TORONTO, Aug. 7, 2013 /CNW/ – H&R Real Estate Investment Trust (“H&R
REIT”) (TSX: HR.UN; HR.DB.D; HR.DB.E; HR.DB.H) is pleased to announce
that it has acquired a one-third interest in ECHO Realty LP (“ECHO”).
ECHO will be accounted for as an equity investment and will be
immediately accretive on a Funds from Operations (“FFO”) and Adjusted
Funds from Operations (“AFFO”) basis. In accordance with the
management internalization announced last week, there will be no
external acquisition or property management fees payable on this
transaction.

Since the formation of ECHO in March 2000, ECHO has focused on two
primary areas of business: (i) developing and owning a core portfolio
of real estate, tenanted by Giant Eagle, Inc. (“Giant Eagle”), the
leading grocer in the western Pennsylvania and eastern Ohio regions
operating under the Giant Eagle, Market District, GetGo and Good Cents
banners; and (ii) developing and selling shopping centres anchored by
other large national retailers throughout the Eastern United States.
ECHO is the largest landlord for Giant Eagle.

ECHO’s portfolio consists of 176 properties, totaling approximately 7.4
million square feet and is expected to generate in excess of $84
million in net operating income annually with an average remaining
lease term of 12.9 years. ECHO’s portfolio is comprised of five
property types: 160 retail assets, four office buildings, six
industrial properties, four retail development projects, and two land
parcels.

Giant Eagle is a tenant in 161 of the properties and contributes
approximately 79% to ECHO’s total annual revenue. Giant Eagle had
revenue of $9.9 billion for their fiscal year ended June 2012 and has a
mortgage bond rating of NAIC 2. The average annual sales per square
foot of the Giant Eagle supermarkets in ECHO’s portfolio is in excess
of $600 per square foot.

The portfolio value amounts to approximately $1.165 billion at a
weighted average cap rate of 7.3%. The portfolio has first mortgages
totalling $410 million with an average remaining term of 10 years at an
average annual interest rate of 6.1%. H&R will acquire limited
partnership units from treasury in consideration for a total purchase
price of approximately $294 million for H&R REIT’s one-third share in
ECHO. One-third of this purchase price was paid on closing, with a
further one-third payable in 18 months from closing and the balance
payable in 30 months. The second and third installments of the
purchase price will bear interest at 3% per annum. H&R REIT will have
the right to appoint two of the six ECHO board members. The proceeds
from this transaction will be used by ECHO to further expand its retail
portfolio by acquiring additional retail properties in the Eastern
United States. H&R REIT also has a 5-year conditional option to
acquire additional units resulting in H&R REIT owning up to 49.9% of
ECHO at a purchase price no greater than fair market value.

H&R REIT’s President and CEO, Tom Hofstedter states: “H&R is thrilled to
be a partner in ECHO which provides H&R with a professional platform to
consolidate and expand its U.S. retail holdings with a seasoned and
well respected management team who shares H&R’s disciplined approach to
investing in real estate with a conservative outlook in leasing and
financing long term.”

ABOUT THE ECHO TEAM

Thomas Karet currently serves as Chief Executive Officer of ECHO
Realty. Mr. Karet was the founding officer of ECHO Real Estate
Services Company and has served in several of the company’s senior
leadership positions throughout the past thirteen years. Prior to
joining ECHO Realty, Mr. Karet was a partner in the Chicago office of
the law firm of Katten Muchin Rosenman LLP and was associated with the
New York City office of the law firm of Morgan Lewis & Bockius LLP. Mr.
Karet is a graduate of Phillips Academy Andover, Amherst College and
Georgetown University Law Center.

Dr. Howard Biel currently serves as Senior Vice President of
Acquisitions and Development for ECHO Realty. Prior to joining ECHO, he
was the Senior Managing Director at Faison where he was responsible for
the real estate acquisitions and development for the Northeast /
Mid-Atlantic region. Dr. Biel also served as Chief Development Officer
at Federal Realty Investment Trust, President of Palisades Realty and
Development, Executive Vice President at Western Development, and
Senior Vice President for Development at Edward J. DeBartolo
Corporation.

