Q1 2025 H&R Real Estate Investment Trust Earnings Call
Operator: Good morning and welcome to H&R Real Estate Investment Trust 2025 First Quarter Earnings Conference Call.
Good morning, and welcome to H No real estate investment Trust 2025 first quarter earnings conference call before beginning the call each and I would like to remind listeners that certain statements, which may include predictions conclusions forecasts or projections in the remarks that follow may contain forward looking information.
Operator: Before beginning the call, H&R would like to remind listeners that certain statements, which may include predictions, conclusions, forecasts, or projections, and the remarks that follow may contain forward-looking information, which reflect the current expectations of management regarding future events and performance, and speak only as of today's date. Forward-looking information requires management to make assumptions or rely on certain material factors and is subject to inherent risks and uncertainties, and actual results could differ materially from the statements in the forward-looking information.
Which reflect our current expectations of management regarding future events and performance and speak only as of today's date.
Forward looking information requires management to make assumptions or rely on certain material factors and are subject to inherent risks and uncertainties and actual results could differ materially from the statements and the forward looking information.
Operator: In discussing H&R's financial and operating performance, and in responding to your questions, we may reference certain financial measures which do not have the meaning recognized or standardized under IFRS or Canadian Generally Accepted Accounting Principles, and are therefore unlikely to be comparable to similar measures presented by other reporting issuers. Non-GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of H&R's performance, liquidity, cash flows, and profitability. H&R's management uses these measures to aid in assessing the REIT's underlying performance and provides these additional measures so that investors can do the same.
In discussing <unk> financial and operating performance and in responding to questions. We may reference certain financial measures, which do not have the meeting recognized or standardized I asked from us or Canadian generally accepted accounting principles and are therefore unlikely to be comparable to similar measures presented by other reporting of choice.
non-GAAP measures should not be considered as alternatives to net income are comparable metrics determined in accordance with farfetch as indicators of H, a nice performance liquidity cash flows and profitability.
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Operator: Additional information about the material factors, assumptions, risks, and uncertainties that could cause actual results to differ materially from the statements and the forward-looking information, and the material factors or assumptions that may have been applied in making such statements, together with details on H&R's use of non-GAAP financial measures, are described in more detail in H&R's public filings, which can be found on H&R's website at www.cedarplus.com.
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Thomas Hofstedter: I would now like to introduce Mr. Tom Hofstedter, Chief Executive Officer of H&R REIT. Please go ahead, Mr. Hofstedter. Good morning, everyone. Thanks for joining us.
Speaker Change: I'd now like to introduce Mr. Tom Hofstetter, Chief Executive Officer of H&R Beach. Please go ahead Mr. F C.
Speaker Change: Good morning, everyone and thanks for joining us.
Speaker Change: I'll pass it onto Larry Martin.
Larry Froom: I'll pass it on to Larry Froom, our CFO, to give you highlights of the quarter, and Larry will then pass it on to Emily Watson of LandTower to give us the highlights of LandTower. Thank you, Tom, and good morning, everyone. In my comments to follow, references to growth and increases in operating results, unless stated otherwise, are in reference to the three months ended March 31, 2025, compared to the three months ended March 31, 2024. In 2024, we sold $429 million of real estate assets, and in Q1 of 2025, we sold 8 retail assets for $60 million.
Speaker Change: So to give you highlights of the quarter.
Speaker Change: Okay.
Speaker Change: To give the highlights.
Speaker Change: Alright.
Speaker Change: Thank you Tom and good morning, everyone.
Speaker Change: No comment.
Speaker Change: Growth and increased operating results.
Speaker Change: Alright, I referenced a few months.
Speaker Change: March 31 2000.
Speaker Change: Compared to the three months ended March 31.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: $420 million.
Speaker Change: Uh huh.
Speaker Change: And in Q1.
Speaker Change: 25.
Speaker Change: Eight retail assets for $60 million.
Larry Froom: 70% of our real estate assets by value are now in the United States.
Speaker Change: 70% of them.
Speaker Change: The fact that you are now.
Speaker Change: That's great.
Larry Froom: Overall, given the headwinds we faced with multi-family supply concerns, a weak office market, inflation as well as a tariff war creating general market uncertainty, we are very pleased with our results and in particular the 4.4% growth in same property net operating income on a cash basis. Breaking this down between our segments, residential segment same property net operating income on a cash basis decreased by 0.8% in U.S. dollars. The new supply added in our residential markets is being absorbed. The positive immigration trends have continued and our tenants are also staying longer.
Speaker Change: Overall.
Speaker Change: Faced with multifamily supply.
Speaker Change: I think office market.
Speaker Change: As long as the tariff, creating general market uncertainty.
Speaker Change: Okay.
Speaker Change: And in particular.
Speaker Change: Before calling for continued growth.
Speaker Change: <unk> net operating income on a cash basis.
Speaker Change: Breaking that down between our segments.
Speaker Change: The dental segment same property net operating income.
Speaker Change: Pesos decreased.
Speaker Change: In U S dollars.
Speaker Change: Thank you.
Speaker Change: And our residential market.
Speaker Change: Absorbed.
Speaker Change: Positive migration trends have continued.
Speaker Change: So stay longer.
Larry Froom: Emily will provide more details shortly. Our office segment, same property net operating income on a cash basis, increased 1.2% primarily due to the strengthening of the U.S. dollar.
Speaker Change: And then he will provide more detail shortly.
Speaker Change: Same property net operating income.
Speaker Change: Increased one 2% primarily due to the strengthening of the U S dollar.
Larry Froom: There's been a slate of back-to-the-office policies from different companies, and it seems clear that more and more employees are heading back to the office, which is positive for the sector as a whole. Our office portfolio of 16 properties, which includes four properties with residential rezoning opportunities, now only comprises 18% of H&R's total portfolio by value. 87.8% of our office revenue comes from investment-grade tenants, a testament to the quality and location of our office properties. Our office occupancy at March 31st, 2025 was 96.7% with an average remaining lease term of 5.8 years.
