STELLARTON, NS, Feb. 28 /CNW/ – Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its fiscal 2006 operating results for the period ending December 31, 2006. Net income for the year-to-date period of March 23, 2006 to December 31, 2006 was $9.405 million ($0.44 per unit) compared to $7.141 million ($0.35 per unit) forecasted for the same pro-rated period. The year-to-date periods reflect the commencement of operations on March 23, 2006, coincident with the completion of the initial public offering ("IPO"). Net income for the fourth quarter was $3.217 million ($0.15 per unit) compared to $2.44 million ($0.12 per unit) forecasted for the quarter ended December 31, 2006. The Adjusted Funds From Operations ("AFFO") payout ratio for the year-to-date period of March 23, 2006 to December 31, 2006 was 99.6%, which was in line with the anticipated AFFO payout ratio of 100%. This reflects the fact that Crombie has been able to fund its distributions, as well as its capital and operating activities for the year, from operational cash flows.
As a result of the acquisitions completed, as well as improved operational results from the initial 44 properties acquired with the completion of the IPO, the Board of Trustees is pleased to announce a 3.75% increase to the monthly distribution payments on an annualized basis, from $0.80 to $0.83, beginning with the March distributions paid in April.
Commenting on the fiscal 2006 results and distribution increase, J. Stuart Blair, President and Chief Executive Officer stated: "We are obviously pleased by the strong financial performance during Crombie's first fiscal year end and the resulting increase in the distribution rate. We will continue to ensure that we conservatively manage our distribution ratios so that we can fully fund our capital and operational activities as well as our distributions from our annual operational cash flows."
<<
2006 Year-To-Date Highlights
- During the year, Crombie completed three property acquisitions in
Ontario, for an aggregate purchase price of $46.762 million which added
approximately 205,000 square feet of gross leaseable area to the
original portfolio.
- Subsequent to year end, Crombie announced the acquisition of The Mews
of Carleton Place in the Ottawa region. The purchase price of the
property was $11.8 million and will be financed with the assumption of
a fixed rate mortgage and an increase in the revolving credit facility.
- For the year-to-date period ending December 31, 2006, Crombie had
renewals or leased approximately 692,000 square feet of space at a
weighted average net rent of $12.57 per square foot, compared with
expiries of approximately 675,000 square feet of space at a weighted
average net rent of $9.93 per square foot.
- Overall occupancy at December 31, 2006 increased to 93.6% when compared
to 93.4% at September 30, 2006 and 93.0% as disclosed in the
prospectus.
- Property revenue of $99.949 million exceeded the forecasted revenue of
$99.136 million by $0.813 million, or 0.8%, due primarily to improved
occupancy and the property acquisitions previously noted.
- Net income of $9.405 million was favourable by $2.264 million or 31.7%,
over the forecasted net income of $7.141 million due primarily to the
improved property revenue along with reduced non-recoverable repairs
and maintenance and income tax expenses.
- The distributable income payout ratio was 77.5%, 2.5% below the
anticipated annual payout ratio of 80% outlined in the prospectus.
- The AFFO payout ratio was 99.6%, which was in line with the anticipated
AFFO payout ratio of 100%. This reflects the fact that Crombie has been
able to fund its distributions, as well as its capital and operating
activities for the year, from operational cash flows.
- Non-recoverable maintenance capital expenditures during the period
totalled $2.223 million and demonstrated the commitment Crombie has to
maintaining the real estate portfolio. Tenant improvement and leasing
costs during the period, net of recoveries from ECL, totalled
$5.594 million which has helped to improve both Crombie's occupancy
rate and average net rent per square foot results during the period.
- Debt to Gross Book Value increased slightly to 44.8% at December 31,
2006 from 43.2% at September 30, 2006. This is still well below
management's intended leverage ratio of between 50% to 55% and provides
acquisition capacity of approximately $200 million. Management expects
that the ratio of debt to gross book value will increase by
approximately 0.7% with the completion of the previously announced
acquisition of The Mews of Carleton Place in January of 2007.
The table below presents a summary of the financial performance for the
quarter and year-to-date ended December 31, 2006, with a comparison to
Crombie's forecast provided in the prospectus dated March 10, 2006.
-------------------------------------------------------------------------
Quarter Ended
December 31, 2006
-------------------------------------------------------------------------
(In millions of dollars,
except per unit amounts) Actual Forecast (1) Variance
-------------------------------------------------------------------------
Property revenue $33.717 $31.910 $1.807
Property expenses 15.091 13.550 (1.541)
-------------------------------------------------------------------------
Property net operating income 18.626 18.360 0.266
-------------------------------------------------------------------------
Expenses:
General and administrative 2.293 1.710 (0.583)
Interest 5.523 5.355 (0.168)
Depreciation and amortization 6.270 5.948 (0.322)
-------------------------------------------------------------------------
14.086 13.013 (1.073)
-------------------------------------------------------------------------
Income before income taxes and
non-controlling interest 4.540 5.347 (0.807)
-------------------------------------------------------------------------
Income taxes
Current - 0.096 0.096
Future (1.663) 0.420 2.083
-------------------------------------------------------------------------
(1.663) 0.516 2.179
-------------------------------------------------------------------------
Income before non-controlling
interest 6.203 4.831 1.372
Non-controlling interest 2.986 2.391 (0.595)
-------------------------------------------------------------------------
Net income $3.217 $2.440 $0.777
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic & diluted net income per unit $0.15 $0.12
-----------------------------------------------------------
-----------------------------------------------------------
-------------------------------------------------------------------------
Year-to-date
December 31, 2006
-------------------------------------------------------------------------
(In millions of dollars,
except per unit amounts) Actual Forecast (1) Variance
-------------------------------------------------------------------------
Property revenue $99.949 $ 99.136 $0.813
Property expenses 42.214 43.374 1.160
-------------------------------------------------------------------------
Property net operating income 57.735 55.762 1.973
-------------------------------------------------------------------------
Expenses:
General and administrative 5.738 5.317 (0.421)
Interest 16.492 16.628 0.136
Depreciation and amortization 18.076 18.167 0.091
-------------------------------------------------------------------------
40.306 40.112 (0.194)
-------------------------------------------------------------------------
Income before income taxes and
non-controlling interest 17.429 15.650 1.779
-------------------------------------------------------------------------
Income taxes
Current - 0.281 0.281
Future (0.763) 1.228 1.991
-------------------------------------------------------------------------
(0.763) 1.509 2.272
-------------------------------------------------------------------------
Income before non-controlling
interest 18.192 14.141 4.051
Non-controlling interest 8.787 7.000 (1.787)
-------------------------------------------------------------------------
Net income $9.405 $7.141 $2.264
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic & diluted net income per unit $0.44 $0.35
-----------------------------------------------------------
-----------------------------------------------------------
Note 1: The forecast is contained in the prospectus on page 60. The
year-to-date forecast includes the second, third and fourth
quarter forecasts and the first quarter forecast prorated for the
period of operations from March 23, 2006 to March 31, 2006. These
figures have been prepared by management and are unaudited.
