Crombie Real Estate Investment Trust

Crombie Real Estate Investment Trust

February 25, 2008 15:09 ET

Crombie REIT Announces Significant Portfolio Acquisition and Public Offering of $60 Million of Subscription Receipts and $30 Million of Convertible Extendible Unsecured Subordinated Debentures

STELLARTON, NOVA SCOTIA--(Marketwire - Feb. 25, 2008) -


Crombie Real Estate Investment Trust ("Crombie") (TSX:CRR.UN) announced today that it has agreed to acquire a portfolio of 61 retail properties (the "Acquisition") representing approximately 3.3 million square feet of gross leaseable area ("GLA") from subsidiaries of Empire Company Limited ("Empire"). The purchase price in respect of the 61 properties is approximately $443 million, including approximately $15 million of closing and transaction costs, and represents an effective capitalization rate of 8.12% before transaction costs.

The transaction will be immediately accretive to Crombie's adjusted funds from operations ("AFFO") and, as a result, Crombie's Board of Trustees has approved an increase in annual distributions from $0.85 per unit to $0.89 per unit, conditional upon completion of the Acquisition.

Financing of the Acquisition

In order to partially finance the Acquisition, Crombie has agreed to sell, on a bought-deal basis, $60 million of subscription receipts (the "Subscription Receipts") at a price of $11.00 per Subscription Receipt and $30 million of convertible extendible unsecured subordinated debentures (the "Debentures") to a syndicate of underwriters led by CIBC World Markets Inc. and TD Securities Inc. Crombie has also granted the underwriters an over-allotment option to purchase up to an additional 272,750 Subscription Receipts at the same offering price, exercisable up to 30 days after the closing of the offering.

On closing of the Acquisition, each Subscription Receipt will convert into one unit of Crombie. The Debentures have an initial maturity date of May 16, 2008, which will be extended to March 20, 2013 upon closing of the Acquisition. The Debentures have a coupon of 7.0% per annum and will pay interest semi-annually in arrears on June 30 and December 31 in each year commencing on June 30, 2008. Each $1,000 principal amount of Debenture is convertible into approximately 76.9231 units of Crombie, at any time, at the option of the holder, representing a conversion price of $13.00 per unit.

In addition to the issuance of the Subscription Receipts and Debentures, Empire has agreed to take $55 million of Class B LP Units of Crombie Limited Partnership at the $11.00 offering price. Immediately following the closing of the Acquisition, Empire will continue to hold a 48.1% economic and voting interest in Crombie.

The remainder of the purchase price will be satisfied with a $278.5 million 18 month bridge financing from a Canadian Chartered bank and a draw of approximately $20 million on Crombie's revolving credit facility. It is Crombie's intention to replace the bridge financing by suitable long term debt financing following the closing of the Acquisition.

Recommendation of the Board of Trustees of Crombie

As Empire currently owns a 48.1% economic and voting interest in Crombie, Empire is considered a related party of Crombie under the securities laws of certain provinces of Canada and therefore the Acquisition must be approved by the affirmative vote of a majority of minority Unitholders at a Unitholders Meeting scheduled for April 14, 2008.

Due to the related party nature of the Acquisition, the board of trustees of Crombie appointed a special committee of independent trustees consisting of Kenneth Rowe (Chairman), David Hennigar, John Latimer, Elisabeth Stroback and David Graham (the "Special Committee"), for the purpose of considering the Acquisition. The Special Committee retained Cushman & Wakefield, LePage, Inc. to prepare an independent valuation of the Acquisition in accordance with the requirements of Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions and also retained Blackmont Capital Inc., to act as the exclusive independent financial advisor to the Special Committee in evaluating the Acquisition and to provide the Special Committee with its opinion regarding the fairness of the Acquisition from a financial point of view to the REIT's public unitholders (the "Fairness Opinion"). The Special Committee has advised the board that based on, among other things, the Independent Valuation and the Fairness Opinion, in its view the Acquisition is fair to Crombie's public unitholders and in the best interests of Crombie, and has unanimously recommended that the board of trustees enter into the acquisition agreements and that the board of trustees recommend to Unitholders that they vote in favour of the Acquisition.

CIBC World Markets Inc. and TD Securities Inc. acted as financial advisors to Crombie in connection with the Acquisition.

