Crombie REIT reports first quarter 2012 results

STELLARTON, NS, May 10, 2012 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its results for the first quarter ended March 31, 2012.

2012 Highlights

• Property revenue for the quarter ended March 31, 2012 of $59.4 million; an increase of $3.1 million or 5.6% over the $56.3 million for the quarter ended March 31, 2011.
  
  
• Same-asset cash net operating income ("NOI") for the quarter ended March 31, 2012 of $33.2 million; an increase of $0.3 million or 1.0%, compared to $32.9 million for the quarter ended March 31, 2011.
  
  
• Property leased space on a committed basis was 92.7% at March 31, 2012 compared with 94.7% at December 31, 2011.  Actual occupied space at March 31, 2012 was 91.0% compared with 93.3% at December 31, 2011 and 95.3% at March 31, 2011.
  
  
• Crombie completed lease renewals during the quarter on 116,000 square feet at an average rate of $15.51 per square foot; an increase of 6.14% over the expiring lease rate. Crombie completed new leasing activity during the quarter at $16.60 per square foot.
  
  
• Crombie completed new leasing and renewal activity on 207,000 square feet of GLA during the quarter ender March 31, 2012, which represents approximately 20.1% of its 2012 expiring lease square footage.
  
  
• Funds from operations ("FFO") for the quarter ended March 31, 2012 was $0.26 per unit (payout ratio 88.9%) compared to $0.28 per unit (payout ratio 80.5%) for the same period in 2011.
  
  
• Adjusted funds from operations ("AFFO") for the quarter ended March 31, 2012 was $0.22 per unit (payout ratio 107.2%) compared to $0.23 per unit (payout ratio 96.7%) for the same period in 2011.

Commenting on the first quarter results, Donald E. Clow, FCA, President and Chief Executive Officer stated: "We are pleased to be making significant progress on our strategy to evolve Crombie REIT from a dominant regional player to a high quality owner of a national portfolio of primarily grocery and drug anchored retail properties and to build a national platform for operations and growth.

The acquisition of 22 retail properties from Goldmanco for approximately $255 million in April, 2012 added approximately 850,000 square feet of primarily grocery and drug store freestanding and anchored properties in Ontario and western Canada.  It is the largest acquisition from third parties in the REIT's history.

We expected 2012 would be a challenging year for some Canadian retailers and this has proven to be correct.  Crombie is focused on creating value to improve our portfolio from these opportunities and we have solid momentum in our re-leasing and redevelopment efforts."

The table below presents a summary of financial performance for the quarter ended March 31, 2012 compared to the same period in fiscal 2011. All amounts are presented in accordance with International Financial Reporting Standards ("IFRS").

			Three months ended		Three months ended
(In millions of CAD dollars, except per unit amounts)			Mar. 31, 2012		Mar. 31, 2011
Property revenue			$59.447		$56.318
Property operating expenses			23.052		21.424
Property NOI			36.395		34.894
NOI margin percentage			61.2%		62.0%
Other items:
	Lease terminations		0.113		--
	Depreciation and amortization		(8.525)		(7.757)
	General and administrative  expenses		(2.970)		(2.500)
Operating income before finance costs and income taxes			25.013		24.637
Finance costs - operations			(15.750)		(15.411)
Operating income before income taxes			9.263		9.226
Income Taxes - deferred			0.300		0.100
Operating income attributable to Unitholders			9.563		9.326
Finance costs - distributions to Unitholders			(17.167)		(14.751)
Decrease in net assets attributable to Unitholders			$(7.604)		$(5.425)
Operating income attributable to Unitholders per Unit, Basic and Diluted			$0.13		$0.14

Property NOI - Cash Basis

		Three months ended		Three months ended
(In millions of CAD dollars)		Mar. 31, 2012		Mar. 31, 2011
Property NOI		$36.395		$34.894
Non-cash tenant incentive amortization		1.513		1.346
Non-cash straight-line rent		(1.021)		(0.828)
Property cash NOI		36.887		35.412
Acquisition, disposition and redevelopment property cash NOI		3.719		2.568
Same-asset property cash NOI		$33.168		$32.844

Property NOI, on a cash basis, excludes straight-line rent recognition and tenant incentive amortization amounts. The 1.0% increase in same-asset cash NOI for the quarter ended March 31, 2012 is primarily the result of increased average rent per square foot from leasing activity during the past 12 months.

