Crombie REIT Announces Second Quarter 2021 Results

·16 min read

Meaningful fair value growth and improved financial condition driven by rising grocery-anchored property values

NEW GLASGOW, NS, Aug. 4, 2021 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) today announced results for its second quarter ended June 30, 2021. Management will host a conference call to discuss the results at 12:00 p.m. (EST), August 5, 2021.

Crombie REIT Logo (CNW Group/Crombie REIT)
Crombie REIT Logo (CNW Group/Crombie REIT)

"Strong market interest in grocery-anchored properties drove cap rate compression and created significant fair value growth for Crombie in the quarter," said Don Clow, President and CEO. "The stability and growth of our portfolio continues to be evident in our solid operating results, improved financial position, and robust development pipeline. Our strategy of investing primarily in Empire-related initiatives and major developments in Canada's major urban markets has required focus and patience so we are pleased with our progress and early financial results achieved. Lastly, our development momentum continued with the acquisition and development commencement of a 25-acre site in Calgary, Alberta, which will be the location of Empire's third customer fulfillment centre ("CFC") for their Voilà online grocery home delivery service."

SECOND QUARTER SUMMARY
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)

Operational Highlights

  • Strong committed occupancy of 96.2% and economic occupancy of 95.6%

  • Renewals of 234,000 square feet at rents 3.4% above expiring rates

  • Rent collected 99%; July 2021 99%

  • Acquired 25-acre site in Calgary, Alberta and commenced development of the future home of Empire's third CFC

Financial Highlights

  • Property revenue of $100,006

  • Operating income of $19,605

  • FFO $0.27 per unit; FFO payout ratio 81.7%

  • AFFO $0.23 per unit; AFFO payout ratio 97.3%

  • Same-asset property cash NOI increase of 7.2% (SANOI was flat for the quarter adjusting for the 2020 impacts of COVID-19)

  • Debt to gross fair value of 46.0%

  • Debt to adjusted EBITDA of 9.12x

  • Completed $100,000 equity financing at a price of $16.60 per Unit

  • Weighted average capitalization rate compression of 18 bps to 5.68%

  • Increase in fair value of investment properties of $176,000

COVID-19 IMPACT

Crombie is well-positioned with respect to the defensiveness of annual minimum rent (AMR):

  • 82% of AMR is generated from grocery and pharmacy-anchored properties, inclusive of retail-related industrial properties

  • 69% of AMR is generated from essential services tenants

  • 7% of AMR is generated from small business tenants

During the three months ended June 30, 2021, 99% of gross rent was collected with rent collections for the month of July remaining constant at 99%. Crombie continues to navigate the effects of COVID-19. Parking revenue remains depressed as compared to pre-pandemic levels and bad debt expense in the second quarter of 2021 was $330 ($Nil on same-asset properties), compared to $8,722 ($4,039 on same-asset properties) in the same period in 2020. Continuing uncertainty with respect to the severity, duration and overall impacts of the pandemic mean that forward-looking forecasts of operating and financial results remain uncertain at this time.

Crombie ended the quarter with $368,483 in available liquidity from undrawn credit facilities.

Information in this press release is a select summary of results. This press release should be read in conjunction with Crombie's MD&A for the quarter ended June 30, 2021 and Consolidated Financial Statements and Notes for the quarters ended June 30, 2021, and June 30, 2020. Full details on our results can be found at www.crombiereit.com and www.sedar.com.

