Press Release

Crombie REIT Reports Second Quarter 2018 Results

Company Release - 8/8/2018 4:31 PM ET

NEW GLASGOW, NS, Aug. 8, 2018 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its financial results for the  three and six months ended June 30, 2018.

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

  • Second quarter property revenue of $104,143, an increase of $2,552 or 2.5% over second quarter 2017.
  • Second quarter operating income attributable to Uniholders of $49,033, a decrease of $47,310 compared to the second quarter of 2017. During the second quarter of 2017, Crombie completed a tax reorganization resulting in a deferred tax recovery of $76,400. Dispositions in the second quarter of 2018 resulted in a gain on disposal of $33,502.
  • Capital recycling (dollar amounts are before closing and transaction costs) including:
    • Dispositions in the three months ended June 30, 2018 of two retail properties and one mixed use property totalling 338,000 square feet for proceeds of $74,250 and disposition of a 50% interest in nine retail properties for consideration of $77,929. Dispositions for the six months ended June 30, 2018 totalled $193,531.
    • Acquisitions in the three months ended June 30, 2018 of 10 retail properties and additions to two existing retail properties from Sobeys, a related party, for a total purchase price of $100,610.
  • Same-asset property cash NOI for the three months ended June 30, 2018 increased by 2.9% or $1,728 ($62,308 compared to $60,580 for the three months ended June 30, 2017).
  • FFO for the three months ended June 30, 2018 compared to the three months ended June 30, 2017:
    • increased 6.9% to $46,325;
    • increased 5.6% to $0.30 per unit diluted;
    • FFO payout ratio of 72.7% versus 76.7%.
  • AFFO for the three months ended June 30, 2018 compared to the three months ended June 30, 2017:
    • increased 11.1% to $39,492;
    • increased 9.4% to $0.26 per unit diluted;
    • AFFO payout ratio of 85.3% versus 93.6%.
  • Occupancy and leasing results:
    • Overall leased space (occupied plus committed square feet) was 96.1% at June 30, 2018 compared with 95.2% at December 31, 2017 and 94.6% at June 30, 2017.
    • Crombie's renewal activity during the six months ended June 30, 2018 included renewals on 366,000 square feet of 2018 expiring leases with an increase of 3.1% over the expiring lease rate and renewals on 59,000 square feet of future years expiring leases with a decrease of 2.7% over the expiring lease rate.
    • New leases and expansions increased occupancy by 144,000 square feet at June 30, 2018 at an average first year rate of $15.66 per square foot.
  • Other metrics:
    • Debt to gross book value (fair value basis) was 49.9% at June 30, 2018, compared to 49.8% at June 30, 2017.
    • Crombie's interest service coverage for the six months ended June 30, 2018 was 2.90 times EBITDA.
    • Crombie's debt service coverage was 1.88 times EBITDA, compared to 2.82 times EBITDA and 1.85 times EBITDA, respectively, for the six months ended June 30, 2017.
  • On July 31, 2018, Crombie announced the early redemption of its $74,400, 5.25% Series E Convertible Debentures originally scheduled to mature March 31, 2021.

"During Q2 we continued to drive strong fundamentals with record occupancy at 96.1%, solid 2.9% growth in same-asset cash NOI and strong 9.4% and 5.6% growth in AFFO and FFO per Unit, respectively", said Don Clow, President and CEO. "Our mixed use development execution continues on track with the projected $450 million investment in our first five projects expected to deliver Net Asset Value (NAV) growth of $1.00 to $2.00 per Unit over the next two to three years. We are prudently sourcing capital for these developments with $194 million of dispositions completed year to date. Crombie's experienced professionals are successfully transforming Crombie from an owner of convenient needs based retail real estate to a fully integrated owner/developer of retail and residential real estate in Canada's top markets. Our balanced approach is consistent with our commitment to deliver long-term sustainable growth to our investors and the communities across Canada in which we operate."  

 

Financial Highlights


Crombie's key financial metrics for the three and six months ended June 30, 2018 are as follows:














Three months ended June 30,


Six months ended June 30,

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


2018



2017



2018



2017

Property revenue

$

104,143


$

101,591


$

209,848


$

203,722

Operating income attributable to Unitholders

$

49,033


$

96,343


$

74,478


$

115,327

Operating income attributable to Unitholders per unit - basic

$

0.32


$

0.65


$

0.49


$

0.77

Operating income attributable to Unitholders per unit - diluted

$

0.32


$

0.63


$

0.49


$

0.76

FFO













Basic

$

46,325


$

43,335


$

92,189


$

87,263


Diluted

$

47,299


$

45,057


$

94,131


$

90,697


Per unit – basic

$

0.31


$

0.29


$

0.61


$

0.59


Per unit – diluted

$

0.30


$

0.29


$

0.61


$

0.58


Payout ratio (%)


