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Crombie REIT reports second quarter results

Crombie REIT (TSX: CRR.UN)

STELLARTON, NS, Aug. 8, 2014 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its financial results for the three months and six months ended June 30, 2014.

Second Quarter 2014 Highlights (In thousands of CAD dollars, except per unit amounts and as otherwise noted).

  • Portfolio fair value of $3.9 billion.

  • Funds From Operations ("FFO"):
    • FFO for the six months ended June 30, 2014 increased 32.8% to $69,330; or $0.55 per unit Diluted, a decrease of $0.01 per unit from the same period in 2013.

    • FFO for the three months ended June 30, 2014 increased 31.5% to $34,836; or $0.27 per unit Diluted, a decrease of $0.01 per unit from the three months ended June 30, 2013.

    • FFO payout ratio of 80.5% for the six months ended June 30, 2014 compared to 78.4% for the same period in 2013.

    • FFO payout ratio of 81.8% for the three months ended June 30, 2014 compared to 77.3% for the three months ended June 30, 2013.
  • Adjusted Funds From Operations ("AFFO"):
    • AFFO for the six months ended June 30, 2014 increased 31.1% to $57,741; or $0.46 per unit Diluted, a decrease of $0.02 per unit from the same period in 2013.

    • AFFO for the three months ended June 30, 2014 increased 29.1% to $28,972; or $0.23 per unit Diluted, a decrease of $0.01 per unit from the three months ended June 30, 2013.

    • AFFO payout ratio of 96.7% for the six months ended June 30, 2014 compared to 92.9% for the same period in 2013.

    • AFFO payout ratio of 98.3% for the three months ended June 30, 2014 compared to 91.3% for the same period in 2013.

  • Same-asset Cash Net Operating Income ("NOI") for the six months ended June 30, 2014 showed solid growth of 1.9% compared to the same six months ended June 30, 2013. Increase in same-asset cash NOI of 1.3% for the three months ended June 30, 2014 compared to the same period in 2013.

  • Property revenue for the six months ended June 30, 2014 of $179,921, an increase of $38,069 or 26.8% over the six months ended June 30, 2013. Property revenue of $89,008 for Q2 2014 increased $17,738 or 24.9% over Q2 2013.

  • Occupancy, on a committed basis, was 93.3% at June 30, 2014, compared with 93.1% at March 31, 2014.

  • Crombie completed leasing activity on a total of 531,000 square feet during the six months ended June 30, 2014, including:
    • Renewals on 237,000 square feet of 2014 expiring leases at an average rate of $17.50 per square foot, an increase of 10.0% over the expiring lease rate;

    • Renewals on 20,000 square feet of 2015 and later expiring leases at an average rate of $15.17 per square foot, an increase of 8.5% over the expiring lease rate; and

    • New leases on 274,000 square feet of space, at an average rate of $15.26 per square foot.

  • Weighted average lease term of 12.0 years and weighted average mortgage term of 7.8 years; amongst the longest and most defensive in the REIT industry.

  • Strong 2.54 times interest coverage. Weighted average interest rate on mortgages reduced to 4.78% from 4.79% at March 31, 2014 and 5.00% at June 30, 2013.

  • Debt to Gross Book Value (fair value basis) of 51.6% compared to 53.1% at March 31, 2014.

  • Completed $100,000 Units and Class B LP Units issuance on May 30, 2014; $60,000 of which is the first issuance under the $500,000 Short Form Shelf Prosspectus filed on May 13, 2014.

  • Closed $100,000 principal amount Series B Senior Unsecured Notes offering with an effective yield of 3.90% on March 5, 2014.

Donald E. Clow, FCA, President and CEO commented: "Focus on our long term strategy of owning one of the best real estate portfolios in Canada, building a national platform and enhancing our financial condition is clear and unwavering. During the quarter we continued the integration and scoping of development opportunities in the new Safeway acquisitions as well as assessing other significant value creation projects in urban markets in the rest of Canada. In addition to retail development opportunities we are considering participating in mixed use components of these developments including Crombie developing up to 4,000 residential units over the next 10 to 15 years."