Description of the Properties to be Acquired

The properties to be acquired comprise 3.3 million square feet of GLA, consisting of 40 freestanding grocery stores carrying various Sobeys banners, which are 100% occupied, and 21 strip plazas, all of which are also anchored by Sobeys bannered grocery stores, and are 96% occupied. In connection with the Acquisition, Crombie will enter into new lease agreements with Sobeys for each of the Sobeys stores located on the 61 properties. The majority of the new fully-net lease agreements with Sobeys have terms of between 17 and 23 years. Crombie will experience positive asset and geographic diversification from the acquisition portfolio as shown below:

Asset Type Current GLA % Pro forma GLA %
Retail - Strip 62% 59%
Retail - Freestanding 1% 15%
Mixed-Use 24% 17%
Office 13% 9%

Province Current GLA % Pro forma GLA %
Nova Scotia 52% 47%
Ontario 16% 15%
New Brunswick 15% 15%
Newfoundland and Labrador 11% 13%
Prince Edward Island 4% 3%
Quebec 2% 7%

"We are extremely pleased to announce this Acquisition and the increase in annual distributions by $0.04 per unit following the closing of the Acquisition. The Acquisition, together with our other acquisitions from ECL Developments Limited, reflects Empire's desire to continue its active relationship with Crombie for its current and future real estate portfolio. The properties to be acquired will enhance our portfolio diversification and the fully-net lease structure with Sobeys will be beneficial to Crombie's AFFO as it reflects long-term market rents. The Acquisition will also increase our penetration into Quebec to 7% from 2% of Crombie's total GLA. In addition, the equity offering will substantially increase our public float and enhance liquidity for our Unitholders. We are also delighted that Empire continues to show its commitment to Crombie by participating in the offering and maintaining their current minority interest share," said Crombie President and Chief Executive Officer, J. Stuart Blair.

On or before February 29, 2008, Crombie will file with the securities commissions or other similar regulatory authorities in each of the provinces of Canada, a preliminary short form prospectus relating to the issuance of the Subscription Receipts and the Debentures. Closing of the offering is expected to occur on March 20, 2008. The Subscription Receipts and Debentures will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

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 in income-producing retail, office and mixed-use properties in Canada, with a future growth strategy focused primarily on the acquisition of retail properties. Crombie currently owns a portfolio of 52 commercial properties in six provinces, comprising approximately 8.0 million square feet of rentable space. More information about Crombie can be found at

This news release contains forward looking statements regarding the Acquisition, the financing for the Acquisition and the impact of the Acquisition on Crombie's property portfolio, accretion to AFFO and its financial condition. Wherever possible, words such as "may", "will", "estimate", "anticipate", "believe", "expect", "intention" and similar expressions have been used to identify these forward looking statements. These forward looking statements reflect the current expectations of management of Crombie regarding the Acquisition and its impact on Crombie and are based on information currently available to management of Crombie. These forward looking statements involve significant risks and uncertainties. While agreements of purchase and sale with respect to the Acquisition have been entered into by Crombie and subsidiaries of Empire, the Acquisition remains subject to significant conditions including the successful completion of the bought deal offering and related debt financing, the approval of a majority of minority Unitholders of Crombie and a number of regulatory and other consents and approvals. There can be no assurance that Acquisition will be completed by Crombie or that, if completed, the Acquisition will have the impact on Crombie expected by management. In particular, the distribution increase approved by the board of trustees of Crombie is conditional on the successful completion of the Acquisition. The risks associated with these forward looking statements should be considered carefully and readers should not place undue reliance on the forward looking statements. There can be no assurance that the expectations of management of Crombie will prove to be correct. These forward-looking statements are made as of the date of this news release and Crombie assumes no obligation to update or revise them to reflect new events or circumstances.

AFFO does not have standardized meaning under Canadian generally accepted accounting principles ("GAAP") and therefore may not be comparable to similarly titled measures used by other publicly traded companies. Crombie has referenced AFFO in this new release because it believes that it is a useful measure for investors to evaluate the financial impact of the Acquisition on Crombie. AFFO is calculated as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable real estate and extraordinary items and the adjustments for any above-or below-market lease amortization and straight-line rent, plus depreciation and amortization (excluding amortization of deferred financing charges, tenant improvements and leasing commission costs), future income taxes and after adjustments for equity accounted entities and non-controlling interests, less maintenance capital expenditures and unamortized additions to tenant improvements and lease costs.

Additional information relating to Crombie can be found on Crombie's web site at or on the SEDAR web site for Canadian regulatory filings at

Contact Information

  • Crombie REIT
    Scott Ball, C.A.
    Vice President, Chief Financial Officer and Secretary
    (902) 755-8100