Annual Report 2019 altusgroup.com Altus Group Limited Annual Report December 31, 2019 Contents Management’s Discussion & Analysis Forward‐Looking Information Non‐IFRS Measures Overview of the Business Strategy Financial and Operating Highlights Discussion of Operations Year and Quarter Ended December 31, 2019 Revenues and Adjusted EBITDA by Business Unit Altus Analytics Commercial Real Estate Consulting Geomatics Corporate Costs Liquidity and Capital Resources Reconciliation of Adjusted EBITDA to Profit (Loss) Adjusted Earnings (Loss) Per Share Summary of Quarterly Results Selected Annual Information Share Data Financial Instruments and Other Instruments Contingencies Critical Accounting Estimates and Judgments Changes in Significant Accounting Policies and Estimates Disclosure Controls and Procedures and Internal Controls over Financial Reporting Key Factors Affecting the Business Additional Information Consolidated Financial Statements Management’s Responsibility for Financial Reporting Independent Auditor’s Report Consolidated Statements of Comprehensive Income (Loss) Consolidated Balance Sheets Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 1 2 3 5 8 11 11 17 18 20 21 22 22 26 27 28 29 33 33 34 35 36 39 40 48 50 51 54 55 56 57 58 Management’s Discussion & Analysis December 31, 2019 The following management’s discussion and analysis (“MD&A”) is intended to assist readers in understanding Altus Group Limited’s consolidated business, its business environment, strategies, performance, outlook and applicable risks. References to the “Company” or “Altus Group” are to the consolidated group of entities, and this should be read in conjunction with our consolidated financial statements and accompanying notes (the “financial statements”) as at and for the year ended December 31, 2019, which have been prepared on the basis of International Financial Reporting Standards (“IFRS”) and reported in Canadian dollars. Unless otherwise indicated herein, references to “$” are to Canadian dollars. Unless the context indicates otherwise, all references to “we”, “us”, “our” or similar terms refer to Altus Group, and, as appropriate, our consolidated operations. This MD&A is dated as of February 20, 2020. Forward‐Looking Information Certain information in this MD&A may constitute “forward‐looking information” within the meaning of applicable securities legislation. All information contained in this MD&A, other than statements of current and historical fact, is forward‐looking information. Forward‐looking information includes, but is not limited to, the discussion of our business and operating initiatives, focuses and strategies, our expectations of future performance for our various business units and our consolidated financial results, including the guidance on financial expectations, and our expectations with respect to cash flows and liquidity. Generally, forward‐looking information can be identified by use of words such as “may”, “will”, “expect”, “believe”, “plan”, “would”, “could”, “remain” and other similar terminology. All of the forward‐looking information in this MD&A is qualified by this cautionary statement. Forward‐looking information is not, and cannot be, a guarantee of future results or events. Forward‐ looking information is based on, among other things, opinions, assumptions, estimates and analyses that, while considered reasonable by us at the date the forward‐looking information is provided, inherently are subject to significant risks, uncertainties, contingencies and other factors that may cause actual results, performance or achievements, industry results or events to be materially different from those expressed or implied by the forward‐looking information. The material factors or assumptions that we identified and applied in drawing conclusions or making forecasts or projections set out in the forward‐looking information include, but are not limited to: engagement and product pipeline opportunities in Altus Analytics will result in associated definitive agreements; settlement volumes in Property Tax will occur on a timely basis and that assessment authorities will process appeals in a manner consistent with expectations; the successful execution of our business strategies; consistent and stable economic conditions or conditions in the financial markets; consistent and stable legislation in the various countries in which we operate; no disruptive changes in the technology environment; the opportunity to acquire accretive businesses; the successful integration of acquired businesses; and the continued availability of qualified professionals. Inherent in the forward‐looking information are known and unknown risks, uncertainties and other factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any results, performance or achievements expressed or implied by such forward‐looking information. Those risks, uncertainties and other factors that could cause actual results to differ materially from the forward‐looking information include, but are not limited to: general state of the economy; currency; financial performance; financial targets; commercial real estate market; industry competition; acquisitions; 1 Management’s Discussion & Analysis December 31, 2019 cloud subscriptions transition; software renewals; professional talent; third party information; enterprise transactions; new product introductions; technological change; intellectual property; technology strategy; information technology governance and security; product pipeline; property tax appeals; legislative and regulatory changes; fixed‐price and contingency engagements; appraisal and appraisal management mandates; Canadian multi‐residential market; customer concentration and loss of material clients; interest rates; credit; income tax matters; health and safety hazards; contractual obligations; legal proceedings; insurance limits; dividend payments; leverage and financial covenants; share price; capital investment; and issuance of additional common shares, as described in this document under “Key Factors Affecting the Business”. Given these risks, uncertainties and other factors, investors should not place undue reliance on forward‐ looking information as a prediction of actual results. The forward‐looking information reflects management’s current expectations and beliefs regarding future events and operating performance and is based on information currently available to management. Although we have attempted to identify important factors that could cause actual results to differ materially from the forward‐looking information contained herein, there are other factors that could cause results not to be as anticipated, estimated or intended. The forward‐looking information contained herein is current as of the date of this MD&A and, except as required under applicable law, we do not undertake to update or revise it to reflect new events or circumstances. Additionally, we undertake no obligation to comment on analyses, expectations or statements made by third parties in respect of Altus Group, our financial or operating results, or our securities. Certain information in this MD&A may be considered as “financial outlook” within the meaning of applicable securities legislation including the outlook for Property Tax and the long‐term revenue and expected Adjusted EBITDA margin goals for Altus Analytics. The purpose of this financial outlook is to provide readers with disclosure regarding Altus Group’s reasonable expectations as to the anticipated results of its proposed business activities for the periods indicated. Readers are cautioned that the financial outlook may not be appropriate for other purposes. Non‐IFRS Measures We use certain non‐IFRS measures as indicators of financial performance. Readers are cautioned that they are not defined performance measures, and do not have any standardized meaning under IFRS and may differ from similar computations as reported by other similar entities and, accordingly, may not be comparable to financial measures as reported by those entities. We believe that these measures are useful supplemental measures that may assist investors in assessing an investment in our shares and provide more insight into our performance. Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, (“Adjusted EBITDA”), represents profit (loss) before income taxes adjusted for the effects of occupancy costs calculated on a consistent basis to 2018, finance costs (income), amortization of intangibles, depreciation of property, plant and equipment, depreciation of right‐of‐use assets, acquisition and related transition costs (income), restructuring costs (recovery), share of profit (loss) of associates, unrealized foreign exchange gains (losses), gains (losses) on disposal of property, plant and equipment and intangibles, gains (losses) on investments, impairment charges, non‐cash Equity Compensation Plan and Long‐Term Equity Incentive Plan costs, gains (losses) on derivatives, gains (losses) on hedging transactions, gains (losses) on equity derivatives net of mark‐to‐market adjustments on related restricted share units (“RSUs”) and deferred share units 2 Management’s Discussion & Analysis December 31, 2019 (“DSUs”) being hedged and other costs or income of a non‐operating and/or non‐recurring nature. Subsequent to the adoption of IFRS 16, Leases, on January 1, 2019, the measurement of Adjusted EBITDA has been modified to reflect occupancy costs on a consistent basis as 2018. Adjusted EBITDA margin represents the percentage factor of Adjusted EBITDA to revenues. Refer to page 26 for a reconciliation of Adjusted EBITDA to our financial statements. Adjusted Earnings (Loss) per Share, (“Adjusted EPS”), represents basic earnings (loss) per share adjusted for the effects of occupancy costs calculated on a consistent basis to 2018, depreciation of right‐of‐use assets, finance costs (income), net ‐ leases, amortization of intangibles of acquired businesses, net of changes in fair value of related equity derivatives, acquisition and related transition costs (income), restructuring costs (recovery), unrealized foreign exchange losses (gains), gains (losses) on disposal of property, plant and equipment and intangibles, losses (gains) on investments, interest accretion on contingent consideration payables, impairment charges, non‐cash Equity Compensation Plan and Long‐Term Equity Incentive Plan costs, gains (losses) on derivatives, losses (gains) on equity derivatives net of mark‐to‐market adjustments on related RSUs and DSUs being hedged and other costs or income of a non‐operating and/or non‐recurring nature. The basic weighted average number of shares is adjusted for the effects of weighted average number of restricted shares. All of the adjustments are made net of tax. Refer to page 27 for a reconciliation of Adjusted EPS to our financial statements. Overview of the Business Altus Group Limited is a leading provider of software, data solutions and independent advisory services to the global commercial real estate (“CRE”) industry. Our businesses, Altus Analytics and Altus Expert Services, reflect decades of experience, a range of expertise, and technology‐enabled capabilities. Our solutions empower clients to analyze, gain insight and recognize value on their real estate investments. Headquartered in Canada, we have approximately 2,500 employees around the world, with operations in North America, Europe and Asia Pacific. Our clients include many of the world’s largest CRE industry participants. Altus Group pays a quarterly dividend of $0.15 per share and our shares are traded on the TSX under the symbol AIF. We have three reporting business segments ‐ Altus Analytics, Commercial Real Estate Consulting (“CRE Consulting”) and Geomatics. Altus Analytics Our Altus Analytics segment consists of revenues from software sold under the ARGUS brand and from data solutions that are made available to clients through our Appraisal Management solutions, as well as through data subscription products. Altus Analytics clients predominately consist of CRE asset and investment management firms, including large owners, managers and investors of CRE assets and CRE funds, as well as other CRE industry participants including service providers, brokers, and developers. Our ARGUS software solutions are among the most recognized in the CRE industry and are sold globally. Our product stack for global CRE asset and investment management comprises end‐to‐end integrated software solutions on our cloud platform that provide visibility at the asset, portfolio and fund level to help clients enhance performance of their CRE investments. Our flagship ARGUS Enterprise (“AE”) software is the leading global solution for CRE valuation and portfolio management and is widely recognized as the industry property valuation standard in key CRE markets. AE’s suite of functionality enables property valuation and cash flow analysis, property budgeting and strategic planning, investment and fund 3 Management’s Discussion & Analysis December 31, 2019 structure forecasting, dynamic reporting capabilities, and scenario sensitivity and risk analysis. As of the third quarter of 2019, we offer AE on a cloud platform while continuing to support the on‐premise software. The cloud platform leverages the AE calculation engine and provides clients with cloud‐based infrastructure; new analytics capabilities, (such as benchmarking functionality); integrations with other ARGUS products, storage, access and back‐up of AE files; and access to new ARGUS applications (such as ARGUS Acquire, a deal management solution for CRE acquisitions; and ARGUS API, an application programming interface). Other ARGUS products include ARGUS Taliance (cloud‐based fund solutions for alternative investment firms), ARGUS Voyanta (a cloud‐based data management solution), and ARGUS Developer and ARGUS EstateMaster (software for development feasibility analysis). In addition to standard technology services related to education, training and implementation, we also offer advisory and managed services for real estate organizations’ front‐to‐back‐office strategies, processes and technology. Fueled by our ARGUS software solutions, we provide information services on a global basis through our Appraisal Management platform and data subscription products. Our global Appraisal Management solutions combine data and analytics functionality with a managed service delivery to enable institutional real estate investors to perform quarterly performance reviews, benchmarking and attribution analysis of their portfolios. Through this offering we provide an end‐to‐end valuation management solution for our institutional clients, providing independent oversight and expertise while leveraging our data analytics platform. We primarily offer Appraisal Management solutions in the U.S., and we are expanding into Europe and Asia Pacific. Our Appraisal Management clients primarily consist of open and closed real estate funds, including large pension funds. Altus Analytics also includes a Canadian data subscription product, Altus Data Studio, which provides comprehensive real estate information on the Canadian residential, office, industrial and investment markets with unique data visualization capabilities. Our Canadian data covers new homes, investment transactions and commercial market inventory in key markets, and provides intelligence on the national housing market and consumer home buying and borrowing patterns. Prior to 2020, the majority of our customers had licensed our AE software products on an on‐premise basis, and had either paid on perpetual terms with ongoing maintenance, or on subscription terms. As of the start of 2020, all of our Altus Analytics software products are now being sold only on a subscription‐based model. Our software subscription agreements vary in length between one to five years, and the subscription fee primarily depends on the number of users and the applications deployed. We enjoy industry leading retention rates for our AE software maintenance revenues (97% in 2019), calculated as a percentage of maintenance revenue retained upon renewal. In addition to software subscriptions, our software services are charged primarily on a time and materials basis, billed and recognized monthly as delivered. The contractual terms of our Appraisal Management agreements are generally for three years and pricing is primarily based on the number of real estate assets on our platform, adjusted for frequency of valuations and complexity; we enjoy very high contract renewal rates. Our Appraisal Management teams are also engaged from time to time to perform due diligence assignments in connection with CRE transactions. In 2019, over 70% of Altus Analytics’ revenues were comprised of over time recurring revenues, which are targeted to represent upwards of 90% of total revenues by 2021. Recurring revenues represent revenues related to software and data subscriptions where the contract value is recognized ratably over the contract term, maintenance for perpetual licenses, and Appraisal Management contracts that depend on our data analytics tools. Consistent with recurring revenues disclosed in prior years, this depicts the economic value of our renewable contracts. 4 Management’s Discussion & Analysis December 31, 2019 Commercial Real Estate Consulting Our CRE Consulting segment consists of the Property Tax, and the Valuation and Cost Advisory business units. Through our various practice areas, we are well‐equipped to serve clients with an end‐to‐end solution that spans the life cycle of CRE assets ‐ from feasibility, development, acquisition, management and disposition. Our professionals possess extensive industry, market and asset‐specific knowledge that contribute to our proprietary internal data systems. We have long‐standing relationships with leading CRE market participants ‐ including owner operators, developers, financial institutions, and various CRE asset holders and investors. Our largest revenue contributor to CRE Consulting is our Property Tax business which operates in Canada, the U.S. and the U.K. Our team of Property Tax professionals help clients minimize the tax burden and reduce the cost of compliance. Our core real estate property tax services include assessment reviews, management and appeals, as well as in the U.S., personal property and state and local tax advisory services. The majority of our Property Tax revenues are derived on a contingency basis, representing a percentage of the savings we achieve for our clients. As such, we recognize contingency revenues when settlements are made, which in some cases could span multiple years. A smaller portion of our fees are based on time and materials basis. Valuation services, which are predominantly provided in Canada, consist of appraisals of real estate portfolios, valuation of properties for transactional purposes, due diligence and litigation and economic consulting. Our Cost Advisory practice, offered in both the private and public sectors in North America and Asia Pacific, provides expert services in the areas of construction feasibility studies, budgeting, cost and loan monitoring and project management. Pricing for our Valuation and Cost Advisory services is primarily based on a fixed fee or time and materials basis. Given the strength of our brand, our independence and quality of our work, we enjoy a high rate of client renewals across all of our CRE Consulting businesses. Geomatics Our Geomatics business operates primarily in Western Canada, with a significant number of clients in the oil and gas exploration and development sector. Geomatics is the practice of recording and managing spatially referenced information, including land surveying, geographic information systems, global positioning systems and light detection and ranging. Our Geomatics services, performed by highly qualified certified professionals, include land surveys and mapping for setting of property boundaries, route and corridor selection, land settlement, construction developments, and oil field and well‐sites. Our competitive advantages include the depth of our team’s experience and specialized training, our strong track record of safety, the timeliness and quality of our work, and our geographic strength in Western Canada. Our Geomatics services are primarily charged on a time and materials fee basis. Please refer to page 10 for recent disclosure regarding an upcoming transaction for this business unit. Strategy Real estate investment allocation continues to steadily rise while CRE asset investment and ownership is becoming more institutionalized, complex and globalized. After years of limited investment in technology, the CRE market is increasingly embracing technology and better utilizing data to optimize assets and mitigate risks. With the increased complexity of the CRE market, there is also a growing need for specialized expert services which industry participants continue to outsource. Altus Group is at the forefront of this opportunity, with analytics solutions and expert services that help clients navigate the 5 Management’s Discussion & Analysis December 31, 2019 complexities of the CRE market to make better informed decisions and maximize the value of their real estate assets and investments. Through our industry leading capabilities, we remain competitively positioned to capitalize on the growing demand for a wide range of client needs in CRE technology, data and advisory solutions with a stable revenue base across economic cycles. Our key competitive strengths in the marketplace are comprised of our industry leading mission critical software and data analytics solutions, unique industry expertise across numerous asset classes and markets, our proprietary databases that contribute to successful client outcomes, and the depth and diversity of our offerings. Our global scale, existing client relationships with many of the world’s largest CRE companies, and independence from brokers and asset owners/investors are also key differentiators that enhance our reputation. Strategic Initiatives Across the business, we continually identify opportunities to maximize the value of all of our business assets. We have a disciplined approach to pursuing investments and prioritize opportunities that support our longer‐term growth objectives and help us sustain market leadership in our core segments. While we focus on enhancing every business (specifically through data and technology), we are overweighting investment and innovation focus on our Altus Analytics business to leverage our global operating model and growth runway, while taking advantage of our strategic position with Property Tax to further enhance value. In 2020, our strategy is focused on the following initiatives: Altus Analytics Our long‐term objective is to transition Altus Analytics from a collection of high value point solutions to an enterprise‐grade software and data analytics market leader that unifies valuation and asset management capabilities into a single, cloud‐based platform that integrates numerous key workflows and enhances data‐driven insights for the CRE industry. We believe this will drive substantial value for the CRE industry and clients alike, while positioning Altus Group for long‐term profitable growth. To achieve this: first, we will continue to expand the global adoption of the AE cloud platform as the foundation for CRE asset and investment management and data integration; second, we will leverage our multi‐product technology stack (existing and new future applications) for CRE asset and investment management clients who require end‐ to‐end enterprise solutions; and third, we will continue to lay the groundwork to capitalize on future growth opportunities in CRE data and for products in markets adjacent to our core offerings. Key priorities for 2020 include: Continued execution of our “ARGUS Everywhere” go‐to‐market plan to drive existing and new customer user and product growth, geographic expansion, and global/multi‐product enterprise agreements; Continued transition of our customers to cloud‐based subscription contracts, with a goal to migrate the vast majority of our existing on‐premise customers on to the cloud platform by the end of 2023; Continued product innovation, balanced between integration across all of our existing capabilities and developing new cloud applications that support our strategy to move clients to a cloud 6 Management’s Discussion & Analysis December 31, 2019 environment, while strategizing for new product opportunities in adjacent market verticals where we currently have limited penetration and in data‐driven insights; and Continued growth of our Appraisal Management solutions where favourable market trends support organic growth in the U.S. and expansion into Europe and Asia Pacific, while increasingly selling our Appraisal Management solutions as part of AE transactions. Longer term, we believe our Altus Analytics business is uniquely positioned to capitalize on the opportunity in CRE data and become a leading real estate information services provider. Our leading Altus Analytics products collect valuable and detailed CRE industry data on various asset classes and for many major CRE markets in an automated environment. As ARGUS users increasingly move into a cloud environment, the depth of our data strengthens. This provides us with a unique opportunity to re‐purpose and monetize this data to drive differentiation, launch new products and strengthen our recurring revenue streams. The vision is to leverage our ARGUS cloud platform for data collection and integration in a secure environment, through which we would aggregate ARGUS data from multiple organizations, combine it with third‐party data through partnerships, and return data back through unique ARGUS workflows that enhance client value, while expanding the use of ARGUS across organizations and providing us with new revenue streams. Property Tax Our global Property Tax practice continues to represent an attractive growth area, driven both by solid market fundamentals and our strong competitive position. Our global reach with national scale and regional expertise, plus comprehensive databases on key CRE markets and expert knowledge combine to make us a leader in the industry. Our objective is to continue growing our market share and scale our Property Tax business into a leading, independent global property tax advisory practice that leverages technology and data. Key priorities for 2020 include: Continued organic growth in our core markets driven by increased market share, operational productivity, and higher value contingency contracts; Focusing on market expansion in key U.S. and U.K. markets by pursing organic growth initiatives and financially accretive acquisitions when opportunities arise; and Driving digital transformation with technology and data to enhance client value while improving internal efficiencies, modernizing our service delivery and data‐enabling business development. While our Canadian, U.S. and U.K. Property Tax operations all share the same competitive advantages, each national business has established unique strengths and specialties. Over the long term, we plan to leverage the strengths of each national model across all geographies to become a leading property tax advisor globally to the largest CRE owners as well as the mid‐market, and to efficiently leverage specialty in our target asset classes. 7 Management’s Discussion & Analysis December 31, 2019 Financial and Operating Highlights Selected Financial Information In thousands of dollars, except for per share amounts Revenues Canada U.S. Europe Asia Pacific Adjusted EBITDA Adjusted EBITDA margin Profit (loss) Earnings (loss) per share: Basic Diluted Adjusted Dividends declared per share Financial Highlights Year ended December 31, 2019 2018 $ 567,415 $ 510,429 39% 37% 18% 6% 41% 36% 17% 6% $ 88,145 $ 70,904 15.5% 13.9% $ 18,194 $ (18,439) $0.46 $0.45 $1.47 $0.60 $(0.48) $(0.48) $1.05 $0.60 Revenues were $567.4 million for the year ended December 31, 2019, up 11.2% or $57.0 million from $510.4 million in 2018. Acquisitions represented 2.4% of the 11.2% revenue growth. Exchange rate movements against the Canadian dollar benefitted revenues by 0.3%. The revenue growth was led by a record year in Property Tax and healthy growth from Altus Analytics in a transition year. Property Tax revenues increased by 20.8%, primarily due to the strength of our U.K. business, double‐digit growth in the U.S. and strong organic growth in Canada. Altus Analytics grew by 10.1% driven by strong growth from our Appraisal Management solutions, higher software maintenance revenues, and strong software consulting and education services revenues from the acquisition of One11 Advisors, LLC (“One11”), offset by lower perpetual license revenues as the business transitions to a subscription model. Our Valuation and Cost Advisory businesses showed modest growth while revenues from Geomatics declined. Adjusted EBITDA was $88.1 million for the year ended December 31, 2019, up 24.3% or $17.2 million from $70.9 million in 2018. Exchange rate movements against the Canadian dollar benefitted Adjusted EBITDA by 1.5%. Earnings increased primarily as a result of the strong revenue increase in our Property Tax business and improved results from Valuation and Cost Advisory. Altus Analytics provided lower Adjusted EBITDA as a result of the transition to subscription pricing and product investments. Lower Geomatics revenues also impacted earnings. Profit (loss) for the year ended December 31, 2019 was $18.2 million, up 198.7% or $36.6 million from $(18.4) million in 2018. In addition to the impacts on Adjusted EBITDA as discussed above, for the year ended December 31, 2019, profit (loss) improved as a result of lower amortization of intangibles and a lower goodwill impairment charge relating to our Geomatics business, partly offset by incremental depreciation and finance costs on the implementation of IFRS 16, as well as higher income tax expense on higher earnings. 8 Management’s Discussion & Analysis December 31, 2019 For the year ended December 31, 2019, earnings (loss) per share was $0.46, basic and $0.45, diluted, as compared to $(0.48), basic and diluted, in 2018. For the year ended December 31, 2019, Adjusted EPS was $1.47, up 40.0% from $1.05 in 2018. We returned $24.0 million to shareholders in the year through quarterly dividends of $0.15 per common share, or $0.60 per share for the year. As at December 31, 2019, our bank debt was $138.0 million, representing a funded debt to EBITDA leverage ratio of 1.49 times (compared to 1.79 times as at December 31, 2018). As at December 31, 2019, cash and cash equivalents was $60.3 million (compared to $48.7 million as at December 31, 2018). Our bank credit facilities mature on April 28, 2020 and hence, have been presented as current liabilities. We have negotiated a draft term sheet with our lenders which is in the process of being approved. Operating Highlights Altus Analytics Transition to Subscription Model Starting in July 2019, we started to sell AE only on subscription terms to new customers (primarily on the cloud platform), while continuing to offer existing clients the option to license the software either on subscription terms (on the cloud or on‐premise) or on on‐premise perpetual terms until the end of the year. The introduction of the new revenue and pricing model supports our strategy to migrate our current on‐ premise customers who are currently on maintenance contracts to cloud subscription contracts. As of the start of 2020, all of our Altus Analytics software products are being sold only on a subscription‐based model. ARGUS Enterprise Made Available on the Cloud In July 2019, we launched AE 12, a new version of AE powered by ARGUS Cloud. AE 12 builds on the strength of our industry leading CRE valuation capabilities and now includes cloud‐only deployment and multi‐instance support of AE, new benchmarking and dashboard functionality, enhanced workflows through integration with ARGUS Taliance and ARGUS Voyanta, and support for German and French market valuations. Acquisition of One11 Advisors, LLC On July 1, 2019, we acquired all the issued and outstanding shares of One11 and its subsidiaries for USD11.0 million (CAD14.4 million) in cash and common shares, subject to closing working capital adjustments of USD0.6 million (CAD0.8 million). As part of the transaction, we entered into non‐compete agreements with key members of management of One11. On closing, we paid cash of USD7.7 million (CAD10.1 million). Common shares valued at USD3.3 million (CAD4.3 million) were issued from treasury. The common shares will be held in escrow and released on the fourth anniversary of the closing date, subject to compliance with certain terms and conditions. One11 is a U.S.‐based real estate software consulting firm that provides integrated advisory and managed services for real estate organizations’ front to back office strategies, processes and technology. The addition of One11, and its 20 employees, strengthens our Altus Analytics software services and managed services offerings. 9 Management’s Discussion & Analysis December 31, 2019 Acquisition of Caruthers & Associates, Inc. On July 1, 2019, we acquired certain operating assets of Caruthers & Associates, Inc. (“Caruthers”) for USD4.0 million (CAD5.2 million) in cash, common shares and contingent consideration, subject to working capital adjustments of USD0.1 million (CAD0.2 million). As part of the transaction, we entered into a non‐ compete agreement with a key member of management of Caruthers. As consideration for these assets, we paid cash of USD2.0 million (CAD2.6 million), and issued common shares valued at USD1.0 million (CAD1.3 million) from treasury. The common shares will be held in escrow and released on the third anniversary of the closing date, subject to compliance with certain terms and conditions. The purchase agreement provides for contingent consideration of USD1.0 million (CAD1.3 million), subject to certain performance targets being achieved over a 30‐month period from the closing date. If mutually agreed upon, the contingent consideration may be settled in cash or by the issuance of common shares. Caruthers is a U.S.‐based property tax consulting firm. Its team of seven employees based out of Memphis were integrated with our U.S. Property Tax business, expanding our geographic footprint in tax services in the U.S. Operating Highlights ‐ Subsequent Events Geomatics Spin‐Off On January 21, 2020, we agreed, subject to definitive documentation, to combine our Geomatics business segment with WSP Global Inc.’s respective geomatics focused business unit. The combined entity will be a leading geomatics firm in Canada, and comprise approximately 750 employees in offices in Western Canada and Ontario. The transaction, which is subject to finalization of definitive documentation, is expected to close in the second quarter of 2020 and will be reflected as discontinued operations starting in the first quarter of 2020. Altus Data Studio Launch On February 19, 2020 we announced the launch of Altus Data Studio for our Canadian clients, which combined our legacy RealNet and Altus InSite products into one core platform with significant enhancements to the user experience and introduction of robust data visualization capabilities for our comprehensive coverage on the Canadian residential, office, industrial and CRE investment markets. 