DELIVERING
VALUE
2019
Annual
Report
About Crombie REIT
Table of Contents
IN THIS REPORT
Crombie at-a-glance
Message from the
President and CEO
Value Proposition
Crombie’s Key Focus Areas
1. Innovative Funding
2. Strong Fundamentals
3. Maximizing Partnerships
4. Development Pipeline
5. Valuing People
Message from the Chair
Board of Trustees
FINANCIAL REVIEW
Table of Contents
Key Performance Indicators
Financial Performance
Management’s Discussion
& Analysis
Management’s Statement of
Responsibility for Financial
Reporting
Independent Auditor’s Report
Consolidated Financial
Statements
Notes to the Consolidated
Financial Statements
Property Portfolio
Unitholders’ Information
Top 20 Tenants
2
4
6
7
8
10
12
14
16
18
19
20
21
23
25
65
66
68
72
100
102
IBC
Established in 2006, Crombie REIT invests
in high-quality, sustainable real estate where
people live, work, shop and play.
With 285 income-producing properties nation-wide, Crombie’s
portfolio of approximately 17.6 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
Davie Street in Vancouver’s West End will be a 308,000 square
foot mixed-use retail and residential rental structure, built
sustainably with 330 residential rental units across two towers
above 54,000 square feet of primarily grocery-anchored retail.
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
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.
DELIVERING
VALUE
2019
In 2019, Crombie’s commitment to value creation and
delivery increased our net asset value and lowered our
cost of capital. We are poised for success throughout 2020
and beyond, and are steadfast in our commitment to
delivering value to our Unitholders.
Davie Street
VANCOUVER, BC
Delivering Value
1
CROMBIE
AT-A-GLANCE
2019
Highlights
Solid operating fundamentals,
entrepreneurial leasing, record high
year-end occupancy, and our
relationship with Empire, strengthened
the foundation that enables us to create
and deliver significant value.
$4.6b
Investment Properties
96.1%
Occupancy
3.0%
Same-Asset Cash NOI1 Growth
$4-5.8b2
Development Pipeline
1
Adjusted for IFRS 16 ‘Leases’. 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 of the MD&A.
2 Capital Costs.
Granville Safeway
VANCOUVER, BC
2
Annual Report 2019
Truly a National Portfolio
Crombie’s $4.0-5.8b major mixed-use development pipeline is
concentrated in Canada’s largest cities and markets.
6
27
33
Active Major Developments
Potential Major Developments
Major Development Opportunities
BC
2
13
55%
Vancouver/
Victoria
$3.2b
AB
1
4
SK
MB
QC
ON
Total
$5.8b
19%
Toronto/Montreal
$1.1b
16%
Calgary/Edmonton
$0.9b
10%
Halifax/St. John’s
$0.6b
1
NL
2
NB
PE
5
NS
5
Development
Property
Delivering Value
3
RELENTLESS
COMMITMENT
Message
from the
President
& CEO
2019 was a landmark year for Crombie,
with the largest change agenda in our
history. We strive for excellence in all we
do, and our relentless commitment to value
creation resulted in an impressive Unitholder
return in 2019.
We demonstrated our innovative capital recycling strategy
by disposing of just over half a billion dollars worth of real
estate at favorable pricing. These transactions provided
organic funding for our development pipeline and enhanced
the quality of our portfolio.
We improved our balance sheet by reducing leverage,
increased our allocation to unsecured debt from secured
mortgages, and provided advanced funding of debt maturing
in 2020. Our unencumbered asset pool grew, our available
liquidity remained strong, and our financial disclosure
improved.
We continued to optimize our relationship with our
retail partner Empire and Sobeys, aligning our strategies,
and capitalizing on a wide range of strategic initiatives,
opportunities and accretive transactions. In 2019, we invested
in modernizations, store conversions, and acquisitions such
as the Vaughan distribution centre in Ontario.
We expanded our value-enhancing major development
pipeline from 27 to 33 sites this year, and that pipeline now
totals $4 to $5.8 billion in major development projects.
We enhanced our focus on urban markets with increased
exposure to Vancouver, Toronto, Montreal and Halifax, as
these markets are growing faster than the national average.
We are focused on playing an important role in the
evolution of the grocery industry supply chain with the
acquisition of the site for the future home of Voilà par IGA
in Montreal, Empire’s Customer Fulfillment Centre for its
online grocery home delivery service, and Crombie’s sixth
active major development. This asset strategically diversifies
our asset mix and income stream, increases our major
market urban exposure and expands our Empire related
industrial asset base.
We drove strong operating results as is evident by our year
over year same-asset cash NOI growth, record year-end
occupancy, and strong leasing metrics. Crombie’s grocery-
anchored portfolio continues to be one of the most robust
and defensive real estate portfolios in Canada.
We held our first Investor Day in Toronto and were pleased
to see our analysts and investors in attendance. We
explained our strategy, showcased the strength of our team
and operating fundamentals, highlighted our relationship
with Empire, and shared exciting details around our major
development pipeline.
Our properties won multiple green building awards
throughout the year with our Scotia Square complex in
Halifax, Nova Scotia, winning the TOBY Award of Excellence
by BOMA Canada, and Avalon Mall winning the Earth
4
Annual Report 2019
Award for retail during the BOMA Newfoundland and
Labrador Industry Awards. We are incredibly proud of these
achievements and the teams behind our properties.
Building a strong, collaborative and inclusive culture remains
a priority to all of us. We were pleased to once again be
recognized for this commitment as we were selected as
one of Atlantic Canada’s Top Employers for 2020, the sixth
consecutive year.
These key accomplishments and milestones achieved
during 2019, contributed to increasing net asset value and
lowering our cost of capital, driving the outperformance of
our unit price.
In 2020, our relentless efforts to accelerate the growth of NAV
and AFFO will continue. The cornerstone of our financial
strategy is to effectively allocate capital to support both NAV
and AFFO per unit growth. In 2020, we plan to continue our
financing plan to secure multiple sources of capital, optimize
our capital structure, minimize our cost of capital, and de-risk
our business.
We’re working in partnership with Empire to maximize value
creation. They recognize a need to maintain and modernize
their stores across the country, and we will continue to work
with them through modernizations, FreshCo conversions,
land-use intensifications, and to unlock major developments.
Through 2020 and 2021, we expect to reach substantial
completion on approximately $600 million of construction,
from Davie Street, Belmont Market and Avalon Mall in 2020,
to Bronte, Le Duke and the Voilà par IGA CFC in Montreal in
2021. To date, these projects are all on track and on budget,
and are expected to create $1-$2 of NAV per unit.
At the time of writing, COVID-19 is a rapidly-evolving global
pandemic with effects that are not yet fully understood. I am
extremely proud of the way our teams are reacting – practicing
social distancing, looking out for our tenants and neighbours,
and acting in the interest of the greater good. Our portfolio
consists primarily of everyday-needs retail, from grocery and
drugstores, to medical offices and banks, all essential services
that are needed throughout this period of pandemic and
social distancing.
In 2020, we plan to continue our financing plan to secure
multiple sources of capital, optimize our capital structure,
minimize our cost of capital, and de-risk our business.
Crombie will increase disclosure and reporting around our
sustainability commitment and continue to foster a progressive
culture where every employee values diversity, innovation,
wellness and the environment.
Our strategy would not be achievable without the resilience of
our skilled teams, and the strength of our underlying business.
It is our strong team, the heart of Crombie, that enables us to
pivot from a position of strength and pursue the next phase
of growth. I have full confidence in our collective ability to
continue to deliver value for years to come.
With the continued support of my colleagues, the Board, our
partners at Sobeys and Empire, and all our valued business
and community stakeholders, I look forward to reporting on
our continuing progress.
Sincerely,
Donald Clow FCPA, FCA
President & Chief Executive Officer
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2020-03-19 7:24 PM
2020-03-19 7:24 PM
“ It is our strong team,
the heart of Crombie,
that enables us to pivot
from a position of strength
and pursue the next phase
of growth.”
Don Clow
President & CEO
Building the Crombie of Tomorrow
Donald Clow
President & CEO
Glenn Hynes
EVP & COO
Clinton Keay
CFO & Secretary
HALIFAX, NS
NEW GLASGOW, NS
NEW GLASGOW, NS
Cheryl Fraser
CTO & VP
Communications
NEW GLASGOW, NS
John Barnoski
EVP, Corporate
Development
Trevor Lee
SVP, Development
& Construction
Arie Bitton
SVP, Leasing &
Operations
TORONTO, ON
CALGARY, AB
TORONTO, ON
Fred Santini
General Counsel
TORONTO, ON
Kara Dort
VP, Accounting
& Financial Reporting
Jelena Plecas
VP, Corporate
Development Strategy
Brady Landry
VP, Financial Analysis
& Treasury
NEW GLASGOW, NS
TORONTO, ON
NEW GLASGOW, NS
Jayme Kruger
VP, Investments
TORONTO, ON
Stephen Yu
VP, Retail Leasing
Jeff Downs
VP, Talent Management
Matt Craig
VP, Operations
Terry Doran
VP, Office Properties
TORONTO, ON
NEW GLASGOW, NS
NEW GLASGOW, NS
HALIFAX, NS
Aaron Bryant
VP, Construction East
Sid Schraeder
VP, Construction West
NEW GLASGOW, NS
CALGARY, AB
Steve Cleroux
VP, Atlantic
Development
NEW GLASGOW, NS
Delivering Value
5
VALUE
PROPOSITION
Delivering
Value
Crombie demonstrated a strong commitment to net
asset value creation during 2019, through innovative
capital recycling, strong execution and expansion
of our mixed-use development pipeline, and solid
operating performance.
Our team successfully protected and delivered value in 2019. The
cornerstone of our financial strategy is to effectively allocate capital to
support both NAV and AFFO per unit growth. In 2020, we plan to continue
our financing plan to secure multiple sources of capital, optimize our
capital structure, minimize our cost of capital, and de-risk our business.
HISTORICAL TOTAL UNITHOLDER RETURN1
Crombie REIT
Retail Peers2
S&P/TSX Capped REIT Index
S&P/TSX Composite
2019
3-Year
5-Year
10-Year
35.9%
15.3%
22.8%
22.8%
12.7%
4.6%
12.8%
6.9%
11.4%
6.6%
9.9%
6.3%
11.1%
9.3%
11.3%
6.9%
1 Time periods based on calendar year ending December 31. Returns calculated as CAGRs.
2 Peer average is equal weighted. Peers include Riocan REIT, SmartCentres REIT, First Capital REIT, Choice Properties
REIT, CT REIT.
Source: Bloomberg
NAV CREATION
Crombie’s first six major projects are projected to create $1-2 of net asset value per
unit commencing this year.1 To date, these projects are all on track and on budget.
Belmont
Market
Avalon
Mall
Montreal
CFC
2020
2021
Davie
Street
Le Duke
Bronte
Village
1
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.
6
Annual Report 2019
Crombie’s Key Focus Areas:
ONE
INNOVATIVE
FUNDING
TWO
STRONG
FUNDAMENTALS
THREE
MAXIMIZING
PARTNERSHIPS
FOUR
DEVELOPMENT
PIPLELINE
FIVE
VALUING
PEOPLE
Le Duke
MONTREAL, QC
Delivering Value
7
INNOVATIVE
FUNDING
Key
Focus
Areas
ONE
Crombie improves its cost of capital
through disciplined capital sourcing
and strategic capital allocation,
driving value creation for Unitholders.
Bronte Village
OAKVILLE, ON
“ Crombie successfully mitigated
funding risk by shifting from a
just-in-time funding approach
to a pre-funding strategy.”
Clinton Keay
CFO & Secretary
King George
VANCOUVER, BC
8
Annual Report 2019
CAPITAL STRUCTURE
Optimizing capital structure, minimizing
cost of capital, and de-risking our business.
Senior Unsecured
Notes
19%
Bank Credit Facilities1
1%
Other2
1%
Total
Capitalization
$4.7b
28%
Fixed Rate
Mortgages
51%
Equity
1 Utilized portion of credit facilities
2 Lease Liability
Innovative Funding
Over the last two years, Crombie disposed of approximately
$800 million of assets at favourable pricing and reinvested
approximately $370 million into our mixed-use development
pipeline, to date. Crombie’s strong foundation and fundamentals
enable us to deliver solid results driven by strong same-asset
NOI with record year-end occupancy and solid renewal spreads.
Crombie creatively executed full and partial interest property
dispositions, providing organic funding for our development
pipeline, and enhanced the quality of our portfolio. This innovative
and expanded source of capital allows us to successfully pre-
fund our major mixed-use development commitments into 2021,
aligning with our long-term funding strategy.
We improved our balance sheet by reducing leverage, increased
our allocation to unsecured debt from secured mortgages, and
provided advanced funding of debt maturing in 2020. Crombie’s
unencumbered asset pool grew, and our available liquidity
remained more than adequate.
$536m
Record disposition year
$1.2b
Unencumbered assets
48.9%
D/GBV (FV)
$449m3
in available liquidity
3 Represents the undrawn portion on the credit facilities plus available cash.
Delivering Value
9
STRONG
FUNDAMENTALS
Key
Focus
Areas
TWO
Crombie’s core portfolio is performing
strongly and our team is dedicated
to ensuring our underlying business
fundamentals and portfolio remain
solid, as we enhance the relationship
with Empire and build out our mixed-
use development pipeline.
Belmont Market
LANGFORD, BC
“2019 was a very successful and
important year for Crombie, where
we maintained record high year-
end occupancy and drove robust
operating and leasing performance.”
Glenn Hynes
EVP & COO
10
Annual Report 2019
Retail Strength
Crombie’s 285-property portfolio is built on strong
fundamentals, driven by record high year-end committed
occupancy of 96.1%.
Not all retail is created equal. Retailers that focus on
providing value, convenience and experience will do well
in the evolving retail landscape. These are the types of
tenants frequenting our properties – they are growing and
opening new stores, not shrinking. In our grocery-anchored,
needs-based space, by a wide margin, we are seeing more
stores opening than closing. As a result, our properties are
performing very well, and are poised for future growth.
3.0%
Same-Asset Cash NOI1 Growth
96.1%
Record High Year-End Occupancy
1.6m
Square Feet Renewed
1 Adjusted for IFRS 16 ‘Leases’. 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
of the MD&A.
Portfolio Quality Team
Our Operations and Leasing teams excel at maximizing the
value of our portfolio. Some of those team members include:
Donna Vincent
General Manager –
Avalon Mall
ST JOHN’S, NL
Chris Branton
Director, Leasing
Lisa Crighton
Property Manager
HALIFAX, NS
CALGARY, AB
Delivering Value
11
MAXIMIZING
PARTNERSHIPS
Key
Focus
Areas
THREE
Crombie’s sustainable competitive
advantage, our relationship with our
largest tenant and partner Empire
and Sobeys, is being maximized
in a way that creates significant
Unitholder value.
Customer Fulfillment Centre
MONTREAL, QC
“ Investors should have a sense
of confidence that Crombie
has a competitive advantage,
and it’s being exploited in a way
that is creating and delivering
Unitholder value.”
John Barnoski
EVP, Corporate Development
12
Annual Report 2019
ALIGNED STRATEGIC PARTNERSHIP
From FreshCo conversions, Safeway
modernizations, and Sobeys store openings,
to distribution and customer fulfillment
centres, Crombie and Empire work together
to maximize value.
FreshCo
VANCOUVER, BC
Maximizing Partnerships
Crombie is optimizing our relationship with our partner Empire and
Sobeys, aligning our strategies, and capitalizing on a wide range
of strategic initiatives, opportunities and accretive transactions to
maximize value creation. In 2019, we invested in modernizations,
store conversions, and strategic acquisitions.
Crombie is focused on playing a supporting role in the evolution
of the grocery industry supply chain with the acquisition of the site
for the future home of Voilà par IGA in Montreal, Empire’s Customer
Fulfillment Centre for its online grocery home delivery service, and
Crombie’s sixth active major development. This asset strategically
diversifies our asset mix and income stream, increases our major
market urban exposure, and expands our Empire related industrial
asset category.
The development of the Montreal Customer Fulfillment Centre is
a prime example of our strong relationship with Empire and our
development expertise.
OPTIMIZING OUR RELATIONSHIP WITH OUR PARTNER EMPIRE
AND SOBEYS BY CAPITALIZING ON A WIDE RANGE OF VALUE
CREATING OPPORTUNITIES
RIGHT OF FIRST
OFFER
ACCESS TO
URBAN MARKETS
AT REASONABLE
PRICING
ALIGNED
PRIORITIES
GIVEN 41.5%
EQUITY
INTEREST
STORE
CONVERSIONS
MAJOR MIXED-USE
DEVELOPMENT
MARKET
INTELLIGENCE
MODERNIZATIONS
STRATEGIC
ACQUISITIONS
Corporate Development and Legal Teams
Ray and Antonella are two of our team members who ensure Crombie is
optimally-positioned for the future through their legal and analytical expertise.
Ray Zhang
Director, Market
Strategies &
Analytics
Antonella Talarico
Director,
Legal, Lease
Administration
TORONTO, ON
TORONTO, ON
Delivering Value
13
DEVELOPMENT
PIPELINE
Key
Focus
Areas
FOUR
Over the next two years, we
expect to complete approximately
$600 million of development, and
are pushing forward another seven
projects in planning to backfill our
active projects.
Broadway and Commercial
VANCOUVER, BC
“Crombie’s mixed-use urban
development pipeline
strategically integrates grocery
and residential into welcoming
community spaces.”
Don Clow
President & CEO
14
Annual Report 2019
2020
Davie Street
VANCOUVER, BC
2021
Le Duke
MONTREAL, QC
$107m
Development Cost1
$59m
Development Cost1
5.4-5.9%
Expected Yield on Cost2
5.4-5.8%
Expected Yield on Cost2
$65-81m
Potential Value Creation1,3
$21-26m
Potential Value Creation1,3
Avalon Mall Phase II
ST JOHN’S, NL
Bronte Village
OAKVILLE, ON
$57m
Development Cost
$139m
Development Cost1
10.3-11%
Expected Yield on Cost2
5.4-6%
Expected Yield on Cost2
$33-44m
Potential Value Creation3
$51-64m
Potential Value Creation1,3
Belmont Market
LANGFORD, BC
CFC
MONTREAL, QC
$93m
Development Cost
$100m
Development Cost
5.8-6.1%
Expected Yield on Cost2
6.1-6.4%
Expected Yield on Cost2
$17-23m
Potential Value Creation3
$19-32m
Potential Value Creation3
1 At Crombie’s proportionate share.
2
Estimated Total Cost and Estimated Yield on Cost includes all costs associated
with the development, including but not limited to, estimated land value, pre-
development costs, construction costs, tenant costs and financing costs.
3 Assumes Potential Value 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.
Development Pipeline
Our active major development pipeline remains on time
and on budget. With $374 million invested to date, we
anticipate creating significant value for our Unitholders. Yields
on cost for our first six projects are in the range of 5.5 – 6.0%,
which we expect will translate into $1 - $2 of NAV per unit
commencing this year, assuming current market and cap rate
conditions continue.
We expect to invest $150 million to $200 million in our
development program annually. Upon completion, these
properties are expected to create significant NAV and AFFO
growth, increase our presence in the country’s top urban
markets, while diversifying and improving our overall portfolio
quality and income stream.
In 2019, we expanded our value-enhancing major development
pipeline from 27 to 33 sites, now totaling $4 to $5.8 billion in
major development projects.
Our major development pipeline is comprised of strategically-
situated sites, with many conveniently located within walking
distance of existing and future transportation corridors/nodes.
All 33 of our development properties are located within
growth census metropolitan areas (CMAs). Approximately 75%
of our pipeline is located within CMAs that are experiencing
population growth exceeding the national average.*
38 acres
in Vancouver
24
properties in VECTOM
*(source: National average: Canada’s population growth between 2011 and 2016 (census data), 5%.)
Development & Construction Team
Across the country, our people design, build and oversee development
projects of all sizes. Some of those team members include:
Kevin Pritchard
Director,
Development
CALGARY, AB
John Charlton
Sr Project Manager
NEW GLASGOW, NS
Joseph Driscoll
Director,
Development
NEW GLASGOW, NS
Beth Robicheau
Sr Estimator
HALIFAX, NS
Delivering Value
15
VALUING
PEOPLE
Key
Focus
Areas
FIVE
ERP HighRise Team
One Team Culture
We have built a vibrant, energetic
culture that encourages thought
leadership, collaboration, and learning
at all levels of the organization.
2019 was a transformational year for people and
platforms at Crombie. We hired new people, grew
internal talent, made the company’s demographics
younger, and increased our technology capabilities.
With the implementation of our ERP and Oracle
Talent Management system, our data and related
analytics improved significantly.
L-R: Lesley Bowes, Sr Accountant, Campbell DeMont, Applications
Analyst, Mark Wilson, Sr Business Analyst, Terri Lynn Driscoll, Director,
Financial Analysis, Courtney Hall, Systems Analyst, Shelley Atwin, Team
Lead, Accounts Receivable
Talent Management Team
L-R: Ashley Harrison, Director, Talent Management, Stephanie Smith,
Manager, Compensation & Talent Analytics, Melanie Cook, Advisor,
Talent Management, Rebecca MacNeil, Manager, Recruitment &
Employee Engagement
“ People and platforms have
allowed us to thrive. With the
right people and systems in place,
interdepartmental collaboration and
communication are creating optimal
conditions for thought leadership
here at Crombie.”
Cheryl Fraser
Chief Talent Officer & VP Communications
16
Annual Report 2019
Crombie is striving to make
environmental sustainability a
part of our everyday decision-
making, and we believe that
everyone has a responsibility
to do their part to help protect
and sustain our environment.
Sustainability
Crombie’s core values include a commitment to sustainability. In
2020, Crombie will increase disclosure and reporting around our
ESG commitment and continue to foster a progressive culture
where every employee values diversity, innovation, wellness
and the environment.
SCOTIA SQUARE
HALIFAX, NS
Scotia Square complex in
downtown Halifax won multiple
green industry awards in 2019
such as the BOMA Nova Scotia
Award of Excellence, and
BOMA Canada TOBY Award
for office space over 1,000,000
square feet.
Cogswell Tower installed
EcoPilot®, an integrated A.I.
technology that optimizes the
performance of a Building
Management System,
making real time, automatic
and continuous energy
management decisions.
L-R: Frank Penniceard, Chief Engineer,
Pat Poirier, Manager, Sustainability
26.54%
HVAC energy savings
1,248,478 ekWh
Reduced HVAC
energy consumption
187
Savings equivalent of removing
187 gas powered cars from the
road for a year
Sustainability Team
Environmental sustainability is an important part of Crombie’s culture. A few of
those leading or reporting on our environmental activities include:
Adam Cochrane
Manager,
Environmental
Pat Poirier
Manager,
Sustainability
Claire Mahaney Lyon
Manager,
Investor Relations
Jamie Stroh
Retail Manager
ST JOHN’S, NL
NEW GLASGOW, NS
HALIFAX, NS
HALIFAX, NS
Delivering Value
17
CONTINUING
PROGRESS
Message
from the
Chair
When Frank Sobey retired from Crombie’s Board of Trustees and the
Board asked if I would replace him in the role, I was both honoured and
saddened, as I saw Frank as part of the foundation that had been key to
the development of Crombie since its formation.
Needless to say, Frank left big shoes to fill, and I feel
privileged to be the first elected Trustee to become
Chair of the Board.
the Board has approved key changes to the organization
that we feel strengthen the team and support Crombie’s
growth plans.
A key role of the Board is to help shape the strategic
direction of the Trust. Our Board works diligently with
management to build a strategic plan, support and
enable their efforts to execute this plan, and build
an even stronger business for future development
and growth. The Board has been pivotal in the shift
of strategy towards growth through developing the
valuable properties we have in our portfolio. Crombie’s
Trustees engage in healthy debate, and take our
governance role very seriously. It goes without saying
that we are committed to satisfying all of Crombie’s many
stakeholders, and securing long-term, sustainable value
creation for the benefit of all. To that end, we continue
to collaborate closely with management to ensure that
Crombie’s strategy is implemented effectively, and that
we live up to our commitments in terms of performance,
diversity, and our high environmental, social and
governance standards.
We work as a Board to deliver value to all stakeholders,
including our majority unitholder, Empire. In fact, our
relationship with Empire is one of the key strengths that
sets us apart from our competition. By working closely
with Empire, we can maximize the value of our real
estate for the benefit of both parties, as we are able to
unlock development and operational opportunities
across Canada. Management has done a good job of
strengthening Crombie’s relationship with Empire, and
our relationship with the Empire and Sobeys teams is
active and productive. Collectively, we see the significant
benefits that this unique relationship affords.
In 2019 we strengthened our talent platform through
developing internal talent, hiring new talent in key
strategy areas and advancing our technology. Next
year’s Board will operate without the wisdom of Elisabeth
Stroback, who has been a Trustee since Crombie’s IPO.
Her leadership will be missed, as her knowledge has been
instrumental in helping guide the Board over the past
13 years. We wish her all the best and thank her for her
significant contribution to Crombie.
At the time of writing, the worldwide COVID-19 pandemic
is real, and is affecting us all. The Board has been very
supportive of Management’s efforts to minimize the
impact of this terrible pandemic on all of the stakeholders
of Crombie. We are very fortunate that our business is
focused on grocery- and drugstore-anchored retail, which
at this point is still holding up well in this time of adversity.
The Board will continue to encourage Management
to work closely with our employees, tenants and
communities to make sure we are flexible in our approach
to resolving any issues that do arise.
Over this past year, we have been very happy with
the management team’s effective job of delivering
the message to the market that Crombie is executing a
strong plan and achieving solid results. We are pleased
to see the market acknowledge our value in response.
On behalf of the Board of Trustees, I would like to thank
you for your trust as we continue onto the next phase
of Crombie’s journey.
Another key role of the Board is to ensure that the
management team has the skill and foresight to execute
the strategic plan approved by the Board. In the past year
Sincerely,
18
Annual Report 2019
J. Michael Knowlton
Independent Trustee & Chair
Board of Trustees
“It goes without saying that
we’re committed to satisfying
all of Crombie’s many
stakeholders, and securing
long-term, sustainable value
creation for the benefit of all.”
J. Michael Knowlton
Independent Trustee & Chair
J. Michael Knowlton
Independent Trustee & Chair
Paul Beesley
Independent Trustee
Donald E. Clow
Trustee
Jim M. Dickson
Independent Trustee
John C. Eby
Independent Trustee
Barbara Palk
Independent Trustee
Jason P. Shannon
Independent Trustee
Jana Sobey
Independent Trustee
Paul D. Sobey
Independent Trustee
Elisabeth Stroback
Independent Trustee
Delivering Value
19
FINANCIAL
REVIEW
Table of
Contents
KEY PERFORMANCE
INDICATORS
FINANCIAL
PERFORMANCE
MANAGEMENT’S
DISCUSSION
AND ANALYSIS
Introduction
Overview of the Property
Portfolio
Financial Results
Liquidity and Capital
Resources
Accounting
Risk Management
Subsequent Events
Controls and Procedures
Quarterly Information
CONSOLIDATED FINANCIAL
STATEMENTS
Management’s Statement
of Responsibility for Financial
Reporting
Independent Auditor’s Report
Consolidated Financial
Statements
Notes to the Consolidated
Financial Statements
Property Portfolio
Unitholders’ Information
Top 20 Tenants
21
23
25
29
40
47
54
57
62
62
63
65
66
68
72
100
102
IBC
Davie Street
VANCOUVER, BC
20
Annual Report 2019
Key Performance Indicators
KEY PERFORMANCE INDICATORS —
SUPPLEMENTARY INFORMATION
The following highlights Crombie’s performance against key financial and operational metrics as
impacted by significant trends or events during the quarter and year.*
FINANCIAL
(in thousands of CAD dollars, except per unit amounts)
Operating income
Q4 2019
Year 2019
$44,149
$161,875
Q4 2018 $20,111 +119.53%
Year 2018 $107,407 +50.71%
Property revenue
Q4 2019
Year 2019
$96,823
$398,741
Q4 2018 $104,296 -7.17%
Year 2018 $414,649 -3.84%
Same-asset cash NOI
Q4 2019
Year 2019
$59,760
$236,565
Q4 2018 $57,998 +3.04%
Year 2018 $228,582 +3.49%
FFO (per unit)
Q4 2019
$0.28
Year 2019
$1.16
Q4 2018 $0.31 -9.68%
Year 2018 $1.22 -4.92%
FFO (payout ratio)
Q4 2019
80.1%
Year 2019
76.9%
Q4 2018 72.5% +7.60%
Year 2018 73.2% +3.70%
The quarterly and annual increase in operating income attributable to Unitholders
is primarily due to gains on disposal of investment properties. These disposals also
resulted in lower depreciation and reduced finance costs from operations from
the repayment of related mortgages and credit facilities, offset in part by reduced
property revenue.
The decrease in property revenue in both the quarter and full year is due to
property dispositions; the most significant being a 50% interest in seven properties
sold in the first quarter of 2019, an 89% interest in 26 properties sold in the second
quarter of 2019 and an 89% interest in 15 properties sold in the fourth quarter of
2019. This decrease is partially offset by leasing activity in the second quarter of 2019
in Halifax office and development properties, as well as modernizations in several
properties in the third and fourth quarters.
The quarterly increase in same-asset cash NOI of $1,762 or 3.04% compared to the
fourth quarter of 2018 is primarily due to rate increases on existing tenant leases,
new leasing activity and revenues from modernizations and land use intensifications
at certain properties. In addition, there was a favourable impact from the adoption of
IFRS 16 ‘Leases’ on January 1, 2019.
