Strong fair value and AFFO growth with significant deleveraging in 2021
NEW GLASGOW, NS, Feb. 23, 2022 /CNW/ – Crombie Real Estate Investment Trust (“Crombie”) (TSX: CRR.UN) today announced results for its fourth quarter and year ended December 31, 2021. Management will host a conference call to discuss the results at 12:00 p.m. (EST), February 24, 2022.
“I am incredibly proud of Crombie’s achievements during the fourth quarter and throughout 2021. Very strong fundamentals drove solid operational and financial performance, while our capital allocation to Empire-related investments and development activities generated solid fair value and AFFO growth in 2021,” said Don Clow, President and CEO. “We enhanced our portfolio quality, which is becoming increasingly urban and diversified, through the addition of urban residential assets to our primarily grocery-anchored and retail-related industrial portfolio. Crombie continued to improve its financial condition with ample liquidity of over $500 million, an increase of our unencumbered assets to $1.8 billion and a lower cost of capital. All of these accomplishments were achieved while navigating a global pandemic with health and safety implications, supply chain disruptions, labor shortages and capital markets volatility.”
FOURTH QUARTER SUMMARY
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)
Operational Highlights
- Committed and economic occupancy of 96.2% and 95.6%, respectively
- Renewals of 97,000 square feet at rents 5.0% above expiring rates
- Rent collected 99%
- Gross proceeds of $152,218 from dispositions totalling 372,000 square feet
Financial Highlights
- Property revenue of $103,832
- Operating income of $78,730
- FFO(1) $0.29 per unit; FFO(1) payout ratio 78.0%
- AFFO(1) $0.25 per unit; AFFO(1) payout ratio 90.5%
- Same-asset property cash NOI(1) increase of 2.4% (SANOI 1.2% growth for the quarter adjusting for what management estimates to be the impacts of COVID-19)
- Debt to gross fair value(1) of 42.9%
- Debt to trailing 12 months adjusted EBITDA(1) of 8.25x
- Available liquidity of $507,777
|
(1) |
Non-GAAP financial measures used by management to evaluate Crombie’s business performance. See “Cautionary Statements and Non-GAAP Measures” below for a reconciliation of FFO, FFO payout ratio, AFFO, AFFO payout ratio, same-asset property cash NOI, debt to gross fair value, and debt to trailing 12 months adjusted EBITDA. |
COVID-19 Impact
Crombie is well-positioned with respect to the defensiveness of annual minimum rent (AMR):
- 78% of AMR is generated from grocery-anchored properties, inclusive of retail-related industrial properties
- 69% of AMR is generated from essential services tenants
- 7% of AMR is generated from small business tenants
During the three months ended December 31, 2021, 99% of gross rent was collected; with only parking revenue depressed as compared to pre-pandemic levels. Continuing uncertainty with respect to the severity, duration and overall impacts of the pandemic mean that forward-looking forecasts of operating and financial results remain uncertain at this time.
Information in this press release is a select summary of results. This press release should be read in conjunction with Crombie’s MD&A for the year ended December 31, 2021 and Consolidated Financial Statements and Notes for the years ended December 31, 2021, and December 31, 2020. Full details on our results can be found at www.crombie.ca and www.sedar.com.
