Crombie REIT Annual Report 2017

Plain-text annual report

ANNUAL REPORT 2017 BUILDING A BETTER REIT ABOUT CROMBIE REIT Crombie REIT invests in high-quality, sustainable real estate where people live, work, shop and play. With 286 income-producing properties nationwide, Crombie’s portfolio of approximately 19.2 million square feet enhances local communities for the long term. We are focused on steady income growth and asset value creation through the ownership, operation and development of high-quality grocery and drugstore anchored shopping centres, freestanding stores and mixed use developments, primarily in Canada’s top urban and suburban markets. ABOUT THE COVER Work at the Davie Street mixed use development site in downtown Vancouver began in September 2017 with the demolition of the existing Safeway and neighbouring liquor store. The first of 22 potential major developments in major urban and suburban markets across the country, Davie Street is expected to nicely augment Crombie’s net asset value and yield between 5.5% and 6.0% annually on Crombie’s $104 million investment. INSIDE THIS REPORT 2 Financial Highlights 3 Message from the President and CEO 6 Strong National Portfolio 8 Smart Capital Allocation 9 Into the Next Decade and Beyond 18 Building Better Communities 19 Respecting the Environment 20 Message from the Board Financial Review 22 Table of Contents 23 58 59 60 61 62 63 64 Management’s Discussion and Analysis Management’s Statement of Responsibility for Financial Reporting Independent Auditor’s Report Consolidated Balance Sheets Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Net Assets Attributable to Unitholders Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements IBC Top 10 Tenants ABOUT FORWARD-LOOKING STATEMENTS This document includes statements about our objectives, plans, goals, strategies, future growth, financial condition, results of operations, cash flows, performance, business prospects and opportunities. These statements are forward-looking because they are based on management’s expectations about the future – they are not historical facts. Forward-looking statements include statements regarding our development pipeline size, timing and costs, net asset value creation, yield on investment in development and intended property dispositions, and statements containing words like anticipates, expects, believes, estimates, could, intends, may, plans, predicts, projects, will, would, foresees and other similar expressions, or the negative of these words. For more information and a caution about using forward-looking information, see Forward-Looking Information on page 23. ABOUT NON-GAAP MEASURES Certain financial measures in this document, including FFO, AFFO and ACFO, are not defined terms under GAAP, so they are not a reliable way to compare us to other companies. See Non-GAAP Financial Measures on page 24 for more information. BUILDING A BETTER REIT In 12 short years, Crombie has transformed a small regional portfolio into one of Canada’s leading retail REITs, with $4.9 billion in high-quality assets and an extraordinary pipeline of mixed use developments in the country’s top urban and suburban markets. This annual report examines the key strategies behind our efforts to continue Building a Better REIT. ANNUAL REPORT 2017 1 Financial Highlights (In thousands of CAD dollars, except per unit amounts and as otherwise noted) Property revenue Property net operating income Same-asset property cash NOI Operating income attributable to Unitholders Operating income attributable to Unitholders per unit – basic Operating income attributable to Unitholders per unit – diluted FFO, with 2016 “as adjusted” (1) Basic Diluted Per unit – basic Per unit – diluted Payout ratio (%) AFFO, with 2016 “as adjusted” (1) Basic Diluted Per unit – basic Per unit – diluted Payout ratio (%) Distributions per unit ACFO, with 2016 “as adjusted” (1) AFFO payout ratio (%) Interest service coverage Debt service coverage $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Year ended December 31, 2017 2016 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 411,813 290,744 243,113 163,696 1.09 1.09 181,152 186,582 1.21 1.20 73.6% 149,858 153,764 1.00 1.00 88.9% 0.89 151,883 87.7% 2.87 1.87 400,001 284,695 240,541 125,130 0.89 0.89 168,283 175,189 1.20 1.19 74.7% 138,173 142,079 0.99 0.98 91.0% 0.89 141,725 88.7% 2.97 1.96 (1) FFO, AFFO and ACFO are Non-GAAP Measures. See pages 36 and 45 of MD&A. Total Unitholder Return (% — March 31, 2006 to December 31, 2017) Total Return Index 300 240 180 120 60 Crombie REIT S&P/TSX Capped REIT Index S&P/TSX (YRS) 06 07 08 09 10 11 12 13 14 15 16 17 95.2% Committed Occupancy $18.36 Average Rent/sq.ft. at Expiry 7.6% Renewal Leasing Spreads 19.2M Total sq.ft. of GLA Crombie REIT has produced a total unitholder return of 9.2% since March 31,2006 compared to 7.6% total return for the S&P/TSX Capped REIT Index and a 5.5% total return for the S&P/TSX Composite Index over the same period. 2 CROMBIE REIT BUILDING A BETTER REIT MESSAGE FROM THE PRESIDENT AND CEO STABILITY AND PERFORMANCE 2017 was another year of steady progress for Crombie REIT in a fast-changing and uncertain world. Amid an environment of global political volatility, slow economic growth and rapid technological change, Crombie achieved stable and consistent performance from its everyday-needs real estate portfolio. We also broke ground on Davie Street, the first of 22 potential major developments that represent one of the most compelling development pipelines in the Canadian REIT industry. DONALD E. CLOW, fcpa, fca President and Chief Executive Officer Development Pipeline Creates Accretive Growth Opportunities • Crombie Fair Value • Projected Development Cost ($ billions) $4.1 $4.9 $4.9 83% Potential Growth Material Square Footage Growth • Crombie GLA • Estimated Incremental GLA from Development (GLA millions of sq.ft.) 9.1 19.2 48% Potential Increase in GLA For the 12 months ending December 31, 2017, funds from operations (FFO)* increased 7.6% to $181.2 million, or $1.20 per unit diluted, while adjusted funds from operations (AFFO)* increased 8.5% to $149.9 million, or $1.00 per unit diluted. FFO and AFFO growth were driven by same-asset cash net operating income growth, increased revenue from $116.2 million in new acquisitions, higher renewal rents and efficient financing costs. These factors were offset by $195.6 million in dispositions of non-core assets made during the prior year to recycle capital into higher- yielding development opportunities. Our core portfolio remains stable, as evidenced by a 1.5% growth in adjusted same -asset cash net operating income in 2017. This growth reflects increased average rents from leasing activities, improved recovery rates and land-use intensification activities. Building a Better REIT While Crombie’s size and diversity have increased significantly over the past 12 years, our strategies for Building a Better REIT continue to consist of three basic pillars – improving portfolio quality, enhancing financial strength and developing great talent; all while minimizing risk in every aspect of our business. Our approach to risk management is described on page 51 in the MD&A of this report. A proven real estate strategy is what drives our stable and improving results. It consists of: leveraging our strategic partnership with Sobeys to acquire assets that fit within our strategy; opportunistically acquiring properties on the third-party market; continuing to execute on our major development and intensification pipelines; and, recycling capital for funding and portfolio quality improvement. Over the past 12 years, we have acquired more than $2.4 billion in properties from Sobeys and Empire as they expanded their presence across the country, transforming Crombie into a geographically diversified, increasingly urban, everyday-needs focused REIT in the process. Today, more than 89% of the annual minimum rent generated by our Top 25 Tenants is derived from e-commerce resilient tenants such as grocers, drugstores, fitness facilities and other service providers that serve everyday-needs in prosperous and growing communities. While such steady-performing properties will continue to be the focus of our acquisition strategy, development potential is an increasingly important consideration. During 2017, Crombie acquired $116.2 million of properties including the magnificent Belmont Market lands near Victoria, BC, and McCowan and Ellesmere, in Toronto. At Belmont, we are developing a mixed use community in one 3 ANNUAL REPORT 2017 Minimizing Risk In a capital-intensive business such as ours, the continuous monitoring, management and mitigation of risk is essential. All of our major business decisions are guided by a disciplined and thoughtful risk assessment and management program to ensure financial and operating strength throughout economic and interest rate cycles. IT SYSTEMS CAPABILITIES TENANT CONCENTRATION MAJOR DEVELOPMENT PROJECTS ACQUISITIONS FINANCING, REFINANCING & LIQUIDITY 4 of the province’s most vibrant and fastest- growing regions. The newly acquired property located at McCowan and Ellesmere is adjacent to a major transit node in Toronto, and offers significant development value potential in Canada’s largest urban market. Crombie has increased its focus on driving Net Asset Value (“NAV”) creation, which we believe is one of the best uses of our capital. We are creating value by repurposing existing under-utilized urban assets into their highest and best use. Today we are fortunate to own, relative to the value of our existing property portfolio, one of the largest development pipelines in the Canadian REIT industry, with 22 properties representing $3.0 to $4.5 billion in potential mixed use development investment over the next 10 to 15 years. The first development in our pipeline – Davie Street in Vancouver’s west end – kicked off in September 2017 with demolition of the existing structure and is scheduled for completion in 2020. Featuring 53,000 square feet of new retail space and up to 330 luxury rental suites, Davie Street answers the growing public demand for live, work, shop, and play communities, while enabling Crombie to generate significant value, income growth and diversification. Crombie’s $104 million share of development costs is expected to create significant net asset value with a yield on estimated cost of 5.5% to 6.0% on our investment. This is remarkable given that cap rates in Vancouver currently range from 2.25% to 3.00% for residential and 4.00% to 5.00% for retail properties. You can find out more about Davie Street, and the similar mixed use development opportunities in our pipeline, throughout this report. While Crombie’s highest profile development opportunities are situated in Canada’s six largest cities, we also have development opportunities in other urban markets. Many of these communities exhibit similar population and income growth rates and offer superior risk-adjusted returns. Our development pipeline includes Scotia Square in Halifax, NS, where a $12 million modernization has fortified its position as the city’s premier business address, and Avalon Mall in St. John’s NL, where a $107 million renovation and expansion is underway at the province’s only regional enclosed shopping centre. While these high- quality assets differ from the everyday retail properties at the heart of our growth strategy, they occupy dominant positions in their markets, generate consistent income and asset value growth, and hold significant development “ The July 2017 acquisition of the McCowan and Ellesmere property at one of Toronto’s major transit hubs is the first evidence of our strategy to purchase third-party owned properties in which Sobeys possesses a valuable long-term leasehold.” potential. This two-phased redevelopment plan includes the recently vacated Sears space, which will be partially demolished and reconfigured to host mid-size box tenants aspiring to have an address at Avalon Mall. The second pillar of our growth strategy is enhancing financial strength. We continued to take advantage of our investment-grade credit rating in 2017 to diversify our sources of financing and lower our cost of capital. We issued $225 million in unsecured notes, and redeemed $60 million of convertible debentures, further increasing our balance sheet strength, liquidity and flexibility. Given the significant value creation opportunity embedded in our current portfolio, we are focused on our capital recycling program and intend to fund a portion of our growth with disposition proceeds. Late in the year we sold a single asset for $16 million and plan to make more use of this funding source into 2018. This shift in our capital allocation focus will allow us to direct capital to higher returning developments. Crombie is well positioned to advance our growth strategy with $954 million of unencumbered assets at year-end and $434 million of unused bank credit at our disposal. The third strategic pillar for Building a Better REIT is our culture and talent. We are committed to building and maintaining a best- in-class operating platform and high-quality team of real estate professionals across Canada and continue to invest in our development and analytics expertise. Real estate is very much a local business so we are ensuring we have strong regional talent and a deep bench to keep our fingers on the pulse of local markets and better serve the needs of our tenants. We are equally committed to making Crombie a great place to work, as evidenced by the continued recognition of our efforts to foster a culture of operational excellence, continuous learning and leadership development. In August 2017, we were delighted to welcome Toran Eggert to our team as Executive Vice President of Portfolio Management. An CROMBIE REIT BUILDING A BETTER REITexperienced and highly respected leader in the commercial retail sector, Toran oversees the operational execution of our national business strategy, with responsibility for portfolio management, leasing, construction and major development projects. 2018 and Beyond While no one can predict the future, it is possible to be ready for it. Crombie is fortunate to have one of the steadiest and most defensive portfolios in Canadian real estate. In the face of retail headwinds such as rising interest rates and the growth of e-commerce, our everyday- needs portfolio is positioned to produce stable and consistent operating and financial performance. Within this portfolio, we also have one of the most compelling development pipelines in the Canadian REIT industry. We are ready to capitalize on this opportunity, through a prudent pace of complementary residential and retail development in the years to come, to deliver solid risk-adjusted returns. With the continued support of my colleagues, our associates at Sobeys and Empire, and all of our valued business and community partners, I look forward to reporting on our continuing progress. Sincerely, Donald E. Clow, fcpa, fca President and Chief Executive Officer * Crombie follows the recommendations of REALpac in determining FFO. Beginning in Q1 2017, Crombie began reporting the newly recommended non-GAAP measure ACFO or adjusted cash flow from operations as per recommendations in the REALpac white paper. Additionally, REALpac developed a white paper for AFFO, clarifying AFFO as an earnings metric and requiring recoverable capital expenditures to be deducted in deriving AFFO. This AFFO white paper has been applied to 2017 and 2016. See MD&A for more detail. 89% of annual minimum rent generated by Top 25 Tenants is derived from e-commerce resilient tenants Strong Leadership with Deep Bench DONALD CLOW GLENN HYNES CHERYL FRASER TORAN EGGERT PRESIDENT & CEO EVP, CFO & SECRETARY CHIEF TALENT OFFICER, VP COMMUNICATIONS EVP, PORTFOLIO MANAGEMENT JOHN BARNOSKI TREVOR LEE SCOTT MACLEAN FRED SANTINI KEN TURPLE SENIOR VP, CORPORATE DEVELOPMENT SENIOR VP, WESTERN CANADA SENIOR VP, EASTERN CANADA GENERAL COUNSEL VP, ACCOUNTING & FINANCIAL REPORTING BRADY LANDRY JEFF DOWNS STEVE CLEROUX TERRY DORAN AARON BRYANT VP, FINANCIAL ANALYSIS & TREASURY VP, ENTERPRISE INFORMATION SYSTEMS VP, NATIONAL LEASING & ATLANTIC DEVELOPMENT VP, OFFICE PROPERTIES VP, CONSTRUCTION & DESIGN, EASTERN CANADA 5 ANNUAL REPORT 2017STRONG NATIONAL PORTFOLIO AN EXTRAORDINARY DEVELOPMENT PIPELINE Crombie is one of Canada’s leading real estate investment trusts, with a $4.9 billion real estate portfolio and a large pipeline of potential development properties centred in Canada’s largest cities. We believe in building high-quality, sustainable real estate that enhances local communities for the long term. We invest in welcoming and convenient properties where people want to live, work, shop and play. With 286 properties nationwide, we’re proud of how we’re helping shape Canada. Featured Development Properties Crombie has begun to capitalize on a pipeline of 22 major development opportunities that represents $3.0 to $4.5 billion of potential development over the next 10 to 15 years 10–15 Year development ladder $3.0–$4.5B Potential mixed use development 6 Active development Active development VANCOUVER, BC 1641 DAVIE STREET LANGFORD, BC BELMONT MARKET Demolition began in September 2017 to make way for 53,000 square feet of new retail space and up to 330 residential rental units. Development cost: Expected yield on cost: Current market cap rates: Residential Retail $104 million 5.5% to 6.0% Potential NAV creation: Upwards of $100 million Projected annual residential: Rental growth rate 2.0% to 3.0% Acquired from Sobeys in 2017, phase one is being developed as a grocery anchored mixed use centre in Greater Victoria and is scheduled to open in the autumn of 2018. Development cost: Expected yield on cost: $104 million 5.5% to 6.3% 2.25% to 3.00% 4.00% to 5.00% Current market cap rate: 5.00% to 5.75% Potential NAV creation: $15–20 million CROMBIE REIT BUILDING A BETTER REIT BC 1 9 AB 1 3 SK MB QC ON WEST 42% Properties Development Projects CENTRAL 23% 4 42% of net operating income is derived from assets in Western, 23% Central and 35% Atlantic 1 NL PE 1 2 NB NS ATLANTIC 35% To be developed Development planning Active development TORONTO, ON McCOWAN & ELLESMERE OAKVILLE, ON BRONTE VILLAGE ST. JOHN’S, NL AVALON MALL Acquired from a third party in 2017, this future mixed use development site is located at one of Toronto’s major transit hubs, where plans are underway for a new subway extension. Together, Crombie and Sobeys (current anchor tenant) are uniquely positioned to unlock the development value embedded in this site. Located in one of the GTA’s most attractive neighbourhoods, the redevelopment of Bronte Village will add luxury rental residential density in a desirable area currently experiencing undersupplied market conditions. The redevelopment plan for this 5.66-acre site calls for two 10 to 14 storey towers of residential suites and 15,000 square feet of everyday-needs retail space. Phase I of Avalon Mall’s three-year redevelopment is underway with construction of a four-level 875 space parking structure, redesign and realignment of the main mall vehicular access and renovation of the mall’s common areas. Phase II will replace former Sears space with modern tenant spaces, common areas and mall exterior. This multi-phase development will allow us to improve tenant mix, increase sales per square foot, maximize NOI, and further enhance customer experience. 7 ANNUAL REPORT 2017SMART CAPITAL ALLOCATION DEVELOPMENT/ MODERNIZATIONS ACQUISITIONS VIA SOBEYS THIRD-PARTY ACQUISITIONS Crombie’s strategy for Building a Better REIT is aimed at growing Net Asset Value and AFFO per unit over time, while prudently managing risk and maintaining a strong balance sheet. We seek to derive the highest and best use from existing assets by investing free cash flow from our everyday retailing properties, deploying proceeds from the disposition of lower-growth and non-core real estate and accessing capital markets when appropriate, to develop and modernize our portfolio. Accretive acquisitions from Sobeys and third parties are a continuing priority, albeit at a more measured pace with consideration of future development potential. Our relationship with Sobeys provides many competitive advantages, including the first right of refusal on new properties, preferred access to top urban markets, and a primary tenant whose interests are aligned with our growth strategies. 8 CROMBIE REIT BUILDING A BETTER REITINTO THE NEXT DECADE & BEYOND BUILDING A BETTER REIT 1 2 3 4 High-quality properties Active management and development A strong balance sheet A talented real estate team 10 12 14 16 9 ANNUAL REPORT 20171 We continuously enhance the quality of our portfolio, with a focus on everyday-needs in high-growth urban and suburban markets For the past 12 years, Crombie REIT’s growth strategy has focused on the steadiest performing assets in commercial real estate – grocery and drugstore anchored properties and freestanding stores whose tenants provide everyday, e-commerce resilient goods and services to prosperous and growing communities. Through the acquisition of such assets, Crombie’s portfolio has become more geographically diversified, and concentrated in Canada’s top urban and suburban markets. Characterized by strong occupancy and long-term lease agreements, these properties provide steady and predictable income growth, and in select markets, the opportunity to create material value through eventual mixed use development. 10 Acquired in 2016, this Granville Street Safeway in Vancouver typifies the everyday- needs focus of our retail properties. CROMBIE REIT BUILDING A BETTER REIT VICTORIA, BC BELMONT MARKET Since our 2006 IPO, Crombie has acquired more than $2.4 billion of high-quality retail assets from Sobeys and Empire, helping to support the expansion of one of Canada’s largest national food retailers. In 2017, Crombie acquired Belmont Market from Sobeys. Currently under development as a mixed use property near Victoria, BC, it will be anchored by Thrifty Foods and serve as home for the banner’s new regional office. 1% about 1% of Canadian grocery spend is purchased through e-commerce(1) (1) Statistics Canada (Fair Value of Assets) $2.0B Western $1.2B Central $1.7B Atlantic Growing Exposure to Higher Growth Central & Western Regions (% of AMR) 100 80 60 40 20 (YRS) 06 07 08 09 10 11 12 13 14 15 16 17 Located in Canada’s Top Urban and Suburban Markets Over the past 12 years, Crombie has successfully increased its presence in Canada’s largest and fastest growing urban and suburban markets. 11 ANNUAL REPORT 2017 2 We actively manage and develop our properties to maximize their income potential and property net asset value by emphasizing their highest and best use Approximately 86% of properties are high-traffic, steady-performing grocery or drugstore anchored properties. Yet these properties also represent what is proportionately one of the largest pipelines of potential development projects in the Canadian REIT industry. Today, this $3.0 billion to $4.5 billion pipeline includes 22 prime urban and suburban locations, 16 of which are located in Vancouver, Calgary, Edmonton and Toronto. Currently in various stages of evaluation, planning and development, and with the first three projects now under construction, we expect these opportunities to generate significant NAV creation and cash flow growth for our Unitholders. 12 M c C O W A N R O A D McCOWAN AND ELLESMERE PROPERTY E L L E S M E R E R O A D ONTARIO 50 M c C O W A N R O A D Same-Asset NOI Growth Same-asset property cash net operating income has grown at an average annual rate of 2.1% over the past five years. (YRS) 17 16 15 14 13 1.1% 1.4% 1.8% 1.9% 4.2% (%) 0 1 2 3 4 5 CROMBIE REIT BUILDING A BETTER REIT TORONTO, ON McCOWAN AND ELLESMERE The $42 million purchase of the McCowan and Ellesmere property in Toronto from a third party represents the first of several potential opportunities to acquire real estate in which Sobeys is an anchor tenant and long-term leaseholder. Together, we are uniquely positioned to unlock value through high-density residential development at one of Toronto’s key transit hubs and planned development sites. 22 Prime urban and suburban development locations in Canada Crombie’s existing portfolio has achieved steady organic growth through the ongoing efforts of our property management, leasing and redevelopment teams. Following a $12 million modernization and expansion, Scotia Square remains Halifax’s premier business address and a potential site for future mixed use development. Improving FFO/AFFO Payout Ratio Units of Crombie REIT offer a dependable and well-covered, low-risk distribution generated by our high quality tenant and asset base. • • FFO Payout Ratio • • AFFO Payout Ratio FFO/Unit (RHS) AFFO/Unit (RHS) (%) 100 80 60 40 20 88.9% AFFO Payout Ratio offers Unitholders a well-covered distribution (YRS) 11 12 13 14 15 16 17 ($) 1.20 1.00 0.80 0.60 0.40 13 ANNUAL REPORT 2017Unencumbered Assets Unencumbered assets in our property portfolio reached $1 billion in 2016 and ended 2017 at $954 million, reflecting strong liquidity and financial flexibility. (Millions $) 1,000 800 600 400 200 (YRS) 11 12 13 14 15 16 17 3 We maximize liquidity and financial flexibility by maintaining a strong balance sheet and access to multiple sources of capital With the benefit of an investment- grade credit rating, we continued to improve our liquidity, optimize our cost of capital, strengthen our balance sheet and de-risk our business in 2017. Our liquidity and financial flexibility continue to grow with $434 million of unused bank financing capacity, $954 million of unencumbered assets and an expanding pool of unsecured debt totalling $700 million. The financial covenants and weighted average remaining lease terms of our major tenants, including the grocery and drugstores, banks and other everyday retailers in our properties, allow us to borrow using longer debt maturities, which translates into lower financing risk. No more than 5.1% of the rental space in our portfolio will be maturing in a single year over the next five years. 14 CROMBIE REIT BUILDING A BETTER REITStrong Property Growth with Steady Occupancy Crombie REIT’s portfolio has experienced strong growth in gross leasable area (GLA) and steady occupancy rates during challenging economic times. • Portfolio GLA Occupancy/Leased (RHS) Portfolio GLA (sq.ft. in thousands) Occupancy (%) 20,000 15,000 10,000 5,000 (YRS) IPO 06 07 08 09 10 11 12 13 14 15 16 17 100 95 90 85 95.2% committed occupancy increased to 95.2% at the end of 2017, highest since 2010 Stittsville Corners is a grocery anchored retail plaza located in one of Ottawa’ s fast-growing suburban communities. HALIFAX, NS SCOTIA SQUARE Situated in the heart of the Halifax business district, Scotia Square comprises 1.6 million square feet of prime office and retail space. A recently completed three-level, 25,000 sq.ft. expansion on Barrington Street includes this welcoming main entrance into the complex. 15 ANNUAL REPORT 2017 4 Our growing team of talented real estate professionals takes a best-in-class approach to every facet of our business At Crombie, Building a Better REIT relies on building a team of strong individuals. As we grow, Crombie continues to add talented team members who strengthen our expertise in an expanding range of real estate activities and share our passion for helping to make the communities in which we operate better places to live, work, shop and play. Working together, we are committed to being the best at everything we do. That’s why we foster a diverse and inclusive workplace, recognize the unique contributions of our employees and support their growth through ongoing professional and leadership development programs. 16 AWARDS 2017 Crombie’s vibrant corporate culture, flexible work conditions, professional development opportunities and care for communities continued to earn industry recognition in 2017. CROMBIE REIT BUILDING A BETTER REITFeatured Employees We continue to acquire and develop the talent required by our growing business and are proud that so many employees choose to build their careers at Crombie REIT. CINDY LACIRENO WILTON DAMAS PROPERTY MANAGER, QUEBEC REGIONAL OFFICE MONTREAL DIRECTOR OF INFORMATION SYSTEMS NEW GLASGOW Cindy joined Crombie in 2016 with 18 years of experience in the commercial real estate business and manages a 1.2 million square foot property portfolio in Quebec and Eastern Ontario. Cindy and her team of real estate professionals are responsible for customer relations, maintenance and other operations at 38 properties in Quebec and three properties in Eastern Ontario. Wilton joined the Crombie team in 2017 to lead Information Systems strategic & operational planning as well as the execution of daily business requirements. A seasoned IT professional with more than 30 years of experience, Wilton holds undergraduate degrees in Computer Science and Business Administration, PMP as well as an MBA. ERIN BROWNLOW MANAGER, ESTIMATING NEW GLASGOW Erin joined Crombie in 2016 with over 20 years of experience in the construction industry as a cost consultant, estimator, estimating manager, project coordinator and contract manager. A Professional Quantity Surveyor (PQS), Gold Seal Certified Estimator (GSC) and Certified Technician in the building discipline (C.Tech.), Erin is an Architectural Engineering Technician graduate of Nova Scotia Community College (NSCC). TAMMY GAY PROPERTY MANAGER NEW GLASGOW Tammy joined Crombie predecessor company, Atlantic Shopping Centres, in 1991 as a part-time administrator for Aberdeen Shopping Centre. Over the past 27 years, she has assumed a number of increasingly senior roles and in 2017 was appointed to the position of Property Manager for Aberdeen Shopping Centre and Fundy Trail Centre. MATTHEW MARCH RUTH MARTIN SENIOR ANALYST, FINANCIAL REPORTING NEW GLASGOW Matthew joined Crombie in 2013 as a Property Accountant with public accounting experience. Today, his critical responsibilities include fixed- asset reporting and analysis, as well as property valuations, tax planning and reporting. Matt holds a CPA, CA designation and is a CFA® charterholder. FINANCIAL ANALYST NEW GLASGOW Ruth joined Crombie in 2014 as a Property Accountant and today works as a Financial Analyst with many groups across the organization – including development, operations, and leasing – on reporting, budgeting, and analytics. Ruth graduated from STFX University in 2013 with a Bachelor of Business Administration, major in Accounting, and holds a CPA, CA designation. PAUL EVANS MANAGER, FACILITIES AND PROCUREMENT HALIFAX Paul joined Crombie predecessor company, Atlantic Shopping Centres, more than 40 years ago in maintenance at Halifax Developments (now Scotia Square) and since that time has assumed increasingly senior positions as a foreman, supervisor, residential supervisor and manager at Scotia Square properties. MIKE SAMSON PROPERTY MANAGER HALIFAX Mike joined Halifax Developments Limited (now Scotia Square) in 1977 as an electrician, transitioning to the role of Property Manager at HDL in 1995. Today, his property management responsibilities extend to other Crombie-owned properties throughout southern Nova Scotia. KIM ZIRVI TREVOR DEGEER ACCOUNTS RECEIVABLE ADMINISTRATOR TORONTO Kim joined Crombie’s Ontario Region office in 2006 as Administrative Assistant providing ongoing support to the Operations and Leasing team over the next five years. In 2011, Kim moved into the role of Accounts Receivable Administrator, handling the Ontario portfolio. SENIOR ANALYST, DEVELOPMENT AND ASSET MANAGEMENT TORONTO Trevor joined Crombie’s Ontario Region Office in 2017 as a Senior Analyst in Development and Asset Management following years in real estate finance at a major Canadian bank. He is part of a team responsible for intensifying sites in our existing portfolio and uncovering new development opportunities. ELYSE TOMIE LEASING MANAGER CALGARY Elyse Tomie joined Crombie in 2014 as Leasing Manager for our fast-growing retail real estate portfolio in Western Canada. Prior to joining Crombie, Ms. Tomie held roles at First Capital Realty and Canadian Tire Real Estate Limited. She has an Honours of Business Administration from the Richard Ivey School of Business at the University of Western Ontario and a Diploma of Urban Land Economics from the Sauder School of Business at the University of British Columbia. 