On an annual basis, the same factors account for the majority of the 3.49%
increase in same-asset cash NOI, with the remaining increase a result of lease
termination income.
The quarterly decrease in FFO is primarily due to property dispositions.
On an annual basis, the 4.92% decrease is due to the impact of dispositions in 2019
as well as the impact of dispositions in the second quarter of 2018 and increased
general and administrative costs, the majority of which is related to the increase in
unit price and its impact on unit-based compensation plans.
Dispositions are dilutive as the proceeds primarily fund development projects
intended to drive FFO growth in the future.
The quarterly and annual FFO payout ratios exclude Crombie’s special distribution
declared in the fourth quarter. The higher payout ratios are a direct result of the
decreased FFO in the quarter and full year.
Delivering Value
21
Key Performance Indicators
FINANCIAL (CONTINUED)
(in thousands of CAD dollars, except per unit amounts)
AFFO (per unit)
Q4 2019
$0.24
Year 2019
$0.98
Q4 2018 $0.26 -7.69%
Year 2018 $1.03 -4.85%
AFFO (payout ratio)
Q4 2019
93.8%
Year 2019
90.8%
Q4 2018 84.8% +9.00%
Year 2018 86.5% +4.30%
Interest coverage ratio
Q4 2019
2.99x
Year 2019
2.95x
Q4 2018 2.94x +0.05x
Year 2018 2.92x +0.03x
Debt to gross book value – fair value
Q4 2019
48.9%
Q4 2018
51.0%
Q4 2018 51.0% -2.10%
Q4 2017 50.3% +0.70%
LEASING
Renewals (GLA)
The quarterly and annual decreases in AFFO are due to the decreases in FFO,
primarily driven by the dilutive impact of property dispositions.
The quarterly and annual AFFO payout ratios exclude Crombie’s special distribution
declared in the fourth quarter. The higher payout ratios are a direct result of the
decreased AFFO in the quarter and full year.
The quarterly and annual improvement in interest coverage ratio is due to the
decline in finance costs, primarily resulting from the repayment of mortgages with
lower cost unsecured debt.
Debt reduction from property dispositions, combined with increased value
in investment properties and joint ventures due to higher net assets from
development progress, drove a decrease in debt to gross book value – fair value
during the quarter.
Q4 2019
Year 2019
699,000
1,626,000
Q4 2018 155,000 +544,000
Year 2018 835,000 +791,000
The increased quarterly renewals are primarily related to 377,000 square feet of
Empire leases subject to modernization investment.
During 2019, 1,626,000 square feet was renewed at rents 3.9% over the expiring rate.
Retail and commercial renewals of 1,375,000 square feet reflect an increase of 4.1%
over expiring rent.
Economic
Occupancy
Committed
Occupancy
Year 2019
95.4%
Year 2019
96.1%
Year 2018 95.3% +0.1%
Year 2018 96.0% +0.1%
Economic occupancy was impacted by new leases of 247,000 square feet, primarily
in the development properties of Belmont Market and Avalon Mall, partially offset by
property dispositions during 2019.
Committed occupancy remained strong with new leases outpacing lease expiries by
166,000 square feet and 115,000 square feet of committed space at year end.
*Same-asset cash NOI, FFO, AFFO, interest coverage ratio and debt to gross book value – fair value 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. Please see the attached
Management’s Discussion and Analysis of financial results for a discussion of these measures and how they are calculated.
22
Annual Report 2019
Financial Performance
FOURTH QUARTER FINANCIAL
PERFORMANCE
(In thousands of CAD dollars, except per unit amounts)
The following highlights Crombie’s operating performance and investing and financing
activities for the three months ended December 31, 2019.
Operating Performance
• Reported operating income attributable to Unitholders for the quarter of $44,149, impacted by property
dispositions and impairments during the quarter.
• Reported FFO of $0.28 per unit, primarily impacted by the dispositions of investment properties.
• AFFO per unit of $0.24 per unit, reflecting a 93.8% payout ratio, excluding Crombie’s special distribution
in the quarter.
• Same-asset cash NOI of $59,760, an increase of 3.04% over the fourth quarter of 2018, resulting from rate
increases on existing tenants, new leasing activity and revenue from modernizations.
• Committed occupancy at 96.1%, with new leasing in development properties, Belmont Market and Avalon Mall,
during the quarter.
• Gain on disposal of investment properties of $30,198.
• Renewal activity totalled 699,000 square feet at an average rate of $17.36 per square foot, representing
3.9% renewal growth in the quarter, including significant renewed space for modernization investments.
Investing and Financing
• Sale of investment properties for the quarter for total gross proceeds of $193,333.
• Acquisition of remaining 50% interest in Vaughan Distribution Centre from Empire for $95,900
before closing costs.
• Modernization investments at nine Empire properties for a total cost of $15,297.
• Mortgage repayments of $186,210 and $3,994 net advances on credit facilities.
• Debt to gross book value on a fair value basis of 48.9%.
•
Issuance of $150,000 Series G unsecured notes at par with coupon of 3.917%, the proceeds
of which will be used to repay upcoming secured mortgage maturities.
Delivering Value
23
Financial Performance
ANNUAL FINANCIAL PERFORMANCE
(In thousands of CAD dollars, except per unit amounts)
The following highlights Crombie’s operating performance and investing and financing
activities for the year ended December 31, 2019.
Operating Performance
• Reported operating income attributable to Unitholders for the year of $161,875, impacted by $81,803 of
gains on property dispositions during the year, as well as an increase in general and administrative expenses,
the majority of which is related to the increase in unit price and its impact on unit-based compensation plans.
• Reported FFO of $1.16 per unit, primarily impacted by NOI decline from dispositions of investment properties.
• AFFO per unit of $0.98 per unit, reflecting a 90.8% payout ratio, excluding Crombie’s special distribution
in the quarter.
• Same-asset cash NOI of $236,565, an increase of 3.49% over the year ended December 31, 2018, impacted
by rate increases on existing tenants, new leasing activity, lease termination income and revenue from
modernization investments.
• Renewal activity included 1,626,000 square feet at an average rate of $17.37 per square foot, representing
3.9% renewal growth in the year.
Investing and Financing
• Sale of investment properties for the year for total gross proceeds of $536,471.
• Modernization investments at 16 Empire properties for a total cost of $33,446.
• Mortgage repayments of $346,735 and $124,535 net repayments on credit facilities.
24
Annual Report 2019
MANAGEMENT’S DISCUSSION
AND ANALYSIS
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)
INTRODUCTION
The following is Management’s Discussion and Analysis (“MD&A”) of the consolidated financial condition
and results of operations of Crombie Real Estate Investment Trust (“Crombie”) for the year and quarter ended
December 31, 2019, with a comparison to the financial condition and results of operations for the comparable
periods in 2018.
This MD&A should be read in conjunction with Crombie’s audited consolidated financial statements and
accompanying notes for the year ended December 31, 2019 and December 31, 2018, 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 26, 2020, 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)
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;
(ii) disposition of properties and the anticipated reinvestment of
net proceeds, which could be impacted by the availability of
purchasers, the availability of accretive property acquisitions, the
timing of property development activities or other accretive uses
for net proceeds and real estate market conditions;
(iii) overall indebtedness levels and terms and expectations relating to
refinancing, which could be impacted by the level of acquisition
and disposition activity that Crombie is able to achieve, levels of
indebtedness, Crombie’s ability to maintain and strengthen its
investment grade credit rating, future financing opportunities,
future interest rates, creditworthiness of major tenants and joint
arrangement partners, 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 and
anticipated impact on portfolio quality and diversification, 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;
(v) asset growth and reinvesting to develop or otherwise make
improvements to existing properties, which could be impacted
by the availability of labour, capital resource availability and
allocation decisions as well as actual development costs;
(vi) generating improved rental income and occupancy levels,
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) anticipated rate of general and administrative expenses as a
percentage of property revenue, which could be impacted by
changes in property revenue and/or changes in general and
administrative expenses;
(viii) 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;
(ix) pending acquisitions or dispositions, which remain subject to
satisfaction of customary closing conditions;
(x)
tax exempt status, which can be impacted by regulatory changes
enacted by governmental authorities;
Delivering Value
25
(xi) anticipated distributions and payout ratios, which could be
impacted by results of operations and capital resource allocation
decisions; and,
(xii) 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, 2019 are as follows:
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)
2019
2018
Variance
Variance (%)
Three months ended December 31,
Property revenue
Property operating expenses
Property NOI
NOI margin percentage
Operating income attributable to Unitholders
Operating income per unit
Increase (decrease) in net assets attributable to Unitholders
Same-asset property cash NOI
FFO
Basic
Per unit – Basic
Payout ratio, excluding special distribution (%)
AFFO
Basic
Per unit – Basic
Payout ratio, excluding special distribution (%)
$
$
$
$
$
$
$
$
$
$
96,823
$
104,296
$
29,852
30,817
66,971
$
73,479
$
69.2%
44,149
0.29
$
$
70.5%
20,111
0.13
$
$
(4,857) $
(13,416) $
$
$
$
$
$
59,760
42,132
0.28
80.1%
36,006
0.24
93.8%
$
$
$
$
$
57,998
46,490
0.31
72.5%
39,771
0.26
84.8%
(7,473)
965
(6,508)
(1.3)%
24,038
0.16
8,559
1,762
(4,358)
(0.03)
7.6%
(3,765)
(0.02)
9.0%
(7.2)%
3.1%
(8.9)%
119.5%
123.1%
63.8%
3.0%
(9.4)%
(9.7)%
(9.5)%
(7.7)%
26
Annual Report 2019
Management’s Discussion and Analysis (In thousands of CAD dollars, except per unit amounts and as otherwise noted)
2019
2018
Variance
Variance (%)
Year ended December 31,
Property revenue
Property operating expenses
Property NOI
NOI margin percentage
Operating income attributable to Unitholders
Operating income per unit
Increase (decrease) in net assets attributable to Unitholders
Same-asset property cash NOI
FFO
Basic
Per unit – Basic
Payout ratio, excluding special distribution (%)
AFFO
Basic
Per unit – Basic
Payout ratio, excluding special distribution (%)
$
$
$
$
$
$
$
$
$
$
398,741
$
414,649
$
117,645
121,306
281,096
$
293,343
$
70.5%
161,875
1.07
10,369
236,565
175,539
1.16
76.9%
148,632
0.98
90.8%
$
$
$
$
$
$
$
$
70.7%
107,407
0.71
$
$
(26,920) $
$
$
$
$
$
228,582
184,034
1.22
73.2%
155,794
1.03
86.5%
(15,908)
3,661
(12,247)
(0.2)%
54,468
0.36
37,289
7,983
(8,495)
(0.06)
3.7%
(7,162)
(0.05)
4.3%
(3.8)%
3.0%
(4.2)%
50.7%
50.7%
138.5%
3.5%
(4.6)%
(4.9)%
(4.6)%
(4.9)%
Weighted average number of Units outstanding for per unit measures calculations:
Basic number of Units for all measures
151,722,819
151,419,487
151,666,357
151,213,896
Three months ended December 31,
Year ended December 31,
2019
2018
2019
2018
Operating Results
December 31, 2019
September 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018
Number of investment properties1
285
284
284
285
288
Gross leaseable area2
Economic occupancy3
Committed occupancy4
17,558,000
17,732,000
17,746,000
18,604,000
18,896,000
95.4%
96.1%
95.6%
96.1%
95.2%
95.9%
95.0%
95.7%
95.3%
96.0%
(1) This includes properties owned at full and partial interests.
(2) Gross leaseable area is adjusted to reflect Crombie’s proportionate interest in partially-owned properties.
(3) Represents space currently occupied.
(4) Represents current economic occupancy plus lease contracts for future occupancy of currently vacant space.
December 31, 2019
September 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018
$
$
$
Investment properties, fair value
Unencumbered investment
properties1
Available liquidity2
Debt to gross book value – fair value3
Weighted average interest rate4
Debt to trailing 12 months EBITDA5
Interest coverage ratio5
4,605,000
1,223,452
449,016
48.9%
$
$
$
4.17%
8.52x
2.99x
$
$
$
4,626,000
960,275
450,967
48.9%
4.22%
8.35x
2.90x
$
$
$
4,592,000
953,738
413,087
49.2%
4.19%
8.21x
3.00x
$
$
$
4,755,000
1,012,707
346,347
50.3%
4.20%
8.56x
2.93x
4,776,000
998,523
312,459
51.0%
4.20%
8.66x
2.94x
(1) Represents fair value of unencumbered properties.
(2) Represents the undrawn portion on the credit facilities, excluding joint facilities with joint operation partners.
(3) See Debt to Gross Book Value – Fair Value Basis section.
(4) Weighted average interest rate is calculated based on interest rates for all outstanding fixed rate debt.
(5) See Coverage Ratios section.
Delivering Value
27
Management’s Discussion and Analysis
Available liquidity is the net amount available on Crombie’s credit facilities, excluding joint facilities with joint operation partners, calculated as follows:
December 31, 2019
September 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018
Revolving credit facility
$
400,000
$
400,000
$
398,555
$
400,000
$
Amount drawn
Outstanding letters of credit
Available liquidity
Unsecured bilateral credit
facility
Amount drawn
Available liquidity
(15,339)
(5,645)
379,016
100,000
(30,000)
70,000
(9,388)
(5,645)
384,967
100,000
(34,000)
66,000
(55,707)
(5,761)
337,087
100,000
(24,000)
76,000
(107,986)
(5,667)
286,347
100,000
(40,000)
60,000
Total available liquidity
$
449,016
$
450,967
$
413,087
$
346,347
$
400,000
(108,843)
(8,698)
282,459
100,000
(70,000)
30,000
312,459
Business Overview
Crombie Real Estate Investment Trust (“Crombie”) is an unincorporated,
open-ended real estate investment trust established under, and
governed by, the laws of the Province of Ontario. Crombie is one of
the country’s leading national retail property landlords with a strategy
to own, operate and develop a portfolio of high-quality grocery- and
drugstore-anchored shopping centres, freestanding stores and mixed-
use developments, primarily in Canada’s top urban and suburban
markets. At December 31, 2019, Crombie owned full and partial interests
in a portfolio of 285 investment properties in 10 provinces, comprising
approximately 17.6 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, 2019.
Crombie units trade on the Toronto Stock Exchange (“TSX”) under the
symbol “CRR.UN”.
Business Objectives and Strategy
Crombie’s objective is to generate Unitholder value by:
1.
Driving consistent growth in FFO, AFFO and NAV per unit through
strong operating performance from our grocery-anchored
portfolio, creating value through our relationship with Empire,
disciplined execution of our major development projects, and
effective acquisition and other investments to enhance portfolio
quality.
2.
Funding Crombie’s growth through smart and balanced capital
allocation and lowering our cost of capital over time.
3. Attracting and retaining high-quality talent, resulting in a high-
performance national team.
Balancing opportunities and related business risks should provide
consistency and growth of cash flows (AFFO) and net asset value
(NAV). Crombie’s path to improved AFFO and NAV growth will be
significantly focused on supporting Empire’s growth opportunities
and our major developments. Future developments will be in
predominantly major markets, with a focus on NAV via maximizing our
development yield spread over acquisition/cap rates, and achieving
strong AFFO growth via higher Net Operating Income (NOI) from
attractive rental growth.
This strategy is supported by a balanced capital allocation approach.
Aligning our strategy with Empire enables Crombie to capitalize
on a wide range of strategic and accretive transactions such as
modernizations, conversions to FreshCo, and land use intensifications.
Our relationship also allows us to unlock major development
opportunities, increase our presence in major markets, and diversify
our portfolio with residential and retail-related industrial real estate,
which improves our overall portfolio quality and income growth.
28
Annual Report 2019
Crombie will continue to leverage its strong and diverse workforce to
achieve strategic objectives ensuring our culture, brand and values are
aligned to drive sustainable growth and innovation.
Business Environment
Canada’s retail sector continues to be impacted by the growth of online
shopping and consumers’ changing needs and expectations. Not all
retail is created equal. In urban areas, the competition for downtown
retail space is fierce, as the increasing trend to live, work, shop and play
in city centres continues to intensify. Closure of big-box and traditional
department stores also continues, and other retail centres are being
transformed into destinations that people visit for more than just
shopping. Despite this challenging and competitive retail environment,
the fundamentals of Crombie’s needs-based retail real estate
remain strong.
Online retailing has had a minimal effect on the grocery sector to
date. Online sales penetration is estimated at approximately 1% of total
spend, but evolving, with more emphasis being placed on centralized
warehousing facilities and various click and collect shopping options.
Pension funds and private equity continue to increase capital allocation
to real estate and infrastructure assets, actively pursuing high-quality,
lower-risk assets for their income quality and/or development potential.
This demand, alongside low interest rates, has driven capitalization
rates down in urban markets.
REITs are broadening their strategic focus beyond their traditional
asset classes in order to optimize property-specific NAV and drive
financial performance. Increased population growth and immigration in
urban areas is driving demand for mixed-use, high-density, residential
property, including purpose-built rentals and condominiums.
These opportunities are facing increased execution challenges as
development costs continue to rise due to higher construction and
labour costs, longer municipal approval cycles and increases in
fees and levies. Nonetheless, it is becoming essential for those who
own irreplaceable urban assets to assess and execute mixed-use
development to unlock the value potential of their highest and
best use.
The war for talent is a reality in the real estate sector. Companies must
be nimble in creating a competitive position in the market to attract
and retain qualified talent. Forward-thinking companies have already
started to recruit local teams in key markets. Successful organizations
are adapting their structures with cross-skilled employees capable
of handling the new or unexpected and are selecting key strategic
partners to fill specific talent gaps. An aging workforce demographic
means increased competition for talent in all markets. Inclusion of
diverse groups into the workforce and adjusting policies on how work
is done, is a priority to attracting and retaining key talent.
Management’s Discussion and Analysis OVERVIEW OF THE PROPERTY 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
2019 First Quarter
March 25, 2019
Pointe-Claire, QC
Pointe-Claire, QC
Third Party
Development (PUD)
2019 Third Quarter
August 1, 2019
Broadview Avenue
Toronto, ON
Empire
Income-producing
2019 Fourth Quarter
October 29, 2019
Belmont – Ledcor
Buildings1
Langford, BC
Third Party
Income-producing
November 28, 2019
Marketway Lane
Halifax, NS
December 16, 2019
Vaughan DC2
Vaughan, ON
Empire
Empire
Income-producing
Income-producing
Total acquisitions at December 31, 2019
2018 Second Quarter
Sobeys Portfolio
Edson Sobeys
Edson, AB
Strathmore Sobeys
Strathmore, AB
Empire
Empire
Income-producing
Income-producing
April 6, 2018
April 6, 2018
April 6, 2018
April 6, 2018
April 6, 2018
April 6, 2018
April 6, 2018
April 6, 2018
April 6, 2018
April 6, 2018
April 6, 2018
Hollick Kenyon
Sobeys
Thornbury
Foodland
Edmonton, AB
Empire
Income-producing
Thornbury, ON
Gatineau IGA Extra
Gatineau, QC
Rimouski IGA Extra
Rimouski, QC
Baie St-Paul IGA
Baie St-Paul, QC
Saint-Pie Tradition
Saint-Pie, QC
Empire
Empire
Empire
Empire
Empire
Income-producing
Income-producing
Income-producing
Income-producing
Income-producing
Havre St-Pierre
Tradition
Elmwood Alcool NB
Liquor/Dollarama1
Chateauguay
Familiprix1
Sobeys portfolio
total
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
December 13, 2018
Elbow Drive3
Sorel, QC
Calgary, AB
Third Party
Income-producing
Third Party
Income-producing
Total acquisitions for the year ended December 31, 2018
(1) Relates to an acquisition of additional density on a pre-existing retail property
(2) Relates to an acquisition of additional density on a pre-existing retail-related industrial property
(3) Acquisition of an add-on parcel to an existing property
Ownership
Number of
Investment
Properties
Interest
Sq. ft.
Price
—
1
—
1
—
2
1
1
1
1
1
1
1
1
1
—
—
9
1
—
1
—
11
100%
—
$
32,000
50%
15,000
9,500
100%
100%
29,000
40,000
50% 397,000
466,000
6,611
12,422
95,900
114,933
481,000
$
156,433
100%
100%
33,000
$
5,300
35,000
10,200
100%
30,000
11,800
100%
100%
100%
100%
100%
40,000
71,800
52,700
64,600
13,800
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
421,000
88,110
100%
37,000
458,000
12,500
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
Delivering Value
29
Management’s Discussion and Analysis Dispositions
Date
2019 First Quarter
January 7, 2019
January 29, 2019
Firm Capital Portfolio1
February 5, 2019
February 5, 2019
February 5, 2019
February 5, 2019
February 5, 2019
February 5, 2019
February 5, 2019
Firm Capital portfolio total
Property
Location
1040 – 1070 Guillaume Couture
Boulevard
Saint Romuald, QC
Upper James Square
Hamilton, ON
8118 & 8130 118 Avenue NW
Edmonton, AB
Forest Hills Parkway
Russell Lake
Cole Harbour, NS
Dartmouth, NS
409 Bayfield Street
Barrie, ON
1 Westminster Avenue North
Montreal, QC
2915 & 2931 13th Avenue
University Park
Regina, SK
Regina, SK
February 8, 2019
February 14, 2019
1110 Gateway Avenue
1031 Avenue Victoria
Canmore, AB
St. Lambert, QC
2019 Second Quarter
Oak Street I Portfolio2
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
April 25, 2019
Fairway Plaza
Lethbridge, AB
410 and 610 Big Rock Lane
Okotoks, AB
Cariboo Mall
100 Mile House, BC
1721 Columbia Avenue
Castlegar, BC
11200 8th Street
445 Reid Street
3156 Birds Hill Road E
498 Mountain Avenue
107 Catherwood Street
21 Cromer Avenue
69 Blockhouse Road
151 Church Street
75 Emerald Street
22579 Highway 7
215 Park Avenue W
15 Lindsay Street
32-38 Ottawa Street
400 First Avenue S
5931 Kalar Road
Dawson Creek, BC
Quesnel, BC
East St. Paul, MB
Neepawa, MB
Saint John, NB
Grand Falls, NL
Placentia, NL
Antigonish, NS
New Waterford, NS
Sheet Harbour, NS
Chatham, ON
Fenelon Falls, ON
Havelock, ON
Kenora, ON
Niagara Falls, ON
714 Boul Saint-Laurent O
Louiseville, QC
515 Avenue du Phare E
395 Avenue Sirois
Matane, QC
Rimouski, QC
680 Avenue Chausse
Rouyn-Noranda, QC
10505 Boul Saine-Anne
Sainte-Anne-de-Beaupre, QC
8980 Boul Lacroix
50 Rue Bourgeois
Saint-Georges, QC
Sherbrooke, QC
Oak Street I portfolio total
April 29, 2019
June 3, 2019
1780 Markham Road
Belmont Market Land
Toronto, ON
Langford, BC
Ownership
Number of
properties
Interest
Sq. ft.
Price
—
1
—
—
—
—
—
—
—
—
1
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
100%
— $
821
100%
114,000
35,180
50%
50%
50%
50%
50%
50%
50%
22,000
22,000
31,000
24,000
10,000
20,000
19,000
148,000
41,614
100%
50,000
100%
19,000
331,000
19,925
9,675
107,215
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
57,000
37,000
19,000
24,000
38,000
27,000
35,000
16,000
41,000
24,000
17,000
46,000
23,000
8,000
43,000
31,000
13,000
33,000
32,000
21,000
27,000
42,000
38,000
34,000
39,000
20,000
785,000
161,589
100%
39,000
100%
—
21,500
3,275
824,000
186,364
30
Annual Report 2019
Management’s Discussion and Analysis Date
Property
Location
Ownership
Number of
properties
Interest
Sq. ft.
Price
2019 Third Quarter
July 3, 2019
July 4, 2019
August 2, 2019
September 25, 20194
2019 Fourth Quarter
Oak Street II Portfolio5
October 7, 2019
October 7, 2019
October 7, 2019
October 7, 2019
October 7, 2019
October 7, 2019
October 7, 2019
October 7, 2019
October 7, 2019
October 7, 2019
October 7, 2019
October 7, 2019
October 7, 2019
October 7, 2019
October 7, 2019
400 University Avenue
Charlottetown, PE
Grimsby Mews
Davie Street3
Charlotte Mall
Grimsby, ON
Vancouver, BC
St. Stephen, NB
Castleridge Safeway
Saddletowne Circle Safeway
Calgary, AB
Calgary, AB
Fort McMurray Safeway
Fort McMurray, AB
Spruce Grove Safeway
Spruce Grove, AB
Stony Plain Safeway
Chilliwack Safeway
Kamloops Safeway
Smithers Safeway
Selkirk Safeway
Ropewalk Lane
Stony Plain, AB
Chilliwack, BC
Kamloops, BC
Smithers, BC
Selkirk, MB
St. John’s, NL
Panavista/West Royalty Sobeys
Dartmouth, NS
Bradford Sobeys
Orangeville Sobeys
Bradford, ON
Orangeville, ON
Lebourgneuf IGA Extra
Quebec, QC
Sherbrooke IGA Extra
Sherbrooke, QC
Oak Street II Portfolio total
Total dispositions as at December 31, 2019
(1) Represents disposition of 50% interest in a portfolio of seven retail properties. The square footage and price reflect the 50% amounts.
(2) Represents disposition of 89% interest in a portfolio of 26 retail properties. The square footage and price reflect the 89% amounts.
(3) Represents disposition of air rights to a joint venture in which Crombie holds 50% interest.
(4) Represents disposition of a portion of a PID at 225 King Street, St.Stephen, NB.
(5) Represents disposition of 89% interest in a portfolio of 15 retail properties. The square footage and price reflect the 89% amounts.
Date
2018 First Quarter
February 5, 2018
February 20, 2018
March 6, 2018
2018 Second Quarter
April 19, 2018
May 11, 2018
Northam Portfolio6
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
Property
Location
Whitehorse Plaza
Perth Mews
Belmont Market land
Simcoe, ON
Perth, ON
Langford, BC
Red Deer Cineplex
10 Alkenbrack St
Red Deer, AB
Napanee, ON
16th Ave Safeway
Ancaster Sobeys
Brampton Plaza
Danforth
Marpole Safeway
Calgary, AB
Ancaster, ON
Brampton, ON
Scarborough, ON
Vancouver, BC
McKenzie Town Dr Shoppers
Calgary, AB
Millwoods Common
Edmonton, AB
Nottingham
Southbrook
Sherwood Park, AB
Edmonton, AB
Northam Portfolio total
June 18, 2018
Park Lane
Halifax, NS
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5
89%
44,000
100%
36,000
100%
100%
—
3,000
83,000
9,750
12,255
27,379
175
49,559
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
89%
50,000
45,000
36,000
45,000
40,000
46,000
44,000
38,000
38,000
45,000
43,000
31,000
41,000
52,000
47,000
641,000
193,333
1,879,000
$
536,471
Ownership
Number of
properties
Interest
Sq. ft.
Price
1
1
—
1
1
—
—
—
—
—
—
—
—
—
—
1
100%
92,000
$
15,000
20,627
5,725
41,352
14,000
9,000
100% 103,000
100%
—
195,000
100%
40,000
100%
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
100% 273,000
541,000
77,929
52,084
153,013
Delivering Value
31
Management’s Discussion and Analysis Date
Property
Location
2018 Third Quarter
August 16, 2018
2018 Fourth Quarter
December 18, 2018
December 18, 2018
December 18, 2018
Bronte Village7
Oakville, ON
Southdale
Eglinton Ave
Montrose Road
London, ON
Toronto, ON
Niagara Falls, ON
Total dispositions for the year ended December 31, 2018
(6) Represents disposition of 50% interest in a portfolio of nine retail properties. The square footage and price reflect the 50% amounts.
(7) Represents disposition of property to a joint venture in which Crombie holds 50% interest.
Crombie continues as property manager for the properties in which it retains a partial ownership interest.
Ownership
Number of
properties
Interest
Sq. ft.
Price
1
1
1
1
9
100%
30,000
39,682
100%
100%
100%
17,000
17,000
17,000
5,400
15,500
5,700
51,000
26,600
817,000
$ 260,647
Overview of the Property Portfolio
As at December 31, 2019, Crombie’s property portfolio consisted of full and partial ownership interests in 285 investment properties that contain,
at Crombie’s share, approximately 17.6 million square feet of GLA in all 10 provinces.
As at December 31, 2019, the portfolio distribution of the GLA by province was as follows:
Province
January 1, 2019
GLA (sq. ft.)
Acquisitions
(Dispositions)
AB
BC
MB
NB
NL
NS
ON
PE
QC
SK
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
(382,000)
(207,000)
(89,000)
(44,000)
(86,000)
(133,000)
(25,000)
(44,000)
(349,000)
(39,000)
Other
(5,000)
33,000
6,000
(2,000)
77,000
(67,000)
8,000
10,000
—
—
Total
18,896,000
(1,398,000)
60,000
(1) Totals include Crombie’s ownership of partial dispositions.
