performance from experience · profile established through a successful initial public offering...

2 0 0 6 A N N U A L R E P O R T

P E R F O R M A N C E F R O M E X P E R I E N C E

Highland Square Mall, New GlasgowAberdeen Shopping Centre (Mixed-Use), New Glasgow

Prince Street Plaza, SydneySydney Shopping Centre, Sydney

County Fair Mall, Summerside

Prospect St. Plaza, FrederictonFredericton Mall, Fredericton

Charlotte Mall, St. Stephen

Elmwood Plaza, MonctonTerminal Centre (Office), Moncton

Riverview Mall (Mixed-Use), Riverview

Loch Lomond Place(Mixed-Use), Saint John

Greenfield Park Centre (Power Centre), Longueuil

Village Square Mall, Nepean

Rose City Plaza, WellandSouth Pelham Market Plaza, Welland

Port Colborne Mall, Port Colborne

Upper James Square, HamiltonRymal Road Plaza, Hamilton

Avalon Mall, St. John’sHamlyn Road Plaza, St. John’s

Random Square, Clarenville

Valley Mall, Corner Brook

Carleton Mall, Woodstock

Downsview Mall, Lower SackvilleDownsview Plaza, Lower Sackville

Amherst Centre, Amherst

Evangeline Mall, Digby

New Minas Plaza, New MinasCounty Fair Mall, New Minas

Fort Edward Mall, Windsor

Retail (Enclosed or Strip Centre)OfficeMixed- Use

ONTARIO

QUEBECNEW BRUNSWICK

NOVA SCOTIA

PEI

NAND LABRADOR

EWFOUNDLAND

Queensland Plaza, Stratford

Halifax: Barrington Place (Mixed-Use) Barrington Tower (Office) CIBC Building (Office) Cogswell Tower (Office) Duke Tower (Office) Park Lane (Mixed-Use) Scotia Square Mall (Mixed-Use) Scotia Square Parkade (Parkade) Trade Mart Building (Mixed-Use) West End Mall (Mixed-Use)

Taunton and Wilson Plaza, OshawaBrampton Plaza, BramptonBurlington Plaza, Burlington318 Ontario Street (Freestanding Store), St. CatharinesNiagara Plaza, Niagara Falls

At December 31, 2006, the portfolio comprised

forty-seven properties, totalling more than

seven million square feet of GLA, located in all

four provinces of Atlantic Canada as well as

Ontario and Quebec

www.crombiereit.com

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P R O F I L E

Established through a successful initial public offering (“IPO”) in March 2006, Crombie Real Estate Investment

Trust (“Crombie”or the “REIT”) owns, operates and maintains the largest portfolio of commercial real estate

in Atlantic Canada.To enhance geographic diversification, expansion of the portfolio will focus on Ontario

and Western Canada.

Crombie’s objectives are to deliver reliable cash distributions to unitholders in a tax-efficient manner, to enhance

the long-term value of its assets through active management and to expand its asset base and its distributable

income through accretive acquisitions.

At the 2006 year end, Crombie’s portfolio comprised 47 retail, office and mixed-use properties located in six

provinces, totalling approximately 7.5 million square feet of gross leasable area (“GLA”). Anchored by food stores

operated under Sobeys banners in 24 locations, Crombie has more than 1,000 individual tenancies, of which

64 per cent are national tenants.

11 Management’s Discussion and Analysis

41 Management’s Statement of Responsibility forFinancial Reporting

42 Auditors’ Report

43 Consolidated Financial Statements

IBC Corporate and Unitholder Information

1 Operating and Financial Highlights

2 Chairman’s Message

4 Message to Unitholders

6 Our Market

8 Business at-a-Glance Portfolio Review

10 Governance

T A B L E O F C O N T E N T S

C O R P O R A T E A N D U N I T H O L D E R I N F O R M A T I O N

B OA R D O F T R U S T E E S

J. Stuart BlairTrustee, President and ChiefExecutive Officer

William T. BrockIndependent Trustee

Frank C. SobeyTrustee and Chairman

Paul D. SobeyTrustee

David G. GrahamIndependent Trustee

David J. HennigarIndependent Trustee

John E. LatimerIndependent Trustee

Kenneth C. RoweIndependent and Lead Trustee

John B. RoyIndependent Trustee

Elisabeth StrobackIndependent Trustee

O F F I C E R S

J. Stuart BlairPresident and Chief Executive Officer

Scott M. BallVice President, Chief Financial Officerand Secretary

Allan K. MacDonaldVice President Leasing

Scott R. MacLeanVice President Operations

C R O M B I E R E I T

Head Office:115 King St.Stellarton, Nova Scotia, B0K 1S0Telephone: (902) 755-8100Fax: (902) 755-6477Internet: www. crombiereit.com

I N V E S TO R R E L AT I O N S A N D I N Q U I R I E S

Shareholders, analysts, and investorsshould direct their financial inquiries orrequests to:Scott M. Ball, CAVice President, Chief Financial Officer and SecretaryEmail: [email protected]

Communication regarding investorrecords including changes of address orownership, lost certificates or tax forms,should be directed to the Company’stransfer agent and registrar, CIBC MellonTrust Company.

S TO C K E XC H A N G E L I S T I N G

Toronto Stock Exchange

U N I T S Y M B O L

REIT Trust Units – CRR.UN

D I S T R I B U T I O N R E CO R D A N D PAY M E N T D AT E S F O RF I S C A L 2 0 0 6

Record Date Payment Date

April 30, 2006 May 15, 2006

May 31, 2006 June 15, 2006

June 30, 2006 July 17, 2006

July 31, 2006 August 15, 2006

August 31, 2006 September 15, 2006

September 30, 2006 October 16, 2006

October 31, 2006 November 15, 2006

November 30, 2006 December 15, 2006

December 31, 2006 January 15, 2007

T R A N S F E R AG E N T

CIBC Mellon Trust CompanyInvestor CorrespondenceP.O. Box 7010Adelaide Street Postal StationToronto, Ontario, M5C 2W9Telephone: (800) 387-0825Email: [email protected]

CO U N S E L

Stewart McKelvey Halifax, Nova Scotia

AU D I TO R S

Grant Thornton, LLPNew Glasgow, Nova Scotia

M U LT I P L E M A I L I N G S

If you have more than one account, youmay receive a separate mailing for each. Ifthis occurs, please contact CIBC MellonTrust Company at (800) 387-0825 toeliminate the multiple mailings.

A N N UA L M E E T I N G

May 8, 200711:00 a.m. (Atlantic Standard Time)Empire Studio 7610 East River RoadNew Glasgow, Nova Scotia

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O P E R A T I N G A N D F I N A N C I A L H I G H L I G H T S

Building on a track record that extends more than four decades, in 2006 we…

• Established Crombie Real Estate Investment Trust, with an initial portfolio of 44 commercial

properties, independently valued (as at November 1, 2005) at $829 million to $853 million;

• Completed the acquisition of three additional commercial properties in Ontario, at an

aggregate purchase price of $46.8 million, which added approximately 205,000 square feet

to the portfolio. Two additional acquisitions were completed in the first quarter of 2007;

• Entered into new leases or renewals totalling approximately 692,000 square feet of GLA

at an average net rent of $12.57 per square foot, compared with scheduled expiries of

675,000 square feet, at an average net rent of $9.93 per square foot;

• Increased overall occupancy to 93.6% from the 93.0% at the IPO date;

• Improved same-asset property net operating income (“NOI”) by 2.4%;

• Achieved forecast distributions at a 77.5% payout ratio, 2.5% below the payout ratio

contemplated in the forecast;

• Funded all distributions, capital and operating activities during 2006 from operational cash flows

resulting in an adjusted funds from operations (“AFFO”) payout ratio of 99.6%;

• Maintained a conservative leverage ratio of 44.8%; and

• Enhanced the per cent of tax-deferred distributions from the 30% estimated in the forecast

to 40%.

O U R G R O W T H S T R AT E G I E S

Internal • Generate increased rental revenue through leasing (or re-leasing) at competitive market rental

rates, active management of properties including positioning within markets and judicious

improvements or expansions.

• Ongoing cost containment.

Acquisition • Acquire additional accretive properties, primarily in Ontario and Western Canada.

• Preferential Development Agreement with ECL Properties Limited (“ECL”).

IPO 2006 2006 Met/ExceededForecast Actual IPO Forecast

Portfolio/GLA 44/7.2 million sq. ft. 47/7.5 million sq. ft. 3Occupancy 93.0% 93.6% 3Same-asset property NOI $ 55.8 million $ 57.1 million 3Net income $ 7.1 million $ 9.4 million 3Distributable income/AFFO payout ratio 80%/100% 77.5%/99.6% 3Leverage ratio 60%* 44.8% 3Per cent of tax-deferred distributions 30% 40% 3

* Maximum permitted per Crombie’s Declaration of Trust.

C R O M B I E R E I T 2 0 0 6 A N N U A L R E P O R T 1

C H A I R M A N ’ S M E S S A G E

As Chairman of Crombie’s Board of Trustees, I want to take advantage of this occasion – the publication of

our first annual report – to express how pleased I am that Empire Company Limited’s established real estate

business has been successfully converted into a real estate investment trust that has been well received in

the marketplace.

I also want to highlight two themes that will be evident throughout this annual report. First in this regard, although Crombie

is a new public trust, its history in real estate dates from 1964, when its corporate predecessor was established to acquire,

develop and manage commercial properties outside the traditional strip centres that were home to Sobeys grocery stores.

Between 1964 and 2002, the company developed more than 175 commercial properties for its own portfolio and for related

companies. In 2002, Crombie’s predecessor made a strategic decision to leverage its proven expertise and leadership position

in Atlantic Canada into the acquisition and development of anchored strip centres in Ontario – a move that began establishing

the portfolio’s current geographic footprint and set the direction for its future growth.

A second important theme for this report is that the management team responsible for this growth has remained with

Crombie. Collectively, they have a total of more than 91 years of experience in managing commercial real estate, more than

51 of which is directly hands-on with the Crombie portfolio properties.This experience includes a broad network

of business relationships, commercial property management and financing expertise, as well as the ability to identify,

negotiate and complete acquisitions to expand Crombie’s property portfolio.This management team has already been

responsible for five acquisitions following the IPO, including two post year end, all of which have been immediately accretive

to distributable income.

My point in drawing your attention to the long track record and the experience of Crombie’s management team is to

emphasize that I believe this is a business that clearly benefits from a long-term perspective. Such an outlook requires a

continuing commitment to excellence – in tenant relationships, property maintenance and operations, financial

management, and among front-line employees.This business has benefited by being managed with a long-term perspective

and we will maintain this approach going forward.

With such a strong foundation, I believe all Crombie unitholders can look forward to a long and successful future.

Frank C. SobeyChairman


Crombie began public life in March 2006 with a portfolio of 44 retail, office and mixed-use commercial

properties totalling approximately 7.2 million square feet of GLA, located in six provinces. This portfolio is

the largest in Atlantic Canada, and it includes landmark properties such as Avalon Mall in St. John’s,

Newfoundland and Labrador, the premier enclosed mall in the province,and Halifax Developments properties,

the largest group of office and mixed-use properties in the downtown core of Halifax, Nova Scotia.

M E S S A G E T O U N I T H O L D E R S

FPOpic needed


Our properties are well located in their respective markets and feature long-term leases with a diversified base of desirable

tenants and stable cash flows. Of our 10 largest tenants – which collectively account for 38 per cent of our annual minimum

rent – only Sobeys food stores represent more than 3.2 per cent of annual minimum rent.

Although Crombie is a new public trust, management’s experience with these properties extends for decades through

Empire’s real estate business. As a result, our management team is highly knowledgeable about both the properties and the

markets where they are located. Crombie’s long-term stability is enhanced through Empire, which retains a 48.1 per cent

indirect interest in Crombie.

Our approach to managing these properties is based on a long-term perspective.We regularly invest in our properties to ensure they

remain appealing to current and prospective tenants and shoppers,and thereby enhance leased occupancy and rental revenues.

To assist in our growth,Crombie has a preferential right to acquire commercial properties developed by ECL, under a 10-year

development agreement.We also benefit from significant experience with Sobeys, which is expected to provide impetus for

our growth.To diversify our geographic exposure, our expansion focus is on Ontario and Western Canada.

During Crombie’s first 284 days of operations, we have grown through the acquisition of three properties in Ontario – two

from ECL and the third from an unrelated third party – all of which have been accretive to Crombie’s distributable income.

Subsequent to the year end, two additional accretive acquisitions in Ontario were completed from an unrelated vendor in the

first quarter of 2007.

Turning to the performance of Crombie, new leases or renewals amounted to approximately 692,000 square feet, at an

average net rent of $12.57, compared to expiries of 675,000 square feet at an average net rent of $9.93. As a result, occupancy

has increased from 93.0 per cent at the IPO to 93.6 per cent at the year end.

Property revenue of $99.9 million slightly exceeded the forecast, primarily due to improved occupancy and property acquisitions.

Net income exceeded the forecast by 31.7 per cent due primarily to the improved property revenue and reduced non-

recoverable repairs and maintenance expenses. Crombie demonstrated its commitment to maintaining the real estate

portfolio by investing $2.22 million in maintenance capital expenditures in 2006.

Distributable income was $33.3 million, while the distributable income payout ratio was 77.5 per cent, or 2.5 per cent below

the anticipated annual payout ratio of 80 per cent outlined in the prospectus.

The payout ratio on AFFO was 99.6 per cent, which was in line with IPO expectations, reflecting Crombie’s ability to fund

distributions, capital and operating activities from operating cash flows.

The ratio of debt to gross book value increased slightly over the year, ending the year at 44.8 per cent, which is well below

management’s intended leverage ratio of between 50 and 55 per cent. We expect the first quarter 2007 acquisitions to increase

the ratio of debt to gross book value by approximately 1.7 per cent.

From the IPO to the 2006 year end, Crombie paid distributions totalling $25.8 million. Of this total, 40 per cent were tax

deferred, which exceeded the 30 per cent forecast.

From these early results, unitholders should be confident that we are living up to the expectations established during the IPO

and that Crombie presents a conservative investment that can be relied upon to deliver stable, reliable cash distributions.

In closing, I would like to thank our employees, the members of the Board of Trustees and our unitholders for their dedication

and continued support.


C R O M B I E R E I T 2 0 0 6 A N N U A L R E P O R T6

The Atlantic Canada commercial real estate market, where Crombie has a prominent position in both retail and office

segments, is characterized by long-term stability and less volatility than other regions.

In Atlantic Canada’s retail markets, relatively low unemployment rates and higher consumer spending are attracting a steady

stream of retailers to this region.This influx has allowed occupancies to remain high and relatively stable. An additional attribute

of our property portfolio is that many Crombie retail locations are anchored by food stores, which see more consistent

consumer spending due to the nature of their offering and thus tends to insulate them from economic downturns.

Halifax is recognized as the centre of the region’s financial services industry, and its office sector has a total inventory

of more than nine million square feet of GLA. Unemployment in Halifax remains below the national average, while

employment in senior management and the service sector continues to expand. Continued investments in the natural gas

and shipping industries are expected to maintain economic growth momentum. As a result, the office sector is experiencing

single-digit vacancy rates which are the lowest vacancy rates in six years. No new construction is anticipated in the central

business district of Halifax in the coming year.

O U R M A R K E T

Retail Strip CentresCrombie holds 19 retail strip centres representing 1.5 million square feet of GLA, or 20.5 per cent of theportfolio, and 24.1 per cent of annual minimum rent.Occupancy at December 31, 2006 was 95.3 per cent.

Retail Enclosed Malls Crombie’s 14 retail enclosed malls comprise 3.0 millionsquare feet of GLA, representing 39.8 per cent of theportfolio, and 39.2 per cent of annual minimum rent.Occupancy at December 31, 2006 was 91.7 per cent.

Economic conditions in Ontario and Western Canada – the areas identified by management as primary markets for

Crombie’s future growth – continue to be characterized by rates of growth that are above the national average, attributable

to increasing populations and solid gains in personal disposable incomes.

The real estate investment market continues to remain very competitive with acquisition prices at high levels due to strong

investor demand, resulting in low yields. However, there does appear to be a slowing of the steady decline in yields that has

been occurring for some time. Crombie intends to continue to pursue only acquisitions that can be made at values that are

accretive to distributable income and provide an acceptable return. In addition to purchases from independent third parties,

we anticipate that a number of acquisitions will result from the relationship between Crombie and certain affiliates of Empire.

Crombie benefits from a 10-year development agreement, under which it has a preferential right to acquire properties

developed by ECL.

OfficeCrombie holds five office properties totalling 1.0 millionsquare feet of GLA.These properties represent 13.8 percent of total GLA, and 13.9 per cent of annual minimumrent. Occupancy at December 31, 2006 was 92.7 per cent.

Mixed-Use and OtherCrombie’s nine mixed-use and other properties totalmore than 1.9 million square feet of GLA, representing25.9 per cent of the portfolio total and 22.8 per cent ofannual minimum rent. Occupancy of these properties was 95.8 per cent.

B U S I N E S S A T - A - G L A N C E P O R T F O L I O R E V I E W


Our Properties

Crombie’s portfolio of commercial real estate comprises a variety of property types and awide range of tenant types and locations. Crombie, therefore, does not rely on any single

class of tenants.With this variety, the growth of the property portfolio is focusing onanchored retail strip malls since they offer steady cash flow and attractive returns

partly because consumer spending is traditionally more stable than business spending.We believe the demand for space in anchored strip centres generally keeps vacancy rates

low and that compared to larger commercial properties, anchored strip centres requirelower expenditures for tenant inducements. Both these factors result in lower expenditures

required to generate and sustain stable rental revenues. In addition, there are numerousopportunities for the development of anchored strip centres in expanding residential communities, particularly in Ontarioand Western Canada. At December 31, 2006, the portfolio comprises 33 retail, nine mixed-use and five office properties.

