Crombie REIT reports third quarter results and pending acquisitions

Crombie REIT (TSX:CRR.UN)

STELLARTON, NS, Nov. 13, 2014 /CNW/ – Crombie Real Estate Investment Trust ("Crombie") (TSX:CRR.UN) is pleased to report its financial results for the three months and nine months ended September 30, 2014.

Third Quarter 2014 Highlights (In thousands of CAD dollars, except per unit amounts and as otherwise noted).

• Portfolio fair value of $3.9 billion.
• Funds From Operations ("FFO"):
  • FFO for the nine months ended September 30, 2014 increased 35.4% to $105,689; or $0.83 per unit Diluted, unchanged from the same period in 2013.
  • FFO for the three months ended September 30, 2014 increased 40.7% to $36,359; or $0.28 per unit Diluted, unchanged from the three months ended September 30, 2013.
  • FFO payout ratio of 80.3% for the nine months ended September 30, 2014 compared to 78.7% for the same period in 2013.
  • FFO payout ratio 79.9% for the three months ended September 30, 2014 compared to 79.5% for the same period in 2013.
• Adjusted Funds From Operations ("AFFO"):
  • AFFO for the nine months ended September 30, 2014 increased 33.2% to $87,965; or $0.69 per unit Diluted, a decrease of $0.02 per unit from the same period in 2013.
  • AFFO for the three months ended September 30, 2014 increased 37.4% to $30,224; or $0.23 per unit Diluted, a decrease of $0.01 per unit from the three months ended September 30, 2013.
  • AFFO payout ratio of 96.5% for the nine months ended September 30, 2014 compared to 93.1% for the same period in 2013.
  • AFFO payout ratio of 96.1% for the three months ended September 30, 2014 compared to 93.4% for the same period in 2013.
• Same-asset Cash Net Operating Income ("NOI") for the nine months ended September 30, 2014 showed solid growth of 1.6% compared to the nine months ended September 30, 2013. Increase in same-asset cash NOI of 0.9% for the three months ended September 30, 2014 compared to the same period in 2013.
• Property revenue for the nine months ended September 30, 2014 of $267,717, an increase of $54,704 or 25.7% over the nine months ended September 30, 2013. Property revenue of $87,796 for Q3 2014 increased $16,635 or 23.4% over Q3 2013.
• Occupancy, on a committed basis, was 93.6% at September 30, 2014, compared with 93.3% at June 30, 2014.
• Crombie's leasing activity during the nine months ended September 30, 2014, included:
  • Renewals on 312,000 square feet of 2014 expiring leases at an average rate of $17.45 per square foot, an increase of 10.1% over the expiring lease rate;
  • Renewals on 61,000 square feet of 2015 and later expiring leases at an average rate of $15.14 per square foot, an increase of 12.0% over the expiring lease rate;
  • New leases of 289,000 square feet replacing vacant or expiring space in 2014 at an average rate of $17.37 per square foot; and
  • Pre-leasing of 2015 occupancy with executed documents including 34,000 square feet of new leases at an average rate of $16.14 per square foot and expansions of current tenants of 29,000 square feet at an average rate of $10.25.
• Weighted average lease term of 11.7 years and weighted average mortgage term of 7.6 years; amongst the longest and most defensive in the REIT industry.
• Strong 2.56 times interest coverage. Weighted average interest rate on mortgages reduced to 4.77% from 4.78% at June 30, 2014 and 4.99% at September 30, 2013.
• Debt to Gross Book Value (fair value basis) of 51.6%, unchanged from June 30, 2014.

