Good morning, everyone, and welcome to Crombie REIT's Q1 2026 conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded today, May 7, 2026. I would now like to turn the conference over to Meghna Nair, Manager of Inve stor Relations at Crombie. Please go ahead.
Good day everyone, welcome to Crombie REIT's Q1 2026 conference call and webcast. Thank you for joining us. This call is being recorded in live audio and is available on our website at www.crombie.ca. Slides to accompany today's call are available on the investor section of our website under presentations and events. Joining me on the call today are Mark Holly, President and Chief Executive Officer; Kara Cameron, Chief Financial Officer; and Arie Bitton, Executive Vice President, Leasing and Operations. Today's discussion includes forward-looking statements. As always, we want to caution you that such statements are based on management's assumptions and beliefs. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Please see our public filings, including our Management's Discussion and Analysis and annual information form for a discussion of these risk factors.
Our discussion will also include expected yield on cost for capital expenditures. Please refer to the development section of our Management's Discussion and Analysis for additional information on assumptions and risks. I will now turn the call over to Mark, who will begin the discussion with comments on Crombie's strategy and outlook. Kara will review Crombie's operating and financial results, and Mark will conclude with a few final remarks. Over to you, Mark.
Thank you, Meghna, and good morning everyone. Crombie's Q1 results demonstrate the continued disciplined execution of our building together strategy and the quality of our coast-to-coast necessity-based portfolio. Our centers are built around community essentials, proving its resiliency in all economic cycles. The portfolio has been built with purpose. Durable, predictable cash flows backed by necessity-based real estate provides both stability and growth. Today, I'll focus my comments on two of our value creation drivers within our strategy: own and operate and optimize. Starting with own and operate. Our coast-to-coast grocery-anchored portfolio sits at the heart of vibrant communities, both large and small, generating consistent traffic and strong tenant demand. Our leasing results this quarter once again reflect the success of our model and the execution of the team.
We completed 232,000 sq ft of renewals at a first-year growth rate of 12.1% over expiring rental rates. We also added 30,000 sq ft of new leases at rates 52% higher than our portfolio average and maintained occupancy near all-time highs, ending the quarter at 97.6%. This drove a 3.9% increase in our average minimum rent when compared to Q1 2025. Kara will walk through the leasing details in a moment, but the headline is another quarter of disciplined execution supporting our 3.7% commercial same-asset property cash NOI growth. Turning to portfolio management. We continue to selectively deploy capital into assets that strengthen our grocery-linked platform and support long-term cash flow growth.
We added to the portfolio this quarter closing the Whitby's acquisition announced in Q4, which is a 484,000 sq ft Sobeys occupied warehouse supporting retail store replenishment. We acquired that asset for CAD 115.4 million before transaction and closing costs. In the quarter, we successfully acquired a newly constructed 55,000 sq ft warehouse property in St Hubert, Quebec, for CAD 14.4 million before transaction and closing costs. We ventured into a long-term lease with Sobeys and are currently working to outfit the space for their use. Crombie will act as development manager on the redevelopment, earning management and development fees through to completion. These two grocery related industrial assets bring our retail related industrial gross leasable area to 3 million sq ft and approximately 10% of our NOI. It's a meaningful platform alongside our grocery-anchored core.
Subsequent to the quarter, we acquired a 29,000 sq ft grocery property in Surrey, British Columbia for CAD 12.7 million, excluding transaction and closing costs from Empire. The property is a freestanding Safeway on roughly 2.25 acres in Ocean Park at the heart of the community's primary retail node. It's exactly the type of well-located necessity based assets that reflect the ongoing value of our partnership with Empire. Turning to Optimize. Optimize is about unlocking embedded value in the existing portfolio, primarily through non-major investments such as modernizations and intensifications, and through major investments where we're advancing entitlements on the development ladder. In the quarter, we invested over CAD 6 million in our modernization program with Empire. This is a repeatable lever we've been capitalizing on for years.
