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Crombie REIT Reports Second Quarter 2017 Results

  (August 09, 2017)

NEW GLASGOW, NS, Aug. 9, 2017 /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, 2017.

Second quarter 2017 Highlights (In thousands of CAD dollars, except per unit amounts and as otherwise noted).

  • Funds From Operations ("FFO"):
    • FFO for the three months ended June 30, 2017 increased 14.7% to $43,335; or $0.29 per unit diluted, an increase of 1.8% per unit from the three months ended June 30, 2016.
    • FFO payout ratio of 76.7% for the three months ended June 30, 2017 compared to 80.9% for the same period in 2016.
  • FFO for the three months ended June 30, 2017 has been impacted by approximately $494 in general and administrative expenses for professional fees related to Crombie's tax reorganization and $531 in finance costs related to the early redemption of the 5% convertible debentures. Excluding this $1,025, FFO for the three months ended June 30, 2017 would have been $44,360 or $0.29 per unit diluted, an increase of $0.01 or +4.1% per unit from the three months ended June 30, 2016. 
  • Same-asset property cash NOI for the three months ended June 30, 2017 increased by 3.4% or $1,971 ($60,613 compared to $58,642 for the three months ended June 30, 2016).
  • Completed acquisition of one development property from Empire for a total purchase price of $31,252. Subsequent to June 30, 2017, completed the acquisition of one retail property totalling 61,000 square feet in Toronto, ON for a total purchase price of $42,000 before closing and transaction costs.
  • Property revenue for the three months ended June 30, 2017 increased by $560 or 0.6% to $101,591 over the three months ended June 30, 2016. Second quarter property revenue for 2016 was positively impacted by $10,344 of lease termination income from Target Canada.
  • Occupancy, on a committed basis, was 94.6% at June 30, 2017 compared with 94.4% at December 31, 2016 and 94.1% at June 30, 2016. Committed space at June 30, 2017 was 106,000 square feet at an average first year rate of $16.49 per square foot.
  • Renewals during the quarter on 187,000 square feet of 2017 expiring leases with an increase of 7.5% over the expiring lease rate.
  • Debt to gross book value (fair value basis) was 49.8% at June 30, 2017, compared to 50.6% at June 30, 2016.
  • Interest service coverage for the six months ended June 30, 2017 was 2.82 times EBITDA. Weighted average interest rate on mortgages reduced to 4.34% from 4.57% at June 30, 2016.

Donald E. Clow, FCPA, FCA, President and CEO commented: "With the commencement of major developments in Victoria and St. John's, our plan to start Davie St. (Vancouver) in September and the acquisition of McCowan and Ellesmere, a significant transit oriented future mixed use development site in Toronto, we are delighted with the maturing of our major development pipeline into one of the best value creation opportunities in the Canadian REIT market. Our convenience and everyday needs oriented grocery anchored portfolio continues to provide a stable and e-commerce resilient base from which to drive NAV and AFFO growth and increase our urban footprint."


Financial Highlights

Crombie's key financial metrics for the three and six months ended June 30, 2017 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)

2017


2016


2017


2016


Property revenue

$

101,591


$

101,031


$

203,722


$

195,975


Operating income attributable to Unitholders

$

96,343


$

27,208


$

115,327


$

70,526


Operating income attributable to Unitholders per unit - basic

$

0.65


$

0.21


$

0.77


$

0.53


Operating income attributable to Unitholders per unit - diluted

$

0.63


$

0.21


$

0.76


$

0.53


FFO (1) (3)






Basic

$

43,335


$

37,768


$

87,263


$

76,241



Diluted

$

45,057


$

39,490


$

90,697


$

79,675



Per unit basic

$

0.29


$

0.29


$

0.59


$

0.58



Per unit diluted

$

0.29


$

0.28


$

0.58


$

0.57



Payout ratio (%)

76.7

%

80.9

%

76.0

%

78.5

%

AFFO (2) (3)






Basic

$

35,532


$

30,831


$

71,664


$

62,267



Diluted

$

36,506


$

31,805


$

73,606


$

64,209



Per unit basic

$

0.24


$

0.23


$

0.48


$

0.47



Per unit diluted

$

0.24


$

0.23


$

0.48


$

0.47



Payout ratio (%)

93.6

%

99.0

%

92.6

%

96.1

%

ACFO (3)

$

37,705


$

32,976


$

74,414


$

63,910


ACFO payout ratio (%)

88.2

%

92.6

%

89.2

%

93.7

%

Distributions per unit

$

0.22


$

0.22


$

0.45


$

0.45


 

(1)

FFO for 2016 has been restated to include add back of incremental internal leasing costs.

(2)

AFFO for 2016 is now calculated based on REALPAC's February 2017 white paper.

(3)

FFO, AFFO and ACFO for 2016 have been adjusted for lease termination income from Target Canada and subscription receipt payments.

 

The table below presents a summary of financial performance for the three and six months ended June 30, 2017 compared to the same periods in fiscal 2016.

 

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

Three months ended June 30,

Six months ended June 30,

2017


2016


2017


2016


Property revenue

$

101,591


$

101,031


$

203,722


$

195,975


Property operating expenses

29,793


27,538


61,188


58,179


Property NOI

71,798


73,493


142,534


137,796


NOI margin percentage

70.7

%

72.7

%

70.0

%

70.3

%

Other items:






Gain on disposal of investment properties

?


244


?


26,504



Depreciation and amortization

(19,826)


(17,514)


(39,622)


(33,964)



General and administrative expenses

(5,160)


(4,122)


(10,156)


(8,529)



Finance costs operations

(26,892)


(24,793)


(52,852)


(49,158)



Income from equity accounted investments

27


?


