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Press release from CNW Group

Crombie REIT Announces First Quarter 2010 Results

Thursday, May 06, 2010

Crombie REIT Announces First Quarter 2010 Results08:12 EDT Thursday, May 06, 2010STELLARTON, NS, May 6 /CNW/ - Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its results for the first quarter ended March 31, 2010.2010 First Quarter Highlights << - Crombie completed the refinancing for the office and retail portfolio known as Halifax Developments resulting in additional proceeds of $35.0 million on February 1, 2010. - Crombie completed an offering of convertible unsecured subordinated debentures for gross proceeds of $45.0 million on February 8, 2010. - Crombie completed the acquisition of eight retail properties, in two tranches, for a total purchase price of $59.3 million, excluding closing and transaction costs. - Property revenue for the quarter ended March 31, 2010 of $53.2 million represented an increase of 0.4% compared to $53.0 million for the quarter ended March 31, 2009, and an increase of 1.6% compared to the quarter ended December 31, 2009. - Same-asset NOI for the quarter ended March 31, 2010 of $31.5 million remained virtually unchanged compared to $31.6 million for the quarter ended March 31, 2009. - Crombie completed leasing activity on approximately 268,000 square feet of gross leaseable area during the first quarter of 2010, which represents approximately 34.6% of its 2010 expiring leases. - Average net rent per square foot from the leasing activity decreased slightly to $13.34 from the expiring rent per square foot of $13.44, a decrease of 0.7%. Excluding two new leases with anchor tenants in redevelopment properties, average net rent per square foot from leasing activity would have been $14.97, an increase of 11.4%. - Occupancy for the properties increased to 95.0% at March 31, 2010 compared with 94.7% at December 31, 2009 and 94.2% at March 31, 2009. >> Commenting on the quarterly results, Donald E. Clow, FCA, President and Chief Executive Officer stated: "The addition of the eight new property acquisitions in the quarter positions Crombie for continued growth in our operating results and high quality cash flow. The refinancing of the Halifax Developments portfolio, additional mortgage financing and debenture financing significantly improves the REIT's liquidity which will provide Crombie with financial flexibility and enable strategic growth.Our grocery-anchored retail property portfolio remained resilient during the very difficult economic environment of 2009, and we are seeing improved occupancy results as the economy improves. We are pleased to see same-asset NOI, calculated on a cash basis, improve over the quarter."The table below presents a summary of the financial performance for the quarter ended March 31, 2010 compared to the same period in fiscal 2009. << ------------------------------------------------------------------------- Three Three months months ended ended (In millions of dollars, except where Mar. 31, Mar. 31, otherwise noted) 2010 2009 ------------------------------------------------------------------------- Property revenue $53.221 $52.992 Property expenses 20.008 19.971 ------------------------------------------------------------------------- Property NOI 33.213 33.021 ------------------------------------------------------------------------- NOI margin percentage 62.4% 62.3% ------------------------------------------------------------------------- Expenses: General and administrative 2.523 1.644 Interest 13.634 10.730 Depreciation and amortization 11.279 12.491 ------------------------------------------------------------------------- 27.436 24.865 ------------------------------------------------------------------------- Income before other items, income taxes and non-controlling interest 5.777 8.156 Other income - 0.092 ------------------------------------------------------------------------- Income before income taxes and non-controlling interest 5.777 8.248 Income taxes expense (recovery) - Future (1.100) 0.200 ------------------------------------------------------------------------- Income before non-controlling interest 6.877 8.048 Non-controlling interest 3.262 3.856 ------------------------------------------------------------------------- Net income $3.615 $4.192 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted net income per unit $0.11 $0.15 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> Acquisition propertiesOn February 22, 2010, Crombie completed the acquisition of five of the eight retail properties previously announced on November 5, 2009, from subsidiaries of Empire Company Limited. The cost of the portfolio was $31.5 million, excluding closing and transaction costs, and was partially financed by the assumption of $8.4 million of mortgages with a weighted average term of 8.6 years, a 25 year amortization period and a weighted average interest rate of 6.26%. The balance was financed with Crombie's existing credit facility. On March 24, 2010, Crombie completed the acquisition of the remaining three properties. The purchase price of the three properties was $27.7 million and was financed with Crombie's existing credit facility. Commitments for mortgage financing for the properties of approximately $19.0 million have been assigned to Crombie and are anticipated to close during the second quarter of 2010. << Same-Asset Property NOI ------------------------------------------------------------------------- Three Three months months ended ended Mar. 31, Mar. 31, (In millions of dollars) 2010 2009 ------------------------------------------------------------------------- Same-asset property revenue $50.273 $50.365 ------------------------------------------------------------------------- Same-asset property expenses 18.763 18.774 ------------------------------------------------------------------------- Same-asset property NOI $31.510 $31.591 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Same-asset NOI margin % 62.7% 62.7% ------------------------------------------------------------------------- >> Same-asset property revenue for the quarter ended March 31, 2010 of $50.3 million was 0.2% lower than the same period in 2009 due primarily to the reduction in below-market lease amortization as original lease terms expire partially offset by increases in base rent and recoveries and improvements in occupancy rates. Same-asset property expenses of $18.8 million for the quarter ended March 31, 2010 were $0.01 million lower than the same period in 2009 due to reduced snow clearing costs and non-shareable expenses which were offset by increases in recoverable property taxes and other recoverable costs. As a result of the above, same-asset NOI for the quarter ended March 31, 2010 remained relatively stable as it decreased by 0.3% from the same quarter in 2009. << Acquisition and Redevelopment Property NOI ------------------------------------------------------------------------- Three Three months months ended ended Mar. 31, Mar. 31, (In millions of dollars) 2010 2009 ------------------------------------------------------------------------- Acquisition and redevelopment property revenue $2.948 $2.627 Acquisition and redevelopment property expenses 1.245 1.197 ------------------------------------------------------------------------- Acquisition and redevelopment property NOI $1.703 $1.430 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Acquisition and redevelopment NOI margin % 57.8% 54.4% ------------------------------------------------------------------------- >> For the three months ended March 31, 2010, the acquisition properties include the eight retail properties acquired in February and March 2010. In addition, Crombie has included the operating results of the five properties that were in redevelopment during the first quarter of 2010. << Property NOI - Cash Basis ------------------------------------------------------------------------- Three Three months months ended ended Mar. 31, Mar. 31, (In millions of dollars) 2010 2009 ------------------------------------------------------------------------- Same-asset property cash NOI $29.909 $29.573 Acquisition and redevelopment property cash NOI 1.508 1.191 Straight-line and above- and below-market rent amortization 1.796 2.257 ------------------------------------------------------------------------- Property NOI $33.213 $33.021 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> Property NOI, on a cash basis, excludes straight-line rent recognition and amortization of below-market and above-market lease amounts. The increase in same-asset cash NOI for the quarter ended March 31, 2010 is primarily the result of increased occupancy rates combined with the increased average net rent per square foot results from the 2009 leasing activity.General and Administrative ExpensesGeneral and administrative expenses increased during the first quarter of 2010 to $2.5 million from $1.6 million in the first quarter of 2009 primarily due to higher incentive payments and travel costs in the first quarter of 2010 combined with reduced incentive payments in the first quarter of 2009. General and administrative expenses as a percentage of revenue have increased to 4.7% in the first quarter of 2010 compared to 3.1% in the first quarter of 2009. Crombie anticipates that general and administrative expenses will approximate 4.0% to 4.5% of property revenue for the full year of 2010. << Interest ------------------------------------------------------------------------- Three Three months months ended ended Mar. 31, Mar. 31, (In millions of dollars) 2010 2009 ------------------------------------------------------------------------- Same-asset interest expense $11.780 $9.528 Acquisition and redevelopment interest expense 0.470 0.515 Amortization of effective swaps and deferred financing charges 1.384 0.687 ------------------------------------------------------------------------- Interest expense $13.634 $10.730 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> The increase in same-asset interest expense for the quarter ended March 31, 2010 reflects Crombie's replacement of short-term floating rate debt with long-term fixed rate mortgages and convertible debentures. The weighted average contractual interest rate on fixed rate mortgages increased to 5.86% at March 31, 2010, from 5.51% at March 31, 2009, primarily due to the refinancing, on February 1, 2010, of the maturing Halifax Developments mortgages. Floating rate debt decreased from $251.7 million at March 31, 2009 to $54.5 million at the end of the first quarter of 2010.FFO and AFFOCrombie's Funds From Operations ("FFO") and Adjusted Funds From Operations ("AFFO") had the following results for the first quarter: << ------------------------------------------------------------------------- Quarter ended March 31, --------------------------------------------- Variance (In millions of dollars, --------------------- except per unit amounts) 2010 2009 $ % ------------------------------------------------------------------------- FFO $17.056 $20.739 $(3.683) (17.8)% FFO Per Unit - basic $0.28 $0.40 $(0.12) (30.0)% FFO Per Unit - diluted $0.27 $0.39 $(0.12) (30.8)% FFO Payout ratio 79.5% 56.2% (23.3)% ------------------------------------------------------------------------- AFFO $12.744 $11.698 $1.046 8.9% AFFO Per Unit - basic $0.21 $0.22 $(0.01) (4.5)% AFFO Per Unit - diluted $0.20 $0.22 $(0.02) (9.1)% AFFO Payout ratio 106.5% 99.6% (6.9)% ------------------------------------------------------------------------- >> The decrease in FFO for the quarter ended March 31, 2010 to $17.1 million ($0.27 per unit - diluted) from $20.7 million ($0.39 per unit - diluted) in the first quarter of 2009 was primarily due to the impact of the increased interest expense and increased general and administrative expenses.AFFO for the first quarter of 2010 was $12.7 million ($0.20 per unit - diluted) compared to $11.7 million ($0.22 per unit - diluted) for the first quarter of 2009. The improved AFFO result for the quarter ended March 31, 2010, compared to the same quarter of 2009, is the primarily the result of the lack of settlement costs on effective interest rate swap agreements incurred in the first quarter of 2009, partially offset by the reduced FFO results and higher maintenance capital expenditures in 2010.Liquidity and FinancingsCrombie's objective when managing capital on a long-term basis is to utilize staggered debt maturities, minimize long-term exposure to floating rate debt and maintain conservative payout ratios. Crombie has in place an authorized floating rate revolving credit facility of up to $150 million, of which $54.5 million was drawn as at March 31, 2010. Debt to gross book value was 54.8% at March 31, 2010 compared to 52.4% at December 31, 2009, and 54.8% at March 31, 2009. This leverage ratio is below the maximum 60%, or 65% including convertible debentures, as outlined by Crombie's Declaration of Trust. On a long-term basis, Crombie intends to maintain overall indebtedness, including convertible debentures, in the range of 50% to 60% of gross book value, depending upon Crombie's future acquisitions and financing opportunities. Crombie's interest and debt service coverage for the quarter ended March 31, 2010 were 2.44 times EBITDA and 1.73 times EBITDA. This compares to 2.99 times EBITDA and 2.11 times EBITDA respectively for the quarter ended March 31, 2009. The reduction on the interest service coverage is attributable to the increased interest expense as Crombie has replaced short-term floating rate debt with long-term fixed rate debt. The reduction in the debt service coverage is further impacted by the increased debt repayments on the amortizing mortgages.Convertible Debenture Offering - In February 2010, Crombie completed an issuance of unsecured convertible subordinated debentures ("Series C Debentures") for gross proceeds of $45 million to reduce the revolving credit facility. The Series C Debentures pay interest at a rate of 5.75% per annum and are convertible into Units at a conversion price of $15.30.Revolving Credit Facility - through utilization of the additional proceeds from the mortgage financings and the convertible debenture issue, partially offset by funds required for the eight property acquisition in the period, Crombie has reduced the balance outstanding on its Revolving Credit Facility from $106.2 million at December 31, 2009, to $54.5 million at March 31, 2010.Mortgage Financing - On February 1, 2010, Crombie completed the refinancing for the office and retail portfolio known as Halifax Developments. The principal amount of the maturing Halifax Developments mortgages was approximately $106.1 million with a weighted average interest rate of 5.43%. The new Halifax Developments mortgages are for a total of $141 million. The initial mortgage financing has a $25 million principal, a ten year term and a 25 year amortization with a fixed interest of 6.52%. The additional refinancing has a $116 million principal, a ten year term and an amortization period of 25 years with a fixed interest rate of 6.47%.In February 2010, Crombie also completed $33.8 million mortgage financing on five properties. The mortgages have a term of eight years, a weighted average amortization period of 21.6 years, and a fixed interest rate of 5.70%.Definition of Non-GAAP MeasuresCertain financial measures included in this news release do not have standardized meaning under Canadian generally accepted accounting principles and therefore may not be comparable to similarly titled measures used by other publicly traded companies. Crombie includes these measures because it believes certain investors use these measures as a means of assessing Crombie's financial 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. - EBITDA is calculated as property revenue, adjusted to remove the impact of amortization of above market and below market leases, less property expenses and general and administrative expenses. - 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, maintenance tenant improvements and leasing costs, and the settlement of interest rate swap agreements. >> About CrombieCrombie 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 118 commercial properties in seven provinces, comprising approximately 11.5 million square feet of rentable space.This news release contains forward looking statements that reflect the current 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 forward looking statements. These statements reflect current beliefs and are based on information currently available to management of Crombie. Forward looking statements necessarily involve known and unknown risks and uncertainties. A number of factors, including those discussed in the 2009 annual Management Discussion and Analysis under "Risk Management", could cause actual results, performance, achievements, prospects or opportunities to differ materially from the results discussed or implied in the forward looking statements. These factors should be considered carefully and a reader should not place undue reliance on the forward looking statements. There can be no assurance that the expectations of management of Crombie will prove to be correct.In particular, certain statements in this document discuss Crombie's anticipated outlook of future events. These statements include, but are not limited to anticipated or target distributions and payout ratios, which could be impacted by seasonality of capital expenditures, results of operations and capital resource allocation decisions as well as the closing of a mortgage financing which is dependent on the completion of pre-funding conditions.Readers are cautioned that such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from these statements. Crombie can give no assurance that actual results will be consistent with these forward-looking statements.Additional information relating to Crombie can be found on Crombie's web site at www.crombiereit.com or on the SEDAR web site for Canadian regulatory filings at www.sedar.com.Conference Call InvitationCrombie will provide additional details concerning its first quarter ended March 31, 2010 results on a conference call to be held Friday, May 7, 2010, at 9:30 a.m. Eastern time. To join this conference call you may dial (902) 455-3592 or (888) 231-8191. You may also listen to a live audio web cast of the conference call by visiting Crombie's website located at www.crombiereit.com. Replay will be available until midnight May 21, 2010, by dialling (416) 849-0833 or (800) 642-1687 and entering pass code 71200637, or on the Crombie website for 90 days after the meeting. << CROMBIE REAL ESTATE INVESTMENT TRUST Consolidated Financial Statements March 31, 2010 CROMBIE REAL ESTATE INVESTMENT TRUST Consolidated Balance Sheets (In thousands of dollars) (Unaudited) ------------------------------------------------------------------------- March 31, December 31, 2010 2009 ------------------------------- Assets Commercial properties (Note 4) $1,362,734 $1,314,611 Intangible assets (Note 5) 109,001 103,357 Notes receivable (Note 6) 7,661 8,169 Other assets (Note 7) 23,507 24,100 Cash and cash equivalents 2,861 - Assets related to discontinued operations (Note 21) 6,912 6,929 ------------------------------- $1,512,676 $1,457,166 ------------------------------- ------------------------------- Liabilities and Unitholders' Equity Commercial property debt (Note 8) $722,017 $706,369 Convertible debentures (Note 9) 153,839 110,858 Payables and accruals (Note 10) 43,051 39,223 Intangible liabilities (Note 11) 31,053 31,558 Employee future benefits obligation (Note 23) 6,349 6,260 Distributions payable 4,523 4,522 Future income tax liability (Note 16) 78,600 79,700 Liabilities related to discontinued operations (Note 21) 6,294 6,334 ------------------------------- 1,045,726 984,824 Non-controlling interest (Note 12) 222,734 225,367 Unitholders' equity 244,216 246,975 ------------------------------- $1,512,676 $1,457,166 ------------------------------- ------------------------------- Commitments and contingencies (Note 18) Subsequent events (Note 24) See accompanying notes to the interim consolidated financial statements. CROMBIE REAL ESTATE INVESTMENT TRUST Consolidated Statements of Income (In thousands of dollars, except per unit amounts) (Unaudited) ------------------------------------------------------------------------- Three Three months months Ended Ended March 31, March 31, 2010 2009 ------------------------------- Revenues Property revenue (Note 14) $53,221 $52,992 Lease terminations - 92 ------------------------------- 53,221 53,084 ------------------------------- Expenses Property expenses 20,008 19,971 General and administrative expenses 2,523 1,644 Interest expense (Note 15) 13,634 10,730 Depreciation of commercial properties 4,830 4,544 Depreciation of recoverable capital expenditures 289 256 Amortization of tenant improvements/ lease costs 1,234 1,131 Amortization of intangible assets 4,926 6,560 ------------------------------- 47,444 44,836 ------------------------------- Income before income taxes and non-controlling interest 5,777 8,248 Income tax expense (recovery) - Future (Note 16) (1,100) 200 ------------------------------- Income before non-controlling interest 6,877 8,048 Non-controlling interest 3,262 3,856 ------------------------------- Net income $3,615 $4,192 ------------------------------- ------------------------------- Basic and diluted net income per unit (Note 13) $0.11 $0.15 ------------------------------- ------------------------------- Weighted average number of units outstanding Basic 31,881,071 27,147,380 ------------------------------- ------------------------------- Diluted 32,048,302 27,271,888 ------------------------------- ------------------------------- See accompanying notes to the interim consolidated financial statements. CROMBIE REAL ESTATE INVESTMENT TRUST Consolidated Statements of Comprehensive Income (In thousands of dollars) (Unaudited) ------------------------------------------------------------------------- Three Three months months Ended Ended March 31, March 31, 2010 2009 ------------------------------- Net income $3,615 $4,192 ------------------------------- Losses on derivatives designated as cash flow hedges transferred to net income in the current period 435 108 Net change in derivatives designated as cash flow hedges 165 (459) ------------------------------- Other comprehensive income (loss) 600 (351) ------------------------------- Comprehensive income $4,215 $3,841 ------------------------------- ------------------------------- See accompanying notes to the interim consolidated financial statements. CROMBIE REAL ESTATE INVESTMENT TRUST Consolidated Statements of Unitholders' Equity (In thousands of dollars) (Unaudited) ------------------------------------------------------------------------- Accu- mulated Other Compre- Contri- hensive REIT Net buted Income Distri- Units Income Surplus (Loss) butions Total ----------------------------------------------------------------- (Note 13) Unit- holders' equity, January 1, 2010 $300,348 $45,378 $73 $(17,433) $(81,391) $246,975 Units released under EUPP 8 - (8) - - - Units issued under EUPP 190 - - - - 190 Loans recei- vable under EUPP (190) - - - - (190) EUPP compen- sation - - 12 - - 12 Repayment of EUPP loans recei- vable 145 - - - - 145 Net income - 3,615 - - - 3,615 Distri- butions - - - - (7,131) (7,131) Other compre- hensive income - - - 600 - 600 ----------------------------------------------------------------- Unit- holders' equity, March 31, 2010 $300,501 $48,993 $77 $(16,833) $(88,522) $244,216 ----------------------------------------------------------------- ----------------------------------------------------------------- Unit- holders' equity, January 1, 2009 $265,096 $34,630 $34 $(29,567) $(54,635) $215,558 EUPP compen- sation - - 11 - - 11 Repayment of EUPP loans recei- vable 9 - - - - 9 Net income - 4,192 - - - 4,192 Distri- butions - - - - (6,068) (6,068) Other compre- hensive loss - - - (351) - (351) ----------------------------------------------------------------- Unit- holders' equity, March 31, 2009 $265,105 $38,822 $45 $(29,918) $(60,703) $213,351 ----------------------------------------------------------------- ----------------------------------------------------------------- See accompanying notes to the interim consolidated financial statements. CROMBIE REAL ESTATE INVESTMENT TRUST Consolidated Statements of Cash Flows (In thousand of dollars) (Unaudited) ------------------------------------------------------------------------- Three Three months months Ended Ended March 31, March 31, 2010 2009 ------------------------------- Cash flows provided by (used in) Operating Activities Net income $3,615 $4,192 Items not affecting operating cash (Note 17) 13,041 14,988 ------------------------------- 16,656 19,180 Additions to tenant improvements and lease costs (713) (1,240) Change in other non-cash operating items (Note 17) 7,332 (7,276) ------------------------------- Cash provided by operating activities 23,275 10,664 ------------------------------- Financing Activities Issue of commercial property debt 174,850 57,000 Increase in deferred financing charges (1,470) (557) Issue of convertible debentures 45,000 - Issue costs of convertible debentures (2,287) - Settlement of interest rate swap agreements - (4,535) Repayment of commercial property debt (166,379) (53,491) Decrease in liabilities related to discontinued operations (40) (67) Collection of notes receivable 508 786 Repayment of EUPP loan receivable 145 9 Payment of distributions (13,568) (11,649) ------------------------------- Cash provided by (used in) financing activities 36,759 (12,504) ------------------------------- Investing Activities Additions to commercial properties (5,127) (1,730) Additions to recoverable capital expenditures (453) (312) Decrease in assets related to discontinued operations 17 22 Acquisition of commercial properties (Note 4) (51,610) - ------------------------------- Cash used in investing activities (57,173) (2,020) ------------------------------- Increase (decrease) in cash and cash equivalents during the period 2,861 (3,860) Cash and cash equivalents, beginning of period - 4,028 ------------------------------- Cash and cash equivalents, end of period $2,861 $168 ------------------------------- ------------------------------- See accompanying notes to the interim consolidated financial statements. CROMBIE REAL ESTATE INVESTMENT TRUST Notes to Interim Consolidated Financial Statements (In thousands of dollars, except per unit amounts) (Unaudited) March 31, 2010 ------------------------------------------------------------------------- >> 1) CROMBIE REAL ESTATE INVESTMENT TRUSTCrombie Real Estate Investment Trust ("Crombie") is an unincorporated "open-ended" real estate investment trust created pursuant to the Declaration of Trust dated January 1, 2006, as amended. The units of Crombie are traded on the Toronto Stock Exchange ("TSX") under the symbol "CRR.UN".2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Basis of presentationThese interim consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles ("GAAP") as prescribed by the Canadian Institute of Chartered Accountants ("CICA"). These interim consolidated financial statements do not include all of the disclosures included in Crombie's annual consolidated financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2009 as set out in the 2009 Annual Report.The accounting policies used in preparation of these interim consolidated financial statements conform with those used in the 2009 annual consolidated financial statements.