Speaker Change: Yes.
Speaker Change: Different companies and it seems clear.
Speaker Change: I think that's the office, which is public sector.
Speaker Change: Now how the portfolio of 16 properties, which includes four properties.
Speaker Change: Joining opportunities now comprises 80% loss.
Speaker Change: Yeah.
Speaker Change: 87 eight.
Speaker Change: Okay.
Speaker Change: It comes from investment grade.
Speaker Change: Kevin.
Speaker Change: A testament to the quality and location of our office properties.
Speaker Change: Our office occupancy in Boston.
Speaker Change: 25 was 96, 7%.
Speaker Change: Remaining lease term.
Speaker Change: Uh huh.
Speaker Change: Right.
Larry Froom: Our retail portfolio at March 31, 2025 comprises 15% of H&R's overall portfolio by value. Retail Segment Same Property Net Operating Income increased 8.2% due to occupancy gains at River Landing and Forex. The tenants in our retail portfolio are predominantly grocers and the portfolio has been very stable.
Speaker Change: How are we talking about here.
Speaker Change: 2020.
Speaker Change: Perfect.
Speaker Change: Overall portfolio.
Speaker Change: Retail.
Speaker Change: Operating income was $8.
Speaker Change: These occupancy gains.
Speaker Change: Alright.
Speaker Change: The tests in our retail portfolio predominantly grocers and portfolio has been very stable.
Larry Froom: Industrial Segment Same Property Net Operating Income increased 4.5%. Our industrial portfolio of 65 properties on March 31, 2025 comprises 18% of H&R's total real estate assets by value and continues to perform well. Since the announcement of the H&R Strategic Plan, H&R's average Canadian industrial rents increased from $7.17 per square foot as of June 30, 2021, to $9.52 per square foot as of March 31, 2025. In addition, industrial properties located in the GTA made up 59% of H&R's industrial portfolio as at June 30, 2021, compared to 69% of H&R's industrial portfolio as at March 31, 2025.
Speaker Change: Industrial same property net operating income increased four 5%.
Speaker Change: Our industrial portfolio of 65 properties.
Speaker Change: 25 Kratos.
Speaker Change: Our total real estate value.
Speaker Change: Continues to perform well.
Speaker Change: Since announcing our strategic plan.
Speaker Change: Industrial rents.
Speaker Change: $1 17 per square foot.
Speaker Change: June 32000.
Speaker Change: The $9 52.
Speaker Change: No.
Speaker Change: I'll take that.
Speaker Change: 25.
Speaker Change: In addition.
Speaker Change: So property is located in the GTA made up 59% of H&R.
Speaker Change: Yes.
Speaker Change: Massachusetts.
Speaker Change: That's fine.
Speaker Change: Compared to 69% of industrial quick question.
Speaker Change: As at March 2025.
Larry Froom: Headline FFO per unit for Q1 2025 was $0.297, the same as Q1 2024. We are pleased with these results as we have sold $489 million of real estate assets since January 1, 2024. Our balance sheet remains strong. Debt-to-Total Assets of the Rich Proportionate Share of March 31, 2025 was 44.1% and Debt-to-Everdight was a healthy 9.3 times. Liquidity at March 31, 2025 was in excess of $870 million with an unencumbered property pool of approximately $4.5 billion. Our unencumbered asset to unsecured debt coverage ratio was 2.3 times at March 31, 2025.
Lauren: Hey, Lauren.
Lauren: So Q1 2020 was 29, 7%.
Lauren: The famous coupon 2020.
Lauren: Yeah.
Lauren: We are pleased with these results we have a full 400 million.
Lauren: Real estate assets.
Lauren: Since January one 2024.
Lauren: Okay.
Lauren: Strong data for Abaxis reach proportionate share thoughts through 2025.
Lauren: Four 1%.
Lauren: It was a healthy nine three times.
Lauren: Liquidity at March 31st 2025.
Lauren: $70 million.
Lauren: With an unencumbered properties.
Lauren: Bob.
Lauren: Now unencumbered.
Lauren: The coverage ratio was two three times at market.
Lauren: 25.
Emily Watson: And with that, I will turn the call over to Emily. Thanks, Larry. And good morning, everyone. Today, I'm happy to share our first quarter performance for our multifamily platform and some operational highlights. Our first quarter results have aligned with our expectations. Our multifamily platform continues to benefit from strong demand as evidenced by stable resident retention and a delta to home ownership. Additionally, continued job and wage growth further demonstrate strengthening drivers for our industry. Rather than opining on headlines, we remain focused on the fundamentals of our business and continue to create NOI expansion through our repositioning opportunities and other innovative value-add strategies that add to our bottom line.
Emily: And with that I will turn the call over to Emily.
Emily: Thanks, Larry and good morning, everyone.
Emily: Today, I'm happy to share our first quarter performance.
Emily: Finally platform and operation highlights.
Emily: Our first quarter results have aligned with our expectations.
Emily: There are multiple multifamily platform continues to benefit from strong demand as evidenced by stable resident retention and a delta to homeownership.
Emily: Additionally, continued job and wage growth further demonstrates strengthening drivers for our industry.
Emily: Rather than opining on headlines we remain focused on the fundamentals of our business and continue to create NOI expansion do already repositioning opportunities and other innovative value add strategies that add to our bottom line.
Emily Watson: Given the declining levels of new supply ahead and growing demand in our markets, we are well positioned for substantial growth and value creation in coming years. Same property net operating income from residential properties in U.S. dollars decreased by 82 basis points for three months ending March 31, 2025, compared to the respective 2024 period, primarily due to a decrease in average rental rates and higher property operating costs from H&R Sunbelt properties. This was partially offset by rental growth from H&R's Gateway City property. Same asset occupancy ended the quarter at 94.4 percent, a 60 basis points decrease over the fourth quarter, and no change from Q1 of 2024.
