STELLARTON, NS, May 8 /CNW/ – Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its first quarter results for the quarter ending March 31, 2007. Net income for the quarter was $3.3 million ($0.15 per unit) compared to $0.285 million ($0.01 per unit) for the nine-day period March 23, 2006 to March 31, 2006. The pro-rated estimated first quarter of 2006 had net income of $2.85 million ($0.14 per unit).
The improvement over the estimated results were due to higher occupancy levels in the office and mixed-use properties combined with the impact of the property acquisitions completed in the fourth quarter of 2006 and the first quarter of 2007. As previously announced, on January 17, 2007, Crombie completed the acquisition of a property in Carleton Place, Ontario and on March 7, 2007, Crombie completed the acquisition of a property in Perth, Ontario.
The Carleton Place site is a grocery anchored neighbourhood retail centre of approximately 80,000 square feet and was purchased for $11.8 million, while the Perth site is a grocery anchored neighbourhood retail centre of approximately 103,000 square feet and was purchased for $17.9 million.
As a result of the improved operational results and the acquisitions completed during the first quarter of 2007, the Board of Trustees is pleased to announce a 2.4% increase to the monthly distribution payments, from $0.83 to $0.85 on an annualized basis, beginning with the May 31st distribution to be paid in June. This represents a 6.25% overall increase in the distributions since Crombie completed its IPO on March 23, 2006.
Commenting on the first quarter results and the distribution increase, J. Stuart Blair, President and Chief Executive Officer stated: "The completion of our first full twelve months of operations has helped to establish Crombie as a consistent performing REIT which has been able to demonstrate both same-asset as well as acquisition growth."
<<
2007 First Quarter Highlights
- During the first quarter, Crombie completed two property acquisitions
in Ontario, for an aggregate purchase price of $29.7 million which
added approximately 183,000 square feet of gross leaseable area ("GLA")
to the portfolio.
- Same asset net operating income ("NOI") of $19.452 million increased by
$1.162 million, or 6.4%, compared to $18.29 million for the same
estimated quarter in the prior year due primarily to increased
occupancy in the office and mixed-use properties.
- Overall occupancy at March 31, 2007 increased to 94.1% when compared to
93.6% at December 31, 2006.
- Property revenue for the quarter ended March 31, 2007 increased by
$2.95 million, or 9.0%, to $35.68 million, compared to $32.73 million
for the estimated quarter in the prior year. The improvement was due
primarily to improved occupancy and property acquisitions made
subsequent to March 31, 2006.
- Net income improved by $0.45 million, or 15.8%, to $3.3 million for the
first quarter of 2007, compared to $2.85 million for the estimated
quarter in the previous year.
- The distributable income payout ratio was 69.7%, 10.3% below the
anticipated annual payout ratio of 80%.
- The AFFO payout ratio was 77.7%, which was also below the anticipated
AFFO payout ratio of 100%. Management anticipates that the distribution
increase previously announced in February 2007 in addition to the
distribution increase announced today, combined with the seasonal
nature of the capital expenditures, will result in the annual payout
ratios approximating the anticipated payout ratios.
- Debt to gross book value increased to 47.0% at March 31, 2007 from
44.8% at December 31, 2006. This is still well below management's
intended leverage ratio of 50% to 55% and provides acquisition capacity
of approximately $170 million.
The table below presents a summary of the financial performance for the
quarter. Quarter ended March 31, 2006 results of operations have been
estimated by pro-rating the results for the nine days of operations from
March 23, 2006 to March 31, 2006. It is believed that this method of
estimation of the first quarter results would be reflective of the actual
results of Crombie in all material respects had Crombie been in operation for
the entire period.
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Quarter Quarter
ended ended
(In millions of dollars, March 31, March 31,
except per unit amounts) 2007 2006 Variance
-------------------------------------------------------------------------
Property revenue $35.680 $32.730 $2.950
Property expenses 15.046 14.440 (0.606)
-------------------------------------------------------------------------
Property net operating income 20.634 18.290 2.344
-------------------------------------------------------------------------
Expenses:
General and administrative 1.618 1.460 (0.158)
Interest 5.934 5.300 (0.634)
Depreciation and amortization 6.392 5.400 (0.992)
-------------------------------------------------------------------------
13.944 12.160 (1.784)
-------------------------------------------------------------------------
Income before income taxes and
non-controlling interest 6.690 6.130 0.560
-------------------------------------------------------------------------
Income taxes
Current - 0.090 0.090
Future 0.328 0.400 0.072
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0.328 0.490 0.162
-------------------------------------------------------------------------
Income before non-controlling
interest 6.362 5.640 0.722
Non-controlling interest 3.062 2.790 (0.272)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income $3.300 $2.850 $0.450
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic & diluted net income per unit $0.15 $0.14
-----------------------------------------------------------
-----------------------------------------------------------
Property Net Operating Income
Property NOI of $20.634 million for the first quarter was higher than the
estimated period of 2006 by $2.344 million or 12.8%. This was primarily the
result of the three property acquisitions completed in the fourth quarter of
2006 and two property acquisitions completed in the first quarter of 2007, as
well as the improved occupancy of the properties.
Same-Asset Property Net Operating Income
-------------------------------------------------------------------------
Quarter Quarter
ended ended
March 31, March 31,
(In millions of dollars) 2007 2006 Variance
-------------------------------------------------------------------------
Same-asset property revenue $33.967 $32.730 $1.237
Same-asset property expenses 14.515 14.440 0.075
-------------------------------------------------------------------------
Same-asset property NOI $19.452 $18.290 $1.162
-------------------------------------------------------------------------
Same-asset property revenue of $33.967 million in the first quarter was
higher than the estimated period of 2006 by $1.237 million, or 3.8%, due to
improved occupancy levels in the office and mixed-use properties. Same-asset
occupancy at March 31, 2007 improved to 93.9% when compared to 93.3% at
March 31, 2006.
Same-asset property expenses of $14.515 million incurred during the first
quarter of 2007 were only slightly higher than the estimated period of 2006 of
$14.44 million.
Income Before Income Taxes and Non-Controlling Interest
Income before income taxes and non-controlling interest of $6.69 million
for the first quarter was higher than the estimated same period of 2006 of
$6.13 million due to the improved NOI result partially offset by higher
interest and depreciation charges also due primarily to the properties
acquired in the fourth quarter of 2006 and the first quarter of 2007.
Distributable Income and AFFO
Distributable income is calculated as follows:
Period from
March 23,
Quarter 2006
ended to
March 31, March 31,
(In millions of dollars) 2007 2006
-------------------------------------------------------------------------
Net income $3.300 $0.285
Add back:
Non-controlling interest 3.062 0.279
Depreciation & amortization(1) 6.027 0.536
Future income taxes 0.328 0.040
Above market lease amortization 0.697 0.064
Deduct:
Below market lease amortization (0.987) (0.089)
Straight line rent adjustment (0.307) (0.030)
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Distributable income $12.120 $1.085
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(1) Excludes amortization of deferred financing charges, tenant
improvements and leasing commission costs.
