Crombie REIT reports second quarter 2012 results

STELLARTON, NS, Aug. 7, 2012 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its results for the second quarter ended June 30, 2012.

2012 Highlights

• Crombie completed the acquisition of 27 retail properties in the quarter ended June 30, 2012 totalling $302.4 million; 28 retail properties totalling $316.3 million year to date which increases total assets in excess of $2.0 billion.
• Property revenue for the quarter ended June 30, 2012 of $63.6 million; an increase of $7.3 million or 12.9% over the $56.3 million for the quarter ended June 30, 2011.
• Same-asset cash net operating income ("NOI") for the quarter ended June 30, 2012 of $33.3 million; an increase of $0.5 million or 1.6%, compared to $32.8 million for the quarter ended June 30, 2011 and for the six months ended June 30, 2011, same-asset cash NOI of $66.5 million; an increase of $0.8 million or  1.3% over the same period in 2011.
• Occupancy on a committed basis was 93.5% at June 30, 2012 compared with 92.7% at March 31, 2012, and 94.7% at December 31, 2011.  Actual occupied space at June 30, 2012 was 91.8% compared with 93.3% at December 31, 2011 and 94.9% at June 30, 2011.
• Crombie completed leasing activity on 673,000 square feet of GLA during the six months ended June 30, 2012, which represents approximately 65.3% of its 2012 expiring lease square footage.
• Crombie's leasing activity included lease renewals during the first six months of 2012 on 268,000 square feet at an average rate of $13.30 per square foot; an increase of 9.4% over the expiring lease rate. Crombie's new leasing activity during the first six months was completed at an average rate of $13.58 per square foot.
• Funds from operations ("FFO") for the quarter ended June 30, 2012 was $0.27 per unit (payout ratio 82.5%) compared to $0.28 per unit (payout ratio 80.6%) for the same period in 2011.
• Adjusted funds from operations ("AFFO") for the quarter ended June 30, 2012 was $0.23 per unit (payout ratio 99.0%) compared to $0.20 per unit (payout ratio 110.5%) for the same period in 2011.
• On June 22, 2012, as part of the annual renewal, the revolving credit facility's accordion feature was exercised and approved by lenders which increased the maximum principal amount thereof to $200 million, subject to available borrowing base.

Commenting on the second quarter results, Donald E. Clow, FCA, President and Chief Executive Officer stated: "We are pleased to have successfully executed one of the most productive quarters in Crombie's history. With Q2 property acquisitions, development and redevelopment in excess of $300 million, we are delivering on our strategy to increase our pace of high quality growth and national geographic diversification while maintaining ample liquidity and financial flexibility in these uncertain global economic times. We successfully financed this Q2 growth with a Unit offering, long term mortgage and convertible debenture financings and utilization of our expanded $200 million revolving credit facility; all on very attractive terms.  Going forward we will continue to focus on building a national portfolio of primarily grocery and drug anchored retail centres supported  by a strong national real estate platform."

The table below presents a summary of financial performance for the quarter and six months ended June 30, 2012 compared to the same period in fiscal 2011. All amounts are presented in accordance with International Financial Reporting Standards ("IFRS").

(In millions of CAD dollars, except per unit amounts)		Three months ended June 30, 2012		Three months ended June 30, 2011		Six months ended June 30, 2012		Six months ended June 30, 2011
Property revenue		$63.646		$56.357		$123.093		$112.675
Property operating expenses		22.585		20.639		45.637		42.063
Property NOI		41.061		35.718		77.456		70.612
NOI margin percentage		64.5%		63.4%		62.9%		62.7%
Other items:
	Lease terminations	--		0.163		0.113		0.163
	Depreciation and amortization	(11.352)		(7.610)		(19.877)		(15.367)
	General and administrative  expenses	(3.138)		(2.861)		(6.108)		(5.361)
Operating income before finance costs and income taxes		26.571		25.410		51.584		50.047
Finance costs - operations		(16.735)		(15.684)		(32.485)		(31.095)
Operating income before income taxes		9.836		9.726		19.099		18.952
Taxes - deferred		0.600		(0.600)		0.900		(0.500)
Operating income attributable to Unitholders		10.436		9.126		19.999		18.452
Finance costs - distributions to Unitholders		(18.760)		(14.870)		(35.927)		(29.621)
Decrease in net assets attributable to Unitholders		$(8.324)		$(5.744)		$(15.928)		$(11.169)
Operating income attributable to Unitholders per Unit, Basic and Diluted		$0.12		$0.14		$0.25		$0.28
Property NOI - Cash Basis
(In millions of CAD dollars)		Three months ended June 30, 2012		Three months ended June 30, 2011		Six months ended June 30, 2012		Six months ended June 30, 2011
Property NOI		$41.061		$35.718		$77.456		$70.612
Non-cash tenant incentive amortization		1.559		1.121		3.072		2.467
Non-cash straight-line rent		(1.294)		(0.987)		(2.315)		(1.815)
Property cash NOI		41.326		35.852		78.213		71.264
Acquisition, disposition and redevelopment property cash NOI		8.011		3.051		11.730		5.619
Same-asset property cash NOI		$33.315		$32.801		$66.483		$65.645

