Crombie REIT Announces Fourth Quarter and Year-End Results

Two major development completions, record committed occupancy, and prudent capital management drive annual results.

NEW GLASGOW, NS, Feb. 22, 2023 /CNW/ – Crombie Real Estate Investment Trust (“Crombie”) (TSX: CRR.UN) today announced results for its fourth quarter and year ended December 31, 2022. Management will host a conference call to discuss the results at 12:00 p.m. (EST), February 23, 2023.

“Crombie continued its commitment in 2022 to maintaining a strong balance sheet, solid AFFO growth, prudent capital allocation, advancing our sustainability program, and continuously improving our award-winning culture,” said Don Clow, President and CEO. “Our team delivered solid results driven by strong fundamentals and a focus on future growth initiatives. We continue to benefit from accretive investments with our strategic partner, Empire, and capitalize on opportunities within our robust development pipeline. We are particularly proud of two milestones achieved in the fourth quarter of 2022. Substantial completion was reached at our second Voilà Customer Fulfillment Centre, located in Calgary, Alberta, strengthening our retail-related industrial portfolio and the sale of our King George development property in Surrey, British Columbia which represents one of the many value creation options at Crombie.”

FOURTH QUARTER SUMMARY
(In thousands of Canadian dollars, except per unit amounts and square feet and as otherwise noted)

Operational Highlights

• Substantial completion achieved at retail-related industrial development, Voilà CFC 3, in Calgary, Alberta
• Record committed occupancy of 96.9% and economic occupancy of 94.8%; a 70 basis point increase and 80 basis point decrease, respectively, compared to the fourth quarter of 2021 (the addition of approximately 304,000 square feet of development GLA at Voilà CFC 3 negatively impacts economic occupancy. Adjusting for this impact, economic occupancy would be 96.4%)
• Renewals of 374,000 square feet at rents 12.9% above expiring rates (15.0% at weighted average rent during the renewal term)
• Disposition of two retail assets for gross proceeds of $113,418

Financial Highlights

• Property revenue of $107,939, a 4.0% increase from $103,832 in the fourth quarter of 2021
• Operating income of $87,718, an 11.4% increase compared to the fourth quarter of 2021 at $78,730
• Net property income of $70,816, a 0.8% decrease from $71,402 in the fourth quarter of 2021
• FFO⁽¹⁾ of $52,104 or $0.29 per unit compared to $46,948 or $0.29 per unit in the fourth quarter of 2021
• FFO⁽¹⁾ payout ratio of 76.2% for the fourth quarter of 2022 compared to 78.0% in the same period last year
• AFFO⁽¹⁾ of $45,061 or $0.25 per unit compared to $40,468 or $0.25 per unit in the fourth quarter of 2021
• AFFO⁽¹⁾ payout ratio of 88.1% for the fourth quarter of 2022 compared to 90.5% in the same period last year
• Same-asset property cash NOI⁽¹⁾ increased 0.9% compared to the fourth quarter of 2021
• Debt to gross fair value⁽¹⁾⁽²⁾ of 41.8%, an improvement from 45.3% in the same period last year
• Debt to trailing 12 months adjusted EBITDA⁽¹⁾⁽²⁾ of 8.02x compared to the fourth quarter of 2021 at 8.99x
• Unencumbered investment properties of $2,154,468, a 22.9% increase from $1,752,927 in the same period last year
• Available liquidity of $583,003, a 14.8% increase from $507,777 in the fourth quarter of 2021

Information in this press release is a select summary of results. This press release should be read in conjunction with Crombie’s Management’s Discussion and Analysis for the year ended December 31, 2022 and Consolidated Financial Statements and Notes for the years ended December 31, 2022, and December 31, 2021. Full details on our results can be found at www.crombie.ca and www.sedar.com.

