H&R Real Estate Investment Trust (TSE:HR.UN) reported modest year-over-year growth in 2025 despite what management described as a challenging macro and sector backdrop, pointing to headwinds including multifamily supply concerns, a weak office market, uncertainty tied to a tariff war, and a softer Canadian economy.
On the REIT’s fourth-quarter earnings call, Chief Financial Officer Larry Froom said the trust delivered 1.6% growth in same-property net operating income (NOI) on a cash basis for the year ended Dec. 31, 2025, versus the prior year. Funds from operations (FFO) came in at CAD 1.21 per unit, up 1.4% from CAD 1.20 in 2024.
Segment performance and portfolio changes
Management broke out same-property NOI performance by segment, highlighting improvement in residential, office, and retail, while industrial results declined.
- Residential: Same-property NOI on a cash basis rose 1.1% in Q4 2025 compared with Q4 2024 and increased 1.2% for full-year 2025 versus 2024.
- Office: Same-property NOI increased 1.5% for both Q4 2025 year-over-year and full-year 2025 versus 2024. Office occupancy was 96% at Dec. 31, 2025, with an average remaining lease term of 5.2 years. Froom said vacancy is expected to rise in 2026 as RBC’s approximately 189,000-square-foot lease at 330 Front Street matured at the end of 2025, adding that H&R is negotiating with prospective tenants for part of the space.
- Retail: Same-property NOI rose 4.4% in Q4 and 6.7% for the full year, driven by occupancy gains at River Landing and “Forex,” according to Froom.
- Industrial: Same-property NOI decreased 9% in Q4 and fell 3.7% for the year. Industrial occupancy declined to 90.7% at Dec. 31, 2025, from 98.9% a year earlier.
Froom also outlined planned and completed portfolio repositioning, particularly in office and retail. H&R’s office portfolio consisted of 15 properties at year-end, with four classified as held for sale. Two of those four were sold in January 2026. Froom said Hess Tower is expected to be sold at the end of February 2026, while 25 Sheppard is expected to be sold in the second half of 2026. After selling those four assets, management expects the office segment to represent about 12% of total real estate assets on a pro forma basis.
On retail, Froom said the REIT’s net investment in Echo and 22 Canadian retail properties were sold in January 2026, with the remaining three Canadian retail properties expected to be sold in March. After those sales, the only retail asset will be the commercial component of River Landing, which management expects will represent about 4% of total real estate assets.
In industrial, management said three developments totaling about 360,000 square feet at H&R’s ownership share have all been leased. Two leases totaling about 204,000 square feet are expected to commence in Q1 2026, while the third lease is expected to commence in Q4 2026.
Balance sheet, payout ratios, and use of sale proceeds
Froom said H&R’s FFO and AFFO payout ratios were 50% and 60%, respectively, for 2025. He added that proceeds from announced asset sales have been used to repay debt.
On a pro forma basis, management expects debt to total assets (at the REIT’s proportionate share) to be 41.8%, and debt to EBITDA to be 8.7x.
Lantower: supply pressures easing as Greystar partnership begins
Emily Watson, Chief Operating Officer of Lantower, framed 2025 as an unusual year for U.S. multifamily due to elevated supply, slower momentum, and softer job growth that pressured pricing across several Sun Belt markets. Still, she said collections remained strong and resident retention stayed high, with renewals helping stabilize results even as new-lease pricing remained pressured in certain markets.
Watson cited wage growth tracking above 3% and average rent-to-income ratios near 20% as supportive of affordability, and said fewer than 10% of move-outs during the year were tied to home purchases, which she characterized as the lowest level historically for the platform.
She also pointed to a shift in the supply outlook, saying forecast data indicates new competitive supply is expected to decline meaningfully, including a 36% reduction in 2026 compared with 2025.
Operationally, Watson said same-property residential NOI in U.S. dollars increased 1.1% on a cash basis in Q4, primarily due to lower operating costs including repairs and maintenance, insurance, and bad debt expense. That was partially offset by lower rental income at H&R Sun Belt Properties driven mainly by lower occupancy. Same-asset occupancy ended the quarter at 92.8%, down 2.2% from the prior year and down 1.8% from Q3.
Watson said Sun Belt blended lease trade-outs were -3.2% in Q4, improving 30 basis points from Q3 and improving 280 basis points from Q4 2024. New-lease trade-outs were -12.4%, while renewal lease rates increased 4%.
She also said the Sun Belt portfolio’s fair market value is supported by a third-party appraisal and recent market transactions, maintaining a weighted capitalization rate of 4.9%, which she said was consistent with Q3.
On development activity, Watson said Dallas assets continued to lease up, with Lantower West Love at 90% occupancy and Lantower Midtown at 84% occupancy, with stabilization expected in early Q2. She said both properties were completed on time and on budget and have been outperforming market absorption, averaging 21 leases per month versus an industry standard of roughly 12 since initial move-ins.
Watson said Lantower Bayside in Tampa is scheduled for first move-ins in March 2026, and Lantower Sunrise in Orlando is scheduled for first move-ins in April, with completion expected mid-2026 for both. She added that Lantower has nine Sun Belt developments in the pipeline totaling about 2,900 suites at H&R’s ownership interest.
Looking ahead, Watson said Lantower will transition to a third-party property management model via Greystar beginning April 1, 2026, aiming to improve operating leverage, reduce fixed overhead, and add flexibility. In the question-and-answer session, management said outsourcing property management could improve purchasing power and reduce costs across line items, citing examples such as discounts on paint. Management also said the shift could make it easier to rotate assets across markets without being constrained by the overhead of a growing internal property management organization.
Dispositions, leasing plans, and fair value adjustments discussed in Q&A
In response to analyst questions, CEO Tom Hofstedter said a lack of recent disposition announcements was largely seasonal and that H&R was not pursuing sales “for the sake of doing sales.” He referenced potential activity tied to Caledon land expropriation for the Highway 413 expansion and noted the REIT expects updates on assets including 26 Wellington and 25 Sheppard, while emphasizing that transactions can take time.
Hofstedter also addressed 310–330 Front, which had previously been discussed for sale, saying it is no longer under active disposition discussion. He said H&R decided to focus on leasing, describing the property as having a large block of vacant space uncommon in downtown Toronto and expressing optimism about leasing it during 2026, with a potential sale after stabilizing.
On fair value reductions in Long Island City—specifically Jackson Park—Hofstedter said the REIT obtained a third-party appraisal and elected to adjust the value to what management believed it “always was,” describing it as largely an accounting issue rather than a change in value.
Regarding potential 2026 dispositions, Hofstedter said outcomes depend on factors outside the REIT’s control, but suggested a possible range of proceeds “as low as $500 million” to “easily high in excess of $1 billion” from assets under consideration, while cautioning that timing and amounts remain uncertain.
About H&R Real Estate Investment Trust (TSE:HR.UN)
H&R REIT is one of Canada’s largest real estate investment trusts. H&R REIT has ownership interests in a Canadian and U.S. portfolio primarily comprised of high-quality residential (operating as Lantower Residential), industrial and office properties comprising approximately 21.3 million square feet.