Financial Results
Crombie’s key financial metrics for the three months ended December 31, 2021 are as follows:
|
Three months ended December 31, |
|||||||
|
(In thousands of CAD dollars, except per unit amounts and as otherwise noted) |
2021 |
2020 |
Variance |
% |
|||
|
Property revenue |
$ |
103,832 |
$ |
97,060 |
$ |
6,772 |
7.0 % |
|
Property operating expenses |
32,430 |
29,245 |
(3,185) |
(10.9)% |
|||
|
Net property income |
$ |
71,402 |
$ |
67,815 |
$ |
3,587 |
5.3 % |
|
Operating income attributable to Unitholders |
$ |
78,730 |
$ |
17,157 |
$ |
61,573 |
358.9 % |
|
Same-asset property cash NOI (1) |
$ |
64,442 |
$ |
62,935 |
$ |
1,507 |
2.4 % |
|
Funds from operations (“FFO”) (1) |
|||||||
|
Basic |
$ |
46,948 |
$ |
42,305 |
$ |
4,643 |
11.0 % |
|
Per unit – Basic |
$ |
0.29 |
$ |
0.27 |
$ |
0.02 |
7.4 % |
|
Payout ratio(1) |
78.0 % |
83.2 % |
(5.2)% |
||||
|
Adjusted funds from operations (“AFFO”) (1) |
|||||||
|
Basic |
$ |
40,468 |
$ |
35,679 |
$ |
4,789 |
13.4 % |
|
Per unit – Basic |
$ |
0.25 |
$ |
0.23 |
$ |
0.02 |
8.7 % |
|
Payout ratio(1) |
90.5 % |
98.7 % |
(8.2)% |
||||
|
(1) |
Same-asset property cash NOI, FFO, FFO payout ratio, AFFO, and AFFO payout ratio are non-GAAP financial measures used by management to evaluate Crombie’s business performance. See “Cautionary Statements and Non-GAAP Measures” below for a reconciliation of same-asset property cash NOI, FFO, FFO payout ratio, AFFO, and AFFO payout ratio. |
Operating income attributable to Unitholders increased by $61,573, or 358.9%, compared to the fourth quarter of 2020 primarily due to gain on disposal of investment properties of $42,762, including $27,904 from the sale of a 50% non-managing interest in the Pointe-Claire Customer Fulfillment Centre (“CFC”), gain from equity accounted investments of $15,525 resulting from distributions received from 1600 Davie Limited Partnership in excess of our investment in the joint venture, increased income of $1,963 from completed developments, $1,000 from renewals and new leasing, and $913 from lease terminations. Additionally, an impairment of $1,300 was recognized on one retail property during the quarter, which was $3,200 lower than the impairment related to four retail properties in the fourth quarter of 2020. Finance costs from operations was lower by $2,273 primarily due to the early partial redemption of Series B senior unsecured notes in 2020. The growth in operating income was offset in part by increased general and administrative expenses of $1,874 primarily as a result of an increase of $940 in salaries and benefits resulting from higher annual incentive plan amounts, and an increase in Unit price and its impact on Unit-based compensation plans of $813.
Same-asset property cash NOI increased by $1,507, or 2.4%, compared to the fourth quarter of 2020 primarily due to $994 from lease terminations, $599 in tenant recoveries related to a property tax reassessment, an increase of supplemental rents of $305 from modernizations and capital improvements, and strong occupancy, offset in part by increased bad debt expense of $292 (expense of $260 on same-asset properties in the fourth quarter of 2021 compared to recovery of $32 in the same quarter of 2020). Same-asset property cash NOI adjusted for the removal of what management estimates to be the impacts of COVID-19 increased 1.2% compared to the same period in 2020.
The increase in FFO of $4,643 is primarily due to increased net property income (an increase of $3,587 compared to the fourth quarter of 2020) which resulted from increased income of $1,963 from completed developments, strong occupancy, and $913 from lease terminations. Additionally, finance costs from operations was lower by $2,273 primarily due to the early partial redemption of Series B senior unsecured notes in 2020. The improved net property income is offset in part by increased general and administrative expenses of $1,874 primarily as a result of an increase of $940 in salaries and benefits resulting from higher annual incentive plan amounts, and increase in Unit price and its impact on Unit-based compensation plans of $813.
The increase in AFFO is largely due to the impacts on FFO as described above.
Crombie’s key financial metrics for the twelve months ended December 31, 2021 are as follows:
|
Twelve months ended December 31, 2021 |
|||||||
|
(In thousands of CAD dollars, except per unit amounts and as otherwise noted) |
2021 |
2020 |
Variance |
% |
|||
|
Property revenue |
$ |
408,892 |
$ |
388,733 |
$ |
20,159 |
5.2 % |
|
Property operating expenses |
125,861 |
129,872 |
4,011 |
3.1 % |
|||
|
Net property income |
$ |
283,031 |
$ |
258,861 |
$ |
24,170 |
9.3 % |
|
Operating income attributable to Unitholders |
$ |
155,401 |
$ |
67,608 |
$ |
87,793 |
129.9 % |
|
Same-asset property cash NOI (1) |
$ |
253,162 |
$ |
241,203 |
$ |
11,959 |
5.0 % |
|
Funds from operations (“FFO”) (1) |
|||||||
|
Basic |
$ |
185,032 |
$ |
