Crombie REIT reports third quarter fiscal 2016 results

NEW GLASGOW, NS, Nov. 8, 2016 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its financial results for the three and nine months ended September 30, 2016.

Third quarter 2016 Highlights (In thousands of CAD dollars, except per unit amounts and as otherwise noted).

• Portfolio fair value of $4.7 billion.
• Completed acquisitions totalling 2,617,000 square feet for $539,833 before closing and transaction costs, including 36 retail properties; a 50% interest in three distribution centres; two parcels of development land adjacent to existing Crombie properties and a 50% interest in an additional development property; and, invested $58,823 in the renovation and expansion of 10 existing Sobeys anchored properties.
• Completed dispositions of 14 retail properties totalling 915,000 square feet for proceeds of approximately $163,050 before closing and transaction costs.
• Funds From Operations ("FFO"):
  • FFO, as adjusted, for the nine months ended September 30, 2016 increased 8.7% to $120,783; or $0.87 per unit diluted, an increase of $0.03 or 3.5% per unit from the nine months ended September 30, 2015.
  • FFO for the three months ended September 30, 2016 increased 25.5% to $45,567; or $0.31 per unit diluted, an increase of $0.03 or 10.9% per unit from the three months ended September 30, 2015.
  • FFO, as adjusted, payout ratio of 76.8% for the nine months ended September 30, 2016 compared to 78.6% for the same period in 2015.
  • FFO payout ratio of 72.2% for the three months ended September 30, 2016 compared to 80.3% for the same period in 2015.
• Adjusted Funds From Operations ("AFFO"):
  • AFFO for the nine months ended September 30, 2016 increased 9.6% to $102,287; or $0.74 per unit diluted, an increase of $0.03 or 4.3% per unit from the nine months ended September 30, 2015.
  • AFFO for the three months ended September 30, 2016 increased 26.4% to $38,808; or $0.26 per unit diluted, an increase of $0.03 or 11.7% per unit from the three months ended September 30, 2015.
  • AFFO payout ratio of 90.7% for the nine months ended September 30, 2016 compared to 93.6% for the same period in 2015.
  • AFFO payout ratio of 84.8% for the three months ended September 30, 2016 compared to 95.0% for the same period in 2015.
• Same-asset property cash NOI for the nine months ended September 30, 2016 increased by 2.5% or $4,280 ($174,739 compared to $170,459 for the nine months ended September 30, 2015). Increase in same-asset property cash NOI for the three months ended September 30, 2016 of 3.7% or $2,106 ($59,011 compared to $56,905 for the three months ended September 30, 2015).
• Property revenue for the nine months ended September 30, 2016 of $294,732, an increase of $17,713 or 6.4% over the nine months ended September 30, 2015. Third quarter property revenue of $98,757, increased $9,146, or 10.2% over third quarter 2015.
• Occupancy, on a committed basis, was 94.2% at September 30, 2016 compared with 93.6% at December 31, 2015 and 93.2% at September 30, 2015.
• Crombie's renewal activity during the nine months ended September 30, 2016 included:
  • Renewals on 400,000 square feet of 2016 expiring leases at an average rate of $16.56 per square foot, an increase of 8.8% over the expiring lease rate.
  • Renewals on 172,000 square feet of 2017 and later expiring leases at an average rate of $17.51 per square foot, an increase of 4.0% over the expiring lease rate.
• New leases and expansions increased occupancy by 223,000 square feet at September 30, 2016 at an average first year rate of $15.76 per square foot. 132,000 square feet of space was committed at September 30, 2016 at an average first year rate of $10.03 per square foot.
• Debt to gross book value (fair value basis) was 50.5% at September 30, 2016, compared to 52.3% at September 30, 2015.
• Interest service coverage for the nine months ended September 30, 2016 was 2.92 times EBITDA. Weighted average interest rate on mortgages reduced to 4.54% from 4.76% at September 30, 2015.
• Recognized $10,344 in property revenue during the second quarter of 2016 related to settlement proceeds from Target Canada for three leases vacated in May 2015. This amount has been adjusted out of FFO for the nine months ended September 30, 2016.

