Release Date: February 13, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- H&R Real Estate Investment Trust (HRUFF, Financial) successfully executed its strategic repositioning plan by selling $429 million of real estate assets in 2024, with an additional $49.8 million sold in early 2025.
- The company's office portfolio maintains a high occupancy rate of 96.8% with an average remaining lease term of six years, providing stable cash flow.
- The residential segment saw an increase in average US residential rents from $21.16 per square foot in 2021 to $26.84 per square foot by the end of 2024.
- The industrial segment experienced a 6.3% increase in same property net operating income, with average Canadian industrial rents rising from $7.17 to $9.66 per square foot.
- H&R Real Estate Investment Trust (HRUFF) has a strong balance sheet with liquidity exceeding $900 million and an unencumbered property pool of approximately $4.4 billion.
Negative Points
- The office segment experienced a 2.8% decrease in same property net operating income on a cash basis, reflecting challenges in the office market.
- The company's retail portfolio is facing potential tenant mix changes, with Giant Eagle selling its convenience stores, which could impact revenue composition.
- The industrial portfolio's growth is limited by a lack of lease expirations until 2027, which may delay organic growth opportunities.
- The transaction market remains challenging, with high interest rates affecting asset sales and limiting opportunities for selling retail and industrial properties.
- The company faces headwinds in the multi-family segment due to supply pressures, particularly in the Sun Belt markets, which may impact lease spreads and occupancy rates.
Q & A Highlights
Q: Can you provide details on the property tax adjustments in the US portfolio and their impact on the quarter?
A: Larry Fro, CFO: The property tax adjustment resulted in $1.9 million in savings for the quarter. In Q4 2023, there was a $1 million adjustment, so for percentage increase calculations, you should back out $1 million from 2023 and $1.9 million from 2024.
Q: What are your expectations for the US multi-family space, considering the supply side and market revival?
A: Emily Watson, President of Land Power: Despite supply headwinds, we are seeing NOI expansion. January started strong with lease spreads in the Sun Belt at 1.7%. We expect Q1 and Q2 to be choppy due to front-loaded deliveries, but anticipate a rebound in Q3 and Q4. By 2026, we foresee substantial growth as new supply levels decline.
Q: Regarding the industrial portfolio, should we expect growth acceleration in 2027 when more leases mature?
A: Larry Fro, CFO: Yes, as leases expire, we expect growth. Current average rent is $9.66, and renewals are around $14-$15, so more expiries will lead to bigger growth.
Q: Can you provide insights into institutional capital movements and market trends?
A: Tom Hofstadter, CEO: Institutional capital is not moving into office spaces and is cautious overall. They focus on industrial and residential sectors, with retail on the sidelines. The market is difficult with few trades due to wide bid-ask spreads.
Q: What are your plans for asset sales, and how do you intend to allocate the proceeds?
A: Tom Hofstadter, CEO: We aim to liquidate certain positions by year-end, focusing on eco positions and Kan lands. If successful, proceeds will be used to pay down debt and potentially buy back shares. However, sales depend on market conditions and interest rates.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