Emily: Given the declining levels of new supply ahead, and growing demand in our market, we are well positioned for substantial growth and value creation and coming year.
Emily: Same property net operating income from residential properties in U S dollars decreased by 82 basis points for three months ending March 31, 2025 compared to the respective 2024 period.
Emily: I'm merely due to a decrease in average rental rates and higher property operating costs from H&R Sunbelt property. This was partially offset by rental growth from H&R Gateway City properties.
Emily: Same asset occupancy ended the quarter at 94, 4%, a 60 basis point decrease over the fourth quarter and no change from Q1 of 2024.
Emily Watson: Same asset occupancy in the Sun Belt decreased 70 basis points in Q1 to 93.7% over the fourth quarter. Jackson Park was 98.9% occupied with 75% retention. The Sunbelt continues to show strong demand metrics as supply deliveries have passed Our Sunbelt resident retention was 57% in Q1 and achieved a 60% resident retention in April. Blended lease trade-outs for the Sunbelt Markets were negative 2.1% in the first quarter, an improvement of 380 basis points over fourth quarter, and Q2 blended trade-outs are positive 10 basis points to date. These results demonstrate the worst is behind us, and we will continue to see improvement as supply decreases throughout the year.
Emily: They met that occupancy and sunbelt decreased 70 basis points in Q1 to 93, 7% over the fourth quarter.
Emily: Jackson part with 98, 9% occupied with 75% retention.
Emily: The Sunbelt continues to show strong demand metrics and supply deliveries have passed their peak.
Emily: Our sunbelt resident retention was 57% in Q1 and achieved a 60% resident retention in April.
Emily: Blended lease trade out for the Sunbelt markets were negative two 1% in the first quarter, an improvement of 380 basis points over fourth quarter and Q2 blended tried out our positive 10 basis points to date.
Emily: These results demonstrate the worst is behind us and we will continue to see improvement at supply decreases throughout the year.
Emily Watson: Based on a third-party appraisal and a handful of Sunbelt sales comps, we have maintained our fair market value Sunbelt cap rate at $4.96 and believe the rate is appropriate and supported. Cap rates are expected to remain low, relatively speaking, for institutional quality assets in the Sunbelt, with CapitalFlows interested and focused on long-term heavy Sunbelt multifamily allocations. On the development front, Landtower Westlub in Dallas, Texas continues to lease well despite the record level deliveries in Dallas. The community is currently 65.4% occupied and 70% leased. The property was completed on time and on budget. Also in Dallas, Texas, Landtower Midtown is currently 58.6% occupied and 62.6% leased.
Emily: Based on a third party appraisal and a handful of sunbelt sales comp we have maintained our fair market value Sunbelt cap rate at $4 96, and believe the rate is appropriate and supported.
Emily: Cap rates are expected to remain low relatively speaking for institutional quality assets in the Sun belt with capital flows interested and focused on long term heavy sun belt multifamily allocation.
Emily: On the development front, Landstar, Westwood and Dallas, Texas continues to lease well despite the record level of deliveries in Dallas at the.
Emily: The community is currently 65, 4% occupied and 70% leased.
Emily: The property was completed on time and on budget.
Emily: Also in Dallas, Texas Wind tower in Midtown is currently 58, 6% occupied and 62, 6% leased.
Emily Watson: Both properties are leasing well with an average monthly velocity of 24 leases per month, which is above industry reports for our market and a testament to the superior product and unparalleled amenities our development team has delivered. Midtown was also completed on time and on budget. Reddit properties are progressing well and remain on budget with completion expected mid-2026. LandTower currently has an additional nine development projects in the Sunbelt pipeline, totaling over 2,900 suites at H&R's ownership interest, with multiple sites ready and prepared for construction. We are progressing through different phases of design, drawing, and permitting on the remainder of our Sunbelt Development Pipeline and currently have four projects fully permitted.
Emily: Those properties are leasing well with an average monthly velocity at 24 leases per month, which is above industry report farm market and a testament to the superior product and unparalleled amenities our development team has delivered.
Emily: Midtown was also completed on time and on budget.
Read it properties are progressing well and remain on budget with completion expected mid 2026.
Speaker Change: Blantyre currently has an additional nine development projects in the Sun belt pipeline totaling over 2900 suites at H&R ownership interest with multiple sites ready and prepared for construction, we are progressing through different phases of design, drawing and permitting on the remainder of our sunbelt development pipeline.
Emily: And currently have four projects fully permitted.
Emily Watson: In summary, LandTower's platform has demonstrated remarkable resilience and performance relative to our peers. Our teams have navigated supply challenges and remained laser focused on innovative practices, including centralization, property-wide Wi-Fi opportunities, and AI applications that enhance NOI margins and continue to yield positive results.
Emily: In summary Lane towers platform has demonstrated remarkable resilience and performance relative to our peers.
Emily: Our teams have navigated supply challenges and remain laser focused on innovative practices, including centralization property wide Wi Fi opportunities and AI applications that enhance NOI margin and continue to yield positive results.
Emily Watson: I want to extend my gratitude to our incredible team whose dedication to excellence and innovation has been pivotal in achieving these outcomes.
Tom Hofstetter: I want to extend my gratitude to our incredible team, whose dedication to excellence and innovation has been pivotal in achieving these outcomes and with that I pass a lot of the conversation to Tom.
Operator: And with that, I pass along the conversation to Tom. operator Thank you. Are we ready for questions at this time? Thank you.
Emily: Operator.
Speaker Change: Thank you.
Emily: Okay.
Emily: Are we ready for questions at this time.
Emily: Yes, we are.
Emily: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will hear a prompt that you've had has been raised.
Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to confirm the polling process, please press star followed by the 2. And if you are using a speakerphone, please lift the handset before pressing any key.
