BUILDING A
BETTER REIT
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A B O U T C R O M B I E R E I T
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 net asset value and income growth through the acquisition,
ownership, management and development of high-quality grocery and
drug store anchored shopping centres, freestanding stores and mixed
use developments primarily in Canada’s top urban and suburban markets.
As of December 31, 2016, Crombie owned a portfolio of 280 retail and
office properties across Canada, comprising approximately 19.1 million
square feet of gross leasable area (GLA) and approximately $4.8 billion
in assets.
IMPROVING FFO/AFFO PAYOUT RATIO
Units of Crombie REIT offer a high yield relative to the dependable, low-risk cash
flow generated by our portfolio and the quality of our tenant base and retail assets.
O
F
F
A
/
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F
F
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I
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P
($)
1.50
1.30
1.10
0.90
0.70
0.50
(%)
110
100
90
80
70
60
P
A
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F
F
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/
A
F
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2010 2011
2012
2013
2014
2015
2016
FFO/Unit
AFFO/Unit
FFO Payout Ratio
AFFO Payout Ratio
I N S I D E T H I S R E P O R T
2 2016 Highlights
3 Message from the President and CEO
6 A Strong National Platform
8 High-Quality Properties
10 Active Management & Development
12 A Strong Balance Sheet
14 A Talented Real Estate Team
16 Building Better Communities
18 Message from the Chair
and Lead Independent Trustee
Financial Review
20 Table of Contents
2 1 Management’s Discussion and Analysis
56 Management’s Statement of
Responsibility for Financial Reporting
57 Independent Auditor’s Report
58 Consolidated Financial Statements
62 Notes to the Consolidated
Financial Statements
90 Property Portfolio
92 Unitholder Information
IBC Top 20 Tenants
BUILDING A
BETTER REIT
In the 11 years since our IPO, Crombie has
transformed a small regional portfolio into
a geographically diversified, retail-focused
national REIT with $4.8 billion in assets across
the country and a reputation for creating value
by executing on a full range of commercial real
estate activities. This year’s report shows how
we are Building a Better REIT.
A N N U A L R E P O R T 2 0 1 6
1
2 0 1 6 H I G H L I G H T S
DEVELOPMENT PROPERTIES
Davie Street (top),
2733 Broadway (bottom),
Vancouver, BC
Elbow Drive,
Calgary, AB
Bronte Village,
Oakville, ON
Scotia Square,
Halifax, NS
Avalon Mall,
St. John’s, NL
Crombie’s expanding development pipeline
includes 19 exceptional properties that
are located in the heart of prosperous
and growing urban and suburban markets
across the country.
19
Development
Properties Across
Canada
GROSS LEASABLE AREA
ENTERPRISE VALUE
UNENCUMBERED ASSETS
2016
19,093 sq. ft.
2011
12,598 sq. ft.
2006
7,458 sq. ft.
2016
$4,412 M
2011
$2,044 M
2006
$974 M
2016
$995 B
2011
$80 B
2006
$0
F O R A F U L L TA B L E O F 2 0 1 6 H I G H L I G H T S , P L E A S E S E E PA G E 2 2 I N T H E M D & A .
2
C R O M B I E R E I T
MACDONALD STBEACH AVEENGLISH BAYW BROADWAYELBOW DR SWBRONTE RDJones StSovereign StLAKESHORE RD WBARRINGTON STBRUNSWICK STDUKE STUPPER WATER STBARRINGTON STKENMOUNT RDTHORNBURN RDO’Leary AveELBOW RIVERBRONTE CREEK5 ST SW4 ST SW23 AVE SW24 AVE SW23 AVE SWW 12TH AVEDAVIE STBIDWELL STDENMAN ST M E S S A G E F R O M T H E P R E S I D E N T A N D C E O / Donald E. Clow, FCPA, FCA
PERFORMANCE,
OPPORTUNITY AND GROWTH
2016 was a strong year for Crombie REIT on
all fronts. We achieved record financial results,
improved the quality of our portfolio, expanded
and advanced our $2 to $3 billion development
pipeline opportunity, and continued to strengthen
our platform for sustainable long-term growth.
The past year was one of continued geopolitical and economic
same-asset net operating income grew by 4.2 percent in 2016,
uncertainty as reflected by slow GDP growth, historically
reflecting increased average rents from leasing activities,
low interest rates, and signs of political discontent in much
improved recovery rates and land-use intensification activities.
of the developed world. Amid this environment, our ability
to achieve record financial and operating results was a
testament to the soundness of Crombie’s strategy and the
commitment of our people to Building a Better REIT.
Crombie’s successful growth strategy starts with the
acquisition, management and increasingly, the development
of great real estate properties. We continue to work with
Sobeys to leverage the sustainable competitive advantage
For the 12 months ending December 31, 2016, funds from
that comes from our relationship with Canada’s second
operations (FFO) on an adjusted basis increased 11.2 percent
largest food retailer. In 2016, we acquired, expanded or
to $166.2 million; or $1.17 per unit diluted. Adjusted funds from
renovated more than $444 million of properties from or with
operations (AFFO) increased 12.0 percent to $140.7 million; or
Sobeys, several of which contain compelling redevelopment
$1.00 per unit diluted. Growth in FFO and AFFO was driven by
opportunities. Together, these acquisitions have increased
$574 million in new acquisitions, higher renewal rents, higher
our presence in everyday retailing – what we consider to be
operating margins and lower financing costs. On a cash basis,
the most resilient segment in commercial real estate – while
A N N U A L R E P O R T 2 0 1 6
3
A M E S S A G E F R O M T H E P R E S I D E N T A N D C E O
increasing the concentration of our portfolio located in
adjacent to our properties in Beaumont, Alberta, Leduc,
Canada’s largest urban markets, increasing our geographic
Alberta and Halifax, Nova Scotia over the past three years.
diversity and adding to our growing development pipeline.
All of these initiatives reflect a growing spirit of creativity
In 2016, we continued to build a development pipeline
that now includes 19 potential projects in various stages of
in our relationships to reduce risk, gain access to capital,
expertise and the best urban locations.
evaluation, planning and development. Thirteen of these
Crombie’s untapped development also extends to our
properties are prime urban locations that came to us with the
commercial properties portfolio in Atlantic Canada. Scotia
2013 acquisition of the Safeway portfolio. Our most advanced
Square continues to undergo a three-year $13 million
project, Davie Street in Vancouver, is expected to break
refresh and expansion to strengthen its position as Halifax’s
ground later this year subject to final approvals. Featured
premier business location and longer term is estimated to
on the cover of this annual report, Davie Street will combine
hold approximately one million square feet of residential
53,000 square feet of retail space with 320 residential suites
and commercial development potential. We are also master
in one of the city’s top urban neighbourhoods. Four similar
planning for a major redevelopment of Avalon Mall in
projects are in the pre-planning stage, including 1780 East
St. John’s, Newfoundland and Labrador, one of Atlantic
Broadway, located at the busiest transit station in Vancouver’s
Canada’s busiest shopping centres.
SkyTrain system. All of these projects will help satisfy the
burgeoning demand for urban rental residential space,
diversify Crombie’s revenue, and have a positive impact
on same-asset income and net asset value per unit.
We also continue to develop relationships in the wider
commercial real estate market, as evidenced by more than
$189 million in off-market, third-party property acquisitions
during the year, and by finding new and creative ways to
add value.
To help fund our core growth strategies, we have become
more active in recycling capital to support our core growth
strategy. This included a record $196 million of dispositions,
primarily in secondary and tertiary markets this past year.
We also continue to strengthen our operating platform,
as evidenced by the strong performance of our property
management and leasing teams and our continued progress
in filling vacancies from the departure of Target from the
Canadian retail landscape. With respect to Target, we have
The same kind of thinking has led to the acquisition of
replaced most of the income for one location and are
third-party properties that feature long-term leases with
committed to making the right deal at two other locations
Sobeys stores, where our unique relationship with Sobeys
because these are strong assets in their markets. By the end
provides the opportunity to unlock value more readily
of 2016, we had successfully replaced 96 percent of Zellers
through intensification or development. We are also making
income with tenants occupying 56 percent of the Zellers
more bolt-on acquisitions, as evidenced by asset purchases
space, leaving additional income upside at these locations.
TOTAL UNITHOLDER RETURN
(% - March 31, 2006 to December 31, 2016)
Crombie REIT has produced a total unitholder return of 178% since its IPO, compared
to 115% total return for the S&P/TSX Capped REIT Index and a 72% total return for the
S&P/TSX Composite Index.
250
200
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100
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-50
CROMBIE REIT
TSX CAPPED REIT
TSX
06
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11
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14
15
16
10%
Units in Crombie
REIT have generated
a compound average
annual total return of
10% since our IPO.
4
C R O M B I E R E I T
In addition to acquiring, managing and developing great real
As I look back on Crombie’s progress over the past 11 years,
estate, we are also committed to a conservative management
I cannot help but be proud of how far we’ve come. Starting
approach and strong financial condition. All of our relevant
with an approximately $800 million property portfolio
financial key performance indicators improved during the
predominantly located in Eastern Canada, we have grown
year including FFO per unit, AFFO per unit, AFFO payout ratio
into a leading national REIT with assets of $4.8 billion and
and same-asset cash net operating income. We also achieved
an estimated $2–3 billion in development potential over the
greater financial flexibility by reducing leverage, improving
next 10 to 15 years. With the continued support of Crombie’s
debt service coverage and interest coverage ratios and
employees, our associates at Empire and Sobeys, and other
increasing unencumbered assets to $995 million by year end.
business partners, I am confident we will continue to be
All of our progress depends, of course, on the talent and
Building a Better REIT for many years to come.
dedication of many people, both inside and outside the
Sincerely,
organization. To keep pace with our development as a leading
national REIT, we continue to invest in the development of
our people; as you will see on page 14 of this report, our efforts
continue to attract the attention of leading awards programs.
We also continue to foster our unique and mutually beneficial
relationship with Sobeys and Empire, as well as the capable
development partners who are helping to advance our
progress on major development projects.
Donald E. Clow, F C PA , F C A
P R E S I D E N T A N D C H I E F E X E C U T I V E O F F I C E R
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S E N I O R M A N A G E M E N T T E A M
1 G L E N N H Y N E S
Executive Vice
President, Chief
Financial Officer and
Secretary
2 A A R O N B R YA N T
Vice President,
Construction
and Design,
Eastern Canada
3 D O N A L D C L O W
President and
Chief Executive Officer
4 T R E V O R L E E
Senior Vice President,
Western Canada
5 C H E R Y L F R A S E R
Chief Talent Officer
and Vice President,
Communications
7 J O H N B A R N O S K I
Senior Vice
President, Corporate
Development
9 S T E V E C L E R O U X
Vice President,
National Leasing and
Atlantic Development
6 T E R R Y D O R A N
Vice President, Office
Properties
8 K E N T U R P L E
Vice President,
Accounting and
Financial Reporting
1 0 B R A D Y L A N D R Y
Vice President,
Financial Analysis and
Treasury
1 1 F R E D S A N T I N I
General Counsel
1 2 S C O T T M A C L E A N
Senior Vice President,
Eastern Canada
1 3 J E F F D O W N S
Vice President,
Enterprise Information
Systems
A N N U A L R E P O R T 2 0 1 6
A N N U A L R E P O R T 2 0 1 6
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C R O M B I E AT - A - G L A N C E
A STRONG
NATIONAL PLATFORM
Following $574 million of acquisitions in 2016,
Crombie REIT is more urban-focused and
geographically diversified than ever before.
Today, our $4.8 billion property portfolio consists
of 280 commercial assets from coast to coast
and a growing development pipeline in Canada’s
fastest growing metropolitan areas.
DEBT TO GBV (FV)
(%)
UNENCUMBERED ASSETS
(in millions of dollars)
MARKET CAPITALIZATION
(in millions of dollars)
Crombie’s debt to gross book
value improved to 50.3% in 2016,
reflecting the growing strength
of the REIT’s balance sheet.
Unencumbered assets in our
property portfolio reached
a record $1 billion in 2016,
reflecting unprecedented
liquidity and financial flexibility.
Crombie’s market capitalization reached approximately
$2 billion, with a public float of approximately $1.2 billion,
at the end of 2016.
53
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1,000
800
600
400
200
2000
1600
1200
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400
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IPO 06 07 08 09 10
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C R O M B I E R E I T
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1600
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400
0
19
Development Properties
Across Canada
Over the past 11 years, Crombie has grown
from a small regional property portfolio into
one of Canada’s larger REITs.
PROPERTIES ACROSS CANADA
280
WEST
119
ONTARIO
QUÉBEC
ATLANTIC
50
33
78
BC
7 1
1
AB
1
3
SK
MB
QB
ON
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NF
PEI
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2
NB
NS
ANNUAL RENT GENERATED
BY RETAIL/MIXED USE
TOTAL
SQUARE FEET
96.0%
19.1 Million
1
1
GEOGRAPHIC DIVERSIFICATION
(% of annual minimum rent)
REVENUE BY PROPERTY TYPE
(%)
At year-end 2016, 62.4% 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 2016, 86.1% of the revenue from our portfolio was generated
by retail assets compared to 56.4% at the time of our IPO.
ATLANTIC
WEST
85.7%
39.0%
ATLANTIC
37.6%
RETAIL/
MIXED USE
56.4%
2006
IPO
ONTARIO
11.5%
2016
2006
IPO
2016
QUÉBEC
ONTARIO
2.8%
15.7%
QUÉBEC
7.7%
OFFICE
43.6%
RETAIL/
MIXED USE
86.1%
OFFICE
13.9%
A N N U A L R E P O R T 2 0 1 6
7
B U I L D I N G A B E T T E R R E I T
We acquire high-quality grocery or drug
store anchored properties in Canada’s top
urban and suburban markets
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Acquired in 2016, our Safeway property at
8555 Granville Street in Vancouver is located in
the heart of one of the city’s busiest commercial
and residential districts.
8
C R O M B I E R E I T
Crombie REIT’s growth strategy is centred
primarily on the acquisition of the steadiest
performing assets in commercial real estate —
grocery and drug store anchored properties and
freestanding stores that serve everyday needs in
their communities. Increasingly, they are located
in Canada’s largest urban markets, which are
experiencing faster than average population and
per capita income growth. Today, 77 percent of the
annual minimum rent from our portfolio is derived
from grocery and drug store anchored properties
and freestanding stores.
Crombie’s growth strategy has also
driven our transformation into a
geographically diversified Canadian
REIT. Since the time of our IPO, we
have acquired $2.4 billion in accretive
real estate assets through our strategic
relationship with Sobeys and Empire,
helping to support the expansion and
development of Canada’s second largest
national food retailer. In 2016, Crombie
acquired $385 million of real estate
properties from Sobeys and Empire with
an additional $189 million in acquisitions
through third-party relationships.
TOP 6 & TOP 36 MARKETS –
TOTAL PORTFOLIO
Crombie’s growth strategy is successfully increasing our presence in the largest and fastest
growing urban and suburban markets across the country.
(%)
100
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60
40
20
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($000s)
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4,000
3,000
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2006/
IPO
2007 2008 2009 2010
2011
2012
2013
2014
2015
2016
% Top 6
% Top 36
Total Portfolio Value (RHS)
SOURCE OF RETAIL ASSETS
ACQUIRED IN 2016
(%)
Growing relationships in the
commercial real estate markets
led to $574 million in acquisitions
in 2016.
2016
SOBEYS
PROPERTY
PIPELINE
67.1%
THIRD-PARTY
RELATIONSHIPS
32.9%
A N N U A L R E P O R T 2 0 1 6
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B U I L D I N G A B E T T E R R E I T
We actively manage and develop
our assets to optimize financial
performance and create value
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1641 Davie Street in Vancouver – a
partnership with Westbank – is the most
advanced of Crombie’s major developments.
It is expected to break ground this year
subject to final approvals.
1 0
C R O M B I E R E I T
In terms of quality and size as a proportion
of enterprise value, Crombie’s development
pipeline opportunity is one of the best in the
industry with 19 potential urban and suburban
developments in various stages of evaluation,
planning and development.
Thirteen of these prime locations came to Crombie with the acquisition of
the Safeway property portfolio in 2013. Together, these major development
opportunities hold the potential to add approximately 692,000 square feet of
commercial space, and up to 5.7 million square feet of residential GLA. Based
on current estimates, the total cost to develop these projects could reach
$2 to $3 billion, of which Crombie may enter joint venture or other partnerships
arrangements to share cost, revenue, risk and development expertise, depending
on the nature of each project.
We also continue to optimize the performance of our existing assets through the
strong performance of our property management, leasing and redevelopment
teams. The continuous improvement in Crombie’s operations was reflected by
solid increases in net operating income, FFO, AFFO and EBITDA in 2016.
TO P P E R F O R M E R
Major redevelopment plans are in store for Avalon Mall in St. John’s, one of Atlantic Canada’s busiest
shopping centres.
A N N U A L R E P O R T 2 0 1 6
1 1
4.2%
Same asset property
cash net operating
income, an important
measure of performance
in commercial real estate,
increased 4.2% to
$235 million in 2016.
SAME ASSET PROPERTY
CASH NET OPERATING
INCOME GROWTH
(%)
Same-asset property cash net
operating income has grown at an
average annual rate of 2.4% over
the past five years.
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B U I L D I N G A B E T T E R R E I T
We maximize liquidity and financial flexibility
by maintaining a strong balance sheet and access
to multiple sources of capital
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The new proposed parkade at Avalon Mall in
St. John’s represents Phase I of a masterplanned
redevelopment for Newfoundland and Labrador’s
largest and busiest shopping centre.
1 2
C R O M B I E R E I T
The strength of Crombie’s foundation is reflected
in our balance sheet debt to gross book value,
which at 50.3 percent at year end, was well below
the 60 to 65 percent maximum permitted by our
Declaration of Trust and relatively modest given
the steady occupancy of our retail properties and
the creditworthiness of our tenants.
We continued to de-risk our business, strengthen our capital structure and lower our
cost of capital in 2016. We possess more liquidity and financial flexibility than ever
with $278 million of unused credit facilities and $1 billion of unencumbered assets
at the end of 2016. The financial covenants and weighted average remaining lease
terms of our major tenants, including those of grocery and drug retailers, banks
and other high-quality tenants at our properties, allow us to borrow using
long debt maturities, which translates into low risk. No more than 4.8 percent of
the GLA of our portfolio will be maturing in a single year over the next five years.
T H E P L A C E TO B E
Scotia Square, Halifax’s premier business location,
is in the midst of a $13 million, three-year refresh
and expansion.
9.5%
Since Crombie’s IPO
in March 2006, the
gross leasable area in
our commercial real
estate portfolio has
grown at a compound
average annual
growth rate of 9.5%.
STRONG PROPERTY GROWTH WITH STEADY OCCUPANCY
Crombie REIT’s portfolio has experienced strong growth in GLA
and steady occupancy rates during challenging economic times.
(sq. ft.)
18,000
15,000
12,000
9,000
6,000
3,000
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IPO
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Portfolio GLA
Occupancy
A N N U A L R E P O R T 2 0 1 6
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B U I L D I N G A B E T T E R R E I T
We attract and develop great talent
and foster strong relationships with
our real estate partners.
0 4
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Crombie’s skilled team of real estate professionals
continues to grow as we expand our capabilities and
geographic reach across the country.
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C R O M B I E R E I T
AWA R D S 2 0 1 6
INDUSTRY
RECOGNITION
Crombie’s culture of
operational excellence,
continuous learning and
leadership development
attracted multiple employer
awards in 2016 including,
for the 4th year in a row,
Crombie CEO Don Clow
being named one of
Atlantic Business
Magazine’s Top 50 CEOs.
Our strategic relationship with Empire and Sobeys has been the primary driver
of Crombie’s evolution into a geographically diversified, retail-focused REIT over
the past 11 years. Today, this relationship continues to grow as we work together
to add value through major mixed use developments. As a significant Unitholder
of Crombie, Empire shares a common interest in realizing the income potential
and long-term asset value of our properties. We also continue to strengthen our
relationships with leading residential development partners such as Westbank to
engage talent, share risk, and gain access to select development opportunities.
Leading these efforts is a growing team of talented real estate professionals
and an expanding national platform that includes our newly opened regional
office in Western Canada. We attract and develop great people through our solid
talent programs placing a strong focus on leadership development, inclusion
and engagement. Over the past year, we have enhanced our talent in analytics,
development, and construction to ensure we are well positioned to execute our
strategy. Crombie has received Atlantic Canada’s and Nova Scotia’s Top Employer
Award for the past three years.
O U R G R O W I N G T E A M O F TA L E N T E D R E A L E S TAT E P R O F E S S I O N A L S
1 A N G E L A C O R M I E R
Leasing Manager
New Glasgow
3 G E O R G E D E C O F F
Senior Project Manager
New Glasgow
5 R E B E C C A H E B B
Corporate Development Analyst
Toronto
7 S T E P H A N I E S M I T H
Advisor Talent Management
New Glasgow
Angela joined the Crombie team
as a Lease Administrator in 2008
and has since transitioned into
the role of Leasing Manager in
Atlantic Canada. With her extensive
knowledge of the company’s
properties, Angela continues to
advance Crombie’s strategy with
innovative leasing.
2 K E V I N P R I C H A R D
Manager Development
Calgary
Kevin joined Crombie in 2015 to grow
the development capacity in the
Western Region. He is responsible
for intensifying existing sites, looking
for new development opportunities
and working with the team on
Crombie’s mixed use initiatives to
further enhance Crombie’s rapidly
expanding portfolio.
Working as a Senior Project
Manager in Atlantic Canada,
George is involved with designing,
constructing and managing projects
that allow him to collaborate with
Crombie team members and
outside partners throughout the
region. In his years with Crombie,
George has been involved in projects
ranging from site development,
property redevelopment, retail and
office construction.
4 L E S L E Y B O W E S
Senior Property Accountant
Halifax
Lesley joined Crombie in 2012
as Property Accountant with
experience in Real Estate as well as
Construction and Steel Fabrication.
She currently oversees accounting
for Crombie’s portfolio of Office
properties and plays a vital role
on our Operations and Acquisition
and Development teams. Lesley is
a graduate of St. Xavier University.
Rebecca joined Crombie in
2015 as an Analyst in the Corporate
Development group. She supports
the advancement of Crombie’s
strategy through the analysis and
execution of acquisitions, dispositions
and other corporate development
opportunities. She holds an MBA
from Dalhousie University and is
currently working towards becoming
a CFA charter holder.
6 TA R A R U S S E L L
Director, Financial Analysis
New Glasgow
Tara joined Crombie in 2012 with her
CPA, CMA designation as well as her
MBA from Saint Mary’s University.
With her strong background in
budgeting, forecasting and analytics,
she liaises with development,
operations and accounting teams
across the country to bring superior
budgeting, forecasting and reporting
to Crombie.
Stephanie joined Crombie in 2016
with a diverse background in Talent
Management, Compensation and
Benefits. Since joining Crombie,
Stephanie has been responsible for
advancing our Wellness initiatives
and the execution and management
of our Compensation programs.
8 D A N B O U R Q U E
Director Operations, Atlantic
Halifax
Dan joined Crombie in 2003 and
is responsible for oversight of
operations in Atlantic Canada. His
progressive leadership style has
cultivated an award winning team
with a focus on customer service
and environmental initiatives at the
Scotia Square mixed use complex.
A N N U A L R E P O R T 2 0 1 6
1 5
B U I L D I N G B E T T E R C O M M U N I T I E S
BUILDING BETTER
COMMUNITIES
Crombie’s commitment to building a better
REIT extends to the numerous communities
that are home to our commercial real estate
properties across the country. This commitment
can be seen everyday, from our support for
important social causes to the way we build
and manage our portfolio.
1 6
C R O M B I E R E I T
M A K I N G A D I F F E R E N C E
Crombie is a proud supporter
of YMCA Strong Kids, an annual
fundraising campaign that helps
kids live healthier, happier lives.
Each year, we are proud to support numerous charitable causes with direct financial
support and through the generosity and volunteer efforts of our employees. 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 focused on
enhancing the leadership, social, problem-solving and decision-making skills of
young Nova Scotians. Other important causes we supported in 2016 included: the
Canadian Heart and Stroke Foundation, the Alberta Adolescent Recovery Centre,
Princess Margaret Hospital’s Ride to Conquer Cancer, the Nova Scotia Cancer
Society, Dreams Take Flight, the Mental Health Foundation of Nova Scotia, Ronald
McDonald House, the Special Olympics of Pictou County and regional health care
and recreational facilities.