(b) Property acquisitionsUpon acquisition of commercial properties, Crombie performs an assessment of the fair value of the properties' related tangible and intangible assets and liabilities (including land, buildings, origination costs, in-place leases, above- and below-market leases, and any other assumed assets and liabilities), and allocates the purchase price to the acquired assets and liabilities. Crombie assesses and considers fair value based on cash flow projections that take into account relevant discount and capitalization rates and any other relevant sources of market information available. Estimates of future cash flow are based on factors that include historical operating results, if available, and anticipated trends, local markets and underlying economic conditions.Crombie allocates the purchase price based on the following:Land - The amount allocated to land is based on an appraisal estimate of its fair value.Buildings - Buildings are recorded at the 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 estimated tenant inducements, leasing commissions and tenant and lease coordination costs.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 recognitionProperty revenue includes rents earned from tenants under lease agreements, percentage rent, realty tax and operating cost recoveries, and other incidental income. Certain leases have rental payments that change over their term due to changes in rates. Crombie records the rental revenue from these leases on a straight-line basis over the term of the lease. Accordingly, an accrued rent receivable/payable is recorded for the difference between the straight-line rent recorded as property revenue and the rent that is contractually due from the tenants. Percentage rents are recognized when tenants are obligated to pay such rent under the terms of the related lease agreements. The value of the differential between original and market rents for existing leases is amortized using the straight-line method over the terms of the tenant lease agreements. Realty tax and other operating cost recoveries, and other incidental income, are recognized on an accrual basis.(d) Income taxesCrombie is taxed as a "mutual fund trust" for income tax purposes. Crombie intends to make distributions not less than the amount necessary to ensure that Crombie will not be liable to pay income tax, except for the amounts incurred in its incorporated subsidiaries.Future income tax liabilities of Crombie relate to tax and accounting basis differences of all incorporated subsidiaries of Crombie. Income taxes are accounted for using the liability method. Under this method, future income taxes are recognized for the expected future tax consequences of differences between the carrying amount of balance sheet items and their corresponding tax values. Future income taxes are computed using substantively enacted corporate income tax rates for the years in which tax and accounting basis differences are expected to reverse.(e) Employee future benefits obligationThe cost of pension benefits for the defined contribution plans is expensed as contributions are paid. The cost of the defined benefit pension plan and post-retirement benefit plan is accrued based on actuarial valuations, which are determined using the projected benefit method pro-rated on service and management's best estimate of the expected long-term rate of return on plan assets, salary escalation, retirement ages and expected growth rate of health care costs. The defined benefit plan and post-retirement benefit plan are unfunded.The impact of changes in plan amendments is amortized on a straight-line basis over the expected average remaining service life ("EARSL") of active members. For the supplementary executive retirement plan, the impacts of changes in the plan provisions are amortized over five years.(f) Use of estimatesThe preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The significant areas of estimation and assumption include: << - Impairment of assets; - Depreciation and amortization; - Employee future benefits 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 distributionsThe determination to declare and make payable distributions from Crombie is at the discretion of the Board of Trustees of Crombie and, until declared payable by the Board of Trustees of Crombie, Crombie has no contractual requirement to pay cash distributions to Unitholders' of Crombie. During the period ended March 31, 2010 $13,568 (period ended March 31, 2009 - $11,649) in cash distributions were declared payable by the Board of Trustees to Crombie Unitholders and Crombie Limited Partnership Unitholders (the "Class B LP Units").(h) Convertible debenturesDebentures with conversion features are assessed at inception as to the value of both their equity component and their debt component. Based on the assessment, Crombie has determined to date that no amount should be attributed to equity and thus its convertible debentures have been classified as liabilities. Distributions to debenture holders are presented as interest expense. Issue costs are netted against the convertible debentures and amortized over the original life of the convertible debentures using the effective interest method.(i) HedgesCrombie has cash flow hedges which are used to manage exposures to increases in variable interest rates. Cash flow hedges are recognized on the balance sheet at fair value with the effective portion of the change in fair value of the hedging relationship recognized in other comprehensive income (loss). Any ineffective portion of the cash flow hedge is recognized in net income. Amounts recognized in accumulated other comprehensive income (loss) are reclassified to net income in the same periods in which the hedged item is recognized in net income. Fair value hedges and the related hedge items are recognized on the balance sheet at fair value with any changes in fair value recognized in net income. To the extent the fair value hedge is effective, the changes in the fair value of the hedge and the hedged item will offset each other.Crombie has a fixed interest rate swap and a delayed interest rate swap designated as cash flow hedges. Crombie has identified these hedges against increases in benchmark interest rates and has formally documented all relationships between these derivative financial instruments and hedged items, as well as the risk management strategy and objectives. Crombie assesses on an ongoing basis whether the derivative financial instrument continues to be effective in offsetting changes in interest rates on the hedged items.(j) Comprehensive incomeComprehensive income is the change in Unitholders' equity during a period from transactions and other events and circumstances from non-owner sources. Crombie reports a consolidated statement of comprehensive income, comprising net income and other comprehensive income (loss) for the period. Accumulated other comprehensive income (loss), has been added to the consolidated statements of Unitholders' equity.(k) Discontinued operationsCrombie classifies properties that meet certain criteria as held for sale and separately discloses any net income and gain (loss) on disposal for current and prior periods as discontinued operations. A property is classified as held for sale at the point in time when it is available for immediate sale, management has committed to a plan to sell the property and is actively locating a purchaser for the property at a sales price that is reasonable in relation to the current estimated fair value of the property, and the sale is expected to be completed within a one year period. Properties held for sale are carried at the lower of their carrying values and estimated fair value less costs to sell. In addition, assets held for sale are no longer depreciated and amortized. A property that is subsequently reclassified as held in use is measured at the lower of its carrying value amount before it was classified as held for sale, adjusted for any depreciation and amortization expense that would have been recognized had it been continuously classified as held and in use, and its estimated fair value at the date of the subsequent decision not to sell.(l) Impairment of long-lived assetsLong-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable.If it is determined that the net recoverable value of a long-lived asset is less than its carrying value, the long-lived asset is written down to its fair value. Net recoverable amount represents the undiscounted estimated future cash flow expected to be received from the long-lived asset. Assets reviewed under this policy include commercial properties and intangible assets.3) CHANGES IN ACCOUNTING POLICIESEffect of new accounting standards not yet implementedInternational Financial Reporting StandardsOn February 13, 2008, the Accounting Standards Board of Canada announced that GAAP for publicly accountable enterprises will be replaced by International Financial Reporting Standards ("IFRS"). IFRS must be adopted for interim and annual financial statements related to fiscal years beginning on or after January 1, 2011, with retrospective adoption and restatement of the comparative fiscal year ended December 31, 2010. Accordingly, the conversion from GAAP to IFRS will be applicable to Crombie's reporting for the first quarter of fiscal 2011 for which the current and comparative information will be prepared under IFRS.Crombie, with the assistance of its external advisors, has launched an internal initiative to govern the conversion process and is currently evaluating the potential impact of the conversion to IFRS on its financial statements. At this time, the impact on Crombie's future financial position and results of operations is not reasonably determinable or estimatable. Crombie expects the transition to IFRS to impact accounting, financial reporting, internal control over financial reporting, information systems and business processes.Crombie has developed a formal project governance structure, and is providing regular progress reports to senior management and the audit committee. Crombie has also completed a diagnostic impact assessment, which involved a high level review of the major differences between current GAAP and IFRS, as well as establishing an implementation guideline. In accordance with this guideline Crombie has established a staff training program and is in the process of completing analysis of the key decision areas, including analyzing the appropriate accounting policy selections from available IFRS options, and making recommendations on the same.Crombie will continue to assess the impact of the transition to IFRS and to review all of the proposed and ongoing projects of the International Accounting Standards Board to determine their impact on Crombie. Additionally, Crombie will continue to invest in training and resources throughout the transition period to facilitate a timely conversion.4) COMMERCIAL PROPERTIES << March 31, 2010 ---------------------------------------- Accumulated Net Cost Depreciation Book Value ---------------------------------------- Land $296,432 $Nil $296,432 Buildings 1,089,885 60,871 1,029,014 Recoverable capital expenditures 7,766 3,295 4,471 Tenant improvements and leasing costs 43,345 10,528 32,817 ---------------------------------------- $1,437,428 $74,694 $1,362,734 ---------------------------------------- ---------------------------------------- December 31, 2009 ---------------------------------------- Accumulated Net Cost Depreciation Book Value ---------------------------------------- Land $286,491 $Nil $ 286,491 Buildings 1,048,112 56,041 992,071 Recoverable capital expenditures 6,853 3,006 3,847 Tenant improvements and leasing costs 43,107 10,905 32,202 ---------------------------------------- $1,384,563 $69,952 $1,314,611 ---------------------------------------- ---------------------------------------- >> Property Acquisitions and DisposalsThe operating results of the acquired properties are included from the respective date of acquisition. << 2010 ---- >> On February 22, 2010, Crombie completed the acquisition of five retail properties, representing approximately 186,000 square feet of gross leaseable area, from subsidiaries of Empire Company Limited. The purchase price of the properties was $31,530, excluding closing and transaction costs. The purchase price was financed through $8,358 of assumed mortgages and the balance from Crombie's floating rate revolving credit facility.On March 24, 2010, Crombie completed the acquisition of three retail properties, representing approximately 147,000 square feet of gross leaseable area, from subsidiaries of Empire Company Limited. The purchase price of the properties was $27,746, excluding closing and transaction costs. The purchase price was financed through Crombie's floating rate revolving credit facility. Commitments for mortgage financing for the properties of approximately $19,000 have been assigned to Crombie and are anticipated to close during the second quarter of 2010 (Note 24).The allocation of the total cost of the acquisitions is as follows. << Three Three months months ended ended Mar. 31, Mar. 31, Commercial property acquired, net: 2010 2009 ------------------------------- Land $9,920 $ Buildings 39,811 - Intangible assets: Lease origination costs 4,855 - Tenant relationships 1,789 - In-place leases 4,707 - Intangible liabilities: Below-market leases (1,114) - ------------------------------- Net purchase price 59,968 - Assumed mortgages (8,358) - ------------------------------- $51,610 $- ------------------------------- ------------------------------- Consideration funded by: Cash from revolving credit facility $51,610 $- ------------------------------- ------------------------------- >> 5) INTANGIBLE ASSETS << March 31, 2010 ---------------------------------------- Accumulated Net Cost Amortization Book Value ---------------------------------------- Origination costs for existing leases $49,765 $10,418 $39,347 In-place leases 46,900 13,666 33,234 Tenant relationships 58,323 26,028 32,295 Above-market existing leases 16,015 11,890 4,125 ---------------------------------------- $171,003 $62,002 $109,001 ---------------------------------------- ---------------------------------------- December 31, 2009 ---------------------------------------- Accumulated Net Cost Amortization Book Value ---------------------------------------- Origination costs for existing leases $52,866 $17,228 $35,638 In-place leases 56,493 26,516 29,977 Tenant relationships 56,534 23,698 32,836 Above-market existing leases 16,015 11,109 4,906 ---------------------------------------- $181,908 $78,551 $103,357 ---------------------------------------- ---------------------------------------- >> 6) NOTES RECEIVABLE << March 31, December 31, 2010 2009 ------------------------------- Capital expenditure program $436 $436 Interest rate subsidy 7,225 7,733 ------------------------------- $7,661 $8,169 ------------------------------- ------------------------------- >> 7) OTHER ASSETS << March 31, December 31, 2010 2009 ------------------------------- Gross accounts receivable $6,882 $7,732 Provision for doubtful accounts (413) (326) ------------------------------- Net accounts receivable 6,469 7,406 Accrued straight-line rent receivable 11,906 10,948 Prepaid expenses 4,889 5,531 Restricted cash 243 215 ------------------------------- $23,507 $24,100 ------------------------------- ------------------------------- >> 8) COMMERCIAL PROPERTY DEBT << Weighted average Weighted contractual average interest term to March 31, Range rate maturity 2010 ------------------------------------------------ Fixed rate mortgages 4.82-7.30% 5.86% 7.5 years $673,481 Floating rate revolving credit facility 1.57% 1.3 years 54,500 Deferred financing charges (5,964) ------------ $722,017 ------------ ------------ Weighted average Weighted contractual average interest term to March 31, Range rate maturity 2009 ------------------------------------------------ Fixed rate mortgages 4.82-8.00% 5.66% 5.8 years $604,992 Floating rate revolving credit facility 1.53% 1.5 years 106,160 Deferred financing charges (4,783) ------------ $706,369 ------------ ------------ As March 31, 2010, debt retirements for the next five years are: Fixed Rate Floating Principal Fixed Rate Rate Payments Maturities Maturities Total ------------------------------------------------ Remaining 2010 $14,725 $- $- $14,725 2011 20,164 26,786 54,500 101,450 2012 21,050 - - 21,050 2013 22,185 30,042 - 52,227 2014 19,826 69,797 - 89,623 Thereafter 87,857 353,726 - 441,583 ------------------------------------------------ $185,807 $480,351 $54,500 720,658 ------------------------------------ ------------------------------------ Deferred financing charges (5,964) Fair value debt adjustment 7,323 ------------ $722,017 ------------ ------------ >> On February 1, 2010, Crombie completed 2 first mortgage refinancings to replace the maturing mortgages of approximately $106,079 for the office and retail portfolio known as Halifax Developments. The initial mortgage financing has a $25,000 principal, a 25 year amortization, a fixed interest rate of 6.52% with a maturity date of February 2020. The additional mortgage has a $116,000 principal, a 25 year amortization, a fixed interest rate of 6.47% with a maturity date of February 2020.On February 22, 2010, Crombie assumed two mortgages totalling $8,358 as part of the financing for a five retail property acquisition. The mortgages have a weighted average term of 8.6 years, a 25 year amortization period and a weighted average interest rate of 6.26%. In addition, Crombie repaid $3,471 to ECL General Partner Limited, to retire a loan used to finance an acquisition at Avalon Mall in 2009, as required under the terms of the agreement.On February 26, 2010, Crombie completed first mortgage financing on five properties. The mortgages are for a total of $33,850 in principal, with an eight year term, a fixed interest rate of 5.70% and a weighted average amortization period of 21.6 years.The floating rate revolving credit facility has a maximum principal amount of $150,000 and is used by Crombie for working capital purposes. It is secured by a pool of first and second mortgages and negative pledges on certain properties. The floating interest rate is based on specific margins over prime rate or bankers acceptance rates. The specified margin increases as Crombie's overall debt leverage increases.The revolving credit facility also contains a covenant that ECL Developments 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 or obtain alternative financing. Pursuant to an exchange agreement, and while such covenant remains in place, ECL Developments Limited will be required to give Crombie at least six months' prior written notice of its intention to reduce its voting interest below 40%.9) CONVERTIBLE DEBENTURES << Conversion Interest March 31, December 31, Price Maturity date rate 2010 2009 --------------------------------------------------------------- Series A (CRR.DB) $13.00 March 20, 2013 7.00% $30,000 $30,000 Series B (CRR.DB.B) $11.00 June 30, 2015 6.25% 85,000 85,000 Series C (CRR.DB.C) $15.30 June 30, 2017 5.75% 45,000 - Deferred financing charges (6,161) (4,142) ------------------------ $153,839 $110,858 ------------------------ ------------------------ >> On February 8, 2010, Crombie issued $45,000 in convertible unsecured subordinate debentures (the "Series C Convertible Debentures"). The proceeds were used to reduce the revolving credit facility.The Series A, Series B, and Series C Convertible Debentures, (collectively the "Debentures") pay interest semi-annually on June 30 and December 31 of each year and Crombie has the option to pay interest on any interest payment date by selling units and applying the proceeds to satisfy its interest obligation.The Debentures are convertible into Units at the option of the debenture holder at any time up to the maturity date, at the conversion price indicated in the table above, being a conversion rate of approximately 76.9231 Units per one thousand principal amount of Series A Convertible Debentures, 90.9091 Units per one thousand principal amount of Series B Convertible Debentures and 65.3595 Units per one thousand principal amount of Series C Convertible Debentures. If all conversion rights attaching to the Series A Convertible Debentures, the Series B Convertible Debentures and the Series C Convertible Debentures are exercised, Crombie would be required to issue approximately 2,307,693 Units, 7,727,272 Units, and 2,941,176 Units, respectively, subject to anti-dilution adjustments.For the first three years from the date of issue, there is no ability to redeem the Debentures, after which, each series of Debentures has a period, lasting one year, during which the Debentures may be redeemed, in whole or in part, on not more than 60 days' and not less than 30 days' prior notice, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest, provided that the volume-weighted average trading price of the Units on the TSX for the 20 consecutive trading days ending on the fifth trading day preceding the date on which notice on redemption is given exceeds 125% of the conversion price. After the end of the fourth period, and to the maturity date, the Debentures may be redeemed, in whole or in part, at anytime at the redemption price equal to the principal amount thereof plus accrued and unpaid interest. Provided that there is not a current event of default, Crombie will have the option to satisfy its obligation to pay the principal amount of the Debentures at maturity or upon redemption, in whole or in part, by issuing the number of units equal to the principal amount of the Debentures then outstanding divided by 95% of the volume-weighted average trading price of the units for a stipulated period prior to the date of redemption or maturity, as applicable. Upon change of control of Crombie, Debenture holders have the right to put the Debentures to Crombie at a price equal to 101% of the principal amount plus accrued and unpaid interest.Transaction costs related to the Debentures have been deferred and are being amortized into interest expense over the term of the Debentures using the effective interest method.10) PAYABLES AND ACCRUALS << March 31, December 31, 2010 2009 ------------------------------- Tenant improvements and capital expenditures $18,661 $20,209 Property operating costs 13,460 10,575 Advance rents 2,363 2,069 Interest on commercial property debt and debentures 5,348 2,836 Fair value of interest rate swap agreements 3,219 3,534 ------------------------------- $43,051 $39,223 ------------------------------- ------------------------------- >> 11) INTANGIBLE LIABILITIES << March 31, 2010 ---------------------------------------- Accumulated Net Cost Amortization Book Value ---------------------------------------- Below-market leases $55,511 $24,458 $31,053 ---------------------------------------- ---------------------------------------- December 31, 2009 ---------------------------------------- Accumulated Net Cost Amortization Book Value ---------------------------------------- Below-market leases $54,397 $22,839 $31,558 ---------------------------------------- ---------------------------------------- >> 12) NON-CONTROLLING INTEREST << Accu- mulated Other Compre- Contri- hensive Class B Net buted Income Distri- LP Units Income Surplus (Loss) butions Total ----------------------------------------------------------------- Balance, January 