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Crombie REIT reports solid second quarter 2011 results

^{Published on 2011-08-11 05:01:19 - Market Wire}
 

STELLARTON, NS, Aug. 11, 2011 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its results for the second quarter ended June 30, 2011.

2011 Highlights

• Property revenue for the quarter ended June 30, 2011 of $56.3 million; an increase of $5.4 million or 10.6% over the $50.9 million for the quarter ended June 30, 2010.
• Same-asset cash net operating income ("NOI") for the quarter ended June 30, 2011 of $30.3 million; an increase of $0.2 million or 0.7%, compared to $30.1 million for the quarter ended June 30, 2010 and for the six months ended June 30, 2011, same-asset cash NOI of $60.8 million; an increase of $1.1 million or 1.8% over the same period in 2010.
• Property occupancy was a solid 94.9% at June 30, 2011 compared with 95.3% at March 31, 2011, and 95.5% at June 30, 2010.
• Average net rent per square foot from year to date leasing activity increased to $16.51 compared to an expiring rent per square foot of $14.15, an increase of 16.7%.
• Crombie completed leasing activity on 666,000 square feet of GLA during the first six months of 2011, which represents approximately 61.0% of its 2011 expiring leases.
• Funds from operations ("FFO") for the quarter ended June 30, 2011 was $0.28 per unit (payout ratio 80.6%) compared to $0.26 per unit (payout ratio 85.4%) for the same period in 2010.
• Adjusted funds from operations ("AFFO") for the quarter ended June 30, 2011 was $0.20 per unit (payout ratio 110.5%) compared to $0.21 per unit (payout ratio 104.6%) for the same period in 2010. Excluding the $1.7 million impact of settling Crombie's remaining forward rate interest rate swap in the second quarter, AFFO per unit would have been $0.23 per unit and the AFFO payout ratio would have been 97.9% for the quarter ended June 30, 2011.
• Crombie renewed its $150.0 million revolving credit facility in the quarter for a three year period under favourable terms.

Commenting on the quarterly results, Donald E. Clow, FCA, President and Chief Executive Officer stated: "We are encouraged by the continued improvement in year-over-year FFO per unit results and the AFFO payout ratio achieved in the second quarter of 2011.  Our AFFO was impacted in the quarter as Crombie settled, for $1.7 million, the last of its delayed start interest rate swap agreements. Excluding the impact of this settlement, AFFO per unit of $0.23 and an AFFO payout ratio of 97.9% shows continued improvement.

The contribution from our acquisition and redevelopment programs continues to improve our portfolio and cash flow. We continue to focus on high quality growth at reasonable prices and smart reinvestments in our existing portfolio. Our recently announced Red Deer, Alberta and Dartmouth, Nova Scotia acquisitions are new retail properties with strong covenant tenants and long-term leases. Our recent Orangeville, Ontario Sobeys acquisition is a strong performing Sobeys store. In addition, we have either financed or expect to finance these purchases with long-term mortgages to lock in attractive spreads between acquisition cap rates and mortgage rates. The Dartmouth and Orangeville acquisitions provide further evidence of Crombie's sustainable competitive advantage of our relationship with Sobeys Inc. and Empire Company Limited.

We continue to seek out further accretive acquisitions of high quality properties through our relationship with Sobeys and Empire as well as third parties."

The table below presents a summary of financial performance for the quarter and six months ended June 30, 2011 compared to the same periods in fiscal 2010. All amounts are presented in accordance with International Financial Reporting Standards ("IFRS").

Property NOI, on a cash basis, excludes straight-line rent recognition and tenant incentive amortization amounts. The 0.7% and 1.8% increases in same-asset cash NOI for the three months ended and six months ended June 30, 2011 respectively are primarily the result of increased average net rent per square foot resulting from 2011 leasing activity.

Crombie believes that cash NOI is a better measure of AFFO sustainability and same-asset property performance.

Same-asset property NOI grew 1.1% over Q2 of 2010.  Same-asset property revenue of $48.4 million for the quarter ended June 30, 2011 was 3.5% higher than the same period in 2010, due to increased base rent and higher recoveries as a result of higher operating expenses.  Same-asset property revenue of $97.5 million for the six months ended June 30, 2011 was 3.0% higher than the six months ended June 30, 2010 due to increased base rent and recoveries as a result of above average renewal rates and higher recoverable property expenses.

Same-asset property expenses of $18.2 million for the quarter ended June 30, 2011 were $1.3 million or 7.6% higher than the second quarter ended June 30, 2010 due primarily to increased recoverable expenses offset in part by a decrease in non-shareable expenses.  Same-asset property expenses of $37.3 million for the six months ended June 30, 2011 increased by 5.8% from the six months ended June 30, 2010 due primarily to increased recoverable property taxes and snow clearing costs offset in part by reduced non-recoverable costs.