Crombie considers AFFO to be a measure of the sustainability of its cash
generating activities. AFFO reflects distributable income after the provision
for maintenance capital expenditures and additions to tenant improvements and
lease costs. As these expenditures are not incurred evenly throughout a fiscal
year, there can be volatility in AFFO on a quarterly basis.
Period from
March 23,
Quarter 2006
ended to
March 31, March 31,
(In millions of dollars) 2007 2006
-------------------------------------------------------------------------
Distributable income $12.120 $1.085
Less:
Maintenance capital expenditures (net of amounts
recoverable from ECL) (0.748) -
Unamortized additions to tenant improvements and
lease costs (net of amounts recoverable from ECL) (0.501) -
-------------------------------------------------------------------------
AFFO $10.871 $1.085
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Distributions and Distribution Payout Ratios
Details of distributions to unitholders are as follows:
Period from
March 23,
Quarter 2006
ended to
(In millions of dollars, except per unit March 31, March 31,
amounts and as otherwise noted) 2007 2006
-------------------------------------------------------------------------
Distributions to Unitholders $4.384 $-
Distributions to Special Voting Unitholders 4.067 -
-------------------------------------------------------------------------
Total Distributions $8.451 $-
-------------------------------------------------------------------------
Number of Units 21,648,985 20,485,224
Number of Special Voting Units 20,079,576 20,079,576
-------------------------------------------------------------------------
Total number of Units 41,728,561 40,564,800
-------------------------------------------------------------------------
Distributions per voting unit $0.20 $-
Distributable income payout ratio 69.7% -%
AFFO payout ratio 77.7% -%
-------------------------------------------------------------------------
Crombie had a total of $8.451 million in distributions during the first
quarter of 2007. There were no distributions made during the first quarter of
2006 as the distribution for the nine days of operations from March 23 to
March 31, 2006 was paid in May 2006.
The distributable income payout ratio of 69.7% is below the anticipated
annual payout ratio of 80% while the AFFO payout ratio of 77.7% is below the
anticipated annual payout ratio of 100%. These results reflect both the
improved operating results, due to the acquisitions completed in 2006 and 2007
combined with the improved same-asset property results, as well as the
seasonal cyclicality of some of the expenditures for maintenance and capital
improvements that can occur quarter to quarter. Crombie increased its
distributions in March 2007 by 3.75% and anticipates that, with the
combination of the announced increase in distributions today of 2.4%, over the
remainder of 2007 the full year payout ratios will more closely approximate
the anticipated payout ratios.
Funds from Operations ("FFO")
A reconciliation of GAAP net income to FFO for the quarter ended March 31,
2007 and the period from March 23, 2006 to March 31, 2006 is as follows:
Period from
March 23,
Quarter 2006
ended to
March 31, March 31,
(In millions of dollars) 2007 2006
-------------------------------------------------------------------------
Net income $3.300 $0.285
Add back:
Non-controlling interest 3.062 0.279
Depreciation & amortization(1) 6.392 0.536
Future income taxes 0.328 0.040
-------------------------------------------------------------------------
Funds from operations $13.082 $1.140
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Excludes amortization of deferred financing charges.
Debt to Gross Book Value
The debt to gross book value ratio increased to 47.0% at March 31, 2007
from 44.8% at December 31, 2006 due to the two property acquisitions in the
first quarter of 2007. However, this leverage ratio was still substantially
below the maximum 60% as outlined by Crombie's Declaration of Trust. Crombie
intends to maintain overall indebtedness in the range of 50% to 55% of gross
book value, depending upon Crombie's future acquisitions and financing
opportunities. On January 1, 2007, as a result of the adoption of new
accounting standards issued by the Canadian Institute of Chartered
Accountants, deferred financing charges were reclassified from an asset to a
reduction in commercial property debt. As a result, to allow for consistent
calculations of gross book value, the deferred financing charges are added
back to the asset base when calculating the debt to gross book value ratio.
(In millions of
dollars, except As at As at As at As at As at
as otherwise Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
noted) 2007 2006 2006 2006 2006
-------------------------------------------------------------------------
Mortgages payable $346.437 $350.063 $326.806 $330.234 $333.486
Revolving credit
facility payable 114.818 82.900 73.238 74.389 82.900
-------------------------------------------------------------------------
Total debt outstanding 461.255 432.963 400.044 404.623 416.386
Less: Marked-to-market
adjustment due to
interest rate subsidy (16.811) (17.717) (18.630) (19.549) (20.564)
-------------------------------------------------------------------------
Debt 444.444 415.246 $381.414 $385.074 $395.822
-------------------------------------------------------------------------
Total assets $972.737 $963.935 $936.768 $948.508 $922.889
Add:
Deferred financing
charges reclassified
to commercial
property debt
beginning
January 1, 2007 1.551 - - - -
Accumulated
depreciation
of commercial
properties 12.401 9.061 5.810 3.039 0.267
Accumulated
amortization of
intangible assets 14.586 10.837 7.231 3.783 0.244
Less:
Note receivable for
interest rate subsidy (16.811) (17.717) (18.630) (19.549) (20.564)
Fair value adjustment
to future taxes (39.519) (39.519) (47.941) (47.941) (47.941)
-------------------------------------------------------------------------
Gross book value $944.945 $926.597 $883.238 $887.840 $854.895
-------------------------------------------------------------------------
Debt to gross book value 47.0% 44.8% 43.2% 43.4% 46.3%
Maximum borrowing
capacity 60% 60% 60% 60% 60%
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On March 26, 2007 the Federal Government released a Notice of Ways and
Means motion (the "Motion") to implement certain provisions of the Federal
Budget tabled in Parliament on March 19, 2007. The Motion contained revised
language pertaining to the federal income taxation of publicly traded income
trusts and partnerships. The Motion provides clarification on the proposed
rules that all existing income trusts, or flow-through entities (FTEs), will
be subject to corporate tax rates beginning in 2011, subject to an exemption
for real estate investment trusts ("REITs").
While REITs were exempted from the FTE definition, there are a number of
technical tests to determine which entities qualify as a REIT. While the
Motion has provided further clarity on a number of these technical tests, it
is not clear whether the revised rules contemplate multi tier trust
structures. From management's review of the Motion, this would appear to be
the only area in which further clarification is required in order for Crombie
to ensure it satisfies all the technical tests established in the Motion. If
further clarification or changes to this technical test is not made prior to
enactment, Crombie has reviewed the structural changes that would have to be
made in order to ensure it complies with the REIT rules, and management has
reason to believe it will be able to deal with this issue in a manner that
would not cause any material adverse consequence to Crombie.
Definition of Non-GAAP Measures
Certain financial measures included in this news release do not have
standardized meaning under Canadian generally accepted accounting principles
and therefore may not be comparable to similarly titled measures used by other
publicly traded companies. Crombie includes these measures because it believes
certain investors use these measures as a means of assessing Crombie's
financial performance.
- Property net operating income is property revenue less property
expenses.