1, 2010 $274,260 $41,929 $Nil $(16,302) $(74,520) $225,367 Net income - 3,262 - - - 3,262 Distri- butions - - - - (6,437) (6,437) Other compre- hensive income - - - 542 - 542 ----------------------------------------------------------------- Balance, March 31, 2010 $274,260 $45,191 $Nil $(15,760) $(80,957) $222,734 ----------------------------------------------------------------- ----------------------------------------------------------------- Accu- mulated Other Compre- Contri- hensive Class B Net buted Income Distri- LP Units Income Surplus (Loss) butions Total ----------------------------------------------------------------- Balance, January 1, 2009 $244,520 $32,098 $Nil $(27,254) $(50,201) $199,163 Net income - 3,856 - - - 3,856 Distri- butions - - - - (5,581) (5,581) Other compre- hensive loss - - - (323) - (323) ----------------------------------------------------------------- Balance, March 31, 2009 $244,520 $35,954 $Nil $(27,577) $(55,782) $197,115 ----------------------------------------------------------------- ----------------------------------------------------------------- >> 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, January 1, 2010 32,044,299 $300,348 28,925,730 $274,260 60,970,029 $574,608 Units issued under EUPP 17,157 190 - - 17,157 190 Units re- leased under EUPP - 8 - - - 8 Net change in EUPP loans recei- vable - (45) - - - (45) ------------------------------------------------------------------ Balance, March 31, 2010 32,061,456 $300,501 28,925,730 $274,260 60,987,186 $574,761 ------------------------------------------------------------------ ------------------------------------------------------------------ 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, 2009 27,271,888 $265,096 25,079,576 $244,520 52,351,464 $509,616 Net change in EUPP loans recei- vable - 9 - - - 9 ------------------------------------------------------------------ Balance, March 31, 2009 27,271,888 $265,105 25,079,576 $244,520 52,351,464 $509,625 ------------------------------------------------------------------ ------------------------------------------------------------------ >> Crombie REIT UnitsCrombie is authorized to issue an unlimited number of units ("Units") and an unlimited number of voting non-participating Units (the "Special Voting Units"). Issued and outstanding Units may be subdivided or consolidated from time to time by the Trustees without the approval of the Unitholders. Units are redeemable at any time on demand by the holders at a price per Unit equal to the lesser of: (i) 90% of the weighted average price per Crombie Unit during the period of the last ten days during which Crombie's Units traded; and (ii) an amount equal to the price of Crombie's Units on the date of redemption, as defined in the Declaration of Trust.On March 23, 2010, Crombie announced a normal course issuer bid ("NCIB") where Crombie may purchase for cancellation up to 100,000 of its units, which represents approximately 0.31% of the outstanding units, during the period March 26, 2010 to March 25, 2011. The purchases will be made through the facilities of the TSX. The price that Crombie will pay for any such units will be the market price at the time of acquisition. Under the TSX policies, Crombie is entitled to purchase a maximum of 14,143 units per trading day. As at March 31, 2010, Crombie has not purchased any units under the NCIB.Crombie REIT Special Voting Units and Class B LP UnitsThe Declaration of Trust and the Exchange Agreement provide for the issuance of Special Voting Units to the holders of Class B LP Units used solely for providing voting rights proportionate to the votes of Crombie's Units. The Special Voting Units are not transferable separately from the Class B LP Units to which they are attached and will be automatically transferred upon the transfer of such Class B LP Unit. If the Class B LP Units are exchanged in accordance with the Exchange Agreement, a like number of Special Voting Units will be redeemed and cancelled for no consideration by Crombie.The Class B LP Units issued by a subsidiary of Crombie to ECL Developments Limited have economic and voting rights equivalent, in all material aspects, to Crombie's Units. They are indirectly exchangeable on a one-for-one basis for Crombie's Units at the option of the holder, under the terms of the Exchange Agreement.Each Class B LP Unit entitles the holder to receive distributions from Crombie, pro rata with distributions made by Crombie on 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 certain senior executives. Awards made under the EUPP will allow executives to purchase units from treasury at the average daily high and low board lot trading prices per unit on the TSX for the five trading days preceding the issuance. Executives are provided non-recourse loans at 3% annual interest by Crombie for the purpose of acquiring Units from treasury and the Units purchased are held as collateral for the loan. The loan is repaid through the application of the after-tax amounts of all distributions received on the Units, as well as the after-tax portion of any Long-Term Incentive Plan cash awards received, as payments on interest and principal. As at March 31, 2010, there are loans receivable from executives of $1,491 under Crombie's EUPP, representing 168,776 Units, which are classified as a reduction of Unitholders' Equity. Loan repayments will result in a corresponding increase in Unitholders' Equity. Market value of the Units at March 31, 2010 was $2,025.The compensation expense related to the EUPP during the period ended March 31, 2010 was $12 (period ended March 31, 2009 - $11).Income per Unit ComputationsBasic net income per Unit is computed by dividing net income by the weighted average number of Units outstanding during the year. Diluted net income per Unit is calculated on the assumption that all EUPP loans were repaid at the beginning of the year. For all years, the assumed exchange of all Class B LP Units would not be dilutive. The convertible debentures are anti-dilutive and have not been included in diluted net income per unit or diluted weighted average number of units outstanding. As at March 31, 2010, there are no other dilutive items.14) PROPERTY REVENUE << Three Three months months Ended Ended March 31, March 31, 2010 2009 ------------------------------- Rental revenue contractually due from tenants $51,425 $50,735 Straight-line rent recognition 958 883 Below-market lease amortization 1,619 2,145 Above-market lease amortization (781) (771) ------------------------------- $53,221 $52,992 ------------------------------- ------------------------------- >> 15) INTEREST << Three Three months months Ended Ended March 31, March 31, 2010 2009 ------------------------------- Fixed rate mortgages $10,616 $8,152 Floating rate term, revolving and demand facilities 822 2,060 Convertible debentures 2,196 518 ------------------------------- Interest expense 13,634 10,730 Change in fair value debt adjustment 508 786 Change in accrued interest (2,512) (643) Amortization of effective swap agreements (827) (207) Amortization of deferred financing charges (557) (480) ------------------------------- Interest paid $10,246 $10,186 ------------------------------- ------------------------------- >> 16) FUTURE INCOME TAXESOn September 22, 2007, tax legislation Bill C-52, the Budget Implementation Act, 2007 (the "Act") was passed into law. The Act related to the federal income taxation of publicly traded income trusts and partnerships. The Act subjects all existing income trusts, or specified investment flow-through entities ("SIFTs"), to corporate tax rates beginning in 2011, subject to an exemption for real estate investment trusts ("REITs"). A trust that satisfies the criteria of a REIT throughout its taxation year will not be subject to income tax in respect of distributions to its unitholders or be subject to the restrictions on its growth that would apply to SIFTs.Crombie's management and its advisors have completed an extensive review of Crombie's organizational structure and operations to support Crombie's assertion that it meets the REIT technical tests contained in the Act. 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 liability of the wholly-owned corporate subsidiary which is subject to income taxes consists of the following: << March 31, December 31, 2010 2009 ------------------------------- Tax liabilities relating to difference in tax and book value $86,571 $87,389 Tax asset relating to non-capital loss carry-forward (7,971) (7,689) ------------------------------- Future income tax liability $78,600 $79,700 ------------------------------- ------------------------------- The future income tax recovery consists of the following: Three Three months months Ended Ended March 31, March 31, 2010 2009 ------------------------------- Provision for income taxes at the expected rate $1,726 $2,812 Tax effect of income attribution to Crombie's unitholders (1,126) (2,612) Decreased income tax resulting from a change in expected rate (1,700) - ------------------------------- Income tax expense (recovery) $(1,100) $200 ------------------------------- ------------------------------- >> 17) SUPPLEMENTARY CASH FLOW INFORMATION << a) Items not affecting operating cash Three Three months months Ended Ended March 31, March 31, 2010 2009 ------------------------------- Items not affecting operating cash: Non-controlling interest $3,262 $3,856 Depreciation of commercial properties 4,830 4,544 Depreciation of recoverable capital expenditures 289 256 Amortization of tenant improvements/ lease costs 1,234 1,131 Amortization of deferred financing charges 557 480 Amortization of effective swap agreements 827 207 Amortization of intangible assets 4,926 6,560 Amortization of above-market leases (Note 14) 781 771 Amortization of below-market leases (Note 14) (1,619) (2,145) Accrued rental revenue (958) (883) Unit based compensation 12 11 Future income tax expense (recovery) (1,100) 200 ------------------------------- $13,041 $14,988 ------------------------------- ------------------------------- b) Change in other non-cash operating items Three Three months months Ended Ended March 31, March 31, 2010 2009 ------------------------------- Cash provided by (used in): Receivables $937 $777 Prepaid expenses and other assets 614 2,633 Payables and other liabilities 5,781 (10,686) ------------------------------- $7,332 $(7,276) ------------------------------- ------------------------------- >> 18) COMMITMENTS AND CONTINGENCIESThere are various claims and litigation, which Crombie is involved with, arising out of the ordinary course of business operations. In the opinion of management, any liability that would arise from such contingencies would not have a significant adverse effect on these financial statements.Crombie has agreed to indemnify its trustees and officers, and particular employees in accordance with Crombie's policies. Crombie maintains insurance policies that may provide coverage against certain claims.Crombie has entered into a management cost sharing agreement with a subsidiary of Empire Company Limited. Details of this agreement are described in "Related Party Transactions" (Note 19).Crombie has land leases on certain properties. These leases have payments of $969 per year over the next five years. The land leases have terms of between 15.1 and 74.8 years remaining, including renewal options.Crombie obtains letters of credit to support its obligations with respect to construction work on its commercial properties, defeasing commercial property debt and satisfying mortgage financing requirements. Crombie has $223 in standby letters of credit for construction work that is being performed on its commercial properties. In connection with the defeasance of the discontinued operations commercial property debt, Crombie has issued a standby letter of credit in the amount of $1,715 in favour of the mortgage lender. In addition, to satisfy the requirements of mortgage financings, Crombie has issued standby letters of credit in the amount of $8,100 in favour of the mortgage lender. Crombie does not believe that any of these standby letters of credit are likely to be drawn upon.19) RELATED PARTY TRANSACTIONSAs at March 31, 2010, Empire Company Limited, through its wholly-owned subsidiary ECL Developments Limited, holds a 47.4% (fully diluted 40.3%) indirect interest in Crombie. Crombie uses the exchange amount as the measurement basis for the related party transactions.For a period of five years commencing March 23, 2006, certain executive management individuals and other employees of Crombie will provide general management, financial, leasing, administrative, and other administration support services to certain real estate subsidiaries of Empire Company Limited on a cost sharing basis, pursuant to a Management Cost Sharing Agreement dated March 23, 2006 between Crombie Developments Limited, a subsidiary of Crombie, and ECL Developments Limited, a subsidiary of Empire Company Limited ("Management Cost Sharing Agreement"). The costs assumed by Empire Company Limited pursuant to the agreement during the three months ended March 31, 2010 were $277 (three months ended March 31, 2009 - $297) and were netted against general and administrative expenses owing by Crombie to Empire Company Limited.For a period of five years, commencing March 23, 2006, certain on-site maintenance and management employees of Crombie will provide property management services to certain real estate subsidiaries of Empire Company Limited on a cost sharing basis pursuant to the Management Cost Sharing Agreement. In addition, for various periods, ECL Developments Limited has an obligation to provide rental income and interest rate subsidies pursuant to an Omnibus Subsidy Agreement dated March 23, 2006 between Crombie Developments Limited, Crombie Limited Partnership and ECL Developments Limited. The costs assumed by Empire Company Limited pursuant to the Management Cost Sharing Agreement during the three months ended March 31, 2010 were $283 (three months ended March 31, 2009 - $376) and were netted against property expenses owing by Crombie to Empire Company Limited. The head lease subsidy during the three months ended March 31, 2010 was $186 (three months ended March 31, 2009 - $250).Crombie also earned rental revenue of $15,009 for the three months ended March 31, 2010 (three months ended March 31, 2009 - $14,560) from Sobeys Inc. and Empire Theatres, subsidiaries of Empire Company Limited.On February 22, 2010, Crombie acquired five properties (Note 4) and assumed two mortgages $8,358 from subsidiaries of Empire Company Limited. In addition, Crombie repaid $3,471 to ECL General Partner Limited to retire a loan as required under the terms of the agreement.On March 24, 2010, Crombie acquired three properties from subsidiaries of Empire Company Limited (Note 4).20) FINANCIAL INSTRUMENTSa) Fair value of financial instrumentsThe fair value of a financial instrument is the estimated amount that Crombie would receive or pay to settle the financial assets and financial liabilities as at the reporting date.Crombie has classified its financial instruments in the following categories: << i. Held for trading - Restricted cash, 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 discounted future cash flows using discount rates that reflect current market conditions for instruments with similar terms and risks. Such fair value estimates are not necessarily indicative of the amounts Crombie might pay or receive in actual market transactions.The following table summarizes the carrying value (excluding deferred financing charges) and fair value of those financial instruments which have a fair value different from their book value at the balance sheet date. << March 31, 2010 December 31, 2009 ------------------------------------------------ Carrying Fair Carrying Fair Value Value Value Value ------------------------------------------------ Assets related to discontinued operations $6,912 $7,015 $6,929 $7,066 ------------------------------------------------ ------------------------------------------------ Commercial property debt $727,981 $725,476 $711,152 $708,401 ------------------------------------------------ ------------------------------------------------ Convertible debentures $160,000 $170,115 $115,000 $120,200 ------------------------------------------------ ------------------------------------------------ Liabilities related to discontinued operations $6,294 $6,222 $6,334 $6,270 ------------------------------------------------ ------------------------------------------------ >> The following summarizes the significant methods and assumptions used in estimating the fair values of the financial instruments reflected in the above table:Assets related to discontinued operations: The fair value of the bonds and treasury bills are based on market trading prices at the reporting date.Commercial property debt and liabilities related to discontinued operations: The fair value of Crombie's commercial property debt and liabilities related to discontinued operations is estimated based on the present value of future payments, discounted at the yield on a Government of Canada bond with the nearest maturity date to the underlying debt, plus an estimated credit spread at the reporting date.Convertible debentures: The fair value of the convertible debentures is estimated based on the market trading prices, at the reporting date, of the convertible debentures.b) Risk managementIn the normal course of business, Crombie is exposed to a number of financial risks that can affect its operating performance. These risks, and the action taken to manage them, are as follows:Credit riskCredit risk arises from the possibility that tenants may experience financial difficulty and be unable to fulfill their lease commitments. Crombie's credit risk is limited to the recorded amount of tenant receivables. A provision for doubtful accounts is taken for all anticipated problem accounts (Note 7).Crombie mitiges credit risk by geographical diversification, utilizing staggered lease maturities, diversifying both its tenant mix and asset mix and conducting credit assessments for new and renewing tenants. As at March 31, 2010: << - Excluding Sobeys (which accounts for 32.6% 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 9.0% of the gross leaseable area of Crombie will expire in any one year. >> As outlined in Note 19, Crombie earned rental revenue of $15,009 for the three months ended March 31, 2010 (three months ended March 31, 2009 - $14,560) from subsidiaries of Empire Company Limited.Interest rate riskInterest rate risk is the potential for financial loss arising from increases in interest rates. Crombie mitigates interest rate risk by utilizing staggered debt maturities, limiting the use of permanent floating rate debt and utilizing interest rate swap agreements. As at March 31, 2010: << - Crombie's weighted average term to maturity of the fixed rate mortgages was 7.5 years; and - Crombie's exposure to floating rate debt, including the impact of the fixed rate swap agreements discussed below, was 0.6% of the total commercial property debt. >> Crombie has entered into interest rate swap agreements to manage the interest rate profile of its current or future debts without an exchange of the underlying principal amount. The breakdown of the swaps in place at March 31, 2010 as part of the interest rate management program, and their associated mark-to-market amounts 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 March 31, 2010, had an unfavourable mark-to-market exposure of $2,398 (March 31, 2009 - unfavourable $4,231) 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 delayed interest rate swap agreement of a notional amount of $8,204 (March 31, 2009 - $100,334) with a settlement date of July 2, 2011 and maturing July 2, 2021 to mitigate exposure to interest rate increases for a mortgage maturing in 2011. The fair value of this delayed interest rate swap agreement at March 31, 2010, had an unfavourable mark-to-market exposure of $821 (March 31, 2009 - unfavourable $21,330) compared to its face value. The change in this amount has been recognized in other comprehensive income (loss). >> Crombie estimates that $3,206 of other comprehensive income (loss) will be reclassified to interest expense during the remaining three quarters of 2010 based on interest rate swap agreements settled to March 31, 2010.A fluctuation in interest rates would have had an impact on Crombie's net income and other comprehensive income (loss) items. Based on the previous year's rate changes, a 0.5% interest rate change would reasonably be considered possible. The changes would have had the following impact: << March 31, 2010 March 31, 2009 ------------------------------------------------ 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 $(33) $33 $(270) $270 ------------------------------------------------------------------------- March 31, 2010 March 31, 2009 ------------------------------------------------ 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 $631 $(653) $10,024 $(9,577) ------------------------------------------------------------------------- >> Crombie does not enter into these interest rate swap transactions on a speculative basis. Crombie is prohibited by its Declaration of Trust in purchasing, selling or trading in interest rate future contracts other than for hedging purposes.Liquidity riskThe real estate industry is highly capital intensive. Liquidity risk is the risk that Crombie may not have access to sufficient debt and equity capital to fund the growth program and/or refinance the debt obligations as they mature.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 tenant improvement costs and make distributions to Unitholders. Debt repayment requirements are primarily funded from refinancing Crombie's maturing debt obligations. Property acquisition funding requirements are funded through a combination of accessing the debt and equity capital markets.There is a risk that the debt capital markets may not refinance maturing debt 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 (Note 8). There is also a risk that the equity capital markets may not be receptive to an equity issue from Crombie with financial terms acceptable to Crombie. As discussed in Note 22, Crombie mitigates its exposure to liquidity risk utilizing a conservative approach to capital management.The estimated maturities of non-derivative financial liabilities are as follows: << Contractual Cash Remaining Flows(1) 2010 2011 2012 ------------------------------------------------ Fixed rate mortgages(2) $920,274 $43,315 $83,291 $55,563 Convertible debentures 212,950 7,500 10,000 10,000 ------------------------------------------------ 1,133,224 50,815 93,291 65,563 Floating rate revolving credit facility 55,570 642 54,928 - ------------------------------------------------ Total $1,188,794 $51,457 $148,219 $65,563 ------------------------------------------------ ------------------------------------------------ 2013 2014 Thereafter ------------------------------------------------ Fixed rate mortgages(2) $85,314 $115,289 $537,502 Convertible debentures 38,425 7,900 139,125 ------------------------------------------------ 123,739 123,189 676,627 Floating rate revolving credit facility - - - Total $123,739 $123,189 $676,627 ------------------------------------------------ ------------------------------------------------ (1) Contractual cash flows include principal and interest and ignore extension options (2) Reduced by the interest rate subsidy payment received from ECL >> The estimated maturities of derivative financial liabilities are as follows: << Remai- ning There- Total 2010 2011 2012 2013 2014 after -------------------------------------------------------- Swap agreement $3,219 $1,418 $1,801 $- $- $- $- >> 21) ASSET HELD FOR SALE AND DISCONTINUED OPERATIONSDuring the fourth quarter of 2008, Crombie defeased the mortgage associated with the discontinued operations. The transaction did not qualify for defeasance accounting, therefore the defeased loan and related asset have not been removed from the balance sheet. The defeased loan is payable in monthly payments of $42 and bears interest at 5.46%, was originally amortized over 25 years and is due April 1, 2014. Crombie purchased Government of Canada bonds and treasury bills and Canada mortgage bonds and pledged them as security to the mortgage company. The bonds have maturity dates to September 15, 2013, have a weighted average interest rate of 3.63% and have been placed in escrow. The assets and liabilities related to discontinued operations are measured at amortized cost using the effective interest method, until April 1, 2014 at which time the debt will be extinguished.22) CAPITAL MANAGEMENTCrombie's objective when managing capital on a long-term basis is to maintain overall indebtedness, including convertible debentures, in the range of 50% to 60% of gross book value (as defined in the credit facility agreement), utilize staggered debt maturities, minimize long-term exposure to floating rate debt and maintain conservative payout ratios. Crombie's capital structure consists of the following: << March 31, December 31, 2010 2009 ------------------------------- Commercial property debt $722,017 $706,369 Convertible debentures 153,839 110,858 Non-controlling interest 222,734 225,367 Unitholders' equity 244,216 246,975 ------------------------------- $1,342,806 $1,289,569 ------------------------------- ------------------------------- >> At a minimum, Crombie's