Crombie REIT announces second quarter 2008 results and commitments to refinance $100 million of bridge loan

STELLARTON, NS, Aug. 8, 2008 (Canada NewsWire via COMTEX) -- CRRU | Quote | Chart | News | PowerRating -- Crombie Real Estate Investment Trust ("Crombie") (TSX: CRR.UN) is pleased to report its results for the second quarter and six months ended June 30, 2008.

Funds from Operations (FFO) for the second quarter increased by 48.0% to $18.6 million ($0.37 per unit) from $12.6 million ($0.30 per unit) in the second quarter of 2007. Year-to-date FFO increased by 25.6% to $32.2 million ($0.70 per unit) from $25.6 million ($0.61 per unit) for the same period of 2007. The improvement for both the quarter and year-to-date periods was due to the portfolio acquisition of 61 retail properties from subsidiaries of Empire Company Limited (the "Acquisition") on April 22, 2008, the impact of the individual property acquisitions since January 1, 2007 and increased same-asset net operating income (NOI).

Adjusted Funds from Operations (AFFO) for the second quarter of 2008 was $11.7 million ($0.23 per unit) compared to $10.3 million ($0.25 per unit) for the second quarter of 2007. Year-to-date AFFO was $19.6 million ($0.43 per unit) compared to $21.2 million ($0.51 per unit) for the same period of 2007. Growth in AFFO during the second quarter was due to the improved FFO results, partially offset by higher maintenance capital and tenant improvement costs combined with one month of distributions made on the subscription receipts prior to the closing of the portfolio Acquisition. The increase in tenant improvement expenditures relate to early renewals of leases scheduled to expire in 2009 which will result in improved net rents on an ongoing basis.

Total property NOI for the second quarter of 2008 increased by 46.6% to $30.3 million from $20.7 million in the second quarter of 2007. Total property NOI for the six months ended June 30, 2008 was $52.0 million, representing a 26.6% increase over the NOI of $41.1 million for the same period of 2007. The improvement in the NOI again resulted from the portfolio Acquisition, the results from the individual property acquisitions and improved same-asset NOI, due to higher average rent per square foot results.

Net income for the second quarter of 2008 was $3.8 million ($0.15 per unit) compared to $1.3 million ($0.06 per unit) for the second quarter of 2007. Net income for the six months ended June 30, 2008 was $6.6 million ($0.28 per unit) compared to $4.6 million ($0.21 per unit) for the same period of 2007.

Subsequent to the end of the second quarter, Crombie signed commitment letters with Halifax Bank of Scotland ("HBOS") to refinance $100 million of the bridge loan used to partially finance the portfolio Acquisition with fixed rate mortgages. The commitments have a weighted average 7.7 year term and interest rates based on the prevailing amortizing swap rates for the loan terms plus a basis point spread which management anticipates will result in an overall weighted average interest rate which will approximate the 6.35% rate used to model the pro forma accretion of the portfolio Acquisition, subject to final rate lock.

Commenting on the year-to-date results, J. Stuart Blair, President and Chief Executive Officer stated: "Overall, Crombie has had an extremely busy and productive 2008 thus far. I am extremely pleased that we completed the acquisition of the portfolio from Empire during the second quarter. I also continue to be satisfied to see continuing growth of NOI in our same-asset properties. As well, we were able to complete our first acquisition west of Ontario in June and complete leasing activity on 85% of the 2008 lease expiries half way through the year. Finally, the progress made in replacing a major portion of our bridge loan with suitable long term financing, even in this difficult credit environment, is very encouraging."

