AdvAncing
our
strAtegy
2015 AnnuAl RepoRt
InSIDe thIS RepoRt
2 Financial and Operations
Financial Review
3 Message from the CEO
– 20 Table of Contents
6 A Strong National Platform
– 21 Management’s Discussion and Analysis
8 Great Real Estate
12 Strong Financials
14 A Winning Team
– 56 Management’s Statement of Responsibility
for Financial Reporting
– 57 Independent Auditor’s Report
16 Building Better Communities
– 58 Consolidated Financial Statements
18 A Matter of Trust
19 Board of Trustees
– 62 Notes to the Consolidated Financial Statements
92 Property Portfolio
94 Unitholder Information
IBC Top 20 Tenants
Corporate profile
Crombie ReIt (tSX: CRR.un, Crombie)
is an open-ended real estate invest-
ment trust. established in 2006, we are
one of the country’s leading national
retail property landlords. our strategy
is focused on increasing asset value
and income growth through the
acquisition, ownership, management
and development of high-quality
grocery and drug store anchored
shopping centres and freestanding
stores in Canada’s top 36 markets.
As of December 31, 2015, Crombie
owned a portfolio of 260 retail and
office properties across Canada,
comprising approximately 17.7 million
square feet of gross leasable area (GlA)
and approximately $4.2 billion in assets.
9.7%
Since Crombie’s IPO
in March 2006, the
gross leasable area
in our commercial
real estate portfolio
has grown at an
average compound
annual growth rate
of 9.7%.
STRONG PROPERTY GROWTH WITH STEADY OCCUPANCY
Crombie REIT's portfolio has experienced strong growth in GLA and
steady occupancy rates during challenging economic times.
(cid:31) Property GLA in thousands of square feet
(cid:30) Occupancy
I
A
L
G
O
L
O
F
T
R
O
P
18,000
15,000
12,000
9,000
6,000
3,000
100%
90%
80%
70%
60%
50%
Y
C
N
A
P
U
C
C
O
IPO
06 07 08 09 10 11
12 13 14 15
AdvAncing
our
strAtegy
During the past year, Crombie continued to advance a strategy
that has transformed us into one of Canada’s leading retail-
focused REITs. Today, we derive 77 percent of our annual minimum
rent from grocery and drug store anchored shopping centres
and freestanding stores. More geographically diversified than ever,
many of these assets reflect a growing presence in Canada’s
top 36 markets and hold significant development potential.
2015 AnnuAl REpoRT CRombIe ReIt
1
2015 hIGhlIGhtS
FinAnciAl And operAtions
Financial highlights for the years ended December 31, 2015 and 2014 are as follows:
At December 31
number of properties
Gross leaseable area (square feet)
Debt to gross book value – fair value basis
Year ended December 31
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)
property revenue
property net operating income
operating income attributable to unitholders
operating income attributable to unitholders per unit – basic
operating income attributable to unitholders per unit – diluted
FFo – basic
FFo – diluted
FFo per unit – basic
FFo per unit – diluted
FFo payout ratio (%)
AFFo – basic
AFFo – diluted
AFFo per unit – basic
AFFo per unit – diluted
Distributions per unit
AFFo payout ratio (%)
Interest service coverage
Debt service coverage
2015
260
17,666,000
2014
255
17,379,000
52.5%
52.8%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
369,866
256,605
65,729
0.50
0.50
149,474
156,720
1.14
1.13
78.0%
125,654
129,900
0.96
0.96
0.89
92.8%
2.72
1.81
$
$
$
$
$
$
$
$
$
$
$
$
$
$
358,319
248,699
71,389
0.56
0.56
142,052
151,550
1.12
1.10
80.2%
118,176
124,674
0.93
0.93
0.89
96.4%
2.58
1.72
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Variance
5
287,000
0.3%
Variance
11,547
7,906
(5,660)
(0.06)
(0.06)
7,422
5,170
0.02
0.03
2.2%
7,478
5,226
0.03
0.03
–
3.6%
0.14
0.09
68%
As of December 31, 2015,
68% of Crombie REIT’s
annual minimum rent was
derived from investment
grade tenants, one of many
reasons for the high
quality of our cash flow.
REVENUE AND NOI
(in thousands of dollars)
(cid:31) Revenue
(cid:30) NOI
INTEREST SERVICE
COVERAGE RATIO
TOTAL ASSETS –
GROSS BOOK VALUE (FV)
(in millions of dollars)
$400,000
$300,000
$200,000
$100,000
3.0
2.6
2.2
1.8
$5,000
$4,000
$3,000
$2,000
$1,000
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11
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11
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MessAge FroM the ceo
Crombie REIT’s strong performance in the face of headwinds in the economy and retail industry
was a testament to the soundness of our strategy, the quality of our portfolio and the strength of
our focus on everyday retailing.
Dear fellow Unitholders,
Canada’s modest economic recovery lost steam in 2015, growing at an annualized rate of
about 1.0 percent amid the effects of plunging oil prices, high levels of household debt
and slowing retail sales. Irrespective of this environment, Crombie REIT posted improved
financial results, with funds from operations (FFo) increasing 5.2 percent to $149.5 million
or $1.13 per unit fully diluted. Adjusted funds from operations (AFFo) increased 6.3 percent
to $125.7 million or $0.96 per unit fully diluted. Growth in FFo and AFFo was driven by
$96.3 million in new acquisitions, solid same-asset net operating income growth, higher
renewal rents, lower operating expenses and reduced financing costs. on a cash basis,
same-asset net operating income grew by 1.8 percent in 2015, reflecting increased average
rents from leasing activities, improved recovery rates and land-use intensification activities.
This steady performance in the midst of economic volatility reflects our continued progress in
advancing Crombie’s strategy, starting with the nature and quality of our assets. We continued
to improve the size, geographic diversity, productivity and intensity of one of Canada’s best real
estate portfolios in 2015, maintaining our focus on high-quality grocery and drug store anchored
properties primarily in Canada’s top 36 markets. These properties meet the everyday needs
of local communities that are growing faster than the Canadian average. They are also home
to younger populations with higher levels of income growth and consumer spending. Sixty-nine
percent of the annual minimum rent generated by our portfolio comes from properties in
such communities, which makes Crombie a steady performer in turbulent times. This is true
even in Alberta where, despite falling oil prices, our food and drug store anchored shopping
centres remained productive and approximately 100 percent occupied during the year.
understandably, the competition for such properties has intensified over the past few years,
which has made it more challenging to find acquisitions that meet our investment criteria.
our strategic relationship with Sobeys and Empire Company limited has given us a distinct
competitive advantage in this regard and in 2015 allowed Crombie to purchase $63.2 million
in new retail assets from Sobeys.
“ March 2016 marked the 10th
anniversary of Crombie’s ipo.
at inception, we were a
small regional reit with a
$790 million portfolio of 44
properties, primarily located
in atlantic Canada. Since
then, we have grown into one
of the country’s leading
retail-focused reits, with
260 properties from coast
to coast, $4.2 billion in
assets and $1.7 billion in
market capitalization as of
December 31, 2015. today,
approximately 25% of
our revenue is generated
in ontario and Quebec and
approximately 29% is
generated in Western Canada.”
Donald E. Clow, FCpA, FCA
president and Chief Executive officer
2015 AnnuAl REpoRT CRombIe ReIt
3
meSSAGe FRom the Ceo
>10%
Units in Crombie REIT
have produced a
compound average
annual total return
of more than 10%
since IPO.
TOTAL UNITHOLDER RETURN
(March 31, 2006 to December 31, 2015)
Crombie REIT has produced a total
unitholder return of 148% since its
IPO, compared to 85% total return
for the S&P/TSX Capped REIT
Index and a 45% total return for
the S&P/TSX Composite Index.
(cid:31) Crombie REIT
(cid:31) TSX Capped REIT
(cid:31) TSX
150%
100%
50%
0%
–50%
06
07
08
09
10
11
12
13
14
15
16
At the same time, we are focused on
of commercial space is well underway.
developing the potential of our existing
Scotia Square has significant future
properties, most notably, 11 urban sites in
mixed-use growth potential as well.
the heart of Western Canada’s three largest
cities that came to us at the time of the
Safeway purchase in november 2013.
During the past year, we entered into a
partnership with Westbank Corp. to embark
on our first major project in the heart of
downtown Vancouver. Currently awaiting
regulatory approval, it proposes an
investment of approximately $150 million in
new and expanded retail space and up to
320 residential units on the site of a current
Safeway location. We also continue to assess
major development opportunities in a
number of other properties including two
that are currently in the pre-planning stage.
over the next 10+ years, these sites hold the
potential for $1–$2 billion in new property
development investment.
The second pillar of Crombie’s growth
strategy is our commitment to maintaining
a strong financial position with reasonable
debt levels, ample liquidity, and multiple
sources of capital. We seek to optimize our
capital structure so we can seamlessly run
our business in any economic environment
and access capital markets when it makes
sense to do so. With the strength of our
investment grade credit rating, we continued
to improve our capital structure and de-risk
our business, ending the year with $170 million
in available funds on our line of credit and
$812 million in unencumbered assets, up
$104 million from the previous year. We are
also conservatively capitalized, with a debt to
gross book value (fair value) of 52.5 percent
that is well below the maximum specified in
A similar focus on organic growth
our declaration of trust and relatively modest
opportunities extends throughout the
given the preponderance of investment grade,
balance of our portfolio. While Crombie’s
everyday retailers in our properties and
growth will continue to focus on the
the long-term lease and debt maturities that
acquisition of new retail properties, today
characterize our portfolio.
we also possess the expertise required
to create value from the acquisition of
assets adjacent to our existing retail
properties. We continue to increase the
value of our prime office properties in
Halifax, nova Scotia, home of the 1.6 million
square foot Scotia Square complex.
During the past year, we completed a
$3 million revitalization of the food court
for this award-winning property, and a
$10 million project to modernize the
entrance and add 25,000 square feet
The third pillar of our strategy is building a
best-in-class real estate team and operating
platform in all regions of the country. During
2015, Crombie was named one of nova
Scotia’s and Atlantic Canada’s Top Employers,
recognized as one of Canada’s Top Small
and Medium Employers, and selected as
a finalist by Atlantic Canada’s passion
Capitalists. In August 2015, we were pleased
to welcome industry veteran John Barnoski
to the Senior Management Team as Vice
president of Corporate Development.
4
CRombIe ReIt 2015 AnnuAl REpoRT
“ the development potential
within our commercial real
estate portfolio represents
for Crombie an unprecedented
opportunity to generate growth
from existing assets. Starting
with the proposed development
of our Davie Street Safeway
property in Vancouver, we have
more than a dozen candidates
for major development in
our portfolio, collectively
representing $1–$2 billion in
new property development
over the next 10 plus years.”
Donald E. Clow, FCpA, FCA
president and Chief Executive officer
John has an extensive background in retail
looking to the year ahead, most experts
before us. We are fortunate to have an
real estate development, formerly serving
are predicting slow growth in the Canadian
invested retailing partner who shares our
as Vice president, Real Estate at Shoppers
economy and continued uncertainty in
focus on long-term value creation.
Drug Mart. He is playing a pivotal role in
financial markets. over the past year, REITs
optimizing the value of our development
have continued to trade at a significant
properties and identifying numerous new
discount to their net asset value. This is an
business opportunities.
historical anomaly partially related to the
Throughout the organization, we continue to
build our regional talent and bench strength,
standardize and optimize Crombie’s systems
and processes and build upon a culture of
continuous learning and improvement. This
commitment has continued to pay dividends
in the strong work of our leasing, property
management, development and adminis-
trative teams during the year. Their efforts
have helped to make Crombie a landlord
of choice in a competitive marketplace as
reflected by continued strength in our
occupancy and lease renewal metrics.
uncertainty of future interest rates, a reality
that has made it harder for REITs to grow by
accessing equity markets. At the same time,
we expect there will continue to be a relative
scarcity of potential acquisitions that meet
our investment criteria. In times like these,
Sincerely,
the competitive advantage of our strategic
relationship with Empire and Sobeys, which
provides access to about $100 million of
new retail properties each year, is particularly
important. What’s more, the nature of
this relationship has been enriched by the
unprecedented development opportunities
Donald e. Clow, FCpA, FCA
president and Chief Executive officer
In closing, I would like to extend my thanks
and appreciation to my many talented
colleagues at Crombie as well as our
tenants and other business partners for
their continued support. I look forward to
reporting on our continuing progress in
the year ahead.
Senior
ManageMent
teaM
(left to right)
Jeff Downs
Vice president,
Financial Analysis
and treasury
Scott Maclean
Regional Vice president,
Atlantic Canada
Steve Cleroux
Vice president,
leasing and Development
Atlantic Canada
Ken turple
Vice president,
Accounting and
Financial Reporting
trevor lee
Regional Vice president,
Western Canada
patrick Martin
executive Vice president,
operations
terry Doran
Vice president,
office properties
John Barnoski
Vice president,
Corporate Development
glenn Hynes
executive Vice president,
Chief Financial officer
and Secretary
Cheryl fraser
Chief talent officer
fred Santini
Regional Vice president,
Central Canada
Donald Clow
president and
Chief executive officer
2015 AnnuAl REpoRT CRombIe ReIt
5
ouR InVeStment StRenGthS
A strong nAtionAl plAtForM
During the past 10 years, Crombie has transformed a primarily Atlantic Canadian portfolio
of commercial real estate assets into a geographically diversified, retail-focused REIT.
Today, we are one of Canada’s largest with $4.2 billion in assets and 260 commercial properties
from coast to coast.
$96.3M
Crombie REIT continued
to advance its growth
strategy in 2015, acquiring
$96.3 million in grocery
and drug store anchored
plazas and freestanding
stores, improving the
productive capacity of our
properties, and proceeding
with plans for major
development projects.
DEBT TO GBV (FV)
(%)
Crombie’s debt to gross book
value declined to 52.5% in 2015,
reflecting the growing strength
of the REIT’s balance sheet.
UNENCUMBERED ASSETS
(in millions of dollars)
MARKET CAPITALIZATION
(in millions of dollars)
Unencumbered assets in our
property portfolio reached a record
$812 million in 2015, reflecting
unprecedented liquidity and
financial flexibility.
Crombie’s market capitalization
reached approximately $1.7 billion,
with a public float of approximately
$1 billion, at the end of 2015.
55%
53%
51%
49%
47%
1,000
750
500
250
2,000
1,500
1,000
500
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11
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6
CRombIe ReIt 2015 AnnuAl REpoRT
260
COMMERCIAl
PROPERTIES
17.7
MIllION
SqUARE FEET
95.7%
OF ANNUAl
MINIMUM RENT
GENERATED
By RETAIl/
MIXED USE
BRITISH
COLUMBIA
ALBERTA
SASKATCHEWAN
MANITOBA
WEST
ONTARIO
QUEBEC
ATLANTIC
QUEBEC
ONTARIO
NEWFOUNDLAND
AND LABRADOR
P.E.I.
NOVA
SCOTIA
NEW
BRUNSWICK
GEOGRAPHIC DIVERSIFICATION
(% of annual minimum rent)
REVENUE BY PROPERTY TYPE
(%)
At year-end 2015, 59.8% of the annual minimum rent generated by our
portfolio was derived outside of Atlantic Canada compared to 14.3% at the
time of our IPO in March 2006.
At year-end 2015, 94.1% of the revenue from our portfolio was generated by
retail assets compared to 82.2% at the time of our IPO.
(cid:31) West
(cid:31) Ontario
(cid:31) Quebec
(cid:31) Atlantic
(cid:31) Retail/Mixed Use
(cid:31) Office
35.0
40.2
2015
17.8
7.0
85.7
2006
IPO
2.8
11.5
94.1
2015
5.9
82.2
2006
IPO
17.8
2015 AnnuAl REpoRT CRombIe ReIt
7
ouR InVeStment StRenGthS
greAt reAl estAte
Crombie’s growth is focused on the acquisition and development of the steadiest performing
asset class in commercial real estate – grocery and drug store anchored shopping centres and
freestanding stores that serve the everyday needs of Canada’s top 36 markets.
1
CentreS of tHe CoMMunity
1
2
3
The retail properties that are the focus
of Crombie’s growth strategy are located
in the heart of growing communities
characterized by above average rates of
population and income growth. Serving the
everyday needs of their communities places
them among the steadiest performing
assets in commercial real estate.
8
CRombIe ReIt 2015 AnnuAl REpoRT
niagara falls plaza
niagara falls, on
Scotia Square
Halifax, nS
Anchored by Sobeys
Total GlA: 64,000 sq. ft.
Property type: Retail plaza
Opened: 1997
No. of stores: 13
Total GlA: 266,000 sq. ft.
Opened: 1969
Expanded/renovated: 2015
No. of stores: 48
Canmore Canadian tire
Canmore, aB
Total GlA: 50,000 sq. ft.
Property type: Freestanding
Opened: 2011
65%
65% of our Atlantic
Canadian annual
minimum rent
comes from assets
located in the
region’s five largest
metropolitan areas.
ASSET DIVERSIFICATION
BY ANNUAL MINIMUM RENT
(%)
At year-end 2015, 95.7% of
the annual minimum rent
generated by our portfolio was
derived from retail assets.
■ Retail/Mixed Use
■ Office
95.7
4.3
At the end of 2015, 76.8 percent of the annual
over the past 10 years, our strategic
minimum rent generated by Crombie REIT’s
relationship with Empire and Sobeys
$4.2 billion property portfolio was derived
has allowed us to purchase more than
from grocery and drug store anchored
$2 billion of such assets and mirror
shopping centres and freestanding stores
Sobeys expansion across the country.
compared to 47.6 percent at the time of our
These acquisitions also reflect Crombie’s
Ipo in March 2006. These properties are
also home to leading national and regional
increasing presence in Canada’s top 36
markets, which are home to faster growing
retailers whose products and services meet
and higher income populations. As such,
the everyday needs of Canadian consumers.
they are well situated for long-term income
This makes them less susceptible than
growth and capital appreciation.
fashion-related and other cyclical retail
properties to fluctuations in discretionary
income and largely immune to the impact
of online shopping.
While Crombie’s growth strategy will
continue to focus on everyday retailing
assets, we also continue to benefit from
the steady performance of our properties
The largest of our tenants, representing
in Atlantic Canada. Sixty-five percent of
49.9 percent of annual minimum rent, is
annual minimum rent generated in the
Canada’s second largest food retailer.
region comes from properties in the five
Sobeys’ growing network of stores is a
largest metropolitan areas, including
powerful draw for other leading merchants,
Scotia Square’s portfolio of prime office
which allows us to create a mix of tenants that
and mixed-use properties in Halifax,
enhances overall property performance and
nova Scotia and Avalon Mall in St. John’s,
best meets the needs of local communities.
newfoundland and labrador, one of
the top 20 performing regional malls
in Canada. All of these markets are
characterized by high barriers to entry
and limited construction of new space.
2
3
2015 AnnuAl REpoRT CRombIe ReIt
9
ouR InVeStment StRenGthS
$230M
Same-asset property
cash net operating
income, an important
measure of perfor-
mance in commercial
real estate, reached
$230 million in 2015.
SAME-ASSET PROPERTY
CASH NET OPERATING
INCOME VARIANCE (%)
Same-asset property
cash net operating income
has grown at an average
annual rate of 1.76% over
the past five years.
2.5%
2.0%
1.5%
1.0%
0.5%
11
12 13 14 15
With the Safeway acquisition in november
organic growth has become a higher priority
2013, Crombie acquired 70 properties that
elsewhere in our portfolio, reflecting reduced
fit our focus on grocery and drug store
availability of accretive acquisitions on the
1
anchored shopping centres, including 31 in
open market as well as Crombie’s growing
the heart of Western Canada’s four largest
development expertise. Increasingly, we are
cities. A number of these properties hold the
looking for new locations adjacent to our
potential to create significant value through
own where we can leverage our existing
redevelopment. over the past year, we
footprint to create value. We also continue
have been working closely with development
to invest in Scotia Square’s unmatched
partners and Sobeys to advance our
portfolio of prime office and mixed-use
planning on these future projects. At the
space in the heart of Atlantic Canada’s
time of this report, the design for our project
economic, cultural and entertainment
on Davie Street in Vancouver had been
capital. In 2015, we completed a $3 million
submitted for approval to planning authorities.
modernization and expansion of the food
It calls for an approximately $150 million
court in the Scotia Square complex and
development of expanded retail space and
began work on a 25,000 square foot
up to 320 residential units on the footprint
expansion that will add a dramatic entrance
of an existing Safeway location. In Western
to the building and new office and retail
Canada, two similar opportunities are
space. Continuous expansion and modern-
currently in the pre-planning stage with an
ization of the Scotia Square portfolio has
additional eight locations in the development
allowed us to consistently achieve above-
pipeline. In total, they represent approximately
market occupancy and rental rates and earn
$1–$2 billion of potential development
numerous national awards in the process.
investment over the next 10+ years.
2
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CRombIe ReIt 2015 AnnuAl REpoRT
“ The spectacular retail and residential development
proposed for 1641 Davie Street in downtown Vancouver,
currently undergoing regulatory approval, is one
of 11 potential development sites acquired with the
Safeway acquisition in November 2013.”
trevor lee
Regional Vice President,
Western Canada
3
DeVeloping opportunitieS
1
2
3
During the past year, Crombie REIT
continued to advance plans for the
potential development of 14 sites across
our national property portfolio. Over
the next 10+ years, these sites hold
the potential for $1 billion to $2 billion
in new property development.
Scotia Square
Halifax, nS
Total GlA: 266,000 sq. ft.
No. of stores: 48
Enclosed retail and
mixed use
Stittsville Corners
Stittsville, on
Total GlA: 80,000 sq. ft.
No. of stores: 14
Retail plaza
1641 Davie Street
Vancouver, BC
Anchored by Safeway,
with new retail space for
complementary mix of tenants
Development partners:
Westbank Corp., Sobeys Inc.
Residential units: 320
Proposed construction: 2017
2015 AnnuAl REpoRT CRombIe ReIt
11
ouR InVeStment StRenGthS
strong FinAnciAls
Crombie ReIt’s ability to deliver steady income growth and capital appreciation over time rests
on a strong financial foundation with reasonable levels of debt, ample liquidity, multiple sources
of capital and a conservative approach to financial management.
1
Built on Quality
1
2
3
Crombie’s steady performance is
based on a strong capital structure in
addition to the quality of our retail
properties. Our portfolio is characterized
by long-term leases and mortgage
terms with no more than six percent
of GlA renewing in a single year over
the next five years.
11th avenue SW Safeway
Calgary, aB
avalon Mall
St. John’s, nl
Total GlA: 40,000 sq. ft.
Acquired: 2013
Freestanding Safeway store
Mixed-use development
potential: Pre-planning stage
Total GlA: 571,000 sq. ft.
No. of stores: 138
Opened: 1967
One of the largest shopping
centres in Atlantic Canada
and one of top 20 performers
in Canada
Scotia Square
Halifax, nS
Total GlA: 266,000 sq. ft.
No. of stores: 48
Enclosed retail and
mixed use
12
CRombIe ReIt 2015 AnnuAl REpoRT
QUARTERLY DISTRIBUTION AND AFFO PAYOUT RATIO
Units of Crombie REIT offer a high yield relative to the dependable, low-risk cash flow generated by our
portfolio and the quality of our tenant base and retail assets. Current distribution levels will allow the REIT
to continue to make accretive acquisitions while achieving a target payout ratio of 90.0% to 95.0%.
(cid:31) Quarterly Distribution
(cid:30) AFFO Payout Ratio
I
I
)
$
(
N
O
T
U
B
R
T
S
D
Y
L
R
E
T
R
A
U
Q
I
0.25
0.20
0.15
0.10
0.05
$0.223
$0.223
$0.223
$0.223
110
105
100
95
90
85
)
%
I
(
O
T
A
R
T
U
O
Y
A
P
O
F
F
A
2
3
Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4 YTD
2012
2013
2014
2015
The strength of our financial foundation is
of 4.9 years and a weighted average interest
reflected in the debt-to-gross book value
rate of 2.85 percent. In total, same-asset
(fair value basis) of our balance sheet, which
finance costs decreased by $3.8 million or
at 52.5 percent on December 31, 2015 was
4.2 percent during 2015 compared to the
well below the 60 to 65 percent maximum
previous year. Crombie possesses more
specified by our Declaration of Trust and
liquidity and financial flexibility than at any
relatively modest given the steady occupancy
other point in our history with $170 million
of our properties and the investment grade
of available unused line of credit and
quality of our tenants. Related financial
$812 million of unencumbered assets at
metrics are also strong, as evidenced by
the end of 2015.
debt service and interest coverage ratios
of 1.81 times and 2.72 times, respectively,
for 2015.
In addition to Crombie’s focus on steady,
everyday retailing, our capital structure
is also strengthened by the long lease and
With the benefit of our investment grade
debt maturities in our portfolio. over the
credit rating, we continued to de-risk our
next five years, no more than six percent
business, strengthen our capital structure
of our gross leasable area will mature in
and lower our cost of capital in 2015. This
a single year and the prevalence of grocery
included the issuance of $125 million of
and drug retailers, banks and other
five-year 2.775 percent senior unsecured
investment grade tenants in our properties
notes, the redemption of $45 million of
allows Crombie to have among the
5.75 percent convertible debentures,
longest remaining average lease terms
the repayment of $50.6 million in maturing
(11.2 years) and average mortgage terms
mortgages ($121.4 million including
(6.6 years) in the Canadian REIT industry.
repayment of principal) with an average
interest rate of 4.99 percent and the
issuance of $119 million in new mortgage
financing with a weighted average term
2015 AnnuAl REpoRT CRombIe ReIt
13
ouR InVeStment StRenGthS
A Winning teAM
In 2015, Crombie continued to build a best-in-class national platform that is improving the
efficiency of our operations, enhancing the size and capabilities of our team, and fostering a
culture of continuous learning and leadership development.
Since Crombie’s inception as a public
the creation of national shared service
The past year also marked the continued
company, the value of our portfolio has
functions, strengthening our presence in
recognition of Crombie REIT’s efforts to
grown at a compound average rate of more
local markets across the country, and a
foster a culture of operational excellence,
than 16 percent. over the same time period,
refined management structure that has
continuous learning and leadership
we have rapidly evolved from a small,
enhanced and aligned the performance of
development. Crombie REIT was once again
mostly Atlantic Canadian REIT to one of
our regional real estate teams.
recognized as an employer of choice
the country’s leading national REITs.
Today, our $4.2 billion real estate portfolio
is geographically balanced across Canada
and holds significant development potential.
At the same time we continue to augment
our ability to take full advantage of the
opportunities for value creation within the
Safeway property portfolio. Among the
In keeping with Crombie’s growing scale
year’s important additions to the Crombie
and complexity, we set out more than a year
team in 2015 was John Barnoski, Vice
ago to create a best-in-class operating
president Corporate Development. John is
platform to standardize and optimize our
a well-respected industry veteran and
operating approach and strengthen our
former Vice president of Real Estate at
foundation for future growth. This included
Shoppers Drug Mart.
through several national employer awards
including Canada’s Top Small & Medium
Employers, and Atlantic Canada’s and
nova Scotia’s Top Employers. These awards
are a reflection of Crombie’s efforts to
create a positive working environment
for our employees, our tenants and the
people who work and shop in our properties
every day.
elyse tomie
leasing manager,
Western Canada
pat poirier
manager, engineering and Sustainability,
Scotia Square
Aaron bryant
Senior Director of engineering and Construction,
Atlantic Region
Elyse joined Crombie in 2014 in leasing operations
for our fast-growing retail real estate portfolio in
Western Canada. She is currently working towards
the completion of a Diploma in urban land Economics
through the uBC Sauder School of Business.
Since joining the company as a stationary engineer
in 1989, pat went on to become Chief Engineer and
now serves as Crombie’s most senior sustainability
expert, responsible for all mechanical and electrical
systems and ongoing strategies to reduce energy
consumption and minimize environmental impact.
Joining Crombie as a project Manager, Aaron has
earned subsequent promotions to his current
position. During this time he has directly managed a
diverse range of more than 130 projects from site
development, to mall redevelopment, to new retail
and office buildings.
Sandi Sheldon
Senior Director of operations,
Central ontario
Sandi came to Crombie via Sobeys’ purchase
of The oshawa Group in 1998. Today, she helps
advance Crombie’s strategies by working with
other regional managers to ensure consistent,
high-quality standards in our operating processes
and procedures.
Dan bostan
Senior property manager,
Quebec
Since 2009, Dan has worked with his colleagues
and business partners to maximize the value
and productive capacity of our properties through
timely preventative maintenance and repair
and prompt, friendly and efficient service for our
valued tenants.
14
CRombIe ReIt 2015 AnnuAl REpoRT
elizabeth engram
marketing manager,
Scotia Square
Jamie hynes
manager, Information technology,
new Glasgow, nova Scotia
Elizabeth joined Crombie in 2007 and is now
responsible for managing promotional activities
and client relationships with retail and office tenants
at Scotia Square and park lane. She is currently
working toward a master’s degree in public relations
at Mount Saint Vincent university.
Jamie came to Crombie in 2003 and since then has
led the implementation of new technologies that have
harmonized and standardized business processes,
enabling the creation of a best-in-class operating
platform, and optimizing the management of joint
initiatives with our colleagues at Sobeys.
brady landry
Director, Acquisitions and Dispositions,
new Glasgow, nova Scotia
Brady joined Sobeys Inc. as a Consolidation Analyst
in 2004 and has gone on to assume progressively
senior management roles at Empire and Crombie.
He plays a critical role in advancing Crombie’s strategy
through the analysis and execution of acquisitions,
dispositions and non-traditional opportunities.
He is a CFA charter holder.
marcel elliott
Regional manager,
St. John’s, newfoundland and labrador
Marcel joined Crombie in 1995 as an Assistant
Manager at Valley Mall in Corner Brook, nl
and has held progressively senior management
positions since then. Today, he is responsible for
leasing and all provincial operations, including
Avalon Mall, one of the largest shopping centres
in Atlantic Canada.
1
2
3
WorKing togetHer
1
2
3
Our success at advancing Crombie’s
key business strategies has been made
possible by the efforts of a talented
and engaged team of real estate
professionals. Featured here are a few
outstanding individuals who exemplify
Crombie’s growing capabilities as a
leading national REIT.
brady landry,
pat poirier,
elizabeth engram,
Jamie hynes and
Aaron bryant
Sandi Sheldon,
marcel elliott,
elyse tomie and
Dan bostan
Crombie Ceo Don Clow
was named one of Atlantic
Business Magazine’s top 50
Ceos, for the third consecutive
year, in 2015. he is shown
here receiving the award from
lydia bugden, managing
partner, Stewart mcKelvey.
photo: Mike Tompkins,
Atlantic Business Magazine
2015 AnnuAl REpoRT CRombIe ReIt
15
SoCIAl AnD CoRpoRAte ReSponSIbIlItY
Building Better coMMunities
Building Better coMMunities
Crombie and its predecessor companies have a long history of appreciation and respect for the
Crombie and its predecessor companies have a long history of appreciation and respect for the
communities in which our commercial real estate properties are located. this tradition continued
communities in which our commercial real estate properties are located. this tradition continued
in 2015 as seen in numerous social and environmental initiatives.
in 2015 as seen in numerous social and environmental initiatives.
1
tHe Heart of our BuSineSS
Crombie’s real estate properties form an
important part of the social fabric in
many communities across Canada and
we have always tried to give something
back to the people who make our success
possible. In 2015, these efforts found
expression through many important social
and environmental initiatives.
1
Catapult
We are proud of our
ongoing support for
Catapult, a non-profit
leadership camp aimed at
building the leadership,
social, problem-solving,
and decision-making skills
of young Nova Scotians.
2
3
CiBC Building
Halifax, nS
Barrington place
Halifax, nS
The CIBC Building was
honoured with the Building
Owner’s and Managers
Association’s (BOMA)
National Building of the year
award in 2015.
We continued to improve the
efficiency and reduce the
environmental impact of our
prime office/retail portfolio in
Halifax during the past year.
16
CRombIe ReIt 2015 AnnuAl REpoRT
Each year, we are proud to support
As always, the year marked a number of
numerous charitable causes with direct
important initiatives aimed at reducing
financial support and through the generosity
our energy consumption and environ mental
and volunteer efforts of our employees.
impact. These included:
These include YMCA Strong Kids, which
allows more kids to participate in life-
enhancing programs that build a healthy
spirit, mind and body and Catapult, a
non-profit leadership camp that provides
a fun, high-energy learning experience
• numerous interior and exterior lED
lighting upgrades in our office portfolio,
including the conversion of all office
tower stairwells to motion sensor
lighting systems.
focused on enhancing the leadership, social,
• Recommissioning of the HVAC system
problem-solving and decision-making skills
in the CIBC Building in conjunction with
of young nova Scotians. other important
Energy nova Scotia to improve
causes we supported in 2015 included: the
efficiencies and achieve estimated
Canadian Heart and Stroke Foundation, the
savings of approximately $17,000 a year
nova Scotia Cancer Society, Dreams Take
in operating costs.
Flight, Ronald McDonald House, the Special
olympics of pictou County and regional
health care and recreational facilities.
• The purchase of green electricity from
Bullfrog power for the Scotia Square
parkade and the exploration of similar
A similar sense of responsibility extends
opportunities for the Scotia Square and
to the environment. All of the new-build
park lane complexes.
designs in our retail properties match lEED
equivalent standards and we continue to
earn and upgrade BoMA BEST certification
for our enclosed retail and office properties.
During the year, all of our Scotia Square
office properties achieved BoMA BEST
• An ongoing conversion of all facility
washrooms and domestic supply
systems that has reduced annual water
consumption by 23 million gallons since
2008.
Gold certification except for park lane,
• An ongoing recycling program that
which holds a Silver certification. In addition,
diverted 250,000 lbs. of cardboard and
the CIBC Building was honoured with a
315,000 lbs. of paper products in 2015.
national Building of the Year (ToBY) award
in 2015 and will compete at the international
level this year.
• The trial of a heat pump domestic hot
water system in Duke Tower that is
expected to yield 50,000 kilowatts in
energy savings per year.
• A major overhaul of our main plant that
will include the installation of variable
speed drive pumps and flow meters in
our plants, with an estimated savings of
approximately 1.3 million kWh per year.
In total, projects completed in 2015 bring
the total energy saved since we began the
process of greening our buildings in 2008 to
more than 17,000,000 kilowatts per year.
2015 AnnuAl REpoRT CRombIe ReIt
17
2
3
meSSAGe FRom the ChAIR AnD leAD InDepenDent tRuStee
A MAtter oF trust
In a year of continued economic uncertainty in financial markets, Crombie’s management achieved
strong financial results, continued to advance their strategy for value creation and outperformed the
Canadian REIT index and the S&P/TSX index.
2015 was a turbulent year for the Canadian
each meeting without management present.
economy, the financial markets and the
As we have noted each year, we continue
retail industry. Crombie REIT was not
with our practice of ensuring a high
unaffected by this environment as evidenced
standard of governance with regard to the
by the impact of Target Canada’s withdrawal
Sobeys development pipeline, in that
from three of our properties early in the year.
Empire-appointed Trustees do not
The ability to keep growing amid headwinds
participate in decisions concerning related
speaks to the capability of the Crombie
property acquisitions.
management team and the wisdom of a
strategy that is focused on high-quality real
estate, combined with a strong financial
foundation and a best-in-class operating
platform and real estate team.
In addition to assessing the financial and
operating performance of the management
team, the Board of Trustees is also responsible
for approving the REIT’s strategic plans,
including the financial, economic and risk
The past year was also characterized by a
assumptions upon which they are based. We
scarcity of food and drug store anchored
also keep the future interests of Crombie in
shopping centres or freestanding stores on
mind by ensuring there is a valid succession
the open market, the very properties that
plan in place for senior management and
meet Crombie’s investment criteria. The
the Board of Trustees. Although there are no
REIT’s ability to close $96.3 million in new
expected departures from the Board this
acquisitions during 2015 was a testament
year, we will continue to keep best practice
to another of its key strengths – access
governance recommendations in mind,
to high-quality properties through the
including calls for increased diversity, when
strategic partnership with Empire Company
considering new candidates for the Board.
and Sobeys. Beyond the tangible benefits of
the property pipeline, this vital relationship
also brings the experience of patient and
knowledgeable partners who have an
ongoing interest in the long-term success
of both their food retailing operations
and related commercial real estate assets
through a 40.2 (fully diluted) percent
ownership interest in Crombie.
At the same time, the Board of Trustees
is structured to fairly represent the interests
on behalf of our fellow Trustees, we would
like to thank our employees for their
tremendous contribution during the past
year. We also extend our thanks and
appreciation to all of Crombie’s other
stakeholders, including our tenants,
business partners, investors and the local
communities across Canada that are home
to our real estate properties.
of all unitholders. While the Board consists
Sincerely,
of both appointed and elected Trustees,
a majority are both elected by unitholders
and independent. The Chairs of all
committees are similarly independent
as is the lead Independent Trustee. In
addition, in-camera meetings of our
Independent elected Trustees occur at
Frank C. Sobey
John eby
Trustee and Chair
lead Independent Trustee
Frank C. Sobey, Trustee and Chair, and
John Eby, lead Independent Trustee
18
CRombIe ReIt 2015 AnnuAl REpoRT
Board of Trustees
frank C. Sobey
trustee since 2006 and Chair
John eby
independent trustee since 2008
Donald e. Clow
trustee since 2009, president and Ceo
Brian a. Johnson
independent trustee since 2008
Frank Sobey has been a director of
Crombie and its predecessors since
1981 and Chair since 1998. He is a
director of Empire Company limited,
was Chairman of the former Oversight
Committee of Empire and served as
a trustee of the Wajax Income Fund.
Currently Chairman of the Dalhousie
Medical Research Foundation,
Mr. Sobey is a graduate of the
Harvard Business School’s Advanced
Management Program and received
the ICD.D designation in 2013.
John Eby was Vice-Chairman of
Scotia Capital from 2000 until his
retirement in 2006 and for 10 years
prior to that Senior Vice President,
Corporate and Energy Banking, The
Bank of Nova Scotia. He is also a
director of Wajax Corporation. Mr.
Eby received his BA and MBA in
Finance from queen’s University and
is the founder and CEO of Developing
Scholars, a not-for-profit organiza-
tion that promotes educational
initiatives in Guatemala.
Donald Clow became President
and CEO in 2009 after serving as
President, ECl Developments
limited for two years and previously,
as President of Southwest Properties.
Mr. Clow earned his BBA from
Acadia University, his CA designation
with KPMG and Fellow Chartered
Accountant designation in 2002.
He is a graduate of the yPO
President’s Program at Harvard
Business School and received his
ICD.D designation in 2014.
