Second Quarter Summary
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)
- Operating income of $9,393
- Property revenue of $96,501
- Debt to gross book value – fair value of 49.2%
- Available liquidity of $406,303
- Unencumbered asset pool of $1,461,970
- 3.878% 16 year mortgage loan of $118,000 was secured and funded, maturing June 1, 2036
- Same-asset property cash NOI decline of 4.6% (+3.6% SANOI normalizing for COVID-19 impacts)
- Renewals of 230,000 square feet at rents 3.6% above expiring rates
- Committed occupancy of 95.6%
NEW GLASGOW, NS, Aug. 5, 2020 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) today announced results for its second quarter ended June 30, 2020. Management will host a conference call to discuss the results at 12:00 p.m. (EDT), August 6, 2020.
"The past few months have created unprecedented disruption in our society. From the way we greet each other, to the way we live, work, shop, and play, our lives look very different now than they did just five short months ago," said Don Clow, President and CEO of Crombie. "The resilience and agility of the Crombie team and the strength of our grocery-anchored, needs based portfolio is clear as we play a critical role in delivering the essential services Canadian consumers rely upon through the COVID-19 pandemic. Our team is working proactively to protect employees, customers and tenants, through enhanced health and safety measures and rental assistance to support those tenants negatively impacted by the pandemic. Crombie's financial health is evidenced by our strong and improving balance sheet, our ample liquidity, and our ability to creatively source capital. Our operating results, excluding COVID-19 related impacts, reflect solid fundamentals, and our continued progress on our first six major developments is admirable. I continue to be incredibly proud of our team and their commitment to keep our business running effectively."
COVID-19 IMPACT
The majority of space within our portfolio was deemed essential services and remained open throughout the shutdown. Crombie is well-positioned with respect to the defensiveness of annual minimum rent (AMR):
- 76% of AMR is generated from grocery and pharmacy-anchored properties
- 68% of AMR is generated from essential services tenants
- 8% of AMR is generated by small business tenants
During the three months ended June 30, 2020, 90% of gross rent was collected with rent collections for the month of July improving to 93%. 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, and mutually-beneficial agreements with other select tenants. Due to the uncertainty of COVID-19, a bad debt expense of $8,722 was recognized, reducing property operating income for the second 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:
|
April to June 2020 |
July 2020 |
||||||||||
|
% of Gross Rent Collected |
% of Gross Rent, Total Portfolio |
% of Gross Rent Collected |
% of Gross Rent, Total Portfolio |
||||||||
|
Retail and Commercial |
90% |
91% |
92% |
91% |
|||||||
|
Office |
96% |
6% |
96% |
6% |
|||||||
|
Retail-Related Industrial |
100% |
3% |
100% |
3% |
|||||||
|
Total |
90% |
(1) |
100% |
93% |
(1) |
100% |
|||||
|
(1) Excluding Avalon Mall, 94% of gross rent was collected for the period April to June 2020 and 95% for July 2020. |
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Due to the shutdown of nonessential construction in Montreal, our Le Duke and Pointe-Claire CFC developments were shut down from March 24th to May 11th. Construction in Vancouver, the GTA and St. John's was deemed essential and work continued, albeit at a slower pace, which resulted in some slight expected completion delays.
Parking revenue decreased during the quarter as a result of reduced demand due to COVID-19.
Due to the uncertainty about COVID-19, we chose to reduce operating expenses with an organizational realignment. The majority of the realignment related to the elimination of certain positions, including two at the vice president level, resulting in severance costs of $1,509. The severance costs were the primary cause of the increase in general and administrative expenses in the quarter.
Crombie ended the quarter with $406,303 in available liquidity.