It enhances asset quality, supports leasing on both renewals and new deals, and delivers attractive yield on cost. With regards to our major investment program, we're focused on two items. First, The Marlstone in Halifax, where we have successfully secured partial occupancy and welcomed our first group of residents on May 1. We're very proud of this accomplishment and the addition of this asset to the community and to our portfolio. Second, entitlements, where our development team is focused on advancing select projects through the rezoning and development permit phase. We're focused on a set of assets within the major development ladder that will provide near to medium-term optionality and value creation. Before I hand the call over to Kara, I want to highlight the CAD 0.01 increase to our annual distribution announced last night, our second consecutive year of growth.
This increase reflects the continued execution of our strategy, the stability of the platform, and the strength of our balance sheet. Crombie has a long track record of delivering dependable distributions across economic cycles, and in recent years, we've grown both FFO and AFFO while further strengthening our payout ratios. This decision reinforces our focus on long-term value creation and disciplined, sustainable capital returns to our unitholders. I also want to recognize the team behind these results. Our performance is driven by the people at Crombie, and I'm exceptionally proud of their commitment to operational excellence and to the communities we serve together. That commitment continues to be recognized externally. In 2026, Crombie was once again named one of Canada's top employers across multiple categories. With that, I'll turn the call over to Kara.
Thank you, Mark, and good afternoon, everyone. Our Q1 results demonstrate continued momentum across the business. Strong leasing fundamentals, growing per unit metrics, and a balance sheet that continues to support both stability and growth. The numbers tell a clear story: our strategy is working. Let me start with leasing. During the quarter, we completed 232,000 sq ft of renewals at a first-year increase of 12.1% over expiring rental rates. As we have consistently emphasized, we focus on achieving growth over the full duration of the lease. For the quarter, we secured a 13.2% increase when comparing expiring rates to the weighted average rental rate over the renewal term. Within those totals, retail renewals were 117,000 sq ft at 10.4% over expiring rents.
New commercial leases increased occupancy by 30,000 sq ft at an average first-year rate of CAD 29.20 per sq ft. At quarter end, we had 166,000 sq ft of committed space at an average first-year rate of CAD 28.92 per sq ft, with tenants expected to take possession throughout 2026 and 2027. That leasing activity, combined with embedded rent step-ups and contributions from our modernization investments, drove commercial same-asset property cash NOI growth of 3.7% YoY. Turning to property revenue. Property revenue for the quarter was CAD 127.1 million, and net property income was CAD 79.7 million, up CAD 2.5 million YoY. Growth was driven primarily by renewals, new leasing, and the contribution of the Whitby acquisition, which closed during the quarter.
These factors were partially offset by higher tenant incentive amortization for modernizations. Revenue for management and development services was CAD 3.2 million in the quarter, driven primarily by ongoing fees from our programmatic partnerships. These contributions continue to represent a stable and recurring component of our cash flow profile. Finance costs were CAD 24.8 million in the quarter, up from the prior year, primarily reflecting higher interest expense on our revolving credit facility as a result of the Whitby and St-Hubert acquisitions, partly offset by lower mortgage interest. Now turning to earnings. FFO was CAD 61.6 million or CAD 0.33 per unit. AFFO was CAD 54.3 million or CAD 0.29 per unit, up 7.4% YoY.
As information, this quarter, we updated the presentation of fair value movements related to unit-based compensation, moving them from G&A into change in fair value of financial instruments and aligning our FFO and AFFO to exclude the impact of that non-cash share price-driven item. Prior period results were updated for comparability. Our payout ratios were 68.4% of FFO and 77.6% of AFFO at the end of the Q1 . Turning to the balance sheet. Our balance sheet remains a core strategic strength and a source of resilience, particularly in the current environment. We ended the quarter with available liquidity of CAD 536.3 million between our undrawn credit facilities and cash.