Brian Johnson is a partner of Crown
Realty Partners. From 1993 to 2007
he was President and Chief Executive
Officer of Crown life Insurance
Company. Mr. Johnson received his
B. Comm. (Gold Medalist) from the
University of Manitoba and his MBA
from the University of Pennsylvania.
He also holds the Chartered Financial
Analyst (CFA) designation.
J. Michael Knowlton
independent trustee since 2011
e. John latimer
independent trustee since 2006
Barbara f. palk
independent trustee since 2014
Kent r. Sobey
independent trustee since 2008
Michael Knowlton retired from
Dundee Realty Corporation as
President of Dundee REIT in May 2011
after 13 years of service with the
corporation. A director of Tricon
Capital Group Inc. and True North
Apartment REIT, Mr. Knowlton
received his BSc (Engineering)
and MBA from queen’s University,
earned his CA designation in 1977
and his ICD.D designation in 2011.
John latimer is the Managing Director
of Aldert Chemicals limited and the
former President and CEO of Monarch
Corporation, a real estate develop-
ment company, from which he retired
in 2000 after 22 years of service.
He also served on the Executive
Committee of Taylor Woodrow plc,
the london, U.K. based major
shareholder of Monarch. Mr. latimer
is the Audit Chairman and Director of
R Split III Corp., a managed company
of The Bank of Nova Scotia.
Barbara Palk is the former President
of TD Asset Management Inc. She
serves on the Boards of TD Asset
Management USA Funds Inc.,
Ontario Teachers’ Pension Plan,
First National Financial Corporation
and queen’s University (Chair).
Ms. Palk has an Honours BA in
Economics from queen’s University,
has received the ICD.D and CFA
designations and is a Fellow of the
Canadian Securities Institute.
Kent Sobey is founder and President of
Farmhouse Productions ltd. He is a
corporate director of Blue Ant Media
and Hollywood Suite and serves on the
board of The North york Harvest Food
Bank. Mr. Sobey received his BA from
Dalhousie University, is a graduate of
The Vancouver Film School and has
completed executive development at
Rotman School of Management and
queen’s University.
paul D. Sobey
trustee since 2006
elisabeth Stroback
independent trustee since 2006
françois Vimard
trustee since 2014
Paul Sobey retired as President and
Chief Executive Officer of Empire
Company limited in 2013. He sits on
the boards of Empire Company limited,
Sobeys Inc., The Bank of Nova Scotia,
and is Chancellor of Saint Mary’s
University. Mr. Sobey received his
Bachelor of Commerce from Dalhousie
University, attended Harvard University
Business School, Advanced Manage-
ment Program and is a Chartered
Accountant. He became a Fellow
Chartered Accountant of Nova Scotia
in 2006.
Elisabeth Stroback is Executive lead,
Capital Projects and Real Estate
for Ryerson University. Ms. Stroback
is the former Managing Principal
and Owner of Tanalex Corp. and prior
to 1999, served as President of
Hammerson Canada Inc. She is
Human Resources Compensation
Committee Certified (HRCC) from
the Director’s College. Ms. Stroback
also holds a BA as well as an MA
in Economics.
François Vimard, CPA, CA is the Chief
Financial and Administrative Officer
of Empire Company limited and its
wholly owned subsidiary Sobeys Inc.
He provides leadership for the
Company’s Finance, Information
Technology, Distribution & logistics,
Corporate Strategy, Real Estate, and
legal functions. Mr. Vimard earned
his BBA degree and licence in
Accounting Sciences from Université
laval. He is a member of the québec
Chartered Accountant Order.
For complete biographical
information on Crombie REIT’s
Trustees and Executive
Management, please visit
us at crombiereit.ca
2015 AnnuAl REpoRT CRombIe ReIt
19
Running Head 1Running Head 2
FinAnciAl revieW
ManageMent’S DiSCuSSion
anD analySiS
ConSoliDateD finanCial
StateMentS
21 Introduction
56 management’s Statement of Responsibility
25 overview of the property portfolio
29 Financial Results
39 liquidity and Capital Resources
44 Accounting
48 Risk management
53 Subsequent events
53 Controls and procedures
54 Quarterly Information
for Financial Reporting
57 Independent Auditor’s Report
58 Consolidated balance Sheets
59 Consolidated Statements of
Comprehensive Income (loss)
60 Consolidated Statements of Changes in
net Assets Attributable to unitholders
61 Consolidated Statements of Cash Flows
62 notes to the Consolidated Financial Statements
20
CRombIe ReIt 2015 ANNUAl REPORT
Scotia Square
Halifax, nS
Concept for enhancements
(currently under construction)
Management’s Discussion and Analysis
(In thousands of CAD dollars, except per unit amounts)
iNtroDUCtioN
The following is Management’s Discussion and Analysis (“MD&A”) of the consolidated financial condition and results of
operations of Crombie Real Estate Investment Trust (“Crombie”) for the year and quarter ended December 31, 2015, with
a comparison to the financial condition and results of operations for the comparable periods in 2014.
This MD&A should be read in conjunction with Crombie’s audited consolidated financial statements and accompanying
notes for the year ended December 31, 2015 and December 31, 2014 prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Information about
Crombie can be found on SEDAR at www.sedar.com.
Date of mD&A
the information contained in the MD&A, including forward-looking
statements, is based on information available to management as of
February 24, 2016, except as otherwise noted.
Forward-Looking information
this MD&A contains forward-looking statements about expected future
events and the financial and operating performance of Crombie. these
statements include, but are not limited to, statements concerning
management’s beliefs, plans, estimates, intentions, and similar
statements concerning anticipated future events, results, circumstances,
performance or expectations that are not historical fact. Forward-looking
statements generally can be identified by the use of forward-looking
terminology such as “may”, “will”, “estimate”, “anticipate”, “believe”,
“expect”, “intend” or similar expressions suggesting future outcomes or
events. Such forward-looking statements reflect management’s current
beliefs and are based on information currently available to management.
All forward-looking information in this MD&A is qualified by the following
cautionary statements:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
the accretive acquisition of properties and the anticipated extent
of the accretion of any acquisitions, which could be impacted
by demand for properties and the effect that demand has on
acquisition capitalization rates and changes in interest rates;
the cost and timing of new properties under development and right
of first offer (“roFo”) agreements, which development activities
are primarily undertaken by related parties and thus are not
under the direct control of Crombie and whose activities could be
impacted by real estate market cycles, the availability of labour and
general economic conditions;
the disposition of properties and the anticipated reinvestment of net
proceeds, which could be impacted by the availability of purchasers,
the availability of accretive property acquisitions or other accretive
uses for net proceeds and real estate market conditions;
generating improved rental income and occupancy levels, which
could be impacted by changes in demand for Crombie’s properties,
tenant bankruptcies, the effects of general economic conditions and
supply of competitive locations in proximity to Crombie locations;
the anticipated rate of general and administrative expenses as
a percentage of property revenue, which could be impacted by
changes in property revenue and/or changes in general and
administrative expenses;
overall indebtedness levels and terms and expectations relating
to refinancing, which could be impacted by the level of acquisition
activity that Crombie is able to achieve, future financing
opportunities, future interest rates and market conditions;
(vii)
the estimated payments on derivative and non-derivative financial
liabilities, which could be impacted by interest rate subsidy
payments, conversions of convertible debentures, interest rates
on floating rate debt and fluctuations in the settlement value
and settlement timing of any derivative financial liabilities;
(viii) asset growth and reinvesting to develop or otherwise make
improvements to existing properties, which could be impacted
by the availability of labour, capital resource allocation decisions
and actual development costs;
(ix)
tax exempt status, which can be impacted by regulatory changes
enacted by governmental authorities;
(x)
anticipated distributions, distribution growth and payout ratios,
which could be impacted by results of operations and capital
resource allocation decisions;
(xi)
the effect that any contingencies would have on Crombie’s financial
statements which could be impacted by their eventual outcome;
(xii)
anticipated replacement of expiring tenancies, which could be
impacted by the effects of general economic conditions and the
supply of competitive locations; and,
(xiii) statements under the heading “property Development” including
the locations identified, timing, cost, development size and nature,
impact on net asset value, cash flow growth, unitholder value or
other financial measures, all of which may be impacted by real
estate market cycles, the availability of financing opportunities and
labour, actual development costs and general economic conditions
and factors described under the “property Development”
section and which assumes obtaining required municipal zoning
and development approvals and successful agreements with
development partners and existing tenants.
these forward-looking statements are presented for the purpose of
assisting Crombie’s unitholders and financial analysts in understanding
Crombie’s operating environment, and may or may not be appropriate
for other purposes. these forward-looking statements are not
guarantees of future events or performance and, by their nature, are
based on Crombie’s current estimates and assumptions. Crombie
can give no assurance that actual results will be consistent with these
forward-looking statements. A number of factors, including those
discussed 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.
2015 AnnuAl report Crombie reit
21
these forward-looking statements are made as at the date of the MD&A
and Crombie assumes no obligation to update or revise them to reflect
new or current events or circumstances unless otherwise required by
applicable securities legislation.
Non-GAAP Financial measures
there are financial measures included in this MD&A that do not have
a standardized meaning under IFrS as prescribed by the IASB. these
measures are property net operating income (“noI”), same-asset
property cash noI, operating income attributable to unitholders, funds
from operations (“FFo”), adjusted funds from operations (“AFFo”), debt
to gross book value, earnings before interest, taxes, depreciation and
amortization (“eBItDA”), interest service coverage and debt service
coverage. 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 relative financial
performance. 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.
Financial Highlights
Financial Highlights for the three months and year ended December 31, 2015 and 2014 are as follows:
number of properties
Gross leaseable area (square feet)
Debt to gross book value – fair value basis
(In thousands of CAD dollars,
except per unit amounts and as otherwise noted)
property revenue
property net operating income
operating income attributable to unitholders
operating income attributable to unitholders per unit – basic
operating income attributable to unitholders per unit – diluted
FFo – basic
FFo – diluted
FFo per unit – basic
FFo per unit – diluted
FFo payout ratio (%)
AFFo – basic
AFFo – diluted
AFFo per unit – basic
AFFo per unit – diluted
Distributions per unit
AFFo payout ratio (%)
Interest service coverage
Debt service coverage
As at
December 31,
December 31,
2015
2014
260
17,666,000
52.5%
255
17,379,000
52.8%
three months ended December 31,
Year ended December 31,
2015
2014
2015
2014
$
$
$
$
$
$
$
$
$
$
$
$
$
$
92,847
63,989
13,945
0.11
0.11
38,311
40,052
0.29
0.29
76.3%
32,310
33,295
0.25
0.25
0.22
$
$
$
$
$
$
$
$
$
$
$
$
$
$
90,602
63,278
22,227
0.17
0.17
36,363
38,745
0.28
0.28
79.9%
30,211
31,837
0.23
0.23
0.22
$
$
$
$
$
$
$
$
$
$
$
$
$
$
90.5%
96.2%
369,866
256,605
65,729
0.50
0.50
149,474
156,720
1.14
1.13
78.0%
125,654
129,900
0.96
0.96
0.89
92.8%
2.72
1.81
$
$
$
$
$
$
$
$
$
$
$
$
$
$
358,319
248,699
71,389
0.56
0.56
142,052
151,550
1.12
1.10
80.2%
118,176
124,674
0.93
0.93
0.89
96.4%
2.58
1.72
(1) AFFo payout ratio is calculated using a per square foot charge of $0.87 for maintenance expenditures (see “AFFo” section).
Weighted average number of units outstanding for per unit measures calculations:
Basic number of units for all measures
Diluted for operating income attributable to unitholders purposes
Diluted for FFo purposes
Diluted for AFFo purposes
131,182,278
130,383,466
130,787,712
127,257,062
131,333,794
130,549,576
130,946,425
127,432,519
138,657,061
140,814,020
138,655,853
137,714,312
135,671,986
137,828,945
135,670,778
134,729,238
three months ended December 31,
Year ended December 31,
2015
2014
2015
2014
22
Crombie reit 2015 AnnuAl report
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts)
the diluted weighted average number of units outstanding does not
include the impact of any series of convertible debentures that would
be anti-dilutive for that calculation.
Highlights
• FFo for the year ended December 31, 2015 increased 5.2% to
$149,474; or $1.13 per unit Diluted, an increase of $0.03 per unit
from the year ended December 31, 2014.
• FFo for the three months ended December 31, 2015 increased 5.4%
to $38,311; or $0.29 per unit Diluted, an increase of $0.01 per unit
from the three months ended December 31, 2014.
• AFFo for the year ended December 31, 2015 increased 6.3% to
$125,654; or $0.96 per unit Diluted, an increase of $0.03 per unit
from the year ended December 31, 2014.
• AFFo for the three months ended December 31, 2015 increased
6.9% to $32,310; or $0.25 per unit Diluted, an increase of $0.02
per unit from the three months ended December 31, 2014.
• FFo payout ratio of 78.0% for the year ended December 31, 2015
compared to 80.2% for the year ended December 31, 2014. AFFo
payout ratio of 92.8% for the year ended December 31, 2015
compared to 96.4% for the year ended December 31, 2014. FFo
payout ratio of 76.3% for the three months ended December 31, 2015
compared to 79.9% for the same period in 2014. AFFo payout ratio of
90.5% for the three months ended December 31, 2015 compared to
96.2% for the same period in 2014.
• 3.2% growth of property revenue for the year ended December 31,
2015 ($369,866 versus $358,319 for the year ended December 31,
2014). Fourth quarter property revenue of $92,847, increased $2,245,
or 2.5% over fourth quarter 2014.
• Same-asset property cash noI for the year ended December 31, 2015
increased by 1.8% or $3,970 ($229,962 compared to $225,992 for
the year ended December 31, 2014). Increase in same-asset property
cash noI for the three months ended December 31, 2015 of 2.5% or
$1,422 ($57,846 compared to $56,424 for the three months ended
December 31, 2014).
• Crombie’s interest service coverage for the year ended December 31,
2015 was 2.72 times eBItDA and debt service coverage was 1.81 times
eBItDA, compared to 2.58 times eBItDA and 1.72 times eBItDA,
respectively, for the year ended December 31, 2014.
• Closed $125,000 principal amount Series C Five Year Senior
unsecured notes offering with an effective yield of 2.775% on
February 10, 2015.
• redeemed the $45,000 5.75% Series C Convertible Debentures
on February 18, 2015.
• Completed acquisition of five retail properties and four additions
to existing retail properties totaling 333,800 square feet for a total
purchase price of $96,308 before closing and transaction costs.
business overview
Crombie is an unincorporated, “open-ended” real estate investment
trust (“reIt”) established pursuant to the Declaration of trust dated
January 1, 2006, as amended and restated (the “Declaration of trust”)
under, and governed by, the laws of the province of ontario. the reIt
units of Crombie trade on the toronto Stock exchange (“tSX”) under
the symbol “Crr.un”.
Crombie invests in income-producing retail, office and mixed use
properties in Canada, with a growth strategy focused primarily on
the acquisition of grocery and drug store anchored retail properties
in Canada’s top 36 markets. At December 31, 2015, Crombie owned
a portfolio of 260 investment properties in ten provinces, comprising
approximately 17.7 million square feet of gross leaseable area (“GlA”).
empire Company limited (“empire” or “eCl”), through a subsidiary,
holds a 41.5% (fully diluted 40.2%) economic and voting interest in
Crombie at December 31, 2015.
business objectives and outlook
the objectives of Crombie are threefold:
1. Generate reliable and growing cash distributions;
2. enhance the value of Crombie’s assets and maximize long-term
unitholder value through active asset management; and
• Committed occupancy was 93.6% at December 31, 2015 compared
with 93.2% at September 30, 2015 and 94.0% at December 31, 2014.
3. expand the asset base of Crombie and increase its cash available
for distribution through accretive acquisitions.
• Crombie’s renewal activity during the year ended December 31,
2015 included;
– renewals on 246,000 square feet of 2015 expiring leases at an
average rate of $19.01 per square foot, an increase of 8.2% over
the expiring lease rate; and
– renewals on 231,000 square feet of 2016 and later expiring leases
at an average rate of $16.32 per square foot, an increase of 7.7%
over the expiring lease rate.
• new leasing activity affecting 2015 includes replacing 299,000 square
feet of vacant or maturing space at an average rate of $14.91 per
square foot and 50,000 square feet of new square footage on existing
properties at an average rate of $16.90 per square foot.
• Debt to gross book value (fair value basis) was 52.5% at December 31,
2015, compared to 52.8% at December 31, 2014.
Generate reliable and growing cash distributions: Management focuses
both on improving the same-asset results while expanding the asset base
with accretive acquisitions to grow the cash distributions to unitholders.
Crombie’s focus on grocery-anchored and drug store-anchored retail
properties, a stable and defensive oriented asset class, assists in
enhancing the reliability of cash distributions.
Enhance value of Crombie’s assets: Crombie anticipates reinvesting
approximately 3% to 5% of its property revenue each year into its
properties to maintain their productive capacity and thus overall value.
Crombie’s internal growth strategy focuses on generating greater
rental income from its existing properties. Crombie plans to achieve
this by strengthening its asset base through judicious expansion and
improvement of existing properties, leasing vacant space at competitive
market rates with the lowest possible transaction costs, and maintaining
good relations with tenants. Management will continue to conduct
regular reviews of properties and, based on its experience and market
knowledge, assess ongoing opportunities within the portfolio.
2015 AnnuAl report Crombie reit
23
Expand asset base with accretive acquisitions: Crombie’s external
growth strategy focuses primarily on acquisitions of income-producing,
grocery-anchored and drugstore-anchored retail properties in Canada’s
top 36 markets. Crombie pursues two primary sources of acquisitions
which are third party acquisitions and the relationship with eCl
Developments limited (“eClD”) and Sobeys. the relationship with
eClD and Sobeys includes currently owned and future development
properties, as well as opportunities through the rights of first refusal
(“roFr”) that one of empire’s subsidiaries has negotiated in certain
of their third party leases. Crombie will seek to identify future property
acquisitions using investment criteria that focuses on the strength
of anchor tenancies, market demographics, age of properties, terms
of tenancies, proportion of revenue from national and regional
tenants, opportunities for expansion, security of cash flow, potential
for capital appreciation and potential for increasing value through
more efficient management of assets being acquired, including
expansion and repositioning.
Crombie continues to work closely with Sobeys to identify opportunities
that further Crombie’s growth strategy. Crombie has a roFo agreement
with Sobeys to acquire both existing income producing commercial
properties from Sobeys as well as properties from their development
pipeline, subject to certain exceptions. through these relationships,
Crombie expects to have many of the benefits associated with
property development while limiting its exposure to the inherent
risks of development, such as real estate market cycles, cost overruns,
labour disputes, construction delays and unpredictable general
economic conditions.
the agreements provide Crombie with a preferential right to acquire
retail properties from eClD and/or Sobeys, subject to approval by
Crombie’s elected trustees. these relationships between Crombie
and eClD and Sobeys continue to provide promising opportunities
for growth of Crombie’s portfolio through future developments on
both new and existing sites.
the following table outlines the property transactions completed since the initial public offering (“Ipo”) which highlight the growth opportunities
provided through the empire/Sobeys relationship.
(In thousands of CAD dollars)
Date acquired
2006–2013
2006–2013
2014
2014
April 1, 2015(2)
november 3, 2015(2)
november 3, 2015
December 23, 2015(2)
February 2, 2015(2)
August 18, 2015
number of
properties
GlA (sq. ft.)
cost(1)
Vendor
Acquisition
166
47
8,263,000
1,840,234 empire subsidiaries
2,310,000
654,858
third parties
9
3
—
—
4
—
—
1
477,700
115,159
empire subsidiary
99,000
7,500
34,800
38,954
third parties
2,333 empire subsidiaries
8,450 empire subsidiaries
183,800
48,845 empire subsidiaries
6,700
51,000
50,000
3,530 empire subsidiaries
12,650
20,500
third parties
third parties
(1) excluding closing and transaction costs
(2) relates to the acquisition of adjacent property or additional development on a pre-existing retail property.
through its relationships with Sobeys and eClD, Crombie is provided a
preferential right to acquire retail properties developed by these entities.
there is currently approximately $300,000 – $500,000 of properties
which are anticipated to be made available to Crombie over the next
four years.
business environment
In 2015, a sustained decrease in the price of oil has been a negative
factor in terms of its significant impact on Canadian capital investment
in the oil sector and the Canadian employment impacts arising from
this reduced capital activity. on a positive note, lower oil and gas prices
are expected to benefit consumers and increase disposable income.
A material drop in 2015 in the value of the Canadian dollar has impacted
provincial economies with some potential upside for those with greater
export potential. the low dollar has been accompanied by reductions in
Canadian interest rates which has potential benefits for both consumer
and business borrowing costs.
Concerns still exist for the Canadian economy as debt levels of both
governments and consumers and unemployment levels remain high.
Also, the credit and equity markets have continued to experience
dramatic volatility albeit not as significant as the dramatic situation of
late 2008 and 2009. Despite this volatility, the presence of historically
low interest rates has enabled many Canadian reIts and real estate
companies, including Crombie, to take advantage to strengthen their
financial position, improve liquidity and lower their weighted average
cost of capital.
Capitalization rates have also returned to very low rates, encouraged
by low interest rates. While these low capitalization rates have shown
no discernible change to date, there is a clear bifurcation where strong
assets in strong urban markets enjoy very low cap rates, whereas lower
quality assets and secondary markets are at risk of higher cap rates.
reIt acquisition activity has abated somewhat as competition from
pension funds and other investors with low cost of capital make
accretive acquisitions difficult.
24
Crombie reit 2015 AnnuAl report
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts)
oVerVieW oF tHe ProPertY PortFoLio
Property Portfolio
At December 31, 2015, Crombie’s property portfolio consisted of 260 investment properties that contain approximately 17.7 million square feet of GlA
in all ten provinces.
As at December 31, 2015, the portfolio distribution of the GlA by province was as follows:
province
AB
BC
MB
nB
nl
nS
on
pe
QC
SK
total
GlA (sq. ft.)
January 1,
2015
Acquisitions
(Dispositions)
December 31,
2015
other
number of
properties
% of Annual
% of GlA Minimum rent
2,197,000
192,000
(3,000)
2,386,000
1,373,000
609,000
1,650,000
1,438,000
5,348,000
3,007,000
78,000
1,225,000
454,000
43,000
34,000
—
—
—
1,416,000
1,000
644,000
(68,000)
1,582,000
(24,000)
1,414,000
8,000
18,000
5,374,000
—
15,000
3,022,000
50,000
7,000
—
—
128,000
14,000
1,246,000
—
454,000
46
33
15
21
13
45
54
3
22
8
13.5%
18.9%
8.0%
3.6%
9.0%
8.0%
30.4%
17.1%
0.7%
7.1%
2.6%
8.9%
4.6%
6.0%
10.6%
23.0%
17.8%
0.6%
7.0%
2.6%
17,379,000
334,000
(47,000) 17,666,000
260
100.0%
100.0%
Since January 1, 2015, Crombie has a net increase of 334,000 square
feet of GlA from acquisition activity consisting of:
• acquisition of three properties in Alberta, one property in British
Columbia, and one property in prince edward Island with a total
of 234,000;
• a 51,000 square foot addition to an existing property in Alberta and
a 34,000 square foot addition to an existing property in Manitoba;
• acquisition of additional development of 8,000 square feet on an
existing property in nova Scotia and 7,000 square feet in Quebec.
Crombie continues to diversify its geographic concentration from its
Atlantic Canadian roots through growth and divestiture opportunities.
As at December 31, 2015, our allocation of Annual Minimum rent
consists of: Atlantic Canada 40.2%; Central Canada 24.8%; and
Western Canada 35.0%. Crombie believes this diversification adds
stability to the portfolio while reducing vulnerability to economic
fluctuations that may affect any particular region.
Portfolio occupancy and Lease Activity
the portfolio occupancy and committed activity for the year ended December 31, 2015 were as follows:
occupied space (sq. ft.)
province
January 1, Acquisitions
(Dispositions)
2015
new
leases(1)
lease
expiries
other December 31,
2015
Changes(2)
Committed
Space (sq. ft.)(3) Space (sq. ft.)
total
leased
leased December 31,
2015
AB
BC
MB
nB
nl
nS
on
pe
QC
SK
2,186,000
192,000
6,000
(3,000)
(5,000)
2,376,000
2,000
2,378,000
1,373,000
609,000
1,328,000
1,377,000
4,781,000
2,838,000
78,000
1,213,000
448,000
43,000
34,000
—
—
—
—
65,000
25,000
—
—
—
1,416,000
1,000
644,000
—
—
1,416,000
644,000
(1,000)
(170,000)
1,222,000
25,000
1,247,000
(28,000)
(3,000)
1,371,000
4,000
1,375,000
8,000
170,000
(24,000)
(119,000)
4,816,000
57,000
4,873,000
—
73,000
(7,000)
(122,000)
2,782,000
3,000
2,785,000
50,000
7,000
—
—
9,000
—
—
—
128,000
(2,000)
(1,000)
1,226,000
—
—
128,000
1,226,000
—
—
448,000
6,000
454,000
99.7%
100.0%
100.0%
78.8%
97.2%
90.7%
92.2%
100.0%
98.4%
100.0%
total
16,231,000
334,000
348,000
(65,000)
(419,000)
16,429,000
97,000
16,526,000
93.6%
(1) new leases include: new leases and expansions to existing properties.
(2) other changes include: amendments to existing leases; lease terminations and surrenders; bankruptcies; and space certifications.
(3) Committed space represents lease contracts for future occupancy of currently vacant space. Management believes such reporting, along with reported lease maturities, provides
more balanced reporting of potential pending overall vacant space. Committed space decreased to 97,000 square feet at December 31, 2015, from 99,000 square feet at year ended
December 31, 2014.
2015 AnnuAl report Crombie reit
25
overall leased space (occupied plus committed) decreased from
94.0% at year ended December 31, 2014 to 93.6% at December 31,
2015. During 2015, Crombie had a net increase from acquisitions of
334,000 square feet of fully leased space; had new leases exceed
expiries by 283,000 square feet; had increased vacancy from other
changes primarily due to the disclaiming of three target Canada leases
representing approximately 329,000 square feet and, had committed
space decreased by 2,000 square feet.
target Canada disclaimed all three leases in our portfolio effective
May 31, 2015, at Sydney Shopping Centre in Sydney, nS; uptown Centre
in Fredericton, nB; and, Algonquin Avenue Mall in north Bay, on. the
lease at north Bay, on is guaranteed by target Corporation and Crombie
has commenced action to enforce the guarantee. Crombie has been
actively pursuing the leasing of these spaces since target entered CCAA
in January 2015. these vacancies represent the vast majority of other
Changes to occupied space at December 31, 2015. these properties
have been removed from same-asset results.
During the year ended December 31, 2015, Crombie renewed 246,000
square feet of 2015 maturities at an average rate of $19.01 per square
foot, an increase of 8.2% over the expiring lease rate. the renewal activity
compares favourably with the average rent per square foot on full year
2015 lease maturities of $16.61 per square foot. Crombie also renewed
231,000 square feet of 2016 and later expiring leases at an average rate
of $16.32 per square foot, an increase of 7.7% over the expiring lease rate.
new leasing activity affecting 2015 includes replacing 299,000 square
feet of vacant or terminated space at an average rate of $14.91 per
square foot and 50,000 square feet of new square footage on existing
properties at an average rate of $16.90 per square foot. Current tenants
have also expanded by 46,000 square feet in 2015 at an average rate of
$13.15 per square foot.
Documents have been executed for 2016 leasing on 136,000 square feet
of new leases at an average rate of $13.90 and expansions of current
tenants of 4,000 square feet at an average rate of $15.71.
Sector information
While Crombie does not distinguish or group its operations on a geographical or other basis, the following sector information is provided as
supplemental disclosure.
As at December 31, 2015, the portfolio distribution of the GlA by asset type was as follows:
Asset type
retail and Mixed use
office
total
number of
properties
GlA
(sq. ft.)
% of
GlA
% of Annual
Minimum rent
255
16,677,000
5
989,000
94.4%
5.6%
95.7%
4.3%
260
17,666,000
100.0%
100.0%
(1) For purposes of calculating leased percentage, Crombie considers GlA covered by head lease agreements as occupied.
As at December 31, 2014, the portfolio distribution of the GlA by asset type was as follows:
Asset type
retail and Mixed use
office
total
number of
properties
GlA
(sq. ft.)
% of
GlA
% of Annual
Minimum rent
250
16,320,000
5
1,059,000
93.9%
6.1%
95.5%
4.5%
255
17,379,000
100.0%
100.0%
leased(1)
93.8%
89.8%
93.6%
leased(1)
94.7%
82.8%
94.0%
(1) For purposes of calculating leased percentage, Crombie considers GlA covered by head lease agreements as occupied.
retail and mixed use properties represent 94.4% of Crombie’s GlA
and 95.7% of annual minimum rent at December 31, 2015 compared
to 93.9% of GlA and 95.5% of annual minimum rent at December 31,
2014 reflecting Crombie’s strategy to focus growth primarily on
retail properties.
leased space in retail and mixed use properties of 93.8% at December 31,
2015, decreased from 94.7% at December 31, 2014 primarily due to
the target Canada vacancies referenced above. leased space in office
properties of 89.8% improved from 82.8% at December 31, 2014. this
relates to the 2015 removal of a 67,000 square foot vacant office building
in Moncton, nB from GlA as it is no longer being leased in the ordinary
course and leasing progress at office buildings in Halifax and Moncton.
26
Crombie reit 2015 AnnuAl report
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts)
Lease maturities
the following table sets out as of December 31, 2015, the number of leases maturing during the periods indicated (assuming tenants do not holdover
on a month-to-month basis or exercise renewal options or termination rights), the renewal area, the percentage of the total GlA of the properties
represented by such maturities and the estimated average rent per square foot at the time of expiry.
Year
2016
2017
2018
2019
2020
thereafter
total
number
of leases
renewal Area
(sq. ft.)
% of
total GlA
227
183
168
168
159
645
1,068,000
884,000
673,000
819,000
796,000
6.0%
5.0%
3.8%
4.7%
4.5%
12,286,000
69.6%
Average rent
per sq. ft.
at expiry
$
13.05
18.30
19.11
17.96
17.56
18.24
1,550
16,526,000
93.6%
$
17.90
Property Development
property development is a strategic priority for Crombie to improve net
asset value, cash flow growth and unitholder value. With the acquisition
of 70 Safeway properties from Sobeys in november 2013, Crombie
added a sizeable number of locations in Canada’s major cities. With
urban intensification becoming an important reality across the country,
Crombie management is focused on evaluating and undertaking
Major Developments at certain properties, defined as properties
where incurred costs are projected to be greater than $50 million and
where development may include a combination of commercial and/or
residential uses (“Major Developments”).
Potential Major Developments
Crombie’s current potential Major Developments have the potential to
add up to 500,000 square feet of commercial GlA and up to 4,100,000
square feet (up to 4,700 units) of residential GlA (which may include
either rental or condominium units). Included in Crombie’s pipeline of
14 potential Major Developments are 11 properties in Western Canada,
located primarily in Vancouver, British Columbia (7) and Calgary and
edmonton, Alberta (4) and three additional properties located in Central
Canada and Atlantic Canada. Based on Crombie’s current
estimates, total costs to develop these properties could reach $1 to
$2 billion, of which Crombie may enter joint venture or other partnership
arrangements to share cost, revenue, risks and development expertise
depending upon the nature of each project. each project remains subject
to normal development approvals, achieving required economic hurdles
and Board of trustees approval.
Crombie has identified the following 14 existing locations as having
potential to become Major Developments. Development of each
property is subject to Management completing full due diligence on
the opportunity, including commercial and residential components, as
well as seeking all necessary Board, municipal/provincial and tenant
approvals prior to proceeding. While the precise timing of each project
is not determinable currently, Crombie expects that a number of these
projects could be under construction over the next one to two years
and/or complete over the next four to five years. the time horizon for
certain of these projects could be longer and Crombie may choose to not
proceed with development on some properties after further review and
completion of financial accretion projections.
existing
property
City,
province
Site Size
potential
potential
existing Commercial residential
expansion
expansion
tenants
Status
north Vancouver, BC 2.82 acres
Vancouver, BC
Vancouver, BC
1. 1641 Davie Street
2. 2733 West Broadway
3. 3410 Kingsway
Vancouver, BC
4. 990 West 25 Avenue (King edward) Vancouver, BC
5. 1170 east 27 Street
6. 1780 east Broadway
7. 813 11 Avenue SW
8. 524 elbow Drive SW
9 410 10 Street nW
10. 10930 82 Avenue
11. 1033 Austin Avenue
12. Brampton Mall
13. Scotia Square
14. Avalon Mall
Vancouver, BC
Brampton, on
Coquitlam, BC
edmonton, AB
St. John’s, nl
Calgary, AB
Calgary, AB
Calgary, AB
Halifax, nS
1.09 acres Safeway/other tenants
1.95 acres
Safeway
3.74 acres Safeway/other tenants
1.80 acres
2.58 acres
2.59 acres
1.60 acres
1.73 acres
Safeway
Safeway
Safeway
Safeway
Safeway
Safeway
2.44 acres Safeway/other tenants
2.09 acres
8.74 acres
14.47 acres
50.91 acres
Safeway
retail
office/retail
retail
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Development planning
Yes to be determined “tBD”
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
no
tBD
tBD
tBD
tBD
tBD
pre-planning
tBD
tBD
tBD
tBD
In Development
pre-planning
2015 AnnuAl report Crombie reit
27
projects described as having a “pre-planning” status include projects
where Crombie has undertaken potential development planning, which
could include seeking municipal approvals for zoning, developing
image renderings, seeking potential commercial and/or residential
development partners, evaluation of financing options and other
activities required to determine viability of the opportunity.
projects described as having a “development planning” status include
projects where significant progress has been made in several areas of
the pre-planning phase and Crombie is in the process of committing
costs to undertake a Major Development.
projects described as having an “in development’ status include projects
where internal approvals have been obtained and construction is
imminent or underway.
the following section provides more detail for projects that have
progressed beyond the pre-planning phase.
Properties in the Development Planning Phase
1641 Davie Street, Vancouver, British Columbia
Davie Street is a single-storey retail plaza located in a high density
residential area of downtown Vancouver, British Columbia. the site is
currently anchored by a 32,000 square foot Safeway grocery store
and a number of additional tenants. Crombie has entered into a
partnership agreement with a Vancouver based development partner
(Westbank) for the planned replacement of the existing retail asset with
a new mixed use development. the proposed development currently
envisions a new, larger grocery store with ancillary retail, and rental
residential totaling up to 252,000 square feet (up to 320 rental units).
Zoning is in place and a development permit application was submitted
in December 2015. under the current project, Crombie would ultimately
retain 100% of the new commercial component and jointly own the
rental residential component.
province
property
Current GlA
nS
on
nS
nS
nB
Aberdeen Business Centre
390,000
Algonquin Avenue Mall
211,000
Amherst Centre
228,000
Sydney Shopping Centre
214,000
uptown Centre
320,000
Properties in Development Phase
Scotia Square, Barrington St., Halifax, Nova Scotia
Scotia Square Complex is situated at the entrance to the downtown
business district at the corner of Barrington and Duke St. the retail
portion of the property is comprised of 290,000 square feet and is
directly connected to two hotels and nearly 1,300,000 square feet of
office space. phase I of this major development involved a complete
re-merchandising and renovation of the food court. this project was
completed in early 2014 at a construction cost of approximately
$3 million. phase II is a three level expansion on Barrington Street of
approximately 25,000 square feet (gross building area) which includes
a new and modern main entrance into the complex. the expansion is
comprised of new third floor office space, second floor restaurant or
retail, and new street level retail GlA. the new three storey glazed facade
will improve the overall image of the facility. the construction cost for
phase II is expected to be approximately $10 million. Crombie is also
in the preplanning stage of a number of other office and/or residential
development opportunities at this location for future development
phases. the costs disclosed exclude direct tenant costs and include
both productive capacity enhancement and recoverable amounts.
Property redevelopment
on a regular basis, Crombie will complete redevelopment work on
properties to enhance the economic viability of a location when the
environment in which it operates warrants. properties currently
under redevelopment are excluded from same-asset results until the
redevelopment is complete and the operating results from the property
are available for the current and comparative reporting years.
As at December 31, 2015, Crombie properties currently under
redevelopment include: Aberdeen Business Centre in new Glasgow, nova
Scotia, Algonquin Avenue Mall in north Bay, ontario, Amherst Centre in
Amherst, nova Scotia, Sydney Shopping Centre in Sydney, nova Scotia,
uptown Centre in Fredericton, new Brunswick, County Fair Mall in new
Minas, nova Scotia, Downsview Mall in Halifax, nova Scotia, Kenmount
Business Centre and Woodgate plaza in St John’s, newfoundland and
labrador, loch lomond place in Saint John, new Brunswick, and
1234 Main Street and 1222 Main Street in Moncton, new Brunswick.
the redevelopment of Aberdeen Business Centre, Algonquin Avenue
Mall, Amherst Centre, Sydney Shopping Centre and uptown Centre
consists of redemising and developing vacant anchor space in readiness
for leasing. Construction will be completed in phases in conjunction with
leasing. planning and design work is currently underway and is subject to
management review and approval.
province
property
Current GlA
Development
Cost(1)
estimated
Construction
Incurred
to Date
estimated
Completion
nS
nS
nl
nB
nB
County Fair Mall–new Minas
268,000
to be determined
In planning
$ —
to be determined
Downsview Mall
69,000
and development
$ 1,171
$ 192
to be determined
phased demolition
Kenmount Business Centre and Woodgate plaza
98,000
Avalon Mall Master plan
In planning
$ —
to be determined
loch lomond place
192,000
to be determined
In planning
$ —
to be determined
1234 Main Street and 1222 Main Street
139,000
to be determined
In planning
$ —
to be determined
(1) excludes direct tenant costs
28
Crombie reit 2015 AnnuAl report
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts)
County Fair Mall – new Minas has been designated for redevelopment.
Initial planning and design work is currently underway and is subject to
management review and approval.
loch lomond place – has been designated for redevelopment. Initial
planning and design work is currently underway and is subject to
management review and approval.
Downsview Mall – currently under redevelopment consisting of
phased demolition and development. Site density planning is underway
and is subject to management review and approval. GlA at this
property has been reduced by 73,000 square feet for buildings
currently being demolished.
Kenmount Business Centre and Woodgate plaza – has been designated
for redevelopment to facilitate planned major development at adjacent
property Avalon Mall. As indicated in the previous section this major
development is in the pre-planning stage.
1234 Main Street and 1222 Main Street – phase I redevelopment of
1234 Main Street has been completed. Initial planning of phase II
involving 1222 Main Street is underway. GlA at this property has
been reduced by 67,000 square feet.
