H&R Reports Solid Q2 Results and with Cenovus's Occupancy of the Bow Announces Distribution Increases of 12.5%

H&R Reports Solid Q2 Results and with Cenovus's Occupancy of the Bow Announces 
Distribution Increases of 12.5% 
TORONTO, Aug. 14, 2012 /CNW/ - H&R Real Estate Investment Trust ("H&R REIT") 
and H&R Finance Trust (collectively, "H&R") (TSX: HR.UN; HR.DB.C; HR.DB.D; 
HR.DB.E) announced their financial results for the second quarter ended June 
30, 2012. 
Operating Highlights
H&R REIT's operating strategy is to stabilize annual earnings and minimize 
market risk by leasing and financing its properties on a long-term basis. As a 
result, the average remaining term to maturity as at June 30, 2012 was 11.6 
years for leases and 8.0 years for outstanding mortgages. Occupancy at June 
30, 2012 was 98%, down slightly from the 98.9% at June 30, 2011. Leases 
representing only 1.6% of total rentable area will expire during the remainder 
of 2012. As at June 30, 2012, the ratio of H&R's debt to fair market value 
was 54.1% compared to 53.6% as at December 31, 2011. H&R's debt excluding 
convertible debentures to fair market value ratio was 50.3% compared to 47.0% 
as at December 31, 2011. 
Capital Transaction Highlights
During the second quarter 2012: 


    --  H&R REIT acquired a one-third interest in the iconic Scotia
        Plaza Complex ("Scotia Plaza") in downtown Toronto for a total
        purchase price of approximately $422.2 million.  This
        state-of-the-art LEED Gold office building was purchased at a
        capitalization rate of 5.2%, with the Bank of Nova Scotia as
        the anchor tenant leasing approximately 61% of Scotia Plaza for
        an average lease term of 13.5 years.  H&R REIT partially funded
        this acquisition by issuing $216.7 million of first mortgage
        bonds at an interest rate of 3.21% for a 7-year term; and
    --  H&R REIT issued two series of first mortgage bonds secured by
        the Bow development in Calgary, Alberta comprised of: a) $250.0
        million, 9-year term (maturing June 14, 2021), semi-annual
        interest only bonds with an interest rate of 3.69% and b)
        $250.0 million, 10-year term (maturing June 14, 2022),
        semi-annual 30 year amortizing bonds with an interest rate of
        3.69%.  H&R REIT used a portion of the proceeds for the
        acquisition of Scotia Plaza and used the remaining proceeds to
        repay bank indebtedness and fund the redemption of certain
        debentures.

Development Highlights
H&R REIT is currently developing the Bow in Calgary, AB. The Bow is a 
2-million square foot head office complex, pre-leased on a triple net basis, 
to Encana Corporation for a term of 25 years. The North Block budget is 
currently $1.67 billion leaving approximately $87.4 million remaining to be 
spent. The first two tranches (floors 3 to 22) were delivered to Encana 
Corporation on May 2, 2012. Delivery of further tranches will occur 
throughout 2012. Encana Corporation is entitled to a 60-day rent free 
fixturing period and a rent credit equal to the delay penalty estimated to be 
$31.0 million in respect to all of the tranches. This rent free period 
combined with the interest expense that will no longer be capitalized, as 
tranches of the project become available for their intended use, will result 
in an estimated funds from operations ("FFO")((1)) gain of $3.6 million and an 
adjusted funds from operations (("AFFO")((1)) loss of $32.9 million) in 2012 
as shown in the table below.