Financial Results

Crombie’s key financial metrics for the three months ended December 31, 2022 are as follows:

Operating income attributable to Unitholders increased by $8,988, or 11.4%, compared to the fourth quarter of 2021 primarily due to higher gain on disposal of investment properties of $19,822 in the fourth quarter of 2022 and lower finance costs from operations of $2,016 resulting primarily from reduced mortgage interest expense due to mortgage repayments and dispositions, and the redemption of Series D senior unsecured notes in the fourth quarter of 2022. The growth in operating income was partially offset by a lower gain on distribution from equity-accounted investments of $15,525 compared to the fourth quarter of 2021 resulting from cash distributions received from 1600 Davie Limited Partnership in excess of our investment in the joint venture.

Same-asset property cash NOI increased by $601, or 0.9%, compared to the fourth quarter of 2021 primarily due to strong occupancy, higher supplemental rent of $813 from modernizations and capital improvements, as well as increased parking revenue of $429. This is offset in part by a decrease in lease termination income of $1,006 resulting from tenant surrenders in 2021. Same-asset property cash NOI adjusted for the removal of lease termination income increased by 2.4% compared to the same period in 2021.

The increase in FFO of $5,156 is primarily due to lower finance costs from operations driven by reduced mortgage interest expense of $2,436 as a result of mortgage repayments and dispositions since the fourth quarter of 2021. Additional increases in income are due to increased property tax recoveries of $3,155, $2,013 from acquisitions since January 1, 2022, increased operating cost recoveries of $1,588, and $885 in supplemental rent from modernization investments compared to the same quarter in 2021. A decrease in general and administrative expenses of $1,304 is due primarily to a $1,129 reduction in Unit-based compensation costs resulting from a decrease in Crombie’s Unit price from the same period in 2021. A reduction in loss from equity-accounted investments of $684, with increased FFO adjustments for equity-accounted investments of $585, also contributed to the increase in FFO in the quarter. FFO growth is offset in part by an increase of $3,423 in recoverable property tax expense resulting primarily from development, lease conversions, acquisitions, and higher assessments. Rental revenue decreased by $2,616 due to dispositions and interest on floating rate debt increased by $1,521 due to higher interest rates and higher average loan balances compared to the same period in 2021. Additionally, recoverable operating expenses increased $965 as a result of higher repair costs and lease termination income decreased by $926.

The improvement in AFFO is primarily due to the same factors impacting FFO as described above. This is offset in part by the impact of the increase in the maintenance capital expenditure charge in the first quarter of 2022 from $0.90 to $1.00 per square foot of weighted average GLA.

Crombie’s key financial metrics for the year ended December 31, 2022 are as follows:

Operating income attributable to Unitholders increased by $12,399, or 8.0%, on an annual basis primarily driven by higher gain on disposal of investment properties of $24,279 compared to 2021. Finance costs from operations decreased $9,774 due primarily to lower mortgage interest expense resulting from mortgage repayments and dispositions. The growth in operating income was offset in part by reduced gain on distribution from equity-accounted investments of $12,592 resulting from cash distributions received from 1600 Davie Limited Partnership in excess of our investment in the joint venture in the fourth quarter of 2021. An additional $7,861 in impairments was recognized in 2022 compared to 2021. The impairments on three properties in the third quarter of 2022 were the result of continuing high vacancy at one property, the demolition of a vacant building, and a recent redevelopment that included a partial demolition.

On an annual basis, same-asset property cash NOI increased by $4,145, or 1.6%, compared to 2021 primarily due to strong occupancy, an increase in supplemental rent of $1,859 from modernizations and capital improvements, and increased parking revenue of $1,634. This is offset in part by a decrease in lease termination income of $2,765 resulting from tenant surrenders in 2021. Same-asset property cash NOI adjusted for the removal of lease termination income increased by 2.6% compared to 2021.