72.7%



76.7%



73.0%



76.0%

AFFO













Basic

$

39,492


$

35,532


$

78,156


$

71,664


Diluted

$

40,466


$

36,506


$

80,098


$

73,606


Per unit – basic

$

0.26


$

0.24


$

0.52


$

0.48


Per unit – diluted

$

0.26


$

0.24


$

0.52


$

0.48


Payout ratio (%)


85.3%



93.6%



86.1%



92.6%

ACFO

$

42,790


$

37,705


$

80,977


$

74,414

ACFO payout ratio (%)


78.7%



88.2%



83.1%



89.2%

Distributions per unit

$

0.22


$

0.22


$

0.45


$

0.45

 

The table below presents a summary of financial performance for the three and six months ended June 30, 2018 compared to the same periods in fiscal 2017.

 


Three months ended June 30,

Six months ended June 30,

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


2018


2017


2018


2017

Property revenue

$

104,143

$

101,591

$

209,848

$

203,722

Property operating expenses


29,925


29,793


62,829


61,188

Property NOI


74,218


71,798


147,019


142,534

NOI margin percentage


71.3%


70.7%


70.1%


70%

Other items:










Gain on disposal of investment properties


33,502



45,343



Impairment of investment properties


(8,000)



(8,000)



Depreciation and amortization


(19,719)


(19,826)


(47,751)


(39,622)


General and administrative expenses


(4,626)


(5,160)


(9,117)


(10,156)


Finance costs – operations


(26,381)


(26,892)


(53,090)


(52,852)


Income from equity accounted investments


39


27


74


27

Operating income before taxes


49,033


19,947


74,478


39,931

Taxes – current



(4)



(4)

Taxes – deferred



76,400



75,400

Operating income attributable to Unitholders


49,033


96,343


74,478


115,327

Finance costs – distributions to Unitholders


(33,688)


(33,248)


(67,294)


(66,363)

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


(50)


1


245


102

Increase (decrease) in net assets attributable to Unitholders

$

15,295

$

63,096

$

7,429

$

49,066

Operating income attributable to Unitholders per Unit, Basic

$

0.32

$

0.65

$

0.49

$

0.77

Operating income attributable to Unitholders per Unit, Diluted

$

0.32

$

0.63

$

0.49

$

0.76

Basic weighted average Units outstanding (in 000's)


151,225


149,205


151,032


148,900

Diluted weighted average Units outstanding (in 000's)


155,694


156,660


155,502


156,359

Distributions per Unit to Unitholders

$

0.22

$

0.22

$

0.45

$

0.45

 

Growth Highlights











Acquisitions











(In thousands of CAD dollars)



GLA


Initial Purchase
Price


Occupancy


Key Tenants

Acquisition of income properties in Q1










No acquisitions in Q1



$




Acquisition of income properties in Q2










Edson Sobeys

Edson

AB

33,000


5,300


100%


Sobeys

Strathmore NE Sobeys

Strathmore

AB

35,000


10,200


100%


Sobeys

Hollick Kenyon Sobeys

Edmonton

AB

30,000


11,800


100%


Sobeys

Thornbury Foodland

Thornbury

ON

40,000


11,850


100%


Foodland

Gatineau IGA Extra

Gatineau

QC

71,800


15,550


100%


IGA Extra

Rimouski IGA Extra

Rimouski

QC

52,700


7,900


100%


IGA Extra

Baie St-Paul IGA

Baie St-Paul

QC

64,600


8,300


100%


IGA

Saint-Pie Tradition

Saint-Pie

QC

13,800


2,600


100%


Tradition

Havre St-Pierre Tradition

Havre St-Pierre

QC

26,400


5,000


100%


Tradition

Elmwood Alcool NB Liquor/Dollarama (1)

Elmwood

NB

20,800


5,170


100%


Alcool NB Liquor/Dollarama

Chateauguay Familiprix (1)

Chateauguay

QC

32,900


4,440


100%


Familiprix

Victoria Trail

Edmonton

AB

37,000


12,500


100%


Sobeys




458,000

$

100,610





(1) Represents an addition to an existing income property.