Our Locations

Crombie’s properties are located in population centres ranging from large urban centres, such asHalifax and Brampton, Ontario, to small rural communities, such as St. Stephen, New Brunswick.

Our locations are strategically selected for their ability to generate retail traffic and salesdollars. St. Stephen, as just one example, receives significant commercial traffic as thebusiest international border crossing in Atlantic Canada.

In addition, the Halifax Developments properties are comprised of four of Crombie’s fiveoffice properties and eight of the portfolio total of 47 properties and is a substantial presencein the central business district of Halifax.These properties generally achieve leased occupancysuperior to others of their type in the area.

Our Tenants

Crombie achieves rental revenue stability from more than 1,000 diversified tenanciesrepresenting national (64 per cent), regional (18 per cent) and local (18 per cent) tenants.

Two of our largest tenants, Sobeys-bannered food stores (24 locations and 1.045 million square feet) and Empire Theatres (eight locations and 240,000 square

feet), together accounted for 17.9 per cent of annual minimum base rents in 2006.Collectively, the other eight members of our top 10 largest tenants, which include

retailers, government departments and agencies, telecommunication companies andfinancial institutions, accounted for a further 19.8 per cent of annual rental revenue.

Renewing Our Properties

In 2006, Crombie invested $2.22 million in maintenance capital expenditures, whichdemonstrates the commitment Crombie has to maintaining its portfolio. Beyond conducting routine repairs and maintenance, Crombie regularly invests in renewal programs at its commercial properties – such as energy-efficient lighting and environmental controls,refreshed food courts and common areas and new roofs – to ensure the properties remainattractive and functional to current and prospective tenants and shoppers, thereby continuing togenerate rental revenues reliably.The amounts committed by Crombie over the first five years of operations amount to more than double the minimum non-recoverable maintenance and repairexpenditures determined in the independent property condition assessments prepared to support the IPO.


Crombie Property Portfolio at December 31, 2006

Property Description GLA (sq. ft.) Number of Leases Occupancy

Nova ScotiaAberdeen Shopping Centre Mixed-use 394,000 35 98.0%Amherst Centre Retail – Enclosed 228,000 30 92.4%County Fair Mall Retail – Enclosed 263,000 49 97.8%Downsview Mall Retail – Strip 142,000 15 95.4%Downsview Plaza Retail – Strip 253,000 26 99.4%Evangeline Mall Retail – Enclosed 61,000 7 98.8%Fort Edward Mall Retail – Enclosed 141,000 15 91.4%Highland Square Mall Retail – Enclosed 246,000 55 95.6%New Minas Plaza Retail – Strip 48,000 10 92.5%Park Lane Mixed-use 267,000 65 88.4%Prince Street Plaza Retail – Strip 71,000 13 100.0%Sydney Shopping Centre Retail – Enclosed 250,000 32 94.4%West End Mall Mixed-use 201,000 43 92.7%

Halifax Developments propertiesBarrington Place Mixed-use 186,000 34 98.2%Barrington Tower Office 185,000 1 100.0%CIBC Building Office 208,000 27 92.7%Cogswell Tower Office 203,000 39 93.4%Duke Tower Office 232,000 32 98.2%Scotia Square Mall Mixed-use 288,000 54 99.9%Scotia Square Parkade Other – Parkade N/A N/A N/ATrade Mart Building Mixed-use 253,000 11 95.3%

Total Nova Scotia 4,120,000 593

Ontario318 Ontario Street Freestanding Store 47,000 1 100.0%Brampton Plaza Retail – Strip 66,000 2 100.0%Burlington Plaza Retail – Strip 56,000 11 100.0%Niagara Plaza Retail – Strip 60,000 14 98.0%Port Colborne Mall Retail – Enclosed 138,000 9 91.4%Queensland Plaza Retail – Strip 48,000 8 96.0%Rose City Plaza Retail – Strip 109,000 16 86.9%Rymal Road Plaza Retail – Strip 65,000 10 97.3%South Pelham Market Plaza Retail – Strip 63,000 9 92.4%Taunton and Wilson Plaza Retail – Strip 83,000 9 93.0%Upper James Square Retail – Strip 114,000 24 97.2%Village Square Mall Retail – Strip 69,000 14 89.0%

Total Ontario 918,000 127

New BrunswickCarleton Mall Retail – Enclosed 112,000 12 94.1%Charlotte Mall Retail – Enclosed 114,000 9 93.0%Elmwood Plaza Retail – Strip 31,000 9 80.9%Fredericton Mall Retail – Enclosed 313,000 22 84.0%Loch Lomond Place Mixed-use 191,000 19 97.4%Prospect Street Plaza Retail – Strip 21,000 2 100.0%Riverview Mall Mixed-use 151,000 25 95.9%Terminal Centres Office 200,000 17 79.1%

Total New Brunswick 1,133,000 115

Newfoundland and LabradorAvalon Mall Retail – Enclosed 566,000 140 91.4%Hamlyn Road Plaza Retail – Strip 43,000 13 82.5%Random Square Retail – Enclosed 113,000 20 98.8%Valley Mall Retail – Enclosed 164,000 22 69.4%

Total Newfoundland and Labrador 886,000 195

Prince Edward IslandCounty Fair Mall Retail – Enclosed 261,000 25 96.1%

QuebecGreenfield Park Centre Retail – Power Centre 140,000 6 95.1%

Total 7,458,000 1,061 93.6%

The mandate of the Board of Trustees is one of stewardship and oversight of Crombie and its business.The Board of Trustees

executes its mandate principally through four committees. All members of the Audit Committee and the Governance and

Nominating Committee, as well as a majority of the Human Resources Committee and the Investment Committee, are

independent, and only independent trustees may vote on acquisitions from ECL. As required by Multilateral Instrument

52-110, all members of the Audit Committee are financially literate.

Membership of Crombie’s Human Resources Committee has been structured to include a related trustee as a proportionate

way to reflect ECL’s significant retained interest in Crombie, resulting in a more collaborative process for the committee

in fulfilling its mandate. The one related trustee in the Investment Committee is a non-voting member.

As obliged by Canadian securities regulators, the Board of Trustees

is structured with both a chairman and a lead trustee. In addition, to

ensure alignment of interests, each trustee is required to hold units

having a value equal to at least four times his or her annual retainer,

to be achieved within five years of his or her initial nomination.

After many profitable years as a private real estate company,

Crombie has successfully completed the transition to a public

real estate investment trust by exceeding our earnings forecast

and witnessing healthy unit appreciation. We believe unitholders

can have confidence in both the results reported herein and the

future direction of the business.

Crombie Real Estate Investment Trust is committed to strong corporate governance. We demonstrate that

commitment in sound structures and processes and good people with the skills, experience, time and

independence required to evaluate all the information generated and to assess it on behalf of unitholders

and other stakeholders.

G O V E R N A N C E


Kenneth C. RoweLead Trustee

Frank C. SobeyChairman

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S


12 Forward-looking Information

12 Non-GAAP Financial Measures

13 Introduction

14 2006 Year-to-Date Highlights

15 Overview of the Property Portfolio

18 2006 Results of Operations

22 Liquidity and Capital Resources

24 Distributable Income, Adjusted Funds from Operations and

Funds from Operations

26 Fourth Quarter Results

32 Related Party Transactions

32 Critical Accounting Estimates

33 Future Changes in Significant Accounting Policies

34 Controls and Procedures

34 Contingencies

34 Risk Management

38 Subsequent Events

38 Outlook

40 Quarterly Information


(In thousands of dollars, except per unit amounts)

The following is Management’s Discussion and Analysis (“MD&A”) of the consolidated financial condition and results of operations of

Crombie Real Estate Investment Trust (“Crombie”) for the year-to-date period and quarter ended December 31, 2006, with a comparison

to (i) the estimated results of operations of the acquired commercial properties during the comparable period in 2005 and (ii) Crombie’s

forecast provided in its initial public offering (“IPO”) prospectus (the “prospectus”) dated March 10, 2006. Crombie had no operations

prior to March 23, 2006.

This discussion and analysis should be read in conjunction with Crombie’s consolidated financial statements and accompanying notes

for the period ended December 31, 2006, and with the audited income statements of the acquired real estate properties and the

forecast contained in the prospectus. Information about Crombie, including the prospectus, can be found on SEDAR at www.sedar.com.

F O R WA R D - LO O K I N G I N F O R M AT I O N

This MD&A 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 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) the development of new properties under a development agreement, which development activities are undertaken by a

related party and thus are not under the direct control of Crombie and whose activities could be impacted by real estate market

cycles, the availability of labour and general economic conditions;

(ii) the acquisition of accretive properties and the anticipated extent of the accretion of those acquisitions, which could be impacted

by demand for properties and the effect that demand has on acquisition capitalization rates and changes in interest rates;

(iii) making improvements to the properties, which could be impacted by the availability of labour and capital resource

allocation decisions;

(iv) generating improved rental income and occupancy levels, which could be impacted by changes in demand for Crombie’s

properties, tenant bankruptcies, the effects of general economic conditions and competitive supply of retail or office locations

in proximity to Crombie locations;

(v) overall indebtedness levels, which could be impacted by the level of acquisition activity Crombie is able to achieve and future

financing opportunities;

(vi) tax exempt status, which can be impacted by regulatory changes enacted by governmental authorities; and

(vii) anticipated subsidy payments from ECL Properties Limited (“ECL”), which are dependent on tenant leasing, construction costs

and future tax costs.

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.

N O N - G A A P F I N A N C I A L M E A S U R E S

There are financial measures included in this MD&A that do not have a standardized meaning under Canadian generally accepted

accounting principles (“GAAP”) as prescribed by the Canadian Institute of Chartered Accountants.These measures are property net

operating income (“NOI”) (page 19), distributable income (page 25), adjusted funds from operations (“AFFO”) (page 25), debt to gross

book value (page 24) and funds from operations (“FFO”) (page 26). Management includes these measures because it believes certain

investors use these measures as a means of assessing relative financial performance.


I N T R O D U C T I O N

Financial and Operational Summary

Period from March 23, 2006 Quarter Endedto December 31, 2006 December 31, 2006

(In thousands of dollars, except as otherwise noted) Actual Forecast(1) Actual Forecast(1)

Property revenue $ 99,949 $ 99,136 $ 33,717 $ 31,910 Net income $ 9,405 $ 7,141 $ 3,217 $ 2,440 Basic and diluted net income per Unit $ 0.44 $ 0.35 $ 0.15 $ 0.12

Distributable income $ 33,288 $ 31,325 $ 9,815Distributions per Unit $ 0.62 $ 0.20Distributable income per Unit(2) $ 0.80 $ 0.24Distributable income payout ratio (%) 77.5% 85.0%

AFFO $ 25,912 $ 8,263AFFO per unit(2) $ 0.62 $ 0.20AFFO payout ratio (%) 99.6% 101.0%

Debt to gross book value 44.8%

Total assets $ 963,935Total commercial property debt $ 432,963

(1) The forecast is contained on page 60 of the prospectus. The year-to-date forecast includes the second, third and fourth quarter forecasts and the first quarter

forecast pro-rated for the period of operations from March 23, 2006 to March 31, 2006.These figures have been prepared by management and are unaudited.

(2) Distributable income and AFFO per unit are calculated by distributable income or AFFO, as the case may be, divided by the weighted average of the total Units

and Special Voting Units outstanding of 41,589,061 for the quarter ended December 31, 2006 or 41,524,144 for the year-to-date period ended December 31, 2006.

Background

Crombie is an unincorporated, open-ended real estate investment trust established pursuant to a Declaration of Trust dated

January 1, 2006, as amended and restated (the “Declaration of Trust”) under, and governed by, the laws of the Province of Ontario.

The units of Crombie trade on the Toronto Stock Exchange under the symbol CRR.UN.

Crombie completed its IPO of 20,485,224 units (“Units”) on March 23, 2006 for gross proceeds of $204,852. Concurrent with the IPO,

Crombie acquired 44 commercial properties in six provinces, totalling approximately 7,161,000 square feet (the “Business Acquisition”)

from certain affiliates of Empire Company Limited (“Empire Subsidiaries”).

The consideration for the 44 commercial properties acquired was a cash payment of $263,542, the issuance to Empire Subsidiaries of

20,079,576 Class B Limited Partnership units (the “Class B LP Units”), each of which is exchangeable into and equivalent to one Unit

for the amount of $200,795 and the assumption by Crombie of secured debt with staggered maturities.The assumed debt consisted

of $144,200 of commercial mortgage-backed securities carrying a weighted average interest rate of 5.42% and weighted average

maturity of 10.0 years, and mortgages of approximately $168,880, with a weighted average interest rate of 5.54% and a weighted

average maturity of 6.4 years.

On April 10, 2006, Crombie completed the issuance of an additional 1,024,261 Units at a price of $10.00 per unit pursuant to the exercise

of the over-allotment option granted to the underwriters in connection with Crombie’s IPO.The net proceeds of $9,654 were used to

reduce the revolving credit facility.

Business Strategy

The objectives of Crombie are to (i) generate stable cash distributions; (ii) enhance the value of Crombie’s assets and maximize

long-term unit value through active management; and (iii) expand the asset base of Crombie and increase its distributable income

through accretive acquisitions.

Crombie’s internal growth strategy focuses on generating greater rental income from its existing properties. Crombie plans to achieve

this by strengthening its asset base through judicious expansion and improvement of existing properties, leasing vacant space at

competitive market rates with the lowest possible transaction costs, and maintaining good relations with tenants. Management will

continue to conduct regular reviews of properties and, based on its experience and market knowledge, will assess ongoing opportunities

within the portfolio.




Crombie’s external growth strategy focuses primarily on accretive acquisitions of income-producing retail properties, primarily in

Ontario and Western Canada. Crombie will seek to identify potential property acquisitions using investment criteria that focus on the

strength of anchor tenancies, market demographics, terms of tenancies, proportion of revenue from national tenants, opportunities

for expansion, security of cash flow, potential for capital appreciation and potential for increasing value through more efficient

management of the assets being acquired, including expansion and repositioning. In addition, Crombie will seek to leverage its close

relationship with the Empire Subsidiaries to access acquisition opportunities that satisfy the foregoing criteria.

Crombie plans to work closely with the Empire Subsidiaries to identify development opportunities that further Crombie’s external

growth strategy.The relationship is governed by a development agreement described in the Material Contracts section of Crombie’s

Annual Information Form for the year ended December 31, 2006.Through this relationship, Crombie expects to have the benefits

associated with development while limiting its exposure to some inherent risks, such as real estate market cycles, cost overruns,

labour disputes, construction delays and unpredictable general economic conditions.The development agreement will also enable

Crombie to avoid the uncertainties associated with property development, including paying the carrying costs of land, securing

construction financing, obtaining development approvals, managing construction projects, marketing in advance of and during

construction and earning no return during the construction period.

Business Environment

In both the retail and office markets where Crombie has a prominent presence, the business environment continues to be stable. For

the retail markets in Atlantic Canada, relatively low unemployment rates and high consumer spending rates are attracting a steady

stream of retailers which has allowed the occupancy levels to remain high and relatively stable.The office sector, especially in the

Halifax region, is experiencing single-digit vacancy rates which are the lowest vacancy rates in six years. However, there are potential

concerns regarding the impact that a slowing U.S. economy may have for consumers in Central and Eastern Canada. One offsetting

factor to these potential concerns is that many of Crombie’s retail locations are anchored by food stores, which typically are less

affected by swings in consumer spending.

The real estate investment market continues to remain very competitive, with acquisition prices at high levels due to strong investor

demand, resulting in low yields. However, there does appear to be a slowing of the steady decline in yields that has been occurring

for some time. Crombie intends to continue to pursue acquisitions that can be made at values which are accretive and provide an

acceptable return. It is anticipated that a number of these acquisitions will result from the relationship between Crombie and the

Empire Subsidiaries.

2 0 0 6 Y E A R - TO - D AT E H I G H L I G H T S

• During the year, Crombie completed three property acquisitions in Ontario, for an aggregate purchase price of $46,762, which

added approximately 205,000 square feet of gross leasable area (“GLA”) to the original portfolio.

• Subsequent to year end, Crombie announced the acquisition of The Mews of Carleton Place in the Ottawa region.The purchase

price of the property was $11,800 and will be financed with the assumption of a fixed rate mortgage and an increase in the

revolving credit facility. It is anticipated that the acquisition will add approximately one cent per unit in accretive distributable

income over the first full year.

• For the year-to-date period ending December 31, 2006, Crombie had renewals or leased approximately 692,000 square feet

of space at a weighted average net rent of $12.57 per square foot, compared with expiries of approximately 675,000 square feet of

space at a weighted average net rent of $9.93 per square foot.

• Overall occupancy at December 31, 2006 increased to 93.6% when compared to 93.4% at September 30, 2006 and 93.0% as

disclosed in the prospectus.

• Property revenue of $99,949 exceeded the forecasted revenue of $99,136 by $813, or 0.8%, due primarily to improved occupancy

and the property acquisitions previously noted.

• Net income of $9,405 was favourable by $2,264 or 31.7%, over the forecasted net income of $7,141 due primarily to the improved

property revenue along with reduced non-recoverable repairs and maintenance and income tax expenses.

• The distributable income payout ratio was 77.5%, 2.5% below the anticipated annual payout ratio of 80% outlined in the prospectus.

• The AFFO payout ratio was 99.6%, which was in line with the anticipated AFFO payout ratio of 100%.This reflects the fact that

Crombie has been able to fund its distributions, as well as its capital and operating activities for the year, from operational cash flows.


• Non-recoverable maintenance capital expenditures during the period totalled $2,223 and demonstrated the commitment

Crombie has to maintaining the real estate portfolio.Tenant improvement and leasing costs during the period, net of recoveries

from ECL, totalled $5,594, which has helped to improve both Crombie’s occupancy rate and average net rent per square foot

results during the period.