Property Net Operating Income
Property net operating income ("NOI") of $18.626 million for the fourth
quarter and $57.735 million for the year-to-date period ending December 31,
2006 were higher than the forecast by $0.266 million, or 1.4%, and
$1.973 million, or 3.5%, respectively. This was primarily the result of the
three property acquisitions completed in the fourth quarter of 2006 as well as
the improved occupancy and reduced non-recoverable repairs and maintenance
expenses.
Same-Asset Property Net Operating Income
-------------------------------------------------------------------------
Quarter Ended
December 31, 2006
-------------------------------------------------------------------------
(In millions of dollars) Actual Forecast Variance
-------------------------------------------------------------------------
Same-asset property revenue $32.952 $31.910 $1.042
-------------------------------------------------------------------------
Same-asset property expenses 14.944 13.550 (1.394)
-------------------------------------------------------------------------
Same-asset property NOI $18.008 $18.360 ($0.352)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Year-to-date
December 31, 2006
-------------------------------------------------------------------------
(In millions of dollars) Actual Forecast Variance
-------------------------------------------------------------------------
Same-asset property revenue $99.184 $99.136 $0.048
-------------------------------------------------------------------------
Same-asset property expenses 42.067 43.374 1.307
-------------------------------------------------------------------------
Same-asset property NOI $57.117 $55.762 $1.355
-------------------------------------------------------------------------
Same-asset property revenue of $32.952 million in the fourth quarter and
$99.184 million for the year-to-date period ending December 31, 2006 were
higher than the forecast by $1.042 million, or 3.3%, and $0.048 million, due
to improved overall occupancy levels. Same-asset occupancy at December 31,
2006 improved to 93.5% when compared to 93.0% as disclosed in the prospectus.
Same-asset property expenses of $14.944 million incurred during the fourth
quarter of 2006 were unfavourable to the forecast by $1.394 million, or 10.3%.
This was primarily the result of timing differences between forecasted
non-recoverable repair and maintenance expenses and the actual costs incurred.
Same-asset property expenses of $42.067 million incurred during year-to-date
2006 were favourable to the forecast by $1.307 million, or 3.0%. This was
primarily the result of reduced non-recoverable repairs and maintenance
expenses.
Income Before Income Taxes and Non-Controlling Interest
Income before income taxes and non-controlling interest of $4.540 million
for the fourth quarter was unfavourable to the forecast by $0.807 million, or
15.1%, due to higher than forecasted general and administrative expenses,
combined with additional interest and depreciation costs caused primarily from
the three properties acquired in the fourth quarter of 2006. The general and
administrative cost increase was caused by a number of higher than anticipated
accruals at year end for professional fees and other public entity compliance
costs as well as higher than forecasted compensation incentives relating to
realized operating results.
Income before income taxes and non-controlling interest of $17.429 million
for the year-to-date period ending December 31, 2006 was favourable by $1.779
million, or 11.4%, when compared to the forecast. The favourable variance was
due primarily to the improved NOI result, partially offset by higher than
forecasted general and administrative expenses.
Net Income
Net income of $3.217 million for the fourth quarter and $9.405 million for
the year-to-date period ending December 31, 2006 exceeded the forecasted net
income by $0.777 million, or 31.8%, and $2.264 million, or 31.7%,
respectively. The improvement in net income was due to the items outlined
above, in addition to a reduction in income tax expense from the forecasted
level due to lower taxable income in the corporate subsidiary than originally
forecast and the elimination of the Large Corporation Tax.
Distributable Income and AFFO
Distributable income is calculated as follows:
Quarter ended Year-to-date
December 31, December 31,
(In millions of dollars) 2006 2006
-------------------------------------------------------------------------
Net income $3.217 $ 9.405
Add back:
Non-controlling interest 2.986 8.787
Depreciation & amortization(1) 5.718 17.367
Future income taxes (1.663) (0.763)
Above market lease amortization 0.697 2.090
Deduct:
Below market lease amortization (0.962) (2.896)
Straight line rent adjustment (0.178) (0.702)
-------------------------------------------------------------------------
Distributable income $9.815 $33.288
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 1: Excludes amortization of deferred financing charges, tenant
improvements and leasing commission costs.
Crombie considers AFFO to be a measure of the sustainability of its cash
generating activities. AFFO reflects distributable income after the provision
for maintenance capital expenditures and additions to tenant improvements and
lease costs. As these expenditures are not incurred evenly throughout a fiscal
year, there can be volatility in AFFO on a quarterly basis.
Quarter ended Year-to-date
December 31, December 31,
(In millions of dollars) 2006 2006
-------------------------------------------------------------------------
Distributable income $9.815 $33.288
Less:
Maintenance capital expenditures (0.933) (2.223)
Unamortized additions to tenant
improvements and lease costs
(net of amounts recoverable from ECL) (0.619) (5.153)
-------------------------------------------------------------------------
AFFO $8.263 $25.912
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Distributions and Distribution Payout Ratios
Details of distributions to unitholders are as follows:
Quarter ended Year-to-date
(In millions of dollars, December 31, December 31,
except as otherwise noted) 2006 2006
-------------------------------------------------------------------------
Distributions to Unitholders $4.329 $13.369
Distributions to Special Voting Unitholders 4.017 12.440
-------------------------------------------------------------------------
Total Distributions $8.346 $25.809
-------------------------------------------------------------------------
Weighted average number of Units 21,509,485 21,444,568
Weighted average number of Special
Voting Units 20,079,576 20,079,576
-------------------------------------------------------------------------
Total weighted average number of Units 41,589,061 41,524,144
-------------------------------------------------------------------------
Distributions per voting unit $0.20 $0.62
Distributable income payout ratio 85.0% 77.5%
AFFO payout ratio 101.0% 99.6%
-------------------------------------------------------------------------
While the reduced income before income taxes and non-controlling interest
for the quarter resulted in a distributable income payout ratio of 85.0%, the
improved net income for the year-to-date period resulted in a distributable
income payout ratio of 77.5%, which is below the anticipated annual payout
ratio of 80% outlined in the prospectus. The AFFO payout ratio of 101.0% for
the quarter and 99.6% for the year-to-date was in line with the anticipated
AFFO payout ratio of 100%. This reflects the fact that Crombie has been able
to fund its distributions, as well as its capital and operating activities for
the year, from operational cash flows.
