Crombie REIT Announces Third Quarter 2021 Results
Commitment to long-term strategy driving positive operating and financial results
NEW GLASGOW, NS, Nov. 9, 2021 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) today announced results for its third quarter ended September 30, 2021. Management will host a conference call to discuss the results at 12:00 p.m. (EST), November 10, 2021.
"Crombie's steadfast commitment to our long-term strategy resulted in strong third quarter results," said Don Clow, President & CEO. "Our focus on growing and optimizing our grocery-anchored, residential and retail related-industrial portfolio, investing consistently at scale in Empire initiatives and developments while continuously improving our balance sheet and financial condition produced positive outcomes. We were pleased to see continued growth in NAV and AFFO enabled by strong fundamentals including solid same-asset NOI and record occupancy. We have significantly de-risked our business by materially increasing liquidity and the weighted average term to maturity of our debt, as well as leveraging multiple sources of capital to support growth. Lastly, we are pleased to announce that our second mixed-use residential development, Le Duke in Montreal, Quebec, reached substantial completion during the quarter with lease up underway."
THIRD QUARTER SUMMARY
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)
Operational Highlights
- Record committed and economic occupancy of 96.5% and 95.8%, respectively
- Renewals of 187,000 square feet at rents 3.7% above expiring rates
- Rent collected 99%; October 2021 100%
- Substantial completion reached at mixed-used development, Le Duke, in Montreal, Quebec
Financial Highlights
- Property revenue of $101,517
- Operating income of $23,851
- FFO $0.29 per unit; FFO payout ratio 76.5%
- AFFO $0.25 per unit; AFFO payout ratio 89.1%
- Same-asset property cash NOI increase of 8.2% (SANOI 2.0% growth for the quarter adjusting for the 2020 impacts of COVID-19)
- Debt to gross fair value of 45.5%
- Debt to adjusted EBITDA of 8.95x
- Available liquidity of $512,168
- Issuance of $150,000 of 10-year 3.133% Series J Notes
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
- 70% of AMR is generated from essential services tenants
- 7% of AMR is generated from small business tenants
During the three months ended September 30, 2021, 99% of gross rent was collected with rent collections for the month of October increasing to 100%. Although parking revenue remains depressed as compared to pre-pandemic levels, there has been improvement in bad debt expense. In the third quarter of 2021 there was a bad debt recovery of $221, $96 of which was recovered from same-asset properties compared to bad debt expense of $1,018 ($1,375 on same-asset properties) in the same period of 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.
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 September 30, 2021 and Consolidated Financial Statements and Notes for the quarters ended September 30, 2021, and September 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 September 30, 2021 are as follows:
Three months ended September 30, | ||||||||||
(In thousands of CAD dollars, except per unit amounts and as otherwise noted) | 2021 | 2020 | Variance | % | ||||||
Property revenue | $ | 101,517 | $ | 92,920 | $ | 8,597 | 9.3 | % | ||
Property operating expenses | 30,216 | 27,503 | (2,713) | (9.9) | % | |||||
Net property income | $ | 71,301 | $ | 65,417 | $ | 5,884 | 9.0 | % | ||
Operating income attributable to Unitholders | $ | 23,851 | $ | 19,734 | $ | 4,117 | 20.9 | % | ||
Same-asset property cash NOI (1) | $ | 64,741 | $ | 59,817 | $ | 4,924 | 8.2 | % | ||
Funds from operations ("FFO") (1) | ||||||||||
Basic | $ | 47,830 | $ | 43,327 | $ | 4,503 | 10.4 | % | ||
Per unit - Basic | $ | 0.29 | $ | 0.27 | $ | 0.02 | 7.4 | % | ||
Payout ratio | 76.5 | % | 81.2 | % | 4.7 | % | ||||
Adjusted funds from operations ("AFFO") (1) | ||||||||||
Basic | $ | 41,052 | $ | 35,494 | $ | 5,558 | 15.7 | % | ||
Per unit - Basic | $ | 0.25 | $ | 0.22 | $ | 0.03 | 13.6 | % | ||
Payout ratio | 89.1 | % | 99.2 | % | 10.1 | % | ||||
(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 September 30, 2021 MD&A for a reconciliation of same-asset property cash NOI, FFO and AFFO. |
Operating income attributable to Unitholders increased by $4,117, or 20.9%, compared to the third quarter of 2020 primarily due to increased income of $2,273 from completed developments, $954 from acquisitions, and $615 from renewals and new leasing, gain on disposal of investment properties of $2,619, and a reduction in bad debt expense of $1,239 as a result of decreased collection risk in the third quarter of 2021. The growth in net property income was offset in part by an impairment of $1,239 recognized on one retail property during the quarter as a result of an upcoming partial disposition, expected to close in December 2021. Additionally, loss from equity accounted investments was greater than income for the same period in 2020 by $1,024 due to operating results from residential development projects as they move towards revenue stabilization. Finance costs from operations was higher by $820 primarily due to the lower capitalized interest of $579 on developments and $484 from the addition of new unsecured debt since the third quarter of 2020.
