2 0 1 5
Annual Report
Building Trust
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 5.1 million square feet of leasable area.
Since BTB’s inception in 2006, the total value of its assets has grown steadily and now
stands at over $633 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
Highlights
1
Message from the Chairman of the Board of Trustees 4
Message from the President and Chief Executive officer 6
Executive Team
8
Our properties
Management Discussion and Analysis
Audited Consolidated Financial Statements
Corporate Information
Unitholder Information
9
21
91
143
144
71
number of properties
5.1M
Number of square feet
$633M
Total assets
77.3%
Payout ratio of recurring
distributable income
72.9M
Annual rental income
91.7%
58.0
%
Occupancy rate
Mortgage debt ratio
BTB
S&P/TSX Index
S&P/TSX Capped
REIT Index
1
BTB Annual Report 2015Highlights 80,000
80,000
70,000
70,000
60,000
60,000
50,000
50,000
40,000
40,000
30,000
30,000
20,000
20,000
10,000
10,000
0
0
2
9
8
2
7
,
0
7
1
7
6
,
5
3
4
3
6
,
8
1
1
8
4
,
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
9
5
4
1
4
,
1
1
0
2
5
9
5
4
3
,
0
1
0
2
Evolution of rental income for the years ending December 31st
(in thousands of dollars)
50,000
50,000
40,000
40,000
30,000
30,000
20,000
20,000
10,000
10,000
0
0
4
9
2
1
4
,
3
8
9
7
3
,
6
3
3
5
3
,
6
9
9
6
2
,
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
7
5
3
9
1
,
0
1
0
2
2
2
1
2
2
,
1
1
0
2
20,000
20,000
15,000
15,000
10,000
10,000
5,000
5,000
0
0
3
3
7
8
1
,
6
2
6
6
1
,
0
1
6
2
1
,
3
1
0
2
4
1
0
2
5
1
0
2
6
2
0
5
,
1
1
0
2
4
8
6
2
,
0
1
0
2
5
0
8
7
,
2
1
0
2
Evolution of net operating income for the years ending December 31st
(in thousands of dollars)
Evolution of recurring distributable income for the years ending December 31st
(in thousands of dollars)
6,000
6,000
5,000
5,000
4,000
4,000
3,000
3,000
2,000
2,000
1,000
1,000
0
0
5
9
0
5
,
2
2
8
4
,
0
8
5
4
,
1
4
3
4
,
2
7
2
3
,
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
6
8
2
,
0
1
0
2
Evolution of total leasable area for the years ending December 31st
(in thousands square feet)
2
BTB Annual Report 2015 Sherbrooke
London area
5.1%
4.1%
Greater Montreal
area
Ottawa area
19.1%
47.8%
23.7%
Greater Quebec City
area
Breakdown of portfolio by geographical region
December 31, 2015
Mixed-use
Industrial
4%
5%
17.9%
31.3%
18%
49%
30.8%
20%
Office
Retail
Breakdown by asset type
December 31, 2015
3
BTB Annual Report 2015 The members of the Board
of Trustees join me in
recognizing the team’s and
management’s leadership,
more particularly for their
focus on creating value
Jocelyn Proteau,
Chairman, Board
of Trustees
4
BTB Annual Report 2015Message from the Chairman of the Board of Trustees Building trust by sustaining growth and the return
on investment
In 2015, BTB delivered on the commitments made to its unitholders, its tenants and its employees.
While we cannot control the market, we can control how we respond to market conditions both in the
short and long term. The decisions we make are always made with a view to building the trust you
have placed in us. We are building trust by providing better than market returns for our unitholders,
balanced against acceptable levels of risk, by meeting and exceeding the expectations of our tenants,
and by recognizing and rewarding performance in our employees.
Solid performance
BTB once again performed well. We now own 71 properties that contain 5.1 M square feet and our
total assets value stands at $633 M, making us the second largest real estate investment trust in
Québec. BTB’s returns exceeded the returns of the TSX and the Capped REIT Index Total Return,
and that gap further increased in the fourth quarter.
At the end of the last fiscal year, distributions to unitholders totalled $14.5M, an increase of 11.8%
compared to 2014, and our payout ratio was below 77.3%, a 0.8% improvement over 2014.
BTB’s equity totals more than $174.3M. Based on the number of units outstanding as at December
31, 2015 (34.1M), the book value of BTB’s units was $5.02 per unit. These performance indicators
reflect quality and efficiency throughout the organization. The members of the Board of Trustees
join me in recognizing the team’s and management’s leadership, more particularly for their focus
on creating value. The value chain links the whole organization, from employees on the front lines
delivering services to our clients to the staff who work internally to ensure our systems stay operational,
our environmental standards stay ahead of the pack and our technology provides us with the ability
to continue to build trust at all levels.
Continuously reducing financing costs is key to maximizing returns
Our strategy for mortgage refinancing was to increase the term of our new mortgages where we
could opt for a longer term. The average mortgage term went from 4.7 years to 5.5 years. During
2015, we refinanced and renewed $30M of mortgages. On average the refinancing and renewing
activities allowed us to reduce the average interest rate and derived annual interest cost savings
of over $400K in 2015. We also placed new financings during the year on the four properties we
acquired. The average interest rate was 3.60% and for an average mortgage term of 12.7 years.
During the last quarter of 2015, we issued a new series of Debentures (Series “F”) to reimburse
the Series “C” that were initially coming to maturity on January 31st 2016. While issuing debentures
was not our first choice, the market conditions that prevailed at the end of 2015 convinced us that it
was the right approach. The new series was issued at a lower interest rate as compared to the Series
”C”, gleaning interest costs savings of $195K annually.
We wish to thank our unitholders for the trust they have placed in us and to confirm that we will
continue to build that trust by building on profitability.
The arc of our growth has been constant since 2006 as we continue in our mission to be a major
player in the Canadian real estate market. As we embark on our tenth year, we have every reason to
believe our future is bright.
5
BTB Annual Report 2015
With your trust, we are
committed to pursuing
growth while ensuring the
organization’s longevity.
Michel Léonard,
President and Chief
Executive Officer
6
BTB Annual Report 2015Message from the President and Chief Executive Officer Building trust by building on strong relationships
Building relationships of trust at all levels of the organization is the key to continuing to build BTB
Real Estate Investment Trust into a superior investment vehicle for our unitholders.
With your trust comes great responsibility, a responsibility that impels us to consistently ensure we
are making the right decisions at the right time to protect the future of BTB. Rest assured that we are.
We invest in quality so unitholders make an investment in a quality product. Our commitment to
quality drives all levels of the organization and it especially drives our people, the decision makers
and relationship builders who manage our capital assets, lease our buildings, manage and maintain
our facilities, care for our clients and build on our asset base.
Our quest for quality also drives our decisions to cull underperforming assets from our mix of office,
industrial, retail and mixed-use spaces, while we add new, higher quality better performing assets
with good covenants and located in strong markets. This was the strategic thinking behind disposing
of four smaller properties in Fiscal 2015 for total proceeds of $13 M and purchasing four larger,
higher performing assets in the greater Ottawa and Montreal areas. This total investment of $63 M
will provide greater economies of scale in terms of building management costs and will contribute
to BTB’s profitability.
Building trust means focusing on relationships
BTB has 700 clients in its properties in cities in the provinces of Quebec and of Ontario. Maintaining
the highest levels of client service is a priority and continues to guide the implementation of the online
access to services system we provide our clients but also how we select, train and manage the frontline
people who serve our clients on a daily basis. That was the key to maintaining our occupancy rate
at 91.7% on December 31st, 2015 and a roster of clients with the solidity of top tier businesses and
government services. We renewed 62.5% of the leases that were expiring during 2015 and during
the same period, we secured a total of approximately 475,000 square feet of new tenancy and lease
renewals at an average rate increase of 5.9%.
Building on a sophisticated and scalable property management infrastructure has allowed us to reduce
our dependency on third party managers and absorb our property management function into BTB’s
efficient, centralized internal operation. During 2015 we terminated the management agreement with
a third party to assume ourselves the management of our Quebec City properties. This decision will
produce operating costs savings for BTB.
At the end of the year our AFFO ratio stood at 89% while our FFO ratio was 88.6%.
With a portfolio of 71 commercial properties totalling 5.1M square feet and with total assets of $633M
and total revenues of $72.9M, BTB is still on target to reach its goal of $1 billion in total assets in
the near future.
With your trust, we are committed to pursuing growth while ensuring the organization’s longevity.
7
BTB Annual Report 2015 From left to right: Benoit Cyr, Dominic Gilbert, Frédéric Seigneur and Michel Léonard.
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
8
BTB Annual Report 2015Executive team Island of Montreal
1400-1440 Antonio-Barbeau Street, Montreal
5810 and 5878-5882 Sherbrooke Street East, Montreal
7001-7035 St-Laurent Blvd, 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
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
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
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
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 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
2200 Walkley Road, Ottawa
2204 Walkley Road, Ottawa
*Properties in redevelopment
9
BTB Annual Report 2015Our properties Lucie Ducharme, Trustee
BUILDING
TRUST
With Unitholders
and the investment
community
Building trust with our investors
is all about profitability and
value creation. Our
returns
are a reflection of the quality
and efficiency of our team and
our commitment
to exceeding
expectations in every aspect of the
operation.
11
BTB Annual Report 2015 59
BTB now employs
59 people compared
to 3 in 2006
BUILDING
TRUST
With
employees
Sylvain Moquin, an employee of BTB and Michel Léonard, CEO
12
BTB Annual Report 2015 BUILDING
TRUST
With
clients
For most businesses, a commercial space is a strategic asset that is
key to competitiveness, profitability and company brand image. Our
commitment to clients in every one of our properties is to provide
great level of service at the right price—to ensure the investment
in their facilities brings the returns they are projecting.
700
Tenants
Occupancy rate
91.7%
Dominic Gilbert, Vice President, Property Management
13
BTB Annual Report 2015 When brokers recommend a property
owned by BTB they are putting their own
reputations on the line. Over the years
BTB has built trust in the community
of real estate professionals and their
clients by acting with transparency,
respect and understanding of the
needs and concerns of all parties
involved. After all, the goal is to
make
their clients our clients.
With brokers and the
Real Estate Community
BUILDING
TRUST
14
BTB Annual Report 2015 Frédéric Seigneur, Vice President Leasing and Michel Labbé, Broker
15
BTB Annual Report 2015 “
I was
IT perspective,
actually BTB’s
first
employee when we were listed on the
TSX Venture on October 3, 2006. I can
tell you that a lot has changed since then.
things have
From an
become more sophisticated and complex.
My work is to ensure communications are
up and running from the computer and
the networks to the cellular phones. I am
focussed on our clients even if my direct
clients are actually BTB’s employees.
Last year, we officially internalised the
management of our Quebec City buildings
and consequently we had to secure office
space in one of our buildings. We also had
to hire employees that were to assume
the management functions for the area.