10 Management’s Discussion & Analysis December 31, 2019 Discussion of Operations Year and Quarter Ended December 31, 2019 In thousands of dollars 2019 2018 2019 2018 Year ended December 31, Quarter ended December 31, Revenues Expenses Employee compensation Occupancy Office and other operating Depreciation of right‐of‐use assets Depreciation and amortization Acquisition and related transition costs (income) Restructuring costs (recovery) (Gain) loss on investments Impairment charge ‐ goodwill Finance costs (income), net ‐ leases Finance costs (income), net ‐ other Profit (loss) before income taxes Income tax expense (recovery) Profit (loss) for the period $ 567,415 $ 510,429 $ 148,769 $ 130,885 355,320 8,099 112,262 13,440 37,833 188 (453) (276) 6,400 2,885 6,567 25,150 6,956 330,612 21,340 98,037 ‐ 49,114 2,394 6,371 (43) 13,700 ‐ 6,701 (17,797) 642 94,022 2,161 31,653 3,218 8,723 (50) ‐ (118) 6,400 725 1,431 604 332 87,048 5,399 26,903 ‐ 11,254 137 (87) 38 13,700 ‐ 1,845 (15,352) (633) $ 18,194 $ (18,439) $ 272 $ (14,719) Revenues Revenues were $567.4 million for the year ended December 31, 2019, up 11.2% or $57.0 million from $510.4 million in 2018. For the quarter ended December 31, 2019, revenues were $148.8 million, up 13.7% or $17.9 million from $130.9 million in the same period in 2018. Acquisitions represented 2.4% of the 11.2% revenue growth for the year and 3.4% of the 13.7% revenue growth for the quarter. For the year and quarter ended December 31, 2019, exchange rate movements against the Canadian dollar impacted revenues by 0.3% and (0.2%), respectively. The increase in revenues for the year was driven by a record revenue and earnings year in our Property Tax business and healthy growth at Altus Analytics. Property Tax performance increased on strong annuity revenues and case settlements from our U.K. business, increased case settlements in Ontario, our largest market in Canada, and double‐digit growth in our core regional U.S. markets. Altus Analytics revenue growth was driven by strong growth from our Appraisal Management solutions, higher software maintenance, and strong software services revenues supported by the acquisition of One11 in July. Our Valuation and Cost Advisory businesses showed modest growth, while Geomatics revenues declined. Employee Compensation Employee compensation was $355.3 million for the year ended December 31, 2019, up 7.5% or $24.7 million from $330.6 million in 2018. For the quarter ended December 31, 2019, employee compensation was $94.0 million, up 8.0% or $7.0 million from $87.0 million in the same period in 2018. For the year and quarter ended December 31, 2019, the increase in compensation was mainly due to headcount additions within Altus Analytics and Property Tax, increased accruals for variable compensation and acquisitions. For the 11 Management’s Discussion & Analysis December 31, 2019 year and quarter ended December 31, 2019, employee compensation as a percentage of revenues was 62.6% and 63.2%, as compared to 64.8% and 66.5% in the corresponding periods in 2018, respectively. Occupancy Occupancy was $8.1 million for the year ended December 31, 2019, down 62.0% or $13.2 million from $21.3 million in 2018. For the quarter ended December 31, 2019, occupancy was $2.2 million, down 60.0% or $3.2 million from $5.4 million in the same period in 2018. For the year and quarter ended December 31, 2019, the impacts of IFRS 16 decreased occupancy costs by $13.5 million and $3.3 million, respectively, and the remaining amounts recognized in occupancy costs pertain to short‐term leases, low‐value assets, and variable lease payments. Without the impact of IFRS 16, occupancy costs for the year ended December 31, 2019 increased slightly due to acquisitions and increased space needs for Altus Analytics, partly offset by office rationalization in our U.K. operations. For the quarter ended December 31, 2019, occupancy costs were comparable to the prior year. For the year and quarter ended December 31, 2019, occupancy as a percentage of revenues was 1.4% and 1.5%, as compared to 4.2% and 4.1% in the corresponding periods in 2018, respectively. Without the impact of IFRS 16, occupancy as a percentage of revenues would have been 3.8% and 3.7% for the year and quarter ended December 31, 2019, as compared to 4.2% and 4.1% in the corresponding periods in 2018, respectively. Office and Other Operating Costs Office and other operating costs were $112.3 million for the year ended December 31, 2019, up 14.5% or $14.3 million from $98.0 million in 2018. For the quarter ended December 31, 2019, office and other operating costs were $31.7 million, up 17.7% or $4.8 million from $26.9 million in the same period in 2018. For the year ended December 31, 2019, the increase in expenses is primarily from acquisitions, subcontractor disbursements for client projects and additional expenditures for corporate software subscriptions. For the quarter ended December 31, 2019, the increase in expenses is primarily from acquisitions. For the year and quarter ended December 31, 2019, office and other operating costs as a percentage of revenues was 19.8% and 21.3%, as compared to 19.2% and 20.6% in the corresponding periods in 2018, respectively. Depreciation of Right‐of‐Use Assets Depreciation of right‐of‐use assets was $13.4 million and $3.2 million for the year and quarter ended December 31, 2019, respectively. This reflects the impact of the adoption of IFRS 16, effective beginning January 1, 2019. Other impacts of IFRS 16 are explained in the “Changes in Significant Accounting Policies and Estimates” section on pages 15, 16 and 36 of this MD&A or Notes 4 and 14 in the financial statements. Depreciation and Amortization ‐ Other Depreciation and amortization was $37.8 million for the year ended December 31, 2019, as compared to $49.1 million in 2018. For the quarter ended December 31, 2019, depreciation and amortization was $8.7 million, as compared to $11.3 million in the same period in 2018. For the year and quarter ended December 31, 2019, the decrease is mainly due to the completion of the amortization period for some acquisition‐ related intangibles. 12 Management’s Discussion & Analysis December 31, 2019 Acquisition and Related Transition Costs (Income) Acquisition and related transition costs (income) were $0.2 million for the year ended December 31, 2019, as compared to $2.4 million in 2018. For the quarter ended December 31, 2019, acquisition and related transition costs (income) were $(0.1) million, as compared to $0.1 million in the same period in 2018. Restructuring Costs (Recovery) Restructuring costs (recovery) were $(0.5) million for the year ended December 31, 2019, as compared to $6.4 million in 2018. During the year ended December 31, 2019, restructuring provisions made in prior years in the amount of $0.5 million (2018 ‐ $0.2 million) were released. During the year ended December 31, 2018, total restructuring charges of $6,371 were recorded pertaining to employee severance and onerous leases in the Property Tax and Geomatics businesses. For the quarter ended December 31, 2019, restructuring costs (recovery) were $nil, as compared to $(0.1) million in the same period in 2018. (Gain) Loss on Investments (Gain) loss on investments was $(0.3) million for the year ended December 31, 2019, as compared to $nil in 2018. For the quarter ended December 31, 2019, (gain) loss on investments was $(0.1) million, as compared to $nil in the same period in 2018. The amount represents changes in fair value of our investments in partnerships. Impairment Charge For the year and quarter ended December 31, 2019, we had an impairment charge of $6.4 million related to our Geomatics business, as compared to $13.7 million in the respective periods in 2018. Finance Costs (Income), Net In thousands of dollars Interest on borrowings Interest on lease liabilities Interest on finance leases Unwinding of discounts Change in fair value of interest rate swaps Year ended December 31, Quarter ended December 31, 2019 2018 % Change 2019 2018 % Change $ 5,627 $ 6,013 (6.4%) $ 1,363 $ 1,351 2,885 ‐ 583 505 ‐ 35 684 218 100% (100%) (14.8%) 131.7% 725 ‐ 22 55 (9) ‐ 7 177 367 (57) 0.9% 100% (100%) (87.6%) (85.0%) (84.2%) Finance income (148) (249) (40.6%) Finance costs (income), net $ 9,452 $ 6,701 41.1% $ 2,156 $ 1,845 16.9% Finance costs (income), net for the year ended December 31, 2019 was $9.5 million, up 41.1% or $2.8 million from $6.7 million in 2018. Our finance costs increased mainly due to the interest expense recorded in 2019 related to the adoption of IFRS 16 beginning January 1, 2019, in addition to the ongoing mark‐to‐market change in fair value recognized in relation to our $65.0 million interest rate swap. For the quarter ended December 31, 2019, finance costs (income), net was $2.2 million, up 16.9% or $0.4 million from $1.8 million in the same period in 2018. Our finance costs increased mainly due to the interest expense recorded in 2019 related to the adoption of IFRS 16 beginning January 1, 2019, in addition to the ongoing mark‐to‐market change in fair value recognized in relation to our $65.0 million interest rate swap. 13 Management’s Discussion & Analysis December 31, 2019 Income Tax Expense (Recovery) Income tax expense (recovery) for the year ended December 31, 2019 was $7.0 million, as compared to $0.6 million in 2018. The increase was mainly due to higher profit (loss) before income tax from our business operations. Offsetting that is a lower non‐deductible goodwill impairment charge relating to our Geomatics business. For the quarter ended December 31, 2019, income tax expense (recovery) was $0.3 million, as compared to $(0.6) million in the same period in 2018. The increase was mainly due to higher profit (loss) before income tax from our business operations. Offsetting that is a lower non‐deductible goodwill impairment charge relating to our Geomatics business. Profit (Loss) Profit (loss) for the year ended December 31, 2019 was $18.2 million and $0.46 per share, basic and $0.45 per share, diluted, as compared to $(18.4) million and $(0.48) per share, basic and diluted, in 2018. For the quarter ended December 31, 2019, profit (loss) was $0.3 million and $0.01 per share, basic and $0.01 per share, diluted, as compared to $(14.7) million and $(0.38) per share, basic and diluted, in the same period in 2018. 14 Management’s Discussion & Analysis December 31, 2019 Impact of IFRS 16 Income Statement A reconciliation of profit (loss) calculated under IFRS 16 and on a basis consistent with 2018 for the year and quarter ended December 31, 2019 is as follows: In thousands of dollars IFRS 16 Basis Consistent with 2018 Impact of IFRS 16 IFRS 16 Basis Consistent with 2018 Impact of IFRS 16 Year ended December 31, 2019 Quarter ended December 31, 2019 Revenues Expenses $ 567,415 $ 567,415 $ ‐ $ 148,769 $ 148,769 $ ‐ Employee compensation 355,320 355,320 ‐ Occupancy 8,099 21,598 (13,499) Office and other operating 112,262 112,262 Depreciation of right‐of‐use assets Depreciation and amortization Acquisition and related transition costs (income) Restructuring costs (recovery) (Gain) loss on investments Impairment charge ‐ goodwill Finance costs (income), net ‐ leases Finance costs (income), net ‐ other Profit (loss) before income taxes Income tax expense (recovery) 13,440 37,833 188 (453) (276) 6,400 2,885 6,567 25,150 6,956 ‐ 39,038 188 (453) (276) 6,400 ‐ 13,440 (1,205) ‐ ‐ ‐ ‐ ‐ 2,885 6,567 26,771 7,361 ‐ (1,621) (405) 94,022 2,161 31,653 3,218 8,723 (50) ‐ (118) 6,400 725 1,431 604 332 94,022 5,483 31,653 ‐ 8,881 (50) ‐ (118) 6,400 ‐ 1,431 1,067 435 ‐ (3,322) ‐ 3,218 (158) ‐ ‐ ‐ ‐ 725 ‐ (463) (103) Profit (loss) for the period $ 18,194 $ 19,410 $ (1,216) $ 272 $ 632 $ (360) 15 Management’s Discussion & Analysis December 31, 2019 Balance Sheet Impact The effect of adopting IFRS 16 on our consolidated balance sheet (increase/(decrease)) as at January 1, 2019 is as follows: Assets Trade receivables and other ‐ current $ 154,298 $ (361) $ 153,937 As Previously Reported December 31, 2018 IFRS 16 Adjustments After Adoption of IFRS 16 January 1, 2019 Property, plant and equipment Right‐of‐use assets Liabilities Trade payables and other ‐ current Trade payables and other ‐ non‐current Borrowings ‐ current Borrowings ‐ non‐current Lease liabilities 33,197 ‐ 117,520 29,825 858 128,509 ‐ (1,263) 72,514 (907) (10,265) (192) (74) 82,328 31,934 72,514 116,613 19,560 666 128,435 82,328 Impact on Bank Covenants We have agreed with our bank syndicate that our covenants will be calculated under the method prior to the adoption of IFRS 16. Refer to Notes 4 and 14 in the financial statements for full details of the adoption and impacts. 16 Management’s Discussion & Analysis December 31, 2019 Revenues and Adjusted EBITDA by Business Unit Revenues In thousands of dollars Altus Analytics Expert Services: Year ended December 31, Quarter ended December 31, 2019 2018 % Change 2019 2018 % Change $ 201,951 $ 183,428 10.1% $ 54,581 $ 51,826 5.3% Commercial Real Estate Consulting 324,132 283,948 Geomatics Intercompany eliminations 41,698 43,632 (366) (579) 14.2% (4.4%) 36.8% 83,947 10,318 (77) 67,692 11,481 (114) Total $ 567,415 $ 510,429 11.2% $ 148,769 $ 130,885 24.0% (10.1%) 32.5% 13.7% Adjusted EBITDA In thousands of dollars Altus Analytics Expert Services: Commercial Real Estate Consulting Geomatics Corporate Total Revenue Contribution: Year ended December 31, Quarter ended December 31, 2019 2018 % Change 2019 2018 % Change $ 36,803 $ 41,478 (11.3%) $ 5,346 $ 10,276 (48.0%) 76,083 3,436 48,820 3,598 (28,177) (22,992) 55.8% (4.5%) 22.6% 13,413 2,837 372.8% 641 4,079 877 (26.9%) 1,131 260.7% $ 88,145 $ 70,904 24.3% $ 23,479 $ 15,121 55.3% 17 Management’s Discussion & Analysis December 31, 2019 Altus Analytics In thousands of dollars Revenues Adjusted EBITDA (1) Year ended December 31, Quarter ended December 31, 2019 2018 % Change 2019 2018 % Change $ 201,951 $ 183,428 10.1% $ 54,581 $ 51,826 5.3% $ 36,803 $ 41,478 (11.3%) $ 5,346 $ 10,276 (48.0%) Adjusted EBITDA Margin (1) 18.2% 22.6% 9.8% 19.8% (1) Q4 margin includes bonuses which were accrued in quarterly corporate costs in the previous three quarters. Year End Discussion Revenues were $202.0 million for the year ended December 31, 2019, up 10.1% or $18.6 million from $183.4 million in 2018. The acquisitions of Taliance Group SAS (“Taliance”) and One11 represented 5.9% of the 10.1% revenue growth. The increase in revenues was driven by strong growth from our Appraisal Management solutions, increased software services revenues from the acquisitions of Taliance and One11, and higher maintenance revenues, offset by lower perpetual license revenues as the business transitions to a subscription model. Beginning in the third quarter of 2019, all AE software license sales to new customers were only sold on subscription terms, which contributed to healthy growth in subscription licenses, however on a year‐over‐year comparative view subscription revenue growth was impacted by a tough compare in 2018. In the second quarter of 2018 we had a sizeable new global subscription license contract, and in the fourth quarter of 2018 we had a significant subscription contract renewal, both of which were deemed “right‐of‐use” under IFRS 15, and as a result, a portion of those revenues were recognized upfront at the time of delivery rather than ratably over the term of the subscription contract. Changes in foreign exchange benefitted revenues by 1.3%. In 2019, a significant portion of AE sales came from add‐on sales to existing customers, followed by sales to net new customers. Overall, we had healthy growth in AE license sales and consistent with our strategy to move to a subscription model, we achieved a higher mix of license sales on subscription terms. Our maintenance revenues continued to grow, supported by our 97% software maintenance retention rates for AE. During the year we made great progress in selling AE on the cloud to both new customers and to existing customers who converted their maintenance contracts to cloud subscriptions. The strong growth in Appraisal Management solutions was driven by current customers adding more assets on our platform, new customer wins and growing revenues from international markets. Recurring revenues, as described above in the Overview of the Business, were $153.6 million for the year ended December 31, 2019, up 18.0% or $23.5 million from $130.1 million in 2018. Adjusted EBITDA was $36.8 million for the year ended December 31, 2019, down 11.3% or $4.7 million from $41.5 million in 2018. The decline in earnings was mainly due to a higher mix of subscription revenues and higher development costs. Although investments in product development were higher in 2019 compared to the prior year, towards the end of the year investment spending started to level off on a sequential quarter basis. Changes in foreign exchange benefitted Adjusted EBITDA by 2.6%. We met our annual financial guidance, which targeted total Altus Analytics revenue growth between 7% and 12% (and 16% to 19% recurring revenue growth) to achieve annual revenues between $197 to $205 million, with Adjusted EBITDA margins between 17% and 20%. 18 Management’s Discussion & Analysis December 31, 2019 Quarterly Discussion Revenues were $54.6 million for the quarter ended December 31, 2019, up 5.3% or $2.8 million from $51.8 million in the same period in 2018. The acquisition of One11 represented 7.5% of the 5.3% revenue growth. On a comparative view, the fourth quarter of 2018 included a significant multi‐year subscription contract renewal that was deemed “right‐of‐use” under IFRS 15, and as a result, a portion of that revenue was recognized upfront at the time of delivery rather than ratably over the term of the subscription contract. This tough compare muted the growth of the business, which continued to benefit from sustained growth from our Appraisal Management solutions, as well as robust maintenance revenues and overall growth in license sales. In addition, consistent with our expectations, our fourth quarter results were also impacted by lower perpetual license revenues as the business transitions to a subscription model. Movements in the exchange rate against the Canadian dollar impacted revenues by (0.1%). Recurring revenues, as described above in the Overview of the Business, were $40.9 million for the quarter ended December 31, 2019, up 21.1% or $7.2 million, all on an organic basis, from the same period in 2018.* Adjusted EBITDA was $5.3 million for the quarter ended December 31, 2019, down 48.0% or $5.0 million from $10.3 million in the same period in 2018. Adjusted EBITDA declined on lower perpetual license revenues and higher level of expenses, including higher product development expenditures compared to the prior year. Changes in foreign exchange benefitted Adjusted EBITDA by 0.8%. Outlook Our Altus Analytics business continues to represent an attractive growth area, supported by favourable market trends of growing global demand for CRE‐related technology and data solutions. We expect year over year revenue growth in 2020 from both our ARGUS Software business, as well as our Data & Appraisal Management solutions. Our financial performance expectations for 2020 are consistent with our aspirational long‐term goal to achieve Altus Analytics revenues of $400 million for full year 2023, with an associated Adjusted EBITDA margin at over 30%. As of the start of 2020, all software licenses are being sold on subscription terms, with an increasing portion sold on our cloud platform (compared to 2019 when a high majority of license sales were still sold for on‐ premise software on perpetual terms with a maintenance component or on‐premise subscription terms but where a high portion of the subscription revenue was recognized at a point in time). Growth in software revenues is expected to be primarily driven by continued sales into existing customers for additional capacity, solution upgrades and additional functionality, as well as new customer wins and continued geographic expansion into Europe and Asia Pacific. The ongoing migration of existing customers to cloud subscription contracts is expected to be a moderate contributor to revenue growth in 2020. Increasing the volume and value of enterprise transactions for multi‐product and/or global deals with our top 200 clients has the potential for a more meaningful acceleration in revenue growth in 2020, although these types of contracts have longer sales cycles. Our product roadmap will continue to prioritize integration across all of our capabilities, cloud functionality, and standard software upgrades to our existing solutions. While we continue to invest in product innovation, our product development costs started to flatten at the end of 2019 following a period of higher investment spending for the cloud transition; although we still expect to grow our development costs in balance with revenue growth, expense growth is planned to be less than what it was in 2019. *Reflects recurring revenues for the fourth quarter of 2018 of $33.7 million (amended). 19 Revenues Adjusted EBITDA Property Tax Management’s Discussion & Analysis December 31, 2019 Consistent with past years, we expect that growth from our Appraisal Management solutions will continue to be driven by current customers increasing the number of assets on our platform and new client additions, both in the U.S. and in international markets. We continue to have opportunities for organic growth in the U.S. by expanding our penetration with closed funds and pension funds (both with current and new clients), and by expanding our work with our global clients abroad, namely in Europe and Asia Pacific. Commercial Real Estate Consulting In thousands of dollars 2019 2018 % Change 2019 2018 % Change Year ended December 31, Quarter ended December 31, Revenues Property Tax $ 213,483 $ 176,734 20.8% $ 54,234 $ 39,110 Valuation and Cost Advisory 110,649 107,214 3.2% 29,713 28,582 $ 324,132 $ 283,948 14.2% $ 83,947 $ 67,692 38.7% 4.0% 24.0% $ 62,746 $ 36,029 74.2% $ 9,874 $ 324 2,947.5% Valuation and Cost Advisory 13,337 12,791 4.3% 3,539 2,513 40.8% Adjusted EBITDA (1) $ 76,083 $ 48,820 55.8% $ 13,413 $ 2,837 372.8% Adjusted EBITDA Margin (1) 23.5% 17.2% 16.0% 4.2% (1) Q4 margin includes bonuses which were accrued in quarterly corporate costs in the previous three quarters. Year End Discussion Revenues were $324.1 million for the year ended December 31, 2019, up 14.2% or $40.2 million from $283.9 million in 2018. The growth in revenues was driven by a record year from our Property Tax business. Property Tax revenues increased by 20.8%, primarily due to sustained strong performance in the U.K., double‐digit growth in the U.S., as well as strong organic growth in Canada. In the U.K., we benefitted from continuing settlement of 2017 list cases from our healthy backlog as well as higher annuity billings in the second quarter. In the U.S., we experienced growth in our core regional markets, as well as building a healthy pipeline of work in emerging regions such as California. In Canada, the growth in revenues was driven by a rebound of case settlements in Ontario towards the second half of the year, as well as robust performance in Alberta and Manitoba in the first half of the year. Our Valuation and Cost Advisory revenues increased by 3.2%, primarily due to better performance from our Canadian Cost practice. Changes in exchange rates impacted CRE Consulting revenues by (0.3%). Adjusted EBITDA was $76.1 million for the year ended December 31, 2019, up 55.8% or $27.3 million from $48.8 million in 2018. Earnings improved on the revenue increase from our Property Tax business. There was no impact from exchange rate changes. Quarterly Discussion Revenues were $83.9 million for the quarter ended December 31, 2019, up 24.0% or $16.2 million from $67.7 million in the same period in 2018. The growth in revenues was driven by our Property Tax business. Property Tax revenues increased 38.7% benefitting from strong double‐digit revenue growth across all geographies, the U.K., U.S. and Canada. The U.K. benefitted from an increased volume of case settlements on the 2017 list cases. Canada saw an increased level of settlement values in Ontario and Manitoba. In the U.S., we experienced growth in our largest revenue jurisdictions, including Texas and California. Our 20 Management’s Discussion & Analysis December 31, 2019 Valuation and Cost Advisory businesses both had modest growth. Changes in exchange rates impacted CRE Consulting revenues by (0.3%). Adjusted EBITDA was $13.4 million for the quarter ended December 31, 2019, up 372.8% or $10.6 million from $2.8 million in the same period in 2018. The healthy increase in earnings resulted from our strong revenue increases in the Property Tax business. Changes in exchange rates benefitted CRE Consulting Adjusted EBITDA by 1.2%. Outlook Our Property Tax business continues to represent an attractive growth area for our company driven by a steady demand for our specialized services. We expect 2020 to be another record revenue year for our Property Tax practice with healthy organic full year revenue growth from all three of our national markets, the U.K., U.S., and Canada. Two of our biggest markets, the U.K. and Ontario (Canada), will be in their final years of their respective four‐year cycles which typically represent peak revenue potential as case settlement volumes typically pick up. Also, in the U.K., the last year of the cycle experiences the highest annuity billings of the entire cycle. While it’s common to see an acceleration of settlement activities in the final years of a cycle, there is always a continuation of settlement activities that spill over into the following years of the new cycles. Given the nature of the Property Tax business as discussed in more detail in the seasonal and cyclical variations, we expect to experience typical quarterly variability in our financial performance, including the second quarter being our strongest quarter of the year. Looking ahead to the first quarter, we expect that our Canadian revenues will face a modest headwind in B.C. and experience a delay due to a change in pre‐roll assessments, however we expect that to be offset by stronger performance in Ontario and Manitoba on a year‐over‐year comparative view. Our Valuation and Cost Advisory practices enjoy significant market share and, as a result, are expected to continue growing modestly. Growth is expected to be driven by operating leverage, enhanced efficiency and productivity from technology, and improved cross‐selling across the organization. Geomatics In thousands of dollars Revenues Adjusted EBITDA (1) Year ended December 31, Quarter ended December 31, 2019 2018 % Change 2019 2018 % Change $ 41,698 $ 43,632 (4.4%) $ 10,318 $ 11,481 (10.1%) $ 3,436 $ 3,598 (4.5%) $ 641 $ 877 (26.9%) Adjusted EBITDA Margin (1) 8.2% 8.2% 6.2% 7.6% (1) Q4 margin includes bonuses which were accrued in quarterly corporate costs in the previous three quarters. Year End Discussion Revenues were $41.7 million for the year ended December 31, 2019, down 4.4% or $1.9 million from $43.6 million in 2018. Revenues were impacted by reduced activity levels in the oil and gas sector, a key market for this business unit. Adjusted EBITDA was $3.4 million for the year ended December 31, 2019, down 4.5% or $0.2 million from $3.6 million in 2018. Earnings were down on reduced revenues, partly offset by improved operational cost efficiencies. 21 Management’s Discussion & Analysis December 31, 2019 Quarterly Discussion Revenues were $10.3 million for the quarter ended December 31, 2019, down 10.1% or $1.2 million from $11.5 million in the same period in 2018. Revenues were down on reduced activity. Adjusted EBITDA was $0.6 million for the quarter ended December 31, 2019, down 26.9% or $0.3 million from $0.9 million in the same period in 2018. Earnings declined on reduced revenues, partly offset by improved operational cost efficiencies. Outlook Starting in the first quarter of 2020, our Geomatics performance will be reflected as discontinued operations, as we have agreed, subject to definitive documentation, to combine our Geomatics business segment with WSP Global Inc.’s respective geomatics focused business unit. Corporate Costs Year End Discussion Corporate costs (recovery) were $28.2 million for the year ended December 31, 2019, as compared to $23.0 million in 2018. Corporate costs increased on higher accrual of variable compensation costs and various corporate initiatives to scale the business for growth. For the year ended December 31, 2019, corporate costs as a percentage of revenues was 5.0%, as compared to 4.5% in 2018. Quarterly Discussion Corporate costs (recovery) were $(4.1) million for the quarter ended December 31, 2019, as compared to $(1.1) million in the same period in 2018. In the first three quarters of the year, variable compensation costs for the business units were accrued in the Corporate segment, subject to the overall finalization at year‐ end. In the fourth quarter, the accrued costs were allocated to the business units. These accrued costs were higher in 2019 as a result of stronger performance and led to a greater recovery in the Corporate segment over the comparable period. Liquidity and Capital Resources Cash Flow In thousands of dollars Net cash related to operating activities Net cash related to financing activities Net cash related to investing activities Effect of foreign currency translation Change in cash position during the year Dividends paid Year ended December 31, 2019 2018 $ 52,425 $ 49,491 (20,791) (18,430) (1,680) (42,971) 10,976 3,172 $ 11,524 $ 20,668 $ 19,199 $ 18,798 We expect to fund operations with cash derived from operating activities. Deficiencies arising from short‐term working capital requirements and capital expenditures may be financed on a short‐term basis with bank indebtedness or on a permanent basis with offerings of securities. Significant erosion in the general state of the economy could affect our liquidity by reducing cash generated from operating activities or by limiting access to short‐term financing as a result of tightening credit markets. 22 Management’s Discussion & Analysis December 31, 2019 Cash from Operating Activities Working Capital In thousands of dollars Current assets Current liabilities Working capital December 31, 2019 December 31, 2018 $ 246,069 $ 209,535 283,607 125,180 $ (37,538) $ 84,355 Current assets are composed primarily of cash and cash equivalents, trade receivables and other and income taxes recoverable. Current liabilities are composed primarily of trade payables and other, income taxes payable, lease liabilities and borrowings. The increase in current liabilities is largely due to bank credit facilities of $138.0 million being included in current liabilities as at December 31, 2019, as they mature on April 28, 2020. We have negotiated a draft term sheet with our lenders which is in the process of being approved. As at December 31, 2019, trade receivables, net and unbilled revenue on customer contracts net of deferred revenue was $129.4 million, up 22.1% or $23.5 million from $105.9 million as at December 31, 2018. As a percentage of the trailing 12‐month revenues, trade receivables and unbilled revenue on customer contracts net of deferred revenue, was 22.5% as at December 31, 2019, as compared to 20.6% as at December 31, 2018. Our Days Sales Outstanding (“DSO”) was 76 days as at December 31, 2019, as compared to 74 days as at December 31, 2018. We calculate DSO by taking the five‐quarter average balance of trade receivables, net and unbilled revenue on customer contracts net of deferred revenue and the result is then divided by the trailing 12‐month revenues plus any pre‐acquisition revenues, as applicable, and multiplied by 365 days. Our method of calculating DSO may differ from the methods used by other issuers and, accordingly, may not be comparable to similar measures used by other issuers. We believe this measure is useful to investors as it demonstrates our ability to convert revenue into cash. Current and long‐term liabilities include amounts owing to the vendors of acquired businesses on account of excess working capital, deferred purchase price payments and other closing adjustments. As at December 31, 2019, the amounts owing to the vendors of acquired businesses were $8.5 million, as compared to $14.2 million as at December 31, 2018. We intend to satisfy the payments with the revolving term facility (as described below) or cash on hand. Except for our bank credit facilities, which we expect to renew prior to maturity, we expect to satisfy the balance of our current liabilities through the realization of our current assets. Cash from Financing Activities Our revolving term facility is a senior secured revolving term facility used for general corporate purposes that will mature on April 28, 2020. In June 2018, we increased our borrowing capacity under the revolving term facility from $200.0 million to $220.0 million in accordance with certain provisions of the agreement. The borrowing capacity can be further increased to $250.0 million. All other terms of the bank credit facilities remain the same. 23 Management’s Discussion & Analysis December 31, 2019 As at December 31, 2019, our total borrowings on our revolving term facility amounted to $138.0 million, an increase of $8.8 million from December 31, 2018. Our bank credit facilities mature on April 28, 2020 and hence, have been presented as current liabilities. We have negotiated a draft term sheet with our lenders which is in the process of being approved. We also have outstanding letters of credit under our bank credit facilities in the total amount of $1.1 million (December 31, 2018 ‐ $0.8 million). The cost of our bank credit facilities is tied to the Canadian Prime rates, Canadian Bankers’ Acceptance rates, U.S. Base rates or LIBOR rates. As at December 31, 2019, $65.0 million was subject to interest rate swap agreements to fix the interest rate. We are obligated to pay the counterparty to the swap agreements an amount based upon a fixed interest rate of 1.48% per annum and the counterparty is obligated to pay us an amount equal to the Canadian Bankers’ Acceptance rate. These agreements expire on May 15, 2020. These interest rate swaps are not designated as cash flow hedges. The effective annual rate of interest for the year ended December 31, 2019 on our bank credit facilities was 3.61%, as compared to 3.48% in 2018. We have agreed with our bank syndicate that our covenants will be calculated under the method used prior to the adoption of IFRS 16. As at December 31, 2019, we were in compliance with the financial covenants of our bank credit facilities, which are summarized below: Funded debt to EBITDA (maximum of 3.00:1) Fixed charge coverage (minimum of 1.20:1) Funded debt to capitalization (maximum of 55%) December 31, 2019 1.49:1 9.68:1 25% Other than long‐term debt and letters of credit, we are subject to other contractual obligations, such as leases and amounts owing to the vendors of acquired businesses as discussed above. Contractual Obligations (1) Payments Due by Period (undiscounted) In thousands of dollars Bank credit facilities Leasehold improvement loans Lease obligations Contingent consideration payables Other liabilities Total Less than 1 year 1 to 3 years 4 to 5 years Over 5 years $ 138,000 $ 138,000 $ ‐ $ ‐ $ ‐ 419 85,794 7,919 101,366 74 14,894 5,409 87,214 148 26,951 2,510 7,744 148 23,198 ‐ 1,080 49 20,751 ‐ 5,328 Total contractual obligations $ 333,498 $ 245,591 $ 37,353 $ 24,426 $ 26,128 (1) Contractual obligations exclude aggregate unfunded capital contributions of $0.7 million to certain partnerships as the amount and timing of such payments are uncertain. 24 Management’s Discussion & Analysis December 31, 2019 Cash from Investing Activities We invest in property, plant and equipment and intangible assets to support the activities of the business. Capital expenditures for accounting purposes include property, plant and equipment in substance and in form, and intangible assets. Capital expenditures are reconciled as follows: Capital Expenditures In thousands of dollars Year ended December 31, 2019 2018 Property, plant and equipment additions $ 5,786 $ 11,545 Intangibles additions Proceeds from disposal of property, plant and equipment and intangibles Capital expenditures 155 (147) 826 (271) $ 5,794 $ 12,100 25 Management’s Discussion & Analysis December 31, 2019 Reconciliation of Adjusted EBITDA to Profit (Loss) The following table provides a reconciliation between Adjusted EBITDA and profit (loss): In thousands of dollars Adjusted EBITDA Additional occupancy expense calculated on a similar basis prior to the adoption of IFRS 16 (1) Depreciation ‐ right‐of‐use assets Depreciation and amortization ‐ other Acquisition and related transition (costs) income Unrealized foreign exchange gain (loss) (2) Gain (loss) on disposal of property, plant and equipment and intangibles (2) Non‐cash Equity Compensation Plan and Long‐ Year ended December 31, Quarter ended December 31, 2019 2018 2019 2018 $ 88,145 $ 70,904 $ 23,471 $ 15,121 13,499 (13,440) (37,833) (188) (994) ‐ ‐ (49,114) (2,394) 981 (274) (1,617) 3,321 (3,218) (8,723) 50 385 68 ‐ ‐ (11,254) (137) 405 (473) Term Equity Incentive Plan costs (3) (5,895) (5,867) (1,387) (1,560) Gain (loss) on equity derivatives net of mark‐to‐ market adjustments on related RSUs and DSUs being hedged (3) Gain (loss) on derivatives (2) Restructuring (costs) recovery Gain (loss) on investments (4) Impairment charge ‐ leases Impairment charge ‐ goodwill Other non‐operating and/or non‐recurring income (costs) (5) Earnings (loss) before finance costs and income taxes Finance (costs) income, net ‐ leases Finance (costs) income, net ‐ other Profit (loss) before income taxes Income tax (expense) recovery Profit (loss) for the period 1,109 ‐ 453 276 (69) (1,276) 268 (6,371) 43 ‐ (1,138) ‐ ‐ 118 ‐ (300) ‐ 87 (38) ‐ (6,400) (13,700) (6,400) (13,700) (3,787) (2,953) (3,787) (1,658) 34,602 (2,885) (6,567) 25,150 (6,956) (11,096) ‐ (6,701) (17,797) (642) 2,760 (725) (1,431) 604 332 (13,507) ‐ (1,845) (15,352) 633 $ 18,194 $ (18,439) $ 272 $ (14,719) (1) Management’s use of the non‐GAAP lease expense calculated on a similar basis prior to the adoption of IFRS 16 is used when analyzing operating performance. Management believes that the non‐GAAP measure provides useful information to both management and investors in measuring our financial performance. Refer to pages 15 and 16 for a schedule showing the impacts and adjustments of our consolidated financial statements for the adoption of IFRS 16. (2) Included in office and other operating expenses in the consolidated statements of comprehensive income (loss). (3) Included in employee compensation expenses in the consolidated statements of comprehensive income (loss). (4) Gain (loss) on investments for the year ended December 31, 2019 and 2018 relates to changes in fair value of investments in partnerships. (5) Other non‐operating and/or non‐recurring income (costs) for the year ended December 31, 2019 relate to (i) costs related to the departure of a senior executive, (ii) legal, advisory, and other consulting costs related to a Board strategic initiative, and (iii) transaction and other related costs. Other non‐operating and/or non‐recurring income (costs) for the year ended December 31, 2018 relate to (i) non‐recurring legal matters and related costs, (ii) transactional costs for tax planning and restructuring of legal entities within the group, and (iii) costs related to the departures of certain senior executives. These are included in office and other operating expenses in the consolidated statements of comprehensive income (loss). 