A similar sense of responsibility extends to the environment. All of the new-build
designs in our retail properties match LEEDS® equivalent standards and we
continue to earn and upgrade BOMA BEST® certification for our office properties.
All of our Scotia Square properties hold BOMA BEST Gold Certification while
Park Lane holds a Silver Certification. Avalon Mall received Silver Certification
during 2016 following the completion of numerous environmental upgrades.
As always, the year marked a number of important initiatives aimed at reducing
our energy consumption and environmental impact at Scotia Square. The most
intensive project completed in 2016 was a redesign of the main plant, which
included the installation of variable speed drive pumps and flow meters. This
project resulted in energy reduction of almost 1.5 million kilowatt hours per year
and annual savings of $126,000. In total, projects completed in 2016 bring the total
energy saved since we began the process of greening our buildings in 2008 to more
than 19.7 million kilowatt hours.
E N V I R O N M E N TA L L E A D E R S H I P
The expanded food court at Scotia Square will
incorporate state-of-the-art window and lighting
technologies to minimize energy consumption.
A N N U A L R E P O R T 2 0 1 6
1 7
A M E S S A G E F R O M T H E C H A I R A N D L E A D I N D E P E N D E N T T R U S T E E
ADVANCING OUR
COMMITMENT TO LONG-TERM,
SUSTAINABLE GROWTH
Crombie enjoyed a strong year with solid financial
results, a high level of focused acquisitions and
dispositions, and enhancements in its key talent
while continuing to advance its strategy for
sustainable growth and value creation.
Despite an ongoing scarcity of attractive retail assets on the
elected and independent. The elected Trustees hold separate
open market, management successfully executed more than
in-camera meetings with and without the appointed Trustees
$574 million in acquisitions in 2016, a testament to both the
and management at each Board meeting. Empire appointed
competitive advantage of Crombie’s strategic relationship
Trustees do not participate in any decisions concerning
with Sobeys and Empire, and the REIT’s growing expertise
related party transactions or matters.
in the country’s major commercial real estate markets.
The Board reviews its Governance Standards regularly. In
Despite having a very strong year, Crombie REIT’s total return
2017, the Board will be proposing to Unitholders amendments
of 13 percent trailed the performance of both the S&P/TSX
to its Declaration of Trust that are described in our Proxy
Index and the Canadian REIT Index. Although valuations
material. These amendments are being proposed to better
for REITs in general were dampened by expectations of
align our Unitholders rights and definitions with those of
rising interest rates, Crombie’s unit price was also affected
other REITs and incorporated public companies.
by Sobeys’ recent operating difficulties. However, we are
confident that Sobeys represents an attractive and stable
long-term tenant for our grocery anchored retail assets.
On behalf of the Board, we would like to convey our gratitude
to John Latimer, who will be retiring from the Board in May
2017. He has provided great leadership and knowledge to
Crombie has an engaged Board of Trustees representing
the Board for the past eleven years. Mr. Latimer has served
a diverse range of backgrounds and experience. We are
on the Audit Committee and was most recently Chair of the
committed to a strategy of long-term and stable growth
Governance and Nominating Committee. We wish him the
with a high standard of corporate governance. Although
very best in the years to come.
Empire maintains a 40.3% (fully diluted) ownership interest
in Crombie REIT, the Board of Trustees is structured and
operates to fairly represent the interests of all Unitholders.
The Board consists of both appointed and elected trustees,
as specified in our Declaration of Trust, with a majority being
1 8
C R O M B I E R E I T
Frank C. Sobey
John Eby
T R U S T E E A N D C H A I R
L E A D I N D E P E N D E N T T R U S T E E
1
2
3
4
5
6
7
8
9
10
11
12
B O A R D O F T R U S T E E S
1 F R A N K C . S O B E Y
Trustee and Chair
2 J O H N E B Y
Independent Trustee
7 K E N T R . S O B E Y
Independent Trustee
1 0 B R I A N A . J O H N S O N
Independent Trustee
Frank Sobey has been a trustee
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 organization that promotes
educational initiatives
in Guatemala.
3 D O N A L D E . C L O W
Trustee
5 B A R B A R A F. PA L K
Independent Trustee
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. Mr. Clow
is a trustee of Granite REIT.
4 E . J O H N L AT I M E R
Independent Trustee
John Latimer is the Managing
Director of Aldert Chemicals Limited
and the former President and CEO
of Monarch Corporation, a real
estate development 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.
6 J A S O N P. S H A N N O N
Independent Trustee
Jason Shannon is the President and
Chief Operating Officer of Shannex
Inc. and previously practised
corporate law at Stewart McKelvey
Stirling Scales. He serves on the
boards of Atlantic Corporation, ITacit
Inc., Atlantic Institute on Aging, and
the Loran Scholarship Foundation,
and as an advisory member on
the Sobeys Pension Investment
Committee. Mr. Shannon graduated
from Dalhousie University with a
Bachelor of Commerce (1994)
and an LL.B (1997).
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.
8 J . M I C H A E L K N O W L TO N
Independent Trustee
Michael Knowlton retired from
Dundee Realty Corporation as
President of Dundee REIT in May
2011 after 13 years of service. A
director of Tricon Capital Group
Inc. and a trustee of both Dream
Industrial REIT and Dream Global
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.
9 E L I S A B E T H S T R O B A C K
Independent Trustee
Elisabeth Stroback is the Managing
Principal and Owner of Tanalex
Corp. She is the former Executive
Lead, Capital Projects and Real
Estate for Ryerson University 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.
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.
1 1 PA U L D . S O B E Y
Trustee
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.
12 FRANCOIS VIMARD
Trustee
François Vimard, CPA, CA is the
Executive Vice President of Empire
Company Limited and served
as interim CEO from July 2016
to January 2017. Prior to this he
served in various senior positions
with both Empire and Sobeys Inc.
and provided 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
A N N U A L R E P O R T 2 0 1 6
1 9
F I N A N C I A L R E V I E W
Management’s Discussion
and Analysis
21 Introduction
25 Overview of the Property Portfolio
30 Financial Results
39 Liquidity and Capital Resources
44 Accounting
48 Risk Management
53 Subsequent Events
53 Controls and Procedures
54 Quarterly Information
Consolidated
Financial Statements
56 Management’s Statement of Responsibility
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
E V E R Y D AY R E TA I L I N G
Crombie’s grocery and drug store anchored
properties serve steady, everyday needs for
their communities.
2 0
C R O M B I E R E I T
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S (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, 2016, with a comparison to the financial condition and results of operations for the
comparable periods in 2015.
This MD&A should be read in conjunction with Crombie’s audited consolidated financial statements and
accompanying notes for the year ended December 31, 2016 and December 31, 2015, 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.
DAT E O F M D & A
The information contained in the MD&A, including forward-looking
statements, is based on information available to management as
of February 22, 2017, except as otherwise noted.
F O RWA R D - L OO K I N G I N F O R M AT I O N
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)
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;
(v)
(vi)
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,
levels of indebtedness, Crombie’s ability to maintain and
strengthen its investment grade credit rating, future financing
opportunities, future interest rates, creditworthiness of major
tenants, 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;
tax exempt status, which can be impacted by regulatory
changes enacted by governmental authorities;
anticipated distributions, distribution growth and payout
ratios, which could be impacted by results of operations
and capital resource allocation decisions;
the effect that any contingencies would have on Crombie’s
financial statements, which could be impacted by their
eventual outcome;
(ix)
(x)
(xi)
(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/
Redevelopment” 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/
Redevelopment” section and which assumes obtaining
required municipal zoning and development approvals
and successful agreements with development partners
and existing tenants.
A N N U A L R E P O R T 2 0 1 6
2 1
MD&A
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.
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.
F I N A N C I A L H I G H L I G H T S
N O N - G A A P F I N A N C I A L M E A S U R E S
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”), FFO as adjusted,
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 for the three months and year ended December 31, 2016 and 2015 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, as adjusted – basic
FFO, as adjusted – diluted
FFO, as adjusted per unit – basic
FFO, as adjusted per unit – diluted
FFO, as adjusted payout ratio (%)
AFFO – basic
AFFO – diluted
AFFO per unit – basic
AFFO per unit – diluted
Distributions per unit
AFFO payout ratio (%)(1)
Interest service coverage
Debt service coverage
As at
December 31,
2016
280
December 31,
2015
260
19,093,000
17,666,000
50.3%
52.5%
Three months ended December 31,
Year ended December 31,
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2016
105,269
75,874
31,478
0.21
0.21
45,452
47,193
0.31
0.30
72.6%
38,452
40,193
0.26
0.26
0.22
85.8%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2015
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
90.5%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2016
400,001
284,695
125,130
0.89
0.89
166,235
173,141
1.19
1.17
75.6%
140,739
144,645
1.01
1.00
0.89
89.3%
2.97
1.96
2015
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
(1) AFFO payout ratio is calculated using a per square foot charge 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
Three months ended December 31,
Year ended December 31,
2016
2015
2016
2015
148,038,591
148,179,446
155,502,713
155,502,713
131,182,278
139,919,678
131,333,794
140,062,763
138,657,061
147,386,030
135,671,986
144,400,955
130,787,712
130,946,425
138,655,853
135,670,778
2 2
C R O M B I E R E I T
MD&AMANAGEMENT’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.
— Renewals on 222,000 square feet of 2017 and later expiring
leases at an average rate of $17.05 per square foot, an increase
of 5.3% over the expiring lease rate.
H I G H L I G H T S
•
•
•
•
•
•
•
•
•
•
•
FFO, as adjusted, for the year ended December 31, 2016
increased 11.2% to $166,235; or $1.17 per unit diluted, an increase
of $0.04 or 3.9% per unit from the year ended December 31, 2015.
FFO, as adjusted, for the three months ended December 31,
2016 increased 18.6% to $45,452; or $0.30 per unit diluted, an
increase of $0.01 or 5.1% per unit from the three months ended
December 31, 2015.
AFFO for the year ended December 31, 2016 increased 12.0%
to $140,739; or $1.00 per unit diluted, an increase of $0.04
or 4.6% per unit from the AFFO per unit for the year ended
December 31, 2015.
AFFO for the three months ended December 31, 2016 increased
19.0% to $38,452; or $0.26 per unit diluted, an increase of $0.01 or
5.3% per unit from the three months ended December 31, 2015.
FFO, as adjusted, payout ratio of 75.6% for the year ended
December 31, 2016 compared to 78.0% for the same period
in 2015. AFFO payout ratio of 89.3% for the year ended
December 31, 2016 compared to 92.8% for the same period
in 2015. FFO, as adjusted, payout ratio of 72.6% for the three
months ended December 31, 2016 compared to 76.3% for the
same period in 2015. AFFO payout ratio of 85.8% for the three
months ended December 31, 2016 compared to 90.5% for the
same period in 2015.
Same-asset property cash NOI for the year ended December 31,
2016 increased by 4.2% or $9,393 ($234,710 compared to $225,317
for the year ended December 31, 2015). Increase in same-asset
property cash NOI for the three months ended December 31,
2016 of 9.2% or $5,203 ($61,785 compared to $56,582 for the
three months ended December 31, 2015).
Completed acquisitions in the year ended December 31, 2016
totalling 2,663,000 square feet for $573,833 before closing and
transaction costs, including 38 retail properties; a 50% interest
in three distribution centres; two parcels of development land
adjacent to existing Crombie properties and a 50% interest
in an additional development property; and, invested $58,823
in the renovation and expansion of 10 existing Sobeys
anchored properties.
Completed dispositions of 19 retail properties in the year ended
December 31, 2016 totalling 1,210,000 square feet for proceeds
of approximately $196,000 before closing and transaction costs.
8.1% growth of property revenue for the year ended
December 31, 2016 ($400,001 versus $369,866 for the year
ended December 31, 2015). Fourth quarter property revenue of
$105,269, an increase of $12,422, or 13.4% over fourth quarter 2015.
Committed occupancy was 94.4% at December 31, 2016
compared with 94.2% at September 30, 2016 and 93.6% at
December 31, 2015.
Crombie’s renewal activity during the year ended December 31,
2016 included:
— Renewals on 499,000 square feet of 2016 expiring leases at
an average rate of $16.96 per square foot, an increase of 9.9%
over the expiring lease rate.
•
•
•
•
New leases and expansions increased occupancy by 290,000
square feet at December 31, 2016 at an average first year rate
of $15.05 per square foot. 132,000 square feet of space was
committed at December 31, 2016 at an average first year rate
of $12.51 per square foot.
Debt to gross book value (fair value basis) was 50.3% at
December 31, 2016, compared to 52.5% at December 31, 2015.
Crombie’s interest service coverage for the year ended
December 31, 2016 was 2.97 times EBITDA and debt service
coverage was 1.96 times EBITDA, compared to 2.72 times
EBITDA and 1.81 times EBITDA, respectively, for the year ended
December 31, 2015.
Recognized $14,172 in property revenue during the year ended
December 31, 2016 related to settlement proceeds from Target
Canada for three leases vacated in May 2015 and from Best Buy/
Future Shop related to one vacated lease. These amounts have
been adjusted out of FFO for the year ended December 31, 2016.
B U S I N E S S O V E R V I E W
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 markets. At December 31, 2016,
Crombie owned a portfolio of 280 investment properties in 10
provinces, comprising approximately 19.1 million square feet of
gross leaseable area (“GLA”). Empire Company Limited (“Empire”),
through a subsidiary, holds a 41.5% (fully diluted 40.3%) economic
and voting interest in Crombie at December 31, 2016.
B U S I N E S S O B J E C T I V E S A N D O U T L OO K
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
3. Expand the asset base of Crombie and increase its cash
available for distribution through accretive acquisitions.
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
A N N U A L R E P O R T 2 0 1 6
2 3
MD&A
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.
Expand asset base with accretive acquisitions: Crombie`s external
growth strategy focuses primarily on acquisitions of income-
producing, grocery-anchored and drug store-anchored retail
properties in Canada’s top urban and suburban 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
accretive acquisition opportunities which provide 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”).
(In thousands of CAD dollars)
Transaction date
Transactions with Empire and subsidiaries
2006 through 2014
2015
June 29, 2016
July 15, 2016
July 29, 2016
Transactions with third party vendors
2006 through 2014
2015
February 5, 2016
March 10, 2016
April 8, 2016
April 15, 2016
April 28, 2016
May 3, 2016
May 16, 2016
June 1, 2016
June 9, 2016
June 23, 2016
August 15, 2016
November 14, 2016
November 30, 2016
December 8, 2016
December 13, 2016
Number of
properties
Acquisition cost
(disposition
GLA (sq. ft.)
proceeds)(1)
175
4
22
(1)
1
50
1
1
(10)
1
(1)
(1)
2
9
1
1
1
(1)
1
1
(1)
(4)
8,740,700
232,800
2,090,000
(21,000)
62,000
2,409,000
101,000
21,000
(791,000)
58,000
(8,000)
(47,000)
117,000
94,000
37,000
84,000
54,000
(48,000)
29,000
6,000
(80,000)
(215,000)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,955,393
63,158
348,386
(9,057)
26,400
693,812
33,150
5,500
(143,400)
15,700
(793)
(7,500)
46,200
32,272
7,000
29,000
14,150
(2,300)
29,000
5,000
(10,750)
(21,750)
(1) Excluding closing and transaction costs
The table highlights the growth opportunities provided through
the Empire/Sobeys relationship as well as the growth realized
through Crombie’s expanding base of third party vendors.
Through its relationships with Sobeys and ECLD, Crombie is
provided a preferential right to acquire retail properties developed
and/or owned 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.
2 4
C R O M B I E R E I T
MD&AMANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts)
B U S I N E S S E N V I R O N M E N T
A significant factor impacting the Canadian economy and its
future prospects continues to be the prolonged decrease in the
price of oil. While oil has recently found stability and slight price
recovery, aided by supply management of OPEC countries, it
remains well below previous levels. By way of offset, the Canadian
economy has been helped by the lowering of the Canadian
dollar relative to our largest trading partner, the United States. A
weaker currency is a potential catalyst for Canada’s export sectors.
Interest rates in Canada and globally remain at all time lows with
occasional signs of rate increases as yields have recently started to
trend upwards.
Within Canada, the key factors of low oil and low Canadian dollar
are having mixed results on provincial economies with negative
impacts in specific areas such as Alberta and Newfoundland with
loss of employment, higher office vacancy primarily in Alberta
and reduced consumer spending and capital investment. Positive
impacts from the lower oil price and interest rates are being felt on
economies with a heavier reliance on manufacturing and exports
such as Ontario.
Capitalization rates have continued at record low levels as interest
rates remain low and large investors such as REITs and pension
funds seek long-term sustainable returns. The bifurcation noted in
2015 continues, with strong assets in urban markets maintaining
their historically low cap rates and strong buyer interest while
weaker properties in rural and secondary markets continuing to
see slight increases in cap rates and sporadic acquisition interest.
With these low cap rates and interest rates, REITs are continuing
to turn inward for accretive growth with a focus on intensifications
of existing properties and complete redevelopments to repurpose
prime urban properties to take advantage of highest and best
use potential.
OVERVIEW OF THE PROPERTY PORTFOLIO
P R O P E R T Y P O R T F O L I O
At December 31, 2016, Crombie’s property portfolio consisted of 280 investment properties that contain approximately 19.1 million square
feet of GLA in all 10 provinces.
As at December 31, 2016, 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, Acquisitions
(Dispositions)
2016
December 31, Number of
Properties
2016
Other
2,386,000
1,416,000
644,000
1,582,000
1,414,000
988,000
352,000
—
3,000
—
—
—
3,374,000
1,768,000
644,000
1,000
1,586,000
—
(31,000)
1,383,000
5,374,000
(29,000)
(25,000)
5,320,000
3,022,000
(197,000)
25,000
2,850,000
128,000
(24,000)
1,246,000
364,000
454,000
—
—
—
—
104,000
1,610,000
454,000
55
41
15
20
13
43
50
2
33
8
% of Annual
Minimum
Rent
% of GLA
17.7%
9.3%
3.4%
8.3%
7.2%
27.9%
14.9%
0.5%
8.4%
2.4%
20.7%
11.6%
4.3%
5.7%
9.8%
21.5%
15.7%
0.6%
7.7%
2.4%
17,666,000
1,457,000
(30,000)
19,093,000
280
100.0%
100.0%
During the year ended December 31, 2016, Crombie had a net
increase of 1,457,000 square feet or 8.2% growth of GLA from
acquisition and disposition activity consisting of:
The development property has been excluded from GLA until
development plans are finalized. This is offset by disposition
of three properties totalling 190,000 square feet;
• acquisition of nine properties, totalling 951,000 square feet and
a 37,000 square foot addition to a property in Alberta;
• acquisition of nine properties in British Columbia totalling
373,000 square feet offset in part by disposition of one property
totalling 21,000 square feet;
• acquisition of eight properties in Ontario totalling 587,000
square feet, offset by disposition of 12 properties totalling
784,000 square feet;
• disposition of one property in Prince Edward Island totalling
24,000 square feet; and,
• acquisition of one property in New Brunswick totalling
11,000 square feet offset in part by disposition of one property
totalling 8,000 square feet;
• acquisition of 12 properties in Quebec totalling 547,000 square
feet, offset in part by disposition of one property in Quebec
totalling 183,000 square feet.
• acquisition of one property totalling 77,000 square feet, an
84,000 square foot addition to a property, and an acquisition
of a 54,000 square foot development property, in Nova Scotia.
Crombie continues to diversify its geographic concentration
through growth and divestiture opportunities. As at December 31,
2016, our allocation of Annual Minimum Rent consists of: Atlantic
Canada 37.6%; Central Canada 23.4%; and Western Canada 39.0%.
A N N U A L R E P O R T 2 0 1 6
2 5
MD&A
Crombie believes this diversification adds stability to the portfolio while reducing vulnerability to economic fluctuations that may affect
any particular region.
P O R T F O L I O OCC U PA N C Y A N D L E A S E AC T I V I T Y
The portfolio occupancy and committed activity for the year ended December 31, 2016 were as follows:
Occupied Space (sq. ft.)
Province
January 1, Acquisitions
(Dispositions)
2016
New
Leases(1)
Lease
Expiries
Other December 31,
2016
Changes(2)
Committed
Space (sq. ft.)(3) Space (sq. ft.)
Total
Leased
Leased December 31,
AB
BC
MB
NB
NL
NS
ON
PE
QC
SK
2,376,000
1,416,000
644,000
1,222,000
1,371,000
4,816,000
984,000
345,000
—
3,000
—
11,000
2,000
5,000
70,000
14,000
(7,000)
(2,000)
3,362,000
5,000
3,367,000
—
1,000
1,764,000
1,000
1,765,000
(1,000)
(25,000)
(17,000)
(4,000)
644,000
(4,000)
1,266,000
—
—
1,266,000
644,000
100.0%
(31,000)
1,337,000
2,000
1,339,000
(29,000)
159,000
(159,000)
(17,000)
4,770,000
93,000
4,863,000
2,782,000
(113,000)
17,000
128,000
1,226,000
448,000
(24,000)
363,000
—
—
6,000
6,000
(28,000)
(5,000)
—
(50,000)
(4,000)
2,654,000
26,000
2,680,000
—
—
—
99,000
1,595,000
404,000
5,000
104,000
100.0%
—
—
1,595,000
404,000
2016
99.8%
99.8%
79.8%
96.8%
91.4%
94.0%
99.1%
89.0%
94.4%
Total
16,429,000
1,529,000
290,000
(292,000)
(61,000)
17,895,000
132,000
18,027,000
(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 increased to 132,000 square feet at December 31, 2016, from 97,000
square feet at December 31, 2015.
Overall leased space (occupied plus committed) increased
from 93.6% at December 31, 2015 to 94.4% at December 31, 2016.
During 2016, Crombie had a net increase from acquisitions and
dispositions of 1,529,000 square feet; had lease expiries outpace
new leases by 2,000 square feet, and had committed space
increase by 35,000 square feet to 132,000 square feet.
New leases and expansions increased occupancy by 290,000
square feet at December 31, 2016 at an average first year rate of
$15.05 per square foot. 267,000 square feet are new leases at an
average rate of $15.40 per square foot while the remaining 23,000
square feet are expansions of existing tenants at an average rate of
$11.29 per square foot. 132,000 square feet of space was committed
at December 31, 2016 at an average first year rate of $12.51 per
square foot.
During the year ended December 31, 2016, Crombie renewed
499,000 square feet of 2016 anchor and non-anchor tenant
lease maturities at an average rate of $16.96 per square foot,
an increase of 9.9% over the expiring lease rate. The renewal
activity compares favourably with the average rent per square
foot on full year 2016 lease maturities of $13.05 per square foot.
Crombie also renewed 222,000 square feet of 2017 and later
anchor and non-anchor expiring leases at an average rate of
$17.05 per square foot, an increase of 5.3% over the expiring
lease rate. In addition, as part of the recent investment in the
renovation and expansion of 10 existing Sobeys, leases have
been amended with new 20-year terms. These amendments
have not been included in the calculation of the renewal activity
previously discussed.
S E C TO R I N F O R M AT I O N
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, 2016, 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
275
5
280
18,093,000
1,000,000
19,093,000
94.8%
5.2%
100.0%
96.0%
4.0%
100.0%
(1) For purposes of calculating leased percentage, Crombie considers GLA covered by head lease agreements as occupied.
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
5
260
16,677,000
989,000
17,666,000
94.4%
5.6%
100.0%
95.7%
4.3%
100.0%
(1) For purposes of calculating leased percentage, Crombie considers GLA covered by head lease agreements as occupied.
Leased(1)
94.7%
89.0%
94.4%
Leased(1)
93.8%
89.8%
93.6%
2 6
C R O M B I E R E I T
MD&AMANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts)
Retail and mixed use properties represent 94.8% of Crombie’s
GLA and 96.0% of annual minimum rent at December 31, 2016
compared to 94.4% of GLA and 95.7% of annual minimum rent at
December 31, 2015, reflecting Crombie’s strategy to focus growth
primarily on retail properties.
Leased space in retail and mixed use properties of 94.7% at
December 31, 2016, increased from 93.8% at December 31, 2015.
Leased space in office properties of 89.0% decreased from 89.8%
at December 31, 2015.
L E A S E M AT U R I T I E S
The following table sets out as of December 31, 2016, 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
2017
2018
2019
2020
2021
Thereafter
Total
Number
of Leases
Renewal Area
(sq. ft.)
