Four development projects reaching substantial completion, record occupancy levels, and strong operational performance drive annual results
NEW GLASGOW, NS, Feb. 24, 2021 /CNW/ – Crombie Real Estate Investment Trust (“Crombie”) (TSX: CRR.UN) today announced results for its fourth quarter ended December 31, 2020. Management will host a conference call to discuss the results at 12:00 p.m. (EST), February 25, 2021.
“Crombie’s strong commitment to its long-term strategy of delivering stability, sustainability, and growth remained fully intact despite the global uncertainty of 2020,” said Don Clow, President and CEO. “I want to say thank you to our Crombie team and joint venture partners as they are showing remarkable resilience in the face of unprecedented disruption, and working very hard to ensure the safety and well-being of employees, tenants, and visitors, while remaining committed to maintaining Crombie’s strong financial condition and results. Our grocery-anchored portfolio stood up to 2020’s unique challenges, and solid milestones were achieved on our major mixed-use developments as they remained on track and on budget. While the world is not yet safe to return to ‘normal’, we are confident in the future we are building at Crombie.”
FOURTH QUARTER SUMMARY
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)
Operational Highlights
- Substantial completion reached on two major developments totalling 465,000 square feet
- Record committed occupancy of 96.4%
- Renewals of 200,000 square feet at rents 4.5% above expiring rates
- Q4 2020 rent collected 98%; January 2021 98%
Financial Highlights
- Property revenue of $97,060
- Operating income of $17,157
- Same-asset property cash NOI increase of 1.9% (SANOI +3.6% normalizing for COVID-19 impacts)
- Debt to gross fair value of 49.4% (48.8% net of cash)
- Available liquidity of $471,708
COVID-19 IMPACT
Crombie is well-positioned with respect to the defensiveness of annual minimum rent (AMR):
- 77% of AMR is generated from grocery and pharmacy-anchored properties
- 68% of AMR is generated from essential services tenants
- 8% of AMR is generated from small business tenants
During the three months ended December 31, 2020, 98% of gross rent was collected with rent collections for the month of January remaining constant at 98%. Crombie has actively supported our tenants during this challenging time through the Crombie Values Small Business program, the Federal government’s Canada Emergency Commercial Rent Assistance (CECRA) program, Canada Emergency Rent Subsidy, and mutually beneficial agreements with other tenants. In the fourth quarter, a bad debt expense of $67 was recognized, and rent abatements totalling $365 reduced property operating income in the quarter. Continuing uncertainty with respect to the severity, duration and overall impacts of the pandemic mean that forward-looking forecasts of operating and financial results for Crombie are uncertain at this time. Rent collection by segment is as follows:
|
Three months ended |
Year ended |
January 2021 |
||||||||||
|
% of Gross |
% of Gross |
% of Gross |
% of Gross |
% of Gross |
% of Gross |
|||||||
|
Retail |
98 |
% |
91 |
% |
96 |
% |
91 |
% |
98 |
% |
91 |
% |
|
Office |
99 |
% |
6 |
% |
99 |
% |
6 |
% |
99 |
% |
6 |
% |
|
Retail-related industrial |
100 |
% |
3 |
% |
100 |
% |
3 |
% |
100 |
% |
3 |
% |
|
Total |
98 |
% |
100 |
% |
96 |
% |
100 |
% |
98 |
% |
100 |
% |
Parking revenue remained depressed during the quarter as a result of reduced demand due to COVID-19.
Crombie ended the quarter with $471,708 in available liquidity from undrawn credit facilities.
Information in this press release is a select summary of results. This press release should be read in conjunction with Crombie’s MD&A for the year ended December 31, 2020 and Audited Consolidated Financial Statements and Notes for the years ended December 31, 2020, and December 31, 2019. Full details on our results can be found at www.crombiereit.com and www.sedar.com.
