STELLARTON, NS, Aug. 6 /CNW/ – Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its results for the second quarter ended June 30, 2009.
<< Three months ended June 30, ------------------------------------------------ Variance (In millions of dollars, ---------------------- except per unit amounts) 2009 2008 $ % ------------------------------------------------------------------------- FFO $18.717 $18.812 $(0.095) (0.5)% Per Unit $0.35 $0.38 $(0.03) (7.9)% FFO Payout ratio 65.7% 63.1% (2.6)% ------------------------------------------------------------------------- AFFO $14.069 $11.916 $2.153 18.1% Per Unit $0.27 $0.24 $0.03 12.5% AFFO Payout ratio 87.4% 99.7% 12.3% ------------------------------------------------------------------------- Six months ended June 30, ------------------------------------------------ Variance ---------------------- (In millions of dollars, except per unit amounts) 2009 2008 $ % ------------------------------------------------------------------------- FFO $39.456 $32.651 $6.805 20.8% Per Unit $0.75 $0.71 $0.04 5.6% FFO Payout ratio 60.7% 63.5% 2.8% ------------------------------------------------------------------------- AFFO $30.095 $20.012 $10.083 50.4% Per Unit $0.57 $0.44 $0.13 29.5% AFFO Payout ratio 79.6% 103.7% 24.1% ------------------------------------------------------------------------- Funds from Operations (FFO) for the second quarter of 2009 decreasedslightly to $18.7 million ($0.35 per unit) from $18.8 million ($0.38 per unit)in the second quarter of 2008. The decrease was due to increased general andadministrative expenses in the second quarter of 2009, offset by the portfolioacquisition of 61 retail properties from subsidiaries of Empire CompanyLimited (the "Portfolio Acquisition") in April 2008 and the addition of theSaskatoon property acquisition in June 2008. FFO for the six months ended June30, 2009 increased to $39.5 million ($0.75 per unit) from $32.7 million ($0.71per unit) for the same period in 2008. The improvement was due to theaforementioned acquisitions partially offset by higher general andadministrative expenses. Adjusted Funds from Operations (AFFO) for the second quarter of 2009 was$14.1 million ($0.27 per unit) compared to $11.9 million ($0.24 per unit) forthe second quarter of 2008. AFFO for the six months ended June 30, 2009 was$30.1 million ($0.57 per unit) compared to $20.0 million ($0.44 per unit) forthe same period in 2008. Growth in AFFO during the second quarter ended June30, 2009 was primarily due to lower maintenance capital and leasing costs,while AFFO growth for the six months ended June 30, 2009 was influenced by thelower maintenance capital and leasing costs as well as the improved FFOresults. The six months ended June 30, 2009 AFFO payout ratio was 79.6% whichis favourable to the annual target payout ratio of 95% and the payout ratio of103.7% for the same period in 2008. "I am pleased to see Crombie's stable operating performance during whatcontinues to be a challenging recession" stated Donald E. Clow, FCA, Crombie'sPresident and Chief Executive Officer. "Our strategy to focus on primarily grocery anchored retail properties, adefensive asset class, has worked in our favour during these difficult times." Donald Clow continued, "The recent equity offering combined with thesyndication and extension of our term facility has strengthened our balancesheet and provides Crombie with the capacity to consider acquisitionopportunities, should they arise." "On a personal note, I would like to recognize Stuart Blair on hisretirement and thank him for his successful career at Crombie REIT and itspredecessor companies. I look forward to the council and advice of our boardof trustees and leading our outstanding team of employees in the future." 2009 Second Quarter Highlights - Crombie completed the syndication and extension of the 18-month Term Facility to May 2011. - Crombie completed a public offering of units for gross proceeds of $36.9 million and a private placement of Class B LP units for gross proceeds of $30 million on June 25, 2009. - Crombie completed leasing activity on approximately 67% of its 2009 expiring leases as at June 30, 2009. - Occupancy for the properties was 94.1% at June 30, 2009 compared with 94.2% at March 31, 2009. - Property revenue for the quarter ended June 30, 2009 increased by $3.6 million, or 7.6%, to $50.9 million compared to $47.3 million for the quarter ended June 30, 2008. - Same-asset NOI for the second quarter of 2009 of $22.2 million decreased by $0.4 million or 1.7%, compared to $22.6 million for the quarter ended June 30, 2008. - The FFO payout ratio for the six months ended June 30, 2009 was 60.7% which was favourable to the target annual payout ratio of 70% and favourable to the payout ratio of 63.5% for the same period in 2008. - The AFFO payout ratio for the six months ended June 30, 2009 was 79.6% which was favourable to the target annual AFFO payout ratio of 95% and was favourable to the payout ratio of 103.7% for the same period in 2008. - Debt to gross book value decreased to 50.9% at June 30, 2009 compared to 54.8% at March 31, 2009. - Crombie's interest service coverage ratio for the first six months of 2009 was 2.79 times EBITDA and debt service coverage ratio was 1.96 times EBITDA, compared to 2.94 times EBITDA and 2.04 times EBITDA, respectively, for the same period in 2008. The table below presents a summary of the financial performance for thequarter and six months ending June 30, 2009 compared to the same period infiscal 2008. ------------------------------------------------------------------------- Three Three Six Six months months months months (In millions of dollars, ended ended ended ended except where otherwise Jun. 30, Jun. 30, Jun. 30, Jun. 30, noted) 2009 2008 2009 2008 ------------------------------------------------------------------------- Property revenue $50.893 $47.314 $103.885 $84.576 Property expenses 17.258 16.775 37.229 32.087 ------------------------------------------------------------------------- Property NOI 33.635 30.539 66.656 52.489 ------------------------------------------------------------------------- NOI margin percentage 66.1% 64.5% 64.2% 62.1% ------------------------------------------------------------------------- Expenses: General and administrative 3.646 1.979 5.290 3.931 Interest 11.272 9.965 22.002 16.465 Depreciation and amortization 10.803 10.757 23.294 18.752 ------------------------------------------------------------------------- 25.721 22.701 50.586 39.148 ------------------------------------------------------------------------- Income from continuing operations before other items, income taxes and non-controlling interest 7.914 7.838 16.070 13.341 Other items - 0.097 0.092 0.097 ------------------------------------------------------------------------- Income from continuing operations before income taxes and non-controlling interest 7.914 7.935 16.162 13.438 Income taxes - Future - 0.701 0.200 1.101 ------------------------------------------------------------------------- Income from continuing operations before non-controlling interest 7.914 7.234 15.962 12.337 Income from discontinued operations - 0.136 - 0.399 ------------------------------------------------------------------------- Income before non-controlling interest 7.914 7.370 15.962 12.736 Non-controlling interest 3.786 3.531 7.642 6.114 ------------------------------------------------------------------------- Net income $4.128 $3.839 $8.320 $6.622 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted net income per unit $0.15 $0.15 $0.30 $0.28 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Property NOI Second quarter property NOI for 2009 increased to $33.6 million (10.1%increase) from the same period in 2008 due to the Portfolio Acquisition andthe Saskatoon property acquisition completed since January 1, 2008. OverallNOI margin increased to 64.2% for the first six months of 2009 from 62.1% forthe same period in 2008. Property NOI for the six months ended June 30, 2009increased to $66.7 million (27.0% increase) from the same period in 2008 dueto the property acquisitions completed since January 1, 2008. Overall NOImargin increased to 64.2% for the six months ended June 30, 2009 from 62.1%for the same period in 2008. Same-Asset Property NOI ------------------------------------------------------------------------- Three Three Six Six months months months months ended ended ended ended Jun. 30, Jun. 30, Jun. 30, Jun. 30, (In millions of dollars) 2009 2008 2009 2008 ------------------------------------------------------------------------- Same-asset property revenue $36.207 $37.221 $74.254 $74.483 Same-asset property expenses 13.968 14.593 30.096 29.905 ------------------------------------------------------------------------- Same-asset property NOI $22.239 $22.628 $44.158 $44.578 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Same-asset NOI margin % 61.4% 60.8% 59.5% 59.8% ------------------------------------------------------------------------- Same-asset property revenue of $36.2 million in the second quarter of 2009was 2.7% lower than the second quarter in 2008 due primarily to decreasedrevenue from lower recoverable common area expenses and a one-time head leaseadjustment upon final release of the obligation governing the agreementbetween ECL and Crombie for County Fair Mall in Summerside, Prince EdwardIsland and Uptown Center in Fredericton, New Brunswick, partially offset bythe increased average rent per square foot. Same-asset property revenue forthe six months ended June 30, 2009 of $74.3 million was 0.3% lower than thesame period in 2008 due to the reduction in head lease revenue. Same-asset property expenses of $13.9 million in the second quarter of2009 were 4.3% lower than the $14.6 million for the second quarter of 2008.The decreased property expenses were due to decreased recoverable common areaexpenses primarily from decreased snow removal costs. Same-asset propertyexpenses of $30.1 million for the six months ended June 30, 2009 were 0.6%higher than the same period in 2008. The increased property expenses were dueto increased recoverable common area expenses primarily from increased utilitycosts and property taxes. Acquisition Property NOI The Portfolio Acquisition and the Saskatoon property acquisition completedsince January 1, 2008 provided the following results: ------------------------------------------------------------------------- Three Three Six Six months months months months ended ended ended ended Jun. 30, Jun. 30, Jun. 30, Jun. 30, (In millions of dollars) 2009 2008 2009 2008 ------------------------------------------------------------------------- Acquisition property revenue $14.686 $10.093 $29.631 $10.093 Acquisition property expense 3.290 2.182 7.133 2.182 ------------------------------------------------------------------------- Acquisition property NOI $11.396 $7.911 $22.498 $7.911 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Acquisition NOI margin % 77.6% 78.4% 75.9% 78.4% ------------------------------------------------------------------------- General and Administrative Expenses General and administrative expenses increased by 84.2% during the secondquarter of 2009 to $3.6 million from $2.0 million in 2008 due to one timeretirement costs. General and administrative expenses increased by 34.6%during the six months ended June 30, 2009 to $5.3 million from $3.9 million in2008 again due to one time retirement costs as well as increased professionalfees and salaries and benefits costs, partially offset by reduced incentivepayments. General and administrative costs as a percentage of revenue haveincreased to 7.2% in the second quarter of 2009 compared to 4.2% in 2008 andincreased to 5.1% for the six months ended June 30, 2009 compared to 4.6% in2008. Interest ------------------------------------------------------------------------- Three Three Six Six months months months months ended ended ended ended Jun. 30, Jun. 30, Jun. 30, Jun. 30, (In millions of dollars) 2009 2008 2009 2008 ------------------------------------------------------------------------- Same-asset interest expense $6.592 $6.303 $13.354 $12.803 Acquisition interest expense 4.680 3.662 8.648 3.662 ------------------------------------------------------------------------- Interest expense $11.272 $9.965 $22.002 $16.465 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The increase in interest expense for the second quarter and the six monthsended June 30, 2009 was primarily due to the property acquisitions. Same-assetinterest expense was higher in the second quarter and the six months endedJune 30, 2009 compared to 2008 due to the amortization of payments made oninterest rate swap agreements during the year, offset in part by a decrease inthe floating interest rate on the revolving credit facility. Definition of Non-GAAP Measures Certain financial measures included in this news release do not havestandardized meaning under Canadian generally accepted accounting principlesand therefore may not be comparable to similarly titled measures used by otherpublicly traded companies. Crombie includes these measures because it believescertain investors use these measures as a means of assessing Crombie'sfinancial performance. - Property NOI is property revenue less property expenses. - Debt is defined as bank loans plus commercial property debt and convertible debentures. - Gross book value means, at any time, the book value of the assets of Crombie and its consolidated subsidiaries plus accumulated depreciation and amortization in respect of Crombie's properties (and related intangible assets) less (i) the amount of any receivable reflecting interest rate subsidies on any debt assumed by Crombie and (ii) the amount of future income tax liability arising out of the fair value adjustment in respect of the indirect acquisitions of certain properties. - FFO is calculated as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable real estate and extraordinary items, plus depreciation and amortization, future income taxes and after adjustments for equity accounted entities and non- controlling interests. - AFFO is defined as FFO adjusted for non-cash amounts affecting revenue and discontinued operations, less maintenance capital expenditures and maintenance tenant improvements and lease costs. About Crombie Crombie is an open-ended real estate investment trust established under,and governed by, the laws of the Province of Ontario. The trust invests inincome-producing retail, office and mixed-use properties in Canada, with afuture growth strategy focused primarily on the acquisition of retailproperties. Crombie currently owns a portfolio of 113 commercial properties inseven provinces, comprising approximately 11.2 million square feet of rentablespace. This news release contains forward looking statements that reflect thecurrent expectations of management of Crombie about Crombie's future results,performance, achievements, prospects and opportunities. Wherever possible,words such as "may", "will", "estimate", "anticipate", "believe", "expect","intend" and similar expressions have been used to identify these forwardlooking statements. These statements reflect current beliefs and are based oninformation currently available to management of Crombie. Forward lookingstatements necessarily involve known and unknown risks and uncertainties. Anumber of factors, including those discussed in the 2008 annual ManagementDiscussion and Analysis under "Risk Management", could cause actual results,performance, achievements, prospects or opportunities to differ materiallyfrom the results discussed or implied in the forward looking statements. Thesefactors should be considered carefully and a reader should not place unduereliance on the forward looking statements. There can be no assurance that theexpectations of management of Crombie will prove to be correct. In particular, certain statements in this document discuss Crombie'santicipated outlook of future events. These statements include, but are notlimited to anticipated or target distributions and payout ratios, which couldbe impacted by seasonality of capital expenditures, results of operations andcapital resource allocation decisions. Readers are cautioned that such forward-looking statements are subject tocertain risks and uncertainties that could cause actual results to differmaterially from these statements. Crombie can give no assurance that actualresults will be consistent with these forward-looking statements. Additional information relating to Crombie can be found on Crombie's website at www.crombiereit.com or on the SEDAR web site for Canadian regulatoryfilings at www.sedar.com. Conference Call Invitation Crombie will provide additional details concerning its second quarterresults on a conference call to be held Thursday, August 6, 2009, at 5:00 PMADT. To join this conference call you may dial (416) 644-3432 or (800)814-4857. You may also listen to a live audio web cast of the conference callby visiting Crombie's website located at www.crombiereit.com. Replay will beavailable until midnight August 20, 2009, by dialling (416) 640-1917 or (877)289-8525 and entering pass code 21311250#, or on the Crombie website for 90days after the meeting. CROMBIE REAL ESTATE INVESTMENT TRUST Interim Consolidated Financial Statements Unaudited June 30, 2009 CROMBIE REAL ESTATE INVESTMENT TRUST Consolidated Balance Sheets (In thousands of dollars) (Unaudited) ------------------------------------------------------------------------- June 30, December 31, 2009 2008 ----------------------------- Restated Assets (Note 3) Commercial properties (Note 4) $1,307,934 $1,308,347 Intangible assets (Note 5) 118,416 131,403 Notes receivable (Note 6) 9,760 11,323 Other assets (Note 7) 27,310 20,934 Cash and cash equivalents - 4,028 Assets related to discontinued operations (Note 21) 7,054 7,184 ----------------------------- $1,470,474 $1,483,219 ----------------------------- ----------------------------- Liabilities and Unitholders' Equity Commercial property debt (Note 8) $759,223 $808,971 Convertible debentures (Note 9) 29,090 28,968 Payables and accruals (Note 10) 59,525 94,462 Intangible liabilities (Note 11) 36,771 41,061 Employee future benefits obligation 6,165 4,836 Distributions payable 4,522 3,883 Future income tax liability (Note 16) 80,000 79,800 Liabilities related to discontinued operations (Note 21) 6,411 6,517 ----------------------------- 981,707 1,068,498 Non-controlling interest (Note 12) 233,292 199,163 Unitholders' equity 255,475 215,558 ----------------------------- $1,470,474 $1,483,219 ----------------------------- ----------------------------- Commitments and contingencies (Note 18) Subsequent event (Note 24) CROMBIE REAL ESTATE INVESTMENT TRUST Consolidated Statements of Income (In thousands of dollars, except per unit amounts) (Unaudited) ------------------------------------------------------------------------- Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2009 2008 2009 2008 ------------------------------------------------- Restated Restated Revenues (Note 3) (Note 3) Property revenue (Note 14) $50,893 $47,314 $103,885 $84,576 Lease terminations - 20 92 20 ------------------------------------------------- 50,893 47,334 103,977 84,596 ------------------------------------------------- Expenses Property expenses 17,258 16,775 37,229 32,087 General and administrative expenses 3,646 1,979 5,290 3,931 Interest expense (Note 15) 11,272 9,965 22,002 16,465 Depreciation of commercial properties 5,027 4,418 9,827 7,821 Amortization of tenant improvements/lease costs 892 700 2,023 1,468 Amortization of intangible assets 4,884 5,639 11,444 9,463 ------------------------------------------------- 42,979 39,476 87,815 71,235 ------------------------------------------------- Income from continuing operations before other items 7,914 7,858 16,162 13,361 Gain on disposal of land - 77 - 77 ------------------------------------------------- Income from continuing operations before income taxes and non-controlling interest 7,914 7,935 16,162 13,438 Income tax expense - Future (Note 16) - 701 200 1,101 ------------------------------------------------- Income from continuing operations before non-controlling interest 7,914 7,234 15,962 12,337 Income from discontinued operations (Note 21) - 136 - 399 ------------------------------------------------- Income before non-controlling interest 7,914 7,370 15,962 12,736 Non-controlling interest 3,786 3,531 7,642 6,114 ------------------------------------------------- Net income $4,128 $3,839 $8,320 $6,622 ------------------------------------------------- ------------------------------------------------- Basic and diluted net income per unit Continuing operations $0.15 $0.14 $0.30 $0.26 Discontinued operations $0.00 $0.01 $0.00 $0.02 ------------------------------------------------- Net income $0.15 $0.15 $0.30 $0.28 ------------------------------------------------- ------------------------------------------------ Weighted average number of units outstanding Basic 27,465,211 25,909,792 27,307,174 23,726,866 ------------------------------------------------- ------------------------------------------------- Diluted 27,625,880 26,028,526 27,449,862 23,838,755 ------------------------------------------------- ------------------------------------------------- CROMBIE REAL ESTATE INVESTMENT TRUST Consolidated Statements of Comprehensive Income (In thousands of dollars) (Unaudited) ------------------------------------------------------------------------- Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2009 2008 2009 2008 ------------------------------------------------- Net income $4,128 $3,839 $8,320 $6,622 ------------------------------------------------- Losses on derivatives designated as cash flow hedges transferred to net income in the current year 237 - 345 - Net change in derivatives designated as cash flow hedges 9,159 1,487 8,700 (2,807) ------------------------------------------------- Other comprehensive income (loss) 9,396 1,487 9,045 (2,807) ------------------------------------------------- Comprehensive income $13,524 $5,326 $17,365 $3,815 ------------------------------------------------- ------------------------------------------------- CROMBIE REAL ESTATE INVESTMENT TRUST Consolidated Statements of Unitholders' Equity (In thousands of dollars) (Unaudited) ------------------------------------------------------------------------- Accumu- lated Other Compre- Contri- hensive REIT Net buted Income Distri- Units Income Surplus (Loss) butions Total ---------------------------------------------------------------- (Note 13) Unit- holders' equity, January 1, 2009 $265,096 $34,652 $34 $(29,567) $(54,635) $215,580 Adjust- ment due to change in accoun- ting policy (Note 3) - (22) - - - (22) ---------------------------------------------------------------- Unit- holders' equity, January 1, 2009 as re- stated 265,096 34,630 34 (29,567) (54,635) 215,558 Units released under EUPP 8 - (8) - - - Units issued under EUPP 304 - - - - 304 Loans recei- vable under EUPP (304) - - - - (304) EUPP compen- sation - - 23 - - 23 Repayment of EUPP loans recei- vable 90 - - - - 90 Net income - 8,320 - - - 8,320 Distri- butions - - - - (12,497) (12,497) Other compre- hensive income - - - 9,045 - 9,045 Unit issue proceeds, net of costs of $1,919 34,936 - - - - 34,936 ---------------------------------------------------------------- Unit- holders' equity, June 30, 2009 $300,130 $42,950 $49 $(20,522) $(67,132) $255,475 ---------------------------------------------------------------- ---------------------------------------------------------------- Unit- holders' equity, January 1, 2008 $205,273 $20,064 $12 $(3,000) $(31,515) $190,834 Adjust- ment due to change in accoun- ting policy (Note 3) - (22) - - - (22) ---------------------------------------------------------------- Unit- holders' equity, January 1, 2008 as re- stated $205,273 $20,042 $12 $(3,000) $(31,515) $190,812 Units released under EUPP 20 - (20) - - - Units issued under EUPP 386 - - - - 386 Loans recei- vable under EUPP (386) - - - - (386) EUPP compen- sation - - 20 - - 20 Repay- ment of EUPP loans recei- vable 164 - - - - 164 Net income - 6,622 - - - 6,622 Distri- butions - - - - (10,983) (10,983) Other compre- hensive loss - - - (2,807) - (2,807) Unit issue proceeds, net of costs of $2,008 60,997 - - - - 60,997 Unit redemp- tion (1,375) - - - - (1,375) ---------------------------------------------------------------- Unit- holders' equity, June 30, 2008 as re- stated $265,079 $26,664 $12 $(5,807) $(42,498) $243,450 ---------------------------------------------------------------- ---------------------------------------------------------------- CROMBIE REAL ESTATE INVESTMENT TRUST Consolidated Statements of Cash Flows (In thousands of dollars) (Unaudited) ------------------------------------------------------------------------- Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2009 2008 2009 2008 ------------------------------------------------- Cash flows provided by Restated Restated (used in) (Note 3) (Note 3) Operating Activities Net income $4,128 $3,839 $8,320 $6,622 Items not affecting cash: Non-controlling interest 3,786 3,531 7,642 6,114 Depreciation of commercial properties 5,027 4,441 9,827 7,879 Amortization of tenant improvements/lease costs 892 709 2,023 1,491 Amortization of deferred financing costs 517 323 997 477 Amortization of swap settlements 455 - 662 - Amortization of intangible assets 4,884 5,668 11,444 9,521 Amortization of above-market leases 772 779 1,543 1,549 Amortization of below-market leases (2,145) (1,819) (4,290) (3,009) Gain on sale of land - (77) - (77) Accrued rental revenue (1,243) (703) (2,126) (1,021) Unit based compensation 12 11 23 20 Future income tax expense - 701 200 1,101 ------------------------------------------------- 17,085 17,403 36,265 30,667 Additions to tenant improvements and lease costs (1,304) (3,771) (2,544) (8,328) Change in other non-cash operating items (Note 17) (9,369) 2,848 (16,645) (224) ------------------------------------------------- Cash provided by operating activities 6,412 16,480 17,076 22,115 ------------------------------------------------- Financing Activities Issue of commercial property debt 1,312 350,575 58,312 350,575 Increase in deferred financing charges (1,785) (3,653) (2,342) (3,592) Issue of convertible debentures - - - 30,000 Issue costs of convertible debentures - - - (1,214) Units issued 66,855 63,005 66,855 63,005 Units and Class B LP Units issue costs (2,281) (3,790) (2,281) (3,790) Settlement of interest rate swap agreements - - (4,535) - Repayment of commercial property debt (56,629) (18,355) (110,120) (45,735) Decrease in liabilities related to discontinued operations (39) - (106) - Collection of notes receivable 777 3,002 1,563 4,416 Repayment of EUPP loan receivable 81 157 90 164 Unit redemption - (1,375) - (1,375) Payment of distributions (11,655) (10,952) (23,304) (19,819) ------------------------------------------------- Cash provided by (used in) financing activities (3,364) 378,614 (15,868) 372,635 ------------------------------------------------- Investing Activities Additions to commercial properties (3,192) (5,803) (4,922) (7,515) Additions to recoverable capital expenditures (96) (73) (408) (725) Decrease in assets related to discontinued operations 108 - 130 - Proceeds on disposal of land, net of closing costs (Note 4) - 187 - 187 Acquisition of commercial properties (Note 4) (36) (389,405) (36) (389,405) ------------------------------------------------- Cash used in investing activities (3,216) (395,094) (5,236) (397,458) ------------------------------------------------- Decrease in cash and cash equivalents during the period (168) Nil (4,028) (2,708) Cash and cash equivalents, beginning of period 168 Nil 4,028 2,708 ------------------------------------------------- Cash and cash equivalents, end of period $Nil $Nil $Nil $Nil ------------------------------------------------- ------------------------------------------------- See accompanying notes to the interim consolidated financial statements. CROMBIE REAL ESTATE INVESTMENT TRUST Notes to the Interim Consolidated Financial Statements (In thousands of dollars, except per unit amounts) Unaudited June 30, 2009 ------------------------------------------------------------------------- 1) CROMBIE REAL ESTATE INVESTMENT TRUST Crombie Real Estate Investment Trust ("Crombie") is an unincorporated"open-ended" real estate investment trust created pursuant to the Declarationof Trust dated January 1, 2006, as amended. The units of Crombie are traded onthe Toronto Stock Exchange ("TSX") under the symbol "CRR.UN". 