Building on solid
foundations
BTB Real Estate Investment Trust
2014 Annual Report
Profile
BTB is a real estate investment trust listed on the Toronto Stock Exchange.
It owns and manages a portfolio of 71 commercial, industrial and office
properties, located primarily in the Montréal, Québec City and Ottawa areas.
Its portfolio comprises more than 4.8 million square feet of leasable area.
Since BTB’s inception in 2006, the total value of its assets has grown
steadily and now stand at nearly $587 million, making BTB the second-
largest real estate investment trust in the Province of Québec.
BTB’s primary objective is to maximize total return for unitholders by:
• generating stable monthly cash distributions that are reliable and tax-efficient;
• increasing the Trust’s assets value through internal growth and acquisition
strategies in order to increase available income and fund distributions;
• managing assets internally in a centralized and controlled fashion in order
to reduce operating expenses, management fees and rental expenses;
• maximising the value of its assets through dynamic and responsible management
so as to ensure the long-term value of its units.
Table of contents
1 Highlights
13 Message from the Chairman of the Board
of Trustees and from the President
and Chief Executive Officer
15 Executive Team
16 Our Properties
19 Management Discussion and Analysis
85 Audited Consolidated
Financial Statements
133 Corporate Information
134 Unitholder Information
2
BTB Rapport annuel 2013
Highlights
Annual revenues
from properties
Total assets
$70M
$587M
Total number of properties
Total number of square feet
71
4.8M
Payout ratio
of distributable income
78%
Mortgage debt ratio
Occupancy rate
56.4%
92,7%
Evolution of operating revenues
for the years ending December 31st
Evolution of net operating income
for the years ending December 31st
(in thousands of dollars)
(in thousands of dollars)
2009
2010
201 1
201 2
201 3
201 4
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
30,325
34,595
41,459
48,1 18
63,435
67,170
2009
2010
201 1
201 2
201 3
201 4
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
17,509
19,357
22,122
26,996
35,336
37,983
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BTB Annual Report 2014
Highlights
1001 Sherbrooke Street East, Montreal
15-41 Georges-Gagné Blvd,Delson
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2,236
2,866
3,272
4,341
4,580
4,821
204, boul. de Montarville, Boucherville
11590-11800, rue de Salaberry, Montréal
204 De Montarville Blvd, Boucherville
1400-1440 Antonio-Barbeau Street, Montreal
Evolution of yearly distribution payments
for the years ending December 31st
Evolution of total leasable area
for the years ending December 31st
(in thousands of dollars)
(in thousands square feet)
2009
2010
201 1
201 2
201 3
201 4
20,000
15,000
10,000
5,000
0
3,81 3
2,684
5,026
7,805
12,610
16,626
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2010
201 1
201 2
201 3
201 4
5,000
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3,000
2,000
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BTB Annual Report 2014
Highlights
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175 Rotterdam Street, Saint-Augustin-de-Desmaures
810 Sherbrooke Street East, Montreal
204, boul. de Montarville, Boucherville
11590-11800, rue de Salaberry, Montréal
6700 Pierre-Bertrand Blvd, Quebec
Édifice Lombard, 915 Pierre-Bertrand Blvd, Quebec
Breakdown of portfolio by geographical region
at December 31st, 2014
Breakdown by asset type
at December 31st, 2014
(per leasable area)
(per leasable area)
Greater Quebec city area
Island of Montreal
London region
Ottawa region
South shore of Montreal
Laval / North shore of Montreal
Sherbrooke
Total
26%
19%
4%
14%
19%
12%
6%
100%
Mixed-use
Office
Retail
Industrial
Total
20%
3 1 %
19%
30%
100%
3
BTB Annual Report 2014
4
BTB Annual Report 2014 Highlights
For the past two years, BTB ranked amongst Canada’s top-
performing real estate investment trusts, providing its unitholders
with a total return of more than 30%, calculated on unit
appreciation and distribution payments.
Creating added value
for unit holders
5
BTB Annual Report 2014 6
BTB Annual Report 2014 Highlights
Managing our portfolio
efficiently
BTB is a major property owner in Eastern Canada, with total assets
in excess of $585 million. BTB owns 71 buildings, with
a leasable area totalling more than 4.8 million square feet.
7
BTB Annual Report 2014 Highlights
Building long-term relationships with our tenants is a prime concern
for all of our employees. The occupancy rate of our portfolio
has increased, ending the year at 92.7% of BTB’s leasable area.
Our dynamic team contributed to increase our average lease
rental rate on lease renewals by 8.7%.
Focused on customer
satisfaction
8
BTB Annual Report 2014 9
BTB Annual Report 2014 Highlights
Growing
strategically
By being selective in its acquisitions, BTB has purchased quality
assets that attract first-class tenants. The buildings acquired in 2014
benefit from an advantageous position in their respective markets.
10
BTB Annual Report 2014 11
BTB Annual Report 2014 ,
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BTB Annual Report 2014
Message from the Chairman of the Board of Trustees
and from the President and Chief Executive Officer
“ The strength of BTB’s results enables us to look
to the future with confidence and has allowed the Board
of Trustees to reward our unitholder’s patience by
increasing distributions.”
Jocelyn Proteau, Chairman, Board of Trustees
Building with vision
and leadership
Since BTB’s inception, we focused our energy on
building our business in a strategic and controlled
manner. As our real estate portfolio grew, so has
the responsibility to manage our assets and en-
hance the value creation of our portfolio. Every
day, our team is busy making decisions that have
direct impact on our clients and on our perfor-
mance. Beyond bricks and mortar, the source of
BTB’s strength resides in its human capital. The
vision and leadership of the men and women
who invest their time and energy in the success
of BTB are the root of 2014’s excellent results.
BTB’s top priority is the interests of unitholders,
clients and employees. Because of the dedication
of everyone involved with the Trust, the year 2014
was profitable.
We are proud to communicate our results for
the year 2014, during which BTB saw improvements
of all its performance indicators. BTB is a major
property owner in Eastern Canada, with a total
assets value in excess of $585 million. The Trust
owns 71 commercial, industrial and office proper-
ties that generate annual revenues of more than
$70 million. The total leasable area of its portfolio
is more than 4.8 million square feet.
At the close of this fiscal year, its net operating
income increased by 7.5% and the payout ratio
of its distributable income stood at 78%, compared
to 83% at year-end 2013. BTB’s funds from
operations (FFO) increased by 31%, while adjusted
funds from operations (AFFO) grew by 37%.
Creating value for investors
Profitability and value-creation are key to BTB’s
strategy. With a total return to investors of over
30% over the last two years, based on unit appre-
ciation and distribution return, we are hopeful that
our results for the year 2014 met our unitholders’
expectations. BTB’s equity totals nearly $178 million.
Based on the number of units outstanding on
December 31, 2014, which was 34.1 million units,
the book value of BTB units stood at $5.20 per unit.
The strength of BTB’s results enables us to look
to the future with confidence and allowed the Board
of Trustees to reward our unitholder’s patience by
increasing distributions. In September 2014,
the trustees voted a 5% increase in distributions to
unitholders, up from $0.40 to $0.42 on an annu-
alized basis. This sent a positive signal to investors,
one that reflects the quality and efficiency of our
team and confirms the trustees’ and management’s
confidence in BTB’s future.
Rigorously managing our debt
In terms of mortgage debt, BTB refinanced approxi-
mately $60 million of mortgage loans that matured
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13
BTB Annual Report 2014
Message from the Chairman of the Board of Trustees
and from the President and Chief Executive Officer
during the year. Given the favourable lending cli-
mate, we managed to reduce our interest expense.
As a result, the average interest rate on our mort-
gage debt has fallen from 4.44% to 4.13%, leading
to annualized savings of over $1 million. The mort-
gage debt ratio declined from 57.4% (at the end
of 2013) to 56.3% (as at December 31, 2014).
There were other financing activities. We secured
a new $15 million acquisition line of credit, under
more favourable conditions than the former acqui-
sition line of credit. Also, as part of the acquisitions
concluded during the year, we secured nearly
$27 million in mortgage financing to support these
acquisitions.
Finally, we issued of 5,436,000 units from
treasury, gleaning almost $25 million in capital,
which was used to reduce BTB’s previous acqui-
sition line of credit and to acquire properties.
Acquiring high-value assets
By being selective in our acquisitions and striving
for excellence, we demonstrated our acquisition
skills and our expertise in seizing opportunities.
We purchased two high-quality assets, well posi-
tioned in their respective markets. The first
acquisition is a major shopping centre located in
Saint-Jean-sur-Richelieu and the second, an industrial
complex located in an industrial park in Québec City.
During the year, we invested approximately
$40 million and added nearly 300,000 square
feet to our total leasable area.
Client satisfaction
During the year we experienced a strong leasing
activity. At the end of the year, our properties’
occupancy rate rose to 92.7%. Managing our
properties and building lasting relationships with all
of our tenants are paramount to us.
The foremost mission of our management team is
to maintain relationships with our clients, based on
mutual trust, hoping they will remain with us on a
long term basis.
Because of our strong team of professionals, we
continue to see steady revenue growth, solidifying
our foundations. We wish to recognize the invaluable
contribution of our employees, each of whom
is dedicated to making BTB a top-performing real
estate entity. We would also like to thank all the
members of our Board of Trustees, whose guidance
is invaluable and who constantly support us in the
pursuit of our goals.
From the very first day we opened for business,
we have upheld our key values of integrity, respect
and quality service, and we will continue to work
towards our goal of reaching $1 billion of total assets
over the next few years.
Since we built a solid foundation, we can look to
the future with confidence and determination.
Jocelyn Proteau
Chairman, Board of Trustees
Michel Léonard
President and Chief Executive Officer
“ Beyond bricks and mortar, the root of BTB’s strength resides
in its people. The vision and leadership of the men and
women who invest their time and energy in the success of
BTB are the cornerstone of 2014’s excellent results.”
Michel Léonard, President and Chief Executive Officer
14
BTB Annual Report 2014 Executive Team
From left to right: Dominic Gilbert, Benoit Cyr,
Michel Léonard and Frédéric Seigneur.
Michel Léonard
President and Chief Executive Officer
Benoit Cyr, CPA, CA, MBA
Vice President and Chief Financial Officer
Dominic Gilbert, B.A.A.
Vice President, Property Management
Frédéric Seigneur
Vice President, Leasing
BTB Annual Report 2014
15
Our Properties
1640-1650 King Street West, Sherbrooke
15-41 Georges-Gagné Blvd,Delson
32 St-Charles Street West, Longueuil
1400 Marie-Victorin Street, St-Bruno
Portfolio listing
Island of Montreal
1400-1440 Antonio-Barbeau Street, Montreal
5810 and 5878-5882 Sherbrooke Street East, Montreal
7001-7035 St-Laurent Blvd, Montreal
2212-2226 Dollard Street, Montreal
1001 Sherbrooke Street East, Montreal
2153-2155 Crescent Street, Montreal
550-560 Henri-Bourassa Blvd, Montreal
3627-3645 des Sources Blvd, Dollard-des-Ormeaux
3761-3781 des Sources Blvd, Dollard-des-Ormeaux
Marché de l’Ouest
11600-11800 De Salaberry Blvd, Dollard-des-Ormeaux
1863-1865 Trans-Canada Highway, Dorval*
1325 Hymus Blvd, Dorval
5600 Côte-de-Liesse, Mont-Royal
4105 Sartelon Street, St-Laurent
208-244 Migneron Street and 3400-3410
Griffith Street, St-Laurent
7777 Trans-Canada Highway, St-Laurent
2265-2665-2673 et 2681 Côte Saint-Charles,
Saint-Lazare
Laval/North Shore
2900 Jacques-Bureau Street, Laval
1125-1135 St-Martin Blvd. West, Laval
2004-2016 René-Laennec Blvd, Laval
4535 Louis B. Mayer Street, Laval
3695 Des Laurentides (Highway-15), Laval
81-83 Turgeon Street, Ste-Thérèse
5791 Laurier Blvd, Terrebonne
2175 Des Entreprises Blvd, Terrebonne
2205-2225 Des Entreprises Blvd, Terrebonne
South Shore of Montreal
4890-4898 Taschereau Blvd., Brossard
2340 Lapinière Blvd, Brossard
100 Montarville Blvd., Boucherville
204 De Montarville Blvd, Boucherville
32 St-Charles Street West, Longueuil
50 St-Charles Street West, Longueuil
85, St-Charles Street West, Longueuil
3036-3094 De Chambly Road, Longueuil
2111 Fernand-Lafontaine Blvd, Longueuil
2350 Chemin du Lac, Longueuil
1400 Marie-Victorin Street, St-Bruno-de-Montarville
Les Halles St-Jean
145 St-Joseph Blvd, St-Jean-sur-Richelieu
Le Bougainvillier
315-325 MacDonald Street, St-Jean-sur-Richelieu
Les galeries Richelieu
1000 Du Séminaire Nord Blvd, St-Jean-sur-Richelieu
Plaza Delson
15,19,21,35 et 41 Georges-Gagné Blvd, Delson
16
BTB Annual Report 2014
Our Properties
204 Georges-Gagné Blvd, Delson
2900 Jacques-Bureau Street, Laval
705-725-805, Boundary Road, Cornwall*
1863-1865, route Transcanadienne, Dorval*
Quebec City Area
Place d’Affaires Lebourgneuf, Phase I
6655 Pierre-Bertrand Blvd, Quebec
Centre d’affaires Le Mesnil
1170 Lebourgneuf Blvd, Quebec
Complexe Lebourgneuf
825 Lebourgneuf Blvd, Quebec
Place d’affaires Lebourgneuf, Phase II
6700 Pierre-Bertrand Blvd, Quebec
Édifice Lombard
909-915 Pierre-Bertrand Blvd, Quebec
Complexe Lebourgneuf, Phase II
815 Lebourgneuf Blvd, Quebec
Edifice Brinks
191 D’Amsterdam Street, St-Augustin-de-Desmaures
Terrasses des Lilas
1100 and 1108-1136 St-Joseph Blvd, Drummondville
Complexe de Léry
505 Des Forges Street and 1500 Royale Street,
Trois-Rivières
665-669 Thibeau Blvd, Trois-Rivières
3885 Harvey Blvd, Saguenay
Promenades St-Noël
100 1st Street West, Thetford Mines
175 de Rotterdam Street, St-Augustin-de-Desmaures
Sherbrooke
2865-2885 De Portland Blvd, Sherbrooke
Place Fleurimont
1635-1645 King Street East and 150-170 Duplessis
Road, Sherbrooke
Place Jacques-Cartier
1640-1650 and 1645 King Street West, Sherbrooke
Les terrasses 777,
747-805 King Street East, Sherbrooke
30-66 Jacques-Cartier Blvd Nord, Sherbrooke
3705 Industrial Blvd, Sherbrooke
2059 René-Patenaude Street, Magog
Greater London Area
311 Ingersoll Street, Ingersoll
Ottawa Area
80 Aberdeen Street, Ottawa
245 Stafford Road West, Ottawa
1-9 and 10 Brewer Hunt Way and 1260-1280 Teron Rd,
Ottawa
400 Hunt Club Rd, Ottawa
7 and 9 Montclair Blvd, Gatineau
705 Boundary Road, Cornwall*
725 Boundary Road, Cornwall*
805 Boundary Road, Cornwall*
2901 and 2905 Marleau Avenue, Cornwall
BTB Annual Report 2014
17
*Properties in redevelopment
18
BTB Annual Report 2014 Management Discussion and Analysis
Quarter ended December 31, 2014
Management Discussion and Analysis
Table of Contents
Introduction
Forward-Looking Statements Caveat
Non-IFRS Financial Measures
The Trust
Objectives and Business Strategies
Highlights of the Fourth Quarter (2014 vs 2013)
Highlights of the Year (2014 vs 2013)
Selected Financial Information
Selected Annual Information
Real Estate Portfolio
Performance Indicators
Operating Results
Distributable Income and Distributions
Funds from Operations (FFO)
Adjusted Funds from Operations (AFFO)
Segmented Information
Comparative Summary of Quarterly Results
Real Estate Operations
Financial Position
Assets
Capital Resources
Income Taxes
Taxation of Unitholders
Summary of Significant Accounting Policies and Estimates
New Accounting Policies
Risks and Uncertainties
Disclosure Controls and Procedures and Internal Control Over Financial Reporting
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BTB Annual Report 2014
20
Management Discussion and Analysis
Introduction
The purpose of this Management Discussion and Analysis is to allow the reader to evaluate the
operating results of BTB Real Estate Investment Trust ("BTB" or the "Trust") for the year ended
December 31, 2014, as well as its financial position on that date. The report also presents the Trust’s
business strategies and the risk exposure it faces. This MD&A dated March 19, 2015 should be read
together with the audited consolidated financial statements and accompanying notes for the years
ended December 31, 2014 and 2013. It discusses any significant information available up to the date of
this MD&A. The Trust’s consolidated annual financial statements were prepared in accordance with
International Financial Reporting Standards ("IFRS"), as issued by the International Accounting
Standards Board ("IASB"). Unless otherwise indicated, all amounts are in thousands of Canadian
dollars, except for per unit and per square foot amounts. Per unit amounts are calculated using the
weighted average number of trust units outstanding for the quarters and years ended December 31,
2014 and 2013. Additional information about the Trust, including the Annual Information Form, is
available on the Canadian Security Administrators ("CSA") website at www.sedar.com and on our
website at www.btbreit.com.
The Audit Committee and the Trust’s Board of Trustees approved the contents of this annual
Management Discussion and Analysis and the annual financial statements on March 19, 2015.
Forward-Looking Statements Caveat
From time to time, we make written or oral forward-looking statements within the meaning of applicable
Canadian securities legislation. We may make forward-looking statements in this MD&A, other filings
with Canadian regulators, reports to unitholders and other communications. These forward-looking
statements include statements regarding our future objectives, strategies to achieve our objectives, as
well as statements with respect to our beliefs, outlooks, plans, objectives, expectations, forecasts,
estimates and intentions. The words “may,” “could,” “should,” “outlook,” “believe,” “plan,” “forecast,”
“estimate,” “expect,” “propose,” and the use of the conditional and similar words and expressions are
intended to identify forward-looking statements.
By their very nature, forward-looking statements involve numerous factors and assumptions, and are
subject to inherent risks and uncertainties, both general and specific, which give rise to the possibility
that predictions, forecasts, projections and other forward-looking statements will not be achieved. We
caution readers not to place undue reliance on these statements as a number of important factors
could cause our actual results to differ materially from the expectations expressed in such forward-
looking statements. These factors include general economic conditions in Canada and elsewhere, the
effects of competition in the markets where we operate, the impact of changes in laws and regulations,
including tax laws, successful execution of our strategy, our ability to complete and integrate strategic
acquisitions successfully, potential dilution, our ability to attract and retain key employees and
executives, the financial position of lessees, our ability to refinance our debts upon maturity and to
lease vacant space, our ability to complete developments on plan and on schedule and to raise capital
to finance our growth, as well as changes in interest rates.
BTB Annual Report 2014
21
Management Discussion and Analysis
We caution that the foregoing list of important factors likely to affect future results is not exhaustive.
When relying on forward-looking statements to make decisions with respect to BTB, investors and
others should carefully consider these factors and other facts and uncertainties. Additional information
about these factors can be found in the “Risks and Uncertainties” section of this quarterly MD&A.
BTB cannot assure investors that actual results will be consistent with any forward-looking statements
and BTB assumes no obligation to update or revise such forward-looking statements to reflect new
events or circumstances, except as required under applicable securities regulations.
Non-IFRS Financial Measures
Net property income, distributable income, funds from operations ("FFO") and adjusted funds from
operations ("AFFO") are non-IFRS performance measures and do not have standardized meanings
prescribed by IFRS. These measures and net operating income are used by BTB to improve the
investing public’s understanding of operating results and the Trust’s performance. IFRS are
International Financial Reporting Standards defined and issued by the IASB, in effect as at the date of
this MD&A.
These measures cannot be compared to similar measures used by other issuers. However, BTB
presents its FFO in accordance with the Real Property Association of Canada (REALpac) White Paper
on Funds from Operations, as revised in November 2012.
Securities regulations require that these measures be clearly defined, that they be readily comparable
to the most similar IFRS measures, and that they not be assigned greater weight than IFRS measures.
BTB Annual Report 2014
22
Management Discussion and Analysis
The Trust
BTB is an unincorporated open-ended real estate trust formed and governed under the laws of the
Province of Québec pursuant to a trust agreement. BTB began its real estate operations on October 3,
2006 and up to December 31, 2014, it has acquired and owns 71 commercial, office and industrial
properties in primary and secondary markets. BTB has now become an important real estate owner in
geographical markets in Québec and eastern Ontario. The units and Series C, D and E convertible
debentures are traded on the Toronto Stock Exchange under the symbols “BTB.UN”, “BTB.DB.C”,
“BTB.DB.D” and “BTB.DB.E”, respectively.
Most of the Trust’s properties are managed internally, with 51 of the Trust’s 71 properties held to date
entirely managed by the Trust’s employees. Management’s objective is to resume, when favourable
circumstances prevail, internal management of the Trust’s properties under agreements between the
Trust and its external managers, thereby achieving savings in management and operating fees through
centralized and improved property management.
The following table provides a summary of the property portfolio:
As at December 31, 2014(1)
Number of
properties
71
Leasable area
(sq. ft.)
4,821,281
Fair value
(thousands of $)
571,462
(1) These figures include a 50% interest in a 17,114 square-foot building in a Montréal suburb, a 75% interest in a
140,870 square-foot building in Québec City and a 50% interest in two buildings totalling 74,941 square feet in Gatineau,
Québec.
BTB’s management is entirely internalized and no service agreements or asset management
agreements are in force between BTB and its officers. The Trust therefore ensures that the interests of
management and of its employees are aligned with those of the unitholders.
Objectives and Business Strategies
BTB’s primary objective is to maximize total returns to unitholders. Returns include cash distributions
and long-term appreciation in the value of units. More specifically, the objectives are as follows:
(i) Generate stable monthly cash distributions that are reliable and fiscally beneficial to unitholders.
(ii) Grow the Trust’s assets through internal growth and accretive acquisition strategies in order to
increase distributable income and therefore fund distributions.
(iii) Optimize the value of its assets through dynamic management of its properties in order to
maximize the long-term value of its units. Strategically, BTB has purchased and seeks to acquire
properties with low vacancy rates, good lessee quality, superior locations, low lease turnover
potential and properties that are well maintained and require a minimum of future capital
expenditures.
BTB Annual Report 2014
23
Management Discussion and Analysis
Highlights of the Fourth Quarter
(2014 vs 2013)
Increase
7.4% in rental income
10.5% in net operating income
9.5% in distributable income per unit – from 12.7¢ to 13.9¢
13.0% in AFFO per unit – from 10.8¢ to 12.2¢
Improvement
In the payout ratio from 78.9% to 75.6%
In the mortgage liability ratio from 57.4% to 56.3%
In the weighted average interest rate on mortgage debt from 4.44% to 4.13%
Significant leasing activities
Occupancy increase from 91.9% to 92.7%
187,000 square feet leased or renewed during the quarter, with an increase in average rate of
renewed leases of 10.7%
Subsequent to year-end
The Trust completed two acquisitions during the first quarter of 2015:
January 28, 2015: acquisition of a 116,000-square-foot industrial property in Ottawa, Ontario,
for a price of $12.5 million.
January 30, 2015: purchase of a major retail centre of close to 146,000 square feet in a
Montréal suburb, for a price of $21.5 million.
BTB Annual Report 2014
24
Management Discussion and Analysis
Highlights of the Year
(2014 vs 2013)
Increase
5.9% in rental income
7.5% in net operating income
7.4% in assets
8.0% in distributable income per unit
12.3% in AFFO per unit
Improvement
In the payout ratio from 82.6% to 77.9%
In the mortgage liability ratio from 57.4% to 56.3%
In the occupancy rate from 91.9% to 92.7%
Leasing activities
427,000 square feet of leases renewed
204,000 square feet of new leases signed
8.7% increase in the average rate of expired and renewed leases
Acquisitions
In May 2014, the Trust purchased a retail complex in Saint-Jean-sur-Richelieu, Québec, at a
cost of $31.6 million. There was a $20.5 million mortgage on this acquisition, for a 10 year term
at 4.40%.
In August 2014, the Trust acquired a newly built industrial complex for a price of $8.3 million.
There was a $6.2 million mortgage on this acquisition, for a 10 year term at 4.39%.
Disposition
In April, the Trust also sold a retail complex with a leasable area of 25,400 square feet located
on rue Saint-Jacques, Montréal, for a selling price of $4.2 million, and part of a property in
Sherbrooke for a selling price of $0.5 million.
Capital transactions
June 2014 – issuance of 4,836,000 units at a price of $4.55 per unit and the over-allotment
option for 600,000 additional units at a price of $4.55 per unit for total net proceeds of
$23.4 million, net of underwriters’ fees.