FINANCIAL RESULTS

Crombie's key financial metrics for the three months ended June 30, 2021 are as follows:


Three months ended June 30,

(In thousands of CAD dollars, except per unit amounts and
as otherwise noted)

2021

2020

Variance

%

Property revenue

$

100,006

$

96,501

$

3,505

3.6 %

Property operating expenses

29,814

37,887

8,073

21.3 %

Net property income

$

70,192

$

58,614

$

11,578

19.8 %

Operating income attributable to Unitholders

$

19,605

$

9,393

$

10,212

108.7 %

Same-asset property cash NOI (1)

$

62,993

$

58,768

$

4,225

7.2 %

Funds from operations ("FFO") (1)





Basic

$

44,201

$

34,557

$

9,644

27.9 %

Per unit - Basic

$

0.27

$

0.22

$

0.05

22.7 %

Payout ratio(2)

81.7 %

101.8 %


(20.1) %

Adjusted funds from operations ("AFFO") (1)





Basic

$

37,109

$

28,107

$

9,002

32.0 %

Per unit - Basic

$

0.23

$

0.18

$

0.05

27.8 %

Payout ratio

97.3 %

125.2 %


(27.9) %

(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 June 30, 2021 MD&A for a reconciliation of same-asset property cash NOI, FFO and AFFO.

Operating income attributable to Unitholders increased by $10,212, or 108.7%, compared to the second quarter of 2020 primarily due to a reduction in bad debt expense of $8,392 as a result of decreased collection risk in the second quarter of 2021, and impairments of $2,100 recognized on three retail properties in the second quarter of 2020. The growth in net property income was offset in part by an increase in depreciation and amortization of $776 resulting primarily from completed developments at Avalon Mall and Pointe-Claire. Also, finance costs from operations increased $1,612 primarily due to the addition of new mortgages and unsecured debt since the second quarter of 2020 and lower capitalized interest as several developments reach substantial completion.

Same-asset property cash NOI (SANOI) increased by $4,225, or 7.2%, compared to the second quarter of 2020 primarily due to a reduction in bad debt expense on same-asset properties of $4,039, strong occupancy, and higher supplemental rents from modernizations and capital improvements. Same-asset property cash NOI (SANOI) growth, adjusting for the removal of COVID-19 impacts, is flat compared to the same period in 2020.

The increase in FFO is primarily due to increased net property income (an increase of $11,578 quarter over quarter) which resulted from a reduction in bad debt expense of $8,392, and income from development and modernizations. This is offset in part by increased finance costs from operations of $1,612 as mentioned above, and loss from equity accounted investments of $562 compared to income of $123 in the second quarter of 2020. The loss resulted from a timing differential affecting operating results from the Davie Street residential development project as it moves towards stabilization.

The increase in AFFO is largely due to the impacts on FFO as described above.

Crombie's key financial metrics for the six months ended June 30, 2021 are as follows:


Six months ended June 30,

(In thousands of CAD dollars, except per unit amounts and
as otherwise noted)

2021

2020

Variance

%

Property revenue

$

203,543

$

198,753

$

4,790

2.4 %

Property operating expenses

63,215

73,124

9,909

13.6 %

Net property income

$

140,328

$

125,629

$

14,699

11.7 %

Operating income attributable to Unitholders

$

52,820

$

30,717

$

22,103

72.0 %

Same-asset property cash NOI (1)

$

126,708

$

121,100

$

5,608

4.6 %

Funds from operations ("FFO") (1)





Basic

$

90,304

$

80,218

$

10,086

12.6 %

Per unit - Basic

$

0.57

$

0.51

$

0.06

11.8 %

Payout ratio(2)

79.0 %

87.1 %


(8.1) %

Adjusted funds from operations ("AFFO") (1)





Basic

$

75,888

$

67,790

$

8,098

11.9 %

Per unit - Basic

$

0.48

$

0.43

$

0.05

11.6 %

Payout ratio

94.0 %

103.1 %


(9.1) %

(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 June 30, 2021 MD&A for a reconciliation of same-asset property cash NOI, FFO and AFFO

Operating income attributable to Unitholders increased by $22,103, or 72.0%, on a year to date basis. Gain on disposal of investment properties increased by $11,973 due to property dispositions in the first quarter of 2021, and net property income increase of $14,699 due to a reduction in bad debt expense of $8,831 as a result of decreased collection risk in the second quarter of 2021, and new income from completed developments. The improved net property income for the period was offset in part by an increase of $2,412 in general and administrative expenses resulting primarily from an increase in unit price and its impact on unit-based compensation plans. Additionally, finance costs from operations increased $2,433 due to the addition of new mortgages and unsecured debt and lower capitalized interest on developments.