% of
Total GLA
223
178
171
146
154
702
1,574
923,000
730,000
889,000
591,000
756,000
14,138,000
18,027,000
Average Rent
per sq. ft.
at Expiry
$
17.43
17.92
16.84
19.31
19.06
18.15
4.8%
3.8%
4.7%
3.1%
4.0%
74.0%
94.4%
$
18.11
P R O P E R T Y D E V E L O P M E N T /
R E D E V E L O P M E N T (“ D E V E L O P M E N T ”)
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 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 692,000 (September 30, 2016 – 839,000)
square feet of commercial GLA and up to 5,700,000 square feet
(up to 6,500 units) (September 30, 2016 – 5,100,000 square feet
and 5,800 units) of residential GLA (which may include either
rental or condominium units). Included in Crombie’s pipeline
of 19 (September 30, 2016 – 19) potential Major Developments
are 13 (September 30, 2016 – 13) properties in Western Canada,
located primarily in Vancouver, British Columbia (nine)
(September 30, 2016 – nine) and Calgary and Edmonton,
Alberta (four) (September 30, 2016 – four) and six additional
properties located in Central Canada and Atlantic Canada
(September 30, 2016 – six).
Based on Crombie’s current estimates, total costs to develop
these properties could reach $2 to $3 billion (September 30,
2016 – $2 to $3 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 including financial
accretion and Board of Trustees approval.
As at December 31, 2016, Crombie has identified the following
19 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.
A N N U A L R E P O R T 2 0 1 6
2 7
MD&A
Existing Property
City, Province
Site Size
Potential
Potential
Existing Commercial Residential
Expansion
Expansion
Tenants
1.
1641 Davie Street
Vancouver, BC
1.09 acres Safeway/Other tenants
2. 2733 West Broadway
Vancouver, BC
1.95 acres
Safeway
Vancouver, BC
3.74 acres Safeway/Other tenants
3. 3410 Kingsway
4. 990 West 25 Avenue
(King Edward)
5. 1170 East 27 Street
North Vancouver, BC
2.82 acres
6. 1780 East Broadway
Vancouver, BC
2.43 acres
Vancouver, BC
1.80 acres
7. Royal Oak
8. East Hastings
Vancouver, BC
2.76 acres
Burnaby, BC
3.30 acres Safeway/Other tenants
9. 10355 King George Boulevard
Surrey, BC
5.07 acres
10. 813 11 Avenue SW
11. 524 Elbow Drive SW
12 410 10 Street NW
13. 10930 82 Avenue
14. Brampton Mall
15. Bronte Village
16. Triangle Lands
17. Penhorn Lands
18. Scotia Square
19. Avalon Mall
Calgary, AB
2.59 acres
Calgary, AB
1.60 acres
Calgary, AB
1.73 acres
Edmonton, AB
2.44 acres Safeway/Other tenants
Brampton, ON
8.74 acres
Retail
Oakville, ON
5.66 acres Sobeys/Other tenants
Halifax, NS
0.68 acres
Dartmouth, NS
31.00 acres
Land
Land
Halifax, NS
14.47 acres
Office/Retail
St. John’s, NL
50.91 acres
Retail
Safeway
Safeway
Safeway
Safeway
Safeway
Safeway
Safeway
Safeway
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Status
Development Planning
To be determined “TBD”
TBD
TBD
Pre-planning
Pre-planning
TBD
TBD
TBD
TBD
Pre-planning
TBD
TBD
TBD
Pre-planning
TBD
TBD
In Development
Pre-planning
Projects described as having a “pre-planning” status include
projects that 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 Corp.) for the planned
replacement of the existing retail asset with a new mixed use
development. The proposed development currently envisions
a new, larger approximately 44,000 square foot grocery store
with almost 9,000 square feet of ancillary retail, and rental
residential totalling up to 252,000 square feet (up to 320 rental
units) comprised of two residential towers. Zoning is in place and
a development permit application was submitted in December
2015 with approval expected shortly. Under the current project,
Crombie would ultimately retain 100% of the new commercial
component and jointly own the rental residential component.
Properties in Development Phase
Scotia Square, Barrington Street, Halifax, Nova Scotia
Scotia Square Complex is situated at the entrance to the
downtown Halifax business district at the corner of Barrington and
Duke Streets. The retail and mixed use 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 food court expansion and seating, and new street level retail
GLA. The new three-storey glazed facade will modernize the
overall image of the facility. The construction cost for Phase II is
expected to be approximately $10 million. Crombie is also in the
pre-planning stage of a number of other residential and/or office
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.
O T H E R P R O P E R T Y R E D E V E L O P M E N T
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 included in development
property cash NOI and excluded from same-asset operating
results until the redevelopment is complete and the operating
results from the property are available for the current and
comparative reporting years, at which time they are included in
same-asset property operating results. Operating results from
these properties are included in FFO, AFFO, occupancy, and other
measures per normal.
2 8
C R O M B I E R E I T
MD&AMANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts)
Province
ON
NS
NB
Property
Property GLA
Algonquin Ave Mall
Amherst Centre
Uptown Centre
211,000
228,000
320,000
The redevelopment of Algonquin Avenue Mall, Amherst 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
Property
GLA
Estimated
Construction
Development
Cost(1)
NS
NS
NS
NS
NL
NB
NB
NB
Aberdeen Business Centre
389,000
Leasing of Anchor Space
$
3,274
County Fair Mall–New Minas
268,000
To be determined
In planning
Downsview Mall
70,000 Phased demolition and development
Sydney Shopping Centre
186,000
Partial demolition and development
$
$
2,572
6,909
Kenmount Business Centre /
Woodgate Plaza
68,000
Avalon Mall Master Plan
In planning
Loch Lomond Place
192,000
Riverview Place
150,000
1234 Main Street /
1222 Main Street
140,000
To be determined
In planning
To be determined
In planning
To be determined
In planning
Incurred
To Date
Estimated
Completion
3,005
Q1 2017
— To be determined
379
2,349
Q3 2017
Q3 2017
— To be determined
— To be determined
— To be determined
— To be determined
$
$
$
$
$
$
$
$
(1) Excludes direct tenant costs
Aberdeen Business Centre – final lease agreements to replace
vacant anchor space have been executed. This property will be
included in same-asset results for 2017.
Loch Lomond Place – has been designated for redevelopment.
Initial planning and design work is currently underway and is
subject to management review and approval.
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.
Riverview 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. Zoning approvals have
been obtained. Construction and leasing are underway.
1234 Main Street / 1222 Main Street – Phase I redevelopment of
1234 Main Street has been completed. Initial planning of Phase II
involving 1222 Main Street is underway.
Sydney Shopping Centre – currently under redevelopment
consisting of partial demolition and redemising of remaining
space. Development is under construction and expected to be
completed by Q3 2017.
Kenmount Business Centre / 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.
L A R G E S T T E N A N T S
Productive Capacity Enhancement
In addition to Major Developments and work done on properties
under redevelopment, Crombie also performs productive
capacity enhancements on other properties which totals
$90,166 of investment for the year ended December 31, 2016.
This includes $58,823 of investment in the renovation and
expansion of 10 properties anchored by Sobeys. This spending
is further discussed in the Maintenance Expenditures section.
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, 2016.
Tenant
Sobeys(1)
Shoppers Drug Mart
Cineplex
Province of Nova Scotia
CIBC
Lawtons/Sobeys Pharmacy
Dollarama
GoodLife Fitness
Bank of Nova Scotia
Bank of Montreal
Total
(1) Excludes Lawtons/Sobeys Pharmacy.
% of Annual
Minimum Rent
Average
Remaining
Lease Term
52.9%
5.1%
1.4%
1.2%
1 . 1 %
1 . 1 %
1.0%
1.0%
0.9%
0.9%
66.6%
15.4 years
11.3 years
8.6 years
1.9 years
14.2 years
10.3 years
6.4 years
10.3 years
4.3 years
11.2 years
A N N U A L R E P O R T 2 0 1 6
2 9
MD&A
Crombie’s portfolio is leased to a wide variety of tenants. The above
table is based on the tenant’s percentage of annual minimum
rent and, other than Sobeys which accounts for 52.9% of annual
minimum rent and Shoppers Drug Mart which accounts for 5.1%
of annual minimum rent, no other tenant accounts for more than
1.4% of Crombie’s annual minimum rent.
For the year ended December 31, 2016, Sobeys also represents
44.8% of total property revenue. Total property revenue includes
annual minimum rent as well as operating and realty tax cost
recovery income and percentage rent. These additional amounts
can vary by property type, specific tenant leases and where tenants
may directly incur and pay operating and realty tax costs.
The weighted average remaining term of all Crombie leases is
approximately 12.5 years. This lengthy remaining lease term is
influenced by the average Sobeys remaining lease term of
15.4 years.
FINANCIAL RESULTS
CO M PA R I S O N TO P R E V I O U S Y E A R
(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,
2016
December 31,
2015
December 31,
2014
$
$
3,963,318
2,396,199
50.3%
$
$
3,472,193
2,170,801
52.5%
$
$
3,413,414
2,073,354
52.8%
Three months ended December 31,
Year ended December 31,
2016
2015
Variance
2016
2015
Variance
Property revenue
Property operating expenses
Property NOI
NOI margin percentage
Other items:
Gain on disposal of investment properties
Impairment of investment properties
Depreciation and amortization
General and administrative expenses
Finance costs – operations
Operating income before taxes
Taxes – current
Taxes – deferred
Operating income attributable to Unitholders
$
105,269
$
92,847
$
12,422
$ 400,001
$
369,866
$
29,395
75,874
72.1%
9,761
(6,000)
(19,435)
(4,266)
(25,656)
30,278
—
1,200
31,478
28,858
63,989
68.9%
25
(7,300)
(16,789)
(3,541)
(24,600)
11,784
(39)
2,200
13,945
(537)
11,885
3.2%
9,736
1,300
(2,646)
(725)
(1,056)
18,494
39
(1,000)
17,533
(3,751)
115,306
284,695
71.2%
37,490
(6,000)
(73,332)
(16,341)
(100,156)
126,356
(26)
(1,200)
125,130
113,261
256,605
69.4%
23
(12,575)
(66,576)
(14,401)
(98,611)
64,465
(2,936)
4,200
65,729
(125,737)
(116,576)
30,135
(2,045)
28,090
1.8%
37,467
6,575
(6,756)
(1,940)
(1,545)
61,891
2,910
(5,400)
59,401
(9,161)
Finance costs – distributions to Unitholders
(32,987)
(29,236)
Finance income (costs) – change in fair value
of financial instruments
Increase (decrease) in net assets
attributable to Unitholders
Operating income attributable
to Unitholders per Unit, Basic
Operating income attributable
to Unitholders per Unit, Diluted
Basic weighted average Units
outstanding (in 000’s)
Diluted weighted average
Units outstanding (in 000’s)
$
$
$
(46)
3,068
(3,114)
312
56
256
(1,555) $
(12,223) $
10,668
$
(295) $
(50,791) $
50,496
0.21
$
0.11
0.21
$
0.11
$
$
0.89
$
0.50
0.89
$
0.50
148,039
131,182
139,920
130,788
148,179
131,334
140,063
130,946
Distributions per Unit to Unitholders
$
0.22
$
0.22
$
0.89
$
0.89
3 0
C R O M B I E R E I T
MD&AMANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts)
Operating Results
For the three months ended December 31, 2016, Operating income
before taxes of $30,278 increased by $18,494 or 156.9% compared
to the three months ended December 31, 2015. The increase was
primarily due to:
•
an increase in property revenue of $12,422 or 13.4% which is
impacted by:
— improved leasing activity including increased average rental
rates on lease renewals and new leases;
— acquisition activity since the third quarter of 2015. Acquisitions
include approximately $60,825 in the fourth quarter of 2015;
$5,500 in the first quarter of 2016; $492,708 in the second
quarter of 2016; $26,400 in the third quarter of 2016; and
$34,000 in the fourth quarter of 2016;
— invested $58,823 on June 29, 2016 in the renovation and
expansion of 10 existing Sobeys anchored properties which
generated $549 in total property revenue; and,
— an increase in lease termination income of $4,133 over the
fourth quarter of 2015, primarily related to $3,000 from
Best Buy/Future Shop for one retail location and additional
settlement amounts of $828 related to two vacated Target
Canada leases.
offset in part by:
These improvements were partly offset by:
• an increase in depreciation and amortization of $2,646 or 15.8%
related to the net acquisition activity as noted above; and,
• an increase in finance costs – operations of $1,056 or 4.3%
primarily due to acquisition activity since the third quarter of
2015, offset in part by finance costs savings from proceeds on
property dispositions during 2016 and lower rate debt on new
and renewal mortgages.
For the year ended December 31, 2016, Operating income before
taxes of $126,356 increased by $61,891 or 96.0% compared to
the year ended December 31, 2015. In addition to the above
variance explanations for the three month period, the year was
impacted by:
• higher lease termination income of $14,584 compared to $4,175
for the same period in 2015. During 2016, Crombie recorded
receipt from Target Canada of $11,172 in lease termination
settlement payments on three leases vacated in May 2015 as
well as $3,000 from Best Buy/Future Shop related to one retail
location. During 2015, Crombie received termination income of
$3,995 primarily related to two vacated long-term leases;
• the disposition of 19 retail properties in the year ended
December 31, 2016, resulting in a gain on disposal of
$37,490; and,
— reduced property revenue resulting from the disposition
• a decrease in impairment costs of $6,575. During 2016,
of 10 retail properties in the first quarter of 2016, two retail
properties in the second quarter of 2016, an additional
two retail properties in the third quarter of 2016, and five
properties in the fourth quarter of 2016.
•
the disposition of five retail properties during the fourth quarter,
resulting in a gain on disposal of $9,761.
• the recognition in the fourth quarter of 2015 of $7,300 of
impairment related to one office property.
Crombie recorded impairment on two retail properties; in 2015,
impairment was recorded on three retail properties and one
office property.
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 Increase
(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)
2016
2015
2016
2015
Operating income attributable to Unitholders
Finance costs – distributions to Unitholders
Finance income (costs) – change in fair value of financial instruments
$
31,478
$
13,945
$
125,130
$
65,729
(32,987)
(46)
(29,236)
3,068
(125,737)
(116,576)
312
56
Increase (decrease) in net assets attributable to Unitholders
$
(1,555)
$
(12,223)
$
(295)
$
(50,791)
Classification of Crombie REIT Units and Class B LP Units with
attached Special Voting Units (collectively the “Units”)
Crombie has 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.
As a result of the Units being 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.
A N N U A L R E P O R T 2 0 1 6
3 1
MD&A
P R O P E R T Y N O I
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 redevelopment during either the current or
comparative period.
Property NOI on a cash basis is as follows:
(In thousands of CAD dollars)
2016
2015
Variance
2016
2015
Variance
Three months ended December 31,
Year ended December 31,
Property NOI
$
75,874
$
63,989
$
11,885
$
284,695
$
256,605
$
28,090
(3,840)
(2,801)
(1,039)
(12,876)
(11,142)
(1,734)
Non-cash straight-line rent
Non-cash tenant incentive
amortization
Property cash NOI
Acquisitions, dispositions and
development property cash NOI
Same-asset property cash NOI
$
61,785
$
56,582
$
3,328
75,362
13,577
2,512
63,700
7,118
816
11,662
6,459
5,203
11,622
283,441
9,712
255,175
48,731
29,858
$
234,710
$
225,317
$
1,910
28,266
18,873
9,393
Property NOI, on a cash basis, excludes non-cash straight-line
rent recognition and amortization of tenant incentive amounts.
The $5,203 or 9.2% increase in same-asset cash NOI for the three
months ended December 31, 2016 over the same period in 2015 is
primarily the result of: higher lease termination income; increased
average rent per square foot from leasing activity; rental rate
increases in existing leases; improved recovery rates; revenues from
land use intensifications at several properties; and, the $58,823
investment in 10 Sobeys anchored properties which generated
$1,029 in same-asset property cash NOI.
Acquisitions, dispositions and development property cash NOI
increased $6,459 for the three months ended December 31, 2016
over the same period in 2015 primarily due to acquisitions in the
fourth quarter of 2015 and in 2016, offset in part by the disposition
of 19 retail properties during 2016.
Same-asset property cash NOI is as follows:
The $9,393 or 4.2% increase in same-asset cash NOI for the
year ended December 31, 2016 over the same period in 2015
was impacted by the same factors noted above for the three
month period.
Included in same-asset property cash NOI for the three months
and year ended December 31, 2016 is $3,000 in lease termination
income from Best Buy/Future Shop related to a vacated lease.
Excluding this $3,000 amount, same-asset property cash NOI
increased $2,203 or 3.9% and $6,393 or 2.8% for the three months
and year ended December 31, 2016, respectively, compared to the
same period in 2015.
Management emphasizes property NOI on a cash basis as it
reflects the cash generated by the properties period-over-period.
(In thousands of CAD dollars)
2016
2015
Variance
Percent
2016
2015
Variance
Percent
Three months ended December 31,
Year ended December 31,
Retail and Mixed Use
$
59,064
$
53,848
$
5,216
9.7%
$
223,633
$
214,579
$
9,054
Office
Same-asset property
cash NOI
2,721
2,734
(13)
(0.5)%
11,077
10,738
339
$
61,785
$
56,582
$
5,203
9.2%
$
234,710
$
225,317
$
9,393
4.2%
3.2%
4.2%
Variances in same-asset property cash NOI for the three months
ended December 31, 2016 compared to the same period in
2015 include:
•
Retail and Mixed Use increased $5,216 or 9.7% due to increased
base rent and related recoveries driven by new and renewal
lease activity as well as continued land use intensification,
$1,029 additional same-asset property cash NOI from the
$58,823 investment in Sobeys anchored properties on June 29,
2016 and $3,000 in lease termination income.
•
Office decreased $13 or 0.5% as a result of changes
in occupancy.
Same-asset property cash NOI for the year ended December 31,
2016 compared to the same period in 2015 was impacted by these
same factors, offset by lease termination income received in the
second quarter of 2015 and the related lost NOI from the resulting
transitional vacancy.
3 2
C R O M B I E R E I T
MD&AMANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts)
Acquisitions, dispositions and development property cash NOI is as follows:
(In thousands of CAD dollars)
2016
2015
Variance
2016
2015
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
$
$
9,907
3,670
$
$
4,655
2,463
$
5,252
1,207
27,214
21,517
$
19,011
$
10,847
8,203
10,670
13,577
$
7,118
$
6,459
$
48,731
$
29,858
$
18,873
For the three months ended December 31, 2016, acquisitions and
dispositions property cash NOI increased $5,252 compared to the
three months ended December 31, 2015. The increase was the
result of property acquisitions during 2015 and 2016, offset in part
by the disposition of 19 retail properties during 2016, including 10
during the first quarter. For the year ended December 31, 2016,
acquisitions and dispositions property cash NOI increased $8,203
compared to the year ended December 31, 2015 as a result of the
same acquisition and disposition activity.
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. During the second
and fourth quarters of 2016, Crombie recorded receipt of lease
termination income from Target Canada on three leases vacated
in May 2015.
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,
2016 by province was as follows:
(In thousands of CAD dollars)
Property NOI
Property NOI
Variance
Property NOI
Property NOI
Variance
Three months ended December 31,
Year ended December 31,
2016
2015
2016
2015
AB
BC
MB
NB
NL
NS
ON
PE
QC
SK
Total
$
15,880
$
13,244
$
9,009
3,377
3,637
7,303
14,631
14,314
482
5,544
1,697
6,449
3,310
2,822
7,070
13,397
11,154
347
4,370
1,826
2,636
2,560
67
815
233
1,234
3,160
135
1,174
(129)
$
59,076
$
51,005
$
30,973
13,493
14,467
28,639
58,045
51,923
1,835
19,261
6,983
25,609
12,988
12,295
27,933
52,941
47,589
1,001
17,946
7,298
8,071
5,364
505
2,172
706
5,104
4,334
834
1,315
(315)
$
75,874
$
63,989
$
11,885
$
284,695
$
256,605
$
28,090
The significant variances in property NOI for the three months and
year ended December 31, 2016 compared to the same periods in
2015 primarily relate to:
•
•
•
Alberta – property acquisitions including 10 properties acquired
during 2016, one in the first quarter and nine in the second
quarter; three properties during 2015, two in the fourth quarter
and one in the third quarter; and, acquisition of additional
development on an existing property during 2015;
British Columbia – property acquisitions including nine
properties during 2016, eight in the second quarter and one in
the third quarter, and one property during the fourth quarter of
2015, offset in part by the disposition of one retail property in the
third quarter of 2016;
New Brunswick – lease termination income from Target Canada
for one property in the second and fourth quarters of 2016 as
well as the acquisition of additional development on existing
properties including one each during the first and fourth
quarters of 2016 and additional development on three existing
properties during 2015, offset in part by the disposition of one
retail property in the second quarter of 2016;
•
•
•
•
Nova Scotia – property acquisitions including one retail
property in the second quarter of 2016; acquisition of additional
development on existing retail properties in the fourth quarter
of 2015; and, lease termination income from Target Canada for
one property in the second and fourth quarters of 2016, offset
in part by the disposition of three retail properties in the fourth
quarter of 2016;
Ontario – property acquisitions including six properties during
the first six months of 2016 and two properties in the fourth
quarter of 2016 as well as lease termination income from Target
Canada for one property in the second quarter of 2016 and lease
termination income from Best Buy/Future Shop in the fourth
quarter of 2016, offset in part by the disposition of 12 properties
in 2016, nine in the first quarter, one in the second quarter, one
in the third quarter, and one in the fourth quarter;
Prince Edward Island – acquisition of a retail property in the
fourth quarter of 2015, offset in part by the disposition of a retail
property in the fourth quarter of 2016; and,
Quebec – acquisition of 12 properties in the first six months of
2016, offset in part by the disposition of one property in the first
quarter of 2016.
A N N U A L R E P O R T 2 0 1 6
3 3
MD&A
F F O A N D A F F O
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.
F U N D S F R O M O P E R AT I O N S ( F F O )
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 disposal 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. 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 as recommended by REALpac, 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, 2016 and 2015 is as follows:
(In thousands of CAD dollars)
2016
2015
Variance
2016
2015
Variance
Three months ended December 31,
Year ended December 31,
Increase (decrease) in net assets
attributable to Unitholders
Add (deduct):
$
(1,555)
$
(12,223)
$
10,668
$
(295)
$
(50,791)
$
50,496
Amortization of tenant incentives
3,328
2,512
816
11,622
9,712
1,910
Loss (gain) on disposal
of investment properties
Impairment of investment properties
Depreciation of investment properties
Amortization of intangible assets
Amortization of deferred leasing costs
Taxes – current on disposition
of investment properties
Taxes – deferred
Finance costs – distributions
to Unitholders
Finance costs (income) –
change in fair value of
financial instruments
FFO as calculated based on
REALpac recommendations
Adjustments:
Net lease termination income
from Target Canada and
Best Buy/Future Shop
Subscription Receipts
Adjustment Payment
Lease termination
income, non-cash
FFO, as adjusted
Lease termination, cash,
included in FFO, as adjusted
(9,761)
6,000
17,483
1, 7 91
161
—
(1,200)
(25)
7,300
15,456
1,180
153
(10)
(2,200)
(9,736)
(1,300)
2,027
611
8
10
1,000
(37,490)
6,000
66,552
6,170
610
—
1,200
(23)
12,575
60,498
5,480
598
2,066
(4,200)
(37,467)
(6,575)
6,054
690
12
(2,066)
5,400
32,987
29,236
3,751
125,737
116,576
9,161
46
(3,068)
3,114
(312)
(56)
(256)
49,280
38,311
10,969
179,794
152,435
27,359
(3,828)
—
—
—
—
—
$
$
45,452
313
$
$
38,311
8
$
$
(3,828)
(14,172)
—
—
7,141
305
613
—
$
$
166,235
412
$
$
—
—
(2,961)
149,474
1,214
$
$
(14,172)
613
2,961
16,761
(802)
3 4
C R O M B I E R E I T
MD&AMANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts)
For the year ended December 31, 2016 and December 31, 2015,
Crombie is providing FFO on an adjusted basis by reducing it by
$13,559 and $2,961, respectively. The following adjustments are
being made:
•
•
•
During the year ended December 31, 2016, Crombie recorded
net lease termination income from Target Canada of $11,172
related to three Target Canada leases vacated in May, 2015 and
$3,000 from Best Buy/Future Shop related to one vacated lease.
Due to their significant size, these amounts are being deducted
from FFO for the year ended December 31, 2016.
During the year ended December 31, 2016, Crombie issued
Subscription Receipts related to a potential property acquisition.