Emily: Should you wish at the time from the polling process. Please press star followed by the two and if you are using a speaker phone. Please lift the handset before pressing any keys.
Mario Saric: The first question comes from Mario Saric at Scotiabank. Please go ahead. Hi, good morning.
Mario stomach: The first question comes from Mario stomach at Scotiabank. Please go ahead.
Emily: Hi, good morning.
Emily Watson: Just maybe starting off with Emily at Landtower, can you just, I may have missed the numbers, but can you just go through what the blended lease spreads were in Q1, where they kind of stand so far in Q2, and what the expectation is in terms of them becoming sustainably positive timing-wise going forward? Good morning, Mario. That's a great, great question. So, our same store blended tradeouts were negative 1.4, with the new lease negative 7.3, and renewals were 3.3. For the Sunbelt specifically, the new lease tradeouts were negative 5.6, which was an improvement. It was 13.8% in the 4th quarter.
Speaker Change: Just maybe starting off with.
Speaker Change: Emily Atlanta Tower can you just I may have missed the numbers, but can you just go through what the blended lease spreads were.
Speaker Change: In Q1, where are they kind of stand so far in Q2, and what the expectation is in terms of them, becoming sustainably positive.
Speaker Change: Timing wise going forward.
Speaker Change: Martin Marietta, that's a great great question. So our same store blended trade outs were negative one four.
Speaker Change: With the new lease negative seven three and renewals were three three.
Speaker Change: For the Sunbelt, specifically, the new lease trade outs were negative five six which was an improvement. It was 13, 8% in the fourth quarter and renewals were $3 three which is an increase from two 2% in the fourth quarter said, the blend and sunbelt alone were negative.
Emily Watson: And renewals were 3.3, which is an increase from 2.2% in the 4th quarter. So, the blend in Sunbelt alone were negative 2.1, compared to a negative 5.9. So, we are positive 10 basis points in the Sunbelt as of yesterday, but we still have some headwinds ahead of us on the supply. Supply is expected to be about 75,000 units in 2025, with pretty heavily in Q1 and Q2, and then drops off in Q3 and Q4. So, I still maintain that I think we'll still maybe come in a little bit negative in Q2, and that will start seeing positive in Q3 and Q4.
Speaker Change: Two one.
Speaker Change: Compared to a negative $5 nine.
Speaker Change:
Speaker Change: We are positive 10 basis points in the Sun belt as of.
Speaker Change: Yesterday so.
Speaker Change: We still have some headwinds ahead of us on the supply you know supply is expected to be about 75000 units.
Speaker Change: <unk> 24, and 25 with pretty heavily in Q1, and Q2, and then drops off in Q3 and Q4. So I still maintain that I think will still maybe come in a little bit negative in Q2 and that will start being positive in Q3 and Q4.
Emily Watson: Okay, so no real change from the view three months ago. No, our renewals are a little bit better than what I had anticipated, and retention is better. I'm real pleased with the 60% retention in April. And we've already closed out April above a 3% renewal, and we have four, and it's still really early for our May, I mean for our June renewals, but they're coming in at around 5%. So definitely see momentum picking up, but still in the same cadence that I had originally anticipated that Q3 and Q4 are going to be really where we've seen some pickup.
Speaker Change: Okay. So no no real change from three.
Speaker Change: Three months ago.
Speaker Change: Our renewals are a little bit better than what I had anticipated and retention is better than ever we're real pleased with the 60% retention in April so.
Speaker Change: And we've already closed out April above a 3% renewal and we have four four and it's still really early for our May Army for our June rent.
Speaker Change: Renewals, but theyre coming in around 5% so.
Speaker Change: Definitely see momentum picking up but still on the same cadence than I had originally anticipated that Q3, and Q4 are going to be really where we've seen some pick up.
Emily Watson: Got it.
Speaker Change: Got it Okay. My second question is maybe just for Tom on capital recycling, specifically asset sales I think in the press release.
Thomas Hofstedter: Okay, my second question is maybe just for Tom on capital recycling, specifically asset sales, I think in the press release.
Speaker Change: Highlighted.
Speaker Change: Perhaps a desire to do more transaction volume, but Larry.
Speaker Change: But my read of the factors that may be preventing that in the short term. So could you just give us an update in terms of what your thoughts are and what if anything has changed with respect to timing on echo.
Thomas Hofstedter: Okay, good afternoon, everybody. Thank you very much, very glad to be here. I really appreciate y'all being here.
Speaker Change: And some of the other initiatives in the pipeline.
Speaker Change:
Thomas Hofstedter: There's no news on HES as far as the Chevron HES issue goes. We expect it to go to the courts in June with a resolution sometime in September. We're looking to put that behind us. I think what the market doesn't like about that is the uncertainty. Once there's certainty, we can actually then go forward with something. We can sell it at that point in time. Until that point in time, we really can't do anything.
Speaker Change: There's no news on has as far as the Chevron has tissue goes we expect it to go to the courts in June with a resolution sometime in September we're looking to put that behind us I think what the market doesn't like about that is the uncertainty once theyre certainty. We can actually then go forward with something.
Speaker Change: We can sell it at that point in time until that point in time, we really can't do anything nothing new and there is nothing you on echo.
Thomas Hofstedter: Nothing new on there, nothing new on ECHO. ECHO, we're still planning to go forward as it was previously discussed. We're not going to push sales into this illiquid world right now. I think the summer's going to be very, very sleepy overall. And we'll look to September to see if there's a little more vitality, a little more wakeness to the market, and then we'll resume some sales.
Speaker Change: <unk>, we're still planning to go forward as was previously discussed we're not going to push sales into this illiquid world right. Now I think the summer is going to be very very sleepy overall, and we'll look to September to see them tomorrow, there's a little more.
Speaker Change: So vitale will be a little more of a weakness in the market and then resume some sale.
