Crombie REIT Reports Fourth Quarter and Fiscal 2011 Results

STELLARTON, NS, Feb. 22, 2012 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its results for the fourth quarter and fiscal year ended December 31, 2011.

2011 Highlights

  • Property revenue for the quarter ended December 31, 2011 of $58.7 million; an increase of $3.0 million or 5.4% over the $55.7 million for the quarter ended December 31, 2010 and for the year ended December 31, 2011 was $226.1 million; an increase of $16.7 million or 8.0% over the year ended December 31, 2010.
  • Same-asset cash net operating income ("NOI") for the quarter ended December 31, 2011 of $27.2 million; an increase of $0.4 million or 1.6%, compared to $26.8 million for the quarter ended December 31, 2010 and for the year ended December 31, 2011, same-asset cash NOI of $118.0 million; an increase of $1.4 million or 1.2% over the same period in 2010.
  • Property leased space on a committed basis was 94.7% at December 31, 2011 compared with 95.4% at September 30, 2011.  Actual occupancy at December 31, 2011 was 93.3% compared with 94.7% at September 30, 2011 and 95.8% at December 31, 2010.
  • Average rent per square foot from year to date leasing activity increased to $15.71 compared to an expiring rent per square foot of $14.15, an increase of 11.0%.
  • Crombie completed new leasing and renewal activity on 776,000 square feet of GLA during the year ended December 31, 2011, which represents approximately 71.1% of the 2011 expiring lease square footage. The primary shortfall arose from the departure of Nova Scotia Power Inc. in Barrington Tower. This space will be occupied by new tenants lead by the Nova Scotia Department of Health by September 2012.
  • Funds from operations ("FFO") for the quarter ended December 31, 2011 was $0.27 per unit (payout ratio 83.9%) compared to $0.27 per unit (payout ratio 81.6%) for the same period in 2010. For the year ended December 31, 2011, FFO was $1.09 per unit (payout ratio 82.3%) compared to $1.06 per unit (payout ratio 84.0%) for the same period in 2010.
  • Adjusted funds from operations ("AFFO") for the quarter ended December 31, 2011 was $0.23 per unit (payout ratio 100.3%) compared to $0.23 per unit (payout ratio 97.6%) for the same period in 2010. For the year ended December 31, 2011, AFFO was $0.88 per unit (payout ratio 102.1%) compared to $0.87 per unit (payout ratio 102.4%) for the same period in 2010. Excluding the impact of the second quarter settlement of the delayed start interest rate swap, AFFO for the year ended December 31, 2011 was $0.91 per unit (payout ratio 99.2%).
  • Crombie renewed its $150.0 million revolving credit facility at the end of the second quarter for a three year period.

Commenting on the annual results, Donald E. Clow, FCA, President and Chief Executive Officer stated: "We are pleased with the progress achieved during 2011 towards our strategic plan of building a high quality retail portfolio of primarily grocery anchored properties across Canada.  We leveraged the sustainable competitive advantage of our relationship with Sobeys, to acquire $147 million of properties (8% growth) and focused on the redevelopment and improvement of our portfolio in 2011.

AFFO per unit for 2011 increased 4.6% to $0.91 per unit as compared to $0.87 per unit in 2010, excluding the settlement of a forward rate interest swap agreement in the second quarter.

Operating metrics remained stable with same asset cash NOI growth of 1.2% for the year. Our balance sheet continues to be strong with our debt to gross book value finishing the year at 52.5% and $98.5 million of our Revolving Credit Facility available at December 31, 2011.

Despite an uncertain global economy throughout 2011, we are pleased that Crombie REIT was able to provide a total unitholder return of over 17% for the year ended December 31, 2011".

The table below presents a summary of financial performance for the quarter and year ended December 31, 2011, compared to the same periods in fiscal 2010. All amounts are presented in accordance with International Financial Reporting Standards ("IFRS").

 
(In millions of CAD dollars, except per unit amounts) Three months
ended
Dec. 31, 2011
Three months
ended
Dec. 31, 2010
Year ended
Dec. 31, 2011
Year ended
Dec. 31, 2010
Property revenue $58.682 $55.693 $226.138 $209.437
Property operating expenses 22.528 21.670 84.202 79.300
Property NOI 36.154 34.023 141.936 130.137
NOI margin percentage 61.6% 61.1% 62.8% 62.1%
Other items:        
  Lease terminations 0.005 -- 0.168 0.347
  Depreciation and amortization (8.302) (7.949) (31.387) (31.246)
  General and administrative expenses (2.806) (1.609) (10.654) (9.762)
Operating income before financing costs and income taxes 25.051 24.465 100.063 89.476
Finance costs - operations (14.978) (15.532) (62.148) (58.410)
Operating income before income taxes 10.073 8.933 37.915 31.066
Income taxes - deferred 0.600 0.300 (0.300) 1.000
Operating income attributable to Unitholders 10.673 9.233 38.215 32.066
Finance costs - distributions to Unitholders (16.530) (14.702) (61.283) (56.090)
Decrease in net assets attributable to Unitholders $(5.857) $(5.469) $(23.068) $(24.024)
         