165,850 |
$ |
19,182 |
11.6 % |
|
Per unit – Basic |
$ |
1.14 |
$ |
1.05 |
$ |
0.09 |
8.6 % |
|
Payout ratio(1) |
78.1 % |
84.6 % |
(6.5)% |
||||
|
Adjusted funds from operations (“AFFO”) (1) |
|||||||
|
Basic |
$ |
157,532 |
$ |
138,963 |
$ |
18,569 |
13.4 % |
|
Per unit – Basic |
$ |
0.97 |
$ |
0.88 |
$ |
0.09 |
10.2 % |
|
Payout ratio(1) |
91.8 % |
101.0 % |
(9.2)% |
||||
|
(1) |
Same-asset property cash NOI, FFO, FFO payout ratio, AFFO, and AFFO payout ratio are non-GAAP financial measures used by management to evaluate Crombie’s business performance. See “Cautionary Statements and Non-GAAP Measures” below for a reconciliation of same-asset property cash NOI, FFO, FFO payout ratio, AFFO, and AFFO payout ratio. |
Operating income attributable to Unitholders increased by $87,793, or 129.9%, on an annual basis. Gain on disposal of investment properties increased by $53,190, including $27,904 from the sale of a 50% non-managing interest in the Pointe-Claire CFC in the fourth quarter of 2021. Net property income increased $24,170 due to a reduction in bad debt expense of $10,082 as a result of decreased collection risk in 2021; new income from completed developments of $7,700; $3,346 from lease terminations; $2,100 from renewals and new leasing; an increase in modernization income of $2,100 offset by higher tenant incentive amortization of $1,961; and increased percentage rent of $1,284 resulting from tenants converting to percentage rent leases. During the fourth quarter of 2021, Crombie received a distribution of $25,000 from 1600 Davie Limited Partnership, of which $15,525 was treated as a gain from equity accounted investments as a result of this distribution exceeding our investment in the joint venture. Additionally, impairments of $2,539 were recognized on two retail properties during the year which was $4,061 lower than the impairments related to six properties in the prior year. The improved operating income for the period was offset in part by increased general and administrative expenses of $4,950, primarily the result of an increase in Unit price and its impact on Unit-based compensation plans of $5,764, offset in part by decreased salaries of $1,121 and higher severance costs in 2020. Additionally, losses from equity accounted investments were $2,941 for 2021 compared to $72 for the year ended December 31, 2020, as residential development projects move toward revenue stabilization, when revenue earned will exceed expenses. Finance costs from operations increased by $980 due primarily to lower capitalized interest on developments of $1,738 and increased interest on long term debt of $705 from the addition of new mortgages and unsecured debt, offset in part by decreased interest on credit facilities of $1,557 resulting from lower average outstanding balances in the year.
On an annual basis, same-asset property cash NOI increased 5.0% compared to 2020 primarily due to a reduction in bad debt expense on same-asset properties of $5,388 as a result of decreased collection risk in 2021, increased lease termination income of $2,638, strong occupancy, an increase in supplemental rents of $1,927 from modernizations and capital improvements, and $615 in tenant recoveries related to property tax reassessments. Same-asset property cash NOI adjusted for the removal of what management estimates to be the impacts of COVID-19 increased by 1.4% compared to the adjusted results for the year ended December 31, 2020.
On an annual basis, FFO increased $19,182 primarily due to improved net property income (an increase of $24,170 year over year) due to a significant reduction in bad debt expense of $10,082 resulting from decreased collection risk in 2021, increased income of $7,700 from completed developments, and an increase of $3,346 in lease termination income, $2,100 from renewals and new leasing, and an increase in modernization income of $2,100. The growth in net property income is partially offset by increased general and administrative expenses of $4,950 primarily related to the impact of increased Unit price on Unit-based compensation plans of $5,764, offset in part by $1,509 of severance costs in the second quarter of 2020. Additionally, losses from equity accounted investments were $2,941 for the period compared to $72 for the year ended December 31, 2020, resulting from operating results from residential development projects as they move towards revenue stabilization, when revenue earned will exceed expenses, and finance costs from operations increased by $980 due primarily to lower capitalized interest on developments of $1,738 and an increased interest on long term debt of $705 from the addition of new mortgages and unsecured debt, offset in part by decreased interest on credit facilities of $1,557 due to a lower average balance outstanding compared to the prior year.
The improvement in AFFO is primarily due to the same factors impacting FFO as described above.