While the funds from the Subscription Receipts were held in
trust, the Receipt holders were entitled to earn an adjustment
payment equivalent to what they would have earned had
they owned REIT Units during that same period. On June 29,
2016, the Subscription Receipts were converted to REIT Units
and Crombie incurred a finance cost of $613 related to the
adjustment payment, which is net of any interest earned on
the funds while held in trust. This amount is being added
back to FFO for the year ended December 31, 2016.
During the year ended December 31, 2015, Crombie recognized
$2,961 in lease termination income related to a Sobeys
store closure. In relation to the closure, Crombie received
development activity rights on specific other properties in
exchange for a future development right fee which will reduce
the actual cash Crombie will receive from the lease termination
income. This non-cash lease termination income is being
deducted from FFO for the year ended December 31, 2015.
Management believes that FFO, as adjusted, is more reflective of
Crombie’s ongoing operating results by removing these amounts
from FFO as calculated by following REALpac recommendations.
All FFO, and by extension AFFO, measures within the MD&A are
based on these adjusted amounts.
For the three months ended December 31, 2016, FFO, as adjusted,
increased by $7,141 or 18.6% compared to the three months ended
December 31, 2015. The increase primarily relates to acquisition
activity in the previous 12 months, including the acquisition of
22 properties on June 29, 2016, as well as improved operating
results from leasing activity, partially offset by the disposition
of 19 retail properties during 2016.
For the year ended December 31, 2016, FFO, as adjusted, increased
by $16,761 or 11.2% compared to the year ended December 31, 2015.
The increase is impacted by the improved operating results during
the fourth quarter of 2016 as discussed above.
A DJ U S T E D F U N D S F R O M O P E R AT I O N S ( A F F O )
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 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.
M A I N T E N A N C E C A P I TA L E X P E N D I T U R E S ,
M A I N T E N A N C E T E N A N T I N C E N T I V E S A N D
L E A S I N G CO S T S ( “ M A I N T E N A N C E E X P E N D I T U R E S ”)
Crombie’s policy is to charge AFFO with a normalized rate per
square foot for these maintenance expenditures. Crombie
uses an annual rate per square foot as a charge against AFFO.
On June 29, 2016, Crombie acquired a portfolio of properties
which have quad net lease terms making the tenant primarily
responsible for maintenance expenses on the property. As a
result of the 2,090,000 square foot increase in Crombie’s GLA
from this acquisition, with minimal additional maintenance
expenditures, the per square foot charge has been decreased
from $0.87 to $0.78 per square foot effective for the third quarter
of 2016. The per square foot 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, 2016 and 2015 is as follows:
(In thousands of CAD dollars)
2016
2015
Variance
2016
2015
Variance
Three months ended December 31,
Year ended December 31,
FFO, as adjusted
Add (deduct):
Amortization of effective
swap agreements
Straight-line rent adjustment
Maintenance expenditures
on a square footage basis
$
45,452
$
38,311
$
7,141
$
166,235
$
149,474
$
16,761
603
(3,840)
623
(2,801)
(20)
(1,039)
2,440
(12,876)
2,520
(11,142)
(3,763)
(3,823)
60
(15,060)
(15,198)
(80)
(1,734)
138
AFFO
$
38,452
$
32,310
$
6,142
$
140,739
$
125,654
$
15,085
For the three months ended December 31, 2016, AFFO increased
by $6,142 or 19.0% compared to the three months ended
December 31, 2015. The increase relates to the $7,141 increase
in FFO as previously discussed less the impact of straight-line
rent increases in 2016 compared to 2015.
For the year ended December 31, 2016, AFFO increased by
$15,085 or 12.0% compared to the year ended December 31, 2015.
The increase relates to the $16,761 increase in FFO as previously
discussed less the impact of straight-line rent increases in 2016
compared to 2015.
A N N U A L R E P O R T 2 0 1 6
3 5
MD&A
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)
2016
2015
Variance
2016
2015
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
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
Change in current income taxes
Income taxes – current
on disposition of
investment properties
Lease termination
income, non-cash
Adjustments for lease
termination income
$
16,239
$
17,858
$
(1,619)
$
66,920
$
41,114
$
25,806
32,987
29,236
3,751
125,737
116,576
3,799
(10)
(877)
14
(5,125)
(14)
(729)
13
8,924
4
1,686
(42)
(1,481)
(51)
(148)
(3,310)
(3,616)
1
54
54
9,161
3,167
9
306
—
(6,109)
(5,141)
(968)
(21,661)
(11,504)
(10,157)
(3,763)
—
—
—
(3,823)
45
(10)
—
—
60
(45)
10
—
(15,060)
(26)
(15,198)
655
138
(681)
—
—
2,066
(2,066)
(2,961)
2,961
and Subscription Receipts
(3,828)
(3,828)
(13,559)
—
AFFO
$
38,452
$
32,310
$
6,142
$
140,739
$
125,654
$
(13,559)
15,085
M A I N T E N A N C E E X P E N D I T U R E S
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.
(In thousands of CAD dollars)
Total additions to investment properties
Less: productive capacity enhancements and recoverable amounts
Maintenance capital expenditures
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 TIs 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,
2016
2015
2016
$
$
10,821
$
9,144
$
29,928
$
(7,124)
(5,031)
(21,444)
3,697
$
4,113
$
8,484
$
2015
25,684
(17,064)
8,620
Three months ended December 31,
Year ended December 31,
(In thousands of CAD dollars)
2016
2015
2016
Total additions to TI and deferred leasing costs
Less: productive capacity enhancements
Maintenance TI and deferred leasing costs
$
$
5,273
$
5,197
$
75,119
$
(4,225)
(594)
(68,722)
1,048
$
4,603
$
6,397
$
2015
13,464
(2,657)
10,807
3 6
C R O M B I E R E I T
MD&AMANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts)
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 capital expenditures for the year ended December 31,
2016, are primarily payments for costs associated with building
interior and exterior maintenance, roof repairs and ongoing parking
deck and structural maintenance.
Maintenance TI and deferred leasing costs are the result of both
lease renewals and new leases and are reflective of the leasing
activity during 2015 and 2016.
D E P R E C I AT I O N , A M O R T I Z AT I O N A N D I M PA I R M E N T
Productive capacity enhancements during the year ended
December 31, 2016 consisted primarily of development work
and GLA expansions at: Hamlyn Road Plaza, St. John’s, NL; Scotia
Square Mall, Halifax, NS; Sydney Shopping Centre, Sydney,
NS; Rockhaven Centre, Peterborough, ON; Fort St. John, BC;
and, Vaughan Harvey Plaza, Moncton, NB. During the year
ended December 31, 2016, Crombie invested $58,823 in TIs
for the renovation and expansion of 10 existing Sobeys
anchored properties.
(In thousands of CAD dollars)
2016
2015
Variance
2016
2015
Variance
Three months ended December 31,
Year ended December 31,
$
14,459
$
14,949
$
490
$
58,410
$
59,091
$
681
Same-asset depreciation
and amortization
Acquisitions, dispositions
and development
depreciation/amortization
Depreciation and amortization
$
19,435
$
16,789
$
(2,646)
$
4,976
1,840
(3,136)
14,922
73,332
7,485
$
66,576
$
(7,437)
(6,756)
Same-asset depreciation and amortization decreased by $490
for the three months ended December 31, 2016 and decreased by
$681 for the year ended December 31, 2016 compared to the same
periods in 2015. Same-asset depreciation and amortization will
decrease over time as certain components of investment property
are amortized over the term of tenant leases and will increase
as a result of capital additions and improvements to same-asset
investment 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 the property was
reclassified to same-asset and held for use. As a result, depreciation
and amortization totalling $673 was recognized in the first quarter
of 2015, representing the depreciation and amortization that was
not recorded while the property was classified as held for sale.
Acquisitions, dispositions and development depreciation and
amortization increased as a result of net acquisition activity during
2016 and 2015, including the acquisition of 41 properties during
2016 and the disposition of 10 properties in March 2016, two
properties in April 2016, an additional property in each of July
and August 2016, and five in December 2016.
Crombie’s total fair value of investment properties, including
properties held for sale, exceeds carrying value by $844,033 at
December 31, 2016 (December 31, 2015 – $708,949). 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, 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, 2016, Crombie recorded an
impairment of $6,000 on two retail properties and during the
year ended December 31, 2015, recorded an impairment of
$12,575 on three retail properties and an office property. The
impairments were the result of the impact on fair value 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.
G E N E R A L A N D A D M I N I S T R AT I V E E X P E N S E S
The following table outlines the major categories of general and administrative expenses:
(In thousands of CAD dollars)
2016
2015
Variance
2016
2015
Variance
Three months ended December 31,
Year ended December 31,
$
2,476
$
1,956
$
(520)
$
10,120
$
8,202
$
(1,918)
Salaries and benefits
Professional fees
Public company costs
Rent and occupancy
Other
186
617
205
782
General and administrative expenses $
4,266
$
As a percentage of property revenue
4.1%
329
353
181
722
3,541
3.8%
143
(264)
(24)
(60)
1,253
1,892
838
2,238
1,386
1,695
917
2,201
$
(725)
$
16,341
$
14,401
$
(0.3)%
4.1%
3.9%
133
(197)
79
(37)
(1,940)
(0.2)%
A N N U A L R E P O R T 2 0 1 6
3 7
MD&A
For the three months ended December 31, 2016, general and
administrative expenses, as a percentage of property revenue,
were 4.1%, an increase of 0.3% from the same period in 2015,
with expenses increasing $725 or 20.5% and property revenue
increasing 13.4%. For the year ended December 31, 2016,
general and administrative expenses, as a percentage of
property revenue, increased 0.2% compared to the year ended
December 31, 2015, with expenses increasing $1,940 or 13.5% and
property revenue increasing by 8.1%. The increase is impacted
by the implementation of Crombie’s Restricted Unit Plan in 2015
which recognizes a portion of long-term compensation over a
vesting period and the valuation of the Restricted Unit Plan is
impacted by mark to market adjustments to the Units which
impacts salaries and benefits.
F I N A N C E CO S T S – O P E R AT I O N S
(In thousands of CAD dollars)
2016
2015
Variance
2016
2015
Variance
Three months ended December 31,
Year ended December 31,
Same-asset finance costs
$
20,607
$
20,917
$
310
$
81,444
$
84,270
$
2,826
Acquisitions, dispositions and
development finance costs
Subscription Receipts
Adjustment Payment
Amortization of effective swaps
and deferred financing charges
3,569
—
1,480
2,331
—
1,352
(1,238)
12,349
8,205
(4,144)
—
613
(128)
5,750
—
6,136
(613)
386
(1,545)
Finance costs – operations
$
25,656
$
24,600
$
(1,056)
$
100,156
$
98,611
$
Same-asset finance costs for the three months and year ended
December 31, 2016 decreased by $310 and $2,826, respectively,
compared to the same periods in 2015. The decreases are
primarily due to lower interest rates on new and refinanced
debt, regular repayment of existing mortgages and lump
sum repayments of mortgages from proceeds received on
dispositions. The decrease in same-asset finance costs is partially
offset by finance costs associated with the $58,823 invested in
the renovation and expansion of 10 existing Sobeys anchored
properties on June 29, 2016.
Acquisitions, dispositions and development finance costs for the
three months and year ended December 31, 2016 increased by
$1,238 and $4,144, respectively, compared to the same periods
in 2015 primarily due to acquisition activity during the fourth
quarter of 2015 and during 2016, offset in part by finance costs
on properties disposed in 2016.
Details of distributions to Unitholders are as follows:
During the year ended December 31, 2016, Crombie issued
Subscription Receipts related to a property acquisition. While
the funds from the Subscription Receipts were held in trust, the
Receipt holders were entitled to earn an adjustment payment
equivalent to what they would have earned had they owned REIT
Units during that same period. On June 29, 2016, the Subscription
Receipts were converted to REIT Units and Crombie incurred a
finance cost of $613, which is net of interest earned on the funds
while they were held in trust.
F I N A N C E CO S T S – D I S T R I B U T I O N S
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.
Three months ended December 31,
Year ended December 31,
(In thousands of CAD dollars, except as otherwise noted)
2016
2015
2016
Distributions to Unitholders
Distributions to Special Voting Unitholders
Total distributions
FFO payout ratio
AFFO payout ratio
$
$
19,502
$
17,308
$
74,375
$
13,485
11,928
51,362
32,987
$
29,236
$
125,737
$
116,576
72.6%
85.8%
76.3%
90.5%
75.6%
89.3%
78.0%
92.8%
2015
69,016
47,560
On June 29, 2016, Crombie issued a total of 15,306,141 REIT and
Class B LP Units related to a portfolio acquisition on that date. This
resulted in distributions of $1,135 for June 2016, while the property
acquisitions generated minimal income for Crombie for June 2016.
Excluding the distributions in June 2016 on these new Units, our
FFO and AFFO payout ratios for the year ended December 31, 2016
would have been 75.0% and 88.5%, respectively.
I N CO M E TA X E S
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 2016 and continues to do so. 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 $75,400 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.
3 8
C R O M B I E R E I T
MD&AMANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts)
TA X AT I O N O F D I S T R I B U T I O N S
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
2015 per $ of distribution
2014 per $ of distribution
2013 per $ of distribution
2012 per $ of distribution
2011 per $ of distribution
Return of
Capital
Investment
Income
Dividend
Income
56.3%
64.4%
90.2%
67.1%
62.5%
28.8%
18.1%
9.8%
32.9%
37.5%
13.4%
0.0%
0.0%
0.0%
0.0%
Capital
Gains
1.5%
17.5%
0.0%
0.0%
0.0%
LIQUIDITY AND CAPITAL RESOURCES
The real estate industry is highly capital intensive.
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.
(i) secured short-term financing through an authorized three
year revolving credit facility, maturing June 30, 2019, of up to
$400,000, subject to available borrowing base, of which $120,374
($125,401 including outstanding letters of credit) was drawn at
December 31, 2016;
(ii) unsecured short-term financing through an authorized floating
rate revolving credit facility, maturing May 16, 2018, of up to
$100,000, of which $100,000 was drawn at December 31, 2016;
Crombie expects to refinance debt obligations as they mature.
(iii) secured mortgage and term debt on unencumbered assets;
Crombie has the following sources of financing available to fund
future growth:
(iv) the issuance of additional senior unsecured notes;
(v) the issuance of additional unsecured convertible
debentures; and,
(vi) the issuance of new units.
Capital Structure
(In thousands of CAD dollars)
December 31, 2016
December 31, 2015
December 31, 2014
Investment property debt
$
1,865,477
49.3%
$
1,641,203
49.5%
$
1,624,547
Senior unsecured notes
Convertible debentures
Crombie REIT Unitholders
Special Voting Units and Class B
Limited Partnership Unitholders
398,588
132,134
834,203
10.5%
3.5%
22.0%
398,080
131,518
694,484
12.0%
4.0%
20.9%
273,592
175,215
716,025
555,943
14.7%
452,746
13.6%
467,289
$
3,786,345
100.0%
$
3,318,031
100.0%
$
3,256,668
49.9%
8.4%
5.4%
22.0%
14.3%
100.0%
L I Q U I D I T Y A N D F I N A N C I N G S O U R C E S
Revolving credit facility
Crombie has in place an authorized floating rate revolving
credit facility of up to $400,000 (the “revolving credit facility”),
of which $120,374 ($125,401 including outstanding letters of
credit) was drawn as at December 31, 2016. 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, 2016,
Crombie had sufficient Borrowing Base to permit $398,007 of
funds to be drawn pursuant to the revolving credit facility, subject
to certain other financial covenants. See “Borrowing Capacity and
Debt Covenants”.
Unsecured Bilateral Credit Facility
The unsecured bilateral credit facility has a maximum principal
amount of $100,000, the full amount of which was drawn as at
December 31, 2016, and matures May 16, 2018. The facility is used
by Crombie for working capital purposes and to provide temporary
financing for acquisitions and development activity. 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.
Mortgage debt
As of December 31, 2016, Crombie had fixed rate mortgages
outstanding of $1,652,091 ($1,655,817 after including the fair value
debt adjustment of $3,726), carrying a weighted average interest
rate of 4.46% (after giving effect to the interest rate subsidy from
Empire under an Omnibus Subsidy Agreement) and a weighted
average term to maturity of 5.90 years.
A N N U A L R E P O R T 2 0 1 6
3 9
MD&A
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 such outstanding
interest rate swap agreements.
Principal repayments of the debt are scheduled as follows:
Maturing Debt Balances
(In thousands of CAD dollars)
12 Months Ending
Fixed Rate
Floating
Rate
Total
% of Total
Payments
of Principal
Total
Required
Payments
December 31, 2017
December 31, 2018
December 31, 2019
December 31, 2020
December 31, 2021
Thereafter
Total(1)
$
50,363 $
— $
50,363
3.3% $
49,290 $
99,653
64,666
124,973
225,241
89,182
750,518
100,000
120,374
—
—
—
164,666
245,347
225,241
89,182
750,518
10.8%
16.1%
14.8%
5.8%
49.2%
48,357
48,799
42,028
40,204
118,470
213,023
294,146
267,269
129,386
868,988
$ 1,304,943
$ 220,374
$
1,525,317
100.0%
$
347,148
$ 1,872,465
% of Total
5.3%
11.4%
15.7%
14.3%
6.9%
46.4%
100.0%
(1) Excludes fair value debt adjustment of $3,726 and deferred financing charges of $10,714.
Of the maturing debt balances, only 18.4% of fixed rate debt, and 30.2% of total maturing debt balances mature over the next three years.
Senior unsecured notes
Series A
Series B
Series C
Unamortized Series B issue premium
Deferred financing charges
Maturity
Date
Effective
Interest Rate
December 31,
2016
December 31,
2015
October 31, 2018
3.986%
$
175,000
$
175,000
June 1, 2021
February 10, 2020
3.900%
2.775%
100,000
125,000
240
(1,652)
100,000
125,000
294
(2,214)
$
398,588
$
398,080
There are no required periodic principal payments, with the full face value of the Notes due on their respective maturity dates.
Convertible debentures
Series D (CRR.DB.D)
Series E (CRR.DB.E)
Deferred financing charges
Conversion
Price
$
$
20.10
17.15
Maturity
Date
Interest
Rate
December 31,
2016
December 31,
2015
September 30, 2019
5.00%
$
60,000
$
60,000
March 31, 2021
5.25%
74,400
(2,266)
74,400
(2,882)
$
132,1 34
$
1 3 1 , 5 1 8
Maximum REIT Units issuable at December 31, 2016 was 2,985,074
for Series D Debentures and 4,338,192 for Series E Debentures.
The Series D Debentures (issued July 3, 2012) and the Series E
Debentures (issued August 14, 2013) 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.
4 0
C R O M B I E R E I T
MD&AMANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts)
REIT Units and Class B LP Units and the attached Special
Voting Units
On May 31, 2016, Crombie closed a public offering, on a bought
deal basis, of 8,952,400 Subscription Receipts, at a price of $14.70
per Subscription Receipt, for gross proceeds of $131,600. On June 29,
2016, in conjunction with the closing of property acquisitions from
Empire, each of the 8,952,400 outstanding Subscription Receipts
were automatically exchanged for one Crombie REIT Unit.
On June 29, 2016, concurrently with the REIT Units issued on
exchange for Subscription Receipts, subsidiaries of Empire
received 6,353,741 Class B LP Units and the attached SVUs at
a price of $14.70 per Class B LP Unit for gross consideration
of $93,400.
For the year ended December 31, 2016, Crombie issued 927,701
REIT Units and 657,901 Class B LP Units under its distribution
reinvestment plan (the “DRIP”) at a three percent (3%) discount
to market prices as determined under the DRIP.
Total units outstanding at January 31, 2017, were as follows:
Units
Special Voting Units(1)
87,855,116
60,753,209
(1) Crombie Limited Partnership, a subsidiary of Crombie, has also issued 60,753,209
Class B LP Units. These Class B LP Units accompany the Special Voting Units, are
the economic equivalent of a Unit, and are exchangeable for Units on a one-for-
one basis.
In addition to the total units outstanding at January 31, 2017,
Crombie has convertible debentures which could result in a
total of 7,323,266 REIT Units being issued should all outstanding
debentures be converted.
S O U R C E S A N D U S E S O F F U N D S
(In thousands of CAD dollars)
2016
2015
Variance
2016
2015
Variance
Three months ended December 31,
Year ended December 31,
Cash provided by (used in):
Operating activities
Financing activities
Investing activities
$
16,239
$
17,858
$
(1,619)
$
66,920
$
4 1 , 1 1 4
$
(10,475)
(5,764)
59,051
(75,852)
(69,526)
70,088
395,384
(463,361)
75,664
(116,332)
25,806
319,720
(347,029)
Net change during the period
$
—
$
1,057
$
(1,057)
$
(1,057)
$
446
$
(1,503)
Operating Activities
(In thousands of CAD dollars)
2016
2015
Variance
2016
2015
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
$
20,038
$
12,817
$
7,221
$
68,606
$
43,224
$
25,382
(3,799)
—
5,125
(84)
(8,924)
84
(1,686)
—
1,481
(3,591)
(3,167)
3,591
$
16,239
$
17,858
$
(1,619)
$
66,920
$
41,114
$
25,806
For the three months ended December 31, 2016, cash from
operating activities decreased by $1,619 over the same period
in 2015. Cash from operations increased $7,221 as a result of the
improvement in operating income resulting from growth through
acquisitions and stronger results from existing properties as well
as an increase in lease termination income. The decrease of $8,924
in non-cash operating items primarily relates to an increase in
prepaid expenses and deposits in the quarter.
For the year ended December 31, 2016, cash from operating
activities increased $25,806 over the same period in 2015.
The increase primarily relates to the improved operating
results as noted above as well as an increase of $11,157 in
the DRIP participation rate over 2015.
A N N U A L R E P O R T 2 0 1 6
4 1
MD&A
Financing Activities
(In thousands of CAD dollars)
2016
2015
Variance
2016
2015
Variance
Three months ended December 31,
Year ended December 31,
Cash provided by (used in):
Issuance of new mortgages
$
123,731
$
113,650
$
10,081
$
193,401
$
119,134
$
74,267
Regular principal repayment
of mortgages
Lump sum principal repayment
of mortgages
Net issue (repayment) on
credit facilities
Deferred financing charges –
investment property debt
Net issue of senior
unsecured notes
Net issue (redemption) of
convertible debentures
Net issue of REIT Units and
Class B LP Units
Other items (net)
Cash provided by (used in)
financing activities
(12,055)
(12,404)
349
(49,864)
(48,390)
—
(7,575)
7,575
(49,774)
(58,162)
(1,474)
8,388
(120,997)
(33,663)
(87,334)
90,374
(15,000)
105,374
(1,099)
(880)
(219)
(2,967)
(1,020)
(1,947)
—
—
—
—
—
—
(55)
(77)
—
—
—
22
—
—
219,111
(4,897)
124,012
(124,012)
(44,795)
44,795
—
(115)
219,111
(4,782)
$
(10,475)
$
59,051
$
(69,526)
$
395,384
$
75,664
$
319,720
Cash from financing activities for the three months ended
December 31, 2016 decreased by $69,526 from the same period in
2015. During the three months ended December 31, 2016, Crombie
issued $123,731 (three months ended December 31, 2015 – $113,650)
in new mortgages with a weighted average interest rate of 3.72%
and utilized the proceeds to reduce floating rate credit facilities.
During the three months ended December 31, 2015, Crombie
repaid $7,575 in maturing mortgages and utilized a portion of
the new mortgage financing to fund property acquisitions in
the quarter.
Cash from financing activities for the year ended December 31,
2016 increased by $319,720 over the same period in 2015. During
the year ended December 31, 2016, proceeds from the disposition
of retail properties were used to reduce the revolving credit facility
and repay maturing mortgages. In conjunction with the purchase
of properties completed on June 29, 2016, Crombie issued
8,952,400 REIT Units and 6,353,741 Class B LP Units for net proceeds
of $219,111 and increased floating rate debt during the period.
During the year ended December 31, 2015, Crombie raised funds
through the issuance of 2.775% Series C Notes (senior unsecured).
The funds raised were used to repay maturing mortgages and
the outstanding 5.75% Series C Convertible Unsecured
Subordinated Debentures.
