Mergers & Acquisitions

H&R REIT Sells U.S. Portfolio But Keeps C-Stores

Will focus real-estate strategy on sites in six states

TORONTO -- H&R Real Estate Investment Trust (H&R REIT) is refocusing its U.S. property portfolio on convenience. The Canadian company has entered into an agreement to sell 63 properties—all of its U.S. holdings except 16 gas stations and convenience stores—to an unnamed buyer for about $633 million.

The U.S. gas stations and c-stores, located in the West and South, are Shell-branded sites in Gilbert, Mesa and Peoria, Ariz.; Aurora, Broomfield, Castle Rock, Erie, Highlands Ranch and Parker, Colo.; Coconut Creek, Fla.; Alpharetta, Roswell and Cumming, Ga.; McKinney, Texas; and Auburn and Puyallup, Wash. H&R REIT owns one 7-Eleven property in Canada.

U.S. properties in the grocery, drugstore, mass merchandise and other retail channels include BJ’s Wholesale Clubs, CVS, Fresh Market, Giant Eagle, Home Depot, Kohl’s, Kroger, Lowe’s, Publix, Rite Aid, Sam’s Club, Walgreens and Winn-Dixie, among other brands.

“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, H&R REIT’s president and CEO. “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% of our real-estate assets today.”

The company did not respond to a CSP Daily News request for more details.

The sale price equals a 7.3% capitalization rate on 2018 forecasted property operating income and is in line with international fair reporting standard (IFRS) values before mortgage prepayment and other closing costs, the company said. H&R REIT management does not expect to incur any material income tax expense resulting from the sale, because substantially all of the taxable gains will be deferred through Internal Revenue Code Section 1031 exchanges.

Part of the proceeds from the sale will be used to repay $205.9 million of mortgage debt on the portfolio with a weighted average interest rate of 4.8%. The balance of the proceeds is 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 (FFO) growth and net asset value growth.

The deal is subject to customary closing conditions. The company expects it to close in June 2018.

Toronto-based H&R REIT is a real-estate investment trust with total assets of about $14.5 billion. Its portfolio consists of 152 retail properties, 91 industrial properties, 37 office properties, 17 residential properties and four development projects totaling 42 million square feet. H&R REIT also has a 33.6% interest in ECHO Realty LP, which owns 228 properties, excluding properties under development and vacant land totaling more than 9.4 million square feet.

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