 _____________________________________________________________________
|               |    Actual|                       Estimate           |
|_______________|__________|__________________________________________|
|In Millions    |       Q2 | Q3 2012| Q4 2012|  Total |Q1 2013|Q2 2013|
|               |      2012|        |        |    2012|       |       |
|_______________|__________|________|________|________|_______|_______|
|Basic rent     |$         |        |        |        |   $9.8|  $23.4|
|               |         -|$       |$       |$       |       |       |
|               |          |       -|       -|       -|       |       |
|_______________|__________|________|________|________|_______|_______|
|Straight-lining|       5.7|    10.7|    20.1|    36.5|   14.9|    1.9|
|of contractual |          |        |        |        |       |       |
|rent           |          |        |        |        |       |       |
|_______________|__________|________|________|________|_______|_______|
|Interest no    |     (3.6)|   (9.1)|  (13.6)|  (26.3)| (15.5)| (15.5)|
|longer         |          |        |        |        |       |       |
|capitalized    |          |        |        |        |       |       |
|_______________|__________|________|________|________|_______|_______|
|Mortgage       |     (0.5)|   (2.2)|   (3.9)|   (6.6)|  (4.6)|  (4.6)|
|interest       |          |        |        |        |       |       |
|_______________|__________|________|________|________|_______|_______|
|Depreciation   |     (1.6)|   (4.7)|   (8.4)|  (14.7)| (10.2)| (10.2)|
|_______________|__________|________|________|________|_______|_______|
|Expected Bow   |       1.6|   (0.6)|     2.6|     3.6|    4.6|    5.2|
|FFO((1))       |          |        |        |        |       |       |
|_______________|__________|________|________|________|_______|_______|
|Expected Bow   |     (4.1)|  (11.3)|  (17.5)|  (32.9)| (10.3)|    3.3|
|AFFO((1))      |          |        |        |        |       |       |
|_______________|__________|________|________|________|_______|_______|

((1)) H&R's combined MD&A includes reconciliations of: net income
      (loss) to FFO; FFO to AFFO; and AFFO to cash provided by
      operations.  Readers are encouraged to review such
      reconciliations in the combined MD&A.

Upon full occupancy, the Bow is expected to generate approximately $93.5 
million of net operating income on an annualized basis and H&R REIT will have 
additional annual interest expense, due to interest expense no longer being 
capitalized to the project, of approximately $62.0 million. Rent escalations 
will be at 0.75% per annum on the office space and 1.5% per annum on the 
parking income for the full 25-year term.

Financial Highlights
The following table includes non-Generally Accepted Accounting Principles 
("GAAP") information that should not be construed as an alternative to 
comprehensive income (loss) or cash provided by operations and may not be 
comparable to similar measures presented by other issuers as there is no 
standardized meaning of FFO, and AFFO under GAAP. Management believes that 
these are meaningful measures of operating performance. Readers are 
encouraged to refer to H&R's combined MD&A for further discussion of non-GAAP 
information presented.

 _____________________________________________________________________
|                       |3 months ended June 30|6 months ended June 30|
|                       |______________________|______________________|
|                       | 2012 |        2011   | 2012 |        2011   |
|_______________________|______|_______________|______|_______________|
|Rentals from investment|$204.7|      $155.9   |$390.9|      $309.2   |
|properties (millions)  |      |               |      |               |
|_______________________|______|_______________|______|_______________|
|Net income (loss)      |$13.9 |        $9.1   |$30.6 |      ($22.2)  |
|(millions)             |      |               |      |               |
|_______________________|______|_______________|______|_______________|
|FFO (millions) ((1))   |$92.9 |       $58.2   |$165.3|      $133.9   |
|_______________________|______|_______________|______|_______________|
|FFO per Stapled Unit   |$0.50 |       $0.37   |$0.90 |       $0.87   |
|(basic)                |      |               |      |               |
|_______________________|______|_______________|______|_______________|
|AFFO (millions) ((1))  |$68.6 |       $57.8   |$139.8|      $114.4   |
|_______________________|______|_______________|______|_______________|
|AFFO per Stapled Unit  |$0.37 |       $0.37   |$0.76 |       $0.74   |
|(basic)                |      |               |      |               |
|_______________________|______|_______________|______|_______________|
|Cash provided by       |$113.9|      $101.8   |$257.1|      $196.4   |
|operations (millions)  |      |               |      |               |
|_______________________|______|_______________|______|_______________|
|Cash distributions paid|$40.1 |       $29.2   |$76.6 |       $56.6   |
|(millions)( (2))       |      |               |      |               |
|_______________________|______|_______________|______|_______________|
|Distributions per      |$0.29 |       $0.24   |$0.56 |       $0.46   |
|Stapled Unit           |      |               |      |               |
|_______________________|______|_______________|______|_______________|

((1))    H&R's combined MD&A includes reconciliations of: net income
         (loss) to FFO; FFO to AFFO; and AFFO to cash provided by
         operations.  Readers are encouraged to review such
         reconciliations in the combined MD&A.

