Crombie REIT Reports Strong Second Quarter Results And $990 Million Pending Acquisition

Crombie REIT (TSX:CRR.UN)

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

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

  • Strong 8.6% growth in Funds From Operations ("FFO") per unit for the six months ended June 30, 2013, as FFO per unit fully diluted ("FD") was $0.56 per unit compared to $0.51 per unit FD for the same period in 2012. FFO grew 24.2% over the same period in 2012 ($52,211 vs $42,048) with the FFO payout ratio of 78.4% compared to 85.4% for the same period in 2012.
  • 5.8% growth in FFO per unit for the three months ended June 30, 2013 ("Q2") as FFO per unit FD was $0.28 compared to $0.26 for the same period in 2012.  Q2 FFO grew 16.5% over the same period in 2012 ($26,490 vs $22,747) with the FFO payout ratio of 77.3% compared to 82.5% for the same period in 2012.
  • Strong 9.5% growth in Adjusted Funds From Operations ("AFFO") per unit for the six months ended June 30, 2013, as AFFO per unit FD was $0.48 per unit compared to $0.43 per unit FD for the same period in 2012. AFFO grew 26.0% over the same period in 2012 ($44,039 vs $34,961) for the six months ended June 30, 2013 with the AFFO payout ratio of 92.9% compared to 102.8% for the same period in 2012.
  • 7.2% growth in Q2 AFFO per unit as AFFO per unit FD was $0.24 compared to $0.22 for the same period in 2012. Q2 AFFO grew 18.4% over the same period in 2012 ($22,433 vs $18,954) with the AFFO payout ratio of 91.3% compared to 99.0% for the same period in 2012.
  • Acquisition of a high quality grocery anchored retail property in Alberta for $21 million from Sobeys during Q2.
  • Portfolio fair value of $2.8 billion.
  • Solid growth of 2.0% in Same-Asset Cash Net Operating Income ("NOI") for the six months ended June 30, 2013 over the six months ended June 30, 2012. Same-Asset Cash NOI growth of 2.3% for the three months ended June 30, 2013 compared to the same period in 2012.
  • Property revenue of $142,194 for the six months ended June 30, 2013, an increase of $19,101 or 15.5% over the $123,093 for the six months ended June 30, 2012. Q2 property revenue of $71,188, increased $7,542 or 11.9% over Q2 2012.
  • Solid occupancy on a committed basis of 91.8% at June 30, 2013, compared with 93.5% at June 30, 2012. The June 30, 2013 leased space is impacted by the leasing expiry of four Zellers since June 30, 2012, totalling 352,000 square feet.
  • Crombie completed leasing activity on 525,000 square feet during the six months ended June 30, 2013, which represents approximately 44.6% of its 2013 expiring lease square footage. The 2013 expiring lease square footage includes 262,000 square feet related to three Zellers leases.
  • Lease renewals on 333,000 square feet expiring in 2013 at an average rate of $14.74 per square foot, an increase of 6.8% over the expiring lease rate. Lease renewals of 25,000 square feet at an average rate of $17.00 for 2014 lease expiries at an increase of 7.0% over the expiring lease rate. Crombie completed new leasing activity during 2013 on 193,000 square feet at $18.76 per square foot.
  • Weighted average lease term of 10.5 years and weighted average mortgage term of 7.7 years; amongst the longest and most defensive in the REIT industry.
  • Weighted average interest rate on mortgages reduced to 5.00% from 5.21% at December 31, 2012 and 5.35% at June 30, 2012. Strong 2.78 times interest coverage.
  • Debt to Gross Book Value (fair value basis) of 49.6% (53.4% on a cost basis).

Subsequent Event

On July 24, 2013, Crombie announced an agreement to acquire a portfolio of 68 retail properties (the "Properties") representing approximately 3.0 million square feet of gross leasable area.  The Properties are being acquired from a wholly-owned subsidiary of Sobeys Inc., a related party, for an aggregate purchase price of $990,000, excluding closing adjustments and transaction costs and the acquisition is expected to close prior to December 12, 2013. Should the acquisition not close by March 12, 2014, the acquisition agreement will terminate unless Crombie agrees to extend the closing date.  As a condition to the closing, a wholly-owned subsidiary of Sobeys Inc. will lease each of the Properties on a fully net basis. The Properties are among the assets to be acquired by a wholly-owned subsidiary of Sobeys Inc. from Canada Safeway Limited (the "Canada Safeway Acquisition"), and the acquisition of the Properties is subject to closing of the Canada Safeway Acquisition and receipt of required unitholder and regulatory approvals.