• Debt to gross book value increased slightly to 44.8% at December 31, 2006 from 43.2% at September 30, 2006.This is still well

below management’s intended leverage ratio of between 50% and 55% and provides acquisition capacity of approximately

$200,000. Management expects that the ratio of debt to gross book value will increase by approximately 0.7% with the completion

of the previously announced acquisition of The Mews of Carleton Place in January of 2007.

OV E R V I E W O F T H E P R O P E R T Y P O R T F O L I O

Property Profile

The net book value of the property portfolio represents 86.8% of the total assets as at December 31, 2006. At December 31, 2006 the

property portfolio consisted of 47 commercial properties that contain approximately 7.5 million square feet of GLA.The properties

are located in six provinces: Nova Scotia, New Brunswick, Newfoundland and Labrador, Prince Edward Island, Ontario and Quebec.

As at December 31, 2006, the portfolio distribution of the GLA by province was as follows:

Number of GLA % of AnnualProvince Properties (sq. ft.) % of GLA Minimum Rent Occupancy

Nova Scotia 21 4,120,000 55.2% 49.4% 95.8%Ontario 12 918,000 12.3% 14.6% 94.3%New Brunswick 8 1,133,000 15.2% 12.3% 89.1%Newfoundland and Labrador 4 886,000 11.9% 17.9% 87.8%Prince Edward Island 1 261,000 3.5% 3.2% 96.1%Quebec 1 140,000 1.9% 2.6% 95.1%

Total 47 7,458,000 100.0% 100.0% 93.6%

The distribution of GLA by province, as well as the mix of annual minimum rent by province, differs slightly from the data outlined in

the prospectus (page 5) largely as a result of renovations or acquisitions completed as follows:

Ontario: The completion of the three property acquisitions in Ontario, as discussed in “2006 Acquisitions,” added approximately

205,000 square feet of GLA.These acquisitions increased Ontario’s percentage of GLA and percentage of annual minimum rent at

December 31, 2006 to 12.3% and 14.6%, respectively, from 9.7% and 11.5%, respectively, as disclosed in the prospectus.

New Brunswick: The expanded Sobeys store at Charlotte Mall added approximately 6,000 square feet while the addition of a liquor

store in Fredericton Mall added approximately 12,000 square feet. A new Shoppers Drug Mart expanded Prospect Street Plaza by

approximately 6,000 square feet.

Newfoundland and Labrador: The Sobeys store at Random Square increased its space by approximately 21,000 square feet.

Prince Edward Island: The expanded Sobeys store in County Fair Mall added approximately 30,000 square feet.

Nova Scotia: Renovations at the Highland Square Mall saw the elimination of approximately 25,000 square feet of GLA as Sears

relocated to a larger space in the mall and their former location was demolished.




Largest Tenants

The following table illustrates the 10 largest tenants in Crombie’s portfolio of income-producing properties as measured by their

percentage contribution to total annual minimum base rent as at December 31, 2006.

% of Annual Total Area Number of Tenant Minimum Rent Leased (sq. ft.) Locations(1)

Sobeys food stores(2) 14.7% 1,045,000 24Zellers 3.2% 569,000 6Empire Theatres 3.2% 240,000 8Nova Scotia Power/Emera 3.1% 188,000 2Shoppers Drug Mart 2.9% 134,000 11MT&T (Aliant) 2.3% 154,000 13CIBC 2.3% 156,000 11Public Works Canada 2.2% 86,000 6Wal-Mart 2.1% 243,000 3Best Buy/Future Shop 1.7% 89,000 3

Total 37.7% 2,904,000 87

(1) Each location is represented by a separate lease.

(2) Excludes Lawtons.

The increase in Sobeys presence from the prospectus was due to the acquisition of the Oshawa and Brampton locations in October 2006,

and the expansion of the store in Random Square Mall, which increased the square footage by 117,000 square feet.These increases

were partially offset by Sobeys vacating their 37,000 square foot location at Highland Square in June 2006.

Lease Maturities

The following table sets out as of December 31, 2006 the number of leases relating to the properties subject to lease maturities

during the periods indicated (assuming tenants do not holdover on a month-to-month basis or exercise renewal options or

termination rights), the renewal area, the percentage of the total GLA of the properties represented by such maturities and the

estimated average net rent per square foot at the time of expiry.

Renewal Average Net RentNumber of Area % of per sq. ft.

Year Leases (sq. ft.) Total GLA at Expiry ($)

2007 215 696,000 9.3% $ 9.93 2008 175 720,000 9.7% $ 11.732009 162 794,000 10.6% $ 13.50 2010 148 692,000 9.3% $ 12.41 2011 150 764,000 10.2% $ 14.26Thereafter 211 3,315,000 44.5% $ 11.24

Total 1,061 6,981,000 93.6% $ 11.86

2006 Portfolio Lease Expiries and Leasing Activity

As at December 31, 2006, portfolio lease expiries and leasing activity were as follows:

Quarter Ended Quarter Ended Quarter Ended Quarter Ended Year Ended As a %Mar. 31, 2006 Jun. 30, 2006 Sep. 30, 2006 Dec. 31, 2006 Dec. 31, 2006 of GLA

Expiries (sq. ft.) 241,000 116,000 80,000 238,000 675,000 9.1%Average net rent

per sq. ft. $ 9.16 $ 9.92 $ 15.42 $ 8.88 $ 9.93

Committed renewals and new leasing (sq. ft.) 131,000 167,000 121,000 273,000 692,000 9.3%

Average net rent per sq. ft. $ 9.96 $ 15.33 $ 13.85 $ 11.55 $ 12.57


During the year-to-date period ended December 31, 2006, Crombie had renewals or entered into new leases in respect of approximately

692,000 square feet at an average net rent of $12.57 per square foot, compared with expiries of approximately 675,000 square feet at

an average net rent of $9.93 per square foot. Of the 675,000 square feet of expiries, approximately 165,000 square feet involve tenants

that are still paying property revenues on a holdover basis.

Fluctuations in the average net rent per square foot figures occur on a quarterly basis due primarily to fluctuations in the mix between

new and renewal leasing. New leasing generally requires larger tenant inducement spending when compared to renewals. As a result,

new lease deals also generally command a higher net rent per square foot. During the quarters, the mix of new leasing versus

renewal leasing was as follows:

Q1 Q2 Q3 Q4

New leasing 23% 72% 67% 43%Renewal leasing 77% 28% 33% 57%

Total 100% 100% 100% 100%

The quarters with the higher proportion of new leasing correspond to the quarters with the higher net rent per square foot figures.

Sector Information

As at December 31, 2006, the portfolio distribution of the GLA by asset type was as follows:

Number GLA % of Annual Asset Type of Properties (sq. ft.) % of GLA Minimum Rent Occupancy

Retail 33 4,498,000 60.3% 63.3% 92.9%Office 5 1,029,000 13.8% 13.9% 92.7%Mixed-Use 9 1,931,000 25.9% 22.8% 95.8%

Total 47 7,458,000 100.0% 100.0% 93.6%

The following table sets out as of December 31, 2006 the number of leases subject to lease maturities during the periods indicated.

Year Retail Office Mixed-Use Total

(sq. ft.) (%) (sq. ft.) (%) (sq. ft.) (%) (sq. ft.) (%)

2007 266,000 5.9% 111,000 10.7% 319,000 16.5% 696,000 9.3%2008 397,000 8.8% 130,000 12.6% 193,000 10.0% 720,000 9.7%2009 333,000 7.4% 131,000 12.7% 330,000 17.1% 794,000 10.6%2010 201,000 4.5% 121,000 11.8% 370,000 19.2% 692,000 9.3%2011 252,000 5.6% 297,000 28.9% 215,000 11.1% 764,000 10.2%Thereafter 2,728,000 60.7% 164,000 16.0% 423,000 21.9% 3,315,000 44.5%

Total 4,177,000 92.9% 954,000 92.7% 1,850,000 95.8% 6,981,000 93.6%

The following table sets out the average net rent per square foot expiring during the periods indicated.

Year Retail Office Mixed-Use

2007 $ 13.88 $ 9.18 $ 6.902008 $ 13.05 $ 10.83 $ 9.832009 $ 15.66 $ 11.39 $ 12.132010 $ 18.75 $ 11.73 $ 9.202011 $ 17.79 $ 14.05 $ 10.47Thereafter $ 11.22 $ 10.32 $ 11.76

Total $ 12.65 $ 11.74 $ 10.10




2 0 0 6 R E S U LT S O F O P E R AT I O N S

2006 Acquisitions

The following table outlines the acquisitions made during 2006 which affected the results of operations when compared to the

previous year’s results and the forecasted results.

GLA Acquisition OwnershipProperty Property Type Date Acquired sq. ft. Cost Interest

935 Queen St.WestBrampton, Ontario Retail – Strip October 2, 2006 66,000 $ 13,406 100%

1359–1389 Wilson Rd.Oshawa, Ontario Retail – Strip October 2, 2006 83,000 19,016 100%

3250 Fairview St.Burlington, Ontario Retail – Strip December 20, 2006 56,000 14,340 100%

Total 205,000 $ 46,762

Comparison to Previous Year

Fiscal 2005 results have been estimated by taking the Crombie pro-forma consolidated statement of net income for the nine months

ending September 30, 2005, which was disclosed in the prospectus on page F-5, and adding the estimated pro-rated results for the

additional nine days of operations from March 23, 2005 to March 31, 2005 to arrive at year-to-date figures for the period ending

December 31, 2005. It is believed that this method of estimation of the year-to-date results would be reflective of the actual results of

Crombie in all material respects had Crombie been in operation.

Year-to-Date December 31,

(In thousands of dollars, except per unit amounts) 2006 2005 Variance

Property revenue $ 99,949 $ 96,972 $ 2,977 Property expenses $ 42,214 $ 40,586 $ (1,628)General and administrative expenses $ 5,738 $ 5,436 $ (302)Interest expense $ 16,492 $ 17,539 $ 1,047Depreciation and amortization $ 18,076 $ 19,129 $ 1,053Net income $ 9,405 $ 6,525 $ 2,880

Basic and diluted net income per Unit $ 0.44 $ 0.32 $ 0.12

Property Revenue and Property Expenses

Property revenue was favourable for the year-to-date period ended December 31, 2006 by $2,977 when compared to the same

period in 2005 due to development activity in several properties subsequent to December 31, 2005 as well as the improved

occupancy of the properties and the three property acquisitions in the fourth quarter of 2006.

Property expenses for the year-to-date period ended December 31, 2006 were higher when compared with the same period in 2005

by $1,628 due to the additional square footage from the development and acquisition activity previously discussed.

Interest Expense

Interest expense for the year-to-date period ended December 31, 2006 was favourable by $1,047 when compared to the same period

in 2005 due to the normal reduction of commercial property debt, as well as the reduction of the revolving credit facility through net

proceeds of $9,654 received from the issuance of an additional 1,024,261 units from the exercise of the over-allotment option on

April 10, 2006.These savings were partially offset by the additional interest costs relating to three property acquisitions in the fourth

quarter of 2006.

Depreciation and Amortization

Depreciation and amortization was favourable by $1,053 for the year-to-date period ended December 31, 2006 when compared to

the same period in 2005 due primarily to delayed capital expenditures during the first three quarters of 2006 which were partially

offset by the additional depreciation costs of the three property acquisitions in the fourth quarter of 2006.


Comparison to Forecast

Year-to-Date December 31, 2006

(In thousands of dollars, except per unit amounts) Actual Forecast(1) Variance

Property revenue $ 99,949 $ 99,136 $ 813 Property expenses 42,214 43,374 1,160

Property net operating income 57,735 55,762 1,973

ExpensesGeneral and administrative 5,738 5,317 (421)Interest 16,492 16,628 136Depreciation and amortization 18,076 18,167 91

40,306 40,112 (194)

Income before income taxes and non-controlling interest 17,429 15,650 1,779

Income taxesCurrent – 281 281Future (763) 1,228 1,991

(763) 1,509 2,272

Income before non-controlling interest 18,192 14,141 4,051Non-controlling interest 8,787 7,000 (1,787)

Net income $ 9,405 $ 7,141 $ 2,264

Basic and diluted net income per unit $ 0.44 $ 0.35

Basic and diluted weighted average Units outstanding (in 000’s) 21,445 20,485

(1) The forecast is contained in the prospectus on page 60. The year-to-date forecast includes the second, third and fourth quarter forecasts and the first quarter

forecast pro-rated for the period of operations from March 23, 2006 to March 31, 2006.These figures have been prepared by management and are unaudited.

Net income for the 2006 year-to-date period of $9,405 compared favourably to the forecasted net income by $2,264 due to:

• higher property revenue from the improved occupancy of the properties as well as the revenue from the three properties

acquired in the fourth quarter of 2006;

• reduced property expenses due primarily to reduced non-recoverable repair and maintenance expenses;

• unfavourable general and administrative expenses due to higher than anticipated professional fees and other public entity

compliance costs, as well as higher than forecasted compensation incentives relating to realized operating results; and

• the reduction in income tax expense from the forecasted level due to lower taxable income in the corporate subsidiary than

originally forecast and the elimination of the Large Corporation Tax.


Year-to-Date Year-to-Date(In thousands of dollars) December 31, 2006 Forecast Variance

Same-asset property revenue $ 99,184 $ 99,136 $ 48Acquisition property revenue 765 – 765

Property revenue $ 99,949 $ 99,136 $ 813

Same-asset property revenue of $99,184 for the year-to-date period 2006 was slightly higher than the forecast by $48 due primarily

to the improvement in the occupancy of the properties.

Same-asset occupancy at December 31, 2006 improved to 93.5% when compared to 93.0% as disclosed in the prospectus.





Same-asset property expenses $ 42,067 $ 43,374 $ 1,307Acquisition property expenses 147 – (147)

Property expenses $ 42,214 $ 43,374 $ 1,160

Same-asset property expenses of $42,067 incurred during year-to-date 2006 were favourable to the forecast by $1,307.This was

primarily the result of reduced non-recoverable repairs and maintenance expenses.

Property NOI for the year-to-date period ended December 31, 2006 by region was as follows:

Property Property Property(In thousands of dollars) Revenue Expenses NOI

Nova Scotia $ 54,302 $ 25,008 $ 29,294Newfoundland and Labrador 16,626 5,808 10,818New Brunswick 13,471 6,579 6,892Ontario 9,943 3,582 6,361Prince Edward Island 3,293 749 2,544Quebec 2,314 488 1,826

Total $ 99,949 $ 42,214 $ 57,735

General and Administrative Expenses

General and administrative expenses for the year-to-date 2006 period of $5,738 compared unfavourably with the forecast by $421.

The result was due to a number of higher than anticipated costs for professional fees and other public entity compliance costs in

addition to higher than forecasted compensation incentives relating to realized operating results.

Interest Expense


Same-asset interest expense $ 16,030 $ 16,628 $ 598Acquisition interest expense 462 – (462)

Interest expense $ 16,492 $ 16,628 $ 136

Same-asset interest expense of $16,030 for year-to-date 2006 was $598 favourable compared to the forecast due to the reduction of

the revolving credit facility in April 2006. Net proceeds of $9,654, received from the issuance of an additional 1,024,261 units through

the exercise of the over-allotment option, were used to reduce the revolving credit facility.

There is an agreement between ECL and Crombie whereby ECL provides a monthly interest rate subsidy to Crombie to reduce the

effective interest rates to 5.54% on certain mortgages that were assumed on closing of the Business Acquisition for their remaining

term. Over the term of this agreement, management expects this subsidy to aggregate to the amount of approximately $20,564.The

amount of the interest rate subsidy recorded during the 2006 year was $2,847.The interest rate subsidy is received by Crombie

through monthly repayments by ECL of amounts due under one of the demand notes issued by ECL to Crombie Developments

Limited (“CDL”) prior to the Business Acquisition.



Same-asset depreciation and amortization $ 17,882 $ 18,167 $ 285Acquisition depreciation and amortization 194 – (194)

Depreciation and amortization $ 18,076 $ 18,167 $ 91


Same-asset depreciation and amortization of $17,882 for year-to-date 2006 was $285 favourable compared to the forecast.

Depreciation and amortization consists of:

Year-to-Date(In thousands of dollars) December 31, 2006

Depreciation of commercial properties $ 8,620 Amortization of tenant improvements/lease costs 441Amortization of intangible assets 8,747Amortization of deferred financing charges 268

$ 18,076

Same-asset depreciation and amortization expense was lower than forecast for the year-to-date results, primarily because the

forecast was based on a full year of capital activity up to December 31, 2006 while Crombie had only 284 days of capital activity as it

started operations on March 23, 2006.

Sector Information

Retail PropertiesYear-to-Date December 31, 2006 Year-to-Date

(In thousands of dollars, except as otherwise noted) Same-Asset Acquisitions Total Forecast

Property revenue $ 55,600 $ 765 $ 56,365 $ 58,440Property expenses 19,995 147 20,142 21,787

Property NOI $ 35,605 $ 618 $ 36,223 $ 36,653

Occupancy % 92.7% 97.0% 92.9% 93.4%

The slight reduction in occupancy levels resulted in the same-asset retail NOI results being slightly lower than forecast, which was

offset by the addition of the acquisition properties.

Office PropertiesYear-to-Date December 31, 2006 Year-to-Date


Property revenue $ 16,963 $ – $ 16,963 $ 15,568Property expenses 9,198 – 9,198 8,732

Property NOI $ 7,765 $ – $ 7,765 $ 6,836

Occupancy % 92.7% – 92.7% 89.0%

The improved occupancy levels at the Halifax Developments properties (“HDL”) in Halifax resulted in the improved office NOI result when

compared to the forecast.