Crombie believes that cash NOI is a better measure of AFFO sustainability and same-asset property performance.

Same-Asset Property NOI

		Three months ended		Three months ended
(In millions of CAD dollars)		Mar. 31, 2012		Mar. 31, 2011
Same-asset property revenue		$52.074		$51.111
Same-asset property operating expenses		19.464		18.818
Same-asset property NOI		$32.610		$32.293
Same-asset NOI margin %		62.6%		63.2%

Same-asset property NOI increased slightly over Q1 of 2011.  Same-asset property revenue of $52.1 million for the quarter ended March 31, 2012 increased by 1.9% compared to the same quarter in 2011.

Same-asset property operating expenses of $19.5 million for the quarter ended March 31, 2012 were 3.4% higher than the quarter ended March 31, 2011 due primarily to higher recoverable property expenses, primarily recoverable property taxes.

Acquisition, Disposition and Redevelopment Property NOI

		Three months ended		Three months ended
(In millions of CAD dollars)		Mar. 31, 2012		Mar. 31, 2011
Acquisition, disposition and redevelopment property revenue		$7.373		$5.207
Acquisition, disposition and redevelopment property expenses		3.588		2.606
Acquisition, disposition and redevelopment property NOI		$3.785		$2.601
Acquisition, disposition and redevelopment NOI margin %		51.3%		50.0%

Acquisition, disposition and redevelopment property results include the property acquired in March 2012, the properties acquired in December, September and May 2011, the property disposed of in October 2011 and the operating results of six properties that were under redevelopment or recently completed development.

General and Administrative Expenses

General and administrative expenses for the quarter ended March 31, 2012 increased by 0.6% from 4.4% to 5.0% as a percentage of property revenue, when compared to the same period in 2011.  Salaries and benefits increased due to the hiring of additional staff related to continued growth and higher incentive payments.  Other increases are primarily due to higher travel costs, training and development and increased Trustee fees.

Finance Costs - Operations

		Three months ended		Three months ended
(In millions of CAD dollars)		Mar. 31, 2012		Mar. 31, 2011
Same-asset finance costs		$12.091		$12.817
Acquisition, disposition and redevelopment finance costs		1.922		0.855
Amortization of effective swaps and deferred financing charges		1.737		1.739
Finance costs - operations		$15.750		$15.411

Same-asset finance costs for the quarter ended March 31, 2012 decreased by $0.7 million or 5.7% compared to the quarter ended March 31, 2011 primarily due to the maturity of the interest rate swap agreement in July 2011 resulting in an increase in lower cost floating rate debt and the conversions of Convertible Debentures.

FFO and AFFO

Crombie's FFO and AFFO had the following results for the first quarter ended March 31, 2012 and 2011:

		Three months ended				Variance
		Mar. 31,
(In millions of CAD dollars, except per unit amounts)		2012		2011		$		%
FFO		$19.301		$18.329		$0.972		5.3%
FFO Per Unit - Basic		$0.26		$0.28		(0.02)		(7.1)%
FFO Per Unit - Diluted		$0.25		$0.26		(0.01)		(3.8)%
FFO Payout ratio		88.9%		80.5%				(8.4)%
AFFO		$16.007		$15.259		$0.748		4.9%
AFFO Per Unit - Basic		$0.22		$0.23		$(0.01)		(4.3)%
AFFO Per Unit - Diluted		$0.21		$0.22		$(0.01)		(4.5)%
AFFO Payout ratio		107.2%		96.7%				(10.5)%

Crombie's FFO and AFFO payout ratio for the quarter ended March 31, 2012 have been impacted by the following:

• Distributions for the first quarter of 2012 increased by $615 compared to the first quarter of 2011 related to the 4,630,000 REIT Units and 3,655,200 Class B LP Units issued on March 29, 2012. This impacted the March 31, 2012 AFFO payout ratio by approximately 3.8%. The $116,925 in net proceeds raised was used to fund the $255,000 in property acquisitions completed on April 10, 2012.
  
