Third Quarter Summary
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)
- Property revenue of $92,920
- Operating income of $19,734
- Debt to gross book value – fair value of 49.8%
- Available liquidity of $370,885
- Same-asset property cash NOI decline of 3.4% (SANOI was +2.2% normalizing for COVID-19 impacts)
- Renewals of 172,000 square feet at rents 3.9% above expiring rates
- Committed occupancy of 95.3%
- Q3 rent collected 95%; October 96%
NEW GLASGOW, NS, Nov. 12, 2020 /CNW/ – Crombie Real Estate Investment Trust (“Crombie”) (TSX: CRR.UN) today announced results for its third quarter ended September 30, 2020. Management will host a conference call to discuss the results at 11:30 a.m. (EST), November 13, 2020.
“As we navigate through these uncharted times, Crombie continues to focus on the stability and growth of our portfolio for our many stakeholders,” said Don Clow, President and CEO. “We are committed to delivering value through advancing our long-term strategy. Crombie’s grocery-anchored portfolio has performed well, with stable occupancy, solid growth on lease renewals, and active pandemic support for impacted tenants, thanks to the hard work and diligence of our committed team. Our financial condition and liquidity continues to improve, as evidenced by increased bank facilities and a recent $300 million unsecured notes issuance at very compelling interest rates. We are excited to see continuing progress on our first major development projects and expect significant near term AFFO and NAV creation, with completions continuing throughout the next year.”
COVID-19 IMPACT
Crombie is well-positioned with respect to the defensiveness of annual minimum rent (AMR):
- 75% of AMR is generated from grocery and pharmacy-anchored properties
- 68% of AMR is generated from essential services tenants
- 8% of AMR is generated by small business tenants
During the three months ended September 30, 2020, 95% of gross rent was collected with rent collections for the month of October improving to 96%. Crombie has actively supported our tenants during this challenging time through the Crombie Values Small Business program, the Federal government’s Canada Emergency Commercial Rent Assistance (CECRA) program, and mutually-beneficial agreements with other tenants. Due to the uncertainty of COVID-19, a Q3 bad debt expense of $1,018 was recognized, and rent abatements totalling $647 reducing property operating income in the quarter. Continuing uncertainty with respect to the severity, duration and overall impacts of the pandemic mean that forward-looking forecasts of operating and financial results for Crombie are uncertain at this time. Rent collection by segment is as follows:
|
July to September 2020 |
October 2020 |
||||||||||
|
% of Gross Rent Collected |
% of Gross Rent, Total Portfolio |
% of Gross Rent Collected |
% of Gross Rent, Total Portfolio |
||||||||
|
Retail and Commercial |
94 |
% |
91 |
% |
95 |
% |
91 |
% |
|||
|
Retail-Related Industrial |
100 |
% |
3 |
% |
100 |
% |
3 |
% |
|||
|
Office |
97 |
% |
6 |
% |
100 |
% |
6 |
% |
|||
|
Total |
95 |
% |
|
100 |
% |
96 |
% |
|
100 |
% |
|
|
|
Excluding Avalon Mall, 96% of gross rent was collected for the period July to September 2020 and 97% for October 2020. |
Parking revenue decreased during the quarter as a result of reduced demand due to COVID-19.
Crombie ended the quarter with $370,885 in available liquidity from undrawn credit facilities.
Full details on our results can be found at www.crombiereit.com and www.sedar.com.