2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of presentation These interim consolidated financial statements are prepared in accordancewith Canadian generally accepted accounting principles ("GAAP") as prescribedby the Canadian Institute of Chartered Accountants ("CICA"). These interimconsolidated financial statements do not include all of the disclosuresincluded in Crombie's annual consolidated financial statements. Accordingly,these interim consolidated financial statements should be read in conjunctionwith the consolidated financial statements for the year ended December 31,2008 as set out in the 2008 Annual Report. The accounting policies used in preparation of these interim consolidatedfinancial statements conform with those used in the 2008 annual consolidatedfinancial statements, except as described in Note 3. (b) Property acquisitions Upon acquisition of commercial properties, Crombie performs an assessmentof the fair value of the properties' related tangible and intangible assetsand liabilities (including land, buildings, origination costs, in-placeleases, above- and below-market leases, and any other assumed assets andliabilities), and allocates the purchase price to the acquired assets andliabilities. Crombie assesses and considers fair value based on cash flowprojections that take into account relevant discount and capitalization ratesand any other relevant sources of market information available. Estimates offuture cash flow are based on factors that include historical operatingresults, if available, and anticipated trends, local markets and underlyingeconomic 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 fair value of the building on an "as-if-vacant" basis, which is based on the present value of the anticipated net cash flow of the building from vacant start up to full occupancy. Origination costs for existing leases - Origination costs are determined based on estimates of the costs that would be incurred to put the existing leases in place under the same terms and conditions. These costs include leasing commissions as well as foregone rent and operating cost recoveries during an assumed lease-up period. In-place leases - In-place lease values are determined based on estimated costs required for each lease that represents the net operating income lost during an estimated lease-up period that would be required to replace the existing leases at the time of purchase. Tenant relationships - Tenant relationship values are determined based on costs avoided if the respective tenants were to renew their leases at the end of the existing term, adjusted for the estimated probability that the tenants will renew. Above- and below-market existing leases - Values ascribed to above- and below-market existing leases are determined based on the present value of the difference between the rents payable under the terms of the respective leases and estimated future market rents. 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. (c) Revenue recognition Property revenue includes rents earned from tenants under leaseagreements, percentage rent, realty tax and operating cost recoveries, andother incidental income. Certain leases have rental payments that change overtheir term due to changes in rates. Crombie records the rental revenue fromthese leases on a straight-line basis over the term of the lease. Accordingly,an accrued rent receivable/payable is recorded for the difference between thestraight-line rent recorded as property revenue and the rent that iscontractually due from the tenants. Percentage rents are recognized whentenants are obligated to pay such rent under the terms of the related leaseagreements. The value of the differential between original and market rentsfor existing leases is amortized using the straight-line method over the termsof the tenant lease agreements. Realty tax and other operating costrecoveries, and other incidental income, are recognized on an accrual basis. (d) Income taxes Crombie is taxed as a "mutual fund trust" for income tax purposes.Pursuant to the terms of the Declaration of Trust, Crombie must makedistributions not less than the amount necessary to ensure that Crombie willnot be liable to pay income tax, except for the amounts incurred in itsincorporated subsidiaries. Future income tax liabilities of Crombie relate to tax and accountingbasis differences of all incorporated subsidiaries of Crombie. Income taxesare accounted for using the liability method. Under this method, future incometaxes are recognized for the expected future tax consequences of differencesbetween the carrying amount of balance sheet items and their corresponding taxvalues. Future income taxes are computed using substantively enacted corporateincome tax rates for the years in which tax and accounting basis differencesare expected to reverse. (e) Employee future benefits obligation The cost of pension benefits for the defined contribution plans isexpensed as contributions are paid. The cost of the defined benefit pensionplan and post-retirement benefit plan is accrued based on actuarialvaluations, which are determined using the projected benefit method pro-ratedon service and management's best estimate of the expected long-term rate ofreturn on plan assets, salary escalation, retirement ages and expected growthrate of health care costs. The defined benefit plan and post-retirementbenefit plan are unfunded. The impact of changes in plan amendments is amortized on a straight-linebasis over the expected average remaining service life ("EARSL") of activemembers. For the supplementary executive retirement plan, the impacts ofchanges in the plan provisions are amortized over five years. (f) Use of estimates The preparation of consolidated financial statements in conformity withGAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the balance sheet, and the reported amounts ofrevenue and expenses during the reporting period. Actual results could differfrom those estimates. The significant areas of estimation and assumptioninclude: - Impairment of assets; - Depreciation and amortization; - Employee future benefit obligation; - Future income taxes; - Allocation of purchase price on property acquisitions; and - Fair value of commercial property debt, convertible debentures and assets and liabilities related to discontinued operations. (g) Payment of distributions The determination to declare and make payable distributions from Crombieare at the discretion of the Board of Trustees of Crombie and, until declaredpayable by the Board of Trustees of Crombie, Crombie has no contractualrequirement to pay cash distributions to Unitholders' of Crombie. During thesix months ended June 30, 2009 $23,943 (six months ended June 30, 2008 - $20,746) in cash distributions were declared payable by the Board of Trusteesto Crombie Unitholders and Crombie Limited Partnership Unitholders (the "ClassB LP Units"). (h) Convertible debentures Debentures with conversion features are assessed at inception as to thevalue of both their equity component and their debt component. Based on theassessment, Crombie has determined to date that no amount should be attributedto equity and thus its convertible debentures have been classified asliabilities. Distributions to debenture holders are presented as interestexpense. Issue costs on convertible debentures are netted against theconvertible debentures and amortized over the original life of the convertibledebentures using the effective interest rate method. (i) Hedges Crombie has cash flow hedges which are used to manage exposures toincreases in variable interest rates. Cash flow hedges are recognized on thebalance sheet at fair value with the effective portion of the hedgingrelationship recognized in other comprehensive income (loss). Any ineffectiveportion of the cash flow hedge is recognized in net income. Amounts recognizedin accumulated other comprehensive income (loss) are reclassified to netincome in the same periods in which the hedged item is recognized in netincome. Fair value hedges and the related hedge items are recognized on thebalance sheet at fair value with any changes in fair value recognized in netincome. To the extent the fair value hedge is effective, the changes in thefair value of the hedge and the hedged item will offset each other. Crombie has fixed interest rate swap agreements and a number of delayedinterest rate swap agreements designated as cash flow hedges. Crombie hasidentified these hedges against increases in benchmark interest rates and hasformally documented all relationships between these derivative financialinstruments and hedged items, as well as the risk management strategy andobjectives. Crombie assesses on an ongoing basis whether the derivativefinancial instrument continues to be effective in offsetting changes ininterest rates on the hedged items. (j) Comprehensive income Comprehensive income is the change in Unitholders' equity during a periodfrom transactions and other events and circumstances from non-owner sources.Crombie reports a consolidated statement of comprehensive income, comprisingnet income and other comprehensive income (loss) for the period. Accumulatedother comprehensive income (loss), has been added to the consolidatedstatements of Unitholders' equity. (k) Discontinued operations Crombie classifies properties that meet certain criteria as held for saleand separately discloses any net income and gain (loss) on disposal forcurrent and prior periods as discontinued operations. A property is classifiedas 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 activelylocating a purchaser for the property at a sales price that is reasonable inrelation to the current estimated fair market value of the property, and thesale is expected to be completed within a one year period. Properties held forsale are carried at the lower of their carrying values and estimated fairvalue less costs to sell. In addition, assets held for sale are no longerdepreciated. A property that is subsequently reclassified as held in use ismeasured at the lower of its carrying value amount before it was classed asheld for sale, adjusted for an amortization expense that would have beenrecognized had it been continuously classified as held and in use, and itsestimated fair value at the date of the subsequent decision not to sell. (l) Impairment of long-lived assets Long-lived assets are reviewed for impairment annually or whenever eventsor changes in circumstances indicate the carrying value of an asset may not berecoverable. If it is determined that the net recoverable value of a long-lived assetis less than its carrying value, the long-lived asset is written down to itsfair value. Net recoverable amount represents the undiscounted estimatedfuture cash flow expected to be received from the long-lived asset. Assetsreviewed under this policy include commercial properties and intangibleassets. 3) CHANGES IN ACCOUNTING POLICIES Effective January 1, 2009 Crombie adopted two new accounting standardsthat were issued by the CICA in 2008 and one Emerging Committee Abstractissued by the CICA in January 2009. These accounting policy changes have beenadopted in accordance with the transitional provisions. The new standards and accounting policy changes are as follows: Goodwill and Intangible Assets Effective January 1, 2009, the accounting and disclosure requirements ofthe CICA's two new accounting standards were adopted: "Handbook Section 3064,Goodwill and Intangible Assets" and "Handbook Section 3450, Research andDevelopment Costs." These standards are effective for annual and interim financial statementsrelated to fiscal years beginning on or after October 1, 2008 and areapplicable for Crombie's first quarter of fiscal 2009. Section 3064 statesthat intangible assets may be recognized as assets only if they meet thedefinition of an intangible asset. Section 3064 also provides furtherinformation on the recognition of internally generated intangible assets,(including research and development). These standards have been applied retrospectively with restatement ofprior periods. The adoption of these new standards resulted in an increase of$233 to depreciation of commercial properties and a decrease of $233 toproperty expenses in the consolidated Statements of Income for the threemonths ended June 30, 2008 and an increase of $462 to depreciation ofcommercial properties and a decrease of $462 to property expenses for the sixmonths ended June 30, 2008. In the consolidated Balance Sheets, there was anincrease of $3,946 to commercial properties, an increase of $38 toreceivables, a decrease of $4,246 to prepaid expenses, and a decrease of $220to payables and accruals at December 31, 2008, and a decrease of $20 tonon-controlling interest and a decrease of $22 to unitholders' equity atJanuary 1, 2008. Financial instruments - recognition and measurement In January 2009, the CICA issued Emerging Issue Committee Abstract 173("EIC 173"), "Credit Risk and the Fair Value of Financial Assets and FinancialLiabilities". EIC 173 requires that a company take into account its own creditrisk and the credit risk of its counterparty in determining the fair value offinancial assets and financial liabilities. This Abstract must be appliedretrospectively without restatement of prior periods to all financial assetsand liabilities measured at fair value in interim and annual financialstatements for periods ending on or after January 20, 2009. The adoption ofEIC 173 did not have a significant impact on Crombie's financial results,position or disclosures. Effect of new accounting standards not yet Implemented International Financial Reporting Standards On February 13 2008, the Accounting Standards Board of Canada announcedthat GAAP for publicly accountable enterprises will be replaced byInternational Financial Reporting Standards ("IFRS"). IFRS must be adopted forinterim and annual financial statements related to fiscal years beginning onor after January 1, 2011, with retroactive adoption and restatement of thecomparative fiscal year ended December 31, 2010. Accordingly, the conversionfrom Canadian GAAP to IFRS will be applicable to Crombie's reporting for thefirst quarter of fiscal 2011 for which the current and comparative informationwill be prepared under IFRS. Crombie, with the assistance of its external advisors, have launched aninternal initiative to govern the conversion process and is currentlyevaluating the potential impact of the conversion to IFRS on its financialstatements. At this time, the impact on Crombie's future financial positionand results of operations is not reasonably determinable or estimatable.Crombie expects the transition to IFRS to impact accounting, financialreporting, internal control over financial reporting, information systems andbusiness processes. Crombie has developed a formal project governance structure, and isproviding regular progress reports to senior management and the auditcommittee. Crombie has also completed a diagnostic impact assessment, whichinvolved a high level review of the major differences between current GAAP andIFRS, as well as establishing an implementation guideline. In accordance withthis guideline Crombie has established a staff training program and is in theprocess of completing analysis of the key decision areas and makingrecommendations on the same. Crombie will continue to assess the impact of the transition to IFRS andto review all of the proposed and ongoing projects of the InternationalAccounting Standards Board to determine their impact on Crombie. Additionally,Crombie will continue to invest in training and resources throughout thetransition period to facilitate a timely conversion. In order to assist Crombie with its transition to IFRS the Unitholdersapproved amendments to Crombie's Declaration of Trust, at Crombie's AnnualGeneral and Special Meeting held on May 7, 2009, to allow the Trustees to makefuture amendments to the Declaration of Trust without the requirement toobtain Unitholder approval. These changes are in the same manner as theDeclaration of Trust currently permits Trustees to act as it relates to thechanges in taxation laws. An example of a potential change to the Declaration of Trust in order tocomply with IFRS standards as they are currently drafted include the fact thatCrombie's units may be regarded under IFRS as a "liability" rather than"equity" (as they are currently recognized under Canadian GAAP). Thisinterpretation is influenced principally by the requirement in the Declarationof Trust that Crombie "shall" distribute in each year an amount at least equalto its taxable income. Under IFRS, the units would be classified as aliability if they contain "a contractual obligation to deliver cash or anotherfinancial asset to another entity". The amendments will not result in any material change to the Unitholders,but rather were contemplated in order to assist Crombie to implement changesthat will assist in its transition to IFRS. Trustees will be obligated todetermine whether any such change is necessary or desirable in thecircumstances, and all other matters that are currently required to beapproved by Unitholders pursuant to the Declaration of Trust will remainunchanged. 4) COMMERCIAL PROPERTIES June 30, 2009 ------------------------------------------ Accumulated Net Book Cost Depreciation Value ------------------------------------------ Land $292,129 $Nil $292,129 Buildings 1,041,222 49,059 992,163 Tenant improvements and leasing costs 32,298 8,656 23,642 ------------------------------------------ $1,365,649 $57,715 $1,307,934 ------------------------------------------ ------------------------------------------ December 31, 2008 ------------------------------------------ Accumulated Net Book Cost Depreciation Value ------------------------------------------ Restated Restated Restated (Note 3) (Note 3) (Note 3) Land $288,566 $Nil $288,566 Buildings 1,035,892 39,232 996,660 Tenant improvements and leasing costs 29,754 6,633 23,121 ------------------------------------------ $1,354,212 $45,865 $1,308,347 ------------------------------------------ ------------------------------------------ Property Acquisitions and Disposals The operating results of the acquired properties are included from therespective date of acquisition. 2009 ---- On June 1, 2009, Crombie acquired 1.1 acres of land adjacent to the AvalonMall, Newfoundland and Labrador, for $3,527 plus additional closing costs fromECL General Partner Limited, an affiliate of Empire Company Limited. Currentlythere is a vacant building on the property, which subsequent to quarter endhas been leased for a one year period while management assesses the futuredevelopment of this site. The acquisition was financed with debt of $3,527 ata fixed rate of 8.00% and a term of 20 years with ECL General Partner Limitedand is held as security. 2008 ---- On April 22, 2008, Crombie acquired 61 properties in Atlantic Canada,Quebec and Ontario from subsidiaries of Empire Company Limited, representing a3,288,000 square foot increase to the portfolio, for $428,500 plus additionalclosing costs. The acquisition was financed through a $280,000 term facility,the issuance of $30,000 convertible debentures, the issuance of $55,000 ofClass B LP units of Crombie Limited Partnership to affiliates of Empire, theissuance of $63,005 of REIT units (5,727,750 units at a price of $11.00 perunit), and a draw on Crombie's revolving credit facility. On May 21, 2008, land attached to a commercial property was sold to anunrelated third party for cash proceeds of $187, net of closing costs,resulting in a gain of $77. On June 12, 2008, Crombie acquired a property in Saskatoon, Saskatchewan,representing a 160,000 square foot increase to the portfolio, for $27,200 plusadditional closing costs, from an unrelated third party. The acquisition wasfinanced through an assumption of an existing mortgage of $16,517 at a fixedrate of 5.35% and a term of three years with the balance of the purchase pricepaid using funds from the revolving credit facility. The allocation of the total cost of the acquisitions is as follows: Three Three Six Six Months Months Months Months Ended Ended Ended Ended Commercial property June 30, June 30, June 30, June 30, acquired, net: 2009 2008 2009 2008 ------------------------------------------------------------------------- Land $3,563 $107,826 $3,563 $107,826 Buildings - 287,154 - 287,154 Intangible assets: Lease origination costs - 40,233 - 40,233 Tenant relationships - 21,622 - 21,622 Above-market leases - 370 - 370 In-place leases - 35,384 - 35,384 Intangible liabilities: Below-market leases - (31,848) - (31,848) ------------------------------------------------------------------------- Net purchase price 3,563 460,741 3,563 460,741 Assumed mortgages (3,527) (16,517) (3,527) (16,517) Fair value debt adjustment on assumed mortgages - 181 - 181 ------------------------------------------------------------------------- $36 $444,405 $36 $444,405 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consideration funded by: Revolving credit facility $36 $16,000 $36 $16,000 Term facility - 280,000 - 280,000 Units - 63,005 - 63,005 Convertible debentures - 30,000 - 30,000 Application of deposit - 400 - 400 ------------------------------------------------------------------------- Cash paid 36 389,405 36 389,405 Class B LP Units (non- controlling interest) paid - 55,000 - 55,000 ------------------------------------------------------------------------- Total consideration paid $36 $444,405 $36 $444,405 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 5) INTANGIBLE ASSETS June 30, 2009 ------------------------------------------ Accumulated Net Book Cost Amortization Value ------------------------------------------ Origination costs for existing leases $54,419 $14,706 $39,713 In-place leases 57,376 23,268 34,108 Tenant relationships 57,098 18,968 38,130 Above-market existing leases 16,015 9,550 6,465 ------------------------------------------ $184,908 $66,492 $118,416 ------------------------------------------ ------------------------------------------ December 31, 2008 ------------------------------------------ Accumulated Net Book Cost Amortization Value ------------------------------------------ Origination costs for existing leases $54,419 $11,680 $42,739 In-place leases 57,376 19,072 38,304 Tenant relationships 57,098 14,746 42,352 Above-market existing leases 16,015 8,007 8,008 ------------------------------------------ ------------------------------------------ $184,908 $53,505 $131,403 ------------------------------------------ ------------------------------------------ 6) NOTES RECEIVABLE On March 23, 2006, Crombie acquired 44 properties from Empire CompanyLimited's subsidiary, ECL Properties Limited ("ECL") and certain affiliates,resulting in ECL Developments Limited issuing two demand non-interest bearingpromissory notes in the amounts of $39,600 and $20,564. Payments on the firstnote of $39,600 are being received as funding is required for a capitalexpenditure program relating to eight commercial properties over the periodfrom 2006 to 2010. Payments on the second note of $20,564 are being receivedon a monthly basis to reduce the effective interest rate to 5.54% on certainassumed mortgages with an average term to maturity of approximately 2.75years. The balance of each note is as follows: June 30, December 31, 2009 2008 ------------------------------------------ Capital expenditure program $504 $505 Interest rate subsidy 9,256 10,818 ------------------------------------------ $9,760 $11,323 ------------------------------------------ ------------------------------------------ 7) OTHER ASSETS June 30, December 31, 2009 2008 ------------------------------------------ Restated (Note 3) Gross accounts receivable $7,644 $7,286 Provision for doubtful accounts (269) (250) ------------------------------------------ Net accounts receivable 7,375 7,036 Accrued straight-line rent receivable 9,912 7,786 Prepaid expenses 9,276 5,174 Restricted cash 747 938 ------------------------------------------ $27,310 $20,934 ------------------------------------------ ------------------------------------------ 8) COMMERCIAL PROPERTY DEBT Weighted Weighted average average interest term to June 30, Range rate maturity 2009 ------------------------------------------------- Fixed rate mortgages 4.82-6.44% 5.48% 5.8 years $564,101 Floating rate term facility 3.96% 1.9 years 139,000 Floating rate revolving credit facility 2.03% 2.0 years 62,812 Floating rate demand credit facility Nil Demand - Deferred financing charges (6,690) ------------- $759,223 ------------- ------------- Weighted Weighted average average December interest term to 31, Range rate maturity 2008 ------------------------------------------------- Fixed rate mortgages 5.15-6.44% 5.55% 6.1 years $531,970 Floating rate term facility 4.87% 0.8 years 178,824 Floating rate revolving credit facility 4.37% 2.5 years 93,400 Floating rate demand credit facility 3.50% Demand 10,000 Deferred financing charges (5,223) ------------- $808,971 ------------- ------------- As June 30, 2009, debt retirements for the next 5 years are: Fixed Floating Financing Rate Rate Costs Total ------------------------------------------------- Remaining 2009 $9,513 $Nil $Nil $9,513 2010 121,568 - - 121,568 2011 42,180 201,812 - 243,992 2012 15,956 - - 15,956 2013 46,798 - - 46,798 Thereafter 318,730 - - 318,730 ------------------------------------------------- 554,745 201,812 - 756,557 Deferred financing charges - - (6,690) (6,690) Fair value debt adjustment 9,356 - - 9,356 ------------------------------------------------- $564,101 $201,812 $(6,690) $759,223 ------------------------------------------------- ------------------------------------------------- On June 1, 2009, Crombie acquired 1.1 acres of land adjacent to the AvalonMall, Newfoundland and Labrador, for $3,527 plus additional closing costs,from ECL General Partner Limited, an affiliate of Empire Company Limited. Theacquisition was financed with debt of $3,527 at a fixed rate of 8.00% and aterm of 20 years with ECL General Partner Limited and is held as security. The floating rate term facility is used to partially finance theacquisition of 61 properties from subsidiaries of Empire Company Limited. OnFebruary 12, 2009, Crombie completed mortgage financings of $39,000 torefinance a portion of the floating rate term facility. Fixed rate firstmortgages were placed with a third party for a total of $32,800. The firstmortgages have a weighted average interest rate of 4.88% with a maturity dateof March 2014. In addition, $6,200 of fixed rate second mortgages wereprovided by Empire Company Limited. The second mortgages have a weightedaverage interest rate of 5.38% with a maturity date of March 2014. On June 4,2009, Crombie completed the syndication of the floating rate term facility andextended the maturity date to May 2011. The floating interest rate is based ona specific margin over prime rate or the Banker Acceptance Rate. It is securedby a charge on the secured properties, together with an assignment of leases.The floating rate term facility contains financial and non-financial covenantsthat are customary for a credit facility of this nature and which mirror thecovenants set forth in the floating rate revolving credit facility. The floating rate revolving credit facility has a maximum principal amountof $150,000 and is used by Crombie for working capital purposes. It is securedby a pool of first and second mortgages and negative pledges on certainproperties. The floating interest rate is based on specific margins over primerate or bankers acceptance rates. The specified margin increases as Crombie'soverall debt leverage increases. The floating rate demand credit facility is a $13,800 credit facility withEmpire Company Limited on substantially the same terms and conditions thatgovern the floating rate revolving credit facility. As at June 30, 2009,Crombie had $Nil drawn against the floating rate revolving credit facility(December 31, 2008 - $10,000). 