Crombie REIT Announces Third Quarter 2023 Results

Focus on fundamentals and operational excellence drives strong results

NEW GLASGOW, NS, Nov. 8, 2023 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) today announced results for its third quarter ended September 30, 2023. Management will host a conference call to discuss the results at 12:00 p.m. (EST), November 9, 2023.

"The strength of our portfolio and our operational excellence delivered another consistent and solid quarter, including healthy same-asset property cash NOI and renewal growth," said Mark Holly, President and CEO. "We continue to remain focused on stability and growth. The team's dedication to our fundamentals, our financial condition, and the prudent allocation of capital allows us to advance near and long-term strategic initiatives."

THIRD QUARTER SUMMARY
(In thousands of Canadian dollars, except per Unit amounts and square feet and as otherwise noted)

Operational Highlights

• Committed occupancy 96.4% and economic occupancy 96.0%; a 40 basis point decrease and a 20 basis point decrease, respectively, compared to the third quarter of 2022
• Renewals of 238,000 square feet at rents 6.5% above expiring rental rates (an increase of 7.9% using the weighted average rent during the renewal term)
• Crombie paid $29,961 to subsidiaries of Empire in connection with the assignment of 24 subleases and the right-to-develop at an existing asset
• 2023 GRESB Standing Investment and Development benchmark scores increased 45% and 25% from 2022, respectively

Financial Highlights

• Property revenue of $104,491, a 0.8% increase from $103,642 in the third quarter of 2022
• Operating income attributable to Unitholders of $27,796, an increase of 5.2% compared to the third quarter of 2022
• Net property income(1) of $71,453, a 0.2% decrease from $71,574 in the third quarter of 2022
• FFO(1) of $56,510 or $0.31 per Unit compared to $52,665 or $0.30 per Unit in the third quarter of 2022
• FFO(1) payout ratio of 70.9% for the third quarter of 2023 compared to 75.0% for the same period last year
• AFFO(1) of $49,962 or $0.28 per Unit compared to $46,787 or $0.26 per Unit in the third quarter of 2022
• AFFO(1) payout ratio of 80.2% for the third quarter of 2023 compared to 84.5% for the same period last year
• Same-asset property cash NOI(1) increased 2.8% compared to the third quarter of 2022
• Debt to gross fair value(1)(2) of 42.4%, compared to 42.0% for the same period last year
• Debt to trailing 12 months adjusted EBITDA(1)(2) of 8.13x compared to 8.50x at the third quarter of 2022
• Fair value of unencumbered investment properties of $2,581,919, a 17.3% increase from $2,200,890 for the same period last year
• Available liquidity of $564,903, a 26.8% increase from $445,372 in the third quarter of 2022

Information in this press release is a select summary of results. This press release should be read in conjunction with Crombie's Management's Discussion and Analysis for the quarter ended September 30, 2023 and Consolidated Financial Statements and Notes for the quarters ended September 30, 2023, and September 30, 2022. Full details on our results can be found at www.crombie.ca and www.sedarplus.com.

Financial Results

Crombie's key financial metrics for the three months ended September 30, 2023 are as follows:

Operating income attributable to Unitholders increased by $1,386, or 5.2%, primarily due to a decrease of $10,400 in impairment of investment properties, and lower depreciation and amortization of $2,910 due to accelerated depreciation recorded in the third quarter of 2022 on a property scheduled for demolition. Income from equity-accounted investments increased $2,663, of which $2,345 resulted from the sale of land at our Opal Ridge joint venture in Dartmouth, Nova Scotia. The growth in operating income was offset in part by gain on disposal of investment properties of $13,357 in the third quarter of 2022 and increased general and administrative expenses of $1,102 due to higher consulting costs, salaries and benefits and Unit-based compensation costs in the third quarter of 2023. Operating income growth was further offset by gain on distribution from equity-accounted investments of $1,000 in the third quarter of 2022, resulting from cash distributions received from 1600 Davie Limited Partnership in excess of our investment in the joint venture.