During the twelve months ended December 31, 2019, Crombie had a
net decrease of 1,398,000 square feet of GLA from disposition activity
consisting of:
• Alberta – disposition of 50% interest in one retail property
representing 22,000 square feet, disposition of 89% interest in seven
retail properties representing 310,000 square feet and 100% interest
in one retail property totalling 50,000 square feet;
December 31,
20191
Number of Invest-
ment Properties
% of GLA
% of Annual
Minimum Rent
3,041,000
1,655,000
561,000
1,524,000
1,194,000
4,806,000
2,470,000
90,000
1,802,000
415,000
17,558,000
58
42
15
20
13
42
42
2
43
8
17.3%
9.4%
3.2%
8.7%
6.8%
27.4%
14.1%
0.5%
10.3%
2.3%
19.6%
12.8%
4.2%
6.4%
9.6%
21.4%
13.9%
0.6%
9.2%
2.3%
285
100.0%
100.0%
• Ontario – disposition of 50% interest in one retail property
representing 24,000 square feet, disposition of 89% interest in seven
retail properties representing 224,000 square feet, 100% interest in
three retail properties totalling 189,000 square feet. This is partially
offset by 50% acquisition in one retail property totalling 15,000 sf
and a 50% addition to one retail-related industrial property totalling
397,000 square feet;
• Prince Edward Island – disposition of 89% interest in one retail
• British Columbia – disposition of 89% interest in seven retail
property representing 44,000 square feet;
properties totaling 236,000 square feet, offset in part by a 29,000
square foot addition to an existing retail property;
• Manitoba – disposition of 89% interest in three retail properties
representing 89,000 square feet;
• New Brunswick – disposition of 89% interest in one retail property
totalling 41,000 square feet and disposition of one PID in one retail
property totalling 3,000 square feet;
• Newfoundland – disposition of 89% interest in three retail properties
totalling 86,000 square feet;
• Nova Scotia – disposition of 50% interest in two retail properties
totalling 53,000 square feet, disposition of 89% interest in four retail
properties representing 120,000 square feet. This is partially offset
by 100% acquisition in one retail property representing 40,000
square feet;
32
Annual Report 2019
• Quebec – disposition of 50% interest in one retail property
representing 10,000 square feet, disposition of 89% interest in nine
retail properties totalling 320,000 square feet and 100% interest in
one retail property totalling 19,000 square feet; and,
• Saskatchewan – disposition of 50% interest in two retail properties
totalling 39,000 square feet.
Changes in GLA included in Other in the above table include
increases for additions/expansions to GLA on existing properties and
decreases primarily related to GLA removals in preparation for property
redevelopment.
As at December 31, 2019, our allocation of annual minimum rent
consists of: Atlantic Canada 38.0%; Central Canada 23.1%; and Western
Canada 38.9%. Crombie believes this diversification adds stability to the
portfolio while reducing vulnerability to economic fluctuations that may
affect any particular region.
Management’s Discussion and Analysis Property Categorization
As at December 31, 2019:
Same-asset
Non Same-Asset
Acquisitions – 2019
Acquisitions – 2018
Other1
Active Major Development2
Total Non Same-asset
Total
Crombie Owned Properties
Investment
Properties (“IP”)
Properties Under
Development
(“PUD”)
Additional
Properties in Joint
Ventures (“JV”)
Sub-total
266
2
10
4
3
19
285
—
—
—
3
1
4
4
266
2
10
7
4
23
289
—
—
—
1
3
4
4
Total
266
2
10
8
7
27
293
(1) Other includes investment properties that have been designated for repositioning, land parcels included in PUD, or non-active major developments within a JV.
(2) Active Major Development includes: Davie Street Retail (IP), Avalon Mall Retail (IP), Belmont Market Retail and Office (IP), Pointe-Claire (PUD), Davie Street Residential (JV), Le Duke (JV), Bronte Village (JV)
Davie Street is being developed as both a commercial (Crombie owned) and residential (Joint Venture owned) development. On August 2, 2019,
Crombie transferred air rights to 1600 Davie Limited Partnership. Davie Street is treated as two properties, one Crombie owned Investment Property
(retail) and a separate Active Major Development (residential rental property) within the 1600 Davie Limited Partnership Joint Venture (Additional
Properties in Joint Ventures – Active Major Development).
Portfolio Occupancy and Lease Activity
The portfolio occupancy and committed activity for the twelve months ended December 31, 2019 was as follows:
Province
January 1,
2019
Acquisitions
(Dispositions)
New
Leases1
Occupied space (sq. ft.)
Other
Changes2
December 31,
2019
Economic
Occupancy
%
Committed
Space
(sq. ft.)3
Total
Committed
Space (sq. ft.)
Committed
Occupancy
December 31,
2019
AB
BC
MB
NB
NL
NS
ON
PE
QC
SK
3,418,000
1,805,000
640,000
1,401,000
1,159,000
4,532,000
2,383,000
124,000
2,117,000
438,000
(382,000)
(220,000)
(89,000)
(41,000)
(86,000)
(133,000)
(24,000)
(44,000)
(349,000)
(39,000)
6,000
48,000
6,000
36,000
64,000
44,000
29,000
10,000
4,000
Lease
Expiries
(5,000)
—
—
(17,000)
(28,000)
(15,000)
(8,000)
—
—
—
(8,000)
(3,000)
(5,000)
(1,000)
3,034,000
1,628,000
556,000
(24,000)
1,355,000
(7,000)
1,102,000
16,000
5,000
—
1,000
(5,000)
4,444,000
2,385,000
90,000
1,773,000
386,000
99.8%
98.4%
99.1%
88.9%
92.3%
92.5%
96.6%
100.0%
98.4%
93.0%
95.4%
3,000
4,000
1,000
22,000
44,000
14,000
27,000
—
—
—
3,037,000
1,632,000
557,000
1,377,000
1,146,000
4,458,000
2,412,000
90,000
1,773,000
386,000
115,000
16,868,000
99.9%
98.6%
99.3%
90.4%
96.0%
92.8%
97.7%
100.0%
98.4%
93.0%
96.1%
Total
18,017,000
(1,407,000)
247,000
(81,000)
(23,000)
16,753,000
(1) New leases include new leases and expansions to existing properties.
(2) Other changes include amendments to existing leases; lease terminations and surrenders; bankruptcies; and space certifications.
(3) Committed space represents lease contracts for future occupancy of currently vacant space. Management believes such reporting, along with reported lease maturities, provides more balanced
reporting of overall vacant space. Committed space decreased to 115,000 square feet at December 31, 2019, from 124,000 square feet at December 31, 2018.
Overall leased space (occupied plus committed) has increased from
96.0% at December 31, 2018 to 96.1% at December 31, 2019. During 2019,
Crombie had a net decrease from dispositions of 1,407,000 square feet
and had new leases outpace lease expiries by 166,000 square feet.
New leases and expansions increased occupancy by 247,000 square
feet at December 31, 2019 at an average first year rate of $20.68 per
square foot. New leases totaled 240,000 square feet at an average
first year rate of $20.86 per square foot. Expansions totaled 7,000
square feet at an average first year rate of $14.42 per square foot. As at
December 31, 2019, 115,000 square feet of space was committed at an
average first year rate of $20.38 per square foot.
Delivering Value
33
Management’s Discussion and Analysis For 2019, renewal activity was as follows:
2019 Renewals
Future Year Renewals
Total
Three Months Ended December 31, 2019
Year Ended December 31, 2019
Square Feet
Rate PSF
Growth %
Square Feet
Rate PSF
Growth %
140,000
$
559,000
699,000
$
11.42
18.85
17.36
5.5%
3.7%
3.9%
788,000
$
838,000
1,626,000
$
15.39
19.23
17.37
3.5%
4.2%
3.9%
Crombie’s renewal activity for the year ended December 31, 2019 included retail and commercial renewals of 1,375,000 square feet with an increase
of 4.1% over expiring rental rate. 2019 renewals were negatively impacted by renewals on two commercial leases at lower rents in the first quarter.
251,000 square feet of office renewals were completed with an increase of 2.6% over expiring rental rates. During the quarter, Crombie renewed
699,000 square feet with an increase of 3.9% over expiring rate.
Market Class
Portfolio diversification by market class is as follows:
Market Class
VECTOM1
Major Markets2
Rest of Canada (RoC)3
Total
GLA
5,295,000
4,597,000
7,666,000
17,558,000
Economic
Occupancy
Committed
Occupancy
Number of Invest-
ment Properties
% of GLA
% of Investment
Properties
98.9%
96.3%
92.5%
95.4%
99.0%
96.7%
93.7%
96.1%
89
60
136
285
30.2%
26.1%
43.7%
100.0%
31.2%
21.1%
47.7%
100.0%
(1) VECTOM: Vancouver, Edmonton, Calgary, Toronto, Ottawa-Gatineau, Montreal, as defined by Statistics Canada 2016 CMA/CA boundaries.
(2) Major Markets consists of Abbotsford-Mission, Barrie, Chilliwack, Halifax, Hamilton, Kitchener-Cambridge-Waterloo, Oshawa, Quebec City, Regina, Saskatoon, Victoria, and Winnipeg, as defined by
Statistics Canada 2016 CMA/CA boundaries.
(3) RoC includes all remaining geographies outside of VECTOM and Major Markets.
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, 2019, the portfolio distribution of the GLA by asset type was as follows:
Asset Type
Retail and Commercial1
Office
Retail-Related Industrial2
Total
Number of
Investment
Properties
GLA (sq. ft.)
% of GLA
% of Annual
Minimum Rent
Committed
Occupancy
277
14,910,000
5
3
965,000
1,683,000
84.9%
5.5%
9.6%
91.7%
4.2%
4.1%
285
17,558,000
100.0%
100.0%
95.8%
93.1%
100.0%
96.1%
(1) Retail and Commercial includes our substantial retail portfolio with commercial reflecting certain few additional properties which comprise both retail and office space. These properties have been
consistently included in our retail category.
(2) Retail-Related Industrial includes retail distribution centres owned in Toronto (100%), Montreal (50%) and Calgary (50%).
As at December 31, 2018, the portfolio distribution of the GLA by asset type was as follows:
Asset Type
Retail and Commercial1
Office
Retail-Related Industrial2
Total
Number of
Investment
Properties
GLA (sq. ft.)
% of GLA
% of Annual
Minimum Rent
Committed
Occupancy
280
16,609,000
5
3
1,000,000
1,287,000
87.9%
5.3%
6.8%
288
18,896,000
100.0%
93.6%
3.8%
2.6%
100.0%
96.2%
87.9%
100.0%
96.0%
(1) Retail and Commercial includes our substantial retail portfolio with commercial reflecting certain few additional properties which comprise both retail and office space. These properties have been
consistently included in our retail category.
(2) Retail-Related Industrial includes retail distribution centres owned in Toronto (50%), Montreal (50%) and Calgary (50%).
Retail and commercial properties represent 84.9% of Crombie’s GLA
and 91.7% of annual minimum rent at December 31, 2019 compared to
87.9% of GLA and 93.6% of annual minimum rent at December 31, 2018.
Leased space in retail and commercial properties of 95.8% at
December 31, 2019, decreased from 96.2% at December 31, 2018.
Leased space in office properties of 93.1% increased from 87.9% at
December 31, 2018. Leased space in retail-related industrial properties
of 100.0% at December 31, 2019, remained constant from 100.0% at
December 31, 2018.
34
Annual Report 2019
Management’s Discussion and Analysis Lease Maturities
The following table sets out, as of December 31, 2019, the number of leases maturing during the periods indicated, 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
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
Thereafter
Total
Number of
Leases1
Renewal Area
(sq. ft.)
% of Total GLA
Average Rent
per sq. ft.
at Expiry
233
172
179
139
146
83
72
77
64
91
270
1,526
823,000
801,000
798,000
689,000
875,000
897,000
768,000
801,000
773,000
1,062,000
8,581,000
16,868,000
4.7% $
4.6%
4.5%
3.9%
5.0%
5.1%
4.4%
4.6%
4.4%
6.0%
48.9%
96.1% $
17.44
17.82
19.52
18.81
17.95
15.07
15.53
18.88
18.06
20.18
19.06
18.52
(1) Assuming tenants do not holdover on a month-to-month basis or exercise renewal options or termination rights.
Largest Tenants
The following table illustrates the 20 largest tenants in Crombie’s portfolio of investment properties as measured by their percentage contribution to
total annual minimum rent as at December 31, 2019.
Tenant
1. Empire Company Limited1
2. Shoppers Drug Mart
3. Province of Nova Scotia
4. Dollarama
5. Government of Canada
6. CIBC
7. Bank of Nova Scotia
8. Cineplex
9. GoodLife Fitness
10. Bank of Montreal
11. Canadian Tire Corporation
12. Restaurant Brands International
13. Bell Canada
14. Metro
15. Royal Bank of Canada
16. TJX Canada2
17 SAQ/Province of Quebec
18. Leon’s Furniture
19. Giant Tiger
20. Staples
Total
% of Annual
Minimum Rent
Average Remaining
Lease Term
DBRS Credit Rating
54.2%
13.4 years
4.1%
1.5%
1.4%
1.2%
1.2%
1.1%
1.1%
1.1%
1.0%
1.0%
0.7%
0.6%
0.6%
0.6%
0.5%
0.5%
0.5%
0.5%
0.5%
73.9%
9.0 years
7.8 years
6.0 years
4.1 years
11.6 years
2.9 years
9.5 years
8.1 years
7.8 years
4.0 years
5.9 years
5.3 years
7.6 years
3.4 years
8.6 years
5.2 years
6.1 years
4.6 years
2.6 years
BBB (low)
BBB
A (high)
BBB
AAA
AA
AA
AA
BBB (high)
BBB (high)
BBB
AA (high)
AA (low)
(1) Includes Sobeys and all other subsidiaries under Empire Company Limited.
(2) TJX Canada’s parent company, The TJX Companies, Inc., is rated A2 by Moody’s.
Other than Empire which accounts for 54.2% of annual minimum rent and Shoppers Drug Mart which accounts for 4.1% of annual minimum rent,
no other tenant accounts for more than 1.5% of Crombie’s annual minimum rent.
Delivering Value
35
Management’s Discussion and Analysis For the twelve months ended December 31, 2019, Empire also
represents 52.2% of total property revenue. Total property revenue
includes annual minimum rent as well as operating and realty tax cost
recovery income and percentage rent. These additional amounts can
vary by property type, specific tenant leases and where tenants may
directly incur and pay operating and realty tax costs.
The weighted average remaining term of all Crombie leases is
approximately 10.2 years. This remaining lease term is influenced by
the average Empire remaining lease term of 13.4 years.
Property Development/Redevelopment
(“Development”)
Property Development is a strategic priority for Crombie to improve
net asset value (“NAV”), cash flow growth and Unitholder value. With
urban intensification 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 $50,000 and where development may include a combination of
commercial and/or residential uses (“Major Developments”).
Crombie has the potential to unlock significant value within its
current pipeline of 33 Major Development properties (six Active Major
Developments (December 31, 2018 – five) and 27 Potential Major
Developments (December 31, 2018 – 18)) 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, entitlements and advance preparations required before
each Major Development can commence. In aggregate, Crombie
currently achieves an in-place NOI yield of approximately 5.4% on
existing asset cost for our development pipeline properties.
Crombie has a strategic relationship with Empire. The majority of our
development properties have Empire as an anchor tenant and our
strategic relationship should enable us to ensure a seamless transition
from existing property/store operations to construction/development
of each of these sites on mutually agreeable terms.
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, wherever practical,
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 may also be considered,
as will certain other uses, to satisfy municipal requirements and/or
market opportunities. 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 capitalization rates in markets
like Vancouver, Toronto and Montreal (where Crombie has 19 Major
Development properties) (December 31, 2018 – 12) 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 33 Major Development
projects as at December 31, 2019 (December 31, 2018 – 23), with a total
projected cost to develop these properties of $4,000,000 to $5,800,000
(December 31, 2018 – $3,000,000 to $4,500,000). Crombie may enter
joint venture or other partnership arrangements for these properties to
share cost, revenue, risk and development expertise depending upon
the nature of each project. Each project remains subject to normal
development approvals, achieving required economic hurdles including
financial accretion and NAV analysis and Board of Trustees approval.
(Costs in billions of CAD $)
# of Projects
Total Projected
Cost Range
Commercial GLA
on Completion1
Commercial
Incremental GLA1
Residential
Incremental GLA1
Residential # of
Units1
Active Major Development
Potential Major Development
Total Developments
(1) GLA and Units reflective of upper range of costs.
6
$
27
33
$
0.6
3.4–5.2
4.0–5.8
759,000
1,447,000
2,206,000
560,000
786,000
1,346,000
961,000
8,802,000
9,763,000
1,200
10,000
11,200
36
Annual Report 2019
Management’s Discussion and Analysis Active Major Developments
The below table provides additional detail into Crombie’s Active Major Developments by property type.
5.2
8.8
9.8
24.5
48.3
56.8
56.8
105.1
22.5
37.5
70.3
Property
CMA1
Use
Investment Properties (“IP”) – Major Development
Davie Street3
Vancouver
Retail
Belmont Market6
Victoria
Retail, Office
Avalon Mall – Phase I
Avalon Mall – Phase II4
St. John’s
St. John’s
Retail
Retail
Subtotal IP – Major Development
Properties Under Development (“PUD”)
Pointe–Claire
Montreal
Retail–Related
Industrial
Subtotal PUD
Total Investment Properties
Properties Held in Joint Ventures
Commercial
GLA on
Completion
Residential
GLA on
Completion
Residential
Units
Estimated
Final
Completion
Date
Estimated
Annual NOI
Estimated
Total Cost2
Estimated
Yield on
Cost2
Estimated
Cost to
Complete
At Crombie’s Share ($ in millions)
54,000
160,000
—
165,000
379,000
300,000
300,000
679,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Q1 2020
$
1.8–1.9
$
28.6
6.2%–6.8% $
Q4 20205
Q3 2020
Q3 2020
5.4–5.7
—
5.8–6.2
93.0
54.5
5.8%–6.1%
—
56.8 10.3%–11.0%
$
13.0–13.8
$
232.9
5.6%–6.0% $
2021
6.1–6.4
100.0
6.1%–6.4%
$
$
6.1–6.4
19.1–20.2
$
$
100.0
6.1%–6.4% $
332.9
5.7%–6.1% $
Davie Street3
Le Duke7
Vancouver
Residential
—
254,000
Montreal
26,000
241,000
330
390
Q3 2020
$
4.0–4.4
$
Q2 2021
3.2–3.4
78.5
59.1
5.1%–5.6% $
5.4%–5.8%
Bronte Village7
Toronto
54,000
466,000
480
Q3 2021
7.5–8.3
138.7
5.4%–6.0%
Retail,
Residential
Retail,
Residential
Total Properties Held in Joint Ventures
80,000
961,000
Total Active Major Developments
759,000
961,000
1,200
1,200
$
$
14.7–16.1
33.8–36.3
$
$
276.3
5.3%–5.8% $
609.2
5.5%–6.0% $
130.3
235.4
(1) CMA: Census Metropolitan Area
(2) Estimated Total Cost and Estimated Yield on Cost includes all costs associated with the development, including but not limited to, estimated land value, pre-development costs, construction costs,
tenant costs and financing costs.
(3) Crombie will own 100% of the retail with an estimated total project cost of $28.6 million. Safeway will continue lease payments through the development period to retain the rights under their existing
lease. Incremental NOI for the commercial component is estimated to be $0.6 million. Crombie has entered into a JV partnership and will own 50% of the residential with an estimated total project cost
of $157.0 million.
(4) 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.
(5) Costs related to completed Belmont Market phases have been transferred out of Properties under Development and into Investment Properties in Q4 2018 and Q2 2019. Full project cost estimates are
shown in chart above.
(6) Rents from certain leases in Phase I of Belmont Market development commenced in Q4 2018 with many tenants opening for business in 2019. New revenue will continue to come on-line in 2020 with
timing dependent on leasing activity.
(7) The development agreement with our our partner was executed in April 2018. Under this agreement, Crombie has sold a 50% interest in the Bronte Village development and acquired a 50% interest in
the Le Duke development. Title transfer closed in August 2018.
1641 Davie Street, Vancouver, British Columbia
Davie Street is currently under active development and is being
constructed in conjunction with our partner, as an approximate
308,000 square foot mixed-use property. Construction of the retail
podium and tower concrete is complete with residential glazing now
installed up to the 18th floor of both towers. This development includes
a new Safeway store at approximately 45,000 square feet with almost
9,000 square feet of ancillary retail space, expected to open in spring
2020. Rental residential space totalling 254,000 square feet (330 rental
units) in two residential towers are expected to open in Q3 2020.
Estimated total project cost is $185,600, $107,100 at Crombie’s share.
Crombie owns 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. Crombie also has in-place mortgage financing on the
commercial component.
Avalon Mall – Phase I & II, St. John’s, Newfoundland and Labrador
Avalon Mall is the only regional shopping mall in Newfoundland
and Labrador and is located in St. John’s. Crombie is in its final year
of a three year capital investment program to enhance Avalon Mall’s
position as the dominant regional mall in the province. The Phase I
investment program began in 2017 and included construction of a four-
level 875 space parkade, 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 $54,500
over three years. The parkade was completed in 2018. The redesign
and renovation of the common areas began in January 2018 and
continues in phases through 2019 and 2020.
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 $56,800 Phase II
redevelopment involves demolition of approximately 50,000 square
feet of the Sears space, renovation of the remaining portion into new
retail units, and an expansion of the existing shopping centre 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 began
in Q3 2019. Construction of the expansion area will continue through
Q2 2020 with occupancy expected in Q3 and Q4 2020. Avalon Mall
continues its market dominance with occupancy at December 31, 2019
at 97.6%. Leasing activity to date for the redevelopment area includes
a new and expanded Winners HomeSense, H&M, GAP/Banana
Republic and Old Navy. Including this leasing activity, 69.3% of the
Delivering Value
37
Management’s Discussion and Analysis leaseable square footage in this redevelopment has been executed to
date. Subsequent to December 31, 2019, leases have been executed
with Tommy Hilfiger, SportChek, and Levi Strauss, bringing the total to
88.8%. Advanced discussions with other potential national anchor and
commercial retail unit tenants continue.
Belmont Market, Langford (Victoria), British Columbia
Belmont Market is being developed as a grocery-anchored retail centre
in Langford. Crombie is developing and owns 100% of the 160,000
square foot retail component currently under active development.
The retail development is expected to cost approximately $93,000 and
includes 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 Thrifty Foods grocery store opened in May 2019 and is driving
additional traffic to the centre. A third-party completed construction
of 29,000 square feet of ground floor retail space located along
High Street in late 2019 on Crombie’s behalf, which was purchased
by Crombie in November 2019. Tenants are now open in these
new buildings with others scheduled to open imminently. As at
December 31, 2019 committed occupancy is 86.4%.
The final portion of the development totalling 23,000 square
feet in three buildings is in active pre-leasing and deals pending
on approximately 6,000 square feet of the available retail space.
Construction is likely to commence on the first building in early 2020,
with the remaining two buildings slated for 2021 construction.
Crombie previously completed the sale of 5.55 acres of land to a
third-party, who are under construction on over half of the anticipated
437 residential units including condominiums and rental buildings.
Residents in the two rental buildings have taken possession of their
units and are adding vibrancy to the overall development.
Le Duke, 297 Rue Duke, Montreal, Quebec
Le Duke is located near the new Bonaventure Greenway in Old
Montreal. The development has total project costs estimated at $118,100
($59,100 at Crombie’s share), and includes a 25 storey mixed-use tower
with 241,000 square feet and 390 residential rental units, a 25,000
square foot IGA 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. The residential structure
is completed up to the 12th floor. This development is expected to be
complete in Q2 2021.
The partnership agreement 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 (Toronto),
Ontario
Bronte Village is located in South Oakville at the intersection
of Lakeshore and Bronte Road. The 5.66 acre property is being
redeveloped from a single storey, retail mall, to a mixed-use residential
property in conjunction with our partner. This development includes
the existing 30,000 square foot grocery store while adding 24,000
square feet of retail and two luxury residential towers totalling 466,000
square feet of residential rental space in up to 480 units. The existing
Sobeys grocery store remains 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
development. The below grade parking structure is complete. Above
grade concrete work is completed up to level 14 on building A (west)
and has reached level 5 on building B (east). Total project cost is
estimated at $277,200, $138,700 at Crombie’s share. This development is
expected to be completed in Q3 2021.
Pointe-Claire, (Montreal), Quebec
The property is a 20.25 acre retail-related industrial site situated
in Pointe-Claire, three kilometers from Montreal’s P. E. Trudeau
International Airport. The property was acquired in the first quarter
of 2019. Crombie has executed an agreement with Empire to develop
a new 300,000 square foot state-of-the-art Customer Fulfillment
Centre (“CFC”). Crombie’s approximately $100,000 project investment,
including land, will be powered by Ocado’s world-leading online
grocery platform, and will become Empire’s e-commerce distribution
hub for major cities in Quebec and the Ottawa area. Crombie is the
owner and developer of the CFC and will work collaboratively with
Empire to develop the CFC. The site is currently zoned for its intended
use. Empire will lease the location from Crombie and Crombie will
build the site to Empire’s specifications. The launch of Voilà par IGA,
the grocery e-commerce service for Quebec and the Ottawa area is
expected in 2021. Building construction to commence in spring 2020.
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 786,000 square feet (December 31, 2018 – 540,000 square
feet) of commercial GLA and up to 8,802,000 square feet (up to 10,000
units) (December 31, 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 $3,400,000 to $5,200,000 ($4,000,000 to
$5,800,000 including Active Major Developments). Crombie may
develop independently or may enter joint venture or other partnership
arrangements for these properties to share cost, revenue, risk and
development expertise depending upon the nature of each project.
Each project remains subject to normal development approvals,
achieving required economic hurdles including financial NAV and
accretion analysis and Board of Trustees approval.
As at December 31, 2019, Crombie has identified the following 27
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.
38
Annual Report 2019
Management’s Discussion and Analysis Site Size
(acres) Transit Oriented
Existing Property
Park West
Penhorn Lands
Scotia Square Residential2
10355 King George Boulevard
1780 East Broadway
(Broadway and Commercial)
CMA1
Halifax
Halifax
Halifax
Vancouver
Vancouver
5235 Kingsway (Royal Oak)
Vancouver
Belmont Market – Phase II
1818 Centre Street
410 10 Street NW (Kensington)
10. 524 Elbow Drive SW (Mission)
813 11 Avenue SW (Beltline)
Victoria
Calgary
Calgary
Calgary
Calgary
10930 82 Avenue (Whyte Ave)
Edmonton
1.
2.
3.
4.
5.
6.
7.
8.
9.
11.
12.
13. Brunswick Place
14. Triangle Lands
15. Centennial Parkway
16. 3130 Danforth
17. Brampton Mall
18. McCowan & Ellesmere
19.
1170 East 27 Street
(Lynn Valley)
20. 2733 West Broadway
21. 3410 Kingsway
(Kingsway +Tyne)
22. 990 West 25 Avenue
(King Edward)
23. East Hastings
24. Fleetwood
25. New Westminster
26. Port Coquitlam
27. Robson Street
Halifax
Halifax
Hamilton
Toronto
Toronto
Toronto
Vancouver
Vancouver
Vancouver
Vancouver
Vancouver
Vancouver
Vancouver
Vancouver
Vancouver
6.44
26.12
0.463
5.07
2.43
2.76
1.70
2.18
1.73
1.60
2.59
2.44
0.755
0.68
2.75
0.79
8.74
4.48
2.82
1.95
3.74
1.80
3.30
4.45
2.82
5.31
1.15
Existing
Tenants
Retail
Land
n/a
Safeway
Safeway
Safeway
Land
Safeway
Safeway
Safeway
Safeway
Safeway/
Other tenants
n/a
Land
Retail
No
No
Yes
Yes
Yes
Yes
No
Yes
Yes
No
Yes
No
Yes
No
No
Yes The Beer Store
No
Yes
No
Yes
Yes
No
No
Yes
No
No
No
Office/Retail
FreshCo/
Other tenants
Safeway
Safeway
Safeway/
Other tenants
Safeway
Safeway/
Other tenants
Safeway
Safeway
Safeway
Safeway
Potential
Commercial
Expansion
Potential
Residential
Expansion
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Status
Pre-planning
Pre-planning
Pre-planning
Pre-planning
Pre-planning
Pre-planning
Pre-planning
TBD4
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
(1) CMA: Census Metropolitan Area
(2) Scotia Square Residential was formerly called Westhill
(3) Scotia Square Residential can be developed through densification on 0.46 acres of the existing 9.05 acre Scotia Square site
(4) TBD: to be determined
(5) Brunswick Place can be developed through densification on the existing 0.75 acre Brunswick Place Parkade
These are projects owned by Crombie where future development is a
possibility. Projects described as having a “pre-planning” status include
projects where Crombie has undertaken potential development
planning, which could include seeking municipal approvals for zoning,
developing image renderings, seeking potential commercial and/or
residential development partners, evaluation of financing options and
other activities required to determine viability of the opportunity.
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.
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.
Properties in the Pre-Planning Phase
Park West, Halifax, Nova Scotia
Park West is located in Halifax, Nova Scotia in a prime location abutting
adjacent retail and residential on Lacewood Drive and Dunbrack
Street. The 6.44 acre site (which formally was the home to a Canadian
Tire Store) abuts Crombie-owned Park West Centre; home of Sobeys,
Lawtons, RBC plus additional retail and services. Crombie is currently
exploring mixed-use development options. Rezoning of this property is
required prior to proceeding with any development.
Scotia Square Residential, Halifax, Nova Scotia
Scotia Square Residential is a potential multi-unit rental building
addition to Crombie’s existing Scotia Square commercial complex,
located at a prime location in Downtown Halifax. The approximately
0.46 acre site is situated within the Downtown Halifax Plan Area, which
enables approximately 17 storeys of residential development. Site plan
approval is required in order to proceed with any future development
and preliminary development analysis is currently underway.
Delivering Value
39
Management’s Discussion and Analysis 5235 Kingsway (Royal Oak), Burnaby (Vancouver), British Columbia
The Royal Oak site is located in close proximity to Metrotown
in Burnaby, British Columbia – 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.
