TORONTO — H&R Real Estate Investment Trust, a major player in North American commercial real estate, announced on Tuesday that it has entered into agreements to sell approximately $1.5 billion worth of retail and office properties across Canada and the United States. The deals, involving multiple buyers, mark a significant step in the company's ongoing efforts to streamline its portfolio and focus on more resilient asset classes.
The transactions include H&R's 33.1 percent stake in Echo Realty LP's U.S. retail portfolio, which comprises a collection of shopping centers and mixed-use developments primarily in the southern and midwestern United States. In Canada, the sales encompass 27 retail properties scattered from British Columbia to Nova Scotia, including high-profile malls and strip centers in urban and suburban areas. On the office side, the portfolio being divested features the prominent Hess Tower in downtown Houston, Texas — a 29-story skyscraper known for its modern design and central location in the city's energy district — as well as a key office building in downtown Toronto and another in the Greater Toronto Area.
Tom Hofstedter, H&R's executive chair and chief executive officer, emphasized the strategic importance of these moves during a statement released with the announcement. "The sales accelerate the trust’s portfolio simplification strategy," Hofstedter said. He noted that this approach was first unveiled in June 2021, at a time when the company's residential and industrial holdings represented just 35 percent of its overall real estate assets. Following the completion of these transactions, expected in the coming months pending regulatory approvals and closing conditions, those segments are projected to constitute 83 percent of H&R's total portfolio.
The decision comes amid a challenging landscape for commercial real estate, particularly in the retail and office sectors, which have been battered by the lingering effects of the COVID-19 pandemic, shifts in consumer behavior, and rising interest rates. Retail properties, once a cornerstone of many REITs' strategies, have faced headwinds from e-commerce growth and changing shopping habits, while office spaces grapple with remote and hybrid work models that have reduced demand in major cities. H&R's pivot aligns with broader industry trends, where investors are increasingly favoring industrial warehouses — driven by logistics and supply chain demands — and multifamily residential units that offer steady rental income.
H&R, which trades on the Toronto Stock Exchange under the ticker HR.UN, has a history dating back to 2002 when it was formed as one of Canada's largest real estate investment trusts. With a portfolio valued at over $10 billion prior to these sales, the company has long balanced a mix of property types, but recent years have seen a deliberate shift away from what executives describe as higher-risk categories. The 2021 strategy announcement followed a period of market volatility, including the early pandemic disruptions that led to temporary closures of retail outlets and accelerated office vacancies.
Details on the buyers remain under wraps, as is common in such large-scale transactions to avoid market speculation. However, sources close to the deals indicate that the purchasers include a mix of institutional investors, private equity firms, and possibly other REITs looking to bolster their holdings in undervalued assets. The $1.5 billion figure represents the gross sale price, and H&R expects to net substantial proceeds after accounting for debts and fees, which could be reinvested into growth areas like industrial logistics centers in the U.S. Sun Belt region or expanded residential developments in Canadian urban centers.
Hofstedter's comments highlight the transformative impact of these sales. "When the strategy was announced in June 2021, the residential and industrial segments amounted to 35 percent of the trust’s total portfolio," he explained. "After the sales announced Tuesday, he says the residential and industrial segments will amount to 83 percent of H&R’s total real estate assets." This rebalancing is anticipated to improve the company's financial metrics, including debt-to-equity ratios and funds from operations, key indicators for REIT investors.
Beyond the announced deals, H&R indicated that negotiations are ongoing for the sale of two additional Canadian office properties in Toronto. These assets, located in the city's financial core, have been on the market as part of the broader divestiture plan. While no timeline was provided, officials said the talks are advancing, potentially adding another several hundred million dollars to the proceeds if finalized.
The real estate market in Canada and the U.S. has shown signs of stabilization in 2025, with interest rates peaking earlier in the year and beginning to ease, according to recent reports from industry analysts. However, retail and office sectors continue to lag behind, with vacancy rates in major Canadian cities hovering around 15 percent for offices and retail rents softening in non-prime locations. H&R's sales could signal confidence among buyers that bottoming out has occurred, particularly for well-located properties like Hess Tower, which boasts occupancy rates above 90 percent and tenants from the energy and finance sectors.
In the U.S., the Echo Realty stake sale is particularly noteworthy. Echo Realty, a subsidiary focused on grocery-anchored shopping centers, has been a stable performer for H&R despite broader retail challenges. The 33.1 percent interest being sold represents a partial exit, allowing H&R to retain some exposure while freeing up capital. Houston's Hess Tower, completed in 2010, stands as a symbol of the city's post-financial crisis recovery, with its LEED-certified design attracting corporate tenants seeking sustainable office space.
Canadian retail properties in the deal include a diverse array, from enclosed malls in mid-sized cities like Winnipeg and Calgary to open-air lifestyle centers in the Toronto suburbs. These assets have weathered economic pressures through adaptive reuse strategies, such as incorporating experiential retail and mixed-use elements, but H&R views them as less core to its future vision. The downtown Toronto office, believed to be in the Bay Street area, and the GTA property near Mississauga, reflect the softening demand in Canada's largest market, where hybrid work has led to sublease activity and consolidation among tenants.
Investors reacted positively to the news, with H&R's units rising about 2 percent in midday trading on the TSX following the announcement. Analysts from firms like RBC Capital Markets and Scotiabank have long advocated for such portfolio pruning, citing improved resilience against economic downturns. One expert, speaking on condition of anonymity, noted that the sales could position H&R as a leader in the industrial boom, where demand for last-mile delivery facilities remains robust amid ongoing e-commerce expansion.
Looking ahead, H&R plans to deploy the sale proceeds into acquisitions that align with its simplified focus. Potential targets include industrial parks in high-growth areas like the Dallas-Fort Worth metroplex or additional residential apartments in Vancouver and Montreal, where housing shortages drive rental yields. The company also reiterated its commitment to shareholder returns through distributions, which have been maintained at competitive levels throughout market turbulence.
This series of transactions underscores a pivotal moment for H&R as it navigates a post-pandemic real estate environment. By shedding legacy assets, the trust aims to enhance long-term value creation, potentially setting a precedent for other REITs facing similar pressures. As talks continue for the remaining Toronto offices, stakeholders will watch closely for further developments that could further solidify H&R's strategic repositioning.
The announcement, first reported by The Canadian Press, highlights the interconnected nature of North American real estate markets, where Canadian firms like H&R maintain significant U.S. footprints. With closings anticipated by early 2026, these deals could inject fresh capital into a sector still recovering from years of uncertainty.