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 and six months ended June 30, 2020 are as follows:
|
Three months ended June 30, |
|||||||||||
|
(In thousands of CAD dollars, except per unit amounts and as otherwise noted) |
2020 |
2019 |
Change |
Change (%) |
|||||||
|
Property revenue |
$ |
96,501 |
$ |
99,332 |
$ |
(2,831) |
(2.9)% |
||||
|
Property operating expenses |
37,887 |
28,222 |
(9,665) |
(34.2)% |
|||||||
|
Property net operating income ("NOI") |
$ |
58,614 |
$ |
71,110 |
$ |
(12,496) |
(17.6)% |
||||
|
Operating income attributable to Unitholders |
$ |
9,393 |
$ |
39,449 |
$ |
(30,056) |
(76.2)% |
||||
|
Same-asset property cash NOI (1) |
$ |
57,555 |
$ |
60,337 |
$ |
(2,782) |
(4.6)% |
||||
|
Funds from operations ("FFO") (1) |
|||||||||||
|
Basic |
$ |
34,557 |
$ |
44,567 |
$ |
(10,010) |
(22.5)% |
||||
|
Per unit – Basic |
$ |
0.22 |
$ |
0.29 |
$ |
(0.07) |
(24.1)% |
||||
|
Payout ratio |
101.8% |
75.7% |
26.1% |
||||||||
|
Adjusted funds from operations ("AFFO") (1) |
|||||||||||
|
Basic |
$ |
28,107 |
$ |
37,549 |
$ |
(9,442) |
(25.1)% |
||||
|
Per unit – Basic |
$ |
0.18 |
$ |
0.25 |
$ |
(0.07) |
(28.0)% |
||||
|
Payout ratio |
125.2% |
89.9% |
35.3% |
||||||||
|
(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 June 30, 2020 MD&A for a reconciliation of same-asset property cash NOI, FFO and AFFO. |
|||||||||||
Same-asset property cash NOI decreased by $2,782 or 4.6% compared to the second quarter of 2019 primarily due to an increase in bad debt expense of $3,962 on same-asset properties over the same period in 2019, as a result of specific bad debt provisions, which includes the cost impact of the federal government's CECRA program. Parking revenue decreased by $970 as a result of reduced demand due to COVID-19.
Operating income attributable to Unitholders decreased by $30,056 or 76.2% compared to the second quarter of 2019 primarily due to the disposition of investment properties in 2019, resulting in a $12,496 decrease in property NOI and a quarter-over-quarter decrease of $16,661 in gain on disposal of investment properties. Additionally, an increase in bad debt expense of $8,731 resulted from higher allowance for the potential impacts of COVID-19 on collection of receivable balances and the impact of the federal government's CECRA program. In the second quarter of 2020, due to the uncertainty about COVID-19, we chose to reduce operating expenses with an organizational realignment. The majority of the realignment related to the elimination of certain positions, including two at the vice president level, resulting in severance costs of $1,509. The severance costs were the primary cause of the increase of $990 in general and administrative expenses in the quarter. The reduced property NOI was offset slightly by a decrease of $2,329 in finance costs from operations due to repayments of debt.
The decline in FFO was driven by reduced property NOI resulting from the disposition of properties in 2019, lower parking revenue as a result of reduced demand due to COVID-19, a significant increase in bad debt expense and severance costs related to the organizational realignment in the quarter. Additionally, FFO per unit was impacted by the increase in unit count as a result of the Q1 2020 equity issuance.
The decline in AFFO was driven by the impacts on FFO described above, offset in part by the reduction of straight line rent from disposition of properties in 2019. FFO and AFFO were impacted by significant dispositions in 2019 and the primary investment of proceeds to major development projects that will commence income generation and fuel FFO/AFFO growth over the next 12 to 24 months.
The following table further normalizes the impact of COVID-19 on Crombie's operating performance for the three months ended June 30, 2020:
|
FFO per unit |
AFFO per unit |
Same-asset cash NOI growth |
||||
|
Actual results – Q2 2020 |
$ |
0.22 |
$ |
0.18 |
(4.6) |
% |
|
Adjusted for: |
||||||
|
Bad debt expense |
0.06 |
0.06 |
6.6 |
% |
||
|
Parking revenue |
0.01 |
0.01 |
1.6 |
% |
||
|
Organizational realignment severance costs |
0.01 |
0.01 |
— |
% |
||
|
Adjusted results – Q2 2020 |
$ |
0.30 |
$ |
0.26 |
3.6 |
% |
|
Q2 2019 |
$ |
0.29 |
$ |
0.25 |
||
Adjusting for COVID-19 impacts, Crombie's operating results were strong and slightly exceeded Q2 2019.