9) CONVERTIBLE DEBENTURES June December Maturity Interest 30, 31, date rate 2009 2008 ------------------------------------------------- Series A March 20, 2013 7.0% $30,000 $30,000 Transaction costs (910) (1,032) ------------------------ $29,090 $28,968 ------------------------ ------------------------ 10) PAYABLES AND ACCRUALS June 30, December 31, 2009 2008 ----------------------------- Restated (Note 3) Tenant improvements and capital expenditures $11,612 $13,384 Property operating costs 11,456 20,166 Advance rents 2,035 5,364 Interest on commercial property debt and debentures 2,591 2,504 Fair value of interest rate swap agreements 31,831 53,044 ----------------------------- $59,525 $94,462 ----------------------------- ----------------------------- 11) INTANGIBLE LIABILITIES June 30, 2009 ------------------------------------------ Accumulated Net Cost Amortization Book Value ------------------------------------------ Below-market existing leases $55,703 $18,932 $36,771 ------------------------------------------ ------------------------------------------ December 31, 2008 ------------------------------------------ Accumulated Net Cost Amortization Book Value ------------------------------------------ Below-market existing leases $55,703 $14,642 $41,061 ------------------------------------------ ------------------------------------------ 12) NON-CONTROLLING INTEREST Accumu- lated Other Compre- Contri- hensive Class B Net buted Income Distri- LP Units Income Surplus (Loss) butions Total ----------------------------------------------------------------- Balance, January 1, 2009 $244,520 $32,118 $Nil $(27,254) $(50,201) $199,183 Adjust- ment due to change in accoun- ting policy (Note 3) - (20) - - - (20) ----------------------------------------------------------------- Balance, January 1, 2009 as re- stated 244,520 32,098 Nil (27,254) (50,201) 199,163 Net income - 7,642 - - - 7,642 Distri- butions - - - - (11,446) (11,446) Other compre- hensive income - - - 8,295 - 8,295 Class B LP Unit issue proceeds, net of costs of $362 29,638 - - - - 29,638 ----------------------------------------------------------------- Balance, June 30, 2009 $274,158 $39,740 $Nil $(18,959) $(61,647) $233,292 ----------------------------------------------------------------- ----------------------------------------------------------------- Accumu- lated Other Compre- Contri- hensive Class B Net buted Income Distri- LP Units Income Surplus (Loss) butions Total ----------------------------------------------------------------- Balance, January 1, 2008 $191,302 $18,678 $Nil $(2,784) $(29,277) $177,919 Adjust- ment due to change in accoun- ting policy (Note 3) - (20) - - - (20) ----------------------------------------------------------------- Balance, January 1, 2008 as re- stated 191,302 18,658 Nil (2,784) (29,277) 177,899 Net income - 6,114 - - - 6,114 Distri- butions - - - - (9,763) (9,763) Other compre- hensive income (loss) - - - (2,617) - (2,617) Class B LP Unit issue proceeds, net of costs of $1,782 53,218 - - - - 53,218 ----------------------------------------------------------------- Balance, June 30, 2008 as re- stated $244,520 $24,772 $Nil $(5,401) $(39,040) $224,851 ----------------------------------------------------------------- ----------------------------------------------------------------- 13) UNITS OUTSTANDING Crombie REIT Special Voting Units and Crombie REIT Units Class B LP Units Total -------------------- --------------------- -------------------- Number Number Number of Units Amount of Units Amount of Units Amount ----------------------------------------------------------------- Balance, Janu- ary 1, 2009 27,271,888 $265,096 25,079,576 $244,520 52,351,464 $509,616 Unit issue pro- ceeds, net of costs 4,725,000 34,936 3,846,154 29,638 8,571,154 64,574 Units issued under EUPP 43,408 304 - - 43,408 304 Units released under EUPP - 8 - - - 8 Net change in EUPP loans recei- vable - (214) - - - (214) ----------------------------------------------------------------- Balance, June 30, 2009 32,040,296 $300,130 28,925,730 $274,158 60,966,026 $574,288 ----------------------------------------------------------------- ----------------------------------------------------------------- Crombie REIT Special Voting Units and Crombie REIT Units Class B LP Units Total -------------------- --------------------- -------------------- Number Number Number of Units Amount of Units Amount of Units Amount ----------------------------------------------------------------- Balance, January 1, 2008 21,648,985 $205,273 20,079,576 $191,302 41,728,561 $396,575 Unit issue pro- ceeds, net of costs 5,727,750 60,997 5,000,000 53,218 10,727,750 114,215 Units issued under EUPP 34,053 386 - - 34,053 386 Units re- leased under EUPP - 20 - - - 20 Net change in EUPP loans receiva- ble - (222) - - - (222) Unit redemp- tion (138,900) (1,375) - - (138,900) (1,375) ----------------------------------------------------------------- Balance, June 30, 2008 27,271,888 $265,079 25,079,576 $244,520 52,351,464 $509,599 ----------------------------------------------------------------- ----------------------------------------------------------------- Crombie REIT Units On June 25, 2009, Crombie closed a public offering, on a bought dealbasis, of 4,725,000 Units, after full exercise of the underwriters'over-allotment option, to the public at a price of $7.80 per Unit for proceedsof $34,936 net of issue costs. Crombie is authorized to issue an unlimited number of units ("Units") andan unlimited number of Special Voting Units. Issued and outstanding Units maybe subdivided or consolidated from time to time by the Trustees without theapproval of the Unitholders. Units are redeemable at any time on demand by theholders at a price per Unit equal to the lesser of: (i) 90% of the weightedaverage price per Crombie Unit during the period of the last ten days duringwhich Crombie's Units traded; and (ii) an amount equal to the price ofCrombie's Units on the date of redemption, as defined in the Declaration ofTrust. The aggregate redemption price payable by Crombie in respect of any Unitssurrendered for redemption during any calendar month will be satisfied by wayof a cash payment in Canadian dollars within 30 days after the end of thecalendar month in which the Units were tendered for redemption, provided thatthe entitlement of Unitholders to receive cash upon the redemption of theirUnits is subject to the limitation that: 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 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 Units; iii. the normal 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, in any market where the Units are quoted for trading) on the Redemption Date or for more than five trading days during the ten-day trading period commencing immediately after the Redemption Date. Crombie REIT Special Voting Units and Class B LP Units On June 25, 2009, concurrently with the issuance of the Units, insatisfaction of its pre-emptive right, ECL Developments Limited purchased3,846,154 Class B LP Units and the attached Special Voting Units at a price of$7.80 per Class B LP Unit for proceeds of $29,638 net of issue costs, on aprivate placement basis. The Declaration of Trust and the Exchange Agreement provide for theissuance of voting non-participating Units (the "Special Voting Units") to theholders of Class B LP Units used solely for providing voting rightsproportionate to the votes of Crombie's Units. The Special Voting Units arenot transferable separately from the Class B LP Units to which they areattached and will be automatically transferred upon the transfer of such ClassB LP Unit. If the Class B LP Units are exchanged in accordance with theExchange Agreement, a like number of Special Voting Units will be redeemed andcancelled for no consideration by Crombie. The Class B LP Units issued by a subsidiary of Crombie to ECL DevelopmentsLimited have economic and voting rights equivalent, in all material aspects,to Crombie's Units. They are indirectly exchangeable on a one-for-one basisfor Crombie's Units at the option of the holder, under the terms of theExchange Agreement. Each Class B LP Unit entitles the holder to receive distributions fromCrombie, pro rata with distributions made by Crombie on Units. The Class B LP Units are accounted for as non-controlling interest. Employee Unit Purchase Plan ("EUPP") Crombie provides for unit purchase entitlements under the EUPP for certainsenior executives. Awards made under the EUPP will allow executives topurchase units from treasury at the average daily high and low board lottrading prices per unit on the TSX for the five trading days preceding theissuance. Executives are provided non-recourse loans at 3% annual interest byCrombie for the purpose of acquiring Units from treasury and the Unitspurchased are held as collateral for the loan. The loan is repaid through theapplication of the after-tax amounts of all distributions received on theUnits, as well as the after-tax portion of any Long-Term Incentive Plan("LTIP") cash awards received, as payments on interest and principal. As atJune 30, 2009, there are loans receivable from executives of $1,505 underCrombie's EUPP, representing 161,482 Units, which are classified as areduction of Unitholders' Equity. Loan repayments will result in acorresponding increase in Unitholders' Equity. Market value of the Units atJune 30, 2009 was $1,316. Earnings per Unit Computations Basic net earnings per Unit is computed by dividing net earnings by theweighted average number of Units outstanding during the period. Dilutedearnings per Unit is calculated on the assumption that all EUPP loans wererepaid at the beginning of the period. For all periods, the assumed exchangeof all Class B LP Units would not be dilutive. The convertible debentures areanti-dilutive and have not been included in diluted net earnings per unit ordiluted weighted average number of units outstanding. As at June 30, 2009,there are no other dilutive items. 14) PROPERTY REVENUE Three Three Six Six months months months months ended ended ended ended June 30, June 30, June 30, June 30, 2009 2008 2009 2008 ------------------------------------------------- Rental revenue contractually due from tenants $48,277 $45,561 $99,012 $82,073 Straight-line rent recognition 1,243 701 2,126 1,018 Below-market lease amortization 2,145 1,814 4,290 3,000 Above-market lease amortization (772) (762) (1,543) (1,515) ------------------------------------------------- $50,893 $47,314 $103,885 $84,576 ------------------------------------------------- ------------------------------------------------- 15) INTEREST Three Three Six Six months months months months ended ended ended ended June 30, June 30, June 30, June 30, 2009 2008 2009 2008 ------------------------------------------------- Fixed rate mortgages $8,921 $5,763 $17,073 $11,338 Floating rate term, revolving and demand facilities 1,819 3,678 3,879 4,540 Convertible debentures 532 524 1,050 587 ------------------------------------------------- Interest expense 11,272 9,965 22,002 16,465 Amortization of fair value debt adjustment 778 871 1,564 1,737 Interest paid on discontinued operations - 89 - 178 Change in accrued interest 557 58 (86) (162) Amortization of hedges (455) - (662) - Amortization of deferred financing charges (517) (323) (997) (477) ------------------------------------------------- Interest paid $11,635 $10,660 $21,821 $17,741 ------------------------------------------------- ------------------------------------------------- 16) FUTURE INCOME TAXES On September 22, 2007, tax legislation Bill C-52, the BudgetImplementation Act, 2007 (the "Act") was passed into law. The Act related tothe federal income taxation of publicly traded income trusts and partnerships.The Act subjects all existing income trusts, or specified investmentflow-through entities ("SIFTs"), to corporate tax rates beginning in 2011,subject to an exemption for real estate investment trusts ("REITs"). A trustthat satisfies the criteria of a REIT throughout its taxation year will not besubject to income tax in respect of distributions to its unitholders or besubject to the restrictions on its growth that would apply to SIFTs. Crombie's management and their advisors have completed an extensive reviewof Crombie's organizational structure and operations to support Crombie'sassertion that it meets the REIT technical tests contained in the Act. Therelevant tests apply throughout the taxation year of Crombie and, as such, theactual status of Crombie for any particular taxation year can only beascertained at the end of the year. The future income tax liability of the wholly-owned corporate subsidiarywhich is subject to income taxes consists of the following: June 30, December 31, 2009 2008 ------------------------------------------ Tax liabilities relating to difference in tax and book value $86,655 $86,060 Tax asset relating to non- capital loss carry-forward (6,655) (6,260) ------------------------------------------ Future income tax liability $80,000 $79,800 ------------------------------------------ ------------------------------------------ The future income tax expense consists of the following: Three Three Six Six months months months months ended ended ended ended June 30, June 30, June 30, June 30, 2009 2008 2009 2008 ------------------------------------------------- Provision for income taxes at the expected rate $2,381 $2,698 $4,863 $4,569 Tax effect of income attribution to Crombie's unitholders (2,381) (1,997) (4,663) (3,468) ------------------------------------------------- Income tax expense $Nil $701 $200 $1,101 ------------------------------------------------- ------------------------------------------------- 17) CHANGE IN OTHER NON-CASH OPERATING ITEMS Three Three Six Six months months months months ended ended ended ended June 30, June 30, June 30, June 30, 2009 2008 2009 2008 ------------------------------------------------- Cash provided by (used Restated Restated in): (Note 3) (Note 3) Receivables $(1,116) $(1,247) $(339) $(920) Prepaid expenses and other assets (6,544) (5,378) (3,911) (4,272) Payables and other liabilities (1,709) 9,473 (12,395) 4,968 ------------------------------------------------- $(9,369) $2,848 $(16,645) $(224) ------------------------------------------------- ------------------------------------------------- 18) COMMITMENTS AND CONTINGENCIES There are various claims and litigation, which Crombie is involved with,arising out of the ordinary course of business operations. In the opinion ofmanagement, any liability that would arise from such contingencies would nothave a significant adverse effect on these financial statements. Crombie has agreed to indemnify its trustees and officers, and particularemployees in accordance with Crombie's policies. Crombie maintains insurancepolicies that may provide coverage against certain claims. Crombie has entered into a management cost sharing agreement with asubsidiary of Empire Company Limited. Details of this agreement are describedin Note 19. Crombie has land leases on certain properties. These leases have annualpayments of $969 per year over the next five years. The land leases have termsof between 15.8 and 76.2 years remaining, including renewal options. Crombie obtains letters of credit to support our obligations with respectto construction work on our commercial properties and defeasing commercialproperty debt. In connection with the defeasance of the discontinuedoperations commercial property debt, Crombie has issued a standby letter ofcredit in the amount of $1,715 in favour of the mortgage lender. In addition,Crombie has $145 in standby letters of credit for construction work that isbeing performed on its commercial properties. Crombie does not believe thatany of these standby letters of credit are likely to be drawn upon. 19) RELATED PARTY TRANSACTIONS As at June 30, 2009, Empire Company Limited, through its wholly-ownedsubsidiary ECL, holds a 47.4% indirect interest in Crombie. Crombie uses theexchange amount as the measurement basis for the related party transactions. For a period of five years commencing March 23, 2006, certain executivemanagement individuals and other employees of Crombie will provide generalmanagement, financial, leasing, administrative, and other administrationsupport services to certain real estate subsidiaries of Empire Company Limitedon a cost sharing basis. The costs assumed by Empire Company Limited pursuantto the agreement during the three months ended and six months ended June 30,2009 were $278 and $575 (three months ended and six months ended June 30, 2008- $386 and $841 respectively) and were netted against general andadministrative expenses owing by Crombie to Empire Company Limited. For a period of five years, commencing March 23, 2006, certain on-sitemaintenance and management employees of Crombie will provide propertymanagement services to certain real estate subsidiaries of Empire CompanyLimited on a cost sharing basis. In addition, for various periods, ECL has anobligation to provide rental income and interest rate subsidies. The costsassumed by Empire Company Limited pursuant to the agreement during the threemonths ended and six months ended June 30, 2009 were $273 and $649 (threemonths ended and six months ended June 30, 2008 - $484 and $1,173respectively) and was netted against property expenses owing by Crombie toEmpire Company Limited. The head lease subsidy during the three months endedand six months ended June 30, 2009 were $154 and $404 (three months ended andsix months ended June 30, 2008 - $231 and $629 respectively). Crombie also earned rental revenue of $18,650 for the three months endedJune 30, 2009 and $33,210 for the six months ended June 30, 2009 (three monthsended and six months ended June 30, 2008 - $13,135 and $19,497 respectively)from Sobeys Inc., Empire Theatres and ASC Commercial Leasing Limited ("ASC").These companies were all subsidiaries of Empire Company Limited untilSeptember 8, 2008 when ASC was sold. Property revenue from ASC is included inthis note disclosure until the sale date. Empire Company Limited has provided Crombie with a $13,800 floating ratedemand credit facility on substantially the same terms and conditions thatgovern the floating rate revolving credit facility. During the first quarterof 2009, $10,000 outstanding at December 31, 2008 was repaid to the demandcredit facility. As at June 30, 2009, Crombie had $Nil drawn against thefloating rate revolving credit facility (December 31, 2008 - $10,000). On June 1, 2009, Crombie acquired 1.1 acres of land adjacent to the AvalonMall, Newfoundland and Labrador, for $3,527 plus additional closing costs fromECL General Partner Limited, an affiliate of Empire Company Limited. ECLGeneral Partner Limited provided debt of $3,527 at a fixed rate of 8.00% and aterm of 20 years. On June 25, 2009, concurrent with the public offering, in satisfaction ofits pre-emptive rights, ECL Developments Limited purchased $30,000 of Class BLP Units and the attached Special Voting Units, on a private-placement basis. 20) FINANCIAL INSTRUMENTS a) Fair value of financial instruments The fair value of a financial instrument is the estimated amount thatCrombie would receive or pay to settle the financial assets and financialliabilities as at the reporting date. Crombie has classified its financial instruments in the followingcategories: i. Held for trading - Restricted cash and cash and cash equivalents ii. Held to maturity investments - Assets related to discontinued operations iii. Loans and receivables - Notes receivable and accounts receivable iv. Other financial liabilities - Commercial property debt, liabilities related to discontinued operations, convertible debentures, tenant improvements and capital expenditures payable, property operating costs payable and interest payable The book value of cash and cash equivalents, restricted cash, receivables,payables and accruals approximate fair values at the balance sheet date. The fair value of other financial instruments is based upon discountedfuture cash flows using discount rates that reflect current market conditionsfor instruments with similar terms and risks. Such fair value estimates arenot necessarily indicative of the amounts Crombie might pay or receive inactual market transactions. The following table summarizes the carrying value (excluding deferredfinancing charges) and fair value of those financial instruments which have afair value different from their book value at the balance sheet date. June 30, 2009 December 31, 2008 ------------------------------------------------- Carrying Fair Carrying Fair Value Value Value Value ------------------------------------------------- Assets related to discontinued operations $7,054 $7,192 $7,184 $7,477 ------------------------------------------------- ------------------------------------------------- Commercial property debt $765,913 $755,367 $814,194 $812,488 ------------------------------------------------- ------------------------------------------------- Convertible debentures $30,000 $30,075 $30,000 $25,950 ------------------------------------------------- ------------------------------------------------- Liabilities related to discontinued operations $6,411 $6,370 $6,487 $6,599 ------------------------------------------------- ------------------------------------------------- The following summarizes the significant methods and assumptions used inestimating the fair values of the financial instruments reflected in the abovetable: Assets related to discontinued operations: The fair value of the bonds andtreasury bills are based on market trading prices at the reporting date. Commercial property debt and liabilities related to discontinuedoperations: The fair value of Crombie's commercial property debt andliabilities related to discontinued operations is estimated based on thepresent value of future payments, discounted at the yield on a Government ofCanada bond with the nearest maturity date to the underlying debt, plus anestimated credit spread at the reporting date. Convertible debentures: The fair value of the convertible debentures isestimated based on the market trading prices, at the reporting date, of theconvertible debentures. b) Risk management In the normal course of business, Crombie is exposed to a number offinancial risks that can affect its operating performance. These risks, andthe action taken to manage them, are as follows: Credit risk Credit risk arises from the possibility that tenants may experiencefinancial difficulty and be unable to fulfill their lease commitments.Crombie's credit risk is limited to the recorded amount of tenant receivables.An allowance for doubtful accounts is taken for all anticipated problemaccounts (see Note 7). Crombie mitigates credit risk by geographical diversification, utilizingstaggered lease maturities, diversifying both its tenant mix and asset mix andconducting credit assessments for new and renewing tenants. As at June 30,2009; - Excluding Sobeys (which accounts for 33.0% of Crombie's minimum rent), no other tenant accounts for more than 2.2% of Crombie's minimum rent, and - Over the next five years, no more than 9.3% of the gross leaseable area of Crombie will expire in any one year. As outlined in Note 19, Crombie earned rental revenue of $18,650 for thethree months ended June 30, 2009 and $33,210 for the six months ended June 30,2009 (three months ended and six months ended June 30, 2008 - $13,135 and$19,497 respectively) from subsidiaries of Empire Company Limited. Interest rate risk Interest rate risk is the potential for financial loss arising fromincreases in interest rates. Crombie mitigates interest rate risk by utilizingstaggered debt maturities, limiting the use of permanent floating rate debtand utilizing interest rate swap agreements. As at June 30, 2009: - Crombie's weighted average term to maturity of the fixed rate mortgages was 5.8 years, and - Crombie's exposure to floating rate debt, including the impact of the fixed rate swap agreements discussed below, was 20.0% of the total commercial property debt. Excluding the floating rate term facility, which is to be replaced with permanent fixed rate financing during the next two years, the exposure to floating rate debt is 2.1%. From time to time, Crombie has entered into interest rate swap agreementsto manage the interest rate profile of its current or future debts without anexchange of the underlying principal amount. Recent turmoil in the financialmarkets has materially affected interest swap rates. This effect wasespecially pronounced during the fourth quarter of 2008 and the first quarterof 2009. The interest swap rates are based on Canadian bond yields, plus apremium, called the swap spread, which reflects the risk of trading with aprivate counterparty as opposed to the Canadian government. During the fourthquarter 2008, the swap spread turned negative and remained negative throughoutthe first quarter of 2009. While the swap spreads turned positive during thesecond quarter of 2009, they still remain below historical average values. Theeffect of the abnormally low swap spreads, combined with the decline in theCanadian bond yields has resulted in a significant deterioration of themark-to-market values for the interest rate swap agreements. At June 30, 2009,the mark-to-market exposure on the interest rate swap agreements wasapproximately $31,831. There is no immediate cash impact from themark-to-market adjustment. The unfavourable difference in the mark-to-marketamount of these interest rate swap agreements is reflected in othercomprehensive income (loss) rather than net income as the swaps are alldesignated and effective hedges. The breakdown of the swaps in place as partof the interest rate management program, and their associated mark-to-marketamounts are as follows: - Crombie has entered into a fixed interest rate swap to fix the amount of interest to be paid on $50,000 of the revolving credit facility. The fair value of the fixed interest rate swap at June 30, 2009, had an unfavourable mark-to-market exposure of $3,674 (June 30, 2008 - unfavourable $957) compared to its face value. The change in this amount has been recognized in other comprehensive income (loss). The mark-to-market amount of fixed interest rate swaps reduce to $Nil upon maturity of the swaps. - Crombie has entered into a number of delayed interest rate swap agreements of a notional amount of $100,334 (June 30, 2008 - $118,689) with settlement dates between February 1, 2010 and July 2, 2011, maturing between February 1, 2019 and July 2, 2021 to mitigate exposure to interest rate increases for mortgages maturing in 2010 and 2011. The fair value of these delayed interest rate swap agreements had an unfavourable mark-to-market exposure of $12,774 compared to the face value June 30, 2009 (June 30, 2008 - unfavourable $8,468). The change in these amounts has been recognized in other comprehensive income (loss). - In relation to the acquisition of a portfolio of 61 retail properties from subsidiaries of Empire Company Limited, Crombie has entered into a number of delayed interest rate swap agreements of a notional amount of $138,000 (June 30, 2008 - $280,000) with a settlement date of August 1, 2009 to mitigate exposure to interest rate increases prior to replacing the floating rate term facility with long-term financing. The fair value of these agreements had an unfavourable mark-to-market exposure of $15,383 compared to their face value on June 30, 2009 (June 30, 2008 - $1,782). The change in these amounts has been recognized in other comprehensive income (loss). During the first quarter of 2009, Crombie settled an interest rate swapagreement related to a notional amount of $42,000 for a settlement amount of$4,535. This settlement amount has been recognized in other comprehensiveincome (loss) since the inception of the interest rate swap agreements. Thisloss will be reclassified to interest expense using the effective interestrate method. Crombie estimates that $897 of other comprehensive income (loss) will bereclassified to interest expense during the remaining two quarters of 2009based on interest rate swap agreements settled to June 30, 2009. A fluctuation in interest rates would have an impact on Crombie's netearnings and other comprehensive income (loss) items. Based on the previousyear's rate changes, a 0.5% interest rate change would reasonably beconsidered possible. The changes would have had the following impact: Three months ended Three months ended June 30, 2009 June 30, 2008 ----------------------------------------------- 0.5% 0.5% 0.5% 0.5% increase decrease increase decrease ------------------------------------------------------------------------- Impact on net income of interest rate changes on the floating rate revolving credit facility $(244) $244 $(340) $340 ------------------------------------------------------------------------- Six months ended Six months ended June 30, 2009 June 30, 2008 ----------------------------------------------- 0.5% 0.5% 0.5% 0.5% increase decrease increase decrease ------------------------------------------------------------------------- Impact on net income of interest rate changes on the floating rate revolving credit facility $(514) $514 $(365) $365 ------------------------------------------------------------------------- June 30, 2009 June 30, 2008 ----------------------------------------------- 0.5% 0.5% 0.5% 0.5% increase decrease increase decrease ------------------------------------------------------------------------- Impact on other comprehensive income and non-controlling interest items due to changes in fair value of derivatives designated as a cash flow hedge $8,764 $(9,151) $13,129 $(13,735) ------------------------------------------------------------------------- Crombie does not enter into these interest rate swap transactions on aspeculative basis. Crombie is prohibited by its Declaration of Trust inpurchasing, selling or trading in interest rate future contracts other thanfor hedging purposes. Liquidity risk The real estate industry is highly capital intensive. Liquidity risk isthe risk that Crombie may not have access to sufficient debt and equitycapital to fund the growth program and/or refinance the debt obligations asthey mature. Cash flow generated from operating the property portfolio represents theprimary source of liquidity used to service the interest on debt, fund generaland administrative expenses, reinvest into the portfolio through capitalexpenditures, as well as fund tenant improvement costs and make distributionsto Unitholders. Debt repayment requirements are primarily funded fromrefinancing Crombie's maturing debt obligations. Property acquisition fundingrequirements are funded through a combination of accessing the debt and equitycapital markets. There is a risk that the debt capital markets may not refinance maturingdebt on terms and conditions acceptable to Crombie or at any terms at all.Crombie seeks to mitigate this risk by staggering the debt maturity dates (seeNote 8). There is also a risk that the equity capital markets may not bereceptive to an equity issue from Crombie with financial terms acceptable toCrombie. As discussed in Note 22, Crombie mitigates its exposure to liquidityrisk utilizing a conservative approach to capital management. Access to the revolving credit facility is also limited to the amountutilized under the facility, plus any negative mark-to-market position on theinterest rate swap agreements, not exceeding the security provided by Crombie.The mark-to-market adjustment on the interest rate swap agreements reached anout-of-the-money position of approximately $31,831 at June 30, 2009. Thedeterioration in the mark-to-market position may have the impact of reducingCrombie's available credit in the revolving credit facility. Crombie has secured a $13,800 floating rate demand credit facility withEmpire Company Limited under essentially the same terms and conditions thatgovern the revolving credit facility. This demand facility has been put inplace to ensure Crombie maintains adequate liquidity in order to fund itsdaily operating activities while the volatility in the financial marketscontinues, while also mitigating the risk of Crombie not being in compliancewith covenants under the revolving credit facility. Crombie has no mortgages maturing in fiscal 2009 and during the secondquarter of 2009 completed the extension of the floating rate term facility theoriginal maturity date of October 2009 to May 2011. 