The increase in FFO of $18,705 is primarily driven by lower finance costs from operations due to reduced mortgage interest expense of $9,986 resulting from mortgage repayments and dispositions since January 1, 2021 and higher capitalized interest of $1,671 as a result of development activity in the current year. Income increased $7,831 from acquisitions,  $6,281 from increased property tax recoveries, $5,836 from increased operating cost recoveries, $2,273 from supplemental rent from modernization investments, $1,634 in parking revenue, and $1,500 from renewals and new leasing. A reduction in general and administrative expenses of $5,937 resulted primarily from a decrease in Unit price and its impact on Unit-based compensation plans of $5,649. The improvement in FFO is offset in part by a decrease of $10,900 in rental revenue from dispositions, an increase of $6,263 in recoverable property tax expense resulting primarily from development, lease conversions, acquisitions, and higher assessments. Recoverable operating expenses increased $5,285 due to higher repair costs, lease termination income decreased by $3,473, and interest expense on floating rate debt increased by $2,379 as a result of higher interest rates and higher average loan balances during the year.

The improvement in AFFO is primarily due to the same factors impacting FFO as described above. This is offset in part by the impact of the increase in the maintenance capital expenditure charge in the first quarter of 2022 from $0.90 to $1.00 per square foot of weighted average GLA.

Operating Results

 

Operations and Leasing

During the quarter, Crombie achieved economic occupancy of 94.8% and record committed occupancy of 96.9%. Economic occupancy was negatively impacted by the addition of approximately 304,000 square feet of development GLA at the Voilà CFC 3 in Calgary, Alberta, with economic occupancy expected in mid 2023. Excluding the impact of Voilà CFC 3, economic occupancy would be 96.4%. Crombie renewed 374,000 square feet with an increase of 12.9% over expiring rents during the quarter. Year to date, new leases increased occupancy by 349,000 square feet at an average first year rate of $21.59 per square foot. 

Development

During the fourth quarter of 2022, Crombie achieved substantial completion at its retail-related industrial development, Voilà CFC 3, in Calgary, Alberta. Voilà CFC 3 is Crombie’s wholly owned state-of-the-art Empire grocery fulfillment hub powered by Ocado’s industry leading technology. The 304,000 square foot industrial building is fully leased as of December 31, 2022, with rent expected to commence in mid 2023.

Crombie segregates its development pipeline by expected timing. Near-term projects are financially committed or expected to be committed within the next two years. Currently, Crombie has three developments classified as near-term projects. Upon completion, these projects will total approximately 905,000 square feet of residential GLA (1,380 residential units) and 112,000 square feet of commercial GLA. The geographical breakdown of GLA in square feet is as follows: 684,000 in Vancouver; 145,000 in Victoria and 188,000 in Halifax.

Timing estimates are subject to change, as well as other development risks described in Crombie’s fourth quarter Management’s Discussion and Analysis under “Development” and “Risk Management”.

Highlighted Subsequent Events

On January 19, 2023, Crombie acquired a 100% interest in a retail property from a subsidiary of Empire totalling 21,000 square feet for $2,122, excluding closing and transaction costs. 

Conference Call Invitation

Crombie will provide additional details concerning its period ended December 31, 2022 results on a conference call to be held Thursday, February 23, 2023, beginning at 12:00 p.m. (EST). 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. To join the conference call without operator assistance, you may register and enter your phone number at https://bit.ly/3QsLLT5 to receive an instant automated call back. 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.crombie.ca.

Replay will be available until midnight March 2, 2023 by dialing (416) 764-8677 or (888) 390-0541 and entering passcode 489972 #, or on the Crombie website for 90 days following the conference call.

Cautionary Statements and Non-GAAP Measures

Same-asset property cash NOI (SANOI), FFO, AFFO, FFO payout ratio, AFFO payout ratio, debt to trailing 12 months adjusted EBITDA, debt to gross fair value, and interest coverage ratio 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 and year ended December 31, 2022.

The reconciliations for each non-GAAP measure included in this press release are outlined as follows:

Same-Asset Property Cash NOI

Crombie measures certain performance and operating metrics on a same-asset basis to evaluate the period-over-period performance of those properties owned and operated by Crombie. “Same-asset” refers to those properties that were owned and operated by Crombie for the current and comparative reporting periods. Properties that will be undergoing a redevelopment in a future period, including adjacent parcels of land, and those having planning activities underway are also in this category until such development activities commence and/or tenant leasing/renewal activity is suspended. Same–asset property cash NOI reflects Crombie’s proportionate ownership of jointly operated properties (and excludes any properties held in joint ventures).