26 Management’s Discussion & Analysis December 31, 2019 Adjusted Earnings (Loss) Per Share In thousands of dollars, except for per share amounts 2019 2018 2019 2018 Profit (loss) for the period $ 18,194 $ (18,439) $ 272 $ (14,719) Year ended December 31, Quarter ended December 31, Additional occupancy expense calculated on a similar basis prior to the adoption of IFRS 16 Depreciation ‐ right‐of‐use assets Finance costs (income), net ‐ leases Amortization of intangibles of acquired businesses Unrealized foreign exchange loss (gain) Loss (gain) on disposal of property, plant and equipment and intangibles Non‐cash Equity Compensation Plan and Long‐ Term Equity Incentive Plan costs Loss (gain) on equity derivatives net of mark‐ to‐market adjustments on related RSUs and DSUs being hedged Interest accretion on contingent consideration payables Restructuring costs (recovery) Loss (gain) on hedging transactions, including currency forward contracts and interest expense (income) on swaps Acquisition and related transition costs (income) Impairment charge ‐ leases Impairment charge ‐ goodwill Loss (gain) on investments (13,499) 13,440 2,885 29,455 994 274 5,895 ‐ ‐ ‐ 38,816 (981) 1,617 5,867 (3,321) 3,218 725 6,981 (385) ‐ ‐ ‐ 8,547 (405) (68) 473 1,387 1,560 (1,109) 1,276 1,138 467 (453) 505 188 69 6,400 (276) 648 6,371 (50) 2,394 ‐ 13,700 (43) 300 155 (87) 367 137 ‐ 13,700 38 1,658 (3,871) 3 ‐ 55 (50) ‐ 6,400 (118) 3,787 (2,773) Other non‐operating and/or non‐recurring costs (income) Tax impact on above 3,787 (8,638) 2,953 (13,260) Adjusted earnings (loss) for the period $ 58,578 $ 40,869 $ 17,251 $ 7,853 Weighted average number of shares ‐ basic 39,460,603 38,763,613 39,787,438 38,968,108 Weighted average number of restricted shares 374,102 310,751 368,989 298,926 Weighted average number of shares ‐ adjusted 39,834,705 39,074,364 40,156,427 39,267,034 Adjusted earnings (loss) per share $1.47 $1.05 $0.43 $0.20 27 Management’s Discussion & Analysis December 31, 2019 Summary of Quarterly Results In thousands of dollars, except for per share amounts Results of Operations 2019 2018 Fiscal 2019 Dec 31 Sep 30 Jun 30 Mar 31 Fiscal 2018 Dec 31 Sep 30 Jun 30 Mar 31 Revenues $ 567,415 $ 148,769 $ 136,994 $ 153,654 $ 127,998 $ 510,429 $ 130,885 $ 120,636 $ 134,218 $ 124,690 Adjusted EBITDA $ 88,145 $ 23,479 $ 19,820 $ 30,970 $ 13,884 $ 70,904 $ 15,121 $ 16,504 $ 23,771 $ 15,508 Adjusted EBITDA margin Profit (loss) for the 15.5% 15.8% 14.5% 20.2% 10.8% 13.9% 11.6% 13.7% 17.7% 12.4% period $ 18,194 $ 272 $ 5,036 $ 13,321 $ (435) $ (18,439) $ (14,719) $ (1,723) $ 330 $ (2,327) Earnings (loss) per share: Basic Diluted Adjusted Weighted average number shares (‘000s): Basic Diluted $0.46 $0.45 $1.47 $0.01 $0.01 $0.43 $0.13 $0.12 $0.30 $0.34 $0.33 $0.52 $(0.01) $(0.01) $0.23 $(0.48) $(0.48) $1.05 $(0.38) $(0.38) $0.20 $(0.04) $(0.04) $0.22 $0.01 $0.01 $0.40 $(0.06) $(0.06) $0.23 39,461 40,084 39,787 40,653 39,643 40,411 39,318 39,770 39,084 39,084 38,764 38,764 38,968 38,968 38,879 38,879 38,700 39,085 38,500 38,500 Certain segments of our operations are subject to seasonal and cyclical variations which may impact overall quarterly results. For instance: Our Altus Analytics business (which made up approximately 36% of total consolidated revenues in 2019) experiences some modest seasonality. ARGUS software products sold as perpetual licenses tend to have a stronger fourth quarter in revenues, a trend that is common in many other software companies. Also, our Appraisal Management solutions could experience some seasonal patterns around the second and fourth quarters, associated with some clients’ practices of bi‐annual and annual appraisals. It should also be noted that our Altus Analytics revenues may exhibit revenue variability as a result of our revenue recognition under IFRS 15. Under IFRS 15 accounting, for on‐premise ARGUS software solutions that are sold on a subscription basis in a right to use license arrangement, a portion of the revenues will be recognized at the time of delivery of the distinct license rather than ratably over the term of the subscription. This results in more variability in revenues based on the timing of contracts and their associated renewals. All AE sales to new customers are expected to be on the cloud platform and therefore are for a right to access; those revenues will continue to be recognized ratably over the term of the subscription. Revenue recognition may vary based on contract specific terms. Our global Property Tax practice (which made up approximately 38% of total consolidated revenues in 2019) can experience significant fluctuations on a quarterly basis as a result of the timing of contingency settlements and other factors, such as the wide‐ranging variety of tax cycles across our various jurisdictions (which range from annual to seven year cycles). We also experience some seasonal peaks in the U.K. and U.S. markets. In the U.K., the second quarter benefits from annuity billing starting the second year of a new cycle, and in the U.S. we tend to experience higher volumes of settlements in the second and third quarters. Continuing from 2018, following the integration of CVS, we implemented annuity billing in the U.K. for a significant number of our contracts that occur each April of the second, third and fourth year of the cycle. The revenues from the annuity billings are expected to grow cumulatively over the cycle as more cases are settled and as the volume of billable clients increases concurrent with case settlements. It should also be noted that since a higher portion of our 28 Management’s Discussion & Analysis December 31, 2019 revenues come from contingency contracts, the front‐end of a cycle typically requires a ramp‐up period in preparation for the appeals and therefore tends to have lower earnings than later in the cycles when more settlements are made and those revenues flow directly to the bottom line. Our Cost Advisory practice (which made up approximately 11% of total consolidated revenues in 2019) experiences some cyclicality associated with its significant exposure to the CRE construction and development activities in the key markets that we serve. For instance, revenues will generally be higher in periods of economic prosperity and expansion in our key markets in Canada and Asia Pacific. Our Geomatics business (which made up approximately 7% of total consolidated revenues in 2019) engages in projects that tend to be on remote undeveloped land in Western Canada, which is most accessible in the winter and summer months and least accessible in the spring months when ground conditions are soft and wet. Revenues for Geomatics tend to peak in the third and fourth quarters of the year in line with higher activity levels during these periods. Also, given Geomatics’ significant client exposure to the oil and gas sector, revenues will be impacted by cyclical trends related to that sector, specifically driven by capital spending. Selected Annual Information Selected Financial Information For the year ended December 31, In thousands of dollars, except for per share amounts 2019 2018 2017 (1) Operations Revenues Adjusted EBITDA Adjusted EBITDA margin Profit (loss) Earnings (loss) per share: Basic Diluted Adjusted Dividends declared per share Balance Sheet Total assets $ 567,415 $ 510,429 $ 476,562 $ 88,145 $ 70,904 $ 80,645 15.5% 13.9% 16.9% $ 18,194 $ (18,439) $ 109,417 $0.46 $0.45 $1.47 $0.60 $(0.48) $(0.48) $1.05 $0.60 $2.88 $2.83 $1.11 $0.60 2019 2018 2017 (1) $ 735,125 $ 658,182 $ 726,115 At December 31, Long‐term liabilities (excluding deferred income taxes) 79,950 158,334 180,557 (1) Restated for the impact of IFRS 15. Revenues were $567.4 million for the year ended December 31, 2019, up 11.2% from 2018, of which approximately 2.4% was from acquisitions. Adjusted EBITDA was $88.1 million for the year, a margin of 15.5%, up 24.3% from 2018, and profit (loss) for the year was $18.2 million. Revenues were $510.4 million for the year ended December 31, 2018, up 7.1% from 2017, of which approximately 2.1% was from acquisitions. Adjusted EBITDA was $70.9 million for the year, a margin of 13.9%, down 12.1% from 2017, and profit (loss) for the year was $(18.4) million. 29 Management’s Discussion & Analysis December 31, 2019 Revenues were $476.6 million for the year ended December 31, 2017, up 7.6% from 2016, of which approximately 1.8% was from acquisitions. Adjusted EBITDA was $80.6 million for the year, a margin of 16.9%, up 8.9% from 2016, and profit (loss) for the year was $109.4 million. In each of the past three years we have declared and paid quarterly dividends totaling $0.60 annually, per common share to the shareholders. Selected Highlights for 2018 Acquisition of New Market Real Estate Group, LLC On January 1, 2018, we acquired certain operating assets of New Market Real Estate Group, LLC (“New Market”) for $1.0 million in common shares. Based in Maryland and founded in 2001, New Market offers a full range of CRE services throughout the United States including research, valuation, acquisition, investment analysis and consulting services. New Market was integrated into our Appraisal Management business, part of our Altus Analytics advisory practice. Acquisition of Aspect Property Consultants LLP On February 14, 2018, we acquired certain operating assets of Aspect Property Consultants LLP (“Aspect”) for GBP4.3 million (CAD7.4 million) in cash, common shares and contingent consideration. As consideration for these assets, we paid cash of GBP1.8 million (CAD3.1 million) and common shares of GBP0.6 million (CAD1.1 million) and we estimated contingent consideration of GBP1.9 million (CAD3.3 million). The purchase agreement provides for maximum contingent consideration of GBP2.6 million, subject to certain performance targets being achieved over a two‐year period from the closing date. With offices located in London, Heathrow and Basingstoke, U.K. and founded in 2009, Aspect is a commercial property consultancy firm specializing in the South East U.K. business space market with a particular focus on the West London warehouse market. This business was integrated into our U.K. Property Tax group. Acquisition of Taliance Group SAS On July 1, 2018, we acquired all the issued and outstanding shares of Taliance for EUR20.0 million (CAD30.7 million) in cash and common shares, subject to closing adjustments. On closing, EUR2.2 million (CAD3.3 million) of common shares were issued from treasury and the remainder of the purchase price was drawn from the revolving term facility. Taliance provides cloud‐based collaborative business solutions to alternative investment firms globally allowing them to improve their modelling, forecasting and risk management processes in real time. Based in Paris, Taliance also has offices in London and New York. The addition of Taliance, which can be deployed and integrated with AE, allows us to expand our position in Europe and to deliver cloud software solutions with a comprehensive investment management capability that provides flexibility and transparency to manage the most complex investment structures and scenarios. Taliance also provides a foundation for growth in the fund management segment of the market globally. Taliance is currently sold as a stand‐alone offering, ARGUS Taliance, under our Altus Analytics banner. Restructuring Activities In Q1 of 2018, we undertook and completed restructuring activities in Geomatics to reduce costs. In connection with these restructuring activities, a total of $2.9 million in restructuring costs was recorded in 2018. These charges related primarily to employee severance costs and onerous leases. 30 Management’s Discussion & Analysis December 31, 2019 In Q2 of 2018, we initiated restructuring activities in our Property Tax practice as a result of our integration efforts in the U.K. following the acquisition of CVS. This was completed in Q4 of 2018. In connection with these restructuring activities, a total of $3.6 million in restructuring costs was recorded in 2018. These charges related primarily to employee severance costs and onerous leases. Sale of Investment in Real Matters Inc. In September 2018, we sold our shares related to our investment in Real Matters Inc. (“Real Matters”) for net proceeds of $54.2 million. The loss included in other comprehensive income (loss) up to the date of disposition of $70.8 million was transferred to retained earnings. In October 2018, the proceeds were used to reduce the borrowings under the bank credit facilities. Selected Highlights for 2017 Altus Analytics New Product Launches and Upgrades In the first quarter of 2017, we launched AE 11.6 (“AE 11.6”), an upgraded version of our industry‐leading CRE and investment management platform. Enhancements in AE 11.6 included improved user experience (simplified for key transaction and valuation roles), advanced user productivity features, and more powerful reporting capabilities. In the second quarter of 2017, we launched ARGUS Developer 7.7, an upgraded version of our industry leading software that models, forecasts, manages, analyzes and reports on development project costs and cash flows. Enhancements included increased language functionality through the addition of German and Spanish languages, as well as other user improvements. Acquisition of Axiom Cost Consulting Inc. On February 1, 2017, we acquired all the issued and outstanding shares of Axiom Cost Consulting Inc. (“Axiom”) for $0.9 million in cash and common shares, subject to working capital adjustments. With operations in Calgary, Edmonton and Vancouver, Axiom specializes in cost management and loan monitoring. Axiom was integrated with our Cost Consulting practice under our Valuation and Cost Advisory segment. Acquisition of EstateMaster Group Holdings Pty Limited On March 1, 2017, we acquired all the issued and outstanding shares of EstateMaster Group Holdings Pty Limited (“EstateMaster”) and its subsidiaries for $20.1 million in cash and common shares, subject to working capital adjustments. EstateMaster is an Australian‐based property development feasibility and management software provider. With a leading market position in Australia and the Middle East, the EstateMaster Development Feasibility software is the accepted market standard for the production of feasibility reports in the Australian property markets. The acquisition of EstateMaster broadens our product offerings with software solutions complementary to our ARGUS Developer product, while adding market share in our growth regions, including Australia and the Middle East. The EstateMaster software has been subsequently rebranded ARGUS EstateMaster and is sold as part of the Altus Analytics suite of software solutions. Strategic Investment in Waypoint Building Group Consistent with our strategy of building and scaling our technology and data offerings through partnerships and direct investments, on March 17, 2017, we advanced USD3.0 million to Waypoint Building 31 Management’s Discussion & Analysis December 31, 2019 Group, Inc. (“Waypoint”) in the form of a promissory note, with simple interest accrued at a rate of 5% and payable on maturity, 24 months from the date of issuance. The promissory note includes conversion features which are applicable on maturity or upon the occurrence of certain events such as an equity financing or corporate transaction. Waypoint is an early‐stage data analytics company. Founded in 2009, Waypoint is a San Francisco‐based CRE technology company that provides real‐time local market operating expense information and benchmarking solutions to the North American CRE market. Early Redemption of Outstanding 6.75% Convertible Debentures The outstanding 6.75% convertible debentures (“2012 convertible debentures”) were redeemed by the Company on May 3, 2017, in accordance with the terms of the convertible debenture indenture and have been delisted from the Toronto Stock Exchange. The aggregate principal amount of the 2012 convertible debentures outstanding as of December 31, 2016 was $6.1 million, of which $5.7 million was converted into 570,900 common shares issued from treasury at a conversion price of $10.00 per common share. The remaining principal amount of $0.4 million of the 2012 convertible debentures was redeemed using available cash on hand. Investment in Real Matters On May 11, 2017, Real Matters completed its initial public offering at $13.00 per common share. As a result, our equity interest in Real Matters was diluted to 12.0%. The partial deemed disposition of our investment and re‐measurement of our retained interest resulted in an accounting gain of $115.7 million in the second quarter. At that time, the ongoing accounting treatment of our investment in Real Matters changed from equity accounting to an available‐for‐sale investment. Since then, gains or losses from mark‐to‐market adjustments were reflected directly in other comprehensive income (loss). Certain items such as dividends and impairment losses were recognized in profit or loss. When our investment was derecognized as a result of a sale or impairment, the cumulative gain or loss previously recognized in other comprehensive income (loss) was reclassified to profit or loss. Restructuring Activities In the first quarter of 2017, we undertook company‐wide restructuring activities under a corporate program to further optimize operations. This restructuring plan was completed in Q2 of 2017. In connection with these restructuring activities, a total of $4.7 million in restructuring costs was recorded for the year ended December 31, 2017. These charges related primarily to employee severance costs. Acquisition of Commercial Valuers & Surveyors Limited On November 1, 2017, we acquired CVS, a property tax service provider in the U.K. that specializes in business rates services. The acquisition of CVS positions Altus Group as the largest business rates advisor in the U.K. based on volume of appeals filed, and more than doubles the size of our legacy business in the U.K. CVS’s team of approximately 230 professionals were added to our U.K. Property Tax division, strengthening our business rates expertise. As the acquisition provides us with greater scale and synergistic opportunities, it positions us for growth and expands our database on comparable property information in a key real estate market, allowing us to better serve our clients in appeals and lease negotiations. Altus Group paid a total of GBP30.3 million (CAD51.6 million) in cash on closing with an additional GBP6.0 million (CAD10.2 million) payable in two years from the closing date, subject to compliance with certain 32 Management’s Discussion & Analysis December 31, 2019 terms and conditions. On closing, GBP25.3 million (CAD43.1 million) was from cash on hand and GBP5.0 million (CAD8.5 million) was drawn from our revolving term facility. Based on the estimated Adjusted EBITDA to be derived from the 2017 assessment cycle, the average Adjusted EBITDA multiple for this transaction was estimated at 5.5 times. Given the annuity revenue model of this business, revenue is expected to grow in a compounding manner as appeals are settled over the four‐year term of the cycle, and likewise earnings contribution increases throughout the cycle as majority of the revenues are on a contingency basis. Share Data As at February 17, 2020, 39,844,138 common shares were outstanding and are net of 364,864 treasury shares. These treasury shares are shares held by Altus Group, which are subject to restrictive covenants and may or may not vest for employees. Accordingly, these shares are not included in the total number of common shares outstanding for financial reporting purposes and are not included in basic earnings per share calculations. As at December 31, 2019, there were 1,579,283 share options outstanding (December 31, 2018 ‐ 1,518,670 share options outstanding) at a weighted average exercise price of $28.98 per share (December 31, 2018 ‐ $27.96 per share) and 545,728 share options were exercisable (December 31, 2018 ‐ 495,894). All share options are exercisable into common shares on a one‐for‐one basis. Shareholders who are resident in Canada may elect to automatically reinvest quarterly dividends in additional Altus Group common shares under our Dividend Reinvestment Plan (“DRIP”). Pursuant to the DRIP, and in the case where common shares are issued from treasury, cash dividends will be reinvested in additional Altus Group common shares at the weighted average market price of our common shares for the five trading days immediately preceding the relevant dividend payment date, less a discount, currently set at 4%. In the case where common shares will be purchased on the open market, cash dividends will be reinvested in additional Altus Group common shares at the relevant average market price paid in respect of satisfying this reinvestment plan. For the year ended December 31, 2019, 179,572 common shares (2018 ‐ 158,481 common shares) were issued under the DRIP. Financial Instruments and Other Instruments Financial instruments held in the normal course of business included in our consolidated balance sheet as at December 31, 2019 consist of cash and cash equivalents, trade receivables and other (excluding deferred costs to obtain customer contracts and prepayments), trade payables and other (excluding contract liabilities), income taxes recoverable and payable, investments, borrowings and derivative financial instruments. We do not enter into financial instrument arrangements for speculative purposes. The fair values of the short‐term financial instruments approximate their carrying values. The fair values of borrowings are not significantly different than their carrying values, as these instruments bear interest at rates comparable to current market rates. The fair values of other long‐term assets and liabilities, promissory notes receivable and contingent consideration payables are measured using a discounted cash flow analysis of expected cash flows in future periods. The investments in equity instruments are measured 33 Management’s Discussion & Analysis December 31, 2019 based on valuations of the respective entities. Investments in partnerships are measured in relation to the fair value of assets in the respective partnerships. The fair value of the liabilities for the DSU and RSU plans as at December 31, 2019 was approximately $15.1 million, based on the published trading price on the TSX for our common shares. We are exposed to interest rate risk in the event of fluctuations in the Canadian Prime rates, Canadian Bankers’ Acceptance rates, U.S. Base rates or LIBOR rates, as the interest rates on the bank credit facilities fluctuate with changes in these rates. To mitigate our exposure to interest rate fluctuations, we have entered into interest rate swap agreements in connection with our bank credit facilities. In 2015, we entered into interest rate swap agreements for a total notional amount of $65.0 million and a fixed interest rate of 1.48% per annum. This agreement expires on May 15, 2020. As at December 31, 2019, we have a total notional amount of $65.0 million outstanding and the fair value of these swaps were $0.1 million in our favor. We are exposed to price risk as the liabilities for cash‐settled plans are classified as fair value through profit or loss, and linked to the price of our common shares. Since 2014, we entered into equity derivatives to manage our exposure to changes in the fair value of RSUs and DSUs, issued under their respective plans, due to changes in the fair value of our common shares. Changes in the fair value of these derivatives are recorded as employee compensation expense and offset the impact of mark‐to‐market adjustments on the RSUs and DSUs that have been accrued. As at December 31, 2019, we have equity derivatives relating to RSUs and DSUs outstanding with a notional amount of $11.3 million. The fair value of these derivatives is $7.3 million in our favor. We are exposed to credit risk with respect to our cash and cash equivalents, trade receivables and other and derivative financial instruments. Credit risk is not concentrated with any particular customer. In certain parts of Asia, it is often common business practice to pay invoices over an extended period of time and/or at the completion of the project. The risk of non‐collection of trade receivables is greater in Asia Pacific compared to North American or European countries. Liquidity risk is the risk that we will not be able to meet our financial obligations as they become due. We manage liquidity risk through the management of our capital structure and financial leverage. We also manage liquidity risk by continuously monitoring actual and projected cash flows, taking into account the seasonality of our revenues and receipts and maturity profile of financial assets and liabilities. Our Board of Directors reviews and approves our operating and capital budgets, as well as any material transactions outside the ordinary course of business, including proposals on mergers, acquisitions or other major investments. Contingencies From time to time, we or our subsidiaries are involved in legal proceedings, claims and litigation in the ordinary course of business with customers, former employees and other parties. Although it is not possible 34 Management’s Discussion & Analysis December 31, 2019 to determine the final outcome of such matters, based on all currently available information, management believes that liabilities, if any, arising from such matters will not have a material adverse effect on our financial position or results of operations and have been adequately provided for in the financial statements. In the ordinary course of business, we are subject to tax audits from various government agencies relating to income and commodity taxes. As a result, from time to time, the tax authorities may disagree with the positions and conclusions we made in our tax filings, which could lead to assessments and reassessments. These assessments and reassessments may have a material adverse effect on our financial position or results of operations. Critical Accounting Estimates and Judgments The preparation of the consolidated financial statements requires management to make estimates and assumptions concerning the future. It also requires management to exercise its judgment in applying our accounting policies. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Accounting estimates will, by definition, seldom equal the actual results. The following discussion sets forth management’s most significant estimates and assumptions in determining the value of assets and liabilities and the most significant judgments in applying accounting policies. Revenue recognition and determination and allocation of the transaction price We estimate variable consideration for contingency arrangements on a project‐by‐project basis. Variable consideration is not constrained only to the extent that it is highly probable that the amount will not be subject to significant reversal when the uncertainty is resolved, which is when savings are realized by the customer, unless the contractual terms provide for an enforceable right to payment for performance completed. The transaction price is allocated on the basis of the relative standalone selling prices for contracts with more than one performance obligation. Estimation of the standalone selling price involves reasonably available data points, market conditions, entity‐specific factors and information about the customer or class of customer and to similar customers as evidence of the standalone selling price for each performance obligation; however when one is not available, the standalone selling price is estimated. Where the observable price is not available, based on the specific facts and circumstances, either the adjusted market assessment or expected cost plus a margin approach is applied. The determination of the standalone selling prices requires significant judgment. Impairment of trade receivables and contract assets The impairment provisions for trade receivables and contract assets determined under IFRS 9, Financial Instruments, are based on assumptions about risk of default and expected loss rates. We use judgment in making these assumptions and selecting the inputs to the impairment calculation based on our past history, existing market conditions and forward‐looking estimates at the end of each reporting period. Such estimates and judgments could impact trade receivables, contract assets for unbilled revenue on customer contracts and office and other operating expenses. 35 Management’s Discussion & Analysis December 31, 2019 Estimated impairment of goodwill We test at least annually whether goodwill is subject to any impairment. Goodwill impairment is evaluated between annual tests upon the occurrence of events or changes in circumstances. Goodwill is allocated to cash‐generating units (“CGUs”) for the purpose of impairment testing. The allocation is made to those CGUs or group of CGUs that are expected to benefit from synergies of the business combination in which the goodwill arose. Goodwill is tested for impairment in the groups of CGUs for which it is monitored by management. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount for any CGU is determined based on the higher of fair value less costs to sell and value in use. Both of the valuation approaches require the use of estimates. Significant erosion in the general state of the economy could result in increased impairment losses. For the year ended December 31, 2019, a goodwill impairment charge of $6.4 million was recorded (2018 ‐ $13.7 million). Determination of purchase price allocations and contingent consideration Estimates are made in determining the fair value of assets and liabilities, including the valuation of separately identifiable intangibles acquired as part of an acquisition. Further, estimates are made in determining the value of contingent consideration payments that should be recorded as part of the consideration on the date of acquisition and changes in contingent consideration payable in subsequent reporting periods. Contingent consideration payments are generally based on acquired businesses achieving certain performance targets. The estimates are based on our best assessment of the related inputs used in the valuation models, such as future cash flows and discount rates. Future performance results that differ from our estimates could result in changes to liabilities recorded, which are recorded as they arise through profit or loss. Income taxes We are subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the provision for income taxes. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income taxes in the period in which such determination is made. Changes in Significant Accounting Policies and Estimates Adoption of Recent Accounting Pronouncements We initially applied IFRS 16 from January 1, 2019. A number of other new standards are also effective from January 1, 2019 but do not have a material effect on our consolidated financial statements. IFRS 16, Leases IFRS 16 supersedes International Accounting Standard (“IAS”) 17, Leases, IFRIC 4, Determining whether an Arrangement contains a Lease, SIC‐15, Operating Leases ‐ Incentives and SIC‐27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on‐balance sheet model. Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 did not have an impact for leases where we are the sublessor. 36 Management’s Discussion & Analysis December 31, 2019 We applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initially applying the standard is recognized at the date of initial application of January 1, 2019. Accordingly, the comparative information for 2018 is not restated, but presented under IAS 17 and related interpretations. We elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. We also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a remaining lease term of 12 months or less and do not contain a purchase option (“short‐term leases”), and lease contracts for which the underlying asset is of low value (“low‐value assets”). For further discussion of the adoption of IFRS 16 and its impact on the financial statements, refer to Notes 4 and 14 in the notes to financial statements and pages 15 and 16 of this MD&A. IFRIC Interpretation 23, Uncertainty over Income Tax Treatment The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12, Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following: ‐ Whether an entity considers uncertain tax treatments separately; ‐ The assumptions an entity makes about the examination of tax treatments by taxation authorities; ‐ How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and ‐ How an entity considers changes in facts and circumstances. An entity has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty needs to be followed. We apply significant judgment in identifying uncertainties over income tax treatments. Since we operate in a complex multinational environment, we assessed whether the Interpretation had an impact on our consolidated financial statements. Upon adoption of the Interpretation, we considered whether we have any uncertain tax positions, particularly those relating to transfer pricing. Our tax filings in different jurisdictions include deductions related to transfer pricing and the taxation authorities may challenge those tax treatments. We determined, based on our tax compliance and transfer pricing study, that it is probable that our tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities. The Interpretation did not have a material impact on our consolidated financial statements. IAS 12, Income Taxes The amendments apply for annual reporting periods beginning on or after January 1, 2019 and clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognizes the income 37 Management’s Discussion & Analysis December 31, 2019 tax consequences of dividends in profit or loss, other comprehensive income (loss) or equity according to where it originally recognized those past transactions or events. Since our current practice is in line with this amendment, it had no impact on our consolidated financial statements. Other accounting pronouncements and amendments Other accounting pronouncements, and amendments proposed as part of the Annual Improvements 2015‐ 2017 Cycle that are assessed to have no impact on the consolidated financial statements are: ‐ Amendments to IFRS 9: Prepayment Features with Negative Compensation ‐ Amendments to IAS 19: Plan Amendment, Curtailment or Settlement ‐ Amendments to IAS 28: Long‐term Interests in Associates and Joint Ventures ‐ ‐ ‐ IFRS 3, Business Combinations IFRS 11, Joint Arrangements IAS 23, Borrowing Costs Future Accounting Pronouncements We have not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Amendments to IFRS 3, Business Combinations In October 2018, the IASB issued amendments to the guidance in IFRS 3, Business Combinations, that revises the definition of a business. To be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. The new guidance provides a framework to evaluate when an input and a substantive process are present. To be a business without outputs, there will now need to be an organized workforce. Under the new standard, the changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions. The amendments to IFRS 3 are effective for business combinations and asset acquisitions for which the acquisition date is on or after the first annual reporting periods beginning on or after January 1, 2020. We will assess the impact of this standard on a case‐by‐case basis upon future acquisitions performed beginning January 1, 2020. Amendments to IAS 1 and IAS 8: Definition of Material In October 2018, the IASB issued amendments to IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of “material” across the standards and to clarify certain aspects of the definition. The new definition states that, “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendments to the definition of material are not expected to have a significant impact on our consolidated financial statements. 