Crombie REIT reports second quarter fiscal 2016 results

NEW GLASGOW, NS, Aug. 3, 2016 /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, 2016.

Second quarter 2016 Highlights (In thousands of CAD dollars, except per unit amounts and as otherwise noted).

  • Portfolio fair value of $4.7 billion.
  • Completed acquisitions totalling 2,537,000 square feet for $508,183 before closing and transaction costs, including 35 retail properties; 50% interest in three distribution centres; and, two parcels of development land adjacent to existing Crombie properties and invested $58,823 in the renovation and expansion of 10 existing Sobeys anchored properties.  
  • Completed dispositions of 12 retail properties totalling 846,000 square feet for proceeds of approximately $151,700 before closing and transaction costs.
  • Funds From Operations ("FFO"):
    • FFO, as adjusted, for the six months ended June 30, 2016 increased 0.5% to $75,216; or $0.56 per unit Diluted, a decrease of $0.01 per unit from the six months ended June 30, 2015.
    • FFO, as adjusted, for the three months ended June 30, 2016 decreased 4.7% to $37,256; or $0.28 per unit Diluted, a decrease of $0.02 per unit from the three months ended June 30, 2015.
    • FFO, as adjusted, payout ratio of 79.6% for the six months ended June 30, 2016 compared to 77.7% for the same period in 2015.
    • FFO, as adjusted, payout ratio of 82.0% for the three months ended June 30, 2016 compared to 74.5% for the same period in 2015.
  • Adjusted Funds From Operations ("AFFO"):
    • AFFO for the six months ended June 30, 2016 increased 1.3% to $63,479; or $0.48 per unit Diluted, unchanged from the AFFO per unit for the six months ended June 30, 2015.
    • AFFO for the three months ended June 30, 2016 decreased 4.0% to $31,432; or $0.24 per unit Diluted, a decrease of $0.01 per unit from the three months ended June 30, 2015.
    • AFFO payout ratio of 94.3% for the six months ended June 30, 2016 compared to 92.9% for the same period in 2015.
    • AFFO payout ratio of 97.2% for the three months ended June 30, 2016 compared to 88.9% for the same period in 2015.
  • Same-asset property cash NOI for the six months ended June 30, 2016 increased by 1.9% or $2,174 ($115,728 compared to $113,554 for the six months ended June 30, 2015). Increase in same-asset property cash NOI for the three months ended June 30, 2016 of 0.5% or $289 ($57,693 compared to $57,404 for the three months ended June 30, 2015).
  • Property revenue for the six months ended June 30, 2016 of $195,975, an increase of $8,567 or 4.6% over the six months ended June 30, 2015. Second quarter property revenue of $101,031, increased $6,124, or 6.5% over second quarter 2015.
  • Occupancy, on a committed basis, was 94.1% at June 30, 2016 compared with 93.6% at December 31, 2015 and 92.4% at June 30, 2015.
  • Crombie's renewal activity during the six months ended June 30, 2016 included:
    • Renewals on 357,000 square feet of 2016 expiring leases at an average rate of $15.02 per square foot, an increase of 7.5% over the expiring lease rate.
    • Renewals on 59,000 square feet of 2017 and later expiring leases at an average rate of $26.85 per square foot, an increase of 9.0% over the expiring lease rate.
  • New leases and expansions increased occupancy by 102,000 square feet at June 30, 2016 at an average first year rate of $16.31 per square foot. 182,000 square feet of space was committed at June 30, 2016 at an average first year rate of $12.19 per square foot.
  • Debt to gross book value (fair value basis) was 50.6% at June 30, 2016, compared to 52.1% at June 30, 2015.
  • Strong 2.89 times EBITDA interest coverage for the six months ended June 30, 2016. Weighted average interest rate on mortgages reduced to 4.57% from 4.76% at June 30, 2015.
  • Recognized $10,344 in property revenue related to settlement proceeds from Target Canada for three leases vacated in May 2015.

Donald E. Clow, FCPA, FCA, President and CEO commented: "We are delighted with the significant progress achieved toward our long term strategic plan during the first six months of the year. We successfully acquired over $560 million in new properties and completed investments in expansions and improvements of existing properties, including $418 million through our strategic relationship with Sobeys and Empire. We also disposed of 12 retail properties for proceeds in excess of $150 million. These acquisitions and dispositions increased our urban footprint and further strengthen what is already one of Canada's strongest retail portfolios. We have enhanced our major development property pipeline to 19 properties by acquiring five more in Q2 with estimated investment of approximately $2-3 billion over the next decade. Lastly, we are pleased to have accomplished the above while improving our financial condition and lowering our debt to GBV (Fair value) to 50.6%."

