they agree to
comply with them; and
•
Implemented a vendor code of conduct to reinforce H&R's belief that all suppliers whom H&R associates with, align with H&R’s
culture of integrity and accountability.
For more information on H&R’s Sustainability Policy and additional information about its Sustainability Committee, Sustainability
Report and Sustainability Report Supplement as well as H&R’s Green Financing Framework and Second-Party Opinion of Green
Financing Framework, visit H&R’s website under “Investor Relations - Sustainability”. The contents of the REIT’s website, including
the REIT’s Sustainability Policy, Sustainability Report and Sustainability Report Supplement, Green Financing Framework and Second-
Party Opinion of Green Financing Framework, are expressly not incorporated by reference into, and do not form part of, this MD&A.
SECTION II
SUMMARY OF SIGNIFICANT 2024 ACTIVITY
2024 Net Operating Income Highlights
Three months ended December 31
Year ended December 31
(in thousands of Canadian dollars)
2024
2023
% Change
2024
2023
% Change
Operating Segment:
Same-Property net operating income (cash basis) - Residential(1)
$43,559
$41,451
5.1 % $168,417 $165,143
2.0 %
Same-Property net operating income (cash basis) - Industrial(1)
17,396
16,902
2.9 %
67,851
65,235
4.0 %
Same-Property net operating income (cash basis) - Office(1)
38,467
38,255
0.6 %
154,628
159,019
(2.8) %
Same-Property net operating income (cash basis) - Retail(1)
25,465
24,499
3.9 %
100,245
95,467
5.0 %
Same-Property net operating income (cash basis)(1)
124,887
121,107
3.1 %
491,141
484,864
1.3 %
Net operating income (cash basis) from Transactions at the REIT's
proportionate share(1)(2)
28,837
36,664
(21.3) %
125,158
159,309
(21.4) %
Realty taxes in accordance with IFRIC 21 at the REIT's
proportionate share(1)(3)
14,686
14,946
(1.7) %
—
—
— %
Straight-lining of contractual rent at the REIT's proportionate
share(1)
3,527
2,623
34.5 %
18,256
12,100
50.9 %
Net operating income from equity accounted investments(1)
(30,788)
(27,980)
(10.0) % (114,637) (109,669)
(4.5) %
Net operating income per the REIT's Financial Statements
$141,149 $147,360
(4.2) % $519,918 $546,604
(4.9) %
(1)
These are non-generally accepted accounting principles (“GAAP”) measures. Refer to the “Non-GAAP Measures” section of this MD&A.
(2)
Transactions are defined in the “Net Operating Income” section of this MD&A.
(3)
IFRIC 21 is defined in the “Non-GAAP Measures” section of this MD&A.
Refer to the “Net Operating Income” section of this MD&A for further explanations on the net operating income changes for the
three months and year ended December 31, 2024.
H&R REIT - MD&A - December 31, 2024
Page 7 of 72
Fair Value Adjustment on Real Estate Assets
Three months ended December 31
Year ended December 31
(in thousands of Canadian dollars)
2024
2023
Change
2024
2023
Change
Operating Segment:
Residential
$56,099
($278) $56,377 ($39,312) ($122,306) $82,994
Industrial
5,225
2,724
2,501 (24,872)
10,841 (35,713)
Office
(36,869) (46,091)
9,222 (275,732) (256,494) (19,238)
Retail
(14,385)
(3,110) (11,275) (114,684) (45,689) (68,995)
Land and properties under development
485 (19,310)
19,795 (27,178)
18,690 (45,868)
Fair value adjustment on real estate assets per the REIT's proportionate share(1)
10,555 (66,065)
76,620 (481,778) (394,958) (86,820)
Less: equity accounted investments
(63,820) (131,522)
67,702
55,894 (91,146) 147,040
Fair value adjustment on real estate assets per the REIT's Financial Statements
($53,265) ($197,587) $144,322 ($425,884) ($486,104) $60,220
(1)
The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
Refer to the “Fair Value Adjustment on Real Estate Assets” section of this MD&A for further explanations on the fair value
adjustments on real estate assets for the three months and year ended December 31, 2024.
Transaction Highlights
Property Dispositions
During the year ended December 31, 2024, H&R sold its ownership interests in 13 real estate assets for gross proceeds of
approximately $429.0 million.
Subsequent to December 31, 2024, H&R sold its ownership interests in seven Canadian retail properties totalling 336,695 square
feet for gross proceeds of $49.8 million. Three of these properties were encumbered with mortgages totalling approximately $13.0
million at H&R’s ownership interest and bearing interest at a weighted average interest rate of 2.9%, which were assumed by the
purchaser on closing.
H&R continues to successfully execute on its strategic repositioning plan with real estate assets sold or under contract to be sold
totalling approximately $488.9 million, for the year ended December 31, 2024.
Leasing Highlights:
In Q1 2024, H&R completed a new 10-year lease for a 125,220 square foot industrial property in Kitchener, ON, at H&R’s 50%
ownership interest. The previous tenant vacated in January 2024. The new tenant’s lease commenced in March 2024 and annual
contractual rent increased by $7.30 per square foot with annual contractual rent escalations. The new tenant had a free rent period
from March 2024 to August 2024.
During the year ended December 31, 2024, H&R completed ten industrial lease renewals across Canada totaling approximately
422,924 square feet at H&R’s ownership interest and achieved an average rent increase of 76.6% or $5.81 per square foot. In
addition, H&R completed a 5-year lease renewal on a 369,051 square feet industrial property in Toronto, ON at H&R’s 50%
ownership interest. The original lease was set to expire in July 2025 and H&R expects to finalize the rental rates prior to the
commencement of the renewal period.
In Q4 2024, H&R completed a new 10-year lease and a 10-year lease renewal totalling 146,080 square feet at two office properties.
The existing leases are set to expire in 2026.
H&R REIT - MD&A - December 31, 2024
Page 8 of 72
Development Update
Canadian Properties under Development
In January 2024, development of two of the REIT’s industrial properties, 1965 and 1925 Meadowvale Boulevard in Mississauga, ON
reached practical completion and the properties were transferred from properties under development to investment properties. The
properties are fully leased with annual contractual rental escalations; both leases commenced in February 2024 and will expire in
May 2036 and March 2037, respectively. The REIT recognized a fair value increase of $19.3 million on these properties between the
start of construction and practical completion.
In Q1 2024, H&R transferred 6900 Maritz Drive in Mississauga, ON from investment properties to properties under development. In
January 2024, H&R received approval from the City of Mississauga to replace the existing 104,689 square foot office building on the
property with a new 122,367 square foot industrial building. Demolition of the existing office building was completed in April 2024.
The property will include sustainability elements such as EV charging stations and solar panel readiness and is targeted to achieve
LEED Gold certification. Construction has commenced and practical completion is expected in Q2 2025. As at December 31, 2024,
the total development budget for this property was approximately $43.6 million with costs remaining to complete the new building
of approximately $9.1 million.
In Q3 2024, H&R transferred 53 & 55 Yonge Street in Toronto, ON from investment properties to properties under development. The
buildings are fully vacant and demolition commenced in Q1 2025. H&R elected to demolish both buildings in order to reduce
property operating costs. H&R will continue to advance the rezoning process for these properties, but does not have any plans to
start re-developing these properties in the near future.
Refer to the “Properties Under Development - Canadian Properties Under Development” section of this MD&A for further
information.
U.S. Properties under Development
In Q3 2024, Lantower West Love, a 413 residential rental unit property in Dallas, TX, reached practical completion and was
transferred from properties under development to investment properties. The REIT recognized a fair value increase of $31.3 million
(U.S. $23.2 million). The property was completed on budget with costs remaining to complete of $9.2 million (U.S. $6.4 million), and
the stabilized yield on budgeted cost is expected to be 5.7%. As at December 31, 2024, there were 210 residential rental units
leased, of which 198 residential rental units were occupied. As at February 4, 2025, there were 240 residential rental units leased, of
which 225 residential rental units were occupied.
In Q4 2024, Lantower Midtown, a 350 residential rental unit property in Dallas, TX, reached practical completion and was transferred
from properties under development to investment properties. The REIT recognized a fair value increase of $23.0 million (U.S. $16.0
million). The property was completed on budget with costs remaining to complete of approximately $10.6 million (U.S. $7.4 million),
and the stabilized yield on budgeted cost is expected to be 5.7%. As at December 31, 2024, there were 120 residential rental units
leased, of which 87 residential rental units were occupied. As at February 4, 2025, there were 160 residential rental units leased, of
which 125 residential rental units were occupied.
Refer to the “Properties Under Development - U.S. Properties Under Development” section of this MD&A for further information.
Equity Accounted Investments
H&R has a 50% managing ownership interest in 560 & 600 Slate Drive, a 26.6 acre land site in Mississauga, ON, located next to
Toronto Pearson International Airport and in close proximity to access points on the 410, 401 and 407 Highways. The partnership
through which H&R owns its interest submitted a Site Plan Approval application in 2022 to develop two single storey industrial
buildings totalling 309,727 square feet and 160,485 square feet, respectively. Both buildings have been designed with flexibility such
that they can accommodate either single or multiple tenants. Both will include sustainability elements such as EV charging stations
and solar panel readiness and are targeted to achieve LEED Gold certification. As at December 31, 2024, the total budget for 560 &
600 Slate Drive was approximately $66.3 million with costs remaining to complete of $27.2 million, all at H&R’s ownership interest.
In Q3 2024, H&R obtained an external appraisal and recognized a fair value increase of $8.4 million at H&R’s ownership interest
primarily due to strong industrial demand given the close proximity to the airport and access points to the three major highways.
H&R REIT - MD&A - December 31, 2024
Page 9 of 72
The yield on cost for the overall project is expected to be approximately 6.6% with completion expected in Q3 2025. H&R is the
development and leasing manager for this project and expects to earn approximately $2.4 million in aggregate for these services
over the development period of the project.
In February 2024, the REIT created Lantower Residential Real Estate Development Trust (No. 1) (the “REDT”) which completed an
initial public offering in April 2024. The REDT raised U.S. $52.0 million of equity capital from investors to acquire an interest in and
fund the development of two residential development projects (the “REDT Projects”) in Florida totalling 601 residential rental units.
The REIT contributed the land to Lantower Residential REDT (No.1) JV LP (“REDT JV LP”), in exchange for a 29.1% ownership interest
in the REDT JV LP. The REIT is accounting for its ownership interest in the REDT Projects as an equity accounted investment. H&R
retains an option to acquire the REDT Projects, subject to approval by the investors of the REDT. H&R is earning a development fee
of 4% of the total hard and soft costs of the REDT Projects (excluding land and financing costs) and is expecting to earn a 1% asset
management fee on gross proceeds raised by the REDT. H&R will also be entitled to 20% of the distribution proceeds over and above
its pro-rata share of the equity after investors receive an 8% internal rate of return and 30% after investors receive a 15% internal
rate of return. As at December 31, 2024, the total budget for the REDT Projects was approximately $87.8 million (U.S. $61.0 million)
with costs remaining to complete of $67.1 million (U.S. $46.6 million), all at H&R’s ownership interest. The REDT Projects are
expected to be completed in mid-2026.
Future Intensification
In January 2024, the Toronto East York Community Council approved H&R’s official plan and zoning by-law amendment application
at 69 Yonge Street to convert the existing heritage building from office use to 127 residential units. The approval facilitates adaptive
reuse of the existing 15-storey building, while adding density through infilling the southeast corner of the building and adding 5
residential floors to the overall height. H&R is addressing the conditions outlined by the Toronto East York Community Council and
anticipates that the zoning by-law amendment will come into effect by the end of Q1 2025.
In February 2024, following the final reading of the New Urban Plan, the City of Dorval enacted new by-laws and zoning regulations,
amending the allowable density and permitted uses at 200 Bouchard Boulevard to include residential development.
In October 2024, H&R submitted rezoning applications to the City of Toronto for 53 & 55 Yonge St., 145 Wellington St. W., and 310
Front St. W., to remove the current approved replacement office density and instead replace the office area with residential uses,
including some affordable housing. H&R submitted these new applications given the changes in the office market over the past few
years including the rise of hybrid work and reduced demand for office space. H&R anticipates receiving approval for these
applications in Q4 2025. Along with the changes proposed to 310 Front St. W., H&R also submitted a rezoning application to replace
the existing 12-storey office building at 330 Front St W., with a 65-storey mixed use tower. Refer to the “Intensification
Opportunities” section of this MD&A for further information.
2024 Cash Distributions
H&R’s cash distributions amounted to $0.72 per Unit during 2024 (2023 - $0.70 per Unit) which comprised: (i) monthly cash
distributions in aggregate of $0.60 per Unit (2023 - $0.60 per Unit); and (ii) a special cash distribution of $0.12 per Unit, further
described below (2023 - $0.10 per Unit).
For the year ended December 31, 2024, H&R’s payout ratio as a percentage of Adjusted Funds from Operations (“AFFO”) (a non-
GAAP ratio, refer to the “Non-GAAP Measures” section of this MD&A) was 75.5% (2023 - 63.0%).
2024 Taxation Consequences for Taxable Canadian Unitholders
H&R's cash distributions amounted to $0.72 per Unit during 2024 (including a $0.12 per Unit special cash distribution to unitholders
of record on December 31, 2024). The REIT also made a special distribution to unitholders of record on December 31, 2024 of $0.60
per Unit payable in additional Units, which were immediately consolidated such that there was no change in the number of
outstanding Units. The cash portion of the special distribution was intended to provide liquidity to unitholders to cover all or part of
an income tax obligation that may arise from the additional taxable income being distributed via the special distribution. The
amount of the special distribution payable in Units ($0.60 per Unit) will increase the adjusted cost basis of unitholders’ consolidated
Units.
H&R REIT - MD&A - December 31, 2024
Page 10 of 72
Debt & Liquidity Highlights
Mortgages
During the year ended December 31, 2024, H&R repaid four mortgages and one mortgage was assumed by a purchaser totalling
$146.2 million at a weighted average interest rate of 4.6%.
Debentures
In January 2024, H&R redeemed all of its $350.0 million Series N Senior Debentures, which bore interest at 3.369% per annum.
In February 2024, H&R completed a private placement of $250.0 million Series T Senior Debentures, bearing interest at 5.457% and
maturing February 28, 2029.
Unsecured Term Loans
In March 2024, H&R secured a two-year extension on a $250.0 million unsecured term loan which will now mature on March 7,
2027.
In April 2024, H&R secured a one-year extension on a $125.0 million unsecured term loan which will now mature on November 30,
2026.
Lines of Credit
In March 2024, H&R secured a two-year extension on its $150.0 million revolving unsecured line of credit which will now mature on
September 20, 2026. In October 2024, H&R secured a one-year extension on this revolving unsecured line of credit which will now
mature on September 20, 2027.
In December 2024, H&R secured a two-year extension on $520.0 million of its $750.0 million revolving unsecured line of credit which
will now mature on December 14, 2029. The remaining $230.0 million will mature on December 14, 2027.
Liquidity
As at December 31, 2024, H&R had cash and cash equivalents of $100.4 million, $843.6 million available under its unused lines of
credit and an unencumbered property pool of approximately $4.4 billion.
As at December 31, 2024, debt to total assets per the REIT’s Financial Statements was 33.4% compared to 34.2% as at December 31,
2023. As at December 31, 2024, debt to total assets at the REIT’s proportionate share (a non-GAAP ratio, refer to the “Non-GAAP
Measures” section of this MD&A) was 43.7% compared to 44.0% as at December 31, 2023.
Environmental, Social and Governance
H&R published its 2023 Sustainability Report in 2024, highlighting ESG initiatives that exemplify how the REIT’s commitment to
sustainability is manifesting itself in its portfolio and resulting in lasting changes for its properties, tenants, employees, stakeholders
and communities at large.
In August 2024, H&R’s 6900 Maritz Drive industrial development site in Mississauga, ON was shortlisted for a World Demolition
Award in the Recycling & Environmental category. The project involved the demolition of a 104,689-square-foot steel structure
office building with a total weight of 8,758 tonnes. The waste diversion program recycled all of the steel and concrete equaling 8,113
tonnes (93%) of the total material weight. The project was completed with zero safety incidents and zero lost-time injuries. Being
recognized in this category underscores H&R’s continued commitment to sustainable practices and environmental stewardship.
In Q4 2024, Lantower West Love in Dallas, TX and Lantower Midtown in Dallas, TX, two of the REIT’s development projects that were
completed in 2024, each received a Silver certification from the National Green Building Standard.
Throughout 2024, H&R’s Lantower Residential division won the following workplace awards: (i) Best Places to Work by Glassdoor; (ii)
Best Workplaces in Texas by FORTUNE in partnership with Great Place to Work Certified Institute; (iii) Great Place to Work Certified
by Great Place to Work Certified Institute; and (iv) Best Places to Work in Multifamily, Best Places to Work in Multifamily for Women,
Best Places to Work in Florida and Best Places to Work in Texas, all by Best Companies Group.
H&R REIT - MD&A - December 31, 2024
Page 11 of 72
PORTFOLIO SUMMARY
(in thousands of Canadian dollars, except for statistics. All periods exclude the Bow and 100 Wynford)
Q4 2024
Q4 2023
Residential:(1)
Number of properties
26
24
Square feet (in thousands)
8,152
7,499
Residential rental units
8,929
8,166
Occupancy
90.1 %
94.3 %
Debt including liabilities classified as held for sale
$1,863,429
$1,711,393
Investment properties including assets classified as held for sale
$4,276,705
$3,668,856
Capitalization rate
4.72 %
4.47 %
Rentals from investment properties
$75,202
$71,752
Net operating income
$52,077
$50,483
Same-Property net operating income (cash basis)(2)
$43,559
$41,451
Industrial:(1)
Number of properties
65
70
Square feet (in thousands)
8,168
8,554
Occupancy
98.9 %
99.2 %
Average remaining term to maturity of commercial leases (in years)
5.3
4.6
Debt including liabilities classified as held for sale
$455,287
$531,782
Investment properties including assets classified as held for sale
$1,517,371
$1,473,037
Capitalization rate(3)
5.61 %
5.30 %
Rentals from investment properties
$25,539
$24,508
Net operating income
$19,519
$19,005
Same-Property net operating income (cash basis)(2)
$17,396
$16,902
Office:(1)
Number of properties
16
21
Square feet (in thousands)
4,521
5,611
Occupancy
96.8 %
95.9 %
Average remaining term to maturity of commercial leases (in years)
6.0
6.8
Debt including liabilities classified as held for sale
$137,680
$230,237
Investment Properties including assets classified as held for sale
$1,941,152
$2,463,487
Capitalization rate(3)
7.76 %
6.87 %
Rentals from investment properties
$65,292
$71,533
Net operating income
$44,556
$50,935
Same-Property net operating income (cash basis)(2)
$38,467
$38,255
Retail:(1)
Number of properties
267
272
Square feet (in thousands)
5,180
5,203
Occupancy
97.0 %
96.2 %
Average remaining term to maturity of commercial leases (in years)
7.9
8.3
Debt including liabilities classified as held for sale
$401,454
$357,820
Investment properties including assets classified as held for sale(4)
$1,556,767
$1,561,406
Capitalization rate
7.07 %
6.49 %
Rentals from investment properties
$36,018
$35,369
Net operating income
$28,441
$27,683
Same-Property net operating income (cash basis)(2)
$25,465
$24,499
Total:(1)
Number of properties
374
387
Square feet (in thousands)
26,021
26,867
Occupancy
95.5 %
96.5 %
Average remaining term to maturity of commercial leases (in years)
6.4
6.8
Debt including liabilities classified as held for sale(5)
$2,857,850
$2,831,232
Investment properties including assets classified as held for sale(4)
$9,291,995
$9,166,786
Capitalization rate(3)
5.80 %
5.59 %
Rentals from investment properties
$202,051
$203,162
Net operating income
$144,593
$148,106
Same-Property net operating income (cash basis)(2)
$124,887
$121,107
(1)
All figures have been reported at the REIT’s proportionate share, which is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
(2)
Same-Property net operating income (cash basis) is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
(3)
Industrial and office capitalization rates for Q4 2024 exclude one industrial property and four office properties advancing through the process of rezoning, which
have been valued using the comparable sales approach, which is further described in the “Valuation of Investment Properties” section of this MD&A.
(4)
Includes right-of-use assets in a leasehold interest for Q4 2024 and Q4 2023 of $29.9 million and $31.3 million, respectively (included within equity accounted
investments), which was measured at an amount equal to the corresponding lease liabilities.
(5)
Excludes corporate debt which consists of debentures payable, unsecured term loans and unsecured operating lines of credit.
H&R REIT - MD&A - December 31, 2024
Page 12 of 72
KEY PERFORMANCE DRIVERS
The following table is presented at the REIT’s proportionate share by H&R's reportable operating segments and includes investment
properties classified as assets held for sale.
OPERATIONS
Residential
Industrial
Office(3)
Retail
Total
Occupancy as at December 31
2024
90.1%(4)
98.9 %
96.8 %
97.0 %
95.5 %
2023
94.3 %
99.2 %
95.9 %
96.2 %
96.5 %
Occupancy – Same-Property as at December 31(1)
2024
95.0 %
98.9 %
96.8 %
97.0 %
96.9 %
2023
94.3 %
99.4 %
97.9 %
96.5 %
96.9 %
Average annual contractual rent per sq.ft. as at December 31
Canadian properties(2)
2024
N/A
$9.66
$21.73
$13.09
$12.91
2023
N/A
$8.92
$21.51
$12.92
$12.97
Average annual contractual rent per sq.ft. as at December 31
U.S. properties (USD)(2)
2024
$26.84
$3.39
$39.10
$19.60
$25.78
2023
$27.15
$3.41
$39.00
$19.21
$25.61
Average remaining term to maturity of leases as at December 31
(in years)
2024
N/A
5.3
6.0
7.9
6.4
2023
N/A
4.6
6.8
8.3
6.8
Average interest rate on mortgages payable as at December 31
(in years)
2024
3.8 %
4.8 %
3.7 %
5.1 %
3.9 %
2023
3.8 %
4.6 %
4.3 %
4.7 %
3.9 %
Average remaining term to maturity of mortgages payable as at
December 31 (in years)
2024
3.6
2.7
2.2
8.2
3.7
2023
4.6
3.0
2.3
7.0
4.3
(1)
Same-Property refers to those properties owned by H&R for the two-year period ended December 31, 2024.
(2)
Excludes properties sold in their respective year.
(3)
The Bow and 100 Wynford have been excluded from the above statistics as they were legally sold in October 2021 and August 2022, respectively. Refer to the
“Other Liabilities - Deferred Revenue” section of this MD&A for further information on the accounting treatment of these two dispositions.
(4)
Occupancy for the Residential segment excluding Lantower West Love and Lantower Midtown in Dallas, TX which are in lease-up, was 95.0%.
The following table is presented at the REIT’s proportionate share for H&R’s residential properties.
December 31, 2024
December 31, 2023
Region
Number of
properties
Number of
residential
rental units
Weighted
average
monthly rent
per occupied
unit (USD)
Occupancy
Number of
properties
Number of
residential
rental units
Weighted
average
monthly rent
per occupied
unit (USD)
Occupancy
Texas(1)
10
3,227
$1,451
80.2%
8
2,464
$1,437
93.8%
North Carolina
5
1,634
1,582
93.8%
5
1,634
1,618
93.9%
Florida(2)
7
2,433
1,830
95.8%
7
2,433
1,867
93.8%
Gateway Cities(2)
4
1,635
3,774
97.5%
4
1,635
3,743
96.2%
Total
26
8,929
$2,046
90.1%
24
8,166
$2,072
94.3%
Annual rent as a percentage of median household income for households living in market rate Class A apartments in the United
States is 22.3%(3). Annual rent as a percentage of median household income of the residences in the REIT’s residential properties
(excluding Jackson Park) was approximately 20.0%.
(1)
Occupancy for Texas was 93.4%, excluding Lantower West Love and Lantower Midtown, which are in lease-up.
(2)
River Landing Residential; Miami, FL has been included in Gateway Cities.
(3)
Source: RealPage, Market Analytics.
H&R REIT - MD&A - December 31, 2024
Page 13 of 72
PORTFOLIO OVERVIEW
The geographic diversification of the portfolio of investment properties in which the REIT has an interest and the related square
footage is disclosed at the REIT’s proportionate share as at December 31, 2024 in the tables below:
Number of Properties(1)(2)
Canada
Ontario
Alberta
Other
Subtotal
United States
Total
Residential(3)
—
—
—
—
26
26
Industrial
37
15
12
64
1
65
Office
9
1
3
13
3
16
Retail
30
1
3
34
233
267
Total
76
17
18
111
263
374
Square Feet (in thousands)(1)(2)
Canada
Ontario
Alberta
Other
Subtotal
United States
Total
Residential(3)
—
—
—
—
8,152
8,152
Industrial
4,930
1,913
912
7,755
413
8,168
Office
1,887
466
558
2,911
1,610
4,521
Retail
1,469
150
231
1,850
3,330
5,180
Total
8,286
2,529
1,701
12,516
13,505
26,021
(1)
Excludes the Bow and 100 Wynford, as these properties were legally sold in October 2021 and August 2022, respectively.
(2)
Excludes all properties held for development. Refer to the “Properties Under Development” section of this MD&A for further information on properties held for
development.
(3)
The residential properties contain 8,929 residential rental units.
H&R REIT - MD&A - December 31, 2024
Page 14 of 72
LEASE MATURITY PROFILE
The following tables disclose H&R’s leases expiring in Canada and the United States as at December 31, 2024 at the REIT’s
proportionate share, excluding the Residential segment where leases typically expire annually.
Canadian Portfolio:
Industrial
Office
Retail
Total
Rent per
Rent per
Rent per
% of
Rent per
sq.ft. ($)
sq.ft. ($)
sq.ft. ($)
Canadian
sq.ft. ($)
Lease Expiries
Sq.ft.
on expiry
Sq.ft.
on expiry
Sq.ft.
on expiry
Sq.ft.
sq. ft.
on expiry
2025
247,365
18.92
412,785
20.31
79,960
14.05
740,110
5.9%
19.17
2026
407,347
8.02
642,470
15.49
104,239
13.18
1,154,056
9.2%
12.64
2027
2,947,172
7.20
332,409
22.05
131,932
11.27
3,411,513
27.2%
8.80
2028
547,937
11.63
100,321
23.71
174,098
7.43
822,356
6.6%
12.21
2029
361,178
16.02
208,170
27.22
102,618
17.34
671,966
5.4%
19.69
4,510,999
9.16 1,696,155
19.87
592,847
11.90
6,800,001
54.3 %
12.07
U.S. Portfolio:
Industrial
Office
Retail
Total
Rent per
Rent per
Rent per
Rent per
sq.ft. ($)
sq.ft. ($)
sq.ft. ($)
% of U.S.
sq.ft. ($)
Lease Expiries
Sq.ft.
on expiry(1)
Sq.ft.
on expiry(1)
Sq.ft.
on expiry(1)
Sq.ft.
sq. ft.
on expiry(1)
2025
—
—
—
—
101,458
27.08
101,458
1.9%
27.08
2026
—
— 284,062⁽²⁾
36.01
129,502
22.32
413,564
7.7%
31.72
2027
—
—
—
—
327,982
14.84
327,982
6.1%
14.84
2028
—
—
2,912
21.00
361,192
16.95
364,104
6.8%
16.98
2029
—
—
47,770
25.75
385,141
12.89
432,911
8.1%
14.31
—
—
334,744
34.42 1,305,275
16.54 1,640,019
30.6 %
20.19
(1)
U.S. dollars.
(2)
Hess Corporation will be vacating 278,850 square feet in June 2026. In Q4 2024, H&R completed a new 10-year lease for 92,976 square feet with a new tenant
whose lease will commence in July 2026.
H&R REIT - MD&A - December 31, 2024
Page 15 of 72
TOP TWENTY SOURCES OF REVENUE BY TENANT
The following table discloses H&R’s top twenty tenants, based on rentals from investment properties, as at December 31, 2024 at
the REIT’s proportionate share:
Tenant
% of Rentals
from Investment
Properties(1) Number of
Locations
H&R owned
sq.ft. (in
000’s)
Average Lease
Term to Maturity
(in years)(2)
Credit Ratings
(S&P)
1.
Hess Corporation
8.8 %
1
845
8.2
BBB- Watch Positive
2.
New York City Department of Health
6.9 %
1
660
5.9
A+ Stable
3.
Giant Eagle, Inc.
5.5 %
193
1,645
8.7
Not Rated
4.
TC Energy Corporation
3.1 %
1
466
6.3
BBB+ Negative
5.
Canadian Tire Corporation(3)
2.5 %
3
2,110
2.1
BBB Stable
6.
Ovintiv Inc.(4)
1.9 %
—
—
13.4
BBB- Stable
7.
Toronto-Dominion Bank
1.6 %
3
270
2.9
A+ Stable
8.
Lowe's Companies, Inc.
1.3 %
7
650
9.1
BBB+ Stable
9.
Royal Bank of Canada
1.1 %
2
194
1.1
AA- Stable
10.
Bell Canada
1.1 %
2
438
2.0
BBB Stable
11.
Sobeys Inc.
0.9 %
9
331
6.9
BBB- Stable
12.
Metro Inc.
0.9 %
11
369
4.3
BBB Stable
13.
Finning International Inc.
0.9 %
8
320
6.2
BBB+ Stable
14.
Miami-Dade County(5)
0.8 %
1
112
12.3
AA Stable
15.
Purolator Inc.
0.7 %
12
535
5.3
Not Rated
16.
Deutsche Post AG
0.6 %
1
343
6.1
Not Rated
17.
Publix Super Markets, Inc.
0.6 %
9
162
11.8
Not Rated
18.
Government of Ontario(6)
0.6 %
3
114
6.1
AA- Stable
19.
Nestlé Canada Inc.
0.6 %
1
73
4.7
AA- Stable
20.
iA Financial Group
0.6 %
1
89
4.6
A Stable
Total
41.0 %
269
9,726
7.2
(1)
The percentage of rentals from investment properties is based on estimated annualized gross revenue excluding straight-lining of contractual rent, rent
amortization of tenant inducements and capital expenditure recoveries.
(2)
Average lease term to maturity is weighted based on net rent.
(3)
Canadian Tire Corporation includes Canadian Tire and Mark’s.
(4)
Ovintiv Inc. includes 15% of the net rent payable under the Ovintiv lease (as defined in the “Other Liabilities - Deferred Revenue” section of this MD&A).
(5)
Miami-Dade County includes The Public Health Trust and Offices for State Attorney.
(6)
Government of Ontario includes the Financial Services Regulatory Authority of Ontario and the Liquor Control Board of Ontario.
H&R REIT - MD&A - December 31, 2024
Page 16 of 72
FINANCIAL HIGHLIGHTS
December 31
December 31
December 31
2024
2023
2022
Total assets (in thousands)
$10,620,487
$10,777,643
$11,412,603
Debt to total assets per the REIT's Financial Statements(1)
33.4 %
34.2 %
34.4 %
Debt to total assets at the REIT's proportionate share(1)(2)
43.7 %
44.0 %
44.0 %
Debt to Adjusted EBITDA at the REIT's proportionate share(1)(2)(3)(4)
9.4x
8.5x
9.6x
Unitholders' equity (in thousands)
$5,278,743
$5,192,375
$5,487,287
Units outstanding (in thousands)
262,016
261,868
265,885
Exchangeable units outstanding (in thousands)
17,974
17,974
17,974
Unitholders' equity per Unit
$20.15
$19.83
$20.64
NAV per Unit(2)(5)
$20.92
$20.75
$21.80
Three months ended December 31
Year ended December 31
(in thousands except for per Unit amounts)
2024
2023
2024
2023
Rentals from investment properties
$202,350
$205,904
$816,990
$847,146
Net operating income
$141,149
$147,360
$519,918
$546,604
Same-Property net operating income (cash basis)(6)
$124,887
$121,107
$491,141
$484,864
Net income from equity accounted investments
$82,308
$145,320
$2,477
$145,459
Fair value adjustment on real estate assets
($53,265)
($197,587)
($425,884)
($486,104)
Net income (loss)
$130,882
($11,313)
($119,714)
$61,690
Funds from Operations (“FFO”)(6)
$83,417
$83,650
$334,427
$373,351
Adjusted Funds from Operations (“AFFO”)(6)
$61,594
$68,677
$266,962
$313,171
Weighted average number of Units and exchangeable units
279,990
279,842
279,933
281,815
FFO per basic and diluted Unit(2)
$0.298
$0.299
$1.195
$1.325
AFFO per basic and diluted Unit(2)
$0.220
$0.245
$0.954
$1.111
Cash distributions per Unit
$0.150
$0.150
$0.600
$0.600
Special December cash distribution per Unit
$0.120
$0.100
$0.120
$0.100
Payout ratio as a % of FFO(2)
90.6 %
83.6 %
60.3 %
52.8 %
Payout ratio as a % of AFFO(2)
122.7 %
102.0 %
75.5 %
63.0 %
(1)
Debt includes mortgages payable, debentures payable, unsecured term loans, lines of credit and liabilities classified as held for sale.
(2)
These are non-GAAP ratios. Refer to the “Non-GAAP Measures” section of this MD&A.
(3)
Adjusted EBITDA is defined in the “Debt” section of this MD&A.
(4)
Using a U.S. dollar to Canadian dollar exchange rate of $1.44 for both Debt and Adjusted EBITDA, Debt to Adjusted EBITDA at the REIT’s proportionate share
would have been 9.2x as at December 31, 2024. Debt as at December 31, 2024 was calculated using the U.S. dollar to Canadian dollar exchange rate of $1.44.
Adjusted EBITDA for the year ended December 31, 2024 was calculated using the U.S. dollar to Canadian dollar exchange rate of $1.37.
(5)
Refer to the “Unitholders’ Equity” section of this MD&A for a detailed calculation of NAV per Unit.
(6)
These are non-GAAP measures. Refer to the “Non-GAAP Measures” section of this MD&A.
H&R REIT - MD&A - December 31, 2024
Page 17 of 72
SECTION III
FINANCIAL POSITION
The following foreign exchange rates have been used in the statement of financial position when converting U.S. dollars to Canadian
dollars except where otherwise noted:
December 31
December 31
2024
2023
For each U.S. $1.00
$1.44 CAD
$1.32 CAD
The following table reconciles the REIT's Statement of Financial Position from the REIT’s Financial Statements to the REIT’s
proportionate share:
December 31, 2024
December 31, 2023
(in thousands of Canadian dollars)
REIT's
Financial
Statements
Equity
accounted
investments
REIT's
proportionate
share(1)
REIT's
Financial
Statements
Equity
accounted
investments
REIT's
proportionate
share(1)
Assets
Real estate assets
Investment properties
$7,996,810
$2,275,559
$10,272,369
$7,811,543
$2,148,012
$9,959,555
Properties under development
1,010,648
208,898
1,219,546
1,074,819
135,635
1,210,454
9,007,458
2,484,457
11,491,915
8,886,362
2,283,647
11,170,009
Equity accounted investments
1,275,549
(1,275,549)
—
1,165,012
(1,165,012)
—
Assets classified as held for sale
59,880
—
59,880
293,150
—
293,150
Other assets
177,246
34,758
212,004
369,008
21,866
390,874
Cash and cash equivalents
100,354
41,000
141,354
64,111
36,933
101,044
$10,620,487
$1,284,666
$11,905,153 $10,777,643
$1,177,434
$11,955,077
Liabilities and Unitholders’ Equity
Liabilities
Debt
$3,537,384
$1,199,391
$4,736,775
$3,686,833
$1,097,839
$4,784,672
Exchangeable units
166,800
—
166,800
177,944
—
177,944
Deferred Revenue
906,363
—
906,363
947,671
—
947,671
Deferred tax liability
413,186
—
413,186
437,214
—
437,214
Accounts payable and accrued liabilities
304,978
64,744
369,722
335,606
60,176
395,782
Liabilities classified as held for sale
13,033
—
13,033
—
—
—
Non-controlling interest
—
20,531
20,531
—
19,419
19,419
5,341,744
1,284,666
6,626,410
5,585,268
1,177,434
6,762,702
Unitholders’ equity
5,278,743
—
5,278,743
5,192,375
—
5,192,375
$10,620,487
$1,284,666
$11,905,153 $10,777,643
$1,177,434
$11,955,077
(1)
The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
H&R REIT - MD&A - December 31, 2024
Page 18 of 72
INVESTMENT PROPERTIES
2024 Acquisitions
H&R did not acquire any investment properties during the year ended December 31, 2024.
2023 Acquisitions
H&R did not acquire any investment properties during the year ended December 31, 2023.
2024 Dispositions
Property
Segment
Date
Sold
Square
Feet
Selling Price
($ Thousands)
Ownership
Interest Sold
1604 & 1720 Willow St., Campbell River, BC(1)
Industrial
Mar 4, 2024
15,000
$2,050
50.0 %
10645 & 10625 State Bridge Rd., Alpharetta, GA(2)
Retail
Mar 7, 2024
12,240
4,928
100.0 %
1739 & 1741 Buford Hwy., Cumming, GA(2)
Retail
Mar 7, 2024
11,590
5,400
100.0 %
1764 & 1776 Kelly Douglas Rd., Kamloops, BC(1)
Industrial
Mar 12, 2024
32,136
5,075
50.0 %
450 Mackenzie Ave. & 265 Fifth Ave. S., Williams Lake, BC(1)
Industrial
Mar 27, 2024
13,661
1,450
50.0 %
1600 Boul. Lionel Boulet, Varennes, QC(1)
Industrial
Mar 28, 2024
155,552
8,531
50.0 %
25 Dockside Dr., Toronto, ON(3)
Office
Apr 15, 2024
479,437
232,500
100.0 %
510 E. Courtland St., Morton, IL(2)
Industrial
May 15, 2024
123,090
8,534
100.0 %
3777 Kingsway, Burnaby, BC(1)
Office
Jun 28, 2024
335,778
75,000
50.0 %
4750 101 St. N.W., Edmonton, AB(1)
Industrial
Jul 15, 2024
10,229
1,350
50.0 %
7900 Airport Rd., Brampton, ON(1)(3)
Industrial
Oct 1, 2024
372,207
60,684
50.0 %
Total
1,560,920
$405,502
(1)
Square feet and selling price are based on the ownership interest sold, and H&R no longer holds any ownership interest in these assets.
(2)
U.S. dispositions have been translated to Canadian dollars using the exchange rate on the day the property was sold.
(3)
Classified as held for sale as at December 31, 2023.
2023 Dispositions
Property
Segment
Date
Sold
Square
Feet
Selling Price
($ Thousands)
Ownership
Interest Sold
2611-3rd Ave. S.E., Calgary, AB(1)(2)
Office
Jan 23 2023
47,613
$16,840
50.0 %
749 Douglas Fir Rd., Sparwood, BC(1)(2)
Industrial
Jan 27 2023
15,892
2,188
50.0 %
160 Elgin St., Ottawa, ON(1)
Office
Apr 20 2023
973,661
277,000
100.0 %
9331-48th St., Edmonton, AB(2)
Industrial
May 24 2023
14,916
550
50.0 %
225 Joseph Casavant Ave., Beauport, QC
Retail
Jul 6 2023
124,182
17,150
100.0 %
1 Boul. Bouthillier, Rosemere, QC
Retail
Jul 6 2023
124,851
16,925
100.0 %
7277 St. Jacques St., Montreal, QC
Retail
Jul 6 2023
110,004
17,515
100.0 %
5035 Boul. Cousineau, Saint-Hubert, QC
Retail
Jul 6 2023
117,765
16,410
100.0 %
5901 E. Fowler Ave., Temple Terrace, FL(3)
Office
Aug 1 2023
85,725
17,656
100.0 %
4845 & 4865 Alabama Rd., Roswell, GA(3)
Retail
Aug 2 2023
13,510
4,722
100.0 %
7575 Brewster Ave., Philadelphia, PA(3)
Industrial
Oct 3 2023
163,936
37,675
100.0 %
9330 Amberton Pkwy., Dallas, TX(3)
Office
Oct 12 2023
92,694
6,987
100.0 %
10755 Finning Front, Fort St. John, BC(2)
Industrial
Nov 20 2023
10,630
1,200
50.0 %
Total
1,895,379
$432,818
(1)
Classified as held for sale as at December 31, 2022.
(2)
Square feet and selling price are based on the ownership interest sold, and H&R no longer holds any ownership interest in these assets.
(3)
U.S. dispositions have been translated to Canadian dollars using the exchange rate on the day the property was sold.