Belmont Market – Phase II, Langford (Victoria), British Columbia
Belmont Market Phase II is currently contemplated as the final piece
of the larger shopping centre development with a potential to add
140,000 square feet of residential and/or commercial space on the
remaining 1.70 acres of land.
1780 East Broadway (Broadway and Commercial), Vancouver,
British Columbia
1780 East Broadway is a 2.43 acre site 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
Official Community Plan, which permits a total density of 5.7 floor
to space ratio (FSR) including 4.5 FSR for residential and 1.2 FSR for
commercial.
10355 King George Boulevard, Surrey (Vancouver), British Columbia
King George is located in Surrey, British Columbia, in a prime location
within Surrey City Centre and immediately adjacent to 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 up to 7.5 FSR.
Rezoning of the site is required in order to proceed with any future
redevelopment, and preliminary development analysis is currently
underway.
FINANCIAL RESULTS
Comparison to Previous Year
As At
(In thousands of CAD dollars, except per unit amounts and as otherwise noted)
December 31, 2019
December 31, 2018
December 31, 2017
Total assets
Total investment property debt and unsecured debt
(1) See “Debt to Gross Book Value – Fair Value Basis” for detailed calculation.
$
$
3,921,214
2,279,297
$
$
4,071,074
2,479,143
$
$
4,086,854
2,501,748
Compared to December 31, 2018, the balance sheet changes are
primarily attributable to:
•
investment property dispositions totalling $450,501, which include
the sale of a 50% interest in seven properties in the first quarter of
2019, sale of an 89% interest in 26 properties in the second quarter of
2019, and sale of an 89% interest in 15 properties in the fourth quarter
of 2019.
• repayment or disposition of $346,735 in fixed rate mortgages and
net repayment of $124,535 of the credit facilities with proceeds from
disposition of properties during 2019.
•
issuance of $350,000 senior unsecured notes, proceeds from
which were used to fund the early repayment of $125,000 of
notes, repayment of bank indebtedness and future repayment of
upcoming secured mortgage maturities.
40
Annual Report 2019
Management’s Discussion and Analysis 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
Operating income attributable to Unitholders
Finance costs – distributions to Unitholders
Finance (costs) income – change in fair value of
financial instruments
Increase (decrease) in net assets attributable to
Unitholders
Operating income attributable to Unitholders per
Unit, Basic
Basic weighted average Units outstanding (in 000’s)
Distributions per Unit to Unitholders, excluding
special distribution
$
$
$
Operating Results
Three months
Three months ended December 31,
Year ended December 31,
2019
2018
Variance
2019
2018
Variance
$
96,823
$
104,296
$
(7,473)
$
398,741
$
414,649
$
(15,908)
29,852
66,971
69.2%
30,198
(6,000)
(18,347)
(5,855)
(22,810)
(8)
44,149
—
44,149
(48,936)
30,817
73,479
70.5%
4,580
(7,000)
(19,906)
(5,184)
(25,968)
111
20,112
(1)
20,111
(33,724)
965
(6,508)
(1.3)%
25,618
1,000
1,559
(671)
3,158
(119)
117,645
281,096
70.5%
81,803
(6,000)
(74,313)
(23,721)
(97,316)
334
24,037
161,883
1
24,038
(15,212)
(8)
161,875
121,306
293,343
70.7%
50,023
(15,000)
(96,353)
(19,226)
(105,631)
254
107,410
(3)
107,407
(150,169)
(134,729)
3,661
(12,247)
(0.2)%
31,780
9,000
22,040
(4,495)
8,315
80
54,473
(5)
54,468
(15,440)
(70)
197
(267)
(1,337)
402
(1,739)
(4,857) $
(13,416) $
8,559
0.29
$
151,723
0.13
151,419
0.22
$
0.22
Year
$
$
$
$
$
10,369
1.07
151,666
(26,920)
$
37,289
0.71
151,214
0.89
$
0.89
Operating income attributable to Unitholders increased by $24,038
or 119.5% compared to the fourth quarter of 2018 primarily due to the
disposition of investment properties, resulting in a $6,508 decrease in
property NOI, offset by an increase of $25,618 in the gain on disposal
of investment properties and a decrease of $3,158 in finance costs from
operations due to repayments of debt. In addition, depreciation and
amortization was lower by $1,559 compared to the fourth quarter of
2018 as a result of dispositions of investment properties. In the fourth
quarter of 2019, an impairment of $6,000 was recognized on three
retail properties, $1,000 lower than the impairment related to an office
property in the fourth quarter of 2018.
Operating income attributable to Unitholders increased by $54,468.
In addition to factors noted above, contributing to the increase was
an impairment of $15,000 recognized on two retail properties in the
second quarter of 2018 and an office property in the fourth quarter
of 2018.
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 (costs) income – change in fair value of financial instruments
Increase (decrease) in net assets attributable to Unitholders
Three months ended
December 31,
Year ended
December 31,
2019
2018
2019
2018
44,149
$
20,111
$
161,875
$
107,407
(48,936)
(33,724)
(150,169)
(134,729)
(70)
197
(1,337)
402
(4,857) $
(13,416) $
10,369
$
(26,920)
$
$
Delivering Value
41
Management’s Discussion and Analysis Property NOI
Management emphasizes property NOI on a cash basis as it reflects the cash generated by the properties period-over-period.
Same-asset properties are properties owned and operated by Crombie throughout the current and comparative reporting periods, excluding any
property that was designated for redevelopment during either the current or comparative period. Same-asset property NOI reflects Crombie’s
proportionate ownership of jointly operated properties.
Property NOI on a cash basis, which excludes non-cash straight-line rent recognition and amortization of tenant incentive amounts, 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,
2019
2018
Variance
2019
2018
Variance
$
66,971
$
73,479
$
(6,508) $
281,096
$
293,343
$
(12,247)
(2,080)
3,598
68,489
8,729
(2,429)
3,451
74,501
16,503
349
147
(6,012)
(7,774)
(10,287)
14,139
284,948
48,383
(11,040)
12,875
295,178
66,596
753
1,264
(10,230)
(18,213)
Same-asset property cash NOI
$
59,760
$
57,998
$
1,762
$
236,565
$
228,582
$
7,983
Three months
Year
Same-asset property cash NOI increased by $1,762 or 3.0% compared
to the fourth quarter of 2018 primarily due to rate increases on existing
tenant leases, new leasing activity and revenues from modernization
investments and land use intensifications at certain properties. These
items make up $1,471 (or 2.5%) of the increase, with the remaining
increase due to the favourable impact from the adoption of IFRS 16
‘Leases’ on January 1, 2019.
On an annual basis, same-asset cash NOI increased 3.5% with
rate increases on existing tenant leases, new leasing activity, lease
termination income and revenues from modernization investments and
land use intensifications accounting for approximately $6,821 (or 3.0%)
of the increase, with the remaining increase due to the favourable
impact from the adoption of IFRS 16.
Same-asset property cash NOI is as follows:
(In thousands of CAD dollars)
Retail and Commercial1
Office
Retail-Related Industrial2
Three months ended December 31,
Year ended December 31,
2019
2018
Variance
Percent
2019
2018
Variance
Percent
$
54,496
$
53,344
$
1,152
2.2% $
216,380
$
210,780
$
3,165
2,099
2,749
1,905
416
194
15.1%
10.2%
12,353
7,832
10,220
7,582
5,600
2,133
250
2.7%
20.9%
3.3%
3.5%
Same-asset property cash NOI
$
59,760
$
57,998
$
1,762
3.0% $ 236,565
$
228,582
$
7,983
(1) Commercial includes certain properties which comprise both retail and office space. These properties have been consistently included in our retail category.
(2) Retail-Related Industrial includes retail distribution centres owned in Toronto, Montreal and Calgary.
Acquisitions, dispositions and development property cash NOI is as follows:
Three months ended December 31,
Year ended December 31,
(In thousands of CAD dollars)
2019
2018
Variance
2019
2018
Variance
Acquisitions and dispositions property cash NOI
Development property cash NOI
Total acquisitions, dispositions and development
property cash NOI
$
$
1,714
$
9,614
$
(7,900) $
20,461
$
41,332
$
(20,871)
7,015
6,889
126
27,922
25,264
2,658
8,729
$
16,503
$
(7,774) $
48,383
$
66,596
$
(18,213)
Development properties include properties earning cash NOI that are:
currently being developed; have 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 with significant disruption in
others. Consequently, comparison of period-over-period development
operating results may not be meaningful.
42
Annual Report 2019
Management’s Discussion and Analysis Property NOI for the three months and year ended December 31, 2019 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,
2019
Property
NOI
2018
Property
NOI
Variance
2019
Property
NOI
2018
Property
NOI
Variance
$
14,279
$
16,145
$
(1,866) $
61,646
$
64,960
$
(3,314)
9,210
3,023
3,639
6,161
13,911
8,649
288
6,178
1,633
9,797
3,341
3,623
7,081
13,385
10,522
425
7,332
1,828
(587)
(318)
16
(920)
526
(1,873)
(137)
(1,154)
(195)
38,358
12,711
14,990
25,676
56,576
36,665
1,420
26,478
6,576
37,168
13,446
14,315
26,767
56,715
42,809
1,702
28,226
7,235
1,190
(735)
675
(1,091)
(139)
(6,144)
(282)
(1,748)
(659)
$
66,971
$
73,479
$
(6,508) $
281,096
$
293,343
$
(12,247)
FFO and AFFO
FFO and AFFO are not measures recognized under IFRS and do not
have standardized meanings prescribed by IFRS. As such, these non-
GAAP financial measures should not be considered as an alternative
to cash provided from operating activities or any other measure
prescribed under IFRS. Management uses FFO as a supplemental non-
GAAP, industry-wide, financial measure of a real estate organization’s
operating performance. AFFO is presented in this MD&A because
management believes this non-GAAP earnings amount is a measure
of Crombie’s ability to generate cash from earnings. FFO and AFFO
as computed by Crombie may differ from similar computations as
reported by other REITs and, accordingly, may not be comparable
to other such issuers.
Funds from Operations (FFO)
Crombie follows the recommendations of the Real Property Association
of Canada (“REALPAC”) (February 2019 white paper) in calculating
FFO and defines FFO as increase (decrease) in net assets attributable
to Unitholders (computed in accordance with IFRS), adjusted for the
following applicable amounts:
• Gain or loss on disposal of investment properties and related
income tax;
•
Impairment charges and recoveries;
• Depreciation and amortization expense of investment properties,
including amortization of tenant incentives charged against property
revenue;
• Adjustments for equity accounted entities;
• Operational expenses from right of use assets;
•
Incremental internal leasing expenses;
• Finance costs – distributions on Crombie’s REIT and Class B LP Units
classified as financial liabilities; and,
• Change in fair value of financial instruments.
REALPAC provides for other adjustments in determining FFO which
are currently not applicable to Crombie, therefore not included in the
above list. Crombie’s expenditures on tenant incentives are capital
in nature and Crombie considers these costs comparable to other
capital costs incurred to earn property revenue. As a result, where
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.
Delivering Value
43
Management’s Discussion and Analysis The calculation of FFO for the three months and year ended December 31, 2019 and 2018 is as follows:
(In thousands of CAD dollars)
2019
2018
Variance
2019
2018
Variance
Three months ended December 31,
Year ended December 31,
Increase (decrease) in net assets attributable to
Unitholders
Add (deduct):
Amortization of tenant incentives
Gain on disposal of investment properties
Impairment of investment properties
Depreciation and amortization of investment
properties
Depreciation of investment properties included in
Income from equity accounted investments
Principal payments on right of use assets
Internal leasing costs
Finance costs (income) – change in fair value of
financial instruments
FFO as calculated based on REALPAC
recommendations
Three months and year
Finance costs – distributions to Unitholders
48,936
$
(4,857) $
(13,416) $
8,559
$
10,369
$
(26,920) $
37,289
3,598
(30,198)
6,000
3,451
(4,580)
7,000
147
(25,618)
(1,000)
14,139
(81,803)
6,000
12,875
(50,023)
15,000
1,264
(31,780)
(9,000)
18,041
19,894
(1,853)
73,138
96,311
(23,173)
41
(24)
525
5
—
609
33,724
36
(24)
(84)
15,212
102
(96)
2,184
150,169
28
—
2,436
134,729
74
(96)
(252)
15,440
70
(197)
267
1,337
(402)
1,739
$
42,132
$
46,490
$
(4,358) $
175,539
$
184,034
$
(8,495)
The decrease in FFO is primarily due to the reduced property NOI (a
decrease of $6,508 for the quarter and $12,247 for the year) resulting
from the disposition of properties in the current and prior quarters
as well as increased general and administrative costs of $671 for the
quarter and $4,495 for the year, the annual increase primarily related
to the impact of increased unit price on unit-based compensation
expense.
Adjusted Funds from Operations (AFFO)
Crombie follows the recommendations of REALPAC’s February
2019 white paper in calculating AFFO and has applied these
recommendations to the 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, 2019 and 2018 is as follows:
(In thousands of CAD dollars)
2019
2018
Variance
2019
2018
Variance
Three months ended December 31,
Year ended December 31,
FFO as calculated based on REALPAC
recommendations
Add (deduct):
Amortization of effective swap agreements
Straight-line rent adjustment
Internal leasing costs
Maintenance expenditures on a square footage
basis
AFFO as calculated based on REALPAC
recommendations
Three months and year
$
42,132
$
46,490
$
(4,358) $
175,539
$
184,034
$
(8,495)
356
(2,080)
(525)
557
(2,429)
(609)
(3,877)
(4,238)
(201)
349
84
361
1,677
(10,287)
(2,184)
2,263
(11,040)
(2,436)
(16,113)
(17,027)
(586)
753
252
914
$
36,006
$
39,771
$
(3,765) $
148,632
$
155,794
$
(7,162)
The decline in AFFO is primarily due to the disposition of properties in the current and prior quarters impacting FFO as described above, partially
offset by the resulting decrease in maintenance expenditures on a square footage basis (a decrease of $361 for the fourth quarter of 2019 and $914 for
the year ended December 31, 2019 compared to the respective periods in 2018).
44
Annual Report 2019
Management’s Discussion and Analysis Maintenance Capital Expenditures, Maintenance
Tenant Incentives and Leasing Costs (“Maintenance
Expenditures”)
Maintenance expenditures represent costs incurred in sustaining and
maintaining existing space and exclude expenditures that are revenue
enhancing. Crombie considers revenue enhancing expenditures to
be costs that expand the GLA of a property, increase the property
NOI by a minimum threshold, or otherwise enhance the property’s
overall value.
Crombie’s policy is to charge AFFO and ACFO with maintenance
expenditures based on a normalized rate per square foot applied to
the weighted average GLA, as these expenditures are not generally
incurred on a consistent basis during the year, or from year to
Maintenance Expenditures – Actual
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 2019, Crombie has maintained the normalized rate of
$0.90 per square foot of weighted average GLA that was charged
in 2018 based on the actual spend for 2018 and 2017 and estimated
spend for 2019. 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)
Total additions to investment
Year ended
Three months ended
Year ended
Three months ended
Dec. 31,
2019
Dec. 31,
2019
Sep. 30,
2019
Jun. 30,
2019
Mar. 31,
2019
Dec. 31,
2018
Dec. 31,
2018
Sep. 30,
2018
Jun. 30,
2018
Mar. 31,
2018
properties
$
94,769 $ 37,799
$ 19,149
$ 20,602
$ 17,219 $
91,211
$ 29,716
$
21,616
$ 16,877
$ 23,002
Less: revenue enhancing
expenditures
Maintenance capital
expenditures
Total additions to TI and
deferred leasing costs
Less: revenue enhancing
expenditures
Maintenance TI and deferred
(86,807)
(34,322)
(17,195)
(19,951)
(15,339)
(82,647)
(26,488)
(19,982)
(15,316)
(20,861)
7,962
3,477
1,954
651
1,880
8,564
3,228
1,634
1,561
2,141
61,035
21,238
24,853
11,336
3,608
17,488
3,099
3,629
2,779
7,981
(53,564)
(17,879)
(23,992)
(9,612)
(2,081)
(10,936)
(2,295)
(940)
(1,267)
(6,434)
leasing costs
7,471
3,359
861
1,724
1,527
6,552
804
2,689
1,512
1,547
Total maintenance
expenditures – actual
Reserve amount charged
against AFFO and ACFO
$
$
15,433 $ 6,836
$
2,815
$ 2,375
$ 3,407
$
15,116 $ 4,032
16,113 $ 3,877
$ 3,982
$ 4,045
$ 4,209 $
17,027
$ 4,238
$
$
4,323
$ 3,073
$ 3,688
4,221
$ 4,288
$ 4,280
Obligations for expenditures for TI’s occur when renewing existing
tenant leases or for new tenants occupying a space. Typically, leasing
costs for existing tenants are lowter 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 2019 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, 2019 consisted primarily of development
work, modernization investments and GLA expansions.
Depreciation, Amortization and Impairment
Crombie’s total fair value of investment properties exceeds carrying
value by $808,674 at December 31, 2019 (December 31, 2018 – $797,088).
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.
Three months ended December 31,
Year ended December 31,
(In thousands of CAD dollars)
2019
2018
Variance
2019
2018
Variance
Same-asset depreciation and amortization
Acquisitions, dispositions and development
depreciation/amortization
Depreciation and amortization
Impairment
$
$
$
15,958
$
15,603
$
(355) $
63,215
$
62,091
$
(1,124)
2,389
18,347
6,000
$
$
4,303
19,906
7,000
$
$
1,914
1,559
1,000
$
11,098
74,313
6,000
$
$
34,262
96,353
15,000
$
$
23,164
22,040
9,000
Delivering Value
45
Management’s Discussion and Analysis Three months and year
The decrease in depreciation and amortization is due to the
dispositions of properties in 2019 and in the third quarter of 2018,
accelerated depreciation in the first and third quarters of 2018, as well
as classification of investment properties as assets held for sale in the
second quarter of 2019, for which depreciation is not recorded.
During the year ended December 31, 2019, Crombie recorded
impairments totalling $6,000 on three properties. The impairments
were the result of the fair value impact of tenant lease expiries and
slower than expected leasing activity in secondary markets. 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 defined as the higher of the
economic benefit of the continued use of the asset or the selling price
less costs to sell.
General and Administrative Expenses
The following table outlines the major categories of general and administrative expenses:
(In thousands of CAD dollars)
2019
2018
Variance
2019
2018
Variance
Three months ended December 31,
Year ended December 31,
$
4,604
$
3,511
$
(1,093) $
16,874
$
13,111
$
(3,763)
Salaries and benefits
Professional fees
Public company costs
Rent and occupancy
Other
General and administrative expenses
$
5,855
$
5,184
$
(671) $
23,721
$
19,226
$
As a percentage of property revenue
6.0%
5.0%
(1.0)%
5.9%
4.6%
351
408
159
333
97
612
206
758
(254)
204
47
425
1,336
2,196
612
2,703
924
2,161
728
2,302
(412)
(35)
116
(401)
(4,495)
(1.3)%
Three months
The increase in expenses in the quarter is primarily due to higher salaries and benefits costs of $1,093.
Year
On an annual basis, the increase is primarily due to higher salaries and benefits costs of $3,763, the majority of which is due to the increase in Crombie’s
unit price and its impact on unit-based compensation plans.
General and administrative expenses as a percentage of property revenue has increased in part due to the decline in property revenue as a result
of the property dispositions.
Finance Costs – Operations
(In thousands of CAD dollars)
Finance costs
Amortization of effective swaps and deferred
financing charges
Finance costs – operations
Three months and year
$
$
Finance costs decreased by $2,854 and $6,145 respectively primarily
due to repayments and dispositions of mortgages to joint operations
during 2019.
Finance Costs – Distributions
Pursuant to Crombie’s Declaration of Trust, cash distributions are to
be determined by the Trustees at their discretion. Crombie intends,
subject to approval of the Board of Trustees, to make distributions to
Unitholders of not less than the amount equal to the net income and
net realized capital gains of Crombie, to ensure that Crombie will not be
liable for income taxes.
Crombie announced a special distribution of $0.56 per unit, to all
Unitholders as of December 31, 2019. The distribution arises from
the increase in income generated by capital recycling transactions
46
Annual Report 2019
Three months ended December 31,
Year ended December 31,
2019
2018
Variance
2019
2018
Variance
21,627
$
24,481
$
2,854
$
92,065
$
98,210
$
6,145
1,183
1,487
304
5,251
7,421
22,810
$
25,968
$
3,158
$
97,316
$
105,631
$
2,170
8,315
completed during the twelve-month period ended December 31, 2019.
Crombie is making the special distribution payable partially in cash
($0.10) and partially in units ($0.46), in order to provide Unitholders
with cash to help fund any additional tax that may arise associated
with the special distribution. Immediately following the unit portion
of the special distribution, the outstanding units of Crombie were
consolidated such that each Unitholder held, after the consolidation,
the same number of units as before the special distribution. The
remaining cash portion of the special distribution was paid on
January 15, 2020. Given that Crombie’s Units, in accordance with
IAS 32, are accounted for as financial liabilities (as discussed in
Note 2(w)(i) to Crombie’s audited consolidated financial statements
for the year ended December 31, 2019 and December 31, 2018),
the impact of the unit portion had no impact on our financial
results ending December 31, 2019.
Management’s Discussion and Analysis Details of distributions to Unitholders are as follows:
(In thousands of CAD dollars, except as otherwise noted)
Distributions to Unitholders
Distributions to Special Voting Unitholders1
Total distributions
FFO payout ratio
AFFO payout ratio
ACFO payout ratio
FFO payout ratio, excluding special distribution
AFFO payout ratio, excluding special distribution
ACFO payout ratio, excluding special distribution
Three months ended December 31,
Year ended December 31,
2019
2018
2019
28,927
$
19,934
$
88,766
$
20,009
13,790
61,403
2018
79,638
55,091
48,936
$
33,724
$
150,169
$
134,729
$
$
116.1%
135.9%
131.9%
80.1%
93.8%
91.0%
72.5%
84.8%
85.7%
72.5%
84.8%
85.7%
85.5%
101.0%
100.5%
76.9%
90.8%
90.3%
73.2%
86.5%
85.7%
73.2%
86.5%
85.7%
(1) Crombie Limited Partnership, a subsidiary of Crombie, has also issued 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.
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
2019 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.
Taxation of Distributions
Crombie, through its subsidiaries, has a large asset base that is
depreciable for Canadian income tax purposes. Consequently, certain
of the distributions from Crombie are treated as returns of capital and
are not taxable to Canadian resident Unitholders for Canadian income
tax purposes. The composition for tax purposes of distributions from
Crombie may change from year to year, thus affecting the after-tax
return to Unitholders.
The following table summarizes the last five years of the taxation of
distributions from Crombie:
Taxation Year
2018 per $ of distribution
2017 per $ of distribution
2016 per $ of distribution
2015 per $ of distribution
2014 per $ of distribution
Return of Capital
Investment Income
Dividend Income
Capital Gains
19.6%
51.8%
24.9%
56.3%
64.4%
62.8%
48.0%
54.5%
28.8%
18.1%
0.0%
0.0%
0.0%
13.4%
0.0%
17.6%
0.2%
20.6%
1.5%
17.5%
LIQUIDITY AND CAPITAL RESOURCES
The real estate industry is highly capital intensive.
Cash flow generated from operating the property portfolio represents
the primary source of liquidity used to fund the finance costs on debt,
general and administrative expenses, reinvestment in the portfolio
through capital expenditures, as well as funding tenant incentive costs
and distributions to Unitholders.
(iii)
recycling capital through the disposition of select investment
properties;
(iv) secured mortgage and term debt on unencumbered properties,
Crombie currently has $1,223,452 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; and,
Crombie expects to refinance debt obligations as they mature and has
the following sources of financing available:
(vi)
the issuance of new units.
(i)
secured short-term financing through an authorized revolving
credit facility, maturing June 30, 2023, of up to $400,000, subject
to available borrowing base, of which $15,339 ($20,984 including
outstanding letters of credit) was drawn at December 31, 2019;
(ii) unsecured short-term financing through an authorized floating
rate revolving credit facility, maturing May 14, 2021, of up to
$100,000, of which $30,000 was drawn at December 31, 2019;
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.
Delivering Value
47
Management’s Discussion and Analysis Capital Structure
(In thousands of CAD dollars)
Fixed rate mortgages
Credit facilities
Senior unsecured notes
Crombie REIT Unitholders
Special Voting Units and Class B Limited Partnership Unitholders
Lease liabilities
December 31, 2019
December 31, 2018
$
1,302,510
34.6% $
1,601,584
54,308
922,479
870,792
584,251
29,419
1.5%
24.5%
23.1%
15.5%
0.8%
178,843
698,716
864,779
578,061
—
40.8%
4.6%
17.8%
22.1%
14.7%
0.0%
$
3,763,759
100.0% $
3,921,983
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, 2023, of which $15,339 ($20,984 including outstanding letters
of credit) was drawn as at December 31, 2019. 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, 2019, 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”.
Joint Operation Credit Facility
In conjunction with the 89% sale of a portfolio of assets in the second
quarter of 2019, Crombie and its co-owner entered into a credit
agreement with a Canadian Chartered Bank for a $62,250 term loan
facility and a $5,800 revolving credit facility. Both facilities are secured
by first mortgages on select properties and have a term of five years
maturing on April 25, 2024. Borrowings under both facilities 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. Concurrent with entering into these facilities,
Crombie and its co-owner entered into a fixed for floating interest rate
swap effectively fixing the interest rate on both facilities at 3.58%. At
December 31, 2019, Crombie’s portion of the term and revolving credit
facilities was $6,848 and $130, respectively.
In conjunction with the 89% sale of a portfolio of assets in the fourth
quarter of 2019, Crombie and its co-owner entered into a credit
agreement with a Canadian Chartered Bank for a $16,500 term loan
facility and a $15,500 revolving credit facility. Both facilities are secured
by first and second mortgages on select properties and have a term
of five years maturing on October 7, 2024. Borrowings under both
facilities 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. Concurrent with entering into these
facilities, Crombie and its co-owner entered into a fixed for floating
interest rate swap effectively fixing the interest rate on both facilities
at 3.27%. At December 31, 2019, Crombie’s portion of the term and
revolving credit facilities was $1,815 and $176 respectively.
Unsecured Bilateral Credit Facility
The unsecured bilateral credit facility has a maximum principal amount
of $100,000, of which $30,000 was drawn as at December 31, 2019, and
was renewed for an additional year in the second quarter of 2019 and
now matures May 14, 2021. 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.
Mortgage debt and credit facilities
Crombie had fixed rate mortgages outstanding consisting of:
Fixed rate mortgages
Unamortized fair value debt adjustment and interest rate subsidy
Deferred financing charges on fixed rate mortgages
Total mortgage debt
The mortgages carry a weighted average interest rate of 4.25% (after
giving effect to the interest rate subsidy from Empire under an omnibus
subsidy agreement) and a weighted average term to maturity of 3.9 years.
December 31, 2019
December 31, 2018
$
$
1,308,147
$
1,608,749
930
1,309,077
(6,567)
1,302,510
$
1,891
1,610,640
(9,056)
1,601,584
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 $115,149 of floating rate debt.
48
Annual Report 2019
Management’s Discussion and Analysis During the quarter, Crombie recognized a mortgage payable of $20,401
in settlement of an amount payable to 1600 Davie Limited Partnership.
This mortgage, bearing interest at 3.22%, relates to the commercial
component of the Davie Street development, 100% of which is included
in Crombie’s financial statements.
During the second, third and fourth quarters of 2019, Crombie disposed
of $129,200 in mortgages as part of the disposition of an 89% interest
in 42 properties. For the year ended December 31, 2019, $161,472 in
mortgages were disposed in total.
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, 2020
December 31, 2021
December 31, 2022
December 31, 2023
December 30, 2024
Thereafter
Total1
Mortgages
Credit
Facilities
Total
% of Total
Payments of
Principal
$
216,024
$
— $
83,856
159,451
238,384
226,268
173,827
30,000
—
15,339
8,969
—
216,024
113,856
159,451
253,723
235,237
173,827
18.8% $
41,471
$
9.9%
13.8%
22.0%
20.4%
15.1%
40,337
34,889
28,159
16,194
49,287
Total
Required
Payments
257,495
154,193
194,340
281,882
251,431
223,114
% of Total
18.9%
11.3%
14.2%
20.7%
18.5%
16.4%
$
1,097,810
$
54,308
$
1,152,118
100.0% $
210,337
$
1,362,455
100.0%
(1) Excludes fair value debt adjustment and deferred financing charges.
Of the maturing debt balances, 41.8% of mortgages and 42.5% of total maturing debt balances mature over the next three years.
Senior unsecured notes
Series B
Series C
Series D
Series E
Series F
Series G
Unamortized Series B issue premium
Deferred financing charges
Maturity Date
Interest Rate
December 31, 2019
December 31, 2018
June 1, 2021
3.962% $
250,000
$
February 10, 2020
November 21, 2022
January 31, 2025
August 26, 2026
June 21, 2027
2.775%
4.066%
4.802%
3.677%
3.917%
—
150,000
175,000
200,000
150,000
627
(3,148)
$
922,479
$
250,000
125,000
150,000
175,000
—
—
1,068
(2,352)
698,716
2019
2018
On December 20, 2019, Crombie issued on a private placement basis,
$150,000 Series G notes (senior unsecured) maturing June 21, 2027. The
proceeds will be used to fund the repayment of upcoming secured
mortgage maturities. The notes were priced with an effective yield
to maturity of 3.917% and sold at a price of $1,000.00 per $1,000.00
principal amount. Interest is payable in equal semi-annual installments
on June 21 and December 21.