Donald E. Clow, FCPA, FCA, President and CEO commented: "Our third quarter results reflect improvements from all of our key strategic initiatives. To date in 2016, we have successfully completed the accretive acquisition of $600 million in new properties and investments in expansions and improvements of existing properties, including over $440 million through our strategic relationship with Sobeys and Empire. We also disposed 14 retail properties for approximately $160 million. This acquisition and disposition activity, along with strong leasing activity and continued land use intensification investments, helped deliver solid financial performance. Our operational improvements led to a reduction in our AFFO payout ratio to 84.8% in the quarter and 90.7% year to date. We are encouraged by our current momentum and excited to be commencing our first Major Development project in 2017. I would also like to take this opportunity to welcome Jason Shannon, President and Chief Operating Officer of Shannex Incorporated, as a valued recent appointee to our Board of Trustees."

Financial Highlights

Crombie's key financial metrics for the three and nine months ended September 30, 2016 are as follows:

	Three months ended September 30,						Nine months ended September 30,
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)	2016			2015			2016			2015
Property revenue	$	98,757		$	89,611		$	294,732		$	277,019
Operating income attributable to Unitholders	$	23,126		$	17,929		$	93,652		$	51,784
Operating income attributable to Unitholders per unit - basic	$	0.16		$	0.14		$	0.68		$	0.40
Operating income attributable to Unitholders per unit - diluted	$	0.16		$	0.14		$	0.68		$	0.40
FFO, as adjusted – basic	$	45,567		$	36,312		$	120,783		$	111,163
FFO, as adjusted – diluted	$	47,299		$	38,043		$	125,948		$	116,668
FFO, as adjusted per unit – basic	$	0.31		$	0.28		$	0.88		$	0.85
FFO, as adjusted per unit – diluted	$	0.31		$	0.28		$	0.87		$	0.84
FFO, as adjusted payout ratio (%)		72.2%			80.3%		76.8%			78.6%
AFFO – basic	$	38,808		$	30,694		$	102,287		$	93,344
AFFO – diluted	$	40,540		$	31,673		$	105,208		$	96,605
AFFO per unit – basic	$	0.26		$	0.23		$	0.75		$	0.71
AFFO per unit – diluted	$	0.26		$	0.23		$	0.74		$	0.71
Distributions per unit	$	0.22		$	0.22		$	0.67		$	0.67
AFFO payout ratio (%)		84.8%			95.0%			90.7%			93.6%

Operating income attributable to Unitholders for the nine months ended September 30, 2016 was impacted by the $27,729 gain on disposal of 14 retail properties during the first nine months of 2016, and lease termination income of $10,443 in 2016 compared to $4,167 in 2015.

		Three months ended September 30,									Nine months ended September 30,
(In thousands of CAD dollars)			2016			2015		Variance				2016			2015		Variance
FFO as calculated based on REALpac recommendations		$	45,567		$	36,312		$	9,255		$	130,514		$	114,124		$	16,390
Adjustments
	Net lease termination income from Target Canada		—			—			—			(10,344)			—			(10,344)
	Subscription Receipts Adjustment Payment		—			—			—			613			—			613
	Lease termination income, non-cash		—			—			—			—			(2,961)			2,961
FFO, as adjusted		$	45,567		$	36,312		$	9,255		$	120,783		$	111,163		$	9,620

FFO for the nine months ended September 30, 2016 has been adjusted to remove $10,344 in lease termination income from Target Canada for three leases vacated in May 2015 and for $613 in finance expense related to subscription receipts issued in May 2016 and converted to REIT Units on June 29, 2016. FFO for the nine months ended September 30, 2015 has been adjusted to remove $2,961 in non-cash lease termination income. The increase in FFO and AFFO for the nine months ended September 30, 2016 compared to the same period in 2015 was primarily due to improved operating results from leasing and acquisition activity, offset in part by lower cash lease termination in 2016.

