Press Release

Crombie REIT Reports First Quarter 2018 Results

Company Release - 5/9/2018 5:19 PM ET

NEW GLASGOW, NS, May 9, 2018 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its financial results for the three months ended March 31, 2018.

First quarter 2018 Highlights (In thousands of CAD dollars, except per unit amounts and as otherwise noted).

  • Property revenue for the three months ended March 31, 2018 increased by $3,574 or 3.5% to $105,705 over the three months ended March 31, 2017.
  • Dispositions in the three months ended March 31, 2018 of two retail properties totalling 195,000 square feet for proceeds of $35,600, as well as disposition of lands adjacent to an existing development property for proceeds of $5,700. Subsequent to quarter end, completed disposition of one additional retail property for proceeds of $14,000 and disposition of a 50% interest in nine retail properties for consideration of approximately $78,000.
  • Subsequent to quarter end, completed acquisition of nine retail properties and additions to two existing retail properties from Sobeys, a related party, for a total purchase price of $88,110.
  • Same-asset property cash NOI for the three months ended March 31, 2018 increased by 2.7% or $1,711 ($64,261 compared to $62,550 for the three months ended March 31, 2017).
  • Funds From Operations ("FFO"):
    • FFO for the three months ended March 31, 2018 increased 4.4% to $45,864; or $0.30 per unit diluted, an increase of 3.1% per unit from the three months ended March 31, 2017.
    • FFO payout ratio of 73.3% for the three months ended March 31, 2018 compared to 75.4% for the same period in 2017.
  • Adjusted Funds From Operations ("AFFO"):
    • AFFO for the three months ended March 31, 2018 increased 7.0% to $38,664; or $0.26 per unit diluted, an increase of 5.3% per unit from the three months ended March 31, 2017.
    • AFFO payout ratio of 86.9% for the three months ended March 31, 2018 compared to 91.7% for the same period in 2017.
  • Occupancy, on a committed basis, was 95.7% at March 31, 2018 compared with 95.2% at December 31, 2017. Committed space at March 31, 2018 was 168,000 square feet at an average first year rate of $12.27 per square foot.
  • Renewals during the quarter on 267,000 square feet of 2018 expiring leases with an increase of 3.6% over the expiring lease rate. Renewals during the quarter on 34,000 square feet of future years expiring leases with a decrease of 13.8% over the expiring lease rate.
  • Debt to gross book value (fair value basis) was 49.6% at March 31, 2018, compared to 50.1% at March 31, 2017.
  • Interest service coverage for the three months ended March 31, 2018 was 2.88 times EBITDA, compared to 2.84 times EBITDA at March 31, 2017. Weighted average interest rate on mortgages reduced to 4.31% from 4.39% at March 31, 2017.

Donald Clow, President and CEO of Crombie commented: "We delivered stable and growing cash flow with 2.7% same asset NOI growth and 5.3% growth in AFFO per unit. Our Q1 results are continuing evidence that our retail portfolio was built to excel in good times and in the face of disruption. We continue to show our resolute commitment to our financial condition by improving debt metrics, liquidity and increasing our pool of unencumbered assets to over $1 billion. Looking forward we are pleased with our early stages of transformation from a landlord of grocery, drug and other needs-oriented retail real estate to a fully integrated owner/developer of retail and residential real estate. Our development pipeline of exciting mixed use properties in Canada's top urban markets is increasing and our capable development team is focused on maximizing material net asset value (NAV) creation over the medium to long term."

 

Financial Highlights








Crombie's key financial metrics for the three months ended March 31, 2018 are as follows:








Three months ended March 31,

(In thousands of CAD dollars, except per unit amounts and as otherwise noted)

2018


2017

Property revenue

$

105,705


$

102,131

Operating income attributable to Unitholders

$

25,445


$

18,984

Operating income attributable to Unitholders per unit - basic

$

0.17


$

0.13

Operating income attributable to Unitholders per unit - diluted

$

0.17


$

0.13

FFO




Basic

$

45,864


$

43,928


Diluted

$

46,832


$

45,640


Per unit – basic

$

0.30


$

0.30


Per unit – diluted

$

0.30


$

0.29


Payout ratio (%)


73.3%


75.4%

AFFO




Basic

$

38,664


$

36,132


Diluted

$

39,632


$

37,100


Per unit – basic

$

0.26


$

0.24


Per unit – diluted

$

0.26


$

0.24


Payout ratio (%)


86.9%


91.7%

ACFO

$

38,187


$

36,709

ACFO payout ratio (%)


88.0%


90.2%

Distributions per unit

$

0.22


$

0.22


 

The table below presents a summary of financial performance for the three months ended March 31, 2018 compared to the same periods in fiscal 2017.