Mixed-Use PropertiesYear-to-Date December 31, 2006 Year-to-Date



Property NOI $ 13,747 $ – $ 13,747 $ 12,273

Occupancy % 95.8% – 95.8% 94.1%

The improved occupancy levels at Scotia Square Mall in Halifax and Riverview Mall in New Brunswick resulted in the improved NOI

mixed-use result when compared to the forecast.




L I Q U I D I T Y A N D C A P I TA L R E S O U R C E S

Cash Flow

Cash flow generated from operating the property portfolio represents the primary source of liquidity used to service the interest on

debt and fund overhead expenses, capital expenditures, leasing costs and distributions. In addition, Crombie has the following sources

of financing available to finance future growth: secured short-term financing through an authorized $150,000 revolving credit facility,

of which $82,900 was drawn at December 31, 2006, and the issue of new equity and mortgage debt, pursuant to the Declaration of Trust.

Year-to-Date (In thousands of dollars) December 31, 2006

Cash provided by (used in):Operating activities $ 47,997 Financing activities 283,638Investing activities (330,455)

Increase in cash and cash equivalents during period 1,180Cash and cash equivalents, beginning of period Nil

Cash and cash equivalents, end of period $ 1,180

Cash Provided by Operating ActivitiesCash provided by operating activities for the year-to-date period of $47,997 was generated by income before non-controlling

interest of $18,192 and the adding back of non-cash expenses, primarily depreciation and amortization of $18,076, and the effect of

non-cash operating items of $21,275.The change in non-cash operating items was primarily caused by the finalization and collection

of amounts due from ECL in addition to a holdback related to the acquisition of the Oshawa property which will be released once

the final development conditions have been met.These items were partially offset by the additions made to tenant improvements

and lease costs of $7,302. Of the additions to tenant improvements and leasing costs, $1,708 is recoverable from ECL under the

non-interest-bearing demand notes from ECL.

Cash Provided by Financing ActivitiesCash provided by financing activities for the year-to-date period of $283,638 was primarily the result of proceeds (net of issue costs)

received from the issuance of Units on the IPO of $195,328 and proceeds from the issuance of commercial property debt of $113,200.

The issuance of the commercial property debt primarily represents the initial proceeds of $82,900 under the revolving credit facility

and the proceeds of $20,300 received from the mortgages relating to the three properties acquired in the fourth quarter of 2006.

These amounts were partially offset by distribution payments made of $25,809.

Cash Used in Investing ActivitiesCash used in investing activities for the year-to-date period of $330,455 was primarily used for the Business Acquisition, as outlined

previously in the MD&A, which consumed cash of $263,542.The three property acquisitions in the fourth quarter of 2006 used cash

of $40,339 while additions made to commercial properties of $26,574 made up the balance of the change. Of these commercial property

additions, approximately $24,351 are in relation to development costs for the eight commercial properties covered by non-interest-

bearing demand notes from ECL, and thus these funds are recoverable from ECL. As at December 31, 2006, $18,376 of the amounts

recoverable from ECL had been received.The remainder is anticipated to be collected during the first quarter of 2007.

Capital Structure

As at As at As at(In thousands of dollars) Dec. 31, 2006 Sep. 30, 2006 Jun. 30, 2006

Commercial property debt $ 432,963 $ 400,044 $ 404,623Non-controlling interest $ 187,649 $ 188,729 $ 190,197Unitholders’ equity $ 200,894 $ 202,019 $ 203,603

Indebtedness

As of December 31, 2006, Crombie had fixed rate mortgages outstanding of $332,346 ($350,063 after including the marked-to-

market adjustment of $17,717), carrying a weighted average interest rate of 5.50% (after giving effect to a monthly interest rate

subsidy from ECL under an omnibus subsidy agreement) and a weighted average term to maturity of 7.3 years.


Crombie has in place an authorized floating rate revolving credit facility of $150,000, $82,900 of which was drawn upon as at

December 31, 2006.The revolving credit facility is secured by a pool of first and second mortgages and negative pledges on certain assets.

Crombie has entered into a fixed interest rate swap agreement which expires on February 1, 2010. Interest on $50,000 is paid at a

fixed rate of 5.51%, after including the applicable stamping fee of 1.125%, and is received at a floating rate based on the 90-day

bankers’ acceptance rate.

Principal repayments of the debt are scheduled as follows:

Payments Debt MaturingYear of Principal During Year Total Maturity % of Total

2007 $ 11,207 $ 5,338 $ 16,545 4.0%2008 11,369 14,539 25,908 6.2%2009 11,625 82,900 94,525 22.8%2010 8,939 57,259 66,198 15.9%2011 9,103 8,204 17,307 4.2%Thereafter 55,932 138,831 194,763 46.9%

Total(1) $ 108,175 $ 307,071 $ 415,246 100.0%

(1) Excludes marked-to-market adjustment due to interest rate subsidy of $17,717.

Unitholders’ Equity

Unitholders’ equity at December 31, 2006 decreased by $3,927 to $200,894 from the $204,821 unit issue proceeds realized from the

initial public offering as a result of distributions exceeding net income during the period.

On August 30, 2006 there were 123,740 units issued as part of the Executive Unit Purchase Plan.Total units outstanding at February 28,

2007 were as follows:

Units 21,633,225

Special Voting Units(1) 20,079,576

(1) Crombie Limited Partnership, a subsidiary of Crombie, has also issued 20,079,576 Class B LP Units.These Class B LP units accompany the Special Voting Units, are

the economic equivalent of a Unit, and are convertible into Units on a one-for-one basis.

Borrowing Capacity

Crombie has in place an authorized revolving credit facility of $150,000.The revolving credit facility is secured by a pool of first and

second mortgages and negative pledges on certain assets.

Under the terms governing the revolving credit facility, Crombie is entitled to borrow a maximum of 60% of the fair market value of

assets subject to a first security position and 50% of the fair market value of assets subject to a second security position or a negative

pledge, subject to the limitations on the ability of Crombie to incur indebtedness contained in the Declaration of Trust.The revolving

credit facility provides Crombie with flexibility to add or remove properties from the security pool, subject to compliance with

certain conditions.

Based on the appraised value of the properties over which security has been granted by Crombie, approximately $136,141 is available

for drawdown. At December 31, 2006, $82,900 was drawn down on the facility.

When calculating debt to gross book value, debt is defined as bank loans plus commercial property debt. 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. If approved by a majority of the independent trustees, the appraised value of the

assets of Crombie and its consolidated subsidiaries may be used instead of book value.

The debt to gross book value ratio increased slightly to 44.8% at December 31, 2006 from 43.2% at September 30, 2006 due to the

three property acquisitions in the fourth quarter of 2006. However, this leverage ratio was still 1.3% below the forecasted leverage of

46.1% and substantially below the maximum 60% as outlined by Crombie’s Declaration of Trust.The reduction in the actual ratio

from the forecasted level is due to the repayment of indebtedness on the revolving credit facility with proceeds received from the

over-allotment option in April 2006. Crombie intends to maintain overall indebtedness in the range of 50% to 55% of gross book

value, depending upon Crombie’s future acquisitions and financing opportunities. Management expects that the ratio of debt to




gross book value will increase by approximately 0.7% with the completion of the previously announced acquisition of The Mews of

Carleton Place in January of 2007 as discussed in the “Subsequent Events” section of the MD&A.

As at As at As at As at(In thousands of dollars, except as otherwise noted) Dec. 31, 2006 Sep. 30, 2006 Jun. 30, 2006 Mar. 31, 2006

Mortgages payable $ 350,063 $ 326,806 $ 330,234 $ 333,486Revolving credit facility payable 82,900 73,238 74,389 82,900

Total debt outstanding 432,963 400,044 404,623 416,386Less: Marked-to-market adjustment due to

interest rate subsidy (17,717) (18,630) (19,549) (20,564)

Debt $ 415,246 $ 381,414 $ 385,074 $ 395,822

Total assets $ 963,935 $ 936,768 $ 948,508 $ 922,889Add:

Accumulated depreciation of commercial properties 9,061 5,810 3,039 267

Accumulated amortization of intangible assets 10,837 7,231 3,783 244

Less:Note receivable for interest rate subsidy (17,717) (18,630) (19,549) (20,564)Fair value adjustment to future taxes (39,519) (47,941) (47,941) (47,941)

Gross book value $ 926,597 $ 883,238 $ 887,840 $ 854,895

Debt to gross book value 44.8% 43.2% 43.4% 46.3%Maximum borrowing capacity(1) 60% 60% 60% 60%

(1) Maximum permitted by the Declaration of Trust.

D I S T R I B U TA B L E I N CO M E, A D J U S T E D F U N D S F R O M O P E R AT I O N S A N D F U N D S F R O M O P E R AT I O N S

Distribution Policy

Pursuant to Crombie’s Declaration of Trust, it is required, at a minimum, to make distributions to unitholders equal to the amount of

net income, net realizable capital gains and net recapture income of Crombie as is necessary to ensure that Crombie will not be liable

for income taxes. Crombie intends to make monthly cash distributions to unitholders equal to approximately 80% of its distributable

income on an annual basis.

Distributable Income and Adjusted Funds from Operations

Distributable income and AFFO are not measures recognized under GAAP and do not have standardized meanings prescribed by GAAP.

As such, these non-GAAP financial measures should not be considered as an alternative to net income, cash flow from operations or

any other measure prescribed under GAAP. Distributable income and AFFO are presented in this MD&A because management of

Crombie believes these non-GAAP measures are relevant measures of the ability of Crombie to earn and distribute cash returns to

unitholders. Distributable income and AFFO as computed by Crombie may differ from similar computations as reported by other real

estate investment trusts and, accordingly, may not be comparable to other such issuers.

Distributable income is defined in Crombie’s Declaration of Trust as net income of Crombie, on a consolidated basis, as determined in

accordance with GAAP, adjusted by (i) adding back the following items: non-controlling interest, depreciation of buildings and

improvements (excluding amortization of tenant inducements, leasing commissions and deferred financing costs) and amortization

of related intangibles (including amortization of value of tenant rents for in-place lease agreements, amortization of differential

between original rent and above-market rents and amortization of customer relationships), future income tax expense, losses on

dispositions of assets and amortization of any net discount on long-term debt assumed from vendors of properties at rates of

interest less than fair value; (ii) deducting the following items: amortization of differential between original rents and below-market

rents, future income tax credits, gains on dispositions of assets and amortization of any net premium on long-term debt assumed

from vendors of properties at rates of interest greater than fair value (except where such amortization is funded); and (iii) adjusting

for differences, if any, resulting from recognizing rental revenues on a straight-line basis as opposed to contractual rental amounts.

Distributable income as defined in Crombie’s Declaration of Trust is calculated as follows:


(In thousands of dollars) Year-to-Date December 31, 2006

Net income $ 9,405Add back:

Non-controlling interest 8,787Depreciation and amortization(1) 17,367Future income taxes (763)Above-market lease amortization 2,090

Deduct:Below-market lease amortization (2,896)Straight-line rent adjustment (702)

Distributable income $ 33,288

(1) Excludes amortization of deferred financing charges, tenant improvements and leasing commission costs.

Pursuant to recent industry guidance, non-GAAP measures such as distributable income should be reconciled to the most directly

comparable GAAP measure, which is interpreted to be the cash flow from operating activities rather than net income.The reconciliation

is as follows:


Cash provided by operating activities $ 47,997 Add back (deduct):

Additions to tenant improvements and lease costs 7,302Change in non-cash operating items (21,275)Unit-based compensation expense (27)Amortization of deferred financing charges (268)Amortization of tenant improvements and lease costs (441)


Crombie considers AFFO to be a measure of the sustainability of its cash-generating activities. AFFO reflects distributable income after

the provision for maintenance capital expenditures and unamortized additions to tenant improvements and lease costs.


Distributable income $ 33,288 Less:

Maintenance capital expenditures (2,223)Unamortized additions to tenant improvements and lease costs (net of amounts recoverable from ECL) (5,153)

AFFO $ 25,912

Distributions and Distribution Payout Ratios

Details of distributions to unitholders are as follows:

(In thousands of dollars, except as otherwise noted) Year-to-Date December 31, 2006

Distributions to Unitholders $ 13,369Distributions to Special Voting Unitholders 12,440

Total distributions $ 25,809

Weighted average number of Units 21,444,568Weighted average number of Special Voting Units 20,079,576

Total weighted average number of Units 41,524,144

Distributions per unit $ 0.62 Distributable income payout ratio 77.5%AFFO payout ratio 99.6%

Crombie had a total of $25,809 in distributions during the year-to-date period ending December 31, 2006.




The improved net income for the year-to-date period resulted in a distributable income payout ratio of 77.5% which is below the

anticipated annual payout ratio of 80% outlined in the prospectus.

The year-to-date AFFO payout ratio of 99.6% reflects the fact that Crombie has been able to fund its distributions, as well as its capital

and operating activities for the year, from operational cash flows.


Funds from operations (“FFO”) represents a supplemental non-GAAP industry-wide financial measure of a real estate organization’s

operating performance. Crombie has calculated FFO in accordance with the recommendations of the Real Property Association of

Canada (“RealPac”) which defines FFO 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 expense, plus future income taxes, and after

adjustments for equity-accounted entities and non-controlling interests. Crombie’s method of calculating FFO may differ from other

issuers’ methods and accordingly may not be directly comparable to FFO reported by other issuers.

A reconciliation of GAAP net income to FFO for the year-to-date period ended December 31, 2006 is as follows:


Net income $ 9,405 Add back:

Non-controlling interest 8,787Depreciation and amortization(1) 17,808Future income taxes (763)

Funds from operations $ 35,237

(1) Excludes amortization of deferred financing charges.

F O U R T H Q UA R T E R R E S U LT S

Results of Operations

Comparison to Previous Year

The fourth quarter results for fiscal 2005 have been estimated by taking the Crombie pro-forma consolidated statement of net

income for the nine months ending September 30, 2005, which was disclosed in the prospectus on page F-5, and pro-rating the

nine-month figures based on the forecasted seasonality of the quarterly results to derive the estimated three-month figures for the

period ending December 31, 2005. Prior to making the pro-rations, the nine-month figures were adjusted for any property

acquisitions or dispositions and any other material changes which would have affected the fourth quarter results. It is believed that

this method of estimation of the fourth quarter results would be reflective of the actual results of Crombie in all material respects

had Crombie been in operation.

Quarter Ended December 31,

(In thousands of dollars, except per unit amounts) 2006 2005 Variance

Property revenue $ 33,717 $ 31,797 $ 1,920 Property expenses $ 15,091 $ 12,982 $ (2,109)General and administrative expenses $ 2,293 $ 1,856 $ (437)Interest expense $ 5,523 $ 5,722 $ 199Depreciation $ 6,270 $ 6,119 $ (151)Net income $ 3,217 $ 2,336 $ 881

Basic and diluted net income per Unit $ 0.15 $ 0.11 $ 0.04


Property revenue and property expenses were higher for the quarter ended December 31, 2006 by $1,920 and $2,109, respectively,

when compared to the same period in 2005 due to the three property acquisitions completed in the fourth quarter of 2006 as well as

the improved occupancy and new development activity in several properties during 2006.



General and administrative expenses for the quarter ended December 31, 2006 were higher by $437 when compared to the same

period in 2005 due to the addition of public company compliance costs that would not have been required in 2005.

Interest Expense

Interest expense for the quarter ended December 31, 2006 was lower by $199 when compared to the same period in 2005 due to the

normal reduction of commercial property debt, as well as the reduction of the revolving credit facility through net proceeds of $9,654

received from the issuance of an additional 1,024,261 units from the exercise of the over-allotment option on April 10, 2006.These

savings were partially offset by the additional interest cost relating to the three property acquisitions in the fourth quarter of 2006.


Depreciation and amortization was higher by $151 in the fourth quarter ended December 31, 2006 when compared to the same

period in 2005 due primarily to the three property acquisitions in the fourth quarter of 2006.

Comparison to Forecast

Quarter Ended December 31, 2006

(In thousands of dollars, except per unit amounts) Actual Forecast(1) Variance

Property revenue $ 33,717 $ 31,910 $ 1,807 Property expenses 15,091 13,550 (1,541)

Property net operating income 18,626 18,360 266

ExpensesGeneral and administrative 2,293 1,710 (583)Interest 5,523 5,355 (168)Depreciation and amortization 6,270 5,948 (322)

14,086 13,013 (1,073)

Income before income taxes and non-controlling interest 4,540 5,347 (807)

Income taxesCurrent – 96 96Future (1,663) 420 2,083

(1,663) 516 2,179

Income before non-controlling interest 6,203 4,831 1,372Non-controlling interest 2,986 2,391 (595)

Net income $ 3,217 $ 2,440 $ 777

Basic and diluted net income per unit $ 0.15 $ 0.12

Basic and diluted weighted average Units outstanding (in 000’s) 21,509 20,485

(1) The forecast is contained in the prospectus on page 60.These figures have been prepared by management and are unaudited.

Net income for the 2006 fourth quarter of $3,217 compared favourably to the forecasted net income for the fourth quarter by $777

due to:

• increased general and administrative expenses due to the year-end compensation incentive and other professional fee accruals as

well as increased interest and depreciation expenses due to the three property acquisitions in the fourth quarter of 2006;

• partially offset by improved property net operating income due to the improved occupancy of the properties and the three

property acquisitions in the fourth quarter of 2006; and

• the reduction in income tax expense from the forecasted level due to lower taxable income in the corporate subsidiary than

originally forecast and the elimination of the Large Corporation Tax.





Quarter Ended Fourth Quarter(In thousands of dollars) December 31, 2006 Forecast Variance

Same-asset property revenue $ 32,952 $ 31,910 $ 1,042Acquisition property revenue 765 – 765

Property revenue $ 33,717 $ 31,910 $ 1,807

Same-asset property revenue of $32,952 in the fourth quarter of 2006 was higher than the forecast by $1,042 due to improved

overall occupancy levels.


