Real estate: Firm reverses year-ago profit of $2.6 million

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THE CANADIAN PRESS

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STELLARTON, N.S. - Crombie Real Estate Investment Trust (TSX:CRR.UN) announced a $62-million property purchase from its controlling unitholder Thursday, as it posted a $1-million loss for the third quarter.

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Each property Crombie owns is newly constructed or recently renovated.

Crombie said it has agreed to acquire a portfolio of eight retail properties from subsidiaries of Empire Co. Ltd., which holds a 47.9 per cent interest in the trust.

The properties include approximately 31,000 square metres of gross leaseable area consisting of three freestanding tenants and five retail plazas.

Each property is newly constructed or recently renovated and the portfolio is 100 per cent leased with approximately 96 per of rental revenue coming from national tenants including Sobeys/IGA and Lawton's.

The weighted average lease term is approximately 16.4 years with less than 10 per cent of the gross leaseable area expiring in the next 10 years, Crombie said.

Three of the retail plazas are anchored by Sobeys bannered grocery stores. The freestanding locations include a Lawton's, Future Shop and Mountain Equipment Co-op and two are adjacent to locations owned by Crombie.

"Crombie will enhance its geographic diversification as the acquisition portfolio is located approximately 50 per cent in Atlantic Canada, and 25 per cent each in Ontario and Quebec," the company said in a news release.

The purchase price is approximately $62 million, excluding closing and transaction costs, and represents an effective capitalization rate of 8.16 per cent.

"Empire is in the process of obtaining mortgage financing for certain of the properties of an amount anticipated to approximate $30.4 million, which will be assumed by Crombie at closing," the company said.

The remaining amount of the purchase price is intended to be financed by Crombie by drawing on its revolving credit facility. Closing of the acquisition is expected to occur in stages over the next six months as due diligence and mortgage financing are finalized.

"We are extremely pleased to announce this acquisition which, together with our other acquisitions from Empire, reflects the sustainable competitive advantage that Crombie enjoys through our relationship with Empire and its development pipeline along with reflecting our confidence in the strength of our business," president and chief executive Donald Clow said in a statement.

Empire, which also owns Sobeys, Canada's second-largest supermarket chain, sold 61 properties to Crombie in April 2008 through Sobey Leased Properties.

Crombie's third-quarter loss of $1 million or three cents a unit compared with a profit of $2.6 million or nine cents in the comparable 2008 quarter.

Revenue from property in both periods was about $51 million.

Funds from operations, a widely used measure of performance by publicly traded real estate investment trusts, totalled $8.9 million or 15 cents per unit in the quarter, down from $19.2 million or 37 cents in the year-ago period.

"The decrease of $10.3 million was due to the impact of the $8.1-million settlement of an ineffective interest rate swap agreement during the quarter as previously disclosed and a write-off of deferred financing charges of $1.8 million," the company said.

Crombie units were up 13 cents at $10.50 Thursday on the Toronto Stock Exchange, while Empire shares advanced 42 cents to $43.10.