The table below presents a summary of financial performance for the three and nine months ended September 30, 2016 compared to the same period in fiscal 2015.

		Three months ended September 30,						Nine months ended September 30,
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)			2016			2015			2016			2015
Property revenue		$	98,757		$	89,611		$	294,732		$	277,019
Property operating expenses		27,732			26,892			85,911			84,403
Property NOI		71,025			62,719			208,821			192,616
NOI margin percentage		71.9%			70.0%			70.9%			69.5%
Other items:
	Gain (loss) on disposal of investment properties	1,225			—			27,729			(2)
	Impairment of investment properties	—			—			—			(5,275)
	Depreciation and amortization	(19,933)			(16,340)			(53,897)			(49,787)
	General and administrative expenses	(3,546)			(3,923)			(12,075)			(10,860)
	Finance costs – operations	(25,342)			(24,306)			(74,500)			(74,011)
Operating income before taxes		23,429			18,150			96,078			52,681
Taxes – current		(3)			(621)			(26)			(2,897)
Taxes – deferred		(300)			400			(2,400)			2,000
Operating income attributable to Unitholders		23,126			17,929			93,652			51,784
Finance costs – distributions to Unitholders		(32,890)			(29,153)			(92,750)			(87,340)
Finance income (costs) – change in fair value of financial instruments		789			(3,112)			358			(3,012)
Increase (decrease) in net assets attributable to Unitholders		$	(8,975)		$	(14,336)		$	1,260		$	(38,568)
Operating income attributable to Unitholders per Unit, Basic		$	0.16		$	0.14		$	0.68		$	0.40
Operating income attributable to Unitholders per Unit, Diluted		$	0.16		$	0.14		$	0.68		$	0.40
Basic weighted average Units outstanding (in 000's)		147,613			130,833			137,194			130,655
Diluted weighted average Units outstanding (in 000's)		147,754			130,984			141,676			130,816
Distributions per Unit to Unitholders		$	0.22		$	0.22		$	0.67		$	0.67

Growth Highlights

(In thousands of CAD dollars)			GLA		Initial Purchase Price			Occupancy		Key Tenants
Acquisitions in Q1
5700 50th Street	Beaumont	AB	21,000		$	5,500		100%		Beaumont Home Hardware, Dollarama
Acquisitions in Q2
Mercier Boulevard	St-Jean-Baptiste	QC	58,000		15,700			100%		IGA
680 Longworth Street	Bowmanville	ON	42,000		14,200			100%		Sobeys
Bronte Village	Oakville	ON	75,000		32,000			75.6%		Sobeys
Nine BMO properties	AB, BC, ON, QC		94,000		32,272			100%		BMO Bank of Montreal
6102 50th Street	Leduc	AB	37,000		7,000			100%		Dollarama
Park West Centre	Halifax	NS	84,000		29,000			100%		Sobeys, Royal Bank
Park West Annex	Halifax	NS	54,000		14,150			—%
Empire acquisition	AB, BC, ON, QC		2,090,000		348,386			98.7%		Safeway, IGA, Sobeys, Dollarama
Development land	Halifax	NS	—		9,975
Acquisitions in Q3
King George Boulevard	Surrey	BC	62,000		26,400					Safeway
Development land	Toronto	ON	—		5,250			100%
			2,617,000		$	539,833

Crombie also acquired two parcels of development land adjacent to existing Crombie properties and a 50% interest in an additional development property and invested $58,823 in the renovation and expansion of 10 existing Sobeys anchored properties.