Management uses net property income on a cash basis (property cash NOI) as a measure of performance as it reflects the cash generated by properties period-over-period.

Net property income on a cash basis, which excludes non-cash straight-line rent recognition and amortization of tenant incentive amounts, is as follows:

Funds from Operations (FFO)

Crombie follows the recommendations of the January 2022 guidance of the Real Property Association of Canada (“REALPAC”)  in calculating FFO. 

The reconciliation of FFO for the three months and year ended December 31, 2022 and 2021 is as follows:

Adjusted Funds from Operations (AFFO)

Crombie follows the recommendations of REALPAC’s January 2022 guidance in calculating AFFO and has applied these recommendations to the AFFO amounts included in this press release and Management’s Discussion and Analysis.

The reconciliation of AFFO for the three months and year ended December 31, 2022 and 2021 is as follows:

Debt Metrics

When calculating debt to gross fair value, debt is defined under the terms of the Declaration of Trust as obligations for borrowed money, including obligations incurred in connection with acquisitions, excluding trade payables and accruals in the ordinary course of business, and distributions payable. Debt includes Crombie’s share of debt held in equity-accounted joint ventures.

Gross fair value includes investment properties measured at fair value, including Crombie’s share of those held within joint ventures. All other components of gross fair value are measured at the carrying value included in Crombie’s financial statements. Crombie’s methodology for determining the fair value of investment properties includes capitalization of trailing 12 months net property income using biannual capitalization rates from external property valuators. The majority of investment properties are also subject to external, independent appraisals on a rotational basis over a period of not more than four years. Valuation techniques are more fully described in Crombie’s year-end audited financial statements.

The fair value included in this calculation reflects the fair value of the properties as at December 31, 2022 and December 31, 2021 respectively, based on each property’s current use as a revenue-generating investment property. As at December 31, 2022, Crombie’s weighted average capitalization rate used in the determination of the fair value of its investment properties was 5.94%, an increase of 29 basis points from December 31, 2021. Crombie’s weighted average capitalization rate used in the determination of the fair value of its share of investment properties held in equity-accounted joint ventures was 3.47% as at December 31, 2022, an increase of 17 basis points from December 31, 2021. For an explanation of how Crombie determines capitalization rates, see the “Other Disclosures” section of Crombie’s fourth quarter Management’s Discussion and Analysis, under “Investment Property Valuation” in the “Use of Estimates and Judgments” section, and the “Risk Management” section of Crombie’s fourth quarter Management’s Discussion and Analysis, under “Capitalization Rate Risk” in the “Risk Factors Related to the Business of Crombie” section.

The following table presents a reconciliation of property revenue to adjusted EBITDA. Adjusted EBITDA is a non-GAAP measure and should not be considered an alternative to operating income attributable to Unitholders, and may not be comparable to that used by other entities.

As at December 31, 2022, Crombie has completed a number of developments in joint ventures and, as a result, in 2022, Crombie changed its methodology in calculating adjusted EBITDA to include Crombie’s share of revenue, operating expenses, and general and administrative expenses in joint ventures. The interest service coverage calculation now includes Crombie’s share of finance costs – operations in joint ventures. Prior quarters have been restated to reflect this new methodology.

This press 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 2022 annual Management’s Discussion and Analysis under “Risk Management” and the Annual Information Form for the year ended December 31, 2021 under “Risks”, 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, and 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 of development, each of which may be impacted by 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.

About Crombie REIT

Crombie invests in real estate that enriches local communities and enables long-term sustainable growth. As one of the country’s leading owners, operators, and developers of quality real estate, Crombie’s portfolio primarily includes grocery-anchored retail, retail-related industrial, and mixed-used residential properties in Canada’s top urban and suburban markets. As at December 31, 2022, our portfolio contains 289 income-producing properties comprising approximately 18.4 million square feet, and a significant pipeline of future development projects. Learn more at www.crombie.ca.

SOURCE Crombie REIT

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