Funds from Operations ("FFO")
A reconciliation of GAAP net income to FFO for the quarter ended
December 30, 2006 is as follows:
Quarter ended Year-to-date
December 31, December 31,
(In millions of dollars) 2006 2006
-------------------------------------------------------------------------
Net income $3.217 $9.405
Add back:
Non-controlling interest 2.986 8.787
Depreciation & amortization(1) 6.159 17.808
Future income taxes (1.663) (0.763)
-------------------------------------------------------------------------
Funds from operations $10.699 $35.237
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 1: Excludes amortization of deferred financing charges.
Debt to Gross Book Value
The debt to gross book value ratio increased slightly to 44.8% at December
31, 2006 from 43.2% at September 30, 2006 due to the three property
acquisitions in the fourth quarter of 2006. However, this leverage ratio was
still 1.3% below the forecasted leverage of 46.1% and substantially below the
maximum 60% as outlined by Crombie's declaration of trust. The reduction in
the actual ratio from the forecasted level is due to the repayment of
indebtedness on the revolving credit facility with proceeds received from the
over-allotment option in April 2006. Crombie intends to maintain overall
indebtedness in the range of 50% to 55% of gross book value, depending upon
Crombie's future acquisitions and financing opportunities. Management expects
that the ratio of debt to gross book value will increase by approximately 0.7%
with the completion of the previously announced acquisition of The Mews of
Carleton Place in January of 2007.
As at As at As at As at
(In millions of dollars, Dec. 31, Sept. 30, June 30, March 31,
except as otherwise noted) 2006 2006 2006 2006
-------------------------------------------------------------------------
Mortgages payable $350.063 $326.806 $330.234 $333.486
Revolving credit facility
payable 82.900 73.238 74.389 82.900
-------------------------------------------------------------------------
Total debt outstanding 432.963 400.044 404.623 416.386
Less: Marked-to-market
adjustment due to
interest rate subsidy (17.717) (18.630) (19.549) (20.564)
-------------------------------------------------------------------------
Debt 415.246 $381.414 $385.074 $395.822
-------------------------------------------------------------------------
Total assets $963.935 $936.768 $948.508 $922.889
Add:
Accumulated depreciation
of commercial properties 9.061 5.810 3.039 0.267
Accumulated amortization
of intangible assets 10.837 7.231 3.783 0.244
Less:
Note receivable for
interest rate subsidy (17.717) (18.630) (19.549) (20.564)
Fair value adjustment
to future taxes (39.519) (47.941) (47.941) (47.941)
-------------------------------------------------------------------------
Gross book value $926.597 $883.238 $887.840 $854.895
-------------------------------------------------------------------------
Debt to gross book value 44.8% 43.2% 43.4% 46.3%
Maximum borrowing capacity 60% 60% 60% 60%
-------------------------------------------------------------------------
Definition of Non-GAAP Measures
Certain financial measures included in this news release do not have
standardized meaning under Canadian generally accepted accounting principles
and therefore may not be comparable to similarly titled measures used by other
publicly traded companies. Crombie includes these measures because it believes
certain investors use these measures as a means of assessing Crombie's
financial performance.
- Property net operating income is property revenue less property
expenses.
- FFO is calculated as net income (computed in accordance with GAAP),
excluding gains (or losses) from sales of depreciable real estate and
extraordinary items, plus depreciation and amortization, future income
taxes and after adjustments for equity accounted entities and
non-controlling interests.
- Debt is defined as bank loans plus commercial property debt.
- Gross book value means, at any time, the book value of the assets of
Crombie and its consolidated subsidiaries plus accumulated depreciation
and amortization in respect of Crombie's properties (and related
intangible assets) less (i) the amount of any receivable reflecting
interest rate subsidies on any debt assumed by Crombie and (ii) the
amount of future income tax liability arising out of the fair value
adjustment in respect of the indirect acquisitions of certain
properties.
- Distributable income is defined as net income of Crombie, on a
consolidated basis, as determined in accordance with GAAP, subject to
certain adjustments as set out in the declaration of trust, including:
(i) adding back the following items: non-controlling interest,
depreciation of buildings and improvements (excluding amortization of
tenant improvements, leasing commissions and deferred financing costs)
and amortization of related intangibles (including amortization of
value of tenant rents in in-place lease agreements, amortization of
differential between original rent and above market rents, amortization
of customer relationships), future income tax expense, losses on
dispositions of assets and amortization of any net discount on long-
term debt assumed from vendors of properties at rates of interest less
than fair value; (ii) deducting the following items: amortization of
differential between original rents and below market rents, future
income tax credits, gains on dispositions of assets and amortization of
any net premium on long-term debt assumed from vendors of properties at
rates of interest greater than fair value (except where such
amortization is funded); and (iii) adjusting for differences, if any,
resulting from recognizing rental revenues on a straight line basis as
opposed to contractual rental amounts.
- AFFO is defined as distributable income, less maintenance capital
expenditures and unamortized additions to tenant improvements and lease
costs.
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 in Ontario and Western Canada. Crombie currently owns a portfolio
of 48 commercial properties in six provinces, comprising approximately
7.5 million square feet of rentable space. More information about Crombie can
be found at www.crombiereit.com.
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 under "Risk Management" in the
Management Discussion and Analysis, 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. These statements include, but are not
limited to:
(i) the development of new properties under a development agreement, which
development activities are undertaken by a related party and thus not under
the direct control of Crombie and whose activities could be impacted by real
estate market cycles, the availability of labour and general economic
conditions;
(ii) the acquisition of accretive properties and the anticipated extent of
the accretion of those acquisitions, which could be impacted by demand for
properties and the effect that demand has on acquisition capitalization rates
and changes in interest rates;
(iii) making improvements to the properties, which could be impacted by
the availability of labour and capital resource allocation decisions;
(iv) generating improved rental income and occupancy levels, which could
be impacted by changes in demand for Crombie's properties, tenant
bankruptcies, the effects of general economic conditions and competitive
supply of retail or office locations in proximity to Crombie locations;
(v) overall indebtedness levels, which could be impacted by the level of
acquisition activity Crombie is able to achieve and future financing
opportunities;
(vi) tax exempt status, which can be impacted by regulatory changes
enacted by governmental authorities;
(vii) anticipated subsidy payments from ECL, which are dependent on tenant
leasing, construction costs and future tax costs.