Same-asset property cash NOI increased by $1,921, or 2.8%, compared to the third quarter of 2022 primarily due to renewals and new leasing, higher supplemental rent of $467 from modernizations and capital improvements, and increased lease termination income of $463 resulting from a tenant surrender.

The increase in FFO of $3,845 was primarily due to growth in income from equity-accounted investments of $2,663, of which $2,345 resulted from the sale of land at our Opal Ridge joint venture in Dartmouth, Nova Scotia in the third quarter of 2023, increased rental revenue of $1,914 from new developments, and $1,586 from renewals and new leasing. This was partially offset by increased general and administrative expenses of $1,102 due to higher consulting costs, salaries and benefits, and Unit-based compensation costs in the third quarter of 2023. The growth in FFO in the quarter was further offset by reduced revenue of $720 related to dispositions, and decreased percentage rent of $509.

The increase in AFFO was primarily due to the same factors impacting FFO, offset in part by an increase in the maintenance expenditure charge for 2023 from $1.00 to $1.10 per square foot of weighted average GLA, an increased charge of $472 for the quarter.

Crombie's key financial metrics for the nine months ended September 30, 2023 are as follows:

Operating income attributable to Unitholders decreased by $7,556, or 9.4%, on a year-to-date basis, primarily due to lower gain on disposal of investment properties of $17,632, and higher general and administrative expenses resulting from employee transition costs of $7,172 in the second quarter of 2023. Also contributing to the variance year over year was a gain on distribution from equity-accounted investments of $2,933 in the first nine months of 2022 as a result of cash distributions received from 1600 Davie Limited Partnership in excess of our investment in the joint venture. The decrease was offset in part by a reduction of $10,400 in impairment of investment properties and growth in income from equity-accounted investments of $6,077, of which $5,722 resulted from the sale of land at our Opal Ridge joint venture in Dartmouth, Nova Scotia in the first nine months of 2023. Further offsetting the decrease in operating income was revenue from management and development services of $2,343, and reduced depreciation and amortization of $2,097 due to accelerated depreciation recorded in the third quarter of 2022 on a property scheduled for demolition.

On a year-to-date basis, same-asset property cash NOI increased by $5,379, or 2.6%, compared to the same period in 2022 primarily due to renewals and new leasing, and an increase in supplemental rent of $1,274 from modernizations and capital improvements. Additionally, lease termination income increased by $917 resulting from tenant surrenders and parking revenue increased by $899 compared to the same period in 2022. The increase in same-asset property cash NOI was offset in part by an increase in bad debt expense of $494.

For the nine months ended September 30, 2023, FFO increased by $3,780 primarily driven by growth in income from equity-accounted investments of $6,077, of which $5,722 resulted from the sale of land at our Opal Ridge joint venture in Dartmouth, Nova Scotia in the first nine months of 2023, and revenue from management and development services of $2,343. Higher rental revenue of $2,607 from new developments, $2,478 from renewals and new leasing, $1,603 from acquisitions, and $1,297 in supplemental rent from modernization investments further contributed to the increase in FFO. Additionally, lease termination income increased $917 and parking revenue improved $899 compared to the same period in 2022. FFO growth was offset in part by higher general and administrative expenses resulting from employee transition costs of $7,172 in the second quarter of 2023, a decrease of $2,816 in rental revenue from dispositions, and lower percentage rent of $711. FFO excluding employee transition costs of $7,172 was $162,585, or $0.91 per Unit.

The growth in AFFO on a year-to-date basis was driven primarily by the same factors impacting FFO. It was offset in part by the increase in the maintenance expenditure charge for 2023 from $1.00 to $1.10 per square foot of weighted average GLA, an increased charge of $1,411 for the period. AFFO excluding employee transition costs of $7,172 was $142,161, or $0.79 per Unit.

Operating Results

Operations and Leasing

During the quarter, Crombie achieved economic occupancy of 96.0% and committed occupancy of 96.4%. Crombie renewed 238,000 square feet with an increase of 6.5% over expiring rents during the quarter. Year to date, new leases increased occupancy by 457,000 square feet at an average first year rate of $22.24 per square foot.