On August 26, 2019, Crombie issued, on a private placement basis,
$200,000 Series F notes (senior unsecured) maturing August 26, 2026.
The proceeds were used to fund the early repayment of the Series C
notes and repay bank indebtedness. The notes were priced with an
effective yield to maturity of 3.677% and sold at a price of $1,000.00 per
$1,000.00 principal amount. Interest is payable in equal semi-annual
installments on February 26 and August 26.
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.
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.
There are no required periodic principal payments, with the full face
value of the notes due on their respective maturity dates.
Delivering Value
49
Management’s Discussion and Analysis REIT Units and Class B LP Units and the attached
Special Voting Units
For the year ended December 31, 2019, Crombie issued 92,685 REIT
Units and 65,721 Class B LP Units under its DRIP. 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.
Sources and Uses of Funds
Total units outstanding at January 31, 2020, were as follows:
Units
Special Voting Units1
89,680,252
62,033,415
(1) Crombie Limited Partnership, a subsidiary of Crombie, has also issued 62,033,415 Class B LP
Units. These Class B LP Units accompany the Special Voting Units, are the economic equivalent
of a Unit, and are exchangeable for Units on a one-for-one basis.
(In thousands of CAD dollars)
Cash provided by (used in):
Operating activities
Financing activities
Investing activities
Net change during the period
Operating Activities
Three months
The decrease from the prior year on a quarterly basis is primarily due
to modernizations of $15,297 and reduced property NOI of $6,508 as
a result of property dispositions, offset in part by a $2,854 reduction
in finance costs as a result of the repayment of mortgages related to
the disposition of investment properties and the special distribution
payable of $15,174.
Three months ended December 31,
Year ended December 31,
2019
2018
Variance
2019
2018
Variance
$
(9,236) $
7,528
$
(16,764) $
(35,869) $
37,765
$
47,452
(38,216)
—
9,967
(17,495)
—
Year
37,485
(20,721)
—
(63,487)
99,356
—
5,778
(43,543)
—
(73,634)
(69,265)
142,899
—
The decrease from the prior year is largely due to reduced property
NOI of $12,247 as a result of property dispositions, a reduction in
distributions reinvested through the DRIP of $7,770 and a decrease in
operating items related to modernizations of $33,446, all of which was
partially offset by the increase in net assets attributable to Unitholders of
$37,289 in 2019.
Pursuant to the requirement of National Policy 41-201, Income Trusts
and Other Indirect Offerings, the table below outlines the differences
between cash flow from operating activities and cash distributions
as well as the differences between operating income attributable to
Unitholders and cash distributions, in accordance with the policy
guidelines.
Three months ended
December 31,
Year ended
December 31,
(In thousands of CAD dollars, except as otherwise noted)
2019
2018
2019
2018
Operating income attributable to Unitholders
Monthly distributions paid and payable
Special distribution payable in cash
Cash flows from operating activities shortfall of distributions paid and payable
$
$
44,149
$
20,111
$
161,875
$
107,407
(33,762)
(15,174)
(33,724)
—
(134,995)
(15,174)
(134,729)
—
(4,787) $
(13,613) $
11,706
$
(27,322)
Monthly distributions paid for the three months and years ended
December 31, 2019 and 2018 were funded with cash flows from
operating activities and borrowing on the revolving credit facility. The
special distribution payable in cash on January 15, 2020 was funded
from the revolving credit facility.
Year
The increase in cash used in financing activities is due to repayment of
mortgages of $185,263 and credit facilities of $124,535 with the proceeds
from the disposition of properties, offset in part by the $350,000 issue of
senior unsecured notes.
Financing Activities
Three months
Cash provided by financing activities is primarily generated from the
issuance of $150,000 unsecured notes. The increase in 2019 over 2018
is due to the redemption of $175,000 Series A senior unsecured notes
in the fourth quarter of 2018, offset in part by the $105,193 repayment
of mortgages with the proceeds from the disposition of investment
properties in 2019.
Investing Activities
Three months
The increase in cash used in investing activities is due to the acquisition
of investment properties of $110,144, offset in part by proceeds from
disposition of properties of $110,596 before closing and transaction costs.
Year
The increase in cash provided by investing activities is due to the
proceeds from disposition of properties of $339,391, offset in part by the
acquisition of properties during 2019 of $152,507.
50
Annual Report 2019
Management’s Discussion and Analysis 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 2019
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;
• Operational revenue and expenses from right of use assets; 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, 2019 and 2018 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
Non-cash accrued special distribution to Unitholders
Change in non-cash working capital balances not indicative of sustainable cash
flows
Reserve for maintenance capital expenditures
Tenant improvements
Principal payments on right of use assets
Amortization of deferred financing charges
ACFO as calculated based on REALPAC recommendations
Total distributions declared during the period
Excess of ACFO over total distributions
Three months ended
December 31,
Year ended
December 31,
2019
2018
2019
$
(9,236) $
7,528
$
(35,869) $
48,936
(630)
(15,174)
(2,964)
(3,877)
20,902
(24)
(827)
37,106
48,936
33,724
(677)
—
1,070
(4,238)
2,873
—
(930)
39,350
33,724
150,169
(2,330)
(15,174)
13,494
(16,113)
58,919
(96)
(3,574)
149,426
150,169
$
(11,830) $
5,626
$
(743) $
ACFO payout ratio, excluding special distribution
91.0%
85.7%
90.3%
2018
37,765
134,729
(10,100)
—
541
(17,027)
16,505
—
(5,158)
157,255
134,729
22,526
85.7%
Borrowing Capacity and Debt Covenants
Under the amended terms governing the revolving credit facility,
Crombie is entitled to borrow a maximum of 70% of the fair market
value of assets subject to a first security position and 60% of the excess
of fair market value over first mortgage financing of assets subject to a
second security position or a negative pledge (the “Borrowing Base”).
The revolving credit facility provides Crombie with flexibility to add or
remove properties from the Borrowing Base, subject to compliance
with certain conditions. The terms of the revolving credit facility also
require that Crombie must maintain certain covenants:
• annualized NOI for the prescribed properties must be a minimum
of 1.4 times the coverage of the related annualized debt service
requirements;
• annualized NOI on all properties must be a minimum of 1.4 times the
coverage of all annualized debt service requirements; and,
• distributions to Unitholders are limited to 100% of distributable
income as defined in the revolving credit facility.
The revolving credit facility also contains a covenant limiting the
amount which may be utilized under the revolving credit facility at any
time. This covenant provides that the aggregate of amounts drawn
under the revolving credit facility plus any outstanding letters of credit,
may not exceed the “Aggregate Borrowing Base”, which is based on a
modified calculation of the Borrowing Base, as defined in the revolving
credit facility.
At December 31, 2019, the remaining amount available under the
revolving credit facility was approximately $385,000 (prior to reduction
for standby letters of credit outstanding of $5,645) and was not limited
by the Aggregate Borrowing Base. At December 31, 2019, 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 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
Delivering Value
51
Management’s Discussion and Analysis 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 biannual
capitalization rates from external property valuators. All investment
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 fair value included in this calculation reflects the fair value
of the properties as at December 31, 2019 and 2018, respectively,
based on each property’s current use as a revenue generating
investment property.
The debt to gross book value on a fair value basis was 48.9% at
December 31, 2019 compared to 51.0% at December 31, 2018. 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, 2019, Crombie’s weighted
average cap rate used in the determination of the fair value of its
investment properties decreased 0.11% to 5.99%.
(In thousands of CAD dollars, except as otherwise noted)
Dec. 31, 2019
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Dec. 31, 2018
As at
Fixed rate mortgages
Senior unsecured notes
Revolving credit facility
Joint operation credit facility
Bilateral credit facility
Lease liabilities
Total debt outstanding
$
1,309,077
$
1,474,996
$
1,504,095
$
1,572,402
$
1,610,640
925,000
15,339
8,969
30,000
29,419
775,000
9,388
6,926
34,000
29,336
700,000
55,707
6,848
24,000
29,436
700,000
107,986
—
40,000
29,689
700,000
108,843
—
70,000
—
2,317,804
2,329,646
2,320,086
2,450,077
2,489,483
Less: Applicable fair value debt adjustment
(539)
(607)
(676)
(746)
(818)
Debt
Investment properties, at fair value
Other assets, cost1
Deferred financing charges
Investment in joint ventures
Interest rate subsidy
$
$
2,317,265
$
2,329,039
$
2,319,410
$
2,449,331
$
2,488,665
4,605,000
$
4,626,000
$
4,592,000
$
4,755,000
$
4,776,000
80,982
9,715
45,123
(539)
78,923
9,920
45,160
(607)
75,629
9,878
41,913
(676)
59,077
10,379
41,807
(746)
52,677
11,408
39,485
(818)
Gross book value – fair value basis
$
4,740,281
$
4,759,396
$
4,718,744
$
4,865,517
$
4,878,752
Debt to gross book value – fair value basis
48.9%
48.9%
49.2%
50.3%
51.0%
(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, refinancing and bank debt,
Crombie continues to maintain leverage at an appropriate level while staying conservatively within its maximum borrowing capacity.
52
Annual Report 2019
Management’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.
Dec. 31,
2019
Sep. 30,
2019
Jun. 30,
2019
Mar. 31,
2019
Dec. 31,
2018
Sep. 30,
2018
Jun. 30,
2018
Mar. 31,
2018
Three months ended
Property revenue
$
96,823
$
97,346 $
99,332
$
105,240
$
104,296
$
100,505
$
104,143
$
105,705
Amortization of tenant incentives
Adjusted property revenue
Property operating expenses
General and administrative expenses
Income (loss) from equity accounted
investments
EBITDA1
Trailing 12 months EBITDA4
Finance costs – operations
Amortization of deferred financing
charges
Amortization of effective swap
agreements
Adjusted interest expense2
Debt principal repayments 3
Debt outstanding (see Debt to
Gross Book Value)(5)1
3,598
100,421
(29,852)
(5,855)
3,515
3,411
3,615
100,861
102,743
(27,205)
(28,222)
(6,112)
(5,970)
108,855
(32,366)
(5,784)
3,451
107,747
(30,817)
(5,184)
3,334
103,839
(27,660)
(4,925)
2,468
106,611
(29,925)
(4,626)
(8)
125
123
94
111
69
39
64,706
271,848
$
$
67,669 $
68,674
278,999 $
282,653
$
$
70,799
286,078
$
$
71,857
287,246
$
$
71,323
288,688
$
$
72,099
289,655
$
$
3,622
109,327
(32,904)
(4,491)
35
71,967
287,181
22,810
$
24,504 $
24,335
$
25,667
$
25,968
$
26,573
$
26,381
$
26,709
(827)
(922)
(913)
(912)
(930)
(2,019)
(1,093)
(1,116)
(356)
(226)
(544)
(551)
(557)
(563)
(568)
(575)
21,627
$
23,356 $
22,878
$
24,204
$
24,481
$
23,991
$
24,720
$
25,018
12,167
$
12,773 $
12,917
$
13,647
$
13,108
$
13,033
$
13,124
$
13,880
$
$
$
$
$
$ 2,317,265
$ 2,329,039 $ 2,319,410
$ 2,449,331
$ 2,488,665
$ 2,471,746
$ 2,462,564
$ 2,478,325
Interest service coverage ratio {(1)/(2)}
2.99x
2.90x
3.00x
2.93x
2.94x
2.97x
2.92x
2.88x
Debt service coverage ratio
{(1)/((2)+(3))}
Debt to trailing 12 months EBITDA
{(5)/(4)}
1.91x
1.87x
1.92x
1.87x
1.91x
1.93x
1.91x
1.85x
8.52x
8.35x
8.21x
8.56x
8.66x
8.56x
8.50x
8.63x
(1) Outstanding debt previously calculated as part of the Debt to Gross Book Value – Fair Value Basis calculation.
Delivering Value
53
Management’s Discussion and Analysis ACCOUNTING
Related Party Transactions
As at December 31, 2019, 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 joint venture entities in which Crombie has a 50% interest, as well as 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 rate subsidy
Finance costs – distributions to Unitholders
(a)
(b)
(c)
(d)
(b)
$
$
$
$
$
$
$
$
Three months ended
December 31,
Year ended
December 31,
2019
2018
2019
2018
214,565
730
—
(58)
611
51,032
178
33
$
$
$
51,241
254
$
$
— $
207,948
856
521
$
$
$
(19) $
177
$
(59) $
(18) $
189
$
(53) $
(60) $
602
$
(240) $
(203)
68
$
73
$
279
$
299
(20,302) $
(13,992) $
(62,303) $
(55,900)
(a)
(b)
(c)
(d)
Crombie earned property revenue from Empire (including Sobeys
and all other subsidiaries of Empire).
For various periods, ECLD has an obligation to provide rental
income and interest rate subsidies pursuant to an Omnibus
Subsidy Agreement dated March 23, 2006, between Crombie
Developments Limited, Crombie Limited Partnership and ECLD.
The rental income is included in Property revenue and the
interest rate subsidy is netted against Finance costs – operations.
Certain executive management individuals and other employees
of Crombie provide general management, financial, leasing,
administrative, and other administration support services to
certain subsidiaries of Empire on a cost sharing basis pursuant to a
Management Agreement effective January 1, 2016.
Crombie provides property management, leasing services and
environmental management to specific properties owned by
certain subsidiaries of Empire on a fee for service basis pursuant
to a Management Agreement. Revenue generated from the
Management Agreement is being recognized as a reduction of
General and administrative expenses.
Included in the above, during the year ended December 31, 2019,
Crombie issued 65,721 (December 31, 2018 – 333,058) Class B LP Units to
ECLD under the DRIP.
On August 1, 2019, Crombie purchased a 50% interest in a property
from a subsidiary of Empire for a total purchase price of $9,500 before
closing and transaction costs.
On August 2, 2019, Crombie transferred air rights at its Davie Street
Property to 1600 Davie Limited Partnership. This transfer, as agreed
upon in the 2016 joint venture arrangement, was completed for gross
proceeds of $27,379.
On November 28, 2019, Crombie purchased a property from a
subsidiary of Empire for a total purchase price of $12,422 before
transaction costs.
54
Annual Report 2019
On December 16, 2019, Crombie purchased the remaining 50% interest
in a property from a subsidiary of Empire for a total purchase price of
$95,900 before transaction costs.
During the year ended December 31, 2019, Crombie invested $33,446 in
the modernizations and conversions of 16 existing properties anchored
by subsidiaries of Empire. The amounts are included in tenant incentive
additions and are being amortized over the amended lease terms.
During the quarter, Crombie recognized a mortgage payable of $20,401
in settlement of an amount payable to 1600 Davie Limited Partnership.
This mortgage, bearing interest at 3.22%, relates to the commercial
component of the Davie Street development, 100% of which is included
in Crombie’s financial statements.
Amounts due from related parties include $15,533 (December 31, 2018 –
$14,636) in 6% subordinated notes receivable due from Bronte Village
Limited Partnership and The Duke Limited Partnership.
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, Chief Operating Officer and the two other highest compensated
executives.
The remuneration of members of key management during the period
was approximately as follows:
Year ended December 31,
(In thousands of CAD dollars)
Salary, bonus and other
short-term employee
benefits
Other long-term benefits
$
$
2019
5,899
$
109
6,008
$
2018
4,805
92
4,897
Management’s Discussion and Analysis 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 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.
Delivering Value
55
Management’s Discussion and Analysis Defined benefit liability
Management estimates the defined benefit liability annually with the
assistance of independent actuaries; however, the actual outcome
may vary due to estimation uncertainties. The estimate of Crombie’s
defined benefit liability is based on standard rates of inflation, medical
cost trends and mortality. It also takes into account Crombie’s specific
anticipation of future salary increases. Discount factors are determined
each reporting period by reference to high quality corporate bonds
that are denominated in the currency in which the benefits will be paid
and that have terms to maturity approximating the terms of the related
pension liability. Estimation uncertainties exist particularly with regard
to medical cost trends, which may vary significantly in future appraisals
of Crombie’s defined benefit obligations.
Investment property valuation
External, independent valuation companies, having appropriate
recognized professional qualifications and recent experience in the
location and category of properties being valued, value Crombie’s
investment property portfolio on a rotating basis over a maximum
period of four years. The fair values, based on the date of the valuation,
represent an estimate of the price that would be agreed upon between
a willing buyer and a willing seller in an arm’s length transaction after
proper marketing wherein the parties had each acted knowledgeably,
prudently and without compulsion. Internal quarterly revaluations
are performed using internally generated valuation models prepared
by considering the aggregate cash flows received from leasing the
property, that is stabilized for any major tenant movement. A biannual
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 property valuations. Net annual
cash flows are primarily determined using the trailing 12 months
actual results.
Purchase price allocation
Investment properties are properties which are held to earn rental
income. Investment properties include land, buildings and intangible
assets. Upon acquisition, management allocates the purchase price
of the acquisition. This allocation contains a number of estimates and
underlying assumptions including, but not limited to, estimated cash
flows, discount rates, lease-up rates, inflation rates, renewal rates and
leasing costs.
Fair value of financial instruments
The fair value of marketable financial instruments is the estimated
amount for which an instrument could be exchanged, or a liability
settled, by Crombie and a knowledgeable, willing party in an arm’s
length transaction.
The fair value of other financial instruments is based upon discounted
future cash flows using discount rates that reflect current market
conditions for instruments with similar terms and risks.
Application of new IFRS
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
56
Annual Report 2019
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 and no adjustments were required, except for
where Crombie has sub-leases. Under IFRS 16, Crombie reassessed the
classifications of sub-lease contracts previously classified as operating
leases under IAS 17. Certain land sub-leases were reassessed as finance
leases under IFRS 16 and accordingly, a finance lease receivable was
recognized on January 1, 2019, included in other assets.
Crombie adopted the standard on January 1, 2019 using the
modified retrospective approach, and accordingly, has not restated
comparatives for the 2018 reporting period. The reclassifications and
the adjustments arising from the new standard are recognized in the
opening consolidated balance sheet on January 1, 2019.
Crombie elected to retain the previous determination of whether a
contract is a lease for existing contracts. On initial application, Crombie
used the following practical expedients permitted by the standard:
• Reliance on previous assessments on whether leases are onerous;
• Accounting for operating leases with a remaining lease term of less
than 12 months as at January 1, 2019 as short-term leases;
• Exclusion of low-value asset leases;
• Exclusion of initial direct costs for the measurement of the right of
use asset at the date of initial application; and,
• The use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
On adoption of IFRS 16, Crombie recognized lease liabilities in relation
to leases which had previously been classified as ‘operating leases’
under the principles of IAS 17, consisting primarily of ground leases
on land and fleet vehicle leases. These liabilities were measured at
the present value of the remaining lease payments, discounted using
Crombie’s incremental borrowing rate as of January 1, 2019.
Financial Instruments
The fair value of a financial instrument is the estimated amount that
Crombie would receive to sell a financial asset or pay to transfer a
financial liability in an orderly transaction between market participants
at the measurement date.
Fair value determination is classified within a three-level hierarchy,
based on observability of significant inputs, as follows:
Level 1 – quoted prices (unadjusted) in active markets for identical
assets or liabilities.
Level 2 – inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly or indirectly.
Level 3 – unobservable inputs for the asset or liability.
There were no transfers between levels of the fair value hierarchy
during the year ended December 31, 2019.
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
• Trade and other payables (excluding embedded derivatives).
Management’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
Financial liabilities
Investment property debt
Senior unsecured notes
Total other financial liabilities
December 31, 2019
December 31, 2018
Fair Value
Carrying Value
Fair Value
Carrying Value
$
$
$
23,911
$
24,120
$
21,885
$
21,882
1,400,821
$
1,363,385
$
1,829,772
$
946,700
925,000
702,893
1,789,483
700,000
2,347,521
$
2,288,385
$
2,532,665
$
2,489,483
(1) Long-term receivables include amounts in other assets for the capital expenditure program, interest rate subsidy and receivable from related parties.
The fair value of the long-term receivables, investment property debt
and senior unsecured notes are Level 2 measurements.
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
would not have a significant adverse effect on these operating results.
Crombie has agreed to indemnify its trustees and officers, and
particular employees, in accordance with Crombie’s policies. Crombie
maintains insurance policies that may provide coverage against
certain claims.
Crombie obtains letters of credit to support its obligations with respect
to construction work on its investment properties and satisfying
mortgage financing requirements. As at December 31, 2019, Crombie
has a total of $5,645 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, 2019
December 31, 2018
$
$
3,805
$
1,840
5,645
$
3,858
4,840
8,698
Crombie does not believe that any of these standby letters of credit are
likely to be drawn upon.
As at December 31, 2019, Crombie had signed construction contracts
totalling $293,603 of which $171,790 has been paid. This includes
contracts signed within joint ventures at Crombie’s ownership
percentage.
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, 2019, Crombie has provided guarantees
of approximately $145,713 (December 31, 2018 – $38,245) on mortgages
in excess of their ownership interest in the properties. Responsibility
for ongoing payments of principal and interest on these mortgages
remains with the joint owners of the properties. The mortgages have a
weighted average term to maturity of 4.9 years.
Under the terms of head leases with certain of Crombie’s joint
operation partners, Crombie guarantees its joint operation partners
their portion of any uncollected rent receivable from the sub-tenant.
RISK MANAGEMENT
In the normal course of business, Crombie is exposed to a number
of financial risks that can affect its operating performance. The more
significant risks, and the action taken to manage them, are as follows:
Real Property Ownership and Tenant Risks
All real property investments are subject to elements of risk. The value
of real property and any improvements thereto depend on the credit
and financial stability of tenants and upon the vacancy rates of the
properties. In addition, certain significant expenditures, including
property taxes, ground rent, mortgage payments, insurance costs and
related charges must be made throughout the period of ownership
of real property regardless of whether a property is producing any
income. Cash available for distribution will be adversely affected if
a significant number of tenants are unable to meet their obligations
under their leases or if a significant amount of available space in the
properties becomes vacant and cannot be leased on economically
favourable lease terms.
Upon the expiry of any lease, there can be no assurance that the lease
will be renewed or the tenant replaced. The terms of any subsequent
lease may be less favourable to Crombie than those of an existing
lease. The ability to rent unleased space in the properties in which
Crombie has an interest will be affected by many factors, including
general economic conditions, local real estate markets, changing
demographics, supply and demand for leased premises, competition
from other available premises and various other factors. Management
utilizes staggered lease maturities so that Crombie is not required to
lease unusually large amounts of space in any given year. In addition,
the diversification of our property portfolio by geographic location,
tenant mix and asset type also help to mitigate this risk.
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.
Delivering Value
57
Management’s Discussion and Analysis
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, Empire (including Sobeys and all other
subsidiaries of Empire), represents 54.2% of annual minimum rent;
no other tenant accounts for more than 4.1% of Crombie’s total
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 $51,032 and $207,948 respectively for the three
months and year ended December 31, 2019 (three months and year
ended December 31, 2018 – $51,241 and $214,565 respectively) from
Sobeys Inc. and other subsidiaries of Empire.
Over the next five years, leases representing no more than 5.0% 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.
Crombie determines the expected credit loss in accordance with
IFRS 9’s simplified approach for amounts receivable where its loss
allowance is measured at initial recognition and throughout the life
of the receivable. Trade receivables are written off when there is no
reasonable expectation of recovery.
Crombie manages its residual risk in its investment properties through
an active capital expenditure program and actively leasing any
vacant spaces. The residual risk throughout Crombie’s portfolio is not
considered significant.
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, 2018.
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.
58
Annual Report 2019
Risk Factors Related to the Business of Crombie
Development Risk
Crombie owns a number of investment properties at varying stages
of development as well as a significant pipeline of potential future
development properties.
Development risk associated with development projects underway
include: construction delays and their impact on financing and
related costs as well as commitments from tenants for occupancy;
cost overruns which could impact the profitability and/or financial
viability of a project; and, the inability to meet revenue projections
upon completion, which could be impacted by unmet leasing
assumptions on timing of tenant occupancy or rent per square foot.
Management strives to mitigate these risks by undertaking certain
projects with partners (see Joint Arrangement Risk); entering into
fixed cost construction contracts with reputable contractors; entering
into long-term financing at the most appropriate stage possible; and,
entering into long-term leases with reputable commercial tenants prior
to construction wherever possible.
Development risks associated with potential future development
properties include all of the above risks as well as the risks associated
with the ability to develop the property at all. This may include waiting
for all current leases to expire or negotiating favourable terms with
current tenants which could include costs associated with lease
interruptions to permit development; and, inability to receive various
required municipal / provincial approvals for site plan, development,
zoning, construction, etc.
Joint Arrangement Risk
Crombie has entered into joint arrangements or partnerships with
other third party entities. Risks associated with these arrangements
include risk of default by a partner on financing obligations or non-
performance of a partner’s obligations on a project, which may
include development, construction, management or leasing. Crombie
attempts to mitigate these risks by entering into arrangements with
financially stable, reputable partners with a proven track record and by
negotiating contractual rights in the event of a default.
Significant Relationship
Crombie’s anchor tenants are concentrated in a relatively small number
of retail operators. Specifically, 54.2% of the annual minimum rent and
52.2% of total property revenue generated from Crombie’s properties
is derived from anchor tenants that are owned and/or operated
by Empire (including Sobeys and all other subsidiaries of Empire).
Therefore, Crombie is reliant on the sustainable operation by Empire in
these locations.
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.
Management’s Discussion and Analysis 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.
information resources. Such events, intentional or unintentional, could
include malicious software attacks, unauthorized access to confidential
data or information systems or security breaches and could lead to
a disruption of operations or unauthorized access to, and release of,
confidential information. The results could be reputational damage
with tenants and suppliers as well as financial costs or a disruption to
Crombie’s business. Crombie has implemented processes, procedures
and controls to help mitigate these risks, but these measures, as
well as its increased awareness of a risk of a cyber incident, do not
guarantee that its financial results will not be negatively impacted by
the occurrence of any such event.
Interest Rate Risk
Interest rate risk is the potential for financial loss arising from increases
in interest rates. Crombie mitigates this risk by utilizing staggered debt
maturities and limiting the use of permanent floating rate debt and, on
occasion, utilizing interest rate swap agreements. Crombie does not
enter into interest rate swaps on a speculative basis.
Reliance on Key Personnel
As at December 31, 2019:
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.
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 seven 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, 2019 is detailed under the Property
Portfolio section.
Crombie’s growth strategy of expansion outside of Atlantic Canada
has been predicated on reducing the geographic concentration risk.
The percentage of annual minimum rent to be earned in Atlantic
Canada has decreased from 43.4% at December 31, 2013 to 38.0% at
December 31, 2019.
Cyber Security Risk
A cyber security incident includes any material adverse event that
threatens the confidentiality, integrity and/or availability of Crombie’s
• Crombie’s weighted average term to maturity of its fixed rate
mortgages is 3.9 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 $15,339 at December 31, 2019;
• Crombie has a floating rate bilateral credit facility available to a
maximum of $100,000 with a balance of $30,000 at December 31,
2019;
• Crombie has an 11% interest in a $62,250 and a $16,500 floating
rate term loan credit facility which are both fully utilized as
of December 31, 2019 (Crombie’s portion – $6,848 and $1,815,
respectively);
• Crombie has an 11% interest in a $5,800 floating rate revolving credit
facility (as of December 31, 2019, Crombie’s portion – $130) and a
$15,500 floating rate revolving credit facility (as of December 31, 2019,
Crombie’s portion – $176); and,
• Crombie has interest rate swap agreements in place on $115,149 of
floating rate debt.
Crombie estimates that $451 of accumulated other comprehensive
income (loss) will be reclassified to finance costs during the year
ended December 31, 2020, based on all settled swap agreements as of
December 31, 2019.
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 of a 0.5% interest rate change
Impact on operating income attributable to Unitholders of interest rate changes on the floating rate revolving credit facility
Decrease in rate
Increase in rate
Twelve months ended December 31, 2019
Twelve months ended December 31, 2018
$
$
359
611
$
$
(359)
(611)
There have been no significant changes to Crombie’s interest rate risk since December 31, 2018.
Delivering Value
59
Management’s Discussion and Analysis Liquidity Risk
The real estate industry is highly capital intensive. Liquidity risk is the
risk that Crombie may not have access to sufficient debt and equity
capital to fund its growth program, refinance debt obligations as they
mature or meet its ongoing obligations as they arise.
Cash flow generated from operating the property portfolio represents
the primary source of liquidity used to service the interest on debt, fund
general and administrative expenses, reinvest in the portfolio through
capital expenditures, as well as fund tenant incentive costs and make
distributions to Unitholders. Debt repayment requirements are primarily
funded from refinancing Crombie’s maturing debt obligations. Property
acquisition funding requirements are funded through a combination
of accessing the debt and equity capital markets and recycling capital
from property dispositions.
There is a risk that the debt capital markets may not refinance maturing
fixed rate and floating rate debt on terms and conditions acceptable
to Crombie or at any terms at all. Crombie seeks to mitigate this risk by
staggering its debt maturity dates. There is also a risk that the equity
capital markets may not be receptive to a REIT unit offering issue from
Crombie with financial terms acceptable to Crombie. Crombie mitigates
its exposure to liquidity risk utilizing a conservative approach to capital
management.
Access to the revolving credit facility is limited by the amount utilized
under the facility and the amount of any outstanding letters of credit,
and cannot exceed the borrowing base security provided by Crombie.