Productive Capacity Enhancement
In addition to major developments and work done on properties
under redevelopment, Crombie also performs productive capacity
enhancement on other properties which totals $19,721 of investment
for the year ended December 31, 2015. this spending is further
discussed in the Maintenance expenditures section.
Largest tenants
the following table illustrates the ten largest tenants in Crombie’s portfolio of income-producing properties as measured by their percentage
contribution to total annual minimum rent as at December 31, 2015.
tenant
Sobeys(1)
Shoppers Drug Mart
Cineplex
province of nova Scotia
CIBC
Goodlife Fitness
lawtons/Sobeys pharmacy
Dollarama
Bank of nova Scotia
Best Buy Canada ltd.
total
(1) excludes lawtons/Sobeys pharmacy.
% of Annual
Minimum rent
49.9%
5.8%
1.5%
1.3%
1.2%
1.1%
1.1%
1.1%
1.0%
0.9%
64.9%
Average
remaining
lease term
14.5 years
11.6 years
9.6 years
3.0 years
14.7 years
11.3 years
11.4 years
6.5 years
3.4 years
5.6 years
Crombie’s portfolio is leased to a wide variety of tenants. other than Sobeys which accounts for 49.9% of annual minimum rent and Shoppers Drug
Mart which accounts for 5.8% of annual minimum rent, no other tenant accounts for more than 1.5% of Crombie’s annual minimum rent.
the weighted average remaining term of all Crombie leases is approximately 11.2 years. this lengthy remaining lease term is influenced by the average
Sobeys and Shoppers Drug Mart remaining lease terms of 14.5 years and 11.6 years, respectively.
FiNANCiAL reSULtS
Comparison to Previous Year
(In thousands of CAD dollars,
except per unit amounts and as otherwise noted)
total assets
total investment property debt and unsecured debt
Debt to gross book value – fair value basis(1)
(1) See “Debt to Gross Book Value – Fair Value Basis” for detailed calculation.
As At
December 31,
2015
December 31,
2014
December 31,
2013
$ 3,472,193
$ 3,413,414
$ 2,170,801
$ 2,073,354
$ 3,345,165
$ 2,043,066
52.5%
52.8%
53.0%
2015 AnnuAl report Crombie reit
29
(In thousands of CAD dollars,
except per unit amounts and as otherwise noted)
2015
2014
Variance
2015
2014
Variance
three months ended December 31,
Year ended December 31,
property revenue
property operating expenses
property noI
noI margin percentage
other items:
Gain (loss) on derecognition
of investment properties
Impairment of
investment properties
Depreciation and amortization
General and administrative
expenses
operating income before finance
costs and taxes
Finance costs – operations
operating income before taxes
taxes – current
taxes – deferred
operating income attributable
to unitholders
Finance costs – distributions
to unitholders
Finance income (costs) – change
in fair value of financial
instruments
Decrease in net assets attributable
$
92,847
$
90,602
$
2,245
$
369,866
$
358,319
$
11,547
28,858
63,989
68.9%
27,324
63,278
69.8%
(1,534)
113,261
711
256,605
(0.9)%
69.4%
109,620
248,699
69.4%
(3,641)
7,906
—%
25
9,502
(9,477)
23
9,353
(9,330)
(7,300)
(16,789)
(7,500)
(16,024)
200
(765)
(12,575)
(66,576)
(10,750)
(64,124)
(3,541)
(3,380)
(161)
(14,401)
(14,748)
36,384
(24,600)
11,784
(39)
2,200
45,876
(24,449)
21,427
—
800
(9,492)
(151)
(9,643)
(39)
1,400
163,076
(98,611)
64,465
(2,936)
4,200
168,430
(99,466)
68,964
—
2,425
(1,825)
(2,452)
347
(5,354)
855
(4,499)
(2,936)
1,775
13,945
22,227
(8,282)
65,729
71,389
(5,660)
(29,236)
(29,052)
(184)
(116,576)
(113,937)
(2,639)
3,068
3,446
(378)
56
289
(233)
to unitholders
$
(12,223)
$
(3,379)
$
(8,844)
$
(50,791)
$
(42,259)
$
(8,532)
operating income attributable
to unitholders per unit, Basic
operating income attributable
to unitholders per unit, Diluted
$
$
0.11
$
0.17
0.11
$
0.17
$
$
0.50
$
0.56
0.50
$
0.56
Basic weighted average units
outstanding (in 000’s)
Diluted weighted average units
outstanding (in 000’s)
131,182
130,383
130,788
127,257
131,334
130,550
130,946
127,433
Distributions per unit to unitholders $
0.22
$
0.22
$
0.89
$
0.89
Operating Results
operating income attributable to unitholders for the three months ended
December 31, 2015 of $13,945 decreased by $8,282 or 37.3% from
$22,227 for the three months ended December 31, 2014. the decrease
was primarily due to:
• lower gain on derecognition of investment properties of $9,477 related
to the disposition of five retail properties in the fourth quarter of
2014; and,
• higher depreciation and amortization expense related to net
property acquisitions.
these factors were offset in part by:
• overall higher property revenue of $2,245 and property noI of $711
for the three months ended December 31, 2015 compared to the
same period in 2014 resulting from:
30
Crombie reit 2015 AnnuAl report
– acquisitions completed during the fourth quarter of 2014 and
during 2015, including four retail properties and two additions to
existing retail properties acquired in the fourth quarter of 2015;
– leasing activity resulting in increased average rental rates on lease
renewals as well as new leases;
– decreased property revenue from the loss of target Canada as a
tenant at three properties;
– decreased property revenue as a result of the disposition of five
retail properties in the fourth quarter of 2014; and,
– higher property operating expenses from the net acquisition activity
as well as an increase in non-recoverable expenses.
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts)
the decrease in operating income attributable to unitholders for the year
ended December 31, 2015 of $5,660 from the year ended December 31,
2014 was due to the factors noted above, and was partially offset by an
increase in lease termination income in 2015 of $3,925 primarily related
to two retail locations in the second quarter of 2015.
pursuant to CSA Staff notice 52-306 “(revised) non-GAAp Financial
Measures”, non-GAAp measures should be reconciled to the most
directly comparable GAAp measure, which, in the case of operating
income attributable to unitholders, is Decrease in net assets attributable
to unitholders from the Statement of Comprehensive Income (loss).
the reconciliation is as follows:
three months ended December 31,
Year ended December 31,
(In thousands of CAD dollars)
2015
2014
2015
2014
operating income attributable to unitholders
Finance costs – distributions to unitholders
Finance income (costs) – change in fair value of financial instruments
$
13,945
$
22,227
$
65,729
$
71,389
(29,236)
3,068
(29,052)
3,446
(116,576)
(113,937)
56
289
Decrease in net assets attributable to unitholders
$
(12,223)
$
(3,379)
$
(50,791)
$
(42,259)
Classification of Crombie REIT Units and Class B LP Units with
attached Special Voting Units (collectively the “Units”)
on transition to IFrS, Crombie determined that in accordance with
IAS 32 Financial Instruments: presentation, Crombie’s units are to be
classified as financial liabilities on the Consolidated Balance Sheet. each
of the reIt units and Class B lp units are puttable by the respective
holder and meet the definition of financial liabilities under IFrS. IAS 32
provides an exception test which, if met, would result in either, or both,
of the units being classified as equity instruments. Crombie has
determined that the exception test has not been met for either the
reIt units or Class B lp units and as such, Crombie has no instrument
meeting the definition of equity instruments within the IFrS standard.
As a result, since the units are classified as financial liabilities on the
Consolidated Balance Sheet, distributions on the units are recognized
as a finance charge on the Consolidated Statements of Comprehensive
Income (loss). Had either, or both, of the units been classified as equity
instruments, the related distributions would be recognized as a reduction
to equity rather than a charge against income.
Property Noi
Same-asset properties are properties owned and operated by Crombie throughout the current and comparative reporting periods, excluding
any property that is classified as held for sale or that was designated for development during either the current or comparative period.
property noI on a cash basis is as follows:
(In thousands of CAD dollars)
2015
2014
Variance
2015
2014
Variance
three months ended December 31,
Year ended December 31,
property noI
non-cash straight-line rent
non-cash tenant incentive
amortization
property cash noI
Acquisitions, dispositions and
development property cash noI
$
63,989
$
63,278
$
(2,801)
(3,023)
2,512
63,700
914
61,169
711
222
1,598
2,531
$
256,605
$
248,699
$
(11,142)
(11,440)
9,712
7,567
255,175
244,826
7,906
298
2,145
10,349
5,854
4,745
1,109
25,213
18,834
6,379
Same-asset property cash noI
$
57,846
$
56,424
$
1,422
$
229,962
$
225,992
$
3,970
property noI, on a cash basis, excludes non-cash straight-line rent
recognition and amortization of tenant incentive amounts. the $1,422
or 2.5% increase in same-asset cash noI for the three months ended
December 31, 2015 over the same period in 2014 is primarily the result
of: increased average rent per square foot from leasing activity; rental
rate increases in existing leases; improved recovery rates; and, revenues
from land use intensifications at several properties.
the $3,970 or 1.8% increase in same-asset cash noI for the year ended
December 31, 2015 over the same period in 2014 was impacted by the
same factors noted above as well as increased lease termination income.
Acquisitions, dispositions and development property cash noI increased
$1,109 for the three months ended December 31, 2015 over the same
period in 2014 primarily due to acquisitions in the fourth quarter of 2015,
offset in part by the loss of target Canada as a tenant at three properties.
Management emphasizes property noI on a cash basis as it reflects the
cash generated by the properties period-over-period.
2015 AnnuAl report Crombie reit
31
Same-asset property cash noI is as follows:
(In thousands of CAD dollars)
2015
2014
Variance
percent
2015
2014
Variance
percent
three months ended December 31,
Year ended December 31,
retail and Mixed use
office
Same-asset property
cash noI
$
55,112 $
53,852 $
1,260
2.3% $ 219,224 $ 215,252 $
3,972
2,734
2,572
162
6.3%
10,738
10,740
(2)
1.8%
—%
$
57,846 $
56,424 $
1,422
2.5% $ 229,962 $ 225,992 $
3,970
1.8%
Variances in same-asset property cash noI for the three months ended
December 31, 2015 compared to the same period in 2014 include:
• Retail and Mixed Use increased $1,260 or 2.3% due to increased base
rent and related recoveries driven by new and renewal lease activity as
well as continued land use intensification.
• Office increased $162 or 6.3% as a result of improved occupancy.
retail and Mixed use same-asset property cash noI for the year ended
December 31, 2015 compared to the same period in 2014 were impacted
by these same factors.
Acquisitions, dispositions and development property cash noI is as follows:
(In thousands of CAD dollars)
2015
2014
Variance
2015
2014
Variance
three months ended December 31,
Year ended December 31,
Acquisitions and dispositions
property cash noI
Development property cash noI
total acquisitions, dispositions and
development property cash noI
$
3,461
2,393
$
1,593
3,152
$
1,868
$
11,401
$
5,657
$
(759)
13,812
13,177
5,744
635
$
5,854
$
4,745
$
1,109
$
25,213
$
18,834
$
6,379
Growth in acquisitions and dispositions property cash noI reflects the
property acquisition and disposition activity throughout 2015 and 2014
including the acquisition of five retail properties in 2015.
Change in cash noI from development properties period-over-period
is impacted by the timing of commencement and completion of each
development project. the nature and extent of development projects
results in operations being impacted minimally in some instances and
a significant disruption in others. Consequently, comparison of period-
over-period development operating results may not be meaningful.
the negative three month impact arises from the lower noI of the
three properties where target Canada recently vacated as a tenant.
Crombie undertakes development of properties to position them
for long-term sustainability and growth in cash noI resulting in
improvement in value.
property noI for the three months and year ended December 31, 2015 by province was as follows:
three months ended December 31,
Year ended December 31,
2015
2014
2015
2014
(In thousands of CAD dollars)
Property Noi
property noI
Variance
Property Noi
property noI
Variance
AB
BC
MB
nB
nl
nS
on
pe
QC
SK
total
$
13,244
$
11,862
$
1,382
$
51,005
$
46,259
$
6,449
3,310
2,822
7,070
13,397
11,154
347
4,370
1,826
6,232
2,576
3,527
6,845
14,312
11,202
584
4,341
1,797
217
734
(705)
225
(915)
(48)
(237)
29
29
25,609
12,988
12,295
27,933
52,941
47,589
1,001
17,946
7,298
24,487
9,760
14,502
27,185
55,517
44,052
2,380
17,440
7,117
$
63,989
$
63,278
$
711
$
256,605
$
248,699
$
4,746
1,122
3,228
(2,207)
748
(2,576)
3,537
(1,379)
506
181
7,906
32
Crombie reit 2015 AnnuAl report
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts)
the variances in property noI for the three months and year ended
December 31, 2015 compared to the same period in 2014 primarily
relate to:
•
•
•
•
•
•
•
•
Alberta – property acquisitions including three properties during
2015, two in the fourth quarter and one in the third quarter; three
properties during the fourth quarter of 2014; acquisition of additional
development on an existing property during 2015 and also in 2014;
British Columbia – property acquisitions including one property during
the fourth quarter of 2015, two properties during the fourth quarter
of 2014;
Manitoba – acquisition of additional development on an existing
property during the fourth quarter of 2015 and acquisition of two
properties in the fourth quarter of 2014;
new Brunswick – disposition of one property in the fourth quarter
of 2014;
newfoundland – increased base rent and related recoveries driven by
new and renewal lease activity partially offset by a property disposition
in the fourth quarter of 2014;
nova Scotia – disposition of two properties in the fourth quarter of
2014 and the partial disposition of an existing property in the third
quarter of 2014, partially offset by the acquisition of additions of
development on existing retail properties in the fourth quarter of 2015
and the first quarter of 2014;
ontario – increased lease termination income in the second quarter
of 2015; and,
prince edward Island – disposition of one property in the fourth
quarter of 2014 partially offset by the acquisition of a retail property
in the fourth quarter of 2015 and one property in the fourth quarter
of 2014.
FFo and AFFo
FFo and AFFo are not measures recognized under IFrS and do not have
standardized meanings prescribed by IFrS. As such, these non-GAAp
financial measures should not be considered as an alternative to cash
provided by operating activities or any other measure prescribed under
IFrS. FFo represents a supplemental non-GAAp industry-wide financial
measure of a real estate organization’s operating performance. AFFo is
presented in this MD&A because management believes this non-GAAp
measure is relevant to the ability of Crombie to earn and distribute
returns to unitholders. FFo and AFFo as computed by Crombie may
differ from similar computations as reported by other reIts and,
accordingly, may not be comparable to other such issuers.
Funds from operations (FFo)
Crombie follows the recommendations of the real property Association
of Canada (“reAlpac”) in calculating FFo and defines FFo as increase
(decrease) in net assets attributable to unitholders (computed in
accordance with IFrS), adjusted for the following applicable amounts:
•
Gain or loss on derecognition of investment properties and related
income tax;
•
Impairment charges and recoveries;
•
Depreciation and amortization expense, including amortization of
tenant incentives charged against property revenue;
•
Deferred taxes;
•
Finance costs – distributions on Crombie’s reIt and Class B lp units
classified as financial liabilities; and,
•
Change in fair value of financial instruments.
reAlpac provides for other adjustments in determining FFo which are
currently not applicable to Crombie, therefore not included in the above
list. During the second quarter of 2015, Crombie recognized $3,995 in
lease termination income, of which $2,961 is non-cash and non-recurring
in nature. Although not consistent with reAlpac recommendations,
Crombie has excluded this $2,961 of non-cash lease termination income
from FFo as management believes this better reflects Crombie’s
operating performance. Crombie’s expenditures on tenant incentives
are capital in nature. Crombie considers these costs comparable to
other capital costs incurred to earn property revenue. Whereas the
depreciation and amortization of other capital costs is added back in the
calculation of FFo, Crombie also adds back the amortization of tenant
incentives. Crombie’s method of calculating FFo may differ from other
issuers’ methods and accordingly may not be directly comparable to FFo
reported by other issuers. the calculation of FFo for the three months
and year ended December 31, 2015 and 2014 is as follows:
2015 AnnuAl report Crombie reit
33
(In thousands of CAD dollars)
2015
2014
Variance
2015
2014
Variance
three months ended December 31,
Year ended December 31,
Decrease in net assets attributable
to unitholders
$
(12,223)
$
(3,379)
$
(8,844)
$
(50,791)
$
(42,259)
$
(8,532)
Add (deduct):
Amortization of tenant incentives
lease termination income, non-cash
loss (gain) on derecognition
of investment properties
Impairment of investment
properties
Depreciation of investment
properties
Amortization of deferred
leasing costs
Amortization of intangible assets
taxes – current on disposition
of investment properties
taxes – deferred
Finance costs – distributions
to unitholders
Finance costs (income) – change in
fair value of financial instruments
2,512
—
914
—
1,598
—
9,712
(2,961)
7,567
—
2,145
(2,961)
(25)
(9,502)
9,477
(23)
(9,353)
9,330
7,300
7,500
(200)
12,575
10,750
1,825
15,456
14,634
822
60,498
57,983
2,515
153
1,180
(10)
(2,200)
129
1,261
—
(800)
24
(81)
(10)
(1,400)
598
5,480
2,066
(4,200)
535
5,606
—
(2,425)
63
(126)
2,066
(1,775)
29,236
29,052
184
116,576
113,937
2,639
(3,068)
(3,446)
378
(56)
(289)
233
FFo
$
38,311
$
36,363
$
1,948
$
149,474
$
142,052
$
7,422
the $1,948 or 5.4% increase in FFo for the three months ended
December 31, 2015 compared to the same period in 2014 was primarily
due to increased property cash noI results, including the impact of
property acquisitions completed during the fourth quarter of 2015.
available for distributions after the provision for non-cash adjustments
to revenue, amortization of effective swap agreements, maintenance
capital expenditures, maintenance tenant incentives (“tI”) and leasing
costs and any settlement of effective interest rate swap agreements.
the $7,422 or 5.2% increase in FFo for the year ended December 31,
2015 was primarily due to increased property cash noI results, including
acquisition and development activity during 2015 and 2014; lower finance
costs – operations from refinancings and lower interest rates offset in
part by increased income tax expense. During the three months ended
June 30, 2015, Crombie recognized $2,961 of non-cash lease termination
income. this amount is expected to be offset by future development
activity on other Crombie properties; therefore, Crombie has excluded
this non-cash amount from the calculation of FFo.
Adjusted Funds from operations (AFFo)
Crombie considers AFFo to be a useful measure in evaluating the
recurring economic performance of its operating activities which will
be used to support future distribution payments. AFFo reflects cash
maintenance Capital expenditures, maintenance tenant incentives
and Leasing Costs (“maintenance expenditures”)
Crombie’s policy is to charge AFFo with a normalized rate per square
foot for these maintenance expenditures. Crombie uses an annual rate
of $0.87 per square foot as a charge against AFFo. the rate is a proxy for
actual historic costs, anticipated future costs and any significant changes
in the nature and age of the properties in the portfolio as it evolves over
time. Crombie continues to track and report actual expenditures and the
productive capacity enhancement of those expenditures for comparative
purposes. the rate will be reviewed periodically and adjusted if required.
this per square foot charge removes volatility in reported AFFo results
from quarter to quarter as costs are not generally incurred on a
consistent basis during the year, or from year to year.
the calculation of AFFo for the three months and year ended December 31, 2015 and 2014 is as follows:
(In thousands of CAD dollars)
2015
2014
Variance
2015
2014
Variance
three months ended December 31,
Year ended December 31,
$
38,311
$
36,363
$
1,948
$
149,474
$
142,052
$
7,422
FFo
Add (deduct):
Amortization of effective
swap agreements
Straight-line rent adjustment
Maintenance expenditures
on a square footage basis
623
(2,801)
642
(3,023)
(19)
222
2,520
(11,142)
2,797
(11,440)
(3,823)
(3,771)
(52)
(15,198)
(15,233)
(277)
298
35
7,478
AFFo
$
32,310
$
30,211
$
2,099
$
125,654
$
118,176
$
34
Crombie reit 2015 AnnuAl report
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts)
AFFo for the three months ended December 31, 2015 was $32,310, an
increase of $2,099 or 6.9% over the same period in 2014 and $125,654
for the year ended December 31, 2015, an increase of $7,478 or 6.3%
over the same period in 2014. the AFFo increases are consistent with
the FFo increases as previously explained.
pursuant to CSA Staff notice 52-306 “(revised) non-GAAp Financial
Measures”, non-GAAp measures such as AFFo should be reconciled to
the most directly comparable IFrS measure, which is interpreted to be
the cash flow from operating activities. the reconciliation is as follows:
(In thousands of CAD dollars)
2015
2014
Variance
2015
2014
Variance
three months ended December 31,
Year ended December 31,
Cash provided by (used in)
operating activities
Add back (deduct):
Finance costs – distributions
to unitholders
Change in other non-cash
operating items
Change in income taxes receivable
unit-based compensation expense
Amortization of deferred
financing charges
Amortization of issue premium
on senior unsecured notes
non-cash distributions to unitholders
in the form of DrIp units
Maintenance expenditures on
a square footage basis
Income taxes – current on disposition
of investment properties
lease termination income, non-cash
$
17,858
$
10,494
$
7,364
$
41,114
$
21,985
$
19,129
29,236
29,052
184
116,576
113,937
2,639
(5,125)
(4,398)
45
(14)
—
(11)
(729)
(762)
13
45
(727)
45
(3)
33
(32)
(1,481)
655
(51)
1,093
—
(42)
(2,574)
655
(9)
(3,616)
(3,171)
(445)
54
45
9
(5,141)
(438)
(4,703)
(11,504)
(438)
(11,066)
(3,823)
(3,771)
(52)
(15,198)
(15,233)
35
(10)
—
—
—
(10)
—
2,066
(2,961)
—
—
2,066
(2,961)
AFFo
$
32,310
$
30,211
$
2,099
$
125,654
$
118,176
$
7,478
maintenance expenditures
there are two types of tI and capital expenditures:
•
maintenance tI and leasing costs and maintenance capital
expenditures that maintain existing productive capacity; and,
•
productive capacity enhancement expenditures.
Maintenance tI and leasing costs and maintenance capital expenditures
are reinvestments in the portfolio to maintain the productive capacity
of the existing assets. these costs are capitalized and depreciated or
charged against revenue over their useful lives and deducted when
calculating AFFo.
productive capacity enhancements are costs incurred that increase the
property noI, or expand the GlA of a property by a minimum threshold,
or otherwise enhance the property’s overall value. productive capacity
enhancement expenditures are capitalized and depreciated or charged
against revenue over their useful lives, but not deducted when
calculating AFFo.
obligations for expenditures for tI’s occur when renewing existing
tenant leases or for new tenants occupying a space. typically, leasing
costs for existing tenants are lower on a per square foot basis than for
new tenants. However, new tenants may provide more overall cash flow
to Crombie through higher rents or improved traffic to a property. the
timing of such expenditures fluctuates depending on the satisfaction
of contractual terms contained in the leases.
three months ended December 31,
Year ended December 31,
(In thousands of CAD dollars)
2015
2014
2015
2014
total additions to investment properties
less: productive capacity enhancements and recoverable amounts
Maintenance capital expenditures
$
$
9,144
$
9,869
$
25,684
$
32,584
(5,031)
(10,521)
(17,064)
(26,579)
4,113
$
(652)
$
8,620
$
6,005
(In thousands of CAD dollars)
2015
2014
2015
2014
three months ended December 31,
Year ended December 31,
total additions to tI and deferred leasing costs
less: productive capacity enhancements
Maintenance tI and deferred leasing costs
$
$
5,197
$
5,181
$
13,464
$
(594)
(2,575)
(2,657)
19,616
(12,488)
4,603
$
2,606
$
10,807
$
7,128
2015 AnnuAl report Crombie reit
35
As maintenance tI and capital expenditures are not incurred or paid
for evenly throughout the fiscal year, there can be comparative volatility
from period-to-period.
Maintenance tI and deferred leasing costs are the result of both lease
renewals and new leases and are reflective of the leasing activity during
2014 and 2015.
Maintenance capital expenditures for the year ended December 31,
2015, are primarily payments for costs associated with building interior
and exterior maintenance, roof repairs and ongoing parking deck and
structural maintenance.
productive capacity enhancements during the year ended December 31,
2015 consisted primarily of development work and GlA expansions at:
Brossard, QC; elmsdale plaza, elmsdale, nS; Hamlyn road plaza,
St. John’s, nl; Highland Square Mall, new Glasgow, nS; Mill Cove plaza,
Halifax, nS; parry Sound, on; russell lake plaza, Halifax, nS; Scotia
Square Mall, Halifax, nS; and, Stoney Creek plaza, Stoney Creek, on.
Depreciation, Amortization and impairment
(In thousands of CAD dollars)
2015
2014
Variance
2015
2014
Variance
three months ended December 31,
Year ended December 31,
Same-asset depreciation
and amortization
Acquisitions, dispositions
and development
depreciation/amortization
$
14,688
$
14,756
$
68
$
57,981
$
58,957
$
976
2,101
1,268
(833)
8,595
5,167
(3,428)
Depreciation and amortization
$
16,789
$
16,024
$
(765)
$
66,576
$
64,124
$
(2,452)
Same-asset depreciation and amortization decreased by $68 for the
three months ended December 31, 2015 and decreased by $976 for
the year ended December 31, 2015 compared to the same periods in
2014. Same-asset depreciation and amortization decreases over time as
lease related costs are amortized over the term of the appropriate lease.
During the first quarter of 2015, Crombie determined that an investment
property previously classified as held for sale no longer met the criteria
and the property was reclassified to same-asset and held for use. As a
result, depreciation and amortization totaling $673 was recognized in
the first quarter, representing the depreciation and amortization that
was not recorded while the property was classified as held for sale.
Acquisition, disposition and development depreciation and amortization
increased as a result of net acquisition activity during 2015 and 2014.
During the second quarter of 2015, Crombie accelerated depreciation
and amortization related to vacated space resulting in increased
quarterly depreciation and amortization expense compared to 2014.
Crombie’s total fair value of investment properties, including properties
held for sale, exceeds carrying value by $708,949 at December 31, 2015
(December 31, 2014 – $563,060). Crombie uses the cost method for
accounting for investment properties, and any increase in fair value over
carrying value is not recognized until realized through disposition or
derecognition of properties, while impairment, if any, is recognized on a
property by property basis when circumstances indicate that fair value
is less than carrying value.
During the year ended December 31, 2015, Crombie recorded an
impairment of $12,575 on three retail properties and an office property.
the impairments were the result of the fair value impact of tenant
departures during the year; lower occupancy rates; and slower than
expected leasing activity. Impairment was measured on a per property
basis and was determined as the amount by which carrying value, using
the cost method, exceeded the recoverable amount for that property.
the recoverable amount was determined to be each property’s fair value
which is the higher of the economic benefits of the continued use of the
asset or the selling price less costs to sell.
General and Administrative expenses
the following table outlines the major categories of general and administrative expenses:
three months ended December 31,
Year ended December 31,
(In thousands of CAD dollars)
2015
2014
Variance
Salaries and benefits
professional fees
public company costs
rent and occupancy
other
$
1,956
$
1,903
$
(53)
$
329
353
181
722
368
454
198
457
39
101
17
(265)
$
2015
8,202
1,386
1,695
917
2,201
$
8,878
1,560
1,772
948
1,590
2014
Variance
General and administrative expenses $
3,541
$
3,380
$
(161)
$
14,401
$
14,748
$
As a percentage of property revenue
3.8%
3.7%
(0.1)%
3.9%
4.1%
0.2%
36
Crombie reit 2015 AnnuAl report
676
174
77
31
(611)
347
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts)
For the three months ended December 31, 2015 general and
administrative expenses, as a percentage of property revenue, were
3.8%, an increase of 0.1% from the same period in 2014, with expenses
increasing $161 or 4.8% and property revenue increasing 2.5%. the
increase is due to increased employee training and development costs.
For the year ended December 31, 2015 general and administrative
expenses, as a percentage of property revenue, decreased 0.2%
compared to the year ended December 31, 2014 with expenses
decreasing $347 or 2.4% and property revenue increasing by 3.2%.
the decreases are primarily due to lower salary and benefit expenses,
professional fees and public company costs.
Unit based compensation plans
(i) Deferred Unit Plan (“DU Plan”)
Crombie has a Du plan available to eligible trustees, officers and
employees (the “participants”), which is designed to promote a
greater alignment of interests between the trustees, officers and
employees of Crombie and its unitholders. participation in the Du
plan is voluntary unless Crombie’s Board of trustees (the “Board”)
or Human resources Committee (“HrC”) decides that special
compensation is to be provided in the form of Deferred units (“Dus”).
Dus granted under the Du plan are fully vested at the time they are
allocated, with the value of the award recorded as a liability and
expensed as general and administrative expenses. Dus are not
Crombie reIt units and do not entitle a participant to any unitholder
rights, including voting rights, distribution entitlements (other than
those noted below) or rights on liquidation. During the time that a
participant has outstanding Dus, whenever cash distributions are
paid on reIt units, additional Dus will be credited to the participant’s
Du account, determined by multiplying the number of Dus in the
participant’s Du account on the reIt distribution record date by the
distribution paid per reIt unit, and dividing the result by the market
value of a unit as determined in accordance with the Du plan.
Additional Dus issued as a result of distributions vest on the same
basis as noted above. A participant may redeem their Du plan in
whole or in part by filing a written notice of redemption; redemption
will also occur as the result of specific events such as the retirement
of a participant. upon redemption, a participant will receive the net
value of the vested Dus determined by multiplying the number of
Dus redeemed by the reIt unit’s market price on redemption date,
less applicable withholding taxes. the participant may elect to
receive this net amount as a cash payment or instead receive one
Crombie reIt unit for each Du redeemed.
(ii) Restricted Unit Plan (“RU Plan”)
Crombie has a ru plan available to eligible executives and
employees (the “ru participants”), which is designed to promote
a greater alignment of interests between the specific employees
of Crombie and its unitholders; and assist Crombie in attracting,
retaining and rewarding specific employees. ru participants will
receive all or a portion of their long-term incentive plan awards
in restricted units (“rus”). the rus vest over a period of not more
than three years, ending on the final day of the third quarter of
the third calendar year of the rus term. the rus are subject to
vesting conditions including continuing employment. the number
of rus which fully vest is determined by: (a) the dollar amount of
the award divided by the market value of a reIt unit on the award
grant date, plus (b) deemed distributions on rus during the vesting
period at a rate equivalent to the number of reIt units that would
have been issued had the vested rus been treated as a reIt unit.
the rus are accounted for under IAS 19 employee benefits and
the liability and expense are recognized over the service period
which ends on the vesting date. on the vesting date, each eligible
employee shall be entitled to receive a cash amount (net of any
applicable withholding taxes) equal to the number of vested rus
held by the eligible employees multiplied by the market value on
the vesting date, as determined by the market value of a reIt unit.
Alternatively, an ru participant who is an eligible employee on the
vesting date may elect to convert their vested rus to Dus under
Crombie’s Du plan. no reIt units or other securities of Crombie
will be issued from treasury.
Finance Costs – operations
(In thousands of CAD dollars)
2015
2014
Variance
2015
2014
Variance
three months ended December 31,
Year ended December 31,
Same-asset finance costs
Acquisitions, dispositions
and development finance costs
Amortization of effective swaps
and deferred financing charges
$
21,284
$
22,310
$
1,026
$
86,192
$
89,944
$
3,752
1,964
706
(1,258)
6,283
3,554
(2,729)
Finance costs – operations
$
24,600
$
24,449
$
(151)
$
98,611
$
99,466
$
1,352
1,433
81
6,136
5,968
(168)
855
2015 AnnuAl report Crombie reit
37
Same-asset finance costs for the three months and year ended
December 31, 2015 decreased compared to the same periods in 2014
primarily due to lower interest rates on refinancing of higher rate
maturing debt including the impact of early redemption of $45,000
5.75% Series C Convertible Debentures and issuance of $125,000
2.775% Series C Five Year Senior unsecured notes which occurred in
the first quarter of 2015.
Acquisitions, dispositions and development finance costs for the three
months and year ended December 31, 2015 increased by $1,258 and
$2,729, respectively, compared to the same period in 2014 primarily
due to acquisition activity.
Details of distributions to unitholders are as follows:
Finance Costs – Distributions
pursuant to Crombie’s Declaration of trust, cash distributions are to
be determined by the trustees at their discretion. Crombie intends,
subject to approval of the Board of trustees, to make distributions to
unitholders of not less than the amount equal to the net income and
net realized capital gains of Crombie, to ensure that Crombie will not be
liable for income taxes. Crombie, subject to the discretion of the Board
of trustees, targets to make annual cash distributions to unitholders
equal to approximately 95% of its AFFo on an annual basis.
(In thousands of CAD dollars, except as otherwise noted)
2015
2014
2015
2014
three months ended December 31,
Year ended December 31,
Distributions to unitholders
Distributions to Special Voting unitholders
total distributions
FFo payout ratio
AFFo payout ratio (target ratio = 95%)
Distribution reinvestment Plan (“DriP”)
During the fourth quarter of 2014, Crombie instituted a DrIp whereby
Canadian resident reIt unitholders may elect to automatically have their
distributions reinvested in additional reIt units. units issued under the
DrIp will be issued directly from the treasury of Crombie reIt at a price
equal to 97% of the volume-weighted average trading price of the reIt
units on the tSX for the five trading days immediately preceding the
relevant distribution payment date, which is typically on or about the
15th day of the month following the declaration. Crombie recognizes
the net proceeds in net assets attributable to unitholders.
income taxes
A trust that satisfies the criteria of a reIt throughout its taxation year will
not be subject to income tax in respect of distributions to its unitholders
that would otherwise apply to trusts classified as specified investment
flow-through entities (“SIFts”).
Crombie has organized its assets and operations to satisfy the criteria
contained in the Income tax Act (Canada) in regard to the definition
of a reIt. Crombie’s management and its advisors have completed an
extensive review of Crombie’s organizational structure and operations
to support Crombie’s assertion that it met the reIt criteria throughout
2015 and continues to do so. the relevant tests apply throughout the
$
$
17,308
$
17,199
$
69,016
$
11,928
11,853
47,560
67,427
46,510
29,236
$
29,052
$
116,576
$
113,937
76.3%
90.5%
79.9%
96.2%
78.0%
92.8%
80.2%
96.4%
taxation year of Crombie and as such the actual status of Crombie
for any particular taxation year can only be ascertained at the end
of the year.
In the ordinary course of business, Crombie is subject to audits by tax
authorities. one of Crombie’s non-taxable subsidiaries was subject to
audit by Canada revenue Agency (“CrA”) for fiscal years 2010 and 2011.
the CrA audit has concluded and did not result in a reassessment of the
completed returns.
the deferred tax liability of $74,200 represents the future tax provision
relating to the difference in tax and book values offset by non-capital
losses for Crombie’s wholly-owned corporate subsidiaries which are
subject to corporate income taxes.
taxation of Distributions
Crombie, through its subsidiaries, has a large asset base that is
depreciable for Canadian income tax purposes. Consequently, certain
of the distributions from Crombie are treated as returns of capital and
are not taxable to Canadian resident unitholders for Canadian income
tax purposes. the composition for tax purposes of distributions from
Crombie may change from year to year, thus affecting the after-tax
return to unitholders.
the following table summarizes the last five years of the taxation of distributions from Crombie:
taxation Year
2014 per $ of distribution
2013 per $ of distribution
2012 per $ of distribution
2011 per $ of distribution
2010 per $ of distribution
38
Crombie reit 2015 AnnuAl report
return
of Capital
Investment
Income
64.4%
90.2%
67.1%
62.5%
64.7%
18.1%
9.8%
32.9%
37.5%
35.3%
Capital
Gains
17.5%
0.0%
0.0%
0.0%
0.0%
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts)
LiQUiDitY AND CAPitAL reSoUrCeS
the real estate industry is highly capital intensive.
(ii)
secured mortgage and term debt on unencumbered assets;
Cash flow generated from operating the property portfolio represents
the primary source of liquidity used to fund the finance costs on
debt, general and administrative expenses, reinvestment in the
portfolio through capital expenditures, as well as funding tI costs
and distributions to unitholders.
Crombie expects to refinance debt obligations as they mature.
Crombie has the following sources of financing available to fund
future growth:
(i)
secured short-term financing through an authorized three
year revolving credit facility, maturing June 30, 2018, of up
to $300,000, subject to available borrowing base, of which
$130,000 ($131,425 including outstanding letters of credit)
was drawn at December 31, 2015;
Capital Structure
(iii)
senior unsecured notes;
(iv)
unsecured convertible debentures; and,
(v)
the issuance of new units.
on May 13, 2014 Crombie filed a Short Form Shelf prospectus allowing
for the issuance, from time to time, of units and debt securities, or
any combination thereof, having an aggregate offering price of up to
$500,000. this document is valid for a 25 month period. on May 30,
2014 Crombie issued 4,530,000 units at a price of $13.25 per unit
under this Base Shelf prospectus.
(In thousands of CAD dollars)
December 31, 2015
December 31, 2014
December 31, 2013
Investment property debt
Senior unsecured notes
Convertible debentures
Crombie reIt unitholders
Special Voting units and Class B
limited partnership unitholders
$ 1,641,203
49.5%
$ 1,624,547
49.9%
$ 1,694,200
398,080
131,518
694,484
12.0%
4.0%
20.9%
273,592
175,215
716,025
8.4%
5.4%
22.0%
173,937
174,929
680,935
452,746
13.6%
467,289
14.3%
443,363
$ 3,318,031
100.0%
$ 3,256,668
100.0%
$ 3,167,364
53.5%
5.5%
5.5%
21.5%
14.0%
100.0%
Liquidity and Financing Sources
Revolving credit facility
Crombie has in place an authorized floating rate revolving credit facility
of up to $300,000 (the “revolving credit facility”), of which $130,000
($131,425 including outstanding letters of credit) was drawn as at
December 31, 2015. the revolving credit facility is secured by a pool of
first and second mortgages on certain properties. the floating interest
rate is based on bankers’ acceptance rates plus a spread or specified
margin over prime rate. the spread or specified margin changes
depending on Crombie’s unsecured bond rating with DBrS and whether
the facility remains secured or migrates to an unsecured status. Funds
available for drawdown pursuant to the revolving credit facility are
determined with reference to the value of the Borrowing Base (as defined
under “Borrowing Capacity and Debt Covenants”) relative to certain
financial covenants of Crombie. As at December 31, 2015, Crombie had
principal repayments of the debt are scheduled as follows:
sufficient Borrowing Base to permit $300,000 of funds to be drawn
pursuant to the revolving credit facility, subject to certain other financial
covenants. See “Borrowing Capacity and Debt Covenants”.