The CAD 115.4 million Whitby and CAD 14.4 million St-Hubert acquisitions were funded through the unsecured revolver. We ended the quarter with an unencumbered asset pool with a fair value of CAD 4.1 billion. Debt to gross fair value of 43%. Debt to trailing 12-month adjusted EBITDA of 7.89 times, and interest coverage of 3.4 times. Approximately 92% of our debt, excluding swaps, carries fixed rates, and our weighted average term to maturity on senior unsecured notes is 3.5 years. We have CAD 200 million coming due this year, with maturity of our Series F senior unsecured notes, a manageable amount that is well within our framework. Our liquidity position, unencumbered asset pool, and access to multiple funding levers gives us the flexibility to address maturities and continue deploying capital as opportunities arise.
Overall, Q1 was another quarter of steady, dependable execution, strong leasing, continued commercial same-asset property cash NOI growth, and disciplined capital and financial management, supported by a balance sheet built for both stability and measured growth. Before I turn the call back to Mark, I'll briefly highlight the distribution increase we announced last night, which marks our second consecutive year of growth. Our payout ratios reflect several years of FFO and AFFO per unit growth, supported by a disciplined approach to distributions, resulting in meaningful financial flexibility today. The CAD 0.01 increase is a measured step. It keeps us well within the conservative payout range we are comfortable operating in, preserves our capacity to fund acquisitions, modernizations, and our development pipeline, as well as enables us to return a portion of that growth to our unit holders.
This is consistent with our approach to capital allocation, disciplined, balanced, and focused on long-term value creation. With that, I'll turn it back to Mark.
Thanks, Kara. I noted at the outset that Crombie was built for this kind of environment, and the results show it. Strong leasing performance, grocery-anchored acquisitions that strengthen the platform, and a team executing with discipline across the portfolio. Our focus is unchanged: owning and operating essential real estate at the heart of Canadian communities, deploying capital prudently and compounding long-term value for our unit holders. While we're proud of what we've delivered, we believe we're still in the early innings of what this platform can deliver. With that, we'll open up the calls for questions.
We will now begin the question and answer session. The first question comes from Lorne Kalmar with Desjardins. Please go ahead.
Thanks, Sorry, good afternoon. You guys had a pretty nice start to 2026 on the same property NOI perspective and came in ahead of the 2%-3% target. I was just wondering, is there anything one time in there, or is that a good run rate for the balance of the year?
Hi, Lorne. There was nothing material as one-time in the quarter. You're right, we do have a long-term framework of same asset in that 2% to 3% range. You know, last year, we delivered 3.7% as a total. The two years prior to that, it was at the high end of the range in around 3%. We hold our long-term target as the 2% to 3%. When you look at this quarter and you look at the rest of the year, you know, we look at a path that could potentially push through that top end.
Maybe is there anything specific there, or is it just the broader strength in the retail fundamentals? I mean, one of the things I was looking at is just the composition of lease maturities. I think the majority of them are non-Empire. Is that a factor?
Hi, Lorne. Sorry. The renewals that are non-Empire are producing some very solid results and are a boost to our Same Asset NOI. We're seeing the benefit of that this year partially, but, of course, as those comp over an annual basis, we'll see them bear fruit a little more throughout 2027 and beyond. They are a component, but that's not the full story.
The other part to think about, Lorne, is modernizations. They contribute to same asset, and we kind of look at those as a great investment on, you know, the retail component, where we're investing in the anchor, which creates that halo that creates the benefit on the leasing spreads and shows up in same asset as well.
Okay. That's very helpful. Thank you. Maybe just one last one, going back to a question from last quarter. I was wondering if you could give us an update on where leased and in place occupancy is at The Marlstone as of today.
Lorne, we welcomed our first tenants last week at The Marlstone, and the building looks amazing. What we've done purposely is we've opened up the building with all amenities in place, and that was a key learning from us from our previous experiences to make sure that the tenants experience the building fully. I would say that while we're not providing numbers today with where we are as far as occupancy, we're pleased with the uptake so far. We're seeing our tour-to-lease conversion rates go up significantly since we've had access to the building when we got partial occupancy towards the end of April. We'll provide some more color on upcoming quarters.
Okay. Thank you very much. I'll turn it back.