- FFO is calculated as net income (computed in accordance with GAAP),
excluding gains (or losses) from sales of depreciable real estate and
extraordinary items, plus depreciation and amortization, future income
taxes and after adjustments for equity accounted entities and non-
controlling interests.
- Debt is defined as bank loans plus commercial property debt.
- Gross book value means, at any time, the book value of the assets of
Crombie and its consolidated subsidiaries plus accumulated depreciation
and amortization in respect of Crombie's properties (and related
intangible assets) less (i) the amount of any receivable reflecting
interest rate subsidies on any debt assumed by Crombie and (ii) the
amount of future income tax liability arising out of the fair value
adjustment in respect of the indirect acquisitions of certain
properties.
- Distributable income is defined as net income of Crombie, on a
consolidated basis, as determined in accordance with GAAP, subject to
certain adjustments as set out in the declaration of trust, including:
(i) adding back the following items: non-controlling interest,
depreciation of buildings and improvements (excluding amortization of
tenant improvements, leasing commissions and deferred financing costs)
and amortization of related intangibles (including amortization of
value of tenant rents in in-place lease agreements, amortization of
differential between original rent and above market rents, amortization
of customer relationships), future income tax expense, losses on
dispositions of assets and amortization of any net discount on long-
term debt assumed from vendors of properties at rates of interest less
than fair value; (ii) deducting the following items: amortization of
differential between original rents and below market rents, future
income tax credits, gains on dispositions of assets and amortization of
any net premium on long-term debt assumed from vendors of properties at
rates of interest greater than fair value (except where such
amortization is funded); and (iii) adjusting for differences, if any,
resulting from recognizing rental revenues on a straight line basis as
opposed to contractual rental amounts.
- AFFO is defined as distributable income, less maintenance capital
expenditures and unamortized additions to tenant improvements and lease
costs.
About Crombie
Crombie is an open-ended real estate investment trust established under,
and governed by, the laws of the Province of Ontario. The trust invests in
income-producing retail, office and mixed-use properties in Canada, with a
future growth strategy focused primarily on the acquisition of retail
properties. Crombie currently owns a portfolio of 49 commercial properties in
six provinces, comprising approximately 7.7 million square feet of rentable
space.
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 annual Management
Discussion and Analysis under "Risk Management" on pages 34 to 38 of the
Annual Report, 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.
In particular, certain statements in this document discuss Crombie's
anticipated outlook of future events. These statements include, but are not
limited to:
(i) the acquisition of accretive properties and the anticipated extent of
the accretion of those acquisitions, which could be impacted by demand for
properties and the effect that demand has on acquisition capitalization rates
and changes in interest rates;
(ii) making improvements to the properties, which could be impacted by the
availability of labour and capital resource allocation decisions;
(iii) generating improved rental income and occupancy levels, which could
be impacted by changes in demand for Crombie's properties, tenant
bankruptcies, the effects of general economic conditions and competitive
supply of retail or office locations in proximity to Crombie locations;
(iv) overall indebtedness levels, which could be impacted by the level of
acquisition activity Crombie is able to achieve and future financing
opportunities;
(v) anticipated distributions and payout ratios, which could be impacted
by the seasonality of capital expenditures, results of operations and capital
resource allocation decisions; and
(vi) tax exempt status, which can be impacted by regulatory changes
enacted by governmental authorities.
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.
Additional information relating to Crombie 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 first quarter
results on a conference call to be held Tuesday, May 8, 2007, at
3:00 p.m. ADT. To join this conference call you may dial (416) 644-3422 or
(800) 594-3790. 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 May 15, 2007, by dialling (416) 640-1917 or
(877) 289-8525 and entering pass code 21227901#, or on the Crombie website for
90 days after the meeting.
CROMBIE REAL ESTATE INVESTMENT TRUST
Interim Consolidated Financial Statements
Unaudited
March 31, 2007
CROMBIE REAL ESTATE INVESTMENT TRUST
Consolidated Balance Sheets
(In thousands of dollars)
-------------------------------------------------------------------------
March 31, December 31,
2007 2006
-------------------------
(unaudited) (audited)
Assets
Commercial properties (Note 5) $861,829 $836,913
Intangible assets (Note 6) 65,538 63,021
Notes receivable (Note 7) 33,104 41,459
Other assets (Note 8) 12,266 21,362
Cash and cash equivalents - 1,180
-------------------------
$972,737 $963,935
-------------------------
-------------------------
Liabilities and Unitholders' Equity
Commercial property debt (Note 9) $459,704 $432,963
Payables and accruals (Note 10) 20,463 37,432
Intangible liabilities (Note 11) 18,254 17,681
Employee future benefits obligation 4,179 4,064
Distributions payable 2,885 2,781
Future income tax liability 80,799 80,471
-------------------------
586,284 575,392
Non-controlling interest (Note 12) 186,550 187,649
Unitholders' equity 199,903 200,894
-------------------------
$972,737 $963,935
-------------------------
-------------------------
Commitments and contingencies (Note 16)
See accompanying notes to the interim consolidated financial statements.
CROMBIE REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Income
(In thousands of dollars, except per unit amounts)
(Unaudited)
-------------------------------------------------------------------------
Period from
March 23,
Three Months 2006
Ended to
March 31, March 31,
2007 2006
---------------------------
Revenues
Property revenue (Note 14) $35,680 $3,273
---------------------------
Expenses
Property expenses 15,046 1,444
General and administrative expenses 1,618 146
Interest expense 5,934 530
Depreciation of commercial properties 2,975 267
Amortization of tenant improvements/
lease costs 365 -
Amortization of deferred financing costs - 4
Amortization of intangible assets 3,052 269
---------------------------
28,990 2,660
---------------------------
---------------------------
Income before income taxes and non-controlling
interest 6,690 613
---------------------------
Income tax expense
Current - 9
Future 328 40
---------------------------
328 49
---------------------------
Income before non-controlling interest 6,362 564
Non-controlling interest 3,062 279
---------------------------
---------------------------
Net income $3,300 $285
---------------------------
---------------------------
Basic and diluted net income per unit $0.15 $0.01
---------------------------
---------------------------
Weighted average number of units outstanding
- basic and diluted 21,514,209 20,485,224
---------------------------
---------------------------
Consolidated Statements of Comprehensive Income
(In thousands of dollars)
(Unaudited)
-------------------------------------------------------------------------
Period from
March 23,
Three Months 2006
Ended to
March 31, March 31,
2007 2006
---------------------------
Net income $3,300 $285
Net change in derivative designated
as cash flow hedge 59 -
---------------------------
Other comprehensive income 59 -
---------------------------
Comprehensive income $3,359 $285
---------------------------
---------------------------
See accompanying notes to the interim consolidated financial statements.
