Third Quarter Summary
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)
- Operating income of $30,049
- Property revenue of $97,346
- Same-asset property cash NOI growth of 3.3%
- Debt to gross book value – fair value basis improved to 48.9%
- Renewals of 627,000 square feet at rents 4.7% above expiring rates
- Strong committed occupancy at 96.1%
- Gross proceeds on dispositions of $49,559
- Issuance of $200,000 of 7 Year 3.677% Series F Notes
NEW GLASGOW, NS, Nov. 6, 2019 /CNW/ – Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) today announced results for its third quarter ended September 30, 2019. Management will host a conference call to discuss the results at 9:00 a.m. (EST), November 7, 2019.
"Our solid operating fundamentals, improving balance sheet and innovative asset management are enabling our strategic focus to create value from our relationship with Sobeys/Empire and execution of our significant major developments" said Don Clow, President & CEO. "We are relentless in our efforts to accelerate the growth of our AFFO and NAV and are very pleased to see our first major developments coming online and beginning to produce high quality cash flow and recognized NAV."
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 nine months ended September 30, 2019 are as follows: |
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Three months ended September 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 |
$ |
97,346 |
$ |
100,505 |
$ |
(3,159) |
(3.1)% |
|
Property operating expenses |
27,205 |
27,660 |
455 |
1.6 % |
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Property net operating income ("NOI") |
$ |
70,141 |
$ |
72,845 |
$ |
(2,704) |
(3.7)% |
|
Operating income attributable to Unitholders |
$ |
30,049 |
$ |
12,818 |
$ |
17,231 |
134.4 % |
|
Same-asset property cash NOI (1) |
$ |
62,234 |
$ |
60,248 |
$ |
1,986 |
3.3 % |
|
Funds from operations ("FFO") (1) |
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|
Basic |
$ |
43,380 |
$ |
45,355 |
$ |
(1,975) |
(4.4)% |
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Per unit – Basic |
$ |
0.29 |
$ |
0.30 |
$ |
(0.01) |
(3.3)% |
|
Payout ratio (%) |
77.8% |
74.3% |
(3.5)% |
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Adjusted funds from operations ("AFFO") (1) |
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Basic |
$ |
36,417 |
$ |
37,865 |
$ |
(1,448) |
(3.8)% |
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Per unit – Basic |
$ |
0.24 |
$ |
0.25 |
$ |
(0.01) |
(4.0)% |
|
Payout ratio (%) |
92.7% |
89.0% |
(3.7)% |
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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 September 30, 2019 MD&A for a reconciliation of same-asset property cash NOI, FFO and AFFO. |
Same-asset property cash NOI increased by $1,986 or 3.3% compared to the third quarter of 2018 primarily due to rate increases on existing tenant leases, new leasing activity, lease termination income and revenues from lease modernizations and land use intensifications at certain properties, making up $1,690 (or 2.8%) of the increase, with the remaining increase due to the favourable impact from the adoption of IFRS 16 'Leases' on January 1, 2019.
Operating income attributable to Unitholders increased by $17,231 or 134.4% compared to the third quarter of 2018 primarily due to the disposition of investment properties, resulting in a decrease in property NOI of $2,074, offset by an increase of $8,215 in the gain on disposal of investment properties and a decrease of $2,069 in finance costs from operations due to repayments of debt. In addition, depreciation and amortization was lower by $10,788 compared to the third quarter of 2018 as a result of dispositions of investment properties and accelerated depreciation of $8,930 which was recorded in the third quarter of 2018.
FFO for the quarter was negatively impacted by 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. The decline in AFFO is primarily due to the disposition of properties in the current and prior quarters and the resulting decrease in maintenance expenditures on a square footage basis.