Thomas Hofstedter: In your view, what are kind of the one or two top macro factors that are kind of driving the liquidity in the market and what are you looking for? Well, the illiquidity in the market, there's no debt or equity, so let's start there. In order to have a sale, you need both of them, and you can't have equity without debt and you can't have debt without equity, so both of them have to wake up. I think that Trump created with his tariffs a cold pile of uncertainty in the marketplace, that's primarily obviously industrial and office, and until that's a little bit settled down, I think there's going to be people going to be reluctant to go ahead and jump into industrial or office.
Speaker Change: In your view what are kind of the one or two talk macro factors that are kind of driving the.
Speaker Change: Liquidity in the market.
Speaker Change: Well, the illiquidity of the market Theres, no debt or equity so let's start there.
Speaker Change: In order to have a sale you need both of them and you kind of equity or debt and you can have definitely out of equity. So both of them have to wake up I.
Speaker Change: I think the Trump created with these tariffs a coal pile of uncertainty in the marketplace. It's primarily obviously industrial and office and until that's a little bit settle down I think there's going to be people are going to be reluctant to go ahead and jump into industrial or office. So I think I need a little bit more visibility to whats the whats going on United States and geopolitical as well.
Thomas Hofstedter: So I think you need a little bit more visibility of what's going on in the United States and geopolitical as well. Therefore, I expect, as I said, this summer there's not a whole lot to happen, and hopefully we'll look to September where people will want to start doing business again, and hopefully there'll be more of a positive momentum. Okay, all makes sense. Thanks, Tom.
Speaker Change: Expect as I said that too.
Speaker Change: Not a whole lot to happen then hopefully we'll look to September where people will love.
Speaker Change: I want to start doing business again, hopefully we have more of a positive momentum, but overall the the.
Speaker Change: The situation not only Canada everywhere is very very lethargic right now.
Speaker Change: Wait and see game too, we'll see what happens geopolitical and the tariffs and a recession in interest rates and everything else that's out there.
Speaker Change: Okay, I'll make sense. Thanks, Tom.
Speaker Change: Thank you.
Speaker Change: Okay.
Operator: Thank you.
Speaker Change: Thank you. The next question comes from my eyesight at CIBC capital markets. Please go ahead.
Sumayya Saeed: The next question comes from Sumayya Saeed at CIBC Capital Markets.
Emily Watson: Please go ahead. Thanks. Good morning. Firstly, on land tariffs, it sounds like there was, potentially there was improvement there. I saw some reference in addition to the lower rent commentary around some higher operating costs. I'm just wondering what's the outlook there and were the costs just higher on seasonality or something else there?
Speaker Change: Thanks, Good morning.
Speaker Change: Firstly on online towers. It sounds like there was country. There was improvement there I saw some reference in addition to the lower rent commentary around some higher operating cost.
Speaker Change: Wondering what's the outlook, there and what the cost just higher on seasonality or something else there.
Emily Watson: Great question. So, not really. In Q1 of 24, we had, well, I should say, in Q4 of 23, we overestimated the bad debt, and a lot more people paid in Q1 than what we had anticipated, or Q4 than what we anticipated, so it was really a reversal. Our bad debt, so it shows an increase in bad debt, but our bad debt in Q1 was 53 basis points, which we were really pleased with. So, that was part of it. We also had a little bit higher payroll costs due to, well, a couple of things. One, we usually run about 7% vacant open positions, and we've been running about 4%, so that's kind of good news is that we are more fully staffed than what we have had in the past, as well as bonus attainment was a little higher in Q1 than what it was in Q1 of last year.
Speaker Change: A great question, so not really it in Q1 of 24, we had well I should say in Q4 of 'twenty three we overestimated the bad debt.
Speaker Change: A lot more people paid in Q1 than what we had anticipated our Q4 and what we anticipate it to what was really a reversal our bad debt. So it shows an increase in bad debt, our bad debt in Q1 with 53 basis points, which we're really pleased with so that was part of it. We also had a little bit higher.
Speaker Change: Payroll costs due to well a couple of things one we usually run about 7% vacant and open positions and we've been running about 4% so that kind of good news is.
Speaker Change: That we are more fully faster than what we have had in the past.
Speaker Change: As well as bonus attainment was a little higher in Q1 than what it was in Q1 of last year. So nothing that I think will be that concerns me at all our NOI margins are still 50, 960%. So I think what we're doing is working but not anything that Allison.
Emily Watson: So, nothing that I think will be, that concerns me at all. Our NOI margins are still 59, 60%, so I think what we're doing is working, but not anything that I'm concerned with.
Emily Watson: Rental rates, supply driven, so we are seeing more concessions in the market that will burn off, which kind of pleased, so people are seeing the optimism in what's coming ahead in Q3 and Q4. So, that's, you know, nothing I'm concerned about and kind of aligned with our expectations. Okay, got it.
Speaker Change: <unk> with rental rate to buy driven so we are seeing more concessions in the market that will burn off which kind of pleased that people are seeing the optimism in what's coming ahead in Q3 and Q4.
Speaker Change: Yeah, nothing I am concerned about and kind of aligned with our expectations.
Speaker Change: Okay got it.
Thomas Hofstedter: And then just moving on to the retail exit strategy, maybe a question for Tom. So besides Echo, you have about 600 million of other retail and putting aside River Landing, the remaining assets, I guess, appear to be more liquid and in demand. What will be the outlook for disposing of that bucket and could that be more near term than resolving Echo? We don't look to sell that on bulk, so if we look to do the same program we did with our oil facilities in the United States, we've been selling them gradually over the past few years, one at a time, and achieving solid pricing.
Speaker Change: And then just moving on to the retail exit strategy, maybe a question for Tom. So besides equity you have about 600 of millions of other retail and putting aside river landing the remaining assets I guess appear to be more liquid and NDA bad well what would be the outlook for disposing of that bucket.