17 ANNUAL REPORT 2017BUILDING BETTER COMMUNITIES Some of the vital community organizations we support include: Building a Better REIT means giving back to the communities that are home to our operations across the country. We live this commitment every day, from our support of the causes we’ve chosen to champion to the way we build and manage our property portfolio. Enriching Our Communities There are people in our communities who need a helping hand to overcome the challenges that affect their daily lives. Crombie helps by supporting charitable organizations across Canada through direct financial support, as well as through the generous volunteer efforts of our employees. Crombie’s Toronto team sorted and bagged over a tonne of fresh vegetables for distribution at the Daily Bread Food Bank during the holiday rush in 2017. The Daily Bread works on long-term solutions to poverty, while providing food to 200 programs across Toronto. 18 The Alberta Adolescent Recovery Centre, focused on freeing young Canadians from addiction The Canadian Mental Health Association, a nationwide leader and champion for mental health Catapult, a non-profit camp that helps build the leadership, problem-solving and decision-making skills of young Nova Scotians Covenant House, providing services and supports to at-risk, homeless and trafficked youth Dreams Take Flight, providing trip-of-a-lifetime experiences to physically, mentally, or socially challenged children Race on the River, a fundraising event for breast and prostate cancer support, for which Crombie employees have raised over $300,000 YMCA Strong Kids, giving kids the opportunity to participate in life-enhancing programs that build body, mind and spirit CROMBIE REIT BUILDING A BETTER REITRESPECTING THE ENVIRONMENT Crombie’s commitment to building better communities extends equally to the environment. We are proud to develop and manage sustainable and efficient properties that are welcome additions to the neighbourhoods they serve. Environmental responsibility is an integral part of our everyday decision-making and business practices and we are proud to foster a corporate culture where every employee values the environment and understands their role in protecting it. All of the new-build designs for Crombie’s retail properties meet LEED® equivalent standards and we continue to earn and upgrade BOMA BEST® certification for our existing properties. All Scotia Square buildings now hold BOMA BEST® Gold Certification with energy reduction and sustainable initiatives ongoing; Avalon Mall and Park Lane are BOMA BEST® Silver Certified. Both Avalon Mall and Scotia Square have received BOMA Awards of Excellence in their respective provinces. Barrington Place and the CIBC Building, part of Crombie’s Scotia Square complex, have both received BOMA Canada’s TOBY® Award, (The Outstanding Building of the Year) at the national level. 590,220kWh/yr Our total expected kWh savings. In Western Canada seven properties are slated for exterior lighting LED retrofits. The estimated savings in total for the seven properties is 590,220 kWh per year (savings of over 70%). Avalon Mall in Newfoundland and Labrador is BOMA BEST® Silver Certified. In 2017, Avalon Mall received the BOMA NL Award of Excellence and earned Crombie the title of BOMA NL Company of the Year. The recent parkade lighting upgrade, which will save an estimated 71,000 kWh of electricity per year, is another example of Crombie’s commitment to reducing energy consumption. We began the process of greening our buildings at Scotia Square in 2008. Since then, completed projects have saved Crombie 18.6 million kWh of electricity and 22.5 million gallons of water per year, resulting in savings of over $2.5 million in annual operating costs. 19 ANNUAL REPORT 2017MESSAGE FROM THE BOARD CONTINUING PROGRESS ON ALL FRONTS Crombie’s senior leadership team did a very good job of executing its strategies for sustainable growth in 2017, enhancing the quality of the property portfolio, investing in value creation, maintaining a prudent financial foundation, and strengthening our talent from coast to coast. Among the ongoing responsibilities of the Board of Trustees is the approval of management’s strategic plan and monitoring its successful execution. The senior management team performed well in their determination to “Build a Better REIT” in 2017, hitting key financial and operating targets and breaking ground on the first multi-residential project in Crombie REIT’s impressive development pipeline. Fulfilling our responsibilities as a Board on behalf of all investors requires the highest standards of corporate governance. Accordingly, while Empire Company maintains a 40.3% (fully diluted) ownership interest in Crombie REIT, the Board is structured and operated to fairly represent the interests of all Unitholders. It consists of both appointed and elected Trustees, as specified in our Declaration of Trust, with a majority being elected and independent. The elected Trustees hold separate in-camera meetings with and without the appointed Trustees and management at each Board meeting. Empire-appointed Trustees also do not participate in any decisions concerning related party transactions with Sobeys or Empire. Our effectiveness as a Board also depends on the contributions of highly engaged individuals who bring a diversity of experience, expertise, geography and gender to our deliberations. In 2017, we were privileged to welcome Debra Hess, former Chief Financial Officer of NorthStar Asset Management Group and NorthStar Realty Finance Corp in New York, who has brought a wealth of executive experience in commercial real estate and investment banking. The Board has also been strengthened by the addition of Jim Dickson, Chair of Empire Company Limited, who specialized in mergers and acquisitions, corporate finance and securities law before retiring from Stewart McKelvey in 2016. In closing, we would like to convey our thanks and best wishes to Mr. Francois Vimard, who retired from the Board in June. We would also like to extend our appreciation to Crombie’s employees, investors, communities, tenants and business partners for their contributions to Crombie’s continuing success. We particularly wish to acknowledge the importance of Crombie REIT’s strategic relationship with Sobeys. Sobeys has and will continue to play a major role in the growth of Crombie’s property portfolio and as our largest tenant, is key to the steady performance of Crombie’s everyday retailing assets. This mutually beneficial relationship will continue to evolve in its importance as Crombie finds new ways to create value through active portfolio management and development of commercial real estate. Frank C. Sobey Trustee and Chair John C. Eby Lead Independent Trustee 20 CROMBIE REIT BUILDING A BETTER REITBoard of Trustees FRANK C. SOBEY JOHN C. EBY DONALD E. CLOW JIM M. DICKSON CHAIRMAN Frank Sobey has been a trustee of Crombie and its predecessors since 1981 and Chairman since 1998. He is a director of Empire Company Limited, and former Chair of the Dalhousie Medical Research Foundation. Mr. Sobey is a graduate of the Harvard Business School’s Advanced Management Program and, in 2013, received the ICD.D designation. INDEPENDENT TRUSTEE & LEAD TRUSTEE John Eby was Vice-Chairman of Scotia Capital from 2000 until his retirement in 2006 and for 10 years prior had been Senior Vice President, Corporate and Energy Banking, BNS. He is a director of Wajax Corporation, received his BA and MBA in Finance from Queen’s University and is founder and CEO of Developing Scholars, a not-for-profit that promotes educational initiatives in Guatemala. TRUSTEE INDEPENDENT TRUSTEE Donald Clow is President and Chief Executive Officer of Crombie and serves the boards of Granite Real Estate Investment Trust, Acadia University and REALpac. Mr. Clow holds a BBA from Acadia University, earned his CA with KPMG and was designated an FCA in 2002. A graduate of the YPO President’s Program at Harvard Business School, he received the ICD.D designation in 2014. Jim M. Dickson is the Chair of Empire Company Limited, a director of Clearwater Seafoods International and Sobeys Inc., and counsel to Stewart McKelvey. He holds a Certificate in Engineering from Mount Allison University, a BCE from the Technical University of Nova Scotia and an LLB from the University of Calgary. He is a professional engineer and was appointed Queen’s Counsel in 2010. DEBRA A. HESS BRIAN A. JOHNSON J. MICHAEL KNOWLTON BARBARA PALK INDEPENDENT TRUSTEE INDEPENDENT TRUSTEE INDEPENDENT TRUSTEE INDEPENDENT TRUSTEE Debra Hess is the former Chief Financial Officer of Northstar Asset Management Group and has held senior positions at Goldman Sachs & Co. and the Chemical Banking Corporation. She is a member of the board of directors for AG Mortgage Investment Trust, Inc. and holds an MBA in Finance from New York University and a B.S. degree in Accounting from the University of Connecticut. Brain Johnson is the former President and CEO of Crown Life Insurance Company, a partner of Crown Realty Partners, and former director and Saskatchewan President of the Canadian Unity Council. Mr. Johnson received his B. Comm from University of Manitoba, his MBA from the University of Pennsylvania and is a CFA® charterholder. Michael Knowlton retired from Dundee Realty Corporation as the President of Dundee REIT in 2011 after 13 years of service. He is a director of Tricon Capital Group Inc. and a trustee of Dream Industrial REIT and Dream Global REIT. Mr. Knowlton received his B.Sc. (Engineering) and MBA from Queen’s University, earned his CA designation in 1977 and his ICD.D designation in 2011. Former President of TD Asset Management Inc., Ms. Palk serves on the Boards of TD Asset Management USA Funds Inc., Ontario Teachers’ Pension Plan, and First National Financial Corporation. She is a member of the Institute of Corporate Directors, a Fellow of the Canadian Securities Institute, a CFA® charterholder, holds a BA in Economics from Queen’s University and has received the ICD.D designation. JASON P. SHANNON KENT R. SOBEY PAUL D. SOBEY ELISABETH STROBACK INDEPENDENT TRUSTEE INDEPENDENT TRUSTEE TRUSTEE INDEPENDENT TRUSTEE Jason Shannon has been the President and Chief Operating Officer of Shannex Inc. since 2006. He holds a Bachelor of Commerce and an LL.B. from Dalhousie University and was called to the Nova Scotia bar in 1998. Mr. Shannon is a member of the board of the Atlantic Institute of Aging and is a director of the Loran Scholars Foundation. Kent Sobey is founder and President of Farmhouse Productions Ltd., and a corporate director of Blue Ant Media, Hollywood Suite and is a trustee of the Frank H. Sobey Awards for Excellence in Business Studies. He received his Bachelor of Arts from Dalhousie University, is a graduate of The Vancouver Film School and has completed executive development at Rotman School of Management and Queen’s University. Paul Sobey retired as President and Chief Executive Officer of Empire Company Limited in 2013. He received his Bachelor of Commerce from Dalhousie University, attended Harvard University Business School’s Advanced Management Program and is a Chartered Accountant and FCA. He sits on the boards of Empire Company Limited, Sobeys Inc. and is Chancellor of Saint Mary’s University. The former President of Hammerson Canada Inc., Elisabeth Stroback provides advice to public institutions on property development and real estate. She received her BA from the University of Western Ontario and Master’s Degree in Economics from Queen’s University, and is Human Resources Compensation Committee Certified (HRCC) from the Director’s College. 21 ANNUAL REPORT 2017FINANCIAL REVIEW MANAGEMENT’S DISCUSSION AND ANALYSIS 23 Introduction 27 Overview of the Property Portfolio 33 Financial Results 41 Liquidity and Capital Resources 47 Accounting 51 Risk Management 55 Subsequent Events 55 Controls and Procedures 56 Quarterly Information CONSOLIDATED FINANCIAL STATEMENTS 58 Management’s Statement of Responsibility for Financial Reporting 59 Independent Auditor’s Report 60 Consolidated Balance Sheets 61 62 63 64 Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Net Assets Attributable to Unitholders Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements 22 CROMBIE REIT BUILDING A BETTER REITMANAG EMENT’ S DISCUSSION AND ANALYSIS (in thousands of C AD dollars, except per unit amounts) ANNUAL REPORT 2017 Management’s Discussion and Analysis (In thousands of CAD dollars, except per unit amounts) INTRODUCTION The following is Management’s Discussion and Analysis (“MD&A”) of the consolidated financial condition and results of operations of Crombie Real Estate Investment Trust (“Crombie”) for the year and quarter ended December 31, 2017, with a comparison to the financial condition and results of operations for the comparable periods in 2016. This MD&A should be read in conjunction with Crombie’s audited consolidated financial statements and accompanying notes for the year ended December 31, 2017 and December 31, 2016, prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Information about Crombie can be found on SEDAR at www.sedar.com. DATE OF MD&A The information contained in the MD&A, including forward-looking statements, is based on information available to management as of February 21, 2018, except as otherwise noted. FORWARD-LOOKING INFORMATION This MD&A contains forward-looking statements about expected future events and the financial and operating performance of Crombie. These statements include, but are not limited to, statements concerning management’s beliefs, plans, estimates, intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical fact. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may”, “will”, “estimate”, “anticipate”, “believe”, “expect”, “intend” or similar expressions suggesting future outcomes or events. Such forward-looking statements reflect management’s current beliefs and are based on information currently available to management. All forward-looking information in this MD&A is qualified by the following cautionary statements: (i) (ii) the accretive acquisition of properties, including the cost and timing of new properties under right of first offer (“ROFO”) agreements, 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 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, the timing of property development activities or other accretive uses for net proceeds and real estate market conditions; (iii) overall indebtedness levels and terms and expectations relating to refinancing, which could be impacted by the level of acquisition and disposition 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; (iv) statements and images 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 existing tenants, and where applicable, successful execution of development activities undertaken by related parties not under the direct control of Crombie; (v) asset growth and reinvesting to develop or otherwise make improvements to existing properties, which could be impacted by the availability of labour, capital resource availability and allocation decisions as well as actual development costs; (vi) 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; (vii) anticipated replacement of expiring tenancies, which could be impacted by the effects of general economic conditions and the supply of competitive locations; (viii) 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; (ix) 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; (x) tax exempt status, which can be impacted by regulatory changes enacted by governmental authorities; (xi) anticipated distributions, distribution growth and payout ratios, which could be impacted by results of operations and capital resource allocation decisions; and, (xii) the effect that any contingencies would have on Crombie’s financial statements which could be impacted by their eventual outcome. 23 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. NON-GAAP FINANCIAL MEASURES There are financial measures included in this MD&A that do not have a standardized meaning under IFRS as prescribed by the IASB. These measures are property net operating income (“NOI”), same-asset property cash NOI, operating income attributable to Unitholders, funds from operations (“FFO”), FFO as adjusted, adjusted funds from operations (“AFFO”), adjusted cash flow from operations (“ACFO”), debt to gross book value, earnings before interest, taxes, depreciation and amortization (“EBITDA”), interest service coverage, debt service coverage, unencumbered assets, estimated yield on cost and net asset value (“NAV”). Management includes these measures as they represent key performance indicators to management and it believes certain investors use these measures as a means of assessing relative financial performance. These measures as computed by Crombie may differ from similar computations as reported by other entities and, accordingly, may not be comparable to other such entities. FINANCIAL HIGHLIGHTS Financial Highlights for the three months and year ended December 31, 2017 and 2016 are as follows: Number of income-producing properties Gross leaseable area (square feet) Debt to gross book value – fair value basis Weighted average interest rate Mortgage debt All fixed rate debt As at December 31, 2017 286 December 31, 2016 280 19,201,000 19,093,000 50.3% 4.33% 4.21% 50.3% 4.46% 4.34% (In thousands of CAD dollars, except per unit amounts and as otherwise noted) Property revenue Property net operating income Same-asset property cash NOI Operating income attributable to Unitholders Operating income attributable to Unitholders per unit – basic Operating income attributable to Unitholders per unit – diluted FFO, with 2016 “as adjusted” (see FFO section) Basic Diluted Per unit – basic Per unit – diluted Payout ratio (%) AFFO, with 2016 “as adjusted” (see AFFO section) Basic Diluted Per unit – basic Per unit – diluted Payout ratio (%)(1) Distributions per unit ACFO, with 2016 “as adjusted” (see ACFO section) ACFO payout ratio (%)(1) Interest service coverage Debt service coverage Three months ended December 31, Year ended December 31, $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2017 105,667 74,045 61,483 27,048 0.18 0.18 47,237 48,222 0.31 0.31 70.9% 39,481 40,466 0.26 0.26 84.9% 0.22 40,808 82.1% $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2016 105,269 75,874 63,195 31,478 0.21 0.21 45,964 47,705 0.31 0.31 71.8% 37,776 39,517 0.26 0.25 87.3% 0.22 39,531 83.4% $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2017 411,813 290,744 243,113 163,696 1.09 1.09 181,152 186,582 1.21 1.20 73.6% 149,858 153,764 1.00 1.00 88.9% 0.89 151,883 87.7% 2.87 1.87 2016 400,001 284,695 240,541 125,130 0.89 0.89 168,283 175,189 1.20 1.19 74.7% 138,173 142,079 0.99 0.98 91.0% 0.89 141,725 88.7% 2.97 1.96 (1) AFFO and ACFO payout ratios are calculated using a per square foot charge for maintenance expenditures (see “AFFO” and “ACFO” sections). 24 CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts) 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, 2017 2016 2017 2016 150,401,349 150,532,766 154,870,958 154,870,958 148,038,591 148,179,446 155,502,713 155,502,713 149,507,560 155,492,191 155,492,191 153,979,208 139,919,678 140,062,763 147,386,030 144,400,955 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. • New leases and expansions increased occupancy by 358,000 square feet at December 31, 2017 at an average first year rate of $18.30 per square foot. HIGHLIGHTS • FFO for the three months ended December 31, 2017 increased 2.8% to $47,237; or $0.31 per unit diluted, an increase of 1.5% per unit from the three months ended December 31, 2016. • AFFO for the three months ended December 31, 2017 increased 4.5% to $39,481; or $0.26 per unit diluted, an increase of 2.8% per unit from the three months ended December 31, 2016. • ACFO for the three months ended December 31, 2017 increased 3.2% to $40,808 from the three months ended December 31, 2016. • FFO payout ratio of 70.9% for the three months ended December 31, 2017 compared to 71.8% for the same period in 2016. AFFO payout ratio of 84.9% for the three months ended December 31, 2017 compared to 87.3% for the same period in 2016. ACFO payout ratio of 82.1% for the three months ended December 31, 2017 compared to 83.4% for the same period in 2016. • Same-asset property cash NOI for the three months ended December 31, 2017 decreased by 2.7% or $1,712 ($61,483 compared to $63,195 for the three months ended December 31, 2016). The three months ended December 31, 2016 included $3,000 of lease termination income from Best Buy Canada; excluding this, same-asset property cash NOI increased 2.1% or $1,288. • Completed disposition in the three months ended December 31, 2017 of one retail property to a third party consisting of 67,000 square feet in Peterborough, ON for proceeds of $15,600 before closing and transaction costs. • Fourth quarter property revenue of $105,667, an increase of $398 or 0.4% over fourth quarter 2016. • Committed occupancy was 95.2% at December 31, 2017 compared with 94.4% at December 31, 2016. • Crombie’s renewal activity during the year ended December 31, 2017 included renewals on 574,000 square feet of 2017 expiring leases at an average rate of $18.73 per square foot, an increase of 10.2% over the expiring lease rate. • Crombie’s renewal activity during the three months ended December 31, 2017 included renewals on 211,000 square feet of 2017 expiring leases with an increase of 32.6% over the expiring lease rate and renewals on 112,000 square feet of future years expiring leases with a decrease of 0.5% over the expiring lease rate. • Debt to gross book value (fair value basis) was 50.3% at December 31, 2017, compared to 50.3% at December 31, 2016. • Crombie’s interest service coverage for the year ended December 31, 2017 was 2.87 times EBITDA and debt service coverage was 1.87 times EBITDA, compared to 2.97 times EBITDA and 1.96 times EBITDA, respectively, for the year ended December 31, 2016. BUSINESS OVERVIEW Crombie is an unincorporated, “open-ended” real estate investment trust (REIT) established pursuant to the Declaration of Trust dated January 1, 2006, as amended and restated (the “Declaration of Trust”) under, and governed by, the laws of the Province of Ontario. The REIT Units of Crombie trade on the Toronto Stock Exchange (“TSX”) under the symbol “CRR.UN”. Crombie invests in income-producing retail, office and commercial 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, 2017, Crombie owned a portfolio of 286 income-producing properties in 10 provinces, comprising approximately 19.2 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, 2017. BUSINESS OBJECTIVES AND OUTLOOK The objectives of Crombie are threefold: 1. Generate reliable and growing cash distributions; 2. Enhance the value of Crombie`s assets and maximize long- term unitholder value through active asset management and development; 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 development of existing properties and 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. 25 ANNUAL REPORT 2017 Enhance value of Crombie’s assets: Crombie anticipates reinvesting approximately 3% to 5% of its property revenue each year into its properties to maintain their productive capacity and thus overall value. Crombie’s internal growth strategy focuses on generating greater rental income from its existing properties. Crombie plans to achieve this by strengthening its asset base through judicious expansion and improvement of existing properties, leasing vacant space at competitive market rates with the lowest possible transaction costs, and maintaining good relations with tenants. Management will continue to conduct regular reviews of properties and, based on its experience and market knowledge, assess ongoing opportunities within the portfolio. Crombie undertakes development of specific properties when it is determined that this provides the best return for Crombie and its unitholders. Expand asset base with accretive acquisitions: Crombie’s external growth strategy focuses primarily on acquisitions of income-producing, grocery-anchored and drugstore-anchored retail properties in Canada’s top 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. Crombie also works closely with Sobeys to unlock potential acquisition opportunities at properties owned by third parties where Sobeys has a long-term leasehold interest. Through this relationship, Crombie expects to have accretive acquisition opportunities as well as future development opportunities. 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 income property transactions completed since the initial public offering (“IPO”) with the information for years prior to the current year being the net acquisitions (dispositions). (In thousands of CAD dollars) Transaction date Transactions with Empire and subsidiaries 2006 through 2015 2016 March 16, 2017 September 29, 2017 Transactions with third parties 2006 through 2015 2016 July 5, 2017 July 6, 2017 August 14, 2017 August 25, 2017 September 5, 2017 December 12, 2017 Number of properties Acquisition cost (disposition GLA (sq. ft.) proceeds)(1) 179 22 1 — 51 (1) 1 1 1 1 2 (1) 8,973,500 2,131,000 50,000 31,000 2,510,000 (743,000) 64,000 61,000 52,000 44,000 79,000 (67,000) $ $ $ $ $ $ $ $ $ $ $ $ 2,018,551 365,729 8,320 7,671 726,962 (16,821) 14,100 42,000 13,207 14,950 16,000 (15,600) (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 approximately $300,000 – $500,000 of properties which are anticipated to be made available to Crombie over the next several years. 26 CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts) BUSINESS ENVIRONMENT A significant factor impacting the Canadian economy and its future prospects continues to be the price of oil. While oil has found stability and slight price recovery over the last year, 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 trend that recently has somewhat reversed. A weaker currency is a potential catalyst for Canada’s export sectors. Interest rates in Canada and globally remain low but presently, signs of rate increases exist 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 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 PROPERTY PORTFOLIO At December 31, 2017, Crombie’s property portfolio consisted of 286 income-producing properties that contain approximately 19.2 million square feet of GLA in all 10 provinces. As at December 31, 2017, the portfolio distribution of the GLA by province was as follows: GLA (sq. ft.) Province AB BC MB NB NL NS ON PE QC SK Total January 1, 2017 Acquisitions (Dispositions) Other December 31, 2017 3,374,000 1,768,000 644,000 1,586,000 1,383,000 5,320,000 2,850,000 104,000 1,610,000 454,000 50,000 — 3,424,000 — — — — — 11,000 — (93,000) (54,000) 1,779,000 644,000 1,493,000 1,329,000 (51,000) 5,269,000 25,000 (39,000) 2,836,000 — 20,000 239,000 — — — 124,000 1,849,000 454,000 Number of Income- Producing Properties % of Annual Minimum Rent % of GLA 56 41 15 20 13 43 50 2 38 8 17.8% 9.3% 3.4% 7.8% 6.9% 27.4% 14.8% 0.6% 9.6% 2.4% 20.5% 11.5% 4.2% 5.6% 9.4% 21.2% 15.7% 0.7% 8.8% 2.4% 19,093,000 314,000 (206,000) 19,201,000 286 100.0% 100.0% Crombie continues to diversify its geographic concentration through growth and divestiture opportunities. During the year ended December 31, 2017, Crombie had an increase of 314,000 square feet or 1.6% growth of GLA from net acquisition activity consisting of: • acquisition of one property in Alberta, totalling 50,000 square feet; • acquisition of one property totalling 61,000 square feet and a 31,000 square foot addition to a property in Ontario offset in part by disposition of one property totalling 67,000 square feet; and, • acquisition of five properties in Quebec, totalling 239,000 square feet. Changes in GLA included in Other in the above table include increases for additions to GLA for existing properties and decreases primarily related to GLA removals in preparation for property redevelopment. As at December 31, 2017, our allocation of Annual Minimum Rent consists of: Atlantic Canada 36.9%; Central Canada 24.5%; and Western Canada 38.6%. Crombie believes this diversification adds stability to the portfolio while reducing vulnerability to economic fluctuations that may affect any particular region. 27 ANNUAL REPORT 2017 PROPERTY CATEGORIZATION Crombie breaks out its property count and square footage by the following categories: Q4 2017 Q3 2017 Q4 2016 # of Properties GLA # of Properties GLA # of Properties Same-asset Same-asset Development Total Same-asset Major Development Other Property Redevelopment Acquisitions – 2017(1) Acquisitions – 2016(1)(2) Acquisitions – 2015(1) Total Non Same-asset Total Properties 229 1 14,010,000 557,000 230 14,567,000 1 10 7 38 — 56 37,000 1,655,000 350,000 2,592,000 — 4,634,000 229 2 231 1 10 7 38 — 56 13,813,000 820,000 14,633,000 37,000 1,804,000 350,000 2,629,000 — 4,820,000 GLA 13,627,000 260,000 13,887,000 — 2,233,000 — 224 1 225 — 11 — 39 2,653,000 5 320,000 55 5,206,000 286 19,201,000 287 19,453,000 280 19,093,000 99.9% 99.8% 100.0% 85.0% 98.2% 91.2% 94.8% 100.0% 98.8% 93.8% 95.2% (1) Excludes acquisitions of additions to existing properties. (2) Reduction in GLA in Q3 and Q4 2017 relates to redevelopment plans for Bronte Village and Penhorn Land as discussed in the Development Planning section. PORTFOLIO OCCUPANCY AND LEASE ACTIVITY The portfolio occupancy and committed activity for the year ended December 31, 2017 were as follows: Occupied space (sq. ft.) Province January 1, 2017 Acquisitions (Dispositions) New Leases(1) AB BC MB NB NL NS ON PE QC SK 3,362,000 1,764,000 644,000 1,266,000 1,337,000 4,770,000 2,654,000 99,000 1,595,000 404,000 50,000 — — — — — 25,000 — 233,000 — 10,000 11,000 3,000 60,000 23,000 160,000 42,000 25,000 1,000 23,000 Lease Expiries (3,000) — — (15,000) (29,000) (48,000) (3,000) — (3,000) (1,000) Other Changes(2) December 31, 2017 — — (3,000) (45,000) (31,000) 3,419,000 1,775,000 644,000 1,266,000 1,300,000 2,000 3,421,000 — — 3,000 5,000 1,775,000 644,000 1,269,000 1,305,000 (134,000) 4,748,000 57,000 4,805,000 (53,000) 2,665,000 24,000 2,689,000 — — — 124,000 1,826,000 426,000 — — — 124,000 1,826,000 426,000 Committed Space (sq. ft.)