Increase in the annual distribution to 42¢ as of September 15, 2014.
Market capitalization increase of $35.2 million at $161.5 million compared to $126.3 as of
December 31, 2014.
BTB Annual Report 2014
25
Management Discussion and Analysis
Selected Financial Information
Since the beginning of its real estate operations in October 2006 up until December 31, 2014, the Trust
owns 71 properties generating, on an annualized basis, revenues of close to $70 million.
The following table presents highlights and selected financial information for the quarters and years
ended December 31, 2014 and December 31, 2013:
Periods ended December 31
(in thousands of dollars, except for ratios and per unit data)
Quarter
2014
$
17,558
10,008
5,470
(1,405)
4,734
3,581
4,214
4,153
2013
$
16,348
9,061
5,169
7,732
3,581
2,827
3,490
3,049
Year
2014
$
2013
$
67,170
37,983
21,299
12,883
16,626
12,953
15,226
14,363
586,737
571,462
329,943
65,186
63,435
35,336
19,992
18,349
12,610
10,412
11,632
10,462
546,559
529,432
313,816
63,929
56.3%
4.13%
57.4%
4.44%
177,599
161,454
152,592
126,332
34,089
28,292
34,134
31,418
28,326
25,736
(4.1¢)
13.9¢
10.5¢
75.6%
67.0%
12.4¢
12.2¢
27.3¢
12.7¢
10.0¢
78.9%
70.7%
12.3¢
10.8¢
10.7%
9.8%
41.0¢
52.9¢
40.8¢
77.9%
69.2%
48.5¢
45.7¢
5.20
0.0%
100%
71
4,822
92.7%
8.7%
71.3¢
49.0¢
40.0¢
82.6%
75.3%
45.2¢
40.7¢
5.39
0.0%
100.0%
69
4,580
91.9%
7.7%
Reference
Financial information
Page 31
Rental income
Net operating income(1)
Page 33
Net property income from the same-property portfolio(1) Page 30
Page 37
Net income (loss) and comprehensive income
Distributable income(1)
Page 38
Page 39
Distributions
Funds from operations(1) (FFO)
Page 40
Adjusted funds from operations (AFFO)(1)
Page 41
Page 48
Total assets
Page 49
Investment properties
Page 54
Mortgage loans payable
Page 57
Convertible debentures
Page 59
Debt ratio – excluding convertible debentures
Page 54
Weighted average interest rate on mortgage debt
Unitholders’ equity
Page 60
Market capitalization
Financial information per unit
Units outstanding (000)
Weighted average number of units outstanding (000)
Net income (loss) and comprehensive income
Distributable income
Distributions
Payout ratio on distributable income
Cash payout ratio on distributable income
FFO
AFFO
Unitholders’ equity
Tax on distributions
Revenue
Tax deferral
Operational information
Number of properties
Leasable area (thousands of sq. ft.)
Occupancy rate
Increase in average lease renewal rate
(1) Financial term not defined by IFRS
Page 61
Page 61
Page 37
Page 38
Page 39
Page 39
Page 39
Page 40
Page 41
Page 60
Page 64
Page 65
Page 50
Page 28
Page 28
Page 45
BTB Annual Report 2014
26
Management Discussion and Analysis
Selected annual information
Years ended December 31
(in thousands of dollars, except for ratios and per unit data)
Rental income
Net operating income(1), (5)
Fair value adjustment on investment properties
Net income
FFO(2), (5)
AFFO(3), (5)
Distributions
Total assets
Long-term debt
Per unit financial information
Net income
FFO(2), (5)
AFFO(3), (5)
Distribution
Payout ratio(4), (5)
2014
67,170
37,983
(1,860)
12,883
15,226
14,363
12,953
586,737
395,129
41.0¢
48.5¢
45.7¢
40.8¢
77.9%
2013
$
63,435
35,336
8,375
18,349
11,632
10,462
10,412
546,559
377,745
2012
$
48,118
26,996
7,711
17,967
6,493
6,499
7,656
504,927
350,795
71.3¢
45.2¢
40.7¢
40.0¢
82.6%
96.2¢
34.8¢
34.5¢
40.0¢
98.1%
(1) Defined as rental income from investment properties less operating expenses.
(2) See “Funds from operations” on page 40 for definition and reconciliation to net income.
(3) See “Adjusted funds from operations” on page 41 for definition and reconciliation to FFO and net income.
(4) Represents total distributions divided by distributable income.
(5) Non-IFRS measure.
BTB Annual Report 2014
27
Management Discussion and Analysis
Real Estate Portfolio
BTB owns 71 quality properties which have a fair value of $571 million representing a total leasable
area of more than 4.8 million square feet. A concise description of the properties owned as at
December 31, 2014 can be found in the Trust’s Annual Information Form available at www.sedar.com.
The properties acquired in 2014 are described on page 49 of this MD&A.
Summary of properties as at December 31, 2014
Operating segment
Office
Commercial
Industrial
General purpose
Subtotal
Industrial properties under redevelopment
Total
Number of
properties
Leasable area
(sq. ft.)
Occupancy rate
(%)
22
15
19
13
69
2
71
1,443,881
892,704
1,420,827
937,323
4,694,735
126,546
4,821,281
86.6
92.3
98.3
93.7
92.7
—
92.7
BTB Annual Report 2014
28
Management Discussion and Analysis
Performance Indicators
The following indicators are used to measure the financial performance of BTB:
Net operating income of the same-property portfolio, which provides an indication of the
profitability of existing portfolio operations and BTB’s ability to increase its revenues and
reduce its operating costs;
Distributable income per unit, which enables investors to determine the stability of
distributions;
Funds from operations (“FFO”) per unit, which provide an indication of BTB’s ability to
generate cash flow;
Adjusted funds from operations (“AFFO”) per unit, which takes into account rental fees and
capital expenditures and which may vary substantially from one year to the next;
The debt-equity ratio, which is used to assess BTB’s financial integrity and its capacity for
additional acquisitions;
The interest coverage ratio, which is used to measure BTB’s ability to use operating results
to pay interest on its debt using its operating revenues;
The occupancy rate, which provides an indication of the optimization of rental space and the
potential revenue gain from the Trust’s property portfolio.
More detailed definitions and analyses of each of these indicators are provided in the appropriate
sections.
BTB Annual Report 2014
29
Management Discussion and Analysis
Operating Results
The following table summarizes financial results for the quarters and years ended December 31, 2014
and December 31, 2013. The table should be read in conjunction with our consolidated financial
statements and the notes thereto.
Periods ended December 31
(in thousands of dollars)
Rental income
Operating expenses
Net operating income
Financial income
Financial expenses
Trust administration expenses
Fair value adjustment on investment properties
Net income (loss) and comprehensive income
Same-property portfolio
Reference
Page 31
Page 32
Page 33
Page 34
Page 35
Page 51
Page 37
Quarter
Year
2014
$
17,558
7,550
10,008
(50)
7,680
1,127
2,656
(1,405)
2013
$
16,348
7,287
9,061
(19)
5,018
850
(4,520)
7,732
2014
$
67,170
29,187
37,983
(77)
19,108
4,209
1,860
12,883
2013
$
63,435
28,099
35,336
(105)
21,634
3,833
(8,375)
18,349
The same-property portfolio includes all the properties owned by BTB as at January 1, 2013, but does
not include the financial spin-offs of disposals, acquisitions and developments completed in 2013 and
2014.
The following table summarizes the results of the same-property portfolio.
Periods ended December 31
(in thousands of dollars)
Rental income
Operating expenses
Net operating income
Interest expense on mortgage loans payable
Net property income
Quarter
Year
2014
$
15,572
7,130
8,442
2,972
5,470
2013
$
15,515
7,111
8,404
3,235
5,169
2014
$
61,190
27,831
33,359
12,060
21,299
2013
$
60,597
27,490
33,107
13,115
19,992
Increase in net property income from the same-property portfolio
5.8%
6.5%
In recent quarters, management agreed to redevelop and repurpose two industrial properties: 1863-
1865 Transcanadienne in Dorval, Québec and 805 Boundary Road in Cornwall, Ontario. Consequently,
these properties are excluded from the same-property portfolio figures.
BTB Annual Report 2014
30
Management Discussion and Analysis
Rental income
BTB actively acquired properties in 2013 and 2014. Due to this acquisition activity as well as internal
growth from the same-property portfolio, rental income increased by $1,210 or 7.4% for the fourth
quarter of 2014 and $3,735 or 5.9% for fiscal 2014 compared to the same periods of 2013.
Rental income includes all amounts earned from tenants related to lease agreements, including basic
rent and additional rent from operating expense recoveries. It also includes other service charges for
parking and storage, lease termination revenues and straight-line rent adjustments.
The Trust’s leases typically include clauses providing for the recovery of rental income based on
amounts that increase every few years. These increases are negotiated when the leases are signed.
Under IFRS, these increases must be recognized on a straight-line basis over the terms of the leases.
In the fourth quarter of 2014, rent adjustments of $143 (2013: $327) were recorded on a straight-line
basis. Straight-line adjustments for the year totalled $610 (2013: $866).
In the fourth quarter of 2014, BTB recorded amortization of $476 (2013: $407) as a reduction in rental
income, which represents amortization of lease incentives afforded to lessees. For the year ended
December 31, 2014, this amortization totalled $1,793 (2013: $1,480).
The following table provides a reconciliation of rental income on the basis of in-place leases and rental
income from investment properties.
Periods ended December 31
(in thousands of dollars)
Rental income on the basis of in-place leases
Straight-line rental income adjustment
Amortization of lease incentives
Rental income from investment properties
Quarter
Year
2014
$
17,891
143
(476)
17,558
2013
$
16,428
327
(407)
16,348
2014
$
68,353
610
(1,793)
67,170
2013
$
64,049
866
(1,480)
63,435
Income from the same-property portfolio increased 0.4% in the fourth quarter ended December 31,
2014 compared to the fourth quarter of 2013 and increased 1.0% for fiscal 2014 compared to the
previous year.
The following table provides a reconciliation of income from the same-property portfolio and the total
portfolio.
Periods ended December 31
(in thousands of dollars)
Same-property portfolio
Acquisitions, disposals and development
Rental income
Quarter
Year
2014
2013
%
2014
2013
%
$
$
15,572
1,986
15,515
833
17,558
16,348
$
$
61,190
5,980
60,597
2,838
67,170
63,435
0.4
n/a
7.4
1.0
n/a
5.9
BTB Annual Report 2014
31
Management Discussion and Analysis
Operating expenses
Operating expenses are expenses directly related to real estate operations and are generally charged
back to tenants as provided for in the contractual terms of the leases. Operating expenses include
property taxes and public utilities, costs related to indoor and outdoor maintenance, heating, ventilation
and air conditioning, elevators, insurance, janitorial services and management and operating fees. The
amount of operating expenses that BTB can recover from its tenants depends on the occupancy rate of
the properties and the nature of the existing leases containing clauses regarding the recovery of
expenses. Most of BTB’s leases are net rental leases under which tenants are required to pay their
share of the properties’ operating expenses. BTB pays particular attention to compliance with existing
leases and the recovery of these operating expenses.
BTB recorded an increase in operating expenses of 3.6% between the fourth quarter of 2013 and the
fourth quarter of 2014, and 3.9% for fiscal 2014 compared to the previous year.
Operating expenses of the same-property portfolio increased 0.3% for the quarter and 1.2% for the
year.
Periods ended December 31
(in thousands of dollars)
Same-property portfolio
Acquisitions, disposals and development
Operating expenses
Quarter
Year
2014
2013
%
2014
2013
%
$
7,130
420
7,550
$
7,111
176
7,287
$
27,831
1,356
29,187
$
27,490
609
28,099
0.3
n/a
3.6
1.2
n/a
3.9
The following table shows the breakdown of operating expenses for the periods ended December 31,
2014 and 2013.
Periods ended December 31
(in thousands of dollars)
Operating expenses
Operating costs
Property taxes and public utilities
Total operating expenses
% of rental income
Quarter
Year
2014
$
2,907
4,643
7,550
43.0
2013
$
2,837
4,450
7,287
44.6
2014
$
2013
$
10,970
18,217
29,187
43.5
10,370
17,729
28,099
44.3
As a percentage of rental income, operating expenses declined 1.6% over the quarter, from 44.6% for
the fourth quarter of 2013 to 43.0%, and 0.8%, from 44.3% as at December 31, 2013 to 43.5%, for
fiscal 2014. This decrease reflects sound management of operating expenses. The nature of leases for
recent acquisitions also contributed to improving these rates.
BTB Annual Report 2014
32
Management Discussion and Analysis
Net operating income
Net operating income increased 10.5% for the fourth quarter of 2014 compared to 2013 and 7.5% for
fiscal 2014 compared to 2013. Net operating income of the same-property portfolio showed a 0.5%
increase for the fourth quarter of 2014 compared to the fourth quarter of 2013 and 0.8% for fiscal 2014
compared to 2013.
Periods ended December 31
(in thousands of dollars)
Same-property portfolio
Acquisitions, disposals and development
Net operating income
% of rental income
Quarter
Year
2014
2013
%
2014
2013
%
$
8,442
1,566
10,008
57.0
$
8,404
657
9,061
55.4
0.5
n/a
10.5
$
33,359
4,624
37,983
56.5
$
33,107
2,229
35,336
55.7
0.8
n/a
7.5
Net operating income is reduced by non-cash rental income adjustments. Before adjustments, net
operating income was as follows:
Periods ended December 31
(in thousands of dollars)
Net operating income
Straight-line rental income adjustments
Adjustment related to amortization of lease incentives
Net operating income before rental income
adjustments
% of rental income on the basis of in-place leases
Quarter
Year
2014
2013
%
2014
2013
%
$
10,008
(143)
476
10,341
57.8
$
9,061
(327)
407
9,141
55.6
$
$
37,983
(610)
1,793
35,336
(866)
1,480
10.5
n/a
n/a
13.1
39,166
35,950
57.3
56.1
7.5
n/a
n/a
8.9
Net operating income is used in the real estate industry to measure operational performance. BTB
defines it as rental income from properties, less operating expenses of investment properties. This
definition may differ from that of other issuers and accordingly, BTB’s net operating income may not be
comparable to the net operating income of other issuers.
Financial expenses
Financial expenses arise from the following loans and financings:
Mortgage loans payable contracted or assumed totalling approximately $331 million as at
December 31, 2014, compared to $314 million as at December 31, 2013. The increase resulted
from the financing or assumption of mortgage loans payable on acquisitions completed and the
refinancing of certain properties during the last 12 months.
Series C, D and E convertible debentures for a total par value of $69 million.
Operating and acquisition lines of credit used as needed, which allowed primarily for the
acquisition of accretive properties during fiscal 2013 and 2014.
Financing costs on mortgages, convertible debentures and other loans netted against the related
debt and amortized on an effective interest basis over the expected life of the debt.
BTB Annual Report 2014
33
Management Discussion and Analysis
The following table shows the breakdown of financial expenses for the reporting quarters and years:
Periods ended December 31
(in thousands of dollars)
Interest expense on mortgage loans payable
Interest expense on debentures
Interest expense on acquisition line of credit
Interest expense on operating line of credit and other interest expenses
Interest expenses
Accretion of effective interest
Accretion of non-derivative liability component of convertible debentures
Financial expenses before following item:
Fair value adjustment on derivative financial instruments
(debenture conversion options and interest rate swap)
Financial expenses
Quarter
Year
2014
$
3,469
1,274
—
32
4,775
290
145
5,210
2,470
7,680
2013
$
3,517
1,274
—
18
4,809
223
132
5,164
2014
$
13,523
5,096
161
77
18,857
1,069
561
20,487
(146)
5,018
(1,379)
19,108
2013
$
13,861
5,146
767
54
19,828
1,142
551
21,521
113
21,634
Before recognition of fair value adjustments on derivative financial instruments (debenture conversion
options and interest rate swap), financial expenses increased by $46 during the fourth quarter of 2014
compared to the same quarter in 2013 and decreased $1,034 during fiscal 2014 compared to fiscal
2013.
As shown by the following table, interest expense on mortgage loans payable in the same-property
portfolio decreased by 8.1% in the fourth quarter of 2014 and 8.0% for fiscal 2014 compared to the
same periods in 2013, due to the refinancing of loans that matured at more advantageous rates,
despite increased financing on certain properties.
Periods ended December 31
(in thousands of dollars)
Same-property portfolio
Acquisitions and development
Interest expense on mortgage loans payable
Quarter
Year
2014
2013
%
2014
2013
%
$
2,972
497
3,469
$
3,235
282
3,517
$
12,060
1,463
13,523
$
13,115
746
13,861
(8.1)
n/a
(1.4)
(8.0)
n/a
(2.4)
Financial expenses can be allocated among interest expenses amounting to $4,775 for the quarter
(2013: $4,809) and $18,857 for the year (2013: $19,828) and non-monetary items. Non-monetary items
include fair value adjustments on derivative financial instruments in debit positions of $2,470 for the
quarter (2013: credit positions of $146) and credit positions of $1,379 for the year (2013: $113). Fair
values fluctuate from one quarter to another. These adjustments result from changes in the value of the
Trust’s units on stock exchanges during the reporting quarters and changes in the value of conversion
options and interest rate swaps compared with the amounts recorded at the end of previous quarters.
BTB Annual Report 2014
34
Management Discussion and Analysis
As at December 31, 2014, the average weighted contractual rate of interest on mortgage loans payable
was 4.13%, the same rate as at September 30, 2014 and 31 points lower than the rate in effect as at
December 31, 2013. For 25 consecutive quarters, the weighted average interest rate has remained
stable or declined. Interest rates on first-ranking mortgage financings ranged from 2.63% to 6.80% as
at December 31, 2014. The weighted average term of financing in place as at December 31, 2014 was
4.68 years (4.44 years as at December 31, 2013).
Trust administration expenses
Trust administration expenses include administrative costs such as payroll expenses and professional
fees associated with executive and administrative staff, the compensation plan for trustees, legal and
auditing services, expenses related to listed fund status, insurance costs, office expenses and bad
debts and related legal fees. These administrative expenses were up 4.9% for the year compared to
last year. Trust administration expenses include amortization of the head office building and property
and equipment, as well as unit-based compensation, a non-monetary item that affects the volatility of
administrative expenses from quarter to quarter.
Periods ended December 31
(in thousands of dollars)
Administrative expenses
Amortization
Unit-based compensation
Trust administration expenses
Quarter
Year
2014
2013
$
895
32
200
1,127
$
773
30
47
850
2014
$
3,808
117
284
4,209
2013
$
3,629
114
90
3,833
Fair value adjustment on investment properties
Under IAS 40, the Trust accounts for its investment properties at fair value and recognizes the gain or
loss arising from a change in the fair value in profit or loss for the periods in which it arises.
The fair value of investment properties is determined using the discounted cash flow method, the
capitalized net operating income method or the comparable method, which are generally accepted
valuation methods.
Management receives quarterly capitalization rate and discount rate data from external chartered
valuators and independent experts. The capitalization rate reports provide a range of rates for various
geographic regions and for various types and qualities of properties within each region. The Trust
utilizes capitalization and discount rates within ranges provided by external valuators. To the extent that
the externally-provided capitalization rate ranges change from one reporting period to the next, or
should another rate within the provided ranges be more appropriate than the rate previously used, the
fair value of the investment properties would increase or decrease accordingly.
BTB Annual Report 2014
35
Management Discussion and Analysis
Market conditions have remained relatively stable, but management determined that a downward fair
value adjustment to the Trust’s properties of $2,656 for the quarter and $1,860 for the full year was
required. At the end of the fourth quarter of 2013, management had determined that an increase in
value in 2014 of $4,520 for the quarter and $8,375 for the full year was required in order to adequately
reflect the fair value of the portfolio then held. This decline in value is due to a number of non-recurring
factors:
The February 2015 closing of two stores and renegotiation of a shorter lease term for Groupe
Épicia’s Magog distribution centre. More details are provided under “Events subsequent to
December 31, 2014” on page 47 of this MD&A.
The non-renewal of two major leases totalling 36,000 square feet in the property located at
1001 Sherbrooke East.
The non-renewal of a 21,000-square-foot lease with the Super C (Métro-Richelieu) store in
Thetford Mines. Management is planning to sell this property.
The value of all other properties in the portfolio remained relatively stable.
The following tables highlight the significant assumptions used in the modeling process for both internal
and external appraisals:
As at December 31, 2014
Capitalization rate
Terminal capitalization rate
Discount rate
As at December 31, 2013
Capitalization rate
Terminal capitalization rate
Discount rate
Commercial
Office
Industrial General purpose
6.25% - 10.00%
7.25% - 8.00%
7.75% - 8.75%
6.50% - 9.25%
7.00% - 7.75%
7.50% - 8.50%
7,00% - 10.00%
7.25% - 9.75%
7.75% - 10.50%
7.00% - 8.25%
7.25% - 8.25%
7.75% - 9.00%
6.25% - 10.00%
6.50% - 8.25%
7.25% - 9.00%
6.75% - 10.25%
6.50% - 9.25%
7.50% - 9.75%
6.50% - 10.50%
7.00% - 10.50%
7.50% - 10.75%
7.00% - 8.25%
7.25% - 8.50%
8.25% - 9.25%
The weighted average capitalization rate for the entire portfolio as at December 31, 2014 was 7.45%
(2013: 7.51%), up 2 basis points since September 30, 2014 and down 6 basis points from a year
earlier.
As at December 31, 2014, BTB has estimated that a 0.25% change in the capitalization rate applied to
the overall portfolio would change the fair value of the investment properties by approximately
$19.7 million.
BTB Annual Report 2014
36
Management Discussion and Analysis
Net income (loss) and comprehensive income
BTB incurred a net loss of $1.4 million for the fourth quarter of 2014 and generated net income of
$12.9 million for the year, down $9.1 million from the fourth quarter of 2013 and up $5.5 million for the
year.
For the fourth quarter, the fair value adjustment on investment properties showed a decline in value of
$2.7 million in 2014, compared to a $4.5 million increase in value in 2013. Similarly, the fair value
adjustment of derivative financial instruments showed a $2.5 million expense in 2014 versus revenue of
$0.1 million in 2013.
Periods ended December 31
(in thousands of dollars, except for per unit data)
Net income (loss) and comprehensive income
Per unit
Quarter
Year
2014
$
(1,405)
(4.1¢)
2013
$
7,732
27.3¢
2014
$
2013
$
12,883
18,349
41.0¢
71.3¢
Net income and comprehensive income fluctuate from one quarter and year to another based on
certain highly volatile monetary items. Consequently, the fair value of derivative financial instruments
and the fair value of the property portfolio fluctuate based on the stock market volatility of BTB units,
the forward interest rate curve and the discount and capitalization rates of the property portfolio.
The following table presents net income and comprehensive income before these volatile non-
monetary items.
Periods ended December 31
(in thousands of dollars, except for per unit data)
Quarter
Year
2014
$
2013
$
2014
$
2013
$
Net income (loss) and comprehensive income
(1,405)
7,732
12,883
18,349
Volatile non-monetary items
±Fair value adjustment on investment properties
±Fair value adjustment on derivative financial instruments
Net income and comprehensive income before volatile
non-monetary items
Per unit
2,656
2,470
(4,520)
(146)
1,860
(1,379)
(8,375)
113
3,721
10.9¢
3,066
10.8¢
13,364
10,087
42.5¢
39.2¢
This table shows an increase of more than 21.4% in quarterly net income and 32.5% in cumulative net
income, before the non-monetary items mentioned above. Quarterly net income per unit increased
0.9% and annual net income increased 8.4%.
BTB Annual Report 2014
37
Management Discussion and Analysis
Distributable Income and Distributions
The notion of “distributable income” does not constitute financial information as defined by IFRS. It is,
however, a measurement that is frequently used by investors in real estate trusts. In our opinion,
distributable income is an effective tool for assessing the Trust’s performance.
We define distributable income as net income determined under IFRS, before unrealized fair value
adjustments, accretion of the liability component of convertible debentures, rental income arising from
the recognition of leases on a straight-line basis, the amortization of lease incentives, the accretion of
effective interest and certain other non-cash items.
The following table shows the calculation of distributable income.
Periods ended December 31
(in thousands of dollars)
Net income (loss) and comprehensive income (IFRS)
+ Fair value adjustment on investment properties
+ Amortization of an investment property and other property and
equipment
+ Unit-based compensation expense
+ Accretion of the liability component of convertible debentures
± Fair value adjustment on derivative financial instruments
+ Amortization of lease incentives
- Straight-line rental income adjustment
+ Accretion of effective interest
Distributable income
Quarter
Year
2014
$
(1,405)
2,656
45
200
145
2,470
476
(143)
290
4,734
2013
$
7,732
(4,520)
33
47
132
(146)
407
(327)
223
2014
$
12,883
1,860
165
284
561
(1,379)
1,793
(610)
1,069
2013
$
18,349
(8,375)
126
90
551
113
1,480
(866)
1,142
3,581
16,626
12,610
The following table shows the reconciliation of distributable income (non-IFRS measure) and cash
flows from operating activities presented in the financial statements.