CROMBIE REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Unitholders' Equity
(In thousands of dollars)
(Unaudited)
-------------------------------------------------------------------------
Accumu-
lated
Other
Contri- Compre-
REIT Net buted hensive Distri-
Units Income Surplus Income butions Total
-----------------------------------------------------------------
(Note 13)
Unitholders'
equity,
December
31,
2006 $204,831 $9,405 $27 $- $(13,369) $200,894
Transition
adjustment
as of
January 1,
2007
(Note 3) - - - (162) - (162)
Units
released
under
EUPP 27 - (27) - - -
Units issued
under
EUPP 215 - - - - 215
Loans
receivable
under
EUPP (215) - - - - (215)
EUPP
compensation - - 9 - - 9
Repayment
of EUPP
loans
receivable 187 - - - - 187
Net income - 3,300 - - - 3,300
Distributions - - - - (4,384) (4,384)
Other
comprehensive
income - - - 59 - 59
-----------------------------------------------------------------
Unitholders'
equity,
March 31,
2007 $205,045 $12,705 $9 $(103) $(17,753) $199,903
-----------------------------------------------------------------
-----------------------------------------------------------------
Unitholders'
equity,
March 23,
2006 $- $- $- $- $- $-
Unit issue
proceeds,
net of
costs of
$9,685 195,167 - - - - 195,167
Net income - 285 - - - 285
-----------------------------------------------------------------
Unitholders'
equity,
March 31,
2006 $195,167 $285 $- $- $- $195,452
-----------------------------------------------------------------
-----------------------------------------------------------------
See accompanying notes to the interim consolidated financial statements.
CROMBIE REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Cash Flows
(In thousands of dollars)
(Unaudited)
-------------------------------------------------------------------------
Period from
March 23,
Three Months 2006
Ended to
March 31, March 31,
2007 2006
---------------------------
Cash flows provided by (used in)
Operating Activities
Net income $3,300 $285
Items not affecting cash
Non-controlling interest 3,062 279
Depreciation of commercial properties 2,975 267
Amortization of tenant improvements/
lease costs 365 -
Amortization of deferred financing costs 92 4
Amortization of intangible assets 3,052 269
Amortization of above market leases 697 64
Amortization of below market leases (987) (89)
Accrued rental revenue (307) (30)
Unit based compensation 9 -
Future income taxes 328 40
---------------------------
12,586 1,089
Additions to tenant improvements and
lease costs (1,081) -
Change in other non-cash operating items
(Note 15) (9,223) 5,625
---------------------------
Cash provided by operating activities 2,282 6,714
---------------------------
Financing Activities
Issue of commercial property debt 31,918 82,900
Issue costs of commercial property debt (65) -
Repayment of commercial property debt (3,626) (158)
Collection of notes receivable 8,355 -
Units issued on initial public offering - 204,852
Unit issue costs - (19,079)
Repayment of EUPP loan receivable 187 -
Payment of distributions (8,347) -
---------------------------
Cash provided by financing activities 28,422 268,515
---------------------------
Investing Activities
Business acquisition (Note 4) - (263,542)
Additions to commercial properties (1,667) -
Acquisition of commercial properties (Note 5) (30,217) -
---------------------------
Cash used in investing activities (31,884) (263,542)
---------------------------
Increase (decrease) in cash and
cash equivalents during the period (1,180) 11,687
Cash and cash equivalents, beginning of period 1,180 -
---------------------------
Cash and cash equivalents, end of period $- $11,687
---------------------------
---------------------------
See accompanying notes to the interim consolidated financial statements.
CROMBIE REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
(In thousands of dollars, except per unit amounts)
(Unaudited)
March 31, 2007
-------------------------------------------------------------------------
1) CROMBIE REAL ESTATE INVESTMENT TRUSTCrombie Real Estate Investment Trust ("Crombie") is an unincorporated
"open-ended" real estate investment trust created pursuant to the Declaration
of Trust dated January 1, 2006, as amended. Crombie commenced operations on
March 23, 2006. The units of Crombie are traded on the Toronto Stock Exchange
("TSX") under the symbol "CRR.UN".
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These interim consolidated financial statements are prepared in accordance
with generally accepted accounting principles ("GAAP") as prescribed by the
Canadian Institute of Chartered Accountants ("CICA"). These interim
consolidated financial statements do not include all of the disclosures
included in Crombie's annual consolidated financial statements. Accordingly,
these interim consolidated financial statements should be read in conjunction
with the consolidated financial statements for the period ended December 31,
2006, as set out in the 2006 Annual Report.
The accounting policies used in preparation of these interim consolidated
financial statements conform with those used in the 2006 annual consolidated
financial statements, except as described in Note 3.
(b) Property Acquisitions
Upon acquisition of commercial properties, Crombie performs an assessment
of the fair value of the properties' related tangible and intangible assets
and liabilities (including land, buildings, origination costs, in-place
leases, above and below-market leases, and any other assumed assets and
liabilities), and allocates the purchase price to the acquired assets and
liabilities. Crombie assesses and considers fair value based on cash flow
projections that take into account relevant discount and capitalization rates
and any other relevant sources of market information available. Estimates of
future cash flow are based on factors that include historical operating
results, if available, and anticipated trends, local markets and underlying
economic conditions.
Crombie allocates the purchase price based on the following:
Land - The amount allocated to land is based on an appraisal estimate of
its fair value.
Buildings - Buildings are recorded at the fair value of the building on an
"as-if-vacant" basis, which is based on the present value of the anticipated
net cash flow of the building from vacant start up to full occupancy.
Origination costs for existing leases - Origination costs are determined
based on estimates of the costs that would be incurred to put the existing
leases in place under the same terms and conditions. These costs include
leasing commissions as well as foregone rent and operating cost recoveries
during an assumed lease-up period.
In-place leases - In-place lease values are determined based on estimated
costs required for each lease that represents the net operating income lost
during an estimated lease-up period that would be required to replace the
existing leases at the time of purchase.
Tenant relationships - Tenant relationship values are determined based on
costs avoided if the respective tenants were to renew their leases at the end
of the existing term, adjusted for the estimated probability that the tenants
will renew.
Above and below market existing leases - Values ascribed to above and
below market existing leases are determined based on the present value of the
difference between the rents payable under the terms of the respective leases
and estimated future market rents.
(c) Revenue recognition
Property revenue includes rents earned from tenants under lease
agreements, percentage rent, realty tax and operating cost recoveries, and
other incidental income. Certain leases have rental payments that change over
their term due to changes in rates. Crombie records the rental revenue from
these leases on a straight-line basis over the term of the lease. Accordingly,
an accrued rent receivable/payable is recorded for the difference between the
straight-line rent recorded as property revenue and the rent that is
contractually due from the tenants. Percentage rents are recognized when
tenants are obligated to pay such rent under the terms of the related lease
agreements. The value of the differential between original and market rents
for existing leases is amortized using the straight-line method over the terms
of the tenant lease agreements. Realty tax and other operating cost
recoveries, and other incidental income, are recognized on an accrual basis.
(d) Income taxes
Crombie will be taxed as a "mutual fund trust" for income tax purposes.
Pursuant to the terms of the Declaration of Trust, Crombie must make
distributions not less than the amount necessary to ensure that Crombie will
not be liable to pay income tax, except for the amounts incurred in its
incorporated subsidiaries.