38 Management’s Discussion & Analysis December 31, 2019 Disclosure Controls and Procedures and Internal Controls over Financial Reporting Management is responsible for establishing and maintaining disclosure controls and procedures (“DC&P”) and internal controls over financial reporting (“ICFR”), as those terms are defined in National Instrument 52‐109 ‐ Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52‐109”). Management has caused such DC&P to be designed under its supervision to provide reasonable assurance that our material information, including material information of our consolidated subsidiaries, is made known to our Chief Executive Officer and our Chief Financial Officer for the period in which the annual and interim filings are prepared. Further, such DC&P are designed to provide reasonable assurance that information we are required to disclose in our annual filings, interim filings or other reports we have filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in applicable securities legislation. Management has caused such ICFR to be designed under its supervision using the framework established in Internal Control ‐ Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with IFRS. Section 3.3(1)(b) of NI 52‐109 allows an issuer to limit its design of DC&P and ICFR to exclude controls, policies and procedures of a business that the issuer acquired not exceeding 365 days from the date of acquisition. Management has limited the scope of the design of DC&P and ICFR, consistent with previous practice, to exclude controls, policies and procedures of One11 acquired on July 1, 2019 and Caruthers acquired on July 1, 2019. Financial information of the businesses acquired is summarized below. Income statement data for One11: In thousands of dollars Revenues Expenses Profit (loss) Adjusted EBITDA Period ended December 31, 2019 $ 7,953 7,742 211 752 39 Management’s Discussion & Analysis December 31, 2019 Income statement data for Caruthers: In thousands of dollars Revenues Expenses Profit (loss) Adjusted EBITDA Period ended December 31, 2019 $ 735 845 (110) 180 Management has caused to be evaluated under its supervision the effectiveness of its DC&P as of December 31, 2019 and has concluded that the design and effectiveness of these controls and procedures provide reasonable assurance that material information relating to Altus Group, including our consolidated subsidiaries, was made known to management on a timely basis to ensure adequate disclosure. Management has caused to be evaluated under its supervision the effectiveness of its ICFR as of December 31, 2019 using the COSO framework. Management has concluded that the overall design and effectiveness of these controls provide reasonable assurance of the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with IFRS. There have been no significant changes in our internal controls over financial reporting that occurred for the quarter ended December 31, 2019, the most recently completed interim period, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new accounting standards related to IFRS 16 on our financial statements to facilitate its adoption on January 1, 2019. There were no other significant changes to our internal control over financial reporting. The audit committee and our Board of Directors have reviewed and approved this MD&A and the financial statements as at and for the year ended December 31, 2019. Key Factors Affecting the Business The risks and uncertainties that could significantly affect our financial condition and future results of operations are summarized below. General state of the economy The businesses we operate are affected by general economic conditions, including international, national, regional and local economic conditions, all of which are outside of our control. Economic slowdowns or downturns, adverse economic conditions, cyclical trends, increases in interest rates, variations in currency exchange rates, reduced client spending and other factors could have a material adverse effect on our business, financial condition and results of operations. Although our operations are functionally and geographically diversified with a high degree of revenue stability protected from CRE market cyclicality, significant erosion in levels of activity in any segment in which we operate could have a negative impact on our business, financial condition and results of operations. 40 Management’s Discussion & Analysis December 31, 2019 Currency Our reporting currency is the Canadian dollar. We have operations in Canada, the U.S., the U.K., Australia and various countries throughout Asia. Our exposure to foreign currency risk is primarily in the following areas: Profit (loss) generated by operations in foreign countries, which are translated into Canadian dollars using the average exchange rate; Net assets of foreign subsidiaries, which are translated into Canadian dollars using the period end exchange rate with any gains or losses recorded under accumulated other comprehensive income (loss) within shareholders’ equity; and Non‐Canadian dollar denominated monetary assets and liabilities, which are translated into Canadian dollars using the period end exchange rate with any gains or losses recorded through profit (loss). The exchange rate between the Canadian dollar and the U.S. dollar ranged from $1.3630 at December 31, 2018 to $1.3016 at December 31, 2019. The exchange rate between the Canadian dollar and the British pound ranged from $1.7357 at December 31, 2018 to $1.7161 at December 31, 2019. The exchange rate between the Canadian dollar and the Australian dollar ranged from $0.9613 at December 31, 2018 to $0.9128 at December 31, 2019. Financial performance Our ability to achieve revenue growth and sustain profitability in future periods depends on our ability to execute our strategic plan and effectively manage our growth. A failure to do so could have a material adverse effect on our business, financial condition and results of operations. Also, our revenue, cash flow, operating results and profitability may experience fluctuations from quarter to quarter, based on project terms and conditions for billing and rendering of services. Financial targets Our long range financial targets are predicated on certain assumptions, including revenue growth and operating margin improvement expectations, that we may fail to achieve, which could reduce our expected earnings and cause us to fail to meet the expectations of analysts and investors and cause the price of our securities to decline. CRE market Although we are broadly diversified, geographically and by business offering with a high degree of revenue stability protected from CRE market cyclicality, the businesses we operate are affected by the state of CRE as an investment asset class. Prolonged economic slowdowns triggered by credit liquidity, interest rates, regulatory policy, tax policy, etc., could negatively impact the market and result in fewer CRE Consulting service engagements and software sales. This could have a material adverse effect on our business, financial condition, liquidity and results of operations. Industry competition We face competition from other service, software and data analytics providers. Competition for our professional services includes a broad mix of competitors, ranging from smaller, locally‐based professional service firms to national, multi‐regional professional service providers and to large engineering, accounting and law firms. Software providers also compete with us in real estate asset management, valuation, budgeting, forecasting, reporting and lease management solutions. There are also new companies entering 41 Management’s Discussion & Analysis December 31, 2019 the market with competitive data analytics solutions. These competitive forces could result in a material adverse effect on our business, financial condition and results of operations by reducing our relative share in the markets we serve. Acquisitions We intend to make acquisitions as part of our strategy to grow our business. Acquisitions may increase the size of our operations, as well as increase the amount of indebtedness that we may have to service. The successful integration and management of acquired businesses involve numerous risks and there is no assurance that we will be able to successfully integrate our acquisitions. Such failure could adversely affect our business, financial condition and results of operations. Cloud subscriptions transition We are transitioning our Altus Analytics business to a higher mix of recurring revenues by moving our on‐ premise customers to the cloud and offering all of our software solutions on over time subscription contracts, compared to our historic reliance on perpetual term contracts for on‐premise software. As of July 2019, the majority of our subscription contracts to new customers will be recognized ratably over the term of the subscription while under an on‐premise perpetual license, revenue is generally recognized upon purchase, and for customers who still deploy the software on‐premise but on a subscription contract, we will continue to recognize a high portion of the transaction upfront. This has adversely affected, and may continue to adversely affect, our revenue and earnings in the transition period and contribute to quarterly variability, while making predicting our revenue and earnings more difficult during the transition. Additionally, our ability to move our customers to a cloud environment may take longer than we anticipate, or if customers do not adopt cloud licenses in the timeframe that we expect, our revenues and earnings may not achieve expected levels. Software renewals Although our software solutions are designed to increase the number of customers that purchase our solutions as subscriptions and create a recurring revenue stream that increases and is more predictable over time, our customers are not required to renew their subscriptions for our solutions and they may elect not to renew when or as we expect. Customer renewal rates may decline or fluctuate due to a number of factors, including offering pricing, competitive offerings, customer satisfaction, and reductions in customer spending levels or customer activity due to economic downturns, the adverse impact of import tariffs, or other market uncertainty. If our customers do not renew their subscriptions when or as we expect, or if they renew on less favorable terms, our revenues and earnings may be adversely impacted. Professional talent Our success and ability to grow are dependent on the expertise, experience and efforts of our professionals, and our ability to attract and retain qualified professionals. Competition for employees with the qualifications we desire, particularly with CRE and CRE technology experience, is intense and puts upward pressure on compensation costs. We expect that competition for qualified professionals will continue to increase, thereby causing compensation costs to escalate. Should we be unable to attract and retain professionals that meet the desired level of skills and ability, our business may be jeopardized. Third party information The quality of our databases supporting certain of our products and service engagements depends substantially on information provided by a number of sources, including CRE brokers, agents and property 42 Management’s Discussion & Analysis December 31, 2019 owners, trade associations, tax assessors, deed recorders, municipal planners, corporate web sites, the business and trade press, and selected third party vendors of business information. If we are unable to collect information from a significant number of these sources this could negatively affect certain of our products and may potentially result in subscriber cancellations and failure to acquire new subscribers. Enterprise transactions The ability to meet revenue targets for our Altus Analytics business is becoming more dependent on large enterprise transactions which have longer and less predictable sales cycles. The presence or absence of one or more of these transactions may have a material positive or negative effect on anticipated revenue in any given period. New product introductions As new products are developed and introduced to the marketplace, client adoption may not achieve anticipated levels. As a result, revenue expectations may not be achieved. If cash flows from new products do not reach sufficient levels, asset impairments may need to be taken on any capitalized costs related to the development of the products. Technological change Our ability to generate future revenues from software is dependent upon meeting the changing needs of the CRE market and evolving industry standards through new product introductions and product enhancements that respond to the technological change of our clients and the CRE industry. In order to maintain or enhance product market share over the long‐term, it is imperative to anticipate and develop products that meet client and industry needs. In the short to medium term, the ability to complete product developments on a timely basis is important to achieving revenue and cost targets. Intellectual property We rely on protecting our intellectual property rights including copyrights, trademarks, trade secrets, databases and methodologies, which have been important factors in maintaining our competitive position. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to obtain and use information that we regard as proprietary. There can be no assurance that we will be successful in protecting our proprietary rights and, if we are not, our business, financial condition, liquidity and results of operations could be materially adversely affected. Additionally, we may be subject to claims by third parties regarding technology infringement. Responding to such claims could result in substantial expense and may result in damages or injunctive relief. We may also be required to indemnify customers pursuant to our indemnification obligations, enter into licensing agreements on unfavourable terms or redesign or stop selling affected products, which could materially disrupt the conduct of our business. Technology strategy Our business relies on the use of information technology systems to deliver expert services, data and software solutions to our clients. If we are unable to effectively implement our information technology strategies or adopt new technologies and technology‐enabled processes relevant to our offerings in a timely or cost‐effective manner, or if our employees fail to adopt in an effective and timely manner new technologies or technology‐enabled processes, then our ability to deliver services and solutions that meet client needs or our ability to remain competitive in the market may be materially impaired. 43 Management’s Discussion & Analysis December 31, 2019 Information technology governance and security In the ordinary course of our business, we collect, store, process and/or transmit sensitive data belonging to clients, partners, vendors, employees and contractors as well as our own proprietary business information and intellectual property. The secure processing, maintenance and transmission of this information is critical to our workflow operations and delivery of products and services to our clients. Despite the robust security measures we’ve implemented, our data, systems and infrastructure may be vulnerable to cyber attacks or breached due to employee error, malfeasance or other disruptions. These security breaches could materially compromise our information, disrupt our business operations or cause us to breach our client obligations thereby exposing us to liability, reputational harm and/or significant remediation costs. A theft, loss, corruption, exposure, fraudulent use or misuse of client information whether by third parties or as a result of employee malfeasance could result in significant remediation and other costs, fines, litigation or regulatory actions against us, as well as cause reputational harm, negatively impact our competitive position and affect our financial results. We are increasingly relying on third‐party data storage providers, including cloud storage solution providers, resulting in less direct control over our data and system processing. Such third parties may also be vulnerable to security breaches for which we may not be indemnified and which could cause materially adverse harm to our reputation and competitive position and affect our financial results. Product pipeline Our forecast is built on a pipeline of client opportunities at varying stages within the sales process. Our ability to achieve the forecast is dependent on completion of the sales cycle and client acceptance of mutually agreeable terms. Certain factors are beyond our control, including our clients’ evaluation of our offerings, budgetary constraints, timing of their approval processes, etc. Our pipeline of opportunities may not close on terms and timing in line with our forecast. This may have a material positive or negative effect on anticipated revenue in any given period. Property tax appeals Our Property Tax practice is significantly influenced by property tax assessment regulators and their appeal settlement processes. The timing and volume of appeals processed and whether the outcomes are favourable may cause fluctuations on a quarterly and annual basis, in addition to spillover effects outside any particular valuation cycle. This may have a material positive or negative effect on anticipated revenue in any given period. Legislative and regulatory changes Changes to any of the laws, rules, regulations or policies affecting our business would have an impact on our business. Certain elements of our business are influenced by the regulatory environment of our clients, such as the requirement for pension fund managers to obtain property valuations on an annual basis. In addition, elements of our business, such as our Property Tax practice area, are significantly influenced by the regulatory regime and any changes thereto. Any change to laws, rules, regulations or policies may significantly and adversely affect our operations and financial performance. Fixed‐price and contingency engagements A portion of our revenues comes from fixed‐price engagements. A fixed‐price engagement requires us to either perform all or a specified part of work under the engagement for a specified lump sum payment. Fixed‐price engagements expose us to a number of risks not inherent in cost‐plus engagements, including underestimation of costs, ambiguities in specifications, unforeseen or changed costs or difficulties, 44 Management’s Discussion & Analysis December 31, 2019 problems with new technologies, delays beyond our control, failures of subcontractors to perform and economic or other changes that may occur during the term of engagement. Increasing reliance on fixed‐ price engagements and/or increases in the size of such engagements would increase the exposure to this risk. Economic loss under fixed‐price engagements could have a material adverse effect on our business. We are also engaged to provide services on a contingency basis at our Property Tax business, meaning that we receive our fees only if certain results are achieved. We may experience adverse financial effects from having devoted professional and other resources to a project, which, due to a failure to meet the contingency goals, are not recouped through fees. Appraisal and appraisal management mandates Some clients rotate their appraisal mandates to different service providers. As a result, we may be rotated out of an appraisal engagement. Canadian multi‐residential market A significant part of the Canadian Cost practice area’s annual revenues are derived from the rental apartment and condominium sectors of the multi‐residential development market. Any significant decline in the multi‐unit residential development market could have a material adverse effect on our Cost practice’s operating results. Customer concentration and loss of material clients Although we are not dependent on one or a small number of clients, certain of our business segments have significant clients. Loss of any significant client that contributes a substantial portion to that business segments’ revenues could have a negative impact on our revenues and could impact our ability to attract and retain other clients. Interest rates We are exposed to fluctuations in interest rates under our borrowings. Increases in interest rates may have an adverse effect on our earnings. Credit We may be materially and adversely affected if the collectability of our trade receivables is impaired for any reason. In certain parts of Asia, it is often common business practice to pay invoices over an extended period of time and/or at the completion of the project. This practice increases the risk and likelihood of future bad debts. In addition, the risk of non‐collection of trade receivables is greater in Asia Pacific compared to North American or European countries. Income tax matters In the ordinary course of business, we may be subject to audits by tax authorities. While management anticipates that our tax filing positions will be appropriate and supportable, it is possible that tax matters, including the calculation and determination of revenue, expenditures, deductions, credits and other tax attributes, taxable income and taxes payable, may be reviewed and challenged by the authorities. If such challenge were to succeed, it could have a material adverse effect on our tax position. Further, the interpretation of and changes in tax laws, whether by legislative or judicial action or decision, and the administrative policies and assessing practices of tax authorities, could materially adversely affect our tax position. 45 Management’s Discussion & Analysis December 31, 2019 Health and safety hazards Our employees are sometimes required to attend client worksites, including construction worksites in the case of both Cost and Geomatics and remote, wilderness areas in the case of Geomatics. The activities at these worksites may involve certain operating hazards that can result in personal injury and loss of life. We have implemented health and safety policies and procedures as well as provide required employee health and safety training programs. Despite these programs, there can be no assurance that our insurance will be sufficient or effective under all circumstances or against all claims or hazards to which we may be subject or that we will be able to continue to obtain adequate insurance protection. A successful claim for damage resulting from a hazard for which it is not fully insured could adversely affect our results of operations. Contractual obligations Our success depends largely on our ability to fulfill our contractual obligations and ensure client satisfaction. If we fail to properly define the scope of our work, communicate the boundaries or use of the advice and reports we provide, define the limits of our liability, satisfactorily perform our obligations, or make professional errors in the advice or services that we provide, clients could terminate projects, refuse payment for our services or take legal action for the loss or harm they suffer, thereby exposing us to legal liability, loss of professional reputation, enhanced risk of loss and/or reduced profits. Legal proceedings We are threatened from time to time with, or are named as a defendant in, or may become subject to various legal proceedings in the ordinary course of conducting our business, including lawsuits based upon professional errors and omissions. A significant judgment against us, or the imposition of a significant fine or penalty as a result of a finding that we have failed to comply with laws, regulations, contractual obligations or other arrangements or professional standards, could have a significant adverse impact on our financial performance. Should any indemnities made in our favor in respect of certain assignments fail to be respected or enforced, we may suffer material adverse financial consequences. Insurance limits Management believes that our professional errors and omissions insurance coverage and directors’ and officers’ liability insurance coverage address all material insurable risks, provide coverage that is similar to that which would be maintained by a prudent operator of a similar business and are subject to deductibles, limits and exclusions, which are customary or reasonable given the cost of procuring insurance and current operating conditions. However, there can be no assurance that such insurance will continue to be offered on an economically affordable basis, that all events that could give rise to a loss or liability are insurable or that the amounts of insurance will at all times be sufficient to cover each and every loss or claim that may occur involving our assets or operations. Dividend payments Our ability to pay dividends is dependent on our operations and assets, and is subject to various factors including our financial performance, our obligations under applicable bank credit facilities, fluctuations in our working capital, the sustainability of our margins and our capital expenditure requirements. Leverage and financial covenants Our ability to pay dividends or make other payments or advances is subject to applicable laws and contractual restrictions contained in the instruments governing any indebtedness owed by us or our subsidiaries (including the bank credit facilities). The degree to which we are leveraged could have 46 Management’s Discussion & Analysis December 31, 2019 important consequences to our shareholders. For example, our ability to obtain additional financing for working capital, capital expenditures or acquisitions in the future may be limited; a significant portion of our cash flow from operations may be dedicated to the payment of principal and interest on our indebtedness, thereby reducing funds available for future operations; certain of our borrowings will be subject to variable rates of interests, which exposes us to the risk of increased interest rates; and we may be more vulnerable to economic downturns and be limited in our ability to withstand competitor pressures. The bank credit facilities contain numerous financial covenants that limit the discretion of our management with respect to certain business matters. These covenants place significant restrictions on, among other things, our ability to create liens or other encumbrances, to pay dividends or make certain other payments, investments, loans and guarantees and to sell or otherwise dispose of assets and merge or consolidate with another entity. In addition, the bank credit facilities contain a number of financial covenants that require us to meet certain financial ratios and financial condition tests. Failure to comply with the obligations provided in the bank credit facilities could result in a default which, if not cured or waived, could result in the termination of dividends paid by us and accelerate the repayment of the relevant indebtedness. If repayments of indebtedness under the bank credit facilities were to be accelerated, there can be no assurance that our assets would be sufficient to repay the relevant indebtedness in full. There can be no assurance that future borrowings or equity financing will be available to us or available on acceptable terms, in an amount sufficient to fund our needs. If we are unable to obtain financing on the expiration of the bank credit facilities or are unable to obtain financing on favourable terms, our ability to pay dividends may be adversely affected. Share price Our common shares do not necessarily trade at prices determined by reference to the underlying value of our business and cannot be predicted. The market price of the common shares may be subject to significant fluctuations in response to variations in quarterly operating results and other factors. In addition, securities markets have experienced significant price and volume fluctuations from time to time in recent years that are often unrelated or disproportionately related to the operating performance of particular issuers. These broad fluctuations may adversely affect the market price of our common shares. Capital investment The timing and amount of capital expenditures made by us or any of our subsidiaries indirectly affects the amount of cash available for investments, debt payments or dividend payments. Dividends may be reduced, or even eliminated, at times when we deem it necessary to make significant capital or other expenditures. Issuance of additional common shares We are authorized to issue an unlimited number of common shares for such consideration and on such terms and conditions as may be determined by the Board of Directors without shareholder approval, except as required by the TSX. An issuance such as this may dilute the interests of current shareholders. 47 Management’s Discussion & Analysis December 31, 2019 Additional Information Additional information relating to Altus Group Limited, including our Annual Information Form, is available on SEDAR at www.sedar.com and on our corporate website at www.altusgroup.com under the Investors tab. Our common shares trade on the Toronto Stock Exchange under the symbol “AIF”. 48 Altus Group Limited Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars) 49 Altus Group Limited Management’s Responsibility for Financial Reporting The accompanying consolidated financial statements of Altus Group Limited are the responsibility of management and have been reviewed and approved by the Board of Directors of Altus Group Limited. The consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards and, where appropriate, reflect management’s best estimates and judgments. Management has also prepared financial and all other information in the Annual Shareholders’ Report and has ensured that this information is consistent with the consolidated financial statements. The Company maintains appropriate systems of internal control, policies and procedures, which provide management with reasonable assurance that assets are safeguarded and the financial records are reliable and form a proper basis for the preparation of the consolidated financial statements. The Board of Directors of Altus Group Limited ensures that management fulfills its responsibilities for financial reporting and internal control through an Audit Committee. This committee reviews the consolidated financial statements and reports to the Board of Directors. The committee meets with the auditor to discuss the results of the audit, the adequacy of internal accounting controls and financial reporting matters. The consolidated financial statements have been independently audited by Ernst & Young LLP in accordance with Canadian generally accepted auditing standards. Their report which follows expresses their opinion on the consolidated financial statements of the Company. “Robert Courteau” “Angelo Bartolini” Robert Courteau Chief Executive Officer February 20, 2020 Angelo Bartolini Chief Financial Officer February 20, 2020 50 Altus Group Limited Independent Auditor’s Report To the Shareholders of Altus Group Limited Opinion We have audited the consolidated financial statements of Altus Group Limited and its subsidiaries (the Group), which comprise the consolidated balance sheets as at December 31, 2019 and 2018, and the consolidated statements of comprehensive income (loss), consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRSs). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information Management is responsible for the other information. The other information comprises: Management’s Discussion and Analysis The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. 51 Altus Group Limited We obtained Management’s Discussion & Analysis and the Annual Report prior to the date of this auditor’s report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. 52 Altus Group Limited Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. The engagement partner on the audit resulting in this independent auditor’s report is Mark Vrooman. Toronto, Canada February 20, 2020 “Ernst & Young LLP” Chartered Professional Accountants Licensed Public Accountants 53 Altus Group Limited Consolidated Statements of Comprehensive Income (Loss) For the Years Ended December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Per Share Amounts) Revenues Expenses Employee compensation Occupancy Office and other operating Depreciation of right‐of‐use assets Depreciation of property, plant and equipment Amortization of intangibles Acquisition and related transition costs (income) Restructuring costs (recovery) (Gain) loss on investments Impairment charge ‐ goodwill Finance costs (income), net ‐ leases Finance costs (income), net ‐ other Profit (loss) before income taxes Income tax expense (recovery) Profit (loss) for the year attributable to shareholders Other comprehensive income (loss): Items that may be reclassified to profit or loss in subsequent periods: Currency translation differences Items that are not reclassified to profit or loss in subsequent periods: Change in fair value of FVOCI investments Other comprehensive income (loss), net of tax Total comprehensive income (loss) for the year, net of tax, attributable to shareholders For the year ended December 31, 2019 For the year ended December 31, 2018 Notes 7 $ 567,415 $ 510,429 8 4, 14 4, 14 15 16 6 18 13 17 4, 9 9 10 355,320 8,099 112,262 13,440 7,838 29,995 188 (453) (276) 6,400 2,885 6,567 25,150 6,956 $ 18,194 330,612 21,340 98,037 ‐ 8,089 41,025 2,394 6,371 (43) 13,700 ‐ 6,701 (17,797) 642 $ (18,439) 22 22 (13,772) 17,696 92 (13,680) (44,351) (26,655) $ 4,514 $ (45,094) Earnings (loss) per share attributable to the shareholders of the Company during the year Basic earnings (loss) per share Diluted earnings (loss) per share 24 24 The accompanying notes are an integral part of these consolidated financial statements. $0.46 $0.45 $(0.48) $(0.48) 54 Altus Group Limited Consolidated Balance Sheets As at December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars) Assets Current assets Cash and cash equivalents Trade receivables and other Income taxes recoverable Derivative financial instruments Non‐current assets Trade receivables and other Derivative financial instruments Investments Deferred tax assets Right‐of‐use assets Property, plant and equipment Intangibles Goodwill Total Assets Liabilities Current liabilities Trade payables and other Income taxes payable Lease liabilities Borrowings Non‐current liabilities Trade payables and other Lease liabilities Borrowings Deferred tax liabilities Total Liabilities Shareholders’ Equity Share capital Contributed surplus Accumulated other comprehensive income (loss) Retained earnings (deficit) Total Shareholders’ Equity Total Liabilities and Shareholders’ Equity Notes December 31, 2019 December 31, 2018 11 12 $ 60,262 181,955 2,403 1,449 246,069 $ 48,738 154,298 6,021 478 209,535 11 12 13 10 4, 14 15 16 17 3,696 5,975 11,481 22,163 63,729 29,037 92,595 260,380 489,056 $ 735,125 8,975 614 4,903 19,581 ‐ 33,197 114,894 266,483 448,647 $ 658,182 18 4, 14 19 $ 128,566 4,548 12,564 137,929 283,607 $ 117,520 6,802 192 666 125,180 18 4, 14 19 10 16,197 63,419 334 11,916 91,866 375,473 29,825 74 128,435 16,242 174,576 299,756 20 21 22 509,646 24,447 40,245 (214,686) 359,652 $ 735,125 491,542 21,882 54,558 (209,556) 358,426 $ 658,182 The accompanying notes are an integral part of these consolidated financial statements. Events after the Reporting Period (Note 30) Commitments and Contingencies (Note 28) Approved on behalf of the Board of Directors “Raymond Mikulich” Raymond Mikulich “Janet Woodruff” Janet Woodruff 55 Altus Group Limited Consolidated Statements of Changes in Equity For the Years Ended December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars) As at January 1, 2018 Profit (loss) for the year Other comprehensive income (loss), net of tax: Currency translation differences Change in fair value of FVOCI investments Total comprehensive income (loss) for the year Transfer of loss on disposal of FVOCI investments Transactions with owners: Dividends declared Share‐based compensation Dividend Reinvestment Plan Shares issued on exercise of options Shares issued on acquisitions Shares issued under the Equity Compensation Plan Treasury shares purchased for share‐based compensation Release of treasury shares under the Restricted Share Plan Gain (loss) on sale of RSs and shares held in escrow As at December 31, 2018 As at January 1, 2019 Profit (loss) for the year Other comprehensive income (loss), net of tax: Currency translation differences Change in fair value of FVOCI investments Total comprehensive income (loss) for the year Transfer of gain on disposal of FVOCI investments Transactions with owners: Dividends declared Share‐based compensation Dividend Reinvestment Plan Shares issued on exercise of options Shares issued on acquisitions Shares issued under the Equity Compensation Plan Treasury shares reserved for share‐based Notes Share Capital Accumulated Other Comprehensive Income (Loss) Contributed Surplus Retained Earnings (Deficit) Total Shareholders’ Equity $ 479,181 ‐ $ 18,550 ‐ $ 10,430 ‐ $ (96,842) (18,439) $ 411,319 (18,439) ‐ ‐ ‐ ‐ ‐ ‐ 4,617 1,005 3,729 2,496 ‐ ‐ ‐ ‐ ‐ 9,455 ‐ (163) ‐ (2,496) (3,061) ‐ 3,575 (3,430) 17,696 (44,351) (26,655) ‐ ‐ (18,439) 17,696 (44,351) (45,094) 70,783 (70,783) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ (23,492) ‐ ‐ ‐ ‐ ‐ ‐ ‐ (23,492) 9,455 4,617 842 3,729 ‐ (3,061) 145 ‐ 12,361 $ 491,542 (34) 3,332 $ 21,882 ‐ 70,783 $ 54,558 ‐ (94,275) $ (209,556) (34) (7,799) $ 358,426 $ 491,542 ‐ $ 21,882 ‐ $ 54,558 ‐ $ (209,556) 18,194 $ 358,426 18,194 22 22 22 25 21, 23 20 20, 21, 23 6, 20 20, 21, 23 ‐ ‐ ‐ ‐ ‐ ‐ 4,624 8,166 4,282 5,243 ‐ ‐ ‐ ‐ ‐ 9,839 ‐ (1,289) ‐ (2,891) (13,772) 92 (13,680) (633) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 18,194 633 (23,957) ‐ ‐ ‐ ‐ ‐ ‐ ‐ (13,772) 92 4,514 ‐ (23,957) 9,839 4,624 6,877 4,282 2,352 (7,705) 493 compensation 20, 23 (7,705) ‐ Release of treasury shares under the Restricted Share Plan 20, 21, 23 3,494 (3,001) Gain (loss) on sale of RSs and shares held in escrow As at December 31, 2019 21 ‐ 18,104 $ 509,646 (93) 2,565 $ 24,447 ‐ (633) $ 40,245 ‐ (23,324) $ (214,686) (93) (3,288) $ 359,652 The accompanying notes are an integral part of these consolidated financial statements. 