May 14, 2010 / 2:37 PM / in 7 years

UPDATE 2-H&R REIT Q1 FFO in line; to up monthly distributions

* Q1 cash distributions per stapled unit C$0.18

* Adj FFO, ex items, C$0.34/unit

* Shares rise 2 pct (Recasts; Adds analyst comments, updates share movement)

By Bhaswati Mukhopadhyay

BANGALORE, May 14 (Reuters) - H&R Real Estate Investment Trust’s (HR_u.TO) first-quarter funds from operations (FFO) came in line with estimates, and said it would raise its monthly distributions, sending its shares up as much as 2 percent.

According to the new escalating distribution calendar, monthly distributions will increase every three months beginning in the third quarter of 2010 and ending in the second quarter of 2012, said H&R REIT, which invests in office, industrial and retail properties in Canada and the United States.

“The announced 46 percent increase in distributions delivers a 6.3 percent yield,” analyst Alex Avery of CIBC World Markets said.

Avery said the stock represents deep value with below average risk.

“If you compare H&R REIT to its peers with the proforma distribution, its peers’ valuation would suggest H&R should be trading at C$20 or higher,” the analyst added.

The open-ended REIT competes with Canadian REIT (REF_u.TO), RioCan Real Estate Investment Trust (REI_u.TO), Calloway REIT CWT_u.TO and Morguard REIT (MRT_u.TO).

Avery said H&R REIT is a safe haven amid all the global uncertainty as it has an average remaining lease term of over 10 years.

“That is very defensive,” he said, adding that the fundamentals of the company are quite strong.

Q1 FFO MEETS ESTIMATES

The trust reported FFO -- a key measure used by real estate companies -- of C$13.5 million ($13.22 million), or 9 Canadian cents per basic stapled unit, down from C$70.4 million, or 48 Canadian cents per basic stapled unit, a year ago.

Excluding a one-time debenture repayment loss, adjusted FFO would have been 34 Canadian cents per unit, the company said.

This was mostly in line with analyst expectations, according to Thomson Reuters I/B/E/S.

Cash distributions were 18 Canadian cents per stapled unit in the quarter.

The company has a utility-backed cash flow as its top tenants are utility companies such as TransCanada PipeLines Ltd, Telus Corp (T.TO) and Bell Canada, that together account for about 25 percent of H&R’s revenue, CIBC’s Avery said.

Shares of H&R REIT were up 15 Canadian cents at C$16.80 Friday afternoon on the Toronto Stock Exchange. ($1=1.021 Canadian Dollar) (Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Maju Samuel, Aradhana Aravindan)

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