On Thursday, H&R REIT (TSX:HR) discussed second-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

H&R REIT announced a strategic transaction involving partnerships with Blackstone, Crestpoint, PSP, and GO REIT to maximize value for unitholders.

The transaction includes a $4.28 per unit immediate cash payout and a 66.9% majority ownership stake in a combined platform, set to become the second-largest publicly traded residential REIT in Canada.

H&R REIT has been executing a repositioning plan since 2021, reducing leverage and selling non-strategic assets, culminating in the current transaction.

Financially, H&R REIT reported Q2 2026 FFO of $0.247 per unit, a decrease from $0.314 in Q2 2025, primarily due to lower NOI from property dispositions.

Occupancy and leasing activity in the Sunbelt markets are improving, with net effective asking rents showing signs of strengthening.

Development projects in Florida have completed construction, with leasing underway, indicating positive future performance.

Management expressed confidence in the strategic direction, emphasizing the quality of partners and the potential for the combined platform to attract institutional capital.

Full Transcript

Tom

Stephen Gross, Lead Trustee for the REIT first on Tuesday and that was deliberate. The independent trustees ran a rigorous, exhaustive process entirely independent of the management and it was important that you heard about it from Steven before hearing from me. While I wasn't part of that process, I am excited about the outcome and I believe in the vision that the GO team is presenting and the opportunity to represent for our unitholders. With that as the backdrop, I want to share my perspective.

I have been listening, I have read the commentary and understand the questions. Let me give you some context on how we got there. H&R REIT is an incredible company, but it's also a very complex one. We operate across multiple jurisdictions, partnerships, joint ventures, industrial, residential, office, East Coast, West Coast, and at the end of the day there is no natural single buyer for a portfolio of this breadth and complexity. The structure you see with best-in-class partners including Blackstone, Crestpoint, PSP and GO REIT is how we are maximizing value for H&R unitholders from this portfolio.

Each partner was selected because they are the right buyer for their specific piece — Blackstone and Crestpoint for the income-producing industrial assets they know best, GO REIT for the residential platform they are building and CREL for the non-core assets that require a long-term private market orientation. That's not a club deal by convenience, it's how you extract full value from a portfolio like ours. Every alternative was considered: selling Lantower independently, retaining it and selling everything else, spinning it out as a standalone entity.

The answer is that a standalone Lantower would have been a small-cap company with limited liquidity, sizable tax leakage and no clear path to the institutional recognition this portfolio deserves. This transaction delivers all of that on a tax-efficient basis in one single step. The compelling new value enhancement opportunity this represents is the culmination of a long-term effort. We have been executing a strategic repositioning plan since 2021.

We spun out Primaris, we sold over $2.6 billion in non-strategic assets. We reduced leverage from 10 to 7 times debt to adjusted EBITDA, which you saw reflected in our Q2 numbers. We built Lantower, a portfolio of 26 high-quality residential properties across seven Sunbelt markets with an established brand and a proven operating track record. That work set the stage for what we are announcing today. What H&R unitholders are receiving: $4.28 per unit in immediate cash, a tax-deferred rollover on the unit consideration for eligible Canadian resident unitholders and a 66.9% majority ownership stake in the combined platform.

That will be the second largest publicly traded residential REIT in Canada by enterprise value and seventh largest in the United States. I want to say something about that GO REIT stake because I think it is being underappreciated right now. H&R unitholders are rolling into GO REIT at what we believe is an attractive entry point into a larger, stronger, better-capitalized platform. This is a relative value trade. The combined platform with its scale, pure-play focus and expanded float creates the structural conditions to narrow the gap between their market and intrinsic values.

At 67% majority owners, H&R unitholders are positioned to benefit from that from day one. The value is not only in what you are receiving today; it is where the combined platform is positioned to go. I have spent the last several months getting to know the GO team, their portfolio, their strategy and their approach. These are smart, disciplined buyers and managers with a singular residential mandate and a real track record. They are interested in building a growth business and they have their own skin in the game.

They are tough negotiators, which frankly is exactly what you want when they are now going to be stewards of what we've built. I trust them at Lantower and I believe in what they are building on. My participation in the transaction — let me be direct about my own role. As disclosed in our Q2 press releases, 44 million H&R units held by Crow Company, controlled by members of my family, together with units held by certain of its affiliates and associates, will be redeemed and canceled as part of this arrangement.