We started from zero and had to be up and
running rapidly. I can happily report that
all systems were running on time and the
official opening of this office was done as
scheduled, all systems functioning. Although
BTB has grown substantially, our core
values have not changed. We are all about
our clients. Treating people well, whether
they are employees, tenants, suppliers or
others we deal with has always been a
priority. I think it’s the key to our success.
”
Sylvie Hatotte
Director of Information System and Processes
16
BTB Annual Report 2015Employee recognition awards:2015 winners
“
I’ve been with BTB for five years
now and I’ve seen it grow. It’s a business
with an open-door policy. I can reach
every employee including the president.
From the beginning we’ve always had
access to people and to information. As
we’ve grown, we’ve had to implement
systems to accommodate our growth. I
was responsible for creating a database
that allows us to share information and
understand the status of invoices from the
day it is received to the day it has been
paid. That allows me to provide information
to suppliers, building managers and others
who need to know where the invoice is in
the system, and it also allows us to follow
up if an invoice gets stalled anywhere
in the approval and accounting process.
”
Jean-Loup Brault
Accounts payable
17
BTB Annual Report 2015
“
I have learned very early that
one of the most important elements
in BTB’s business is its tenants.
They are our heart, and you can’t
live without a heart. I remind myself
of that every day. Together with a
co-worker, we’re responsible for the
day to day operations of four buildings
located on the West Island suburb
of Montreal. We work as a team.
We can’t let our clients down. I have
never seen my work as a problem. I
look at it as an opportunity to keep
the heart of our business healthy.
”
Sergei Novitchi
Maintenance Technician
18
BTB Annual Report 2015
”
“
I’ve been with BTB for about a
year, after graduating in Environmental
Studies receiving a Master’s degree. I
have found early that the company puts
its trust in employees and encourages
them to propose projects, make decisions
and take initiative. It’s a stimulating
work environment. Some companies
use outside consultant to do my job. But
there are real advantages to having an
in-house expert as we do. In the fall, I
was involved in the process of obtaining
BOMA Best Certification for eight of
our buildings. I was proud to obtain
the certification for the eight buildings
we submitted. We take environmental
risk reduction and sustainability very
seriously and we know our clients also
do. It is a social responsibility, and
it makes business sense. This year
I am looking to certify 14 buildings.
”
Madeleine-Jane Brammer Lavoie
Administration and Sustainable Development
19
BTB Annual Report 2015
Management Discussion and AnalysisQuarter ended December 31, 2015 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 Year (as at December 31, 2015)
Selected Financial Information
Selected Annual Information
Selected Quarterly Information
Real Estate Portfolio
Performance Indicators
Operating Results
Operating Results – Same-Property Portfolio
Distributable Income and Distributions
Funds from Operations (FFO)
Adjusted Funds from Operations (AFFO)
Segmented Information
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
23
23
24
25
25
26
28
29
30
31
32
33
41
44
47
48
50
51
53
55
59
70
70
71
81
83
89
BTB Annual Report 2015
22
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, 2015, 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 17, 2016 should be read
together with the audited consolidated financial statements and accompanying notes for the years
ended December 31, 2015 and 2014. 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 periods and years ended December 31,
2015 and 2014. Additional information about the Trust, including the 2014 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 have approved the contents of this annual
Management Discussion and Analysis and the annual financial statements dated March 17, 2016.
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 2015
23
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 operating income,” “distributable income,” “recurring distributable income,” “funds from operations”
("FFO"), “adjusted funds from operations” ("AFFO") and “recurring AFFO” are non-IFRS performance
measures and do not have standardized meanings prescribed by IFRS. These measures 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 2015
24
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, 2015, it has acquired and owns 71 commercial, office and industrial
properties in primary and secondary markets. BTB is an important real estate owner in geographical
markets in Québec and eastern Ontario. The units and Series D, E and F convertible debentures are
traded on the Toronto Stock Exchange under the symbols “BTB.UN”, “BTB.DB.D” “BTB.DB.E”, and
“BTB.DB.F”, respectively. The Series C convertible debentures (BTB.DB.C) were redeemed on
December 30, 2015.
Most of the Trust’s properties are managed internally, with 65 of the Trust’s 71 properties held as at
December 31 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, 2015(1)
(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.
Number of
properties
Leasable area
(sq. ft.)
Fair value
(thousands of $)
71
5,094,866
622,651
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’s management also regularly performs a strategic portfolio assessment to determine whether it is
financially advisable to hold onto certain investments. BTB may dispose of certain assets if their size,
location and/or profitability do not meet the Trust’s current criteria.
In such cases, BTB expects to use the proceeds from the sale of assets to reduce debt.
BTB Annual Report 2015
25
Management Discussion and Analysis
Highlights of the Year as at December 31, 2015
•
71 properties
• More than 5 million leasable square feet
• More than $630 million in assets
• More than $153 million in market capitalization
Increase
•
•
•
•
•
8.5% in rental income
8.7% in net operating income
7.9% in assets
2.8% in recurring distributable income per unit
3.3% in recurring AFFO per unit
Improvement
•
•
•
In the payout ratio from 77.9% to 77.3%
In the weighted average interest rate on mortgage debt from 4.13% to 3.95%
In the weighted average term on mortgage debt from 4.7 years to 5.5 years
Leasing activities
•
•
•
250,000 square feet of leases renewed
225,000 square feet of new leases signed
5.9% increase in the average rate of expired and renewed leases
Acquisitions
• A 116,415-square-foot industrial property adjacent to Ottawa’s Macdonald-Cartier International
Airport, for $12.5 million
• A 145,546-square-foot shopping centre in Delson, a Montréal suburb, for $21.5 million
• Two office properties with a combined leasable area of almost 159,000 square feet close to
Ottawa International Airport on Walkley Road, for $28.5 million
Disposal
• Of four commercial properties totalling 135,000 square feet, which no longer met the Trust’s
current investment criteria. Proceeds of sale totalling $13.3 million were mainly used to repay
mortgage debt and the credit facility.
BTB Annual Report 2015
26
Management Discussion and Analysis
Capital transactions
• Closing of an issuance of Series F convertible debentures bearing interest at 7.15% for total
proceeds of $26.7 million. The net proceeds were mainly used to repay the Series C
convertible debentures bearing interest at 8 % on December 30, 2015 for total proceeds of
$22.8 million.
Event subsequent to December 31, 2015
• On February 15, 2016, BTB acquired an office building located in downtown Montréal for $11
million. The property, entirely leased to a single tenant under a long-term lease, has a leasable
area of 52,500 square feet.
BTB Annual Report 2015
27
Management Discussion and Analysis
Selected Financial Information
As at December 31, 2015, the Trust owns 71 properties generating, on an annualized basis, revenues
of close to $75 million.
The following table presents highlights and selected financial information for the quarters and years
ended December 31, 2015 and December 31, 2014:
Periods ended December 31
(in thousands of dollars, except for ratios and per unit data)
Reference
Financial information
Page 33
Rental income
Net operating income(1)
Page 36
Net property income from the same-property portfolio(1) Page 41
Recurring distributable income(1)
Page 44
Page 45
Distributions
Funds from operations (FFO) (1)
Page 47
Recurring adjusted funds from operations (AFFO)(1)
Page 48
Page 54
Total assets
Page 57
Investment properties
Page 60
Mortgage loans payable
Page 62
Convertible debentures
Page 65
Mortgage liability ratio
Page 46
Debt-equity ratio – convertible debentures
Page 46
Debt-equity ratio – acquisition line of credit
Page 65
Total debt ratio
Page 60
Weighted average interest rate on mortgage debt
Unitholders’ equity
Page 66
Market capitalization
Financial information per unit
Units outstanding (000)
Weighted average number of units outstanding (000)
Recurring distributable income
Distributions
Payout ratio on recurring distributable income
Cash payout ratio on recurring distributable income
FFO
Payout ratio on FFO
Recurring AFFO
Payout ratio on recurring AFFO
Unitholders’ equity
Market price
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 67
Page 67
Page 45
Page 45
Page 45
Page 45
Page 47
Page 47
Page 48
Page 49
Page 66
Page 71
Page 71
Page 55
Page 56
Page 51
Page 51
Quarter
Year
2015
$
18,539
10,020
5,043
4,211
3,640
3,710
3,588
2014
$
17,558
10,008
5,847
4,734
3,581
4,214
4,153
34,649
12.2¢
10.5¢
86.4%
74.9%
10.7¢
98.1%
10.4¢
101.4%
34,088
13.9¢
10.5¢
75.6%
67.0%
12.4¢
85.0%
12.2¢
86.2%
10.0%
10.7%
2015
$
72,892
41,294
22,223
18,733
14,479
16,333
16,260
633,082
622,651
366,596
68,866
58.0%
11.5%
1.5%
71.0%
3.95%
2014
$
67,170
37,983
22,703
16,626
12,953
15,226
14,363
586,737
571,462
329,943
65,186
56.3%
11.7%
—
68.0%
4.13%
174,359
153,050
177,599
161,454
34,705
34,450
34,134
31,418
54.4¢
42.0¢
77.3%
67.6%
47.4¢
88.6%
47.2¢
89.0%
5.02
4.41
0.0%
100%
71
5,095
91.7%
5.9%
52.9¢
40.8¢
77.9%
69.2%
48.5¢
85.1%
45.7¢
90.2%
5.20
4.73
0,0 %
100 %
71
4,822
92.7%
8.7 %
BTB Annual Report 2015
28
Management Discussion and Analysis
Selected Annual Information
The following table summarizes the Trust’s financial information
for the last three years.
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
Recurring distributable income(5)
FFO(2), (5)
Recurring AFFO(3), (5)
Distributions
Total assets
Long-term debt
Per unit financial information
Net income
Recurring distributable income(5)
FFO(2), (5)
Recurring AFFO(3), (5)
Distributions
Recurring payout ratio(4), (5)
2015
$
72,892
41,294
(5,223)
8,669
18,733
16,333
16,260
14,479
633,082
445,262
2014
$
67,170
37,983
(1,860)
12,883
16,626
15,226
14,363
12,953
586,737
395,129
25.2¢
54.4¢
47.4¢
47.2¢
42.0¢
77.4%
41.0¢
52.9¢
48.5¢
45.7¢
40.8¢
77.9%
2013
$
63,435
35,336
8,375
18,349
12,610
11,632
10,462
10,412
546,559
377,745
71.3¢
49.0¢
45.2¢
40.7¢
40.0¢
82.6%
(1) Defined as rental income from investment properties less operating expenses.
(2) See “Funds from operations” on page 47 for definition and reconciliation to net income.
(3) See “Adjusted funds from operations” on page 48 for definition and reconciliation to FFO and net income.
(4) Represents total distributions divided by recurring distributable income.
(5) Non-IFRS measure.