On a year to date basis, same-asset property cash NOI (SANOI) increased 4.6% compared to the same period in 2020 primarily due to a reduction in bad debt expense on same-asset properties of $3,812 as a result of decreased collection risk in the second quarter of 2021, income from completed developments, and lease termination income from office leases. Same-asset property cash NOI adjusted for the removal of COVID-19 impacts is $127,724, an increase of 1.3% compared to the adjusted results for the six months ended June 30, 2020.

For the six months ended June 30, 2021, FFO increased primarily due to improved net property income (an increase of $14,699 compared to the same period in 2020) due to a significant reduction in bad debt expense of $8,831 and income from completed developments. The increase in net property income is partially offset by an increase in finance costs from operations of $2,433 due to the addition of new mortgages and unsecured debt and lower capitalized interest on developments, and by increased general and administrative expenses of $2,412 primarily related to the impact of increased unit price on unit-based compensation plans, offset in part by $1,509 of severance costs in the second quarter of 2020. Additionally, loss from equity accounted investments was $1,333 for the period compared to income of $238 for the six months ended June 30, 2020, resulting from a timing differential affecting operating results from the Davie Street residential development project as it moves towards stabilization.

The improvement in AFFO is primarily due to the same factors impacting FFO as described above.

OPERATING RESULTS


June 30,

2021

March 31,

2021

December 31,

2020

September 30,

2020

June 30,

2020

Number of investment properties (1)

287

287

284

286

286

Gross leasable area (2)

18,235,000

18,229,000

18,000,000

17,684,000

17,614,000

Economic occupancy (3)

95.6 %

95.5 %

94.0 %

94.7 %

95.1 %

Committed occupancy (4)

96.2 %

96.3 %

96.4 %

95.3 %

95.6 %

(1)

This includes properties owned at full and partial interests.

(2)

Gross leasable area is adjusted to reflect Crombie's proportionate interest in partially-owned properties.

(3)

Represents space currently under lease contract and rent has commenced.

(4)

Represents current economic occupancy plus completed lease contracts for future occupancy of currently available space.


June 30,

2021

March 31,

2021

December 31,

2020

September 30,

2020

June 30,

2020

Investment properties, fair value

$

5,053,000

$

4,877,000

$

4,815,000

$

4,615,000

$

4,604,000

Unencumbered investment properties (1)

$

1,445,423

$

1,388,141

$

1,366,258

$

1,460,152

$

1,461,970

Available liquidity (2)

$

368,483

$

469,548

$

471,708

$

370,885

$

406,303

Debt to gross fair value (3)

46.0 %

48.9 %

49.4 %

49.8 %

49.2 %

Weighted average interest rate (4)

3.9 %

3.9 %

3.9 %

4.1 %

4.1 %

Debt to trailing 12 months adjusted EBITDA (3)

9.12x

9.80x

9.73x

9.34x

9.12x

Interest coverage ratio (3)

2.94x

3.04x

2.77x

3.03x

2.64x

(1)

Represents fair value of unencumbered properties.

(2)

Represents the undrawn portion on the credit facilities, excluding joint facilities with joint operation partners.

(3)

See Debt Metrics section in the MD&A.

(4)

Weighted average interest rate is calculated based on interest rates for all outstanding fixed rate debt.

Operations and Leasing

During the quarter, economic occupancy was 95.6% along with strong committed occupancy of 96.2%. Crombie renewed 234,000 square feet with an increase of 3.4% over expiring rents during the quarter. New leases and expansions increased occupancy by 510,000 square feet at an average first year rate of $23.72 per square foot.