2008 Highlights

<< - Crombie completed the acquisition of 61 commercial properties from Empire Subsidiaries on April 22, 2008 for a price of $428.5 million, excluding closing and transaction fees. In order to partially fund the purchase, Crombie also completed a public offering of units, raising gross proceeds of $63 million and placed $30 million of convertible debentures. - Crombie completed its first acquisition west of Ontario, purchasing River City Centre in Saskatoon, Saskatchewan on June 12, 2008 for $27.2 million excluding closing and transaction costs. - Crombie completed leasing activity on 85.0% of its 2008 expiring leases as at June 30, 2008, increasing average net rent per square foot to $12.78 from the expiring rent per square foot of $12.05, an increase of 6.1%. - Occupancy for the properties (excluding the portfolio Acquisition at June 30, 2008) increased to 93.3% compared with March 31, 2008 at 92.9%. Overall occupancy at June 30, 2008 was 94.9%. - Property revenue for the quarter ended June 30, 2008 increased by $12.7 million, or 36.6%, to $47.3 million compared to $34.6 million for the quarter ended June 30, 2007. The improvement was due to the portfolio Acquisition, increased same-asset property results and the four individual property acquisitions completed since June 30, 2007. - Same-asset NOI of $21.6 million increased by $0.9 million or 4.6%, compared to $20.7 million for the quarter ended June 30, 2007 due primarily to an increased average rent per square foot ($12.39 in 2008 versus $12.02 in 2007). - The FFO payout ratio for the six months ended June 30, 2008 was 61.6% which was below the target annual payout ratio of 70.0% and below the payout ratio of 66.6% for the same period of 2007. - The AFFO payout ratio for the six months ended June 30, 2008 was 101.4% which was above the target annual AFFO payout ratio of 95.0% and the payout ratio for 2007 of 80.5%. The year-to-date fluctuation was primarily due to tenant improvement costs incurred in 2008 for leases that were set to expire in 2009, which will result in higher net rent per square foot on an ongoing basis, combined with one month of distributions made on the subscription receipts prior to the closing of the portfolio Acquisition. Crombie anticipates that the annual AFFO payout ratio will approximate the target payout ratio by the end of fiscal 2008. - Debt to gross book value increased to 55.1% at June 30, 2008 compared to 48.2% at March 31, 2008 as a result of the financing for the portfolio Acquisition. - Crombie's debt service coverage ratio for the first six months of 2008 was 1.88 times EBITDA and interest service coverage ratio was 2.92 times EBITDA, compared to 1.92 times EBITDA and 3.12 times EBITDA, respectively, for the same period in 2007. - Subsequent to the end of the second quarter of 2008, Crombie signed commitment letters to refinance $100 million of the bridge loan with fixed rate mortgages. The table below presents a summary of the financial performance for the quarter and six months ending June 30, 2008 compared to the same periods in fiscal 2007. ------------------------------------------------------------------------- Six Six Quarter Quarter months months (In millions of dollars, ended ended ended ended except where otherwise Jun. 30, Jun. 30, Jun. 30, Jun. 30, noted) 2008 2007 2008 2007 ------------------------------------------------------------------------- Property revenue $47.315 $34.636 $84.576 $69.712 Property expenses 17.009 13.958 32.549 28.605 ------------------------------------------------------------------------- Property NOI 30.306 20.678 52.027 41.107 ------------------------------------------------------------------------- NOI margin percentage 64.1% 59.7% 61.5% 59.0% ------------------------------------------------------------------------- Expenses: General and administrative 1.979 2.224 3.931 3.842 Interest 9.965 6.080 16.465 11.921 Depreciation and amortization 10.524 7.085 18.290 13.407 ------------------------------------------------------------------------- 22.468 15.389 38.686 29.170 ------------------------------------------------------------------------- Income from continuing operations before other items, income taxes and non- controlling interest 7.838 5.289 13.341 11.937 Other items 0.097 - 0.097 - ------------------------------------------------------------------------- Income from continuing operations before income taxes and non- controlling interest 7.935 5.289 13.438 11.937 Income taxes - Future 0.701 2.978 1.101 3.306 ------------------------------------------------------------------------- Income from continuing operations before non- controlling