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Nine months ended September 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 |
$ |
301,918 |
$ |
310,353 |
$ |
(8,435) |
(2.7)% |
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Property operating expenses |
87,793 |
90,489 |
2,696 |
3.0 % |
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Property NOI |
$ |
214,125 |
$ |
219,864 |
$ |
(5,739) |
(2.6)% |
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Operating income attributable to Unitholders |
$ |
117,726 |
$ |
87,296 |
$ |
30,430 |
34.9 % |
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Same-asset property cash NOI (1) |
$ |
185,408 |
$ |
179,058 |
$ |
6,350 |
3.5 % |
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FFO (1) |
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Basic |
$ |
133,407 |
$ |
137,544 |
$ |
(4,137) |
(3.0)% |
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Per unit – Basic |
$ |
0.88 |
$ |
0.91 |
$ |
(0.03) |
(3.3)% |
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Payout ratio (%) |
75.9% |
73.4% |
2.5% |
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AFFO (1) |
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Basic |
$ |
112,626 |
$ |
116,021 |
$ |
(3,395) |
(2.9)% |
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Per unit – Basic |
$ |
0.74 |
$ |
0.77 |
$ |
(0.03) |
(3.9)% |
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Payout ratio (%) |
89.9% |
87.1% |
2.8% |
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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 September 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 $6,350 or 3.5% compared to the first nine months of 2018 primarily due to rate increases on existing tenant leases, new leasing activity, lease termination income and revenues from lease modernizations and land use intensifications accounting for approximately $5,463 (or 3.1%) of the increase, with the remaining increase due to the favourable impact from the adoption of IFRS 16.
Compared to the first nine months of 2018, operating income attributable to Unitholders increased by $30,430 or 34.9%. In addition to factors noted above, contributing to the increase was an impairment of $8,000 recognized on two retail properties 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, primarily related to the impact of increased unit price on unit-based compensation expense.
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OPERATING RESULTS |
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September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
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Number of investment properties (1) |
284 |
284 |
285 |
288 |
289 |
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Gross leaseable area (2) |
17,732,000 |
17,746,000 |
18,604,000 |
18,896,000 |
18,759,000 |
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Economic occupancy (3) |
95.6% |
95.2% |
95.0% |
95.3% |
95.5% |
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Committed occupancy (4) |
96.1% |
95.9% |
95.7% |
96.0% |
96.2% |
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(1) |
This includes properties owned at full and partial interests. |
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(2) |
Gross leaseable area is adjusted to reflect Crombie's proportionate interest in partially-owned properties. |
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(3) |
Represents space currently occupied. |
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(4) |
Represents current economic occupancy plus lease contracts for future occupancy of currently vacant space. |
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September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
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Investment properties, fair value |
$ |
4,626,000 |
$ |
4,592,000 |
$ |
4,755,000 |
$ |
4,776,000 |
$ |
4,786,000 |
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Unencumbered investment properties (1) |
$ |
960,275 |
$ |
953,738 |
$ |
1,012,707 |
$ |
998,523 |
$ |
1,032,113 |
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Available liquidity (2) |
$ |
450,967 |
$ |
413,087 |
$ |
346,347 |
$ |
312,459 |
$ |
337,154 |
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Debt to gross book value – fair value (4) |
48.9% |
49.2% |
50.3% |
51.0% |
50.5% |
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Weighted average interest rate (3) |
4.22% |
4.19% |
4.20% |
4.20% |
4.14% |
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Debt to trailing 12 months EBITDA (4) |
8.35x |
8.21x |
8.56x |
8.66x |
8.56x |
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Interest coverage ratio (4) |
2.90x |
3.00x |
2.93x |
2.94x |
2.97x |
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(1) |
Refer to Crombie's September 30, 2019 MD&A liquidity and capital resources section. |
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(2) |
Refer to Crombie's September 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 September 30, 2019 MD&A coverage ratio section. |
Operations and Leasing
Crombie's same-asset property cash NOI increased 3.3% from the comparable quarter last year driven by new leasing activity, rate increases on existing tenant leases, lease termination income and revenues from lease modernizations and land use intensifications. During the quarter, strong leasing activity increased economic occupancy to 95.6% and committed occupancy reached 96.1%. Renewal activity during the three months ended September 30, 2019 included renewals on 387,000 square feet of 2019 expiring leases with an increase of 3.3% over the expiring lease rate. Renewals on 240,000 square feet of future years expiring leases increased 6.6% over the expiring lease rate. Year to date, retail renewals have been solid with 422,000 square feet renewed at an increase of 5.9%. New leases increased occupancy by 201,000 square feet at September 30, 2019 at an average first year rate of $19.81 per square foot.
