STELLARTON, NS, Nov. 8 /CNW/ – Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its results for the third quarter ended September 30, 2010.
2010 Highlights
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- Average net rent per square foot from year to date leasing activity
increased to $14.75 compared to average expiring net rent per square
foot of $13.44, an increase of 9.7%.
- Crombie completed leasing activity on 571,000 square feet of gross
leaseable area ("GLA") during the first nine months of 2010,
representing 73.8% of its 2010 expiring leases.
- Property occupancy was 95.5% at September 30, 2010 compared with 95.5%
at June 30, 2010, and 94.2% at September 30, 2009.
- Property revenue for the quarter ended September 30, 2010 of $53.4
million; an increase of $2.4 million, or 4.8% over the $51.0 million
for the quarter ended September 30, 2009.
- Same-asset cash net operating income ("NOI") for the quarter ended
September 30, 2010 of $29.9 million; an increase of $1.1 million, or
3.8%, compared to $28.8 million for the quarter ended September 30,
2009.
- The funds from operations ("FFO") payout ratio for the quarter ended
September 30, 2010 was 82.8% compared to 151.6% for the same period in
2009.
- The adjusted funds from operations ("AFFO") payout ratio for the
quarter ended September 30, 2010 was 117.6% compared to the annual
target AFFO payout ratio of 95%.
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Commenting on the quarterly results, Donald E. Clow, FCA, President and Chief Executive Officer stated: "Once again, we had a strong quarter, maintaining solid occupancy levels and positive growth in same-asset cash NOI of 3.8% for Q3 and 2.5% year to date while maintaining a strong balance sheet and ample liquidity.
The recently completed $84.3 million acquisition of nine additional properties enhances the geographic diversification and urban mix of our portfolio with seven of the nine properties located in western Canada. These accretive acquisitions will positively contribute to our operating results and cash flows. Mortgage financings have been placed on seven of the nine properties at rates from 4.8% to 5.0% and terms from nine to 15 years.
Since the end of September, we also completed the acquisition of one additional property and are announcing two more acquisitions that will be completed in the fourth quarter. These three Quebec based properties further reflect our success in completing accretive acquisitions. The three retail properties will total approximately 134,000 square feet of GLA and the total purchase price will be approximately $28.2 million. New first mortgage financing for a total of $19.6 million has been received or committed toward the acquisitions."
The table below presents a summary of financial performance for the quarter and nine months ended September 30, 2010 compared to the same periods in fiscal 2009.
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Three Three Nine Nine
months months months months
(In millions of ended ended ended ended
dollars, except per Sep. 30, Sep. 30, Sep. 30, Sep. 30,
unit amounts) 2010 2009 2010 2009
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Property revenue $53.418 $50.991 $159.450 $154.876
Property expenses 18.936 18.585 57.630 55.814
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Property NOI 34.482 32.406 101.820 99.062
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NOI margin percentage 64.6% 63.6% 63.9% 64.0%
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Expenses:
General and
administrative 2.627 1.882 8.153 7.172
Interest 14.801 11.595 43.173 33.597
Depreciation and
amortization 10.563 11.032 32.680 34.326
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27.991 24.509 84.006 75.095
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Income before other items,
income taxes and
non-controlling interest 6.491 7.897 17.814 23.967
Other income (expenses) 0.162 (9.981) 0.347 (9.889)
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Income (loss) before
income taxes and
non-controlling interest 6.653 (2.084) 18.161 14.078
Income taxes expense
(recovery) - Future (0.200) -- (1.700) 0.200
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Income (loss) before
non-controlling interest 6.853 (2.084) 19.861 13.878
Non-controlling interest 3.238 (0.989) 9.426 6.653
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Net income (loss) $3.615 $(1.095) $10.435 $7.225
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Basic and diluted net
income (loss) per unit $0.11 $(0.03) $0.32 $0.25
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Property acquisitions
During the third quarter of 2010, Crombie completed the acquisition of nine retail properties from subsidiaries of Empire Company Limited. The cost of the portfolio was $84.3 million, excluding closing and transaction costs, and was partially financed with mortgage financing on seven of the nine properties. The mortgages total $51.6 million with terms ranging from nine to 15 years, amortization periods between 20 and 25 years, and interest rates between 4.80% and 5.00%. The balance of the purchase price was paid from proceeds received from a $50.0 million equity offering completed in August 2010.