(3) Total Leased Space (sq. ft.) Leased December 31, 2017 Total 17,895,000 308,000 358,000 (102,000) (266,000) 18,193,000 91,000 18,284,000 (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 decreased to 91,000 square feet at December 31, 2017, from 132,000 square feet at December 31, 2016. Overall leased space (occupied plus committed) increased from 94.4% at December 31, 2016 to 95.2% at December 31, 2017. During 2017, Crombie had a net increase from acquisitions and dispositions of 308,000 square feet and had new leases outpace lease expiries by 256,000 square feet. New leases and expansions increased occupancy by 358,000 square feet at December 31, 2017 at an average first year rate of $18.30 per square foot. 305,000 square feet are new leases at an average rate of $19.76 per square foot while the remaining 53,000 square feet are expansions of existing tenants at an average rate of $9.80 per square foot. 91,000 square feet of space was committed at December 31, 2017 at an average first year rate of $13.71 per square foot. New leases and expansions increased occupancy in the quarter by 45,000 square feet at an average rate of $33.38 per square foot. During the year ended December 31, 2017, Crombie renewed 932,000 square feet of anchor and non-anchor tenant lease maturities at an average rate of $17.11 per square foot, an increase of 7.6% over the expiring lease rate. This consisted of: 28 • 574,000 square feet of 2017 lease maturities at an average rate of $18.73 per square foot, an increase of 10.2% over the expiring lease rate. • 358,000 square feet of 2018 and later expiring leases at an average rate of $14.51 per square foot, an increase of 2.5% over the expiring lease rate. During the quarter ended December 31, 2017, Crombie renewed 323,000 square feet of anchor and non-anchor tenant lease maturities at an average rate of $14.12, an increase of 16.0% over the expiring lease rate. This consisted of: • 211,000 square feet of 2017 lease maturities at an average rate of $12.32 per square foot, an increase of 32.6% over the expiring lease rate. • 112,000 square feet of 2018 and later expiring leases at an average rate of $17.49 per square foot, a decrease of 0.5% to the expiring lease rate. CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts) SECTOR INFORMATION As at December 31, 2017, the portfolio distribution of the GLA by asset type was as follows: Asset Type Retail and Commercial Mixed Use Office Total Number of Income- Producing Properties 281 5 286 GLA (sq. ft.) 18,202,000 999,000 19,201,000 (1) For purposes of calculating leased percentage, Crombie considers GLA covered by head lease agreements as occupied. As at December 31, 2016, the portfolio distribution of the GLA by asset type was as follows: Asset Type Retail and Commercial Mixed Use Office Total Number of Income- Producing Properties 275 5 280 GLA (sq. ft.) 18,093,000 1,000,000 19,093,000 % of GLA 94.8% 5.2% 100.0% % of GLA 94.8% 5.2% 100.0% % of Annual Minimum Rent 96.3% 3.7% 100.0% % of Annual Minimum Rent 96.0% 4.0% 100.0% Leased(1) 95.7% 87.1% 95.2% Leased(1) 94.7% 89.0% 94.4% (1) For purposes of calculating leased percentage, Crombie considers GLA covered by head lease agreements as occupied. Retail and commercial mixed use properties represent 94.8% of Crombie’s GLA and 96.3% of annual minimum rent at December 31, 2017 compared to 94.8% of GLA and 96.0% of annual minimum rent at December 31, 2016. Leased space in retail and commercial mixed use properties of 95.7% at December 31, 2017, increased from 94.7% at December 31, 2016. Leased space in office properties of 87.1% decreased from 89.0% at December 31, 2016. LEASE MATURITIES The following table sets out as of December 31, 2017, 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 2018 2019 2020 2021 2022 Thereafter Total LARGEST TENANTS Number of Leases Renewal Area (sq. ft.) % of Total GLA Average Rent per sq. ft. at Expiry 213 177 164 165 173 687 1,579 972,000 829,000 694,000 793,000 776,000 14,220,000 18,284,000 $ 5.1% 4.3% 3.6% 4.1% 4.0% 74.1% 95.2% $ 16.58 17.14 19.00 19.43 20.23 18.36 18.36 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, 2017. Tenant Sobeys(1) Shoppers Drug Mart Cineplex Good Life Fitness Province of Nova Scotia CIBC Dollarama Lawtons/Sobeys Pharmacy Bank of Montreal Bank of Nova Scotia Total (1) Excludes Lawtons/Sobeys Pharmacy. % of Annual Minimum Rent Average Remaining Lease Term 53.5% 5.1% 1.3% 1.2% 1.1% 1.1% 1.1% 1.0% 1.0% 0.8% 67.2% 14.4 years 10.1 years 7.6 years 9.8 years 1.3 years 13.4 years 6.3 years 9.4 years 9.6 years 3.9 years 29 ANNUAL REPORT 2017 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 53.5% of annual minimum rent and Shoppers Drug Mart which accounts for 5.1% of annual minimum rent, no other tenant accounts for more than 1.3% of Crombie’s annual minimum rent. For the year ended December 31, 2017, Sobeys also represents 49.2% 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 12.1 years. This remaining lease term is influenced by the average Sobeys remaining lease term of 14.4 years and CIBC of 13.4 years. PROPERTY DEVELOPMENT/REDEVELOPMENT (“DEVELOPMENT”) Property Development is a strategic priority for Crombie to improve net asset value (“NAV”), cash flow growth and Unitholder value. 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 incremental costs to develop are projected to be greater than $50 million and where Development may include a combination of commercial and/or residential uses (“Major Developments”). Crombie believes it has the potential to unlock significant value within its current pipeline of 22 Major Development properties (three (3) Active Major Developments and 19 Potential Major Developments) over the next decade or longer. Crombie benefits from having solid income (FFO and AFFO) generated by its development pipeline properties while working through the various approvals and advance preparations required before each Major Development can commence. In aggregate, Crombie currently achieves an in-place NOI yield of approximately 5.4% on existing asset cost for its development pipeline properties. Crombie enjoys value from its strategic relationship with Sobeys. Most of our Major Development properties have Sobeys as an anchor tenant and our strategic relationship should enable us to ensure a seamless transition from existing property / store operations to construction / development of each of these sites. Our Major Developments will be planned and executed either alone, or with partners, to complete development of mixed use properties with a focus on grocery-anchored retail and primarily purpose built residential rental accommodations that provides both revenue diversification and growth to Crombie. We view this approach as the optimal manner to drive both NAV and AFFO growth. In certain cases, residential condominium uses may also be considered as will certain other uses to satisfy municipal and/or market requirements. Crombie may also have the option, if desired, to monetize its density value by selling certain air rights, or purpose built rental properties to third parties in lieu of, or after, development. Our range of options enables us, on a case by case basis, to make choices that optimize unitholder value. In today’s environment where NOI yields on cost for Major Development projects are projected to be in the 5% – 6% range and where exit cap rates in markets like Vancouver and Toronto (where Crombie has 12 Major Development properties) are in a current approximate range of 3% – 4% for comparable developments, NAV creation through development can be substantial. In the sections that follow (Active Major Developments and Potential Major Developments), Crombie has identified 22 Major Development projects (September 30, 2017 – 22) with a total projected cost to develop these properties of $3 to $4.5 Billion (September 30, 2017 – $3 to $4.5 Billion). Active Major Developments The below table provides additional detail into Crombie’s Active Major Developments: Non Same-asset Development Property Commercial GLA on Completion Residential GLA on Completion Use Estimated Final Completion Date Estimated Annual NOI Estimated Total Cost(3) Estimated Yield on Cost(3) Estimated Cost to Complete At Crombie’s Share ($ in millions) Davie Street(1) Retail, Residential Belmont Market(2) Retail, Office Total 53,000 192,000 245,000 253,000 Q2 2020 $ 5.7-6.2 $ 103.7 5.5%-6.0% $ — Q4 2018(4) 5.7-6.5 103.8 5.5%-6.3% 253,000 $ 11.4-12.7 $ 207.5 5.5%-6.1% $ 76.8 60.4 137.2 (1) Crombie has entered into a JV partnership agreement with a Vancouver based development partner (Westbank). Crombie will own 100% of the retail with a total project cost of $28 million and 50% of the residential with a total project cost of $152 million. Sobeys will continue lease payments through the development period to retain the rights under their existing lease. (2) Belmont is not yet included in property count as it is a greenfield development. (3) Estimated Total Cost/Yield on Cost includes all costs associated with the development, including but not limited to, estimated value of air rights and/or land value, predevelopment costs, construction costs, tenant costs and financing costs. (4) Phase I of Belmont Market development is estimated to be complete in Q4 2018. The timing of future phases will depend on pre-leasing activity. 30 CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts) Same-asset Development Property Avalon Mall – Phase I Avalon Mall – Phase II Total Incremental GLA Estimated Completion Date Estimated Total Cost(1) Estimated Cost to Complete ($ in millions) — Q4 2019 $ 17,000 Q2 2020 $ 54.5 53.0 17,000 $ 107.5 $ 44.8 48.0 92.8 Use Retail Retail (1) Estimated Total Cost includes all costs associated with the development, including but not limited to, predevelopment costs, construction costs and financing costs. Phase II, a three-level, 25,000 square foot expansion of Scotia Square, was completed in 2017 and removed from the Active Major Development section. There is future potential of mixed use development at this downtown Halifax property. 1641 Davie Street, Vancouver, British Columbia Davie Street is currently under active development, and is being developed in conjunction with our partner, Westbank Corp. as an approximate 306,000 square foot mixed use asset. Demolition of the existing structure is complete with excavation on track to be completed in March 2018. The development will include a new, larger, approximately 44,000 square foot grocery store with almost 9,000 square feet of ancillary retail space, and rental residential space totalling up to 253,000 square feet (up to 330 rental units) in two residential towers with an estimated total project cost of $180 million, $104 million at Crombie’s share. Crombie will retain 100% of the new commercial component and own 50% of the rental residential component. Belmont Market, Victoria (Langford), British Columbia Belmont Market is being developed as a 192,000 square foot grocery-anchored mixed use centre in Victoria (Langford), BC which is 100% owned by Crombie REIT and under active development. The retail development will include a 53,000 square foot new Thrifty Foods store, and approximately 139,000 square feet of additional retail and office space on 20 acres of land, expected to cost approximately $104 million. An additional 4 acres of land is under agreement to sell to a residential developer who has plans to add 437 units of low rise residential rental and market condos to the immediate area, which will enhance the vibrant new community village that the development is striving to accomplish. Construction has commenced with off-site servicing underway and building construction to start imminently on phase I of the project, which is on track to open in fall 2018. 119,000 square feet or approximately 83% of phase I has committed leases or is in advanced stages of negotiation. Avalon Mall – Phase I & II, St. John’s, Newfoundland and Labrador Avalon Mall is a regional shopping centre located in St. John’s, Newfoundland and Labrador. It is the largest enclosed shopping mall in Newfoundland and Labrador with approximately 557,000 square feet of GLA. Crombie has initiated a three year capital investment program to enhance Avalon Mall’s position as the dominant enclosed mall in the province. The investment program began earlier this year and phase I includes construction of a four-level 875 space parking structure, redesign and realignment of the main mall vehicular access, and the redesign and phased renovation of the mall’s interior common areas with an initial capital investment of $54.5 million over three years. The parkade is currently under construction and is expected to be complete in October 2018. The redesign and phased renovation of the common areas began in January 2018, with an estimated completion date of the fourth quarter of 2019. Crombie has negotiated a lease surrender of the 129,000 square foot Sears effective February 2018, enabling acceleration of planning to redevelop this section of the mall. This $53 million phase II redevelopment will involve demolition of a portion of the existing Sears and expanding the existing mall toward Kenmount Road. The redevelopment provides an opportunity to replace the former Sears space with new and/or completely renovated modern tenant spaces, common areas, and mall exterior. Construction of this phase will begin in 2018 with occupancy in early 2019 of the redeveloped Sears. Construction of the expansion area will continue throughout 2019 with occupancy expected in 2020. The phase III development plan is further described in the Pre-Planning section that follows. The multi-phase redevelopment at this property enables Crombie to maximize NOI, improve tenant mix and increase sales per square foot. Potential Major Developments In addition to Active Major Developments previously detailed, Crombie’s current Potential Major Developments have the potential to add up to 600,000 square feet (September 30, 2017 – 600,000 square feet) of commercial GLA and up to 8,000,000 square feet (up to 9,500 units) (September 30, 2017 – 8,000,000 square feet and 9,500 units) of residential GLA (which may include a combination of rental or condominium units). Based on Crombie’s current estimates, total costs to develop these properties could reach $2.5 to $4 billion ($3 to $4.5 Billion including Active Major Developments). Crombie may enter joint venture or other partnership arrangements for these properties 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 analysis and Board of Trustees approval. As at December 31, 2017, Crombie has identified the following 19 locations as having potential to become Active 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. The precise timing of each project is not determinable currently. The time horizon of these projects may change, project scope may change, and/ or Crombie may choose to not proceed with development on some properties after further review and completion of financial projections. 31 ANNUAL REPORT 2017 Existing Property City, Province Site Size (acres) Existing Tenants Potential Commercial Expansion Potential Residential Expansion 1. Bronte Village 2. Penhorn Lands – Phase I Oakville, ON Dartmouth, NS 5.66 4.88 Sobeys/Other tenants Land 3. 1780 East Broadway (Broadway and Commercial) 4. 1170 East 27 Street (Lynn Valley) 5. 524 Elbow Drive SW (Mission) 6. 5235 Kingsway (Royal Oak) 7. East Hastings 8. 10355 King George Boulevard 9. 2733 West Broadway 10. 3410 Kingsway 11. 990 West 25 Avenue (King Edward) 12. 813 11 Avenue SW 13. 410 10 Street NW 14. 10930 82 Avenue 15. Brampton Mall 16. Centennial Parkway Vancouver, BC 2.43 North Vancouver, BC 2.82 Calgary, AB Burnaby, BC Burnaby, BC Surrey, BC Vancouver, BC Vancouver, BC Vancouver, BC Calgary, AB Calgary, AB Edmonton, AB Brampton, ON Hamilton, ON Safeway Safeway Safeway Safeway Safeway/Other tenants Safeway Safeway Safeway/Other tenants Safeway Safeway Safeway Safeway/Other tenants Retail Retail Sobeys/Other tenants Land Office/Retail Retail Land 1.60 2.76 3.30 5.07 1.95 3.74 1.80 2.59 1.73 2.44 8.74 2.75 4.50 0.68 14.47 50.91 26.12 17. McCowan & Ellesmere Toronto, ON 18. Triangle Lands 19. Scotia Square Halifax, NS Halifax, NS Avalon Mall – Phase III(2) St. John’s, NL Penhorn Lands – Phase II(3) Dartmouth, NS (1) TBD: to be determined. (2) Avalon Mall Phase I and II are in Active Major Development. (3) Penhorn Lands Phase I is in Development Planning. 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 Yes Yes Yes No Yes Status Development Planning Development Planning Pre-planning Pre-planning Pre-planning Pre-planning TBD(1) TBD TBD TBD TBD TBD TBD TBD TBD TBD TBD TBD TBD Pre-planning Pre-planning 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 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. Properties in the Development Planning Phase Bronte Village, 2441 Lakeshore Road West, Oakville, Ontario Bronte Village is located in South Oakville at the intersection of Lakeshore and Bronte Roads. The 5.66 acre property is presently developed with a single storey, multi-tenant commercial retail mall anchored by a 30,000 square foot Sobeys with a total building area of approximately 93,000 square feet. The redevelopment of Bronte Village provides an opportunity to add luxury rental residential density in a desirable area currently experiencing undersupplied market conditions. The redevelopment plan for mixed use residential/retail requires demolition of a portion of the existing retail centre, which is scheduled to commence in 2018 with the existing Sobeys store remaining operational during the redevelopment. In its place two new luxury rental residential towers of 10 and 14 storeys containing 481 suites and 15,000 square feet of retail are proposed to be constructed. Separate site plan applications for residential and commercial components of the project are in progress. 32 Penhorn Lands – Phase I, Halifax (Dartmouth), Nova Scotia The Penhorn Lands is a 31 acre development site located at the intersection of Highway 111 and Portland Street in Halifax (Dartmouth), Nova Scotia that was purchased from Empire in 2016. The site is adjacent to Penhorn Plaza, a Crombie-owned 104,000 square foot Sobeys anchored retail plaza. Management expects to undertake the development in two phases. Phase I involves partial demolition of a former Sears store with redevelopment into approximately 43,000 square feet of commercial space on 4.88 acres of the 31 acre development site. This commercial redevelopment will front on Portland street and is designed to integrate with the abutting Penhorn Plaza. Demolition is expected to begin in spring of 2018, followed by redevelopment of the remaining structure into new commercial units, with expected occupancy by the end of 2018. See the pre-planning section for future phases at this property. Properties in the Pre-Planning Phase 1780 East Broadway (Broadway and Commercial), Vancouver, British Columbia 1780 East Broadway is located at the intersection of Commercial Drive and East Broadway in Vancouver, British Columbia. The single storey 38,000 square foot Safeway grocery store is situated at one of the busiest transit nodes in Western Canada. Crombie is currently working through the rezoning process to capitalize on the recently adopted community plan which permits up to 24 storeys above the retail podium and a floor to site ratio of 5.7 times. CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts) 1170 East 27th Street, North Vancouver (Lynn Valley), British Columbia Lynn Valley is located in the District of North Vancouver in the popular Lynn Valley Towne Centre. The 2.82 acre site currently has a 36,000 square foot Safeway as the major tenant. Crombie is currently developing plans to accommodate the targeted density and meet the guidelines of the Official Community Plan. Rezoning of this property is required prior to proceeding with any redevelopment. 524 Elbow Drive SW, Calgary (Mission), Alberta The Mission Safeway located in the affluent Elbow Park area of Calgary currently has a 24,000 square foot grocery store located on the 1.6 acre site. The project will overlook the Elbow River and have exceptional city and mountain views when complete. Preliminary discussions with the City of Calgary will take place when market conditions improve and redevelopment of this site is warranted. 5235 Kingsway (Royal Oak), Burnaby, British Columbia The Royal Oak Safeway is located in close proximity to Metrotown in Burnaby – an area experiencing significant redevelopment as a result of recently adopted Metrotown Downtown Plan in 2017. The high profile site has the potential for redevelopment to occur in the near future. Initial planning has commenced and a comprehensive rezoning plan is being developed to facilitate discussions with the City of Burnaby. Penhorn Lands – Phase II, Halifax (Dartmouth), Nova Scotia The Penhorn Lands is a 31 acre development site located at the intersection of Highway 111 and Portland Street in Halifax (Dartmouth), Nova Scotia that was purchased from Empire in 2016. In addition to the phase I activity described under “Development Planning”, Crombie has initiated pre-planning activity for future mixed residential development (phase II) on the remaining 26 acres of this development site. Avalon Mall – Phase III, St. John’s, Newfoundland and Labrador In addition to the activities described under “Active Major Development”, Crombie is also pre-planning the phase III redevelopment of an 8.6 acre property abutting Avalon Mall on Kenmount Road purchased in 2012. This redevelopment will replace two aging buildings with new retail space with modern design, additional parking, and integration of this property with Avalon Mall by significantly improving vehicular and pedestrian connectivity between the two properties. FINANCIAL RESULTS COMPARISON TO PREVIOUS YEAR (In thousands of CAD dollars, except per unit amounts and as otherwise noted) Total assets Total investment property debt and unsecured debt Debt to gross book value – fair value basis(1) (1) See “Debt to Gross Book Value – Fair Value Basis” for detailed calculation. As At December 31, 2017 December 31, 2016 December 31, 2015 $ $ 4,086,854 2,501,748 50.3% $ $ 3,963,318 2,396,199 50.3% $ $ 3,472,193 2,170,801 52.5% 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 Income (loss) from equity accounted investments Operating income before taxes Taxes – current Taxes – deferred Operating income attributable to Unitholders Finance costs – distributions to Unitholders Finance income (costs) – change in fair value of financial instruments Three months ended December 31, Year ended December 31, 2017 2016 Variance 2017 2016 Variance $ 105,667 $ 105,269 $ 398 $ 411,813 $ 400,001 $ 31,622 74,045 70.1% 2,474 — (20,619) (4,246) (26,681) (7) 24,966 2,082 — 27,048 (33,511) 29,395 75,874 72.1% 9,761 (6,000) (19,435) (4,266) (25,656) — 30,278 — 1,200 31,478 (32,987) (2,227) (1,829) (2.0)% (7,287) 6,000 (1,184) 20 (1,025) (7) (5,312) 2,082 (1,200) (4,430) (524) 121,069 290,744 70.6% 2,474 — (82,207) (19,077) (105,777) 61 86,218 2,078 75,400 163,696 (133,259) 115,306 284,695 71.2% 37,490 (6,000) (73,332) (16,341) (100,156) — 126,356 (26) (1,200) 125,130 (125,737) 11,812 (5,763) 6,049 (0.6)% (35,016) 6,000 (8,875) (2,736) (5,621) 61 (40,138) 2,104 76,600 38,566 (7,522) 18 (46) 64 145 312 (167) (6,445) $ (1,555) $ (4,890) $ 30,582 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) 0.18 0.18 $ $ 150,401 150,533 0.21 0.21 148,039 148,179 Distributions per Unit to Unitholders $ 0.22 $ 0.22 $ $ $ 1.09 1.09 149,508 155,492 $ $ $ (295) $ 30,877 0.89 0.89 139,920 140,063 0.89 $ 0.89 33 ANNUAL REPORT 2017 Operating Results For the three months ended December 31, 2017, Operating income before taxes of $24,966 decreased by $5,312 or 17.5% compared to the three months ended December 31, 2016. The decrease was primarily due to: • gain on disposal of $9,761 on five properties in the fourth quarter of 2016 which was $7,287 higher than the gain of $2,474 on one property recognized in the fourth quarter of 2017; • the disposition of one retail property in the year ended December 31, 2017, resulting in a gain on disposal of $2,474, a decrease of $35,016 compared to the gain on disposal realized in 2016 on the disposition of 19 retail properties; and, • an increase in 2017 depreciation and amortization of $8,875 or 12.1% related to acquisition activity since the first quarter of 2016 and a change in the economic life of a property designated for development. • a decrease in Property NOI of $1,829 or 2.4% with lease termination income decreasing by $3,791, primarily related to $3,000 from Best Buy/Future Shop in 2016 for one retail location and increased non- shareable property operating expenses; offset in part by increased net rental revenue; and, • an increase in depreciation and amortization of $1,184 or 6.1% consisting of the write-off of remaining amortization related to vacated space as well as net acquisition activity during 2017; offset in part by: • the recognition in the fourth quarter of 2016 of $6,000 of impairment related to two retail properties. For the year ended December 31, 2017, Operating income before taxes of $86,218 decreased by $40,138 or 31.8% compared to the year ended December 31, 2016. In addition to the above variance explanations for the three month period, the year was impacted by: On June 30, 2017, Crombie completed a tax reorganization, as approved by unitholders, resulting in, amongst other structural changes, the winding up of its most significant, wholly-owned corporate subsidiary. Through the tax reorganization, all property within the corporate entity was transferred to a limited partnership resulting in the elimination of Crombie’s obligation for deferred income taxes related to this corporate subsidiary. The deferred tax liability of $76,400 at the time of the tax reorganization has been reduced to $NIL and the decrease has been recognized as an income tax recovery on Crombie’s Consolidated Statements of Comprehensive Income for the year ended December 31, 2017. Professional fees of $1,059 associated with the tax reorganization have been recorded as general and administrative expenses for the year ended December 31, 2017. 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: (In thousands of CAD dollars) 2017 2016 2017 Operating income attributable to Unitholders Finance costs – distributions to Unitholders Finance income (costs) – change in fair value of financial instruments Increase (decrease) in net assets attributable to Unitholders $ $ 27,048 $ 31,478 $ 163,696 $ (33,511) 18 (32,987) (46) (133,259) 145 (6,445) $ (1,555) $ 30,582 $ 2016 125,130 (125,737) 312 (295) Three months ended December 31, Year ended December 31, 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. PROPERTY NOI Same-asset properties are properties owned and operated by Crombie throughout the current and comparative reporting periods, excluding any property that is classified as held for sale or that was designated for redevelopment during either the current or comparative period. Property NOI on a cash basis is as follows: (In thousands of CAD dollars) Property NOI Non-cash straight-line rent Non-cash tenant incentive amortization Property cash NOI Acquisitions, dispositions and development property cash NOI Three months ended December 31, Year ended December 31, 2017 2016 Variance 2017 2016 Variance $ 74,045 $ 75,874 $ (1,829) $ 290,744 $ 284,695 $ 6,049 (3,280) 3,507 74,272 12,789 (3,840) 3,328 75,362 12,167 560 179 (1,090) 622 (13,542) 12,768 289,970 46,857 (12,876) 11,622 283,441 42,900 (666) 1,146 6,529 3,957 2,572 Same-asset property cash NOI $ 61,483 $ 63,195 $ (1,712) $ 243,113 $ 240,541 $ 34 CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts) Property NOI, on a cash basis, excludes non-cash straight-line rent recognition and amortization of tenant incentive amounts. The $1,712 or 2.7% decrease in same-asset cash NOI for the three months ended December 31, 2017 over the same period in 2016 is primarily the result of higher lease termination income recorded in the fourth quarter of 2016. During the fourth quarter of 2016, Crombie recorded $3,000 related to a vacated lease on a same-asset property. Excluding the impact of that $3,000, same-asset property cash NOI increased by $1,288 or 2.1%. The $2,572 or 1.1% increase in same-asset cash NOI for the year ended December 31, 2017 over the same period in 2016 was impacted by improved occupancy rates; increased average rent per square foot from leasing activity; and, revenues from land use intensifications at certain properties; offset in part by the factors noted above. In addition, the increase was impacted by the June 2016 $58,823 investment in 10 Sobeys anchored properties which generated an additional $2,058 in same-asset property cash NOI during the year ended December 31, 2017. Excluding this additional $2,058 as well as the above-noted $3,000 in 2016 lease termination income, same-asset property cash NOI for the year increased by $3,514 or 1.5%. Acquisitions, dispositions and development property cash NOI increased $622 for the three months ended December 31, 2017, and increased $3,957 for the year ended December 31, 2017, over the same periods in 2016 primarily due to acquisitions in the fourth quarter of 2016 and the third quarter of 2017, offset in part by dispositions in the fourth quarter of 2016. Crombie recorded $10,344 net lease termination income from Target Canada during the second quarter of 2016 and $828 during the fourth quarter of 2016, significantly impacting the comparative results. Management emphasizes property NOI on a cash basis as it reflects the cash generated by the properties period-over-period. Same-asset property cash NOI is as follows: (In thousands of CAD dollars) 2017 2016 Variance Percent 2017 2016 Variance Percent Three months ended December 31, Year ended December 31, Retail and Commercial Mixed Use Office Same-asset property cash NOI $ 61,483 $ 63,195 $ 2,542 2,721 (179) (1,712) (6.6)% 10,592 11,077 (2.7)% $ 243,113 $ 240,541 $ $ 58,941 $ 60,474 $ (1,533) (2.5)% $ 232,521 $ 229,464 $ 3,057 (485) 2,572 1.3% (4.4)% 1.1% Variances in same-asset property cash NOI for the three months ended December 31, 2017 compared to the same period in 2016 include: • Retail and Commercial Mixed Use decreased $1,533 or 2.5% due to the factors noted above, in particular the $3,000 of lease termination income recorded in the fourth quarter of 2016. • Office decreased $179 or 6.6% as a result of slight decreases in occupancy. Same-asset property cash NOI for the year ended December 31, 2017 compared to the same period in 2016 was impacted by the factors previously noted. Acquisitions, dispositions and development property cash NOI is as follows: (In thousands of CAD dollars) 2017 2016 Variance 2017 2016 Variance Acquisitions and dispositions property cash NOI $ 9,767 $ 8,578 $ 1,189 $ 35,980 $ 21,954 $ 14,026 Development property cash NOI Total acquisitions, dispositions and development property cash NOI 3,022 3,589 (567) 10,877 20,946 (10,069) $ 12,789 $ 12,167 $ 622 $ 46,857 $ 42,900 $ 3,957 Three months ended December 31, Year ended December 31, For the three months ended December 31, 2017, acquisitions and dispositions property cash NOI increased $1,189 compared to the three months ended December 31, 2016. The increase was the result of property acquisitions during 2016 and 2017, offset in part by property dispositions in the fourth quarter of 2016. For the year ended December 31, 2017, acquisitions and dispositions property cash NOI increased $14,026 compared to the year ended December 31, 2016 with property cash NOI increasing $18,720 as a result of the same acquisition activity and dispositions resulting in a decrease in property cash NOI of $4,694. 