H&R REIT is one of Canada’s largest fully internalized 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 $14.3 billion. It is an unincorporated open-ended trust.
H&R REIT has four types of assets – office (43% of total assets), retail (30%), residential (20%), industrial (7%). 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 40% of the total fair value of investments, followed by Ontario (28%), Alberta (23%) and other Canadian provinces (9%).Investment Data
- Opportunity Score: 80
- Ticker: TSE:HR.UN
- Sector: Real Estate
- Industry: REIT - Diversified
- Market Cap: 6.16B
- P/E: 25.83
- Dividend Yield: 6.42
- Dividend Payout Ratio: 166.27
- 3, 5, 10-year Dividend Growth: Dividend Snapshot Members Only
Revenue Growth & Market Exposure
H&R has six operating segments. The 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 centres 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, and focuses on acquiring and developing multi-family residential rental properties in the U.S.
Its office asset portfolio occupies a high occupancy of 99.5% (as of September 30, 2019) with an average remaining lease term to maturity of 12.7 years and tenants with investment grade ratings of 86.3%. 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 89.4% with an average remaining lease term to maturity of 6.6 years. 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 diversified portfolio of high quality investment properties in North America with quality tenants ensure stable cash flows. It enters into long-term lease including rent escalations with creditworthy tenants which further increases cash flow predictability.
The REIT is streamlining its portfolio and recycling capital into higher growth properties. It sold nearly $1 billion of lower growth assets, including its U.S. retail portfolio in 2018 and continued investing in attractive development projects and U.S. residential rental portfolio. Ownership of a diversified portfolio of investment properties, trusted clients and cash flow visibility are H&R’s biggest competitive strengths.
H&R sports an annual average yield of 6.2% with three-year dividend growth of 0.74% CAGR and FFO payout ratio of 115%.
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. Lease-up of the four recently built Lantower Residential properties and contribution of Jackson Park should also complement growth. 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 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 development pipeline is also expected to create significant value and enhance cash flows. H&R’s active development pipeline is currently comprised of five residential developments and one mixed-use development 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 is in a good position to benefit from the strong organic growth driven by leasing and market rental rate upside.
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.
|HR.UN||H&R REIT||Real Estate||REIT - Diversified||80||21.50||6.16||25.83||25.83||0.83||6.42||166.27||12||1.38||5.99||NO||NO||NO||NO||1|
|SOT.UN||Slate Office REIT||Real Estate||REIT - Diversified||75||5.88||0.40||6.19||6.19||0.95||6.80||42.10||12||0.40||6.59||NO||NO||NO||NO||1|
|BTB.UN||BTB REIT||Real Estate||REIT - Diversified||74||5.32||0.33||8.64||8.64||0.62||7.89||67.74||12||0.42||7.89||NO||NO||NO||NO||1|
|DRA.UN||Dream Hard Asset Alternatives Trust REIT||Real Estate||REIT - Diversified||67||7.77||0.00||0.00||0.00||0.00||5.15||100.00||12||0.40||11.38||NO||NO||NO||NO||1|
|CUF.UN||Cominar REIT||Real Estate||REIT - Diversified||59||14.66||2.67||0.00||0.00||-1.16||4.91||100.00||12||0.72||0.00||NO||NO||NO||NO||1|
|AX.UN||Artis REIT||Real Estate||REIT - Diversified||57||12.00||1.66||22.87||22.87||0.52||4.50||103.85||12||0.54||4.50||NO||NO||NO||NO||1|
|TNT.UN||True North Commercial REIT||Real Estate||REIT - Diversified||56||7.48||0.63||10.58||10.58||0.71||7.94||83.66||12||0.59||7.94||NO||NO||NO||NO||1|
|APR.UN||Automotive Properties REIT||Real Estate||REIT - Diversified||47||12.76||0.48||0.00||0.00||-0.13||6.30||100.00||12||0.80||37.38||NO||NO||NO||NO||1|
|PRV.UN||PRO REIT||Real Estate||REIT - Diversified||44||7.53||0.28||12.57||12.57||0.60||8.37||105.00||12||0.63||8.37||NO||NO||NO||NO||1|
|MRT.UN||Morguard REIT||Real Estate||REIT - Diversified||42||11.82||0.72||27.42||27.42||0.43||8.12||223.26||12||0.96||7.04||NO||NO||NO||NO||1|
|CRR.UN||Crombie REIT||Real Estate||REIT - Diversified||41||16.36||1.47||17.99||17.99||0.91||5.44||97.81||12||0.89||5.43||NO||NO||NO||NO||1|
H&R’s development pipeline is an important growth driver for NAV and FFO per unit. The REIT has a proven track record of strong performance and a history of sourcing attractive deals. As a leading North American REIT, H&R REIT should gain from the strong demand in its core markets. Well-located, quality assets should continue to add on to total unitholder returns through NAV growth and attractive monthly yield.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.