H&R REIT - MD&A - December 31, 2024
Page 19 of 72
Real Estate Assets by Segment and Region
The following tables disclose the fair values of the investment properties and properties under development by operating segment
and geographic location, excluding assets held for sale for the periods indicated:
December 31, 2024
REIT's Financial Statements Equity Accounted Investments
Operating Segment
(in thousands of Canadian
dollars)
Investment
Properties
Properties
Under
Development
Investment
Properties
Properties
Under
Development
REIT's
Proportionate
Share(1) The Bow and
100 Wynford
Total
%
Residential
$2,901,084
$682,101
$1,375,621
$124,907
$5,083,713
$— $5,083,713 48.6%
Industrial
1,496,646
328,547
20,725
47,548
1,893,466
—
1,893,466 18.1%
Office
2,981,406
—
—
—
2,981,406 (1,040,254)
1,941,152 18.6%
Retail
617,674
—
879,213
36,443
1,533,330
—
1,533,330 14.7%
Total
$7,996,810
$1,010,648
$2,275,559
$208,898 $11,491,915 ($1,040,254) $10,451,661 100.0%
(1)
The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
December 31, 2024
REIT's Financial Statements Equity Accounted Investments
Geographic Location
(in thousands of Canadian
dollars)
Investment
Properties
Properties
Under
Development
Investment
Properties
Properties
Under
Development
REIT's
Proportionate
Share(1) The Bow and
100 Wynford
Total
%
Ontario
$2,026,557
$401,478
$—
$47,548
$2,475,583
($101,368) $2,374,215 22.7%
Alberta
1,340,667
—
—
—
1,340,667
(938,886)
401,781
3.9%
Other
347,830
—
—
—
347,830
—
347,830
3.3%
Canada
3,715,054
401,478
—
47,548
4,164,080 (1,040,254)
3,123,826 29.9%
United States
4,281,756
609,170
2,275,559
161,350
7,327,835
—
7,327,835 70.1%
Total
$7,996,810
$1,010,648
$2,275,559
$208,898 $11,491,915 ($1,040,254) $10,451,661 100.0%
(1)
The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
December 31, 2023
REIT's Financial Statements Equity Accounted Investments
Operating Segment
(in thousands of Canadian
dollars)
Investment
Properties
Properties
Under
Development
Investment
Properties
Properties
Under
Development
REIT's
Proportionate
Share(1) The Bow and
100 Wynford
Total
%
Residential
$2,399,491
$652,859
$1,269,365
$87,255
$4,408,970
$— $4,408,970 43.7%
Industrial
1,391,722
410,930
20,665
19,168
1,842,485
—
1,842,485 18.3%
Office
3,316,906
11,030
—
—
3,327,936 (1,085,919)
2,242,017 22.2%
Retail
703,424
—
857,982
29,212
1,590,618
—
1,590,618 15.8%
Total
$7,811,543
$1,074,819
$2,148,012
$135,635 $11,170,009 ($1,085,919) $10,084,090 100.0%
(1)
The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
H&R REIT - MD&A - December 31, 2024
Page 20 of 72
December 31, 2023
REIT's Financial Statements Equity Accounted Investments
Geographic Location
(in thousands of Canadian
dollars)
Investment
Properties
Properties
Under
Development
Investment
Properties
Properties
Under
Development
REIT's
Proportionate
Share(1) The Bow and
100 Wynford
Total
%
Ontario
$2,150,385
$410,930
$—
$19,168
$2,580,483
($108,968) $2,471,515 24.5%
Alberta
1,390,283
—
—
—
1,390,283
(976,951)
413,332
4.1%
Other
429,680
11,030
—
—
440,710
—
440,710
4.4%
Canada
3,970,348
421,960
—
19,168
4,411,476 (1,085,919)
3,325,557 33.0%
United States
3,841,195
652,859
2,148,012
116,467
6,758,533
—
6,758,533 67.0%
Total
$7,811,543
$1,074,819
$2,148,012
$135,635 $11,170,009 ($1,085,919) $10,084,090 100.0%
(1)
The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
VALUATION OF REAL ESTATE ASSETS
The estimated fair values of the REIT’s real estate assets are based on the following methods and significant assumptions:
(i)
Discounted cash flow analyses which are based upon, among other things, future cash inflows in respect of rental income from
current leases and assumptions about rental income from future leases reflecting market conditions at the reporting period,
less future cash outflows in respect of such leases and capital expenditures for the property utilizing appropriate discount rates
and terminal capitalization rates, generally over a minimum term of 10 years;
(ii) The direct capitalization method which calculates fair value by applying a capitalization rate to future cash flows based on
stabilized net operating income; and
(iii) The comparable sales approach, which estimates fair value based on the market value per unit of measure which is established
by recent sales activity in the same or similar markets.
During the year ended December 31, 2024, certain properties were valued by professional external independent appraisers or
brokers. When an external independent appraisal is obtained, the REIT's internal valuation team assesses the significant assumptions
used in the appraisal and holds discussions with the external independent appraiser on the reasonableness of their assumptions.
External independent appraisals received throughout the year per the REIT’s Financial Statements represent 16.3% and 41.5% of the
fair value of investment properties and properties under development, respectively, as at December 31, 2024 (year ended December
31, 2023 - 16.5% and 0.0%, respectively). External independent appraisals received throughout the year per the REIT’s proportionate
share (a non-GAAP measure, refer to the “Non-GAAP Measures” section of this MD&A) and excluding The Bow and 100 Wynford
represent 28.6% and 40.2% of the fair value of investment properties and properties under development, respectively, as at
December 31, 2024 (year ended December 31, 2023 - 27.4% and 0.0%, respectively).
The REIT utilizes external industry sources to determine a range of capitalization, discount and terminal capitalization rates. To the
extent that the ranges of these externally provided rates change from one reporting period to the next, the fair value of the
investment properties is adjusted accordingly.
The weighted average capitalization rates disclosed below are reported by segment and geographic location at the REIT’s
proportionate share (a non-GAAP measure, refer to the “Non-GAAP Measures” section of this MD&A), including assets classified as
held for sale, which differs from the REIT’s Financial Statements. The Bow and 100 Wynford have been excluded from the Canada
Office and Total capitalization rates for both periods below as these properties were legally sold in October 2021 and August 2022,
respectively.
In addition, the Canadian Industrial and Office capitalization rates as at December 31, 2024 exclude one industrial property, one
office property in Dorval, QC and three office properties in downtown Toronto, ON advancing through the process of rezoning to
residential use, which have been valued in accordance with method (iii) above. The three downtown Toronto office properties are
145 Wellington St. W., 310 & 330 Front St. W., and 69 Yonge St. H&R reduced the fair values of these three properties to an average
H&R REIT - MD&A - December 31, 2024
Page 21 of 72
of $140 per square foot, primarily due to recent sales activity as well as softening economic conditions which have halted the
development of many new projects.
December 31, 2024
Residential
Industrial
Office
Retail
Total
Canada
5.55 %
7.90 %
6.64 %
6.19 %
United States
4.72 %
9.75 %
7.69 %
7.19 %
5.67 %
Total
4.72 %
5.61 %
7.76 %
7.07 %
5.80 %
As at December 31, 2024, the weighted average capitalization rate for residential properties in the U.S. sun belt states was 4.97%,
resulting in an overall weighted average capitalization rate of 4.72% for the residential portfolio.
December 31, 2023
Residential
Industrial
Office
Retail
Total
Canada
—
5.24 %
6.22 %
6.33 %
5.79 %
United States
4.47 %
8.49 %
7.68 %
6.54 %
5.48 %
Total
4.47 %
5.30 %
6.87 %
6.49 %
5.59 %
As at December 31, 2023, the weighted average capitalization rate for the properties in the U.S. sun belt states was 5.00%, resulting
in an overall weighted average capitalization rate of 4.47% for the residential portfolio.
As at December 31, 2023, the weighted average Canadian office capitalization rate was 6.22%, which was comprised of a 4.96%
capitalization rate for eight Canadian properties designated for future intensification and a 7.26% capitalization rate for 10 Canadian
properties expected to be sold as part of H&R’s plan to sell office properties.
INTENSIFICATION OPPORTUNITIES
As at December 31, 2024, H&R is advancing the following properties through the process of rezoning into their highest and best use.
Property(1)(2)
Geography
Ownership
Future
Use
Current
Square
Feet
Anticipated
Residential
Units
Anticipated
Square Feet Approval Status(3)
145 Wellington St. W.(4) Toronto, ON
100.0%
Residential 160,098
777
522,941
ZBA Approved, resubmitted in October 2024 to remove
office density
53 & 55 Yonge St.(4)
Toronto, ON
100.0%
Residential 171,758
728
524,535
ZBA Approved, resubmitted in October 2024 to remove
office density
310 Front St. W.(4)
Toronto, ON
100.0%
Residential 122,486
832
557,647
ZBA Approved, resubmitted in October 2024 to remove
office density
330 Front St. W.(4)
Toronto, ON
100.0%
Residential 192,801
817
557,647 ZBA Submitted
69 Yonge St.
Toronto, ON
100.0%
Residential
89,276
127
137,593 ZBA Approved (with conditions)
200 Bouchard Blvd.
Dorval, QC
100.0%
Residential 437,157
1,046
1,141,959 New Urban Plan & By-Law Enforced
77 Union St.
Toronto, ON
100.0%
Residential 195,000
1,400
1,100,000 ZBA Submitted
1,368,576
5,727
4,542,322
(1)
The list of properties advancing through the process of rezoning includes the following: (i) four investment properties which are included in H&R’s Office
segment; (ii) 53 & 55 Yonge St., a property under development; and (iii) 77 Union St. which is included in H&R’s Industrial segment.
(2)
Excludes 100 Wynford which was sold in August 2022, however the REIT will continue to advance the process of rezoning for redevelopment as it has an option
to repurchase 100% of the property for approximately $159.7 million in 2036 or earlier under certain circumstances.
(3)
Zoning By-Law Amendment is referred to as “ZBA” in the table above.
(4)
The residential units and square feet for these properties submitted to the City of Toronto are higher than the anticipated figures above, which are based on
management’s best estimates for final approvals.
In January 2024, the Toronto East York Community Council approved H&R’s official plan and zoning by-law amendment application
at 69 Yonge Street to convert the existing heritage building from office use to 127 residential units. The approval facilitates adaptive
reuse of the existing 15-storey building, while adding density through infilling the southeast corner of the building and adding 5
residential floors to the overall height. H&R is addressing the conditions outlined by the Toronto East York Community Council and
anticipates that the zoning by-law amendment will come into effect by the end of Q1 2025.
H&R REIT - MD&A - December 31, 2024
Page 22 of 72
In February 2024, following the final reading of the New Urban Plan, the City of Dorval enacted new by-laws and zoning regulations,
amending the allowable density and permitted uses at 200 Bouchard Boulevard to include residential development.
In October 2024, H&R submitted rezoning applications to the City of Toronto for 53 & 55 Yonge St., 145 Wellington St. W., and 310
Front St. W., to remove the current approved replacement office density and instead replace the office area with residential uses,
including some affordable housing. H&R submitted these new applications given the changes in the office market over the past few
years including the rise of hybrid work and reduced demand for office space. H&R anticipates receiving approval for these
applications in Q4 2025. Along with the changes proposed to 310 Front St. W., H&R also submitted a rezoning application to replace
the existing 12-storey office building at 330 Front St W., with a 65-storey mixed use tower.
PROPERTIES UNDER DEVELOPMENT
Canadian Properties Under Development
In January 2024, development of two of the REIT’s industrial properties, 1965 and 1925 Meadowvale Boulevard in Mississauga, ON
reached practical completion and the properties were transferred from properties under development to investment properties. The
properties are fully leased with annual contractual rental escalations; both leases commenced in February 2024 and will expire in
May 2036 and March 2037, respectively. The REIT recognized a fair value increase of $19.3 million on these properties between the
start of construction and practical completion.
In Q1 2024, H&R transferred 6900 Maritz Drive in Mississauga, ON from investment properties to properties under development. In
January 2024, H&R received approval from the City of Mississauga to replace the existing 104,689 square foot office building on the
property with a new 122,367 square foot industrial building. Demolition of the existing office building was completed in April 2024.
The property will include sustainability elements such as EV charging stations and solar panel readiness and is targeted to achieve
LEED Gold certification. Construction has commenced and practical completion is expected in Q2 2025. As at December 31, 2024,
the total development budget for this property was approximately $43.6 million with costs remaining to complete the new building
of approximately $9.1 million.
In June 2024, H&R sold its 50% ownership interest in 3791 Kingsway, Burnaby, BC , a 0.6 acre parcel of vacant land for $7.5 million.
In Q3 2024, H&R transferred 53 & 55 Yonge Street in Toronto, ON from investment properties to properties under development. The
buildings are fully vacant and demolition commenced in Q1 2025. H&R elected to demolish both buildings in order to reduce
property operating costs. H&R will continue to advance the rezoning process for these properties, but does not have any plans to
start re-developing these properties in the near future.
H&R REIT - MD&A - December 31, 2024
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The Canadian properties currently held for development per the REIT’s Financial Statements are:
As at December 31, 2024
At H&R's Ownership Interest
(in thousands of Canadian dollars)
Ownership
Interest
Square
Feet
Number
of Acres
Total
Development
Budget
Costs
Incurred
to Date(6)
Costs
Remaining
to Complete
Expected
Yield on
Budgeted
Cost
Expected
Completion
Date
Current Developments:(1)
6900 Maritz Dr., Mississauga, ON(2)
100.0 %
122,367
6.0
$43,597
$34,479
$9,118
5.3%
Q2 2025
Future Developments:(3)
Industrial Lands (Remaining lands), Caledon, ON(4)
100.0 %
144.1
—
74,656
—
53 & 55 Yonge St., Toronto, ON(5)
100.0 %
0.4
—
74,523
—
144.5
—
149,179
—
122,367
150.5
$43,597
$183,658
$9,118
(1)
Current Developments are projects under active construction or anticipated to commence active construction in the next three months whereby the REIT is
committed to completing the development.
(2)
This property is being converted from office to industrial use, resulting in a lower expected yield on budgeted cost of 5.3%. As part of a lease amendment with
its previous office tenant which amended the lease expiry from May 2031 to December 2023, H&R received a lease termination fee of $3.4 million in 2023. If
H&R applied this lease termination fee against the development budget, the expected yield on budgeted cost would be approximately 5.8%.
(3)
Future Developments include sites advancing through zoning by-law applications, approvals, legal obligations, and clearing environmental encumbrances. These
sites may be shovel ready but still require financial commitments and are not anticipated to commence active construction in the next three months.
(4)
As at March 31, 2024, H&R expected the Industrial Lands to yield 117.6 acres of developable land. H&R is now expecting an additional 26.5 acres of developable
land, which were originally slated for future roadways and stormwater management ponds.
(5)
Refer to the “Intensification Opportunities” section of this MD&A for further information regarding the future development of 53 & 55 Yonge St.
(6)
Excludes fair value adjustments to Canadian properties under development totalling $217.8 million as at December 31, 2024.
U.S. Properties Under Development
In January 2024, H&R exercised an option to acquire a 100% freehold interest in two residential land parcels in Orlando, FL
(“Sunrise”). H&R previously had a leasehold interest in both land parcels and this acquisition resulted in the derecognition of the
right-of-use assets and release from the corresponding lease liabilities. These land parcels are expected to be developed into 670
residential rental units and were acquired for approximately $25.1 million (U.S. $18.6 million). Sunrise is located within the heart of
the I-4 Tourism Corridor in Orlando and is a seven-minute drive from Walt Disney World. In April 2024, the REIT contributed the first
residential land parcel to a joint venture with the REDT as one of the REDT Projects (further outlined below).
In February 2024, H&R acquired a 75.0% ownership interest in approximately 4.0 acres of land at 459 Smith St. in Brooklyn, NY, in
the newly rezoned Gowanus neighbourhood for approximately $103.3 million (U.S. $76.5 million) and assumed a $24.3 million (U.S.
$18.0 million) mortgage upon closing. This acquisition was funded from funds held in escrow from previous U.S. asset dispositions.
Gowanus is surrounded by Brooklyn’s most exclusive neighborhoods including Park Slope, Carroll Gardens, Cobble Hill and Boerum
Hill. The Special Gowanus Mixed Use District Plan is set to bring approximately 10,000 new apartment units connected by a canal-
front promenade and new streets. The REIT’s site is expected to allow for 1,039 residential rental units as well as 101,827 square
feet for commercial and community space.
In April 2024, the REIT contributed the REDT Projects to REDT JV LP, a joint venture with the REDT in exchange for a 29.1% ownership
interest in REDT JV LP. The REIT is accounting for its ownership interest in the REDT Projects as an equity accounted investment. The
total cost transferred from properties under development to equity accounted investments by the REIT was $28.8 million (U.S $21.3
million). Refer to the “Equity Accounted Investments” section of this MD&A for further information.
In May 2024, H&R sold 20.3 acres of vacant land held for future residential use in Prosper, TX for approximately $16.0 million (U.S.
$11.7 million).
In Q3 2024, Lantower West Love, a 413 residential rental unit property in Dallas, TX, reached practical completion and was
transferred from properties under development to investment properties. The REIT recognized a fair value increase of $31.3 million
(U.S. $23.2 million). The property was completed on budget with costs remaining to complete of $9.2 million (U.S. $6.4 million), and
the stabilized yield on budgeted cost is expected to be 5.7%.
H&R REIT - MD&A - December 31, 2024
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In Q4 2024, Lantower Midtown, a 350 residential rental unit property in Dallas, TX, reached practical completion and was transferred
from properties under development to investment properties. The REIT recognized a fair value increase of $23.0 million (U.S. $16.0
million). The property was completed on budget with costs remaining to complete of approximately $10.6 million (U.S. $7.4 million),
and the stabilized yield on budgeted cost is expected to be 5.7%.
The U.S. properties currently held for development per the REIT’s Financial Statements are:
As at December 31, 2024
At H&R’s Ownership Interest
(in thousands of U.S. dollars)
Ownership
Interest
Number
of Acres
Number of Residential
Rental Units
Costs Incurred
to Date(2)
Future Developments:(1)
The Cove, Jersey City, NJ
100.0 %
12.4
2,840
186,745
9 Remaining Developments
100.0 %
67.5
2,958
145,974
459 Smith St., Brooklyn, NY
75.0 %
3.0
779
93,786
West Town, Orlando, FL
50.0 %
13.5
271
14,299
96.4
6,848
$440,804
(1)
Future Developments include sites advancing through zoning by-law applications, approvals, legal obligations, and clearing environmental encumbrances. These
sites may be shovel ready but still require financial commitments and are not anticipated to commence active construction in the next three months.
(2)
Excludes fair value adjustments to U.S. properties under development totalling U.S. ($17.8) million as at December 31, 2024.
EQUITY ACCOUNTED INVESTMENTS
......................................Associates......................................
Joint Ventures(1)
(in thousands of Canadian dollars)
ECHO
Jackson Park
REDT JV LP
Total(2)
Investment properties
$879,213
$1,242,376
$—
$153,970
$2,275,559
Properties under development(3)
36,444
—
23,856
148,598
208,898
Other assets
29,728
1,973
1,735
1,322
34,758
Cash and cash equivalents
17,272
5,671
9,966
8,091
41,000
Debt
(387,991)
(714,891)
—
(96,509)
(1,199,391)
Accounts payable and accrued liabilities
(49,539)
(8,023)
(564)
(6,618)
(64,744)
Non-controlling interest
(20,531)
—
—
—
(20,531)
December 31, 2024
$504,596
$527,106
$34,993
$208,854
$1,275,549
December 31, 2023
$504,418
$483,923
$—
$176,671
$1,165,012
(1)
Joint ventures include 560 & 600 Slate Drive, 170 Butts Street, Hercules Project, Shoreline, Central Pointe and Sunny Creek.
(2)
Each of these line items represents the REIT’s proportionate share of equity accounted investments, which are reconciled to the total equity accounted
investments per the REIT’s Financial Statements. This is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
(3)
Includes fair value adjustments totalling $11.5 million as at December 31, 2024.
ECHO
H&R owns a 33.2% interest in Echo Realty LP (“ECHO”), a privately held real estate and development company that focuses on
developing and owning a core portfolio of grocery anchored shopping centres, primarily in Pennsylvania and Ohio. ECHO reports its
financial results to H&R one month in arrears. ECHO’s financial information has been disclosed as at November 30, 2024 and
November 30, 2023, respectively.
As at November 30, 2024, H&R’s interest in ECHO consisted of 230 investment properties totalling approximately 2.8 million square
feet and six properties under development. Giant Eagle, Inc., a supermarket chain in the United States, is ECHO’s largest tenant with
193 locations totalling approximately 1.6 million square feet at H&R’s ownership interest with an average lease term to maturity of
8.7 years. Giant Eagle represents approximately 56.0% of revenue earned by ECHO.
During the twelve months ended November 30, 2024, ECHO acquired one property under development for $1.4 million (U.S. $1.0
million) and sold five investment properties and five properties under development for $9.6 million (U.S. $6.9 million), all at H&R’s
H&R REIT - MD&A - December 31, 2024
Page 25 of 72
ownership interest. ECHO also transferred two properties under development to investment properties totalling 18,567 square feet
for a total value of $9.4 million (U.S. $6.9 million), at H&R’s ownership interest.
Jackson Park
H&R owns a 50% interest in Jackson Park, a 1,871 luxury residential rental unit development in Long Island City, NY.
REDT
In February 2024, the REIT created the REDT which completed an initial public offering in April 2024. The REDT raised U.S. $52.0
million of equity capital from investors to acquire an interest in and fund the development of the REDT Projects in Florida totalling
601 residential rental units. The REIT contributed the land to REDT JV LP in exchange for a 29.1% ownership interest in the REDT JV
LP. The REIT is accounting for its ownership interest in the REDT Projects as an equity accounted investment. H&R retains an option
to acquire the REDT Projects. H&R is earning a development fee of 4% of the total hard and soft costs of the REDT Projects (excluding
land and financing costs) and is expecting to earn a 1% asset management fee on gross proceeds raised by the REDT. H&R will also
be entitled to 20% of the distribution proceeds over and above its pro-rata share of the equity after investors receive an 8% internal
rate of return and 30% after investors receive a 15% internal rate of return. As at December 31, 2024, the total budget for the REDT
Projects was approximately $87.8 million (U.S. $61.0 million) with costs remaining to complete of $67.1 million (U.S. $46.6 million),
all at H&R’s ownership interest. The yield on cost for the REDT Projects is expected to be approximately 6.3%, with completion
expected in mid-2026.
560 & 600 Slate Drive
H&R has a 50% managing ownership interest in 560 & 600 Slate Drive, a 26.6 acre land site in Mississauga, ON, located next to
Toronto Pearson International Airport and in close proximity to access points on the 410, 401 and 407 Highways. The partnership
through which H&R owns its interest submitted a Site Plan Approval application in 2022 to develop two single storey industrial
buildings totalling 309,727 square feet and 160,485 square feet, respectively. Both buildings have been designed with flexibility such
that they can accommodate either single or multiple tenants. Both will include sustainability elements such as EV charging stations
and solar panel readiness and are targeted to achieve LEED Gold certification. As at December 31, 2024, the total budget for 560 &
600 Slate Drive was approximately $66.3 million with costs remaining to complete of $27.2 million, all at H&R’s ownership interest.
In Q3 2024, H&R obtained an external appraisal and recognized a fair value increase of $8.4 million at H&R’s ownership interest
primarily due to strong industrial demand given the close proximity to the airport and access points to the three major highways.
The yield on cost for the overall project is expected to be approximately 6.6% with completion expected in Q3 2025. H&R is the
development and leasing manager for this project and expects to earn approximately $2.4 million in aggregate for these services
over the development period of the project.
170 Butts Street
H&R owns a 50.5% interest in 170 Butts Street, South Hill, VA through a joint venture with its partners.
Hercules Project
H&R has a 31.7% non-managing ownership interest in 24.1 acres of land located in Hercules, CA, adjacent to San Pablo Bay,
northeast of San Francisco, for the future development of residential rental units. This waterfront, multi-phase, master-planned, in-
fill mixed use development surrounds a future intermodal transit centre, including train and ferry service, and is adjacent to an 11-
acre future waterfront regional park. The initial investment to purchase the land was approximately $13.1 million (U.S. $10.0
million), at H&R’s ownership interest. As at December 31, 2024, H&R’s equity investment was approximately $41.1 million (U.S.
$28.5 million).
Phase 2 of the Hercules Project, known as “The Grand at Bayfront”, consists of 232 residential rental units including a state-of-the-
art fitness centre, bike shop, residents lounge and sporting club. It is situated on 3.0 acres of land and is located north/northeast of
Phase 1 of the Hercules Project, which was disposed of by H&R in September 2021. Construction commenced in March 2019 and
practical completion was achieved in June 2022, resulting in the REIT transferring this property from properties under development
to investment properties within equity accounted investments.
The remaining land parcels totalling 21.1 acres are secured against a $4.9 million (U.S. $3.6 million) land loan at H&R’s ownership
interest. Future phases will be announced as further development information becomes available.
H&R REIT - MD&A - December 31, 2024
Page 26 of 72
Shoreline
H&R has a 31.2% non-managing ownership interest in Shoreline, a residential property site, which consists of a 315 luxury residential
rental unit tower with 6,643 square feet of retail space. Located in Long Beach, CA, Shoreline is the tallest residential tower in Long
Beach with 35 floors enjoying views overlooking the Pacific Ocean. Construction commenced in November 2018 and practical
completion was achieved in June 2022, resulting in the REIT transferring this property from properties under development to
investment properties within equity accounted investments.
Central Pointe
H&R has a non-managing 50% ownership interest in 8.4 acres of land in Santa Ana, CA. The site is expected to consist of two
buildings totalling 325 residential rental units and 319 residential rental units, respectively, as well as 15,131 square feet of retail
space. The site is located within one block of the I-5 freeway and within several miles of Downtown Santa Ana, South Coast Metro,
Irvine, Anaheim and Orange County.
Sunny Creek
H&R has a 33.3% non-managing ownership interest in 17.6 acres of land in Carlsbad, CA, a coastal city in northwest San Diego
County, approximately four miles from Carlsbad State Beach and downtown Carlsbad. The site is close to major highways and
business parks, including the headquarters for TaylorMade and Callaway. The site is expected to include an apartment project
consisting of 227 residential rental units and a for sale townhome project comprising 130 units for sale.
Assets Classified as Held for Sale
December 31, 2024
Property
Segment
Sale Date/
Expected Sale Date
H&R
Ownership
Interest
Square
Feet
Occupancy
Value
($ Thousands)
500 Hwy. 118 W. & 100/150 Muskoka Rd.
Hwy. 118 W., Bracebridge, ON(1)(2)
Retail
January 6, 2025
50.0%
30,485
100.0 %
$5,200
505 Hwy. 118 W., Bracebridge, ON(1)(2)
Retail
January 6, 2025
50.0%
65,791
70.8 %
8,500
555 Rossland Rd. E., Oshawa, ON(1)(2)
Retail
January 6, 2025
50.0%
33,438
100.0 %
9,500
1020 & 1090 Dawson Rd., Thunder Bay, ON(1)
Retail
January 6, 2025
50.0%
45,333
81.2 %
4,800
640 First St. Extension, Collingwood, ON
Retail
January 6, 2025
100.0%
38,000
100.0 %
12,300
2615 County Rd. 43, Kemptville, ON
Retail
January 6, 2025
100.0%
25,127
100.0 %
4,500
1020 Dawson Rd., Thunder Bay, ON
Retail
January 6, 2025
100.0%
98,521
100.0 %
5,000
502 37th Ave. S.E., Puyallup, WA(3)
Retail
March 31, 2025
100.0%
10,102
100.0 %
10,080
Total
346,797
$59,880
(1)
Square feet and fair value are based on the ownership interest sold and H&R no longer holds any ownership interest in these assets.
(2)
Liabilities classified as held for sale includes three mortgages payable totalling approximately $13.0 million at H&R’s ownership interest. These mortgages were
assumed by the purchaser on January 6, 2025.
(3)
U.S. assets classified as held for sale have been translated to Canadian dollars using the exchange rate as at December 31, 2024.
December 31, 2023
Property
Segment
Sale Date
H&R
Ownership
Interest
Square
Feet
Occupancy
Value
($ Thousands)
25 Dockside Dr., Toronto, ON
Office
April 15, 2024
100.0%
479,437
100.0 %
$232,500
7900 Airport Rd., Brampton, ON(1)
Industrial
October 1, 2024
50.0%
372,207
100.0 %
60,650
Total
851,644
$293,150
(1)
Square feet and fair value are based on the ownership interest sold and H&R no longer holds any ownership interest in these assets.
H&R REIT - MD&A - December 31, 2024
Page 27 of 72
Other Assets
(in thousands of Canadian dollars)
December 31, 2024
December 31, 2023
Mortgages receivable - net of provision for expected credit loss of $28,105 (2023 - nil)
$125,661
$166,077
Prepaid expenses and sundry assets
19,121
70,482
Accounts receivable - net of provision for expected credit loss of $2,863 (2023 - $3,556)
5,684
5,905
Restricted cash
12,787
96,625
Derivative instruments
13,993
29,919
$177,246
$369,008
Mortgages receivable decreased by approximately $40.4 million from approximately $166.1 million as at December 31, 2023 to
approximately $125.7 million as at December 31, 2024, primarily due to a $37.6 million non-cash loss on mortgages receivable,
which is further discussed in the Income and Expense Items - Finance Costs section of this MD&A as well as repayments received
throughout 2024. This was partially offset by new mortgages receivable of approximately $34.7 million issued as part of the 3777
and 3791 Kingsway, Burnaby, BC property sale.
Prepaid expenses and sundry assets decreased by approximately $51.4 million from approximately $70.5 million as at December 31,
2023 to approximately $19.1 million as at December 31, 2024 primarily due to the release of deposits along with pre-acquisition
costs relating to the acquisition of 459 Smith Street in Brooklyn, NY, as well as a decrease in prepaid interest on H&R’s unsecured
term loans and lines of credit.
Restricted cash decreased by approximately $83.8 million from approximately $96.6 million as at December 31, 2023 to
approximately $12.8 million as at December 31, 2024, primarily due to proceeds from the sale of U.S. properties held in escrow for
property exchanges under Section 1031 of the U.S. Internal Revenue Code being released to acquire U.S. residential land parcels in
Q1 2024.
Refer to the “Derivative Instruments” section of this MD&A for further information on H&R’s derivative instruments.
DEBT
December 31, 2024
December 31, 2023
Debt to total assets per the REIT's Financial Statements(1)
33.4 %
34.2 %
Debt to total assets at the REIT's proportionate share(1)(2)
43.7 %
44.0 %
Unencumbered assets(3) (in thousands of Canadian dollars)
$4,390,811
$4,223,082
Unsecured debt(3) (in thousands of Canadian dollars)
$1,891,958
$1,953,440
Unencumbered asset to unsecured debt coverage ratio(3)
2.32x
2.16x
Debt to Adjusted EBITDA at the REIT's proportionate share(1)(2)(4)
9.4x
8.5x
Non-recourse mortgages to total mortgages ratio
63.3 %
59.8 %
Weighted average interest rate of debt(5)
4.0 %
4.0 %
Weighted average term to maturity of debt (in years)(5)
2.2
2.5
Weighted average interest rate of debt at the REIT's proportionate share(2)(5)
4.1 %
4.1 %
Weighted average term to maturity of debt (in years) at the REIT's proportionate share(2)(5)
2.7
3.0
(1)
Debt includes mortgages payable, debentures payable, unsecured term loans, lines of credit and liabilities classified as held for sale.
(2)
These are non-GAAP measures and/or non-GAAP ratios. Refer to the “Non-GAAP Measures” section of this MD&A.
(3)
Unencumbered assets are investment properties and properties under development without encumbrances for mortgages or lines of credit. Unsecured debt
includes debentures payable, unsecured term loans and unsecured lines of credit.
(4)
Using a U.S. dollar to Canadian dollar exchange rate of $1.44 for both Debt and Adjusted EBITDA, Debt to Adjusted EBITDA at the REIT’s proportionate share
would have been 9.2x as at December 31, 2024. Debt as at December 31, 2024 was calculated using the U.S. dollar to Canadian dollar exchange rate of $1.44.
Adjusted EBITDA for the year ended December 31, 2024 was calculated using the U.S. dollar to Canadian dollar exchange rate of $1.37.
(5)
Debt includes mortgages payable, debentures payable, unsecured term loans and lines of credit.
H&R REIT - MD&A - December 31, 2024
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Debt Breakdown
H&R’s debt consists of the following items:
December 31, 2024
December 31, 2023
(in thousands of Canadian
dollars)
REIT’s
Financial
Statements
Equity
Accounted
Investments
REIT’s
Proportionate
Share(1)
REIT’s
Financial
Statements
Equity
Accounted
Investments
REIT’s
Proportionate
Share(1)
Mortgages payable
$1,376,592
$892,939
$2,269,531
$1,459,163
$825,152
$2,284,315
Debentures payable
1,197,958
—
1,197,958
1,297,960
—
1,297,960
Unsecured term loans
625,000
—
625,000
625,000
—
625,000
Lines of credit
337,834
306,452
644,286
304,710
272,687
577,397
$3,537,384
$1,199,391
$4,736,775
$3,686,833
$1,097,839
$4,784,672
(1)
The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
Debentures payable per the REIT’s Financial Statements decreased by approximately $100.0 million from approximately $1,298.0
million as at December 31, 2023 to approximately $1,198.0 million as at December 31, 2024, primarily due to the REIT redeeming all
of its $350.0 million outstanding Series N Senior Debentures in January 2024, partially offset by the issuance of $250.0 million Series
T Senior Debentures in February 2024.
Refer to the “Liquidity and Capital Resources” section of this MD&A for further information on H&R’s debt breakdown.
Debt by Operating Segment
The following table discloses H&R’s debt by operating segment:
December 31, 2024
December 31, 2023
(in thousands of Canadian
dollars)
REIT’s
Financial
Statements
Equity
Accounted
Investments
REIT’s
Proportionate
Share(1)
REIT’s
Financial
Statements
Equity
Accounted
Investments
REIT’s
Proportionate
Share(1)
Residential
$1,052,029
$811,400
$1,863,429
$955,964
$755,429
$1,711,393
Industrial
455,287
—
455,287
531,782
—
531,782
Office
137,680
—
137,680
230,237
—
230,237
Retail(2)
430
387,991
388,421
15,410
342,410
357,820
Corporate(3)
1,891,958
—
1,891,958
1,953,440
—
1,953,440
$3,537,384
$1,199,391
$4,736,775
$3,686,833
$1,097,839
$4,784,672
(1)
The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
(2)
Excludes liabilities classified as held for sale, which includes three mortgages payable totalling approximately $13.0 million, at H&R’s ownership interest.
(3)
Corporate debt includes debentures payable, unsecured term loans and unsecured operating lines of credit.
H&R REIT - MD&A - December 31, 2024
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Debt to Adjusted EBITDA at the REIT’s Proportionate Share
The following table provides a reconciliation of Debt to Adjusted earnings before interest, taxes, depreciation and amortization
(“Adjusted EBITDA”) at the REIT’s proportionate share. This is a non-GAAP ratio. Refer to the “Non-GAAP Measures” section of this
MD&A.
December 31
December 31
(in thousands of Canadian dollars)
2024
2023
Debt per the REIT's Financial Statements(1)
$3,550,417
$3,686,833
Debt - REIT's proportionate share of equity accounted investments(1)
1,199,391
1,097,839
Debt at the REIT's proportionate share(1)
4,749,808
4,784,672
Year ended December 31
2024
2023
Net income (loss) per the REIT's Financial Statements
(119,714)
61,690
Net income from equity accounted investments (within equity accounted investments)
(430)
(426)
Finance costs - operations
296,538
266,795
Fair value adjustments on financial instruments and real estate assets
491,319
363,547
Loss on sale of real estate assets, net of related costs
12,156
9,420
Gain on foreign exchange (within equity accounted investments)
(856)
—
Income tax recovery
(58,951)
(30,484)
Non-controlling interest
1,256
1,254
Adjustments:
The Bow and 100 Wynford non-cash rental income adjustments
(93,736)
(92,920)
Straight-lining of contractual rent
(18,256)
(12,100)
Fair value adjustment to unit-based compensation
(1,791)
(5,134)
Adjusted EBITDA at the REIT's proportionate share
$507,535
$561,642
Debt to Adjusted EBITDA at the REIT's proportionate share(1)(2)
9.4x
8.5x
(1)
Debt includes mortgages payable, debentures payable, unsecured term loans, lines of credit and liabilities classified as held for sale.
(2)
Using a U.S. dollar to Canadian dollar exchange rate of $1.44 for both Debt and Adjusted EBITDA, Debt to Adjusted EBITDA at the REIT’s proportionate share
would have been 9.2x as at December 31, 2024. Debt as at December 31, 2024 was calculated using the U.S. dollar to Canadian dollar exchange rate of $1.44.
Adjusted EBITDA for the year ended December 31, 2024 was calculated using the U.S. dollar to Canadian dollar exchange rate of $1.37.
Debt to Adjusted EBITDA at the REIT’s proportionate share increased to 9.4x as at December 31, 2024 compared to 8.5x as at
December 31, 2023, primarily due to the gain on disposal of purchase option in Q3 2023 increasing Adjusted EBITDA for 2023, as
well as the significant strengthening of the U.S. dollar throughout Q4 2024 which resulted in an exchange rate of $1.44 as at
December 31, 2024 compared to $1.37 for the year ended December 31, 2024. Using a U.S. dollar to Canadian dollar exchange rate
of $1.44 for both Debt and Adjusted EBITDA, Debt to Adjusted EBITDA at the REIT’s proportionate share would have been 9.2x as at
December 31, 2024. Debt as at December 31, 2024 was calculated using the U.S. dollar to Canadian dollar exchange rate of $1.44.
Adjusted EBITDA for the year ended December 31, 2024 was calculated using the U.S. dollar to Canadian dollar exchange rate of
$1.37.
OTHER LIABILITIES
Exchangeable Units
As at December 31, 2024, certain of the REIT’s subsidiaries had in aggregate 17,974,186 (December 31, 2023 - 17,974,186)
exchangeable units outstanding which are puttable instruments where, upon redemption, the REIT has a contractual obligation to
issue Units. Holders of all exchangeable units are entitled to receive the economic equivalence of distributions on a per unit amount
equal to a per Unit amount provided to holders of Units. These puttable instruments are classified as a liability under IFRS and are
measured at fair value through profit and loss. At the end of each reporting period, the fair value is determined by using the quoted
price of Units on the TSX as the exchangeable units are exchangeable into Units at the option of the holder at any time. The quoted
price as at December 31, 2024 was $9.28 (December 31, 2023 - $9.90) per Unit.
H&R REIT - MD&A - December 31, 2024
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In January 2025, 550,000 exchangeable units were exchanged into Units.
The following number of exchangeable units are issued and outstanding:
Number of
Exchangeable
Units
Quoted Price
of Units
Amounts per the
REIT's Financial
Statements ($000’s)
As at December 31, 2024
17,974,186
$9.28
$166,800
As at December 31, 2023
17,974,186
$9.90
$177,944
The REIT has entered into various exchange agreements that provide, among other things, the mechanics whereby exchangeable
units may be exchanged for Units.
Deferred Revenue
(a) Bow deferred revenue
(i) Sale of the Bow property and 40% interest in the Ovintiv lease
In October 2021, the REIT sold its interest in the Bow including 40% of the future income stream derived from the Ovintiv lease
(“Ovintiv lease”) until the end of the lease term in May 2038 to an arm’s length third party, Oak Street Real Estate Capital (“Oak
Street”), for approximately $528.0 million. Subsequent to the maturity of the Ovintiv lease, Oak Street will receive all future lease
revenue earned by the Bow. Although the REIT sold the Bow, the transaction did not meet the criteria of a transfer of control under
IFRS 15 as the REIT has an option to repurchase 100% of the Bow for approximately $737.0 million ($368 per sq. ft.) in 2038 or earlier
under certain circumstances. This option is substantially below the aggregate sale proceeds of $946.0 million and it provides H&R
the ability to capture potential upside in the Calgary office market over an extended time frame of approximately 13 years. As such,
the REIT continues to recognize the income producing property whereby the fair value will be adjusted over the remaining life of the
Ovintiv lease bringing the value of the real estate asset to nil by the lease maturity. The net proceeds received by the REIT on
disposition were $496.1 million. These proceeds were recorded as deferred revenue (classified as a liability) and will be amortized
over the remaining term of the Ovintiv lease (40% of the rental income remitted to Oak Street will consist of principal and interest).
(ii) Sale of 45% interest in the Ovintiv lease
In a separate transaction, in October 2021, the REIT sold 45% of its residual 60% interest in the future income stream derived from
the Ovintiv lease to an arm’s length third party that was financed by Deutsche Bank Credit Solutions and Direct Lending (“Deutsche
Bank”). The REIT received a lump-sum cash payment of $418.0 million as consideration. The net proceeds received of $408.3 million
were also recorded as deferred revenue (classified as a liability) and will be amortized over the remaining term of the Ovintiv lease
as the 45% lease payments are made to Deutsche Bank and will consist of principal and interest.
As a result of the above transactions, H&R is legally only entitled to 15% of the lease revenue from the Ovintiv lease until the end of
the lease term in May 2038.
(b) 100 Wynford deferred revenue
On August 31, 2022, the REIT sold its interest in 100 Wynford to an arm’s length third party, Blue Owl Capital, formerly Oak Street
(“Blue Owl”) for approximately $120.8 million. Although the REIT sold 100 Wynford, the transaction did not meet the criteria of a
transfer of control under IFRS 15 as the REIT has an option to repurchase 100% of 100 Wynford for approximately $159.7 million in
2036 or earlier under certain circumstances. As such, the REIT continues to recognize the income producing property whereby the
fair value will be adjusted over the remaining life of the Bell lease (“Bell lease”) bringing the value of the real estate asset to nil by
the lease maturity in April 2036. The net proceeds received by the REIT on disposition were $118.6 million. These proceeds were
recorded as deferred revenue (classified as a liability) and will be amortized over the remaining term of the Bell lease and will consist
of principal and interest.