During the first quarter of 2010, Crombie completed the acquisition of eight retail properties from subsidiaries of Empire Company Limited. The cost of the portfolio was $59.2 million, excluding closing and transaction costs, and was partially financed by the assumption of $8.4 million of mortgages with a weighted average term of 8.6 years, 25 year amortization period and a weighted average interest rate of 6.26%. The balance was financed with Crombie's existing credit facility.
Property NOI – Cash Basis
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Three Three Nine Nine
months months months months
ended ended ended ended
Sep. 30, Sep. 30, Sep. 30, Sep. 30,
(In millions of dollars) 2010 2009 2010 2009
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Property NOI $34.482 $32.406 $101.820 $99.062
Straight-line rent and
above-market and
below-market lease
amortization (1.555) (2.020) (4.956) (6.893)
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Property cash NOI 32.927 30.386 96.864 92.169
Acquisition and
redevelopment property
cash NOI 3.013 1.555 7.504 4.961
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Same-asset property
cash NOI $29.914 $28.831 $89.360 $87.208
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Property NOI, on a cash basis, excludes straight-line rent recognition and amortization of above-market and below-market lease amounts. The 3.8% and 2.5% growth in same-asset cash NOI for the three months ended and nine months ended September 30, 2010 respectively is primarily the result of increased occupancy rates combined with increased average net rent per square foot resulting from 2010 leasing activity.
Cash NOI is a better measure of the impact on AFFO sustainability and growth of the same-asset properties.
Same-Asset Property NOI
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Three Three Nine Nine
months months months months
ended ended ended ended
Sep. 30, Sep. 30, Sep. 30, Sep. 30,
(In millions of dollars) 2010 2009 2010 2009
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Same-asset property
revenue $48.414 $48.012 $146.218 $145.363
Same-asset property
expenses 17.283 17.258 52.524 51.629
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Same-asset property NOI $31.131 $30.754 $93.694 $93.734
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Same-asset NOI margin % 64.3% 64.1% 64.1% 64.5%
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Same-asset property revenue for the third quarter ended September 30, 2010 of $48.4 million was 0.8% higher than the same period in 2009, due to increased base rent and recoveries as a result of higher overall occupancy; offset in part by decreased amortization on below-market leases. Same-asset property revenue of $146.2 million for the nine months ended September 30, 2010 was 0.6% higher than the nine months ended September 30, 2009 due to increased base rent and recoveries as a result of higher overall occupancy offset by a decrease in below-market lease amortization.
Same-asset property expenses of $17.3 million for the quarter ended September 30, 2010 remained unchanged from the quarter ended September 30, 2009. Same-asset property expenses of $52.5 million for the nine months ended September 30, 2010 increased by 1.7% from the nine months ended September 30, 2009 due primarily to increased recoverable property taxes offset in part by reduced snow clearing costs and non-shareable costs.
Acquisition and Redevelopment Property NOI
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Three Three Nine Nine
months months months months
ended ended ended ended
Sep. 30, Sep. 30, Sep. 30, Sep. 30,
(In millions of dollars) 2010 2009 2010 2009
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Acquisition and
redevelopment property
revenue $5.004 $2.979 $13.232 $9.513
Acquisition and
redevelopment property
expenses 1.653 1.327 5.106 4.185
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Acquisition and
redevelopment property
NOI $3.351 $1.652 $8.126 $5.328
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Acquisition and
redevelopment NOI
margin % 67.0% 55.5% 61.4% 56.0%
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For the three months and nine months ended September 30, 2010, the acquisition properties include the retail properties acquired in February, March and September 2010 as well as the operating results of the six properties that were under redevelopment.
General and Administrative Expenses
General and administrative expenses for the quarter ended September 30, 2010 increased by $0.7 million, or 1.2% as a percentage of property revenue, when compared to the same period in 2009. The 2010 expenses include additional wage costs related to staffing increases over the past year as well as increased travel and trustee costs.
General and administrative expenses, as a percentage of property revenue, increased to 5.1% of property revenue for the nine months ended September 30, 2010 compared to 4.6% for the same period in 2009.