BTB Annual Report 2015
29
Management Discussion and Analysis
Selected Quarterly Information
The following table summarizes the Trust’s financial information for the last eight quarters.
As at December 31
(in thousands of dollars except for per unit data)
Rental income
Net operating income(1)
2015
Q-4
$
2015
Q-3
2015
Q-2
$
2015
Q-1
$
2014
Q-4
$
2014
Q-3
$
2014
Q-2
$
2014
Q-1
$
18,539 18,421 17,603 18,329 17,558 16,866 16,202 16,544
10,020 10,958 10,184 10,132 10,008
9,643
9,348
8,984
Net income (loss) and comprehensive income
(2,124) 3,669
3,724
3,400
(1,405) 4,968
5,323
3,997
Net income (loss) per unit
Recurring distributable income(1)
Recurring distributable income per unit(1)
Funds from operations (FFO)(1)
FFO per unit(1)
Recurring adjusted funds from operations (AFFO)(1)
Recurring AFFO per unit(1)
Distributions
Distributions per unit
(1)Non-IFRS measure.
(6.1¢)
10.6¢
10.8¢
9.9¢
(4.1¢)
14.6¢ 18.3¢
14.1¢
4,211
5,286
4,739
4,497
4,734
4,224
3,990
3,677
12.2¢
15.3¢
13.8¢
13.1¢
13.9¢
12.4¢ 13.7¢
13.0¢
3,710
4,321
4,236
4,066
4,214
3,838
3,786
3,388
10.7¢
12.5¢
12.7¢
11.9¢
12.4¢
11.3¢ 13.0¢
11.9¢
3,588
4,663
4,132
3,876
4,153
3,657
3,436
3,117
10.4¢
13.5¢
12.0¢
11.3¢
12.2¢
10.8¢ 11.8¢
11.0¢
3,640
3,628
3,615
3,596
3,581
3,514
3,023
2,834
10.5¢
10.5¢
10.5¢
10.5¢
10.5¢
10.3¢ 10.0¢
10.0¢
BTB Annual Report 2015
30
Management Discussion and Analysis
Real Estate Portfolio
BTB owns 71 quality properties which have a fair value of $623 million representing a total leasable
area of more than 5 million square feet. A concise description of the properties owned as at
December 31, 2015 can be found in the Trust’s Annual Information Form available at www.sedar.com.
The properties acquired in 2015 are described on page 55 of this MD&A.
Summary of properties as at December 31, 2015
Operating segment
Office
Commercial
Industrial
General purpose
Subtotal
Properties under redevelopment
Total
Number of
properties
Leasable area
(sq. ft.)
Occupancy rate
(%)
22
15
20
11
68
3
71
1,515,435
981,006
1,537,242
878,623
4,912,306
182,560
5,094,866
83.9
92.8
97.2
94.3
91.7
—
91.7
BTB Annual Report 2015
31
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, reduce its
operating costs and generate organic growth;
• 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 other non-cash
items as well as investments in 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.
The payout ratios, which enable investors to assess the stability of distributions against
distributable income, FFO and AFFO.
The increase in average rate of renewed leases, which measures organic growth and the
Trust’s ability to increase its rental income.
More detailed definitions and analyses of each of these indicators are provided in the appropriate
sections.
BTB Annual Report 2015
32
Management Discussion and Analysis
Operating Results
The following table summarizes financial results for the quarters and years ended December 31, 2015
and December 31, 2014. 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
Expenses for abandoned transaction
Net income before following item:
Fair value adjustment on investment properties
Net income and comprehensive income
Rental income
Quarter
Year
2015
$
18,539
8,519
10,020
(19)
5,948
992
—
3,099
5,223
2014
$
17,558
7,550
10,008
(50)
7,680
1,127
—
1,251
2,656
(2,124)
(1,405)
2015
$
72,892
31,598
41,294
(52)
23,203
4,044
207
13,892
5,223
8,669
2014
$
67,170
29,187
37,983
(77)
19,108
4,209
—
14,743
1,860
12,883
Reference
Page 33
Page 34
Page 36
Page 45
Page 37
Page 38
Page 36
Page 40
Page 40
BTB acquired and sold properties in 2014 and 2015. Acquisitions and sales completed in 2015 are
presented in the “Investment Properties” section of this MD&A. Due to this acquisition activity, rental
income increased by $981 or 5.6% for the fourth quarter of 2015 and $5,722 or 8.5% for fiscal 2015
compared to the same periods of 2014.
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.
Some of the Trust’s leases 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 2015, rent adjustments of $141 (2014: $143) were recorded on a straight-line
basis. For the year ended December 31, 2015, these adjustments totalled $702 (2014: $610).
In the fourth quarter of 2015, BTB recorded amortization of $552 (2014: $476) as a reduction in rental
income, which represents amortization of lease incentives afforded to lessees. For the year ended
December 31, 2015, amortization totalled $2,084 (2014: $1,793).
BTB Annual Report 2015
33
Management Discussion and Analysis
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
Operating expenses
Quarter
Year
2015
$
18,950
141
(552)
18,539
2014
$
17,891
143
(476)
17,558
2015
$
74,274
702
(2,084)
72,892
2014
$
68,353
610
(1,793)
67,170
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 $969 or 12.8% between the fourth quarter of 2014
and the fourth quarter of 2015, and $2,411 or 8.3% for fiscal 2015 compared to last year. The
significant increase in operating expenses in the fourth quarter of 2015 compared to the fourth quarter
of 2014 is due to higher maintenance costs and repairs. These were expected during the year, but
were mainly paid in the past quarter. On an annual basis, the 7.1% increase in maintenance costs and
repairs is lower than the 8.5% growth in revenues.
The following table shows the breakdown of operating expenses for the quarters and years ended
December 31, 2015 and 2014.
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
2015
$
3,418
5,101
8,519
46.0
2014
$
2,907
4,643
7,550
43.0
2015
$
2014
$
11,748
19,850
31,598
43.3
10,970
18,217
29,187
43.5
BTB Annual Report 2015
34
Management Discussion and Analysis
As a percentage of rental income, operating expenses increased 3.0% over the quarter, from 43.0% for
the fourth quarter of 2014 to 46.0%, primarily due to maintenance costs and repairs mainly paid in the
last quarter. On an annual basis, operating expenses as a percentage of rental income decreased
0.2%, from 43.5% for fiscal 2014 to 43.3% for fiscal 2015.
BTB Annual Report 2015
35
Management Discussion and Analysis
Net operating income
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.
Periods ended December 31
(in thousands of dollars)
Net operating income
% of rental income
Quarter
Year
2015
$
10,020
54.0%
2014
$
10,008
57.0%
2015
$
41,294
56.7%
2014
$
37,983
56.5%
Net operating income was stable for the fourth quarter of 2015 compared to 2014 and increased by
8.7% during fiscal 2015 compared to 2014.
Net operating income is reduced by non-cash rental income adjustments. Before adjustments, net
operating income increased by 0.9% for the quarter and 9.0% for the full fiscal year, and was as
follows:
Periods ended December 31
(in thousands of dollars)
Net operating income
Straight-line rental income adjustments
Adjustments related to amortization of lease incentives
Net operating income before rental income adjustments
% of rental income on the basis of in-place leases
Financial expenses
Quarter
Year
2015
$
10,020
(141)
552
10,431
55.0
2014
$
10,008
(143)
476
10,341
57.8
2015
$
41,294
(702)
2,084
42,676
57.5
2014
$
37,983
(610)
1,793
39,166
57.3
Financial expenses arise from the following loans and financings:
• Mortgage loans payable contracted or assumed totalling approximately $368 million as at
December 31, 2015, compared to $331 million as at December 31, 2014. The increase resulted
from the financing of acquisitions and refinancing of certain properties during the last 12 months.
•
Series D, E and F convertible debentures for a total par value of $72.7 million. Series F
debentures with a par value of $26.7 million were issued on December 4, 2015 and the proceeds
were used to redeem the Series C debentures with a par value of $22.8 million on December 30,
2015.
• Operating and acquisition lines of credit used as needed, which allowed primarily for the
acquisition of properties during fiscal 2014 and 2015.
•
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 2015
36
Management Discussion and Analysis
The following table shows the breakdown of financial expenses for the reporting periods:
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
Early repayment fees
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
2015
$
3,688
1,412
212
38
5,350
—
378
178
5,906
42
5,948
2014
$
3,469
1,274
—
32
4,775
—
290
145
5,210
2,470
7,680
2015
$
14,360
5,228
675
125
20,388
625
1,273
629
22,915
288
23,203
2014
$
13,523
5,096
161
77
18,857
—
1,069
561
20,487
(1,379)
19,108
Before recognition of fair value adjustments on derivative financial instruments (debenture conversion
options and interest rate swap), financial expenses increased by $696 during the fourth quarter of 2015
compared to the same quarter in 2014, and by $2,428 during fiscal 2015 compared to fiscal 2014. The
increases are due to financings related to acquisitions completed in the last 12 months.
During the third quarter of 2015, BTB refinanced before term mortgage loans in the amount of $12.1
million bearing interest at an average rate of 5.64%, with a new $17.5 million loan bearing interest at
4.06% for a 10-year term. To complete this transaction, the Trust had to assume $625 in early
repayment fees fully expensed during the third quarter of 2015. Refinancings and new financings put in
place in 2015 are described in more detail in the “Capital Resources” section on page 60 of this MD&A.
Financial expenses can be allocated among interest expenses amounting to $5,350 for the quarter
(2014: $4,775) and $20,388 for the year (2014: $18,857) and non-monetary items. Non-monetary items
include, but are not limited to, fair value adjustments on derivative financial instruments in the amount
of $42 for the quarter (2014: $2,470) and $288 for the year (2014: credit positions of $1,379). 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.
As at December 31, 2015, the average weighted contractual rate of interest on mortgage loans payable
was 3.95%, 18 basis points lower than the rate in effect at December 31, 2014 and equivalent to the
rate in effect at September 30, 2014. For 29 consecutive quarters, the weighted average interest rate
has remained stable or declined. Interest rates on first-ranking mortgage financings ranged from 2.83%
to 6.8% as at December 31, 2015. The weighted average term of financing in place as at December 31,
2015 was 5.5 years (4.7 years as at December 31, 2014).
BTB Annual Report 2015
37
Management Discussion and Analysis
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 1.3% for the quarter and down
2.9% for the year compared to the same periods 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
2015
2014
$
907
17
68
992
$
895
32
200
1,127
2015
$
3,696
69
279
4,044
2014
$
3,808
117
284
4,209
Expenses for abandoned transaction
In the normal course of business, the Trust’s management assesses various investment property
acquisition projects. Some of these are not completed and the costs incurred are expensed during the
quarter in which the decision not to go through with the acquisition is made.
Due diligence expenses of $207 were incurred during the fiscal year for the proposed acquisition of a
major property portfolio. As certain preliminary conditions were not met, management decided to
terminate the acquisition project and write off any expenses incurred during the year.