H&R REIT - MD&A - December 31, 2024
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The following is a summary of the Bow and 100 Wynford in the consolidated statements of financial position in the REIT’s Financial
Statements:
December 31, 2024
December 31
(in thousands of Canadian dollars)
The Bow
100 Wynford
Total
2023
Income producing property - fair value(1)
$938,886
$101,368
$1,040,254
$1,085,919
Deferred revenue - net of amortization of $116,622 (2023 - $75,314)
805,130
101,233
906,363
947,671
(1)
The fair value of the income producing properties will be reduced as the remaining financial benefit from these income producing properties diminishes over the
term of their respective leases.
The following is a summary of the financial results for the Bow and 100 Wynford included in the consolidated statements of
comprehensive income (loss) as well as a reconciliation of the Bow and 100 Wynford's contribution to FFO and AFFO:
Three months ended December 31
(in thousands of Canadian dollars)
The Bow
100 Wynford
2024
2023
Rental income earned
$3,869
$—
$3,869
$3,938
Rental income earned - non-cash
21,341
2,156
23,497
23,294
Revenue reimbursement for property operating costs
13,023
515
13,538
13,949
Property operating costs
(13,045)
(515)
(13,560)
(13,947)
Net operating income
25,188
2,156
27,344
27,234
Accretion finance expense on deferred revenue - non-cash
(12,662)
(255)
(12,917)
(13,414)
Fair value adjustment on real estate assets - non-cash
(9,838)
(1,952)
(11,790)
(10,903)
Net income (loss)
2,688
(51)
2,637
2,917
Fair value adjustment on real estate assets
9,838
1,952
11,790
10,903
Non-cash rental income and accretion adjustment
(8,679)
(1,901)
(10,580)
(9,880)
FFO(1)
3,847
—
3,847
3,940
Capital expenditures
—
(49)
(49)
(6)
AFFO(1)
$3,847
($49)
$3,798
$3,934
(1)
These are non-GAAP measures. Refer to the “Non-GAAP Measures” section of this MD&A.
Year ended December 31
(in thousands of Canadian dollars)
The Bow
100 Wynford
2024
2023
Rental income earned
$15,421
$—
$15,421
$15,656
Rental income earned - non-cash
85,110
8,626
93,736
92,920
Revenue reimbursement for property operating costs
51,726
1,927
53,653
53,426
Property operating costs
(51,853)
(1,922)
(53,775)
(53,603)
Net operating income
100,404
8,631
109,035
108,399
Accretion finance expense on deferred revenue - non-cash
(51,379)
(1,049)
(52,428)
(54,348)
Fair value adjustment on real estate assets - non-cash
(38,131)
(7,652)
(45,783)
(43,443)
Net income (loss)
10,894
(70)
10,824
10,608
Fair value adjustment on real estate assets
38,131
7,652
45,783
43,443
Non-cash rental income and accretion adjustment
(33,731)
(7,577)
(41,308)
(38,572)
FFO(1)
15,294
5
15,299
15,479
Capital expenditures
—
(56)
(56)
(1,042)
AFFO(1)
$15,294
($51)
$15,243
$14,437
(1)
These are non-GAAP measures. Refer to the “Non-GAAP Measures” section of this MD&A.
Excluding the non-cash rental income adjustment under IFRS 15, net operating income from the Bow for the three months and year
ended December 31, 2024 was $3.8 million and $15.3 million, respectively. Excluding the non-cash rental income adjustment under
IFRS 15, net operating income from 100 Wynford for the three months and year ended December 31, 2024 was nil.
H&R REIT - MD&A - December 31, 2024
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Deferred Tax Liability
H&R has certain subsidiaries in the United States that are subject to tax on their taxable income at a combined federal and state tax
rate of approximately 23.9% in 2024 (2023 - 24.0%).
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are
presented below:
December 31
December 31
(in thousands of Canadian dollars)
2024
2023
Deferred tax assets:
Net operating losses
$104,463
$93,622
Accounts payable and accrued liabilities
1,398
2,732
105,861
96,354
Deferred tax liabilities:
Investment properties
352,093
362,581
Equity accounted investments
166,600
170,263
Other assets
354
724
519,047
533,568
Deferred tax liability
($413,186)
($437,214)
The deferred tax liability relating to the investment properties is derived on the basis that the U.S. investment properties will be sold
at their current fair value. The tax liability will only be realized upon an actual disposition of a property that is not subject to a
property exchange under Section 1031 of the U.S. Internal Revenue Code. Deferred tax liability decreased by approximately $24.0
million from $437.2 million as at December 31, 2023 to $413.2 million as at December 31, 2024 primarily due to fair value
adjustments on real estate assets, partially offset by the strengthening of the U.S. dollar.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities decreased by $30.6 million from approximately $335.6 million as at December 31, 2023 to
approximately $305.0 million as at December 31, 2024, primarily due to H&R being released from two lease liabilities in January
2024. This was part of the derecognition of the corresponding right-of-use assets upon H&R exercising an option to acquire a 100%
freehold interest in two residential land parcels in Orlando, FL where the REIT previously had a leasehold interest in both parcels.
UNITHOLDERS’ EQUITY
Unitholders’ equity increased by $86.4 million from approximately $5,192.4 million as at December 31, 2023 to approximately
$5,278.7 million as at December 31, 2024, primarily due to other comprehensive income, which largely consists of an unrealized gain
on translation of U.S. denominated foreign operations. This was partially offset by distributions to unitholders and a net loss during
the year ended December 31, 2024.
Normal Course Issuer Bid
On February 9, 2023, the REIT received approval from the TSX for the renewal of its normal course issuer bid (“NCIB”) which allowed
the REIT to purchase for cancellation up to a maximum of 26,028,249 Units on the open market until February 15, 2024. The NCIB
expired on February 15, 2024 in accordance with its terms.
During the year ended December 31, 2024, the REIT did not purchase any Units for cancellation.
H&R REIT - MD&A - December 31, 2024
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During the year ended December 31, 2023, the REIT purchased and cancelled 4,147,200 Units at a weighted average price of $10.30
per Unit, for a total cost of $42.7 million, representing a 50.4% discount to NAV per Unit as at December 31, 2023 (a non-GAAP ratio,
refer to the “Non-GAAP Measures” section of this MD&A).
Unitholders’ Equity per Unit and NAV per Unit
December 31
December 31
(in thousands except for per Unit amounts)
2024
2023
Unitholders' equity
$5,278,743
$5,192,375
Exchangeable units
166,800
177,944
Deferred tax liability
413,186
437,214
Total
$5,858,729
$5,807,533
Units outstanding
262,016
261,868
Exchangeable units outstanding
17,974
17,974
Total
279,990
279,842
Unitholders' equity per Unit(1)
$20.15
$19.83
NAV per Unit(2)
$20.92
$20.75
(1)
Unitholders’ equity per Unit is calculated by dividing unitholders’ equity by Units outstanding.
(2)
This is a Non-GAAP ratio. Refer to the “Non-GAAP Measures” section of this MD&A.
The repurchasing of Units under H&R’s NCIB during the year ended December 31, 2023 had a $0.15 positive impact on Unitholders’
equity per Unit and NAV per Unit, respectively. Unitholders’ equity per Unit and NAV per Unit, without accounting for any Units
being repurchased during the year ended December 31, 2023, would have been $19.68 and $20.60, respectively.
H&R REIT - MD&A - December 31, 2024
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RESULTS OF OPERATIONS
The following foreign exchange rates have been used in the results of operations when converting U.S. dollars to Canadian dollars
except where otherwise noted:
Three months ended December 31
Year ended December 31
2024
2023
2024
2023
For each U.S. $1.00
$1.40 CAD
$1.35 CAD
$1.37 CAD
$1.35 CAD
The following table reconciles the REIT’s Results of Operations from the REIT’s Financial Statements to the REIT’s proportionate
share:
Three months ended December 31, 2024
Three months ended December 31, 2023
(in thousands of Canadian dollars)
REIT's
Financial
Statements
Equity
accounted
investments
REIT's
proportionate
share(1)
REIT's
Financial
Statements
Equity
accounted
investments
REIT's
proportionate
share(1)
Rentals from investment properties
$202,350
$40,605
$242,955
$205,904
$38,439
$244,343
Property operating costs
(61,201)
(9,817)
(71,018)
(58,544)
(10,459)
(69,003)
Net operating income
141,149
30,788
171,937
147,360
27,980
175,340
Net income from equity accounted investments
82,308
(82,169)
139
145,320
(145,292)
28
Finance costs - operations
(59,579)
(12,448)
(72,027)
(54,130)
(12,310)
(66,440)
Finance income
2,959
237
3,196
3,325
103
3,428
Trust expenses
(1,915)
(650)
(2,565)
(7,054)
(1,309)
(8,363)
Fair value adjustment on financial instruments
39,017
145
39,162
(43,606)
527
(43,079)
Fair value adjustment on real estate assets
(53,265)
63,820
10,555
(197,587)
131,522
(66,065)
Gain (loss) on sale of real estate assets, net of related costs
268
(377)
(109)
(1,119)
(501)
(1,620)
Gain on foreign exchange
—
935
935
—
—
—
Net income (loss) before income taxes and non-controlling
interest
150,942
281
151,223
(7,491)
720
(6,771)
Income tax expense
(20,060)
(28)
(20,088)
(3,822)
(14)
(3,836)
Net income (loss) before non-controlling interest
130,882
253
131,135
(11,313)
706
(10,607)
Non-controlling interest
—
(253)
(253)
—
(706)
(706)
Net income (loss)
130,882
—
130,882
(11,313)
—
(11,313)
Other comprehensive income (loss):
Items that are or may be reclassified subsequently to net
income (loss)
293,302
—
293,302
(130,990)
—
(130,990)
Total comprehensive income (loss) attributable to unitholders
$424,184
$—
$424,184
($142,303)
$—
($142,303)
(1)
The REIT's proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
H&R REIT - MD&A - December 31, 2024
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The following table reconciles the REIT’s Results of Operations from the REIT’s Financial Statements to the REIT’s proportionate
share:
Year ended December 31, 2024
Year ended December 31, 2023
(in thousands of Canadian dollars)
REIT's
Financial
Statements
Equity
accounted
investments
REIT's
proportionate
share(1)
REIT's
Financial
Statements
Equity
accounted
investments
REIT's
proportionate
share(1)
Rentals from investment properties
$816,990
$156,451
$973,441
$847,146
$150,704
$997,850
Property operating costs
(297,072)
(41,814)
(338,886)
(300,542)
(41,035)
(341,577)
Net operating income
519,918
114,637
634,555
546,604
109,669
656,273
Net income from equity accounted investments
2,477
(2,047)
430
145,459
(145,033)
426
Finance costs - operations
(246,829)
(49,709)
(296,538)
(218,152)
(48,643)
(266,795)
Finance income
11,577
891
12,468
13,849
341
14,190
Gain on disposal of purchase option
—
—
—
30,568
—
30,568
Trust expenses
(20,580)
(5,125)
(25,705)
(24,385)
(4,850)
(29,235)
Fair value adjustment on financial instruments
(8,452)
(1,089)
(9,541)
30,555
856
31,411
Fair value adjustment on real estate assets
(425,884)
(55,894)
(481,778)
(486,104)
91,146
(394,958)
Loss on sale of real estate assets, net of related costs
(11,154)
(1,002)
(12,156)
(7,247)
(2,173)
(9,420)
Gain on foreign exchange
—
856
856
—
—
—
Net income (loss) before income taxes and non-controlling
interest
(178,927)
1,518
(177,409)
31,147
1,313
32,460
Income tax (expense) recovery
59,213
(262)
58,951
30,543
(59)
30,484
Net income (loss) before non-controlling interest
(119,714)
1,256
(118,458)
61,690
1,254
62,944
Non-controlling interest
—
(1,256)
(1,256)
—
(1,254)
(1,254)
Net income (loss)
(119,714)
—
(119,714)
61,690
—
61,690
Other comprehensive income (loss):
Items that are or may be reclassified subsequently to net
income (loss)
393,292
—
393,292
(131,202)
—
(131,202)
Total comprehensive income (loss) attributable to unitholders
$273,578
$—
$273,578
($69,512)
$—
($69,512)
(1)
The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
H&R REIT - MD&A - December 31, 2024
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NET OPERATING INCOME
Net operating income consists of rentals from investment properties less property operating costs. Management believes that net
operating income is a useful measure for investors in assessing the performance of H&R’s properties before financing costs and
other sources of income and expenditures, which are not directly related to the day-to-day operations of a property. Same-Property
net operating income (cash basis), a non-GAAP financial measure, adjusts net operating income (including net operating income
from equity accounted investments on a proportionately consolidated basis) to exclude straight-lining of contractual rent and realty
taxes accounted for under IFRIC 21. “Same-Property” refers to those properties owned by H&R for the entire two-year period ended
December 31, 2024. It excludes acquisitions, dispositions, and transfers of investment properties to or from properties under
development during the two-year period ended December 31, 2024 (collectively, “Transactions”). Management believes that this
measure is useful for investors as it adjusts net operating income (including net operating income from equity accounted
investments on a proportionately consolidated basis) for non-cash items which allows investors to better understand period-over-
period changes due to occupancy, rental rates, realty taxes and operating costs, before evaluating the changes attributable to
Transactions. Furthermore, it is also used as a key input in determining the value of investment properties.
Three months ended December 31
Year ended December 31
(in thousands of Canadian dollars)
2024
2023
Change
2024
2023
Change
Rentals from investment properties
$202,350 $205,904
($3,554) $816,990 $847,146 ($30,156)
Property operating costs
(61,201)
(58,544)
(2,657) (297,072) (300,542)
3,470
Net operating income per the REIT's Financial Statements
141,149
147,360
(6,211)
519,918
546,604
(26,686)
Adjusted for:
Net operating income from equity accounted investments(1)
30,788
27,980
2,808
114,637
109,669
4,968
Straight-lining of contractual rent at the REIT's proportionate share(1)
(3,527)
(2,623)
(904)
(18,256)
(12,100)
(6,156)
Realty taxes in accordance with IFRIC 21 at the REIT's proportionate
share(1)
(14,686)
(14,946)
260
—
—
—
Net operating income (cash basis) from Transactions at the REIT's
proportionate share(1)
(28,837)
(36,664)
7,827 (125,158) (159,309)
34,151
Same-Property net operating income (cash basis)(1)
$124,887 $121,107
$3,780 $491,141 $484,864
$6,277
(1)
These are non-GAAP measures. Refer to the “Non-GAAP Measures” section of this MD&A.
Net operating income per the REIT's Financial Statements decreased by $6.2 million and $26.7 million, respectively, for the three
months and year ended December 31, 2024 compared to the respective 2023 periods, primarily due to properties sold and lower
lease termination fees earned, partially offset by the strengthening of the U.S. dollar.
Net operating income from equity accounted investments increased by $2.8 million and $5.0 million, respectively, for the three
months and year ended December 31, 2024 compared to the respective 2023 periods, primarily due to the following: (i)
strengthening of the U.S. dollar; (ii) rental growth and lower property operating costs from H&R’s gateway city residential
properties; and (iii) an increase in net operating income from ECHO, including contractual rental escalations.
Straight-lining of contractual rent at the REIT’s proportionate share increased by $0.9 million and $6.2 million, respectively, for the
three months and year ended December 31, 2024 compared to the respective 2023 periods, primarily due to the following: (i) free
rent periods associated with the lease commencements at 1965 and 1925 Meadowvale Boulevard in Mississauga, ON in February
2024; and (ii) a negative adjustment to straight-lining of contractual rent in the three months and year ended December 31, 2023,
relating to a lease termination fee of approximately $1.8 million from Telus Communications, who vacated 114,989 square feet at
H&R’s 50% ownership interest at 3777 Kingsway in Burnaby, BC. IFRS 16 requires revenue from leases to be recognized on a
straight-line basis over the contractual term of the lease. The property was sold on June 28, 2024. The increase to straight-lining of
contractual rent for the three months ended December 31, 2024, compared to the respective 2023 period, was partially offset by a
negative adjustment to straight-lining of contractual rent in the three months ended December 31, 2023, relating to a lease
amendment at 6900 Maritz Drive in Mississauga, ON to terminate the tenant’s lease in December 2023, prior to the original expiry of
May 2031.
Same-Property net operating income (cash basis) increased by $3.8 million and $6.3 million, respectively, for the three months and
year ended December 31, 2024 compared to the respective 2023 periods, primarily due to the strengthening of the U.S. dollar.
H&R REIT - MD&A - December 31, 2024
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SEGMENT INFORMATION
Operating Segments and Geographic Locations
H&R has four reportable operating segments (Residential, Industrial, Office and Retail), in two geographical locations (Canada and
the United States). The operating segments derive their revenue primarily from rental income from leases. The segments are
reported in a manner consistent with the internal reporting provided to the chief operating decision maker, determined to be the
CEO of the REIT. The CEO measures and evaluates the performance of the REIT based on net operating income on a proportionately
consolidated basis for the REIT’s equity accounted investments.
The Residential segment consists of 26 residential properties in select markets in the United States. As at December 31, 2024, the
portfolio comprised of 8,929 residential rental units, at H&R’s ownership interest.
The Industrial segment consists of 64 industrial properties in Canada and one property in the United States comprising 8.2 million
square feet, at H&R’s ownership interest, with an average lease term to maturity of 5.3 years as at December 31, 2024.
The Office segment, excluding the Bow and 100 Wynford, consists of 13 properties in Canada and three properties in select markets
in the United States, comprising 4.5 million square feet, at H&R’s ownership interest, with an average lease term to maturity of 6.0
years as at December 31, 2024. The Office portfolio is leased on a long-term basis to creditworthy tenants, with 87.6% of office
revenue from tenants with investment grade credit ratings. With long average lease terms resulting in only 9.1% of office square feet
expiring during 2025, as well as high credit tenants, this segment tends to generate stable net operating income with gradual growth
driven by contractual rental rate increases.
The Retail segment consists of 34 properties in Canada which are mostly single tenant properties as well as two single tenant retail
properties and one multi-tenant retail property in the United States. In addition, the Retail segment also holds a 33.2% interest in
ECHO, a privately held real estate and development company consisting of 230 properties, which focuses on developing and owning
a core portfolio of grocery-anchored shopping centres in the United States. In total, this segment includes 34 properties in Canada
and 233 properties in the United States comprising 5.2 million square feet, at H&R’s ownership interest, with an average lease term
to maturity of 7.9 years as at December 31, 2024.
Further disclosure of segment information for net operating income can be found in note 21 of the REIT’s Financial Statements.
Net Operating Income by Segment
Net operating income
Occupancy
Three months ended December 31
Year ended December 31
As at December 31
(in thousands of Canadian dollars)
2024
2023
% Change
2024
2023
% Change
2024
2023
Operating Segment:
Residential
$52,077
$50,483
3.2%
$167,240
$165,164
1.3%
90.1 %
94.3%
Industrial
19,519
19,005
2.7%
79,771
75,054
6.3%
98.9 %
99.2%
Office
71,900
78,169
(8.0%)
283,834
314,713
(9.8%)
96.8 %
95.9%
Retail
28,441
27,683
2.7%
103,710
101,342
2.3%
97.0 %
96.2%
The REIT's proportionate share(1)
171,937
175,340
(1.9%)
634,555
656,273
(3.3%)
95.5%
96.5%
Less: equity accounted investments
(30,788)
(27,980)
10.0%
(114,637)
(109,669)
4.5%
97.8 %
97.0%
The REIT's Financial Statements
$141,149
$147,360
(4.2%)
$519,918
$546,604
(4.9%)
95.0 %
96.4%
Geographic Location:
Canada
71,167
76,443
(6.9%)
297,934
322,785
(7.7%)
98.1 %
97.7%
United States
100,770
98,897
1.9%
336,621
333,488
0.9%
93.1 %
95.2%
The REIT's proportionate share(1)
171,937
175,340
(1.9%)
634,555
656,273
(3.3%)
95.5 %
96.5%
Less: equity accounted investments
(30,788)
(27,980)
10.0%
(114,637)
(109,669)
4.5%
97.8 %
97.0%
The REIT's Financial Statements
$141,149
$147,360
(4.2%)
$519,918
$546,604
(4.9%)
95.0 %
96.4%
(1)
The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
Net operating income across all operating segments was positively impacted by the strengthening of the U.S. dollar for the three
months and year ended December 31, 2024 compared to the respective 2023 periods. The average exchange rate for the three
H&R REIT - MD&A - December 31, 2024
Page 38 of 72
months ended December 31, 2024 was $1.40 for each U.S. $1.00 (Q4 2023 - $1.35). The average exchange rate for the year ended
December 31, 2024 was $1.37 for each U.S. $1.00 (December 31, 2023 - $1.35). The following explanations for changes in net
operating income are in addition to the impact of foreign exchange.
Net operating income from residential properties increased by 3.2% and 1.3%, respectively, for the three months and year ended
December 31, 2024 compared to the respective 2023 periods, primarily due to rental growth and lower property operating costs
from H&R’s gateway city properties. This was partially offset by the following: (i) a decrease in average rental rates and higher
property operating costs from H&R’s sun belt properties; and (ii) the lease-up of Lantower West Love and Lantower Midtown, which
were 47.9% and 24.9% occupied, respectively, as at December 31, 2024.
Net operating income from industrial properties increased by 2.7% and 6.3%, respectively, for the three months and year ended
December 31, 2024 compared to the respective 2023 periods, primarily due to lease commencements at 1965 and 1925
Meadowvale Boulevard in Mississauga, ON in February 2024, and strong rental rate growth. This was partially offset by a decrease in
net operating income due to properties sold, including a $0.9 million lease termination fee received from a U.S. industrial tenant in
Q2 2023.
Net operating income from office properties decreased by 8.0% and 9.8%, respectively, for the three months and year ended
December 31, 2024 compared to the respective 2023 periods, primarily due to the following: (i) properties sold; (ii) lower lease
termination fees earned mainly resulting from Transactions; and (iii) a decrease in occupancy from properties advancing through the
process of rezoning. Net operating income from office properties further decreased for the year ended December 31, 2024
compared to the respective 2023 period due to a bad debt recovery in Q3 2023.
Net operating income from retail properties increased by 2.7% and 2.3%, respectively, for the three months and year ended
December 31, 2024 compared to the respective 2023 periods, primarily due to an increase in occupancy at River Landing
Commercial in Miami, FL, partially offset by a decrease in net operating income due to properties sold.
H&R REIT - MD&A - December 31, 2024
Page 39 of 72
Same-Property Net Operating Income (Cash Basis) by Segment
The following segment information has been presented at the REIT’s proportionate share, which is a non-GAAP measure defined in
the “Non-GAAP Measures” section of this MD&A:
Same-Property net operating income (cash basis)(1)
Occupancy (Same-Property)
Three months ended December 31
Year ended December 31
As at December 31
(in thousands of Canadian dollars)
2024
2023
% Change
2024
2023
% Change
2024
2023
Operating Segment:
Residential
$43,559
$41,451
5.1%
$168,417
$165,143
2.0%
95.0 %
94.3 %
Industrial
17,396
16,902
2.9%
67,851
65,235
4.0%
98.9 %
99.4 %
Office
38,467
38,255
0.6%
154,628
159,019
(2.8%)
96.8 %
97.9 %
Retail
25,465
24,499
3.9%
100,245
95,467
5.0%
97.0 %
96.5 %
The REIT's proportionate share(1) (page 37)
$124,887
$121,107
3.1%
$491,141
$484,864
1.3%
96.9 %
96.9 %
Geographic Location:
Ontario
25,193
25,185
—%
102,211
105,412
(3.0%)
97.2 %
98.3 %
Alberta
7,801
7,629
2.3%
31,481
31,482
—%
99.0 %
99.0 %
Other Canada
5,059
5,061
—%
19,704
19,745
(0.2%)
100.0 %
100.0 %
Total – Canada
38,053
37,875
0.5%
153,396
156,639
(2.1%)
98.0 %
98.7 %
United States
86,834
83,232
4.3%
337,745
328,225
2.9%
95.9 %
95.3 %
The REIT's proportionate share(1) (page 37)
$124,887
$121,107
3.1%
$491,141
$484,864
1.3%
96.9 %
96.9 %
United States in U.S. dollars:
Residential
31,125
30,704
1.4%
122,932
122,328
0.5%
95.0 %
94.3 %
Industrial
344
332
3.6%
1,356
1,284
5.6%
100.0 %
100.0 %
Office
16,508
16,639
(0.8%)
66,122
65,930
0.3%
98.9 %
99.4 %
Retail
14,059
13,978
0.6%
56,119
53,587
4.7%
96.3 %
95.5 %
U.S. total in U.S. dollars
$62,036
$61,653
0.6%
$246,529
$243,129
1.4%
95.9 %
95.3 %
(1)
These are non-GAAP measures defined in the “Non-GAAP Measures” section of this MD&A.
Same-Property net operating income (cash basis) across all operating segments was positively impacted by the strengthening of the
U.S. dollar for the three months and year ended December 31, 2024 compared to the respective 2023 periods. The average
exchange rate for the three months ended December 31, 2024 was $1.40 for each U.S. $1.00 (Q4 2023 - $1.35). The average
exchange rate for the year ended December 31, 2024 was $1.37 for each U.S. $1.00 (December 31, 2023 - $1.35). The following
explanations for changes in Same-Property net operating income (cash basis) are in addition to the impact of foreign exchange.
Same-Property net operating income (cash basis) from residential properties in U.S. dollars increased by 1.4% and 0.5%, respectively,
for the three months and year ended December 31, 2024 compared to the respective 2023 periods, primarily due to rental growth
and lower property operating costs from H&R’s gateway city properties. This was partially offset by a decrease in average rental
rates and higher property operating costs from H&R’s sun belt properties. Included in the three months ended December 31, 2024
are lower realty taxes recorded of U.S. $1.9 million relating to actual 2024 final tax bills received compared to estimated amounts
accrued throughout the year.
Same-Property net operating income (cash basis) from industrial properties increased by 2.9% and 4.0%, respectively, for the three
months and year ended December 31, 2024 compared to the respective 2023 periods, primarily due to strong rental rate growth.
Same-Property net operating income (cash basis) from office properties increased by 0.6% for the three months ended December
31, 2024 compared to the respective 2023 period, primarily due to the strengthening of the U.S. dollar noted above, partially offset
by a decrease in occupancy mainly from properties advancing through the process of rezoning. Same-Property net operating income
(cash basis) from office properties decreased by 2.8% for the year ended December 31, 2024 compared to the respective 2023
period, primarily due to a bad debt recovery in Q3 2023 and a decrease in occupancy mainly from properties advancing through the
process of rezoning.
H&R REIT - MD&A - December 31, 2024
Page 40 of 72
Same-Property net operating income (cash basis) from retail properties increased by 3.9% and 5.0%, respectively, for the three
months and year ended December 31, 2024 compared to the respective 2023 periods, primarily due to an increase in occupancy at
River Landing Commercial in Miami, FL.
NET INCOME, FFO AND AFFO FROM EQUITY ACCOUNTED INVESTMENTS(1)
The following table provides a reconciliation of H&R’s net income from equity accounted investments to FFO and AFFO from equity
accounted investments:
Three months ended December 31
Year ended December 31
(in thousands of Canadian dollars)
2024
2023
2024
2023
Net income from equity accounted investments(1)
$82,308
$145,320
$2,477
$145,459
Realty taxes in accordance with IFRIC 21
(1,212)
(1,184)
—
—
Fair value adjustments on financial instruments and real estate assets
(63,965)
(132,049)
56,983
(92,002)
Loss on sale of real estate assets, net of related costs
377
501
1,002
2,173
Gain on foreign exchange
(935)
—
(856)
—
Notional interest capitalization(2)
988
—
2,445
—
FFO from equity accounted investments(1)
17,561
12,588
62,051
55,630
Straight-lining of contractual rent
(229)
(170)
(650)
(696)
Rent amortization of tenant inducements
287
268
1,118
1,104
Capital expenditures
(1,694)
(894)
(5,038)
(3,861)
Leasing expenses and tenant inducements
(406)
(568)
(1,341)
(1,759)
AFFO from equity accounted investments(1)
$15,519
$11,224
$56,140
$50,418
(1)
Each of these line items represent the REIT’s proportionate share of equity accounted investments. These are non-GAAP measures defined in the “Non-GAAP
Measures” section of this MD&A.
(2)
Represents an adjustment to add general or indirect interest incurred in respect of properties under development held in and through equity accounted
investments.
Net income from equity accounted investments decreased by $63.0 million and $143.0 million, respectively, for the three months
and year ended December 31, 2024 compared to the respective 2023 periods, primarily due to fair value adjustments on real estate
assets.
FFO from equity accounted investments increased by $5.0 million and $6.4 million, respectively, for the three months and year
ended December 31, 2024 compared to the respective 2023 periods, primarily due to an increase in net operating income as well as
notional interest capitalization relating to one Canadian industrial development and two U.S. residential developments currently
under construction.
H&R REIT - MD&A - December 31, 2024
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INCOME AND EXPENSE ITEMS
The income and expense items section of this MD&A provides management’s commentary on the Results of Operations per the
REIT’s Financial Statements.
Finance Costs
Three months ended December 31
Year ended December 31
(in thousands of Canadian dollars)
2024
2023
Change
2024
2023
Change
Finance costs – operations:
Contractual interest on mortgages payable
($13,325)
($15,247)
$1,922
($55,252)
($62,024)
$6,772
Contractual interest on debentures payable
(11,334)
(10,899)
(435)
(43,842)
(43,778)
(64)
Interest on unsecured term loans, net of interest rate swaps
(6,354)
(6,236)
(118)
(25,254)
(28,489)
3,235
Bank interest and charges on lines of credit
(4,883)
(5,319)
436
(24,887)
(20,266)
(4,621)
Effective interest rate accretion(1)
(1,226)
(1,204)
(22)
(4,724)
(4,638)
(86)
Accretion finance expense on deferred revenue
(12,917)
(13,414)
497
(52,428)
(54,348)
1,920
Exchangeable unit distributions
(4,853)
(4,494)
(359)
(12,941)
(12,582)
(359)
Non-cash loss on mortgages receivable
(5,605)
—
(5,605)
(37,605)
—
(37,605)
(60,497)
(56,813)
(3,684)
(256,933)
(226,125)
(30,808)
Capitalized interest
918
2,683
(1,765)
10,104
7,973
2,131
(59,579)
(54,130)
(5,449)
(246,829)
(218,152)
(28,677)
Finance income
2,959
3,325
(366)
11,577
13,849
(2,272)
Fair value adjustment on financial instruments
39,017
(43,606)
82,623
(8,452)
30,555
(39,007)
($17,603)
($94,411)
$76,808 ($243,704) ($173,748)
($69,956)
(1)
In addition, H&R’s share of effective interest rate accretion from equity accounted investments for the three months ended December 31, 2024 and 2023 was
($428) and ($392), respectively. In addition, H&R’s share of effective interest rate accretion from equity accounted investments for the year ended December
31, 2024 and 2023 was ($1,671) and ($1,735), respectively.
The decrease in contractual interest on mortgages payable of $1.9 million and $6.8 million, respectively, for the three months and
year ended December 31, 2024 compared to the respective 2023 periods is primarily due to mortgages repaid.
The decrease in interest on unsecured term loans, net of interest rate swaps, of $3.2 million for the year ended December 31, 2024
compared to the respective 2023 period is primarily due to the repayment of a $125.0 million unsecured term loan in August 2023.
The increase in bank interest and charges on lines of credit of $4.6 million for the year ended December 31, 2024 compared to the
respective 2023 period is primarily due to H&R obtaining a new $275.0 million non-revolving secured credit facility in March 2023
and higher borrowings on H&R’s unsecured lines of credit throughout 2024.
The accretion finance expense on deferred revenue for the three months and year ended December 31, 2024 and 2023 is due to the
proceeds from the sale of the Bow and 100 Wynford being amortized over the terms of their respective leases as both sale
transactions did not meet the criteria of a transfer of control under IFRS 15. Refer to the “Liabilities & Unitholders’ Equity - Deferred
Revenue” section of this MD&A for further information on the Bow and 100 Wynford sale transactions.
The non-cash loss on mortgages receivable for the three months and year ended December 31, 2024 of $5.6 million and $37.6
million, respectively, consists of the following:
(i) In April 2018, the REIT sold F1RST Tower, an office property in Calgary, AB. The REIT provided a $45.1 million vendor take-back
(“VTB”) mortgage to the purchaser. On September 12, 2024, due to a borrower default, the REIT exercised its rights under a letter of
credit held as collateral and has collected approximately $3.3 million. The REIT remains in negotiations with the borrower on
renewing the VTB on terms agreeable to the REIT, but there can be no assurance that an agreement will be reached. As a result, the
REIT reassessed the probability of default in its expected credit loss model and the value of the collateral. As a result of these
reassessments, the REIT recorded an impairment loss for the three months and year ended December 31, 2024 of $5.6 million and
$28.1 million, respectively, on the VTB which is reflective of the lifetime expected credit loss. All amounts are at the REIT’s ownership
interest.
H&R REIT - MD&A - December 31, 2024
Page 42 of 72
(ii) In April 2023, the REIT sold 160 Elgin Street, an office property in Ottawa, ON. The REIT provided a $30.0 million VTB mortgage to
the purchaser which bore interest at 4.5% per annum and was scheduled to mature on April 20, 2028. In July 2024, the REIT entered
into an amending agreement with the purchaser in which the REIT agreed to accept a payment of $20.5 million by October 1, 2024
as full and final payment of this VTB mortgage. During the year ended December 31, 2024, the REIT reduced the carrying value of
this VTB mortgage to $20.5 million to reflect the revised contractual terms, resulting in a one-time $9.5 million loss on modification
of mortgage receivable. The REIT received a payment of $20.5 million on October 1, 2024.
The decrease in capitalized interest of $1.8 million for the three months ended December 31, 2024 compared to the respective 2023
period is primarily due to Lantower West Love and Lantower Midtown reaching practical completion with both properties being
transferred from properties under development to investment properties in Q3 2024 and Q4 2024, respectively. The increase in
capitalized interest of $2.1 million for the year ended December 31, 2024 compared to the respective 2023 period is primarily due to
three properties advancing through construction in 2024, partially offset by 1965 and 1925 Meadowvale Boulevard reaching
practical completion with both properties being transferred from properties under development to investment properties in January
2024.
The decrease in finance income of $2.3 million for the year ended December 31, 2024 compared to the respective 2023 period is
primarily due to repayments of mortgages receivable.
The fair value adjustment on financial instruments of $39.0 million and ($8.5) million, respectively, for the three months and year
ended December 31, 2024 is due to: (i) the unrealized gain (loss) on fair value of exchangeable units of $38.8 million and $11.1
million, respectively, which are fair valued at the end of each reporting period based on the quoted price of Units on the TSX; and (ii)
an unrealized gain (loss) on derivative instruments of $0.2 million and ($19.6) million, respectively, which is further described in the
“Derivative Instruments” section of this MD&A.
Gain on disposal of purchase option
Three months ended December 31
Year ended December 31
(in thousands of Canadian dollars)
2024
2023
Change
2024
2023
Change
Gain on disposal of purchase option
$—
$—
$—
$—
$30,568
($30,568)
H&R had a mortgage receivable of approximately $37.2 million (U.S. $27.6 million) secured against industrial land in North Las Vegas,
NV. In addition, H&R had an option to purchase the land. H&R sold its option to purchase the land and received repayment of its
mortgage receivable from the borrower. The combined proceeds from the repayment of the mortgage receivable and the sale of the
option amounted to $67.8 million (U.S. $50.2 million), which were received in August 2023. As a result, H&R recorded $30.6 million
(U.S. $22.6 million) as a gain on disposal of purchase option.
Trust Expenses
Three months ended December 31
Year ended December 31
(in thousands of Canadian dollars)
2024
2023
Change
2024
2023
Change
General expenses
($8,037)
($8,473)
$436
($32,314)
($38,485)
$6,171
Third party property management fees earned
3,918
3,102
816
15,640
14,184
1,456
Unit-based compensation expense
(1,263)
(1,154)
(109)
(5,697)
(5,218)
(479)
Fair value adjustment to unit-based compensation
3,467
(529)
3,996
1,791
5,134
(3,343)
Trust expenses
($1,915)
($7,054)
$5,139
($20,580)
($24,385)
$3,805
General expenses decreased by $6.2 million for the year ended December 31, 2024 compared to the respective 2023 period,
primarily due to $4.3 million relating to costs incurred as part of a support agreement (the “Support Agreement”) with K2 Principal
Fund L.P. and K2 & Associates Investment Management Inc. (collectively, “K2”) in April 2023, as well as severance costs incurred in
May 2023.
Third party property management fees earned increased by $0.8 million and $1.5 million, respectively, for the three months and
year ended December 31, 2024 compared to the respective 2023 periods, primarily due to H&R earning fees from the REDT JV LP
and providing property management services for 25 Dockside Drive in Toronto, ON, both of which commenced in April 2024. The
increase in third party property management fees earned for the year ended December 31, 2024 compared to the respective 2023
period was partially offset by a one-time financing fee earned from H&R’s industrial portfolio in Q1 2023.
H&R REIT - MD&A - December 31, 2024
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Unit-based compensation consists of the following two compensation plans: the REIT's Unit Option Plan and Incentive Unit Plan.
Both plans are considered to be cash-settled under IFRS 2, Share-based Payments (“IFRS 2”) and as a result, are measured at each
reporting period and settlement date at their fair value as defined by IFRS 2 based on the quoted price of Units on the TSX. The fair
value adjustment to unit-based compensation consists of the difference between the grant price and the quoted price of Units on
the TSX at each reporting period.
Fair Value Adjustment on Real Estate Assets
Three months ended December 31
Year ended December 31
(in thousands of Canadian dollars)
2024
2023
Change
2024
2023
Change
Operating Segment:
Residential
$56,099
($278) $56,377 ($39,312) ($122,306) $82,994
Industrial
5,225
2,724
2,501 (24,872)
10,841 (35,713)
Office
(36,869) (46,091)
9,222 (275,732) (256,494) (19,238)
Retail
(14,385)
(3,110) (11,275) (114,684) (45,689) (68,995)
Land and properties under development
485 (19,310)
19,795 (27,178)
18,690 (45,868)
Fair value adjustment on real estate assets per the REIT's proportionate share(1)
10,555 (66,065)
76,620 (481,778) (394,958) (86,820)
Less: equity accounted investments
(63,820) (131,522)
67,702
55,894 (91,146) 147,040
Fair value adjustment on real estate assets per the REIT's Financial Statements
($53,265) ($197,587) $144,322 ($425,884) ($486,104) $60,220
(1)
The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
Fair value adjustments on real estate assets are determined based on the movement of various parameters, including changes in
capitalization rates, discount rates, terminal capitalization rates, future cash flow projections, and market values established by
recent sales activity in the same or similar market.
During the year ended December 31, 2024, management recorded fair value adjustments on the office portfolio of ($275.7) million
which was primarily due to the following: (i) H&R increased the capitalization rates on its Canadian and U.S properties primarily due
to very limited liquidity in the office real estate market; and (ii) H&R’s properties advancing through the process of rezoning to
residential use are valued using the comparable sales approach, which estimates fair value based on the market value per unit of
measure which is established by recent sales activity in the same or similar markets. H&R reduced the fair values on the downtown
Toronto office properties advancing through the process of rezoning to residential use to an average of $140 per square foot,
primarily due to recent sales activity as well as softening economic conditions which have halted the development of many new
projects. The downtown Toronto office properties include; 145 Wellington St. W., 310 & 330 Front St. W., 69 Yonge St. and 53 & 55
Yonge St., which was transferred from investment properties to properties under development in Q3 2024.
During the year ended December 31, 2024, management recorded fair value adjustments on the retail portfolio of ($114.7) million
which was primarily due to H&R increasing the capitalization rates on its US properties, primarily due to higher interest rates
persisting, which has significantly impacted the ability of buyers to transact, resulting in very few comparable trades. Although
interest rates have peaked in the U.S. and have started to fall, the unknown timing of the return of liquidity to the market has
resulted in H&R adjusting its valuation modelling.
During the year ended December 31, 2024, H&R utilized external independent broker opinion reports to determine the fair value of
two properties under development in gateway U.S. cities, which resulted in a net downward fair value adjustments of approximately
$33.2 million (U.S. $24.2 million), primarily due to a lack of transactions and less overall demand for new construction.
Refer to the “Valuation of Investment Properties” section of this MD&A for further disclosure on the REIT’s capitalization rates.
Gain (Loss) on Sale of Real Estate Assets, Net of Related Costs
Three months ended December 31
Year ended December 31
(in thousands of Canadian dollars)
2024
2023
Change
2024
2023
Change
Gain (loss) on sale of real estate assets, net of related costs
$268
($1,119)
$1,387 ($11,154)
($7,247)
($3,907)
Refer to the “Investment Properties” and “Properties Under Development” sections of this MD&A for further details on real estate
asset dispositions.