The estimated payments, including principal and interest, on non-
derivative financial liabilities to maturity date are as follows:
(In thousands of CAD dollars)
Contractual
Cash Flows1
2020
2021
2022
2023
2024
Thereafter
Twelve months ending December 31,
Fixed rate mortgages2
$
1,492,525
$
304,017
$
165,813
$
227,366
$
292,179
$
255,628
$
1,092,182
149,218
2,733,925
59,152
37,634
2,580
344,231
1,989
281,856
2,432
450,101
31,281
177,053
2,281
406,700
856
21,630
2,181
315,990
15,925
21,630
2,060
279,318
9,101
247,522
552,379
137,684
937,585
—
Senior unsecured notes
Lease Liabilities
Credit facilities
Total
$
2,793,077
$
346,220
$
481,382
$
407,556
$
331,915
$
288,419
$
937,585
(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.
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.
60
Annual Report 2019
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. 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 under an
omnibus environmental indemnity agreement entered into as part of
the closing of the acquisition of the applicable properties. There is no
certainty that Empire will be able to perform its obligations to Crombie
in connection with these agreements. Empire and specific subsidiaries
have not provided any security to guarantee these obligations. If
Empire, Sobeys or such affiliates are unable or otherwise fail to fulfill
their obligations to Crombie, such failure could adversely impact
Crombie’s financial condition.
Risk Factors Related to the Units
Cash Distributions Are Not Guaranteed
There can be no assurance regarding the amount of income to be
generated by Crombie’s properties. The ability of Crombie to make cash
distributions and the actual amount distributed are entirely dependent
on the operations and assets of Crombie and its subsidiaries, and are
subject to various factors including financial performance, obligations
under applicable credit facilities, the sustainability of income derived
from anchor tenants and capital expenditure requirements. Cash
available to Crombie to fund distributions may be limited from time to
time because of items such as principal repayments, tenant allowances,
Management’s Discussion and Analysis 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 2019 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:
•
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.
Delivering Value
61
Management’s Discussion and Analysis SUBSEQUENT EVENTS
(a) On January 15, 2020, the $0.10 per unit cash portion of the special
distribution announced on December 12, 2019 was paid to
Unitholders of record as of December 31, 2019.
(b) On January 21, 2020, Crombie declared distributions of 7.417 cents
per Unit for the period from January 1, 2020 to and including,
January 31, 2020. The distributions were paid on February 14,
2020, to Unitholders of record as of January 31, 2020.
(c) On February 1, 2020, mortgages totalling $153,000, bearing
interest of 5.63%, were fully paid, primarily with the proceeds from
the 3.917% Series G notes issued in December 2019 as further
described in the Liquidity and Financing Sources section.
(d) On February 11, 2020, Crombie closed on an offering, on a
bought deal basis, of $58,512 of Units at a price of $16.00 per Unit
to a syndicate of underwriters co-led by CIBC Capital Markets
and BMO Capital Markets. In addition, a subsidiary of Empire
purchased, on a private placement basis, $41,500 of Class B LP
Units of a subsidiary of Crombie, together with the attached
Special Voting Units of Crombie, at a price of $16.00 per Class
B Unit. After the closing of the public offering and the private
placement, Empire continues to hold a 41.5% economic and
voting interest in Crombie.
(e) On February 18, 2020, Crombie declared distributions of 7.417
cents per Unit for the period from February 1, 2020 to and
including, February 29, 2020. The distributions will be paid on
March 13, 2020, to Unitholders of record as of February 29, 2020.
CONTROLS AND PROCEDURES
Crombie maintains a set of disclosure controls and procedures
designed to ensure that information required to be disclosed by
Crombie in its annual filings, interim filings or other reports filed or
submitted by it under securities legislation is recorded, processed,
summarized and reported within the time periods specified in the
securities legislation and include controls and procedures designed
to ensure that information required to be disclosed by Crombie is
accumulated and communicated to Crombie’s management, including
its President and Chief Executive Officer (“CEO”) and Executive Vice
President, Chief Financial Officer and Secretary (“CFO”), as appropriate,
to allow timely decisions regarding disclosure. Our CEO and CFO have
evaluated the design and effectiveness of our disclosure controls and
procedures as of December 31, 2019. 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,
2019, 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.
The appropriate changes to ICFR in relation to Crombie’s migration to
the new ERP system have been made in order to continue to maintain
appropriate internal controls over financial reporting. Other than these
changes, there were no changes to Crombie’s ICFR that occurred
during the year ended December 31, 2019 that have materially affected
or are reasonably likely to materially affect Crombie’s ICFR.
62
Annual Report 2019
Management’s Discussion and Analysis 29,925
74,218
33,502
(4,626)
(26,381)
39
(19,719)
(8,000)
32,904
72,801
11,841
(4,491)
(26,709)
35
(28,032)
—
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,
2019
Sep. 30,
2019
Jun. 30,
2019
Mar. 31,
2019
Dec. 31,
2018
Sep. 30,
2018
Jun. 30,
2018
Mar. 31,
2018
Three Months Ended
$
96,823
$
97,346
$
99,332
$ 105,240
$ 104,296
$ 100,505
$
104,143
$
105,705
Property revenue
Property operating expenses
Property net operating income
Gain on disposal
Expenses:
General and administrative
Finance costs – operations
29,852
66,971
30,198
27,205
70,141
8,315
28,222
71,110
16,661
32,366
72,874
26,629
30,817
73,479
4,580
27,660
72,845
100
(5,855)
(6,112)
(5,970)
(5,784)
(5,184)
(4,925)
(22,810)
(24,504)
(24,335)
(25,667)
(25,968)
(26,573)
Income (loss) from equity accounted investments
Depreciation and amortization
Impairment
(8)
(18,347)
(6,000)
125
123
94
111
69
(17,908)
(18,140)
(19,918)
(19,906)
(28,696)
—
—
—
—
Operating income before taxes
44,149
30,057
39,449
48,228
—
(8)
—
—
Taxes – current
Operating income
44,149
30,049
39,449
48,228
20,111
12,818
49,033
25,445
(7,000)
20,112
(1)
12,820
49,033
25,445
(2)
—
—
Finance costs – distributions to Unitholders
(48,936)
(33,753)
(33,744)
(33,736)
(33,724)
(33,711)
(33,688)
(33,606)
Finance income (costs) – change in fair value of
financial instruments
(70)
(264)
(332)
(671)
197
(40)
(50)
295
Increase (decrease) in net assets attributable
to Unitholders
Operating income per unit – Basic
(In thousands of CAD dollars, except per unit amounts)
Distributions
Distributions
Per unit
AFFO
Basic
Per unit – Basic
Payout ratio1
FFO
Basic
Per unit – Basic
Payout ratio2
$
$
$
$
$
$
$
$
(4,857) $
(3,968) $
5,373
0.29
$
0.20
$
0.26
$
$
13,821
0.32
$
$
(13,416) $ (20,933) $
15,295
0.13
$
0.08
$
0.32
$
$
(7,866)
0.17
Dec. 31,
2019
Sep. 30,
2019
Jun. 30,
2019
Mar. 31,
2019
Dec. 31,
2018
Sep. 30,
2018
Jun. 30,
2018
Mar. 31,
2018
Three Months Ended
$
$
$
$
$
$
48,936
0.22
36,006
0.24
93.8%
42,132
0.28
80.1%
33,753
0.22
36,417
0.24
92.7 %
43,380
0.29
77.8%
$
$
$
$
$
$
33,744
0.22
$
$
33,736
0.22
37,549
$ 38,660
0.25
$
0.26
89.9%
87.3%
$
$
$
$
33,724
0.22
39,771
0.26
84.8%
44,567
$ 45,460
$ 46,490
0.29
$
0.30
$
75.7%
74.2%
0.31
72.5%
$
$
$
$
$
$
33,711
0.22
37,867
0.25
89.0%
45,355
0.30
74.3%
$
$
$
$
$
$
33,688
0.22
39,492
0.26
85.3%
46,325
0.31
72.7%
$
$
$
$
$
$
33,606
0.22
38,664
0.26
86.9%
45,864
0.30
73.3%
(1) Excludes special distribution December 31, 2019. Payout ratio including total distributions is 135.4%.
(2) Excludes special distribution December 31, 2019. Payout ratio including total distributions is 115.8%.
Variations in quarterly results over the past eight quarters have been influenced by the following specific transactions and ongoing events:
• Property acquisitions and dispositions (gross proceeds excluding
closing and transaction costs) for each of the above three month
periods were:
> December 31, 2019 – acquisition of one retail property and
additions to one existing retail property and one existing retail-
related industrial property for a total purchase price of $114,933
and disposition of an 89% interest in 15 retail properties for
proceeds of $193,333.
> September 30, 2019 – acquisition of a 50% interest in one retail
property for a total purchase price of $9,500, disposition of
an 89% interest in one retail property for proceeds of $9,750,
disposition of 100% of one retail property for proceeds of $12,255,
disposition of air rights to a joint venture for proceeds of $27,379
and disposition of a freestanding building adjacent to a retail
property for proceeds of $175.
> June 30, 2019 – disposition of one retail property for proceeds
of $21,500, disposition of residential lands adjacent to a
development property for proceeds of $3,275 and disposition of
an 89% interest
in 26 retail properties for proceeds of $161,589;
> March 31, 2019 – acquisition of one development property for
a total purchase price of $32,000, disposition of three retail
properties for proceeds of $64,780, disposition of a parcel of land
adjacent to a retail property for proceeds of $821 and disposition
of a 50% interest in seven retail properties for proceeds of $41,614;
Delivering Value
63
Management’s Discussion and Analysis
> 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 commercial property
for proceeds of $75,084 and disposition of a 50% interest in nine
retail properties for proceeds of $77,929; and,
> 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.
• Property revenue and property operating expenses – Crombie’s
business is subject to seasonal fluctuations. Property operating
expenses during winter months include particular expenses such
as snow removal, which is a recoverable expense, thus increasing
property revenue during these same periods. Property operating
expenses during the summer and fall periods include particular
expenses such as paving and roof repairs.
• Per unit amounts for FFO and AFFO are influenced by operating
results as detailed above and by the timing of the issuance of REIT
Units and Class B LP Units.
Additional information relating to Crombie, including its latest Annual
Information Form, can be found on the SEDAR website for Canadian
regulatory filings at www.sedar.com.
Dated: February 26, 2020
New Glasgow, Nova Scotia, Canada
64
Annual Report 2019
Management’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, 2019, 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 26, 2020
CLINTON D. KEAY, CPA, CA
Chief Financial Officer and Secretary
February 26, 2020
Delivering Value
65
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, 2019 and 2018, and its financial performance and its
cash flows for the years then ended in accordance with International
Financial Reporting Standards as issued by the International
Accounting Standards Board (IFRS).
What we have audited
The Trust’s consolidated financial statements comprise:
•
•
•
•
•
the consolidated balance sheets as at December 31, 2019 and 2018;
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 flow 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 express any form of assurance conclusion thereon.
66
Annual Report 2019
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, 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.
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 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.
Independent Auditor’s Report
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.
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
Halifax, Nova Scotia
February 26, 2020
Delivering Value
67
Consolidated Balance Sheets
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
Employee future benefits obligation
Trade and other payables
Lease liabilities
Current liabilities
Fixed rate mortgages
Employee future benefits obligation
Trade and other payables
Lease Liabilities
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 (Michael Knowlton)
MICHAEL KNOWLTON
Chair
68
Annual Report 2019
Note
December 31, 2019
December 31, 2018
$
3,557,572
$
45,123
286,947
3,889,642
31,572
3,921,214
1,045,015
54,308
922,479
8,122
14,613
28,675
2,073,212
257,495
289
134,431
744
392,959
2,466,171
1,455,043
$
870,792
$
584,251
3,759,643
39,485
248,818
4,047,946
23,128
4,071,074
1,421,062
178,843
698,716
8,824
11,488
—
2,318,933
180,522
296
128,483
—
309,301
2,628,234
1,442,840
864,779
578,061
1,455,043
$
1,442,840
3
4
5
5
7
7
8
9
10
20
7
9
10
20
21
22
signed (Paul Beesley)
PAUL BEESLEY
Audit Committee Chair
$
$
$
Consolidated Statements of Comprehensive Income (Loss)
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 and amortization
General and administrative expenses
Finance costs – operations
Income from equity accounted investments
Operating income before taxes
Taxes – current
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 in employee future benefits obligation
Other comprehensive income
Comprehensive income (loss)
See accompanying notes to the consolidated financial statements.
Year ended
Note
December 31, 2019
December 31, 2018
11
$
398,741
$
3
3
3,5
13
14
4
13
117,645
281,096
81,803
(6,000)
(74,313)
(23,721)
(97,316)
334
161,883
(8)
161,875
(150,169)
(1,337)
(151,506)
10,369
2,136
(1,893)
1,219
1,462
$
11,831
$
414,649
121,306
293,343
50,023
(15,000)
(96,353)
(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)
Delivering Value
69
Consolidated Statements of Changes in Net Assets Attributable to Unitholders
CONSOLIDATED STATEMENTS OF CHANGES
IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS
(In thousands of CAD dollars)
Balance, January 1, 2019,
as previously reported
Adjustments related to adoption
of IFRS 161
Adjustments related to EUPP
Statements of comprehensive
income (loss)
Units issued under Distribution
Reinvestment Plan (“DRIP”)
Units issued under unit based
compensation plan
REIT Units,
Special Voting
Units and Class B
LP Units
(Note 15)
Net Assets
(Liabilities)
Attributable to
Unitholders
Accumulated Other
Comprehensive
Income (Loss)
Attributable to
Total
REIT
Units
Class B
LP Units
$
1,756,458
$
(312,287) $
(1,331) $ 1,442,840
$
864,779
$
578,061
—
422
—
2,330
114
(2,505)
11
10,369
—
—
—
—
(2,505)
433
(1,501)
433
(1,004)
—
1,462
11,831
5,611
6,220
—
—
2,330
1,356
114
114
974
—
Balance, December 31, 2019
$
1,759,324
$
(304,412) $
131
$ 1,455,043
$
870,792
$
584,251
(1) See IFRS 16 transition note (note 2(z))
(In thousands of CAD dollars)
REIT Units,
Special Voting
Units and Class B
LP Units
(Note 15)
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 DRIP
Units Issued under unit based
compensation plan
61
—
10,100
158
21
(26,920)
—
—
—
2,165
—
—
82
82
—
(24,755)
10,100
(14,841)
5,902
(9,914)
4,198
158
158
—
Balance, December 31, 2018
$
1,756,458 $
(312,287) $
(1,331) $ 1,442,840
$
864,779
$
578,061
See accompanying notes to the consolidated financial statements.
70
Annual Report 2019
Consolidated Statements of Cash Flows
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(In thousands of CAD dollars)
CASH FLOWS PROVIDED BY (USED IN)
Operating Activities
Note
December 31, 2019
December 31, 2018
Year ended
Increase (decrease) in net assets attributable to Unitholders
$
10,369
$
Additions to tenant incentives
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
Financing – other
Repayment of mortgages – principal
Repayment of mortgages – maturity
Advance (repayment) of floating rate credit facilities
Advance of joint operation credit facilities
Issue of senior unsecured notes
Redemption of senior unsecured notes
Redemption of convertible debentures
Collection of EUPP loans receivable
Payments of lease liabilities
Cash (used in) provided by 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
Distributions from (contributions to) joint ventures
Additions to fixtures and computer equipment
Proceeds on disposal of marketable securities
Additions to deferred leasing costs
Advances on long-term receivables
Cash provided by (used in) investing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
See accompanying notes to the consolidated financial statements.
16
16
7
7
7
8
8
3
(58,919)
24,789
(12,100)
(8)
(35,869)
25,288
(3,730)
(51,504)
(133,759)
(133,504)
8,969
350,000
(125,000)
—
422
(669)
(63,487)
(152,507)
(94,769)
339,391
—
13,115
(1,520)
—
(2,116)
(2,238)
99,356
—
—
— $
$
(26,920)
(16,505)
79,647
1,546
(3)
37,765
—
(2,852)
(53,145)
(64,713)
125,675
—
250,152
(175,000)
(74,400)
61
—
5,778
(118,184)
(91,211)
190,013
(10,210)
(4,020)
(4,248)
1,252
(983)
(5,952)
(43,543)
—
—
—
Delivering Value
71
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands of CAD dollars)
1) GENERAL INFORMATION AND NATURE OF OPERATIONS
Crombie Real Estate Investment Trust (“Crombie”) is an unincorporated “open-ended” real estate investment trust created pursuant to the
Declaration of Trust dated January 1, 2006, as amended. The principal business of Crombie is investing in income-producing retail, office and
mixed-use properties in Canada. Crombie is registered in Canada and the address of its registered office is 610 East River Road, Suite 200,
New Glasgow, Nova Scotia, Canada, B2H 3S2. The consolidated financial statements for the year ended December 31, 2019 and December 31, 2018
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 26, 2020.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by
the International Accounting Standards Board (“IASB”).
(b) Basis of presentation
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) Presentation of financial statements
When Crombie: (i) applies an accounting policy retrospectively; (ii) makes a retrospective restatement of items in its financial statements;
or (iii) reclassifies items on the balance sheet, it will present an additional balance sheet as at the beginning of the earliest comparative period.
(d) Basis of consolidation
(i) Subsidiaries
Crombie’s financial statements consolidate those of Crombie and all of its subsidiary entities at December 31, 2019. Subsidiaries are all entities over
which Crombie has control. All subsidiaries have a reporting date of December 31, 2019.
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 share of the assets, liabilities, revenues and expenses of the joint operation in the relevant
categories of Crombie’s financial statements.
Joint ventures
A joint venture is an entity over which Crombie shares joint control with other parties and where the joint venture parties have rights to the net
assets of the joint venture. Joint control exists where there is a contractual agreement for shared control and wherein decisions about the significant
relevant activities of the arrangement require unanimous consent of the parties sharing control.
72
Annual Report 2019
Notes to the Consolidated Financial Statements Investment in joint ventures is accounted for using the equity method. Under the equity method, the investment is initially recorded at cost with
subsequent adjustments for Crombie’s share of the results of operations and any change in net assets. Crombie’s joint venture entities have the
same reporting period as Crombie and adjustments, if any, are made to bring the accounting policies of joint venture entities in line with the policies
of Crombie.
(e) Investment properties
Investment properties are properties which are held to earn rental income. Investment properties include land, buildings and intangible assets.
Investment properties are carried at cost less accumulated depreciation and are reviewed for impairment as described in Note 2(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) Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand, cash in bank and guaranteed investments with a maturity less than 90 days at date of
acquisition.
(g) Assets held for sale and discontinued operations
A non-current asset is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than continuing
use. A property is classified as held for sale at the point in time when it is available for immediate sale, management has committed to a plan to sell
the property and is actively locating a purchaser for the property at a sales price that is reasonable in relation to the current estimated fair value of
the property, and the sale is expected to be completed within a one year period. Properties held for sale are carried at the lower of their carrying
values and estimated fair value less costs to sell. In addition, assets classified as held for sale are not depreciated and amortized. A property that is
subsequently reclassified as held and in use is measured at the lower of its carrying value amount before it was classified as held for sale, adjusted
for any depreciation and amortization expense that would have been recognized had it been continuously classified as held and in use, and its
estimated fair value at the date of the subsequent decision not to sell.
Assets that are classified as held for sale and that constitute a component of Crombie are presented as discontinued operations and their operating
results are presented separately in the Consolidated Statements of Comprehensive Income (Loss). A component of Crombie includes a property
type or geographic area of operations.
(h) Employee future benefits obligation
The cost of Crombie’s pension benefits for defined contribution plans is expensed for employees in respect of the period in which they render
services. The cost of defined benefit pension plans and other benefit plans is accrued based on estimates, using actuarial techniques, of the amount
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Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements
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 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) Unit based compensation plans
(i) Deferred Unit Plan (“DU Plan”)
Crombie provides a voluntary DU Plan whereby eligible trustees, officers and employees (the “Participants”) may elect to receive all or a portion
of their eligible compensation in deferred units (“DUs”). The Board (or its designated Committee) may determine that special compensation will
be provided in the form of DUs. Unless otherwise determined by the Board (or its designated Committee), DUs are fully vested at the time they
are allocated, with the value of the award recorded as a liability and expensed as general and administrative expenses. 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. 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.
(ii) Restricted Unit Plan (“RU Plan”)
Crombie has a RU Plan for certain eligible executives and employees (“RU Participants”), whereby the RU Participants will receive all or a portion of
their annual long-term incentive plan awards in restricted units (“RUs”). The RUs are accounted for under IAS 19 “Employee benefits” and the liability
and expense are recognized over the service period which ends on the vesting date 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 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 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. 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.
(j) Distribution reinvestment plan (“DRIP”)
Crombie has a DRIP which is described in Note 15.
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Notes to the Consolidated Financial Statements (k) Revenue 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
Crombie recognizes revenue in accordance with IFRS 15 “Revenue from Contracts with Customers”. Crombie recognises revenue to customers
that reflects the consideration to which it expects to be exchanged for. This involves identifying the contract with its customers, identifying the
performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the
contract and recognizing revenue when the entity satisfies its performance obligations.
Where a contract contains elements of variable consideration, Crombie estimates the amount of variable consideration to which it will be entitled
under the contract. Variable consideration can arise from discounts, refunds, credits and price concessions. This consideration is allocated to all
performance obligations in a contract based on their relative standalone selling prices.
(l) Leases
Crombie adopted IFRS 16 “Leases” on January 1, 2019. Refer to note 2(z) for impact of the adoption.
Crombie as lessor
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.
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.
Crombie as lessee
Crombie leases include land, office, equipment and vehicle leases. Crombie assesses whether a contract is or contains a lease at the inception of
the contract.
Leases are recognized as a right of use asset with a corresponding liability at the date at which the leased asset is available for use by Crombie,
except for short-term leases of 12 months or less or low value leases which are expensed in the consolidated income statement on a straight-line
basis over the lease term.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the
interest rate implicit in the lease; or if not determinable, the lessee’s incremental borrowing rate, specific to the term of the lease. Lease payments
can include fixed payments; variable payments based on an index or a rate known at the commencement date; and extension option payments
or purchase options, if Crombie is reasonably certain to exercise. The lease liability is subsequently measured at amortized cost using the effective
interest rate method and remeasured (with a corresponding adjustment to the related right of use asset) when there is a change in future lease
payments in case of renegotiation, changes of an index or rate or in case of reassessment of options.
At inception of the lease, the right of use asset is measured at cost, comprising initial lease liability, initial direct costs and any future restoration or
refurbishment costs, less any incentives granted by the lessors. The right of use asset is depreciated over the shorter of the asset’s useful life and
the lease term of the underlying asset on a straight-line basis. The right of use asset is subject to testing for impairment if there is an indicator for
impairment.
Right of use assets are included in Investment Property and Other Assets and the lease liability is presented separately.
Prior to adoption of IFRS 16, leases were classified as either finance or operating leases. Payments made under operating leases (net of any incentives
received from the lessor) were recognized in income on a straight-line basis over the period of the lease.
(m) Deferred financing charges
Deferred financing charges consist of costs directly attributable to the issuance of debt. These charges are amortized in finance costs – operations
using the effective interest method, over the term of the related debt.
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Notes to the Consolidated Financial Statements (n) Finance costs – operations
Finance costs – operations primarily comprise interest on Crombie’s borrowings. Finance costs directly attributable to the acquisition,
redevelopment, construction or production of a qualifying asset are capitalized as a component of the cost of the asset to which it is related.
All other finance costs – operations are expensed in the period in which they are incurred using the effective interest rate method.
(o) Finance costs – distributions to Unitholders
The determination to declare and make payable distributions from Crombie is at the discretion of the Board of Trustees and, until declared payable
by the trustees, Crombie has no contractual obligation to pay cash distributions to Unitholders.
(p) Income taxes
Crombie is taxed as a “mutual fund trust” for income tax purposes. It is the intention of Crombie, subject to approval of the trustees, to make
distributions not less than the amount necessary to ensure that Crombie will not be liable to pay income tax, except for the amounts incurred in
its incorporated subsidiaries.
(q) Hedges
Crombie may use cash flow hedges to manage exposures to increases in variable interest rates. Cash flow hedges are recognized on the balance
sheet at fair value with the effective portion of the hedging relationship recognized in other comprehensive income (loss). Any ineffective portion of
the cash flow hedge is recognized in operating income. Amounts recognized in accumulated other comprehensive income (loss) are reclassified to
operating income in the same periods in which the hedged item is recognized in operating income. Fair value hedges and the related hedged items
are recognized on the balance sheet at fair value with any changes in fair value recognized in operating income. To the extent the fair value hedge is
effective, the changes in the fair value of the hedge and the hedged item will offset each other.
Crombie assesses on an ongoing basis whether any existing derivative financial instrument continues to be effective in offsetting changes in interest
rates on the hedged items.
(r) Comprehensive income (loss)
Comprehensive income (loss) is the change in net assets attributable to Unitholders during a period from transactions and other events and
circumstances from non-Unitholder sources. Crombie reports a consolidated statement of comprehensive income (loss), comprising changes in net
assets attributable to Unitholders and other comprehensive income (loss) for the year. Accumulated other comprehensive income (loss), has been
included in the Consolidated Statements of Changes in Net Assets Attributable to Unitholders.
(s) Provisions
Provisions are recognized when: Crombie has a present obligation (legal or constructive) as a result of a past event; it is probable that Crombie will
be required to settle the obligation; and, a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date,
taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle
the present obligation, its carrying amount is the present value of those cash flows, where the time value of money is material. When some or all of
the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is
virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Provisions reflect Crombie’s best
estimate at the reporting date.
Environmental liabilities are recognized when Crombie has an obligation relating to site closure or rehabilitation. The extent of the work required and
the associated costs are dependent on the requirements of the relevant authorities and Crombie’s environmental policies. Provisions for the cost
of each closure and rehabilitation program are recognized at the time of occurrence and when Crombie has a reliable estimate of the obligation.
Changes in the provision are recognized in the period of the change.
Crombie’s provisions are immaterial and are included in trade and other payables.
(t) Financial instruments
Crombie classifies financial assets and liabilities according to their characteristics and management’s choices and intentions related thereto for the
purpose of ongoing measurement. Classification choices for financial assets include: a) Amortized cost – recorded at amortized cost with gains
and losses recognized in increase (decrease) in net assets attributable to Unitholders in the period that the asset is derecognized or impaired; b)
Fair value, with two options; (i) FVTOCI – measured at fair value with changes in fair value recognized in other comprehensive income (loss) for
the current period until realized through disposal or impairment; and, (ii) FVTPL – measured at fair value with changes in fair value recognized in
increase (decrease) in net assets attributable to Unitholders for the period. Classification choices for financial liabilities include: a) Amortized cost –
recorded at amortized cost with gains and losses recognized in increase (decrease) in net assets attributable to Unitholders in the period that the
asset is derecognized or impaired; and b) FVTPL – measured at fair value with changes in fair value recognized in increase (decrease) in net assets
attributable to Unitholders for the period. Subsequent measurement for these assets and liabilities is based on either fair value or amortized cost
using the effective interest method, depending upon their classification.
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Notes to the Consolidated Financial Statements Crombie’s financial assets and liabilities are generally classified and measured as follows:
Financial Asset/Liability
Cash and cash equivalents
Trade receivables
Restricted cash
Long-term receivables
Marketable securities
Derivative financial assets and liabilities
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 (excluding interest rate swaps)
Financial liabilities at amortized cost
Amortized cost
Investment property debt
Senior unsecured notes
Financial liabilities at amortized cost
Amortized cost
Financial liabilities at amortized cost
Amortized cost
Other balance sheet accounts, including, but not limited to, prepaid expenses, accrued straight-line rent receivable, tenant incentives, investment
properties and employee future benefits obligation are not financial instruments.
Transaction costs, other than those related to financial instruments classified as FVTPL that are expensed as incurred, are added to the fair value of
the financial asset or financial liability on initial recognition and amortized using the effective interest method. Financing costs incurred to establish
revolving credit facilities are deferred and amortized on a straight-line basis over the term of the facilities. In the event any debt is extinguished, the
associated unamortized financing costs are expensed immediately.
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.
Crombie determines the expected credit loss in accordance with IFRS 9’s simplified approach for amounts receivable where its loss allowance is
measured at initial recognition and throughout the life of the receivable. Trade receivables are written off when there is no reasonable expectation
of recovery.
(u) Fair value measurement
The fair value of financial instruments is the estimated amount that Crombie would receive to sell a financial asset or pay to transfer a financial liability
in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or, in the absence of a principal
market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by Crombie.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest.
Crombie uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value,
maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. The fair value of any interest rate swap is estimated
by discounting net cash flows of the swaps using forward interest rates for swaps of the same remaining maturities.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset
in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
When determining the highest and best use of non-financial assets Crombie takes into account the following:
• use of the asset that is physically possible – Crombie assesses the physical characteristics of the asset that market participants would take into
account when pricing the asset;
• use that is legally permissible – Crombie assesses any legal restrictions on the use of the asset that market participants would take into account
when pricing the asset; and
• use that is financially feasible – Crombie assesses whether a use of the asset that is physically possible and legally permissible generates adequate
income or cash flows to produce an investment return that market participants would require from an investment in that asset put to that use.
(v) 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.
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Notes to the Consolidated Financial Statements 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) Net assets attributable to Unitholders
(i) Balance Sheet presentation
In accordance with International Accounting Standard (“IAS”) 32 Financial Instruments: Presentation, puttable instruments are generally classified as
financial liabilities. Crombie’s REIT Units and Class B LP Units with attached Special Voting Units (“SVU”) are both puttable instruments, meeting the
definition of financial liabilities in IAS 32. There are exception tests within IAS 32 which could result in classification as equity; however, Crombie’s
units do not meet the exception requirements. Therefore, Crombie has no instrument qualifying for equity classification on its Balance Sheet
pursuant to IFRS. The classification of all units as financial liabilities with presentation as net assets attributable to Unitholders does not alter the
underlying economic interest of the Unitholders in the net assets and net operating results attributable to Unitholders.