As the costs were high due to the size of the valued portfolio, they will be treated as an unusual item in
the performance indicators.
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
BTB Annual Report 2015
38
Management Discussion and Analysis
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.
At year-end, the Trust also uses professional valuators to perform an independent external valuation of
a portion of its portfolio. The portfolio’s 10 largest properties and approximately a third of the remaining
properties were subject to an independent external valuation. The Trust thus intends to ensure that the
entire portfolio has been valued by independent valuators every three years. As at December 31, 2015
63% (2014:67%) of the portfolio’s market value was subject to an independent external valuation.
However, as at December 31, 2015, five properties with a total fair value of $15.7 million had not been
subject to an independent external valuation over the past three years.
Market conditions in the Trust’s geographical market remained relatively stable during the fourth
quarter and fiscal 2015.
However, management determined that a downward fair value adjustment to the portfolio as at
December 31, 2015 was required. Accordingly, management recognized a decline in value of $ 4,947
as at December 31, 2015 (2014: $1,860) and incurred transaction fees on disposal of $276 for a total of
$5,223. This decline in value was mainly due to the following factors:
• Office properties: “Complexe de Léry” in Trois-Rivières, Québec and “1001 Sherbrooke Est” in
Montréal, Québec, which lost major tenants during the year and have high vacancy rates, and
“Complexe Lebourgneuf Phase 1” in Québec City, Québec, where the occupancy rate has
been slow to stabilize.
• Commercial properties: “1100-1136 St-Joseph” in Drummondville, Québec, which was partially
redeveloped but has not yet attracted the interest of potential tenants as expected, “Marché de
l’Ouest” in Dollard-des-Ormeaux, Québec, where major renovations have been budgeted, and
“Galeries Richelieu” in St-Jean-sur-Richelieu, Québec which, due to the impending expiry of
certain leases, is a more significant risk.
The following tables highlight the significant assumptions used in the modelling process for both
internal and external appraisals:
As at December 31, 2015
Capitalization rate
Terminal capitalization rate
Discount rate
As at December 31, 2014
Capitalization rate
Terminal capitalization rate
Discount rate
Commercial
Office
Industrial
General purpose
6.25% - 10.00%
7.00% - 8.50%
7.75% - 9.00%
6.50% - 9.25%
6.75% - 7.75%
7.50% - 8.50%
6.50% - 9.75%
7.75% - 9.75%
8.25% - 10.50%
7.00% - 8.25%
7.25% - 8.00%
7.75% - 8.50%
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%
The weighted average capitalization rate for the entire portfolio as at December 31, 2015 was 7.34%
(2014: 7.45%), up/down 5 basis points since September 30, 2015 and down 11 basis points from a
year earlier.
BTB Annual Report 2015
39
Management Discussion and Analysis
As at December 31, 2015, 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
$22 million.
Net income (loss) and comprehensive income
For the fourth quarter, the fair value adjustment on investment properties presented a $ 5.2 million
decline in value in 2015, compared to a $2.7 million decline in value in 2014. The fair value adjustment
on derivative financial instruments showed a $42 expense in 2015 compared to a $2.5 million expense
in 2014.
Consequently, BTB incurred a net loss of $2.1 million for the fourth quarter of 2015 and generated net
income of $8.7 million for the year, down $0.7 million from the fourth quarter of 2014 and $4.2 million
for the year.
Periods ended December 31
(in thousands of dollars, except for per unit data)
Net income (loss) and comprehensive income
Per unit
Adjusted net income and comprehensive income
Quarter
Year
2015
$
(2,124)
(6.1¢)
2014
$
(1,405)
(4.1¢)
2015
$
8,669
2014
$
12,883
25.2¢
41.0¢
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 adjusted net income and comprehensive income before these volatile non-
monetary items.
Periods ended December 31
(in thousands of dollars, except for per unit data)
Net income (loss) and comprehensive income
Volatile non-monetary items
±Fair value adjustment on investment properties
±Fair value adjustment on derivative financial instruments
Adjusted net income and comprehensive income
Per unit
Quarter
Year
2015
$
2014
$
(2,124)
(1,405)
5,223
42
3,141
2,656
2,470
3,721
9.1¢
10.9¢
2015
$
8,669
5,223
288
14,180
41.2¢
2014
$
12,883
1,860
(1,379)
13,364
42.5¢
This table shows a decrease of 15.6% in quarterly adjusted net income and an increase of 6.1% in
annual adjusted net income, before the non-monetary items mentioned above. Quarterly adjusted net
income per unit decreased 16.5% and annual adjusted net income, 3.1%.
BTB Annual Report 2015
40
Management Discussion and Analysis
Operating Results – Same-Property Portfolio
Same-property portfolio
The same-property portfolio includes all the properties owned by BTB as at January 1, 2014, but does
not include the financial spin-offs of disposals, acquisitions and developments completed in 2014 and
2015.
The Trust is planning to completely demolish and redevelop the “Promenades St-Noël” commercial
property in Thetford Mines. The Trust is waiting for the required authorizations to proceed. As such, the
property is excluded from the same-property portfolio data.
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
2015
$
15,047
7,007
8,040
2,997
5,043
2014
$
15,764
6,820
8,944
3,097
5,847
2015
$
61,245
27,027
34,218
11,995
22,223
2014
$
62,011
26,767
35,244
12,541
22,703
Increase in net property income from the same-property portfolio
(13.7%)
(2.1%)
Net property income from the same-property portfolio provides an indication of the profitability of
existing portfolio operations and BTB’s ability to increase its revenues and reduce its costs. It is defined
as rental income from properties from the same-property portfolio, less operating expenses and interest
on mortgage financing of the same portfolio.
Rental Income
Rental income from the same-property portfolio decreased by 4.5% in the fourth quarter ended
December 31, 2015 compared to the same quarter of 2014. For fiscal year 2015, rental income from
the same-property portfolio decreased by 1.2%. The decrease was mainly felt in the office segment,
both for the quarter and the year. Two properties were responsible for substantially all of the decrease:
“1001 Sherbrooke Est” in Montréal, which had a 36% occupancy rate as at December 31, 2015, and
“50 St-Charles Ouest” in Longueuil, which had a 33% occupancy rate as at December 31, 2015.
BTB Annual Report 2015
41
Management Discussion and Analysis
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
Operating expenses
Quarter
2014
∆%
$
15,764
1,794
17,558
(4.5)
n/a
5.6
2015
$
15,047
3,492
18,539
2015
$
61,245
11,647
72,892
Year
2014
∆%
$
62,010
5,160
67,170
(1.2)
n/a
8.5
Operating expenses of the same-property portfolio were up 2.7% for the fourth quarter of 2015
compared to the same quarter of 2014, and 1.0% for the year. Higher operating expenses for the
quarter were due to an increase of almost 6% in maintenance and repair expenses, while taxes and
utilities remained stable in the fourth quarter.
The following table provides a reconciliation of operating expenses from the same-property portfolio
and the total portfolio.
Periods ended December 31
(in thousands of dollars)
Same-property portfolio
Acquisitions, disposals and development
Operating expenses
Net operating income
Quarter
2014
∆%
$
6,820
730
7,550
2.7
n/a
12.8
2015
$
7,007
1,512
8,519
2015
$
27,027
4,571
31,598
Year
2014
∆%
$
26,767
2,420
29,187
1.0
n/a
8.3
Net operating income from the same-property portfolio was down 10.1% for the fourth quarter of 2015
compared to the same quarter of 2014, and 2.9% for the year.
The following table provides a reconciliation of net operating 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
Net operating income
Quarter
2014
∆%
$
8,944
1,064
(10.1)
n/a
2015
$
8,040
1,980
10,020
10,008
0.1
2015
$
34,218
7,076
41,294
Year
2014
∆%
$
35,244
2,739
37,983
(2.9)
n/a
8.7
BTB Annual Report 2015
42
Management Discussion and Analysis
Net operating income of the same-property portfolio before non-cash adjustments 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
Quarter
2014
∆%
$
8,944
(115)
451
(10.1)
n/a
n/a
2015
$
8,040
(46)
496
2015
$
34,218
(466)
1,961
Year
2014
∆%
$
35,244
(563)
1,716
(2.9)
n/a
n/a
adjustments
8,490
9,280
(8.5)
35,713
36,397
(1.9)
The Trust is currently making a considerable effort to attract new tenants and fill these new vacancies
as quickly as possible.
Interest expense
As shown by the following table, interest expense on mortgage loans payable in the same-property
portfolio decreased by 3.2% in the fourth quarter of 2015 and 4.4% for the year compared to the same
periods of 2014, due to the refinancing of loans that matured at more advantageous rates, despite
increased financing on certain properties.
The following table reconciles the interest expense of the same-property portfolio with the interest
expense of the total portfolio.
Periods ended December 31
(in thousands of dollars)
Same-property portfolio
Acquisitions and development
Interest expense on mortgage loans payable
Quarter
2014
∆%
$
3,097
372
3,469
(3.2)
n/a
6.3
2015
$
2,997
691
3,688
2015
$
11,995
2,365
14,360
Year
2014
∆%
$
12,541
982
13,523
(4.4)
n/a
6.2
BTB Annual Report 2015
43
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 fair value adjustments of
investment properties and derivative financial instruments, 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)
Quarter
Year
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
Unusual items
Early repayment fees(1)
Expenses for abandoned transaction(2)
Recurring distributable income
2014
$
(1,405)
2,656
45
200
145
2,470
476
(143)
290
4,734
2015
$
8,669
5,223
158
279
629
288
2,084
(702)
1,273
2014
$
12,883
1,860
165
284
561
(1,379)
1,793
(610)
1,069
17,901
16,626
2015
$
(2,124)
5,223
35
68
178
42
552
(141)
378
4,211
—
—
—
—
625
207
—
—
16,626
4,211
4,734
18,733
(1) Early repayment fees incurred for a transaction as part of a refinancing before term - see page 37
(2) Due diligence expenses incurred for an unrealized acquisition – see page 38
BTB Annual Report 2015
44
Management Discussion and Analysis
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
- Early repayment fees
Distributable income
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
Recurring distributable income
Distributions
Payout ratio (1)
Cash payout ratio(2)
Quarter
Year
2015
$
12,157
19
(2,615)
(3,688)
(1,412)
(212)
(38)
—
4,211
2014
$
13,552
50
(4,093)
(3,469)
(1,274)
—
(32)
—
4,734
2015
$
38,238
52
624
(14,360)
(5,228)
(675)
(125)
(625)
17,901
2014
$
36,678
77
(1,272)
(13,523)
(5,096)
(161)
(77)
—
16,626
Quarter
Year
2015
$
3,154
486
3,640
2014
$
3,170
411
3,581
2015
$
2014
$
12,668
1,811
14,479
11,505
1,448
12,953
13.4%
11.5%
12.5%
11.2%
12.2¢
12.2¢
10.5¢
86.4%
74.9%
13.9¢
13.9¢
10.5¢
75.6%
67.0%
52.0¢
54.4¢
42.0¢
77.3%
67.6%
52.9¢
52.9¢
40.8¢
77.9%
69.2%
(1)
(2)
The payout ratio corresponds to total distributions divided by recurring distributable income.
