Second Quarter Summary
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)
- Operating income of $39,449
- Property revenue of $99,332
- Same-asset property cash NOI growth of 3.2%
- Debt to gross book value – fair value basis improved to 49.2%; lowest level over past four quarters
- Solid renewal growth over expiring rates of 6.7%
- Strong committed occupancy at 95.9%
- Quarter to date dispositions of $186,400
NEW GLASGOW, NS, Aug. 7, 2019 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) today announced results for its second quarter ended June 30, 2019. Management will host a conference call to discuss the results at 12:00pm (ET), August 8, 2019.
"Strong fundamentals and innovative capital recycling have led us to solid Q2 financial results and an improvement of our already strengthened balance sheet," said Don Clow, President & CEO. "Our strategic partnership with Sobeys continues to provide us a sustainable competitive advantage and enables unique opportunities to create short, medium and long-term value for our unitholders. We are thrilled to expand our development pipeline to include 33 properties in Canada's fastest growing markets."
Full details on our results can be found at www.crombiereit.com and www.sedar.com.
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FINANCIAL RESULTS |
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Crombie's key financial metrics for the three and six months ended June 30, 2019 are as follows: |
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Three months ended June 30, |
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(In thousands of CAD dollars, except per unit amounts and as otherwise noted) |
2019 |
2018 |
Change |
Change (%) |
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|
Property revenue |
$ |
99,332 |
$ |
104,143 |
$ |
(4,811) |
(4.6)% |
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Property operating expenses |
28,222 |
29,925 |
1,703 |
5.7% |
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Property net operating income ("NOI") |
$ |
71,110 |
$ |
74,218 |
$ |
(3,108) |
(4.2)% |
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Operating income attributable to unitholders |
$ |
39,449 |
$ |
49,033 |
$ |
(9,584) |
(19.5)% |
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Same-asset property cash NOI (1) |
$ |
62,154 |
$ |
60,204 |
$ |
1,950 |
3.2% |
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Funds from operations ("FFO") (1) |
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Basic |
$ |
44,567 |
$ |
46,325 |
$ |
(1,758) |
(3.8)% |
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Per unit – Basic |
$ |
0.29 |
$ |
0.31 |
$ |
(0.02) |
(6.5)% |
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Payout ratio (%) |
75.7% |
72.7% |
(3.0)% |
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Adjusted funds from operations ("AFFO") (1) |
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Basic |
$ |
37,549 |
$ |
39,492 |
$ |
(1,943) |
(4.9)% |
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Per unit – Basic |
$ |
0.25 |
$ |
0.26 |
$ |
(0.01) |
(3.8)% |
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Payout ratio (%) |
89.9% |
85.3% |
(4.6)% |
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(1) Same-asset property cash NOI, FFO and AFFO are non-GAAP financial measures used by management to evaluate Crombie's business performance. See "Cautionary Statements" below and refer to Crombie's June 30, 2019 MD&A for a reconciliation of same-asset property cash NOI, FFO and AFFO. |
Same-asset property cash NOI increased by $1,950 or 3.2% compared to the second quarter of 2018 primarily due to rate increases on existing tenant leases, new leasing activity and revenues from land use intensifications at certain properties, comprising $1,648 (or 2.7%) of the increase, with the remaining $302 (or 0.5%) due to the favourable impact from the adoption of IFRS 16 'Leases' on January 1, 2019.
Operating income attributable to Unitholders decreased by $9,584 or 19.5% primarily impacted by Gain on disposal of investment properties of $16,661 in Q2 2019 versus $33,502 in Q2 2018.
FFO and AFFO for the quarter were negatively impacted primarily by reduced Property NOI from the disposition of properties in the current and prior quarters as well as increases in general and administrative costs, primarily related to the impact of increased unit prices on unit-based compensation.
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Six months ended June 30, |
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(In thousands of CAD dollars, except per unit amounts and as otherwise noted) |
2019 |
2018 |
Change |
Change (%) |
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Property revenue |
$ |
204,572 |
$ |
209,848 |
$ |
(5,276) |
(2.5)% |
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Property operating expenses |
60,588 |
62,829 |
2,241 |
3.6% |
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Property NOI |
$ |
143,984 |
$ |
147,019 |
$ |
(3,035) |
(2.1)% |
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Operating income attributable to unitholders |
$ |
87,677 |
$ |
74,478 |
$ |
13,199 |
17.7% |
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Same-asset property cash NOI (1) |
$ |
123,992 |
$ |
119,558 |
$ |
4,434 |
3.7% |
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FFO (1) |
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Basic |
$ |
90,027 |
$ |
92,189 |
$ |
(2,162) |
(2.3)% |
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Per unit – Basic |
$ |
0.59 |
$ |
0.61 |
$ |
(0.02) |
(3.3)% |
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Payout ratio (%) |
75.0% |
73.0% |
2.0% |
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AFFO (1) |
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Basic |
$ |
76,209 |
$ |
78,156 |
$ |
(1,947) |
(2.5)% |
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Per unit – Basic |
$ |
0.50 |
$ |
0.52 |
$ |
(0.02) |
(3.8)% |
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Payout ratio (%) |
88.5% |
86.1% |
2.4% |
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(1) Same-asset property cash NOI, FFO and AFFO are non-GAAP financial measures used by management to evaluate Crombie's business performance. See "Cautionary Statements" below and refer to Crombie's June 30, 2019 Management's Discussion and Analysis ("MD&A") for a reconciliation of same-asset property cash NOI, FFO and AFFO. |
Same-asset property cash NOI increased by $4,434 or 3.7% compared to the first six months of 2018 primarily due to rate increases on existing tenant leases, new leasing activity, and revenues from land use intensifications accounting for approximately $3,844 (3.2%) of the increase, with the remaining $590 (or 0.5%) increase due to the favourable impact from the adoption of IFRS 16.
