2018
ANNUAL REPORT
UNLOCKING
VALUE
ABOUT
CROMBIE REIT
Established in 2006, Crombie REIT
invests in high-quality, sustainable
real estate where people live, work,
shop and play.
With 288 income-producing properties nationwide,
Crombie’s portfolio of approximately 18.9 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
Belmont Market near Victoria, BC is a 160,000 square foot
vibrant open-air centre that will feature contemporary
west coast themed architecture, an animated streetscape,
and will create a leading-edge retail environment.
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 “NAV” creation, yield on investment
of 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 the Forward-
Looking Information section in the MD&A.
ABOUT NON-GAAP MEASURES
Certain financial measures in this document,
including FFO, AFFO, NAV, NOI, SANOI, EBITDA,
D/GBV-FV, interest coverage, and yield on cost are
not defined terms under GAAP, therefore are not
a reliable way to compare us to other companies.
See the Non-GAAP Financial Measures section
in the MD&A.
INSIDE THIS REPORT
2
Financial Highlights
3 Message from the President
and CEO
Value Proposition
Smart Capital Allocation
Unlocking Value
6
8
9
18 Crombie Values Community
20 Message from the Board
FINANCIAL REVIEW
22
Table of Contents
23 Management’s Discussion
and Analysis
62 Management’s Statement of
Responsibility for Financial
Reporting
63
Independent Auditor’s Report
65 Consolidated Financial Statements
69 Notes to the Consolidated
Financial Statements
100 Property Portfolio
102 Unitholders’ Information
IBC Top 10 Tenants
UNLOCKING
VALUE
In 13 short years, Crombie has transformed a small regional
portfolio into one of Canada’s leading retail REITs, with
$4.8 billion of 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 in Unlocking Value.
A NN UA L R EP O RT 2018
1
FINANCIAL HIGHLIGHTS
(In thousands of CAD dollars, except per unit amounts
Year ended December 31,
and as otherwise noted)
Property revenue
Property NOI
Increase (decrease) in net assets attributable
to Unitholders
Same-asset property cash NOI
FFO1
Basic
Diluted
Per unit — Basic
Per unit — Diluted
Payout ratio (%)
AFFO1
Basic
Diluted
Per unit — Basic
Per unit — Diluted
Payout ratio (%)
$
$
$
$
$
$
$
$
$
$
$
$
2018
414,649
293,343
(26,920)
248,599
184,034
186,644
1.22
1.21
73.2%
155,794
158,404
1.03
1.03
86.5%
$
$
$
$
$
$
$
$
$
$
$
$
2017
411,813
290,744
30,582
242,151
181,152
186,582
1.21
1.20
73.6%
149,858
153,764
1.00
1.00
88.9%
Debt to gross book value — fair value2
Weighted average interest rate3
Debt to trailing 12 months EBITDA4
Interest coverage ratio4
December 31,2018 December 31, 2017
51.0%
4.20%
8.67x
2.93x
50.3%
4.21%
8.84x
2.92x
1. FFO and AFFO are non-GAAP measures. See the FFO and AFFO section in the MD&A.
2. See Debt to Gross Book Value – Fair Value Basis section.
3. Weighted average interest rate is calculated based on interest rates for all outstanding fixed rate debt.
4. See coverage ratios section.
96.0%
COMMITTED
OCCUPANCY
2.7%
SAME-ASSET
PROPERTY CASH
NOI GROWTH
$4.8B
INVESTMENT
PROPERTIES,
FAIR VALUE
42% OF NET OPERATING INCOME IS
DERIVED FROM ASSETS IN WESTERN,
24% CENTRAL AND 34% ATLANTIC
Properties
Development property
ATLANTIC
34%
1
NL
QC
ON
CENTRAL
24%
4
1
NB
PE
1
2
NS
WEST
42%
BC
1
9
AB
1
3
SK
MB
2
UNLOCKING VALUE
MESSAGE FROM DONALD CLOW
PRESIDENT AND CEO
STABILITY
AND GROWTH
I am very pleased to report that Crombie had a solid
2018, driving performance by staying focused on our
strong fundamentals — in fact, our team’s consistent
achievement in operations and leasing resulted in
AFFO growth of 2.8% and year-end occupancy of 96%.
Crombie’s portfolio quality continued
to improve in 2018. Our largest tenant,
Sobeys, is successfully adapting and
growing their business. Despite the
negative narrative that surrounds
retail regarding e-commerce risk, it’s
becoming common knowledge that
everyday-needs retailers, such as
grocers, are less susceptible to this
risk. Our active development pipeline
remains on track. We’ve improved
portfolio quality by recycling capital
out of lower growth and/or non-
core assets and into our mixed use
development pipeline.
Crombie has a value proposition. It is
as simple as it is powerful. Our core
national portfolio of needs-based
grocery-anchored retail real estate
produces stable cash flow growth
and provides a solid foundation from
which our development pipeline will
grow and expand.
STRONG FUNDAMENTALS
For the year ended December 31,
2018, adjusted funds from operations
(AFFO)¹ per unit increased 2.8% to
$1.03. Same-asset property cash
NOI (SANOI) growth was 2.7%.
AFFO growth was driven by SANOI
growth, increased revenue from
$119.2 million in new acquisitions,
improved occupancy rates and
efficient financing costs. These
solid operating results were
realized despite over $220 million
in dispositions during 2018 and
approximately $190 million invested
in our five active major development
projects since their inception.
SOBEYS
At Crombie, we believe bricks-and-
mortar retail has and will continue
to hold the “last-mile” advantage by
leveraging existing real estate. Our
largest tenant, Sobeys, is expanding
banners in Western Canada, investing
with Ocado’s game-changing
e-commerce end-to-end solution,
and recently acquired Farm Boy and
their laser-like focus on fresh, private
label, and prepared foods. With a
strong and insightful leadership
team and strategy, we have a
leading-edge partner/tenant in
omni-channel technology.
The Canadian grocery industry
continues to experience minimal
effect from e-commerce and with
Sobeys as our largest tenant,
Crombie can continue to manage
and mitigate any such risk. We
have the unique ability to execute
expansions, modernizations, and
conversions to other formats, while
unlocking major developments and
land-use intensification projects.
Our relationship with Sobeys is an
important piece of our strategy, which
we leverage to unlock and create
significant value for our Unitholders.
DEVELOPMENT
Crombie is acutely focused on driving
Net Asset Value (NAV) creation and
long-term AFFO growth through
execution of our development
program, which we believe is one of
the best uses of our capital. We have
curated a 23-property development
pipeline, representing $3.0 to
$4.5 billion in potential mixed use
development investment over the
next 10 to 15 years. Our first five major
developments are expected to create
one to two dollars of NAV per unit in
the next one to two years2. With 25
acres in Vancouver and 19 acres in
Toronto (Census Metropolitan Areas)
of future development land, there is
significant value embedded in our
portfolio. Davie Street in Vancouver
has emerged from the ground
and is growing taller as concrete
is poured, and Phase I of Belmont
Market in Langford, BC is officially
producing cash flow, an important
development milestone. Our other
active developments, Avalon Mall
in St. John’s, Bronte Village in
Oakville and Le Duke in Montreal
are further examples of how, once
complete, these assets will contribute
to diversifying our portfolio and
income stream, increasing our urban
presence, and improving overall
portfolio quality.
3
CROMBIE REITANNUAL REPORT 2018 “One of the most
powerful forces in
the real estate industry,
to unlock development
value, is the sustainable
competitive advantage
of a strong retail partner.”
FUNDING
In last year’s letter to you, I stated
that we would be accelerating our
disposition strategy, and in 2018
we’ve done just that. We sold over
$220 million of lower growth and/
or non-core assets in aggregate at
pricing in line with IFRS fair values.
This shift in our funding strategy
has allowed us to redirect capital
to higher value opportunities with
Sobeys and major developments.
We were more innovative this year
by completing our first partial interest
disposition. These transactions
highlight our desirability as a partner
and the attractiveness of our portfolio.
In the second half of the year we
balanced our capital structure with
two unsecured notes issuances.
In August we issued $75 million of
unsecured notes to early redeem
the last of our convertible debentures.
We also replaced the maturing
Series A notes in October by issuing
6.25 year notes, our first-ever
unsecured notes greater than five
years totalling $175 million, fitting
nicely into our debt ladder.
Our goal remains to reduce leverage
over time. Our balance sheet remains
strong and flexible, with increasing
access to the unsecured bond market
and the mortgage and bank markets.
LEADERSHIP RENEWAL
Our renewed senior leadership
structure, announced in late 2018,
enhances the alignment of our talent
with Crombie’s strategic priorities,
creating national leadership roles
to optimize focus, efficiency, and
results. The transition to a national
structure realigns responsibilities
and enables continued delivery of
strong operating performance, an
enhanced relationship with Sobeys,
and successful execution of Crombie’s
significant mixed use development
program. With added analytical
capacity, advanced systems, and
stronger capital allocation skills, tools
and talent, I am very confident and
excited about Crombie’s future.
VALUE PROPOSITION
We’ve deliberately raised funds
through dispositions at favourable
pricing, deploying proceeds into
value creating developments. We
grew AFFO per unit this year by
2.8%, inclusive of the successful
execution of our disposition and
development spending programs,
both of which are initially dilutive in
nature. We’ve proven ourselves as
desirable development and property
management partners. With solid
execution against our strategy, and
strong fundamentals, the value to be
unlocked is very compelling.
CLOSING
My letter would not be complete
without recognizing our dedicated
team. The energy, intelligence,
resilience, and drive demonstrated
by our talented people enable us to
thrive in our daily business. Our team
values relationships and is committed
to the long-term sustainable growth
of Crombie. In 2018, these men and
women successfully operated and
leased our properties, consistently
managed our development
projects, innovatively sourced
capital, introduced dynamic new
management information systems,
and ensured that we maintained a
solid business. I have full confidence
in our collective ability to continue
unlocking value at Crombie for years
to come.
Finally, I would like to take the
opportunity to recognize and
thank Frank Sobey for the years of
governance and leadership he has
provided both to this company and
me. Although I know all of us
will miss his positive presence in
the boardroom and the office,
he has certainly earned this well-
deserved retirement, and we wish
him all the best.
With the continued support of my
colleagues, the Board, our associates
at Sobeys and Empire, and all 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
1. AFFO is 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. Please see the section entitled “FFO and AFFO” of the attached Management’s
Discussion and Analysis for a discussion of these measures and how we calculate them.
2. Assumes NAV creation equals difference between Crombie’s current estimated stabilized value based on current market cap rates and estimated development cost. Please see the Risk
Management section in our MD&A for risks.
4
UNLOCKING VALUE STRONG LEADERSHIP
WITH DEEP BENCH
DONALD E. CLOW
PRESIDENT & CEO
HALIFAX, NS
GLENN HYNES
EVP, COO, CFO, & SECRETARY
NEW GLASGOW, NS
CHERYL FRASER
CTO & VP COMMUNICATIONS
JOHN BARNOSKI
SVP, CORPORATE DEVELOPMENT
NEW GLASGOW, NS
MISSISSAUGA, ON
TREVOR LEE
SVP, DEVELOPMENT
& CONSTRUCTION
CALGARY, AB
ARIE BITTON
SVP, LEASING &
OPERATIONS
MISSISSAUGA, ON
FRED SANTINI
GENERAL COUNSEL
MISSISSAUGA, ON
AARON BRYANT
VP, CONSTRUCTION EAST
STEVE CLEROUX
VP, ATLANTIC DEVELOPMENT
MATT CRAIG
VP, TALENT MANAGEMENT
NEW GLASGOW, NS
NEW GLASGOW, NS
NEW GLASGOW, NS
TERRY DORAN
VP, OFFICE PROPERTIES
HALIFAX, NS
KARA DORT
VP, ACCOUNTING &
FINANCIAL REPORTING
JEFF DOWNS
VP, ENTERPRISE
INFORMATION SYSTEMS
NEW GLASGOW, NS
NEW GLASGOW, NS
JAYME KRUGER
VP, INVESTMENTS
MISSISSAUGA, ON
BRADY LANDRY
VP, FINANCIAL ANALYSIS
& TREASURY
JELENA PLECAS
VP, CORPORATE
DEVELOPMENT STRATEGY
NEW GLASGOW, NS
MISSISSAUGA, ON
SID SCHRAEDER
VP, CONSTRUCTION WEST
CALGARY, AB
SANDI SHELDON
VP, PROPERTY MANAGEMENT,
INTERIM
MISSISSAUGA, ON
5
CROMBIE REITANNUAL REPORT 2018 UNLOCKING
PORTFOLIO VALUE
VALUE
PROPOSITION
Our core national portfolio of $4.8 billion of needs-
based retail properties produces stable cash flow
growth and provides a solid foundation from which
our urban-focused value-creating development
pipeline will grow and expand.
Our portfolio produced robust results in 2018 and we’re executing solidly
against our strategy. Our business fundamentals are strong — in fact, our
team’s consistent achievement in operations and leasing resulted in
year-end occupancy of 96%.
Our relationship with Sobeys provides many competitive advantages,
including preferred access to top urban markets, a primary tenant whose
interests are aligned with our growth strategies and opportunities to invest
in new and existing properties.
MATERIAL NAV
CRE ATION
Crombie’s first five major projects
are projected to create $1 to $2 of
net asset value per unit over the
next one to two years1.
BELMONT
MARKET
DAVIE
STREET
AVALON
MALL
TOTAL UNITHOLDER RETURN VERSUS TSX AND REIT
INDE X SINCE INCEPTION
Crombie has outperformed the sector and the broader Canadian market
with total return of 10.2%.
$1–2 NAV/UNIT
COMPLETED IN
1–2 YRS 1
Total Return (Indexed)
Crombie REIT
CAGR 10.2%
S&P/TSX Capped
REIT Index
CAGR 8.4%
S&P/TSX
CAGR 5.3%
06
07
08
09
10
11
12
13
14
15
16
17
18
192
(YRS)
LE DUKE
BRONTE
VILLAGE
1. Assumes NAV creation equals difference between
Crombie’s current estimated stabilized value based on
current market cap rates, projected NOI and estimated
development cost. Please see the Risk Management
section in our MD&A for risks.
2. March 1, 2019
350
300
250
200
150
100
50
6
UNLOCKING VALUE FEATURED
DEVELOPMENT
PROPERTIES
LANGFORD, BC
Belmont Market
Belmont Market near Victoria, BC is a 160,000 square foot
vibrant open-air centre that will feature contemporary west
coast themed architecture, an animated streetscape, and
will create a leading-edge retail environment.
MONTREAL, QC
Le Duke
Le Duke is adjacent to the Bonaventure Greenway in
Old Montreal and is being built as a 25-storey mixed
use tower with 390 residential rental units above a
25,000 square foot urban format IGA.
VANCOUVER, BC
Davie Street
Davie Street in Vancouver’s West End will be a 306,000
square foot mixed use retail and residential rental structure,
built sustainably with 330 residential rental units across
two towers above 53,000 square feet of primarily grocery-
anchored retail.
7
CROMBIE REITANNUAL REPORT 2018 HIGHEST AND
BEST USE
SMART CAPITAL
ALLOCATION
Crombie’s strategy for Unlocking
Value 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 operating cash flow from our everyday
retail properties, deploying proceeds from the disposition
of lower growth and/or non-core assets and accessing
capital markets when appropriate to develop and
modernize our portfolio.
INVESTMENTS
VIA SOBEYS
MAJOR DEVELOPMENT
8
CORPOR ATE DEVELOPMENT
Photo: L-R: Jelena Plecas, Jayme Kruger, Annie Smith and
Rebecca Hebb
OUR CORPORATE DEVELOPMENT TEAM
The Corporate Development team evaluates and advises
the business on everything from annual capital budgets
to asset-by-asset portfolio analysis, with three main areas
of responsibility: Corporate Strategy, Acquisitions, and
Dispositions. The investments team maximizes value for
existing assets through redevelopment to highest and best
use, and looks for acquisition and disposition opportunities
to complement Crombie’s portfolio and overall strategy
through full or partial interests. The strategic side of the
team aligns Crombie’s strategy with evolving consumer
and community needs, and retailer strategies, developing
solutions that are complementary to all. Team members
have diverse backgrounds and skill sets which, when
combined, create a great balance, allowing each to lead
in their areas of expertise.
“When I drive past my old community
shopping centre in Bronte and see
what we’re creating together — a vibrant
Oakville development that will anchor the
neighbourhood and bring new life to the
surrounding areas — I feel a huge sense
of pride and accomplishment!”
Jelena Plecas, VP, Corporate Development Strategy
UNLOCKING VALUE INTO THE NEXT
DECADE AND BEYOND
UNLOCKING
VALUE
10
PORTFOLIO QUALITY
12
DEVELOPMENT
14
SMART FINANCING
16
PEOPLE
CRO M B IE R E IT
A NN UA L R EP O RT 2018
9
BELMONT MARKET, LANGFORD, BC
1
UNLOCKING VALUE:
PORTFOLIO QUALITY
We continuously enhance the quality of our
portfolio, with a focus on everyday needs in
high-growth urban and suburban markets.
CANMORE, AB
Canmore Safeway
81% of Crombie’s GLA is high-traffic
grocery- or drugstore-anchored,
thus highly complementary to the
impact of e-commerce.
Crombie REIT’s growth strategy focuses on the steadiest performing
assets in commercial real estate – grocery- and drugstore-anchored
properties and freestanding stores whose tenants provide everyday-
needs, e-commerce-complementary goods and services to prosperous
and growing communities. Robust fundamentals, high occupancy, and
a strong and innovative partner and largest tenant, Sobeys/Empire, have
positioned us to create material value through mixed use development
and continue to enhance and strengthen our portfolio quality.
2.7%
2018 SAME ASSET
CASH NOI1 GROWTH
SAME-A SSET C A SH
NOI 1 GROW TH
2018 same-asset cash NOI1 growth
of 2.7% demonstrates resilience
against the negative narrative
surrounding retail primarily due
to e-commerce risk.
1. NOI and SANOI are not defined terms under GAAP,
therefore are not a reliable way to compare us to
other companies. See the Non-GAAP Financial
Measures section in the MD&A.
(YRS)
18
17
16
15
14
2.7%
4.2%
1.1%
1.8%
1.4%
0
1
2
3
4
5
(%)
10
U NLO CK IN G VA LU E
2018 PORTFOLIO VALUE
Located in Canada’s Top Urban and Suburban Markets
Over the past 13 years, Crombie has successfully increased its presence in
Canada’s largest and fastest growing urban and suburban markets.
(% of Annual Minimum Rent)
100%
80%
60%
40%
20%
WEST
CENTRAL
ATLANTIC
39.4%
24.2%
36.4%
06
07
08
09
10
11
12
13
14
15
16
17
18
(YRS)
GROWING FFO 2/AFFO 2 PER UNIT
Units of Crombie REIT offer a dependable and well-covered, lower risk distribution generated
by our high-quality tenant and asset base.
(%)
100
80
60
40
20
FFO Payout Ratio (LHS)
AFFO Payout Ratio (LHS)
• • FFO/Unit (RHS)
• • AFFO/Unit (RHS)
($)
1.25
1.15
1.00
0.90
0.80
14
15
16
17
18
(YRS)
2. FFO and AFFO are not defined terms under GAAP, therefore are not a reliable way to compare us to other companies. See the Non-GAAP Financial Measures
section in the MD&A.
6.1%
LEASE MATURITIES
No more than 6.1% of the rental space
in our portfolio will be maturing in a
single year over the next 5 years.
ST. JOHN’S, NL
Avalon parkade
In April 2017, Crombie launched
a three-year capital investment
program to enhance Avalon Mall’s
position as the dominant retail
choice in Newfoundland and
Labrador. Upgrades, including the
2018 completion of the 875 space
parkade, will enable Avalon Mall to
continue to improve tenant mix and
drive sales per square foot.
CRO M B IE R E IT
A NN UA L R EP O RT 2018
11
2
UNLOCKING VALUE:
DEVELOPMENT
VANCOUVER, BC
Davie Street
Buzzing with activity, our prime Davie
Street location is nestled in a vibrant
high-density residential area of
downtown Vancouver’s West End.
23
PRIME URBAN LOCATIONS
Comprising $3.0 – $4.5 Billion in active
and potential future development
$190M
SPENT TO DATE ON
DEVELOPMENT PIPELINE
We actively manage our properties to maximize their
income potential and derive the highest and best use.
Consisting of $3.0 to $4.5 billion of potential development investment in
23 prime urban and suburban locations, Crombie’s active and potential
mixed use development pipeline is a growth driver. Our development pipeline
is heavily weighted towards Vancouver and Toronto, with 25 and 19 acres,
respectively, located in the Census Metropolitan Areas. These projects, once
income-producing, will reduce overall risk in our portfolio by diversifying our
income stream and asset mix, and will increase our urban footprint.
Crombie’s intention is to create spaces where people want to live, work,
shop and play. Placemaking is an integral part of our mixed use development
planning, with strategically integrated grocery and rental residential that
include desirable common areas.
12
U NLO CK IN G VA LU E
DEVELOPMENT TIMELINE
Execution against our active development pipeline remains on
track with approximately $190 million invested to date. We’re
beginning to see the fruits of our labour with the first phases
of Belmont Market generating income during the fourth quarter
of 2018 and additional 2019 income on the horizon.
2019
AVALON MALL PHASE I
ESTIMATED Q3 COMPLETION
Development Cost
2020
AVALON MALL PHASE II
ESTIMATED Q2 COMPLETION
Development Cost
Expected Yield on Cost1
Current Market Cap Rates
Potential Value Creation
DAVIE STREET
ESTIMATED Q2 COMPLETION
Development Cost2
Expected Yield on Cost1
Current Market Cap Rates3
Potential Value Creation
LE DUKE
ESTIMATED Q3 COMPLETION
Development Cost2
Expected Yield on Cost1
Current Market Cap Rates3
BELMONT MARKET
ESTIMATED Q4 COMPLETION
Development Cost
Expected Yield on Cost1
Current Market Cap Rates3
Potential Value Creation
2021
BRONTE VILLAGE
ESTIMATED Q2 COMPLETION
Development Cost2
Expected Yield on Cost1
Current Market Cap Rates3
OAKVILLE, ON
Bronte Village
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.
$55 M
$58 M
10.0–13.0%
~6.0%
$50–60 M
$105 M
5.5–6.0%
Residential
2.8–3.8%
Retail
4.0–5.0%
arrow-alt-circle-up $100 M
$62 M
5.0–6.0%
Residential
3.8–4.8%
Retail
4.5–5.0%
$93 M
5.5–6.3%
4.8–5.3%
$17 M
ST. JOHN’S, NL
Avalon Mall
To enhance customer experience, Crombie’s three-year,
multi-phased, redevelopment of Avalon is well underway
and enables Crombie to maximize NOI, improve tenant
mix and drive sales per square foot.
$139 M
5.0–6.0%
Residential 3.5–4.5%
Retail 4.0–5.0%
1. Expected Yield on Cost equals Estimated Stabilized Annual NOI divided by Estimated Total Cost.
Estimated Total Cost includes all costs associated with the development, including but not limited
to, estimated value of air rights and/or land value, pre-development costs, construction costs,
tenant costs and financing costs. Please see the Risk Management section of our MD&A for
additional disclosure.
2. At Crombie’s proportionate share.
3. CBRE Q4 2018 Canadian Cap Rate & Investment Insights.
CRO M B IE R E IT
A NN UA L R EP O RT 2018
13
3
UNLOCKING VALUE:
SMART FINANCING
We optimize 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 lower
our cost of capital, strengthen our balance sheet and de-risk our business in
2018. Our liquidity and financial flexibility continue to grow with approximately
$1 billion of unencumbered assets and our expanding pool of unsecured fixed
rate debt totalling $700 million.
The financial covenants and weighted average remaining lease terms of our
major tenants, including 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.
Focused on smart financing, in 2018 we sold over $220 million of lower growth
and/or non-core assets, at pricing in line with IFRS fair values. This funding
strategy has allowed Crombie to source more favourably priced capital and
redirect this capital to higher value generating developments.
LANGFORD, BC
Belmont Market
The immediate trade area has seen
exceptional population growth in
recent years, and is the third fastest
growing community in BC1.
UNENCUMBERED A SSETS
Unencumbered assets in our
property portfolio ended 2018 at
approximately $1 billion reflecting
strong liquidity and financial
flexibility.
($ millions)
$1000
$800
$600
$400
$200
1. Stats Canada, 2016 & Environics 2017.
14
15
16
17
18 (YRS)
14
U NLO CK IN G VA LU E
$312M2
GROWING FINANCIAL
FLEXIBILITY
$312 million in available liquidity,
with increasing access to the secured
and unsecured debt markets
C APITAL STRUC TURE
We improved our capital structure in 2018 with two unsecured notes issuances
during a period of increased market volatility, repriced our bank debt to more
favourable terms and paid out the remaining balances of expiring 2018 mortgages.
3.7%
BANK CREDIT
FACILITIES1
14.3%
SENIOR
UNSECURED NOTES
33.0%
FIXED RATE
MORTGAGES
49.0%
EQUITY
TOTAL
CAPITALIZATION
$4.8B
1. Utilized portion of the bank credit facility and bilateral credit facility.
2. Represents the undrawn portion on the credit facilities
plus available cash.
ABERDEEN BUSINESS CENTRE, NEW GLASGOW, NS
CRO M B IE R E IT
A NN UA L R EP O RT 2018
15
4
UNLOCKING VALUE:
PEOPLE
Photo: L-R: Karen Rhyno, Joan Murray,
Nathan Hines, Shelley Atwin, Rebecca
MacNeil, and Marcie Kelly
Unlocking value of our talented real estate team by ensuring
that every employee can grow their knowledge and experience
through informal and formal learning and development, and
opportunities to move into new roles across the country.
Crombie’s fast-paced, growth mindset drives our people to unlock value every
day. New employees are introduced to a warm and dynamic culture, with formal
and informal mentors to guide them in their career. Experienced employees are
encouraged to build leadership development plans and align their skills with
Crombie’s strategic initiatives. The Crombie team is committed to building strong
relationships — with colleagues, tenants, Unitholders and the communities in
which we operate.
We leverage modern tools with the 2019 “go live” of a new ERP management
information system. This implementation, named “HighRise”, will enable stronger
analytics, new reporting systems for key activities and a strong foundation to
build on as Crombie evolves over time.
AWARDS 2018
Crombie continued to win industry
awards in 2018, including Canada’s
Top 100 Small & Medium Enterprise
award. These awards recognize
that we’re building a space where
talented people want to work, and
where they thrive.
16
U NLO CK IN G VA LU E
THE CROMBIE
TEAM
SCOTIA SQUARE CLIENT
SERVICES TEAM
The Client Services team provides
top-notch services to the tenants
and patrons of the Scotia Square
complex in Halifax. From building
maintenance and stationary
engineers, to industrial mechanics,
electricians, customer service, and
parking, this team is laser-focused
on providing a service-driven
Scotia Square community.