Operating income attributable to Unitholders per Unit, Basic and Diluted $0.15 $0.14 $0.56 $0.51
         

Property NOI - Cash Basis

 
 
(In millions of CAD dollars)
Three months
ended
Dec. 31, 2011
Three months
ended
Dec. 31, 2010
Year ended
Dec. 31, 2011
Year ended
Dec. 31, 2010
Property NOI $36.154 $34.023 $141.936 $130.137
Non-cash tenant incentive amortization 1.333 1.126 5.169 4.489
Non-cash straight-line rent (1.004) (0.734) (3.619) (3.346)
Property cash NOI 36.483 34.415 143.486 131.280
Acquisition, disposition and redevelopment property cash NOI 9.285 7.651 25.483 14.636
Same-asset property cash NOI $27.198 $26.764 $118.003 $116.644

Property NOI, on a cash basis, excludes straight-line rent recognition and tenant incentive amortization amounts. The 1.2% increase in same-asset cash NOI for the year ended December 31, 2011 is primarily the result of increased average rent per square foot resulting from 2011 leasing activity, reduced in part by the lower occupancy rate in 2011.

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

Same-Asset Property NOI

 
 
(In millions of CAD dollars)
Three months
ended
Dec. 31, 2011
Three months
ended
Dec. 31, 2010
Year ended
Dec. 31, 2011
Year ended
Dec. 31, 2010
Same-asset property revenue $48.339 $47.681 $188.633 $185.194
Same-asset property operating expenses 19.278 19.003 72.223 69.906
Same-asset property NOI $29.061 $28.678 $116.410 $115.288
Same-asset NOI margin % 60.1% 60.1% 61.7% 62.3%

Same-asset property NOI increased slightly over Q4 of 2010.  Same-asset property revenue of $48.3 million for the quarter ended December 31, 2011 increased by 1.4% compared to the same quarter in 2010. The property revenue variance was impacted by increases in rental rates offset by lower occupancy rates. Same-asset property revenue of $188.6 million for the year ended December 31, 2011 was 1.9% higher than the year ended December 31, 2010 due to increased base rent as a result of: lease renewal rates exceeding expiring lease rates; offset in part by lower occupancy rates; and higher recoverable property expenses.

Same-asset property operating expenses of $19.3 million for the quarter ended December 31, 2011 were marginally higher than the quarter ended December 31, 2010 due primarily to increased recoverable property taxes.  Same-asset property expenses of $72.2 million for the year ended December 31, 2011 increased by 3.3% from the year ended December 31, 2010 due primarily to increased recoverable property taxes and snow clearing costs offset in part by reduced non-recoverable costs.

Acquisition, Disposition and Redevelopment Property NOI

 
 
(In millions of CAD dollars)
Three months
ended
Dec. 31, 2011
Three months
ended
Dec. 31, 2010
Year ended
Dec. 31, 2011
Year ended
Dec. 31, 2010
Acquisition, disposition and redevelopment property revenue $10.343 $8.012 $37.505 $24.243
         
Acquisition, disposition and redevelopment property expenses 3.250 2.667 11.979 9.394
Acquisition, disposition and redevelopment property NOI $7.093 $5.345 $25.526 $14.849
Acquisition, disposition and redevelopment NOI margin % 68.6% 66.7% 68.1% 61.3%

For the three months and year ended December 31, 2011, the acquisition and redevelopment property results include the retail properties acquired in December, September and May 2011, the 20 retail properties acquired during 2010, the property disposed of in October 2011 and the operating results of six properties that were under redevelopment.

General and Administrative Expenses

General and administrative expenses for the quarter ended December 31, 2011 increased by 1.9% from 2.9% to 4.8% as a percentage of property revenue, when compared to the same period in 2010.  Salaries and benefits in the fourth quarter of 2010 were favourably impacted by the recognition of actuarial gains on Crombie's benefit plans.

General and administrative expenses as a percentage of property revenue remained virtually unchanged for the year ended December 31, 2011 when compared to the same period in 2010.

Finance Costs - Operations

 
 
 
(In millions of CAD dollars)
Three months
ended
Dec. 31, 2011
Three months
ended
Dec. 31, 2010

 Year ended
Dec. 31, 2011

 Year ended
Dec. 31, 2010
Same-asset finance costs $10.673 $11.610 $45.083 $46.518
Acquisition, disposition and redevelopment finance costs 2.573 2.054 9.717 5.306
Amortization of effective swaps and deferred financing charges 1.732 1.868 7.348 6.586
Finance costs - operations $14.978 $15.532 $62.148 $58.410

Same-asset finance costs for the year ended December 31, 2011 have decreased by $1.4 million or 3.1% due to: conversion of Series B Convertible Debentures; lower interest rate on the Revolving Credit Facility; and, mortgage maturities.  Growth in acquisition and redevelopment finance costs is consistent with Crombie's significant acquisition activity in 2011 and 2010.