Those units will not receive the $4.28 cash or the GO REIT units being paid to all of the other unitholders. Some have asked why I'm not receiving GO REIT units like everybody else. The answer is that CREL is acquiring REIT's non-core assets and the cancellation of those units is part of the consideration I'm contributing to fund that acquisition. The structure is straightforward and it will be fully detailed in the circular. What CREL is acquiring are non-core assets — undeveloped land, suburban and secondary office properties, and other assets that are more complex to value and trade than the income-producing industrial and residential portfolios being acquired by Blackstone, Crestpoint and GO REIT. These assets require a buyer with local knowledge and a long-term orientation. At closing I will have no role, no board seat and no equity interest in GO REIT. This transaction is the conclusion of my involvement with H&R REIT as a public entity. I want to be clear about something. My commitment to this outcome does not end at closing. Crowell has committed to provide income support and other payments to GO up to approximately $71 million over the first two years following close and, as disclosed in our press release, CRAL will remain a joint venture partner with GO on River Landing going forward.

I am leaving meaningful capital alongside this team because I believe in their ability to execute and what they are building, and that is not something I would do without conviction. Those commitments reflect my genuine conviction that this transaction is the right outcome for every H&R unitholder. On the process — Stephen addressed this in detail on Tuesday's call, but I will add that CIBC has been working on this for close to two years, not selling individual assets here and there, but working to find the right comprehensive solution for the full portfolio.

The independent trustees engaged National Bank as their own independent advisor, conducted a formal valuation of both H&R units and GO REIT units. Both advisors concluded this consideration is fair. The Board's recommendation was unanimous. That process and those conclusions will be fully documented in the Management Information Circular, and I would encourage every unitholder to read carefully. I spent 30 years building this company. Lantower is not just a portfolio.

It is something we built with care — asset by asset, market by market. Entrusting the majority of it to the GO team is not a decision I made lightly. I made it because I believe this next generation of management has the focus, the discipline and the capability to take what we built and turn it into something that finally gets the recognition it deserves. This transaction accelerates what we have been working towards — creating a pure-play, institutional-scale multifamily platform with the focus and financial profile to create real, lasting value for our unitholders.

The combined entity — 37 properties, over 13,300 residential units across eight markets and four states with a $7.8 billion enterprise value — is a fundamentally different and stronger entity than either company is today. It has the scale to attract institutional capital and a pure-play focus to trade at multiples more consistent with North American peers. Neither GO nor H&R gets there independently; with this combination we do. We are proud of where this has landed and we are genuinely excited about what it represents for unitholders going forward.

With that, I will turn the call over to Cheryl who will walk us through an overview of our second quarter results.

Cheryl

Thank you, Tom, and good morning everyone. Following $1.5 billion of retail and office property dispositions in Q1 2026, H&R continued advancing its reposition strategy in Q2. Approximately $773 million of assets were classified as held for sale as at June 30, 2026, of which $124 million have been sold since quarter end. On the development front, our two Slate properties in Mississauga, Ontario reached substantial completion in June 2026 and were transferred to investment properties.

Both properties are fully leased at market rent to a single tenant for approximately 11 years. The lease at 560 Slate Drive commenced in March 2026 and the lease at 600 Slate Drive will commence in October 26, 2026. Both leases include a five-month rent-free period beginning at the commencement of their respective lease term. Lastly, we expect our Reddit properties under development to reach substantial completion next quarter. Our balance sheet remained in a strong position.

Debt to total assets at the REIT's proportionate share was 41.8%. Debt to adjusted EBITDA at the REIT's proportionate share was 7.1 times and our unencumbered assets to unsecured debt coverage ratio was 3.21 times. Corporate debt at June 30, 2026 consisted of $550 million of debentures, one unsecured term loan of $250 million and lines of credit at $225 million. In June 2026, we redeemed our $250 million Series R senior debentures upon maturity, which bore interest at 2.906%.

The redemption was primarily funded using unsecured operating lines of credit. On the leasing front, we received a lease termination payment of approximately $15.7 million from Bell Canada at 200 Bouchard Boulevard in Montreal. We recorded a corresponding non-cash adjustment to straight-lining of contractual rent of approximately the same amount. Therefore, the 200 Bouchard lease termination payment had no impact on net operating income and FFO for Q2 2026.

However, same property net operating income, cash basis, and AFFO were positively impacted by $15.7 million, as H&R deducts non-cash items including straight-lining of contractual rent in calculating these amounts. In July 2026, the 200 Bouchard lease was further amended to advance the lease termination date to August 2026, which resulted in H&R receiving the final lease termination payment of $56.1 million in July 2026. Please refer to our press release and MD&A for further information on the expected accounting treatment for Q3.

FFO for Q2 2026 was $0.247 per unit compared to $0.314 per unit in Q2 2025, reflecting lower NOI from property dispositions partially offset by reduced finance costs as a result of using the proceeds from property dispositions to repay corporate debt and an increase in finance income from our construction loan to the Reddit JV. Our FFO payout ratio was a healthy 60.7% for Q2 2026. Included in AFFO for the three and six months ended June 30, 2026 is the add back of straight-lining of contractual rent relating to the 200 Bouchard lease termination payment, equating to approximately $0.06 per unit.