H&R REIT - MD&A - December 31, 2024
Page 44 of 72
Included in the gain (loss) on sale of real estate assets, net of related costs for the year ended December 31, 2024 are mortgage
prepayment costs of approximately $5.2 million (2023 - nil).
Income Tax (Expense) Recovery
Three months ended December 31
Year ended December 31
(in thousands of Canadian dollars)
2024
2023
Change
2024
2023
Change
Income tax computed at the Canadian statutory rate of nil applicable to
H&R for 2024 and 2023
$—
$—
$—
$—
$—
$—
Current U.S. income tax expense
(306)
(245)
(61)
(1,462)
(1,802)
340
Deferred income tax (expense) recovery applicable to U.S. Holdco
(19,754)
(3,577) (16,177)
60,675
32,345
28,330
Income tax (expense) recovery in the determination of net income (loss) ($20,060) ($3,822) ($16,238) $59,213
$30,543
$28,670
H&R is generally subject to tax in Canada under the Income Tax Act (Canada) (“Tax Act”) with respect to its taxable income each
year, except to the extent such taxable income is paid or made payable to unitholders and deducted by H&R for tax purposes. H&R’s
current income tax expense is primarily due to U.S. state taxes.
H&R’s deferred income tax is recorded in respect of H&R REIT (U.S.) Holdings Inc. (“U.S. Holdco”) and arose due to taxable
temporary differences between the tax and accounting bases of assets and liabilities net of the benefit of unused tax credits and
losses that are available to be carried forward to future tax years to the extent that it is probable that the unused tax credits and
losses can be realized. Deferred income tax (expense) recovery applicable to U.S. Holdco changed by ($16.2) million and $28.3
million, respectively, for the three months and year ended December 31, 2024 compared to the respective 2023 periods, primarily
due to fair value adjustments on real estate assets.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply when the assets are realized or the
liabilities are settled, based on the tax laws that have been enacted or substantively enacted at the statement of financial position
date. Deferred income tax relating to items recognized in equity are also recognized in equity. As at December 31, 2024, H&R had
net deferred tax liabilities of $413.2 million (December 31, 2023 - $437.2 million), primarily related to taxable temporary differences
between the tax and accounting bases of U.S. real estate assets. Refer to the “Deferred Tax Liability” section of this MD&A for
further information.
H&R REIT - MD&A - December 31, 2024
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FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS
H&R presents its consolidated FFO and AFFO calculations in accordance with the January 2022 guidance in the REALPAC Funds Real
Property Association of Canada’s (REALPAC) White Paper on Funds From Operations and Adjusted Funds From Operations for IFRS,
except for the following: (i) the Bow and 100 Wynford non-cash rental and accretion adjustments; and (ii) non-cash loss on
mortgages receivable, which are further explained under the “Non-GAAP Measures” section of this MD&A.
FFO and AFFO
Three months ended December 31
Year ended December 31
(in thousands of Canadian dollars except per Unit amounts)
2024
2023
2024
2023
Net income (loss) per the REIT's Financial Statements
$130,882
($11,313)
($119,714)
$61,690
Realty taxes in accordance with IFRIC 21
(13,474)
(13,762)
—
—
FFO adjustments from equity accounted investments (page 41)
(64,747)
(132,732)
59,574
(89,829)
Exchangeable unit distributions
4,853
4,494
12,941
12,582
Non-cash loss on mortgages receivable
5,605
—
37,605
—
Fair value adjustments on financial instruments and real estate assets
14,248
241,193
434,336
455,549
Fair value adjustment to unit-based compensation
(3,467)
529
(1,791)
(5,134)
(Gain) loss on sale of real estate assets, net of related costs
(268)
1,119
11,154
7,247
Deferred income tax expense (recovery) applicable to U.S. Holdco
19,754
3,577
(60,675)
(32,345)
Incremental leasing costs
611
425
2,305
2,163
The Bow and 100 Wynford non-cash rental income and accretion
adjustments
(10,580)
(9,880)
(41,308)
(38,572)
FFO(1)
$83,417
$83,650
$334,427
$373,351
Straight-lining of contractual rent
(3,298)
(2,453)
(17,606)
(11,404)
Rent amortization of tenant inducements
1,167
1,130
4,574
4,514
Capital expenditures
(13,107)
(10,881)
(39,588)
(41,168)
Leasing expenses and tenant inducements
(3,932)
(980)
(6,629)
(4,747)
Incremental leasing costs
(611)
(425)
(2,305)
(2,163)
AFFO adjustments from equity accounted investments (page 41)
(2,042)
(1,364)
(5,911)
(5,212)
AFFO(1)
$61,594
$68,677
$266,962
$313,171
Basic and diluted weighted average number of Units and exchangeable
units (in thousands of Units)(2)
279,990
279,842
279,933
281,815
FFO per basic and diluted Unit(3)
$0.298
$0.299
$1.195
$1.325
AFFO per basic and diluted Unit(3)
$0.220
$0.245
$0.954
$1.111
Cash distributions per Unit
$0.150
$0.150
$0.600
$0.600
Special December cash distribution per Unit
$0.120
$0.100
$0.120
$0.100
Payout ratio as a % of FFO(3)
90.6 %
83.6 %
60.3 %
52.8 %
Payout ratio as a % of AFFO(3)
122.7 %
102.0 %
75.5 %
63.0 %
(1)
These are non-GAAP measures. Refer to the “Non-GAAP Measures” section of this MD&A.
(2)
For the three months and year ended December 31, 2024 and 2023, included in the weighted average and diluted weighted average number of Units are
exchangeable units of 17,974,186.
(3)
These are non-GAAP ratios. Refer to the “Non-GAAP Measures” section of this MD&A.
Included in net income (loss), FFO and AFFO for the year ended December 31, 2023 is $30.6 million gain on disposal of purchase
option, equating to $0.108 per Unit. Included in net income (loss), FFO and AFFO for the year ended December 31, 2023 is ($4.3)
million, equating to ($0.015) per Unit, relating to the Support Agreement with K2 and severance costs.
FFO decreased by $38.9 million for the year ended December 31, 2024 compared to the respective 2023 period, primarily due to the
$30.6 million gain on disposal of purchase option in Q3 2023, and a decrease in net operating income as a result of property
dispositions, partially offset by lower finance costs - operations (excluding the non-cash loss on mortgages receivable) and trust
expenses.
H&R REIT - MD&A - December 31, 2024
Page 46 of 72
AFFO decreased by $7.1 million for the three months ended December 31, 2024 compared to the respective 2023 period, primarily
due to higher capital expenditures, leasing expenses and tenant inducements. AFFO decreased by $46.2 million for the year ended
December 31, 2024 compared to the respective 2023 period, primarily due to the decrease in FFO noted above.
Included in FFO are the following items at the REIT’s proportionate share (a non-GAAP measure, refer to the“Non-GAAP Measures”
section of this MD&A) which can be a source of variances between periods:
Three months ended December 31
Year ended December 31
(in thousands of Canadian dollars)
2024
2023
Change
2024
2023
Change
Lease termination fees
$11
$1,899
($1,888)
$137
$6,239
($6,102)
Adjustment to straight-lining of contractual rent
—
(866)
866
—
(1,805)
1,805
Gain on disposal of purchase option
—
—
—
—
30,568
(30,568)
Costs incurred for abandoned transactions
—
(71)
71
—
(71)
71
Support Agreement with K2 and severance costs
—
—
—
—
(4,255)
4,255
$11
$962
($951)
$137
$30,676
($30,539)
Excluding the above items, FFO would have been $83.4 million for the three months ended December 31, 2024 (December 31, 2023
- $82.7 million) and $0.298 per basic and diluted Unit (December 31, 2023 - $0.295 per basic and diluted Unit). For the year ended
December 31, 2024, FFO would have been $334.3 million (December 31, 2023 - $342.7 million) and $1.194 per basic and diluted
Unit (December 31, 2023 - $1.216 per basic and diluted Unit).
Capital and Tenant Expenditures
The following is a breakdown of H&R’s capital expenditures and tenant expenditures (leasing expenditures and tenant inducements)
by operating segment:
Three months ended December 31
Year ended December 31
(in thousands of Canadian dollars)
2024
2023
Change
2024
2023
Change
Residential:
Capital expenditures
$10,315
$5,190
$5,125
$32,641
$26,145
$6,496
Leasing expenses and tenant inducements
129
—
$129
129
—
$129
Industrial:
Capital expenditures
1,655
970
685
4,222
4,563
(341)
Leasing expenses and tenant inducements
733
295
438
3,056
3,786
(730)
Office:
Capital expenditures
853
4,800
(3,947)
3,428
11,059
(7,631)
Leasing expenses and tenant inducements
3,178
289
2,889
3,482
976
2,506
Retail:
Capital expenditures
1,978
815
1,163
4,335
3,262
1,073
Leasing expenses and tenant inducements
298
964
(666)
1,303
1,744
(441)
Total at the REIT's proportionate share(1)
19,139
13,323
5,816
52,596
51,535
1,061
Less: equity accounted investments
(2,100)
(1,462)
(638)
(6,379)
(5,620)
(759)
Total per the REIT's Financial Statements(2)
$17,039
$11,861
$5,178
$46,217
$45,915
$302
(1)
The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A.
(2)
Equal to the sum of capital expenditures and leasing expenses and tenant inducements per the REIT’s Financial Statements.
Capital expenditures spent in the Residential segment for the three months and year ended December 31, 2024, included the
following: (i) $2.1 million and $7.3 million, respectively, relating to capital turn expenses across all properties including interior
painting, flooring, and HVAC replacements; (ii) $2.1 million and $8.9 million, respectively, relating to revenue enhancing projects
such as private yards, washers and dryers, as well as energy efficient projects such as LED lighting retrofitting and in-unit value-add
repositioning initiatives undertaken on two of H&R's oldest residential rental communities; and (iii) $6.1 million and $16.4 million,
H&R REIT - MD&A - December 31, 2024
Page 47 of 72
respectively, relating to asset preservation projects including exterior painting at two properties, along with landscaping and
common area improvements across H&R’s portfolio.
Capital expenditures spent in the Industrial segment for the three months and year ended December 31, 2024, included $1.3 and
$2.7 million, respectively, relating to a full roof replacement for a new tenant at a Kitchener, ON industrial property whose lease
commenced in March 2024, as well as additional landlord work for this tenant completed during the year ended December 31, 2024.
In addition, capital expenditures for the year ended December 31, 2024 included $0.8 million, relating to a partial roof replacement
at a Brampton, ON industrial property. Leasing expenses and tenant inducements for the year ended December 31, 2024 included
$0.7 million relating to a new 10-year lease completed at the Kitchener, ON industrial property noted above.
Capital expenditures spent in the Office segment for the three months and year ended December 31, 2024, included $0.3 million and
$1.5 million, respectively, relating to refurbishments of washrooms, the replacement of building automation system controllers and
floor relamping to LED lighting at a Calgary, AB office property. Leasing expenses and tenant inducements for the three months and
year ended December 31, 2024 included $2.0 million relating to a new 10-year lease completed at a Houston, TX office property and
$1.1 million relating to a 10-year lease extension at a Toronto, ON office property.
Capital expenditures in the Retail segment for the three months and year ended December 31, 2024, included $1.0 million relating
to a roof replacement and paving at two of ECHO’s properties.
LIQUIDITY AND CAPITAL RESOURCES
Cash Distributions
In accordance with National Policy 41-201 – Income Trusts and Other Indirect Offerings, the REIT is required to provide the following
additional disclosure relating to cash distributions:
Three months ended
Year ended
Year ended
Year ended
December 31
December 31
December 31
December 31
(in thousands of Canadian dollars)
2024
2024
2023
2022
Cash provided by operations
$82,762
$274,070
$294,625
$255,054
Net income (loss)
130,882
(119,714)
61,690
844,823
Distributions to unitholders
70,744
188,623
184,372
159,785
Excess cash provided by operations over total distributions
12,018
85,447
110,253
95,269
Excess (shortfall) of net income (loss) over total distributions
60,138
(308,337)
(122,682)
685,038
Cash provided by operations exceeded distributions for all periods noted above. Distributions exceeded net income (loss) for the
years ended December 31, 2024 and December 31, 2023 primarily due to non-cash items. Non-cash items relating to an adjustment
to the carrying value of mortgages receivable, fair value adjustments on financial instruments, real estate assets and unit-based
compensation, gain (loss) on sale of real estate assets, and deferred income taxes (recoveries) are deducted from or added to net
income (loss) and have no impact on cash available to pay distributions.
Major Cash Flow Components
Three months ended December 31
Year ended December 31
(in thousands of Canadian dollars)
2024
2023
Change
2024
2023
Change
Cash and cash equivalents, beginning of period
$68,429
$145,871
($77,442)
$64,111
$76,887
($12,776)
Cash flows from operations
82,762
52,966
29,796
274,070
294,625
(20,555)
Cash flows from (used for) investing
39,279
(37,608)
76,887
173,152
112,862
60,290
Cash flows used for financing
(90,116)
(97,118)
7,002
(410,979)
(420,263)
9,284
Cash and cash equivalents, end of year
$100,354
$64,111
$36,243
$100,354
$64,111
$36,243
Cash flows from operations increased by $29.8 million, for the three months ended December 31, 2024 compared to the respective
2023 period, primarily due to non-cash working capital. Cash flows from operations decreased by $20.6 million for the year ended
H&R REIT - MD&A - December 31, 2024
Page 48 of 72
December 31, 2024 compared to the respective 2023 period, primarily due to a gain on disposal of purchase option in Q3 2023 and
non-cash working capital.
Cash flows from (used for) investing increased by approximately $76.9 million for the three months ended December 31, 2024
compared to the respective 2023 period, primarily due to cash relating to the sale of U.S. properties in Q4 2023 being held in escrow
under Section 1031 of the U.S. Internal Revenue Code which were released throughout 2024, and mortgage receivable repayments
made in Q4 2024. Cash flows from (used for) investing increased by approximately $60.3 million for the year ended December 31,
2024 compared to the respective 2023 period, primarily due to proceeds from the sale of U.S. properties being released under
Section 1031 of the U.S. Internal Revenue Code throughout 2024, partially offset by cash spent to acquire properties under
development in Q1 2024.
Cash flows used for financing increased by approximately $7.0 million for the three months ended December 31, 2024 compared to
the respective 2023 period, due to lower debt repayments, net of new debt. Cash flows used for financing increased by
approximately $9.3 million for the year ended December 31, 2024 compared to the respective 2023 period, primarily due to cash
used for Unit repurchases in 2023. This was partially offset by higher debt repayments, net of new debt, as well as a $0.10 per Unit
special distribution declared in December 2023 and paid in January 2024, compared to a $0.05 per Unit special distribution declared
in December 2022 and paid in January 2023.
Funding of Future Commitments and Debt Profile
As at December 31, 2024, H&R had cash and cash equivalents of $100.4 million, $843.6 million available under its unused lines of
credit and an unencumbered property pool of approximately $4.4 billion.
The following summarizes the estimated loan to value ratios on investment properties and properties under development for which
mortgages mature over the next five years:
Year
Number of
Properties
Mortgage Debt due
on Maturity ($000’s)
Weighted Average
Interest Rate on Maturity
Fair Value of Real
Estate Assets ($000’s)
Loan to
Value
2025
8
$175,135
3.7%
$636,975
27%
2026
2
5,424
3.1%
25,100
22%
2027
10
439,231
4.1%
1,141,450
38%
2028
12
516,909
4.1%
1,100,811
47%
2029
3
87,838
3.5%
190,626
46%
35
$1,224,537
4.0%
$3,094,962
40%
The mortgages outstanding as at December 31, 2024 bear interest at a weighted average rate of 4.0% (December 31, 2023 - 4.0%)
and mature between 2025 and 2030 (December 31, 2023 – mature between 2024 and 2030). The weighted average term to
maturity of the REIT’s mortgages is 2.9 years (December 31, 2023 - 3.5 years). As at December 31, 2024, the non-recourse mortgages
to total mortgages ratio was 63.3% (December 31, 2023 - 59.8%).
H&R REIT - MD&A - December 31, 2024
Page 49 of 72
December 31
December 31
2024
2023
Unsecured Senior Debentures
(in thousands of Canadian Dollars)
Maturity
Contractual
Interest
Rate
Effective
Interest
Rate
Principal
Amount
Carrying
Value
Carrying
Value
Senior Debentures
Series N Senior Debentures
January 30, 2024(1)
3.37 %
3.45 %
$—
$—
$349,965
Series Q Senior Debentures
June 16, 2025
4.07 %
4.19 %
400,000
399,794
399,311
Series R Senior Debentures
June 2, 2026
2.91 %
3.00 %
250,000
249,674
249,443
Series S Senior Debentures
February 19, 2027
2.63 %
2.72 %
300,000
299,491
299,241
Series T Senior Debentures
February 28, 2029
5.46 %
5.56 %
250,000
248,999
—
3.76 %
3.86 %
$1,200,000
$1,197,958
$1,297,960
(1)
In January 2024, the REIT repaid all of its outstanding Series N senior debentures upon maturity for a cash payment of $350.0 million.
Unsecured Term Loans
Maturity
December 31
December 31
(in thousands of Canadian Dollars)
Date
2024
2023
Unsecured term loan #1(1)
January 6, 2026
$250,000
$250,000
Unsecured term loan #2(2)
November 30, 2026
125,000
125,000
Unsecured term loan #3(3)
March 7, 2027
250,000
250,000
$625,000
$625,000
(1)
The REIT entered into an interest rate swap to fix the interest rate at 4.14% per annum. The swap matures on January 6, 2026.
(2)
The REIT entered into an interest rate swap to fix the interest rate at 5.19% per annum. The swap matures on September 29, 2027.
(3)
The REIT entered into an interest rate swap to fix the interest rate at 3.39% per annum. The swap matures on May 7, 2030.
Lines of Credit
(in thousands of Canadian Dollars)
Maturity Date
Total
Facility
Amount
Drawn
Outstanding
Letters of Credit
Available
Balance
Revolving unsecured operating lines of credit:
Revolving unsecured line of credit
September 20, 2027
$150,000
($33,000)
$—
$117,000
Revolving unsecured line of credit
December 14, 2027(2)
230,000
(11,041)
—
218,959
Revolving unsecured line of credit
December 14, 2029(2)
520,000
(24,959)
(1,873)
493,168
750,000
(36,000)
(1,873)
712,127
Revolving unsecured letter of credit facility
60,000
—
(45,566)
14,434
Sub-total
960,000
(69,000)
(47,439)
843,561
Non-revolving secured operating line of credit(1)
REIT and CrestPSP non-revolving secured line of credit
March 14, 2026
268,834
(268,834)
—
—
December 31, 2024
$1,228,834
($337,834)
($47,439)
$843,561
December 31, 2023
$1,234,230
($304,710)
($43,018)
$886,502
(1)
Secured by certain investment properties.
(2)
In December 2024, $520.0 million of the $750.0 million revolving unsecured line of credit agreement was amended to extend the maturity date from December
14, 2027 to December 14, 2029.
The lines of credit can be drawn in either Canadian or U.S. dollars and bear interest at a rate approximating the prime rate of a
Canadian chartered bank. Included in lines of credit as at December 31, 2024 are U.S. dollar denominated amounts of nil (December
31, 2023 - U.S. $14.0 million). The Canadian equivalent of these amounts are nil (December 31, 2023 - $18.5 million).
H&R REIT - MD&A - December 31, 2024
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Contractual Obligations
The following is a summary as at December 31, 2024 of material contractual obligations including payments due for the next five
years and thereafter:
Contractual Obligations(1)
(in thousands of Canadian dollars)
2025
2026
2027
2028-
2029
2030 and
thereafter
Total
Mortgages payable(2)
$210,615
$40,868
$461,000
$618,949
$50,214
$1,381,646
Senior debentures
400,000
250,000
300,000
250,000
1,200,000
Unsecured term loans
—
375,000
250,000
—
—
625,000
Lines of credit
—
268,834
44,041
24,959
—
337,834
Liabilities classified as held for sale(3)
13,033
—
—
—
—
13,033
Committed Developments(4)
28,988
—
—
—
—
28,988
Total contractual obligations
$652,636
$934,702
$1,055,041
$893,908
$50,214
$3,586,501
Payments Due by Period
(1)
The amounts in the table above are the principal amounts due under the contractual agreements.
(2)
Non-recourse mortgages to total mortgages ratio is 63.3%.
(3)
Liabilities classified as held for sale in 2025 includes three mortgages totalling $13.0 million at H&R’s ownership interest, secured against three properties that
were classified as held for sale as at December 31, 2024 with an aggregate fair value of $23.2 million. These properties were sold and the mortgages were
assumed by the purchaser in January 2025.
(4)
Committed Developments include Lantower West Love, Lantower Midtown, and 6900 Maritz Drive. Refer to the “Properties Under Development” section of the
MD&A for further information on each of these developments.
Capital Resources
As at December 31, 2024, H&R had cash and cash equivalents of $100.4 million and amounts available under its lines of credit
totalling $843.6 million. Subject to market conditions, management expects to be able to meet all of the REIT’s ongoing contractual
obligations. As at December 31, 2024, the REIT was not in default or arrears on any of its obligations including interest or principal
payments on debt and any debt covenant. As at December 31, 2024, H&R had 78 unencumbered properties (including properties
under development), with a fair value of approximately $4.4 billion. Also, due to H&R’s 28 year history and management’s
conservative strategy of securing long-term financing on individual properties, H&R has numerous other properties with very low
loan to value ratios. As at December 31, 2024, H&R had seven properties valued at approximately $408.8 million which are
encumbered with mortgages totalling $78.5 million. In this pool of assets, the average loan to value ratio is 19.2%, the minimum loan
to value ratio is 2.1% and the maximum loan to value ratio is 26.2%. The weighted average remaining term to maturity of this pool of
mortgages is 1.6 years.
Credit Rating
DBRS Morningstar (“DBRS”) provides credit ratings of debt securities for commercial entities. A credit rating generally provides an
indication of the risk that the borrower will not fulfill its obligations in a timely manner with respect to both interest and principal
commitments. Rating categories range from highest credit quality (generally AAA) to default payment (generally D). A credit rating is
not a recommendation to buy, sell or hold securities.
DBRS has confirmed that H&R has a credit rating of BBB with Stable trends as at December 31, 2024. A credit rating of BBB by DBRS
is generally an indication of adequate credit quality, where the capacity for payment of financial obligations is considered
acceptable, however the entity may be vulnerable to future events. A credit rating of BBB or higher is an investment grade rating.
There can be no assurance that any rating will remain in effect for any given period of time or that any rating will not be withdrawn
or revised by DBRS at any time. The credit rating is reviewed periodically by DBRS.
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OFF-BALANCE SHEET ITEMS
In the normal course of operations, H&R has issued letters of credit in connection with developments, financings, operations and
acquisitions. As at December 31, 2024, H&R had outstanding letters of credit totalling $47.4 million (December 31, 2023 - $43.0
million), including $20.0 million (December 31, 2023 - $20.0 million) which has been pledged as security for certain mortgages
payable. The letters of credit may be secured by certain investment properties.
H&R has co-owners and partners in various projects. As a general rule, H&R does not provide guarantees or indemnities for these co-
owners and partners pursuant to property acquisitions because, should such guarantees be provided, recourse would be available
against H&R in the event of a default of the co-owners and partners. In such case, H&R would have a claim against the underlying
real estate investment. However, in certain circumstances, subject to compliance with H&R’s Declaration of Trust and the
determination by management that the fair value of the co-owners’ or partners’ investment is greater than the mortgages payable
for which H&R has provided guarantees, such guarantees have been previously provided. As at December 31, 2024, such guarantees
amounted to nil (December 31, 2023 - $6.7 million, which expire in 2026), and no amount has been provided for in the REIT’s
Financial Statements for these items. These amounts arise where H&R has guaranteed a co-owner’s share of the mortgage liability.
H&R, however, customarily guarantees or indemnifies the obligations of its nominee companies, which hold title to each of its
properties owned.
On December 31, 2021, the REIT completed a spin off, on a tax-free basis, of 27 properties including all of the REIT’s enclosed
shopping centres (the “Primaris Spin-Off”) to a new publicly-traded REIT (“Primaris REIT”). The REIT continues to guarantee certain
debt in connection with the Primaris Spin-Off, and will remain liable until such debts are extinguished or the lenders agree to release
the REIT’s guarantees. As at December 31, 2024, the estimated amount of debt subject to such guarantees, and therefore the
maximum exposure to credit risk, was $97.5 million, which expire between 2027 and 2030 (December 31, 2023 - $208.8 million –
which expire between 2024 and 2030).
In addition, the REIT provides guarantees on behalf of the co-owners of certain of Primaris REIT’s properties. As at December 31,
2024, the estimated amount of debt subject to such guarantees, and therefore the maximum exposure to credit risk, was $67.2
million, which expires in 2027 (December 31, 2023 - $89.3 million, which expire between 2024 and 2027). There have been no
defaults by the primary obligor for debts on which the REIT has provided its guarantees, and as a result, no contingent loss on these
guarantees has been recognized in the REIT’s Financial Statements.
The REIT has entered into a binding mezzanine loan term sheet pursuant to which REDT JV LP will be entitled to a fixed rate
mezzanine loan (the “Loan”) from H&R or its affiliates (the “Lender”) at 9.0%, for an initial maximum aggregate principal amount of
65.0% loan-to-cost, currently estimated to be U.S. $136.2 million. The Loan will be interest only, prepayable without consent during
the period starting 3.5 years from execution of the Loan and ending on the 4th anniversary of the execution of the Loan, or may be
prepaid with consent of the Lender. The Loan will be secured by a first priority mortgage on the REDT Projects, and will have a term
of four years, subject to two 1-year extensions, subject to the Lender’s approval in its sole discretion. As at December 31, 2024, no
amounts had been drawn upon.
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DERIVATIVE INSTRUMENTS
Where appropriate, H&R uses interest rate swaps to lock-in lending rates on certain anticipated mortgages, debentures and bank
borrowings. This strategy provides certainty to the rate of interest on borrowings when H&R is involved in transactions that may
close further into the future than usual for typical transactions. At the end of each reporting period, an interest rate swap is marked-
to-market, resulting in an unrealized gain or loss recorded in net income (loss).
Where appropriate, H&R uses forward exchange contracts to lock-in foreign exchange rates. There were no forward exchange
contracts outstanding as at December 31, 2024. This strategy manages risks related to foreign exchange rates on transactions that
will occur in the future.
During 2024 and 2023, H&R had the following swaps outstanding:
Fair value asset (liability)*
Net unrealized gain (loss) on
derivative instruments
Net unrealized loss on derivative
instruments
December 31
December 31
Three months ended December 31
Years ended December 31
(in thousands of Canadian dollars)
Maturity
2024
2023
2024
2023
2024
2023
Foreign exchange hedge(1)
April 10, 2024
$—
$1,733
$—
$1,994
($1,733)
$1,733
Foreign exchange hedge(2)
October 10, 2024
—
—
(89)
—
—
—
Term loan interest rate swap(3)
January 6, 2026
1,695
8,171
(996)
(6,480)
(6,476)
(3,115)
Debt interest rate swap(4)
September 29, 2027
(4,899)
(1,229)
598
(10,587)
(3,670)
(927)
Term loan interest rate swap(5)
May 7, 2030
12,298
20,015
679
(16,491)
(7,717)
(6,860)
$9,094
$28,690
$192
($31,564)
($19,596)
($9,169)
(1)
To fix the foreign exchange rate at $1.38 on U.S. $10.0 million, monthly. The hedge terminated in April 2024.
(2)
To fix the foreign exchange at $1.37 on U.S. $5.0 million, monthly. The hedge terminated in October 2024.
(3)
To fix the interest rate at 4.14% per annum for the $250.0 million term loan.
(4)
To fix the interest rate at 5.19% per annum on $250.0 million of variable rate debt, which includes a $125.0 million unsecured term loan.
(5)
To fix the interest rate at 3.39% per annum for the $250.0 million term loan.
*
Derivative instruments in asset and liability positions are not presented on a net basis. Derivative instruments in an asset position of $14.0 million (December 31,
2023 - $29.9 million) are recorded in other assets and derivative instruments in a liability position of $4.9 million (December 31, 2023 - $1.2 million) are recorded
in accounts payable and accrued liabilities.
SELECTED FINANCIAL INFORMATION
Summary of Annual Information
The following tables summarize certain financial information for the years indicated below:
Year Ended
Year Ended
Year Ended
December 31
December 31
December 31
(in thousands of Canadian dollars except per Unit amounts)
2024
2023
2022
Rentals from Investment properties
$816,990
$847,146
$834,640
Net income from equity accounted investments
2,477
145,459
47,139
Finance income
11,577
13,849
14,793
Net income (loss)
(119,714)
61,690
844,823
Total comprehensive income (loss) attributable to unitholders
273,578
(69,512)
1,166,393
Total assets
10,620,487
10,777,643
11,412,603
Total liabilities
5,341,744
5,585,268
5,925,316
Cash Distributions per Unit (including Special Cash Distributions per Unit)
$0.720
$0.700
$0.590
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Summary of Quarterly Information
The following tables summarize certain financial information for the quarters indicated below:
Q4
Q3
Q2
Q1
(in thousands of Canadian dollars)
2024
2024
2024
2024
Rentals from investment properties
$202,350
$200,344
$204,775
$209,521
Net income (loss) from equity accounted investments
82,308
16,478
(108,859)
12,550
Net income (loss)
130,882
(9,722)
(272,666)
31,792
Total comprehensive income (loss) attributable to unitholders
424,184
(72,758)
(208,218)
130,370
Q4
Q3
Q2
Q1
2023
2023
2023
2023
Rentals from investment properties
$205,904
$210,446
$212,501
$218,295
Net income (loss) from equity accounted investments
145,320
(11,017)
1,260
9,896
Net income (loss)
(11,313)
37,596
(59,395)
94,802
Total comprehensive income (loss) attributable to unitholders
(142,303)
166,623
(155,762)
61,930
Major fluctuations between quarterly results are generally due to property acquisitions, dispositions, changes in foreign exchange
rates and changes in the fair value of financial instruments and real estate assets.
Rentals from investment properties increased by $2.0 million in Q4 2024 compared to Q3 2024 primarily due to the strengthening of
the U.S. dollar, partially offset by properties sold as well as 53 and 55 Yonge St. in Toronto, ON being fully vacant and transferred
from investment properties to properties under development in Q3 2024.
Net income from equity accounted investments increased by $65.8 million in Q4 2024 compared to Q3 2024 primarily due to fair
value adjustments on real estate assets recorded in Q4 2024.
Net income (loss) increased by $140.6 million in Q4 2024 compared to Q3 2024 primarily due to fair value adjustments on financial
instruments and net income from equity accounted investments noted above. This was partially offset by a deferred income tax
recovery in Q3 2024.
Total comprehensive income (loss) attributable to unitholders increased by $496.9 million in Q4 2024 compared to Q3 2024
primarily due to the increase in net income (loss) noted above as well as an unrealized foreign currency gain on translation of U.S.
denominated foreign operations of $293.3 million in Q4 2024, compared to an unrealized loss of $63.0 million in Q3 2024.
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SECTION IV
NON-GAAP MEASURES AND NON-GAAP RATIOS
The REIT’s Financial Statements are prepared in accordance with IFRS. However, in this MD&A, a number of measures and ratios are
presented that are not measures or ratios under GAAP in accordance with IFRS. These measures and ratios, as well as the reasons
why management believes these measures and ratios are useful to investors, are described below.
None of these non-GAAP measures and non-GAAP ratios should be construed as an alternative to financial measures calculated in
accordance with GAAP. Furthermore, these supplemental non-GAAP measures and non-GAAP ratios are not standardized under IFRS
and the REIT’s method of calculating these supplemental non-GAAP measures and non-GAAP ratios may differ from the methods of
other real estate investment trusts or other issuers, and accordingly may not be comparable.
Non-GAAP Measures
(a) The REIT’s proportionate share
H&R accounts for investments in joint ventures and associates as equity accounted investments in accordance with IFRS. The REIT’s
proportionate share is a non-GAAP measure that adjusts the REIT’s Financial Statements to reflect the REIT’s financial position and
share of net income (loss) from H&R’s equity accounted investments on a proportionately consolidated basis at H&R’s ownership
interest in the applicable investment. Management believes this measure is important for investors as it is consistent with how H&R
reviews and assesses operating performance of its entire portfolio. Throughout this MD&A, the balances at the REIT’s proportionate
share have been reconciled back to relevant GAAP measures. Refer to the “Financial Position” and “Results of Operations” sections
on pages 18 and 35, respectively, of this MD&A for reconciliations from the REIT’s Financial Statements to the REIT’s proportionate
share.
(b) Net operating income (cash basis) and Same-Property net operating income (cash basis)
Net operating income (cash basis) is a non-GAAP measure used by H&R to assess performance for properties owned. It adjusts net
operating income to exclude four non-cash items:
(i)
Straight-lining of contractual rent. By excluding the impact of straight-lining of contractual rent, rentals from investment
properties will consist primarily of actual rents collected by H&R.
(ii) Realty taxes accounted for under IFRS Interpretations Committee Interpretation 21, Levies (“IFRIC 21”), which relates to the
timing of the liability recognition for U.S. realty taxes. By excluding the impact of IFRIC 21, U.S. realty tax expenses are
evenly matched with realty tax recoveries received from tenants throughout the period.
(iii) The Bow non-cash rental adjustment. This is a result of the Bow sale transaction not meeting the criteria of a transfer of
control under IFRS 15 as the REIT has an option to repurchase 100% of the Bow. The REIT is legally only entitled to 15% of
the lease revenue from the Ovintiv lease, however, under IFRS 15, 100% of the lease revenue is recognized in the REIT’s
Financial Statements, resulting in 85% of the recognized lease revenue being non-cash.
(iv) 100 Wynford non-cash rental adjustment. This is a result of the 100 Wynford sale transaction not meeting the criteria of a
transfer of control under IFRS 15 as the REIT has an option to repurchase 100% of 100 Wynford. Under IFRS 15, the REIT
recognizes 100% of the lease revenue in the REIT's Financial Statements which represents a non-cash item.
Same-Property net operating income (cash basis) is a non-GAAP measure used by H&R to assess period-over-period performance for
properties owned and operated since January 1, 2023. Same-Property net operating income (cash basis) adjusts net operating
income to include net operating income from equity accounted investments on a proportionately consolidated basis at H&R’s
ownership interest of the applicable investment. Same-Property net operating income (cash basis) also excludes the first two non-
cash items noted above as the Bow and 100 Wynford have been included in Transactions.
Same-Property net operating income (cash basis) further excludes:
•
Acquisitions, dispositions, and transfers of investment properties to or from properties under development during the two-
year period ended December 31, 2024 (collectively, “Transactions”).
Management believes net operating income (cash basis) is useful for investors as it adjusts net operating income for non-cash items
which allows investors to better understand the cash-on-cash performance of a property. Management believes that Same-Property
net operating income (cash basis) is useful for investors as it adjusts net operating income (including net operating income from
H&R REIT - MD&A - December 31, 2024
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equity accounted investments on a proportionately consolidated basis) for non-cash items, which allows investors to better
understand period-over-period changes due to occupancy, rental rates, realty taxes and operating costs, before evaluating the
changes attributable to Transactions. Furthermore, both measures are also used as a key input in determining the value of
investment properties. Refer to the “Net Operating Income” section on page 37 in this MD&A for a reconciliation of net operating
income to Same-Property net operating income (cash basis).
(c) Funds from Operations (“FFO”) and Adjusted Funds from Operations (“AFFO”)
FFO and AFFO are non-GAAP measures widely used in the real estate industry as a measure of operating performance particularly by
those publicly traded entities that own and operate investment properties. H&R presents its consolidated FFO and AFFO calculations
in accordance with the January 2022 guidance in the REALPAC Funds Real Property Association of Canada’s (REALPAC) White Paper
on Funds From Operations and Adjusted Funds From Operations for IFRS, except for “the Bow and 100 Wynford non-cash rental and
accretion adjustments” and “non-cash loss on mortgages receivable”.
The Bow office property in Calgary, AB was legally disposed of in October 2021. The 100 Wynford office property in Toronto, ON was
legally disposed of in August 2022.
•
The Bow non-cash rental adjustment is a result of the Bow sale transaction not meeting the criteria of a transfer of control
under IFRS 15 as the REIT has an option to repurchase 100% of the Bow. The REIT is legally only entitled to 15% of the lease
revenue from the Ovintiv lease, however, under IFRS 15, 100% of the lease revenue is recognized in the REIT’s Financial
Statements, resulting in 85% of the recognized lease revenue being non-cash.
•
100 Wynford non-cash rental adjustment is a result of the 100 Wynford sale transaction not meeting the criteria of a
transfer of control under IFRS 15 as the REIT has an option to repurchase 100% of 100 Wynford. Under IFRS 15, the REIT
recognizes 100% of the lease revenue in the REIT's Financial Statements which represents a non-cash item.
•
The Bow and 100 Wynford non-cash accretion adjustments are a result of the sale proceeds received by the REIT recorded
as deferred revenue and amortized over the remaining terms of the respective leases, consisting of principal and interest in
the REIT’s Financial Statements.
Therefore, the non-cash components of lease revenue and the interest accretion finance expense have both been adjusted in
calculating FFO as the Bow and 100 Wynford non-cash rental and accretion adjustments.
In order to facilitate certain property dispositions, the REIT provided purchasers with mortgages secured against the property sold.
These mortgages have been included in mortgages receivable and represent a component of proceeds on the sale of investment
properties. H&R does not view a provision for expected credit loss or a loss on modification of mortgage receivable as an operating
item, just as it does not view a gain or loss on sale as an operating item. Therefore, the REIT has adjusted the non-cash loss on
mortgages receivable, which has been included within finance costs - operations in calculating FFO.
FFO provides an operating performance measure that when compared period over period, reflects the impact on operations of
trends in occupancy levels, rental rates, property operating costs, acquisition activities and finance costs, that is not immediately
apparent from net income (loss) determined in accordance with IFRS. Management believes FFO to be a useful earnings measure for
investors as it adjusts net income (loss) for items that are not recurring including gain (loss) on sale of real estate assets, as well as
non-cash items such as the fair value adjustments on investment properties.
AFFO is calculated by adjusting FFO for the following items: straight-lining of contractual rent, capital expenditures, leasing expenses
and tenant inducements. Although capital and tenant expenditures can vary from quarter to quarter due to tenant turnovers,
vacancies and the age of a property, H&R has elected to deduct actual capital and tenant expenditures in the relevant period. This
may differ from others in the industry that deduct a normalized amount of capital expenditures, leasing expenses and tenant
inducements based on historical activity, in their AFFO calculation. Furthermore, since H&R adjusts for actual tenant inducements
paid, the amortization of tenant inducements per the REIT’s Financial Statements and at the REIT’s proportionate share is added
back in order to only deduct the actual costs incurred by the REIT. Capital expenditures excluded and not deducted in the calculation
of AFFO relate to capital expenditures which generate a new investment stream.
H&R’s method of calculating FFO and AFFO may differ from other issuers’ calculations. FFO and AFFO should not be construed as an
alternative to net income (loss) or any other operating or liquidity measure prescribed under IFRS. Management uses FFO and AFFO
to better understand and assess operating performance since net income (loss) includes several non-cash items which management
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believes are not fully indicative of the REIT’s performance. Refer to the “Funds From Operations and Adjusted Funds From
Operations” section on page 46 of this MD&A for a reconciliation of net income (loss) to FFO and AFFO.
Non-GAAP Ratios
(a) Debt to Adjusted EBITDA at the REIT’s proportionate share
Debt to Adjusted EBITDA at the REIT’s proportionate share is a non-GAAP ratio used to evaluate financial leverage. Debt includes
mortgages, debentures, unsecured term loans, lines of credit payable to lenders and liabilities classified as held for sale. Adjusted
EBITDA is calculated by taking the sum of net operating income (excluding straight-lining of contractual rent, IFRIC 21, as well as the
Bow and 100 Wynford non-cash rental adjustments) and finance income and subtracting trust expenses (excluding the fair value
adjustment to unit-based compensation) for the last 12 months. The Bow's non-cash rent is due to the REIT recognizing 100% of the
lease revenue from the Ovintiv lease in the REIT’s Financial Statements in accordance with IFRS 15, however the REIT is only legally
entitled to 15% of the lease revenue. 100 Wynford's non-cash rent is due to the REIT recognizing 100% of the lease revenue from the
Bell lease in the REIT’s Financial Statements in accordance with IFRS 15. Adjusted EBITDA is used as an alternative to net income
(loss) because it excludes major non-cash items. Management uses this ratio and believes it is useful for investors as it is an
operational measure used to evaluate the length of time it would take the REIT to repay its debt based on its operating performance.
Debt to Adjusted EBITDA at the REIT’s proportionate share and a reconciliation of Adjusted EBITDA to net income (loss) is presented
in the “Debt” section on page 30 of this MD&A.