FINANCIAL RESULTS
Crombie’s key financial metrics for the three and nine months ended September 30, 2020 are as follows:
|
Three months ended September 30, |
|||||||||||
|
(In thousands of CAD dollars, except per unit amounts and as otherwise noted) |
2020 |
2019 |
Change |
Change (%) |
|||||||
|
Property revenue |
$ |
92,920 |
$ |
97,346 |
$ |
(4,426) |
(4.5) |
% |
|||
|
Property operating expenses |
27,503 |
27,205 |
(298) |
(1.1) |
% |
||||||
|
Property net operating income (“NOI”) |
$ |
65,417 |
$ |
70,141 |
$ |
(4,724) |
(6.7) |
% |
|||
|
Operating income attributable to Unitholders |
$ |
19,734 |
$ |
30,049 |
$ |
(10,315) |
(34.3) |
% |
|||
|
Same-asset property cash NOI (1) |
$ |
58,725 |
$ |
60,814 |
$ |
(2,089) |
(3.4) |
% |
|||
|
Funds from operations (“FFO”) (1) |
|||||||||||
|
Basic |
$ |
43,327 |
$ |
43,380 |
$ |
(53) |
(0.1) |
% |
|||
|
Per unit – Basic |
$ |
0.27 |
$ |
0.29 |
$ |
(0.02) |
(6.9) |
% |
|||
|
Payout ratio |
81.2 |
% |
77.8 |
% |
3.4 |
% |
|||||
|
Adjusted funds from operations (“AFFO”) (1) |
|||||||||||
|
Basic |
$ |
35,494 |
$ |
36,417 |
$ |
(923) |
(2.5) |
% |
|||
|
Per unit – Basic |
$ |
0.22 |
$ |
0.24 |
$ |
(0.02) |
(8.3) |
% |
|||
|
Payout ratio |
99.2 |
% |
92.7 |
% |
6.5 |
% |
|||||
|
|
Same-asset property cash NOI, FFO and AFFO are non-GAAP financial measures used by management to evaluate Crombie’s business performance. See “Cautionary Statements” below and refer to Crombie’s September 30, 2020 MD&A for a reconciliation of same-asset property cash NOI, FFO and AFFO. |
Operating income attributable to Unitholders decreased by $10,315 or 34.3% compared to the third quarter of 2019 primarily due to the disposition of investment properties in 2019 with a gain on sale of $8,315, contributing to a $4,724 decrease in property NOI. Additionally, tenant incentive amortization increased $1,237 due to modernizations and energy upgrades, parking revenue decreased by $891 as a result of reduced demand due to COVID-19. Bad debt expense increased by $872 and rent abatements increased by $647 in the quarter due to COVID-19. Included in both are amounts related to the CECRA program. The reduced property NOI was offset slightly by a decrease of $2,254 in finance costs from operations due to repayments of debt and a decrease of $1,050 in general and administrative expenses resulting from decreased salaries and benefits, office costs and travel expenses.
Same-asset property cash NOI (SANOI) decreased by $2,089 or 3.4% compared to the third quarter of 2019 primarily due to an increase in rent abatements of $1,312. Bad debt expense increased $1,253 on same-asset properties over the same period in 2019 as a result of specific bad debt provisions, which includes the cost impact of the federal government’s CECRA program. Additionally, parking revenue decreased by $891 as a result of reduced demand due to COVID-19. Adjusting for COVID-19 impacts, Q3 SANOI was +2.2%.
The decrease in FFO was driven by reduced property NOI resulting from the disposition of properties in 2019, lower parking revenue as a result of reduced demand due to COVID-19 and an increase in bad debt expense and rent abatements, over the third quarter of 2019. The decrease in FFO is offset by lower finance costs from operations resulting primarily from the repayment of mortgages and credit facilities related to the disposition of properties in 2019. Additionally, a reduction in general administrative expenses was due to decreased salaries and benefits related to organizational realignment in the second quarter, lower office expenses and reduced travel costs as a result of COVID-19.
The decline in AFFO is largely due to the impacts on FFO described above.