 

(In thousands of CAD dollars, except per unit amounts and as otherwise noted)

Three months ended March 31,

2018


2017

Property revenue

$

105,705


$

102,131

Property operating expenses

32,904


31,395

Property NOI

72,801


70,736

NOI margin percentage

68.9%


69.3%

Other items:




Gain on disposal of investment properties

11,841



Depreciation and amortization

(28,032)


(19,796)


General and administrative expenses

(4,491)


(4,996)


Finance costs – operations

(26,709)


(25,960)


Income from equity accounted investments

35


Operating income before taxes

25,445


19,984

Taxes – deferred


(1,000)

Operating income attributable to Unitholders

25,445


18,984

Finance costs – distributions to Unitholders

(33,606)


(33,115)

Finance income (costs) – change in fair value of financial instruments

295


101

Increase (decrease) in net assets attributable to Unitholders

$

(7,866)


$

(14,030)

Operating income attributable to Unitholders per Unit, Basic

$

0.17


$

0.13

Operating income attributable to Unitholders per Unit, Diluted

$

0.17


$

0.13

Basic weighted average Units outstanding (in 000's)

150,838


148,591

Diluted weighted average Units outstanding (in 000's)

150,969


148,730

Distributions per Unit to Unitholders

$

0.22


$

0.22

 

Operating Highlights













Three months ended March 31,

(In thousands of CAD dollars)

2018


2017

Property NOI

$

72,801


$

70,736

Non-cash straight-line rent

(2,886)


(3,394)

Non-cash tenant incentive amortization

3,622


3,542

Property cash NOI

73,537


70,884

Acquisitions, dispositions and development property cash NOI

9,276


8,334

Same-asset property cash NOI

$

64,261


$

62,550







Same-asset property cash NOI is as follows:














Three months ended March 31,

(In thousands of CAD dollars)


2018


2017

Retail and Mixed Use


$

61,803


$

59,723

Office


2,458


2,827

Same-asset property cash NOI


$

64,261


$

62,550

 

Property NOI, on a cash basis, excludes non-cash straight-line rent recognition and amortization of tenant incentive amounts. The $1,711 or 2.7% increase in same-asset cash NOI for the three months ended March 31, 2018 over the same period in 2017 is primarily due to improved occupancy rates and revenues from land use intensifications at certain properties.

Crombie emphasizes property NOI on a cash basis as it reflects the cash generated by the properties period-over-period.

Acquisitions, dispositions and development property cash NOI is as follows:

 


Three months ended March 31,

(In thousands of CAD dollars)

2018


2017

Acquisitions and dispositions property cash NOI

$

1,651


$

758

Development property cash NOI

7,625


7,576

Total acquisitions, dispositions and development property cash NOI

$

9,276


$

8,334

 

For the three months ended March 31, 2018, acquisitions and dispositions property cash NOI increased $893 compared to the three months ended March 31, 2017. The increase was the result of property acquisitions during 2017, offset in part by property dispositions in the first quarter of 2018 and the fourth quarter of 2017.

 

Capital Highlights



March 31,


2018


2017

Weighted Average Mortgage Term

5.3 years


5.8 years

Weighted Average Mortgage Interest Rate

4.31%


4.39%

Debt to Gross Book Value (Fair Value)

49.6%


50.1%

Interest Coverage

2.88x


2.84x

Debt Service Coverage

1.85x


1.87x

 

Crombie's objectives when managing its capital structure are to optimize weighted average cost of capital; maintain financial flexibility through access to long-term debt and equity markets; and maintain ample liquidity. In pursuit of these objectives, Crombie utilizes staggered debt maturities, optimizes its ongoing exposure to floating rate debt, pursues a range of fixed rate secured and unsecured debt and maintains sustainable payout ratios. Crombie has an authorized floating rate revolving credit facility of up to $400,000, subject to available borrowing base, of which $11,161 was drawn as at March 31, 2018, and an additional $8,719 encumbered by outstanding letters of credit, resulting in significant available liquidity and a $100,000 unsecured floating rate bilateral credit facility, of which $50,000 was drawn at March 31, 2018.

Debt to gross book value on a fair value basis is 49.6% at March 31, 2018, compared to 50.1% at March 31, 2017.

General and Administrative Expenses

For the three months ended March 31, 2018, general and administrative expenses, as a percentage of property revenue, were 4.2%, a decrease of 0.7% from the same period in 2017, with expenses decreasing $505 or 10.1% and property revenue increasing 3.5%. Effective June 30, 2017, Crombie completed a tax reorganization which resulted in the elimination of the $76,400 deferred tax liability associated with Crombie's most significant corporate subsidiary. Costs related to the reorganization of approximately $565 were included in professional fees for the three months ended March 31, 2017. Excluding these costs, general and administrative expenses represented 4.3% of property revenue for the three months ended March 31, 2017.

Definition of Non-GAAP Measures

Certain financial measures included in this news release do not have standardized meaning under IFRS and therefore may not be comparable to similarly titled measures used by other publicly traded entities. Management includes these measures as they represent key performance indicators to management and it believes certain investors use these measures as a means of assessing Crombie's financial performance.