The cash payout ratio corresponds to cash distributions divided by recurring distributable income.
Recurring distributable income for the fourth quarter decreased by $523, from $4,734 to $4,211,
between 2014 and 2015. The decrease reflects the same-property portfolio’s underperformance for the
fourth quarter, as explained on page 38. Nonetheless, distributable income for fiscal 2015 amounted to
$18,733, up $2,107 from fiscal 2014. Recurring distributable income per unit for the fourth quarter of
2015 was 12.2¢ compared to 13.9¢ in 2014, a 12.2% decrease, and 54.4¢ for fiscal 2015 compared to
52.9¢ for fiscal 2014, a 2.8% increase.
Distributions to unitholders totalled 10.5¢ per issued unit in the fourth quarter of 2015 and 42¢ for the
year, compared to 10.5¢ and 40.8¢ for the same periods in 2014.
BTB Annual Report 2015
45
Management Discussion and Analysis
The payout ratio for recurring distributable income was 86.4% in the fourth quarter of 2015 compared to
75.6% in the fourth quarter of 2014, and 77.3% for the 2015 fiscal year compared to 77.9% for 2014,
reflecting a surplus of recurring distributable income over distributions.
In the fourth quarter of 2015, 13.4% of distributions (2014: 11.5%) were reinvested under the
distribution reinvestment plan implemented by BTB in 2011. More than $1.8 million (2014: $1.4 million)
of the Trust’s cash has thereby been preserved through unit conversions since the beginning of the
year.
BTB Annual Report 2015
46
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, 2015 and 2014:
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
2015
$
(2,124)
5,223
17
552
42
3,710
10.7¢
98.1%
85.0%
2014
$
(1,405)
2,656
17
476
2,470
4,214
12.4¢
85.0%
75.2%
2015
$
8,669
5,223
69
2,084
288
16,333
47.4¢
88.6%
77.6%
2014
$
12,883
1,860
69
1,793
(1,379)
15,226
48.5¢
85.1%
75.6%
(1)
(2)
The FFO payout ratio corresponds to total distributions divided by FFO.
The FFO cash payout ratio corresponds to cash distributions divided by FFO.
FFO decreased by 12.0% for the fourth quarter of 2015 compared to 2014. As explained on page 38,
the decrease is due to the same-property portfolio’s under-performance and, more specifically, the high
vacancy rate of two office properties during the year. FFO per unit for the fourth quarter amounted to
10.7¢ in 2015 compared to 12.4¢ in 2014. The FFO payout ratio stood at 98.1% for the fourth quarter of
2015 compared to 85.0% for the same period of 2014.
For 2015, FFO per unit stood at 47.4¢ compared to 48.5¢ in 2014, a 2.3% decrease, and the payout
ratio stood at 88.6% compared to 85.1% in 2014.
Unusual items totalling $832 for the year were not deducted in calculating FFO, FFO per unit and the
payout ratios. These unusual items are described in the recurring distributable income calculation on
page 44. If they had been included, FFO per unit would have been 49.8¢ for the year, and the FFO
payout ratio would have been 84.4% for the year, a significant increase compared to the previous year.
BTB Annual Report 2015
47
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
Furthermore, 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. 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.
BTB Annual Report 2015
48
Management Discussion and Analysis
The following table provides a reconciliation of FFO and AFFO for the quarters and years ended
December 31, 2015 and 2014:
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
Unusual items
Early repayment fees (1)
Expenses for abandoned transaction(2)
Recurring AFFO
AFFO per unit
Recurring AFFO per unit
Recurring AFFO payout ratio(3)
Recurring AFFO cash payout ratio(4)
Quarter
Year
2015
$
3,710
(141)
378
178
18
68
(371)
(252)
3,588
—
—
2014
$
4,214
(143)
290
145
28
200
(351)
(230)
4,153
—
—
3,588
4,153
2015
$
16,333
(702)
1,273
629
89
279
(1,456)
(1,017)
15,428
625
207
16,260
2014
$
15,226
(610)
1,069
561
96
284
(1,343)
(920)
14,363
—
—
14,363
10.4¢
10.4¢
101.4%
87.9%
12.2¢
12.2¢
86.2%
76.3%
44.8¢
47.2¢
89.0%
77.9%
45.7¢
45.7¢
90.2%
80.1%
(1) Early repayment fees incurred as part of a mortgage refinancing before term – see page 37.
(2) Due diligence expenses incurred for an unrealized acquisition – see page 38.
(3) The recurring AFFO payout ratio corresponds to total distributions divided by recurring AFFO.
(4) The recurring AFFO cash payout ratio corresponds to cash distributions divided by recurring AFFO.
Recurring AFFO per unit amounted to 10.4¢ in the fourth quarter of 2015 compared to 12.2¢ in 2014, a
14.8% decrease. The recurring AFFO payout ratio stood at 101.4% at the end of the fourth quarter of
2015 compared to 86.2% at the end of the fourth quarter of 2014.
For the year, recurring AFFO per unit stood at 47.2¢ compared to 45.7¢ in 2014, a 3.3% increase. The
recurring AFFO payout ratio improved by 1.3%, from 90.2% to 89.0%.
BTB Annual Report 2015
49
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, 2015 and 2014.
Quarters ended December 31
(in thousands of dollars)
Quarter ended December 31,
2015
Commercial
$
%
Office
$
%
Industrial
$
%
General
purpose
$
%
Total
$
Investment properties
Rental income from properties
Net operating income
155,838
4,517
2,687
25.0
24.4
26.8
229,288
7,555
3,379
36.8
40.7
33.7
124,125
2,698
2,241
20.0
14.6
22.4
113,400
3,769
1,713
18.2
20.3
17.1
622,651
18,539
10,020
Quarter ended December 31,
2014
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
Year ended December 31
(in thousands of dollars)
Year ended in 2015
Commercial
$
%
Office
$
%
Industrial
$
%
General
purpose
$
%
Total
$
Rental income from properties
Net operating income
17,670
10,801
24.2
26.2
28,014
12,930
38.5
31.3
11,242
9,422
15.4
22.8
15,966
8,141
21.9
19.7
72,892
41,294
Year ended in 2014
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
BTB Annual Report 2015
50
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 renewed leases
Leasable area of new leases signed
Other
Quarter
Year
2015
2014
2015
2014
462,131
(22,119)
(8,020)
29,651
7,297
(15,286)
(37,027)
(8,384)
329,970
—
—
154,390
46,661
(127,183)
(60,164)
(3,326)
340,348
(19,053)
(8,020)
427,668
150,399
(248,567)
(224,399)
(10,133)
367,166
5,296
(46,938)
531,266
117,062
(427,218)
(204,005)
(2,281)
Available leasable area at end of period
408,243
340,348
408,243
340,348
The Trust’s leasing operations were significant during the fourth quarter of 2015. More than 52,000
square feet of leases were signed with new tenants or renewed during the quarter (2014: 187,000). At
the end of 2015, close to 475,000 square feet (2014: 631,000) were signed with new tenants or
renewed.
The average rental rate of expired and renewed leases rose 10.0% during the fourth quarter (2014:
10.7%). The average rate for the year increased by 5.8% (2014: 8.7%).
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,
2015
%
83.9
92.8
97.2
94.3
91.7
September 30,
2015
%
82.4
92.6
96.7
94.4
91.0
June 30,
2015
March 31,
2015
December 31,
2014
%
81.6
92.1
96.7
94.0
90.8
%
86.8
91.2
98.5
94.5
92.8
%
86.6
92.3
98.3
93.7
92.7
The overall occupancy rate is up by 0.7% since September 30, 2015 but down by 1.0% since
December 31, 2014. It stood at 91.7% at the end of the fourth quarter of 2015.
The decrease in the industrial segment’s occupancy rate was mainly due to the closing of Groupe
Épicia’s warehouse.
Retention rate
The retention rate for leases expired in 2015 was 62.5% (2014: 70.0%).
BTB Annual Report 2015
51
Management Discussion and Analysis
Lease maturity
The following table shows the lease maturity profile for the next few years:
2016
2017
2018
2019
2020
2021
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
Leasable area (sq. ft.)
Average lease rate/square foot ($)
% of total portfolio
Top 10 tenants
206,673
$15.15
13.6%
23,008
$15.21
2.3%
92,013
$9.46
6.0%
126,453
$8.81
14.4%
448,147
$12.20
9,1%
128,124
120,545
275,212
122,939
125,225
$13.04
8.4%
$13.05
7.9%
$14.10
18.1%
104,947
116,678
161,825
$12.84
10.7%
$14.35
11.9%
$12.64
16.5%
77,072
$4.00
5.0%
—
—
—
122,305
110,222
$11.76
13.9%
$11.64
12.5%
540,417
$4.82
35.1%
37,506
$14.83
4.3%
810,994
$7.62
16.5%
$13.97
8.1%
83,364
$13.15
8.5%
$12.04
8.3%
56,721
$12.08
5.8%
37,310
393,937
$4.91
2.4%
80,380
$12.96
9.1%
$5.50
25.6%
147,440
$9.82
16.8%
723,323
$8.03
14.7%
359,528
$13.04
7.3%
624,331
$12.04
12.7%
323,993
$12.47
6.6%
As at December 31, 2015, BTB managed more than 600 leases, with an average area of more than
8,000 square feet. The three largest tenants are Société québécoise des infrastructures (SQI), Public
Works Canada and Provigo Distribution Inc., accounting respectively for 3.6%, 2.9% and 2.2% of
revenues, generated by a number of leases whose maturities are spread over time. Approximately 32%
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 2015
52
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, 2015:
Client
Société québécoise des infrastructures (SQI)
Canada Public Works
Provigo Distribution Inc.
Shoppers Realty Inc.
Atis Portes et Fenêtres Corp.
Strongco
Flextronics
Le Groupe SM inc.
Germain Larivière Inc.
City of Ottawa
% of revenue
Leased area
(square feet)
3.6
2.9
2.2
2.0
1.9
1.8
1.8
1.6
1.6
1.5
123,851
205,836
107,642
64,304
219,941
81,442
48,731
109,185
101,194
29,768
BTB Annual Report 2015
53
Management Discussion and Analysis
Financial Position
The following table presents the Trust’s balance sheet as at December 31, 2015 and December 31,
2014. It should be read in conjunction with the Trust’s audited annual financial statements and the
notes thereto.
