Crombie REIT reports solid third quarter results

Crombie REIT (TSX:CRR.UN)

STELLARTON, NS, Nov. 8, 2013 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report strong results for the three months and nine months ended September 30, 2013.

Year to Date and Third Quarter 2013 Highlights (In thousands of CAD dollars, except per unit amounts and as otherwise noted)

  • Strong 10.2% growth in Funds From Operations ("FFO") per unit for the nine months ended September 30, 2013, as FFO per unit fully diluted ("FD") was $0.83 per unit compared to $0.76 per unit FD for the same period in 2012. FFO grew 23.1% over the same period in 2012 ($78,052 vs $63,386) with the FFO payout ratio 78.7% compared to 87.2% for the same period in 2012.
  • 13.2% growth in FFO per unit for the three months ended September 30, 2013 ("Q3") as FFO per unit FD was $0.28 compared to $0.24 for the same period in 2012. Q3 FFO grew 21.1% over the same period in 2012 ($25,841 vs $21,338) with the FFO payout ratio of 79.5% compared to 90.7% for the same period in 2012.
  • Strong 10.9% growth in Adjusted Funds From Operations ("AFFO") per unit for the nine months ended September 30, 2013, as AFFO per unit FD was $0.71 per unit compared to $0.64 per unit FD for the same period in 2012. AFFO grew 24.1% over the same period in 2012 ($66,032 vs $53,198) for the nine months ended September 30, 2013 with the AFFO payout ratio of 93.1% compared to 103.9% for the same period in 2012.
  • 13.2% growth in Q3 AFFO per unit as AFFO per unit FD was $0.24 compared to $0.21 for the same period in 2012. Q3 AFFO grew 20.6% over the same period in 2012 ($21,993 vs $18,237) with the AFFO payout ratio of 93.4% compared to 106.1% for the same period in 2012.
  • Crombie was assigned an investment grade credit rating of BBB(low) with a Stable trend by DBRS.
  • Acquisition of four drug store anchored freestanding properties in four different provinces totaling $44 million during Q3.
  • Portfolio fair value of $2.9 billion; $3.9 billion including the subsequent acquisition.
  • Solid growth of 1.6% in Same-Asset Cash Net Operating Income ("NOI") for the nine months ended September 30, 2013 over the nine months ended September 30, 2012. Slight reduction in Same-Asset Cash NOI of 0.3% for the three months ended September 30, 2013 compared to the same period in 2012.
  • Property revenue of $213,044 for the nine months ended September 30, 2013, an increase of $25,492 or 13.6% over the $187,552 for the nine months ended September 30, 2012. Q3 property revenue of $70,850, increased $6,391 or 9.9% over Q3 2012.
  • Solid occupancy on a committed basis of 92.2% at September 30, 2013, compared with 93.5% at September 30, 2012. The September 30, 2013 leased space is impacted by the leasing expiry of three Zellers since September 30, 2012, totalling 262,000 square feet.
  • Crombie completed leasing activity on a total of 995,000 square feet during the nine months ended September 30, 2013, including:
    • Renewals on 472,000 square feet of 2013 expiring leases at an average rate of $12.78 per square foot, an increase of 7.7% over the expiring lease rate. This represents a renewal rate of 56% of the 2013 year to date expired lease space; excluding the expiry of three Zellers leases, renewals represent 82% of the expiring lease space;
    • Renewals on 154,000 square feet of 2014 and later expiring leases at an average rate of $15.03 per square foot, an increase of 12.1% over the expiring lease rate; and
    • New leases on 369,000 square feet of space, at an average rate of $16.00 per square foot.
  • Weighted average lease term of 10.4 years and weighted average mortgage term of 7.5 years; amongst the longest and most defensive in the REIT industry.
  • Weighted average interest rate on mortgages reduced to 4.99% from 5.21% at December 31, 2012 and 5.27% at September 30, 2012. Strong 2.72 times interest coverage.
  • Debt to Gross Book Value (fair value basis) of 49.8% (53.9% on a cost basis).