Operating Results
|
December 31, |
September 30, |
June 30, 2021 |
March 31, 2021 |
December 31, 2020 |
|
|
Number of investment properties (1) |
284 |
287 |
287 |
287 |
284 |
|
Gross leasable area (2) |
17,861,000 |
18,232,000 |
18,235,000 |
18,229,000 |
18,000,000 |
|
Economic occupancy (3) |
95.6 % |
95.8 % |
95.6 % |
95.5 % |
94.0 % |
|
Committed occupancy (4) |
96.2 % |
96.5 % |
96.2 % |
96.3 % |
96.4 % |
|
(1) |
This includes properties owned at full and partial interests. |
|
(2) |
Gross leasable area is adjusted to reflect Crombie’s proportionate interest in partially-owned properties. |
|
(3) |
Represents space currently under lease contract and rent has commenced. |
|
(4) |
Represents current economic occupancy plus completed lease contracts for future occupancy of currently available space. |
|
December 31, |
September 30, |
June 30, 2021 |
March 31, 2021 |
December 31, 2020 |
||||||
|
Investment properties, fair value |
$ |
5,026,000 |
$ |
5,096,000 |
$ |
5,053,000 |
$ |
4,877,000 |
$ |
4,815,000 |
|
Unencumbered investment properties (1) |
$ |
1,752,927 |
$ |
1,461,775 |
$ |
1,445,423 |
$ |
1,388,141 |
$ |
1,366,258 |
|
Available liquidity (2) |
$ |
507,777 |
$ |
512,168 |
$ |
368,483 |
$ |
469,548 |
$ |
471,708 |
|
Debt to gross book value – cost basis (3) |
46.5 % |
49.3 % |
49.4 % |
50.9 % |
50.9 % |
|||||
|
Debt to gross fair value (4)(5) |
42.9 % |
45.5 % |
46.0 % |
48.9 % |
49.4 % |
|||||
|
Weighted average interest rate (6) |
3.8 % |
3.8 % |
3.9 % |
3.9 % |
3.9 % |
|||||
|
Debt to trailing 12 months adjusted EBITDA (4)(5) |
8.25x |
8.95x |
9.12x |
9.80x |
9.73x |
|||||
|
Interest coverage ratio (4)(5) |
3.13x |
3.13x |
2.94x |
3.04x |
2.77x |
|||||
|
(1) |
Represents fair value of unencumbered properties. |
|
(2) |
Represents the undrawn portion on the credit facilities, excluding joint facilities with joint operation partners. |
|
(3) |
See Capital Management note in the Financial Statements. |
|
(4) |
Non-GAAP financial measures used by management to evaluate Crombie’s business performance. See “Cautionary Statements and Non-GAAP Measures” below for a reconciliation of debt to gross fair value, debt to trailing 12 months adjusted EBITDA, and interest coverage ratio. |
|
(5) |
See Debt Metrics section in the MD&A. |
|
(6) |
Weighted average interest rate is calculated based on interest rates for all outstanding fixed rate debt. |
Operations and Leasing
During the quarter, Crombie maintained strong economic occupancy and committed occupancy of 95.6% and 96.2%, respectively. Crombie renewed 97,000 square feet with an increase of 5.0% over expiring rents during the quarter. New leases and expansions increased occupancy by 710,000 square feet at an average first year rate of $20.92 per square foot.
Development
Crombie segregates its development pipeline by expected timing. Near-term projects are financially committed or expected to be committed within the next two years. Currently, Crombie has six developments classified as near-term projects. Upon completion, these projects will total approximately 178,000 square feet of commercial GLA, 300,000 square feet of retail-related industrial GLA, 1,228,000 square feet of residential GLA or 1,611 residential units. The geographical breakdown of GLA in square feet is as follows: 553,000 in Vancouver; 145,000 in Victoria; 300,000 in Calgary; 520,000 in the Greater Toronto Area and 188,000 in Halifax.
Subsequent to the fourth quarter, at our Bronte Village development in the Greater Toronto Area, the occupancy permit was received for the second tower, which contains 241 units. As a result, Crombie adjusted substantial completion from Q4 2021 to Q1 2022, with a remaining investment to complete of approximately $8,900. Property development is a strategic priority for Crombie, as it is expected to drive fair value growth, cash flow growth and Unitholder value, while increasing our presence in Canada’s top urban markets and diversifying and improving overall portfolio quality.
These timing and cost estimates are subject to changes, as well as other development risks described in Crombie’s fourth quarter MD&A under “Development” and “Risk Management”.
Dispositions
During the fourth quarter, Crombie had gross proceeds of $152,218 from dispositions of five retail asset properties and a 50% non-managing interest in the Pointe-Claire CFC asset totalling 372,000 square feet. Two of the five assets represent partial dispositions of retail assets as certain CRU space was sold and grocery retail space retained. The sales were transacted in line with IFRS fair values and is part of Crombie’s funding strategy, which redirects capital into Empire-related investments and developments that have the potential to deliver higher AFFO and fair value returns while at the same time improving portfolio quality.
Highlighted Subsequent Events
In January 2022, Crombie acquired 100% interest in eight retail properties, seven from a subsidiary of Empire, totalling approximately 290,000 square feet for $41,902, excluding closing and transaction costs.
