Crombie’s $100-Million Raise Will Help Fund Pivot Into Residential Real Estate
HALIFAX — New Glasgow’s Crombie REIT recently raised $100-million by selling off stock to a syndicate of underwriters co-led by Scotiabank and BMO Capital Markets, as well as its long-time partner Empire Company.
Glenn Hynes, Crombie’s chief operating officer, says the company issued the offering to leverage its strong stock price and raise some capital.
The money, he said, “will facilitate a lot of the priorities that we have for spending over the next 12 months, and that will really help us to keep moving forward with our growth plans.”
Hynes says those growth plans will be to continue Crombie’s strategy of expanding its portfolio beyond its traditional grocery-anchored real estate holdings.
Crombie, which used to be the real estate arm of Sobeys owner Empire Company, owns many of the buildings that house Empire’s grocery stores.
As Hynes says, five years ago the company was “virtually almost all grocery-anchored retail,” with 235 of its 285 buildings housing a grocery store.
“But, five years ago, we looked in the mirror and said, you know, as much as grocery-anchored retail is great, and it’s very defensive, it’s very resilient, it’s not as growth-oriented as other asset classes,” he says.
So the company decided to get into the residential real estate game. It sold about $800-million of assets and put the money into six large, mixed-use developments.
Between the debt it took on to start the projects and the revenue it lost from sold-off assets, Crombie’s stock price saw a consistent decline between 2016 and 2018.
Things started to turn around at the start of 2019, only to fall off a cliff once the Covid-19 pandemic hit. However, Crombie’s unit price has recovered quickly since early 2020 and is now trading higher than it ever has at around $17 with a market cap of more than $2.7-billion.
Most of Crombie’s assets are still grocery-anchored retail, and Hynes says that had a lot to do with Crombie’s quick recovery.
“Owning 235 properties with grocery stores is really how we got through Covid. Because they were very busy, they pay the rent, those essential service retailers were really important,” he said.
But he thinks the fact that Crombie’s six big developments are “generally on time and on budget” also played a part.
The first of its big residential projects, a 330-unit tower in Vancouver with a grocery store on the ground floor, is now complete. Two others, a 480-unit building in Oakville, Ontario, and a 400-unit development in Montreal, aren’t far off.
If the residential market continues at its current pace, those properties will more growth potential than Crombie’s safer, grocery-anchored properties.
Eventually, Hynes says, Crombie plans for about 10 percent of its portfolio to be these kinds of mixed-use developments.
Right now, the company has 27 more properties in urban areas that have the potential to be developed into apartments or condos, and Hynes says Crombie could easily hit that 10 percent goal with those.
Some of those properties are in Halifax, a city Hynes says Crombie has big plans for.
“We have a lot of opportunity in downtown Halifax. We have the potential over the next 10 or so years to build over 2,000 units in Halifax. I can’t say when we will start. But we’re big fans of Halifax and I would say stay tuned,” he said.
The company wants another 10 percent of its portfolio to be “retail-related industrial” buildings. Those would be distribution centers for Sobeys, which the company is building more of as it ramps up its online order business.
The rest, Hynes says, will remain Crombie’s traditional grocery-anchored retail properties. Those buildings, Hynes says, are kind of like the bonds in a stock portfolio: safe investments with a lower return. Crombie can then rely on its “stocks” (residential and industrial) to fuel more growth.
“The core genesis of Crombie will continue to be retail. But we like the idea of having a bit more growth potential from that stock side. And the bond side just continues to, you know, go along nicely,” he says.