Property NOI, on a cash basis, excludes straight-line rent recognition and tenant incentive amortization amounts. The 1.6% and 1.3% increases in same-asset cash NOI for the quarter ended and six months ended June 30, 2012 respectively are primarily the result of increased average rent per square foot from leasing activity during the past 12 months and improved recovery rates.

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

Same-Asset Property NOI
(In millions of CAD dollars)		Three months ended June 30, 2012		Three months ended June 30, 2011		Six months ended June 30, 2012		Six months ended June 30, 2011
Same-asset property revenue		$51.259		$50.709		$103.427		$102.015
Same-asset property operating expenses		18.290		17.971		37.754		36.789
Same-asset property NOI		$32.969		$32.738		$65.673		$65.226
Same-asset NOI margin %		64.3%		64.6%		63.5%		63.9%

Same-asset property NOI increased slightly over Q2 of 2011.  Same-asset property revenue of $51.3 million for the quarter ended June 30, 2012 increased by 1.1% compared to the same quarter in 2011.  Same-asset property revenue of $103.4 million for the six months ended June 30, 2012 was 1.4% higher than the six months ended June 30, 2011 due to increased base rent driven by lease renewal activity and recoveries as a result of higher recoverable property expenses.

Same-asset property operating expenses of $18.3 million for the quarter ended June 30, 2012 were 1.8% higher than the quarter ended June 30, 2011 due primarily to higher recoverable property expenses. Same-asset property expenses of $37.8 million for the six months ended June 30, 2012 increased by 2.6% from the six months ended June 30, 2011 due primarily to higher recoverable property expenses.

Acquisition, Disposition and Redevelopment Property NOI
(In millions of CAD dollars)		Three months ended June 30, 2012		Three months ended June 30, 2011		Six months ended June 30, 2012		Six months ended June 30, 2011
Property revenue		$12.387		$5.648		$19.666		$10.660
Property operating expenses		4.295		2.668		7.883		5.274
Property NOI		$8.092		$2.980		$11.783		$5.386
NOI margin %		65.3%		52.8%		59.9%		50.5%

For the quarter ended and six months ended June 30, 2012, the acquisition, disposition and redevelopment property results have significantly increased over the same periods in 2011.  The growth is impacted by the properties acquired in March, April and June 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 June 30, 2012 decreased by 0.2% from 5.1% to 4.9% 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 accruals.  Other increases are primarily due to higher travel costs, training and development, increased Trustee fees and costs associated with due diligence on potential property acquisitions.  The 2012 percentages are impacted by the significant growth in property revenue.

General and administrative expenses as a percentage of property revenue increased by 0.2% from 4.8% to 5.0% for the six months ended June 30, 2012 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, increased Trustee fees and costs associated with due diligence on potential property acquisitions.  The 2012 percentages are impacted by the significant growth in property revenue.