Operating Highlights

	Three months ended September 30,						Nine months ended September 30,
(In thousands of CAD dollars)		2016			2015			2016			2015
Property NOI	$	71,025		$	62,719		$	208,821		$	192,616
Non-cash straight-line rent	(3,592)			(2,453)			(9,036)			(8,341)
Non-cash tenant incentive amortization	3,433			2,443			8,294			7,200
Property cash NOI	70,866			62,709			208,079			191,475
Acquisitions, dispositions and development property cash NOI	11,855			5,804			33,340			21,016
Same-asset property cash NOI	$	59,011		$	56,905		$	174,739		$	170,459

Same-asset property cash NOI is as follows:

	Three months ended September 30,						Nine months ended September 30,
(In thousands of CAD dollars)		2016			2015			2016			2015
Retail and Mixed Use	$	56,243		$	54,225		$	166,383		$	162,455
Office	2,768			2,680			8,356			8,004
Same-asset property cash NOI	$	59,011		$	56,905		$	174,739		$	170,459

Property NOI, on a cash basis, excludes straight-line rent recognition and amortization of tenant incentive amounts. The +3.7% and +2.5% increases in same-asset property cash NOI for the three and nine months ended September 30, 2016 are primarily the result of increased average rent from leasing activity, rental rate increases, improved recovery rates, as well as continued land use intensification and additional NOI from the $58,823 investment in Sobeys anchored properties on June 29, 2016. The same-asset property cash NOI improvement for the nine month period is partly offset by lease termination income received in the second quarter of 2015 and the related lost NOI from the transitional vacancy.

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

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

	Three months ended September 30,						Nine months ended September 30,
(In thousands of CAD dollars)		2016			2015			2016			2015
Acquisitions and dispositions property cash NOI	$	9,373		$	6,842		$	15,493		$	12,632
Development property cash NOI	2,482			(1,038)			17,847			8,384
Total acquisitions, dispositions and development property cash NOI	$	11,855		$	5,804		$	33,340		$	21,016

Growth in acquisitions and dispositions property cash NOI reflects the property acquisition and disposition activity throughout 2016 and 2015 including the acquisition of 39 properties in 2016, the disposition of 14 retail properties in 2016 and the acquisition of five retail properties in 2015.

Capital Highlights

	September 30,
	2016			2015
Weighted Average Mortgage Term	5.98 years			7.1 years
Weighted Average Mortgage Interest Rate	4.54%			4.76%
Debt to Gross Book Value (Fair Value)	50.5%			52.3%
Interest Coverage	2.92x			2.73x
Debt Service Coverage	1.91x			1.82x

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 $241,371 was drawn as at September 30, 2016, and an additional $2,027 encumbered by outstanding letters of credit, resulting in significant available liquidity and a $100,000 unsecured floating rate bilateral credit facility, of which $100,000 was drawn at September 30, 2016.

Debt to gross book value on a fair value basis is 50.5% at September 30, 2016, compared to 52.3% at September 30, 2015.

General and Administrative Expenses

General and administrative expenses for the nine months ended September 30, 2016, as a percentage of property revenue, increased by 0.2% from 3.9% to 4.1%, when compared to the same period in 2015. The increase is impacted by the implementation of Crombie's Restricted Unit Plan in 2015 which recognizes a portion of long-term compensation over a vesting period and the valuation of the Restricted Unit Plan is impacted by mark to market adjustments to the Units which impacts salaries and benefits.

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.  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 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 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; (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 intangible assets, 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, 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 deferred leasing costs, and the settlement of effective interest rate swap agreements.

For additional information on these non-GAAP measures see our Management's Discussion and Analysis for the period ended September 30, 2016.

Crombie's interim condensed consolidated financial statements and management's discussion and analysis for the nine months ended September 30, 2016 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 283 retail, mixed use and office properties across Canada, comprising approximately 19 million square feet with a strategy to own and operate a portfolio of high quality grocery and drug store anchored shopping centres and freestanding stores primarily in Canada's top 36 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 2015 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; and,

(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.

Conference Call Invitation

Crombie will provide additional details concerning its period ended September 30, 2016 results on a conference call to be held Wednesday, November 9, 2016, 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. Replay will be available until midnight November 23, 2016 by dialing [phone] or [phone] and entering pass code 93610677, 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]