interest 7.234 2.311 12.337 8.631 Discontinued operations 0.136 0.108 0.399 0.150 ------------------------------------------------------------------------- Income before non- controlling interest 7.370 2.419 12.736 8.781 Non-controlling interest 3.531 1.164 6.114 4.226 ------------------------------------------------------------------------- Net income $3.839 $1.255 $6.622 $4.555 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted net income per unit $0.15 $0.06 $0.28 $0.21 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Property NOI Second quarter and year-to-date property NOI for 2008 increased to $30.3 million (46.6%) and $52.0 million (26.6%) respectively from the same periods in 2007 due to the portfolio Acquisition, improved same-asset property results and the individual property acquisitions completed since January 1, 2007. Same-Asset Property NOI ------------------------------------------------------------------------- Six Six Quarter Quarter months months ended ended ended ended Jun. 30, Jun. 30, Jun. 30, Jun. 30, (In millions of dollars) 2008 2007 2008 2007 ------------------------------------------------------------------------- Same-asset property revenue $36.151 $34.636 $70.241 $68.348 Same-asset property expenses 14.528 13.958 28.922 28.201 ------------------------------------------------------------------------- Same-asset property NOI $21.623 $20.678 $41.319 $40.147 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Same-asset NOI margin % 59.8% 59.7% 58.8% 58.7% ------------------------------------------------------------------------- Same-asset property revenue of $36.2 million in the second quarter of 2008 and $70.2 million for year-to-date 2008 was 4.4% higher than the second quarter in 2007 and 2.8% higher than the same period results for 2007 due primarily to increased average rent per square foot results. Same-asset property expenses of $14.5 million in the second quarter of 2008 and $28.9 million for year-to-date 2008 were 4.1% higher than the $14.0 million for the second quarter of 2007 and 2.6% higher than the $28.2 million for the year-to-date results for 2007. The increased property expenses were due to increased recoverable common area expenses primarily from increased utility and snow removal costs. Same-asset NOI for the second quarter of 2008 grew by 4.6% over the same period in 2007 while 2008 year-to-date same-asset NOI grew by 2.9% over the year-to-date results for 2007. Acquisition Property NOI The Acquisition and the individual property acquisitions completed since January 1, 2007 provided the following results: ------------------------------------------------------------------------- Six Six Quarter Quarter months months ended ended ended ended Jun. 30, Jun. 30, Jun. 30, Jun. 30, (In millions of dollars) 2008 2007 2008 2007 ------------------------------------------------------------------------- Acquisition property revenue $11.164 $- $14.335 $1.364 Acquisition property expense 2.481 - 3.627 0.404 ------------------------------------------------------------------------- Acquisition property NOI $8.683 $- $10.708 $0.960 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Acquisition NOI margin % 77.8% -% 74.7% 70.4% ------------------------------------------------------------------------- General and Administrative Expenses General and administrative expenses decreased by 11.0% during the second quarter of 2008 to $2.0 million due to reduced rent and occupancy costs as a result of the negotiation of more favourable lease terms at the head office. General and administrative costs increased by 2.3% for the six months ended June 30, 2008 to $3.9 million from the same period in the prior year due to higher salaries and benefits costs, offset in part by lower rent and occupancy expenses. Interest ------------------------------------------------------------------------- Six Six Quarter Quarter months months ended ended ended ended Jun. 30, Jun. 30, Jun. 30, Jun. 30, (In millions of dollars) 2008 2007 2008 2007 ------------------------------------------------------------------------- Same-asset interest expense $5.760 $6.080 $10.938 $11.526 Acquisition interest expense 4.205 - 5.527 0.395 ------------------------------------------------------------------------- Interest expense $9.965 $6.080 $16.465 $11.921 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The increase in interest expense for both the second quarter and year-to-date results of 2008 were due to the portfolio Acquisition and the individual property acquisitions completed since January 1, 2007. Same-asset interest expense was reduced for both the quarter and year-to-date