Investing Activities
(In thousands of CAD dollars)
2016
2015
Variance
2016
2015
Variance
Three months ended December 31,
Year ended December 31,
Cash provided by (used in):
Acquisition of investment properties
$
(21,039)
$
(61,511)
$
40,472
$
(550,863)
$
(79,954)
$
(470,909)
Additions to investment properties
(10,821)
(9,144)
(1,677)
(29,928)
(25,684)
(4,244)
Proceeds on disposal of
investment properties
Additions to tenant incentives
Additions to deferred leasing costs
Cash provided by (used in)
investing activities
31,369
(4,893)
(380)
—
(5,063)
(134)
31,369
170
(246)
192,549
(74,071)
(1,048)
2,770
(12,638)
(826)
189,779
(61,433)
(222)
$
(5,764)
$
(75,852)
$
70,088
$
(463,361)
$
(116,332)
$
(347,029)
Cash used in investing activities for the three months ended
December 31, 2016 decreased by $70,088 over the same period in
2015. During the three months ended December 31, 2016, Crombie
completed two property acquisitions and an addition to an
existing property for net cash of $21,039 as well as the disposition
of five retail properties for net proceeds of $31,369.
Cash used in investing activities for the year ended December 31,
2016 increased by $347,029 over the same period in 2015. During
2016, Crombie disposed of 19 retail properties for net proceeds of
$192,549 as well as completing property acquisitions for net cash
of $550,863 and additions to tenant incentives of $74,071, primarily
related to the transaction that closed June 29, 2016.
B O R R OW I N G C A PAC I T Y A N D D E B T CO V E N A N T S
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
4 2
C R O M B I E R E I T
MD&AMANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts)
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 Borrowing Base”,
which is based on a modified calculation of the Borrowing Base,
as defined in the revolving credit facility.
At December 31, 2016, the remaining amount available under
the revolving credit facility was $278,000 (prior to reduction for
standby letters of credit outstanding of $5,027) and was limited
by the Aggregate Borrowing Base. At December 31, 2016, Crombie
remained in compliance with all debt covenants.
D E B T TO G R O S S B OO K VA L U E – FA I R VA L U E B A S I S
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 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 the carrying value included in
Crombie’s financial statements.
The debt to gross book value on a fair value basis was 50.3% and
52.5% at December 31, 2016 and December 31, 2015, 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 reasonable overall indebtedness so as to maintain and
strengthen its investment grade rating.
During the year ended December 31, 2016, Crombie raised $219,111
through the issuance of REIT Units and Class B LP Units and
disposed of 19 retail properties for proceeds of approximately
$196,000, before closing and transaction costs, with the proceeds
being used to pay down debt. In addition, Crombie’s weighted
average cap rate used in the determination of the fair value of its
investment properties decreased 0.27% to 5.88%. The combination
of proceeds from the Units issuance and increased fair value of
investment properties resulted in the significant reduction of
the debt to gross book value ratio since December 31, 2015.
As at
(In thousands of CAD dollars, except as otherwise noted)
Dec. 31, 2016
Sep. 30, 2016
Jun. 30, 2016
Mar. 31, 2016
Dec. 31, 2015
Fixed rate mortgages
Senior unsecured notes
Convertible debentures
Revolving credit facility payable
Bilateral credit facility
Total debt outstanding
$
1,655,817
$
1,528,048
$
1,518,846
$
1,509,925
$
1,521,079
400,000
134,400
120,374
100,000
2,410,591
400,000
134,400
241,371
100,000
2,403,819
400,000
134,400
247,340
100,000
400,000
134,400
8,706
—
400,000
134,400
130,000
—
2,400,586
2,053,031
2,185,479
Less: Applicable fair value debt adjustment
(1,452)
(1,509)
(1,567)
(1,636)
(1,721)
Debt
Investment properties, at fair value
$
$
2,409,139
4,752,000
$
$
2,402,310
4,732,000
$
$
2,399,019
4,697,000
$
$
2,051,395
4,109,000
$
$
2,183,758
4,143,000
Long-term receivables
Other assets, cost(1)
Cash and cash equivalents
Deferred financing charges
Investment in joint ventures
Interest rate subsidy
Fair value adjustment to deferred taxes
19,969
34,567
—
14,631
815
(1,452)
(34,120)
19,897
28,872
—
14,409
—
(1,509)
(34,299)
14,158
53,224
—
14,646
—
(1,567)
(34,299)
14,039
28,117
—
14,558
—
(1,636)
(34,299)
13,933
23,152
1,057
14,972
—
(1,721)
(34,645)
Gross book value – fair value basis
$
4,786,410
$
4,759,370
$
4,743,162
$
4,129,779
$
4,159,748
Debt to gross book value – fair value basis
50.3%
50.5%
50.6%
49.7%
52.5%
(1) Other assets exclude Tenant incentives and Accrued straight-line rent receivable.
Crombie’s management believes that through the issuance of Notes, convertible debentures, mortgage financings, refinancings
and bank debt, Crombie continues to maintain leverage at an appropriate level while staying conservatively within its maximum
borrowing capacity.
A N N U A L R E P O R T 2 0 1 6
4 3
MD&A
I N T E R E S T A N D D E B T S E R V I C E CO V E R AG E R AT I O S
Crombie’s interest and debt service coverage ratios for the year
ended December 31, 2016 were 2.97 times EBITDA and 1.96 times
EBITDA, respectively. This compares to 2.72 times EBITDA and 1.81
times EBITDA, respectively, for the year ended December 31, 2015.
The improvement in the coverage ratios is attributable to:
•
•
Crombie’s improved operating results, with EBITDA increasing
$28,060 or 11.1%;
an increase in adjusted interest expense of $1,931 or 2.1% as
Crombie continues to finance new and maturing debt at lower
interest rates; and,
•
issued $219,111 in new REIT and Class B LP Units during the year
ended December 31, 2016 to partially fund acquisitions.
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.
(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 (advances)
Change in fair value debt premium
Payments relating to interest rate subsidy
Advances (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))}
ACCOUNTING
R E L AT E D PA R T Y T R A N S AC T I O N S
As at December 31, 2016, Empire, through its wholly-owned
subsidiary ECLD, holds a 41.5% (fully diluted 40.3%) indirect
interest in Crombie. Related party transactions primarily include
transactions with entities associated with Crombie through
Year ended December 31,
2016
2015
$
400,001
$
369,866
$
$
$
$
1 1 ,622
411,623
(115,306)
(16,341)
279,976
100,156
(3,310)
(2,440)
94,406
8,192
39
(269)
90,374
(49,774)
$
$
$
$
$
48,562
$
2.97
1.96
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)
47,071
2.72
1.81
Empire’s indirect interest. Related party transactions also
include transactions with key management personnel and
post-employment benefit plans.
Related party transactions are measured at the exchange amount,
which is the amount of consideration established and agreed to
by the related parties.
4 4
C R O M B I E R E I T
MD&AMANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts)
Crombie’s transactions with related parties are as follows:
Property revenue
Property revenue
Head lease income
Lease termination income
Property operating expenses
General and administrative expenses
Property management services recovered
Other general and administrative expenses
Finance costs – operations
Interest on convertible debentures
Interest rate subsidy
Interest income
Finance costs – distributions to Unitholders
Three months ended December 31,
Year ended December 31,
Note
2016
2015
2016
2015
(a)
(b)
(c)
(d)
(e)
(f)
(b)
$
$
$
$
$
$
$
$
$
$
54,504
170
64
(19)
205
(79)
(302)
57
118
(13,687)
$
$
$
$
$
$
$
$
$
$
38,048
170
—
38
231
(101)
(303)
99
179
(12,130)
$
$
$
$
$
$
$
$
$
$
183,411
453
64
(64)
949
(281)
(1,203)
269
651
(52,171)
$
$
$
$
$
$
$
$
$
$
160,470
736
3,999
242
869
(385)
(1,200)
482
711
(48,369)
(a)
Crombie earned property revenue from Sobeys Inc. and other
subsidiaries of Empire.
•
(b)
(c)
(d)
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.
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 Agreement effective
January 1, 2016.
Crombie provides property management, leasing services
and environmental management to specific properties
owned by certain subsidiaries of Empire on a fee for service
basis pursuant to a Management Agreement effective
January 1, 2016. Revenue generated from the Management
Agreement is being recognized as a reduction of General
and administrative expenses. This Agreement replaces the
previous cost sharing arrangement covered by a Management
Cost Sharing Agreement.
(e)
Crombie previously leased its head office space from ECLD
under a lease that ended 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 third quarter of 2016, Crombie acquired a retail
property in British Columbia from Empire including 61,600
square feet of gross leaseable area for $26,400 before closing
and transaction costs. In addition, Crombie closed on the
disposition of a retail property in British Columbia to Empire
including 21,300 square feet of gross leaseable area for $9,057
before closing and transaction costs. This transaction resulted
in a gain on disposal of $959.
•
•
•
•
•
On June 29, 2016, Crombie completed the acquisition of a
portfolio of properties and the investment in the renovation
and expansion of 10 existing Sobeys anchored properties.
The transaction total was approximately $418 million before
closing and transaction costs. As partial consideration,
Crombie issued to Empire 6,353,741 Class B LP Units and the
attached SVUs at a price of $14.70 per Class B LP Unit for gross
consideration of $93,400.
During the year ended December 31, 2016, Crombie issued
657,901 (December 31, 2015 – 383,036) Class B LP Units to ECLD
under the DRIP.
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 transactions 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 non-cash consideration. 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 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.
A N N U A L R E P O R T 2 0 1 6
4 5
MD&A
K E Y M A N AG E M E N T P E R S O N N E L CO M P E N S AT I O N
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
U S E O F E S T I M AT E S A N D J U DG M E N T S
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.
C R I T I C A L ACCO U N T I N G E S T I M AT E S A N D A S S U M P T I O N S
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. 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.
Three months ended December 31,
Year ended December 31,
2016
785
$
26
811
$
2015
835
24
859
$
$
2016
3,153
$
112
3,265
$
2015
2,860
102
2,962
$
$
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.
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.
4 6
C R O M B I E R E I T
MD&AMANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts)
C R I T I C A L J U DG M E N T S
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 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.
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.
F I N A N C I A L I N S T R U M E N T S
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.
A N N U A L R E P O R T 2 0 1 6
4 7
MD&A
The following table provides information on financial assets and liabilities measured at fair value as at December 31, 2016:
Financial assets
Marketable securities
Total financial assets measured at fair value
There were no transfers between Level 1 and Level 2 during the year
ended December 31, 2016.
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
Financial assets
Long-term receivables
Total other financial assets
Financial liabilities
Investment property debt
Senior unsecured notes
Convertible debentures
Level 1
Level 2
Level 3
Total
$
$
—
—
$
$
—
—
$
$
2,290
2,290
$
$
2,290
2,290
• Restricted cash
• Trade and other payables (excluding embedded derivatives).
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:
December 31, 2016
December 31, 2015
Fair Value
Carrying Value
Fair Value
Carrying Value
$
$
19,999
19,999
$
$
19,969
19,969
$
$
13,968
13,968
$
$
13,933
13,933
$
1,959,091
$
1,876,1 9 1
$
1,782,776
$
1,651,079
402,361
139,147
400,000
134,400
405,348
138,360
400,000
134,400
Total other financial liabilities
$
2,500,599
$
2,410,591
$
2,326,484
$
2,185,479
The fair value of convertible debentures is a Level 1 measurement
and the long-term receivables, investment property debt and
senior unsecured notes are Level 2.
CO M M I T M E N T S A N D CO N T I N G E N C I E S
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 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,
2016, Crombie has a total of $5,027 in outstanding letters of credit
related to:
Construction work being performed on investment properties
Mortgage lenders primarily to satisfy mortgage financings on redevelopment properties
Total outstanding letters of credit
December 31,
2016
2,027
3,000
5,027
$
$
2015
1,425
—
1,425
$
$
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 eight to 73 years
including renewal options. For the three months and year ended
December 31, 2016, Crombie paid $364 and $1,431, respectively, in
land lease payments to third party landlords (three months and
year ended December 31, 2015 – $354 and $1,418, respectively).
As at December 31, 2016, Crombie had signed construction
contracts totalling $53,310 of which $37,292 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
4 8
C R O M B I E R E I T
MD&AMANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts)
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 helps to mitigate this risk.
C R E D I T R I S K
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.
In measuring tenant concentration, Crombie considers both the
annual minimum rent and total property revenue of major tenants.
•
Upon completion of the June 29, 2016 property transactions,
Crombie’s largest tenant, Sobeys, represents 52.9% of annual
minimum rent; an increase from 49.9% at December 31, 2015.
No other tenant accounts for more than 5.1% of Crombie’s
annual minimum rent, and;
•
Total property revenue includes operating and realty tax cost
recovery income and percentage rent. These amounts can vary
by property type, specific tenant leases and where tenants
may directly incur and pay operating and realty tax costs.
Crombie earned total property revenue of $54,504 and $183,411,
respectively, for the three months and year ended December
31, 2016 (three months and year ended December 31, 2015 –
$38,048 and $160,470, respectively) from Sobeys Inc. and other
subsidiaries of Empire.
Over the next five years, leases representing no more than 4.8%
of the gross leaseable area of Crombie will expire in any one year.
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
since December 31, 2015.
CO M P E T I T I O N
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.
Year ended
December 31,
2016
Year ended
December 31,
2015
$
$
60
195
(120)
(8)
$
127
$
59
20
(38)
19
60
R I S K FAC TO R S R E L AT E D TO T H E B U S I N E S S O F C R O M B I E
Significant Relationship
Crombie’s anchor tenants are concentrated in a relatively small
number of retail operators. Specifically, 52.9% of the annual
minimum rent and 44.8% of total property revenue 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 four years,
Crombie has reduced its geographic concentration in Atlantic
Canada, and reduced the adverse impact an economic downturn
any one specific geographic region in Canada could have on
Crombie’s financial condition. The geographic breakdown of
properties and percentage of annual minimum rent of Crombie’s
properties as at December 31, 2016 is detailed under the Property
Portfolio section.
A N N U A L R E P O R T 2 0 1 6
4 9
MD&A
Crombie’s growth strategy of expansion outside of Atlantic Canada
has been 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 37.6% at December 31, 2016.
I N T E R E S T R AT E R I S K
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, 2016:
•
Crombie’s weighted average term to maturity of its fixed rate
mortgages was 5.90 years;
•
•
•
Crombie has a floating rate revolving credit facility available to
a maximum of $400,000, subject to available Borrowing Base,
with a balance of $120,374 at December 31, 2016;
Crombie has a floating rate bilateral credit facility available
to a maximum of $100,000 with a balance of $100,000 at
December 31, 2016; and,
Crombie has interest rate swap agreements in place on $123,731
of floating rate mortgage debt.
Crombie estimates that $2,348 of accumulated other
comprehensive income (loss) will be reclassified to finance costs
during the year ending December 31, 2017, based on all settled
swap agreements as of December 31, 2016.
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
Three months ended December 31, 2016
Three months ended December 31, 2015
Year ended December 31, 2016
Year ended December 31, 2015
Impact of a 0.5%
interest rate change
Decrease in rate
Increase in rate
$
$
$
$
373
172
1,130
635
$
$
$
$
(373)
(172)
(1,130)
(635)
There have been no significant changes to Crombie’s interest rate
risk since December 31, 2015.
L I Q U I D I T Y R I S K
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
and recycling capital from property dispositions.
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:
Fixed rate mortgages(2)
Senior unsecured notes
Convertible debentures
Floating rate debt
Total
Year ending December 31,
Contractual
Cash Flows(1)
2017
2018
2019
2020
2021
Thereafter
$ 2,022,289
$
170,090
$
178,077
$ 235,086
$
313,864
$
170,736
$ 954,436
441,079
159,251
2,622,619
231,647
14,407
6,906
191,403
5,697
188,244
6,906
373,227
104,047
7,431
66,156
308,673
121,903
129,346
3,906
447,116
—
101,651
75,377
347,764
—
—
—
954,436
—
$ 2,854,266
$
197,100
$
477,274
$ 430,576
$
447,116
$
347,764
$ 954,436
(1) Contractual cash flows include principal and interest and ignore extension options.
(2) Reduced by the interest rate subsidy payments to be received from ECLD.
There have been no significant changes to Crombie’s liquidity risk since December 31, 2015.
5 0
C R O M B I E R E I T
MD&AMANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts)
E N V I R O N M E N TA L M AT T E R S
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.
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 Empire and/or its affiliates or will provide management
or other services to Empire and its affiliates. Empire 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 Empire have entered
into a number of agreements to outline how potential conflicts
of interest will be dealt with, including a Non-Competition
Agreement, Management 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 Empire 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 Empire or another related party.
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 Empire, Sobeys and Other Empire Affiliates
Empire has agreed to support Crombie under an Omnibus
Subsidy Agreement and to pay ongoing rent pursuant to a head
lease and a ground lease. Empire and specific subsidiaries 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, Empire has obligations to indemnify
Crombie in respect to the cost of environmental remediation
of certain properties acquired by Crombie from Empire to a
maximum permitted amount. There is no certainty that Empire
will be able to perform its obligations to Crombie in connection
with these agreements. Empire and specific subsidiaries have not
provided any security to guarantee these obligations. If Empire,
Sobeys 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 Empire
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, Empire
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. Empire also provided an indemnity to Crombie under
the acquisition which provides, subject to certain conditions and
thresholds, that Empire 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 Empire will be in a
position to indemnify Crombie if any such breach occurs. Empire
has not provided any security for its obligations and is not required
to maintain any cash within Empire for this purpose.
Crombie LP acquired from Empire directly and indirectly
61 properties on April 22, 2008 (the “Portfolio Acquisition”).
Pursuant to the Portfolio Acquisition, Empire 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. Empire also provided an
indemnity to Crombie under the Portfolio Acquisition which
provides, subject to certain conditions and thresholds, that Empire
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 Empire will be in a position to indemnify
Crombie if any such breach occurs. Empire has not provided any
security for its obligations and is not required to maintain any cash
within Empire for this purpose.
A N N U A L R E P O R T 2 0 1 6
5 1
MD&A
R I S K FAC TO R S R E L AT E D TO T H E U N I T S
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.
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 2016 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.
5 2
C R O M B I E R E I T
MD&AMANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts) Indirect Ownership of Units by Empire
Empire holds a 41.5% (fully diluted 40.3%) 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, Empire 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
favourable 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.
SUBSEQUENT EVENTS
(a)
(b)
On January 20, 2017, Crombie declared distributions of
7.417 cents per Unit for the period from January 1, 2017
to and including, January 31, 2017. The distributions were
paid on February 15, 2017, to Unitholders of record as of
January 31, 2017.
On February 16, 2017, Crombie declared distributions of
7.417 cents per Unit for the period from February 1, 2017
to and including, February 28, 2017. The distributions will
be paid on March 15, 2017, to Unitholders of record as of
February 28, 2017.
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, 2016. They have concluded that our current
disclosure controls and procedures are effective.
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, 2016, 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.
A N N U A L R E P O R T 2 0 1 6
5 3
MD&A
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,
2016
Sep. 30,
2016
Jun. 30,
2016
Mar. 31,
2016
Dec. 31,
2015
Sep. 30,
2015
Jun. 30,
2015
Mar. 31,
2015
Property revenue
$
105,269
$
98,757
$
101,031
$
94,944
$
92,847
$
89,611
$
94,907
$
92,501
Three Months Ended
Property operating
expenses
Property net operating
income
Gain (loss) on disposal
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
Increase (decrease) in net
assets attributable
to Unitholders
Operating income
per unit – Basic
Operating income
per unit – Diluted
$
$
$
29,395
27,732
27,538
30,641
28,858
26,892
27,328
30,183
75,874
9,761
(4,266)
(25,656)
(19,435)
(6,000)
30,278
—
1,200
31,478
71,025
1,225
73,493
244
64,303
26,260
63,989
25
62,719
67,579
—
—
(3,546)
(25,342)
(4,122)
(24,793)
(4,407)
(24,365)
(3,541)
(24,600)
(19,933)
(17,514)
(16,450)
—
—
—
(16,789)
(7,300)
(3,923)
(24,306)
(16,340)
—
23,429
27,308
45,341
1 1 , 784
18,150
(3)
(300)
23,126
—
(100)
27,208
(23)
(2,000)
43,318
(39)
2,200
13,945
(621)
400
17,929
(3,463)
(24,287)
(16,925)
(5,275)
17,629
(2,276)
1,800
17,153
62,318
(2)
(3,474)
(25,418)
(16,522)
—
16,902
—
(200)
16,702
(32,987)
(32,890)
(30,538)
(29,322)
(29,236)
(29,153)
(29,111)
(29,076)
(46)
789
(397)
(34)
3,068
(3,112)
368
(268)
(1,555) $
(8,975) $
(3,727) $
13,962
$
(12,223) $
(14,336) $
(11,590) $
(12,642)
0.21
$
0.16
$
0.21
$
0.33
$
0.11
$
0.14
$
0.13
$
0.13
0.21
$
0.16
$
0.21
$
0.33
$
0.11
$
0.14
$
0.13
$
0.13
(In thousands of CAD dollars,
except per unit amounts)
Dec. 31,
2016
Sep. 30,
2016
Jun. 30,
2016
Mar. 31,
2016
Dec. 31,
2015
Sep. 30,
2015
Jun. 30,
2015
Mar. 31,
2015
Three Months Ended
Distributions
Distributions
Per unit
AFFO
Basic
Per unit – Basic
Per unit – Diluted(1)
Payout ratio
FFO, as adjusted
Basic
Per unit – Basic
Per unit – Diluted(1)
Payout ratio
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
32,987
0.22
38,452
0.26
0.26
85.8%
45,452
0.31
0.30
72.6%
32,890
0.22
38,808
0.26
0.26
84.8%
45,567
0.31
0.31
$
$
$
$
$
$
$
$
30,538
0.22
31,432
0.24
0.24
97.2%
37,256
0.28
0.28
$
$
$
$
$
$
$
$
72.2%
82.0%
29,322
0.22
32,048
0.24
0.24
91.5%
37,961
0.29
0.29
77.2%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
29,236
0.22
32,310
0.25
0.25
90.5%
38,311
0.29
0.29
76.3%
29,153
0.22
30,694
0.23
0.23
95.0%
36,312
0.28
0.28
80.3%
$
$
$
$
$
$
$
$
29,111
0.22
32,733
0.25
0.25
88.9%
39,079
0.30
0.30
74.5%
$
$
$
$
$
$
$
$
29,076
0.22
29,917
0.23
0.23
97.2%
35,772
0.27
0.27
81.3%
(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.
5 4
C R O M B I E R E I T
MD&AMANAGEMENT’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, 2016 – acquisition of two retail properties and
an addition to an existing office property for a total purchase
price of $34,000, and disposition of five retail properties for
proceeds of $32,500;
– September 30, 2016 – acquisition of one retail property and
one development property for a total purchase price of
$32,858, and disposition of two retail properties for proceeds
of $11,357;
– June 30, 2016 – acquisition of 33 retail properties, a 50%
interest in three distribution centres, a property for
development and two parcels of development land adjacent
to existing Crombie properties for a total purchase price of
$502,683, and disposition of two retail properties for proceeds
of $8,293;
– March 31, 2016 – acquisition of one retail property for a total
– 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; and,
– March 31, 2015 – acquisition of an addition to an existing retail
property for a total purchase price of $12,650.
•
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.
Additional information relating to Crombie, including its latest
Annual Information Form, can be found on the SEDAR website
for Canadian regulatory filings at www.sedar.com.
purchase price of $5,500 and disposition of 10 retail properties
for proceeds of $143,400;
Dated: February 22, 2017
New Glasgow, Nova Scotia, Canada
– December 31, 2015 – acquisition of four retail properties and
two additions to existing retail properties for a total purchase
price of $60,825;
A N N U A L R E P O R T 2 0 1 6
5 5
MD&A
M A N A G E M E N T ’ S S TAT E M E N T O F R E S P O N S I B I L I T Y F O R F I N A N C I A L R E P O R T I N G
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 22, 2017
February 22, 2017
5 6
C R O M B I E R E I T
FINANCIAL STATEMENTS I N D E P E N D E N T A U D I TO R ’ S R E P O R T
TO T H E B OA R D O F T R U S T E E S O F C R O M B I E R E A L E S TAT E I N V E S T M E N T T R U S T
We have audited the accompanying consolidated financial statements of Crombie Real Estate Investment Trust (“Crombie”) and its
subsidiaries, which comprise the consolidated balance sheet as at December 31, 2016 and the consolidated statements of comprehensive
income, changes in net assets attributable to unitholders and cash flows for the year then ended, and the related notes, which comprise
a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated 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 audit. We conducted our audit in
accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements
and plan and perform the audit 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 and its
subsidiaries as at December 31, 2016 and their financial performance and their cash flows for the year then ended in accordance with
International Financial Reporting Standards.