Same-asset property expenses $ 14,944 $ 13,550 $ (1,394)Acquisition property expenses 147 – (147)

Property expenses $ 15,091 $ 13,550 $ (1,541)

Same-asset property expenses of $14,944 incurred during the fourth quarter of 2006 were unfavourable to the forecast by $1,394.

This was primarily the result of timing differences between forecasted non-recoverable repair and maintenance expenses and the

actual costs incurred.

Property NOI for the quarter ended December 31, 2006 by region was as follows:

Property Property Property(In thousands of dollars) Revenue Expenses NOI

Nova Scotia $ 18,389 $ 9,052 $ 9,337 Newfoundland and Labrador 5,389 1,953 3,436New Brunswick 4,358 2,270 2,088Ontario 3,786 1,364 2,422Prince Edward Island 1,075 276 799Quebec 720 176 544

Total $ 33,717 $ 15,091 $ 18,626


General and administrative expenses for the fourth quarter of 2006 of $2,293 compared unfavourably with the forecast by $583.This

result was due to a number of higher than anticipated accruals at year end for professional fees and other public entity compliance

costs as well as higher than forecasted compensation incentives relating to realized operating results.

Interest Expense


Same-asset interest expense $ 5,061 $ 5,355 $ 294Acquisition interest expense 462 – (462)

Interest expense $ 5,523 $ 5,355 $ (168)

Same-asset interest expense of $5,061 during the quarter was $294 favourable to the forecast due to the normal reduction of

commercial property debt, as well as the reduction of the revolving credit facility through net proceeds of $9,654 received from the

issuance of an additional 1,024,261 units from the exercise of the over-allotment option on April 10, 2006.




Same-asset depreciation and amortization $ 6,076 $ 5,948 $ (128)Acquisition depreciation and amortization 194 – (194)

Depreciation and amortization $ 6,270 $ 5,948 $ (322)

Same-asset depreciation and amortization of $6,076 during the quarter was $128 unfavourable compared to the forecast.

Depreciation and amortization consists of:

(In thousands of dollars) Quarter Ended December 31, 2006

Depreciation of commercial properties $ 2,776 Amortization of tenant improvement/lease costs 441Amortization of intangible assets 2,942Amortization of deferred financing charges 111

$ 6,270

Sector Information

Retail Properties

Quarter Ended December 31, 2006 Fourth Quarter


Property revenue $ 17,629 $ 765 $ 18,394 $ 18,437Property expenses 7,055 147 7,202 6,586

Property NOI $ 10,574 $ 618 $ 11,192 $ 11,851

Occupancy % 92.7% 97.0% 92.9% 93.4%

The slight reduction in occupancy levels resulted in the same-asset retail NOI results being slightly lower than forecast, which was

partially offset by the addition of the acquisition properties.

Office Properties




Property NOI $ 2,661 $ – $ 2,661 $ 2,279

Occupancy % 92.7% – 92.7% 89.0%

The improved occupancy levels at the HDL properties in Halifax resulted in the improved office NOI result when compared to

the forecast.

Mixed-Use Properties




Property NOI $ 4,773 $ – $ 4,773 $ 4,230

Occupancy % 95.8% – 95.8% 94.1%

The improved occupancy levels at Scotia Square Mall in Halifax and Riverview Mall in New Brunswick resulted in the improved NOI

mixed-use result when compared to the forecast.




Cash Flow


Cash provided by (used in):Operating activities $ 24,717Financing activities 23,240Investing activities (46,777)

Increase in cash and cash equivalents during period 1,180Cash and cash equivalents, beginning of period Nil


Cash Provided by Operating ActivitiesCash provided by operating activities during the quarter of $24,717 was generated by the income before non-controlling interest of

$6,203, the adding back of non-cash expenses, primarily depreciation and amortization of $6,270 and the effect of non-cash operating

items of $15,836.The change in non-cash operating items was primarily caused by an increase in payables and other liabilities due to

the finalization and collection of amounts due from ECL in addition to a holdback related to the acquisition of the Oshawa property

which will be released once the final development conditions have been met.These items were partially offset by additions made to

tenant improvements and leasing costs of $1,513.

Cash Provided by Financing ActivitiesCash provided by financing activities during the quarter of $23,240 was primarily due to the proceeds of $20,300 received from the

mortgages relating to the three properties acquired in the fourth quarter of 2006, in addition to an increase in the revolving credit

facility of $9,960 to finance the remainder of the acquisition cost, which was partially offset by distribution payments of $8,346 made

during the quarter.

Cash Used in Investing ActivitiesCash used in investing activities of $46,777 during the quarter was due primarily to the acquisition of the three properties in the

fourth quarter of 2006 for $40,339.

Distributable Income, Adjusted Funds from Operations and Funds from Operations

Distributable income as defined in Crombie’s Declaration of Trust is calculated as follows:



Non-controlling interest 2,986Depreciation and amortization(1) 5,718Future income taxes (1,663)Above-market lease amortization 697

Deduct:Below-market lease amortization (962)Straight-line rent adjustment (178)


(1) Excludes amortization of deferred financing charges, tenant improvements and leasing commission costs.


Pursuant to recent industry guidance, non-GAAP measures such as distributable income should be reconciled to the most directly

comparable GAAP measure, which is interpreted to be the cash flow from operating activities rather than net income. As such, we

have included the following reconciliation:


Cash provided by operating activities $ 24,717 Add back (deduct):

Additions to tenant improvements and lease costs 1,513Change in non-cash operating items (15,836)Unit-based compensation expense (27)Amortization of deferred financing charges (111)Amortization of tenant improvements and lease costs (441)


Crombie considers AFFO to be a measure of the sustainability of its cash-generating activities. AFFO reflects distributable income

after the provision for maintenance capital expenditures and unamortized additions to tenant improvements and lease costs. As

these expenditures are not incurred evenly throughout a fiscal year, there can be volatility in AFFO on a quarterly basis.


Distributable income $ 9,815Less:

Maintenance capital expenditures (933)Additions to tenant improvements and lease costs (net of amounts recoverable from ECL) (619)

AFFO $ 8,263

Distributions and Distribution Payout Ratios

Details of distributions to Unitholders are as follows:

(In thousands of dollars, except as otherwise noted) Quarter Ended December 31, 2006

Distributions to Unitholders $ 4,329 Distributions to Special Voting Unitholders 4,017

Total distributions $ 8,346

Weighted average number of Units 21,509,485Weighted average number of Special Voting Units 20,079,576

Total weighted average number of Units 41,589,061

Distributions per unit $ 0.20 Distributable income payout ratio 85.0%AFFO payout ratio 101.0%

Crombie had a total of $8,346 in distributions related to the fourth quarter of 2006.

The reduced income before income taxes and non-controlling interest for the quarter resulted in a distributable income payout ratio

for the quarter of 85.0% which exceeded the anticipated payout ratio of 80% outlined in the prospectus.

The AFFO payout ratio of 101.0% was in line with the anticipated AFFO payout ratio of 100%.





A reconciliation of GAAP net income to FFO for the quarter ended December 31, 2006 is as follows:



Non-controlling interest 2,986Depreciation and amortization(1) 6,159Future income taxes (1,663)

Funds from operations $ 10,699

(1) Excludes amortization of deferred financing charges.

R E L AT E D PA R T Y T R A N S AC T I O N S

As at December 31, 2006, Empire Company Limited (“Empire”), through its wholly-owned subsidiary ECL, holds a 48.1% indirect interest

in Crombie.

Crombie acquired the initial 44 commercial properties and two subsequent properties from Empire Subsidiaries.The purchase price

was fair market value determined by external appraisals and was approved by the independent trustees of Crombie.

As of December 31, 2006, Crombie had notes receivable of $41,459 from ECL as a result of the acquisition of the initial 44 commercial

properties from ECL.There are three demand non-interest-bearing promissory notes of $21,224, $2,518 and $17,717 that make up

this balance.These promissory notes reflect the fact that ECL has an obligation to provide for capital expenditures, income tax and

interest rate subsidies to Crombie. It is anticipated that payments on the first note of $21,224 will be received as funding is required

for a capital expenditure program relating to eight commercial properties over the period from 2007 to 2010. It is anticipated that

payments on the second note of $2,518 will be received as funding is required to pay taxes on certain contemplated transfers of five

commercial properties within Crombie. It is anticipated that payments on the third note of $17,717 will be received on a monthly

basis to reduce the effective interest rate to 5.54% on certain assumed mortgages with an average term to maturity of approximately

5.5 years.

For a period of five years, certain executive management individuals and other employees of Crombie will provide general management,

financial, leasing, administrative, and other administration support services to certain real estate subsidiaries of Empire on a cost

recovery basis.The expense recoveries during the period from March 23, 2006 to December 31, 2006 were $850 and were netted

against general and administrative expenses.

For a period of five years, certain on-site maintenance and management employees of Crombie will provide property management

services to certain real estate subsidiaries of Empire on a cost recovery basis. In addition, for various periods, ECL has an obligation to

provide rental income, large federal corporation tax and interest rate subsidies.The recoveries and subsidies during the period from

March 23, 2006 to December 31, 2006 were $1,764 and were netted against property expenses.The rental income subsidy during the

period from March 23, 2006 to December 31, 2006 was $461, and the head lease subsidy during the period from March 23, 2006 to

December 31, 2006 was $1,123.The interest rate subsidy during the period from March 23, 2006 to December 31, 2006 was $2,847

and was netted against interest expense.

For the period from March 23, 2006 to December 31, 2006, Crombie also earned property revenue of $16,427 from Sobeys Inc.,

Empire Theatres Limited and ASC Commercial Leasing Limited.These companies are all subsidiaries of Empire.

C R I T I C A L ACCO U N T I N G E S T I M AT E S

Impairment of Long-Lived Assets

CICA Handbook Section 3063,“Impairment of Long-Lived Assets,” provides guidance on the recognition, measurement, and

disclosure of long-lived assets.This section requires that long-lived assets be reviewed for impairment whenever events or

circumstances indicate that the carrying amount of an asset may not be recoverable. Crombie’s policy is to assess any potential

impairment by making a comparison of the current and projected cash flows of a long-lived asset over its remaining useful life, on an

undiscounted basis, to the carrying amount of the long-lived asset. If such carrying amount is in excess of the projected operating

cash flow, an impairment loss would be recognized to adjust the carrying value to the fair market value.There were no impairments

recorded in the period ended December 31, 2006.

Prior to acquiring commercial properties, Crombie commissions an appraisal and conducts due diligence to satisfy itself that the

acquisition price is representative of fair market value.


Purchase Price Allocation

Upon acquisition of commercial properties, Crombie performs an assessment of the fair value of the properties’ related tangible and

intangible 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.

Management uses judgment in estimating the value of intangibles and the period of amortization.

Commercial Properties

A substantial portion of the acquisition cost of commercial properties is allocated to buildings.The allocation of costs to buildings,

the determination of useful life and residual value are based on management’s estimation and judgment. In the event the allocation

of acquisition costs to building or the assessment of useful life proves to be incorrect, or residual value proves to be incorrect, the

computation of depreciation will not be recorded properly over future reporting periods.

F U T U R E C H A N G E S I N S I G N I F I C A N T ACCO U N T I N G P O L I C I E S

The CICA issued three new accounting standards that are effective for Crombie’s fiscal year commencing January 1, 2007, which are

to be applied on a retroactive basis without restatement to prior periods.

Section 1530: Comprehensive Income

Comprehensive income is comprised of net income and other comprehensive income, which represents the change in value of net

assets that is not due to owner activities. Other comprehensive income would generally include unrealized gains and losses on

financial assets classified as available-for-sale, unrealized exchange gains and losses arising from the translation of the financial

statements of a self-sustaining foreign operation, and changes in the fair value of the effective portion of cash flow hedging

instruments.The financial statements must include a consolidated statement of other comprehensive income and the cumulative

amount of other comprehensive income must be presented as a separate category of unitholders’ equity.

Section 3855: Financial Instruments

Section 3855 establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives.

Financial assets and liabilities, with certain exceptions, are initially measured at fair value. Subsequent measurement will depend on

whether the financial instrument has been classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables or

other liabilities.

• Financial assets and liabilities held-for-trading are measured at fair value with gains and losses recognized in net income in the

periods in which they arise, unless they are part of a hedging relationship;

• Financial assets held-to-maturity, loans and receivables, and financial liabilities other than those held-for-trading are measured at

amortized cost;




• Financial assets available-for-sale are measured at fair value with gains and losses recognized in other comprehensive income until

the financial assets are derecognized or become impaired; and

• Investments in equity instruments that do not have a quoted market price in an active market, other than those held-for-trading,

are measured at cost.

Derivative instruments must be recorded on the balance sheet at fair value including those derivatives that are embedded in a

financial instrument or other contract but are not closely related to the host financial contract.

Crombie has performed a review of the financial assets and financial liabilities on its balance sheet as at December 31, 2006, as well

as any derivative instrument and financial contract that it has entered into, in preparation for the implementation of CICA Handbook

Section 3855.

Section 3865: Hedges

Section 3865 replaces and expands the guidance formerly in Section 1650 and Accounting Guideline AcG-13, Hedging Relationships,

by specifying when and how hedge accounting may be applied. It requires that an entity designate its hedges as either fair value

hedges, cash flow hedges, or hedges of a net investment in a self-sustaining foreign operation.

In a fair value hedging relationship, the carrying value of the hedged item will be adjusted by gains or losses attributable to the

hedged risk and recognized in net income. In a cash flow hedging relationship, the effective portion of the change in the fair value of

the hedging derivative will be recognized in other comprehensive income.The ineffective portion will be recognized in net income.

In hedging a foreign currency exposure of a net investment in a self-sustaining foreign operation, the effective portion of foreign

exchange gains and losses of the hedging instruments will be recognized in other comprehensive income and the ineffective

portion is recognized in net income.

Impact of Adopting Sections 1530, 3855 and 3865

The transition adjustment attributable to the above-described standards will be recognized in the opening balance of unitholders’

equity or accumulated other comprehensive income at January 1, 2007 and is not expected to be material to our consolidated

financial position.

CO N T R O L S A N D P R O C E D U R E S

Based on an evaluation of Crombie’s disclosure controls and procedures, Crombie’s Chief Executive Officer and Chief Financial Officer

have concluded as of December 31, 2006 that these controls and procedures were designed and operated effectively.

Crombie’s Chief Executive Officer and Chief Financial Officer also evaluated Crombie’s internal controls over financial reporting at

December 31, 2006 and concluded that these controls are appropriately designed.

CO N T I N G E N C I E S

There are various claims and litigation involving Crombie arising out of the ordinary course of business operations. In the opinion of

management, any liability that would arise from such known claims and litigation would not have a significant adverse effect on the

consolidated financial statements.

Crombie has agreed to indemnify, in certain circumstances, the trustees and officers of Crombie.

R I S K M A N AG E M E N T

There are certain risks inherent in the activities of Crombie, including the following:

Risk Factors Related to the Real Estate Industry

Real Property Ownership and Tenant Risks All real property investments are subject to elements of risk.The value of real property and any improvements thereto depend on

the credit and financial stability of tenants and upon the vacancy rates of the properties. In addition, certain significant expenditures,

including property taxes, ground rent, mortgage payments, insurance costs and related charges must be made throughout the period

of ownership of real property regardless of whether a property is producing any income. Distributable income will be adversely

affected if a significant number of tenants are unable to meet their obligations under their leases or if a significant amount of available

space in the properties becomes vacant and cannot be leased on economically favourable lease terms.


Upon the expiry of any lease, there can be no assurance that the lease will be renewed or the tenant replaced.The terms of any

subsequent lease may be less favourable to Crombie than those of an existing lease.The ability to rent unleased space in the properties

in which Crombie has an interest will be affected by many factors, including general economic conditions, local real estate markets,

changing demographics, supply and demand for leased premises, competition from other available premises and various other factors.

Management utilizes staggered lease maturities so that Crombie is not required to lease unusually large amounts of space in any

given year. In addition, the diversification of our property portfolio by geographic location, tenant mix and asset type also help to

mitigate this risk.

CompetitionThe real estate business is competitive. Numerous other developers, managers and owners of properties compete with Crombie in

seeking tenants. Some of the properties located in the same markets as Crombie’s properties are newer, better located, less levered or

have stronger anchor tenants than Crombie’s properties. Some property owners with properties located in the same markets as

Crombie’s properties may be better capitalized and may be stronger financially and hence better able to withstand an economic

downturn. Competitive pressures in such markets could have a negative effect on Crombie’s ability to lease space in its properties

and on the rents charged or concessions granted.

Risk Factors Related to the Business of Crombie

Reliance on Anchor TenantsCrombie’s anchor tenants are concentrated in a relatively small number of retail operators. Specifically, 14.7% of the annual minimum

rent generated from Crombie’s properties is derived from anchor tenants which are owned and/or operated by Sobeys food stores.

Therefore, Crombie is dependent on the sustainable operation by Sobeys in these locations.

Retail and Geographic ConcentrationCrombie’s portfolio of properties is heavily weighted in retail properties. Consequently, changes in the retail environment and

general consumer spending could adversely impact Crombie’s financial condition. Crombie’s portfolio of properties is also heavily

concentrated in Atlantic Canada. An economic downturn concentrated in the Atlantic Canada region could also adversely impact

Crombie’s financial condition.The geographic breakdown of properties and percentage of annual minimum rent of Crombie’s

properties for 2006 are as follows: 21 properties in Nova Scotia comprising 49.4%; 12 properties in Ontario comprising 14.6%; eight

properties in New Brunswick comprising 12.3%; four properties in Newfoundland and Labrador comprising 17.9%; one property in

Prince Edward Island comprising 3.2%; and one property in Quebec comprising 2.6%. Crombie’s growth strategy of expansion into

Ontario and Western Canada is predicated on reducing the geographic concentration risk.