results due to the declining interest portion of debt repayments combined with reduced interest rates on mortgages renegotiated since January 2007 and a decrease in the effective interest rate on the revolving credit facility. Other Performance Measures ------------------------------------------------------------------------- Six Six Quarter Quarter months months (In millions of dollars, ended ended ended ended except where otherwise Jun. 30, Jun. 30, Jun. 30, Jun. 30, noted) 2008 2007 2008 2007 ------------------------------------------------------------------------- FFO $18.579 $12.553 $32.189 $25.635 AFFO $11.683 $10.330 $19.550 $21.201 Distributions $10.952 $8.727 $19.819 $17.074 FFO payout ratio 58.9% 69.5% 61.6% 66.6% AFFO payout ratio 93.7% 84.5% 101.4% 80.5% ------------------------------------------------------------------------- Jun. 30, Jun. 30, 2008 2007 ------------------------ Debt to gross book value 55.1% 47.0% ------------------------------------------------- The year-to-date FFO payout ratio of 61.6% is below the anticipated annual payout ratio of 70.0% while the AFFO payout ratio of 101.4% is higher than the target annual payout ratio of 95.0%. Growth in AFFO was due to the improved FFO results, partially offset by higher maintenance capital and tenant improvement costs combined with one month of distributions made on the subscription receipts prior to the closing of the portfolio Acquisition. The increase in tenant improvement expenditures relate to early renewals of leases scheduled to expire in 2009 which will result in improved net rents on an ongoing basis. Crombie anticipates that the annual payout ratio will approximate the target payout ratio by the end of fiscal 2008. Definition of Non-GAAP Measures Certain 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. - 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 and additions to tenant improvements and lease costs. About Crombie Crombie is an open-ended real estate investment trust established under, and governed by, the laws of the Province of Ontario. The trust invests in income-producing retail, office and mixed-use properties in Canada, with a future growth strategy focused primarily on the acquisition of retail properties. Crombie currently owns a portfolio of 113 commercial properties in seven provinces, comprising approximately 11.1 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 2008 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: (i) anticipated or target distributions and payout ratios, which could be impacted by seasonality of capital expenditures, results of operations and capital resource allocation decisions. 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 Invitation Crombie will provide additional details concerning its second quarter results on a conference call to be held Friday, August 8, 2008, at 12:00 p.m. ADT. To join this conference call you may dial (800) 762-8932. 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 August 15, 2008, by dialling (416) 640-1917 or (877) 289-8525 and entering pass code 21279307#, or on the Crombie website for 90 days after the meeting. CROMBIE REAL ESTATE INVESTMENT TRUST Interim Consolidated Financial Statements Unaudited June 30, 2008 CROMBIE REAL ESTATE INVESTMENT TRUST Consolidated Balance Sheets (In thousands of dollars) (Unaudited) ------------------------------------------------------------------------- June 30, December 2008 31, 2007 ------------------------ Assets Commercial properties (Note 4) $1,300,825 $898,938 Intangible assets (Note 5) 146,454 59,823 Notes receivable (Note 6) 16,552 20,968 Other assets (Note 7) 26,896 20,436 Cash and cash equivalents - 2,708 Assets held for sale (Note 20) 10,951 11,109 ------------------------ $1,501,678 $1,013,982 ------------------------ ------------------------ Liabilities and Unitholders' Equity Commercial property debt (Note 8) $812,016 $493,945 Convertible debentures (Note 9) 28,847 - Payables and accruals (Note 10) 48,980 38,555 Intangible liabilities (Note 11) 45,351 16,503 Employee future benefits obligation 4,649 4,458 Distributions payable 3,883 2,956 Future income tax liability (Note 15) 82,602 81,501 Liabilities related to assets held for sale (Note 20) 7,007 7,311 ------------------------ 1,033,335 645,229 Non-controlling interest (Note 12) 224,871 177,919 Unitholders' equity 243,472 190,834 ------------------------ $1,501,678 $1,013,982 ------------------------ ------------------------ Commitments and contingencies (Note 17) 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 Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2008 2007 2008 2007 ------------------------------------------------ Revenues Property revenue (Note 14) $47,315 $34,636 $84,576 $69,712 Lease terminations 20 - 20 - ------------------------------------------------ 47,335 34,636 84,596 69,712 ------------------------------------------------ Expenses Property expenses 17,009 13,958 32,549 28,605 General and administrative expenses 1,979 2,224 3,931 3,842 Interest expense 9,965 6,080 16,465 11,921 Depreciation of commercial properties 4,185 3,030 7,359 5,971 Amortization of tenant improvements/lease costs 700 647 1,468 1,005 Amortization of intangible assets 5,639 3,408 9,463 6,431 ------------------------------------------------ 39,477 29,347 71,235 57,775 ------------------------------------------------ ------------------------------------------------ Income from continuing operations before other items 7,858 5,289 13,361 11,937 Gain on disposition of land 77 - 77 - ------------------------------------------------ Income from continuing operations before income taxes and non- controlling interest 7,935 5,289 13,438 11,937 Income tax expense - Future (Note 15) 701 2,978 1,101 3,306 ------------------------------------------------ Income from continuing operations before non- controlling interest 7,234 2,311 12,337 8,631 Income from discontinued operation (Note 20) 136 108 399 150 ------------------------------------------------ Income before non- controlling interest 7,370 2,419 12,736 8,781 Non-controlling interest 3,531 1,164 6,114 4,226 ------------------------------------------------ Net income $3,839 $1,255 $6,622 $4,555 ------------------------------------------------ ------------------------------------------------ Basic and diluted net income per unit Continuing operations $0.14 $0.05 $0.26 $0.20 Discontinued operations $0.01 $0.01 $0.02 $0.01 ------------------------------------------------ Net income $0.15 $0.06 $0.28 $0.21 ------------------------------------------------ ------------------------------------------------ Weighted average number of units outstanding Basic 25,909,792 21,538,422 23,726,866 21,526,382 ------------------------------------------------ ------------------------------------------------ Diluted 26,028,526 21,648,985 23,838,755 21,643,238 ------------------------------------------------ ------------------------------------------------ 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 Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2008 2007 2008 2007 ------------------------------------------------ Net income $3,839 $1,255 $6,622 $4,555 Net change in derivatives designated as cash flow hedges 1,487 (460) (2,807) (401) ------------------------------------------------ Other comprehensive income (loss) 1,487 (460) (2,807) (401) ------------------------------------------------ Comprehensive income $5,326 $795 $3,815 $4,154 ------------------------------------------------ ------------------------------------------------ See accompanying notes to the interim consolidated financial statements. CROMBIE REAL ESTATE INVESTMENT TRUST Consolidated Statements of Unitholders' Equity (In thousands of dollars) (Unaudited) ------------------------------------------------------------------------- Accumu- lated Other Compre- Contri- hensive REIT Net buted Income Distri- Units Income Surplus (Loss) butions Total ------------------------------------------------------------------ (Note 13) Unitholders' equity, January 1, 2008 $205,273 $20,064 $12 $(3,000) $(31,515) $190,834 Units released under EUPP 20 - (20) - - - Units issued under EUPP 386 - - - - 386 Loans receivable under EUPP (386) - - - - (386) EUPP compen- sation - - 20 - - 20 Repayment of EUPP loans recei- vable 164 - - - - 164 Net income - 6,622 - - - 6,622 Distri- butions - - - - (10,983) (10,983) Other comprehensive loss - - - (2,807) - (2,807) Unit issue proceeds, net of costs of $2,008 60,997 - - - - 60,997 Unit redemp- tion (1,375) - - - - (1,375) ------------------------------------------------------------------ Unitholders' equity, June 30, 2008 $265,079 $26,686 $12 $(5,807) $(42,498) $243,472 ------------------------------------------------------------------ ------------------------------------------------------------------ Unitholders' equity, January 1, 2007 $204,831 $9,405 $27 $Nil $(13,369) $200,894 Transition adjust- ment - - - (162) - (162) Units released under EUPP 52 - (52) - - - Units issued under EUPP 215 - - - - 215 Loans receivable under EUPP (215) - - - - (215) EUPP compen- sation - - 18 - - 18 Repayment of EUPP loans recei- vable 375 - - - - 375 Net income - 4,555 - - - 4,555 Distri- butions - - - - (8,947) (8,947) Other compre- hensive loss - - - (401) - (401) ------------------------------------------------------------------ Unitholders' equity, June 30, 2007 $205,258 $13,960 $(7) $(563) $(22,316) $196,332 ------------------------------------------------------------------ ------------------------------------------------------------------ See accompanying notes to the interim consolidated financial statements. CROMBIE REAL ESTATE INVESTMENT TRUST Consolidated Statements of Cash Flows (In thousands of dollars) (Unaudited) ------------------------------------------------------------------------- Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2008 2007 2008 2007 ------------------------------------------------ Cash flows provided by (used in) Operating Activities Net income $3,839 $1,255 $6,622 $4,555 Items not affecting cash Non-controlling interest 3,531 1,164 6,114 4,226 Depreciation of commercial properties 4,208 3,063 7,417 6,038 Amortization of tenant improvements/ lease costs 709 656 1,491 1,021 Amortization of deferred financing costs 323 108 477 200 Amortization of intangible assets 5,668 3,437 9,521 6,489 Amortization of above market leases 779 752 1,549 1,449 Amortization of below market leases (1,819) (1,111) (3,009) (2,098) Gain on disposal of land (77) - (77) - Accrued rental revenue (703) (399) (1,021) (706) Unit based compensation 11 9 20 18 Future income taxes 701 2,978 1,101 3,306 ------------------------------------------------ ------------------------------------------------ 17,170 11,912 30,205 24,498 Additions to tenant improvements and lease costs (3,771) (1,828) (8,328) (2,909) Change in other non-cash operating items (Note 16) 3,008 (7,777) (487) (17,000) ------------------------------------------------ ------------------------------------------------ Cash provided by operating activities 16,407 2,307 21,390 4,589 ------------------------------------------------ ------------------------------------------------ Financing Activities Issue of commercial property debt 350,575 24,023 350,575 55,941 Issue costs of commercial property debt (3,653) (320) (3,592) (385) Issue of convertible debentures - - 30,000 - Issue costs of convertible debentures - - (1,214) - Units issued 63,005 - 63,005 - Units and Class B LP Units issue costs (3,790) - (3,790) - Repayment of commercial property debt (18,355) (17,647) (45,735) (21,273) Collection of notes receivable 3,002 4,651 4,416 13,006 Repayment of EUPP loan receivable 157 188 164 375 Unit redemption (1,375) - (1,375) - Payment of distributions (10,952) (8,727) (19,819) (17,074) ------------------------------------------------ ------------------------------------------------ Cash provided by financing activities 378,614 2,168 372,635 30,590 ------------------------------------------------ ------------------------------------------------ Investing Activities Additions to commercial properties (5,803) (3,834) (7,515) (5,501) Proceeds of disposal of land, net of closing costs (Note 4) 187 - 187 - Acquisition of commercial properties (Note 4) (389,405) - (389,405) (30,217) ------------------------------------------------ ------------------------------------------------ Cash used in investing activities (395,021) (3,834) (396,733) (35,718) ------------------------------------------------ ------------------------------------------------ Increase (decrease) in cash and cash equivalents during the period Nil 641 (2,708) (539) Cash and cash equivalents, beginning of period Nil - 2,708 1,180 ------------------------------------------------ ------------------------------------------------ Cash and cash equivalents, end of period $Nil $641 $Nil $641 ------------------------------------------------ ------------------------------------------------ See accompanying notes to the interim consolidated financial statements. CROMBIE REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of dollars, except per unit amounts) (Unaudited) June 30, 2008 ------------------------------------------------------------------------- 1) CROMBIE REAL ESTATE INVESTMENT TRUST Crombie 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 presentation These interim consolidated financial statements are prepared in accordance with 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 contained 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, 2007 as set out in the 2007 Annual Report. The accounting policies used in preparation of these interim consolidated financial statements conform with those used in the 2007 annual consolidated financial statements, except as described in Note 3. (b) Property acquisitions Upon 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 leasing commissions as well as foregone rent and operating cost recoveries during an assumed lease-up period. 