Finance Costs - Operations
(In millions of CAD dollars)		Three months ended June 30, 2012		Three months ended June 30, 2011		Six months ended June 30, 2012		Six months ended June 30, 2011
Same-asset finance costs		$11.620		$12.861		$23.711		$25.678
Acquisition, disposition and redevelopment finance costs		3.198		0.974		5.120		1.829
Amortization of effective swaps and deferred financing charges		1.917		1.849		3.654		3.588
Finance costs - operations		$16.735		$15.684		$32.485		$31.095

Same-asset finance costs for the six months ended June 30, 2012 decreased by $2.0 million or 7.7% compared to the six months ended June 30, 2011.  Same-asset finance costs for the three months ended June 30, 2012 decreased by $1.2 million or 9.6% compared to the three months ended June 30, 2011.  The savings are primarily due to the maturity of the interest rate swap agreement in July 2011 resulting in greater utilization of lower cost floating rate debt and interest savings from conversions of Convertible Debentures.  Growth in acquisition, disposition and redevelopment finance costs is consistent with Crombie's significant acquisition activity in 2012 and 2011.

FFO and AFFO

Crombie's FFO and AFFO had the following results for the second quarter ended June 30, 2012 and 2011:

	Three months ended June 30,			Variance
(In millions of CAD dollars, except per unit amounts)	2012		2011		$		%
FFO	$22.747		$18.457		$4.290		23.2%
FFO Per Unit - Basic	$0.27		$0.28		$(0.01)		(3.6)%
FFO Per Unit - Diluted	$0.26		$0.26		--		--%
FFO Payout ratio	82.5%		80.6%				(1.9%)
AFFO	$18.954		$13.456		$5.498		40.9%
AFFO Per Unit - Basic	$0.23		$0.20		$0.03		15.0%
AFFO Per Unit - Diluted	$0.22		$0.20		$0.02		10.0%
AFFO Payout ratio	99.0%		110.5%				11.5%

The increase in FFO for the quarter ended June 30, 2012 was primarily due to the significant acquisition activity during 2011 and 2012.

AFFO for the quarter ended June 30, 2012 was $19.0 million, an increase of $5.5 million or 40.9% over the same period in 2011, due primarily to the improved FFO results and the unfavourable swap agreement settlement of $1.7 million in the quarter ended June 30, 2011.

		Six months ended June 30,			Variance
(In millions of CAD dollars, except per unit amounts)		2012		2011		$		%
FFO		$42.048		$36.786		$5.262		14.3%
FFO Per Unit - Basic		$0.53		$0.56		$(0.03)		(5.4)%
FFO Per Unit - Diluted		$0.51		$0.53		$(0.02)		(3.8)%
FFO Payout ratio		85.4%		80.5%				(4.9)%
AFFO		$34.961		$28.715		$6.246		21.8%
AFFO Per Unit - Basic		$0.44		$0.43		$0.01		2.3%
AFFO Per Unit - Diluted		$0.43		$0.42		$0.01		2.4%
AFFO Payout ratio		102.8%		103.2%				0.4%

The increase in FFO for the six months ended June 30, 2012 was due primarily to significant acquisition activity which resulted in improved NOI results offset in part by increased operations finance costs related to the acquisitions.

AFFO for the six months ended June 30, 2012 was $35.0 million, an increase of $6.2 million or 21.8% over the same period in 2011, due primarily to the improved FFO results and the unfavourable swap agreement settlement of $1.7 million in the six months ended June 30, 2011.

Liquidity and Financings

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 $200 million, subject to available borrowing base of which $109.0 million was drawn as at June 30, 2012, and an additional $13.4 million encumbered by outstanding letters of credit, resulting in significant available liquidity.

Debt to gross book value is 52.4% (including convertible debentures) at June 30, 2012 compared to 49.1% at March 31, 2012, 52.5% at December 31, 2011 and 55.4% at June 30, 2011. 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 six months ended June 30, 2012 were 2.58 times EBITDA and 1.75 times EBITDA respectively.  This compares to 2.46 times EBITDA and 1.74 times EBITDA respectively for the six months ended June 30, 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 grocery-anchored and drug store-anchored retail properties. Crombie currently owns a portfolio of 166 investment properties in nine provinces, comprising approximately 13.7 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 period ended June 30, 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 second quarter ended June 30, 2012 results on a conference call to be held Wednesday, August 8, 2012, at 1:00 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 August 22, 2012, by dialling [phone] or [phone] and entering pass code 14206742, or on the Crombie website for 90 days after the meeting.

 

 

SOURCE: CROMBIE REIT

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