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 REIT experienced 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 2017 STRONG 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 2017 SMART 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 REIT INTO 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 2017 1
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 2017 Unencumbered 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 REIT Strong 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 REIT Featured
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 2017 BUILDING 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 REIT RESPECTING 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 2017 MESSAGE 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 REIT Board 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 2017 FINANCIAL
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 REIT MANAG 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 2017 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:
(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 2017 QUARTERLY 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.
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First Offer
(see page 8)
Market
Intelligence
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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