Photo: L-R: Brandon Wilson,
Kate Keenan, Alex Smith,
Wade Brooks, and Ray Best
DEVELOPMENT
AND CONSTRUCTION
Our Development and Construction
team improves portfolio quality and
unlocks value by designing, building,
renovating and developing assets
to create an exceptional tenant and
customer experience. Our team’s
diverse experiences and professional
accomplishments allow Crombie
to provide creative solutions for a
wide variety of projects. Their work
creates vibrancy in communities and
unlocks value for Crombie and
its Unitholders.
“The most rewarding part of my work is finding solutions
to problems. I enjoy helping my coworkers, clients, or
even just someone looking for directions. There’s always
something to challenge me at Crombie, and plenty of
people to learn from.”
Alex Smith, Team Lead, Client Services
Photo: L-R: Kevin Pritchard,
Erin Brownlow, Sid Schraeder,
Robert Blacklock, Michelle Zunti,
Aaron Bryant, and Joseph Driscoll
“Without people there is no use for real estate, and with
this in mind our team always looks to do what’s best for
the communities in which we work.”
Kevin Pritchard, Director, Development, Western Canada
CRO M B IE R E IT
A NN UA L R EP O RT 2018
17
BUILDING BETTER
COMMUNITIES
CROMBIE
VALUES
COMMUNITY
We know the importance of giving back
to the communities in which we operate
and live, and have incredible employees
who share their talents with charitable
organizations across Canada.
Our employees pick up trash, feed stray animals, cook meals for the hungry, chair volunteer boards, pedal bikes,
clean shelters and collect money for their communities. We are proud to support these volunteer initiatives,
three of which are highlighted below:
FRED SANTINI
SUSAN MACCONNELL
BEN LORD
Fred’s second child, Freddy, was
diagnosed with autism at age four and
benefited from a one-on-one therapy
treatment known as IBI (Intensive
Behaviour Intervention) in a privately
run centre. When the centre closed
a year later, Fred secured a 40-year
rent-free lease of city lands and,
together with the other parents, worked
evenings and weekends remodelling
and converting the home into a therapy
centre called “Shining Through Centre
for Autism”. This facility has become
one of the province of Ontario’s leading
centres for children with autism with
three locations in the GTA.
In 2014, Susan joined forces with five
other community leaders to form
Pictou County 2020 (PC2020), whose
purpose is to build a culture of success
and positivity in the community. In the
years since, PC2020 has convened
thousands of citizens in conversations
focused on Actions, Leadership, Unity
and Connection. The PC2020 story
has been told from Province House in
Halifax to South Africa, as an example
of citizen-led engagement, and has
inspired thriving new businesses, bold
community actions, and increasingly
positive local media voices.
Ben’s daughter’s life was saved in 2013
when she received a heart transplant
at only three months old. Thanks to the
gift of organ donation, Julianne is now
a healthy and happy six-year-old. Four
years ago, Ben and his wife, Eve-Marie,
joined forces with CHAIN OF LIFE, a
not-for-profit organization that educates
teenagers about organ donation.
The entire Lord family, including
their children Thomas and Julianne,
participate in the CHAIN OF LIFE
CHALLENGE, an event that promotes
organ donation and the importance
of general good health.
In addition to our employees’ volunteer actions, Crombie is proud to financially support those organizations that help strengthen
the health of our communities.
CROMBIE AND
THE YMC A
Crombie supports Y’s across Canada
in their mission to build healthier
communities. We were proud to sponsor
a youth leadership exchange between
the Pictou County, NS and Oakville, ON
organizations in the summer of 2018.
18
UNLOCKING VALUE VALUING 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 foster a corporate culture where every employee values the
environment and understands their role in its protection.
As an example, our team at the Scotia Square complex in Halifax committed,
ten years ago, to implement a variety of programs aimed at reducing
environmental impact. Since 2015, they have reduced annual electrical
consumption by 5.9 million kWh through lighting upgrades, modernizing
the main chilled water plant, and installing variable speed technology where
possible. They have also successfully reduced annual water consumption by
4.5 million gallons. Our Western Canadian portfolio has recently completed
LED lighting upgrades at a number of properties that have reduced electrical
consumption by over 34,000 kWh.
Employees from Crombie’s New Glasgow office braved the rain to participate
in Go Clean Get Green, a local Earth Day litter-reduction initiative.
SPOTLIGHT
LANGFORD, BC
BELMONT MARKET
New developments offer
innovative ways to reduce our
environmental footprint. For
example, at Belmont Market,
all buildings are designed
with earth-friendly materials, as
well as the following features:
• Drainage designed with
bio-swales to capture and
filter surface water run-off
•
Storm water is further managed
through a ground water recharge
system which filters the storm
water prior to infiltration into the
ground water
• A riparian area further filters
any run-off prior to entering
the City of Langford system
•
•
LED parking lot and exterior
building lighting is being
incorporated throughout
the project
Installing Heat Recovery
Ventilators (HRV) for select
tenant HVAC systems
CHARGING STATIONS
At Belmont Market we
are providing on-site
electric car charging
stations
19
CROMBIE REITANNUAL REPORT 2018 MESSAGE FROM
THE BOARD
CONTINUING PROGRESS
ON ALL FRONTS
Fiscal 2018 was a good year for Crombie REIT. The management team
executed well, hit key growth benchmarks and aligned its talent structure
with priorities, all while managing and enhancing its real estate portfolio.
For that, management and our hundreds of employees should be
congratulated, for developing and executing our strategy of enhancing
our core business and creating a platform for long term growth.
The Board is comprised of
experienced, competent, and highly
skilled individuals, with particular
emphasis on finance, capital
markets, real estate, governance, and
common sense. Crombie’s trustees
engage in wide-ranging discussions
and are encouraged to challenge
management’s assumptions.
During the year, Debra Hess stepped
down from the Board. Despite her
short tenure, her financial acumen
and perspectives enabled valuable
Board discussions and decisions.
In February, Paul Beesley, a very
experienced CFO and financial
expert, joined the Crombie Board.
We also have several longer term
trustees retiring as of our AGM.
Brian Johnson and Kent Sobey
both joined Crombie’s Board
10 years ago. The Board benefited
greatly from Kent’s entrepreneurial
background, his insight, and
his capacity to ask good
questions, and from Brian’s
extensive knowledge of finance
and real estate, as well as his
capacity to understand and
analyze real estate transactions.
I thank them both for their time
on our Board and commitment
to Crombie.
The final change is that, after 13 years
as chair of Crombie’s Board, eight
years as chair of Crombie REIT’s
predecessor, Crombie Properties
Limited, and 40 years of being
connected in one way or another
with Crombie, I have decided it is
time to pass the torch and retire
from the Board.
It has been a privilege and, with the
exception of a few hiccups over the
years, a very rewarding experience
for me to be involved in the
development and growth of Crombie
from a small regional company to a
real estate investment trust with the
national footprint it is today. Crombie’s
focus of hiring and developing good
people, maintaining strong corporate
relationships, and executing very well,
combined with its solid governance
oversight, has worked well to create
solid Unitholder returns for the past
13 years. I am confident that Crombie
will continue to prosper and grow in
the years ahead.
Sincerely,
FRANK C. SOBEY
TRUSTEE AND CHAIR
Corporate relationships are important.
In the thirteen years since Crombie’s
IPO, our partnership with Sobeys has
been a key and growing competitive
advantage in the Canadian REIT
market, allowing Crombie to unlock
portfolio value and evolve from a
regional focus on freestanding and
enclosed centres, to an increasingly
national and urban footprint that
will soon include mixed use
residential properties in some of
Canada’s largest cities.
A contributing factor in Crombie’s
success has been the Board’s focus
on their key responsibilities of
solid governance, overseeing and
challenging management where
appropriate, and acting in the best
long-term interest of Crombie.
Although Empire maintains a 41.5%
(fully diluted) ownership interest in
Crombie REIT, the Board of Trustees is
structured and operates to represent
the interests of all Unitholders. As
I have mentioned in many annual
letters to Unitholders, the Board
consists of both appointed and
elected Trustees, as specified in our
Declaration of Trust, with a majority
being both elected and independent.
The elected Trustees hold separate
in-camera meetings with and without
appointed Trustees and management
at each Board meeting. Empire
appointed Trustees do not participate
in any decisions concerning related
party transactions.
20
UNLOCKING VALUE BOARD OF
TRUSTEES
FRANK C. SOBEY
CHAIR
Frank Sobey has been a
trustee of Crombie and
its predecessors since
1981 and Chair since 1998.
He is a director of Empire
Company Limited, and
former Chair of the
JOHN C. EBY
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
DONALD E. CLOW
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.
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.
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.
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.
PAUL BEESLEY
INDEPENDENT TRUSTEE
Former Chief Financial
Officer at Hudson’s Bay
Company, Paul sits on
the Board of Orlando
Corporation. He also
holds designations
including ICD.D, CPA,
JIM M. DICKSON
INDEPENDENT TRUSTEE
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
MBA from Saint Mary’s University and a B.Sc.
from Dalhousie University in addition to having
completed the Advanced Management Program
at Harvard Business School.
holds a Certificate in Engineering from Mount Allison
University, a BCE from the Technical University of
Nova Scotia and an LL.B. from the University of
Calgary. He is a professional engineer and was
appointed Queen’s Counsel in 2010.
J. MICHAEL
KNOWLTON
INDEPENDENT TRUSTEE
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.
KENT R. SOBEY
INDEPENDENT TRUSTEE
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.
BARBARA PALK
INDEPENDENT TRUSTEE
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.
PAUL D. SOBEY
TRUSTEE
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 Business School’s
Advanced Management Program and is a Chartered
Accountant and FCA. He sits on the boards of
Empire Company Limited, and Sobeys Inc.
BRIAN A.
JOHNSON
INDEPENDENT TRUSTEE
Brian 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.
JASON P.
SHANNON
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.
ELISABETH
STROBACK
INDEPENDENT TRUSTEE
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.
2 1
CROMBIE REITANNUAL REPORT 2018 TABLE OF
CONTENTS
FINANCIAL
REVIEW
MANAGEMENT’S
DISCUSSION AND
ANALYSIS
23
Introduction
28 Overview of the Property
Portfolio
37 Financial Results
44 Liquidity and Capital Resources
51 Accounting
54 Risk Management
59 Subsequent Events
59 Controls and Procedures
60 Quarterly Information
CONSOLIDATED
FINANCIAL STATEMENTS
62 Management’s Statement
of Responsibility for Financial
Reporting
63
Independent Auditor’s Report
65 Consolidated Financial
Statements
69 Notes to the Consolidated
Financial Statements
100 Property Portfolio
102 Unitholders’ Information
IBC Top 10 Tenants
22
U NLO CK IN G VA LU E
AVALON PARKADE, ST. JOHN’S, NL
MANAGEMENT’S
DISCUSSION AND ANALYSIS
(In thousands of CAD dollars, except per unit amounts)
INTRODUC TION
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, 2018, with a comparison to
the financial condition and results of operations for the comparable periods in 2017.
This MD&A should be read in conjunction with Crombie’s audited consolidated financial
statements and accompanying notes for the year ended December 31, 2018 and
December 31, 2017, 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 27, 2019, except as otherwise noted.
FORWARD-LOOKING INFORMATION
This MD&A contains forward-looking statements about expected
future events and the financial and operating performance
of Crombie. These statements include, but are not limited to,
statements concerning management’s beliefs, plans, estimates,
intentions, and similar statements concerning anticipated future
events, results, circumstances, performance or expectations that
are not historical fact. Forward-looking statements generally can
be identified by the use of forward-looking terminology such as
“may”, “will”, “estimate”, “anticipate”, “believe”, “expect”, “intend”
or similar expressions suggesting future outcomes or events. Such
forward-looking statements reflect management’s current beliefs
and are based on information currently available to management.
All forward-looking information in this MD&A is qualified by the
following cautionary statements:
(i)
(ii)
(iii)
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;
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 in the letter to Unitholders and 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, future capitalization
rates, 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;
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;
generating improved rental income and occupancy levels,
including anticipated replacement of expiring tenancies,
which could be impacted by changes in demand for
Crombie’s properties, tenant bankruptcies, the effects of
general economic conditions, e-commerce and supply of
competitive locations in proximity to Crombie locations;
(vii) the anticipated rate of general and administrative expenses as
(vi)
(v)
a percentage of property revenue, which could be impacted
by changes in property revenue and/or changes in general
and administrative expenses;
(viii) the estimated payments on derivative and non-derivative
financial liabilities, which could be impacted by interest rate
subsidy payments, interest rates on floating rate debt and
fluctuations in the settlement value and settlement timing of
any derivative financial liabilities;
tax exempt status, which can be impacted by regulatory
changes enacted by governmental authorities;
(ix)
23
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS (x)
(xi)
anticipated distributions and payout ratios, which could
be impacted by results of operations and capital resource
allocation decisions; and,
the effect that any contingencies or guarantees would have
on Crombie’s financial statements which could be impacted
by their eventual outcome.
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”), 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, debt to EBITDA, 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.
HIGHLIGHTS
FINANCIAL RESULTS
Crombie’s key financial metrics for the three months and year ended December 31, 2018 are as follows:
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)
Three months ended December 31,
$
$
$
$
$
$
$
$
$
$
$
2018
104,296
30,817
73,479
70.5%
(13,416)
63,102
46,490
46,490
0.31
0.31
72.5%
39,771
39,771
0.26
0.26
84.8%
$
$
$
$
$
$
$
$
$
$
$
$
2017
105,667
31,622
74,045
70.1%
(6,445)
61,058
47,237
48,222
0.31
0.31
70.9%
39,481
40,466
0.26
0.26
84.9%
$
$
$
$
$
$
$
$
$
$
$
$
Change
Change (%)
(1,371)
805
(566)
0.4%
(6,971)
2,044
(747)
(1,732)
—
—
(1.6)%
290
(695)
—
—
0.1%
(1.3)%
2.5%
(0.8)%
—
(108.2)%
3.3%
(1.6)%
(3.6)%
(2.2)%
(1.5)%
—
0.7%
(1.7)%
0.1%
0.4%
—
Property revenue
Property operating expenses
Property NOI
NOI margin percentage
Increase (decrease) in net assets attributable to Unitholders
Same-asset property cash NOI
FFO
Basic
Diluted
Per unit — Basic
Per unit — Diluted
Payout ratio (%)
AFFO
Basic
Diluted
Per unit — Basic
Per unit — Diluted
Payout ratio (%)
24
MANAGEMENT’S DISCUSSION AND ANALYSIS (In thousands of CAD dollars, except per unit amounts
and as otherwise noted)
Year ended December 31,
2018
2017
Change
Change (%)
Property revenue
Property operating expenses
Property NOI
NOI margin percentage
Increase (decrease) in net assets attributable to Unitholders
Same-asset property cash NOI
FFO
Basic
Diluted
Per unit — Basic
Per unit — Diluted
Payout ratio (%)
AFFO
Basic
Diluted
Per unit — Basic
Per unit — Diluted
Payout ratio (%)
$
414,649
$
411,813
$
$
$
$
$
$
$
$
$
$
$
121,306
121,069
293,343
$
290,744
$
70.7%
(26,920)
248,599
184,034
186,644
1.22
1.21
73.2%
155,794
158,404
1.03
1.03
86.5%
$
$
$
$
$
$
$
$
$
$
70.6%
30,582
242,151
181,152
186,582
1.21
1.20
73.6%
149,858
153,764
1.00
1.00
88.9%
$
$
$
$
$
$
$
$
$
$
2,836
(237)
2,599
0.1%
(57,502)
6,448
2,882
62
0.01
0.01
0.4%
5,936
4,640
0.03
0.03
2.4%
0.7%
(0.2)%
0.9%
—
(188.0)%
2.7%
1.6%
—
0.4%
0.8%
—
4.0%
3.0%
2.8%
2.8%
—
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,
2018
2017
2018
2017
151,419,487
151,550,904
151,550,904
151,550,904
150,401,349
150,532,766
154,870,958
154,870,958
151,213,896
151,345,313
154,233,479
154,233,479
149,507,560
155,492,191
155,492,191
153,979,208
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.
OPERATING RESULTS
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
December 31, 2017
Number of income-producing properties
288
289
290
284
286
Gross leaseable area
Committed occupancy
Economic occupancy
18,896,000
18,759,000
18,778,000
18,858,000
19,201,000
96.0%
95.3%
96.2%
95.5%
96.1%
95.2%
95.7%
94.9%
95.2%
94.8%
Investment properties, fair value
Unencumbered investment properties1
Available liquidity2
Debt to gross book value — fair value5
Weighted average interest rate3
Debt to trailing 12 months EBITDA4
Interest coverage ratio4
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
December 31, 2017
$
$
$
4,776,000
998,523
312,459
$
$
$
51.0%
4.20%
8.67x
2.93x
4,786,000
1,032,113
337,154
50.5%
4.14%
8.57x
2.97x
$
$
$
4,862,000
1,092,650
358,859
$
$
$
4,943,000
1,008,057
430,120
$
$
$
49.9%
4.18%
8.50x
2.92x
49.6%
4.20%
8.63x
2.88x
4,944,000
953,776
438,113
50.3%
4.21%
8.84x
2.92x
1. Represents fair value of unencumbered properties.
2. Represents the undrawn portion on the credit facilities plus available cash.
3. Weighted average interest rate is calculated based on interest rates for all outstanding fixed rate debt.
4. See coverage ratios section.
5. See Debt to Gross Book Value – Fair Value Basis section.
25
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS
Available liquidity is the net amount available on Crombie’s credit facilities, calculated as follows:
Revolving credit facility
Amount drawn
Outstanding letters of credit
Available liquidity
Unsecured bilateral credit facility
Amount drawn
Available liquidity
Cash
As at
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
December 31, 2017
$
400,000
$
400,000
$
400,000
$
400,000
$
400,000
(108,843)
(8,698)
282,459
100,000
(70,000)
30,000
—
(54,148)
(8,698)
337,154
100,000
(100,000)
—
—
(32,422)
(8,719)
358,859
100,000
(100,000)
—
—
(11,161)
(8,719)
380,120
100,000
(50,000)
50,000
—
(8,168)
(8,719)
383,113
100,000
(45,000)
55,000
—
Total available liquidity
$
312,459
$
337,154
$
358,859
$
430,120
$
438,113
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 and development of grocery and
drug store-anchored retail properties in Canada’s top markets. At
December 31, 2018, Crombie owned a portfolio of 288 income-
producing properties in 10 provinces, comprising approximately
18.9 million square feet of gross leaseable area (“GLA”). Empire
Company Limited (“Empire”), through a subsidiary, holds a 41.5%
economic and voting interest in Crombie at December 31, 2018.
BUSINESS OBJECTIVES AND OUTLOOK
The objectives of Crombie are threefold:
1.
2.
Generate reliable and growing cash distributions;
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 growth.
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.
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 Sobeys. The relationship
with Sobeys includes currently owned and future development
properties, as well as opportunities through the rights of first refusal
(“ROFR”) that Sobeys has negotiated in certain of its 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 Sobeys, subject to approval by
Crombie’s elected trustees. This relationship between Crombie
and Sobeys continues to provide promising opportunities for
growth of Crombie’s portfolio through future developments on
both new and existing sites.
26
MANAGEMENT’S DISCUSSION AND ANALYSIS The following table outlines the income property transactions completed since the initial public offering (“IPO”).
(In thousands of CAD dollars)
Transaction date
Transactions with Empire and subsidiaries
2006 through 2016
2017 acquisitions2
2018 acquisitions2
Transactions with third parties
2006 through 2016
2017 acquisitions
2017 dispositions
2018 acquisitions2
2018 dispositions3, 4
1.
2.
3.
4.
Excluding closing and transaction costs.
Includes additions to existing retail properties.
Includes disposition of 50% interest in a portfolio of properties.
Includes disposition of property to joint venture.
Number of
properties
201
1
10
50
6
(1)
1
(9)
Acquisition cost
(disposition
proceeds)1
2,384,280
15,991
104,345
710,141
131,509
(15,600)
14,900
(259,813)
GLA (sq. ft.)
11,104,500
81,000
468,000
1,767,000
300,000
(67,000)
45,000
(817,000)
$
$
$
$
$
$
$
$
The table highlights the growth opportunities provided through
the Empire/Sobeys relationship as well as the growth and recycling
opportunities realized through Crombie’s expanding base of third
party vendors.
Through its relationship with Sobeys, Crombie is provided a
preferential right to acquire retail properties developed and/or
owned by Sobeys and/or to invest in modernizations or other
upgrades to Sobeys occupied properties.
BUSINESS ENVIRONMENT
Significant factors impacting the Canadian economy and its future
prospects continue to be the price of oil, interest rates and risk of
slowing global economic demand. While oil has found stability
and slight price recovery aided by supply management of OPEC
countries, it remains well below previous levels. By way of offset,
the Canadian economy has been helped by the lowering of the
Canadian dollar relative to our largest trading partner, the United
States; a 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 in 2018 signs of rate
increases existed as yields temporarily trended upwards only to
again moderate as concerns over economic slowdown, recession,
global trade, debt levels, etc negatively impacted market sentiment.
Within Canada, the key factors of lower oil, pipeline issues and soft
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
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 in urban markets 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.
27
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS OVERVIEW OF THE PROPERT Y PORTFOLIO
PROPERTY ACQUISITIONS AND DISPOSITIONS
Prices are in thousands of CAD dollars and are stated before transaction and closing costs.
ACQUISITIONS
Date
Property
Location
Vendor
Strategy
2018 First Quarter
There were no acquisitions during the three months ended March 31, 2018
2018 Second Quarter
April 6, 2018
April 6, 2018
April 6, 2018
April 6, 2018
April 6, 2018
April 6, 2018
April 6, 2018
April 6, 2018
Edson Sobeys
Edson, AB
Empire
Income-producing
Strathmore NE Sobeys
Strathmore, AB
Empire
Income-producing
Hollick Kenyon Sobeys
Edmonton, AB
Empire
Income-producing
Thornbury Foodland
Thornbury, ON Empire
Income-producing
Gatineau IGA Extra
Rimouski IGA Extra
Gatineau, QC
Rimouski, QC
Empire
Empire
Income-producing
Income-producing
Baie St-Paul IGA
Baie St-Paul, QC Empire
Income-producing
Saint-Pie Tradition
Saint-Pie, QC
Empire
Income-producing
April 6, 2018
Havre St-Pierre Tradition
April 6, 2018
Elmwood Alcool NB Liquor/
Dollarama1
April 6, 2018
Chateauguay Familiprix1
Havre St-Pierre,
QC
Empire
Income-producing
Moncton, NB
Empire
Income-producing
Chateauguay,
QC
Empire
Income-producing
June 29, 2018
Victoria Trail
Edmonton, AB
Empire
Income-producing
2018 Third Quarter
September 28, 2018 Hemlock Square1
Halifax, NS
Empire
Income-producing
2018 Fourth Quarter
December 5, 2018
Sorel
Sorel, QC
Third Party
Income-producing
December 13, 2018
Elbow Drive2
Calgary, AB
Third Party
Income-producing
Total acquisitions for year ended December 31, 2018
2017
March 16, 2017
Walker Sobeys
Edmonton, AB
Empire
Income-producing
May 4, 2017
July 5, 2017
July 6, 2017
Belmont Market land
Langford, BC
Empire
Development (PUD)
St-Amable
St-Amable, QC
Third party
Income-producing
McCowan & Ellesmere
Toronto, ON
Third party
Development
August 14, 2017
Marche Lavaltrie
Lavaltrie, QC
Third party
Income-producing
August 25, 2017
Centre Lavaltrie
Lavaltrie, QC
Third party
Income-producing
September 5, 2017
St-Anne-de-Beaupre
September 5, 2017
Rimouski
September 29, 2017
Stittsville1
St-Anne-de-
Beaupre, QC
Third party
Income-producing
Rimouski, QC
Third party
Income-producing
Stittsville, ON
Empire
Income-producing
Total acquisitions for the year ended December 31, 2017
1.
2.
Relates to an acquisition of additional development on a pre-existing retail property
Acquisition of an add-on parcel to an existing property
Ownership
Number
of
prop-
erties
Interest
Sq. ft.
Price
—
1
1
1
1
1
1
1
1
1
—
—
1
—
1
—
11
1
—
1
1
1
1
1
1
—
7
— $
—
100%
100%
100%
100%
100%
100%
100%
100%
33,000
35,000
30,000
40,000
71,800
52,700
64,600
13,800
5,300
10,200
11,800
11,850
15,550
7,900
8,300
2,600
100%
26,400
5,000
100%
20,800
5,170
100%
32,900
4,440
100%
37,000
12,500
458,000
100,610
100%
10,000
3,735
100%
100%
40,000
5,000
45,000
9,300
5,600
14,900
513,000
$
119,245
100%
100%
100%
100%
100%
100%
50,000
$
8,320
—
64,000
61,000
52,000
44,000
31,252
14,100
42,000
13,207
14,950
100%
38,000
6,900
100%
100%
41,000
31,000
9,100
7,671
381,000
$
147,500
28
MANAGEMENT’S DISCUSSION AND ANALYSIS
DISPOSITIONS
Date
Property
Location
Ownership
Number of
properties
Interest
Sq. ft.
Price
2018 First Quarter
February 5, 2018
Whitehorse Plaza
February 20, 2018
Perth Mews
March 6, 2018
Belmont Market land
2018 Second Quarter
April 19, 2018
May 11, 2018
Red Deer Cineplex
10 Alkenbrack St
Northam portfolio1
May 11, 2018
May 11, 2018
May 11, 2018
May 11, 2018
May 11, 2018
May 11, 2018
May 11, 2018
May 11, 2018
May 11, 2018
May 11, 2018
16th Ave Safeway
Ancaster Sobeys
Brampton Plaza
Danforth
Marpole Safeway
McKenzie Town Dr Shoppers
Millwoods Common
Nottingham
Southbrook
Northam portfolio total
Simcoe, ON
Perth, ON
Langford, BC
Red Deer, AB
Napanee, ON
Calgary, AB
Ancaster, ON
Brampton, ON
Scarborough, ON
Vancouver, BC
Calgary, AB
Edmonton, AB
Sherwood Park, AB
Edmonton, AB
June 18, 2018
Park Lane
Halifax, NS
2018 Fourth Quarter
December 18, 2018
Southdale
December 18, 2018
Eglinton Ave
December 18, 2018 Montrose Road
London, ON
Toronto, ON
Niagara Falls, ON
2018 Third Quarter
August 16, 2018
Bronte Village2
Oakville, ON
Total dispositions for the year ended December 31, 2018
1. Represents disposition of 50% interest in a portfolio of nine retail properties. The square footage and price reflect the 50% amounts.