21) ASSET HELD FOR SALE AND DISCONTINUED OPERATIONS (a) During the second quarter of 2008, Crombie and a potential purchasersigned a purchase and sale agreement for a commercial property. The purchaseand sale agreement closed on October 24, 2008. (b) During the fourth quarter of 2008, Crombie defeased the mortgageassociated with the discontinued operations. The transaction did not qualifyfor defeasance accounting, therefore the defeased loan and related asset havenot been removed from the balance sheet. The defeased loan is payable inmonthly payments of $42 and bears interest at 5.46%, was originally amortizedover 25 years and is due April 1, 2014. Crombie purchased Government of Canadabonds and treasury bills and Canada mortgage bonds and pledged them assecurity to the mortgage company. The bonds mature between January 22, 2009and September 15, 2013, have a weighted average interest rate of 3.65% andhave been placed in escrow. The assets and liabilities related to discontinuedoperations are measured at amortized cost using the effective interest ratemethod, until April 1, 2014 at which time the debt will be extinguished. The following tables set forth the balance sheets associated with theincome property classified as held for sale as at June 30, 2009 and December31, 2008 and the statements of income for the property held for sale for thethree months ended and six months ended June 30, 2009 and June 30, 2008. Balance Sheets June 30, December 31, 2009 2008 ------------------------------- Assets Assets related to discontinued operations $7,054 $7,184 Liabilities Accounts payable and accrued liabilities - 30 Liabilities related to discontinued operations 6,411 6,487 ------------------------------- 6,411 6,517 ------------------------------- Net investment in asset held for sale $643 $667 ------------------------------- ------------------------------- Statements of Income Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2009 2008 2009 2008 ----------------------------------------------- Property revenue Rental revenue contractually due from tenants $- $608 $- $1,417 Straight-line rent recognition - 2 - 3 Below-market lease amortization - 5 - 9 Above-market lease amortization - (17) - (34) ----------------------------------------------- - 598 - 1,395 ----------------------------------------------- Expenses Property expenses - 312 - 679 Interest - 89 - 178 Depreciation of commercial properties - 23 - 58 Amortization of tenant improvements/lease costs - 9 - 23 Amortization of intangible assets - 29 - 58 ----------------------------------------------- - 462 - 996 ----------------------------------------------- Income from discontinued operations $- $136 $- $399 ----------------------------------------------- ----------------------------------------------- 22) CAPITAL MANAGEMENT Crombie's objective when managing capital on a long-term basis is tomaintain overall indebtedness in the range of 50% to 55% of gross book value(as defined in the credit facility agreement), utilize staggered debtmaturities, minimize long-term exposure to floating rate debt and maintainconservative payout ratios. Crombie's capital structure consists of thefollowing: June 30, December 31, 2009 2008 ------------------------------- Restated (Note 3) Commercial property debt $759,223 $808,971 Convertible debentures 29,090 28,968 Non-controlling interest 233,292 199,163 Unitholders' equity 255,475 215,558 ------------------------------- $1,277,080 $1,252,660 ------------------------------- ------------------------------- At a minimum, Crombie's capital structure is managed to ensure that itcomplies with the restrictions pursuant to Crombie's Declaration of Trust, thecriteria contained in the Income Tax Act (Canada) in regard to the definitionof a REIT and existing debt covenants. Some of the restrictions pursuant toCrombie'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 the individual property; and - A restriction that Crombie shall not incur indebtedness of more than 60% of gross book value (65% including any convertible debentures) Crombie's debt to gross book ratio as defined in Crombie's Declaration ofTrust is as follows: June 30, December 31, 2009 2008 ------------------------------- Restated (Note 3) Mortgages payable $564,101 $531,970 Convertible debentures 30,000 30,000 Term facility 139,000 178,824 Revolving credit facility 62,812 93,400 Demand credit facility - 10,000 ------------------------------- Total debt outstanding 795,913 844,194 Less: Applicable fair value debt adjustment (9,256) (10,818) ------------------------------- Debt $786,657 $833,376 ------------------------------- ------------------------------- Total assets $1,470,474 $1,483,219 Add: Deferred financing charges 7,600 6,255 Accumulated depreciation of commercial properties 57,715 45,865 Accumulated amortization of intangible assets 66,492 53,505 Less: Assets held related to discontinued operations (7,054) (7,184) Interest rate subsidy (9,256) (10,818) Fair value adjustment to future taxes (39,245) (39,245) ------------------------------- Gross book value $1,546,726 $1,531,597 ------------------------------- ------------------------------- Debt to gross book value 50.9% 54.4% ------------------------------- ------------------------------- Under the amended terms governing the revolving credit facility Crombie isentitled to borrow a maximum of 70% of the fair market value of assets subjectto a first security position and 60% of the excess fair market value overfirst mortgage financing of assets subject to a second security position or anegative pledge. The terms of the revolving credit facility also require thatCrombie 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 any negative mark-to-market position on the interest rate swap agreements, not to exceed the security provided by Crombie; 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 that ECLDevelopments Limited must maintain a minimum 40% voting interest in Crombie.If ECL Developments Limited reduces its voting interest below this level,Crombie will be required to renegotiate the revolving credit facility orobtain alternative financing. Pursuant to an exchange agreement and while suchcovenant remains in place, ECL Developments Limited will be required to giveCrombie at least six months' prior written notice of its intention to reduceits voting interest below 40%. As at June 30, 2009, Crombie is in compliance with all externally imposedcapital requirements and all covenants relating to its debt facilities. 23) EMPLOYEE FUTURE BENEFITS Crombie has a number of defined benefit and defined contribution plansproviding 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 (forexample, annuity purchase) that can be achieved with the combined total ofemployee and employer contributions and investment income over the period ofplan membership, and the annuity purchase rates at the time of the employee'sretirement. During the second quarter of 2009, Crombie announced theretirement of its Chief Executive Officer. As a result of this announcement,an adjustment of $1,180 was made to the employee future benefit obligation torecognize service costs and interest costs. Defined benefit pension plans The ultimate retirement benefit is defined by a formula that provides aunit of benefit for each year of service. Employee contributions, if required,pay for part of the cost of the benefit, and the employer contributions fundthe balance. The employer contributions are not specified or defined withinthe plan text. They are based on the result of actuarial valuations whichdetermine the level of funding required to meet the total obligation asestimated at the time of the valuation. The defined benefit plans areunfunded. The total defined benefit cost related to pension plans and postretirement benefit plans for the three months ended and six months ended June30, 2009 were $70 and $145 (three months ended and six months ended June 30,2008 - $95 and $191 respectively). The compensation expense related to the EUPP during the three months endedand six months ended June 30, 2009 were $12 and $23 (three months ended andsix months ended June 30, 2008 - $11 and $20 respectively). 24) SUBSEQUENT EVENT On July 22, 2009, Crombie declared distributions of 7.417 cents per unitfor the period from July 1, 2009 to and including, July 31, 2009. Thedistribution will be payable on August 17, 2009 to Unitholders of record as atJuly 31, 2009. 25) SEGMENT DISCLOSURE Crombie owns and operates primarily retail real estate assets located inCanada. Management, in measuring Crombie's performance or making operatingdecisions, does not distinguish or group its operations on a geographical orother basis. Accordingly, Crombie has a single reportable segment fordisclosure purposes in accordance with GAAP. 26) COMPARATIVE FIGURES Comparative figures have been reclassified, where necessary, to reflectthe current period's presentation. Management Discussion and Analysis (In thousands of dollars, except per unit amounts) The following is Management's Discussion and Analysis ("MD&A") of theconsolidated financial condition and results of operations of Crombie RealEstate Investment Trust ("Crombie") for the quarter and year-to-date endedJune 30, 2009, with a comparison to the financial condition and results ofoperations for the comparable period in 2008. This MD&A should be read in conjunction with Crombie's interimconsolidated financial statements and accompanying notes for the period endedJune 30, 2009, and the audited consolidated financial statements andaccompanying notes for the year ended December 31, 2008 and the related MD&A.Information about Crombie can be found on SEDAR at www.sedar.com. FORWARD-LOOKING INFORMATION This MD&A contains forward-looking statements that reflect the currentexpectations of management of Crombie about Crombie's future results,performance, achievements, prospects and opportunities. Wherever possible,words such as "may", "will", "estimate", "anticipate", "believe", "expect","intend" and similar expressions have been used to identify theseforward-looking statements. These statements reflect current beliefs and arebased on information currently available to management of Crombie.Forward-looking statements necessarily involve known and unknown risks anduncertainties. A number of factors, including those discussed under "RiskManagement" could cause actual results, performance, achievements, prospectsor opportunities to differ materially from the results discussed or implied inthe forward-looking statements. These factors should be considered carefullyand a reader should not place undue reliance on the forward-lookingstatements. There can be no assurance that the expectations of management ofCrombie will prove to be correct. In particular, certain statements in this document discuss Crombie'santicipated outlook of future events. These statements include, but are notlimited to: (i) the development of new properties under a development agreement, whichdevelopment activities are undertaken by a related party and thus are notunder the direct control of Crombie and whose activities could be impacted byreal estate market cycles, the availability of labour and general economicconditions; (ii) the acquisition of accretive properties and the anticipated extent ofthe accretion of any acquisitions, which could be impacted by demand forproperties and the effect that demand has on acquisition capitalization ratesand changes in interest rates; (iii) reinvesting to make improvements to existing properties, which couldbe impacted by the availability of labour and capital resource allocationdecisions; (iv) generating improved rental income and occupancy levels, which couldbe impacted by changes in demand for Crombie's properties, tenantbankruptcies, the effects of general economic conditions and supply ofcompetitive locations in proximity to Crombie locations; (v) overall indebtedness levels, which could be impacted by the level ofacquisition activity Crombie is able to achieve and future financingopportunities; (vi) tax exempt status, which can be impacted by regulatory changesenacted by governmental authorities; (vii) anticipated subsidy payments from ECL Developments Limited ("ECL"),which are dependent on tenant leasing and construction activity; (viii) anticipated distributions and payout ratios, which could beimpacted by seasonality of capital expenditures, results of operations andcapital resource allocation decisions; (ix) the effect that any contingencies would have on Crombie's financialstatements; * the continued investment in training and resources throughout theinternational financial reporting standards transition; (xi) the assumed estimated impact per unit upon future settlement of theinterest rate swap agreements which may be impacted by changes in Canadianbond yields and swap spreads, as well as the timing and type of financingavailable and the related amortization period thereon; and (xii) estimated losses on derivatives that will be reclassified tointerest expenses during the remaining two quarters of 2009. Readers are cautioned that such forward-looking statements are subject tocertain risks and uncertainties that could cause actual results to differmaterially from these statements. Crombie can give no assurance that actualresults will be consistent with these forward-looking statements. NON-GAAP FINANCIAL MEASURES There are financial measures included in this MD&A that do not have astandardized meaning under Canadian generally accepted accounting principles("GAAP") as prescribed by the Canadian Institute of Chartered Accountants.These measures are property net operating income ("NOI"), adjusted funds fromoperations ("AFFO"), debt to gross book value, funds from operations ("FFO")and earnings before interest, taxes, depreciation and amortization ("EBITDA").Management includes these measures because it believes certain investors usethese measures as a means of assessing relative financial performance. INTRODUCTION Financial and Operational Summary ------------------------------------------------------------------------- Quarter Quarter Six Months Six Months (in thousands of dollars, Ended Ended Ended Ended except per unit amounts June 30, June 30, June 30, June 30, and as otherwise noted) 2009 2008 2009 2008 ------------------------------------------------------------------------- Property revenue $50,893 $47,314 $103,885 $84,576 Net income $4,128 $3,839 $8,320 $6,622 Basic and diluted net income per unit $0.15 $0.15 $0.30 $0.28 ------------------------------------------------------------------------- FFO $18,717 $18,812 $39,456 $32,651 FFO per unit(1) $0.35 $0.38 $0.75 $0.71 FFO payout ratio (%) 65.7% 63.1% 60.7% 63.5% AFFO $14,069 $11,916 $30,095 $20,012 AFFO per unit(1) $0.27 $0.24 $0.57 $0.44 AFFO payout ratio (%) 87.4% 99.7% 79.6% 103.7% ------------------------------------------------------------------------- June 30, June 30, 2009 2008 ------------------------------------------------------------------------- Debt to gross book value(2) 50.9% 55.0% Total assets $1,470,474 $1,501,754 Total commercial property debt and convertible debentures $788,313 $828,259 ------------------------------------------------------------------------- (1) FFO and AFFO per unit are calculated by FFO or AFFO, as the case may be, divided by the diluted weighted average of the total Units and Special Voting Units outstanding of 52,959,049 for the quarter ended June 30, 2009 and 49,954,256 for the quarter ended June 30, 2008, 52,656,935 for the six months ended June 30, 2009 and 45,841,408 for the six months ended June 30, 2008. (2) See "Borrowing Capacity and Debt Covenants" for detailed calculation. >>Overview of the Business and Recent Developments
Crombie is an unincorporated, open-ended real estate investment trust established pursuant to a Declaration of Trust dated January 1, 2006, as amended and restated (the "Declaration of Trust") under, and governed by, the laws of the Province of Ontario. The units of Crombie trade on the Toronto Stock Exchange under the symbol CRR.UN.
Crombie invests in income-producing retail, office and mixed-use properties in Canada, with a future growth strategy focused primarily on the acquisition of retail properties. At June 30, 2009, Crombie owned a portfolio of 113 commercial properties in seven provinces, comprising approximately 11.2 million square feet of gross leaseable area ("GLA").
On April 22, 2008, Crombie closed an acquisition of a 61 retail property portfolio representing approximately 3.3 million square feet of GLA (the "Portfolio Acquisition") from certain affiliates of Empire Company Limited ("Empire Subsidiaries"). The cost of the Portfolio Acquisition to Crombie was $428,500, excluding closing and transaction costs. The portfolio consists of 40 single-use freestanding Sobeys grocery stores of various Sobeys banners, 20 Sobeys anchored retail strip centres and one Sobeys anchored partially enclosed centre. The GLA of the portfolio is as follows: Atlantic Canada – 78%; Quebec – 7%; and Ontario – 15%.
In order to partially finance the Portfolio Acquisition, on March 20, 2008, Crombie completed a public offering of 5,727,750 subscription receipts, including the over-allotment option, at a price of $11.00 per subscription receipt (each subscription receipt converted into one Unit of Crombie upon closing) and $30,000 of convertible extendible unsecured subordinated debentures (the "Debentures") for aggregate gross proceeds of $93,005.
Empire Subsidiaries took $55,000 of the purchase price in Class B LP Units of Crombie Limited Partnership at the $11.00 offering price.
The remainder of the purchase price was satisfied with a $280,000, 18 month floating rate term financing ("Term Facility") and a draw on Crombie's revolving credit facility. On September 30, 2008, Crombie completed a refinancing of $100,000 of the Term Facility with fixed rate mortgages. On February 12, 2009, Crombie completed mortgage refinancing on an additional $39,000 of the Term Facility (see "Commercial Property Debt"). On June 4, 2009, Crombie extended the Term Facility with a syndicate of seven Canadian chartered banks. The maturity date of the Term Facility was extended to May 2011 and is secured by 30 properties purchased as part of the Portfolio Acquisition.
On October 24, 2008, Crombie completed the sale of West End Mall in Halifax, Nova Scotia. Under GAAP, the financial position and operating results have been reclassified on the financial statements for Crombie as assets and liabilities related to discontinued operations on a retroactive basis. The operating results tables in this MD&A also reflect the sale of the property on Crombie's results.
On June 25, 2009, Crombie closed a public offering of 4,725,000 Units, including the underwriters' over-allotment option Units, at a price of $7.80 per Unit for gross proceeds of $36,855. Concurrent with the public offering, in satisfaction of its pre-emptive right, ECL purchased $30,000 of Class B LP Units and the attached Special Voting Units, on a private-placement basis, at the $7.80 offering price. Empire Company Limited ("Empire"), through ECL, holds a 47.4% economic and voting interest in Crombie as of June 30, 2009.
<< Business Strategy and Outlook The objectives of Crombie are threefold: 1. Generate reliable and growing cash distributions; 2. Enhance the value of Crombie's assets and maximize long-term unit value through active management; and 3. Expand the asset base of Crombie and increase its cash available for distribution through accretive acquisitions. Generate reliable and growing cash distributions: Management focuses onimproving both the same-asset results while expanding the asset base withaccretive acquisitions to grow the cash distributions to unitholders. As atJune 30, 2009, after just over three years of operations, Crombie hasincreased its distributions by 11.25% while achieving its annual AFFO payoutratio targets. Enhance value of Crombie's assets: Crombie anticipates reinvestingapproximately 3% to 5% of its property revenue each year into its propertiesto maintain their productive capacity and thus overall value. Crombie's internal growth strategy focuses on generating greater rentalincome from its existing properties. Crombie plans to achieve this bystrengthening its asset base through judicious expansion and improvement ofexisting properties, leasing vacant space at competitive market rates with thelowest possible transaction costs, and maintaining good relations withtenants. Management will continue to conduct regular reviews of propertiesand, based on its experience and market knowledge, will assess ongoingopportunities within the portfolio. Expand asset base with accretive acquisitions: Crombie's external growthstrategy focuses primarily on acquisitions of income-producing retailproperties. Crombie pursues two sources of acquisitions which are third partyacquisitions and the relationship with ECL. All acquisitions completed to datehave been purchased at costs which ensure they will be immediately accretiveto cash available for distribution. The relationship with ECL includescurrently owned and future development properties, as well as opportunitiesthrough the rights of first refusal that one of Empire's subsidiaries hasnegotiated in many of their leases. Crombie will seek to identify futureproperty acquisitions using investment criteria that focus on the strength ofanchor tenancies, market demographics, terms of tenancies, proportion ofrevenue from national tenants, opportunities for expansion, security of cashflow, potential for capital appreciation and potential for increasing valuethrough more efficient management of the assets being acquired, includingexpansion and repositioning. Crombie plans to work closely with ECL to identify developmentopportunities that further Crombie's external growth strategy. Therelationship is governed by a development agreement described in the MaterialContracts section of Crombie's Annual Information Form for the year endedDecember 31, 2008. Through this relationship, Crombie expects to have thebenefits associated with development while limiting its exposure to theinherent risks of development, such as real estate market cycles, costoverruns, labour disputes, construction delays and unpredictable generaleconomic conditions. The development agreement will also enable Crombie toavoid the uncertainties associated with property development, including payingthe carrying costs of land, securing construction financing, obtainingdevelopment approvals, managing construction projects, marketing in advance ofand during construction and earning no return during the construction period. The development agreement provides Crombie with a preferential right toacquire retail properties developed by ECL, subject to approval by theindependent trustees. The history of the relationship between Crombie and ECLcontinues to provide promising opportunities for growth through futuredevelopment opportunities on both new and existing sites in Crombie'sportfolio. ECL currently owns approximately 1.7 million square feet in 18 developmentproperties that can be offered to Crombie on a preferential right through thedevelopment agreement when the properties are sufficiently developed to meetCrombie's acquisition criteria. The properties are primarily retail plazas andapproximately 50% of the GLA of the 18 properties is located outside ofAtlantic Canada. These properties are anticipated to be made available toCrombie over the next five years. Business Environment The global economic recession has included credit markets experiencing adramatic reduction in liquidity. As the credit crisis deepened during thesecond half of 2008, both the ability and willingness of financialinstitutions to lend money was greatly reduced as financial institutionsbecame increasingly risk adverse. This reduced credit availability continuesto be a major risk to the capital intensive real estate investment trust("REIT") business environment. Due to the economic and credit marketssituation, Crombie has taken a cautious approach with respect to liquidity andcapital resources during the first six months of 2009. The turmoil in the financial markets also caused bond yields to materiallydecline and dramatically reduced interest rate swap spreads during the fourthquarter of 2008 and continuing through the first six months of 2009. While theswap spreads turned positive in the second quarter of 2009, they still remainbelow historical average levels. This has resulted in a significantdeterioration of the mark-to-market values for the interest rate swapagreements Crombie has entered into to hedge its exposure to potentialincreases in Canadian bond yields associated with future debt issuances. Theimpact is more fully explained under the "Borrowing Capacity and DebtCovenants" and "Risk Management" sections of this MD&A. In light of the widening credit spreads and a limited liquidity creditenvironment, capitalization rates have begun to expand. While highercapitalization rates normally make acquisition opportunities more affordable,the higher cost of capital caused by the tightening credit markets and thehigher yield on Crombie's equity makes it very challenging to source accretiveacquisitions. Crombie only intends to pursue acquisitions that provide anacceptable return, including any acquisitions that may result from therelationship between Crombie and ECL. In terms of occupancy rates, while both the retail and office marketswhere Crombie has a prominent presence remain relatively stable, the businessenvironment outlook remains pessimistic, influenced by the continuingrecession in the U.S. and Canadian economies. One offsetting factor to theeconomic slowdown is that many of Crombie's retail locations are anchored byfood stores, which typically are less affected by swings in consumer spending. 2009 SECOND QUARTER HIGHLIGHTS - Crombie completed the syndication and extension of the Term Facility to May 2011. - Crombie completed a public offering of Units for gross proceeds of $36,855 and a private placement of Class B LP Units for gross proceeds of $30,000 on June 25, 2009. - Crombie completed leasing activity on approximately 67% of its 2009 expiring leases as at June 30, 2009. - Occupancy for the properties was 94.1% at June 30, 2009 compared with 94.2% at March 31, 2009. - Property revenue for the quarter ended June 30, 2009 increased by $3,579, or 7.6%, to $50,893 compared to $47,314 for the quarter ended June 30, 2008. - Same-asset NOI for the second quarter of 2009 of $22,239 decreased by $389 or 1.7%, compared to $22,628 for the quarter ended June 30, 2008. - The FFO payout ratio for the six months ended June 30, 2009 was 60.7% which was favourable to the target annual payout ratio of 70% and favourable to the payout ratio of 63.5% for the same period in 2008. - The AFFO payout ratio for the six months ended June 30, 2009 was 79.6% which was favourable to the target annual AFFO payout ratio of 95% and was favourable to the payout ratio of 103.7% for the same period in 2008. - Debt to gross book value decreased to 50.9% at June 30, 2009 compared to 54.8% at March 31, 2009. - Crombie's interest service coverage ratio for the first six months of 2009 was 2.79 times EBITDA and debt service coverage ratio was 1.96 times EBITDA, compared to 2.94 times EBITDA and 2.04 times EBITDA, respectively, for the same period in 2008. >>OVERVIEW OF THE PROPERTY PORTFOLIO
See Also
EAGLES: Efficient Accelerated 3D Gaussians with Lightweight EncodingSOregon Geographic Names (1952)/C - Wikisource, the free online libraryProperty Profile
At June 30, 2009 the property portfolio consisted of 113 commercial properties that contain approximately 11.2 million square feet of GLA. The properties are located in seven provinces: Nova Scotia, New Brunswick, Newfoundland and Labrador, Prince Edward Island, Ontario, Quebec and Saskatchewan.
