H&R Real Estate Investment Trust could be getting a lot closer to increasing its distribution, according to a number of Bay Street analysts.
They were reacting to an announcement of $230-million in unsecured debentures issued at an average coupon of 5.55%, which is being used to make an early repayment of the unsecured debentures H&R issued to Fairfax Financial. The REIT had borrowed $200-million from Fairfax as it struggled to raise cash so it could build The Bow, the new Calgary-based headquarters for EnCana Corp. H&R cut its distribution by 50% about a year ago to get the building up.
“We expect continued progress on The Bow, significant increases in distributions by 2012 and a narrowing of relative valuation discount to position HR to outperform,” said Rossa O’Reilly and Alex Avery, two analysts with CIBC World Markets.
Many Samols, an analyst with Raymond James, said she expects the REIT to sell part of its interest in the EnCana headquarters this year.
“Look for the potential sale of partial interest in The Bow later this year as the next catalyst,” she said.
Scotia Capital analyst Mario Saric said amendments to the financing of The Bow clearly make it easier for the REIT to increase distributions. He is estimating 2011 distributions per unit will be $1, still only about 75% of adjusted funds from operations.
However, Neil Downey, an analyst with RBC Capital Markets, emphasized in a note to clients he did not see any “significant changes in the distribution/unit” happening in the “near-term.”
H&R chief executive Thomas Hofstedter said in an interview no decision has been made on increasing the distribution but acknowledged it was a possibility based on the REIT’s new financial position.
“We haven’t made up our minds on whether to increase distributions but we have given ourselves the ability to do so,” he told the Financial Post.
Photo: H&R REIT's The Bow in Calgary, Jan. 17, 2010 (Courtesy of H&R REIT)