capital structure is managed to ensure that it complies with the restrictions pursuant to Crombie's Declaration of Trust, the criteria contained in the Income Tax Act (Canada) in regard to the definition of a REIT and existing debt covenants. Some of the restrictions pursuant to Crombie's Declaration of Trust would include, among other items: << - A restriction that Crombie shall not incur indebtedness (other than by the assumption of existing indebtedness) where the indebtedness would exceed 75% of the market value of the individual property; and - A restriction that Crombie shall not incur indebtedness of more than 60% of gross book value (65% including convertible debentures) >> Crombie's debt to gross book value as defined in Crombie's Declaration of Trust is as follows: << March 31, December 31, 2010 2009 ------------------------------- Mortgages payable $673,481 $604,992 Convertible debentures 160,000 115,000 Revolving credit facility 54,500 106,160 ------------------------------- Total debt outstanding 887,981 826,152 Less: Applicable fair value debt adjustment (7,225) (7,733) ------------------------------- Debt $880,756 $818,419 ------------------------------- ------------------------------- Total assets $1,512,676 $1,457,166 Add: Deferred financing charges 12,125 8,925 Accumulated depreciation of commercial properties 74,694 69,952 Accumulated amortization of intangible assets 62,002 78,551 Less: Assets held related to discontinued operations (6,912) (6,929) Interest rate subsidy (7,225) (7,733) Fair value adjustment to future taxes (39,245) (39,245) ------------------------------- Gross book value $1,608,115 $1,560,687 ------------------------------- ------------------------------- Debt to gross book value 54.8% 52.4% ------------------------------- ------------------------------- >> Under the amended terms governing the revolving credit facility, Crombie is entitled to borrow a maximum of 70% of the fair market value of assets subject to a first security position and 60% of the excess fair market value over first mortgage financing of assets subject to a second security position or a negative pledge. The terms of the revolving credit facility also require that Crombie must maintain certain covenants: << - annualized net operating income for the prescribed properties must be a minimum of 1.4 times the coverage of the related annualized debt service requirements; - annualized net operating income on all properties must be a minimum of 1.4 times the coverage of all annualized debt service requirements; - access to the revolving credit facility is limited by the amount utilized under the facility, and 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 ECL Developments 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 or obtain alternative financing. Pursuant to an exchange agreement, and while such covenant remains in place, ECL Developments Limited will be required to give Crombie at least six months' prior written notice of its intention to reduce its voting interest below 40%.As at March 31, 2010, Crombie is in compliance with all externally imposed capital requirements and all covenants relating to its debt facilities.23) EMPLOYEE FUTURE BENEFITSCrombie has a number of defined benefit and defined contribution plans providing pension and other retirement benefits to most of its employees.Defined contribution pension plansThe contributions required by the employee and the employer are specified. The employee's pension depends on what level of retirement income (for example, annuity purchase) that can be achieved with the combined total of employee and employer contributions and investment income over the period of plan membership, and the annuity purchase rates at the time of the employee's retirement.Defined benefit pension plansThe ultimate retirement benefit is defined by a formula that provides a unit of benefit for each year of service. Employee contributions, if required, pay for part of the cost of the benefit, and the employer contributions fund the balance. The employer contributions are not specified or defined within the plan text. They are based on the result of actuarial valuations which determine the level of funding required to meet the total obligation as estimated at the time of the valuation. The defined benefit plans are unfunded.The total defined benefit cost related to pension plans and post retirement benefit plans for the three months ended March 31, 2010 was $141 (three months ended March 31, 2009 - $75).24) SUBSEQUENT EVENTSa) On April 22, 2010, Crombie declared distributions of 7.417 cents per unit for the period from April 1, 2010 to and including, April 30, 2010. The distribution will be payable on May 14, 2010 to Unitholders of record as at April 30, 2010.b) On April 22, 2010, Crombie completed the first tranche of financing for the Mountain Locks Plaza in St. Catharines, Ontario. The mortgage of $10,500 has a ten year term, a 25 year amortization period and a fixed interest rate of 5.88%. The second tranche of financing of $2,500 is anticipated to close prior to the end of the second quarter of 2010, subject to meeting final closing conditions.25) SEGMENT DISCLOSURECrombie owns and operates primarily retail real estate assets located in Canada. Management, in measuring Crombie's performance or making operating decisions, does not distinguish or group its operations on a geographical or other basis. Accordingly, Crombie has a single reportable segment for disclosure purposes in accordance with GAAP.26) COMPARATIVE FIGURESComparative figures have been reclassified, where necessary, to reflect the current year'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 the consolidated financial condition and results of operations of Crombie Real Estate Investment Trust ("Crombie") for the quarter ended March 31, 2010, with a comparison to the financial condition and results of operations for the comparable period in 2009.This MD&A should be read in conjunction with Crombie's interim consolidated financial statements and accompanying notes for the period ended March 31, 2010, and the audited consolidated financial statements and accompanying notes for the year ended December 31, 2009 and the related MD&A. Information about Crombie can be found on SEDAR at www.sedar.com.Forward-looking InformationThis MD&A contains forward-looking statements that reflect the current 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 forward-looking statements. These statements reflect current beliefs and are based on information currently available to management of Crombie. Forward-looking statements necessarily involve known and unknown risks and uncertainties. A number of factors, including those discussed under "Risk Management" could cause actual results, performance, achievements, prospects or opportunities to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and a reader should not place undue reliance on the forward-looking statements. There can be no assurance that the expectations of management of Crombie will prove to be correct.In particular, certain statements in this document discuss Crombie's anticipated outlook of future events. These statements include, but are not limited to:(i) the development of new properties under a development agreement, which development activities are undertaken by a related party and thus are not under the direct control of Crombie and whose activities could be impacted by real estate market cycles, the availability of labour and general economic conditions;(ii) the acquisition of accretive properties and the anticipated extent of the accretion of any acquisitions, which could be impacted by demand for properties and the effect that demand has on acquisition capitalization rates and changes in interest rates;(iii) reinvesting to make improvements to existing properties, which could be impacted by the availability of labour and capital resource allocation decisions;(iv) generating improved rental income and occupancy levels, which could be impacted by changes in demand for Crombie's properties, tenant bankruptcies, the effects of general economic conditions and supply of competitive locations in proximity to Crombie locations;(v) the anticipated rate of general and administrative expenses as a percentage of property revenue, which could be impacted by changes in property revenue and/or changes in general and administrative expenses;(vi) overall indebtedness levels, which could be impacted by the level of acquisition activity Crombie is able to achieve and future financing opportunities;(vii) tax exempt status, which can be impacted by regulatory changes enacted by governmental authorities;(viii) anticipated subsidy payments from ECL Developments Limited ("ECLD"), which are dependent on tenant leasing and construction activity;(ix) anticipated distributions and payout ratios, which could be impacted by seasonality of capital expenditures, results of operations and capital resource allocation decisions;* the effect that any contingencies would have on Crombie's financial statements;(xi) the continued investment in training and resources throughout the International Financial Reporting Standards ("IFRS") transition and the effect the adoption of IFRS may have on Crombie's future financial statements;(xii) the assumed estimated impact per unit upon future settlement of the interest rate swap agreements which may be impacted by changes in Canadian bond yields and swap spreads, as well as the timing and type of financing available and the related amortization period thereon; and(xiii) anticipated replacement of expiring tenancies, which could be impacted by the effects of general economic conditions and the supply of competitive locations.Readers are cautioned that such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from these statements. Crombie can give no assurance that actual results will be consistent with these forward-looking statements.Non-GAAP Financial MeasuresThere are financial measures included in this MD&A that do not have a standardized 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 from operations ("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 use these measures as a means of assessing relative financial performance.IntroductionDate of MD&AThe information contained in the MD&A, including forward-looking statements, is based on information available to management as of May 6, 2010.Financial and Operational SummaryComparative AFFO information has been restated to reflect the retrospective application of the settlement of effective interest rate swap agreements. << ------------------------------------------------------------------------- Quarter Quarter Ended Ended (in thousands of dollars, except per unit March 31, March 31, amounts and as otherwise noted) 2010 2009 ------------------------------------------------------------------------- (as restated) Property revenue $53,221 $52,992 Net income $3,615 $4,192 Basic and diluted net income per unit $0.11 $0.15 ------------------------------------------------------------------------- FFO $17,056 $20,739 FFO per unit - basic $0.28 $0.40 FFO per unit - diluted(1) $0.27 $0.39 FFO payout ratio (%) 79.5% 56.2% AFFO $12,744 $11,698 AFFO per unit- basic $0.21 $0.22 AFFO per unit-diluted(1) $0.20 $0.22 AFFO payout ratio (%) 106.5% 99.6% ------------------------------------------------------------------------- (1) The diluted weighted average number of total Units and Special Voting Units includes the conversion of all series of convertible debentures outstanding during the period, excluding any series that is anti- dilutive. For March 31, 2010, the Series A Debentures and the Series C Debentures are anti-dilutive for AFFO per unit calculations. For March 31, 2009, the Series A Debentures are anti-dilutive for AFFO per unit calculations. >> Overview of the Business and Recent DevelopmentsCrombie 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 March 31, 2010, Crombie owned a portfolio of 118 commercial properties in seven provinces, comprising approximately 11.5 million square feet of gross leaseable area ("GLA"). Empire Company Limited ("Empire"), through ECLD, holds a 47.4% economic and voting interest in Crombie at March 31, 2010.Significant developments during 2009 include: << - The closing of a public offering of 4,725,000 Units, including the underwriter's over-allotment option, at a price of $7.80 per Unit for gross proceeds of $36,855 on June 25, 2009; - Concurrent with the above public offering, in satisfaction of its pre- emptive right, the purchase by ECLD of 3,846,154 of Class B LP Units and the attached Special Voting Units, on a private-placement basis, at the $7.80 offering price for gross proceeds of $30,000; - The closing of an $85,000 unsecured convertible debenture offering (the "Series B Debentures") on September 30, 2009. The Series B Debentures have an interest rate of 6.25%, a conversion price of $11.00 per unit and a maturity date of June 30, 2015; and - The entering of an agreement on November 5, 2009 to acquire eight retail properties representing approximately 333,000 square feet of GLA from subsidiaries of Empire for a purchase price of approximately $59,500, excluding closing and transaction costs and subject to normal closing adjustments. >> Significant developments during the first quarter of 2010 include: << - On February 1, 2010, Crombie completed the refinancing for the office and retail portfolio known as Halifax Developments. The principal amount of the maturing Halifax Developments mortgages was approximately $106,079 with a weighted average fixed interest rate of 5.43%. The new Halifax Developments mortgages are for a total of $141,000, with a ten year term, a 25 year amortization and a weighted average fixed interest rate of 6.48%. - On February 8, 2010, Crombie issued $45,000 of convertible unsecured subordinated debentures (the "Series C Debentures"). The Series C Debentures have an interest rate of 5.75%, a conversion price of $15.30 per unit and a maturity date of June 30, 2017. - On February 26, 2010, Crombie completed $33,850 of mortgage financing on five properties. The mortgages have an eight year term, a fixed interest rate of 5.70% and a weighted average amortization period of 21.6 years. - On February 22, 2010, Crombie completed the acquisition of five of the eight retail properties previously announced on November 5, 2009, from subsidiaries of Empire. The cost of the portfolio was $31,530, excluding closing and transaction costs, and was partially financed by the assumption of $8,358 of mortgages with a weighted average term of 8.6 years, a 25 year amortization period and a weighted average interest rate of 6.26%. The balance was financed with Crombie's existing credit facility. - On March 24, 2010, Crombie completed the acquisition of the remaining three properties of the eight retail properties previously announced on November 5, 2009 from subsidiaries of Empire. The purchase price of the three properties was $27,746 and was financed with Crombie's existing credit facility. Commitments for mortgage financing for the properties of approximately $19,000 have been assigned to Crombie and are anticipated to close during the second quarter of 2010. >> Business Strategy and OutlookThe 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 both on improving the same-asset results while expanding the asset base with accretive acquisitions to grow the cash distributions to unitholders. Crombie's focus on grocery-anchored retail properties, a stable and defensive-oriented asset class, assists in enhancing the reliability of cash distributions.Enhance value of Crombie's assets: Crombie anticipates reinvesting approximately 3% to 5% of its property revenue each year into its properties to maintain their productive capacity and thus overall value.Crombie's internal growth strategy focuses on generating greater rental income from its existing properties. Crombie plans to achieve this by strengthening its asset base through judicious expansion and improvement of existing properties, leasing vacant space at competitive market rates with the lowest possible transaction costs, and maintaining good relations with tenants. Management will continue to conduct regular reviews of properties and, based on its experience and market knowledge, will assess ongoing opportunities within the portfolio.Expand asset base with accretive acquisitions: Crombie's external growth strategy focuses primarily on acquisitions of income-producing, grocery-anchored retail properties. Crombie pursues two sources of acquisitions which are third party acquisitions and the relationship with ECLD. The relationship with ECLD includes currently owned and future development properties, as well as opportunities through the rights of first refusal ("ROFR") that one of Empire's subsidiaries has negotiated in many of their leases. Crombie will seek to identify future property acquisitions using investment criteria that focus on the strength of anchor tenancies, market demographics, terms of tenancies, proportion of revenue from national tenants, opportunities for expansion, security of cash flow, potential for capital appreciation and potential for increasing value through more efficient management of the assets being acquired, including expansion and repositioning.Crombie continues to work closely with ECLD to identify development opportunities that further Crombie's external growth strategy. The relationship is governed by a development agreement described in the Material Contracts section of Crombie's Annual Information Form. Through this relationship, Crombie expects to have the benefits associated with development while limiting its exposure to the inherent risks of development, such as real estate market cycles, cost overruns, labour disputes, construction delays and unpredictable general economic conditions. The development agreement also enables Crombie to avoid the uncertainties associated with property development, including paying the carrying costs of land, securing construction financing, obtaining development approvals, managing construction projects, marketing in advance of and during construction and earning no return during the construction period.The development agreement provides Crombie with a preferential right to acquire retail properties developed by ECLD, subject to approval by the independent trustees. This relationship between Crombie and ECLD continues to provide promising opportunities for growth through future developments on both new and existing sites in Crombie's portfolio.In the first quarter of 2010, Crombie acquired an eight property portfolio from subsidiaries of Empire. Five of these properties were new locations, while three of the acquisitions (Future Shop at Highland Square Mall in Nova Scotia, Mountain Equipment Co-op at Greenfield Park in Quebec and Societe des Alcools du Quebec and Dormez-Vous Centre du Sommeil in Saint Romuald Plaza, Quebec) were additions to existing properties.The following table outlines the acquisitions completed since the initial public offering ("IPO") which highlight the growth opportunities provided through the Empire / ECLD relationship. << ------------------------------------------------------------------------- Acquisi- Date Property GLA tion Property Acquired Type (sq. ft.) Cost(1) Vendor ------------------------------------------------------------------------- Brampton Plaza, Empire Brampton, Oct. 2, Retail Subsi- Ontario 2006 - Plaza 66,000 $13,160 diaries ------------------------------------------------------------------------- Taunton & Wilson Plaza, Empire Oshawa, Oct. 2, Retail Subsi- Ontario 2006 - Plaza 83,000 $18,725 diaries ------------------------------------------------------------------------- Burlington Plaza, Burlington, Dec. 20, Retail Ontario 2006 - Plaza 56,000 $14,200 3rd party ------------------------------------------------------------------------- The Mews of Carleton Place, Carleton Place, Jan. 17, Retail Ontario 2007 - Plaza 80,000 $11,800 3rd party ------------------------------------------------------------------------- Perth Mews Shopping Mall, Perth, Mar. 7, Retail Ontario 2007 - Plaza 103,000 $17,900 3rd party ------------------------------------------------------------------------- International Gateway Centre, Fort Erie, Jul. 26, Retail Ontario 2007 - Plaza 93,000 $19,200 ROFR ------------------------------------------------------------------------- Brossard- Longueuil, Retail Brossard, Aug. 24, - Free- Quebec 2007 standing 39,000 $7,300 ROFR ------------------------------------------------------------------------- Town Centre, LaSalle, Oct. 15, Retail Ontario 2007 - Plaza 88,000 $12,700 3rd party ------------------------------------------------------------------------- 61 property portfolio (the Retail Empire "Portfolio Apr. 22, - Free- Subsi- Acquisition") 2008 standing 1,589,000 $428,500 diaries Retail - Plaza 1,571,000 Retail - Enclosed 128,000 ------------------------------------------------------------------------- River City Centre, Saskatoon, Jun. 12, Retail Saskatchewan 2008 - Plaza 160,000 $27,200 3rd party ------------------------------------------------------------------------- Empire 5 property Feb. 22, Retail Subsi- portfolio 2010 - Plaza 186,000 $31,530 diaries ------------------------------------------------------------------------- Empire 3 property Mar. 24, Retail Subsi- portfolio 2010 - Plaza 101,000 $27,746 diaries Retail - Free- standing 46,000 ------------------------------------------------------------------------- Total 4,389,000 $629,961 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Excluding closing and transaction costs. >> There is approximately 1.7 million square feet in 20 development properties that can be offered to Crombie on a preferential right through the Empire/ECLD relationship when the properties are sufficiently developed to meet Crombie's acquisition criteria. The properties are primarily retail plazas and approximately 70% of the GLA of the 20 properties is located outside of Atlantic Canada. These properties are anticipated to be made available to Crombie over the next five years.Business EnvironmentDuring the latter half of 2009 and the first quarter of 2010, the Canadian economy continued to display strengthening results in a number of key economic areas, which indicate that the recession may be ending. However, concerns still exist as to the sustainability of the recovery as debt levels of both governments and consumers continue to rise and unemployment levels remain high. Also during this period, the credit and equity markets experienced a dramatic improvement in their liquidity which occurred almost as quickly as the contraction in late 2008. This liquidity expansion has helped reduce credit spreads to more historical normal levels and resulted in attractive overall financing costs which many Canadian real estate investment trusts ("REITs") and real estate companies, including Crombie, have taken advantage of to strengthen their financial position and improve their liquidity.In light of the improving economic conditions and improved access to capital, capitalization rates began to contract slightly after their expansion during the recession. This capitalization rate contraction has resulted in a positive impact to the unit prices of many REITs and the recent improvement in both the credit and equity markets have improved Crombie's cost of capital to the level where accretive acquisitions could be considered. As a result, Crombie was able to complete the acquisition of eight retail properties from subsidiaries of Empire during the first quarter of 2010. Crombie will only pursue acquisitions that provide an acceptable return, including any acquisitions that may result from the relationship between Crombie and ECLD.In terms of occupancy rates, both the retail and office markets in Atlantic Canada where Crombie has a prominent presence remain relatively stable. The overall business environment outlook is cautiously optimistic, influenced by the early recovery noted in the Canadian economy. However, there remains a lack of clarity as to the sustainability of the recovery. One offsetting factor is that many of Crombie's retail locations are anchored by food stores, which typically are less affected by swings in consumer spending.2010 First Quarter Highlights << - Crombie completed the acquisition of an eight property portfolio from subsidiaries of Empire. - Crombie completed the refinancing of the office and retail portfolio known as Halifax Developments, providing additional funds of $35,000. - Crombie issued $45,000 of Series C Debentures. - Crombie completed leasing activity on 268,000 square feet of GLA during the first quarter of 2010, which represents approximately 34.6% of its 2010 expiring leases. - Average net rent per square foot from the leasing activity decreased to $13.34 from the expiring rent per square foot of $13.44, a decrease of 0.7%. - Occupancy for the properties was 95.0% at March 31, 2010 compared with 94.7% at December 31, 2009. - Property revenue for the quarter ended March 31, 2010 of $53,221 increased by $229, or 0.4% over the $52,992 for the same quarter in the previous year. - Same-asset NOI for the quarter ended March 31, 2010 of $31,510 decreased slightly by $81, or 0.3%, compared to $31,591 for the quarter ended March 31, 2009. - The FFO payout ratio for the quarter ended March 31, 2010 was 79.5% compared to the payout ratio of 56.2% for the same period in 2009. - The AFFO payout ratio for the quarter ended March 31, 2010 was 106.5% which