Mortgage debt
As of December 31, 2015, Crombie had fixed rate mortgages outstanding
of $1,517,123 ($1,521,079 after including the fair value debt adjustment of
$3,956), carrying a weighted average interest rate of 4.62% (after giving
effect to the interest rate subsidy from eClD under an omnibus subsidy
agreement) and a weighted average term to maturity of 6.6 years.
From time to time, Crombie has entered into interest rate swap
agreements to manage the interest rate profile of its current or future
debts without an exchange of the underlying principal amount (see
“risk Management”). Crombie currently has no outstanding interest
rate swap agreements.
(In thousands of CAD dollars)
Maturing Debt Balances
12 Months ending
Fixed rate
Floating rate
total
% of total
payments total required
payments
of principal
% of total
December 31, 2016
December 31, 2017
December 31, 2018
December 31, 2019
December 31, 2020
thereafter
total(1)
$
43,168 $
— $
43,168
3.4% $
48,392 $
91,560
44,833
61,203
122,100
166,924
717,557
—
130,000
—
—
—
44,833
191,203
122,100
166,924
717,557
3.5%
14.9%
9.4%
13.0%
55.8%
45,188
44,479
44,826
37,535
140,918
90,021
235,682
166,926
204,459
858,475
5.6%
5.5%
14.3%
10.1%
12.4%
52.1%
$ 1,155,785 $ 130,000 $ 1,285,785
100.0% $ 361,338 $ 1,647,123
100.0%
(1) excludes fair value debt adjustment of $3,956 and deferred financing charges of $9,876.
2015 AnnuAl report Crombie reit
39
of the maturing debt balances, only 12.9% of fixed rate debt, and 21.7% of total maturing debt balances mature over the next three years.
Senior unsecured notes
Series A senior unsecured notes
Series B senior unsecured notes
Series C senior unsecured notes
unamortized Series B issue premium
Deferred financing charges
Maturity Date
effective
Interest rate
December 31,
2015
December 31,
2014
october 31, 2018
3.986%
$
175,000
$
June 1, 2021
February 10, 2020
3.900%
2.775%
100,000
125,000
294
(2,214)
175,000
100,000
—
348
(1,756)
$
398,080
$
273,592
on February 10, 2015 Crombie issued, on a private placement basis, $125,000 Series C notes (senior unsecured) with a five year term and an annual
interest rate of 2.775%. Interest is payable in equal semi-annual installments in arrears on February 10 and August 10. the first semi-annual interest
payment date was August 10, 2015.
there are no required periodic principal payments with the full face value of the notes due on their respective maturity dates.
Convertible debentures
Series C (Crr.DB.C)
Series D (Crr.DB.D)
Series e (Crr.DB.e)
Deferred financing charges
Conversion price
Maturity Date
Interest rate
December 31,
2015
December 31,
2014
$
$
$
15.30
20.10
17.15
February 18, 2015
5.75%
$
—
$
September 30, 2019
March 31, 2021
5.00%
5.25%
60,000
74,400
(2,882)
45,000
60,000
74,400
(4,185)
$
131,518
$
175,215
Maximum reIt units issuable at December 31, 2015 was 2,985,074 for
Series D Debentures and 4,338,192 for Series e Debentures.
on January 15, 2015, Crombie exercised its right to redeem the
remaining outstanding principal amount of its 5.75% Series C unsecured
Subordinated Debentures (“Series C Debentures”) maturing June 30,
2017, in accordance with the terms of the trust Indenture. Holders of the
Series C Debentures were entitled to convert their Series C Debentures to
units based on the conversion price of $15.30 per unit until February 17,
2015. the redemption of the then outstanding Series C Debentures was
completed on February 18, 2015, for a principal payment of $44,795 plus
interest, while $205 of principal was converted to 13,398 reIt units.
the Series D Debentures and the Series e Debentures pay interest
semi-annually on March 31 and September 30 of each year and Crombie
has the option to pay interest on any interest payment date by issuing
reIt units and applying the proceeds to satisfy its interest obligation.
For the first three years from the date of issue, there is no ability
to redeem the convertible debentures, after which, each series of
convertible debentures has a period, lasting two years, during which
the convertible debentures may be redeemed, in whole or in part, on
not more than 60 days’ and not less than 30 days’ prior notice, at a
redemption price equal to the principal amount thereof plus accrued
and unpaid interest, provided that the volume-weighted average trading
price of the reIt units on the tSX for the 20 consecutive trading days
ending on the fifth trading day preceding the date on which notice of
redemption is given exceeds 125% of the conversion price. After the end
of the five year period from the date of issue, and to the maturity date,
the convertible debentures may be redeemed, in whole or in part, at any
time at the redemption price equal to the principal amount thereof plus
accrued and unpaid interest. provided that there is not a current event
of default, Crombie will have the option to satisfy its obligation to pay
the principal amount of the convertible debentures at maturity or upon
redemption, in whole or in part, by issuing the number of reIt units
equal to the principal amount of the convertible debentures then
outstanding divided by 95% of the volume-weighted average trading
price of the reIt units for a stipulated period prior to the date of
redemption or maturity, as applicable. upon change of control of
Crombie, convertible debenture holders have the right to put the
convertible debentures to Crombie at a price equal to 101% of the
principal amount plus accrued and unpaid interest.
REIT Units and Class B LP Units and the attached Special Voting Units
For the year ended December 31, 2015, Crombie issued 540,131
reIt units and 383,036 Class B lp units under the DrIp at a three
percent (3%) discount to market prices as determined under the
DrIp. In addition, 13,398 reIt units were issued on conversion of
$205 Series C Debentures.
40
Crombie reit 2015 AnnuAl report
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts)
total units outstanding at January 31, 2016, were as follows:
units
Special Voting units(1)
77,939,635
53,716,471
(1) Crombie limited partnership, a subsidiary of Crombie, has also issued 53,716,471 Class B lp units. these Class B lp units accompany the Special Voting units, are the economic
equivalent of a unit, and are convertible into units on a one-for-one basis.
In addition to the total units outstanding at January 31, 2016, Crombie has convertible debentures which could result in a total of 7,323,266 reIt units
being issued should all outstanding debentures be converted.
Sources and Uses of Funds
(In thousands of CAD dollars)
2015
2014
Variance
2015
2014
Variance
three months ended December 31,
Year ended December 31,
Cash provided by (used in):
operating activities
Financing activities
Investing activities
Operating Activities
$
$
$
17,858
59,051
(75,852)
$
$
$
10,494
89,057
(98,940)
$
$
$
7,364
(30,006)
23,088
$
$
$
41,114
75,664
(116,332)
$
$
$
21,985
108,320
(136,861)
$
$
$
19,129
(32,656)
20,529
(In thousands of CAD dollars)
2015
2014
Variance
2015
2014
Variance
three months ended December 31,
Year ended December 31,
Cash provided by (used in):
net assets attributable to
unitholders and non-cash items
non-cash operating items
Income taxes paid
Cash provided by (used in)
operating activities
$
12,817
$
5,125
(84)
6,096
4,398
—
$
6,721
$
43,224
$
23,078
$
727
(84)
1,481
(3,591)
(1,093)
—
20,146
2,574
(3,591)
$
17,858
$
10,494
$
7,364
$
41,114
$
21,985
$
19,129
the increase in cash from operating activities is primarily related to the improvement in cash noI results and is affected by the timing of receipts
and payments.
Financing Activities
(In thousands of CAD dollars)
2015
2014
Variance
2015
2014
Variance
three months ended December 31,
Year ended December 31,
Cash provided by (used in):
net issue (repayment) of mortgage
loans and borrowings
$
59,128
$
88,816
$
(29,688)
$
(3,326)
$
(71,568)
$
—
—
—
(77)
(26)
49
—
218
26
(49)
—
(295)
124,012
—
(44,795)
(227)
99,350
97,196
—
(16,658)
68,242
24,662
(97,196)
(44,795)
16,431
net issue of senior unsecured notes
net issue of units
net issue (redemption) of
convertible debentures
other items (net)
Cash provided by (used in)
financing activities
$
59,051
$
89,057
$
(30,006)
$
75,664
$
108,320
$
(32,656)
Cash from financing activities decreased by $30,006 for the three
months ended December 31, 2015 and by $32,656 for the year ended
December 31, 2015 compared to the same periods in 2014. During
the year ended December 31, 2015 Crombie raised funds through the
issuance of 2.775% Series C notes (senior unsecured). Funds raised
from the issuance were used to repay maturing mortgages and the
outstanding 5.75% Series C Convertible unsecured Subordinated
Debentures. During the year ended December 31, 2014, Crombie
raised funds through the issuance of reIt units and Class B lp units
and 3.962% Series B notes (senior unsecured). the funds raised were
used to reduce the floating rate revolving credit facility. During the three
months ended December 31, 2015, Crombie issued $113,650 in new
mortgages with a weighted average interest rate of 2.85% and weighted
average term of 4.7 years, resulting in a cash inflow from mortgage loans
and borrowings in the quarter.
2015 AnnuAl report Crombie reit
41
Investing Activities
(In thousands of CAD dollars)
2015
2014
Variance
2015
2014
Variance
three months ended December 31,
Year ended December 31,
Cash provided by (used in):
Acquisition of investment properties
and intangible assets
Additions to investment properties
proceeds on disposal of
investment properties
Additions to tenant incentives
Additions to deferred leasing costs
other items (net)
Cash provided by (used in)
investing activities
$
(61,511)
$
(145,651)
$
84,140
$
(79,954)
$
(157,544)
$
(9,144)
(9,869)
725
(25,684)
(32,584)
—
(5,063)
(134)
—
61,761
(4,957)
(224)
—
(61,761)
(106)
90
—
2,770
(12,638)
(826)
—
67,053
(18,683)
(933)
5,830
77,590
6,900
(64,283)
6,045
107
(5,830)
$
(75,852)
$
(98,940)
$
23,088
$
(116,332)
$
(136,861)
$
20,529
Cash used in investing activities was $75,852 and $116,332 for the
three months and year ended December 31, 2015. the $23,088 and
$20,529 decreases in use of cash compared to the same periods in
2014 related to decreased property acquisitions, decreased additions
to investment properties and lower proceeds for dispositions in 2015
compared to 2014.
At December 31, 2015, the remaining amount available under the
revolving credit facility was $170,000 (prior to reduction for standby
letters of credit outstanding of $1,425) and was not limited by the
Aggregate Coverage Amount.
At December 31, 2015, Crombie remained in compliance with all
debt covenants.
borrowing Capacity and Debt Covenants
under the amended terms governing the revolving credit facility, Crombie
is entitled to borrow a maximum of 70% of the fair market value of assets
subject to a first security position and 60% of the excess of fair market
value over first mortgage financing of assets subject to a second security
position or a negative pledge (the “Borrowing Base”). the revolving credit
facility provides Crombie with flexibility to add or remove properties
from the Borrowing Base, subject to compliance with certain conditions.
the terms of the revolving credit facility also require that Crombie must
maintain certain covenants:
•
•
•
annualized noI for the prescribed properties must be a minimum
of 1.4 times the coverage of the related annualized debt service
requirements;
annualized noI on all properties must be a minimum of 1.4 times
the coverage of all annualized debt service requirements; and,
distributions to unitholders are limited to 100% of distributable
income as defined in the revolving credit facility.
the revolving credit facility also contains a covenant limiting the amount
which may be utilized under the revolving credit facility at any time.
this covenant provides that the aggregate of amounts drawn under
the revolving credit facility plus any outstanding letters of credit, may
not exceed the “Aggregate Coverage Amount”, which is based on a
modified calculation of the Borrowing Base, as defined in the revolving
credit facility.
Debt to Gross book Value – Fair Value basis
When calculating debt to gross book value, debt is defined under the
terms of the Declaration of trust as obligations for borrowed money
including obligations incurred in connection with acquisitions, excluding
specific deferred taxes payable, trade payables and accruals in the
ordinary course of business and distributions payable. 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) and cost of any below-market component
of properties less (i) the amount of any receivable reflecting interest
rate subsidies on any debt assumed by Crombie and (ii) the amount of
deferred tax liability arising out of the fair value adjustment in respect of
the indirect acquisitions of certain properties. If approved by a majority
of the independent trustees, the appraised value of the assets of Crombie
and its consolidated subsidiaries may be used instead of book value.
Debt to gross book value on a fair value basis includes investment
properties measured at fair value with all other components of gross
book value measured at cost.
the debt to gross book value on a fair value basis was 52.5% and
52.8% at December 31, 2015 and December 31, 2014, respectively.
these leverage ratios are below the maximum 60%, or 65% including
convertible debentures, as permitted by 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 55% of
gross book value – fair value basis, depending upon Crombie’s future
acquisitions and financing opportunities.
42
Crombie reit 2015 AnnuAl report
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts)
As at
(In thousands of CAD dollars, except as otherwise noted)
Dec. 31, 2015
Sep. 30, 2015
Jun. 30, 2015
Mar. 31, 2015
Dec. 31, 2014
Fixed rate mortgages
Senior unsecured notes
Convertible debentures
revolving credit facility payable
$ 1,521,079
$ 1,427,408
$ 1,445,772
$ 1,471,482
400,000
134,400
130,000
400,000
134,400
163,663
400,000
134,400
135,976
400,000
134,400
92,887
total debt outstanding
less: Applicable fair value debt adjustment
2,185,479
2,125,471
2,116,148
2,098,769
(1,721)
(1,820)
(1,934)
(2,061)
$ 1,490,187
275,000
179,400
145,000
2,089,587
(2,203)
Debt
$ 2,183,758
$ 2,123,651
$ 2,114,214
$ 2,096,708
$ 2,087,384
Investment properties, at fair value
long term receivables
other assets, cost(1)
Cash and cash equivalents
Deferred financing costs
Interest rate subsidy
FV adjustment to deferred taxes
$ 4,143,000
$ 4,042,000
$ 4,019,000
$ 4,002,000
$ 3,939,000
13,933
23,152
1,057
14,972
(1,721)
(34,645)
13,838
29,869
—
14,822
(1,820)
(34,645)
13,755
43,352
—
15,511
(1,934)
(34,645)
13,687
24,234
—
16,188
(2,061)
(34,645)
13,631
23,232
611
16,581
(2,203)
(34,645)
Gross book value – fair value basis
$ 4,159,748
$ 4,064,064
$ 4,055,039
$ 4,019,403
$ 3,956,207
Debt to gross book value – fair value basis
52.5%
52.3%
52.1%
52.2%
52.8%
(1) other assets exclude tenant incentives and Accrued straight-line rent receivable.
Crombie, through the issuance of notes, convertible debentures,
mortgage financings, refinancings and bank debt continues to maintain
leverage at an appropriate level while staying conservatively within its
maximum borrowing capacity.
interest and Debt Service Coverage ratios
Crombie’s interest and debt service coverage ratios for the year ended
December 31, 2015 were 2.72 times eBItDA and 1.81 times eBItDA. this
compares to 2.58 times eBItDA and 1.72 times eBItDA, respectively, for
(In thousands of CAD dollars, except as otherwise noted)
property revenue
Amortization of tenant incentives
Adjusted property revenue
property operating expenses
General and administrative expenses
eBItDA (1)
Finance costs – operations
Amortization of deferred financing charges
Amortization of effective swap agreements
Adjusted interest expense (2)
Debt repayments
Amortization of fair value debt premium
payments relating to interest rate subsidy
payments relating to credit facilities
lump sum payments on mortgages
Adjusted debt repayments (3)
Interest service coverage ratio {(1)/(2)}
Debt service coverage ratio {(1)/((2)+(3))}
the year ended December 31, 2014. eBItDA should not be considered
an alternative to operating income attributable to unitholders, cash
provided by operating activities or any other measure of operations as
prescribed by IFrS. eBItDA is not an IFrS financial measure; however,
Crombie believes it is an indicative measure of its ability to service debt
requirements, fund capital projects and acquire properties. Crombie’s
measurement of eBItDA may not be comparable to that used by
other entities.
Year ended December 31,
2015
2014
$
369,866
9,712
$
$
$
$
$
379,578
(113,261)
(14,401)
251,916
98,611
(3,616)
(2,520)
92,475
121,440
(837)
(482)
(15,000)
(58,050)
$
$
$
$
358,319
7,567
365,886
(109,620)
(14,748)
241,518
99,466
(3,171)
(2,797)
93,498
111,838
(1,295)
(700)
24,550
(87,633)
$
47,071
$
46,760
2.72
1.81
2.58
1.72
2015 AnnuAl report Crombie reit
43
ACCoUNtiNG
related Party transactions
related party transactions are transactions with associates, post-
employment benefit plans, and key management personnel.
transactions between Crombie and its subsidiaries have been eliminated
on consolidation, and as such, are not disclosed in this communication.
related party transactions are measured at the exchange amount,
which is the amount of consideration established and agreed to by
the related parties.
As at December 31, 2015, empire, through its wholly-owned subsidiary
eClD, holds a 41.5% (fully diluted 40.2%) indirect interest in Crombie.
Crombie’s transactions with related parties, including empire and its
subsidiaries, are as follows:
property revenue
Head lease income
Management support services provided
property management services
lease termination income
rental expense
property operating expenses
Interest rate subsidy
Interest income
Finance costs – operations
Finance costs – distributions to unitholders
three months ended December 31,
Year ended December 31,
note
2015
2014
2015
2014
(a)
(b)
(c)
(d)
(e)
(b)
(f)
$
$
$
$
$
$
$
$
$
$
$
38,048
170
71
231
—
—
33
99
179
303
12,130
$
$
$
$
$
$
$
$
$
$
$
36,240
258
146
107
—
47
42
154
180
303
12,054
$
$
$
$
$
$
$
$
$
$
$
160,470
736
377
869
3,999
78
135
482
711
1,200
48,369
$
$
$
$
$
$
$
$
$
$
$
152,855
947
431
500
—
187
145
700
544
1,200
47,318
(a) Crombie earned property revenue from Sobeys Inc. and other
subsidiaries of empire.
(b) For various periods, eClD has an obligation to provide rental income
and interest rate subsidies pursuant to an omnibus Subsidy Agreement
dated March 23, 2006, between Crombie Developments limited,
Crombie limited partnership and eClD. the rental income is included
in property revenue and the interest rate subsidy is netted against
Finance costs – operations.
(c) Certain executive management individuals and other employees of
Crombie provide general management, financial, leasing, administrative,
and other administration support services to certain subsidiaries of
empire on a cost sharing basis pursuant to a Management Cost Sharing
Agreement, dated March 23, 2006, between Crombie Developments
limited, a subsidiary of Crombie, and eClD, a subsidiary of empire.
(d) Certain on-site maintenance and management employees of
Crombie provide property management services to certain subsidiaries
of empire on a cost sharing basis pursuant to the Management Cost
Sharing Agreement. the costs recovered by Crombie pursuant to the
Agreement were netted against property expenses.
(e) Crombie previously leased its head office space from eClD. the lease
was terminated in May, 2015.
(f) empire holds $24,000 of Series D Convertible Debentures with
an annual interest rate of 5.00%.
In addition to the above:
•
•
•
•
•
During the fourth quarter of 2015, Crombie acquired four retail
properties and additions to two existing retail properties from empire
for $60,825 excluding closing and transaction costs. the properties,
located in Alberta, British Columbia, prince edward Island, Manitoba
and Quebec, contain approximately 225,300 square feet of fully
occupied space.
on April 1, 2015, Crombie acquired additional development space from
empire on a pre-existing retail property for $2,333 excluding closing
and transaction costs. the property, located in nova Scotia, contains
approximately 7,500 square feet of fully occupied space.
During the second quarter of 2015, Sobeys closed two retail stores on
Crombie properties for which Crombie recognized lease termination
income in the amount of $3,849; a portion of which is being received
in non-cash considerations. In relation to one of the store closures,
Sobeys has assigned to Crombie future development activity rights in
their leases on specific other Crombie properties in exchange for a fee
on future developments which will reduce the actual cash Crombie will
receive from the lease termination income.
During the year ended December 31, 2015, Crombie issued 383,036
(December 31, 2014 – 15,153) Class B lp units to eClD under the DrIp.
During the year ended December 31, 2015, Crombie and eClD
negotiated an extension of a rental income guarantee and put option
on a property Crombie acquired from eClD in 2006. the rental
income guarantee and put option were originally scheduled to mature
in March 2016 and have been extended for a period of five years with
either party having the ability to terminate the agreements with written
notice. the fixed price put option is in excess of the carrying value of
the property.
4 4
Crombie reit 2015 AnnuAl report
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts)
•
•
•
During the first quarter of 2015, Crombie acquired development lands
in British Columbia with Sobeys Developments limited partnership
(“SDlp”). Crombie’s 50% portion of the acquisition cost was $2,676,
including closing and transaction costs.
During the fourth quarter of 2014, Crombie acquired eight retail
properties from empire for $100,985 excluding closing adjustments
and transaction costs. the properties, containing approximately
424,000 square feet of GlA, included one in prince edward Island,
ontario and Manitoba, three in Alberta and two in British Columbia.
Crombie also acquired additional development space from empire
on a pre-existing retail property for $2,508 excluding closing and
transaction costs.
During the third quarter of 2014 Crombie received $2,650 from a
subsidiary of empire related to a prepayment of their future obligation
under a land sub-lease. the amount has been deferred and will be
recognized as a reduction in property operating expenses over the
remaining term of the land lease.
•
on May 30, 2014, eClD purchased 3,018,868 Class B lp units and
the attached SVus at a price of $13.25 per Class B lp unit for
proceeds of $39,830, net of issue costs, on a private placement basis.
and transaction costs. the property, located in ontario, contains
approximately 39,000 square feet of fully occupied space.
•
•
During the first quarter of 2014 Crombie exchanged properties with a
subsidiary of empire by acquiring 1200 railway Avenue in Canmore,
Alberta in exchange for disposing of 555 Main Street in Canmore,
Alberta. Crombie also acquired additional development space from
empire on a pre-existing retail property for $1,490 excluding closing
and transaction costs.
During the first quarter of 2014, Crombie entered into a loan
agreement with SDlp to partially finance SDlp’s acquisition of
development lands in British Columbia. the $11,856 loan bears
interest at a rate of 6% per annum and has no principal repayments
until maturity on october 1, 2016.
Key management Personnel Compensation
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the activities of
Crombie. the following are considered to be Crombie’s key management
personnel: the Chief executive officer, Chief Financial officer and the
three other highest compensated executives.
•
During the second quarter of 2014 Crombie acquired a retail
property from SDlp for $10,176 excluding closing adjustments
the remuneration of members of key management during the period
was approximately as follows:
Salary, bonus and other short-term employee benefits
other long-term benefits
During the year ended December 31, 2015, Crombie’s long-term incentive
plan award for key management personnel is included in the ru plan,
which recognizes the expense and liability over the service period ending
on the vesting date. As a result, salary and bonus expense has decreased
compared to the same period in 2014.
Use of estimates and Judgments
the preparation of consolidated financial information requires
management to make judgments, estimates and assumptions that
affect the application of policies and reported amounts of assets and
liabilities, income and expenses. Significant judgment, estimate and
assumption items include impairment, employee future benefits,
income taxes, investment properties, purchase price allocations and fair
value of financial instruments. these estimates are based on historical
experience and management’s best knowledge of current events and
actions that Crombie may undertake in the future. Actual results could
differ from these estimates.
the estimates and underlying assumptions are reviewed on an ongoing
basis. revisions to accounting estimates are recognized in the period in
which the estimate is revised if the revisions affect only that period or in
the period of the revision and future periods if the revision affects both
current and future periods.
Critical Accounting estimates and Assumptions
Investment property acquisitions
upon acquisition, Crombie performs an assessment of investment
properties being acquired to determine whether the acquisition is to
be accounted for as an asset acquisition or a business combination.
three months ended December 31,
Year ended December 31,
2015
835
24
2014
2015
$
1,066
$
2,860
$
26
102
859
$
1,092
$
2,962
$
2014
4,158
103
4,261
$
$
A transaction is considered to be a business combination if the acquired
property meets the definition of a business; being an integrated set
of activities and assets that are capable of being managed for the
purpose of providing a return to the unitholders. Crombie performs
an assessment of the fair value of the properties’ related tangible and
intangible assets and liabilities and allocates the purchase price to the
acquired assets and liabilities. Crombie assesses and considers fair
value based on cash flow projections that take into account relevant
discount and capitalization rates and any other relevant sources of
market information available. estimates of future cash flow are based
on factors that include historical operating results, if available, and
anticipated trends, local markets and underlying economic conditions.
Crombie allocates the purchase price based on the following:
Land – the amount allocated to land is based on an appraisal estimate
of its fair value.
Buildings – Buildings are recorded at the estimated fair value of the
building and its components and significant parts.
Intangible Assets– Intangible assets are recorded for tenant
relationships, based on estimated costs avoided should the respective
tenants renew their leases at the end of the initial lease term, adjusted
for the estimated probability of renewal.
Fair value of debt – Values ascribed to fair value of debt are determined
based on the differential between contractual and market interest rates
on long-term liabilities assumed at acquisition.
2015 AnnuAl report Crombie reit
45
Investment properties
Investment properties are properties which are held to earn
rental income.
Investment properties include land, buildings and intangible assets.
Investment properties are carried at cost less accumulated depreciation
and are reviewed periodically for impairment.
Depreciation of buildings is calculated using the straight-line method
with reference to each property’s cost, the estimated useful life of the
building (not exceeding 40 years) and its components, significant parts
and residual value.
repairs and maintenance improvements are expensed as incurred or,
in the case of major items that constitute a capital asset, are capitalized
to the building and amortized on a straight-line basis over the expected
useful life of the improvement.
Change in useful life of investment properties
the estimated useful lives of significant investment properties are
reviewed whenever events or circumstances indicate a change in useful
life. estimated useful lives of significant investment properties are based
on management’s best estimate and the actual useful lives may be
different. revisions to the estimated useful lives of investment properties
constitute a change in accounting estimate and are accounted for
prospectively by amortizing the cumulative changes over the remaining
estimated useful life of the related assets.
Revenue recognition
property revenue includes rents earned from tenants under lease
agreements, percentage rent, realty tax and operating cost recoveries,
and other incidental income. Certain leases have rental payments that
change over their term due to changes in rates. Crombie records the
rental revenue from leases on a straight-line basis over the term of
the lease. Accordingly, an accrued rent receivable is recorded for the
difference between the straight-line rent recorded as property revenue
and the rent that is contractually due from the tenants. In addition, tenant
incentives are amortized on a straight-line basis over the term of existing
leases and the amortization is shown as a reduction in property revenue.
percentage rents are recognized when tenants are obligated to pay such
rent under the terms of the related lease agreements. realty tax and
operating cost recoveries, and other incidental income, are recognized
on an accrual basis.
Critical Judgments
Judgments made by management in the preparation of these financial
statements that have significant effect and estimates with a significant
risk of material adjustment to the carrying amount of assets and
liabilities are as follows:
Impairment of long-lived tangible and definite life intangible assets
long-lived tangible and definite life intangible assets are reviewed
for impairment at each reporting period for events or changes in
circumstances that indicate that the carrying value of the assets may
not be recoverable. If such an indication exists, the recoverable amount
of the asset is estimated in order to determine the extent of impairment
loss (if any). the recoverable amount is the higher of fair value less
costs to sell and value in use. Where the asset does not generate cash
flows that are independent from other assets, Crombie estimates the
recoverable amount of the cash generating unit(s) to which the asset
46
Crombie reit 2015 AnnuAl report
belongs. When the recoverable amount of an asset (or cash
generating unit) is estimated to be less than its carrying amount, the
carrying amount of the asset (or cash generating unit) is reduced to
the recoverable amount. An impairment loss is recognized as an
expense immediately in operating income.
Where an impairment loss subsequently reverses, the carrying amount
of the asset (or cash generating unit) is increased to the revised estimate,
but is limited to the carrying amount that would have been determined
if no impairment loss had been recognized in prior periods. A reversal of
impairment loss is recognized immediately in operating income.
Defined benefit liability
Management estimates the defined benefit liability annually with the
assistance of independent actuaries; however, the actual outcome
may vary due to estimation uncertainties. the estimate of Crombie’s
defined benefit liability is based on standard rates of inflation, medical
cost trends and mortality. It also takes into account Crombie’s specific
anticipation of future salary increases. Discount factors are determined
each reporting period by reference to high quality corporate bonds that
are denominated in the currency in which the benefits will be paid and
that have terms to maturity approximating the terms of the related
pension liability. estimation uncertainties exist particularly with regard
to medical cost trends, which may vary significantly in future appraisals
of Crombie’s defined benefit obligations.
Investment property valuation
external, independent valuation companies, having appropriate
recognized professional qualifications and recent experience in the
location and category of properties being valued, value Crombie’s
investment property portfolio on a rotating basis over a maximum
period of four years. the fair values, based on the date of the valuation,
represent an estimate of the price that would be agreed upon between
a willing buyer and a willing seller in an arm’s length transaction after
proper marketing wherein the parties had each acted knowledgeably,
prudently and without compulsion. Internal quarterly revaluations are
performed using internally generated valuation models prepared by
considering the aggregate cash flows received from leasing the property.
A yield obtained from an independent valuation company, which reflects
the specific risks inherent in the net cash flows, is then applied to the net
annual cash flows to arrive at the property valuation.
Deferred taxes
the assessment of the probability of future taxable income in which
deferred tax assets can be utilized is based on Crombie’s latest budget
forecast, which is adjusted for significant non-taxable income and
expenses and specific limits to the use of any unused tax loss or credit.
If a positive forecast of taxable income indicates the probable use of a
deferred tax asset, especially when it can be used without a time limit,
that deferred tax asset is usually recognized in full. the recognition of
deferred tax assets that are subject to certain legal or economic limits
or uncertainties are assessed individually by management based on
the specific facts and circumstances.
Crombie recognizes expected liabilities for tax based on an estimation
of the likely taxes due, which requires significant judgment as to the
ultimate tax determination of certain items. Where the actual liability
arising from these issues differs from these estimates, such differences
will have an impact on the income tax and deferred tax balances in the
period when such determination is made.
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts) Purchase price allocation
Investment properties are properties which are held to earn rental
income. Investment properties include land, buildings and intangible
assets. upon acquisition, management allocates the purchase price
of the acquisition. this allocation contains a number of estimates and
underlying assumptions including, but not limited to, estimated cash
flows, discount rates, lease-up rates, inflation rates, renewal rates and
leasing costs.
Fair value of financial instruments
the fair value of marketable financial instruments is the estimated
amount for which an instrument could be exchanged, or a liability
settled, by Crombie and a knowledgeable, willing party in an arm’s
length transaction.
the fair value of other financial instruments is based upon discounted
future cash flows using discount rates that reflect current market
conditions for instruments with similar terms and risks. Such fair value
estimates are not necessarily indicative of the amounts Crombie might
pay or receive in actual market transactions.
Financial instruments
the fair value of a financial instrument is the estimated amount that
Crombie would receive to sell a financial asset or pay to transfer a
financial liability in an orderly transaction between market participants
at the measurement date.
Fair value determination is classified within a three-level hierarchy, based
on observability of significant inputs, as follows:
level 1 – quoted prices (unadjusted) in active markets for identical
assets or liabilities.
level 2 – inputs other than quoted prices included within level 1
that are observable for the asset or liability, either directly
or indirectly.
level 3 – unobservable inputs for the asset or liability.
the following table provides information on financial assets and liabilities measured at fair value as at December 31, 2015:
Financial assets
Marketable securities
total financial assets measured at fair value
Financial liabilities
unit based compensation plans
total financial liabilities measured at fair value
level 1
level 2
level 3
total
$
$
$
$
—
—
842
842
$
$
$
$
—
—
—
—
$
$
$
$
1,965
1,965
—
—
$
$
$
$
1,965
1,965
842
842
there were no transfers between level 1 and level 2 during the year
ended December 31, 2015.
Due to their short-term nature, the carrying value of the following
financial instruments approximates their fair value at the balance
sheet date:
the fair value of other financial instruments is based on discounted cash
flows using discount rates that reflect current market conditions for
instruments with similar terms and risks. the following table summarizes
the estimated fair value of other financial instruments which have a fair
value different from their carrying value:
• Cash and cash equivalents
• trade receivables
• restricted cash
• trade and other payables (excluding embedded derivatives).
Financial assets
long-term receivables
total other financial assets
Financial liabilities
Investment property debt
Senior unsecured notes
Convertible debentures
December 31, 2015
December 31, 2014
Fair Value
Carrying Value
Fair Value
Carrying Value
$
$
13,968
13,968
$
$
13,933
13,933
$
$
13,663
13,663
$
$
13,631
13,631
$ 1,782,776
$ 1,651,079
$ 1,757,910
$ 1,635,187
405,348
138,360
400,000
134,400
284,778
183,698
275,000
179,400
total other financial liabilities
$ 2,326,484
$ 2,185,479
$ 2,226,386
$ 2,089,587
2015 AnnuAl report Crombie reit
47
Commitments and Contingencies
there are various claims and litigation which Crombie is involved with
arising out of the ordinary course of business operations. In the opinion
of management, any liability that would arise from such contingencies
would not have a significant adverse effect on these operating results.
Crombie has agreed to indemnify its trustees and officers, and particular
employees, in accordance with Crombie’s policies. Crombie maintains
insurance policies that may provide coverage against certain claims.
Crombie has entered into a management cost sharing agreement with
a subsidiary of empire.
Crombie obtains letters of credit to support its obligations with respect to
construction work on its investment properties and satisfying mortgage
financing requirements. As at December 31, 2015, Crombie has a total of
$1,425 in outstanding letters of credit related to:
Construction work being performed on investment properties
total outstanding letters of credit
December 31,
2015
1,425
1,425
$
$
2014
979
979
$
$
Crombie does not believe that any of these standby letters of credit are
likely to be drawn upon.
payments to third party landlords (three months and year ended
December 31, 2014 – $308 and $1,225, respectively).
land leases have varying terms ranging from 9 to 74 years including
renewal options. For the three months and year ended December 31,
2015, Crombie paid $354 and $1,418, respectively, in land lease
As at December 31, 2015, Crombie had signed construction contracts
totaling $16,736 of which $11,516 has been paid.
riSK mANAGemeNt
In the normal course of business, Crombie is exposed to a number
of financial risks that can affect its operating performance. the more
significant risks, and the action taken to manage them, are as follows:
Real Property Ownership and Tenant Risks
All real property investments are subject to elements of risk. the value
of real property and any improvements thereto depend on the credit and
financial stability of tenants and upon the vacancy rates of the properties.
In addition, certain significant expenditures, including property taxes,
ground rent, mortgage payments, insurance costs and related charges
must be made throughout the period of ownership of real property
regardless of whether a property is producing any income. Cash available
for distribution will be adversely affected if a significant number of
tenants are unable to meet their obligations under their leases or if a
significant amount of available space in the properties becomes vacant
and cannot be leased on economically favourable lease terms.
upon the expiry of any lease, there can be no assurance that the lease
will be renewed or the tenant replaced. the terms of any subsequent
lease may be less favourable to Crombie than those of an existing lease.
the ability to rent unleased space in the properties in which Crombie has
an interest will be affected by many factors, including general economic
conditions, local real estate markets, changing demographics, supply
and demand for leased premises, competition from other available
premises and various other factors. Management utilizes staggered
lease maturities so that Crombie is not required to lease unusually large
amounts of space in any given year. In addition, the diversification of our
property portfolio by geographic location, tenant mix and asset type also
help to mitigate this risk.
48
Crombie reit 2015 AnnuAl report
Credit risk
Credit risk arises from the possibility that tenants may experience
financial difficulty and be unable to fulfill their lease commitments.
A provision for doubtful accounts is taken for all anticipated
collectability risks.
Crombie mitigates credit risk by geographical diversification, utilizing
staggered lease maturities, diversifying both its tenant mix and asset
mix and conducting credit assessments for new and renewing tenants.
As at December 31, 2015:
•
excluding Sobeys (which accounts for 49.9% of Crombie’s go forward
minimum rent), no other tenant accounts for more than 5.8% of
Crombie’s minimum rent, and;
•
over the next five years, no more than 6.0% of the gross leasable area
of Crombie will expire in any one year.
Crombie earned property revenue of $160,470 for the year ended
December 31, 2015 (year ended December 31, 2014 – $152,855) from
Sobeys Inc. and other subsidiaries of empire.
receivables are substantially comprised of current balances due from
tenants. the balance of accounts receivable past due is not significant.
Generally, rents are due the first of each month and other tenant billings
are due 30 days after invoiced, and in general, balances over 30 days
are considered past due. none of the receivable balances are
considered impaired.
the provision for doubtful accounts is reviewed at each balance
sheet date. A provision is taken on accounts receivable from
independent accounts and is recorded as a reduction to its respective
receivable account on the balance sheet. Crombie updates its estimate
of provision for doubtful accounts based on past due balances on
accounts receivable. Current and long-term accounts receivable are
reviewed on a regular basis and are provided for when collection is
considered uncertain.
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts)
provision for doubtful accounts, beginning of year
Additional provision
recoveries
Write-offs
provision for doubtful accounts, end of year
Year ended
December 31,
2015
Year ended
December 31,
2014
$
$
$
59
20
(38)
19
60
$
47
(43)
(33)
88
59
there have been no significant changes to Crombie’s credit risk since
December 31, 2014.
percentage of annual minimum rent of Crombie’s properties as at
December 31, 2015 is detailed under the property portfolio section.
Competition
the real estate business is competitive. numerous other developers,
managers and owners of properties compete with Crombie in seeking
tenants. Some of the properties located in the same markets as
Crombie’s properties are newer, better located, less levered or have
stronger anchor tenants than Crombie’s properties. Some property
owners with properties located in the same markets as Crombie’s
properties may be better capitalized and may be stronger financially
and hence better able to withstand an economic downturn. Competitive
pressures in such markets could have a negative effect on Crombie’s
ability to lease space in its properties and on the rents charged or
concessions granted.
risk Factors related to the business of Crombie
Significant Relationship
Crombie’s anchor tenants are concentrated in a relatively small number
of retail operators. Specifically, 51.0% of the annual minimum rent
generated from Crombie’s properties is derived from anchor tenants
that are owned and/or operated by Sobeys. therefore, Crombie is
reliant on the sustainable operation by Sobeys in these locations.
Retail and Geographic Concentration
Crombie’s portfolio of properties is heavily weighted in retail properties.
Consequently, changes in the retail environment and general consumer
spending could adversely impact Crombie’s financial condition.
