H&R Real Estate Investment Trust (REIT) will offload most of its retail holdings and three office properties through $1.5 billion worth of pending sales to multiple unnamed buyers. The deals align with the REIT’s intention to focus primarily on industrial and residential properties, while also reducing its debt load.
The retail sell-off includes 27 Canadian properties and the REIT’s one-third, non-managing interest in ECHO Realty L.P.’s retail portfolio in the United States, which encompasses 45 multi-tenant retail centres located in eight states. Meanwhile, H&R’s previous plan to develop a large mixed-use project at 145 Wellington Street West in downtown Toronto is unequivocally dead with the looming sale of the office building on that site.
The other office sales include: the Hess Tower in downtown Houston, which faces 33 per cent vacancy with the scheduled departure of its marquee tenant, Hess Corporation, in June 2026; and 88 McNabb Street in Markham, Ontario, a 75,000-square-foot office building on a 3.5-acre site.
“These sales accelerate the REIT’s portfolio simplification strategy,” says Tom Hofstedter, H&R REIT’s executive chair and chief executive officer. “In June 2021 when we announced the strategy, our residential and industrial segments amounted to 35 per cent of our total portfolio. After these sales, our residential and industrial segments will amount to 83 per cent of our total real estate assets. We will begin to market a number of other properties to aggressively accelerate this strategy.”
The REIT will apply $1.1 billion of the sales proceeds to reduce its corporate debt. As well, the purchaser of H&R’s share of the ECHO retail portfolio will assume $369 million of the vendor’s debt.
Once the transactions close, H&R’s sole retail property will be roughly 342,000 square feet in a mixed-use development in Miami, equating to about 3 per cent of its total inventory. The quotient of office properties will dip to 14 per cent, from the current 16%, and the REIT has reported that negotiations are in progress for two other Toronto office properties.
Those deals aren’t expected to be announced before the end of this year, but they include a three-building complex on Toronto’s Front Street, which the REIT had previously eyed to redevelop for residential uses, and the 21-storey Nestlé Building at 25 Sheppard Street West in Toronto’s North Yonge corridor.