2. Represents disposition of property to a joint venture in which Crombie holds an interest.
1
1
—
1
1
—
—
—
—
—
—
—
—
—
—
1
1
1
1
1
9
100%
92,000
$
15,000
20,627
5,725
41,352
14,000
9,000
100% 103,000
100%
—
195,000
100%
100%
40,000
25,000
50%
50%
50%
50%
50%
50%
50%
50%
50%
21,000
33,000
38,000
3,000
24,000
9,000
29,000
23,000
23,000
203,000
77,929
100% 273,000
100%
100%
100%
541,000
17,000
17,000
17,000
51,000
787,000
51,250
152,179
5,400
15,500
5,700
26,600
220,131
100%
30,000
39,682
817,000
$
259,813
2017
December 12, 2017 Willowcreek Plaza
Peterborough, ON
Total dispositions for the year ended December 31, 2017
1
1
100%
67,000
67,000
$
$
15,600
15,600
29
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW OF THE PROPERTY PORTFOLIO
At December 31, 2018, Crombie’s property portfolio consisted of 288 income-producing properties that contain approximately 18.9 million
square feet of GLA in all 10 provinces.
As at December 31, 2018, the portfolio distribution of the GLA by province was as follows:
Province
January 1, 2018
GLA (sq. ft.)
Acquisitions
(Dispositions)
AB
BC
MB
NB
NL
NS
ON
PE
QC
SK
3,424,000
1,779,000
644,000
1,493,000
1,329,000
5,269,000
2,836,000
124,000
1,849,000
454,000
(5,000)
(24,000)
—
21,000
—
(263,000)
(335,000)
—
302,000
—
Other
9,000
74,000
—
56,000
(126,000)
—
(14,000)
—
—
—
December
31, 2018
Number of Income-
Producing Properties
% of GLA
% of Annual
Minimum Rent
3,428,000
1,829,000
644,000
1,570,000
1,203,000
5,006,000
2,487,000
124,000
2,151,000
454,000
59
42
15
20
13
41
45
2
43
8
18.1%
9.7%
3.4%
8.3%
6.3%
26.5%
13.2%
0.7%
11.4%
2.4%
20.9%
11.9%
4.2%
6.2%
9.2%
20.3%
14.1%
0.7%
10.1%
2.4%
Total
19,201,000
(304,000)
(1,000)
18,896,000
288
100.0%
100.0%
During the twelve months ended December 31, 2018, Crombie had
a net decrease of 304,000 square feet of GLA from acquisition and
disposition activity consisting of:
•
•
•
•
•
Alberta — disposition of 50% interest in five retail properties
representing 105,000 square feet and 100% interest in one
retail property totalling 40,000 square feet, offset in part by the
acquisition of four retail properties totalling 135,000 square feet
and a 5,000 square foot addition to an existing property;
British Columbia — disposition of 50% interest in one retail
property representing 24,000 square feet;
New Brunswick — acquisition of a 21,000 square foot addition to
an existing property;
Nova Scotia — acquisition of a 10,000 square foot addition to
an existing property, offset by the disposition of one mixed use
property totalling 273,000 square feet;
Ontario — disposition of 50% interest in three retail properties
representing 74,000 square feet and 100% interest in seven retail
PROPERTY CATEGORIZATION
properties totalling 301,000 square feet, offset in part by the
acquisition of one retail property totalling 40,000 square feet;
and,
Quebec — acquisition of six retail properties totalling 269,000
square feet and a 33,000 square foot addition to an existing
property.
•
Changes in GLA included in Other in the above table include
increases for additions to GLA on existing properties and decreases
primarily related to GLA removals in preparation for property
redevelopment.
As at December 31, 2018, our allocation of Annual Minimum Rent
consists of: Atlantic Canada 36.4%; Central Canada 24.2%; and
Western Canada 39.4%. Crombie believes this diversification adds
stability to the portfolio while reducing vulnerability to economic
fluctuations that may affect any particular region.
As at December 31, 2018:
Same-asset
Non Same-Asset
Acquisitions — 2018
Acquisitions — 2017
Other1
Active Major Development2
Total Non Same-asset
Total
Crombie Owned Properties
Income-Producing
Properties
Properties Under
Development
(“PUD”)
258
11
7
9
3
30
288
—
—
—
3
—
3
3
Additional
Properties in Joint
Ventures (“JV”)
—
1
2
3
3
Sub-total
258
11
7
12
3
33
291
Total
258
11
7
13
5
36
294
Other includes income-producing properties that have been designated for repositioning, land parcels included in PUD, or non-active major developments within a JV.
1.
2. Active Major Development includes:
Davie Street Retail
Avalon Mall Retail
Belmont Market Retail and Office
JV — Davie Street Residential (not currently counted as a separate property)
— Le Duke
— Bronte Village
3 0
MANAGEMENT’S DISCUSSION AND ANALYSIS
Davie Street is being developed as both a commercial (Crombie
owned) and residential (JV owned) development. Currently, there
is one title and, as such, this is counted as one property above
within Crombie owned Active Major Development. Upon reaching
a specific milestone in the development, this will be treated as two
properties, one Crombie owned and a separate property within
the JV.
PORTFOLIO OCCUPANCY AND LEASE ACTIVITY
During the fourth quarter:
•
Belmont was transferred to Income-Producing Properties,
resulting in a decrease in PUD Active Major Development
properties and a corresponding increase in Active Major
Development in Income-Producing Properties.
The portfolio occupancy and committed activity for the twelve months ended December 31, 2018 were as follows:
Occupied space (sq. ft.)
Province
AB
BC
MB
NB
NL
NS
ON
PE
QC
SK
January 1,
2018
3,419,000
1,775,000
644,000
1,266,000
1,300,000
4,748,000
Acquisitions
(Dispositions) New Leases1
Lease
Expiries
Other
Changes2
December 31,
2018
(10,000)
(24,000)
—
21,000
—
25,000
55,000
—
110,000
14,000
(5,000)
(11,000)
3,418,000
—
—
(1,000)
1,805,000
(4,000)
640,000
(10,000)
14,000
1,401,000
(12,000)
(143,000)
1,159,000
(247,000)
125,000
(53,000)
(41,000)
4,532,000
2,665,000
(298,000)
41,000
(1,000)
(24,000)
2,383,000
124,000
1,826,000
426,000
—
291,000
—
—
1,000
21,000
—
(1,000)
—
—
124,000
2,117,000
—
(9,000)
438,000
Economic
Occupancy
%
Committed
Space
(sq. ft.)3
Total
Leased
Space
(sq. ft.)
Leased
December 31,
2018
99.7%
98.7%
99.4%
89.2%
96.3%
90.5%
95.8%
100.0%
98.4%
96.5%
—
3,418,000
17,000
1,822,000
—
640,000
29,000
30,000
26,000
22,000
—
—
—
1,430,000
1,189,000
4,558,000
2,405,000
124,000
2,117,000
438,000
99.7%
99.6%
99.4%
91.1%
98.8%
91.1%
96.7%
100.0%
98.4%
96.5%
96.0%
Total
18,193,000
(267,000)
392,000
(82,000)
(219,000)
18,017,000
95.3%
124,000
18,141,000
1.
2.
3.
New leases include new leases and expansions to existing properties.
Other changes include amendments to existing leases; lease terminations and surrenders; bankruptcies; and space certifications.
Committed space represents lease contracts for future occupancy of currently vacant space. Management believes such reporting, along with reported lease maturities, provides more
balanced reporting of potential pending overall vacant space. Committed space increased to 124,000 square feet at December 31, 2018, from 91,000 square feet at December 31, 2017.
Overall leased space (occupied plus committed) increased
from 95.2% at December 31, 2017 to 96.0% at December 31, 2018.
During 2018, Crombie had a net decrease from dispositions and
acquisitions of 267,000 square feet and had new leases outpace
lease expiries by 310,000 square feet. A net decrease from other
changes of 219,000 square feet is primarily due to leases terminated
by the landlord primarily related to property redevelopments and
tenant relocations.
New leases and expansions increased occupancy by 392,000
square feet at December 31, 2018 at an average first year rate of
$17.28 per square foot. 365,000 square feet are new leases at an
average rate of $17.08 per square foot while the remaining 27,000
square feet are expansions of existing tenants at an average rate of
$19.83 per square foot. 124,000 square feet of space was committed
at December 31, 2018 at an average first year rate of $16.88 per
square foot.
For 2018, renewal activity was as follows:
Quarter
YTD
Square Feet
Rate PSF
Growth%
Square Feet
Rate PSF
Growth %
2018 Renewals
Future Year Renewals
Total
116,000
39,000
155,000
$
$
10.74
22.40
13.69
6.1%
5.7%
6.0%
621,000
214,000
835,000
$
$
16.78
13.38
15.91
2.9%
3.1%
3.0%
Crombie’s renewal activity for the year ended December 31, 2018 included renewals on 835,000 square feet with an increase of 3.0% over
expiring rate. 2018 was impacted by renewals on certain office leases at lower rent. During the quarter, Crombie renewed 155,000 square
feet with an increase of 6.0% over expiring rate, which was positively impacted by solid leasing results in all asset types.
31
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS
SECTOR INFORMATION
While Crombie does not distinguish or group its operations on a geographical or other basis, the following sector information is provided as
supplemental disclosure.
As at December 31, 2018, 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
283
5
288
GLA (sq. ft.)
17,896,000
1,000,000
18,896,000
% of GLA
94.7%
5.3%
100.0%
% of Annual
Minimum Rent
96.2%
3.8%
100.0%
1.
For purposes of calculating leased percentage, Crombie considers GLA covered by head lease agreements as occupied.
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
% of GLA
94.8%
5.2%
100.0%
% of Annual
Minimum Rent
96.3%
3.7%
100.0%
1.
For purposes of calculating leased percentage, Crombie considers GLA covered by head lease agreements as occupied.
Leased1
96.5%
87.9%
96.0%
Leased1
95.7%
87.1%
95.2%
Retail and commercial mixed use properties represent 94.7% of
Crombie’s GLA and 96.2% of annual minimum rent at December 31,
2018 compared to 94.8% of GLA and 96.3% of annual minimum rent
at December 31, 2017.
Leased space in retail and commercial mixed use properties of
96.5% at December 31, 2018, increased from 95.7% at December 31,
2017. Leased space in office properties of 87.9% increased from 87.1%
at December 31, 2017.
LEASE MATURITIES
The following table sets out, as of December 31, 2018, 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
2019
2020
2021
2022
2023
Thereafter
Total
LARGEST TENANTS
Number of Leases
Renewal Area
(sq. ft.)
% of Total GLA
Average Rent per
sq. ft. at Expiry
211
166
162
176
138
688
1,541
1,143,000
647,000
817,000
793,000
607,000
14,134,000
18,141,000
6.1% $
3.4%
4.3%
4.2%
3.2%
74.8%
96.0% $
15.74
19.43
17.46
19.37
19.08
18.52
18.39
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, 2018.
Tenant
Sobeys1
Shoppers Drug Mart
Dollarama
Province of Nova Scotia
CIBC
Lawtons/Sobeys Pharmacy
GoodLife Fitness
Bank of Montreal
Bank of Nova Scotia
Cineplex
Total
1. Excludes Lawtons/Sobeys Pharmacy.
32
% of Annual
Minimum Rent
Average Remaining
Lease Term DBRS Credit Rating
55.5%
4.4%
1.2%
1.1%
1.1%
1.0%
1.0%
1.0%
0.9%
0.8%
68.0%
13.7 years
9.8 years
5.9 years
0.8 years
12.6 years
9.1 years
9.1 years
8.6 years
2.9 years
9.7 years
BB (high)
BBB
BBB
A (high)
AA
BB (high)
AA
AA
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 55.5% of annual
minimum rent and Shoppers Drug Mart which accounts for 4.4%
of annual minimum rent, no other tenant accounts for more than
1.2% of Crombie’s annual minimum rent.
Crombie enjoys value from our strategic relationship with Sobeys.
Most of our Major Development properties have Sobeys as an
anchor tenant and we believe our strategic relationship may assist
us with the transition from existing property / store operations to
construction / development of each of these sites on mutually
agreeable terms.
For the twelve months ended December 31, 2018, Sobeys also
represents 50.6% 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 10.5 years. This remaining lease term is influenced by
the average Sobeys remaining lease term of 13.7 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 an important reality across the
country, Crombie is focused on evaluating and undertaking major
developments at certain properties, where incremental costs to
develop are greater than $50 million and where Development
may include a combination of commercial and/or residential uses
(“Major Developments”).
Crombie believes in the potential to unlock significant value within
our current pipeline of 23 Major Development properties (five
Active Major Developments and 18 Potential Major Developments)
over the next decade or longer. Crombie benefits from having
solid income (FFO and AFFO) generated by these 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 5.2% on existing asset cost for our development
pipeline properties.
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 provide
both revenue diversification and growth to Crombie. We view
this approach as the optimal way to drive both NAV and AFFO
growth. In certain cases, residential condominium uses will 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 our 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 yield 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 23 Major
Development projects as at December 31, 2018, (September 30,
2018 — 23) with a total projected cost to develop these properties of
$3 to $4.5 billion (September 30, 2018 — $3 to $4.5 billion). This range
represents Crombie at closer to 100% ownership of the projected
costs at the top end and lower ownership assumptions at the low
end, calculated on a project by project basis.
Development
# of Projects
Total Projected Cost
Range (in billions of
CAD $)
Active Major Development
Potential Major Development
Total Developments
5
18
23
$
$
0.5—0.5
2.5—4.0
3.0—4.5
Commercial
Residential
GLA on
Completion
452,000
1,177,000
1,629,000
Incremental GLA
Incremental GLA
# of Unit
255,000
540,000
795,000
976,000
7,500,000
8,476,000
1,200
9,000
10,200
33
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS Active major developments
The below table provides additional detail into Crombie’s Active Major Developments by property type.
Property
Commercial
GLA on
Completion
Residential
GLA on
Completion
Use
Estimated
Final
Completion
Date
Estimated
Annual NOI
Estimated
Total Cost1
Estimated
Yield on
Cost1
Estimated
Cost to
Complete
At Crombie’s Share ($ in millions)
Income Properties — Major Development
Davie Street2
Avalon Mall — Phase I
Avalon Mall — Phase II3
Retail
Retail
Retail
Subtotal IPP — Major Development
Properties Under Development (“PUD”)
Belmont Market4
Retail, Office
Subtotal PUD
Total Investment Properties
Properties Held in Joint Ventures
Davie Street2
Le Duke6
Bronte Village6
Residential
Retail,
Residential
Retail,
Residential
53,000
—
165,000
218,000
160,000
160,000
378,000
—
—
—
—
—
—
—
Q2 2020
$
1.8—2.0
$
Q3 2019
Q2 2020
—
5.8—7.5
28.4
54.5
6.3%—6.9% $
—
57.8
10.0%—13.0%
Q4 20205
$
$
$
$
7.6—9.5
$
140.7
5.4%—6.7% $
5.1—5.8
5.1—5.8
12.7—15.3
$
$
$
93.0
93.0
5.5%—6.3% $
5.5%—6.3% $
233.7
5.4%—6.5% $
—
26,000
253,000
251,000
Q2 2020
$
4.0—4.3
$
Q3 2020
3.1—3.7
76.4
61.8
5.2%—5.7% $
5.0%—6.0%
48,000
472,000
Q2 2021
6.9—8.3
138.6
5.0%—6.0%
16.6
20.6
47.3
84.5
29.8
29.8
114.3
45.7
48.9
115.1
Total Properties Held in Joint Venture
74,000
976,000
Total Active Major Developments
452,000
976,000
$
$
14.0—16.3
26.7—31.6
$
$
276.8
5.1%—5.9% $
510.5
5.2%—6.2% $
209.7
324.0
1.
2.
3.
4.
5.
6.
Estimated Total Cost and Estimated Yield on Cost includes all costs associated with the development, including but not limited to, estimated value of air rights and/or land value, pre-
development costs, construction costs, tenant costs and financing costs.
Crombie will own 100% of the retail with a total project cost of $28 million. Sobeys will continue lease payments through the development period to retain the rights under their existing lease.
Crombie has entered into a JV partnership agreement with Vancouver based Westbank Corp. and will own 50% of the residential with a total project cost of $153 million.
Avalon Mall total GLA is expected to be 593,000 square feet when Phase II is complete. 165,000 square feet relates to the expected square footage of the redeveloped portion of the mall.
Costs related to completed phases have been transfered out of Properties under Development and into Income-Producing Properties in Q4 2018. Full project costs are shown in chart above.
Rents from certain leases in Phase I of Belmont Market development commenced in Q4 2018 and the remaining phases will be completed throughout 2019 and 2020 and will depend on
pre-leasing activity.
The development agreement with Princedev Inc. was executed in April 2018. Under this agreement, Crombie has sold a 50% interest in the Bronte Village development in South Oakville and
acquired a 50% interest in Le Duke. Title transfer closed in August 2018.
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 property. Demolition of
the existing structure was completed in 2017 and final stages of the
excavation were completed in May 2018. Installation of foundations
is well underway and both tower cranes are erected signaling
Crombie’s first major mixed use project which is making an impact
on the Vancouver skyline. The project is now above grade with the
roof slab poured for the grocery store. This development includes a
new grocery store at approximately 44,000 square feet with almost
9,000 square feet of ancillary retail space and rental residential
space totalling approximately 253,000 square feet (330 rental units)
in two residential towers. Estimated total project cost is $181 million,
$104.8 million at Crombie’s share. Crombie will own 100% of
the commercial component and 50% of the rental residential
component. The residential component is fully funded within
the joint venture partnership with in-place mortgage financing
and Crombie has in-place mortgage financing on the
commercial component.
Avalon Mall — Phase I & II, St. John’s, Newfoundland
and Labrador
Avalon Mall is the largest enclosed shopping mall in St. John’s,
Newfoundland and Labrador. 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 in 2017 and Phase I includes construction of a
four-level 875 space parking structure, redesign and phased
renovation of the mall’s interior common areas, and the redesign
and realignment of the main mall vehicular access with a combined
capital investment of $54.5 million over three years. The parkade
was completed in November 2018. The redesign and renovation
of the common areas began in January 2018 and will continue in
phases through 2019 and 2020. The redesign and realignment of
the main mall vehicular access has been completed and is open.
Crombie obtained possession of the 129,000 square foot space
formerly occupied by Sears effective February 2018, enabling the
redevelopment of this section of the mall. This $57.8 million Phase II
3 4
MANAGEMENT’S DISCUSSION AND ANALYSIS
redevelopment involves demolition of approximately 50,000 square
feet of the Sears space, renovation of the remaining portion into
new mall retail units, and an expansion of 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. This phase of the redevelopment commenced in March
2018 with the start of the Sears demolition, and occupancy of the
new retail units is expected to begin in Q3 2019. Construction of
the expansion area will continue throughout 2019 with occupancy
expected in 2020. Leasing activity has commenced including
execution of a lease for a new and expanded Winners Homesense
which will be relocating from another area of the mall. Advanced
discussions with other potential national anchor and CRU tenants
continue.
A Phase III development is also planned for an 8.6 acre property
abutting Avalon Mall, on Kenmount Road, acquired in 2012. The
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.
Belmont Market, Langford (Victoria), British Columbia
Belmont Market is being developed as a grocery-anchored
mixed use centre in Langford (Victoria), BC. Crombie owns 100%
of the 160,000 square foot retail component currently under
active development. The retail development is expected to cost
approximately $93.0 million and will include a 53,000 square
foot Thrifty Foods store and approximately 107,000 square feet
of additional retail and office space on 13 acres of land. The
development retains the flexibility to add density in the future
on an additional 1.7 acres of land. Phase I of construction saw
the completion of three retail buildings in Q4 2018, with tenants
scheduled to start opening in early 2019. The construction of the
grocery store is underway with completion scheduled for early
spring 2019. Phase II of development is also underway which is
comprised of four buildings totalling approximately 33,000 square
feet, and includes the Thrifty’s head office. 107,000 square feet of
the overall development has committed leases or is in advanced
stages of negotiation, and 94% of Phase I and 70% of Phase II is
currently leased.
Crombie has an agreement to sell 5.55 acres of land to Ledcor
Developments; over half of which closed in Q1 2018. Ledcor is
planning the construction of 437 units of low rise residential rental
and market condos on the site.
Le Duke, 297 Rue Duke, Montreal, Quebec
Le Duke is located near the new Bonaventure Greenway in Old
Montreal. The development with partner Princedev Inc. has total
project costs estimated at $123.5 million, $61.8 million at Crombie’s
share, and includes a 25-storey mixed use tower with 251,000
square feet and 390 residential rental units, a 25,000 square
foot grocery store, 1,000 square feet of retail space, and 200
underground parking stalls. Development of Le Duke began late
in 2017 with demolition of the existing structure. Excavation and
shoring work for the below grade structure is currently nearing
completion. This development is expected to be complete in
Q3 2020.
The development agreement with Princedev Inc. was executed in
April 2018. Under this agreement, Crombie sold a 50% interest in the
Bronte Village development in South Oakville and acquired a 50%
interest in Le Duke. Title transfer closed in August 2018.
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 being
redeveloped from a single storey, multi-tenant commercial retail
mall, to a mixed use residential property in conjunction with our
partner, Princedev Inc. This development includes the existing
30,000 square foot grocery store while adding 18,000 square feet
of retail and two luxury residential towers totalling 472,000 square
feet of residential rental space in up to 480 units. The existing
grocery store will remain operational during the development.
Demolition of the existing mall was completed in June 2018. Site
plan approval and building permits have been obtained for the
commercial component and construction of the new retail space
is now underway with a completion target of spring 2019. Site
plan approval for the residential component is with the City for
final approval. Total project cost is estimated at $277.2 million,
$138.6 million at Crombie’s share. This development is expected to
be completed in Q2 2021.
The development agreement with Princedev Inc. was executed in
April 2018. Under this agreement, Crombie sold a 50% interest in the
Bronte Village development in South Oakville and acquired a 50%
interest in Le Duke. Title transfer closed in August 2018.
Potential Major Developments
In addition to Active Major Developments in the previous section,
Crombie’s current Potential Major Developments have the potential
to add up to 540,000 square feet (September 30, 2018 — 540,000
square feet) of commercial GLA and up to 7,500,000 square feet
(up to 9,000 units) (September 30, 2018 — 7,500,000 square feet and
9,000 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, 2018, Crombie has identified the following
18 Potential Major Development 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 at present. 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.
35
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS Site Size
(acres)
Existing Tenants
Potential
Commercial
Expansion
Potential
Residential
Expansion
Status
Existing Property
City, Province
1780 East Broadway (Broadway and
Commercial)
Vancouver, BC
1170 East 27 Street (Lynn Valley)
North Vancouver, BC
5235 Kingsway (Royal Oak)
Penhorn Lands
Burnaby, BC
Dartmouth, NS
10355 King George Boulevard
Surrey, BC
2733 West Broadway
Vancouver, BC
524 Elbow Drive SW (Mission)
Calgary, AB
2.43
2.82
2.76
26.12
5.07
1.95
1.60
Safeway
Safeway
Safeway
Land
Safeway
Safeway
Safeway
3410 Kingsway
Vancouver, BC
3.74
Safeway/Other tenants
990 West 25 Avenue (King Edward)
Vancouver, BC
1.80
Safeway
East Hastings
813 11 Avenue SW
410 10 Street NW
10930 82 Avenue
Brampton Mall
Centennial Parkway
McCowan & Ellesmere
Triangle Lands
Scotia Square
Burnaby, BC
Calgary, AB
Calgary, AB
Edmonton, AB
Brampton, ON
Hamilton, ON
Toronto, ON
Halifax, NS
Halifax, NS
3.30
Safeway/Other tenants
2.59
1.73
Safeway
Safeway
2.44
Safeway/Other tenants
8.74
2.75
4.48
0.68
14.47
Retail
Retail
Sobeys/Other tenants
Land
Office/Retail
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Pre-planning
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Pre-planning
Pre-planning
Pre-planning
Pre-planning
TBD1
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
1.
TBD: to be determined
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 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 space ratio of 5.7 times.
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.
5235 Kingsway (Royal Oak), Burnaby, British Columbia
The Royal Oak site is located in close proximity to Metrotown in
Burnaby — an area experiencing significant redevelopment as a
result of a recently adopted Metrotown Downtown Plan in 2017.
The high profile, 2.76 acre 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.
10355 King George Boulevard, Surrey, British Columbia
King George is located in Surrey, BC, in a prime location within
Surrey City Centre and immediately adjacent the King George
SkyTrain stop. The approximate 5 acre site is within the City of
Surrey Official Community Plan and the Surrey City Centre Plan,
which both designate the site for high-density development of floor
to space ratio of up to 7.5 times. Rezoning of the site is required in
order to proceed with any future redevelopment, and preliminary
development analysis is currently underway.
Penhorn Lands, Dartmouth (Halifax), Nova Scotia
The Penhorn Lands is a development site located at the
intersection of Highway 111 and Portland Street in Dartmouth
(Halifax), Nova Scotia that was purchased from Empire in 2016.
Crombie has initiated pre-planning activity for future mixed
residential development on 26 acres of this development site
located adjacent to a Crombie owned grocery-anchored property,
Penhorn Plaza.
36
MANAGEMENT’S DISCUSSION AND ANALYSIS 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 basis1
1.
See “Debt to Gross Book Value — Fair Value Basis” for detailed calculation.
As At
December 31, 2018
December 31, 2017
December 31, 2016
$
$
4,071,074
2,479,143
$
$
51.0%
4,086,854
2,501,748
$
$
50.3%
3,963,318
2,396,199
50.3%
Three months ended December 31,
Year ended December 31,
2018
2017
Variance
2018
2017
Variance
$
104,296
$
105,667
$
(1,371) $
414,649
$
411,813
$
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 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
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)
Distributions per Unit to Unitholders
$
$
$
$
30,817
73,479
70.5%
4,580
(7,000)
(19,906)
(5,184)
(25,968)
111
20,112
(1)
—
20,111
(33,724)
31,622
74,045
70.1%
2,474
—
(20,619)
(4,246)
(26,681)
(7)
24,966
2,082
—
27,048
(33,511)
805
(566)
0.4%
2,106
(7,000)
713
(938)
713
118
(4,854)
(2,083)
—
(6,937)
(213)
121,306
293,343
70.7%
50,023
(15,000)
(96,353)
(19,226)
(105,631)
254
107,410
(3)
—
107,407
(134,729)
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)
2,836
(237)
2,599
0.1%
47,549
(15,000)
(14,146)
(149)
146
193
21,192
(2,081)
(75,400)
(56,289)
(1,470)
197
18
179
402
145
257
(13,416)
$
(6,445)
$
(6,971) $
(26,920)
$
30,582
$
(57,502)
0.13
0.13
$
$
151,419
151,551
0.18
0.18
150,401
150,533
0.22
$
0.22
$
$
$
0.71
0.71
$
$
151,214
151,345
1.09
1.09
149,508
155,492
0.89
$
0.89
Operating Results
For the three months ended December 31, 2018, Operating income
before taxes of $20,112 decreased by $4,854 or 19.4% compared
to the three months ended December 31, 2017. The decrease was
primarily due to:
•
•
•
the recognition in the fourth quarter of 2018 of $7,000 of
impairment related to an office property;
increased general and administrative expenses of $938 primarily
related to increased wage costs; and,
a decrease in total Property NOI of $566 or 0.8% which is
impacted by dispositions in the first three quarters of 2018 and
the fourth quarter of 2017. This decrease in total Property NOI
was reduced in part by same-asset NOI growth of $2,044 and
NOI from acquisitions in the second quarter of 2018 and in the
third quarter of 2017;
offset in part by:
•
•
•
gain on disposal of $4,580 on three properties in the fourth
quarter which was $2,106 higher than the gain of $2,474 on
disposition of one property in the fourth quarter of 2017;
a decrease in depreciation and amortization of $713 or 3.5%
which is impacted by net disposition activity in 2018 and the
fourth quarter of 2017; and,
a decrease in finance costs — operations re lower interest and
deferred financing charges of $713 or 2.7% related to the net
disposition activity in 2018 as well as the early redemption of
$74,400 5.25% Series E convertible debentures in the third
quarter of 2018 refinanced with $75,000 of additional Series
B Notes issued with an effective yield to maturity of 3.882%.
