H&R Real Estate Investment Trust Q2 Earnings Call Highlights

Key Points

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• H&R proposed combining its residential platform with GO REIT in a transaction valuing the combined entity at approximately C$7.8 billion. H&R unitholders would receive C$4.28 per unit in cash and retain a 66.9% majority interest in a platform with more than 13,300 residential units.

• The REIT continued its repositioning through major asset sales, with about C$773 million still classified as held for sale at June 30. Leverage stood at 7.1 times debt to adjusted EBITDA, while second-quarter FFO fell to C$0.247 per unit from C$0.314 a year earlier because of reduced income from disposed properties.

• Operating trends were mixed: residential and industrial same-property NOI were broadly stable, while office and retail NOI declined. Lantower’s Sun Belt residential portfolio showed improving occupancy, leasing traffic, conversion rates and asking rents despite modest year-over-year NOI pressure.

H&R Real Estate Investment Trust (TSE:HR.UN) used its second-quarter conference call to discuss a proposed transaction intended to combine its residential platform with GO REIT, alongside updates on asset sales, leverage reduction and operating performance across its remaining portfolio.

Chief Executive Officer Tom Hofstedter said the proposed arrangement follows a multiyear repositioning effort that included the spinout of Primaris, more than C$2.6 billion of non-strategic asset sales and a reduction in debt to adjusted EBITDA from 10 times to 7 times. He said the transaction would provide unitholders with C$4.28 per unit in immediate cash and, for eligible Canadian resident unitholders, a tax-deferred rollover on unit consideration.

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Hofstedter said H&R unitholders would hold a 66.9% majority ownership interest in the combined residential platform, which he described as the second-largest publicly traded residential REIT in Canada by enterprise value and the seventh-largest in the United States. The combined entity is expected to include 37 properties, more than 13,300 residential units, eight markets and four states, with an enterprise value of C$7.8 billion.

Transaction Structure and Process

Hofstedter said H&R’s portfolio complexity—including assets across industrial, residential, office and other categories, as well as multiple jurisdictions, partnerships and joint ventures—made a single-buyer sale impractical. The announced structure involves Blackstone and Crestpoint for income-producing industrial assets, GO REIT for the residential platform, and CRAL for non-core assets.

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According to Hofstedter, CRAL will acquire non-core assets including undeveloped land, suburban and secondary office properties, and other assets that are more complex to value and sell. CRAL is controlled by members of Hofstedter’s family.

He said 44 million H&R units held by CRAL, together with units held by certain affiliates and associates, will be redeemed and canceled as part of the arrangement. Those units will not receive the C$4.28 cash payment or GO REIT units being provided to other unitholders, he said. Hofstedter described the unit cancellation as part of the consideration contributed by CRAL to fund its acquisition of the non-core assets.

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CRAL also has committed to provide GO REIT with income support and other payments of up to approximately C$71 million during the first two years after closing, Hofstedter said. CRAL will remain a joint-venture partner with GO REIT at River Landing. Hofstedter said he will have no board seat, role or equity interest in GO REIT following closing.

Hofstedter said CIBC had worked for nearly two years on identifying a comprehensive solution for the portfolio, while independent trustees retained National Bank Financial as their own adviser. He said both advisers concluded that the consideration was fair and that the board’s recommendation was unanimous. Further details are expected in the management information circular.

Second-Quarter Financial and Portfolio Update

Interim Chief Financial Officer Cheryl Fried said H&R continued its repositioning strategy after completing C$1.5 billion of retail and office property dispositions during the first quarter of 2026. As of June 30, approximately C$773 million of assets were classified as held for sale, with C$124 million of that amount sold after quarter-end.

Funds from operations were C$0.247 per unit in the second quarter, compared with C$0.314 per unit a year earlier. Fried attributed the decline primarily to lower net operating income from property dispositions, partly offset by lower finance costs following debt repayment and higher finance income from a construction loan to the REDT joint venture. The FFO payout ratio was 60.7%.

H&R reported debt to total assets of 41.8%, debt to adjusted EBITDA of 7.1 times and unencumbered assets-to-unsecured-debt coverage of 3.21 times at June 30. Corporate debt included C$550 million of debentures, a C$250 million unsecured term loan and C$225 million of lines of credit.

During June, the REIT redeemed C$250 million of Series R senior debentures that carried a 2.906% annual interest rate. The redemption was primarily financed through unsecured operating lines of credit.

The company received a C$15.7 million lease termination payment from Bell Canada at 200 Bouchard Boulevard in Montreal. Fried said a corresponding non-cash straight-line rent adjustment meant the payment did not affect second-quarter NOI or FFO, though same-property cash-basis NOI and adjusted funds from operations benefited by C$15.7 million. In July, H&R received a final C$56.1 million lease termination payment after the lease termination date was advanced to August.

Operating Trends Across Segments

Residential and industrial assets represented 86% of H&R’s real estate assets at quarter-end, Fried said. The office portfolio comprised 12 properties and represented 10%, while the commercial component of River Landing was the only remaining retail asset and accounted for 4%.

• Residential same-property cash-basis NOI declined 0.1% in U.S. dollars from the prior-year quarter.

• Industrial same-property cash-basis NOI declined 0.7%, reflecting lower occupancy that was partly offset by rental-rate growth.

• Office same-property cash-basis NOI, excluding the Bouchard termination payment, declined 6.5%, primarily due to the expiration of an RBC lease at 330 Front Street in Toronto at the end of 2025.

• Retail same-property cash-basis NOI declined 5.9% in U.S. dollars, due to lower sundry income.

Fried also said the company’s two Slate industrial properties in Mississauga reached substantial completion in June and were transferred to investment properties. Both are fully leased to a single tenant at market rents for approximately 11 years. The lease at 560 Slate Drive began in March, while the lease at 600 Slate Drive is scheduled to begin in October.

Lantower Reports Improving Leasing Indicators

Emily Watson, chief operating officer of Lantower Residential, said the multifamily platform’s same-property cash-basis NOI declined 10 basis points in U.S. dollars from a year earlier. However, she pointed to improved occupancy, traffic and conversion metrics during the quarter.

Sun Belt occupancy ended the second quarter 145 basis points above the first quarter and 70 basis points above the end of the second quarter of 2025. Leasing inquiries rose 24% sequentially, traffic increased 15%, and tour-to-application conversion improved by 540 basis points, Watson said.

Net effective asking rents in Sun Belt markets increased 30 basis points from the first to the second quarter, compared with an approximately 100-basis-point decline in the same period of 2025. Watson said the portfolio’s Florida REDT projects completed construction in July and received temporary certificates of occupancy. Lantower Bayside had 41 leases and Lantower Sunrise had 17 leases as of the call.

Management did not open the call for questions, with Hofstedter citing forthcoming disclosures in the management information circular.

About H&R Real Estate Investment Trust (TSE:HR.UN)

H&R REIT is one of Canada’s largest real estate investment trusts. H&R REIT has ownership interests in a Canadian and U.S. portfolio primarily comprised of high-quality residential (operating as Lantower Residential), industrial and office properties comprising approximately 21.3 million square feet.

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