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. Lease termination income of $11,172 from Target Canada is included in development property cash NOI for the year ended December 31, 2016. Crombie undertakes development of properties to position them for long-term sustainability and growth in cash NOI resulting in improvement in value. 35 ANNUAL REPORT 2017 Property NOI for the three months and year ended December 31, 2017 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, 2017 2016 2017 2016 AB BC MB NB NL NS ON PE QC SK Total $ 16,227 $ 15,880 $ 9,176 3,366 3,560 7,170 14,500 11,359 396 6,427 1,864 9,009 3,377 3,637 7,303 14,631 14,314 482 5,544 1,697 347 167 (11) (77) (133) (131) (2,955) (86) 883 167 $ 64,660 $ 59,076 $ 36,433 13,454 13,053 27,778 59,022 44,167 1,630 23,440 7,107 30,973 13,493 14,467 28,639 58,045 51,923 1,835 19,261 6,983 5,584 5,460 (39) (1,414) (861) 977 (7,756) (205) 4,179 124 $ 74,045 $ 75,874 $ (1,829) $ 290,744 $ 284,695 $ 6,049 The significant variances in property NOI for the three months and year ended December 31, 2017 compared to the same periods in 2016 were impacted by property acquisitions and dispositions as follows: • Alberta – one acquisition in the first quarter of 2017 and 10 properties acquired during 2016, including nine in the second quarter; • British Columbia – nine acquisitions during 2016, including eight in the second quarter and one in the third quarter, offset in part by the disposition of one retail property in the third quarter of 2016; • New Brunswick – acquisition of additional development on an existing office property in the fourth quarter of 2016; • Nova Scotia – one acquisition in the second quarter of 2016, offset in part by the disposition of three retail properties in the fourth quarter of 2016; • Ontario – two acquisitions in the fourth quarter of 2016 and one in the third quarter of 2017; and, • Quebec – 12 acquisitions during 2016 and five in the third quarter of 2017, offset in part by the disposition of one property in the first quarter of 2016. In addition to the acquisition and disposition activity, the following also impacted comparative property NOI results: FFO AND AFFO FFO and AFFO are not measures recognized under IFRS and do not have standardized meanings prescribed by IFRS. As such, these non- GAAP financial measures should not be considered as an alternative to cash provided from operating activities or any other measure prescribed under IFRS. Management uses FFO as 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 earnings amount is a measure of Crombie’s ability to generate cash from earnings. FFO and AFFO as computed by Crombie may differ from similar computations as reported by other REITs and, accordingly, may not be comparable to other such issuers. FUNDS FROM OPERATIONS (FFO) Crombie follows the recommendations of the Real Property Association of Canada (“REALPAC”) (February 2017 white paper) 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; • British Columbia – modernization investment at two Sobeys anchored • Impairment charges and recoveries; properties in June 2016; • New Brunswick – lease termination income from Target Canada in the second and fourth quarters of 2016; and, modernization investment at one Sobeys anchored property in June 2016; • Newfoundland and Labrador – vacancy increases in the third and fourth quarters of 2017; • Nova Scotia – lease termination income from Target Canada in the second and fourth quarters of 2016; and, modernization investment at four Sobeys anchored properties in June 2016; and, • Ontario – lease termination income from Target Canada in the second quarter of 2016 and from Best Buy/Future Shop in the fourth quarter of 2016; and, modernization investment at one Sobeys anchored property in June 2016. • Depreciation and amortization expense, including amortization of tenant incentives charged against property revenue; • Incremental internal leasing expenses; • 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. 36 CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts) REALPAC provides for other adjustments in determining FFO which are currently not applicable to Crombie, therefore not included in the above list. FFO for 2016 has been restated to include the add back of incremental internal leasing expenses as recommended in REALPAC’s white paper. This amount represents leasing expenses that would otherwise be capitalized if incurred by external sources. 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, 2017 and 2016 is as follows: (In thousands of CAD dollars) 2017 2016 Variance 2017 2016 Variance Increase (decrease) in net assets attributable to Unitholders $ (6,445) $ (1,555) $ (4,890) $ 30,582 $ (295) $ 30,877 Three months ended December 31, Year ended December 31, Add (deduct): 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 Internal 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 3,507 (2,474) — 18,674 1,706 239 606 (2,069) — 33,511 (18) 47,237 3,328 (9,761) 6,000 17,483 1,791 161 512 — (1,200) 32,987 46 49,792 179 7,287 (6,000) 1,191 (85) 78 94 (2,069) 1,200 524 (64) (2,555) 12,768 (2,474) — 74,845 6,654 708 2,424 (2,069) (75,400) 133,259 (145) 181,152 11,622 (37,490) 6,000 66,552 6,170 610 2,048 — 1,200 125,737 (312) 181,842 1,146 35,016 (6,000) 8,293 484 98 376 (2,069) (76,600) 7,522 167 (690) from Target Canada and Best Buy/Future Shop Subscription Receipts Adjustment Payment — — (3,828) — 3,828 — — — (14,172) 613 14,172 (613) FFO, as adjusted $ 47,237 $ 45,964 $ 1,273 $ 181,152 $ 168,283 $ 12,869 For the three months ended December 31, 2016, Crombie provided FFO on an adjusted basis by reducing it by $3,828. Crombie received net lease termination income from Target Canada of $828 related to two 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 were deducted from FFO for the three months ended December 31, 2016. For the three months ended December 31, 2017, FFO, as adjusted, increased by $1,273 or 2.8% compared to the three months ended December 31, 2016. The increase primarily relates to the previously discussed operating results (excluding the above-noted adjustments) which are attributable to improved occupancy rates; increased average rent per square foot from leasing activity; and, revenues from land use intensifications at certain properties. For the year ended December 31, 2016, Crombie provided FFO on an adjusted basis by reducing it by $13,559. The following adjustments were made in 2016: • 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 were deducted from FFO for the year ended December 31, 2016. • 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, Crombie incurred a net finance cost of $613. This amount was added back to FFO for the year ended December 31, 2016. 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 year ended December 31, 2017, FFO, as adjusted, increased by $12,869 or 7.6% compared to the year ended December 31, 2016. The increase primarily relates to the previously discussed operating results (excluding the above-noted adjustments), as well as property NOI increase which is attributable to the previously mentioned June 2016 modernization. This increase is partly offset by increased general and administrative expenses as well as increased finance costs – operations. ADJUSTED FUNDS FROM OPERATIONS (AFFO) Crombie follows the recommendations of REALPAC’s February 2017 white paper in calculating AFFO and has applied these recommendations to the comparative AFFO amounts included in this MD&A. Crombie considers AFFO to be a useful measure in evaluating the recurring economic performance of its operating results which will be used to support future distribution payments. AFFO reflects earnings after the adjustments in arriving at FFO (excluding internal leasing costs) and the provision for non-cash straight-line rent included in 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. 37 ANNUAL REPORT 2017 The calculation of AFFO for the three months and year ended December 31, 2017 and 2016 is as follows: (In thousands of CAD dollars) 2017 2016 Variance 2017 2016 Variance FFO as calculated based on REALPAC recommendations $ 47,237 $ 49,792 $ (2,555) $ 181,152 $ 181,842 $ (690) Three months ended December 31, Year ended December 31, Add (deduct): Amortization of effective swap agreements Straight-line rent adjustment Internal leasing costs Maintenance expenditures on a square footage basis AFFO as calculated based on REALPAC recommendations Adjustments: Net lease termination income 580 (3,280) (606) (4,450) 39,481 603 (3,840) (512) (4,439) 41,604 (23) 560 (94) (11) 2,354 (13,542) (2,424) (17,682) (2,123) 149,858 2,440 (12,876) (2,048) (17,626) 151,732 from Target Canada and Best Buy/Future Shop Subscription Receipts Adjustment Payment — — (3,828) — 3,828 — — — (14,172) 613 AFFO, as adjusted $ 39,481 $ 37,776 $ 1,705 $ 149,858 $ 138,173 $ (86) (666) (376) (56) (1,874) 14,172 (613) 11,685 For the three months ended December 31, 2017, AFFO, as adjusted, increased by $1,705 or 4.5% compared to the three months ended December 31, 2016. The increase primarily relates to the $1,273 or 2.8% increase in FFO as previously discussed. For the year ended December 31, 2017, AFFO, as adjusted, increased by $11,685 or 8.5% compared to the year ended December 31, 2016. The increase primarily relates to the $12,869 or 7.6% increase in FFO as previously discussed. MAINTENANCE CAPITAL EXPENDITURES, MAINTENANCE TENANT INCENTIVES AND LEASING COSTS (“MAINTENANCE EXPENDITURES”) Maintenance expenditures represent costs incurred in sustaining and maintaining existing space and exclude expenditures that are revenue enhancing. Crombie considers revenue enhancing expenditures to be costs that expand the GLA of a property, increase the property NOI by a minimum threshold, or otherwise enhance the property’s overall value. Crombie’s policy is to charge AFFO and ACFO with maintenance expenditures based on a normalized rate per square foot as these expenditures are not generally incurred on a consistent basis during the year, or from year to year. Crombie also discloses actual maintenance expenditures for comparative purposes. The rate per square foot 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. For 2017, Crombie is applying a rate of $0.92 per square foot of GLA. Crombie has applied the REALPAC February 2017 white paper on AFFO to the previously reported AFFO for 2016, resulting in an increase of $0.14 per square foot for maintenance expenditures from the previously reported rate. The increase in the previously reported 2016 rate primarily relates to Crombie’s treatment of recoverable expenditures and resulted in an increased charge to AFFO of $676 for the three months ended December 31, 2016 and $2,566 for the year ended December 31, 2016 from the previously reported amounts. MAINTENANCE EXPENDITURES – ACTUAL Three months ended Three months ended Year ended Dec. 31, 2017 Dec. 31, 2017 Sep. 30, 2017 Jun. 30, 2017 Year ended Dec. 31, 2016 Mar. 31, 2017 Dec. 31, 2016 Sep. 30, 2016 Jun. 30, 2016 Mar. 31, 2016 (In thousands of CAD dollars) Total additions to investment properties $ 46,800 $ 16,887 $ 13,921 $ 8,751 $ 7,241 $ 29,928 $ 10,821 $ 7,880 $ 4,291 $ 6,936 Less: revenue enhancing expenditures Maintenance capital expenditures Total additions to TI and deferred leasing costs Less: revenue enhancing expenditures Maintenance TI and deferred leasing costs Total maintenance expenditures – actual $ Reserve amount charged against AFFO $ (34,317) (12,032) (11,389) (6,713) (4,183) (18,948) (6,109) (5,692) (2,879) (4,268) 12,483 4,855 2,532 2,038 3,058 10,980 4,712 2,188 1,412 2,668 19,660 6,952 2,476 5,324 4,908 75,119 5,273 4,545 63,237 2,064 (15,160) (5,233) (1,754) (4,157) (4,016) (68,722) (4,225) (3,350) (60,526) (621) 4,500 1,719 722 1,167 892 6,397 1,048 1,195 2,711 1,443 16,983 $ 6,574 $ 3,254 $ 3,205 $ 3,950 $ 17,377 $ 5,760 $ 3,383 $ 4,123 $ 4,111 17,682 $ 17,626 38 CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts) Maintenance capital expenditures for the year ended December 31, 2017, are primarily payments for costs associated with building interior and exterior maintenance, roof repairs and ongoing parking deck and structural maintenance. 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. Maintenance TI and deferred leasing costs are the result of both lease renewals and new leases and are reflective of the leasing activity during 2016 and 2017. Revenue enhancing expenditures are capitalized and depreciated or charged against revenue over their useful lives, but not deducted when calculating AFFO or ACFO. Revenue enhancing expenditures during the year ended December 31, 2017 consisted primarily of development work and GLA expansions at: Avalon Mall, St. John’s, NL; Sydney Shopping Centre, Sydney, NS; Scotia Square, Halifax, NS; Downsview Mall, Halifax, NS; Kinlock Plaza, Stratford, PE; Vaughan Harvey Plaza, Moncton, NB; Bronte Village, Oakville, ON; Rockhaven Centre, Peterborough, ON; Belmont Market, Victoria, BC; Fort St. John, BC; and, Davie Street, Vancouver, BC. DEPRECIATION, AMORTIZATION AND IMPAIRMENT (In thousands of CAD dollars) 2017 2016 Variance 2017 2016 Variance Same-asset depreciation and amortization $ 15,198 $ 15,117 $ (81) $ 61,043 $ 60,741 $ (302) Acquisitions, dispositions and development depreciation/amortization 5,421 4,318 (1,103) 21,164 12,591 Depreciation and amortization $ 20,619 $ 19,435 $ (1,184) $ 82,207 $ 73,332 $ (8,573) (8,875) Three months ended December 31, Year ended December 31, Same-asset depreciation and amortization increased by $81 for the three months ended December 31, 2017 and increased by $302 for the year ended December 31, 2017 compared to the same periods in 2016. Same- asset depreciation and amortization should remain stable quarter over quarter 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. Acquisitions, dispositions and development depreciation and amortization increased as a result of net acquisition activity during 2017 and 2016, including the acquisition of one property in the first quarter of 2017, six properties in the third quarter of 2017, the disposition of one property in the fourth quarter of 2017, the acquisition of 41 properties during 2016 and the disposition of 19 properties in 2016, including 10 properties in the first quarter of 2016. In the second quarter of 2017, a property in Vancouver was moved from same-asset to acquisitions, dispositions and development to reflect the change in its status. The economic life of the building was also amended resulting in an increase of $3,526 in depreciation and amortization for the year ended December 31, 2017. Crombie’s total fair value of investment properties, including properties held for sale, exceeds carrying value by $900,804 at December 31, 2017 (December 31, 2016 – $844,033). 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. The impairment was 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 property basis and was determined as the amount by which carrying value, using the cost method, exceeded the recoverable amount for the property. The recoverable amount was determined to be the property’s fair value, which is the higher of the economic benefits of the continued use of the asset or the selling price less costs to sell. GENERAL AND ADMINISTRATIVE EXPENSES The following table outlines the major categories of general and administrative expenses: (In thousands of CAD dollars) 2017 2016 Variance 2017 2016 Variance Three months ended December 31, Year ended December 31, Salaries and benefits Professional fees Public company costs Rent and occupancy Other $ 2,576 $ 2,476 $ (100) $ 11,175 $ 10,120 $ (1,055) 180 613 287 590 186 617 205 782 6 4 (82) 192 2,247 2,225 971 2,459 1,253 1,892 838 2,238 General and administrative expenses As a percentage of property revenue $ 4,246 $ 4,266 $ 20 $ 19,077 $ 16,341 $ 4.0% 4.1% 0.1% 4.6% 4.1% (994) (333) (133) (221) (2,736) (0.5)% 39 ANNUAL REPORT 2017 For the three months ended December 31, 2017, general and administrative expenses, as a percentage of property revenue, were 4.0%, a decrease of 0.1% from the same period in 2016, with expenses decreasing $20 or 0.5% and property revenue increasing 0.4%. For the year ended December 31, 2017, general and administrative expenses, as a percentage of property revenue, increased 0.5% compared to the year ended December 31, 2016, with expenses increasing $2,736 or 16.7% and property revenue increasing by 3.0%. Effective June 30, 2017, Crombie completed a tax reorganization which resulted in the elimination of the $76,400 deferred tax liability associated with Crombie’s most significant corporate subsidiary. Costs related to the reorganization of approximately $1,059 are included in professional fees for the year ended December 31, 2017. Excluding these costs, general and administrative expenses represent 4.4% of property revenue for the year ended December 31, 2017. General and administrative expenses also increased due to increases in employee recruitment, transition, hiring and personnel development costs. FINANCE COSTS – OPERATIONS (In thousands of CAD dollars) 2017 2016 Variance 2017 2016 Variance Finance costs $ 25,105 $ 24,176 $ (929) $ 98,949 $ 93,793 $ (5,156) Subscription Receipts Adjustment Payment Amortization of effective swaps and deferred financing charges — 1,576 — 1,480 — (96) — 6,828 613 5,750 Finance costs – operations $ 26,681 $ 25,656 $ (1,025) $ 105,777 $ 100,156 $ 613 (1,078) (5,621) Three months ended December 31, Year ended December 31, Finance costs for the three months and year ended December 31, 2017 increased by $929 and $5,156, respectively, compared to the same periods in 2016. The increases relate to the significant acquisition activity in 2017 and 2016 funded with new mortgages, floating rate bank debt, proceeds from dispositions and the issuance of new units, as well as the June 2016 modernization investment in 10 Sobeys anchored properties. The increases were partly offset by lower interest rates on new and refinanced debt. On July 4, 2017, Crombie redeemed $60,000 of 5.00% Convertible Debentures scheduled to mature September 30, 2019. On November 20, 2017, Crombie issued $150,000 aggregate principal amount of 4.066% Series D Notes (senior unsecured) at par, with a maturity date of November 21, 2022 with the funds used to reduce floating rate debt. On March 3, 2017, Crombie issued an additional $75,000 aggregate principal amount of 3.962% Series B Notes (senior unsecured) at a premium, resulting in an effective yield of 3.48% to maturity on June 1, 2021. The funds were used to reduce floating rate debt. Details of distributions to Unitholders are as follows: (In thousands of CAD dollars, except as otherwise noted) Distributions to Unitholders Distributions to Special Voting Unitholders Total distributions FFO payout ratio AFFO payout ratio ACFO payout ratio During the year ended December 31, 2016, Crombie issued Subscription Receipts related to a property acquisition transaction. While the funds from the Subscription Receipts were held in trust, Crombie incurred a net finance cost of $613. Amortization of effective swaps and deferred financing charges increased by $1,078 for the year ended December 31, 2017. The 2017 expense was impacted by the early redemption of Series D Convertible Debentures in July 2017 and the write-off of the remaining deferred financing charges related to the original issuance of the Series D Convertible Debentures. FINANCE COSTS – DISTRIBUTIONS Pursuant to Crombie’s Declaration of Trust, cash distributions are to be determined by the Trustees at their discretion. Crombie intends, subject to approval of the Board of Trustees, to make distributions to Unitholders of not less than the amount equal to the net income and net realized capital gains of Crombie, to ensure that Crombie will not be liable for income taxes. Three months ended December 31, Year ended December 31, $ $ $ $ 2017 19,809 13,702 33,511 70.9% 84.9% 82.1% $ $ 2016 19,502 13,485 32,987 71.8% 87.3% 83.4% $ $ 2017 78,775 54,484 133,259 73.6% 88.9% 87.7% 2016 74,375 51,362 125,737 74.7% 91.0% 88.7% The increase in distributions relates to the issuance of 8,952,400 REIT Units and 6,353,741 Class B LP Units and attached Special Voting Units on June 29, 2016 as well as units issued under Crombie’s distribution reinvestment plan (the “DRIP”). 40 CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts) INCOME TAXES A trust that satisfies the criteria of a REIT throughout its taxation year will not be subject to income tax in respect of distributions to its unitholders that would otherwise apply to trusts classified as specified investment flow-through entities (“SIFTs”). Crombie has organized its assets and operations to satisfy the criteria contained in the Income Tax Act (Canada) in regard to the definition of a REIT. Crombie’s management and its advisors have completed an extensive review of Crombie’s organizational structure and operations to support Crombie’s assertion that it met the REIT criteria throughout 2017 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. Effective June 30, 2017, Crombie completed a tax reorganization, as approved by unitholders, which resulted in the elimination of the deferred tax liability of $76,400 associated with its most significant corporate subsidiary. TAXATION OF DISTRIBUTIONS Crombie, through its subsidiaries, has a large asset base that is depreciable for Canadian income tax purposes. Consequently, certain of the distributions from Crombie are treated as returns of capital and are not taxable to Canadian resident Unitholders for Canadian income tax purposes. The composition for tax purposes of distributions from Crombie may change from year to year, thus affecting the after-tax return to Unitholders. The following table summarizes the last five years of the taxation of distributions from Crombie: Taxation Year 2016 per $ of distribution 2015 per $ of distribution 2014 per $ of distribution 2013 per $ of distribution 2012 per $ of distribution 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. Crombie expects to refinance debt obligations as they mature. Crombie has the following sources of financing available: (i) secured short-term financing through an authorized revolving credit facility, maturing June 30, 2021, of up to $400,000, subject to available borrowing base, of which $8,168 ($16,887 including outstanding letters of credit) was drawn at December 31, 2017; Return of Capital Investment Income Dividend Income 24.9% 56.3% 64.4% 90.2% 67.1% 54.5% 28.8% 18.1% 9.8% 32.9% 0.0% 13.4% 0.0% 0.0% 0.0% Capital Gains 20.6% 1.5% 17.5% 0.0% 0.0% (ii) unsecured short-term financing through an authorized floating rate revolving credit facility, maturing May 16, 2019, of up to $100,000, of which $45,000 was drawn at December 31, 2017; (iii) secured mortgage and term debt on unencumbered assets, Crombie currently has $953,776 of fair value in unencumbered properties; (iv) the issuance of additional senior unsecured notes; (v) the issuance of additional unsecured convertible debentures; and, (vi) the issuance of new units. In addition to the above, Crombie has a number of active major developments and potential major developments as discussed under the Property Development/Redevelopment (“Development”) section of this MD&A. Financing for these Development projects is expected to include specific project financing in place before significant incurrence of project expenditures as well as financing from the various above- noted sources. Capital Structure (In thousands of CAD dollars) Investment property debt Senior unsecured notes Convertible debentures Crombie REIT Unitholders Special Voting Units and Class B Limited Partnership Unitholders December 31, 2017 December 31, 2016 December 31, 2015 $ 1,804,264 45.6% $ 1,865,477 49.3% $ 1,641,203 624,320 73,164 873,478 15.8% 1.8% 22.1% 398,588 132,134 834,203 10.5% 3.5% 22.0% 398,080 131,518 694,484 583,777 14.7% 555,943 14.7% 452,746 $ 3,959,003 100.0% $ 3,786,345 100.0% $ 3,318,031 49.5% 12.0% 4.0% 20.9% 13.6% 100.0% 41 ANNUAL REPORT 2017 LIQUIDITY AND FINANCING SOURCES Revolving credit facility Crombie has in place an authorized floating rate revolving credit facility of up to $400,000 (the “revolving credit facility”), with a maturity date of June 30, 2021, of which $8,168 ($16,887 including outstanding letters of credit) was drawn as at December 31, 2017. The revolving credit facility is secured by a pool of first and second mortgages on certain properties. Borrowings under the revolving credit facility can be by way of Bankers Acceptance or Prime Rate Advances and the Floating interest rate is contingent on the type of advance plus the applicable spread or margin. The respective spread or margin may change 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, 2017, Crombie had sufficient Borrowing Base to permit $396,227 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, of which $45,000 was drawn as at December 31, 2017, and matures May 16, 2019. The facility is used by Crombie for working capital purposes and to provide temporary financing for acquisitions and development activity. Borrowings under the bilateral credit facility can be by way of Bankers Acceptance or Prime Rate Advances and the Floating interest rate is contingent on the type of advance plus the applicable spread or margin. The respective spread or margin may change depending on Crombie’s unsecured bond rating with DBRS. Mortgage debt As of December 31, 2017, Crombie had fixed rate mortgages outstanding of $1,759,984 ($1,762,815 after including the fair value debt adjustment of $2,831), carrying a weighted average interest rate of 4.33% (after giving effect to the interest rate subsidy from Empire under an omnibus subsidy agreement) and a weighted average term to maturity of 5.4 years. From time to time, Crombie has entered into interest rate swap agreements to manage the interest rate profile of its current or future debts without an exchange of the underlying principal amount (see “Risk Management”). Crombie currently has interest rate swap agreements in place on $120,660 of floating rate mortgage debt. 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, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 Thereafter Total(1) $ 64,666 $ — $ 64,666 4.4% $ 53,999 $ 118,665 126,978 225,241 89,182 200,884 703,152 45,000 — 8,168 — — 171,978 225,241 97,350 200,884 703,152 11.8% 15.4% 6.6% 13.7% 48.1% 54,579 47,994 46,382 39,883 107,044 226,557 273,235 143,732 240,767 810,196 $ 1,410,103 $ 53,168 $ 1,463,271 100.0% $ 349,881 $ 1,813,152 100.0% % of Total 6.5% 12.5% 15.1% 7.9% 13.3% 44.7% (1) Excludes fair value debt adjustment of $2,831 and deferred financing charges of $11,719. Of the maturing debt balances, only 29.6% of fixed rate debt and 31.6% of total maturing debt balances mature over the next three years. Senior unsecured notes Series A Series B Series C Series D Unamortized Series B issue premium Deferred financing charges On March 3, 2017, Crombie issued, on a private placement basis, an additional $75,000 aggregate principal amount of 3.962% Series B Notes (senior unsecured) (the “Additional Notes”), maturing June 1, 2021. The Additional Notes were priced with an effective yield to maturity of 3.48% and sold at a price of $1,018.84 per $1,000 principal amount plus accrued interest. On November 20, 2017, Crombie issued, on a private placement basis, a $150,000 aggregate principal amount of 4.066% Series D Notes (senior unsecured), maturing November 21, 2022. 42 Maturity Date Effective Interest Rate December 31, 2017 December 31, 2016 October 31, 2018 3.986% $ 175,000 $ June 1, 2021 February 10, 2020 November 21, 2022 3.720% 2.775% 4.066% 175,000 125,000 150,000 1,323 (2,003) 175,000 100,000 125,000 — 240 (1,652) $ 624,320 $ 398,588 There are no required periodic principal payments, with the full face value of the Notes due on their respective maturity dates. In December 2017, Crombie entered into a $175,000 delayed draw unsecured non-revolving credit facility with two Canadian Schedule 1 financial institutions. The facility can only be drawn upon to refinance the $175,000 of Series A Unsecured Notes maturing October 31, 2018 and has an outside maturity date of October 31, 2020. CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts) Convertible debentures Series D Series E (CRR.DB.E) Deferred financing charges Conversion Price Maturity Date Interest Rate $ $ 20.10 17.15 July 4, 2017 March 31, 2021 5.00% 5.25% December 31, 2017 December 31, 2016 $ $ — $ 74,400 (1,236) 73,164 $ 60,000 74,400 (2,266) 132,134 Maximum REIT Units issuable at December 31, 2017 was 4,338,192 for Series E Debentures. On July 4, 2017, Crombie exercised its right to redeem its 5.00% Series D Convertible Unsecured Subordinated Debentures originally scheduled to mature on September 30, 2019 (the “Debentures”) in accordance with the terms of the supplemental trust indenture. Upon redemption, Crombie paid the holders of Debentures $1,013.01 per $1,000 principal amount of Debentures, representing the principal amount plus accrued and unpaid interest. 