The following table further outlines what management estimates the material impacts of COVID-19 to be on Crombie’s operating performance for the three months ended September 30, 2020:
|
FFO per unit |
AFFO per unit |
Same-asset cash NOI growth |
||||||||
|
Actual results – Q3 2020 |
$ |
0.27 |
$ |
0.22 |
(3.4) |
% |
||||
|
Adjusted for: |
||||||||||
|
Bad debt expense |
0.01 |
0.01 |
2.0 |
% |
||||||
|
Rent abatements(1) |
— |
0.01 |
2.1 |
% |
||||||
|
Parking revenue(2) |
0.01 |
0.01 |
1.5 |
% |
||||||
|
Adjusted results – Q3 2020 |
$ |
0.29 |
$ |
0.25 |
2.2 |
% |
||||
|
Q3 2019 |
$ |
0.29 |
$ |
0.24 |
||||||
|
|
Total amount of rent abatements recognized for AFFO purposes, primarily related to CECRA, was $1,938. Where qualifying tenants had accounts receivable balances, Crombie has elected to treat the abatements as a credit loss under IFRS 9. In cases where insufficient accounts receivable balances exist, Crombie has applied IFRS 16 and treated the abatement as a lease modification which is averaged over the life of the lease as straight-line rent. For purposes of FFO, the abatements are offset by the straight-line rent impact of $(1,291). |
|
|
Parking revenue is calculated as the decrease in parking revenue from the same period in 2019. |
Adjusting for COVID-19 impacts, Crombie’s operating results were strong and were on par or slightly exceeded Q3 2019.
|
Nine months ended September 30, |
|||||||||||
|
(In thousands of CAD dollars, except per unit amounts and as otherwise noted) |
2020 |
2019 |
Change |
Change (%) |
|||||||
|
Property revenue |
$ |
291,673 |
$ |
301,918 |
$ |
(10,245) |
(3.4) |
% |
|||
|
Property operating expenses |
100,627 |
87,793 |
(12,834) |
(14.6) |
% |
||||||
|
Property net operating income (“NOI”) |
$ |
191,046 |
$ |
214,125 |
$ |
(23,079) |
(10.8) |
% |
|||
|
Operating income attributable to Unitholders |
$ |
50,451 |
$ |
117,726 |
$ |
(67,275) |
(57.1) |
% |
|||
|
Same-asset property cash NOI (1) |
$ |
177,433 |
$ |
181,268 |
$ |
(3,835) |
(2.1) |
% |
|||
|
Funds from operations (“FFO”) (1) |
|||||||||||
|
Basic |
$ |
123,545 |
$ |
133,407 |
$ |
(9,862) |
(7.4) |
% |
|||
|
Per unit – Basic |
$ |
0.79 |
$ |
0.88 |
$ |
(0.09) |
(10.2) |
% |
|||
|
Payout ratio |
85.1 |
% |
75.9 |
% |
9.2 |
% |
|||||
|
Adjusted funds from operations (“AFFO”) (1) |
|||||||||||
|
Basic |
$ |
103,284 |
$ |
112,626 |
$ |
(9,342) |
(8.3) |
% |
|||
|
Per unit – Basic |
$ |
0.66 |
$ |
0.74 |
$ |
(0.08) |
(10.8) |
% |
|||
|
Payout ratio |
101.7 |
% |
89.9 |
% |
11.8 |
% |
|||||
|
|
Same-asset property cash NOI, FFO and AFFO are non-GAAP financial measures used by management to evaluate Crombie’s business performance. See “Cautionary Statements” below and refer to Crombie’s September 30, 2020 MD&A for a reconciliation of same-asset property cash NOI, FFO and AFFO. |
On a year to date basis, operating income attributable to Unitholders decreased by $67,275 or 57.1% compared to the same period in 2019. The decrease was driven by a $52,434 decrease in gain on disposal of investment properties. Property NOI decreased $23,079 from disposition activity, decreased parking revenue, increased tenant incentive amortization, and rent abatements. Additionally, bad debt expense increased $10,717 primarily as a result of COVID-19 collection risk. The reduced property NOI year to date was offset in part by a decrease of $7,610 in finance costs from operations due to repayments of debt and a decrease of $2,825 in general and administrative expenses.
Year to date, same-asset property cash NOI (SANOI) decreased by $3,835 or 2.1% compared to the same period in 2019 primarily due to the reasons described above. On a year to date basis, the bad debt expense increased by $5,198 for same-asset properties over the same period in 2019 and parking revenue decreased by $1,861 and rent abatements increased by $1,312. Adjusting for the impacts of COVID-19, year to date SANOI is 2.5%.