56 Altus Group Limited Consolidated Statements of Cash Flows For the Years Ended December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars) Cash flows from operating activities Profit (loss) before income taxes Adjustments for: Depreciation of right‐of‐use assets Depreciation of property, plant and equipment Amortization of intangibles Amortization of lease inducements Finance costs (income), net ‐ leases Finance costs (income), net ‐ other Share‐based compensation Unrealized foreign exchange (gain) loss (Gain) loss on investments (Gain) loss on disposal of property, plant and equipment and intangibles (Gain) loss on equity derivatives and interest rate swaps Impairment charge ‐ leases Impairment charge ‐ goodwill Net changes in operating working capital Net cash generated by (used in) operations Less: interest paid on borrowings Less: interest paid on leases Less: income taxes paid Add: income taxes refunded Net cash provided by (used in) operating activities Cash flows from financing activities Proceeds from exercise of options Proceeds from borrowings Repayment of borrowings Payments of principal on lease liabilities Dividends paid Treasury shares purchased under the Restricted Share Plan Net cash provided by (used in) financing activities Cash flows from investing activities Purchase of investments Purchase of intangibles Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment and intangibles Proceeds from disposal of investment Acquisitions, net of cash acquired Net cash provided by (used in) investing activities Effect of foreign currency translation Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Notes For the year ended December 31, 2019 For the year ended December 31, 2018 $ 25,150 $ (17,797) 4, 14 15 16 4, 9 9 21, 23 13 12 17 20, 21, 23 19 19 4, 14 25 20, 23 13 16 15 13 6 13,440 7,838 29,995 ‐ 2,885 6,567 9,839 994 (276) 274 (6,837) 69 6,400 (23,110) 73,228 (5,045) (2,885) (15,454) 2,581 52,425 6,877 21,600 (12,872) (11,844) (19,199) (5,353) (20,791) (708) (155) (5,786) ‐ 8,089 41,025 689 ‐ 6,701 9,455 (981) (43) 1,617 4,822 ‐ 13,700 (3,826) 63,451 (5,370) ‐ (13,520) 4,930 49,491 842 51,279 (73,233) ‐ (18,798) (3,061) (42,971) (3,905) (826) (11,545) 147 549 (12,477) (18,430) (1,680) 11,524 48,738 $ 60,262 271 54,173 (27,192) 10,976 3,172 20,668 28,070 $ 48,738 The accompanying notes are an integral part of these consolidated financial statements. 57 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 1. Business and Structure Altus Group Limited (the “Company”) is a leading provider of software, data solutions and independent advisory services to the global commercial real estate (“CRE”) industry. The Company’s businesses, Altus Analytics and Altus Expert Services, reflect decades of experience, a range of expertise, and technology‐enabled capabilities. The Company’s solutions empower clients to analyze, gain insight and recognize value on their real estate investments. Headquartered in Canada, the Company has approximately 2,500 employees around the world, with operations in North America, Europe and Asia Pacific. The Company’s clients include many of the world’s largest CRE industry participants. The Company conducts its business through three business units: Altus Analytics, Commercial Real Estate Consulting and Geomatics. The address of the Company’s registered office is 33 Yonge Street, Suite 500, Toronto, Ontario, Canada. The Company is listed on the Toronto Stock Exchange (“TSX”) and is domiciled in Canada. “Altus Group” refers to the consolidated operations of the Company. 2. Basis of Preparation The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements have been prepared on a going concern basis using the historical cost convention, except for the revaluation of certain financial assets and financial liabilities, including investments, derivatives, and debt and equity instruments and contingent consideration that have been measured at fair value. The Company adopted IFRS 16, Leases, effective January 1, 2019 on a modified retrospective basis. Changes to significant accounting policies and estimates are described in Note 4. These consolidated financial statements were approved by the Board of Directors for issue on February 20, 2020. 3. Summary of Significant Accounting Policies The significant accounting policies applied in the preparation of these consolidated financial statements are set out below. 58 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d Consolidation Subsidiaries Investments in other entities where the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee, are considered subsidiaries. Subsidiaries are fully consolidated from the date at which control is determined to have occurred and are de‐consolidated from the date that the Company no longer controls the entity. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. All intercompany transactions and balances are eliminated. The Company uses the acquisition method of accounting to account for business combinations, when control is acquired. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Company. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred, the amount of any non‐controlling interest in the acquiree and the acquisition‐date fair value of any previous equity interest in the acquiree over the fair value of the Company’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the identifiable net assets acquired in the case of a bargain purchase, the difference is recognized directly in profit or loss. Associates Associates are all entities over which the Company has significant influence. The Company has significant influence when it has the power to participate in the financial and operating decisions of the investee but does not have control or joint control. Investments in associates are accounted for using the equity method and are initially recognized at cost. The Company’s investment in its associates includes goodwill identified on acquisition, net of any accumulated impairment loss. The Company’s share of its associates’ post‐acquisition profits or losses is recognized in profit or loss, and its share of post‐acquisition movements in other comprehensive income (loss) is recognized in other comprehensive income (loss). The cumulative post‐acquisition movements are adjusted against the carrying amount of the investment. 59 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the Company’s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of its associates have been changed where necessary to ensure consistency with the policies adopted by the Company. The Company reviews its investments in associates for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, the carrying value of the Company’s share of the underlying assets of associates is written down to its estimated recoverable amount, being the higher of fair value less costs to sell and value in use, and charged to profit or loss. Segment Reporting Segments are reported in a manner consistent with the internal reporting provided to the chief operating decision‐maker. Operating segments are aggregated when the criteria in IFRS 8, Operating Segments, are met. The chief operating decision‐maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer (“CEO”). Foreign Currency Translation The consolidated financial statements are presented in Canadian dollars ($), which is the Company’s functional and presentation currency. Items included in the financial statements of each of the Company’s subsidiaries are measured using the currency of the primary economic environment in which each respective entity operates. Foreign currency transactions are translated into the appropriate functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss within office and other operating expenses. The results and financial position of the Company’s subsidiaries that have a functional currency different from the presentation currency are translated into the presentation currency as follows: assets and liabilities are translated at the closing rate at the date of the balance sheet; all resulting exchange differences are recognized in other comprehensive income (loss) within income and expenses are translated at average exchange rates; and currency translation differences. 60 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate at the date of the balance sheet. Leases On January 1, 2019, the Company adopted IFRS 16, Leases, using the modified retrospective approach. As a result, the current year financial statements are presented in accordance in IFRS 16, while the comparative period has not been restated and continues to be presented in accordance with International Accounting Standard (“IAS”) 17, Leases, and IFRIC 4, Determining whether an Arrangement contains a Lease. The impacts of such changes to significant accounting policies and estimates are described in Note 4. The accounting policies applicable to leases from January 1, 2019 are outlined below: Right‐of‐use assets The Company recognizes right‐of‐use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right‐of‐use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right‐of‐use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, right‐of‐use assets are depreciated on a straight‐line basis over the shorter of its estimated useful life and the lease term. As such, the Company’s right‐of‐use assets are depreciated over the following: Property Equipment 1 ‐ 10 years 1 ‐ 4 years Right‐of‐use assets are also subject to impairment. Lease liabilities At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in‐substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees, if applicable. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as occupancy expense in the period on which the event or condition that triggers the payment occurs. 61 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in‐substance fixed lease payments or a change in the assessment to purchase the underlying asset. Short‐term leases and leases of low‐value assets The Company applies the short‐term lease recognition exemption to its short‐term leases (i.e., those leases that have a lease term of 12 months or less from commencement date and do not contain a purchase option). It also applies the lease of low‐value assets recognition exemption to leases of equipment that are considered of low value (i.e., below $5). Payments on such leases are recognized as occupancy expense on a straight‐line basis over the lease term. The accounting policies under IAS 17 and IFRIC 4 applicable to leases for the comparative period only are outlined below: Leases are classified as either operating or finance, based on the substance of the transaction determined at the inception of the lease. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases, net of any incentives received from the lessor, are charged to profit or loss within occupancy expense on a straight‐line basis over the term of the lease. Leases in which the Company has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. A portion of each lease payment is allocated to finance costs. The rental obligations, net of finance costs, are included in borrowings. The interest element of the finance cost is charged to profit or loss over the lease term so as to produce a constant periodic rate of interest on the rental obligation for each period. Property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term. Current and Deferred Income Taxes The tax expense for the year consists of current and deferred income tax. Tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income (loss) or directly in equity, in which case the tax is recognized accordingly. 62 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d Current income tax is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax filings in different jurisdictions with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax liabilities are not recognized if they arise from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax assets are recognized only to the extent that it is probable that the assets can be recovered. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets and liabilities are presented as non‐current. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Tax assets and liabilities are offset when there is a legally enforceable right to offset and when they relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Investment Tax Credits Investment tax credits, arising from qualifying scientific research and experimental development efforts pursuant to existing tax legislation, are recorded as a reduction of employee compensation expense when there is reasonable assurance of their ultimate realization. 63 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d Employee Benefits Termination benefits Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes termination benefits at the earlier of the date at which the Company can no longer withdraw the offer of these benefits, and, in the case of restructuring, the date at which the Company has recognized costs for a restructuring within the scope of IAS 37, Provisions, Contingent Liabilities and Contingent Assets, that involves the payment of termination benefits. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value. Profit‐sharing and bonus plans The Company recognizes the expense and related liability for bonuses and profit‐sharing awards over the service period where contractually obliged or when there is a past practice that has created a constructive obligation, which can be reliably measured. Revenue Recognition Revenue is recognized upon transfer of control of the promised goods or services to customers in an amount that reflects the consideration to which the Company expects to receive in exchange for those goods or services. Performance obligations are satisfied and revenue is recognized, either over time or at a point in time. Payment terms vary by contract type; however, terms are typically 30 to 60 days. Unbilled revenue on customer contracts, contract assets under IFRS 15, Revenue from Contracts with Customers, relates to conditional rights to consideration for satisfied performance obligations of contracts with customers. Trade receivables are recognized when the right to consideration becomes unconditional. Customer deposits included in trade payables and other, and deferred revenue, contract liabilities under IFRS 15, relate to payments received or due in advance of performance under contracts with customers. Contract liabilities are recognized as revenue as (or when) the Company satisfies its performance obligations under the contracts. Costs to obtain customer contracts represent commissions incurred and would not otherwise have been incurred if the contracts had not been obtained. These costs are incremental and capitalized when the Company expects to recover these costs under each respective customer contract. The asset is amortized over the term of the specific contract it relates to, consistent with the associated pattern of revenue recognition, and is recorded in employee compensation expenses. As a practical expedient, incremental costs of obtaining a contract have been expensed when incurred if the related term is one year or less. 64 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d Services The Company provides services on a time and materials basis, fixed fee basis or contingency basis. Services are offered by all segments of the Company. Performance obligations for services on a time and materials or fixed fee basis are typically satisfied over time as services are rendered. In contracts where the Company is not entitled to payment until specific performance obligations are satisfied, revenue is recognized at the time the services are delivered. At contract inception, the Company expects that the period between when the Company transfers control of a promised service to a customer and when the customer pays for that service will be one year or less. As such, the Company applies the practical expedient of not adjusting the consideration for such services for the effects of a significant financing component. Revenue is recognized based on the extent of progress towards completion of performance obligations, on a project‐by‐project basis. The method used to measure progress depends on the nature of the services. Revenue is recognized on the basis of time and materials incurred to date relative to the total budgeted inputs. The output method on the basis of milestones is used when the contractual terms align the Company’s performance with measurements of value to the customer. Revenue is recognized for services performed to date based on contracted rates and/or milestones that correspond to the consideration that the Company is entitled to invoice. Performance obligations for contingency arrangements are satisfied at a point in time upon completion of the services. The consideration for such arrangements is performance‐based and variable. The estimated variable consideration included in the transaction price considers the extent that it is highly probable that a significant reversal of revenue will not occur when the uncertainty is resolved. This is reassessed at the end of each reporting period. Service contracts are generally billed subsequent to revenue recognition and result in contract assets. In some contracts, customer deposits render contract liabilities to the extent that they exceed the contract assets, on a project‐by‐project basis. 65 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d Software and data products The Company’s Altus Analytics business offers customers licenses for on‐premise software that provide the customer with a right to use the software as it exists when the license is granted to the customer. Customers may purchase perpetual licenses or subscription licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on‐premise licenses is recognized upfront at the point in time when the software is delivered to the customer. Perpetual licenses are initially sold with one year of ongoing maintenance and the option to renew thereafter. Support services are sold with subscriptions in all cases. Revenue allocated to ongoing maintenance or support services is recognized ratably over the term of the contract. The standard warranty period is 30 days and it is not considered to be a distinct performance obligation. Contracts related to perpetual licenses and ongoing maintenance are billed upfront and prior to revenue recognition which generally results in the initial recognition of a contract liability. Contracts related to licenses sold on a subscription basis and support services will vary depending on the contractual terms. Access to software and data products over a specified contract term is provided on either a subscription or usage basis. Revenue for software and data products provided on a subscription basis is recognized ratably over the contract term, and contracts are billed upfront and prior to revenue recognition, which generally results in contract liabilities. Revenue for software products provided on a usage basis, such as the quantity of transactions processed or assets on the Company’s platform, is recognized based on the customer utilization of such services. Such contracts are billed subsequent to revenue recognition which generally results in contract assets. Financial Assets and Liabilities Financial Assets The Company classifies its financial assets as amortized cost, fair value through other comprehensive income (“FVOCI”) or fair value through profit or loss (“FVPL”). The Company classifies cash and cash equivalents, and trade receivables at amortized cost as the contractual cash flows are solely payments of principal and interest and the asset is held within a business model with the objective of holding and collecting the contractual cash flows. Cash and cash equivalents are deposits held with reputable financial institutions that pose minimal credit risk. The deposits are repayable on demand and interest, if any, is paid at a fixed or floating market rate. The Company classifies its equity investments that are not held for trading at FVOCI as the Company has made an irrevocable election at initial recognition to recognize changes in FVOCI rather than FVPL as these are strategic investments. Upon disposal of these equity investments, any balance within the other comprehensive income reserve for these equity investments is reclassified to retained earnings and is not reclassified to profit or loss. 66 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d The Company classifies its debt investments at FVOCI where the contractual cash flows are solely principal and interest and the objective of the Company’s business model is achieved both by collecting contractual cash flows and selling financial assets. The Company classifies the promissory notes receivable, investments in partnerships and derivative financial instruments at FVPL. Financial liabilities The Company classifies its financial liabilities as subsequently measured at amortized cost except for those at FVPL such as derivative financial instruments and contingent consideration payables. Financial liabilities measured at FVPL recognize changes in fair value attributable to the Company’s own credit risk in other comprehensive income instead of profit or loss, unless this would create an accounting mismatch. Impairment The Company assesses financial assets for impairment on a forward‐looking basis, with the expected credit losses associated with its debt instruments carried at amortized cost and FVOCI. Expected credit losses are based on the difference between the contractual cash flows due in accordance with the contract and all cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. For trade receivables and contract assets, the Company applies the simplified approach permitted by IFRS 9, Financial Instruments, which requires lifetime expected credit losses to be recognized from initial recognition of the financial assets, and re‐assesses at each reporting period. The Company utilizes a provision matrix based on its historical credit loss experience, adjusted for forward‐looking factors specific to customers and the economic environment. The Company includes the effect of losses and recoveries due to expected credit losses through office and other operating expenses. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the financial assets and settle the financial liabilities simultaneously. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, bank balances and short‐term, highly liquid investments, which generally have original maturities of three months or less at the time of acquisition, and that are subject to an insignificant risk of changes in value. 67 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d Derivative Financial Instruments and Hedging Activities The Company enters into interest rate swap agreements for the purposes of managing interest rate exposure. The Company also enters into equity derivatives to manage its exposure to changes in the fair value of its RSUs and DSUs issued under their respective plans due to changes in the fair value of the Company’s common shares. The Company also enters into currency forward contracts to manage its foreign exchange exposures. Derivatives are not for trading or speculative purposes. Derivatives are initially recognized at fair value when a derivative contract is entered into and are subsequently remeasured at their fair value. Depending on the nature of the derivative, changes in fair value are recognized within finance costs (income), net ‐ other, office and other operating expenses, or employee compensation expense. Property, Plant and Equipment All property, plant and equipment are stated at historical cost less depreciation and accumulated impairment losses, if any. Historical cost includes expenditures that are directly attributable to the acquisition of the assets. Costs incurred with respect to a specific asset are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of any replaced part is written off. All other repairs and maintenance are charged to profit or loss during the period in which they are incurred. Property, plant and equipment are depreciated over the useful life of the assets using the diminishing balance method as follows: Furniture, fixtures and equipment Computer equipment 20 ‐ 35% 30% Leasehold improvements are depreciated on a straight‐line basis over the shorter of the respective lease term and useful life. The residual values and useful lives of property, plant and equipment are reviewed, and adjusted if appropriate, at the end of each reporting period. Gains and losses on disposals of property, plant and equipment are determined by comparing the net proceeds with the carrying amount and recognized in office and other operating expenses. 68 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d Intangibles Intangible assets consist of: software, non‐compete agreements, and certain identifiable intangible assets acquired through the Company’s business acquisitions such as brands, customer backlog, and customer lists. The Altus Group and ARGUS brands are intangibles with an indefinite life and are not amortized. Intangibles acquired as part of a business combination are recognized at fair value at the acquisition date and carried at cost less accumulated amortization subsequent to acquisition. Software is recorded at cost less accumulated amortization. Intangibles with a finite life are amortized over the useful life of the assets using the straight‐line or diminishing balance method as follows: Brands of acquired businesses Computer application software Custom software applications Internally generated software Customer backlog Customer lists Databases Non‐compete agreements 1 ‐ 5 years straight‐line 30% diminishing balance 2 ‐ 5 years straight‐line 2 ‐ 7 years straight‐line straight‐line over remaining life of contracts 5 ‐ 10 years straight‐line 2 ‐ 4 years straight‐line straight‐line over life of agreements Costs associated with maintaining computer software applications or incurred during the research phase are recognized as an expense as incurred. Development costs that are directly attributable to the design, build and testing of identifiable and unique software applications controlled by the Company are recognized as intangibles when the following criteria are met: it is technically feasible to complete the software application so that it will be available for use or sale; management intends to complete the software application and either use or sell it; there is an ability to use or sell the software application; it can be demonstrated how the software application will generate probable future economic benefits; adequate technical, financial and other resources to complete the development and to use or sell the software application are available; and the expenditure attributable to the software application during its development can be reliably measured. Development costs that do not meet these criteria are recognized as an expense as incurred. 69 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d Impairment of Non‐financial Assets Goodwill and intangibles that have an indefinite useful life are tested annually for impairment and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Non‐financial assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use. For the purposes of assessing impairment, non‐financial assets are grouped at the lowest levels for which there are separately identifiable independent cash inflows. Non‐financial assets other than goodwill are reviewed for possible reversal of impairment at each reporting date. Goodwill is allocated to cash‐generating units (“CGUs”) for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from synergies of the business combination in which the goodwill arose. Goodwill is tested for impairment in the CGUs for which it is monitored by the Company. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the disposed entity. Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost with any difference between the proceeds, net of transaction costs, and the redemption value recognized in finance costs (income), net ‐ other over the term of the borrowings using the effective interest method. Borrowings are classified as current liabilities if the payment is due within one year or less. If the Company has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period, or any payments are due after more than one year, these are classified as non‐current liabilities. Provisions Provisions represent liabilities of the Company for which the amount or timing is uncertain. Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are not recognized for future operating losses. 70 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The difference between the nominal amount of the provision and the discounted amount is amortized as a finance cost and correspondingly increases the carrying amount of the provision over the period to settlement. Share‐based Compensation The Company operates a number of share‐based compensation plans as follows: (i) Executive Compensation Plan and Long‐Term Equity Incentive Plan The Company’s Executive Compensation Plan is comprised of two elements: a common share option plan (“Share Option Plan”) and an equity compensation plan (the “Equity Compensation Plan”). These are both equity‐settled compensation arrangements. In March 2017, a long‐term equity incentive plan (“Long‐Term Incentive Plan”) was established to simplify and replace the Executive Compensation Plan as a means of compensating designated employees of the Company for services provided and promoting share ownership and alignment with the shareholders’ interests. This plan contains comprehensive and consistent provisions to govern subsequent awards, including share options, Performance Share Units (“PSUs”) and share‐based equity awards. Options granted under the Executive Compensation Plan and Long‐Term Incentive Plan Share options issued under both plans have a maximum term of 72 months to expiry, generally vest annually over a three‐to‐four‐year period from the date of grant, and are exercisable at the designated common share price, which is calculated as the volume weighted average closing price of the Company’s common shares on the TSX for the five business days immediately preceding the grant date. Except in specific defined circumstances, options and all rights to purchase common shares are forfeited by an employee upon ceasing to be an employee of the Company. The Company recognizes the fair value of options on the grant date using the Black‐Scholes option pricing model as employee compensation expense with a corresponding credit to contributed surplus over the vesting period, which is the period over which all of the specified vesting conditions are satisfied. For awards with graded vesting, the fair value of each tranche is recognized over its respective vesting period. On the exercise of options to purchase common shares, the consideration paid by the employee and the associated amount of contributed surplus are credited to share capital within shareholders’ equity. 71 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d At the end of each reporting period, the Company re‐assesses its estimate of the number of options that are expected to vest and recognizes the impact of any revisions within employee compensation expense. Other awards granted under the Equity Compensation Plan and Long‐Term Incentive Plan Under the Equity Compensation Plan, the Company was entitled at its sole discretion to issue each participant a portion of his or her annual discretionary bonus in common shares and/or PSUs. Under the Long‐Term Incentive Plan, the Company is entitled at its sole discretion to issue each participant a portion of his or her annual discretionary bonus in PSUs. Common shares and PSUs granted under both plans are subject to certain vesting conditions and generally vest over a three‐or‐four‐year period from the date of grant equal to the amount divided by the volume weighted average closing price of the Company’s common shares on the TSX for the five business days ending on the day prior to issuance. The PSUs granted under both plans can be settled at the Company’s discretion in cash, common shares, or a combination of both. The number of PSUs that vest under the Equity Compensation Plan may range from 50% to 150% based on the Company’s total shareholder return (“TSR”) relative to a set peer group’s average TSR, according to the percentages below, subject to the recipient fulfilling the service condition: 20% on December 31 of each year for a period of three years; and 40% at the end of the three‐year period. The number of PSUs that vest under the Long‐Term Incentive Plan may range from 0% to 200% based on the Company’s TSR relative to a set peer group’s average TSR, according to the percentages below, subject to the recipient fulfilling the service condition: 20% on December 31 of each year for a period of three years; and 40% at the end of the three‐year period. As the Company typically settles these awards in common shares, the Company recognizes the fair value of the award when granted as employee compensation expense with a corresponding credit to contributed surplus over the vesting period, which is the period over which all of the specified vesting conditions are satisfied. When common shares are issued to settle the obligation, the amount previously recorded in contributed surplus is transferred to share capital within shareholders’ equity. At the end of each reporting period, the Company re‐assesses its estimate of the number of awards that are expected to vest and recognizes the impact of any revisions within employee compensation expense. 