Periods ended December 31
(in thousands of dollars)
Cash flows from operating activities (IFRS)
+ Financial revenues
± Net change in operating items
- Interest expense on mortgage loans payable
- Interest expense on convertible debentures
- Interest expense on acquisition line of credit
- Interest expense on operating line of credit and other interest
expenses
Distributable income
Quarter
Year
2014
$
13,552
50
(4,093)
(3,469)
(1,274)
—
2013
$
10,687
19
(2,316)
(3,517)
(1,274)
(9)
2014
$
36,678
77
(1,272)
(13,523)
(5,096)
(161)
2013
$
32,168
105
165
(13,861)
(5,146)
(776)
(32)
(9)
(77)
(45)
4,734
3,581
16,626
12,610
BTB Annual Report 2014
38
Management Discussion and Analysis
Distributions and per unit data
Periods ended December 31
(in thousands of dollars, except for per unit data)
Distributions
Cash distributions
Distributions reinvested under the distribution reinvestment plan
Total distributions to unitholders
Percentage of reinvested distributions
Per unit data
Distributable income
Distributions
Payout ratio (1)
Cash payout ratio(2)
Quarter
Year
2014
$
3,170
411
3,581
2013
$
2,531
296
2,827
2014
$
2013
$
11,505
1,448
12,953
9,490
922
10,412
11.5%
10.5%
11.2%
8.9%
13.9¢
10.5¢
75.6%
67.0%
12.7¢
10.0¢
78.9%
70.7%
52.9¢
40.8¢
77.9%
69.2%
49.0¢
40.0¢
82.6%
75.3%
(1) The payout ratio corresponds to total distributions divided by distributable income.
(2) The cash payout ratio corresponds to cash distributions divided by distributable income.
Distributable income for the fourth quarter increased by $1,153, from $3,581 to $4,734, between 2013
and 2014. Distributable income for fiscal 2014 amounted to $16,626, up $4,016 from fiscal 2013.
Distributable income per unit for the fourth quarter of 2014 was 13.9¢ compared to 12.7¢ in 2013, a
9.5% increase, and 52.9¢ for fiscal 2014 compared to 49.0¢ for fiscal 2013, an 8.0% increase.
Distributions to unitholders totalled 10.5¢ per issued unit for the fourth quarter of 2014 compared to
10.0¢ in 2013 and 40.8¢ for the year (2013: 40.0¢).
The payout ratio for distributable income was 75.6% in the fourth quarter of 2014 compared to 78.9% in
the fourth quarter of 2013, and 77.9% for fiscal 2014 compared to 82.6% for 2013, reflecting a surplus
of distributable income over distributions. The improvement in the 2014 payout ratios is particularly
impressive considering the 2¢ increase in the distribution per unit and a cash surplus of more than
$7 million resulting from the June 2014 unit issue, which had not yet been fully allocated to accretive
acquisitions during the fourth quarter of 2014.
In fiscal 2014, 11.2% of the distributions (2013: 8.9%) were reinvested under the distribution
reinvestment plan implemented by BTB in 2011. More than $1.4 million (2013: $0.9 million) of the
Trust’s cash has thereby been preserved through unit conversions since the beginning of the year.
BTB Annual Report 2014
39
Management Discussion and Analysis
Funds from Operations (FFO)
The notion of funds from operations ("FFO") does not constitute financial and accounting information as
defined by IFRS. It is, however, a measurement that is frequently used by real estate companies and
real estate investment trusts. The following is a list of some of the adjustments to net income,
calculated according to IFRS, which are non-cash items that create volatility:
Fair value adjustment on investment properties
Amortization of properties that continue to be recognized at acquisition cost (Trust’s
head office)
Amortization of lease incentives
Fair value adjustment on derivative financial instruments
Our calculation method is consistent with the method recommended by REALpac, but may differ from
measures used by other real estate investment trusts. Consequently, this method may not be
comparable to methods used by other issuers.
The following table provides a reconciliation of net income and comprehensive income established
according to IFRS and FFO for the quarters and years ended December 31, 2014 and 2013:
Periods ended December 31
(in thousands of dollars, except for per unit data)
Net income (loss) and comprehensive income (IFRS)
± Fair value adjustment on investment properties
+ Amortization of a property recognized at cost
+ Amortization of lease incentives
± Fair value adjustment on derivative financial instruments
FFO
FFO per unit
FFO payout ratio(1)
FFO cash payout ratio(2)
Quarter
Year
2014
$
(1,405)
2,656
17
476
2,470
4,214
12.4¢
85.0%
75.2%
2013
$
7,732
(4,520)
17
407
(146)
3,490
12.3¢
81.0%
72.5%
2014
$
12,883
1,860
69
1,793
(1,379)
15,226
48.5¢,
85.1%
75.6%
2013
$
18,349
(8,375)
65
1,480
113
11,632
45.2¢
89.5%
81.6%
(1) The FFO payout ratio corresponds to total distributions divided by FFO.
(2) The FFO cash payout ratio corresponds to cash distributions divided by FFO.
FFO increased by 20.7% for the fourth quarter of 2014 compared to 2013, mainly as a result of
acquisitions of income-producing properties and a decrease in the average mortgage loan interest rate.
FFO per unit for the fourth quarter amounted to 12.4¢ in 2014 compared to 12.3¢ in 2013. The FFO
payout ratio stood at 85.0% for the fourth quarter of 2014 compared to 81.0% for the same period of
2013. The small increase in FFO per unit and the decrease in the payout ratio for the fourth quarter of
2014 compared to 2013 was due to significant fluctuations in non-monetary expenses which are not
factored into the calculation of FFO. The 5% increase in the distribution also contributed to the increase
in the payout ratio.
For fiscal 2014, FFO per unit stood at 48.5¢ compared to 45.2¢ in 2013, a 7.3% increase. The payout
ratio stood at 85.1% for fiscal 2014 compared to 89.5% for fiscal 2013.
BTB Annual Report 2014
40
Management Discussion and Analysis
Adjusted Funds from Operations (AFFO)
The notion of adjusted funds from operations ("AFFO") is widely used by real estate companies and
real estate investment trusts. It is an additional measure to assess the Trust’s performance and its
ability to maintain and increase distributions in the long term. However, AFFO is not a financial or
accounting measure prescribed by IFRS. The method of computing may differ from those used by other
companies or real estate investment trusts and may not be used for comparison purposes.
BTB defines AFFO as its FFO, adjusted to take into account other non-cash items that impact
comprehensive income and do not enter into the calculation of FFO, including:
Straight-line rental income adjustment
Accretion of effective interest following amortization of financing expenses
Accretion of the liability component of convertible debentures
Amortization of other property and equipment
Unit-based compensation expenses
The Trust deducts a provision for non-recoverable capital expenses in calculating AFFO. The Trust
allocates significant amounts to the regular maintenance of its properties in an attempt to reduce capital
expenses as much as possible. Since 2013, the allocation for non-recoverable capital expenses is
calculated on the basis of 2% of rental revenues.
The Trust also deducts a provision for rental fees in the amount of approximately 20¢ per square foot
on an annualized basis. Even though quarterly rental fee disbursements vary significantly from one
quarter to another, management considers that this provision fairly presents, in the long term, the
average disbursements that the Trust will undertake. These disbursements consist of inducements paid
or granted when leases are signed, and of brokerage commissions.
The following table provides a reconciliation of FFO and AFFO for the quarters and years ended
December 31, 2014 and 2013:
Periods ended December 31
(in thousands of dollars, except for per unit data)
FFO
- Straight-line rental income adjustment
+ Accretion of effective interest
+ Accretion of the liability component of convertible debentures
+ Amortization of other property and equipment
+ Unit-based compensation expenses
- Provision for non-recoverable capital expenses
- Provision for rental fees
AFFO
AFFO per unit
AFFO payout ratio(1)
AFFO cash payout ratio(2)
Quarter
Year
2014
$
4,214
(143)
290
145
28
200
(351)
(230)
4,153
12.2¢
86.2%
76.3%
2013
$
3,490
(327)
223
132
17
47
(323)
(210)
3,049
2014
$
15,226
(610)
1,069
561
96
284
(1,343)
(920)
14,363
2013
$
11,632
(866)
1,142
551
62
90
(1,264)
(885)
10,462
10.8¢
92.7%
83.0%
45.7¢
90.2%
80.1%
40.7¢
99.5%
90.7%
(1) The AFFO payout ratio corresponds to total distributions divided by AFFO.
(2) The AFFO cash payout ratio corresponds to cash distributions divided by AFFO.
BTB Annual Report 2014
41
Management Discussion and Analysis
The increase of 36.2% in AFFO for the fourth quarter of 2014 compared with the fourth quarter of 2013
is due to acquisitions of income-producing properties and a drop in the average mortgage loan interest
rate. AFFO per unit amounted to 12.2¢ compared with 10.8¢ in 2013 for the fourth quarter, a 13.0%
increase. The AFFO payout ratio stood at 86.2% at the end of the fourth quarter of 2014 compared to
92.7% at the end of the fourth quarter of 2013, showing a surplus of funds from operations over
distributions.
For the year, AFFO per unit stood at 45.7¢ compared to 40.7¢ in 2013, a 12.3% increase.
BTB Annual Report 2014
42
Management Discussion and Analysis
Segmented Information
The Trust’s operations are derived from four categories of properties located in Québec and Ontario.
The following tables present each category’s contribution to revenues and net operating income for the
quarters and years ended December 31, 2014 and 2013.
Quarters ended December 31
(in thousands of dollars)
Quarter ended December 31,
2014
Commercial
$
%
Office
$
%
Industrial
$
%
General
purpose
$
%
Total
$
Investment properties
Rental income from properties
Net operating income
137,362
4,327
2,594
24.0
24.6
25.9
209,200
7,175
3,558
36.6
40.9
35.6
109,025
2,601
2,147
19.1
14.8
21.5
115,875
3,455
1,709
20.3
19.7
17.1
571,462
17,558
10,008
Quarter ended December 31,
2013
Investment properties
Rental income from properties
Net operating income
101,675
3,006
1,850
19.2
18.4
20.4
208,793
6,919
3,309
39.4
42.3
36.5
100,561
2,333
1,937
19.0
14.3
21.4
118,403
4,090
1,965
22.4
25.0
21.7
529,432
16,348
9,061
Year ended December 31
(in thousands of dollars)
Year ended in 2014
Commercial
$
%
Office
$
%
Industrial
$
%
General
purpose
$
%
Total
$
Rental income from properties
Net operating income
14,087
8,687
21.0
22.9
27,771
13,500
41.3
35.5
9,946
8,083
14.8
21.3
15,366
7,713
22.9
20.3
67,170
37,983
Year ended in 2013
Rental income from properties
Net operating income
11,684
7,163
18.4
20.3
27,007
13,058
42.6
37.0
8,855
7,324
14.0
20.7
15,889
7,791
25.0
22.0
63,435
35,336
BTB Annual Report 2014
43
Management Discussion and Analysis
Comparative Summary of Quarterly Results
As at December 31
(in thousands of dollars, except for per unit data)
Rental income
Net operating income
Net income (loss) and comprehensive
2014
Q-4
$
2014
Q-3
$
2014
Q-2
$
2014
Q-1
$
2013
Q-4
$
2013
Q-3
$
2013
Q-2
$
2013
Q-1
$
17,558
10,008
16,866
9,643
16,202
9,348
16,544
8,984
16,348
9,061
15,452
8,760
15,820
8,975
15,815
8,540
income
(1,405)
4,968
5,323
3,997
7,732
5,660
1,616
3,342
Net income (loss) per unit
Distributable income
Distributable income per unit
Funds from operations (FFO)
FFO per unit
Adjusted funds from operations (AFFO)
AFFO per unit
Distributions
Distributions per unit
(4.1¢)
4,734
14.6¢
18.3¢
14.1¢
27.3¢
21.0¢
6.8¢
14.0¢
4,224
3,990
3,677
3,581
3,202
3,110
2,718
13.9¢
12.4¢
13.7¢
13.0¢
12.7¢
11.9¢
13.0¢
11.4¢
4,214
3,838
3,786
3,388
3,490
2,836
2,857
2,450
12.4¢
11.3¢
13.0¢
11.9¢
12.3¢
10.5¢
12.0¢
10.3¢
4,153
3,657
3,436
3,117
3,049
2,668
2,569
2,182
12.2¢
10.8¢
11.8¢
11.0¢
10.8¢
10.0¢
10.8¢
9.2¢
3,581
3,514
3,023
2,834
2,827
2,821
2,324
2,380
10.5¢
10.3¢
10.0¢
10.0¢
10.0¢
10.0¢
10.0¢
10.0¢
BTB Annual Report 2014
44
Management Discussion and Analysis
Real Estate Operations
Leasing activities
The following table summarizes changes in available leasable area during the quarters and years
ended December 31.
Periods ended December 31
(in square feet)
Available leasable area at beginning of period
Available leasable area purchased (sold)
Leasable area of properties under redevelopment
Leasable area of expired leases
Leasable area of leases terminated before term
Leasable area of expired and renewed leases
Leasable area of new leases signed
Other
Available leasable area at end of period
Quarter
Year
2014
2013
2014
2013
329,970
—
—
154,390
46,661
(127,183)
(60,164)
(3,326)
369,760
—
—
163,023
5,280
(124,828)
(46,021)
(48)
367,166
5,296
(46,938)
531,266
117,062
(427,218)
(204,005)
(2,281)
359,949
(4,597)
—
330,889
90,360
(234,301)
(173,648)
(1,486)
340,348
367,166
340,348
367,166
The Trust’s leasing operations were significant during the fourth quarter of 2014. More than
187,000 square feet were signed with new tenants or renewed during the quarter (2013: 171,000) and
631,000 square feet since the beginning of the year (2013: 447,000).
The average rate of expired and renewed leases rose 10.7% during the fourth quarter (2013: 9.8%).
The rate for the year was 8.7% (2013: 7.7%). These favourable rates show how skillful the Trust and its
rental managers are at generating significant organic growth.
Management estimated a tenant retention rate of approximately 70% at the end of fiscal 2014, similar
to last year.
Occupancy rates
The following table provides occupancy rates by operating segment based on firm lease agreements
signed as at the date of this report:
Operating segment
Office
Commercial
Industrial
General purpose
Total portfolio
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2013
December 31,
2013
%
86.6
92.3
98.3
93.7
92.7
%
87.9
92.7
98.5
92.2
92.9
%
87.7
92.1
98.3
92.9
92.8
%
87.5
92.5
96.5
92.7
92.3
%
87.4
94.2
94.4
93.0
91.9
The overall occupancy rate is down by 0.2% since September 30, 2014 and up by 0.8% since
December 31, 2013. It stood at 92.7% at the end of fiscal 2014.
BTB Annual Report 2014
45
Management Discussion and Analysis
Lease maturity
The following table shows the lease maturity profile for the next few years:
Office
Leasable area (sq. ft.)
Average lease rate/square foot ($)
% of office portfolio
Commercial
Leasable area (sq. ft.)
Average lease rate/square foot ($)
% of commercial portfolio
Industrial
Leasable area (sq. ft.)
Average lease rate/square foot ($)
% of industrial portfolio
General purpose
Leasable area (sq. ft.)
Average lease rate/square foot ($)
% of general purpose portfolio
Total portfolio
2015
2016
2017
2018
2019
188,787
$14.58
186,447
$14.14
159,206
$12.66
134,114
$12.79
176,330
$14.44
13.1%
12.9%
11.0%
9.3%
12.2%
74,704
$11.30
33,082
$9.13
100,881
$12.72
100,184
$14.78
160,225
$12.59
8.4%
3.7%
11.3%
11.2%
18.0%
20,000
$4.05
83,013
$9.19
1.4%
5.8%
540,417
$4.64
38.0%
—
—
—
77,072
$4.01
5.4%
70,110
$10.05
7.5%
173,254
$8.73
18.5%
52,101
$14.39
103,492
$12.66
113,525
$11.43
5.6%
11.0%
12.1%
Leasable area (sq. ft.)
Average lease rate/square foot ($)
% of total portfolio
353,601
$12.29
475,796
$10.96
7.5%
10.1%
852,605
$7.69
18.2%
337,790
$13.34
527,182
$11.71
7.2%
11.2%
Top 10 tenants
As at December 31, 2014, BTB managed close to 700 leases, with an average area of more than
6,500 square feet. The three largest tenants are Société québécoise des infrastructures (SQI), Groupe
Épicia inc. and Atis Portes et Fenêtres Corp., accounting respectively for 3.6%, 2.0% and 2.0% of
revenues, generated by a number of leases whose maturities are spread over time. Approximately 33%
of the Trust’s total revenues are generated by leases entered into with government agencies (federal,
provincial and municipal) and public companies, ensuring stable and high-quality cash flows for the
Trust’s operating activities.
BTB Annual Report 2014
46
Management Discussion and Analysis
The following table shows the contribution of the Trust’s top 10 tenants as a percentage of revenues as
at December 31, 2014:
Client
Société québécoise des infrastructures (SQI)
Groupe Épicia inc.
Atis Portes et Fenêtres Corp.
Flextronics
Sobeys Québec Inc.
The SM Group Inc.
Germain Larivière Inc.
Société Strongco inc.
CSST
City of Ottawa
% of revenue
Leased area
(square feet)
3.6
2.0
2.0
1.8
1.8
1.7
1.6
1.5
1.5
1.5
139,785
87,175
219,725
48,731
44,988
109,185
101,194
81,442
46,421
29,768
Events subsequent to December 31, 2014
On January 13, 2015, the Trust was informed that Groupe Épicia had filed a notice of intention to make
a proposal under the Bankruptcy and Insolvency Act. Pursuant to this proposal, Groupe Épicia filed
30 days’ notice of cancellation of certain leases, specifically for the stores operating at 665 Thibeau in
Trois-Rivières, Québec (9,800 sq. ft.) and 1100 St-Joseph Blvd. in Drummondville, Québec (12,000 sq.
ft.), which expired prematurely on February 13, 2015.
Our rental teams are making significant efforts to quickly re-lease the premises. The Drummondville
site is also being redeveloped to meet demand from food industry tenants.
Notice of termination was also given for the lease on the distribution centre at 2059 René-Patenaude in
Magog, Québec (29,300 sq. ft.). The company plans to continue operating until the beginning of 2016,
however, and the rent will be collected in full until then.
BTB Annual Report 2014
47
Management Discussion and Analysis
Financial Position
The following table presents the Trust’s balance sheet as at December 31, 2014 and December 31,
2013. It should be read in conjunction with the Trust’s audited annual financial statements.
Periods ended December 31
(in thousands of dollars)
Assets
Investment properties
Amounts receivable from tenants and other receivables
Other assets
Cash, cash equivalents and reserved cash
Total assets
Liabilities
Mortgage loans payable
Convertible debentures
Bank loans
Accounts payable and other liabilities
Total liabilities
Equity
Unitholders’ equity
Total liabilities and equity
Reference
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2014
$
571,462
1,342
5,788
8,145
586,737
329,943
65,186
—
14,009
409,138
177,599
586,737
2013
$
529,432
2,459
6,306
8,362
546,559
313,816
63,929
1,472
14,750
393,967
152,592
546,559
The main changes in the balance sheet as at December 31, 2014 compared to the balance sheet as at
December 31, 2013 primarily reflect the acquisition of two investment properties and the related
mortgage financings, the refinancing of certain mortgage loans and the issuance of 5,436,000 units
(including 600,000 over-allotment units) in June 2014.
BTB Annual Report 2014
48
Management Discussion and Analysis
Assets
Investment properties
Over the years, BTB has fuelled its growth through high-quality property acquisitions based on strict
selection criteria, while maintaining an appropriate allocation among four activity segments: office,
commercial, industrial and general-purpose properties.
The real estate portfolio consists of direct interests in wholly-owned investment properties and the
Trust’s share of the assets, liabilities, revenues and expenses of jointly-controlled investment
properties.
The fair value of investment properties stood at $571 million as at December 31, 2014 compared to
$529 million as at December 31, 2013. The increase in the value of investment properties resulted from
two property acquisitions during the year and investments in already acquired properties, capitalized
leasing costs and the recognition of a change in fair value of the portfolio.
Acquisition of investment properties
In May 2014, the Trust purchased a retail complex in Saint-Jean-sur-Richelieu, Québec for a purchase
price of $31.6 million. The property has a total leasable area of 226,000 square feet and a capitalization
rate of approximately 7.5%. The tenants include Maxi, Pharmaprix, Village des Valeurs, Dollarama and
a CLSC.
In August 2014, the Trust acquired a newly built industrial complex located on a 344,000 square-foot
lot. The purchase price of the complex, which has a leasable area of 40,400 square feet, was
$8.3 million, with a capitalization rate of approximately 8.25%. The ultramodern facilities include office
space and a showroom, parts counter, warehouse and repair shop. The premises are occupied by a
single tenant, Strongco Corporation.
Disposition of investment properties
In April 2014, the Trust sold a retail complex with a leasable area of 25,400 square feet located on Rue
Saint-Jacques, Montréal, for a selling price of $4.2 million. The Trust also sold part of a property in
Sherbrooke with a leasable area of 2,000 square feet, for a selling price of $0.5 million.
BTB Annual Report 2014
49
Management Discussion and Analysis
Summary by operating segment
As at December 31
2014
2013
Number of
properties
Leasable area
(sq. ft.)
%
Number of
properties
Leasable area
(sq. ft.)
Office
Commercial
Industrial
General purpose
Subtotal
Industrial properties under redevelopment
Total
22
15
19
13
69
2
71
1,443,881
892,704
1,420,827
937,323
4,694,735
126,546
29.9
18.5
29.5
19.4
97.4
2.6
4,821,281 100.0
22
14
19
14
69
—
69
%
31.6
14.2
32.9
21.3
1,446,352
651,688
1,506,973
975,258
4,580,271
100.0
—
—
4,580,271
100.0
Investments in investment properties held
Upon the signing of several leases, the Trust makes disbursements for leasehold improvements or
incentives applicable to the leased areas to meet the specific needs of tenants. Leasing fees are also
paid to independent brokers. These disbursements amounted to $1,845 for the fourth quarter and
$4,225 for the year ended December 31, 2014, compared to $598 and $2,311 for the same periods of
2013. The leasing fees and leasehold improvements apply to both new tenants and tenants whose
leases are renewed for all properties. The amount of leasing fees and leasehold improvements varies
depending on the renewal schedule, vacancy rates and tenancy profile.
BTB invests in permanent capital improvement projects to preserve the quality of infrastructure and
services provided to tenants. These disbursements include value-maintenance investments
corresponding to expenditures required to keep properties in their current operating condition, as well
as property improvement and redevelopment projects intended to increase leasable area, occupancy
rates or rental space quality. In some cases, capital expenditures can be recovered from rent.
Capital expenditures for the quarter and year ended December 31, 2014 totalled $2,335 and $5,452
respectively, compared to $1,601 and $3,487 for the same periods of 2013, of which $1,143 for the
quarter and $2,470 for the year was recoverable (compared to $700 and $1,143 for the same periods
of 2013). Capital expenditures do not include repair and maintenance costs. Capital expenditures vary
from one period to another depending on the activities required or planned for each property.
The following table summarizes expenditures in maintenance capital expenditures, as well as
incentives and leasing fees, for the quarters and years ended December 31, 2014 and 2013.
Periods ended December 31
(in thousands of dollars)
Recoverable maintenance capital expenditures
Non-recoverable maintenance capital expenditures
Total maintenance capital expenditures
Leasing fees and leasehold improvements
Total
Quarter
Year
2014
$
1,143
1,192
2,335
1,845
4,180
2013
$
700
901
1,601
598
2,199
2014
$
2,470
2,982
5,452
4,225
9,677
2013
$
1,143
2,344
3,487
2,311
5,798
BTB Annual Report 2014
50
Management Discussion and Analysis
The following table shows changes in the fair value of investment properties during the periods ended
December 31.
Periods ended December 31
(in thousands of dollars)
Balance, beginning of period
Additions :
Acquisition
Disposals
Capital expenditures net of government grants
Leasing fees and leasehold improvements
Fair value adjustment
Other non-monetary changes
Balance, end of period
Quarter
2014
$
2013
$
Year
2014
$
2013
$
570,271
507,246
529,432
488,521
—
—
2,335
1,845
(2,656)
(333)
15,549
—
1,601
598
4,520
(82)
40,121
(4,725)
5,452
4,225
(1,860)
(1,183)
29,614
(2,300)
3,487
2,311
8,375
(576)
571,462
529,432
571,462
529,432
Investment properties under redevelopment
The Trust decided to invest significant amounts in redeveloping and repositioning two properties:
1863-1865 Transcanadienne, Montréal – Québec
This industrial property is currently completely vacant. The Trust plans to invest approximately
$1 million to repurpose this property. Plans are now being prepared.