The decrease in FFO on a year to date basis is due to the same factors as those impacting the quarter, including reduced property NOI, lower parking revenue and significant increases in bad debt expense and rent abatements. This is partially offset by a decrease in finance costs from operations and in general and administrative expenses compared to the same period in 2019. The decline in general and administrative expenses primarily related to the impact of the decreased unit price on unit-based compensation plans, offset in part by the severance costs in the second quarter of 2020.
The decline in AFFO was driven by the impacts on FFO described above and the conclusion of the amortization of effective swap agreements.
OPERATING RESULTS
|
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
||||||
|
Number of investment properties (1) |
286 |
286 |
285 |
285 |
284 |
|||||
|
Gross leasable area (2) |
17,684,000 |
17,614,000 |
17,583,000 |
17,558,000 |
17,732,000 |
|||||
|
Economic occupancy (3) |
94.7 |
% |
95.1 |
% |
95.5 |
% |
95.4 |
% |
95.6 |
% |
|
Committed occupancy (4) |
95.3 |
% |
95.6 |
% |
96.2 |
% |
96.1 |
% |
96.1 |
% |
|
|
This includes properties owned at full and partial interests. |
|
|
Gross leasable area is adjusted to reflect Crombie’s proportionate interest in partially-owned properties. |
|
|
Represents space currently under lease contract and has had rent commence. |
|
|
Represents current economic occupancy plus completed lease contracts for future occupancy of currently available space. |
|
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
|||||||||||
|
Investment properties, fair value |
$ |
4,615,000 |
$ |
4,604,000 |
$ |
4,519,000 |
$ |
4,605,000 |
$ |
4,626,000 |
|||||
|
Unencumbered investment properties (1) |
$ |
1,460,152 |
$ |
1,461,970 |
$ |
1,479,211 |
$ |
1,223,452 |
$ |
960,275 |
|||||
|
Available liquidity (2) |
$ |
370,885 |
$ |
406,303 |
$ |
449,898 |
$ |
449,016 |
$ |
450,967 |
|||||
|
Debt to gross book value – fair value (3) |
49.8 |
% |
49.2 |
% |
50.0 |
% |
48.9 |
% |
48.9 |
% |
|||||
|
Weighted average interest rate (4) |
4.05 |
% |
4.05 |
% |
4.06 |
% |
4.17 |
% |
4.22 |
% |
|||||
|
Debt to trailing 12 months EBITDA (5) |
9.34x |
9.12x |
8.86x |
8.52x |
8.35x |
||||||||||
|
Interest coverage ratio (5) |
3.03x |
2.64x |
3.18x |
2.99x |
2.90x |
||||||||||
|
|
Represents fair value of unencumbered properties. |
|
|
Represents the undrawn portion on the credit facilities, excluding joint facilities with joint operation partners. |
|
|
See Debt to Gross Book Value – Fair Value Basis section in the MD&A. |
|
|
Weighted average interest rate is calculated based on interest rates for all outstanding fixed rate debt. |
|
|
See Coverage Ratios section in the MD&A. |
Operations and Leasing
During the quarter, economic occupancy was 94.7% along with committed occupancy of 95.3%. Economic occupancy declined in Q3 due to various lease terminations and GLA additions. Crombie renewed 172,000 square feet with an increase of 3.9% over expiring rents during the quarter. New leases and expansions increased occupancy by 142,000 square feet at an average first year rate of $17.32 per square foot.
Development
Belmont Market in Langford, near Victoria, British Columbia and the retail portion of Davie Street in Vancouver, British Columbia have reached substantial completion during 2020.
Crombie has a remaining $126,000 investment to complete its first five remaining active major mixed-use developments that total $435,000 with an estimated NOI yield on cost of 6.0%-6.5% at Crombie’s share. Upon completion, these projects will total 545,000 square feet of commercial gross leasable area (“GLA”) and 961,000 square feet of residential rental GLA and are broken out geographically as follows: 520,000 in the Greater Toronto Area, 254,000 in Vancouver, 567,000 in Montreal, and 165,000 in St. John’s. The remaining five projects are expected to reach completion over the next 15 months, increasing our presence in Canada’s top urban markets, diversify and improve our overall portfolio quality, and are expected to create significant NAV and AFFO growth.