Events Subsequent to Third Quarter

• Subsequent to September 30, 2014, finalized a disposition agreement on one retail property and completed dispositions of four other retail properties in Atlantic Canada totaling 608,000 square feet of GLA for proceeds of approximately $64.5 million before closing and transaction costs and a net gain of approximately $5.2 million.
• Pending acquisition of eight retail properties from Sobeys totaling 420,000 square feet of GLA for approximately $101 million. Seven of these properties are located in Western Canada with certain locations having Crombie intensification potential. These additions will bring year-to-date acquisitions from Sobeys to approximately $113 million; consistent with our stated strategy of acquiring approximately $100 million annually from this strategic relationship. Pending acquisition of three properties from third party vendors totaling approximately 100,000 square feet of GLA for approximately $39 million. Two of these third party acquisitions are uniquely strategic as they are immediately adjacent t to freestanding Sobeys / Safeway properties either owned or expected to be eventually acquired by Crombie. All conditions for these 11 properties totaling $140 million and 520,000 square feet of GLA have been waived and closing of each is expected prior to the end of 2014. Each property is 100% occupied. These total acquisitions will be completed at an implied stabilized capitalization rate of 6.3%. The acquisitions will be funded through Crombie's floating rate revolving credit facility.

Donald E. Clow, FCA, President and CEO commented: "Crombie's evolution as a truly national REIT continues to gain momentum with solid growth prospects. We are continuing the evaluation of our portfolio for development value creation opportunities primarily in urban markets. Our financial condition remains strong with best ever levels of liquidty and financial flexibility while our platform continues to develop and attract outstanding human talent as we expand across Canada."

Financial Highlights

Crombie's key financial metrics for the three months and nine months ended September 30, 2014 are as follows:

The increase in FFO and AFFO for the three months and nine months ended September 30, 2014 was primarily due to the 70 property Sobeys / Safeway acquisition during the fourth quarter of 2013 and completed development and land use intensification projects during 2013, resulting in significant growth in property NOI, offset in part by higher finance costs – operations.

The table below presents a summary of financial performance for the three months and nine months ended September 30, 2014 compared to the same period in fiscal 2013.

Growth Highlights

For the first nine months of 2014, Crombie's GLA reflects a net increase of 21,000 square feet from acquisition and disposition activity. Crombie exchanged a property in Alberta for another Alberta property, resulting in no net change in GLA. In addition, Crombie disposed of part of an existing property in Nova Scotia, resulting in a 25,000 square foot reduction in GLA and completed the above acquisitions.

Operating Highlights

Property NOI, on a cash basis, excludes straight-line rent recognition and amortization of tenant incentive amounts. The +0.9% and +1.6% increases in same-asset property cash NOI for the three months and nine months ended September 30, 2014 is primarily the result of increased average rent per square foot from leasing activity and rental rate increases in existing leases as well as improved recovery rates and revenues from land use intensifications at several properties.

During 2014 Crombie classified five investment properties as held for sale. The operating results for these properties are included in acquisitions, dispositions and development for the current and comparative periods.

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:

The significant growth in acquisitions and dispositions property cash NOI was primarily due to the 70 property Sobeys / Safeway acquisition during the fourth quarter of 2013.

Capital Highlights

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 $300,000, subject to available borrowing base, of which $39,270 was drawn as at September 30, 2014, and an additional $979 encumbered by outstanding letters of credit, resulting in significant available liquidity.

Debt to gross book value on a fair value basis is 51.6% (including convertible debentures) at September 30, 2014, compared to 49.8% at September 30, 2013.

General and Administrative Expenses

General and administrative expenses for the nine months ended September 30, 2014, as a percentage of property revenue, decreased by 0.2% from 4.4% to 4.2%, when compared to the same period in 2013. For the three months ended September 30, 2014, general and administrative expenses as a percentage of property revenue, were 4.0%, unchanged from the same period in 2013.

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, 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 inforamtion on these non-GAAP measures see our Management's Discussion and Analysis for the period ended September 30, 2014.

Crombie's consolidated financial statements and management's discussion and analysis for the three months and nine months ended September 30, 2014 can be found on Crombie's web site at www.crombiereit.com or on the SEDAR web site for Canadian requlatory 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 246 retail and office properties across Canada, comprising approximately 17.1 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 2013 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:

Conference Call Invitation

Crombie will provide additional details concerning its September 30, 2014 third quarter and year to date results on a conference call to be held Thursday, November 13, 2014, at 11:30 a.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 November 27, 2014 by dialing (416) 849-0833 or (855) 859-2056 and entering pass code 23307055, or on the Crombie website for 90 days after the meeting.

SOURCE Crombie REIT