Development

During the quarter, Crombie acquired a 25-acre site in Calgary, Alberta and commenced development of the location of Empire's third CFC. This project increases our development pipeline from 29 to 30 properties. The development is estimated to add an additional 300,000 square feet of retail-related industrial gross leasable area ("GLA").

Crombie segregates its pipeline by expected timing. Near-term projects are financially committed or expected to be committed within the next two years. Currently, Crombie has six developments classified as near-term projects. Upon completion, these projects will total approximately 214,000 square feet of commercial GLA, 300,000 square feet of retail-related industrial GLA, 1,494,000 square feet of residential GLA and 2,027 residential units. The geographical breakdown of GLA is as follows: 594,000 in Vancouver; 148,000 in Victoria; 300,000 in Calgary; 520,000 in the Greater Toronto Area; 267,000 in Montreal; and 179,000 in Halifax. Le Duke and Bronte Village are expected to reach substantial completion in 2021, with a remaining investment to complete of approximately $37,000. Our development projects are expected to create significant NAV and AFFO growth, while increasing our presence in Canada's top urban markets and diversifying and improving overall portfolio quality.

These estimates are subject to changes, as well as other development risks described in Crombie's second quarter MD&A under "Development" and "Risk Management".

Acquisitions

During the second quarter, Crombie acquired a 100% interest in development lands (PUD) in Calgary, Alberta for a total purchase price, before closing and transaction costs, of $11,885.

Subsequent Events

On July 6, 2021, Crombie acquired a 100% interest in a retail property totalling 24,000 square feet for $4,710, excluding closing adjustments and transaction costs.

On July 9, 2021, Crombie disposed of a 100% interest in a retail property totalling 28,000 square feet. Total proceeds, before closing adjustments and transactions costs, were approximately $15,000.

Distribution Reinvestment Plan

Crombie has received conditional approval from the Toronto Stock Exchange to amend its Distribution Reinvestment Plan ("DRIP"). Effective today, Crombie has amended the DRIP to reinstate the former discount such that any future REIT units issued under the DRIP will be issued at a price equal to the volume-weighted average trading price of the REIT units on the Toronto Stock Exchange for the five trading days immediately preceding the relevant distribution payment date, less a discount of 3%.

REIT unitholders who wish to amend or alter their participation in the DRIP should make arrangements with their broker, dealer, bank or other market participant as soon as possible to ensure that any changes can be processed by August 31, 2021, as their broker, dealer, bank or other market participant may have earlier deadlines.

Conference Call Invitation

Crombie will provide additional details concerning its period ended June 30, 2021 results on a conference call to be held Thursday, August 5, 2021, beginning at 12:00 p.m. Eastern Time. Accompanying the conference call will be a presentation that 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 the Investor section of Crombie's website located at www.crombiereit.com. Replay will be available until midnight August 12, 2021 by dialing (416) 764-8677 or (888) 390-0541 and entering pass code 896386 #, or on the Crombie website for 90 days after the meeting.

Cautionary Statements

Same-asset property cash NOI (SANOI), FFO, AFFO, adjusted EBITDA, AMR, 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 months ended June 30, 2021.

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 2020 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 expected timing and costs of development and expected impact on NAV and AFFO growth for projects currently underway and planned into the future, which could be impacted by the economic impact of the COVID-19 crisis, ordinary 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.

Continuing uncertainty with respect to the severity, duration and overall impacts of the pandemic mean that forward-looking forecasts of operating and financial results for Crombie remain uncertain at this time.

About Crombie REIT

Crombie Real Estate Investment Trust ("Crombie") invests in quality real estate that enhances local communities and is adaptable to long-term growth. As one of the country's leading national retail property landlords, Crombie's portfolio includes grocery-anchored retail, shopping centres, industrial, and mixed-use developments in Canada's top urban and suburban markets. Crombie is an unincorporated, open-ended real estate investment trust established under, and governed by, the laws of the Province of Ontario. Learn more at www.crombiereit.com

SOURCE Crombie REIT

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