Other matter
The financial statements of Crombie Real Estate Investment Trust for the year ended December 31, 2015 were audited by another auditor
who expressed an unmodified opinion on those financial statements on February 24, 2016.
Chartered Professional Accountants,
Licensed Public Accountants
Halifax, Canada
February 22, 2017
A N N U A L R E P O R T 2 0 1 6
5 7
FINANCIAL STATEMENTS
Note
December 31,
2016
December 31,
2015
$
3,716,720
$
3,202,886
815
191,247
6,104
—
100,891
600
3,914,886
3,304,377
—
34,567
13,865
—
48,432
3,963,318
1,765,824
398,588
132,134
75,400
8,110
8,493
1,057
33,978
13,333
119,448
167,816
3,472,193
1,548,648
398,080
131,518
74,200
7,736
6,661
2,388,549
2,166,843
99,653
282
84,688
184,623
92,555
246
65,319
158,120
2,573,172
2,324,963
$
1,390,146
$
1,147,230
$
834,203
$
694,484
555,943
452,746
$
1,390,146
$
1,147,230
3
4
5
6
5
6
7
8
9
10
11
12
13
8
12
13
23
24
C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
CO N S O L I DAT E D B A L A N C E S H E E T S
(In thousands of CAD dollars)
Assets
Non-current assets
Investment properties
Investment in joint ventures
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.
Approved on behalf of the Board of Trustees
“Signed John Eby”
“Signed J. Michael Knowlton”
John Eby
Lead Trustee
J. Michael Knowlton
Audit Committee Chair
5 8
C R O M B I E R E I T
FINANCIAL STATEMENTS
CO N S O L I DAT E D S TAT E M E N T S O F CO M P R E H E N S I V E I N CO M E ( L O S S )
(In thousands of CAD dollars)
Property revenue
Property operating expenses
Net property income
Gain on disposal of investment properties
Impairment of investment properties
Depreciation of investment properties
Amortization of intangible assets
Amortization of deferred leasing costs
General and administrative expenses
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
Increase (decrease) in net assets attributable to Unitholders
Other comprehensive income
Items that will not be subsequently reclassified to Increase (decrease)
in net assets attributable to Unitholders:
Year ended
December 31,
2016
Year ended
December 31,
2015
Note
14
$
400,001
$
369,866
3
3
3
3
3
16
17
11
11
13
115,306
284,695
37,490
(6,000)
(66,552)
(6,170)
(610)
(16,341)
(100,156)
126,356
(26)
(1,200)
125,130
(125,737)
312
(125,425)
(295)
113,261
256,605
23
(12,575)
(60,498)
(5,480)
(598)
(14,401)
(98,611)
64,465
(2,936)
4,200
65,729
(116,576)
56
(116,520)
(50,791)
Unamortized actuarial gains (losses) in employee future benefit obligation
12
(110)
352
Items that will be subsequently reclassified to Increase (decrease)
in net assets attributable to Unitholders:
Costs incurred on derivatives designated as cash flow hedges transferred
to finance costs – operations
Other comprehensive income
Comprehensive income (loss)
See accompanying notes to the consolidated financial statements.
2,440
2,330
2,035
2,520
2,872
$
(47,919)
$
A N N U A L R E P O R T 2 0 1 6
5 9
FINANCIAL STATEMENTS
CO N S O L I DAT E D S TAT E M E N T S O F C H A N G E S I N N E T A S S E T S AT T R I B U TA B L E TO U N I T H O L D E R S
(In thousands of CAD dollars)
REIT Units,
Special Voting
Units and
Class B LP Units
(Note 18)
Net Assets
Accumulated
Other
Attributable Comprehensive
Income (Loss)
to Unitholders
Attributable to
Total
REIT Units
Class B
LP Units
Balance, January 1, 2016
$
1,473,885
$
(315,750)
$
(10,905)
$
1,147,230
$
694,484
$
452,746
Adjustments related to EUPP
Statements of comprehensive
income (loss)
Units issued under Distribution
Reinvestment Plan (“DRIP”)
Unit issue proceeds, net of
costs of $5,889
67
—
21,661
219,111
42
—
(295)
2,330
—
—
—
—
109
2,035
21,661
109
973
12,666
—
1,062
8,995
219,111
125,971
93,140
Balance, December 31, 2016
$
1,714,724
$
(316,003)
$
(8,575)
$
1,390,146
$
834,203
$
555,943
(In thousands of CAD dollars)
REIT Units,
Special Voting
Units and
Class B LP Units
(Note 18)
Net Assets
Attributable
to Unitholders
Accumulated
Other
Comprehensive
Income (Loss)
Attributable to
Total
REIT Units
Class B
LP Units
Balance, January 1, 2015
$
1,462,101
$
(265,010)
$
(13,777)
$
1,183,314
$
716,025
$
467,289
Adjustments related to EUPP
Conversion of debentures
Statements of comprehensive
income (loss)
Units issued under DRIP
75
205
—
11,504
51
—
(50,791)
—
—
—
2,872
—
126
205
(47,919)
11,504
126
205
(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
See accompanying notes to the consolidated financial statements.
6 0
C R O M B I E R E I T
FINANCIAL STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS
CO N S O L I DAT E D S TAT E M E N T S O F C A S H F L OW S
(In thousands of CAD dollars)
Cash flows provided by (used in)
Operating Activities
Year ended
December 31,
2016
Year ended
December 31,
2015
Note
Increase (decrease) in net assets attributable to Unitholders
$
(295)
$
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 mortgages
Deferred financing charges – investment property debt
Repayment of mortgages
Advance (repayment) of floating rate credit facilities
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
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 disposal of investment properties
Additions to tenant incentives
Additions to deferred leasing costs
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.
19
19
68,901
(1,686)
—
66,920
193,401
(2,967)
(98,566)
90,374
—
—
—
225,000
(5,889)
67
(6,036)
395,384
(550,863)
(29,928)
192,549
(74,071)
(1,048)
(50,791)
94,015
1,481
(3,591)
41,114
119,134
(1,020)
(106,440)
(15,000)
125,000
(988)
(44,795)
—
—
75
(302)
75,664
(79,954)
(25,684)
2,770
(12,638)
(826)
(463,361)
(116,332)
(1,057)
1,057
$
—
$
446
611
1,057
A N N U A L R E P O R T 2 0 1 6
6 1
FINANCIAL STATEMENTS
N O T E S TO T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S (In thousands of CAD dollars)
1 G E N E R A L I N F O R M AT I O N A N D N AT U R E O F O P E R AT I O N S
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, 2016 and
December 31, 2015 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 22, 2017.
2 S U M M A R Y O F S I G N I F I C A N T ACCO U N T I N G P O L I C I E S
(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 Increase (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
(i) Subsidiaries
Crombie’s financial statements consolidate those of Crombie and all of its subsidiary entities as at December 31, 2016. Subsidiaries are all
entities over which Crombie has control. All subsidiaries have a reporting date of December 31, 2016.
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.
(ii) Joint arrangements
Joint arrangements are business arrangements whereby two or more parties have joint control. Joint control is based on the contractual
sharing of control over the decisions related to the relevant activities. Joint arrangements are classified as either joint operations or joint
ventures depending on the contractual arrangements related to the rights and obligations of the parties to the arrangement.
Joint operations
A joint operation is an arrangement wherein the parties to the arrangement have rights to the assets and obligations for the liabilities
related to the arrangement. For joint operations, Crombie recognizes its proportionate share of the assets, liabilities, revenues and
expenses of the joint operation in the relevant categories of Crombie’s financial statements.
Joint ventures
A joint venture is an entity over which Crombie shares joint control with other parties and where the joint venture parties have rights to
the net assets of the joint venture. Joint control exists where there is a contractual agreement for shared control and wherein decisions
about the significant relevant activities of the arrangement require unanimous consent of the parties sharing control.
Investment in joint ventures is accounted for using the equity method. Under the equity method, the investment is initially recorded at
cost with subsequent adjustments for Crombie’s share of the results of operations and any change in net assets. Crombie’s joint venture
entities have the same reporting period as Crombie and adjustments, if any, are made to bring the accounting policies of joint venture
entities in line with the policies of Crombie.
(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(w).
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.
6 2
C R O M B I E R E I T
NOTES Amortization of intangible assets is calculated using the straight-line method over the term of the tenant lease.
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, the total cost is allocated to the identifiable assets and liabilities on the basis of their relative fair values on
the acquisition date. Asset acquisitions do not give rise to goodwill. Fair value of such assets and liabilities is determined 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.
For business combinations, the acquisition method is used wherein the components of the business combination (assets acquired,
liabilities assumed, consideration transferred and any goodwill or bargain purchase) are recognized and measured. The assets acquired
and liabilities assumed from the acquiree are measured at their fair value on the acquisition date.
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) 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.
(g) 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 classified as held for sale
are not 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 their
operating results are presented separately in the Consolidated Statements of Comprehensive Income (Loss). A component of Crombie
includes a property type or geographic area of operations.
(h) 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).
A N N U A L R E P O R T 2 0 1 6
6 3
NOTES
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).
(i) 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.
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 actuarial gains and losses directly to other comprehensive income (loss).
(j) 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 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 with changes in fair
value recognized in the Consolidated Statements of Comprehensive Income (Loss).
(ii) Restricted Unit Plan (“RU Plan”)
Crombie has an 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. No REIT Units or other securities of
Crombie will be issued from treasury. Alternatively, an RU Participant may elect to convert their RUs to DUs under Crombie’s DU Plan.
(k) Distribution reinvestment plan (“DRIP”)
Crombie has a DRIP which is described in Note 18.
(l) 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.
6 4
C R O M B I E R E I T
NOTESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of CAD dollars) (m) 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(l)).
(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.
(n) Deferred financing charges
Deferred financing charges consist of costs directly attributable to the issuance of debt. These charges are amortized in finance
costs – operations using the effective interest method, over the term of the related debt.
(o) 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.
(p) 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.
(q) 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.
(r) 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.
(s) 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.
(t) 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.
A N N U A L R E P O R T 2 0 1 6
6 5
NOTES
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.
(u) 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 increase (decrease) in net assets attributable to Unitholders for the period; b) held to maturity
– recorded at amortized cost with gains and losses recognized in increase (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 increase (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 increase (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 (loss) in the period that the liability is no longer
recognized. Subsequent measurement for these assets and liabilities is 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)
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
Fair value
Fair value
Other liabilities
Amortized cost
Other liabilities
Amortized cost
Other liabilities
Amortized cost
Other liabilities
Amortized cost
Other balance sheet accounts, including, but not limited to, prepaid expenses, accrued straight-line rent receivable, tenant incentives,
investment properties, 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(h).
(v) 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.
6 6
C R O M B I E R E I T
NOTESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of CAD dollars)
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.
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.
(w) 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. When 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.
(x) 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.
A N N U A L R E P O R T 2 0 1 6
6 7
NOTES
(y) 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:
(i) Investment properties
Crombie’s accounting policies relating to investment properties are described in Note 2(e). In applying these policies, judgment 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) Investment in joint ventures
Crombie makes judgments in determining the appropriate accounting for investments in other entities. Such judgments include:
determining the significant relevant activities and assessing the level of influence Crombie has over such activities through agreements
and contractual arrangements.
(iii) Leases
Crombie makes judgments 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.
(iv) Classifications of Units as liabilities
Crombie’s accounting policies relating to the classification of Units as liabilities are described in Note 2(x). The critical judgments
inherent in this policy relate to applying the criteria set out in IAS 32, “Financial Instruments: Presentation”, relating to the puttable
instrument exception.
(v) 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 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.
(z) 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 consolidated 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 on 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 in joint arrangements
Crombie makes judgments in determining the appropriate accounting for investments in other entities. Such judgments include:
determining the significant relevant activities and assessing the level of control or influence Crombie has over such activities through
agreements and contractual arrangements; and, determining whether Crombie’s rights and obligations are directly related to the assets
and liabilities of the arrangement or to the net assets of the joint arrangement.
(iii) Investment properties
Investment properties are carried at cost less accumulated depreciation. Crombie estimates the residual value and useful lives
of investment properties and the significant components thereof to calculate depreciation and amortization.
6 8
C R O M B I E R E I T
NOTESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of CAD dollars) (iv) 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. When 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.
(v) 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 net property income received from
leasing the property. A yield obtained from an independent valuation company, which reflects the specific risks inherent in the net
property income, is then applied to the net annual property income to arrive at the property valuation.
(vi) 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.
(vii) 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.
(aa) 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 increase (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
In May 2014, the IASB issued IFRS 15 which 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.
A N N U A L R E P O R T 2 0 1 6
6 9
NOTES
(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
I N V E S T M E N T P R O P E R T I E S
Cost
Land
Buildings
Intangibles
Deferred
Leasing Costs
Total
Opening balance, January 1, 2016
$
976,002
$ 2,500,700
$
98,136
$
6,780
$
3,581,618
Acquisitions
Additions
Disposition
Transfer to investment properties held for sale (Note 7)
259,796
1,310
(13,503)
(164)
312,684
30,849
(23,572)
(468)
18,285
—
(1,846)
(26)
—
1,185
(165)
—
590,765
33,344
(39,086)
(658)
Balance, December 31, 2016
1,223,441
2,820,193
114,549
7,800
4,165,983
Accumulated depreciation and amortization
and impairment
Opening balance, January 1, 2016
Depreciation and amortization
Disposition
Impairment
Transfer to investment properties held for sale (Note 7)
Balance, December 31, 2016
—
—
—
2,357
—
2,357
322,625
66,552
(7,020)
3,643
(69)
385,731
52,529
6,170
(1,591)
—
(10)
57,098
Net carrying value, December 31, 2016
$
1,221,084
$
2,434,462
$
57,451
$
3,578
610
(111)
—
—
4,077
3,723
378,732
73,332
(8,722)
6,000
(79)
449,263
$
3,716,720
Land
Buildings
Intangibles
Deferred
Leasing Costs
Total
Cost
Opening balance, January 1, 2015
$
977,895
$
2,479,018
$
99,019
$
5,540
$
3,561,472
Acquisitions
Additions
Disposition
Transfer to investment properties held for sale (Note 7)
Transfer from investment properties held for sale (Note 7)
20,503
3,537
(1,453)
(31,619)
7,139
74,229
23,155
(706)
(103,315)
28,319
Balance, December 31, 2015
976,002
2,500,700
Accumulated depreciation and amortization
and impairment
Opening balance, January 1, 2015
Depreciation and amortization
Disposition
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
3,457
—
—
(4,432)
92
98,136
50,913
5,480
—
—
(3,956)
92
52,529
Net carrying value, December 31, 2015
$
976,002
$
2,178,075
$
45,607
$
—
1,118
—
(332)
454
6,780
2,965
598
—
—
(217)
232
3,578
3,202
98,189
27,810
(2,159)
(139,698)
36,004
3,581,618
317,269
66,576
(23)
12,575
(22,597)
4,932
378,732
$
3,202,886
Crombie’s total fair value of investment properties, including properties held for sale, exceeds carrying value by $844,033 at December 31,
2016 (December 31, 2015 – $708,949). 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.
During the year ended December 31, 2016, Crombie recorded an impairment of $6,000 on two retail properties and during the year
ended December 31, 2015, 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.
7 0
C R O M B I E R E I T
NOTESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of CAD dollars)
The estimated fair values of Crombie’s investment properties are as follows:
December 31, 2016
December 31, 2015
Carrying value consists of the net carrying value of:
Investment properties
Accrued straight-line rent receivable
Tenant incentives
Investment properties held for sale
Total carrying value
Fair Value
Carrying Value
$
$
4,752,000
4,143,000
$
$
3,907,967
3,434,051
Note
December 31,
2016
December 31,
2015
3
5
5
7
$
3,716,720
$
3,202,886
59,225
132,022
—
50,050
61,667
119,448
$
3,907,967
$
3,434,051
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, 2016 and 2015, respectively, based on
each property’s current use as a revenue generating investment property. Crombie owns several properties where the highest and best
use as a development property would result in higher fair values.
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, 2016, 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.
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, 2016
December 31, 2015
Impact of a 0.25% Change in Capitalization Rate
Weighted
Average
Capitalization
Rate
Increase
in Rate
Decrease
in Rate
5.88%
6.15%
$
$
(191,000)
(163,000)
$
$
208,000
177,000
A N N U A L R E P O R T 2 0 1 6
7 1
NOTES
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.
2016
Transaction Date
February 5, 2016
March 10, 2016
April 8, 2016
April 15, 2016
April 28, 2016
May 3, 2016
May 16, 2016
June 1, 2016
June 9, 2016
June 23, 2016
June 29, 2016
July 15, 2016
July 29, 2016
August 15, 2016
November 14, 2016
November 30, 2016
December 8, 2016
December 13, 2016
Vendor/Purchaser
Properties
Acquired
(Disposed)
Approximate
Square
Footage
Initial
Acquisition
(Disposition)
Price
Assumed
Mortgages
21,000
$
5,500
$
Third party
Third party
Third party
Third party
Third party
Third party
Third party
Third party
Third party
Third party
Empire(1)
Empire(1)
Empire(1)
Third party
Third party
Third party
Third party
Third party
1
(10)
1
(1)
(1)
2
9
1
1
1
(791,000)
58,000
(8,000)
(47,000)
117,000
94,000
37,000
84,000
54,000
22
2,090,000
(1)
1
(1)
1
1
(1)
(4)
(21,000)
62,000
(48,000)
29,000
6,000
(80,000)
(215,000)
(143,400)
15,700
(793)
(7,500)
46,200
32,272
7,000
29,000
14,150
348,386
(9,057)
26,400
(2,300)
29,000
5,000
(10,750)
(21,750)
—
—
—
—
—
8,041
—
3,751
12,017
—
—
—
—
—
16,093
—
—
—
(1) Empire includes Empire Company Limited, a related party, and its subsidiaries.
1,442,000
$
363,058
$
39,902
On July 8, 2016, Crombie acquired a 50% interest in a development property with a third party for an initial acquisition price of $5,250
which is not included in the above schedule. This investment is being accounted for as a joint operation.
The disposition on July 15, 2016 and the acquisitions on July 29, 2016 and June 29, 2016 were transacted with Empire Company Limited
or its subsidiaries (“Empire”), a related party. The June 29, 2016 acquisition included 19 retail properties and a 50% interest in three
distribution centres. In addition to the 22 properties included in the above schedule were two parcels of development land adjacent to
existing Crombie properties, with an initial acquisition price of $9,975.
The remaining acquisitions and dispositions were transacted with third parties. The acquisition on June 23, 2016 was a vacant building
which has since been demolished as part of a redevelopment plan for the property.
The initial acquisition (disposition) prices stated above exclude closing and transaction costs.
2015
Transaction Date
February 2, 2015(1)
April 1, 2015(1)
August 18, 2015
November 3, 2015(1)
November 3, 2015
December 23, 2015(1)
Vendor/Purchaser
Third party
Empire(2)
Third party
Empire(2)
Empire(2)
Empire(2)
Properties
Acquired
(Disposed)
Approximate
Square
Footage
Initial
Acquisition
(Disposition)
Price
—
—
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.
7 2
C R O M B I E R E I T
NOTESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of CAD dollars)
The allocation of the total cost of the acquisitions (including closing and transaction costs) is as follows:
Investment property acquired, net:
Land
Buildings
Intangibles
Fair value debt adjustment on assumed mortgages
Net purchase price
Assumed mortgages
Investment property disposed:
Gross proceeds
Selling costs
Carrying values derecognized
Land
Buildings
Intangibles
Deferred leasing costs
Tenant Incentives
Accrued straight-line rent
Provisions
Gain on disposal
4
I N V E S T M E N T I N J O I N T V E N T U R E S
The following represents Crombie’s interest in its equity accounted investments:
1600 Davie Limited Partnership
Year ended
December 31,
2016
Year ended
December 31,
2015
$
259,796
$
312,684
18,285
(1,072)
589,693
(39,902)
$
549,791
$
20,503
74,229
3,457
(679)
97,510
(17,556)
79,954
Year ended
December 31,
2016
Year ended
December 31,
2015
$
195,621
$
(3,072)
192,549
(45,288)
(101,842)
(747)
(173)
(3,434)
(3,701)
126
$
37,490
$
3,323
(553)
2,770
(1,453)
(683)
—
—
540
—
(1,151)
23
December 31,
2016
50.0%
The entity, which was created on January 19, 2016, is engaged in the development of a mixed use (retail and residential) property located
at Davie Street, Vancouver, BC.
The following table represents 100% of the financial results of the equity accounted entities as at December 31, 2016:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Crombie’s investment in joint ventures
The entity had no operating results during the reporting periods.
5 O T H E R A S S E T S
1600 Davie
Limited Partnership
$
1,849
573
—
793
1,629
815
$
$
December 31, 2016
December 31, 2015
Current
Non-current
Total
Current
Non-current
Total
Trade receivables
$
11,625
$
Provision for doubtful accounts
Net trade receivables
Marketable securities
Prepaid expenses and deposits
Restricted cash
Accrued straight-line rent receivable
Tenant incentives
(127)
11,498
2,290
12,104
8,675
—
—
—
—
—
—
—
—
59,225
132,022
$
11,625
$
10,624
$
(127)
11,498
2,290
12,104
8,675
59,225
132,022
(60)
10,564
1,965
10,548
75
2,874
7,952
—
—
—
—
—
—
47,176
53,715
$
10,624
(60)
10,564
1,965
10,548
75
50,050
61,667
$
34,567
$
191,247
$
225,814
$
33,978
$
100,891
$
134,869
A N N U A L R E P O R T 2 0 1 6
7 3
NOTES
Tenant Incentives
Balance, January 1, 2016
Additions
Amortization
Disposition
Transfer to investment properties held for sale (Note 7)
Balance, December 31, 2016
Balance, January 1, 2015
Additions
Amortization
Disposition
Transfer to investment properties held for sale (Note 7)
Transfer from investment properties held for sale (Note 7)
Balance, December 31, 2015
Cost
Accumulated
Amortization
Net Carrying
Value
$
107,122
$
45,455
$
$
$
83,092
—
(3,049)
(3)
187,162
94,825
12,509
—
—
(4,625)
4,413
$
$
—
11,622
(1,936)
(1)
55,140
35,574
—
9,712
540
(2,278)
1,907
$
$
$
107,122
$
45,455
$
61,667
83,092
(11,622)
(1,113)
(2)
132,022
59,251
12,509
(9,712)
(540)
(2,347)
2,506
61,667
On June 29, 2016, Crombie invested $58,823 in the renovation and expansion of 10 existing Sobeys anchored properties. The amount is
included in tenant incentive additions and is being amortized over the 20 year amended lease terms.
See Note 21(a) for fair value information.
6 L O N G - T E R M R E C E I VA B L E S
December 31, 2016
Current
Non-current
Capital expenditure program
$
—
$
Interest rate subsidy
Amount receivable from related party
Amount receivable from third party
103
13,762
—
$
13,865
$
105
392
—
5,607
6,104
$
Total
105
495
13,762
5,607
December 31, 2015
Current
Non-current
$
—
$
222
13,111
—
$
105
495
—
—
Total
105
717
13,111
—
$
19,969
$
13,333
$
600
$
13,933
The amount receivable from a third party pertains to a development property which was acquired on July 8, 2016.
During March 2014, Crombie advanced $11,856 to a subsidiary of Empire to partially finance their acquisition of development lands.
The loan is repayable March 31, 2017.
See Note 21(a) for fair value information.
7
I N V E S T M E N T P R O P E R T I E S H E L D F O R S A L E
Land
Buildings
Intangibles
Deferred
Leasing Costs
Tenant
Incentives
Total
Balance, January 1, 2016
$
31,619
$
84,891
$
476
$
115
$
2,347
$
119,448
Additions
Assets transferred to held for sale
2
164
—
399
Derecognition through disposition
(31,785)
(85,290)
—
16
(492)
4
—
(119)
(28)
2
(22)
581
(2,321)
(120,007)
Net carrying value, December 31, 2016 $
—
$
—
$
—
$
—
$
—
$
—
Land
Buildings
Intangibles
Deferred
Leasing Costs
Tenant
Incentives
Total
Balance, January 1, 2015
$
7,139
$
23,711
$
—
$
Assets transferred to held for sale
Assets transferred from held for sale
31,619
(7,139)
84,891
(23,711)
476
—
$
222
115
(222)
2,506
2,347
(2,506)
$
33,578
119,448
(33,578)
Net carrying value, December 31, 2015 $
31,619
$
84,891
$
476
$
115
$
2,347
$
119,448
On March 10, 2016, Crombie disposed of 10 retail properties to a third party. The remaining property which was classified as held for
sale as at December 31, 2015 was disposed of on April 28, 2016. As at December 31, 2016, no properties met the criteria for classification
as held for sale.