Crombie’s portfolio of properties was historically heavily concentrated
in Atlantic Canada. through property acquisitions and dispositions over
the last three years, Crombie has reduced its geographic concentration
in Atlantic Canada, and reduced the adverse impact an economic
downturn concentrated in Atlantic Canada could have on Crombie’s
financial condition. the geographic breakdown of properties and
Impact on operating income attributable to unitholders of interest rate
changes on the floating rate revolving credit facility
three months ended December 31, 2015
three months ended December 31, 2014
Year ended December 31, 2015
Year ended December 31, 2014
Crombie’s growth strategy of expansion outside of Atlantic Canada
is predicated on reducing the geographic concentration risk. the
percentage of annual minimum rent to be earned in Atlantic Canada
has decreased from 43.4% at December 31, 2013 to 40.2% at
December 31, 2015.
interest rate risk
Interest rate risk is the potential for financial loss arising from increases
in interest rates. Crombie mitigates this risk by utilizing staggered debt
maturities and limiting the use of permanent floating rate debt and, on
occasion, utilizing interest rate swap agreements. Crombie does not
enter into interest rate swaps on a speculative basis.
As at December 31, 2015:
•
•
Crombie’s weighted average term to maturity of its fixed rate
mortgages was 6.6 years;
Crombie has a floating rate revolving credit facility available to a
maximum of $300,000, subject to available borrowing base, with
a balance of $130,000 at December 31, 2015; and,
•
Crombie has no outstanding interest rate swap agreements to
mitigate interest rate risk on floating rate debt.
Crombie estimates that $2,440 of accumulated other comprehensive
income (loss) will be reclassified to finance costs during the year
ending December 31, 2016, based on all settled swap agreements
as of December 31, 2015.
A fluctuation in interest rates would have had an impact on Crombie’s
operating income related to the use of floating rate debt. Based on
the previous year’s rate changes, a 0.5% interest rate change would
reasonably be considered possible. the changes would have had the
following impact:
Impact of a 0.5% interest rate change
Decrease in rate
Increase in rate
$
$
$
$
172
109
635
334
$
$
$
$
(172)
(109)
(635)
(334)
2015 AnnuAl report Crombie reit
49
there have been no significant changes to Crombie’s interest rate risk since December 31, 2014.
Liquidity risk
the real estate industry is highly capital intensive. liquidity risk is the risk
that Crombie may not have access to sufficient debt and equity capital
to fund its growth program, refinance debt obligations as they mature or
meet its ongoing obligations as they arise.
Cash flow generated from operating the property portfolio represents
the primary source of liquidity used to service the interest on debt, fund
general and administrative expenses, reinvest in the portfolio through
capital expenditures, as well as fund tenant incentive costs and make
distributions to unitholders. Debt repayment requirements are primarily
funded from refinancing Crombie’s maturing debt obligations. property
acquisition funding requirements are funded through a combination of
accessing the debt and equity capital markets.
there is a risk that the debt capital markets may not refinance maturing
fixed rate and floating rate debt on terms and conditions acceptable
to Crombie or at any terms at all. Crombie seeks to mitigate this risk
by staggering its debt maturity dates. there is also a risk that the equity
capital markets may not be receptive to a reIt unit offering issue
from Crombie with financial terms acceptable to Crombie. Crombie
mitigates its exposure to liquidity risk utilizing a conservative approach
to capital management.
Access to the revolving credit facility is limited by the amount utilized
under the facility and the amount of any outstanding letters of credit,
and cannot exceed the borrowing base security provided by Crombie.
the estimated payments, including principal and interest, on non-
derivative financial liabilities to maturity date are as follows:
Year ending December 31,
Fixed rate mortgages(2)
Senior unsecured notes
Convertible debentures
Contractual Cash Flows(1)
2016
2017
2018
2019
2020
thereafter
$ 1,908,629 $ 158,514 $ 152,448 $ 163,332 $ 221,009 $ 245,318 $ 968,008
455,486
166,157
14,407
6,906
14,407
6,906
2,530,272
179,827
173,761
188,244
6,906
358,482
131,612
7,431
66,156
129,346
3,906
101,651
75,377
294,596
378,570
—
—
1,145,036
—
Floating rate revolving credit facility
138,060
3,224
3,224
total
$ 2,668,332 $ 183,051 $ 176,985 $ 490,094 $ 294,596 $ 378,570 $ 1,145,036
(1) Contractual cash flows include principal and interest and ignore extension options.
(2) reduced by the interest rate subsidy payments to be received from eCl Developments limited.
there have been no significant changes to Crombie’s liquidity risk since
December 31, 2014.
environmental matters
environmental legislation and regulations have become increasingly
important in recent years. As an owner of interests in real property in
Canada, Crombie is subject to various Canadian federal, provincial
and municipal laws relating to environmental matters.
Such laws provide that Crombie could become liable for environmental
harm, damage or costs, including with respect to the release of
hazardous, toxic or other regulated substances into the environment,
and the removal or other remediation of hazardous, toxic or other
regulated substances that may be present at or under its properties.
the failure to remove or otherwise address such substances or
properties, if any, may adversely affect Crombie’s ability to sell such
property, realize the full value of such property or borrow using such
property as collateral security, and could potentially result in claims
against Crombie by public or private parties by way of civil action.
Crombie’s operating policy is to obtain a phase I environmental
site assessment, conducted by an independent and experienced
environmental consultant, prior to acquiring a property and to have
phase II environmental site assessment work completed where
recommended in a phase I environmental site assessment.
Crombie is not aware of any material non-compliance with environmental
laws at any of its properties, and is not aware of any pending or threatened
investigations or actions by environmental regulatory authorities
in connection with any of its properties. Crombie has implemented
policies and procedures to assess, manage and monitor environmental
conditions at its properties to manage exposure to liability.
50
Crombie reit 2015 AnnuAl report
Potential Conflicts of Interest
the trustees will, from time to time, in their individual capacities, deal
with parties with whom Crombie may be dealing, or may be seeking
investments similar to those desired by Crombie. the interests of these
persons could conflict with those of Crombie. the Declaration of trust
contains conflict of interest provisions requiring the trustees to disclose
their interests in certain contracts and transactions and to refrain from
voting on those matters. In addition, certain decisions regarding matters
that may give rise to a conflict of interest must be made by a majority of
independent trustees only.
Conflicts may exist due to the fact that certain trustees, senior officers
and employees of Crombie are directors and/or senior officers of eCl
and/or its affiliates or will provide management or other services to eCl
and its affiliates. eCl and its affiliates are engaged in a wide variety of real
estate and other business activities. Crombie may become involved in
transactions that conflict with the interests of the foregoing. the interests
of these persons could conflict with those of Crombie. to mitigate these
potential conflicts, Crombie and eCl have entered into a number of
agreements to outline how potential conflicts of interest will be dealt with
including a non-Competition Agreement, Management Cost Sharing
Agreement and Development Agreement. As well, the Declaration of
trust contains a number of provisions to manage potential conflicts of
interest including setting limits to the number of eCl appointees to the
Board, “conflict of interest” guidelines, as well as outlining which matters
require the approval of a majority of the independent elected trustees
such as any property acquisitions or dispositions between Crombie and
eCl or another related party.
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts)
Reliance on Key Personnel
the management of Crombie depends on the services of certain key
personnel. the loss of the services of any key personnel could have an
adverse effect on Crombie and adversely impact Crombie’s financial
condition. Crombie does not have key-man insurance on any of its
key employees.
Reliance on ECL, Sobeys and Other Empire Affiliates
eCl has agreed to support Crombie under an omnibus subsidy
agreement and to pay ongoing rent pursuant to a head lease and a
ground lease. Sobeys and Sobeys West have provided the omnibus
environmental Indemnity described above under “related party
transactions”. In addition, a significant portion of Crombie’s rental
income will be received from tenants that are affiliates of empire. Finally,
eCl has obligations to indemnify Crombie in respect to the cost of
environmental remediation of certain properties acquired by Crombie
from eCl to a maximum permitted amount. there is no certainty that
eCl will be able to perform its obligations to Crombie in connection
with these agreements. eCl, Sobeys or Sobeys West has not provided
any security to guarantee these obligations. If eCl, Sobeys, Sobeys
West, empire or such affiliates are unable or otherwise fail to fulfill their
obligations to Crombie, such failure could adversely impact Crombie’s
financial condition.
Prior Commercial Operations
Crombie limited partnership (“Crombie lp”) acquired from eCl all
of the outstanding shares of Crombie Developments limited (“CDl”).
CDl is the company resulting from the amalgamation of predecessor
companies which began their operations in 1964 and have since been
involved in various commercial activities in the real estate sector. In
addition, the share capital of CDl and its predecessors has been subject
to various transfers, redemptions and other modifications. pursuant
to the acquisition, eCl made certain representations and warranties to
Crombie with respect to CDl, including with respect to the structure of
its share capital and the scope and amount of its existing and contingent
liabilities. eCl also provided an indemnity to Crombie under the acquisition
which provides, subject to certain conditions and thresholds, that eCl will
indemnify Crombie for breaches of such representations and warranties.
there can be no assurance that Crombie will be fully protected in the
event of a breach of such representations and warranties or that eCl
will be in a position to indemnify Crombie if any such breach occurs.
eCl has not provided any security for its obligations and is not required
to maintain any cash within eCl for this purpose.
Crombie lp acquired from eCl directly and indirectly 61 properties on
April 22, 2008 (the “portfolio Acquisition”). pursuant to the portfolio
Acquisition, eCl made certain representations and warranties to
Crombie with respect to the properties, including with respect to the
scope and amount of its existing and contingent liabilities. eCl also
provided an indemnity to Crombie under the portfolio Acquisition which
provides, subject to certain conditions and thresholds, that eCl will
indemnify Crombie for breaches of such representations and warranties.
there can be no assurance that Crombie will be fully protected in the
event of a breach of such representations and warranties or that eCl
will be in a position to indemnify Crombie if any such breach occurs.
eCl has not provided any security for its obligations and is not required
to maintain any cash within eCl for this purpose.
risk Factors related to the Units
Cash Distributions Are Not Guaranteed
there can be no assurance regarding the amount of income to be
generated by Crombie’s properties. the ability of Crombie to make cash
distributions and the actual amount distributed are entirely dependent
on the operations and assets of Crombie and its subsidiaries, and are
subject to various factors including financial performance, obligations
under applicable credit facilities, the sustainability of income derived
from anchor tenants and capital expenditure requirements. Cash
available to Crombie to fund distributions may be limited from time to
time because of items such as principal repayments, tenant allowances,
leasing commissions, capital expenditures and redemptions of units,
if any. Crombie may be required to use part of its debt capacity or to
reduce distributions in order to accommodate such items. the market
value of the units will deteriorate if Crombie is unable to maintain its
distribution in the future, and that deterioration may be significant. In
addition, the composition of cash distributions for tax purposes may
change over time and may affect the after-tax return for investors.
Restrictions on Redemptions
It is anticipated that the redemption of units will not be the primary
mechanism for holders of units to liquidate their investments. the
entitlement of unitholders to receive cash upon the redemption of their
units is subject to the following limitations: (i) the total amount payable
by Crombie in respect of such units and all other units tendered for
redemption in the same calendar month must not exceed $50 (provided
that such limitation may be waived at the discretion of the trustees);
(ii) at the time such units are tendered for redemption, the outstanding
units must be listed for trading on a stock exchange or traded or quoted
on another market which the trustees consider, in their sole discretion,
provides fair market value prices for the units; and (iii) the trading of
units is not suspended or halted on any stock exchange on which the
units are listed (or, if not listed on a stock exchange, on any market on
which the units are quoted for trading) on the redemption date for more
than five trading days during the 10-day trading period commencing
immediately after the redemption date.
Potential Volatility of Unit Prices
one of the factors that may influence the market price of the units is the
annual yield on the units. An increase in market interest rates may lead
purchasers of units to demand a higher annual yield, which accordingly
could adversely affect the market price of the units. In addition, the
market price of the units may be affected by changes in general
market conditions, fluctuations in the markets for equity securities
and numerous other factors beyond the control of Crombie.
Tax-Related Risk Factors
Crombie intends to make distributions not less than the amount
necessary to eliminate Crombie’s liability for tax under part I of the
Income tax Act (Canada). Where the amount of net income and net
realized capital gains of Crombie in a taxation year exceeds the cash
available for distribution in the year, such excess net income and net
realized capital gains will be distributed to unitholders in the form
of additional units. unitholders will generally be required to include
an amount equal to the fair market value of those units in their
taxable income, notwithstanding that they do not directly receive
a cash distribution.
2015 AnnuAl report Crombie reit
51
Income fund or reIt structures in which there is a significant corporate
subsidiary such as CDl generally involve a significant amount of inter-
company or similar debt, generating substantial interest expense, which
reduces earnings and therefore income tax payable. Management
believes that the interest expense inherent in the structure of Crombie
is supportable and reasonable in the circumstances; however, there
can be no assurance that taxation authorities will not seek to challenge
the amount of interest expense deducted on the debt owing by CDl
to Crombie lp. If such a challenge were to succeed, it could adversely
affect the amount of cash available for distribution.
Certain properties have been acquired by Crombie lp on a tax deferred
basis, whereby the tax cost of these properties is less than their fair
market value. Accordingly if one or more of such properties are disposed
of, the gain for tax purposes recognized by Crombie lp will be in excess
of that which it would have been if it had acquired the properties at a tax
cost equal to their fair market values.
the cost amount for taxation purposes of various properties of
CDl will be lower than their fair market value, generally resulting in
correspondingly lower deductions for taxation purposes and higher
recapture of depreciation or capital gains on their disposition. In addition,
CDl (unlike Crombie) may not reduce its taxable income through cash
distributions. If CDl should become subject to corporate income tax, the
cash available for distribution to unitholders would likely be reduced.
on June 22, 2007, tax legislation Bill C-52, the Budget Implementation
Act, 2007 (the “Act”) was passed into law. the Act related to the federal
income taxation of publicly traded income trusts and partnerships. the
Act subjects all existing income trusts, or specified investment flow-
through entities (“SIFts”), to corporate tax rates, beginning in 2011,
subject to an exemption for real estate investment trusts (“reIts”).
the exemption for reIts was provided to “recognize the unique history
and role of collective real estate investment vehicles,” which are well-
established structures throughout the world. A trust that satisfies the
criteria of a reIt throughout its taxation year will not be subject to
income tax in respect of distributions to its unitholders or be subject
to the restrictions on its growth that would apply to SIFts.
While reIts were exempted from the SIFt taxation, the Act proposed a
number of technical tests to determine which entities would qualify as
a reIt. these technical tests did not fully accommodate the business
structures used by many Canadian reIts.
Crombie and its advisors underwent an extensive review of Crombie’s
organizational structure and operations to support Crombie’s assertion
that it meets the reIt technical tests contained in the Act throughout
the 2008 through 2015 fiscal years. the relevant tests apply throughout
the taxation year of Crombie and, as such, the actual status of Crombie
for any particular taxation year can only be ascertained at the end of
the year.
notwithstanding that Crombie may meet the criteria for a reIt under
the Act and thus be exempt from the distribution tax, there can be
no assurance that the Department of Finance (Canada) or other
governmental authority will not undertake initiatives which have an
adverse impact on Crombie or its unitholders.
Indirect Ownership of Units by Empire
eCl holds a 41.5% (fully diluted 40.2%) economic interest in Crombie
through the ownership of reIt and Class B lp units. pursuant to the
exchange Agreement, each Class B lp unit will be exchangeable at the
option of the holder for one unit of Crombie and will be attached to a
Special Voting unit of Crombie, providing for voting rights in Crombie.
Furthermore, pursuant to the Declaration of trust, eCl is entitled to
appoint a certain number of trustees based on the percentage of units
held by it. thus, empire is in a position to exercise a certain influence with
respect to the affairs of Crombie. If empire sells substantial amounts of
its Class B lp units or exchanges such units for units and sells these
units in the public market, the market price of the units could fall. the
perception among the public that these sales will occur could also
produce such effect.
Ownership of Debentures
the Debentures may trade at lower than issued prices depending on
many factors, including liquidity of the Debentures, prevailing interest
rates and the markets for similar securities, the market price of the units,
general economic conditions and Crombie’s financial condition, historic
financial performance and future prospects.
Ownership of Senior Unsecured Notes (“Notes”)
there is no market through which the notes may be sold. Crombie does
not intend to list the notes on any securities exchange or include the
notes in any automated quotation system.
therefore, an active market for the notes may not develop or be
maintained, which would adversely affect the market price and liquidity
of the notes. In such case, the holders of the notes may not be able to
sell their notes at a particular time or at a favorable price. If a trading
market were to develop, future trading prices of the notes may be volatile
and will depend on many factors, including:
• the number of holders of notes;
• prevailing interest rates;
• Crombie’s operating performance and financial condition;
• the interest of securities dealers in making a market for them; and,
• the market for similar securities.
even if an active trading market for the notes does develop, there is no
guarantee that it will continue. the notes may trade at a discount from
their initial offering price, depending upon prevailing interest rates, the
market for similar notes, Crombie’s performance and other factors.
52
Crombie reit 2015 AnnuAl report
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts) SUbSeQUeNt eVeNtS
(a)
(b)
on January 20, 2016 Crombie declared distributions of 7.417 cents
per unit for the period from January 1, 2016 to and including,
January 31, 2016. the distributions were paid on February 15, 2016,
to unitholders of record as of January 29, 2016.
on February 17, 2016 Crombie declared distributions of 7.417 cents
per unit for the period from February 1, 2016 to and including,
February 29, 2016. the distributions will be paid on March 14, 2016,
to unitholders of record as of February 29, 2016.
CoNtroLS AND ProCeDUreS
Crombie maintains a set of disclosure controls and procedures designed
to ensure that information required to be disclosed by Crombie in its
annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in the securities legislation
and include controls and procedures designed to ensure that information
required to be disclosed by Crombie is accumulated and communicated
to Crombie’s management, including its president and Chief executive
officer (“Ceo”) and executive Vice president, Chief Financial officer
and Secretary (“CFo”), as appropriate, to allow timely decisions
regarding disclosure. our Ceo and CFo have evaluated the design
and effectiveness of our disclosure controls and procedures as of
December 31, 2015. they have concluded that our current disclosure
controls and procedures are effective.
(c)
on January 29, 2016 Crombie and a third party waived conditions
for the disposition of 11 properties totaling 857,000 square feet of
gross leasable area, with an expected closing in the first quarter of
2016. total proceeds, before closing adjustments and transaction
costs, are approximately $150,000 resulting in a pre-tax gain on
disposal of approximately $30,000.
In addition, our Ceo and CFo have designed or caused to be designed
under their supervision, internal controls over financial reporting
(“ICFr”) to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes as defined in national Instrument 52-109. the control
framework management used to design and assess the effectiveness
of ICFr is Internal Control-Integrated Framework (2013) issued by the
Committee of Sponsoring organizations of the treadway Commission
(CoSo). Further, our Ceo and CFo have evaluated, or caused to be
evaluated under their supervision, the effectiveness of the design and
operation of ICFr as at December 31, 2015, and have concluded that our
current ICFr was effective based on that evaluation. there have been no
material changes to Crombie’s internal controls during the year.
2015 AnnuAl report Crombie reit
53
QUArterLY iNFormAtioN
the following table shows information for revenues, expenses, increase (decrease) in net assets attributable to unitholders, AFFo, FFo, distributions
and per unit amounts for the eight most recently completed quarters.
(In thousands of CAD dollars,
except per unit amounts)
Dec. 31,
2015
Sep. 30,
2015
Jun. 30,
2015
Mar. 31,
2015
Dec. 31,
2014
Sep. 30,
2014
Jun. 30,
2014
Mar. 31,
2014
three Months ended
property revenue
property operating
expenses
property net operating
income
Gain (loss) on
derecognition
expenses:
General and administrative
Finance costs – operations
Depreciation and
amortization
Impairment
operating income
before taxes
taxes – current
taxes – deferred
operating income
Finance costs –
distributions to
unitholders
Finance income (costs) –
change in fair value of
financial instruments
Decrease in net assets
attributable to
unitholders
operating income
per unit – Basic
operating income
per unit – Diluted
(In thousands of CAD dollars,
except per unit amounts)
AFFo
FFo
Distributions
AFFo per unit – basic
AFFo per unit – diluted(1)
FFo per unit – basic
FFo per unit – diluted(1)
Distributions per unit
$
92,847 $
89,611 $
94,907 $
92,501 $
90,602 $
87,796 $
89,008 $
90,913
28,858
26,892
27,328
30,183
27,324
25,333
27,409
29,554
63,989
62,719
67,579
62,318
63,278
62,463
61,599
61,359
25
—
—
(2)
9,502
11
(3)
(157)
(3,541)
(3,923)
(3,463)
(3,474)
(3,380)
(3,529)
(4,083)
(3,756)
(24,600)
(24,306)
(24,287)
(25,418)
(24,449)
(24,701)
(25,070)
(25,246)
(16,789)
(16,340)
(16,925)
(16,522)
(16,024)
(15,632)
(15,943)
(7,300)
—
(5,275)
—
(7,500)
(3,250)
—
11,784
18,150
17,629
16,902
21,427
15,362
16,500
(39)
2,200
(621)
400
(2,276)
1,800
—
(200)
—
800
—
900
—
500
13,945
17,929
17,153
16,702
22,227
16,262
17,000
(16,525)
—
15,675
—
225
15,900
(29,236)
(29,153)
(29,111)
(29,076)
(29,052)
(29,050)
(28,480)
(27,355)
3,068
(3,112)
368
(268)
3,446
(3,342)
130
55
$
(12,223) $
(14,336) $
(11,590) $
(12,642) $
(3,379) $
(16,130) $
(11,350) $
(11,400)
$
$
$
$
$
$
$
$
$
$
0.11 $
0.14 $
0.13 $
0.13 $
0.17 $
0.12 $
0.14 $
0.13
0.11 $
0.14 $
0.13 $
0.13 $
0.17 $
0.12 $
0.14 $
0.13
three Months ended
Dec. 31,
2015
Sep. 30,
2015
Jun. 30,
2015
Mar. 31,
2015
Dec. 31,
2014
Sep. 30,
2014
Jun. 30,
2014
Mar. 31,
2014
32,310 $ 30,694 $ 32,733 $ 29,917 $ 30,211 $ 30,224 $ 28,972 $ 28,769
38,311 $ 36,312 $ 39,079 $ 35,772 $ 36,363 $ 36,359 $ 34,836 $ 34,494
29,236 $ 29,153 $ 29,111 $ 29,076 $ 29,052 $ 29,050 $ 28,480 $ 27,355
0.25 $
0.25 $
0.29 $
0.29 $
0.23 $
0.23 $
0.28 $
0.28 $
0.25 $
0.25 $
0.30 $
0.30 $
0.23 $
0.23 $
0.27 $
0.27 $
0.23 $
0.23 $
0.28 $
0.28 $
0.23 $
0.23 $
0.28 $
0.28 $
0.23 $
0.23 $
0.28 $
0.27 $
0.22 $
0.22 $
0.22 $
0.22 $
0.22 $
0.22 $
0.22 $
0.23
0.23
0.28
0.28
0.22
(1)
FFo and AFFo per unit are calculated on a diluted basis. the diluted weighted average number of total units and Special Voting units included the conversion of all series of convertible
debentures outstanding during the period, excluding any series that is anti-dilutive. Distributions per unit for each period are based on the total distributions per unit declared during the
specific period.
54
Crombie reit 2015 AnnuAl report
ManageMent’s Discussion anD analysis(In thousands of CAD dollars, except per unit amounts)
Variations in quarterly results over the past eight quarters have been
influenced by the following specific transactions and ongoing events:
•
•
property acquisitions and dispositions (excluding closing and
transaction costs) for each of the above three month periods were:
– December 31, 2015 – acquisition of four retail properties and two
additions to existing retail properties for a total purchase price
of $60,825;
– September 30, 2015 – acquisition of one retail property for a total
purchase price of $20,500;
– June 30, 2015 – acquisition of an addition to an existing retail
property for a total purchase price of $2,333;
– March 31, 2015 – acquisition of an addition to an existing retail
property for a total purchase price of $12,650;
– December 31, 2014 – acquisition of 11 retail properties and one
development addition to an existing retail property for a total
purchase price of $142,447 and five retail property dispositions for
proceeds of $65,000; and,
– June 30, 2014 – acquisition of one retail property for a total
purchase price of $10,176.
property revenue and property operating expenses – Crombie’s
business is subject to seasonal fluctuations. property operating
expenses during winter months include particular expenses such
as snow removal, which is a recoverable expense, thus increasing
property revenue during these same periods. property operating
expenses during the summer and fall periods include particular
expenses such as paving and roof repairs.
•
per unit amounts for FFo and AFFo are influenced by operating
results as detailed above and by the timing of the issuance of reIt
units and Class B lp units. Crombie had issuances, net of issue
costs, of $97,147 in the quarter ended June 30, 2014.
Additional information relating to Crombie, including its latest Annual
Information Form, can be found on the SeDAr web site for Canadian
regulatory filings at www.sedar.com.
Dated: February 24, 2016
new Glasgow, nova Scotia, Canada
2015 AnnuAl report Crombie reit
55
Management’s Statement of Responsibility
for Financial Reporting
preparation of the consolidated financial statements accompanying this annual report and the presentation of all other information in the report is
the responsibility of management. the consolidated financial statements have been prepared in accordance with International Financial reporting
Standards and reflect management’s best estimates and judgments. All other financial information in the report is consistent with that contained in
the consolidated financial statements.
Management of the trust has established and maintains a system of internal control that provides reasonable assurance as to the integrity of the
consolidated financial statements, the safeguard of trust assets, and the prevention and detection of fraudulent financial reporting.
the Board of trustees, through its Audit Committee, oversees management in carrying out its responsibilities for financial reporting and systems of
internal control. the Audit Committee, which is chaired by and composed solely of trustees who are unrelated to, and independent of, the trust, meet
regularly with financial management and external auditors to satisfy itself as to reliability and integrity of financial information and the safeguarding of
assets. the Audit Committee reports its findings to the Board of trustees for consideration in approving the annual consolidated financial statements
to be issued to unitholders. the external auditors have full and free access to the Audit Committee.
Donald E. Clow, FCPA, FCA
president and
Chief executive officer
Glenn R. Hynes, FCPA, FCA
executive Vice president,
Chief Financial officer and Secretary
February 24, 2016
February 24, 2016
56
Crombie reit 2015 AnnuAl report
Independent Auditor’s Report
to the Unitholders of Crombie real estate investment trust
We have audited the accompanying consolidated financial statements of Crombie real estate Investment trust, which comprise the consolidated
balance sheets as at December 31, 2015 and December 31, 2014 and the consolidated statements of comprehensive income (loss), changes
in net assets attributable to unitholders and cash flows for the years then ended, and a summary of significant accounting policies and other
explanatory information.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International
Financial reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance
with Canadian generally accepted auditing standards. those standards require that we comply with ethical requirements and plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. the
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Crombie real estate Investment
trust as at December 31, 2015 and December 31, 2014 and its financial performance and its cash flows for the years ended December 31, 2015 and
December 31, 2014 in accordance with International Financial reporting Standards.
Chartered Accountants
Halifax, Canada
February 24, 2016
2015 AnnuAl report Crombie reit
57
Consolidated Financial Statements
CoNSoLiDAteD bALANCe SHeetS
(In thousands of CAD dollars)
Assets
Non-current assets
Investment properties
Intangible assets
other assets
long-term receivables
Current assets
Cash and cash equivalents
other assets
long-term receivables
Investment properties held for sale
Total Assets
Liabilities
Non-current liabilities
Investment property debt
Senior unsecured notes
Convertible debentures
Deferred taxes
employee future benefits obligation
trade and other payables
Current liabilities
Investment property debt
employee future benefits obligation
trade and other payables
total liabilities excluding net assets attributable to unitholders
net assets attributable to unitholders
Net assets attributable to Unitholders represented by:
Crombie reIt unitholders
Special Voting units and Class B limited partnership unitholders
Commitments and contingencies
Subsequent events
See accompanying notes to the consolidated financial statements.
58
Crombie reit 2015 AnnuAl report
note
December 31,
2015
December 31,
2014
$ 3,157,279
45,607
100,891
600
$ 3,196,097
48,106
93,489
12,572
3,304,377
3,350,264
1,057
33,978
13,333
119,448
167,816
611
27,902
1,059
33,578
63,150
3,472,193
3,413,414
1,548,648
1,496,925
398,080
131,518
74,200
7,736
6,661
273,592
175,215
78,400
7,803
4,781
2,166,843
2,036,716
92,555
246
65,319
158,120
127,622
239
65,523
193,384
2,324,963
2,230,100
$ 1,147,230
$ 1,183,314
$
694,484
$
716,025
452,746
467,289
$ 1,147,230
$ 1,183,314
3
4
5
6
5
6
7
8
9
10
11
12
13
8
12
13
23
24
CoNSoLiDAteD StAtemeNtS oF ComPreHeNSiVe iNCome (LoSS)
(In thousands of CAD dollars)
property revenue
property operating expenses
Net property income
Gain (loss) on derecognition of investment properties
Impairment of investment properties
Depreciation of investment properties
Amortization of deferred leasing costs
Amortization of intangible assets
General and administrative expenses
Operating income before finance costs and taxes
Finance costs – operations
Operating income before taxes
taxes – current
taxes – deferred
Operating income attributable to Unitholders
Finance costs – other
Distributions to unitholders
Change in fair value of financial instruments
Decrease in net assets attributable to Unitholders
Other comprehensive income
Items that will not be subsequently reclassified to Decrease in net assets attributable to unitholders:
unamortized actuarial gains (losses) in employee future benefit obligation
Items that will be subsequently reclassified to Decrease in net assets attributable to unitholders:
Costs incurred on derivatives designated as cash flow hedges transferred
to finance costs – operations
net change in derivatives designated as cash flow hedges
other comprehensive income
Comprehensive income (loss)
See accompanying notes to the consolidated financial statements.
Year ended
December 31,
2015
Year ended
December 31,
2014
note
14
$
369,866
$
113,261
256,605
23
(12,575)
(60,498)
(598)
(5,480)
(14,401)
163,076
(98,611)
64,465
(2,936)
4,200
65,729
358,319
109,620
248,699
9,353
(10,750)
(57,983)
(535)
(5,606)
(14,748)
168,430
(99,466)
68,964
—
2,425
71,389
(116,576)
56
(113,937)
289
(116,520)
(113,648)
(50,791)
(42,259)
3
3
3
4
17
11
11
13
12
352
(582)
2,520
—
2,872
2,797
7
2,222
$
(47,919)
$
(40,037)
2015 AnnuAl report Crombie reit
59
CONSOLIDATED FINANCIAL STATEMENTS
CoNSoLiDAteD StAtemeNtS oF CHANGeS iN Net ASSetS AttribUtAbLe to UNitHoLDerS
(In thousands of CAD dollars)
Balance, January 1, 2015
Adjustments related to eupp
Conversion of debentures
Statements of comprehensive
income (loss)
units issued under DrIp
reit Units, Special
Voting Units and
Class b LP Units
Net Assets
Attributable
to Unitholders
(note 18)
Accumulated
other
Comprehensive
income (Loss)
Attributable to
total
reit Units
Class b
LP Units
$ 1,462,101
$
(265,010)
$
(13,777)
$ 1,183,314
$
716,025
$
467,289
75
205
—
11,504
51
—
(50,791)
—
—
—
2,872
—
126
205
126
205
—
—
(47,919)
11,504
(28,595)
6,723
(19,324)
4,781
balance, December 31, 2015
$ 1,473,885
$
(315,750)
$
(10,905)
$ 1,147,230
$
694,484
$
452,746
(In thousands of CAD dollars)
Balance, January 1, 2014
Adjustments related to eupp
Conversion of debentures
Statements of comprehensive
income (loss)
units issued under DrIp
unit issue proceeds,
net of costs of $2,827
reIt units, Special
Voting units and
Class B lp units
net Assets
Attributable
to unitholders
Accumulated
other
Comprehensive
Income (loss)
Attributable to
total
reIt units
$ 1,363,025
842
600
$
(222,728)
(23)
—
$
(15,999)
—
—
$ 1,124,298
819
600
$
680,935
819
600
$
Class B
lp units
443,363
—
—
—
438
(42,259)
—
2,222
—
(40,037)
438
(23,951)
256
(16,086)
182
97,196
—
—
97,196
57,366
39,830
Balance, December 31, 2014
$ 1,462,101
$
(265,010)
$
(13,777)
$ 1,183,314
$
716,025
$
467,289
See accompanying notes to the consolidated financial statements.
60
Crombie reit 2015 AnnuAl report
CoNSoLiDAteD StAtemeNtS oF CASH FLoWS
(In thousands of CAD dollars)
Cash flows provided by (used in)
Operating Activities
Decrease in net assets attributable to unitholders
Items not affecting operating cash
Change in other non-cash operating items
Income taxes paid
Cash provided by (used in) operating activities
Financing Activities
Issue of investment property debt
Deferred financing charges – investment property debt
Advance (repayment) of investment property debt
Issue of senior unsecured notes
Deferred financing charges – senior unsecured notes
redemption of convertible debentures
reIt units and Class B lp units issued
reIt units and Class B lp units issue costs
repayment of eupp loans receivable
Decrease in liabilities related to derecognized property
Issue of long-term receivables
Collection of (increase in) long-term receivables
Cash provided by (used in) financing activities
Investing Activities
Acquisition of investment properties and intangible assets
Additions to investment properties
proceeds on derecognition of investment properties
Additions to tenant incentives
Additions to deferred leasing costs
Decrease in assets related to derecognized property
Cash provided by (used in) investing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to the consolidated financial statements.
Year ended
December 31,
2015
Year ended
December 31,
2014
note
$
19
19
$
(50,791)
94,015
1,481
(3,591)
41,114
(42,259)
65,337
(1,093)
—
21,985
119,134
(1,020)
(121,440)
125,000
(988)
(44,795)
—
—
75
—
—
(302)
40,616
(795)
(111,389)
100,393
(1,043)
—
100,023
(2,827)
779
(5,627)
(11,856)
46
75,664
108,320
(79,954)
(25,684)
2,770
(12,638)
(826)
—
(157,544)
(32,584)
67,053
(18,683)
(933)
5,830
(116,332)
(136,861)
446
611
$
1,057
$
(6,556)
7,167
611
2015 AnnuAl report Crombie reit
61
Notes to the Consolidated Financial Statements
(In thousands of CAD dollars) December 31, 2015
1 GeNerAL iNFormAtioN AND NAtUre oF oPerAtioNS
Crombie real estate Investment trust (“Crombie”) is an unincorporated “open-ended” real estate investment trust created pursuant to the Declaration
of trust dated January 1, 2006, as amended. the principal business of Crombie is investing in income-producing retail, office and mixed use properties
in Canada. Crombie is registered in Canada and the address of its registered office is 610 east river road, Suite 200, new Glasgow, nova Scotia,
Canada, B2H 3S2. the consolidated financial statements for the years ended December 31, 2015 and December 31, 2014 include the accounts of
Crombie and all of its subsidiary entities. the units of Crombie are traded on the toronto Stock exchange (“tSX”) under the symbol “Crr.un”.
the consolidated financial statements were authorized for issue by the Board of trustees on February 24, 2016.
2 SUmmArY oF SiGNiFiCANt ACCoUNtiNG PoLiCieS
(a) Statement of compliance
these consolidated financial statements have been prepared in accordance with International Financial reporting Standards (“IFrS”) as issued by the
International Accounting Standards Board (“IASB”).
(b) basis of presentation
the consolidated financial statements are presented in Canadian dollars (“CAD”); Crombie’s functional and reporting currency, rounded to the nearest
thousand. the consolidated financial statements are prepared on a historical cost basis except for any financial assets and liabilities classified as fair
value with changes in fair value recognized in Decrease in net assets attributable to unitholders (“FVtpl” classification) or designated as available for
sale (“AFS”) that have been measured at fair value.
(c) Presentation of financial statements
When Crombie: (i) applies an accounting policy retrospectively; (ii) makes a retrospective restatement of items in its financial statements;
or (iii) reclassifies items on the balance sheet, it will present an additional balance sheet as at the beginning of the earliest comparative period.
(d) basis of consolidation
Crombie’s financial statements consolidate those of Crombie and all of its subsidiary entities as at December 31, 2015. Subsidiaries are all entities over
which Crombie has control. All subsidiaries have a reporting date of December 31, 2015.
All intercompany transactions, balances, income and expenses are eliminated in preparing the consolidated financial statements. Where unrealized
losses on intercompany asset sales are reversed on consolidation, the underlying asset is also tested for impairment from an entity perspective.
operating income (loss) and other comprehensive income (loss) of subsidiaries acquired or disposed of during the period are recognized from the
effective date of acquisition, or up to the effective date of disposal, as applicable.
(e) investment properties
Investment properties are properties which are held to earn rental income. Investment properties include land, buildings and intangible assets.
Investment properties are carried at cost less accumulated depreciation and are reviewed for impairment as described in note 2(x).
Depreciation of buildings is calculated using the straight-line method with reference to each property’s cost, the estimated useful life of the building
(not exceeding 40 years) and its components, significant parts and residual value.
repairs and maintenance items are expensed as incurred or, in the case of major items that constitute a capital asset, are capitalized to the building
and amortized on a straight-line basis over the estimated useful life of the improvement.
upon acquisition, Crombie performs an assessment of investment properties being acquired to determine whether the acquisition is to be accounted
for as an asset acquisition or a business combination. A transaction is considered to be a business combination if the acquired property meets the
definition of a business under IFrS 3 – Business Combinations; being an integrated set of activities and assets that are capable of being managed for
the purpose of providing a return to the unitholders.
For asset acquisitions, Crombie allocates the purchase price based on the following:
Land – the amount allocated to land is based on an appraisal estimate of its fair value.
Buildings – are recorded at the estimated fair value of the building and its components and significant parts.
Intangible assets – are recorded for tenant relationships, based on estimated costs avoided should the respective tenants renew their leases at the end
of the initial lease term, adjusted for the estimated probability of renewal.
Fair value of debt – values ascribed are determined based on the differential between contractual and market interest rates on long-term liabilities
assumed at acquisition.
62
Crombie reit 2015 AnnuAl report
Change in useful life of investment properties
the estimated useful lives of significant investment properties are reviewed whenever events or circumstances indicate a change in useful life.
estimated useful lives of significant investment properties are based on management’s best estimate and the actual useful lives may be different.
revisions to the estimated useful lives of investment properties constitute a change in accounting estimate and are accounted for prospectively
by amortizing the cumulative changes over the remaining estimated useful life of the related assets.
(f) intangible assets
Intangible assets include the value of tenant relationships.