Speaker Change: Could that be more near term than resolving a cool.
Speaker Change: If we don't look to sell that on bulk. So if we look to do the same program, we did with our oil and oil.
Speaker Change: Facilities in the United States would be the selling them gradually over the past few years, one at a time and achieving a solid pricing those assets are worth more on a one off basis. So we could look to start the program of selling them, but it's not going to be 300 or $400 million of sales and one time I don't think thats the right way to go with that portfolio.
Thomas Hofstedter: Those assets are worth more on a one-off basis, so we could look to start the program of selling them, but it's not going to be $300 or $400 million of sales at one time. I don't think that's the right way to go with that portfolio. Okay, got it. Thank you.
Speaker Change: Okay got it.
Operator: I'll turn it back. Thank you.
Speaker Change: I'll turn it back.
Speaker Change: Hugh.
Speaker Change: Thank you. The next question comes from Mike Hornack at National Bank Financial. Please go ahead.
Matt Kornack: The next question comes from Matt Kornack at National Bank Financial. Please go ahead. Good morning, guys. We've talked a lot about the supply picture in the US multifamily space, but just interested in your view on demand and just the drivers. I know, obviously, there's been a lot of interstate migration to the Sunbelt, but how should we think? I mean, interest rates are high, so presumably home ownership is not necessarily an alternative, but are you fully expecting that the demand will be stable as the supply comes off to kind of that influx?
Mike Hornack: Good morning, guys, just we've talked a lot about the supply picture in the U S multifamily space.
Mike Hornack: But just interested in your view on demand and just the drivers I know, obviously theres been a lot of Interstate migration to the sunbelt.
Mike Hornack: But how should we think I mean interest rates are high so presumably homeownership is not necessarily an alternative but are.
Mike Hornack: Are you fully expecting that the demand will be stable as the supply comes off to drive kind of that inflection.
Emily Watson: Good morning, Matt. I do. In fact, Q1 set a record for Q1 demand nationally. So, in our respective markets, we absorbed 28,000 units and projected 86,000 for the year. So, just to put some perspective around that, all of our SunBet markets in 24 absorbed 98,000. So, for 28,000 in Q1, we were really encouraged by that, and we see the momentum picking up in different areas. So, I don't – we still have people that are relocating headquarters to Dallas, Austin. So, we're not subjected really to the port, anything that happens with the tariffs in Houston. So, I definitely anticipate the demand to – and so do the economists.
Speaker Change: Good morning, Matt I do it.
Mike Hornack: Q1 set a record for Q1 demand.
Mike Hornack: So the <unk> are in our respective markets, we absorbed 28000 units.
Mike Hornack: And projected 86000 for the year, so just to put some perspective around that or all of our sunbelt markets and 24 absorbed 98000.
Mike Hornack: For 28000 in Q1, we were really encouraged by that.
Mike Hornack: And we see the momentum picking up in in different areas. So I doubt, we still have people that are relocating headquarters to Dallas.
Mike Hornack: Austin.
Mike Hornack: Not subjected really to the port anything that happens with the tariffs in Houston So.
Mike Hornack: I definitely anticipate the demand to them instead of the economy.
Emily Watson: You know, you probably read the same headlines that I do. But, yeah, we are seeing things that are supporting the forecasted demand in all of our SunBelt markets. And it's still a 60% discount to if you owned your own home in our market. So that's a pretty big delta, but We still see delay in marriage and having babies and kind of all of those fundamentals are ringing true. So, I don't see anything that would suggest otherwise that the demand is not going to be sustainable. We're still there.
Mike Hornack: <unk>, probably read the same headlines that I do but yeah. We are seeing things that are supporting the forecasted demand in all of our Sun belt markets.
Mike Hornack: It's still a 60% discount to if you own your own home in our market. So that's a pretty big Delta but.
Mike Hornack: And you still see delay in marriages, having babies and kind of all of those fundamentals are ringing true. So I don't see anything that would suggest otherwise, but the demand is not going to be sustainable.
Mike Hornack: Yeah.
Mike Hornack: Okay.
Matt Kornack: What portion of that would be destined for redevelopment versus the stuff that you'd be trying to kind of renew tenants, or if it is destined for redevelopment, would you try to renew on a short-term basis at this point? Matt, I'm sorry. I missed half your question because the phone cut out. Do you mind repeating it?
Mike Hornack: What portion of that would be destined.
Mike Hornack: Destined for redevelopment versus the stuff that you'd be trying to kind of renew tenants or is it as designee for redevelopment would you try to renew on a short term basis at this point.
Speaker Change: Matt I'm, sorry, I missed half of your question because the phone cut out do you mind repeating it.
Operator: Oh, but it was on office. So, Emily, you're good. Okay. Good. Oh, I think, Matt, we all missed the question. Okay.
Mike Hornack: But it was an office so Emily Okay, [laughter] Oh, I think we all missed the question was that Oh, okay.
Thomas Hofstedter: I was looking at your lease maturity profile and you do have about a million square feet of office maturities over the next two years in Canada. I'm just wondering how much of that would be destined for redevelopment versus releasing? And if it is destined for redevelopment, at this point, are you kind of trying to renew people on a short-term basis as opposed to letting those go vacant? So there is no residential market to speak of, so we're looking to renew them on a shorter basis over the sale of demo clause, and that'll be applicable to the leases that are rolling in Front Street, the leases that are rolling in the United States, the HES.
Mike Hornack: I just I was looking at your lease maturity profile and you do have about a million square feet of office maturities over the next two years in Canada, and just wondering how much of that would be destined for redevelopment versus re leasing and if it is destined for redevelopment.
Mike Hornack: At this point or are you kind of trying to renew people on a short term basis as opposed to.
Mike Hornack: Letting those go vacant.