During the fourth quarter of 2018, Crombie also issued $175,000
Series E Notes with an effective yield of 4.802% with the
proceeds used to fund the repayment of the maturing $175,000
3.986% Series A Notes.
37
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS For the year ended December 31, 2018, Operating income before
taxes of $107,410 increased by $21,192 or 24.6% compared to the
year ended December 31, 2017. The year was impacted by:
•
•
the disposition of a 50% interest in a portfolio of nine retail
properties as well as the disposition of a mixed use property
and eight additional retail properties and residential lands
adjacent to an existing development property during 2018,
resulting in a gain on disposal of $50,023 compared to a gain on
disposal of $2,474 in 2017; and,
an increase in Property NOI of $2,599 or 0.9% which is impacted
by same-asset cash NOI growth of $6,448 and the previously
mentioned acquisition and disposition activity.
offset in part by:
•
•
the recognition of $15,000 of impairment, $8,000 in the second
quarter of 2018 related to two retail properties and $7,000 in the
fourth quarter of 2018 related to an office property; and,
an increase in depreciation and amortization of $14,146,
primarily related to accelerated depreciation on portions of
three properties on partial demolition of former Target and Sears
space for new tenant redevelopment.
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 as at March 31, 2017 was reduced to $NIL and the
decrease was recognized as an income tax recovery on Crombie’s
Consolidated Statement of Comprehensive Income for the year
ended December 31, 2017. Professional fees of $1,059 associated
with the tax reorganization were recognized 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)
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
PROPERTY NOI
Three months ended
December 31,
Year ended
December 31,
2018
2017
2018
2017
$
$
20,111
$
27,048
$
107,407
$
163,696
(33,724)
(33,511)
(134,729)
(133,259)
197
18
402
145
(13,416)
$
(6,445) $
(26,920)
$
30,582
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,
2018
2017
Variance
2018
2017
Variance
$
73,479
$
74,045
$
(566)
$
293,343
$
290,744
$
(2,429)
3,451
74,501
11,399
(3,280)
3,507
74,272
13,214
851
(56)
229
(11,040)
12,875
(13,542)
12,768
295,178
289,970
2,599
2,502
107
5,208
(1,815)
46,579
47,819
(1,240)
Same-asset property cash NOI
$
63,102
$
61,058
$
2,044
$
248,599
$
242,151
$
6,448
Property NOI, on a cash basis, excludes non-cash straight-line
rent recognition and amortization of tenant incentive amounts.
The $2,044 or 3.3% increase in same-asset cash NOI for the three
months ended December 31, 2018 over the same period in 2017
is primarily the result of improved occupancy rates and revenues
from land use intensifications at certain properties.
The $6,448 or 2.7% increase in same-asset cash NOI for the year
ended December 31, 2018 over the same period in 2017 was
impacted by the same factors noted above.
Acquisitions, dispositions and development property cash NOI
decreased $1,815 for the three months ended December 31, 2018
compared to the three months ended December 31, 2017 primarily
due to dispositions in the first three quarters of 2018 and the fourth
quarter of 2017, offset in part by acquisitions in the second quarter
of 2018. The decrease of $1,240 for the year ended December
31, 2018 over the same period in 2017 is primarily due to lease
termination income received in the third quarter of 2017 as well as
the dispositions mentioned above.
Management emphasizes property NOI on a cash basis as it reflects
the cash generated by the properties period-over-period.
38
MANAGEMENT’S DISCUSSION AND ANALYSIS Same-asset property cash NOI is as follows:
Three months ended December 31,
Year ended December 31,
(In thousands of CAD dollars)
Retail and Commercial Mixed Use
Office
Same-asset property cash NOI
2018
60,353
2,749
63,102
$
$
2017
Variance
Percent
2018
2017
Variance
Percent
$
$
58,305
2,753
61,058
$
$
2,048
3.5% $
238,379
(4)
(0.1)%
10,220
2,044
3.3% $
248,599
$
$
230,924
11,227
242,151
$
$
7,455
(1,007)
6,448
3.2%
(9.0)%
2.7%
Variances in same-asset property cash NOI for the three months
ended December 31, 2018 compared to the same period in 2017
include:
•
Retail and Commercial Mixed Use increased $2,048 or 3.5% due
to increased occupancy.
•
Office decreased $4 or 0.1% as tenants began occupying
previously vacant space.
Same-asset property cash NOI for the year ended December
31, 2018 compared to the same period in 2017 were impacted by
these same factors.
Acquisitions, dispositions and development property cash NOI is as follows:
(In thousands of CAD dollars)
Acquisitions and dispositions property cash NOI
Development property cash NOI
Total acquisitions, dispositions and development property
cash NOI
Three months ended December 31,
Year ended December 31,
2018
2017
Variance
3,395
$
5,151
$
(1,756)
$
8,004
8,063
(59)
2018
16,063
30,516
11,399
$
13,214
$
(1,815)
$
46,579
2017
Variance
17,266
$
(1,203)
30,553
(37)
47,819
$
(1,240)
$
$
$
$
For the three months ended December 31, 2018, acquisitions and
dispositions property cash NOI decreased $1,756 and decreased
$1,203 for the year ended December 31, 2018 compared to the same
periods in 2017 as a result of the acquisition and disposition activity
discussed above.
Development properties include properties earning cash NOI
that are: currently being developed; with recently completed
development; and, properties scheduled for development. 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.
Crombie undertakes development of properties to position them
for long-term sustainability and growth in cash NOI resulting in
improvement in value.
Property NOI for the three months and year ended December 31, 2018 by province was as follows:
(In thousands of CAD dollars)
AB
BC
MB
NB
NL
NS
ON
PE
QC
SK
Total
Three months ended December 31,
Year ended December 31,
2018
Property
NOI
2017
Property
NOI
Variance
2018
Property
NOI
2017
Property
NOI
Variance
$
16,145
$
16,227
$
(82)
$
64,960
$
64,660
$
9,797
3,341
3,623
7,081
13,385
10,522
425
7,332
1,828
9,176
3,366
3,560
7,170
14,500
11,359
396
6,427
1,864
621
(25)
63
(89)
(1,115)
(837)
29
905
(36)
37,168
13,446
14,315
26,767
56,715
42,809
1,702
28,226
7,235
36,433
13,454
13,053
27,778
59,022
44,167
1,630
23,440
7,107
300
735
(8)
1,262
(1,011)
(2,307)
(1,358)
72
4,786
128
$
73,479
$
74,045
$
(566)
$
293,343
$
290,744
$
2,599
The significant variances in property NOI for the three months
and year ended December 31, 2018 compared to the same period
in 2017 were impacted by property acquisitions and dispositions
as follows:
•
•
New Brunswick — acquisition of an addition to an existing retail
property in the second quarter of 2018;
Nova Scotia — disposition of one mixed use property in the
second quarter of 2018, offset in part by the addition to an
existing retail property in the third quarter of 2018;
•
Ontario — disposition of seven retail properties in 2018, two in
the first quarter, one in the second quarter, one in the third
quarter and three in the fourth quarter; disposition of 50%
interest in three retail properties in the second quarter of 2018;
and one disposition in the fourth quarter of 2017, offset in part
by one acquisition in the second quarter of 2018 and one in the
third quarter of 2017; and,
39
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS •
Quebec — acquisition of six retail properties in 2018, one in
the fourth quarter and five in the second quarter, additions to
an existing retail property in the second quarter of 2018 and
acquisition of five retail properties in the third quarter of 2017.
In addition to the acquisition and disposition activity, the following
also impacted comparative property NOI results:
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:
•
•
•
New Brunswick — leasing activity, including expansions of
Sobeys stores in two properties;
Newfoundland and Labrador — vacancy increases in the
third and fourth quarters of 2017 primarily related to property
redevelopment at Avalon Mall, including the termination of
Sears in the first quarter of 2018; and,
Nova Scotia — reduced property revenue in 2018 from leasing
activity primarily in office properties and lease termination
income from Target Canada in the third quarter of 2017.
FFO AND AFFO
•
•
•
•
•
•
•
Gain or loss on disposal of investment properties and related
income tax;
Impairment charges and recoveries;
Depreciation and amortization expense of investment
properties, 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.
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.
REALPAC provides for other adjustments in determining FFO which
are currently not applicable to Crombie, therefore not included in
the above list. Crombie’s expenditures on tenant incentives are
capital in nature. Crombie considers these costs comparable to
other capital costs incurred to earn property revenue. Whereas
the depreciation and amortization of other capital costs is added
back in the calculation of FFO as recommended by REALPAC,
Crombie also adds back the amortization of tenant incentives (“TI”).
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, 2018 and 2017 is as follows:
(In thousands of CAD dollars)
2018
2017
Variance
2018
2017
Variance
Increase (decrease) in net assets attributable to Unitholders
$
(13,416)
$
(6,445)
$
(6,971)
$
(26,920)
$
30,582
$
(57,502)
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
Depreciation of investment properties included in Income
from equity accounted investments
Internal leasing costs
Taxes — current on disposition of investment properties
Taxes — deferred
3,451
(4,580)
7,000
17,945
1,688
261
5
609
—
—
Finance costs — distributions to Unitholders
33,724
3,507
(2,474)
—
18,674
1,706
239
—
606
(2,069)
—
33,511
Finance costs (income) — change in fair value of
financial instruments
(197)
(18)
(56)
(2,106)
7,000
(729)
(18)
22
5
3
2,069
—
213
(179)
12,875
(50,023)
15,000
88,818
6,701
792
28
2,436
—
—
134,729
12,768
(2,474)
—
74,845
6,654
708
—
2,424
(2,069)
(75,400)
133,259
107
(47,549)
15,000
13,973
47
84
28
12
2,069
75,400
1,470
(402)
(145)
(257)
FFO as calculated based on REALPAC recommendations
$
46,490
$
47,237
$
(747)
$
184,034
$
181,152
$
2,882
For the three months ended December 31, 2018, FFO decreased
by $747 or 1.6% compared to the three months ended December
31, 2017. The decrease primarily relates to the previously discussed
lower property NOI offset in part by reduced finance costs —
operations.
For the year ended December 31, 2018, FFO increased by $2,882 or
1.6% compared to the year ended December 31, 2017. The increase
relates to higher property NOI from same-asset cash NOI growth
as previously discussed and lower general and administrative costs
primarily related to 2017 professional fees for the completed tax
reorganization.
40
MANAGEMENT’S DISCUSSION AND ANALYSIS 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 and leasing costs and any settlement of effective
interest rate swap agreements.
The calculation of AFFO for the three months and year ended December 31, 2018 and 2017 is as follows:
(In thousands of CAD dollars)
2018
2017
Variance
2018
2017
Variance
FFO as calculated based on REALPAC recommendations
$
46,490
$
47,237
$
(747)
$
184,034
$
181,152
$
2,882
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
557
(2,429)
(609)
(4,238)
580
(3,280)
(606)
(4,450)
(23)
851
(3)
212
2,263
(11,040)
(2,436)
(17,027)
2,354
(13,542)
(2,424)
(17,682)
(91)
2,502
(12)
655
AFFO as calculated based on REALPAC recommendations
$
39,771
$
39,481
$
290
$
155,794
$
149,858
$
5,936
For the three months ended December 31, 2018, AFFO increased
by $290 or 0.7% compared to the three months ended December 31,
2017. The increase primarily relates to the reduced impact of
straight-line rent on operating results, offset in part by the $747 or
1.6% decrease in FFO as previously discussed.
For the year ended December 31, 2018, AFFO increased by $5,936
or 4.0% compared to the year ended December 31, 2017. The
increase primarily relates to the $2,882 or 1.6% increase in FFO as
previously discussed and the reduced impact of straight-line rent
on operating results.
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.
Maintenance Expenditures — Actual
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 2018,
Crombie has reduced the normalized rate to $0.90 per square foot
of GLA from the previous rate of $0.92 per square foot based on
the actual spend for 2017 and 2016 and estimated spend for 2018.
Additionally, Crombie combines maintenance capital expenditures
with maintenance TI and deferred leasing costs in arriving at the
normalized per square foot charge to AFFO based on the fact that
in years where TI and leasing expenditures are reduced, spending
on maintenance capital expenditures may be accelerated and
vice versa.
(In thousands of CAD
dollars)
Year ended
Dec. 31, 2018
Dec. 31,
2018
Sep. 30,
2018
Jun. 30,
2018
Mar. 31,
2018
Year ended
Dec. 31, 2017
Dec. 31,
2017
Sep. 30,
2017
Jun. 30,
2017
Mar. 31,
2017
Total additions to
investment properties
$
91,211 $
29,716 $
21,616 $
16,877 $
23,002
$
46,800 $
16,887 $
13,921 $
8,751
$
7,241
Three months ended
Three months ended
Less: revenue
enhancing
expenditures
Maintenance capital
expenditures
Total additions to TI and
deferred leasing costs
Less: revenue
enhancing
expenditures
Maintenance TI and
(82,647)
(26,488)
(19,982)
(15,316)
(20,861)
(34,317)
(12,032)
(11,389)
(6,713)
(4,183)
8,564
3,228
1,634
1,561
2,141
12,483
4,855
2,532
2,038
3,058
17,488
3,099
3,629
2,779
7,981
19,660
6,952
2,476
5,324
4,908
(10,936)
(2,295)
(940)
(1,267)
(6,434)
(15,160)
(5,233)
(1,754)
(4,157)
(4,016)
deferred leasing costs
6,552
804
2,689
1,512
1,547
4,500
1,719
722
1,167
892
Total maintenance
expenditures — actual
$
15,116 $
4,032 $
4,323 $
3,073 $
3,688
$
16,983 $
6,574 $
3,254 $
3,205
$
3,950
Reserve amount
charged against AFFO
and ACFO
$
17,027 $
4,238
$
17,682 $
4,450
41
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS Maintenance capital expenditures for the year ended December
31, 2018, 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 2017 and 2018.
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, 2018 consisted
primarily of development work and GLA expansions at: Avalon
Mall, St. John’s, NL; Belmont Market, Victoria, BC; Cassils Road,
Brooks, AB; Edmundston Plaza, Edmundston, NB; Uptown Centre,
Fredericton, NB; Algonquin Avenue Mall, North Bay, ON; Scotia
Square, Halifax, NS; Deer Lake, NL; Kinlock Plaza, Stratford, PE; and,
Penhorn lands, Halifax, NS.
DEPRECIATION, AMORTIZATION AND IMPAIRMENT
(In thousands of CAD dollars)
2018
2017
Variance
2018
2017
Variance
Same-asset depreciation and amortization
Acquisitions, dispositions and development
depreciation/amortization
Depreciation and amortization
$
$
16,618
$
16,506
$
(112)
$
65,957
$
67,089
$
1,132
3,288
4,113
825
30,396
15,118
(15,278)
19,906
$
20,619
$
713
$
96,353
$
82,207
$
(14,146)
Three months ended December 31,
Year ended December 31,
Same-asset depreciation and amortization increased by $112 for
the three months ended December 31, 2018 and decreased by
$1,132 for the year ended December 31, 2018 compared to the
same periods in 2017. The decrease is due primarily to the expiry
of the initial term of tenant leases since the first quarter of 2017.
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 for the year ended December 31, 2018
primarily as a result of the partial demolitions of buildings at two
redevelopment properties in the first quarter of 2018 and one
property in the third quarter of 2018. Accelerated depreciation
of $8,444 in the first quarter and $8,930 in the third quarter was
realized in relation to the partial demolitions. The decrease of
$825 in the three months ended December 31, 2018 over the same
period in 2017 relates to the net disposition activity.
During the year ended December 31, 2018, Crombie recorded
impairments totalling $15,000, $8,000 on two retail properties in
the second quarter and $7,000 on an office property in the fourth
quarter. The impairments were the result of the fair value impact
of tenant lease expiries and departures 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.
Crombie’s total fair value of investment properties, including
properties held for sale, exceeds carrying value by $797,088 at
December 31, 2018 (December 31, 2017 — $900,804). 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.
GENERAL AND ADMINISTRATIVE EXPENSES
The following table outlines the major categories of general and administrative expenses:
(In thousands of CAD dollars)
2018
2017
Variance
2018
2017
Variance
Three months ended December 31,
Year ended December 31,
Salaries and benefits
Professional fees
Public company costs
Rent and occupancy
Other
$
3,511
$
2,576
$
(935)
$
13,111
$
11,175
$
(1,936)
97
612
206
758
180
613
229
648
83
1
23
(110)
924
2,161
728
2,302
2,247
2,225
816
2,614
1,323
64
88
312
(149)
0.0%
General and administrative expenses
$
5,184
$
4,246
$
(938)
$
19,226
$
19,077
$
As a percentage of property revenue
5.0%
4.0%
(1.0)%
4.6%
4.6%
42
MANAGEMENT’S DISCUSSION AND ANALYSIS For the three months ended December 31, 2018, general and
administrative expenses, as a percentage of property revenue,
were 5.0%, an increase of 1.0% from the same period in 2017,
with expenses increasing $938 or 22.1% and property revenue
decreasing 1.3%. The increase in expenses is primarily due to
higher salary and benefit costs. For the year ended December 31,
2018, general and administrative expenses, as a percentage of
property revenue, remained the same compared to the year ended
December 31, 2017, with expenses decreasing $149 or 0.8% and
property revenue increasing 0.7%. Salaries and benefits increased
$1,936 on higher wage costs and employee severance costs.
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 were
included in professional fees for the year ended December 31,
2017. Excluding these costs, general and administrative expenses
represented 4.4% of property revenue for the year ended
December 31, 2017.
FINANCE COSTS — OPERATIONS
(In thousands of CAD dollars)
Finance costs
Amortization of effective swaps and deferred
financing charges
Finance costs — operations
Three months ended December 31,
Year ended December 31,
2018
2017
Variance
2018
2017
Variance
$
24,481
$
25,105
$
624
$
98,210
$
98,949
$
739
1,487
1,576
89
7,421
6,828
$
25,968
$
26,681
$
713
$
105,631
$
105,777
$
(593)
146
Finance costs for the three months and year ended December 31,
2018 decreased by $624 and $739, respectively, compared to the
same periods in 2017. The decreases relate to property acquisitions
and dispositions, mortgage payouts and increased utilization
of floating rate credit facilities. Significant refinancings during
the year included: the early redemption of $74,400 of 5.25%
Convertible Debentures refinanced with $75,000 of additional
Series B Unsecured Notes issued with an effective interest rate of
3.882%; and, maturity of $175,000 of 3.986% Series A Unsecured
Notes refinanced with $175,000 of Series E Unsecured Notes with
an effective interest rate of 4.802%. The early redemption of the
Details of distributions to Unitholders are as follows:
Convertible Debentures resulted in the accelerated write-off of $982
of deferred financing charges.
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.
(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
Three months ended
December 31,
Year ended
December 31,
$
$
$
$
2018
19,934
13,790
33,724
72.5%
84.8%
85.7%
$
$
2017
19,809
13,702
33,511
70.9%
84.9%
82.1%
$
$
2018
79,638
55,091
134,729
73.2%
86.5%
85.7%
2017
78,775
54,484
133,259
73.6%
88.9%
87.7%
The increase in distributions relates to units issued under Crombie’s distribution reinvestment plan (the “DRIP”).
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.
4 3
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table summarizes the last five years of the taxation of distributions from Crombie:
Taxation Year
2017 per $ of distribution
2016 per $ of distribution
2015 per $ of distribution
2014 per $ of distribution
2013 per $ of distribution
Return of Capital
Investment Income
Dividend Income
Capital Gains
51.8%
24.9%
56.3%
64.4%
90.2%
48.0%
54.5%
28.8%
18.1%
9.8%
0.0%
0.0%
13.4%
0.0%
0.0%
0.2%
20.6%
1.5%
17.5%
0.0%
LIQUIDIT Y AND C APITAL RESOURCES
(iii) recycling capital through the disposition of select investment
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 and
has the following sources of financing available:
(i) secured short-term financing through an authorized revolving
credit facility, maturing June 30, 2022, of up to $400,000, subject
to available borrowing base, of which $108,843 ($117,541 including
outstanding letters of credit) was drawn at December 31, 2018;
(ii) unsecured short-term financing through an authorized floating
rate revolving credit facility, maturing May 16, 2020, of up to
$100,000, of which $70,000 was drawn at December 31, 2018;
properties;
(iv) secured mortgage and term debt on unencumbered properties,
Crombie currently has $998,523 of fair value in unencumbered
properties, which is defined as those properties that are free and
clear of any encumbrances, including mortgages and pledging
as security for floating rate revolving credit facility;
(v) the issuance of additional senior unsecured notes;
(vi) the issuance of additional unsecured convertible debentures;
and,
(vii) 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/construction 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)
December 31, 2018
December 31, 2017
December 31, 2016
Mortgages
Credit facilities
Senior unsecured notes
Convertible debentures
Crombie REIT Unitholders
Special Voting Units and Class B Limited
Partnership Unitholders
$
1,601,584
40.8% $
1,751,096
44.2% $
1,645,103
178,843
698,716
—
864,779
4.6%
17.8%
—%
22.1%
53,168
624,320
73,164
873,478
1.4%
15.8%
1.8%
22.1%
220,374
398,588
132,134
834,203
578,061
14.7%
583,777
14.7%
555,943
$
3,921,983
100.0% $
3,959,003
100.0% $
3,786,345
43.5%
5.8%
10.5%
3.5%
22.0%
14.7%
100.0%
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, 2022, of which $108,843 ($117,541 including
outstanding letters of credit) was drawn as at December 31, 2018.
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, 2018,
Crombie had sufficient Borrowing Base to permit $400,000
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 $70,000 was drawn as at December 31,
2018, and matures May 16, 2020. 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.
4 4
MANAGEMENT’S DISCUSSION AND ANALYSIS Mortgage debt and credit facilities
Crombie had fixed rate mortgages outstanding consisting of:
Fixed rate mortgages
Unamortized fair value debt adjustment
Deferred financing charges
Total mortgage debt
December 31, 2018
December 31, 2017
December 31, 2016
$
$
1,608,749
$
1,759,984
$
1,891
1,610,640
(9,056)
2,831
1,762,815
(11,719)
1,601,584
$
1,751,096
$
1,652,091
3,726
1,655,817
(10,714)
1,645,103
The mortgages carry a weighted average interest rate of 4.30% (after giving effect to the interest rate subsidy from Empire under an
omnibus subsidy agreement) and a weighted average term to maturity of 4.6 years.
From time to time, Crombie has entered into interest rate swap agreements to manage the interest rate profile of its current or future debts
without an exchange of the underlying principal amount (see “Risk Management”). Crombie currently has interest rate swap agreements in
place on $109,295 of floating rate mortgage debt.
Principal repayments of the fixed rate mortgages and credit facilities are scheduled as follows:
(In thousands of CAD dollars)
Maturing Debt Balances
12 Months Ending
December 31, 2019
December 31, 2020
December 31, 2021
December 31, 2022
December 31, 2023
Thereafter
Total1
Mortgages
Credit
Facilities
Total
% of Total
Payments of
Principal
Total Required
Payments
% of Total
$
126,978
$
— $
225,241
89,182
194,868
252,932
432,861
70,000
—
108,843
—
—
126,978
295,241
89,182
303,711
252,932
432,861
8.5% $
53,544
$
19.7%
5.9%
20.2%
16.9%
28.8%
46,912
45,250
38,829
31,557
70,595
180,522
342,153
134,432
342,540
284,489
503,456
10.1%
19.1%
7.5%
19.2%
15.9%
28.2%
$
1,322,062
$
178,843
$
1,500,905
100.0% $
286,687
$
1,787,592
100.0%
1. Excludes fair value debt adjustment and deferred financing charges.
Of the maturing debt balances, only 33.4% of mortgages and 34.1% of total maturing debt balances mature over the next three years.
Senior unsecured notes
Series A
Series B
Series C
Series D
Series E
Unamortized Series B issue premium
Deferred financing charges
Maturity Date
Effective Interest Rate
December 31, 2018
December 31, 2017
October 31, 2018
June 1, 2021
February 10, 2020
November 21, 2022
January 31, 2025
3.986% $
— $
3.769%
2.775%
4.066%
4.802%
250,000
125,000
150,000
175,000
1,068
(2,352)
175,000
175,000
125,000
150,000
—
1,323
(2,003)
$
698,716
$
624,320
On October 31, 2018, Crombie issued $175,000 of 4.8% Series E
Senior Unsecured Notes maturing January 31, 2025. The Notes
were priced at $999.96 per $1,000.00 of principal amount, resulting
in an effective yield to maturity of 4.802%. The net proceeds were
used to fund the $175,000 of 3.986% Series A Senior Unsecured
Notes which matured on October 31, 2018.
On August 31, 2018, 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 3.882% and sold at a price of $1,002.02 per
$1,000.00 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.
There are no required periodic principal payments, with the full
face value of the Notes due on their respective maturity dates.
45
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS
Convertible debentures
Series D
Series E
Deferred financing charges
Conversion Price
Maturity Date
Interest Rate
December 31, 2018
December 31, 2017
$
$
20.10
17.15
July 4, 2017
August 31, 2018
5.00% $
5.25%
$
— $
—
—
— $
—
74,400
(1,236)
73,164
On August 31, 2018, Crombie exercised its right to redeem its 5.25%
Series E Convertible Unsecured Subordinated Debentures originally
scheduled to mature on March 31, 2021 (the “Debentures”) in
accordance with the terms of the supplemental trust indenture.
Upon redemption, Crombie paid the holders of Debentures
$1,022.01 per $1,000 principal amount of Debentures, representing
the principal amount plus accrued and unpaid interest.
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.
