H&R Real Estate Investment Trust has ended months of speculation about whether it will go ahead with its Calgary project called The Bow, the new 58-storey headquarters for EnCana Corp.

The Toronto-based REIT said late Wednesday it had received commitments from a syndicate of Canadian financial institutions co-led by RBC Capital Markets and TD Securities, for a $425-million construction loan. The deal is expected to be finalized April 23.

"This should stop some of the confusion that has been created for the retail investor," said chief executive Thomas Hofstedter, about whether the two-million square foot project would be cancelled.

As first reported by The Financial Post last month, H&R confirmed in a filing this week that the REIT would not go ahead with the smaller south block of the project. The seven-story building was about 10% of the total square footage of the project.

RBC Capital Markets Neil Downey had forecast that the south block would not be finished, based on budget projections provided by H&R that did not include that portion of the project.

Mr. Downey said Thursday the new financing "removes the last large near-term risk for the REIT" and the most important goal for the REIT was to "get the money."

The REIT still has yet to announce the details of the loan but when it is finalized H&R is expected to release fixed prices for construction contracts and an appraisal it has received for The Bow. The $1.5-billion project has been valued from $1-billion to $1.3-billion by analysts.

Analysts agreed the decision to defer construction of the south block was not a material development for the REIT. The 200,000 square foot building was expected to be a mix of retail and so-called cultural space. No tenant was found for the cultural space and EnCana has agreed to reimburse H&R for costs associated with that space.

Despite the reassurances from the REIT and positive analyst reports, there still appears to be investor uncertainty about H&R which was once the country’s second largest REIT. It has lost close to $2-billion in market capitalization over the last few months.

The REIT’s unit closed up 56¢ to $8.16 Thursday. They traded as high as $20.87 in the summer.

"I think investors are a bit disillusioned about the way The Bow was handled. It carried far too much risk and it was not addressed until it got way out of hand," said Mark Rothschild, an analyst with Genuity Capital Markets.

The REIT has said it will seek an equity partner but there is some speculation that such a partner will be difficult to fund until the building is up and running. Once constructed though, The Bow will come with a 25-year lease agreement with the country’s largest oil and gas company and provide close to $100-million in annual income.

The lease also includes contractual agreements that call for annual rental increases in a market where rents are falling fast because of oversupply.

National Post April 2/09