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. REIT Units and Class B LP Units and the attached Special Voting Units For the year ended December 31, 2017, Crombie issued 1,377,619 REIT Units and 977,009 Class B LP Units under its DRIP at a three percent (3%) discount to market prices as determined under the DRIP. Total units outstanding at January 31, 2018, were as follows: Units Special Voting Units(1) 89,199,846 61,706,893 (1) Crombie Limited Partnership, a subsidiary of Crombie, has also issued 61,706,893 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, 2018, Crombie has convertible debentures which could result in a total of 4,338,192 REIT Units being issued should all outstanding debentures be converted. SOURCES AND USES OF FUNDS (In thousands of CAD dollars) Cash provided by (used in): Operating activities Financing activities Investing activities Three months ended December 31, Year ended December 31, 2017 2016 Variance 2017 2016 Variance $ 21,349 $ 16,239 $ 5,110 $ 91,145 $ 66,920 $ 24,225 (12,305) (9,044) (10,475) (5,764) (1,830) (3,280) 82,648 (173,793) 395,384 (463,361) (312,736) 289,568 Net change during the period $ — $ — $ — $ — $ (1,057) $ 1,057 Operating Activities (In thousands of CAD dollars) Cash provided by (used in): Three months ended December 31, Year ended December 31, 2017 2016 Variance 2017 2016 Variance Net assets attributable to Unitholders and non-cash items $ 17,821 $ 20,038 $ (2,217) $ 69,741 $ 68,606 $ Non-cash operating items Income taxes refund 1,459 2,069 (3,799) — 5,258 2,069 19,335 2,069 (1,686) — 1,135 21,021 2,069 Cash provided by (used in) operating activities $ 21,349 $ 16,239 $ 5,110 $ 91,145 $ 66,920 $ 24,225 43 ANNUAL REPORT 2017 For the three months ended December 31, 2017, cash from operating activities increased by $5,110 over the same period in 2016. Cash from operations decreased $2,217 primarily due to lease termination income recorded in the fourth quarter of 2016 related to a vacated lease. During the fourth quarter of 2016, Crombie increased prepaid expenses and deposits, which is the primary reason for the increase of $5,258 in non-cash operating items when compared to the same period in 2016. For the year ended December 31, 2017, cash from operating activities increased $24,225 over the same period in 2016. The increase primarily relates to the decrease in prepaid expenses and deposits as Crombie received $8,600 in mortgage proceeds held back from December 2016 as well as cash generated from a decrease in trade receivables. Financing Activities (In thousands of CAD dollars) Cash provided by (used in): Issuance of new mortgages Regular principal repayment of mortgages Lump sum principal repayment of mortgages Net issue (repayment) on credit facilities Deferred financing charges – investment property debt Issuance of senior unsecured notes Deferred financing charges – senior unsecured notes Redemption of convertible debentures Net issue of REIT Units and Class B LP Units Other items (net) Three months ended December 31, Year ended December 31, 2017 2016 Variance 2017 2016 Variance $ — $ 123,731 $ (123,731) $ 192,783 $ 193,401 $ (13,901) (12,055) — — (1,846) — (147,323) (120,997) (26,326) (456) 150,000 (652) — — 27 (1,099) — — — — (55) 643 150,000 (652) — — 82 (53,803) (50,379) (167,206) (3,802) 226,413 (999) (60,000) — (359) (48,792) (49,774) 90,374 (2,967) — — — 219,111 (5,969) (618) (5,011) (605) (257,580) (835) 226,413 (999) (60,000) (219,111) 5,610 Cash provided by (used in) financing activities $ (12,305) $ (10,475) $ (1,830) $ 82,648 $ 395,384 $ (312,736) Cash used in financing activities for the three months ended December 31, 2017 increased by $1,830 from the same period in 2016. During the three months ended December 31, 2017, Crombie decreased the balance of its floating rate credit facilities by $147,323 (three months ended December 31, 2016 – decrease of $120,997) with proceeds from the issue of $150,000 aggregate principal amount of 4.066% Series D Notes (senior unsecured). The reduction in the floating rate credit facilities in the same period in 2016 was funded by proceeds from new mortgages. Cash from financing activities for the year ended December 31, 2017 decreased by $312,736 over the same period in 2016. During the year ended December 31, 2017, Crombie issued $192,783 (year ended December 31, 2016 – $193,401) in new mortgages with a weighted average interest rate of 3.43% and utilized the proceeds for property acquisitions and to reduce floating rate credit facilities. Crombie also repaid $50,379 (year ended December 31, 2016 – $49,774) in maturing mortgages. On March 3, 2017, Crombie issued an additional $75,000 of the 3.962% Series B Notes (senior unsecured) for gross proceeds of $76,413, resulting in an effective yield to maturity of 3.48%. The proceeds were used to reduce floating rate credit facilities. On November 20, 2017, Crombie issued the above-mentioned Series D Notes (senior unsecured) at par, with a maturity date of November 21, 2022. During the year ended December 31, 2016, Crombie disposed of 19 retail properties with the proceeds used to pay out maturing mortgages and reduce floating rate credit facilities. 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. Investing Activities (In thousands of CAD dollars) 2017 2016 Variance 2017 2016 Variance Three months ended December 31, Year ended December 31, Cash provided by (used in): Acquisition of investment properties Additions to investment properties Proceeds on disposal of investment properties Additions to tenant incentives Additions to deferred leasing costs Other items (net) $ — $ (21,039) $ 21,039 $ (119,357) $ (550,863) $ 431,506 (16,887) 15,645 (6,580) (372) (850) (10,821) 31,369 (4,893) (380) — (6,066) (15,724) (1,687) 8 (850) (46,800) 15,645 (18,381) (1,279) (3,621) (29,928) 192,549 (74,071) (1,048) — (16,872) (176,904) 55,690 (231) (3,621) Cash provided by (used in) investing activities $ (9,044) $ (5,764) $ (3,280) $ (173,793) $ (463,361) $ 289,568 Cash used in investing activities for the three months ended December 31, 2017 increased by $3,280 over the same period in 2016. During the three months ended December 31, 2017, Crombie completed the disposition of one retail property for net proceeds of $15,645. 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. 44 CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts) Cash used in investing activities for the year ended December 31, 2017 decreased by $289,568 over the same period in 2016. During the year ended December 31, 2016, including the above noted transactions completed in the fourth quarter, Crombie completed property acquisitions for cash consideration of $550,863; and, disposed of 19 retail properties for net proceeds of $192,549, realizing a gain on disposal of $37,490, utilizing the proceeds to pay down debt. should not be considered as an alternative to cash provided from operating activities or any other measure prescribed under IFRS. ACFO as computed by Crombie may differ from similar computations as reported by other REITs and, accordingly, may not be comparable to other such issuers. Crombie follows the recommendations of REALPAC’s February 2017 white paper in calculating ACFO and defines ACFO as cash flow from operations (computed in accordance with IFRS), adjusted for the following applicable amounts: ADJUSTED CASH FLOW FROM OPERATIONS (ACFO) • Distributions to unitholders included in cash flow from operations; Crombie considers ACFO to be a useful measure in evaluating Crombie’s ability to generate sustainable, economic cash flows from operating activities to fund distributions to unitholders. ACFO is not a measure recognized under IFRS and does not have a standardized meaning prescribed by IFRS. As such, this non-GAAP financial measure • Non-cash DRIP amounts included in distributions; • Change in working capital; • Capital expenditures; • Taxes related to non-operating activities; and, • Deferred financing charges. REALPAC provides for other adjustments in determining ACFO which are currently not applicable to Crombie, therefore not included in the above list. The calculation of ACFO for the three months and year ended December 31, 2017 and 2016 is as follows: (In thousands of CAD dollars) Cash flow from operations Adjusted for: Distributions to unitholders included in cash flow from operations Non-cash DRIP amount included in above distributions Change in non-cash working capital balances not indicative of sustainable cash flows Reserve for maintenance expenditures Taxes related to non-operating activities Amortization of deferred financing charges ACFO as calculated based on REALPAC recommendations Adjustments: Net lease termination income from Target Canada and Best Buy/Future Shop Subscription Receipts Adjustment Payment ACFO, as adjusted Total distributions declared during the period Excess of ACFO over total distributions ACFO payout ratio Three months ended December 31, Year ended December 31, 2017 2016 2017 2016 $ 21,349 $ 16,239 $ 91,145 $ 66,920 33,511 (6,568) 31 (4,450) (2,069) (996) 40,808 — — 40,808 33,511 7,297 82.1% $ 32,987 (6,109) 5,558 (4,439) — (877) 43,359 (3,828) — 39,531 32,987 133,259 (31,353) (16,943) (17,682) (2,069) (4,474) 151,883 — — 151,883 133,259 $ 6,544 $ 18,624 $ 83.4% 87.7% 125,737 (21,661) 5,224 (17,626) — (3,310) 155,284 (14,172) 613 141,725 125,737 15,988 88.7% Crombie has made the above-noted adjustments to ACFO as calculated based on REALPAC recommendations. These adjustments were made to better reflect sustainable, economic cash flows to fund distributions. BORROWING CAPACITY AND DEBT COVENANTS Under the amended terms governing the revolving credit facility, Crombie is entitled to borrow a maximum of 70% of the fair market value of assets subject to a first security position and 60% of the excess of fair market value over first mortgage financing of assets subject to a second security position or a negative pledge (the “Borrowing Base”). The revolving credit facility provides Crombie with flexibility to add or remove properties from the Borrowing Base, subject to compliance with certain conditions. The terms of the revolving credit facility also require that Crombie must maintain certain covenants: • annualized NOI for the prescribed properties must be a minimum of 1.4 times the coverage of the related annualized debt service requirements; • annualized NOI on all properties must be a minimum of 1.4 times the coverage of all annualized debt service requirements; and, • distributions to Unitholders are limited to 100% of distributable income as defined in the revolving credit facility. The revolving credit facility also contains a covenant limiting the amount which may be utilized under the revolving credit facility at any time. This covenant provides that the aggregate of amounts drawn under the revolving credit facility plus any outstanding letters of credit, may not exceed the “Aggregate Borrowing Base”, which is based on a modified calculation of the Borrowing Base, as defined in the revolving credit facility. At December 31, 2017, the remaining amount available under the revolving credit facility was $388,000 (prior to reduction for standby letters of credit outstanding of $8,719) and was not limited by the Aggregate Borrowing Base. At December 31, 2017, Crombie remained in compliance with all debt covenants. 45 ANNUAL REPORT 2017 DEBT TO GROSS BOOK VALUE – FAIR VALUE BASIS When calculating debt to gross book value, debt is defined under the terms of the Declaration of Trust as obligations for borrowed money including obligations incurred in connection with acquisitions, excluding specific deferred taxes payable, trade payables and accruals in the ordinary course of business and distributions payable. Gross book value means, at any time, the book value of the assets of Crombie and its consolidated subsidiaries plus deferred financing charges, accumulated depreciation and amortization in respect of Crombie’s properties and 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% at December 31, 2017 compared to 50.3% at December 31, 2016. This leverage ratio is 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, 2017, Crombie’s weighted average cap rate used in the determination of the fair value of its investment properties decreased 0.08% to 5.80%. (In thousands of CAD dollars, except as otherwise noted) Dec. 31, 2017 Sep. 30, 2017 Jun. 30, 2017 Mar. 31, 2017 Dec. 31, 2016 As at Less: Applicable fair value debt adjustment (1,117) (1,194) (1,273) Fixed rate mortgages Senior unsecured notes Convertible debentures Revolving credit facility payable Bilateral credit facility Total debt outstanding Debt Investment properties, at fair value Other assets, cost(1) Deferred financing charges Investment in joint ventures Interest rate subsidy Fair value adjustment to deferred taxes Gross book value – fair value basis $ 1,762,815 $ 1,776,716 $ 1,783,294 $ 1,738,431 $ 1,655,817 625,000 74,400 8,168 45,000 475,000 74,400 100,491 100,000 475,000 134,400 12,058 30,000 475,000 134,400 31,766 20,000 2,515,383 2,526,607 2,434,752 2,399,597 $ $ 2,514,266 4,944,000 $ $ 2,525,413 4,969,000 $ $ 2,433,479 4,817,000 $ $ 41,056 14,958 2,602 (1,117) — 38,409 14,847 5,213 (1,194) — 54,707 14,641 2,940 (1,273) — (1,352) 2,398,245 4,767,000 42,093 15,281 1,339 (1,352) (34,120) 400,000 134,400 120,374 100,000 2,410,591 (1,452) $ $ 2,409,139 4,752,000 54,536 14,631 815 (1,452) (34,120) $ 5,001,499 $ 5,026,275 $ 4,888,015 $ 4,790,241 $ 4,786,410 Debt to gross book value – fair value basis 50.3% 50.2% 49.8% 50.1% 50.3% (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. • an increase in adjusted interest expense of $4,543 or 4.8% as Crombie increased fixed rate mortgage debt by $106,998 and senior unsecured notes by $225,000 since December 31, 2016 and reduced lower cost floating rate debt by $167,206 over that same period; and, • Crombie’s improved operating results, with EBITDA increasing $4,459 INTEREST AND DEBT SERVICE COVERAGE RATIOS or 1.6%. Crombie’s interest and debt service coverage ratios for the year ended December 31, 2017 were 2.87 times EBITDA and 1.87 times EBITDA, respectively. This compares to 2.97 times EBITDA and 1.96 times EBITDA, respectively, for the year ended December 31, 2016. The decrease in the coverage ratios is attributable to: 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. 46 CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts) (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))} Year ended December 31, 2017 2016 $ 411,813 $ 400,001 $ $ $ $ 12,768 424,581 (121,069) (19,077) 284,435 105,777 (4,474) (2,354) 98,949 271,388 (560) (335) (167,206) (50,379) $ $ $ $ $ 52,908 $ 2.87 1.87 11,622 411,623 (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 ACCOUNTING RELATED PARTY TRANSACTIONS associated with Crombie through Empire’s indirect interest. Related party transactions also include transactions with key management personnel and post-employment benefit plans. As at December 31, 2017, 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 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 transactions with related parties are as follows: (In thousands of CAD dollars) Note 2017 2016 2017 2016 Three months ended December 31, Year ended December 31, 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 (a) (b) (c) (d) (e) (b) $ $ $ $ $ $ $ $ $ $ 50,766 390 (2) (18) 161 (91) — 77 — (13,905) $ $ $ $ $ $ $ $ $ $ 54,504 170 64 (19) 205 (79) (302) 57 118 (13,687) $ $ $ $ $ $ $ $ $ $ 208,083 922 100 (47) 645 (295) (608) 335 — (55,293) $ $ $ $ $ $ $ $ $ $ 183,411 453 64 (64) 949 (281) (1,203) 269 651 (52,171) (a) Crombie earned property revenue from Sobeys Inc. and other subsidiaries of Empire. (b) For various periods, ECLD has an obligation to provide rental income and interest rate subsidies pursuant to an Omnibus Subsidy Agreement dated March 23, 2006, between Crombie Developments Limited, Crombie Limited Partnership and ECLD. The rental income is included in Property revenue and the interest rate subsidy is netted against Finance costs – operations. (c) Certain executive management individuals and other employees of Crombie provide general management, financial, leasing, administrative, and other administration support services to certain subsidiaries of Empire on a cost sharing basis pursuant to a Management Agreement effective January 1, 2016. (d) 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) Empire held $24,000 of Series D Convertible Debentures with an annual interest rate of 5.00% until their redemption on July 4, 2017. 47 ANNUAL REPORT 2017 In addition to the above: • On September 29, 2017, Crombie acquired approximately 31,000 square feet of additional gross leaseable area from a subsidiary of Empire for $7,671 before closing and transaction costs. • On May 4, 2017, Crombie acquired a development property in British Columbia for $31,136 before closing and transaction costs and settled the long-term receivable previously advanced to a subsidiary of Empire as part of the transaction. • On March 16, 2017, Crombie acquired a retail property in Alberta and assumed the related land lease from Empire including approximately 50,000 square feet of gross leaseable area for $8,320 before closing and transaction costs. • During the year ended December 31, 2017, Crombie issued 977,009 (December 31, 2016 – 657,901) Class B LP Units to ECLD under the DRIP. • 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. 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 Year ended December 31, 2017 4,469 98 4,567 $ $ 2016 4,460 112 4,572 $ $ USE OF ESTIMATES AND JUDGMENTS The preparation of consolidated financial information requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Significant judgment, estimate and assumption items include impairment, employee future benefits, income taxes, investment properties, purchase price allocations and fair value of financial instruments. These estimates are based on historical experience and management’s best knowledge of current events and actions that Crombie may undertake in the future. Actual results could differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revisions affect only that period or in the period of the revision and future periods if the revision affects both current and future periods. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS Investment property acquisitions Upon acquisition, Crombie performs an assessment of investment properties being acquired to determine whether the acquisition is to be accounted for as an asset acquisition or a business combination. A transaction is considered to be a business combination if the acquired property meets the definition of a business; being an integrated set of activities and assets that are capable of being managed for the purpose of providing a return to the Unitholders. Crombie performs an assessment of the fair value of the properties’ related tangible and intangible assets and liabilities and allocates the purchase price to the acquired assets and liabilities. Crombie assesses and considers fair value based on cash flow projections that take into account relevant discount and capitalization rates and any other relevant sources of market information available. Estimates of future cash flow are based on factors that include historical operating results, if available, and anticipated trends, local markets and underlying economic conditions. Crombie allocates the purchase price based on the following: Land – The amount allocated to land is based on an appraisal estimate of its fair value. Buildings – Buildings are recorded at the estimated fair value of the building and its components and significant parts. Intangible Assets – Intangible assets are recorded for tenant relationships, based on estimated costs avoided should the respective tenants renew their leases at the end of the initial lease term, adjusted for the estimated probability of renewal. Fair value of debt – Values ascribed to fair value of debt are determined based on the differential between contractual and market interest rates on long-term liabilities assumed at acquisition. 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. 48 CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts) Depreciation of buildings is calculated using the straight-line method with reference to each property’s cost, the estimated useful life of the building (not exceeding 40 years) and its components, significant parts and residual value. Repairs and maintenance improvements are expensed as incurred or, in the case of major items that constitute a capital asset, are capitalized to the building and amortized on a straight-line basis over the expected useful life of the improvement. Change in useful life of investment properties The estimated useful lives of significant investment properties are reviewed whenever events or circumstances indicate a change in useful life. Estimated useful lives of significant investment properties are based on management’s best estimate and the actual useful lives may be different. Revisions to the estimated useful lives of investment properties constitute a change in accounting estimate and are accounted for prospectively by amortizing the cumulative changes over the remaining estimated useful life of the related assets. Revenue recognition Property revenue includes rents earned from tenants under lease agreements, percentage rent, realty tax and operating cost recoveries, and other incidental income. Certain leases have rental payments that change over their term due to changes in rates. Crombie records the rental revenue from leases on a straight-line basis over the term of the lease. Accordingly, an accrued rent receivable is recorded for the difference between the straight-line rent recorded as property revenue and the rent that is contractually due from the tenants. In addition, tenant incentives are amortized on a straight-line basis over the term of existing leases and the amortization is shown as a reduction in property revenue. Percentage rents are recognized when tenants are obligated to pay such rent under the terms of the related lease agreements. Realty tax and operating cost recoveries, and other incidental income, are recognized on an accrual basis. CRITICAL JUDGMENTS Judgments made by management in the preparation of these financial statements that have significant effect and estimates with a significant risk of material adjustment to the carrying amount of assets and liabilities are as follows: Impairment of long-lived tangible and definite life intangible assets Long-lived tangible and definite life intangible assets are reviewed for impairment at each reporting period for events or changes in circumstances that indicate that the carrying value of the assets may not be recoverable. If such an indication exists, the recoverable amount of the asset is estimated in order to determine the extent of impairment loss (if any). The recoverable amount is the higher of fair value less costs to sell and value in use. Where the asset does not generate cash flows that are independent from other assets, Crombie estimates the recoverable amount of the cash generating unit(s) to which the asset 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. Net annual cash flows are primarily determined using the trailing 12 months actual results. 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. 49 ANNUAL REPORT 2017FINANCIAL 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, 2017: (In thousands of CAD dollars) Financial assets Marketable securities Marketable securities Total financial assets measured at fair value During the first quarter of 2017, Crombie transferred marketable securities with a fair value of $2,290 from Level 3 into Level 1. The transfer related to reduced price volatility and increased trading volume of the marketable securities held. There were no other transfers during the year ended December 31, 2017. Level December 31, 2017 December 31, 2016 1 3 $ $ 1,285 — 1,285 $ $ — 2,290 2,290 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). 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: (In thousands of CAD dollars) Financial assets Long-term receivables(1) Total other financial assets Financial liabilities Investment property debt Senior unsecured notes Convertible debentures Total other financial liabilities December 31, 2017 December 31, 2016 Fair Value Carrying Value Fair Value Carrying Value $ $ $ $ $ $ 6,642 6,642 1,846,029 627,120 76,818 $ $ $ 6,628 6,628 1,815,983 625,000 74,400 $ $ $ 19,999 19,999 1,959,091 402,361 139,147 19,969 19,969 1,876,191 400,000 134,400 $ 2,549,967 $ 2,515,383 $ 2,500,599 $ 2,410,591 (1) Long-term receivables include amounts in other assets for capital expenditure program, interest rate subsidy and receivable from related party and third parties. 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. COMMITMENTS AND CONTINGENCIES There are various claims and litigation which Crombie is involved with arising out of the ordinary course of business operations. In the opinion of management, any liability that would arise from such contingencies would not have a significant adverse effect on these operating results. Crombie has agreed to indemnify its trustees and officers, and particular employees, in accordance with Crombie’s policies. Crombie maintains insurance policies that may provide coverage against certain claims. Crombie 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, 2017, Crombie has a total of $8,719 in outstanding letters of credit related to: (In thousands of CAD dollars) Construction work being performed on investment properties Mortgage lenders primarily to satisfy mortgage financings on redevelopment properties Total outstanding letters of credit 50 December 31, 2017 3,879 4,840 8,719 $ $ 2016 2,027 3,000 5,027 $ $ CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts) 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 seven to 72 years including renewal options. For the three months and year ended December 31, 2017, Crombie paid $445 and $1,685 in land lease payments to third party landlords (three months and year ended December 31, 2016 – $364 and $1,431). As at December 31, 2017, Crombie had signed construction contracts totalling $112,211 of which $92,930 has been paid. RISK MANAGEMENT In the normal course of business, Crombie is exposed to a number of financial risks that can affect its operating performance. The more significant risks, and the action taken to manage them, are as follows: Real Property Ownership and Tenant Risks All real property investments are subject to elements of risk. The value of real property and any improvements thereto depend on the credit and financial stability of tenants and upon the vacancy rates of the properties. In addition, certain significant expenditures, including property taxes, ground rent, mortgage payments, insurance costs and related charges must be made throughout the period of ownership of real property regardless of whether a property is producing any income. Cash available for distribution will be adversely affected if a significant number of tenants are unable to meet their obligations under their leases or if a significant amount of available space in the properties becomes vacant and cannot be leased on economically favourable lease terms. Upon the expiry of any lease, there can be no assurance that the lease will be renewed or the tenant replaced. The terms of any subsequent lease may be less favourable to Crombie than those of an existing lease. The ability to rent unleased space in the properties in which Crombie has an interest will be affected by many factors, including general economic conditions, local real estate markets, changing demographics, supply and demand for leased premises, competition from other available premises and various other factors. Management utilizes staggered lease maturities so that Crombie is not required to lease unusually large amounts of space in any given year. In addition, the diversification of our property portfolio by geographic location, tenant mix and asset type also helps to mitigate this risk. CREDIT RISK Credit risk arises from the possibility that tenants may experience financial difficulty and be unable to fulfill their lease commitments. A provision for doubtful accounts is taken for all anticipated collectability risks. Crombie mitigates credit risk by geographical diversification, utilizing staggered lease maturities, diversifying both its tenant mix and asset mix and conducting credit assessments for new and renewing tenants. In measuring tenant concentration, Crombie considers both the annual minimum rent and total property revenue of major tenants. • Crombie’s largest tenant, Sobeys, represents 53.5% of annual minimum rent; 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 $50,766 and $208,083, respectively, for the three months and year ended December 31, 2017 (three months and year ended December 31, 2016 – $54,504 and $183,411, respectively) from Sobeys Inc. and other subsidiaries of Empire. Over the next five years, leases representing no more than 5.1% 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, 2016. Year ended December 31, 2017 $ $ $ 127 455 (165) (223) 194 $ Year ended December 31, 2016 60 195 (120) (8) 127 51 ANNUAL REPORT 2017 COMPETITION The real estate business is competitive. Numerous other developers, managers and owners of properties compete with Crombie in seeking tenants. Some of the properties located in the same markets as Crombie’s properties are newer, better located, less levered or have stronger anchor tenants than Crombie’s properties. Some property owners with properties located in the same markets as Crombie’s properties may be better capitalized and may be stronger financially and hence better able to withstand an economic downturn. Competitive pressures in such markets could have a negative effect on Crombie’s ability to lease space in its properties and on the rents charged or concessions granted. RISK FACTORS RELATED TO THE BUSINESS OF CROMBIE Development Risk Crombie owns a number of investment properties at varying stages of development as well as a significant pipeline of potential future development properties. Development risk associated with development projects underway include: construction delays and their impact on financing and related costs as well as commitments from tenants for occupancy; cost overruns which could impact the profitability and/or financial viability of a project; and, the inability to meet revenue projections upon completion, which could be impacted by unmet leasing assumptions on timing of tenant occupancy or rent per square foot. Management strives to mitigate these risks by undertaking certain projects with partners (see Joint Arrangement Risk); entering into fixed cost construction contracts with reputable contractors; entering into long-term financing at the most appropriate stage possible; and, entering into long-term leases with reputable commercial tenants prior to construction wherever possible. Development risks associated with potential future development properties include all of the above risks as well as the risks associated with the ability to develop the property at all. This may include waiting for all current leases to expire or negotiating favourable terms with current tenants which could include costs associated with lease interruptions to permit development; and, inability to receive various required municipal/provincial approvals for site plan, development, zoning, construction, etc. Joint Arrangement Risk Crombie has entered into joint arrangements or partnerships with other third party entities. Risks associated with these arrangements include risk of default by a partner on financing obligations or non- performance of a partner’s obligations on a project, which may include development, construction, management or leasing. Crombie attempts to mitigate these risks by entering into arrangements with financially stable, reputable partners with a proven track record and by negotiating contractual rights in the event of a default. Significant Relationship Crombie’s anchor tenants are concentrated in a relatively small number of retail operators. Specifically, 53.5% of the annual minimum rent and 49.2% 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, including the growing trend in e-commerce, 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, 2017 is detailed under the Property Portfolio section. 