Same-asset property cash NOI (SANOI) increased by $4,924, or 8.2%, compared to the third quarter of 2020 primarily due to a reduction in bad debt expense of $1,471 as a result of decreased collection risk in the third quarter of 2021, strong occupancy, and an increase of supplemental rents of $513 from modernizations and capital improvements. Same-asset property cash NOI adjusted for the removal of what management estimates to be the impacts of COVID-19 increased 2.0% compared to the same period in 2020.
The increase in FFO is primarily due to increased net property income (an increase of $5,884 quarter over quarter) which resulted from income of $3,227 from completed developments and acquisitions, strong occupancy, modernization income of $573, and a reduction in bad debt expense of $1,239 as a result of decreased risk in the third quarter of 2021. This is offset in part by loss from equity accounted investments of $923 compared to income of $101 for the same quarter in 2020 due to operating results from residential development projects as they move towards revenue stabilization, and increased finance costs from operations of $820 due to the addition of new unsecured debt since the third quarter of 2020 and lower capitalized interest on developments. Additionally, general and administrative expenses increased by $659 primarily resulting from new roles and promotions since the third quarter of 2020.
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 September 30, 2021 are as follows:
Nine months ended September 30, | ||||||||||
(In thousands of CAD dollars, except per unit amounts and as otherwise noted) | 2021 | 2020 | Variance | % | ||||||
Property revenue | $ | 305,060 | $ | 291,673 | $ | 13,387 | 4.6 | % | ||
Property operating expenses | 93,431 | 100,627 | 7,196 | 7.2 | % | |||||
Net property income | $ | 211,629 | $ | 191,046 | $ | 20,583 | 10.8 | % | ||
Operating income attributable to Unitholders | $ | 76,671 | $ | 50,451 | $ | 26,220 | 52.0 | % | ||
Same-asset property cash NOI (1) | $ | 191,003 | $ | 180,502 | $ | 10,501 | 5.8 | % | ||
Funds from operations ("FFO") (1) | ||||||||||
Basic | $ | 138,084 | $ | 123,545 | $ | 14,539 | 11.8 | % | ||
Per unit - Basic | $ | 0.86 | $ | 0.79 | $ | 0.07 | 8.9 | % | ||
Payout ratio | 78.2 | % | 85.1 | % | 6.9 | % | ||||
Adjusted funds from operations ("AFFO") (1) | ||||||||||
Basic | $ | 117,064 | $ | 103,284 | $ | 13,780 | 13.3 | % | ||
Per unit - Basic | $ | 0.73 | $ | 0.66 | $ | 0.07 | 10.6 | % | ||
Payout ratio | 92.2 | % | 101.7 | % | 9.5 | % | ||||
(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 September 30, 2021 MD&A for a reconciliation of same-asset property cash NOI, FFO and AFFO |
Operating income attributable to Unitholders increased by $26,220, or 52.0%, on a year to date basis. Gain on disposal of investment properties increased by $14,592 due to property dispositions in the first and third quarters of 2021, and net property income increased $20,583 due to a reduction in bad debt expense of $10,070, new income from completed developments of $5,936 and $2,585 from acquisitions. The improved net property income for the period was offset in part by an increase in finance costs of $3,253 due to $2,971 from the addition of new mortgages and unsecured debt and lower capitalized interest of $1,488 on developments, and by increased general and administrative expenses of $3,071 primarily as a result of an increase in Unit price and its impact on Unit-based compensation plans of $4,951. Additionally, loss from equity accounted investments was $2,256 for the period compared to income of $339 for the same period in 2020, due to operating results from residential development projects as they move towards revenue stabilization.
On a year to date basis, same-asset property cash NOI (SANOI) increased 5.8% compared to the same period in 2020 primarily due to a reduction in bad debt expense on same-asset properties of $5,720, strong occupancy, and increased lease termination income of $1,644. Same-asset property cash NOI adjusted for the removal of what management estimates to be the impacts of COVID-19 is $191,928, an increase of 1.5% compared to the adjusted results for the nine months ended September 30, 2020.
On a year to date basis, FFO increased primarily due to improved net property income (an increase of $20,583 compared to the same period in 2020) due to a significant reduction in bad debt expense of $10,070 resulting from decreased collection risk in 2021, increased income of $8,521 from completed developments and acquisitions, and an increase of $2,433 in lease termination income. The increase in net property income is partially offset by an increase in finance costs from operations of $3,253 due to the addition of new mortgages and unsecured debt, lower capitalized interest on developments, and by increased general and administrative expenses of $3,071 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 $2,256 for the period compared to income of $339 for the nine months ended September 30, 2020, resulting from operating results from residential development projects as they move towards revenue stabilization.
