TORONTO, Aug. 14, 2024 /CNW/ - H&R Real Estate Investment Trust ("H&R" or "the REIT") (TSX:HR) is pleased to announce its financial results for the three and six months ended June 30, 2024. Q2 2024 HIGHLIGHTS: Overall portfolio occupancy was 96.9% at June 30, 2024. Net operating income decreased by 5.3% compared to Q2 2023 primarily due to $776.4 million of property sales between January 1, 2023 and June 30, 2024. Same-Property net operating income (cash basis)(1) increased by 1.7% compared to Q2 2023 driven by various factors across H&R's operating segments: • Residential 0.3 % Strengthening of the U.S. dollar • Industrial 4.7 % Higher rent and occupancy • Office (1.8 %) Lower occupancy primarily from properties advancing through rezoning • Retail 7.9 % Increase in occupancy at River Landing Commercial, Miami,  FL Funds From Operations ("FFO") per Unit(2) was $0.31 per Unit compared to $0.30 per Unit in Q2 2023. The REIT's payout ratio as a % of FFO(2) was 49.0% compared to 50.5% in Q2 2023. Unitholders' equity per Unit was $19.23 and Net Asset Value ("NAV") per Unit(2) was $19.94 at June 30, 2024. The REIT had $943 million in liquidity at June 30, 2024. Unencumbered assets to unsecured debt coverage(3) was 2.2x at June 30, 2024. At June 30, 2024, properties sold or under contract to be sold in 2024 totaled $429.0 million. H&R's real estate assets at the REIT's proportionate share(1)(4) at June 30, 2024 is as follows: (1) These are non-GAAP measures. Refer to the "Non-GAAP Measures" section of this news release. (2) These are non-GAAP ratios. Refer to the "Non-GAAP Measures" section of this news release. (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) Excludes the Bow and 100 Wynford, which were legally sold in October 2021 and August 2022, respectively. (5) Includes six office properties advancing through the rezoning and intensification process to be developed into residential properties. Tom Hofstedter, Executive Chair and Chief  Executive Officer said "We are pleased with our progress in executing our strategic plan over the past three years, repositioning H&R to be a more simplified growth and income-oriented REIT focused on residential and industrial properties.  Since the announcement of this plan, H&R completed the spin-off of the REIT's 27 enclosed shopping centres and sold ownership interests in 56 properties totaling approximately $5.2 Billion. The value and timing of these sales have exceeded our expectations given the challenging economic environment and volatility in the capital and real estate markets." FINANCIAL HIGHLIGHTS  June 30 December 31 2024 2023 Total assets (in thousands) $10,321,597 $10,777,643 Debt to total assets per the REIT's Financial Statements(1) 34.4 % 34.2 % Debt to total assets at the REIT's proportionate share(1)(2) 44.8 % 44.0 % Debt to Adjusted EBITDA at the REIT's proportionate share(1)(2)(3) 8.5x 8.5x Unitholders' equity (in thousands) $5,037,363 $5,192,375 Units outstanding (in thousands) 262,016 261,868 Exchangeable units outstanding (in thousands) 17,974 17,974 Unitholders' equity per Unit $19.23 $19.83 NAV per Unit(2) $19.94 $20.75   Three months ended June 30 6 months ended June 30 2024 2023 2024 2023 Rentals from investment properties (in millions) $204.8 $212.5 $414.3 $430.8 Net operating income (in millions) $144.5 $152.5 $238.7 $249.8 Same-Property net operating income (cash basis) (in millions)(4) $124.4 $122.4 $248.2 $243.9 Net income (loss) (in millions) ($272.7) ($59.4) ($240.9) $35.4 FFO (in millions)(4) $85.6 $84.1 $168.7 $172.0 Adjusted funds from operations ("AFFO") (in millions)(4) $68.8 $69.6 $137.6 $143.3 Weighted average number of Units and exchangeable units for FFO (in 000's) 279,905 283,384 279,876 283,637 FFO per basic and diluted Unit(2) $0.306 $0.297 $0.603 $0.606 AFFO per basic and diluted Unit(2) $0.246 $0.246 $0.492 $0.505 Cash Distributions per Unit $0.150 $0.150 $0.300 $0.300 Payout ratio as a % of FFO(2) 49.0 % 50.5 % 49.8 % 49.5 % Payout ratio as a % of AFFO(2) 61.0 % 61.0 % 61.0 % 59.4 % (1) Debt includes mortgages payable, debentures payable, unsecured term loans and lines of credit. (2) These are non-GAAP ratios. Refer to the "Non-GAAP Measures" section of this news release. (3) Adjusted earnings before interest, taxes, depreciation and amortization ("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 trailing 12 months. Refer to the "Non-GAAP Measures" section of this news release. (4) These are non-GAAP measures. Refer to the "Non-GAAP Measures" section of this news release. The net loss for the three and six months ended June 30, 2024 was due to the fair value adjustment of real estate assets: Fair Value Adjustment on Real Estate Assets Three months ended June 30 Six months ended June 30 (in thousands of Canadian dollars) 2024 2023 2024 2023 Operating Segment: Residential ($75,363) ($113,309) ($83,556) ($96,052) Industrial (21,268) (3,222) (39,787) (6,237) Office (204,563) (147,432) (210,603) (111,424) Retail (95,494) (10,001) (103,088) (13,247) Land and properties under development (30,475) — (31,956) 38,000 Fair value adjustment on real estate assets per the REIT's proportionate share(1) (427,163) (273,964) (468,990) (188,960) Less: equity accounted investments 124,853 13,280 122,513 13,267 Fair value adjustment on real estate assets per the REIT's Financial Statements ($302,310) ($260,684) ($346,477) ($175,693) (1) The REIT's proportionate share is a non-GAAP measure defined in the "Non-GAAP Measures" section of this news release. Q2 2024 Transaction Highlights Property Dispositions In December 2023, H&R announced it had entered into an agreement to sell 25 Dockside Drive for $232.5 million. The property is an office property located directly on the waterfront in downtown Toronto, comprising 479,437 square feet and is substantially leased to Corus Entertainment. The sale closed in April 2024. The property was encumbered with a $60.0 million mortgage bearing interest at 4.9%, which was repaid on closing. H&R used the remaining proceeds to repay its lines of credit. H&R will continue to manage the property and earn third-party property management fees from the purchaser. 