Interest
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Three Three Nine Nine
months months months months
ended ended ended ended
Sep. 30, Sep. 30, Sep. 30, Sep. 30,
(In millions of dollars) 2010 2009 2010 2009
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Same-asset interest
expense $12.066 $9.852 $35.721 $29.044
Acquisition and
redevelopment interest
expense 1.069 0.577 2.734 1.728
Amortization of effective
swaps and deferred
financing charges 1.666 1.166 4.718 2.825
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Interest expense $14.801 $11.595 $43.173 $33.597
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Same-asset interest expense for the quarter and nine months ended September 30, 2010 reflects Crombie's replacement of short-term floating rate debt with long-term fixed rate mortgages and convertible debentures. The weighted average contractual interest rate on fixed rate mortgages increased to 5.81% at September 30, 2010 from 5.57% at September 30, 2009, primarily due to the refinancing on February 1, 2010 of the maturing Halifax Developments mortgages. Convertible debentures totalling $45.0 million have been issued since September 30, 2009, and combined with the mortgage refinancing, have resulted in a reduction in floating rate debt from $113.6 million at September 30, 2009 to $52.0 million at September 30, 2010.
The maturing $106.1 million Halifax Developments mortgages had a weighted average interest rate of 5.43%; while the new $141.0 million Halifax Developments mortgages have a weighted average interest rate of 6.48%. The issued convertible debentures have an interest rate of 5.75%.
FFO and AFFO
Crombie's FFO and AFFO had the following results for the third quarter and nine months:
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(In millions of Quarter ended Sep. 30, Variance
dollars, except -----------------------------------------------------
per unit amounts) 2010 2009 $ %
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FFO $17.216 $8.948 $8.268 92.4%
FFO Per Unit - basic $0.27 $0.15 $0.12 80.0%
FFO Per Unit - diluted $0.26 $0.15 $0.11 73.3%
FFO Payout ratio 82.8% 151.6% 68.8%
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AFFO $12.123 $(0.451) $12.574 N/A%
AFFO Per Unit - basic $0.19 $(0.01) $0.20 N/A%
AFFO Per Unit - diluted $0.19 $(0.01) $0.20 N/A%
AFFO Payout ratio 117.6% N/A N/A%
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(In millions of Nine months ended Sep. 30, Variance
dollars, except -----------------------------------------------------
per unit amounts) 2010 2009 $ %
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FFO $50.841 $48.404 $2.437 5.0%
FFO Per Unit - basic $0.82 $0.88 $(0.06) (6.8)%
FFO Per Unit - diluted $0.78 $0.87 $(0.09) (10.3)%
FFO Payout ratio 81.4% 77.5% (3.9)%
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AFFO $37.977 $25.771 $12.206 47.4%
AFFO Per Unit - basic $0.61 $0.47 $0.14 29.8%
AFFO Per Unit - diluted $0.60 $0.46 $0.14 30.4%
AFFO Payout ratio 109.0% 145.5% 36.5%
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The $8.3 million increase in FFO for the quarter ended, and the $2.4 million increase in FFO for the nine months ended September 30, 2010, was primarily due to improvements in NOI; the impact on the September 30, 2009 costs of settlement of an interest rate swap agreement; offset in part by increased interest expense as a result of refinancing short-term floating rate debt with long-term fixed rate mortgages and convertible debentures.
AFFO for the third quarter of 2010 was $12.1 million, an increase of $12.6 million over the same period in 2009. AFFO for the nine months ended September 30, 2010 was $38.0 million, an increase of $12.2 million over the same period in 2009. The increases in AFFO are due to the increased FFO results as previously discussed and the cash settlement of an effective interest rate swap agreement in 2009.
Liquidity and Financings
Crombie's objective when managing capital on a long-term basis is to utilize staggered debt maturities, minimize long-term exposure to floating rate debt and maintain sustainable payout ratios. Crombie has an authorized floating rate revolving credit facility of up to $150 million, of which $52.0 million was drawn as at September 30, 2010, resulting in significant available liquidity.
Debt to gross book value is 54.5% at September 30, 2010 compared to 55.2% at June 30, 2010, 52.4% at December 31, 2009, and 51.0% at September 30, 2009. This leverage ratio is below the maximum 60%, or 65% including convertible debentures, permitted pursuant to Crombie's Declaration of Trust. On a long-term basis, Crombie intends to maintain overall indebtedness, including convertible debentures, in the range of 50% to 60% of gross book value, depending upon Crombie's future acquisitions and financing opportunities.
Crombie's interest and debt service coverage for the nine months ended September 30, 2010 were 2.37 times EBITDA and 1.71 times EBITDA respectively. This compares to 2.85 times EBITDA and 1.98 times EBITDA respectively for the nine months ended September 30, 2009. The reduction in interest service coverage is attributable to the increased interest expense as Crombie has replaced short-term floating rate debt with long-term fixed rate mortgages and convertible debentures. The reduction in debt service coverage is impacted by the increased interest expense as well as the increased debt principal repayments on the long-term fixed rate amortizing mortgages. Crombie is well within its debt service financial covenant of 1.4 times EBITDA.