As at June 30, 2009, the portfolio distribution of the GLA by province was as follows:
<< ------------------------------------------------------------------------- Number % of of Annual Proper- GLA % of Minimum Province ties (sq. ft.) GLA Rent Occupancy(1) ------------------------------------------------------------------------- Nova Scotia 41 5,065,000 45.3% 41.2% 94.6% Ontario 22 1,646,000 14.7% 16.9% 95.3% New Brunswick 20 1,647,000 14.7% 12.4% 88.6% Newfoundland and Labrador 13 1,468,000 13.1% 17.0% 94.2% Quebec 13 825,000 7.4% 7.9% 99.6% Prince Edward Island 3 385,000 3.4% 3.1% 91.3% Saskatchewan 1 160,000 1.4% 1.5% 97.8% ------------------------------------------------------------------------- Total 113 11,196,000 100.0% 100.0% 94.1% ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) For purposes of calculating occupancy percentage, Crombie considers GLA covered by the head lease agreement in favour of ECL as occupied as there is head lease revenue being earned on the GLA >>
Overall occupancy has marginally reduced from 94.2% at March 31, 2009 to 94.1% at June 30, 2009 primarily due the head lease agreement being satisfied in County Fair Mall in Summerside, Prince Edward Island and Uptown Centre in Fredericton, New Brunswick. Of the total of 228,000 square feet in GLA of new tenancies, as shown in the "2009 Portfolio Lease Expiries and Leasing Activity", approximately 66,000 square feet is related to GLA to be occupied in future quarters of 2009 and 2010. This additional new leasing represents approximately 0.6% of Crombie's GLA
Crombie looks to diversify its geographic composition through growth opportunities, as indicated by the seven acquisitions in Ontario, one acquisition in Quebec and one acquisition in Saskatchewan, plus the Portfolio Acquisition since Crombie's initial public offering (the "IPO"). As well, the properties are located in rural and urban locations, which Crombie believes adds stability to the portfolio, while reducing vulnerability to economic fluctuations that may affect any particular region.
From time to time, Crombie will commence redevelopment work on a property to enhance the economic viability of a location when the environment in which it operates warrants. Crombie currently has two properties that are under redevelopment. Fort Edward Mall in Windsor, Nova Scotia is in the process of conversion from a retail enclosed property to a retail plaza. The property is being reconfigured to replace the previous SAAN location and several small tenants with a new Hart location. Valley Mall in Corner Brook, Newfoundland and Labrador is being reconfigured to replace an existing food court with a new Hart store. Costs for properties under redevelopment are classified as productive capacity enhancements to the extent that Crombie determines they are financeable costs by virtue of increasing a property's NOI and appraised value by a minimum threshold (see "Tenant Improvements and Capital Expenditures").
Largest Tenants
The following table illustrates the ten largest tenants in Crombie's portfolio of income-producing properties as measured by their percentage contribution to total annual minimum base rent as at June 30, 2009.
<< ------------------------------------------------------------------------- Average % of Annual Remaining Tenant Minimum Rent Lease Term ------------------------------------------------------------------------- Sobeys (1) 33.0% 16.6 years Empire Theatres 2.2% 8.7 years Zellers 2.2% 8.5 years Shoppers Drug Mart 2.0% 6.8 years Nova Scotia Power Inc 1.9% 1.8 years Province of Nova Scotia 1.7% 5.9 years CIBC 1.6% 17.7 years Bell (Aliant) 1.4% 9.1 years Public Works Canada 1.3% 2.2 years Sears Canada Inc. 1.2% 15.5 years ------------------------------------------------------------------------- Total 48.5% ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Excludes Lawtons and Fast Fuel locations. >>
Crombie's portfolio is leased to a wide variety of tenants. Other than Sobeys, that accounts for 33.0% of the annual minimum rent, no other tenant accounts for more than 2.2% of Crombie's minimum rent.
Lease Maturities
The following table sets out as of June 30, 2009 the number of leases relating to the properties subject to lease maturities during the periods indicated (assuming tenants do not holdover on a month-to-month basis or exercise renewal options or termination rights), the renewal area, the percentage of the total GLA of the properties represented by such maturities and the estimated average net rent per square foot at the time of expiry. The weighted average remaining term of all leases is approximately 10.5 years.
<< ------------------------------------------------------------------------- Average Net Renewal Rent per Number Area % of Sq. Ft. at Year of Leases (sq. ft.) Total GLA Expiry ($) ------------------------------------------------------------------------- Remaining 2009 139 367,000 3.3% $15.09 2010 198 645,000 5.8% $13.11 2011 217 1,046,000 9.3% $14.42 2012 161 853,000 7.6% $11.79 2013 155 876,000 7.8% $12.02 Thereafter 434 6,747,000 60.3% $12.84 ------------------------------------------------------------------------- Total 1,304 10,534,000 94.1% $12.94 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 2009 Portfolio Lease Expiries and Leasing Activity As at June 30, 2009, portfolio lease expiries and leasing activity for theyear ending December 31, 2009 were as follows: ------------------------------------------------------------------------- Retail - Free- Retail - Retail - Mixed- standing Plazas Enclosed Office use Total ------------------------------------------------------------------------- Expiries (sq. ft.) - 160,000 220,000 103,000 220,000 703,000 Average net rent per sq. ft. $- $16.28 $13.97 $12.66 $11.64 $13.58 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Committed renewals (sq. ft.) - 54,000 81,000 30,000 76,000 241,000 Average net rent per sq. ft. $- $15.52 $13.21 $14.54 $9.04 $12.58 New leasing (sq. ft.) 4,000 41,000 122,000 32,000 29,000 228,000 Average net rent per sq. ft. $23.00 $16.71 $8.38 $17.07 $14.84 $12.21 ------------------------------------------------------------------------- Total renewals/ new leasing (sq. ft.) 4,000 95,000 203,000 62,000 105,000 469,000 Total average net rent per sq. ft. $23.00 $16.04 $10.30 $15.86 $10.64 $12.40 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>
During the quarter ended June 30, 2009, Crombie had renewals or entered into new leases in respect of approximately 469,000 square feet at an average net rent of $12.40 per square foot, compared with expiries for 2009 of approximately 703,000 square feet at an average net rent of $13.58 per square foot. Of the 703,000 square feet of expiries, approximately 132,000 square feet involve tenants that are still paying property revenues on a holdover basis. Rent per square foot for the completed new leasing activity in the retail enclosed properties is below the average net rent per square foot of total expiries in 2009 due primarily to one relatively large lease in a small rural location to replace the last vacant SAAN store location that went into bankruptcy in 2008 plus two new anchor leases to complete the Highland Square renovation in New Glasgow. Rent per square foot for the renewals in the retail enclosed properties and in the mixed-use properties was lower than the average expiry rate due to the renewal of three long term tenants at previously negotiated terms favourable to the tenants. Excluding the impact of these six new/renewal deals, average net rent per square foot for all remaining leases of approximately 326,000 square feet was $15.25, an increase of 12.3% over the average net rent per square foot for the 2009 expiring rents.
Sector Information
While Crombie does not distinguish or group its operations on a geographical or other basis, Crombie provides the following sector information as supplemental disclosure.
As at June 30, 2009, the portfolio distribution of the GLA by asset type was as follows:
<< ------------------------------------------------------------------------- Number % of of Annual Proper- GLA Minimum Occu- Asset Type ties (sq. ft.) % of GLA Rent pancy(1) ------------------------------------------------------------------------- Retail - Freestanding 42 1,699,000 15.2% 15.7% 100.0% Retail - Plazas 44 3,982,000 35.5% 37.1% 95.8% Retail - Enclosed 14 2,760,000 24.7% 24.7% 89.3% Office 5 1,049,000 9.4% 9.0% 89.1% Mixed-Use 8 1,706,000 15.2% 13.5% 95.0% ------------------------------------------------------------------------- Total 113 11,196,000 100.0% 100.0% 94.1% ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) For purposes of calculating occupancy percentage, Crombie considers GLA covered by the head lease agreement in favour of ECL as occupied The following table sets out as of June 30, 2009, the square feet underlease subject to lease maturities during the periods indicated. ------------------------------------------------------------------------- Retail - Year Freestanding Retail - Plazas Retail - Enclosed ------------------------------------------------------------------------- (sq. ft.) (%) (sq. ft.) (%) (sq. ft.) (%) ------------------------------------------------------------------------- Remaining 2009 - -% 99,000 2.5% 106,000 3.8% 2010 - -% 245,000 6.2% 134,000 4.9% 2011 1,000 0.1% 324,000 8.1% 141,000 5.1% 2012 5,000 0.3% 280,000 7.0% 144,000 5.2% 2013 - -% 389,000 9.8% 217,000 7.9% There- after 1,693,000 99.6% 2,479,000 62.2% 1,722,000 62.4% ------------------------------------------------------------------------- Total 1,699,000 100.0% 3,816,000 95.8% 2,464,000 89.3% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Year Office Mixed-Use Total ------------------------------------------------------------------------- (sq. ft.) (%) (sq. ft.) (%) (sq. ft.) (%) ------------------------------------------------------------------------- Remaining 2009 45,000 4.3% 117,000 6.8% 367,000 3.3% 2010 83,000 7.9% 183,000 10.7% 645,000 5.8% 2011 360,000 34.4% 220,000 12.9% 1,046,000 9.3% 2012 121,000 11.5% 303,000 17.8% 853,000 7.6% 2013 102,000 9.7% 168,000 9.9% 876,000 7.8% There- after 223,000 21.3% 630,000 36.9% 6,747,000 60.3% ------------------------------------------------------------------------- Total 934,000 89.1% 1,621,000 95.0% 10,534,000 94.1% ------------------------------------------------------------------------- ------------------------------------------------------------------------- The following table sets out the average net rent per square foot expiringduring the periods indicated. ------------------------------------------------------------------------- Retail - Free- Retail - Retail - Year standing Plazas Enclosed Office Mixed-Use ------------------------------------------------------------------------- Remaining 2009 $- $16.40 $17.11 $10.88 $13.51 2010 $- $13.93 $15.26 $11.73 $11.05 2011 $37.50 $14.17 $20.42 $14.20 $11.19 2012 $25.00 $13.01 $18.67 $9.69 $8.01 2013 $- $9.75 $14.47 $13.95 $12.91 Thereafter $13.29 $13.70 $11.79 $12.29 $11.33 ------------------------------------------------------------------------- Total $13.35 $13.38 $13.34 $12.75 $10.98 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 2009 Results of Operations Acquisitions The following table outlines the acquisitions made which affected theresults of operations when compared to the previous year's results. Thefollowing acquisitions took place between January 2008 and June 2009. ------------------------------------------------------------------------- Date GLA Acquisition Property Acquired Property Type (sq. ft.) Cost(1) ------------------------------------------------------------------------- Portfolio April 22, Retail - Acquisition 2008 Freestanding 1,589,000 $428,500 Retail - Plaza 1,571,000 Retail - Enclosed 128,000 ------------------------------------------------------------------------- River City June 12, Retail - Plaza 160,000 $27,200 Centre, 2008 Saskatoon, Saskatchewan ------------------------------------------------------------------------- Total 3,448,000 $455,700 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Excluding closing and transaction costs. Comparison to Previous Year Six Months Ended --------------------------------------- (In thousands of dollars, except June 30, June 30, where otherwise noted) 2009 2008 Variance ------------------------------------------------------------------------- Property revenue $103,885 $84,576 $19,309 Property expenses 37,229 32,087 (5,142) ------------------------------------------------------------------------- Property NOI 66,656 52,489 14,167 ------------------------------------------------------------------------- NOI margin percentage 64.2% 62.1% 2.1% ------------------------------------------------------------------------- Expenses: General and administrative 5,290 3,931 (1,359) Interest 22,002 16,465 (5,537) Depreciation and amortization 23,294 18,752 (4,542) ------------------------------------------------------------------------- 50,586 39,148 (11,438) ------------------------------------------------------------------------- Income from continuing operations before other items, income taxes and non-controlling interest 16,070 13,341 2,729 Other items 92 97 (5) ------------------------------------------------------------------------- Income from continuing operations before income taxes and non-controlling interest 16,162 13,438 2,724 Income taxes expense - Future 200 1,101 901 ------------------------------------------------------------------------- Income from continuing operations before non-controlling interest 15,962 12,337 3,625 Income from discontinued operations - 399 (399) ------------------------------------------------------------------------- Income before non-controlling interest 15,962 12,736 3,226 Non-controlling interest 7,642 6,114 (1,528) ------------------------------------------------------------------------- Net income $8,320 $6,622 $1,698 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted net income per Unit $0.30 $0.28 $0.02 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic weighted average Units outstanding (in 000's) 27,307,174 23,726,866 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Diluted weighted average Units outstanding (in 000's) 27,449,862 23,838,755 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net income for the six months ended June 30, 2009 of $8,320 increased by$1,698 from $6,622 for the six months ended June 30, 2008. The increase wasprimarily due to: - higher property NOI from the individual property acquisition and the Portfolio Acquisition; offset in part by - higher interest and depreciation charges, due primarily to the individual property acquisition and the Portfolio Acquisition, and higher general and administrative expenses. Property Revenue and Property Expenses ------------------------------------------------------------------------- Six Months Ended -------------------------- June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Same-asset property revenue $74,254 $74,483 $(229) Acquisition property revenue 29,631 10,093 19,538 ------------------------------------------------------------------------- Property revenue $103,885 $84,576 $19,309 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>
Same-asset property revenue of $74,254 for the six months ended June 30, 2009 was 0.3% lower than the six months ended June 30, 2008 due primarily to a one-time head lease adjustment upon final release of the obligation governing the agreement between ECL and Crombie for County Fair Mall in Summerside, Prince Edward Island and Uptown Centre in Fredericton, New Brunswick, partially offset by the increased average rent per square foot ($12.49 in 2009 and $12.31 in 2008) and increased recoverable common area expenses. The adjustment was paid to ECL to reflect their overachievement in the leasing results for these two locations which will benefit Crombie in higher rental income on an ongoing basis.
<< ------------------------------------------------------------------------- Six Months Ended -------------------------- June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Same-asset property expenses $30,096 $29,905 $191 Acquisition property expenses 7,133 2,182 4,951 ------------------------------------------------------------------------- Property expenses $37,229 $32,087 $5,142 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Same-asset property expenses of $30,096 for the six months ended June 30,2009 were 0.6% higher than the six months ended June 30, 2008 due to increasedrecoverable common area expenses primarily from increased property taxes andutility costs. ------------------------------------------------------------------------- Six Months Ended -------------------------- June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Same-asset property NOI $44,158 $44,578 $(420) Acquisition property NOI 22,498 7,911 14,587 ------------------------------------------------------------------------- Property NOI $66,656 $52,489 $14,167 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Same-asset NOI for the six months ended June 30, 2009 decreased by 0.9%from the six months ended June 30, 2008. Property NOI for the six months ended June 30, 2009 by region was asfollows: ------------------------------------------------------------------------- (In 2009 2008 thou- ----------------------------------------- sands Pro- of perty Property Property NOI % of NOI % of dollars) Revenue Expenses NOI revenue revenue Variance ------------------------------------------------------------------------- Nova Scotia $46,997 $18,696 $28,301 60.2% 59.3% 0.9% Newfound- land and Labrador 16,420 4,659 11,761 71.6% 68.2% 3.4% New Bruns- wick 12,520 5,365 7,155 57.1% 53.0% 4.1% Ontario 16,661 5,368 11,293 67.8% 64.7% 3.1% Prince Edward Island 2,318 661 1,657 71.5% 74.8% (3.3)% Quebec 7,575 2,097 5,478 72.3% 76.6% (4.3)% Saskat- chewan 1,394 383 1,011 72.5% 82.8% (10.3)% ------------------------------------------------------------------------- Total $103,885 $37,229 $66,656 64.2% 62.1% 2.1% ------------------------------------------------------------------------- >>
The overall 2.1% increase in NOI as a % of revenue, as well as specific provincial increases in Nova Scotia, Newfoundland and Labrador, New Brunswick and Ontario was primarily due to the Portfolio Acquisition. Prince Edward Island's decrease in NOI % of revenue is attributable to the finalization of the head lease obligation under the terms of the agreement with ECL combined the relatively smaller number of properties in the province and the timing and nature of expenses. Quebec's decrease in NOI % of revenue is attributable to higher recoverable common area expenses. The decrease in NOI % of revenue in Saskatchewan is due to River City Centre being owned by Crombie for only 19 days in the 2008 results.
<< General and Administrative Expenses The following table outlines the major categories of general andadministrative expenses. ------------------------------------------------------------------------- Six Months Ended -------------------------- June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Salaries and benefits $3,110 $1,859 $1,251 Professional fees 848 793 55 Public company costs 576 520 56 Rent and occupancy 377 350 27 Other 379 409 (30) ------------------------------------------------------------------------- General and administrative costs $5,290 $3,931 $1,359 ------------------------------------------------------------------------- ------------------------------------------------------------------------- As a percentage of revenue 5.1% 4.6% 0.5% ------------------------------------------------------------------------- >>
General and administrative expenses increased by 34.6% for the six months ended June 30, 2009 to $5,290 compared to $3,931 for the six months ended June 30, 2008. The increase in expenses was primarily due to one time reitrement costs associated with the retirement of Crombie's Chief Executive Officer on August 5, 2009, increased salaries and increased legal and information technology professional fees partially offset by reduced incentive payments.
<< Interest Expense ------------------------------------------------------------------------- Six Months Ended -------------------------- June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Same-asset interest expense $13,354 $12,803 $551 Acquisition interest expense 8,648 3,662 4,986 ------------------------------------------------------------------------- Interest expense $22,002 $16,465 $5,537 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>
Same-asset interest expense of $13,354 for the six months ended June 30, 2009 increased by 4.3% when compared to the six months ended June 30, 2008 due to the amortization of payments made on the settlement of interest rate swap agreements of $662 and slightly higher average interest rates on mortgages entered into during 2008 for properties held since the IPO, offset in part by a decrease in the floating interest rate on the revolving credit facility.
There is an agreement between ECL and Crombie whereby ECL provides a monthly interest rate subsidy to Crombie to reduce the effective interest rates to 5.54% on certain mortgages that were assumed at Crombie's IPO for their remaining term. Over the term of this agreement, management expects this subsidy to aggregate to the amount of approximately $20,564. The amount of the interest rate subsidy received during the six months ended June 30, 2009 was $1,562 (six months ended June 30, 2008 – $1,718). The interest rate subsidy is received by Crombie through monthly repayments by ECL of amounts due under one of the demand notes issued by ECL to Crombie Developments Limited ("CDL").
<< Depreciation and Amortization ------------------------------------------------------------------------- Six Months Ended -------------------------- June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Same-asset depreciation and amortization $14,816 $15,790 $(974) Acquisition depreciation and amortization 8,478 2,962 5,516 ------------------------------------------------------------------------- Depreciation and amortization $23,294 $18,752 $4,542 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>
Same-asset depreciation and amortization of $14,816 for the six months ended June 30, 2009 was 6.2% lower than the six months ended June 30, 2008 due primarily to the intangible assets related to the origination costs and the in-place leases associated with the properties purchased at the date of the IPO being fully amortized, offset in part by depreciation on fixed asset additions and amortization on tenant improvement and lease costs incurred since June 30, 2008, combined with the expenses resulting from the reallocation of $3,946 of costs to commercial properties from other assets due to the retroactive implementation of accounting guidelines as discussed in "Changes in Accounting Policies and Estimates". Depreciation and amortization consists of:
<< ------------------------------------------------------------------------- Six Months Ended -------------------------- June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Depreciation of commercial properties $9,827 $7,821 $2,006 Amortization of tenant improvements/lease costs 2,023 1,468 555 Amortization of intangible assets 11,444 9,463 1,981 ------------------------------------------------------------------------- Depreciation and amortization $23,294 $18,752 $4,542 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>
Future 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 or be subject to the restrictions on its growth that would otherwise apply to trusts classified as specified investment flow-through entities ("SIFTs").
Crombie's management and their advisors have completed an extensive review of Crombie's organizational structure and operations to support Crombie's assertion that it currently satisfies the technical tests contained in the Income Tax Act (Canada) in regard to the definition of a REIT (and thus is not a SIFT). However, the relevant tests apply throughout the taxation year of Crombie and, as such, the actual status of Crombie for any particular taxation year can only be ascertained at the end of the year.
The future income tax expenses represent the future tax provision of the wholly-owned corporate subsidiary which is subject to income taxes.
Sector Information
While Crombie does not distinguish or group its operations on a geographical or other basis, Crombie provides the following sector information as supplemental disclosure.
<< Retail Freestanding Properties ------------------------------------------------------------------------- (In thousands Six Months Six Months Ended of dollars, Ended June 30, 2009 June 30, 2008 except as ------------------------------------------------------------- otherwise Same- Acqui- Same- Acqui- noted) Asset sitions Total Asset sitions Total ------------------------------------------------------------------------- Property revenue $862 $13,395 $14,257 $713 $5,040 $5,753 Property expenses 218 2,720 2,938 115 1,078 1,193 ------------------------------------------------------------------------- Property NOI $644 $10,675 $11,319 $598 $3,962 $4,560 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOI Margin % 74.7% 79.7% 79.4% 83.9% 78.6% 79.2% ------------------------------------------------------------------------- Occu- pancy % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ------------------------------------------------------------------------- The improvement in the retail freestanding property NOI was caused by thePortfolio Acquisition. The same-asset NOI % margin is lower as a result of thefluctuations that can occur in a single property's results. Retail Plaza Properties ------------------------------------------------------------------------- (In thousands Six Months Six Months Ended of dollars, Ended June 30, 2009 June 30, 2008 except as ------------------------------------------------------------- otherwise Same- Acqui- Same- Acqui- noted) Asset sitions Total Asset sitions Total ------------------------------------------------------------------------- Property revenue $20,510 $15,320 $35,830 $21,304 $4,764 $26,068 Property expenses 6,714 4,124 10,838 6,822 1,047 7,869 ------------------------------------------------------------------------- Property NOI $13,796 $11,196 $24,992 $14,482 $3,717 $18,199 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOI Margin % 67.3% 73.1% 69.8% 68.0% 78.0% 69.8% ------------------------------------------------------------------------- Occu- pancy % 94.3% 97.8% 95.8% 95.3% 97.4% 96.4% ------------------------------------------------------------------------- >>
The improvement in the retail plaza property NOI was primarily caused by the Portfolio Acquisition, partially offset by increased non-recoverable maintenance costs in same-asset properties. Occupancy in the same-assets at June 30, 2009 is slightly lower than June 30, 2008, which combined with slightly lower average net rent per square foot results has led to decreased revenue overall compared to the prior year.
<< Retail Enclosed Properties ------------------------------------------------------------------------- (In thousands Six Months Six Months Ended of dollars, Ended June 30, 2009 June 30, 2008 except as ------------------------------------------------------------- otherwise Same- Acqui- Same- Acqui- noted) Asset sitions Total Asset sitions Total ------------------------------------------------------------------------- Property revenue $23,847 $916 $24,763 $23,456 $283 $23,739 Property expenses 8,645 289 8,934 8,716 57 8,773 ------------------------------------------------------------------------- Property NOI $15,202 $627 $15,829 $14,740 $226 $14,966 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOI Margin % 63.7% 68.5% 63.9% 62.8% 79.9% 63.0% ------------------------------------------------------------------------- Occu- pancy % 89.4% 87.0% 89.3% 91.3% 92.6% 91.4% ------------------------------------------------------------------------- >>
The improvement in NOI was primarily caused by the improved results at Avalon Mall in St. John's, Newfoundland and Labrador and the Portfolio Acquisition. Same-asset NOI margin % is higher than 2008 due to the lower common area expenses in 2009 and higher average net rent per square foot. Occupancy is lower in 2009 compared to 2008 due to redevelopment work ongoing at two properties as previously discussed.