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 totalling $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.
7 4
C R O M B I E R E I T
NOTESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of CAD dollars)
8
I N V E S T M E N T P R O P E R T Y D E B T
Fixed rate mortgages
Floating rate revolving credit facility
Unsecured bilateral credit facility
Deferred financing charges
Fixed rate mortgages
Floating rate revolving credit facility
Deferred financing charges
Range
2.35 – 6.90%
Range
2.70 – 6.90%
Weighted
Average
Interest Rate
Weighted
Average Term
to Maturity
December 31,
2016
4.46%
2.54%
2.64%
5.90 years
$
1,655,817
2.50 years
1.37 years
120,374
100,000
(10,714)
$
1,865,477
Weighted
Average
Interest Rate
Weighted
Average Term
to Maturity
December 31,
2015
4.62%
2.48%
6.6 years
$
1,521,079
2.5 years
130,000
(9,876)
$
1,641,203
As at December 31, 2016, debt retirements for the next five years are:
12 Months Ending
December 31, 2017
December 31, 2018
December 31, 2019
December 31, 2020
December 31, 2021
Thereafter
Deferred financing charges
Unamortized fair value debt adjustment
Fixed Rate
Principal Payments
Fixed Rate
Maturities
Floating Rate
Maturities
Total
$
49,290
$
50,363
$
—
$
99,653
48,357
48,799
42,028
40,204
118,470
64,666
124,973
225,241
89,182
750,518
100,000
120,374
—
—
—
213,023
294,146
267,269
129,386
868,988
$
347,148
$
1,304,943
$
220,374
1,872,465
(10,714)
3,726
$
1,865,477
Specific investment properties with a carrying value of $2,974,237 as at December 31, 2016 (December 31, 2015 – $2,686,589) 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, as well as accrued straight-line rent receivable and tenant incentives which are included
in other assets.
Mortgage Activity
For the year ended:
December 31, 2016
For the year ended:
December 31, 2015
Type
New
Assumed
Repayment
Type
New
Assumed
Repayment
Number of
Mortgages
11
4
10
Number of
Mortgages
12
2
11
Rates
3.48%
4.02%
4.81%
Rates
2.85%
4.88%
4.85%
Weighted Average
Terms in
Years
Amortization
Period in Years
Proceeds
(Repayments)
6.7
3.5
—
24.9
21.3
—
$
193,402
39,902
(49,774)
$
183,530
Weighted Average
Terms in
Years
Amortization
Period in Years
Proceeds
(Repayments)
4.9
4.7
—
24.8
12.6
—
$
119,134
17,556
(58,162)
78,528
$
Floating Rate Revolving Credit Facility
The floating rate revolving credit facility has a maximum principal amount of $400,000 (December 31, 2015 – $300,000) and matures
June 30, 2019. 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, 2016 – borrowing base of $398,007). 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.
A N N U A L R E P O R T 2 0 1 6
7 5
NOTES
Unsecured Bilateral Credit Facility
The unsecured bilateral credit facility has a maximum principal amount of $100,000 and matures May 16, 2018. The facility is used by
Crombie for working capital purposes and to provide temporary financing for acquisitions and development activity. 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.
See Note 21(a) for fair value information.
9 S E N I O R U N S E C U R E D N O T E S
Series A
Series B
Series C
Unamortized Series B issue premium
Deferred financing charges
See Note 21(a) for fair value information.
10 CO N V E R T I B L E D E B E N T U R E S
Maturity Date
Interest Rate
December 31,
2016
December 31,
2015
October 31, 2018
3.986%
$
175,000
$
175,000
June 1, 2021
February 10, 2020
3.962%
2.775%
100,000
125,000
240
(1,652)
100,000
125,000
294
(2,214)
$
398,588
$
398,080
Conversion Price
Maturity Date
Interest Rate
December 31,
2016
December 31,
2015
Series D (CRR.DB.D)
Series E (CRR.DB.E)
Deferred financing charges
$
$
Debenture Conversions
Series C
REIT Units Issued
20.10 September 30, 2019
5.00%
$
60,000
$
60,000
17.15
March 31, 2021
5.25%
Conversion Price
$
15.30
74,400
(2,266)
$
132,134
$
74,400
(2,882)
131,518
Year ended
December 31,
2016
Year ended
December 31,
2015
$
$
$
$
—
—
—
205
205
13,398
The Series D (issued July 3, 2012) and Series E (issued August 14, 2013) 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, 2016, 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.
7 6
C R O M B I E R E I T
NOTESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of CAD dollars)
11
I N CO M E TA X E S
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 disposal 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 disposal of investment properties
Total deferred taxes
December 31,
2016
December 31,
2015
$
$
82,486
$
(7,086)
75,400
$
85,815
(11,615)
74,200
Year ended
December 31,
2016
Year ended
December 31,
2015
$
$
$
—
$
(26)
(26)
$
(2,066)
(870)
(2,936)
(38,339)
$
(19,362)
37,139
(1,200)
—
$
(1,200)
$
21,496
2,134
2,066
4,200
There are no corporate tax implications to Crombie from any of the components of accumulated other comprehensive income.
12 E M P L O Y E E F U T U R E B E N E F I T S
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 plans
The 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.
A N N U A L R E P O R T 2 0 1 6
7 7
NOTES
The total defined benefit cost related to pension plans and post-employment benefit plans for the year ended December 31, 2016 was
$546 (year ended December 31, 2015 – $531).
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, 2016
January 1, 2016
December 31, 2017
December 31, 2018
The significant actuarial assumptions adopted in measuring the Company’s accrued benefit obligations and pension costs are as follows:
Discount rate – accrued benefit obligation
Rate of compensation increase
December 31, 2016
December 31, 2015
Senior
Management
Pension Plan
Post-
Employment
Benefit Plans
Senior
Management
Pension Plan
Post-
Employment
Benefit Plans
3.75%
3.50%
3.75%
N/A
4.00%
3.50%
4.00%
N/A
For measurement purposes, a 5.75% (2015 – 6.50%) annual rate increase in the per capita cost of covered health care benefits was
assumed. The cumulative rate is expected to decrease 0.25% annually to 5.00% in 2020.
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.
Information about Crombie’s defined benefit plans are as follows:
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
Accrued benefit obligation recorded as a liability
Net expense
Current service cost
Interest cost
Net expense
7 8
C R O M B I E R E I T
December 31, 2016
December 31, 2015
Senior
Management
Pension Plan
Post-
Employment
Benefit Plans
Senior
Management
Pension Plan
Post-
Employment
Benefit Plans
$
4,258
$
3,724
$
4,160
$
3,882
179
173
123
(200)
4,533
—
200
(200)
—
4,533
200
4,333
4,533
179
173
352
$
$
$
44
150
(13)
(46)
3,859
—
46
(46)
—
3,859
82
3,777
3,859
44
150
194
$
$
$
171
159
(32)
(200)
4,258
—
200
(200)
—
4,258
200
4,058
4,258
171
159
330
$
$
$
45
156
(320)
(39)
3,724
—
39
(39)
—
3,724
46
3,678
3,724
45
156
201
$
$
$
NOTESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of CAD dollars)
The table below outlines the sensitivity of the fiscal 2016 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)
3.75%
3.75%
1% increase
1% decrease
$
$
(529)
646
$
$
(12)
13
1% increase
1% decrease
3.75%
(543)
675
5.75%
548
(452)
$
$
$
$
3.75%
7
(12)
5.75%
27
(22)
$
$
$
$
(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 2020 and remaining at that level thereafter.
For the year ended December 31, 2016, the net defined contribution pension plans expense was $756 (year ended December 31,
2015 – $689).
13 T R A D E A N D O T H E R PAYA B L E S
December 31, 2016
December 31, 2015
Current
Non-current
Total
Current
Non-current
Total
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
Deferred revenue
$
28,894
$
29,457
4,827
10,385
11,007
—
118
$
84,688
$
—
—
—
—
—
3,846
4,647
8,493
$
28,894
$
16,648
$
29,457
4,827
10,385
11,007
3,846
4,765
23,858
4,782
10,163
9,755
—
113
$
93,181
$
65,319
$
—
—
—
—
—
1,947
4,714
6,661
$
16,648
23,858
4,782
10,163
9,755
1,947
4,827
$
71,980
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.
(ii) Restricted Unit Plan
Crombie has an 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 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 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 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
A N N U A L R E P O R T 2 0 1 6
7 9
NOTES
by the RU Participant 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 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.
Change in fair value of financial instruments:
Deferred Unit (“DU”) Plan
Marketable securities
Total change in fair value of financial instruments
14 P R O P E R T Y R E V E N U E
Rental revenue contractually due from tenants
Contingent rental revenue
Straight-line rent recognition
Tenant incentive amortization
Lease terminations
Year ended
December 31,
2016
Year ended
December 31,
$
$
(13)
$
325
312
$
2015
(18)
74
56
Year ended
December 31,
2016
Year ended
December 31,
2015
$
382,428
$
362,699
1,735
12,876
(11,622)
14,584
1,562
11,142
(9,712)
4,175
$
400,001
$
369,866
Lease terminations include $11,172 related to three leases vacated by Target Canada in 2015. The amount, if any, of additional settlement
will be recognized as revenue when the amount is determinable and there is certainty of receipt.
The following table sets out tenants that contributed in excess of 10% of total property revenue:
Year ended
December 31, 2016
December 31, 2015
Revenue
Percentage
Revenue
Percentage
Sobeys Inc.
$
179,166
44.8%
$
156,289
42.3%
15 O P E R AT I N G L E A S E S
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, 2016, is as follows:
Year Ending December 31,
2017
2018
2019
2020
2021
Thereafter
Total
Future minimum rental income
$
274,648 $
264,622 $
254,235 $
243,108 $
231,599 $ 2,173,805 $ 3,442,017
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 eight to 73 years including renewal options:
Year Ending December 31,
2017
2018
2019
2020
2021
Thereafter
Total
Future minimum lease payments
$
1,508 $
1,548 $
1,562 $
1,576 $
1,595 $
136,811 $
144,600
8 0
C R O M B I E R E I T
NOTESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of CAD dollars)
16 CO R P O R AT E E X P E N S E S
(a) General and administrative expenses
Salaries and benefits
Professional and public company costs
Occupancy and other
Year ended
December 31,
2016
Year ended
December 31,
$
10,120
$
3,145
3,076
2015
8,202
3,081
3,118
(b) Employee benefit expense
Crombie’s payroll expenses are included in property operating expenses and in general and administrative expenses.
$
16,341
$
14,401
Wages and salaries
Post-employment benefits
17 F I N A N C E CO S T S – O P E R AT I O N S
Fixed rate mortgages
Floating rate term, revolving and demand facilities
Senior unsecured notes
Convertible debentures
Subscription receipts payment
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
Finance costs – operations, paid
18 U N I T S O U T S TA N D I N G
Year ended
December 31,
2016
Year ended
December 31,
2015
$
$
24,003
$
22,906
756
689
24,759
$
23,595
Year ended
December 31,
2016
Year ended
December 31,
$
72,289
$
4,816
14,915
7,523
613
100,156
1,349
(222)
(2,440)
54
(3,310)
$
95,587
$
2015
71,871
3,685
14,506
8,549
—
98,611
1,391
(1,272)
(2,520)
54
(3,616)
92,648
Crombie REIT Units
Class B LP Units and
attached Special Voting Units
Number
of Units
Amount
Number
of Units
Amount
Total
Number
of Units
Amount
Balance, January 1, 2016
77,857,608
$
877,581
53,658,302
$
596,304
131,515,910
$
1,473,885
Net change in EUPP loans receivable
Units issued under DRIP
Units issued (proceeds are net
of issue costs)
—
927,701
67
12,666
—
657,901
—
8,995
—
1,585,602
67
21,661
8,952,400
125,971
6,353,741
93,140
15,306,141
219,111
Balance, December 31, 2016
87,737,709
$
1,016,285
60,669,944
$
698,439
148,407,653
$
1,714,724
Crombie REIT Units
Class B LP Units and
attached Special Voting Units
Number
of Units
Amount
Number
of Units
Amount
Total
Number
of Units
Amount
Balance, January 1, 2015
77,304,079
$
870,578
53,275,266
$
591,523
130,579,345
$
1,462,101
Net change in EUPP loans receivable
Units issued under DRIP
Conversion of debentures
—
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
A N N U A L R E P O R T 2 0 1 6
8 1
NOTES
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) 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);
(ii) 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,
(iii) 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.
On May 31, 2016, Crombie closed a public offering, on a bought deal basis, of 8,952,400 Subscription Receipts, at a price of $14.70 per
Subscription Receipt, for gross proceeds of $131,600. On June 29, 2016, in conjunction with the closing of property acquisitions from
Empire, each of the 8,952,400 outstanding Subscription Receipts were automatically exchanged for one Crombie REIT Unit.
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.
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 (“ECLD”) 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 June 29, 2016, concurrently with the REIT Units issued on exchange for Subscription Receipts, subsidiaries of Empire received 6,353,741
Class B LP Units and the attached SVUs at a price of $14.70 per Class B LP Unit for gross proceeds of $93,400 which formed part of the
consideration for property acquisitions completed on that same date.
Employee Unit Purchase Plan (“EUPP”)
Crombie previously provided for REIT Unit purchase entitlements under the EUPP for certain senior executives. As at December 31, 2014,
the EUPP was replaced with an RU Plan with a specific vesting period and no employee loans.
As at December 31, 2016, there are loans receivable from executives of $1,789 under Crombie’s EUPP, representing 140,855 REIT Units,
which are classified as a reduction to net assets attributable to Unitholders. The loans are being repaid through the application of the
after-tax amounts of all distributions received on the REIT Units, as payments on interest and principal. The loans are required to be
repaid by December 31, 2023. 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, 2016 was $1,913.
The compensation expense related to the EUPP for the year ended December 31, 2016 was $42 (year ended December 31, 2015 – $42).
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.
8 2
C R O M B I E R E I T
NOTESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of CAD dollars) 19 S U P P L E M E N TA R Y C A S H F L OW I N F O R M AT I O N
a) Items not affecting operating cash
Items not affecting operating cash:
Straight-line rent recognition
Amortization of tenant incentives
Loss (gain) on disposal of investment properties
Impairment of investment properties
Depreciation of investment properties
Amortization of intangible assets
Amortization of deferred leasing costs
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 R E L AT E D PA R T Y T R A N S AC T I O N S
Year ended
December 31,
2016
Year ended
December 31,
2015
$
(12,876)
$
11,622
(37,490)
6,000
66,552
6,170
610
42
2,440
3,310
(54)
21,661
1,200
26
(312)
(11,142)
9,712
(23)
12,575
60,498
5,480
598
51
2,520
3,616
(54)
11,504
(4,200)
2,936
(56)
$
68,901
$
94,015
Year ended
December 31,
2016
Year ended
December 31,
2015
$
(934)
$
(10,156)
9,404
$
(1,686)
$
(1,989)
3,130
340
1,481
As at December 31, 2016, Empire, through its wholly-owned subsidiary ECLD, holds a 41.5% (fully diluted 40.3%) indirect interest in
Crombie. Related party transactions primarily include transactions with entities associated with Crombie through Empire’s indirect
interest. Related party transactions also include transactions with key management personnel and post-employment benefit plans.
Related party transactions are measured at the exchange amount, which is the amount of consideration established and agreed
to by the related parties.
Crombie’s revenue (expense) transactions with related parties are as follows:
Property revenue
Property revenue
Head lease income
Lease termination income
Property operating expenses
General and administrative expenses
Property management services recovered
Other general and administrative expenses
Finance costs – operations
Interest on convertible debentures
Interest rate subsidy
Interest income
Finance costs – distributions to Unitholders
Year ended
December 31,
2016
Year ended
December 31,
2015
Note
(a)
(b)
(c)
(d)
(e)
(f)
(b)
$
$
$
$
$
$
$
$
$
$
183,411
453
64
(64)
949
(281)
(1,203)
269
651
(52,171)
$
$
$
$
$
$
$
$
$
$
160,470
736
3,999
242
869
(385)
(1,200)
482
711
(48,369)
A N N U A L R E P O R T 2 0 1 6
8 3
NOTES
(a) Crombie earned total 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.
(c)
(d)
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 Agreement effective January 1, 2016.
Crombie provides property management, leasing services and environmental management to specific properties owned by certain
subsidiaries of Empire on a fee for service basis pursuant to a Management Agreement effective January 1, 2016. Revenue generated
from the Management Agreement is being recognized as a reduction of General and administrative expenses. This Agreement
replaces the previous cost sharing arrangement covered by a Management Cost Sharing Agreement.
(e) Crombie previously leased its head office space from ECLD under a lease that ended 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:
•
•
•
•
•
•
•
•
•
On July 29, 2016, Crombie acquired a retail property in British Columbia from Empire including approximately 62,000 square feet
of gross leaseable area for $26,400 before closing and transaction costs.
On July 15, 2016, Crombie disposed of a retail property in British Columbia to Empire including approximately 21,000 square feet
of gross leaseable area for $9,057 before closing and transaction costs.
On June 29, 2016, Crombie completed the acquisition of a portfolio of properties and the investment in the renovation and expansion
of 10 existing Sobeys anchored properties. The transaction total was approximately $418 million before closing and transaction costs. As
partial consideration, Crombie issued to Empire 6,353,741 Class B LP Units and the attached SVUs at a price of $14.70 per Class B LP Unit
for gross consideration of $93,400.
During the year ended December 31, 2016, Crombie issued 657,901 (December 31, 2015 – 383,036) Class B LP Units to ECLD under the
DRIP (Note 18).
During the fourth quarter of 2015, Crombie acquired four retail properties and additions to two existing retail properties from Empire
for $60,825, before closing and transactions 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, before
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 non-cash consideration. 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 and ECLD negotiated an extension of a rental income guarantee and put option
on a property Crombie acquired from ECLD in 2006. The extension ends in 2021 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.
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
$
$
3,153
$
112
3,265
$
8 4
C R O M B I E R E I T
Year ended
December 31,
2016
Year ended
December 31,
2015
2,860
102
2,962
NOTESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of CAD dollars)
21 F I N A N C I A L I N S T R U M E N T S
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, 2016:
Financial assets
Marketable securities
Total financial assets measured at fair value
Level 1
Level 2
Level 3
Total
$
$
—
—
$
$
—
—
$
$
2,290
2,290
$
$
2,290
2,290
There were no transfers between Level 1 and Level 2 during the year ended December 31, 2016.
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, 2016
December 31, 2015
Fair Value
Carrying Value
Fair Value
Carrying Value
$
$
19,999
19,999
$
$
19,969
19,969
$
$
13,968
13,968
$
$
13,933
13,933
$
1,959,091
$
1,876,191
$
1,782,776
$
1,651,079
402,361
139,147
400,000
134,400
405,348
138,360
400,000
134,400
Total other financial liabilities
$
2,500,599
$
2,410,591
$
2,326,484
$
2,185,479
The fair value of convertible debentures is a Level 1 measurement and the long-term receivables, investment property debt and senior
unsecured notes are Level 2.
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.
In measuring tenant concentration, Crombie considers both the annual minimum rent and total property revenue of major tenants:
•
Upon completion of the June 29, 2016 property transactions, Crombie’s largest tenant, Sobeys, represents 52.9% of annual minimum
rent; an increase from 49.9% at December 31, 2015. Excluding Sobeys, no other tenant accounts for more than 5.1% of Crombie’s
minimum rent.
A N N U A L R E P O R T 2 0 1 6
8 5
NOTES
•
Total property revenue includes operating and realty tax cost recovery income and percentage rent. These amounts can vary by
property type, specific tenant leases and where tenants may directly incur and pay operating and realty tax costs. For the year ended
December 31, 2016, Sobeys represents 44.8% of total property revenue. Excluding Sobeys, no other tenant accounts for more than
4.4% of Crombie’s total property revenue.
•
Over the next five years, no more than 4.8% of the gross leasable area of Crombie will expire in any one year.
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.
Year ended
December 31,
2016
Year ended
December 31,
2015
$
$
60
195
(120)
(8)
$
127
$
59
20
(38)
19
60
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, 2016:
•
•
•
•
Crombie’s weighted average term to maturity of its fixed rate mortgages was 5.90 years;
Crombie has a floating rate revolving credit facility available to a maximum of $400,000, subject to available borrowing base, with a
balance of $120,374 at December 31, 2016;
Crombie has an unsecured bilateral credit facility available to a maximum of $100,000 with a balance of $100,000 at December 31,
2016; and,
Crombie has interest rate swap agreements in place on $123,731 of floating rate mortgage debt.
Crombie estimates that $2,348 of accumulated other comprehensive income (loss) will be reclassified to finance costs during the year
ending December 31, 2017, based on all settled swap agreements as of December 31, 2016.
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 recent years’ 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, 2016
Year ended December 31, 2015
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
$
$
1,130
635
$
$
(1,130)
(635)
8 6
C R O M B I E R E I T
NOTESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of CAD dollars)
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 and recycling capital from property dispositions.
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 21, 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:
Fixed rate mortgages(2)
Senior unsecured notes
Convertible debentures
Floating rate debt
Total
Year ending December 31,
Contractual
Cash Flows(1)
2017
2018
2019
2020
2021
Thereafter
$ 2,022,289 $
170,090 $
178,077 $
235,086 $
313,864 $
170,736 $
954,436
441,079
159,251
14,407
6,906
2,622,619
191,403
231,647
5,697
188,244
6,906
373,227
104,047
7,431
66,156
308,673
121,903
129,346
3,906
447,116
—
101,651
75,377
347,764
—
—
—
954,436
—
$ 2,854,266 $
197,100 $
477,274 $
430,576 $
447,116 $
347,764 $
954,436
(1) Contractual cash flows include principal and interest and ignore extension options.
(2) Reduced by the interest rate subsidy payments to be received from ECLD.
There have been no significant changes to Crombie’s liquidity risk.
22 C A P I TA L M A N AG E M E N T
Crombie’s objective when managing capital on a long-term basis is to maintain overall indebtedness, including convertible debentures,
at reasonable levels, 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,
2016
December 31,
2015
$
1,865,477
$
1,641,203
398,588
132,134
834,203
555,943
398,080
131,518
694,484
452,746
$
3,786,345
$
3,318,031
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).
A N N U A L R E P O R T 2 0 1 6
8 7
NOTES
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
Bilateral credit facility
Total debt outstanding
Less: Applicable fair value debt adjustment
Debt
Investment properties, cost
Below-market lease component, cost(1)
Long-term receivables
Other assets, cost (see below)
Cash and cash equivalents
Deferred financing charges
Investment in joint ventures
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:
Tenant incentive accumulated amortization
Other assets, cost
December 31,
2016
December 31,
2015
$
1,655,817
$
1,521,079
400,000
134,400
120,374
100,000
2,410,591
(1,452)
400,000
134,400
130,000
—
2,185,479
(1,721)
$
$
2,409,139
4,165,983
$
$
2,183,758
3,581,618
85,946
19,969
280,954
—
14,631
815
—
(1,452)
(34,120)
72,634
13,933
180,324
1,057
14,972
—
144,323
(1,721)
(34,645)
$ 4,532,726
$
3,972,495
53.1%
55.0%
December 31,
2016
December 31,
2015
$
225,814
$
134,869
55,140
45,455
$
280,954
$
180,324
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, 2016, Crombie is in compliance with all externally imposed capital requirements and all covenants relating
to its debt facilities.
8 8
C R O M B I E R E I T
NOTESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of CAD dollars)
23 CO M M I T M E N T S A N D CO N T I N G E N C I E S
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 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, 2016, Crombie has a total of $5,027 in outstanding letters of credit related to:
Construction work being performed on investment properties
Mortgage lenders primarily to satisfy mortgage financings on redevelopment properties
Total outstanding letters of credit
December 31,
2016
$
$
2,027
$
3,000
5,027
$
2015
1,425
—
1,425
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 eight to 73 years including renewal options. For the year ended December 31, 2016, Crombie
paid $1,431 in land lease payments to third party landlords (year ended December 31, 2015 – $1,418). Crombie’s commitments under the
land leases are disclosed in Note 15.
As at December 31, 2016, Crombie had signed construction contracts totalling $53,310 of which $37,292 has been paid.
24 S U B S E Q U E N T E V E N T S
(a)
On January 20, 2017, Crombie declared distributions of 7.417 cents per Unit for the period from January 1, 2017 to and including,
January 31, 2017. The distributions were paid on February 15, 2017, to Unitholders of record as of January 31, 2017.