72 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d (ii) Deferred Compensation Plans The Company established Deferred Compensation Plans that are structured as a restricted share plan (“RS Plan”) in Canada and as a restricted share unit plan (“RSU Plan”) outside of Canada. Annual grants of restricted shares (“RSs”) or restricted share units (“RSUs”) form part of the total annual discretionary bonus awarded based on the Company exceeding certain annual performance targets, which typically consists of an annual cash bonus of 60‐80% and a RS or RSU award of 20‐40%. On occasion, RSs or RSUs may be granted to certain employees upon acceptance of employment, subject to certain restrictions similar to those applicable for annual grants. If annual performance targets are met, RSs and RSUs are awarded within three months of the performance year and will not be available to the employee until three years following the grant date. After three years from the date of grant, the RSs and RSUs will be released, provided, subject to certain exceptions such as retirement, disability or death, and that the individual is employed with the Company at the time of release. Participants are entitled to receive cash dividends or notional distributions that are paid on common shares, respectively. If an employee resigns from the Company or is terminated for cause, all RSs and RSUs that have not yet been released from the three‐year restriction period will be forfeited. The Company recognizes the fair value of the award when granted as employee compensation expense with a corresponding credit to contributed surplus over a 17‐quarter period beginning in the year in which performance commences and ending on the vesting date. With respect to RSs that are equity‐settled, the Company contributes funds to purchase common shares in the open market (through the facilities of the TSX or by private agreement) and are held by the Company as treasury shares until they vest. This amount is shown as a reduction in the carrying value of the Company’s common shares. As RSs are released, the portion of the contributed surplus relating to the RSs is credited to share capital within shareholders’ equity. With respect to RSUs that are cash‐settled, changes in the liability subsequent to the grant date and prior to settlement due to changes in fair value of the Company’s common shares are recorded as employee compensation expense in the period incurred. The Company enters into equity derivatives to manage its exposure to changes in the fair value of RSUs due to changes in the fair value of the Company’s common shares (Note 12). 73 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 3. Summary of Significant Accounting Policies, cont’d (iii) Directors’ Deferred Share Unit Plan The Company has a Deferred Share Unit Plan (“DSU Plan”) under which members of the Company’s non‐executive Board of Directors elect annually to receive all or a portion of their annual retainers and fees in the form of deferred share units (“DSUs”). The DSUs vest on the grant date and are settled in cash upon termination of Board service. Participants are also entitled to receive notional distributions in additional DSUs equal to dividends that are paid on common shares. The Company enters into equity derivatives to manage its exposure to changes in the fair value of DSUs due to changes in the fair value of the Company’s common shares (Note 12). For each DSU granted, the Company recognizes the market value of the Company’s common shares on the grant date as employee compensation expense with a corresponding credit to trade payables and other. Changes in the liability subsequently due to changes in fair value of the Company’s common shares are recorded as employee compensation expense in the period incurred. Share Capital Common shares issued by the Company are classified as equity. Incremental costs directly attributable to the issuance of common shares are shown in equity as a deduction, net of tax, from the proceeds. When the Company purchases its own share capital (treasury shares), the consideration paid, including any directly attributable incremental costs, net of tax, is deducted from equity attributable to the Company’s shareholders until the shares are cancelled or reissued. Where such common shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s shareholders. Dividends Dividends to the Company’s shareholders are recognized as a liability in the Company’s consolidated financial statements in the period in which the dividends are declared by the Company’s Board of Directors. 74 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 4. Changes in Significant Accounting Policies and Estimates Adoption of Recent Accounting Pronouncements The Company initially applied IFRS 16 from January 1, 2019. A number of other new standards are also effective from January 1, 2019 but do not have a material effect on the Company’s consolidated financial statements. IFRS 16, Leases IFRS 16 supersedes IAS 17, Leases, IFRIC 4, Determining whether an Arrangement contains a Lease, SIC‐ 15, Operating Leases ‐ Incentives and SIC‐27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on‐balance sheet model. Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 did not have a material impact for leases where the Company is the sublessor. The Company applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initially applying the standard is recognized at the date of initial application of January 1, 2019. Accordingly, the comparative information for 2018 is not restated, but presented under IAS 17 and related interpretations. The Company elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Company also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a remaining lease term of 12 months or less and do not contain a purchase option (“short‐term leases”), and lease contracts for which the underlying asset is of low value (“low‐value assets”). 75 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 4. Changes in Significant Accounting Policies and Estimates, cont’d The nature and effect of these changes are disclosed below. a) Nature of the effect of adoption of IFRS 16 The Company has lease contracts for various property and equipment. Before the adoption of IFRS 16, the Company classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease. A lease was classified as a finance lease if it transferred substantially all of the risks and rewards incidental to ownership of the leased asset to the Company; otherwise it was classified as an operating lease. Finance leases were capitalized at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments were apportioned between interest (recognized as finance costs) and reduction of the lease liability. In an operating lease, the leased property was not capitalized and the lease payments were recognized as occupancy expense in the consolidated statements of comprehensive income (loss) on a straight‐line basis over the lease term. Any prepaid rent and accrued rent were recognized under trade receivables and other and trade payables and other, respectively. Upon adoption of IFRS 16, the Company applied a single recognition and measurement approach for all leases, except for short‐term leases and leases of low‐value assets. The standard provides specific transition requirements and practical expedients, which have been applied by the Company. Leases previously classified as finance leases The Company did not change the initial carrying amounts of recognized assets and liabilities at the date of initial application for leases previously classified as finance leases (i.e., the right‐of‐use assets and lease liabilities equal the lease assets and liabilities recognized under IAS 17). The requirements of IFRS 16 were applied to these leases from January 1, 2019. Leases previously accounted for as operating leases The Company recognized right‐of‐use assets and lease liabilities for those leases previously classified as operating leases, except for short‐term leases and leases of low‐value assets. The right‐of‐use assets were recognized based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognized. Lease liabilities were recognized based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application. The Company also applied the available practical expedients wherein it: Used a single discount rate to a portfolio of leases with reasonably similar characteristics; Relied on its assessment of whether leases are onerous immediately before the date of initial application; Applied the short‐term leases exemptions to leases with a lease term that ends within 12 months at the date of initial application; 76 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 4. Changes in Significant Accounting Policies and Estimates, cont’d Excluded the initial direct costs from the measurement of the right‐of‐use asset at the date of initial application; and Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease. The effect of adopting IFRS 16 on the Company’s consolidated balance sheet (increase/(decrease)) as at January 1, 2019 is as follows: As Previously Reported December 31, 2018 IFRS 16 Adjustments After Adoption of IFRS 16 January 1, 2019 Assets Trade receivables and other ‐ current $ 154,298 $ (361) $ 153,937 Property, plant and equipment Right‐of‐use assets Liabilities Trade payables and other ‐ current Trade payables and other ‐ non‐current Borrowings ‐ current Borrowings ‐ non‐current Lease liabilities 33,197 ‐ 117,520 29,825 858 128,509 ‐ (1,263) 72,514 (907) (10,265) (192) (74) 82,328 31,934 72,514 116,613 19,560 666 128,435 82,328 $361 was reclassified from trade receivables and other ‐ current to right‐of‐use assets. This pertains to $497 relating to prepaid leases offset by sublease net investments of $136. Lease assets previously recognized under finance leases of $1,263 and included under property, plant and equipment were reclassified to right‐of‐use assets. Lease inducements and straight‐line rent amounts recognized in trade payables and other of $11,172 related to previous operating leases were reclassified to right‐of‐use assets. $907 of this balance was current and $10,265 was non‐current as at December 31, 2018. Right‐of‐use assets of $72,514 were recognized and presented separately in the consolidated balance sheet inclusive of the reclassifications from trade receivables and other, property, plant and equipment, and trade payables and other as noted above. Existing finance lease liabilities under borrowings of $266 were reclassified to lease liabilities. $192 of this amount was current and $74 was non‐current as at December 31, 2018. Lease liabilities of $82,328 were recognized and included under lease liabilities inclusive of the reclassifications from borrowings for existing finance leases. 77 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 4. Changes in Significant Accounting Policies and Estimates, cont’d The lease liabilities as at January 1, 2019 can be reconciled to the operating lease and other operating commitments as of December 31, 2018 as follows: Commitments as at December 31, 2018 Commitments relating to short‐term leases Commitments relating to leases of low‐value assets Non‐lease contractual commitments Gross lease liabilities on January 1, 2019 Discounting (1) Commitments relating to leases previously classified as finance leases $ 101,216 (62) (42) (7,482) 93,630 (11,568) 266 Lease liabilities as at January 1, 2019 $ 82,328 (1) Weighted average incremental borrowing rate on leases as at January 1, 2019 was 3.87%. As the Company adopted IFRS 16 using the modified retrospective method, there is no impact on the consolidated statement of comprehensive income (loss), the basic and diluted earnings (loss) per share, or the consolidated statement of cash flows as at and for the year ended December 31, 2018. b) Impact on the consolidated financial statements For the impacts of IFRS 16 on segmented information and earnings (loss) before finance costs and income taxes for the year ended December 31, 2019, and on the consolidated balance sheet as at December 31, 2019, please see Notes 7 and 14. IFRIC Interpretation 23, Uncertainty over Income Tax Treatment The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12, Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following: Whether an entity considers uncertain tax treatments separately; The assumptions an entity makes about the examination of tax treatments by taxation authorities; How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and How an entity considers changes in facts and circumstances. An entity has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty needs to be followed. 78 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 4. Changes in Significant Accounting Policies and Estimates, cont’d The Company applies significant judgment in identifying uncertainties over income tax treatments. Since the Company operates in a complex multinational environment, it assessed whether the Interpretation had an impact on its consolidated financial statements. Upon adoption of the Interpretation, the Company considered whether it has any uncertain tax positions, particularly those relating to transfer pricing. The Company’s and the subsidiaries’ tax filings in different jurisdictions include deductions related to transfer pricing and the taxation authorities may challenge those tax treatments. The Company determined, based on its tax compliance and transfer pricing study, that it is probable that its tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities. The Interpretation did not have a material impact on the consolidated financial statements. IAS 12, Income Taxes The amendments apply for annual reporting periods beginning on or after January 1, 2019 and clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognizes the income tax consequences of dividends in profit or loss, other comprehensive income (loss) or equity according to where it originally recognized those past transactions or events. Since the Company’s current practice is in line with this amendment, it had no impact on the consolidated financial statements. Other accounting pronouncements and amendments Other accounting pronouncements, and amendments proposed as part of the Annual Improvements 2015‐2017 Cycle that are assessed to have no impact on the consolidated financial statements are: Amendments to IFRS 9: Prepayment Features with Negative Compensation Amendments to IAS 19: Plan Amendment, Curtailment or Settlement Amendments to IAS 28: Long‐term Interests in Associates and Joint Ventures IFRS 3, Business Combinations IFRS 11, Joint Arrangements IAS 23, Borrowing Costs 79 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 4. Changes in Significant Accounting Policies and Estimates, cont’d Future Accounting Pronouncements The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Amendments to IFRS 3, Business Combinations In October 2018, the IASB issued amendments to the guidance in IFRS 3, Business Combinations, that revises the definition of a business. To be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. The new guidance provides a framework to evaluate when an input and a substantive process are present. To be a business without outputs, there will now need to be an organized workforce. Under the new standard, the changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions. The amendments to IFRS 3 are effective for business combinations and asset acquisitions for which the acquisition date is on or after the first annual reporting periods beginning on or after January 1, 2020. The Company will assess the impact of this standard on a case‐by‐case basis upon future acquisitions performed beginning January 1, 2020. Amendments to IAS 1 and IAS 8: Definition of Material In October 2018, the IASB issued amendments to IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of “material” across the standards and to clarify certain aspects of the definition. The new definition states that, “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendments to the definition of material are not expected to have a significant impact on the Company’s consolidated financial statements. 5. Critical Accounting Estimates and Judgments The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions concerning the future. It also requires management to exercise its judgment in applying the Company’s accounting policies and the reported amounts of assets and liabilities, revenue and expenses, and related disclosures. Estimates and judgments are continually evaluated and are based on current facts, historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Accounting estimates will, by definition, seldom equal the actual results. The following discussion sets forth management’s most significant estimates and assumptions in determining the value of assets and liabilities and the most significant judgments in applying its accounting policies. 80 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 5. Critical Accounting Estimates and Judgments, cont’d Revenue recognition and determination and allocation of the transaction price The Company estimates variable consideration for contingency arrangements on a project‐by‐project basis. Variable consideration is constrained to the extent that it is highly probable that the amount will not be subject to significant reversal when the uncertainty is resolved, which is when savings are realized by the customer, unless the contractual terms provide for an enforceable right to payment for performance completed. The transaction price is allocated on the basis of the relative standalone selling prices for contracts with more than one performance obligation. Estimation of the standalone selling price involves reasonably available data points, market conditions, entity‐specific factors and information about the customer or class of customer and to similar customers as evidence of the standalone selling price for each performance obligation; however, when one is not available, the standalone selling price is estimated. Where the observable price is not available, based on the specific facts and circumstances, either the adjusted market assessment or expected cost plus a margin approach is applied. The determination of the standalone selling prices requires significant judgment. Impairment of trade receivables and contract assets The impairment provisions for trade receivables and contract assets disclosed in Notes 11 and 26 determined under IFRS 9 are based on assumptions about risk of default and expected loss rates. The Company uses judgment in making these assumptions and selecting the inputs to the impairment calculation based on the Company’s past history, existing market conditions and forward‐looking estimates at the end of each reporting period. Such estimates and judgments could impact trade receivables, contract assets for unbilled revenue on customer contracts and office and other operating expenses. Estimated impairment of goodwill The Company tests at least annually whether goodwill is subject to any impairment in accordance with the accounting policy stated in Note 3. The recoverable amount for any CGU is determined based on the higher of fair value less costs to sell and value in use. Both of the valuation approaches require the use of estimates. 81 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 5. Critical Accounting Estimates and Judgments, cont’d Determination of purchase price allocations and contingent consideration Estimates are made in determining the fair value of assets and liabilities, including the valuation of separately identifiable intangibles acquired as part of an acquisition. Further, estimates are made in determining the value of contingent consideration payments that should be recorded as part of the consideration on the date of acquisition and changes in contingent consideration payable in subsequent reporting periods. Contingent consideration payments are generally based on acquired businesses achieving certain performance targets. The estimates are based on management’s best assessment of the related inputs used in the valuation models, such as future cash flows and discount rates. Future performance results that differ from management’s estimates could result in changes to liabilities recorded, which are recorded as they arise through profit or loss. Refer to Notes 18 and 26 for the carrying value of contingent consideration payable. Income taxes The Company is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the provision for income taxes. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income taxes in the period in which such determination is made. Refer to Note 10 for the income tax movements. 6. Acquisitions Acquisitions in 2019 Acquisition of One11 Advisors, LLC On July 1, 2019, the Company acquired all the issued and outstanding shares of One11 Advisors, LLC (“One11”) and its subsidiaries for USD11,000 (CAD14,395) in cash and common shares, subject to closing working capital adjustments of USD629 (CAD823). As part of the transaction, the Company entered into non‐compete agreements with key members of management of One11. On closing, the Company paid cash of USD7,700 (CAD10,077). The common shares USD3,300 (CAD4,318) were issued from treasury. The common shares will be held in escrow and released on the fourth anniversary of the closing date, subject to compliance with certain terms and conditions. One11 is a U.S.‐based real estate software consulting firm that provides integrated advisory and managed services for real estate organizations’ front to back office strategies, processes and technology. For accounting purposes, the consideration transferred for the acquired business includes a discount on the value of the common shares to reflect the trading restrictions placed on these common shares. 82 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 6. Acquisitions, cont’d Acquisition of Caruthers & Associates, Inc. On July 1, 2019, the Company acquired certain operating assets of Caruthers & Associates, Inc. (“Caruthers”) for USD4,000 (CAD5,235) in cash, common shares and contingent consideration, subject to working capital adjustments of USD119 (CAD156). As part of the transaction, the Company entered into a non‐compete agreement with a key member of management of Caruthers. As consideration for these assets on closing, the Company paid cash of USD2,000 (CAD2,617) and common shares of USD1,000 (CAD1,309). The common shares will be held in escrow and released on the third anniversary of the closing date, subject to compliance with certain terms and conditions. The purchase agreement provides for contingent consideration of USD1,000 (CAD1,309), subject to certain performance targets being achieved over a 30‐month period from the closing date. If mutually agreed upon, the contingent consideration may be settled in cash or common shares. Caruthers is a U.S.‐based property tax consulting firm. Its team of seven employees based out of Memphis has been integrated with the Company’s U.S. Property Tax business, expanding its geographic footprint in tax services in the U.S. For accounting purposes, the consideration transferred for the acquired business includes a discount on the value of the common shares to reflect the trading restrictions placed on these common shares. 83 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 6. Acquisitions, cont’d The purchase price allocation is based on management’s best estimate of fair value, and at the acquisition date is as follows: Acquisition‐related costs (included in acquisition and related transition costs (income) in the consolidated statements of comprehensive income (loss)) Consideration: Cash Common shares Contingent consideration Less: discount on common shares Less: discount on contingent consideration Less: consideration transferred for non‐compete agreements Consideration transferred for acquired businesses Recognized amounts of identifiable assets acquired and liabilities assumed: Cash and cash equivalents Trade receivables and other Income taxes recoverable Trade payables and other Intangibles Total identifiable net assets of acquired businesses Year ended December 31, 2019 One11 Caruthers Total $ 154 $ 123 $ 277 $ 10,900 $ 2,773 $ 13,673 4,318 ‐ 15,218 (1,083) ‐ 14,135 (1,552) 12,583 1,040 3,442 123 (2,928) 6,367 8,044 1,309 1,309 5,391 (262) (151) 4,978 (363) 4,615 ‐ 417 ‐ (111) 2,745 3,051 5,627 1,309 20,609 (1,345) (151) 19,113 (1,915) 17,198 1,040 3,859 123 (3,039) 9,112 11,095 Goodwill $ 4,539 $ 1,564 $ 6,103 Goodwill and intangibles deductible for tax purposes $ 12,458 $ 4,672 $ 17,130 Goodwill arising from the acquisitions relate to expected synergies with the existing businesses and the opportunities to strengthen and complement offerings with greater breadth and depth to both existing and acquired clients. 84 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 6. Acquisitions, cont’d Revenues and profit (loss) for One11 for the period from July 1, 2019 to December 31, 2019 included in the consolidated statements of comprehensive income (loss) are $7,953 and $211, respectively. Revenues and profit (loss) for Caruthers for the period from July 1, 2019 to December 31, 2019 included in the consolidated statement of comprehensive income (loss) are $735 and $(110), respectively. For the acquisitions, intangibles acquired are as follows: Finite life assets Non‐compete agreements Customer lists Customer backlog Acquisitions in 2018 Year ended December 31, 2019 One11 Caruthers Total $ 1,552 $ 363 $ 1,915 6,190 177 1,781 964 7,971 1,141 $ 7,919 $ 3,108 $ 11,027 Acquisition of New Market Real Estate Group, LLC On January 1, 2018, the Company acquired certain operating assets of New Market Real Estate Group, LLC (“New Market”) for $1,004 in common shares. The common shares will be held in escrow and released on the third anniversary of the closing date, subject to compliance with certain terms and conditions. As part of the transaction, the Company entered into a non‐compete agreement with a key member of management of New Market. Based in Maryland and founded in 2001, New Market offers a full range of real estate services throughout the United States including real estate research, valuation, acquisition, investment analysis and counselling services. The addition of New Market strengthens the Company’s real estate advisory services offerings by enhancing the Company’s depth of valuation expertise to better serve its large institutional investors. For accounting purposes, the consideration transferred for the acquired business includes a discount on the value of the common shares to reflect the trading restrictions placed on these common shares. 85 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 6. Acquisitions, cont’d Acquisition of Aspect Property Consultants LLP On February 14, 2018, the Company acquired certain operating assets of Aspect Property Consultants LLP (“Aspect”) for GBP4,250 (CAD7,421) in cash, common shares and contingent consideration. As consideration for these assets, the Company paid cash of GBP1,760 (CAD3,073) and common shares of GBP620 (CAD1,083) and the Company estimated contingent consideration of GBP1,870 (CAD3,265). As part of the transaction, the Company entered into non‐compete agreements with key management of Aspect. With offices located in London, Heathrow and Basingstoke, U.K. and founded in 2009, Aspect is a commercial property consultancy firm specializing in the South East U.K. business space market with a particular focus on the West London warehouse market. The addition of Aspect expands the Company’s market share and strengthens the Company’s offerings with complementary service lines in the U.K. in support of the Company’s current growth initiatives. The purchase agreement provides for maximum contingent consideration of GBP2,620, subject to certain performance targets being achieved over a two‐year period from the closing date. The common shares will be held in escrow and released in three annual installments commencing on the first anniversary of the closing date, subject to compliance with certain terms and conditions. For accounting purposes, the consideration transferred for the acquired business includes a discount on the value of the common shares to reflect the trading restrictions placed on these common shares. In addition, the consideration transferred for the acquired business includes a discount on the contingent consideration payable to reflect the time value of money. Acquisition of Taliance Group SAS On July 1, 2018, the Company acquired all the issued and outstanding shares of Taliance Group SAS and its subsidiaries (“Taliance”) for EUR20,000 (CAD30,668) in cash and common shares, subject to closing adjustments. On closing, EUR2,160 (CAD3,312) of common shares were issued from treasury and the remainder of the purchase price was paid with cash drawn from the revolving term facility. The common shares will be held in escrow and released in three annual installments commencing on the first anniversary of the closing date, subject to compliance with certain terms and conditions. Taliance provides cloud‐based collaborative business solutions to alternative investment firms globally allowing them to improve their modelling, forecasting and risk management processes in real time. Based in Paris, Taliance also has offices in London and New York. The addition of Taliance, which can be deployed and integrated with ARGUS Enterprise, allows the Company to expand its position in Europe and to deliver cloud software solutions with a comprehensive investment management capability that provides flexibility and transparency to manage the most complex investment structures and scenarios. Taliance also provides a foundation for growth in the fund management segment of the market globally. For accounting purposes, the consideration transferred for the acquired business includes a discount on the value of the common shares to reflect the trading restrictions placed on these common shares. 86 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 6. Acquisitions, cont’d The purchase price allocation was based on management’s best estimate of fair value, and at the acquisition date was as follows: Acquisition‐related costs (included in acquisition and related transition costs in the consolidated statements of comprehensive income (loss)) Consideration: Cash Common shares Contingent consideration Less: discount on common shares Less: discount on contingent consideration Less: consideration transferred for non‐compete agreements Consideration transferred for acquired businesses Recognized amounts of identifiable assets acquired and liabilities assumed: Cash and cash equivalents Trade receivables and other Trade payables and other Property, plant and equipment Borrowings Deferred income taxes, net Intangibles Total identifiable net assets of acquired businesses Year ended December 31, 2018 New Market Aspect Taliance Total $ 46 $ 130 $ 1,012 $ 1,188 $ ‐ $ 3,073 $ 26,330 $ 29,403 1,004 ‐ 1,004 (351) ‐ 653 (238) 415 ‐ ‐ ‐ ‐ ‐ ‐ 78 78 1,083 3,265 7,421 (325) (315) 6,781 (2,064) 4,717 ‐ ‐ ‐ ‐ ‐ (813) 2,718 1,905 3,312 ‐ 29,642 (994) ‐ 28,648 ‐ 28,648 5,399 3,265 38,067 (1,670) (315) 36,082 (2,302) 33,780 2,211 2,429 2,211 2,429 (4,450) (4,450) 44 (247) (3,521) 12,517 8,983 44 (247) (4,334) 15,313 10,966 Goodwill $ 337 $ 2,812 $ 19,665 $ 22,814 Goodwill and intangibles deductible for tax purposes $ 1,004 $ ‐ $ ‐ $ 1,004 Goodwill arising from the acquisitions relate to expected synergies with the existing businesses and the opportunities to strengthen and complement offerings with greater breadth and depth to both existing and acquired clients. 87 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 6. Acquisitions, cont’d New Market was fully integrated with Altus Analytics and the stand‐alone revenues and profit (loss) could not be determined. Revenues for Aspect for the period from February 14, 2018 to December 31, 2018 that were included in the consolidated statements of comprehensive income (loss) are $2,281. Expenses for Aspect were fully integrated with Property Tax and the stand‐alone profit (loss) could not be determined. Revenues and profit (loss) for Taliance for the period from July 1, 2018 to December 31, 2018 that were included in the consolidated statement of comprehensive income (loss) are $2,504 and $(1,918), respectively. For all acquisitions, the intangibles acquired were as follows: Finite life assets Non‐compete agreements Customer lists Customer backlog Internally generated software Year ended December 31, 2018 New Market Aspect Taliance Total $ 238 $ 2,064 $ ‐ $ 2,302 ‐ 78 ‐ 1,992 726 ‐ 986 ‐ 11,531 2,978 804 11,531 $ 316 $ 4,782 $ 12,517 $ 17,615 88 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 7. Segmented Information The segmentation reflects the way the CEO allocates resources and assesses performance. The CEO considers the business from a core service perspective. The areas of core service are Altus Analytics, Commercial Real Estate Consulting and Geomatics. Altus Analytics provides data, analytics software and technology‐related services. Proprietary data and data analytics platforms provide comprehensive real estate information and enable performance reviews, benchmarking and attribution analysis of commercial real estate portfolios. Software, such as ARGUS branded products, represents comprehensive global solutions for managing commercial real estate portfolios and improve the visibility and flow of information throughout critical processes. Commercial Real Estate Consulting services ‐ Property Tax, and Valuation and Cost Advisory services ‐ span the life cycle of commercial real estate ‐ feasibility, development, acquisition, management and disposition. Property Tax performs assessment reviews, management, appeals and personal property and state and local tax advisory services. Valuation and Cost Advisory provides appraisals of real estate portfolios, valuation of properties for transactional purposes, due diligence and litigation and economic consulting, in addition to services in the areas of construction feasibility studies, budgeting, cost and loan monitoring and project management. Geomatics delivers land surveys and mapping for setting of property boundaries, route and corridor selection, land settlement, construction developments, and oil field and well‐sites. The accounting policies of the segments are the same as those applied in these consolidated financial statements. Revenue transactions between segments are valued at market rates and eliminated on consolidation. Revenues represent those recognized from contracts with customers. The CEO assesses the performance of the operating segments based on a measure of Adjusted EBITDA. This measurement basis represents profit (loss) before income taxes adjusted for the effects of occupancy costs calculated on a consistent basis to 2018, finance costs (income), amortization of intangibles, depreciation of property, plant and equipment, depreciation of right‐of‐use assets, acquisition and related transition costs (income), restructuring costs (recovery), share of profit (loss) of associates, unrealized foreign exchange gains (losses), gains (losses) on disposal of property, plant and equipment and intangibles, gains (losses) on investments, impairment charges, non‐cash Equity Compensation Plan and Long‐Term Incentive Plan costs, gains (losses) on derivatives, gains (losses) on hedging transactions, gains (losses) on equity derivatives net of mark‐to‐market adjustments on related RSUs and DSUs being hedged, and other costs or income of a non‐operating and/or non‐ recurring nature. Subsequent to the adoption of IFRS 16, on January 1, 2019, the measurement of Adjusted EBITDA has been modified to reflect occupancy expense on a consistent basis as 2018, which is a non‐GAAP amount, effective January 1, 2019. Management believes that the non‐GAAP measure provides useful information to both management and investors in measuring the Company’s financial performance. 