Groceries Help Make Canadian REIT ‘Internet Resistant,’ CEO Says
(Bloomberg) -- Grocery stores are helping make Canada’s Crombie Real Estate Investment Trust “internet-resistant,” its chief executive officer said.
Crombie’s C$5 billion ($3.8 billion) portfolio comprises more than 250 properties including plazas and malls. But CEO Donald Clow said having a grocery chain as an anchor tenant in many of its outlets helps protect it from the e-commerce revolution shaking the sector.
“We’re very comfortable with the nature of the real estate that we own and looking to build more,” Clow said in a phone interview. “Our fundamentals are strong and consistently improving and the occupancy in our cases is at record levels.”
Canadian malls have the felt the pressure from online shopping and the retreat of giant retailers like Sears Canada Inc. which saw the shuttering of 190 stores and the loss of 15,000 jobs in Canada, according to a report by Cushman & Wakefield in November.
Units of the New Glasgow, Nova Scotia-based REIT have returned 6 percent over the past 12 months including payouts compared with almost a 12 percent return in the S&P/TSX Capped REIT Index. Crombie rose 0.2 percent to C$13.26 at around 2:18 p.m. in Toronto on Wednesday.
Crombie’s largest tenant is grocery chain Sobeys Inc., one of the “most insulated Canadian food retailers” from e-commerce due to its “focus on fresh, private label and prepared foods,” Clow said on Crombie’s third quarter earnings call in November.
Clow also hailed the legalization of recreational marijuana in Canada last year, which could create new tenants. “People are very interested in being near a grocery store, being near other convenience-based type retailers,” he said. “It’s very good for our industry. Our rents tend to be higher obviously for these companies.”
Despite the company’s faith in retail, Crombie is also starting to dive into mixed-use developments, and planning to invest about C$511 million on projects that include retail, rental apartments and offices. He says the investment will result in a yield of up to 6.2 percent.
“It’s almost all going to be residential, which is layered on top of a grocery store or strategic for the grocery store,” Clow said. “It’s a massive value increase,” and will add high quality cash flow over time and faster than the grocery store, he said.
To fund the company’s growth, Crombie will likely dispose of certain assets and potentially raise equity or debt in the future, Clow said.
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