Thanks, Lorne.
The next question is from Brad Sturges with Raymond James. Please go ahead.
Hey, good afternoon. I guess on the leasing front, you've seen a little bit further uptake on the leasing spreads you're getting, and I guess it's certainly gonna depend on the composition of what the rollover is. Would you continue to expect kind of in that low double-digit kind of blended renewal spread right now?
We will. We are seeing that. Obviously, with the leases being 6-12 month triggers on renewals, we are renewing right now into 2027. We are seeing a bit of a look-through, and we expect to maintain the double-digit spreads for the short to medium term.
Okay. Sounds good. I guess my other question would be just, you know, seeing some further execution on the Empire-related acquisition pipeline. Is there anything else in the pipeline that you're looking at that you could pull the trigger on, whether it's Empire-related or just third party?
Hey, Brad. Thanks for the question. Yeah, we were very happy that we've been able to execute on a few transactions year to date. That Whitby warehouse was, you know, a big 1, 500,000 sq ft. We were able then to tuck in in Saint-Hubert, which is in Longueuil, just outside of Montreal, another warehouse. Both those facilities are, you know, replenishment locations for stores. Those are great opportunities for us. Buying the Surrey Safeway location in Ocean Park is another one that we really like. For us, it's about making sure that we are underwriting as much as possible, but underwriting quality opportunities. We're not just chasing leasable area for the sake of it. The team is busy. There's lots of opportunities out there.
We're underwriting quite a bit from opportunities from our partnership with Empire. We've talked about in the past, there are a number of locations in their portfolio that we'd love on our balance sheet. When they're ready to sell it and if it meets our criteria, we would be interested to take it on our side. Our balance sheet is in terrific shape, so we can opportunistically go after some of the stuff.
Okay, appreciate it. I'll turn it back.
The next question is from Sam Damiani with TD Cowen. Please go ahead.
Thank you. Good afternoon, everyone. Maybe just to start off, just wondering, as you look out, you know, multiple years for Crombie, do you see sort of room in your capital allocation for, you know, a larger weighting to a grocery-anchored shopping centers, like, you know, more than just the store, but, you know, acquiring those types of properties from third parties? I'm just wondering how you see that opportunity.
Hey, Sam. Yes is the short answer. We are underwriting third-party opportunities, you know, each and every quarter. There are opportunities out there. We are also acquiring from Empire, which is a great strategic partner for us, which will, you know, gives us first access rights to excellent real estate across the country. You know, Saint Hubert is an example of a third-party opportunity that we were able to action. Found that location. It was a recently built warehouse that had vacated. We bought it from a third party, approached Empire, who had a use for it, and now we're gonna upfit it for their specific use, collect management fees during the duration of the upfit, and then take what is sitting now in just committed occupancy and move it into economic.
You know, we're constantly underwriting opportunities, and we're gonna tuck in ones that meet the profile of what we're absolutely after, which is cash flow growth.
Thank you. The Saint Hubert site there, how much extra CapEx beyond the initial acquisition are you anticipating there, and what sort of yield on costs should we think about?
It's gonna be functioning as a TI, so you won't see it show up in our non-major investments. It's a TI that we'll be providing to Empire, to which will be then built into the rent. We're not disclosing what that fit-up cost is at this point, because it's gonna ebb and flow as they sort of go through the detailed design. We expect that it'll take us at least 12 - 18 months to get it to a spot when it'll turn into economic occupancy. During that time, we're gonna collect management fees to build it out for them.
Okay, great. Last one from me. I think you guys had just one Toys R Us. Is there an update on the progress of backfilling that one?
Hi, Sam. There is. Toys R Us remained in occupancy throughout the quarter on a temporary deal. They expired in early April with the receiver. We have secured a tenancy, subject to finalizing a lease, for the entirety of the space that we hope to have wrapped up by the end of this quarter. Hopefully, we will be able to announce some more details then.
Great. Thank you. I'll turn it back.
The next question is from Giuliano Thornhill with National Bank Capital Markets. Please go ahead.