Subsequent Events

Effective November 3, 2013, Crombie acquired a portfolio of 70 retail properties (the "Properties") representing approximately 3.0 million square feet of gross leaseable area. The Properties were acquired from a wholly-owned subsidiary of Sobeys Inc., a related party, for an aggregate purchase price of $991,300, excluding closing adjustments and transaction costs. As a condition to the closing, a wholly-owned subsidiary of Sobeys Inc. entered into leases for each of the Properties on a fully net basis. The Properties are among the assets acquired by a wholly-owned subsidiary of Sobeys Inc. from Canada Safeway Limited.

A summary of the acquisition and related financing is as follows (in millions of CAD dollars):

Purchase price   $ 991.3  
         
Net proceeds from Subscription Receipts issued in August 2013     213.9  
Proceeds from Series E Debentures issued in August 2013     75.0  
Net proceeds from Series A Notes issued October 31, 2013     174.2  
Proceeds from Class B LP Units issued upon closing the acquisition     150.0  
Mortgage proceeds received since the closing     297.6  
Customary closing adjustments     4.6  
Utilization of bridge credit facility     76.0  
    $ 991.3  

Further financing details are:

  • In August 2013, Crombie issued 17,720,000 Subscription Receipts at a price of $12.70 each for gross proceeds of $225 million. On closing of the acquisition, the Subscription Receipts were automatically exchanged for REIT Units on a one-for-one basis.
  • In August 2013, Crombie issued $75 million of Series E convertible, extendible, unsecured subordinated debentures with a maturity date that automatically extended to March 31, 2021 on completion of the acquisition.
  • On October 31 2013, Crombie issued $175 million of 3.986% Series A Notes (Senior Unsecured) due October 31, 2018 with a rating of BBB(low) stable trend from DBRS.
  • On closing of the acquisition, Crombie issued 11,811,024 Class B LP Units at a price of $12.70 each for gross proceeds of $150 million to ECL Developments Limited, a wholly-owned subsidiary of Empire Company Limited.
  • Fixed rate mortgage proceeds of $297.6 million have an average term of 9.5 years, an average interest rate of 4.31% and 25 year amortizations.

 

Donald E. Clow, FCA, President and CEO commented: "We are successfully executing on our growth strategy of accretively acquiring primarily grocery and drug store anchored retail properties in the top 36 markets in Canada. This focus has resulted in strong funds from operations growth and improved payout ratios in spite of the loss of four Zellers locations. Our disciplined approach and strong balance sheet are evident in our ability to complete over $1 billion in year to date acquisitions and attain an investment grade credit rating, which enhances Crombie's financial flexibility and liquidity options. This is demonstrated by Crombie having quickly completed permanent financing for the Canada Safeway acquisition as $297.6 million of long term mortgages with an average duration of 9.5 years and average interest rate of 4.31% has been completed since the November 3rd closing date."

Financial Highlights

Crombie's key financial metrics for the three months and nine months ended September 30, 2013 are as follows:

 
(In thousands of CAD dollars, except per unit amounts and as otherwise noted) Three months ended September 30,   Nine months ended September 30,
    2013     2012     2013     2012
Property revenue $ 70,850   $  64,459   $  213,044   $  187,552
Operating income attributable to Unitholders $  11,504   $  7,911   $  37,044   $  27,910
Operating income attributable to Unitholders per unit - basic $  0.13   $  0.09   $  0.40   $  0.34
Operating income attributable to Unitholders per unit - diluted $  0.12   $  0.09   $  0.40   $  0.34
FFO $  25,841   $  21,338   $  78,052   $  63,386
FFO per unit - basic $  0.28   $  0.25   $  0.85   $  0.78
FFO per unit - diluted $  0.28   $  0.24   $  0.83   $  0.76
FFO payout ratio (%)   79.5%     90.7%     78.7%     87.2%
AFFO $ 21,993   $  18,237   $  66,032   $  53,198
AFFO per unit - basic $  0.24   $  0.21   $  0.72   $  0.65
AFFO per unit - diluted $  0.24   $  0.21   $  0.71   $  0.64
Distributions per unit $ 0.22   $  0.22   $  0.67   $  0.67
AFFO payout ratio (%)   93.4%     106.1%     93.1%     103.9%

The increase in FFO and AFFO for the three months and nine months ended September 30, 2013 was primarily due to acquisition and redevelopment activity during 2013 and 2012. The three months ended September 30, 2013 was also impacted by lower finance costs related to refinancing activity.