(b) Debt to total assets at the REIT’s proportionate share
H&R’s Declaration of Trust limits the indebtedness of H&R (subject to certain exceptions) to a maximum of 65% of the total assets of
H&R, based on the REIT’s Financial Statements. H&R also presents this ratio at the REIT’s proportionate share which is a non-GAAP
ratio. Debt includes mortgages, debentures, unsecured term loans, lines of credit payable to lenders and liabilities classified as held
for sale. Total assets have been adjusted to exclude the Bow and 100 Wynford, which the REIT legally disposed of in October 2021
and August 2022, respectively. These transactions did not meet the criteria of a transfer of control under IFRS 15 as the REIT has an
option to repurchase 100% of the Bow for $737.0 million in 2038 or earlier under certain circumstances and 100% of 100 Wynford
for $159.7 million in 2036 or earlier under certain circumstances. As a result, the REIT continues to recognize these two income
producing properties in its consolidated statement of financial position, and the fair values of the Bow and 100 Wynford will be
adjusted over the remaining lives of their respective leases, bringing the value of each real estate asset to nil by their respective
lease maturity.
Management uses this ratio to determine the REIT’s flexibility to incur additional debt. Management believes this is useful for
investors in order to assess the REIT’s leverage and debt obligations. Refer to the “Financial Highlights” and “Debt” sections on pages
17 and 28, respectively, of this MD&A for debt to total assets per the REIT’s Financial Statements and at the REIT’s proportionate
share.
(c) FFO and AFFO per Basic and Diluted Unit
FFO and AFFO per basic and diluted Unit are non-GAAP ratios calculated by dividing FFO and AFFO, respectively, by the weighted
average number of Units and exchangeable units outstanding, basic or diluted, respectively, for the corresponding period. Refer to
FFO and AFFO above for H&R's commentary on why these measures are useful for assessing operating performance.
(d) Payout ratio as a % of FFO and payout ratio as a % of AFFO
Payout ratio as a % of FFO and payout ratio as a % of AFFO are non-GAAP ratios, which assess the REIT’s ability to pay distributions
and are calculated by dividing cash distributions per Unit, (including special cash distributions per Unit) by FFO or AFFO per Unit for
the respective period. H&R uses these ratios amongst other criteria to evaluate the REIT’s ability to maintain current distribution
levels or increase future distributions as well as to assess whether sufficient cash is being held back for operational expenditures.
Furthermore, H&R uses the payout ratio as a % of AFFO to further assess whether sufficient cash is being held back for capital and
tenant expenditures. Refer to the “Financial Highlights” and “Funds From Operations and Adjusted Funds From Operations” sections
on on pages 17 and 46, respectively, of this MD&A for the REIT’s payout ratio as a % of FFO and payout ratio as a % of AFFO.
(e) NAV per Unit
NAV per Unit is a non-GAAP ratio that management believes is a useful indicator of fair value of the net tangible assets of H&R. NAV
per Unit is calculated by dividing the sum of: (i) unitholders’ equity, (ii) value of exchangeable units, and (iii) deferred tax liability by
H&R REIT - MD&A - December 31, 2024
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the total number of Units and exchangeable units outstanding. The rationale for including exchangeable units and the deferred tax
liability are as follows: (i) under IFRS, exchangeable units are classified as debt, however, these units are not required to be repaid
and each holder of these units has the option to convert their exchangeable units into Units, and therefore H&R considers this to be
equivalent to equity; and (ii) the deferred tax liability is an undiscounted liability that would be crystallized in the event that U.S.
properties are sold. H&R plans to continue to take advantage of U.S. tax legislation in order to further defer taxes owing on sold
properties. H&R’s method of calculating NAV per Unit may differ from other issuers’ calculations. See the “Unitholders’ Equity”
section on page 34 of this MD&A for a calculation of NAV per Unit and a reconciliation of NAV per Unit to unitholders’ equity and
unitholders equity per Unit.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Preparation of the REIT’s Financial Statements requires management to make estimates and judgements that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the REIT’s Financial Statements and
reported amounts of revenue and expenses during the reporting period.
For a description of the accounting policies that management believes are subject to greater estimation and judgement, as well as
other accounting policies, refer to notes 1 and 2 of the REIT’s Financial Statements.
Use of Estimates
Information about assumption and estimation uncertainties that have a significant risk of resulting in a material adjustment within
the next financial year are included in the fair value of real estate assets.
Use of Judgements
•
Valuations of real estate assets
Real estate assets, which consist of investment properties and properties under development, are carried on the consolidated
statements of financial position at fair value, as determined by either external independent appraisers or by the REIT’s internal
valuation team. The valuations are based on a number of methods and significant assumptions, such as capitalization rates,
terminal capitalization rates, discount rates, estimates of future cash flows and market values per unit of measure. Valuation of
real estate assets is one of the principal estimates and uncertainties in the REIT’s Financial Statements and this MD&A. Refer to
note 3 of the REIT’s Financial Statements for further information on estimates and significant assumptions made in the
determination of the fair value of real estate assets. Judgement is applied in determining whether certain costs are additions to
the carrying value of the real estate assets, identifying the point at which practical completion of the property occurs and
identifying the directly attributable borrowing costs to be included in the carrying value of the development properties.
•
Leases
H&R makes judgements in determining whether certain leases, in particular those tenant leases with long contractual terms and
long-term ground leases where H&R is the lessor, are operating or finance leases. H&R has determined that all of its leases,
where the REIT is the lessor, are operating leases.
•
Income taxes
H&R is a mutual fund trust and a real estate investment trust pursuant to the Tax Act. Under current tax legislation, H&R is not
liable to pay Canadian income tax provided that its taxable income is fully distributed to unitholders each year. H&R is a real
estate investment trust if it meets prescribed conditions under the Tax Act relating to the nature of its assets and revenue (the
“REIT Conditions”). H&R has reviewed the REIT Conditions and has assessed its interpretation and application to the REIT's assets
and revenue, and the REIT has determined that it qualifies as a real estate investment trust pursuant to the Tax Act. H&R expects
to continue to qualify as a real estate investment trust; however, should it no longer qualify, H&R would be subject to tax on its
taxable income distributed to unitholders.
•
Impairment of equity accounted investments
H&R determines at each reporting date whether there is any objective evidence that the equity accounted investments are
impaired. If there is an indication of impairment in respect of the REIT’s investment in associates or joint ventures, the whole
carrying value of the investment will be tested for impairment as a single asset under International Accounting Standard 36,
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Impairment of Assets by comparing the recoverable amount with its carrying value. Any resulting impairment loss will be charged
against the carrying value of the investment in associates or joint ventures and recognized in net income.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
H&R’s CEO and CFO have designed, or caused to be designed under their direct supervision, the applicable disclosure controls and
procedures (as defined in National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI
52-109”)), adopted by the Canadian Securities Administrators to provide reasonable assurance that: (i) material information relating
to the REIT, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the
period in which the annual filings are being prepared; and (ii) information required to be disclosed in the annual filings, interim
filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the
time periods specified in securities legislation. H&R’s CEO and CFO have evaluated, or caused to be evaluated under their
supervision, the effectiveness of the REIT’s disclosure controls and procedures as at December 31, 2024, and based upon that
evaluation have each concluded that such disclosure controls and procedures were appropriately designed and were operating
effectively as at December 31, 2024. The REIT’s Financial Statements and this MD&A were reviewed and approved by H&R’s Audit
Committee and the Board prior to this publication.
H&R’s management reviews its respective internal control over financial reporting on an annual basis. The REIT’s management,
under the supervision of the CEO and the CFO, has evaluated the effectiveness of internal control over financial reporting as at
December 31, 2024 using the framework and criteria established in Internal Control – Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway Commission in May 2013 (2013 COSO Framework). Based on this
evaluation, the CEO and the CFO have concluded that internal control over financial reporting was effective as of December 31,
2024. No changes were made to H&R’s internal control over financial reporting during the three-month period ended December 31,
2024 that have materially affected, or are reasonably likely to materially affect, the REIT’s internal controls over financial reporting.
H&R’s management, including the CEO and CFO, does not expect that the REIT’s controls and procedures will prevent or detect all
misstatements due to error or fraud. Due to the inherent limitations in all control systems, an evaluation of controls can provide only
reasonable, not absolute, assurance that all control issues and instances of fraud or error, if any, within the REIT have been detected.
H&R is continually evolving and enhancing its systems of controls and procedures.
RISKS AND UNCERTAINTIES
All real estate assets are subject to a degree of risk and uncertainty. They are affected by various factors including general market
conditions and local market circumstances. An example of general market conditions would be the availability of long-term
mortgage financing whereas local conditions would relate to factors affecting specific properties such as an oversupply of space or a
reduction in demand for real estate in a particular area. Management attempts to manage these risks through geographic, type of
asset and tenant diversification in H&R’s portfolio. The major risk factors including detailed descriptions are outlined below and in
H&R’s Annual Information Form.
Real Property Ownership
All real property investments are subject to a degree of risk and uncertainty. Such investments are affected by various factors
including general economic conditions, local real estate markets, the impact of disease outbreaks, demand for leased premises,
competition from other available premises and various other factors.
The value of real property and any improvements thereto may also depend on the credit and financial stability of the tenants.
Distributable cash and H&R’s income would be adversely affected if one or more major tenants or a significant number of tenants
were to become unable to meet their obligations under their leases or if a significant amount of available space in the properties in
which H&R has an interest is not able to be leased on economically favourable lease terms. In the event of default by a tenant,
delays or limitations in enforcing rights as lessor may be experienced and substantial costs in protecting H&R’s investment may be
incurred. Furthermore, at any time, a tenant of any of the properties in which H&R has an interest may seek the protection of
bankruptcy, insolvency or similar laws that could result in the rejection and termination of such tenant’s lease and thereby cause a
reduction in the cash flow available to H&R.
The ability to rent unleased space in the properties in which H&R has an interest will be affected by many factors, and costs may be
incurred in making improvements or repairs to property required by a new tenant. A prolonged deterioration in economic conditions
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could increase and exacerbate the foregoing risks. The failure to rent unleased space on a timely basis or at all would likely have an
adverse effect on H&R’s financial condition.
Certain significant expenditures, including property taxes, maintenance costs, mortgage payments, insurance costs and related
charges must be made throughout the period of ownership of real property regardless of whether the property is producing any
income. If H&R is unable to meet mortgage payments on any property, losses could be sustained as a result of the mortgagee’s
exercise of its rights of foreclosure or sale.
H&R may, in the future, be exposed to a general decline of demand by tenants for space in properties including for example, the
impact of hybrid working and working from home with respect to the office market. As well, certain of the leases of the properties
held by H&R have early termination provisions and such termination rights are generally exercisable at a cost to the tenant only. The
amount of space in H&R’s portfolio which could be affected by early termination is not significant.
A mortgage on any one property may, from time to time, exceed the estimated current market value of the related property. The
cash flow from such a property may not be sufficient to cover debt servicing for that property. The cash flow from H&R’s portfolio is,
however, expected by management to be sufficient to cover any cash flow shortfalls on such a property.
Current Economic Environment
H&R is subject to risks involving the economy in general, including inflation, deflation or stagflation, unemployment, geopolitical
issues, such as sanctions, tariffs, trade disputes, trade tensions, conflicts, the imposition of exchange controls or other cross-border
trade barriers and a local, regional, national or international outbreak of a contagious disease. Global inflation, exacerbated by
supply chain issues and other macroeconomic conditions and geopolitical uncertainties, may keep central banks aggressive in their
attempts to mitigate pricing pressures. In particular, the impact or effect of recent announcements by the U.S. regarding potential
tariffs imposed on Canadian exports, and any retaliatory tariffs imposed on the U.S. by Canada, remain unknown and could have
significant effects on the economy, which in turn could impact the REIT’s financial condition and operations.
Poor economic conditions could adversely affect H&R’s ability to generate revenues, thereby reducing its operating income and
earnings. It could also have an adverse impact on the ability of H&R to maintain occupancy rates which could harm H&R’s financial
condition. In weak economic environments, H&R’s tenants may be unable to meet their rental payments and other obligations due
to H&R, which could have a material and adverse effect on H&R. In addition, fluctuation in interest rates or other financial market
uncertainty or volatility may adversely affect H&R's ability to refinance existing indebtedness on its maturity or on terms that are as
favourable as the terms of existing indebtedness, which may impact negatively on the H&R’s performance, may restrict the
availability of financing for future prospective purchasers of the H&R’s investments and could potentially reduce the value of such
investments, or may adversely affect the ability of H&R to complete acquisitions on financially desirable terms. Increasing interest
rates may put competitive pressure on the levels of distributable income paid by H&R to unitholders, increasing the level of
competition for capital faced by H&R, which could have a material adverse effect on the trading price of the Units.
A significant component of the REIT’s ability to successfully operate relates to certain external factors that are beyond the REIT’s
control, particularly interest rates and capital markets conditions. As interest rates fluctuate in the lending market, generally so do
capitalization rates which affect the underlying value of real estate. As such, when interest rates rise, generally capitalization rates
should be expected to rise. Over the period of investment, capital gains and losses at the time of disposition can occur due to the
increase or decrease of these capitalization rates.
Strategic Transformational Repositioning Plan
On October 27, 2021, H&R announced its transformation strategic repositioning plan to create a simplified, growth-oriented
business focused on residential and industrial properties in order to create sustainable long-term value for unitholders. H&R plans to
sell its office and retail properties as market conditions permit. Management believes that success of the strategic transformational
repositioning plan is important to the long-term success of the REIT. If H&R is unable to execute on its strategic plan, H&R’s financial
condition and results of operations may be negatively impacted. Timing of executing on H&R’s strategic plan will depend on, among
other things, its ability to sell office and retail assets and redevelop other office assets in residential assets. Any delays to H&R’s
ability to sell office assets, as a result of market conditions, the current state of the office market, or lack of comparable transactions
in the market, could result in a delay in H&R’s timeline for executing its strategic plan, which may adversely affect H&R’s financial
condition and results of operations.
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Credit Risk and Tenant Concentration
H&R is exposed to credit risk in the event that borrowers default on the repayment of the amounts owing to H&R. Management
mitigates this risk by ensuring adequate security has been provided in support of mortgages receivable.
H&R is exposed to credit risk as an owner of real estate in that tenants may become unable to pay the contracted rents.
Management mitigates this risk by carrying out appropriate credit checks and related due diligence on the significant tenants.
Management has historically diversified H&R’s holdings so that it owns several categories of properties (residential, industrial, office
and retail) and acquires properties throughout Canada and the United States. In addition, management ensures that no tenant or
related group of tenants, other than investment grade tenants, account for a significant portion of the cash flow.
In that regard, H&R’s Declaration of Trust restricts the leasing of real property to any person where that person and its affiliates
would, after the contemplated lease, be leasing real property having an aggregate leasable area in excess of 20% of the aggregate
leasable area of all real property held by H&R, unless the lessee is, or the lease is guaranteed by, the Government of Canada, the
Government of the United States, any province or territory of Canada, any state of the United States, any municipality in Canada or
the United States, any agency or crown corporation thereof, a Canadian chartered bank or certain trust or insurance companies, and
certain issuers, the securities of which meet stated investment criteria or are investment grade. At December 31, 2024, H&R was in
compliance with this restriction. Furthermore, the only tenants which individually account for more than 5% of the rentals from
investment properties of H&R are Hess Corporation, New York City Department of Health and Giant Eagle, Inc. Hess Corporation and
New York City Department of Health both have a public debt rating that is rated with at least a BBB- Watch Positive rating by a
recognized rating agency.
Lease Rollover Risk
Lease rollover risk arises from the possibility that H&R may experience difficulty renewing leases as they expire or in re-leasing space
vacated by tenants upon lease expiry, or that H&R may not achieve rental rate increases upon such renewals. Management attempts
to enter into long-term leases to mitigate this risk. Management attempts to mitigate the risk by having staggered lease maturities
and entering into longer term leases with built-in rental escalations. The leases for 47.2% of H&R’s total commercial leasable area
will expire in the next 5 years. The ability to rent unleased space in the properties in which H&R has an interest will be affected by
many factors. The failure to rent unleased space on a timely basis or at all or to achieve rental rate increases would likely have an
adverse effect on H&R’s financial condition and cash available for distributions may be adversely affected.
Interest Rate and Other Debt-Related Risks
H&R is exposed to financing risks on maturing debt and interest rate risk on its borrowings. In an attempt to combat inflation, the
Bank of Canada increased its overnight lending rate throughout 2022 and 2023. Although the Bank of Canada has begun to cut this
rate, ongoing economic uncertainty may result in a slower pace of interest rate cuts or a slower pace of changes in interest rates
available in the market. Higher interest rates may lead to H&R’s debt being refinanced at higher rates than when initially obtained,
thereby reducing net income and cash flows which could ultimately affect the level of distributions. In order to minimize this risk,
H&R negotiates fixed rate term debt with staggered maturities on the portfolio. Derivative financial instruments have been and may
continue to be utilized by H&R in the management of its interest rate exposure. In addition, H&R’s Declaration of Trust restricts total
indebtedness permitted on the portfolio.
The Senior Debentures, unsecured term loans and lines of credit of H&R contain certain covenants and conditions applicable to the
REIT, including without limitation, those requiring H&R to maintain, at all times, the following financial ratios: (i) ratio of debt to
gross asset value of not greater than 0.65:1.0 measured at the end of each fiscal quarter; (ii) interest coverage of not less than
1.65:1.0 measured at the end of each fiscal quarter for such quarter and the prior three fiscal quarters; (iii) ratio of unencumbered
investment properties to unsecured indebtedness of not less than 1.40:1.0; and (iv) unitholders’ equity of not less than $1.0 billion
for Senior Debentures and $2.0 billion for unsecured term loans and lines of credit. In addition, certain of the REIT’s mortgage
providers have minimum limits on debt service coverage ratios ranging from 1.10 to 1.50. As at December 31, 2024, H&R was in
compliance with each of the preceding financial ratios.
If H&R indebtedness is replaced by new debt that has less favourable terms or H&R is unable to secure adequate funding,
distributions by H&R to holders of Units may be adversely impacted. In addition, failure by H&R to comply with its obligations under
the documents governing such indebtedness (including in the case of the credit facilities, the failure to meet certain financial ratios
and financial conditions tests) may adversely impact the REIT’s ability to make cash distributions on Units.
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Inflation Risk
The rate of inflation impacts the general economic and business environment in which H&R operates. Inflationary pressures either
domestically or globally, tight labour markets and strong demand for goods and resources, together with the imposition by
governments of higher interest rates or wage and price controls as a means of curbing inflationary increases, could put pressure on
H&R’s development, financing, operation and labour costs and could negatively impact levels of demand for real property. Although
central banks have recently cut interest rates, there is no assurance that such interest rate cuts continue, or that central banks
would not reverse such decisions if inflation were to increase. In addition, tariffs or other trade measures could result in further
increased inflation, which may result in further efforts by central banks and governments to address such inflation. The resulting
economic impacts of further inflationary pressures may adversely affect H&R’s financial condition and results of operations.
Development Risks
It is likely that, subject to compliance with H&R’s Declaration of Trust, H&R will be involved in various development projects. H&R’s
obligations in respect of properties under construction, or which are to be constructed, are subject to risks which include (i) the
potential insolvency of a third party developer (where H&R is not the developer); (ii) a third party developer’s failure to use
advanced funds in payment of construction costs; (iii) construction or other unforeseeable delays, including as a result of a disease
outbreak; (iv) cost overruns; (v) the failure of tenants to occupy and pay rent in accordance with existing lease agreements, some of
which are conditional; (vi) the incurring of construction costs before ensuring rental revenues will be earned from the project; and
(vii) increases in interest rates during the period of the development. Management strives to mitigate these risks where possible by
entering into fixed price construction contracts with general contractors (and to the extent possible, on a bonded basis) and by
attempting to obtain long-term financing as early as possible during construction.
Residential Rental Risk
H&R expects to be increasingly involved in residential development projects and mixed-use development projects that include rental
apartments and may include condominiums. As a landlord of its properties that include rental apartments, H&R is subject to the risks
inherent in the multi-unit residential rental business, including, but not limited to, fluctuations in occupancy levels, individual credit
risk, heightened reputation risk, tenant privacy concerns, potential changes to rent control regulations, increases in operating costs
including the costs of utilities and the imposition of new taxes or increased property taxes. Purchaser demand for residential
condominiums is cyclical and is affected by changes in general market and economic conditions, such as consumer confidence,
employment levels, availability of financing for home buyers, interest rates, demographic trends, housing supply and housing
demand.
Capital Expenditure Risk
Leasing capital and maintenance capital are incurred in irregular amounts and may exceed actual cash available from operations
during certain periods. H&R may be required to use part of its debt capacity or reduce distributions in order to accommodate such
items. Capital for recoverable improvements may exceed recovery of amounts from tenants.
Currency Risk
H&R is exposed to foreign exchange fluctuations as a result of ownership of assets in the United States and the rental income earned
from these properties. In order to mitigate the risk, H&R’s debt on these properties is also denominated in U.S. dollars to act as a
natural hedge.
H&R is exposed to foreign exchange fluctuations as a result of U.S. mortgages and U.S. lines of credit, each of which are
denominated in U.S. dollars.
Liquidity Risk
Real property investments tend to be relatively illiquid, with the degree of liquidity generally fluctuating in relationship with demand
for and the perceived desirability of such investments. Such illiquidity will tend to limit H&R’s ability to vary its portfolio promptly in
response to changing economic or investment conditions. The costs of holding real estate are considerable and during an economic
recession the REIT may be faced with ongoing expenditures with a declining prospect of incoming receipts. If for whatever reason,
liquidation of assets is required, there is a risk that sale proceeds realized might be less than the previously estimated market value
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of H&R’s investments or that market conditions, including the impact of a disease outbreak or a recession, would prevent prompt
disposition of assets. Furthermore, increases in interest rates generally cause a decrease in the demand for properties. Higher
interest rates and more stringent borrowing requirements, whether mandated by law or required by banks, could have a material
adverse effect on the REIT’s ability to sell any of its properties or execute on its transformational strategic repositioning plan.
Additionally, legislation and other regulatory developments, including the Prohibition on the Purchase of Residential Property by
Non-Canadians Act, could limit potential purchasers of H&R’s properties, further reducing the liquidity of the real estate market.
Cyber Security Risk
Cyber security has become an increasingly problematic issue for issuers and businesses in Canada and around the world, including
H&R. Cyber attacks against large organizations are increasing in sophistication and are often focused on financial fraud,
compromising sensitive data for inappropriate use or disrupting business operations. A cyber incident is considered to be any
adverse event that threatens the confidentiality, integrity or availability of H&R's information resources. More specifically, a cyber-
incident is an intentional attack or an unintentional event that can include gaining unauthorized access to information systems to
disrupt operations, corrupt data or steal confidential information. As H&R's reliance on technology has increased, so have the risks
posed to its systems. The primary risks of a cyber-incident include operational interruption, damage to its reputation, damage to
H&R’s business relationships with its tenants, disclosure of confidential information regarding its tenants, employees and third
parties with whom H&R interacts, and may result in negative consequences, including remediation costs, loss of revenue, additional
regulatory scrutiny and litigation. H&R has implemented processes, procedures and controls to help mitigate these risks, but these
measures, as well as its increased awareness of a risk of a cyber-incident, do not guarantee that its financial results will not be
negatively impacted by such an incident.
Financing Credit Risk
H&R is also exposed to credit risk as a lender on the security of real estate in the event that a borrower is unable to make the
contracted payments. Such risk is mitigated through credit checks and related due diligence of the borrowers and through careful
evaluation of the worth of the underlying assets.
ESG and Climate Change Risk
As an owner and manager of real estate assets in Canada and the United States, H&R is subject to various laws relating to
environmental matters. These laws impose a liability for the cost of removal and remediation of certain hazardous materials
released or deposited on properties owned by H&R or on adjacent properties. H&R will make the necessary capital and operating
expenditures to ensure compliance with environmental laws and regulations. Although there can be no assurances, H&R does not
believe that costs relating to environmental matters will have a material adverse effect on H&R’s business, financial condition or
results of operations. However, environmental laws and regulations may change and H&R may become subject to more stringent
environmental laws and regulations in the future. In addition, H&R may become subject to transition risks as a result of the process
of shifting to a low-carbon economy, influenced by new and emerging climate-related public policies and regulations, technologies,
stakeholder expectations and legal developments. Compliance with more stringent environmental laws and regulations could have
an adverse effect on H&R’s business, financial condition or results of operations.
In accordance with best management practices, Phase I environmental audits are completed on all properties prior to acquisition.
Further investigation is conducted if Phase I tests indicate a potential problem. H&R has operating policies to monitor and manage
risk. In addition, the standard lease utilized requires tenants to comply with environmental laws and regulations, and restricts
tenants from carrying on environmentally hazardous activities or having environmentally hazardous substances on site.
Natural disasters, earthquakes and severe weather such as hurricanes, tornadoes, floods, ice storms, blizzards, rising temperatures
and other adverse weather and climate conditions may result in damage to the REIT’s investment and development properties,
decreased property values and reduced rental revenue (including from increased vacancy). The extent of H&R's casualty losses and
loss in net operating income in connection with such events is a function of the severity of the event and the total amount of
exposure in the affected area. H&R is also exposed to risks associated with inclement winter weather, including increased need for
maintenance and repair of H&R’s buildings. In addition, climate change, to the extent it causes changes in weather patterns, could
have effects on H&R's business by increasing the cost to recover and repair the REIT’s investment and development properties, by
increasing property insurance costs to insure an investment property against natural disasters and severe weather events and/or by
increasing energy costs at the REIT’s investment properties. As a result, the consequences of natural disasters, severe weather and
climate change could increase H&R’s costs and reduce H&R’s cash flow.
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H&R has taken proactive steps to mitigate the risk of climate change on the REIT and its properties and to address the REIT’s
environmental impact. Evolving stakeholder expectations and H&R’s efforts and ability to manage these issues, provide updates on
them, and carry out its environmental and sustainability practices and initiatives presents numerous operational, regulatory,
reputational, financial, legal, and other risks, any of which may be outside of H&R’s control or could have a material adverse impact
on H&R’s business. H&R’s failure or perceived failure to maintain its environmental and sustainability practices or comply with
emerging regulations that meet evolving regulatory or stakeholder expectations could harm H&R’s reputation and expose H&R to
increased scrutiny from the investment community and enforcement authorities.
In addition, there are currently no universal or commonly accepted ESG or impact reporting standards and no assurance can be
given that such standards will develop over time or, if such standards develop in the future, that the REIT’s practices will align with
such standards. Accordingly, no assurance is or can be given to investors that the REIT’s focus on goals and key performance
indicators, the REIT’s Sustainability Policy, Green Financing Framework or otherwise will meet investor expectations regarding ESG-
related or impact investing. In the event that formal standards for ESG or similar reporting are adopted by the Canadian securities
regulators, the Canadian Sustainability Standards Board, the International Sustainability Standards Board of the IFRS Foundation or
similar organizations with governance over H&R, H&R intends to comply with such standards. Similarly, there is no legal, regulatory
or market definition of or standardized criteria for what constitutes a “green”, “social”, “sustainable” or other equivalently labeled
investment and any such designations made by third parties may not be suitable for the investment criteria of an investor. No
assurance can be given that such definitions or consensus will develop over time or, if such definitions or consensus develop in the
future, that initiatives undertaken by the REIT in accordance with its Sustainability Policy, Green Financing Framework or otherwise
will meet such definitions or consensus. Accordingly, an investment in Units may not meet any or all investor expectations regarding
“green”, “social”, “sustainable” or other equivalently labeled performance objectives.
See the “ESG” section of this MD&A for additional details on the REIT’s environmental and sustainability practices and initiatives.
Risks Associated with Disease Outbreaks
A local, regional, national or international outbreak of a contagious disease, including, but not limited to, the COVID-19 pandemic,
Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, H1N1 influenza virus, avian flu, or any other similar illness
could result in restrictive measures being taken by various governments and businesses which may result in additional risks and
uncertainties to the REIT’s business, operations and financial performance as discussed throughout the MD&A.
The duration and impact of any disease outbreak on the REIT and the efficacy of any government interventions are difficult to
predict. As such, it is not possible to reliably estimate the length and severity of any impacts related to disease outbreaks on the
financial results and operations of the REIT. Disruptions caused by a disease outbreak may negatively impact the market price for the
equity securities of the REIT and may, in the short or long term, materially adversely impact the REIT’s tenants and/or the debt and
equity markets, both of which could materially adversely affect the REIT’s operations and financial performance and ability to pay
distributions. In addition, the REIT may experience delays with its current and future development projects.
The extent of the effect of any ongoing disease outbreak on the REIT’s operational and financial performance will depend on
numerous factors, including the duration, spread and intensity of the outbreak, the actions by governments and others taken to
contain the outbreak or mitigate its impact, changes in the preferences of tenants and prospective tenants, and the direct and
indirect economic effects of the outbreak and containment measures, all of which are uncertain and difficult to predict as such
factors evolve rapidly over the course of any such disease outbreak. As a result, it is not possible to reliably ascertain the long-term
impact of any disease outbreak on the REIT’s business and operations. Certain aspects of the REIT’s business and operations that
have been or could potentially continue to be impacted by disease outbreaks include rental income, occupancy, tenant
inducements, future demand for space and market rents, as well as increased costs resulting from the REIT’s efforts to mitigate the
impact of such outbreak, longer-term stoppage of development projects, temporary or long-term labour shortages or disruptions,
temporary or long-term impacts on domestic and global supply chains, increased risks to IT systems and networks, further
impairments and/or write-downs of assets, and the deterioration of worldwide credit and financial markets that could limit the
REIT’s ability to access capital and financing on acceptable terms or at all.
Even after any disease outbreak has subsided, the REIT may continue to experience material adverse impacts to its business as a
result of the global economy, including any related recession, as well as lingering effects on the REIT’s employees, suppliers, third-
party service providers and/or tenants.
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With respect to the COVID-19 pandemic in particular, while many pandemic-related risks are receding and measures to contain the
spread of the virus have lifted in many regions, the pandemic continues to have, and a new disease outbreak could have, an impact
on the global economy, including contributing to high levels of inflation, rising interest rates (to mitigate inflation) and the resulting
threat of recession. In addition, public health measures continue to be implemented in certain regions or countries and may be
reinstated in other areas.
Co-Ownership Interest in Properties
In certain situations, H&R may be adversely affected by a default by a co-owner of a property under the terms of a mortgage, lease
or other agreement. Although all co-owners’ agreements entered into by H&R provide or will provide, as applicable, for remedies to
H&R in such circumstances, such remedies may not be exercisable in all circumstances, or may be insufficient or delayed, and may
not cure a default in the event that such default by a co-owner is deemed to be a default of H&R.
General Uninsured Losses
H&R carries comprehensive general liability, fire, flood, extended coverage and rental loss insurance with policy specifications, limits
and deductibles customarily carried for similar properties. There are, however, certain types of risks, generally of a catastrophic
nature, such as wars or environmental contamination, which are either uninsurable or not insurable on an economically viable basis.
H&R will have insurance for earthquake risks, subject to certain policy limits, deductibles and self-insurance arrangements, and will
continue to carry such insurance if it is economical to do so. Should an uninsured or underinsured loss occur, H&R could lose its
investment in, and anticipated profits and cash flows from, one or more of its properties; but H&R would continue to be obliged to
repay any recourse mortgage indebtedness on such properties.
Joint Arrangement and Investment Risks
H&R has several investments in joint ventures and investments in associates. H&R is subject to risks associated with the
management and performance of these joint arrangements and investments. Such risks include any disagreements with its partners
relating to the development or operations of a property, as well as differences with respect to strategic decision making. Other risks
include partners not meeting their financial or operational obligations. H&R attempts to mitigate these risks by maintaining good
working relationships with its partners, and conducting due diligence on their partners to ensure there is a similar alignment of
strategy prior to creating a joint arrangement or investment.
Dependence on Key Personnel and Succession Planning
The REIT’s continued growth is dependent on its ability to hire, retain and develop its leaders and other key personnel. Any failure to
effectively attract and retain talented and experienced employees and to establish adequate succession planning and retention
strategies could result in a lack of requisite knowledge, skill and experience. This could erode H&R’s competitive position or result in
increased costs and competition for, or high turn-over of, employees. Any of the foregoing could negatively affect H&R’s ability to
operate its business and execute its strategies, which in turn, could adversely affect its reputation, operations or financial
performance.
Potential Acquisition, Investment and Disposition Opportunities and Joint Venture Arrangements
H&R evaluates business and growth opportunities and considers a number of acquisition, investment and disposition opportunities
and joint venture arrangements to achieve its business and growth strategies. In the normal course, H&R may have outstanding non-
binding letters of intent and/or conditional agreements or may otherwise be engaged in discussions with respect to potential
acquisitions and financing of new assets, the refinancing of existing assets, potential dispositions, establishment of new joint venture
arrangements, the viability and status of its joint venture arrangements, and changes to its capital structure, each of which,
individually or in the aggregate, may or may not be material if they were to progress. However, there can be no assurance that any
of these discussions will result in a definitive agreement and, if they do, what the terms or timing of any acquisition, investment or
disposition would be or that such acquisition, investment or disposition will be completed by H&R. Similarly, there can be no
assurance that H&R will enter into new joint venture arrangements or continue any existing joint venture arrangements. If H&R does
complete such transactions, H&R cannot provide assurance that they will ultimately strengthen its competitive position or that they
will not be viewed negatively by customers, securities analysts or investors. Such transactions may also involve significant
commitments of H&R’s financial and other resources. Any such activity may not be successful in generating revenue, income or
other returns to H&R, and the resources committed to such activities will not be available to H&R for other purposes.
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Acquisitions of properties by H&R are subject to the normal commercial risks and satisfaction of closing conditions that may include,
among other things, lender approval, Competition Act (Canada) approval, receipt of estoppel certificates and obtaining title
insurance. Such acquisitions may not be completed or, if completed, may not be on terms that are exactly the same as initially
negotiated. In the event that H&R does not complete an acquisition, it may have an adverse effect on the operations and results of
H&R in the future and its cash available for distributions to unitholders.
Potential Undisclosed Liabilities Associated with Acquisitions
H&R may acquire properties that are subject to existing liabilities, some of which may be unknown at the time of the acquisition or
which H&R may fail to uncover in its due diligence. Unknown liabilities might include liabilities for cleanup or remediation of
undisclosed environmental conditions, claims by tenants, vendors or other persons dealing with the vendor or predecessor entities
(that have not been asserted or threatened to date), and accrued but unpaid liabilities incurred in the ordinary course of business.
Representations and warranties given by third parties to H&R regarding acquired properties may not adequately protect against
these liabilities and any recourse against third parties may be limited by the financial capacity of such third parties. While in some
instances H&R may have the right to seek reimbursement against an insurer or another third party for certain of these liabilities,
H&R may not have recourse to the vendor of the properties for any of these liabilities.
Competition for Real Property Investments
The real estate business is competitive. Numerous other developers, managers and owners of properties compete with H&R in
seeking tenants. Some of the properties located in the same markets as H&R’s properties may be newer, better located, less levered
or have better tenant profiles than H&R’s properties. Some property owners with properties located in the same markets as H&R’s
properties may be better capitalized and may be stronger financially and hence better able to withstand an economic downturn.
Competitive pressures in such markets could have a negative effect on H&R’s ability to lease space in its properties and on the rents
charged or concessions granted, which could have an adverse effect on H&R’s financial condition and results of operation and
decrease the amount of cash available for distribution.
H&R competes for suitable real property investments with individuals, corporations, other real estate investment trusts and
institutions (both Canadian and foreign) which are presently seeking, or which may seek in the future, real property investments
similar to those desired by H&R. Many of these investors have greater financial resources than those of H&R, or operate without
H&R’s investment restrictions, or according to more flexible conditions. An increase in the availability of investment funds and an
increase in interest in real property investments would tend to increase competition for real property investments, thereby
increasing purchase prices and reducing the yields thereon.
Potential Conflicts of Interest
H&R may be subject to various conflicts of interest because of the fact that the members of management and the Trustees may be
engaged in a wide range of real estate and other business activities and H&R may become involved in transactions which conflict
with the interests of the foregoing.
H&R management and the Trustees may from time to time deal with persons, firms, institutions or corporations with which H&R
may be dealing, or which may be seeking investments similar to those desired by the REIT. The interests of these persons could
conflict with those of H&R. In addition, from time to time, these persons may be competing with H&R for available investment
opportunities.
Any decisions regarding the enforcement by H&R of the terms of any agreement entered into by H&R with a non-independent
Trustee or with an associate of a non-independent Trustee may be made by a majority of the independent Trustees. There is a risk
that non-independent Trustees may attempt to influence the independent Trustees in this regard.
Litigation and Regulatory Risk
H&R’s operations are subject to a wide variety of laws and regulations across all of its operating jurisdictions and H&R faces risks
associated with legal and regulatory changes and litigation. In the normal course of operations, H&R may become involved in various
legal actions, including claims relating to personal injury, property damage, property taxes, land rights, and contractual and other
commercial disputes and the resolution of such actions may have an adverse effect on the REIT’s financial position or results of
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operations. H&R retains external legal consultants to assist it in remaining current and compliant with legal and regulatory changes
and to respond to litigation.
Unit Prices
Publicly traded trust units will not necessarily trade at values determined solely by reference to the underlying value of trust assets.
Accordingly, Units may trade at a premium or a discount to the underlying value of the assets of H&R. See also the “Forward-Looking
Disclaimer” in this MD&A.
One of the factors that may influence the quoted price of the Units is the annual yield on the Units. Accordingly, an increase in
market interest rates may lead investors in Units to demand a higher annual yield, which could adversely affect the quoted price of
the Units. In addition, the quoted price for Units may be affected by changes in general market conditions, fluctuations in the
markets for equity securities and numerous other factors beyond the control of H&R.
Challenging market conditions, the health of the economy as a whole and numerous other factors beyond the control of H&R may
have a material effect on the business, financial condition, liquidity and results of operations of H&R. Financial markets have
previously experienced significant price and volume fluctuations that have particularly affected the market prices of securities of
issuers and that have often been unrelated to the operating performance, underlying asset values or the prospects of such issuers.
There can be no assurance that such fluctuations in price and volume will not occur again. Accordingly, the market price of Units may
decline even if H&R’s operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as
other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in
impairment losses. If such increased levels of volatility and market turmoil occur, H&R’s operations could be adversely impacted and
the trading price of the Units may be adversely affected.
Availability of Cash for Distributions
Although H&R intends to make distributions of its available cash to unitholders in accordance with its distribution policy, these cash
distributions may be reduced or suspended, including as a result of the impact of a disease outbreak on the REIT’s business. The
actual amount distributed by H&R will depend on numerous factors including capital market conditions and access to capital, the
financial performance of the properties, H&R’s debt covenants and obligations, its working capital requirements, its future capital
requirements, its development commitments and fluctuations in interest rates. Cash available to H&R for distributions may be
reduced from time to time because of items such as principal repayments on debt, tenant allowances, leasing commissions, capital
expenditures or any other business needs that the Board deems reasonable. H&R may be required to use part of its debt capacity in
order to accommodate any or all of the above items. The market value of Units may decline significantly if H&R suspends or reduces
distributions. The Board retain the right to re-evaluate the distribution policy from time to time as they consider appropriate.
Credit Ratings
Credit ratings assigned to H&R’s debentures are not hold or sell recommendations, do not address the market price of the Senior
Debentures, and are not assessments of the appropriateness of ownership of the Senior Debentures given various investment
objectives. The credit ratings on the Senior Debentures may not reflect the potential impact of all risks and factors affecting the
value of the Senior Debentures, including market risk, trading liquidity risk and covenant risk. In addition, real or anticipated changes
in the credit ratings assigned to the debentures may affect their market value. Such changes can affect the cost at which H&R can
access the debenture market, and the credit spreads on unsecured term loans or unsecured lines of credit, as applicable. There is no
assurance that any rating will remain in effect for any given period of time and ratings may be upgraded, downgraded, placed under
review, confirmed and discontinued by a rating agency in the future if in its judgment circumstances so warrant.
Ability to Access Capital
As H&R distributes a substantial portion of its income to unitholders, H&R may need to obtain additional capital through capital
markets or financing activities with lenders, and H&R’s ability to access the capital markets through equity issues and forms of
secured or unsecured debt financing may affect the operations of H&R as such financing may be available only on disadvantageous
terms, if at all. If financing is not available on acceptable terms, further acquisitions or ongoing development projects may be
curtailed and cash available for distributions or to fund future commitments may be adversely affected.
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Dilution
The number of Units H&R is authorized to issue is unlimited. The Trustees have the discretion to issue additional Units in certain
circumstances, including under H&R’s Unit Option Plan and Incentive Unit Plan. In addition, H&R may issue Units pursuant to the
distribution reinvestment plan and unit purchase plan. Any issuance of Units may have a dilutive effect on the investors of Units.
Unitholder Liability
H&R’s Declaration of Trust provides that no holder of Units, special voting units of the REIT (“Special Voting Units”) or annuitant
under a plan of which a holder of Units or Special Voting Units acts as trustee or carrier (an “annuitant”) will be held to have any
personal liability as such, and that no resort shall be had to, nor shall recourse or satisfaction be sought from, the private property of
any holder of Units, Special Voting Units or annuitant for any liability whatsoever, in tort, contract or otherwise, to any person in
connection with property of H&R or the affairs of H&R including, without limitation, for satisfaction of any obligation or claim arising
out of or in connection with any contract or obligation of H&R or of the Trustees or any obligation which a holder of Units, Special
Voting Units or annuitant would otherwise have to indemnify a Trustee for any personal liability incurred by the Trustee as such.
