Crombie REIT Reports Fourth Quarter 2017 Results

NEW GLASGOW, NS, Feb. 21, 2018 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its financial results for the three months and year ended December 31, 2017.

Fourth quarter 2017 Highlights (In thousands of CAD dollars, except per unit amounts and as otherwise noted).

• Funds From Operations ("FFO"):
• FFO for the three months ended December 31, 2017 increased 2.8% to $47,237; or $0.31 per unit diluted, an increase of 1.5% per unit from the three months ended December 31, 2016.
• FFO payout ratio of 70.9% for the three months ended December 31, 2017 compared to 71.8% for the same period in 2016.
• Adjusted Funds From Operations ("AFFO"):
• AFFO for the three months ended December 31, 2017 increased 4.5% to $39,481; or $0.26 per unit diluted, an increase of 2.8% per unit from the three months ended December 31, 2016.
• AFFO payout ratio of 84.9% for the three months ended December 31, 2017 compared to 87.3% for the same period in 2016.
• Same-asset property cash NOI for the three months ended December 31, 2017 decreased by 2.7% or $1,712 ($61,483 compared to $63,195 for the three months ended December 31, 2016). The comparison is impacted by $3,000 of lease termination income recognized in 2016; excluding this, same-asset property cash NOI increased 2.1% or $1,288.
• Property revenue for the three months ended December 31, 2017 increased by $398 or 0.4% to $105,667 over the three months ended December 31, 2016.
• Occupancy, on a committed basis, was 95.2% at December 31, 2017 compared with 94.4% at December 31, 2016. Committed space at December 31, 2017 was 91,000 square feet at an average first year rate of $13.71 per square foot.
• Renewals during the quarter on 211,000 square feet of 2017 expiring leases with an increase of 32.6% over the expiring lease rate. Renewals during the quarter on 112,000 square feet of future years expiring leases with a decrease of 0.5% over the expiring lease rate.
• Completed disposition of one retail property totalling 67,000 square feet in Peterborough, ON for proceeds of approximately $15,600 before closing and transaction costs.
• Debt to gross book value (fair value basis) was 50.3% at December 31, 2017, compared to 50.3% at December 31, 2016.
• Interest service coverage for the year ended December 31, 2017 was 2.87 times EBITDA, compared to 2.97 times EBITDA at December 31, 2016. Weighted average interest rate on mortgages reduced to 4.33% from 4.46% at December 31, 2016.

"We are pleased to deliver solid Q4 and full year financial results with solid organic growth from the leasing and operational success of our defensive grocery anchored portfolio. This is a strong foundation from which to build the next phase of our growth as we transition to an owner/developer of mixed use properties in top urban markets" said Donald Clow, President and CEO of Crombie. "We made solid progress with our partner Westbank on our Davie Street, Vancouver mixed-use retail and residential development.  As well, our Belmont Market retail development on Vancouver Island and our expansion and redevelopment of Avalon Mall in St.John's Newfoundland are taking shape. During 2017 we continued to improve our strong financial condition with a significant expansion of available liquidity, the issuance of $225 million of unsecured debentures, and an unencumbered asset pool of almost $1 billion. In an industry facing headwinds from e-commerce, we believe Crombie's conveniently located defensive portfolio, extraordinary development pipeline, strong balance sheet, and fully integrated platform are well positioned to continue to unlock significant value creation."