Amortization of the value of tenant relationships is determined using the straight-line method over the terms of the tenant lease agreements and
renewal periods where applicable and is recorded as amortization.
Intangible assets are reviewed for impairment as described in note 2(x).
(g) Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand, cash in bank and guaranteed investments with a maturity less than 90 days at date of acquisition.
(h) Assets held for sale and discontinued operations
A non-current asset is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than continuing
use. A property is classified as held for sale at the point in time when it is available for immediate sale, management has committed to a plan to sell
the property and is actively locating a purchaser for the property at a sales price that is reasonable in relation to the current estimated fair value of the
property, and the sale is expected to be completed within a one year period. properties held for sale are carried at the lower of their carrying values
and estimated fair value less costs to sell. In addition, assets held for sale are no longer depreciated and amortized. A property that is subsequently
reclassified as held and in use is measured at the lower of its carrying value amount before it was classified as held for sale, adjusted for any
depreciation and amortization expense that would have been recognized had it been continuously classified as held and in use, and its estimated
fair value at the date of the subsequent decision not to sell.
Assets that are classified as held for sale and that constitute a component of Crombie are presented as discontinued operations and are presented
separately in the Statement of Comprehensive Income (loss). A component of Crombie includes a property type or geographic area of operations.
(i) Convertible debentures
Convertible debentures issued by Crombie are convertible into a fixed number of reIt units (a liability) at the option of the holder and are redeemable
by the issuer under certain conditions (note 10).
upon issuance, convertible debentures are separated into their debt component and embedded derivative features. the debt component of the
convertible debentures is recognized initially at the fair value of a similar debt instrument without the embedded derivative features. Subsequent to
initial recognition, the debt component is measured at amortized cost using the effective interest method.
the embedded derivative features include a holder conversion option at any time and an issuer redemption option under certain conditions.
the multiple embedded derivative features are treated as a single compound embedded derivative liability and initially recognized at fair value.
Subsequent to initial recognition, changes in fair value are recognized in the Consolidated Statements of Comprehensive Income (loss).
upon issuance, any directly attributable costs are allocated to the debt component and embedded derivative liability in proportion to their initial
carrying amounts. For the debt component, the transaction costs are reflected in the determination of the effective interest rate. For the embedded
derivative liability, the transaction costs are immediately expensed in the Consolidated Statements of Comprehensive Income (loss).
upon conversion, the carrying amount of the debt component and the related fair value of the derivative liability as of the date of conversion are
transferred to net assets attributable to unitholders in the Consolidated Balance Sheets. upon redemption, the redemption proceeds are compared
to the carrying amount of the debt component and the related fair value of the embedded derivative extinguished as of the date of redemption, and
any gain or loss on redemption is recognized in the Consolidated Statements of Comprehensive Income (loss).
(j) employee future benefits obligation
the cost of Crombie’s pension benefits for defined contribution plans is expensed for employees in respect of the period in which they render services.
the cost of defined benefit pension plans and other benefit plans is accrued based on estimates, using actuarial techniques, of the amount of benefits
employees have earned in return for their services in the current and prior periods. the present value of the defined benefit obligation and current
service cost is determined by discounting the estimated benefits using the projected unit credit method to determine the fair value of the plan assets
and total actuarial gains and losses and the proportion thereof which will be recognized. other factors considered for other benefit plans include
assumptions regarding salary escalation, retirement ages and expected growth rate of health care costs. the fair value of any plan assets is based on
current market values. the present value of the defined benefit obligation is based on the discount rate determined by reference to the yield of high
quality corporate bonds of similar currency, having terms of maturity which align closely with the period of maturity of the obligation. the defined
benefit plan and post-employment benefit plan are unfunded.
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the impact of changes in plan provisions will be recognized in benefit costs on a straight-line basis over a period not exceeding the average period
until the benefit becomes vested. to the extent that the benefits are already vested immediately following the introduction of, or changes to, the plan,
the past service cost will be recognized immediately.
In measuring its defined benefit liability, Crombie recognizes unamortized actuarial gains and losses directly to other comprehensive income (loss).
(k) Unit based compensation plans
(i) Deferred Unit Plan (“DU Plan”)
Crombie provides a voluntary Du plan whereby eligible trustees, officers and employees (the “participants”) may elect to receive all or a portion of their
eligible compensation in deferred units (“Dus”). unless otherwise determined by the Board (or its designated Committee), Dus are fully vested at the
time they are allocated, with the value of the award recorded as a liability and expensed as general and administrative expenses. A participant may
redeem their vested Dus in whole or in part by filing a written notice of redemption; redemption will also occur as the result of specific events such as the
retirement of a participant. upon redemption, a participant will receive the net value of the vested Dus being redeemed, with the net value determined
by multiplying the number of Dus redeemed by the reIt unit’s market price on redemption date, less applicable withholding taxes. the participant
may elect to receive this net amount as a cash payment or instead receive one Crombie reIt units for redeemed Dus after deducting applicable
withholding taxes. For fair value measurement purposes, each Du is measured based on the market value of a reIt unit at the balance sheet date.
(ii) Restricted Unit Plan (“RU Plan”)
Crombie has a ru plan for certain eligible executives and employees (“ru participants”), whereby the ru participants may elect each year to participate
in the ru plan and receive all or a portion of their annual long-term incentive plan awards in restricted units (“rus”). the rus are accounted for under
IAS 19 employee benefits and the liability and expense are recognized over the service period which ends on the vesting date. on the vesting date, each
eligible ru participant shall be entitled to receive a cash amount (net of any applicable withholding taxes) equal to the number of vested rus held by
the ru participant multiplied by the market value on the vesting date, with the market value of each ru determined by the market value of a reIt unit.
Alternatively, a ru participant may elect to convert their rus to Dus under Crombie’s Du plan. no reIt units or other securities of Crombie will be
issued from treasury.
(l) Distribution reinvestment plan (“DriP”)
Crombie has a DrIp which is described in note 18.
(m) revenue recognition
property revenue includes rents earned from tenants under lease agreements, percentage rent, realty tax and operating cost recoveries, and other
incidental income. Certain leases have rental payments that change over their term due to changes in rates. Crombie records the rental revenue from
leases on a straight-line basis over the term of the lease. Accordingly, an accrued rent receivable is recorded for the difference between the straight-line
rent recorded as property revenue and the rent that is contractually due from the tenants. In addition, tenant incentives are amortized on a straight-line
basis over the term of existing leases and the amortization is shown as a reduction in property revenue. percentage rents are recognized when tenants
are obligated to pay such rent under the terms of the related lease agreements. realty tax and operating cost recoveries, and other incidental income,
are recognized on an accrual basis.
(n) Leasing
leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
Operating leases
(i) Crombie as lessor
Crombie has determined that all of its leases with its tenants are operating leases. revenue is recorded in accordance with Crombie’s revenue
recognition policy (note 2(m)).
(ii) Crombie as lessee
operating leases consist mainly of land leases which are expensed to property operating costs as incurred. Crombie also has a small amount of
equipment and vehicle leases that are expensed to general and administrative expenses as incurred.
(o) Deferred financing charges
Deferred financing charges consist of costs directly attributable to the issuance of debt. these charges are amortized using the effective interest
method, over the term of the related debt.
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Notes to the CoNsolidated FiNaNCial statemeNts(In thousands of CAD dollars) December 31, 2015 (p) Finance costs – operations
Finance costs – operations primarily comprise interest on Crombie’s borrowings. Finance costs directly attributable to the acquisition, redevelopment,
construction or production of a qualifying asset are capitalized as a component of the cost of the asset to which it is related. All other finance costs –
operations are expensed in the period in which they are incurred.
(q) Finance costs – distributions to Unitholders
the determination to declare and make payable distributions from Crombie is at the discretion of the Board of trustees and, until declared payable by
the trustees, Crombie has no contractual obligation to pay cash distributions to unitholders.
(r) income taxes
Crombie is taxed as a “mutual fund trust” for income tax purposes. It is the intention of Crombie, subject to approval of the trustees, to make
distributions not less than the amount necessary to ensure that Crombie will not be liable to pay income tax, except for the amounts incurred in
its incorporated subsidiaries.
Deferred tax assets and/or liabilities of Crombie relate to tax and accounting basis differences of all incorporated subsidiaries of Crombie. Income
taxes are accounted for using the liability method. under this method, deferred taxes are recognized for the expected deferred tax consequences of
differences between the carrying amount of balance sheet items and their corresponding tax values. Deferred taxes are computed using substantively
enacted corporate income tax rates for the years in which tax and accounting basis differences are expected to reverse.
Deferred tax assets and/or liabilities are offset only when Crombie has a right and intention to set off tax assets and liabilities from the same taxation
authority. Changes in deferred tax assets or liabilities are recognized as a component of income or expense in operations, except where they relate to
items that are recognized in other comprehensive income (loss) (such as the unrealized gains and losses on cash flow hedges) or directly in change in
net assets, in which case the related deferred tax is also recognized in other comprehensive income (loss) or change in net assets, respectively.
(s) Hedges
Crombie may use cash flow hedges to manage exposures to increases in variable interest rates. Cash flow hedges are recognized on the balance sheet
at fair value with the effective portion of the hedging relationship recognized in other comprehensive income (loss). Any ineffective portion of the cash
flow hedge is recognized in operating income. Amounts recognized in accumulated other comprehensive income (loss) are reclassified to operating
income in the same periods in which the hedged item is recognized in operating income. Fair value hedges and the related hedged items are recognized
on the balance sheet at fair value with any changes in fair value recognized in operating income. to the extent the fair value hedge is effective, the
changes in the fair value of the hedge and the hedged item will offset each other.
Crombie assesses on an ongoing basis whether any existing derivative financial instrument continues to be effective in offsetting changes in interest
rates on the hedged items.
(t) Comprehensive income (loss)
Comprehensive income (loss) is the change in net assets attributable to unitholders during a period from transactions and other events and
circumstances from non-unitholder sources. Crombie reports a consolidated statement of comprehensive income (loss), comprising changes in
net assets attributable to unitholders and other comprehensive income (loss) for the year. Accumulated other comprehensive income (loss), has
been included in the consolidated statements of changes in net assets attributable to unitholders.
(u) Provisions
provisions are recognized when: Crombie has a present obligation (legal or constructive) as a result of a past event; it is probable that Crombie will
be required to settle the obligation; and, a reliable estimate can be made of the amount of the obligation.
the amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date,
taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the
present obligation, its carrying amount is the present value of those cash flows, where the time value of money is material. When some or all of the
economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually
certain that reimbursement will be received and the amount of the receivable can be measured reliably. provisions reflect Crombie’s best estimate at
the reporting date.
environmental liabilities are recognized when Crombie has an obligation relating to site closure or rehabilitation. the extent of the work required and
the associated costs are dependent on the requirements of the relevant authorities and Crombie’s environmental policies. provisions for the cost of
each closure and rehabilitation program are recognized at the time of occurrence and when Crombie has a reliable estimate of the obligation. Changes
in the provision are recognized in the period of the change.
Crombie’s provisions are immaterial and are included in trade and other payables.
2015 AnnuAl report Crombie reit
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(v) Financial instruments
Crombie classifies financial assets and liabilities according to their characteristics and management’s choices and intentions related thereto for
the purpose of ongoing measurement. Classification choices for financial assets include: a) FVtpl – measured at fair value with changes in fair
value recognized in decrease in net assets attributable to unitholders for the period; b) held to maturity – recorded at amortized cost with gains and
losses recognized in decrease in net assets attributable to unitholders in the period that the asset is derecognized or impaired; c) available-for-sale –
measured at fair value with changes in fair value recognized in other comprehensive income (loss) for the current period until realized through disposal
or impairment; and d) loans and receivables – recorded at amortized cost with gains and losses recognized in decrease in net assets attributable to
unitholders in the period that the asset is no longer recognized or impaired. Classification choices for financial liabilities include: a) FVtpl – measured
at fair value with changes in fair value recognized in decrease in net assets attributable to unitholders for the period; and b) other – measured
at amortized cost with gains and losses recognized in comprehensive income in the period that the liability is no longer recognized. Subsequent
measurement for these assets and liabilities are based on either fair value or amortized cost using the effective interest method, depending upon
their classification.
Crombie’s financial assets and liabilities are generally classified and measured as follows:
Asset/liability
Cash and cash equivalents
trade receivables
restricted cash
long-term receivables
Marketable securities
Derivative financial assets and liabilities
Accounts payable and other liabilities (excluding convertible debentures
embedded derivatives and interest rate swaps)
Deferred unit compensation plan
Investment property debt
Convertible debentures (excluding embedded derivatives)
Senior unsecured notes
Classification
Measurement
loans and receivables
Amortized cost
loans and receivables
Amortized cost
loans and receivables
Amortized cost
loans and receivables
Amortized cost
FVtpl
FVtpl
other liabilities
FVtpl
other liabilities
other liabilities
other liabilities
Fair value
Fair value
Amortized cost
Fair value
Amortized cost
Amortized cost
Amortized cost
other balance sheet accounts, including, but not limited to, prepaid expenses, accrued straight-line rent receivable, tenant incentives, investment
properties, intangible assets, deferred taxes and employee future benefits obligation are not financial instruments.
transaction costs, other than those related to financial instruments classified as FVtpl that are expensed as incurred, are added to the fair value of
the financial asset or financial liability on initial recognition and amortized using the effective interest method. Financing costs incurred to establish
revolving credit facilities are deferred and amortized on a straight-line basis over the term of the facilities. In the event any debt is extinguished, the
associated unamortized financing costs are expensed immediately.
embedded derivatives are required to be separated and measured at fair values if certain criteria are met. the holder conversion option and issuer
redemption options in Crombie’s convertible debentures are considered to be embedded derivatives. Crombie’s accounting policies relating to
convertible debentures are described in note 2(i).
(w) Fair value measurement
the fair value of financial instruments is the estimated amount that Crombie would receive to sell a financial asset or pay to transfer a financial liability
in an orderly transaction between market participants at the measurement date. the fair value measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes place either, in the principal market for the asset or liability, or in the absence of a principal
market, in the most advantageous market for the asset or liability. the principal or the most advantageous market must be accessible by Crombie.
the fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest.
Crombie uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value,
maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. the fair value of any interest rate swap is estimated
by discounting net cash flows of the swaps using forward interest rates for swaps of the same remaining maturities.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in
its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
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Notes to the CoNsolidated FiNaNCial statemeNts(In thousands of CAD dollars) December 31, 2015
When determining the highest and best use of non-financial assets Crombie takes into account the following;
•
•
•
use of the asset that is physically possible – Crombie assesses the physical characteristics of the asset that market participants would take into
account when pricing the asset;
use that is legally permissible – Crombie assesses any legal restrictions on the use of the asset that market participants would take into account
when pricing the asset; and
use that is financially feasible – Crombie assesses whether a use of the asset that is physically possible and legally permissible generates adequate
income or cash flows to produce an investment return that market participants would require from an investment in that asset put to that use.
(x) impairment of long-lived tangible and definite life intangible assets
At the end of each reporting period, long-lived tangible and definite life intangible assets are reviewed for impairment when events or changes in
circumstances indicate that the carrying value of the assets may not be recoverable. If such an indication exists, the recoverable amount of the asset
is estimated in order to determine the extent of impairment loss (if any). the recoverable amount is the higher of fair value less costs to sell and value
in use. Where the asset does not generate cash flows that are independent from other assets, Crombie estimates the recoverable amount of the cash
generating unit(s) to which the asset belongs. When the recoverable amount of an asset (or cash generating unit) is estimated to be less than its
carrying amount, the carrying amount of the asset (or cash generating unit) is reduced to the recoverable amount. An impairment loss is recognized
as an expense immediately in operating income.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate, but is
limited to the carrying amount that would have been determined if no impairment loss had been recognized in prior periods. A reversal of impairment
loss is recognized immediately in operating income.
(y) Net assets attributable to Unitholders
(i) Balance Sheet presentation
In accordance with International Accounting Standard (“IAS”) 32 Financial Instruments: presentation, puttable instruments are generally classified
as financial liabilities. Crombie’s reIt units and Class B lp units with attached Special Voting units (“SVu”) are both puttable instruments, meeting
the definition of financial liabilities in IAS 32. there are exception tests within IAS 32 which could result in classification as equity; however, Crombie’s
units do not meet the exception requirements. therefore, Crombie has no instrument qualifying for equity classification on its Balance Sheet pursuant
to IFrS. the classification of all units as financial liabilities with presentation as net assets attributable to unitholders does not alter the underlying
economic interest of the unitholders in the net assets and net operating results attributable to unitholders.
(ii) Balance Sheet measurement
reIt units and Class B lp units with attached SVus are carried on the Balance Sheet at net asset value. Although puttable instruments classified as
financial liabilities are generally required to be remeasured to fair value at each reporting period, the alternative presentation as net assets attributable
to unitholders reflects that, in total, the interests of the unitholders is limited to the net assets of Crombie.
(iii) Statement of Comprehensive Income (Loss) presentation
As a result of the classification of all units as financial liabilities, the Statement of Comprehensive Income (loss) recognizes distributions to unitholders
as a finance cost. In addition, terminology such as net income has been replaced by Increase (decrease) in net assets attributable to unitholders to
reflect the absence of an equity component on the Balance Sheet.
(iv) Presentation of per unit measures
As a result of the classification of all units as financial liabilities, Crombie has no equity instrument; therefore, in accordance with IAS 33 earnings per
Share, there is no denominator for purposes of calculation of per unit measures.
(v) Allocation of Comprehensive income (loss)
the components of Comprehensive income (loss) are allocated between reIt units and Class B lp units as follows:
•
operating income – based on the weighted average number of units outstanding during the reporting period.
•
Distributions to unitholders – based on the actual distributions paid to each separate unit class.
•
Accumulated other comprehensive income (loss) – increases are allocated based on the weighted average number of units outstanding during the
reporting period, decreases in previously accumulated amounts are drawn down based on the average accumulation allocation rate.
(z) Critical judgments in applying accounting policies
the following are the critical judgments that have been made in applying Crombie’s accounting policies and that have the most significant effect on the
consolidated financial statements:
2015 AnnuAl report Crombie reit
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(i) Investment properties
Crombie’s accounting policies relating to investment properties are described in note 2(e). In applying these policies, judgement is applied in
determining whether certain costs are additions to the carrying amount of an investment property and whether properties acquired are considered
to be asset acquisitions or business combinations. Crombie has determined that all properties acquired to date are asset acquisitions.
(ii) Leases
Crombie makes judgements in determining whether certain leases, in particular long-term ground leases where Crombie is the lessee and the property
meets the definition of investment property, are operating or finance leases. Crombie determined that all long-term ground leases where Crombie is
the lessee are operating leases. All tenant leases where Crombie is a lessor have been determined to be operating leases.
(iii) Classifications of Units as liabilities
Crombie’s accounting policies relating to the classification of units as liabilities are described in note 2(y). the critical judgements inherent in this
policy relates to applying the criteria set out in IAS 32, “Financial Instruments: presentation”, relating to the puttable instrument exception.
(iv) Income taxes
the assessment of the probability of future taxable income in which deferred tax assets can be utilized is based on Crombie’s latest budget forecast,
which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. If a positive forecast
of taxable income indicates the probable use of a deferred tax asset, especially when it can be used without a time limit, that deferred tax asset is
usually recognized in full. the recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties are assessed
individually by management based on the specific facts and circumstances.
Crombie recognizes expected liabilities for tax based on an estimation of the likely taxes due, which requires significant judgement as to the ultimate
tax determination of certain items. Where the actual liability arising from these issues differs from these estimates, such differences will have an impact
on the income tax and deferred tax balances in the period when such determination is made.
(aa) Critical accounting estimates and assumptions
the preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates. the estimates and assumptions that
are critical to the determination of the amounts reported in the consolidated financial statements relate to the following:
(i) Fair value measurement
A number of assets and liabilities included in Crombie’s financial statements require measurement at, and/or disclosure of, fair value.
In estimating the fair value of an asset or a liability, Crombie uses market-observable data to the extent it is available. Where level 1 inputs are not
available, Crombie estimates the fair value based upon discounted future cash flows using discount rates that reflect current market conditions for
instruments with similar terms and risks. Such fair value estimates are not necessarily indicative of the amounts Crombie might pay or receive in
actual market transactions. the significant methods and assumptions used in estimating fair value are set out in notes 3 and 21.
(ii) Investment properties
Investment properties are carried at cost less accumulated depreciation. Crombie estimates the useful lives of investment properties and the
significant components thereof to calculate depreciation and amortization.
(iii) Impairment of long-lived tangible and definite life intangible assets
long-lived tangible and definite life intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying
value of the assets may not be recoverable. If such an indication exists, the recoverable amount of the asset is estimated in order to determine the
extent of impairment loss (if any). the recoverable amount is the higher of fair value less costs to sell and value in use. Where the asset does not generate
cash flows that are independent from other assets, Crombie estimates the recoverable amount of the cash generating unit(s) to which the asset belongs.
When the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset
(or cash generating unit) is reduced to the recoverable amount. An impairment loss is recognized as an expense immediately in operating income.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate, but is
limited to the carrying amount that would have been determined if no impairment loss had been recognized in prior periods. A reversal of impairment
loss is recognized immediately in operating income.
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Crombie reit 2015 AnnuAl report
Notes to the CoNsolidated FiNaNCial statemeNts(In thousands of CAD dollars) December 31, 2015 (iv) Investment property valuation
external, independent valuation companies, having appropriate recognized professional qualifications and recent experience in the location and
category of properties being valued, value Crombie’s investment property portfolio on a rotating basis over a maximum period of four years. the
fair values, based on the measurement date, represent the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Internal quarterly valuations are performed using internally generated valuation
models prepared by considering the aggregate cash flows received from leasing the property. A yield obtained from an independent valuation
company, which reflects the specific risks inherent in the net cash flows, is then applied to the net annual cash flows to arrive at the property valuation.
(v) Defined benefit liability
Management estimates the defined benefit liability annually with the assistance of independent actuaries; however, the actual outcome may vary due
to estimation uncertainties. the estimate of Crombie’s defined benefit liability is based on standard rates of inflation, medical cost trends and mortality.
It also takes into account Crombie’s specific anticipation of future salary increases. Discount factors are determined each reporting period by reference
to high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating
the terms of the related pension liability. estimation uncertainties exist particularly with regard to medical cost trends, which may vary significantly in
future appraisals of Crombie’s defined benefit obligations.
(vi) Purchase price allocation
Investment properties are properties which are held to earn rental income. Investment properties include land, buildings and intangible assets. upon
acquisition, management allocates the purchase price of the acquisition as described in note 2(e). this allocation contains a number of estimates
and underlying assumptions including, but not limited to, highest and best use and fair value of the properties, estimated cash flows, discount rates,
lease-up rates, inflation rates, renewal rates, tenant incentive allowances, cost recoveries and leasing costs and termination costs.
(bb) Application of new and revised iFrSs
Crombie has applied the following new and revised IFrSs effective January 1, 2015:
Long-term employee benefits
Crombie initiated a ru plan, which is being accounted for under IAS 19, employee Benefits, see note 13. the ru plan entitles certain employees to
receive rus which have a specified vesting period. the amount payable to employees is recognized as a liability over the service period that the employees
become entitled to payment. the change in the liability is recognized in general and administrative expenses in the consolidated statements of
comprehensive income (loss).
(cc) Future changes in accounting standards
the IASB has issued a number of standards and interpretations with an effective date after the date of these financial statements. Set out below are
only those standards that may have a material impact on the consolidated financial statements in future periods. Management is currently evaluating
the impact of these future policies on its consolidated financial statements.
(i) IFRS 9 – Financial Instruments
In July 2014, the IASB issued IFrS 9 Financial Instruments which replaces IAS 39 – Financial Instruments: recognition and Measurement. IFrS 9 has
three main phases: classification and measurement, impairment and general hedging.
the new standard requires assets to be classified based on the business model for managing the financial assets and the contractual cash flow
characteristics of the financial assets. Financial assets will be measured at FVtpl unless certain conditions are met which permit measurement
at amortized cost or fair value through other comprehensive income. the classification and measurement of financial liabilities remain generally
unchanged, with the exception of financial liabilities recorded at FVtpl. For financial liabilities designated at FVtpl, IFrS 9 requires the presentation
of the effects of changes in our own credit risk in other comprehensive income instead of decrease in net assets attributable to unitholders. IFrS 9 also
introduces an impairment model for financial instruments not measured at FVtpl that requires recognition of expected losses at initial recognition of a
financial instrument and the recognition of full lifetime expected losses if certain criteria are met. A new model for hedge accounting expands the scope
of eligible hedged items and risks eligible for hedge accounting and aligns hedge accounting more closely with risk management. IFrS 9 is effective for
annual periods beginning on or after January 1, 2018, with early adoption permitted. Management is currently assessing the impact the adoption of this
standard will have on Crombie’s consolidated financial statements.
(ii) IFRS 15 – Revenue from Contracts with Customers
IFrS 15 replaces IAS 11 Construction Contracts, IAS 18 revenue and IFrIC 13 Customer loyalty programmes. this standard outlines a single
comprehensive model for entities to account for revenue arising from contracts with customers. IFrS 15 is effective for annual periods beginning
on or after January 1, 2018, with early adoption permitted and is to be applied retrospectively. Management is currently assessing the impact the
adoption of this standard will have on Crombie’s consolidated financial statements.
2015 AnnuAl report Crombie reit
69
(iii) IFRS 16 – Leases
In January 2016, the IASB issued IFrS 16 which replaces IAS 17, “leases” and its associated interpretative guidance. IFrS 16 applies a control model
to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being
leased. For those assets determined to meet the definition of a lease, IFrS 16 introduces significant changes to the accounting by lessees, introducing
a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term leases or leases
of low value assets. lessor accounting remains similar to current accounting practice. the standard is effective for annual periods beginning on or after
January 1, 2019, with early application permitted for entities that apply IFrS 15. Management is currently assessing the impact of IFrS 16 on Crombie’s
consolidated financial statements.
3
iNVeStmeNt ProPertieS
Cost
opening balance, January 1, 2015
Acquisitions
Additions
Derecognition
transfer to investment properties held for sale (note 7)
transfer from investment properties held for sale (note 7)
Land
buildings
Deferred
Leasing Costs
total
$
977,895
$ 2,479,018
$
5,540
20,503
3,537
(1,453)
(31,619)
7,139
74,229
23,155
(706)
(103,315)
28,319
—
1,118
—
(332)
454
$ 3,462,453
94,732
27,810
(2,159)
(135,266)
35,912
Balance, December 31, 2015
976,002
2,500,700
6,780
3,483,482
Accumulated depreciation and amortization and impairment
opening balance, January 1, 2015
Depreciation and amortization
Derecognition
Impairment
transfer to investment properties held for sale (note 7)
transfer from investment properties held for sale (note 7)
Balance, December 31, 2015
—
—
—
—
—
—
—
263,391
60,498
(23)
12,575
(18,424)
4,608
322,625
2,965
598
—
—
(217)
232
266,356
61,096
(23)
12,575
(18,641)
4,840
3,578
326,203
Net carrying value, December 31, 2015
$
976,002
$ 2,178,075
$
3,202
$ 3,157,279
Cost
opening balance, January 1, 2014
Acquisitions
Additions
Derecognition
transfer to investment properties held for sale (note 7)
land
Buildings
Deferred
leasing Costs
total
$
956,672
$ 2,417,780
$
5,621
$ 3,380,073
46,425
3,798
(14,875)
(14,125)
118,271
24,828
(33,478)
(48,383)
—
581
(103)
(559)
164,696
29,207
(48,456)
(63,067)
Balance, December 31, 2014
977,895
2,479,018
5,540
3,462,453
Accumulated depreciation and amortization and impairment
opening balance, January 1, 2014
Depreciation and amortization
Derecognition
Impairment
transfer to investment properties held for sale (note 7)
Balance, December 31, 2014
—
—
—
—
—
—
209,218
2,758
211,976
57,983
(5,750)
10,750
(8,810)
535
(29)
—
(299)
58,518
(5,779)
10,750
(9,109)
263,391
2,965
266,356
net carrying value, December 31, 2014
$
977,895
$ 2,215,627
$
2,575
$ 3,196,097
Crombie’s total fair value of investment properties, including properties held for sale, exceeds carrying value by $708,949 at December 31, 2015
(December 31, 2014 – $563,060). Crombie uses the cost method for accounting for investment properties, and increases in fair value over carrying
value are not recognized until realized through disposition or derecognition of properties, while impairment is recognized at the time of impairment.
70
Crombie reit 2015 AnnuAl report
Notes to the CoNsolidated FiNaNCial statemeNts(In thousands of CAD dollars) December 31, 2015
During the year ended December 31, 2015, Crombie recorded an impairment of $12,575 on three retail properties and an office property. the
impairments were the result of the fair value impact of tenant departures during the year; lower occupancy rates; and slower than expected leasing
activity. Impairment was measured on a per property basis and was determined as the amount by which carrying value, using the cost method,
exceeded the recoverable amount for that property. the recoverable amount was determined to be each property’s fair value which is the higher
of the economic benefits of the continued use of the asset or the selling price less costs to sell.
During the fourth quarter of 2014, Crombie disposed of five retail properties. two of the properties were sold for less than their carrying value, and as
such, Crombie recorded an impairment of $3,250 during the third quarter. In addition, Crombie recorded an impairment charge of $7,500 during the
fourth quarter of 2014 on two mixed use properties. Both properties experienced lower occupancy rates; renewals at reduced square footage; and
indications of non-renewals when leases were to mature. Impairment was measured on a per property basis and was determined as the amount by
which carrying value, using the cost method, exceeded the recoverable amount for that property. the recoverable amount was determined to be each
property’s fair value, based on selling price less costs to sell for the properties being disposed; and, recent external appraisal reports for the two mixed
use properties.
the estimated fair values of Crombie’s investment properties are as follows:
December 31, 2015
December 31, 2014
Carrying value consists of the net carrying value of:
Investment properties
Intangible assets
Accrued straight-line rent receivable
tenant incentives
Investment properties held for sale
total carrying value
Fair Value
Carrying Value
$ 4,143,000
$ 3,434,051
$ 3,939,000
$ 3,375,940
note
December 31,
2015
December 31,
2014
3
4
5
5
7
$ 3,157,279
45,607
50,050
61,667
119,448
$ 3,196,097
48,106
38,908
59,251
33,578
$ 3,434,051
$ 3,375,940
the fair value of investment properties is a level 3 fair value measurement. the fair value represents the estimated price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
the fair value included in this summary reflects the fair value of the properties as at December 31, 2015 and 2014, respectively. Four of Crombie’s
investment properties have a fair value, that based on an assumption that highest and best use is as a redevelopment property, exceeds their current
value in use as a revenue generating investment property. For all of Crombie’s other investment properties, highest and best use is its current use.
the valuation techniques and significant unobservable inputs used in determining the fair value of investment properties are set out below:
(i) The capitalized net operating income method – under this method, capitalization rates are applied to net operating income (property revenue
less property operating expenses). the key assumption is the capitalization rates for each specific property. Crombie receives quarterly capitalization
rate reports from external, knowledgeable property valuators. the capitalization rate reports provide a range of rates for various geographic regions
and for various types and qualities of properties within each region. Management selects the appropriate rate for each property from the range
provided. Crombie generally employs this method to determine fair value.
(ii) The discounted cash flow method – under this method, discount rates are applied to the forecasted cash flows reflecting the initial terms of the
lease or leases for that specific property and assumptions as to renewal and new leasing activity. the key assumptions are the discount rate applied
over the initial term of the lease, as well as lease renewals and new leasing activity. Crombie employs this method when the capitalized net operating
income method indicates a risk of impairment or when a property is or will be undergoing redevelopment.
(iii) External appraisals – Crombie has external, independent appraisals performed on all properties on a rotational basis over a period of not more
than four years.
As at December 31, 2015, all properties have been subjected to external, independent appraisal over the past four years.
Crombie utilizes capitalization and discount rates within the ranges provided by external valuations. to the extent that the externally provided
capitalization rate ranges change from one reporting period to the next; or should another rate within the provided ranges be more appropriate than
the rate previously used, the fair value of the investment properties would increase or decrease accordingly.
2015 AnnuAl report Crombie reit
71
Crombie has utilized the following weighted average capitalization rates and has determined that an increase (decrease) in this applied capitalization
rate of 0.25% would result in an increase (decrease) in the fair value of the investment properties as follows:
December 31, 2015
December 31, 2014
Impact of a 0.25% Change in Capitalization rate
Weighted
Average
Capitalization
rate
Increase in rate
Decrease in rate
6.15%
6.22%
$
$
(163,000)
(154,000)
$
$
177,000
167,000
investment Property Acquisitions and Dispositions
the operating results of acquired properties are included from the respective date of acquisition and for disposed properties up to the date of disposition.
2015
transaction Date
Vendor/purchaser
properties
Acquired
(Disposed)
Approximate
Square Footage
Initial Acquisition
(Disposition)
price
February 2, 2015(1)
April 1, 2015(1)
August 18, 2015
november 3, 2015(1)
november 3, 2015
December 23, 2015(1)
third party
empire(2)
third party
empire(2)
empire(2)
empire(2)
—
—
1
—
4
—
51,000
$
12,650
$
7,500
50,000
34,800
183,800
6,700
2,333
20,500
8,450
48,845
3,530
Assumed
Mortgages
5,479
—
12,077
—
—
—
333,800
$
96,308
$
17,556
(1) relates to an acquisition of an addition to a pre-existing retail property.
(2) empire includes empire Company limited, a related party, and its subsidiaries.
the initial acquisition prices stated above exclude closing and transaction costs.
During the first quarter of 2015, Crombie disposed of a portion of one property’s land and building through a partial expropriation. the carrying value of
the portion disposed was derecognized at that time. During the fourth quarter of 2015, Crombie disposed of a portion of one property’s land through a
partial expropriation. the carrying value of the portion disposed was derecognized at that time.
2014
transaction Date
Vendor/purchaser
properties
Acquired
(Disposed)
Approximate
Square Footage
Initial Acquisition
(Disposition)
price
Assumed
Mortgages
January 31, 2014(1)
March 31, 2014(3)
May 1, 2014
november 17, 2014
november 21, 2014
november 24, 2014
December 3, 2014(1)
December 12, 2014
December 12, 2014
December 19, 2014(1)
January 16, 2014(2)
March 31, 2014(3)
August 21, 2014(2)
october 17, 2014
December 10, 2014
empire(4)
empire
empire
empire
third party
empire
third party
third party
empire
empire
third party
empire
third party
third party
third party
—
1
1
6
1
1
—
1
1
—
—
(1)
—
(4)
(1)
6,700
$
1,490
$
53,000
39,400
292,500
36,000
53,500
24,300
39,100
78,100
7,700
630,300
(25,000)
(53,000)
—
(374,500)
(233,400)
12,127
10,176
63,850
9,140
8,385
11,000
18,814
28,750
2,508
166,240
(1,200)
(12,127)
(1,900)
(35,000)
(30,000)
(55,600)
$
86,013
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) relates to an acquisition of adjacent property or additional development on a pre-existing retail property.
(2) relates to the partial disposition of a property.
(3) relates to an exchange of properties in Canmore, Alberta.
(4) empire includes empire Company limited, a related party, and its subsidiaries.
the initial acquisition prices stated above exclude closing and transaction costs.
72
Crombie reit 2015 AnnuAl report
Notes to the CoNsolidated FiNaNCial statemeNts(In thousands of CAD dollars) December 31, 2015
on March 31, 2014, Crombie exchanged properties in Canmore, Alberta with empire. the acquired property is measured at the carrying value of the
disposed property, resulting in no gain or loss on exchange.
on August 21, 2014 Crombie completed a sale-leaseback of the land component of an investment property. the disposition was recorded at the fair
value of the land.
the allocation of the total cost of the acquisitions (including closing and transaction costs) is as follows:
Investment property acquired, net:
land
Buildings
Intangible assets
Fair value debt adjustment on assumed mortgages
net purchase price
Assumed mortgages
4
iNtANGibLe ASSetS
tenant relationships
Balance, January 1, 2015
Acquisitions
Amortization
transfer to investment properties held for sale (note 7)
transfer from investment properties held for sale (note 7)
Balance, December 31, 2015
Balance, January 1, 2014
Acquisitions
Dispositions
Amortization
transfer to investment properties held for sale (note 7)
Year ended
December 31,
2015
Year ended
December 31,
2014
$
20,503
$
74,229
3,457
(679)
97,510
(17,556)
46,425
118,271
4,977
—
169,673
—
$
79,954
$
169,673
Cost
Accumulated
Amortization
Net
Carrying Value
$
99,019
$
50,913
$
$
$
3,457
—
(4,432)
92
98,136
96,397
4,977
(1,121)
—
(1,234)
$
$
—
5,480
(3,956)
92
52,529
47,160
—
(847)
5,606
(1,006)
$
$
48,106
3,457
(5,480)
(476)
—
45,607
49,237
4,977
(274)
(5,606)
(228)
Balance, December 31, 2014
$
99,019
$
50,913
$
48,106
5 otHer ASSetS
trade receivables
provision for doubtful accounts
net trade receivables
Marketable securities
prepaid expenses and deposits
restricted cash
Accrued straight-line rent receivable
tenant incentives
December 31,
2015
$
10,624
(60)
$
10,564
1,965
10,548
75
50,050
61,667
December 31,
2014
7,415
(59)
7,356
2,123
10,144
3,609
38,908
59,251
$
134,869
$
121,391
2015 AnnuAl report Crombie reit
73
tenant Incentives
Balance, January 1, 2015
Additions
Amortization
Derecognition
transfer to investment properties held for sale (note 7)
transfer from investment properties held for sale (note 7)
Balance, December 31, 2015
Balance, January 1, 2014
Additions
Amortization
Dispositions
transfer to investment properties held for sale (note 7)
Cost
Accumulated
Amortization
Net
Carrying Value
$
94,825
$
35,574
$
12,509
—
—
(4,625)
4,413
107,122
96,213
8,413
—
(2,039)
(7,762)
$
$
—
9,712
540
(2,278)
1,907
45,455
32,579
—
7,567
(994)
(3,578)
$
$
$
$
59,251
12,509
(9,712)
(540)
(2,347)
2,506
61,667
63,634
8,413
(7,567)
(1,045)
(4,184)
Balance, December 31, 2014
$
94,825
$
35,574
$
59,251
Included in the current potion of other assets as at December 31, 2015, is $2,874 of straight-line rent receivable related to the 11 assets reclassified to
investment properties held for sale (note 7).
See note 21(a) for fair value information.