Only assets of H&R are intended to be liable and subject to levy or execution for satisfaction of such liability.
H&R’s Declaration of Trust further provides that certain written instruments signed by H&R (including all mortgages and, to the
extent the Trustees determine to be practicable and consistent with their fiduciary duty to act in the best interests of holders of
Units and Special Voting Units, other written instruments creating a material obligation of H&R) shall contain a provision or be
subject to an acknowledgment to the effect that such obligation will not be personally binding upon holders of Units and Special
Voting Units or upon and that resort shall not be had to, nor shall recourse or satisfaction be sought from, the private property of
any annuitant.
However, in conducting its affairs, H&R has acquired and may acquire real property investments subject to existing contractual
obligations, including obligations under mortgages and leases. The Trustees will use all reasonable efforts to have any such
obligations modified so as not to have such obligations personally binding upon any of the holders of Units, Special Voting Units or
annuitants. However, H&R may not be able to obtain such modification in all cases. To the extent that claims are not satisfied by
H&R, there is a risk that a holder of Units, Special Voting Units or annuitant will be held personally liable for obligations of H&R
where the liability is not disavowed as described above.
Personal liability may also arise in respect of claims against H&R that do not arise under contracts, including claims in tort, claims for
taxes and possibly certain other statutory liabilities. The possibility of any personal liability of this nature arising is considered remote
as the nature of H&R’s activities are such that most of its obligations arise by contract and non-contractual risks are largely insurable.
However, the insurance policies maintained by H&R have exclusions for certain environmental liabilities. In the event that payment
of H&R obligations were to be made by a holder of Units or Special Voting Units, such holder would be entitled to reimbursement
from the available assets of H&R.
The Trustees will cause the activities of H&R to be conducted with the advice of counsel, in such a way and in such jurisdictions as to
avoid, to the extent they determine to be practicable and consistent with their fiduciary duty to act in the best interests of the
holders of Units and Special Voting Units, any material risk of liability on the holders of Units and Special Voting Units for claims
against H&R. The Trustees will, to the extent available on terms which they determine to be practicable, cause the insurance carried
by H&R, to the extent applicable, to cover the holders of Units, Special Voting Units and annuitants as additional insureds.
Legislation has been enacted in the Province of Ontario and certain other provinces that is intended to provide unitholders in those
provinces with limited liability. On December 16, 2004, the Trust Beneficiaries’ Liability Act, 2004 (Ontario), came into force. Such
legislation provides that unitholders of a trust that is a reporting issuer and governed by the laws of Ontario are not liable, as
beneficiaries, for any act, default, obligation or liability of the trust or any of its trustees that arise after the legislation came into
force. A trust is considered governed by the laws of Ontario if its declaration of trust or other constating instrument contains the
customary provision to that effect. H&R’s Declaration of Trust contains such a provision, and accordingly, the holders of Units and
Special Voting Units are protected by this legislation. However, there remains a risk, which H&R considers to be remote in the
circumstances, that a holder of Units and Special Voting Units could be held personally liable for H&R’s obligations to the extent that
claims are not satisfied out of H&R’s assets. It is intended that H&R’s affairs will be conducted to seek to minimize such risk wherever
possible.
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Redemption Right
Unitholders are entitled to have their Units redeemed at any time on demand. It is anticipated that this redemption right will not be
the primary mechanism for unitholders to liquidate their investments. The entitlement of holders of Units to receive cash upon the
redemption of their Units is subject to the limitations that: (i) the total amount payable by H&R in respect of those Units and all
other Units tendered for redemption in the same calendar month does not exceed $50,000.00 (subject to certain adjustments and
provided that the trustees of H&R may waive this limitation at their sole discretion), (ii) at the time such Units are tendered for
redemption, the outstanding Units shall be listed for trading or quoted on a stock exchange or traded or quoted on another market
which the trustees consider, in their sole discretion, provides representative fair market value prices for the Units; and (iii) the
normal trading of the Units is not suspended or halted on any stock exchange on which the Units are listed (or, if not so listed, on
any market on which the Units are quoted for trading) on the redemption date or for more than five trading days during the ten-day
trading period commencing immediately prior to such date. In certain circumstances, H&R’s Declaration of Trust provides for the in
specie distributions of notes of H&R Portfolio LP Trust in the event of redemption of Units. The notes which may be distributed in
specie to unitholders in connection with a redemption will not be listed on any stock exchange, and are not expected to be qualified
investments for registered plans, no established market is expected to develop for such notes and they may be subject to resale
restrictions under applicable securities laws.
Investment Eligibility
The Tax Act imposes penalties for the acquisition or holding of non-qualified or prohibited investments (as defined in the Tax Act) by
certain registered plans. H&R will endeavour to ensure that Units continue to be qualified investments for registered plans, but
there can be no assurances in this regard. Unitholders, annuitants and subscribers of registered plans should consult their own tax
advisors with respect to whether Units would be prohibited investments having regard to their particular circumstances.
Debentures
The likelihood that purchasers of the Senior Debentures will receive payments owing to them under the terms of such debentures
will depend on the financial health of H&R and its creditworthiness. In addition, such debentures are unsecured obligations of H&R
and are subordinate in right of payment to all H&R’s existing and future senior indebtedness as defined in each such respective trust
indenture. Therefore, if H&R becomes bankrupt, liquidates its assets, reorganizes or enters into certain other transactions, H&R’s
assets will be available to pay its obligations with respect to such debentures only after it has paid all of its senior indebtedness in
full. There may be insufficient assets remaining following such payments to pay amounts due on any or all of the Senior Debentures
then outstanding.
The Senior Debentures are also effectively subordinate to claims of creditors (including trade creditors) of H&R’s subsidiaries except
to the extent H&R is a creditor of such subsidiaries ranking at least pari passu with such other creditors. A parent entity is entitled
only to the residual equity of its subsidiaries after all debt obligations of its subsidiaries are discharged. In the event of bankruptcy,
liquidation or reorganization of H&R, holders of indebtedness of H&R (including holders of the Senior Debentures), may become
subordinate to lenders to the subsidiaries of H&R. The indentures governing such debentures do not prohibit or limit the ability of
H&R or its subsidiaries to incur additional debt or liabilities (including senior indebtedness), to amend and modify the ranking of any
indebtedness or to make distributions, except, in respect of distributions where an event of default has occurred and such default
has not been cured or waived. The indentures do not contain any provision specifically intended to protect holders of debentures in
the event of a future leveraged transaction involving H&R.
In addition, H&R may be required to purchase all outstanding Senior Debentures upon the occurrence of a change of control.
However, it is possible that following a change of control, H&R will not have sufficient funds at that time to make any required
purchase of such outstanding debentures or that restrictions contained in other indebtedness will restrict those purchases.
Statutory Remedies
H&R is not a legally recognized entity within the relevant definitions of the Bankruptcy and Insolvency Act, the Companies’ Creditors
Arrangement Act and in some cases, the Winding Up and Restructuring Act. As a result, in the event a restructuring of H&R were
necessary, H&R would not be able to access the remedies available thereunder.
The rights granted in H&R’s Declaration of Trust are granted as contractual rights afforded to securityholders of H&R
(“Securityholders”). Similar to other existing rights contained in H&R’s Declaration of Trust (e.g. take-over bid provisions and conflict
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of interest provisions), making these rights and remedies and certain procedures available by contract is structurally different from
the manner in which the equivalent rights and remedies or procedures (including the procedure for enforcing such remedies) are
made available to shareholders of a corporation, who benefit from those rights and remedies or procedures by the corporate statute
that governs the corporation, such as the Canada Business Corporations Act. As such, there is no certainty how these rights,
remedies or procedures may be treated by the courts in the non-corporate context or that a Securityholder will be able to enforce
the rights and remedies in the manner contemplated by H&R’s Declaration of Trust. Furthermore, how the courts will treat these
rights, remedies and procedures will be at the discretion of the court, and a court may choose to not accept jurisdiction to consider
any claim contemplated in H&R’s Declaration of the Trust.
Tax Risk
The Tax Act includes rules (referred to herein as the ‘‘SIFT Rules’’) which effectively tax certain income of a publicly traded trust that
is distributed to its investors or of a publicly traded partnership on the same basis as would have applied had the income been
earned through a taxable corporation and distributed by way of dividend to its shareholders. The SIFT Rules apply only to ‘‘SIFT
trusts’’, ‘‘SIFT partnerships’’ (each as defined in the Tax Act) and their investors. A trust that qualifies as a “real estate investment
trust” (as defined in the Tax Act) for a taxation year will not be considered to be a SIFT trust in that year (the “REIT Exemption”).
Based on a review of H&R’s assets and revenues, management believes that H&R satisfied the tests to qualify for the REIT Exemption
for 2024. Management of H&R intends to conduct the affairs of H&R so that it qualifies for the REIT Exemption at all future times.
However, as the REIT Exemption includes complex revenue and asset tests, no assurances can be provided that H&R has qualified for
the REIT Exemption for its 2024 taxation year or will qualify for the REIT Exemption for its current or any subsequent taxation year.
H&R currently qualifies as a “mutual fund trust” for purposes of the Tax Act. There can be no assurance that Canadian federal
income tax laws and the administrative policies and assessing practices of the Canada Revenue Agency, including in respect of the
treatment of mutual fund trusts or SIFT trusts, will not be changed in a manner which adversely affects H&R or holders of Units. If
H&R does not qualify as a mutual fund trust under the Tax Act or were to cease to so qualify, the income tax considerations
applicable to H&R and an investment in Units would be materially and adversely different. For example, if H&R were to cease to
qualify as a mutual fund trust and Units cease to be listed on a designated stock exchange (which currently includes the TSX), Units
may cease to be qualified investments for registered retirement savings plans, deferred profit sharing plans, registered retirement
income funds and first home savings accounts, and will cease to be qualified investments for registered education savings plans,
registered disability savings plans and tax-free savings accounts.
Recent amendments to the Tax Act (the “EIFEL Rules”) generally limit the deductibility of interest and other financing-related
expenses by an entity to the extent that such expenses, net of interest and other financing-related income, exceed a fixed ratio of
the entity’s tax EBITDA. The EIFEL Rules and their application are highly complex, and there can be no assurances that the EIFEL Rules
will not have adverse consequences to H&R or its unitholders. In particular, if these rules were to apply to restrict deductions
otherwise available to H&R or otherwise increase H&R’s income for purposes of the Tax Act, the taxable component of distributions
paid by H&R to unitholders may be increased, which could reduce the after-tax return associated with an investment in Units.
Pursuant to further recent amendments to the Tax Act (the "Equity Repurchase Rules") a trust, the equity of which is listed on a
"designated stock exchange" (which currently includes the TSX) that is a “real estate investment trust” for purposes of the Tax Act, is
subject to a 2% tax on the value of the trust's net equity repurchases (which would include purchases of Units by H&R under its
normal course issuer bid) in a taxation year, as calculated in accordance with such rules, subject to a de minimis exception where the
trust's gross equity repurchases in the year do not exceed $1,000,000. If H&R is required to pay tax under the Equity Repurchase
Rules, the amount of cash available for distribution to investors would be reduced.
If H&R experiences a “loss restriction event”, as defined in the Tax Act, (i) it will be deemed to have a year-end for tax purposes
(which would result in an unscheduled distribution of undistributed net income and net realized capital gains, if any, at such time to
unitholders to the extent necessary to ensure that H&R is not liable for income tax on such amounts under Part I of the Tax Act), and
(ii) it will become subject to the loss restriction rules generally applicable to a corporation that experiences an acquisition of control,
including a deemed realization of any unrealized capital losses and restrictions on its ability to carry forward unused losses to future
taxation years. Generally, H&R will be subject to a loss restriction event if a person becomes a “majority-interest beneficiary”, or a
group of persons becomes a “majority-interest group of beneficiaries”, of H&R, each as defined in the affiliated persons rules
contained in the Tax Act, with certain modifications. Generally, a majority-interest beneficiary of a trust is a beneficiary of the trust
whose beneficial interests in the income or capital of the trust, as the case may be, together with the beneficial interests in the
income or capital of the trust, as the case may be, of persons and partnerships with whom such beneficiary is affiliated for the
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purposes of the Tax Act, represent greater than 50% of the fair market value of all the interests in the income or capital of the trust,
as the case may be.
H&R operates in the United States through U.S. Holdco, which is capitalized with debt and equity provided by H&R. During 2018,
H&R made loans to U.S. Holdco (“U.S. Holdco Loans”), including a revolving loan that U.S. Holdco drew upon in 2023, to refinance
existing loans, including certain interest bearing unsecured subordinated notes of U.S. Holdco held by H&R (the “U.S. Holdco
Notes”), or indirectly fund additional U.S. Holdco acquisitions of income generating real property. Management anticipates that U.S.
Holdco will continue to borrow funds from H&R in the future for similar purposes, to fund its operations or to refinance existing
loans. U.S. Holdco treats the U.S. Holdco Notes and U.S. Holdco Loans as indebtedness for U.S. federal income tax purposes. If the
IRS or a court were to determine that the U.S. Holdco Notes and/or the U.S. Holdco Loans should be treated for U.S. federal income
tax purposes as equity rather than debt, the interest on the U.S. Holdco Notes and/or the U.S. Holdco Loans could be treated as a
dividend, and interest on the U.S. Holdco Notes and/or the U.S. Holdco Loans would not be deductible for U.S. federal income tax
purposes. In addition, if the IRS were to determine that the interest rate on the U.S. Holdco Notes and/or the U.S. Holdco Loans did
not represent an arm’s length rate, any excess amount over the arm’s length rate would not be deductible and could be re-
characterized as a dividend payment instead of an interest payment. This would significantly increase the U.S. federal income tax
liability of U.S. Holdco, potentially including the tax liability for prior years in which U.S. Holdco has claimed a deduction for interest
paid on the U.S. Holdco Notes. In addition, U.S. Holdco could be subject to penalties. Such an increase in tax liability could materially
adversely affect U.S. Holdco’s ability to make interest payments on the U.S. Holdco Loans or H&R’s ability to make distributions on
its Units.
Under the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”), Section 163(j) of the Internal Revenue Code has been repealed and
replaced with a new section 163(j) that is applicable to taxable years beginning after December 31, 2017. New section 163(j) applies
to both related and third-party debt and there is no debt to equity ratio safe harbor. New section 163(j) limits all interest deductions
(related and third party) to 30% (50% for the 2019 and 2020 taxable years) of “adjusted taxable income” (defined similarly to
earnings before interest, taxes, depreciation and amortization for taxable years beginning before January 1, 2022, and earnings
before interest and taxes thereafter). However, there is an exception to the limitation of new section 163(j) for certain “real
property trades or businesses” that make an irrevocable election. If such an election is made, the real property trade or business is
required to use the alternative depreciation system (ADS) to depreciate certain assets for U.S. federal income tax purposes.
Management believes U.S. Holdco was eligible to make this election and did so for 2018 onwards.
As the new U.S. Tax Reform continues to move through the implementation process, there is risk that regulatory, administrative or
legislative actions could have a materially adverse effect on H&R’s deferred income tax assets or liabilities. Management continues
to monitor ongoing developments and IRS guidance.
Additional Tax Risks Applicable to Unitholders
H&R is classified as a foreign corporation for United States federal income tax purposes. A foreign corporation will be classified as a
passive foreign investment company, or “PFIC”, for United States federal income tax purposes if either (i) 75% or more of its gross
income is passive income or (ii) on average for the taxable year, 50% or more of its assets (by value) produce or are held for the
production of passive income. If H&R were treated as a PFIC, then in the absence of certain elections being made by a U.S.
unitholder with respect to such U.S. unitholder’s Units, any distributions in respect of Units which are treated as “excess
distributions” under the applicable rules and any gain on a sale or other disposition of Units would be treated as ordinary income
and would be subject to special tax rules, including an interest charge. In addition, if H&R were treated as a PFIC, then dividends paid
on Units will not qualify for the reduced 20% U.S. federal income tax rate applicable to certain qualifying dividends received by non-
corporate taxpayers.
The foregoing adverse consequences of PFIC characterization can be mitigated by making certain elections. U.S. unitholders should
consult with their own tax advisors regarding the implications of these rules and the advisability of making one of the applicable PFIC
elections, taking into account their particular circumstances. If H&R were a PFIC, U.S. unitholders would be required to file an annual
return on IRS Form 8621.
U.S. individuals are required to report an interest in any “specified foreign financial asset” if the aggregate value of such assets
owned by the U.S. individual exceeds $50,000.00 (or such higher threshold as may apply to a particular taxpayer pursuant to the
instructions to IRS Form 8938). Units are treated as a specified foreign financial asset for this purpose.
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A holder of Units that is a resident of the U.S. for purposes of the Tax Act will generally be subject to Canadian withholding tax under
Part XIII of the Tax Act at the rate of 25% on the portion of the income of H&R (including, in general, taxable capital gains deemed to
be “TCP gains distributions” for purposes of the Tax Act) paid or credited (whether in cash or in specie) in respect of such Units,
subject to reduction under the Canada-U.S. Tax Convention (the “U.S. Treaty”), if applicable. The withholding rate applicable to a
U.S. unitholder entitled to the benefits of the U.S. Treaty in respect of such income generally would be reduced to 15% in the case of
income arising in Canada and to 0% in the case of income arising outside of Canada. U.S. unitholders may be entitled to a refund of a
portion of such withholding tax if the rate applied by H&R were determined to be excessive. You should consult with your own tax
advisor regarding the advisability of applying for such a refund.
OUTSTANDING UNIT DATA
The beneficial interests in the REIT are represented by two classes of units: Units which are unlimited in number and Special Voting
Units of which a maximum of 13,013,698 may be issued. Each Unit carries a single vote at any meeting of unitholders of the REIT.
Each Special Voting Unit carries a single vote at any meeting of unitholders of the REIT. As at December 31, 2024, there were
262,015,592 Units issued and outstanding and 13,013,698 Special Voting Units outstanding. As at February 4, 2025, there were
262,565,592 Units issued and outstanding and 13,013,698 Special Voting Units outstanding.
In accordance with the unit option plan of the REIT (“Unit Option Plan”), no further options may be granted and upon expiry of any
outstanding options, the pool will automatically decrease. Following expiry of any remaining outstanding options thereunder, the
Unit Option Plan will terminate. As at December 31, 2024, there were options to acquire up to 8,570,810 Units granted and
outstanding and nil options remain available for grant. As at February 4, 2025, there were options to acquire up to 7,264,178 Units
granted and outstanding and nil options remain available for grant.
As at December 31, 2024, the maximum number of incentive units authorized to be granted under H&R’s Incentive Unit Plan was
5,000,000. The REIT has granted 2,077,221 incentive units which remain outstanding, 513,455 have been settled for Units and
2,409,324 incentive units remain available for grant. As at February 4, 2025, there were 2,115,028 incentive units outstanding.
As at December 31, 2024, there were 17,974,186 exchangeable units outstanding of which 13,013,698 exchangeable units are
accompanied by Special Voting Units. As at February 4, 2025, there were 17,424,186 exchangeable units outstanding of which
13,013,698 exchangeable units are accompanied by Special Voting Units.
ADDITIONAL INFORMATION
Additional information relating to H&R, including H&R’s 2023 Annual Information Form, is available on SEDAR+ at
www.sedarplus.com.
SUBSEQUENT EVENT
(a) In January 2025, the REIT sold three Canadian retail properties and its 50% interest in four Canadian retail properties, which
were classified as held for sale as at December 31, 2024, for gross proceeds of approximately $49.8 million.
H&R REIT - MD&A - December 31, 2024
Page 72 of 72
Consolidated financial statements of
H&R REAL ESTATE INVESTMENT TRUST
For the years ended December 31, 2024 and 2023
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated
with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP.
KPMG LLP
Bay Adelaide Centre
333 Bay Street, Suite 4600
Toronto, ON M5H 2S5
Canada
Telephone 416 777 8500
Fax 416 777 8818
INDEPENDENT AUDITOR'S REPORT
To the Unitholders of H&R Real Estate Investment Trust
Opinion
We have audited the consolidated financial statements of H&R Real Estate Investment Trust
(the Entity), which comprise:
the consolidated statements of financial position as at December 31, 2024 and 2023
the consolidated statements of comprehensive income (loss) for the years then ended
the consolidated statements of changes in unitholders' equity for the years then ended
the consolidated statements of cash flows for the years then ended
and notes to the consolidated financial statements, including a summary of material accounting
policy information
(hereinafter referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the
consolidated financial position of the Entity as at December 31, 2024 and 2023, and its
consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with IFRS Accounting Standards as issued by the International Accounting Standards
Board.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the "Auditor's Responsibilities for
the Audit of the Financial Statements" section of our auditor's report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to
our audit of the financial statements in Canada, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Page 2
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial statements for the year ended December 31, 2024.
These matters were addressed in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined the matter described below to be the key audit matter to be communicated in
our auditor's report.
Evaluation of the fair value of investment properties
Description of the matter
We draw attention to Note 1(d)(ii), Note 2(b) and Note 4 of the financial statements. The Entity has
recorded investment properties at fair value for an amount of $7,996,810 thousand. The Entity also
has equity accounted investments of $1,275,549 thousand representing the Entity's share of net
assets of associates and joint ventures. These associates and joint ventures have recorded
investment properties at fair value for an amount of $5,568,922 thousand. The investment
properties are measured at fair value using valuations prepared by either the Entity's internal
valuation team or external independent appraisers. The valuations are based on a number of
methods and significant assumptions, such as capitalization rates, terminal capitalization rates,
discount rates, estimates of future cash flows and market value per unit of measure.
Why the matter is a key audit matter
We identified the evaluation of the fair value of investment properties as a key audit matter. This
matter represented an area of significant risk of material misstatement given the magnitude of
investment properties and the high degree of estimation uncertainty in determining the fair value of
investment properties. In addition, significant auditor judgment and specialized skills and
knowledge were required in performing, and evaluating the results of, our audit procedures due to
the sensitivity of the fair value of investment properties to minor changes in certain significant
assumptions.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
For a selection of investment properties, we assessed the Entity's ability to accurately forecast by
comparing the Entity's forecasted future cash flows to be generated by the investment properties
used in the prior year's estimate of the fair value of investment properties to actual results.
For a selection of investment properties, we compared the forecasted future cash flows used by
Entity's internal valuation team and external independent appraisers to the actual historical cash
flows. We took into account the changes in conditions and events affecting the fair values of the
investment properties to assess the adjustments, or lack of adjustments, made by the Entity's
internal valuation team and external independent appraisers in arriving at those future cash flows.
Page 3
We involved valuations professionals with specialized skills and knowledge, who assisted in
evaluating, for the overall portfolio, the appropriateness of the capitalization rates, terminal
capitalization rates, discount rates and market value per unit of measure used by Entity's internal
valuation team and external independent appraisers. These rates were evaluated by comparing
them to published reports of real estate industry commentators and, where available, the rate and
market value per unit of measure assumptions were compared to recent sales of similar properties
while considering the features of the specific investment properties.
We evaluated the competence, capabilities and objectivity of the external independent appraisers
by:
Inspecting evidence that the appraisers are in good standing with the Appraisal Institute
Considering whether the appraisers have appropriate knowledge in relation to the specific type
of investment properties
Reading the reports of the appraisers which refers to their independence.
Other Information
Management is responsible for the other information. Other information comprises:
the information included in Management's Discussion and Analysis filed with the relevant
Canadian Securities Commissions; and
the information, other than the financial statements and the auditor's report thereon, included in
a document entitled "2024 Annual Report".
Our opinion on the financial statements does not cover the other information and we do not and will
not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit and remain alert
for indications that the other information appears to be materially misstated.
We obtained the information included in Management's Discussion and Analysis filed with the
relevant Canadian Securities Commissions and the information other than the financial statements
and the auditor's report thereon, included in a document entitled "2024 Annual Report" as at the
date of this auditor's report.
If, based on the work we have performed on this other information, we conclude that there is a
material misstatement of this other information, we are required to report that fact in the auditor's
report.
We have nothing to report in this regard.
Page 4
Responsibilities of Management and Those Charged with Governance for the
Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with IFRS Accounting Standards as issued by the International Accounting Standards
Board, and for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, management is responsible for assessing the Entity's ability
to continue as a going concern, disclosing as applicable, matters related to going concern and
using the going concern basis of accounting unless management either intends to liquidate the
Entity or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity's financial reporting
process.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's
report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted
in accordance with Canadian generally accepted auditing standards will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we
exercise professional judgment and maintain professional skepticism throughout the audit.
We also:
Identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Entity's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
Page 5
Conclude on the appropriateness of management's use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Entity's ability to continue
as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor's report. However, future events or conditions
may cause the Entity to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including
the disclosures, and whether the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
Communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
Provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence and communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business units within the group as a basis for forming an
opinion on the group financial statements. We are responsible for the direction, supervision and
review of the audit work performed for the purposes of the group audit. We remain solely
responsible for our audit opinion.
Determine, from the matters communicated with those charged with governance, those matters
that were of most significance in the audit of the financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor's report unless
law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our auditor's report
because the adverse consequences of doing so would reasonably be expected to outweigh the
public interest benefits of such communication.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditor's report is Larry Toste.
Toronto, Canada
February 12, 2025
TABLE OF CONTENTS
Consolidated Statements of Financial Position
1
Consolidated Statements of Comprehensive Income (Loss)
2
Consolidated Statements of Changes in Unitholders’ Equity
3
Consolidated Statements of Cash Flows
4
Notes to the Consolidated Financial Statements
5
1. Basis Of Preparation
5
2. Material Accounting Policy Information
7
3. Real Estate Assets
12
4. Equity Accounted Investments
16
5. Assets And Liabilities Classified As Held For Sale
19
6. Other Assets
19
7. Cash And Cash Equivalents
21
8. Debt
21
9. Exchangeable Units
24
10. Deferred Revenue
24
11. Accounts Payable And Accrued Liabilities
26
12. Derivative Instruments
26
13. Unitholders' Equity
27
14. Accumulated Other Comprehensive Income
30
15. Rentals From Investment Properties
30
16. Finance Costs
31
17. Supplemental Cash Flow Information
31
18. Capital Risk Management
32
19. Risk Management
33
20. Compensation Of Key Management Personnel
36
21. Segment Disclosures
37
22. Income Tax Recovery
39
23. Commitments And Contingencies
40
24. Subsidiaries
41
25. Subsequent Event
41
December 31
December 31
Note
2024
2023
Assets
Real estate assets:
Investment properties
3
$7,996,810
$7,811,543
Properties under development
3
1,010,648
1,074,819
9,007,458
8,886,362
Equity accounted investments
4
1,275,549
1,165,012
Assets classified as held for sale
5
59,880
293,150
Other assets
6
177,246
369,008
Cash and cash equivalents
7
100,354
64,111
$10,620,487
$10,777,643
Liabilities and Unitholders' Equity
Liabilities:
Debt
8
$3,537,384
$3,686,833
Exchangeable units
9
166,800
177,944
Deferred revenue
10
906,363
947,671
Deferred tax liability
22
413,186
437,214
Accounts payable and accrued liabilities
11
304,978
335,606
Liabilities classified as held for sale
5
13,033
—
5,341,744
5,585,268
Unitholders' equity
5,278,743
5,192,375
Commitments and contingencies
23
Subsequent events
9, 13(b), 25
$10,620,487
$10,777,643
See accompanying notes to the consolidated financial statements.
Approved on behalf of the Board of Trustees:
“Donald Clow”
Trustee
“Thomas J. Hofstedter”
Trustee
H&R REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
Page 1 of 41
Note
2024
2023
Rentals from investment properties
15
$816,990 $847,146
Property operating costs
(297,072)
(300,542)
Net operating income
519,918
546,604
Net income from equity accounted investments
4
2,477
145,459
Finance cost - operations
16
(246,829)
(218,152)
Finance income
16
11,577
13,849
Gain on disposal of purchase option
—
30,568
Trust expenses
(20,580)
(24,385)
Fair value adjustment on financial instruments
16
(8,452)
30,555
Fair value adjustment on real estate assets
3
(425,884)
(486,104)
Loss on sale of real estate assets, net of related costs
3
(11,154)
(7,247)
Net income (loss) before income taxes
(178,927)
31,147
Income tax recovery
22
59,213
30,543
Net income (loss)
(119,714)
61,690
Other comprehensive income (loss):
Items that are or may be reclassified subsequently to net income (loss)
14
393,292
(131,202)
Total comprehensive income (loss) attributable to unitholders
$273,578
($69,512)
See accompanying notes to the consolidated financial statements.
H&R REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Comprehensive Income (Loss)
(In thousands of Canadian dollars)
Years ended December 31, 2024 and 2023
Page 2 of 41
UNITHOLDERS' EQUITY
Note
Value of
Units
Accumulated
net income
Accumulated
distributions
Accumulated
other
comprehensive
income
Total
Unitholders' equity, January 1, 2023
$5,124,265
$6,716,522
($6,811,331)
$457,831
$5,487,287
Issuance of Units
1,695
—
—
—
1,695
Net income
—
61,690
—
—
61,690
Distributions to unitholders
13
—
—
(184,372)
—
(184,372)
Distributions in Units
13
136,171
—
(136,171)
—
—
Units repurchased and cancelled
13(d)
(42,723)
—
—
—
(42,723)
Other comprehensive loss
14
—
—
—
(131,202)
(131,202)
Unitholders' equity, December 31, 2023
5,219,408
6,778,212
(7,131,874)
326,629
5,192,375
Issuance of Units
1,413
—
—
—
1,413
Net loss
—
(119,714)
—
—
(119,714)
Distributions to unitholders
13
—
—
(188,623)
—
(188,623)
Distributions in Units
13
157,209
—
(157,209)
—
—
Other comprehensive income
14
—
—
—
393,292
393,292
Unitholders' equity, December 31, 2024
$5,378,030
$6,658,498
($7,477,706)
$719,921
$5,278,743
See accompanying notes to the consolidated financial statements.
H&R REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Changes in Unitholders' Equity
(In thousands of Canadian dollars)
Years ended December 31, 2024 and 2023
Page 3 of 41
Note
2024
2023
Cash provided by (used in):
Operations:
Net income (loss)
($119,714)
$61,690
Finance cost - operations
16
246,829
218,152
Interest paid
(152,813) (169,726)
Items not affecting cash:
Rental income accrued from the Bow and 100 Wynford
10
(93,736)
(92,920)
Net income from equity accounted investments
4
(2,477) (145,459)
Rent amortization of tenant inducements
15
4,574
4,514
Fair value adjustment on real estate assets
3
425,884
486,104
Loss on sale of real estate assets, net of related costs
3
11,154
7,247
Fair value adjustment on financial instruments
16
8,452
(30,555)
Unit-based compensation expense
13(b)
3,906
84
Deferred income tax recovery
22
(60,675)
(32,345)
Change in other non-cash operating items
17
2,686
(12,161)
274,070
294,625
Investing:
Properties under development:
Acquisitions
3, 17
(104,468)
(18,666)
Additions
3, 17
(159,570) (162,273)
Net proceeds on disposition of properties under development
22,089
—
Investment properties:
Net proceeds on disposition of investment properties
330,940
371,900
Acquisitions
3
—
(66)
Redevelopment
3
(22,403)
(7,203)
Capital expenditures
3
(39,588)
(41,168)
Leasing expenses and tenant inducements
3
(6,629)
(4,747)
Contributions to equity accounted investments
(25,432)
(36,988)
Distributions received from equity accounted investments
49,738
44,398
Advances of mortgages receivable
6
(36,004)
(16,008)
Repayments of mortgages receivable
6
80,641
52,864
Restricted cash
6
83,838
(69,181)
173,152
112,862
Financing:
Unsecured term loans
8
— (125,000)
Lines of credit
8
31,444
292,210
Mortgages payable:
New mortgages payable
8
—
20,361
Net advances
8
2,283
—
Principal repayments
8
(160,146) (144,534)
Redemption of debentures payable
8
(350,000) (250,000)
Proceeds from issuance of debentures payable, net
8
248,800
—
Proceeds from issuance of Units
—
(13)
Units repurchased and cancelled
13(d)
—
(42,723)
Cash distributions paid to unitholders
17
(183,360) (170,564)
(410,979) (420,263)
Increase (decrease) in cash and cash equivalents
36,243
(12,776)
Cash and cash equivalents, beginning of year
7
64,111
76,887
Cash and cash equivalents, end of year
7
$100,354
$64,111
See note on supplemental cash flow information (note 17).
See accompanying notes to the consolidated financial statements.
H&R REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
Years ended December 31, 2024 and 2023
Page 4 of 41
H&R Real Estate Investment Trust (the “REIT”) is an unincorporated open-ended trust domiciled in Canada. The REIT owns, operates
and develops residential and commercial properties across Canada and in the United States. The REIT’s units (“Units”) are listed and
posted for trading on the Toronto Stock Exchange (“TSX”) under the symbol HR.UN. The principal office and centre of administration
of the REIT is located at 3625 Dufferin Street, Suite 500, Toronto, Ontario M3K 1N4. Unitholders of the REIT participate pro rata in
distributions and, in the event of termination of the REIT, participate pro rata in the net assets remaining after satisfaction of all
liabilities.
1. Basis of preparation:
(a) Statement of compliance
These consolidated financial statements have been prepared in accordance with IFRS Accounting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”) and using accounting policies described herein.
The consolidated financial statements were approved by the Board of Trustees of the REIT (the “Board”) on February 12, 2025.
(b) Functional currency and presentation
These consolidated financial statements are presented in Canadian dollars, except where otherwise stated, which is the REIT’s
functional currency. All financial information has been rounded to the nearest thousand Canadian dollar.
The REIT presents its consolidated statements of financial position based on the liquidity method, where all assets and liabilities are
presented in ascending order of liquidity.
(c) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for the following items in the
consolidated statements of financial position which have been measured at fair value:
(i)
Real estate assets;
(ii) Assets classified as held for sale;
(iii) Derivative instruments;
(iv) Liabilities for cash-settled unit-based compensation; and
(v) Exchangeable units.
(d) Use of estimates and judgements
The preparation of these consolidated financial statements requires management to make judgements, estimates and assumptions
that affect the application of accounting policies, the reported amounts of assets, liabilities, income and expenses and disclosure of
contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates.
i.
Use of estimates
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in
the period in which the estimates are revised and in any future periods affected. Information about assumptions and
estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are
included in the fair value of real estate assets (note 3).
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 5 of 41
ii.
Use of Judgements
The critical judgements made in applying accounting policies that have the most significant effect on the amounts recognized
in these consolidated financial statements are as follows:
•
Valuations of real estate assets
Real estate assets, which consist of investment properties and properties under development, are carried on the
consolidated statements of financial position at fair value, as determined by either external independent appraisers or
by the REIT’s internal valuation team. The valuations are based on a number of methods and significant assumptions,
such as capitalization rates, terminal capitalization rates, discount rates, estimates of future cash flows and market
values per unit of measure. Valuation of real estate assets is one of the principal estimates and uncertainties of these
consolidated financial statements. Refer to note 3 for further information on estimates and significant assumptions
made in the determination of the fair value of real estate assets. Judgement is applied in determining whether certain
costs are additions to the carrying value of the real estate assets, identifying the point at which practical completion of
the property occurs and identifying the directly attributable borrowing costs to be included in the carrying value of the
development properties.
•
Leases
The REIT makes judgements in determining whether certain leases, in particular those tenant leases with long
contractual terms and long-term ground leases where the REIT is the lessor, are operating or finance leases. The REIT
has determined that all of its leases, where the REIT is the lessor, are operating leases.
•
Income taxes
The REIT is a mutual fund trust and a real estate investment trust pursuant to the Income Tax Act (Canada) (“Tax Act”).
Under current tax legislation, the REIT is not liable to pay Canadian income tax provided that its taxable income is fully
distributed to unitholders each year. The REIT is a real estate investment trust if it meets prescribed conditions under
the Tax Act relating to the nature of its assets and revenue (the "REIT Conditions"). The REIT has reviewed the REIT
Conditions and has assessed its interpretation and application to the REIT's assets and revenue, and the REIT has
determined that it qualifies as a real estate investment trust pursuant to the Tax Act. The REIT expects to continue to
qualify as a real estate investment trust; however, should it no longer qualify, the REIT would be subject to tax on its
taxable income distributed to unitholders.
•
Impairment of equity accounted investments
The REIT determines at each reporting date whether there is any objective evidence that the equity accounted
investments are impaired. If there is an indication of impairment in respect of the REIT’s investment in associates or
joint ventures, the whole carrying value of the investment will be tested for impairment as a single asset under IAS 36,
Impairment of Assets by comparing the recoverable amount with its carrying value. Any resulting impairment loss will
be charged against the carrying value of the investment in associates or joint ventures and recognized in net income.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 6 of 41
2.
Material accounting policy information:
The accounting policies set out below have been applied consistently for all periods presented in these consolidated financial
statements.
(a) Basis of consolidation:
These consolidated financial statements include the accounts of all entities in which the REIT holds a controlling interest. The REIT
carries out a portion of its activities through joint operations and records its proportionate share of assets, liabilities, revenues,
expenses and cash flows of all joint operations in which it participates. All material intercompany transactions and balances have
been eliminated upon consolidation.
(b) Investment properties:
The REIT’s investment properties are held to earn rental income or for capital appreciation, or both, but not for sale in the ordinary
course of business. As such, investment properties are measured at fair value, under IAS 40, Investment Property (“IAS 40”) using
valuations prepared by either the REIT’s internal valuation team or external independent appraisers.
The REIT performs an assessment of each investment property acquired to determine whether the acquisition is to be accounted for
as an asset acquisition or a business combination. A transaction is considered to be a business combination if the acquired property
meets the definition of a business under IFRS 3, Business Combinations. The REIT expenses transaction costs on business
combinations and capitalizes transaction costs on asset acquisitions.
For asset acquisitions, investment properties are initially recorded at cost, comprising their purchase price and any directly
attributable expenditures. Subsequent to initial recognition, the REIT uses the fair value model to account for investment properties.
Under the fair value model, investment properties are recorded at fair value, determined based on available market evidence at each
reporting date. The related gain or loss in fair value is recognized in net income in the year in which it arises.
Subsequent capital expenditures are capitalized to investment properties only when it is probable that future economic benefits of
the expenditure will flow to the REIT and the cost can be measured reliably. All other repairs and maintenance costs are expensed
when incurred. Leasing costs, such as commissions incurred in negotiating tenant leases, are included in the carrying amount of the
investment properties.
Gains or losses from the disposal of investment properties are determined as the difference between the net disposal proceeds and
the carrying amount of the investment property and are recognized in net income in the year of disposal.
(c) Properties under development:
Properties under development for future use as investment property are accounted for as investment property under IAS 40. Costs
eligible for capitalization to properties under development are initially recorded at cost, and subsequent to initial recognition are
accounted for using the fair value method. At each reporting date, properties under development are recorded at fair value based on
available market evidence. The related gain or loss in fair value is recognized in net income in the year in which it arises.
The cost of properties under development includes direct development costs, realty taxes and borrowing costs that are directly
attributable to the development. Borrowing costs associated with direct expenditures on properties under development are
capitalized. Borrowing costs relating to the purchase of a site or property acquired for redevelopment are also capitalized. The
amount of borrowing costs capitalized is determined first by reference to borrowing specific to the project, where relevant, and
otherwise by applying a weighted average cost of borrowings to eligible expenditures after adjusting for borrowings associated with
other qualifying assets until substantially complete. Borrowing costs are capitalized from the commencement of the development
until the date of practical completion. The capitalization of borrowing costs is suspended if there are prolonged periods when
development activity is interrupted.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 7 of 41
Upon practical completion of a development, the development property is transferred to investment properties at the fair value on
the date of practical completion. The REIT considers practical completion to have occurred when the property is capable of operating
in the manner intended by management. Generally, this occurs upon completion of construction and receipt of all necessary
occupancy and other material permits. Where the REIT has pre-leased space as of or prior to the start of the development and the
lease requires the REIT to construct tenant improvements which enhance the value of the property, practical completion is
considered to occur on completion of such improvements.
(d) Income taxes:
Income tax (expense) recovery comprises current and deferred tax. Current tax and deferred tax are recognized in net income except
to the extent that they relate to a business combination, or items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction
that is not a business combination and that affects neither accounting nor taxable net income, and differences relating to
investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable
future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the
laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority
on the same taxable entity, or on different tax entities, if such entities intend to settle current tax liabilities and assets on a net basis
or the entities’ tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is
probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
The REIT is a mutual fund trust and a real estate investment trust pursuant to the Tax Act. Under current tax legislation, a real estate
investment trust is entitled to deduct distributions from taxable income such that it is not liable to pay income tax provided that its
taxable income is fully distributed to unitholders. The REIT intends to continue to qualify as a real estate investment trust and to
make distributions not less than the amount necessary to ensure that the REIT will not be liable to pay income taxes. The REIT
qualified as a real estate investment trust throughout 2024 and the 2023 comparative year.
For financial statement reporting purposes, the tax deductibility of the REIT’s distributions is treated as an exemption from taxation
as the REIT has distributed and is committed to continue distributing all of its taxable income to its unitholders.