805 Boundary Road, Cornwall – Ontario
The Trust plans to divide this industrial property into two, with one section fully rented under a long-
term lease with Canada Post. The Trust plans to significantly redevelop the other section, which is
subject to a few short-term leases. The Trust intends to invest approximately $1 million and is waiting
for the municipal permits to begin the work.
BTB Annual Report 2014
51
Management Discussion and Analysis
Events subsequent to December 31, 2014
On January 28, 2015, the Trust purchased a 116,000-square-foot industrial building in Ottawa,
Ontario for $12.5 million. At the same time, the Trust signed a 15-year lease with Lowe-Martin, one
of Canada’s largest printers.
On January 30, 2015, the Trust purchased a major shopping centre of almost 146,000 square feet
in a Montréal suburb, for a purchase price of $21.5 million. Tenants include Loblaws, Pharmaprix,
SAQ and National Bank.
BTB Annual Report 2014
52
Management Discussion and Analysis
Amounts receivable from tenants and other receivables
Amounts receivable from tenants and other receivables decreased from $2,459 as at
December 31, 2013 to $1,342 as at December 31, 2014. These amounts are summarized below:
(in thousands of dollars)
Amounts receivable from tenants
Allowance for doubtful accounts
Other receivables
Cash, cash equivalents and reserved cash
(in thousands of dollars)
Available cash
Reserved cash
Other assets
December 31,
2014
December 31,
2013
$
1,489
(312)
1,177
165
1,342
$
2,619
(263)
2,356
103
2,459
December 31,
2014
December 31,
2013
$
6,428
1,717
8,145
$
2,530
5,832
8,362
Other assets include property and equipment net of accumulated depreciation required for the Trust’s
operations, prepaid expenses and derivative financial instruments in debit positions. They are
summarized below:
(in thousands of dollars)
Property and equipment
Accumulated depreciation
Prepaid expenses
Derivative financial instruments
Other
December 31,
2014
December 31,
2013
$
3,049
(753)
2,296
2,599
53
840
5,788
$
2,972
(588)
2,384
3,273
251
398
6,306
BTB Annual Report 2014
53
Management Discussion and Analysis
Capital Resources
Long-term debt
The following table shows the balances of BTB’s indebtedness as at December 31, 2014, including
mortgage loans payable and convertible debentures, based on year of maturity and corresponding
weighted average contractual interest rates:
As at December 31
(in thousands of dollars)
Year of maturity
2015
2016
2017
2018
2019
2020 and thereafter
Total
Balance of
convertible
debentures
$
Balance of
mortgages
payable
$
Weighted
average
contractual
interest rate
%
—
23,000
—
23,000
—
23,000
69,000
32,499
75,510
64,767
40,187
44,831
72,990
330,784
4.21
4.99
4.22
5.02
3.56
5.18
4.69
Weighted average contractual interest rate
As at December 31, 2014, the weighted average contractual interest rate of the Trust’s long-term debt
stood at 4.69%, i.e. 4.13% for mortgages payable and 7.38% for convertible debentures.
Weighted average maturity
The weighted average maturity of mortgage loans is 4.68 years.
Mortgage loans payable
As at December 31, 2014, the Trust’s mortgage loans payable amounted to $330.8 million compared to
$314.2 million as at December 31, 2013, before deferred financing costs and valuation adjustments, an
increase of $16.6 million due to acquisitions and refinancings in the last two quarters, net of principal
repayments on monthly payments.
As at December 31, 2014, the weighted average interest rate was 4.13%, compared to 4.44% for
mortgage loans on the books as at December 31, 2013, a drop of 31 basis points. Except for three
loans with a total balance of $6.4 million as at December 31, 2014, all other mortgages payable bear
interest at fixed rates or are coupled with an interest rate swap.
BTB spreads the terms of its mortgages over many years in order to mitigate the risk associated with
renewing them.
BTB Annual Report 2014
54
Management Discussion and Analysis
The following table summarizes changes in mortgage loans payable during the fourth quarter and year
ended December 31, 2014:
As at December 31, 2014
(in thousands of dollars)
Balance at beginning of period
Mortgage loans contracted or assumed
Balance repaid at maturity
Monthly principal repayments
Balance as at December 31
Quarter
335,115
—
(1,882)
(2,449)
330,784
Year
314,173
66,875
(40,829)
(9,435)
330,784
Note: Before unamortized financing costs and valuation adjustments.
Except for a property under redevelopment valued at $1,825, and three properties partially securing the
acquisition and operating lines of credit unused as at December 31, 2014, all of the Trust’s other
properties were mortgaged as at December 31, 2014. Unamortized loan financing costs totalled $2,111
and are amortized under the effective interest method over the term of the loans.
The following table, as at December 31, 2014, shows future mortgage loan repayments for the next few
years:
Principal
repayment
Balance at
maturity
Total
% of total
$
$
$
%
12.5
24.0
19.8
12.0
12.6
19.1
9,634
8,841
6,109
4,242
2,712
22,664
54,202
31,873
70,409
59,283
35,493
39,059
40,465
41,507
79,250
65,392
39,735
41,771
63,129
276,582
330,784
100.0
1,270
(2,111)
329,943
As at December 31, 2014
(in thousands of dollars)
Maturity
2015
2016
2017
2018
2019
2020 and thereafter
Total
+ Valuation adjustments on assumed loans
- Unamortized financing costs
Balance as at December 31, 2014
BTB Annual Report 2014
55
Management Discussion and Analysis
Financings completed
During the year, the Trust concluded
a financing agreement in the amount of $20.5 million bearing interest at 4.40% for a 10-year term, for
the acquisition of a retail complex;
a financing agreement in the amount of $13.4 million bearing interest at 3.85% for a 5-year term,
which was used to refinance three properties;
a financing agreement in the amount of $6.2 million bearing interest at 4.39% over a 10-year term, for
the leaseback purchase, at a cost of $8.3 million, of an industrial property in the Québec City area.
Subsequent events
On January 28, 2015, the Trust entered into a financing agreement in the amount of $8.3 million, for a
15-year term, bearing interest at a rate of 3.58%, on the industrial building acquired on the same date.
On January 30, 2015, the Trust entered into a financial agreement in the amount of $14 million, for a
15-year term, bearing interest at a rate of 3.55%, on the shopping centre acquired on the same date.
BTB Annual Report 2014
56
Management Discussion and Analysis
Convertible debentures
(a) Series C
In January 2011, the Trust issued Series C convertible, unsecured, subordinated debentures, bearing 8%
interest, in the amount of $23 million. Interest is payable semi-annually and the debentures mature on
January 31, 2016. The debentures are convertible at the option of the holder at any time no later than
January 31, 2016, subject to certain conditions. The conversion price is $5.00 per unit (the "Series C
conversion price"). As at December 31, 2014, the closing market price of BTB units was $4.73.
As of January 31, 2015, but before January 31, 2016, under certain conditions, the debentures will be
redeemable by the Trust at a redemption price equal to their principal amount plus accrued, unpaid
interest.
The Trust may, at its option and subject to certain conditions, elect to satisfy its obligation to pay the
principal amount of the Series C debentures by issuing freely tradable units to Series C debenture
holders.
On the date of issuance, the debentures were recorded as a $21.6 million non-derivative liability
component and a $1.4 million derivative financial instrument component.
(b) Series D
In July 2011, the Trust issued Series D convertible, unsecured, subordinated debentures, bearing 7.25%
interest, in the amount of $23 million. Interest is payable semi-annually and the debentures mature on
July 31, 2018. The debentures are convertible at the option of the holder at any time no later than July 31,
2018, subject to certain conditions. The conversion price is $6.10 per unit (the "Series D conversion
price"). As at December 31, 2014, the closing market price of BTB units was $4.73.
As of July 31, 2014, but before July 31, 2016, under certain conditions, the debentures will be redeemable
by the Trust at a redemption price equal to their initial principal amount plus accrued, unpaid interest,
provided that the unit market price is at least 125% of the Series D conversion price and, as of July 31,
2016, but before July 31, 2018, at a price equal to their principal amount plus accrued, unpaid interest.
The Trust may, at its option and subject to certain conditions, elect to satisfy its obligation to pay the
principal amount of the Series D debentures by issuing freely tradable units to Series D debenture
holders.
On the date of issuance, the debentures were recorded as a $21.3 million non-derivative liability
component and a $1.7 million derivative financial instrument component.
(c) Series E
In February 2013, the Trust issued Series E convertible, unsecured, subordinated debentures, bearing
6.90% interest, in the amount of $23 million. Interest is payable semi-annually and the debentures mature
on March 31, 2020. The debentures are convertible at the option of the holder at any time no later than
March 31, 2020, subject to certain conditions. The conversion price is $6.15 per unit (the "Series E
conversion price"). As at December 31, 2014, the closing market price of BTB units was $4.73.
BTB Annual Report 2014
57
Management Discussion and Analysis
As of March 31, 2016, but before March 31, 2018, under certain conditions, the debentures will be
redeemable by the Trust at a redemption price equal to their initial principal amount plus accrued, unpaid
interest, provided that the unit market price is at least 125% of the Series E conversion price and, as of
March 31, 2018, but before March 31, 2020, to a price equal to their principal amount plus accrued,
unpaid interest.
The Trust may, at its option and subject to certain conditions, elect to satisfy its obligation to pay the
principal amount of the Series E debentures by issuing freely tradable units to Series E debenture
holders.
On the date of issuance, the debentures were recorded as a $22.7 million non-derivative liability
component and a $0.3 million derivative financial instrument component.
As at December 31, 2014, none of the three series met the conditions necessary for an authorized
redemption.
As at December 31, 2014
(in thousands of dollars)
Contractual interest rate
Effective interest rate
Date of issuance
Per-unit conversion price
Date of interest payment
Maturity date
Series C
Series D
Series E
Total
8%
9.78%
January 2011
$5.00
January 31 and
July 31
January 2016
7.25%
8.47%
July 2011
$6.10
January 31 and
July 31
July 2018
6.90%
7.90%
February 2013
$6.15
March 31 and
September 30
March 31, 2020
Balance as at December 31, 2014
22,242
21,173
21,771
65,186
BTB Annual Report 2014
58
Management Discussion and Analysis
Bank loan – Operating credit facility
BTB has an operating credit facility of $2 million with a Canadian chartered bank. This credit facility is
partially secured by a first-ranking collateral mortgage on three properties and a second-ranking collateral
mortgage on two properties and bears interest at the bank’s base rate, plus 0.75%. As at December 31,
2014, the credit facility had not been used.
Bank loans – acquisition credit facility
BTB has an acquisition credit facility of $15 million with a Canadian chartered bank. This credit facility is
partially secured by a first-ranking collateral mortgage on three properties and a second-ranking collateral
mortgage on two properties. It bears interest at the bank’s base rate, plus 3.25%. As at December 31,
2014, the credit facility had not been used.
Debt ratio
Under the terms of its trust agreement, the Trust cannot contract a mortgage loan if, after having
contracted the said loan, the total debt exceeds 75% of the gross carrying amount of the Trust. When
establishing this calculation, the convertible debentures are not considered in the calculation of total
indebtedness. Moreover, also under its trust agreement, in case of default with respect to this condition,
the Trust has 12 months from the date of recognizing this default to perform the transactions necessary to
remedy the situation.
The following table presents the Trust’s debt ratios as at December 31, 2014 and December 31, 2013.
As at December 31
(in thousands of dollars)
Mortgage loans payable (1)
Convertible debentures (1)
Acquisition credit facility
Total long-term debt
Gross book value of the Trust
Debt ratio (excluding convertible debentures)
Total debt ratio
(1) Gross amounts
2014
$
330,784
69,000
—
399,784
587,490
2013
$
314,173
69,000
—
383,173
547,147
56.3%
68.0%
57.4%
70.0%
According to the table above, the debt ratio, excluding the convertible debentures as at December 31,
2014, amounted to 56.3% compared to 57.4% as at December 31, 2013. The Trust seeks to finance its
acquisitions with debt ratios of 60% to 70% because the cost of mortgage financings is lower than the
capital cost of the Trust’s equity. However, the appreciation of the portfolio’s market value added to
regular principal payments against the debt significantly improved the mortgage liability ratio. After
including the convertible debentures, the ratio stood at 68.0% compared to 70.0% one year earlier.
BTB Annual Report 2014
59
Management Discussion and Analysis
Interest coverage ratio
The Trust calculates its interest coverage ratio by dividing net operating income by interest expense net of
interest income. The interest coverage ratio is used to assess BTB’s ability to pay interest on its debt
using its operating revenues. For the quarter ended December 31, 2014, the interest coverage ratio stood
at 2.12, up 23 points from the fourth quarter of 2013, and also up 23 points for fiscal 2014 compared to
the previous year, showing the Trust’s financial strength and ability to cover the cost of its debt.
Periods ended December 31
(in thousands of dollars, except for the ratios)
Net operating income
Interest expense, net of interest income(1)
Interest coverage ratio
(1)
Quarter
Year
2014
$
10,008
4,725
2.12
2013
$
9,061
4,790
1.89
2014
$
37,983
18,780
2.02
2013
$
35,336
19,723
1.79
Interest expense excludes accretion of effective interest, accretion of non-derivative liability component of convertible debentures and the fair value adjustment on
derivative financial instruments.
Unitholders’ equity
Unitholders’ equity consists of the following:
(in thousands of dollars)
Trust units
Cumulative profit
Cumulative distributions to unitholders
Unitholders’ equity
Distribution reinvestment plan
December 31,
2014
December 31,
2013
$
182,284
33,563
(38,248)
177,599
$
157,207
20,680
(25,295)
152,592
On October 1, 2011, the Trust implemented a distribution reinvestment plan under which unitholders may
elect to receive distributions in units, with a 5% discount on their market value. Under the program,
91,789 units were issued during the fourth quarter of 2014 (2013: 66,682 units) and 318,482 have been
issued since the beginning of the year (2013: 205,141 units). Approximately 11.2% of the distributions
paid in 2014 have been reinvested under the plan compared to 8.9% in 2013.
BTB Annual Report 2014
60
Management Discussion and Analysis
Units outstanding
The following table summarizes units issued and the weighted number of units for the same periods.
Periods ended December 31
(in number of units)
Units outstanding, beginning of period
Units issued
Public offering
Distribution reinvestment plan
Awards under employee unit purchase plan
Awards under the deferred unit compensation plan
Awards under the restricted unit compensation plan
Units outstanding, end of period
Weighted average number of units outstanding
Public offering
Quarter
2014
Units
2013
Units
Year
2014
Units
2013
Units
34,042,178
28,258,856
28,325,538
23,791,797
—
91,789
—
—
—
34,133,967
34,088,813
—
66,682
—
—
—
28,325,538
28,291,857
5,436,000
318,482
7,456
36,491
10,000
4,328,600
205,141
—
—
—
34,133,967
31,418,057
28,325,538
25,735,696
In June 2014, the Trust completed an issue of 5,436,000 units, including 600,000 units subsequent to the
exercise of the over-allotment option, at a price of $4.55 per unit, for net proceeds of approximately $23.4
million, net of underwriters’ fees. As described in the prospectus, an amount of $13.4 million was used to
repay the acquisition credit facility, with the balance allocated to the Trust’s working capital for future
acquisitions.
In August 2014, approximately $2.5 million was allocated to the acquisition of a property from the amount
reserved for future acquisitions.
Lastly, in January and February 2015, the remainder was allocated to the acquisition of two properties.
Unit options
The Trust may grant options to its trustees, senior officers, investor relations consultants and technical
consultants. The maximum number of units reserved for issuance under the unit option plan may not
exceed 10% of the total number of issued and outstanding units. The trustees have and will set the
exercise price at the time that an option is granted under the plan, which exercise price shall not be less
than the quoted market price of the units, as determined under a related agreement. The options have a
maximum term of five years from the date of grant.
BTB Annual Report 2014
61
Management Discussion and Analysis
Details of unit options granted during the reporting periods:
Periods ended December 31
(in number of units)
2014
2013
Weighted
average
exercise price
Unit options
Weighted
average
exercise price
Unit options
Outstanding, beginning of period
Expired
Outstanding, end of period
Options vested as at December 31
Weighted average remaining term to expiry (years)
98,000
(24,000)
74,000
74,000
$
4.51
4.54
4.50
4.50
0.40
227,000
(129,000)
98,000
98,000
$
5.07
5.55
4.51
4.51
1.48
The purpose of granting unit options is to encourage the holder to acquire an ownership interest that
increases over time and provides a financial incentive for the holder to consider the long-term interests of
BTB and its unitholders. Options also serve as non-cash compensation, thus preserving the cash
resources of BTB during its early years.
Deferred unit compensation plan
The Trust has implemented a deferred unit compensation plan for its trustees and certain executive
officers. Under this plan, beneficiaries may elect to receive their compensation in cash, deferred units or a
combination of both.
The following table summarizes deferred units issued during the quarters and years ended December 31,
2014 and 2013:
Periods ended December 31
(in number of units)
Deferred units outstanding, beginning of period
Deferred units issued
Distributions converted to deferred units
Deferred units settled
Deferred units outstanding, end of period
Quarter
2014
—
—
—
—
—
2013
26,206
3,075
490
—
29,771
Year
2014
29,771
5,619
1,649
(37,039)
—
2013
15,981
11,948
1,842
—
29,771
BTB Annual Report 2014
62
Management Discussion and Analysis
Restricted unit compensation plan
The following table summarizes restricted units issued during the quarters and years ended
December 31, 2014 and 2013.
Periods ended December 31
(in number of units)
Restricted units outstanding, beginning of period
Restricted units issued
Restricted units settled
Restricted units outstanding, end of period
Employee unit purchase plan
Quarter
Year
2014
—
39,816
—
39,816
2013
—
—
—
—
2014
—
49,816
(10,000)
39,816
2013
—
—
—
—
The Trust offers an optional employee unit purchase plan to all its employees. Under this plan, the
employees may contribute, each year, a maximum of 3% to 7% of their base salary depending on their
years of experience with the Trust. For each two units purchased by an employee, the Trust shall issue
one unit from treasury. No units were issued under the plan during the quarter and as at December 31,
2014, a liability of $37 was recorded for the contingent issuance of 7,758 units (2013: $33 for 7,456 units).
Off-balance sheet arrangements and contractual commitments
BTB does not have any off-balance sheet arrangements that have or are likely to have an impact on its
operating results or financial position, specifically its cash position and sources of financing.
During the quarter and year ended December 31, 2014, BTB complied with all of its loan commitments
and was not in default with any covenant at the balance sheet date.
BTB Annual Report 2014
63
Management Discussion and Analysis
Income Taxes
The Trust is taxed as a mutual fund trust for Canadian income tax purposes. The trustees intend to
distribute or allocate all of the taxable income to its unitholders and to deduct these distributions for
income tax purposes.
A special tax regime applies to trusts that are considered specified investment flow-through (SIFT) entities
as well as those individuals who invest in SIFT entities. Under this regime, SIFT entities must generally
pay taxes on their income at rates that are close to those of companies. In short, a SIFT entity is an entity
(including a trust) that resides in Canada, whose investments are listed on a stock exchange or other
public market and that holds one or more non-portfolio properties.
However, for a given taxation year, BTB is not considered a SIFT entity and is therefore not subject to
SIFT rules if, during that year, it constitutes a real estate investment trust (REIT).
Generally, to qualify as a REIT, a trust must be resident in Canada and meet the following conditions all
year long: i) the total fair market value of all the ”non-portfolio properties“ that are “qualified REIT
properties” held by the trust is at least 90% of the total fair market value at that time of all the “non-
portfolio assets” held by the trust ii) not less than 90% of its “gross REIT revenue” for the taxation year is
from one or more of the following sources: rent from “real or immovable properties,” interest, dispositions
of “real or immovable properties” that are capital properties, dividends, royalties and dispositions of
“eligible resale properties” iii) not less than 75% of its “gross REIT revenue” for the taxation year comes
from one or more of the following sources: rent from “real or immovable properties,” interest from
mortgages on “real or immovable properties,” and dispositions of “real or immovable properties” that are
capital properties iv) at each time in the taxation year, an amount that is equal to 75% or more of the
equity value of the trust at that time, is the amount that is the total fair market value of all properties held
by the trust, each of which is “real or immovable property” which is a capital property, an “eligible resale
property,” an indebtedness of a Canadian corporation represented by a banker’s acceptance, cash or,
generally, an amount receivable from the Government of Canada or from certain other public agencies;
and v) the investments that are made therein are, at any time in the taxation year, listed or traded on a
stock exchange or other public market.
As at December 31, 2014, BTB met all of these conditions and qualified as a REIT. As a result, the SIFT
trust tax rules do not apply to BTB. BTB’s management intends to take the necessary steps to meet the
conditions for the REIT Exception on an on-going basis in the future.
Nonetheless, there is no guarantee that BTB will continue to meet all the required conditions to be eligible
for the REIT exception for 2014 or any other subsequent year.
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Management Discussion and Analysis
Taxation of Unitholders
For Canadian unitholders, distributions are qualified as follows for taxation purposes:
Quarters ended December 31
Taxable as other income
Tax deferred
Total
2014
%
—
100
100
2013
%
—
100
100
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Management Discussion and Analysis
Summary of Significant Accounting Policies and Estimates
BTB’s significant accounting policies and estimates are described in Notes 2 and 3 to the audited annual
consolidated financial statements for the year ended December 31, 2014 and the reader is invited to refer
to these financial statements.
(a) Functional and presentation currency
The consolidated financial statements are presented in Canadian dollars, which is BTB's functional
currency. All financial information presented in Canadian dollars has been rounded to the nearest
thousand, except per unit amounts.
(b) Use of estimates and judgments
The preparation of consolidated financial statements in conformity with IFRS requires management to
make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements and reported amounts of revenues and expenses during
the reporting period. Estimates and assumptions are continuously evaluated and are based on
management’s experience and other factors, including expectations of future events that are believed to
be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period
in which the estimates are revised and in any future periods affected. Actual results may differ from these
estimates.
Information about significant areas of estimation, uncertainty and critical judgments in applying accounting
policies that have the most significant effect on the amounts recognized in the consolidated financial
statements are as follows:
(i) Critical judgements in applying accounting policies
The following are critical judgements that management has made in the process of applying
accounting policies and that have the most significant effect on the amounts recognized in the
consolidated financial statements:
Business combinations
The Trust acquires entities that own real estate. At the time of acquisition, the Trust considers
whether the acquisition represents the acquisition of a business, i.e., where an integrated set of
activities is acquired in addition to the investment property. More specifically, the following criteria
are considered:
The extent to which significant inputs and processes are acquired and in particular the
extent of ancillary services provided by the acquiree.
Whether the acquiree has allocated its own staff to manage the investment property
and/or to deploy any processes.
The number of investment properties owned by the acquiree.
An acquisition of a business is accounted for as a business combination under IFRS 3, Business
Combinations.
When the acquisition does not represent a business, it is accounted for as an acquisition of assets
and liabilities. The cost of the acquisition is allocated to the assets and liabilities acquired based
upon their relative fair values.
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Management Discussion and Analysis
Operating lease contracts – Trust as lessor
The Trust enters into commercial property leases on its investment properties. The Trust has
determined, based on an evaluation of the terms and conditions of the arrangements, that it retains
all the significant risks and rewards of ownership of these properties and therefore accounts for the
leases as operating leases.
(ii) Key sources of estimation uncertainty
The following are key assumptions concerning the future and other key sources of estimation
uncertainty that have a significant risk of resulting in a material adjustment to the carrying amount of
assest and liabilities within the next financial year:
Valuation of investment properties
Investment properties are stated at fair value at each reporting date. Gains or losses arising from
changes in the fair values are included in profit or loss in the period in which they arise. Fair value is
determined by management using internally generated valuation models and by independent real
estate valuation experts using recognized valuation techniques. These models and techniques
comprise both the Discounted Cash Flow Method and the Direct Capitalization method. In some
cases, the fair values are determined using the Comparable method which is based on recent real
estate transactions with similar characteristics and location to those of the Trust's investment
properties.
The determination of the fair value of investment properties requires the use of estimates such as
future cash flows from assets (including lease income and costs, future revenue streams, capital
expenditures of fixtures and fittings, any environmental matters and the overall repair and condition
of the property) and discount rates applicable to those cash flows. These estimates are based on
local market conditions existing at the reporting date.
The significant methods and assumptions used by management and the valuators in estimating the
fair value of investment properties are set out below:
Techniques used for valuing investment properties
The Direct Capitalization method converts anticipated future cash flow benefits in the form of rental
income into present value. This approach requires estimation of future cash inflows and application
of investor yield or return requirements.
The Discounted Cash Flow method involves the projection of a series of periodic cash flows either
to an operating investment property or a development investment property. To this projected cash
flow series, an appropriate, market-derived discount rate is applied to establish an indication of the
present value of the income stream associated with the investment property. The calculated periodic
cash flow is typically estimated as gross income less vacancy and collection losses and less
operating expenses/outgoings. A series of periodic net operating incomes, along with an estimate of
the reversion/terminal/exit value anticipated at the end of the projection period, are discounted to
present value. The aggregate of the net present values equals the fair value estimated of the
investment property.