Mike Hornack: So there was no residential market to speak of so we're looking to renew them on a short term basis over the sale of them across and they will be applicable to the at least that are rolling in front street. The leases that are rolling United States. The Hess that'll be where we are negotiating right now with tenants and we have completed some of those leases that is going to be released that sensors are advanced.
Thomas Hofstedter: That'll be where we're negotiating right now with tenants, and we have completed some of those leases. That's going to be released. That's not subject to redevelopment. And Bouchard, which is 2026, that's for redevelopment. That will not be released. That may be extended by Bell if they need to stay on a little bit longer, but we're not looking to release it. Okay, so you wouldn't expect a material increase in vacancy in the office portfolio in the near term, at this point? No, for what I just mentioned. You have Front Street, which again, that'll be, until it's released, it's vacant.
Mike Hornack: <unk> Bouchard, which is a 2026 that is not.
Mike Hornack: For redevelopment that will not be released there may be extended by bill as they need to fix down a little bit longer, but we're not looking to really start building.
Mike Hornack: Okay. So you wouldn't expect a material increase in vacancy in the office portfolio in the near term at this point.
Mike Hornack: What I just mentioned you have 104 to ensure you have front street, which again that'll be films released its vacancy and so you have bouchard, which is 2026, which will stay vacant.
Thomas Hofstedter: And you have Bouchard, which is 2026, which will stay vacant. You have 145 Wellington, which is slated for ultimate redevelopment, that's 10 years plus down the road. So that's not, that's going to be released. There's nothing there anyhow, though. I'm just mentioning it as a footnote to the fact that it's a residential redevelopment. And Hess, as I mentioned, which is 2026, that'll be released. And that'll take, you know, there's downtime. Leasing up and then yeah, it's information that takes Okay, fair enough.
Mike Hornack: Five Wilmington, which is slated for ultimate redevelopment, that's 10 years plus down the road. So that's not going to be released Theres nothing there anyhow, though just mentioning it as a as a footnote to the fact that it's a residential development.
Mike Hornack: And yes, as I mentioned with his 2026 that will be released and that will say you know there is downtime.
Mike Hornack: There is leasing up and then this information so it takes time.
Mike Hornack: Fair enough thanks, guys.
Operator: Thanks.
Operator: Thank you.
Jimmy Chen: Thank you. The next question comes from Jimmy Chen at RBC Capital markets. Please go ahead.
Jimmy Shan: The next question comes from Jimmy Shan at RBC Capital Markets. Please go ahead. Thanks so just first on the HBC industrial lease it looks like The opinions rendered herein are those of the guests, and not necessarily those of Douglas Goldstein, Profile Investment Services, Ltd., or Israel National News. Readers should consult with a professional financial advisor before making any financial decisions. When, when. I think within a matter of a week... Subject to the courts and releasing, we're already talking to potentials, if the releasing is strong and the rental rate, my guess is it will be $14-ish, something like that.
Jimmy Chen: Thanks, So just first on the HBC industrial lease it looks like.
Jimmy Chen: There's a decent amount of upside here so what's the what's the sequence of events from here and what's the prospect of getting that space.
Mike Hornack: When when you get the space back.
Mike Hornack: I think we as a matter of weeks.
Mike Hornack: Subject to the courts, and releasing and we're already talking to potential re leasing is strong and the rental rate. My guess is it will be $14 ish something like that.
Mike Hornack: Okay.
Thomas Hofstedter: We're already in negotiations with potential tenants. That's not going to be a problem, Charles. That'll leave. So a little bit of a downtime, and then probably sometime in the back half of the year.
Mike Hornack: We're already in negotiations with potential tenants, we don't that's not going to be a problem child, Natalie so a little bit of a downtime and then probably.
Mike Hornack: It'd be sometime in the back half of the year.
Operator: Thanks for your time. It's a real pleasure.
Mike Hornack: Yes, yes.
Mike Hornack: Yes.
Jimmy Shan: Okay, so on Echo, I know it is in Q1. Q1, the NOI dropped a decent amount from Q4-24. I was wondering, is there some seasonality there, or would it count for that? Morning Jimmy.
Mike Hornack: Okay. So on Echo I noticed in Q1.
Mike Hornack: Q1, the NOI dropped a decent amount from Q4 of 24.
Mike Hornack: I was wondering if there was some seasonality there would account for that for that drop.
Mike Hornack: Good morning, Jeremy.
Thomas Hofstedter: I didn't, I'll have to get back to you on that one. There wasn't anything substantial that we saw from there. I think if you're looking at it, just be careful when you're looking at it to back out the IFRIC 21 because we would have to accrued realty taxes for the whole year in the ECCO portfolio. So maybe looking at it with that already, can you back that out? Yeah, that might be it. Yeah, okay.
Mike Hornack: So I'll have to get back to you on that one there wasn't anything substantial.
Mike Hornack: So from there I think.
Mike Hornack: If you're looking at it just be careful when youre looking at it to back out the 'twenty, one because whatever crude roku, Texas for the whole year.
Mike Hornack: The Alco portfolio may be looking at.
Mike Hornack: Saturday and you'd expect that.
Mike Hornack: Yeah that might be it yes, okay.
Thomas Hofstedter: Okay, and then on still on echo, Tom, I think you mentioned, you're not going to push a sale. Have you tried to push a sale in the last few months? And then when you're thinking about potentially putting it in the market, September, are you looking to sell just your LP interest or could the entire portfolio be? So we haven't put it on the market, it's still, we haven't awarded yet to an investment banker to proceed with. We are having discussions with potential candidates in that regard. We don't know, really, we're going to put it out there and you'll see where you land.
Mike Hornack: And then on still on Echo Tom I think you mentioned, you're not going to push yourself.
Mike Hornack: Have you tried to put yourself in the last few months.
Mike Hornack: Then when you're thinking about potentially putting it into the market September or are you looking to sell just your LP interests or could the entire portfolio. You also consider for sale.