On January 25, 2022, Crombie acquired the remaining 50% interest in a retail-related industrial property from a subsidiary of Empire totalling 235,000 square feet for $38,050, excluding closing and transaction costs.
On January 31, 2022, Crombie closed on an offering, on a bought deal basis, of approximately $117,000 of Units at a price of $17.45 per Unit to a syndicate of underwriters co-led by Scotiabank and BMO Capital Markets. In addition, a subsidiary of Empire purchased, on a private placement basis, approximately $83,000 of Class B LP Units of a subsidiary of Crombie, together with the attached Special Voting Units of Crombie, at a price per Class B Unit. After the closing of the public offering and the private placement, Empire continues to hold a 41.5% economic and voting interest in Crombie.
Empire Appoints Michael Vels as Trustee
Crombie is pleased to announce the appointment of Michael Vels to its Board of Trustees, effective February 1, 2022. Mr. Vels is the Chief Development Officer at Empire Company Limited (“Empire”) and Sobeys Inc. (“Sobeys”). He joined Sobeys in 2017 as Chief Financial Officer where his leadership has been key to the successful execution of the Company’s strategy. In 2021, Michael transitioned to his current role, where he focuses his leadership talents towards Sobeys’ growth targets, improvement in internal execution, and leading the business’ real estate, technology and enterprise project management teams, and the Company’s merger and acquisition activities.
Prior to joining Empire, Michael was Chief Financial Officer of Hydro One where he led that organization’s Initial Public Offering in 2015. Before that he was Chief Financial Officer at Maple Leaf Foods where he supported the successful transformation of Maple Leaf as it implemented new systems and transformed its manufacturing and supply chains. He was educated and earned his Chartered Accountant designation in South Africa and worked in public accounting and mergers and acquisitions in South Africa and the United Kingdom prior to joining Maple Leaf. He has also earned his ICD.D designation. Mr. Vels serves as a Director and Treasurer of Canada’s National Ballet School.
Mr. Vels was appointed pursuant to ECL Developments Limited’s (“ECL”) right under Section 3.8 of Crombie’s Amended and Restated Declaration of Trust to appoint up to five trustees. ECL is a wholly owned subsidiary of Empire, which indirectly owns 41.5% of the outstanding Units and special voting units of Crombie.
Conference Call Invitation
Crombie will provide additional details concerning its period ended December 31, 2021 results on a conference call to be held Thursday, February 24, 2022, beginning at 12:00 p.m. Eastern Time. Accompanying the conference call will be a presentation that will be available on Crombie’s website. To join this conference call, you may dial (416) 764-8688 or (888) 390-0546. You may also listen to a live audio webcast of the conference call by visiting the Investor section of Crombie’s website located at www.crombie.ca. Replay will be available until midnight March 3, 2022 by dialing (416) 764-8677 or (888) 390-0541 and entering pass code 464825 #, or on the Crombie website for 90 days after the meeting.
Cautionary Statements and Non-GAAP Measures
Same-asset property cash NOI (SANOI), FFO, AFFO, FFO payout ratio, AFFO payout ratio, debt to trailing 12 months adjusted EBITDA, debt to gross fair value, and interest coverage ratio are non-GAAP financial measures that do not have a standardized meaning under International Financial Reporting Standards (“IFRS”). These measures as computed by Crombie may differ from similar computations as reported by other entities and, accordingly, may not be comparable to other such entities. Management includes these measures as they represent key performance indicators to management, and it believes certain investors use these measures as a means of assessing Crombie’s financial performance. For additional information on these non-GAAP measures see our Management’s Discussion and Analysis for the three and twelve months ended December 31, 2021.
The reconciliations for each non-GAAP measure included in this news release are outlined as follows:
Same-Asset Property Cash NOI
Crombie measures certain performance and operating metrics on a same-asset basis to evaluate the period-over-period performance of those properties owned and operated by Crombie. “Same-asset” refers to those properties that were owned and operated by Crombie for the current and comparative reporting periods. Properties that will be undergoing a redevelopment in a future period, including adjacent parcels of land, and those having planning activities underway are also in this category until such development activities commence and/or tenant leasing/renewal activity is suspended. Same–asset property cash NOI reflects Crombie’s proportionate ownership of jointly operated properties (and excludes any properties held in joint ventures).
Management uses net property income on a cash basis (property cash NOI) as a measure of performance as it reflects the cash generated by properties period-over-period.