The Comparable method involves the comparison of the Trust’s investment properties to similar
investment properties that have transacted within a recent time frame from which a fair value is
estimated based on the price per square foot of these comparable sales.
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Management Discussion and Analysis
Derivative financial instruments
Derivative financial instruments, including embedded derivatives, are recognized on the
consolidated statement of financial position at fair value. Subsequent to initial recognition, these
derivatives are measured at fair value. The fair value of derivative instruments is based on forward
rates considering the market price, rate of interest and volatility and takes into account the credit risk
of the financial instrument. Changes in estimated fair value at each reporting date are included in
profit and loss. Embedded derivatives are separated from the host contract and accounted for
separately if the economic characteristics and risks of the host contract and the embedded
derivative are not closely related.
Unit options
The Trust has a unit option plan for the benefit of management. The plan does not provide for cash
settlement. The Trust recognizes compensation expense on unit options granted, based on their fair
value, which is calculated using the Black-Scholes model. The compensation expense is amortized
using the graded vesting method. The valuation model requires management to make estimates for
the expected life, volatility, the average dividend yield of distributions and the average risk-free
interest rate.
(c) Basis of consolidation
(i) Business combinations
Business combinations are accounted for using the acquisition method. Accordingly, the
consideration transferred for the acquisition of a business is the fair value of the assets transferred,
and any debt and trust units issued by the Trust on the date control of the acquired entity is
obtained. Acquisition-related costs, other than those associated with the issue of debt or trust units,
are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are generally measured initially at their fair values at the
acquisition date. The Trust measures goodwill as the fair value of the consideration transferred
including the recognized amount of any non-controlling interest in the acquiree, less the net
recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed,
all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is
recognized immediately in profit or loss.
The Trust elects on a transaction-by-transaction basis whether to measure non-controlling interest
at its fair value, or at its proportionate share of the recognized amount of the identifiable net assets,
at the acquisition date. Transaction costs, other than those associated with the issue of debt or
equity securities, that the Trust incurs in connection with a business combination are expensed as
incurred.
(ii) Subsidiaries
Subsidiaries are entities controlled by the Trust. Control exists when the Trust has the existing rights
that give it the current ability to direct the activities that significantly affect the entities’ returns. The
financial statements of subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases.
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Management Discussion and Analysis
(iii) Joint operations
A joint operation is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.
Those parties are called joint operators. The consolidated financial statements include the Trust’s
proportionate share of the joint operations’ assets, liabilities, revenue and expenses with items of a
similar nature on a line-by-line basis, from the date that joint control commences until the date that
joint control ceases.
(d) Financial instruments
Financial assets and liabilities are recognized when the Trust becomes party to the contractual provisions
of the financial instrument. Financial assets and financial liabilities are initially recognized at fair value,
and their subsequent measurement is dependent on their classification as described below. The
classification depends on the purpose for which the financial instruments were acquired or issued, their
characteristics and the Trust’s designation of such instruments.
(i) Non-derivative financial assets
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted
in an active market. Such assets are recognized initially at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition loans and receivables are measured at
amortized cost using the effective interest method, less any impairment losses.
Loans and receivables comprise restricted cash, receivables and cash and cash equivalents.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and term deposits with original maturities of
three months or less.
Restricted cash
Restricted cash mainly includes amounts which are held in interest-bearing reserve accounts and
are expected to be utilized over the coming years to fund certain expenses related to investments,
as well as amounts provided in guarantee of mortgage loans.
The Trust derecognizes a financial asset when the contractual rights to the cash flows from the
asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a
transaction in which substantially all the risks and rewards of ownership of the financial asset are
transferred.
(ii) Non-derivative financial liabilities
The Trust classifies non-derivative financial liabilities into the other financial liabilities category. Such
financial liabilities are recognized initially at fair value less any directly attributable transaction costs.
Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the
effective interest method.
Non-derivative financial liabilities comprise mortgage loans payable, convertible debentures, bank
loans, trade and other payables and distributions payable to unitholders.
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Management Discussion and Analysis
The Trust derecognizes a financial liability when its contractual obligations are discharged or
cancelled, or expire.
(iii) Trust units
Trust units are redeemable at the option of the holder and, therefore, are considered puttable
instruments. Puttable instruments are required to be accounted for as financial liabilities, except
where certain conditions are met in accordance with lAS 32 Financial Instruments: Presentation
(“IAS 32”), in which case, the puttable instruments may be presented as equity.
BTB's trust units meet the conditions of lAS 32 and are therefore presented as equity.
(iv) Convertible debentures
The convertible debentures, which are considered financial liabilities, are convertible into trust units
of the Trust. Since BTB's trust units meet the definition of a financial liability, the conversion and
redemption options are considered embedded derivatives.
(v) Derivative financial instruments
Derivative financial instruments are recognized initially at fair value; attributable transaction costs
are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are
measured at fair value, and changes therein are recognized immediately in profit or loss.
(e) Investment property
Investment property is property held either to earn rental income or for capital appreciation or for both, but
not for sale in ordinary course of business, use in the production or supply of goods or services or for
administrative purposes. Investment property is measured at cost on initial recognition and subsequently
at fair value with any change therein recognized in profit or loss. The Trust capitalizes into investment
property the costs incurred to increase their capacity, replace certain components and make
improvements after the acquisition date. The Trust also capitalizes major maintenance and repair
expenses providing benefits that will last far beyond the end of the reporting period. Investment property
includes income properties, properties under development and land held for future development if
necessary.
Cost includes expenditures that are directly attributable to the acquisition of the investment property. The
Trust makes payments to agents for services in connection with negotiating lease contracts with the
Trust’s lessees. These leasing fees are capitalized within the carrying amount of the related investment
property and then considered in the fair value adjustment of the investment property at the next reporting
period.
Should the use of a property change and be reclassified as property and equipment, its fair value at the
date of reclassification would become its cost for subsequent accounting.
(f) Property and equipment
(i) Recognition and measurement
Property and equipment is measured at cost less accumulated depreciation and accumulated
impairment losses in accordance with the cost model.
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Management Discussion and Analysis
When parts of an item of property and equipment have different useful lives, they are accounted for
as separate items (major components) of property and equipment.
Gains and losses on disposal of an item of property and equipment are determined by comparing
the proceeds from disposal with the carrying amount of property and equipment, and are recognized
within profit or loss on a net basis.
(ii) Depreciation
Depreciation is calculated over the depreciable amount, which is the cost of an asset, less its
residual value.
Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of
each part of an item of property and equipment, since this most closely reflects the expected pattern
of consumption of the future economic benefits embodied in the asset.
The estimated useful lives for the current and comparative periods are as follows:
Owner-occupied building
Equipment, furniture and fixtures
Rolling stock
40 years
2 - 12 years
2 - 5 years
Depreciation methods, useful lives and residual values are reviewed at each annual reporting date
and adjusted when appropriate.
(iii) Impairment
The carrying amount of the Trust’s property and equipment is reviewed at each reporting date to
determine whether there is any indication of impairment. If any such indication exists, then the
asset’s recoverable amount is estimated. The recoverable amount of an asset is the greater of its
value in use and its fair value less costs to sell. An impairment loss is recognized if the carrying
amount of an asset exceeds its estimated recoverable amount. Impairment losses are recognized in
profit or loss.
(g) Leases
The determination of whether an arrangement is or contains a lease is based on the substance of the
arrangement and requires an assessment of whether the arrangement conveys a right to use the asset.
When substantially all risks and rewards of ownership are transferred from the lessor to the lessee, lease
transactions are accounted for as finance leases. All other leases are accounted for as operating leases.
(i) Trust as lessor
All existing rental leases related to the Trust’s investment properties have been assessed as
operating leases. The tenants have a unilateral right to terminate a lease within the statutory period.
(ii) Trust as lessee
Leases of assets classified as finance leases are presented in the consolidated statements of
financial position according to their nature. The interest element of the lease payment is recognized
over the term of the lease based on the effective interest rate method and is included in financing
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Management Discussion and Analysis
expense. Payments made under operating leases are recognized in income on a straight-line basis
over the term of the lease.
(h) Provisions
Provisions are recognized when the Trust has a present obligation (legal or constructive) as a result of a
past event, it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where the Trust
expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate
asset. The expense relating to any provision is presented in profit or loss, net of any reimbursement. If the
effect of the time value of money is material, provisions are discounted using a current rate that reflects
the risks specific to the liability. Where discounting is used, the increase in the provision due to the
passage of time is recognized as a finance cost.
(i) Revenue recognition
Rental revenue from property includes rents from tenants under leases, property taxes and operating cost
recoveries, lease cancellation fees and incidental income. Rental revenue is recognized when service has
been rendered and the amount of expected consideration can be reliably estimated.
The Trust commences revenue recognition on its leases based on a number of factors. In most cases,
revenue recognition under a lease begins when the tenant takes possession of, or controls, the physical
use of the leased property. Generally, this occurs on the lease commencement date, or when the Trust is
required to make additions to the leased property in the form of tenant improvements, upon substantial
completion of the additions. Certain leases provide for tenant occupancy during periods for which no rent
is due (“free rent period”) or where minimum rent payments change during the term of the lease.
Accordingly, rental revenue is recognized in profit or loss on a straight-line basis over the term of the
lease unless another systematic basis is more representative of the time pattern in which user’s benefit
derived from the leased asset is diminished. Any deferred amounts related to the straight-line lease
adjustments are recognized within investment properties. Leases generally provide for the tenants’
payment of maintenance expenses of common elements, property taxes and other operating costs, such
payment being recognized as operating revenues in the period when the right to payment vests.
Lease incentives which are mostly leasehold improvements and payments of monetary allowances to
tenants, are amortized over the lease term as a reduction of rental revenue. The lease term is the non-
cancellable period of the lease together with any further extension for which the tenant has the option to
continue the lease, where, at the inception of the lease, the Trust is reasonably certain that the tenant will
exercise that option. Lease incentives and amortization of lease incentives are recognized as adjustments
to the carrying amount of investment properties.
Cancellation fees or premiums received to terminate leases are recognized in profit and loss when they
arise.
(j) Government grants
Government grants are recognized initially as deferred income at fair value when there is reasonable
assurance that they will be received and the Trust will comply with the conditions associated with the
grant. Grants that compensate the Trust for expenses incurred are recognized in profit or loss on a
systematic basis in the same periods in which the expenses are recognized. Grants that compensate the
Trust for the cost of an asset are deducted from the carrying amount of the asset.
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Management Discussion and Analysis
(k) Earnings per unit
The Trust presents basic earnings per unit data for its Trust units. Basic earnings per unit are calculated
by dividing the profit or loss attributable to unit holders of the Trust by the weighted average number of
units outstanding during the period, adjusted for own units held.
(l) Finance income and finance costs
Finance income comprises interest income on funds invested. Interest income is recognized as it accrues
in profit or loss, using the effective interest method.
Finance costs comprise interest on mortgage loans payable, convertible debentures, bank loans and
other payables, as well as accretion of the non-derivative liability component of convertible debentures,
and accretion of effective interest on mortgage loans payable, convertible debentures and bank loans,
and finance income.
Net financing costs comprise finance costs and changes in the fair value of derivative financial
instruments.
(m) Operating segment
An operating segment is a component of the Trust that engages in business activities from which it may
earn revenues and incur expenses, including revenues and expenses that relate to transactions with any
of the Trust’s other components. All operating segments’ operating results are reviewed regularly by the
Trust’s Chief Executive officer (‘’CEO’’) to make decisions about resources to be allocated to the segment
and assess its performance, and for which discrete financial information is available. Segment results that
are reported to the CEO include items directly attributable to a segment as well as those that can be
allocated on a reasonable basis.
(n) Unit-based compensation
(i) Unit option plan
The Trust uses the fair value-based method of accounting for its unit-based awards, under which
compensation expense is measured at grant date and recognized over the vesting period. The units
are considered financial liabilities and the awards are also considered financial liabilities and
measured at fair-value at each reporting period and the change in the fair value is recognized as
compensation expense in profit and loss.
(ii) Deferred unit compensation plan for trustees and certain executive officers
Compensation costs related to the deferred unit compensation plan for trustees and certain
executive officers are recognized at the time they are granted. These units are initially measured at
fair value based on the trading price of the Trust’s unit, and are revalued at the end of each
reporting period, until settlement. Any changes in fair value are recognized as compensation
expense in profit or loss.
(iii) Employee unit purchase plan
Compensation costs related to the employee unit purchase plan are recognized at the time they are
granted. These units are initially measured at fair value based on the trading price of the Trust’s unit,
and are revalued at settlement date. Any changes in fair value are recognized as compensation
expense in profit or loss.
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Management Discussion and Analysis
(iv) Restricted unit compensation plan
Compensation costs related to the restricted unit compensation plan are recognized at the time they
are granted. These units are initially measured at fair value based on the trading price of the Trust’s
unit, and are revalued at the end of each reporting period, until settlement. Any changes in fair value
are recognized as compensation expense in profit or loss. The compensation expense is amortized
using the graded vesting method.
(o) Income taxes
BTB is a mutual fund trust and a Real Estate Investment Trust (‘’REIT’’) pursuant to the Income Tax Act
(Canada). Under current tax legislation, a REIT is entitled to deduct distributions of taxable income such
that, it is not liable to pay income tax provided that its taxable income is fully distributed to unitholders.
BTB has reviewed the proscribed conditions under the Income Tax Act (Canada) and has determined that
it qualifies as a REIT for the year. BTB intends to continue to qualify as a REIT and to make distributions
not less than the amount necessary to ensure that BTB will not be liable to pay income taxes.
Accordingly, no current or deferred income taxes have been recorded in the consolidated financial
statements.
(p) Fair value measurement
The Trust measures financial instruments, such as derivatives, and non-financial assets,such as
investment properties, at fair value at each reporting date. Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date under current market conditions. The fair value measurement is based on the
presumption that the transaction to sell the asset or transfer the liability takes place either:
In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Trust. The fair value of an
asset or a liability is measured using the assumptions that market participants would use when pricing the
asset or liability assuming that market participants act in their economic best interests. A fair value
measurement of a non-financial asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market
participant that would use the asset in its highest and best use.
The Trust uses valuation techniques that are appropriate in the circumstances and for which sufficient
data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing
the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in
the financial statements are categorized within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
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Management Discussion and Analysis
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Trust
determines whether transfers have occurred between Levels in the hierarchy by reassessing
categorization (based on the lowest level input that is significant to the fair value measurement as a
whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Trust has determined classes of assets and liabilities on the
basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy
as explained above.
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Management Discussion and Analysis
New Accounting Policies
In 2014, the Trust adopted IFRIC 21, Levies. The application of this interpretation had no impact on the
Trust’s consolidated financial statements.
The following paragraphs present new accounting standards that apply to BTB but that have not been
adopted yet.
IFRS 9, Financial Instruments (“IFRS 9”)
On July 24, 2014 the IASB issued the complete IFRS 9 (IFRS 9 (2014)). )). IFRS 9 (2014) introduces
new requirements for the classification and measurement of financial assets. Under IFRS 9 (2014),
financial assets are classified and measured based on the business model in which they are held and
the characteristics of their contractual cash flows. The standard introduces additional changes relating
to financial liabilities. It also amends the impairment model by introducing a new ‘expected credit loss’
model for calculating impairment.
IFRS 9 (2014) also includes a new general hedge accounting standard which aligns hedge accounting
more closely with risk management. This new standard does not fundamentally change the types of
hedging relationships or the requirement to measure and recognize ineffectiveness, however it will
provide more hedging strategies that are used for risk management to qualify for hedge accounting and
introduce more judgment to assess the effectiveness of a hedging relationship. Special transitional
requirements have been set for the application of the new general hedging model. The new standard is
effective for the Trust’s annual period beginning on January 1, 2018. The extent of the impact of
adoption of the standard has not yet been determined.
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
In May 2014 the IASB issued IFRS 15 in replacement of IAS 11 Construction Contracts, IAS 18
Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real
Estate, IFRIC 18 Transfer of Assets from Customers, and SIC 31 Revenue – Barter Transactions
Involving Advertising Services. The standard contains a single model that applies to contracts with
customers and two approaches to recognising revenue: at a point in time or over time. The model
features a contract-based five-step analysis of transactions to determine whether, how much and when
revenue is recognized. The new standard is effective for the Trust’s annual period beginning on
January 1, 2017. The extent of the impact of adoption of the standard has not yet been determined.
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Management Discussion and Analysis
Risks and Uncertainties
Like all real estate entities, BTB is exposed, in the normal course of business, to various risk factors
that may have an impact on its capacity to attain its strategic objectives. Accordingly, unitholders
should consider the following risks and uncertainties when assessing the Trust’s outlook in terms of
investment potential.
BTB has not identified any significant changes to the risks and uncertainties to which it is exposed in its
business.
Access to capital and debt financing, and current global financial conditions
The real estate industry is capital-intensive. BTB will require access to capital to maintain its properties,
as well as to fund its growth strategy and significant capital expenditures from time to time. There can
be no assurance that BTB will have access to sufficient capital (including debt financing) on terms
favorable to BTB for future property acquisitions and redevelopments, including for the financing or
refinancing of properties, for funding operating expenses or for other purposes. In addition, BTB may
not be able to borrow funds under its credit facilities due to limitations on BTB’s ability to incur debt set
forth in the Contract of Trust. Failure by BTB to access required capital could adversely impact BTB’s
financial position and results of operations and reduce the amount of cash available for distributions.
New market events and conditions, including disruptions in international and regional credit markets
and in other financial systems and deteriorating global economic conditions, could impede BTB’s
access to capital (including debt financing) or increase the cost of such capital. Failure to raise capital
in a timely manner or under favourable terms could have a material adverse effect on BTB’s financial
position and results of operations, including on its acquisition and development program.
Debt financing
BTB has and will continue to have substantial outstanding consolidated borrowings comprised primarily
of hypothecs, property mortgages, debentures, and borrowings under its acquisition and operating
credit facilities. BTB intends to finance its growth strategy, including acquisitions and developments,
through a combination of its working capital and liquidity resources, including cash f lows from
operations, additional borrowings and public or private sales of equity or debt securities. BTB may not
be able to refinance its existing debt or renegotiate the terms of repayment at favourable rates. In
addition, the terms of BTB’s indebtedness in general contain customary provisions that, upon an event
of default, result in accelerated repayment of the amounts owed and that restrict the distributions that
may be made by BTB. Therefore, upon an event of default under such borrowings or an inability to
renew same at maturity, BTB’s ability to make distributions will be adversely affected.
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Management Discussion and Analysis
A portion of BTB’s cash flows is dedicated to servicing its debt, and there can be no assurance that
BTB will continue to generate sufficient cash flows from operations to meet required interest or principal
payments, such that it could be required to seek renegotiation of such payments or obtain additional
financing, including equity or debt financing.
BTB is exposed to debt financing risks, including the risk that the existing hypothecary borrowings
secured by its properties cannot be refinanced or that the terms of such refinancing will not be as
favourable as the terms of the existing loans. In order to minimize this risk, BTB tries to appropriately
structure the timing of the renewal of significant tenant leases on its respective properties in relation to
the times at which the hypothecary borrowings on such properties become due for refinancing.
Ownership of immovable property
All immovable property investments are subject to risk exposures. Such investments are affected by
general economic conditions, local real estate markets, demand for leased premises, competition from
other vacant premises, municipal valuations and assessments, and various other factors.
The value of immovable property and improvements thereto may also depend on the solvency and
financial stability of tenants and the economic environment in which they operate. BTB’s income and
distributable income would be adversely affected if one or more major tenants or a significant number
of tenants were unable to meet their lease obligations or if a significant portion of vacant space in the
properties in which BTB has an interest cannot be leased on economically favorable lease terms. In the
event of default by a tenant, delays or limitations may be experienced in enforcing BTB’s rights as a
lessor and substantial costs may be incurred to protect BTB’s investment. The ability to rent unleased
space in the properties in which BTB has an interest will be affected by many factors, including the
level of general economic activity and competition for tenants by other properties. Costs may need to
be incurred to make improvements or repairs to property as required by a new tenant. The failure to
rent unleased space on a timely basis or at all or at rents that are equivalent to or higher than current
rents would likely have an adverse effect on BTB’s financial position and the value of its properties.
Certain significant expenditures, including property taxes, maintenance costs, hypothecary payments,
insurance costs and related charges must be made throughout the period of ownership of immovable
property regardless of whether the property is producing any income. If BTB is unable to meet
mortgage payments on a property, a loss could be sustained as a result of the mortgage creditor’s
exercise of its hypothecary remedies.
Immovable property investments tend to be relatively illiquid, with the degree of liquidity generally
fluctuating in relationship with the demand for and the perceived desirability of such investments. Such
illiquidity may tend to limit BTB’s ability to make changes to its portfolio promptly in response to
changing economic or investment conditions. If BTB were to be required to liquidate its immovable
property investments, the proceeds to BTB might be significantly less than the aggregate carrying value
of its properties.
Leases for BTB’s properties, including those of significant tenants, will mature from time to time over
the short and long term. There can be no assurance that BTB will be able to renew any or all of the
leases upon maturity or that rental rate increases will occur or be achieved upon any such renewals.
The failure to renew leases or achieve rental rate increases may adversely impact BTB’s financial
position and results of operations and decrease the amount of cash available for distribution.
BTB Annual Report 2014
78
Management Discussion and Analysis
Competition
BTB competes for suitable immovable property investments with individuals, corporations and
institutions (both Canadian and foreign) which are presently seeking or which may seek in the future
immovable property investments similar to those desired by BTB. Many of those investors have greater
financial resources than BTB, or operate without the investment or operating restrictions of BTB or
under more flexible conditions.
An increase in the availability of investment funds and heightened interest in immovable property
investments could increase competition for immovable property investments, thereby increasing the
purchase prices of such investments and reducing their yield.
In addition, numerous property developers, managers and owners compete with BTB in seeking
tenants. The existence of competing developers, managers and owners and competition for the BTB’s
tenants could have an adverse effect on the BTB’s ability to lease space in its properties and on the
rents charged, and could adversely affect the BTB’s revenues and, consequently, its ability to meet its
debt obligations.
Acquisitions
BTB’s business plan focuses on growth by identifying suitable acquisition opportunities, pursuing such
opportunities, completing acquisitions and effectively operating and leasing such properties. If BTB is
unable to manage its growth effectively, this could adversely impact BTB’s financial position and results
of operations, and decrease the amount of cash available for distribution. There can be no assurance
as to the pace of growth through property acquisitions or that BTB will be able to acquire assets on an
accretive basis, and as such there can be no assurance that distributions to unitholders will increase in
the future.
Development program
Information regarding our development projects, development costs, capitalization rates and expected
returns are subject to change, which may be material, as assumptions regarding items including, but
not limited to, tenant rents, building sizes, leasable areas, and project completion timelines and costs
are updated periodically based on revised plans, our cost tendering process, continuing tenant
negotiations, demand for leasable space in our markets, our ability to obtain the required building
permits, ongoing discussions with municipalities and successful property re-zonings. There can be no
assurance that any assumptions in this regard will materialize as expected and changes could have a
material adverse effect on our development program, asset values and financial performance.
Recruitment and retention of employees and executives
Competition for qualified employees and executives is intense. If BTB is unable to attract and retain
qualified and capable employees and executives, the conduct of its activities may be adversely
affected.
BTB Annual Report 2014
79
Management Discussion and Analysis
Government regulation
BTB and its properties are subject to various government statutes and regulations. Any change in such
statutes or regulations that is adverse to BTB and its properties could affect BTB’s operating results
and financial performance.
In addition, environmental and ecological legislation and policies have become increasingly important in
recent decades. Under various laws, BTB could become liable for the costs of removal or remediation
of certain hazardous or toxic substances released on or in its properties or disposed of at other
locations, or for the costs of other remedial or preventive work. The failure to remove or remediate such
substances, or to effect such remedial or preventive work, if any, may adversely affect an owner’s
ability to sell such real estate or to borrow using such real estate as collateral, and could potentially
also result in claims against the owner by private plaintiffs or governmental agencies. Notwithstanding
the above, BTB is not aware of any material non-compliance, liability or other claim in connection with
any of its properties, nor is BTB aware of any environmental condition with respect to any of its
properties that it believes would involve material expenditure by BTB.
Limit on activities
In order to maintain its status as a "mutual fund trust" under the Income Tax Act, BTB cannot carry on
most active business activities and is limited in the types of investments it may make. The Contract of
Trust contains restrictions to this effect.
Tax-related risks
Legislation (the "SIFT Rules") relating to the income taxation of publicly listed or traded trusts (such as
income trusts and Real Estate Investment Trusts) and partnerships changes the manner in which
certain flow-through entities and the distributions from such entities are taxed. Under the SIFT Rules,
certain publicly listed or traded flow-through trusts and partnerships referred to as "specified investment
flow-through" or "SIFT" trusts and partnerships are taxed in a manner similar to the taxation of
corporations, and investors in SIFTs are taxed in a manner similar to shareholders of a corporation.