89 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 7. Segmented Information, cont’d The following table provides a reconciliation between Adjusted EBITDA and profit (loss): Adjusted EBITDA Occupancy expense calculated on a similar basis prior to the adoption of IFRS 16 (1) Depreciation ‐ right‐of‐use assets Depreciation and amortization ‐ other Acquisition and related transition (costs) income Unrealized foreign exchange gain (loss) (2) Gain (loss) on disposal of property, plant and equipment and intangibles (2) Non‐cash Equity Compensation Plan and Long‐Term Incentive Plan costs (3) Gain (loss) on equity derivatives net of mark‐to‐market adjustments on related RSUs and DSUs being hedged (3) Gain (loss) on derivatives (2) Restructuring (costs) recovery Gain (loss) on investments (4) Impairment charge ‐ leases Impairment charge ‐ goodwill Other non‐operating and/or non‐recurring income (costs) (5) Earnings (loss) before finance costs and income taxes Finance (costs) income, net ‐ leases Finance (costs) income, net ‐ other Profit (loss) before income taxes Income tax (expense) recovery Profit (loss) for the year Year ended December 31, 2019 Year ended December 31, 2018 $ 88,145 $ 70,904 13,499 (13,440) (37,833) (188) (994) (274) (5,895) 1,109 ‐ 453 276 (69) (6,400) (3,787) 34,602 (2,885) (6,567) 25,150 (6,956) ‐ ‐ (49,114) (2,394) 981 (1,617) (5,867) (1,276) 268 (6,371) 43 ‐ (13,700) (2,953) (11,096) ‐ (6,701) (17,797) (642) $ 18,194 $ (18,439) (1) Management’s use of the non‐GAAP lease expense calculated on a similar basis prior to the adoption of IFRS 16 is used when analyzing operating performance. Management believes that the non‐GAAP measure provides useful information to both management and investors in measuring the Company’s financial performance. Refer to Notes 4 and 14 for the impacts and adjustments of the Company’s consolidated financial statements for the adoption of IFRS 16. Included in office and other operating expenses in the consolidated statements of comprehensive income (loss). Included in employee compensation expenses in the consolidated statements of comprehensive income (loss). (2) (3) (4) Gain (loss) on investments for the year ended December 31, 2019 and 2018 relates to changes in fair value of investments in partnerships. (5) Other non‐operating and/or non‐recurring income (costs) for the year ended December 31, 2019 relate to (i) costs related to the departure of a senior executive, (ii) legal, advisory, and other consulting costs related to a Board strategic initiative, and (iii) transaction and other related costs. Other non‐operating and/or non‐recurring income (costs) for the year ended December 31, 2018 relate to (i) non‐recurring legal matters and related costs, (ii) transactional costs for tax planning and restructuring of legal entities within the group, and (iii) costs related to the departures of certain senior executives. These are included in office and other operating expenses in the consolidated statements of comprehensive income (loss). 90 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 7. Segmented Information, cont’d The following summary presents certain financial information regarding the Company’s segments: Segment Revenues and Expenditures Altus Analytics Commercial Real Estate Consulting Geomatics Corporate (1) Eliminations Total Year ended December 31, 2019 Property Tax Valuation and Cost Advisory Total Revenues from external customers Inter‐segment revenues Total segment revenues $ 201,408 $ 213,483 $ 110,864 $ 324,347 $ 41,660 $ ‐ $ ‐ $ 567,415 543 ‐ (215) (215) 38 201,951 213,483 110,649 324,132 41,698 ‐ ‐ (366) ‐ (366) 567,415 Adjusted EBITDA 36,803 62,746 13,337 76,083 3,436 (28,177) Depreciation and amortization ‐ right‐of‐use assets (2) Depreciation and amortization ‐ other Impairment charge ‐ goodwill Finance costs (income), net ‐ leases (2) Finance costs (income), net ‐ other Income tax expense (recovery) 1,976 1,503 1,592 3,095 575 7,794 13,199 17,867 2,573 20,440 2,446 1,748 ‐ ‐ ‐ ‐ 6,400 ‐ 138 248 213 461 71 2,215 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 6,567 6,956 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 88,145 13,440 37,833 6,400 2,885 6,567 6,956 (1) Corporate includes global corporate office costs, finance costs (income), net ‐ other and income tax expense (recovery). (2) As a result of the adoption of IFRS 16, depreciation and amortization ‐ right‐of‐use assets and finance costs (income), net ‐ leases have been presented separately (Notes 4 and 14). Unsatisfied performance obligations on fixed long‐term customer contracts within Altus Analytics and the Asia Pacific Cost Advisory practice are $41,161 as of December 31, 2019 (2018 ‐ $29,018). It is expected that approximately 48% of the fixed customer contract value will be recognized as revenue over the next 12 months, approximately 31% in the year following, and the balance thereafter. This amount excludes contract values that have variable or contingency based arrangements, which account for a significant portion of the revenue recognized in the current year. 91 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 7. Segmented Information, cont’d Altus Analytics Commercial Real Estate Consulting Geomatics Corporate (1) Eliminations Total Year ended December 31, 2018 Property Tax Valuation and Cost Advisory Total Revenues from external customers Inter‐segment revenues Total segment revenues $ 182,700 $ 176,734 $ 107,369 $ 284,103 $ 43,626 $ ‐ $ ‐ $ 510,429 728 ‐ (155) (155) 6 183,428 176,734 107,214 283,948 43,632 ‐ ‐ (579) ‐ (579) 510,429 Adjusted EBITDA 41,478 36,029 12,791 48,820 3,598 (22,992) Depreciation and amortization ‐ right‐of‐use assets (2) Depreciation and amortization ‐ other Impairment charge ‐ goodwill Finance costs (income), net ‐ leases (2) Finance costs (income), net ‐ other Income tax expense (recovery) ‐ ‐ ‐ ‐ ‐ ‐ 14,313 26,338 2,719 29,057 3,760 1,984 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 13,700 ‐ ‐ ‐ ‐ ‐ 6,701 642 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 70,904 ‐ 49,114 13,700 ‐ 6,701 642 (1) Corporate includes global corporate office costs, finance costs (income), net ‐ other and income tax expense (recovery). (2) As a result of the adoption of IFRS 16, depreciation and amortization ‐ right‐of‐use assets and finance costs (income), net ‐ leases have been presented separately beginning January 1, 2019 (Notes 4 and 14). Geographic Information ‐ Revenue from External Customers Canada U.S. Europe Asia Pacific Total Year ended December 31, 2019 Year ended December 31, 2018 $ 223,211 $ 210,213 207,152 105,024 32,028 180,970 86,700 32,546 $ 567,415 $ 510,429 92 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 8. Employee Compensation Salaries and benefits Share‐based compensation (Note 23) Year ended December 31, 2019 Year ended December 31, 2018 $ 345,481 $ 321,157 9,839 9,455 $ 355,320 $ 330,612 During 2019, the Company incurred termination benefits of $2,796 of which $1,750 was recorded in office and other operating expense (2018 ‐ $2,048 and $1,428, respectively). 9. Finance Costs (Income), Net Interest on bank credit facilities Interest on lease liabilities (Note 4 and 14) Interest on finance leases Contingent consideration payables: unwinding of discount (Note 26) Provisions: unwinding of discount (Note 18) Change in fair value of interest rate swaps Finance costs Finance income Year ended December 31, 2019 Year ended December 31, 2018 $ 5,627 $ 6,013 2,885 ‐ 467 116 505 9,600 (148) ‐ 35 648 36 218 6,950 (249) Finance costs (income), net $ 9,452 $ 6,701 93 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 10. Income Taxes Year ended December 31, 2019 Year ended December 31, 2018 Current income taxes Current income tax on profits for the year $ 14,571 $ 12,644 Adjustments in respect of prior years Total current income taxes Deferred income taxes Origination and reversal of temporary differences Adjustments in respect of prior years Change in income tax rates Total deferred income taxes Income tax expense (recovery) (263) 14,308 (7,332) (20) ‐ (7,352) 65 12,709 (12,174) 100 7 (12,067) $ 6,956 $ 642 The reconciliation between income tax expense and the tax applicable to profits in Canada is as follows: Profit (loss) before income taxes $ 25,150 $ (17,797) Year ended December 31, 2019 Year ended December 31, 2018 Tax calculated at domestic income tax rate applicable to profits in Canada Tax effects of: Impact of countries with different income tax rates Impairment charge Loss (profit) not subject to income taxes Change in income tax rates Expenses not deductible for income tax purposes Other 6,765 26.90% (4,787) 26.90% (2,395) 1,070 424 ‐ 1,564 (472) (9.52%) 4.25% 1.69% ‐ 6.22% (1.88%) 1,653 2,290 (62) 7 1,123 418 (9.29%) (12.87%) 0.35% (0.04%) (6.31%) (2.35%) (3.61%) Income tax expense (recovery) $ 6,956 27.66% $ 642 94 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 10. Income Taxes, cont’d Deferred Income Taxes The gross movement on the deferred income taxes account is as follows: Balance as at January 1, 2018 (Charged) credited to profit or loss (Charged) credited to other comprehensive income (loss) (Charged) credited to goodwill on account of acquisitions Exchange differences and others Balance as at December 31, 2018 (Charged) credited to profit or loss (Charged) credited to other comprehensive income (loss) Exchange differences and others Balance as at December 31, 2019 Amount $ (12,291) 12,067 6,892 (4,273) 944 3,339 7,352 (35) (409) $ 10,247 The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: Non‐capital Income Tax Losses Tax Deductible Goodwill Other Total Deferred income tax assets Balance as at January 1, 2018 $ 3,917 $ 12,181 $ 12,679 $ 28,777 (Charged) credited to profit or loss Exchange differences and others Balance as at December 31, 2018 (Charged) credited to profit or loss Exchange differences and others (481) 309 3,745 (825) (148) 2,502 1,019 15,702 532 (706) (1,329) 875 12,225 2,436 (381) 692 2,203 31,672 2,143 (1,235) Balance as at December 31, 2019 $ 2,772 $ 15,528 $ 14,280 $ 32,580 95 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 10. Income Taxes, cont’d Accelerated Tax Depreciation Unbilled Revenue on Customer Contracts Intangibles Other Total Deferred income tax liabilities Balance as at January 1, 2018 $ (269) $ (734) $ (27,614) $ (12,451) $ (41,068) (Charged) credited to profit or loss 183 156 5,925 5,111 11,375 (Charged) credited to other comprehensive income (loss) (Charged) credited to goodwill on account of acquisitions Exchange differences and others Balance as at December 31, 2018 (Charged) credited to profit or loss (Charged) credited to other comprehensive income (loss) Exchange differences and others ‐ ‐ ‐ (86) (112) ‐ ‐ ‐ ‐ ‐ (578) 338 ‐ ‐ ‐ 6,892 6,892 (4,273) (1,174) (27,136) 4,809 ‐ 793 ‐ (85) (533) 174 (35) 33 (4,273) (1,259) (28,333) 5,209 (35) 826 Balance as at December 31, 2019 $ (198) $ (240) $ (21,534) $ (361) $ (22,333) Deferred income tax assets are recognized for tax loss carryforwards to the extent that the realization of the related tax benefit through future taxable profits is probable based on future estimated profits in excess of the profits arising on the reversal of existing taxable temporary differences. Evidence supporting recognition of these deferred income tax assets includes earnings forecasts and the utilization of tax losses in the current year. As at December 31, 2019, there are recognized net operating loss carryforwards from U.S. acquisitions, which may be applied against taxable income of future years, no later than as follows: 2020 2021 2022 2023 2023 Amount $ 3,490 3,490 1,349 1,905 378 $ 10,612 96 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 10. Income Taxes, cont’d Net operating losses of $72,045 in the U.S. were not benefitted on acquisition due to certain limitations. These losses will expire between 2020 and 2021. In addition, there are unrecognized net operating loss carryforwards in the U.S. of approximately $1,198 that are available to reduce taxable income of a foreign subsidiary; $117 of losses expire between 2034 and 2036 and $1,081 of losses may be carried forward indefinitely. In Europe, there are unrecognized loss carryforwards of approximately $5,040 that may be carried forward indefinitely. Net operating losses of approximately $717 are recognized that may be carried forward indefinitely, which may be applied against taxable income of future years. The Company has net operating losses of approximately $872 in Asia Pacific that are recognized and may be carried forward indefinitely. It has unrecognized net operating loss carryforwards in Asia Pacific of approximately $6,315 that are available to reduce taxable income of certain foreign subsidiaries; $2,023 of losses expire between 2020 and 2027 and $4,292 of losses may be carried forward indefinitely. The Company has net operating losses of approximately $508 in Canada that are recognized and may be carried forward 20 years. 11. Trade Receivables and Other Trade receivables Less: loss allowance provision (Note 26) Trade receivables, net Contract assets: unbilled revenue on customer contracts (1) Deferred costs to obtain customer contracts Prepayments Promissory notes receivable Other receivables Less: non‐current portion December 31, 2019 December 31, 2018 $ 127,462 $ 108,868 10,924 116,538 53,136 1,745 12,516 ‐ 1,716 185,651 3,696 9,013 99,855 43,224 1,003 12,114 6,552 525 163,273 8,975 (1) On December 31, 2019, contract assets are stated net of expected credit losses of $1,364 (2018 ‐ $1,056) (Note 26). $ 181,955 $ 154,298 For the year ended December 31, 2019, $1,128 of amortization associated with deferred costs to obtain customer contracts was expensed to the consolidated statements of comprehensive income (loss) (2018 ‐ $522). For the years ended December 31, 2019 and 2018, no impairment losses on deferred costs were recognized. 97 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 11. Trade Receivables and Other, cont’d On March 15, 2019, the Company converted its promissory note receivable and accrued interest receivable in Waypoint Building Group Inc. (“Waypoint”) into preferred shares. Refer to Note 13 for more details. 12. Derivative Financial Instruments Assets Equity derivatives Interest rate swaps Less: non‐current portion December 31, 2019 December 31, 2018 $ 7,287 $ 450 137 7,424 5,975 642 1,092 614 $ 1,449 $ 478 The following equity derivatives were outstanding as at December 31, 2019 and 2018: Effective Date Description Contract Expiry December 31, 2019 December 31, 2018 Notional Amount Fair Value (2) Notional Amount Fair Value (2) March 28, 2014 Hedging 161,663 (2018 ‐ 110,467) DSUs April 1, 2016 April 3, 2017 March 8, 2018 March 13, 2019 Hedging nil (2018 ‐ 141,192) RSUs relating to 2015 performance year Hedging 93,891 (2018 ‐ 99,640) RSUs relating to 2016 performance year Hedging 106,223 (2018 ‐ 93,523) RSUs relating to 2017 performance year Hedging 129,472 (2018 ‐ nil) RSUs relating to 2018 performance year March 20, 2020 (1) $ 3,859 $ 2,263 $ 2,552 $ 53 April 3, 2019 ‐ ‐ 2,855 478 March 31, 2020 2,244 1,312 2,381 (32) March 31, 2021 2,599 1,423 2,254 (49) March 31, 2022 2,619 2,289 ‐ ‐ (1) Subject to an automatic one‐year extension, unless prior notice is given by the Company. (2) The fair values indicated for the equity derivatives are where the values are in excess of/(deficit from) the notional amounts. $ 11,321 $ 7,287 $ 10,042 $ 450 98 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 12. Derivative Financial Instruments, cont’d The following interest rate swaps were outstanding in aggregate as at December 31, 2019 and 2018: Effective Date Fixed Interest Rate (per annum) Notional Amount Fair Value Fair Value December 31, 2019 December 31, 2018 May 15, 2015 1.48% $ 65,000 $ 137 $ 642 Contract Expiry May 15, 2020 13. Investments Investments in equity instruments Investments in partnerships December 31, 2019 December 31, 2018 $ 9,288 $ 3,408 2,193 1,495 $ 11,481 $ 4,903 On March 15, 2019, the Company converted its promissory note receivable and accrued interest receivable in Waypoint into preferred shares. During the year ended December 31, 2019, fair value adjustments of $(470) have been recorded through other comprehensive income (loss). During the year ended December 31, 2019, Honest Buildings Inc. (“Honest Buildings”) was acquired by Procore Technologies, Inc. Prior to the transaction, a fair value gain of $722 was recorded through other comprehensive income (loss). The disposal of the investment in Honest Buildings was settled in cash and preferred shares. Following the exchange, accumulated other comprehensive income (loss) relating to Honest Buildings of $633 net of tax was transferred to retained earnings (deficit). In addition, the Company also purchased additional common shares in REIX Corporation for $182, and contributed $526 towards capital in various partnerships. In September 2018, the Company sold its investment in Real Matters for $54,173 and the proceeds were used to reduce the borrowings under the bank credit facilities. 99 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 14. Leases The Company adopted IFRS 16, Leases, effective January 1, 2019. Refer to Note 3 for the Company’s significant accounting policies with respect to leases and Note 4 for details of the Company’s adoption of IFRS 16. Set out below, are the carrying amounts of the Company’s right‐of‐use assets and lease liabilities under IFRS 16 and the movements during the year: Cost Balance, beginning of year $ ‐ $ ‐ $ ‐ Recorded upon adoption of IFRS 16 (Note 4) 71,160 91 71,251 Year ended December 31, 2019 Right‐of‐Use Assets Property Equipment Total Reclassified from Property, Plant and Equipment upon adoption of IFRS 16 (Note 15) Balance, beginning of year under IFRS 16 Exchange differences Additions Disposals Impairment Balance, end of year Accumulated depreciation Balance, beginning of year Reclassified from Property, Plant and Equipment upon adoption of IFRS 16 (Note 15) Balance, beginning of year under IFRS 16 Exchange differences Depreciation charge Disposals Balance, end of year ‐ 71,160 (1,386) 8,357 (2,425) (69) 75,637 ‐ ‐ ‐ 53 3,289 3,380 (40) ‐ (293) ‐ 3,047 3,289 74,540 (1,426) 8,357 (2,718) (69) 78,684 ‐ ‐ (2,026) (2,026) 28 (2,026) (2,026) 81 (12,229) (1,211) (13,440) 162 268 430 (12,014) (2,941) (14,955) Net book value as at December 31, 2019 $ 63,623 $ 106 $ 63,729 100 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 14. Leases, cont’d As at January 1, 2019 Recorded upon adoption of IFRS 16 (Note 4) Finance lease liabilities reclassified upon adoption of IFRS 16 Balance, beginning of year under IFRS 16 Exchange differences Additions Disposals Interest expense Payments As at December 31, 2019 Less: non‐current portion as at December 31, 2019 Current portion as at December 31, 2019 Lease Liabilities $ ‐ 82,062 266 82,328 (1,636) 8,354 (1,219) 2,885 (14,729) 75,983 63,419 $ 12,564 For the year ended December 31, 2019, the Company paid a total cash outflow of $14,729 for leases, and recognized rent expense from short‐term leases of $488, leases of low‐value assets of $74 and variable lease payments of $6,831 in occupancy expense. The weighted average incremental borrowing rate on lease liabilities as at December 31, 2019 is 3.79%. The disclosures previously made by the Company under IAS 17 and IFRIC 4 applicable to finance leases which are now included in lease liabilities above, for the comparative period only are outlined below: Finance lease liabilities Future minimum lease payments required under finance leases, which expire between 2020 and 2023, are as follows: Gross finance lease liabilities ‐ minimum lease payments: Less than 1 year Later than 1 year and no later than 5 years Less: future finance charges (5.90% to 10.90%) Present value of finance lease liabilities December 31, 2018 $ 203 76 279 (13) $ 266 101 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 14. Leases, cont’d Reconciliation of liabilities arising from finance lease activities Balance as at January 1, 2018 Cash flows Non‐cash movements: Additions (Note 15) Disposals Interest accretion Exchange differences Finance Lease Liabilities $ 777 (573) 22 (5) 35 10 Balance as at December 31, 2018 $ 266 The carrying amount of finance lease liabilities was reclassified into lease liabilities upon adoption of IFRS 16 on January 1, 2019. 102 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 15. Property, Plant and Equipment The following are continuities of the cost and accumulated depreciation of property, plant and equipment for the years ended December 31, 2019 and December 31, 2018: Year ended December 31, 2019 Leasehold Improvements Furniture, Fixtures and Equipment Computer Equipment Total Cost Balance, beginning of year $ 24,716 $ 31,360 $ 15,858 $ 71,934 Reclassified to right‐of‐use assets upon adoption of IFRS 16 (Note 14) Balance, beginning of year after adoption of IFRS 16 Exchange differences Additions Disposals Balance, end of year Accumulated depreciation Balance, beginning of year Reclassified to right‐of‐use assets upon adoption of IFRS 16 (Note 14) Balance, beginning of year after adoption of IFRS 16 Exchange differences Depreciation charge Disposals Balance, end of year ‐ (2,289) (1,000) (3,289) 24,716 (372) 1,191 (27) 25,508 29,071 (92) 2,088 (1,036) 30,031 14,858 (83) 2,507 (798) 16,484 68,645 (547) 5,786 (1,861) 72,023 (9,481) (20,974) (8,282) (38,737) ‐ 1,388 638 2,026 (9,481) 87 (2,463) 14 (19,586) (20) (2,936) 931 (11,843) (21,611) (7,644) (64) (2,439) 615 (9,532) (36,711) 3 (7,838) 1,560 (42,986) Net book value as at December 31, 2019 $ 13,665 $ 8,420 $ 6,952 $ 29,037 103 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 15. Property, Plant and Equipment, cont’d Year ended December 31, 2018 Leasehold Improvements Furniture, Fixtures and Equipment Computer Equipment Total Cost Balance, beginning of year $ 20,334 $ 29,360 $ 16,681 $ 66,375 Exchange differences Additions Acquisitions Disposals Balance, end of year Accumulated depreciation Balance, beginning of year Exchange differences Depreciation charge Disposals Balance, end of year 429 4,544 8 (599) 24,716 (7,408) (129) (2,392) 448 (9,481) 312 3,545 ‐ (1,857) 31,360 (19,110) (136) (3,216) 1,488 (20,974) 488 3,456 36 (4,803) 15,858 (9,483) (260) (2,481) 3,942 (8,282) 1,229 11,545 44 (7,259) 71,934 (36,001) (525) (8,089) 5,878 (38,737) Net book value as at December 31, 2018 $ 15,235 $ 10,386 $ 7,576 $ 33,197 Leasehold improvements include tenant inducements amounting to $6,632 (2018 ‐ $6,776) and accumulated depreciation of $3,054 (2018 ‐ $2,554). The disclosures previously made for the comparative period only by the Company under IAS 17 and IFRIC 4 applicable to finance leases which were reclassified to right‐of‐use assets upon adoption of IFRS 16, are outlined below: Furniture, fixtures and equipment include assets held under finance leases amounting to $2,289 and accumulated depreciation of $1,388. Computer equipment includes assets held under finance leases amounting to $1,000 and accumulated depreciation of $638. Additions to assets held under finance leases for the year ended December 31, 2018 were $nil. 104 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 16. Intangibles The following are continuities of the cost and accumulated amortization of intangible assets for the years ended December 31, 2019 and December 31, 2018: Brands of Acquired Businesses Computer Application Software Custom Software Applications Internally Generated Software Customer Backlog Customer Lists Databases Non‐compete Agreements Indefinite Life Brands Total Year ended December 31, 2019 Cost Balance, beginning of year $ 24,728 $ 5,796 $ 26,510 $ 35,804 $ 39,324 $ 217,747 $ 6,884 $ 38,098 $ 29,024 $ 423,915 Exchange differences (177) Additions Acquisitions (Note 6) Disposals ‐ ‐ ‐ Balance, end of year 24,551 (29) 149 ‐ (607) 5,309 (900) (1,539) (603) (5,373) ‐ ‐ ‐ ‐ ‐ ‐ ‐ 1,141 ‐ ‐ 7,971 ‐ ‐ 6 ‐ ‐ (629) (1,026) (10,276) ‐ 1,915 ‐ ‐ ‐ ‐ 155 11,027 (607) 25,610 34,265 39,862 220,345 6,890 39,384 27,998 424,214 Accumulated amortization and impairment Balance, beginning of year (24,134) (4,259) (25,982) (17,527) (23,365) (180,658) (6,647) (26,449) Exchange differences Amortization charge Disposals 148 (179) ‐ 24 (454) 487 917 (31) ‐ 602 383 4,396 (4,425) (4,247) (15,968) ‐ ‐ ‐ ‐ (28) ‐ 440 (4,663) ‐ Balance, end of year (24,165) (4,202) (25,096) (21,350) (27,229) (192,230) (6,675) (30,672) ‐ ‐ ‐ ‐ ‐ (309,021) 6,910 (29,995) 487 (331,619) Net book value as at December 31, 2019 $ 386 $ 1,107 $ 514 $ 12,915 $ 12,633 $ 28,115 $ 215 $ 8,712 $ 27,998 $ 92,595 Brands of Acquired Businesses Computer Application Software Custom Software Applications Internally Generated Software Customer Backlog Customer Lists Databases Non‐compete Agreements Indefinite Life Brands Total Year ended December 31, 2018 Cost Balance, beginning of year $ 24,466 $ 8,460 $ 24,922 $ 23,419 $ 37,414 $ 206,015 $ 6,869 $ 34,727 $ 27,221 $ 393,513 Exchange differences 262 Additions Acquisitions (Note 6) Disposals ‐ ‐ ‐ Balance, end of year 24,728 33 812 ‐ (3,509) 5,796 1,588 ‐ ‐ ‐ 854 ‐ 11,531 ‐ 1,106 ‐ 804 ‐ 8,754 ‐ 2,978 ‐ 1 14 ‐ ‐ 1,069 ‐ 2,302 ‐ 1,803 ‐ ‐ ‐ 15,470 826 17,615 (3,509) 26,510 35,804 39,324 217,747 6,884 38,098 29,024 423,915 Accumulated amortization and impairment Balance, beginning of year (16,986) (6,530) (23,314) (12,771) (17,839) (156,335) (6,076) (20,703) Exchange differences Amortization charge Disposals (74) (7,074) ‐ (28) (699) 2,998 (1,610) (1,058) ‐ (645) (4,111) ‐ (610) (6,810) (4,916) (17,513) ‐ ‐ (1) (570) ‐ (662) (5,084) ‐ Balance, end of year (24,134) (4,259) (25,982) (17,527) (23,365) (180,658) (6,647) (26,449) ‐ ‐ ‐ ‐ ‐ (260,554) (10,440) (41,025) 2,998 (309,021) Net book value as at December 31, 2018 $ 594 $ 1,537 $ 528 $ 18,277 $ 15,959 $ 37,089 $ 237 $ 11,649 $ 29,024 $ 114,894 105 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 16. Intangibles, cont’d Indefinite life intangibles, consisting of the Altus Group and ARGUS brands, have been assessed for impairment along with goodwill as outlined in Note 17. These assets are considered to have indefinite lives as management believes that there is an indefinite period over which the assets are expected to generate net cash flows. The finite life intangibles are amortized over the remaining useful life as follows: Brands of acquired businesses Custom software applications Internally generated software Customer backlog Customer lists Databases Non‐compete agreements 17. Goodwill December 31, 2019 Average Remaining Useful Life 27 months 12 months 26 months ‐ 66 months 12 months ‐ 114 months 3 months ‐ 102 months 12 months 2 months ‐ 42 months The following are continuities of the cost and accumulated impairment losses of goodwill for the years ended December 31, 2019 and December 31, 2018: Cost Balance, beginning of year Exchange differences Acquisitions (Note 6) Balance, end of year Accumulated impairment losses Balance, beginning of year Exchange differences Impairment charge Balance, end of year Year ended December 31, 2019 Year ended December 31, 2018 $ 344,093 $ 310,783 (7,338) 6,103 342,858 (77,610) 1,532 (6,400) (82,478) 10,496 22,814 344,093 (60,793) (3,117) (13,700) (77,610) Net book value as at December 31, 2019 $ 260,380 $ 266,483 106 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 17. Goodwill, cont’d The carrying value of the Altus Group brand, an indefinite life intangible asset, was tested for impairment at the Company level and no impairment was necessary. The carrying values of goodwill and the ARGUS brand, an indefinite life intangible asset, were allocated to the Company’s CGUs as follows: Canada RVA North America Cost North America Property Tax Geomatics Altus Analytics U.K. Property Tax Asia Pacific Cost Total December 31, 2019 December 31, 2018 Goodwill ARGUS Brand Goodwill ARGUS Brand $ 36,019 $ ‐ $ 36,019 $ ‐ 28,411 47,567 3,861 95,923 48,454 145 ‐ ‐ ‐ 21,737 ‐ ‐ 28,411 46,578 10,261 96,058 49,003 153 ‐ ‐ ‐ 22,763 ‐ ‐ $ 260,380 $ 21,737 $ 266,483 $ 22,763 Other than for the Geomatics CGU in 2019, the recoverable amounts of the CGUs were determined using a discounted cash flow analysis to estimate fair value less costs to sell (Level 3). This analysis incorporated assumptions used by market participants. The key assumptions used were as follows: Canada RVA North America Cost North America Property Tax Geomatics Altus Analytics U.K. Property Tax Asia Pacific Cost December 31, 2019 December 31, 2018 Perpetual Growth Rate Discount Rate (after‐tax) Perpetual Growth Rate Discount Rate (after‐tax) 3.0% 3.0% 3.0% ‐ 3.0% 2.5% 3.0% 13.8% 13.3% 12.5% ‐ 14.5% 14.5% 23.0% 3.0% 3.0% 3.0% 1.5% 3.0% 2.5% 3.0% 14.5% 14.0% 12.5% 15.0% 14.5% 14.5% 23.0% The discounted cash flow analysis uses after‐tax cash flow projections based on five‐year financial budgets approved by the Board of Directors and management. Cash flows beyond the five‐year period were extrapolated using the estimated perpetual growth rates stated above. The growth rates do not exceed the long‐term average growth rate for the business in which the CGU operates. Management’s margin assumptions were based on historical performance and future expectations. The discount rates used are on an after‐tax basis and reflect risks related to the respective CGU. 107 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 17. Goodwill, cont’d For the Geomatics CGU, the recoverable amount was determined using fair value less costs to sell (Level 3). Impairment Management performed its annual impairment analysis as at October 1, 2019. In the fourth quarter of 2019, the Company recorded an impairment charge of $6,400 reflecting market conditions. The carrying amount of the Geomatics CGU was reduced to its recoverable amount of approximately $18,500 through recognition of an impairment charge against goodwill. This loss was disclosed as a separate line item in the consolidated statements of comprehensive income (loss). In the fourth quarter of 2018, the Company recorded an impairment charge of $13,700. The carrying amount of the Geomatics CGU was reduced to its recoverable amount of approximately $24,000 through recognition of an impairment charge against goodwill. This loss was disclosed as a separate line item in the consolidated statements of comprehensive income (loss). 18. Trade Payables and Other Trade payables Accrued expenses Contract liabilities: deferred revenue Contingent consideration payables (Note 26) Dividends payable (Note 25) Lease inducements (Notes 4 and 14) Provisions Less non‐current portion: Accrued expenses Contract liabilities: deferred revenue Contingent consideration payables Lease inducements Provisions December 31, 2019 December 31, 2018 $ 9,936 $ 11,167 79,689 40,321 7,667 6,029 ‐ 1,121 144,763 11,937 1,458 2,289 ‐ 513 16,197 63,932 37,163 14,169 5,895 11,595 3,424 147,345 7,063 7,134 3,064 10,688 1,876 29,825 $ 128,566 $ 117,520 108 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 18. Trade Payables and Other, cont’d Revenue recognized in relation to contract liabilities Revenue recognized that was included in the contract liabilities balance at the beginning of the year $ 32,974 $ 29,719 Revenue recognized from performance obligations partially satisfied in previous years 12,174 5,314 Year ended December 31, 2019 Year ended December 31, 2018 Provisions consist of: Balance as at January 1, 2018 Charged to profit or loss: Additional provisions, net of releases Unwinding of discount (Note 9) Used during the year Exchange differences Balance as at December 31, 2018 Charged to profit or loss: Additional provisions, net of releases Unwinding of discount (Note 9) Used during the year Exchange differences Balance as at December 31, 2019 Less: non‐current portion Restructuring Restructuring Other Total $ 2,773 $ 462 $ 3,235 6,371 27 (6,341) 251 3,081 (453) 104 (1,744) (35) 953 (345) 31 9 (174) 15 343 9 12 (188) (8) 168 (168) 6,402 36 (6,515) 266 3,424 (444) 116 (1,932) (43) 1,121 (513) $ 608 $ ‐ $ 608 During the year ended December 31, 2019, restructuring provisions made in prior years in the amount of $453 (2018 ‐ $158) were released. During the year ended December 31, 2018, total restructuring charges of $6,371 were recorded pertaining to employee severance and onerous leases in the Property Tax and Geomatics businesses. 109 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 19. Borrowings Bank credit facilities Leasehold improvement loans Less: deferred financing fees Less non‐current portion: Bank credit facilities Leasehold improvement loans Less: deferred financing fees December 31, 2019 December 31, 2018 $ 138,000 $ 129,178 403 140 491 568 138,263 129,101 ‐ 334 ‐ 334 128,600 403 568 128,435 $ 137,929 $ 666 Bank credit facilities The Company has five‐year bank credit facilities that mature on April 28, 2020. In June 2018, the Company increased its borrowing capacity under the revolving term facility from $200,000 to $220,000 with the ability to further increase the limit to $250,000 in accordance with certain provisions of the agreement. As at December 31, 2019, the amount drawn under this facility was $138,000 (2018 ‐ $128,600). The weighted average effective interest rate for the bank credit facilities for the year ended December 31, 2019 was 3.61% (2018 ‐ 3.48%). The bank credit facilities require repayment of the principal at such time as the Company receives proceeds of insurance, issues equity, issues debt, or sells assets in excess of certain thresholds. Loans bear interest at a floating rate, based on the Canadian Prime rates, Canadian Bankers’ Acceptance rates, U.S. Base rates or LIBOR rates plus, in each case, an applicable margin to those rates. The margin ranges from 1.2% to 3.0% for Canadian Bankers’ Acceptance and LIBOR borrowings depending on the calculation of the funded debt to EBITDA ratio (Note 27). Letters of credit are also available on customary terms for bank credit facilities of this nature. The Company is required to comply with certain financial covenants in line with its bank credit facilities, as disclosed in Note 27. In addition, the Company and certain of its subsidiaries must account for a minimum of 80% of consolidated revenues on a trailing 12‐month basis to meet the minimum security requirement. As at December 31, 2019, the Company met these requirements. As at December 31, 2019, substantially all of the assets of the Company are provided as a security interest to meet this requirement. The Company has negotiated a draft term sheet with its lenders which is in the process of being approved. 