6 LoNG-term reCeiVAbLeS
Capital expenditure program
Interest rate subsidy
Amount receivable from related party
December 31,
2015
December 31,
2014
$
$
105
717
13,111
105
1,127
12,399
$
13,933
$
13,631
During March 2014, Crombie advanced $11,856 to a subsidiary of empire to partially finance their acquisition of development lands. the loan is
repayable october 1, 2016 and bears interest at a rate of 6% per annum.
on March 23, 2006, Crombie acquired 44 properties from empire’s subsidiary eCl properties limited (“eCl”) and certain affiliates, resulting in eCl
Developments limited issuing two non-interest bearing promissory notes in the amounts of $39,600 and $20,564. payments on the first note of
$39,600 are being received as funding is required for a capital expenditure program relating to eight commercial properties. payments on the second
note of $20,564 are being received on a monthly basis to reduce the effective interest rate to 5.54% on certain assumed mortgages with terms to
maturity to April 2022. the interest rate subsidy is carried at present value.
See note 21(a) for fair value information.
7
iNVeStmeNt ProPertieS HeLD For SALe
Land
buildings
Deferred
Leasing Costs
tenant
relationships
tenant
incentives
total
opening balance, January 1, 2015
Assets transferred to held for sale
Assets transferred from held for sale
$
7,139
$
23,711
$
31,619
(7,139)
84,891
(23,711)
222
115
(222)
$
—
$
476
—
2,506
2,347
(2,506)
$
33,578
119,448
(33,578)
net carrying value,
December 31, 2015
$
31,619
$
84,891
$
115
$
476
$
2,347
$
119,448
74
Crombie reit 2015 AnnuAl report
Notes to the CoNsolidated FiNaNCial statemeNts(In thousands of CAD dollars) December 31, 2015
opening balance, January 1, 2014
Assets transferred to held for sale
Dispositions
net carrying value,
December 31, 2014
land
Buildings
Deferred
leasing Costs
tenant
relationships
tenant
Incentives
$
—
$
—
$
—
$
—
$
—
$
14,125
(6,986)
39,573
(15,862)
260
(38)
228
(228)
4,184
(1,678)
total
—
58,370
(24,792)
$
7,139
$
23,711
$
222
$
—
$
2,506
$
33,578
Crombie has determined that 11 retail properties met the criteria for classification as held for sale as at December 31, 2015. prior to classification as
held for sale, each property was assessed for impairment, which, at that time, is the amount by which the carrying amount exceeds its recoverable
amount. Subsequent to year end, a third party purchaser waived conditions to acquire the 11 properties.
During the first quarter of 2015, Crombie determined that an investment property previously classified as held for sale no longer met the criteria and
was reclassified to in use. the determination was based on the decision to defer the sale to maximize Crombie’s return on the property. As a result,
depreciation and amortization totaling $673 was recognized in the first quarter of 2015, representing the depreciation and amortization not recorded
during the period the property was classified as held for sale.
8
iNVeStmeNt ProPertY Debt
Weighted Average Weighted Average
term to maturity
interest rate
range
December 31,
2015
Fixed rate mortgages
Floating rate revolving credit facility
Deferred financing charges
2.70 – 6.90%
4.62%
2.48%
6.6 years
$ 1,521,079
2.5 years
Weighted Average Weighted Average
term to Maturity
Interest rate
range
130,000
(9,876)
$ 1,641,203
December 31,
2014
Fixed rate mortgages
Floating rate revolving credit facility
Deferred financing charges
3.12 – 6.90%
4.77%
3.00%
7.4 years
$ 1,490,187
2.5 years
145,000
(10,640)
$ 1,624,547
As at December 31, 2015, debt retirements for the next five years are:
12 Months ending
December 31, 2016
December 31, 2017
December 31, 2018
December 31, 2019
December 31, 2020
thereafter
Deferred financing charges
unamortized fair value debt adjustment
Fixed rate
principal payments
Fixed
rate Maturities
Floating rate
Maturities
$
48,392
$
43,168
$
45,188
44,479
44,826
37,535
140,918
44,833
61,203
122,100
166,924
717,557
$
—
—
130,000
—
—
—
total
91,560
90,021
235,682
166,926
204,459
858,475
$
361,338
$ 1,155,785
$
130,000
1,647,123
(9,876)
3,956
$ 1,641,203
2015 AnnuAl report Crombie reit
75
Specific investment properties with a carrying value of $2,686,589 as at December 31, 2015 (December 31, 2014 – $2,675,267) are currently pledged
as security for mortgages or provided as security for the floating rate revolving credit facility. Carrying value includes investment properties, investment
properties held for sale, intangible assets, as well as accrued straight-line rent and tenant incentives which are included in other assets.
Mortgage Activity
For the year ended:
December 31, 2015
For the year ended:
December 31, 2014
type
New
Assumed
repayment
type
new
renewal
repayment
Number of
mortgages
rates
terms in Years
Amortization
Period in Years
Proceeds
(repayments)
Weighted Average
12
2
11
2.85%
4.88%
4.85%
4.9
4.7
—
24.8
12.6
—
$
119,134
17,556
(58,162)
$
78,528
number of
Mortgages
rates
terms in Years
Amortization
period in Years
proceeds
(repayments)
Weighted Average
4
1
21
4.23%
3.97%
5.27%
8.8
1.0
—
25.0
10.0
—
$
40,616
—
(87,633)
$
(47,017)
Floating Rate Revolving Credit Facility
the floating rate revolving credit facility has a maximum principal amount of $300,000 (December 31, 2014 – $300,000) and matures June 30, 2018.
the facility is used by Crombie for working capital purposes and to provide temporary financing for acquisitions and development activity. It is
secured by a pool of first and second mortgages on certain properties and the maximum principal amount is subject to available borrowing base
(December 31, 2015 – borrowing base of $300,000). the floating interest rate is based on bankers’ acceptance rates plus a spread or specific margin
over prime rate. the specified spread or margin changes depending on Crombie’s unsecured bond rating with DBrS and whether the facility remains
secured or migrates to an unsecured status.
See note 21(a) for fair value information.
9 SeNior UNSeCUreD NoteS
Series A senior unsecured notes
Series B senior unsecured notes
Series C senior unsecured notes
unamortized Series B issue premium
Deferred financing charges
Maturity Date
Interest rate
December 31,
2015
December 31,
2014
october 31, 2018
3.986%
$
175,000
$
175,000
June 1, 2021
February 10, 2020
3.962%
2.775%
100,000
125,000
294
(2,214)
100,000
—
348
(1,756)
$
398,080
$
273,592
on February 10, 2015 Crombie issued, on a private placement basis, $125,000 Series C notes (senior unsecured) with a five year term and an annual
interest rate of 2.775%. there are no principal repayments until maturity and interest is payable in equal semi-annual installments in arrears on
February 10 and August 10. the first semi-annual interest payment date was August 10, 2015.
on March 5, 2014 Crombie issued, on a private placement basis, $100,000 Series B notes (senior unsecured) with a seven year three month term and
an annual interest rate of 3.962%. the Series B notes were issued for $100,393, resulting in an effective interest rate of 3.90%. there are no principal
repayments until maturity and interest is payable in equal semi-annual installments in arrears on June 1 and December 1 commencing June 1, 2014.
the Series A notes pay interest in equal semi-annual installments in arrears on April 30 and october 31.
76
Crombie reit 2015 AnnuAl report
Notes to the CoNsolidated FiNaNCial statemeNts(In thousands of CAD dollars) December 31, 2015
As at December 31, 2015, senior unsecured note retirements for the next five years are:
12 Months ending
December 31, 2016
December 31, 2017
December 31, 2018
December 31, 2019
December 31, 2020
thereafter
unamortized Series B issue premium
Deferred financing charges
See note 21(a) for fair value information.
10 CoNVertibLe DebeNtUreS
Series A
Series B
Series C
$
$
—
—
175,000
—
—
—
$
—
—
—
—
—
100,000
$
—
—
—
—
125,000
—
$
175,000
$
100,000
$
125,000
total
—
—
175,000
—
125,000
100,000
400,000
294
(2,214)
$
398,080
Conversion price
Maturity Date
Interest rate
December 31,
2015
December 31,
2014
Series C (Crr.DB.C)
Series D (Crr.DB.D)
Series e (Crr.DB.e)
Deferred financing charges
$
$
$
15.30
20.10
17.15
February 18, 2015
5.75%
$
—
$
September 30, 2019
March 31, 2021
5.00%
5.25%
60,000
74,400
(2,882)
45,000
60,000
74,400
(4,185)
Debenture Conversions
Series C
Series e
reIt units Issued
As at December 31, 2015, debenture retirements for the next five years are:
12 Months ending
December 31, 2016
December 31, 2017
December 31, 2018
December 31, 2019
December 31, 2020
thereafter
Deferred financing charges
Conversion price
$
$
15.30
17.15
$
131,518
$
175,215
Year ended
December 31,
2015
Year ended
December 31,
2014
$
$
205
$
—
205
$
—
600
600
13,398
34,984
Series D
Series e
total
$
$
—
—
—
60,000
—
—
$
—
—
—
—
—
74,400
$
60,000
$
74,400
—
—
—
60,000
—
74,400
134,400
(2,882)
$
131,518
on January 15, 2015, Crombie exercised its right to redeem the remaining outstanding principal amount of its Series C unsecured Subordinated
Debentures (“Series C Debentures”) maturing June 30, 2017, in accordance with the terms of the trust Indenture. Holders of the Series C Debentures
were entitled to convert their Series C Debentures to units based on the conversion price of $15.30 per unit until February 17, 2015. the redemption
of the then outstanding Series C Debentures was completed on February 18, 2015, for a principal payment of $44,795 plus interest, while $205 of
principal was converted to 13,398 reIt units.
2015 AnnuAl report Crombie reit
77
the Series D and Series e Debentures pay interest semi-annually on March 31 and September 30 each year. Crombie has the option to pay interest
on any interest payment date by issuing reIt units and applying the proceeds to satisfy its interest obligation. the Series D and Series e Convertible
Debentures (collectively the “Debentures”) are convertible into reIt units at the option of the debenture holder at any time up to the maturity
date, at the conversion price indicated in the table above, being a conversion rate per one thousand dollars of principal amount of approximately:
49.7512 reIt units for Series D Convertible Debentures and 58.3090 reIt units for Series e Convertible Debentures. If all conversion rights attaching
to the Series D Convertible Debentures and the Series e Convertible Debentures were exercised, as at December 31, 2015, Crombie would be required
to issue approximately 2,985,074 reIt units and 4,338,192 reIt units, respectively, subject to anti-dilution adjustments.
For the first three years from the date of issue, there is no ability to redeem the Debentures, after which, each series of convertible debentures has a
period, lasting two years, during which the Debentures may be redeemed, in whole or in part, on not more than 60 days’ and not less than 30 days’
prior notice, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest, provided that the volume-weighted average
trading price of the reIt units on the tSX for the 20 consecutive trading days ending on the fifth trading day preceding the date on which notice of
redemption is given exceeds 125% of the conversion price. After the end of the five year period from the date of issue, and to the maturity date, the
Debentures may be redeemed, in whole or in part, at any time at the redemption price equal to the principal amount thereof plus accrued and unpaid
interest. provided that there is not a current event of default, Crombie will have the option to satisfy its obligation to pay the principal amount of the
Debentures at maturity or upon redemption, in whole or in part, by issuing the number of reIt units equal to the principal amount of the Debentures
then outstanding divided by 95% of the volume-weighted average trading price of the reIt units for a stipulated period prior to the date of redemption
or maturity, as applicable. upon change of control of Crombie, Debenture holders have the right to put the Debentures to Crombie at a price equal to
101% of the principal amount plus accrued and unpaid interest.
See note 21(a) for fair value information.
11
iNCome tAXeS
on September 22, 2007, tax legislation Bill C-52, the Budget Implementation Act, 2007 (the “Act”) was passed into law. the Act related to the federal
income taxation of publicly traded income trusts and partnerships. the Act subjects all existing income trusts, or specified investment flow-through
entities (“SIFts”), to corporate tax beginning in 2011, subject to an exemption for real estate investment trusts (“reIts”). A trust that satisfies the
criteria of a reIt throughout its taxation year will not be subject to income tax in respect of distributions to its unitholders or be subject to the
restrictions on its growth that would apply to SIFts.
Crombie’s management and their advisors have completed an extensive review of Crombie’s organizational structure and operations to support
Crombie’s assertion that it meets the reIt technical tests contained in the Act. the relevant tests apply throughout the taxation year of Crombie and,
as such, the actual status of Crombie for any particular taxation year can only be ascertained at the end of the year.
the deferred tax liability of the wholly-owned corporate subsidiaries which are subject to income taxes consist of the following:
tax liabilities relating to difference in tax and book value
tax asset relating to non-capital loss carry-forward
Deferred tax liability
the tax recovery (expense) consists of the following:
taxes – current
taxes – gains on derecognition of investment properties
taxes – operating income earned in corporate subsidiaries
total current taxes
taxes – deferred
provision for income taxes at the expected rate
tax effect of income attribution to Crombie’s unitholders
taxes – gains on derecognition of investment properties
total deferred taxes
78
Crombie reit 2015 AnnuAl report
December 31,
2015
December 31,
2014
$
$
85,815
(11,615)
$
87,853
(9,453)
74,200
$
78,400
Year ended
December 31,
2015
Year ended
December 31,
2014
$
$
$
(2,066)
(870)
$
(2,936)
$
—
—
—
(19,362)
21,496
2,134
2,066
$
(20,662)
23,087
2,425
—
2,425
$
4,200
$
Notes to the CoNsolidated FiNaNCial statemeNts(In thousands of CAD dollars) December 31, 2015
In the ordinary course of business, Crombie is subject to audits by tax authorities. one of Crombie’s non-taxable subsidiaries was subject to audit
by Canada revenue Agency (“CrA”) for fiscal years 2010 and 2011. the CrA audit has concluded and did not result in a reassessment of the
completed returns.
there are no corporate tax implications to Crombie from any of the components of accumulated other comprehensive income.
12 emPLoYee FUtUre beNeFitS
Crombie has a number of defined benefit and defined contribution plans providing pension and other retirement benefits to most of its employees.
Defined contribution pension plans
the contributions required by the employee and the employer are specified. the employee’s pension depends on what level of retirement income
(for example, annuity purchase) can be achieved with the combined total of employee and employer contributions and investment returns over the
period of plan membership, and the annuity purchase rates at the time of the employee’s retirement.
Defined benefit pension plans
the ultimate retirement benefit provides pension benefits to members designated in writing by the Board of trustees based on a formula recognizing
length of service and final average earnings. the annual pension payable at age 65 is equal to 2% of the final average earnings multiplied by years
of credited service (to a maximum of 30 years) over the estimated retirement income provided under the defined contribution pension plan and
deferred profit sharing plan. the final average earnings are 12 times the average of the 60 highest months of eligible earnings. employee contributions,
if required, pay for part of the cost of the benefit, and the employer contributions fund the balance. the employer contributions are not specified
or defined within the plan text; they are based on the result of actuarial valuations which determine the level of funding required to meet the total
obligation as estimated at the time of the valuation. Crombie’s defined benefit plans are unfunded.
once participants attain age 55 and 5 years of continuous service, they can retire. the total pension payable is reduced by 5/12% for each month
by which the early retirement precedes age 60 (62 for a member who was designated as a member on or after June 25, 2009). the normal form of
pension payment is a 60% joint and survivor pension.
the post-employment benefits program offered to Crombie employees and retirees in Canada is an open plan that provides life and medical benefits
for grandfathered employees and employees retired prior to May 1, 2011 as well as critical illness coverage for other employees. Full-time employees
must be over age 55 to be eligible for the post-employment benefits program.
the total defined benefit cost related to pension plans and post-employment benefit plans for the year ended December 31, 2015 was $531 (year
ended December 31, 2014 – $514).
the plan typically exposes Crombie to actuarial risks such as: interest rate risk, mortality risk and salary risk.
(i) Interest rate risk – the present value of the defined benefit liability is calculated using discount rates that reflect the average yield, as at the
measurement date, on high quality corporate bonds of similar duration to the plans’ liabilities. A decrease in the market yield on high quality corporate
bonds will increase Crombie’s defined benefit liability.
(ii) Mortality risk – the present value of the defined benefit plan is calculated by reference to the best estimate of the mortality of plan participants both
during and after their employment. An increase in the life expectancy of the plan participants will increase the plan’s liability.
(iii) Salary risk – the present value of the defined benefit plan liability is calculated by reference to the anticipated future salary of the plan participants.
As such, an increase in the salary of plan participants over that anticipated will increase the plan’s liability.
Senior Management pension plan
post-employment Benefit plans
Most recent
valuation date
next required
valuation date
December 31, 2015
December 31, 2016
May 1, 2012
May 1, 2016
the significant actuarial assumptions adopted in measuring the Company’s accrued benefit obligations and pension costs are as follows:
December 31, 2015
December 31, 2014
Senior
Senior
management Post-employment
benefit Plans
Pension Plan
Management post-employment
Benefit plans
pension plan
Discount rate – accrued benefit obligation
rate of compensation increase
4.00%
3.50%
4.00%
N/A
3.75%
3.50%
4.00%
n/A
2015 AnnuAl report Crombie reit
79
For measurement purposes, a 6.50% (2014 – 7.00%) annual rate increase in the per capita cost of covered health care benefits was assumed. the
cumulative rate is expected to decrease 0.50% annually to 5.00% in 2018.
these assumptions were developed by management with the assistance of independent actuaries. Discount factors are determined close to year-end
by reference to market yields of high quality corporate bonds that have a maturity approximating the terms of the related pension obligation. other
assumptions are based on current actuarial benchmarks and management’s historical experience.
the projected unit credit method is used to determine the present value of the defined benefit obligation and the related current service cost for all
active members.
Crombie uses December 31 as a measurement date for accounting purposes for its defined benefit pension plans.
Defined benefit plans
Information about Crombie’s defined benefit plans are as follows:
December 31, 2015
December 31, 2014
Senior
Senior
management Post-employment
benefit Plans
Pension Plan
Management post-employment
Benefit plans
pension plan
Accrued benefit obligation
Balance, beginning of year
Current service cost
Interest cost
Actuarial losses (gains)
Benefits paid
Balance, end of year
plan Assets
Fair value, beginning of the year
employer contributions
Benefits paid
Fair value, end of year
Funded status – deficit
Current portion
non-current portion
$
4,160
$
171
159
(32)
(200)
4,258
—
200
(200)
—
4,258
200
4,058
3,882
45
156
(320)
(39)
3,724
—
39
(39)
—
3,724
46
3,678
$
3,644
$
141
166
409
(200)
4,160
—
200
(200)
—
4,160
200
3,960
Accrued benefit obligation recorded as a liability
net expense
Current service cost
Interest cost
net expense
$
$
$
4,258
$
3,724
$
4,160
$
$
171
159
330
$
45
156
201
$
$
$
141
166
307
$
3,534
39
169
173
(33)
3,882
—
33
(33)
—
3,882
39
3,843
3,882
38
169
207
the table below outlines the sensitivity of the fiscal 2015 key economic assumptions used in measuring the accrued benefit plan obligations and
related expenses of Crombie’s pension and other benefit plans. the sensitivity of each key assumption has been calculated independently. Changes
to more than one assumption simultaneously may amplify or reduce the impact on the accrued benefit obligation or benefit plan expenses. there
was no change to the method and assumptions used in preparing the sensitivity analysis from prior years.
Discount rate
Impact of:
Growth rate of health costs(2)
Impact of:
Senior Management pension plan
post-employment Benefit plans
Benefit
obligations
Benefit Cost(1)
Benefit
obligations
Benefit Cost(1)
4.00%
4.00%
1% increase
1% decrease
$
$
(494)
604
$
$
(14)
15
1% increase
1% decrease
4.00%
(552)
689
6.50%
608
(491)
$
$
$
$
4.00%
2
(7)
6.50%
29
(23)
$
$
$
$
(1) reflects the impact on the current service costs, the interest cost and the expected return on assets.
(2) Gradually decreasing to 5.0% in 2018 and remaining at that level thereafter.
For the year ended December 31, 2015, the net defined contribution pension plans expense was $689 (year ended December 31, 2014 – $687).
80
Crombie reit 2015 AnnuAl report
Notes to the CoNsolidated FiNaNCial statemeNts(In thousands of CAD dollars) December 31, 2015
13 trADe AND otHer PAYAbLeS
tenant incentives and capital expenditures
property operating costs
prepaid rents
Finance costs on investment property debt, notes and debentures
Distributions payable
unit based compensation plans
Fair value of embedded derivatives in convertible debentures
Deferred revenue
December 31,
2015
December 31,
2014
$
$
16,648
23,858
4,782
10,163
9,755
1,947
—
4,827
15,999
26,143
4,726
8,891
9,685
—
—
4,860
$
71,980
$
70,304
Unit based compensation plans
(i) Deferred Unit Plan
Crombie has a Du plan available to eligible participants, which is designed to promote a greater alignment of interests between the trustees, officers
and employees of Crombie and its unitholders. participation in the Du plan is voluntary unless Crombie’s Board of trustees (the “Board”) or Human
resources Committee (“HrC”) decides that special compensation is to be provided in the form of Dus. unless otherwise determined by the Board or
HrC, Dus granted under the Du plan are fully vested at the time they are awarded. Dus are not Crombie reIt units and do not entitle a participant to
any unitholder rights, including voting rights, distribution entitlements (other than those noted below) or rights on liquidation. During the time that a
participant has outstanding Dus, whenever cash distributions are paid on reIt units, additional Dus will be credited to the participant’s Du account,
determined by multiplying the number of Dus in the participant’s Du account on the reIt distribution record date by the distribution paid per reIt unit,
and dividing the result by the market value of a unit as determined in accordance with the Du plan. Additional Dus issued as a result of distributions
vest on the same basis as noted above and the value of the additional Dus credited is expensed to general and administrative expenses on allocation.
upon redemption, a participant will receive the net value of the vested Dus being redeemed, with the net value determined by multiplying the number
of Dus redeemed by the reIt unit’s market price on redemption date, less applicable withholding taxes. the participant may elect to receive this
net amount as a cash payment or instead receive one Crombie reIt unit issued for each Du redeemed after deducting applicable withholding taxes.
For fair value measurement purposes, each Du is measured based on the market value of a reIt unit at the balance sheet date (note 21).
(ii) Restricted Unit Plan
Crombie has a ru plan available to eligible ru participants, which is designed to promote a greater alignment of interests between the specific
employees of Crombie and its unitholders; and assist Crombie in attracting, retaining and rewarding specific employees. ru participants will receive
all or a portion of their long-term incentive plan awards in rus. the rus vest over a period of not more than three years, ending on the final day of the
third quarter of the third calendar year of the ru’s term. the rus are subject to vesting conditions including continuing employment. the number of
rus which fully vest is determined by: (a) the dollar amount of the award divided by the market value of a reIt unit on the award grant date, plus
(b) deemed distributions on rus during the vesting period at a rate equivalent to the number of reIt units that would have been issued had the vested
rus been treated as a reIt unit. the value of these additional rus from deemed distributions is expensed to general and administrative expenses at
the time of allocation. on the vesting date, each participant shall be entitled to receive a cash amount (net of any applicable withholding taxes) equal
to the number of vested rus held by the ru participant multiplied by the market value on the vesting date, as determined by the market value of a reIt
unit. Alternatively, a ru participant who is an eligible employee on the vesting date may elect to convert their rus to Dus under Crombie’s Du plan.
no reIt units or other securities of Crombie will be issued from treasury as settlement of any obligation under the ru plan.
Deferred revenue
During 2014, Crombie completed a sale-leaseback of the land component of an investment property. the proceeds received in excess of fair value of
the land have been deferred and will be recognized as a reduction in property operating expenses over the term of the land lease. In addition, Crombie
received a prepayment, from a related party, of their future obligation under a land sub-lease. this prepayment has also been deferred and will be
recognized as a reduction in property operating expenses over the term of the land lease.
2015 AnnuAl report Crombie reit
81
Change in fair value of financial instruments:
Change in fair value of Du plan
Change in fair value of marketable securities
Change in fair value of financial instruments
14 ProPertY reVeNUe
rental revenue contractually due from tenants
Contingent rental revenue
Straight-line rent recognition
tenant incentive amortization
lease terminations
Year ended
December 31,
2015
Year ended
December 31,
2014
$
$
$
(18)
74
56
$
—
289
289
Year ended
December 31,
2015
Year ended
December 31,
2014
$
362,699
1,562
11,142
(9,712)
4,175
$
352,182
2,014
11,440
(7,567)
250
$
369,866
$
358,319
the following table sets out tenants that contribute in excess of 10% of total property revenue:
Sobeys Inc.
$
156,289
42.3%
$
148,213
41.4%
December 31, 2015
December 31, 2014
revenue
Percentage
revenue
percentage
15 oPerAtiNG LeASeS
Crombie as a Lessor
Crombie’s operations include leasing commercial real estate. Future minimum rental income under non-cancellable tenant leases as at December 31,
2015, is as follows:
Year ending December 31,
2016
2017
2018
2019
2020
thereafter
total
Future minimum rental income
$ 246,522 $ 232,766 $ 223,419 $ 213,151 $ 201,176 $ 1,882,304 $ 2,999,338
Crombie as a Lessee
operating lease payments primarily represent rentals payable by Crombie for all of its land leases. these land leases have varying terms ranging from
9 to 74 years including renewal options:
Year ending December 31,
2016
2017
2018
2019
2020
thereafter
total
Future minimum lease payments
$
1,469 $
1,523 $
1,550 $
1,551 $
1,552 $ 64,175 $ 71,820
82
Crombie reit 2015 AnnuAl report
Notes to the CoNsolidated FiNaNCial statemeNts(In thousands of CAD dollars) December 31, 2015
16 emPLoYee beNeFit eXPeNSe
Crombie’s payroll expenses are included in property operating expenses and in general and administrative expenses.
Wages and salaries
post-employment benefits
17 FiNANCe CoStS – oPerAtioNS
Fixed rate mortgages
Floating rate term, revolving and demand facilities
Senior unsecured notes
Convertible debentures
Finance costs – operations
Amortization of fair value debt adjustment and accretion income
Change in accrued finance costs
Amortization of effective swap agreements
Amortization of issue premium on senior unsecured notes
Amortization of deferred financing charges
Year ended
December 31,
2015
Year ended
December 31,
2014
$
$
22,906
689
$
23,389
687
23,595
$
24,076
Year ended
December 31,
2015
Year ended
December 31,
2014
$
$
71,871
3,685
14,506
8,549
98,611
1,391
(1,272)
(2,520)
54
(3,616)
77,452
2,342
10,174
9,498
99,466
2,107
(232)
(2,797)
45
(3,171)
Finance costs – operations, paid
$
92,648
$
95,418
18 UNitS oUtStANDiNG
Balance, January 1, 2015
net change in eupp
loans receivable
units issued under DrIp
Conversion of debentures
Crombie reit Units
Class b LP Units and
attached Special Voting Units
total
Number of Units
Amount Number of Units
Amount Number of Units
Amount
77,304,079
$
870,578
53,275,266
$
591,523
130,579,345
$ 1,462,101
—
540,131
13,398
75
6,723
205
—
383,036
—
—
4,781
—
—
923,167
13,398
75
11,504
205
Balance, December 31, 2015
77,857,608
$
877,581
53,658,302
$
596,304
131,515,910
$ 1,473,885
Balance, January 1, 2014
units issued (proceeds are net
of issue costs)
units issued under eupp
units released under eupp
net change in eupp loans receivable
units issued under DrIp
Conversion of debentures
Crombie reIt units
Class B lp units and
attached Special Voting units
total
number of units
Amount
number of units
Amount
number of units
Amount
72,662,264
$
811,514
50,241,245
$
551,511
122,903,509
$ 1,363,025
4,530,000
55,467
—
—
21,364
34,984
57,366
3,018,868
39,830
7,548,868
97,196
738
64
40
256
600
—
—
—
15,153
—
—
—
—
182
—
55,467
—
—
36,517
34,984
738
64
40
438
600
Balance, December 31, 2014
77,304,079
$
870,578
53,275,266
$
591,523
130,579,345
$ 1,462,101
2015 AnnuAl report Crombie reit
83
Crombie reit Units
Crombie is authorized to issue an unlimited number of reIt units and an unlimited number of SVu and Class B lp units. Issued and outstanding reIt
units may be subdivided or consolidated from time to time by the trustees without the approval of the unitholders. reIt units are redeemable at any
time on demand by the holders at a price per reIt unit equal to the lesser of: (i) 90% of the weighted average price per Crombie reIt unit during
the period of the last ten days during which Crombie’s reIt units traded; and (ii) an amount equal to the price of Crombie’s reIt units on the date
of redemption, as defined in the Declaration of trust.
the aggregate redemption price payable by Crombie in respect of any reIt units surrendered for redemption during any calendar month will be
satisfied by way of a cash payment in Canadian dollars within 30 days after the end of the calendar month in which the reIt units were tendered for
redemption, provided that the entitlement of unitholders to receive cash upon the redemption of their reIt units is subject to the limitation that:
(i)
(ii)
(iii)
the total amount payable by Crombie in respect of such reIt units and all other reIt units tendered for redemption, in the same calendar month
must not exceed $50 (provided that such limitation may be waived at the discretion of the trustees);
at the time such reIt units are tendered for redemption, the outstanding reIt units must be listed for trading on the tSX or traded or quoted on
any other stock exchange or market which the trustees consider, in their sole discretion, provides representative fair market value prices for the
reIt units; and
the normal trading of reIt units is not suspended or halted on any stock exchange on which the reIt units are listed (or if not listed on a stock
exchange, in any market where the reIt units are quoted for trading) on the redemption Date or for more than five trading days during the 10 day
trading period commencing immediately after the redemption Date.
During the year ended December 31, 2015, $205 of Series C Convertible Debentures were converted for a total of 13,398 reIt units at the conversion
price of $15.30 per unit.
on May 30, 2014, Crombie closed a public offering, on a bought deal basis, of 4,530,000 units, at a price of $13.25 per unit for proceeds of $57,366 net
of issue costs.
During the year ended December 31, 2014, $600 of Series e Convertible Debentures were converted for a total of 34,984 reIt units at the conversion
price of $17.15.
Crombie reit Special Voting Units (“SVU”) and Class b LP Units
the Declaration of trust and the exchange Agreement provide for the issuance of SVus to the holders of Class B lp units used solely for providing
voting rights proportionate to the votes of Crombie’s reIt units. the SVus are not transferable separately from the Class B lp units to which they are
attached and will be automatically transferred upon the transfer of such Class B lp unit. If the Class B lp units are exchanged in accordance with the
exchange Agreement, a like number of SVus will be redeemed and cancelled for no consideration by Crombie.
the Class B lp units issued by a subsidiary of Crombie to eCl Developments limited are indirectly exchangeable on a one-for-one basis for Crombie’s
reIt units at the option of the holder, under the terms of the exchange Agreement.
each Class B lp unit entitles the holder to receive distributions from Crombie, pro rata with distributions made by Crombie on reIt units.
on May 30, 2014, concurrently with the issuance of the reIt units, in satisfaction of its pre-emptive right, eCl Developments limited purchased
3,018,868 Class B lp units and the attached SVus at a price of $13.25 per Class B lp unit for proceeds of $39,830 net of issue costs, on a private
placement basis.
employee Unit Purchase Plan
Crombie previously provided for reIt unit purchase entitlements under the eupp for certain senior executives. Awards made under the eupp allowed
executives to purchase reIt units from treasury at the average daily high and low board lot trading prices per reIt unit on the tSX for the five trading
days preceding the issuance. executives were provided interest-bearing, non-recourse loans by Crombie for the outstanding eupp loan balances
and the reIt units purchased are held as collateral for the loan. the loans are being repaid through the application of the after-tax amounts of all
distributions received on the reIt units, as well as the after-tax portion of any long-term Incentive plan cash awards received, as payments on interest
and principal. the loans are required to be repaid by December 31, 2023.
As at December 31, 2015, there are loans receivable from executives of $1,856 under Crombie’s eupp, representing 151,516 reIt units, which are
classified as a reduction to net assets attributable to unitholders. loan repayments will result in a corresponding increase to net assets attributable
to unitholders. Market value of the reIt units held as collateral at December 31, 2015 was $1,939.
the compensation expense related to the eupp for the year ended December 31, 2015 was $42 (year ended December 31, 2014 – $42).
As at December 31, 2014, the eupp was replaced with a ru plan with a specific vesting period and no employee loans.
84
Crombie reit 2015 AnnuAl report
Notes to the CoNsolidated FiNaNCial statemeNts(In thousands of CAD dollars) December 31, 2015 Distribution reinvestment Plan
During the fourth quarter of 2014, Crombie instituted a DrIp whereby Canadian resident reIt unitholders may elect to automatically have their
distributions reinvested in additional reIt units. units issued under the DrIp will be issued directly from the treasury of Crombie reIt at a price equal to
97% of the volume-weighted average trading price of the reIt units on the tSX for the five trading days immediately preceding the relevant distribution
payment date, which is typically on or about the 15th day of the month following the declaration. Crombie recognizes the net proceeds in net assets
attributable to unitholders.
19 SUPPLemeNtArY CASH FLoW iNFormAtioN
a) items not affecting operating cash
Items not affecting operating cash:
Straight-line rent recognition
Amortization of tenant incentives
loss (gain) on derecognition of investment properties
Impairment of investment properties
Depreciation of investment properties
Amortization of deferred leasing costs
Amortization of intangible assets
unit based compensation
Amortization of effective swap agreements
Amortization of deferred financing charges
Amortization of issue premium on senior unsecured notes
non-cash distributions to unitholders in the form of DrIp units
taxes – deferred
Income tax expense
Change in fair value of financial instruments
b) Change in other non-cash operating items
Cash provided by (used in):
trade receivables
prepaid expenses and deposits and other assets
payables and other liabilities
20 reLAteD PArtY trANSACtioNS
Year ended
December 31,
2015
Year ended
December 31,
2014
$
(11,142)
9,712
(23)
12,575
60,498
598
5,480
51
2,520
3,616
(54)
11,504
(4,200)
2,936
(56)
$
(11,440)
7,567
(9,353)
10,750
57,983
535
5,606
42
2,797
3,171
(45)
438
(2,425)
—
(289)
$
94,015
$
65,337
Year ended
December 31,
2015
Year ended
December 31,
2014
$
$
(1,989)
3,130
340
(1,014)
246
(325)
$
1,481
$
(1,093)
related party transactions are transactions with associates, post-employment benefit plans, and key management personnel. transactions between
Crombie and its subsidiaries have been eliminated on consolidation, and as such, are not disclosed in this note. related party transactions are
measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
As at December 31, 2015, empire, through its wholly-owned subsidiary eCl Developments limited (“eClD”), holds a 41.5% (fully diluted 40.2%)
indirect interest in Crombie.
2015 AnnuAl report Crombie reit
85
Crombie’s transactions with related parties are as follows:
property revenue
Head lease income
Management support services provided
property management services
lease termination income
rental expense
property operating expenses
Interest rate subsidy
Interest income
Finance costs – operations
Finance costs – distributions to unitholders
Year ended
December 31,
2015
Year ended
December 31,
2014
note
(a)
(b)
(c)
(d)
(e)
(b)
(f)
$
$
$
$
$
$
$
$
$
$
$
160,470
736
377
869
3,999
78
135
482
711
1,200
48,369
$
$
$
$
$
$
$
$
$
$
$
152,855
947
431
500
—
187
145
700
544
1,200
47,318
(a) Crombie earned property revenue from Sobeys Inc. and other subsidiaries of empire.
(b) For various periods, eCl Developments limited has an obligation to provide rental income and interest rate subsidies pursuant to an omnibus
Subsidy Agreement dated March 23, 2006, between Crombie Developments limited, Crombie limited partnership and eCl Developments limited.
the rental income is included in property revenue and the interest rate subsidy is netted against Finance costs – operations.
(c) Certain executive management individuals and other employees of Crombie provide general management, financial, leasing, administrative, and
other administration support services to certain subsidiaries of empire on a cost sharing basis pursuant to a Management Cost Sharing Agreement,
dated March 23, 2006, between Crombie Developments limited, a subsidiary of Crombie, and eCl Developments limited, a subsidiary of empire.
(d) Certain on-site maintenance and management employees of Crombie provide property management services to certain subsidiaries of empire on
a cost sharing basis pursuant to the Management Cost Sharing Agreement. the costs recovered by Crombie pursuant to the Agreement were netted
against property expenses.
(e) Crombie previously leased its head office space from eCl Developments limited. the lease was terminated in May, 2015.
(f) empire holds $24,000 of Series D Convertible Debentures with an annual interest rate of 5.00%.
In addition to the above:
•
•
•
•
•
•
•
During the fourth quarter of 2015, Crombie acquired four retail properties and additions to two existing retail properties from empire for $60,825
excluding closing and transaction costs. the properties, located in Alberta, British Columbia, prince edward Island, Manitoba and Quebec, contain
approximately 225,300 square feet of fully occupied space.
on April 1, 2015, Crombie acquired additional development space from empire on a pre-existing retail property for $2,333 excluding closing and
transaction costs. the property, located in nova Scotia, contains approximately 7,500 square feet of fully occupied space.
During the second quarter of 2015, Sobeys closed two retail stores on Crombie properties for which Crombie recognized lease termination income in
the amount of $3,849; a portion of which in being received in non-cash considerations. In relation to one of the store closures, Sobeys has assigned
to Crombie future development activity rights in their leases on specific other Crombie properties in exchange for a fee on future developments
which will reduce the actual cash Crombie will receive from the lease termination income.
During the year ended December 31, 2015, Crombie issued 383,036 (December 31, 2014 – 15,153) Class B lp units to eClD under the DrIp
(note 18).
During the year ended December 31, 2015, Crombie and eClD negotiated an extension of a rental income guarantee and put option on a property
Crombie acquired from eClD in 2006. the rental income guarantee and put option were originally scheduled to mature in March 2016 and have
been extended for a period of five years with either party having the ability to terminate the agreements with written notice. the fixed price put option
is in excess of the carrying value of the property.
During the first quarter of 2015, Crombie acquired development lands in British Columbia with Sobeys Developments limited partnership (“SDlp”).
Crombie’s 50% portion of the acquisition cost was $2,676, including closing and transaction costs.
During the fourth quarter of 2014, Crombie acquired eight retail properties from empire for $100,985 excluding closing adjustments and transaction
costs. the properties, containing approximately 424,000 square feet of GlA, included one in prince edward Island, ontario and Manitoba, three in
Alberta and two in British Columbia. Crombie also acquired additional development space from empire on a pre-existing retail property for $2,508
excluding closing and transaction costs.