REIT Units and Class B LP Units and the attached Special
Voting Units
For the year ended December 31, 2018, Crombie issued 469,649
REIT Units and 333,058 Class B LP Units under its DRIP. Until
May 22, 2018, Units were issued under the DRIP at a three percent
(3%) discount to market prices. Effective on that date, Crombie
amended the DRIP to eliminate the discount such that future Units
issued under the DRIP are issued at a price equal to 100% 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.
Total units outstanding at January 31, 2019, were as follows:
Units
Special Voting Units1
89,608,850
61,987,986
1.
Crombie Limited Partnership, a subsidiary of Crombie, has also issued 61,987,986 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.
SOURCES AND USES OF FUNDS
(In thousands of CAD dollars)
Cash provided by (used in):
Operating activities
Financing activities
Investing activities
Net change during the period
Operating Activities
(In thousands of CAD dollars)
Cash provided by (used in):
Net assets attributable to Unitholders and
non-cash items
Non-cash operating items
Income taxes paid
Cash provided by (used in) operating activities
$
$
$
$
Three months ended December 31,
Year ended December 31,
2018
2017
Variance
2018
2017
Variance
10,401
$
21,349
$
(10,948)
$
54,270
$
91,145
$
(36,875)
8,955
(19,356)
(12,305)
(9,044)
21,260
(10,312)
(174)
(54,096)
82,648
(173,793)
(82,822)
119,697
— $
— $
— $
—
$
— $
—
Three months ended December 31,
Year ended December 31,
2018
2017
Variance
2018
2017
Variance
11,682
$
17,821
$
(6,139)
$
52,727
$
69,741
$
(17,014)
(1,280)
(1)
1,459
2,069
(2,739)
(2,070)
1,546
(3)
19,335
2,069
(17,789)
(2,072)
10,401
$
21,349
$
(10,948)
$
54,270
$
91,145
$
(36,875)
For the three months ended December 31, 2018, cash from
operating activities decreased by $10,948 over the same period in
2017. During the quarter, distributions reinvested through the DRIP
decreased $5,891. The decrease of $2,739 in non-cash operating
items primarily relates to the timing of payments on prepaid
expenses and payables.
For the year ended December 31, 2018, cash from operating
activities decreased by $36,875 over the same period in 2017. The
decrease primarily relates to a reduction of $21,253 in distributions
reinvested through the DRIP and to the reduced cash from non-
cash operating items of $17,789. This is impacted by $8,600 received
in the first quarter of 2017 for mortgage proceeds held back from
December 2016 as well as year over year fluctuations in the timing
of payments for expenses.
4 6
MANAGEMENT’S DISCUSSION AND ANALYSIS
Financing Activities
(In thousands of CAD dollars)
Cash provided by (used in):
Issuance of new mortgages
Three months ended December 31,
Year ended December 31,
2018
2017
Variance
2018
2017
Variance
$
— $
— $
— $
— $
192,783
$
(192,783)
Regular principal repayment of mortgages
Lump sum principal repayment of mortgages
(13,108)
(13,661)
—
—
553
—
Net issue (repayment) on credit facilities
24,695
(147,323)
172,018
(53,145)
(64,713)
125,675
(52,479)
(50,379)
(167,206)
(666)
(14,334)
292,881
Deferred financing charges — investment
property debt
Issuance of senior unsecured notes
Deferred financing charges — senior unsecured notes
Redemption of senior unsecured notes
Redemption of convertible debentures
Other items (net)
(458)
(456)
(2)
(742)
(3,802)
3,060
175,000
(841)
(175,000)
—
(1,333)
150,000
(652)
—
—
(213)
25,000
(189)
250,152
(1,169)
(175,000)
(175,000)
—
(1,120)
(74,400)
(6,832)
226,413
(999)
—
(60,000)
(1,683)
23,739
(170)
(175,000)
(14,400)
(5,149)
Cash provided by (used in) financing activities
$
8,955
$
(12,305)
$
21,260
$
(174)
$
82,648
$
(82,822)
Cash provided by financing activities for the three months ended
December 31, 2018 increased by $21,260 from the same period in
2017. During the three months ended December 31, 2018, Crombie
increased floating rate credit facilities by $24,695 (three months
ended December 31, 2017 — decrease of $147,323) primarily related
to property acquisitions and additions. On October 31, 2018,
$175,000 of 3.986% Series A Notes (senior unsecured) matured and
were refinanced with $175,000 of Series E Notes (senior unsecured)
with an effective interest rate of 4.802%. During the three months
ended December 31, 2017, Crombie decreased the balance of its
floating rate credit facilities with proceeds from the issue of $150,000
aggregate principal amount of 4.066% Series D Notes (senior
unsecured).
Cash provided by financing activities for the year ended
December 31, 2018 decreased by $82,822 from the same period in
2017. During the year ended December 31, 2018, Crombie repaid
$64,713 (year ended December 31, 2017 — $50,379) in maturing
mortgages and increased floating rate credit facilities by $125,675.
In addition to the refinancing in the fourth quarter of 2018 noted
above, Crombie issued $75,000 of additional Series B Notes (senior
unsecured) with an effective interest rate of 3.882% with proceeds
used to fund the early redemption of $74,400 of 5.25% Convertible
Debentures. During the year ended December 31, 2017, Crombie
issued $192,783 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. 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.
Investing Activities
(In thousands of CAD dollars)
Cash provided by (used in):
Three months ended December 31,
Year ended December 31,
2018
2017
Variance
2018
2017
Variance
Acquisition of investment properties
$
(9,630)
$
— $
(9,630) $
(118,184)
$
(119,357)
$
Additions to investment properties
Proceeds on disposal of investment properties
Proceeds on disposal of marketable securities
Additions to tenant incentives
Additions to deferred leasing costs
Additions to fixtures and computer equipment
Acquisition of interest in joint ventures
Additions to investment in joint ventures
(29,716)
26,186
—
(2,873)
(226)
(1,092)
—
(2,005)
(16,887)
15,645
—
(6,580)
(372)
(850)
—
—
(12,829)
10,541
—
3,707
146
(242)
—
(2,005)
(91,211)
190,013
1,252
(16,505)
(983)
(4,248)
(10,210)
(4,020)
(46,800)
15,645
1,220
(18,381)
(1,279)
(3,140)
(1,701)
—
1,173
(44,411)
174,368
32
1,876
296
(1,108)
(8,509)
(4,020)
Cash provided by (used in) investing activities
$
(19,356)
$
(9,044)
$
(10,312) $
(54,096)
$
(173,793)
$
119,697
47
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS Cash used in investing activities for the three months ended
December 31, 2018 increased by $10,312 over the same period
in 2017. During the three months ended December 31, 2018,
Crombie acquired one retail property and an addition to an
existing retail property for net cash of $9,630 and completed the
disposition of three retail properties for net proceeds of $26,186.
During the three months ended December 31, 2017, Crombie
completed the disposition of one retail property for net proceeds
of $15,645.
Cash used in investing activities for the year ended December 31,
2018 decreased by $119,697 over the same period in 2017. During
the year ended December 31, 2018, Crombie completed the
acquisitions and dispositions noted above as well as the
acquisition of 10 retail properties and additions to three existing
retail properties and the disposition of five retail properties
and one mixed use property, disposition of a 50% interest in
nine retail properties and disposition of vacant land adjacent
to a mixed use development property.
ADJUSTED CASH FLOW FROM OPERATIONS (ACFO)
Crombie considers ACFO to be a useful measure in evaluating its
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
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:
•
•
•
•
•
•
Distributions to unitholders included in cash flow from
operations;
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, 2018 and 2017 is as follows:
(In thousands of CAD dollars)
Cash flow from operations
Add (deduct):
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
Total distributions declared during the period
Excess of ACFO over total distributions
ACFO payout ratio
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.
•
•
•
48
Three months ended
December 31,
Year ended
December 31,
2018
2017
2018
2017
$
10,401
$
21,349
$
54,270
$
91,145
33,724
(677)
1,070
(4,238)
—
(930)
39,350
33,724
33,511
(6,568)
31
(4,450)
(2,069)
(996)
40,808
33,511
134,729
(10,100)
541
(17,027)
—
(5,158)
157,255
134,729
133,259
(31,353)
(16,943)
(17,682)
(2,069)
(4,474)
151,883
133,259
$
5,626
$
7,297
$
22,526
$
18,624
85.7%
82.1%
85.7%
87.7%
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, 2018, the remaining amount available under
the revolving credit facility was approximately $291,000 (prior to
reduction for standby letters of credit outstanding of $8,698) and
was not limited by the Aggregate Borrowing Base. At December 31,
2018, Crombie remained in compliance with all debt covenants.
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
MANAGEMENT’S DISCUSSION AND ANALYSIS with acquisitions, excluding specific deferred taxes payable, trade
payables and accruals in the ordinary course of business and
distributions payable. Gross book value is, 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. Crombie’s methodology for
determining fair value includes capitalization of net operating
income using quarterly capitalization rates from external property
valuators. All income properties are also subject to external,
independent appraisals on a rotational basis over a period of not
more than four years. The valuation techniques are more fully
described in Crombie’s year end audited financial statements.
The debt to gross book value on a fair value basis was 51.0% at
December 31, 2018 compared to 50.3% at December 31, 2017.
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, 2018, Crombie’s weighted
average cap rate used in the determination of the fair value of its
investment properties increased 0.17% to 6.10%.
(In thousands of CAD dollars, except as otherwise noted)
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
As at
Fixed rate mortgages
Senior unsecured notes
Convertible debentures
Revolving credit facility
Bilateral credit facility
Total debt outstanding
$
1,610,640
$
1,618,489
$
1,631,707
$
1,718,804
$
1,762,815
700,000
700,000
—
108,843
70,000
—
54,148
100,000
625,000
74,400
32,422
100,000
625,000
625,000
74,400
11,161
50,000
74,400
8,168
45,000
2,489,483
2,472,637
2,463,529
2,479,365
2,515,383
Less: Applicable fair value debt adjustment
(818)
(891)
(965)
(1,040)
(1,117)
Debt
Investment properties, at fair value
Other assets, cost1
Deferred financing charges
Investment in joint ventures
Interest rate subsidy
$
$
2,488,665
4,776,000
$
$
2,471,746
4,786,000
$
$
2,462,564
4,862,000
$
$
2,478,325
4,943,000
$
$
2,514,266
4,944,000
52,677
11,408
39,485
(818)
57,181
11,058
37,578
(891)
60,354
12,815
2,715
(965)
33,469
14,095
2,711
(1,040)
41,056
14,958
2,602
(1,117)
Gross book value — fair value basis
$
4,878,752
$
4,890,926
$
4,936,919
$
4,992,235
$
5,001,499
Debt to gross book value — fair value basis
51.0%
50.5%
49.9%
49.6%
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.
49
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS
COVERAGE RATIOS
EBITDA is a non-GAAP measure and 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. Crombie believes EBITDA 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.
Property revenue
$
104,296
$
100,505
$
104,143
$
105,705
$
105,667
$
102,424
$
101,591
$
102,131
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017 Mar. 31, 2017
Three months ending
Amortization of tenant
incentives
Adjusted property revenue
Property operating expenses
General and administrative
expenses
EBITDA (1)
Trailing 12 months EBITDA (4)
Finance costs — operations
Amortization of deferred
financing charges
Amortization of effective
swap agreements
$
$
$
3,451
107,747
(30,817)
3,334
103,839
(27,660)
2,468
106,611
(29,925)
3,622
109,327
(32,904)
3,507
109,174
(31,622)
2,759
105,183
(28,259)
2,960
104,551
(29,793)
3,542
105,673
(31,395)
(5,184)
71,746
286,992
$
$
(4,925)
71,254
288,552
$
$
(4,626)
72,060
289,547
$
$
(4,491)
71,932
287,085
$
$
(4,246)
(4,675)
(5,160)
(4,996)
73,306
$
72,249
$
69,598
$
69,282
284,435
25,968
$
26,573
$
26,381
$
26,709
$
26,681
$
26,244
$
26,892
$
25,960
(930)
(2,019)
(1,093)
(1,116)
(996)
(1,010)
(1,521)
(947)
(557)
(563)
(568)
(575)
(580)
(586)
(591)
(597)
Adjusted interest expense (2)
$
24,481
$
23,991
$
24,720
$
25,018
$
25,105
$
24,648
$
24,780
$
24,416
Debt principal repayments (3)
$
13,108
$
13,033
$
13,124
$
13,880
$
13,661
$
13,078
$
13,056
$
12,684
Debt outstanding (see Debt
to Gross Book Value) (5)1
Interest service coverage
ratio {(1)/(2)}
Debt service coverage ratio
{(1)/((2)+(3))}
Debt to trailing 12 months
EBITDA {(5)/(4)}
$
2,488,665
$
2,471,746
$
2,462,564
$
2,478,325
$
2,514,266
2.93x
2.97x
2.92x
2.88x
2.92x
2.93x
2.81x
2.84x
1.91x
1.92x
1.90x
1.85x
1.89x
1.92x
1.84x
1.87x
8.67x
8.57x
8.50x
8.63x
8.84x
1.
Outstanding debt previously calculated as part of the Debt to Gross Book Value — Fair Value Basis calculation.
50
MANAGEMENT’S DISCUSSION AND ANALYSIS ACCOUNTING
RELATED PARTY TRANSACTIONS
As at December 31, 2018, Empire, through its wholly-owned subsidiary ECLD, holds a 41.5% 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 transactions with related parties are as follows:
(In thousands of CAD dollars)
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
Finance costs — distributions to Unitholders
Three months ended
December 31,
Year ended
December 31,
Note
2018
2017
2018
2017
51,241
254
$
$
50,766
390
$
$
214,565
730
$
$
(a)
(b)
(c)
(d)
(e)
(b)
$
$
$
$
$
$
$
$
$
— $
(18)
189
(53)
—
73
(13,992)
$
$
$
$
$
(2) $
(18) $
161
$
(91) $
$
$
77
208,083
922
100
(47)
645
(295)
(608)
335
(55,293)
— $
(58)
611
(203)
$
$
$
— $
299
$
$
(13,905) $
(55,900)
(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.
In addition to the above:
•
On September 28, 2018, Crombie acquired an addition to an
existing property representing approximately 10,000 square feet
of gross leaseable area from a subsidiary of Empire for $3,735
before closing and transaction costs.
•
•
•
•
•
•
On June 29, 2018, Crombie acquired one retail property in
Alberta for $12,500 before closing and transaction costs.
On April 6, 2018, Crombie acquired a portfolio of nine retail
properties and additions to two existing retail properties for
$88,110 before closing and transaction costs.
During the year ended December 31, 2018, Crombie issued
333,058 (December 31, 2017 — 977,009) Class B LP Units to ECLD
under the DRIP.
On September 29, 2017, Crombie acquired an addition to an
existing property representing approximately 31,000 square feet
of 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.
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.
51
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS The remuneration of members of key management during the
period was approximately as follows:
(In thousands of CAD dollars)
Salary, bonus and other short-term
employee benefits
Other long-term benefits
Year ended December 31,
2018
5,865
$
106
2017
4,389
98
5,971
$
4,487
$
$
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, 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.
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
52
MANAGEMENT’S DISCUSSION AND ANALYSIS 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.
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.
Defined benefit liability
FINANCIAL INSTRUMENTS
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.
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, 2018:
(In thousands of
CAD dollars)
Financial assets
Level
December 31,
2018
December 31,
2017
Marketable securities
1
Total financial assets
measured
at fair value
$
$
—
$
1,285
—
$
1,285
There were no transfers between levels of the fair value hierarchy
during the year ended December 31, 2018. During the three months
ended March 31, 2018, Crombie sold the marketable securities.
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).
5 3
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS
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 receivables1
Total other financial assets
Financial liabilities
Investment property debt
Senior unsecured notes
Convertible debentures
Total other financial liabilities
December 31, 2018
December 31, 2017
Fair Value
Carrying Value
Fair Value
Carrying Value
$
$
$
21,885
21,885
$
$
21,882
21,882
1,829,772
$
1,789,483
702,893
700,000
—
—
$
$
$
$
$
$
6,642
6,642
1,846,029
627,120
76,818
6,628
6,628
1,815,983
625,000
74,400
$
2,532,665
$
2,489,483
$
2,549,967
$
2,515,383
1.
Long-term receivables include amounts in other assets for capital expenditure program, interest rate subsidy and receivable from related 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, CONTINGENCIES AND GUARANTEES
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.
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 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,
2018, Crombie has a total of $8,698 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
December 31,
2018
3,858
$
4,840
8,698
$
2017
3,879
4,840
8,719
$
$
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 six to 71 years
including renewal options. For the three months and year ended
December 31, 2018, Crombie paid $465 and $1,864 in land lease
payments to third party landlords (three months and year ended
December 31, 2017 — $445 and $1,685).
As at December 31, 2018, Crombie had signed construction
contracts totalling $206,295 of which $165,120 has been paid.
Crombie has 100% guarantees on mortgages related to properties
in which it has less than a 100% interest. The mortgages payable
related to these guarantees are secured by specific charges against
the properties. As at December 31, 2018, Crombie has provided
guarantees of approximately $38,245 (December 31, 2017 — $NIL)
on mortgages in excess of their ownership interest in the
properties. The mortgages have a weighted average term to
maturity of 5.9 years.
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.
5 4
MANAGEMENT’S DISCUSSION AND ANALYSIS CREDIT RISK
RISK FACTORS RELATED TO THE BUSINESS OF CROMBIE
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,
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 55.5% of annual
minimum rent; no other tenant accounts for more than 4.4% 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 $51,241 and $214,565
respectively for the three months and year ended December 31,
2018 (three months and year ended December 31, 2017 —
$50,766 and $208,083 respectively) from Sobeys Inc. and
other subsidiaries of Empire.
Over the next five years, leases representing no more than 6.1% 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.
At each balance sheet date, Crombie assesses whether there
is objective evidence that a financial asset carried at amortized
cost is impaired. If such evidence exists, Crombie recognizes an
impairment loss, as the difference between the carrying value
of the instrument and the present value of the estimated future
cash flows, discounted using the instrument’s original effective
interest rate or a discount rate based on the risk associated with
the financial asset being tested. The carrying amount of the asset
is reduced by this amount through a charge to the statement of
comprehensive income.
There have been no significant changes to Crombie’s credit risk
since December 31, 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.
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, 55.5% of the annual
minimum rent (56.5% including Lawton’s) and 50.6% of total
property revenue (51.4% including Lawton’s) 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, 2018 is detailed under the Property Portfolio section.
55
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS 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 36.4% at December 31, 2018.
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, 2018:
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
•
•
•
•
Crombie’s weighted average term to maturity of its fixed rate
mortgages was 4.6 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 $108,843 at December 31, 2018;
Crombie has a floating rate bilateral credit facility available to a
maximum of $100,000 with a balance of $70,000 at December
31, 2018; and,
Crombie has interest rate swap agreements in place on $109,295
of floating rate mortgage debt.
Crombie estimates that $2,165 of accumulated other comprehensive
income (loss) will be reclassified to finance costs during the year
ended December 31, 2019, based on all settled swap agreements as
of December 31, 2018.
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, 2018
Three months ended December 31, 2017
Year ended December 31, 2018
Year ended December 31, 2017
Impact of a 0.5% interest rate change
Decrease in rate
Increase in rate
$
$
$
$
214
124
611
468
$
$
$
$
(214)
(124)
(611)
(468)
There have been no significant changes to Crombie’s interest rate risk since December 31, 2017.
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.
56
MANAGEMENT’S DISCUSSION AND ANALYSIS
The estimated payments, including principal and interest, on non-derivative financial liabilities to maturity date are as follows:
Year ending December 31,
(In thousands of CAD dollars)
Fixed rate mortgages2
Senior unsecured notes
Floating rate credit facilities
Contractual
Cash Flows1
2019
2020
2021
2022
2023
Thereafter
$
1,878,846
$
247,213
$
323,962
$
180,834
$
270,926
$
312,584
$
543,327
802,610
2,681,456
196,966
27,873
275,086
6,877
149,788
473,750
75,128
268,626
449,460
4,079
163,823
434,749
110,882
8,400
320,984
—
184,100
727,427
—
Total
$
2,878,422
$
281,963
$
548,878
$
453,539
$
545,631
$
320,984
$
727,42
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, 2017.
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.
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
57
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
Publicly traded income trusts, or specified investment flow-through
entities (“SIFTs”), are subject to income taxation at corporate tax
rates, 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, a number of
technical tests apply 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 2018 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 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% 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 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:
58
MANAGEMENT’S DISCUSSION AND ANALYSIS •
•
•
•
•
•
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 E VENTS
(a)
(b)
(c)
(d)
On January 21, 2019, Crombie declared distributions
of 7.417 cents per Unit for the period from January 1, 2019
to and including, January 31, 2019. The distributions were
paid on February 15, 2019, to Unitholders of record as of
January 31, 2019.
On February 19, 2019, Crombie declared distributions of
7.417 cents per Unit for the period from February 1, 2019 to
and including February 28, 2019. The distributions will be
paid on March 15, 2019, to Unitholders of record as of
February 28, 2019.
On February 5, 2019, Crombie disposed of a 50% interest in
seven retail properties totalling 296,376 square feet of gross
leaseable area. Total proceeds, before closing adjustments
and transaction costs, were approximately $41,600.
Since December 31, 2018, Crombie also disposed of a 100%
interest in three retail properties totalling 182,800 square
feet of gross leaseable area. Total proceeds, before closing
adjustments and transaction costs, were approximately
$64,800.
CONTROL S 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, 2018. 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, 2018, 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.
59
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS Property operating
expenses
Property net
operating income
Gain on disposal
Expenses:
General and
administrative
Finance costs —
operations
Income (loss) from
equity accounted
investments
Depreciation and
amortization
Impairment
Operating income
before taxes
Taxes — current
Taxes — deferred
QUARTERLY INFORMATION
The following table shows information for revenues, expenses, increase (decrease) in net assets attributable to Unitholders, AFFO, FFO,
distributions and per unit amounts for the eight most recently completed quarters.
(In thousands of
CAD dollars, except
per unit amounts)
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Three months ended
Property revenue
$
104,296
$
100,505
$
104,143
$
105,705
$
105,667
$
102,424
$
101,591
$
102,131
30,817
27,660
29,925
32,904
31,622
28,259
29,793
31,395
73,479
4,580
72,845
100
74,218
33,502
72,801
11,841
74,045
2,474
74,165
—
71,798
—
70,736
—
(5,184)
(4,925)
(4,626)
(4,491)
(4,246)
(4,675)
(5,160)
(4,996)
(25,968)
(26,573)
(26,381)
(26,709)
(26,681)
(26,244)
(26,892)
(25,960)
111
69
39
35
(7)
41
27
—
(19,906)
(7,000)
(28,696)
—
(19,719)
(8,000)
(28,032)
(20,619)
(21,966)
(19,826)
(19,796)
—
—
—
—
—
20,112
12,820
49,033
25,445
(1)
—
(2)
—
—
—
—
—
24,966
2,082
—
27,048
21,321
—
—
21,321
19,947
(4)
76,400
96,343
19,984
—
(1,000)
18,984
Operating income
20,111
12,818
49,033
25,445
Finance costs —
distributions to
Unitholders
Finance income
(costs) — change in
fair value of financial
instruments
Increase (decrease)
in net assets
attributable to
Unitholders
Operating income per
unit — Basic
Operating income per
unit — Diluted
(In thousands of
CAD dollars, except
per unit amounts)
Distributions
Distributions
Per unit
AFFO
Basic
Per unit — Basic
Per unit — Diluted1
Payout ratio
FFO
Basic
Per unit — Basic
Per unit — Diluted1
Payout ratio
$
$
$
$
$
$
$
$
$
$
$
(33,724)
(33,711)
(33,688)
(33,606)
(33,511)
(33,385)
(33,248)
(33,115)
197
(40)
(50)
295
18
25
1
101
(13,416)
0.13
0.13
$
$
$
(20,933)
$
15,295
0.08
0.08
$
$
0.32
0.32
$
$
$
(7,866)
$
(6,445)
$
(12,039)
$
63,096
$
(14,030)
0.17
0.17
$
$
0.18
0.18
$
$
0.14
0.14
$
$
0.65
0.63
$
$
0.13
0.13
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Three months ended
$
$
$
$
$
$
$
$
33,724
0.22
39,771
0.26
0.26
84.8%
46,490
0.31
0.31
72.5%
$
$
$
$
$
$
$
$
33,711
0.22
37,867
0.25
0.25
89.0%
45,355
0.30
0.30
74.3%
$
$
$
$
$
$
$
$
33,688
0.22
39,492
0.26
0.26
85.3%
46,325
0.31
0.30
72.7%
$
$
$
$
$
$
$
$
33,606
0.22
38,664
0.26
0.26
86.9%
45,864
0.30
0.30
73.3%
$
$
$
$
$
$
$
$
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
91.7%
43,928
0.30
0.29
75.4%
1.
FFO and AFFO per unit are calculated on a diluted basis. The diluted weighted average number of total Units and Special Voting Units included the conversion of all series of convertible
debentures outstanding during the period, excluding any series that is anti-dilutive. Distributions per unit for each period are based on the total distributions per unit declared during the
specific period.
60
MANAGEMENT’S DISCUSSION AND ANALYSIS 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, 2018 — acquisition of one retail property and
an addition to an existing retail property for a total purchase
price of $14,900 and disposition of three retail properties for
proceeds of $26,600;
September 30, 2018 — acquisition of an addition to an
existing retail property for a total purchase price of $3,735
and disposition of one retail property for proceeds of
$39,682;
June 30, 2018 — acquisition of 10 retail properties and
additions to two existing retail properties for a total purchase
price of $100,610, disposition of two retail properties and one
mixed use property for proceeds of $74,250 and disposition
of a 50% interest in nine retail properties for proceeds of
$77,929;
March 31, 2018 — disposition of two retail properties for
proceeds of $35,627 and the disposition of residential lands
adjacent to a development property for proceeds of $5,725;
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; and,
March 31, 2017 — acquisition of one retail property for a total
purchase price of $8,320.
•
•
•
•
•
•
•
•
•
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 was reduced to $NIL and the decrease
was recognized as an income tax recovery on Crombie’s
Consolidated Statement of Comprehensive Income for the three
months ended June 30, 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 27, 2019
New Glasgow, Nova Scotia, Canada
61
CROMBIE REITANNUAL REPORT 2018MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S STATEMENT OF RESPONSIBILITY
FOR FINANCIAL REPORTING
The management of Crombie Real Estate Investment Trust (“Crombie”) is responsible for the preparation and
fair presentation of the accompanying annual consolidated financial statements and Management’s Discussion
and Analysis (“MD&A”). The annual consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.
The annual consolidated financial statements and information in the MD&A include amounts based on best
estimates and judgments by management of the expected effects of current events and transactions. In preparing
this financial information, we make determinations about the relevancy of information to be included, and
estimates and assumptions that affect the reported information. The MD&A also includes information regarding
the impact of current transactions and events, sources of liquidity and capital resources, operating trends, risks
and uncertainties. Actual results in the future may vary materially from our present assessment of this information
as future events and circumstances may not occur as expected.