Financial Highlights

Crombie's key financial metrics for the three and six months ended June 30, 2016 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)

2016


2015


2016


2015

Property revenue

$

101,031


$

94,907


$

195,975


$

187,408

Operating income attributable to Unitholders

$

27,208


$

17,153


$

70,526


$

33,855

Operating income attributable to Unitholders per unit - basic

$

0.21


$

0.13


$

0.53


$

0.26

Operating income attributable to Unitholders per unit - diluted

$

0.21


$

0.13


$

0.53


$

0.26

FFO, as adjusted – basic

$

37,256


$

39,079


$

75,216


$

74,851

FFO, as adjusted – diluted

$

38,977


$

40,801


$

78,650


$

78,625

FFO, as adjusted per unit – basic

$

0.28


$

0.30


$

0.57


$

0.57

FFO, as adjusted per unit – diluted

$

0.28


$

0.30


$

0.56


$

0.57

FFO, as adjusted payout ratio (%)

82.0%


74.5%


79.6%


77.7%

AFFO – basic

$

31,432


$

32,733


$

63,479


$

62,650

AFFO – diluted

$

32,405


$

33,707


$

65,421


$

64,932

AFFO per unit – basic

$

0.24


$

0.25


$

0.48


$

0.48

AFFO per unit – diluted

$

0.24


$

0.25


$

0.48


$

0.48

Distributions per unit

$

0.22


$

0.22


$

0.45


$

0.45

AFFO payout ratio (%)

97.2%


88.9%


94.3%


92.9%

 

Operating income attributable to Unitholders for the six months ended June 30, 2016 was impacted by the $26,504 gain on disposal of 12 retail properties during the first six months of 2016, and lease termination income of $10,344 in 2016 compared to $4,167 in 2015.

 


Three months ended June 30,

Six months ended June 30,

(In thousands of CAD dollars)

2016


2015


Variance


2016


2015


Variance

FFO as calculated based on REALpac recommendations

$

46,987


$

42,040


$

4,947


$

84,947


$

77,812


$

7,135

Adjustments








Net lease termination income from
Target Canada


(10,344)





(10,344)



(10,344)





(10,344)


Subscription Receipts
Adjustment Payment


613





613



613





613


Lease termination income, non-cash




(2,961)



2,961





(2,961)



2,961

FFO, as adjusted

$

37,256


$

39,079


$

(1,823)


$

75,216


$

74,851


$

365

 

FFO for the three and six months ended June 30, 2016 has been adjusted to remove the $10,344 in lease termination income from Target Canada for three leases vacated in May 2015 and for $613  in finance expense related to subscription receipts issued in May 2016 and converted to REIT Units on June 29, 2016. FFO for the three and six months ended June 30, 2015 has been adjusted to remove $2,961 in non-cash lease termination income. The increase in FFO and AFFO for the six months ended June 30, 2016 compared to the same period in 2015 was primarily due to reduced finance costs - operations on debt refinancing at lower rates and proceeds received from property dispositions; and, improved operating results from leasing activity; offset in part by higher general and administrative expenses.

The table below presents a summary of financial performance for the three and six months ended June 30, 2016 compared to the same period in fiscal 2015.

 

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

Three months ended June 30,

Six months ended June 30,

2016



2015



2016



2015

Property revenue

$

101,031


$

94,907


$

195,975


$

187,408

Property operating expenses

27,538


27,328


58,179


57,511

Property NOI

73,493


67,579


137,796


129,897

NOI margin percentage

72.7%


71.2%


70.3%


69.3%

Other items:






Gain (loss) on disposal of investment properties

244



26,504


(2)


Impairment of investment properties


(5,275)



(5,275)


Depreciation and amortization

(17,514)


(16,925)


(33,964)


(33,447)


General and administrative expenses

(4,122)


(3,463)


(8,529)


(6,937)

Operating income before finance costs and taxes

52,101


41,916


121,807


84,236

Finance costs – operations

(24,793)


(24,287)


(49,158)


(49,705)

Operating income before taxes

27,308


17,629


72,649


34,531

Taxes – current


(2,276)


(23)


(2,276)

Taxes – deferred

(100)


1,800


(2,100)


1,600

Operating income attributable to Unitholders

27,208


17,153


70,526


33,855

Finance costs – distributions to Unitholders

(30,538)


(29,111)


(59,860)


(58,187)

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

(397)


368


(431)


100

Increase (decrease) in net assets attributable to Unitholders

$

(3,727)


$

(11,590)


$

10,235


$

(24,232)

Operating income attributable to Unitholders per Unit, Basic

$

0.21


$

0.13


$

0.53


$

0.26

Operating income attributable to Unitholders per Unit, Diluted

$

0.21


$

0.13


$

0.53


$

0.26

Basic weighted average Units outstanding (in 000's)

132,284


130,638


131,927


130,564

Diluted weighted average Units outstanding (in 000's)