(b)
On February 16, 2017, Crombie declared distributions of 7.417 cents per Unit for the period from February 1, 2017 to and including,
February 28, 2017. The distributions will be paid on March 15, 2017, to Unitholders of record as of February 28, 2017.
25 S E G M E N T D I S C L O S U R E
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
I N D E M N I T I E S
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.
A N N U A L R E P O R T 2 0 1 6
8 9
NOTES
GLA
%
(approx. Occu-
sq. ft.) pancy
Property
City
Description
GLA
%
(approx. Occu-
sq. ft.) pancy
P R O P E R T Y P O R T F O L I O
Property
City
Description
N E W F O U N D L A N D & L A B R A DO R
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 Retail – Plazas
Retail – Plazas
St John’s
Mixed Use
St John’s
Retail – Enclosed
Clarenville
Retail – Plazas
St John’s
Retail – Plazas
St John’s
Retail – Plazas
18,000
Retail – Freestanding 80,000
Retail – Freestanding
27,000
50,000
Retail – Freestanding
Retail – Freestanding 20,000
19,000
Retail – Freestanding
572,000
Retail – Enclosed
65,000
38,000
66,000
108,000
158,000
162,000
100.0
100.0
100.0
100.0
100.0
100.0
98.5
100.0
65.2
100.0
99.9
99.3
86.3
1,383,000
96.8
P R I N C E E DWA R D I S L A N D
Kinlock Plaza
University Avenue
Stratford
Charlottetown Retail – Freestanding
Retail – Plazas
54,000
50,000
100.0
100.0
104,000
100.0
N O VA S CO T I A
2 Forest Hills Parkway
293 Foord Street
39 Pitt St.
75 Emerald St
133 Church St.
Russell Lake
279 Herring Cove Road
634 Reeves Street
22579 Hwy #7
Aberdeen Business
Centre
Amherst Centre
Amherst Plaza
Blink Bonnie Plaza
County Fair Mall
Dartmouth Crossing –
Cineplex
Downsview Mall
Downsview Plaza
Elmsdale Plaza
Fall River Plaza
Fundy Trail Centre
Hemlock Square
Highland Square
Park West Plaza
Mill Cove Plaza
North & Windsor Streets
North Shore Centre
Panavista Dr
Park Lane
Penhorn Plaza
Penhorn Plaza
Prince Street Plaza
Queen St Plaza
Sydney Shopping Centre
Tantallon Plaza
West Side Plaza
Scotia Square Properties
Barrington Place
Barrington Tower
Brunswick Place
CIBC Building
Cogswell Tower
Duke Tower
Scotia Square Mall
Scotia Square Parkade
N E W B R U N S W I C K
273 Pleasant St
501 Regis St.
850 St. Peters Avenue
1234 Main Street
Brookside Mall
Catherwood St
Champlain Place Sobeys
Charlotte Mall
Edmundston
Elmwood Drive
Fairvale Plaza
Loch Lomond Place
9 0
C R O M B I E R E I T
Retail – Freestanding
Dartmouth
Stellarton
Retail – Freestanding
Sydney Mines Retail – Freestanding
New Waterford Retail – Freestanding
Retail – Freestanding
Antigonish
Retail – Plazas
Dartmouth
Spryfield
Retail – Freestanding
Port
Hawkesbury
Retail – Freestanding
Sheet Harbour Retail – Freestanding
44,000
24,000
18,000
26,000
51,000
62,000
73,000
100.0
100.0
100.0
100.0
100.0
100.0
100.0
34,000
9,000
100.0
100.0
New Glasgow Mixed Use
Amherst
Amherst
Pictou
New Minas
Retail – Enclosed
Retail – Plazas
Retail – Plazas
Retail – Enclosed
Retail – Freestanding
Dartmouth
Lower Sackville Retail – Plazas
Lower Sackville Retail – Plazas
Retail – Plazas
Elmsdale
Retail – Plazas
Fall River
Retail – Enclosed
Truro
Bedford
Retail – Plazas
New Glasgow Retail – Enclosed
Halifax
Bedford
Halifax
Tatamagouche Retail – Plazas
Retail – Freestanding
Dartmouth
Mixed Use
Halifax
Retail – Plazas
Dartmouth
Retail – Freestanding
Dartmouth
Retail – Plazas
Sydney
Retail – Freestanding
Halifax
Retail – Plazas
Sydney
Tantallon
Retail – Plazas
New Glasgow Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Freestanding
Halifax
Halifax
Halifax
Halifax
Halifax
Halifax
Halifax
Halifax
Mixed Use
Office
Mixed Use
Office
Office
Office
Mixed Use
Mixed Use
390,000
228,000
25,000
45,000
268,000
45,000
71,000
226,000
147,000
98,000
125,000
159,000
201,000
143,000
144,000
50,000
17,000
48,000
273,000
104,000
77,000
71,000
54,000
186,000
157,000
71,000
191,000
186,000
256,000
208,000
204,000
251,000
260,000
89.4
45.0
100.0
93.7
50.2
100.0
100.0
96.3
97.9
97.8
97.5
99.3
100.0
96.5
95.2
100.0
100.0
100.0
86.9
100.0
100.0
98.7
87.8
75.9
96.2
92.4
100.0
98.7
100.0
84.8
98.0
89.5
79.7
5,320,000
91.4
Newcastle
Dieppe
Bathurst
Moncton
Fredericton
Saint John
Dieppe
St Stephen
Edmundston Retail – Freestanding
Moncton
Rothesay
Saint John
Retail – Freestanding 20,000
25,000
Retail – Freestanding
18,000
Retail – Freestanding
151,000
Office
43,000
Retail – Freestanding
46,000
Retail – Freestanding
52,000
Retail – Freestanding
119,000
Retail – Plazas
42,000
74,000
52,000
192,000
Retail – Plazas
Retail – Freestanding
Mixed Use
100.0
100.0
100.0
69.9
100.0
100.0
100.0
92.9
100.0
100.0
100.0
67.1
Mountain Road
Northwest Centre,
Mountain Road
Prospect St Plaza
Riverview – Findlay Blvd
Riverview Place
Tracadie
Uptown Centre
Vaughan Harvey Plaza
Moncton
Retail – Plazas
17,000
100.0
Moncton
Fredericton
Riverview
Riverview
Tracadie
Fredericton
Moncton
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Mixed Use
Retail – Plazas
Retail – Plazas
Retail – Plazas
52,000
22,000
66,000
150,000
40,000
320,000
85,000
100.0
100.0
98.3
50.1
83.8
62.5
100.0
1,586,000
79.8
84.6
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
94.1
100.0
100.0
100.0
96.5
100.0
100.0
100.0
98.7
100.0
92.9
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Q U É B E C
50 Rue Bourgeoys
88-90 Boul. D’Anjou
254 del’Hotel de Ville
1450 rue Royale
551 du Phare Est
645 rue Thibeau
680 avenue Chaussee
714 boul St-Laurent
871 rue Principale
1101 Blvd Piniere Ou
1205 rue de Neuville
1295 Chemin Ridge
1500 Rue Bretagne
2959 rue King Ouest
3260 Blvd, Lapiniere
3950 Rue King Ouest
5651 rue de Verdun
8980 Boul Lacroix
Retail – Freestanding
27,000
58,000
72,000
29,000
30,000
Bromptonville Retail – Plazas
Chateauguay
Riviere du Loup Retail – Plazas
Retail – Plaza
Malartic
Matane
Retail – Freestanding
Cap de la
49,000
Madeleine
Retail – Freestanding
43,000
Rouyn-Noranda Retail – Freestanding
23,000
Retail – Freestanding
Louiseville
Retail – Freestanding
Saint-Donat
34,000
Retail – Freestanding 235,000
Terrebonne
31,000
Retail – Plazas
Gatineau
19,000
Retail – Freestanding
Huntingdon
50,000
Baie Comeau Retail – Freestanding
Retail – Freestanding
Sherbrooke
13,000
48,000
Retail – Plazas
Brossard
52,000
Retail – Freestanding
Sherbrooke
Montreal
6,000
Retail – Freestanding
St Georges
Retail – Freestanding
de Beauce
Retail – Plazas
Beauport
Ile Perrot
Retail – Freestanding
Charlesbourg Retail – Freestanding
Quebec
Beauport Plaza
Ile Perrot
Lebourgneuf
Les Saules, DeLormiere
Retail – Plazas
McMasterville, Laurier Blvd McMasterville Retail – Plazas
Mercier
Retail – Plazas
Mercier blvd
Retail – Plazas
Paspebiac
Paspebiac Plaza
Saint Apollinaire Retail – Plazas
Saint Apollinaire Plaza
Retail – Plazas
Shawinigan
Shawinigan
Marche St-Augustin
Retail – Plazas
Mirabel
Marche St-Charles-de-
Drummond
St Lambert
Saint Romuald Plaza
Vanier
1 Westminster Ave N
Drummondville Retail – Plazas
St Lambert
Saint Romuald Retail – Plazas
Vanier
Montreal
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
44,000
68,000
24,000
59,000
69,000
54,000
58,000
73,000
62,000
67,000
38,000
48,000
19,000
70,000
17,000
21,000
O N TA R I O
34 Livingstone Ave
142 Dundas Street
215 Park Ave W,
385 Springbank
400 First Ave South
409 Bayfield Street
417 Scott Street
680 Longworth
807 King Street East
977 Golf Links Road
3130 Danforth Avenue
3362-3370 Yonge Street
5931 Kalar Rd
8265 Huntington
Algonquin Avenue Mall
Bradford
Brampton Mall
Brampton Plaza
Bronte Village
Burlington Plaza
Dorchester Road Centre
Village Square Centre
Eglinton Centre
Glendale Ave Mountain
Locks Plaza
Grimsby Centre
Grimsby Mews
Havelock Centre
Lansdowne Centre
Rockhaven
Lansdowne Plaza
Lindsay Street Centre
London Pine Valley
Markham Plaza
Milltowne Plaza
1,610,000
99.1
Grimsby
Cambridge
Chatham
Woodstock
Kenora
Barrie
Fort Frances
Bowmanville
Cambridge
Ancaster
Scarborough
Toronto
Niagara Falls
Woodbridge
North Bay
Bradford
Brampton
Brampton
Oakville
Burlington
Dorchester
Dorchester
Toronto
36,000
Retail – Freestanding
4,000
Retail – Freestanding
48,000
Retail – Freestanding
55,000
Retail – Plazas
36,000
Retail – Freestanding
48,000
Retail – Freestanding
43,000
Retail – Freestanding
42,000
Retail – Plazas
9,000
Retail – Freestanding
65,000
Retail – Freestanding
6,000
Retail – Freestanding
28,000
Retail – Freestanding
Retail – Freestanding
36,000
Retail – Freestanding 397,000
211,000
Retail – Plazas
35,000
Retail – Freestanding
103,000
Retail – Plazas
76,000
Retail – Plazas
54,000
Retail – Plazas
56,000
Retail – Plazas
Retail – Freestanding
18,000
32,000
Retail – Plazas
17,000
Retail – Freestanding
St Catharines
Grimsby
Grimsby
Havelock
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Peterborough Retail – Plazas
Peterborough Retail – Plazas
Fenelon Falls
South London Retail – Plazas
Retail – Plazas
Toronto
Retail – Plazas
Burlington
Retail – Freestanding
85,000
29,000
34,000
15,000
48,000
67,000
35,000
39,000
39,000
11,000
100.0
100.0
100.0
94.6
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
44.8
100.0
89.8
100.0
100.0
100.0
100.0
100.0
100.0
98.2
100.0
100.0
100.0
49.4
100.0
100.0
100.0
89.3
100.0
Property
City
Description
GLA
%
(approx. Occu-
sq. ft.) pancy
Property
City
Description
GLA
%
(approx. Occu-
sq. ft.) pancy
Milligan Corners
Niagara Falls Centre
Niagara Plaza
Orleans – 5150 Innes Rd
Parry Sound
Perth Mews
Queensway Plaza
Riddell Rd
Sinclair Place
Southdale
Stittsville Corner
Stoney Creek Plaza
Taunton & Wilson Plaza
Upper James Square
Village Square Mall
Weston Rd Shoppers
White Horse Plaza
M A N I TO B A
Napanee
Niagara Falls
Niagara Falls
Orleans
Parry Sound
Perth
Toronto
Orangeville
Georgetown
London
Stittsville
Stoney Creek
Oshawa
Hamilton
Nepean
Toronto
Simcoe
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Freestanding
Retail – Plazas
25,000
17,000
64,000
63,000
46,000
103,000
67,000
46,000
28,000
20,000
80,000
12,000
107,000
114,000
92,000
16,000
93,000
100.0
100.0
100.0
100.0
100.0
79.0
100.0
100.0
100.0
100.0
97.4
100.0
100.0
100.0
99.1
100.0
86.7
2,850,000
94.0
Neepawa
Winnipeg
498 Mountain Avenue
Safeway
594 Mountain Avenue
Safeway
1305-1321 Pembina
Highway Safeway
2155 Pembina Highway
Bird’s Hill Road Plaza
Jefferson Avenue
Kildare Avenue East
Kildonan Green
Marion Street
Manitoba Avenue
Osborne Street Safeway
Portage La Praire Shoppers Portage
la Prairie
Winnipeg
Winnipeg
Winnipeg
Winnipeg
Winnipeg
Birds Hill
Winnipeg
Winnipeg
Winnipeg
Winnipeg
Selkirk
Winnipeg
Portage Avenue Safeway
River Avenue Safeway
River East Plaza
Retail – Freestanding
18,000
100.0
Retail – Freestanding
18,000
100.0
39,000
Retail – Plazas
46,000
Retail – Freestanding
39,000
Retail – Freestanding
55,000
Retail – Freestanding
43,000
Retail – Freestanding
74,000
Retail – Plazas
38,000
Retail – Freestanding
Retail – Freestanding
42,000
Retail – Freestanding 20,000
Retail – Freestanding 20,000
55,000
Retail – Freestanding
59,000
Retail – Plazas
78,000
Retail – Plazas
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
S A S K ATC H E WA N
1 Avenue NW Safeway
2 Avenue West Safeway
13th Avenue
McOrmond Drive Safeway
Albert Street South
River City Center
Territorial Drive Plaza
University Park
A L B E R TA
Retail – Freestanding
Moose Jaw
Retail – Freestanding
Prince Albert
Retail – Plazas
Regina
Retail – Freestanding
Saskatoon
Retail – Plazas
Regina
Saskatoon
Retail – Plazas
North Battleford Retail – Plazas
Regina
Retail – Freestanding
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
69.0
100.0
100.0
454,000
89.0
Lethbridge
Retail – Freestanding 20,000
Calgary
48,000
Retail – Plazas
Cochrane
54,000
Retail – Freestanding
Calgary
Retail – Freestanding
38,000
Calgary
Retail – Freestanding 40,000
Calgary
42,000
Retail – Freestanding
Lethbridge
Retail – Freestanding
45,000
Calgary
Retail – Freestanding 69,000
Calgary
48,000
Retail – Plazas
Stettler
31,000
Retail – Freestanding
21,000
Beaumont
Retail – Plazas
138,000
Retail – Plazas
Leduc
66,000
Grande Prairie Retail – Plazas
48,000
34,000
62,000
44,000
79,000
55,000
51,000
52,000
80,000
43,000
46,000
606 4th Avenue South
4th Street NW Safeway
304 5 Avenue West
10 Street NW Safeway
11th Avenue SW Safeway
16th Avenue NW Safeway
23rd Street North Safeway
32nd Avenue NE Safeway
34th Avenue SW Safeway
4607 50th Street
5700 50th Street
Leduc Centre
100 Street Safeway
Retail – Freestanding
2304 109 Street NW Safeway Edmonton
Retail – Plazas
8204 109 Street NW Safeway Edmonton
Retail – Plazas
114th Avenue Safeway
Retail – Freestanding
118th Avenue NW
Retail – Plazas
South Trail Plaza
Retail – Freestanding
137th Avenue NW Safeway
Retail – Freestanding
94 MacLeod Ave
Retail – Freestanding
395 St. Albert St.
Retail – Plazas
Strathcona Square
615 Division Ave
Retail – Freestanding
688 Wye Road, Nottingham Sherwood Park Retail – Freestanding
1109 James Mowatt Trail
Southbrook Sobeys
1200 Railway Ave
1818 Centre St NE
260199 High Plains Blvd.
Beaumont Plaza
Big Rock Lane Safeway
45,000
Retail – Freestanding
53,000
Retail – Freestanding
Retail – Freestanding
35,000
Retail – Freestanding 655,000
59,000
Retail – Plazas
42,000
Retail – Freestanding
Grand Prairie
Edmonton
Calgary
Edmonton
Spruce Grove
St. Albert
Calgary
Medicine Hat
Edmonton
Canmore
Calgary
Rocky View
Beaumont
Okotoks
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
99.2
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
95.5
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Calgary
Calgary
Calgary
Calgary
Calgary
McKenzie Towne Drive
Cassils Road West Safeway Brooks
Castleridge Boulevard
NE Safeway
Chestermere Station
Way Safeway
Clearwater Landing
Crowfoot Cresent NW
Safeway
Crowfoot Way NW
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 Edmonton
Marten Street Safeway
Manning Crossing
Millwood Commons
Namao Centre
Namao Centre
167 Ave. 95 St
Lethbridge
Calgary
Retail – Freestanding
Retail – Plazas
19,000
54,000
100.0
100.0
Retail – Freestanding
56,000
100.0
Chestermere
Fort McMurray Retail – Plazas
Retail – Freestanding
43,000
143,000
100.0
100.0
Retail – Plazas
Retail – Freestanding
Retail – Freestanding
75,000
10,000
25,000
100.0
100.0
100.0
Retail – Plazas
Retail – Freestanding
64,000
42,000
100.0
100.0
Fort McMurray Retail – Freestanding 40,000
74,000
Retail – Plazas
Red Deer
50,000
Retail – Freestanding
Canmore
49,000
Retail – Freestanding
19,000
Retail – Freestanding
49,000
Retail – Freestanding
58,000
Retail – Plazas
37,000
Retail – Freestanding
Banff
Edmonton
Edmonton
Edmonton
Edmonton
Calgary
Stony Plain
Red Deer
Lethbridge
Lethbridge
Edmonton
34,000
Retail – Plazas
51,000
Retail – Freestanding
Retail – Freestanding
44,000
Retail – Freestanding 40,000
29,000
Retail – Plazas
105,000
Retail – Plazas
21,000
Retail – Freestanding
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
93.8
100.0
3,374,000
99.8
Saddletowne Circle NE
South Park Drive Safeway
Red Deer Cineplex Hwy II
Town Centre
West Lethbridge
10907 82 Avenue
B R I T I S H CO L U M B I A
2nd Avenue West Safeway
8th Street Safeway
27 Street East Safeway
Langley
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Prince Rupert Retail – Plazas
Dawson Creek Retail – Freestanding
North
Vancouver
Vernon
Vernon
Fort St. John
Surrey
Surrey
Terrace
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Freestanding
30 Avenue Safeway
32 Street Safeway
100 Street Safeway
120 Street Safeway
152nd Street Safeway
4655 Lakelse Avenue
20871 Fraser Highway
Safeway
27566 Fraser Highway
Langley
Safeway
Vancouver
8475 Granville Street
100 Mile House Retail – Plazas
Alder Avenue
Cranbrook
Baker Street Safeway
Cranbrook
Baker Street
Kelowna
Bernard Avenue Safeway
Kelowna
Bernard Avenue
Blundell Road
Richmond
Columbia Avenue Safeway Castlegar
Columbia Street West
Safeway
Davie Street Safeway
East Hastings
East Broadway Safeway
Hastings Street
King Edward Avenue West
King George Blvd.
Kingsway
Fortune Drive Safeway
Kingsway Safeway
Lerwick Road
Lougheed Highway Safeway Mission
McBride Boulevard Safeway New
Kamloops
Vancouver
Burnaby
Vancouver
Burnaby
Vancouver
Surrey
Burnaby
Kamloops
Vancouver
Courtenay
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Freestanding
Retail – Plazas
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Retail – Plazas
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Retail – Freestanding
Westminster
Retail – Freestanding
Mount. Seymour Rd Safeway North Vancouver Retail – Freestanding
Penticton
Main Street Safeway
Vancouver
Robson Street
Quesnel
Reid Street Safeway
Second Avenue Safeway
Trail
Shaughnessy Street Safeway Port Coquitlam Retail – Freestanding
West Broadway Safeway
Yale Road Safeway
Yellowhead Highway
Safeway
Retail – Plazas
Retail – Freestanding
Retail – Freestanding
Retail – Plazas
Retail – Plazas
Retail – Freestanding
Vancouver
Chilliwack
Retail – Freestanding
Smithers
52,000
43,000
100.0
100.0
37,000
29,000
56,000
55,000
53,000
56,000
43,000
100.0
100.0
100.0
100.0
100.0
100.0
100.0
48,000
100.0
45,000
47,000
28,000
48,000
8,000
30,000
19,000
28,000
27,000
50,000
37,000
4,000
42,000
61,000
28,000
62,000
33,000
56,000
51,000
97,000
55,000
43,000
36,000
59,000
41,000
30,000
32,000
49,000
55,000
52,000
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
97.9
100.0
100.0
100.0
100.0
100.0
96.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
43,000
100.0
TOTAL
1,768,000
99.8
19,093,000
94.4
A N N U A L R E P O R T 2 0 1 6
9 1
U N I T H O L D E R S ’ I N F O R M AT I O N
Board of Trustees
Donald E. Clow
Trustee, President and
Chief Executive Officer
John Eby
Independent Trustee and Lead Trustee
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 requests 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 2016
Record Date
Payment Date
January 31, 2016
February 29, 2016
March 31, 2016
April 30, 2016
May 31, 2016
June 30, 2016
July 31, 2016
August 31, 2016
September 30, 2016
October 31, 2016
November 30, 2016
December 31, 2016
Transfer Agent
February 13, 2016
March 15, 2016
April 15, 2016
May 13, 2016
June 15, 2016
July 15, 2016
August 15, 2016
September 15, 2016
October 14, 2016
November 15, 2016
December 15, 2016
January 13, 2017
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
Brian A. Johnson
Independent Trustee
J. Michael Knowlton
Independent Trustee
E. John Latimer
Independent Trustee
Barbara Palk
Independent Trustee
Jason P. Shannon
Independent Trustee
Frank C. Sobey
Trustee and Chairman
Kent R. Sobey
Independent Trustee
Paul D. Sobey
Trustee
Elisabeth Stroback
Independent Trustee
Francois 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
Cheryl Fraser
Chief Talent Officer and Vice President
Communications
Scott R. MacLean
Senior Vice President, Eastern Canada
Trevor Lee
Senior Vice President, Western Canada
John Barnoski
Senior Vice President, Corporate
Development
Fred Santini
General Counsel
9 2
C R O M B I E R E I T
Counsel
Stewart McKelvey
Halifax, Nova Scotia
Auditors
PricewaterhouseCoopers, 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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TO P 2 0 T E N A N T S
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, 2016)
Sobeys (1)(2)
Shoppers Drug Mart
Cineplex
Province of Nova Scotia
CIBC
Lawtons/Sobeys Pharmacy
Dollarama
GoodLife Fitness
Bank of Nova Scotia
Bank of Montreal
Mark’s Work Wearhouse
Canadian Tire
Public Works Canada
Royal Bank of Canada
Winners
Reitmans (Canada)
Tim Hortons
Best Buy
The Brick Warehouse
Staples
(1) Excludes Lawtons/Sobeys Pharmacy
(2) Represents 44.8% of total property revenue
% of Annual
Minimum Rent
52.9%
5.1%
1.4%
1.2%
1.1%
1.1%
1.0%
1.0%
0.9%
0.9%
0.7%
0.6%
0.6%
0.5%
0.5%
0.5%
0.6%
0.5%
0.5%
0.4%
Average
Remaining
Lease Term
15.4 years
11.3 years
8.6 years
1.9 years
14.2 years
10.3 years
6.4 years
10.3 years
4.3 years
11.2 years
2.3 years
11.4 years
1.1 years
3.1 years
5.4 years
2.4 years
6.9 years
3.0 years
8.8 years
4.1 years
20
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W H Y C R O M B I E ?
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.
• Strong Unitholder Return
• High quality, diversified and defensive
grocery anchored retail portfolio
• Proven growth and value creation
track record
Large development
pipeline opportunity
Investment grade rating – strong
and improving fundamentals
•
•
• Strong capital structure, moderate
leverage and ample liquidity
• Strong management
CROMBIEREIT.CA