The table below presents a summary of financial performance for the three months and nine months ended September 30, 2013 compared to the same period in fiscal 2012.

 
  Three Months Ended September 30,   Nine Months Ended September 30,
(In thousands of CAD dollars)   2013     2012     2013     2012
          (As Restated)           (As Restated)
Property revenue $ 70,850   $ 64,459   $ 213,044   $ 187,552
Property operating expenses   25,596     22,181     78,110     68,718
Property NOI   45,254     42,278     134,934     118,834
NOI margin percentage   63.9%     65.6%     63.3%     63.4%
Other items:                      
Lease terminations   311     273     405     386
Depreciation and amortization   (11,876)     (12,200)     (34,983)     (32,077)
General and administrative expenses   (2,851)     (2,655)     (9,423)     (7,863)
Operating income before finance costs and taxes   30,838     27,696     90,933     79,280
Finance costs - operations   (18,834)     (20,285)     (53,289)     (52,770)
Operating income before taxes   12,004     7,411     37,644     26,510
Taxes - deferred   (500)     500     (600)     1,400
Operating income attributable to Unitholders   11,504     7,911     37,044     27,910
Finance costs - distributions to Unitholders   (20,545)     (19,343)     (61,463)     (55,270)
Finance costs - change in fair value of financial instruments   (151)     (4,047)     2,051     (5,862)
Decrease in net assets attributable to Unitholders $ (9,192)   $ (15,479)   $ (22,368)   $ (33,222)

Growth Highlights

 
 
 
 
   
 
 
GLA
   Initial
Purchase Price
  Occupancy
Rate
  Key Tenants
Acquisitions in Q1                      
                       
Clearwater Landing Fort McMurray   AB 143,000   $ 62,757   100%   Sobeys, The Brick, Mark's Work Wearhouse, Sport Chek
West Lethbridge Towne Centre Lethbridge   AB 105,000     37,869   100%   Safeway
Namao Centre Edmonton   AB 34,000     14,544   85%   Shoppers Drug Mart
West Highland Towne Centre Lethbridge   AB 29,000     16,720   95%   Shoppers Drug Mart
Dartmouth Crossing Halifax   NS 45,000     15,450   100%   Empire Theatres
Findlay Blvd.  Riverview   NB 66,000     14,650   100%   Sobeys 
Rivière-du-Loup Rivière-du-Loup   QC 9,000     2,455   100%   Société des alcools du Québec
Acquisition in Q2                      
                       
Beaumont Shopping Centre Beaumont   AB        59,000     20,875   100%   Sobeys
Acquisitions in Q3                      
Whyte Avenue Edmonton   AB 21,000     20,565   100%   Shoppers Drug Mart
Saskatchewan Avenue East Portage La Prairie   MB 20,000     7,362   100%   Shoppers Drug Mart
Weston Road Toronto   ON 15,000     6,758   100%   Shoppers Drug Mart
Westminister Avenue North Montreal   QC 21,000     9,685   100%   Shoppers Drug Mart
Completed to date in 2013          567,000   $ 229,690        

These acquisitions continue Crombie's growth strategy of acquiring high quality grocery or drug store anchored retail properties in the top 36 markets in Canada.