Future income tax liabilities of Crombie relate to tax and accounting
basis differences of incorporated subsidiaries of Crombie. Income taxes are
accounted for using the liability method. Under this method, future income
taxes are recognized for the expected future tax consequences of differences
between the carrying amount of balance sheet items and their corresponding tax
values. Future income taxes are computed using substantively enacted corporate
income tax rates for the years in which tax and accounting basis differences
are expected to reverse.
(e) Employee future benefits obligation
The cost of pension benefits for defined contribution plans are expensed
as contributions are paid. The cost of defined benefit pension plans and other
benefit plans is accrued based on actuarial valuations, which are determined
using the projected benefit method pro-rated on service and management's best
estimate of the expected long-term rate of return on plan assets, salary
escalation, retirement ages and expected growth rate of health care costs. The
defined benefit plans are unfunded.
The impact of changes in plan amendments is amortized on a straight-line
basis over the expected average remaining service life (EARSL) of active
members. For the supplementary executive retirement plan, the impacts of
changes in the plan provisions are amortized over five years.
During the first quarter of fiscal 2007, the net defined benefit pension
plans and other benefit plans expense was $115.
(f) Use of estimates
The preparation of interim consolidated financial statements in conformity
with Canadian generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the balance sheet, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
3) CHANGES IN ACCOUNTING POLICIES
Effective January 1, 2007 Crombie has adopted three new accounting
standards that were issued by the CICA in 2005. These accounting policy
changes were adopted on a retroactive basis with no restatement of prior
period financial statements.
The new standards and accounting policy changes are as follows:
Financial Instruments - Recognition and Measurement (Section 3855)
In accordance with this new standard, Crombie now classifies all financial
instruments, including derivatives, as either held to maturity,
available-for-sale, held for trading, loans and receivables or other financial
liabilities. Financial assets held to maturity, loans and receivables, and
financial liabilities other than those held for trading, are measured at
amortized cost. Available-for-sale financial assets are measured at fair value
with unrealized gains and losses recognized in other comprehensive income.
Financial instruments classified as held for trading are measured at fair
value with unrealized gains and losses recognized in the consolidated
statement of income.
Comprehensive Income (Section 1530)
Comprehensive income is the change in Unitholders' equity during a period
from transactions and other events and circumstances from non-owner sources.
In accordance with this new standard, Crombie now reports a consolidated
statement of comprehensive income, comprising net income and other
comprehensive income for the period. A new category, accumulated other
comprehensive income, has been added to the consolidated statements of
unitholders' equity.
Hedges (Section 3865)
This new section establishes standards for when and how hedge accounting
may be applied, as well as the disclosure requirements. Hedge accounting
enables the recording of gains, losses, revenues and expenses from the
derivative financial instruments in the same period as for those related to
the hedged item.
The new standard outlines the criteria for applying hedge accounting to
cash flow hedges and fair value hedges. Cash flow hedges are recognized on the
balance sheet at fair value with the effective portion of the hedging
relationship recognized in other comprehensive income. Any ineffective portion
of the cash flow hedge is recognized in net income. Amounts recognized in
accumulated other comprehensive income are reclassified to net income in the
same periods in which the hedged item is recognized in net income. Fair value
hedges and the related hedge items are recognized on the balance sheet at fair
value with any changes in fair value recognized in net income. To the extent
the fair value hedge is effective, the changes in the fair value of the hedge
and the hedged item will offset each other.
In accordance with the provisions of these new standards, on January 1,
2007 Crombie recorded:
i) an adjustment to reflect a reallocation on the consolidated balance
sheet of $1,578 from deferred financing costs to commercial property
debt for unamortized transaction costs previously incurred and
accounted for separately; and
ii) a transition adjustment to recognize the fair value of a derivative
designated as a cash flow hedge. The fair value at January 1, 2007
was $(310), of which $(162) has been allocated to unitholders' equity
and $(148) to non-controlling Interest.
The adoption of these new standards has been reflected on Crombie's
interim consolidated financial statements. The unrealized gains and losses
included in ''accumulated other comprehensive income'' were recorded net of
applicable taxes.
Transaction costs
Crombie adds transaction costs directly attributable to the acquisition or
issue of a financial asset or financial liability, other than for those
classified as held for trading, to the fair value of the financial asset or
financial liability.
Cash Flow Statements (Section 1540)
Amendments to CICA Section 1540, Cash Flow Statements, require entities to
disclose total cash distributions on financial instruments classified as
equity in accordance with a contractual agreement and the extent to which
total cash distributions are non-discretionary. This disclosure requirement is
effective for interim and annual financial statements for fiscal periods
ending on or after March 31, 2007. The determination to declare and make
payable distributions from Crombie are at the discretion of the Board of
Trustees of Crombie and, until declared payable by the Board of Trustees of
Crombie, Crombie has no contractual requirement to pay cash distributions to
Unitholders' of Crombie. During the three month period ended March 31, 2007,
$8,451 (period from March 23, 2006 to March 31, 2006 - $Nil) in cash
distributions were declared payable by the Board of Trustees to Crombie
Unitholders and Crombie Limited Partnership Unitholders (the "Class B LP
Units").
4) BUSINESS ACQUISITION
On March 23, 2006, Crombie directly or indirectly acquired 44 commercial
properties from Empire Company Limited's subsidiary, ECL Properties Limited
("ECL") and certain of its affiliates for an aggregate purchase price of
$801,246, of which $414,777 was financed with new and assumed debt, $195,167
was financed through the public offering of REIT units and $191,302 was
financed through the issuance of Class B LP Units to ECL.
The acquisition of the properties has been accounted for using the
purchase method of accounting with the results of operations included in
income from the date of acquisition. The purchase price allocated to the
assets acquired and liabilities assumed, based on their fair values at the
date of acquisition, was as follows:
Commercial property acquired, net:
-------------------------------------------------------------------------
Tangible assets $772,040
Net intangible assets 46,577
Other assets, net of liabilities 1,181
Notes receivable 62,682
Future income tax liability (81,234)
-------------------------------------------------------------------------
Net purchase price 801,246
Assumed mortgages (marked to market) (333,644)
-------------------------------------------------------------------------
$467,602
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consideration paid, funded by:
-------------------------------------------------------------------------
Class B LP Units (non-controlling interest) $200,795
Cash 263,542
Land transfer costs and additional financing costs 3,265
-------------------------------------------------------------------------
$467,602
-------------------------------------------------------------------------
-------------------------------------------------------------------------
5) COMMERCIAL PROPERTIES
March 31, 2007
-------------------------------------
Accumulated Net
Cost Depreciation Book Value
-------------------------------------
Land $173,268 $- $173,268
Buildings 692,579 11,595 680,984
Tenant improvements and leasing
costs 8,383 806 7,577
-------------------------------------
$874,230 $12,401 $861,829
-------------------------------------
-------------------------------------
December 31, 2006
-------------------------------------
Accumulated Net
Cost Depreciation Book Value
-------------------------------------
Land $168,087 $- $168,087
Buildings 670,585 8,620 661,965
Tenant improvements and leasing
costs 7,302 441 6,861
-------------------------------------
$845,974 $9,061 $836,913
-------------------------------------
-------------------------------------
Property Acquisitions
On January 17, 2007, Crombie acquired a property in Carleton Place,
Ontario, representing a 79,700 square foot increase to the portfolio, for
$11,800 plus additional closing costs, from an unrelated third party. The
acquisition was initially financed through Crombie's floating rate revolving
credit facility. Subsequent to March 31, 2007, a fixed rate mortgage was
established for the property (see Subsequent Events - Note 20).