((2))    Cash distributions paid exclude distributions reinvested in
         units pursuant to H&R's unitholder distribution reinvestment
         plan and include the distributions paid to the Class B Limited
         Partnership unitholders who can exchange their units for
         Stapled Units.

Under International Financial Reporting Standards at each reporting period, 
H&R REIT fair values its convertible debentures and exchangeable units using 
closing market prices. This is shown as loss on change in fair value. Also 
included in the loss on change in fair value is the net loss on derivative 
instruments. The total loss on change in fair value was $22.3 million for 
the three months ended June 30, 2012 (2011 - $4.2 million) and $17.6 million 
for the six months ended June 30, 2012 (2011 - $61.2 million). For the three 
months ended June 30, 2012, there was a gain (loss) on extinguishment of debt 
of $10.6 million (2011 - ($0.2 million)) and for the six months ended June 30, 
2012, there was a gain on extinguishment of debt of $10.6 million (2011 - 
$14.6 million). Excluding the loss on change in fair value and the gain 
(loss) on extinguishment of debt, net income (loss) would have been $25.6 
million for the three months ended June 30, 2012 (2011 - $13.5 million) and 
$37.6 million for the six months ended June 30, 2012 (2011 - $24.4 million).

Included in AFFO were actual capital and tenant expenditures of $8.5 million 
for the three months ended June 30, 2012 (2011 - $2.6 million) and $10.7 
million for the six months ended June 30, 2012 (2011 - $8.2 million). The 
effect of the Bow's first tranche having a rent free period, together with a 
greater interest expense, resulted in a $4.1 million loss in AFFO for the 
three and six months ended June 30, 2012. Excluding these capital and tenant 
expenditures and the impact of the Bow's results, AFFO would have been $81.2 
million, $0.43 per Stapled Unit for the three months ended June 30, 2012 (2011 
- $60.4 million, $0.39 per Stapled Unit) and $154.6 million, $0.84 per Stapled 
Unit for the six months ended June 30, 2012 (2011 - $122.6 million, $0.80 per 
Stapled Unit).

Subsequent to June 30, 2012, H&R REIT:
    --  redeemed all of its remaining outstanding 6.65% 2013
        Convertible Debentures for a total cash payment of $29.8
        million;
    --  redeemed all of its remaining outstanding 6.75% 2014
        Convertible Debentures for a total cash payment of $1.3
        million;
    --  sold one industrial property in Ontario for gross proceeds of
        $10.0 million;
    --  refinanced one Canadian mortgage totaling $129.6 million
        bearing interest at a rate of 6.93%, with one new mortgage
        totaling $200.0 million bearing interest at a rate of 4.0% for
        a 10-year term; and
    --  purchased a grocery anchored retail portfolio of five
        properties totaling 340,742 square feet in Florida for an
        aggregate purchase price of U.S. $55.5 million and a
        capitalization rate of 6.75%.  H&R REIT has secured a U.S.
        $36.1 million mortgage commitment for these properties at an
        interest rate of 3.35% for a 7-year term.  The portfolio
        consists of the following properties:

 ___________________________________________________________________
|Property Address            |Anchor          |Square Feet|Occupancy|
|____________________________|________________|___________|_________|
|840 A1A North, Ponte Vedra  |The Fresh Market|     52,959|    89.5%|
|Beach, FL                   |                |           |         |
|____________________________|________________|___________|_________|
|11406 San Jose Boulevard,   |Publix          |     56,700|    97.2%|
|Jacksonville, FL            |                |           |         |
|____________________________|________________|___________|_________|
|125 East Merritt Island     |Publix          |     91,915|    91.0%|
|Causeway, Merritt Island, FL|                |           |         |
|____________________________|________________|___________|_________|
|1850 Ridgewood Avenue, Holly|Publix          |     57,870|    97.8%|
|Hill, FL                    |                |           |         |
|____________________________|________________|___________|_________|
|17445 U.S. Highway 192,     |Publix          |     81,298|    93.8%|
|Clermont, FL                |                |           |         |
|____________________________|________________|___________|_________|

Distribution Increases:
Consistent with H&R's positive outlook and Cenovus's occupancy of the Bow, the 
trustees have adopted an updated distribution policy to replace the 
distribution policy previously announced in February 2011. Under the updated 
policy, it is intended that distributions increase 4.2% in October 2012 to 
$1.25 per Stapled Unit on an annualized basis (consistent with the previous 
policy) and that distributions increase a further 8% to $1.35 per Stapled Unit 
on an annualized basis commencing January 2013. This equates to a 12.5% 
increase from the current distribution.

