STELLARTON, NS, Feb. 24 /CNW/ – Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its results for the fourth quarter and fiscal year ended December 31, 2010.
2010 Highlights
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- Property occupancy reached an all-time high for Crombie of 95.8% at
December 31, 2010 compared with 95.5% at September 30, 2010, and 94.7%
at December 31, 2009.
- Average net rent per square foot from leasing activity for the year
increased to $14.13 compared to average expiring net rent per square
foot of $13.44, an increase of 5.1%.
- Crombie completed leasing activity on 743,000 square feet of GLA during
the year ended December 31, 2010, which represents approximately 96.0%
of its 2010 expiring leases.
- Crombie completed the accretive acquisition of 20 retail properties
during the year ended December 31, 2010 in the amount of $173.8
million, adding approximately 867,000 square feet of GLA.
- Property revenue for the year ended December 31, 2010 of
$217.0 million; an increase of $9.7 million, or 4.7% over the
$207.3 million for the year ended December 31, 2009.
- Same-asset cash net operating income ("NOI") for the year ended
December 31, 2010 of $119.2 million; an increase of $2.5 million or
2.1%, compared to $116.7 million for the year ended December 31, 2009.
- Funds from operations ("FFO") payout ratio for the year ended
December 31, 2010 was 81.7% compared to 76.8% for the same period in
2009.
- Adjusted funds from operations ("AFFO") payout ratio for the year
ended December 31, 2010 was 105.5%.
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Commenting on the annual results, Donald E. Clow, FCA, President and Chief Executive Officer stated: "We have had a strong year; our total unit holder return was 25.7%, occupancy has risen to a record level of 95.8%, an increase of 1.1% over December 31, 2009 and same-asset cash NOI grew by 2.1% during the year. Concurrent with these accomplishments, we have improved the strength of our balance sheet and created ample liquidity.
During 2010, we closed on 20 high quality retail properties totalling $173.8 million and enhanced the geographic diversification and urban mix of our portfolio with seven of these properties located in western Canada. These accretive acquisitions, which were acquired at a weighted average cap rate of 7.8%, will positively contribute to our operating results and cash flows. New mortgage financings during the year amounted to $132.2 million with rates from 4.53% to 6.80% and a weighted average term to maturity of 10.9 years. More notable, the weighted average interest rate for Crombie's new mortgages in 2010 was 5.26%.
We continue to seek out new accretive acquisitions through both our relationship with Empire Company Limited, Sobeys Inc. and with third parties. During 2010, we completed redevelopment work on five properties and are seeing strong financial and operating results since completion. We currently have one additional property under redevelopment and are continually assessing other properties in our portfolio for redevelopment as well as land use intensification opportunities."
The table below presents a summary of financial performance for the quarter and year ended December 31, 2010 compared to the same periods in fiscal 2009.
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Three Three
months months Year Year
ended ended ended ended
(In millions of dollars, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
except per unit amounts) 2010 2009 2010 2009
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Property revenue $57.546 $52.378 $216.996 $207.254
Property expenses 21.670 19.948 79.300 75.762
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Property NOI 35.876 32.430 137.696 131.492
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NOI margin percentage 62.3% 61.9% 63.5% 63.4%
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Expenses:
General and
administrative 2.426 2.102 10.579 9.274
Interest 15.616 12.722 58.789 46.319
Depreciation and
amortization 10.687 11.705 43.367 46.031
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28.729 26.529 112.735 101.624
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Income before other items,
income taxes and
non-controlling interest 7.147 5.901 24.961 29.868
Other income (expenses) -- 0.500 0.347 (9.389)
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Income before income taxes
and non-controlling
interest 7.147 6.401 25.308 20.479
Income taxes expense
(recovery) - Future (0.800) (0.300) (2.500) (0.100)
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Income before
non-controlling interest 7.947 6.701 27.808 20.579
Non-controlling interest 3.719 3.178 13.145 9.831
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Net income $4.228 $3.523 $14.663 $10.748
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Basic and diluted net
income per unit $0.12 $0.11 $0.44 $0.36
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Property acquisitions
During the fourth quarter of 2010, Crombie completed the acquisition of three Quebec retail properties, one from a subsidiary of Empire Company Limited ("Empire") and two from a joint venture in which a subsidiary of Empire was a partner. The cost of the three properties was $28.25 million, excluding closing and transaction costs, and was partially financed with $19.6 million of mortgage financings with the balance funded with proceeds from the August 2010 equity offering. The mortgages have terms from nine to 11 years, amortization periods of 25 years and interest rates between 4.71% and 4.76%.