<< Office Properties ------------------------------------------------------------------------- (In thousands Six Months Six Months Ended of dollars, Ended June 30, 2009 June 30, 2008 except as ------------------------------------------------------------- otherwise Same- Acqui- Same- Acqui- noted) Asset sitions Total Asset sitions Total ------------------------------------------------------------------------- Property revenue $11,486 $- $11,486 $11,365 $- $11,365 Property expenses 6,135 - 6,135 5,869 - 5,869 ------------------------------------------------------------------------- Property NOI $5,351 $- $5,351 $5,496 $- $5,496 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOI Margin % 46.6% -% 46.6% 48.4% -% 48.4% ------------------------------------------------------------------------- Occu- pancy % 89.1% -% 89.1% 90.9% -% 90.9% ------------------------------------------------------------------------- Occupancy levels have decreased slightly at the Halifax DevelopmentsProperties and Terminal Centres in Moncton, New Brunswick when compared to theprior year. Higher net rent per square foot at the Halifax DevelopmentsProperties were offset by higher common area expenses, resulting in the higherrevenue but lower property NOI and NOI margin % for the office properties in2009 compared to 2008. Mixed-Use Properties ------------------------------------------------------------------------- (In thousands Six Months Six Months Ended of dollars, Ended June 30, 2009 June 30, 2008 except as ------------------------------------------------------------- otherwise Same- Acqui- Same- Acqui- noted) Asset sitions Total Asset sitions Total ------------------------------------------------------------------------- Property revenue $17,549 $- $17,549 $17,651 $- $17,651 Property expenses 8,384 - 8,384 8,383 - 8,383 ------------------------------------------------------------------------- Property NOI $9,165 $- $9,165 $9,268 $- $9,268 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOI Margin % 52.2% -% 52.2% 52.5% -% 52.5% ------------------------------------------------------------------------- Occu- pancy % 95.0% -% 95.0% 94.7% -% 94.7% ------------------------------------------------------------------------- The increase in mixed-use occupancy levels from 94.7% in 2008 to 95.0% in2009 was offset by higher non-recoverable operating expenses, resulting in theslightly lower NOI results for the six months ended June 30, 2009 whencompared to the six months ended June 30, 2008. OTHER 2009 PERFORMANCE MEASURES FFO and AFFO are not measures recognized under GAAP and do not havestandardized meanings prescribed by GAAP. As such, these non-GAAP financialmeasures should not be considered as an alternative to net income, cash flowfrom operations or any other measure prescribed under GAAP. FFO represents asupplemental non-GAAP industry-wide financial measure of a real estateorganization's operating performance. AFFO is presented in this MD&A becausemanagement believes this non-GAAP measure is relevant to the ability ofCrombie to earn and distribute returns to unitholders. Due to the accountingchanges related to the capitalization of items previously classified asdeferred tenant charges, FFO and AFFO for prior periods have been restated.FFO and AFFO as computed by Crombie may differ from similar computations asreported by other REIT's and, accordingly, may not be comparable to other suchissuers. Funds from Operations FFO represents a supplemental non-GAAP industry-wide financial measure ofa real estate organization's operating performance. Crombie has calculated FFOin accordance with the recommendations of the Real Property Association ofCanada ("RealPAC") which defines FFO as net income (computed in accordancewith GAAP), excluding gains (or losses) from sales of depreciable real estateand extraordinary items, plus depreciation and amortization expense, plusfuture income taxes, and after adjustments for equity-accounted entities andnon-controlling interests. Crombie's method of calculating FFO may differ fromother issuers' methods and accordingly may not be directly comparable to FFOreported by other issuers. A calculation of FFO for the six months ended June30, 2009 and 2008 is as follows: ------------------------------------------------------------------------- Six Six Months Months Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Net income $8,320 $6,622 $1,698 Add: Non-controlling interest 7,642 6,114 1,528 Depreciation and amortization 23,294 18,752 4,542 Depreciation and amortization on discontinued operations - 139 (139) Future income taxes 200 1,101 (901) Gain (loss) on disposal of assets - (77) 77 ------------------------------------------------------------------------- FFO $39,456 $32,651 $6,805 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The improvement in FFO for the six months ended June 30, 2009 wasprimarily due to higher property NOI as a result of the individual acquisitionand the Portfolio Acquisition, offset in part by the increased interestexpense related to the individual and Portfolio acquisitions and highergeneral and administrative expenses. Adjusted Funds from Operations Crombie considers AFFO to be a measure of its distribution-generatingability. AFFO reflects cash available for distribution after the provision fornon-cash adjustments to revenue, maintenance capital expenditures andmaintenance tenant improvements ("TI") and leasing costs. The calculation ofAFFO for the six months ended June 30, 2009 and 2008 is as follows: ------------------------------------------------------------------------- Six Six Months Months Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- FFO $39,456 $32,651 $6,805 Add: Above-market lease amortization 1,543 1,515 28 Non-cash revenue impacts on discontinued operations - 22 (22) Less: Below-market lease amortization (4,290) (3,000) (1,290) Straight-line rent adjustment (2,126) (1,018) (1,108) Maintenance capital expenditures (2,134) (3,665) 1,531 Maintenance TI and leasing costs (2,354) (6,493) 4,139 ------------------------------------------------------------------------- AFFO $30,095 $20,012 $10,083 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The AFFO result for the six months ended June 30, 2009 was affected by theincrease in FFO for the period and lower maintenance TI and leasingexpenditures. Details of the maintenance TI and capital expenditures areoutlined in the "Tenant Improvement and Capital Expenditures" section of theMD&A. Pursuant to CSA Staff Notice 52-306 "(Revised) Non-GAAP FinancialMeasures", non-GAAP measures such as AFFO should be reconciled to the mostdirectly comparable GAAP measure, which is interpreted to be the cash flowfrom operating activities rather than net income. The reconciliation is asfollows: ------------------------------------------------------------------------- Six Six Months Months Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Cash provided by operating activities $17,076 $22,115 $(5,039) Add back (deduct): Recoverable/productive capacity enhancing TIs 190 1,835 (1,645) Change in non-cash operating items 16,645 224 16,421 Unit-based compensation expense (23) (20) (3) Amortization of deferred financing charges (997) (477) (520) Amortization of swap settlements (662) - (662) Maintenance capital expenditures (2,134) (3,665) 1,531 ------------------------------------------------------------------------- AFFO $30,095 $20,012 $10,083 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>Liquidity and Capital Resources
Sources and Uses of Funds
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 into the portfolio through capital expenditures, as well as fund TI costs and distributions. In addition, Crombie has the following sources of financing available to finance future growth: secured short-term financing through an authorized revolving credit facility of up to $150,000, of which $62,812 was drawn at June 30, 2009, a demand facility with Empire of $13,800, of which $Nil was drawn at June 30, 2009, and the issue of new equity and mortgage debt, pursuant to the Declaration of Trust.
<< ------------------------------------------------------------------------- Six Six Months Months Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Cash provided by (used in): Operating activities $17,076 $22,115 $(5,039) Financing activities $(15,868) $372,635 $(388,503) Investing activities $(5,236) $(397,458) $392,222 ------------------------------------------------------------------------- Operating Activities -------------------- ------------------------------------------------------------------------- Six Six Months Months Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Cash provided by (used in): Net income and non-cash items $36,265 $30,667 $5,598 TI and leasing costs (2,544) (8,328) 5,784 Non-cash working capital (16,645) (224) (16,421) ------------------------------------------------------------------------- Cash provided by operating activities $17,076 $22,115 $(5,039) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Fluctuations in cash provided by operating activities are largelyinfluenced by the change in non-cash working capital which can be affected bythe timing of receipts and payments. The details of the TI and leasing costsduring the six months of 2009 are outlined in the "Tenant Improvements andCapital Expenditures" section of the MD&A. Financing Activities -------------------- ------------------------------------------------------------------------- Six Six Months Months Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Cash provided by (used in): Net issue of convertible debentures $- $28,786 $(28,786) Net issue of units 64,574 59,215 5,359 Settlement of interest rate swap agreement (4,535) - (4,535) Net issue (repayment) of commercial property debt (54,150) 301,248 (355,398) Payment of distributions (23,304) (19,819) (3,485) Other items (net) 1,547 3,205 (1,658) ------------------------------------------------------------------------- Cash provided by (used in) financing activities $(15,868) $372,635 $(388,503) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash used in financing activities for the six months ended June 30, 2009was $388,503 less than the six months ended June 30, 2008 primarily due toissue of gross proceeds used in 2008 related to the financing of the PortfolioAcquisition, partially offset by the gross proceeds of $66,855 from the publicoffering of Units and the private placement of Class B LP Units with EmpireSubsidiaries on June 25, 2009 that was used to reduce commercial propertydebt. Investing Activities -------------------- Cash used in investing activities for the six months ended June 30, 2009was $5,236. Of this, $4,922 was used for additions to commercial properties.Cash used in investing activities for the six months ended June 30, 2008 of$397,458 was primarily due to the Portfolio Acquisition on April 22, 2008. Tenant Improvement and Capital Expenditures ------------------------------------------- There are two types of TI and capital expenditures: - maintenance TI and capital expenditures that maintain existing productive capacity; and - productive capacity enhancement expenditures. Maintenance TI and capital expenditures are reinvestments in the portfolioto maintain the productive capacity of the existing assets. These costs arecapitalized and depreciated over their useful lives and deducted whencalculating AFFO. Productive capacity enhancement expenditures are costs incurred thatincrease the property level NOI, or expand the GLA of a property, by a minimumthreshold and thus enhance the property's overall value. These costs are thenevaluated to ensure they are fully financeable. Productive capacityenhancement expenditures are capitalized and depreciated over their usefullives, but not deducted when calculating AFFO as they are consideredfinanceable rather than having to be funded from operations. Expenditures for TI's occur when renewing existing tenant leases or fornew tenants occupying a new space. Typically, leasing costs for existingtenants are lower on a per square foot basis than for new tenants. However,new tenants may provide more overall cash flow to Crombie through higher rentsor improved traffic to a property. The timing of such expenditures fluctuatesdepending on the satisfaction of contractual terms contained in the leases. ------------------------------------------------------------------------- Six Six Months Months Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 ------------------------------------------------------------------------- Total additions to commercial properties $4,922 $7,515 Less: amounts recoverable from ECL - (2,389) ------------------------------------------------------------------------- Net additions to commercial properties 4,922 5,126 Less: productive capacity enhancements (2,788) (1,461) ------------------------------------------------------------------------- Maintenance capital expenditures $2,134 $3,665 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Six Six Months Months Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 ------------------------------------------------------------------------- Total additions to TI and leasing costs $2,544 $8,328 Less: amounts recoverable from ECL (159) (1,384) ------------------------------------------------------------------------- Net additions to TI and leasing costs 2,385 6,944 Less: productive capacity enhancements (31) (451) ------------------------------------------------------------------------- Maintenance TI and leasing costs $2,354 $6,493 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The lower maintenance capital expenditures are primarily as a result ofthe cautious outlook on capital intensive projects during the current economicenvironment. The lower maintenance TI expenditures during the first six months of 2009,when compared to the same period in 2008, was primarily due to earlyrenegotiation in the first quarter of 2008 of lease renewals that werescheduled to expire in 2009 at a cost of $2,823. Productive capacity enhancements during the quarter consisted of theredevelopment of Valley Mall in Corner Brook, Newfoundland and Labrador andthe conversion of Fort Edward Mall in Windsor, Nova Scotia from a retailenclosed property to a retail plaza. Capital Structure ------------------------------------------------------------------------- (In thousands Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, of dollars) 2009 2009 2008 2008 2008 ------------------------------------------------------------------------- Commercial property debt $759,223 $812,342 $808,971 $820,634 $812,016 Convertible debentures $29,090 $29,029 $28,968 $28,907 $28,847 Non- controlling interest $233,292 $197,115 $199,163 $218,205 $224,871 Unitholders' equity $255,475 $213,351 $215,558 $236,241 $243,472 ------------------------------------------------------------------------- Bank Credit Facilities and Commercial Property Debt Crombie has in place an authorized floating rate revolving credit facilityof up to $150,000 (the "Revolving Credit Facility"), $62,812 of which wasdrawn as at June 30, 2009. The Revolving Credit Facility is secured by a poolof first and second mortgages and negative pledges on certain properties. Thefloating interest rate is based on specified margins over prime rate orbankers acceptance rates. The specified margin increases as Crombie's overalldebt leverage increases. Funds available for drawdown pursuant to theRevolving Credit Facility are determined with reference to the value of theBorrowing Base (as defined under "Borrowing Capacity and Debt Covenants")relative to certain financial covenants of Crombie. As at June 30, 2009,Crombie had sufficient Borrowing Base to permit $150,000 of funds to be drawndown pursuant to the Revolving Credit Facility, subject to certain otherfinancial covenants. See "Borrowing Capacity and Debt Covenants". As of June 30, 2009, Crombie had fixed rate mortgages outstanding of$564,101 ($554,745 after including the marked-to-market adjustment of $9,356),carrying a weighted average interest rate of 5.48% (after giving effect to theinterest rate subsidy from ECL under an omnibus subsidy agreement) and aweighted average term to maturity of 5.8 years. In April of 2008, Crombie entered into an 18 month floating rate TermFacility of $280,000 to partially finance the Portfolio Acquisition. OnSeptember 30, 2008, Crombie completed a mortgage financing on certain of theproperties acquired in order to refinance $100,000 of the Term Facility. OnFebruary 12, 2009, Crombie completed $39,000 of additional fixed rate mortgagefinancings for eight of the properties acquired pursuant to the PortfolioAcquisition in order to refinance the Term Facility. A third party provided$32,800 of fixed rate first mortgage financing, while $6,200 of fixed ratesecond mortgage financing was provided by Empire. In June of 2009, Crombiecompleted the extension of the remaining Term Facility for two years with asyndicate of Canadian chartered banks. The floating interest rate is based ona specified margin over prime rate or bankers acceptance rate. As security forthe Term Facility, Crombie has granted a charge on the secured propertiestogether with an assignment of leases. The Term Facility contains financialand non-financial covenants that are customary for a credit facility of thisnature and which mirror the covenants set forth in the Revolving CreditFacility. Crombie has secured a $13,800 floating rate demand credit facility withEmpire (the "Empire Demand Facility") on substantially the same terms andconditions that govern the Revolving Credit Facility. This Empire DemandFacility was put in place to ensure that Crombie maintains adequate liquidityin order to fund its daily operating activities while volatility in thefinancial markets continues while also mitigating the risk of Crombie notbeing in compliance with certain covenants under the Revolving CreditFacility. Crombie had $Nil drawn against the Empire Demand Facility as at June30, 2009. From time to time, Crombie has entered into interest rate swap agreementsto manage the interest rate profile of its current or future debts without anexchange of the underlying principal amount (see "Risk Management"). Principal repayments of the debt are scheduled as follows: ------------------------------------------------------------------------- Fixed Rate Debt Maturing Payments of during Floating Total Year Principal Year Rate Debt Maturity % of Total ------------------------------------------------------------------------- Remaining 2009 $9,513 $- $- $9,513 1.3% 2010 15,489 106,079 - 121,568 16.1% 2011 15,394 26,786 201,812 243,992 32.2% 2012 15,956 - - 15,956 2.1% 2013 16,757 30,041 - 46,798 6.2% Thereafter 61,973 256,757 - 318,730 42.1% ------------------------------------------------------------------------- Total(1) $135,082 $419,663 $201,812 $756,557 100.0% ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Excludes fair value debt adjustment of $9,356 and the deferred financing costs of $6,690 Convertible debentures ---------------------- On March 20, 2008, Crombie issued $30,000 in Debentures related to thePortfolio Acquisition. Each Debenture will be convertible into units of Crombie at the option ofthe Debenture holder up to the maturity date of March 20, 2013 at a conversionprice of $13 per unit. The Debentures bear interest at an annual fixed rate of 7%, payablesemi-annually, on June 30 and December 31 in each year. The Debentures are notredeemable prior to March 20, 2011. From March 20, 2011 to March 20, 2012, theDebentures may be redeemed, in whole or in part, on not more than 60 days' andnot less than 30 days' prior notice, at a redemption price equal to theprincipal amount thereof plus accrued and unpaid interest, provided that thevolume-weighted average trading price of the Units on the Toronto StockExchange for the 20 consecutive trading days ending on the fifth trading daypreceding the date on which notice on redemption is given exceeds 125% of theconversion price. After March 20, 2012, and prior to March 20, 2013, theDebentures may be redeemed, in whole or in part, at anytime at the redemptionprice equal to the principal amount thereof plus accrued and unpaid interest.Provided that there is not a current event of default, Crombie will have theoption to satisfy its obligation to pay the principal amount of the Debenturesat maturity or upon redemption, in whole or in part, by issuing the number ofunits equal to the principal amount of the Debentures then outstanding dividedby 95% of the volume-weighted average trading price of the units for astipulated period prior to the date of redemption or maturity, as applicable.Upon change of control of Crombie, Debenture holders have the right to put theDebentures to Crombie at a price equal to 101% of the principal amount plusaccrued and unpaid interest. Crombie will also have an option to pay interest on any interest paymentdate by selling units and applying the proceeds to satisfy its interestobligation. Transaction costs related to the Debentures have been deferred and arebeing amortized into interest expense over the term of the Debentures usingthe effective interest rate method. Unitholders' Equity ------------------- In April 2009 there were 43,408 Units awarded as part of the Employee UnitPurchase Plan (April 2008 - 34,053). On June 25, 2009 there were 4,725,000Units issued, including the underwriters' over-allotment Units, through apublic offering. Concurrent with the public offering of Units, in satisfactionof its pre-emptive right, ECL purchased 3,846,154 Class B LP Units and theattached Special Voting Units on a private placement basis. Total unitsoutstanding at August 6, 2009 were as follows: ------------------------------------------------------------------------- Units 32,040,296 Special Voting Units(1) 28,925,730 ------------------------------------------------------------------------- (1) Crombie Limited Partnership, a subsidiary of Crombie, has also issued 28,925,730 Class B LP Units. These Class B LP units accompany the Special Voting Units, are the economic equivalent of a Unit, and are convertible into Units on a one-for-one basis. Taxation of Distributions Crombie, through its subsidiaries, has a large asset base that isdepreciable for Canadian income tax purposes. Consequently, certain of thedistributions from Crombie are treated as returns of capital and are nottaxable to Canadian resident unitholders for Canadian income tax purposes. Thecomposition for tax purposes of distributions from Crombie may change fromyear to year, thus affecting the after-tax return to unitholders. The following table summarizes the history of the taxation ofdistributions from Crombie: ------------------------------------------------------------------------- Return Investment Capital Taxation Year of Capital Income Gains ------------------------------------------------------------------------- 2006 per $ of distribution 40.0% 60.0% - 2007 per $ of distribution 25.5% 74.4% 0.1% 2008 per $ of distribution 27.2% 72.7% 0.1% ------------------------------------------------------------------------- Borrowing Capacity and Debt Covenants Under the amended terms governing the Revolving Credit Facility, Crombieis entitled to borrow a maximum of 70% of the fair market value of assetssubject to a first security position and 60% of the excess of fair marketvalue over first mortgage financing of assets subject to a second securityposition or a negative pledge (the "Borrowing Base"). The Revolving CreditFacility provides Crombie with flexibility to add or remove properties fromthe Borrowing Base, subject to compliance with certain conditions. The termsof the Revolving Credit Facility also require that Crombie must maintaincertain coverage ratios above prescribed levels: - annualized NOI for the prescribed properties must be a minimum of 1.4 times the coverage of the related annualized debt service requirements; and - annualized NOI on all properties must be a minimum of 1.4 times the coverage of all annualized debt service requirements. The Revolving Credit Facility also contains a covenant of Crombie that ECLmust maintain a minimum 40% voting interest in Crombie. If ECL reduces itsvoting interest below this level, Crombie will be required to renegotiate theRevolving Credit Facility or obtain alternative financing. Pursuant to anexchange agreement and while such covenant remains in place, ECL will berequired to give Crombie at least six months' prior written notice of itsintention to reduce its voting interest below 40%. The Revolving Credit Facility also contains a covenant limiting the amountwhich may be utilized under the Revolving Credit Facility at any time. Thiscovenant provides that the aggregate of amounts drawn under the RevolvingCredit Facility plus any negative mark-to-market position on any interest rateswap agreements or other hedging instruments may not exceed the "AggregateCoverage Amount", which is based on a modified calculation of the BorrowingBase, as defined in the Revolving Credit Facility. In order to hedge itsinterest rate risk on various debt commitments maturing through 2011, Crombiehas entered into a series of interest rate swap agreements on notionalprincipal amounts totalling approximately $288,334 at June 30, 2009 that havesettlement dates between August 1, 2009 and July 4, 2011. The unprecedentedvolatility in the capital markets has caused the mark-to-market adjustment onthese interest rate swap agreements to reach an out-of-the-money position ofapproximately $31,831 at June 30, 2009. There is no immediate cash impact fromthis mark-to-market adjustment. The unfavourable difference in themark-to-market amount of these interest rate swap agreements is reflected inother comprehensive income (loss) rather than net income as the swaps are alldesignated and effective hedges. However, the deterioration in themark-to-market position may have the impact of reducing Crombie's availablecredit pursuant to the Revolving Credit Facility. At June 30, 2009, the amount available under the Revolving Credit Facilitywas $79,284 after calculation of the Aggregate Coverage Amount. At June 30, 2009, Crombie remained in compliance with all debt covenants. As previously discussed, Crombie has secured a $13,800 floating rateEmpire Demand Facility. The Empire Demand Facility ensures that Crombiemaintains adequate liquidity in order to fund its daily operating activitiesas the volatility in the financial markets continues while also mitigating therisk of Crombie not being in compliance with certain covenants under theRevolving Credit Facility. Debt to Gross Book Value Ratio When calculating debt to gross book value, debt is defined under the termsof the Declaration of Trust as bank loans plus commercial property debt. Grossbook value means, at any time, the book value of the assets of Crombie and itsconsolidated subsidiaries plus deferred financing charges, accumulateddepreciation and amortization in respect of Crombie's properties (and relatedintangible assets) less (i) the amount of any receivable reflecting interestrate subsidies on any debt assumed by Crombie and (ii) the amount of futureincome tax liability arising out of the fair value adjustment in respect ofthe indirect acquisitions of certain properties. If approved by a majority ofthe independent trustees, the appraised value of the assets of Crombie and itsconsolidated subsidiaries may be used instead of book value. The debt to gross book value ratio was 50.9% at June 30, 2009 compared to54.8% at March 31, 2009. The reduction was due to the proceeds of the June 25,2009 public offering of Units and concurrent private placement of Class B LPUnits being applied to reduce borrowings under the Revolving Credit Facility.This leverage ratio is below the maximum 60%, or 65% including convertibledebentures, as outlined by Crombie's Declaration of Trust. On a long-termbasis, Crombie intends to maintain overall indebtedness in the range of 50% to55% of gross book value, depending upon Crombie's future acquisitions andfinancing opportunities. ------------------------------------------------------------------------- (In thousands of dollars) except as As at As at As at As at As at otherwise Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, noted) 2009 2009 2008 2008 2008 ------------------------------------------------------------------------- Mortgages payable $564,101 $565,980 $531,970 $524,307 $425,945 Convertible debentures 30,000 30,000 30,000 30,000 30,000 Term financing 139,000 140,323 178,824 180,000 280,000 Revolving credit facility payable 62,812 111,400 93,400 121,585 111,475 Demand credit facility payable - - 10,000 - - ------------------------------------------------------------------------- Total debt outstanding 795,913 847,703 844,194 855,892 847,420 Less: Applicable fair value debt adjustment (9,256) (10,032) (10,818) (11,615) (12,433) ------------------------------------------------------------------------- Debt $786,657 $837,671 $833,376 $844,277 $834,987 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total assets $1,470,474 $1,466,045 $1,483,219 $1,501,186 $1,501,754 Add: Deferred financing charges 7,600 6,332 6,255 6,351 6,728 Accumulated depreciation of commercial properties 57,715 51,796 45,865 40,105 34,339 Accumulated amortization of intangible assets 66,492 60,836 53,505 45,995 38,454 Less: Assets related to discontinued operations (7,054) (7,162) (7,184) (9,673) (10,951) Interest rate subsidy (9,256) (10,032) (10,818) (11,615) (12,433) Fair value adjustment to future taxes (39,245) (39,245) (39,245) (39,245) (39,245) ------------------------------------------------------------------------- Gross book value $1,546,726 $1,528,570 $1,531,597 $1,533,104 $1,518,646 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Debt to gross book value 50.9% 54.8% 54.4% 55.1% 55.0% Maximum borrowing capacity(1) 65% 65% 65% 65% 65% ------------------------------------------------------------------------- (1) Maximum permitted by the Declaration of Trust Debt and Interest Service Coverage Ratios