Breaking down our same property net operating income on a cash basis between the segments, residential was down 0.1% in U.S. dollars for Q2 2026 compared to Q2 2025. Emily will provide more details on Lantower's results shortly. Our industrial segment same property net operating income on a cash basis decreased 0.7% in Q2 2026 compared to Q2 2025, primarily due to a decline in same property occupancy during the 18 months ended June 30, 2026 from 98.9% at December 31, 2024 to 92.7% at June 30, 2026.

This was partially offset by strong rental rate growth. Our office segment same property net operating income on a cash basis, excluding the Bouchard lease termination payment, decreased 6.5% in Q2 2026 compared to Q2 2025, primarily due to the expiration of the 188,526 square foot RBC lease at 330 Front Street in Toronto on December 31, 2025. Our retail segment same property net operating income, cash basis, in U.S. dollars decreased 5.9% in Q2 2026 compared to Q2 2025 due to a decrease in sundry income.

Residential and industrial segments now comprise 86% of our real estate assets. Our office portfolio, comprising 12 properties, now accounts for 10% of our real estate assets. The only remaining retail asset is the commercial component of River Landing, which comprises 4% of our total real estate assets. With that, I will turn the call over to Emily, who will walk us through operational performance across the Lantower residential portfolio. Emily, please go ahead.

Emily

Thank you, Cheryl, and good morning everyone. I'll begin with an overview of our second quarter performance and the operating environment across our multifamily platform before turning to market trend. For the three months ending June 30, 2026, same property net operating income on a cash basis in U.S. dollars decreased 10 basis points compared with the respective 2025 period. While near-term pressure remains in the Sunbelt, occupancy is improving and leasing activity and pricing trends are providing encouraging signs as we move through the second half.

Our second quarter results reflect continued improvement across the portfolio and encouraging performance in our first full quarter under Greystar Property Management. Occupancy in the Sunbelt ended the quarter 145 basis points higher than Q1 and 70 basis points higher than Q2 2025 ended. Additionally, traffic and conversion metrics have also strengthened. Leasing inquiries increased 24% in Q2 compared with Q1, while traffic increased by 15% toward application.

Conversion improved 540 basis points sequentially. While pricing remains competitive in several Sunbelt markets, our operating indicators continue to move in the right direction. Net effective asking rents increased 30 basis points from Q1 to Q2 in the Sunbelt compared with an approximately 100 basis point decline over the same period in 2025. This improvement, together with rising occupancy and stronger conversion, provides early evidence of improving pricing traction.

The broader fundamentals supporting our portfolio remain intact. Plainly stated, our markets are the places where people want to live. Sunbelt markets continue to benefit from domestic inflows, particularly Dallas, Austin, Charlotte and Raleigh, while gateway markets continue to demonstrate resilience despite shifting migration patterns. Demand continues to benefit from the affordability advantage of renting relative to home ownership. As supply pressures moderate across many of our markets, we believe the combination of stronger traffic, improved conversion and rising occupancy positions the portfolio well for further improvement through the second half of the year. Turning to development, our Florida Reddit projects completed construction in July and received their TCOs. Leasing is underway with Lantower Bayside at 41 leases and Lantower Sunrise at 17 leases as of today. In summary, our second quarter results show measurable progress across several key operating indicators. Occupancy is improving, leasing activity and conversion have strengthened and bad debt is at a historical low.

Importantly, these trends are occurring alongside improvement in Sunbelt asking rents. We are encouraged by the early results Greystar property management teams and believe the combination of stronger operating execution, improving market conditions and a more scalable platform positions Lantower well as we move through the balance of 2026. Finally, I want to recognize our Lantower and Greystar teams for their continued partnership and execution during the transition.

Their focus on leasing, customer service and operating discipline is only the beginning to continued improvements in portfolio performance. And with that I turn the conversation back to Tom.

Tom

Thank you, Emily. Before I close, I want to come back to this transaction one final time. I recognize that what I have shared today, together with Tuesday's joint call and our press release, does not answer every question you have. There are things that will be appropriately disclosed in the Management Information Circular, and we are committed to providing that detail fully and transparently when it is filed in the coming weeks. For that reason, we are not opening lines for Q&A today.

I do not think it would be fair to put you in a position where the honest answer to most of your questions is that it will be in the circular. In the meantime, I am available. Please feel free to reach out directly. I am happy to take your calls. Thank you for your continued interest in H&R REIT and for your patience as we work through this process together.

OPERATOR (Moderator)

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.