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.
Additional information relating to Crombie 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
results on a conference call to be held Thursday, March 1, 2007, at 11:00 a.m.
EST. To join this conference call you may dial (416) 644-3424 or
(800) 731-5774. 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 at this website until midnight March 8, 2007, by dialling
(416) 640-1917 or (877) 289-8525 and entering passcode 21220037#.
CROMBIE REAL ESTATE INVESTMENT TRUST
Consolidated Balance Sheet
(In thousands of dollars)
December 31, 2006
-------------------------------------------------------------------------
Assets
Commercial properties (Note 4) $836,913
Intangible assets (Note 5) 63,021
Notes receivable (Note 6) 41,459
Other assets (Note 7) 21,362
Cash and cash equivalents 1,180
------------
$963,935
------------
------------
Liabilities and Unitholders' Equity
Commercial property debt (Note 8) $432,963
Payables and accruals (Note 9) 37,432
Intangible liabilities (Note 10) 17,681
Employee future benefits obligation (Note 19) 4,064
Distributions payable 2,781
Future income tax liability (Note 14) 80,471
------------
575,392
Non-controlling interest (Note 11) 187,649
Unitholders' equity 200,894
------------
$963,935
------------
------------
Commitments and contingencies (Note 16)
See accompanying notes to the consolidated financial statements.
CROMBIE REAL ESTATE INVESTMENT TRUST
Consolidated Statement of Income
(In thousands of dollars, except per unit amounts)
Period from March 23, 2006 to December 31, 2006 (Note 1)
-------------------------------------------------------------------------
Revenues
Property revenue (Note 13) $99,949
------------
Expenses
Property expenses 42,214
General and administrative expenses 5,738
Interest expense 16,492
Depreciation of commercial properties 8,620
Amortization of tenant improvements/lease costs 441
Amortization of deferred financing costs 268
Amortization of intangible assets 8,747
------------
82,520
------------
------------
Income before income taxes and non-controlling interest 17,429
Income tax recovery - future (Note 14) (763)
------------
Income before non-controlling interest 18,192
Non-controlling interest 8,787
------------
Net income $9,405
------------
------------
Basic and diluted net income per unit $0.44
------------
------------
Weighted average number of units outstanding -
basic and diluted 21,444,568
------------
------------
See accompanying notes to the consolidated financial statements.
CROMBIE REAL ESTATE INVESTMENT TRUST
Consolidated Statement of Unitholders' Equity
(In thousands of dollars)
Period from March 23, 2006 to December 31, 2006 (Note 1)
-------------------------------------------------------------------------
Contri-
REIT Net buted Distri-
Units Income Surplus butions Total
----- ------ ------- ------- -----
(Note 12)
Unitholders' equity,
beginning of period $ Nil $ Nil $Nil $ Nil $ Nil
Unit issue proceeds,
net of costs of
$10,274 204,821 - - - 204,821
Net income - 9,405 - - 9,405
Loans advanced under
EUPP 1,261 - - - 1,261
Loans receivable
under EUPP (1,251) - - - (1,251)
Unit purchase plan
compensation - - 27 - 27
Distributions - - - (13,369) (13,369)
--------------------------------------------------
Unitholders' equity,
end of period $204,831 $9,405 $27 $(13,369) $200,894
--------------------------------------------------
See accompanying notes to the consolidated financial statements.
CROMBIE REAL ESTATE INVESTMENT TRUST
Consolidated Statement of Cash Flows
(In thousands of dollars)
Period from March 23, 2006 to December 31, 2006 (Note 1)
-------------------------------------------------------------------------
Cash flows provided by (used in)
Operating Activities
Net income $9,405
Items not affecting cash
Non-controlling interest 8,787
Depreciation of commercial properties 8,620
Amortization of tenant improvements/lease costs 441
Amortization of deferred financing costs 268
Amortization of intangible assets 8,747
Amortization of above market leases 2,090
Amortization of below market leases (2,896)
Accrued rental revenue (702)
Unit based compensation 27
Future income taxes (763)
------------
34,024
Additions to tenant improvements and lease costs (7,302)
Change in other non-cash operating items (Note 15) 21,275
------------
Cash provided by operating activities 47,997
------------
Financing Activities
Issue of commercial property debt 113,200
Repayment of commercial property debt (20,304)
Collection of notes receivable 21,223
Units issued on initial public offering 215,095
Costs of issue (19,767)
Payment of distributions (25,809)
------------
Cash provided by financing activities 283,638
------------
Investing Activities
Business acquisition (Note 3) (263,542)
Additions to commercial properties (26,574)
Acquisition of commercial properties (Note 4) (40,339)
------------
Cash used in investing activities (330,455)
------------
Increase in cash and cash equivalents during the period 1,180
Cash and cash equivalents, beginning of period Nil
------------
Cash and cash equivalents, end of period $1,180
------------
------------
See accompanying notes to the consolidated financial statements.
CROMBIE REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of dollars, except per unit amounts)
December 31, 2006
-------------------------------------------------------------------------
1) CROMBIE REAL ESTATE INVESTMENT TRUSTCrombie Real Estate Investment Trust (the "REIT") is an unincorporated
"open-ended" real estate investment trust created pursuant to the Declaration
of Trust dated January 1, 2006, as amended. The REIT commenced operations on
March 23, 2006. The REIT issued trust units for cash pursuant to an initial
public offering (the "IPO"). The units of the REIT are traded on the Toronto
Stock Exchange ("TSX") under the symbol "CRR.UN".
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP") as prescribed by the
Canadian Institute of Chartered Accountants ("CICA").
(b) Basis of consolidation
The consolidated financial statements include the accounts of the REIT and
its incorporated and unincorporated subsidiaries.
(c) Property Acquisitions
Upon acquisition of commercial properties, the REIT performs an assessment
of the fair value of the properties' related tangible and intangible assets
and liabilities (including land, buildings, origination costs, in-place
leases, above and below-market leases, and any other assumed assets and
liabilities), and allocates the purchase price to the acquired assets and
liabilities. The REIT assesses and considers fair value based on cash flow
projections that take into account relevant discount and capitalization rates
and any other relevant sources of market information available. Estimates of
future cash flow are based on factors that include historical operating
results, if available, and anticipated trends, local markets and underlying
economic conditions.
The REIT allocates the purchase price based on the following:
Land - The amount allocated to land is based on an appraisal estimate of
its fair value.