  • Property NOI is property revenue less property operating expenses.
  • Property Cash NOI is Property NOI adjusted to remove non-cash straight-line rent and tenant incentive amortization.
  • Debt is defined as bank loans plus investment property debt, senior unsecured notes and convertible debentures.
  • Gross book value means, at any time, the book value of the assets of Crombie and its consolidated subsidiaries plus deferred financing charges, accumulated depreciation and amortization in respect of Crombie's properties and cost of any below-market component of properties less (i) the amount of any receivable reflecting interest rate subsidies on any debt assumed by Crombie; (ii) subscription receipts held in trust; and (iii) the amount of deferred income tax liability arising out of the fair value adjustment in respect of the indirect acquisitions of certain properties. Gross book value (fair value basis) differs from gross book value as defined above in that it includes Crombie's investment properties at fair value and excludes the book value of investment properties and related accumulated depreciation and amortization as well as tenant incentives and accumulated straight-line rent receivable.
  • EBITDA is calculated as property revenue, adjusted to remove the impact of amortization of tenant incentives, less property operating expenses and general and administrative expenses.
  • FFO is calculated as Increase (decrease) in net assets attributable to Unitholders (computed in accordance with IFRS), excluding gains (or losses) from sales of depreciable real estate and any related income taxes, plus depreciation and amortization expense, incremental internal leasing expenses, deferred income taxes, finance costs - distributions to Unitholders, impairment charges and recoveries and change in fair value of financial instruments.
  • AFFO is defined as FFO adjusted for non-cash amounts affecting revenue, amortization of effective swap agreements, less maintenance capital expenditures, maintenance tenant incentives and leasing costs, and the settlement of effective interest rate swap agreements.
  • ACFO is a measure of sustainable, economic cash flow and is calculated as cash flow from operating activities (computed in accordance with IFRS) adjusted for distributions to unitholders, changes in working capital, maintenance expenditures and deferred financing charges.

For additional information on these non-GAAP measures see our Management's Discussion and Analysis for the three months ended March 31, 2018.

Crombie's consolidated financial statements and management's discussion and analysis for the three months ended March 31, 2018 can be found on Crombie's website at www.crombiereit.com or on the SEDAR website for Canadian regulatory filings at www.sedar.com.

About Crombie

Crombie Real Estate Investment Trust is an unincorporated, open-ended real estate investment trust established under, and governed by, the laws of the Province of Ontario. Crombie is one of the country's leading national retail property landlords with a strategy to own, operate and develop a portfolio of high quality grocery and drug store anchored shopping centres, freestanding stores and mixed use developments primarily in Canada's top urban and suburban markets.

This news release contains forward-looking statements that reflect the current expectations of management of Crombie about Crombie's future results, performance, achievements, prospects and opportunities. Wherever possible, words such as "may", "will", "estimate", "anticipate", "believe", "expect", "intend" and similar expressions have been used to identify these forward-looking statements. These statements reflect current beliefs and are based on information currently available to management of Crombie. Forward-looking statements necessarily involve known and unknown risks and uncertainties. A number of factors, including those discussed in the 2017 annual Management Discussion and Analysis under "Risk Management", could cause actual results, performance, achievements, prospects or opportunities to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and a reader should not place undue reliance on the forward-looking statements. There can be no assurance that the expectations of management of Crombie will prove to be correct. Readers are cautioned that such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from these statements. Crombie can give no assurance that actual results will be consistent with these forward-looking statements.

Specifically, this document includes, but is not limited to, forward-looking statements regarding:

(i) general growth and development opportunities and expansion across Canada, which could be impacted by real estate market cycles, the availability of labour, financing, capital resource allocation decisions and general economic conditions, as well as development activities undertaken by related parties not under the direct control of Crombie;

(ii) overall indebtedness levels and terms and expectations relating to refinancing, which could be impacted by the level of acquisition activity that Crombie is able to achieve, future financing opportunities, future interest rates and market conditions; and,

(iii) expected timing and costs of development projects currently underway.

Conference Call Invitation

Crombie will provide additional details concerning its period ended March 31, 2018 results on a conference call to be held Thursday, May 10, 2018, at 9:00 a.m. Eastern time. Accompanying the conference call will be a presentation which will be available on our website. To join this conference call you may dial (647) 427-7450 or (888) 231-8191. You may also listen to a live audio webcast of the conference call by visiting Crombie's website located at www.crombiereit.com under Investor Centre. Replay will be available until midnight May 24, 2018 by dialing (416) 849-0833 or (855) 859-2056 and entering pass code 7677657, or on the Crombie website for 90 days after the meeting.

 

SOURCE Crombie REIT

Media Contact, Glenn Hynes, FCPA, FCA, Executive Vice President, Chief Financial Officer and Secretary, Crombie REIT, (902) 755-8100