Q1 Quarterly Report
March 31, 2024
CONTENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS
- Key Highlights
- Glossary of Terms
- Portfolio Review
- Operational Performance Review
- Financial Performance Review
- Development
- Capital Management
- Risk Management
- Joint Ventures
- Other Disclosures
Related Party Transactions
Use of Estimates and Judgments
Controls and Procedures
Quarterly Information
- Non-GAAPFinancial Measures
- Forward-lookingInformation
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Interim Condensed Consolidated Financial Statements
Notes to the Interim Condensed Consolidated Financial Statements
UNITHOLDERS' INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE MONTHS ENDED
MARCH 31, 2024
INTRODUCTION
The following Management's Discussion and Analysis ("MD&A") of the consolidated financial condition and financial performance of Crombie Real Estate Investment Trust ("Crombie") should be read in conjunction with Crombie's interim condensed consolidated financial statements ("financial statements") as at and for the three months ended March 31, 2024 and 2023. This MD&A should also be read in conjunction with Crombie's audited consolidated financial statements as at and for the years ended December 31, 2023 and 2022.
Except for per Unit, gross leasable area ("GLA") and square footage ("sq. ft.") amounts, and where otherwise noted, all amounts in this MD&A are reported in thousands of Canadian dollars.
The information contained in the MD&A, including forward-looking statements, is based on information available to management as at May 8, 2024, except as otherwise noted.
Additional information relating to Crombie, including its latest Annual Information Form, can be found on the SEDAR+ website for Canadian regulatory filings at www.sedarplus.ca.
For definitions of certain acronyms and specialized terms used in this document, refer to the "Glossary of Terms" on page 6.
FOOTNOTES
(*) NON-GAAP FINANCIAL MEASURES
Some of the financial measures provided in this document are non-GAAP financial measures that have no standardized meaning under International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards") and therefore may not be comparable to similar measures presented by other companies. See "Non-GAAP Financial Measures", starting on page 62, for more information on Crombie's non-GAAP financial measures and reconciliations thereof.
FORWARD-LOOKING STATEMENTS
Some of the information provided in this document is forward-looking and therefore could change over time to reflect changes in the environment in which Crombie operates and competes. See "Forward-looking Information", starting on page 66, for more information.
1
1. KEY HIGHLIGHTS
Crombie uses financial and operational metrics to measure its performance. These key metrics are highlighted below:
- See "Non-GAAP Financial Measures", starting on page 62, for more information on Crombie's non-GAAP financial measures and reconciliations thereof.
FINANCIAL METRICS (in thousands except GLA and per Unit amounts)
Property revenue(1)
Q1 2024
$118,609
Q1 2023 $112,449 +5.5%
The increase in property revenue in the quarter was due primarily to higher revenue from recently completed developments, renewals, and new leasing activity.
Operating income attributable to Unitholders
Q1 2024
$26,205
Q1 2023 $25,173 +4.1%
The increase in operating income in the quarter resulted mainly from growth in property revenue from recently completed developments, renewals, new leasing activity, lower interest expense on floating rate debt, revenue from management and development services, and increased capitalized interest. This was offset in part by higher interest expense on senior unsecured notes and a decrease in income from equity-accounted investments related to the sale of land within a joint venture in the first quarter of 2023.
Net property income(*)
Q1 2024 | Net property income increased during the quarter due to property revenue increases from recently |
completed developments, renewals, and new leasing. | |
$73,641
Q1 2023 $68,648 +7.3%
Same-asset property cash NOI(*)
Q1 2024
$76,532
Q1 2023 $74,141 +3.2%
The increase in same-asset property cash NOI for the quarter was primarily driven by increased property revenue from renewals and new leasing.
- Property revenue for the three months ended March 31, 2023 has been increased by $4,898 as a result of a change in the presentation of recoverable property taxes for certain properties where a tenant pays the property taxes on Crombie's behalf.
2
FINANCIAL METRICS (CONTINUED)
FFO(*) per Unit
Q1 2024
$0.30
Q1 2023 $0.30 -%
The increase in total FFO was driven primarily by higher property revenue from recently completed developments, renewals, and new leasing. Reduced interest expense on floating rate debt, revenue from management and development services, and higher capitalized interest further contributed to FFO growth. This was offset in part by an increase in interest expense on senior unsecured notes and a decrease in income from equity-accounted investments related to the sale of land within a joint venture in the first quarter of 2023.