Buildings - Buildings are recorded at the fair value of the building on an
"as-if-vacant" basis, which is based on the present value of the anticipated
net cash flow of the building from vacant start up to full occupancy.
Origination costs for existing leases - Origination costs are determined
based on estimates of the costs that would be incurred to put the existing
leases in place under the same terms and conditions. These costs include
leasing commissions as well as foregone rent and operating cost recoveries
during an assumed lease-up period.
In-Place Leases - In-place lease values are determined based on estimated
costs required for each lease that represents the net operating income lost
during an estimated lease-up period that would be required to replace the
existing leases at the time of purchase.
Tenant relationships - Tenant relationship values are determined based on
costs avoided if the respective tenants were to renew their leases at the end
of the existing term, adjusted for the estimated probability that the tenants
will renew.
Above and below market existing leases - Values ascribed to above and
below market existing leases are determined based on the present value of the
difference between the rents payable under the terms of the respective leases
and estimated future market rents.
(d) Commercial properties
Commercial properties include land, buildings and tenant improvements.
Commercial properties are carried at cost less accumulated depreciation and
are reviewed periodically for impairment as described in Note 2(n).
Depreciation of buildings is calculated using the straight-line method
with reference to each property's cost, its estimated useful life (not
exceeding 40 years) and its residual value.
Amortization of tenant improvements is determined using the straight-line
method over the terms of the tenant lease agreements and renewal periods where
applicable.
Repair and maintenance improvements that are not recoverable from tenants
are either expensed as incurred or, in the case of a major item, capitalized
to commercial properties and amortized on a straight-line basis over the
expected useful life of the improvement.
(e) Intangible assets and liabilities
Intangible assets include the value of origination costs for existing
leases, the value of the differential between original and market rents for
above market existing leases, the value of the immediate cash flow stream from
in-place leases and the value of tenant relationships.
Intangible liabilities are the value of the differential between original
and market rents for below market existing leases.
Amortization of the value of origination costs, in-place leases and tenant
relationships is determined using the straight-line method over the terms of
the tenant lease agreements and renewal periods where applicable and is
recorded as depreciation and amortization. The value of the differential
between original and market rents for above and below market existing leases
is recognized using the straight-line method over the terms of the tenant
lease agreements and recorded as property revenue.
Intangible assets are reviewed for impairment as described in Note 2(n).
(f) Deferred financing charges
Amortization of deferred financing charges is calculated using the
straight-line method over the terms of related debt.
(g) Revenue recognition
Property revenue includes rents earned from tenants under lease
agreements, percentage rent, realty tax and operating cost recoveries, and
other incidental income. Certain leases have rental payments that change over
their term due to changes in rates. The REIT records the rental revenue from
these leases on a straight-line basis over the term of the lease. Accordingly,
an accrued rent receivable/payable is recorded for the difference between the
straight-line rent recorded as property revenue and the rent that is
contractually due from the tenants. Percentage rents are recognized when
tenants are obligated to pay such rent under the terms of the related lease
agreements. The value of the differential between original and market rents
for existing leases is amortized using the straight-line method over the terms
of the tenant lease agreements. Realty tax and other operating cost
recoveries, and other incidental income, are recognized on an accrual basis.
(h) Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand and cash in bank.
(i) Income taxes
The REIT will be taxed as a "mutual fund trust" for income tax purposes.
Pursuant to the terms of the declaration of trust, the REIT must make
distributions not less than the amount necessary to ensure that the REIT will
not be liable to pay income tax, except for the amounts incurred in its
incorporated subsidiaries.
Future income tax liabilities of the REIT relate to tax and accounting
basis differences of incorporated subsidiaries of the REIT. Income taxes are
accounted for using the liability method. Under this method, future income
taxes are recognized for the expected future tax consequences of differences
between the carrying amount of balance sheet items and their corresponding tax
values. Future income taxes are computed using substantively enacted corporate
income tax rates for the years in which tax and accounting basis differences
are expected to reverse.
(j) Financial instruments
The REIT has a fixed interest rate swap agreement. The REIT has identified
this hedge against interest rate fluctuations and has formally documented all
relationships between this derivative financial instrument and hedged items,
as well as the risk management strategy and objectives. The REIT assesses on
an ongoing basis whether the derivative financial instrument continues to be
effective in offsetting changes in interest rates on the hedged items. The
realized gain or loss arising from this instrument is included in interest
expense.
(k) Employee future benefits obligation
The cost of pension benefits for defined contribution plans are expensed
as contributions are paid. The cost of defined benefit pension plans and other
benefit plans is accrued based on actuarial valuations, which are determined
using the projected benefit method pro-rated on service and management's best
estimate of the expected long-term rate of return on plan assets, salary
escalation, retirement ages and expected growth rate of health care costs. The
defined benefit plans are unfunded.
The impact of changes in plan amendments is amortized on a straight-line
basis over the expected average remaining service life (EARSL) of active
members. For the supplementary executive retirement plan, the impacts of
changes in the plan provisions are amortized over 5 years.
(l) Executive unit purchase plan
The REIT has a Unit purchase plan for certain employees which is described
in Note 12. In accordance with the Emerging Issues Committee Abstract 132,
loans granted to employees to purchase units under the plan are accounted for
as stock-based compensation.
(m) Use of estimates
The preparation of consolidated financial statements in conformity with
Canadian generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the balance sheet, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(n) Impairment of long-lived assets
Long-lived assets are reviewed for impairment annually or whenever events
or changes in circumstances indicate the carrying value of an asset may not be
recoverable.
If it is determined that the net recoverable value of a long-lived asset
is less than its carrying value, the long-lived asset is written down to its
fair value. Net recoverable amount represents the undiscounted estimated
future cash flow expected to be received from the long-lived asset. Assets
reviewed under this policy include commercial properties and intangible
assets.
3) BUSINESS ACQUISITION
On March 23, 2006, the REIT directly or indirectly acquired 44 commercial
properties from Empire Company Limited's subsidiary, ECL Properties Limited
("ECL") and certain of its affiliates for an aggregate purchase price of
$801,246, of which $414,777 was financed with new and assumed debt, $195,167
was financed through the public offering of REIT units and $191,302 was
financed through the issuance of Class B Units of Crombie Limited Partnership
(the "Class B LP Units") to ECL.