Financial Highlights

Crombie's key financial metrics for the three months and six months ended June 30, 2014 are as follows:

 
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)   Three Months Ended June 30,     Six Months Ended June 30,
  2014   2013     2014   2013
Property revenue $ 89,008 $ 71,270   $ 179,921 $ 141,852
Operating income attributable to Unitholders $ 17,000 $ 12,581   $ 32,900 $ 25,540
Operating income attributable to Unitholders per unit - basic $ 0.14 $ 0.14   $ 0.27 $ 0.28
Operating income attributable to Unitholders per unit - diluted $ 0.14 $ 0.14   $ 0.26 $ 0.28
FFO $ 34,836 $ 26,490   $ 69,330 $ 52,211
FFO per unit - basic $ 0.28 $ 0.29   $ 0.56 $ 0.57
FFO per unit- diluted $ 0.27 $ 0.28   $ 0.55 $ 0.56
FFO payout ratio (%)   81.8%   77.3%     80.5%   78.4%
AFFO $ 28,972 $ 22,433   $ 57,741 $ 44,039
AFFO per unit - basic $ 0.23 $ 0.24   $ 0.47 $ 0.48
AFFO per unit - diluted $ 0.23 $ 0.24   $ 0.46 $ 0.48
Distributions $ 0.22 $ 0.22   $ 0.45 $ 0.45
AFFO payout ratio (%)   98.3%   91.3%     96.7%   92.9%

The increase in FFO and AFFO for the three months and six months ended June 30, 2014 was primarily due to the 70 property Sobey / Safeway acquisition during the fourth quarter of 2013 and completed development and land use intensification projects during 2013, resulting in significant growth in property NOI, offset in part by higher finance costs - operations.

The table below presents a summary of financial performance for the three months and six months ended June 30, 2014 compared to the same period in fiscal 2013.

 
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)   Three Months Ended June 30,     Six Months Ended June 30,
  2014   2013     2014   2013
Property revenue $ 89,008 $ 71,270   $ 179,921 $ 141,852
Property operating expenses   27,049   25,696     56,963   52,514
Property NOI   61,599   45,574     122,958   89,338
NOI margin percentage   69.2%   63.9%     68.3%   63.0%
Other items:                  
  Gain (loss) on derecognition of investment properties   (3)   6     (160)   436
  Depreciation and amortization   (15,943)   (11,985)     (32,468)   (23,107)
  General and administrative expenses   (4,083)   (3,366)     (7,839)   (6,572)
Operating income before finance costs and taxes   41,570   30,229     82,491   60,095
Finance costs - operations   (25,070)   (17,648)     (50,316)   (34,455)
Operating income before taxes   16,500   12,581     32,175   25,640
Taxes - deferred   500   -     725   (100)
Operating income attributable to Unitholders   17,000   12,581     32,900   25,540
Finance costs - distributions to Unitholders   (28,480)   (20,480)     (55,835)   (40,918)
Finance income (costs) - change in fair value of financial instruments   130   1,585     185   2,202
Decrease in net assets attributable to Unitholders $ (11,350) $ (6,314)   $ (22,750) $ (13,176)

Growth Highlights

      GLA   Initial Purchase
Price
  Occupancy
Rate
  Key Tenants
Acquisitions in Q1                    
  Penhorn Plaza Dartmouth NS 6,683   $ 1,490,000   100%   Mr. Lube, Fast Fuels
Acquisitions in Q2                    
  London Pine Valley London ON    39,000     10,176,000   100%   FreshCo, Dollar Tree
Completed to date in 2014     45,683   $ 11,666,000   100%    

Since January 1, 2014, Crombie's GLA reflects a net increase of 21,000 square feet from acquisition and disposition activity. Crombie exchanged a property in Alberta for another Alberta property, resulting in no net change in GLA. In addition, Crombie disposed of part of an existing property in Nova Scotia, resulting in a 25,000 square foot reduction in GLA and completed the above acquisitions.