Financing RisksCrombie has outstanding fixed rate mortgages of approximately $350,000 with an average term to maturity of 7.3 years and a weighted

average interest rate of 5.50%. In addition, Crombie has a floating rate revolving credit facility of $82,900 at December 31, 2006 with

a 2.2-year term to maturity. Crombie has entered into a $50,000 fixed interest rate swap agreement at 5.51% to reduce the exposure

to floating interest rates.

The real estate industry is highly capital intensive. Crombie will require access to capital to fund its growth strategy and refinance

current obligations as they come due. As such, Crombie is subject to the risks associated with debt financing, including the risk that

the mortgages and banking facilities secured by Crombie’s properties will not be able to be refinanced or that the terms of such

refinancing will not be as favourable as the terms of existing indebtedness. In order to minimize this risk, Crombie attempts to diversify

the term structure of its debt so that in no one year does a disproportionate amount of its debt mature. In addition Crombie attempts

to limit the use of floating rate debt. Accordingly, only approximately 8% of Crombie’s total indebtedness is variable rate debt.

Crombie’s credit facilities also contain covenants that require it to maintain certain financial ratios on a consolidated basis. If Crombie

does not maintain such ratios, its ability to make distributions will be limited.The revolving credit facility contains a covenant of

Crombie that ECL maintain a minimum 40% voting interest in Crombie. If ECL reduces its voting interest below this level, Crombie

will be required to renegotiate the revolving credit facility or obtain alternative financing. Pursuant to an exchange agreement and

while such covenant remains in place, ECL will be required to give Crombie at least six months’ prior written notice of its intention to

reduce its voting interest below 40%.There can be no assurance that Crombie would be able to renegotiate the revolving credit

facility or obtain alternative financing.

Environmental MattersEnvironmental legislation and regulations have become increasingly important in recent years. As an owner of interests in real

property in Canada, Crombie is subject to various Canadian federal, provincial and municipal laws relating to environmental matters.




Such laws provide that Crombie could become liable for environmental harm, damage or costs, including with respect to the release

of hazardous, toxic or other regulated substances into the environment, and the removal or other remediation of hazardous, toxic or

other regulated substances that may be present at or under its properties.The failure to remove or otherwise address such substances

or properties, if any, may adversely affect Crombie’s ability to sell such property, realize the full value of such property or borrow

using such property as collateral security, and could potentially result in claims against Crombie by public or private parties by way of

civil action.

Crombie’s operating policy is to obtain a Phase I environmental site assessment, conducted by an independent and experienced

environmental consultant, prior to acquiring a property and to have Phase II environmental site assessment work completed where

recommended in a Phase I environmental site assessment.

Crombie is not aware of any material non-compliance with environmental laws at any of its properties, and is not aware of any

pending or threatened investigations or actions by environmental regulatory authorities in connection with any of its properties.

Crombie will implement policies and procedures to assess, manage and monitor environmental conditions at its properties to

manage exposure to liability.

Potential Conflicts of InterestThe trustees will, from time to time, in their individual capacities, deal with parties with whom Crombie may be dealing, or may be

seeking investments similar to those desired by Crombie.The interests of these persons could conflict with those of Crombie.The

Declaration of Trust contains conflict of interest provisions requiring the trustees to disclose their interests in certain contracts and

transactions and to refrain from voting on those matters. In addition, certain decisions regarding matters that may give rise to a

conflict of interest must be made by a majority of independent trustees only.

Conflicts may exist due to the fact that certain trustees, senior officers and employees of Crombie are directors and/or senior officers

of ECL and/or its affiliates or will provide management or other services to ECL and its affiliates. ECL and its affiliates are engaged in a

wide variety of real estate and other business activities. Crombie may become involved in transactions that conflict with the interests

of the foregoing.The interests of these persons could conflict with those of Crombie.To mitigate these potential conflicts, Crombie and

ECL have entered into a number of agreements to outline how potential conflicts of interest will be dealt with including a Non-

Competition Agreement, Management Cost Sharing Agreement and Development Agreement. As well, the Declaration of Trust

contains a number of provisions to manage potential conflicts of interest including setting limits to the number of ECL appointees to

the Board,“conflict of interest” guidelines, as well as outlining which matters require the approval of a majority of the independent

trustees such as any property acquisitions or dispositions between Crombie and ECL or another related party.

Reliance on Key PersonnelThe management of Crombie depends on the services of certain key personnel.The loss of the services of any key personnel could

have an adverse effect on Crombie and adversely impact Crombie’s financial condition. Crombie does not have key-man insurance

on any of its key employees.

Reliance on ECL and Other Empire AffiliatesECL has agreed to support Crombie under an omnibus subsidy agreement and to pay ongoing rent pursuant to a head lease and a

ground lease. Crombie’s ability to acquire new development properties is significantly dependent upon ECL and the successful

operation of the Development Agreement. In addition, a significant portion of Crombie’s rental income will be received from tenants

that are affiliates of Empire.There is no certainty that ECL will be able to perform its obligations to Crombie in connection with these

agreements. ECL has not provided any security to guarantee these obligations. If ECL, Empire or such affiliates are unable or otherwise

fail to fulfil their obligations to Crombie, such failure could adversely impact Crombie’s financial condition.

Prior Commercial OperationsCrombie Limited Partnership (“Crombie LP”) acquired from ECL all of the outstanding shares of CDL. CDL is the company resulting from

the amalgamation of predecessor companies which began their operations in 1964 and have since been involved in various

commercial activities in the real estate sector. In addition, the share capital of CDL and its predecessors has been subject to various

transfers, redemptions and other modifications. Pursuant to the Business Acquisition, ECL made certain representations and

warranties to Crombie with respect to CDL, including with respect to the structure of its share capital and the scope and amount of

its existing and contingent liabilities. ECL also provided an indemnity to Crombie under the Business Acquisition which provides,

subject to certain conditions and thresholds, that ECL will indemnify Crombie for breaches of such representations and warranties.

There can be no assurance that Crombie will be fully protected in the event of a breach of such representations and warranties or

that ECL will be in a position to indemnify Crombie if any such breach occurs. ECL has not provided any security for its obligations

and is not required to maintain any cash within ECL for this purpose.


Risk Factors Related to the Units

Cash Distributions Are Not GuaranteedThere can be no assurance regarding the amount of income to be generated by Crombie’s properties.The ability of Crombie to make

cash distributions and the actual amount distributed are entirely dependent on the operations and assets of Crombie and its subsidiaries,

and are subject to various factors including financial performance, obligations under applicable credit facilities, the sustainability of

income derived from anchor tenants and capital expenditure requirements. Distributable income may exceed actual cash available

to Crombie from time to time because of items such as principal repayments, tenant allowances, leasing commissions, capital

expenditures and redemptions of Units, if any. Crombie may be required to use part of its debt capacity or to reduce distributions in

order to accommodate such items.The market value of the Units will deteriorate if Crombie is unable to maintain its distribution in

the future, and that deterioration may be significant. In addition, the composition of cash distributions for tax purposes may change

over time and may affect the after-tax return for investors.

Restrictions on RedemptionsIt is anticipated that the redemption of Units will not be the primary mechanism for holders of Units to liquidate their investments.

The entitlement of Unitholders to receive cash upon the redemption of their Units is subject to the following limitations: (i) the total

amount payable by Crombie in respect of such Units and all other Units tendered for redemption in the same calendar month must

not exceed $50 (provided that such limitation may be waived at the discretion of the Trustees); (ii) at the time such Units are

tendered for redemption, the outstanding Units must be listed for trading on a stock exchange or traded or quoted on another

market which the Trustees consider, in their sole discretion, provides fair market value prices for the Units; and (iii) the trading of Units

is not suspended or halted on any stock exchange on which the Units are listed (or, if not listed on a stock exchange, on any market

on which the Units are quoted for trading) on the redemption date for more than five trading days during the 10-day trading period

commencing immediately after the redemption date.

Potential Volatility of Unit PricesOne of the factors that may influence the market price of the Units is the annual yield on the Units. An increase in market interest

rates may lead purchasers of Units to demand a higher annual yield, which accordingly could adversely affect the market price of the

Units. In addition, the market price of the Units may be affected by changes in general market conditions, fluctuations in the markets

for equity securities and numerous other factors beyond the control of Crombie.

Tax-Related Risk FactorsThe Declaration of Trust of Crombie provides that a sufficient amount of Crombie’s net income and net realized capital gains will be

distributed each year to Unitholders or otherwise in order to eliminate Crombie’s liability for tax under Part I of the Tax Act.Where the

amount of net income and net realized capital gains of Crombie in a taxation year exceeds the cash available for distribution in the

year, such excess net income and net realized capital gains will be distributed to Unitholders in the form of additional Units.

Unitholders will generally be required to include an amount equal to the fair market value of those Units in their taxable income,

notwithstanding that they do not directly receive a cash distribution.

Income fund or REIT structures in which there is a significant corporate subsidiary such as CDL generally involve a significant amount

of inter-company or similar debt, generating substantial interest expense, which reduces earnings and therefore income tax payable.

Management believes that the interest expense inherent in the structure of Crombie is supportable and reasonable in the circumstances;

however,there can be no assurance that taxation authorities will not seek to challenge the amount of interest expense deducted on the debt

owing by CDL to Crombie LP. If such a challenge were to succeed, it could adversely affect the amount of distributable cash available.

The cost amount for taxation purposes of various properties of CDL will be lower than their fair market value, generally resulting in

correspondingly lower deductions for taxation purposes and higher recapture of depreciation or capital gains on their disposition. In

addition, CDL (unlike Crombie) may not reduce its taxable income through distributing its distributable income. If CDL should become

subject to corporate income tax, the distributable income available to be distributed to Unitholders would likely be reduced.

On December 21, 2006 the Minister of Finance released draft legislation (the “Plan”) relating to the federal income taxation of

publicly traded income trusts and partnerships.The Plan proposed that all existing income trusts, or flow-through entities (“FTEs”),

will be subject to corporate tax rates beginning in 2011, subject to an exemption for real estate investment trusts (“REITs”).The

exemption for REITs was provided to “recognize the unique history and role of collective real estate investment vehicles,” which are

well-established structures throughout the world.

While REITs were exempted from the FTE definition, the Plan has proposed a number of technical tests to determine which entities

would qualify as a REIT.These technical tests do not fully accommodate the current business structures used by many Canadian

REITs.Therefore, should it be determined that Crombie does not meet the technical tests to be classified as a REIT, the Plan could




impact Crombie’s level of cash distributions beginning in 2011. It is possible that changes to these technical tests will be made prior

to their enactment in order to accommodate some or all of the existing Canadian REITs. Alternatively, if the Plan is not changed,

existing Canadian REITs that do not meet the technical tests may have to restructure their affairs in order to comply. As a result of the

above, it is not currently possible to predict whether the Plan as ultimately enacted will have an adverse effect on Crombie.

Notwithstanding that Crombie may meet the criteria for a REIT under the Plan and thus may be exempt from the proposed

distribution tax, there can be no assurance that the Plan will be enacted as proposed or that the Department of Finance or other

governmental authority will not undertake initiatives which have an adverse impact on Crombie or its unitholders.

Indirect Ownership of Units by EmpireECL holds a 48.1% economic interest in Crombie through the ownership of Class B LP Units. Pursuant to the Exchange Agreement,

each Class B LP Unit will be exchangeable at the option of the holder for one Unit of Crombie and will be attached to a Special Voting

Unit of Crombie, providing for voting rights in Crombie. Furthermore, pursuant to the Declaration of Trust, ECL is entitled to appoint a

certain number of Trustees based on the percentage of Units held by it.Thus, Empire is in a position to exercise a certain influence

with respect to the affairs of Crombie. If Empire sells substantial amounts of its Class B LP Units or exchanges such units for Units and

sells these Units in the public market, the market price of the Units could fall.The perception among the public that these sales will

occur could also produce such effect.

S U B S E Q U E N T E V E N T S

On January 17, 2007, Crombie completed the previously announced acquisition of The Mews of Carleton Place in Ottawa, Ontario

from an unrelated third party. The Mews of Carleton Place is a single-level grocery-anchored strip centre comprised of four buildings,

totalling approximately 79,700 square feet of GLA. Tenants include Price Chopper, Giant Tiger, CIBC and Home Hardware. The site is also

shadow anchored by an LCBO location. The property was purchased for a total of $11,800. The purchase price will initially be satisfied

by funds from the revolving credit facility. Crombie has entered into a term sheet to place an $8,300 fixed rate mortgage on the

property, carrying an approximate interest rate of 5.2% with a 12-year term. The financing is anticipated to close prior to the end of

the first quarter.

On January 22, 2007, Crombie declared distributions of 6.67 cents per unit for the period from January 1, 2007 to, and including,

January 31, 2007.The distributions were paid on February 15, 2007 to unitholders of record as at January 31, 2007.

On February 19, 2007, Crombie declared distributions of 6.67 cents per unit for the period from February 1, 2007 to and including,

February 28, 2007.The distributions will be payable on March 15, 2007 to unitholders of record as at February 28, 2007.

O U T LO O K

The objectives of Crombie, as mentioned previously, are threefold:

1. Generate stable cash distributions;

2. Enhance the value of Crombie’s assets and maximize long-term unit value through active management; and

3. Expand the asset base of Crombie and increase its distributable income through accretive acquisitions.

Generate stable cash distributions: The approach that Crombie has taken in defining distributable income, which management

believes to be conservative, helps to ensure that the cash distributions made are sustainable. During the period March 23 to

December 31, 2006 the ratio of distributions to distributable income came in 2.5% below the 80% ratio forecasted in the prospectus.

While the distributions slightly exceeded the AFFO for the fourth quarter, the year-to-date AFFO payout ratio of 99.6% reflects the

fact that Crombie was able to fund its distributions for the year from operational cash flows.

Enhance value of Crombie’s assets: In addition to the eight commercial properties being redeveloped for which the costs will be

covered by the non-interest-bearing demand notes from ECL, Crombie has either completed or is completing capital improvement

projects at the Trade Mart Building, Scotia Square Mall and Park Lane, all in Nova Scotia.These projects, which are estimated to cost

between $1,000 and $1,200, include exterior and interior improvements to enhance the locations’ functional and aesthetic design

and improve the desirability for both current and prospective tenants.


Crombie has been able to secure tenancies for all of the 675,000 square feet of the 2006 lease expiries and in the process improved the

occupancy percentage for its commercial properties from 93.0% as discussed in the prospectus to 93.6% at December 31, 2006 by

leasing a further 17,000 square feet of vacant space.While no assurance can be provided that these trends will continue in the future,

Crombie will endeavour to continue to maintain its current high occupancy levels by providing our existing and potential tenants

with professionally managed and maintained centres that complement the communities that they support.

Expand asset base with accretive acquisitions: The three property acquisitions completed in 2006, combined with the additional

acquisition in 2007, are anticipated to add approximately two to four cents per unit in accretive distributable income over their first

full years.While the investment market continues to remain very competitive, Crombie intends to continue to pursue acquisitions

which can be made at values which are accretive to Crombie and provide an acceptable return. It is anticipated that a number of

these acquisitions will be the result of the relationship between Crombie and the Empire Subsidiaries.

Additional information relating to Crombie can be found on Crombie’s web site at www.crombiereit.com or on the SEDAR web site forCanadian regulatory filings at www.sedar.com.

Dated: February 28, 2007

Stellarton, Nova Scotia, Canada




Q UA R T E R LY I N F O R M AT I O N

The following table shows information for revenues, net income, distributable income, AFFO, distributions and per unit amounts for

the three most recently completed quarters1.

Quarter Ended Quarter Ended Quarter Ended(In thousands of dollars, except per unit amounts) Dec. 31, 2006 Sep. 30, 2006 Jun. 30, 2006

Property revenue $ 33,717 $ 31,201 $ 31,758Property expenses 15,091 13,053 12,626

Property net operating income 18,626 18,148 19,132

ExpensesGeneral and administrative 2,293 1,612 1,687Interest 5,523 5,165 5,274Depreciation and amortization 6,270 5,635 5,631

14,086 12,412 12,592

Income before income taxes and non-controlling interest 4,540 5,736 6,540

Income taxesCurrent – – (9)Future (1,663) 450 410

(1,663) 450 401

Income before non-controlling interest 6,203 5,286 6,139Non-controlling interest 2,986 2,550 2,972

Net income $ 3,217 $ 2,736 $ 3,167

Basic and diluted net income per unit $ 0.15 $ 0.13 $ 0.15

Basic and diluted weighted average Units outstanding (in 000’s) 21,509 21,509 21,408

Quarter Ended Quarter Ended Quarter Ended(In thousands of dollars, except per unit amounts) Dec. 31, 2006 Sep. 30, 2006 Jun. 30, 2006

Cash provided by operating activities $ 24,717 $ 2,451 $ 14,115Add back (deduct):

Additions to tenant improvements and lease costs 1,513 4,385 1,404Change in non-cash operating items (15,836) 4,122 (3,936)Unit-based compensation expense (27) – –Amortization of deferred financing charges (111) (78) (74)Amortization of tenant improvements/lease costs (441) – –

Distributable income $ 9,815 $ 10,880 $ 11,509Less:

Maintenance capital expenditures (933) (1,090) (200)Additions to tenant improvements and lease costs

(net of amounts recoverable from ECL) (619) (3,128) (1,406)

AFFO $ 8,263 $ 6,662 $ 9,903

Distributions $ 8,346 $ 8,338 $ 8,322

Distributable income per unit(2) $ 0.24 $ 0.26 $ 0.28

AFFO per unit(2) $ 0.20 $ 0.16 $ 0.24

Distributions per unit(2) $ 0.20 $ 0.20 $ 0.20

(1) The first quarter ended March 31, 2006 was for a nine-day period only due to Crombie’s beginning of operations on March 23, 2006. As such, that period has not

been included in the above table due to a lack of comparability.