(e) Unit-based compensation:
The REIT has a unit option plan and an incentive unit plan available for REIT trustees, officers, employees and consultants as
disclosed in note 13(b). These plans are considered to be a cash-settled liability under IFRS 2, Share-based Payment and as a result
are measured at each reporting period and at settlement date at their fair value as defined by IFRS. The fair value of the amount
payable to participants in respect of the unit option plan and incentive unit plan is recognized as an expense with a corresponding
increase or decrease in liabilities, over the period that the employees unconditionally become entitled to payment. Any change in the
fair value of the liability is recognized as a component of trust expenses.
(f) Foreign currency translation:
The REIT accounts for its investment in H&R REIT (U.S.) Holdings Inc. (“U.S. Holdco”), a wholly owned subsidiary of the REIT in the
United States (“foreign operations”), as a U.S. dollar functional currency foreign operation. Assets and liabilities of foreign operations
are translated into Canadian dollars at the exchange rates in effect at the dates of the consolidated statements of financial position
and revenue and expenses are translated at the average exchange rates for the reporting periods.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 8 of 41
The foreign currency translation adjustment is recorded as a separate component of accumulated other comprehensive income until
there is a reduction in the REIT’s net investment in the foreign operations. The U.S. dollar denominated lines of credit are designated
as a hedge of the REIT’s investment in self-sustaining operations. Accordingly, the accumulated unrealized gains or losses arising
from the translation of these obligations are recorded as a foreign currency translation adjustment in accumulated other
comprehensive income.
Assets and liabilities denominated in a currency other than the functional currency are translated into the functional currency at the
exchange rates in effect at the dates of the consolidated statements of financial position and revenue and expenses are translated at
the actual exchange rate on the date incurred, with any gain (loss) recorded in net income, unless the asset or liability is designated
as a hedge.
(g) Units:
Under IAS 32, Financial Instruments: Presentation (“IAS 32”), puttable instruments, such as the Units, are generally classified as
financial liabilities unless the exemption criteria are met for equity classification. As a result of the REIT receiving consent of its
unitholders to modify the REIT’s Declaration of Trust to eliminate the mandatory distribution and leave distributions to the discretion
of the trustees and the ability of the trustees to fund distributions by way of issuing additional Units, the REIT met the exemption
criteria under IAS 32 for equity classification. Nevertheless, the Units are not considered ordinary units under IAS 33, Earnings Per
Share, and therefore an income per unit calculation is not presented.
(h) Investment in associates and joint ventures:
An associate is an entity over which the REIT has significant influence. Significant influence is the power to participate in an entity’s
financial and operating policy decisions, which is presumed to exist when an investor holds 20 percent or more of the voting power
of another entity. An investment is considered an associate when significant influence exists but there is no joint control over the
investment.
The REIT considers investments in joint arrangements to be joint ventures when the REIT jointly controls one or more investment
properties with another party and has rights to the net assets of the arrangements. This occurs when the joint arrangement is
structured through a separate vehicle, such as a partnership, with separation maintained.
The REIT’s interests in its associates and joint ventures (collectively, “equity accounted investments”) are accounted for using the
equity method and are carried on the consolidated statements of financial position at cost, adjusted for the REIT’s proportionate
share of post-acquisition changes in the net assets, less any identified impairment loss. The REIT’s share of profits and losses in
equity accounted investments is recognized in net income from equity accounted investments in the consolidated statements of
comprehensive income (loss). The REIT’s other comprehensive income (loss) includes its share of the equity accounted investments’
other comprehensive income (loss).
An associate or a joint venture is considered to be impaired if there is objective evidence of impairment as a result of one or more
events that occurred after the initial recognition of the associate or joint venture and that event has a negative impact on the future
cash flows of the associate or joint venture that can be reliably estimated.
(i) Joint operations:
The REIT considers investments in joint arrangements to be joint operations when the REIT makes operating, financial and strategic
decisions over one or more investment properties jointly with another party and has direct rights to the assets and obligations for
the liabilities relating to the arrangement. When the arrangement is considered to be a joint operation, the REIT will include its
proportionate share of the underlying assets, liabilities, revenue and expenses in its financial results.
(j) Levies:
Under IFRS Interpretations Committee Interpretation 21, Levies (“IFRIC 21”) realty taxes payable by the REIT are considered levies.
Based on the guidance of IFRIC 21, the REIT recognizes the full amount of annual U.S. realty tax liabilities at the point in time when
the realty tax obligation is imposed.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 9 of 41
(k) Revenue from contracts with customers:
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) contains a single, control-based model that applies to contracts with
customers and provides two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based
five-step analysis of transactions to determine whether, how much and when revenue is recognized.
The REIT earns revenue from its tenants from various sources consisting of: base rent for the use of space leased, recoveries of
property tax and property insurance, and service revenue from utilities, cleaning and property maintenance costs.
Revenue from lease components is accounted for in accordance with IFRS 16, Leases and recognized on a straight-line basis over the
lease term and includes the recovery of property taxes and insurance. Revenue recognition commences when a tenant has the right
to use the premises.
Revenue related to the services component of the REIT’s leases is accounted for in accordance with IFRS 15. These services consist
primarily of utilities, cleaning and property maintenance costs for which the revenue is recognized over time, typically as the costs
are incurred, which is when the services are provided.
(l) Financial instruments:
IFRS 9, Financial Instruments (“IFRS 9”) requires financial assets to be classified and measured based on the business model in which
they are managed and the characteristics of their contractual cash flows. IFRS 9 contains three principal classification categories for
financial assets: measured at amortized cost, fair value through other comprehensive income and fair value through profit or loss
(“FVTPL”).
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated at FVTPL:
(i)
It is held within a business model whose objective is to hold assets to collect contractual cash flows; and
(ii) Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
All of the REIT’s financial assets not classified as measured at amortized cost, as described above, are measured at FVTPL.
Under IFRS 9, the change in fair value of financial liabilities, carried at FVTPL, attributable to changes in the credit risk of the liability is
presented in other comprehensive income, and the remaining amount of change in fair value is presented in profit or loss, unless the
treatment of the effects of the changes in the credit risk of the liability would create an accounting mismatch in profit or loss.
For impairment of financial assets, IFRS 9 has a forward-looking ‘expected credit loss’ (“ECL”) model. A provision for ECL is recognized
at each balance sheet date for all financial assets measured at amortized cost.
The REIT applies the practical expedient to determine ECL on accounts receivable using a provision matrix based on historical credit
loss experiences adjusted for current and forecasted future economic conditions to estimate lifetime ECL. The other ECL models
applied to other financial assets also require judgement, assumptions and estimations on changes in credit risks, forecasts of future
economic conditions and historical information on the credit quality of the financial asset.
Impairment losses are recorded in finance cost - operations in the consolidated statements of comprehensive income with the
carrying amount of the financial asset or group of financial assets reduced through the use of impairment allowance accounts.
IFRS 9 also includes a general hedge accounting standard which aligns hedge accounting more closely with risk management. The
REIT’s risk management strategy is disclosed in note 19. The U.S. dollar denominated line of credit is designated as a hedge of the
REIT’s investment in self-sustaining foreign operations.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 10 of 41
(m) Accounting standards effective in the year:
The REIT adopted Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants - Amendments to
IAS 1, as issued in 2020 and 2022. The amendments apply retrospectively for annual reporting periods beginning on or after January
1, 2024. They clarify certain requirements for determining whether a liability should be classified as current or non-current and
require new disclosures for non-current liabilities that are subject to covenants within 12 months after the reporting period.
The adoption of the amendments did not have any material impact on the REIT’s financial statements.
(n) Future effective standards:
IFRS 18: Presentation and Disclosure in Financial Statements will replace IAS 1: Presentation of Financial Statements and applies for
annual reporting periods beginning on or after January 1, 2027. The new standard introduces the following key new requirements:
(i)
Entities are required to classify all income and expenses into five categories in the statement of profit or loss, namely the
operating, investing, financing, discontinued operations and income tax categories. Entities are also required to present a
newly-defined operating profit subtotal. Entities' net profits will not change;
(ii) Management-defined performance measures (“MPMs”) are disclosed in a single note in the financial statements; and
(iii) Enhanced guidance is provided on how to group information in the financial statements.
In addition, all entities are required to use the operating profit subtotal as the starting point for the statement of cash flows when
presenting operating cash flows under the indirect method.
The REIT is currently assessing the impact of the new standard, particularly with respect to the structure of the REIT's statement of
profit or loss, the statement of cash flows and the additional disclosures required for MPMs. The REIT is also assessing the impact on
how information is grouped in the financial statements, including items currently labelled as "other".
The IASB issued amendments to IFRS 9 and IFRS 7: Financial Instruments: Disclosures in May 2024. These amendments relate to
classification of financial assets and accounting for settlement by electronic payments in the context of the classification and
measurement requirements in IFRS 9. The potential impact may include, but is not limited to, a change in timing of recognition and
derecognition of financial instruments in situations where settlement of a financial instrument with another takes more than a day.
Similarly, a change may be required for entities that derecognize both trade payable and cash on the payment initiation date even if
the creditor has not yet received the cash. However, an accounting policy choice is available for derecognizing certain financial
liabilities that are settled using an electronic payment system, subject to certain criteria being met. The amendments will be
effective from January 1, 2026. The REIT is currently assessing the impact of the new standard, but it is not expected to have a
material impact on the REIT's consolidated financial statements.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 11 of 41
3. Real estate assets:
The following is a summary of the changes in real estate assets for the years ended December 31, 2024 and December 31, 2023:
December 31, 2024
December 31, 2023
Note
Investment
Properties(1)
Properties
Under
Development
Investment
Properties(1)
Properties
Under
Development
Opening balance, beginning of year
$7,811,543
$1,074,819
$8,799,317
$880,778
Acquisitions, including transaction costs
—
150,742
66
18,666
Dispositions
(110,146)
(28,273)
(128,357)
—
Operating capital:
Capital expenditures
39,588
—
41,168
—
Leasing expenses and tenant inducements
6,629
—
4,747
—
Development capital:
Redevelopment
22,403
—
7,203
—
Additions to properties under development (including capitalized interest)
—
169,674
—
170,246
Amortization of tenant inducements and straight-lining of contractual rents
13,149
—
6,985
—
Transfer of properties under development to equity accounted investments
4
—
(28,790)
—
—
Transfer of real estate assets to assets classified as held for sale
(59,880)
—
(293,150)
—
Transfer of investment properties to properties under development
(92,932)
92,932
—
—
Transfer of properties under development that have reached practical
completion to investment properties
407,030
(407,030)
—
—
Change in right-of-use assets(2)
17
—
(28,550)
—
(965)
Fair value adjustment on real estate assets
(387,335)
(38,549)
(508,104)
22,000
Change in foreign exchange
346,761
53,673
(118,332)
(15,906)
Closing balance, end of year
$7,996,810
$1,010,648
$7,811,543
$1,074,819
(1)
The REIT legally sold the Bow and 100 Wynford in October 2021 and August 2022, respectively (note 10). However, as the transactions did not meet
the criteria of a transfer of control under IFRS 15, $1,040,254 is included in the table above as at December 31, 2024 (December 31, 2023 -
$1,085,919).
(2)
In January 2024, the REIT exercised an option to acquire a 100% freehold interest in two residential land parcels resulting in the derecognition of the
right-of-use assets and release from the corresponding lease liabilities (note 11). Therefore, as at December 31, 2024, the right-of-use assets had a
balance of U.S. nil (December 31, 2023 - U.S. $21,629) and the Canadian dollar equivalent of this amount is nil (December 31, 2023 - $28,550).
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 12 of 41
Real estate asset acquisitions:
During the year ended December 31, 2024, the REIT:
(a) did not acquire any investment properties (year ended December 31, 2023 - did not acquire any investment properties);
(b) acquired a 75% interest in one U.S. land parcel for future residential development (year ended December 31, 2023 - acquired a
50% interest in one U.S. land parcel for future residential development); and
(c) exercised an option to acquire a 100% freehold ownership interest in two residential land parcels. The REIT previously had a
leasehold interest in both land parcels, see footnote 2 of table above (year ended December 31, 2023 - did not exercise any
options to acquire ownership interest in land parcels).
The results of operations for acquisitions are included in the consolidated financial statements from the date of acquisition. The
following table summarizes the purchase price, inclusive of transaction costs, of the assets as at the respective dates of acquisition:
December 31
December 31
2024
2023
Assets
Properties under development
$150,742
$18,666
During the year ended December 31, 2024, the REIT incurred additional costs of nil (year ended December 31, 2023 - $66) in respect
of prior year acquisitions which are not included in the above table.
Real estate asset dispositions:
During the year ended December 31, 2024, the REIT sold the below noted investment properties, one U.S. property under
development and a 50% interest in one Canadian property under development. The REIT recognized a loss on sale of real estate
assets, net of related costs of $11,154. Included in the loss on sale of real estate assets are mortgage prepayment costs of $5,192.
Property
Segment
Ownership
Interest Sold
1604 & 1720 Willow St., Campbell River, BC
Industrial
50.0 %
10645 & 10625 State Bridge Rd., Alpharetta, GA
Retail
100.0 %
1739 & 1741 Buford Hwy., Cumming, GA
Retail
100.0 %
1764 & 1776 Kelly Douglas Rd., Kamloops, BC
Industrial
50.0 %
450 Mackenzie Ave. & 265 Fifth Ave. S., Williams Lake, BC
Industrial
50.0 %
1600 Boul. Lionel Boulet, Varennes, QC
Industrial
50.0 %
25 Dockside Dr., Toronto, ON
Office
100.0 %
510 E. Courtland St., Morton, IL
Industrial
100.0 %
3777 Kingsway, Burnaby, BC
Office
50.0 %
4750 101 St. N.W., Edmonton, AB
Industrial
50.0 %
7900 Airport Rd., Brampton, ON
Industrial
50.0 %
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 13 of 41
During the year ended December 31, 2023, the REIT sold the below noted investment properties and did not sell any properties
under development. The REIT recognized a loss on sale of real estate assets, net of related costs of $7,247.
Property
Segment
Ownership
Interest Sold
2611-3rd Ave. S.E., Calgary, AB
Office
50.0 %
749 Douglas Fir Rd., Sparwood, BC
Industrial
50.0 %
160 Elgin St., Ottawa, ON
Office
100.0 %
9331-48th St., Edmonton, AB
Industrial
50.0 %
225 Joseph Casavant Ave., Beauport, QC
Retail
100.0 %
1 Boul. Bouthillier, Rosemere, QC
Retail
100.0 %
7277 St. Jacques St., Montreal, QC
Retail
100.0 %
5035 Boul. Cousineau, Saint-Hubert, QC
Retail
100.0 %
5901 E. Fowler Ave., Temple Terrace, FL
Office
100.0 %
4845 & 4865 Alabama Rd., Roswell, GA
Retail
100.0 %
7575 Brewster Ave., Philadelphia, PA
Industrial
100.0 %
9330 Amberton Pkwy., Dallas, TX
Office
100.0 %
10755 Finning Front, Fort St. John, BC
Industrial
50.0 %
Fair value disclosure:
The estimated fair values of the REIT’s real estate assets are based on the following methods and significant assumptions:
(i) Discounted cash flow analyses which are based upon, among other things, future cash inflows in respect of rental income from
current leases and assumptions about rental income from future leases reflecting market conditions at the reporting period, less
future cash outflows in respect of such leases and capital expenditures for the property utilizing appropriate discount rates and
terminal capitalization rates, generally over a minimum term of 10 years;
(ii) The direct capitalization method which calculates fair value by applying a capitalization rate to future cash flows based on
stabilized net operating income; and
(iii) The comparable sales approach which estimates fair value based on the market value per unit of measure which is established
by recent sales activity in the same or similar markets.
During the year ended December 31, 2024, certain properties were valued by external independent appraisers or brokers. When an
external independent appraisal is obtained, the REIT's internal valuation team assesses the significant assumptions used in the
appraisal and holds discussions with the external independent appraiser on the reasonableness of their assumptions. External
independent appraisals received throughout the year represent 16.3% and 41.5% of the fair value of investment properties and
properties under development, respectively, as at December 31, 2024 (year ended December 31, 2023 - 16.5% and 0.0%,
respectively).
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 14 of 41
The REIT utilizes external industry sources to determine a range of capitalization, discount and terminal capitalization rates. To the
extent that the ranges of these externally provided rates change from one reporting period to the next, the fair value of the
investment properties is adjusted accordingly.
The following table highlights the significant assumptions used in determining the fair value of the REIT’s investment properties:
Weighted Average
Capitalization Rates(1)
Weighted Average
Discount Rates(2)
Weighted Average
Terminal Capitalization Rates(1)(2)
Canada
United
States
Total
Canada
United
States
Total
Canada
United
States
Total
December 31, 2024(3)
6.17 %
5.69 %
5.85 %
6.92 %
7.58 %
7.12 %
6.79 %
7.21 %
6.95 %
December 31, 2023
5.79 %
5.84 %
5.82 %
6.73 %
7.55 %
6.96 %
6.48 %
7.24 %
6.74 %
(1)
Excludes the Bow and 100 Wynford as these properties were legally sold in October 2021 and August 2022, respectively (note 10). The discount rate is
used to adjust the fair value of the investment properties over the remaining life of the respective leases.
(2)
Excludes the REIT’s residential segment as these properties are valued using the direct capitalization method.
(3)
Excludes properties advancing through the process of rezoning which have been valued in accordance with method (iii) above.
Fair value sensitivity:
The REIT’s investment properties are classified as level 3 under the fair value hierarchy (note 19(d)), as the inputs in the valuations of
these investment properties are not based on observable market data. The following table provides a sensitivity analysis for the
weighted average capitalization rate applied as at December 31, 2024:
Capitalization Rate
Sensitivity
Increase (Decrease)
Capitalization Rate
Fair Value of
Investment Properties
Fair Value
Variance
% Change
(0.75%)
5.10 %
$
7,372,164
$
945,149
14.71 %
(0.50%)
5.35 %
$
7,027,671
$
600,656
9.35 %
(0.25%)
5.60 %
$
6,713,935
$
286,920
4.46 %
December 31, 2024
5.85 %
$
6,427,015 (1) (2)
$
—
—
0.25%
6.10 %
$
6,163,613
$
(263,402)
(4.10) %
0.50%
6.35 %
$
5,920,951
$
(506,064)
(7.87) %
0.75%
6.60 %
$
5,696,672
$
(730,343)
(11.36) %
(1)
Excludes the Bow and 100 Wynford as these properties were legally sold in October 2021 and August 2022, respectively (note 10).
(2)
Excludes four office properties and one industrial property advancing through the process of rezoning valued at $529,541.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 15 of 41
4. Equity accounted investments:
The REIT has entered into a number of arrangements with other parties for the purpose of jointly developing, owning and operating
investment properties. In order to determine how these arrangements should be accounted for, the REIT has assessed the structure of
the arrangement and whether the REIT has joint control over the operations of such properties. The REIT’s arrangements fall into three
categories: (i) joint operations, where the REIT has joint control over the operations and the REIT has rights to the assets and obligations
for the liabilities of the properties; (ii) joint ventures, where the REIT has joint control over the operations, where each investment is
structured as a separate vehicle and the REIT has rights to the net assets of the entities; and (iii) investments in associates, where the
REIT has significant influence over the investment but does not have joint control over the operations. Joint operations are accounted
for by including the REIT’s proportionate share of the underlying assets, liabilities, revenue and expenses in its financial results. Joint
ventures and investments in associates are accounted for using the equity method.
Ownership interest
December 31
December 31
Description of equity accounted investments
Location
Operating segment
2024
2023
Investments in joint ventures:(1)
Hercules Project
United States
Residential
31.7 %
31.7 %
Shoreline
United States
Residential
31.2 %
31.2 %
560 & 600 Slate Drive
Canada
Industrial
50.0 %
50.0 %
170 Butts Street
United States
Industrial
50.5 %
50.5 %
Central Pointe
United States
Residential
50.0 %
50.0 %
Sunny Creek
United States
Residential
33.3 %
33.3 %
Investments in associates:(2)
Jackson Park
United States
Residential
50.0 %
50.0 %
ECHO Realty LP ("ECHO")
United States
Retail
33.2 %
33.1 %
Lantower Residential REDT (No. 1) JV LP ("REDT JV LP")
United States
Residential
29.1 %
— %
(1)
Where the REIT has joint control over the operations, each investment is structured as a separate vehicle and the REIT has rights to the net assets of the
entities.
(2)
Where the REIT has significant influence over the investment but does not have joint control over the operations.
In February 2024, the REIT created Lantower Residential Real Estate Development Trust (No. 1) (the “REDT”) which completed an
initial public offering in April 2024. The REDT raised U.S. $52,000 of equity capital from investors to acquire an interest in and fund
the development of two residential development projects in Florida (the “REDT Projects”), totalling 601 residential rental units, that
had been wholly-owned by a subsidiary of the REIT. The REIT contributed the land at a cost of U.S. $21,326 to REDT JV LP, a joint
venture with the REDT, in exchange for a 29.1% ownership interest in the REDT JV LP (the Canadian dollar equivalent of this amount
is $28,790 (note 3)). The REIT retains an option to acquire the REDT Projects, subject to approval by the investors of the REDT.
The REIT concluded that its investment in REDT JV LP is an “investment in associate” because all relevant decisions of REDT JV LP
(which are focused on development, construction, project management, and leasing) are dependent on the approval of the
independent trustees of the REDT, which provides the REDT the practical ability to direct these relevant activities, and therefore
precludes the REIT from having control or joint control of this investment despite its 29.1% indirect ownership interest.
During the year ended December 31, 2023, the REIT acquired Sunny Creek, a joint venture that holds one residential property under
development.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 16 of 41
The REIT has determined that it is appropriate to aggregate each of the investments in joint ventures, as the individual investments
are not individually material.
The following tables summarize the total amounts of the financial information of the equity accounted investments and reconciles
the summarized financial information to the REIT’s share of net assets in these arrangements as at December 31, 2024 and
December 31, 2023:
Equity accounted investments in:
.......................................Associates.......................................
Joint Ventures(1)
Total
ECHO
Jackson Park
REDT JV LP
December 31, 2024
Investment properties(2)
$2,618,312
$2,484,000
$—
$466,610
$5,568,922
Properties under development
109,618
—
81,978
347,843
539,439
Other assets
89,422
3,946
5,963
3,467
102,798
Cash and cash equivalents
51,953
11,342
34,248
17,653
115,196
Debt
(1,167,032)
(1,429,782)
—
(285,871)
(2,882,685)
Accounts payable and accrued liabilities
(58,272)
(16,047)
(5,225)
(16,365)
(95,909)
Lease liabilities(2)
(89,828)
—
—
—
(89,828)
Non-controlling interest
(61,754)
—
—
—
(61,754)
Net assets
1,492,419
1,053,459
116,964
533,337
3,196,179
REIT's share of net assets
$504,596
$527,106
$34,993
$208,854
$1,275,549
Equity accounted investments in:
..........................................Associates..........................................
Joint Ventures(1)
Total
ECHO
Jackson Park
REDT JV LP
December 31, 2023
Investment properties(2)
$2,590,479
$2,277,690
$—
$458,000
$5,326,169
Properties under development
88,199
—
—
256,961
345,160
Other assets
53,344
3,810
—
6,845
63,999
Cash and cash equivalents
29,387
10,621
—
46,160
86,168
Debt
(1,033,828)
(1,308,673)
—
(301,917)
(2,644,418)
Accounts payable and accrued liabilities
(51,495)
(15,603)
—
(11,685)
(78,783)
Lease liabilities(2)
(94,437)
—
—
—
(94,437)
Non-controlling interest
(58,630)
—
—
—
(58,630)
Net assets
1,523,019
967,845
—
454,364
2,945,228
REIT's share of net assets
$504,418
$483,923
$—
$176,671
$1,165,012
(1)
See the above table “Description of equity accounted investments” for the composition of the REIT’s investments in joint ventures.
(2)
As at December 31, 2024, the total fair value of investment properties within equity accounted investments, net of the lease liabilities, was $5,479,094
(December 31, 2023 - $5,231,732).
ECHO reports its financial position to the REIT one month in arrears due to time constraints on its reporting. Therefore, the above
amounts include ECHO’s financial information as at November 30, 2024 and November 30, 2023, respectively.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 17 of 41
The following tables summarize the total amounts of the financial information of the equity accounted investments and reconciles
the summarized financial information to the REIT’s share of net income (loss) in these arrangements for the year ended December
31, 2024 and the year ended December 31, 2023:
Net income (loss) from equity accounted investments in:
Year ended December 31, 2024
.........................Associates........................
Joint Ventures(1)
Total
ECHO
Jackson Park
REDT JV LP
Rentals from investment properties
$235,310
$133,927
$—
$33,297
$402,534
Property operating costs
(51,162)
(40,140)
(531)
(14,484)
(106,317)
Net income from equity accounted investments
1,294
—
—
—
1,294
Finance income
1,130
—
1,689
47
2,866
Finance cost - operations
(60,102)
(47,302)
—
(19,405)
(126,809)
Trust expenses
(15,132)
—
(242)
(48)
(15,422)
Fair value adjustment on financial instruments
(1,945)
—
—
(1,420)
(3,365)
Fair value adjustment on real estate assets
(170,007)
1,281
10,148
(15,838)
(174,416)
Gain (loss) on sale of real estate assets, net of related costs
(3,009)
—
—
(5)
(3,014)
Gain on foreign exchange
—
—
2,942
—
2,942
Income tax expense
(286)
(32)
—
(307)
(625)
Net income (loss)
(63,909)
47,734
14,006
(18,163)
(20,332)
Net income attributable to non-controlling interest
(3,777)
—
—
—
(3,777)
Net income (loss) attributable to owners
(67,686)
47,734
14,006
(18,163)
(24,109)
REIT's share of net income (loss) attributable to unitholders
($22,504)
$23,867
$4,076
($2,962)
$2,477
Net income (loss) from equity accounted investments in:
Year ended December 31, 2023
..............................Associates.............................
Joint Ventures(1)
Total
ECHO
Jackson Park
REDT JV LP
Rentals from investment properties
$229,384
$129,172
$—
$29,998
$388,554
Property operating costs
(50,051)
(38,861)
—
(15,924)
(104,836)
Net income from equity accounted investments
1,289
—
—
—
1,289
Finance income
930
—
—
69
999
Finance cost - operations
(57,772)
(46,490)
—
(19,986)
(124,248)
Trust expenses
(14,586)
—
—
(38)
(14,624)
Fair value adjustment on financial instruments
1,025
—
—
1,658
2,683
Fair value adjustment on real estate assets
(92,272)
287,510
—
(70,346)
124,892
Gain (loss) on sale of real estate assets, net of related costs
(7,617)
—
—
1,053
(6,564)
Income tax expense
(151)
(18)
—
—
(169)
Net income (loss)
10,179
331,313
—
(73,516)
267,976
Net income attributable to non-controlling interest
(3,787)
—
—
—
(3,787)
Net income (loss) attributable to owners
6,392
331,313
—
(73,516)
264,189
REIT's share of net income (loss) attributable to unitholders
$2,117
$165,656
$—
($22,314)
$145,459
(1)
See the above table “Description of equity accounted investments” for the composition of the REIT’s investments in joint ventures.
ECHO reports its financial results to the REIT one month in arrears due to time constraints on its reporting. Therefore, the above
amounts include ECHO’s financial information for December 1, 2023 to November 30, 2024 and December 1, 2022 to November 30,
2023, respectively.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 18 of 41
5. Assets and liabilities classified as held for sale:
Assets that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. For
this purpose, a sale is considered to be highly probable if management is committed to a plan to achieve the sale; there is an active
program to find a buyer; the non-current asset is being actively marketed at a reasonable price; the sale is anticipated to be
completed within one year from the date of classification; and it is unlikely there will be changes to the plan.
Liabilities that are to be assumed by the buyer on disposition of the non-current asset are also classified as held for sale. Non-current
assets and non-current liabilities held for sale are classified separately from other assets and other liabilities in the consolidated
statements of financial position. These amounts are not offset or presented as a single amount.
As at December 31, 2024, the REIT had one U.S. retail property, three Canadian retail properties and a 50% interest in four Canadian
retail properties classified as held for sale.
As at December 31, 2023, the REIT had one Canadian office property and a 50% interest in one Canadian industrial property classified
as held for sale.
The following table sets forth the items on the consolidated statements of financial position associated with real estate assets
classified as held for sale:
December 31
December 31
2024
2023
Assets
Real estate assets:
Investment properties
$59,880
$293,150
Liabilities
Mortgages payable
$13,033
$—
6. Other assets:
December 31
December 31
Note
2024
2023
Mortgages receivable - net of provision for expected credit loss of $28,105 (2023 - nil) (1)
$125,661
$166,077
Prepaid expenses and sundry assets
19,121
70,482
Accounts receivable - net of provision for expected credit loss of $2,863 (2023 - $3,556)
5,684
5,905
Restricted cash
12,787
96,625
Derivative instruments
12
13,993
29,919
$177,246
$369,008
December 31
December 31
2024
2023
Current
$103,456
$285,839
Non-current
73,790
83,169
$177,246
$369,008
(1)
Mortgages receivable as at December 31, 2024 include $125,661 classified as amortized cost (December 31, 2023 - $166,077). As at December 31, 2024,
mortgages receivable bear interest at effective rates between 2.50% and 8.88% per annum (December 31, 2023 - between 2.50% and 14.32% per
annum) with a weighted average effective rate of 6.92% per annum (December 31, 2023 - 7.52%), and mature between 2025 and 2029 (December 31,
2023 - between 2024 and 2029).
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 19 of 41
The following is a summary of the changes in mortgages receivable for the year ended December 31, 2024:
December 31
Note
2024
Balance, beginning of year
$166,077
Cash activities:
Advances of mortgages receivable
36,004
Repayments of mortgages receivable
(80,641)
Non-cash activities:
Provision for expected credit loss (1)
(28,105)
Loss on modification of mortgage receivable (2)
(9,500)
Non-cash loss on mortgages receivable
16
(37,605)
Mortgages receivable from the sale of investment properties
17
34,668
Change in foreign exchange
7,158
Balance, end of year
$125,661
(1)
In April 2018, the REIT sold F1RST Tower, an office property in Calgary, AB. The REIT provided a $45,100 vendor take-back (“VTB”) mortgage to the
purchaser. On September 12, 2024, due to a borrower default, the REIT exercised its rights under a letter of credit held as collateral and has collected
$3,250. The REIT remains in negotiations with the borrower on renewing the VTB on terms agreeable to the REIT, but there can be no assurance that an
agreement will be reached. As a result, the REIT reassessed the probability of default in its expected credit loss model and the value of the collateral. As
a result of these reassessments, the REIT recorded an impairment loss of $28,105 on the VTB which is reflective of the lifetime expected credit loss. All
amounts are at the REIT’s ownership interest.
(2)
In April 2023, the REIT sold 160 Elgin Street, an office property in Ottawa, ON. The REIT provided a $30,000 VTB mortgage to the purchaser which bore
interest at 4.5% per annum and was scheduled to mature on April 20, 2028. In July 2024, the REIT entered into an amending agreement with the
purchaser in which the REIT agreed to accept a payment of $20,500 by October 1, 2024 as full and final payment of this VTB mortgage. During the year
ended December 31, 2024, the REIT reduced the carrying amount of this VTB mortgage to $20,500 to reflect the revised contractual terms, resulting in a
one-time $9,500 loss on modification of mortgage receivable. The REIT received a payment of $20,500 on October 1, 2024.
Future repayments of mortgages receivable based on contractual maturities are as follows:
December 31
2024
Years ending December 31:
2025
$65,864
2026
38,586
2027
—
2028
14,741
2029
6,470
Thereafter
—
$125,661
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 20 of 41
7.
Cash and cash equivalents:
Cash and cash equivalents as at December 31, 2024 included cash on hand of $100,354 (December 31, 2023 - $64,111).
Included in cash and cash equivalents as at December 31, 2024 were U.S. dollar denominated amounts of U.S. $57,202 (December
31, 2023 - U.S. $34,657). The Canadian dollar equivalent of these amounts is $82,371 (December 31, 2023 - $45,747).
8.
Debt:
The REIT’s debt consists of the following items:
December 31
December 31
Note
2024
2023
Mortgages payable
8(a)
$1,376,592
$1,459,163
Debentures payable
8(b)
1,197,958
1,297,960
Unsecured term loans
8(c)
625,000
625,000
Lines of credit
8(d)
337,834
304,710
$3,537,384
$3,686,833
The following is a summary of the changes in debt for the year ended December 31, 2024:
Mortgages
Debentures
Unsecured
Lines of
Note
Payable
Payable
Term Loans
Credit
Total
Opening balance, beginning of year
$1,459,163
$1,297,960
$625,000
$304,710
$3,686,833
Scheduled amortization payments
(38,801)
—
—
(742)
(39,543)
Debt repayments
8(b)
(121,345)
(350,000)
—
(4,654)
(475,999)
New debt, net of financing costs
17
24,300
248,800
—
—
273,100
Mortgage assumed by purchaser
17
(24,847)
—
—
—
(24,847)
Net advances
2,283
—
—
36,840
39,123
Transfer of debt to liabilities classified as held for sale
5
(13,033)
—
—
—
(13,033)
Effective interest rate accretion
1,792
1,198
—
—
2,990
Change in foreign exchange
87,080
—
—
1,680
88,760
Closing balance, end of year
$1,376,592
$1,197,958
$625,000
$337,834
$3,537,384
(a) Mortgages payable:
The mortgages payable are secured by 34 real estate assets with an aggregate fair value of $2,842,366 (December 31, 2023 - 43 real
estate assets with an aggregate fair value of $3,275,426), bearing interest at fixed rates with a contractual weighted average rate of
4.00% (December 31, 2023 - 3.99%) per annum and maturing between 2025 and 2030 (December 31, 2023 - maturing between 2024
and 2030). Included in mortgages payable as at December 31, 2024 were U.S. dollar denominated mortgages of U.S. $730,874
(December 31, 2023 - U.S. $725,668). The Canadian dollar equivalent of these amounts is $1,052,459 (December 31, 2023 -
$957,882).
Mortgages payable related to certain properties are held by separate legal entities, where the rent received from each property is
first used to satisfy the related debt obligations with any balance then available to satisfy the cash flow requirements of the REIT.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 21 of 41
Future principal mortgage payments are as follows:
December 31
2024
Years ending December 31:
2025
$210,615
2026
40,868
2027
461,000
2028
528,245
2029
90,704
Thereafter
50,214
1,381,646
Financing costs and mark-to-market adjustment arising on acquisitions
(5,054)
$1,376,592
(b) Debentures payable:
The full terms of the debentures are contained in the trust indenture and applicable supplemental trust indentures; the following
table summarizes the key terms:
December 31
December 31
2024
2023
Maturity
Contractual
interest
rate
Effective
interest
rate
Principal
amount
Carrying
value
Carrying
value
Unsecured Senior Debentures:
Series N Senior Debentures
January 30, 2024(1)
3.37 %
3.45 %
$—
$—
$349,965
Series Q Senior Debentures
June 16, 2025
4.07 %
4.19 %
400,000
399,794
399,311
Series R Senior Debentures
June 2, 2026
2.91 %
3.00 %
250,000
249,674
249,443
Series S Senior Debentures
February 19, 2027
2.63 %
2.72 %
300,000
299,491
299,241
Series T Senior Debentures
February 28, 2029
5.46 %
5.56 %
250,000
248,999
—
3.76 %
3.86 %
$1,200,000
$1,197,958
$1,297,960
(1)
In January 2024, the REIT repaid all of its outstanding Series N senior debentures upon maturity for a cash payment of $350,000.
The Series Q, R, S and T unsecured senior debentures (collectively, the “Senior Debentures”) pay interest semi-annually.
At its option, the REIT may redeem any of the fixed rate Senior Debentures, in whole at any time, or in part from time to time prior to
the specified par call date on payment of a redemption price equal to the greater of (a) the Canada Yield Price as defined in the
relevant supplemental trust indenture and (b) par, together in each case with accrued and unpaid interest to the date fixed for
redemption. Between the specified par call date and maturity, the Senior Debentures may be redeemed on payment of a
redemption price equal to par. The REIT will give notice of any redemption at least 10 days, but not more than 60 days, before the
date fixed for redemption, which redemption may be upon such conditions as specified in such notice. Where less than all of any
Senior Debentures are to be redeemed pursuant to their terms, the Senior Debentures to be so redeemed will be redeemed on a pro
rata basis according to the principal amount of Senior Debentures registered in the respective name of each holder of Senior
Debentures or in such other manner as the indenture trustee may consider equitable.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 22 of 41
(c) Unsecured term loans:
The REIT has the following unsecured term loans:
December 31
December 31
Maturity Date
2024
2023
Unsecured term loan #1(1)
January 6, 2026
$250,000
$250,000
Unsecured term loan #2(2)
November 30, 2026
125,000
125,000
Unsecured term loan #3(3)
March 7, 2027
250,000
250,000
$625,000
$625,000
(1)
The REIT entered into an interest rate swap to fix the interest rate at 4.14% per annum. The swap matures on January 6, 2026 (note 12).
(2)
The REIT entered into an interest rate swap to fix the interest rate at 5.19% per annum. The swap matures on September 29, 2027 (note 12).
(3)
The REIT entered into an interest rate swap to fix the interest rate at 3.39% per annum. The swap matures on May 7, 2030 (note 12).
(d) Lines of credit:
The REIT has the following lines of credit:
Maturity Date
Total
Facility
Amount
Drawn
Outstanding
Letters of
Credit
Available
Balance
Revolving unsecured operating lines of credit:
Revolving unsecured line of credit
September 20, 2027
$150,000
($33,000)
$—
$117,000
Revolving unsecured line of credit
December 14, 2027(2)
230,000
(11,041)
—
218,959
Revolving unsecured line of credit
December 14, 2029(2)
520,000
(24,959)
(1,873)
493,168
750,000
(36,000)
(1,873)
712,127
Revolving unsecured letter of credit facility
60,000
—
(45,566)
14,434
Sub-total
960,000
(69,000)
(47,439)
843,561
Non-revolving secured operating line of credit(1):
REIT and CrestPSP non-revolving secured line of credit
March 14, 2026
268,834
(268,834)
—
—
December 31, 2024
$1,228,834
($337,834)
($47,439)
$843,561
December 31, 2023
$1,234,230
($304,710)
($43,018)
$886,502
(1)
Secured by certain investment properties.
(2)
In December 2024, $520,000 of the $750,000 revolving unsecured line of credit agreement was amended to extend the maturity date from December
14, 2027 to December 14, 2029.
The lines of credit can be drawn in either Canadian or U.S. dollars and bear interest at a rate approximating the prime rate of a
Canadian chartered bank. Included in lines of credit as at December 31, 2024 are U.S. dollar denominated amounts of nil (December
31, 2023 - U.S. $14,000). The Canadian equivalent of these amounts are nil (December 31, 2023 - $18,480).
The Senior Debentures, unsecured term loans and lines of credit of the REIT contain certain covenants and conditions applicable to
the REIT, including without limitation, those requiring the REIT to maintain, at all times, the following financial ratios: (i) ratio of debt
to gross asset value of not greater than 0.65:1.0 measured at the end of each fiscal quarter; (ii) interest coverage of not less than
1.65:1.0 measured at the end of each fiscal quarter for such quarter and the prior three fiscal quarters; (iii) ratio of unencumbered
investment properties to unsecured indebtedness of not less than 1.40:1.0; and (iv) unitholders’ equity of not less than $1.0 billion
for Senior Debentures and $2.0 billion for unsecured term loans and lines of credit. In addition, certain of the REIT’s mortgage
providers have minimum limits on debt service coverage ratios ranging from 1.10 to 1.50. As at December 31, 2024, H&R was in
compliance with each of the preceding financial ratios.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 23 of 41
9. Exchangeable units:
As at December 31, 2024, certain of the REIT’s subsidiaries had in aggregate 17,974,186 (December 31, 2023 - 17,974,186)
exchangeable units outstanding which are puttable instruments where, upon redemption, the REIT has a contractual obligation to
issue Units. Holders of all exchangeable units are entitled to receive the economic equivalence of distributions on a per unit amount
equal to a per Unit amount provided to holders of Units. These puttable instruments are classified as a liability under IFRS and are
measured at FVTPL. At the end of each reporting period, the fair value is determined by using the quoted price of Units on the TSX as
the exchangeable units are exchangeable into Units at the option of the holder at any time. The quoted price as at December 31,
2024 was $9.28 (December 31, 2023 - $9.90) per Unit.
In January 2025, 550,000 exchangeable units were exchanged into Units.
A summary of the carrying value of exchangeable units and the changes during the respective periods are as follows:
December 31
December 31
2024
2023
Carrying value, beginning of year
$177,944
$217,668
Gain on fair value of exchangeable units
(11,144)
(39,724)
Carrying value, end of year
$166,800
$177,944
The REIT has entered into various exchange agreements that provide, among other things, the mechanics whereby exchangeable
units may be exchanged for Units.
