H&R Reports Solid Results for Q4 2013 and Announces its Intention to Repurchase up to 25,000,000 Stapled Units

TORONTO, Feb. 27, 2014

Purchases of Stapled Units under the normal course issuer bid will be made primarily through the facilities of the TSX in accordance with TSX by-laws, rules and policies. The Stapled Units so purchased will be cancelled. The price paid for any repurchased units will be the market price of such Stapled Units at the time of acquisition.

"Management believes the repurchase of Stapled Units is an appropriate use of H&R's general funds in order to increase unitholder value," said Thomas Hofstedter, President and CEO of H&R. "We are currently exploring the sale and joint venturing of certain assets the proceeds of which may be added to H&R's general funds for use to repurchase Stapled Units under this bid.  The normal course issuer bid is a reflection of the confidence we have in the company and the commitment we have to using our balance sheet strength to sustain growth and generate economic value."

2013 Highlights include:

• Internalization of property management.
  
  
• Acquisition of a 1/3^rd interest in ECHO Realty LP ("ECHO").
  
  
• Acquisition of Primaris Retail Real Estate Investment Trust ("Primaris").
  
  
• Completion of the Bow and commencement of the 25-year lease with Encana.
  
  
• Issuance of the final tranche of Bond Financing on the Bow.
  
  
• Construction launch of a 740,000 square foot distribution centre, fully pre-leased to Unilever Canada Inc. ("Unilever").
  
  
• 8% increase in funds from operations ("FFO") per stapled Unit (excluding 2012's $10.2 million gain on extinguishment of debt).
  
  
• 14% increase in distributions per Stapled Unit.
  
  
• Reduction in debt to total assets from 50.3% in 2012 to 49.2%.
  
  
• Increase in total assets from $9.9 Billion in 2012 to $13.6 Billion.
  
  
• Increase in unencumbered asset pool to $1.3 billion.

Capital Transaction Highlights

• In September 2013, the REIT completed its agreement with H&R Property Management Ltd. ("HRPM") to internalize the REIT's property management function effective July 1, 2013. On closing, a wholly owned subsidiary of the REIT, H&R REIT Management Services LP ("HRRMSLP"), acquired HRPM's REIT-related property management business in return for 9.5 million limited partnership units of HRRMSLP, which are exchangeable on a one-for-one basis for Stapled Units. HRPM has agreed to hold the exchangeable units (or Stapled Units upon exchange) for five years, subject to limited exceptions.  As a result of the internalization, the REIT saved $11.9 million in management and incentive fees which would otherwise have been payable to HRPM and incurred only an additional $2.2 million in property operating costs for the six months ended December 31, 2013.
  
  
• In August 2013, the REIT acquired a one-third interest in ECHO, owner and developer of a core portfolio of grocery anchored shopping centres in the United States.  ECHO's retail portfolio is primarily tenanted by Giant Eagle, Inc., the leading grocer in the western Pennsylvania and eastern Ohio regions, with an average remaining lease term of 12.9 years.  ECHO's portfolio consists of 173 investment properties (excluding properties under development and vacant land) totaling approximately 7.3 million square feet and is expected to generate, once its existing development projects are completed, in excess of U.S. $84.0 million in net operating income annually.  The total ECHO portfolio was valued at U.S. $1.2 billion which equated to a weighted average capitalization rate of 7.3%.  The REIT acquired ECHO limited partnership units issued from treasury for a total purchase price of approximately U.S. $296.4 million before closing costs.  One-third of this purchase price was paid in cash on closing, with a further one third due 18 months from closing and the final one third due 30 months from closing.  However, should ECHO require funds for qualified asset acquisitions, a portion of the full outstanding deferred payment would be payable on accelerated demand at ECHO's option.  The proceeds received from the REIT will be used by ECHO to further expand its retail portfolio by acquiring additional retail properties in the eastern United States. As part of the transaction, the REIT has appointed two directors to the ECHO board.  ECHO is accounted for as an equity investment and will be reporting its financial information to the REIT one month in arrears.  ECHO's results for August, September, October and November 2013 have been reported in H&R's year end combined financial statements and the management discussion and analysis ("MD&A"). 
  
  
• During the second quarter of 2013, the REIT acquired 100% of Primaris which consisted of 26 properties valued at $3.2 billion, and a highly skilled professional management platform. The acquisition was funded through the issuance of 62.5 million Stapled Units with a value of $1.4 billion, the assumption of Primaris' outstanding mortgages, convertible debentures and bank indebtedness totalling $1.6 billion and other working capital.  In addition, holders of 2.1 million exchangeable units of certain subsidiaries of Primaris received the same number of exchangeable units of subsidiaries of the REIT, each of which is exchangeable for 1.166 Stapled Units.  The increased market capitalization resulting from the acquisition of Primaris has enhanced liquidity for unitholders.  Through this transaction, the REIT has also achieved broader diversification by geographic region and has taken a dominant position in the enclosed shopping centre asset class at a pivotal time when significant U.S. and international retailers are actively expanding into Canada.  In July 2013, the REIT, through Primaris, acquired Peter Pond Mall, the leading enclosed shopping centre in Fort McMurray, Alberta for $168.5 million, at a capitalization rate of 6.3% (before property management fee income).  In addition, the REIT sold a 50% non-managing interest in Place d'Orleans, an enclosed shopping centre in the Ottawa region for $110.6 million, at a capitalization rate of 5.5%, (before property management fee income). This transaction leverages the Primaris management platform to act as both owners and third party managers of regional shopping centres.  The REIT has been pleased with its successful integration of the Primaris portfolio and management platform.

Development Highlights

• The REIT has now completed the construction of the Bow, a two million square foot office building in Calgary, Alberta, which is fully leased to Encana Corporation for a 25-year term. On March 15, 2013, the final floors were delivered to Encana Corporation and the 25-year lease term commenced, which will continue until May 14, 2038.  Office rent escalates at 0.75% per annum and parking income escalates at 1.5% per annum throughout the full 25-year term. Consistent with the REIT's strategy to secure long-term fixed rate financing, on June 20, 2013, the REIT issued the final $300.0 million tranche of Series C bonds at an annual rate of 3.797% due June 13, 2023.  These bonds rank pari passu to the $250.0 million, 3.690% Series A bonds due June 14, 2021 and the $250.0 million, 3.693% Series B bonds due June 14, 2022, which were both issued on June 14, 2012.
  
  
• The REIT has commenced construction of a state-of-the-art 740,000 square foot distribution centre on the REIT's Airport Road lands in Mississauga, Ontario.  Unilever has leased the entire facility for a 10 year term providing the REIT with an anticipated 7% return on capital invested before financing.  It is expected that the development will be completed by the end of 2014.

Operating Highlights