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 is determined based on the differential between contractual and market interest rates on long term liabilities assumed at acquisition. (c) Revenue recognition Property 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 taxes Crombie is taxed as a "mutual fund trust" for income tax purposes. Pursuant to the terms of the Declaration of Trust, Crombie must 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 obligation The cost of pension benefits for defined contribution plans are expensed as contributions are paid. The cost of defined benefit pension plans and other benefit plans 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 plans 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. During the second quarter and year to date fiscal 2008, the net defined benefit pension plans and other benefit plans expense was $95 and $191 (2007 - $116 and $231). (f) Use of estimates The preparation of consolidated financial statements in conformity with Canadian 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; - Allocation of purchase price on property acquisitions; and - Fair value of mortgages. (g) Cash flow statements The determination to declare and make payable distributions from Crombie are 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 six month period ended June 30, 2008, $20,746 (six month period ended June 30, 2007 - $17,249) 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 debentures Debentures 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 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 on convertible debentures are netted against the convertible debentures and amortized over the original life of the convertible debentures using the effective interest rate method. (i) Discontinued operations Crombie classifies properties that meet certain criteria as held for sale and separately discloses any net income (loss) 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 market 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. A property that is subsequently reclassified as held in use is measured at the lower of its carrying value amount before it was classed as held for sale, adjusted for an 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. 3) CHANGES IN ACCOUNTING POLICIES Effective January 1, 2008 Crombie has adopted three new accounting standards that were issued by the CICA in 2006. These accounting policy changes have been adopted on a prospective basis. The new standards and accounting policy changes are as follows: Capital Disclosures Effective January 1, 2008, the CICA's new accounting standard "Handbook Section 1535, Capital Disclosures" was adopted, which requires the disclosure of both qualitative and quantitative information to enable users of financial statements to evaluate the entity's objectives, policies and processes for managing capital. The new standard did not have any impact on the financial position or earnings of Crombie. Refer to Note 21. Financial Instruments Disclosures and Presentation Effective January 1, 2008, the accounting and disclosure requirements of the CICA's two new accounting standards were adopted: "Handbook Section 3862, Financial Instruments - Disclosures" and "Handbook Section 3863, Financial Instruments - Presentation." The new standards did not have any impact on the financial position or earnings of Crombie. Refer to Note 19. Effect of New Accounting Standards not yet Implemented Goodwill and Intangible Assets In February 2008, the CICA issued a new Section 3064 "Goodwill and Intangible Assets" replacing Section 3062 "Goodwill and Other Intangible Assets" as well as Section 3450 "Research and Development Costs". The new Section 3064 states that upon their initial identification, intangible assets are to be recognized as assets only if they meet the definition of an intangible asset and the recognition criteria. Section 3064 also provides further information on the recognition of internally generated intangible assets (including research and development costs). As for subsequent measurement of intangible assets, goodwill, and disclosure, Section 3064 carries forward the requirements of the old Section 3062. The new Section applies to annual and interim financial statements relating to fiscal years beginning on or after October 1, 2008. Crombie is currently evaluating the effect of these new standards on its results and financial position. International Financial Reporting Standards On February 13, 2008, the Accounting Standards Board confirmed the date of changeover from GAAP to International Financial Reporting Standards ("IFRS"). Canadian publicly accountable enterprises must adopt IFRS for their interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. Crombie is currently developing its IFRS conversion plan and evaluating the effect of the new standards on its consolidated financial statements. 