10. Deferred revenue:
(a) Bow deferred revenue
(i) Sale of the Bow property and 40% interest in the Ovintiv lease
In October 2021, the REIT sold its interest in the Bow property (the “Bow”) including 40% of the future income stream derived from
the Ovintiv lease (“Ovintiv lease”) until the end of the lease term in May 2038 to an arm’s length third party, Oak Street Real Estate
Capital (“Oak Street”), for approximately $528,000. Subsequent to the maturity of the Ovintiv lease, Oak Street will receive all future
lease revenue earned by the Bow. Although the REIT sold the Bow, the transaction did not meet the criteria of a transfer of control
under IFRS 15, as the REIT has an option to repurchase 100% of the Bow for approximately $737,000 in 2038 or earlier under certain
circumstances. As such, the REIT continues to recognize the income producing property whereby the fair value will be adjusted over
the remaining life of the Ovintiv lease bringing the value of the real estate asset to nil by the lease maturity. The net proceeds
received by the REIT on disposition were $496,063. These proceeds were recorded as deferred revenue (classified as a liability) and
will be amortized over the remaining term of the Ovintiv lease (40% of the rental income remitted to Oak Street will consist of
principal and interest).
(ii) Sale of 45% interest in the Ovintiv lease
In a separate transaction, in October 2021, the REIT sold 45% of its residual 60% interest in the future income stream derived from
the Ovintiv lease to an arm’s length third party that was financed by Deutsche Bank Credit Solutions and Direct Lending (“Deutsche
Bank”). The REIT received a lump-sum cash payment of $418,000 as consideration. The net proceeds received of $408,314 were also
recorded as deferred revenue (classified as a liability) and will be amortized over the remaining term of the Ovintiv lease as the 45%
lease payments are made to Deutsche Bank and will consist of principal and interest.
As a result of the above transactions, the REIT is legally only entitled to 15% of the lease revenue from the Ovintiv lease until the
end of the lease term in May 2038.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 24 of 41
(b) 100 Wynford deferred revenue
On August 31, 2022, the REIT sold its interest in 100 Wynford Drive, an office property in Toronto, ON (“100 Wynford”) to an arm’s
length third party, Blue Owl Capital, formerly Oak Street (“Blue Owl”) for approximately $120,800. Although the REIT sold 100
Wynford, the transaction did not meet the criteria of a transfer of control under IFRS 15 as the REIT has an option to repurchase
100% of 100 Wynford for approximately $159,700 in 2036 or earlier under certain circumstances. As such, the REIT continues to
recognize the income producing property whereby the fair value will be adjusted over the remaining life of the Bell lease (“Bell
lease”) bringing the value of the real estate asset to nil by the lease maturity in April 2036. The net proceeds received by the REIT on
disposition were $118,608. These proceeds were recorded as deferred revenue (classified as a liability) and will be amortized over
the remaining term of the Bell lease and will consist of principal and interest.
The following is a summary of the Bow and 100 Wynford in the consolidated statements of financial position:
December 31, 2024
December 31
The Bow
100 Wynford
Total
2023
Income producing property - fair value(1)
$938,886
$101,368
$1,040,254
$1,085,919
Deferred revenue - net of amortization of $116,622 (2023 - $75,314)
805,130
101,233
906,363
947,671
(1)
The fair value of the income producing properties will be reduced as the remaining financial benefit from these income producing properties
diminishes over the term of their respective leases.
The following is a summary of the financial results for the Bow and 100 Wynford included in the consolidated statements of
comprehensive income (loss):
Year ended December 31
The Bow
100 Wynford
2024
2023
Rental income earned
$15,421
$—
$15,421
$15,656
Rental income earned - non-cash
85,110
8,626
93,736
92,920
Revenue reimbursement for property operating costs
51,726
1,927
53,653
53,426
Property operating costs
(51,853)
(1,922)
(53,775)
(53,603)
Net operating income
100,404
8,631
109,035
108,399
Accretion finance expense on deferred revenue - non-cash
(51,379)
(1,049)
(52,428)
(54,348)
Fair value adjustment on real estate assets - non-cash
(38,131)
(7,652)
(45,783)
(43,443)
Net income (loss)
$10,894
($70)
$10,824
$10,608
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 25 of 41
11. Accounts payable and accrued liabilities:
December 31
December 31
Note
2024
2023
Current:
Other accounts payable and accrued liabilities
$186,635
$205,849
Distributions payable to unitholders
44,542
39,279
Distributions payable to exchangeable unitholders
3,055
2,696
Debt interest payable
14,692
12,515
Prepaid rent
28,162
21,492
Lease liabilities(1)
17
—
28,550
Unit-based compensation payable:
Options
13(b)
66
1,244
Incentive units
13(b)
4,462
6,095
Non-current:
Derivative instruments
12
4,899
1,229
Security deposits
10,771
10,847
Unit-based compensation payable:
Incentive units
13(b)
7,694
5,810
$304,978
$335,606
(1)
In January 2024, the REIT exercised an option to acquire a 100% freehold interest in two residential land parcels resulting in the derecognition of the
right-of-use assets and release from the corresponding lease liabilities (note 3).
12. Derivative instruments:
Fair value asset (liability)*
Net unrealized loss on derivative
instruments
December 31
December 31
Years ended December 31
Maturity
2024
2023
2024
2023
Foreign exchange hedge(1)
April 10, 2024
$—
$1,733
($1,733)
$1,733
Term loan interest rate swap(2)
January 6, 2026
1,695
8,171
(6,476)
(3,115)
Debt interest rate swap(3)
September 29, 2027
(4,899)
(1,229)
(3,670)
(927)
Term loan interest rate swap(4)
May 7, 2030
12,298
20,015
(7,717)
(6,860)
$9,094
$28,690
($19,596)
($9,169)
The REIT entered into swaps as follows:
(1)
To fix the foreign exchange rate at $1.38 on U.S. $10,000, monthly. The hedge terminated in April 2024.
(2)
To fix the interest rate at 4.14% per annum for the $250,000 term loan.
(3)
To fix the interest rate at 5.19% per annum on $250,000 of variable rate debt, which includes a $125,000 unsecured term loan.
(4)
To fix the interest rate at 3.39% per annum for the $250,000 term loan.
*
Derivative instruments in asset and liability positions are not presented on a net basis. Derivative instruments in an asset position of $13,993
(December 31, 2023 - $29,919) are recorded in other assets (note 6) and derivative instruments in a liability position of $4,899 (December 31, 2023 -
$1,229) are recorded in accounts payable and accrued liabilities (note 11).
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 26 of 41
13. Unitholders' equity:
The REIT is an unincorporated open-ended trust. The beneficial interests in the REIT are divided into two classes of trust units: units
of the REIT and special voting units.
(a) Description of Units:
Each Unit and special voting unit carries a single vote at any meeting of unitholders. Holders of special voting units do not have any
additional rights than those of holders of Units. The aggregate number of Units which the REIT may issue is unlimited and the
aggregate number of special voting units which the REIT may issue is 13,013,698 (December 31, 2023 - 13,013,698). Units carry the
right to participate pro rata in any distributions. As at December 31, 2024, there were 13,013,698 (December 31, 2023 - 13,013,698)
special voting units issued and outstanding.
Units are listed and posted for trading on the TSX under the symbol HR.UN.
Units are freely transferable and the trustees shall not impose any restriction on the transfer of Units.
Unitholders have the right to require the REIT to redeem their Units on demand. Upon valid tender for redemption of each Unit, the
unitholder is entitled to receive a price per Unit as determined by a formula based on the market price of a Unit. The redemption
price payable by the REIT will be satisfied by way of a cash payment to the unitholder or, in certain circumstances, including where
such payment would cause the REIT’s monthly cash redemption obligations to exceed $50 (subject to adjustment in certain
circumstances or waiver by the trustees), an in specie distribution of notes of H&R Portfolio LP Trust (a subsidiary of the REIT).
A summary of the issued and outstanding number of Units and the changes during the respective years are as follows:
December 31
December 31
2024
2023
Balance, beginning of year
261,867,587
265,884,526
Issuance of Units:
Incentive units settled in Units
148,005
130,261
Distribution in Units
16,940,663
13,754,661
Consolidation of Units
(16,940,663)
(13,754,661)
Units repurchased and cancelled
—
(4,147,200)
Balance, end of year
262,015,592
261,867,587
The weighted average number of basic Units for the year ended December 31, 2024 was 261,958,853 (December 31, 2023 -
263,840,995).
(b) Unit-based compensation:
In order to provide long-term compensation to the REIT’s trustees, officers, employees and consultants, the REIT grants incentive
units, which are subject to certain restrictions. In addition, the REIT previously granted options, which are subject to certain
restrictions.
(i) Unit option plan:
In accordance with the unit option plan of the REIT (“Unit Option Plan”), no further options may be granted and upon expiry of any
outstanding options, the pool will automatically decrease. Following the expiry of any remaining outstanding options thereunder,
the Unit Option Plan will terminate.
As at December 31, 2024, there were options to acquire up to 8,570,810 (December 31, 2023 - 8,805,638) Units granted and
outstanding and nil (December 31, 2023 - nil) options remain available for grant. The exercise price of each option approximates the
quoted price of the Units on the date of grant. The options expire ten years after the date of the grant.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 27 of 41
A summary of the status of the Unit Option Plan and the changes during the respective years are as follows:
December 31, 2024
December 31, 2023
Options
Weighted average
exercise price
Options
Weighted average
exercise price
Outstanding and vested, beginning of year
8,805,638
$14.24
10,313,443
$14.62
Expired
(234,828)
16.19
(1,507,805)
16.84
Outstanding and vested, end of year
8,570,810
$14.19
8,805,638
$14.24
The outstanding and vested options as at December 31, 2024 are exercisable at varying prices ranging from $13.86 to $16.02
(December 31, 2023 - $13.86 to $16.19) and have a weighted average remaining life of 1.0 years (December 31, 2023 - 1.9 years).
In January 2025, a further 1,306,632 options expired automatically, decreasing the REIT’s options outstanding to 7,264,178. These
expired options had an exercise price of $16.02.
(ii) Incentive unit plan:
As at December 31, 2024, a maximum of 5,000,000 (December 31, 2023 - 5,000,000) incentive units exchangeable into Units were
authorized to be issued. The REIT has granted 2,077,221 (December 31, 2023 - 1,672,059) incentive units which remain outstanding,
513,455 (December 31, 2023 - 365,450) incentive units have been settled for Units and 2,409,324 (December 31, 2023 - 2,962,491)
incentive units remain available for grant.
Incentive units, comprised of restricted units, deferred units and performance units, are recognized based on the grant date fair
value and re-measured at each reporting date. The grant agreements provide that the awards will be satisfied in cash, unless the
holder elects to have them satisfied in Units issued from treasury, with the result that the awards are classified as cash-settled unit-
based payments and presented as liabilities. The incentive units may, if specified at the time of grant, accrue cash distributions
during the vesting period and accrued distributions will be paid when the incentive units vest.
The REIT grants restricted units under the incentive unit plan. As at December 31, 2024, 100% of the restricted units outstanding vest
on the third anniversary of their respective grant dates and are subject to forfeiture until the recipients of the awards have held
office with, or provided services to, the REIT for a specified period of time. The restricted units are, subject to the holder’s election,
cash settled upon vesting.
Deferred units vest immediately upon their grant date and will be redeemed and settled after a trustee of the REIT ceases to be a
member of the Board. During the year ended December 31, 2023, the REIT and certain of its trustees entered into an amending
agreement to amend the terms of their respective outstanding restricted units such that the outstanding restricted units were
converted into deferred units.
The REIT grants performance units under the incentive unit plan with a three-year performance period for certain senior executives.
The performance units are and will be subject to both internal and external measures consisting of both absolute and relative
performance over a three-year period and, subject to the holder’s election, cash settled upon vesting. In February 2024, the grant of
performance units awarded in 2021 vested at 73% of target and in March 2023, the grant of performance units awarded in 2020
vested at 54% of target.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 28 of 41
A summary of the status of the incentive unit plan and the changes during the respective years are as follows:
December 31
December 31
2024
2023
Incentive units
Incentive units
Outstanding, beginning of year
1,672,059
1,932,770
Granted
1,057,248
684,743
Expired
(36,706)
(41,882)
Settled
(615,380)
(903,572)
Outstanding, end of year
2,077,221
1,672,059
The fair values of the options and incentive units, included in accounts payable and accrued liabilities, are as follows:
December 31
December 31
2024
2023
Options
$66
$1,244
Incentive units
12,156
11,905
$12,222
$13,149
Unit-based compensation (expense) recovery included in trust expenses is as follows:
2024
2023
Options
$1,178
$4,348
Incentive units
(5,084)
(4,432)
($3,906)
($84)
(c) Distributions:
Under the REIT’s Declaration of Trust, the total amount of income of the REIT to be distributed to unitholders for each calendar
month shall be subject to the discretion of the trustees however, the total income distributed in a calendar year shall not be less
than the amount necessary to ensure that the REIT will not be liable to pay income tax under Part I of the Tax Act for any year. The
method of payment is at the discretion of the trustees.
For the year ended December 31, 2024, the REIT declared distributions per Unit of $1.32 (December 31, 2023 - $1.22) comprised of:
(i) monthly cash distributions in aggregate of $0.60 per Unit (December 31, 2023 - $0.60 per Unit); (ii) a special cash distribution of
$0.12 per Unit (December 31, 2023 - $0.10 per Unit); and (iii) a special distribution in Units of $0.60 per Unit (December 31, 2023 -
$0.52 per Unit) which were immediately consolidated such that there was no change in the number of outstanding Units.
(d) Normal course issuer bid:
On February 9, 2023, the REIT received approval from the TSX for the renewal of its normal course issuer bid (“NCIB”), which
allowed the REIT to purchase for cancellation up to a maximum of 26,028,249 Units on the open market until February 15, 2024.
The NCIB expired on February 15, 2024 in accordance with its terms.
During the year ended December 31, 2024, the REIT did not purchase any Units for cancellation.
During the year ended December 31, 2023, the REIT purchased and cancelled 4,147,200 Units at a weighted average price of $10.30
per Unit, for a total cost of $42,723.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 29 of 41
14. Accumulated other comprehensive income:
Items that are or may be reclassified subsequently to net income (loss):
December 31
December 31, 2024
2023
Cash flow
hedges
Foreign
operations
Total
Total
Opening balance, beginning of year
($106)
$326,735
$326,629
$457,831
Transfer of realized loss on cash flow hedges to net income (loss)
27
—
27
28
Unrealized gain (loss) on translation of U.S. denominated foreign operations
—
394,945
394,945
(131,230)
Net loss on hedges of net investments in foreign operations
—
(1,680)
(1,680)
—
27
393,265
393,292
(131,202)
Closing balance, end of year
($79)
$720,000
$719,921
$326,629
15. Rentals from investment properties:
2024
2023
Rental income
$654,913
$682,262
Revenue from services
149,045
157,994
Straight-lining of contractual rent
17,606
11,404
Rent amortization of tenant inducements
(4,574)
(4,514)
$816,990
$847,146
Operating leases:
The REIT leases its investment properties under operating leases. The future minimum lease payments under non-cancellable leases
are as follows:
2024
2023
Less than 1 year
$493,603
$485,529
Between 1 and 5 years
1,331,936
1,344,965
More than 5 years
1,606,757
1,819,983
$3,432,296
$3,650,477
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 30 of 41
16. Finance costs:
Note
2024
2023
Finance cost - operations
Contractual interest on mortgages payable
($55,252)
($62,024)
Contractual interest on debentures payable
(43,842)
(43,778)
Interest on unsecured term loans, net of interest rate swaps
(25,254)
(28,489)
Bank interest and charges on lines of credit
(24,887)
(20,266)
Effective interest rate accretion
(4,724)
(4,638)
Accretion finance expense on deferred revenue
10
(52,428)
(54,348)
Exchangeable unit distributions
(12,941)
(12,582)
Non-cash loss on mortgages receivable
6
(37,605)
—
(256,933)
(226,125)
Capitalized interest(1)
10,104
7,973
(246,829)
(218,152)
Finance income
11,577
13,849
Fair value adjustment on financial instruments
(8,452)
30,555
($243,704)
($173,748)
(1)
The weighted average rate of borrowings for the capitalized interest was 6.17% for the year ended December 31, 2024 (for the year December 31, 2023 -
5.24%).
17. Supplemental cash flow information:
The following is a summary of changes in other non-cash operating items:
2024
2023
Accrued rents receivable
($17,723)
($11,499)
Prepaid expenses and sundry assets
20,582
(11,028)
Accounts receivable
221
(587)
Accounts payable and accrued liabilities
(394)
10,953
$2,686
($12,161)
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 31 of 41
The following amounts have been excluded from operating, investing and financing activities in the consolidated statements of cash
flows:
Note
2024
2023
Non-cash items:
Non-cash adjustment to proceeds from issuance of Units
$1,413
$1,708
Non-cash assumption of mortgages payable on acquisition of a property under development
24,300
—
Non-cash assumption of mortgages payable on disposition of investment property
(24,847)
(6,323)
Non-cash loss on mortgages receivable included in finance cost - operations
6
(37,605)
—
Mortgages receivable from the sale of investment properties
6
34,668
37,000
Transfer of properties under development to equity accounted investments
3
(28,790)
—
Other items:
Change in right-of-use assets and lease liabilities
3
28,550
965
Change in distributions payable to unitholders
11
(5,263)
(13,808)
Change in debt interest payable included in finance cost - operations
11
(2,177)
3,965
Change in distributions payable to exchangeable unit holders included in finance cost - operations
11
(359)
(974)
Change in pre-acquisition costs applied to the acquisition of a property under development
21,974
—
Capitalized interest on properties under development
16
(10,104)
(7,973)
18. Capital risk management:
The REIT’s objective when managing capital is to maximize net asset value (“NAV”) per Unit through ongoing active management of
H&R’s assets and the development and construction of projects.
The REIT considers its capital to be:
December 31
December 31
2024
2023
Debt
$3,537,384
$3,686,833
Exchangeable units
166,800
177,944
Unitholders' equity
5,278,743
5,192,375
$8,982,927
$9,057,152
As long as the REIT complies with its investment and debt restrictions set out in its Declaration of Trust, it is free to determine the
appropriate level of capital in context with its cash flow requirements, overall business risks and potential business opportunities. As
a result of this, the REIT will make adjustments to its capital based on its investment strategies and changes in economic conditions.
The REIT’s level of indebtedness is subject to the limitations set out in its Declaration of Trust. The REIT is limited to a total
indebtedness to total assets ratio of 65%. As at December 31, 2024, this ratio was 33.4% (December 31, 2023 - 34.2%). Management
uses this ratio as a key indicator in managing the REIT’s capital.
In addition to the above key ratio, the REIT’s debt has various covenants calculated as defined within these agreements. The REIT
monitors these covenants and was in compliance as at and for the years ended December 31, 2024 and December 31, 2023.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 32 of 41
19. Risk management:
(a) Credit risk:
The REIT is exposed to credit risk in the event that borrowers default on the repayment of the amounts owing to the REIT.
Management mitigates this risk by ensuring adequate security has been provided in support of mortgages receivable.
The REIT is exposed to credit risk as an owner of investment properties in that tenants may become unable to pay the contracted
rent. Management mitigates this risk by carrying out appropriate credit checks and related due diligence on significant tenants.
Management has diversified the REIT’s holdings so that it owns several categories of properties and acquires investment properties
throughout Canada and the United States.
In addition, management ensures that no tenant or related group of tenants, other than investment grade tenants, account for a
significant portion of the REIT’s cash flow. The REIT has three tenants which individually account for more than 5% of the rentals
from investment properties of the REIT: Hess Corporation, New York City Department of Health and Giant Eagle, Inc. Hess
Corporation and New York City Department of Health both have a public debt rating that is rated with at least a BBB- Watch Positive
rating by a recognized rating agency.
The carrying amount of receivables represents the maximum credit exposure, therefore the REIT’s exposure to credit risk on
receivables is as follows:
December 31
December 31
Note
2024
2023
Mortgages receivable
6
$125,661
$166,077
Accounts receivable
6
5,684
5,905
$131,345
$171,982
(b) Liquidity risk:
The REIT is subject to liquidity risk whereby the REIT may not be able to refinance or pay its debt obligations when they become due.
The REIT manages liquidity risk by:
•
Ensuring appropriate unsecured term loans and lines of credit are available. As at December 31, 2024, the consolidated amount
available under its lines of credit was $843,561 (note 8(d));
•
Maintaining a large unencumbered asset pool. As at December 31, 2024, there were 78 unencumbered properties with a fair
value of $4,390,811; and
•
Structuring its financing so as to stagger the maturities of its debt, thereby minimizing exposure to liquidity risk in any one year
(note 8).
Management monitors the REIT’s liquidity risk through review of financial covenants contained in bank credit facility agreements,
debt agreements and compliance with the REIT’s Declaration of Trust.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 33 of 41
The REIT’s obligations are as follows:
Note
2025
Thereafter
Total
Debt(1)
8
$610,615
$2,933,865
$3,544,480
Accounts payable and accrued liabilities(2)
11
281,548
23,364
304,912
$892,163
$2,957,229
$3,849,392
(1)
Amounts only include principal repayments.
(2)
Excludes options payable.
(c) Market risk:
The REIT is subject to currency risk and interest rate risk. The REIT’s objective is to manage and control market risk exposure within
acceptable parameters, while optimizing the return on risk.
(i) Currency risk:
Foreign exchange risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign
exchange rates. A portion of the REIT’s properties are located in the United States, resulting in the REIT being subject to foreign
currency fluctuations which may impact its financial position and results. In order to mitigate the foreign exchange risk, the REIT’s
debt on U.S. properties are also denominated in U.S. dollars to act as a natural hedge.
A $0.10 weakening of the U.S. dollar against the average Canadian dollar exchange rate of $1.37 for the year ended December 31,
2024 (December 31, 2023 - $1.35), as well as the Canadian dollar exchange rate as at December 31, 2024 of $1.44 (December 31,
2023 - $1.32), would have decreased net income (loss) by approximately $300 (December 31, 2023 - decreased by $1,700) and
decreased other comprehensive income (loss) by approximately $203,000 (December 31, 2023 - decreased by $198,000).
Conversely, a $0.10 strengthening of the U.S. dollar against the Canadian dollar would have had an equal but opposite effect. This
analysis assumes that all other variables, in particular interest rates, remain constant.
(ii) Interest rate risk:
The REIT is exposed to interest rate risk on its borrowings. It minimizes this risk by obtaining long-term fixed interest rate debt. At
December 31, 2024, the percentage of fixed rate debt to total debt was 94.0% (December 31, 2023 - 91.7%). Therefore, a change in
interest rates at the reporting date would not have a material impact on net income as the majority of the REIT’s borrowings are
through fixed rate instruments.
As at December 31, 2024, lines of credit of $337,834 (December 31, 2023 - $304,710) are subject to variable interest rates. An
increase in interest rates of 100 basis points for the year ended December 31, 2024 would have decreased net income by
approximately $2,100 (December 31, 2023 - decreased by $3,000). This analysis assumes that all other variables, in particular foreign
exchange rates, remain constant.
As at December 31, 2024, there were no mortgages payable, debentures payable or term loans subject to variable interest rates
(December 31, 2023 - nil).
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 34 of 41
(d) Fair value measurement:
(i) Financial assets and liabilities carried at amortized cost:
The fair values of the REIT’s accounts receivable, restricted cash, cash and cash equivalents and accounts payable and accrued
liabilities approximate their carrying amounts due to the relatively short periods to maturity of these financial instruments.
The fair value of certain mortgages receivable, mortgages payable, senior debentures, unsecured term loans and lines of credit have
been determined by discounting the cash flows of these financial obligations using market rates for debt of similar terms and credit
risks.
(ii) Fair value of assets and liabilities:
Assets and liabilities measured at fair value in the consolidated statements of financial position, or disclosed in the notes to the
financial statements, are categorized using a fair value hierarchy that reflects the significance of the inputs used in determining the
fair values:
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
•
Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e.
as prices) or indirectly (i.e. derived from prices); and
•
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
December 31, 2024
Note
Level 1
Level 2
Level 3
Total
fair value
Carrying
value
Assets measured at fair value:
Investment properties
3
$—
$—
$7,996,810
$7,996,810
$7,996,810 (1)
Properties under development
3
—
—
1,010,648
1,010,648
1,010,648
Assets classified as held for sale
5
—
—
59,880
59,880
59,880
Derivative instruments
12
—
13,993
—
13,993
13,993
Assets for which fair values are disclosed:
Mortgages receivable
6
—
—
125,158
125,158
125,661
—
13,993
9,192,496
9,206,489
9,206,992
Liabilities measured at fair value:
Exchangeable units
9
(166,800)
—
—
(166,800)
(166,800)
Derivative instruments
12
—
(4,899)
—
(4,899)
(4,899)
Liabilities classified as held for sale
5
—
(13,033)
—
(13,033)
(13,033)
Liabilities for which fair values are disclosed:
Mortgages payable
8(a)
—
(1,317,577)
—
(1,317,577)
(1,376,592)
Debentures payable
8(b)
(1,208,983)
—
—
(1,208,983)
(1,197,958)
Unsecured term loans
8(c)
—
(618,841)
—
(618,841)
(625,000)
Lines of credit
8(d)
—
(339,313)
—
(339,313)
(337,834)
(1,375,783)
(2,293,663)
—
(3,669,446)
(3,722,116)
($1,375,783) ($2,279,670)
$9,192,496
$5,537,043
$5,484,876
(1) The REIT legally sold the Bow and 100 Wynford in October 2021 and August 2022, respectively (note 10). However, as the transactions did not meet the
criteria of a transfer of control under IFRS 15, $1,040,254 is included in the tables above as at December 31, 2024 (December 31, 2023 - $1,085,919).
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 35 of 41
December 31, 2023
Note
Level 1
Level 2
Level 3
Total
fair value
Carrying
value
Assets measured at fair value:
Investment properties
3
$—
$—
$7,811,543
$7,811,543
$7,811,543 (1)
Properties under development
3
—
—
1,074,819
1,074,819
1,074,819
Assets classified as held for sale
5
—
—
293,150
293,150
293,150
Derivative instruments
12
—
29,919
—
29,919
29,919
Assets for which fair values are disclosed:
Mortgages receivable
6
—
—
162,654
162,654
166,077
—
29,919
9,342,166
9,372,085
9,375,508
Liabilities measured at fair value:
Exchangeable units
9
(177,944)
—
—
(177,944)
(177,944)
Derivative instruments
12
—
(1,229)
—
(1,229)
(1,229)
Liabilities for which fair values are disclosed:
Mortgages payable
8(a)
—
(1,382,206)
—
(1,382,206)
(1,459,163)
Debentures payable
8(b)
(1,263,671)
—
—
(1,263,671)
(1,297,960)
Unsecured term loans
8(c)
—
(596,967)
—
(596,967)
(625,000)
Lines of credit
8(d)
—
(306,793)
—
(306,793)
(304,710)
(1,441,615)
(2,287,195)
—
(3,728,810)
(3,866,006)
($1,441,615) ($2,257,276)
$9,342,166
$5,643,275
$5,509,502
(1)
The REIT legally sold the Bow and 100 Wynford in October 2021 and August 2022, respectively (note 10). However, as the transactions did not meet the
criteria of a transfer of control under IFRS 15, $1,040,254 is included in the tables above as at December 31, 2024 (December 31, 2023 - $1,085,919).
20. Compensation of key management personnel:
Key management personnel are those individuals who have the authority and responsibility for planning, directing and controlling
the REIT’s activities, directly or indirectly.
2024
2023
Salaries and short-term employee benefits
($8,645)
($8,410)
Unit-based compensation
($2,714)
1,073
($11,359)
($7,337)
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 36 of 41
21. Segment disclosures:
The REIT has four reportable operating segments (Residential, Industrial, Office and Retail), in two geographical locations (Canada
and the United States). The operating segments derive their revenue primarily from rental income from leases. The segments are
reported in a manner consistent with the internal reporting provided to the chief operating decision maker, determined to be the
Chief Executive Officer (“CEO”) of the REIT. The CEO measures and evaluates the performance of the REIT based on net operating
income on a proportionately consolidated basis for the REIT’s equity accounted investments. The accounting policies of the segments
presented here are consistent with the REIT’s accounting policies as described in note 2.
(a) Operating segments:
Real estate assets by reportable segment as at December 31, 2024 and December 31, 2023 were as follows:
December 31, 2024
Residential
Industrial
Office
Retail
Total
Number of investment properties
26
65
18
(1)
267
376 (1)
Real estate assets:
Investment properties
$4,276,705
$1,517,371
$2,981,406 (1)
$1,556,767 $10,332,249 (1)
Properties under development
807,008
376,095
—
36,443
1,219,546
5,083,713
1,893,466
2,981,406
1,593,210
11,551,795
Less: assets classified as held for sale
—
—
—
(59,880)
(59,880)
Less: REIT's proportionate share of real estate assets
relating to equity accounted investments
(1,500,528)
(68,273)
—
(915,656)
(2,484,457)
$3,583,185
$1,825,193
$2,981,406
$617,674
$9,007,458
December 31, 2023
Residential
Industrial
Office
Retail
Total
Number of investment properties
24
70
23 (1)
272
389 (1)
Real estate assets:
Investment properties
$3,668,856
$1,473,037
$3,549,406 (1)
$1,561,406 $10,252,705 (1)
Properties under development
740,114
430,098
11,030
29,212
1,210,454
4,408,970
1,903,135
3,560,436
1,590,618
11,463,159
Less: assets classified as held for sale
—
(60,650)
(232,500)
—
(293,150)
Less: REIT's proportionate share of real estate assets
relating to equity accounted investments
(1,356,620)
(39,833)
—
(887,194)
(2,283,647)
$3,052,350
$1,802,652
$3,327,936
$703,424
$8,886,362
(1)
The REIT legally sold the Bow and 100 Wynford in October 2021 and August 2022, respectively (note 10). However, as the transactions did not meet the
criteria of a transfer of control under IFRS 15, $1,040,254 is included in the tables above as at December 31, 2024 (December 31, 2023 - $1,085,919).
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 37 of 41
Net operating income by reportable segment for the years ended December 31, 2024 and December 31, 2023 was as follows:
Residential
Industrial
Office
Retail
Sub-total
Less: equity
accounted
investments
Year ended
December 31, 2024
Rentals from investment properties
$290,923
$104,063
$435,154
$143,301
$973,441
($156,451)
$816,990
Property operating costs
(123,683)
(24,292)
(151,320)
(39,591)
(338,886)
41,814
(297,072)
Net operating income
$167,240
$79,771
$283,834
$103,710
$634,555
($114,637)
$519,918
Residential
Industrial
Office
Retail
Sub-total
Less: equity
accounted
investments
Year ended
December 31, 2023
Rentals from investment properties
$285,625
$97,866
$473,657
$140,702
$997,850
($150,704)
$847,146
Property operating costs
(120,461)
(22,812)
(158,944)
(39,360)
(341,577)
41,035
(300,542)
Net operating income
$165,164
$75,054
$314,713
$101,342
$656,273
($109,669)
$546,604
(b) Geographical locations:
The REIT operates in Canada and the United States.
Real estate assets are attributed to countries based on the location of the properties.
December 31
December 31
2024
2023
Real estate assets:
Canada
$4,213,880 (1)
$4,704,626 (1)
United States
7,337,915
6,758,533
11,551,795
11,463,159
Less: Assets classified as held for sale
(59,880)
(293,150)
Less: REIT's proportionate share of real estate assets relating to equity accounted investments
(2,484,457)
(2,283,647)
$9,007,458
$8,886,362
(1)
The REIT legally sold the Bow and 100 Wynford in October 2021 and August 2022, respectively (note 10). However, as the transactions did not meet
the criteria of a transfer of control under IFRS 15, $1,040,254 is included in the table above as at December 31, 2024 (December 31, 2023 -
$1,085,919).
2024
2023
Rentals from investment properties:
Canada
$443,695
$478,316
United States
529,746
519,534
973,441
997,850
Less: REIT's proportionate share of rentals relating to equity accounted investments
(156,451)
(150,704)
$816,990
$847,146
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 38 of 41
22. Income tax recovery:
2024
2023
Income tax computed at the Canadian statutory rate of nil applicable to the REIT for 2024 and 2023
$—
$—
Current U.S. income tax expense
(1,462)
(1,802)
Deferred income tax recovery applicable to U.S. Holdco
60,675
32,345
Income tax recovery in the determination of net income (loss)
$59,213
$30,543
The Tax Act contains provisions (the “SIFT Rules”) affecting the tax treatment of “specified investment flow-through” (“SIFT”) trusts.
A SIFT includes a publicly-traded trust. Under the SIFT Rules, distributions of certain income by a SIFT are not deductible in computing
the SIFT’s taxable income, and a SIFT is subject to tax on such income at a rate that is substantially equivalent to the general tax rate
applicable to a Canadian corporation. The SIFT Rules do not apply to a publicly-traded trust that qualifies as a real estate investment
trust under the Tax Act, such as the REIT.
The REIT has certain subsidiaries in the United States that are subject to tax on their taxable income at a combined federal and state
tax rate of approximately 23.9% (December 31, 2023 - 24.0%). The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented below:
December 31
December 31
2024
2023
Deferred tax assets:
Net operating losses
$104,463
$93,622
Accounts payable and accrued liabilities
1,398
2,732
105,861
96,354
Deferred tax liabilities:
Investment properties
352,093
362,581
Equity accounted investments
166,600
170,263
Other assets
354
724
519,047
533,568
Deferred tax liability
($413,186)
($437,214)
The change in deferred tax liability is the result of deferred income tax recovery of $60,675 (2023 - $32,345) and a foreign currency
translation loss of $36,647 (2023 - gain of $13,489) recognized in other comprehensive income (loss).
As at December 31, 2024, U.S. Holdco had accumulated net operating losses available for carryforward for U.S. income tax purposes
of $437,085 (December 31, 2023 - $390,380). $42,806 of the net operating losses will expire between 2031 and 2032 (December 31,
2023 - $39,239 expiring between 2031 and 2032). Net operating losses arising after December 31, 2017 do not generally expire
under current U.S. tax legislation. The deductible temporary differences do not generally expire under current tax legislation.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 39 of 41
23. Commitments and contingencies:
(a) In the normal course of operations, the REIT has issued letters of credit in connection with developments, financings, operations
and acquisitions. As at December 31, 2024, the REIT had outstanding letters of credit totalling $47,439 (December 31, 2023 -
$43,018), including $20,000 (December 31, 2023 - $20,000) which has been pledged as security for certain mortgages payable.
The letters of credit may be secured by certain investment properties.
(b) The REIT has previously provided guarantees on behalf of third parties, including co-owners. As at December 31, 2024, the REIT
issued guarantees amounting to nil (December 31, 2023 - $6,749, which expire in 2026), relating to the co-owner’s share of
mortgage liability.
On December 31, 2021, the REIT completed a spin off, on a tax-free basis, of 27 properties including all of the REIT’s enclosed
shopping centres (the “Primaris Spin-Off”) to a new publicly-traded REIT (“Primaris REIT”). The REIT continues to guarantee
certain debt in connection with the Primaris Spin-Off, and will remain liable until such debts are extinguished or the lenders
agree to release the REIT’s guarantees. As at December 31, 2024, the estimated amount of debt subject to such guarantees, and
therefore the maximum exposure to credit risk, was $97,485, which expire between 2027 and 2030 (December 31, 2023 -
$208,803, which expire between 2024 and 2030).
In addition, the REIT continues to provide guarantees on behalf of the co-owners of certain of Primaris REIT’s properties. As at
December 31, 2024, the estimated amount of debt subject to such guarantees, and therefore the maximum exposure to credit
risk, was $67,249, which expires in 2027 (December 31, 2023 - $89,322, which expire between 2024 and 2027). There have been
no defaults by the primary obligor for debts on which the REIT has provided its guarantees, and as a result, no contingent loss on
these guarantees has been recognized in the consolidated financial statements.
Credit risks arise in the event that these parties default on repayment of their debt since they are guaranteed by the REIT. These
credit risks are mitigated as the REIT has recourse under these guarantees in the event of a default by the borrowers, in which
case the REIT’s claim would be against the underlying real estate investments.
(c) The REIT has entered into a binding mezzanine loan term sheet pursuant to which REDT JV LP will be entitled to a fixed rate
mezzanine loan (the “Loan”) from the REIT or its affiliates (the “Lender”) at 9.0%, for an initial maximum aggregate principal
amount of 65.0% loan-to-cost, currently estimated to be U.S. $136,200. The Loan will be interest only, prepayable without
consent during the period starting 3.5 years from execution of the Loan and ending on the 4th anniversary of the execution of
the Loan, or may be prepaid with consent of the Lender. The Loan will be secured by a first priority mortgage on the REDT
Projects, and will have a term of four years, subject to two 1-year extensions, subject to the Lender’s approval in its sole
discretion. As at December 31, 2024, no amounts had been drawn upon.
(d) The REIT is obligated, under certain contract terms, to construct and develop investment properties.
(e) The REIT is involved in litigation and claims in relation to the investment properties that arise from time to time in the normal
course of business. In the opinion of management, any liability that may arise from such contingencies would not have a
material adverse effect on the consolidated financial statements.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 40 of 41
24. Subsidiaries:
Subsidiaries are entities controlled by the REIT. The REIT controls an entity when it is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial
statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the
date on which control ceases.
The following are the REIT’s subsidiaries:
Ownership interest
December 31
December 31
Name of Entity
Place of Business
2024
2023
H&R Portfolio Limited Partnership
Canada
100 %
100 %
H&R REIT Management Services Limited Partnership
Canada
100 %
100 %
H&R REIT (U.S.) Holdings Inc.
United States
100 %
100 %
Lantower Residential Limited Partnership
United States
100 %
100 %
25. Subsequent event:
(a) In January 2025, the REIT sold three Canadian retail properties and its 50% interest in four Canadian retail properties, which
were classified as held for sale as at December 31, 2024, for gross proceeds of approximately $49,800.
H&R REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except Unit and per Unit amounts)
Years ended December 31, 2024 and 2023
Page 41 of 41
9 | H&R REIT Annual Report 2022
CORPORATE INFORMATION
TAXABILITY OF DISTRIBUTIONS
The REIT's cash distributions amounted to $0.72 per Unit during 2024 (including a $0.12 per Unit special cash distribution
to unitholders of record on December 31, 2024). The REIT also made a special distribution to unitholders of record on
December 31, 2024 of $0.60 per Unit payable in additional Units, which were immediately consolidated such that there
was no change in the number of outstanding Units. The cash portion of the special distribution was intended to provide
liquidity to unitholders to cover all or part of an income tax obligation that may arise from the additional taxable income
being distributed via the special distribution. The amount of the special distribution payable in Units ($0.60 per Unit) will
increase the adjusted cost basis of unitholders’ consolidated Units.
PLAN ELIGIBILITY
RRSP, RRIF, DPSP, RESP, RDSP, TFSA, FHSA
STOCK EXCHANGE LISTING
Units of H&R are listed on the Toronto Stock Exchange under the trading symbol HR.UN.
REGISTRAR AND TRANSFER AGENT
TSX Trust Company, 301 - 100 Adelaide Street West, Toronto, ON M5H 4H1. Telephone: 1‐800‐387‐0825 (or for callers
outside North America 416‐682‐3860), Fax: 1‐888‐249‐6189 or 1-514-985-8843, E‐mail: shareholderinquiries@tmx.com,
Website: www.tsxtrust.com
CONTACT INFORMATION
Investors, investment analysts and others seeking financial information should go to our website at www.hr‐reit.com, or
e‐mail info@hr‐reit.com, or call and ask for Larry Froom, Chief Financial Officer, or write to H&R Real Estate Investment
Trust, 3625 Dufferin Street, Suite 500, Toronto, Ontario, Canada, M3K 1N4.
9 | H&R REIT 2024 Annual Report
EXPERIENCED AND TENURED EXECUTIVE TEAM
1.
Investment Committee
2.
Audit Committee
3.
Compensation, Environmental, Social & Governance and Nominating Committee
4.
Includes officers and the families of trustees and officers
Thomas J. Hofstedter
Executive Chairman & CEO
Larry Froom, CPA/CA
CFO
Robyn Kestenberg
EVP, Office & Industrial
Emily Watson
COO
Lantower Residential
Colleen Grahn
President, Property Management
Lantower Residential
Hunter Webb
EVP, Development
Lantower Residential
Tony Duplisse
EVP, Portfolio Management
Lantower Residential
Cheryl Fried, CPA/CA
EVP, Finance
Blair Kundell
EVP, Operations
Matt Kingston
EVP, Development & Construction
Audrey Craig
EVP, Accounting
Lantower Residential
Terresa Porizek
EVP, Organization Development
Lantower Residential
BOARD OF TRUSTEES
Leonard Abramsky(2)
President, The Dunloe Group Inc.
Lindsay Brand(3)
Chief Investment Officer, Concert Properties
Jennifer A. Chasson(2)
Founder & President, Springbank Capital Corporation
Donald Clow(1,2,3)
Independent Lead Trustee
Mark Cowie(1)
Principal, Cowie Capital Partners
Stephen Gross(3)
Principal, Initial Corporation
Brenna Haysom(2,3)
Chief Executive Officer, Rally Labs
Thomas J. Hofstedter(1)
Executive Chairman & CEO, H&R REIT
Juli Morrow
Lawyer
Marvin Rubner(1)
Manager & Founder, YAD Investments Limited
10 | H&R REIT Annual Report 2022
H&R Real Estate Investment Trust
3625 Dufferin Street, Suite 500
Toronto, Ontario, Canada, M3K 1N4
HR.UN - TSX
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