Financial Highlights
Crombie's key financial metrics for the three months and year ended December 31, 2017 are as follows:
		Three months ended December 31,						Year ended December 31,
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)		2017			2016			2017			2016
Property revenue		$	105,667		$	105,269		$	411,813		$	400,001
Operating income attributable to Unitholders		$	27,048		$	31,478		$	163,696		$	125,130
Operating income attributable to Unitholders per unit - basic		$	0.18		$	0.21		$	1.09		$	0.89
Operating income attributable to Unitholders per unit - diluted		$	0.18		$	0.21		$	1.09		$	0.89
FFO ^(1) (3)
	Basic	$	47,237		$	45,964		$	181,152		$	168,283
	Diluted	$	48,222		$	47,705		$	186,582		$	175,189
	Per unit – basic	$	0.31		$	0.31		$	1.21		$	1.20
	Per unit – diluted	$	0.31		$	0.31		$	1.20		$	1.19
	Payout ratio (%)		70.9	%		71.8	%		73.6	%		74.7	%
AFFO^(2) (3)
	Basic	$	39,481		$	37,776		$	149,858		$	138,173
	Diluted	$	40,466		$	39,517		$	153,764		$	142,079
	Per unit – basic	$	0.26		$	0.26		$	1.00		$	0.99
	Per unit – diluted	$	0.26		$	0.25		$	1.00		$	0.98
	Payout ratio (%)		84.9	%		87.3	%		88.9	%		91.0	%
ACFO ^(3)		$	40,808		$	39,531		$	151,883		$	141,725
ACFO payout ratio (%)			82.1	%		83.4	%		87.7	%		88.7	%
Distributions per unit		$	0.22		$	0.22		$	0.89		$	0.89

⁽¹⁾ FFO for 2016 has been restated to include add back of incremental internal leasing costs.

⁽²⁾ AFFO for 2016 is now calculated based on REALPAC's February 2017 white paper.

⁽³⁾ FFO, AFFO and ACFO for 2016 have been adjusted for lease termination income from Target Canada and Best Buy/Future Shop and for subscription receipt payments.

The table below presents a summary of financial performance for the three months and year ended December 31, 2017 compared to the same periods in fiscal 2016.

(In thousands of CAD dollars, except per unit amounts and as otherwise noted)		Three months ended December 31,						Year ended December 31,
		2017				2016			2017			2016
Property revenue		$	105,667		$	105,269		$	411,813		$	400,001
Property operating expenses			31,622			29,395			121,069			115,306
Property NOI			74,045			75,874			290,744			284,695
NOI margin percentage			70.1	%		72.1	%		70.6	%		71.2	%
Other items:
	Gain on disposal of investment properties		2,474			9,761			2,474			37,490
	Impairment of investment properties		—			(6,000)			—			(6,000)
	Depreciation and amortization		(20,619)			(19,435)			(82,207)			(73,332)
	General and administrative expenses		(4,246)			(4,266)			(19,077)			(16,341)
	Finance costs – operations		(26,681)			(25,656)			(105,777)			(100,156)
	Income (loss) from equity accounted investments		(7)			—			61			—
Operating income before taxes			24,966			30,278			86,218			126,356
Taxes – current			2,082			—			2,078			(26)
Taxes – deferred			—			1,200			75,400			(1,200)
Operating income attributable to Unitholders			27,048			31,478			163,696			125,130
Finance costs – distributions to Unitholders			(33,511)			(32,987)			(133,259)			(125,737)
Finance income (costs) – change in fair value of financial instruments			18			(46)			145			312
Increase (decrease) in net assets attributable to Unitholders		$	(6,445)		$	(1,555)		$	30,582		$	(295)
Operating income attributable to Unitholders per Unit, Basic		$	0.18		$	0.21		$	1.09		$	0.89
Operating income attributable to Unitholders per Unit, Diluted		$	0.18		$	0.21		$	1.09		$	0.89
Basic weighted average Units outstanding (in 000's)			150,401			148,039			149,508			139,920
Diluted weighted average Units outstanding (in 000's)			150,533			148,179			155,492			140,063
Distributions per Unit to Unitholders		$	0.22		$	0.22		$	0.89		$	0.89