(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
December 31,
2015
December 31,
2014
Reference
$
$
Page 57
Page 59
Page 59
Page 59
Page 60
Page 62
Page 65
Page 66
Page 66
622,651
1,981
4,261
4,189
633,082
366,596
68,866
9,800
13,461
458,723
174,359
633,082
571,462
1,342
5,788
8,145
586,737
329,943
65,186
—
14,009
409,138
177,599
586,737
The main changes in the balance sheet as at December 31, 2015 compared to the balance sheet as at
December 31, 2014 reflect the acquisition and disposal of investment properties in fiscal 2015 and the
related mortgage financings, as well as the issuance of Series F debentures mainly used to reimburse
the Series C debentures.
BTB Annual Report 2015
54
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 $623 million as at December 31, 2015 compared to
$571 million as at December 31, 2014.
Acquisition of investment properties
Since the beginning of 2015, the Trust acquired the following properties:
• On January 28, 2015, a 116,415-square-foot industrial building, adjacent to Ottawa’s Macdonald-
Cartier International Airport, for $12.5 million. Built in 2006 on a six-acre lot, the building is occupied
by a single tenant, Lowe-Martin, one of Canada’s largest printers. The sale and leaseback
transaction included a 15-year lease.
• On January 30, 2015, a major shopping centre in Delson, a Montréal suburb, for $21.5 million. The
145,546-square-foot centre houses several major national retail businesses and restaurants
including Loblaws, Pharmaprix, SAQ, National Bank, Tim Hortons, Harvey’s and Subway.
• On August 27, 2015, two office buildings on Walkley Road, close to the Ottawa International Airport,
for $28.5 million. The buildings, which have a combined leaseable area totalling approximately
159,000 square feet, house mainly Canadian government offices.
Disposal of investment properties
In November 2015, the Trust disposed of two commercial properties, a 27,537-square-foot property
located in Boucherville and a 50,258-square-foot property located in St-Bruno-de-Montarville, for
proceeds of sale totalling $7.2 million.
In December 2015, the Trust disposed of two commercial properties, a 29,967-square-foot property
located in Montréal and a 27,450-square-foot property located in Laval, for proceeds of sale of
$3.0 million and $3.1 million, respectively.
Proposed disposal of investment properties
Following strategic deliberations, the Trust has agreed to sell certain assets when the circumstances
are right. The proceeds of disposal from the sale of these assets will be used to repay debt.
BTB Annual Report 2015
55
Management Discussion and Analysis
Summary by operating segment
As at December 31
Office
Commercial
Industrial
General purpose
Subtotal
Properties under redevelopment
Total
Number of
properties
2015
Leasable area
(sq. ft.)
1,515,435
981,006
1,537,242
878,623
4,912,306
182,560
%
29.7
19.3
30.2
17.2
96.4
3.6
5,094,866 100.0
2014
Number of
properties
Leasable area
(sq. ft.)
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
%
29.9
18.5
29.5
19.4
97.4
2.6
100.0
22
15
20
11
68
3
71
Investments in investment properties held
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, 2015 totalled $623 and $4,046
respectively, compared to $2,335 and $5,452 for the same periods of 2014, of which $(115) for the
quarter and $1,183 for the year was recoverable (compared to $1,143 and $2,470 for the same periods
of 2014). 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.
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 $652 for the fourth quarter and $3,142
for the year ended December 31, 2015, compared to $1,845 and $4,225 for the same periods of 2014.
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 Annual Report 2015
56
Management Discussion and Analysis
The following table summarizes expenditures in maintenance capital expenditures, as well as
incentives and leasing fees, for the periods ended December 31, 2015 and 2014.
Periods ended December 31
(in thousands of dollars)
Recoverable maintenance capital expenditures
Grants
Recoverable maintenance capital expenditures net of grants
Non-recoverable maintenance capital expenditures
Total maintenance capital expenditures
Leasing fees and leasehold improvements
Total
Quarter
Year
2015
$
39
(154)
(115)
738
623
652
1,275
2014
$
1,263
(120)
1,143
1,192
2,335
1,845
4,180
2015
$
1,469
(286)
1,183
2,863
4,046
3,142
7,188
2014
$
2,590
(120)
2,470
2,982
5,452
4,225
9,677
The following table shows changes in the fair value of investment properties during the quarters and
years ended December 31.
Periods ended December 31
(in thousands of dollars)
Balance, beginning of period
Additions:
Acquisitions
Disposals
Capital expenditures net of grants
Leasing fees and leasehold improvements
Fair value loss
Other non-monetary changes
Balance, end of period
Quarter
2015
$
2014
$
Year
2015
$
2014
$
639,787
570,271
571,462
529,432
—
(13,053)
623
652
(4,947)
(411)
—
—
2,335
1,845
(2,656)
(333)
63,383
(13,053)
4,046
3,142
(4,947)
(1,382)
40,121
(4,725)
5,452
4,225
(1,860)
(1,183)
622,651
571,462
622,651
571,462
Investment properties under redevelopment
The Trust decided to invest significant amounts in redeveloping and repositioning three properties:
• 1863-1865 Transcanadienne, Montréal – Québec - This industrial property is currently completely
vacant. To date, the Trust has invested approximately $1 million to repurpose this property.
• 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 2015
57
Management Discussion and Analysis
• 100, 1ère rue Ouest, Thetford Mines – Québec – The Trust is planning to completely demolish
this building and redevelop this property into a modern retail business site. The Trust is waiting for
the required authorizations.
Event subsequent to December 31, 2015
On February 15, 2016, BTB acquired an office building located in downtown Montréal for $11 million.
The property, entirely leased to a single tenant under a long-term lease, has a leasable area of 52,500
square feet.
BTB Annual Report 2015
58
Management Discussion and Analysis
Amounts receivable from tenants and other receivables
Amounts receivable from tenants and other receivables increased from $1,342 as at
December 31, 2014 to $1,981 as at December 31, 2015. The increase is mainly due to a balance of
sale receivable of $600 following the sale of a property in December 2015. These amounts are
summarized below:
(in thousands of dollars)
Amounts receivable from tenants
Allowance for doubtful accounts
Recovery from unbilled tenants
Balance of sale receivable
Other receivables
Other assets
December 31,
2015
December 31,
2014
$
1,125
(329)
796
105
600
480
$
1,195
(312)
883
65
—
394
1,981
1,342
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
Cash, cash equivalents and reserved cash
(in thousands of dollars)
Available cash
Reserved cash
BTB Annual Report 2015
59
December 31,
2015
December 31,
2014
$
3,203
(911)
2,292
1,285
—
684
4,261
$
3,049
(753)
2,296
2,599
53
840
5,788
December 31,
2015
December 31,
2014
$
4,138
51
4,189
$
6,428
1,717
8,145
Management Discussion and Analysis
Capital Resources
Long-term debt
The following table shows the balances of BTB’s indebtedness as at December 31, 2015, including
mortgage loans payable and convertible debentures, based on year of maturity and corresponding
weighted average contractual interest rates:
As at December 31, 2015
(in thousands of dollars)
Year of maturity
2016
2017
2018
2019
2020
2021 and thereafter
Total
Balance of
convertible
debentures
$
—
—
23,000
—
49,700
—
72,700
Balance of
mortgages
payable
$
72,742
60,864
38,941
42,281
20,433
132,692
367,953
Weighted
average
contractual
interest rate
%
4.07
3.85
5.00
3.57
6.11
4.14
4.47
Weighted average contractual interest rate
As at December 31, 2015, the weighted average contractual interest rate of the Trust’s long-term debt
stood at 4.47%, i.e. 3.95% for mortgages payable and 7.10% for convertible debentures.
Mortgage loans payable
As at December 31, 2015, the Trust’s mortgage loans payable amounted to $368 million compared to
$330.8 million as at December 31, 2014, before deferred financing costs and valuation adjustments, an
increase of $37.2 million due to acquisition financings completed in 2015, certain refinancings and
principal repayments on monthly payments.
As at December 31, 2015, the weighted average interest rate was 3.95%, compared to 4.13% for
mortgage loans on the books as at December 31, 2014, a drop of 18 basis points. As at December 31,
2015, all mortgages payable bear interest at fixed rates or are coupled with an interest rate swap.
The weighted average term of existing mortgage financings was 5.5 years as at December 31, 2015
and 4.7 years as at December 31, 2014.
BTB spreads the terms of its mortgages over many years in order to mitigate the risk associated with
renewing them.
BTB Annual Report 2015
60
Management Discussion and Analysis
The following table summarizes changes in mortgage loans payable during the quarters and years
ended December 31, 2015:
As at December 31, 2015
(in thousands of dollars)
Balance at beginning of period
Mortgage loans contracted or assumed
Balance repaid at maturity or upon disposal
Monthly principal repayments
Balance as at December 31, 2015
Note: Before unamortized financing costs and valuation adjustments.
Quarter
$
373,143
7,000
(9,339)
(2,851)
367,953
Year
$
330,784
79,875
(31,634)
(11,072)
367,953
Except for two properties under redevelopment valued at $4.3 million, and two properties partially
securing the acquisition and operating lines of credit as at December 31, 2015, all of the Trust’s other
properties were mortgaged as at December 31, 2015. Unamortized loan financing costs totalled $2,383
and are amortized under the effective interest method over the term of the loans.
The following table, as at December 31, 2015, shows future mortgage loan repayments for the next few
years:
As at December 31, 2015
(in thousands of dollars)
Maturity
2016
2017
2018
2019
2020
2021 and thereafter
Total
+ Valuation adjustments on assumed loans
- Unamortized financing costs
Balance as at December 31, 2015
Principal
repayment
$
Balance at
maturity
$
11,174
8,317
6,574
5,165
4,640
35,197
71,067
70,408
57,226
35,493
37,872
17,577
78,310
296,886
% of total
22.2
17.8
11.4
11.7
6.0
30.9
100.0
Total
$
81,582
65,543
42,067
43,037
22,217
113,507
367,953
1,026
(2,383)
366,596
Since the beginning of 2015, the Trust has entered into the following financing agreements:
•
In January 2015, a loan of $8.3 million for a 15-year term, bearing interest at a rate of 3.58%, for
the sale and leaseback acquisition of an industrial property in the city of Ottawa, at a cost of
$12.5 million.
BTB Annual Report 2015
61
Management Discussion and Analysis
•
•
•
•
In January 2015, a loan of $14.0 million for a 15-year term, bearing interest at a rate of 3.55%, for
the acquisition of a shopping centre in Delson, a Montréal suburb, at a cost of $21.5 million.
In July 2015, a refinancing of $17.5 million for a 10-year term, bearing interest at a rate of 4.06%,
on two properties. The total amount was used to repay two outstanding financings of $12.1 million
bearing interest at an average rate of 5.64% and for general Trust purposes.
In August 2015, a loan of $18.5 million for a 10-year term, bearing interest at a rate of 3.64%, for
the acquisition of two office buildings in Ottawa, at a cost of $28.5 million.