110 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 19. Borrowings, cont’d Interest rate swap agreements In 2015, the Company entered into interest rate swap agreements for a total notional amount of $65,000. The Company is obligated to pay the counterparty to the interest rate swap agreements an amount based upon a fixed interest rate of 1.48% per annum and the counterparty is obligated to pay the Company an amount equal to the Canadian Bankers’ Acceptance rate. These agreements expire on May 15, 2020. These interest rate swaps are not designated as cash flow hedges. Leasehold improvement loans The Company received various loans to finance leasehold improvements made to leased premises. The loans are payable in installments with maturity dates ranging from April 2025 to September 2025 and bear interest from 0% to 5.00%. The loans are not secured. The weighted average effective interest rate for the year ended December 31, 2019 was 1.32% (2018 ‐ 1.64%). Contractual principal repayments on all borrowings excluding convertible debentures and finance lease liabilities are as follows: Less than 1 year 1 to 3 years 4 to 5 years Over 5 years December 31, 2019 December 31, 2018 $ 138,069 $ 666 142 145 47 128,739 143 121 $ 138,403 $ 129,669 Reconciliation of liabilities arising from financing activities, other than leases Balance as at January 1, 2018 $ 616 $ 150,400 $ (997) $ 150,019 Leasehold Improvement Loans Bank Credit Facilities Deferred Financing Fees Total Cash flows Non‐cash movements: Interest accretion Amortization Balance as at December 31, 2018 Cash flows Non‐cash movements: Interest accretion Amortization (134) (21,222) 9 ‐ 491 (94) 6 ‐ ‐ ‐ 129,178 8,822 ‐ ‐ ‐ ‐ 429 (568) ‐ ‐ 428 (21,356) 9 429 129,101 8,728 6 428 Balance as at December 31, 2019 $ 403 $ 138,000 $ (140) $ 138,263 111 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 20. Share Capital The Company is authorized to issue an unlimited number of common shares and an unlimited number of preference shares, issuable in series. The common shares have no par value. Common shares issued and outstanding are as follows: Balance as at January 1, 2018 Issued on exercise of options (Note 23) Issued under the Dividend Reinvestment Plan Issued on acquisitions (Note 6) Issued under the Equity Compensation Plan (Note 23) Treasury shares purchased under the Restricted Share Plan (Note 23) Release of treasury shares (Note 23) Balance as at December 31, 2018 Issued on exercise of options (Note 23) Issued under the Dividend Reinvestment Plan Issued on acquisitions (Note 6) Issued under the Equity Compensation Plan (Note 23) Common Shares Number of Shares Amount 38,449,029 $ 479,181 41,673 158,481 171,628 144,881 (62,981) 109,991 39,012,702 282,488 179,572 179,672 246,653 1,005 4,617 3,729 2,496 (3,061) 3,575 491,542 8,166 4,624 4,282 5,243 Treasury shares reserved under the Restricted Share Plan (Note 23) (118,202) (5,353) Treasury shares reserved under the Equity Compensation Plan (Note 23) Release of treasury shares (Note 23) Balance as at December 31, 2019 (63,553) 107,268 (2,352) 3,494 39,826,600 $ 509,646 The 39,826,600 common shares as at December 31, 2019 are net of 364,864 treasury shares with a carrying value of $16,195 that are being held by the Company until vesting conditions are met (Note 23). The Company has a Dividend Reinvestment Plan (“DRIP”) for shareholders of the Company who are resident in Canada. Under the DRIP, participants may elect to automatically reinvest quarterly dividends into additional common shares of the Company. Pursuant to the DRIP, and in the case where common shares are issued from treasury, cash dividends are reinvested into additional shares of the Company at the weighted average market price of common shares for the five trading days immediately preceding the relevant dividend payment date, less a discount of 4%. In the case where common shares are purchased on the open market, cash dividends are reinvested into additional shares of the Company at the relevant average market price paid in respect of satisfying this reinvestment plan. 112 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 21. Contributed Surplus Balance as at January 1, 2018 Share‐based compensation (Note 23) Gain (loss) on sale of RSs and shares held in escrow Shares issued on exercise of options (Note 23) Release of treasury shares under the Restricted Share Plan (Note 23) Shares issued under the Equity Compensation Plan (Note 23) Balance as at December 31, 2018 Share‐based compensation (Note 23) Gain (loss) on sale of RSs and shares held in escrow Shares issued on exercise of options (Note 23) Release of treasury shares under the Restricted Share Plan (Note 23) Shares issued under the Equity Compensation Plan (Note 23) Amount $ 18,550 9,455 (34) (163) (3,430) (2,496) 21,882 9,839 (93) (1,289) (3,001) (2,891) Balance as at December 31, 2019 $ 24,447 22. Accumulated Other Comprehensive Income (Loss) Currency Translation Reserve FVOCI Investments Reserves Total Balance as at January 1, 2018 $ 36,862 $ (26,432) $ 10,430 Currency translation differences Change in fair value of FVOCI investments Transfer of loss on disposal of FVOCI investments (Note 13) Balance as at December 31, 2018 Currency translation differences Change in fair value of FVOCI investments Transfer of gain on disposal of FVOCI investments (Note 13) 17,696 ‐ ‐ 54,558 (13,772) ‐ ‐ ‐ (44,351) 70,783 ‐ ‐ 92 17,696 (44,351) 70,783 54,558 (13,772) 92 (633) (633) Balance as at December 31, 2019 $ 40,786 $ (541) $ 40,245 113 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 23. Share‐based Compensation The Company’s share‐based compensation expense, which includes the Executive Compensation Plan (Share Option Plan and Equity Compensation Plan), Long‐Term Incentive Plan, Deferred Compensation Plans (RS Plan and RSU Plan), and DSU Plan was $19,883 (2018 ‐ $8,782). A summary of the activity in the Company’s share‐based compensation plans are as follows: (i) Executive Compensation Plan and Long‐Term Incentive Plan The following is a summary of the Company’s share option activity: Movements in the number of options outstanding and the weighted average exercise price are as follows: Balance as at January 1, 2018 Granted Exercised Forfeited Balance as at December 31, 2018 Granted Exercised Expired/Forfeited Balance as at December 31, 2019 Number of Options Outstanding Weighted Average Exercise Price 946,708 621,970 (41,673) (8,335) 1,518,670 458,053 (282,488) (114,952) 1,579,283 $25.70 $30.92 $20.21 $30.84 $27.96 $29.92 $24.35 $26.59 $28.98 Information about the Company’s options outstanding and exercisable as at December 31, 2019 is as follows: Exercise Price $19.29 ‐ $23.85 $26.04 ‐ $29.72 $30.70 ‐ $35.83 $36.91 ‐ $37.93 $28.98 Number of Options Outstanding Weighted Average Remaining Contractual Life Number of Options Exercisable 222,510 630,278 622,721 103,774 1,579,283 1.63 years 3.68 years 3.43 years 4.78 years 3.36 years 222,510 137,972 185,246 ‐ 545,728 114 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 23. Share‐based Compensation, cont’d The options granted in 2019 vest over a period of up to 48 months. The fair value of the options granted was estimated on the date of grant using the Black‐Scholes option pricing model with the following assumptions: Risk‐free interest rate Expected dividend yield Expected volatility Expected option life Weighted average grant‐date fair value per option 2019 2018 1.29% ‐ 1.69% 1.6% ‐ 2.3% 24.13% ‐ 26.64% 3.00 ‐ 4.50 years $4.06 ‐ $7.43 1.96% ‐ 2.20% 1.9% ‐ 2.3% 20.49% ‐ 27.23% 3.00 ‐ 4.50 years $4.48 ‐ $5.89 The following is a summary of the activity related to common shares held in escrow under the Equity Compensation Plan: Balance as at January 1, 2018 Settled Forfeited Balance as at December 31, 2018 Granted Forfeited Balance as at December 31, 2019 Common shares 74,172 (3,872) (546) 69,754 63,553 (7,211) 126,096 The Company settled vested PSUs under the Equity Compensation Plan through the issuance of common shares: Settled in March 2018 Settled in March 2019 The Company granted the following PSUs under the Long‐Term Incentive Plan: Granted in 2018 Granted in 2019 Common shares 144,881 162,086 Number of PSUs 118,856 186,542 115 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 23. Share‐based Compensation, cont’d (ii) Deferred Compensation Plans The following is a summary of the Company’s RS Plan activity: Balance as at January 1, 2018 (all unvested) Granted Settled Forfeited Balance as at December 31, 2018 (all unvested) Granted Settled Forfeited Balance as at December 31, 2019 (all unvested) Number of RSs 263,215 62,981 (102,631) (2,942) 220,623 118,202 (95,841) (3,784) 239,200 In connection with the 2018 performance year, the Company granted a total of $4,128 under the RS Plan. In March 2019, the Company purchased 100,482 common shares in the open market (through the facilities of the TSX or by private agreement). In connection with the 2017 performance year, the Company granted a total of $2,956 under the RS Plan. In March 2018, the Company purchased 60,394 common shares in the open market (through the facilities of the TSX or by private agreement). The following is a summary of the Company’s RSU Plan activity: Balance as at January 1, 2018 (all unvested) Granted Settled Forfeited Balance as at December 31, 2018 (all unvested) Granted Settled Forfeited Balance as at December 31, 2019 (all unvested) Number of RSUs 318,018 116,875 (75,635) (6,588) 352,670 141,361 (147,370) (19,070) 327,591 116 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 23. Share‐based Compensation, cont’d (iii) Directors’ Deferred Share Unit Plan The following is a summary of the Company’s DSU Plan activity: Balance as at January 1, 2018 Granted Redeemed Balance as at December 31, 2018 Granted Balance as at December 31, 2019 (iv) Compensation Expense by Plan Share Option Plan Equity Compensation Plan Long‐Term Incentive Plan RS Plan RSU Plan (1) DSU Plan (2) Number of DSUs 103,375 31,960 (10,427) 124,908 36,754 161,662 Year ended December 31, 2019 Year ended December 31, 2018 $ 62 $ 209 1,167 4,666 3,948 6,562 3,478 1,766 3,892 3,313 289 (687) (1) For the year ended December 31, 2019, the Company recorded mark‐to‐market adjustments of $3,273 (2018 ‐ $(2,883)). (2) For the year ended December 31, 2019, the Company recorded mark‐to‐market adjustments of $2,388 (2018 ‐ $(1,693)). (v) Liabilities for Cash‐settled Plans RSU Plan ‐ carrying value of liability recorded within trade payables and other $ 8,832 $ 6,101 DSU Plan ‐ carrying value of liability recorded within trade payables and other 6,257 2,779 December 31, 2019 December 31, 2018 117 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 24. Earnings (Loss) per Share Basic earnings (loss) per share is calculated by dividing profit (loss) by the weighted average number of common shares outstanding during the year. The dilutive effect of share options, equity awards, PSUs and RSs is determined using the treasury stock method. For the purposes of the weighted average number of common shares outstanding, common shares are determined to be outstanding from the date they are issued. For the year ended December 31, 2019, 597,254 share options and 19,922 RSs (including common shares issued in escrow as part of the Equity Compensation Plan) were excluded from the diluted earnings (loss) per share calculation as the impact would have been anti‐dilutive. For the year ended December 31, 2018, 1,518,670 share options, 290,377 RSs (including common shares issued in escrow as part of the Equity Compensation Plan) and 312,494 equity awards and PSUs were excluded from the diluted earnings (loss) per share calculation as the impact would have been anti‐ dilutive. The following table summarizes the basic and diluted earnings (loss) per share and the basic and diluted weighted average number of common shares outstanding: Year ended December 31, 2019 Year ended December 31, 2018 Profit (loss) for the year ‐ basic and diluted $ 18,194 $ (18,439) Weighted average number of common shares outstanding ‐ basic 39,460,603 38,763,613 Dilutive effect of share options Dilutive effect of equity awards and PSUs Dilutive effect of RSs Weighted average number of common shares outstanding ‐ diluted Earnings (loss) per share: Basic Diluted 141,940 303,819 177,195 ‐ ‐ ‐ 40,083,557 38,763,613 $0.46 $0.45 $(0.48) $(0.48) 118 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 25. Dividends Payable The Company declared a $0.15 dividend per common share to shareholders of record on the last business day of each quarter, and dividends were paid on the 15th day of the month following quarter end. Dividends are declared and paid in Canadian dollars. A reconciliation of dividends payable is as follows: Balance as at January 1, 2018 Dividends paid Non‐cash movements: DRIP (Note 20) Dividends declared Balance as at December 31, 2018 Dividends paid Non‐cash movements: DRIP (Note 20) Dividends declared Dividends Payable $ 5,818 (18,798) (4,617) 23,492 5,895 (19,199) (4,624) 23,957 Balance as at December 31, 2019 $ 6,029 26. Financial Instruments and Fair Values The Company’s financial instruments consist of cash and cash equivalents, trade and other receivables (excluding deferred costs to obtain customer contracts, and prepayments), promissory notes receivable, investments in equity instruments, investments in partnerships, derivative financial instruments, trade payables and other (excluding lease inducements, contract liabilities, and RSU Plan and DSU Plan payables), contingent consideration payables, and borrowings. 119 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 26. Financial Instruments and Fair Values, cont’d Financial Instruments by Category The tables below indicate the carrying values of assets and liabilities for each of the following categories: December 31, 2019 December 31, 2018 Fair Value Through Profit or Loss Fair Value Through Other Comprehensive Income Amortized Cost Fair Value Through Profit or Loss Fair Value Through Other Comprehensive Income Amortized Cost Assets as per Consolidated Balance Sheet: Cash and cash equivalents Trade receivables and other (excluding deferred costs to obtain customer contracts, prepayments and promissory notes receivable) Promissory notes receivable Investments in equity instruments Investments in partnerships Derivative financial instruments $ ‐ $ ‐ $ 60,262 $ ‐ $ ‐ $ 48,738 ‐ ‐ ‐ 2,193 7,424 ‐ ‐ 9,288 ‐ ‐ 171,390 ‐ ‐ ‐ ‐ ‐ 6,552 ‐ ‐ ‐ 3,408 1,495 1,092 ‐ ‐ 143,604 ‐ ‐ ‐ ‐ $ 9,617 $ 9,288 $ 231,652 $ 9,139 $ 3,408 $ 192,342 120 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 26. Financial Instruments and Fair Values, cont’d Liabilities as per Consolidated Balance Sheet: Trade payables and other (excluding lease inducements, contract liabilities, RSU Plan and DSU Plan payables and contingent consideration payables) Contingent consideration payables Borrowings December 31, 2019 December 31, 2018 Fair Value Through Profit or Loss Amortized Cost Fair Value Through Profit or Loss Amortized Cost $ ‐ $ 81,686 $ ‐ $ 75,538 7,667 ‐ ‐ 138,263 14,169 ‐ ‐ 129,101 $ 7,667 $ 219,949 $ 14,169 $ 204,639 Cash and cash equivalents, trade receivables and other (excluding deferred costs to obtain customer contracts, contract assets, prepayments, and promissory notes receivable) due within one year, and trade payables and other (excluding lease inducements, contract liabilities, RSU Plan and DSU Plan payables, and contingent consideration payables) due within one year, are all short‐term in nature and, as such, their carrying values approximate their fair values. The fair values of non‐current trade receivables and other and trade payables and other are estimated by discounting the future contractual cash flows at the cost of borrowing to the Company, which approximate their carrying values. The fair value of the bank credit facilities approximates its carrying value, as the instruments bear interest at rates comparable to current market rates. Fair Values Fair value measurements recognized in the consolidated balance sheets are classified in accordance with the fair value hierarchy established by IFRS 13, Fair Value Measurement, which reflects the significance of the inputs used in determining the measurements. The inputs can be either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect an entity’s pricing based upon its own market assumptions. 121 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 26. Financial Instruments and Fair Values, cont’d The tables below present financial instruments that are measured at fair value. The different levels in the hierarchy have been defined as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3: Inputs for the asset or liability that are not based on observable market data. The fair value of financial instruments traded in active markets is based on quoted market prices at each balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity‐specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. If one or more of the significant inputs are not based on observable market data, the instrument is included in Level 3. The following tables present the fair value hierarchy under which the Company’s financial instruments are valued: Level 1 Level 2 Level 3 Total December 31, 2019 Assets: Investments in equity instruments $ ‐ $ ‐ $ 9,288 $ 9,288 Investments in partnerships Derivative financial instruments Liabilities: Borrowings Contingent consideration payables ‐ ‐ ‐ ‐ ‐ 7,424 138,403 2,193 ‐ ‐ ‐ 7,667 2,193 7,424 138,403 7,667 122 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 26. Financial Instruments and Fair Values, cont’d Assets: Promissory notes receivable $ ‐ $ ‐ $ 6,552 $ 6,552 Level 1 Level 2 Level 3 Total December 31, 2018 Investments in equity instruments Investments in partnerships Derivative financial instruments Liabilities: Borrowings Contingent consideration payables ‐ ‐ ‐ ‐ ‐ ‐ ‐ 1,092 129,669 3,408 1,495 ‐ ‐ ‐ 14,169 3,408 1,495 1,092 129,669 14,169 For the year ended December 31, 2019, there were no transfers between the levels in the hierarchy. Derivative financial instruments are recorded in Level 2. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. The fair value of equity derivatives is calculated based on the movement in the Company’s common share price between the initial common share price on the effective date and the reporting date, which are observable inputs. The fair value of currency forward contracts is calculated based on the spread between the currency forward rate and the rate on the reporting date, which are observable inputs, and applied to the notional amount. The promissory notes receivable, investments in equity instruments, investments in partnerships and contingent consideration payable are recorded in Level 3 as the amounts are not based on observable inputs. The promissory notes receivable and contingent consideration payable are measured using a discounted cash flow analysis of expected cash flows in future periods. The investments in equity instruments are measured based on valuations of the entity. Investments in partnerships are measured in relation to the fair value of assets reported in the respective partnerships. 123 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 26. Financial Instruments and Fair Values, cont’d The following table summarizes the movement in the Company’s contingent consideration payables: Balance as at January 1, 2018 Contingent arrangements entered into during the year (Note 6) Unwinding of discount (Note 9) Settlements Exchange differences Balance as at December 31, 2018 Contingent arrangements entered into during the year Changes in expected payment recorded through profit or loss Unwinding of discount (Note 9) Settlements Exchange differences Balance as at December 31, 2019 Contingent Consideration Payables (Discounted) $ 10,437 2,950 648 (111) 245 14,169 1,158 (174) 467 (7,743) (210) $ 7,667 A 1% increase or decrease in the discount rate could decrease or increase the Company’s determination of fair value by approximately $6 as at December 31, 2019. The estimated contractual amount of contingent consideration payables as at December 31, 2019 was $7,919 (December 31, 2018 ‐ $14,754), net of a discount of $252 (December 31, 2018 ‐ $585). Financial Risk Management Objectives and Policies The Company’s activities expose it to a variety of financial risks: market risk (including interest rate risk, currency risk and price risk), credit risk and liquidity risk. The Company’s overall risk management program seeks to minimize potential adverse effects on the Company’s financial performance. The Company does not enter into derivative financial instruments for speculative purposes. (a) Market Risk Interest rate risk The Company is exposed to interest rate risk in the event of fluctuations in the Canadian Prime rates, Canadian Bankers’ Acceptance rates, U.S. Base rates or LIBOR rates as the interest rates on the revolving term facility fluctuate with changes in these rates. 124 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 26. Financial Instruments and Fair Values, cont’d In order to limit interest rate exposure, the Company entered into floating‐to‐fixed interest rate swap agreements associated with its bank credit facilities. These interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Under the interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed contract rates and floating‐rate interest amounts calculated by reference to the agreed notional amounts. The notional principal amounts of the outstanding interest rate swap agreements as at December 31, 2019 were $65,000 (2018 ‐ $65,000). The Company monitors its interest rate exposure and its hedging strategy on an ongoing basis. Fluctuations in interest rates will impact profit or loss. For the year ended December 31, 2019, every 1% increase or decrease in the revolving term facility interest rate results in a corresponding $782 decrease or increase in the Company’s profit (loss) (2018 ‐ $949). Currency risk The Company has operations in Canada, the U.S., Europe and Asia Pacific and, therefore, has exposure to currency risk. There is exposure to foreign exchange fluctuations on transactions between the Company’s entities and upon the consolidation of the Company’s foreign subsidiaries. Assets and liabilities of foreign subsidiaries are translated at the period‐end exchange rate and, therefore, have varying values from exchange rate fluctuations. The statements of comprehensive income (loss) of the foreign subsidiaries are translated into Canadian dollars using the period’s average exchange rate and, accordingly, exchange rate fluctuations impact the Company’s revenues and profit (loss), denominated in Canadian dollars. In order to limit some of its foreign exchange exposure, the Company periodically enters into currency forward contracts. The Company monitors its foreign exchange exposure and its hedging strategy on an ongoing basis. The following table summarizes the effect of a 10% strengthening of the Canadian dollar on the Company’s profit (loss) as a result of translating the statements of comprehensive income (loss) of foreign subsidiaries, assuming all other variables remain unchanged: U.S. Europe Australia Asia Year ended December 31, 2019 Year ended December 31, 2018 $ (2,401) $ (2,127) (520) (175) (124) 1,119 (20) (194) 125 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 26. Financial Instruments and Fair Values, cont’d A 10% weakening of the Canadian dollar would have an equal but opposite effect, assuming all other variables remain unchanged. Price risk The Company is exposed to price risk because the liabilities for cash‐settled RSU and DSU plans are classified as FVPL, and linked to the price of the Company’s common shares. If the market price of the Company’s common shares increases by 5% with all other variables held constant, the impact on profit (loss) would be a decrease of $755. A 5% decrease in the market price of the Company’s common shares would have an equal but opposite effect on profit (loss), assuming all other variables remain unchanged. In order to limit price risk exposure, the Company entered into equity derivatives. Changes in the fair value of these equity derivatives offset the impact of mark‐to‐market adjustments that are accrued. The notional amount outstanding on these equity derivatives as at December 31, 2019 was $11,321 (2018 ‐ $10,042) (Note 12). (b) Credit Risk The Company is exposed to credit risk with respect to its cash and cash equivalents, trade receivables and other and derivative financial instruments. Credit risk is not concentrated with any particular customer. In certain parts of Asia, it is often common business practice to pay invoices over an extended period of time and/or at the completion of the project. The risk of non‐collection of trade receivables is greater in Asia Pacific compared to North American or European countries. The Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables and contract assets for unbilled revenue on customer contracts. To measure the expected credit losses, trade receivables and contract assets for unbilled revenue on customer contracts have been grouped based on shared credit risk characteristics and the days past due, and incorporate forward‐looking information. The loss allowance provision as at December 31, 2019 is determined as follows: Expected loss rate Gross carrying amount Loss allowance provision December 31, 2019 0 to 120 days past due 121 to 365 days past due More than 365 days past due 1.92% $155,883 $(2,996) 21.14% $20,766 $(4,390) 92.26% $5,313 $(4,902) Total 6.75% $181,962 $(12,288) 126 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 26. Financial Instruments and Fair Values, cont’d Changes in the gross carrying amount of trade receivables and contract assets for unbilled revenue on customer contracts contributed to the changes in the loss allowance provision. The gross carrying amount was impacted by revenue recognized and amounts invoiced, offset by cash collections and amounts written off as not recoverable or uncollectible. Expected loss rates are determined on a portfolio basis. The expected loss rate for the Company will differ based on the contribution of balances by portfolio and age of those balances. For the year ended December 31, 2019, no significant changes were made to the expected loss rates on a portfolio basis. The loss allowance provision for trade receivables and contract assets for unbilled revenue on customer contracts as at December 31, 2019 reconciles to the opening loss allowance provision as follows: As at January 1, 2018 Net charges during the year Amounts written off during the year as not recoverable or uncollectible Exchange differences As at December 31, 2018 Net charges during the year Amounts written off during the year as not recoverable or uncollectible Exchange differences As at December 31, 2019 December 31, 2019 $ 8,854 4,228 (3,257) 244 10,069 5,233 (2,822) (192) $ 12,288 The movement of the loss allowance provision has been included in office and other operating expenses in the consolidated statements of comprehensive income (loss). In the event that the collectability of future trade receivables is in question, an adjustment is made to the corresponding contract assets for unbilled revenue on customer contracts. In addition, contract assets for unbilled revenue on customer contracts are assessed for impairment under IFRS 9. Amounts charged to the provision are generally written off when there are no expectations of recovering additional cash. The Company’s maximum exposure to credit risk at the reporting date, assuming no mitigating factors, is the carrying value of its cash and cash equivalents, trade receivables and other and derivative financial instruments. The Company does not hold any collateral as security. 127 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 26. Financial Instruments and Fair Values, cont’d (c) Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages liquidity risk through the management of its capital structure and financial leverage. It also manages liquidity risk by continuously monitoring actual and projected cash flows, taking into account the seasonality of the Company’s revenues and cash receipts, and the maturity profile of its financial assets and liabilities. The Board of Directors reviews and approves the Company’s operating and capital budgets, as well as any material transactions outside the ordinary course of business, including proposals on mergers, acquisitions or other major investments. Management believes that funds generated by operating activities and available bank credit facilities will allow the Company to satisfy its requirements for the purposes of working capital, investments and debt repayments. The table below summarizes the contractual undiscounted cash flows related to the Company’s financial liabilities into relevant maturity groupings based on the remaining period as at the consolidated balance sheet date to the contractual maturity date. Carrying amount Contractual cash flows Less than 1 year 1 to 3 years 4 to 5 years Over 5 years Total December 31, 2019 Trade payables and other (excluding lease inducements, contract liabilities, RSU Plan and DSU Plan payables and contingent consideration payables) RSU Plan and DSU Plan $ 81,686 $ 81,810 $ 80,176 $ 722 $ 262 $ 650 $ 81,810 payables 15,089 15,089 4,156 5,437 818 4,678 15,089 Contingent consideration payables Borrowings 7,667 7,919 5,409 138,263 138,419 138,074 2,510 148 ‐ 148 ‐ 49 7,919 138,419 Lease liabilities 75,983 85,794 14,894 26,951 23,198 20,751 85,794 $ 318,688 $ 329,031 $ 242,709 $ 35,768 $ 24,426 $ 26,128 $ 329,031 128 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 26. Financial Instruments and Fair Values, cont’d Carrying amount Contractual cash flows Less than 1 year 1 to 3 years 4 to 5 years Over 5 years Total December 31, 2018 Trade payables and other (excluding lease inducements, contract liabilities, RSU Plan and DSU Plan payables and contingent consideration payables) RSU Plan and DSU Plan $ 75,538 $ 76,078 $ 73,122 $ 1,838 $ 91 $ 1,027 $ 76,078 payables 8,880 8,880 2,966 2,315 821 2,778 8,880 Contingent consideration payables Borrowings 27. Capital Management 14,169 14,754 11,509 3,245 129,367 129,970 874 128,817 ‐ 156 ‐ 14,754 123 129,970 $ 227,954 $ 229,682 $ 88,471 $ 136,215 $ 1,068 $ 3,928 $ 229,682 The Company’s objective in managing capital is to ensure that adequate resources are available to fund organic growth and to enable it to undertake strategic acquisitions while continuing as a going concern. The Company’s capital is composed of borrowings and shareholders’ equity. Operating cash flows are used to provide sustainable cash dividends to shareholders and fund capital expenditures in support of organic growth. In addition, operating cash flows, supplemented throughout the year with the revolving term facility, are used to fund working capital requirements. The revolving term facility and equity are used to finance strategic acquisitions. Additionally, vendors of acquired businesses typically receive a portion of the consideration in the form of the Company’s common shares. 129 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 27. Capital Management, cont’d The Company’s capitalization is summarized in the following chart: Borrowings (Note 19) Less: cash and cash equivalents Net debt Shareholders’ equity Total capitalization December 31, 2019 December 31, 2018 $ 138,263 $ 129,367 60,262 78,001 359,652 48,738 80,629 358,426 $ 437,653 $ 439,055 The Company monitors certain financial covenants on a trailing 12‐month basis in line with its amended bank credit facilities. The financial covenant limits are summarized below: Funded debt to EBITDA ratio: maximum of 3.00:1 Fixed charge coverage ratio: minimum of 1.20:1 Funded debt to capitalization ratio: maximum of 55% As at December 31, 2019, the Company is in compliance with the financial covenants of its bank credit facilities. 28. Commitments and Contingencies The Company leases offices and equipment under non‐cancellable operating leases. On the adoption of IFRS 16 (Note 4), most operating leases are now included on the balance sheet other than for short‐ term leases and low‐value leases. At December 31, 2018, all operating leases and other lease commitments were included in these commitments. The future aggregate minimum lease payments under such arrangements and other contractual commitments are as follows: No later than 1 year Later than 1 year and no later than 5 years Later than 5 years Total December 31, 2019 December 31, 2018 $ 2,882 $ 18,808 1,585 ‐ 53,964 28,444 $ 4,467 $ 101,216 The future aggregate minimum sublease payments to be received under non‐cancellable subleases as at December 31, 2019 were $465 (December 31, 2018 ‐ $3,839). For the year ended December 31, 2018, expenses under operating leases were $14,900. 130 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 28. Commitments and Contingencies, cont’d As at December 31, 2019, the Company provided letters of credit of approximately $1,074 to its lessors (December 31, 2018 ‐ $776). In connection with the acquisition of Integrated Real Estate Resources, Inc. (“INTRER”) completed on December 1, 2015, the Company committed to grant a total of 250,000 options, subject to conditions customary to the Company’s share‐based compensation plans, over a five‐year period to be distributed to INTRER employees. As at December 31, 2019, the Company granted all 250,000 options (December 31, 2018 ‐ 200,000 options) pursuant to this arrangement. The Company committed to aggregate capital contributions of $682 (Note 13) to certain partnerships (December 31, 2018 ‐ $1,241) over the next two years. From time to time, the Company or its subsidiaries are involved in legal proceedings, claims and litigation in the ordinary course of business with customers, former employees and other parties. Although it is not possible to determine the final outcome of such matters, based on all currently available information, management believes that liabilities, if any, arising from such matters will not have a material adverse effect on the Company’s financial position or results of operations and have been adequately provided for in these consolidated financial statements. In the ordinary course of business, the Company is subject to tax audits from various government agencies relating to income and commodity taxes. As a result, from time to time, the tax authorities may disagree with the positions and conclusions made by the Company in its tax filings, which could lead to assessments and reassessments. These assessments and reassessments may have a material adverse effect on the Company’s financial position or results of operations. 29. Related Party Transactions Key Management Compensation Key management includes the Board of Directors, officers and business unit presidents. The compensation paid or payable to key management for services is shown below: Year ended December 31, 2019 Year ended December 31, 2018 Salaries and other short‐term benefits $ 9,764 $ 9,487 Termination benefits Share‐based payments (1) 1,750 8,123 1,428 2,877 $ 19,637 $ 13,792 (1) Includes mark‐to‐market adjustments on share‐based payments. 131 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 29. Related Party Transactions, cont’d Controlled Entities Altus Group Limited is the ultimate parent company. In certain circumstances, the Company has control over entities in which it does not own more than 50% voting interest. In making this determination, the Company considers all relevant facts and circumstances in assessing whether it has power over the entity including rights arising from contractual arrangements that allow the Company to direct the relevant activities and be exposed to variable returns of the entity, among other considerations. The consolidated financial statements consolidate the Company and the subsidiaries listed in the following table: Entity’s Name Altus Geomatics Limited Partnership Altus Geomatics General Partner Corporation (1) Altus Group Asia Pacific Limited Altus Group U.S. Inc. Circle Software Acquisition Limited Argus Software (UK) Ltd. Circle Software International Limited (UK) Voyanta Limited (UK) Argus Software (Canada), Inc. Argus Software (Oceanic) Pty Ltd. Argus Software (Malaysia) Sdn. Bhd. Altus Group (UK) Limited 2262070 Ontario Limited Altus Group Data Solutions Inc. Altus Group S.à.r.l. Altus Group (Vietnam) Limited Altus Group (India) Private Limited Altus Group (Singapore) Private Limited Altus Egypt LLC (2) Altus Group (Hong Kong) Limited Altus Construction Consultancy (Shanghai) Limited Altus Group Consulting (Thailand) Company Limited Altus Group Management Holdings (Thailand) Company Limited December 31, 2019 100% 49% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 85% 100% 100% 100% 100% 132 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 29. Related Party Transactions, cont’d Entity’s Name December 31, 2019 Altus Group Services (Thailand) Company Limited Altus Group Construction Professionals (Thailand) Company Limited Altus Group Australia Pty Limited Altus Group (ACT) Pty Limited Altus Group Consulting Pty Limited Altus Group Queensland Pty Limited Altus Group Cost Management Pty Limited Altus Group Bay Partnership Pty Limited Estate Master Group Holdings Pty Limited Estate Master Pty Limited Estate Master UK Limited Estate Master FZ LLC Altus Group (Hawaii) Inc. Altus Group II LLC Argus Software Inc. Argus Software (Asia) Pte. Ltd. One11 Advisors, LLC Altus UK LLP Altus Group (UK2) Limited R2G Limited Maxwell Brown Surveyors Group Limited Maxwell Brown Surveyors Limited Lambournes Holdings Limited Lambournes Trading Services Limited CVS (Commercial Valuers & Surveyors) Limited Taliance Group SAS Taliance, Inc. Taliance Limited 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Taliance Solutions Canada Inc. (1) Two land surveyors, who are employees of Altus Geomatics Limited Partnership and registered with the Land Surveyors’ 100% Association (Alberta), own 51% of the remaining shares. (2) An Egyptian national owns 15% of the remaining shares. Altus Group Tax Consulting Paralegal Professional Corporation, Altus Group Manitoba Land Surveyors Limited and Altus Geomatics Land Surveying BC Limited are entities under control of the Company and have been consolidated in the Company’s consolidated financial statements. 133 Altus Group Limited Notes to Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Thousands of Canadian Dollars, Except for Shares and Per Share Amounts) 30. Events After the Reporting Period On January 21, 2020, the Company agreed, subject to definitive documentation, to combine its Geomatics business segment with WSP Global Inc.’s respective geomatics business unit. The combined entity will comprise of employees in offices in Western Canada and Ontario. The transaction, which is subject to finalization of definitive documentation, is expected to close in the second quarter of 2020. 134 LISTINGS Toronto Stock Exchange Stock trading symbol: AIF AUDITORS ERNST & YOUNG LLP TRANSFER AGENT AST TRUST COMPANY (CANADA) P.O. Box 700 Station B Montreal, Quebec, Canada H3B 3K3 Toronto: (416) 682-3860 Toll-free throughout North America: 1 (800) 387-0825 Facsimile: 1 (888) 249-6189 Website: www.astfinancial.com/ca-en Email: inquiries@astfinancial.com HEADQUARTERS 33 Yonge Street, Suite 500 Toronto, Ontario, Canada M5E 1G4 Telephone: (416) 641-9500 Toll-free Telephone: 1 (877) 953-9948 Facsimile: (416) 641-9501 Website: www.altusgroup.com Email: info@altusgroup.com altusgroup.com