The improvement in AFFO is primarily due to the same factors impacting FFO as described above.
OPERATING RESULTS
September 30, | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | ||||||
Number of investment properties (1) | 287 | 287 | 287 | 284 | 286 | |||||
Gross leasable area (2) | 18,232,000 | 18,235,000 | 18,229,000 | 18,000,000 | 17,684,000 | |||||
Economic occupancy (3) | 95.8 | % | 95.6 | % | 95.5 | % | 94.0 | % | 94.7 | % |
Committed occupancy (4) | 96.5 | % | 96.2 | % | 96.3 | % | 96.4 | % | 95.3 | % |
(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. |
September 30, | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | |||||||||||
Investment properties, fair value | $ | 5,096,000 | $ | 5,053,000 | $ | 4,877,000 | $ | 4,815,000 | $ | 4,615,000 | |||||
Unencumbered investment properties (1) | $ | 1,461,775 | $ | 1,445,423 | $ | 1,388,141 | $ | 1,366,258 | $ | 1,460,152 | |||||
Available liquidity (2) | $ | 512,168 | $ | 368,483 | $ | 469,548 | $ | 471,708 | $ | 370,885 | |||||
Debt to gross fair value (3) | 45.5 | % | 46.0 | % | 48.9 | % | 49.4 | % | 49.8 | % | |||||
Weighted average interest rate (4) | 3.8 | % | 3.9 | % | 3.9 | % | 3.9 | % | 4.1 | % | |||||
Debt to trailing 12 months adjusted EBITDA (3) | 8.95x | 9.12x | 9.80x | 9.73x | 9.34x | ||||||||||
Interest coverage ratio (3) | 3.13x | 2.94x | 3.04x | 2.77x | 3.03x | ||||||||||
(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, Crombie achieved record economic occupancy and committed occupancy of 95.8% and 96.5%, respectively. Crombie renewed 187,000 square feet with an increase of 3.7% over expiring rents during the quarter. New leases and expansions increased occupancy by 653,000 square feet at an average first year rate of $21.13 per square foot.
Development
During the quarter, Crombie reached substantial completion on the major mixed-use development project, Le Duke, in Montreal. Le Duke, owned in partnership with Prince Developments, consists of 387 residential rental units and 26,000 square feet of commercial gross leasable area ("GLA") anchored by IGA.
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 178,000 square feet of commercial GLA, 300,000 square feet of retail-related industrial GLA, 1,228,000 square feet of residential GLA and 1,630 residential units. The geographical breakdown of GLA is as follows: 553,000 in Vancouver; 145,000 in Victoria; 300,000 in Calgary; 520,000 in the Greater Toronto Area and 188,000 in Halifax. Bronte Village, in the Greater Toronto Area, is expected to reach substantial completion in late 2021, with a remaining investment to complete of approximately $12,000. Property development is a strategic priority for Crombie, as it is expected to drive NAV, cash flow growth and Unitholder value, while increasing our presence in Canada's top urban markets and diversifying and improving overall portfolio quality.
The Toronto East development was added to the potential pipeline as a medium-term project during the third quarter. Additionally, Brunswick Place (Halifax) which is zoned for significant mixed-use/residential use moved from long-term to medium term in recognition of the strong market fundamentals in the downtown Halifax market. Penhorn Lands (Halifax) was moved to near-term projects, previously classified as medium-term.
These timing and cost estimates are subject to changes, as well as other development risks described in Crombie's third quarter MD&A under "Development" and "Risk Management".
Acquisitions
During the third quarter, Crombie acquired a 100% interest in one 24,000 square foot retail property for a total purchase price, before closing and transaction costs, of $4,710.
Dispositions
During the third quarter, Crombie had gross proceeds of $15,000 from the disposition of one income-producing property totalling 28,000 square feet. The asset sale was transacted in line with IFRS fair values and is part of Crombie's funding strategy, which redirects capital into developments that have the potential to deliver higher AFFO and NAV returns while at the same time improving portfolio quality.
Highlighted Subsequent Events
On October 15, 2021, Crombie disposed of a 100% interest in a retail property totalling 29,000 square feet for $16,910, excluding closing and transaction costs.
Conference Call Invitation
Crombie will provide additional details concerning its period ended September 30, 2021 results on a conference call to be held Wednesday, November 10, 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 November 17, 2021 by dialing (416) 764-8677 or (888) 390-0541 and entering pass code 618161 #, 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 and nine months ended September 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" and the Annual Information Form for the year ended December 31, 2020 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. 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
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