Crombie Reit picks up steam slowly

On May 4,2016 Crombie Reit came out with it's quarterly report.This is a new company for this blog;it has never been covered before. However I have watched it and started to see a little bit of new movement.It was and still is the real estate arm of the Empire grocery chain that owns Safeway and Sobeys.In fact, Empire still owns about $42% of CRR.UN.Empire has downloaded a pile of it's real estate assets to Crombie.Now Crombie owns about $3.5 billion in assets.It has made a couple of recent transactions to solidify it's portfolio.It picked up a number of properties,including 19 retail properties and 3 distribution centres from Empire for $418 million or $325 million in cash and the sale of $93 million in class B units.In addition, they sold $125 million in notes in a bought deal  and a new $132 million equity offering.
                                       

Financial Performance

 Crombie had a solid quarter;funds from operations (FFO) increased 6% to $38 million or $.29 per share up $.02 from the same quarter in 2015.It has a portfolio valued at about $4 billion now and they calculate that their new transaction will be immediately accretive and add $27 million to NOI (net operating income).These new investments have helped to drop the payout ratio from 81% in 2015 to 77%.The more important metric - adjusted funds from operations (AFFO) increased by 7% to $32 million or $.24 per share down 1% from Q1 in 2015.AFFO is most commonly used by reits as a measure of earnings per share.While the AFFO  payout ratio was at 92% compared to 97% in 2015.Property revenue increased by about 3% to $95 million.And  same property NOI increased by almost 4% to $58 million.

   Debt to gross book value was 49.7% compared 

                             to 52.2% in 2015.This made the times EBITDA coverage ratio to be a conservative 2.72 times.In addition, CRR.UN completed an acquisition of one retail property of 21,000 square feet for about $6 million.And it disposed of 10 retail properties for proceeds of $143 million.Over the quarter occupancy was constant.

Changes

Crombie is a drop down reit;Empire,a grocery chain, drops down retail assets (including vacant land) and builds up the Crombie portfolio.Crombie gives back cash and shares to Empire.Both stocks benefit.Crombie is making some changes in it's asset mix by buying and disposing of drop down assets.But Crombie still buys and keeps most of their Empire assets;that includes retail grocery properties  and distribution centres.Most are completely or almost completely leased.Crombie is not yet developing much of it's properties nor even expanding them.No great transformation of their centres is required.

Crombie is a steady grower of revenues and earnings and their dividend.But with lack of development expertise and creativity the high rewards will not yet be realized.This blog looks to a gradual  loosening of the strict and safe formula used to earn their steady growth.Look for steady growth (comparable to that in Q1) in revenues and earnings for the rest of 2016.However that may be enough to bring the price up to $16 per share which is still a nice 7% increase.This blog believes that there is little probability of Crombie dropping below $14 per share  on a sustained basis.                     see recent analysis of Crombie reit on Blogdaleupsome; use Blogdaleupsome for analysis of Cdn. reits