In meeting our responsibility for the fair presentation of the annual consolidated financial statements and MD&A
and for the accounting systems from which they are derived, management has established internal controls
designed to ensure that our financial records are reliable for preparing consolidated financial statements and
other financial information, transactions are properly authorized and recorded, and assets are safeguarded against
unauthorized use or disposition.
As at December 31, 2018, our Chief Executive Officer and Chief Financial Officer evaluated, or caused an
evaluation under their direct supervision, the design and operation of our internal controls over financial reporting
and, based on that assessment, determined that our internal controls over financial reporting were appropriately
designed and operating effectively.
The Board of Trustees oversees management’s responsibility for financial reporting through an Audit Committee.
This committee reviews Crombie’s annual consolidated financial statements and MD&A with both management
and the independent auditor before such statements are approved by the Board of Trustees. The Audit Committee
also recommends the appointment of independent external auditors to the Unitholders. The Audit Committee
meets regularly with senior management and the independent auditor to discuss internal controls, audit activities
and financial reporting results. The independent auditor has full and free access to, and meets regularly with, the
Audit Committee to discuss their audits and related matters.
DONALD E. CLOW, FCPA, FCA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
February 27, 2019
GLENN R. HYNES, FCPA, FCA
EXECUTIVE VICE PRESIDENT, COO, CFO
AND SECRETARY
February 27, 2019
62
M A N AG EMENT’ S S TATEMENT O F R E SP O NSIB ILIT Y FO R FIN A N CI A L R EP O RTIN G
INDEPENDENT
AUDITOR’S REPORT
TO THE UNITHOLDERS OF CROMBIE REAL ESTATE
INVESTMENT TRUST
OUR OPINION
In our opinion, the accompanying consolidated financial
statements present fairly, in all material respects, the financial
position of Crombie Real Estate Investment Trust and its
subsidiaries (together, the Trust) as at December 31, 2018 and
2017, and its financial performance and its cash flows for the years
then ended in accordance with International Financial Reporting
Standards (IFRS).
What we have audited
The Trust’s consolidated financial statements comprise:
•
•
•
•
•
the consolidated balance sheets as at December 31, 2018
and 2017;
the consolidated statements of comprehensive income (loss)
for the years then ended;
the consolidated statements of changes in net assets
attributable to unitholders for the years then ended;
the consolidated statements of cash flows for the years then
ended; and
the notes to the consolidated financial statements, which
include a summary of significant accounting policies.
BASIS FOR OPINION
We conducted our audit in accordance with Canadian generally
accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor’s responsibilities
for the audit of the consolidated financial statements section of
our report.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Independence
We are independent of the Trust in accordance with the ethical
requirements that are relevant to our audit of the consolidated
financial statements in Canada. We have fulfilled our other ethical
responsibilities in accordance with these requirements.
OTHER INFORMATION
Management is responsible for the other information. The other
information comprises Management’s Discussion and Analysis,
which we obtained prior to the date of this auditor’s report and the
information, other than the consolidated financial statements and
our auditor’s report thereon, included in the annual report, which
is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not
cover the other information and we do not and will not express
an opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other
information is materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated.
If, based on the work we have performed on the other information
that we obtained prior to the date of this auditor’s report, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to
report in this regard. When we read the information, other than the
consolidated financial statements and our auditor’s report thereon,
included in the annual report, if we conclude that there is a material
misstatement therein, we are required to communicate the matter
to those charged with governance.
RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED
WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL
STATEMENTS
Management is responsible for the preparation and fair
presentation of the consolidated financial statements in accordance
with IFRS, 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.
In preparing the consolidated financial statements, management
is responsible for assessing the Trust’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless
management either intends to liquidate the Trust or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing
the Trust’s financial reporting process.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE
CONSOLIDATED FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with Canadian generally accepted
auditing standards will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are
CRO M B IE R E IT
IND EPEND ENT AU D ITO R ’ S R EP O RT
A NN UA L R EP O RT 2018
6 3
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent
auditor’s report is Donald M. Flinn.
CHARTERED PROFESSIONAL ACCOUNTANTS,
LICENSED PUBLIC ACCOUNTANTS
Halifax, Nova Scotia, Canada
February, 27, 2019
considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of
users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally
accepted auditing standards, we exercise professional judgment
and maintain professional skepticism throughout the audit. We also:
•
•
•
•
•
•
Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate
to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit
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 Trust’s internal control.
Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and related
disclosures made by management.
Conclude on the appropriateness of management’s use of the
going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related
to events or conditions that may cast significant doubt on the
Trust’s ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in
the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based
on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the
Trust to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the
consolidated financial statements, including
the disclosures, and whether the consolidated financial
statements represent the underlying transactions
and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Trust to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision
and performance of the group audit. We remain solely
responsible for our audit opinion.
6 4
IND EPEND ENT AU D ITO R ’ S R EP O RT
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
Fixed rate mortgages
Credit facilities
Senior unsecured notes
Convertible debentures
Employee future benefits obligation
Trade and other payables
Current liabilities
Fixed rate mortgages
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, contingencies and guarantees
Subsequent events
See accompanying notes to the consolidated financial statements.
Approved on behalf of the Board of Trustees
Signed (John Eby)
JOHN EBY
LEAD TRUSTEE
Signed (J. Michael Knowlton)
J. MICHAEL KNOWLTON
AUDIT COMMITTEE CHAIR
Note
December 31, 2018
December 31, 2017
$
3,759,643
$
3,826,961
39,485
248,818
4,047,946
23,128
4,071,074
1,421,062
178,843
698,716
—
8,824
11,488
2,602
225,908
4,055,471
31,383
4,086,854
1,632,431
53,168
449,320
73,164
8,849
9,558
2,318,933
2,226,490
180,522
—
296
128,483
309,301
2,628,234
1,442,840
864,779
578,061
1,442,840
$
$
$
118,665
175,000
282
109,162
403,109
2,629,599
1,457,255
873,478
583,777
1,457,255
$
$
$
3
4
5
5
6
6
7
8
9
10
6
7
9
10
21
22
CO NSO LIDATED B A L A N CE SHEE TS
65
CROMBIE REITANNUAL REPORT 2018 Year ended
Note
December 31, 2018
December 31, 2017
11
$
414,649
$
3
3
3
3
3
5
13
14
4
15
15
13
121,306
293,343
50,023
(15,000)
(88,818)
(6,701)
(792)
(42)
(19,226)
(105,631)
254
107,410
(3)
—
107,407
(134,729)
402
(134,327)
(26,920)
2,263
(364)
266
2,165
$
(24,755)
$
411,813
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
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
(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
Depreciation of fixtures and computer equipment
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 benefits obligation
Other comprehensive income
Comprehensive income (loss)
See accompanying notes to the consolidated financial statements.
66
CO NSO LIDATED S TATEMENTS O F CO MPR EHENSIVE IN CO ME
CONSOLIDATED STATEMENTS OF CHANGES
IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS
(In thousands of CAD dollars)
REIT Units,
Special Voting
Units and Class B
LP Units
(Note 16)
Net Assets
(Liabilities)
Attributable to
Unitholders
Accumulated
Other
Comprehensive
Income (Loss)
Attributable to
Total
REIT Units
Class B LP Units
Balance, January 1, 2018
$
1,746,139
$
(285,388)
$
(3,496)
$
1,457,255
$
873,478
$
583,777
Adjustments related to EUPP
Statements of comprehensive
income (loss)
Units issued under Distribution
Reinvestment Plan (“DRIP”)
Units issued under unit based
compensation plan
61
—
10,100
158
21
(26,920)
—
—
—
2,165
—
—
82
82
(24,755)
(14,841)
10,100
158
5,902
158
—
(9,914)
4,198
—
Balance, December 31, 2018
$
1,756,458
$
(312,287)
$
(1,331)
$
1,442,840
$
864,779
$
578,061
(In thousands of CAD dollars)
REIT Units,
Special Voting
Units and Class B
LP Units
(Note 16)
Net Assets
(Liabilities)
Attributable to
Unitholders
Accumulated
Other
Comprehensive
Income (Loss)
Attributable to
Total
REIT Units
Class B LP Units
Balance, January 1, 2017
$
1,714,724
$
(316,003)
$
(8,575)
$
1,390,146
$
834,203
$
555,943
Adjustments related to EUPP
Statements of comprehensive
income
Units issued under DRIP
62
—
31,353
33
30,582
—
—
5,079
—
95
35,661
31,353
95
20,844
18,336
—
14,817
13,017
Balance, December 31, 2017
$
1,746,139
$
(285,388) $
(3,496) $
1,457,255
$
873,478
$
583,777
See accompanying notes to the consolidated financial statements.
CONSOLIDATED S TATEMENTS OF CHANGES IN NE T A SSE TS AT TRIBUTABLE TO UNITHOLDERS
67
CROMBIE REITANNUAL REPORT 2018 CONSOLIDATED STATEMENTS
OF CASH FLOWS
(In thousands of CAD dollars)
CASH FLOWS PROVIDED BY (USED IN)
Operating Activities
Year ended
Note
December 31, 2018
December 31, 2017
Increase (decrease) in net assets attributable to Unitholders
$
(26,920)
$
17
17
3
79,647
1,546
(3)
54,270
—
(742)
(53,145)
(64,713)
125,675
250,152
(1,169)
(175,000)
(74,400)
(482)
(160)
(299)
61
(5,952)
(174)
(118,184)
(91,211)
190,013
(10,210)
(4,020)
(4,248)
1,252
(16,505)
(983)
(54,096)
—
—
—
$
$
Items not affecting operating cash
Change in other non-cash operating items
Income taxes paid
Cash provided by operating activities
Financing Activities
Issue of mortgages
Deferred financing charges — investment property debt
Repayment of mortgages — principal
Repayment of mortgages — maturity
Advance (repayment) of floating rate credit facilities
Issue of senior unsecured notes
Deferred financing charges — senior unsecured notes
Redemption of senior unsecured notes
Redemption of convertible debentures
Amortization of fair value debt adjustment
Acquisition of fair value debt adjustment
Recognition of interest rate subsidy
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
Contributions to Joint Ventures
Additions to fixtures and computer equipment
Proceeds on disposal of marketable securities
Additions to tenant incentives
Additions to deferred leasing costs
Cash 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.
68
CO NSO LIDATED S TATEMENTS O F C A SH FLOWS
30,582
39,159
19,335
2,069
91,145
192,783
(3,802)
(52,479)
(50,379)
(167,206)
226,413
(999)
—
(60,000)
(996)
—
(328)
62
(421)
82,648
(119,357)
(46,800)
15,645
(1,701)
—
(3,140)
1,220
(18,381)
(1,279)
(173,793)
—
—
—
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands of CAD dollars)
1) G ENERAL 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, 2018
and December 31, 2017 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 27, 2019.
2) S UMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) S TATEMENT 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) B A SIS OF PRESENTATION
These 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 either recognized as an Increase (decrease) in net assets attributable to
Unitholders (“FVTPL” classification) or fair value through other comprehensive income (“FVOCI” classification).
(c) P RESENTATION 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) B A SIS OF CONSOLIDATION
(i) SUBSIDIARIES
Crombie’s financial statements consolidate those of Crombie and all of its subsidiary entities as at December 31, 2018. Subsidiaries are all
entities over which Crombie has control. All subsidiaries have a reporting date of December 31, 2018.
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.
N OTE S TO THE CO NSO LIDATED FIN A N CI A L S TATEMENTS
69
CROMBIE REITANNUAL REPORT 2018 Joint ventures
A joint venture is an entity over which Crombie shares joint control with other parties and where the joint venture parties have rights to the
net assets of the joint venture. Joint control exists where there is a contractual agreement for shared control and wherein decisions about
the significant relevant activities of the arrangement require unanimous consent of the parties sharing control.
Investment in joint ventures is accounted for using the equity method. Under the equity method, the investment is initially recorded at cost
with subsequent adjustments for Crombie’s share of the results of operations and any change in net assets. Crombie’s joint venture entities
have the same reporting period as Crombie and adjustments, if any, are made to bring the accounting policies of joint venture entities in
line with the policies of Crombie.
(e) I NVESTMENT 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(v).
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) C A SH AND C A SH 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) A SSETS HELD FOR SALE AND DISCONTINUED OPER ATIONS
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.
70
N OTE S TO THE CO NSO LIDATED FIN A N CI A L S TATEMENTS
Assets that are classified as held for sale and that constitute a component of Crombie are presented as discontinued operations and their
operating results are presented separately in the Consolidated Statements of Comprehensive Income (Loss). A component of Crombie
includes a property type or geographic area of operations.
(h) E MPLOYEE FUTURE BENEFITS OBLIG ATION
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).
(i) U NIT BA SED COMPENSATION PL ANS
(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 an 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.
(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.
(j) D ISTRIBUTION REINVESTMENT PL AN (“DRIP ”)
Crombie has a DRIP which is described in Note 16.
7 1
CROMBIE REITANNUAL REPORT 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (k) R E VENUE RECOGNITION
(i) LEASE REVENUE
Revenue earned from tenants under lease agreements includes base rent, realty tax recoveries, percentage rent, 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
recoveries, and other incidental income, are recognized on an accrual basis as they become due.
(ii) REVENUE FROM CONTRACTS WITH CUSTOMERS
In May 2014, the IASB issued IFRS 15 “Revenue from Contracts with Customers”, 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. The new standard excludes contracts within the scope of the accounting standards on
leases, insurance contracts and financial instruments. Crombie adopted the standard on January 1, 2018 and applied the requirements of
the standard retrospectively. In accordance with the transition guidance, IFRS 15 has only been applied to contracts that are incomplete
as at January 1, 2017. The implementation of IFRS 15 did not have a significant impact on the timing or amount of revenue recognized by
Crombie in any year. The presentation of Crombie’s property revenue disclosed in Note 11 has been modified to disclose amounts from
revenue from contracts with customers separately from operating lease revenue.
Certain lease agreements with tenants establish obligations for Crombie to incur property operating expenses and to invoice and recover
these expenses. These recoveries are recognized as revenue over the period in which the service is provided and subject to collectability
of the recoverable amount.
(l) LE A SING
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(k)).
(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.
(m) D EFERRED 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.
(n) F INANCE COSTS — OPER ATIONS
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.
(o) F INANCE 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.
(p) I NCOME TA XES
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.
7 2
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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.
(q) H EDGES
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.
(r) C OMPREHENSIVE 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.
(s) P ROVISIONS
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.
(t) F INANCIAL 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, and
introduces a forward-looking expected loss impairment model. Crombie adopted the standard on January 1, 2018. The adoption of this
standard has not had a material impact on Crombie’s financial statements.
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, 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 3
CROMBIE REITANNUAL REPORT 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the classification and measurement changes for each class of Crombie’s financial assets and financial
liabilities upon adoption at January 1, 2018:
IAS 39
Financial Asset/Liability
Category
Measurement
Cash and cash equivalents
Loans and receivables
Trade receivables
Restricted cash
Loans and receivables
Loans and receivables
Long-term receivables
Loans and receivables
Marketable securities
Derivative financial assets
and liabilities
FVTPL
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value
Fair value
IFRS 9
Category
Assets at amortized cost
Assets at amortized cost
Assets at amortized cost
Assets at amortized cost
FVTPL
FVTPL
Measurement
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value
Fair value
Accounts payable and
Other liabilities
Amortized cost
Financial liabilities at amortized cost
Amortized cost
other liabilities (excluding
convertible debentures
embedded derivatives and
interest rate swaps)
Investment property debt
Convertible debentures
(excluding embedded
derivatives)
Other liabilities
Other liabilities
Amortized cost
Financial liabilities at amortized cost
Amortized cost
Financial liabilities at amortized cost
Amortized cost
Amortized cost
Senior unsecured notes
Other liabilities
Amortized cost
Financial liabilities at amortized cost
Amortized cost
Crombie has adopted the new general hedge accounting model in IFRS 9. The adoption of IFRS 9 did not result in any changes in the
eligibility of existing hedge relationships, the accounting for derivative financial instruments designated as effective hedging instruments
or the line items in which they are included in the statement of financial position. In accordance with the transitional provisions of IFRS 9,
changes to hedge accounting policies have been applied prospectively.
At each reporting date, Crombie assesses whether there is objective evidence that a financial asset carried at amortized cost is impaired.
If such evidence exists, Crombie recognizes an impairment loss, as the difference between the carrying value of the instrument and the
present value of the estimated future cash flows, discounted using the instrument’s original effective interest rate or a discount rate based
on the risk associated with the financial asset being tested. The carrying amount of the asset is reduced by this amount through a charge to
the statement of comprehensive income.
Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively.
(u) F AIR VALUE ME A SUREMENT
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.
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(v) I MPAIRMENT OF LONG -LIVED TANGIBLE AND DEFINITE LIFE INTANGIBLE A SSETS
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.
(w) N ET A SSETS AT TRIBUTABLE TO UNITHOLDERS
(i) BALANCE SHEET PRESENTATION
In accordance with International Accounting Standard (“IAS”) 32 Financial Instruments: Presentation, puttable instruments are generally
classified as financial liabilities. Crombie’s REIT Units and Class B LP Units with attached Special Voting Units (“SVU”) are both puttable
instruments, meeting the definition of financial liabilities in IAS 32. There are exception tests within IAS 32 which could result in classification
as equity; however, Crombie’s units do not meet the exception requirements. Therefore, Crombie has no instrument qualifying for equity
classification on its Balance Sheet pursuant to IFRS. The classification of all units as financial liabilities with presentation as net assets
attributable to Unitholders does not alter the underlying economic interest of the Unitholders in the net assets and net operating results
attributable to Unitholders.
(ii) BALANCE SHEET MEASUREMENT
REIT Units and Class B LP Units with attached SVUs are carried on the Balance Sheet at net asset value. Although puttable instruments
classified as financial liabilities are generally required to be remeasured to fair value at each reporting period, the alternative presentation
as net assets attributable to Unitholders reflects that, in total, the interests of the Unitholders is limited to the net assets of Crombie.
(iii) STATEMENT OF COMPREHENSIVE INCOME (LOSS) PRESENTATION
As a result of the classification of all units as financial liabilities, the Statement of Comprehensive Income (Loss) recognizes distributions
to Unitholders as a finance cost. In addition, terminology such as net income has been replaced by Increase (decrease) in net assets
attributable to Unitholders to reflect the absence of an equity component on the Balance Sheet.
(iv) PRESENTATION OF PER UNIT MEASURES
As a result of the classification of all units as financial liabilities, Crombie has no equity instrument; therefore, in accordance with IAS 33
Earnings per Share, there is no denominator for purposes of calculation of per unit measures.
(v) ALLOCATION OF COMPREHENSIVE INCOME (LOSS)
The components of Comprehensive income (loss) are allocated between REIT Units and Class B LP Units as follows:
•
•
•
Operating income — based on the weighted average number of units outstanding during the reporting period.
Distributions to Unitholders — based on the actual distributions paid to each separate unit class.
Accumulated other comprehensive income (loss) — increases are allocated based on the weighted average number of units
outstanding during the reporting period, decreases in previously accumulated amounts are drawn down based on the average
accumulation allocation rate.
(x) C RITIC AL 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.
75
CROMBIE REITANNUAL REPORT 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (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(w). 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.
(y) C RITIC AL ACCOUNTING ESTIMATES AND A SSUMPTIONS
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(i), 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.
(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.
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (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.
(z) 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 16 — LEASES
In January 2016, the IASB issued IFRS 16 “Leases” which replaces IAS 17 and its associated interpretative guidance. The new standard
brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases.
A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability
representing its obligation to make lease payments. Assets and liabilities arising from a lease are initially measured on a present value
basis. Lessor accounting remains largely unchanged with the distinction between operating and finance leases retained.
Entities have the option of adopting a full retrospective approach or a modified retrospective approach on transition to IFRS 16. The new
standard will be effective January 1, 2019 and Crombie is transitioning using the modified retrospective approach. On transition, Crombie
will elect the practical expedient to not reassess prior conclusions related to contracts containing leases. In addition, Crombie will apply the
recognition exemptions for all classes of assets under short term leases and all leases of low value assets on an ongoing basis.
Crombie has several investment properties located on land that is leased from third parties. Lease payments under these leases are
currently expensed under property operating expenses. Under the new lease standard, Crombie will recognize a right-of-use asset which
will be amortized over the lease term and interest costs will be recognized on the lease liability.
Certain of Crombie’s land leases have extended lease terms which will result in a material amount being recognized on the balance sheet
as a right-of-use asset and related lease obligation. The new standard is not expected to have a material impact on the comprehensive
income (loss) or cash flows.
3) I NVESTMENT PROPERTIES
Income properties
Properties under development
December 31, 2018
December 31, 2017
$
$
3,693,464
66,179
3,759,643
$
$
3,751,262
75,699
3,826,961
7 7
CROMBIE REITANNUAL REPORT 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Income properties
Cost
Land
Buildings
Intangibles
Deferred
Leasing Costs
Total
Opening balance, January 1, 2018
$
1,208,424
$
2,942,538
$
120,650
$
8,821
$
4,280,433
Acquisitions
Additions
Dispositions
Write-off fully depreciated assets
Reclassification from properties under development
33,192
1,361
(82,191)
—
15,959
84,167
78,917
(132,704)
(24,637)
19,935
Balance, December 31, 2018
1,176,745
2,968,216
Accumulated depreciation and amortization
and impairment
Opening balance, January 1, 2018
Depreciation and amortization
Dispositions
Impairment
Write-off fully depreciated assets
Balance, December 31, 2018
2,357
—
—
—
—
2,357
458,973
88,818
(28,850)
15,000
(24,637)
509,304
6,420
—
(5,681)
(208)
—
121,181
63,056
6,701
(3,772)
—
(208)
65,777
—
1,545
(681)
(2,876)
201
7,010
4,785
792
(451)
—
(2,876)
2,250
123,779
81,823
(221,257)
(27,721)
36,095
4,273,152
529,171
96,311
(33,073)
15,000
(27,721)
579,688
Net carrying value, December 31, 2018
$
1,174,388
$
2,458,912
$
55,404
$
4,760
$
3,693,464
During the year ended December 31, 2018, Crombie recorded impairments totalling $15,000 on three properties. The impairments were
the result of the fair value impact of tenant lease expiries and departures and slower than expected leasing activity. Impairment was
measured on a per property basis and was determined as the amount by which carrying value, using the cost method, exceeded the
recoverable amount for that property. The recoverable amount was determined to be each property’s fair value which is the higher of
the economic benefits of the continued use of the asset or the selling price less costs to sell.
During the year ended December 31, 2018, Crombie commenced redevelopment of three properties which included partial demolition
of the existing structures. As a result, accelerated depreciation of $17,353 related to the buildings was recognized.
Land
Buildings
Intangibles
Deferred
Leasing Costs
Total
Cost
Opening balance, January 1, 2017
$
1,189,999
$
2,820,193
$
114,549
$
7,800
$
4,132,541
Acquisitions
Additions
Dispositions
20,981
1,966
(4,522)
93,298
39,219
(10,172)
6,832
—
(731)
Balance, December 31, 2017
1,208,424
2,942,538
120,650
Accumulated depreciation and amortization and impairment
Opening balance, January 1, 2017
Depreciation and amortization
Dispositions
Balance, December 31, 2017
2,357
—
—
2,357
385,731
74,845
(1,603)
458,973
57,098
6,654
(696)
63,056
—
1,021
—
8,821
4,077
708
—
4,785
121,111
42,206
(15,425)
4,280,433
449,263
82,207
(2,299)
529,171
Net carrying value, December 31, 2017
$
1,206,067
$
2,483,565
$
57,594
$
4,036
$
3,751,262
Properties under development
Opening balance, January 1, 2018
Additions
Dispositions
Reclassification to income producing properties
Balance, December 31, 2018
Land
Buildings
Deferred
Leasing Costs
68,725
$
6,858
$
116
$
2,981
(5,780)
(15,959)
29,172
—
(19,935)
202
—
(201)
Total
75,699
32,355
(5,780)
(36,095)
49,967
$
16,095
$
117
$
66,179
$
$
On March 6, 2018, Crombie disposed of 1.47 hectares of residential lands adjacent to a commercial development project in Langford,
British Columbia. The transaction was completed with a third party.
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
During the year, Crombie reclassified completed phases of two development properties to income properties.
Opening balance, January 1, 2017
Acquisitions
Additions
Balance, December 31, 2017
Land
Buildings
33,442
$
31,252
4,031
— $
—
6,858
68,725
$
6,858
$
$
$
Deferred
Leasing Costs
— $
—
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.
Fair value
Crombie’s total fair value of investment properties exceeds carrying value by $797,088 at December 31, 2018 (December 31, 2017 —
$900,804). 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, 2018
December 31, 2017
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
$
$
4,776,000
4,944,000
$
$
3,978,912
4,043,196
Note
December 31, 2018
December 31, 2017
3
3
5
5
$
$
3,693,464
$
3,751,262
66,179
81,689
137,580
75,699
72,743
143,492
3,978,912
$
4,043,196
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, 2018 and 2017, 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 maximum
period of four years.
As at December 31, 2018, all properties have been subjected to external, independent appraisal over the past four years.
7 9
CROMBIE REITANNUAL REPORT 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Crombie has utilized the following weighted average capitalization rates on its income properties. Related to the growth in properties
under development, Crombie reports the weighted average capitalization rate excluding the value of properties under development with
the comparative rates adjusted to reflect this change. Crombie has determined that an increase (decrease) in this applied capitalization rate
of 0.25% would result in an increase (decrease) in the fair value of the investment properties as follows:
December 31, 2018
December 31, 2017
Impact of a 0.25% Change in Capitalization Rate
Weighted Average
Capitalization Rate
Increase in Rate
Decrease in Rate
6.10% $
5.93% $
(186,000)
(198,000)
$
$
203,000
217,000
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.
2018
Transaction Date
February 5, 2018
February 20, 2018
April 6, 20181
April 19, 2018
May 11, 2018
May 11, 20182
June 18, 2018
June 29, 2018
August 16, 20183
September 28, 20181
December 5, 2018
December 13, 20181
December 18, 2018
Vendor/Purchaser
Properties Acquired
(Disposed)
Approximate Square
Footage
Initial Acquisition
(Disposition) Price
Assumed
Mortgages
Third party
Third party
Related party
Third party
Third party
Third party
Third party
Related party
Joint venture
Related party
Third party
Third party
Third parties
(1)
(1)
9
(1)
(1)
(9)
(1)
1
(1)
—
1
—
(3)
(92,000)
$
(15,000)
$
(103,000)
421,000
(40,000)
(25,000)
(203,000)
(273,000)
37,000
(30,000)
10,000
40,000
5,000
(51,000)
(20,627)
88,110
(14,000)
(9,000)
(77,929)
(51,250)
12,500
(39,682)
3,735
9,300
5,600
(26,600)
—
—
—
—
—
—
—
—
—
—
5,595
—
—
(304,000) $
(134,843) $
5,595
1.
