Crombie REIT, the Canadian real estate giant known for its grocery-anchored haven, quietly revealed a potential game-changer in their latest earnings call. While analysts focused on same-asset NOI growth and credit rating upgrades, a seemingly innocuous detail slipped through the cracks – the remarkable success of their “small D” development strategy, specifically highlighting Dollarama's expansion within their portfolio.

While Crombie didn't explicitly quantify the extent of Dollarama's presence, they did reveal that Dollarama occupies approximately 10,000 square feet of the 83,000 square feet of new GLA added through "small D" projects in 2023. That's a significant chunk – over 12% – attributed to just one tenant, suggesting Dollarama's expansion is playing a pivotal role in Crombie's smaller development strategy.

Why Dollarama's Success Could Trigger a Distribution Hike

Resilient Retail

In an uncertain macroeconomic environment, discount retailers like Dollarama are thriving. Their value proposition resonates strongly with consumers grappling with inflation and economic pressures. This translates into stable occupancy for Crombie and a reliable stream of rental income.

Accelerated NOI Growth

"Small D" projects, with their shorter durations and lower capital requirements, are already delivering impressive yields between 5.5% and 7%. Dollarama's expansion within this program fuels accelerated NOI growth, strengthening Crombie's financial foundation.

Strategic Partnerships

Crombie's symbiotic relationship with Empire, their major partner, has unlocked a new revenue stream through management and development services. This expertise, honed through projects like the Mount Forest Sobeys and a 20,000 square foot industrial asset for Empire, could be leveraged to further support Dollarama's expansion plans.

Unlocking Hidden Value

Crombie possesses a vast portfolio of 300 properties and has strategically refrained from disclosing the full capacity for "small D" development on their land. This hints at a hidden reservoir of value, potentially harboring numerous opportunities for Dollarama expansion.

Path to a Distribution Hike

While Crombie remains committed to its conservative 2%-3% same-asset NOI growth target, the "small D" program, fueled by Dollarama's success, could propel them beyond this range. Combined with their strong balance sheet and improving payout ratio, this presents a compelling case for a distribution increase in the near future.

Hypothesis

If Dollarama's expansion within Crombie's "small D" program continues at its current pace, contributing at least 12% of new GLA annually, Crombie could see same-asset NOI growth exceed their 2%-3% target. This, coupled with their strong financial fundamentals, could lead to a distribution hike within the next 12 to 18 months.

Visualizing Crombie's "Small D" Success with Dollarama

The following chart illustrates the potential for accelerated NOI growth driven by Dollarama's expansion within Crombie's "small D" program.

Crombie REIT Financial Highlights

Market Cap

$1.71 Billion (CAD) Source: Seeking Alpha

Debt to EBITDA

7.97x Source: Crombie REIT Q1 2024 Earnings Call Transcript

Committed Occupancy

96.2% Source: Crombie REIT Q1 2024 Earnings Call Transcript

Targeted Same-Asset NOI Growth

2%-3% Source: Crombie REIT Q1 2024 Earnings Call Transcript

"Fun Fact Crombie REIT's roots trace back to a family-owned grocery store in Stellarton, Nova Scotia, founded in 1907. This humble beginning has evolved into a national real estate powerhouse, a testament to the company's enduring commitment to local communities and sustainable growth."