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H&R REIT Agrees to Sell $633 Million U.S. Retail Portfolio

Toronto-based Company to Sell 63 Retail Centers but Keep Gas Stations and Convenience Stores, Focus on Residential
May 14, 2018
Pictured: A Home Depot in Strongsville, OH, one of 63 retail properties H&R REIT is expected to sell this June in a $633 million deal.

Toronto-based H&R Real Estate Investment Trust said Monday it has entered into an agreement to sell 63 retail properties in the United States for US$633 million.

The company did not list a buyer or the properties being sold, but said it represents a majority of its U.S. retail portfolio and includes all of the REIT's retail properties in the United States, other than 16 gas stations and convenience stores. The company's U.S. holdings include a 133,000-square-foot Home Depot in Strongsville, OH; a 132,000-square-foot Lowe's in West Hazel, PA; a 118,000-square-foot Giant Eagle supermarket in Columbus, OH; and a 95,000-square-foot Kohl's in Columbus, IN, according to CoStar information.

"This transaction follows through on our strategy of narrowing and streamlining our focus while enhancing the quality and growth profile of our portfolio," said Thomas Hofstedter, chief executive of H&R, in a statement. "A significant share of the net proceeds will be used to further grow our Lantower Residential division which, since its inception a little over three years ago, has grown to approximately 15 percent of our real estate assets today."

H&R REIT's U.S. retail portfolio is concentrated in the Midwest and Southeast with the bulk of its holdings located in Ohio, Indiana, Pennsylvania and Florida.

The REIT, which manages a $14.5 billion portfolio comprising more than 45 million square feet in North America, said the sale price equates to a 7.3 percent capitalization rate on 2018 forecasted property operating income, and is in line with IFRS fair values before mortgage prepayment and other closing costs. The company does not expect to incur any material income tax expense resulting from the sale because almost all of the taxable gains will be deferred.

The deal is expected to close in June 2018.

Part of the proceeds from the sale will be used to repay U.S. $205.9 million of mortgage debt on the portfolio, which has a weighted average interest rate of 4.8 percent.

Remaining proceeds are expected to fund Lantower Residential acquisitions and to repurchase units under H&R REIT's normal course issuer bid.

"As a result of the sale, H&R REIT expects stronger long-term funds from operations growth and net asset value growth," the company said.

Following the deal, the pro forma fair value of investment properties and properties under development in retail will be $580 million, or 4.1 percent, of all its investments. Office will still be the most substantial component at $6.6 billion, or 47.1 percent, but Lantower Residential will make up 20.3 percent investments based on almost $2.1 billion.

Garry Marr, Toronto Market Reporter  CoStar Group   
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