Crombie Real Estate Investment Trust CROMF

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[savyinvestor333]

Event We are resuming coverage following the completion of a $100mm equity financing (~6.0mm units at $16.60/unit), including $41.5mm of Class B LP units issued to Empire subsidiary ECL Developments Limited to maintain its 41.5% ownership in the REIT.

Impact: SLIGHTLY POSITIVE

Use of Proceeds: The REIT will use the proceeds to pay down debt and fund the REIT's development pipeline (Exhibit 1) and value-add capital programs. The active development pipeline currently consists of two projects slated to be completed in H2/21 (Le Duke in Montreal, Quebec and Bronte Village in Oakville, Ontario) with ~ $47mm of costs remaining. Additionally, the REIT expects to financially commit to three additional near-term projects (cost-to-compete: ~$380-to-$480mm) within the next two years, including a ~600,000sf (23% commercial/77% residential) mixeduse development at Broadway and Commercial Drive in Vancouver. We note that Crombie is also expected to add the "Voil par IGA" Ocado customer fulfillment centre ("CFC") near Calgary, Alberta to the development pipeline in Q2/21 upon acquisition of the land.

We anticipate the facility will be a similar size to the Montreal (Pointe-Claire) CFC at ~300,000sf, cost between $350/sf to $400/ sf (Pointe-Claire CFC: $333/sf), and have an initial yield slightly lower than the 6.1%-6.4% range initially targeted for the Montreal CFC. Forecast & NAV Revisions (Exhibits 2 & 3): With the offering, we removed $60mm of disposition activity resulting in a net ~1% decline in our 2021/2022 AFFO/unit estimates. Additionally, we have increased our NAV estimate +4% to $16.40 to reflect slightly lower cap rate assumptions and increased excess density value. TD Investment Conclusion We view the equity offering as being consistent with Crombie's steady capital allocation strategy throughout the years.

With additional capital from the equity offering, we believe the REIT remains well-positioned to continue progress on its pipeline of mixed-use developments with ample liquidity. In our view, Crombie offers investors stable and secure cash flows from the Sobeys leases and other primarily necessity-based retail, with additional upside from a robust development pipeline with a cadence of significant annual completion volumes.

We are maintaining our HOLD recommendation with a revised $17.00 target price.