These estimates are subject to changes in construction costs and time to completion arising from minor scheduling delays relating primarily to COVID-19, as well as other development risks described in Crombie’s 2019 annual MD&A under “Risk Management”.
Highlighted Subsequent Events
On October 5, 2020, Crombie acquired a 100% interest in a retail property totalling 41,000 square feet for $11,000, excluding closing and transaction costs.
On October 9, 2020, Crombie issued $150,000 2.686% 7.5 Year Series H unsecured notes and $150,000 3.211% 10 Year Series I unsecured notes maturing March 31, 2028 and October 9, 2030 respectively.
On October 21, 2020, Crombie redeemed $100,000 principal amount of its 3.962% Series B senior unsecured notes which were originally scheduled to mature on June 1, 2021.
On October 26, 2020, Crombie disposed of a 100% interest in a retail property totalling 18,000 square feet of gross leasable area. Total proceeds, before closing adjustments and transaction costs, were approximately $7,510.
On October 30, 2020, Crombie fully repaid its unsecured short-term credit facility for $75,000.
On November 4, 2020, Crombie acquired a 100% interest in a vacant property for $3,300, excluding closing and transaction costs.
Conference Call Invitation
Crombie will provide additional details concerning its period ended September 30, 2020 results on a conference call to be held Friday, November 13, 2020, beginning at 11:30 a.m. Eastern Time. Accompanying the conference call will be a presentation that will be available on Crombie’s website. To join this conference call, you may dial (416) 764-8688 or (888) 390-0561. You may also listen to a live audio webcast of the conference call by visiting the Investor section of Crombie’s website located at www.crombiereit.com. Replay will be available until midnight November 20, 2020 by dialing (416) 764-8677 or (888) 390-0541 and entering pass code 467641 #, or on the Crombie website for 90 days after the meeting.
Cautionary Statements
NOI, same-asset property cash NOI, FFO, AFFO, EBITDA, AMR, available liquidity and unencumbered investment properties are non-GAAP financial measures that do not have a standardized meaning under International Financial Reporting Standards (“IFRS”). These measures as computed by Crombie may differ from similar computations as reported by other entities and, accordingly, may not be comparable to other such entities. Management includes these measures as they represent key performance indicators to management, and it believes certain investors use these measures as a means of assessing Crombie’s financial performance. For additional information on these non-GAAP measures see our Management’s Discussion and Analysis for the three months ended September 30, 2020.
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 2019 annual Management Discussion and Analysis under “Risk Management”, could cause actual results, performance, achievements, prospects or opportunities to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully, and a reader should not place undue reliance on the forward-looking statements. There can be no assurance that the expectations of management of Crombie will prove to be correct. Readers are cautioned that such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from these statements. Crombie can give no assurance that actual results will be consistent with these forward-looking statements.
Specifically, this document includes, but is not limited to, forward-looking statements regarding:
(i) anticipated near term AFFO and NAV creation from completed major developments;
(ii) general growth and development opportunities and expansion across Canada including the expected impact of such growth from our mixed-use development pipeline, which could be impacted by the economic impact of the COVID-19 crisis, ordinary real estate market cycles, the availability of labour, financing, and the cost of any such financing, capital resource allocation decisions and general economic conditions, as well as development activities undertaken by related parties not under the direct control of Crombie; and,
(iii) expected timing and costs of development projects currently underway and planned into the future.
Continuing uncertainty with respect to the severity, duration and overall impacts of the pandemic mean that forward-looking forecasts of operating and financial results for Crombie are uncertain at this time.
About Crombie REIT
Crombie Real Estate Investment Trust (“Crombie”) is an unincorporated, open-ended real estate investment trust established under, and governed by, the laws of the Province of Ontario. Crombie is one of the country’s leading national retail property landlords with a strategy to own, operate and develop a portfolio of high-quality grocery- and pharmacy-anchored shopping centres, freestanding stores and mixed-use developments primarily in Canada’s top urban and suburban markets. More information about Crombie can be found at www.crombiereit.com.
SOURCE Crombie REIT