In October 2015, a refinancing of two properties for a total amount of $7 million, at an interest rate
of 3.77% maturing in 10 years, to reimburse two financings on these properties, one at 5.26% and
the other at 4.0%.
• During the year, renewal of three mortgage loans totalling $14 million on six properties, at similar
terms and conditions as previously established.
Event subsequent to December 31, 2015
In February 2016, a loan of $7.3 million for a 5-year term, bearing interest at rate of 2.77% and a
second ranking loan of $2.6 million for a 2 year-term, bearing interest at 5.9%. These two loans were
used to acquire an office building in Montréal, Québec for $11 million.
In February 2016, BTB entered into a refinancing agreement for $1.6 million for a 5-year term, bearing
interest at a rate of 3.30%, on an office property that is 75% owned.
Convertible debentures
(a) Series C
In January 2011, the Trust had issued Series C convertible, unsecured, subordinated debentures,
bearing 8% interest, in the amount of $23 million. Interest was payable semi-annually and the
debentures matured on January 31, 2016. The debentures were also convertible at the option of the
holder at any time no later than January 31, 2016, subject to certain conditions. The conversion price
was $5.00 per unit (the "Series C conversion price"). An amount of $146 was converted in 2015.
On December 4, 2015, the Trust refinanced the Series C debentures in the amount of $23 million by
issuing new Series F debentures, and the Series C subordinated debentures were fully repaid on
December 30 2015.
(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, 2015, the closing market price of BTB units was $4.41.
Since July 31, 2014, but before July 31, 2016, under certain conditions, the debentures will be
BTB Annual Report 2015
62
Management Discussion and Analysis
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, 2015, the closing market price of BTB units was
$4.41.
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.
(d) Series F
In December 2015, the Trust issued Series F subordinated, convertible, unsecured debentures, bearing
7.15% interest, in the amount of $26.7 million. Interest is payable semi-annually and the debentures
mature on December 31, 2020. The debentures are convertible at the holder’s option at any time
before December 31, 2020, subject to certain conditions. The conversion price is $5.65 per unit (the
"Series F conversion price"). As at December 31, 2015, the closing market price of BTB units was
$4.41.
As of December 31, 2018, but before December 31, 2019, 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 F conversion price
and, as of December 31, 2019, but before December 31, 2020, at a redemption price equal to their
principal amount plus accrued and unpaid interest.
BTB Annual Report 2015
63
Management Discussion and Analysis
The Trust may, at its option and under certain conditions, elect to satisfy its obligation to pay the
principal amount of the Series F debentures by issuing freely tradable units to Series F debenture
holders.
In 2015, only the Series C debentures met the conditions necessary for an authorized redemption.
Debentures totalling $146 were converted in the second quarter of 2015.
As at December 31, 2015
(in thousands of dollars)
Contractual interest rate
Effective interest rate
Date of issuance
Per-unit conversion price
Date of interest payment
Maturity date
Series D
Series E
Series F
Total
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 2020
7.15%
8.47%
December 2015
$5.65
June 30 and
December 31
December 2020
Balance as at December 31, 2015
21,627
21,968
25,271
68,866
BTB Annual Report 2015
64
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, a second-ranking collateral
mortgage on three properties, and by a third-ranking mortgage. The facility bears interest at the bank’s
base rate, plus 0.75%. As at December 31, 2015, the operating 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, a second-ranking
collateral mortgage on three properties, and a third-ranking mortgage on one property. The facility
bears interest at the bank’s base rate, plus 3.25%. As at December 31, 2015, $9.8 million of the
acquisition credit facility had been used.
The Trust intends to repay the acquisition credit facility in full through the issuance of units as soon as
circumstances permit.
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, 2015 and December 31, 2014.
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
Mortgage liability ratio (excluding convertible debentures and acquisition credit facility)
Debt-equity ratio – convertible debentures
Debt-equity ratio – acquisition line of credit
Total debt ratio
(1)
Gross amounts
2015
$
367,953
72,700
9,800
450,453
633,993
58.0%
11.5%
1.5%
71.0%
2014
$
330,784
69,000
—
399,784
587,490
56.3%
11.7%
—%
68.0%
According to the table above, the mortgage liability ratio, excluding the convertible debentures and
acquisition credit facility as at December 31, 2015, amounted to 58.0%, an increase of 1.7% compared
to December 31, 2014. Including the convertible debentures and the acquisition credit facility, the ratio
stood at 71.0%, up 3.0% from December 31, 2014. This increase reflects two factors: use of
$9.8 million of the acquisition credit facility to purchase accretive properties and a decline in the fair
BTB Annual Report 2015
65
Management Discussion and Analysis
value of investment properties. Management intends to repay the acquisition credit facility through a
contingent unit issue as soon as circumstances permit.
The Trust seeks to finance its acquisitions with mortgage debt ratios of 60% to 70% because the cost
of financings is lower than the capital cost of the Trust’s equity.
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, 2015, the interest coverage ratio
stood at 1.88, down 24 points from the fourth quarter of 2014. Despite the decrease, this ratio shows
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
Quarter
Year
2015
$
10,020
5,331
1.88
2014
$
10,008
4,725
2.12
2015
$
41,294
20,336
2.03
2014
$
37,983
18,780
2.02
(1)
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.
Accounts payable and other liabilities
(in thousands of dollars)
Trade and other payables
Distributions payable
Unit-based compensation
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
BTB Annual Report 2015
66
December 31
2015
December 31
2014
$
11,693
1,215
173
380
13,461
$
12,457
1,194
213
145
14,009
December 31,
2015
December 31,
2014
$
184,853
42,232
(52,726)
174,359
$
182,284
33,563
(38,248)
177,599
Management Discussion and Analysis
Distribution reinvestment plan
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,
114,253 units were issued during the fourth quarter of 2015 (2014: 91,789 units) and 408,625 units
were issued during the year (2014: 318,482). Approximately 12.5% of the distributions paid in 2015
have been reinvested under the plan, compared to 11.2% in 2014.
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 restricted unit compensation plan
Awards under the deferred unit compensation plan
Unit options exercised
Conversion of Series C debentures
Units outstanding, end of period
Weighted average number of units outstanding
Unit options
Quarter
Year
2015
Units
34,590,898
2014
Units
34,042,178
2015
Units
34,133,967
2014
Units
28,325,538
—
114,253
—
—
—
—
—
34,705,151
34,648,520
—
91,789
—
—
—
—
—
34,133,967
34,088,813
—
408,625
7,758
51,601
—
74,000
29,200
34,705,151
34,449,596
5,436,000
318,482
7,456
10,000
36,491
—
—
34,133,967
31,418,057
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 2015
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Management Discussion and Analysis
The following table provides details on unit options granted:
Periods ended December 31
(in number of options)
2015
2014
Unit options
Weighted
average
exercise price
Unit options
Weighted
average
exercise price
Outstanding, beginning of period
Expired
Exercised
Outstanding, end of period
Options vested as at December 31
Weighted average remaining term to expiry (years)
74,000
—
(74,000)
—
—
—
$
—
—
4,50
—
—
—
98,000
(24,000)
—
74,000
74,000
—
$
4.51
4.54
—
4.50
4.50
0.40
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.
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 outstanding during the quarters and years ended
December 31, 2015 and 2014:
Periods ended December 31
(in number of units)
Deferred units outstanding, beginning of period
Deferred units issued
Distributions converted to deferred units
Deferred units paid
Deferred units outstanding, end of period
Quarter
Year
2015
—
—
—
—
—
2014
—
—
—
—
—
2015
—
—
—
—
—
2014
29,771
5,619
1,649
(37,039)
—
BTB Annual Report 2015
68
Management Discussion and Analysis
Restricted unit compensation plan
Under this plan, beneficiaries are awarded restricted units that become fully vested over a period of up
to three years. The purpose of the plan is to encourage senior officers to achieve the Trust’s long-term
growth objectives and align their interests with the interests of unitholders. The plan is also an
executive retention tool.
The following table summarizes restricted units outstanding during the quarters and years ended
December 31, 2015 and 2014.
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
2015
51,083
—
—
51,083
2014
—
39,816
—
39,816
2015
2014
39,816
62,868
(51,601)
—
49,816
(10,000)
51,083
39,816
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. During the quarter, no units were issued under the plan (December 31, 2014:
nil) and as at December 31, 2015, a liability of 37$ was recorded for the contingent issuance of 8,340
units (2014: $37 for 7,758 units).
Off-balance sheet arrangements and contractual commitments
BTB does not have any other 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 ended December 31, 2015, BTB complied with all of its loan commitments and was
not in default with any covenant at the balance sheet date.
BTB Annual Report 2015
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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,
disposals of “real or immovable properties” that are capital properties, dividends, royalties and
disposals 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 disposals 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, 2015, 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 2015 or any other subsequent year.
BTB Annual Report 2015
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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
2015
%
—
100
100
2014
%
—
100
100
BTB Annual Report 2015
71
Management Discussion and Analysis
Summary of Significant Accounting Policies
and Estimates
BTB’s significant accounting policies and estimates are described in Note 2 to the audited annual
consolidated financial statements for the year ended December 31, 2015 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.
BTB Annual Report 2015
72
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 assets 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.
BTB Annual Report 2015
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Management Discussion and Analysis
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 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.
BTB Annual Report 2015
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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.
The Trust derecognizes a financial liability when its contractual obligations are discharged or
cancelled, or expire.
BTB Annual Report 2015
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Management Discussion and Analysis
(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.
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.
BTB Annual Report 2015
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Management Discussion and Analysis
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.
(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.
BTB Annual Report 2015
77
Management Discussion and Analysis
(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.
BTB Annual Report 2015
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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
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
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Management Discussion and Analysis
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
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 11, Joint Arrangements (“IFRS 11”)
In May 2014, the IASB issued amendments to IFRS 11, Joint Arrangements: Accounting for
Acquisitions of Interests in Joint Operations. The amendments provide guidance on how to account for
the acquisition of an interest in a joint operation in which the activities constitute a business
combination as defined in IFRS 3. Acquirers of such interests are to apply the relevant principals on
business combination accounting in IFRS 3 and other standards, as well as disclosing the relevant
information specified in these standards for business combinations. The amendment to IFRS 11 is
effective for annual periods beginning on or after January 1, 2016 and should be applied prospectively.
The Trust does not expect this amendment to significantly impact the consolidated financial statements.
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, 2018. The extent of the impact of adoption of the standard has not yet been
determined.
IFRS 16, Leases (“IFRS 16”)
In January 2016, the IASB issued IFRS 16, Leases. The new standard brings most leases on-balance
sheet for lessees under a single model, eliminating the distinction between operating and finance
leases. Lessor accounting, however, remains largely unchanged and the distinction between operating
and finance leases is retained. This standard would be effective for the Trust's annual periods
beginning after January 1, 2019 with earlier adoption permitted. The extent of the impact of adoption of
the standard has not yet been determined.