Net property income on a cash basis, which excludes non-cash straight-line rent recognition and amortization of tenant incentive amounts, is as follows:
|
Three months ended December 31, |
Year ended December 31, |
|||||||||||||
|
2021 |
2020 |
Variance |
2021 |
2020 |
Variance |
|||||||||
|
Net property income |
$ |
71,402 |
$ |
67,815 |
$ |
3,587 |
$ |
283,031 |
$ |
258,861 |
$ |
24,170 |
||
|
Non-cash straight-line rent |
(1,998) |
(2,036) |
38 |
(9,486) |
(9,112) |
(374) |
||||||||
|
Non-cash tenant incentive amortization(1) |
5,249 |
4,859 |
390 |
19,811 |
17,849 |
1,962 |
||||||||
|
Property cash NOI |
74,653 |
70,638 |
4,015 |
293,356 |
267,598 |
25,758 |
||||||||
|
Acquisitions and dispositions property cash NOI |
2,204 |
1,878 |
326 |
10,635 |
7,286 |
3,349 |
||||||||
|
Development property cash NOI |
8,007 |
5,825 |
2,182 |
29,559 |
19,109 |
10,450 |
||||||||
|
Acquisitions, dispositions and development |
10,211 |
7,703 |
2,508 |
40,194 |
26,395 |
13,799 |
||||||||
|
Same-asset property cash NOI |
$ |
64,442 |
$ |
62,935 |
$ |
1,507 |
$ |
253,162 |
$ |
241,203 |
$ |
11,959 |
||
|
Adjusted for management’s estimate of the |
||||||||||||||
|
Decrease in parking revenue |
— |
854 |
(854) |
789 |
2,715 |
(1,926) |
||||||||
|
Rent abatements |
— |
178 |
(178) |
— |
1,465 |
(1,465) |
||||||||
|
Bad debt expense |
260 |
(32) |
292 |
420 |
5,353 |
(4,933) |
||||||||
|
Same-asset property cash NOI, adjusted for |
$ |
64,702 |
$ |
63,935 |
$ |
767 |
$ |
254,371 |
$ |
250,736 |
$ |
3,635 |
||
Funds from Operations (FFO)
Crombie follows the recommendations of the Real Property Association of Canada (“REALPAC”)’s January 2022 guidance in calculating FFO. This update from the February 2019 white paper had no impact on Crombie’s FFO calculation.
The reconciliation of FFO for the three and year ended December 31, 2021 and 2020 is as follows:
|
Three months ended December 31, |
Year ended December 31, |
|||||||||||||
|
2021 |
2020 |
Variance |
2021 |
2020 |
Variance |
|||||||||
|
Increase (decrease) in net assets attributable to Unitholders |
$ |
41,075 |
$ |
(18,779) |
$ |
59,854 |
$ |
7,870 |
$ |
(71,889) |
$ |
79,759 |
||
|
Add (deduct): |
||||||||||||||
|
Amortization of tenant incentives |
5,249 |
4,859 |
390 |
19,811 |
17,849 |
1,962 |
||||||||
|
Gain on disposal of investment properties |
(42,762) |
(4,164) |
(38,598) |
(56,525) |
(3,335) |
(53,190) |
||||||||
|
Gain from equity accounted investments |
(15,525) |
— |
(15,525) |
(15,525) |
— |
(15,525) |
||||||||
|
Impairment of investment properties |
1,300 |
4,500 |
(3,200) |
2,539 |
6,600 |
(4,061) |
||||||||
|
Depreciation and amortization of investment |
18,437 |
19,183 |
(746) |
74,359 |
74,316 |
43 |
||||||||
|
Adjustments for equity accounted investments |
841 |
109 |
732 |
2,267 |
176 |
2,091 |
||||||||
|
Principal payments on right of use assets |
58 |
57 |
1 |
225 |
220 |
5 |
||||||||
|
Internal leasing costs |
620 |
604 |
16 |
2,480 |
2,416 |
64 |
||||||||
|
Finance costs – distributions to Unitholders |
36,637 |
35,211 |
1,426 |
144,559 |
140,302 |
4,257 |
||||||||
|
Finance costs (income) – change in fair value of |
1,018 |
725 |
293 |
2,972 |
(805) |
3,777 |
||||||||
|
FFO as calculated based on REALPAC |
$ |
46,948 |
$ |
42,305 |
$ |
4,643 |
$ |
185,032 |
$ |
165,850 |
$ |
19,182 |
||
|
Basic weighted average Units (in 000’s) |
164,592 |
158,239 |
6,353 |
162,130 |
157,448 |
4,682 |
||||||||
|
FFO per Unit – basic |
$ |
0.29 |
$ |
0.27 |
$ |
0.02 |
$ |
1.14 |
$ |
1.05 |
$ |
0.09 |
||
|
FFO payout ratio (%) |
78.0 % |
83.2 % |
(5.2)% |
78.1 % |
84.6 % |
(6.5)% |
||||||||
Adjusted Funds from Operations (AFFO)
Crombie follows the recommendations of REALPAC’s January 2022 guidance in calculating AFFO and has applied these recommendations to the AFFO amounts included in this MD&A. The new guidance resulted in no impact to Crombie’s AFFO calculation.