The acquisition of the properties has been accounted for using the
purchase method of accounting with the results of operations included in
income from the date of acquisition. The purchase price allocated to the
assets acquired and liabilities assumed, based on their fair values at the
date of acquisition, was as follows:
Commercial Properties
Tangible assets $772,040
Net intangible assets 46,577
Other assets, net of liabilities 1,181
Notes receivable 62,682
Future income tax liability (81,234)
------------
Net purchase price 801,246
Assumed mortgages (marked to market) (333,644)
------------
$467,602
------------
------------
Consideration given by the REIT consists of the following:
Class B LP Units (non-controlling interest) $200,795
Cash 263,542
Land transfer costs and additional financing costs 3,265
------------
$467,602
------------
------------
The purchase price allocation was finalized in December 2006 and
adjustments were made to the initial allocations.
4) COMMERCIAL PROPERTIES
Accumulated Net Book
Cost Depreciation Value
-------------------------------------
Land $168,087 $ Nil $168,087
Buildings 670,585 8,620 661,965
Tenant improvements and
leasing costs 7,302 441 6,861
-------------------------------------
$845,974 $9,061 $836,913
-------------------------------------
-------------------------------------
Property Acquisitions
On October 2, 2006, the REIT acquired properties in Oshawa and Brampton,
Ontario, representing a 149,000 square foot increase to the portfolio, for a
total cost of $32,422 from subsidiaries of Empire Company Limited. The
acquisitions were financed through new mortgages totalling $20,300 and the
REIT's floating rate revolving credit facility. Deferred financing costs of
$85 were incurred with respect to the financing of this acquisition.
On December 20, 2006, the REIT acquired a property in Burlington, Ontario
representing a 56,000 square foot increase to the portfolio, for a total cost
of $14,340 from an unrelated third party. The acquisition was financed through
the assumption of an existing mortgage of $6,423 and the REIT's floating rate
revolving credit facility. Deferred financing costs of $9 were incurred with
respect to the financing of this acquisition.
The allocation of the total cost of the acquisitions is as follows:
Commercial property acquired, net:
-------------------------------------------------------------------------
Land $14,279
Buildings 25,779
Intangible assets:
Lease origination costs 2,758
Tenant relationships 1,822
Above market leases 1,618
In-place leases 2,633
Intangible liabilities:
Below market leases (2,127)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
46,762
Less: Mortgage financing assumed (6,423)
-------------------------------------------------------------------------
Total $40,339
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consideration paid, funded by:
-------------------------------------------------------------------------
Mortgage financing $20,300
Floating rate revolving credit facility 20,039
-------------------------------------------------------------------------
Total $40,339
-------------------------------------------------------------------------
5) INTANGIBLE ASSETS
Accumulated Net Book
Cost Depreciation Value
-------------------------------------
Origination costs for
existing leases $10,881 $ 2,149 $ 8,732
In-place leases 16,933 3,734 13,199
Tenant relationships 31,139 2,864 28,275
Above market existing leases 14,905 2,090 12,815
-------------------------------------
$73,858 $10,837 $63,021
-------------------------------------
-------------------------------------
6) NOTES RECEIVABLE
One component of the business acquisition discussed in Note 3 is the
acquisition of three demand non-interest bearing promissory notes from ECL in
the amounts of $39,600, $2,518 and $20,564. Payments on the first note of
$39,600 are being received as funding is required for a capital expenditure
program relating to eight commercial properties over the period from 2006 to
2010. Payments on the second note of $2,518 will be received as funding is
required to pay taxes on certain contemplated transfers of 5 commercial
properties within the REIT. Payments on the third note of $20,564 are being
received on a monthly basis to reduce the effective interest rate to 5.54% on
certain assumed mortgages with an average term to maturity of approximately
5.5 years.
The balance of each note at December 31, 2006 is as follows:
Capital expenditure program $21,224
Tax on property transfer 2,518
Interest rate subsidy 17,717
------------
$41,459
------------
7) OTHER ASSETS
Accounts receivable $ 7,438
Deposit on property 750
Accrued straight-line rent receivable 4,649
Prepaid expenses 6,270
Deferred financing charges 1,578
Restricted cash 677
------------
$21,362
------------
8) COMMERCIAL PROPERTY DEBT
Weighted Weighted
average average
interest term to Carrying
Range rate maturity amount
-----------------------------------------------
Fixed rate mortgages 5.15-6.39% 5.50% 7.3 years $350,063
Floating rate revolving
credit facility 5.49% 5.49% 2.2 years 82,900
------------
$432,963
------------
As of December 31, 2006, debt retirements for the next 5 years are:
Floating
Fixed Rate Rate Total
-------------------------------------
2007 $ 16,545 $ Nil $ 16,545
2008 25,908 Nil 25,908
2009 11,625 82,900 94,525
2010 66,198 Nil 66,198
2011 17,307 Nil 17,307
Thereafter 194,763 Nil 194,763
-------------------------------------
332,346 82,900 415,246
Fair value debt adjustment 17,717 Nil 17,717
-------------------------------------
$350,063 $82,900 $432,963
-------------------------------------
The Floating Rate Revolving Credit Facility has a maximum principal amount
of $150,000 and is used by the REIT for working capital purposes and to
provide financing for future acquisitions. It is secured by a pool of first
and second mortgages and negative pledges on certain properties. As at
December 31, 2006, based on the security granted by the REIT, approximately
$136,141 is available for draw down, of which $82,900 is drawn down on the
facility.
The REIT has entered into a fixed interest rate swap agreement which
expires on February 1, 2010 for a portion of the revolving credit facility.
Interest on $50,000 is paid at a fixed rate of 5.51% and is received at a
floating rate based on the 90-day bankers' acceptance rate, resulting in an
overall 5.49% current interest rate.