• Approximately $22,000 of the net proceeds from Crombie's equity issuance on October 20, 2011 has not been fully deployed in property acquisitions. The additional distributions related to these net proceeds have impacted the March 31, 2012 AFFO payout ratio by approximately 1.3%.
• The AFFO payout ratio is further impacted by the reduced occupancy rate of the properties from 93.3% occupied at December 31, 2011 to 91.0% at March 31, 2012. The occupancy rate in the quarter has primarily been impacted by: the maturity of the Walmart lease in Downsview Plaza in Halifax, Nova Scotia; the temporary vacancy in Barrington Tower in Halifax, Nova Scotia as the property is being developed to accommodate the needs of a new tenant later in 2012; and, by the loss of five Hart locations due to CCAA filing.

Liquidity and Financings

Crombie's objectives when managing its capital structure are to optimize weighted average cost of capital; maintain financial flexibility and access to long-term debt and equity markets; and maintain ample liquidity. In pursuit of these objectives, Crombie utilizes staggered debt maturities, optimizes its ongoing exposure to floating rate debt and maintains sustainable payout ratios. Crombie has an authorized floating rate revolving credit facility of up to $150 million, of which $30.0 million was drawn as at March 31, 2012, and an additional $11.5 million encumbered by outstanding letters of credit, resulting in significant available liquidity.

Debt to gross book value is 49.1% (including convertible debentures) at March 31, 2012 compared to 52.5% at December 31, 2011 and 54.3% at March 31, 2011. Crombie's debt to gross book value at March 31, 2012 is lower than usual due to the $120.1 million raised on March 29, 2012 which helped fund the property acquisitions on April 10, 2012. 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 quarter ended March 31, 2012 were 2.49 times EBITDA and 1.71 times EBITDA respectively.  This compares to 2.47 times EBITDA and 1.75 times EBITDA respectively for the quarter ended March 31, 2011.

Definition of Non-IFRS Measures

Certain financial measures included in this news release do not have standardized meaning under IFRS 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.

• Property NOI is property revenue less property expenses.
• Property Cash NOI is Property NOI adjusted to remove non-cash straight-line rent and tenant incentive amortization.
• 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 deferred financing charges, accumulated depreciation and amortization in respect of Crombie's properties (and related intangible assets) and cost of any below-market component of properties less (i) the amount of any receivable reflecting interest rate subsidies on any debt assumed by Crombie and (ii) the amount of deferred 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 tenant incentives, less property expenses and general and administrative expenses.
• FFO is calculated as Increase (decrease) in net assets attributable to Unitholders (computed in accordance with IFRS), excluding gains (or losses) from sales of depreciable real estate and extraordinary items, plus depreciation and amortization expense, deferred income taxes, finance costs - distributions to Unitholders and after adjustments for equity accounted entities and non-controlling interests.
• AFFO is defined as FFO adjusted for non-cash amounts affecting revenue, amortization of effective swap agreements, less maintenance capital expenditures, maintenance tenant incentives and deferred leasing costs, and the settlement of effective interest rate swap agreements.

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 161 investment properties in nine provinces, comprising approximately 13.5 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 2011 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 announced acquisition of properties and other pending growth opportunities, the anticipated funding of those acquisitions and the anticipated extent of the accretion of those 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's discussion and analysis for the quarter ended March 31, 2012 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 first quarter ended March 31, 2012 results on a conference call to be held Friday, May 11, 2012, at 12:00 p.m. Eastern time. To join this conference call you may dial [phone] or [phone]. 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 May 25, 2012, by dialling [phone] or [phone] and entering pass code 71609328, or on the Crombie website for 90 days after the meeting.

 

 

 

Glenn Hynes, FCA
Chief Financial Officer and Secretary
Crombie REIT
[phone]