On March 7, 2007, Crombie acquired a property in Perth, Ontario
representing a 102,500 square foot increase to the portfolio, for $17,900 plus
additional closing costs, from an unrelated third party. The acquisition was
initially financed through Crombie's floating rate revolving credit facility.
Subsequent to March 31, 2007, a fixed rate mortgage was established for the
property (see Subsequent Events - Note 20).
The allocation of the total cost of the acquisitions is as follows:
Commercial property acquired, net:
-------------------------------------------------------------------------
Land $5,181
Buildings 20,330
Intangible assets:
Lease origination costs 985
Tenant relationships 2,244
Above market leases 855
In-place leases 2,182
Intangible liabilities
Below market leases (1,560)
-------------------------------------------------------------------------
$30,217
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consideration paid, funded by:
-------------------------------------------------------------------------
Floating rate revolving credit facility $29,467
Application of deposit 750
-------------------------------------------------------------------------
$30,217
-------------------------------------------------------------------------
-------------------------------------------------------------------------
6) INTANGIBLE ASSETS
March 31, 2007
-------------------------------------
Accumulated Net
Cost Amortization Book Value
-------------------------------------
Origination costs for existing
leases $11,866 $2,910 $8,956
In-place leases 19,115 5,035 14,080
Tenant relationships 33,383 3,854 29,529
Above market existing leases 15,760 2,787 12,973
-------------------------------------
$80,124 $14,586 $65,538
-------------------------------------
-------------------------------------
December 31, 2006
-------------------------------------
Accumulated Net
Cost Amortization Book Value
-------------------------------------
Origination costs for existing
leases $10,881 $2,149 $8,732
In-place leases 16,933 3,734 13,199
Tenant relationships 31,139 2,864 28,275
Above market existing leases 14,905 2,090 12,815
-------------------------------------
$73,858 $10,837 $63,021
-------------------------------------
7) NOTES RECEIVABLE
One component of the business acquisition discussed in Note 4 is the
acquisition of three demand non-interest bearing promissory notes from ECL in
the amounts of $39,600, $2,518 and $20,564. Payments on the first note of
$39,600 are being received as funding is required for a capital expenditure
program relating to eight commercial properties over the period from 2006 to
2010. Payments on the second note of $2,518 will be received as funding is
required to pay taxes on certain contemplated transfers of five commercial
properties within Crombie. Payments on the third note of $20,564 are being
received on a monthly basis to reduce the effective interest rate to 5.54% on
certain assumed mortgages with an average term to maturity of approximately
5.2 years.
The balance of each note is as follows:
March 31, December 31,
2007 2006
-----------------------
Capital expenditure program $13,775 $21,224
Tax on property transfer 2,518 2,518
Interest rate subsidy 16,811 17,717
-----------------------
$33,104 $41,459
-----------------------
-----------------------
8) OTHER ASSETS
March 31, December 31,
2007 2006
-----------------------
Accounts receivable $2,991 $7,438
Deposit on property - 750
Accrued straight-line rent receivable 4,956 4,649
Prepaid expenses 3,597 6,270
Deferred financing charges - 1,578
Restricted cash 722 677
-----------------------
$12,266 $21,362
-----------------------
-----------------------
9) COMMERCIAL PROPERTY DEBT
Weighted Weighted Carrying
average average Amount
interest term to March 31,
Range rate maturity 2007
----------------------------------------------------
Fixed rate
mortgages 5.15-6.39% 5.50% 7.1 years $346,437
Financing costs (1,551)
Floating rate
revolving credit
facility 5.49% 5.49% 1.9 years 114,818
--------------
$459,704
--------------
--------------
Weighted Weighted Carrying
average average Amount
interest term to December 31,
Range rate maturity 2006
----------------------------------------------------
Fixed rate
mortgages 5.15-6.39% 5.50% 7.3 years $350,063
Floating rate
revolving credit
facility 5.49% 5.49% 2.2 years 82,900
--------------
$432,963
--------------
As of March 31, 2007, debt retirements for the next 5 years are:
Fixed Floating Financing
Rate Rate Costs Total
----------------------------------------------------
2008 $16,725 $- $- $16,725
2009 25,836 - - 25,836
2010 68,468 114,818 - 183,286
2011 8,779 - - 8,779
2012 17,394 - - 17,394
Thereafter 192,424 - - 192,424
----------------------------------------------------
329,626 114,818 - 444,444
Financing costs - - (1,551) (1,551)
Fair value debt
adjustment 16,811 - - 16,811
----------------------------------------------------
$346,437 $114,818 $(1,551) $459,704
----------------------------------------------------
----------------------------------------------------
The floating rate revolving credit facility has a maximum principal amount
of $150,000 and is used by Crombie for working capital purposes and to provide
financing for future acquisitions. It is secured by a pool of first and second
mortgages and negative pledges on certain properties. As at March 31, 2007,
based on the security granted by Crombie, approximately $137,337 is available
for draw down, of which $114,818 is drawn down on the facility.
Subsequent to March 31, 2007, Crombie finalized two new fixed-rate
mortgage agreements and the renegotiation of one existing fixed-rate mortgage
agreement (see Subsequent Events - Note 20) which provided $23,684 of net new
funds. These funds were used to reduce the floating rate revolving credit
facility.
Crombie has entered into a fixed interest rate swap agreement which
expires on February 1, 2010 for a portion of the revolving credit facility.
Interest on $50,000 is paid at a fixed rate of 5.51% and is received at a
floating rate based on the 90-day bankers' acceptance rate, resulting in an
overall 5.49% current interest rate.