Drew Gorman currently serves as Senior Vice President of Acquisitions
and Development for ECHO Realty. Prior to joining ECHO, he was the
Managing Director for Faison where he was responsible for all leasing
and sales activities for the Northeast / Mid-Atlantic region. He also
served as Senior Vice President of Development for Palisades Realty &
Development and Chief Operating Officer-Northeast Region for Federal
Investment Realty Trust.

Aaron Savin currently serves as Senior Vice President of Leasing and is
currently responsible for ECHO Realty’s retail brokerage group. He has
conducted successful rollouts of Western Pennsylvania area stores for
Pier 1 Imports, Michaels, Best Buy, Office Max, and ULTA. Mr. Savin has
also overseen disposition efforts for K-Mart and Giant Eagle throughout
Ohio and Pennsylvania. Since joining ECHO Realty, he has overseen the
leasing of over 2 million square feet of shopping center space and
represents several national retailers in connection with their
expansion strategies.

John Palovsky is Vice President of Construction. Mr. Palovsky is
currently responsible for ECHO Realty’s construction management group
and has been instrumental in the development of thirteen major retail
projects totaling over 3 million square feet. Mr. Palovsky is a
twenty-eight-year veteran of the real estate development and
construction industry and served in various engineering, construction,
and maintenance positions at Phar-Mor, Inc. Crown American Corporation,
K-Mart Corporation, and J.C. Penney Company.

John Thomas currently serves as Vice President of Finance. Mr. Thomas
has over seventeen years of public and private sector accounting
experience with an emphasis on real estate syndication modeling, tax,
financial due diligence, and business valuation. Mr. Thomas was
formerly a special projects consultant for Louis Plung & Company where
he was involved in various projects, including consulting for Giant
Eagle and ECHO. Mr. Thomas is a graduate of Pennsylvania State
University’s Behrend College where he received a BS in Accounting. He
is also a Certified Public Accountant in the State of Pennsylvania.

Philip Bishop currently serves as Vice President of Engineering. Mr.
Bishop has over twenty five years of experience in the real estate
development and engineering industry. While at ECHO Realty, Mr. Bishop
has completed the design and development of numerous Target stores,
Giant Eagle grocery stores, GetGo convenience stores, and other retail
developments throughout the eastern United States. Prior to joining
ECHO Realty, Mr. Bishop was a manager at Civil & Environmental
Consultants, Inc. where he managed the design efforts for projects such
as the Pittsburgh Mills Galleria Mall and The Waterfront.

SALE OF 50% NON MANAGING INTEREST IN PLACE D’ORLEANS

H&R REIT is also pleased to announce that it has, through its Primaris
retail division, entered into an agreement to sell a 50% non-managing
interest in Place d’Orleans, an approximately 760,000 square foot
enclosed shopping centre in the Ottawa region, to a fund managed by
Montez Corporation (“Montez”). Montez will be assuming 50% of the
outstanding mortgage balance on the shopping centre being $55.1 million
at an annual interest rate of 5.3% maturing in January 2018. The sale
price for the 50% interest is approximately $110 million (before mark
to market adjustment on the mortgage) which sale price represents a
capitalization rate of approximately 5.5% before management fee income.
The sale is expected to close mid-August.

“This sale of a non-managing 50% interest in Place d’Orleans is
consistent with H&R’s strategy to leverage the Primaris platform, to
act as both owners of regional shopping centres and as third-party
managers, where appropriate” said Tom Hofstedter, CEO of H&R REIT. “We
have said all along that the Primaris management platform is uniquely
poised to add value and this transaction is a fulfillment of that
vision. The sale proceeds will provide H&R with a significant portion
of the current funds required for the acquisition of its interest in
ECHO. In addition, we are very pleased to be partnering with Montez
Corporation, a company known for its similar disciplined investment
philosophy and focus on long-term real estate value. We are confident
that this is just the beginning of what will be a lasting and mutually
rewarding relationship for both companies.”