|
Six months ended June 30, |
|||||||||||
|
(In thousands of CAD dollars, except per unit amounts and as otherwise noted) |
2020 |
2019 |
Change |
Change (%) |
|||||||
|
Property revenue |
$ |
198,753 |
$ |
204,572 |
$ |
(5,819) |
(2.8) |
% |
|||
|
Property operating expenses |
73,124 |
60,588 |
(12,536) |
(20.7) |
% |
||||||
|
Property net operating income ("NOI") |
$ |
125,629 |
$ |
143,984 |
$ |
(18,355) |
(12.7) |
% |
|||
|
Operating income attributable to Unitholders |
$ |
30,717 |
$ |
87,677 |
$ |
(56,960) |
(65.0) |
% |
|||
|
Same-asset property cash NOI (1) |
$ |
118,721 |
$ |
120,466 |
$ |
(1,745) |
(1.4) |
% |
|||
|
Funds from operations ("FFO") (1) |
|||||||||||
|
Basic |
$ |
80,218 |
$ |
90,027 |
$ |
(9,809) |
(10.9) |
% |
|||
|
Per unit – Basic |
$ |
0.51 |
$ |
0.59 |
$ |
(0.08) |
(13.6) |
% |
|||
|
Payout ratio |
87.1% |
75.0% |
12.1 |
% |
|||||||
|
Adjusted funds from operations ("AFFO") (1) |
|||||||||||
|
Basic |
$ |
67,790 |
$ |
76,209 |
$ |
(8,419) |
(11.0) |
% |
|||
|
Per unit – Basic |
$ |
0.43 |
$ |
0.50 |
$ |
(0.07) |
(14.0) |
% |
|||
|
Payout ratio |
103.1% |
88.5% |
14.6 |
% |
|||||||
|
(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 June 30, 2020 MD&A for a reconciliation of same-asset property cash NOI, FFO and AFFO. |
|||||||||||
Same-asset property cash NOI decreased by $1,745 or 1.4% compared to the same period in 2019 primarily due to the reasons described above. On a year to date basis, the bad debt expense increased by $4,478 for same-asset properties over the same period in 2019 and parking revenue decreased by $927.
On a year to date basis, operating income attributable to Unitholders decreased by $56,960 or 65.0% compared to the same period in 2019. The decrease was driven by a decrease in property NOI of $18,355 from disposition activity, gain on disposal of investment properties decreased by $44,119 and bad debt expense increased $9,845 as a result of COVID-19 collection risk. The reduced property NOI year to date was offset in part by a decrease of $5,356 in finance costs from operations due to repayments of debt.
The decrease in FFO on a year to date basis is due to the same factors as those impacting the quarter, including an increase in bad debt expense of $9,845 over the same period in 2019. This is partially offset by a decrease in general and administrative expenses compared to the same period in 2019. This is primarily related to the reduction in travel and other costs and the impact of decreased unit price on unit-based compensation plans, offset in part by the severance costs in the quarter.
AFFO was driven by the impacts on FFO described above with reduced straight-line rent of $1,715, offset in part by lower maintenance expenditure provision resulting from the decreased square footage compared to the same period in 2019.