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 36.9% at December 31, 2017. Cyber Security Risk A cyber security incident includes any material adverse event that threatens the confidentiality, integrity and/or availability of Crombie’s information resources. Such events, intentional or unintentional, could include malicious software attacks, unauthorized access to confidential data or information systems or security breaches and could lead to a disruption of operations or unauthorized access to, and release of, confidential information. The results could be reputational damage with tenants and suppliers as well as financial costs or a disruption to Crombie’s business. Crombie has implemented processes, procedures and controls to help mitigate these risks, but these measures, as well as its increased awareness of a risk of a cyber incident, do not guarantee that its financial results will not be negatively impacted by the occurrence of any such event. 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, 2017: • Crombie’s weighted average term to maturity of its fixed rate mortgages was 5.4 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 $8,168 at December 31, 2017; • Crombie has a floating rate bilateral credit facility available to a maximum of $100,000 with a balance of $45,000 at December 31, 2017; and, • Crombie has interest rate swap agreements in place on $120,660 of floating rate mortgage debt. Crombie estimates that $2,263 of accumulated other comprehensive income (loss) will be reclassified to finance costs during the year ending December 31, 2018, based on all settled swap agreements as of December 31, 2017. 52 CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts)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: (In thousands of CAD dollars) Impact on operating income attributable to Unitholders of interest rate changes on the floating rate revolving credit facility Three months ended December 31, 2017 Three months ended December 31, 2016 Year ended December 31, 2017 Year ended December 31, 2016 There have been no significant changes to Crombie’s interest rate risk since December 31, 2016. Impact of a 0.5% interest rate change Decrease in rate Increase in rate $ $ $ $ 124 373 468 1,130 $ $ $ $ (124) (373) (468) (1,130) 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. 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: (In thousands of CAD dollars) Fixed rate mortgages(2) Senior unsecured notes Convertible debentures Floating rate debt Total Year ending December 31, Contractual Cash Flows(1) 2018 2019 2020 2021 2022 Thereafter $ 2,109,420 $ 190,770 $ 249,668 $ 326,416 $ 183,289 $ 278,985 $ 880,292 691,963 87,095 2,888,478 55,979 197,315 3,906 391,991 1,661 16,502 3,906 270,076 45,778 138,417 3,906 468,739 248 183,986 75,377 442,652 8,292 155,743 — — — 434,728 880,292 — — $ 2,944,457 $ 393,652 $ 315,854 $ 468,987 $ 450,944 $ 434,728 $ 880,292 (1) Contractual cash flows include principal and interest and ignore extension options. (2) Reduced by the interest rate subsidy payments to be received from Empire. There have been no significant changes to Crombie’s liquidity risk since December 31, 2016. ENVIRONMENTAL MATTERS Environmental legislation and regulations have become increasingly important in recent years. As an owner of interests in real property in Canada, Crombie is subject to various Canadian federal, provincial and municipal laws relating to environmental matters. Such laws provide that Crombie could become liable for environmental harm, damage or costs, including with respect to the release of hazardous, toxic or other regulated substances into the environment, and the removal or other remediation of hazardous, toxic or other regulated substances that may be present at or under its properties. The failure to remove or otherwise address such substances, 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. 53 ANNUAL REPORT 2017 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 elected 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. RISK FACTORS RELATED TO THE UNITS Cash Distributions Are Not Guaranteed There can be no assurance regarding the amount of income to be generated by Crombie’s properties. The ability of Crombie to make cash distributions and the actual amount distributed are entirely dependent on the operations and assets of Crombie and its subsidiaries, and are subject to various factors including financial performance, obligations under applicable credit facilities, the sustainability of income derived from anchor tenants and capital expenditure requirements. Cash available to Crombie to fund distributions may be limited from time to time because of items such as principal repayments, tenant allowances, leasing commissions, capital expenditures and redemptions of Units, if any. Crombie may be required to use part of its debt capacity or to reduce distributions in order to accommodate such items. The market value of the Units will deteriorate if Crombie is unable to maintain its distribution in the future, and that deterioration may be significant. In addition, the composition of cash distributions for tax purposes may change over time and may affect the after-tax return for investors. Restrictions on Redemptions It is anticipated that the redemption of Units will not be the primary mechanism for holders of Units to liquidate their investments. The entitlement of Unitholders to receive cash upon the redemption of their Units is subject to the following limitations: (i) the total amount payable by Crombie in respect of such Units and all other Units tendered for redemption in the same calendar month must not exceed $50 (provided that such limitation may be waived at the discretion of the Trustees); (ii) at the time such Units are tendered for redemption, the outstanding Units must be listed for trading on a stock exchange or traded or quoted on another market which the Trustees consider, in their sole discretion, provides fair market value prices for the Units; and, (iii) the trading of Units is not suspended or halted on any stock exchange on which the Units are listed (or, if not listed on a stock exchange, on any market on which the Units are quoted for trading) on the redemption date for more than five trading days during the 10-day trading period commencing immediately after the redemption date. Potential Volatility of Unit Prices One of the factors that may influence the market price of the Units is the annual yield on the Units. An increase in market interest rates may lead purchasers of Units to demand a higher annual yield, which accordingly could adversely affect the market price of the Units. In addition, the market price of the Units may be affected by changes in general market conditions, fluctuations in the markets for equity securities and numerous other factors beyond the control of Crombie. Tax-Related Risk Factors Crombie intends to make distributions not less than the amount necessary to eliminate Crombie’s liability for tax under Part I of the Income Tax Act (Canada). Where the amount of net income and net realized capital gains of Crombie in a taxation year exceeds the cash available for distribution in the year, such excess net income and net realized capital gains will be distributed to Unitholders and such additional distributions may be in the form of cash and/or additional Units. Unitholders will generally be required to include an amount equal to the fair market value of any additional Units in their taxable income, notwithstanding that they do not directly receive a cash 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. 54 CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts)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 2017 fiscal years. The relevant tests apply throughout the taxation year of Crombie and, as such, the actual status of Crombie for any particular taxation year can only be ascertained at the end of the year. Notwithstanding that Crombie may meet the criteria for a REIT under the Act and thus be exempt from the distribution tax, there can be no assurance that the Department of Finance (Canada) or other governmental authority will not undertake initiatives which have an adverse impact on Crombie or its Unitholders. Indirect Ownership of Units by Empire 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 public 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 public 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; • Crombie’s credit rating; • 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) On January 19, 2018, Crombie declared distributions of 7.417 cents per Unit for the period from January 1, 2018 to and including, January 31, 2018. The distributions were paid on February 15, 2018, to Unitholders of record as of January 31, 2018. (b) On February 16, 2018, Crombie declared distributions of 7.417 cents per Unit for the period from February 1, 2018 to and including, February 28, 2018. The distributions will be paid on March 15, 2018, to Unitholders of record as of February 28, 2018. 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, 2017. 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, 2017, 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. 55 ANNUAL REPORT 2017QUARTERLY INFORMATION The following table shows information for revenues, expenses, increase (decrease) in net assets attributable to Unitholders, AFFO, ACFO, FFO, distributions and per unit amounts for the eight most recently completed quarters. (In thousands of CAD dollars, except per unit amounts) Dec. 31, 2017 Sep. 30, 2017 Jun. 30, 2017 Mar. 31, 2017 Dec. 31, 2016 Sep. 30, 2016 Jun. 30, 2016 Mar. 31, 2016 Property revenue $ 105,667 $ 102,424 $ 101,591 $ 102,131 $ 105,269 $ 98,757 $ 101,031 $ 94,944 Three Months Ended Property operating expenses Property net operating income Gain on disposal Expenses: General and administrative Finance costs – operations Income from equity accounted investments 31,622 74,045 2,474 28,259 74,165 — 29,793 71,798 — 31,395 70,736 — 29,395 75,874 9,761 27,732 71,025 1,225 27,538 73,493 244 (4,246) (26,681) (4,675) (26,244) (5,160) (26,892) (4,996) (25,960) (4,266) (25,656) (3,546) (25,342) (4,122) (24,793) 30,641 64,303 26,260 (4,407) (24,365) (7) 41 27 — Depreciation and amortization (20,619) (21,966) (19,826) (19,796) Impairment — Operating income before taxes 24,966 Taxes – current Taxes – deferred Operating income Finance costs – distributions 2,082 — 27,048 — 21,321 — — 21,321 — 19,947 (4) 76,400 96,343 — 19,984 — (1,000) 18,984 — (19,435) (6,000) 30,278 — 1,200 31,478 — — — (19,933) (17,514) (16,450) — 23,429 (3) (300) — 27,308 — (100) 23,126 27,208 — 45,341 (23) (2,000) 43,318 to Unitholders (33,511) (33,385) (33,248) (33,115) (32,987) (32,890) (30,538) (29,322) 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 $ $ $ 18 25 1 101 (46) 789 (397) (34) (6,445) $ (12,039) $ 63,096 $ (14,030) $ (1,555) $ (8,975) $ (3,727) $ 13,962 0.18 $ 0.14 $ 0.65 $ 0.13 $ 0.21 $ 0.16 $ 0.21 $ 0.33 0.18 $ 0.14 $ 0.63 $ 0.13 $ 0.21 $ 0.16 $ 0.21 $ 0.33 (In thousands of CAD dollars, except per unit amounts) Dec. 31, 2017 Sep. 30, 2017 Jun. 30, 2017 Mar. 31, 2017 Dec. 31, 2016 Sep. 30, 2016 Jun. 30, 2016 Mar. 31, 2016 Three Months Ended Distributions Distributions Per unit AFFO(1), as adjusted Basic Per unit – Basic Per unit – Diluted(3) Payout ratio FFO(2), as adjusted Basic Per unit – Basic Per unit – Diluted(3) Payout ratio $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 33,511 0.22 39,481 0.26 0.26 84.9% 47,237 0.31 0.31 70.9% $ $ $ $ $ $ $ $ 33,385 0.22 38,713 0.26 0.26 86.2% 46,652 0.31 0.31 71.6% $ $ $ $ $ $ $ $ 33,248 0.22 35,532 0.24 0.24 93.6% 43,335 0.29 0.29 76.7% $ $ $ $ $ $ $ $ 33,115 0.22 36,132 0.24 0.24 91.6% 43,928 0.30 0.29 75.4% $ $ $ $ $ $ $ $ 32,987 0.22 37,776 0.26 0.25 87.3% 45,964 0.31 0.31 71.8% $ $ $ $ $ $ $ $ 32,890 0.22 38,131 0.26 0.26 86.3% 46,079 0.31 0.31 71.4% $ $ $ $ $ $ $ $ 30,538 0.22 30,833 0.23 0.23 99.0% 37,768 0.29 0.28 80.9% 29,322 0.22 31,436 0.24 0.24 93.3% 38,473 0.29 0.29 76.2% (1) AFFO for 2016 is now calculated based on REALPAC’s February 2017 white paper. (2) FFO for 2016 has been restated to include add back of incremental internal leasing costs. (3) 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. 56 CROMBIE REIT MANAGEMENT’S DISCUSSION AND ANALYSIS (in thousands of CAD dollars, except per unit amounts) Variations in quarterly results over the past eight quarters have been influenced by the following specific transactions and ongoing events: • Property acquisitions and dispositions (excluding closing and transaction costs) for each of the above three month periods were: — December 31, 2017 – disposition of one retail property for proceeds of $15,600; — September 30, 2017 – acquisition of six retail properties for a total purchase price of $100,257, and acquisition of additional development on a pre-existing retail property for a total purchase price of $7,671; — March 31, 2017 – acquisition of one retail property for a total purchase price of $8,320; — 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; and, — March 31, 2016 – acquisition of one retail property for a total purchase price of $5,500 and disposition of 10 retail properties for proceeds of $143,400. • 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. • On June 30, 2017, Crombie completed a tax reorganization, as approved by unitholders, resulting in, amongst other structural changes, the winding up of its most significant, wholly-owned corporate subsidiary. Through the tax reorganization, all property within the corporate entity was transferred to a limited partnership resulting in the elimination of Crombie’s obligation for deferred income taxes related to this corporate subsidiary. The deferred tax liability of $76,400 at the time of the tax reorganization has been reduced to $NIL and the decrease has been recognized as an income tax recovery on Crombie’s Consolidated Statement of Comprehensive Income for the year ended December 31, 2017. • 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. Dated: February 21, 2018 New Glasgow, Nova Scotia, Canada 57 ANNUAL REPORT 2017 CROMBIE RE IT MANAG EMENT’ S S TATEMENT OF RE SPONSIBILIT Y FOR FINANCIAL REPORTING Management’s Statement of Responsibility for Financial Reporting Preparation of the consolidated financial statements accompanying this annual report and the presentation of all other information in the report is the responsibility of management. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and reflect management’s best estimates and judgments. All other financial information in the report is consistent with that contained in the consolidated financial statements. Management of the Trust has established and maintains a system of internal control that provides reasonable assurance as to the integrity of the consolidated financial statements, the safeguard of Trust assets, and the prevention and detection of fraudulent financial reporting. The Board of Trustees, through its Audit Committee, oversees management in carrying out its responsibilities for financial reporting and systems of internal control. The Audit Committee, which is chaired by and composed solely of trustees who are unrelated to, and independent of, the Trust, meet regularly with financial management and external auditors to satisfy itself as to reliability and integrity of financial information and the safeguarding of assets. The Audit Committee reports its findings to the Board of Trustees for consideration in approving the annual consolidated financial statements to be issued to unitholders. The external auditors have full and free access to the Audit Committee. Donald E. Clow, fcpa, fca President and Chief Executive Officer Glenn R. Hynes, fcpa, fca Executive Vice President, Chief Financial Officer and Secretary February 21, 2018 February 21, 2018 58 INDEPENDENT AUDITOR ’ S REPORT ANNUAL REPORT 2017 Independent Auditor’s Report TO THE BOARD OF TRUSTEES OF CROMBIE REAL ESTATE INVESTMENT TRUST We have audited the accompanying consolidated financial statements of Crombie Real Estate Investment Trust (“Crombie”) and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2017 and December 31, 2016 and the consolidated statements of comprehensive income, changes in net assets attributable to unitholders and cash flows for the years 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 audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the 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 in our audits 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, 2017 and December 31, 2016 and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards. Chartered Professional Accountants, Licensed Public Accountants Halifax, Nova Scotia, Canada February 21, 2018 59 Note December 31, 2017 December 31, 2016 $ 3,826,961 $ 3,716,720 2,602 225,908 4,055,471 31,383 4,086,854 1,685,599 449,320 73,164 — 8,849 9,558 815 197,351 3,914,886 48,432 3,963,318 1,765,824 398,588 132,134 75,400 8,110 8,493 2,226,490 2,388,549 118,665 175,000 282 109,162 403,109 2,629,599 1,457,255 873,478 583,777 1,457,255 $ $ $ $ $ $ 99,653 — 282 84,688 184,623 2,573,172 1,390,146 834,203 555,943 1,390,146 3 4 5 5 6 7 8 9 10 11 6 7 10 11 21 22 CROMBIE RE IT CONSOLIDATED FINANCIAL S TATEMENTS Consolidated Balance Sheets (In thousands of CAD dollars) Assets Non-current assets Investment properties Investment in joint ventures Other assets Current assets Other assets 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 Senior unsecured notes 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 60 Consolidated Statements of Comprehensive Income (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 Income from equity accounted investments 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 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 Net change in derivatives designated as cash flow hedges Items that will not be subsequently reclassified to Increase (decrease) in net assets attributable to Unitholders: Unamortized actuarial gains (losses) in employee future benefit obligation Other comprehensive income Comprehensive income See accompanying notes to the consolidated financial statements. Year ended Note December 31, 2017 December 31, 2016 12 $ 411,813 $ 3 3 3 3 3 14 15 4 9 9 11 121,069 290,744 2,474 — (74,845) (6,654) (708) (19,077) (105,777) 61 86,218 2,078 75,400 163,696 (133,259) 145 (133,114) 30,582 2,354 3,204 (479) 5,079 $ 35,661 $ 400,001 115,306 284,695 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) 2,440 — (110) 2,330 2,035 61 ANNUAL REPORT 2017 CROMBIE RE IT CONSOLIDATED FINANCIAL S TATEMENTS Consolidated Statements of Changes in Net Assets Attributable to Unitholders (In thousands of CAD dollars) Balance, January 1, 2017 Adjustments related to EUPP Statements of comprehensive income REIT Units, Special Voting Units and Class B LP Units (Note 16) Net Assets Accumulated Other Attributable Comprehensive Income (Loss) to Unitholders Attributable to Total REIT Units Class B LP Units $ 1,714,724 $ (316,003) $ (8,575) $ 1,390,146 $ 834,203 $ 555,943 62 — 33 30,582 — — 5,079 — 95 35,661 31,353 95 20,844 18,336 — 14,817 13,017 Units issued under Distribution Reinvestment Plan (“DRIP”) 31,353 Balance, December 31, 2017 $ 1,746,139 $ (285,388) $ (3,496) $ 1,457,255 $ 873,478 $ 583,777 (In thousands of CAD dollars) REIT Units, Special Voting Units and Class B LP Units Accumulated Net Assets Other Attributable Comprehensive Income (Loss) to Unitholders (Note 16) Attributable to Total REIT Units Class B LP Units Balance, January 1, 2016 Adjustments related to EUPP Statements of comprehensive income (loss) Units issued under DRIP Unit issue proceeds, net of costs of $ 5,889 $ 1,473,885 $ (315,750) $ (10,905) $ 1,147,230 $ 694,484 $ 452,746 67 — 21,661 219,111 42 (295) — — — 2,330 — — 109 2,035 21,661 219,111 109 973 12,666 125,971 — 1,062 8,995 93,140 Balance, December 31, 2016 $ 1,714,724 $ (316,003) $ (8,575) $ 1,390,146 $ 834,203 $ 555,943 See accompanying notes to the consolidated financial statements. 62 Consolidated Statements of Cash Flows (In thousands of CAD dollars) Cash flows provided by (used in) Operating Activities Year ended Note December 31, 2017 December 31, 2016 Increase (decrease) in net assets attributable to Unitholders $ 30,582 $ Items not affecting operating cash Change in other non-cash operating items Income taxes recovered 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 (advances on) 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 Acquisition of interest in joint ventures Additions to fixtures and computer equipment Proceeds on disposal of marketable securities 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. 17 17 39,159 19,335 2,069 91,145 192,783 (3,802) (104,182) (167,206) 226,413 (999) (60,000) — — 62 (421) 82,648 (119,357) (46,800) 15,645 (1,701) (3,140) 1,220 (18,381) (1,279) (173,793) — — — $ $ (295) 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) (463,361) (1,057) 1,057 — 63 ANNUAL REPORT 2017 Notes to the Consolidated Financial Statements (In thousands of CAD dollars) NOTE 1. GENERAL INFORMATION AND NATURE OF OPERATIONS Crombie Real Estate Investment Trust (“Crombie”) is an unincorporated “open-ended” real estate investment trust created pursuant to the Declaration of Trust dated January 1, 2006, as amended. The principal business of Crombie is investing in income-producing retail, office and mixed use properties in Canada. Crombie is registered in Canada and the address of its registered office is 610 East River Road, Suite 200, New Glasgow, Nova Scotia, Canada, B2H 3S2. The consolidated financial statements for the years ended December 31, 2017 and December 31, 2016 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 21, 2018. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). (b) Basis of presentation The consolidated financial statements are presented in Canadian dollars (“CAD”); Crombie’s functional and reporting currency, rounded to the nearest thousand. The consolidated financial statements are prepared on a historical cost basis except for any financial assets and liabilities classified as fair value with changes in fair value recognized in 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, 2017. Subsidiaries are all entities over which Crombie has control. All subsidiaries have a reporting date of December 31, 2017. 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. 64 CROMBIE REIT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of CAD dollars)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. 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. 65 ANNUAL REPORT 2017(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 8). Upon issuance, convertible debentures are separated into their debt component and embedded derivative features. The debt component of the convertible debentures is recognized initially at the fair value of a similar debt instrument without the embedded derivative features. Subsequent to initial recognition, the debt component is measured at amortized cost using the effective interest method. The embedded derivative features include a holder conversion option at any time and an issuer redemption option under certain conditions. The multiple embedded derivative features are treated as a single compound embedded derivative liability and initially recognized at fair value. Subsequent to initial recognition, changes in fair value are recognized in the Consolidated Statements of Comprehensive Income (Loss). Upon issuance, any directly attributable costs are allocated to the debt component and embedded derivative liability in proportion to their initial carrying amounts. For the debt component, the transaction costs are reflected in the determination of the effective interest rate. For the embedded derivative liability, the transaction costs are immediately expensed in the Consolidated Statements of Comprehensive Income (Loss). Upon conversion, the carrying amount of the debt component and the related fair value of the derivative liability as of the date of conversion are transferred to Net assets attributable to Unitholders in the Consolidated Balance Sheets. Upon redemption, the redemption proceeds are compared to the carrying amount of the debt component and the related fair value of the embedded derivative extinguished as of the date of redemption, and any gain or loss on redemption is recognized in the Consolidated Statements of Comprehensive Income (Loss). (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”). The Board (or its designated Committee) may determine that special compensation will be provided in the form of 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 DU’s 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 a RU Plan for certain eligible executives and employees (“RU Participants”), whereby the RU Participants will 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 (as defined in the RU Plan) on the vesting date. 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. 66 CROMBIE REIT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of CAD dollars)(iii) Performance Unit Plan (“PU Plan”) Crombie has a PU Plan for certain eligible executives and employees (“PU Participants”), whereby the PU Participants may elect each year to participate in the PU Plan and receive all or a portion of their of their eligible remuneration in the form of an allocation of performance units (“PUs”). The PUs 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 PU Participant shall be entitled to receive a cash amount (net of any applicable withholding taxes) equal to the number of vested PUs held by the PU Participant multiplied by the market value (as defined in the PU Plan) on the vesting date. No REIT Units or other securities of Crombie will be issued from treasury. Alternatively, a PU Participant may elect to convert their PUs to DUs under Crombie’s DU Plan. (k) Distribution reinvestment plan (“DRIP”) Crombie has a DRIP which is described in Note 16. (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. (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 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. 67 ANNUAL REPORT 2017(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. 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 68 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 CROMBIE REIT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of CAD dollars) 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. 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. 69 ANNUAL REPORT 2017(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. (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. (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 2(j), 3 and 19. (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. 