86
Crombie reit 2015 AnnuAl report
Notes to the CoNsolidated FiNaNCial statemeNts(In thousands of CAD dollars) December 31, 2015
•
•
•
•
During the third quarter of 2014 Crombie received $2,650 from a subsidiary of empire related to a prepayment of their future obligation under a
land sub-lease. the amount has been deferred and will be recognized as a reduction in property operating expenses over the remaining term of
the land lease.
on May 30, 2014, eClD purchased 3,018,868 Class B lp units and the attached SVus at a price of $13.25 per Class B lp unit for proceeds of
$39,830, net of issue costs, on a private placement basis.
During the second quarter of 2014, Crombie acquired a retail property from SDlp for $10,176 excluding closing adjustments and transaction costs.
the property, located in ontario, contains approximately 39,000 square feet of fully occupied space.
During the first quarter of 2014, Crombie exchanged properties with a subsidiary of empire by acquiring 1200 railway Avenue in Canmore, Alberta in
exchange for disposing of 555 Main Street in Canmore, Alberta. Crombie also acquired additional development space from empire on a pre-existing
retail property for $1,490 excluding closing and transaction costs.
•
During the first quarter of 2014, Crombie entered into a loan agreement with SDlp to partially finance SDlp’s acquisition of development lands in
British Columbia. the $11,856 loan bears interest at a rate of 6% per annum and has no principal repayments until maturity on october 1, 2016.
Key management personnel compensation
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of Crombie. the
following are considered to be Crombie’s key management personnel: the Chief executive officer, Chief Financial officer and the three other highest
compensated executives.
the remuneration of members of key management during the period was approximately as follows:
Salary, bonus and other short-term employee benefits
other long-term benefits
21 FiNANCiAL iNStrUmeNtS
Year ended
December 31,
2015
Year ended
December 31,
2014
$
$
2,860
102
$
2,962
$
4,158
103
4,261
a) Fair value of financial instruments
the fair value of a financial instrument is the estimated amount that Crombie would receive to sell a financial asset or pay to transfer a financial liability
in an orderly transaction between market participants at the measurement date.
Fair value determination is classified within a three-level hierarchy, based on observability of significant inputs, as follows:
level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities.
level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
level 3 – unobservable inputs for the asset or liability.
the following table provides information on financial assets and liabilities measured at fair value as at December 31, 2015:
Financial assets
Marketable securities
total financial assets measured at fair value
Financial liabilities
unit based compensation plans
total financial liabilities measured at fair value
level 1
level 2
level 3
total
$
$
$
$
—
—
842
842
$
$
$
$
—
—
—
—
$
$
$
$
1,965
1,965
—
—
$
$
$
$
1,965
1,965
842
842
there were no transfers between level 1 and level 2 during the year ended December 31, 2015.
2015 AnnuAl report Crombie reit
87
the fair value of other financial instruments is based on discounted cash flows using discount rates that reflect current market conditions for
instruments with similar terms and risks. the following table summarizes the estimated fair value of other financial instruments which have a fair
value different from their carrying value:
Financial assets
long-term receivables
total other financial assets
Financial liabilities
Investment property debt
Senior unsecured notes
Convertible debentures
December 31, 2015
December 31, 2014
Fair Value
Carrying Value
Fair Value
Carrying Value
$
$
13,968
13,968
$
$
13,933
13,933
$
$
13,663
13,663
$
$
13,631
13,631
$ 1,782,776
405,348
138,360
$ 1,651,079
400,000
134,400
$ 1,757,910
$ 1,635,187
284,778
183,698
275,000
179,400
total other financial liabilities
$ 2,326,484
$ 2,185,479
$ 2,226,386
$ 2,089,587
Due to their short-term nature, the carrying value of the following financial instruments approximates their fair value at the balance sheet date:
• Cash and cash equivalents
• trade receivables
• restricted cash
• trade and other payables (excluding embedded derivatives).
b) risk management
In the normal course of business, Crombie is exposed to a number of financial risks that can affect its operating performance. the more significant risks
and the actions taken to manage them, are as follows:
Credit risk
Credit risk arises from the possibility that tenants may experience financial difficulty and be unable to fulfill their lease commitments. A provision for
doubtful accounts is taken for all anticipated collectability risks (note 5).
Crombie mitigates credit risk by geographical diversification, utilizing staggered lease maturities, diversifying both its tenant mix and asset mix and
conducting credit assessments for new and renewing tenants. As at December 31, 2015:
•
excluding Sobeys (which accounts for 49.9% of Crombie’s go forward minimum rent), no other tenant accounts for more than 5.8% of Crombie’s
minimum rent, and;
•
over the next five years, no more than 6.0% of the gross leasable area of Crombie will expire in any one year.
As outlined in note 20, Crombie earned property revenue of $160,470 for the year ended December 31, 2015 (year ended December 31, 2014 –
$152,855) from Sobeys Inc. and other subsidiaries of empire.
receivables are substantially comprised of current balances due from tenants. the balance of accounts receivable past due is not significant. Generally,
rents are due the first of each month and other tenant billings are due 30 days after invoiced, and in general, balances over 30 days are considered past
due. none of the receivable balances are considered impaired. the provision for doubtful accounts is reviewed at each balance sheet date. A provision
is taken on accounts receivable from independent accounts and is recorded as a reduction to its respective receivable account on the balance sheet.
Crombie updates its estimate of provision for doubtful accounts based on past due balances on accounts receivable. Current and long-term accounts
receivable are reviewed on a regular basis and are provided for when collection is considered uncertain.
provision for doubtful accounts, beginning of year
Additional provision
recoveries
Write-offs
provision for doubtful accounts, end of year
there have been no significant changes to Crombie’s credit risk.
88
Crombie reit 2015 AnnuAl report
Year ended
December 31,
2015
Year ended
December 31,
2014
$
$
59
20
(38)
19
$
60
$
47
(43)
(33)
88
59
Notes to the CoNsolidated FiNaNCial statemeNts(In thousands of CAD dollars) December 31, 2015
interest rate risk
Interest rate risk is the potential for financial loss arising from increases in interest rates. Crombie mitigates this risk by utilizing staggered debt
maturities and limiting the use of permanent floating rate debt and, on occasion, utilizing interest rate swap agreements. Crombie does not enter
into interest rate swaps on a speculative basis.
As at December 31, 2015:
• Crombie’s weighted average term to maturity of its fixed rate mortgages was 6.6 years;
•
Crombie has a floating rate revolving credit facility available to a maximum of $300,000, subject to available borrowing base, with a balance of
$130,000 at December 31, 2015; and
• Crombie has no outstanding interest rate swap agreements to mitigate interest rate risk on floating rate debt.
Crombie estimates that $2,440 of accumulated other comprehensive income (loss) will be reclassified to finance costs during the year ending
December 31, 2016, based on all settled swap agreements as of December 31, 2015.
A fluctuation in interest rates would have had an impact on Crombie’s operating income related to the use of floating rate debt. Based on the previous
year’s rate changes, a 0.5% interest rate change would reasonably be considered possible. the changes would have had the following impact:
Impact on operating income attributable to unitholders of interest rate
changes on the floating rate revolving credit facility
Year ended December 31, 2015
Year ended December 31, 2014
there have been no significant changes to Crombie’s interest rate risk.
Impact of a 0.5% interest rate change
Decrease in rate
Increase in rate
$
$
635
334
$
$
(635)
(334)
Liquidity risk
the real estate industry is highly capital intensive. liquidity risk is the risk that Crombie may not have access to sufficient debt and equity capital to
fund its growth program, refinance debt obligations as they mature or meet its ongoing obligations as they arise.
Cash flow generated from operating the property portfolio represents the primary source of liquidity used to service the interest on debt, fund general
and administrative expenses, reinvest in the portfolio through capital expenditures, as well as fund tenant incentive costs and make distributions to
unitholders. Debt repayment requirements are primarily funded from refinancing Crombie’s maturing debt obligations. property acquisition funding
requirements are funded through a combination of accessing the debt and equity capital markets.
there is a risk that the debt capital markets may not refinance maturing fixed rate and floating rate debt on terms and conditions acceptable to
Crombie or at any terms at all. Crombie seeks to mitigate this risk by staggering its debt maturity dates. there is also a risk that the equity capital
markets may not be receptive to a reIt unit offering issue from Crombie with financial terms acceptable to Crombie. As discussed in note 22,
Crombie mitigates its exposure to liquidity risk utilizing a conservative approach to capital management.
Access to the revolving credit facility is limited by the amount utilized under the facility and the amount of any outstanding letters of credit, and cannot
exceed the borrowing base security provided by Crombie.
the estimated payments, including principal and interest, on non-derivative financial liabilities to maturity date are as follows:
Contractual
Cash Flows(1)
2016
2017
2018
2019
2020
thereafter
Year ending December 31,
Fixed rate mortgages(2)
Senior unsecured notes
Convertible debentures
$ 1,908,629 $ 158,514 $ 152,448 $ 163,332 $ 221,009 $ 245,318 $ 968,008
101,651
75,377
455,486
166,157
188,244
129,346
14,407
14,407
66,156
6,906
6,906
7,431
6,906
3,906
Floating rate revolving credit facility
138,060
3,224
3,224
2,530,272
179,827
173,761
358,482
131,612
294,596
378,570
1,145,036
—
—
—
Total
$ 2,668,332 $ 183,051 $ 176,985 $ 490,094 $ 294,596 $ 378,570 $ 1,145,036
(1) Contractual cash flows include principal and interest and ignore extension options.
(2) reduced by the interest rate subsidy payments to be received from eCl Developments limited.
there have been no significant changes to Crombie’s liquidity risk.
2015 AnnuAl report Crombie reit
89
22 CAPitAL mANAGemeNt
Crombie’s objective when managing capital on a long-term basis is to maintain overall indebtedness, including convertible debentures, in the range of
50% to 55% of gross book value, utilize staggered debt maturities, minimize long-term exposure to excessive levels of floating rate debt and maintain
conservative payout ratios.
Crombie’s capital structure consists of the following:
Investment property debt
Senior unsecured notes
Convertible debentures
Crombie reIt unitholders
SVu and Class B lp unitholders
December 31,
2015
December 31,
2014
$ 1,641,203
398,080
131,518
694,484
452,746
$ 1,624,547
273,592
175,215
716,025
467,289
$ 3,318,031
$ 3,256,668
At a minimum, Crombie’s capital structure is managed to ensure that it complies with the limitations pursuant to Crombie’s Declaration of trust, the
criteria contained in the Income tax Act (Canada) in regard to the definition of a reIt and existing debt covenants. Some of the restrictions pursuant
to Crombie’s Declaration of trust would include, among other items:
•
A restriction that Crombie shall not incur indebtedness (other than by the assumption of existing indebtedness) where the indebtedness would
exceed 75% of the market value of an individual property; and
•
A restriction that Crombie shall not incur indebtedness of more than 60% of gross book value (65% including any convertible debentures).
For debt to gross book value calculation, Crombie does not include in total debt the financial liabilities to reIt unitholders and to holders of Class B lp
units, as shown on the balance sheet as net assets attributable to unitholders. Crombie’s debt to gross book value as defined in Crombie’s Declaration
of trust is as follows:
Fixed rate mortgages
Senior unsecured notes
Convertible debentures
revolving credit facility
total debt outstanding
less: Applicable fair value debt adjustment
Debt
Investment properties, cost
Below-market lease component, cost(1)
Intangible assets, cost
long-term receivables
other assets, cost (see below)
Cash and cash equivalents
Deferred financing charges
Investment properties held for sale, cost
Interest rate subsidy
Fair value adjustment to deferred taxes
Gross book value
Debt to gross book value
(1) Below market lease component is included in the carrying value of investment properties and assets held for sale.
other assets are calculated as follows:
other assets per note 5
Add back (deduct):
tenant incentive accumulated amortization
other assets, cost
90
Crombie reit 2015 AnnuAl report
December 31,
2015
December 31,
2014
$ 1,521,079
400,000
134,400
130,000
$ 1,490,187
275,000
179,400
145,000
2,185,479
(1,721)
2,089,587
(2,203)
$ 2,183,758
$ 2,087,384
$ 3,483,482
72,634
98,136
13,933
180,324
1,057
14,972
144,323
(1,721)
(34,645)
$ 3,462,453
71,368
99,019
13,631
156,965
611
16,581
40,417
(2,203)
(34,645)
$ 3,972,495
$ 3,824,197
55.0%
54.6%
December 31,
2015
December 31,
2014
$
134,869
$
121,391
45,455
35,574
$
180,324
$
156,965
Notes to the CoNsolidated FiNaNCial statemeNts(In thousands of CAD dollars) December 31, 2015
under the amended terms governing the revolving credit facility, Crombie is entitled to borrow a maximum of 70% of the fair market value of assets
subject to a first security position and 60% of the excess fair market value over first mortgage financing of assets subject to a second security position
or a negative pledge. the terms of the revolving credit facility also require that Crombie must maintain certain covenants:
•
annualized net operating income for the prescribed properties must be a minimum of 1.4 times the coverage of the related annualized debt
service requirements;
•
annualized net operating income on all properties must be a minimum of 1.4 times the coverage of all annualized debt service requirements;
•
access to the revolving credit facility is limited by the amount utilized under the facility and the amount of any outstanding letters of credit not to
exceed the borrowing base security provided by Crombie; and,
•
distributions to unitholders are limited to 100% of distributable income as defined in the revolving credit facility.
As at December 31, 2015, Crombie is in compliance with all externally imposed capital requirements and all covenants relating to its debt facilities.
23 CommitmeNtS AND CoNtiNGeNCieS
there are various claims and litigation which Crombie is involved with arising out of the ordinary course of business operations. In the opinion of
management, any liability that would arise from such contingencies would not have a significant adverse effect on these financial statements.
Crombie has agreed to indemnify its trustees and officers, and particular employees, in accordance with Crombie’s policies. Crombie maintains
insurance policies that may provide coverage against certain claims.
Crombie has entered into a management cost sharing agreement with a subsidiary of empire.
Crombie obtains letters of credit to support its obligations with respect to construction work on its investment properties and satisfying mortgage
financing requirements. As at December 31, 2015, Crombie has a total of $1,425 in outstanding letters of credit related to:
Construction work being performed on investment properties
total outstanding letters of credit
December 31,
2015
1,425
1,425
$
$
2014
979
979
$
$
Crombie does not believe that any of these standby letters of credit are likely to be drawn upon.
land leases have varying terms ranging from 9 to 74 years including renewal options. For the year ended December 31, 2015, Crombie paid $1,418 in
land lease payments to third party landlords (year ended December 31, 2014 – $1,225). Crombie’s commitments under the land leases are disclosed
in note 15.
As at December 31, 2015, Crombie had signed construction contracts totaling $16,736 of which $11,516 has been paid.
24 SUbSeQUeNt eVeNtS
(a) on January 20, 2016 Crombie declared distributions of 7.417 cents per unit for the period from January 1, 2016 to and including, January 31, 2016.
the distributions were paid on February 15, 2016, to unitholders of record as of January 29, 2016.
(b) on February 17, 2016 Crombie declared distributions of 7.417 cents per unit for the period from February 1, 2016 to and including, February 29, 2016.
the distributions will be paid on March 14, 2016, to unitholders of record as of February 29, 2016.
(c) on January 29, 2016, Crombie and a third party waived conditions for the disposition of 11 retail properties totaling 857,000 square feet of gross
leasable area, with an expected closing in the first quarter of 2016. total proceeds, before closing adjustments and transaction costs, are approximately
$150,000 resulting in a pre-tax gain on disposal of approximately $30,000.
25 SeGmeNt DiSCLoSUre
Crombie owns and operates primarily retail and office real estate assets located in Canada. Management, in measuring Crombie’s performance or
making operating decisions, does not distinguish or group its operations on a geographical or other basis. Accordingly, Crombie has a single reportable
segment for disclosure purposes.
26
iNDemNitieS
Crombie has agreed to indemnify its trustees and officers, and particular employees in accordance with Crombie’s policies. Crombie maintains
insurance policies that may provide coverage against certain claims.
2015 AnnuAl report Crombie reit
91
Property Portfolio
Property
City
Description
Newfoundland & Labrador
2A Commerce St.
10 Elizabeth Ave
21 Cromer Ave
45 Ropewalk Lane
69 Blockhouse Rd
71 Grand View Blvd
Avalon Mall
Conception Bay Plaza
Hamlyn Road Plaza
Kenmount Woodgate
Random Square
Topsail Rd Plaza
Torbay Rd Plaza
Deer Lake
St John’s
Grand Falls
St John’s
Placentia
Grand Bank
St John’s
Conception Bay
St John’s
St John’s
Clarenville
St John’s
St John’s
Retail – Plazas
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Enclosed
Retail – Plazas
Retail – Plazas
Mixed Use
Retail – Enclosed
Retail – Plazas
Retail – Plazas
GLA
%
(approx. occu-
sq. ft.) pancy
18,000
80,000
27,000
50,000
20,000
19,000
571,000
65,000
36,000
98,000
110,000
158,000
162,000
100.0
100.0
100.0
100.0
100.0
100.0
99.3
100.0
77.6
99.3
97.6
100.0
85.3
1,414,000
97.2
Prince edward island
531 North Main
Kinlock Plaza
University Avenue
Montague
Stratford
Charlottetown
Retail – Freestanding
Retail – Plaza
Retail – Freestanding
25,000
53,000
50,000
100.0
100.0
100.0
128,000
100.0
Property
City
Description
New brunswick
Edmundston
26 Michaud St.
Newcastle
273 Pleasant St
Dieppe
501 Regis St.
Bathurst
850 St. Peters Avenue
Moncton
1234 Main Street
Fredericton
Brookside Mall
Saint John
Catherwood St
Dieppe
Champlain Place Sobeys
St Stephen
Charlotte Mall
Edmundston
Edmundston
Moncton
Elmwood Drive
Rothesay
Fairvale Plaza
Saint John
Loch Lomond Place
Mountain Road
Moncton
Northwest Centre, Mountain Rd Moncton
Prospect St Plaza
Riverview – Findlay Blvd
Riverview Place
Tracadie
Uptown Centre
Vaughan Harvey Plaza
Fredericton
Riverview
Riverview
Tracadie
Fredericton
Moncton
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Office
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Freestanding
Mixed Use
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Mixed Use
Retail – Plazas
Retail – Plazas
Retail – Plazas
Dartmouth
Stellarton
Glace Bay
Sydney Mines
New Waterford
Sydney River
Antigonish
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Nova Scotia
2 Forest Hills Parkway
25 Acadia Avenue
25 Brookside St.
39 Pitt St.
75 Emerald St
99 Keltic Dr.
133 Church St.
268 Baker Drive
Retail – Plazas
Dartmouth
Russell Lake Sobeys
Spryfield
Retail – Freestanding
279 Herring Cove Road
Port Hawkesbury Retail – Freestanding
634 Reeves Street
Retail – Freestanding
Sheet Harbour
22579 Hwy #7
Mixed Use
New Glasgow
Aberdeen Business Centre
Retail – Enclosed
Amherst
Amherst Centre
Retail – Plazas
Amherst
Amherst Plaza
Retail – Plazas
Pictou
Blink Bonnie Plaza
Retail – Enclosed
County Fair Mall
New Minas
Retail – Freestanding
Dartmouth Crossing – Cineplex Dartmouth
Retail – Plazas
Downsview Mall
Retail – Plazas
Downsview Plaza
Retail – Plazas
Elmsdale Plaza
Retail – Plazas
Fall River Plaza
Retail – Plazas
Fort Edward Plaza
Retail – Enclosed
Fundy Trail Centre
Retail – Plazas
Hemlock Square
Retail – Enclosed
Highland Square
Retail – Freestanding
Lacewood & Dunbrack
Retail – Plazas
Mill Cove Plaza
Retail – Freestanding
North & Windsor Streets
Retail – Plazas
North Shore Ctr
Retail – Freestanding
Panavista Dr
Mixed Use
Park Lane
Retail – Plazas
Penhorn Plaza
Retail – Plazas
Prince Street Plaza
Retail – Plazas
Queen St Plaza
Retail – Plazas
Sydney Shopping Centre
Retail – Plazas
Tantallon Plaza
Retail – Plazas
West Side Plaza
Lower Sackville
Lower Sackville
Hants County
Fall River
Windsor
Truro
Bedford
New Glasgow
Halifax
Bedford
Halifax
Tatamagouche
Dartmouth
Halifax
Dartmouth
Sydney
Halifax
Sydney
Tantallon
New Glasgow
Scotia Square Properties
Barrington Place
Barrington Tower
Brunswick Place
CIBC Building
Cogswell Tower
Duke Tower
Scotia Square Mall
Scotia Square Parkade
Halifax
Halifax
Halifax
Halifax
Halifax
Halifax
Halifax
Halifax
Mixed Use
Office
Mixed Use
Office
Office
Office
Mixed Use
Mixed Use
92
Crombie reit 2015 AnnuAl report
44,000
24,000
17,000
18,000
26,000
51,000
51,000
62,000
73,000
34,000
9,000
388,000
228,000
25,000
45,000
268,000
45,000
69,000
226,000
147,000
98,000
122,000
129,000
159,000
201,000
59,000
144,000
50,000
17,000
48,000
269,000
104,000
71,000
54,000
214,000
150,000
71,000
191,000
186,000
257,000
208,000
204,000
252,000
266,000
100.0
100.0
100.0
100.0
100.0
100.0
100.0
96.5
100.0
100.0
100.0
92.1
53.7
100.0
93.7
63.8
100.0
100.0
96.3
97.8
98.6
100.0
94.5
100.0
93.1
100.0
95.2
100.0
100.0
100.0
89.1
100.0
98.7
93.1
49.0
100.0
96.1
100.0
99.4
99.0
86.0
96.0
94.4
91.9
5,374,000
90.7
Québec
88-90 Bould. D’Anjou
254 Hotel de Ville
645 Thibeau Street
1500 Rue Bretagne
3260 Blvd, Lapiniere
3950 Rue King Ouest
8980 Boul Lacroix
Beauport Plaza
Greenfield Park Centre
Ile Perrot
Lebourgneuf
Les Saules, DeLormiere
McMasterville, Laurier Blvd
Paspebiac Plaza
Saint Apollinaire Plaza
Shawinigan
Marche St-Augustin
Marche St-Charles-de-
Drummond
St Lambert
St Romuald Plaza
Vanier
1 Westminster Ave N
ontario
44 Livingstone Ave
215 Park Ave W,
318 Ontario Street
385 Springbank
400 First Ave South
409 Bayfield Street
977 Golf Links Road
5931 Kalar Rd
Algonquin Avenue Mall
Bradford
Brampton Mall
Brampton Plaza
Burlington Plaza
Carleton Place Mews
Dorchester Road Centre
Dorchester Road Plaza
Eglinton Centre
Glendale Ave Mountain
Locks Plaza
Grimsby Centre
Grimsby Mews
Havelock Centre
Huron Street Plaza
International Gateway Centre
GLA
%
(approx. occu-
sq. ft.) pancy
8,000
20,000
25,000
18,000
139,000
43,000
46,000
52,000
119,000
42,000
74,000
52,000
192,000
17,000
52,000
22,000
66,000
150,000
40,000
320,000
85,000
100.0
100.0
100.0
100.0
65.5
100.0
100.0
100.0
95.0
83.2
100.0
100.0
53.1
100.0
100.0
100.0
100.0
56.0
83.8
65.3
100.0
1,582,000
78.8
58,000
72,000
100.0
100.0
49,000
50,000
100.0
100.0
47,000
52,000
81.5
100.0
44,000
68,000
184,000
24,000
59,000
69,000
55,000
73,000
62,000
67,000
38,000
48,000
19,000
70,000
17,000
21,000
100.0
96.5
98.6
100.0
100.0
100.0
98.7
93.7
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
1,246,000
98.4
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Chateauguay
Riviere du Loup
Cap de la
Madeleine
Baie Comeau
Brossard,
Longueuil
Sherbrooke
St Georges
Retail – Freestanding
de Beauce
Retail – Plazas
Beauport
Retail – Plazas
Longueuil
Retail – Freestanding
Ile Perrot
Retail – Freestanding
Charlesbourg
Retail – Plazas
Quebec
Retail – Plazas
McMasterville
Paspebiac
Retail – Plazas
Saint Apollinaire Retail – Plazas
Retail – Plazas
Shawinigan
Retail – Plazas
Mirabel
Drummondville
St Lambert
St Romuald
Vanier
Montreal
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Freestanding
Grimbsy
Chatham
St Catharines
Woodstock
Kenora
Barrie
Ancaster
Niagara Falls
North Bay
Bradford
Brampton
Brampton
Burlington
Carleton Place
Dorchester
Dorchester
Toronto
St Catharines
Grimsby
Grimsby
Havelock
Stratford
Fort Erie
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Plaza
Retail – Freestanding
Retail – Freestanding
Retail – Plazas
36,000
48,000
47,000
55,000
36,000
48,000
65,000
36,000
211,000
35,000
103,000
76,000
56,000
80,000
18,000
32,000
17,000
85,000
29,000
34,000
15,000
27,000
92,000
100.0
100.0
100.0
96.7
100.0
100.0
100.0
100.0
44.8
100.0
92.3
98.1
100.0
85.9
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
94.2
Property
City
Description
Lansdowne Centre Rockhaven
Lansdowne Plaza
Lindsay Street Centre
London Pine Valley
Markham Plaza
Milltowne Plaza
Milligan Corners
Niagara Falls Centre
Niagara Falls Plaza
Notre Dame Street Centre
Orleans – 5150 Innes Rd
Parry Sound
Perth Mews
Port Colborne Mall
Queensland Plaza
Queensway Plaza
Riddell Rd
Rose City Plaza
Rymal Road Plaza
Sinclair Place
South Pelham Market Plaza
Southdale
Stittsville Corner
1122 Carp Road
Stoney Creek Plaza
Taunton & Wilson Plaza
Town Centre
Upper James Square
Village Square Mall
Weston Rd Shoppers
White Horse Plaza
Windsor Huron Church Rd
Peterborough
Peterborough
Fenelon Falls
London
Toronto
Burlington
Napanee
Niagara Falls
Niagara Falls
Embrun
Ottawa
Parry Sound
Perth
Port Colborne
Stratford
Toronto
Orangeville
Welland
Hamilton
Georgetown
Welland
London
Stittsville
Stoney Creek
Oshawa
LaSalle
Hamilton
Nepean
Toronto
Simcoe
Windsor
Retail – Plazas
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Enclosed
Retail – Plazas
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
GLA
%
(approx. occu-
sq. ft.) pancy
24,000
67,000
35,000
39,000
39,000
11,000
25,000
17,000
64,000
17,000
63,000
46,000
103,000
130,000
48,000
67,000
46,000
96,000
65,000
28,000
63,000
20,000
80,000
9,000
107,000
88,000
114,000
92,000
16,000
93,000
29,000
100.0
100.0
100.0
100.0
82.4
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
74.4
94.8
100.0
100.0
74.0
100.0
100.0
96.2
100.0
95.9
100.0
100.0
94.0
99.0
99.1
100.0
86.7
100.0
3,022,000
92.2
Retail – Freestanding
Retail – Freestanding
18,000
18,000
100.0
100.0
manitoba
498 Mountain Avenue Safeway
Neepawa
594 Mountain Avenue Safeway Winnipeg
1305-1321 Pembina
Highway Safeway
2155 Pembina Hwy,
Bird’s Hill Road Plaza
Jefferson Avenue
Kildare Avenue East
Kildonan Green
Marion Street
Manitoba Avenue
Osborne Street Safeway
Portage La Praire Shoppers
Portage Avenue Safeway
River Avenue Safeway
River East Plaza
Retail – Plazas
Winnipeg
Retail – Freestanding
Winnipeg
Retail – Freestanding
Birds Hill
Retail – Freestanding
Winnipeg
Retail – Freestanding
Winnipeg
Retail – Plaza
Winnipeg
Retail – Freestanding
Winnipeg
Retail – Freestanding
Selkirk
Winnipeg
Retail – Freestanding
Portage la Prairie Retail – Freestanding
Retail – Freestanding
Winnipeg
Retail – Plazas
Winnipeg
Retail – Plaza
Winnipeg
Saskatchewan
1 Avenue NW Safeway
2 Avenue West Safeway
13th Avenue
McOrmond Drive Safeway
Albert Street South
River City Centre
Territorial Drive Plaza
University Park
Moose Jaw
Prince Albert
Regina
Saskatoon
Regina
Saskatoon
North Battleford
Regina
Retail – Freestanding
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Freestanding
Alberta
4th Street NW Safeway
10 Street NW Safeway
11th Avenue SW Safeway
16th Avenue NW Safeway
23rd Street North Safeway
32nd Avenue NE Safeway
34th Avenue SW Safeway
100 Street Safeway
2304 109 Street NW Safeway
8204 109 Street NW Safeway
114th Avenue Safeway
130th Avenue SE Safeway
137th Avenue NW Safeway
Calgary
Calgary
Calgary
Calgary
Lethbridge
Calgary
Calgary
Grande Prairie
Edmonton
Edmonton
Grand Prairie
Calgary
Edmonton
Retail – Plazas
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Freestanding
39,000
46,000
39,000
55,000
43,000
74,000
38,000
42,000
20,000
20,000
55,000
59,000
78,000
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
644,000
100.0
39,000
56,000
41,000
50,000
41,000
160,000
30,000
37,000
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
454,000
100.0
48,000
38,000
40,000
42,000
45,000
69,000
48,000
66,000
48,000
34,000
62,000
79,000
55,000
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Property
City
Description
94 MacLeod Ave
395 St. Albert St.
615 Division Ave
688 Wye Road, Nottingham
1109 James Mowatt Trail
Southbrook Sobeys
1200 Railway Ave
6112 50th Street
Beaumont Plaza
Big Rock Lane Safeway
Calgary McKenzie Town Drive
Cassils Road West Safeway
Castleridge Boulevard
NE Safeway
Chestermere Station
Way Safeway
Clearwater Landing
Crowfoot Cresent NW Safeway
Elbow Drive Safeway
Fairway Plaza Road
South Safeway
Forest Lawn Sobeys
Franklin Avenue & JW
Mann Drive Safeway
Gaetz South Plaza
Gateway Ave
Guardian Road NW Safeway
Marten Street Safeway
Manning Crossing
Millwood Commons
Namao Centre
Namao Centre
167 Ave/95 St
Saddletowne Circle NE
South Park Drive Safeway
Red Deer Cineplex Hwy II
West Highlands
West Lethbridge
Whyte Avenue Shoppers
Spruce Grove
St. Albert
Medicine Hat
Sherwood Park
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Edmonton
Canmore
Leduc
Beaumont
Okotoks
Calgary
Brooks
Retail – Freestanding
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Retail – Freestanding
Retail – Freestanding
Retail – Plazas
GLA
%
(approx. occu-
sq. ft.) pancy
51,000
52,000
43,000
46,000
45,000
53,000
100,000
59,000
42,000
19,000
54,000
100.0
100.0
100.0
100.0
100.0
100.0
99.0
100.0
100.0
100.0
100.0
Calgary
Retail – Freestanding
56,000
100.0
Chestermere
Fort McMurray
Calgary
Calgary
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Retail – Freestanding
43,000
143,000
75,000
25,000
100.0
100.0
100.0
100.0
Lethbridge
Calgary
Retail – Plazas
Retail – Freestanding
64,000
42,000
100.0
100.0
Fort McMurray
Red Deer
Canmore
Edmonton
Banff
Edmonton
Edmonton
Edmonton
Edmonton
Calgary
Stony Plain
Red Deer
Lethbridge
Lethbridge
Edmonton
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Retail – Freestanding
40,000
74,000
50,000
49,000
19,000
49,000
58,000
37,000
34,000
51,000
44,000
40,000
29,000
105,000
21,000
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
94.5
100.0
100.0
100.0
100.0
94.7
100.0
2,386,000
99.7
british Columbia
Retail – Plazas
Prince Rupert
2nd Avenue West Safeway
Dawson Creek
Retail – Freestanding
8th Street Safeway
North Vancouver Retail – Freestanding
27th Street East Safeway
Retail – Freestanding
Vernon
30th Avenue Safeway
Retail – Freestanding
Vernon
32nd Street Safeway
Retail – Freestanding
Fort St. John
100 Street Safeway
Retail – Plazas
Surrey
120 Street Safeway
Retail – Freestanding
Surrey
152nd Street Safeway
Retail – Freestanding
4655 Lakelse Avenue
Terrace
Retail – Freestanding
20871 Fraser Highway Safeway Langley
Retail – Freestanding
27566 Fraser Highway Safeway Langley
Retail – Plazas
Alder Avenue
Retail – Freestanding
Austin Road Safeway
Retail – Freestanding
Baker Street Safeway
Retail – Freestanding
Bernard Avenue Safeway
Retail – Freestanding
Blundell Road
Retail – Freestanding
Columbia Avenue Safeway
Retail – Freestanding
Columbia Street West Safeway
Retail – Plazas
Davie Street Safeway
Retail – Freestanding
East Broadway Safeway
Retail – Freestanding
King Edward Avenue
Retail – Freestanding
Fortune Drive Safeway
Retail – Plazas
Kingsway Safeway
Lougheed Highway Safeway
Retail – Plazas
McBride Boulevard Safeway
Mt. Seymour Rd Safeway
Main Street Safeway
Reid Street Safeway
Second Avenue Safeway
Shaughnessy Street Safeway
West Broadway Safeway
Yale Road Safeway
Yellowhead Highway Safeway
100 Mile House
Coquitlam
Cranbrook
Kelowna
Richmond
Castlegar
Kamloops
Vancouver
Vancouver
Vancouver
Kamloops
Vancouver
Mission
New Westminster Retail – Freestanding
North Vancouver Retail – Freestanding
Penticton
Quesnel
Trail
Port Coquitlam
Vancouver
Chilliwack
Smithers
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Freestanding
TOTAL
52,000
43,000
37,000
29,000
56,000
55,000
53,000
56,000
43,000
48,000
45,000
28,000
21,000
48,000
30,000
28,000
27,000
50,000
37,000
42,000
28,000
56,000
51,000
55,000
43,000
36,000
59,000
30,000
32,000
49,000
55,000
52,000
42,000
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
1,416,000
100.0
17,666,000
93.6
2015 AnnuAl report Crombie reit
93
Unitholder Information
Crombie reit
Head office:
610 east river road, Suite 200
new Glasgow, nova Scotia, B2H 3S2
telephone: (902) 755-8100
Fax: (902) 755-6477
Internet: www.crombiereit.com
Unit Symbol
reIt trust units – Crr.un
Stock exchange Listing
toronto Stock exchange
investor relations and inquiries
unitholders, analysts, and investors
should direct their financial inquiries
or request to:
Glenn r. Hynes, FCpA, FCA
executive Vice president,
Chief Financial officer and Secretary
email: investing@crombie.ca
Communication regarding investor records,
including changes of address or ownership,
lost certificates or tax forms, should be directed
to the company’s transfer agent and registrar,
CSt trust Company.
Distribution record and
Payment Dates for Fiscal 2015
record Date
payment Date
January 31, 2015
February 28, 2015
March 31, 2015
April 30, 2015
May 31, 2015
June 30, 2015
July 31, 2015
August 31, 2015
September 30, 2015
october 31, 2015
november 30, 2015
December 31, 2015
February 13, 2015
March 13, 2015
April 15, 2015
May 15, 2015
June 15, 2015
July 15, 2015
August 14, 2015
September 15, 2015
october 15, 2015
november 13, 2015
December 15, 2015
January 15, 2016
transfer Agent
CSt trust Company
Investor Correspondence
p.o. Box 700
Montreal, Quebec, H3B 3K3
telephone: (800) 387-0825
email: inquiries@canstockta.com
Website: www.canstockta.com
board of trustees
Donald E. Clow
trustee, president and Chief executive officer
John Eby
Independent trustee and lead trustee
Brian A. Johnson
Independent trustee
J. Michael Knowlton
Independent trustee
E. John Latimer
Independent trustee
Barbara Palk
Independent trustee
Frank C. Sobey
trustee and Chairman
Kent R. Sobey
Independent trustee
Paul D. Sobey
trustee
Elisabeth Stroback
Independent trustee
François Vimard
trustee
officers
Frank C. Sobey
Chairman
Donald E. Clow
president and Chief executive officer
Glenn R. Hynes
executive Vice president,
Chief Financial officer and Secretary
Patrick G. Martin
executive Vice president, operations
Trevor Lee
regional Vice president, Western Canada
Fred Santini
regional Vice president, Central Canada
Scott R. MacLean
regional Vice president, Atlantic Canada
John Barnoski
Vice president, Corporate Development
Cheryl Fraser
Chief talent officer
94
Crombie reit 2015 AnnuAl report
Counsel
Stewart McKelvey
Halifax, nova Scotia
Auditors for Fiscal 2015
Grant thornton, llp
Halifax, nova Scotia
multiple mailings
If you have more than one account, you
may receive a separate mailing for each.
If this occurs, please contact CSt trust
Company at (800) 387-0825 or
(416) 682-3860 to eliminate multiple mailings.
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top 20 tenAnts
Crombie’s portfolio is home to a wide diversity of regional and national tenants, most of whom
serve the everyday needs of Canadian consumers. Also characterized by long average lease terms,
such properties are among the steadiest performing assets in commercial real estate.
Tenant
(As at December 31, 2015)
Sobeys (1)
Shoppers Drug Mart
Cineplex
province of nova Scotia
CIBC
Goodlife Fitness
lawtons/Sobeys pharmacy
Dollarama
Bank of nova Scotia
Best Buy Canada
% of Annual
Minimum Rent
Average
Remaining
lease Term
49.9%
14.5 years
5.8%
1.5%
1.3%
1.2%
1.1%
1.1%
1.1%
1.0%
0.9%
11.6 years
9.6 years
3.0 years
14.7 years
11.3 years
11.4 years
6.5 years
3.4 years
5.6 years
Tenant
(As at December 31, 2015)
% of Annual
Minimum Rent
Canadian Tire
Bell (Aliant)
Marks Work Wearhouse
public Works Canada
Sears Canada
Winners
Reitmans (Canada)
Brick Warehouse
Staples
liquor Control Board of ontario
(1) Excludes lawtons/Sobeys pharmacy
0.8%
0.8%
0.8%
0.6%
0.6%
0.5%
0.5%
0.5%
0.5%
0.5%
Average
Remaining
lease Term
10.2 years
6.1 years
3.2 years
2.0 years
9.9 years
4.1 years
3.1 years
9.8 years
5.0 years
9.3 years
Why croMBie?
An investment in Crombie REIT provides the opportunity to achieve steady income growth and
capital appreciation in one of the most reliable and defensive segments in commercial real estate.
• Diversified, low-risk and defensive portfolio
• Attractive yield
• High-quality cash flow
• Proven growth record and significant development potential
• Strong capital structure, moderate leverage and ample liquidity
www.crombiereit.ca