10) PAYABLES AND ACCRUALS
March 31, December 31,
2007 2006
-----------------------
Tenant improvements and capital expenditures $1,426 $7,134
Property operating costs 17,287 28,845
Interest on commercial property debt 1,553 1,453
Hedge derivative 197 -
-----------------------
$20,463 $37,432
-----------------------
-----------------------
11) INTANGIBLE LIABILITIES
March 31, 2007
-------------------------------------
Accumulated Net
Cost Amortization Book Value
-------------------------------------
Below market existing leases $22,137 $3,883 $18,254
-------------------------------------
-------------------------------------
December 31, 2006
-------------------------------------
Accumulated Net
Cost Amortization Book Value
-------------------------------------
Below market existing leases $20,577 $2,896 $17,681
-------------------------------------
-------------------------------------
12) NON-CONTROLLING INTEREST
Accumu-
lated
Other
Contri- Compre-
Class B Net buted hensive Distri-
LP Units Income Surplus Income butions Total
-----------------------------------------------------------------
Non-
controlling
interest,
March 23,
2006 $- $- $- $- $- $-
Unit issue
proceeds,
net of
costs of
$9,493 191,302 - - - - 191,302
Net income - 279 - - - 279
-----------------------------------------------------------------
Non-
controlling
interest,
March 31,
2006 $191,302 $279 $- $- $- $191,581
-----------------------------------------------------------------
-----------------------------------------------------------------
Accumu-
lated
Other
Contri- Compre-
Class B Net buted hensive Distri-
LP Units Income Surplus Income butions Total
-----------------------------------------------------------------
Non-
controlling
interest,
December
31,
2006 $191,302 $8,787 $- $- $(12,440) $187,649
Transition
adjustment
as of
January 1,
2007
(Note 3) - - - (148) - (148)
Net income - 3,062 - - - 3,062
Distributions - - - - (4,067) (4,067)
Other
comprehensive
income - - - 54 - 54
-----------------------------------------------------------------
Non-
controlling
interest,
March 31,
2007 $191,302 $11,849 $- $(94) $(16,507) $186,550
-----------------------------------------------------------------
-----------------------------------------------------------------
13) UNITS OUTSTANDING
-----------------------------------------------------------------
Crombie REIT Special
Voting Units and
Crombie REIT Units Class B LP Units Total
-----------------------------------------------------------------
Number of Number of Number of
Units Amount Units Amount Units Amount
-----------------------------------------------------------------
Balance,
March
23,
2006 - $- - $- - $-
Capital
con-
tribu-
tion 20,485,224 204,852 20,079,576 200,795 40,564,800 405,647
Costs of
issuance - (9,685) - (9,493) - (19,178)
-----------------------------------------------------------------
Balance,
March
31,
2006 20,485,224 $195,167 20,079,576 $191,302 40,564,800 $386,469
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Crombie REIT Special
Voting Units and
Crombie REIT Units Class B LP Units Total
-----------------------------------------------------------------
Number of Number of Number of
Units Amount Units Amount Units Amount
-----------------------------------------------------------------
Balance,
December
31,
2006 21,633,225 $204,831 20,079,576 $191,302 41,712,801 $396,133
Units
issued
under
EUPP 15,760 215 - - 15,760 215
Units
released
under
EUPP - 27 - - - 27
Net change
in EUPP
loans
receivable - (28) - - - (28)
-----------------------------------------------------------------
Balance,
March
31,
2007 21,648,985 $205,045 20,079,576 $191,302 41,728,561 $396,347
-----------------------------------------------------------------
-----------------------------------------------------------------
Crombie REIT Units
Crombie is authorized to issue an unlimited number of units ("Units") and
an unlimited number of Special Voting Units. Issued and outstanding Units may
be subdivided or consolidated from time to time by the Trustees without the
approval of the Unitholders. Units are redeemable at any time on demand by the
holders at a price per Unit equal to the lesser of: (i) 90% of the weighted
average price per Crombie Unit during the period of the last 10 days during
which Crombie's Units traded; and (ii) an amount equal to the price of
Crombie's Units on the date of redemption, as defined in the Declaration of
Trust.
The aggregate redemption price payable by Crombie in respect of any Units
surrendered for redemption during any calendar month will be satisfied by way
of a cash payment in Canadian dollars within 30 days after the end of the
calendar month in which the Units were tendered for redemption, provided that
the entitlement of Unitholders to receive cash upon the redemption of their
Units is subject to the limitation that:
i. the total amount payable by Crombie in respect of such Units and all
other Units tendered for redemption, in the same calendar month must
not exceed $50 (provided that such limitation may be waived at the
discretion of the Trustees);
ii. at the time such Units are tendered for redemption, the outstanding
Units must be listed for trading on the TSX or traded or quoted on
any other stock exchange or market which the Trustees consider, in
their sole discretion, provides representative fair market value
prices for the Units;
iii. the normal trading of Units is not suspended or halted on any stock
exchange on which the Units are listed (or if not listed on a stock
exchange, in any market where the Units are quoted for trading) on
the Redemption Date or for more than five trading day during the
ten-day trading period commencing immediately after the Redemption
Date.
Crombie REIT Special Voting Units and Class B LP Units
The Declaration of Trust and the Exchange Agreement provide for the
issuance of voting non-participating Units (the "Special Voting Units") to the
holders of Class B LP Units used solely for providing voting rights
proportionate to the votes of Crombie's Units. The Special Voting Units are
not transferable separately from the Class B LP Units to which they are
attached and will be automatically transferred upon the transfer of such
Class B LP Unit. If the Class B LP Units are purchased in accordance with the
Exchange Agreement, a like number of Special Voting Units will be redeemed and
cancelled for no consideration by Crombie.
The Class B LP Units issued by a subsidiary of Crombie to ECL have
economic and voting rights equivalent, in all material aspects, to Crombie's
Units. They are indirectly exchangeable on a one-for-one basis for Crombie's
Units at the option of the holder, under the terms of the Exchange Agreement.
Each Class B LP Unit entitles the holder to receive distributions from
Crombie, pro rata with distributions made by Crombie on Units.
The Class B LP Units are accounted for as non-controlling interest.
Employee Unit Purchase Plan ("EUPP")
Crombie provides for unit purchase entitlements under the EUPP for certain
senior executives. Awards made under the EUPP will allow executives to
purchase units from treasury at the average daily high and low board lot
trading prices per unit on the Toronto Stock Exchange for the five trading
days preceding the issuance. Executives are provided non-recourse loans at 3%
annual interest by Crombie for the purpose of acquiring Units from treasury
and the Units purchased are held as collateral for the loan. The loan is
repaid through the application of the after-tax amounts of all distributions
received on the Units, as well as the after-tax portion of any Long-Term
Incentive Plan ("LTIP") cash awards received, as payments on interest and
principal. As at March 31, 2007, there are loans receivable from executives of
$1,279 under Crombie's EUPP, representing 121,784 Units, which are classified
as a reduction of Unitholders' Equity. Loan repayments will result in a
corresponding increase in Unit Capital. Market value of the Units at March 31,
2007 was $1,693.
During the period, Crombie recognized compensation expense of $9 related
to the EUPP. The expense was determined using the Black-Scholes Model for
stock-based compensation valuation using volatility of 12.9%, yield of 7.85%
and a risk-free interest rate of 4.25%.
Earnings per Unit Computations
Basic net earnings per Unit is computed by dividing net earnings by the
weighted average number of Units outstanding during the period. For the period
ended March 31, 2007, the assumed exchange of all Class B LP Units would not
be dilutive. As at March 31, 2007, there are no other dilutive items.