9) PAYABLES AND ACCRUALS
Tenant improvements and capital expenditures $ 7,134
Property operating costs 28,845
Interest on commercial property debt 1,453
------------
$37,432
------------
10) INTANGIBLE LIABILITIES
Accumulated Net Book
Cost Depreciation Value
-------------------------------------
Below market existing leases $20,577 $2,896 $17,681
-------------------------------------
11) NON-CONTROLLING INTEREST
Contri-
Class B Net buted Distri-
LP Units Income Surplus butions Total
--------------------------------------------------
Non-controlling interest,
beginning of period $ Nil $ Nil $ Nil $ Nil $ Nil
Unit issue, net of
costs of $9,493 191,302 - - - 191,302
Net income - 8,787 - - 8,787
Distributions - - - (12,440) (12,440)
--------------------------------------------------
Non-controlling interest,
end of period $191,302 $8,787 $ Nil $(12,440) $187,649
--------------------------------------------------
12) UNITS OUTSTANDING
For the period March 23, 2006 to December 31, 2006, the movement in the
units outstanding is as follows:
-------------------- --------------------- ----------------------
Crombie REIT Special
Voting Units and
Crombie REIT Units Class B LP Units Total
-------------------- --------------------- ----------------------
Number of Number of Number of
Units Amount Units Amount Units Amount
-------------------- --------------------- ----------------------
Balance,
beginning
period Nil $ Nil Nil $ Nil Nil $ Nil
Capital
contri-
bution 21,509,485 215,095 20,079,576 200,795 41,589,061 415,890
Costs of
issuance - (10,274) - (9,493) - (19,767)
-------------------- ---------------------- ---------------------
Net Unit
issue - 204,821 - 191,302 - 396,123
Units
issued
under
EUPP 123,740 1,261 - - 123,740 1,261
Loans
recei-
vable
EUPP - (1,251) - - - (1,251)
-------------------- --------------------- ----------------------
Balance,
end of
period 21,633,225 $204,831 20,079,576 $191,302 41,712,801 $396,133
-------------------- --------------------- ----------------------
Crombie REIT Units
The REIT is authorized to issue an unlimited number of units ("Units") and
an unlimited number of Special Voting Units. Issued and outstanding Units may
be subdivided or consolidated from time to time by the Trustees without the
approval of the Unitholders. Units are redeemable at any time on demand by the
holders at a price per Unit equal to the lesser of: (i) 90% of the weighted
average price per Crombie REIT Unit during the period of the last 10 days
during which the REIT's Units traded; and (ii) an amount equal to the price of
the REIT's Units on the date of redemption, as defined in the Declaration of
Trust.
The aggregate redemption price payable by the REIT in respect of any Units
surrendered for redemption during any calendar month will be satisfied by way
of a cash payment in Canadian dollars within 30 days after the end of the
calendar month in which the Units were tendered for redemption, provided that
the entitlement of Unitholders to receive cash upon the redemption of their
Units is subject to the limitation that:
i. the total amount payable by the REIT in respect of such Units and
all other Units tendered for redemption, in the same calendar month
must not exceed $50 (provided that such limitation may be waived at
the discretion of the Trustees);
ii. at the time such Units are tendered for redemption, the outstanding
Units must be listed for trading on the TSX or traded or quoted on
any other stock exchange or market which the Trustees consider, in
their sole discretion, provides representative fair market value
prices for the Units;
iii. the normal trading of Units is not suspended or halted on any stock
exchange on which the Units are listed (or if not listed on a stock
exchange, in any market where the Units are quoted for trading) on
the Redemption Date or for more than five trading day during the
ten-day trading period commencing immediately after the Redemption
Date.
Crombie REIT Special Voting Units and Class B LP Units
The Declaration of Trust and the Exchange Agreement provide for the
issuance of voting non-participating Units (the "Special Voting Units") to the
holders of Class B LP Units used solely for providing voting rights
proportionate to the votes of the REIT's Units. The Special Voting Units are
not transferable separately from the Class B LP Units to which they are
attached and will be automatically transferred upon the transfer of such Class
B LP Unit. If the Class B LP Units are purchased in accordance with the
Exchange Agreement, a like number of Special Voting Units will be redeemed and
cancelled for no consideration by the REIT.
The Class B LP Units issued by a subsidiary of the REIT to ECL have
economic and voting rights equivalent, in all material aspects, to the REIT's
Units. They are indirectly exchangeable on a one-for-one basis for the REIT's
Units at the option of the holder, under the terms of the Exchange Agreement.
Each Class B LP Unit entitles the holder to receive distributions from the
REIT, pro rata with distributions made by the REIT on Units.
The Class B LP Units are accounted for as non-controlling interest.
Executive Unit Purchase Plan ("EUPP")
The REIT provides for unit purchase entitlements under the EUPP for
certain senior executives. Awards made under the EUPP will allow executives to
purchase units from treasury at the average daily high and low board lot
trading prices per unit on the Toronto Stock Exchange for the five trading
days preceding the issuance. Executives are provided non-recourse loans at 3%
annual interest by the REIT for the purpose of acquiring Units from treasury
and the Units purchased are held as collateral for the loan. The loan is
repaid through the application of the after-tax amounts of all distributions
received on the Units, as well as the after-tax portion of any Long-Term
Incentive Plan ("LTIP") cash awards received, as payments on interest and
principal. As at December 31, 2006, there are loans receivable from executives
of $1,251 under the REIT's EUPP, representing 123,740 Units, which are
classified as a reduction of Unitholders' Equity. Loan repayments will result
in a corresponding increase in Unit Capital. Market value of the Units at
December 31, 2006 was $1,609.
During the period, the REIT recognized compensation expense of $27 related
to the EUPP. The expense was determined using the Black-Scholes Model for
stock-based compensation valuation using volatility of 12.9%, yield of 7.85%
and a risk-free interest rate of 4.25%.
Earnings per Unit Computations
Basic net earnings per Unit is computed by dividing net earnings by the
weighted average number of Units outstanding during the period. For the period
ended December 31, 2006, the assumed exchange of all Class B LP Units would
not be dilutive. As at December 31, 2006, there are no other dilutive items.
13) PROPERTY REVENUE
Rental revenue contractually due from tenants $98,441
Accrued rent recognized on a straight-line basis 702
Amortization of values ascribed to below
market existing leases 2,896
Amortization of values ascribed to above
market existing leases (2,090)
------------
$99,949
------------
14) FUTURE INCOME TAXES
The future income tax liability of the wholly-owned subsidiary which is
subject to income taxes consists of the following:
Tax liabilities relating to difference
in tax and book value $81,521
Tax asset relating to non-capital loss carry-forward (1,050)
------------
Future income tax liability $80,471
------------
The future income tax recovery consists of the following:
Provision for income taxes at the expected rate $ 6,100
Tax effect of income attribution to Trust's unitholders (6,863)
------------
Income tax recovery $ (763)
------------
15) SUPPLEMENTAL CASH FLOW INFORMATION
(a) Change in other non-cash operating items
Cash provided by (used in):
Receivables $(3,067)
Prepaid expenses and other assets (1,239)
Payables and other liabilities 25,581
------------
$21,275
------------
(b) Interest
Interest paid $18,669
------------
16) COMMITMENTS AND CONTINGENCIES
There are various claims and litigation, which the REIT is involved with,
arising out of the ordinary course of business operations. In the opinion of
management, any liability that would arise from such contingencies would not
have a significant adverse effect on these financial statements.