Hey, guys. I'm just wondering if you kind of could provide an update on the Calgary CFC or just maybe the Calgary industrial market in general. Obviously, there's been some space that might be given back
If there's anything you could provide there for the future of that asset.
Sure. As we called out, there's been no change from last quarter, it's a 300,000 sq ft industrial asset in Rocky View. Empire has ceased operating from the premise there. We are in a very, very, very long-term lease, with rent commitment and the corporate covenant of Empire. What we're doing today is working with them on them securing a tenant that might be able to take over the space. If they're successful in that, then we'll dialogue with them on what amendments we may want to consider with them. Until that time, very long-term lease in place, still collecting the rent, have the corporate covenant as the security. There's been no change since the last update.
Right. The second question I had was just on Empire entering the kind of discount/warehouse segment with their announced kind of agreement. Like, does that change anything for yourselves from a real estate perspective? Like, would there be sites in Quebec that you think would benefit from that kind of retailer as opposed to your current one?
Strategically, it doesn't change anything. Our focus is still to own operation. Where we can offer management services to Empire, we will. Where we can acquire real estate like St-Hubert, for their use, is great opportunities for us, and they have great yields and support all our metrics. The acquisition, I'm not gonna comment on that acquisition that Empire did in Quebec specifically. What I can say is they are looking to grow coast to coast, and that's the platform that we have, and we have a strategic partnership with them. Where they're looking to grow, we are interested in growing with them, and we'll do that in more grocery-anchored.
As you can see in our non-major development within the MD&A, we have one project on the go at this point that is a grocery-anchored location that we're developing. Then from there, we'll continue to try and tuck in more projects.
Great. All right. Thanks, guys.
The next question is from Mario Saric with Scotia Bank. Please go ahead.
Hi, good afternoon. Just on The Marlstone, without providing where kind of the occupancy metrics are now, are you able to give us a range of what the potential FFO impact from the property could be for 2026?
Hey, Mario. Is that with The Marlstone?
Yeah.
For The Marlstone, as already called out, you know, we just welcomed our first resident, May 1st, and we're going to give some updates as we progress to get to substantial completion, which for us is in around that 90% mark. Throughout 2026, it's going to be dilutive. We expect that in the back half of 2027, it will move from dilution to accretion as we anticipate stability, you know, mid to back end of 2027.
Got it. Okay. That's helpful. Mark, it sounds like the, you know, the acquisition pipeline the potential is there, whether it's third party or through Empire. From a funding perspective, it sounds like you're pretty comfortable with the balance sheet that you have. It's probably the best that it's ever been. How do you, how do you think about the potential for dispositions, and then successful rezonings, in 2026 as a potential source of acquisition funding?
On the disposition side, we have been active in that area. Last year, we disposed of two properties. We disposed of the office in Moncton, and we disposed of a non-core, non-grocery location in St. John. Most of the dispositions that we have been actioning against have been sort of up, you know, scaling up the portfolio for some of those ones that were not delivering on some of the key metrics that, you know, we're pushing for. As we kind of continue to look, you know, the new crop of ones that are likely the drags and not contributing. We have some others in the portfolio that we're working against. In terms of the development ladder and assets in there that we could leverage, there are a couple.
The market today, you know, if you think specifically Vancouver and that ladder that we have, we have one in Belmont, we have one in Broadway and Commercial. We're still working through zoning and entitlements. We're still working with our partner. There's been no action called on either one of those in terms of when we plan to green light them. I would say for now, it's about just pruning and up high grading the portfolio.
In terms of the potential assets that are income producing right now, does the nature of the potential buyer, has that changed, or would it be similar to the types of buyers that you've sold to last year?
Yeah. It's a very similar profile to the buyers that bought last year.
Okay. More from an accounting perspective, IFRS perspective, the Choice First Capital KingSett transaction, would that serve as a data point for you from a valuation standpoint with your Q2 results in terms of, you know, thinking about the cap rate on that transaction and what that may mean for your portfolio?