2.
3.
Includes additions to existing retail properties.
Represents disposition of 50% interest in a portfolio of properties.
Represents disposition of property to joint venture.
All the dispositions in 2018, excluding the August 16, 2018 transaction, were transacted with third parties. The property disposed on
August 16, 2018 was sold to a joint venture Partnership in which Crombie is a 50% partner. The properties disposed of during the year had
a total fair value of $246,218 at the end of the quarter preceding the date of disposition resulting in a fair value gain of $7,870 before closing
and transaction costs. Acquisitions completed on April 6, 2018, June 29, 2018 and September 28, 2018 were transacted with Empire, a
related party.
2017
Transaction Date
March 16, 2017
July 5, 2017
July 6, 2017
August 14, 2017
August 25, 2017
September 5, 2017
September 29, 20171
December 12, 2017
Vendor/Purchaser
Related party
Third party
Third party
Third party
Third party
Third party
Related party
Third party
Properties Acquired
(Disposed)
Approximate Square
Footage
Initial Acquisition
(Disposition) Price
Assumed
Mortgages
1
1
1
1
1
2
—
(1)
50,000
$
8,320
$
64,000
61,000
52,000
44,000
79,000
31,000
(67,000)
14,100
42,000
13,207
14,950
16,000
7,671
(15,600)
—
—
—
8,741
9,656
—
—
—
314,000
$
100,648
$
18,397
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 initial acquisition (disposition) prices stated above exclude closing and transaction costs.
8 0
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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
Investment property disposed:
Gross proceeds
Selling costs
Carrying values derecognized
Land
Buildings
Intangibles
Deferred leasing costs
Tenant Incentives
Accrued straight-line rent
Development costs
Provisions
Gain on disposal
Year ended December 31,
2018
$
33,192
$
$
$
84,167
6,420
160
123,939
(5,595)
118,344
$
Year ended December 31,
2018
260,647
$
(3,831)
256,816
(87,971)
(103,854)
(1,909)
(230)
(7,760)
(2,094)
(2,561)
(414)
2017
20,981
93,298
6,832
(436)
120,675
(18,397)
102,278
2017
16,077
(432)
15,645
(4,522)
(8,569)
(35)
—
(1)
(24)
—
(20)
$
50,023
$
2,474
On disposition of the 50% interest in a portfolio of properties, the joint partner assumed $38,971 of the related mortgages:
Proceeds per above
Mortgages assumed
Non-cash consideration, acquisition of investment in joint venture
Cash proceeds
4) I NVESTMENT IN JOINT VENTURES
The following represents Crombie’s interest in its equity accounted investments:
1600 Davie Limited Partnership
140 CPN Limited
Bronte Village Limited Partnership
The Duke Limited Partnership
Year ended December 31,
2018
256,816
$
(38,971)
(27,832)
2017
15,645
—
—
190,013
$
15,645
$
$
December 31, 2018
December 31, 2017
50.0%
50.0%
50.0%
50.0%
50.0%
50.0%
—%
—%
On April 3, 2018 Crombie entered into a joint venture Partnership with Montreal-based Princedev Inc. As a result of the partnerships,
Crombie became 50% partner in the new Le Duke mixed use development at 297 Rue Duke in Montreal, Quebec and Princedev Inc.
became a 50% partner in Crombie’s Oakville, Ontario Bronte Village mixed use development. The transfers of title occurred on
August 16, 2018.
81
CROMBIE REITANNUAL REPORT 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table represents 100% of the financial results of the equity accounted entities:
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
Depreciation of investment properties
Finance costs — operations
Net income
Crombie’s income from equity accounted investments
5) OTHER ASSETS
December 31, 2018
December 31, 2017
$
$
$
112,581
$
30,043
(68,166)
(10,125)
64,333
39,485
$
$
18,743
16,782
(26,982)
(3,339)
5,204
2,602
Year ended
December 31, 2018
December 31, 2017
$
$
$
1,184
$
(507)
(75)
(55)
(39)
508
254
$
$
December 31, 2018
December 31, 2017
Current
Non-current
Total
Current
Non-current
Trade receivables
$
8,682
$
— $
8,682
$
Provision for doubtful accounts
Net trade receivables
Prepaid expenses and deposits
Fair value of interest rate swap
agreements
Marketable securities
Fixtures and computer
equipment1
Restricted cash
Accrued straight-line rent
receivable
Tenant incentives
Capital expenditure program
Interest rate subsidy
Amounts receivable from
related parties
(345)
8,337
11,857
2,840
—
—
—
—
—
—
94
—
—
—
—
—
—
7,761
—
81,689
137,580
105
203
(345)
8,337
11,857
2,840
—
7,761
—
81,689
137,580
105
297
21,480
21,480
8,741
$
(194)
8,547
18,177
3,204
1,285
—
75
—
—
—
95
—
— $
—
—
—
—
—
3,140
—
72,743
143,492
105
297
6,131
1.
For the year ended December 31, 2018, depreciation of fixtures and computer equipment was $42 (December 31, 2017 — nil).
$
23,128
$
248,818
$
271,946
$
31,383
$
225,908
$
257,291
82
394
(135)
(54)
—
(83)
122
61
Total
8,741
(194)
8,547
18,177
3,204
1,285
3,140
75
72,743
143,492
105
392
6,131
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Amounts due from related parties include $14,636 in 6% Subordinated Notes Receivable due from Bronte Village Limited Partnership and
The Duke Limited Partnership.
Tenant Incentives
Balance, January 1, 2018
Additions
Amortization
Disposition
Write-off fully depreciated assets
Balance, December 31, 2018
Balance, January 1, 2017
Additions
Amortization
Disposition
Balance, December 31, 2017
See Note 19(a) for fair value information.
6) I NVESTMENT PROPERTY DEBT
Cost
Accumulated
Amortization
Net Carrying
Value
211,394
$
67,902
$
14,723
—
(12,739)
(9,128)
204,250
187,162
24,239
—
(7)
$
$
—
12,875
(4,979)
(9,128)
66,670
55,140
—
12,768
(6)
$
$
143,492
14,723
(12,875)
(7,760)
—
137,580
132,022
24,239
(12,768)
(1)
211,394
$
67,902
$
143,492
$
$
$
$
Fixed rate mortgages
2.35—6.90%
4.30%
4.6 years
$
1,610,640
$
1,762,815
Range
Weighted Average
Interest Rate
Weighted Average
Term to Maturity
December 31, 2018
December 31, 2017
Floating rate revolving credit facility
Unsecured bilateral credit facility
Deferred financing charges
Mortgages
Non-current
Current
Credit facilities
Non-current
Current
3.5 years
1.4 years
$
$
108,843
70,000
(9,056)
1,780,427
1,421,062
180,522
178,843
—
$
$
8,168
45,000
(11,719)
1,804,264
1,632,431
118,665
53,168
—
$
1,780,427
$
1,804,264
As at December 31, 2018, mortgage retirements on a calendar year basis are:
12 Months Ending
December 31, 2019
December 31, 2020
December 31, 2021
December 31, 2022
December 31, 2023
Thereafter
Deferred financing charges
Unamortized fair value debt adjustment
Weighted average
interest rates on
maturing mortgages
Maturities
Principal payments
4.46%
$
126,978
$
53,544
$
4.96%
3.91%
3.92%
4.17%
4.27%
225,241
89,182
194,868
252,932
432,861
46,912
45,250
38,829
31,557
70,595
Total
180,522
272,153
134,432
233,697
284,489
503,456
$
1,322,062
$
286,687
1,608,749
(9,056)
1,891
$
1,601,584
Specific investment properties with a carrying value of $3,002,822 as at December 31, 2018 (December 31, 2017 — $3,145,224) are currently
pledged as security for mortgages or provided as security for the floating rate revolving credit facility. Carrying value includes investment
properties, as well as accrued straight-line rent receivable and tenant incentives which are included in other assets.
83
CROMBIE REITANNUAL REPORT 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Mortgage Activity
For the year ended:
December 31, 2018
Type
Assumed
Repaid
Disposition1
Number of
Mortgages
1
11
9
Rates
3.52%
4.98%
4.27%
Weighted Average
Terms in Years
Amortization
Period in Years
Proceeds
(Repayments)
6.3
—
—
25.0
$
—
—
5,595
(64,713)
(38,971)
$
(98,089)
1.
Represents disposition of 50% interest in mortgages related to partial disposition of a portfolio of properties.
For the year ended:
December 31, 2017
Type
New
Assumed
Repaid
Number of
Mortgages
6
3
8
Rates
3.43%
3.81%
5.14%
Weighted Average
Terms in Years
Amortization
Period in Years
Proceeds
(Repayments)
8.1
6.8
—
25.0
25.0
—
$
$
192,783
18,397
(50,379)
160,801
FLOATING RATE REVOLVING CREDIT FACILITY
The floating rate revolving credit facility has a maximum principal amount of $400,000 (December 31, 2017 — $400,000) and matures
June 30, 2022. 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, 2018 — borrowing base of $400,000). 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, 2020. 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.
8 4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7) SE NIOR UNSECURED NOTES
Series A
Series B
Series C
Series D
Series E
Unamortized Series B issue premium
Deferred financing charges
Maturity Date
Interest Rate
December 31, 2018
December 31, 2017
October 31, 2018
3.986% $
—
$
June 1, 2021
February 10, 2020
November 21, 2022
January 31, 2025
3.962%
2.775%
4.066%
4.800%
250,000
125,000
150,000
175,000
1,068
(2,352)
175,000
175,000
125,000
150,000
—
1,323
(2,003)
698,716
$
624,320
12 Months Ending
December 31, 2019
December 31, 2020
December 31, 2021
December 31, 2022
December 31, 2023
Thereafter
Series B
Series C
Series D
$
$
—
—
—
$
125,000
250,000
—
—
—
—
—
—
—
—
—
—
150,000
—
—
$
$
Series E
$
—
—
—
—
—
175,000
Unamortized Series B issue premium
Deferred financing charges
$
250,000
$
125,000
$
150,000
$
175,000
$
$
Total
—
125,000
250,000
150,000
—
175,000
700,000
1,068
(2,352)
698,716
On August 31, 2018 Crombie issued, on a private placement basis, an additional $75,000 Series B Notes (senior unsecured) maturing
June 1, 2021. The proceeds were used to fund the redemption of the Series E Convertible Debentures. The Additional Notes were priced
with an effective yield to maturity of 3.882% and sold at a price of $1,002.02 per $1,000.00 principal amount plus accrued interest. Interest is
payable in equal semi-annual installments in arrears on June 1 and December 1.
On October 31, 2018 Crombie issued, on a private placement basis, $175,000 Series E Notes (senior unsecured) maturing January 31, 2025.
The proceeds were used to fund the repayment of the Series A Notes. The notes were priced with an effective yield to maturity of 4.802%
and sold at a price of $999.96 per $1,000.00 principal amount. Interest is payable in equal semi-annual installments on January 31 and
July 31.
See Note 19(a) for fair value information.
8) CONVERTIBLE DEBENTURES
Conversion Price
Maturity Date
Interest Rate
December 31, 2018
December 31, 2017
Series E (CRR.DB.E)
Deferred financing charges
$
17.15
August 31, 2018
5.25%
$
$
—
—
—
$
$
74,400
(1,236)
73,164
On August 31, 2018, Crombie exercised its right to redeem its 5.25% Series E Extendible Convertible Unsecured Subordinated Debentures
originally maturing on March 31, 2021 (the “Debentures”) in accordance with the terms of the supplemental trust indenture dated
August 14, 2013. Upon redemption, Crombie paid to the holders of Debentures the redemption price equal to the outstanding principal
amount of the Debentures redeemed, together with all accrued and unpaid interest thereon, for a total of $1,022.01 per $1,000 principal
amount of Debentures, less any taxes required to be deducted or withheld.
See Note 19(a) for fair value information.
85
CROMBIE REITANNUAL REPORT 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9) EM PLOYEE 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 base
earnings multiplied by years of credited service (to a maximum of 30 years), offset by the deemed retirement income provided under the
defined contribution pension plan and deferred profit sharing plan. For the purpose of calculating the deemed retirement income provided
under the defined contribution pension plan and deferred profit sharing plan, the assumptions stipulated in the SERP plan text are used,
including an assumed annuity conversion discount rate of 7.0%. 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, 2018 was $551
(year ended December 31, 2017 — $541).
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, 2018
January 1, 2016
December 31, 2019
December 31, 2019
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
3.60%
3.00%
3.70%
N/A
3.40%
3.00%
3.40%
N/A
December 31, 2018
December 31, 2017
Senior Management
Pension Plan
Post-Employment
Benefit Plans
Senior Management
Pension Plan
Post-Employment
Benefit Plans
For measurement purposes, a 5.25% (2017 — 5.50%) annual rate increase in the per capita cost of covered health care benefits was
assumed. The cumulative rate is expected to decrease 0.25% annually to 5.00% in 2020.
86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
These assumptions were developed by management with the assistance of independent actuaries. Discount factors are determined close
to year-end by reference to market yields of high quality corporate bonds that have a maturity approximating the terms of the related
pension obligation. Other assumptions are based on current actuarial benchmarks and management’s historical experience.
The projected unit credit method is used to determine the present value of the defined benefit obligation and the related current service
cost for all active members.
Crombie uses December 31 as a measurement date for accounting purposes for its defined benefit pension plans.
Information about Crombie’s defined benefit plans are as follows:
Accrued benefit obligation
Balance, beginning of year
Current service cost
Interest cost
Actuarial losses (gains)
Benefits paid
Balance, end of year
Plan Assets
Fair value, beginning of 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, 2018
December 31, 2017
Senior Management
Pension Plan
Post-Employment
Benefit Plans
Senior Management
Pension Plan
Post-Employment
Benefit Plans
$
4,831
$
4,299
$
4,533
$
3,859
200
168
(81)
(200)
4,918
—
200
(200)
—
4,918
200
4,718
4,918
$
$
200
168
368
$
38
146
(185)
(96)
4,202
—
96
(96)
—
4,202
96
4,106
4,202
38
146
184
$
$
$
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
The table below outlines the sensitivity of the fiscal 2018 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 costs2
Impact of:
Senior Management Pension Plan
Post-Employment Benefit Plans
Benefit Obligations
Benefit Cost1
Benefit Obligations
Benefit Cost1
1% increase
1% decrease
$
$
1% increase
1% decrease
3.60%
(557)
677
$
$
3.60%
(7)
7
$
$
$
$
3.70%
(544)
667
5.25%
624
(514)
$
$
$
$
3.70%
10
(16)
5.25%
31
(25)
1.
2.
Reflects the impact on the current service costs, the interest cost and the expected return on assets.
Gradually decreasing to 5.0% in 2020 and remaining at that level thereafter.
For the year ended December 31, 2018, the net defined contribution pension plans expense was $873 (year ended December 31, 2017 — $800).
87
CROMBIE REITANNUAL REPORT 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10) TRADE AND OTHER PAYABLES
Tenant incentives and capital
expenditures
Property operating costs
Prepaid rents
Finance costs on investment
property debt, notes and
debentures
Amounts payable to related party
Distributions payable
Unit based compensation plans
Deferred revenue
December 31, 2018
December 31, 2017
Current
Non-current
Total
Current
Non-current
Total
$
60,549
$
— $
60,549
$
40,317
$
— $
40,317
30,872
8,555
9,561
6,217
11,243
1,355
131
—
—
—
—
—
7,056
4,432
30,872
8,555
38,300
7,205
9,561
10,629
6,217
11,243
8,411
4,563
—
11,182
1,351
178
—
—
—
—
—
4,978
4,580
38,300
7,205
10,629
—
11,182
6,329
4,758
$
128,483
$
11,488
$
139,971
$
109,162
$
9,558
$
118,720
UNIT BASED COMPENSATION PLANS
(i) Deferred Unit Plan (“DU”)
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 Crombie REIT Units after deducting applicable withholding taxes.
(ii) Restricted Unit Plan (“RU”)
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 RU 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) Performance Unit Plan (“PU”)
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 entitle any participant to exercise voting rights or any other rights or entitlements associated with a REIT Unit.
88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 is being 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 is being recognized as a reduction in property operating expenses over the term of the land lease.
11) PROPERTY REVENUE
Operating lease revenue
Rental revenue contractually due from tenants1
Contingent rental revenue
Straight-line rent recognition
Tenant incentive amortization
Lease termination income
Revenue from Contracts with Customers
Common area cost recoveries
Parking revenue
1.
Includes reimbursement of Crombie’s property tax expense.
Year ended
December 31, 2018
December 31, 2017
$
359,878
$
353,804
2,064
11,040
(12,875)
710
48,425
5,407
$
414,649
$
1,750
13,542
(12,768)
1,258
48,113
6,114
411,813
The following table sets out tenants that contributed in excess of 10% of total property revenue:
Year ended
December 31, 2018
December 31, 2017
Revenue
209,814
$
Percentage
50.6%
$
Revenue
202,593
Percentage
49.2%
Sobeys Inc.
12) 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, 2018, is as follows:
Future minimum rental income
$
289,391
$
276,812
$
264,694
$
252,885
$
243,054
$
1,925,119
$
3,251,955
Year Ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
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 six to 71 years including renewal options:
Future minimum lease payments
$
1,939
$
2,001
$
2,021
$
2,058
$
2,083
$
138,774
$
148,876
Year Ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
89
CROMBIE REITANNUAL REPORT 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13) CORPORATE EXPENSES AND CHANGE IN FAIR VALUE OF FINANCIAL INSTRUMENTS
(a) General and administrative expenses
Salaries and benefits
Professional and public company costs
Occupancy and other
(b) Employee benefit expense
Year ended
December 31, 2018
December 31, 2017
$
$
13,111
$
3,085
3,030
19,226
$
11,175
4,472
3,430
19,077
Crombie’s payroll expenses are included in property operating expenses and in general and administrative expenses.
Wages and salaries
Post-employment benefits
(c) Change in fair value of financial instruments
Deferred Unit (“DU”) Plan
Marketable securities
Total change in fair value of financial instruments
14) F INANCE COSTS — OPERATIONS
Fixed rate mortgages
Floating rate term, revolving and demand facilities
Capitalized interest
Senior unsecured notes
Convertible debentures
Finance costs — operations, expense
Amortization of fair value debt adjustment and accretion income
Change in accrued finance costs
Amortization of effective swap agreements
Capitalized interest1
Amortization of issue premium on senior unsecured notes
Amortization of deferred financing charges
Finance costs — operations, paid
Year ended
December 31, 2018
December 31, 2017
26,572
$
873
24,445
$
25,369
800
26,169
Year ended
December 31, 2018
December 31, 2017
402
—
402
$
$
(54)
199
145
Year ended
December 31, 2018
December 31, 2017
$
$
$
$
$
75,454
$
5,316
(4,104)
25,119
3,846
105,631
808
1,068
(2,263)
4,104
407
(5,158)
79,484
4,345
(2,388)
17,876
6,460
105,777
1,366
(244)
(2,354)
2,388
330
(4,474)
102,789
$
104,597
$
1.
As at December 31, 2018, interest was capitalized to qualifying development projects based on a weighted average interest rate of 3.72% (December 31, 2017 — 3.45%).
9 0
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 15) I NCOME TAXES
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
Year ended
December 31, 2018
December 31, 2017
$
$
$
$
(3)
$
—
(3)
$
— $
—
—
— $
9
2,069
2,078
(6,067)
5,067
76,400
75,400
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.
16) U NITS OUTSTANDING
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
Balance, January 1, 2018
89,115,328
$
1,034,683
61,646,953
$
711,456
150,762,281
$
1,746,139
Net change in EUPP loans receivable
Units issued under DRIP
Units issued under unit based
compensation plan
—
469,649
12,627
61
5,902
158
—
333,058
—
—
4,198
—
—
802,707
12,627
61
10,100
158
Balance, December 31, 2018
89,597,604
$
1,040,804
61,980,011
$
715,654
151,577,615
$
1,756,458
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
Balance, January 1, 2017
87,737,709
$
1,016,285
60,669,944
$
698,439
148,407,653
$
1,714,724
Net change in EUPP loans receivable
Units issued under DRIP
—
1,377,619
62
18,336
—
977,009
Balance, December 31, 2017
89,115,328
$
1,034,683
61,646,953
$
—
13,017
711,456
—
2,354,628
62
31,353
150,762,281
$
1,746,139
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.
91
CROMBIE REITANNUAL REPORT 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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.
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, 2018, there are loans receivable from executives of $1,667 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, 2018 was $1,645.
The compensation expense related to the EUPP for the year ended December 31, 2018 was $21 (year ended December 31, 2017 — $33).
DISTRIBUTION REINVESTMENT PLAN (“DRIP”)
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 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.
17) S UPPLEMENTARY CASH FLOW INFORMATION
A) ITEMS NOT AFFECTING OPERATING CASH
Year ended
December 31, 2018
December 31, 2017
$
(11,040)
$
12,875
(50,023)
15,000
88,818
6,701
792
42
21
2,263
5,158
(407)
(254)
10,100
—
3
(402)
$
79,647
$
(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)
39,159
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
Depreciation of fixtures and computer equipment
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
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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, 2018
December 31, 2017
$
$
$
211
725
610
1,546
$
1,669
2,608
15,058
19,335
C) RECONCILIATION BETWEEN THE OPENING AND CLOSING BALANCES FOR LIABILITIES FROM FINANCING ACTIVITIES
Mortgages
Floating rate
credit facilities
Deferred
financing
Deferred
financing
Senior unsecured notes
Convertible debentures
Face value
costs Face value
costs Face value
Balance, January 1, 2018
Repayment of mortgages
Issue of floating credit facilities
Issue of senior unsecured notes
Redemption of senior unsecured notes
Redemption of convertible debentures
Additions to deferred financing costs
$ 1,762,815 $
10,288 $
53,168 $
(118,018)
—
—
—
—
—
—
—
—
—
—
402
—
125,675
—
—
—
—
Total financing cash flow activities
1,644,797
10,690
178,843
Assumed mortgages
Assumed by joint operation partner
Amortization of issue premium
Amortization of deferred financing charges
Write-off deferred financing charges
Amortization of fair value debt adjustment
Recognition of interest rate subsidy
Total financing non-cash activities
5,595
(38,971)
—
—
—
(482)
(299)
(34,157)
—
—
—
(2,116)
(303)
—
—
(2,419)
—
—
—
—
—
—
—
—
1,431 $
—
—
—
—
—
340
1,771
—
—
—
(986)
—
—
—
(986)
625,000 $
—
—
250,000
(175,000)
—
—
700,000
—
—
—
—
—
—
—
—
Premium
on debt
issue
1,323 $
—
—
152
—
—
—
1,475
—
—
(407)
—
—
—
—
(407)
Deferred
financing
costs Face value
2,003 $
—
—
—
—
—
1,169
74,400 $
—
—
—
—
(74,400)
—
3,172
—
—
—
(820)
—
—
—
(820)
—
—
—
—
—
—
—
—
—
Deferred
financing
costs
1,236
—
—
—
—
—
—
1,236
—
—
—
(254)
(982)
—
—
(1,236)
Balance, December 31, 2018
$ 1,610,640 $
8,271 $
178,843 $
785 $
700,000 $
1,068 $
2,352 $
— $
—
Mortgages
Floating rate
credit facilities
Deferred
financing
Deferred
financing
Senior unsecured notes
Convertible debentures
Premium
on debt
issue
Deferred
financing
costs Face value
Deferred
financing
costs
Balance, January 1, 2017
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
Amortization of fair value debt adjustment
Recognition of interest rate subsidy
Total financing non-cash activities
Face value
costs Face value
costs Face value
$ 1,655,817 $
192,783
(104,182)
—
—
—
—
1,744,418
18,397
—
—
—
—
18,397
9,859 $
—
—
—
—
—
2,674
220,374 $
—
—
(167,206)
—
—
—
855 $
—
—
—
—
—
1,128
400,000 $
—
—
—
225,000
—
—
12,533
—
—
(2,245)
—
—
(2,245)
53,168
1,983
625,000
—
—
—
—
—
—
—
—
(552)
—
—
(552)
—
—
—
—
—
—
240 $
—
—
—
1,413
—
—
1,653
—
(330)
—
—
—
(330)
1,652 $
—
—
—
—
—
999
2,651
—
—
(648)
—
—
(648)
134,400 $
—
—
—
—
(60,000)
—
74,400
—
—
—
—
—
—
2,266
—
—
—
—
—
—
2,266
—
—
(1,030)
—
—
(1,030)
1,236
Balance, December 31, 2017
$ 1,762,815 $
10,288 $
53,168 $
1,431 $
625,000 $
1,323 $
2,003 $
74,400 $
18) R ELATED PARTY TRANSACTIONS
As at December 31, 2018, Empire, through its wholly-owned subsidiary ECLD, holds a 41.5% 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.
93
CROMBIE REITANNUAL REPORT 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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
Finance costs — distributions to Unitholders
Year ended
December 31, 2018
December 31, 2017
$
$
$
$
$
$
$
$
$
214,565
730
$
$
— $
(58)
$
611
(203)
$
$
— $
299
(55,900)
$
$
208,083
922
100
(47)
645
(295)
(608)
335
(55,293)
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.
In addition to the above:
During the year ended December 31, 2018, Crombie issued 333,058 (December 31, 2017 — 977,009) Class B LP Units to ECLD under the
DRIP (Note 16).
On April 6, 2018, Crombie acquired nine retail properties and two additions to existing retail properties from Sobeys. The properties,
totalling 421,000 square feet, were acquired for $88,110, excluding closing and transaction costs.
On June 29, 2018, Crombie acquired one retail property from Sobeys. The property, totalling 37,000 square feet, was acquired for
$12,500, excluding closing and transaction costs.
On September 28, 2018, Crombie acquired an addition to an existing retail property from Sobeys. The property addition, totalling
10,000 square feet, was acquired for $3,735, excluding closing and transaction costs.
KEY MANAGEMENT PERSONNEL COMPENSATION
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of
Crombie. The following are considered to be Crombie’s key management personnel: the Chief Executive Officer, Chief Financial Officer
and the three other highest compensated executives.
The remuneration of members of key management during the year was approximately as follows:
Salary, bonus and other short-term employee benefits
Other long-term benefits
19) F INANCIAL INSTRUMENTS
A) FAIR VALUE OF FINANCIAL INSTRUMENTS
Year ended
December 31, 2018
December 31, 2017
$
$
5,865
106
5,971
$
$
4,389
98
4,487
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.
9 4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information on financial assets and liabilities measured at fair value as at December 31, 2018:
Financial assets
Marketable securities
Total financial assets measured at fair value
Level
December 31, 2018
December 31, 2017
1
$
$
— $
— $
1,285
1,285
There were no transfers between levels of the fair value hierarchy during the year ended December 31, 2018. During the year ended
December 31, 2018, Crombie sold the marketable securities.