(2) Distributable income, AFFO and distributions per unit are calculated by distributable income, AFFO or distributions, as the case may be, divided by the weighted

average of the total Units and Special Voting Units outstanding of 41,589,061 for the quarter ended December 31, 2006, 41,589,061 for the quarter ended

September 30, 2006 and 41,487,790 for the quarter ended June 30, 2006.



M A N A G E M E N T ’ S S T A T E M E N T O F R E S P O N S I B I L I T Y

F O R F I N A N C I A L R E P O R T I N G

Preparation of the consolidated financial statements accompanying this annual report and the presentation of all other information

in the report is the responsibility of management.The consolidated financial statements have been prepared in accordance with

Canadian generally accepted accounting principles and reflect management’s best estimates and judgments. All other financial

information in the report is consistent with that contained in the consolidated financial statements.

Management of the REIT has established and maintains a system of internal control that provides reasonable assurance as to the

integrity of the consolidated financial statements, the safeguard of REIT assets, and the prevention and detection of fraudulent

financial reporting.

The Board of Trustees, through its Audit Committee, oversees management in carrying out its responsibilities for financial reporting

and systems of internal control.The Audit Committee, which is chaired by and composed solely of trustees who are unrelated to, and

independent of, the REIT, meet regularly with financial management and external auditors to satisfy itself as to reliability and

integrity of financial information and the safeguarding of assets.The Audit Committee reports its findings to the Board of Trustees for

consideration in approving the annual consolidated financial statements to be issued to unitholders.The external auditors have full

and free access to the Audit Committee.

J. Stuart Blair Scott M. Ball

President and Vice President, Chief Financial Officer

Chief Executive Officer and Secretary

February 28, 2007 February 28, 2007

A U D I T O R S ’ R E P O R T

TO T H E U N I T H O L D E R S O F C R O M B I E R E A L E S TAT E I N V E S T M E N T T R U S T

We have audited the consolidated balance sheet of Crombie Real Estate Investment Trust as at December 31, 2006 and the

consolidated statements of income, unitholders’ equity, and cash flows for the period from March 23, 2006 to December 31, 2006.

These consolidated financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion

on these consolidated financial statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards.Those standards require that we plan

and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial

statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well

as evaluating the overall consolidated financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Trust as at

December 31, 2006 and the results of its operations and its cash flows for the period from March 23, 2006 to December 31, 2006 in

accordance with Canadian generally accepted accounting principles.

Grant Thornton LLPChartered Accountants New Glasgow, CanadaFebruary 12, 2007 (except for Note 20(c) which is as of February 19, 2007)


December 31, 2006

A S S E T S

Commercial properties (Note 4) $ 836,913

Intangible assets (Note 5) 63,021

Notes receivable (Note 6) 41,459

Other assets (Note 7) 21,362

Cash and cash equivalents 1,180

$ 963,935

L I A B I L I T I E S A N D U N I T H O L D E R S’ E Q U I T Y

Commercial property debt (Note 8) $ 432,963

Payables and accruals (Note 9) 37,432

Intangible liabilities (Note 10) 17,681

Employee future benefits obligation (Note 19) 4,064

Distributions payable 2,781

Future income tax liability (Note 14) 80,471

575,392

Non-controlling interest (Note 11) 187,649

Unitholders’ equity 200,894

$ 963,935

Commitments and contingencies (Note 16)

O N B E H A L F O F T H E B OA R D O F T R U S T E E S

David Hennigar Frank Sobey

Trustee Trustee

See accompanying notes to the consolidated financial statements.


C O N S O L I D A T E D B A L A N C E S H E E T

(In thousands of dollars)

C O N S O L I D A T E D S T A T E M E N T O F I N C O M E


Period from March 23, 2006 to December 31, 2006 (Note 1)

R E V E N U E S

Property revenue (Note 13) $ 99,949

E X P E N S E S

Property expenses 42,214

General and administrative expenses 5,738

Interest expense 16,492

Depreciation of commercial properties 8,620

Amortization of tenant improvements/lease costs 441

Amortization of deferred financing costs 268

Amortization of intangible assets 8,747

82,520

Income before income taxes and non-controlling interest 17,429

Income tax recovery – future (Note 14) (763)

Income before non-controlling interest 18,192

Non-controlling interest 8,787

Net income $ 9,405

Basic and diluted net income per unit $ 0.44

Weighted average number of units outstanding – basic and diluted 21,444,568




REIT Units Net Contributed

(Note 12) Income Surplus Distributions Total

Unitholders’ equity,

beginning of period $ Nil $ Nil $ Nil $ Nil $ Nil

Unit issue proceeds, net of costs

of $10,274 204,821 – – – 204,821

Net income – 9,405 – – 9,405

Loans advanced under EUPP 1,261 – – – 1,261

Loans receivable under EUPP (1,251) – – – (1,251)

Unit purchase plan compensation – – 27 – 27

Distributions – – – (13,369) (13,369)

Unitholders’ equity, end of period $ 204,831 $ 9,405 $ 27 $ (13,369) $ 200,894



C O N S O L I D A T E D S T A T E M E N T O F U N I T H O L D E R S ’ E Q U I T Y


C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S



C A S H F LO W S P R OV I D E D B Y ( U S E D I N ) O P E R AT I N G AC T I V I T I E S

Net income $ 9,405

Items not affecting cash:

Non-controlling interest 8,787

Depreciation of commercial properties 8,620

Amortization of tenant improvements/lease costs 441

Amortization of deferred financing costs 268

Amortization of intangible assets 8,747

Amortization of above-market leases 2,090

Amortization of below-market leases (2,896)

Accrued rental revenue (702)

Unit-based compensation 27

Future income taxes (763)

34,024

Additions to tenant improvements and lease costs (7,302)

Change in other non-cash operating items (Note 15) 21,275

Cash provided by operating activities 47,997

F I N A N C I N G AC T I V I T I E S

Issue of commercial property debt 113,200

Repayment of commercial property debt (20,304)

Collection of notes receivable 21,223

Units issued on initial public offering 215,095

Costs of issue (19,767)

Payment of distributions (25,809)

Cash provided by financing activities 283,638

I N V E S T I N G AC T I V I T I E S

Business acquisition (Note 3) (263,542)

Additions to commercial properties (26,574)

Acquisition of commercial properties (Note 4) (40,339)

Cash used in investing activities (330,455)

Increase in cash and cash equivalents during the period 1,180

Cash and cash equivalents, beginning of period Nil




1 . C R O M B I E R E A L E S TAT E I N V E S T M E N T T R U S T

Crombie Real Estate Investment Trust (the “REIT”) is an unincorporated “open-ended” real estate investment trust created pursuant to

the Declaration of Trust dated January 1, 2006, as amended.The REIT commenced operations on March 23, 2006.The REIT issued trust

units for cash pursuant to an initial public offering (the “IPO”).The units of the REIT are traded on the Toronto Stock Exchange (“TSX”)

under the symbol “CRR.UN”.

2 . S U M M A RY O F S I G N I F I C A N T ACCO U N T I N G P O L I C I E S

(a) Basis of presentation

These consolidated financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) as

prescribed by the Canadian Institute of Chartered Accountants (“CICA”).

(b) Basis of consolidation

The consolidated financial statements include the accounts of the REIT and its incorporated and unincorporated subsidiaries.

(c) Property Acquisitions

Upon acquisition of commercial properties, the REIT 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.The REIT 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.

The REIT 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.

(d) Commercial properties

Commercial properties include land, buildings and tenant improvements. Commercial properties are carried at cost less accumulated

depreciation and are reviewed periodically for impairment as described in Note 2(n).

Depreciation of buildings is calculated using the straight-line method with reference to each property’s cost, its estimated useful life

(not exceeding 40 years) and its residual value.

Amortization of tenant improvements is determined using the straight-line method over the terms of the tenant lease agreements

and renewal periods where applicable.

Repair and maintenance improvements that are not recoverable from tenants are either expensed as incurred or, in the case of a major

item, capitalized to commercial properties and amortized on a straight-line basis over the expected useful life of the improvement.


N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

December 31, 2006(In thousands of dollars, except per unit amounts)



(e) Intangible assets and liabilities

Intangible assets include the value of origination costs for existing leases, the value of the differential between original and market rents

for above-market existing leases, the value of the immediate cash flow stream from in-place leases and the value of tenant relationships.

Intangible liabilities are the value of the differential between original and market rents for below-market existing leases.

Amortization of the value of origination costs, in-place leases and tenant relationships is determined using the straight-line method

over the terms of the tenant lease agreements and renewal periods where applicable and is recorded as depreciation and amortization.

The value of the differential between original and market rents for above- and below-market existing leases is recognized using the

straight-line method over the terms of the tenant lease agreements and recorded as property revenue.

Intangible assets are reviewed for impairment as described in Note 2(n).

(f) Deferred financing charges

Amortization of deferred financing charges is calculated using the straight-line method over the terms of related debt.

(g) 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.The REIT 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.

(h) Cash and cash equivalents

Cash and cash equivalents are defined as cash on hand and cash in bank.

(i) Income taxes

The REIT will be taxed as a mutual fund trust for income tax purposes. Pursuant to the terms of the Declaration of Trust, the REIT must

make distributions not less than the amount necessary to ensure that the REIT will not be liable to pay income tax, except for the

amounts incurred in its incorporated subsidiaries.

Future income tax liabilities of the REIT relate to tax and accounting basis differences of incorporated subsidiaries of the REIT. 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.

(j) Financial instruments

The REIT has a fixed interest rate swap agreement.The REIT has identified this hedge against interest rate fluctuations and has formally

documented all relationships between this derivative financial instrument and hedged items, as well as the risk management

strategy and objectives.The REIT assesses on an ongoing basis whether the derivative financial instrument continues to be effective

in offsetting changes in interest rates on the hedged items.The realized gain or loss arising from this instrument is included in

interest expense.

(k) 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.


(l) Executive unit purchase plan

The REIT has a Unit purchase plan for certain employees which is described in Note 12. In accordance with the Emerging Issues

Committee Abstract 132, loans granted to employees to purchase units under the plan are accounted for as stock-based compensation.

(m) Use of estimates

The preparation of consolidated financial statements in conformity with 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.

(n) Impairment of long-lived assets

Long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate the carrying value

of an asset may not be recoverable.

If it is determined that the net recoverable value of a long-lived asset is less than its carrying value, the long-lived asset is written

down to its fair value. Net recoverable amount represents the undiscounted estimated future cash flow expected to be received from

the long-lived asset. Assets reviewed under this policy include commercial properties and intangible assets.

3 . B U S I N E S S ACQ U I S I T I O N

On March 23, 2006, the REIT directly or indirectly acquired 44 commercial properties from Empire Company Limited’s subsidiary

ECL Properties Limited (“ECL”) and certain of its affiliates for an aggregate purchase price of $801,246, of which $414,777 was

financed with new and assumed debt, $195,167 was financed through the public offering of REIT units and $191,302 was financed

through the issuance of Class B Units of Crombie Limited Partnership (the “Class B LP Units”) to ECL.

The acquisition of the properties has been accounted for using the purchase method of accounting with the results of operations

included in income from the date of acquisition.The purchase price allocated to the assets acquired and liabilities assumed, based on

their fair values at the date of acquisition, was as follows:

Commercial properties:Tangible assets $ 772,040Net intangible assets 46,577

Other assets, net of liabilities 1,181Notes receivable 62,682Future income tax liability (81,234)

Net purchase price 801,246Assumed mortgages (marked to market) (333,644)

$ 467,602

Consideration given by the REIT consists of the following:

Class B LP Units (non-controlling interest) $ 200,795Cash 263,542Land transfer costs and additional financing costs 3,265

$ 467,602

The purchase price allocation was finalized in December 2006 and adjustments were made to the initial allocations.




4 . CO M M E R C I A L P R O P E R T I E S

AccumulatedCost Depreciation Net Book Value

Land $ 168,087 $ Nil $ 168,087Buildings 670,585 8,620 661,965Tenant improvements and leasing costs 7,302 441 6,861

$ 845,974 $ 9,061 $ 836,913

Property Acquisitions

On October 2, 2006, the REIT acquired properties in Oshawa and Brampton, Ontario, representing a 149,000 square foot increase to

the portfolio, for a total cost of $32,422 from subsidiaries of Empire Company Limited.The acquisitions were financed through new

mortgages totalling $20,300 and the REIT’s floating rate revolving credit facility. Deferred financing costs of $85 were incurred with

respect to the financing of this acquisition.

On December 20, 2006, the REIT acquired a property in Burlington, Ontario, representing a 56,000 square foot increase to the portfolio,

for a total cost of $14,340 from an unrelated third party.The acquisition was financed through the assumption of an existing mortgage

of $6,423 and the REIT’s floating rate revolving credit facility. Deferred financing costs of $9 were incurred with respect to the financing

of this acquisition.

The allocation of the total cost of the acquisitions was as follows:

Commercial property acquired, net:

Land $ 14,279Buildings 25,779Intangible assets:

Lease origination costs 2,758Tenant relationships 1,822Above-market leases 1,618In-place leases 2,633

Intangible liabilities:Below-market leases (2,127)

46,762Less: Mortgage financing assumed (6,423)

Total $ 40,339

Consideration paid, funded by:

Mortgage financing $ 20,300Floating rate revolving credit facility 20,039

Total $ 40,339

5 . I N TA N G I B L E A S S E T S

Accumulated Cost Amortization Net Book Value

Origination costs for existing leases $ 10,881 $ 2,149 $ 8,732In-place leases 16,933 3,734 13,199Tenant relationships 31,139 2,864 28,275Above-market existing leases 14,905 2,090 12,815

$ 73,858 $ 10,837 $ 63,021


6 . N OT E S R E C E I VA B L E

One component of the Business Acquisition discussed in Note 3 was the acquisition of three demand non-interest-bearing

promissory notes from ECL in the amounts of $39,600, $2,518 and $20,564. Payments on the first note of $39,600 are being received

as funding is required for a capital expenditure program relating to eight commercial properties over the period from 2006 to 2010.

Payments on the second note of $2,518 will be received as funding is required to pay taxes on certain contemplated transfers of five

commercial properties within the REIT. Payments on the third note of $20,564 are being received on a monthly basis to reduce the

effective interest rate to 5.54% on certain assumed mortgages with an average term to maturity of approximately 5.5 years.

The balance of each note at December 31, 2006 was as follows:

Capital expenditure program $ 21,224Tax on property transfer 2,518Interest rate subsidy 17,717

$ 41,459

7 . OT H E R A S S E T S

Accounts receivable $ 7,438Deposit on property 750Accrued straight-line rent receivable 4,649Prepaid expenses 6,270Deferred financing charges 1,578Restricted cash 677

$ 21,362

8 . CO M M E R C I A L P R O P E R T Y D E BT

Weighted WeightedAverage Average Term Carrying

Range Interest Rate to Maturity Amount

Fixed rate mortgages 5.15–6.39% 5.50% 7.3 years $ 350,063Floating rate revolving credit facility 5.49% 5.49% 2.2 years 82,900

$ 432,963

As of December 31, 2006, debt retirements for the next five years were:

Fixed Rate Floating Rate Total

2007 $ 16,545 $ Nil $ 16,5452008 25,908 Nil 25,9082009 11,625 82,900 94,5252010 66,198 Nil 66,1982011 17,307 Nil 17,307Thereafter 194,763 Nil 194,763

332,346 82,900 415,246Fair value debt adjustment 17,717 Nil 17,717

$ 350,063 $ 82,900 $ 432,963

The floating rate revolving credit facility has a maximum principal amount of $150,000 and is used by the REIT for working capital

purposes and to provide financing for future acquisitions. It is secured by a pool of first and second mortgages and negative pledges

on certain properties. As at December 31, 2006, based on the security granted by the REIT, approximately $136,141 was available for

draw down, of which $82,900 was drawn down on the facility.




The REIT has entered into a fixed interest rate swap agreement which expires on February 1, 2010 for a portion of the revolving credit

facility. Interest on $50,000 is paid at a fixed rate of 5.51% and is received at a floating rate based on the 90-day bankers’ acceptance

rate, resulting in an overall 5.49% current interest rate.

9 . PAYA B L E S A N D ACC R UA L S

Tenant improvements and capital expenditures $ 7,134Property operating costs 28,845Interest on commercial property debt 1,453

$ 37,432

1 0 . I N TA N G I B L E L I A B I L I T I E S

AccumulatedCost Amortization Net Book Value

Below-market existing leases $ 20,577 $ 2,896 $ 17,681

1 1 . N O N - CO N T R O L L I N G I N T E R E S T

Class B LP Net ContributedUnits Income Surplus Distributions Total

Non-controlling interest,beginning of period $ Nil $ Nil $ Nil $ Nil $ Nil

Unit issue proceeds, net of costsof $9,493 191,302 – – – 191,302

Net income – 8,787 – – 8,787Distributions – – – (12,440) (12,440)

Non-controlling interest, end of period $ 191,302 $ 8,787 $ Nil $ (12,440) $ 187,649

1 2 . U N I T S O U T S TA N D I N G

For the period March 23, 2006 to December 31, 2006, the movement in the units outstanding is as follows:

Crombie REIT Special Voting UnitsCrombie REIT Units and Class B LP Units Total

Number Number Numberof Units Amount of Units Amount of Units Amount

Balance, beginning of period Nil $ Nil Nil $ Nil Nil $ NilCapital contribution 21,509,485 215,095 20,079,576 200,795 41,589,061 415,890Costs of issuance – (10,274) – (9,493) – (19,767)

Net Unit issue proceeds – 204,821 – 191,302 – 396,123Units issued under EUPP 123,740 1,261 – – 123,740 1,261Loans receivable EUPP – (1,251) – – – (1,251)

Balance, end of period 21,633,225 $ 204,831 20,079,576 $ 191,302 41,712,801 $ 396,133

Crombie REIT Units

The REIT is authorized to issue an unlimited number of units (“Units”) and an unlimited number of Special Voting Units. Issued and

outstanding Units may be subdivided or consolidated from time to time by the Trustees without the approval of the Unitholders.