In conjunction with the acquisition, Crombie has:

  • Agreed to sell, subject to regulatory approval and on a bought-deal basis, $225,044 of subscription receipts (the "Subscription Receipts") at a price of $12.70 per Subscription Receipt. The Subscription Receipts will be converted into REIT Units on a one for one basis upon the closing of the acquisition and the holders will be entitled to receive a payment equal to the amount per Unit of any cash distributions made by Crombie for which record dates occur during the period that the Subscription Receipts are outstanding. Should the acquisition agreement be terminated or the acquisition not close on or before March 12, 2014, the Subscription Receipts proceeds will be returned to the holders along with any interest earned on the proceeds;
  • Agreed to sell, subject to regulatory approval and on a bought deal basis, $75,000 of convertible extendible unsecured subordinated debentures (the "Debentures"), bearing interest at a rate of 5.25% per annum, payable semi-annually. The Debentures will have an initial maturity date of March 12, 2014, which will be extended to March 31, 2021 upon the acquisition closing. The Debentures are convertible to REIT Units at the option of the holder at a conversion price of $17.15 per REIT Unit;
  • Agreed to sell $150,000 of Class B LP Units to Empire, on a private placement basis, on the acquisition closing date, at the same $12.70 offering price as the Subscription Receipts; and
  • Obtained a commitment from a Canadian chartered bank to provide bridge credit facilities, which consists of three fully-underwritten non-revolving credit facilities totalling $600,000 in aggregate to be used in whole or in part to finance part of the purchase price for the Properties.

Donald E. Clow, FCA, President and CEO commented: "We are very pleased with the solid operating performance and strategic growth of our high quality grocery and drug store anchored portfolio so far in 2013.  Our year to date same-asset cash NOI growth of 2%, AFFO per unit improvement of 9% and AFFO payout ratio of 92.9% reflects a solid performance by our portfolio and our team. The recently announced agreement to acquire 68 retail properties for $990 million through our strategic relationship with Sobeys and Empire is a tremendous opportunity to increase the REIT's asset value by approximately 35%, increase the number of urban grocery anchored properties in Western Canada, and grow our platform nationally."

Financial Highlights

Crombie's key financial metrics for the three months and six months ended June 30, 2013 are as follows:                      
(In thousands of CAD dollars, except per unit amounts   Three Months Ended June 30,     Six Months Ended June 30,
and as otherwise noted)   2013     2012     2013     2012
Property revenue $ 71,188   $ 63,646   $ 142,194   $ 123,093
Operating income attributable to Unitholders $ 12,581   $ 10,436   $ 25,540   $ 19,999
Basic and diluted operating income attributable to Unitholders per unit(1) $ 0.14   $ 0.12   $ 0.28   $ 0.25
FFO $ 26,490   $ 22,747   $ 52,211   $ 42,048
FFO per unit - basic $ 0.29   $ 0.27   $ 0.57   $ 0.53
FFO per unit - diluted $ 0.28   $ 0.26   $ 0.56   $ 0.51
FFO payout ratio (%)   77.3%     82.5%     78.4%     85.4%
AFFO $ 22,433   $ 18,954   $ 44,039   $ 34,961
AFFO per unit - basic $ 0.24   $ 0.23   $ 0.48   $ 0.44
AFFO per unit - diluted $ 0.24   $ 0.22   $ 0.48   $ 0.43
Distributions per unit $ 0.22   $ 0.22   $ 0.45   $ 0.45
AFFO payout ratio (%)   91.3%     99.0%     92.9%     102.8%

The increase in FFO and AFFO for the three months and six months ended June 30, 2013 was primarily due to the acquisition activity during 2013 and 2012.