The taxation regime introduced by the SIFT Rules is not applicable to funds that qualify for the
exemption under the SIFT Rules applicable to certain Real Estate Investment Trusts (the "REIT
Exemption"). If the Trust fails to qualify for the REIT Exemption, it will be subject to certain tax
consequences including taxation in a manner similar to corporations and taxation of certain
distributions in a manner similar to taxable dividends from a taxable Canadian corporation.
In order to qualify for the REIT Exemption in respect of a taxation year, the REIT must meet the
following conditions: i) the total fair market value of all the ”non-portfolio properties“ that are “qualified
REIT properties” held by the trust is always at least 90% of the total fair market value at that time of all
the “non-portfolio assets” held by the trust; (ii) not less than 90% of the REIT’s gross revenues for that
year come from one or more of the following sources: rent from “real or immovable properties,” interest,
dispositions of “real or immovable properties” that are capital properties, dividends, royalties and
dispositions of “eligible resale properties,” (iii) not less than 75% of the REIT’s gross revenues for that
year must come from one or more of the following sources: rent from “real or immovable properties,”
interest from mortgages on “real or immovable properties” and dispositions of “real or immovable
properties” that are capital properties; (iv) the REIT must, throughout the year, hold properties, each of
which is a “real or immovable property” which is a capital property, an “eligible resale property,” debt
from a Canadian company represented by a banker’s acceptance, cash, or generally a Canadian
BTB Annual Report 2014
80
Management Discussion and Analysis
government debt instrument or one from another government agency with a total fair market value that
is not less than 75% of the REIT’s equity value at that time; and v) the investments that are made
therein are, at any time in the taxation year, listed or traded on a stock exchange or other public
market.
As at December 31, 2014, based on a review of BTB’s assets and revenues from its regular business
activities, management believes the Trust currently meets all the conditions to qualify for the REIT
Exemption. Accordingly, management does not expect the SIFT tax rules to apply to BTB.
Management intends to conduct the REIT’s business so that it continues to qualify for the REIT
Exemption at all times. However, as the requirements of the REIT Exemption include complex revenue
and asset tests, no assurance can be given that the REIT will in fact qualify for the REIT Exemption at
all times.
BTB Annual Report 2014
81
Management Discussion and Analysis
Disclosure Controls and Procedures and Internal Control Over
Financial Reporting
The President and Chief Executive Officer and the Executive Vice-President and Chief Financial Officer
of BTB are responsible for establishing and maintaining disclosure controls and procedures (“DC&P”
and internal control over financial reporting (“ICFR”), as those terms are defined in Canadian Securites
Administrators Multilateral Instrument 52-109.
Evaluations are performed regularly to assess the effectiveness of DC&P, including this MD&A and the
consolidated financial statements. Based on these evaluations, the President and Chief Executive
Officer and the Executive Vice-President and Chief Financial Officer concluded that the DC&P were
effective as at the end of the year ended December 31, 2014 and that the current controls and
procedures provide reasonable assurance that material information about BTB is made known to them
during the period in which these filings are being prepared.
Evaluations are also performed to assess the effectiveness of ICFR. Based on those evaluations, the
President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer of
BTB concluded that ICFR was effective as at the end of the fiscal year ended December 31, 2014, and,
more specifically, that the financial reporting is reliable and that the financial statements have been
prepared for financial reporting purposes in accordance with IFRS.
During fiscal 2014, management made no changes to internal control over financial reporting that
materially affected, or are likely to materially affect, internal control over financial reporting.
BTB Annual Report 2014
82
Audited Consolidated Financial Statements
Year ended December 31, 2014
21
BTB Annual Report 2014 Consolidated Financial Statements
Table of Contents
Independent Auditor’s Report
87 Management’s responsibility for Financial Reporting
88
90 Consolidated Statements of Financial Position
91 Consolidated Statements of Comprehensive Income
92 Consolidated Statements of Changes in Unitholders’ Equity
93 Consolidated Statements of Cash Flows
94 Notes to Consolidated Financial Statements
BTB Annual Report 2014
86
Consolidated Financial Statements
Management’s responsibility for Financial Reporting
The accompanying consolidated financial statements of BTB Real Estate Investment Trust (“BTB”) were
prepared by management, which is responsible for the integrity and fairness of the information presented,
including the many amounts that must of necessity be based on estimates and judgments. These
consolidated financial statements were prepared in accordance with International Financial Reporting
Standards (“IFRS”).
Financial information appearing throughout our MD&A is consistent with these consolidated financial
statements. In discharging our responsibility for the integrity and fairness of the consolidated financial
statements and for the accounting systems from which they are derived, we maintain the necessary
system of internal controls designed to ensure that transactions are authorized, assets are safeguarded
and proper records are maintained.
As at December 31, 2014, the President and Chief Executive Officer and the Vice President and Chief
Financial Officer of BTB had an evaluation carried out, under their direct supervision, of the effectiveness
of the controls and procedures used for the preparation of filings, as defined in Multilateral Instrument
52-109 of the Canadian Securities Administrators. Based on that evaluation, they concluded that the
disclosure controls and procedures were effective.
The Board of Trustees oversees management’s responsibility for financial reporting through an Audit
Committee, which is composed entirely of Trustees who are not members of BTB’s management or
personnel. This Committee reviews our consolidated financial statements and recommends them to the
Board for approval. Other key responsibilities of the Audit Committee include reviewing our existing
internal control procedures and planned revisions to those procedures, and advising the trustees on
auditing matters and financial reporting issues.
KPMG s.r.l./S.E.N.C.R.L., independent auditors appointed by the unitholders of BTB upon the
recommendation of the Board, have performed an independent audit of the Consolidated Financial
Statements as at December 31, 2014 and 2013 and their report follows. The auditors have full and
unrestricted access to the Audit Committee to discuss their audit and related findings.
Michel Léonard
President and Chief Executive Officer
Benoit Cyr, CPA, CA, MBA
Vice President and Chief Financial Officer
Montreal, March 19th 2015
BTB Annual Report 2014
87
KPMG LLP
600 de Maisonneuve Blvd. West
Suite 1500
Tour KPMG
Montréal (Québec) H3A 0A3
Telephone
Fax
Internet
(514) 840-2100
(514) 840-2187
www.kpmg.ca
INDEPENDENT AUDITORS’ REPORT
To the unitholders of BTB Real Estate Investment Trust
We have audited the accompanying consolidated financial statements of BTB Real Estate Investment
Trust, which comprise the consolidated statements of financial position as at December 31, 2014 and
December 31, 2013, the consolidated statements of comprehensive income, changes in unitholders’
equity and cash flows for the years then ended, and notes, comprising a summary of significant
accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, 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.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on our judgment, including
the assessment of the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error. In making those risk assessments, we consider internal control relevant to the
entity’s preparation and fair presentation of the consolidated financial statements 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 entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to
provide a basis for our audit opinion.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
("KPMG International"), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
Page 2
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of BTB Real Estate Investment Trust as at December 31, 2014 and
December 31, 2013, and its consolidated financial performance and its consolidated cash flows for the
years then ended in accordance with International Financial Reporting Standards.
March 19, 2015
Montréal, Canada
*FCPA auditor, FCA, public accountancy permit No. A106087
Consolidated Financial Statements
BTB Real Estate Investment Trust
Consolidated Statements of Financial Position
As at December 31, 2014 and 2013
(Audited - in thousands of CAD dollars)
ASSETS
Investment properties
Property and equipment
Derivative financial instruments
Restricted cash
Other assets
Receivables
Cash and cash equivalents
Total assets
LIABILITIES AND UNITHOLDERS’ EQUITY
Mortgage loans payable
Convertible debentures
Bank loans
Derivative financial instruments
Unit-based compensation
Trade and other payables
Distributions payable to unitholders
Total liabilities
Unitholders’ equity
See accompanying notes to consolidated financial statements.
Approved by the Board on March 19, 2015
Notes
4, 5, 6
7
14
8
9
10
11
12
13
14
15
2014
$
571,462
2,296
53
1,717
3,439
1,342
6,428
586,737
329,943
65,186
—
145
213
12,457
1,194
409,138
177,599
586,737
2013
$
529,432
2,384
251
5,832
3,671
2,459
2,530
546,559
313,816
63,929
1,045
1,723
187
12,324
943
393,967
152,592
546,559
Michel Léonard, Trustee
Jocelyn Proteau, Trustee
BTB Annual Report 2014
90
Consolidated Financial Statements
BTB Real Estate Investment Trust
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars)
Notes
17
Operating revenues
Rental revenues from properties
Operating expenses
Property taxes and public utilities
Other operating costs
Net operating income
Finance costs
Net adjustment to fair value
of derivative financial instruments
Net financing costs
Trust administration expenses
18
Net income before the following item
(Decrease) Increase in fair value of investment
properties
Net income being total comprehensive
income for the period
See accompanying notes to consolidated financial statements.
2014
$
2013
$
67,170
63,435
18,217
10,970
29,187
17,729
10,370
28,099
37,983
35,336
20,410
21,416
(1,379)
113
19,031
4,209
21,529
3,833
14,743
9,974
(1,860)
8,375
12,883
18,349
BTB Annual Report 2014
91
Consolidated Financial Statements
BTB Real Estate Investment Trust
Consolidated Statements of Changes in Unitholders’ Equity
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars)
Balance at January 1, 2014
Issuance of units
Distributions to unitholders
Comprehensive income
Balance as at December 31, 2014
Balance at January 1, 2013
Issuance of units
Distribution to unitholders
Comprehensive income
Balance as at December 31, 2013
See accompanying notes to consolidated financial statements.
Notes
Unitholders’
contributions
Cumulative
distributions
Cumulative
comprehensive
income
16
16
157,207
25,077
—
182,284
—
182,284
137,330
19,877
—
157,207
—
157,207
(25,295)
—
(12,953)
(38,248)
—
(38,248)
(14,883)
—
(10,412)
(25,295)
—
(25,295)
20,680
—
—
20,680
12,883
33,563
2,331
—
—
2,331
18,349
20,680
Total
152,592
25,077
(12,953)
164,716
12,883
177,599
124,778
19,877
(10,412)
134,243
18,349
152,592
BTB Annual Report 2014
92
Consolidated Financial Statements
BTB Real Estate Investment Trust
Consolidated Statements of Cash Flows
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars)
Notes
7
17
17
18
4, 5
6
7
8
Operating activities
Net income for the period
Adjustment for:
Decrease (Increase) in fair value of investment
properties
Depreciation of property and equipment
Unit-based compensation
Straight-line lease adjustment
Lease incentive amortization
Net financing costs
Net change in non-cash operating items
Net cash from operating activities
Investing activities
Additions to investment properties
Net proceeds from disposal of
investment properties
Additions to property and equipment
Net cash used in investing activities
Financing activities
Mortgage loans, net of financing costs
Repayment of mortgage loans
Bank loans, net of financing costs
Repayment of bank loans
Net proceeds from issue of convertible debentures
Repayment of convertible debentures
Net proceeds from issue of units
Net distributions to unitholders
(Additions) Deduction to restricted cash
Interest paid
Net cash from (used in) financing activities
Net increase (decrease) in cash
and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
See accompanying notes to consolidated financial statements.
BTB Annual Report 2014
93
2014
$
2013
$
12,883
18,349
1,860
165
284
(610)
1,793
19,031
35,406
1,272
36,678
(8,375)
126
90
(866)
1,480
21,529
32,333
(165)
32,168
(49,553)
(30,928)
4,656
(77)
2,300
(347)
(44,974)
(28,975)
66,113
(50,264)
2,246
(3,291)
—
—
23,429
(11,301)
4,115
(18,853)
12,194
3,898
2,530
6,428
56,600
(42,607)
—
(13,963)
21,756
(13,020)
18,996
(9,382)
(3,975)
(19,674)
(5,269)
(2,076)
4,606
2,530
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
1. Reporting Entity
BTB Real Estate Investment Trust (“BTB”) is an unincorporated open-ended real estate investment trust
formed and governed under the Civil code of Quebec pursuant to a trust agreement and is domiciled in
Canada. The address of BTB’s registered office is 2155, Crescent street, Montreal, Quebec, Canada. The
consolidated financial statements of BTB for the years ended December 31, 2014 and 2013 comprise
BTB and its wholly-owned subsidiaries (together referred to as the “Trust”) and the Trust’s interest in joint
operations.
2. Basis of Preparation
(a) Statement of compliance
The audited consolidated financial statements have been prepared in accordance with International
Financial Reporting Standard (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”).
These consolidated financial statements were approved by the Board of Directors on March 19, 2015.
(b) Basis of presentation and measurement
The consolidated financial statements have been prepared on the historical cost basis except for the
following material items in the statement of financial position:
Investment properties are measured at fair value;
•
• Derivative financial instruments are measured at fair value;
• Unit-based compensation is measured using a fair value-based method of accounting.
The Trust presents its consolidated statements of financial position based on the liquidity method,
whereby all assets and liabilities are presented in increasing order of liquidity.
(c) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is BTB's functional
currency. All financial information presented in Canadian dollars has been rounded to the nearest
thousand, except per unit amounts.
(d) Use of estimates and judgments
The preparation of consolidated financial statements in conformity with IFRS requires management to
make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements and reported amounts of revenues and expenses during
the reporting period. Estimates and assumptions are continuously evaluated and are based on
BTB Annual Report 2014
94
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
management’s experience and other factors, including expectations of future events that are believed to
be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period
in which the estimates are revised and in any future periods affected. Actual results may differ from these
estimates.
Information about significant areas of estimation, uncertainty and critical judgments in applying accounting
policies that have the most significant effect on the amounts recognized in the consolidated financial
statements are as follows:
(i) Critical judgements in applying accounting policies
The following are critical judgements that management has made in the process of applying
accounting policies and that have the most significant effect on the amounts recognized in the
consolidated financial statements:
Business combinations
The Trust acquires entities that own real estate. At the time of acquisition, the Trust considers
whether the acquisition represents the acquisition of a business, i.e., where an integrated set of
activities is acquired in addition to the investment property. More specifically, the following criteria
are considered:
•
The extent to which significant inputs and processes are acquired and in particular the
extent of ancillary services provided by the acquiree.
• Whether the acquiree has allocated its own staff to manage the investment property
and/or to deploy any processes.
The number of investment properties owned by the acquiree.
•
An acquisition of a business is accounted for as a business combination under IFRS 3, Business
Combinations.
When the acquisition does not represent a business, it is accounted for as an acquisition of assets
and liabilities. The cost of the acquisition is allocated to the assets and liabilities acquired based
upon their relative fair values.
Operating lease contracts – Trust as lessor
The Trust enters into commercial property leases on its investment properties. The Trust has
determined, based on an evaluation of the terms and conditions of the arrangements, that it retains
all the significant risks and rewards of ownership of these properties and therefore accounts for the
leases as operating leases.
(ii) Key sources of estimation uncertainty
The following are key assumptions concerning the future and other key sources of estimation
uncertainty that have a significant risk of resulting in a material adjustment to the carrying amount of
assest and liabilities within the next financial year:
BTB Annual Report 2014
95
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
Valuation of investment properties
Investment properties are stated at fair value at each reporting date. Gains or losses arising from
changes in the fair values are included in profit or loss in the period in which they arise. Fair value is
determined by management using internally generated valuation models and by independent real
estate valuation experts using recognized valuation techniques. These models and techniques
comprise both the Discounted Cash Flow Method and the Direct Capitalization method. In some
cases, the fair values are determined using the Comparable method which is based on recent real
estate transactions with similar characteristics and location to those of the Trust's investment
properties.
The determination of the fair value of investment properties requires the use of estimates such as
future cash flows from assets (including lease income and costs, future revenue streams, capital
expenditures of fixtures and fittings, any environmental matters and the overall repair and condition
of the property) and discount rates applicable to those cash flows. These estimates are based on
local market conditions existing at the reporting date.
The significant methods and assumptions used by management and the valuators in estimating the
fair value of investment properties are set out below:
Techniques used for valuing investment properties
The Direct Capitalization method converts anticipated future cash flow benefits in the form of rental
income into present value. This approach requires estimation of future cash inflows and application
of investor yield or return requirements.
The Discounted Cash Flow method involves the projection of a series of periodic cash flows either
to an operating investment property or a development investment property. To this projected cash
flow series, an appropriate, market-derived discount rate is applied to establish an indication of the
present value of the income stream associated with the investment property. The calculated periodic
cash flow is typically estimated as gross income less vacancy and collection losses and less
operating expenses/outgoings. A series of periodic net operating incomes, along with an estimate of
the reversion/terminal/exit value anticipated at the end of the projection period, are discounted to
present value. The aggregate of the net present values equals the fair value estimated of the
investment property.
The Comparable method involves the comparison of the Trust’s investment properties to similar
investment properties that have transacted within a recent time frame from which a fair value is
estimated based on the price per square foot of these comparable sales.
Derivative financial instruments
Derivative financial instruments, including embedded derivatives, are recognized on the
consolidated statement of financial position at fair value. Subsequent to initial recognition, these
derivatives are measured at fair value. The fair value of derivative instruments is based on forward
rates considering the market price, rate of interest and volatility and takes into account the credit risk
BTB Annual Report 2014
96
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
of the financial instrument. Changes in estimated fair value at each reporting date are included in
profit and loss. Embedded derivatives are separated from the host contract and accounted for
separately if the economic characteristics and risks of the host contract and the embedded
derivative are not closely related.
Unit options
The Trust has a unit option plan for the benefit of management. The plan does not provide for cash
settlement. The Trust recognizes compensation expense on unit options granted, based on their fair
value, which is calculated using the Black-Scholes model. The compensation expense is amortized
using the graded vesting method. The valuation model requires management to make estimates for
the expected life, volatility, the average dividend yield of distributions and the average risk-free
interest rate.
3. Significant Accounting Policies
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements.
(a) Basis of consolidation
(i) Business combinations
Business combinations are accounted for using the acquisition method. Accordingly, the
consideration transferred for the acquisition of a business is the fair value of the assets transferred,
and any debt and trust units issued by the Trust on the date control of the acquired entity is
obtained. Acquisition-related costs, other than those associated with the issue of debt or trust units,
are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are generally measured initially at their fair values at the
acquisition date. The Trust measures goodwill as the fair value of the consideration transferred
including the recognized amount of any non-controlling interest in the acquiree, less the net
recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed,
all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is
recognized immediately in profit or loss.
The Trust elects on a transaction-by-transaction basis whether to measure non-controlling interest
at its fair value, or at its proportionate share of the recognized amount of the identifiable net assets,
at the acquisition date. Transaction costs, other than those associated with the issue of debt or
equity securities, that the Trust incurs in connection with a business combination are expensed as
incurred.
(ii) Subsidiaries
Subsidiaries are entities controlled by the Trust. Control exists when the Trust has the existing rights
that give it the current ability to direct the activities that significantly affect the entities’ returns. The
BTB Annual Report 2014
97
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
financial statements of subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases.
(iii) Joint operations
A joint operation is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.
Those parties are called joint operators. The consolidated financial statements include the Trust’s
proportionate share of the joint operations’ assets, liabilities, revenue and expenses with items of a
similar nature on a line-by-line basis, from the date that joint control commences until the date that
joint control ceases.
(b) Financial instruments
Financial assets and liabilities are recognized when the Trust becomes party to the contractual provisions
of the financial instrument. Financial assets and financial liabilities are initially recognized at fair value,
and their subsequent measurement is dependent on their classification as described below. The
classification depends on the purpose for which the financial instruments were acquired or issued, their
characteristics and the Trust’s designation of such instruments.
(i) Non-derivative financial assets
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted
in an active market. Such assets are recognized initially at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition loans and receivables are measured at
amortized cost using the effective interest method, less any impairment losses.
Loans and receivables comprise restricted cash, receivables and cash and cash equivalents.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and term deposits with original maturities of
three months or less.
Restricted cash
Restricted cash mainly includes amounts which are held in interest-bearing reserve accounts and
are expected to be utilized over the coming years to fund certain expenses related to investments,
as well as amounts provided in guarantee of mortgage loans.
The Trust derecognizes a financial asset when the contractual rights to the cash flows from the
asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a
transaction in which substantially all the risks and rewards of ownership of the financial asset are
transferred.
BTB Annual Report 2014
98
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
(ii) Non-derivative financial liabilities
The Trust classifies non-derivative financial liabilities into the other financial liabilities category. Such
financial liabilities are recognized initially at fair value less any directly attributable transaction costs.
Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the
effective interest method.
Non-derivative financial liabilities comprise mortgage loans payable, convertible debentures, bank
loans, trade and other payables and distributions payable to unitholders.
The Trust derecognizes a financial liability when its contractual obligations are discharged or
cancelled, or expire.
(iii) Trust units
Trust units are redeemable at the option of the holder and, therefore, are considered puttable
instruments. Puttable instruments are required to be accounted for as financial liabilities, except
where certain conditions are met in accordance with lAS 32 Financial Instruments: Presentation
(“IAS 32”), in which case, the puttable instruments may be presented as equity.
BTB's trust units meet the conditions of lAS 32 and are therefore presented as equity.
(iv) Convertible debentures
The convertible debentures, which are considered financial liabilities, are convertible into trust units
of the Trust. Since BTB's trust units meet the definition of a financial liability, the conversion and
redemption options are considered embedded derivatives.
(v) Derivative financial instruments
Derivative financial instruments are recognized initially at fair value; attributable transaction costs
are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are
measured at fair value, and changes therein are recognized immediately in profit or loss.
(c) Investment property
Investment property is property held either to earn rental income or for capital appreciation or for both, but
not for sale in ordinary course of business, use in the production or supply of goods or services or for
administrative purposes. Investment property is measured at cost on initial recognition and subsequently
at fair value with any change therein recognized in profit or loss. The Trust capitalizes into investment
property the costs incurred to increase their capacity, replace certain components and make
improvements after the acquisition date. The Trust also capitalizes major maintenance and repair
expenses providing benefits that will last far beyond the end of the reporting period. Investment property
includes income properties, properties under development and land held for future development if
necessary.
Cost includes expenditures that are directly attributable to the acquisition of the investment property.
BTB Annual Report 2014
99
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
The Trust makes payments to agents for services in connection with negotiating lease contracts with the
Trust’s lessees. These leasing fees are capitalized within the carrying amount of the related investment
property and then considered in the fair value adjustment of the investment property at the next reporting
period.
Should the use of a property change and be reclassified as property and equipment, its fair value at the
date of reclassification would become its cost for subsequent accounting.
(d) Property and equipment
(i) Recognition and measurement
Property and equipment is measured at cost less accumulated depreciation and accumulated
impairment losses in accordance with the cost model.
When parts of an item of property and equipment have different useful lives, they are accounted for
as separate items (major components) of property and equipment.
Gains and losses on disposal of an item of property and equipment are determined by comparing
the proceeds from disposal with the carrying amount of property and equipment, and are recognized
within profit or loss on a net basis.
(ii) Depreciation
Depreciation is calculated over the depreciable amount, which is the cost of an asset, less its
residual value.
Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of
each part of an item of property and equipment, since this most closely reflects the expected pattern
of consumption of the future economic benefits embodied in the asset.
The estimated useful lives for the current and comparative periods are as follows:
Owner-occupied building
Equipment, furniture and fixtures
Rolling stock
40 years
2 - 12 years
2 - 5 years
Depreciation methods, useful lives and residual values are reviewed at each annual reporting date
and adjusted when appropriate.
(iii) Impairment
The carrying amount of the Trust’s property and equipment is reviewed at each reporting date to
determine whether there is any indication of impairment. If any such indication exists, then the
asset’s recoverable amount is estimated. The recoverable amount of an asset is the greater of its
value in use and its fair value less costs to sell. An impairment loss is recognized if the carrying
BTB Annual Report 2014
100
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
amount of an asset exceeds its estimated recoverable amount. Impairment losses are recognized in
profit or loss.
(e) Leases
The determination of whether an arrangement is or contains a lease is based on the substance of the
arrangement and requires an assessment of whether the arrangement conveys a right to use the asset.
When substantially all risks and rewards of ownership are transferred from the lessor to the lessee, lease
transactions are accounted for as finance leases. All other leases are accounted for as operating leases.
(i) Trust as lessor
All existing rental leases related to the Trust’s investment properties have been assessed as
operating leases. The tenants have a unilateral right to terminate a lease within the statutory period.
(ii) Trust as lessee
Leases of assets classified as finance leases are presented in the consolidated statements of
financial position according to their nature. The interest element of the lease payment is recognized
over the term of the lease based on the effective interest rate method and is included in financing
expense. Payments made under operating leases are recognized in income on a straight-line basis
over the term of the lease.
