H&R REIT is one of Canada’s largest fully diversified real estate investment trusts. It has interests in an asset portfolio comprising of office, retail, industrial and residential properties spanning across 41 million square feet in North America. As one of Canada’s largest REITs, H&R has assets worth $13.4 billion. It is an unincorporated open-ended trust.
H&R REIT has four types of assets – office (39% of total assets), retail (30%), residential (21%), industrial (10%). By asset type, H&R’s Office segment is the largest of the four segments and holds a portfolio of single-tenant and multi-tenant office properties across North America, while its retail segment holds a portfolio of enclosed shopping centers, single-tenant retail properties, and multi-tenant retail centers throughout Canada and 16 single-tenant retail properties in the USA.
By geographic region, the USA accounts for 43% of the fair value of investments, followed by Ontario (31%), Alberta (17%), and other Canadian provinces (9%).
- Opportunity Score: 48
- Ticker: TSE:HR.UN
- Sector: Real Estate
- Industry: REIT - Diversified
- Market Cap: 4.75B
- P/E: 8.56
- Dividend Yield: 4.17%
- Payout Ratio (TTM): 38.60%
- Canadian Dividend Aristocrat: NO
- Chowder Score: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 1/10
- Dividend Income Fit: 4/10
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Revenue Growth & Market Exposure
H&R REIT invests in office, retail, industrial and residential properties and acquires properties both in Canada and the U.S. Its retail asset base is comprised of three different operating segments consisting of enclosed shopping centers and multi-tenant retail plazas in Canada, other retail properties in Canada and the U.S., and H&R’s 33.6% interest in Echo Realty focused on grocery-anchored shopping centers in the U.S.
H&R’s residential segment operates as Lantower Residential, a wholly-owned subsidiary of H&R REIT, and focuses on acquiring and developing multi-family residential rental properties in the U.S.
Its office asset portfolio occupies a high occupancy of 99.6% (as of January 2021) with an average remaining lease term to maturity of 12.2 years and 85.5% of revenues coming from investment-grade rated tenants. H&R’s office tenants in Alberta are some of the strongest companies in the energy sector. Similarly, for its retail portfolio, H&R enjoys high occupancy of 90.3% with an average remaining lease term to maturity of 6.9 years.
A few of the leading tenants by revenue are Ovintiv, Bell Canada, Hess Corporation, Giant Eagle, Lowe’s, Canadian Tire, Shell, Loblaw, etc. The industrial portfolio had an occupancy rate of 97.5%. The REIT’s strategy is to acquire and develop class A properties in the U.S. with a strong population and employment growth opportunities.
H&R REIT’s focus on a diversified portfolio of high-quality investment properties in North America with quality tenants ensures stable cash flows. It enters into long-term lease including rent escalations with creditworthy tenants which further increases cash flow predictability. The REIT is also streamlining its portfolio and recycling capital into higher growth properties.
The retail landscape witnessed challenging conditions that impacted the valuation in the last year. H&R decreased the fair value of its office and retail properties by $1.4 billion in 2020 in the wake of the pandemic. Certain H&R properties were closed for business in Q2 2020 during the first wave of COVID-19 and several of these properties in Ontario and Manitoba were forced to close for the second time in Q4 2020 due to the second wave of COVID-19.
H&R REIT achieved an overall rent collection of 94% in January 2021 with strong collections in its industrial and residential portfolios. Few important achievements in 2020 were the advancement in the River Landing development towards completion and significant office lease extension with Hess Corporation.
H&R REIT pays monthly cash distribution and its three-year dividend growth stands at 0.74% CAGR. It sports an annual average yield of 4.7% and has a high payout ratio. H&R REIT is in a good position to benefit from predictable and stable income from long-term leases with high-quality investment-grade tenants. The REIT’s efforts towards simplifying and streamlining its portfolio should contribute to positive FFO per unit and NAV per unit growth in the near future.
H&R REIT’s business is well-diversified by property and geography. The scale and quality of H&R’s portfolio, resilient cash flow, and strong balance sheet should also support future distribution growth. The REIT continues to pursue its capital reallocation program through property dispositions, acquisitions, and developments.