About MONTEZ

Montez Corporation, incorporated in 2002, is a diversified investment
organization specializing in pension fund real estate investment
management with properties in the shopping centre, office and
industrial categories. Over the past 11 years, Montez Corporation has
created 5 funds and 2 special purpose companies and currently manages
assets of approximately $2 billion.

About H&R REIT

H&R REIT is an open-ended real estate investment trust, which owns a
North American portfolio of 41 office, 112 industrial and 165 retail
properties comprising over 53 million square feet and 3 development
projects, with a fair value of approximately $13 billion. The
foundation of H&R REIT’s success since inception in 1996 has been a
disciplined strategy that leads to consistent and profitable growth.
H&R REIT leases its properties long term to creditworthy tenants and
strives to match those leases with primarily long-term, fixed-rate
financing.

Forward-looking Statements

Certain statements in this news release contain forward-looking
information within the meaning of applicable securities laws (also
known as forward-looking statements). Such forward-looking statements
reflect H&R’s current beliefs and are based on information currently
available to management. These statements are not guarantees of future
performance and are based on H&R’s estimates and assumptions that are
subject to risks and uncertainties, including those discussed in H&R’s
materials filed with the Canadian securities regulatory authorities
from time to time, which could cause the actual results and performance
of H&R to differ materially from the forward-looking statements
contained in this news release. Those risks and uncertainties include,
among other things, risks related to: prices and market value of
securities of H&R; availability of cash for distributions; restrictions
pursuant to the terms of indebtedness; liquidity; credit risk and
tenant concentration; interest rate and other debt related risk; tax
risk; ability to access capital markets; dilution; lease rollover risk;
construction risks; currency risk; unitholder liability; co-ownership
interest in properties; competition for real property investments;
environmental matters; reliance on one corporation for management of
substantially all of the REIT’s properties; changes in legislation and
indebtedness of H&R; intended use of proceeds by and expected financial
performance of ECHO; and completion of the sale of the interest in
Place d’Orleans. Material factors or assumptions that were applied in
drawing a conclusion or making an estimate set out in the
forward-looking statements include that the general economy is stable;
local real estate conditions are stable; interest rates are relatively
stable; and equity and debt markets continue to provide access to
capital. H&R cautions that this list of factors is not exhaustive.
Although the forward-looking statements contained in this news release
are based upon what H&R believes are reasonable assumptions, there can
be no assurance that actual results will be consistent with these
forward-looking statements. All forward-looking statements in this news
release are qualified by these cautionary statements. These
forward-looking statements are made as of today and H&R, except as
required by applicable law, assumes no obligation to update or revise
them to reflect new information or the occurrence of future events or
circumstances.

Non-GAAP Measures

H&R REIT’s consolidated financial statements are prepared in accordance
with international financial reporting standards (“IFRS”). However, in
this press release, a number of measures which do not have a meaning
recognized under IFRS or Canadian Generally Accepted Accounting
Principles (“GAAP”) are presented. FFO and AFFO are non-GAAP financial
measures widely used in the real estate industry as a measure of
operating performance. Management believes FFO to be a useful measure
for investors as it adjusts for items included in net income that are
not recurring including gain (loss) on sale of real estate assets, as
well as non-cash items such as the fair value adjustments on investment
properties. FFO should not be construed as an alternative to net
income or cash flows provided by operating activities calculated in
accordance with IFRS. AFFO is calculated by adjusting FFO for non-cash
items such as: straight-lining of contractual rent, rent amortization
of tenant inducements, effective interest rate accretion and unit-based
compensation. Non-recurring costs that impact operating cash flow may
be adjusted, and capital and tenant expenditures incurred and
capitalized in the period by H&R REIT are deducted. There is no
standard industry definition of AFFO.

Neither of these non-GAAP financial measures should be construed as
alternative to financial measures calculated in accordance with GAAP.
Further, H&R REIT’s method of calculating these supplemental non-GAAP
financial measures may differ from the methods of other real estate
investment trusts or other issuers, and accordingly, these measures may
not be comparable to those measures presented by other real estate
investment trusts or issuers.

SOURCE H