(ii) Balance Sheet measurement
REIT Units and Class B LP Units with attached SVUs are carried on the Balance Sheet at net asset value. Although puttable instruments classified
as financial liabilities are generally required to be remeasured to fair value at each reporting period, the alternative presentation as net assets
attributable to Unitholders reflects that, in total, the interests of the Unitholders is limited to the net assets of Crombie.
(iii) Statement of Comprehensive Income (Loss) presentation
As a result of the classification of all units as financial liabilities, the Statement of Comprehensive Income (Loss) recognizes distributions to Unitholders
as a finance cost. In addition, terminology such as net income has been replaced by Increase (decrease) in net assets attributable to Unitholders to
reflect the absence of an equity component on the Balance Sheet.
(iv) Presentation of per unit measures
As a result of the classification of all units as financial liabilities, Crombie has no equity instrument; therefore, in accordance with IAS 33 Earnings per
Share, there is no denominator for purposes of calculation of per unit measures.
(v) Allocation of Comprehensive income (loss)
The components of Comprehensive income (loss) are allocated between REIT Units and Class B LP Units as follows:
• Operating income – based on the weighted average number of units outstanding during the reporting period.
• Distributions to Unitholders – based on the actual distributions paid to each separate unit class.
• Accumulated other comprehensive income (loss) – increases are allocated based on the weighted average number of units outstanding during
the reporting period, decreases in previously accumulated amounts are drawn down based on the average accumulation allocation rate.
(x) Critical judgments in applying accounting policies
The following are the critical judgments that have been made in applying Crombie’s accounting policies and that have the most significant effect on
the consolidated financial statements:
(i) Investment properties
Crombie’s accounting policies relating to investment properties are described in Note 2(e). In applying these policies, judgment is applied in
determining whether certain costs are additions to the carrying amount of an investment property and whether properties acquired are considered
to be asset acquisitions or business combinations. Crombie has determined that all properties acquired to date are asset acquisitions.
(ii) Investment in joint ventures
Crombie makes judgments in determining the appropriate accounting for investments in other entities. Such judgments include: determining
the significant relevant activities and assessing the level of influence Crombie has over such activities through agreements and contractual
arrangements.
(iii) 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.
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Notes to the Consolidated Financial Statements (iv) 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.
(y) Critical accounting estimates and assumptions
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates. The estimates and assumptions that
are critical to the determination of the amounts reported in the consolidated financial statements relate to the following:
(i) Fair value measurement
A number of assets and liabilities included in Crombie’s consolidated financial statements require measurement at, and/or disclosure of, fair value.
In estimating the fair value of an asset or a liability, Crombie uses market-observable data to the extent it is available. Where Level 1 inputs are not
available, Crombie estimates the fair value based on discounted future cash flows using discount rates that reflect current market conditions for
instruments with similar terms and risks. The significant methods and assumptions used in estimating fair value are set out in Notes 2(i), 3 and 18.
(ii) 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.
(iii) Impairment of long-lived tangible and definite life intangible assets
Long-lived tangible and definite life intangible assets are reviewed for impairment when events or changes in circumstances indicate that the
carrying value of the assets may not be recoverable. 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.
(iv) Investment property valuation
External, independent valuation companies, having appropriate recognized professional qualifications and recent experience in the location and
category of properties being valued, value Crombie’s investment property portfolio on a rotating basis over a maximum period of four years. The
fair values, based on the measurement date, represent the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Internal quarterly valuations are performed using internally generated valuation
models prepared by considering the aggregate trailing net property income received from leasing the property, that is stabilized for any major tenant
movement. Biannual yields are obtained from an independent valuation company, which reflects the specific risks inherent in the net property
income, to arrive at property valuations.
(v) Defined benefit liability
Management estimates the defined benefit liability annually with the assistance of independent actuaries; however, the actual outcome may vary
due to estimation uncertainties. The estimate of Crombie’s defined benefit liability is based on standard rates of inflation, medical cost trends and
mortality. It also takes into account Crombie’s specific anticipation of future salary increases. Discount factors are determined each reporting period
by reference to high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity
approximating the terms of the related pension liability. Estimation uncertainties exist particularly with regard to medical cost trends, which may vary
significantly in future appraisals of Crombie’s defined benefit obligations.
(vi) Purchase price allocation
Investment properties are properties which are held to earn rental income. Investment properties include land, buildings and intangible assets. Upon
acquisition, management allocates the purchase price of the acquisition as described in Note 2(e). This allocation contains a number of estimates
and underlying assumptions including, but not limited to, highest and best use and fair value of the properties, estimated cash flows, discount rates,
lease-up rates, inflation rates, renewal rates, tenant incentive allowances, cost recoveries and leasing costs and termination costs.
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Notes to the Consolidated Financial Statements (z) Application of new IFRS
(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 and no adjustments were required, except for where Crombie has sub-leases.
Under IFRS 16, Crombie reassessed the classifications of a sub-lease contract previously classified as operating leases under IAS 17. Certain land
sub-leases were reassessed as finance leases under IFRS 16 and accordingly, a finance lease receivable of $8,801 was recognized on January 1, 2019,
included in other assets.
Crombie adopted the standard on January 1, 2019 using the modified retrospective approach, and accordingly, has not restated comparatives for the
2018 reporting period. The reclassifications and the adjustments arising from the new standard are recognized in the opening consolidated balance
sheet on January 1, 2019.
Crombie elected to retain the previous determination of whether a contract is a lease for existing contracts. On initial application, Crombie used the
following practical expedients permitted by the standard:
• Reliance on previous assessments on whether leases are onerous;
• Accounting for operating leases with a remaining lease term of less than 12 months as at January 1, 2019 as short-term leases;
• Exclusion of low-value asset leases;
• Exclusion of initial direct costs for the measurement of the right of use asset at the date of initial application; and
• The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
On adoption of IFRS 16, Crombie recognized lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under
the principles of IAS 17, consisting primarily of land and vehicle leases. These liabilities were measured at the present value of the remaining lease
payments, discounted using Crombie’s incremental borrowing rate as of January 1, 2019.
The following presents the reconciliation of lease liabilities as of January 1, 2019:
Minimum lease payments under operating leases as of December 31, 2018
Effect from discounting at the incremental borrowing rate as of January 1, 2019
Lease liabilities recognized at January 1, 2019
$
$
150,550
(120,810)
29,740
The weighted average incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 6.28%.
The associated right of use assets were measured on a retrospective basis as if the new rules had always been applied. There were no onerous lease
contracts that would have required an adjustment to the right of use assets at the date of initial acquisition.
The recognized right of use assets as of January 1, 2019 relate to the following:
Land
Office
Fleet
Total right of use assets
The change in accounting policy affected the following items on the consolidated balance sheet on January 1, 2019:
$
$
$
$
$
$
$
16,812
232
1,390
18,434
January 1, 2019
3,776,455
282,368
29,740
863,278
577,057
December 31,
2018 as reported
Impact of
IFRS 16 adoption
$
$
$
$
$
3,759,643
271,946
$
$
— $
864,779
578,061
$
$
16,812
10,422
29,740
(1,501)
(1,004)
December 31, 2019
December 31, 2018
$
$
3,461,359
$
96,213
3,557,572
$
3,693,464
66,179
3,759,643
Investment properties
Other assets
Lease liabilities
Net assets attributable to Unitholders represented by:
Crombie REIT unitholders
Special Voting Units and Class B Limited Partnership Unitholders
3) INVESTMENT PROPERTIES
Income properties
Properties under development
80
Annual Report 2019
Notes to the Consolidated Financial Statements Income properties
Cost
Land
Buildings
Intangibles
Deferred
Leasing Costs
Total
Opening balance, January 1, 2019
$
1,176,745
$
2,968,216
$
121,181
$
7,010
$
4,273,152
Impact of adoption of IFRS 16 (Note 2(z))
Acquisitions
Additions
Dispositions
Transfer to investment properties held for
sale (Note 6)
Reclassification from properties under
development
Balance, December 31, 2019
Accumulated depreciation and
amortization and impairment
Opening balance, January 1, 2019
Depreciation and amortization
Dispositions
Impairment
Transfer to investment properties held for
sale (Note 6)
Balance, December 31, 2019
16,812
39,408
3,158
(69,672)
—
84,685
70,118
(185,430)
(54,693)
(124,993)
5,943
1,117,701
12,851
2,825,447
2,357
320
(4)
—
—
2,673
509,304
66,198
(30,514)
6,000
(20,412)
530,576
—
3,138
—
(7,847)
(4,159)
—
112,313
65,777
5,812
(3,311)
—
(1,621)
66,657
—
—
1,740
(34)
—
137
8,853
2,250
808
(9)
—
—
3,049
16,812
127,231
75,016
(262,983)
(183,845)
18,931
4,064,314
579,688
73,138
(33,838)
6,000
(22,033)
602,955
Net carrying value, December 31, 2019
$
1,115,028
$
2,294,871
$
45,656
$
5,804
$
3,461,359
Included in land are right of use assets of $16,405 net of accumulated depreciation of $320 for land held under lease.
During the year ended December 31, 2019, Crombie recorded impairments totaling $6,000 on three properties. The impairments were the result of
the fair value impact of tenant lease expiries 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 defined as the higher of the economic benefit of the continued use of the asset or the
selling price less costs to sell.
Cost
Opening balance, January 1, 2018
$
1,208,424
$
2,942,538
$
120,650
$
8,821
$
4,280,433
Land
Buildings
Intangibles
Deferred
Leasing Costs
Total
Acquisitions
Additions
Dispositions
Write-off fully depreciated assets
Reclassification from properties under
development
Balance, December 31, 2018
33,192
1,361
(82,191)
—
15,959
1,176,745
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
84,167
78,917
(132,704)
(24,637)
19,935
2,968,216
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
Delivering Value
81
Notes to the Consolidated Financial Statements Properties under development
Opening balance, January 1, 2019
Acquisitions
Additions
Dispositions
Reclassification to income-producing properties
Balance, December 31, 2019
Opening balance, January 1, 2018
Additions
Dispositions
Reclassification to income producing properties
Balance, December 31, 2018
Fair value
Land
Buildings
Deferred
Leasing Costs
49,967
$
16,095
$
117
$
32,439
3,314
(3,673)
(5,943)
—
16,865
—
(12,851)
—
20
—
(137)
76,104
$
20,109
$
— $
Land
Buildings
Deferred
Leasing Costs
68,725
$
6,858
$
116
$
2,981
(5,780)
(15,959)
29,172
—
(19,935)
202
—
(201)
49,967
$
16,095
$
117
$
Total
66,179
32,439
20,199
(3,673)
(18,931)
96,213
Total
75,699
32,355
(5,780)
(36,095)
66,179
$
$
$
$
Crombie’s total fair value of investment properties exceeds carrying value by $808,674 at December 31, 2019 (December 31, 2018 – $797,088).
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, 2019
December 31, 2018
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
$
$
4,605,000
4,776,000
$
$
3,796,326
3,978,912
Note
December 31, 2019
December 31, 2018
3
3
5
5
$
$
3,461,359
$
3,693,464
96,213
80,268
158,486
66,179
81,689
137,580
3,796,326
$
3,978,912
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, 2019 and 2018, respectively, based on each
property’s current use as a revenue generating investment property.
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 trailing stabilized net operating income
(property revenue less property operating expenses). The key assumption is the capitalization rates for each specific property. Crombie receives
biannual 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.
82
Annual Report 2019
Notes to the Consolidated Financial Statements As at December 31, 2019, all properties have been subjected to external, independent appraisal over the past four years.
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, 2019
December 31, 2018
Property Acquisitions and Dispositions
Impact of a 0.25% Change in Capitalization Rate
Weighted Average
Capitalization Rate
Increase in Rate
Decrease in Rate
5.99% $
6.10% $
(189,000) $
(186,000) $
192,000
203,000
The operating results of acquired properties are included from the respective date of acquisition and for disposed properties up to the date
of disposition.
2019
Transaction Date
January 7, 2019
January 29, 2019
February 5, 20191
February 8, 2019
February 14, 2019
March 25, 2019
April 25, 20192
April 29, 2019
June 3, 2019
July 3, 20193
July 4, 2019
August 1, 20194
August 2, 20195
September 25, 20196
October 7, 20197
October 29, 20198
November 28, 2019
December 16, 20199
Vendor/Purchaser
Properties Acquired
(Disposed)
Approximate
Square Footage
Initial Acquisition
(Disposition) Price
Third Party
Third Party
Third Party
Third Party
Third Party
Third Party
Third Party
Third Party
Third Party
Third Party
Third Party
Empire
Joint Venture
Third Party
Third Party
Third Party
Empire
Empire
—
(1)
(7)
(1)
(1)
1
(26)
(1)
—
(1)
(1)
1
(1)
—
(15)
—
1
—
— $
(114,000)
(148,000)
(50,000)
(19,000)
—
(785,000)
(39,000)
—
(44,000)
(36,000)
15,000
—
(3,000)
(641,000)
29,000
40,000
397,000
(821)
(35,180)
(41,614)
(19,925)
(9,675)
32,000
(161,589)
(21,500)
(3,275)
(9,750)
(12,255)
9,500
(27,379)
(175)
(193,333)
6,611
12,422
95,900
(1,398,000)
$
(380,038)
(1) Disposal of 50% interest in seven retail properties to a third party.
(2) Disposal of an 89% interest in 26 retail properties to a third party.
(3) Disposal of an 89% interest in one retail property to a third party.
(4) Acquisition of a 50% interest in one retail property from a related party.
(5) Disposal of air rights to a joint venture.
(6) Disposal of a freestanding building adjacent to a retail property.
(7) Disposal of an 89% interest in 15 properties to a third party.
(8) Additions to an existing property.
(9) Acquisition of the remaining 50% interest in one retail-related industrial property from a related party.
Delivering Value
83
Notes to the Consolidated Financial Statements 2018
Transaction Date
February 5, 2018
February 20, 2018
March 6, 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
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) $
(103,000)
—
421,000
(40,000)
(25,000)
(203,000)
(273,000)
37,000
(30,000)
10,000
40,000
5,000
(51,000)
(304,000) $
(15,000) $
(20,627)
(5,725)
88,110
(14,000)
(9,000
(77,929)
(52,084)
12,500
(39,682)
3,735
9,300
5,600
(26,600)
(141,402) $
—
—
—
—
—
—
—
—
—
—
—
5,595
—
—
5,595
(1) Includes additions to existing retail properties.
(2) Represents disposition of 50% interest in a portfolio of properties.
(3) Represents dispositions of property to a joint venture.
The initial (disposition) prices stated above exclude closing and transaction costs.
Year ended December 31,
2019
2018
$
536,471
$
260,647
(8,229)
528,242
(128,034)
(259,496)
(7,073)
(25)
(31,565)
(11,706)
—
(8,540)
(3,831)
256,816
(87,971)
(103,854)
(1,909)
(230)
(7,760)
(2,094)
(2,561)
(414)
$
81,803
$
50,023
Year ended December 31,
2019
2018
$
528,242
$
256,816
(161,472)
(27,379)
—
$
339,391
$
(38,971)
—
(27,832)
190,013
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
Proceeds
Mortgages assumed by buyer
Non-cash consideration, addition to investment in joint venture
Non-cash consideration, acquisition of investment in joint venture
Cash proceeds
84
Annual Report 2019
Notes to the Consolidated Financial Statements 4) INVESTMENT IN JOINT VENTURES
The following represents Crombie’s interest in its equity accounted investments:
1600 Davie Limited Partnership
Bronte Village Limited Partnership
The Duke Limited Partnership
140 CPN Limited
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
December 31, 2019
December 31, 2018
50.0%
50.0%
50.0%
50.0%
50.0%
50.0%
50.0%
50.0%
December 31, 2019
December 31, 2018
297,598
$
31,287
(111,845)
(127,444)
89,596
45,123
$
$
112,581
30,043
(53,005)
(25,286)
64,333
39,485
Year ended
December 31, 2019
December 31, 2018
1,708
$
(434)
(2)
(203)
(401)
668
334
$
$
1,184
(507)
(75)
(55)
(39)
508
254
$
$
$
$
$
$
The following table shows the changes in the total carrying value of Crombie’s investment in joint ventures for the year ended:
Opening Balance
Contributions
Distributions
Deferred gain
Share of income
Closing Balance
5) OTHER ASSETS
Net trade receivables
Prepaid expenses and deposits
Fair value of interest rate swap agreements
Other fixed assets1,2
Finance lease receivable
Accrued straight-line rent receivable
Tenant incentives
Capital expenditure program
Interest rate subsidy
Amounts receivable from related parties
December 31, 2019
December 31, 2018
$
$
39,485
$
28,111
(15,366)
(7,441)
334
2,602
36,698
(69)
—
254
45,123
$
39,485
December 31, 2019
December 31, 2018
Current
Non-
current
Total
Current
Non-
current
$
14,636
$
6,041
$
20,677
$
8,337
$
— $
15,533
947
—
363
—
—
—
93
—
—
—
10,000
8,125
80,268
158,486
105
110
15,533
947
10,000
8,488
80,268
158,486
105
203
23,812
23,812
11,857
2,840
—
—
—
—
—
94
—
—
—
7,761
—
81,689
137,580
105
203
21,480
Total
8,337
11,857
2,840
7,761
—
81,689
137,580
105
297
21,480
$
31,572
$
286,947
$
318,519
$
23,128
$
248,818
$
271,946
(1) For the year ended December 31, 2019, depreciation of other fixed assets was $1,175 (December 31, 2018 – $42).
(2) Other fixed assets include right of use assets of $1,493 (December 31, 2018 – $nil) net of accumulated depreciation of $574 relating to office and vehicle leases.
Delivering Value
85
Notes to the Consolidated Financial Statements Tenant Incentives
Balance, January 1, 2019
Additions
Amortization
Disposition
Transfer to investment properties held for sale
Balance, December 31, 2019
Balance, January 1, 2018
Additions
Amortization
Disposition
Write-off fully depreciated assets
Balance, December 31, 2018
6) INVESTMENT PROPERTIES HELD FOR SALE
Cost
Accumulated
Amortization
Net Carrying
Value
$
$
$
$
204,250
$
66,670
$
60,379
—
(19,914)
(8,644)
—
14,139
(1,977)
(1,247)
236,071
$
77,585
$
211,394
$
67,902
$
14,723
—
(12,739)
(9,128)
—
12,875
(4,979)
(9,128)
204,250
$
66,670
$
137,580
60,379
(14,139)
(17,937)
(7,397)
158,486
143,492
14,723
(12,875)
(7,760)
—
137,580
2019
Assets transferred to held for sale
Additions to assets held for sale
Derecognition through disposition
Net carrying value, December 31, 2019
2018
Assets transferred to held for sale
Additions to assets held for sale
Derecognition through disposition
Net carrying value, December 31, 2018
Land
Buildings
Intangibles
Tenant
Incentives
Total
54,693
$
104,581
$
2,538
$
7,397
$
169,209
—
—
(54,693)
(104,581)
—
(2,538)
6,230
(13,627)
6,230
(175,439)
— $
— $
— $
— $
—
Land
Buildings
Intangibles
Tenant
Incentives
— $
— $
— $
— $
—
—
—
—
—
—
—
—
— $
— $
— $
— $
Total
—
—
—
—
$
$
$
$
7) INVESTMENT PROPERTY DEBT
Weighted Average
Interest Rate
Weighted Average
Term to Maturity
Range
December 31, 2019
December 31, 2018
Fixed rate mortgages
2.35 – 6.80%
4.25%
3.9 years
$
1,309,077
$
Floating rate revolving credit facility
Joint operation credit facility I
Joint operation credit facility II
Unsecured bilateral credit facility
Deferred financing charges on
fixed rate mortgages
Mortgages
Non-current
Current
Credit facilities
Non-current
Current
3.5 years
4.3 years
4.8 years
1.4 years
15,339
6,978
1,991
30,000
(6,567)
1,610,640
108,843
—
—
70,000
(9,056)
$
$
$
1,356,818
$
1,780,427
1,045,015
$
257,495
54,308
—
1,421,062
180,522
178,843
—
1,356,818
$
1,780,427
Specific investment properties with a carrying value of $2,705,625 as at December 31, 2019 (December 31, 2018 – $3,002,822) 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.
86
Annual Report 2019
Notes to the Consolidated Financial Statements
Mortgage Activity
For the year ended:
December 31, 2019
Weighted Average
Type
New1
Repaid
Disposition2
Number of
Mortgages
Rates Terms in Years
Amortization
Period in Years
Proceeds
(Repayments)
7
17
27
3.43%
4.43%
4.33%
6.2
31.7
$
$
45,689
(133,759)
(161,472)
(249,542)
(1) During the quarter, Crombie recognized a mortgage payable of $20,401 in settlement of an amount payable to 1600 Davie Limited Partnership. This mortgage, bearing interest at 3.22%, relates to the
commercial component of the Davie Street development, 100% which is included in Crombie’s financial statements.
(2) Represents disposition of interests in mortgages related to partial dispositions of a portfolio of properties.
For the year ended:
December 31, 2018
Weighted Average
Type
New
Repaid
Disposition
Number of
Mortgages
Rates
Terms in Years
Amortization
Period in Years
Proceeds
(Repayments)
1
11
9
3.52%
4.98%
4.27%
6.3
25.0
$
$
5,595
(64,713)
(38,971)
(98,089)
(1) Represents disposition of interests in mortgages related to partial dispositions of a portfolio of properties.
Floating Rate Revolving Credit Facility
The floating rate revolving credit facility has a maximum principal amount of $400,000 (December 31, 2018 – $400,000) and matures June 30, 2023. 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,
2019 – 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.
Joint Operation Credit Facilities
In conjunction with the 89% sale of a portfolio of assets in Q2 2019, Crombie and its co-owner entered into a credit agreement with a Canadian
Chartered Bank for a $62,250 term loan facility and a $5,800 revolving credit facility. Both facilities are secured by first mortgages on select properties
and have a term of five years maturing on April 25, 2024. Borrowings under both facilities 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. Concurrent with entering into
these facilities, Crombie and its co-owner entered into a fixed for floating interest rate swap effectively fixing the interest rate on both facilities at
3.58%. At year end December 31, 2019, Crombie’s portion of the term and revolving credit facilities was $6,848 and $130 respectively.
In conjunction with the 89% sale of a portfolio of assets in Q4 2019, Crombie and its co-owner entered into a credit agreement with a Canadian
Chartered Bank for a $16,500 term loan facility and a $15,500 revolving credit facility. Both facilities are secured by first and second mortgages on
select properties and have a term of five years maturing on October 7, 2024. Borrowings under both facilities 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. Concurrent with
entering into these facilities, Crombie and its co-owner entered into a fixed for floating interest rate swap effectively fixing the interest rate on both
facilities at 3.27%. At year end December 31, 2019, Crombie’s portion of the term and revolving credit facilities was $1,815 and $176 respectively.
Unsecured Bilateral Credit Facility
The unsecured bilateral credit facility agreement was renewed for an additional year in the second quarter of 2019. The unsecured bilateral credit
facility has a maximum principal amount of $100,000 and matures May 14, 2021. 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.
Delivering Value
87
Notes to the Consolidated Financial Statements
8) SENIOR UNSECURED NOTES
Series B
Series C
Series D
Series E
Series F
Series G
Unamortized Series B issue premium
Deferred financing charges
2019
Maturity Date
Interest Rate
December 31, 2019
December 31, 2018
June 1, 2021
3.962% $
250,000
$
February 10, 2020
November 21, 2022
January 31, 2025
August 26, 2026
June 21, 2027
2.775%
4.066%
4.800%
3.677%
3.917%
—
150,000
175,000
200,000
150,000
627
(3,148)
$
922,479
$
250,000
125,000
150,000
175,000
—
—
1,068
(2,352)
698,716
On December 20, 2019, Crombie issued on a private placement basis, $150,000 Series G notes (senior unsecured) maturing June 21, 2027. The
proceeds will be used to fund the repayment of upcoming secured mortgage maturities. The notes were priced with an effective yield to maturity
of 3.917% and sold at a price of $1,000.00 per $1,000.00 principal amount. Interest is payable in equal semi-annual installments on June 21 and
December 21.
On August 26, 2019, Crombie issued, on a private placement basis, $200,000 Series F notes (senior unsecured) maturing August 26, 2026. The
proceeds were used to fund the early repayment of the Series C notes and repay bank indebtedness. The notes were priced with an effective
yield to maturity of 3.677% and sold at a price of $1,000.00 per $1,000.00 principal amount. Interest is payable in equal semi-annual installments on
February 26 and August 26.
2018
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.
9) EMPLOYEE FUTURE BENEFITS
Crombie has a number of defined benefit and defined contribution plans providing pension and other retirement benefits to most of its employees.
Defined contribution pension plans
The contributions required by the employee and the employer are specified. The employee’s pension depends on what level of retirement income
(for example, annuity purchase) can be achieved with the combined total of employee and employer contributions and investment returns over the
period of plan membership, and the annuity purchase rates at the time of the employee’s retirement.
Defined benefit plans
The retirement benefit provides pension benefits to members designated in writing by the Board of Trustees based on a formula recognizing length
of service and final average earnings. The annual pension payable at age 65 is equal to 2% of the final average 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, 2019 was $816 (year
ended December 31, 2018 – $551).
88
Annual Report 2019
Notes to the Consolidated Financial Statements 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, 2019
December 31, 2020
January 1, 2019
December 31, 2020
The significant actuarial assumptions adopted in measuring the Company’s accrued benefit obligations and pension costs are as follows:
December 31, 2019
December 31, 2018
Senior Management
Pension Plan
Post-Employment
Benefit Plans
Senior Management
Pension Plan
Post-Employment
Benefit Plans
Discount rate – accrued benefit obligation
Rate of compensation increase
3.00%
3.00%
3.00%
N/A
3.60%
3.00%
3.70%
N/A
For measurement purposes, a 5.00% (2018 – 5.25%) annual rate increase in the per capita cost of covered health care benefits was assumed.
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:
December 31, 2019
December 31, 2018
Senior Management
Pension Plan
Post-Employment
Benefit Plans
Senior Management
Pension Plan
Post-Employment
Benefit Plans
Accrued benefit obligation
Balance, beginning of year
Current service cost
Past 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
$
4,918
$
4,202
$
4,831
$
211
235
178
304
(200)
5,646
—
200
(200)
—
5,646
200
5,446
37
—
155
(1,523)
(106)
2,765
—
106
(106)
—
2,765
89
2,676
200
—
168
(81)
(200)
4,918
—
200
(200)
—
4,918
200
4,718
Accrued benefit obligation recorded as
a liability
Net expense
Current service cost
Interest cost
Net expense
$
$
$
5,646
$
2,765
$
4,918
$
$
211
178
389
$
37
$
155
192
$
200
$
168
368
$
4,299
38
—
146
(185)
(96)
4,202
—
96
(96)
—
4,202
96
4,106
4,202
38
146
184
Delivering Value
89
Notes to the Consolidated Financial Statements 3.00%
11
(15)
5.00%
6
(5)
Total
60,549
30,872
8,555
9,561
6,217
11,243
8,411
4,563
The table below outlines the sensitivity of the fiscal 2019 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.
Senior Management Pension Plan
Post-Employment Benefit Plans
Benefit Obligations
Benefit Cost1
Benefit Obligations
Benefit Cost1
Discount Rate
Impact of:
Growth rate of health costs
Impact of:
1% increase
1% decrease
1% increase
1% decrease
3.00%
(659)
805
3.00%
—
(3)
3.00%
(330)
401
5.00%
203
(174)
(1) Reflects the impact of the current service costs, the interest cost and the expected return on assets.
For the year ended December 31, 2019, the net defined contribution pension plans expense was $975 (year ended December 31, 2018 – $873).
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
Deferred Revenue
December 31, 2019
Current
Non-current
$
51,751
29,932
9,665
11,913
—
26,429
4,671
70
— $
—
—
—
—
—
9,793
4,820
Total
51,751
29,932
9,665
11,913
—
26,429
14,464
4,890
December 31, 2018
Current
Non-current
$
$
60,549
30,872
8,555
9,561
6,217
11,243
1,355
131
— $
—
—
—
—
—
7,056
4,432
$
134,431
$
14,613
$
149,044
$
128,483
$
11,488
$
139,971
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, 2019
December 31, 2018
$
344,803
$
1,843
10,287
(14,139)
1,670
48,722
5,555
$
398,741
$
359,878
2,064
11,040
(12,875)
710
48,425
5,407
414,649
The following table sets out tenants that contributed in excess of 10% of total property revenue:
Empire Company Limited1
$
207,948
52.2% $
214,565
51.7%
December 31, 2019
December 31, 2018
Year ended
(1) Includes Sobeys and other subsidiaries of Empire Company Limited
90
Annual Report 2019
Notes to the Consolidated Financial Statements 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, 2019, is as follows:
Future minimum rental income
$
263,167
$
252,491
$
242,814
$ 230,353
$
218,660
$
1,553,422
$
2,760,907
2020
2021
2022
2023
2024
Thereafter
Total
Year Ending December 31,
Crombie manages its residual risk in its investment properties through an active capital expenditure program and actively leasing any vacant spaces.
The residual risk throughout Crombie’s portfolio is not considered significant.