132,425


130,804


132,072


130,730

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







5700 50th Street

Beaumont

AB

21,000


$

5,500


100%

Beaumont Home Hardware, Dollarama

Acquisitions in Q2







Mercier Boulevard

St-Jean-Baptiste

QC

58,000


15,700


100%

IGA

680 Longworth Street

Bowmanville

ON

42,000


14,200


100%

Sobeys

Bronte Village

Oakville

ON

57,000


32,000


100%

Sobeys

Nine BMO properties

AB, BC, ON, QC


94,000


32,272


100%

BMO Bank of Montreal

6102 50th Street

Leduc

AB

37,000


7,000


100%

Dollarama

Park West Centre

Halifax

NS

84,000


29,000


100%

Sobeys, Royal Bank

Park West Annex

Halifax

NS

54,000


14,150


—%


Empire acquisition

AB, BC, ON, QC


2,090,000


348,386


98.7%

Safeway, IGA, Sobeys, Dollarama

Development land

Halifax

NS


9,975







2,537,000


$

508,183




 

Crombie acquired two parcels of development land adjacent to existing Crombie properties and invested $58,823 in the renovation and expansion of 10 existing Sobeys anchored properties.

Operating Highlights

 


Three months ended June 30,

Six months ended June 30,

(In thousands of CAD dollars)

2016


2015


2016


2015

Property NOI

$

73,493


$

67,579


$

137,796


$

129,897

Non-cash straight-line rent

(2,720)


(3,194)


(5,444)


(5,888)

Non-cash tenant incentive amortization

2,409


2,411


4,861


4,757

Property cash NOI

73,182


66,796


137,213


128,766

Acquisitions, dispositions and development property cash NOI

15,489


9,392


21,485


15,212

Same-asset property cash NOI

$

57,693


$

57,404


$

115,728


$

113,554

 

Same-asset property cash NOI is as follows:

 


Three months ended June 30,

Six months ended June 30,

(In thousands of CAD dollars)

2016


2015


2016


2015

Retail and Mixed Use

$

54,915


$

54,703


$

110,140


$

108,230

Office

2,778


2,701


5,588


5,324

Same-asset property cash NOI

$

57,693


$

57,404


$

115,728


$

113,554

 

Property NOI, on a cash basis, excludes straight-line rent recognition and amortization of tenant incentive amounts. The +0.5% and +1.9% increases in same-asset property cash NOI for the three and six months ended June 30, 2016 are primarily the result of increased base rent and related recoveries driven by new and renewal lease activity as well as continued land use intensification, offset by lease termination income received in the second quarter of 2015 and the related lost NOI from the transitional vacancy.

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

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)

2016


2015


2016


2015

Acquisitions and dispositions property cash NOI

$

2,556


$

2,981


$

6,120


$

5,790

Development property cash NOI

12,933


6,411


15,365


9,422

Total acquisitions, dispositions and development property cash NOI

$

15,489


$

9,392


$

21,485


$

15,212

 

Growth in acquisitions and dispositions property cash NOI reflects the property acquisition and disposition activity throughout 2016 and 2015 including the disposition of 12 retail properties in 2016 and the acquisition of five retail properties in 2015.

Capital Highlights

 


June 30,


2016


2015

Weighted Average Mortgage Term

6.25 years


7.2 years

Weighted Average Mortgage Interest Rate

4.57%


4.76%

Debt to Gross Book Value (Fair Value)

50.6%


52.1%

Interest Coverage

2.89x


2.76x

Debt Service Coverage

1.87x


1.83x

 

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 $247,340 was drawn as at June 30, 2016, and an additional $1,691 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, 2016.

Debt to gross book value on a fair value basis is 50.6% (including convertible debentures) at June 30, 2016, compared to 52.1% at June 30, 2015.

General and Administrative Expenses

General and administrative expenses for the six months ended June 30, 2016, as a percentage of property revenue, increased by 0.7% from 3.7% to 4.4%, when compared to the same period in 2015. The increase is impacted by the implementation of Crombie's Restricted Unit Plan in 2015 which recognizes a portion of long-term compensation over a vesting period and the valuation of the Restricted Unit Plan is impacted by mark to market adjustments to the Units which increases salaries and benefits and by increased professional fees.

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 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 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 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, 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 deferred leasing costs, and the settlement of effective interest rate swap agreements.

For additional information on these non-GAAP measures see our Management's Discussion and Analysis for the period ended June 30, 2016.

Crombie's interim condensed consolidated financial statements and management's discussion and analysis for the six months ended June 30, 2016 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 284 retail, mixed use and office properties across Canada, comprising approximately 19 million square feet with a strategy to own and operate a portfolio of high quality grocery and drug store anchored shopping centres and freestanding stores primarily in Canada's 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 2015 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, 2016 results on a conference call to be held Thursday, August 4, 2016, at 12:00 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 webcast of the conference call by visiting Crombie's website located at www.crombiereit.com. Replay will be available until midnight August 18, 2016 by dialing (416) 849-0833 or (855) 859-2056 and entering pass code 47451662, or on the Crombie website for 90 days after the meeting.

 

SOURCE Crombie REIT

For further information: Media Contact: Glenn Hynes, FCPA, FCA, Executive Vice President, Chief Financial Officer and Secretary, Crombie REIT, (902) 755-8100

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