was unfavourable to the target annual AFFO payout ratio of 95% and was unfavourable to the payout ratio of 99.6% for the same period in 2009. - Debt to gross book value was 54.8% at March 31, 2010 compared to 52.4% at December 31, 2009 and 54.8% at March 31, 2009. - Crombie's interest service coverage for the quarter ended March 31, 2010 was 2.44 times EBITDA and debt service coverage was 1.73 times EBITDA, compared to 2.99 times EBITDA and 2.11 times EBITDA, respectively, for the same period in 2009. >> Overview of the Property PortfolioProperty ProfileAt March 31, 2010 the property portfolio consisted of 118 commercial properties that contain approximately 11.5 million square feet of GLA. The properties are located in seven provinces: (Nova Scotia, New Brunswick, Ontario, Newfoundland and Labrador, Quebec, Prince Edward Island and Saskatchewan).As at March 31, 2010, the portfolio distribution of the GLA by province was as follows: << ------------------------------------------------------------------------- % of Number Annual of Proper- GLA Minimum Occu- Province ties (sq. ft.) % of GLA Rent pancy(1) ------------------------------------------------------------------------- Nova Scotia 41 5,068,000 43.9% 40.0% 95.0% New Brunswick 23 1,784,000 15.5% 13.1% 91.0% Ontario 23 1,731,000 15.0% 16.8% 95.7% Newfoundland and Labrador 13 1,497,000 13.0% 17.1% 96.7% Quebec 14 908,000 7.9% 8.5% 98.6% Prince Edward Island 3 385,000 3.3% 3.0% 94.3% Saskatchewan 1 160,000 1.4% 1.5% 97.8% ------------------------------------------------------------------------- Total 118 11,533,000 100.0% 100.0% 95.0% ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) For purposes of calculating occupancy percentage, Crombie considers GLA covered by the head lease agreement in favour of ECLD as occupied as there is head lease revenue being earned on the GLA. >> During the first quarter of 2010 there was an increase in GLA due to the eight property portfolio acquisition with properties located in Ontario, New Brunswick, Nova Scotia and Quebec, along with the redevelopment of properties in New Brunswick, Nova Scotia and Newfoundland and Labrador.Overall occupancy has increased to 95.0% at March 31, 2010 from 94.7% at December 31, 2009 primarily due to the commencement of occupancy of 90,000 square feet of committed renewals and 38,000 square feet of new leasing activity in the quarter, combined with the 100% occupancy at the eight properties acquired during the first quarter of 2010.Crombie looks to diversify its geographic composition through growth opportunities, as indicated by eight acquisitions in Ontario, two acquisitions in Quebec, one acquisition in Saskatchewan and the Portfolio Acquisition since Crombie's 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. Fairvale Plaza in New Brunswick is being converted to a retail freestanding property through the demolition of existing commercial retail unit space and expansion of an existing Sobeys store and additional customer parking. Aberdeen Business Centre in New Glasgow, Nova Scotia is being expanded to accommodate the needs of Pictou County Health Authority.During the first quarter of 2010, Crombie completed the conversion of Fort Edward Mall in Windsor, Nova Scotia from a retail enclosed property to a retail plaza. The property was reconfigured to replace the previous SAAN location and several small tenants with new Hart and Dollarama locations. In addition, Valley Mall in Corner Brook, Newfoundland and Labrador completed the reconfiguration to replace an existing food court with a new Hart store. Finally, Charlotte Mall in St. Stephen, New Brunswick was converted from an enclosed mall to a retail plaza. As a result of these redevelopments, both Fort Edward and Charlotte have been reclassified from retail - enclosed properties to retail - plaza properties. Costs for properties under redevelopment are classified as productive capacity enhancements to the extent that Crombie determines they increase a property's NOI and appraised value by a minimum threshold (see "Tenant Improvements and Capital Expenditures").The following table outlines properties under redevelopment: << ------------------------------------------------------------------------- Estimated Pro- Redevelop- Estimated Incurred Comp- vince Property GLA ment Cost to Date letion ------------------------------------------------------------------------- Nova Aberdeen 392,000 Expansion $4,300 $1,293 July 2010 Sco- Centre for Pictou tia County Health ------------------------------------------------------------------------- New Fairvale 52,000 Expand $800 $340 May 2010 Brun- Plaza Sobeys swick and add additional parking ------------------------------------------------------------------------- >> Largest TenantsThe 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 March 31, 2010. << ------------------------------------------------------------------------- Average % of Annual Remaining Tenant Minimum Rent Lease Term ------------------------------------------------------------------------- Sobeys (1) 32.6% 15.9 years Shoppers Drug Mart 2.2% 7.8 years Empire Theatres Limited 2.1% 8.2 years Zellers 2.1% 7.7 years Nova Scotia Power Inc 1.8% 1.0 years CIBC 1.5% 17.0 years Province of Nova Scotia 1.4% 5.7 years Bell (Aliant) 1.3% 8.5 years Bank of Nova Scotia 1.3% 2.2 years Good Life Fitness 1.3% 7.6 years ------------------------------------------------------------------------- Total 47.6% ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Excludes Lawtons and Fast Fuel locations. >> Crombie's portfolio is leased to a wide variety of tenants. Other than Sobeys, that accounts for 32.6% of the annual minimum rent, no other tenant accounts for more than 2.2% of Crombie's minimum rent. Nova Scotia Power Inc. ("NSPI") occupies 184,500 square feet in Barrington Tower, Halifax, Nova Scotia, under a lease that expires April 2011. NSPI has indicated that they will not be renewing their lease, which at the end of the term has rent per square foot of $13.00. Of this space, approximately 56,800 square feet are already under sub-lease by NSPI to other tenants. Crombie has begun negotiations and signing the existing sub-leased tenants to their own lease agreements in addition to negotiating with potential new tenants for the remaining space. While Crombie anticipates periods of vacancy once NSPI vacates, Crombie is confident of being able to replace NSPI with new tenancies. Bank of Nova Scotia occupies 110,598 square feet in 13 properties, one of which is a 44,476 square foot location at Scotia Square Mall in Halifax, Nova Scotia which expires in November 2012. Crombie anticipates being able to renew the Bank of Nova Scotia space upon maturity at market rates.Lease MaturitiesThe following table sets out as of March 31, 2010 the number of leases relating to the properties subject to lease maturities during the periods indicated (assuming tenants do not holdover on a month-to-month basis or exercise renewal options or termination rights), the renewal area, the percentage of the total GLA of the properties represented by such maturities and the estimated average net rent per square foot at the time of expiry. The weighted average remaining term of all leases is approximately 10.1 years. << ------------------------------------------------------------------------- Average Net Renewal Rent per Number of Area % of Sq. Ft. at Year Leases (sq. ft.) Total GLA Expiry ($) ------------------------------------------------------------------------- 2010 212 624,000 5.4% $13.92 2011 223 1,036,000 9.0% $14.39 2012 177 912,000 7.9% $12.00 2013 159 864,000 7.5% $11.79 2014 164 518,000 4.5% $17.54 Thereafter 409 7,003,000 60.7% $12.90 ------------------------------------------------------------------------- Total 1,344 10,957,000 95.0% $13.16 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> 2010 Portfolio Lease Expiries and Leasing ActivityAs at March 31, 2010, portfolio lease expiries and leasing activity for the year ending December 31, 2010 were as follows: << ------------------------------------------------------------------------- Retail - Free- Retail - Retail - standing Plazas Enclosed Office Mixed-use Total ------------------------------------------------------------------------- Expi- ries (sq. ft.) -- 295,000 196,000 89,000 194,000 774,000 Average net rent per sq. ft. $-- $13.73 $15.77 $12.18 $11.21 $13.44 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Commit- ted rene- wals (sq. ft.) -- 60,000 52,000 17,000 15,000 144,000 Average net rent per sq. ft. $-- $14.61 $12.55 $21.28 $17.52 $14.96 New leasing (sq. ft.) -- 48,000 55,000 5,000 16,000 124,000 Average net rent per sq. ft. $-- $12.32 $10.27 $12.00 $12.68 $11.44 ------------------------------------------------------------------------- Total rene- wals/ new leasing (sq. ft.) -- 108,000 107,000 22,000 31,000 268,000 Total average net rent per sq. ft. $-- $13.60 $11.38 $19.17 $15.02 $13.34 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> During the quarter ended March 31, 2010, Crombie had renewals or entered into new leases in respect of approximately 268,000 square feet at an average net rent of $13.34 per square foot, compared with expiries for 2010 of approximately 774,000 square feet at an average net rent of $13.44 per square foot. Of the 774,000 square feet of expiries, approximately 155,000 square feet involve tenants that are still paying property revenues on a holdover basis. Completed leasing activity to March 31, 2010 has been impacted by the following: << - New leasing activity in the retail plazas is below the average expiring net rent per square foot due primarily to one anchor tenant lease on the Fort Edward redevelopment. - Retail enclosed committed renewal rates are below expiring rates due primarily to three smaller tenants renewing at two of Crombie's rural retail enclosed properties. - Retail enclosed new leasing average net rent is below expiring rates due to one anchor tenant lease in the Valley Mall redevelopment. - Office committed renewal average net rent is above the total 2010 expiring net rent rate due to one gross rent renewal in Duke Tower in Halifax, Nova Scotia. - Mixed use committed renewal rates are above the expiry rate due to renewals on kiosk and food court locations in properties located in Halifax, Nova Scotia. >> Excluding the two new anchor tenant leases in the Fort Edward and Valley Mall redevelopments, total average net rent per square foot would have been $14.97 for renewals and new leasing for the quarter ended March 31, 2010. This $14.97 would represent an increase of 11.4% over the 2010 expiring average net rent per square foot.Sector InformationWhile Crombie does not distinguish or group its operations on a geographical or other basis, Crombie provides the following sector information as supplemental disclosure.In the first quarter of 2010, Crombie reclassified Saint Romuald in Quebec from Retail-Freestanding to Retail-Plaza due to the additional tenant acquisition, in addition to reclassifying Fort Edward in Nova Scotia and Charlotte Mall in New Brunswick from a retail enclosed facility to a retail plaza due to redevelopment.As at March 31, 2010, the portfolio distribution of the GLA by asset type was as follows: << ------------------------------------------------------------------------- % of Number Annual of Proper- GLA Minimum Occu- Asset Type ties (sq. ft.) % of GLA Rent pancy(1) ------------------------------------------------------------------------- Retail - Freestanding 42 1,685,000 14.6% 14.6% 100.0% Retail - Plazas 51 4,558,000 39.5% 40.4% 96.2% Retail - Enclosed 12 2,555,000 22.2% 23.5% 92.8% Office 5 1,049,000 9.1% 8.7% 87.4% Mixed-Use 8 1,686,000 14.6% 12.8% 94.7% ------------------------------------------------------------------------- Total 118 11,533,000 100.0% 100.0% 95.0% ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) For purposes of calculating occupancy percentage, Crombie considers GLA covered by the head lease agreement in favour of ECLD as occupied >> As at March 31, 2009, the portfolio distribution of the GLA by asset type was as follows (restated per the 2010 reclassifications): << ------------------------------------------------------------------------- % of Number Annual of Proper- GLA Minimum Occu- Asset Type ties (sq. ft.) % of GLA Rent pancy(1) ------------------------------------------------------------------------- Retail - Freestanding 41 1,635,000 14.6% 15.2% 100.0% Retail - Plazas 47 4,297,000 38.4% 39.1% 95.3% Retail - Enclosed 12 2,504,000 22.4% 23.3% 90.5% Office 5 1,049,000 9.4% 8.8% 87.6% Mixed-Use 8 1,706,000 15.2% 13.6% 95.4% ------------------------------------------------------------------------- Total 113 11,191,000 100.0% 100.0% 94.2% ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) For purposes of calculating occupancy percentage, Crombie considers GLA covered by the head lease agreement in favour of ECLD as occupied >> The following table sets out as of March 31, 2010, the square feet under lease subject to lease maturities during the periods indicated. << ------------------------------------------------------------------------- Retail - Year Freestanding Retail - Plazas Retail - Enclosed ------------------------------------------------------------------------- (sq. ft.) (%) (sq. ft.) (%) (sq. ft.) (%) ------------------------------------------------------------------------- 2010 -- --% 230,000 5.0% 138,000 5.4% 2011 1,000 0.1% 293,000 6.4% 161,000 6.3% 2012 5,000 0.3% 306,000 6.7% 142,000 5.6% 2013 -- --% 401,000 8.8% 200,000 7.8% 2014 -- --% 246,000 5.4% 149,000 5.8% There- after 1,679,000 99.6% 2,910,000 63.9% 1,582,000 61.9% ------------------------------------------------------------------------- Total 1,685,000 100.0% 4,386,000 96.2% 2,372,000 92.8% ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Year Office Mixed - Use Total ------------------------------------------------------------------------- (sq. ft.) (%) (sq. ft.) (%) (sq. ft.) (%) ------------------------------------------------------------------------- 2010 83,000 7.9% 173,000 10.3% 624,000 5.4% 2011 362,000 34.5% 219,000 13.0% 1,036,000 9.0% 2012 122,000 11.7% 337,000 20.0% 912,000 7.9% 2013 107,000 10.2% 156,000 9.2% 864,000 7.5% 2014 89,000 8.5% 34,000 2.0% 518,000 4.5% Thereafter 153,000 14.6% 679,000 40.2% 7,003,000 60.7% ------------------------------------------------------------------------- Total 916,000 87.4% 1,598,000 94.7% 10,957,000 95.0% ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> The following table sets out the average net rent per square foot expiring during the periods indicated. << ------------------------------------------------------------------------- Retail - Free- Retail - Retail - Year standing Plazas Enclosed Office Mixed-use ------------------------------------------------------------------------- 2010 $-- $14.27 $17.98 $12.48 $10.92 2011 $37.50 $14.53 $18.81 $14.24 $11.05 2012 $25.00 $13.15 $19.64 $9.79 $8.33 2013 $-- $9.43 $15.04 $13.79 $12.50 2014 $-- $14.50 $25.06 $12.62 $19.46 Thereafter $13.26 $13.62 $11.30 $11.56 $12.12 ------------------------------------------------------------------------- Total $13.32 $13.34 $13.92 $12.83 $11.24 ------------------------------------------------------------------------- ------------------------------------------------------------------------- March 2009 Total $13.35 $13.13 $13.79 $12.63 $10.99 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> FINANCIAL RESULTSComparison to Previous Years << ------------------------------------------------------------------------- As At ----------------------------------------------- March 31, December 31, March 31, 2010 2009 2009 ----------------------------------------------- Total assets $1,512,676 $1,457,166 $1,466,045 Total commercial property debt and convertible debentures $875,856 $817,227 $841,371 Debt to gross book value(1) 54.8% 52.4% 54.8% ------------------------------------------------------------------------- (1)See "Debt to Gross Book Value" for detailed calculation ------------------------------------------------------------------------- Quarter Ended March 31, ------------------------ (In thousands of dollars, except where otherwise noted) 2010 2009 Variance ------------------------------------------------------------------------- Property revenue $53,221 $52,992 $229 Property expenses 20,008 19,971 (37) ------------------------------------------------------------------------- Property NOI 33,213 33,021 192 ------------------------------------------------------------------------- NOI margin percentage 62.4% 62.3% 0.1% ------------------------------------------------------------------------- Expenses: General and administrative 2,523 1,644 (879) Interest 13,634 10,730 (2,904) Depreciation and amortization 11,279 12,491 1,212 ------------------------------------------------------------------------- 27,436 24,865 (2,571) ------------------------------------------------------------------------- Income before other items, income taxes and non-controlling interest 5,777 8,156 (2,379) Other income - 92 (92) ------------------------------------------------------------------------- Income from before income taxes and non-controlling interest 5,777 8,248 (2,471) Income taxes expense (recovery) - Future (1,100) 200 1,300 ------------------------------------------------------------------------- Income before non-controlling interest 6,877 8,048 (1,171) Non-controlling interest 3,262 3,856 594 ------------------------------------------------------------------------- Net income $3,615 $4,192 $577 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net Income per Unit, Basic and Diluted $0.11 $0.15 $(0.04) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic weighted average Units outstanding (in 000's) 31,881 27,147 --------------------------------------------------------- --------------------------------------------------------- Diluted weighted average Units outstanding (in 000's) 32,048 27,272 --------------------------------------------------------- --------------------------------------------------------- Distributions per unit to unitholders $0.22 $0.22 --------------------------------------------------------- --------------------------------------------------------- >> Net income for the quarter ended March 31, 2010 of $3,615 decreased by $577 from $4,192 for the quarter ended March 31, 2009. The decrease was primarily due to: << - higher interest expense as a result of the replacement of short-term floating rate debt with long-term fixed rate debt; - higher general and administrative costs due to fluctuations in incentive payments, offset in part by; - lower amortization of intangible assets associated with fully amortized intangibles on the IPO properties; - future income tax recovery associated with a substantively enacted tax rate reduction in New Brunswick. >> Property Revenue and Property Expenses << ------------------------------------------------------------------------- Quarter Ended ---------------------- March 31, March 31, (In thousands of dollars) 2010 2009 Variance ------------------------------------------------------------------------- Same-asset property revenue $50,273 $50,365 $(92) Acquisition and redevelopment property revenue 2,948 2,627 321 ------------------------------------------------------------------------- Property revenue $53,221 $52,992 $229 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> Same-asset property revenue of $50,273 for the quarter ended March 31, 2010 was 0.2% lower than the quarter ended March 31, 2009 due to a decrease in below-market lease amortization as lease terms expire offset by increased base rent and recoveries as a result of higher overall occupancy. << ------------------------------------------------------------------------- Quarter Ended ---------------------- March 31, March 31, (In thousands of dollars) 2010 2009 Variance ------------------------------------------------------------------------- Same-asset property expenses $18,763 $18,774 $11 Acquisition and redevelopment property expenses 1,245 1,197 (48) ------------------------------------------------------------------------- Property expenses $20,008 $19,971 $(37) ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> Same-asset property expenses of $18,763 for the quarter ended March 31, 2010 were virtually unchanged from the quarter ended March 31, 2009 due primarily to increased recoverable property taxes offset in part by reduced snow clearing costs and non-shareable expenses. << ------------------------------------------------------------------------- Quarter Ended ---------------------- March 31, March 31, (In thousands of dollars) 2010 2009 Variance ------------------------------------------------------------------------- Same-asset property NOI $31,510 $31,591 $(81) Acquisition and redevelopment property NOI 1,703 1,430 273 ------------------------------------------------------------------------- Property NOI $33,213 $33,021 $192 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> Same-asset NOI for the quarter ended March 31, 2010 remained relatively stable as it decreased by 0.3% from the quarter ended March 31, 2009. Same-asset property NOI for the quarter ended March 31, 2010, increased by $521 or 1.6% compared to the quarter ended December 31, 2009. << Property NOI on a cash basis is as follows: ------------------------------------------------------------------------- Quarter Ended ---------------------- March 31, March 31, (In thousands of dollars) 2010 2009 Variance ------------------------------------------------------------------------- Same-asset property cash NOI $29,909 $29,573 $336 Acquisition and redevelopment property cash NOI 1,508 1,191 317 Straight-line rent and above- and below-market rent amortization 1,796 2,257 (461) ------------------------------------------------------------------------- Property NOI $33,213 $33,021 $192 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> Property NOI, on a cash basis, excludes straight-line rent recognition and amortization of below-market and above-market lease amounts. The increase in same-asset cash NOI for the quarter ended March 31, 2010 over March 31, 2009 is primarily the result of increased occupancy rates combined with the increased average net rent per square foot results from the 2009 leasing activity.Property NOI for the quarter ended March 31, 2010 by region were as follows: << ------------------------------------------------------------------------- 2010 2009 -------------------------------------- (In thou- Pro- sands perty of Reve- Property Property NOI % of NOI % of dollars) nue Expenses NOI revenue revenue Variance ------------------------------------------------------------------------- Nova Scotia $23,585 $9,723 $13,862 58.8% 58.7% 0.1% Newfound- land and La- brador 8,940 2,804 6,136 68.6% 66.7% 1.9% New Brun- swick 6,458 2,894 3,564 55.2% 56.4% (1.2)% Ontario 8,148 2,838 5,310 65.2% 66.6% (1.4)% Prince Edward Island 1,326 379 947 71.4% 71.0% 0.4% Quebec 3,998 1,148 2,850 71.3% 70.8% 0.5% Saskat- chewan 766 222 544 71.0% 71.5% (0.5)% ------------------------------------------------------------------------- Total $53,221 $20,008 $33,213 62.4% 62.3% 0.1% ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> The increase in NOI as a percentage of revenue in Newfoundland and Labrador is primarily due to increased occupancy at Avalon Mall. The decrease in NOI as a percentage of revenue in New Brunswick and Ontario is attributable to lower recovery of common area expenses. Nova Scotia and New Brunswick have lower NOI as a percentage of revenue when compared to the other provinces as these portfolios hold the office and mixed-use properties which typically have lower NOI percentage returns.General and Administrative ExpensesThe following table outlines the major categories of general and administrative expenses. << ------------------------------------------------------------------------- Quarter Ended ---------------------- March 31, March 31, (In thousands of dollars) 2010 2009 Variance ------------------------------------------------------------------------- Salaries and benefits $1,383 $569 $(814) Professional fees 335 453 118 Public company costs 323 285 (38) Rent and occupancy 187 188 1 Other 295 149 (146) ------------------------------------------------------------------------- General and administrative expenses $2,523 $1,644 $(879) ------------------------------------------------------------------------- ------------------------------------------------------------------------- As a percentage of property revenue 4.7% 3.1% (1.6)% ------------------------------------------------------------------------- >> General and administrative expenses, as a percentage of property revenue, increased by 1.6% for the quarter ended March 31, 2010 when compared to the same period in 2009. Total general and administrative expenses increased to $2,523 for the quarter ending March 31, 2010 compared to $1,644 for the same quarter in 2009. The increase was due to higher incentive payments and travel costs in the first quarter of 2010 combined with reduced incentive payments in the first quarter of 2009.Crombie anticipates that general and administrative expenses will approximate 4.0% to 4.5% of property revenue for the full year of 2010.Interest Expense << ------------------------------------------------------------------------- Quarter Ended ---------------------- March 31, March 31, (In thousands of dollars) 2010 2009 Variance ------------------------------------------------------------------------- Same-asset interest expense $11,780 $9,528 $(2,252) Acquisition and redevelopment interest expense 470 515 45 Amortization of effective swaps and deferred financing charges 1,384 687 (697) ------------------------------------------------------------------------- Interest expense $13,634 $10,730 $(2,904) ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> Same-asset interest expense has increased by $2,252 or 23.6%. The increase reflects Crombie's replacement of short-term floating rate debt with long-term fixed rate mortgages and convertible debentures. The weighted average contractual interest rate on fixed rate mortgages increased to 5.86% at March 31, 2010 from 5.51% at March 31, 2009, primarily due to the refinancing on February 1, 2010 of the maturing Halifax Developments mortgages. Floating rate debt decreased from $251,723 at March 31, 2009 to $54,500 at March 31, 2010.There is an agreement between ECLD and Crombie whereby ECLD 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. The remaining mortgage terms mature through April 2022, and management expects to realize a further $7,225 over that period. The amount of the interest rate subsidy received during the quarter ended March 31, 2010 was $508 (quarter ended March 31, 2009 - $786). The interest rate subsidy is received by Crombie through monthly repayments by ECLD of amounts due under one of the demand notes issued by ECLD to Crombie Developments Limited ("CDL"). << Depreciation and Amortization ------------------------------------------------------------------------- Quarter Ended ---------------------- March 31, March 31, (In thousands of dollars) 2010 2009 Variance ------------------------------------------------------------------------- Same-asset depreciation and amortization $10,860 $12,126 $1,266 Acquisition and redevelopment depreciation and amortization 419 365 (54) ------------------------------------------------------------------------- Depreciation and amortization $11,279 $12,491 $1,212 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> Same-asset depreciation and amortization of $10,860 for the quarter ended March 31, 2010 was 10.4% lower than the quarter ended March 31, 2009 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 IPO being fully amortized, offset in part by depreciation on fixed asset additions and amortization on tenant improvements and lease costs incurred since December 31, 2009. Depreciation and amortization consists of: << ------------------------------------------------------------------------- Quarter Ended ---------------------- March 31, March 31, (In thousands of dollars) 2010 2009 Variance ------------------------------------------------------------------------- Depreciation of commercial properties $4,830 $4,544 $(286) Depreciation of recoverable capital expenditures 289 256 (33) Amortization of tenant improvements/lease costs 1,234 1,131 (103) Amortization of intangible assets 4,926 6,560 1,634 ------------------------------------------------------------------------- Depreciation and amortization $11,279 $12,491 $1,212 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> Income TaxesA 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 has organized its assets and operations to permit Crombie to satisfy the criteria contained in the Income Tax Act (Canada) in regard to the definition of a REIT. Crombie's management and its advisors have completed an extensive review of Crombie's organizational structure and operations to support Crombie's assertion that it met the REIT criteria throughout the 2008 and 2009 fiscal years. The relevant tests apply throughout the taxation year of Crombie and as such the actual status of Crombie for any particular taxation year can only be ascertained at the end of the year.The future income tax expense represents the future tax provision for CDL, the wholly-owned corporate subsidiary which is subject to income taxes. The future income tax recovery in the first quarter of 2010 is due to the reduction in the enacted effective income tax rates in New Brunswick that will be applicable when the timing differences are expected to reverse.Sector InformationWhile Crombie does not distinguish or group its operations on a geographical or other basis, Crombie provides the following sector information as supplemental disclosure. Sector information for the quarter ended March 31, 2009 has been restated for comparative purposes for property reclassifications. << Retail Freestanding Properties ------------------------------------------------------------------------- Quarter Ended March 31, 2010 Quarter Ended March 31, 2009 --------------------------------------------------------------- (In thousands of dollars, Acquisi- Acquisi- except as tions & tions & otherwise Same- Redeve- Same- Redeve- noted) Asset lopments Total Asset lopments Total ------------------------------------------------------------------------- Property revenue $6,334 $11 $6,345 $6,641 $- $6,641 Property expenses 1,110 - 1,110 1,457 - 1,457 ------------------------------------------------------------------------- Property NOI $5,224 $11 $5,235 $5,184 $- $5,184 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOI Margin % 82.5% 100.0% 82.5% 78.1% -% 78.1% ------------------------------------------------------------------------- Occu- pancy % 100.0% 100.0% 100.0% 100.0% -% 100.0% ------------------------------------------------------------------------- >> Same-asset retail freestanding property revenue and property expenses decreased due to a number of tenants now paying their own property taxes directly, thus reducing expenses and recoveries and improving the overall NOI Margin %. << Retail Plaza Properties ------------------------------------------------------------------------- Quarter Ended March 31, 2010 Quarter Ended March 31, 2009 --------------------------------------------------------------- (In thousands of dollars, Acquisi- Acquisi- except as tions & tions & otherwise Same- Redeve- Same- Redeve- noted) Asset lopments Total Asset lopments Total ------------------------------------------------------------------------- Property revenue $18,349 $1,292 $19,641 $18,355 $926 $19,281 Property expenses 5,990 403 6,393 5,646 376 6,022 ------------------------------------------------------------------------- Property NOI $12,359 $889 $13,248 $12,709 $550 $13,259 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOI Margin % 67.4% 68.8% 67.5% 69.2% 59.4% 68.8% ------------------------------------------------------------------------- Occu- pancy % 96.2% 96.2% 96.2% 94.9% 95.7% 95.3% ------------------------------------------------------------------------- >> Same-asset property expenses increased primarily due to increases in property taxes in Nova Scotia. Same-asset property revenue increased due to the increase in recoverable property taxes; however this was offset by a decrease related to the reduced amortization of below market leases. << Retail Enclosed Properties ------------------------------------------------------------------------- Quarter Ended March 31, 2010 Quarter Ended March 31, 2009 --------------------------------------------------------------- (In thousands of dollars, Acquisi- Acquisi- except as tions & tions & otherwise Same- Redeve- Same- Redeve- noted) Asset lopments Total Asset lopments Total ------------------------------------------------------------------------- Property revenue $12,126 $558 $12,684 $11,703 $575 $12,278 Property expenses 4,557 297 4,854 4,538 303 4,841 ------------------------------------------------------------------------- Property NOI $7,569 $261 $7,830 $7,165 $272 $7,437 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOI Margin % 62.4% 46.8% 61.7% 61.2% 47.3% 60.6% ------------------------------------------------------------------------- Occupancy % 92.8% 93.3% 92.8% 91.3% 84.3% 90.5% ------------------------------------------------------------------------- >> Same-asset property revenue increased $423, or 3.6%, due to the improved occupancy rate and increased results in Avalon Mall, Newfoundland and Labrador. << Office Properties ------------------------------------------------------------------------- Quarter Ended March 31, 2010 Quarter Ended March 31, 2009 --------------------------------------------------------------- (In thousands of dollars, Acquisi- Acquisi- except as tions & tions & otherwise Same- Redeve- Same- Redeve- noted) Asset lopments Total Asset lopments Total ------------------------------------------------------------------------- Property revenue $5,546 $- $5,546 $5,887 $- $5,887 Property expenses 3,154 - 3,154 3,228 - 3,228 ------------------------------------------------------------------------- Property NOI $2,392 $- $2,392 $2,659 $- $2,659 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOI Margin % 43.1% -% 43.1% 45.2% -% 45.2% ------------------------------------------------------------------------- Occupancy % 87.4% -% 87.4% 87.6% -% 87.6% ------------------------------------------------------------------------- >> Property revenue, NOI and NOI margin % have decreased when compared with the results for the first quarter of 2009 as a result of lower recoveries in Terminal Centres, New Brunswick. << Mixed-Use Properties ------------------------------------------------------------------------- Quarter Ended March 31, 2010 Quarter Ended March 31, 2009 --------------------------------------------------------------- (In thousands of dollars, Acquisi- Acquisi- except as tions & tions & otherwise Same- Redeve- Same- Redeve- noted) Asset lopments Total Asset lopments Total ------------------------------------------------------------------------- Property revenue $7,918 $1,087 $9,005 $7,779 $1,126 $8,905 Property expenses 3,952 545 4,497 3,905 518 4,423 ------------------------------------------------------------------------- Property NOI $3,966 $542 $4,508 $3,874 $608 $4,482 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOI Margin % 50.1% 49.9% 50.1% 49.8% 54.0% 50.3% ------------------------------------------------------------------------- Occupancy % 94.4% 95.9% 94.7% 94.1% 99.5% 95.4% ------------------------------------------------------------------------- >> Same-asset revenue increased primarily due to improved rental revenue at Park Lane retail in Halifax, Nova Scotia and increases in property tax recoveries. Same-asset property expenses increased due to property tax increases primarily at the Halifax Developments properties and increases in other recoverable expenses.OTHER 2010 PERFORMANCE MEASURESFFO and AFFO are not measures recognized under GAAP and do not have standardized meanings prescribed by GAAP. As such, these non-GAAP financial measures should not be considered as an alternative to net income, cash provided by operating activities or any other measure prescribed under GAAP. FFO represents a supplemental non-GAAP industry-wide financial measure of a real estate organization's operating performance. AFFO is presented in this MD&A because management believes this non-GAAP measure is relevant to the ability of Crombie to earn and distribute returns to unitholders. FFO and AFFO as computed by Crombie may differ from similar computations as reported by other REIT's and, accordingly, may not be comparable to other such issuers.Funds from OperationsFFO represents a supplemental non-GAAP industry-wide financial measure of a real estate organization's operating performance. Crombie has calculated FFO in accordance with the recommendations of the Real Property Association of Canada ("REALpac") which defines FFO 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 expense, plus future income taxes, and after adjustments for equity-accounted entities and non-controlling interests. Crombie's method of calculating FFO may differ from other issuers' methods and accordingly may not be directly comparable to FFO reported by other issuers. A calculation of FFO for the quarter ended March 31, 2010 and 2009 is as follows: << ------------------------------------------------------------------------- Quarter Ended ---------------------- March 31, March 31, (In thousands of dollars) 2010 2009 Variance ------------------------------------------------------------------------- Net income $3,615 $4,192 $(577) Add (deduct): Non-controlling interest 3,262 3,856 (594) Depreciation of commercial properties 4,830 4,544 286 Depreciation of recoverable capital expenditures 289 256 33 Amortization of tenant improvements/lease costs 1,234 1,131 103 Amortization of intangible assets 4,926 6,560 (1,634) Future income taxes expense (recovery) (1,100) 200 (1,300) ------------------------------------------------------------------------- FFO $17,056 $20,739 $(3,683) ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> The reduction in FFO for the quarter ended March 31, 2010 was primarily due to increased interest expense as a result of refinancing short-term floating rate debt with long-term fixed rate mortgages and convertible debentures, combined with higher general and administrative costs as previously discussed.Adjusted Funds from OperationsCrombie considers AFFO to be a measure useful in evaluating the recurring economic performance of Crombie's operating activities which will be used to support future distribution payments. AFFO reflects cash available for distribution after the provision for non-cash adjustments to revenue, maintenance capital expenditures, maintenance tenant improvements ("TI") and leasing costs and the settlement of effective interest rate swap agreements. Comparative AFFO information has been restated to reflect the retrospective application of the settlement of effective swap agreements. The calculation of AFFO for the quarter ended March 31, 2010 and 2009 is as follows: << ------------------------------------------------------------------------- Quarter Ended ---------------------- March 31, March 31, (In thousands of dollars) 2010 2009 Variance ------------------------------------------------------------------------- (as restated) FFO $17,056 $20,739 $(3,683) Add: Amortization of effective swap agreements 827 207 620 Above-market lease amortization 781 771 10 Less: Below-market lease amortization (1,619) (2,145) 526 Straight-line rent adjustment (958) (883) (75) Maintenance capital expenditures (2,693) (1,216) (1,477) Maintenance TI and leasing costs (650) (1,240) 590 Settlement of effective interest rate swap agreements - (4,535) 4,535 ------------------------------------------------------------------------- AFFO $12,744 $11,698 $1,046 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> The AFFO for the first quarter of 2010 was $12,744, an improvement of $1,046 over the same period in 2009 due primarily to the lack of settlement costs on effective interest rate swap agreements, offset in part by the reduced FFO results as previously discussed and higher maintenance capital expenditures. Details of the maintenance capital and TI and leasing expenditures are outlined in the "Tenant Improvement and Capital Expenditures" section of the MD&A.Pursuant to CSA Staff Notice 52-306 "(Revised) Non-GAAP Financial Measures", non-GAAP measures such as AFFO should be reconciled to the most directly comparable GAAP measure, which is interpreted to be the cash flow from operating activities rather than net income. The reconciliation is as follows: << ------------------------------------------------------------------------- Quarter Ended ---------------------- March 31, March 31, (In thousands of dollars) 2010 2009 Variance ------------------------------------------------------------------------- (as restated) Cash provided by operating activities $23,275 $10,664 $12,611 Add back (deduct): Recoverable/productive capacity enhancing TIs 63 - 63 Change in non-cash operating items (7,332) 7,276 (14,608) Unit-based compensation expense (12) (11) (1) Amortization of deferred financing charges (557) (480) (77) Settlement of effective interest rate swap agreements - (4,535) 4,535 Maintenance capital expenditures (2,693) (1,216) (1,477) ------------------------------------------------------------------------- AFFO $12,744 $11,698 $1,046 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> LIQUIDITY AND CAPITAL RESOURCESSources and Uses of FundsCash 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 $54,500 was drawn at March 31, 2010, and the issue of new equity, mortgage debt, and unsecured convertible debentures pursuant to the Declaration of Trust. << ------------------------------------------------------------------------- Quarter Ended ---------------------- March 31, March 31, (In thousands of dollars) 2010 2009 Variance ------------------------------------------------------------------------- Cash provided by (used in): Operating activities $23,275 $10,664 $12,611 Financing activities $36,759 $(12,504) $49,263 Investing activities $(57,173) $(2,020) $(55,153) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating Activities ------------------- ------------------------------------------------------------------------- Quarter Ended ---------------------- March 31, March 31, (In thousands of dollars) 2010 2009 Variance ------------------------------------------------------------------------- Cash provided by (used in): Net income and non-cash items $16,656 $19,180 $(2,524) TI and leasing costs (713) (1,240) 527 Non-cash working capital 7,332 (7,276) 14,608 ------------------------------------------------------------------------- Cash provided by operating activities $23,275 $10,664 $12,611 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> Fluctuations in cash provided by operating activities are largely influenced by the change in non-cash working capital which can be affected by the timing of receipts and payments. The details of the TI and leasing costs during the quarter ended March 31, 2010 are outlined in the "Tenant Improvements and Capital Expenditures" section of the MD&A. << Financing Activities -------------------- ------------------------------------------------------------------------- Quarter Ended ---------------------- March 31, March 31, (In thousands of dollars) 2010 2009 Variance ------------------------------------------------------------------------- Cash provided by (used in): Net issue of convertible debentures $42,713 $- $42,713 Settlement of interest rate swap agreements - (4,535) 4,535 Net issue of commercial property debt 7,001 2,952 4,049 Payment of distributions (13,568) (11,649) (1,919) Other items (net) 613 728 (115) ------------------------------------------------------------------------- Cash provided by (used in) financing activities $36,759 $(12,504) $49,263 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> Cash from financing activities in the first quarter ended March 31, 2010 increased by $49,263 over the quarter ended March 31, 2009 primarily due to the issue of Series C Debentures and the additional $35,000 of mortgage proceeds from the Halifax Developments refinancing, partially offset by the reduction of the revolving credit facility during the quarter. << Investing Activities -------------------- >> Cash used in investing activities for the quarter ended March 31, 2010 was $57,173. Of this, $51,610 was used for acquisition of the eight retail properties and $5,127 was used for additions to commercial properties. Cash used in investing activities for the quarter ended March 31, 2009 was $2,020 of which $1,730 was used for additions to commercial properties. << 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 portfolio to maintain the productive capacity of the existing assets. These costs are capitalized and depreciated over their useful lives and deducted when calculating AFFO.Productive capacity enhancement expenditures are costs incurred that increase the property level NOI, or expand the GLA of a property by a minimum threshold, and thus enhance the property's overall value. Productive capacity enhancement expenditures are capitalized and depreciated over their useful lives, but not deducted when calculating AFFO.Obligations for expenditures for TI's occur when renewing existing tenant leases or for new tenants occupying a new space. Typically, leasing costs for existing tenants 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 rents or improved traffic to a property. The timing of such expenditures fluctuates depending on the satisfaction of contractual terms contained in the leases. << ------------------------------------------------------------------------- Quarter Ended ------------------------ March 31, March 31, (In thousands of dollars) 2010 2009 ------------------------------------------------------------------------- Total additions to commercial properties $5,127 $1,730 Less: amounts recoverable from ECLD - - ------------------------------------------------------------------------- Net additions to commercial properties 5,127 1,730 Less: productive capacity enhancements (2,434) (514) ------------------------------------------------------------------------- Maintenance capital expenditures $2,693 $1,216 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Quarter Ended ------------------------ March 31, March 31, (In thousands of dollars) 2010 2009 ------------------------------------------------------------------------- Total additions to TI and leasing costs $713 $1,240 Less: amounts recoverable from ECLD (63) - ------------------------------------------------------------------------- Net additions to TI and leasing costs 650 1,240 Less: productive capacity enhancements - - ------------------------------------------------------------------------- Maintenance TI and leasing costs $650 $1,240 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> As maintenance TI and capital expenditures are not incurred evenly throughout the fiscal year, there can be volatility on a quarterly basis.The higher maintenance capital expenditures for the quarter ended March 31, 2010 are primarily as a result of payments made for the ongoing parking deck and structural repairs at the Scotia Square parkade in Halifax, Nova Scotia and storm water management at Aberdeen Business Centre in New Glasgow, Nova Scotia.The lower maintenance TI expenditures during the quarter ended March 31, 2010, when compared to the same period in 2009 relates primarily to the timing of the satisfaction of Crombie's obligations.Productive capacity enhancements during the first quarter ended March 31, 2010 consisted primarily of redevelopment work on Valley Mall in Corner Brook, Newfoundland and Labrador and the addition of a retail Nova Scotia Liquor Commission outlet in Spryfield, Nova Scotia. << Capital Structure ------------------------------------------------------------------------- (In thousands Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, of dollars) 2010 2009 2009 2009 2009 ------------------------------------------------------------------------- Commercial property debt $722,017 $706,369 $682,551 $759,223 $812,342 Convertible debentures $153,839 $110,858 $110,593 $29,090 $29,029 Non- controlling interest $222,734 $225,367 $227,948 $233,292 $197,115 Unitholders' equity $244,216 $246,975 $249,646 $255,475 $213,351 ------------------------------------------------------------------------- >> Bank Credit Facilities and Commercial Property DebtCrombie has in place an authorized floating rate revolving credit facility of up to $150,000 (the "Revolving Credit Facility"), $54,500 of which was drawn as at March 31, 2010. The Revolving Credit Facility is secured by a pool of first and second mortgages and negative pledges on certain properties. The floating interest rate is based on specified margins over prime rate or bankers acceptance rates. The specified margin increases as Crombie's overall debt leverage increases. Funds available for drawdown, pursuant to the Revolving Credit Facility, are determined with reference to the value of the Borrowing Base (as defined under "Borrowing Capacity and Debt Covenants") relative to certain financial covenants of Crombie. As at March 31, 2010, Crombie had sufficient Borrowing Base to permit $150,000 of funds to be drawn down pursuant to the Revolving Credit Facility, subject to certain other financial covenants. See "Borrowing Capacity and Debt Covenants".On February 1, 2010, Crombie completed two first mortgage refinancings to replace the maturing mortgages for the office and retail portfolio known as Halifax Developments. The initial mortgage financing has a $25,000 principal, a 25 year amortization, a fixed interest rate of 6.52% with a maturity date of February 2020. The additional mortgage has a $116,000 principal, a 25 year amortization, a fixed interest rate of 6.47% with a maturity date of February 2020.On February 22, 2010, Crombie assumed two mortgages totalling $8,358 as part of the financing for a five retail property acquisition. The mortgages have a weighted average term of 8.6 years, a 25 year amortization period and a weighted average interest rate of 6.26%. In addition, Crombie repaid $3,471 to ECL General Partner Limited, to retire a loan used to finance an acquisition at Avalon Mall in 2009, as required under the terms of the agreement.On February 26, 2010, Crombie completed first mortgage financing on five properties. The mortgages are for a total of $33,850 in principal, with an eight year term, a fixed interest rate of 5.70% and a weighted average amortization period of 21.6 years.As of March 31, 2010, Crombie had fixed rate mortgages outstanding of $666,158 ($673,481 after including the marked-to-market adjustment of $7,323), carrying a weighted average interest rate of 5.86% (after giving effect to the interest rate