FFO(*) payout ratio
Q1 2024 | Items affecting FFO, as stated above, drove the improvement in FFO payout ratio in the quarter |
compared to the same period in 2023. | |
73.6%
Q1 2023 75.3% -1.7%
AFFO(*) per Unit
Q1 2024
$0.26
Q1 2023 $0.26 -%
Total AFFO increased in the quarter primarily due to higher property revenue from recently completed developments, renewals, and new leasing, reduced interest expense on floating rate debt, revenue from management and development services, and higher capitalized interest. This was partially offset by increased interest expense on senior unsecured notes and decreased income from equity-accounted investments related to the sale of land within a joint venture in the first quarter of 2023.
AFFO(*) payout ratio
Q1 2024 | Items affecting AFFO, as stated above, drove the improvement in AFFO payout ratio in the quarter |
compared to the same period in 2023. | |
86.1%
Q1 2023 86.6% -0.5%
3
OPERATIONAL METRICS
Renewals (GLA sq. ft.)
Q1 2024
249,000
Q1 2023 540,000 -53.9%
Renewal activity in the quarter consisted of 156,000 square feet in Rest of Canada, 49,000 square feet in Major Markets, and 44,000 square feet in VECTOM. At March 31, 2024, 35,000 square feet of Empire Company Limited ("Empire") renewals were completed.
Renewal spreads
Q1 2024
10.1%
Q1 2023 | 5.7% | +4.4% |
The primary driver of renewal growth in the quarter was 228,000 square feet of renewals at retail properties with an increase of 11.6% over expiring rental rates. Partially offsetting renewal growth in the quarter was one office lease renewing at decreased rents.
Committed occupancy
Q1 2024
96.2%
Q1 2023 96.7% -0.5%
At the end of the first quarter of 2024, 94,000 square feet of space was committed. Approximately 67,000 square feet of committed space was in VECTOM and Major Markets, including 31,000 square feet in Burlington, Ontario and 27,000 square feet in Calgary, Alberta. The decrease in committed occupancy compared to March 31, 2023 is due to natural lease expiries and attrition including early lease terminations and tenants downsizing.
Economic occupancy
Q1 2024
95.7%
Q1 2023 94.5% +1.2%
Crombie's economic occupancy was primarily influenced by new leases. Notable new leases over the last twelve months include a retail-related industrial asset, a food store, and necessity-based retailers.
4
FINANCIAL CONDITION METRICS
Debt to trailing 12 months adjusted EBITDA(*) (D/EBITDA)
Q1 2024
7.97x
Q1 2023 7.96x +0.01x
The increase in D/EBITDA ratio was due to higher outstanding debt compared to the first quarter of 2023, primarily from the issuance of senior unsecured notes in the first quarter of 2024. This was offset by an increase in trailing adjusted EBITDA and a reduction in outstanding mortgages.
Interest coverage ratio(*)
Q1 2024
3.23x
Q1 2023 3.24x -0.01x
Interest coverage ratio was slightly impacted by higher finance costs from operations as a result of the issuance of senior unsecured notes, offset in part by improved adjusted EBITDA. The increase in adjusted EBITDA resulted primarily from higher property revenue from recently completed developments, renewals, new leasing, and revenue from management and development services.
Debt to gross fair value(*) (D/GFV)
Q1 2024
42.9%
During the first quarter of 2024, floating rate debt was paid down by the issuance of senior unsecured notes, leading to a slight increase in D/GFV. This was partially offset by a reduction in outstanding mortgages and an increase in gross fair value of investment properties compared to the first quarter of 2023.