FINANCIAL RESULTS
Crombie’s key financial metrics for the three months ended December 31, 2020 are as follows:
|
Three months ended December 31, |
||||||||||
|
(In thousands of CAD dollars, except per unit amounts and as otherwise noted) |
2020 |
2019 |
Change |
Change (%) |
||||||
|
Property revenue |
$ |
97,060 |
$ |
96,823 |
$ |
237 |
0.2 |
% |
||
|
Property operating expenses |
29,245 |
29,852 |
607 |
2.0 |
% |
|||||
|
Net property income |
$ |
67,815 |
$ |
66,971 |
$ |
844 |
1.3 |
% |
||
|
Operating income attributable to Unitholders |
$ |
17,157 |
$ |
44,149 |
$ |
(26,992) |
(61.1) |
% |
||
|
Same-asset property cash NOI (1) |
$ |
61,805 |
$ |
60,680 |
$ |
1,125 |
1.9 |
% |
||
|
Funds from operations (“FFO”) (1) |
||||||||||
|
Basic |
$ |
42,305 |
$ |
42,132 |
$ |
173 |
0.4 |
% |
||
|
Per unit – Basic |
$ |
0.27 |
$ |
0.28 |
$ |
(0.01) |
(3.6) |
% |
||
|
Payout ratio(2) |
83.2 |
% |
80.1 |
% |
3.1 |
% |
||||
|
Adjusted funds from operations (“AFFO”) (1) |
||||||||||
|
Basic |
$ |
35,679 |
$ |
36,006 |
$ |
(327) |
(0.9) |
% |
||
|
Per unit – Basic |
$ |
0.23 |
$ |
0.24 |
$ |
(0.01) |
(4.2) |
% |
||
|
Payout ratio(2) |
98.7 |
% |
93.8 |
% |
4.9 |
% |
||||
|
(1) |
Same-asset property cash NOI, FFO and AFFO are non-GAAP financial measures used by management to evaluate Crombie’s business performance. See “Cautionary Statements” below and refer to Crombie’s December 31, 2020 MD&A for a reconciliation of same-asset property cash NOI, FFO and AFFO. |
|
(2) |
2019 payout ratio excludes special distribution. |
Operating income attributable to Unitholders decreased by $26,992, or 61.1%, compared to the fourth quarter of 2019 primarily due to the disposition of investment properties in 2019 with a gain on sale of $30,198. Additionally, tenant incentive amortization increased $1,261 due to modernizations, parking revenue decreased by $854 as a result of reduced demand due to COVID-19, and rent abatements increased by $365 in the quarter due to COVID-19. Finance costs from operations increased $2,102 primarily due to the premium paid related to partial early redemption of Series B unsecured notes. In the fourth quarter of 2020, an impairment of $4,500 was recognized on four retail properties, which was $1,500 lower than the impairment related to three retail properties in the fourth quarter of 2019. The impairment was the result of the fair value impact of tenant lease expiries, slower-than-expected leasing activity, and the ongoing impacts of COVID-19.
Same-asset property cash NOI (SANOI) increased by $1,125, or 1.9%, compared to the fourth quarter of 2019 primarily due to higher supplemental rents from modernizations and capital improvements. This was partially offset by a decrease in parking revenue of $854 as a result of reduced demand due to COVID-19 and an increase in rent abatements of $178. Adjusting for COVID-19 impacts as shown in the table below, SANOI for the fourth quarter was +3.6%.
The increase in FFO is primarily due to increased net property income (an increase of $844 for the quarter) resulting from acquisitions and modernizations, and lower general and administrative costs of $362 for the quarter. Retail properties were acquired in the fourth quarter of 2019 and 2020. Additionally, the remaining 50% interest in a pre-existing retail-related industrial property was acquired in the fourth quarter of 2019. This is offset in part by increased finance costs from operations of $2,102 resulting from the premium paid on the partial early redemption of unsecured notes.
The decrease in AFFO in the quarter is primarily due to the conclusion of the amortization of effective swap agreements resulting from mortgage maturities, a decrease of $356 from the same period in 2019. This is offset in part by the items affecting FFO.