14) PROPERTY REVENUE
Period from
March 23,
Three Months 2006
Ended to
March 31, March 31,
2007 2006
---------------------------
Rental revenue contractually due from tenants $35,083 $3,218
Accrued rent recognized on a straight-line
basis 307 30
Amortization of values ascribed to below market
existing leases 987 89
Amortization of values ascribed to above market
existing leases (697) (64)
---------------------------
$35,680 $3,273
---------------------------
---------------------------
15) SUPPLEMENTAL CASH FLOW INFORMATION
(a) Change in other non-cash operating items
Period from
March 23,
Three Months 2006
Ended to
March 31, March 31,
2007 2006
---------------------------
Cash provided by (used in):
Receivables $4,447 $(3,421)
Prepaid expenses and other assets 3,381 51
Payables and other liabilities (17,051) 8,995
---------------------------
$(9,223) $5,625
---------------------------
---------------------------
(b) Interest
Period from
March 23,
Three Months 2006
Ended to
March 31, March 31,
2007 2006
---------------------------
Interest paid $6,648 $382
---------------------------
---------------------------
16) COMMITMENTS AND CONTINGENCIES
There are various claims and litigation, which Crombie is involved with,
arising out of the ordinary course of business operations. In the opinion of
management, any liability that would arise from such contingencies would not
have a significant adverse effect on these financial statements.
Crombie has agreed to indemnify, in certain circumstances, the trustees
and officers of Crombie.
Crombie has entered into a management cost sharing agreement with a
subsidiary of Empire Company Limited. Details of this agreement are described
in Note 17.
Crombie has land leases on certain properties. These leases have annual
payments of $459 per year over the next five years.
17) RELATED PARTY TRANSACTIONS
As at March 31, 2007, Empire Company Limited, through its wholly-owned
subsidiary ECL, holds a 48.1% indirect interest in Crombie.
For a period of five years, certain executive management individuals and
other employees of Crombie will provide general management, financial,
leasing, administrative, and other administration support services to certain
real estate subsidiaries of Empire Company Limited on a cost recovery basis.
The expense recoveries during the three months ended March 31, 2007 were $302
(period from March 23, 2006 to March 31, 2006 - $15) and were netted against
general and administrative expenses.
For a period of five years, certain on-site maintenance and management
employees of Crombie will provide property management services to certain real
estate subsidiaries of Empire Company Limited on a cost recovery basis. In
addition, for various periods, ECL has an obligation to provide rental income,
large federal corporation tax and interest rate subsidies. The cost recoveries
during the three months ended March 31, 2007 were $694 (period from March 23,
2006 to March 31, 2006 - $66) and were netted against property expenses. The
rental income subsidy during the three months ended March 31, 2007 was
$8(period from March 23, 2006 to March 31, 2006 - $8) and the head lease
subsidy during the three months ended March 31, 2007 was $255 (period from
March 23, 2006 to March 31, 2006 - $50).
Crombie also earned property revenue of $5,771 for the three months ended
March 31, 2007 (period from March 23, 2006 to March 31, 2006 - $458) from
Sobeys Inc., Empire Theatres Limited and ASC Commercial Leasing Limited. These
companies are all subsidiaries of Empire Company Limited.
18) FINANCIAL INSTRUMENTS
In the normal course of business, Crombie is exposed to a number of
financial risks that can affect its operating performance. These risks, and
the action taken to manage them, are as follows:
Credit risk
Credit risk arises from the possibility that tenants may experience
financial difficulty and be unable to fulfill their lease commitments.
Crombie's credit risk is limited to the recorded amount of tenant receivables.
An allowance for doubtful accounts is taken for all anticipated problem
accounts.
Interest rate risk
As part of its interest rate management program, Crombie has entered into
a fixed interest rate swap to fix the amount of interest to be paid on $50,000
of the revolving credit facility. The remainder of the revolving credit
facility is at variable interest rates. The fair value of the fixed interest
rate swap at March 31, 2007, had an unfavourable difference of $197
(December 31, 2006 - $310) compared to its face value. The change in these
amounts has been recognized in comprehensive income at March 31, 2007.
Fair value of financial instruments
The book value of cash and cash equivalents, restricted cash, receivables,
payables and accruals approximate fair values due to their short term
maturity.
The total fair value of commercial property debt is estimated to be
$454,636.
19) EFFECT OF NEW ACCOUNTING STANDARDS NOT YET IMPLEMENTED
Financial instruments - Disclosures
In December 2006, CICA issued Section 3862, "Financial instruments -
Disclosures". This Section applies to fiscal years beginning on or after
October 1, 2007. It describes the required disclosures related to the
significance of financial instruments on the entity's financial position and
performance and the nature and extent of risks arising for financial
instruments to which the entity is exposed and how the entity manages those
risks. This Section complements the principles of recognition, measurement and
presentation of financial instruments of Sections 3855, "Financial
instruments - Recognition and measurement", 3863, "Financial instruments -
Presentation" and 3865, "Hedges". Crombie is currently evaluating the impact
of the adoption of this new Section on the consolidated financial statements.
Financial instruments - Presentation
In December 2006, CICA issued Section 3863, "Financial instruments -
Presentation". This Section applies to fiscal years beginning on or after
October 1, 2007. It establishes standards for presentation of financial
instruments and non-financial derivatives. It complements standards of
Section 3861, "Financial instruments - Disclosure and Presentation". Crombie
is currently evaluating the impact of the adoption of this new Section on the
consolidated financial statements.
Capital disclosures
In December 2006, CICA issued Section 1535, "Capital disclosures". This
Section applies to fiscal years beginning on or after October 1, 2007. It
establishes standards for disclosing information about entity's capital and
how it is managed to enable users of financial statements to evaluate the
entity's objectives, policies and procedures for managing capital. Crombie is
currently evaluating the impact of the adoption of this new Section on the
consolidated financial statements.
20) SUBSEQUENT EVENTS
a) On April 19, 2007, Crombie declared distributions of 6.92 cents per
unit for the period from April 1, 2007 to, and including, April 30,
2007. The distribution will be payable on May 15, 2007 to Unitholders
of record as at April 30, 2007.
b) Crombie has entered into the following mortgage financing:
i. On April 20, 2007, a mortgage of $12,600 at an interest rate of
5.43% for a fifteen year term relating to the Perth, Ontario
property purchase described in Note 5.
ii. On April 23, 2007, a replacement of an existing mortgage on the
Burlington, Ontario property with a new mortgage of $9,925
providing funds (net of fees and payment of existing mortgage)
of $3,284. The interest rate was reduced from 6.39% to 5.32% and
the term was extended to twelve years.
iii. On April 27, 2007, a mortgage of $7,850 at an interest rate of
5.175% for a twelve year term relating to the Carlton Place,
Ontario property purchase described in Note 5.
Net proceeds for the financing and the re-financing were used to
reduce the floating rate revolving credit facility.
c) On May 8, 2007, the Board of Trustees of Crombie approved a 2.4%
increase to the monthly distribution payments, from $0.83 to $0.85 on
an annualized basis, beginning with the May 30th distribution to be
paid in June.
21) COMPARATIVE FIGURES
Comparative figures have been reclassified, where necessary, to reflect
the current period's presentation.
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Contact: Scott Ball, C.A., Vice President, Chief Financial Officer and Secretary, Crombie REIT, (902) 755-8100