4) COMMERCIAL PROPERTIES June 30, 2008 ------------------------------------ Accumu- lated Depre- Net Book Cost ciation Value ------------------------------------ Land $288,551 $Nil $288,551 Buildings 1,018,446 28,237 990,209 Tenant improvements and leasing costs 26,678 4,613 22,065 ------------------------------------ $1,333,675 $32,850 $1,300,825 ------------------------------------ ------------------------------------ December 31, 2007 ------------------------------------ Accumu- lated Depre- Net Book Cost ciation Value ------------------------------------ Land $180,938 $Nil $180,938 Buildings 723,673 20,878 702,795 Tenant improvements and leasing costs 18,350 3,145 15,205 ------------------------------------ $922,961 $24,023 $898,938 ------------------------------------ ------------------------------------ Property Acquisitions and Disposals 2008 ---- On April 22, 2008, Crombie acquired 61 properties in Atlantic Canada, Quebec and Ontario from subsidiaries of Empire Company Limited, representing a 3,288,000 square foot increase to the portfolio, for $428,500 plus additional closing costs. The acquisition was financed through a $280,000 term facility, the issuance of $30,000 convertible debentures, the issuance of $55,000 of Class B LP units of Crombie Limited Partnership to affiliates of Empire, the issuance of $63,005 of REIT units (5,727,750 units at a price of $11.00 per unit), and a draw on Crombie's revolving credit facility. On June 12, 2008, Crombie acquired a property in Saskatoon, Saskatchewan, representing a 160,000 square foot increase to the portfolio, for $27,200 plus additional closing costs, from an unrelated third party. The acquisition was financed through an assumption of an existing mortgage of $16,517 at a fixed rate of 5.35% and a term of three years with the balance of the purchase price paid using funds from the revolving credit facility. On May 21, 2008, land attached to a commercial property was sold to an unrelated third party for cash proceeds of $187, net of closing costs, resulting in a gain of $77. 2007 ---- On January 17, 2007, Crombie acquired a property in Carleton Place, Ontario, representing a 79,700 square foot increase to the portfolio, for $11,800 plus additional closing costs, from an unrelated third party. The acquisition was initially financed through Crombie's revolving credit facility. On April 27, 2007, a mortgage of $7,850 at a fixed rate of 5.18% and a term of 12 years was established for the property. On March 7, 2007, Crombie acquired a property in Perth, Ontario representing a 102,500 square foot increase to the portfolio, for $17,900 plus additional closing costs, from an unrelated third party. The acquisition was initially financed through Crombie's revolving credit facility. On April 20, 2007, a mortgage of $12,600 at a fixed rate of 5.43% and a term of 15 years was established for the property. The allocation of the total cost of the acquisitions is as follows: Three Three Six Six Months Months Months Months Ended Ended Ended Ended Commercial property June 30, June 30, June 30, June 30, acquired, net: 2008 2007 2008 2007 ------------------------------------------------------------------------- Land $107,826 $- $107,826 $5,181 Buildings 287,154 - 287,154 20,330 Intangible assets: Lease origination costs 40,233 - 40,233 985 Tenant relationships 21,622 - 21,622 2,244 Above market leases 370 - 370 855 In-place leases 35,384 - 35,384 2,182 Intangible liabilities: Below market leases (31,848) - (31,848) (1,560) ------------------------------------------------------------------------- Net purchase price 460,741 - 460,741 30,217 Assumed mortgages (16,517) - (16,517) - Fair value debt adjustment on assumed mortgages 181 - 181 - ------------------------------------------------------------------------- $444,405 $- $444,405 $30,217 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consideration funded by: Revolving credit facility $16,000 $- $16,000 $9,017 Mortgage financing - - - 20,450 Term facility 280,000 - 280,000 - Units 63,005 - 63,005 - Convertible debentures 30,000 - 30,000 - Application of deposit 400 - 400 750 ------------------------------------------------------------------------- Cash paid 389,405 - 389,405 30,217 Class B LP Units (non-controlling interest) paid 55

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