Development
Crombie expects to invest, in total, approximately $610,000 in its first six active mixed-use major developments, with an estimated yield on cost of 5.6%-6.0%, at Crombie's share. Upon completion, these projects will total 759,000 square feet of commercial gross leasable area ("GLA") and 961,000 square feet of residential rental GLA and are broken out geographically as follows: 520,000 in the Greater Toronto Area, 308,000 in Vancouver, 567,000 in Montreal, 165,000 in St. John's and 160,000 in Langford, near Victoria.
Once complete, Crombie's active major development pipeline will increase our presence in the country's top urban markets, diversify and improve our overall portfolio quality, and are expected to create significant NAV and AFFO growth. Crombie estimates its remaining capital outlay to complete these six projects is approximately $286,000 and will be incurred over the next two years. These estimates are subject to 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 September 30, 2019, Crombie had total gross proceeds of $22,200 from disposition activity. These asset sales have been transacted in line with IFRS fair values and are part of Crombie's funding strategy, which redirects capital into developments that have the potential to deliver higher returns, at the same time improving our portfolio quality.
Dispositions included an 89% interest in a retail property, in Charlottetown, PE, totalling 44,000 square feet disposed on July 3, 2019, for total proceeds, before 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. In addition, on August 2, 2019, Crombie transferred air rights at its Davie Street property to 1600 Davie Limited Partnership for total proceeds, before transaction costs, of approximately $27,400.
Acquisitions
During the third quarter, Crombie acquired a 50% interest in a retail property with future development potential located on Broadview Avenue in Toronto, ON for $9,500, excluding closing and transaction costs, from Empire Company Limited.
Special Distribution
Crombie anticipates that it will declare a special distribution to Unitholders in the fourth quarter of 2019 as a result of the increase in taxable income generated by the capital recycling transactions completed during the nine-month period ended September 30, 2019 and those anticipated to be completed during the fourth quarter of 2019. Crombie intends to make the special distribution payable partially in cash and partially in units, to provide Unitholders with cash to help fund any additional tax that may arise associated with the special distribution, while preserving most of the net cash proceeds generated by the sale transactions for reinvestment in our value creation opportunities with Empire and our major developments in line with Crombie's strategy.
The amount of Crombie's special distribution is expected to be between $0.55 and $0.65 per unit based on the number of units outstanding as of the date hereof which will be declared payable on or before December 31, 2019 to Unitholders of record on the date the distribution becomes payable.
Crombie intends to make a portion of the special distribution payable by the issuance of additional units (subject to receipt of all regulatory approvals) based on the market price of the units on the record date of the distribution. Immediately following the special distribution, the outstanding units of Crombie will be consolidated such that each Unitholder will hold, after the consolidation, the same number of units as such Unitholder held before the special distribution. The amount of the special distribution payable in units will increase the tax cost basis of Unitholders' consolidated units. The remaining portion of the special distribution will be payable in cash to help offset income tax obligations, if any, that may arise for Unitholders from the additional taxable income distributed via the special distribution. A further update will be provided when the special distribution is declared including confirmation of the precise amount and mix of consideration of the special distribution.
Crombie cautions that the foregoing comments are not intended to be, and should not be construed as, legal or tax advice to any Unitholder. Crombie recommends that Unitholders consult their own tax advisors regarding the income tax consequences to them of this anticipated special distribution and related unit consolidation.
Highlighted Subsequent Events
On October 7, 2019, Crombie disposed of an 89% interest in 15 retail properties totaling 721,000 square feet of gross leaseable area. Total proceeds, before closing adjustments and transaction costs, were approximately $193,300. As a result of this transaction, Crombie expects to recognize a gain of approximately $30,000 in the fourth quarter of 2019.
In addition, on October 29, 2019 Crombie acquired a 100% interest in the retail component of a mixed-use development totalling 29,000 square feet for $6,611, excluding closing and transaction costs.
Conference Call Invitation
Crombie will provide additional details concerning its period ended September 30, 2019 results on a conference call to be held Thursday, November 7, 2019, beginning at 9:00 a.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 November 21, 2019 by dialing (416) 764-8677 or (888) 390-0541 and entering pass code 612420 #, 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 nine months ended September 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;
(iv) a special distribution of income, including the form and amount of such distribution, which will be determined at a future date.
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