Development

Crombie segregates its development pipeline by expected timing. Near-term projects indicate that a decision to commit financially is expected to be determined within the next two years. Currently, Crombie has three developments classified as near-term projects. Upon completion, these projects will total approximately 960,000 square feet of residential GLA (1,461 residential units) and 105,000 square feet of commercial GLA. The geographical breakdown of GLA in square feet is as follows: 731,000 in Vancouver; 145,000 in Victoria and 189,000 in Halifax.

The Marlstone, a 291-unit residential rental project in the heart of downtown Halifax, is under active development, with an estimated total cost of $134,000 and an estimated yield on cost of 4.5% - 5.5%. Demolition and existing building upgrades commenced in May 2023 and the residential tower construction will commence in December 2023. Completion is expected in the first quarter of 2026.

Timing, total project cost, and yield on cost are estimates and assumptions and subject to change, as well as other development risks described in Crombie's third quarter Management's Discussion and Analysis under "Development" and "Risk Management".

Empire Transactions

During the third quarter of 2023, Crombie paid $16,361 to a subsidiary of Empire in connection with the assignment of 24 subleases to Crombie for retail sites in Western Canada. This payment was allocated to either deferred leasing costs or tenant incentive additions, based on each component's relative fair value.

Crombie paid an initial right-to-develop fee of $13,600 to a subsidiary of Empire, which resulted in the existing lease being modified. The right to develop will allow Crombie flexibility as it works through the entitlement and future development of an existing property in which a subsidiary of Empire is currently a tenant.

2023 GRESB Submission

Crombie completed its third annual submission to GRESB, for the Standing Investments and Development benchmarks. GRESB awarded Crombie with a Green Star for excellence in both Standing Investments and Development. Crombie improved its score by 45% for the Standing Investments benchmark compared to last year, through enhanced energy, water, and waste data coverage. Crombie's Development benchmark score improved 25%, over last year.

Changes to the Board of Trustees

Michael Knowlton, Chair of the Board, has announced his intention to retire from his role as Board Chair and from the Board of Trustees following Crombie's Annual General Meeting in May 2024. Mr. Knowlton was appointed as Board Chair in May 2019 and has served as a Trustee since 2011. His leadership has left a tremendous mark on Crombie and he retires leaving the company well-positioned for continued success.

To ensure an orderly transition, Crombie's Board of Trustees formed a special sub-committee to identify Crombie's next Board Chair. After conducting a thorough process, the Board is announcing Jason Shannon as Chair of the Board of Trustees upon Mr. Knowlton's retirement. Mr. Shannon joined the Crombie Board in 2016, has been Chair of Crombie's Investment Committee since 2019 and brings a wealth of experience to this role. He is President of Shannex Incorporated, a home care, retirement and assisted living and long-term care organization.

Highlighted Subsequent Event

On November 3, 2023, Crombie entered into a right-to-develop agreement with a subsidiary of Empire with an initial fee payable of $20,700 which resulted in an existing lease being modified. The right to develop will allow Crombie flexibility as it works through the entitlement and future development of an existing property in which a subsidiary of Empire is currently a tenant.

Conference Call Invitation

Crombie will provide additional details concerning its period ended September 30, 2023 results on a conference call to be held Thursday, November 9, 2023, beginning at 12:00 p.m. (EST). 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) 390-0546. To join the conference call without operator assistance, you may register and enter your phone number at https://emportal.ink/3PINWC6 to receive an instant automated call back. You may also listen to a live audio webcast of the conference call by visiting the Investor section of Crombie's website at www.crombie.ca.

Replay will be available until midnight November 16, 2023 by dialing (416) 764-8677 or (888) 390-0541 and entering passcode 370472 #, or on the Crombie website for 90 days following the conference call.

Cautionary Statements and Non-GAAP Measures

Net property income, same-asset property cash NOI, FFO, AFFO, FFO payout ratio, AFFO payout ratio, debt to trailing 12 months adjusted EBITDA, debt to gross fair value, and interest coverage ratio 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 and nine months ended September 30, 2023.

The reconciliations for each non-GAAP measure included in this press release are outlined as follows:

Net Property Income

Management uses net property income as a measure of performance of properties period-over-period.