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 May 2024, H&R sold a 123,090 square foot single tenanted industrial property in Morton, IL for approximately $8.5 million (U.S. $6.3 million). H&R owns one remaining industrial property in the U.S. in which it holds a 50.5% ownership interest. In June 2024, H&R sold its 50% ownership interest in 3777/3791 Kingsway, Burnaby, BC (the "Kingsway Property") for $82.5 million. The Kingsway Property comprises 335,778 of office space and approximately 0.6 acres of adjacent vacant land, at H&R's ownership interest. 3777 Kingsway was encumbered with a $24.8 million mortgage at H&R's 50% ownership interest bearing interest at 5.8%, which was assumed by the purchaser on closing. H&R provided two vendor take-back mortgages to the purchaser totaling approximately $34.7 million. H&R used the remaining proceeds to repay its lines of credit. In addition, a tenant exercised their option to purchase one Canadian industrial property. Gross proceeds at H&R's 50% ownership interest are expected to be $60.7 million and closing is expected to occur in Q4 2024. H&R continues to successfully execute on its strategic repositioning plan with properties and land parcels sold or under contract to be sold in 2024 totaling approximately $429.0 million. Creation of Lantower Real Estate Development Trust (No. 1) 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 and 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 that had been wholly-owned by a subsidiary of the REIT. The REDT Projects are expected to contain an aggregate of 601 residential rental units. The REIT contributed the REDT Projects at a cost of $28.8 million (U.S $21.3 million) to Lantower Residential REDT (No.1) JV LP ("REDT JV LP"), a joint venture with the REDT, 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. The REDT is using the proceeds of the initial public offering, together with debt financing to develop the assets, commence lease-up and operate the REDT Projects, and subsequently achieve a liquidity event. 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.  Leasing Highlights: In Q2 2024, H&R completed a 10-year lease renewal on a 63,395 square foot industrial property in Mississauga, ON, at H&R's 50% ownership interest. The original lease was set to expire in August 2024 and annual rent will increase by $12.50 per square foot commencing in September 2024 with annual contractual rent escalations. The tenant has a free rent period from September 2024 to January 2025. In Q2 2024, H&R completed a 5-year lease renewal on a 93,397 square foot industrial property in Boucherville, QC at H&R's 50% ownership interest. The original lease was set to expire in June 2024 and annual rent will increase by $7.50 per square foot commencing in July 2024 with annual contractual rent escalations. The tenant has a free rent period from July 2024 to September 2024. In Q2 2024, H&R completed a 5-year lease renewal on a 22,250 square foot industrial property in Brantford, ON, at H&R's 50% ownership interest. The original lease was set to expire in August 2024 and annual rent will increase by $9.35 per square foot commencing in September 2024 with annual contractual rent escalations. Development Update Canadian Properties under Development In Q1 2023, H&R entered into a lease amendment with its tenant at 6900 Maritz Drive in Mississauga, ON to terminate their lease in December 2023. 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 122,413 square foot industrial building. The property was transferred from investment properties to properties under development during Q1 2024. Demolition of the existing office building was completed in April 2024. Construction has commenced and substantial completion is expected in Q1 2025. As at  June 30, 2024, the total development budget for this property isapproximately $43.6 millionwith costs remaining to complete the new building of approximately $20.3 million. 560 & 600 Slate Drive (Equity Accounted Investment) 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. As at June 30, 2024, the total budget for 560 & 600 Slate Drive is approximately $66.3 million with costs remaining to complete of $45.8 million, all at H&R's ownership interest. 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. U.S. Properties under Development In 2022, the REIT commenced construction on two U.S. residential development properties in Dallas, TX. As at June 30, 2024, the total development budget for these two properties is approximately $287.4 million (U.S. $209.8 million) with costs remaining to complete of approximately $56.5 million (U.S. $41.2 million). Both properties are expected to be completed on budget in the latter half of 2024. As at June 30, 2024, Lantower West Love received certificates of occupancy for 216 of the 413 residential rental units. As at August 7, 2024, there were 127 residential rental units leased of which 91 residential rental units were occupied. Debt & Liquidity Highlights As at June 30, 2024, debt to total assets per the REIT's Financial Statements was 34.4% compared to 34.2% as at December 31, 2023. As at June 30, 2024, debt to total assets at the REIT's proportionate share (a non-GAAP ratio, refer to the "Non-GAAP Measures" section of this news release) was 44.8% compared to ...