Its promising development pipeline in attractive locations is also expected to create significant value and enhance cash flows. H&R’s active development pipeline is currently comprised of five residential developments in the U.S.
H&R REIT’s portfolio of diversified assets is its biggest competitive advantage. Its office assets are marked by long-term leases, while its retail assets have displayed stable performance and residential assets have high growth opportunities.
H&R REIT is known for its conservative management of assets and for mitigating risks through long-term property leasing and financing. It should see attractive investment opportunities as markets transition from current pandemic conditions to a new post-pandemic normal.
H&R’s scale, low leverage, and high-quality tenant base form a deep moat around its business enabling the REIT to pursue large format development opportunities not available to other smaller entities.
Other leading REITs in the diversified segment are Slate Office REIT, Crombie REIT, Artis REIT, PRO REIT, Cominar REIT, etc.
|TSE:APR.UN||APR.UN||Automotive Properties REIT||Real Estate||REIT - Diversified||0.58||12.72||0.50||13.62||13.62||0.93||0.0632||0.8100||12||0.80||0.0615||1||6||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1||6.32|
|TSE:AX.UN||AX.UN||Artis REIT||Real Estate||REIT - Diversified||0.47||11.77||1.53||8.63||8.63||1.36||0.0510||0.4190||12||0.60||0.0510||1||5||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1||5.10|
|TSE:BTB.UN||BTB.UN||BTB REIT||Real Estate||REIT - Diversified||0.64||4.09||0.30||23.48||23.48||0.17||0.0733||1.7790||12||0.30||0.0053||1||7||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1||7.33|
|TSE:CRR.UN||CRR.UN||Crombie REIT||Real Estate||REIT - Diversified||0.24||18.36||1.78||0.00||0.00||-0.40||0.0485||0.0000||12||0.89||0.0483||1||5||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1||4.85|
|TSE:CUF.UN||CUF.UN||Cominar REIT||Real Estate||REIT - Diversified||0.39||11.22||2.05||0.00||0.00||-1.77||0.0321||0.0000||12||0.36||0.0000||1||3||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1||3.21|
|TSE:HR.UN||HR.UN||H&R REIT||Real Estate||REIT - Diversified||0.48||16.56||4.75||8.56||8.56||1.93||0.0417||0.3860||12||0.69||0.0000||1||4||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1||4.17|
|TSE:MPCT.UN||MPCT.UN||Dream Impact Trust REIT||Real Estate||REIT - Diversified||0.56||6.55||0.42||0.00||0.00||0.00||0.0610||0.0000||12||0.40||0.0610||1||6||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1||6.10|
|TSE:MRT.UN||MRT.UN||Morguard REIT||Real Estate||REIT - Diversified||0.43||6.41||0.41||0.00||0.00||-4.01||0.0374||0.0000||12||0.24||0.0000||1||4||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1||3.74|
|TSE:PRV.UN||PRV.UN||PRO REIT||Real Estate||REIT - Diversified||0.54||6.95||0.33||63.48||63.48||0.11||0.0647||3.7900||12||0.45||0.0647||1||6||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1||6.47|
|TSE:SOT.UN||SOT.UN||Slate Office REIT||Real Estate||REIT - Diversified||0.34||5.34||0.36||8.19||8.19||0.65||0.0748||0.5740||12||0.40||0.0000||1||7||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1||7.48|
|TSE:TNT.UN||TNT.UN||True North Commercial REIT||Real Estate||REIT - Diversified||0.39||7.51||0.66||20.43||20.43||0.37||0.0791||1.6050||12||0.59||0.0791||1||8||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1||7.91|
2020 was marked by reduced property market transactions and leasing volumes, as well as lower industry activity. However, H&R continued to recycle capital, streamlining and simplifying its portfolio, and re-investing into higher growth properties during the year. H&R is well-positioned to take advantage of opportunities, with a strong balance sheet and a portfolio concentrated in large primary markets with growth prospects.
The REIT has a proven track record of strong performance and a history of sourcing attractive deals. Well-located and quality assets should continue to add on to total unitholder returns through NAV growth and attractive monthly yield.