OPERATING RESULTS
|
June 30, 2020 |
March 31, 2020 |
December 31, 2019 |
September 30, 2019 |
June 30, 2019 |
||||||
|
Number of investment properties (1) |
286 |
285 |
285 |
284 |
284 |
|||||
|
Gross leasable area (2) |
17,614,000 |
17,583,000 |
17,558,000 |
17,732,000 |
17,746,000 |
|||||
|
Economic occupancy (3) |
95.1 |
% |
95.5 |
% |
95.4 |
% |
95.6 |
% |
95.2 |
% |
|
Committed occupancy (4) |
95.6 |
% |
96.2 |
% |
96.1 |
% |
96.1 |
% |
95.9 |
% |
|
(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. |
||||||||||
|
(4) Represents current economic occupancy plus completed lease contracts for future occupancy of currently available space. |
||||||||||
|
June 30, 2020 |
March 31, 2020 |
December 31, 2019 |
September 30, 2019 |
June 30, 2019 |
|||||||||||
|
Investment properties, fair value |
$ |
4,604,000 |
$ |
4,519,000 |
$ |
4,605,000 |
$ |
4,626,000 |
$ |
4,592,000 |
|||||
|
Unencumbered investment properties (1) |
$ |
1,461,970 |
$ |
1,479,211 |
$ |
1,223,452 |
$ |
960,275 |
$ |
953,738 |
|||||
|
Available liquidity (2) |
$ |
406,303 |
$ |
449,898 |
$ |
449,016 |
$ |
450,967 |
$ |
413,087 |
|||||
|
Debt to gross book value (net of cash) – fair value (3) |
49.2 |
% |
50.0 |
% |
48.9 |
% |
48.9 |
% |
49.1 |
% |
|||||
|
Weighted average interest rate (4) |
4.05 |
% |
4.06 |
% |
4.17 |
% |
4.22 |
% |
4.19 |
% |
|||||
|
Debt to trailing 12 months EBITDA (net of cash) (5) |
9.12x |
8.86x |
8.52x |
8.35x |
8.21x |
||||||||||
|
Interest coverage ratio (5) |
2.64x |
3.18x |
2.99x |
2.90x |
3.00x |
||||||||||
|
(1) Represents fair value of unencumbered properties. |
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|
(2) Represents the undrawn portion on the credit facilities, excluding joint facilities with joint operation partners. |
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|
(3) See Debt to Gross Book Value – Fair Value Basis section in the MD&A. The debt to gross book value (net of cash) on a fair value basis applies cash and cash equivalents to debt. |
|||||||||||||||
|
(4) Weighted average interest rate is calculated based on interest rates for all outstanding fixed rate debt. |
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|
(5) See Coverage Ratios section in the MD&A. |
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Operations and Leasing
During the quarter, economic occupancy was 95.1% along with committed occupancy of 95.6%. Economic occupancy declined in Q2, due to various lease terminations and GLA additions. Crombie renewed 230,000 square feet with an increase of 3.6% over expiring rents during the quarter. New leases and expansions increased occupancy by 92,000 square feet at an average first year rate of $18.97 per square foot.
Development
Crombie expects to invest, in total, approximately $612,000 in its first six active mixed-use major developments, with an estimated yield on cost of 5.4%-5.9%, at Crombie's share. Upon completion, these projects will total 759,000 square feet of commercial gross leasable area ("GLA") and 961,000 square feet of residential rental GLA and are broken out geographically as follows: 520,000 in the Greater Toronto Area, 308,000 in Vancouver, 567,000 in Montreal, 165,000 in St. John's and 160,000 in Langford, near Victoria.
Once complete, Crombie's major developments will increase our presence in Canada's top urban markets, diversify and improve our overall portfolio quality, and are expected to create significant NAV and AFFO growth. Crombie estimates its remaining capital outlay to complete these six projects is approximately $180,000 and will be incurred over the next sixteen months. These estimates are subject to changes in construction costs and time to completion arising from minor scheduling delays relating primarily to COVID-19, as well as other development risks described in Crombie's 2019 annual MD&A under "Risk Management".
Conference Call Invitation
Crombie will provide additional details concerning its period ended June 30, 2020 results on a conference call to be held Thursday, August 6, 2020, beginning at 12:00 p.m. Eastern Time. Accompanying the conference call will be a presentation which 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 Crombie's website located at www.crombiereit.com on the Investor Relations section of our website. Replay will be available until midnight August 20, 2020 by dialing (416) 764-8677 or (888) 390-0541 and entering pass code 318812 #, or on the Crombie website for 90 days after the meeting.
Cautionary Statements
NOI, same-asset property cash NOI, FFO, AFFO, EBITDA, 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 months ended June 30, 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 2019 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 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,
(ii) 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 Investment Trust ("Crombie") is an unincorporated, open-ended real estate investment trust established under, and governed by, the laws of the Province of Ontario. Crombie is one of the country's leading national retail property landlords with a strategy to own, operate and develop a portfolio of high-quality grocery- and pharmacy-anchored shopping centres, freestanding stores and mixed-use developments primarily in Canada's top urban and suburban markets. More information about Crombie can be found at www.crombiereit.com.
SOURCE Crombie REIT
Media Contact: Clinton Keay, CPA, CA, Chief Financial Officer and Secretary, Crombie REIT, (902) 755-8100