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) Change in fair value of financial instruments
Deferred Unit (“DU”) Plan
14) FINANCE COSTS – OPERATIONS
Fixed rate mortgages
Floating rate term, revolving and demand facilities
Capitalized interest
Senior unsecured notes
Convertible debentures
Interest income on finance lease receivable
Interest on lease liability
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, 2019
December 31, 2018
16,874
$
3,532
3,315
23,721
$
13,111
3,085
3,030
19,226
Year ended
December 31, 2019
December 31, 2018
(1,337) $
402
Year ended
December 31, 2019
December 31, 2018
66,458
$
3,950
(4,759)
30,216
—
(401)
1,852
97,316
534
(2,352)
(1,677)
4,759
442
(3,574)
75,454
5,316
(4,104)
25,119
3,846
—
—
105,631
808
1,068
(2,263)
4,104
407
(5,158)
$
95,448
$
104,597
(1) As at December 31, 2019, interest was capitalized to qualifying development projects based on a weighted average interest rate of 3.88% (December 31, 2018 – 3.72%).
Delivering Value
91
Notes to the Consolidated Financial Statements 15) UNITS OUTSTANDING
Balance, January 1, 2019
Net change in EUPP loans receivable
Units issued under DRIP
Units issued under unit based compensation plan
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
89,597,604
$
1,040,804
61,980,011
$
715,654
151,577,615
$ 1,756,458
—
92,685
7,334
422
1,356
114
—
65,721
—
—
974
—
—
158,406
7,334
422
2,330
114
Balance, December 31, 2019
89,697,623
$
1,042,696
62,045,732
$
716,628 151,743,355
$ 1,759,324
Balance, January 1, 2018
Net change in EUPP loans receivable
Units issued under DRIP
Units issued under unit based compensation plan
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
89,115,328
$
1,034,683
61,646,953
$
711,456
150,762,281
$
1,746,139
—
439,649
12,627
61
5,902
158
—
333,058
—
—
4,198
—
—
802,707
12,627
61
10,100
158
Balance, December 31, 2018
89,567,604
$
1,040,804
61,980,011
$
715,654
151,577,615
$ 1,756,458
Crombie REIT Units
Crombie is authorized to issue an unlimited number of REIT Units and an unlimited number of SVU and Class B LP Units. Issued and outstanding REIT
Units may be subdivided or consolidated from time to time by the Trustees without the approval of the Unitholders. REIT Units are redeemable at any
time on demand by the holders at a price per REIT Unit equal to the lesser of: (i) 90% of the weighted average price per Crombie REIT Unit during
the period of the last ten days during which Crombie’s REIT Units traded; and (ii) an amount equal to the price of Crombie’s REIT Units on the date of
redemption, as defined in the Declaration of Trust.
The aggregate redemption price payable by Crombie in respect of any REIT Units surrendered for redemption during any calendar month will be
satisfied by way of a cash payment in Canadian dollars within 30 days after the end of the calendar month in which the REIT Units were tendered for
redemption, provided that the entitlement of Unitholders to receive cash upon the redemption of their REIT Units is subject to the limitation that:
(i)
(ii)
(iii)
the total amount payable by Crombie in respect of such REIT Units and all other REIT Units tendered for redemption, in the same calendar
month must not exceed $50 (provided that such limitation may be waived at the discretion of the Trustees);
at the time such REIT Units are tendered for redemption, the outstanding REIT Units must be listed for trading on the TSX or traded or quoted
on any other stock exchange or market which the Trustees consider, in their sole discretion, provides representative fair market value prices for
the REIT Units; and
the normal trading of REIT Units is not suspended or halted on any stock exchange on which the REIT Units are listed (or if not listed on a stock
exchange, in any market where the REIT Units are quoted for trading) on the Redemption Date or for more than five trading days during the 10
day trading period commencing immediately after the Redemption Date.
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.
92
Annual Report 2019
Notes to the Consolidated Financial Statements 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, 2019, there are loans receivable from executives of $1,245 under Crombie’s EUPP, representing 115,230 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, 2019 was $1,837.
The compensation expense related to the EUPP for the year ended December 31, 2019 was $11 (year ended December 31, 2018 – $21).
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.
Special Distribution
Crombie announced a special distribution of $0.56 per unit, to all Unitholders as of December 31, 2019. The distribution arises from the increase
in income generated by capital recycling transactions completed during the twelve-month period ended December 31, 2019. Crombie is making
the special distribution payable partially in cash ($0.10) and partially in units ($0.46), in order to provide Unitholders with cash to help fund any
additional tax that may arise associated with the special distribution. Immediately following the special distribution, the outstanding units of Crombie
will be consolidated such that each Unitholder will hold, after the consolidation, the same number of units held before the special distribution.
The remaining cash portion of the special distribution is payable on January 15, 2020. Given that Crombie’s Units in accordance with IAS 32 are
accounted for as financial liabilities as discussed in Note 2(w)(i), the impact of the unit portion had no impact on our financial results ending
December 31, 2019.
16) SUPPLEMENTARY CASH FLOW INFORMATION
a) Items not affecting operating cash
Items not affecting operating cash:
Straight-line rent recognition
Amortization of tenant incentives
Gain on disposal of investment properties
Impairment of investment properties
Depreciation and amortization
Unit-based compensation
Amortization of effective swap agreements, financing charges and other
Income from equity accounted investments
Non-cash distributions to Unitholders in the form of DRIP Units
Non-cash accrued special distribution to Unitholders
Income tax expense
Non-cash lease termination income
Change in fair value of financial instruments
Year ended
December 31, 2019
December 31, 2018
$
(10,287) $
14,139
(81,803)
6,000
74,313
11
4,809
(334)
2,330
15,174
8
(908)
1,337
$
24,789
$
(11,040)
12,875
(50,023)
15,000
96,353
21
7,014
(254)
10,100
—
3
—
(402)
79,647
Delivering Value
93
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, 2019
December 31, 2018
$
$
(12,340) $
(3,756)
3,996
(12,100) $
211
725
610
1,546
17) RELATED PARTY TRANSACTIONS
As at December 31, 2019 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 joint venture entities in which Crombie has a 50% interest, as well as transactions with key management personnel and post-
employment benefit plans.
Related party transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the
related parties.
Crombie’s revenue (expense) transactions with related parties are as follows:
Property revenue
Property revenue
Head lease income
Lease termination income
Property operating expenses
General and administrative expenses
Property management services recovered
Other general and administrative expenses
Finance costs – operations
Interest rate subsidy
Finance costs – distributions to Unitholders
Year ended
December 31, 2019
December 31, 2018
$
$
$
$
$
$
$
$
207,948
856
521
$
$
$
(60) $
602
$
(240) $
279
$
(62,303) $
214,565
730
—
(58)
611
(203)
299
(55,900)
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. Revenue generated from the management agreement is being recognized
as a reduction of general and administrative expenses.
During the year ended December 31, 2019, Crombie issued 65,721 (December 31, 2018 – 333,058) Class B LP Units to ECLD under the DRIP (Note 15).
On August 1, 2019, Crombie purchased a 50% interest in a property from a subsidiary of Empire for a total purchase price of $9,500 before
transaction costs.
On August 2, 2019, Crombie transferred air rights at its Davie Street Property to 1600 Davie Limited Partnership. This transfer, as agreed upon in the
2016 joint venture arrangement, was completed for gross proceeds of approximately $27,379.
On November 28, 2019, Crombie purchased a property from a subsidiary of Empire for a total purchase price of $12,422 before transaction costs.
On December 16, 2019, Crombie purchased the remaining 50% interest in a property from a subsidiary of Empire for a total purchase price of $95,900
before transaction costs.
During the year ended December 31, 2019, Crombie invested $33,446 in the modernizations and conversions of 16 existing properties anchored by
subsidiaries of Empire. The amounts are included in tenant incentive additions and are being amortized over the amended lease terms.
During the quarter, Crombie recognized a mortgage payable of $20,401 in settlement of an amount payable to 1600 Davie Limited Partnership. This
mortgage, bearing interest at 3.22%, relates to the commercial component of the Davie Street development, 100% of which is included in Crombie’s
financial statements.
Amounts due from related parties include $15,533 (December 31, 2018 – $14,636) in 6% subordinated notes receivable due from Bronte Village
Limited Partnership and The Duke Limited Partnership.
94
Annual Report 2019
Notes to the Consolidated Financial Statements 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, Chief Operating
Officer and the two 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
18) FINANCIAL INSTRUMENTS
a) Fair value of financial instruments
Year ended
December 31, 2019
December 31, 2018
$
$
5,899
$
109
6,008
$
4,805
92
4,897
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.
There were no transfers between levels of the fair value hierarchy during the period ended December 31, 2019.
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
Financial liabilities
Investment property debt
Senior unsecured notes
Total other financial liabilities
December 31, 2019
December 31, 2018
Fair Value
Carrying Value
Fair Value
Carrying Value
$
$
$
23,911
$
24,120
$
21,885
$
21,882
1,400,821
$
1,363,385
$
1,829,772
$
946,700
925,000
702,893
1,789,483
700,000
2,347,521
$
2,288,385
$
2,532,665
$
2,489,483
(1) Long-term receivables include amounts in other assets for the capital expenditure program, interest rate subsidy and receivable from related parties.
The fair value of 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
• 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, 2019. 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.
Crombie mitigates credit risk by geographical diversification, diversifying both its tenant mix and asset mix and conducting credit assessments for
new and renewing tenants.
Delivering Value
95
Notes to the Consolidated Financial Statements In measuring tenant concentration, Crombie considers both the annual minimum rent and total property revenue of major tenants:
• Crombie’s largest tenant, Empire (including Sobeys and all other subsidiaries of Empire), represents 54.2% of annual minimum rent; no other
tenant accounts for more than 4.1% of Crombie’s minimum rent.
• Total property revenue includes operating and realty tax cost recovery income and percentage rent. These amounts can vary by property type,
specific tenant leases and where tenants may directly incur and pay operating and realty tax costs. For the year ended December 31, 2019, Empire
(including Sobeys and all other subsidiaries of Empire) represents 52.2% of total property revenue. Excluding these tenants, no other tenant
accounts for more than 4.0% of Crombie’s total property revenue.
• Over the next five years, leases on no more than 5.0% 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. The total provision for doubtful accounts is reviewed at each balance sheet date and current and long-term accounts
receivable are reviewed on a regular basis.
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, 2019
December 31, 2018
$
$
$
345
284
(62)
(227)
340
$
194
399
(85)
(163)
345
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, 2019
• Crombie’s weighted average term to maturity of its fixed rate mortgages was 3.9 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
$15,339 at December 31, 2019;
• Crombie has an unsecured bilateral credit facility available to a maximum of $100,000 with a balance of $30,000 at December 31, 2019; and,
• Crombie has interest rate swap agreements in place on $115,149 of floating rate mortgage debt.
Crombie estimates that $451 of accumulated other comprehensive income (loss) will be reclassified to finance costs during the year ending
December 31, 2020, based on all settled swap agreements as of December 31, 2019.
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, 2019
Twelve months ended December 31, 2018
There have been no significant changes to Crombie’s interest rate risk.
Liquidity risk
Impact of a 0.5% interest rate change
Decrease in rate
Increase in rate
$
$
359
611
$
$
(359)
(611)
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.
96
Annual Report 2019
Notes to the Consolidated Financial Statements 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 19,
Crombie mitigates its exposure to liquidity risk utilizing a conservative approach to capital management.
Access to the revolving credit facility is limited by the amount utilized under the facility and the amount of any outstanding letters of credit, and
cannot exceed the borrowing base security provided by Crombie.
The estimated payments, including principal and interest, on non-derivative financial liabilities to maturity date are as follows:
Contractual
Cash Flows1
2020
2021
2022
2023
2024
Thereafter
Twelve months ending December 31,
Fixed rate mortgages2
$
1,492,525
$
304,017
$
165,813
$
227,366
$
292,179
$
255,628
$
247,522
Senior unsecured notes
Lease Liabilities
Credit facilities
Total
1,092,182
149,218
2,733,925
59,152
37,634
2,580
344,231
1,989
281,856
2,432
450,101
31,281
177,053
2,281
406,700
856
21,630
2,181
315,990
15,925
21,630
2,060
279,318
9,101
552,379
137,684
937,585
—
$
2,793,077
$
346,220
$
481,382
$
407,556
$
331,915
$
288,419
$
937,585
(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.
19) CAPITAL MANAGEMENT
Crombie’s objective when managing capital on a long-term basis is to maintain overall indebtedness, 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
Crombie REIT Unitholders
SVU and Class B LP Unitholders
Lease liabilities
December 31, 2019
December 31, 2018
1,302,510
$
1,601,584
54,308
922,479
870,792
584,251
29,419
178,843
698,716
864,779
578,061
—
3,763,759
$
3,921,983
$
$
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.
Delivering Value
97
Notes 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
Revolving credit facility
Joint operation credit facilities
Bilateral credit facility
Lease liabilities
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
Deferred financing charges
Interest rate subsidy
Gross book value
Debt to gross book value – cost basis
December 31, 2019
December 31, 2018
$
1,309,077
$
925,000
15,339
8,969
30,000
29,419
2,317,804
(539)
$
2,317,265
$
4,061,957
96,213
64,754
45,123
397,321
9,715
(539)
1,610,640
700,000
108,843
—
70,000
—
2,489,483
(818)
2,488,665
4,270,795
66,179
66,319
39,485
338,616
11,408
(818)
$
4,674,544
$
4,791,984
49.6%
51.9%
(1) Below-market lease component is included in the carrying value of investment properties.
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, 2019, Crombie is in compliance with all externally imposed capital requirements and all covenants relating to its debt facilities.
20) LEASE LIABILITIES
Crombie’s future minimum lease payments as a lessee are as follows:
Future minimum lease payments
Finance charges
Present value of lease payments
Twelve months ending December 31,
Total
2020
2021
2022
2023
2024
Thereafter
$
$
149,218
$
2,580
$
2,432
$
2,281
$
2,181
$
2,060
$
137,684
(119,799)
(1,836)
(1,817)
(1,802)
(1,795)
(1,791)
(110,758)
29,419
$
744
$
615
$
479
$
386
$
269
$
26,926
Lease liabilities are presented in the consolidated balance sheet as follows:
Current
Non-Current
Total
$
$
744
28,675
29,419
Some of Crombie’s lease agreements contain contingent rent clauses. Contingent rental payments are recognized in the consolidated statements of
comprehensive income as required when contingent criteria are met. The lease agreements contain renewal options and purchase options. For the
year ended December 31, 2019, minimum lease payments of $2,521 were paid by Crombie.
98
Annual Report 2019
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, 2019, Crombie has a total of $5,645 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, 2019
December 31, 2018
$
$
3,805
$
1,840
5,645
$
3,858
4,840
8,698
Crombie does not believe that any of these standby letters of credit are likely to be drawn upon.
As at December 31, 2019, Crombie had signed construction contracts totalling $293,603 of which $171,790 has been paid, this includes contracts
signed within joint ventures at Crombie’s ownership percentage.
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, 2019, Crombie has provided guarantees of approximately
$145,713 (December 31, 2018 – $38,245) on mortgages in excess of their ownership interest in the properties. Responsibility for ongoing payments of
principal and interest on these mortgages remains with the joint owners of the properties. The mortgages have a weighted average term to maturity
of 4.9 years.
Under the terms of head leases with certain of Crombie’s joint operation partners, Crombie guarantees its joint operation partners their portion of
any uncollected rent receivable from the sub-tenant.
22) SUBSEQUENT EVENTS
a) On January 15, 2020, the $0.10 per unit cash portion of the special distribution announced on December 12, 2019 was paid to Unitholders of
record as of December 31, 2019.
b) On January 21, 2020, Crombie declared distributions of 7.417 cents per Unit for the period from January 1, 2020 to and including, January 31,
2020. The distributions were paid on February 14, 2020, to Unitholders of record as of January 31, 2020.
c) On February 1, 2020, mortgages totalling $153,000, bearing interest of 5.63%, were fully paid, primarily with the proceeds from the 3.917% Series
G notes issued in December, 2019 as further described in Note 8.
d) On February 11, 2020, Crombie closed on an offering, on a bought deal basis, of $58,512 of Units at a price of $16.00 per Unit to a syndicate of
underwriters co-led by CIBC Capital Markets and BMO Capital Markets. In addition, a subsidiary of Empire purchased, on a private placement
basis, $41,500 of Class B LP Units of a subsidiary of Crombie, together with the attached Special Voting Units of Crombie, at a price of $16.00 per
Class B Unit. After the closing of the public offering and the private placement, Empire continues to hold a 41.5% economic and voting interest
in Crombie.
e) On February 18, 2020, Crombie declared distributions of 7.417 cents per Unit for the period from February 1, 2020 to and including, February 29,
2020. The distributions will be paid on March 13, 2020, to Unitholders of record as of February 29, 2020.
23) SEGMENT DISCLOSURE
Crombie owns and operates primarily retail and office real estate assets located in Canada. Management, in measuring Crombie’s performance
or making operating decisions, does not distinguish or group its operations on a geographical or other basis. Accordingly, Crombie has a single
reportable segment.
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.
Delivering Value
99
Notes to the Consolidated Financial Statements PROPERTY PORTFOLIO
Retail — Plazas
Property
Description
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
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 Street 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
Timberlea
Truro
Upper Tantallon
Spryfield
Cove Road
Stellarton
293 Foord Street
Sydney
Prince Street Plaza
Sydney Shopping Centre Sydney
39 Pitt Street
North Shore Centre
70 Marketway Lane
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
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
273 Pleasant Street
Riverview — Findlay
Bathurst
Dieppe
Dieppe
Edmundston
Fredericton
Fredericton
Fredericton
Moncton
Moncton
Moncton
Moncton
Moncton
Newcastle
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 — Freestanding
Retail — Plaza
Retail — Plazas
Mixed Use
Office
Mixed Use
Office
Office
Office
Mixed Use
Mixed Use
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Office
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
GLA
(approx.
sq. ft.)
%
Occu-
pancy
108,000
65,000
29,000
19,000
3,000
2,000
80,000
6,000
506,000
38,000
41,000
158,000
139,000
1,194,000
6,000
84,000
90,000
228,000
25,000
6,000
169,000
150,000
22,000
45,000
5,000
145,000
31,000
147,000
101,000
50,000
143,000
55,000
80,000
226,000
387,000
200,000
71,000
241,000
3,000
51,000
34,000
1,000
73,000
24,000
71,000
189,000
18,000
17,000
40,000
126,000
157,000
191,000
186,000
255,000
207,000
204,000
217,000
215,000
–
4,806,000
18,000
52,000
25,000
42,000
43,000
22,000
263,000
151,000
95,000
17,000
52,000
103,000
20,000
96.4
98.6
100.0
100.0
100.0
100.0
100.0
100.0
89.9
63.9
100.0
98.5
85.6
96.0
100.0
100.0
100.0
46.6
100.0
100.0
100.0
100.0
100.0
100.0
100.0
93.7
100.0
98.6
97.4
100.0
97.6
100.0
98.5
97.5
100.0
100.0
94.3
55.6
100.0
100.0
100.0
100.0
100.0
100.0
97.4
93.9
100.0
100.0
100.0
97.1
99.5
99.4
100.0
97.7
80.7
96.2
89.9
95.2
0
92.8
100.0
100.0
100.0
100.0
100.0
100.0
86.6
92.1
100.0
100.0
100.0
100.0
100.0
Boulevard
Riverview
Retail — Plazas
66,000
94.8
100
Annual Report 2019
Retail — Plazas
Riverview Place
Fairvale Plaza
Catherwood Street
Loch Lomond Place
Charlotte Mall
Tracadie
Property
Riverview
Rothesay
Saint John
Saint John
St Stephen
Tracadie
Description
Mixed Use
Retail — Freestanding
Retail — Freestanding
Mixed Use
Retail — Plazas
Retail — Plazas
GLA
(approx.
sq. ft.)
%
Occu-
pancy
149,000
52,000
5,000
193,000
116,000
40,000
1,524,000
75.0
100.0
100.0
63.1
97.8
83.8
90.4
QUÉBEC
1500 rue de Bretagne
1020 boul. Monseigneur-
de-Laval
Beauport Plaza
50 rue Bourgeoys
3260 boul. Lapiniere &
3305 Broadway
645 boul. Thibeau
80-90 boul. d’Anjou
Marché St-Charles-de-
Drummond
1205 rue de Neuville
1248 boul. de la
Verendrye Est
Baie Comeau
Retail — Freestanding
50,000
100.0
Baie Saint Paul
Beauport
Bromptonville
Retail — Plazas
Retail — Plazas
Retail — Plazas
65,000
68,000
7,000
100.0
96.5
37.7
Brossard
Cap-de-la-
Madeleine
Chateauguay
Retail — Plazas
48,000
96.0
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
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-Georges-de-
8980 boul. Lacroix
Beauce
Saint-Pie
Saint Romuald
Sainte-Anne-de-
Beaupré
Shawinigan
Sherbrooke
Sherbrooke
Sorel-Tracy
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
72,000
26,000
19,000
24,000
43,000
52,000
69,000
3,000
28,000
3,000
55,000
58,000
38,000
10,000
6,000
73,000
6,000
11,000
41,000
72,000
5,000
64,000
62,000
34,000
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
48.0
100.0
100.0
100.0
100.0
100.0
100.0
Retail — Freestanding
5,000
100.0
Retail — Freestanding
Retail — Plazas
14,000
70,000
100.0
100.0
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
4,000
67,000
13,000
6,000
40,000
100.0
100.0
100.0
100.0
100.0
131-A Avenue Sainte-
Cecile
Saint Romuald Plaza
10505 boul.
Sainte-Anne
Shawinigan
2959 rue King Ouest
3950 rue King Ouest
411 boul. Poliquin
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 South
807 King Street
215 Park Avenue West
Dorchester Road Centre
Village Centre
Lindsay Street Centre
417 Scott Street
Sinclair Place
44 Livingston Avenue
Grimsby Centre
Havelock Centre
400 First Avenue South
London Pine Valley
Terrebonne
Vanier
Industrial
Retail — Freestanding
235,000
17,000
1,802,000
100.0
100.0
98.4
Ancaster
Barrie
Bowmanville
Bradford
Brampton
Brampton
Burlington
Burlington
Cambridge
Cambridge
Chatham
Dorchester
Dorchester
Fenelon Falls
Fort Frances
Georgetown
Grimbsy
Grimsby
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 — Freestanding
Retail — Freestanding
Retail — Plazas
32,000
24,000
42,000
4,000
103,000
38,000
70,000
11,000
4,000
9,000
5,000
18,000
32,000
4,000
43,000
29,000
36,000
29,000
2,000
4,000
39,000
100.0
100.0
100.0
100.0
93.7
100.0
91.4
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
Property Portfolio
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
Rockhaven Plaza
3130 Danforth Avenue
Mountain Locks Plaza
Stittsville Corner
Stoney Creek Plaza
105 Arthur Street West
1099 Broadview Avenue
1995 Weston Road
3362-3370 Yonge Street
McCowan Square
Queensway Plaza
8265 Huntington Road
385 Springbank Avenue Woodstock
Parry Sound
Peterborough
Scarborough
St Catharines
Stittsville
Stoney Creek
Thornbury
Toronto
Toronto
Toronto
Toronto
Toronto
Vaughan
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Plaza
Retail — Plazas
Industrial
Retail — Plazas
GLA
(approx.
sq. ft.)
%
Occu-
pancy
6,000
64,000
91,000
163,000
5,000
63,000
107,000
46,000
60,000
3,000
85,000
111,000
12,000
40,000
15,000
16,000
29,000
61,000
67,000
793,000
55,000
2,470,000
64.3
100.0
98.8
79.7
100.0
100.0
100.0
100.0
100.0
100.0
100.0
98.2
100.0
100.0
100.0
100.0
100.0
100.0
54.3
100.0
94.6
97.7
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
2,000
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
5,000
4,000
37,000
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 — Plaza
Retail — Plaza
55,000
74,000
84,000
561,000
39,000
30,000
56,000
19,000
20,000
41,000
50,000
160,000
415,000
100.0
98.3
95.9
99.3
100.0
100.0
100.0
100.0
100.0
97.6
100.0
82.7
93.0
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
58,000
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
Calgary
101 Crowfoot Way
110-620 McKenzie Towne
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
Calgary
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
1200 Railway Avenue
135 Chestermere Station
Way
304 5 Avenue W
400 & 500 Manning
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
6,000
75,000
10,000
9,000
38,000
42,000
100.0
100.0
100.0
100.0
100.0
100.0
Retail — Plazas
Retail — Freestanding
25,000
40,000
100.0
100.0
Retail — Freestanding
6,000
100.0
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Retail — Plaza
Retail — Freestanding
36,000
48,000
69,000
21,000
51,000
79,000
81,000
53,000
100.0
100.0
100.0
100.0
100.0
100.0
96.1
100.0
Retail — Plazas
Property
Description
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 54 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 — 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
50,000
22,000
34,000
37,000
21,000
55,000
37,000
29,000
34,000
33,000
4,000
143,000
66,000
62,000
138,000
20,000
45,000
7,000
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
96.7
100.0
100.0
100.0
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
42,000
5,000
74,000
99.1
100.0
100.0
100.0
Rocky View
Sherwood Park
Industrial
Retail — Freestanding
655,000
23,000
97.8
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 8 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
Langley
27566 Fraser Highway
32520 Lougheed Highway Mission
New Westminster
800 McBride Boulevard
1170 27 Street E
North Vancouver
1175 Mount Seymour Road North Vancouver
801-1303 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
23,000
5,000
53,000
31,000
35,000
5,000
3,041,000
Retail — Plazas
Retail — Freestanding
Retail — Plazas
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Plazas
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
8,000
4,000
33,000
61,000
3,000
6,000
97,000
8,000
47,000
5,000
67,000
56,000
5,000
19,000
30,000
137,000
48,000
45,000
55,000
43,000
37,000
36,000
59,000
49,000
52,000
3,000
28,000
5,000
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
1,655,000
100.0
100.0
100.0
100.0
100.0
100.0
99.9
26.6
100.0
100.0
100.0
100.0
100.0
98.9
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
85.5
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
98.6
Chestermere
Cochrane
Retail — Freestanding
Retail — Freestanding
43,000
54,000
100.0
100.0
Crossing N
Edmonton
2304 109 Street NW
Edmonton
2534 Guardian Road NW Edmonton
Edmonton
5119 167 Avenue NW
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
Retail — Freestanding
49,000
48,000
49,000
30,000
100.0
100.0
100.0
100.0
TOTAL
17,558,000
96.1
Delivering Value
101
UNITHOLDERS’ INFORMATION
BOARD OF TRUSTEES
J. Michael Knowlton
Independent Trustee and Chair
John Eby
Independent Trustee
Donald E. Clow
Trustee, President and Chief Executive Officer
Paul V. Beesley
Independent Trustee
James M. Dickson
Independent Trustee
Barbara Palk
Independent Trustee
Jason P. Shannon
Independent Trustee
Jana Sobey
Independent Trustee
Paul D. Sobey
Independent Trustee
Elisabeth Stroback
Independent Trustee
OFFICERS
J. Michael Knowlton
Chair
Donald E. Clow
President and Chief Executive Officer
Clinton D. Keay
Chief Financial Officer and Secretary
Glenn R. Hynes
Executive Vice President and Chief Operating Officer
Cheryl Fraser
Chief Talent Officer and Vice President Communications
John Barnoski
Senior Vice President Corporate Development
Trevor Lee
Senior Vice President Construction and Development
Arie Bitton
Senior Vice President Leasing and Operations
Fred Santini
General Counsel
102
Annual Report 2019
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
INVESTOR RELATIONS AND INQUIRIES
Unitholders, analysts, and investors should direct their financial
inquiries or request to:
Clinton D. Keay, CPA, CA
Chief Financial Officer and Secretary
Email: investing@crombie.ca
Communication regarding investor records, including changes
of address or ownership, lost certificates or tax forms, should be
directed to the company’s transfer agent and registrar, AST Trust
Company (Canada).
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.
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TOP 20
TENANTS
Crombie
REIT
Crombie’s portfolio is home to a diverse group of national
and regional tenants, most of whom serve the everyday needs
of Canadian consumers.
TENANT
% of Annual
Minimum Rent
Average Remaining
Lease Term
DBRS Credit Rating
Empire Company Limited1
54.2%
13.4 years
BBB (low)
Shoppers Drug Mart
Province of Nova Scotia
Dollarama
Government of Canada
CIBC
Bank of Nova Scotia
Cineplex
GoodLife Fitness
Bank of Montreal
Canadian Tire Corporation
Restaurant Brands International
Bell Canada
Metro
Royal Bank of Canada
TJX Canada2
SAQ/Province of Quebec
Leon’s Furniture
Giant Tiger
Staples
TOTAL
1
Includes Sobeys and all other subsidiaries under
Empire Company Limited.
2 TJX Canada’s parent company, The TJX
Companies, Inc. is rated A2 by Moody’s.
4.1%
1.5%
1.4%
1.2%
1.2%
1.1%
1.1%
1.1%
1.0%
1.0%
0.7%
0.6%
0.6%
0.6%
0.5%
0.5%
0.5%
0.5%
0.5%
73.9%
BBB
A (high)
BBB
AAA
AA
AA
AA
BBB (high)
BBB (high)
BBB
AA (high)
AA (low)
9.0 years
7.8 years
6.0 years
4.1 years
11.6 years
2.9 years
9.5 years
8.1 years
7.8 years
4.0 years
5.9 years
5.3 years
7.6 years
3.4 years
8.6 years
5.2 years
6.1 years
4.6 years
2.6 years
Sobeys
ANCASTER, ON