70 CROMBIE REIT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of CAD dollars)(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. (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 IFRS 9 Financial Instruments: Classification and Measurement(“IFRS 9”) issued, on July 24, 2014 is the International Accounting Standard Board’s (IASB’s) replacement of IAS 39 Financial Instruments: Recognition and Measurement (“IAS 39”). The Standard includes requirements for classification and measurement of financial instruments, impairment, derecognition and general hedge accounting. (a) Classification and measurement Financial assets are classified and measured based on the business model used for management of them and the contractual cash flow characteristics of each financial asset. The classification categories for financial assets under IAS 39 are replaced in IFRS 9 with categories that reflect measurement; amortized cost, fair value through other comprehensive income (FVOCI) and FVTPL. The IFRS 9 requirements for the classification and measurement of financial liabilities are substantially unchanged from IAS 39. IFRS 9 requires that when a financial liability measured at amortized cost is modified or exchanged, and such a modification or exchange does not result in derecognition, the adjustment to the amortized cost will be recognized in operating income at that time. 7 1 ANNUAL REPORT 2017(b) Impairment IFRS 9 requires impairment of financial assets based on an expected credit loss model and also has additional disclosure requirements regarding expected credit losses and credit risk. Crombie expects to apply the simplified approach to providing expected credit losses for trade and other short-term receivables, which requires the use of the lifetime expected loss provision. (c) Derecognition The principles from IAS 39 for derecognition of financial asset and liabilities are carried forward to IFRS 9. IFRS 9 explicitly states that write-offs constitute a derecognition event. (d) Hedge accounting IFRS 9 is intended to simplify the application of hedge accounting by more closely aligning hedging with actual risk management activities. Crombie has determined that all existing hedge relationships that are currently designated in effective hedging relationships will continue to qualify for hedge accounting under IFRS 9. IFRS 9 is effective for periods beginning on or after January 1, 2018 and Crombie intends to adopt the new standard on the effective date. The standard will be applied on a retrospective basis using the available transition provisions which will result in no restatement of the 2017 comparative period and a cumulative transitional adjustment to the opening net assets attributable to unitholders as at January 1, 2018. Crombie has performed an assessment of IFRS 9 and does not expect any significant impact from the adoption of the standard. (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. To assess the application and impact of this new standard, Crombie completed a review of all revenue streams and the impact of IFRS 15 on Crombie’s Consolidated Financial Statements. Based on the analysis completed Crombie does not anticipate adoption of the new standard will have a material impact on reported financial results. IFRS 15 is effective for annual periods beginning on or after January 1, 2018 and Crombie intends to adopt the new standard on the effective date. (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 not planning to early adopt this standard and expects to complete the assessment of the impact of IFRS 16 on Crombie’s consolidated financial statements in time for reporting for the period ending September 30, 2018. NOTE 3. INVESTMENT PROPERTIES Income properties Properties under development Income properties Cost December 31, 2017 December 31, 2016 $ $ 3,751,262 75,699 3,826,961 $ $ 3,683,278 33,442 3,716,720 Land Buildings Intangibles Deferred Leasing Costs Total Opening balance, January 1, 2017 $ 1,189,999 $ 2,820,193 $ 114,549 $ 7,800 $ 4,132,541 Acquisitions Additions Dispositions Balance, December 31, 2017 Accumulated depreciation and amortization and impairment Opening balance, January 1, 2017 Depreciation and amortization Dispositions Balance, December 31, 2017 20,981 1,966 (4,522) 93,298 39,219 (10,172) 6,832 — (731) 1,208,424 2,942,538 120,650 2,357 — — 2,357 385,731 74,845 (1,603) 458,973 57,098 6,654 (696) 63,056 Net carrying value, December 31, 2017 $ 1,206,067 $ 2,483,565 $ 57,594 $ — 1,021 — 8,821 4,077 708 — 4,785 4,036 121,111 42,206 (15,425) 4,280,433 449,263 82,207 (2,299) 529,171 $ 3,751,262 72 CROMBIE REIT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of CAD dollars) Land Buildings Intangibles Deferred Leasing Costs Total Cost Opening balance, January 1, 2016 $ 973,378 $ 2,500,700 $ Acquisitions Additions Dispositions Transfer to investment properties held for sale 229,662 626 (13,503) (164) 312,684 30,849 (23,572) (468) Balance, December 31, 2016 1,189,999 2,820,193 Accumulated depreciation and amortization and impairment Opening balance, January 1, 2016 Depreciation and amortization Dispositions Impairment Transfer to investment properties held for sale Balance, December 31, 2016 — — — 2,357 — 2,357 322,625 66,552 (7,020) 3,643 (69) 385,731 98,136 18,285 — (1,846) (26) 114,549 52,529 6,170 (1,591) — (10) 57,098 Net carrying value, December 31, 2016 $ 1,187,642 $ 2,434,462 $ 57,451 $ $ 6,780 $ 3,578,994 — 1,185 (165) — 7,800 3,578 610 (111) — — 4,077 3,723 560,631 32,660 (39,086) (658) 4,132,541 378,732 73,332 (8,722) 6,000 (79) 449,263 $ 3,683,278 During the year ended December 31, 2016, Crombie recorded an impairment of $6,000 on two retail properties. 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. Properties under development Opening balance, January 1, 2017 Acquisitions Additions Balance, December 31, 2017 Land Buildings Deferred Leasing Costs $ $ 33,442 $ 31,252 4,031 68,725 $ — — 6,858 6,858 $ $ — — 116 116 $ $ Total 33,442 31,252 11,005 75,699 On May 4, 2017 Crombie acquired the remaining portion of a development property in Langford, British Columbia, from a subsidiary of Empire Company Limited (“Empire”), a related party. Opening balance, January 1, 2016 Acquisitions Additions Balance, December 31, 2016 Land Buildings Deferred Leasing Costs $ $ 2,624 $ 30,134 684 33,442 $ — — — — $ $ — — — — $ $ Total 2,624 30,134 684 33,442 On June 29, 2016 Crombie acquired two parcels of development land adjacent to existing Crombie properties, with an initial acquisition price of $9,975 from Empire. On June 23, 2016 Crombie acquired a vacant building which has since been demolished as part of a redevelopment plan for the property. The initial acquisition price was $14,150. On July 8, 2016, Crombie acquired a 50% interest in a development property with an initial acquisition price of $5,250. Both the June 23 and July 8 acquisitions were transacted with third parties. The initial acquisition prices stated above exclude closing and transaction costs. 73 ANNUAL REPORT 2017 Fair value Crombie’s total fair value of investment properties exceeds carrying value by $900,804 at December 31, 2017 (December 31, 2016 – $844,033). 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. The estimated fair values of Crombie’s investment properties are as follows: December 31, 2017 December 31, 2016 Carrying value consists of the net carrying value of: Income properties Properties under development Accrued straight-line rent receivable Tenant incentives Total carrying value Fair Value Carrying Value $ $ 4,944,000 4,752,000 $ $ 4,043,196 3,907,967 Note December 31, 2017 December 31, 2016 3 3 5 5 $ 3,751,262 $ 3,683,278 75,699 72,743 143,492 33,442 59,225 132,022 $ 4,043,196 $ 3,907,967 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, 2017 and 2016, 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, 2017, 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: Impact of a 0.25% Change in Capitalization Rate Weighted Average Capitalization Rate Increase in Rate 5.80% 5.88% $ $ (198,000) (191,000) $ $ Decrease in Rate 217,000 208,000 December 31, 2017 December 31, 2016 74 CROMBIE REIT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of CAD dollars) Income 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. 2017 Transaction Date March 16, 2017 July 5, 2017 July 6, 2017 August 14, 2017 August 25, 2017 September 5, 2017 September 29, 2017(1) December 12, 2017 Vendor/ Purchaser Empire Third party Third party Third party Third party Third party Empire Third party Properties Acquired (Disposed) Approximate Square Footage Initial Acquisition (Disposition) $ Price 8,320 14,100 42,000 13,207 14,950 16,000 7,671 50,000 $ 64,000 61,000 52,000 44,000 79,000 31,000 (67,000) (15,600) Assumed Mortgages — — — 8,741 9,656 — — — 1 1 1 1 1 2 — (1) (1) Relates to an acquisition of additional development on a pre-existing retail property. The acquisitions on March 16, 2017 and September 29, 2017 were transacted with Empire, a related party. The remaining acquisitions and dispositions were transacted with third parties. 314,000 $ 100,648 $ 18,397 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 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 Third party Third party Third party Third party Third party Third party Third party Third party Third party Empire Empire Empire Third party Third party Third party Third party Third party Properties Acquired (Disposed) Approximate Square Footage Initial Acquisition (Disposition) Price Assumed Mortgages 1 (10) 1 (1) (1) 2 9 1 1 22 (1) 1 (1) 1 1 (1) (4) 21,000 $ 5,500 $ (791,000) 58,000 (8,000) (47,000) 117,000 94,000 37,000 84,000 (143,400) 15,700 (793) (7,500) 46,200 32,272 7,000 29,000 2,090,000 348,386 (21,000) 62,000 (48,000) 29,000 6,000 (80,000) (215,000) (9,057) 26,400 (2,300) 29,000 5,000 (10,750) (21,750) — — — — — 8,041 — 3,751 12,017 — — — — 16,093 — — — 1,388,000 $ 348,908 $ 39,902 The disposition on July 15 and the acquisitions on June 29, 2016 and July 29, 2016 were transacted with Empire, a related party. The June 29, 2016 acquisition included 19 retail properties and a 50% interest in three distribution centres. The initial acquisition (disposition) prices stated above exclude closing and transaction costs. The allocation of the total cost of the acquisitions (including closing and transaction costs) is as follows: Income property acquired, net: Land Buildings Intangibles Fair value debt adjustment on assumed mortgages Net purchase price Assumed mortgages Year ended December 31, 2017 December 31, 2016 $ 20,981 $ 93,298 6,832 (436) 120,675 (18,397) $ 102,278 $ 229,662 312,684 18,285 (1,072) 559,559 (39,902) 519,657 75 ANNUAL REPORT 2017 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 NOTE 4. INVESTMENT IN JOINT VENTURES The following represents Crombie’s interest in its equity accounted investments: 1600 Davie Limited Partnership 140 Centennial Parkway North Year ended December 31, 2017 December 31, 2016 $ 16,077 $ (432) 15,645 (4,522) (8,569) (35) — (1) (24) (20) $ 2,474 $ 195,621 (3,072) 192,549 (45,288) (101,842) (747) (173) (3,434) (3,701) 126 37,490 December 31, 2017 December 31, 2016 50.0% 50.0% 50.0% — 1600 Davie Limited Partnership was created on January 19, 2016 and is engaged in the development of a mixed use (retail and residential) property located at Davie Street, Vancouver, BC. For the year ended December 31, 2017, the partnership incurred development management fees and administrative costs totalling $291 (December 31, 2016, $9) payable to a company associated with Crombie’s partner. 140 Centennial Parkway North was created as a joint venture on April 7, 2017 and acquired a retail property in Hamilton, Ontario on April 21, 2017. Crombie’s share of the operating results are reported as Income from equity accounted investments on the Statement of Comprehensive Income. For the period ended December 31, 2017, the joint venture incurred management fees of $14 payable to a company associated with Crombie’s partner. The following table represents 100% of the financial results of the equity accounted entities: December 31, 2017 December 31, 2016 18,743 16,782 26,982 3,339 5,204 2,602 $ 1,849 573 — 793 1,629 815 $ $ Year ended December 31, 2017 December 31, 2016 394 (135) (54) (83) 122 61 $ $ $ — — — — — — $ $ $ $ $ $ Non-current assets Current assets Non-current liabilities Current liabilities Net assets Crombie’s investment in joint ventures Revenue Property operating expenses General and administrative expenses Finance costs – operations Net income Crombie’s income from equity accounted investments 76 CROMBIE REIT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of CAD dollars) NOTE 5. OTHER ASSETS Trade receivables Provision for doubtful accounts Net trade receivables Marketable securities Prepaid expenses and deposits Fixtures and computer equipment Restricted cash Accrued straight-line rent receivable Tenant incentives Capital expenditure program Interest rate subsidy Fair value of interest rate swap agreements Amount receivable from related party Amount receivable from third parties Tenant Incentives Balance, January 1, 2017 Additions Amortization Disposition Balance, December 31, 2017 Balance, January 1, 2016 Additions Amortization Disposition Transfer to investment properties held for sale Balance, December 31, 2016 See Note 19(a) for fair value information. NOTE 6. INVESTMENT PROPERTY DEBT Fixed rate mortgages Floating rate revolving credit facility Unsecured bilateral credit facility Deferred financing charges Fixed rate mortgages Floating rate revolving credit facility Unsecured bilateral credit facility Deferred financing charges December 31, 2017 December 31, 2016 Current Non-current Total Current Non-current Total $ 8,741 $ (194) 8,547 1,285 18,177 — 75 — — — 95 3,204 — — — — — — — 3,140 — 72,743 143,492 105 297 — — 6,131 $ 8,741 $ 11,625 $ (194) 8,547 1,285 18,177 3,140 75 72,743 143,492 105 392 3,204 — 6,131 (127) 11,498 2,290 12,104 — 8,675 — — — 103 — 13,762 — — — — — — — 59,225 132,022 105 392 — — 5,607 $ 11,625 (127) 11,498 2,290 12,104 — 8,675 59,225 132,022 105 495 — 13,762 5,607 $ 31,383 $ 225,908 $ 257,291 $ 48,432 $ 197,351 $ 245,783 $ $ $ Cost 187,162 24,239 — (7) 211,394 107,122 83,092 — (3,049) (3) Accumulated Amortization Net Carrying Value $ 55,140 $ 132,022 $ $ — 12,768 (6) 67,902 45,455 — 11,622 (1,936) (1) $ $ 24,239 (12,768) (1) 143,492 61,667 83,092 (11,622) (1,113) (2) $ 187,162 $ 55,140 $ 132,022 Weighted Average Weighted Average Term to Maturity Interest Rate Range December 31, 2017 2.35 – 6.90% 4.33% 5.4 years $ 1,762,815 3.5 years 1.4 years Weighted Average Weighted Average Term to Maturity Interest Rate Range 8,168 45,000 (11,719) $ 1,804,264 December 31, 2016 2.35 – 6.90% 4.46% 5.9 years $ 1,655,817 2.5 years 1.4 years 120,374 100,000 (10,714) $ 1,865,477 77 ANNUAL REPORT 2017 As at December 31, 2017, debt retirements for the next five years are: 12 Months Ending December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 Thereafter Deferred financing charges Unamortized fair value debt adjustment Fixed Rate Principal Payments Fixed Rate Maturities Floating Rate Maturities Total $ 53,999 $ 64,666 $ — $ 118,665 54,579 47,994 46,382 39,883 107,044 126,978 225,241 89,182 200,884 703,152 45,000 — 8,168 — — $ 349,881 $ 1,410,103 $ 53,168 226,557 273,235 143,732 240,767 810,196 1,813,152 (11,719) 2,831 $ 1,804,264 Specific investment properties with a carrying value of $3,145,224 as at December 31, 2017 (December 31, 2016 – $2,974,237) 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, 2017 For the year ended: December 31, 2016 Type New Assumed Repaid Number of Mortgages 6 3 8 Type New Assumed Repaid Number of Mortgages 11 4 10 Weighted Average Terms Amortization in Years Period in Years Proceeds (Repayments) 8.1 6.8 — 25.0 25.0 — $ 192,783 18,397 (50,379) $ 160,801 Weighted Average Terms Amortization in Years Period in Years Proceeds (Repayments) 6.7 3.5 — 24.9 $ 193,402 21.3 — 39,902 (49,774) $ 183,530 Rates 3.43% 3.81% 5.14% Rates 3.48% 4.02% 4.81% Floating Rate Revolving Credit Facility The floating rate revolving credit facility has a maximum principal amount of $400,000 (December 31, 2016 – $400,000) and matures June 30, 2021. 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, 2017 – borrowing base of $396,227). Borrowings under the revolving credit facility can be by way of Bankers Acceptance or Prime Rate Advance and the Floating interest rate is contingent on the type of advance plus the applicable spread or margin. The respective spread or margin may change depending on Crombie’s unsecured bond rating with DBRS and whether the facility remains secured or migrates to an unsecured status. Unsecured Bilateral Credit Facility The unsecured bilateral credit facility has a maximum principal amount of $100,000 and matures May 16, 2019.The facility is used by Crombie for working capital purposes and to provide temporary financing for acquisitions and development activity. Borrowings under the bilateral credit facility can be by way of Bankers Acceptance or Prime Rate Advance and the Floating interest rate is contingent on the type of advance plus the applicable spread or margin. The respective spread or margin may change depending on Crombie’s unsecured bond rating with DBRS. See Note 19(a) for fair value information. 78 CROMBIE REIT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of CAD dollars) NOTE 7. SENIOR UNSECURED NOTES Series A Series B Series C Series D Unamortized Series B issue premium Deferred financing charges Maturity Date Interest Rate December 31, 2017 December 31, 2016 October 31, 2018 3.986% $ 175,000 $ June 1, 2021 February 10, 2020 November 21, 2022 3.962% 2.775% 4.066% 175,000 125,000 150,000 1,323 (2,003) 175,000 100,000 125,000 — 240 (1,652) $ 624,320 $ 398,588 On March 3, 2017, Crombie issued an additional $75,000 aggregate principal amount of 3.962% Series B Notes (senior unsecured) (the “Additional Notes”) maturing June 1, 2021. The Additional Notes were priced with an effective yield to maturity of 3.48% and sold at a price of $1,018.84 per $1,000 principal amount plus accrued interest. On November 20, 2017, Crombie issued $150,000 aggregate principal amount of 4.066% Series D Notes (senior unsecured) (the “Notes”) at par, with a maturity date of November 21, 2022. The Notes pay interest semi-annually on May 21 and November 21 each year. 12 Months Ending December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 Unamortized Series B issue premium Deferred financing charges See Note 19(a) for fair value information. NOTE 8. CONVERTIBLE DEBENTURES Series D Series E (CRR.DB.E) Deferred financing charges Series A Series B Series C Series D Total $ 175,000 $ — — — — $ — — — 175,000 — $ — — 125,000 — — $ 175,000 $ 175,000 $ 125,000 $ — — — — 150,000 150,000 $ 175,000 — 125,000 175,000 150,000 625,000 1,323 (2,003) $ 624,320 Conversion Price Maturity Date Interest Rate $ $ 20.10 17.15 July 4, 2017 March 31, 2021 5.00% 5.25% December 31, 2017 December 31, 2016 $ $ — $ 74,400 (1,236) 73,164 $ 60,000 74,400 (2,266) 132,134 On July 4, 2017, Crombie redeemed the 5.00% Series D Convertible Unsecured Subordinated Debentures originally scheduled to mature on September 30, 2019 (the “Series D Debentures”) in accordance with the terms of the supplemental trust indenture. Upon redemption, Crombie paid the holders of Series D Debentures $1,013.01 per $1,000 principal amount of Debentures, representing the principal amount plus accrued and unpaid interest. The Series E Debentures (issued August 14, 2013) 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 E Convertible Debentures (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 58.3090 REIT Units for Series E Convertible Debentures. If all conversion rights attaching to the Series E Convertible Debentures were exercised, as at December 31, 2017, Crombie would be required to issue approximately 4,338,192 REIT Units, subject to anti-dilution adjustments. 79 ANNUAL REPORT 2017 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 19(a) for fair value information. NOTE 9. INCOME TAXES On September 22, 2007, tax legislation Bill C-52, the Budget Implementation Act, 2007 (the “Act”) was passed into law. The Act related to the federal income taxation of publicly traded income trusts and partnerships. The Act subjects all existing income trusts, or specified investment flow-through entities (“SIFTs”), to corporate tax beginning in 2011, subject to an exemption for real estate investment trusts (“REITs”). A trust that satisfies the criteria of a REIT throughout its taxation year will not be subject to income tax in respect of distributions to its Unitholders or be subject to the restrictions on its growth that would apply to SIFTs. Crombie’s management and their advisors have completed an extensive review of Crombie’s organizational structure and operations to support Crombie’s assertion that it meets the REIT technical tests contained in the Act. The relevant tests apply throughout the taxation year of Crombie and, as such, the actual status of Crombie for any particular taxation year can only be ascertained at the end of the year. The deferred tax liability of the wholly-owned corporate subsidiaries which are subject to income taxes consist of the following: Tax liabilities relating to difference in tax and book value Tax asset relating to non-capital loss carry-forward Deferred tax liability The tax recovery (expense) consists of the following: Taxes – current Taxes – operating income earned in corporate subsidiaries Recovery of taxes previously paid on dispositions of investment properties Total current taxes Taxes – deferred Provision for income taxes at the expected rate Tax effect of income attribution to Crombie’s Unitholders Impact of tax reorganization Total deferred taxes December 31, 2017 December 31, 2016 — — — $ $ 82,486 (7,086) 75,400 Year ended December 31, 2017 December 31, 2016 9 2,069 2,078 $ $ (6,067) $ 5,067 76,400 75,400 $ (26) — (26) (38,339) 37,139 — (1,200) $ $ $ $ $ $ On June 30, 2017, Crombie completed a tax reorganization, as approved by unitholders, resulting in, amongst other structural changes, the winding up of its most significant, wholly-owned corporate subsidiary. Through the tax reorganization, all property within the corporate entity was transferred to a limited partnership resulting in the elimination of Crombie’s obligation for deferred income taxes related to this corporate subsidiary. The deferred tax liability of $76,400 at the time of the tax reorganization has been reduced to $NIL and the decrease has been recognized as an income tax recovery on Crombie’s Consolidated Statement of Comprehensive Income. Professional fees of $1,059 associated with the tax reorganization have been recorded as general and administrative expenses for the year ended December 31, 2017. There are no corporate tax implications to Crombie from any of the components of accumulated other comprehensive income. 80 CROMBIE REIT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of CAD dollars) NOTE 10. EMPLOYEE FUTURE BENEFITS Crombie has a number of defined benefit and defined contribution plans providing pension and other retirement benefits to most of its employees. Defined contribution pension plans The contributions required by the employee and the employer are specified. The employee’s pension depends on what level of retirement income (for example, annuity purchase) can be achieved with the combined total of employee and employer contributions and investment returns over the period of plan membership, and the annuity purchase rates at the time of the employee’s retirement. Defined benefit 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. The total defined benefit cost related to pension plans and post-employment benefit plans for the year ended December 31, 2017 was $541 (year ended December 31, 2016 – $546). 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, 2017 December 31, 2018 January 1, 2016 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, 2017 December 31, 2016 Senior Management Post-employment Benefit Plans Pension Plan Senior Management Pension Plan Post-employment Benefit Plans 3.40% 3.00% 3.40% N/A 3.75% 3.50% 3.75% N/A For measurement purposes, a 5.50% (2016 – 5.75%) 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. 81 ANNUAL REPORT 2017 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 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 $ $ $ December 31, 2017 December 31, 2016 Senior Management Post-Employment Benefit Plans Pension Plan Senior Management Pension Plan Post-Employment Benefit Plans $ 4,533 $ 3,859 $ 4,258 $ 3,724 191 173 134 (200) 4,831 — 200 (200) — 4,831 200 4,631 4,831 191 173 364 $ $ $ 33 144 345 (82) 4,299 — 82 (82) — 4,299 82 4,218 4,300 33 144 177 $ $ $ 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 The table below outlines the sensitivity of the fiscal 2017 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) 1% increase 1% decrease $ $ 1% increase 1% decrease 3.40% (564) 689 $ $ 3.40% (9) 9 3.40% (588) 728 5.50% 632 (520) $ $ $ $ 3.40% 10 (17) 5.50% 29 (24) $ $ $ $ (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, 2017, the net defined contribution pension plans expense was $800 (year ended December 31, 2016 – $756). NOTE 11. TRADE AND OTHER PAYABLES December 31, 2017 December 31, 2016 Current Non-current Total Current Non-current Total Tenant incentives and capital expenditures $ 40,317 $ Property operating costs Prepaid rents Finance costs on investment property debt, notes and debentures Distributions payable Unit based compensation plans Deferred revenue 38,300 7,205 10,629 11,182 1,351 178 — — — — — 4,978 4,580 $ 40,317 $ 28,894 $ 38,300 7,205 10,629 11,182 6,329 4,758 29,457 4,827 10,385 11,007 — 118 — — — — — 3,846 4,647 $ 109,162 $ 9,558 $ 118,720 $ 84,688 $ 8,493 $ 82 $ 28,894 29,457 4,827 10,385 11,007 3,846 4,765 93,181 CROMBIE REIT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of CAD dollars) 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 are expensed to general and administrative expenses at the time of allocation. On the vesting date, each participant shall be entitled to receive a cash amount (net of any applicable withholding taxes) equal to the number of vested RUs held by the RU Participant multiplied by the market value on the vesting date, as determined by the market value of a REIT Unit. Alternatively, a RU Participant who is an eligible employee on the vesting date may elect to convert their 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. (iii) Preferred Unit Plan Crombie introduced a PU Plan in 2017. The PU Plan, in conjunction with the RU Plan, is designed to: promote a greater alignment of interests between the executives and employees of Crombie and/or its subsidiaries and the holders of REIT Units; and assist Crombie in attracting, retaining and rewarding key executives. Eligible employees may elect each calendar year to participate in the PU Plan and receive all, or if permitted by the HRC a portion at the participation level of their choice, of their eligible remuneration in the form of an allocation of PUs. The PUs 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 PUs term. The PUs are subject to vesting conditions including continuing employment. The number of PUs which vest for each participant shall be determined by (a) multiplying the number of PUs granted under the award by an adjustment factor applicable to the performance level achieved, and (b) adding the number of PUs or fractions thereof that would be credited to such participant upon the payment of distributions by Crombie on the REIT Units, based on the number of additional REIT Units a participant would have received had the vested PUs been treated as REIT Units under a distribution reinvestment plan during the PU Term. Alternatively, a PU Participant who is an eligible employee on the vesting date may elect to convert their vested PUs to DUs under Crombie’s DU Plan. A PU is not considered to be a REIT Unit or entitles any participant to exercise voting rights or any other rights or entitlements associated with a REIT Unit. 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 Year ended December 31, 2017 December 31, 2016 $ $ (54) $ 199 145 $ (13) 325 312 83 ANNUAL REPORT 2017 NOTE 12. PROPERTY REVENUE Rental revenue contractually due from tenants Contingent rental revenue Straight-line rent recognition Tenant incentive amortization Lease terminations Year ended December 31, 2017 December 31, 2016 $ 408,031 $ 382,428 1,750 13,542 (12,768) 1,258 1,735 12,876 (11,622) 14,584 $ 411,813 $ 400,001 The following table sets out tenants that contributed in excess of 10% of total property revenue: Sobeys Inc. $ 202,593 49.2% $ 179,166 44.8% Year ended December 31, 2017 December 31, 2016 Revenue Percentage Revenue Percentage NOTE 13. OPERATING LEASES Crombie as a Lessor Crombie’s operations include leasing commercial real estate. Future minimum rental income under non-cancellable tenant leases as at December 31, 2017, is as follows: Year ending December 31, 2018 2019 2020 2021 2022 Thereafter Total Future minimum rental income $ 286,690 $ 275,115 $ 263,908 $ 250,830 $ 238,045 $ 2,057,197 $ 3,371,785 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 seven to 72 years including renewal options: Future minimum lease payments $ 1,932 $ 1,946 $ 2,008 $ 2,027 $ 2,065 $ 141,081 $ 151,059 Year ending December 31, 2018 2019 2020 2021 2022 Thereafter Total NOTE 14. CORPORATE EXPENSES (a) General and administrative expenses Salaries and benefits Professional and public company costs Occupancy and other Year ended December 31, 2017 11,175 4,472 3,430 19,077 $ $ $ $ December 31, 2016 10,120 3,145 3,076 16,341 (b) Employee benefit expense Crombie’s payroll expenses are included in property operating expenses and in general and administrative expenses. Wages and salaries Post-employment benefits 84 Year ended December 31, 2017 25,369 800 26,169 $ $ December 31, 2016 $ $ 24,003 756 24,759 CROMBIE REIT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of CAD dollars) NOTE 15. FINANCE COSTS – OPERATIONS 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 Capitalized interest(1) Amortization of issue premium on senior unsecured notes Amortization of deferred financing charges Finance costs – operations, paid Year ended December 31, 2017 December 31, 2016 $ 79,484 $ 72,289 1,957 17,876 6,460 — 105,777 1,366 (244) (2,354) 2,388 330 (4,474) $ 102,789 $ 4,816 14,915 7,523 613 100,156 1,349 (222) (2,440) 501 54 (3,310) 96,088 (1) For the three months ended December 31, 2017, interest was capitalized to qualifying development projects based on a weighted average interest rate of 3.45% (December 31, 2016 – 3.09%). NOTE 16. UNITS OUTSTANDING Balance, January 1, 2017 Net change in EUPP loans receivable Units issued under DRIP Balance, December 31, 2017 Balance, January 1, 2016 Net change in EUPP loans receivable Units issued under DRIP Crombie REIT Units Class B LP Units and attached Special Voting Units Total Number of Units Amount Number of Units Amount Number of Units Amount 87,737,709 $ 1,016,285 60,669,944 $ 698,439 148,407,653 $ 1,714,724 — 1,377,619 62 18,336 — — — 977,009 13,017 2,354,628 62 31,353 89,115,328 $ 1,034,683 61,646,953 $ 711,456 150,762,281 $ 1,746,139 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 77,857,608 $ 877,581 53,658,302 $ 596,304 131,515,910 $ 1,473,885 — 927,701 67 12,666 125,971 — 657,901 6,353,741 — 8,995 93,140 — 1,585,602 15,306,141 67 21,661 219,111 Units issued (proceeds are net of issue costs) 8,952,400 Balance, December 31, 2016 87,737,709 $ 1,016,285 60,669,944 $ 698,439 148,407,653 $ 1,714,724 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. 85 ANNUAL REPORT 2017 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. 