The following table further outlines what management estimates the material impacts of COVID-19 to be on Crombie’s operating performance for the three months ended December 31, 2020:
|
FFO per unit |
AFFO per unit |
Same-asset |
||||
|
Actual results – Q4 2020 |
$ |
0.27 |
$ |
0.23 |
1.9 |
% |
|
Adjusted for: |
||||||
|
Bad debt expense |
— |
— |
— |
% |
||
|
Rent abatements (1) |
— |
— |
0.3 |
% |
||
|
Parking revenue (2) |
0.01 |
0.01 |
1.4 |
% |
||
|
Adjusted results – Q4 2020 |
$ |
0.28 |
$ |
0.24 |
3.6 |
% |
|
Q4 2019 |
$ |
0.28 |
$ |
0.24 |
||
|
(1) |
Total amount of rent abatements recognized for AFFO purposes, primarily related to CECRA, was $377. Where qualifying tenants had accounts receivable balances, Crombie has elected to treat the abatements as a credit loss under IFRS 9. In cases where insufficient accounts receivable balances exist, Crombie has applied IFRS 16 and treated the abatement as a lease modification which is averaged over the life of the lease as straight-line rent. For purposes of FFO, the abatements are offset by the straight-line rent impact of $(12). |
|
(2) |
Parking revenue is calculated as the decrease in parking revenue from the same period in 2019. |
Adjusting for COVID-19 impacts, Crombie’s operating results were strong and on par with the fourth quarter of 2019.
Crombie’s key financial metrics for the year ended December 31, 2020 are as follows:
|
Year ended December 31, |
||||||||||
|
(In thousands of CAD dollars, except per unit amounts and as otherwise noted) |
2020 |
2019 |
Change |
Change (%) |
||||||
|
Property revenue |
$ |
388,733 |
$ |
398,741 |
$ |
(10,008) |
(2.5) |
% |
||
|
Property operating expenses |
129,872 |
117,645 |
(12,227) |
(10.4) |
% |
|||||
|
Net property income |
$ |
258,861 |
$ |
281,096 |
$ |
(22,235) |
(7.9) |
% |
||
|
Operating income attributable to Unitholders |
$ |
67,608 |
$ |
161,875 |
$ |
(94,267) |
(58.2) |
% |
||
|
Same-asset property cash NOI (1) |
$ |
237,522 |
$ |
240,250 |
$ |
(2,728) |
(1.1) |
% |
||
|
Funds from operations (“FFO”) (1) |
||||||||||
|
Basic |
$ |
165,850 |
$ |
175,539 |
$ |
(9,689) |
(5.5) |
% |
||
|
Per unit – Basic |
$ |
1.05 |
$ |
1.16 |
$ |
(0.11) |
(9.0) |
% |
||
|
Payout ratio(2) |
84.6 |
% |
76.9 |
% |
7.7 |
% |
||||
|
Adjusted funds from operations (“AFFO”) (1) |
||||||||||
|
Basic |
$ |
138,963 |
$ |
148,632 |
$ |
(9,669) |
(6.5) |
% |
||
|
Per unit – Basic |
$ |
0.88 |
$ |
0.98 |
$ |
(0.10) |
(10.2) |
% |
||
|
Payout ratio(2) |
101.0 |
% |
90.8 |
% |
10.2 |
% |
||||
|
(1) |
Same-asset property cash NOI, FFO and AFFO are non-GAAP financial measures used by management to evaluate Crombie’s business performance. See “Cautionary Statements” below and refer to Crombie’s December 31, 2020 MD&A for a reconciliation of same-asset property cash NOI, FFO and AFFO. |
|
(2) |
2019 payout ratio excludes special distribution. |
Operating income attributable to Unitholders decreased by $94,267, or 58.2%, on an annual basis. The decrease was driven by a $78,468 decrease in gain on disposal of investment properties realized in 2019. Net property income decreased $22,235 from disposition activity, decreased parking revenue, increased tenant incentive amortization, and rent abatements. Additionally, bad debt expense increased $10,717 primarily as a result of COVID-19 collection risk. The reduced net property income for the year was offset in part by a decrease of $5,508 in finance costs from operations due to repayments of debt and a decrease of $3,187 in general and administrative expenses resulting primarily from reduced salaries.
Same-asset property cash NOI (SANOI) decreased by $2,728, or 1.1%, compared to 2019 primarily due to the impacts of COVID-19. On an annual basis, the bad debt expense increased by $5,228 for same-asset properties over 2019, parking revenue decreased by $2,715, and rent abatements increased by $1,490. Adjusting for these impacts of COVID-19, year to date SANOI was +2.8%.