Compared to the first half of 2018, operating income attributable to unitholders increased by $13,199 or 17.7% as a result of the sale of investment properties which reduced depreciation, amortization and financing costs, as well as an impairment in the second quarter of 2018.
As mentioned above, FFO and AFFO were negatively impacted by the disposition of properties and increases in general and administrative costs.
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OPERATING RESULTS |
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June 30, |
March 31, |
December 31, |
September 30, |
June 30, |
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Number of income-producing properties (1) |
284 |
285 |
288 |
289 |
290 |
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Gross leaseable area |
17,746,000 |
18,604,000 |
18,896,000 |
18,759,000 |
18,778,000 |
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Committed occupancy |
95.9% |
95.7% |
96.0% |
96.2% |
96.1% |
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Economic occupancy |
95.2% |
95.0% |
95.3% |
95.5% |
95.2% |
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(1) This includes properties owned at full and partial interests. |
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June 30, |
March 31, |
December 31, |
September 30, |
June 30, |
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Investment properties, fair value |
$ |
4,592,000 |
$ |
4,755,000 |
$ |
4,776,000 |
$ |
4,786,000 |
$ |
4,862,000 |
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Unencumbered investment properties (1) |
$ |
953,738 |
$ |
1,012,707 |
$ |
998,523 |
$ |
1,032,113 |
$ |
1,092,650 |
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Available liquidity (2) |
$ |
413,087 |
$ |
346,347 |
$ |
312,459 |
$ |
337,154 |
$ |
356,859 |
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Debt to gross book value – fair value (4) |
49.2% |
50.3% |
51.0% |
50.5% |
49.9% |
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Weighted average interest rate (3) |
4.19% |
4.20% |
4.20% |
4.14% |
4.18% |
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Debt to trailing 12 months EBITDA (4) |
8.21x |
8.56x |
8.66x |
8.56x |
8.50x |
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Interest coverage ratio (4) |
3.00x |
2.93x |
2.94x |
2.97x |
2.92x |
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(1) |
Refer to Crombie's June 30, 2019 MD&A liquidity and capital resources section. |
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(2) |
Refer to Crombie's June 30, 2019 MD&A highlights section. |
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(3) |
Weighted average interest rate is calculated based on interest rates for all outstanding fixed rate debt. |
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(4) |
Refer to Crombie's June 30, 2019 MD&A coverage ratio section. |
Operations and Leasing
Crombie's same-asset property cash NOI increased 3.2% from the comparable quarter last year driven by new leasing activity, rate increases on existing tenant leases, and land use intensifications. During the quarter, strong leasing activity increased economic occupancy to 95.2% and committed occupancy reached 95.9%. Renewal activity during the three months ended June 30, 2019 included renewals on 116,000 square feet of 2019 expiring leases with an increase of 6.5% over the expiring lease rate. Renewals on 1,000 square feet of future years expiring leases increased 13.7% over the expiring lease rate. Year to date, retail renewals have been strong with 127,000 square feet renewed at an increase of 6.8%. New leases increased occupancy by 82,000 square feet at June 30, 2019 at an average first year rate of $23.34 per square foot.
Development
During the quarter, Crombie expanded its major development pipeline to include 33 properties in Canada's fastest growing markets, an increase from 24 in the previous quarter. The Pointe-Claire Customer Fulfillment Centre that was announced in Q1 2019 has moved from pre-planning to active major development status, becoming Crombie's sixth active project. An additional three projects moved to pre-planning, two in Halifax, NS, and one in Langford, BC, two of which are new to the pipeline.
Crombie expects to invest, in total, approximately $611,000 in its first six active mixed-use major developments, with an estimated yield on cost of 5.4%-5.9%, at Crombie's share. Upon completion, these projects will total 737,000 square feet of commercial gross leasable area ("GLA") and 976,000 square feet of residential rental GLA. These six projects, totalling approximately 1.7 million square feet, are broken out geographically as follows: 520,000 in the Greater Toronto Area, 306,000 in Vancouver, 562,000 in Montreal, 165,000 in St. John's and 160,000 in Langford, near Victoria.