Growth Highlights
						Initial Purchase
(In thousands of CAD dollars)			GLA			Price		Occupancy		Key Tenants
Acquisitions of income properties in Q1
5309 Ellerslie Road	Edmonton	AB	50,000		$	8,320		100	%	Sobeys
Acquisitions of income properties in Q3
525-569 Rue Principale	St-Amable	QC	64,000			14,100		100	%	IGA, Familiprix
1225-1255 McCowan Road	Scarborough	ON	61,000			42,000		100	%	FreshCo, Shoppers Drug Mart
79-81 Chemin de Lavaltrie	Lavaltrie	QC	52,000			13,207		100	%	IGA
89 A-H Chemin de Lavaltrie	Lavaltrie	QC	44,000			14,950		100	%	Jean Coutu, Dollarama
10505 boulevard Sainte-Anne	Sainte-Anne-de-Beaupré	QC	38,000			6,900		100	%	IGA
375 boulevard Jessop	Rimouski	QC	41,000			9,100		100	%	IGA
1122 Carp Road	Stittsville	ON	31,000			7,671		100	%	GoodLife Fitness
			381,000		$	116,248

Operating Highlights
	Three months ended December 31,						Year ended December 31,
(In thousands of CAD dollars)	2017			2016			2017			2016
Property NOI	$	74,045		$	75,874		$	290,744		$	284,695
Non-cash straight-line rent		(3,280)			(3,840)			(13,542)			(12,876)
Non-cash tenant incentive amortization		3,507			3,328			12,768			11,622
Property cash NOI		74,272			75,362			289,970			283,441
Acquisitions, dispositions and development property cash NOI		12,789			12,167			46,857			42,900
Same-asset property cash NOI	$	61,483		$	63,195		$	243,113		$	240,541

Same-asset property cash NOI is as follows:

	Three months ended December 31,						Year ended December 31,
(In thousands of CAD dollars)	2017			2016			2017			2016
Retail and Mixed Use	$	58,941		$	60,474		$	232,521		$	229,464
Office		2,542			2,721			10,592			11,077
Same-asset property cash NOI	$	61,483		$	63,195		$	243,113		$	240,541

Property NOI, on a cash basis, excludes non-cash straight-line rent recognition and amortization of tenant incentive amounts. The $1,712 or 2.7% decrease in same-asset cash NOI for the three months ended December 31, 2017 over the same period in 2016 is primarily due to higher lease termination income recorded in the fourth quarter of 2016. During the fourth quarter of 2016, Crombie recorded $3,000 related to a vacated lease on a same-asset property. Excluding the impact of that $3,000, same-asset property cash NOI increased by $1,288 or 2.1%.

The $2,572 or 1.1% increase in same-asset cash NOI for the year ended December 31, 2017 over the same period in 2016 was impacted by improved occupancy rates; increased average rent per square foot from leasing activity; and, revenues from land use intensifications at certain properties; offset in part by the factors noted above. In addition, the increase was impacted by the June 2016 $58,823 investment in 10 Sobeys anchored properties which generated an additional $2,058 in same-asset property cash NOI during the year ended December 31, 2017. Excluding this additional $2,058 as well as the above-noted $3,000 in 2016 lease termination income, same-asset property cash NOI for the year increased by $3,514 or 1.5%.

Crombie emphasizes property NOI on a cash basis as it reflects the cash generated by the properties period-over-period.

Acquisitions, dispositions and development property cash NOI is as follows:

	Three months ended December 31,						Year ended December 31,
(In thousands of CAD dollars)	2017			2016			2017			2016
Acquisitions and dispositions property cash NOI	$	9,767		$	8,578		$	35,980		$	21,954
Development property cash NOI		3,022			3,589			10,877			20,946
Total acquisitions, dispositions and development property cash NOI	$	12,789		$	12,167		$	46,857		$	42,900

Growth in acquisitions and dispositions property cash NOI reflects the property acquisition and disposition activity throughout 2016 and 2017, including the acquisition of 41 properties and disposition of 19 retail properties in 2016. Development property cash NOI for the year ended December 31, 2016 includes $11,172 of lease termination income from Target Canada.