Crombie's interest and debt service coverage ratios for the six monthsended June 30, 2009 were 2.79 times EBITDA and 1.96 times EBITDA. Thiscompares to 2.94 times EBITDA and 2.04 times EBITDA respectively for the sixmonths ended June 30, 2008. EBITDA should not be considered an alternative tonet income, cash flow from operations or any other measure of operations orliquidity as prescribed by Canadian GAAP. EBITDA is not a GAAP financialmeasure; however Crombie believes it is an indicative measure of its abilityto service debt requirements, fund capital projects and acquire properties.EBITDA may not be calculated in a comparable measure reported by otherentities. ------------------------------------------------------------------------- Six Six Months Months Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 ------------------------------------------------------------------------- Property revenue $103,885 $84,576 Amortization of above-market leases 1,543 1,515 Amortization of below-market leases (4,290) (3,000) ------------------------------------------------------------------------- Adjusted property revenue 101,138 83,091 Property expenses (37,229) (32,087) General and administrative expenses (5,290) (3,931) ------------------------------------------------------------------------- EBITDA (1) $58,619 $47,073 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Interest expense $22,002 $16,465 Amortization of deferred financing charges (997) (477) ------------------------------------------------------------------------- Adjusted interest expense (2) $21,005 $15,988 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Debt repayments $110,120 $45,735 Amortization of fair value debt premium (2) (20) Payments relating to interest rate subsidy (1,562) (1,718) Payments relating to Term Facility (39,824) - Payments relating to revolving credit facility (49,900) (30,000) Payments relating to demand credit facility (10,000) - Balloon payments on mortgages - (6,922) ------------------------------------------------------------------------- Adjusted debt repayments (3) $8,832 $7,075 ------------------------------------------------------------------------- Interest service coverage ratio ((1)/(2)) 2.79 2.94 ------------------------------------------------------------------------- Debt service coverage ratio ((1)/((2)+(3))) 1.96 2.04 ------------------------------------------------------------------------- Distributions and Distribution Payout Ratios Distribution Policy ------------------- Pursuant to Crombie's Declaration of Trust, it is required, at a minimum,to make distributions to Unitholders equal to the amount of net income and netrealized capital gains of Crombie as is necessary to ensure that Crombie willnot be liable for income taxes. Within these guidelines, Crombie intends tomake annual cash distributions to Unitholders equal to approximately 70% ofits FFO and 95% of its AFFO on an annual basis. Details of distributions to Unitholders are as follows: ------------------------------------------------------------------------- Six Months Six Months Ended Ended (Distribution amounts represented June 30, June 30, in thousands of dollars) 2009 2008 ------------------------------------------------------------------------- Distributions to Unitholders $12,497 $10,983 Distributions to Special Voting Unitholders 11,446 9,763 ------------------------------------------------------------------------- Total distributions $23,943 $20,746 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Number of diluted Units 27,449,862 23,838,755 Number of diluted Special Voting Units 25,207,073 22,002,653 ------------------------------------------------------------------------- Total diluted weighted average Units 52,656,935 45,841,408 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributions per unit $0.45 $0.45 FFO payout ratio (target ratio equals 70%) 60.7% 63.5% AFFO payout ratio (target ratio equals 95%) 79.6% 103.7% ------------------------------------------------------------------------- The FFO payout ratio of 60.7% was favourable to the target ratio as theimproved FFO reflected the net results from the individual propertyacquisition and the Portfolio Acquisition. The AFFO payout ratio of 79.6% wasfavourable to the target ratio as a result of the higher FFO and lower overallTI and maintenance capital expenditures as previously discussed. Second Quarter Results Comparison to Previous Year ------------------------------------------------------------------------- Quarter Ended ---------------------------------------- (In thousands of dollars, except June 30, June 30, where otherwise noted) 2009 2008 Variance ------------------------------------------------------------------------- Property revenue $50,893 $47,314 $3,579 Property expenses 17,258 16,775 (483) ------------------------------------------------------------------------- Property NOI 33,635 30,539 3,096 ------------------------------------------------------------------------- NOI margin percentage 66.1% 64.5% 1.6% ------------------------------------------------------------------------- Expenses: General and administrative 3,646 1,979 (1,667) Interest 11,272 9,965 (1,307) Depreciation and amortization 10,803 10,757 (46) ------------------------------------------------------------------------- 25,721 22,701 (3,020) ------------------------------------------------------------------------- Income from continuing operations before other items, income taxes and non-controlling interest 7,914 7,838 76 Other items - 97 (97) ------------------------------------------------------------------------- Income from continuing operations before income taxes and non-controlling interest 7,914 7,935 (21) Income taxes expense - Future - 701 701 ------------------------------------------------------------------------- Income from continuing operations before non-controlling interest 7,914 7,234 680 Income from discontinued operations - 136 (136) ------------------------------------------------------------------------- Income before non-controlling interest 7,914 7,370 544 Non-controlling interest 3,786 3,531 (255) ------------------------------------------------------------------------- Net income $4,128 $3,839 $289 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted net income per Unit $0.15 $0.15 $- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic weighted average Units outstanding (in 000's) 27,465,211 25,909,792 ---------------------------------------------------------- ---------------------------------------------------------- Diluted weighted average Units outstanding (in 000's) 27,625,880 26,028,526 ---------------------------------------------------------- ---------------------------------------------------------- Net income for the quarter ended June 30, 2009 of $4,128 increased by $289from $3,839 for the quarter ended June 30, 2008. The increase was primarilydue to: - higher property NOI from the individual property acquisition and the Portfolio; offset in part by - higher interest and depreciation charges, due primarily to the individual property acquisition and the Portfolio Acquisition and higher general and administrative expenses. Property Revenue and Property Expenses ------------------------------------------------------------------------- Quarter Ended ---------------------------- June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Same-asset property revenue $36,207 $37,221 $(1,014) Acquisition property revenue 14,686 10,093 4,593 ------------------------------------------------------------------------- Property revenue $50,893 $47,314 $3,579 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Same-asset property revenue of $36,207 for the quarter ended June 30, 2009was 2.7% lower than the quarter ended June 30, 2008 due primarily to decreasedrevenue from lower recoverable common are expenses and a one-time head leaseadjustment upon final release of the obligation governing the agreementbetween ECL and Crombie for County Fair Mall in Summerside, Prince EdwardIsland and Uptown Centre in Fredericton, New Brunswick, partially offset bythe increased average rent per square foot ($12.58 in 2009 and $12.41 in2008). The adjustment was paid to ECL to reflect their overachievement in theleasing results for these two locations which will benefit Crombie in higherrental income on an ongoing basis. ------------------------------------------------------------------------- Quarter Ended ---------------------------- June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Same-asset property expenses $13,968 $14,593 $(625) Acquisition property expenses 3,290 2,182 1,108 ------------------------------------------------------------------------- Property expenses $17,258 $16,775 $483 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Same-asset property expenses of $13,968 for the quarter ended June 30,2009 were 4.3% lower than the quarter ended June 30, 2008 due to decreasedrecoverable common area expenses primarily from decreased snow removal costs. ------------------------------------------------------------------------- Quarter Ended ---------------------------- June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Same-asset property NOI $22,239 $22,628 $(389) Acquisition property NOI 11,396 7,911 3,485 ------------------------------------------------------------------------- Property NOI $33,635 $30,539 $3,096 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Same-asset NOI for the quarter ended June 30, 2009 decreased by 1.7% overthe quarter ended June 30, 2008. Property NOI for the quarter ended June 30, 2009 by region was as follows: ------------------------------------------------------------------------- (In 2009 2008 thousands ------------------------------------------ of Property Property Property NOI % of NOI % of dollars) Revenue Expenses NOI revenue revenue Variance ------------------------------------------------------------------------- Nova Scotia $23,502 $8,729 $14,773 62.9% 61.8% 1.1% Newfound- land and Labrador 7,835 2,050 5,785 73.8% 71.7% 2.1% New Brunswick 5,876 2,471 3,405 57.9% 55.8% 2.1% Ontario 8,241 2,568 5,673 68.8% 65.2% 3.6% Prince Edward Island 1,036 289 747 72.1% 77.4% (5.3)% Quebec 3,707 967 2,740 73.9% 78.0% (4.1)% Saska- tchewan 696 184 512 73.6% 82.8% (9.2)% ------------------------------------------------------------------------- Total $50,893 $17,258 $33,635 66.1% 64.5% 1.6% ------------------------------------------------------------------------- ------------------------------------------------------------------------- The overall 1.6% increase in NOI as a % of revenue, as well as specificprovincial increases in Nova Scotia, Newfoundland and Labrador, New Brunswickand Ontario was primarily due to the Portfolio Acquisition. Prince EdwardIsland's decrease in NOI % of revenue is attributable to the finalization ofthe head lease obligation under the terms of the agreement with ECL combinedthe relatively smaller number of properties in the province and the timing andnature of expenses. Quebec's decrease in NOI % of revenue is attributable tohigher recoverable common area expenses. The decrease in NOI % of revenue inSaskatchewan is due to River City Centre being owned by Crombie for only 19days in the 2008 results. General and Administrative Expenses The following table outlines the major categories of general andadministrative expenses. ------------------------------------------------------------------------- Quarter Ended ---------------------------- June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Salaries and benefits $2,539 $962 $1,577 Professional fees 394 454 (60) Public company costs 290 269 21 Rent and occupancy 188 167 21 Other 235 127 108 ------------------------------------------------------------------------- General and administrative costs $3,646 $1,979 $1,667 ------------------------------------------------------------------------- ------------------------------------------------------------------------- As a percentage of revenue 7.2% 4.2% 3.0% ------------------------------------------------------------------------- General and administrative expenses increased by 84.2% for the quarterended June 30, 2009 to $3,646 compared to $1,979 for the quarter ended June30, 2008. The increase in expenses was primarily due to one time retirementcosts associated with the retirement of Crombie's Chief Executive Officer onAugust 5, 2009. Interest Expense ------------------------------------------------------------------------- Quarter Ended ---------------------------- June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Same-asset interest expense $6,592 $6,303 $289 Acquisition interest expense 4,680 3,662 1,018 ------------------------------------------------------------------------- Interest expense $11,272 $9,965 $1,307 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Same-asset interest expense of $6,592 for the quarter ended June 30, 2009increased by 4.6% when compared to the quarter ended June 30, 2008 due to theamortization of payments made on the settlement of interest rate swapagreements of $455 and slightly higher average interest rates on mortgagesentered into during 2008 for properties held since the IPO, offset in part bya decrease in the floating interest rate on the revolving credit facility. There is an agreement between ECL and Crombie whereby ECL provides amonthly interest rate subsidy to Crombie to reduce the effective interestrates to 5.54% on certain mortgages that were assumed at Crombie's IPO fortheir remaining term. Over the term of this agreement, management expects thissubsidy to aggregate to the amount of approximately $20,564. The amount of theinterest rate subsidy received during the quarter ended June 30, 2009 was $776(quarter ended June 30, 2008 - $852). The interest rate subsidy is received byCrombie through monthly repayments by ECL of amounts due under one of thedemand notes issued by ECL to CDL. Depreciation and Amortization ------------------------------------------------------------------------- Quarter Ended ---------------------------- June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Same-asset depreciation and amortization $6,551 $7,795 $(1,244) Acquisition depreciation and amortization 4,252 2,962 1,290 ------------------------------------------------------------------------- Depreciation and amortization $10,803 $10,757 $46 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Same-asset depreciation and amortization of $6,551 for the quarter endedJune 30, 2009 was 16.0% lower than the quarter ended June 30, 2008 dueprimarily to the intangible assets related to the origination costs and thein-place leases associated with the properties purchased at the date of theIPO being fully amortized, offset in part by depreciation on fixed assetadditions and amortization on tenant improvement and lease costs incurredsince June 30, 2008, combined with the expenses resulting from thereallocation of $3,946 of costs to commercial properties from other assets dueto the retroactive implementation of accounting guidelines as discussed in"Changes in Accounting Policies and Estimates". Depreciation and amortizationconsists of: ------------------------------------------------------------------------- Quarter Ended ---------------------------- June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Depreciation of commercial properties $5,027 $4,418 $609 Amortization of tenant improvements/lease costs 892 700 192 Amortization of intangible assets 4,884 5,639 (755) ------------------------------------------------------------------------- Depreciation and amortization $10,803 $10,757 $46 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Sector Information While Crombie does not distinguish or group its operations on ageographical or other basis, Crombie provides the following sector informationas supplemental disclosure. Retail Freestanding Properties ------------------------------------------------------------------------- (In thousands Quarter Quarter of dollars, ended June 30, 2009 ended June 30, 2008 except as ------------------------------------------------------------- otherwise Same- Acqui- Same- Acqui- noted) Asset sitions Total Asset sitions Total ------------------------------------------------------------------------- Property revenue $453 $6,832 $7,285 $351 $5,042 $5,393 Property expenses 125 1,263 1,388 52 1,078 1,130 ------------------------------------------------------------------------- Property NOI $328 $5,569 $5,897 $299 $3,964 $4,263 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOI Margin % 72.4% 81.5% 80.9% 85.2% 78.6% 79.0% ------------------------------------------------------------------------- Occu- pancy % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ------------------------------------------------------------------------- The improvement in the retail freestanding property NOI was caused by thePortfolio Acquisition. The same-asset NOI % margin is lower as a result ofthe fluctuations that can occur in a single property's results from quarter toquarter. Retail Plaza Properties ------------------------------------------------------------------------- (In thousands Quarter Quarter of dollars, ended June 30, 2009 ended June 30, 2008 except as ------------------------------------------------------------- otherwise Same- Acqui- Same- Acqui- noted) Asset sitions Total Asset sitions Total ------------------------------------------------------------------------- Property revenue $10,090 $7,419 $17,509 $11,023 $4,747 $15,770 Property expenses 3,064 1,912 4,976 3,456 1,047 4,503 ------------------------------------------------------------------------- Property NOI $7,026 $5,507 $12,533 $7,567 $3,700 $11,267 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOI Margin % 69.6% 74.2% 71.6% 68.6% 77.9% 71.4% ------------------------------------------------------------------------- Occu- pancy % 94.3% 97.8% 95.8% 95.3% 97.4% 96.4% ------------------------------------------------------------------------- The improvement in the retail plaza property NOI was primarily caused bythe Portfolio Acquisition. Occupancy in the same-assets at June 30, 2009 islower than June 30, 2008, and slightly lower average net rent per square footresults has led to decreased revenue overall compared to the prior year. Retail Enclosed Properties ------------------------------------------------------------------------- (In thousands Quarter Quarter of dollars, ended June 30, 2009 ended June 30, 2008 except as ------------------------------------------------------------- otherwise Same- Acqui- Same- Acqui- noted) Asset sitions Total Asset sitions Total ------------------------------------------------------------------------- Property revenue $11,421 $435 $11,856 $11,159 $304 $11,463 Property expenses 3,910 115 4,025 4,169 57 4,226 ------------------------------------------------------------------------- Property NOI $7,511 $320 $7,831 $6,990 $247 $7,237 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOI Margin % 65.8% 73.6% 66.1% 62.6% 81.3% 63.1% ------------------------------------------------------------------------- Occu- pancy % 89.4% 87.0% 89.3% 91.3% 92.6% 91.4% ------------------------------------------------------------------------- The improvement in NOI was primarily caused by the improved results atAvalon Mall in St. John's, Newfoundland and Labrador and the PortfolioAcquisition. Same-asset NOI margin % is higher than 2008 due to the lowerrecoverable expenses in 2009. Occupancy is lower in 2009 compared to 2008 dueto redevelopment work ongoing at two properties as previously discussed. Office Properties ------------------------------------------------------------------------- In thousands Quarter Quarter of dollars, ended June 30, 2009 ended June 30, 2008 except as ------------------------------------------------------------- otherwise Same- Acqui- Same- Acqui- noted) Asset sitions Total Asset sitions Total ------------------------------------------------------------------------- Property revenue $5,598 $- $5,598 $5,849 $- $5,849 Property expenses 2,907 - 2,907 2,812 - 2,812 ------------------------------------------------------------------------- Property NOI $2,691 $- $2,691 $3,037 $- $3,037 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOI Margin % 48.1% -% 48.1% 51.9% -% 51.9% ------------------------------------------------------------------------- Occu- pancy % 89.1% -% 89.1% 90.9% -% 90.9% ------------------------------------------------------------------------- Occupancy levels have decreased slightly at the Halifax DevelopmentsProperties and Terminal Centres in Moncton, New Brunswick when compared to theprior year. The decrease in occupancy at Terminal Centres attributed to thelower revenue as a result of less recovery of common area expenses. Thesefactors have been partially offset by higher net rent per square foot at theHalifax Developments in 2009 compared to 2008. Mixed-Use Properties ------------------------------------------------------------------------- In thousands Quarter Quarter of dollars, ended June 30, 2009 ended June 30, 2008 except as ------------------------------------------------------------- otherwise Same- Acqui- Same- Acqui- noted) Asset sitions Total Asset sitions Total ------------------------------------------------------------------------- Property revenue $8,645 $- $8,645 $8,839 $- $8,839 Property expenses 3,962 - 3,962 4,104 - 4,104 ------------------------------------------------------------------------- Property NOI $4,683 $- $4,683 $4,735 $- $4,735 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOI Margin % 54.2% -% 54.2% 53.6% -% 53.6% ------------------------------------------------------------------------- Occu- pancy % 95.0% -% 95.0% 94.7% -% 94.7% ------------------------------------------------------------------------- The increase in mixed-use occupancy levels from 94.7% in 2008 to 95.0% in2009 and improved average net rent per square foot from leasing activity wereoffset by higher non-recoverable operating expenses, resulting in the slightlylower NOI results for the quarter ended June 30, 2009 when compared to thequarter ended June 30, 2008. The NOI margin has increased as a result ofdecreased common area expenses. Other Second Quarter Performance Measures Funds from Operations A calculation of FFO for the quarter ended June 30, 2009 and 2008 is asfollows: ------------------------------------------------------------------------- Quarter Quarter Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Net income $4,128 $3,839 $289 Add: Non-controlling interest 3,786 3,531 255 Depreciation and amortization 10,803 10,757 46 Depreciation and amortization on discontinued operations - 61 (61) Future income taxes - 701 (701) Less: Gain on disposition of land - (77) 77 ------------------------------------------------------------------------- FFO $18,717 $18,812 $(95) ------------------------------------------------------------------------- ------------------------------------------------------------------------- The slight decrease in FFO for the quarter ended June 30, 2009 wasprimarily due to increased general and administrative expenses in the secondquarter of 2009 offset by the net results of the individual acquisition andthe Portfolio Acquisition. Adjusted Funds from Operations The calculation of AFFO for the quarters ended June 30, 2009 and 2008 isas follows: ------------------------------------------------------------------------- Quarter Quarter Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- FFO $18,717 $18,812 $(95) Add: Above-market lease amortization 772 762 10 Non-cash revenue impacts on discontinued operations - 10 (10) Less: Below-market lease amortization (2,145) (1,814) (331) Straight-line rent adjustment (1,243) (701) (542) Maintenance capital expenditures (918) (2,481) 1,563 Maintenance TI and leasing costs (1,114) (2,672) 1,558 ------------------------------------------------------------------------- AFFO $14,069 $11,916 $2,153 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The AFFO result for the quarter ended June 30, 2009 was primarily affectedby the lower maintenance TI and leasing expenditures. Details of themaintenance TI and capital expenditures are outlined in the "TenantImprovement and Capital Expenditures" section of the MD&A. Pursuant to CSA Staff Notice 52-306 "(Revised) Non-GAAP FinancialMeasures", non-GAAP measures such as AFFO should be reconciled to the mostdirectly comparable GAAP measure, which is interpreted to be the cash flowfrom operating activities rather than net income. The reconciliation is asfollows: ------------------------------------------------------------------------- Quarter Quarter Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Cash provided by operating activities $6,412 $16,480 $(10,068) Add back (deduct): Recoverable/productive capacity enhancing TIs 190 1,099 (909) Change in non-cash operating items 9,369 (2,848) 12,217 Unit-based compensation expense (12) (11) (1) Amortization of deferred financing charges (517) (323) (194) Amortization of swap settlements (455) - (455) Maintenance capital expenditures (918) (2,481) 1,563 ------------------------------------------------------------------------- AFFO $14,069 $11,916 $2,153 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash Flow ------------------------------------------------------------------------- Quarter Quarter Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Cash provided by (used in): Operating activities $6,412 $16,480 $(10,068) Financing activities $(3,364) $378,614 $(381,978) Investing activities $(3,216) $(395,094) $391,878 ------------------------------------------------------------------------- Operating Activities -------------------- ------------------------------------------------------------------------- Quarter Quarter Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Cash provided by (used in): Net income and non-cash items $17,085 $17,403 $(318) TI and leasing costs (1,304) (3,771) 2,467 Non-cash working capital (9,369) 2,848 (12,217) ------------------------------------------------------------------------- Cash provided by operating activities $6,412 $16,480 $(10,068) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Fluctuations in cash provided by operating activities are largelyinfluenced by the change in non-cash working capital which can be affected bythe timing of receipts and payments. The details of the TI and leasing costsduring the second quarter of 2009 are outlined in the "Tenant Improvements andCapital Expenditures" section of the MD&A. Financing Activities -------------------- ------------------------------------------------------------------------- Quarter Quarter Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 Variance ------------------------------------------------------------------------- Cash provided by (used in): Net issue of units $64,574 $59,215 $5,359 Net issue (repayment) of commercial property debt (57,102) 328,567 (385,669) Payment of distributions (11,655) (10,952) (703) Other items (net) 819 1,784 (965) ------------------------------------------------------------------------- Cash provided by (used in) financing activities $(3,364) $378,614 $(381,978) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash used in financing activities for the quarter ended June 30, 2009 was$381,978 lower than the quarter ended June 30, 2008 primarily due to the issueof the Term Facility and the public issue of Units related to the PortfolioAcquisition in the quarter ended June 30, 2008 , partially offset by the grossproceeds of $66,855 from the public offering of Units and the privateplacement of Class B LP Units with Empire Subsidiaries on June 25, 2009 thatwas used to reduce commercial property debt. Investing Activities -------------------- Cash used in investing activities for the quarter ended June 30, 2009 was$3,216. Of this, $3,192 was used for additions to commercial properties. Cashused in investing activities for the quarter ended June 30, 2008 of $395,094was primarily due to the Portfolio Acquisition. Tenant Improvement and Capital Expenditures ------------------------------------------- ------------------------------------------------------------------------- Quarter Quarter Ended Ended June 30, June 30, (In thousands of dollars) 2009 2008 ------------------------------------------------------------------------- Total additions to commercial properties $3,192 $5,803 Less: amounts recoverable from ECL - (2,084) ------------------------------------------------------------------------- Net additions to commercial properties 3,192 3,719 Less: productive capacity enhancements (2,274) (1,238) ------------------------------------------------------------------------- Maintenance capital expenditures $918 $2,481 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- (In thousands of dollars) Quarter Quarter Ended Ended June 30, June 30, 2009 2008 ------------------------------------------------------------------------- Total additions to TI and leasing costs $1,304 $3,771 Less: amounts recoverable from ECL (159) (1,099) ------------------------------------------------------------------------- Net additions to TI and leasing costs 1,145 2,672 Less: productive capacity enhancements (31) - ------------------------------------------------------------------------- Maintenance TI and leasing costs $1,114 $2,672 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The lower maintenance capital expenditures are primarily as a result ofthe cautious outlook on capital intensive projects during the current economicenvironment. The lower maintenance TI and leasing costs are primarily as aresult of fewer new leases being signed as tenants are being more cautious inthe current environment. Productive capacity enhancements during the quarter consisted of theredevelopment of Valley Mall in Corner Brook, Newfoundland and Labrador andthe conversion of Fort Edward Mall in Windsor, Nova Scotia from a retailenclosed property to a retail plaza. Changes in Accounting Policies Effective January 1, 2009 Crombie adopted two new