Hi, Mario. It's Kara. You know, I think that was a great transaction in the market and serves as a data point for all of us in the REIT space. I think we're very, you know, I think it solidifies very much the IFRS NAV value that I think us and others in this space have been highlighting over the past several years. Yes, we will definitely be taking that transaction into consideration as we look at cap rates and assessing our Q2 results.
Okay. my last one, just more of a modeling question. The G&A, this quarter ticked up close to CAD 7 million, which is up sequentially and also year-over-year. What's a good run rate for 2026 for that line item?
I'd say we're pretty comfortable with the run rate as it is as you're seeing it in the quarter. We did make a slight adjustment this quarter. I mentioned it in my prepared remarks. We had about CAD 432,000 cumulative G&A and move into the fair value of the unit-based compensation. That move was reallocated, and we actually chose to restate prior year. Prior year is about CAD 786,000, so that's a G&A move. You can think about this quarter as a better run rate for you.
Okay. Would most of the variation or the variance be attributed to Or are there other items involved as well?
Sorry, Mario, you cut out there.
Oh, sorry. I'm just wondering whether most of the variance, either sequentially or year-over-year, can be attributable to the reclassification from an accounting standpoint. Is there just like a higher G&A load in part because maybe the management revenue services line item is moving higher?
It's a one for one on the stripping out the fair value adjustment. There's no variance that you would see as a result of that.
Okay. Thank you.
No problem.
The next question is from Pammi Bir with RBC Capital Markets. Please go ahead.
Thanks. Hi, everyone. Just coming back to the Marlstone. You know, I realize it's still early, but, you know, how do the asking rents maybe compare to the initial underwriting? You know, do you see need at all to lean a little bit more on incentives at this stage?
Pammi, it's Ari. The current asking rents are trending above our initial underwriting from project approval a few years ago. They're in line with what I'd say is more on the upper end of the market in the high CAD 3 range. And as far as incentives are concerned, what we're seeing here is there's nothing advertised. We did have a grand opening or a soft opening promotion last week or two weeks ago, and we had our open house, which was extremely well attended. We had over 65 prospects tour, and many of those led to conversions of leases. For that particular open house, we did offer an incentive on a very short view. Beyond that, we're not advertising any.
Okay. Is this an asset where there's perhaps opportunities for bulk leasing arrangements, or is that not really contemplated at this stage?
We're not looking at that right now.
Okay. Then just, Mark, I think you mentioned earlier in one of the responses, you know, the contribution for modernizations in your same property NOI, you know, look, it's certainly a positive, but how much of that 3.7% in Q1 came from modernizations?
Good question, Pammi. I don't have that at my fingertips. We can get Kara to circle back with you on that and give you some highlights on it.
If I, you know, if I look back to last year, is it on a full year basis, are we looking at something as high as in the 20%-25% range or not?
Of the CAD 3.7, that would be too high. You know, in modernizations, we're investing about CAD 25 million-CAD 35 million annually, but we can definitely give you a bit more color on that. Let us grab the materials, and we'll circle back with you.
Okay. Thanks very much. I will alternate back.
Pammi.
Our next question is from Tal Woolley with CIBC Capital Markets. Please go ahead.
Hi, good morning. With The Marlstone moving from development or moving out of development, I guess, does that change the fee, the management and development fee earning potential from that asset going forward?
On that asset, yes, it'll turn into asset. Yes, because we were clipping some development fees, it'll turn into property management fees. As a reminder, with the Montez partnership, we have two other projects that are still working through that entitlement program. If you think about it, the CAD 2.4 million that we have marked as sort of a quarterly run rate on the two partnerships, east and west, you can hold that one for the balance of 2026.
Okay. That's okay. The sort of baseline fees you would expect on an annual basis is, you know, in and around that CAD 10 million mark, and then with some episodic development fees on top of that.
You nailed it. Exactly.
Perfect. Okay, that's great. Thanks very much, everyone.
Thanks, Tal.
This concludes the question and answer session and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.