About H&R REIT and H&R Finance Trust
H&R REIT is an open-ended real estate investment trust, which owns a North 
American portfolio of 41 office, 117 industrial, 138 retail properties 
comprising over 44 million square feet, and 3 development projects with a fair 
value of approximately $10.0 billion. The foundation of H&R REIT's success 
since inception in 1996 has been a disciplined strategy that leads to 
consistent and profitable growth. H&R REIT leases its properties long term to 
creditworthy tenants and strives to match those leases with primarily 
long-term, fixed-rate financing.

H&R Finance Trust is an unincorporated investment trust, which primarily 
invests in notes issued by a U.S. corporation which is a subsidiary of H&R 
REIT. The current note receivable is $158.6 million. In 2008, H&R REIT 
completed an internal reorganization which resulted in each issued and 
outstanding H&R REIT unit trading together with a unit of H&R Finance Trust as 
a "Stapled Unit" on the Toronto Stock Exchange.

Forward-looking Statements
Certain information in this news release contains forward-looking information 
within the meaning of applicable securities laws (also known as 
forward-looking statements) including, among others, statements relating to 
the objectives of H&R REIT and H&R Finance Trust, strategies to achieve those 
objectives, H&R's beliefs, plans, estimates, and intentions, and similar 
statements concerning anticipated future events, results, circumstances, 
performance or expectations that are not historical facts including, in 
particular, H&R REIT's expectation regarding future developments in connection 
with and financial impact of The Bow, and the amount of actual distributions 
to unitholders notwithstanding the trustees adoption of a distribution 
policy. Forward-looking statements generally can be identified by words such 
as "outlook", "objective", "may", "will", "expect", "intend", "estimate", 
"anticipate", "believe", "should", "plans", "project", "budget" or "continue" 
or similar expressions suggesting future outcomes or events. Such 
forward-looking statements reflect H&R's current beliefs and are based on 
information currently available to management. These statements are not 
guarantees of future performance and are based on H&R's estimates and 
assumptions that are subject to risk and uncertainties, including those 
discussed in H&R's materials filed with the Canadian securities regulatory 
authorities from time to time, which could cause the actual results and 
performance of H&R to differ materially from the forward-looking statements 
contained in this news release. Those risks and uncertainties include, among 
other things, risks related to: prices and market value of securities of H&R 
availability of cash for distributions; development and financing relating to 
The Bow development; restrictions pursuant to the terms of indebtedness; 
liquidity; credit risk and tenant concentration; interest rate and other debt 
related risk; tax risk; ability to access capital markets; dilution; lease 
rollover risk; construction risks; currency risk; unitholder liability; 
co-ownership interest in properties; competition for real property 
investments; environmental matters; reliance on one corporation for management 
of substantially all H&R REIT's properties; and changes in legislation and 
indebtedness of H&R. Material factors or assumptions that were applied in 
drawing a conclusion or making an estimate set out in the forward-looking 
statements include that the general economy is stable; local real estate 
conditions are stable; interest rates are relatively stable; and equity and 
debt markets continue to provide access to capital. H&R cautions that this 
list of factors is not exhaustive. Although the forward-looking statements 
contained in this news release are based upon what H&R believes are reasonable 
assumptions, there can be no assurance that actual results will be consistent 
with these forward-looking statements. All forward-looking statements in this 
news release are qualified by these cautionary statements. These 
forward-looking statements are made as of today, and H&R, except as required 
by applicable law, assumes no obligation to update or revise them to reflect 
new information or the occurrence of future events or circumstances.

Additional information regarding H&R REIT and H&R Finance Trust is available 
at www.hr-reit.com and on www.sedar.com.



please contact Larry Froom, Chief Financial Officer, H&R REIT,  416-635-7520, 
or e-mailinfo@hr-reit.com.

SOURCE: H&R Real Estate Investment Trust

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CO: H&R Real Estate Investment Trust
ST: Ontario
NI: REL ERN DIV 

-0- Aug/14/2012 14:17 GMT


 
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