Units are redeemable at any time on demand by the holders at a price per Unit equal to the lesser of (i) 90% of the weighted average

price per Crombie REIT Unit during the period of the last 10 days during which the REIT’s Units traded; and (ii) an amount equal to

the price of the REIT’s Units on the date of redemption, as defined in the Declaration of Trust.


The aggregate redemption price payable by the REIT in respect of any Units surrendered for redemption during any calendar month

will be satisfied by way of a cash payment in Canadian dollars within 30 days after the end of the calendar month in which the Units

were tendered for redemption, provided that the entitlement of Unitholders to receive cash upon the redemption of their Units is

subject to the limitation that:

(i) the total amount payable by the REIT in respect of such Units and all other Units tendered for redemption in the same calendar

month must not exceed $50 (provided that such limitation may be waived at the discretion of the Trustees);

(ii) at the time such Units are tendered for redemption, the outstanding Units must be listed for trading on the TSX or traded or

quoted on any other stock exchange or market which the Trustees consider, at their sole discretion, provides representative fair

market value prices for the Units; and

(iii) the normal trading of Units is not suspended or halted on any stock exchange on which the Units are listed (or if not listed on a

stock exchange, in any market where the Units are quoted for trading) on the redemption date or for more than five trading

days during the 10-day trading period commencing immediately after the redemption date.

Crombie REIT Special Voting Units and Class B LP Units

The Declaration of Trust and the Exchange Agreement provide for the issuance of voting non-participating Units (the “Special Voting

Units”) to the holders of Class B LP Units used solely for providing voting rights proportionate to the votes of the REIT’s Units.The

Special Voting Units are not transferable separately from the Class B LP Units to which they are attached and will be automatically

transferred upon the transfer of such Class B LP Unit. If the Class B LP Units are purchased in accordance with the Exchange Agreement,

a like number of Special Voting Units will be redeemed and cancelled for no consideration by the REIT.

The Class B LP Units issued by a subsidiary of the REIT to ECL have economic and voting rights equivalent, in all material aspects, to

the REIT’s Units.They are indirectly exchangeable on a one-for-one basis for the REIT’s Units at the option of the holder, under the

terms of the Exchange Agreement.

Each Class B LP Unit entitles the holder to receive distributions from the REIT, pro rata with distributions made by the REIT on Units.

The Class B LP Units are accounted for as non-controlling interest.

Executive Unit Purchase Plan (“EUPP”)

The REIT provides for unit purchase entitlements under the EUPP for certain senior executives. Awards made under the EUPP will

allow executives to purchase units from treasury at the average daily high and low board lot trading prices per unit on the Toronto

Stock Exchange for the five trading days preceding the issuance. Executives are provided non-recourse loans at 3% annual interest by

the REIT for the purpose of acquiring Units from treasury, and the Units purchased are held as collateral for the loan.The loan is repaid

through the application of the after-tax amounts of all distributions received on the Units, as well as the after-tax portion of any

Long-Term Incentive Plan cash awards received, as payments on interest and principal. As at December 31, 2006, there are loans

receivable from executives of $1,251 under the REIT’s EUPP, representing 123,740 Units, which are classified as a reduction of Unitholders’

Equity. Loan repayments will result in a corresponding increase in Unit Capital. Market value of the Units at December 31, 2006

was $1,609.

During the period, the REIT recognized compensation expense of $27 related to the EUPP.The expense was determined using the

Black-Scholes Model for stock-based compensation valuation using volatility of 12.9%, yield of 7.85% and a risk-free interest rate of 4.25%.

Earnings per Unit Computations

Basic net earnings per Unit is computed by dividing net earnings by the weighted average number of Units outstanding during

the period. For the period ended December 31, 2006, the assumed exchange of all Class B LP Units would not have been dilutive. As

at December 31, 2006, there were no other dilutive items.

1 3 . P R O P E R T Y R E V E N U E

Rental revenue contractually due from tenants $ 98,441 Accrued rent recognized on a straight-line basis 702Amortization of values ascribed to below-market existing leases 2,896Amortization of values ascribed to above-market existing leases (2,090)

$ 99,949




1 4 . F U T U R E I N CO M E TA X E S

The future income tax liability of the wholly-owned subsidiary which is subject to income taxes consists of the following:

Tax liabilities relating to difference in tax and book values $ 81,521Tax asset relating to non-capital loss carry-forward (1,050)

Future income tax liability $ 80,471

The future income tax recovery consists of the following:

Provision for income taxes at the expected rate $ 6,100Tax effect of income attribution to Trust’s unitholders (6,863)

Income tax recovery $ (763)

1 5 . S U P P L E M E N TA L C A S H F LO W I N F O R M AT I O N

(a) Change in other non-cash operating items

Cash provided by (used in):Receivables $ (3,067)Prepaid expenses and other assets (1,239)Payables and other liabilities 25,581

$ 21,275

(b) Interest

Interest paid $ 18,669

1 6 . CO M M I T M E N T S A N D CO N T I N G E N C I E S

There are various claims and litigation, which the REIT is involved with, arising out of the ordinary course of business operations. In

the opinion of management, any liability that would arise from such contingencies would not have a significant adverse effect on

these financial statements.

The REIT has agreed to indemnify, in certain circumstances, the trustees and officers of the REIT.

The REIT has entered into a management cost sharing agreement with a subsidiary of Empire Company Limited (”Empire”). Details of

this agreement are described in Note 17.

The REIT has land leases on certain properties.These leases have annual payments of $459 per year over the next five years.

1 7 . R E L AT E D PA R T Y T R A N S AC T I O N S

As at December 31, 2006, Empire, through its wholly-owned subsidiary ECL, holds a 48.1% indirect interest in the REIT.

The REIT acquired the commercial properties described in Note 3 and the two properties described in Note 4 from a subsidiary of

Empire.The purchase price was fair market value determined by external appraisals and was approved by the independent Trustees

of the REIT.

For a period of five years, certain executive management individuals and other employees of the REIT will provide general management,

financial, leasing, administrative, and other administration support services to certain real estate subsidiaries of Empire on a cost

recovery basis.The expense recoveries during the period from March 23, 2006 to December 31, 2006 were $850 and were netted

against general and administration expenses.


For a period of five years, certain on-site maintenance and management employees of the REIT will provide property management

services to certain real estate subsidiaries of Empire on a cost recovery basis. In addition, for various periods, ECL has an obligation to

provide rental income, large federal corporation tax and interest rate subsidies.The recoveries during the period from March 23, 2006

to December 31, 2006 were $1,764 and were netted against property expenses.The rental income subsidy during the period from

March 23, 2006 to December 31, 2006 was $461 and the head lease subsidy during the period from March 23, 2006 to December 31,

2006 was $1,123.The interest rate subsidy during the period from March 23, 2006 to December 31, 2006 was $2,847 and was netted

against interest expense.

The REIT also earned property revenue of $16,427 for the period from March 23, 2006 to December 31, 2006 from Sobeys Inc., Empire

Theatres Limited and ASC Commercial Leasing Limited.These companies are all subsidiaries of Empire.

1 8 . F I N A N C I A L I N S T R U M E N T S

In the normal course of business, the REIT is exposed to a number of financial risks that can affect its operating performance.These

risks, and the action taken to manage them, are noted below.

Credit Risk

Credit risk arises from the possibility that tenants may experience financial difficulty and be unable to fulfill their lease commitments.

The REIT’s credit risk is limited to the recorded amount of tenant receivables. An allowance for doubtful accounts is taken for all

anticipated problem accounts.

Interest Rate Risk

As part of its interest rate management program, the REIT has entered into a fixed interest rate swap to fix the amount of interest to

be paid on $50,000 of the revolving credit facility.The remainder of the revolving credit facility is at variable interest rates.The fair

value of the fixed interest rate swap at December 31, 2006, is estimated to have an unfavourable difference of $310 compared to its

face value.

Fair Value of Financial Instruments

The book values of cash and cash equivalents, restricted cash, receivables, payables and accruals approximate fair values due to their

short-term maturity.

The total fair value of commercial property debt is estimated to be $427,838.

1 9 . E M P LOY E E F U T U R E B E N E F I T S

The REIT has a number of defined benefit and defined contribution plans providing pension and other retirement benefits to most of

its employees.

Defined Contribution Pension Plans

The contributions required by the employee and the employer are specified.The employee’s pension depends on what level of

retirement income (for example, annuity purchase) can be achieved with the combined total of employee and employer

contributions and investment income over the period of plan membership and the annuity purchase rates at the time of the

employee’s retirement.

Defined Benefit Pension Plans

The ultimate retirement benefit is defined by a formula that provides a unit of benefit for each year of service. Employee contributions,

if required, pay for part of the cost of the benefit, and the employer contributions fund the balance.The employer contributions are

not specified or defined within the plan text.They are based on the result of actuarial valuations which determine the level of

funding required to meet the total obligation as estimated at the time of the valuation.




The REIT uses December 31 as a measurement date for accounting purposes for its defined benefit pension plans.

Most Recent Next RequiredValuation Date Valuation Date

Retirement pension plan May 1, 2006 May 1, 2009Senior management pension plan May 1, 2006 May 1, 2009

Defined Benefit Plans

Information about the REIT’s defined benefit plans, in aggregate, is as follows:

Pension OtherBenefit Plans Benefit Plans

Accrued benefit obligationBalance, March 23, 2006 $ 841 $ 2,904Current service cost 35 130Interest cost 34 120Actuarial losses 30 202

Balance, December 31, 2006 $ 940 $ 3,356

Funded status Unamortized actuarial losses $ 30 $ 202

Accrued benefit liability $ 910 $ 3,154

ExpenseCurrent service cost $ 35 $ 130Interest cost 34 120Actuarial losses 30 202

Income before adjustments 99 452Recognized vs. actual actuarial gains (30) (202)

Net expenses $ 69 $ 250

The significant actuarial assumptions adopted in measuring Crombie’s accrued benefit obligations are as follows (weighted average

assumptions as of May 1, 2006):

Pension OtherBenefit Plans Benefit Plans

Discount rate 5.25% 5.25%Rate of compensation increase 4.00% N/A

For measurement purposes, a 10% fiscal 2006 annual rate of increase in the per capita cost of covered health care benefits was

assumed.The cumulative rate expectation to 2014 is 6%.The expected average remaining service period for the active employees

covered by the pension benefit plans is four years at year end.The expected average remaining service period of the active

employees covered by the other benefit plans is 11 years at year end.

The REIT incurred current service costs in the amount of $319 for the period from March 23, 2006 to December 31, 2006.

2 0 . S U B S E Q U E N T E V E N T S

(a) On January 17, 2007, the REIT completed the acquisition of The Mews of Carleton Place in Ontario from a third party. The purchase

price of the acquisition was $11,800, which was satisfied by assumption of a fixed rate mortgage of $8,300 with the balance of

the purchase price paid in cash using funds from the revolving credit facility.

(b) On January 22, 2007, the REIT declared distributions of 6.67 cents per unit for the period from January 1, 2007 to January 31, 2007.

The distribution will be payable on February 15, 2007 to unitholders of record as at January 31, 2007.

(c) On February 19, 2007, the REIT declared distributions of 6.67 cents per unit for the period from February 1, 2007 to February 28, 2007.

The distribution will be payable on March 15, 2007 to unitholders of record as at February 28, 2007.


P R O F I L E

Established through a successful initial public offering (“IPO”) in March 2006, Crombie Real Estate Investment

Trust (“Crombie”or the “REIT”) owns, operates and maintains the largest portfolio of commercial real estate

in Atlantic Canada.To enhance geographic diversification, expansion of the portfolio will focus on Ontario

and Western Canada.

Crombie’s objectives are to deliver reliable cash distributions to unitholders in a tax-efficient manner, to enhance

the long-term value of its assets through active management and to expand its asset base and its distributable

income through accretive acquisitions.

At the 2006 year end, Crombie’s portfolio comprised 47 retail, office and mixed-use properties located in six

provinces, totalling approximately 7.5 million square feet of gross leasable area (“GLA”). Anchored by food stores

operated under Sobeys banners in 24 locations, Crombie has more than 1,000 individual tenancies, of which

64 per cent are national tenants.

11 Management’s Discussion and Analysis

41 Management’s Statement of Responsibility forFinancial Reporting

42 Auditors’ Report

43 Consolidated Financial Statements

IBC Corporate and Unitholder Information

1 Operating and Financial Highlights

2 Chairman’s Message

4 Message to Unitholders

6 Our Market

8 Business at-a-Glance Portfolio Review

10 Governance

T A B L E O F C O N T E N T S

C O R P O R A T E A N D U N I T H O L D E R I N F O R M A T I O N

B OA R D O F T R U S T E E S

J. Stuart BlairTrustee, President and ChiefExecutive Officer

William T. BrockIndependent Trustee

Frank C. SobeyTrustee and Chairman

Paul D. SobeyTrustee

David G. GrahamIndependent Trustee

David J. HennigarIndependent Trustee

John E. LatimerIndependent Trustee

Kenneth C. RoweIndependent and Lead Trustee

John B. RoyIndependent Trustee

Elisabeth StrobackIndependent Trustee

O F F I C E R S


Scott M. BallVice President, Chief Financial Officerand Secretary

Allan K. MacDonaldVice President Leasing

Scott R. MacLeanVice President Operations

C R O M B I E R E I T

Head Office:115 King St.Stellarton, Nova Scotia, B0K 1S0Telephone: (902) 755-8100Fax: (902) 755-6477Internet: www. crombiereit.com

I N V E S TO R R E L AT I O N S A N D I N Q U I R I E S

Shareholders, analysts, and investorsshould direct their financial inquiries orrequests to:Scott M. Ball, CAVice President, Chief Financial Officer and SecretaryEmail: [email protected]

Communication regarding investorrecords including changes of address orownership, lost certificates or tax forms,should be directed to the Company’stransfer agent and registrar, CIBC MellonTrust Company.

S TO C K E XC H A N G E L I S T I N G

Toronto Stock Exchange

U N I T S Y M B O L

REIT Trust Units – CRR.UN

D I S T R I B U T I O N R E CO R D A N D PAY M E N T D AT E S F O RF I S C A L 2 0 0 6

Record Date Payment Date

April 30, 2006 May 15, 2006

May 31, 2006 June 15, 2006

June 30, 2006 July 17, 2006

July 31, 2006 August 15, 2006

August 31, 2006 September 15, 2006

September 30, 2006 October 16, 2006

October 31, 2006 November 15, 2006

November 30, 2006 December 15, 2006

December 31, 2006 January 15, 2007

T R A N S F E R AG E N T

CIBC Mellon Trust CompanyInvestor CorrespondenceP.O. Box 7010Adelaide Street Postal StationToronto, Ontario, M5C 2W9Telephone: (800) 387-0825Email: [email protected]

CO U N S E L

Stewart McKelvey Halifax, Nova Scotia

AU D I TO R S

Grant Thornton, LLPNew Glasgow, Nova Scotia

M U LT I P L E M A I L I N G S

If you have more than one account, youmay receive a separate mailing for each. Ifthis occurs, please contact CIBC MellonTrust Company at (800) 387-0825 toeliminate the multiple mailings.

A N N UA L M E E T I N G

May 8, 200711:00 a.m. (Atlantic Standard Time)Empire Studio 7610 East River RoadNew Glasgow, Nova Scotia

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2 0 0 6 A N N U A L R E P O R T

P E R F O R M A N C E F R O M E X P E R I E N C E

Highland Square Mall, New GlasgowAberdeen Shopping Centre (Mixed-Use), New Glasgow

Prince Street Plaza, SydneySydney Shopping Centre, Sydney

County Fair Mall, Summerside

Prospect St. Plaza, FrederictonFredericton Mall, Fredericton

Charlotte Mall, St. Stephen

Elmwood Plaza, MonctonTerminal Centre (Office), Moncton

Riverview Mall (Mixed-Use), Riverview

Loch Lomond Place(Mixed-Use), Saint John

Greenfield Park Centre (Power Centre), Longueuil

Village Square Mall, Nepean

Rose City Plaza, WellandSouth Pelham Market Plaza, Welland

Port Colborne Mall, Port Colborne

Upper James Square, HamiltonRymal Road Plaza, Hamilton

Avalon Mall, St. John’sHamlyn Road Plaza, St. John’s

Random Square, Clarenville

Valley Mall, Corner Brook

Carleton Mall, Woodstock

Downsview Mall, Lower SackvilleDownsview Plaza, Lower Sackville

Amherst Centre, Amherst

Evangeline Mall, Digby

New Minas Plaza, New MinasCounty Fair Mall, New Minas

Fort Edward Mall, Windsor

Retail (Enclosed or Strip Centre)OfficeMixed- Use

ONTARIO

QUEBECNEW BRUNSWICK

NOVA SCOTIA

PEI

NAND LABRADOR

EWFOUNDLAND

Queensland Plaza, Stratford

Halifax: Barrington Place (Mixed-Use) Barrington Tower (Office) CIBC Building (Office) Cogswell Tower (Office) Duke Tower (Office) Park Lane (Mixed-Use) Scotia Square Mall (Mixed-Use) Scotia Square Parkade (Parkade) Trade Mart Building (Mixed-Use) West End Mall (Mixed-Use)

Taunton and Wilson Plaza, OshawaBrampton Plaza, BramptonBurlington Plaza, Burlington318 Ontario Street (Freestanding Store), St. CatharinesNiagara Plaza, Niagara Falls

At December 31, 2006, the portfolio comprised

forty-seven properties, totalling more than

seven million square feet of GLA, located in all

four provinces of Atlantic Canada as well as

Ontario and Quebec

www.crombiereit.com

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