The reconciliation of AFFO for the three months and year ended December 31, 2021 and 2020 is as follows:
|
Three months ended December 31, |
Year ended December 31, |
|||||||||||||
|
2021 |
2020 |
Variance |
2021 |
2020 |
Variance |
|||||||||
|
FFO as calculated based on REALPAC |
$ |
46,948 |
$ |
42,305 |
$ |
4,643 |
$ |
185,032 |
$ |
165,850 |
$ |
19,182 |
||
|
Add (deduct): |
||||||||||||||
|
Amortization of effective swap agreements |
— |
— |
— |
— |
510 |
(510) |
||||||||
|
Straight-line rent adjustment |
(1,998) |
(2,036) |
38 |
(9,486) |
(9,112) |
(374) |
||||||||
|
Straight-line rent adjustment included in |
144 |
— |
144 |
509 |
— |
509 |
||||||||
|
Internal leasing costs |
(620) |
(604) |
(16) |
(2,480) |
(2,416) |
(64) |
||||||||
|
Maintenance expenditures on a square footage |
(4,006) |
(3,986) |
(20) |
(16,043) |
(15,869) |
(174) |
||||||||
|
AFFO as calculated based on REALPAC |
$ |
40,468 |
$ |
35,679 |
$ |
4,789 |
$ |
157,532 |
$ |
138,963 |
$ |
18,569 |
||
|
Basic weighted average Units (in 000’s) |
164,592 |
158,239 |
6,353 |
162,130 |
157,448 |
4,682 |
||||||||
|
AFFO per Unit – basic |
$ |
0.25 |
$ |
0.23 |
$ |
0.02 |
$ |
0.97 |
$ |
0.88 |
$ |
0.09 |
||
|
AFFO payout ratio (%) |
90.5 % |
98.7 % |
(8.2)% |
91.8 % |
101.0 % |
(9.2)% |
||||||||
Debt Metrics
When calculating debt to gross fair value, debt is defined under the terms of the Declaration of Trust as obligations for borrowed money including obligations incurred in connection with acquisitions, excluding specific deferred taxes payable, trade payables, and accruals in the ordinary course of business and distributions payable.
Debt to gross fair value includes investment properties measured at fair value, including those held within joint ventures. Crombie’s investment in joint ventures, accounted for at cost under the equity method, is adjusted to reflect investment properties measured at fair value for this calculation. All other components of gross fair value are measured at the carrying value included in Crombie’s financial statements. Crombie’s methodology for determining the fair value of investment properties includes capitalization of trailing 12 months net property income using biannual capitalization rates from external property valuators. The majority of investment properties are also subject to external, independent appraisals on a rotational basis over a period of not more than four years. Valuation techniques are more fully described in Crombie’s year end audited financial statements.
The fair value included in this calculation reflects the fair value of the properties as at December 31, 2021 and December 31, 2020, respectively, based on each property’s current use as a revenue generating investment property. During the year ended December 31, 2021, Crombie’s weighted average capitalization rate used in the determination of the fair value of its investment properties decreased 0.21% to 5.65% from 5.86%. For an explanation of how Crombie determines capitalization rates, see the “Other Disclosures” section of Crombie’s fourth quarter MD&A, under “Investment Property Valuation” in the “Use of Estimates and Judgments” section.