subsidy from ECLD under an omnibus subsidy agreement) and a weighted average term to maturity of 7.5 years.From time to time, Crombie has entered into interest rate swap agreements to manage the interest rate profile of its current or future debts without an exchange of the underlying principal amount (see "Risk Management"). << Principal repayments of the debt are scheduled as follows: ------------------------------------------------------------------------- Fixed Rate Debt Maturing Payments of during Floating Total % of Year Principal Year Rate Debt Maturity Total ------------------------------------------------------------------------- 2010 $14,725 $- $- $14,725 2.0% 2011 20,164 26,786 54,500 101,450 14.1% 2012 21,050 - - 21,050 2.9% 2013 22,185 30,042 - 52,227 7.3% 2014 19,826 69,797 - 89,623 12.4% Thereafter 87,857 353,726 - 441,583 61.3% ------------------------------------------------------------------------- Total(1) $185,807 $480,351 $54,500 $720,658 100.0% ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Excludes fair value debt adjustment of $7,323 and the deferred financing costs of $5,964 Convertible debentures ---------------------- ------------------------------------------------------------------------- Series A Series B Series C ------------------------------------------------------------------------- Issue value $30,000 $85,000 $45,000 Interest rate (payable semi- annually) 7.00% 6.25% 5.75% Conversion price per unit $13.00 $11.00 $15.30 Issue date March 20, September 30, February 8, 2008 2009 2010 Maturity date March 20, June 30, June 30, 2013 2015 2017 Trading symbol CRR.DB CRR.DB.B CRR.DB.C ------------------------------------------------------------------------- >> On February 8, 2010, Crombie issued $45,000 in convertible unsecured subordinated debentures (the "Series C Debentures"). The proceeds were used to reduce the Revolving Credit Facility.The Series A Debentures, the Series B Debentures and the Series C Debentures (collectively the "Debentures") pay interest semi-annually on June 30 and December 31 of each year and Crombie has the option to pay interest on any interest payment date by selling units and applying the proceeds to satisfy its interest obligation.The Debentures are convertible into Units at the option of the debenture holder at any time up to the maturity date, at the conversion price indicated in the table above, being a conversion rate of approximately 76.9231 Units per one thousand dollars principal amount of Series A Debentures, 90.9091 Units per one thousand dollars principal amount of Series B Debentures, and 65.3595 Units per one thousand dollars principal amount of Series C Debentures. If all conversion rights attaching to the Series A Debentures, Series B Debentures and the Series C Debentures are exercised, Crombie would be required to issue approximately 2,307,693 Units, 7,727,272 Units and 2,941,176 Units respectively, subject to anti-dilution adjustments.For the first three years from the date of issue, there is no ability to redeem the Debentures, after which, each series of Debentures has a period, lasting one year, during which the Debentures may be redeemed, in whole or in part, on not more than 60 days' and not less than 30 days' prior notice, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest, provided that the volume-weighted average trading price of the Units on the Toronto Stock Exchange for the 20 consecutive trading days ending on the fifth trading day preceding the date on which notice on redemption is given exceeds 125% of the conversion price. After the end of the fourth year, and to the maturity date, the Debentures may be redeemed, in whole or in part, at anytime at the redemption price equal to the principal amount thereof plus accrued and unpaid interest. Provided that there is not a current event of default, Crombie will have the option to satisfy its obligation to pay the principal amount of the Debentures at maturity or upon redemption, in whole or in part, by issuing the number of units equal to the principal amount of the Debentures then outstanding divided by 95% of the volume-weighted average trading price of the units for a stipulated period prior to the date of redemption or maturity, as applicable. Upon change of control of Crombie, Debenture holders have the right to put the Debentures to Crombie at a price equal to 101% of the principal amount plus accrued and unpaid interest.Transaction costs related to the Debentures have been deferred and are being amortized into interest expense over the term of the Debentures using the effective interest method. << Unitholders' Equity ------------------- >> In March 2010 there were 17,157 Units awarded as part of the Employee Unit Purchase Plan (April 2009 - 43,408; September 2009 - 4,003). Total units outstanding at May 6, 2010 were as follows: << ------------------------------------------------------------------------- Units 32,061,456 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. >> On March 23, 2010, Crombie announced a normal course issuer bid ("NCIB") where Crombie may purchase for cancellation up to 100,000 of its units, which represents approximately 0.31% of the outstanding units, during the period March 26, 2010 to March 25, 2011. The purchases will be made through the facilities of the TSX. The price that Crombie will pay for any such units will be the market price at the time of acquisition. Under the TSX policies, Crombie is entitled to purchase a maximum of 14,143 units per trading day. To date, Crombie has not purchased any units under the NCIB. Unitholders may obtain a copy of the NCIB notice filed with the TSX, without charge, by contacting the secretary of Crombie at 115 King Street, Stellarton, Nova Scotia, B0K 1S0.Taxation of DistributionsCrombie, through its subsidiaries, has a large asset base that is depreciable for Canadian income tax purposes. Consequently, certain of the distributions from Crombie are treated as returns of capital and are not taxable to Canadian resident unitholders for Canadian income tax purposes. The composition for tax purposes of distributions from Crombie may change from year to year, thus affecting the after-tax return to unitholders.The following table summarizes the history of the taxation of distributions from Crombie: << ------------------------------------------------------------------------- Return of Investment Capital Taxation Year 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% 2009 per $ of distribution 51.0% 49.0% - ------------------------------------------------------------------------- >> Borrowing Capacity and Debt CovenantsUnder the amended terms governing the Revolving Credit Facility, Crombie is entitled to borrow a maximum of 70% of the fair market value of assets subject to a first security position and 60% of the excess of fair market value over first mortgage financing of assets subject to a second security position or a negative pledge (the "Borrowing Base"). The Revolving Credit Facility provides Crombie with flexibility to add or remove properties from the Borrowing Base, subject to compliance with certain conditions. The terms of the Revolving Credit Facility also require that Crombie must maintain certain 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; - annualized NOI on all properties must be a minimum of 1.4 times the coverage of all annualized debt service requirements; and - distributions to Unitholders are limited to 100% of Distributable Income as defined in the revolving credit facility. >> The Revolving Credit Facility also contains a covenant of Crombie that ECLD must maintain a minimum 40% voting interest in Crombie. If ECLD reduces its voting interest below this level, Crombie will be required to renegotiate the Revolving Credit Facility or obtain alternative financing. Pursuant to an exchange agreement and while such covenant remains in place, ECLD will be required to give Crombie at least six months' prior written notice of its intention to reduce its voting interest below 40%.The Revolving Credit Facility also contains a covenant limiting the amount which may be utilized under the Revolving Credit Facility at any time. This covenant provides that the aggregate of amounts drawn under the Revolving Credit Facility plus any negative mark-to-market position on any interest rate swap agreements or other hedging instruments may not exceed the "Aggregate Coverage Amount", which is based on a modified calculation of the Borrowing Base, as defined in the Revolving Credit Facility.At March 31, 2010, the remaining amount available under the Revolving Credit Facility was $95,500 (prior to reduction for standby letters of credit outstanding)and was not limited by the Aggregate Coverage Amount.At March 31, 2010, Crombie remained in compliance with all debt covenants.Debt to Gross Book ValueWhen calculating debt to gross book value, debt is defined under the terms of the Declaration of Trust 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 deferred financing charges, 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. If approved by a majority of the independent trustees, the appraised value of the assets of Crombie and its consolidated subsidiaries may be used instead of book value.The debt to gross book value was 54.8% at March 31, 2010 compared to 52.4% at December 31, 2009. This leverage ratio is below the maximum 60%, or 65% including convertible debentures, as outlined by Crombie's Declaration of Trust. On a long-term basis, Crombie intends to maintain overall indebtedness, including convertible debentures, in the range of 50% to 60% of gross book value, depending upon Crombie's future acquisitions and financing opportunities. << ------------------------------------------------------------------------- (In thousands of dollars, except as As at As at As at As at As at otherwise Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, noted) 2010 2009 2009 2009 2009 ------------------------------------------------------------------------- Mortgages payable $673,481 $604,992 $573,615 $564,101 $565,980 Convertible debentures 160,000 115,000 115,000 30,000 30,000 Term facility - - 41,378 139,000 140,323 Revolving credit facility payable 54,500 106,160 72,217 62,812 111,400 ------------------------------------------------------------------------- Total debt outstanding 887,981 826,152 802,210 795,913 847,703 Less: Applicable fair value debt adjustment (7,225) (7,733) (8,489) (9,256) (10,032) ------------------------------------------------------------------------- Debt $880,756 $818,419 $793,721 $786,657 $837,671 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total assets $1,512,676 $1,457,166 $1,465,591 $1,470,474 $1,466,045 Add: Deferred financing charges 12,125 8,925 9,066 7,600 6,332 Accumulated depreciation of commercial properties 74,694 69,952 63,865 57,715 51,796 Accumulated amortization of intangible assets 62,002 78,551 72,147 66,492 60,836 Less: Assets related to discontinued operations (6,912) (6,929) (7,038) (7,054) (7,162) Interest rate subsidy (7,225) (7,733) (8,489) (9,256) (10,032) Fair value adjustment to future taxes (39,245) (39,245) (39,245) (39,245) (39,245) ------------------------------------------------------------------------- Gross book value $1,608,115 $1,560,687 $1,555,897 $1,546,726 $1,528,570 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Debt to gross book value 54.8% 52.4% 51.0% 50.9% 54.8% Maximum borrowing capacity(1) 65% 65% 65% 65% 65% ------------------------------------------------------------------------- (1) Maximum permitted by the Declaration of Trust >> Debt and Interest Service CoverageCrombie's interest and debt service coverage for the quarter ended March 31, 2010 were 2.44 times EBITDA and 1.73 times EBITDA. This compares to 2.99 times EBITDA and 2.11 times EBITDA respectively for the quarter ended March 31, 2009. EBITDA should not be considered an alternative to net income, cash provided by operating activities or any other measure of operations as prescribed by GAAP. EBITDA is not a GAAP financial measure; however, Crombie believes it is an indicative measure of its ability to service debt requirements, fund capital projects and acquire properties. EBITDA may not be calculated in a comparable measure reported by other entities. << ------------------------------------------------------------------------- Quarter Ended ------------------------- March 31, March 31, (In thousands of dollars) 2010 2009 ------------------------------------------------------------------------- (as restated) Property revenue $53,221 $52,992 Amortization of above-market leases 781 771 Amortization of below-market leases (1,619) (2,145) ------------------------------------------------------------------------- Adjusted property revenue 52,383 51,618 Property expenses (20,008) (19,971) General and administrative expenses (2,523) (1,644) ------------------------------------------------------------------------- EBITDA(1) $29,852 $30,003 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Interest expense $13,634 $10,730 Amortization of deferred financing charges (557) (480) Amortization of effective swap agreements (827) (207) ------------------------------------------------------------------------- Adjusted interest expense(2) $12,250 $10,043 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Debt repayments $166,379 $53,491 Amortization of fair value debt premium (1) (1) Payments relating to interest rate subsidy (508) (786) Payments relating to Revolving Credit Facility (51,660) (38,501) Payments relating to demand credit facility - (10,000) Balloon payments on mortgages (109,240) - ------------------------------------------------------------------------- Adjusted debt repayments(3) $4,970 $4,203 ------------------------------------------------------------------------- Interest service coverage ratio((1)/(2)) 2.44 2.99 ------------------------------------------------------------------------- Debt service coverage ratio((1)/((2)+(3))) 1.73 2.11 ------------------------------------------------------------------------- The March 31, 2009 adjusted interest expense calculation has been restated to reflect the impact of amortization of effective swap agreements >> The reduction in interest service coverage is attributable to the increased interest expense as Crombie has replaced short-term floating rate debt with long-term fixed rate mortgages and convertible debentures.The reduction in debt service coverage is impacted by the increased interest expense as well as the increased debt repayments on the long-term fixed rate amortizing mortgages.Distributions and Distribution Payout Ratios << Distribution Policy ------------------- >> Pursuant to Crombie's Declaration of Trust, cash distributions are to be determined by the trustees in their discretion. Crombie intends, subject to approval of the Board of Trustees, to make distributions to Unitholders not less than the amount equal to the net income and net realized capital gains of Crombie, to ensure that Crombie will not be liable for income taxes. Crombie, subject to the discretion of the Board of Trustees, targets to make annual cash distributions to Unitholders equal to approximately 95% of its AFFO on an annual basis. << Details of distributions to Unitholders are as follows: ------------------------------------------------------------------------- Quarter Ended ------------------------- (Distribution amounts represented March 31, March 31, in thousands of dollars) 2010 2009 ------------------------------------------------------------------------- Distributions to Unitholders $7,132 $6,068 Distributions to Special Voting Unitholders 6,436 5,581 ------------------------------------------------------------------------- Total distributions $13,568 $11,649 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FFO payout ratio 79.5% 56.2% AFFO payout ratio (target ratio equals 95%) 106.5% 99.6% ------------------------------------------------------------------------- >> Total distributions increased due to the equity issuance completed in June of 2009 of 4,725,000 units and 3,846,154 Class B LP Units.The FFO payout ratio of 79.5% was impacted by the higher distributions and reduced FFO as previously discussed.The AFFO payout ratio of 106.5% was unfavourable to the target ratio due to the reduced FFO as previously discussed and the timing of maintenance capital expenditures. As maintenance TI and capital expenditures are not incurred evenly throughout the fiscal year, there can be volatility to the AFFO payout ratio on a quarterly basis.As discussed in Crombie's previous MD&A's, during 2009 Crombie amended its calculation of AFFO to reflect the impact of the settlement of effective interest rate swap agreements. The March 31, 2009 AFFO has been restated to reflect this change. Excluding the impact of the settlement of effective interest rate swap agreements, the AFFO payout ratio for March 31, 2009 would have been 72.7%.EFFECT OF NEW ACCOUNTING POLICIES NOT YET IMPLEMENTED << International Financial Reporting Standards ------------------------------------------- >> The Accounting Standards Board of Canada ("AcSB") has announced that publicly accountable enterprises must adopt IFRS for interim and annual financial statements related to fiscal years beginning on or after January 1, 2011, with retrospective adoption and restatement of the comparative fiscal year ended December 31, 2010. Accordingly, the conversion from current GAAP to IFRS will be applicable to Crombie's reporting for the first quarter of fiscal 2011 for which the current and comparative information will be prepared under IFRS.Crombie, with the assistance of its external advisors, has launched an internal initiative to govern the conversion process and is currently evaluating the potential impact of the conversion to IFRS on its consolidated financial statements. This will be an ongoing process as new standards are issued by the AcSB and International Accounting Standards Board ("IASB"). At this time, the impact on Crombie's future financial position and results of operations is not reasonably determinable or estimatable. Crombie expects the transition to IFRS to impact accounting, financial reporting, internal control over financial reporting, information systems and business processes.Crombie has developed a formal project governance structure, and is providing regular progress reports to senior management and the audit committee. Crombie has also completed a diagnostic impact assessment, which involved a high level review of the major differences between current GAAP and IFRS, as well as establishing an implementation guideline. In accordance with this guideline Crombie has established a staff training program and is in the process of completing analysis of the key decision areas, including analyzing the appropriate accounting policy selections from available IFRS options, assessing exemptions and exceptions available on first-time adoptions of IFRS and making recommendations on the same.Crombie will continue to assess the impact of the transition to IFRS and to review all of the proposed and ongoing projects of the IASB to determine their impact on Crombie. Additionally, Crombie will continue to invest in training and resources throughout the transition period to facilitate a timely conversion.Crombie's IFRS changeover plan is summarized below which details Crombie's progress towards completion of selected key activities. << ------------------------------------------------------------------------- KEY MILESTONES/ PROGRESS ACTIVITIES DEADLINES TO DATE ------------------------------------------------------------------------- Financial Review Audit Committee Completed statement differences sign off for all diagnostic impact presentation in Canadian key IFRS assessment during and GAAP/IFRS accounting policy 2009, which disclosure accounting choices. involved a high policies level review of major differences between IFRS and Evaluate and Canadian GAAP. select IFRS Presented position policies & papers on IFRS 1 choices significant IFRS accounting policy choices, exemptions and exceptions and received Board approval ------------------------------------------------------------------------- Develop Draft skeleton Draft skeleton financial IFRS annual and IFRS financial statement interim financial statements have format and statements by Q3 been developed disclosure fiscal 2009 and continue to be tested with current financial data Quantify Final IFRS 1 exemptions effects of quantification applicable to the transition of conversion entity have been to IFRS. effects by Q2 identified; fiscal 2010 assessment of alternatives is ongoing Develop a Completion of fair All data has been fair value value process by Q4 accumulated for process for of fiscal 2009, the transition date investment including fair value properties accumulation of all determination. for transition fair value data for The final and continual opening balance determination of disclosure sheet. transition date Determinations of fair value is final transition expected to be date fair values by completed in Q2 of Q2 of fiscal 2010 fiscal 2010. ------------------------------------------------------------------------- Training Educate the Ongoing training All key employees and Board of provided to all have undertaken communication Trustees, groups to align advanced levels of Audit with changeover IFRS training, Committee, including management, attendance at key employees, Additional courses, seminars and other training will and conferences. stakeholders occur as needed Additional IFRS- during the knowledgeable staff changeover year has been hired. Completed training for general awareness of IFRS to broad group of finance employees, Board of Trustees, and Audit Committee Communicate Communicate Frequent project progress of project status status changeover updates regularly communications have plan to until completion been provided to internal and of IFRS internal and external implementation external stakeholders stakeholders Monitor ongoing Ongoing monitoring Frequent attendance IFRS accounting of standards, at relevant standards exposure drafts, seminars, developments interpretations participation in and pronouncements industry groups events, web site monitoring ------------------------------------------------------------------------- Information Determine if IT implementation Assessment of systems business plan completed business processes processes is underway in require change conjunction with to be IFRS work on accounting compliant policies Determine if Changes to System impacts for software systems and dual IFRS differences requires record-keeping are being assessed, upgrades, process to be including an changes, or completed during assessment of dual additions to Q1 of fiscal record-keeping support IFRS 2010 reporting requirements ------------------------------------------------------------------------- Contractual Assess the Complete necessary Preliminary arrangements affect of covenant analysis is and IFRS on: negotiations underway in compensation during fiscal 2010 conjunction with Financial work on accounting covenants policies, and also as part of the key Compensation performance arrangements indicators ("KPI") and budgeting IFRS Budgeting and project groups planning Make any Complete review required of compensation changes to arrangements plans and during fiscal arrangements 2010 Complete budgeting plan during fiscal 2010 ------------------------------------------------------------------------- Control Assess and Changes to ICFR Analysis of control environment design internal and DC&P issues is underway controls over related to IFRS in conjunction with financial to be completed the review of IFRS reporting during 2010 accounting issues ("ICFR") for and policies all accounting Test and evaluate policy changes revised controls throughout fiscal 2010 Assess and Update Chief MD&A disclosures design Executive Officer/ are regularly disclosure Chief Financial reviewed and controls and Officer updated procedures certification ("DC&P") for process by IFRS all identified fiscal 2010 communications accounting committee, policy changes which includes Investor Relations, has been assembled and is engaged ------------------------------------------------------------------------- >> IMPACT OF TRANSITION TO IFRSOn conversion to IFRS, the financial statements are to be presented as if Crombie had always reported under IFRS; thus any comparative information must be restated. There are transitional provisions that assist with this first-time adoption, primarily to assist with the possible need to restate historical information by allowing for prospective, rather than retroactive, treatment as prescribed by IFRS 1, First-time Adoption of IFRS. << IFRS 1 First-time Adoption of IFRS ---------------------------------- >> IFRS 1 applies to the conversion to IFRS when an entity first adopts IFRS. The general provisions of IFRS 1 require retrospective application of IFRS to the first reporting period. However the standard provides certain mandatory exceptions and allows specific exemptions from this general retrospective application. The most significant available options to Crombie are discussed below.Fair Value as Deemed CostIFRS 1 permits an entity to measure a component of an investment property at fair value upon transition, and to adopt this fair value as deemed cost. Crombie's Board of Trustees has approved the adoption of the cost model for investment property, and to adjust selected property components using fair value as deemed cost. This may