 

Dispositions














(In thousands of CAD dollars)



GLA


Price

Ownership Interest

Disposition of income properties in Q1







Whitehorse Plaza

Simcoe

ON

92,000

$

15,000

100%

Perth Mews

Perth

ON

103,000


20,627

100%

Disposition of income properties in Q2







Red Deer Cineplex

Red Deer

AB

40,000


14,000

100%

10 Alkenbrack St

Napanee

ON

25,000


9,000

100%

Northam portfolio(1)








5048-16 Ave NW

Calgary

AB

21,000



50%


Ancaster

Ancaster

ON

33,000



50%


Brampton Plaza

Brampton

ON

38,000



50%


Danforth

Scarborough

ON

3,000



50%


Marpole Safeway

Vancouver

BC

24,000



50%


McKenzie Towne Dr

Calgary

AB

9,000



50%


Millwoods Common

Edmonton

AB

29,000



50%


Nottingham

Sherwood Park

AB

23,000



50%


Southbrook

Edmonton

AB

23,000



50%

Total Northam portfolio





77,929


Park Lane

Halifax

NS

273,000


51,250

100%

Disposition of property under development in Q1







Langford land

Langford

BC


5,725

100%

Disposition of property under development in Q2







No dispositions in Q2







736,000

$

193,531


(1) Represents disposition of 50% interest in a portfolio of properties. The square footage and price reflect the 50% amounts.

 

Operating Highlights











Three months ended June 30,

Six months ended June 30,

(In thousands of CAD dollars)


2018


2017


2018


2017

Property NOI

$

74,218

$

71,798

$

147,019

$

142,534

Non-cash straight-line rent


(2,504)


(3,389)


(5,390)


(6,783)

Non-cash tenant incentive amortization


2,468


2,960


6,090


6,502

Property cash NOI


74,182


71,369


147,719


142,253

Acquisitions, dispositions and development property cash NOI


11,874


10,789


23,771


21,553

Same-asset property cash NOI

$

62,308

$

60,580

$

123,948

$

120,700










Same-asset property cash NOI is as follows:



















Three months ended June 30,

Six months ended June 30,

(In thousands of CAD dollars)


2018


2017


2018


2017

Retail and Mixed Use

$

59,873

$

57,805

$

119,055

$

115,098

Office


2,435


2,775


4,893


5,602

Same-asset property cash NOI

$

62,308

$

60,580

$

123,948

$

120,700


 

Property NOI, on a cash basis, excludes non-cash straight-line rent recognition and amortization of tenant incentive amounts. The $1,728 or 2.9% increase and $3,248 or 2.7% increase in same-asset cash NOI for the three and six months ended June 30, 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 June 30,

Six months ended June 30,

(In thousands of CAD dollars)


2018


2017


2018


2017

Acquisitions and dispositions property cash NOI

$

4,167

$

3,416

$

8,621

$

6,689

Development property cash NOI


7,707


7,373


15,150


14,864

Total acquisitions, dispositions and development property cash NOI

$

11,874

$

10,789

$

23,771

$

21,553

 

Growth in acquisitions and dispositions property cash NOI reflects property acquisitions early in the second quarter of 2018 and during 2017, offset in part by property dispositions in the first and second quarters of 2018 and the fourth quarter of 2017.

 

Capital Highlights


June 30,


2018

2017

Weighted Average Mortgage Term

5.1 years

5.8 years

Weighted Average Mortgage Interest Rate

4.30%

4.34%

Debt to Gross Book Value (Fair Value)

49.9%

49.8%

Interest Coverage

2.90x

2.82x

Debt Service Coverage

1.88x

1.85x

 

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 $32,422 was drawn as at June 30, 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 $100,000 was drawn at June 30, 2018.

Debt to gross book value on a fair value basis is 49.9% at June 30, 2018, compared to 49.8% at June 30, 2017.

General and Administrative Expenses

For the three months ended June 30, 2018, general and administrative expenses, as a percentage of property revenue, were 4.4%, a decrease of 0.7% from the same period in 2017, with expenses decreasing $534 or 10.3% and property revenue increasing 2.5%. For the six months ended June 30, 2018, general and administrative expenses, as a percentage of property revenue, decreased 0.7% compared to the six months ended June 30, 2017, with expenses decreasing $1,039 or 10.2% and property revenue increasing 3.0%. 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 $494 are included in professional fees for the three months ended June 30, 2017 and approximately $1,059 for the six months ended June 30, 2017. Excluding these costs, general and administrative expenses represented 4.6% of property revenue for the three months ended June 30, 2017 and 4.5% of property revenue for the six months ended June 30, 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 and six months ended June 30, 2018.

Crombie's consolidated financial statements and management's discussion and analysis for the three and six months ended June 30, 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 including the expected net asset value growth from our mixed use development pipeline, 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 June 30, 2018 results on a conference call to be held Thursday, August 9, 2018, beginning at 12:00 p.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 (416) 764-8688 or (888) 390-0546. 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 August 23, 2018 by dialing (416) 764-8677 or (888) 390-0541 and entering pass code 989425 #, 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