(f) Provisions
Provisions are recognized when the Trust has a present obligation (legal or constructive) as a result of a
past event, it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where the Trust
expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate
asset. The expense relating to any provision is presented in profit or loss, net of any reimbursement. If the
effect of the time value of money is material, provisions are discounted using a current rate that reflects
the risks specific to the liability. Where discounting is used, the increase in the provision due to the
passage of time is recognized as a finance cost.
(g) Revenue recognition
Rental revenue from property includes rents from tenants under leases, property taxes and operating cost
recoveries, lease cancellation fees and incidental income. Rental revenue is recognized when service has
been rendered and the amount of expected consideration can be reliably estimated.
The Trust commences revenue recognition on its leases based on a number of factors. In most cases,
revenue recognition under a lease begins when the tenant takes possession of, or controls, the physical
use of the leased property. Generally, this occurs on the lease commencement date, or when the Trust is
required to make additions to the leased property in the form of tenant improvements, upon substantial
completion of the additions. Certain leases provide for tenant occupancy during periods for which no rent
is due (“free rent period”) or where minimum rent payments change during the term of the lease.
Accordingly, rental revenue is recognized in profit or loss on a straight-line basis over the term of the
BTB Annual Report 2014
101
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
lease unless another systematic basis is more representative of the time pattern in which user’s benefit
derived from the leased asset is diminished. Any deferred amounts related to the straight-line lease
adjustments are recognized within investment properties. Leases generally provide for the tenants’
payment of maintenance expenses of common elements, property taxes and other operating costs, such
payment being recognized as operating revenues in the period when the right to payment vests.
Lease incentives which are mostly leasehold improvements and payments of monetary allowances to
tenants, are amortized over the lease term as a reduction of rental revenue. The lease term is the non-
cancellable period of the lease together with any further extension for which the tenant has the option to
continue the lease, where, at the inception of the lease, the Trust is reasonably certain that the tenant will
exercise that option. Lease incentives and amortization of lease incentives are recognized as adjustments
to the carrying amount of investment properties.
Cancellation fees or premiums received to terminate leases are recognized in profit and loss when they
arise.
(h) Government grants
Government grants are recognized initially as deferred income at fair value when there is reasonable
assurance that they will be received and the Trust will comply with the conditions associated with the
grant. Grants that compensate the Trust for expenses incurred are recognized in profit or loss on a
systematic basis in the same periods in which the expenses are recognized. Grants that compensate the
Trust for the cost of an asset are deducted from the carrying amount of the asset.
(i) Earnings per unit
The Trust presents basic earnings per unit data for its Trust units. Basic earnings per unit are calculated
by dividing the profit or loss attributable to unit holders of the Trust by the weighted average number of
units outstanding during the period, adjusted for own units held.
(j) Finance income and finance costs
Finance income comprises interest income on funds invested. Interest income is recognized as it accrues
in profit or loss, using the effective interest method.
Finance costs comprise interest on mortgage loans payable, convertible debentures, bank loans and
other payables, as well as accretion of the non-derivative liability component of convertible debentures,
and accretion of effective interest on mortgage loans payable, convertible debentures and bank loans,
and finance income.
Net financing costs comprise finance costs and changes in the fair value of derivative financial
instruments.
(k) Operating segment
An operating segment is a component of the Trust that engages in business activities from which it may
earn revenues and incur expenses, including revenues and expenses that relate to transactions with any
BTB Annual Report 2014
102
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
of the Trust’s other components. All operating segments’ operating results are reviewed regularly by the
Trust’s Chief Executive officer (‘’CEO’’) to make decisions about resources to be allocated to the segment
and assess its performance, and for which discrete financial information is available. Segment results that
are reported to the CEO include items directly attributable to a segment as well as those that can be
allocated on a reasonable basis.
(l) Unit-based compensation
(i) Unit option plan
The Trust uses the fair value-based method of accounting for its unit-based awards, under which
compensation expense is measured at grant date and recognized over the vesting period. The units
are considered financial liabilities and the awards are also considered financial liabilities and
measured at fair-value at each reporting period and the change in the fair value is recognized as
compensation expense in profit and loss.
(ii) Deferred unit compensation plan for trustees and certain executive officers
Compensation costs related to the deferred unit compensation plan for trustees and certain
executive officers are recognized at the time they are granted. These units are initially measured at
fair value based on the trading price of the Trust’s unit, and are revalued at the end of each
reporting period, until settlement. Any changes in fair value are recognized as compensation
expense in profit or loss.
(iii) Employee unit purchase plan
Compensation costs related to the employee unit purchase plan are recognized at the time they are
granted. These units are initially measured at fair value based on the trading price of the Trust’s unit,
and are revalued at settlement date. Any changes in fair value are recognized as compensation
expense in profit or loss.
(iv) Restricted unit compensation plan
Compensation costs related to the restricted unit compensation plan are recognized at the time they
are granted. These units are initially measured at fair value based on the trading price of the Trust’s
unit, and are revalued at the end of each reporting period, until settlement. Any changes in fair value
are recognized as compensation expense in profit or loss. The compensation expense is amortized
using the graded vesting method.
(m) Income taxes
BTB is a mutual fund trust and a Real Estate Investment Trust (‘’REIT’’) pursuant to the Income Tax Act
(Canada). Under current tax legislation, a REIT is entitled to deduct distributions of taxable income such
that, it is not liable to pay income tax provided that its taxable income is fully distributed to unitholders.
BTB has reviewed the proscribed conditions under the Income Tax Act (Canada) and has determined that
it qualifies as a REIT for the year. BTB intends to continue to qualify as a REIT and to make distributions
not less than the amount necessary to ensure that BTB will not be liable to pay income taxes.
BTB Annual Report 2014
103
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
Accordingly, no current or deferred income taxes have been recorded in the consolidated financial
statements.
(n) Fair value measurement
The Trust measures financial instruments, such as derivatives, and non-financial assets,such as
investment properties, at fair value at each reporting date. Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date under current market conditions. The fair value measurement is based on the
presumption that the transaction to sell the asset or transfer the liability takes place either:
•
•
In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Trust. The fair value of an
asset or a liability is measured using the assumptions that market participants would use when pricing the
asset or liability assuming that market participants act in their economic best interests. A fair value
measurement of a non-financial asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market
participant that would use the asset in its highest and best use.
The Trust uses valuation techniques that are appropriate in the circumstances and for which sufficient
data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing
the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in
the financial statements are categorized within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value measurement as a whole:
• Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
• Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable
• Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Trust
determines whether transfers have occurred between Levels in the hierarchy by reassessing
categorization (based on the lowest level input that is significant to the fair value measurement as a
whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Trust has determined classes of assets and liabilities on the
basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy
as explained above.
BTB Annual Report 2014
104
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
(o) Change in accounting policy
In 2014, the Trust adopted IFRIC 21, Levies. The application of this interpretation had no impact on the
Trust’s consolidated financial statements.
(p) New standards and interpretations not yet adopted
A number of new standards, and amendments to standards and interpretations, are not yet effective for
the year ended December 31, 2014, and have not been applied in preparing these consolidated financial
statements.
(i) IFRS 9, Financial Instruments (“IFRS 9”)
On July 24, 2014 the IASB issued the complete IFRS 9 (IFRS 9 (2014)). )). IFRS 9 (2014)
introduces new requirements for the classification and measurement of financial assets. Under IFRS
9 (2014), financial assets are classified and measured based on the business model in which they
are held and the characteristics of their contractual cash flows. The standard introduces additional
changes relating to financial liabilities. It also amends the impairment model by introducing a new
‘expected credit loss’ model for calculating impairment.
IFRS 9 (2014) also includes a new general hedge accounting standard which aligns hedge
accounting more closely with risk management. This new standard does not fundamentally change
the types of hedging relationships or the requirement to measure and recognize ineffectiveness,
however it will provide more hedging strategies that are used for risk management to qualify for
hedge accounting and introduce more judgment to assess the effectiveness of a hedging
relationship. Special transitional requirements have been set for the application of the new general
hedging model. The new standard is effective for the Trust’s annual period beginning on January 1,
2018. The extent of the impact of adoption of the standard has not yet been determined.
(ii) IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
In May 2014 the IASB issued IFRS 15 in replacement of IAS 11 Construction Contracts, IAS 18
Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of
Real Estate, IFRIC 18 Transfer of Assets from Customers, and SIC 31 Revenue – Barter
Transactions Involving Advertising Services. The standard contains a single model that applies to
contracts with customers and two approaches to recognising revenue: at a point in time or over
time. The model features a contract-based five-step analysis of transactions to determine whether,
how much and when revenue is recognized. The new standard is effective for the Trust’s annual
period beginning on January 1, 2017. The extent of the impact of adoption of the standard has not
yet been determined.
BTB Annual Report 2014
105
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
4. Investment Properties
For the years ended December 31,
Balance beginning of period
Acquisition of investment properties (note 5)
Disposal of investment properties (note 6)
Capital expenditures
Government grants
Capitalized leasing fees
Capitalized lease incentives
Lease incentives amortization
Straight-line lease adjustment
(Decrease) Increase in fair value of investment properties
Balance end of period
2014
$
529,432
40,121
(4,725)
5,572
(120)
1,137
3,088
(1,793)
610
(1,860)
571,462
2013
$
488,521
29,614
(2,300)
3,663
(176)
478
1,833
(1,480)
904
8,375
529,432
The fair value of a subset of the Trust’s investment properties comprised of the ten most significant
investment properties and approximately 1/3 of the remaining investment properties is determined
annually on the basis of valuations made by independent external appraisers having appropriate
professional qualifications, using recognized valuation techniques, comprising the Discounted Cash Flow,
the Direct Capitalization and Comparable methods. The selection of investment properties subject to
external valuation is determined by management based on its assessment of circumstances that in its
view, may impact the value of a particular individual investment property. The fair value of the remaining
investment properties is determined by management using internally generated valuations based on the
Direct Capitalization method (December 31, 2013 – based on the Discounted Cash Flow method). Since
2014, the Direct Capitalization method is used for internal valuation instead of the Discounted Cash Flow
method in order to align the Trust’s practice with the industry practice.
At December 31, 2014 external appraisals were obtained for investment properties with an aggregate fair
value of $381,600 (December 31, 2013 - $349,282) and management’s internal valuations was used for
investment properties with an aggregate fair value of $189,862 (December 31, 2013 - $180,150).
BTB Annual Report 2014
106
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
The fair value of investment properties is based on Level 3 inputs. There have been no transfers during
the period between levels. The significant inputs used to determine the fair value of the Trust’s investment
properties are as follows:
As at December 31, 2014
Capitalization rate
Terminal capitalization rate
Discount rate
As at December 31, 2013
Capitalization rate
Terminal capitalization rate
Discount rate
Commercial
Office
Industrial General purpose
6.25% - 10.00%
6.50% - 9.25%
7.00% - 10.00%
7.00% - 8.25%
7.25% - 8.00%
7.00% - 7.75%
7.25% - 9.75%
7.25% - 8.25%
7.75% - 8.75%
7.50% - 8.50%
7.75% - 10.50%
7.75% - 9.00%
6.25% - 10.00%
6.75% - 10.25%
6.50% - 10.50%
7.00% - 8.25%
6.50% - 8.25%
6.50% - 9.25%
7.00% - 10.50%
7.25% - 8.50%
7.25% - 9.00%
7.50% - 9.75%
7.50% - 10.75%
8.25% - 9.25%
Valuations determined by the Direct Capitalization method are most sensitive to changes in
capitalization rate. The following table summarizes the sensitivity of the fair value of investment properties
to changes in capitalization rate:
Capitalization rate sensitivity
Increase (decrease)
(0.50%)
(0.25%)
Base rate
0.25%
0.50%
Fair Value
$
614,030
591,650
571,462
552,242
534,551
Change in
fair value
$
42,568
20,188
—
(19,220)
(36,911)
As shown in the sensitivity analysis above, an increase in the capitalization rate, other things being equal,
will result in a decrease in fair value of the investment properties and vice-versa.
BTB Annual Report 2014
107
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
5. Acquisitions
(a) 2014 Asset acquisitions
The relative fair value of the assets and liabilities recognized in the consolidated statement of financial
position on the date of the acquisition during 2014 were as follows:
Acquisition date
Property type
Location
May 2014
Commercial
August 2014
Industrial
Saint-Jean-sur-
Richelieu
Saint-Augustin-
de-Desmaures
Transaction costs
Total
Fair value recognized on acquisition
Interest
acquired
Investment
properties,
including
transaction
costs
Mortgage
loans
payable
Total cash
consideration
paid
Trade and
other
payables,
including
transaction
costs
%
100
$
31,600
100
8,300
221
40,121
$
—
—
—
—
$
24
—
221
245
$
31,576
8,300
—
39,876
(b) 2013 Asset acquisitions
The relative fair value of the assets and liabilities recognized in the consolidated statement of financial
position on the date of the acquisition during 2013 were as follows:
Acquisition date
Property type
Location
February 2013
March 2013
October 2013
December 2013
Transaction costs
Total
General purpose
Industrial
Office
Industrial
Industrial
General purpose
Saint-Lazare
Laval
Longueuil
Longueuil
Sherbrooke
Saint-Lazare
Fair value recognized on acquisition
Interest
acquired
Investment
properties,
including
transaction
costs
Mortgage
loans
payable
Total cash
consideration
paid
Trade and
other
payables,
including
transaction
costs
%
50
100
100
100
100
501
$
2,563
11,000
$
1,586
—
12,700
—
2,552
799
29,614
1,555
—
3,141
$
69
—
—
475
799
$
908
11,000
12,700
522
—
1,343
25,130
1Residual interest of initial participation acquired in February 2013
BTB Annual Report 2014
108
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
6. Disposal
In May 2014, the Trust partially disposed of an office investment property located in the city of Sherbrooke
for gross proceeds of $525 (net proceeds of $522 after giving effect to trade and other payables assumed
by the purchaser).
In April 2014, the Trust disposed of a commercial investment property located in Montreal for gross
proceeds of $4,200 (net proceeds of $4,134 after giving effect to trade and other payables assumed by
the purchaser).
In May 2013, the Trust disposed of a general purpose investment property located in the city of Brossard
for net proceeds of $2,300.
7. Property and Equipment
Cost
Balance at December 31, 2012
Additions
Balance at December 31, 2013
Additions
Balance at December 31, 2014
Accumulated Depreciation
Balance at December 31, 2012
Depreciation for the year
Balance at December 31, 2013
Depreciation for the period
Balance at December 31, 2014
Net carrying amount
Balance at December 31, 2013
Balance at December 31, 2014
8. Restricted Cash
Owner-occupied
land
Owner-occupied
building
Equipment,
furniture and
fixtures
Rolling
stock
$
494
—
494
—
494
$
1,724
200
1,924
10
1,934
245
65
310
69
379
494
494
1,614
1,555
$
348
124
472
67
539
210
49
259
81
340
213
199
$
59
23
82
—
82
7
12
19
15
34
63
48
Total
$
2,625
347
2,972
77
3,049
462
126
588
165
753
2,384
2,296
Restricted cash consists of an amount of $1,717 (December 31, 2013 - $5,832) provided in guarantee of
mortgage loans. The permitted use of restricted cash is to fund certain future capital expenditures.
BTB Annual Report 2014
109
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
9. Other Assets
As at December 31,
Prepaid expenses
Deposits
Total
10. Receivables
As at December 31,
Rents receivable
Provision for doubtful accounts
Net rents receivable
Other receivables
Total
11. Mortgage Loans Payable
2014
$
2,599
840
3,439
2014
$
1,489
(312)
1,177
165
1,342
2013
$
3,273
398
3,671
2013
$
2,619
(263)
2,356
103
2,459
Mortgage loans payable are secured by immovable hypothecs on investment properties having a fair
value of approximately $565,187 as at December 31, 2014 (December 31, 2013 – $525,342).
As at December 31,
Fixed rate mortgage loans payable
Floating rate mortgage loans payable
Unamortized fair value assumption adjustments
Unamortized financing costs
Mortgage loans payable
Weighted average interest rate
Weighted average term to maturity (years)
Range of annual rates
2014
$
317,677
13,107
1,270
(2,111)
329,943
4.13%
4.68
2013
$
305,794
8,379
1,642
(1,999)
313,816
4.44%
4.44
2.63% - 6.80%
2.55% - 6.80%
BTB Annual Report 2014
110
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
As at December 31, 2014, the mortgage loan scheduled repayments are as follows:
2015
2016
2017
2018
2019
Thereafter
Unamortized fair value assumption adjustments
Unamortized financing costs
Scheduled
repayments
$
9,634
8,841
6,109
4,242
2,712
22,664
54,202
Principal
maturity
$
31,873
70,409
59,283
35,493
39,059
40,465
276,582
Total
$
41,507
79,250
65,392
39,735
41,771
63,129
330,784
1,270
(2,111)
329,943
In March 2013, the Trust entered into an interest rate swap agreement on a floating interest rate
mortgage to hedge the variability in cash flows attributed to fluctuating interest rates. Settlement on both
the fixed and variable portion of the interest rate swap occurs on a monthly basis. The original principal
amount of the interest rate swap was $7,150, the maturity date is April 2023 and the effective fixed
interest rate is 4.02%. As at December 31, 2014, the outstanding principal amount was $6,756
(December 31, 2013 – $7,000). The Trust does not apply hedge accounting to such cash flow hedging
relationships (see note 14).
12. Convertible Debentures
As at December 31, 2014, the Trust had three series of subordinated, convertible, redeemable
debentures outstanding.
Series C
Series D
Series E
Capital
Interest rates
Coupon
Effective
23,000
23,000
23,000
%
8.00
7.25
6.90
%
9.78
8.47
7.90
Unit
conversion
price
$
5.00
6.10
6.15
Interest
payments
Maturity
Semi-annual
Semi-annual
Semi-annual
January 2016
July 2018
March 2020
BTB Annual Report 2014
111
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
The components of the subordinated convertible debentures on the issue date were allocated as follows:
Non-derivative liability component
Conversion and redemption options liability component
Series C
$
21,592
1,408
23,000
Series D
$
21,346
1,654
23,000
Series E
$
22,690
310
23,000
The accretion of the non-derivative liability component of the subordinated convertible debentures, which
increases as of the initial allocation on the issuance date to the final amount repayable, is recorded under
finance costs. The conversion and redemption options liability component is measured at fair value.
As at December 31,2014
Non-derivative liability component upon issuance
Accretion of non-derivative liability component
Unamortized financing costs
Series C
$
Series D
$
Series E
$
Total
$
21,592
1,058
22,650
(408)
21,346
693
22,039
(866)
22,690
66
22,756
(985)
65,628
1,817
67,445
(2,259)
Non-derivative liability component
22,242
21,173
21,771
65,186
Conversion and redemption options liability (asset)
component at fair value
(12)
(19)
(22)
As at December 31,2013
Non-derivative liability component upon issuance
Accretion of non-derivative liability component
Unamortized financing costs
Series C
$
Series D
$
Series E
$
21,592
754
22,346
(760)
21,346
472
21,818
(1,064)
22,690
30
22,720
(1,131)
(53)
Total
$
65,628
1,256
66,884
(2,955)
Non-derivative liability component
21,586
20,754
21,589
63,929
Conversion and redemption options liability
component at fair value
780
361
582
1,723
BTB Annual Report 2014
112
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
Series C
In January 2011, the Trust issued Series C subordinated convertible, redeemable, unsecured debentures
bearing 8% interest payable semi-annually and maturing in January 2016, in the amount of $23,000. The
debentures are convertible at the holder’s option at any time before January 2016, at a conversion price
of $5.00 per unit (“Series C Conversion Price”).
Until January 31, 2015, under certain conditions, the debentures were redeemable by the Trust at a
redemption price equal to their principal amount plus accrued, unpaid interest, provided that the average
weighted price based on the volume of units traded on the Toronto Stock Exchange during a period of 20
consecutive trading days ending on the fifth trading day prior to the date on which an advanced notice of
redemption is given (the “current market price”) is at least 125% of the conversion price. As of January 31,
2015, but before January 31, 2016, under certain conditions, the debentures will be redeemable by the
Trust, in whole or in part at any time and for a redemption price equal to the principal amount thereof plus
accrued and unpaid interest. The Trust may, under certain conditions, elect to satisfy its obligation to pay
the principal amount of the debentures that are to be redeemed or that have matured by issuing a number
of units obtained by dividing the principal amount of the debentures by 95% of the current market price on
the date of redemption or maturity.
Series D
In July 2011, the Trust issued Series D subordinated convertible, redeemable, unsecured debentures
bearing 7.25% interest payable semi-annually and maturing in July 2018, in the amount of $23,000. The
debentures are convertible at the holder’s option at any time before July 2018, at a conversion price of
$6.10 per unit (“Series D Conversion Price”).
Until July 31, 2016, under certain conditions, the debentures will be redeemable by the Trust at a
redemption price equal to their principal amount plus accrued, unpaid interest, provided that the average
weighted price based on the volume of units traded on the Toronto Stock Exchange during a period of 20
consecutive trading days ending on the fifth trading day prior to the date on which an advanced notice of
redemption is given (the “current market price”) is at least 125% of the conversion price. As of July 31,
2016, but before July 31, 2018, under certain conditions, the debentures will be redeemable by the Trust,
in whole or in part at any time and for a redemption price equal to the principal amount thereof plus
accrued and unpaid interest. The Trust may, under certain conditions, elect to satisfy its obligation to pay
the principal amount of the debentures that are to be redeemed or that have matured by issuing a number
of units obtained by dividing the principal amount of the debentures by 95% of the current market price on
the date of redemption or maturity.
Series E
In February 2013, the Trust issued Series E subordinated convertible, redeemable, unsecured
debentures bearing 6.90% interest payable semi-annually and maturing in March 2020, in the amount of
$23,000. The debentures are convertible at the holder’s option at any time before March 2020, at a
conversion price of $6.15 per unit (“Series E Conversion Price”).
BTB Annual Report 2014
113
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
These debentures are not redeemable before March 31, 2016, except in the case of a change in control.
As of March 31, 2016, but before March 31, 2018, under certain conditions, the debentures will be
redeemable by the Trust at a redemption price equal to their principal amount plus accrued, unpaid
interest, provided that the average weighted price based on the volume of units traded on the Toronto
Stock Exchange during a period of 20 consecutive trading days ending on the fifth trading day prior to the
date on which an advanced notice of redemption is given (the “current market price”) is at least 125% of
the conversion price. As of March 31, 2018, but before March 31, 2020, under certain conditions, the
debentures will be redeemable by the Trust, in whole or in part at any time and for a redemption price
equal to the principal amount thereof plus accrued and unpaid interest. The Trust may, under certain
conditions, elect to satisfy its obligation to pay the principal amount of the debentures that are to be
redeemed or that have matured by issuing a number of units obtained by dividing the principal amount of
the debentures by 95% of the current market price on the date of redemption or maturity.
13. Bank Loans
The Trust has access to an acquisition line of credit in the amount of $15,000. This line of credit bears
interest at a rate of 3.25% above the prime rate. As at December 31, 2014, no amount was drawn under
the acquisition line of credit.
The Trust also has access to an operating credit facility for a maximum amount of $2,000. This facility
bears interest at a rate of 0.75% above the prime rate. As at December 31, 2014, no amount was due
under the operating credit facility (December 31, 2013 - $1,045)
The line of credit and the credit facility are secured by an immoveable first rank hypothec on three
properties having a value of $6,497 (December 31, 2013 – two properties having a value of $4,308) and
by an immoveable second rank hypothec on two properties having a value of $61,675 (December 31,
2013 - $nil).
BTB Annual Report 2014
114
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
14. Fair Value Measurement
The following tables show the carrying amounts and fair values of financial assets and financial liabilities,
including their levels in the fair value hierarchy. They do not include the fair value of cash and cash
equivalents, restricted cash, receivables, other assets, trade and other payables and distributions payable
to unitholders, which approximated their carrying amount as at December 31, 2014 and December 31,
2013 because of their short-term maturity.
As at December 31, 2014
Carrying amount
Fair value
Measured at fair value
Conversion and redemption options of convertible debentures (note 12)
Interest rate swap
For which fair values are disclosed
Mortgage loans payable (note 11)
Convertible debentures, including their conversion and redemption features
Level 1
$
$
Level 2 Level 3
$
$
(53)
145
—
—
—
145
329,943
65,133
—
69,688
337,749
—
(53)
—
—
—
As at December 31, 2013
Carrying amount
Fair value
Measured at fair value
Conversion and redemption options of convertible debentures (note 12)
Interest rate swap asset
For which fair values are disclosed
Mortgage loans payable (note 11)
Convertible debentures, including their conversion and redemption features
Bank loans (note 13)
Level 1
$
$
Level 2 Level 3
$
$
1,723
(251)
—
—
—
(251)
1,723
—
313,816
65,652
1,045
—
67,505
—
317,816
—
1,045
—
—
—
The fair value of mortgage loans payable was calculated by discounting cash flows from future payments
of principal and interest using the period end market rate for various loans with similar risk and credit
profiles. The period end market rates have been estimated by reference to published mortgage rates by
major financial institutions for similar maturities.