In addition to the above fourth quarter acquisitions and financings, during the first nine months of 2010, Crombie completed the acquisition of 17 retail properties from subsidiaries of Empire. The cost of the 17 properties was $143.6 million, excluding closing and transaction costs. The acquired properties were partially financed with new mortgage financings totalling $78.8 million with terms ranging from nine to 15 years, amortization periods between 15 and 25 years, and a weighted average interest rate of 5.20%. The balance of the purchase price was paid with assumed mortgages for $8.4 million, with terms of five to ten years, 25 year amortization and interest rates from 5.68% to 6.68%, from proceeds of the $50.0 million equity offering completed in August 2010 and Crombie's revolving credit facility.
Property NOI – Cash Basis
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Three Three
months months Year Year
ended ended ended ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
(In millions of dollars) 2010 2009 2010 2009
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Property NOI $35.876 $32.430 $137.696 $131.492
Straight-line rent and
above-market and
below-market lease
amortization (1.459) (1.364) (6.415) (8.257)
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Property cash NOI 34.417 31.066 131.281 123.235
Acquisition and
redevelopment property
cash NOI 4.557 1.527 12.061 6.492
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Same-asset property cash
NOI $29.860 $29.539 $119.220 $116.743
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Property NOI, on a cash basis, excludes straight-line rent recognition and amortization of above-market and below-market lease amounts. The 1.1% and 2.1% growth in same-asset cash NOI for the three months ended and year ended December 31, 2010 respectively is primarily the result of increased occupancy rates combined with increased average net rent per square foot resulting from 2010 leasing activity.
Cash NOI is a better measure of AFFO sustainability and same-asset property performance.
Same-Asset Property NOI
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Three Three
months months Year Year
ended ended ended ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
(In millions of dollars) 2010 2009 2010 2009
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Same-asset property
revenue $50.858 $49.268 $197.076 $194.631
Same-asset property
expenses 19.663 18.502 72.188 70.135
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Same-asset property NOI $31.195 $30.766 $124.888 $124.496
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Same-asset NOI margin % 61.3% 62.4% 63.4% 64.0%
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Same-asset property revenue for the fourth quarter ended December 31, 2010 of $50.9 million was 3.2% higher than the same period in 2009, due to increased base rent and recoveries as a result of higher overall occupancy and higher recoverable property expenses. Same-asset property revenue of $197.1 million for the year ended December 31, 2010 was 1.3% higher than the year ended December 31, 2009 due to increased base rent and recoveries as a result of higher overall occupancy and higher recoverable property expenses partially offset by a $1.9 million decrease in non-cash below-market lease amortization as lease terms expire.
Same-asset property expenses of $19.7 million for the quarter ended December 31, 2010 were $1.2 million or 6.3% higher than the quarter ended December 31, 2009 due primarily to increased recoverable property expenses. Same-asset property expenses of $72.2 million for the year ended December 31, 2010 increased by $2.1 million or 2.9% from the year ended December 31, 2009 due primarily to increased recoverable property taxes offset in part by reduced snow clearing costs and non-shareable costs.
Acquisition and Redevelopment Property NOI
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Three Three
months months Year Year
ended ended ended ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
(In millions of dollars) 2010 2009 2010 2009
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Acquisition and
redevelopment property
revenue $6.688 $3.110 $19.920 $12.623
Acquisition and
redevelopment property
expenses 2.007 1.446 7.112 5.627
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Acquisition and
redevelopment property NOI $4.681 $1.664 $12.808 $6.996
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Acquisition and
redevelopment NOI margin % 70.0% 53.5% 64.3% 55.4%
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For the three months and year ended December 31, 2010, the acquisition and redevelopment property results include the retail properties acquired in February, March, September, October and November 2010 as well as the operating results of the six properties that were under redevelopment.
General and Administrative Expenses
General and administrative expenses for the quarter ended December 31, 2010 increased by $0.3 million, or 0.2% as a percentage of property revenue, when compared to the same period in 2009. The 2010 expenses include additional wage costs related to increases in staffing levels over the same quarter of the previous year. Professional fees have decreased due to reduced external consultant costs in 2010 associated with the transition to International Financial Reporting Standards.
General and administrative expenses, as a percentage of property revenue, increased to 4.9% of property revenue for the year ended December 31, 2010 compared to 4.5% for the same period in 2009. This is within our overall guideline of 4.5% to 5.0%.
Interest
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Three Three
months months Year Year
ended ended ended ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
(In millions of dollars) 2010 2009 2010 2009
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Same-asset interest
expense $11.889 $10.518 $47.610 $39.563
Acquisition and
redevelopment interest
expense 1.859 0.573 4.593 2.300
Amortization of effective
swaps and deferred
financing charges 1.868 1.631 6.586 4.456
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Interest expense $15.616 $12.722 $58.789 $46.319
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Same-asset interest expense for the quarter and year ended December 31, 2010 reflects Crombie's planned replacement of short-term floating rate debt with long-term fixed rate mortgages and convertible debentures. The weighted average contractual interest rate on fixed rate mortgages increased to 5.77% at December 31, 2010 from 5.66% at December 31, 2009, primarily due to the refinancing on February 1, 2010 of the maturing Halifax Developments mortgages. Convertible debentures totalling $45.0 million have been issued since December 31, 2009, and combined with the mortgage refinancing, have resulted in a reduction in floating rate debt from $106.2 million at December 31, 2009 to $50.0 million at December 31, 2010.