Mike Hornack: So we haven't put it on the market. It's still we haven't even we haven't awarded get through an investment banker to proceed with.
Mike Hornack: Having discussions with potential candidates in that regard.
Mike Hornack: We don't know really where you're going to put it out there and youll see what where do you land youll see if theres an interest for our interest is of interest to somebody coming in taking our interest in treasury.
Thomas Hofstedter: You'll see if there's an interest for our interest, or there's an interest in somebody coming in and taking our interest in the treasury. It could be anywhere where the best dealer lies, 100 percent, everything's on the table. Okay, and again, timing-wise, you're thinking probably the fall. I don't really know. It's not market conditions driven. It's just getting all of their, again, there's many, many investors you can look at as a public company. So it's not just, it's not H&R definitely saying, let's go. And it's not necessarily the board saying go. You have to appreciate the fact there's like, I would say close to 500 investors, family, multiple family investors.
Mike Hornack: It can be anywhere where the best deal of lives so 100% everything's on the table.
Mike Hornack: Okay, and again timing wise, you're thinking probably default.
Mike Hornack: I don't really know.
Mike Hornack: It's not market conditions, driven it's just getting all of that again there is many many investors you can look at it as a public company. So it's not just it's not H&R definitely saying, let's go and it's not necessarily the board, saying go yes.
Mike Hornack: Appreciate the fact is like I would say close to 500 investors family of multiple family. This this is a company. That's probably 130 years old has many many layers of family so till they get all their votes and all the ducks in a row I can't really control the timing so I don't want to say fall.
Thomas Hofstedter: This is a company that's probably 130 years old. There's many, many layers of family. So until they get all their votes, and all the every, their ducks in a row, I can't really control the timing. So I don't want to say fall. It's hard to be predicted that level of surety, but in the near future, in the foreseeable future, I expect it to happen. I'm not, don't forget, I'm not as anxious for it to happen as you may be. It's a solid company and they'll have no debt on, when Kustart finally closes that transaction, they'll have zero debt.
Mike Hornack: We predicted that level of surety, but in the near future in the foreseeable future I expect it to happen.
Mike Hornack: I'm not I'm thinking I'm not as anxious for it to happen as you may be <unk> company in house and they will have no debt on when can we start finally closed that transaction will have zero debt at sales are very strong we have total visibility to each store how it's doing it's primarily grocery anchored there's no there's no risk over here whatsoever. So it's not a burning issue.
Thomas Hofstedter: Its sales are very, very strong. We have total visibility into each store, how it's doing. It's primarily grocery anchored. There's no risk over here whatsoever. So, it's not a burning issue for me to sell it. The only reason I'm selling it is because you guys keep on asking the question, when am I selling it? If I had my choice, I wouldn't sell it. So, stop asking, don't sell it.
Mike Hornack: <unk> for me to sell it the only reason I'm suddenly get it executed guys keep on asking the question when my selling it if I had my choice I wouldnt sell it.
Mike Hornack: So stop asking salad.
Mike Hornack: Okay.
Jimmy Shan: And then just last question, remind me again, I know you talked about it, you got a 400 million dollar debenture coming up, what was the plan again? Jimmy, we plan to use our bank loans to pay it off. We're just trying to bide our time to see what sales will come down the pipe.
Mike Hornack: And then just last question about me again, I know you've talked about it you got a 400 million debenture coming up.
Mike Hornack: What was the plant again on the debenture.
Jimmy Chen: Hey, Jimmy we plan to use our bank clients to pay it off.
Speaker Change: Just trying to bond or Tom to see what sales will come down the Pike, We Havent mentioned, Jimmy as we have the Calvert and Lance.
Thomas Hofstedter: We haven't mentioned, Jimmy, we have the Caledon loans for the future highway extension, and that's going to happen, has to happen, they have to build a highway. So that's not really market-driven, and not dictated by us. It's dictated by the government. My guess is it will happen sooner rather than later, and that's a significant amount of money that can come in, and that would answer this question. So when we have more visibility on this issue, and we are talking to the government in that regard, that's why we are procrastinating on that venture issue. I expect that we're going to have to make a decision sooner rather than later, but again, we are in discussions and we'll have better visibility.
Speaker Change: Future Highway extension and that's going to happen has to happen. They have to go the highway. So that's not released market driven it's really dictated by us it's dictated by the government and my guess is it'll happen sooner rather than later and Thats a significant amount of money that can come in and that would solve this answer. This question. So when we have them.
Speaker Change: More visibility on this decision we are talking to the government in that regard.
Speaker Change: That's why we're correct. That's why we are procrastinating on that the debenture issue.
Speaker Change: Yes.
Speaker Change: We're going to have to make a decision sooner rather than later, but again, we are in discussions and we'll have better visibility. If we don't then obviously, we'll just we'll roll into a new unsecured.
Thomas Hofstedter: If we don't, then obviously we'll just roll into a new unsecured.
Jimmy Shan: Okay, and what would be rough quantum? Would it be half of the debenture amount? You're talking about... Yeah, a minimum of 150 proceeds, minimum. Okay. Thanks. Thank you.
Speaker Change: And what would be rough quantum would it be half of the debenture amount.
Youre talking about.
Speaker Change: Sure.
Speaker Change: Yeah, well a minimum of 150 of proceeds minimum.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Yeah.
Operator: We have no further questions.
Tom Hofstetter: Thank you we have no further questions I will turn the call back over to Tom <unk> for closing comments. Thank.
Thomas Hofstedter: I will turn the call back over to Tom Hofstedter for closing comments. Thank you, everybody, for joining us. Have a great day.
Tom Hofstetter: Thank you everybody for joining us have a great day.
Tom Hofstetter: Thanks.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your line.
Tom Hofstetter: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.
Tom Hofstetter: [music].
Tom Hofstetter: Okay.
Tom Hofstetter: Okay.
[music].