Q1 2023 41.9% +1.0%
Available liquidity - unutilized credit facilities
Q1 2024 | The increase in available liquidity resulted from an increase in cash compared to the first quarter of |
2023, offset in part by an increase in outstanding letters of credit. | |
$736,990 | |
Q1 2023 | $735,877 +0.2% |
5
2. GLOSSARY OF TERMS
Adjusted debt(*) | Represents debt, including Crombie's share of debt held in equity-accounted joint ventures, excluding transaction costs, |
which Crombie believes is a more relevant presentation of indebtedness. Adjusted debt is a non-GAAP measure that is | |
used in the calculation of Crombie's debt to gross fair value and debt to trailing 12 months adjusted EBITDA. | |
Adjusted EBITDA(*) | Represents earnings before interest, taxes, depreciation, and amortization, excluding certain items such as amortization of |
tenant incentives, impairment of investment properties, gain (loss) on disposal of investment properties, and gain on | |
distribution from equity-accounted investments. It includes Crombie's share of revenue, operating expenses, and general | |
and administrative expenses from equity-accounted joint ventures. Adjusted EBITDA is a non-GAAP measure that is used as | |
an input in several of Crombie's debt metrics. | |
Adjusted interest | Represents finance costs from operations, including Crombie's share of interest from equity-accounted joint ventures, |
expense(*) | excluding amortization of deferred financing costs. Adjusted interest expense is a non-GAAP measure that is used in the |
calculation of Crombie's interest coverage and debt service coverage ratios. | |
AFFO(*) | Adjusted funds from operations. Crombie follows the recommendations of REALPAC's January 2022 guidance in |
determining AFFO. | |
AMR | Annual minimum rent. This represents annualized fixed minimum rent payable by the tenant pursuant to the terms of the |
lease. | |
CFC | Customer fulfillment centre. |
CMA | Census metropolitan area. |
Committed occupancy | Represents current economic occupancy plus future occupancy of currently vacant space for which lease contracts are |
currently in place (excludes space held in equity-accounted joint ventures). | |
D/GFV(*) | Debt to gross fair value. |
Economic occupancy | Represents space currently occupied (excludes space held in equity-accounted joint ventures). |
ESG | Environmental, social, and governance. |
Fair value | The amount at which an asset or liability could be exchanged between two knowledgeable, willing, and unconnected |
parties in an arm's length transaction. | |
FFO(*) | Funds from operations. Crombie follows the recommendations of REALPAC's January 2022 guidance in determining FFO. |
GHG | Greenhouse gas emissions. |
GLA | Gross leasable area (excludes space held in equity-accounted joint ventures unless noted as proportionately consolidated). |
GRESB | An industry-led organization which collects, validates, scores, and independently benchmarks ESG data for financial |
markets. | |
IFRS Accounting Standards | International Financial Reporting Standards as issued by the International Accounting Standards Board. |
Joint operations | Properties in which Crombie owns partial interests. These co-owned properties are subject to proportionate consolidation, |
the results of which are reflected in Crombie's operating and financial results, based on the proportionate interest in such | |
joint operations. | |
Joint ventures | Entities over which Crombie shares joint control with other parties and where the joint venture parties have rights to the |
net assets of the joint venture. Crombie accounts for investments in joint ventures using the equity method. | |
Lease termination income | Revenue derived from the early termination of a lease. Lease termination occurs when a tenant desires to end occupancy |
prior to the lease end date. | |
Major Markets | A Crombie-specific definition that includes Abbotsford-Mission, Barrie, Chilliwack, Halifax, Hamilton, Kitchener-Cambridge- |
Waterloo, Oshawa, Quebec City, Regina, Saskatoon, Victoria, and Winnipeg, as defined by Statistics Canada 2021 | |
boundaries for census metropolitan areas and census agglomeration. | |
Modernization | A capital investment to modernize/renovate Crombie-owned grocery store properties in exchange for a defined return and |
potential extended lease term. | |
NAV(*) | Net asset value. |
Net property income(*) | Property revenue less property operating expenses. Net property income excludes revenue from management and |
development services and certain expenses such as interest expense and indirect operating expenses. | |
Property cash NOI(*) | Property NOI on a cash basis, excluding non-cashstraight-line rent recognition and non-cash tenant incentive amortization. |
Proportionate ownership | Represents Crombie's proportionate interest in the financial position and results of operations of its entire portfolio, taking |
into account the difference in accounting for joint ventures using proportionate consolidation versus equity accounting as | |
required under IFRS Accounting Standards. | |
REALPAC | Real Property Association of Canada. |
Rest of Canada (RoC) | A Crombie-specific definition that includes all remaining geographies outside of VECTOM and Major Markets. |
Retail | Includes Crombie's substantial retail portfolio, including certain additional properties that comprise both retail and office |
space. These properties have been consistently included in Crombie's retail category. | |
Retail-related industrial | Retail-related industrial includes retail distribution centres, customer fulfillment centres, and spokes. |
6
Revenue from management and development services
Same-asset properties(*)
Spokes
Sq. ft. Unencumbered assets
VECTOM
WATM
Zoning applications submitted
Represents revenue from co-owners, related parties, and third parties for development, construction, and property management services.