|
December 31, |
December 31, |
||||
|
Fixed rate mortgages |
$ |
1,073,895 |
$ |
1,274,304 |
|
|
Senior unsecured notes |
1,125,000 |
1,125,000 |
|||
|
Revolving credit facility |
9,220 |
17,712 |
|||
|
Joint operation credit facility |
9,904 |
9,544 |
|||
|
Bilateral credit facility |
10,000 |
35,000 |
|||
|
Lease liabilities |
35,352 |
29,914 |
|||
|
Total debt outstanding |
2,263,371 |
2,491,474 |
|||
|
Less: Applicable fair value debt adjustment |
(53) |
(283) |
|||
|
Adjusted debt |
$ |
2,263,318 |
$ |
2,491,191 |
|
|
Investment properties, fair value |
$ |
5,026,000 |
$ |
4,815,000 |
|
|
Other assets, cost (1) |
103,318 |
100,206 |
|||
|
Cash and cash equivalents |
3,915 |
63,293 |
|||
|
Deferred financing charges |
9,769 |
10,972 |
|||
|
Investment in joint ventures, fair value (2) |
130,103 |
51,043 |
|||
|
Interest rate subsidy |
(53) |
(283) |
|||
|
Gross fair value |
$ |
5,273,052 |
$ |
5,040,231 |
|
|
Debt to gross fair value |
42.9 % |
49.4 % |
|||
|
(1) |
Other assets exclude tenant incentives and accumulated amortization, and accrued straight-line rent receivable. |
|
(2) |
Investment in joint ventures, fair value reflects Crombie’s investments in joint ventures using equity accounting with investment properties measured at fair value. Fair value of these investment properties totalled $387,000 (December 31, 2020 – $225,127) and replaces their value at cost of $288,114 (December 31, 2020 – $225,127). |
The following table presents a reconciliation of property revenue to adjusted EBITDA. Adjusted EBITDA is a non-GAAP measure and should not be considered an alternative to operating income attributable to Unitholders and may not be comparable to that used by other entities.
|
Three months ended |
||||||||||
|
December 31, |
September 30, |
June 30, 2021 |
March 31, 2021 |
December 31, 2020 |
||||||
|
Property revenue |
$ |
103,832 |
$ |
101,517 |
$ |
100,006 |
$ |
103,537 |
$ |
97,060 |
|
Amortization of tenant incentives |
5,249 |
5,187 |
4,840 |
4,535 |
4,859 |
|||||
|
Adjusted property revenue |
109,081 |
106,704 |
104,846 |
108,072 |
101,919 |
|||||
|
Property operating expenses |
(32,430) |
(30,216) |
(29,814) |
(33,401) |
(29,245) |
|||||
|
General and administrative expenses |
(7,367) |
(5,728) |
(7,351) |
(5,038) |
(5,493) |
|||||
|
Income (loss) from equity accounted investments |
(685) |
(923) |
(562) |
(771) |
(411) |
|||||
|
Adjusted EBITDA (1) |
$ |
68,599 |
$ |
69,837 |
$ |
67,119 |
$ |
68,862 |
$ |
66,770 |
|
Trailing 12 months adjusted EBITDA (3) |
$ |
274,417 |
$ |
272,588 |
$ |
267,959 |
$ |
257,036 |
$ |
256,104 |
|
Finance costs – operations |
$ |
22,639 |
$ |
23,070 |
$ |
23,618 |
$ |
23,461 |
$ |
24,912 |
|
Amortization of deferred financing charges |
(742) |
(759) |
(764) |
(802) |
(835) |
|||||
|
Amortization of effective swap agreements |
— |
— |
— |
— |
— |
|||||
|
Adjusted interest expense (2) |
$ |
21,897 |
$ |
22,311 |
$ |
22,854 |
$ |
22,659 |
$ |
24,077 |
|
Debt outstanding (see Debt to Gross Fair Value) (4) |
$ |
2,263,318 |
$ |
2,439,738 |
$ |
2,444,629 |
$ |
2,519,200 |
$ |
2,491,191 |
|
Interest service coverage ratio {(1)/(2)} |
3.13x |
3.13x |
2.94x |
3.04x |
2.77x |
|||||
|
Debt to trailing 12 months adjusted EBITDA {(4)/(3)} |
8.25x |
8.95x |
9.12x |
9.80x |
9.73x |
|||||
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 2021 annual Management Discussion and Analysis under “Risk Management” and the Annual Information Form for the year ended December 31, 2020 under “Risks”, 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 expected timing and costs of development and expected impact on NAV and AFFO growth for projects currently underway and planned into the future, 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.
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 remain uncertain at this time.
About Crombie REIT
Crombie Real Estate Investment Trust (“Crombie”) invests in real estate that enriches local communities and enables long-term sustainable growth. As one of the country’s leading owner, operator, and developer of quality real estate, Crombie’s portfolio primarily includes grocery-anchored retail, retail-related industrial, and mixed-used residential properties in Canada’s top urban and suburban markets. As at December 31, 2021, our portfolio contains 284 income-producing properties comprising approximately 17.9 million square feet, and a significant pipeline of future development projects. Learn more at www.crombie.ca.
SOURCE Crombie REIT