Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- H&R Real Estate Investment Trust (HRUFF, Financial) reported a 1.7% increase in total same-property net operating income on a cash basis.
- The industrial segment saw a 4.7% increase in same-property NOI, driven by rent increases and higher occupancy rates.
- Retail same-property NOI increased by 7.9%, primarily due to increased occupancy at River Landing Commercial.
- Liquidity at June 30, 2024, was in excess of $900 million with an unencumbered property pool of approximately $4.1 billion.
- Lantower's multifamily platform continues to deliver strong results, with a 58% NOI margin and occupancy increasing to 94.6%.
Negative Points
- Office same-property NOI decreased by 1.8%, largely due to a decrease in occupancy at properties slated for future redevelopment.
- Net asset value per unit decreased from $21.05 as of March 31, 2024, to $19.94 as of June 30, 2024, due to $427.2 million in fair value adjustments.
- Debt to total assets at the REIT's proportionate share was 44.8%, and debt to EBITDA was a high 8.5 times.
- Same-property NOI for the multifamily portfolio in the U.S. decreased by 1.2%, primarily due to high property operating costs and a decrease in average rental rates in the Sunbelt properties.
- The market for office property dispositions remains weak, with little activity and uncertainty around future sales prices.
Q & A Highlights
Q: Tom, just wondering what your thoughts are on the sort of the acquisition market disposition market currently versus last quarter? What change you may have seen and how you see the market unfolding of the balance of the year as it relates to the group's intention to dispose more assets?
A: (Thomas Hofstedter, CEO) The write-down has really nothing to do with the disposition market. It has to do with the strength of the current value of the asset. There is very little going on in terms of dispositions, and we don't have guidance on future sales due to the weak market. The market conditions are currently weak, and we have to periodically write down assets unless we see a market turn.
Q: Does the current market situation pivot your attention more towards the retail portfolio as a source for dispositions at this time?
A: (Thomas Hofstedter, CEO) No, our retail portfolio is solid and not speculative. There's no urgency to sell these assets at this point in time, especially when they are providing good cash flow and FFO. We will wait until interest rates come down a bit before considering any sales.
Q: Is the debt-to-EBITDA ratio still expected to stabilize around the 9.25 level before any additional disposition announcements?
A: (Jason Birken, VP Finance) If you annualize Q2, that ratio would be around 9.2 times.
Q: How comparable are the recent US multi-res sector trades to the Lantower portfolio?
A: (Thomas Hofstedter, CEO) The KKR portfolio, for example, is very similar in geography and age to Lantower. However, KKR's low cap rate is due to their specific circumstances, such as managing money on behalf of an insurance company, which is not reflective of the market. Our cap rate is validated at around 5%.
Q: Given the good pricing in the multi-res sector, does it make you rethink about Lantower as a candidate for sale down the road?
A: (Thomas Hofstedter, CEO) Lantower is a very solid asset and platform. We believe the market will improve by mid to end of 2025, and rents will go up. We will stick to our original strategy and keep Lantower as part of our portfolio.
Q: Does Chevron's announcement to move their headquarters to Houston mean anything for Hess Tower?
A: (Thomas Hofstedter, CEO) The situation adds more confusion. The court case regarding Hess is still pending, and we have no idea what the final outcome will be. Until then, we can't sell the asset as buyers will have the same questions about Hess's location. We are confident in re-leasing the space that will come up in 2026.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