Once complete, Crombie's active major development pipeline will contribute to diversifying our portfolio and income stream, increasing our urban exposure and improving our overall portfolio quality. Crombie expects its remaining capital outlay to complete these six projects will be approximately $319,000 and will be incurred over the next two and a half years. Changes in construction costs and time to completion, and other development risks are described in Crombie's 2018 annual MD&A under "Risk Management".
Dispositions
During the three months ended June 30, 2019, Crombie had total proceeds of $186,400 from disposition activity. These asset sales have been transacted in line with IFRS fair values and are part of Crombie's funding strategy, which allows capital to be redirected into developments that have the potential to deliver higher returns, at the same time improving our portfolio quality.
Dispositions included a partial interest portfolio comprised of 26 properties across the country for total proceeds of $161,600. Crombie also closed on the sale of a 39,000 square foot retail property located at Markham Road in Toronto, ON for total proceeds of $21,500 and a land sale for total proceeds of $3,300 in Langford, BC.
As announced on May 25, 2019, Crombie has entered into a second agreement of purchase and sale to sell an 89% interest in a 15-property portfolio for an aggregate purchase price of approximately $193,300. The transaction is expected to close in the fall of 2019.
Highlighted Subsequent Events
Crombie disposed of two additional investment properties after June 30, 2019. They include an 89% interest in a retail property, in Charlottetown, PEI, totalling 50,000 square feet disposed on July 3, 2019, for total proceeds, before closing adjustments and transaction costs, of approximately $9,800. On July 4, 2019, total proceeds of $12,300, before closing adjustments and transaction costs, were received from the disposition of a 100% interest in a retail property, in Grimsby, ON, totalling 36,000 square feet.
On August 1, 2019, Crombie acquired a 50% interest in a retail property in Toronto from Sobeys. The property, totalling 15,000 square feet, was acquired for $9,500, excluding closing and transaction costs.
On August 2, 2019, Crombie transferred air rights at its Davie Street property to 1600 Davie Limited Partnership. As agreed upon in the 2016 joint venture arrangement, total gain on the transfer, before closing adjustments and transaction costs, is approximately $14,882 of which Crombie will recognize $7,441.
Conference Call Invitation
Crombie will provide additional details concerning its period ended June 30, 2019 results on a conference call to be held Thursday, August 8, 2019, beginning at 12:00 p.m. Eastern time. Accompanying the conference call will be a presentation which will be available on Crombie's website. To join this conference call you may dial (416) 764-8688 or (888) 390-0546. You may also listen to a live audio webcast of the conference call by visiting Crombie's website located at www.crombiereit.com on the Investor Relations section of our website. Replay will be available until midnight August 22, 2019 by dialing (416) 764-8677 or (888) 390-0541 and entering pass code 760654 #, or on the Crombie website for 90 days after the meeting.
Cautionary Statements
NOI, same-asset property cash NOI, FFO, AFFO, EBITDA, available liquidity and unencumbered investment properties are non-GAAP financial measures that do not have a standardized meaning under International Financial Reporting Standards ("IFRS"). These measures as computed by Crombie may differ from similar computations as reported by other entities and, accordingly, may not be comparable to other such entities. Management includes these measures as they represent key performance indicators to management and it believes certain investors use these measures as a means of assessing Crombie's financial performance. For additional information on these non-GAAP measures see our Management's Discussion and Analysis for the three and six months ended June 30, 2019.
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 2018 annual Management Discussion and Analysis under "Risk Management", could cause actual results, performance, achievements, prospects or opportunities to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and a reader should not place undue reliance on the forward-looking statements. There can be no assurance that the expectations of management of Crombie will prove to be correct. Readers are cautioned that such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from these statements. Crombie can give no assurance that actual results will be consistent with these forward-looking statements.
Specifically, this document includes, but is not limited to, forward-looking statements regarding:
(i) general growth and development opportunities and expansion across Canada including the expected impact of such growth from our mixed-use development pipeline, which could be impacted by 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;
(ii) overall indebtedness levels and terms and expectations relating to refinancing, which could be impacted by the level of acquisition and disposition activity that Crombie is able to achieve, future financing opportunities, future interest rates and market conditions; and,
(iii) expected timing and costs of development projects currently underway and planned into the future.
About Crombie REIT
Crombie Real Estate Investment Trust ("Crombie") is an unincorporated, open-ended real estate investment trust established under, and governed by, the laws of the Province of Ontario. Crombie is one of the country's leading national retail property landlords with a strategy to own, operate and develop a portfolio of high quality grocery- and drug store-anchored shopping centres, freestanding stores and mixed-use developments primarily in Canada's top urban and suburban markets. More information about Crombie can be found at www.crombiereit.com.
SOURCE Crombie REIT
Media Contact : Clinton Keay, CPA, CA, Chief Financial Officer and Secretary, Crombie REIT, (902) 755-8100