accounting standardsthat were issued by the CICA in 2008 and the Emerging Committee Abstractissued by the CICA in January 2009. These accounting policy changes have beenadopted in accordance with the transitional provisions. The new standards and accounting policy changes are as follows: Goodwill and Intangible Assets ------------------------------ Effective January 1, 2009, the accounting and disclosure requirements ofthe CICA's two new accounting standards were adopted: "Handbook Section 3064,Goodwill and Intangible Assets" and "Handbook Section 3450, Research andDevelopment Costs." These standards are effective for annual and interim financial statementsrelated to fiscal years beginning on or after October 1, 2008 and areapplicable for Crombie's first quarter of fiscal 2009. Section 3064 statesthat intangible assets may be recognized as assets only if they meet thedefinition of an intangible asset. Section 3064 also provides furtherinformation on the recognition of internally generated intangible assets,(including research and development). These standards have been applied retrospectively with restatement ofprior periods. The adoption of these new standards resulted in an increase of$233 to depreciation of commercial properties and a decrease of $233 toproperty expenses in the consolidated Statements of Income for the threemonths ended June 30, 2008 and an increase of $462 to depreciation ofcommercial properties and a decrease of $462 to property expenses for the sixmonths ended June 30, 2008. In the consolidated Balance Sheets, there was anincrease of $3,946 to commercial properties, an increase of $38 toreceivables, a decrease of $4,246 to prepaid expenses, and a decrease of $220to payables and accruals at December 31, 2008, and a decrease of $20 tonon-controlling interest and a decrease of $22 to unitholders' equity atJanuary 1, 2008. Financial instruments - recognition and measurement --------------------------------------------------- In January 2009, the CICA issued Emerging Issue Committee Abstract 173("EIC 173"), "Credit Risk and the Fair Value of Financial Assets and FinancialLiabilities". EIC 173 requires that a company take into account its own creditrisk and the credit risk of its counterparty in determining the fair value offinancial assets and financial liabilities. This Abstract must be appliedretrospectively without restatement of prior periods to all financial assetsand liabilities measured at fair value in interim and annual financialstatements for periods ending on or after January 20, 2009. The adoption ofEIC 173 did not have a significant impact on the Crombie's financial results,position or disclosures. Effect of New Accounting Policies Not Yet Implemented International Financial Reporting Standards ------------------------------------------- On February 13 2008, the Accounting Standards Board of Canada announcedthat GAAP for publicly accountable enterprises will be replaced byInternational Financial Reporting Standards ("IFRS"). IFRS must be adopted forinterim and annual financial statements related to fiscal years beginning onor after January 1, 2011, with retroactive adoption and restatement of thecomparative fiscal year ended December 31, 2010. Accordingly, the conversionfrom Canadian GAAP to IFRS will be applicable to Crombie's reporting for thefirst quarter of fiscal 2011 for which the current and comparative informationwill be prepared under IFRS. Crombie, with the assistance of its external advisors, have launched aninternal initiative to govern the conversion process and is currentlyevaluating the potential impact of the conversion to IFRS on its financialstatements. At this time, the impact on Crombie's future financial positionand results of operations is not reasonably determinable or estimatable.Crombie expects the transition to IFRS to impact accounting, financialreporting, internal control over financial reporting, information systems andbusiness processes. Crombie has developed a formal project governance structure, and isproviding regular progress reports to senior management and the auditcommittee. Crombie has also completed a diagnostic impact assessment, whichinvolved a high level review of the major differences between current GAAP andIFRS, as well as establishing an implementation guideline. In accordance withthis guideline Crombie has established a staff training program and is in theprocess of completing analysis of the key decision areas and makingrecommendations on the same. Crombie will continue to assess the impact of the transition to IFRS andto review all of the proposed and ongoing projects of the InternationalAccounting Standards Board to determine their impact on Crombie. Additionally,Crombie will continue to invest in training and resources throughout thetransition period to facilitate a timely conversion. In order to assist Crombie with its transition to IFRS the Unitholdersapproved amendments to Crombie's Declaration of Trust, at Crombie's AnnualGeneral and Special Meeting held on May 7, 2009, to allow the Trustees to makefuture amendments to the Declaration of Trust without the requirement toobtain Unitholder approval. These changes are in the same manner as theDeclaration of Trust currently permits Trustees to act as it relates to thechanges in taxation laws. An example of a potential change to the Declaration of Trust in order tocomply with IFRS standards as they are currently drafted include the fact thatCrombie's units may be regarded under IFRS as a "liability" rather than"equity" (as they are currently recognized under Canadian GAAP). Thisinterpretation is influenced principally by the requirement in the Declarationof Trust that Crombie "shall" distribute in each year an amount at least equalto its taxable income. Under IFRS, the units would be classified as aliability if they contain "a contractual obligation to deliver cash or anotherfinancial asset to another entity". The amendments will not result in any material change to the Unitholders,but rather were contemplated in order to assist Crombie to implement changesthat will assist in its transition to IFRS. Trustees will be obligated todetermine whether any such change is necessary or desirable in thecircumstances, and all other matters that are currently required to beapproved by Unitholders pursuant to the Declaration of Trust will remainunchanged. Related Party Transactions As at June 30, 2009, Empire, through its wholly-owned subsidiary ECL,holds a 47.4% indirect interest in Crombie. Crombie uses the exchange amountas the measurement basis for the related party transactions. For a period of five years commencing March 23, 2006, certain executivemanagement individuals and other employees of Crombie will provide generalmanagement, financial, leasing, administrative, and other administrationsupport services to certain real estate subsidiaries of Empire on a costsharing basis. The costs assumed by Empire pursuant to the agreement duringthe three months ended and six months ended June 30, 2009 were $278 and $575(three months ended and six months ended June 30, 2008 - $386 and $841respectively) and were netted against general and administrative expensesowing by Crombie to Empire. For a period of five years, commencing March 23, 2006, certain on-sitemaintenance and management employees of Crombie will provide propertymanagement services to certain real estate subsidiaries of Empire on a costsharing basis. In addition, for various periods, ECL has an obligation toprovide rental income and interest rate subsidies. The costs assumed by Empirepursuant to the agreement during the three months ended and six months endedJune 30, 2009 were $273 and $649 (three months ended and six months ended June30, 2008 - $484 and $1,173 respectively) and was netted against propertyexpenses owing by Crombie to Empire. The head lease subsidy during the threemonths ended and six months ended June 30, 2009 were $154 and $404 (threemonths ended and six months ended June 30, 2008 - $231 and $629 respectively). Crombie also earned rental revenue of $18,650 for the three months endedJune 30, 2009 and $33,210 for the six months ended June 30, 2009 (three monthsended and six months ended June 30, 2008 - $13,135 and $19,497 respectively)from Sobeys Inc., Empire Theatres and ASC Commercial Leasing Limited ("ASC").These companies were all subsidiaries of Empire until September 8, 2008 whenASC was sold. Property revenue from ASC is included in this note disclosureuntil the sale date. Empire has provided Crombie with a $13,800 floating rate demand creditfacility on substantially the same terms and conditions that govern thefloating rate revolving credit facility. During the first quarter of 2009,$10,000 outstanding at December 31, 2008 was repaid to the demand creditfacility. On June 1, 2009, Crombie acquired 1.1 acres of land adjacent to the AvalonMall, Newfoundland and Labrador, for $3,527 plus additional closing costs fromECL General Partner Limited, an affiliate of Empire. ECL General PartnerLimited provided debt of $3,527 at a fixed rate of 8.00% and a term of 20years. On June 25, 2009, concurrent with the public offering, in satisfaction ofits pre-emptive right, ECL purchased $30,000 of Class B LP Units and theattached Special Voting Units, on a private-placement basis. Critical Accounting Estimates Critical accounting estimates are discussed under the section "CriticalAccounting Estimates" in the 2008 Annual Report. Commitments and Contingencies There are various claims and litigation, which Crombie is involved with,arising out of the ordinary course of business operations. In the opinion ofmanagement, any liability that would arise from such contingencies would nothave a significant adverse effect on these financial statements. Crombie has agreed to indemnify its trustees and officers, and particularemployees, in accordance with Crombie's policies. Crombie maintains insurancepolicies that may provide coverage against certain claims. Crombie has entered into a management cost sharing agreement with asubsidiary of Empire. Crombie has land leases on certain properties. These leases have annualpayments of $969 per year over the next five years. The land leases have termsof between 15.8 and 76.2 years remaining, including renewal options. Crombie obtains letters of credit to support our obligations with respectto construction work on our commercial properties and defeasing commercialproperty debt. In connection with the defeasance of the discontinuedoperations commercial property debt, Crombie has issued a standby letter ofcredit in the amount of $1,715 in favour of the mortgage lender. In addition,Crombie has $145 in standby letters of credit for construction work that isbeing performed on its commercial properties. Crombie does not believe thatany of these standby letters of credit are likely to be drawn upon. Risk Management In the normal course of business, Crombie is exposed to a number offinancial risks that can affect its operating performance. These risks, andthe action taken to manage them, are as follows: Credit risk ----------- Credit risk arises from the possibility that tenants may experiencefinancial difficulty and be unable to fulfill their lease commitments.Crombie's credit risk is limited to the recorded amount of tenant receivables.An allowance for doubtful accounts is taken for all anticipated problemaccounts. Crombie mitigates credit risk by geographical diversification, utilizingstaggered lease maturities, diversifying both its tenant mix and asset mix andconducting credit assessments for new and renewing tenants. As at June 30,2009; - Excluding Sobeys (which accounts for 33.0% of Crombie's minimum rent), no other tenant accounts for more than 2.2% of Crombie's minimum rent, and - Over the next five years, no more than 9.3% of the gross leaseable area of Crombie will expire in any one year. Crombie earned rental revenue of $18,650 for the three months ended June30, 2009 and $33,210 for the six months ended June 30, 2009 (three monthsended and six months ended June 30, 2008 - $13,135 and $19,497 respectively)from subsidiaries of Empire. Interest rate risk ------------------ Interest rate risk is the potential for financial loss arising fromincreases in interest rates. Crombie mitigates interest rate risk by utilizingstaggered debt maturities, limiting the use of permanent floating rate debtand utilizing interest rate swap agreements. As at June 30, 2009: - Crombie's weighted average term to maturity of the fixed rate mortgages was 5.8 years, and - Crombie's exposure to floating rate debt, including the impact of the fixed rate swap agreements discussed below, was 20.0% of the total commercial property debt. Excluding the floating rate term facility, which is to be replaced with permanent fixed rate financing during the next seven months, the exposure to floating rate debt is 2.1% From time to time, Crombie has entered into interest rate swap agreementsto manage the interest rate profile of its current or future debts without anexchange of the underlying principal amount. Recent turmoil in the financialmarkets has materially affected interest swap rates. This effect wasespecially pronounced during the fourth quarter of 2008 and the first quarterof 2009. The interest swap rates are based on Canadian bond yields, plus apremium, called the swap spread, which reflects the risk of trading with aprivate counterparty as opposed to the Canadian government. During the fourthquarter 2008, the swap spread turned negative and remained negative throughoutthe first quarter of 2009. While the swap spreads turned positive during thesecond quarter of 2009, they still remain below historical average values. Theeffect of the abnormally low swap spreads, combined with the decline in theCanadian bond yields has resulted in a significant deterioration of themark-to-market values for the interest rate swap agreements. At June 30, 2009,the mark-to-market exposure on the interest rate swap agreements wasapproximately $31,831. There is no immediate cash impact from themark-to-market adjustment. The unfavourable difference in the mark-to-marketamount of these interest rate swap agreements is reflected in othercomprehensive income (loss) rather than net income as the swaps are alldesignated and effective hedges. The breakdown of the swaps in place as partof the interest rate management program, and their associated mark-to-marketamounts are as follows: - Crombie has entered into a fixed interest rate swap to fix the amount of interest to be paid on $50,000 of the revolving credit facility. The fair value of the fixed interest rate swap at June 30, 2009, had an unfavourable mark-to-market exposure of $3,674 (June 30, 2008 - unfavourable $957) compared to its face value. The change in this amount has been recognized in other comprehensive income (loss). The mark-to-market amount of fixed interest rate swaps reduce to $Nil upon maturity of the swaps. - Crombie has entered into a number of delayed interest rate swap agreements of a notional amount of $100,334 (June 30, 2008 - $118,689) with settlement dates between February 1, 2010 and July 2, 2011, maturing between February 1, 2019 and July 2, 2021 to mitigate exposure to interest rate increases for mortgages maturing in 2010 and 2011. The fair value of these delayed interest rate swap agreements had an unfavourable mark-to-market exposure of $12,774 compared to the face value June 30, 2009 (June 30, 2008 - unfavourable $8,468). The change in these amounts has been recognized in other comprehensive income (loss). - In relation to the acquisition of a portfolio of 61 retail properties from subsidiaries of Empire, Crombie has entered into a number of delayed interest rate swap agreements of a notional amount of $138,000 (June 30, 2008 - $280,000) with a settlement date of August 1, 2009 to mitigate exposure to interest rate increases prior to replacing the floating rate term facility with long-term financing. The fair value of these agreements had an unfavourable mark-to-market exposure of $15,383 compared to their face value on June 30, 2009 (June 30, 2008 - $1,782). The change in these amounts has been recognized in other comprehensive income (loss). During the first quarter of 2009, Crombie settled an interest rate swapagreement related to a notional amount of $42,000 for a settlement amount of$4,535. This settlement amount has been recognized in other comprehensiveincome (loss) since the inception of the interest rate swap agreements. Thisloss will be reclassified to interest expense using the effective interestrate method. Crombie estimates that $897 of other comprehensive income (loss) will bereclassified to interest expense during the remaining two quarters of 2009based on interest rate swap agreements settled to June 30, 2009. A fluctuation in interest rates would have an impact on Crombie's netearnings and other comprehensive income (loss) items. Based on the previousyear's rate changes, a 0.5% interest rate change would reasonably beconsidered possible. The changes would have had the following impact: Quarter ended Quarter ended June 30, 2009 June 30, 2008 -------------------------------------------- 0.5% 0.5% 0.5% 0.5% increase decrease increase decrease ------------------------------------------------------------------------- Impact on net income of interest rate changes the floating rate revolving credit facility $(244) $244 $(340) $340 ------------------------------------------------------------------------- Six months ended Six months ended June 30, 2008 June 30, 2008 -------------------------------------------- 0.5% 0.5% 0.5% 0.5% increase decrease increase decrease ------------------------------------------------------------------------- Impact on net income of interest rate changes the floating rate revolving credit facility $(514) $514 $(365) $365 ------------------------------------------------------------------------- June 30, 2009 June 30, 2008 -------------------------------------------- 0.5% 0.5% 0.5% 0.5% increase decrease increase decrease ------------------------------------------------------------------------- Impact on other compre- hensive income and non- controlling interest items due to changes in fair value of derivatives designated as a cash flow hedge $8,764 $(9,151) $13,129 $(13,735) ------------------------------------------------------------------------- Crombie does not enter into these interest rate swap transactions on aspeculative basis. Crombie is prohibited by its Declaration of Trust inpurchasing, selling or trading in interest rate future contracts other thanfor hedging purposes. Liquidity risk -------------- The real estate industry is highly capital intensive. Liquidity risk isthe risk that Crombie may not have access to sufficient debt and equitycapital to fund the growth program and/or refinance the debt obligations asthey mature. Cash flow generated from operating the property portfolio represents theprimary source of liquidity used to service the interest on debt, fund generaland administrative expenses, reinvest into the portfolio through capitalexpenditures, as well as fund tenant improvement costs and make distributionsto Unitholders. Debt repayment requirements are primarily funded fromrefinancing Crombie's maturing debt obligations. Property acquisition fundingrequirements are funded through a combination of accessing the debt and equitycapital markets. There is a risk that the debt capital markets may not refinance maturingdebt on terms and conditions acceptable to Crombie or at any terms at all.Crombie seeks to mitigate this risk by staggering the debt maturity dates.There is also a risk that the equity capital markets may not be receptive toan equity issue from Crombie with financial terms acceptable to Crombie.Crombie mitigates its exposure to liquidity risk utilizing a conservativeapproach to capital management. Access to the Revolving Credit Facility is also limited to the amountutilized under the facility, plus any negative mark-to-market position on theinterest rate swap agreements, not exceeding the security provided by Crombie.The mark-to-market adjustment on the interest rate swap agreements reached anout-of-the-money position of approximately $31,831 at June 30, 2009. Thedeterioration in the mark-to-market position may have the impact of reducingCrombie's available credit in the Revolving Credit Facility. Crombie has secured a $13,800 floating rate Empire Demand Facility underessentially the same terms and conditions that govern the Revolving CreditFacility. This demand facility has been put in place to ensure Crombiemaintains adequate liquidity in order to fund its daily operating activitieswhile the volatility in the financial markets continues, while also mitigatingthe risk of Crombie not being in compliance with covenants under the RevolvingCredit Facility. Crombie has no mortgages maturing in fiscal 2009 and during the secondquarter of 2009 completed the extension of the Term Facility from the originalmaturity date of October 2009 to May 2011. Subsequent Event On July 22, 2009, Crombie declared distributions of 7.417 cents per unitfor the period from July 1, 2009, to and including, July 31, 2009. Thedistribution will be payable on August 17, 2009 to Unitholders of record as atJuly 31, 2009. Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequatecontrol over financial reporting ("ICFR") to provide reasonable assuranceregarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with GAAP. Thecontrol framework Management used to design ICFR is COSO, which is theCommittee of Sponsoring Organizations of the Treadway Commission. The ChiefExecutive Officer and Chief Financial Officer have evaluated the effectivenessof Crombie's ICFR and have concluded as at June 30, 2009 that Crombie's ICFRwere designed and operated effectively, and that there are no materialweaknesses relating to the design or operation of Crombie's ICFR. There wereno changes to Crombie's ICFR for the quarter ended June 30, 2009 that havematerially affected, or are reasonably likely to materially affect Crombie'sICFR. Disclosure Controls and Procedures Management is responsible for establishing and maintaining disclosurecontrols and procedures ("DC&P") to provide reasonable assurance that materialinformation relating to Crombie is made known to Management by others,particularly during the period in which the annual filings are being prepared,and that information required to be disclosed by Crombie in its annualfilings, interim filings or other reports filed or submitted by it undersecurities legislation is recorded, processed, summarized and reported withthe time periods specified in securities legislation. The Chief ExecutiveOfficer and Chief Financial Officer have evaluated the effectiveness ofCrombie's DC&P and have concluded as at June 30, 2009 that these DC&P weredesigned and operated effectively, and that there are no material weaknessesrelating to the design or operation of Crombie's DC&P. Quarterly Information The following table shows information for revenues, net income, AFFO, FFO,distributions and per unit amounts for the eight most recently completedquarters. ----------------------------------------------------------- Quarter Ended ----------------------------------------------------------- (In thousands of dollars, except per Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, unit amounts) 2009 2009 2008 2008 2008 ------------------------------------------------------------------------- Property revenue $50,893 $52,992 $52,522 $51,044 $47,315 Property expenses 17,258 19,971 19,649 18,634 16,776 ------------------------------------------------------------------------- Property net operating income 33,635 33,021 32,873 32,410 30,539 ------------------------------------------------------------------------- Expenses: General and adminis- trative 3,646 1,644 2,701 2,004 1,979 Interest 11,272 10,730 11,318 11,449 9,965 Depreciation and amorti- zation 10,803 12,491 12,499 12,535 10,757 ------------------------------------------------------------------------- 25,721 24,865 26,518 25,988 22,701 ------------------------------------------------------------------------- Income from continuing operations before other items, income taxes and non- controlling interest 7,914 8,156 6,355 6,422 7,838 Other items - 92 55 27 97 ------------------------------------------------------------------------- Income from continuing operations before income taxes and non- controlling interest 7,914 8,248 6,410 6,449 7,935 Income taxes expense - Future - 200 (3,450) 859 701 ------------------------------------------------------------------------- Income from continuing operations before non-con- trolling interest 7,914 8,048 9,860 5,590 7,234 Gain/(loss) on sale of discontinued operations - - 487 (895) - Income from discontinued operations - - 24 226 136 ------------------------------------------------------------------------- Income before non-con- trolling interest 7,914 8,048 10,371 4,921 7,370 Non-con- trolling interest 3,786 3,856 4,968 2,358 3,531 ------------------------------------------------------------------------- Net income $4,128 $4,192 $5,403 $2,563 $3,839 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted net income per unit $0.15 $0.15 $0.20 $0.09 $0.15 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Quarter Ended ------------------------------------------------------------------------- (In thou- sands of dollars, except per unit Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, amounts) 2009 2009 2008 2008 2008 ------------------------------------------------------------------------- AFFO $14,069 $16,026 $14,681 $12,457 $11,916 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FFO $18,717 $20,739 $18,933 $19,200 $18,812 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distribu- tions $12,294 $11,649 $11,649 $11,649 $11,879 ------------------------------------------------------------------------- ------------------------------------------------------------------------- AFFO per unit(1) $0.27 $0.31 $0.28 $0.24 $0.24 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FFO per unit(1) $0.35 $0.40 $0.36 $0.37 $0.38 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distribu- tions per unit(1) $0.23 $0.22 $0.22 $0.22 $0.23 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ----------------------------------------------- Quarter Ended ----------------------------------------------- (In thousands of dollars, Mar. 31, Dec. 31, Sep. 30, except per unit amounts) 2008 2007 2007 ------------------------------------------------------------------------- Property revenue $37,262 $36,455 $35,068 Property expenses 15,312 14,336 14,682 ------------------------------------------------------------------------- Property net operating income 21,950 22,119 20,386 ------------------------------------------------------------------------- Expenses: General and administrative 1,952 2,492 1,843 Interest 6,500 6,577 6,413 Depreciation and amortization 7,995 8,352 7,575 ------------------------------------------------------------------------- 16,447 17,421 15,831 ------------------------------------------------------------------------- Income from continuing operations before other items, income taxes and non-controlling interest 5,503 4,698 4,555 Other items - - - ------------------------------------------------------------------------- Income from continuing operations before income taxes and non-controlling interest 5,503 4,698 4,555 Income taxes expense - Future 400 (2,994) 718 ------------------------------------------------------------------------- Income from continuing operations before non-controlling interest 5,103 7,692 3,837 Gain/(loss) on sale of discontinued operations - - - Income from discontinued operations 263 132 108 ------------------------------------------------------------------------- Income before non-controlling interest 5,366 7,824 3,945 Non-controlling interest 2,583 3,766 1,899 ------------------------------------------------------------------------- Net income $2,783 $4,058 $2,046 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted net income per unit $0.13 $0.19 $0.10 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Quarter Ended ------------------------------------------------------------------------- (In thousands of dollars, except per unit amounts) Mar. 31, Dec. 31, Sep. 30, 2008 2007 2007 ------------------------------------------------------------------------- AFFO $8,096 $7,761 $6,273 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FFO $13,839 $13,257 $12,310 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributions $8,867 $8,867 $8,867 ------------------------------------------------------------------------- ------------------------------------------------------------------------- AFFO per unit(1) $0.19 $0.19 $0.15 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FFO per unit(1) $0.33 $0.32 $0.30 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributions per unit(1) $0.21 $0.21 $0.21 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) AFFO, FFO and distributions per unit are calculated by AFFO, FFO or distributions, as the case maybe, divided by the diluted weighted average of the total Units and Special Voting Units outstanding of 52,959,049 for the quarter ended June 30, 2009, 52,351,464 for the quarter ended March 31, 2009, 52,351,464 for the quarter ended December 31, 2008, 52,351,464 for the quarter ended September 30, 2008, 49,954,256 for the quarter ended June 30, 2008, 41,728,561 for the quarter ended March 31, 2008, 41,728,561 for the quarter ended December 31, 2007, 41,728,561 for the quarter ended September 30, 2007. The quarterly results of these calculations may not add to the annual calculations due to rounding. Additional information relating to Crombie, including its latest AnnualInformation Form, can be found on the SEDAR web site for Canadian regulatoryfilings at www.sedar.com. Dated: August 6, 2009 Stellarton, Nova Scotia, Canada >>Contact: Scott Ball, C.A., Vice President, Chief Financial Officer and Secretary, Crombie REIT, (902) 755-8100