The decrease in FFO on a year-to-date basis is primarily due to reduced net property income, lower parking revenue, and significant increases in bad debt expense and rent abatements. This is partially offset by a decrease in finance costs from operations and general and administrative expenses compared to the same period in 2019. The decrease in finance costs is due to a reduction in mortgage interest resulting from disposition activity and maturing mortgages, partially offset by the premium on the partial pre-payment of Series B unsecured notes. The decline in general and administrative expenses is primarily related to the impact of the decreased unit price on unit-based compensation plans, and lower salaries and benefits related to the organizational realignment completed in the second quarter of 2020, offset in part by the severance costs incurred in the second quarter of 2020.
The decline in AFFO was driven by the impacts on FFO described above, partially offset by the decrease in maintenance expenditures on a square footage basis due to the disposition of properties in the current and prior years.
OPERATING RESULTS
|
December 31, |
September 30, |
June 30, |
March 31, |
December 31, |
||||||
|
Number of investment properties (1) |
284 |
286 |
286 |
285 |
285 |
|||||
|
Gross leasable area (2) |
18,000,000 |
17,684,000 |
17,614,000 |
17,583,000 |
17,558,000 |
|||||
|
Economic occupancy (3) |
94.0 |
% |
94.7 |
% |
95.1 |
% |
95.5 |
% |
95.4 |
% |
|
Committed occupancy (4) |
96.4 |
% |
95.3 |
% |
95.6 |
% |
96.2 |
% |
96.1 |
% |
|
(1) |
This includes properties owned at full and partial interests. |
|
(2) |
Gross leasable area is adjusted to reflect Crombie’s proportionate interest in partially-owned properties. |
|
(3) |
Represents space currently under lease contract and rent has commenced. |
|
(4) |
Represents current economic occupancy plus completed lease contracts for future occupancy of currently available space. |
|
December 31, |
September 30, |
June 30, |
March 31, |
December 31, |
|||||||||||
|
Investment properties, fair value |
$ |
4,815,000 |
$ |
4,615,000 |
$ |
4,604,000 |
$ |
4,519,000 |
$ |
4,605,000 |
|||||
|
Unencumbered investment properties (1) |
$ |
1,366,258 |
$ |
1,460,152 |
$ |
1,461,970 |
$ |
1,479,211 |
$ |
1,223,452 |
|||||
|
Available liquidity (2) |
$ |
471,708 |
$ |
370,885 |
$ |
406,303 |
$ |
449,898 |
$ |
449,016 |
|||||
|
Debt to gross fair value (3) |
49.4 |
% |
49.8 |
% |
49.2 |
% |
50.0 |
% |
48.9 |
% |
|||||
|
Weighted average interest rate (4) |
3.89 |
% |
4.05 |
% |
4.05 |
% |
4.06 |
% |
4.17 |
% |
|||||
|
Debt to trailing 12 months EBITDA (3) |
9.73x |
9.34x |
9.12x |
8.86x |
8.52x |
||||||||||
|
Interest coverage ratio (3) |
2.77x |
3.03x |
2.64x |
3.18x |
2.99x |
||||||||||
|
(1) |
Represents fair value of unencumbered properties. |
|
(2) |
Represents the undrawn portion on the credit facilities, excluding joint facilities with joint operation partners. |
|
(3) |
See Debt Metrics section in the MD&A. |
|
(4) |
Weighted average interest rate is calculated based on interest rates for all outstanding fixed rate debt. |
Operations and Leasing
During the quarter, economic occupancy was 94.0% along with record committed occupancy of 96.4%. Included in committed occupancy is approximately 350,000 square feet at Avalon Mall, Belmont Market, and Pointe-Claire. Additionally, an approximate 49,000 square foot office lease is committed at our Scotia Square complex in Halifax, Nova Scotia. Crombie renewed 200,000 square feet with an increase of 4.5% over expiring rents during the quarter. New leases and expansions increased occupancy by 248,000 square feet at an average first year rate of $18.04 per square foot.