The maturing $106.1 million Halifax Developments mortgages had a weighted average interest rate of 5.43%; while the new $141.0 million Halifax Developments mortgages have a weighted average interest rate of 6.48%. The issued convertible debentures have an interest rate of 5.75%.
FFO and AFFO
Crombie's FFO and AFFO had the following results for the fourth quarter and year ended December 31st:
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Quarter ended Dec. 31, Variance
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(In millions of dollars,
except per unit amounts) 2010 2009 $ %
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FFO $17.834 $18.106 $(0.272) (1.5)%
FFO Per Unit - basic $0.27 $0.30 $(0.03) (10.0)%
FFO Per Unit - diluted $0.26 $0.28 $(0.02) (7.1)%
FFO Payout ratio 82.4% 74.9% (7.5)%
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AFFO $15.198 $(7.511) $22.709 N/A%
AFFO Per Unit - basic $0.23 $(0.12) $0.35 N/A%
AFFO Per Unit - diluted $0.22 $(0.12) $0.34 N/A%
AFFO Payout ratio 96.7% N/A% N/A%
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Year ended Dec. 31, Variance
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(In millions of dollars,
except per unit amounts) 2010 2009 $ %
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FFO $68.675 $66.510 $2.165 3.3%
FFO Per Unit - basic $1.09 $1.17 $(0.08) (6.8)%
FFO Per Unit - diluted $1.04 $1.14 $(0.10) (8.8)%
FFO Payout ratio 81.7% 76.8% (4.9)%
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AFFO $53.175 $18.260 $34.915 191.2%
AFFO Per Unit - basic $0.85 $0.32 $0.53 165.6%
AFFO Per Unit - diluted $0.83 $0.32 $0.51 159.4%
AFFO Payout ratio 105.5% 279.7% 174.2%
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The decrease in FFO for the quarter ended December 31, 2010 was primarily due to: increased interest expense as a result of the planned refinancing of short-term floating rate debt with long-term fixed rate mortgages and convertible debentures, and reduced other income, offset by improvements in property NOI. The increase in FFO for the year ended December 31, 2010 was primarily due to: improvements in NOI; the December 31, 2009 net income being negatively impacted by costs of $10.0 million related to settlement of an interest rate swap agreement; offset in part by increased interest expense of $12.5 million primarily the result of planned refinancing of short-term floating rate debt with long-term fixed rate mortgages and convertible debentures.
AFFO for the quarter ended December 31, 2010 of $15.2 million was an increase of $22.7 million over the same period in 2009 due to the 2009 settlement of an effective swap and the timing of maintenance capital expenditures and TI and leasing costs.
AFFO for the year ended December 31, 2010 of $53.2 million, was an increase of $34.9 million or 191.2% over the same period in 2009, due primarily to the impact of the $28.1 million in settlement costs on effective interest rate swap agreements incurred in 2009 and the improved FFO results as previously discussed.
Liquidity and Financings
Crombie's objectives when managing its capital structure is to minimize weighted average cost of capital; maintain financial flexibility and access to long-term debt and equity markets; and maintain ample liquidity. In pursuit of these objectives, Crombie utilizes staggered debt maturities, optimizes long-term exposure to floating rate debt and maintains sustainable payout ratios. Crombie has an authorized floating rate revolving credit facility of up to $150 million, of which $50.0 million was drawn as at December 31, 2010, and an additional $15.6 million encumbered by outstanding letters of credit and negative mark-to-market position on interest rate swap agreements resulting in significant available liquidity.
Debt to gross book value is 54.6% at December 31, 2010 compared to 52.4% at December 31, 2009.This leverage ratio is below the maximum 60%, or 65% including convertible debentures, permitted pursuant to Crombie's Declaration of Trust. On a long-term basis, Crombie intends to maintain overall indebtedness, including convertible debentures, in the range of 50% to 60% of gross book value, depending upon Crombie's future acquisitions and financing opportunities.
Crombie's interest and debt service coverage for the year ended December 31, 2010 were 2.38 times EBITDA and 1.72 times EBITDA respectively. This compares to 2.80 times EBITDA and 1.94 times EBITDA respectively for the year ended December 31, 2009. The reduction in interest service coverage is attributable to the increased interest expense as Crombie has replaced short-term floating rate debt with long-term fixed rate mortgages and convertible debentures. The reduction in debt service coverage is impacted by the increased interest expense as well as the increased debt principal repayments on the long-term fixed rate amortizing mortgages. Crombie is well within its debt service financial covenant of 1.4 times EBITDA.