For the three months ended and six months ended June 30, 2011, the acquisition and redevelopment property results include the retail properties acquired in May 2011 and February, March, September, October and November 2010 as well as the operating results of five properties that were under redevelopment.  This 2011 and 2010 activity level resulted in significant NOI growth.

General and Administrative Expenses

General and administrative expenses for the quarter ended June 30, 2011 decreased by 0.8% from 5.9% to 5.1% as a percentage of property revenue, when compared to the same period in 2010. Salaries and benefits primarily decreased as a result of the departure of the Chief Financial Officer in June of 2010.  Professional fees have increased due to costs related to tax status review and finalization of IFRS transition.

General and administrative expenses as a percentage of property revenue decreased by 0.6% from 5.4% to 4.8% for the six months ended June 30, 2011 when compared to the same period in 2010.  Salaries and benefits decreased due to the costs associated with the departure of Crombie's Chief Financial Officer during the second quarter of 2010.  Professional fees increased due to increased fees associated with the transition to IFRS.

Same-asset finance costs for the six months ended June 30, 2011 have decreased by $0.176 or 0.7%.  Growth in acquisition and redevelopment finance costs is consistent with Crombie's significant acquisition activity in 2011 and 2010.

FFO and AFFO

Crombie's FFO and AFFO had the following results for the second quarter and six months ended June 30, 2011 and 2010:

The increase in FFO for the quarter ended June 30, 2011 of $2.6 million was primarily due to growth in same-asset NOI and acquisition property NOI, net of finance cost increases related to the acquisitions.

AFFO for the quarter ended June 30, 2011 of $13.5 million was an increase of $0.487 million over the same period in 2010 due primarily to the improved FFO results, offset by the negative impact of settlement of Crombie's remaining forward rate swap agreement for $1.7 million in Q2. Excluding the swap settlement, AFFO Per Unit - Basic would have been $0.23 and AFFO Payout ratio would have been 97.9%.

The increase in FFO for six months ended June 30, 2011 was primarily due to solid growth in same-asset NOI, higher NOI from the 2010 acquisition properties offset in part by higher finance costs related to those acquisitions.

AFFO for the six months ended June 30, 2011 was $28.7 million, an increase of $2.7 or 10.2% over the same period in 2010, due primarily to the improved FFO results, offset in part by the negative impact of settlement of the aforementioned swap agreement. Excluding the swap settlement, AFFO Per Unit - basic would have been $0.46 and AFFO Payout ratio would have been 97.3%; a significant improvement over the 104.1% payout ratio for the same period in 2010.

Liquidity and Financings

Crombie's objectives when managing its capital structure are to optimize 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 its ongoing 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 $100.2 million was drawn as at June 30, 2011, and an additional $9.5 million encumbered by outstanding letters of credit and mark-to-market positions on interest rate swap agreements resulting in significant available liquidity.

Debt to gross book value is 57.1% at June 30, 2011 compared to 56.0% at March 31, 2011, 56.5% at December 31, 2010 and 57.2% at June 30, 2010. 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 debt to gross book value experienced an increase of approximately 200 basis points on transition to IFRS.

Crombie's interest and debt service coverage for the six months ended June 30, 2011 were 2.46 times EBITDA and 1.74 times EBITDA respectively.  This compares to 2.40 times EBITDA and 1.72 times EBITDA respectively for the six months ended June 30, 2010.

Definition of Non-IFRS Measures

Certain financial measures included in this news release do not have standardized meaning under IFRS 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.

• Property NOI is property revenue less property expenses.
• Property Cash NOI is Property NOI adjusted to remove non-cash straight-line rent and tenant improvement 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 deferred financing charges, 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 deferred 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 tenant improvements, less property expenses and general and administrative expenses.
• FFO is calculated as Increase (decrease) in net assets attributable to Unitholders (computed in accordance with IFRS), excluding gains (or losses) from sales of depreciable real estate and extraordinary items, plus depreciation and amortization expense, deferred income taxes, finance costs - distributions to Unitholders and after adjustments for equity accounted entities and non-controlling interests.
• AFFO is defined as FFO adjusted for non-cash amounts affecting revenue, less maintenance capital expenditures, maintenance tenant improvements and leasing costs, and the settlement of effective interest rate swap agreements.

Interim Financial Reporting

While the financial figures included in this preliminary interim earnings announcement have been computed in accordance with IFRS applicable to interim periods, this announcement does not contain sufficient information to constitute an interim financial report as that term is defined in IFRS.  The Trustees expect to publish an interim financial report that complies with International Accounting Standard 34, Interim Financial Reporting, on August 11, 2011.

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 133 commercial properties in eight provinces, comprising approximately 12.2 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 accretive acquisition of 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's discussion and analysis for the period ended June 30, 2011 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 second quarter ended June 30, 2011 results on a conference call to be held Thursday, August 11, 2011, at 12:30 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 August 25, 2011, by dialling (416) 849-0833 or (855) 859-2056 and entering pass code 84524266, or on the Crombie website for 90 days after the meeting.