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 receivables1
Total other financial assets
Financial liabilities
Investment property debt
Senior unsecured notes
Convertible debentures
Total other financial liabilities
December 31, 2018
December 31, 2017
Fair Value
Carrying Value
Fair Value
Carrying Value
$
$
$
$
21,885
21,885
$
$
1,829,772
$
702,893
—
$
$
$
21,882
21,882
1,789,483
700,000
—
$
$
$
6,642
6,642
1,846,029
627,120
76,818
6,628
6,628
1,815,983
625,000
74,400
2,532,665
$
2,489,483
$
2,549,967
$
2,515,383
1.
Long-term receivables include amounts in other assets for capital expenditure program, interest rate subsidy and receivable from related 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 any embedded derivatives).
B) RISK MANAGEMENT
In the normal course of business, Crombie is exposed to a number of financial risks that can affect its operating performance. There has
been no significant change in Crombie’s risk management during the year ended December 31, 2018. 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, 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 55.5% of annual minimum rent; excluding Sobeys, no other tenant accounts for more than
4.4% 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, 2018, Sobeys represents 50.6% of total property revenue. Excluding Sobeys, no other tenant accounts for more than 4.6%
of Crombie’s total property revenue.
Over the next five years, leases on no more than 6.1% 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
95
CROMBIE REITANNUAL REPORT 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
Interest rate risk
Year ended
December 31, 2018
December 31, 2017
$
$
$
194
399
(85)
(163)
345
$
127
455
(165)
(223)
194
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, 2018
•
•
•
•
Crombie’s weighted average term to maturity of its fixed rate mortgages was 4.6 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 $108,843 at December 31, 2018;
Crombie has an unsecured bilateral credit facility available to a maximum of $100,000 with a balance of $70,000 at December 31, 2018;
and,
Crombie has interest rate swap agreements in place on $109,295 of floating rate mortgage debt.
Crombie estimates that $2,165 of accumulated other comprehensive income (loss) will be reclassified to finance costs during the year
ending December 31, 2019, based on all settled swap agreements as of December 31, 2018.
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
Twelve months ended December 31, 2018
Twelve months ended December 31, 2017
Impact of a 0.5% interest rate change
Decrease in rate
Increase in rate
$
$
611
468
$
$
(611)
(468)
There have been no significant changes to Crombie’s interest rate risk.
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:
9 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Contractual
Cash Flows1
2019
2020
2021
2022
2023
Thereafter
Twelve months ending December 31,
Fixed rate mortgages2
$
1,878,846
$
247,213
$
323,962
$
180,834
$
270,926
$
312,584
$
543,327
Senior unsecured notes
Floating rate credit facilities
802,610
2,681,456
196,966
27,873
275,086
6,877
149,788
473,750
75,128
268,626
449,460
4,079
163,823
434,749
110,882
8,400
320,984
—
184,100
727,427
—
Total
$
2,878,422
$
281,963
$
548,878
$
453,539
$
545,631
$
320,984
$
727,427
1.
2.
Contractual cash flows include principal and interest and ignore extension options.
Reduced by the interest rate subsidy payments to be received from Empire.
There have been no significant changes to Crombie’s liquidity risk.
20) C APITAL 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:
Fixed rate mortgages
Credit facilities
Senior unsecured notes
Convertible debentures
Crombie REIT Unitholders
SVU and Class B LP Unitholders
December 31, 2018
December 31, 2017
$
1,601,584
$
178,843
698,716
—
864,779
578,061
1,751,096
53,168
624,320
73,164
873,478
583,777
$
3,921,983
$
3,959,003
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).
97
CROMBIE REITANNUAL REPORT 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For debt to gross book value calculation, Crombie does not include in total debt the financial liabilities to REIT Unitholders and to holders of
Class B LP Units, as shown on the balance sheet as Net assets attributable to Unitholders. Crombie’s debt to gross book value as defined in
Crombie’s Declaration of Trust is as follows:
Fixed rate mortgages
Senior unsecured notes
Convertible debentures
Revolving credit facility
Bilateral credit facility
Total debt outstanding
Less: Applicable fair value debt adjustment
Debt
Income properties, cost
Properties under development, cost
Below-market lease component, cost1
Investment in joint ventures
Other assets, cost (see below)
Deferred financing charges
Interest rate subsidy
Gross book value
Debt to gross book value — cost basis
1. B elow-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, 2018
December 31, 2017
$
1,610,640
$
$
$
700,000
—
108,843
70,000
2,489,483
(818)
2,488,665
4,273,152
$
$
66,179
66,319
39,485
338,616
11,408
(818)
1,762,815
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)
$
4,794,341
$
4,784,653
51.9%
52.5%
December 31, 2018
December 31, 2017
271,946
$
257,291
66,670
338,616
$
67,902
325,193
$
$
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, 2018, Crombie is in compliance with all externally imposed capital requirements and all covenants relating to its
debt facilities.
98
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21) COMMITMENTS, CONTINGENCIES, AND GUARANTEES
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 in excess of existing accruals 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, 2018, Crombie has a total of $8,698 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, 2018
December 31, 2017
$
$
3,858
4,840
8,698
$
$
3,879
4,840
8,719
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 six to 71 years including renewal options. For the year ended December 31, 2018 Crombie
paid $1,864 in land lease payments to third party landlords (year ended December 31, 2017 — $1,685). Crombie’s commitments under the
land leases are disclosed in Note 12.
As at December 31, 2018, Crombie had signed construction contracts totalling $206,295 of which $165,120 has been paid.
Crombie has 100% guarantees on mortgages related to properties in which it has less than a 100% interest. The mortgages payable related
to these guarantees are secured by specific charges against the properties. As at December 31, 2018, Crombie has provided guarantees
of approximately $38,245 (December 31, 2017 — $NIL) on mortgages in excess of their ownership interest in the properties. The mortgages
have a weighted average term to maturity of 5.9 years.
22) S UBSEQUENT EVENTS
(a) On January 21, 2019, Crombie declared distributions of 7.417 cents per Unit for the period from January 1, 2019 to and including,
January 31, 2019. The distributions were paid on February 15, 2019, to Unitholders of record as of January 31, 2019.
(b) On February 19, 2019, Crombie declared distributions of 7.417 cents per Unit for the period from February 1, 2019 to and including
February 28, 2019. The distributions will be paid on March 15, 2019, to Unitholders of record as of February 28, 2019.
(c) On February 5, 2019, Crombie disposed of a 50% interest in seven retail properties totalling 296,376 square feet of gross leaseable area.
Total proceeds, before closing adjustments and transaction costs, were approximately $41,600.
(d) Since December 31, 2018, Crombie also disposed of a 100% interest in three retail properties totalling 182,800 square feet of gross
leaseable area. Total proceeds, before closing adjustments and transaction costs, were approximately $64,800.
23) S EGMENT 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.
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.
99
CROMBIE REITANNUAL REPORT 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY
PORTFOLIO
Retail — Plazas
Property
Description
GLA
(approx.
sq. ft.)
%
Occu-
pancy
Clarenville
Conception Bay
Deer Lake
NEWFOUNDLAND & LABRADOR
Random Square
Conception Bay Plaza
2A Commerce Street
71 Grandview Boulevard Grand Bank
Grand Falls
21 Cromer Avenue
Placentia
69 Blockhouse Road
St John’s
10 Elizabeth Avenue
St John’s
45 Ropewalk Lane
St John’s
Avalon Mall
St John’s
Hamlyn Road Plaza
St John’s
Kenmount Woodgate
St John’s
Topsail Road Plaza
St John’s
Torbay Road Plaza
Retail — Enclosed
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Enclosed
Retail — Plazas
Mixed Use
Retail — Plazas
Retail — Plazas
108,000
65,000
29,000
19,000
27,000
20,000
80,000
50,000
420,000
38,000
50,000
158,000
139,000
1,203,000
PRINCE EDWARD ISLAND
400 University Avenue
Kinlock Plaza
Charlottetown
Stratford
Retail — Freestanding
Retail — Plaza
NOVA SCOTIA
Amherst Centre
Amherst Plaza
151 Church Street
Hemlock Square
Mill Cove Plaza
2 Forest Hills Parkway
Dartmouth Crossing —
Amherst
Amherst
Antigonish
Bedford
Bedford
Cole Harbour
Cineplex
Dartmouth
Dartmouth
Panavista Drive
Dartmouth
Penhorn Plaza
Dartmouth
Russell Lake
Elmsdale
Elmsdale Plaza
Fall River
Fall River Plaza
Halifax
North & Windsor Street
Halifax
Park West Plaza
Halifax
Queen Steet Plaza
Lower Sackville
Downsview Mall
Downsview Plaza
Lower Sackville
Aberdeen Business Centre New Glasgow
New Glasgow
Highland Square
New Glasgow
West Side Plaza
New Minas
County Fair Mall
New Waterford
75 Emerald Street
Pictou
Blink Bonnie Plaza
Port Hawkesbury
622 Reeves Street
22579 Highway 7
Sheet Harbour
279, 289 & 303 Herring
Sydney Mines
Tatamagouche
Truro
Upper Tantallon
Spryfield
Cove Road
Stellarton
293 Foord Street
Prince Street Plaza
Sydney
Sydney Shopping Centre Sydney
39 Pitt Street
North Shore Centre
Fundy Trail Centre
Tantallon Plaza
Scotia Square Properties
Barrington Place
Barrington Tower
Brunswick Place
CIBC Building
Cogswell Tower
Duke Tower
Scotia Square
Scotia Square Parkade
Halifax
Halifax
Halifax
Halifax
Halifax
Halifax
Halifax
Halifax
Retail — Enclosed
Retail — Plazas
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Mixed Use
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Plaza
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Mixed Use
Retail — Enclosed
Retail — Plazas
Retail — Enclosed
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Plazas
Retail — Plaza
Retail — Plazas
Mixed Use
Office
Mixed Use
Office
Office
Office
Mixed Use
Mixed Use
50,000
74,000
124,000
228,000
25,000
51,000
169,000
150,000
44,000
45,000
48,000
145,000
62,000
148,000
98,000
50,000
143,000
55,000
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
189,000
18,000
17,000
125,000
157,000
191,000
186,000
255,000
207,000
204,000
251,000
262,000
99.0
98.6
100.0
100.0
100.0
100.0
100.0
100.0
99.6
78.0
100.0
100.0
98.9
98.8
100.0
100.0
100.0
44.7
100.0
100.0
100.0
98.8
100.0
100.0
100.0
91.1
100.0
98.6
100.0
100.0
98.7
100.0
98.5
97.2
100.0
100.0
94.3
57.1
100.0
100.0
100.0
100.0
100.0
100.0
100.0
93.9
100.0
100.0
96.5
99.1
99.5
99.4
97.7
79.7
96.2
77.2
78.2
NEW BRUNSWICK
850 Saint 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
Bathurst
Dieppe
Dieppe
Edmundston
Fredericton
Fredericton
Fredericton
Moncton
Moncton
Moncton
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Office
Retail — Plazas
Retail — Plazas
5,006,000
91.1
18,000
52,000
25,000
42,000
43,000
22,000
265,000
151,000
95,000
17,000
100.0
100.0
100.0
100.0
100.0
100.0
87.2
92.1
100.0
100.0
Moncton
Moncton
Retail — Freestanding
Retail — Plazas
52,000
103,000
100.0
100.0
10 0
PRO PERT Y P O RTFO LI O
Retail — Plazas
273 Pleasant Street
Riverview — Findlay
Boulevard
Riverview Place
Fairvale Plaza
Catherwood Street
Loch Lomond Place
Charlotte Mall
Tracadie
Property
Newcastle
Riverview
Riverview
Rothesay
Saint John
Saint John
St Stephen
Tracadie
QUÉBEC
1490-1500 rue de Bretagne Baie Comeau
1020 boul. Monseigneur-
Description
GLA
(approx.
sq. ft.)
%
Occu-
pancy
Retail — Freestanding
20,000
100.0
Retail — Plazas
Mixed Use
Retail — Freestanding
Retail — Freestanding
Mixed Use
Retail — Plazas
Retail — Plazas
66,000
149,000
52,000
46,000
193,000
119,000
40,000
1,570,000
94.8
78.8
100.0
100.0
75.7
95.8
83.8
91.1
Retail — Freestanding
50,000
100.0
de-Laval
Beauport Plaza
50 rue Bourgeoys
3260 boul. Lapiniere &
3305 Broadway
635-645 boul.
Thibeau
80-90 boul. d’Anjou
Marché St-Charles-de-
Drummond
1205 rue de Neuville
1238-1320 boul. de la
Baie Saint Paul
Beauport
Bromptonville
Retail — Plazas
Retail — Plazas
Retail — Plazas
64,000
68,000
27,000
100.0
96.5
84.6
Brossard
Cap-de-la-
Madeleine
Chateauguay
Retail — Plazas
48,000
94.1
Retail — Freestanding
Retail — Plazas
49,000
91,000
100.0
100.0
Drummondville
Gatineau
Retail — Plazas
Retail — Plazas
48,000
31,000
100.0
100.0
Verendrye Est
Gatineau
Havre-Saint-Pierre
1298 rue de la Digue
Huntingdon
2195 Chemin Ridge
Ile Perrot
Ile Perrot
Lavaltrie
Centre Lavaltrie
Lavaltrie
Marché Lavaltrie
Les Saules
Les Saules
Louiseville
714 boul. St-Laurent O
1450 & 1454 rue Royale
Malartic
551 Avenue du Phare Est Matane
McMasterville
McMasterville
Mercier
Mercier
Marché St-Augustin
Mirabel
1 Avenue Westminster N Montreal
Montreal
5651 rue de Verdun
Paspebiac
Paspebiac Plaza
Quebec City
Lebourgneuf
Rimouski
395 Avenue Sirois
Rimouski
375 boul. Jessop
Riviere du Loup
254 de l’hotel de ville
Rouyn-Noranda
680 Avenue Chausse
Saint-Amable
Carrefour Bourgeois
Saint-Apollinaire
Saint-Apollinaire Plaza
Saint-Donat
867-871 rue Principale
Saint Romuald
Saint Romuald Plaza
Sainte-Anne -de-
10505 boul.
Beaupré
Sainte-Anne
Saint-Pie
Shawinigan
Sherbrooke
Sherbrooke
Sorel-Tracy
St Georges de
Beauce
St. Lambert
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Plaza
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Plaza
Retail — Plazas
Retail — Freestanding
Retail — Plazas
72,000
26,000
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
59,000
53,000
41,000
72,000
43,000
64,000
62,000
34,000
70,000
91.6
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
91.7
100.0
89.4
100.0
100.0
100.0
95.6
100.0
100.0
100.0
Retail — Freestanding
38,000
100.0
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
14,000
67,000
13,000
52,000
40,000
100.0
100.0
100.0
100.0
100.0
Retail — Freestanding
Retail — Freestanding
44,000
19,000
100.0
100.0
131-A Avenue Sainte-
Cecile
Shawinigan
2959 rue King Ouest
3950 rue King Ouest
411 boul. Poliquin
8980 boul.
Lacroix
St. Lambert
1101 boul. de la Piniere
Ouest
Vanier
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
807 King Street
215 Park Avenue 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
London Pine Valley
Terrebonne
Vanier
Retail — Freestanding
Retail — Freestanding
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
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 — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
235,000
17,000
2,151,000
32,000
48,000
42,000
35,000
103,000
38,000
56,000
11,000
4,000
9,000
48,000
18,000
32,000
35,000
43,000
28,000
36,000
29,000
36,000
114,000
15,000
37,000
39,000
100.0
100.0
98.4
100.0
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
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Retail — Plazas
Property
Description
Niagara Falls
5931 Kalar Road
Niagara Falls
Niagara Plaza
Nepean
Village Square Mall
North Bay
Algonquin Avenue Mall
Orangeville
500 Riddell Road
5150 Innes Road
Orleans
Taunton and Wilson Plaza Oshawa
Parry Sound
Lansdowne Centre
Parry Sound
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Retail — Plazas
GLA
(approx.
sq. ft.)
%
Occu-
pancy
36,000
64,000
91,000
172,000
46,000
63,000
107,000
46,000
100.0
100.0
100.0
80.5
100.0
100.0
98.8
100.0
Peterborough
Scarborough
Retail — Plazas
Retail — Freestanding
60,000
3,000
93.3
100.0
Rockhaven
3130 Danforth Avenue
Glendale Avenue
Mountain Locks Plaza
Stittsville Corner
Stoney Creek Plaza
105 Arthur Street West
1995 Weston Road
3362-3370 Yonge Street
Markham Plaza
McCowan Square
Queensway Plaza
8265 Huntington Road
385 Springbank Avenue
St Catharines
Stittsville
Stoney Creek
Thornbury
Toronto
Toronto
Toronto
Toronto
Toronto
Woodbridge
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Freestanding
85,000
111,000
12,000
40,000
16,000
28,000
39,000
61,000
67,000
397,000
100.0
98.2
100.0
100.0
100.0
100.0
96.8
100.0
54.3
100.0
55,000
2,487,000
94.6
96.7
North
Woodstock
Retail — Plazas
MANITOBA
498 Mountain Avenue
123-132 Saskatchewan
Avenue E
318 Manitoba Avenue
3156 Bird’s Hill Road E
285 Marion Street
469-499 River Avenue
594 Mountain Avenue
654 Kildare Avenue
655 Osborne Street
920 Jefferson Avenue
1305-1321 Pembina
Neepawa
Retail — Freestanding
18,000
100.0
Portage la Prairie
Selkirk
St Paul
Winnipeg
Winnipeg
Winnipeg
Winnipeg
Winnipeg
Winnipeg
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
20,000
42,000
39,000
38,000
59,000
18,000
43,000
20,000
55,000
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Highway
Winnipeg
2155 Pembina Highway Winnipeg
3381 & 3393 Portage
Retail — Plazas
Retail — Freestanding
39,000
46,000
100.0
100.0
Avenue
Kildonan Green
River East Plaza
Winnipeg
Winnipeg
Winnipeg
Retail — Freestanding
Retail — Plazas
Retail — Plazas
55,000
74,000
78,000
644,000
39,000
30,000
56,000
37,000
41,000
41,000
50,000
160,000
454,000
100.0
94.3
100.0
99.4
100.0
100.0
100.0
100.0
100.0
97.6
100.0
90.9
96.5
Moose Jaw
North Battleford
Prince Albert
Regina
Regina
Regina
Saskatoon
Saskatoon
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Plazas
Banff
Beaumont
Retail — Freestanding
Retail — Plazas
19,000
21,000
100.0
100.0
Beaumont
Retail — Plazas
59,000
100.0
Brooks
Retail — Plazas
60,000
100.0
SASKATCHEWAN
200 1st Avenue NW
9801 Territorial Drive
2895 2nd Avenue W
2231 East Quance Street
2915 13th Avenue
4250 Albert Street
1860 McOrmond Drive
River City Centre
ALBERTA
318 Marten Street
5700 50th Street
Beaumont Shopping
Centre
550 Cassils Road & 4
Street W
55 Castleridge Boulevard
NE
Calgary
99 Crowfoot Crescent NW Calgary
101 Crowfoot Way
Calgary
620 McKenzie Towne
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
Canmore
Canmore
Gate SE
410 10 Street NW
511 17 Avenue SE
504 & 524 Elbow Drive
SW
813 11 Avenue SW
850 Saddletowne Circle
NE
1818 Centre Street NE &
134 17th Avenue NE
2425 34 Avenue SW
3550 32 Avenue NE
5048 16 Avenue NW
5607 4 Street NW
South Trail Plaza
Strathcona Square
1110 Gateway Avenue
1200 Railway Avenue
135 Chestermere Station
Way
304 5 Avenue W
400 & 500 Manning
Crossing N
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
56,000
75,000
10,000
9,000
38,000
42,000
100.0
100.0
100.0
100.0
100.0
100.0
Retail — Freestanding
Retail — Freestanding
30,000
40,000
82.3
100.0
Retail — Freestanding
51,000
100.0
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
35,000
48,000
69,000
21,000
51,000
79,000
80,000
50,000
53,000
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Retail — Plazas
Property
Description
Edmonton
2304 109 Street NW
2534 Guardian Road NW Edmonton
Edmonton
5119 167 Avenue NW
Edmonton
5309 Ellerslie Road
Edmonton
8118 118 Avenue NW
Edmonton
8204 109 Street NW
Edmonton
9611 167 Avenue NW
Edmonton
10907 82 Avenue NW
Edmonton
12950 137 Avenue NW
Edmonton
13550 Victoria Trail
Edmonton
Millwood Commons
Edmonton
Namao Centre
Edson
304 54th Street
Fort McMurray
9601 Franklin Avenue
Fort McMurray
Clearwater Landing
Grand Prairie
8100-8300 100 Street
Grand Prairie
9925 114 Avenue
Leduc
Leduc Centre
Lethbridge
606 4th Avenue S
1760 23 Street
Lethbridge
2750 Fairway Plaza Road S Lethbridge
West Highlands Towne
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
GLA
(approx.
sq. ft.)
%
Occu-
pancy
48,000
49,000
30,000
50,000
44,000
34,000
37,000
21,000
55,000
37,000
29,000
34,000
33,000
40,000
143,000
66,000
62,000
138,000
20,000
45,000
64,000
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
97.2
100.0
100.0
100.0
100.0
100.0
100.0
Centre
Lethbridge
Retail — Plazas
29,000
100.0
Lethbridge
Medicine Hat
Okotoks
Red Deer
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
104,000
43,000
42,000
74,000
99.1
100.0
100.0
100.0
Rocky View
Sherwood Park
Retail — Freestanding
Retail — Freestanding
655,000
23,000
100.0
100.0
West Lethbridge Towne
Centre
615 Division Avenue S
410 & 610 Big Rock Lane
Gaetz South Plaza
260199 High Plains
Boulevard
688 Wye Road
1109 James Mowatt
Trail SW
94 McLeod Avenue
395 St. Albert Trail
4607 50 Street
100 Ranch Market
4202 South Park Drive
BRITISH COLUMBIA
575 Alder Avenue
4454 East Hastings Street
5235 Kingsway
Burnaby Heights
1721 Columbia Avenue
45850 Yale Road
Crown Isle Shopping
Southbrook
Spruce Grove
St. Albert
Stettler
Strathmore
Stony Plain
100 Mile House
Burnaby
Burnaby
Burnaby
Castlegar
Chilliwack
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
Langford
Belmont Market
Langley
20871 Fraser Highway
27566 Fraser Highway
Langley
32520 Lougheed Highway Mission
New Westminster
800 McBride Boulevard
1170 27 Street E
North Vancouver
1175 Mount Seymour Road North Vancouver
1303 Main Street
2850 Shaughnessy Street Port Coquitlam
200 2 Avenue W
445 Reid Street
6140 Blundell Road
3664 Yellowhead
Prince Rupert
Quesnel
Richmond
Penticton
Highway
7450 120 Street
8860 152 Street
10355 King George
Boulevard
4655 Lakelse Avenue
1599 Second Avenue
990 King Edward
Avenue W
1641 & 1653 Davie Street
1766 Robson Street
1780 East Broadway
2733 West Broadway
3410 Kingsway
8475 Granville Street
3417 30 Avenue
4300 32 Street
Smithers
Surrey
Surrey
Surrey
Terrace
Trail
Vancouver
Vancouver
Vancouver
Vancouver
Vancouver
Vancouver
Vancouver
Vernon
Vernon
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
24,000
51,000
52,000
31,000
35,000
44,000
3,428,000
Retail — Plazas
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
Mixed Use
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
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
47,000
43,000
66,000
56,000
50,000
19,000
30,000
74,000
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
24,000
29,000
56,000
1,829,000
100.0
100.0
100.0
100.0
100.0
100.0
99.7
100.0
100.0
100.0
100.0
100.0
100.0
98.9
100.0
100.0
100.0
98.1
100.0
100.0
100.0
100.0
93.9
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
99.6
Chestermere
Cochrane
Retail — Freestanding
Retail — Freestanding
43,000
54,000
100.0
100.0
Edmonton
Retail — Freestanding
49,000
100.0
TOTAL
18,896,000
96.0
PRO PERT Y P O RTFO LI O
101
CROMBIE REITANNUAL REPORT 2018 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
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
Paul Beesley
Independent Trustee
James M. Dickson
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, COO, CFO
and Secretary
Cheryl Fraser
Chief Talent Officer and Vice President Communications
John Barnoski
Senior Vice President Corporate Development
Trevor Lee
Senior Vice President Development and Construction
Arie Bitton
Senior Vice President Leasing and Operations
Fred Santini
General Counsel
102
INVESTOR RELATIONS AND INQUIRIES
Unitholders, analysts, and investors should direct
their financial inquiries or request to:
Glenn R. Hynes, FCPA, FCA
Executive Vice President, COO, CFO
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).
UNIT SYMBOL
REIT Trust Units — CRR.UN
STOCK EXCHANGE LISTING
Toronto Stock Exchange
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
COUNSEL
Stewart McKelvey
Halifax, Nova Scotia
AUDITORS
PricewaterhouseCoopers, LLP
Halifax, Nova Scotia
MULTIPLE MAILINGS
If you have more than one account, you may receive
a separate mailing for each.
If this occurs, please contact AST Trust Company
(Canada) at (800) 387-0825 or (416) 682-3860
to eliminate multiple mailings.
CROMBIE REIT
PROPERTIES
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.
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:
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D
% of Annual
Minimum Rent
Average Remaining
Lease Term
DBRS Credit
Rating
13.7 years
9.8 years
5.9 years
0.8 years
12.6 years
9.1 years
9.1 years
8.6 years
2.9 years
9.7 years
BB (high)
BBB
BBB
A (high)
AA
BB (high)
AA
AA
TENANT
Sobeys1
Shoppers Drug Mart
Dollarama
Province of Nova Scotia
CIBC
55.5%
4.4%
1.2%
1.1%
1.1%
Lawtons/Sobeys Pharmacy
1.0%
GoodLife Fitness
Bank of Montreal
Bank of Nova Scotia
Cineplex
TOTAL
1. Excludes Lawtons/Sobeys Pharmacy
1.0%
1.0%
0.9%
0.8%
68.0%
SOBEYS
Our relationship with Sobeys provides
many competitive advantages.
RIGHT OF
FIRST OFFER
ACCESS TO
URBAN MARKETS
AT REASONABLE
PRICING
MARKET
INTELLIGENCE
ACCELERATING
MAJOR MIXED USE
DEVELOPMENT
STRONG
MANAGEMENT
STABLE &
GROWING
CASH FLOW
ALIGNED INTEREST GIVEN 41.5%
FULLY DILUTED OWNERSHIP INTEREST
WHY CROMBIE?
High-quality, everyday-needs oriented
portfolio with steady net operating income
and cash flow growth
Materially accretive development pipeline
focused on Canada’s top urban markets with
the expectation to create $1-2 of NAV/unit
over the next one to two years
Experienced management team with strong
expertise in real estate portfolio management,
ownership and development
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