Equity Offering – On August 4, 2010, Crombie completed a public offering of 2,670,000 REIT Units at a price of $11.05 per Unit for gross proceeds of $29.5 million. Concurrently, Crombie completed a private placement, with ECL Developments Limited, of 1,855,000 Class B LP Units and the attached Special Voting Units at the same issue price of $11.05 per unit for gross proceeds of $20.5 million. Most of the $50.0 million proceeds were used to fund property acquisitions completed in September, October and November, 2010, while the remainder is being used for general trust purposes.
Convertible Debenture Offering – During the first quarter of 2010, Crombie completed an issuance of Series C unsecured convertible subordinated debentures for gross proceeds of $45.0 million at an interest rate of 5.75% per annum and a conversion price of $15.30.
Revolving Credit Facility – Through utilization of the additional proceeds from the mortgage financings and the convertible debenture issue, partially offset by funds required for the eight property acquisition completed in the first quarter, Crombie has reduced the balance outstanding on its Revolving Credit Facility from $106.2 million at December 31, 2009, to $50.0 million at December 31, 2010.
Mortgage Financing – During the fourth quarter of 2010, Crombie completed first mortgage financing on five properties. The mortgages were for a total of $27.8 million in principal, with terms ranging from nine to 15 years, fixed interest rates from 4.53% to 5.19% and amortization periods of 15 and 25 years.
During the third quarter of 2010, concurrent with the acquisition of nine properties, Crombie completed first mortgage financings totalling $51.6 million on seven properties. The mortgages have terms ranging from nine to 15 years, amortization periods between 20 and 25 years, and interest rates between 4.80% and 5.00%.
During the second quarter of 2010, Crombie completed first mortgage financings totalling $19.0 million on three properties. The mortgages have ten year terms, fixed interest rates ranging from 5.75% to 6.80%, and amortization periods from 15 to 25 years.
During the first quarter of 2010, Crombie completed the refinancing of approximately $106.1 million of maturing Halifax Developments mortgages. The two new mortgages are for a total of $141.0 million, with the initial $25.0 million being for a ten year term and 25 year amortization with a fixed interest of 6.52%, and the additional $116.0 million being for a ten year term and 25 year amortization with a fixed interest rate of 6.47%.
In February 2010, Crombie also completed a $33.8 million mortgage financing on five properties. The mortgages have a term of eight years, weighted average amortization period of 21.6 years, and a fixed interest rate of 5.70%.
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 entities. Crombie includes these measures because it believes certain investors use these measures as a means of assessing Crombie's financial performance.
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- Property NOI is property revenue less property expenses.
- Property Cash NOI is Property NOI adjusted to remove non-cash
straight-line rent and below-market and above-market lease
amortization.
- Debt is defined as bank loans plus commercial property debt and
convertible debentures.
- 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.
- EBITDA is calculated as property revenue, adjusted to remove the impact
of amortization of above-market and below-market leases, less property
expenses and general and administrative 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.
- AFFO is defined as FFO adjusted for non-cash amounts affecting revenue
and discontinued operations, less maintenance capital expenditures,
maintenance tenant improvements and leasing costs, and the settlement
of effective interest rate swap agreements.
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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 130 commercial properties in eight provinces, comprising approximately 12.0 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 2010 annual Management Discussion and Analysis under "Risk Management", could cause actual results, performance, achievements, prospects or opportunities to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and a reader should not place undue reliance on the forward-looking statements. There can be no assurance that the expectations of management of Crombie will prove to be correct.
In particular, certain statements in this document discuss Crombie's anticipated outlook of future events, including the acquisition of accretive properties and the anticipated extent of the accretion of any acquisitions, which could be impacted by due diligence matters or the demand for properties and the effect that demand has on acquisition capitalization rates and changes in interest rates. Readers are cautioned that such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from these statements. Crombie can give no assurance that actual results will be consistent with these forward-looking statements.
Crombie's consolidated financial statements and management discussion and analysis for the period ended December 31, 2010 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 fourth quarter and year ended December 31, 2010 results on a conference call to be held Thursday, February 24, 2011, at 1:00 p.m. Eastern time. To join this conference call you may dial (647) 427-7450 or (888) 231-8191. You may also listen to a live audio web cast of the conference call by visiting Crombie's website located at www.crombiereit.com. Replay will be available until midnight March 10, 2011, by dialling (416) 849-0833 or (800) 642-1687 and entering pass code 43924764, or on the Crombie website for 90 days after the meeting.
Contact: Glenn Hynes, C.A., Chief Financial Officer and Secretary, Crombie REIT, (902) 755-8100