Operating Highlights

    Three Months Ended June 30,   Six Months Ended June 30,
(In thousands of CAD dollars)   2014   2013     2014   2013
Property NOI $ 61,599 $ 45,574   $ 122,958 $ 89,338
Non-cash straight-line rent   (2,706)   (1,208)     (5,460)   (2,567)
Non-cash tenant incentive amortization   2,390   1,930     4,527   3,900
Property cash NOI   61,283   46,296     122,025   90,671
Acquisitions, dispositions and development property cash NOI   20,161   5,691     39,702   9,866
Same-asset property cash NOI $ 41,122 $ 40,605   $ 82,323 $ 80,805

    Three Months Ended June 30,     Six Months Ended June 30,
(In thousands of CAD dollars)   2014   2013     2014   2013
Retail Enclosed $ 6,075 $ 5,985   $ 12,567 $ 12,046
Retail Freestanding   8,487   8,183     17,020   16,364
Retail Plaza   20,492   20,086     40,537   39,968
Retail total   35,054   34,254     70,124   68,378
Mixed Use   3,341   3,243     6,496   6,409
Office   2,727   3,108     5,703   6,018
Same-asset property cash NOI $ 41,122 $ 40,605   $ 82,323 $ 80,805

Property NOI, on a cash basis, excludes straight-line rent recognition and amortization of tenant incentive amounts. The 1.3% and 1.9% increases in same-asset property cash NOI for the three months and six months ended June 30, 2014 is primarily the result of increased average rent per square foot from leasing activity and rental rate increases in existing leases as well as improved recovery rates and revenues from land use intensifications at several properties.

During the first quarter of 2014, Crombie classified an investment property as held for sale. The operating results for that property are included in acquisitions, dispositions and development for the current and comparative periods.

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 June 30,     Six Months Ended June 30,
(In thousands of CAD dollars)   2014   2013     2014   2013
Acquisitions and dispositions property cash NOI $ 18,956 $ 4,912   $ 36,954 $ 6,838
Development property cash NOI   1,205   779     2,748   3,028
Total acquisition, disposition and development property cash NOI $ 20,161 $ 5,691   $ 39,702 $ 9,866

The significant growth in acquisitions and dispositions property cash NOI was primarily due to the 70 property Sobeys / Safeway acquisition during the fourth quarter of 2013.

Capital Highlights

  Six Months Ended June 30,
  2014 2013
Weighted Average Mortgage Term 7.8 years 7.7 years
Weighted Average Interest Rate 4.78% 5.00%
Debt to Gross Book Value (Fair Value) 51.6% 49.6%
Interest Coverage 2.54 2.77
Debt Service Coverage 1.70 1.80

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 $300,000, subject to available borrowing base, of which $28,785 was drawn as at June 30, 2014, and an additional $2,535 encumbered by outstanding letters of credit, resulting in significant available liquidity.

Debt to gross book value on a fair value basis is 51.6% (including convertible debentures) at June 30, 2014, compared to 49.6% at June 30, 2013.

General and Administrative Expenses

General and administrative expenses for the six months ended June 30, 2014, as a percentage of property revenue, decreased by 0.2% from 4.6% to 4.4%, when compared to the same period in 2013. For the three months ended June 30, 2014, general and administrative expenses as a percentage of property revenue, decreased by 0.1% from 4.7% to 4.6%, when compared to the same period in 2013.

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, 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.

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 250 retail and office properties across Canada, comprising approximately 17.6 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 2013 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.

Crombie's consolidated financial statements and management's discussion and analysis for the three months and six months ended June 30, 2014 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 June 30, 2014 second quarter and year to date results on a conference call to be held Friday, August 8, 2014, at 12:00 p.m. Eastern time. To join this conference call you may dial (647) 427-7450 or (888) 231-8191. 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, 2014 by dialing (416) 849-0833 or (855) 859-2056 and entering pass code 76367802, or on the Crombie website for 90 days after the meeting.  

 

SOURCE Crombie REIT

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