Crombie REIT (CRR.UN) is a retail-based REIT, with 287 properties of 18.2 million square feet, a $5-billion fair value, and 96.2% committed occupancy.
Empire (EMP) the food conglomerate known for owning Sobeys, Longo’s, and Farm Boy, has a 41.5% interest in Crombie.
The portfolio is focused on retail, comprising 87% of the portfolio fair value, 8.7% is retail-related industrial assets, 2.9% office, and 1.4% other.
Necessity-based retailers make up 57.6% of AMR (Annual Minimum Rent), followed by retail-related industrial tenants at 6.9%, office and hotel tenants at 6.1%, and the rest being made up by various other of tenant types.
Empire makes up 56.9% of AMR, with Shoppers Drug Mart at 3.2%, Dollarama (DOL) at 1.4%, and various others.
The top 20 tenants make up 74.4% of AMR, most of which have an investment grade credit rating. Eighty-two percent of the AMR is made up of grocery and pharmacy-anchored properties, which are considered quite stable.
Distributions for the trust are at $0.07 per unit on a monthly basis, representing a 4.8% dividend yield.
Given the attractive development pipeline and geographic strategy, coupled with defensive grocery- and pharmacy-anchored properties, and an attractive yield, I am bullish on the stock. (See Insiders’ Hot Stocks on TipRanks)
Mixed-Use and Defensive Portfolio
Crombie’s defensive grocery-anchored retail strategy is evolving to a balanced grocery-anchored retail and retail-related industrial portfolio.
Over time, these retail-related industrial asset types are expected to take up a great percentage of the overall portfolio. Currently this asset type makes up 8.7% in fair value of the portfolio and 11.1% of the GLA (Gross Leasable Area).
With the impact of the pandemic, investors have gravitated towards industrial assets due to their “pandemic proof” qualities. The attractiveness of this segment makes sense, given the 100% committed occupancy from this asset type.
In addition, CBRE reports that the average net rent of industrial assets has increased from ~$7.50 psf (per square foot) to ~$10.50 psf in three years. In addition, the average sale price has increased from ~$140 psf to ~$190 psf.
Weathering COVID Storm
The rent collection rate is at 99%, showing the resilience of Crombie’s tenant base. When comparing 2019 to 2020, FFO (Funds From Operations) grew by ~3%, AFFO (Adjusted Funds From Operations) by ~4%, and SA NOI (Same-Asset Net Operating Income) by ~3%.
This performance speaks to its tenant, portfolio, and management quality.
Geographic-Focused Acquisition & Disposition Strategy
Crombie’s management team is focused on selective purchases of assets located in top-tier markets, while simultaneously disposing assets in lower-tier markets.
The acquisitions in the last six months from June 30, 2021 comprised of two development properties and six income-producing properties, with a total purchase cost of $58 million.
Almost 79% of these were in major markets and VECTOM (Vancouver, Edmonton, Calgary, Toronto, Ottawa, and Montreal) cities, and just 21.1% in the rest of Canada. In the same time frame, the disposed GLA was 66.7% in the rest of Canada, and 33.3% in VECTOM cities.
Disposition proceeds totaled $41.9 million for the term.
Development Pipeline
The total development pipeline for Crombie has an estimated value of $4.4 billion to $6.3 billion for 30 sites.
Annual investment to support this would be roughly $150 million to $250 million. Residential sites like “Le Duke” in Montreal and “Bronte Village” in Oakville, Ontario are expected to be finished by 2021.
In addition, the home of Empire’s third customer fulfillment center for the Voila brand will be completed in the short term in Calgary.
These three developments are high-quality given they are in major markets, and in attractive segments (multi-residential and industrial).
Partnership with Empire
The relationship Crombie has with Empire is unique in the real estate space, and provides a competitive advantage.
The two firms collaborate to execute projects together to enhance their profitability. Empire has a three-year business strategy to expand its business and e-commerce network.
The strategy aligns with Crombie since it can expand its real estate portfolio with high quality and defensive low-risk growth through transactions.
Strategic and accretive activities with Empire include store conversions, land-use intensifications, urban developments, expansion of grocery stores, and investments in the Voila online grocery network.
Financial Strength
Crombie has not only been able to survive the pandemic, but at the same time lower its leverage levels. Debt-to-fair value was 49.4% in 2020 and was able to drop to 46% by the second quarter of 2021.
Interest coverage is just under 3x, with debt-to-EBITDA just over 9x. These metrics and other factors grant them a DBRS investment grade credit rating of BBB, which remains low.
Wall Street’s Take
From Wall Street analysts, CRR.UN earns a Hold consensus rating, based on one Buy rating and 4 Hold ratings. Additionally, the average CRR.UN price target of C$19.05 puts the upside potential at 2.5%.
Bottom Line
Crombie could be a great defensive pick, given its pandemic performance and portfolio make-up.
Disclosure: The author works as a manager at National Bank Financial and had no position in any of the companies discussed in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.