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

                       
    Three Months Ended June 30,     Six Months Ended June 30,
(In thousands of CAD dollars)   2013     2012     2013     2012
          (As Restated)           (As Restated)
Property revenue $ 71,188   $ 63,646   $ 142,194   $ 123,093
Property operating expenses   25,696     23,035     52,514     46,537
Property NOI   45,492     40,611     89,680     76,556
NOI margin percentage   63.9%     63.8%     63.1%     62.2%
Other items:                      
Lease terminations   88     -     94     113
Depreciation and amortization   (11,985)     (11,352)     (23,107)     (19,877)
General and administrative expenses   (3,366)     (2,688)     (6,572)     (5,208)
Operating income before finance costs and taxes   30,229     26,571     60,095     51,584
Finance costs - operations   (17,648)     (16,735)     (34,455)     (32,485)
Operating income before taxes   12,581     9,836     25,640     19,099
Taxes - deferred   -     600     (100)     900
Operating income attributable to Unitholders   12,581     10,436     25,540     19,999
Finance costs - distributions to Unitholders   (20,480)     (18,760)     (40,918)     (35,927)
Finance costs - change in fair value of financial instruments   1,585     (3,675)     2,202     (1,815)
Decrease in net assets attributable to Unitholders $ (6,314)   $ (11,999)   $ (13,176)   $ (17,743)

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
Completed to date in 2013      490,000   $ 185,320      

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 June 30,     Six Months Ended June 30,
(In thousands of CAD dollars)     2013     2012     2013     2012
Property NOI   $ 45,492   $ 40,611   $ 89,680   $ 76,556
Non-cash straight-line rent     (1,208)     (1,294)     (2,567)     (2,315)
Non-cash tenant incentive amortization     1,930     1,559     3,900     3,072
Property cash NOI     46,214     40,876     91,013     77,313
Acquisition, disposition and redevelopment property cash NOI     10,219     5,706     19,396     7,116
Same-asset property cash NOI   $ 35,995   $ 35,170   $ 71,617   $ 70,197

Property NOI, on a cash basis, excludes straight-line rent recognition and amortization of tenant incentive amounts. The 2.3% and 2.0% increases in same-asset cash NOI for the three months and six months ended June 30, 2013, respectively, are primarily the result of increased average rent per square foot from leasing activity, improved recovery rates and land use intensifications at several properties.

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

                       
    Three Months Ended June 30,     Six Months Ended June 30,
(In thousands of CAD dollars)   2013     2012     2013     2012
Acquisition, disposition and redevelopment property revenue $ 15,609   $ 9,299   $ 29,665   $ 13,697
Acquisition, disposition and redevelopment property operating expenses   5,311     3,668     10,096     6,885
Acquisition, disposition and redevelopment property NOI $ 10,298   $ 5,631   $ 19,569   $ 6,812
Margin %   66.0%     60.6%     66.0%     49.7%

Capital Highlights

  Six Months Ended June 30,
  2013 2012
Weighted average mortgage term 7.7 years 7.3 years
Weighted average interest rate 5.00% 5.35%
Debt to gross book value (fair value) 49.6% 51.2%
Debt to gross book value (cost) 53.4% 52.4%
Interest coverage 2.78 2.58
Debt service coverage 1.81 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 $115,146 was drawn as at June 30, 2013, and an additional $11,329 encumbered by outstanding letters of credit, resulting in significant available liquidity.

Debt to gross book value on a fair value basis is 49.6% (including convertible debentures) at June 30, 2013, compared to 51.2% at June 30, 2012.

General and Administrative Expenses

General and administrative expenses for the three months and six months ended June 30, 2013 as a percentage of property revenue, increased by 0.5% and 0.4%, respectively, from 4.2% to 4.7% and from 4.2% to 4.6%, 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 and (ii) 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 176 retail  and office  properties across Canada, comprising approximately 14.5 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 six months ended June 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 June 30, 2013 second quarter and year to date results on a conference call to be held Thursday, August 8, 2013, at 3:00 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 August 22, 2013 by dialling (416) 849-0833 or (855) 859-2056 and entering pass code 15404464, or on the Crombie website for 90 days after the meeting. 

 

 

SOURCE Crombie REIT



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