The fair value of convertible debentures, including their conversion and redemption features, was
determined with reference to the last quoted trading price preceding the period end.
The fair value of bank loans was calculated by discounting cash flows from financial obligations using the
period end market rate for similar instruments
BTB Annual Report 2014
115
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
The fair values of derivative financial instruments, which comprise the conversion and redemption options
of convertible debentures and an interest rate swap, are based respectively on the partial differential
equation method and the discounted future cash flows method. The assumptions used in the partial
differential equation method are estimated by reference to the Trust’s unit price and its volatility, and take
into account the credit risk of the financial instrument. The assumptions used in the discounted future
cash flows method are estimated by reference to the Canadian Dealer Offered Rate (“CDOR”) forward
rates.
Such fair value estimates are not necessarily indicative of the amounts the Trust might pay or receive in
actual market transactions. Potential transaction costs have also not been considered in estimating fair
value.
The following tables provide a reconciliation of Level 3 fair value measurements on the consolidated
statements of financial position:
Period ended December 31, 2014
Balance beginning of year
Change for the period recognized in profit and loss under Net adjustment to fair
value of derivative financial instruments
Balance end of year
Year ended December 31, 2013
Balance beginning of year
Change for the year recognized in profit and loss under Net adjustment to fair
value of derivative financial instruments
Issue of Series E subordinated convertible redeemable debentures
Balance end of year
Conversion and redemption
options of convertible
debentures
$
1,723
(1,776)
(53)
Conversion and redemption
options of convertible
debentures
$
927
486
310
1,723
BTB Annual Report 2014
116
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
The following table provides a sensitivity analysis for the volatility applied in fair value measurement of the
conversion and redemption options of convertible debentures at December 31, 2014:
Volatility sensitivity
Increase (decrease)
(0.50%)
December 31, 2014
0.50%
Conversion and redemption
options of convertible
debentures
$
(124)
(53)
28
Volatility
%
11.73
12.23
12.73
As shown in the sensitivity analysis above, the fair value of the conversion and redemption options of
convertible debentures is impacted by a change in the volatility used in the valuation model. Generally, an
increase in the volatility, other things being equal, will result in an increase in fair value of the conversion
and redemption options of convertible debentures and vice-versa. In some cases, when the fair value of
the redemption option component is increasing more than the fair value of the conversion option
component, an increase in volatility will result in a decrease in fair value of the conversion and redemption
options.
15. Unit-based Compensation
(a) Unit option plan
The Trust may grant options to its trustees, senior officers, investor relations consultants, and technical
consultants. The maximum number of units reserved for issuance under the unit option plan is limited to
10% of the total number of issued and outstanding units. The trustees set the exercise price at the time
that the units are granted under the plan; the exercise price may not be less than the discounted market
price of the units as determined under the policies of the Toronto Stock Exchange on the date of grant.
The options have a minimum term of five years as of the grant date and vest over a period of up to 18
months.
BTB Annual Report 2014
117
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
Unit-based compensation expense and the assumptions used in the calculation thereof using the Black &
Scholes option valuation model are as follows:
As at December 31,
Unit-based compensation expense
Liability recognized for unit-based compensation
Unit options granted
Remaining life (years)
Volatility rate
Distribution yield
Risk-free interest rate
2014
3
17
—
2013
(8)
14
—
0.40
1.40 - 2.22
15.93%
17.54 - 16.41%
8.88%
0.94%
8.97%
1.10 - 1.13%
The following tables present relevant information on options outstanding at year-end and changes in the
balances during the year:
Grant date
June 22, 2011
Number of
units
Maturity
date
Exercise
price
74,000
May 26,2015
$4.50
74,000
For the years ended December 31,
Outstanding, beginning of period
Forfeited / Cancelled
Outstanding, end of period
Units
options
98,000
(24,000)
74,000
2014
Weighted
average
exercise price
4.51
4.54
4.50
Units
options
227,000
(129,000)
98,000
Options vested
74,000
4.50
98,000
Weighted average remaining life (years)
0.40
2013
Weighted
average
exercise price
5.07
5.55
4.51
4.51
1.48
As at December 31, 2014, the liability related to the plan was $17 (December 31, 2013 - $14). The related
expense recorded in profit and loss amounted to $3 for the year ended December 31, 2014 (for the year
BTB Annual Report 2014
118
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
ended December 31, 2013 – income of $8). No options were exercised under this plan for the years
ended December 31, 2014 and 2013.
(b) Deferred unit compensation plan for trustees and certain executive officers
The Trust offers a deferred unit compensation plan for its trustees and certain executive officers. Under
this plan, the trustees and certain executive officers may elect to receive as compensation either cash,
deferred units, or a combination of both.
The following table presents relevant information on changes in the number of deferred units during the
period:
For the years ended December 31,
Outstanding, beginning of period
Trustees’ compensation
Distributions paid in units
Units settled
Outstanding, end of period
2014
Deferred Units
2013
Deferred Units
29,771
5,619
1,649
(37,039)
—
15,981
11,948
1,842
—
29,771
As at December 31, 2014, the liability related to the plan was $nil (December 31, 2013 - $140). The
related expense recorded in profit and loss amounted to $39 for the year ended December 31, 2014 (for
the year ended December 31, 2013 - $65). As part of the settlement, the Trust issued 36,491 units and
paid an amount of $3 under this plan for the years ended December 31, 2014 (no issuance and no
amount for the year ended December 31, 2013).
(c) Employee unit purchase plan
The Trust offers an optional employee unit purchase plan to all its employees. Under this plan, the
employees may contribute, each year, pursuant to a maximum of 3% to 7% of their base salary
depending of their years of experience with the Trust. For each two units purchased by an employee, the
Trust shall issue one unit from treasury.
As at December 31, 2014, the liability related to the plan was $37, representing a total of 7,758 units to
issue (December 31, 2013 - $33, representing a total of 7,456 units to issue). The related expense
recorded in profit and loss amounted to $37 for the year ended December 31, 2014 (for the year ended
December 31, 2013 - $33). The 7,758 units related to 2014 purchases have been issued in February
2015 (7,456 units related to 2013 purchases - February 2014).
(d) Restricted unit compensation plan
The Trust offers a restricted unit compensation plan for all executive officers and key employees. Under
this plan, the executive officers and key employees may elect to receive restricted units.
BTB Annual Report 2014
119
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
The following table presents relevant information on changes in the restricted units:
For the years ended December 31,
Outstanding, beginning of period
Granted
Vested / Settled
Outstanding, end of period
2013
Restricted units Restricted units
2014
—
49,816
(10,000)
39,816
—
—
—
—
As at December 31, 2014, the liability related to the plan was $159 (December 31, 2013 - $nil). The
related expense recorded in profit and loss amounted to $205 for the year ended December 31, 2014 (for
the year ended December 31, 2013 - $nil). As part of settlement, the Trust issued 10,000 units under this
plan for the years ended December 31, 2014 (no issuance made for the year ended December 31, 2013).
16. Trust Units Issued and Outstanding
BTB is authorized to issue an unlimited number of trust units. Each trust unit represents a single vote at
any meeting of unitholders and entitles the unitholder to receive a pro rata share of all distributions. The
unitholders have the right to require BTB to redeem their trust units on demand. Upon receipt of the
redemption notice, all rights to and under the trust units tendered for redemption are surrendered and the
holder thereof is entitled to receive a price per trust unit ("Redemption Price"), as determined by a market
formula. The Redemption Price is to be paid in accordance with the conditions provided for in the
Declaration of Trust. BTB trust units are considered liability instruments under IFRS because the units are
redeemable at the option of the holder, however they are presented as equity in accordance with IAS 32.
In June 2014, the Trust completed a public issue of 5,436,000 units, including the over-allotment option,
for total net proceeds of $23,429.
In July 2013, the Trust completed a public issue of 4,328,600 units, including the over-allotment option,
for total net proceeds of $18,996.
BTB Annual Report 2014
120
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
Trust units issued and outstanding are as follows:
For the years ended December 31,
Units outstanding, beginning of period
Issue pursuant to a public issue
Unit issue costs
Issue pursuant to the distribution reinvestment plan
Issue pursuant to the deferred unit compensation plan (note
14 (b))
Issue pursuant to the employee unit purchase plan (note 14
(c))
Issue pursuant to the restricted unit compensation plan (note
14 (d))
Units
28,325,538
5,436,000
—
33,761,538
318,482
2014
$
157,207
24,734
(1,305)
180,636
1,400
Units
23,791,797
4,328,600
—
28,120,397
205,141
2013
$
137,330
20,128
(1,132)
156,326
881
36,491
169
7,456
10,000
33
46
—
—
—
—
—
—
Units outstanding, end of period
34,133,967
182,284
28,325,538
157,207
(a) Distribution reinvestment plan
BTB offers a distribution reinvestment plan for its trust unitholders. Participation in the plan is optional and
under the terms of the plan, cash distributions on trust units are used to purchase additional trust units.
The trust units are issued from BTB’s treasury at a price based on the volume-weighted average of the
trading prices on the Toronto Stock Exchange for the last five trading days before the distribution date,
less a discount of 5%.
17. Rental Revenues from Properties
For the years ended December 31,
Rental income contractually due from tenants
Lease incentive amortization
Straight-line lease adjustment
2014
$
68,353
(1,793)
610
67,170
2013
$
64,049
(1,480)
866
63,435
BTB Annual Report 2014
121
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
18. Net Financing Costs
For the years ended December 31,
Financial income
Interest on mortgage loans payable
Interest on convertible debentures
Interest on bank loans
Other interest expense
Accretion of non-derivative liability component
of convertible debentures
Accretion of effective interest on mortgage loans payable,
convertible debentures and bank loans
Net adjustment to fair value of derivative financial instruments
19. Expenses by Nature
For the years ended December 31,
Depreciation
Employee benefits expense
20. Earnings per Unit
2014
$
(77)
13,523
5,096
172
66
2013
$
(105)
13,861
5,146
776
45
561
551
1,069
(1,379)
19,031
1,142
113
21,529
2014
$
165
3,947
2013
$
126
3,665
BTB’s trust units being puttable financial instruments presented as equity in accordance with IAS 32
(see note 16), the Trust is not required to report a profit or loss per unit figure on its consolidated
statements of comprehensive income. However, for disclosure purposes only, the Trust has determined
basic earnings per unit using the same basis that would apply in accordance with lAS 33, Earnings per
Share.
Net earnings per unit are calculated based on the weighted average number of units outstanding as
follows:
For the years ended December 31,
Net income
Weighted average number of units outstanding – basic
Earnings per unit – basic
2014
$
12,883
31,418,057
,
2013
$
18,349
25,735,969
0.41
0.71
BTB Annual Report 2014
122
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
21. Operating Lease Income
The Trust as lessor has entered into leases on its investment properties. Initial lease terms are generally
between three and ten years and include clauses to enable periodic upward revision of the rental charge
according to prevailing market conditions. Some leases contain options to terminate before the end of the
lease term.
Future minimum base rentals receivable under non-cancellable operating leases as at December 31,
2014 are as follows:
Within one year
Over one year but within five years
Over five years
2014
$
42,614
122,964
69,694
235,272
22. Capital and Financial Risk Management
This note presents information about the Trust’s management of capital and the Trust’s exposure to
financial risk and its objectives, policies and processes for measuring and managing risk.
Capital Management
The Trust’s capital consists of contributions by unitholders, convertible debentures, mortgage loans and
bank loans, excluding issuance costs. In managing its capital, the Trust’s objectives are to ensure that it
has adequate resources for its operations and development, while maximizing returns for unitholders and
maintaining a balance between debt and equity.
The Trust manages its capital structure based on changes in its operations, the economic climate and the
availability of capital.
BTB Annual Report 2014
123
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
The Trust’s capital is as follows:
As at December 31,
Mortgage loans payable(1)
Convertible debentures(1)
Bank loans(1)
Unitholders’ equity
(1) Excluding issue costs
As at December 31,
Mortgage loans payable, Convertible debentures and Bank loans / total asset value ratio
Mortgage loans payable and Bank loans/ total asset value ratio
Financial Risk Management
The Trust has exposure to the following risks from its use of financial instruments:
•
•
•
•
credit risk
interest rate risk
liquidity risk
fair value risk (see note 14)
2014
$
330,784
69,000
—
399,784
177,599
577,383
2013
$
314,173
69,000
1,045
384,218
152,592
536,810
2014
%
68.1
56.4
2013
%
70.3
57.7
This note presents information about the Trust’s exposure to each of the above risks, the Trust’s
objectives, policies and processes for measuring and managing risk, and the Trust’s management of
capital. Further quantitative disclosures are included throughout these consolidated financial statements.
(a) Credit risk
Credit risk arises from the possibility that tenants may experience financial difficulty and be unable to fulfill
their lease commitments. The Trust mitigates this risk by varying its tenant mix and staggering lease
terms; avoiding dependence on a single tenant for a significant portion of the Trust’s operating revenues
and conducting credit assessments for all major new tenants. The Trust analyzes its trade receivable on a
regular basis and records a provision for doubtful accounts when there is a significant risk of non-
recovery. As at December 31, 2014, overdue rent receivable amounted to $507 (December 31, 2013 -
$1,037), of which a provision for doubtful account of $312 (December 31, 2013 - $263) has been
BTB Annual Report 2014
124
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
recorded. Management expects to recover the amounts not provisioned as all lease agreements are
signed, and they are in continuous discussions for collections with the tenants.
The Trust places its cash and cash equivalent investments with Canadian financial institutions with high
credit ratings. Credit ratings are actively monitored and these financial institutions are expected to meet
their obligation.
Interest rate risk
(b)
Interest rate risk reflects the risk of changes in the fair value or future cash flows of a financial instrument
because of fluctuations in market interest rates.
Except for three mortgage loans outstanding of $6,351 as at December 31, 2014, all other mortgage
loans payable and convertible debentures bear interest at fixed rates or are covered by an interest rate
swap agreement. Accordingly a 100-basis point increase or decrease in the average interest rates for the
fiscal year, assuming that all other variables remain constant, would have an impact of approximately $64
on the Trust’s comprehensive income for the year ended December 31, 2014.
(c) Liquidity risk
Liquidity risk is managed by:
• maximizing cash flows from operations;
•
•
adopting an investment property acquisition and improvement program that takes into
account available liquidity;
using credit facilities on the market;
staggering mortgage loan maturities;
•
• maximizing the value of investment properties, thus increasing mortgage financing on
renewal of loans; and
issuing debt securities or BTB’s units on the financial markets.
•
Management believes that the Trust will be able to obtain the financing required to make the payments
coming due in the next year. However, there is a risk that changes affecting market conditions and access
to financing may invalidate this assumption.
Some mortgage loans include subjective and restrictive covenant clauses under which the Trust must
comply with financial conditions and ratios.
As at December 31, 2014, the Trust was in compliance with all the covenants to which it was subject.
BTB Annual Report 2014
125
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
The Trust’s cash position is regularly monitored by management. The following are contractual maturities
of financial liabilities, including estimated interest payments:
As at December 31, 2014
Estimated payment schedule
Trade and other
payables
Distributions payable
to unitholders
Mortgage loans
payable and
convertible
debentures
Carrying
amount
Total
contractual
cash flows
2015
2016
2017
2018
2019
$
$
$
12,457
12,457
12,457
1,194
1,194
1,194
$
—
—
$
—
—
$
—
—
$
—
—
2020 and
thereafter
$
—
—
395,129
471,409
59,524
116,993
408,780
485,060
73,175
116,993
76,519
76,519
70,609
70,609
46,879
46,879
100,885
100,885
As at December 31, 2013
Estimated payment schedule
Trade and other
payables
Distributions payable
to unitholders
Bank loans
Mortgage loans
payable and
convertible
debentures
Carrying
amount
Total
contractual
cash flows
2014
2015
2016
2017
2018
$
$
$
12,324
12,324
12,324
943
1,045
943
1,045
943
1,045
$
—
—
—
$
—
—
—
$
—
—
—
$
—
—
—
2019 and
thereafter
$
—
—
—
377,745
455,083
86,132
43,033
111,917
392,057
469,395
100,444
43,033
111,917
70,223
70,223
66,170
66,170
77,608
77,608
BTB Annual Report 2014
126
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
23. Subsidiaries and Joint Arrangements
(a) Subsidiaries
The principal entities included in the Trust’s consolidated financial statements are as follows:
Entity
BTB Real Estate Investment Trust (“BTB REIT”)
BTB, Acquisition and operating Trust (“BTB A&ET”)
BTB Real Estate Management Inc.
Cagim Real Estate Corporation (“CREC”)
Lombard SEC
Place d’affaire Lebourgneuf Phase II, SENC (“PAL II”)
Société immobilière Cagim, SEC
Type
Trust
Trust
Relationship
Parent
100% owned by BTB REIT
Corporation
100% owned by BTB A&ET
Corporation
100% owned by BTB A&ET
Limited Partnership
General Partnership
Limited Partnership
99.9% owned by BTB A&ET
0.1% owned by CREC
99.9% owned by BTB A&ET
0.1% owned by CREC
70.4% owned by BTB A&ET
29.5% owned by PAL II
0.1% owned by CREC
(b) Joint arrangements
The Trust has investments in joint arrangements whereby the parties that have joint control of the
arrangements have rights to the assets, and obligations for the liabilities, relating to the arrangements.
Therefore, the joint arrangements are classified as joint operations. The joint operations included in the
Trust’s consolidated financial statement are as follows:
As at December 31,
Property*
Immeuble BTB/Laplaine
Huntington/BTB Montclair
Complexe Lebourgneuf Phase II**
* The three investments properties are located in Quebec.
2014
%
50
50
75
2013
%
50
50
75
** Structured through a separate vehicle. The legal form of the separate vehicle gives the parties rights to the assets, and obligations for the liabilities, relating to the
arrangement. Accordingly, the joint arrangement is classified as a joint operation.
BTB Annual Report 2014
127
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
The consolidated financial statements include the Trust’s proportionate share of the assets, liabilities,
revenues and expenses of these three joint arrangements.
As at and for the years ended December 31,
Assets
Liabilities
Revenues
Expenses
24. Operating Segments
2014
$
47,454
30,898
5,341
2,015
2013
$
45,615
31,273
4,852
1,860
For investment properties, discrete financial information is provided to the Chief Executive Officer
(‘’CEO’’) on an aggregated investment property basis. The information provided is net rentals (including
gross rent and property expenses), the change in fair value of investment properties and fair value of
investment properties. The individual investment properties are aggregated into segments with similar
economic characteristics. The CEO considers that this is best achieved by aggregating into commercial,
office, industrial and general purpose segments.
Consequently, the Trust is considered to have four operating segments, as follows:
• Commercial
• Office
•
• General purpose
Industrial
BTB Annual Report 2014
128
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
Year ended December 31, 2014
Investment properties
Rental revenue from properties
Net operating income
Year ended December 31, 2013
Investment properties
Rental revenue from properties
Net operating income
Commercial
Office
Industrial
$
$
$
137,362
14,087
8,687
101,675
11,684
7,163
209,200
27,771
13,500
208,793
27,007
13,058
109,025
9,946
8,083
100,561
8,855
7,324
General
purpose
$
115,875
15,366
7,713
118,403
15,889
7,791
Total
$
571,462
67,170
37,983
529,432
63,435
35,336
25. Compensation of Key Management Personnel and Trustees
Key management personnel and trustees compensation is as follows:
For the years ended December 31,
Salaries and short-term benefits
Unit-based compensation
Total
2014
$
1,935
209
2,144
2013
$
1,654
83
1,737
Key management personnel are comprised of the Company’s executive officers.
26. Commitments and Contingencies
(a) Contractual obligations
The Trust entered into a binding agreement under which the Trust is committed to pay, up to a maximum
of $1,275, for the refurbishment of an investment property acquired in October 2013. The funds required
for the execution of this obligation are covered by an equivalent amount held in restricted cash for the
payment of the refurbishment work. As at December 31, 2014, the Trust has paid $604 in refurbishment
work (December 31, 2013 - $198).
BTB Annual Report 2014
129
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(Audited - in thousands of CAD dollars, except per unit amounts)
(b) Finance lease as lessee
The annual future payments required under finance leases expiring between 2018 and 2024 (December
31, 2013, one finance lease expiring in 2018) are as follows:
As at December 31,
Future minimum lease
payments
Interest
Present value of minimum
lease payments
2014
2013
2014
2013
2014
2013
Within one year
Over one year but within five years
Over five years
$
47
201
139
387
$
20
76
—
96
$
19
56
25
100
$
7
11
—
18
$
28
145
114
287
$
13
65
—
78
The present value of the minimum lease payments is recorded in Trade and other payables.
In 2014 the Trust entered into a commitment for a total consideration of $1,014 in exchange for work to be
performed on an investment property. The total amount will be financed under a finance lease contract.
As of December 31, 2014 work has been completed for a portion of $234. The corresponding lease
obligation has been recognized in Trade and other payables.
(c) Litigation
The Trust is involved with litigations and claims which arise from time to time in the normal course of
business. These litigations and claims are generally covered by insurance. In the opinion of management,
any liability that may arise from such contingencies will not have a significant adverse effect on the Trust’s
consolidated financial statements.
27. Subsequent Events
In January 2015, the Trust acquired an industrial building located in the city of Ottawa for a purchase
price of $12,525. As part of the transaction, the Trust secured a 15 year mortgage loan in the amount of
$8,300 bearing interest at 3.58%.
In January 2015, the Trust acquired a commercial property in Delson for a purchase price of $21,500. As
part of the transaction, the Trust secured a 15 year mortgage loan in the amount of $14,000 bearing
interest at 3.55%.
28. Comparatives Figures
Certain comparative figures have been reclassified to conform to the current year’s presentation.
BTB Annual Report 2014
130
Corporate Information
Board of Trustees
Executive Team
Michel Léonard
President and Chief Executive Officer
Benoit Cyr, CPA, CA, MBA
Vice-President and Chief Financial Officer
Dominic Gilbert, B.A.A.
Vice-President, Property Management
Frédéric Seigneur
Vice-President, Leasing
Jocelyn Proteau(2)
President of the Board of Trustees
BTB Real Estate Investment Trust
Corporate director
Michel Léonard
President and Chief Executive Officer
BTB Real Estate Investment Trust
Luc Lachapelle(1)
Secretary of the Board of Trustees
BTB Real Estate Investment Trust
President and Chief Executive Officer
Corlac Immobilier Inc.
Lucie Ducharme(1)
Executive Vice President
Groupe Petra
Independent Trustee
Claude Garcia(1)(2)
Corporate director
Jean-Pierre Janson(2)
Executive Vice-President
Partenaires Financiers Richardson Limited
Sylvie Lachance(3)
Executive Vice President
Real Estate Development Sobeys inc.
Fernand Perreault(3)
Corporate director
Peter Polatos(3)
President
Gestion AMTB inc.
(1) Member of the Audit Committee
(2) Member of the Human Resources and Governance Committee
(3) Member of the Investment Committee
BTB Annual Report 2014
133
Unitholders Information
Head Office
BTB Real Estate Investment Trust
2155 Crescent
Montreal, Quebec, H3G 2C1
T 514 286-0188
F 514 286-0011
www.btbreit.com
Legal Counsel
De Grandpré Chait s.e.n.c.r.l.
1000 De la Gauchetière St. West
Suite 2900
Montreal, Quebec, H3B 4W5
Listing
The units and convertible debentures of BTB Real Estate
Investment Trust are listed on the Toronto Stock Exchange
under the trading symbols:
BTB.UN
BTB.DB.C
BTB.DB.D
BTB.DB.E
Unitholders distribution reinvestment plan
BTB Real Estate Investment trust offers a distribution
reinvestment plan to unitholders whereby the participants
may elect to have their monthly cash distribution reinvested
in additional units of BTB at a price based on the weighted
average price for BTB’s Units on the Toronto Stock Exchange
for the five trading days immediately preceding the distribution
date, discounted by 5%.
For further information about the DRIP, please refer to the
Investor relations section of our website at www.btbreit.com
or contact the Plan agent: Computershare Trust Company
of Canada.
Transfer Agent
Computershare Trust Company of Canada
1500 University St.
Suite 700
Montreal, Quebec, H3A 3S8
Canada
T 514 982-7555
T Toll free: 1 800 564-6253
F 514 982-7850
service@computershare.com
Taxability of distributions
In 2014, for all Canadian unitholders, the distributions were
fiscally treated as follow:
• Other revenues: 0%
• Fiscal Deferral: 100%
Auditors
KPMG s.r.l. / S.E.N.C.R.L.
600 De Maisonneuve Blvd. West
Suite 1500
Montreal, Quebec, H3A 0A3
BTB Annual Report 2014
134
BTB Real Estate Investment Trust
2155, Crescent
Montreal, Quebec, H3G 2C1
T 514 286 0188
F 514 286 0011
www.btbreit.com