Equity Offering – On August 4, 2010, Crombie completed a public offering of 2,670,000 REIT Units at a price of $11.05 per Unit for gross proceeds of $29.5 million. Concurrently, Crombie completed a private placement, with ECL Developments Limited, of 1,855,000 Class B LP Units and the attached Special Voting Units at the same issue price of $11.05 per unit for gross proceeds of $20.5 million. Part of the $50.0 million proceeds were used to fund the Sobeys portfolio acquisition completed September 28, 2010, while the remainder is being used for additional acquisitions and for general trust purposes.
Convertible Debenture Offering – During the first quarter of 2010, Crombie completed an issuance of Series C unsecured convertible subordinated debentures for gross proceeds of $45.0 million at an interest rate of 5.75% per annum and a conversion price of $15.30.
Revolving Credit Facility – Through utilization of the additional proceeds from the mortgage financings and the convertible debenture issue, partially offset by funds required for the eight property acquisition in the first quarter, Crombie has reduced the balance outstanding on its Revolving Credit Facility from $106.2 million at December 31, 2009, to $52.0 million at September 30, 2010.
Mortgage Financing – On September 28, 2010, concurrent with the acquisition of nine properties, Crombie completed first mortgage financings totalling $51.6 million on seven properties. The mortgages have terms ranging from nine to 15 years, amortization periods between 20 and 25 years, and interest rates between 4.80% and 5.00%. Subsequent to quarter end, mortgage financing was completed on the remaining two properties totalling $8.2 million.
During the second quarter of 2010, Crombie completed first mortgage financings totalling $16.5 million on three properties. The mortgages have ten year terms, fixed interest rates ranging from 5.88% to 6.80%, and amortization periods from 15 to 25 years.
During the first quarter of 2010, Crombie completed the refinancing of approximately $106.1 million maturing Halifax Developments mortgages. The two new mortgages are for a total of $141.0 million, with the initial $25.0 million being for a ten year term and 25 year amortization with a fixed interest of 6.52%, and the additional $116.0 million being for a ten year term and 25 year amortization with a fixed interest rate of 6.47%.
In February 2010, Crombie also completed a $33.8 million mortgage financing on five properties. The mortgages have a term of eight years, weighted average amortization period of 21.6 years, and a fixed interest rate of 5.70%.
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 entities. Crombie includes these measures because it believes certain investors use these measures as a means of assessing Crombie's financial performance.
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- Property NOI is property revenue less property expenses.
- Debt is defined as bank loans plus commercial property debt and
convertible debentures.
- 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.
- EBITDA is calculated as property revenue, adjusted to remove the impact
of amortization of above-market and below-market leases, less property
expenses and general and administrative 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.
- AFFO is defined as FFO adjusted for non-cash amounts affecting revenue
and discontinued operations, less maintenance capital expenditures,
maintenance tenant improvements and leasing costs, and the settlement
of interest rate swap agreements.
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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. Crombie currently owns a portfolio of 128 commercial properties in eight provinces, comprising approximately 12.0 million square feet of rentable space.
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 2009 annual Management Discussion and Analysis under "Risk Management", could cause actual results, performance, achievements, prospects or opportunities to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and a reader should not place undue reliance on the forward-looking statements. There can be no assurance that the expectations of management of Crombie will prove to be correct.
In particular, certain statements in this document discuss Crombie's anticipated outlook of future events, including the acquisition of accretive properties and the anticipated extent of the accretion of any acquisitions, which could be impacted by due diligence matters or the demand for properties and the effect that demand has on acquisition capitalization rates and changes in interest rates. 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.
Crombie's consolidated financial statements and management discussion and analysis for the period ended September 30, 2010 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 third quarter ended September 30, 2010 results on a conference call to be held Tuesday, November 9, 2010, at 11:30 a.m. Eastern time. To join this conference call you may dial (647) 427-7450 or (888) 231-8191. You may also listen to a live audio web cast of the conference call by visiting Crombie's website located at www.crombiereit.com. Replay will be available until midnight November 23, 2010, by dialling (416) 849-0833 or (800) 642-1687 and entering pass code 20886968, or on the Crombie website for 90 days after the meeting.
Contact: Glenn Hynes, C.A., Chief Financial Officer and Secretary, Crombie REIT, (902) 755-8100