Development
Two of our “First Seven” major development projects, Avalon Mall Phase II in St. John’s, Newfoundland and Labrador and the future home of Voilà par IGA in Montreal, Empire’s Customer Fulfillment Centre, have reached substantial completion during the fourth quarter of 2020. These two developments add an additional 465,000 square feet of gross leasable area (“GLA”).
Crombie projects $59,000 of additional investment to complete its remaining three active major mixed-use developments that total $278,000 with an estimated NOI yield on cost of 5.3%-5.8% at Crombie’s share. Upon completion, these projects will total 80,000 square feet of commercial GLA and 961,000 square feet of residential rental GLA, and are broken out geographically as follows: 520,000 in the Greater Toronto Area; 254,000 in Vancouver; and 267,000 in Montreal. These remaining three projects are expected to reach substantial completion by the end of 2021, increasing our presence in Canada’s top urban markets and diversifying and improving our overall portfolio quality, and we expect the projects to create significant NAV and AFFO growth.
These estimates are subject to changes, as well as other development risks described in Crombie’s 2020 annual MD&A under “Development” and “Risk Management”.
Dispositions
During the fourth quarter, Crombie had gross proceeds of $37,010 from the disposition of five income-producing properties totalling approximately 94,000 square feet. These asset sales have been transacted in line with IFRS fair values and are part of Crombie’s funding strategy, which redirects capital into developments that have the potential to deliver higher AFFO and NAV returns while at the same time improving portfolio quality.
Acquisitions
During the fourth quarter, Crombie completed three transactions for total purchase price, before closing and transaction costs, of $31,400. This included a 100% interest in two retail plazas totalling approximately 95,000 square feet. In addition, Crombie acquired vacant land in Ottawa, Ontario for future development.
Conference Call Invitation
Crombie will provide additional details concerning its period ended December 31, 2020 results on a conference call to be held Thursday, February 25, 2021, beginning at 12:00 p.m. Eastern Time. Accompanying the conference call will be a presentation that will be available on Crombie’s website. To join this conference call, you may dial (416) 764-8688 or (888) 390-0546. You may also listen to a live audio webcast of the conference call by visiting the Investor section of Crombie’s website located at www.crombiereit.com. Replay will be available until midnight March 4, 2021 by dialing (416) 764-8677 or (888) 390-0541 and entering pass code 855314 #, or on the Crombie website for 90 days after the meeting.
Cautionary Statements
NOI, same-asset property cash NOI, FFO, AFFO, EBITDA, AMR, available liquidity, and unencumbered investment properties are non-GAAP financial measures that do not have a standardized meaning under International Financial Reporting Standards (“IFRS”). These measures as computed by Crombie may differ from similar computations as reported by other entities and, accordingly, may not be comparable to other such 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. For additional information on these non-GAAP measures see our Management’s Discussion and Analysis for the three and twelve months ended December 31, 2020.
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 2020 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) estimated NOI, yield on cost and anticipated near term AFFO and NAV creation from major developments, which could be affected by unexpected increases in development costs, changes in prevailing market rents and Crombie’s ability to complete leasing on favorable terms or at all;
(ii) general growth and development opportunities and expansion across Canada including the expected impact of such growth from our mixed-use development pipeline, which could be impacted by the economic impact of the COVID-19 crisis, ordinary real estate market cycles, the availability of labour, financing and the cost of any such 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,
(iii) expected timing and costs of development projects currently underway and planned into the future.
Continuing uncertainty with respect to the severity, duration and overall impacts of the pandemic mean that forward-looking forecasts of operating and financial results for Crombie are uncertain at this time.
About Crombie REIT
Crombie Real Estate Trust (“Crombie”) invests in quality real estate that enhances local communities and is adaptable to long-term growth. As one of the country’s leading national retail property landlords, Crombie’s portfolio includes grocery-anchored retail, shopping centres, industrial, and mixed-use developments in Canada’s top urban and suburban markets. Crombie is an unincorporated, open-ended real estate investment trust established under, and governed by, the laws of the Province of Ontario. Learn more at www.crombiereit.com
SOURCE Crombie REIT