Net property income, which excludes revenue from management and development services and certain expenses such as interest expense and indirect operating expenses, is as follows:

Same-Asset Property Cash NOI

Crombie measures certain performance and operating metrics on a same-asset basis to evaluate the period-over-period performance of those properties owned and operated by Crombie. "Same-asset" refers to those properties that were owned and operated by Crombie for the current and comparative reporting periods. Properties that will be undergoing a redevelopment in a future period, and those for which planning activities are underway are also in this category until such development activities commence and/or tenant leasing/renewal activity is suspended. Same‐asset property cash NOI reflects Crombie's proportionate ownership of jointly operated properties (and excludes any properties held in joint ventures).

Management uses net property income on a cash basis (property cash NOI) as a measure of performance as it reflects the cash generated by properties period-over-period.

Net property income on a cash basis, which excludes non-cash straight-line rent recognition and amortization of tenant incentive amounts, is as follows:

Funds from Operations (FFO)

Crombie follows the recommendations of the January 2022 guidance of the Real Property Association of Canada ("REALPAC") in calculating FFO.

The reconciliation of FFO for the three and nine months ended September 30, 2023 and 2022 is as follows:

Adjusted Funds from Operations (AFFO)

Crombie follows the recommendations of REALPAC's January 2022 guidance in calculating AFFO and has applied these recommendations to the AFFO amounts included in this press release and Management's Discussion and Analysis.

The reconciliation of AFFO for the three and nine months ended September 30, 2023 and 2022 is as follows:

Debt Metrics

When calculating debt to gross fair value, debt is defined as obligations for borrowed money, including obligations incurred in connection with acquisitions, excluding trade payables and accruals in the ordinary course of business, and distributions payable. Debt includes Crombie's share of debt held in equity-accounted joint ventures.

Gross fair value includes investment properties measured at fair value, including Crombie's share of those held within joint ventures. All other components of gross fair value are measured at the carrying value included in Crombie's financial statements. Crombie's methodology for determining the fair value of investment properties includes capitalization of trailing 12 months net property income using biannual capitalization rates from external property valuators. The majority of investment properties are also subject to external, independent appraisals on a rotational basis over a period of not more than four years. Valuation techniques are more fully described in Crombie's year-end audited financial statements.

The fair value included in this calculation reflects the fair value of the properties as at September 30, 2023 and December 31, 2022, respectively, based on each property's current use as a revenue-generating investment property. As at September 30, 2023, Crombie's weighted average capitalization rate used in the determination of the fair value of its investment properties was 5.96%, an increase of two basis points from December 31, 2022. Crombie's weighted average capitalization rate used in the determination of the fair value of its share of investment properties held in equity-accounted joint ventures was 3.60% as at September 30, 2023, an increase of thirteen basis points from December 31, 2022. For an explanation of how Crombie determines capitalization rates, see the "Other Disclosures" section of the Management's Discussion and Analysis, under "Investment Property Valuation" in the "Use of Estimates and Judgments" section.

The following table presents a reconciliation of operating income attributable to Unitholders to adjusted EBITDA. Adjusted EBITDA is a non-GAAP measure and should not be considered an alternative to operating income attributable to Unitholders, and may not be comparable to that used by other entities.

This press 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 2022 annual Management's Discussion and Analysis under "Risk Management" and the Annual Information Form for the year ended December 31, 2022 under "Risks", 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, and 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 expected timing of development, estimated total cost and estimated yield on cost, each of which may be impacted by ordinary real estate market cycles, the availability of labour, ability to attract tenants, estimated GLA, tenant rents, building sizes, 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.

About Crombie REIT

Crombie invests in real estate that enriches local communities and enables long-term sustainable growth. As one of the country's leading owners, operators, and developers of quality real estate, Crombie's portfolio primarily includes grocery-anchored retail, retail-related industrial, and mixed-used residential properties in Canada's top urban and suburban markets. As at September 30, 2023, our portfolio contains 294 income-producing properties comprising approximately 18.7 million square feet, and a significant pipeline of future development projects. Learn more at www.crombie.ca.

SOURCE Crombie REIT

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