result in an adjustment to the carrying value of investment properties on transition from GAAP to IFRS. Such change, if any, would also impact the transitional amount of Unitholders' Equity and Non-controlling Interest as at January 1, 2010.In addition, currently reported separated intangibles may be included in the reported value of investment properties.Subsequent to the application of fair value as the deemed cost, Crombie does not intend to revalue its investment properties, unless impaired; but will disclose the fair value of its investment properties in the notes to the financial statements.Crombie currently does not anticipate a material change in the carrying value of its assets in total.Business CombinationsIFRS 1 permits the business accounting standard to be applied retrospectively (entirely or from a specific date) or prospectively. Retrospective application would require restatement of all previous acquisitions that meet the definition of a business under IFRS. Crombie intends to elect to apply this standard prospectively. << IFRS Accounting Standards ------------------------- >> While IFRS is based on a similar conceptual framework to that of GAAP, there are significant differences in certain aspects of recognition, measurement and disclosure. The significant IFRS differences identified by Crombie to GAAP that may potentially have a material impact on Crombie's financial statements include the following:Investment PropertyAll of Crombie's commercial properties qualify as investment property, which is defined as property held to earn rentals or for capital appreciation, or both. Investment property must be initially measured at cost, however subsequent to initial recognition, IFRS allows an entity to choose either the cost or fair value model. If the fair value model is selected, income properties will be carried on the balance sheet at their current fair values, no depreciation or amortization is recorded on the investment properties and the changes in fair values each period would be recorded in the statement of income. If the historical cost model is selected then the asset values, subject to IFRS 1 revaluation, are left unchanged (except for impairment), depreciation and amortization continue to be recorded on the investment properties and the fair value of the investment properties must be disclosed in the notes to the financial statements.As discussed above, Crombie's Board of Trustees have approved the adoption of the cost model for investment property, and to adjust selected property components using fair value as deemed cost under IFRS 1. This may result in a one-time adjustment to the opening balance sheet, including opening investment properties, unitholders equity and non-controlling interest as at January 1, 2010. Crombie currently does not anticipate a material change in the carrying value of its assets in total.ImpairmentUnder GAAP, impairment is recognized for non-financial assets when the undiscounted future cash flows from an asset exceed the carrying value and any subsequent improvement in value cannot be recorded. Under IFRS, impairment is recognized when the discounted present value of future cash flows from an asset exceed the carrying value, however IFRS requires the reversal of an impairment loss to be recorded (limited to the depreciated value had impairment not occurred). Management cannot estimate the impact, if any, of any impairment adjustments at this time.LeasesUnder GAAP, tenant improvements and certain other leasing costs are capitalized and amortized through amortization expense. Under IFRS, a portion of such costs are likely to be considered to be leasing incentives and will need to be amortized as a reduction in property revenue. As a result of this reclassification of amortization expense on adoption of IFRS, management anticipates a reduction in reported property revenue; however, this does not impact overall reported operating results. The extent of the reclassification of amortization expense is not determinable at this time.Classification of Unitholders' Equity and Non-controlling InterestCrombie is assessing the impact of IAS 32 Financial Instruments: Presentation. This standard has language that differs from CICA Handbook section 3863 Financial Instruments- Presentation. The potential impact of application of these language differences could result in balance sheet classification changes for Unitholders' Equity and/or Non-controlling Interest and financial statement changes for the presentation of distributions paid on Unitholders' Equity and/or Non-controlling Interest, as well as measurement of these amounts in the financial statements. Management is in the process of assessing the implication of the IFRS standard.The above items reflect the current IFRS standards expected to be adopted by Crombie upon conversion. Changes to the IFRS standards, if any, may result in changes in the impacts to the financial statements upon adoption. In addition, the IASB is in the process of reviewing and possibly amending a number of the IFRS standards that may be applicable to Crombie.RELATED PARTY TRANSACTIONSAs at March 31, 2010, Empire through its wholly-owned subsidiary ECLD, holds a 47.4% (fully diluted 40.3%) indirect interest in Crombie. Crombie uses the exchange amount as the measurement basis for the related party transactions.For a period of five years commencing March 23, 2006, certain executive management individuals and other employees of Crombie will provide general management, financial, leasing, administrative, and other administration support services to certain real estate subsidiaries of Empire on a cost sharing basis, pursuant to a Management Cost Sharing Agreement dated March 23, 2006 between CDL a subsidiary of Crombie, and ECLD a subsidiary of Empire ("Management Cost Sharing Agreement"). The costs assumed by Empire pursuant to the agreement during the three months ended March 31, 2010 were $277 (three months ended March 31, 2009 - $297) and were netted against general and administrative expenses owing by Crombie to Empire.For a period of five years, commencing March 23, 2006, certain on-site maintenance and management employees of Crombie will provide property management services to certain real estate subsidiaries of Empire on a cost sharing basis pursuant to the Management Cost Sharing Agreement. In addition, for various periods, ECLD has an obligation to provide rental income and interest rate subsidies pursuant to an Omnibus Subsidy Agreement dated March 23, 2006 between CDL, Crombie Limited Partnership and ECLD. The costs assumed by Empire pursuant to the Management Cost Sharing Agreement during the three months ended March 31, 2010 were $283 (three months ended March 31, 2009 - $376) and were netted against property expenses owing by Crombie to Empire. The head lease subsidy during the three months ended March 31, 2010 was $186 (three months ended March 31, 2009 - $250).Crombie also earned rental revenue of $15,009 for the three months ended March 31, 2010 (three months ended March 31, 2009 - $14,560) from Sobeys Inc. and Empire Theatres, subsidiaries of Empire.On February 22, 2010, Crombie acquired five properties for $31,530 and assumed two mortgages of $8,358 from subsidiaries of Empire. In addition, Crombie repaid $3,471 to ECL General Partner Limited to retire a loan as required under the terms of the agreement.On March 24, 2010, Crombie acquired three properties for $27,746 from subsidiaries of Empire.CRITICAL ACCOUNTING ESTIMATESCritical accounting estimates are discussed under the section "Critical Accounting Estimates" in the 2009 Annual Report.Financial InstrumentsThe fair value of a financial instrument is the estimated amount that Crombie would receive or pay to settle the financial assets and financial liabilities as at the reporting date.Crombie has classified its financial instruments in the following categories: << - Held for trading - Restricted cash and cash and cash equivalents - Held to maturity investments - assets related to discontinued operations - Loans and receivables - Notes receivable and accounts receivable - Other financial liabilities - Commercial property debt, liability related to discontinued operations, convertible debentures, tenant improvements and capital expenditures payable, property operating costs payable and interest payable >> The book values 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 discounted future cash flows using discount rates that reflect current market conditions for instruments with similar terms and risks. Such fair value estimates are not necessarily indicative of the amounts Crombie might pay or receive in actual market transactions.The following table summarizes the carrying value (excluding deferred financing charges) and fair value of those financial instruments which have a fair value different from their book value at the balance sheet date. << March 31, 2010 December 31, 2009 ------------------------------------------------ Carrying Fair Carrying Fair Value Value Value Value ------------------------------------------------ Assets related to discontinued operations $6,912 $7,015 $6,929 $7,066 ------------------------------------------------ ------------------------------------------------ Commercial property debt $727,981 $725,476 $711,152 $708,401 ------------------------------------------------ ------------------------------------------------ Convertible debentures $160,000 $170,115 $115,000 $120,200 ------------------------------------------------ ------------------------------------------------ Liability related to discontinued operations $6,294 $6,222 $6,334 $6,270 ------------------------------------------------ ------------------------------------------------ >> The following summarizes the significant methods and assumptions used in estimating the fair values of the financial instruments reflected in the above table:Assets related to discontinued operations: The fair value of the bonds and treasury bills are based on market trading prices at the reporting date.Commercial property debt and liability related to discontinued operations: The fair value of Crombie's commercial property debt and liability related to discontinued operations is estimated based on the present value of future payments, discounted at the yield on a Government of Canada bond with the nearest maturity date to the underlying debt, plus an estimated credit spread at the reporting date.Convertible debentures: The fair value of the convertible debentures is estimated based on the market trading prices, at the reporting date, of the convertible debentures.COMMITMENTS AND CONTINGENCIESThere are various claims and litigation, which Crombie is involved with, arising out of the ordinary course of business operations. In the opinion of management, any liability that would arise from such contingencies would not have a significant adverse effect on these financial statements.Crombie has agreed to indemnify its trustees and officers, and particular employees, in accordance with Crombie's policies. Crombie maintains insurance policies that may provide coverage against certain claims.Crombie has entered into a management cost sharing agreement with a subsidiary of Empire. Details of this agreement are described in "Related Party Transactions".Crombie has land leases on certain properties. These leases have annual payments of $969 per year over the next five years. The land leases have terms of between 15.1 and 74.8 years remaining, including renewal options.Crombie obtains letters of credit to support its obligations with respect to construction work on its commercial properties, defeasing commercial property debt and satisfying mortgage financing requirements. Crombie has $223 in standby letters of credit for construction work that is being performed on its commercial properties. In connection with the defeasance of the discontinued operations commercial property debt, Crombie has issued a standby letter of credit in the amount of $1,715 in favour of the mortgage lender. In addition, to satisfy the requirements of mortgage financings, Crombie has issued standby letters of credit in the amount of $8,100 in favour of the mortgage lender. Crombie does not believe that any of these standby letters of credit are likely to be drawn upon.RISK MANAGEMENTIn the normal course of business, Crombie is exposed to a number of financial risks that can affect its operating performance. These risks, and the action taken to manage them, are as follows: << Credit risk ----------- >> Credit risk arises from the possibility that tenants may experience financial difficulty and be unable to fulfill their lease commitments. Crombie's credit risk is limited to the recorded amount of tenant receivables. An allowance for doubtful accounts is taken for all anticipated problem accounts.Crombie mitigates credit risk by geographical diversification, utilizing staggered lease maturities, diversifying both its tenant mix and asset mix and conducting credit assessments for new and renewing tenants. As at March 31, 2010; << - Excluding Sobeys (which accounts for 32.6% 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 9.0% of the GLA of Crombie will expire in any one year. >> Crombie earned rental revenue of $15,009 for three months ended March 31, 2010 (three months ended March 31, 2009 - $14,560) from subsidiaries of Empire. << Interest rate risk ------------------ >> Interest rate risk is the potential for financial loss arising from increases in interest rates. Crombie mitigates interest rate risk by utilizing staggered debt maturities, limiting the use of permanent floating rate debt and utilizing interest rate swap agreements. As at March 31, 2010: << - Crombie's weighted average term to maturity of the fixed rate mortgages was 7.5 years; and - Crombie's exposure to floating rate debt, including the impact of the fixed rate swap agreements discussed below, was 0.6% of the total commercial property debt. >> Crombie has entered into interest rate swap agreements to manage the interest rate profile of its current or future debts without an exchange of the underlying principal amount. The breakdown of the swaps in place at March 31, 2010 as part of the interest rate management program, and their associated mark-to-market amounts 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 March 31, 2010, had an unfavourable mark-to-market exposure of $2,398 (March 31, 2009 - unfavourable $4,231) 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 swap reduce to $Nil upon maturity of the swap. - Crombie has entered into a delayed interest rate swap agreement of a notional amount of $8,204 (March 31, 2009 - $100,334) with a settlement date of July 2, 2011 and maturing July 2, 2021 to mitigate exposure to interest rate increases for a mortgage maturing in 2011. The fair value of this delayed interest rate swap agreement had an unfavourable mark- to-market exposure of $821 compared to the face value March 31, 2010 (March 31, 2009 - unfavourable $21,330). The change in this amount has been recognized in other comprehensive income (loss). >> Crombie estimates that $3,206 of other comprehensive income (loss) will be reclassified to interest expense during the next three quarters of 2010 based on interest rate swap agreements settled to March 31, 2010.A fluctuation in interest rates would have had an impact on Crombie's net income and other comprehensive income (loss) items. Based on the previous year's rate changes, a 0.5% interest rate change would reasonably be considered possible. The changes would have had the following impact: << March 31, 2010 March 31, 2009 ----------------------------------------------- 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 $(33) $33 $(270) $270 ------------------------------------------------------------------------- March 31, 2010 March 31, 2009 ----------------------------------------------- 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 $631 $(653) $10,024 $(9,577) ------------------------------------------------------------------------- >> Crombie does not enter into these interest rate swap transactions on a speculative basis. Crombie is prohibited by its Declaration of Trust in purchasing, selling or trading in interest rate future contracts other than for hedging purposes. << Liquidity risk -------------- >> The real estate industry is highly capital intensive. Liquidity risk is the risk that Crombie may not have access to sufficient debt and equity capital to fund the growth program and/or refinance the debt obligations as they mature.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 tenant improvement costs and make distributions to Unitholders. Debt repayment requirements are primarily funded from refinancing Crombie's maturing debt obligations. Property acquisition funding requirements are funded through a combination of accessing the debt and equity capital markets.There is a risk that the debt capital markets may not refinance maturing debt 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 to an equity issue from Crombie with financial terms acceptable to Crombie. Crombie mitigates its exposure to liquidity risk utilizing a conservative approach to capital management.Access to the Revolving Credit Facility is also limited to the amount utilized under the facility, plus any negative mark-to-market position on the interest rate swap agreements not exceeding the Aggregate Coverage Amount. At March 31, 2010, the remaining amount available under the Revolving Credit Facility was $95,500 and was not limited by the Aggregate Coverage Amount.SUBSEQUENT EVENTSOn April 22, 2010, Crombie declared distributions of 7.417 cents per unit for the period from April 1, 2010 to and including, April 30, 2010. The distribution will be payable on May 14, 2010 to Unitholders of record as at April 30, 2010.On April 22, 2010, Crombie completed the first tranche of financing for the Mountain Locks Plaza in St. Catharines, Ontario. The mortgage of $10,500 has a 10 year term, a 25 year amortization period and a fixed interest rate of 5.88%. The second tranche of financing for $2,500 is anticipated to close prior to the end of the second quarter of 2010, subject to meeting final closing conditions.CONTROLS AND PROCEDURESThe Chief Executive Officer and the Chief Financial Officer, together with the assistance of management, are responsible for establishing and maintaining adequate internal control over financial reporting ("ICFR") to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. There were no changes to Crombie's ICFR for the quarter ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect Crombie's ICFR.QUARTERLY INFORMATIONThe following table shows information for revenues, net income (loss), AFFO, FFO, distributions and per unit amounts for the eight most recently completed quarters. << ----------------------------------------------- Quarter Ended (as restated) ------------------------------------------------------------------------- (In thousands of dollars, Mar. 31, Dec. 31, Sep. 30, Jun. 30, except per unit amounts) 2010 2009 2009 2009 ------------------------------------------------------------------------- Property revenue $53,221 $52,378 $50,991 $50,893 Property expenses 20,008 19,948 18,585 17,258 ------------------------------------------------------------------------- Property net operating income 33,213 32,430 32,406 33,635 ------------------------------------------------------------------------- Expenses: General and administrative 2,523 2,102 1,882 3,646 Interest 13,634 12,722 11,595 11,272 Depreciation and amortization 11,279 11,705 11,032 10,803 ------------------------------------------------------------------------- 27,436 26,529 24,509 25,721 ------------------------------------------------------------------------- Income from continuing operations before other items, income taxes and non-controlling interest 5,777 5,901 7,897 7,914 Other income (expense) items - 500 (9,981) - ------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes and non-controlling interest 5,777 6,401 (2,084) 7,914 Income tax expense (recovery) -Future (1,100) (300) - - ------------------------------------------------------------------------- Income (loss) from continuing operations before non-controlling interest 6,877 6,701 (2,084) 7,914 Gain/(loss) on sale of discontinued operations - - - - Income from discontinued operations - - - - ------------------------------------------------------------------------- Income (loss) before non-controlling interest 6,877 6,701 (2,084) 7,914 Non-controlling interest 3,262 3,178 (989) 3,786 ------------------------------------------------------------------------- Net income (loss) $3,615 $3,523 $(1,095) $4,128 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted net income (loss) per unit $0.11 $0.11 $(0.03) $0.15 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ----------------------------------------------- Quarter Ended (as restated) ------------------------------------------------------------------------- (In thousands of dollars, Mar. 31, Dec. 31, Sep. 30, Jun. 30, except per unit amounts) 2009 2008 2008 2008 ------------------------------------------------------------------------- Property revenue $52,992 $52,522 $51,044 $47,314 Property expenses 19,971 19,649 18,634 16,775 ------------------------------------------------------------------------- Property net operating income 33,021 32,873 32,410 30,539 ------------------------------------------------------------------------- Expenses: General and administrative 1,644 2,701 2,004 1,979 Interest 10,730 11,318 11,449 9,965 Depreciation and amortization 12,491 12,499 12,535 10,757 ------------------------------------------------------------------------- 24,865 26,518 25,988 22,701 ------------------------------------------------------------------------- Income from continuing operations before other items, income taxes and non-controlling interest 8,156 6,355 6,422 7,838 Other income (expense) items 92 55 27 97 ------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes and non-controlling interest 8,248 6,410 6,449 7,935 Income tax expense (recovery) -Future 200 (3,450) 859 701 ------------------------------------------------------------------------- Income (loss) from continuing operations before non-controlling interest 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 (loss) before non-controlling interest 8,048 10,371 4,921 7,370 Non-controlling interest 3,856 4,968 2,358 3,531 ------------------------------------------------------------------------- Net income (loss) $4,192 $5,403 $2,563 $3,839 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted net income (loss) per unit $0.15 $0.20 $0.09 $0.15 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Quarter Ended (as restated) ------------------------------------------------------------------------- (In thousands of dollars, Mar. 31, Dec. 31, Sep. 30, Jun. 30, except per unit amounts) 2010 2009 2009 2009 ------------------------------------------------------------------------- AFFO $12,744 $(7,511) $(451) $14,524 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FFO $17,056 $18,106 $8,948 $18,717 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributions $13,568 $13,567 $13,566 $12,294 ------------------------------------------------------------------------- ------------------------------------------------------------------------- AFFO per unit - basic $0.21 $(0.12) $(0.01) $0.27 AFFO per unit - diluted(1) $0.20 $(0.12) $(0.01) $0.27 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FFO per unit - basic $0.28 $0.30 $0.15 $0.35 FFO per unit - diluted(1) $0.27 $0.28 $0.15 $0.35 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributions per unit $0.22 $0.22 $0.22 $0.23 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Quarter Ended (as restated) ------------------------------------------------------------------------- (In thousands of dollars, Mar. 31, Dec. 31, Sep. 30, Jun. 30, except per unit amounts) 2009 2008 2008 2008 ------------------------------------------------------------------------- AFFO $11,698 $13,521 $10,019 $11,916 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FFO $20,739 $18,933 $19,200 $18,812 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributions $11,649 $11,649 $11,649 $11,879 ------------------------------------------------------------------------- ------------------------------------------------------------------------- AFFO per unit - basic $0.22 $0.26 $0.19 $0.24 AFFO per unit - diluted(1) $0.22 $0.26 $0.19 $0.24 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FFO per unit - basic $0.40 $0.36 $0.37 $0.38 FFO per unit - diluted(1) $0.39 $0.36 $0.36 $0.37 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributions per unit $0.22 $0.22 $0.22 $0.23 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) FFO and AFFO per unit are calculated on a diluted basis. The diluted weighted average number of total Units and Special Voting Units includes the conversion of all series of convertible debentures outstanding during the period, excluding any series that is anti- dilutive. Distributions per unit for each period is based on the total distributions per unit declared during the specific period. >> Additional information relating to Crombie, including its latest Annual Information Form, can be found on the SEDAR web site for Canadian regulatory filings at www.sedar.com.Dated: May 6, 2010Stellarton, Nova Scotia, CanadaFor further information: Scott Ball, C.A., Vice President, Chief Financial Officer and Secretary, Crombie REIT, (902) 755-8100