Capital Highlights
	December 31,
	2017	2016
Weighted Average Mortgage Term	5.4 years	5.9 years
Weighted Average Mortgage Interest Rate	4.33%	4.46%
Debt to Gross Book Value (Fair Value)	50.3%	50.3%
Interest Coverage	2.87x	2.97x
Debt Service Coverage	1.87x	1.96x

Crombie's objectives when managing its capital structure are to optimize weighted average cost of capital; maintain financial flexibility through 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, pursues a range of fixed rate secured and unsecured debt and maintains sustainable payout ratios. Crombie has an authorized floating rate revolving credit facility of up to $400,000, subject to available borrowing base, of which $8,168 was drawn as at December 31, 2017, and an additional $8,719 encumbered by outstanding letters of credit, resulting in significant available liquidity and a $100,000 unsecured floating rate bilateral credit facility, of which $45,000 was drawn at December 31, 2017.

Debt to gross book value on a fair value basis is 50.3% at December 31, 2017, compared to 50.3% at December 31, 2016.

General and Administrative Expenses

For the three months ended December 31, 2017, general and administrative expenses, as a percentage of property revenue, were 4.0%, a decrease of 0.1% from the same period in 2016, with expenses decreasing $20 or 0.5% and property revenue increasing 0.4%. For the year ended December 31, 2017, general and administrative expenses, as a percentage of property revenue, increased 0.5% compared to the year ended December 31, 2016, with expenses increasing $2,736 or 16.7% and property revenue increasing by 3.0%. Effective June 30, 2017, Crombie completed a tax reorganization which resulted in the elimination of the $76,400 deferred tax liability associated with Crombie's most significant corporate subsidiary. Costs related to the reorganization of approximately $1,059 are included in professional fees for the year ended December 31, 2017. Excluding these costs, general and administrative expenses represent 4.4% of property revenue for the year ended December 31, 2017.

General and administrative expenses also increased due to increases in employee recruitment, transition, hiring and personnel development costs.

Definition of Non-GAAP 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. 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.

• Property NOI is property revenue less property operating 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 investment property debt, senior unsecured notes 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 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; (ii) subscription receipts held in trust; and (iii) the amount of deferred income tax liability arising out of the fair value adjustment in respect of the indirect acquisitions of certain properties. Gross book value (fair value basis) differs from gross book value as defined above in that it includes Crombie's investment properties at fair value and excludes the book value of investment properties and related accumulated depreciation and amortization as well as tenant incentives and accumulated straight-line rent receivable.
• EBITDA is calculated as property revenue, adjusted to remove the impact of amortization of tenant incentives, less property operating 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 any related income taxes, plus depreciation and amortization expense, incremental internal leasing expenses, deferred income taxes, finance costs - distributions to Unitholders, impairment charges and recoveries and change in fair value of financial instruments.
• 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 leasing costs, and the settlement of effective interest rate swap agreements.
• ACFO is a measure of sustainable, economic cash flow and is calculated as cash flow from operating activities (computed in accordance with IFRS) adjusted for distributions to unitholders, changes in working capital, maintenance expenditures and deferred financing charges.

For additional information on these non-GAAP measures see our Management's Discussion and Analysis for the three months and year ended December 31, 2017.

Crombie's consolidated financial statements and management's discussion and analysis for the three months and year ended December 31, 2017 can be found on Crombie's website at www.crombiereit.com or on the SEDAR website for Canadian regulatory filings at www.sedar.com.

About Crombie

Crombie is an open-ended real estate investment trust established under, and governed by, the laws of the Province of Ontario. Crombie currently owns a portfolio of 284 income-producing properties across Canada, comprising approximately 19.0 million square feet 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.

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 2017 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, which could be impacted by real estate market cycles, the availability of labour, 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 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.

Conference Call Invitation

Crombie will provide additional details concerning its period ended December 31, 2017 results on a conference call to be held Thursday, February 22, 2018, 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 webcast of the conference call by visiting Crombie's website located at www.crombiereit.com under Investor Centre. Replay will be available until midnight March 8, 2018 by dialing [phone] or [phone] and entering pass code 3865119, or on the Crombie website for 90 days after the meeting.

SOURCE Crombie REIT

Media Contact, Glenn Hynes, FCPA, FCA, Executive Vice President, Chief Financial Officer and Secretary, Crombie REIT, [phone]

Related Links

www.crombiereit.com