Properties owned and operated throughout the current and comparative reporting periods, excluding any property that was designated for redevelopment or was subject to disposition of a portion of its GLA during either the current or comparative period.
Spokes are cross-dock distribution facilities developed to support customer fulfillment centres, the hubs of Empire's hub- and-spoke network, by expediting the movement of merchandise to customers with minimal storage time.
Square footage.
Represents assets that have not been pledged as security or collateral under a secured credit agreement or mortgage.
Vancouver, Edmonton, Calgary, Toronto, Ottawa-Gatineau, and Montreal, as defined by Statistics Canada 2021 boundaries for census metropolitan areas and census agglomeration.
Weighted average term to maturity.
A formal municipal rezoning application has been submitted for the purpose of achieving a new land use (i.e. residential, mixed-use) and generally to obtain higher levels of density and building height.
- See "Non-GAAP Financial Measures", starting on page 62, for more information on Crombie's non-GAAP financial measures and reconciliations thereof.
7
PORTFOLIO
REVIEW
OPERATIONAL
REVIEW
FINANCIAL
REVIEW
CAPITAL | RISK | ||
DEVELOPMENT | MANAGEMENT | MANAGEMENT | JOINT VENTURES |
OTHER
NON-GAAP MEASURES
FORWARD-
LOOKING
INFORMATION
3. PORTFOLIO REVIEW
As at March 31, 2024, Crombie's property portfolio consisted of full ownership interests in 233 investment properties, and partial ownership interests in 62 investment properties held in joint operations. In addition to investment properties, Crombie also has full ownership interests in four properties under development ("PUD"), as well as partial ownership in one property under development held in a joint operation and four properties held in joint ventures. Together, Crombie's share of these 304 properties contains approximately 19.2 million square feet of GLA in all 10 provinces.
Total Portfolio Review Inclusive of Joint Ventures
Crombie holds partial ownership interests in eight joint ventures, four of which currently hold property. These joint ventures are all subject to equity accounting. The results of these equity-accounted investments are not included in certain financial metrics, such as net property income(*), property cash NOI(*), or same-asset property cash NOI(*), unless it is specifically indicated that such metrics are presented on a proportionate consolidation basis. Below are select operating metrics for the full portfolio presented on a proportionate consolidation basis.
Market Class
Crombie's portfolio of GLA and fair value, inclusive of joint ventures at Crombie's share, consisted of the following as at March 31, 2024:
Portfolio GLA by Market Class (sq. ft.) as at March 31, 2024
41.0%
25.2% | 33.8% |
VECTOM Major Markets Rest of Canada
Portfolio Fair Value by Market Class (%)
as at March 31, 2024
29.1%
26.0%
44.9%
VECTOM Major Markets Rest of Canada
The table below provides details of the average capitalization rate (weighted by stabilized trailing NOI including joint ventures) by market class used by Crombie in assessing fair value. For an explanation of the determination of capitalization rates, see the "Other Disclosures" section of this MD&A, under "Investment Property Valuation" in the "Use of Estimates and Judgments" section.
March 31, 2024 December 31, 2023 | March 31, 2023 | ||
VECTOM | 5.10 % | 5.10 % | 4.79 % |
Major Markets | 6.15 % | 6.16 % | 6.15 % |
Rest of Canada | 6.93 % | 6.93 % | 6.90 % |
Weighted average portfolio capitalization rate | 5.91 % | 5.92 % | 5.74 % |
8
Attachments
- Original Link
- Original Document
- Permalink
Disclaimer
Crombie Real Estate Investment Trust published this content on 08 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 May 2024 22:09:10 UTC.