FFO and AFFO

Crombie's FFO and AFFO had the following results for the fourth quarter and year ended December 31, 2011 and 2010:

 
  Three months ended
Dec. 31,
Variance
(In millions of CAD dollars, except per unit amounts) 2011 2010    $ %
FFO $19.708 $18.008 $1.700 9.4%
FFO Per Unit - Basic $0.27 $0.27       --     --
FFO Per Unit - Diluted $0.26 $0.26 --      --
FFO Payout ratio 83.9% 81.6%   (2.3)%
         
AFFO $16.486 $15.059 $1.427 9.5%
AFFO Per Unit - Basic $0.23 $0.23 --      --
AFFO Per Unit - Diluted $0.22 $0.22 --          --
AFFO Payout ratio 100.3% 97.6%   (2.7)%

The increase in FFO for the three months ended December 31, 2011 of $1.7 million was primarily due to growth in acquisition property NOI, net of finance cost increases related to the acquisitions.

AFFO for the three months ended December 31, 2011 of $16.5 million was an increase of $1.4 million over the same period in 2010 due primarily to the improved FFO results.

 
  Year ended Dec. 31, Variance
(In millions of CAD dollars, except per unit amounts) 2011 2010    $ %
FFO $74.471 $66.801 $7.670 11.5%
FFO Per Unit - Basic $1.09 $1.06 $0.03 2.8%
FFO Per Unit - Diluted $1.04 $1.01 $0.03 3.0%
FFO Payout ratio 82.3% 84.0%   1.7%
         
AFFO $60.051 $54.783 $5.268 9.6%
AFFO Per Unit - Basic $0.88 $0.87 $0.01 1.1%
AFFO Per Unit - Diluted $0.86 $0.85 $0.01 1.2%
AFFO Payout ratio 102.1% 102.4%   0.3%
AFFO Payout ratio - Adjusted for Q2 2011 swap settlement 99.2% 102.4%   3.2%

The increase in FFO for the year ended December 31, 2011 was primarily due to growth in same-asset NOI and higher NOI from the 2011 and 2010 acquisition properties offset in part by higher finance costs related to those acquisitions.

AFFO for the year ended December 31, 2011 was $60.1 million, an increase of $5.3 million or 9.6% over the same period in 2010, due primarily to the improved FFO results, offset in part by the negative impact of settlement of the swap agreement. During the second quarter of 2011, Crombie settled the last of its forward rate interest rate swaps for $1.7 million. Excluding the swap settlement, AFFO Per Unit - Basic would have been $0.91 and AFFO Payout ratio would have been 99.2%; a significant improvement over the 102.4% payout ratio for the same period in 2010.

Liquidity and Financings

Crombie's objectives when managing its capital structure are to optimize weighted average cost of capital; maintain financial flexibility and 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 and maintains sustainable payout ratios. Crombie has an authorized floating rate revolving credit facility of up to $150 million, of which $40.0 million was drawn as at December 31, 2011, and an additional $11.5 million encumbered by outstanding letters of credit, resulting in significant available liquidity.

Debt to gross book value is 52.5% (including convertible debentures) at December 31, 2011 compared to 54.8% at December 31, 2010. This leverage ratio is below the maximum 60%, or 65% including convertible debentures, permitted pursuant to Crombie's Declaration of Trust. On a long-term basis, Crombie intends to maintain overall indebtedness, including convertible debentures, in the range of 50% to 60% of gross book value, depending upon Crombie's future acquisitions and financing opportunities.

Crombie's interest and debt service coverage for the year ended December 31, 2011 were 2.49 times EBITDA and 1.79 times EBITDA respectively.  This compares to 2.41 times EBITDA and 1.74 times EBITDA respectively for the year ended December 31, 2010.

Definition of Non-IFRS 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 commercial 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.
  • 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, 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.  The trust invests in income-producing retail, office and mixed-use properties in Canada, with a future growth strategy focused primarily on the acquisition of retail properties. Crombie currently owns a portfolio of 138 investment properties in eight provinces, comprising approximately 12.6 million square feet of rentable space.

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 2011 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.

In particular, certain statements in this document discuss Crombie's anticipated outlook of future events, including the announced acquisition of properties and other pending growth opportunities, the anticipated funding of those acquisitions and the anticipated extent of the accretion of those acquisitions, which could be impacted by due diligence matters or the demand for properties and the effect that demand has on acquisition capitalization rates and changes in interest rates. 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 year ended December 31, 2011 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 fourth quarter and year ended December 31, 2011 results on a conference call to be held Thursday, February  23, 2012, at 1:00 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 March 8, 2012, by dialling (416) 849-0833 or (855) 859-2056 and entering pass code 45513010, or on the Crombie website for 90 days after the meeting. 

SOURCE CROMBIE REIT

For further information:

For further information, please contact:
Glenn Hynes, FCA
Chief Financial Officer and Secretary
Crombie REIT
(902) 755-8100

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