Crombie Real Estate Investment Trust CROMF

TD Report and Upgrade to $19.00

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Event We have updated our forecasts and outlook following Crombie's Q2/21 results. Please click here for our initial take on the quarter.

Impact: SLIGHTLY POSITIVE

Our Take: Crombie's portfolio is approaching pre-pandemic operating metrics, with rent collections at 99% and further BDE declines (down 97% y/y). The 18bps of compression in the average IFRS cap rate (to 5.68%) indicates today's desirability of grocery-anchored retail properties. Management pointed to a pickup in private market transaction activity at cap rates below 2019 levels. Further progress on developments bodes well for continued fair value gains. Crombie reported another strong leasing quarter at its first residential project "Zephyr" in downtown Vancouver (JV with Westbank). As of July 31, >90% of the 330 residential units were leased, up from 62% as of April 30, and 44% as of March 31. Zephyr is expected to reach stabilization before year-end. Furthermore, rents continue to track in the mid-$4/sf range (above pro forma). We believe that the strong results to-date at Zephyr serve as a vote of confidence for management's ability to successfully execute on its residential development pipeline that currently sits at ~10mmsf of GLA, including 1.5mmsf now under construction or expected to commence in the near term.

Looking forward, over the next one or two years we expect further additions to the active development pipeline to maintain Crombie's $150mm to $250mm annual development spending goal. Possible candidates currently include Westhill on Duke in Halifax, Belmont Market – Phase II in Victoria (both zoned), and 1780 East Broadway in Vancouver (zoning in process). Forecast Update: We have left our estimates essentially unchanged, while we have increased our NAV/unit estimate ~6% to $18.40, to largely reflect cap rate compression for grocery-anchored retail.

TD Investment Conclusion 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 raising our target 2022E P/AFFO valuation to ~17.25x (previously 16.0x-16.5x) resulting in a new target price of $19.00 (up from $18.00). 22 22 20 20 18 18 16 16 14 14 12 12 10 10 Oct-20 Dec-20 Feb-21 Apr-21 Jun-21 Aug-21 CRR.UN-T: Price Company Profile Crombie REIT owns ov