Operating Highlights

   
  Three months ended September 30,   Nine months ended September 30,
(In thousands of CAD dollars)   2013     2012     2013      2012
Property NOI $ 45,254   $ 42,278   $  134,934   $  118,834
Non-cash straight-line rent   (983)     (1,249)     (3,550)     (3,564)
Non-cash tenant incentive amortization   1,961     1,727     5,861     4,799
Property cash NOI   46,232     42,756     137,245     120,069
Acquisition, disposition and redevelopment property cash NOI   10,849     7,274     30,545     15,018
Same-asset property cash NOI $ 35,383   $ 35,482   $ 106,700   $ 105,051

Property NOI, on a cash basis, excludes straight-line rent recognition and amortization of tenant incentive amounts. The 1.6% increase in same- asset cash NOI for the nine months ended September 30, 2013 is primarily the result of increased average rent per square foot from leasing activity, improved recovery rates and land use intensifications at several properties. The 0.3% decrease in same-asset cash NOI for the three months ended September 30, 2013 is primarily the result of slightly lower occupancy rates and related higher non-recoverable costs.

Crombie believes that cash NOI is a better measure of AFFO sustainability and same-asset property performance.

 
  Three Months Ended September 30,   Nine Months Ended September 30,
(In thousands of CAD dollars)   2013     2012     2013     2012
Acquisition, disposition and redevelopment property revenue $ 16,220   $ 10,894   $ 46,610   $ 25,607
Acquisition, disposition and redevelopment property operating expenses   5,378     3,669     15,934     11,006
Acquisition, disposition and redevelopment property NOI $ 10,842   $ 7,225   $ 30,676   $ 14,601
Margin %   66.8%     66.3%     65.8%     57.0%

Capital Highlights

  Nine months ended September 30,
  2013 2012
Weighted Average Mortgage Term 7.5 years 7.6 years
Weighted Average Interest Rate 4.99% 5.27%
Debt to Gross Book Value (Fair Value) 49.8% 48.8%
Debt to Gross Book Value (Cost) 53.9% 51.6%
Interest Coverage 2.72 2.58
Debt Service Coverage 1.77 1.75

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 $285,000, subject to available borrowing base, of which $81,134 was drawn as at September 30, 2013, and an additional $4,129 encumbered by outstanding letters of credit, resulting in significant available liquidity.

Debt to gross book value on a fair value basis is 49.8% (including convertible debentures) at September 30, 2013, compared to 48.8% at September 30, 2012.

General and Administrative Expenses

General and administrative expenses for the nine months ended September 30, 2013 as a percentage of property revenue, increased by 0.2% from 4.2% to 4.4%, when compared to the same period in 2012. For the three months ended September 30, 2013, general and administrative expenses as a percentage of property revenue, decreased by 0.1% from 4.1% to 4.0%, when compared to the same period in 2012.

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. Crombie includes these measures because it believes certain investors use these measures as a means of assessing Crombie's financial performance.

  • Property NOI is property revenue less property 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 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 related intangible assets) 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 intangible assets, 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 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 extraordinary items, plus depreciation and amortization expense, deferred income taxes, finance costs - distributions to Unitholders and after adjustments for equity accounted entities and non-controlling interests.
  • 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 deferred leasing costs, and the settlement of effective interest rate swap agreements.

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 250 retail and office properties across Canada, comprising approximately 17.6 million square feet with a strategy to own and operate a portfolio of primarily high quality grocery and drug store anchored shopping centres and freestanding stores in the top 36 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 2012 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.

Crombie's consolidated financial statements and management's discussion and analysis for the three months and nine months ended September 30, 2013 can be found on Crombie's web site at www.crombiereit.com or on the SEDAR web site for Canadian regulatory filings at www.sedar.com.

Conference Call Invitation

Crombie will provide additional details concerning its September 30, 2013 third quarter and year to date results on a conference call to be held Friday, November 8, 2013, at 12:30 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 web cast of the conference call by visiting Crombie's website located at www.crombiereit.com. Replay will be available until midnight November 22, 2013 by dialing (416) 849-0833 or (855) 859-2056 and entering pass code 92977150, or on the Crombie website for 90 days after the meeting.

 

SOURCE Crombie REIT



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