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, 2017, there are loans receivable from executives of $1,728 under Crombie’s EUPP, representing 131,417 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, 2017 was $1,814. The compensation expense related to the EUPP for the year ended December 31, 2017 was $33 (year ended December 31, 2016 – $42). Distribution Reinvestment Plan Crombie has 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. NOTE 17. SUPPLEMENTARY CASH FLOW INFORMATION a) Items not affecting operating cash Items not affecting operating cash: Straight-line rent recognition Amortization of tenant incentives 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 Income from equity accounted investments Non-cash distributions to Unitholders in the form of DRIP Units Taxes – deferred Income tax expense Change in fair value of financial instruments 86 Year ended December 31, 2017 December 31, 2016 $ (13,542) $ 12,768 (2,474) — 74,845 6,654 708 33 2,354 4,474 (330) (61) 31,353 (75,400) (2,078) (145) (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) $ 39,159 $ 68,901 CROMBIE REIT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of CAD dollars) 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 Year ended December 31, 2017 December 31, 2016 $ $ 1,669 2,608 15,058 19,335 $ $ (934) (10,156) 9,404 (1,686) c) Reconciliation between the opening and closing balances for liabilities from financing activities Mortgages Floating rate credit facilities Senior unsecured notes Convertible debentures Deferred Face value financing costs Face value Deferred financing costs Face value Premium on debt issue Deferred financing costs Face value Deferred financing costs Balance, beginning of year Issue of mortgages Repayment of mortgages Repayment of floating credit facilities Issue of senior unsecured notes Redemption of convertible debentures Additions to deferred financing costs Total financing cash flow activities Assumed mortgages Amortization of issue premium Amortization of deferred financing charges Total financing non-cash activities $ 1,655,817 $ 9,859 $ 220,374 $ 855 $ 400,000 $ 240 $ 1,652 $ 134,400 $ 2,266 192,783 (104,182) — — — — — — — — — 2,674 — — (167,206) — — — — — — — — 1,128 — — — — — — 225,000 1,413 — — — — — — — — — — — — — (60,000) 999 — — — — — — — 1,744,418 12,533 53,168 1,983 625,000 1,653 2,651 74,400 2,266 18,397 — — — — (2,245) 18,397 (2,245) — — — — — — (552) (552) — — — — — (330) — — — (648) (330) (648) — — — — — — (1,030) (1,030) Balance, end of year $ 1,762,815 $ 10,288 $ 53,168 $ 1,431 $ 625,000 $ 1,323 $ 2,003 $ 74,400 $ 1,236 87 ANNUAL REPORT 2017 NOTE 18. RELATED PARTY TRANSACTIONS As at December 31, 2017, 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, December 31, 2017 2016 (a) (b) (c) (d) (e) (b) $ $ $ $ $ $ $ $ $ $ 208,083 922 100 (47) 645 (295) (608) 335 — (55,293) $ $ $ $ $ $ $ $ $ $ 183,411 453 64 (64) 949 (281) (1,203) 269 651 (52,171) (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) 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. (d) 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) Empire held $24,000 of Series D Convertible Debentures with an annual interest rate of 5.00% until their redemption on July 4, 2017. In addition to the above: • On September 29, 2017, Crombie acquired approximately 31,000 square feet of additional gross leaseable area from a subsidiary of Empire for $7,671 before closing and transaction costs. • On May 4, 2017, Crombie acquired a development property in British Columbia for $31,136 before closing and transaction costs and settled the long-term receivable previously advanced to a subsidiary of Empire as part of the transaction. • On March 16, 2017, Crombie acquired a retail property in Alberta and assumed the related land lease from Empire including approximately 50,000 square feet of gross leaseable area for $8,320 before closing and transaction costs. • During the year ended December 31, 2017, Crombie issued 977,009 (December 31, 2016 – 657,901) Class B LP Units to ECLD under the DRIP (Note 16). 88 CROMBIE REIT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of CAD dollars) 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 year was approximately as follows: Salary, bonus and other short-term employee benefits Other long-term benefits NOTE 19. FINANCIAL INSTRUMENTS Year ended December 31, December 31, 2017 4,469 98 4,567 $ $ 2016 4,460 112 4,572 $ $ 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, 2017: Financial assets Marketable securities Marketable securities Total financial assets measured at fair value Level 1 3 December 31, 2017 $ $ 1,285 — 1,285 $ $ December 31, 2016 — 2,290 2,290 During the first quarter of 2017, Crombie transferred marketable securities with a fair value of $2,290 from Level 3 into Level 1. The transfer related to reduced price volatility and increased trading volume of the marketable securities held. There were no other transfers during the year ended December 31, 2017. 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(1) Total other financial assets Financial liabilities Investment property debt Senior unsecured notes Convertible debentures Total other financial liabilities December 31, 2017 December 31, 2016 Fair Value Carrying Value Fair Value Carrying Value $ $ $ $ $ $ 6,642 6,642 1,846,029 627,120 76,818 6,628 6,628 1,815,983 625,000 74,400 $ $ $ 19,999 19,999 1,959,091 402,361 139,147 $ $ $ 19,969 19,969 1,876,191 400,000 134,400 $ 2,549,967 $ 2,515,383 $ 2,500,599 $ 2,410,591 (1) Long-term receivables include amounts in other assets for capital expenditure program, interest rate subsidy and receivable from related party and third parties. 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). 89 ANNUAL REPORT 2017 b) Risk Management In the normal course of business, Crombie is exposed to a number of financial risks that can affect its operating performance. There has been no significant change in Crombie’s risk management during the year ended December 31, 2017. 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: • Crombie’s largest tenant, Sobeys, represents 53.5% of annual minimum rent; excluding Sobeys, no other tenant accounts for more than 5.1% of Crombie’s minimum rent. • 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, 2017, Sobeys represents 49.2% of total property revenue. Excluding Sobeys, no other tenant accounts for more than 4.8% of Crombie’s total property revenue. • Over the next five years, no more than 5.1% 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. Year ended December 31, $ 2017 127 455 (165) (223) 194 $ $ $ December 31, 2016 60 195 (120) (8) 127 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, 2017: • Crombie’s weighted average term to maturity of its fixed rate mortgages was 5.4 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 $8,168 at December 31, 2017; • Crombie has an unsecured bilateral credit facility available to a maximum of $100,000 with a balance of $45,000 at December 31, 2017; and, • Crombie has interest rate swap agreements in place on $120,660 of floating rate mortgage debt. Crombie estimates that $2,263 of accumulated other comprehensive income (loss) will be reclassified to finance costs during the year ending December 31, 2018, based on all settled swap agreements as of December 31, 2017. 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 and unsecured bilateral credit facility Year ended December 31, 2017 Year ended December 31, 2016 There have been no significant changes to Crombie’s interest rate risk. 90 Impact of a 0.5% interest rate change Decrease in rate Increase in rate $ $ 468 1,130 $ $ (468) (1,130) CROMBIE REIT NOTES 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 20, 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) 2018 2019 2020 2021 2022 Thereafter $ 2,109,420 $ 190,770 $ 249,668 $ 326,416 $ 183,289 $ 278,985 $ 880,292 691,963 87,095 2,888,478 55,979 197,315 3,906 391,991 1,661 16,502 3,906 270,076 45,778 138,417 3,906 468,739 248 183,986 75,377 442,652 8,292 155,743 — — — 434,728 880,292 — — $ 2,944,457 $ 393,652 $ 315,854 $ 468,987 $ 450,944 $ 434,728 $ 880,292 (1) Contractual cash flows include principal and interest and ignore extension options. (2) Reduced by the interest rate subsidy payments to be received from Empire. There have been no significant changes to Crombie’s liquidity risk. NOTE 20. CAPITAL MANAGEMENT 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, 2017 December 31, 2016 $ 1,804,264 $ 1,865,477 624,320 73,164 873,478 583,777 398,588 132,134 834,203 555,943 $ 3,959,003 $ 3,786,345 At a minimum, Crombie’s capital structure is managed to ensure that it complies with the limitations pursuant to Crombie’s Declaration of Trust, the criteria contained in the Income Tax Act (Canada) in regard to the definition of a REIT and existing debt covenants. Some of the restrictions pursuant to Crombie’s Declaration of Trust would include, among other items: • A restriction that Crombie shall not incur indebtedness (other than by the assumption of existing indebtedness) where the indebtedness would exceed 75% of the market value of an individual property; and, • A restriction that Crombie shall not incur indebtedness of more than 60% of gross book value (65% including any convertible debentures). For debt to gross book value calculation, Crombie does not include in total debt the financial liabilities to REIT Unitholders and to holders of Class B LP Units, as shown on the balance sheet as Net assets attributable to Unitholders. Crombie’s debt to gross book value as defined in Crombie’s Declaration of Trust is as follows: 91 ANNUAL REPORT 2017 Fixed rate mortgages Senior unsecured notes Convertible debentures Revolving credit facility Bilateral credit facility Total debt outstanding Less: Applicable fair value debt adjustment Debt Income properties, cost Properties under development, cost Below-market lease component, cost(1) Investment in joint ventures Other assets, cost (see below) Deferred financing charges Interest rate subsidy Fair value adjustment to deferred taxes Gross book value Debt to gross book value – cost basis (1) Below-market lease component is included in the carrying value of investment properties. Other assets are calculated as follows: Other assets per Note 5 Add: Tenant incentive accumulated amortization Other assets, cost December 31, 2017 December 31, 2016 $ 1,762,815 $ 1,655,817 625,000 74,400 8,168 45,000 2,515,383 (1,117) $ $ 2,514,266 4,280,433 $ $ 75,699 86,885 2,602 325,193 14,958 (1,117) — 400,000 134,400 120,374 100,000 2,410,591 (1,452) 2,409,139 4,132,541 33,442 85,946 815 300,923 14,631 (1,452) (34,120) $ 4,784,653 $ 4,532,726 52.5% 53.1% December 31, 2017 December 31, 2016 $ 257,291 $ 245,783 67,902 55,140 $ 325,193 $ 300,923 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, 2017, Crombie is in compliance with all externally imposed capital requirements and all covenants relating to its debt facilities. NOTE 21. COMMITMENTS AND CONTINGENCIES There are various claims and litigation which Crombie is involved with arising out of the ordinary course of business operations. In the opinion of management, any liability that would arise from such contingencies would not have a significant adverse effect on these financial statements. Crombie has agreed to indemnify its trustees and officers, and particular employees, in accordance with Crombie’s policies. Crombie maintains insurance policies that may provide coverage against certain claims. Crombie 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, 2017, Crombie has a total of $8,719 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, 2017 3,879 4,840 8,719 $ $ $ $ December 31, 2016 2,027 3,000 5,027 92 CROMBIE REIT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands of CAD dollars) 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 seven to 72 years including renewal options. For the year ended December 31, 2017, Crombie paid $1,685 in land lease payments to third party landlords (year ended December 31, 2016 – $1,431). Crombie’s commitments under the land leases are disclosed in Note 13. As at December 31, 2017, Crombie had signed construction contracts totalling $112,211 of which $92,930 has been paid. NOTE 22. SUBSEQUENT EVENTS (a) On January 19, 2018, Crombie declared distributions of 7.417 cents per Unit for the period from January 1, 2018 to and including, January 31, 2018. The distributions were paid on February 15, 2018, to Unitholders of record as of January 31, 2018. (b) On February 16, 2018, Crombie declared distributions of 7.417 cents per Unit for the period from February 1, 2018 to and including, February 28, 2018. The distributions will be paid on March 15, 2018, to Unitholders of record as of February 28, 2018. NOTE 23. SEGMENT DISCLOSURE Crombie owns and operates primarily retail and office real estate assets located in Canada. Management, in measuring Crombie’s performance or making operating decisions, does not distinguish or group its operations on a geographical or other basis. Accordingly, Crombie has a single reportable segment. NOTE 24. INDEMNITIES Crombie has agreed to indemnify its trustees and officers, and particular employees, in accordance with Crombie’s policies. Crombie maintains insurance policies that may provide coverage against certain claims. 93 ANNUAL REPORT 2017 CROMBIE RE IT PROPERT Y PORTFOLIO City Property Description NEWFOUNDLAND & LABRADOR Random Square Conception Bay Plaza 2A Commerce Street 71 Grand View Blvd 21 Cromer Avenue 69 Blockhouse Rd 10 Elizabeth Avenue 45 Ropewalk Lane Avalon Mall Hamlyn Road Plaza Kenmount Woodgate Topsail Road Plaza Torbay Road Plaza Retail – Enclosed Clarenville Conception Bay Retail – Plazas Retail – Plazas Deer Lake Retail – Freestanding Grand Bank Retail – Freestanding Grand Falls Retail – Freestanding Placentia Retail – Freestanding St John’s Retail – Freestanding St John’s Retail – Enclosed St John’s Retail – Plazas St John’s Mixed Use St John’s Retail – Plazas St John’s Retail – Plazas St John’s PRINCE EDWARD ISLAND 400 University Avenue Kinlock Plaza Charlottetown Stratford Retail – Freestanding Retail – Plaza NOVA SCOTIA Amherst Centre Amherst Plaza 133 Church Street Hemlock Square Mill Cove Plaza 2 Forest Hills Parkway Dartmouth Crossing – Amherst Amherst Antigonish Bedford Bedford Cole Harbour Retail – Enclosed Retail – Plazas Retail – Freestanding Retail – Plazas Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Plazas Retail – Plazas Retail – Plazas Retail – Freestanding Mixed Use Retail – Plaza Retail – Freestanding Dartmouth Dartmouth Dartmouth Dartmouth Dartmouth Elmsdale Fall River Halifax Halifax Halifax Halifax Lower Sackville Retail – Plazas Lower Sackville Retail – Plazas Cineplex Panavista Drive Penhorn Mall Penhorn Plaza Russell Lake Elmsdale Plaza Fall River Plaza North & Windsor Street Park Lane Park West Plaza Queen St Plaza Downsview Mall Downsview Plaza Aberdeen Business Centre New Glasgow Mixed Use Highland Square West Side Plaza County Fair Mall 75 Emerald Street Blink Bonnie Plaza 634 Reeves Street 22579 Hwy #7 279 Herring Cove Road 293 Foord Street Prince Street Plaza Sydney Shopping Centre 39 Pitt Street North Shore Centre Fundy Trail Centre Tantallon Plaza New Glasgow New Glasgow New Minas New Waterford Pictou Port Hawkesbury Retail – Freestanding Retail – Freestanding Sheet Harbour Retail – Freestanding Spryfield Retail – Freestanding Stellarton Retail – Plazas Sydney Retail – Plazas Sydney Retail – Freestanding Sydney Mines Retail – Plazas Tatamagouche Truro Retail – Plaza Upper Tantallon Retail – Plazas Retail – Enclosed Retail – Plazas Retail – Enclosed Retail – Freestanding Retail – Plazas Scotia Square Properties Barrington Place Barrington Tower Brunswick Place CIBC Building Cogswell Tower Duke Tower Scotia Square Mall Scotia Square Parkade Halifax Halifax Halifax Halifax Halifax Halifax Halifax Halifax Mixed Use Office Mixed Use Office Office Office Mixed Use Mixed Use GLA % (approx. Occu- sq. ft.) pancy 108,000 65,000 18,000 19,000 27,000 20,000 80,000 50,000 557,000 38,000 50,000 158,000 139,000 1,329,000 99.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 98.2 70.2 100.0 100.0 98.9 98.2 50,000 74,000 100.0 100.0 124,000 100.0 228,000 25,000 51,000 159,000 150,000 44,000 45,000 48,000 43,000 104,000 62,000 147,000 98,000 50,000 273,000 143,000 54,000 80,000 226,000 387,000 200,000 71,000 237,000 26,000 45,000 34,000 9,000 73,000 24,000 71,000 188,000 18,000 17,000 125,000 157,000 191,000 186,000 255,000 207,000 204,000 251,000 263,000 44.7 100.0 100.0 100.0 100.0 100.0 100.0 100.0 76.3 100.0 100.0 97.9 98.1 100.0 93.8 93.3 100.0 99.1 96.3 100.0 100.0 95.2 56.7 100.0 93.7 100.0 100.0 100.0 100.0 98.7 93.9 100.0 100.0 97.5 98.3 99.5 98.7 97.7 77.9 94.4 84.9 78.8 5,269,000 91.2 NEW BRUNSWICK 850 St. Peters Avenue 477 Paul Street 501 Regis Street Edmundston Brookside Mall Prospect Street Plaza Uptown Centre 1234 Main Street Elmwood Drive Mountain Road Northwest Centre, Mountain Road Vaughan Harvey Plaza 273 Pleasant Street Riverview – Findlay Blvd 94 Bathurst Dieppe Dieppe Edmundston Fredericton Fredericton Fredericton Moncton Moncton Moncton Moncton Moncton Newcastle Riverview Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Plazas Office Retail – Plazas Retail – Plazas Retail – Freestanding Retail – Plazas Retail – Freestanding Retail – Plazas 18,000 52,000 25,000 42,000 43,000 22,000 212,000 151,000 74,000 17,000 52,000 103,000 20,000 66,000 100.0 100.0 100.0 100.0 100.0 100.0 87.8 79.4 100.0 100.0 100.0 100.0 100.0 98.3 Property City Description Riverview Place Fairvale Plaza Catherwood Street Loch Lomond Place Charlotte Mall Tracadie Riverview Rothesay Saint John Saint John St Stephen Tracadie Mixed Use Retail – Freestanding Retail – Freestanding Mixed Use Retail – Plazas Retail – Plazas QUÉBEC 1500 rue Bretagne Beauport Plaza 50 Rue Bourgeoys 3260 boul. Lapiniere 645 rue Thibeau Lebourgneuf 88-90 boul. D’Anjou Marché St-Charles-de- Drummond 1205 rue de Neuville 2195 Chemin Ridge Ile Perrot Centre Lavaltrie Marché Lavaltrie Les Saules 714 boul. St-Laurent O. 1450 rue Royale 551 Avenue du Phare Est McMasterville Mercier Marché St-Augustin 1 Avenue Westminster 5651 rue de Verdun Paspebiac Plaza 375 boul. Jessop 254 de l’Hotel de Ville 680 Avenue Chausse Saint-Apollinaire Plaza 867 rue Principale Saint Romuald Plaza 10505 boul. Sainte-Anne Baie Comeau Beauport Bromptonville Brossard Cap-de-la- Madeleine Charlesbourg Chateauguay Retail – Freestanding Retail – Plazas Retail – Plazas Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Freestanding Drummondville Retail – Plazas Retail – Plazas Gatineau Retail – Freestanding Huntingdon Retail – Freestanding Ile Perrot Retail – Plazas Lavaltrie Retail – Plazas Lavaltrie Retail – Plazas Les Saules Retail – Freestanding Louiseville Retail – Plaza Malartic Retail – Freestanding Matane Retail – Plazas McMasterville Retail – Plazas Mercier Retail – Plazas Mirabel Retail – Freestanding Montreal Retail – Freestanding Montreal Retail – Plazas Paspebiac Rimouski Retail – Freestanding Riviere du Loup Retail – Plazas Rouyn-Noranda Retail – Freestanding Saint Apollinaire Retail – Plazas Saint-Donat Saint Romuald Sainte-Anne Retail – Freestanding Retail – Plazas Retail – Freestanding -de-Beaupré GLA % (approx. Occu- sq. ft.) pancy 147,000 52,000 46,000 192,000 119,000 40,000 44.7 100.0 100.0 62.7 95.6 83.8 1,493,000 85.0 50,000 68,000 27,000 48,000 49,000 59,000 58,000 48,000 31,000 19,000 24,000 43,000 52,000 69,000 23,000 29,000 30,000 55,000 58,000 38,000 21,000 6,000 73,000 41,000 72,000 43,000 62,000 34,000 70,000 38,000 67,000 13,000 52,000 64,000 44,000 100.0 96.5 84.6 94.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 97.8 100.0 100.0 100.0 100.0 100.0 94.1 100.0 100.0 100.0 93.7 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 93.6 100.0 100.0 100.0 100.0 Shawinigan 2959 rue King Quest 3950 rue King Quest Carrefour Bourgeois 8980 boul Lacroix Shawinigan Sherbrooke Sherbrooke St-Amable St Georges de Beauce St Lambert St Lambert 101 boul. de la Piniere Quest Terrebonne Vanier Vanier Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Plaza Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding 19,000 235,000 17,000 ONTARIO 977 Golf Links Road 409 Bayfield Street 680 Longworth Avenue 20 Melbourne Drive Brampton Mall Brampton Plaza Burlington Plaza Milltowne Plaza 142 Dundas Street South 807 King Street East 215 Park Ave West Dorchester Road Centre Village Square Centre Lindsay Street Centre 417 Scott Street Sinclair Place 44 Livingston Avenue Grimsby Centre Grimsby Mews Upper James Square Havelock Centre 400 First Avenue South Southdale Milligan Corners 5931 Kalar Road Niagara Falls Centre Niagara Plaza Village Square Mall Algonquin Avenue Mall Bronte Village 500 Riddell Road Orleans – 5150 Innes Road Orleans Taunton and Wilson Plaza Oshawa Parry Sound Ancaster Barrie Bowmanville Bradford Brampton Brampton Burlington Burlington Cambridge Cambridge Chatham Dorchester Dorchester Fenelon Falls Fort Frances Georgetown Grimbsy Grimsby Grimsby Hamilton Havelock Kenora London Napanee Niagara Falls Niagara Falls Niagara Falls Nepean North Bay Oakville Orangeville Parry Sound 1,849,000 98.8 65,000 48,000 42,000 35,000 103,000 76,000 56,000 11,000 4,000 9,000 48,000 18,000 32,000 35,000 43,000 28,000 36,000 29,000 34,000 114,000 15,000 37,000 17,000 25,000 36,000 17,000 64,000 91,000 170,000 47,000 46,000 63,000 107,000 46,000 100.0 100.0 100.0 100.0 88.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 55.6 100.0 100.0 100.0 100.0 100.0 Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Freestanding Retail – Plazas Retail – Plazas Retail – Plazas Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Plaza Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Plazas Retail – Plazas Retail – Plazas Retail – Freestanding Retail – Plazas Retail – Plazas Retail – Plazas City Perth Description GLA % (approx. Occu- sq. ft.) pancy Retail – Plazas 103,000 96.0 Property City Description Property Perth Mews Lansdowne Centre Rockhaven 3130 Danforth Avenue White Horse Plaza London Pine Valley Glendale Avenue Mountain Locks Plaza Stittsville Corner Stoney Creek Plaza 1995 Weston Road 3362-3370 Yonge Street Eglinton Centre Markham Plaza McCowan Square Queensway Plaza 8265 Huntington Road 385 Springbank Avenue MANITOBA Peterborough Scarborough Simcoe South London Retail – Plazas Retail – Freestanding Retail – Plazas Retail – Plazas St Catharines Stittsville Stoney Creek Toronto Toronto Toronto Toronto Toronto Toronto Woodbridge Woodstock Retail – Plazas Retail – Plazas Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Plaza Retail – Plazas Retail – Freestanding Retail – Plazas 498 Mountain Avenue Retail – Freestanding Neepawa 124 E Saskatchewan Avenue Portage la Prairie Retail – Freestanding Selkirk Retail – Freestanding 318 Manitoba Avenue St. Paul Retail – Freestanding 3128 Bird’s Hill Road E. Winnipeg Retail – Freestanding 285 Marion Street Winnipeg Retail – Plazas 469-499 River Avenue Winnipeg Retail – Freestanding 594 Mountain Avenue Winnipeg Retail – Freestanding 654 Kildare Avenue Retail – Freestanding Winnipeg 655 Osborne Street Retail – Freestanding 920 Jefferson Avenue Winnipeg Retail – Plazas 1305-1321 Pembina Highway Winnipeg Retail – Freestanding Winnipeg 2155 Pembina Highway Retail – Freestanding 3381 & 3393 Portage Avenue Winnipeg Retail – Plaza Winnipeg Kildonan Green Retail – Plaza Winnipeg River East Plaza SASKATCHEWAN 200 1 Avenue NW 9801 Territorial Drive 2895 2 Avenue W 2231 East Quance Street 2915 13th Avenue 4250 Albert Street 1860 McOrmond Drive River City Centre Retail – Freestanding Moose Jaw North Battleford Retail – Plazas Prince Albert Regina Regina Regina Saskatoon Saskatoon Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Plazas Retail – Freestanding Retail – Plazas ALBERTA Banff 318 Marten Street 5700 50th Street Beaumont Beaumont Shopping Centre Beaumont 550 Cassils Road W. & 645 4 Street W. Brooks 55 Castleridge Boulevard NE Calgary 99 Crowfoot Crescent NW Calgary Calgary 101 Crowfoot Way NW 110-620 McKenzie Calgary Towne Drive Calgary 410 10 Street NW Calgary 511 17 Avenue SE Calgary 524 Elbow Drive 813 11 Avenue SW Calgary 850 Saddletowne Circle NE Calgary 1818 Centre St NE & 134 17th Avenue NE Calgary Calgary Calgary Calgary Calgary Calgary Calgary Canmore Canmore 2425 34 Avenue SW 3550 32 Avenue NE 5048 16 Avenue NW 5607 4th Street NW South Trail Plaza Strathcona Square 1110 Gateway Avenue 1200 Railway Avenue 135 Chestermere Station Way Chestermere 304 5 Avenue West Cochrane 400 & 500 Manning Crossing Edmonton Edmonton 2304 109 Street NW Edmonton 2534 Guardian Road NW Edmonton 5309 Ellerslie Road Edmonton 8118 – 118 Avenue NW Edmonton 8204 109 Street NW Edmonton 9611 167 Avenue NW Edmonton 10907 82 Avenue Edmonton 12950 137 Avenue NW Retail – Freestanding Retail – Plazas Retail – Plazas Retail – Plazas Retail – Freestanding Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Plazas Retail – Plaza Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Freestanding 60,000 6,000 93,000 39,000 85,000 111,000 12,000 16,000 28,000 17,000 39,000 61,000 67,000 397,000 55,000 2,836,000 18,000 20,000 42,000 39,000 38,000 59,000 18,000 43,000 20,000 55,000 39,000 46,000 55,000 74,000 78,000 93.3 100.0 85.0 100.0 100.0 98.2 100.0 100.0 100.0 100.0 88.6 100.0 54.3 100.0 96.7 94.8 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 644,000 100.0 39,000 30,000 56,000 37,000 41,000 41,000 50,000 160,000 100.0 100.0 100.0 100.0 100.0 97.6 100.0 83.4 454,000 93.8 19,000 21,000 59,000 54,000 56,000 75,000 10,000 19,000 38,000 42,000 25,000 40,000 51,000 35,000 48,000 69,000 42,000 48,000 79,000 80,000 50,000 53,000 43,000 54,000 49,000 48,000 49,000 50,000 44,000 34,000 37,000 21,000 55,000 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Edmonton Edmonton Retail – Plazas Retail – Plazas Fort McMurray Retail – Freestanding Fort McMurray Grande Prairie Grand Prairie Leduc Lethbridge Lethbridge Retail – Plazas Retail – Plazas Retail – Plazas Retail – Plazas Retail – Freestanding Retail – Freestanding GLA % (approx. Occu- sq. ft.) pancy 58,000 34,000 40,000 143,000 66,000 62,000 138,000 20,000 45,000 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Lethbridge Retail – Plazas 64,000 100.0 Lethbridge Retail – Plazas 29,000 100.0 Lethbridge Medicine Hat Okotoks Red Deer Red Deer Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Freestanding Rocky View Retail – Freestanding Sherwood Park Retail – Freestanding Retail – Freestanding Southbrook Retail – Freestanding Spruce Grove Retail – Freestanding St. Albert Retail – Freestanding Stettler Retail – Freestanding Stony Plain 105,000 43,000 42,000 74,000 40,000 655,000 46,000 45,000 51,000 52,000 31,000 44,000 96.8 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 3,424,000 99.9 Millwood Commons Namao Centre 9601 Franklin Avenue & 160 J.W. Mann Drive Clearwater Landing 8100-8300 100 Street 9925 114 Avenue Leduc Centre 606 4th Avenue South 1702 23 Street North 2440, 2605 & 2750 Fairway Plaza Road S West Highlands Towne Centre West Lethbridge Towne Centre 615 Division Avenue 410 & 610 Big Rock Lane Gaetz South Plaza Highway II 260199 High Plains Boulevard 688 Wye Road 1109 James Mowatt Trail 94 MacLeod Avenue 395 St. Albert Street 4607 50 Street 4202 South Park Drive BRITISH COLUMBIA Retail – Freestanding Retail – Plazas Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Plazas 100 Mile House Retail – Plazas 575 Alder Avenue Burnaby 4454 Hastings Street Burnaby 5235 Kingsway Burnaby Burnaby Heights Castlegar 1721 Columbia Avenue 45850 Yale Road Chilliwack Crown Isle Shopping Centre Courtenay Cranbrook 934 Baker Street Cranbrook 1200 Baker Street Dawson Creek 11200 8th Street Fort St. John 9123 100 Street Kamloops 750 Fortune Drive Kamloops 945 Columbia Street W. Kelowna 294 Bernard Avenue Kelowna 697 Bernard Avenue Langley 20871 Fraser Highway 27566 Fraser Highway Langley 32520 Lougheed Highway Mission New Westminster Retail – Freestanding 800 McBride Boulevard 1170 27 Street East North Vancouver Retail – Freestanding 1175 Mount Seymour Road North Vancouver Retail – Freestanding Penticton 1303 Main Street Port Coquitlam 2850 Shaughnessy Street Prince Rupert 200 2 Avenue West Quesnel 445 Reid Street 6140 Blundell Road Richmond 3664 Yellowhead Highway Smithers 7450 120 Street 8860 152 Street 10355 King Retail – Plazas Retail – Freestanding Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Freestanding Surrey Surrey George Boulevard 4655 Lakelse Avenue 1599 Second Avenue 990 King Edward Avenue West 1641 & 1653 Davie Street 1766 Robson Street 1780 East Broadway 2733 West Broadway 3410 Kingsway 8475 Granville Street 3417 30 Avenue 4300 32 Street Surrey Terrace Trail Vancouver Vancouver Vancouver Vancouver Vancouver Vancouver Vancouver Vernon Vernon Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Freestanding Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Plazas Retail – Plazas Retail – Freestanding Retail – Freestanding Retail – Freestanding 28,000 4,000 33,000 61,000 27,000 52,000 97,000 8,000 48,000 43,000 66,000 56,000 50,000 19,000 30,000 48,000 45,000 55,000 43,000 37,000 36,000 59,000 49,000 52,000 30,000 28,000 43,000 53,000 56,000 62,000 43,000 32,000 28,000 37,000 41,000 42,000 55,000 51,000 47,000 29,000 56,000 1,779,000 100.0 100.0 100.0 97.9 100.0 100.0 96.8 100.0 100.0 96.8 98.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.8 TOTAL 19,201,000 95.2 95 ANNUAL REPORT 2017 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 COUNSEL Stewart McKelvey Halifax, Nova Scotia AUDITOR PricewaterhouseCoopers, LLP Halifax, Nova Scotia INVESTOR RELATIONS AND INQUIRIES Unitholders, analysts, and investors should direct their financial inquiries or request to: Glenn R. Hynes, FCPA, FCA Executive Vice President, Chief Financial Officer and Secretary Email: investing@crombie.ca Communication regarding investor records, including changes of address or ownership, lost certificates or tax forms, should be directed to the company’s transfer agent and registrar, AST Trust Company (Canada). TRANSFER AGENT AST Trust Company (Canada) Investor Correspondence P.O. Box 700 Montreal, Quebec, H3B 3K3 Telephone: (800) 387-0825 Email: inquiries@astfinancial.com Website: www.astfinancial.com/ca MULTIPLE MAILINGS If you have more than one account, you may receive a separate mailing for each. If this occurs, please contact AST Trust Company (Canada) at (800) 387-0825 or (416) 682-3860 to eliminate multiple mailings. CROMBIE RE IT UNITHOLDERS’ INFORMATION BOARD OF TRUSTEES Frank C. Sobey Trustee and Chairman John Eby Independent Trustee and Lead Trustee Donald E. Clow Trustee, President and Chief Executive Officer Jim M. Dickson Independent Trustee Debra Hess Independent Trustee Brian A. Johnson Independent Trustee J. Michael Knowlton Independent Trustee Barbara Palk Independent Trustee Jason P. Shannon Independent Trustee Kent R. Sobey Independent Trustee Paul D. Sobey Trustee Elisabeth Stroback Independent 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 Toran Eggert Executive Vice President Portfolio Management 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 96 TOP 10 TENANTS Crombie’s portfolio is home to a diversity of national and regional tenants, most of whom serve the everyday needs of Canadian consumers. Tenant Sobeys Shoppers Drug Mart Cineplex GoodLife Fitness Province of Nova Scotia CIBC Dollarama Lawtons/Sobeys Pharmacy Bank of Montreal Bank of Nova Scotia (1) Not rated % of AMR 53.5% DBRS Rating BB (high) 5.1% 1.3% 1.2% 1.1% 1.1% 1.1% 1.0% 1.0% 0.8% BBB NR1 NR A (high) AA BBB BB (high) AA AA Our relationship with Sobeys provides many competitive advantages. a d a n a C n i d e t n i r P Right of First Offer (see page 8) Market Intelligence . i m o c b a r c w w w . i s n o i t a c n u m m o C & n g i s e D b a r C i : n g i s e D Stable & Growing Cash Flow Strong Management Sobeys Aligned Interest given 40.3% fully diluted ownership interest Access to VECTOM Reasonable Pricing Accelerating Major Mixed Use Development WHY CROMBIE? • High-quality, everyday-needs anchored portfolio with strong, stable net operating income and cash flow growth • Materially accretive development pipeline opportunities • Experienced management team with strong expertise in real estate portfolio management, development and ownership • Strong capital structure with moderate leverage and ample liquidity • Total return on investment superior to S&P/TSX Capped REIT Index and S&P/TSX Composite Index since March 2006 IPO CROMBIEREIT.C A

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