27


?


Operating income before taxes

19,947


27,308


39,931


72,649


Taxes current

(4)


?


(4)


(23)


Taxes deferred

76,400


(100)


75,400


(2,100)


Operating income attributable to Unitholders

96,343


27,208


115,327


70,526


Finance costs distributions to Unitholders

(33,248)


(30,538)


(66,363)


(59,860)


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

1


(397)


102


(431)


Increase (decrease) in net assets attributable to Unitholders

$

63,096


$

(3,727)


$

49,066


$

10,235


Operating income attributable to Unitholders per Unit, Basic

$

0.65


$

0.21


$

0.77


$

0.53


Operating income attributable to Unitholders per Unit, Diluted

$

0.63


$

0.21


$

0.76


$

0.53


Basic weighted average Units outstanding (in 000's)

149,205


132,284


148,900


131,927


Diluted weighted average Units outstanding (in 000's)

156,660


132,425


156,359


132,072


Distributions per Unit to Unitholders

$

0.22


$

0.22


$

0.45


$

0.45


 

Growth Highlights

 

(In thousands of CAD dollars)

GLA


Initial Purchase
Price


Occupancy


Key Tenants

Acquisitions in Q1






50,000


$

8,320


100%


Sobeys


50,000


$

8,320




 

Operating Highlights

 


Three months ended June 30,

Six months ended June 30,

(In thousands of CAD dollars)

2017

2016

2017

2016

Property NOI

$

71,798

$

73,493

$

142,534

$

137,796

Non-cash straight-line rent

(3,389)

(2,720)

(6,783)

(5,444)

Non-cash tenant incentive amortization

2,960

2,409

6,502

4,861

Property cash NOI

71,369

73,182

142,253

137,213

Acquisitions, dispositions and development property cash NOI

10,756

14,540

21,171

19,483

Same-asset property cash NOI

$

60,613

$

58,642

$

121,082

$

117,730

 

Same-asset property cash NOI is as follows:

 


Three months ended June 30,


Six months ended June 30,

(In thousands of CAD dollars)

2017


2016


2017


2016

Retail and Mixed Use

$

57,944


$

55,864


$

115,704


$

112,142

Office

2,669


2,778


5,378


5,588

Same-asset property cash NOI

$

60,613


$

58,642


$

121,082


$

117,730

 

Property NOI, on a cash basis, excludes non-cash straight-line rent recognition and amortization of tenant incentive amounts. The $1,971 or 3.4% increase and $3,352 or 2.8% increase in same-asset cash NOI for the three and six months ended June 30, 2017 over the same periods in 2016 is primarily the result of: increased average rent per square foot from leasing activity; rental rate increases in existing leases; improved recovery rates; revenues from land use intensifications at several properties; and, the June 2016 $58,823 investment in 10 Sobeys anchored properties which generated $1,029 in same-asset property cash NOI per quarter in 2017.

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)


2017



2016



2017



2016

Acquisitions and dispositions property cash NOI

$

8,336


$

1,773


$

16,528


$

4,561

Development property cash NOI


2,420



12,767



4,643



14,922

Total acquisitions, dispositions and development property cash NOI

$

10,756


$

14,540


$

21,171


$

19,483














Growth in acquisitions and dispositions property cash NOI reflects the property acquisition and disposition activity throughout 2016 including the acquisition of 41 properties and disposition of 19 retail properties in 2016.

Capital Highlights


June 30,


2017


2016

Weighted Average Mortgage Term

5.8 years


6.3 years

Weighted Average Mortgage Interest Rate

4.34%


4.57%

Debt to Gross Book Value (Fair Value)

49.8%


50.6%

Interest Coverage

2.82x


2.89x

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 $12,058 was drawn as at June 30, 2017, and an additional $5,327 encumbered by outstanding letters of credit, resulting in significant available liquidity and a $100,000 unsecured floating rate bilateral credit facility, of which $30,000 was drawn at June 30, 2017.

Debt to gross book value on a fair value basis is 49.8% at June 30, 2017, compared to 50.6% at June 30, 2016.

General and Administrative Expenses

For the three months ended June 30, 2017, general and administrative expenses, as a percentage of property revenue, were 5.1%, an increase of 1.0% from the same period in 2016, with expenses increasing $1,038 or 25.2% and property revenue increasing 0.6%. For the six months ended June 30, 2017, general and administrative expenses, as a percentage of property revenue, increased 0.6% compared to the six months ended June 30, 2016, with expenses increasing $1,627 or 19.1% and property revenue increasing by 4.0%. Effective June 30, 2017, Crombie underwent 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 represent 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.

General and administrative expenses also increased due to increases in employee recruitment, transition, hiring and development costs.

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, 2017.

Crombie's consolidated financial statements and management's discussion and analysis for the three and six months ended June 30, 2017 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 is an open-ended real estate investment trust established under, and governed by, the laws of the Province of Ontario. Crombie currently owns a portfolio of 283 income-producing properties across Canada, comprising approximately 19.2 million square feet 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 2016 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; and,

(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.

 

Conference Call Invitation

Crombie will provide additional details concerning its period ended June 30, 2017 results on a conference call to be held Thursday, August 10, 2017, at 1:30 p.m. Eastern time. 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. Replay will be available until midnight August 24, 2017 by dialing (416) 849-0833 or (855) 859-2056 and entering pass code 46780893, or on the Crombie website for 90 days after the meeting.

 

SOURCE Crombie REIT

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