The REIT has agreed to indemnify, in certain circumstances, the trustees
and officers of the REIT.
The REIT has entered into a management cost sharing agreement with a
subsidiary of Empire Company Limited. Details of this agreement are described
in Note 17.
The REIT has land leases on certain properties. These leases have annual
payments of $459 per year over the next five years.
17) RELATED PARTY TRANSACTIONS
As at December 31, 2006, Empire Company Limited, through its wholly-owned
subsidiary ECL, holds a 48.1% indirect interest in the REIT.
The REIT acquired the commercial properties described in Note 3 and the
two properties described in Note 4, from a subsidiary of Empire Company
Limited. The purchase price was fair market value determined by external
appraisals and was approved by the independent Trustees of the REIT.
For a period of five years, certain executive management individuals and
other employees of the REIT will provide general management, financial,
leasing, administrative, and other administration support services to certain
real estate subsidiaries of Empire Company Limited on a cost recovery basis.
The expense recoveries during the period from March 23, 2006 to December 31,
2006 were $850 and were netted against general and administrative expenses.
For a period of five years, certain on-site maintenance and management
employees of the REIT will provide property management services to certain
real estate subsidiaries of Empire Company Limited on a cost recovery basis.
In addition, for various periods, ECL has an obligation to provide rental
income, large federal corporation tax and interest rate subsidies. The
recoveries during the period from March 23, 2006 to December 31, 2006 were
$1,764 and were netted against property expenses. The rental income subsidy
during the period from March 23, 2006 to December 31, 2006 was $461 and the
head lease subsidy during the period from March 23, 2006 to December 31, 2006
was $1,123. The interest rate subsidy during the period from March 23, 2006 to
December 31, 2006 was $2,847 and was netted against interest expense.
The REIT also earned property revenue of $16,427 for the period from March
23, 2006 to December 31, 2006 from Sobeys Inc., Empire Theatres Limited and
ASC Commercial Leasing Limited. These companies are all subsidiaries of Empire
Company Limited.
18) FINANCIAL INSTRUMENTS
In the normal course of business, the REIT is exposed to a number of
financial risks that can affect its operating performance. These risks, and
the action taken to manage them, are noted below.
Credit risk
Credit risk arises from the possibility that tenants may experience
financial difficulty and be unable to fulfill their lease commitments. The
REIT's credit risk is limited to the recorded amount of tenant receivables. An
allowance for doubtful accounts is taken for all anticipated problem accounts.
Interest rate risk
As part of its interest rate management program, the REIT has entered into
a fixed interest rate swap to fix the amount of interest to be paid on $50,000
of the revolving credit facility. The remainder of the revolving credit
facility is at variable interest rates. The fair value of the fixed interest
rate swap at December 31, 2006, is estimated to have an unfavourable
difference of $310 compared to its face value.
Fair value of financial instruments
The book value of cash and cash equivalents, restricted cash, receivables,
payables and accruals approximate fair values due to their short term
maturity.
The total fair value of commercial property debt is estimated to be
$427,838.
19) EMPLOYEE FUTURE BENEFITS
The REIT has a number of defined benefit and defined contribution plans
providing pension and other retirement benefits to most of its employees.
Defined contribution pension plans
The contributions required by the employee and the employer are specified.
The employee's pension depends on what level of retirement income (for
example, annuity purchase) that can be achieved with the combined total of
employee and employer contributions and investment income over the period of
plan membership, and the annuity purchase rates at the time of the employee's
retirement.
Defined benefit pension plans
The ultimate retirement benefit is defined by a formula that provides a
unit of benefit for each year of service. Employee contributions, if required,
pay for part of the cost of the benefit, and the employer contributions fund
the balance. The employer contributions are not specified or defined within
the plan text. They are based on the result of actuarial valuations which
determine the level of funding required to meet the total obligation as
estimated at the time of the valuation.
The REIT uses December 31 as a measurement date for accounting purposes
for its defined benefit pension plans.
Most Next
recent required
valuation valuation
date date
----------- -----------
Retirement Pension Plan May 1, 2006 May 1, 2009
Senior Management Pension Plan May 1, 2006 May 1, 2009
Defined benefit plans
Information about the REIT's defined benefit plans, in aggregate, is as
follows:
Pension Other
Benefit Benefit
Accrued benefit obligation Plans Plans
------- -------
Balance, March 23, 2006 $841 $2,904
Current service cost 35 130
Interest cost 34 120
Actuarial losses 30 202
------- -------
Balance, December 31, 2006 $940 $3,356
------- -------
Pension Other
Benefit Benefit
Funded status Plans Plans
------- -------
Unamortized actuarial losses $30 $202
------- -------
Accrued benefit liability $910 $3,154
------- -------
Expense
Current service cost $35 $130
Interest cost 34 120
Actuarial losses 30 202
------- -------
Income before adjustments 99 452
Recognized vs. actual actuarial gains (30) (202)
------- -------
Net expenses $69 $250
------- -------
The significant actuarial assumptions adopted in measuring the Company's
accrued benefit obligations are as follows (weighted-average assumptions as of
May 1, 2006):
Pension Other
Benefit Benefit
Plans Plans
------- -------
Discount rate 5.25% 5.25%
Rate of compensation increase 4.00% N/A
For measurement purposes, a 10% fiscal 2006 annual rate of increase in the
per capita cost of covered health care benefits was assumed. The cumulative
rate expectation to 2014 is 6%. The expected average remaining service period
for the active employees covered by the pension benefit plans is 4 years at
year end. The expected average remaining service period of the active
employees covered by the other benefit plans is 11 years at year end.
The REIT incurred current service costs in the amount of $319 for the
period from March 23, 2006 to December 31, 2006.
20) SUBSEQUENT EVENTS
a) On January 17, 2007, the REIT completed the acquisition of The Mews of
Carleton Place in Ontario from a third party. The $11,800 acquisition
price was satisfied by the assumption of a fixed rate mortgage of
$8,300 with the balance paid using funds from the revolving credit
facility.
b) On January 22, 2007, the REIT declared distributions of 6.67 cents per
unit for the period from January 1, 2007 to January 31, 2007. The
distribution will be payable on February 15, 2007 to unitholders of
record as at January 31, 2007.
c) On February 19, 2007, the REIT declared distributions of 6.67 cents
per unit for the period from February 1, 2007 to February 28, 2007.
The distribution will be payable on March 15, 2007 to unitholders of
record as at February 28, 2007.
>>
Contact: Scott Ball, C.A., Vice President, Chief Financial Officer and Secretary, Crombie REIT, (902) 755-8100