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Management Discussion and Analysis
IAS 1, Presentation of Financial Statements (“IAS 1”)
During December 2014, the IASB issued an amendment to IAS 1 clarifying certain existing IAS 1
requirements. The amendments include the following: the materiality requirements in IAS 1; that
specific line items in the consolidated statements of earnings and OCI and the consolidated balance
sheets may be disaggregated; that entities have flexibility as to the order in which they present the
notes to financial statements; that the share of OCI of associates and joint ventures accounted for
using the equity method be presented in aggregate as a single line item, and classified between those
items that will or will not be subsequently reclassified to earnings. The amendments also clarify the
requirements that apply when additional subtotals are presented in the consolidated balance sheets
and the consolidated statement of earnings and OCI. These amendments are effective for annual
periods beginning on or after January 1, 2016, with earlier adoption permitted. These amendments are
not expected to have any significant impact on our consolidated financial statements.
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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. At this time, low oil
prices have had and continue to have an adverse effect on Canada’s economy. 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.
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.
The operating credit facility in the stated amount of $2 million and acquisition credit facility for
$15 million are repayable on demand with at least 60 days’ notice. The credit facilities are subject to
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Management Discussion and Analysis
review on or around June 1 of each year.
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.
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Management Discussion and Analysis
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.
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.
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Management Discussion and Analysis
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.
Retail sector
Since the beginning of 2015, the retail sector has suffered economic difficulties that have led to the
closing of certain chains and to the bankruptcy of certain companies in Canada. Even though none of
these occupied any rental space in BTB’s properties, their disappearance has led to an important
increase in available space on the markets. This availability might lead to a downward pressure on
leasable space and to an increase in competition to fill the vacant spaces.
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.
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.
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Management Discussion and Analysis
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.
Environmental matters
Environmental and ecological related policies have become increasingly important in recent years. As
an owner or operator of real property, BTB could, under various federal, provincial and municipal laws,
become liable for the costs of removal or remediation of certain hazardous or toxic substances
released on or in our properties or disposed of at other locations. The failure to remove or remediate
such substances, or address such matters through alternative measures prescribed by the governing
authority, may adversely affect BTB’s ability to sell such real estate or to borrow using such real estate
as collateral, and could, potentially, also result in claims against BTB by private plaintiffs or
governmental agencies. BTB is not currently aware of any material non-compliance, liability or other
claim in connection with any of our properties, nor is BTB aware of any environmental condition with
respect to any properties that it believes would involve material expenditures by BTB.
Pursuant to BTB’s operating policies, BTB shall obtain or review a Phase I environmental audit of each
immovable property to be acquired by it.
Legal Risks
BTB’s operations are subject to various laws and regulations across all of its operating jurisdictions and
BTB faces risks associated with legal and regulatory changes and litigation.
General Uninsured Losses
BTB subscribed a blanket comprehensive general liability including insurance against fire, flood,
extended coverage and rental loss insurance with policy specifications, limits and deductibles
customarily carried for similar properties. There are, however, certain types of risks (generally of a
catastrophic nature such as from wars or environmental contamination) which are either uninsurable or
not insurable on an economically viable basis. BTB also carries insurance for earthquake risks, subject
to certain policy limits and deductibles, and will continue to carry such insurance if it is economical to do
so. Should an uninsured or underinsured loss occur, BTB could lose its investment in, and anticipated
profits and cash flows from, one or more of its properties, but BTB would continue to be obligated to
repay any mortgage loans on such properties.
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Management Discussion and Analysis
Many insurance companies have eliminated coverage for acts of terrorism from their policies, and BTB
may not be able to obtain coverage for terrorist acts at commercially reasonable rates or at any price.
Damage to a property sustained as a result of an uninsured terrorist or similar act would likely
adversely impact BTB’s financial condition and results of operation and decrease the amount of cash
available for distribution.
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,
disposals of “real or immovable properties” that are capital properties, dividends, royalties and
disposals 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 disposals 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
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, 2015, 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.
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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 Securities
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, 2015 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 year ended December 31, 2015, and, more
specifically, that the financial reporting is reliable and that the consolidated financial statements have
been prepared for financial reporting purposes in accordance with IFRS.
During fiscal year 2015, management made no changes to internal control over financial reporting that
materially affected, or are likely to materially affect, internal control over financial reporting.
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90
Audited Consolidated Financial StatementsYear ended December 31, 2015 Consolidated Financial Statements
Table of Contents
Independent Auditor’s Report
93 Management’s responsibility for Financial Reporting
94
96 Consolidated Statements of Financial Position
97 Consolidated Statements of Comprehensive Income
98 Consolidated Statements of Changes in Unitholders’ Equity
99 Consolidated Statements of Cash Flows
100 Notes to Consolidated Financial Statements
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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, 2015, 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, 2015 and 2014 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 17th 2016
BTB Annual Report 2015
93
KPMG LLP
600 de Maisonneuve Blvd. West
Suite 1500, Tour KPMG
Montréal (Québec) H3A 0A3
Canada
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, 2015 and
December 31, 2014, 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, 2015 and
December 31, 2014, and its consolidated financial performance and its consolidated cash flows for
the years then ended in accordance with International Financial Reporting Standards.
March 17, 2016
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, 2015 and 2014
(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 17, 2016.
Notes
4, 5, 6
7
14
8
9
10
11
12
13
14
15
2015
$
622,651
2,292
—
51
1,969
1,981
4,138
633,082
366,596
68,866
9,800
380
173
11,693
1,215
458,723
174,359
633,082
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
Michel Léonard, Trustee
Jocelyn Proteau, Trustee
BTB Annual Report 2015
96
Consolidated Financial Statements
BTB Real Estate Investment Trust
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars)
Notes
17
18
19
20
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
Expenses for abandoned transaction
Net income before the following item
Net changes in fair value of investment properties
and disposals transaction costs
Net income being total comprehensive
income for the year
See accompanying notes to consolidated financial statements.
2015
$
2014
$
72,892
67,170
19,850
11,748
18,217
10,970
31,598
29,187
41,294
37,983
22,863
20,410
288
23,151
4,044
207
(1,379)
19,031
4,209
—
13,892
14,743
(5,223)
(1,860)
8,669
12,883
BTB Annual Report 2015
97
Consolidated Financial Statements
BTB Real Estate Investment Trust
Consolidated Statements of Changes in Unitholders’ Equity
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars)
Balance at January 1, 2015
Issuance of units
Distributions to unitholders
Comprehensive income
Balance as at December 31, 2015
Balance at January 1, 2014
Issuance of units
Distributions to unitholders
Comprehensive income
Balance as at December 31, 2014
See accompanying notes to consolidated financial statements.
Notes
Unitholders’
contributions
Cumulative
distributions
Cumulative
comprehensive
income
16
16
16
182,284
2,569
—
184,853
—
184,853
157,207
25,077
—
182,284
—
182,284
(38,248)
—
(14,478)
(52,726)
—
(52,726)
(25,295)
—
(12,953)
(38,248)
—
(38,248)
33,563
—
—
33,563
8,669
42,232
20,680
—
—
20,680
12,883
33,563
Total
177,599
2,569
(14,478)
165,690
8,669
174,359
152,592
25,077
(12,953)
164,716
12,883
177,599
BTB Annual Report 2015
98
Consolidated Financial Statements
BTB Real Estate Investment Trust
Consolidated Statements of Cash Flows
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars)
Notes
20
7
17
17
18
4, 5
7
8
Operating activities
Net income for the year
Adjustment for:
Decrease in fair value of investment properties
and disposals transaction costs
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
Reduction in restricted cash
Interest paid
Net cash from financing activities
Net (decrease) increase in cash and cash
equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to consolidated financial statements.
BTB Annual Report 2015
99
2015
$
2014
$
8,669
12,883
5,223
158
279
(702)
2,084
23,151
38,862
(624)
38,238
1,860
165
284
(610)
1,793
19,031
35,406
1,272
36,678
(68,735)
(49,553)
12,087
(154)
4,656
(77)
(56,802)
(44,974)
78,326
(42,708)
18,959
(9,159)
25,251
(22,854)
333
(12,685)
1,666
(20,855)
16,274
(2,290)
6,428
4,138
66,113
(50,264)
2,246
(3,291)
—
—
23,429
(11,301)
4,115
(18,853)
12,194
3,898
2,530
6,428
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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, 2015 and 2014 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 Trustees on March 17, 2016.
(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 2015
100
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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 2015
101
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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 2015
102
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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 2015
103
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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 2015
104
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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 2015
105
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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 2015
106
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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.
(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 2015
107
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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 2015
108
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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 2015
109
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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 2015
110
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
(o) 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, 2015, 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 11, Joint Arrangements (“IFRS 11”)
In May 2014, the IASB issued Amendments to IFRS 11, Joint Arrangements: Accounting for
Acquisitions of Interests in Joint Operations. The amendments provide guidance on how to account
for the acquisition of an interest in a joint operation in which the activities constitute a business
combination as defined in IFRS 3. Acquirers of such interests are to apply the relevant principals on
business combination accounting in IFRS 3 and other standards, as well as disclosing the relevant
information specified in these standards for business combinations. The amendment to IFRS 11 is
effective for annual periods beginning on or after January 1, 2016 and should be applied
prospectively. The Trust does not expect this amendment to significantly impact the consolidated
financial statements.
(iii) 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
BTB Annual Report 2015
111
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
period beginning on January 1, 2018. The extent of the impact of adoption of the standard has not
yet been determined.
(iv) IFRS 16, Leases (“IFRS 16”)
In January 2016, the IASB issued IFRS 16, Leases. The new standard brings most leases on-
balance sheet for lessees under a single model, eliminating the distinction between operating and
finance leases. Lessor accounting, however, remains largely unchanged and the distinction between
operating and finance leases is retained. This standard would be effective for the Trust's annual
periods beginning after January 1, 2019 with earlier adoption permitted. The extent of the impact of
adoption of the standard has not yet been determined.
(v) IAS 1, Presentation of Financial Statements (“IAS 1”)
During December 2014, the IASB issued an amendment to IAS 1 clarifying certain existing IAS 1
requirements. The amendments include the following: the materiality requirements in IAS 1; that
specific line items in the consolidated statements of earnings and OCI and the consolidated balance
sheets may be disaggregated; that entities have flexibility as to the order in which they present the
notes to financial statements; that the share of OCI of associates and joint ventures accounted for
using the equity method be presented in aggregate as a single line item, and classified between
those items that will or will not be subsequently reclassified to earnings. The amendments also
clarify the requirements that apply when additional subtotals are presented in the consolidated
balance sheets and the consolidated statement of earnings and OCI. These amendments are
effective for annual periods beginning on or after January 1, 2016, with earlier adoption permitted.
These amendments are not expected to have any significant impact on our consolidated financial
statements.
BTB Annual Report 2015
112
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
4. Investment Properties
For the years ended December 31,
Balance beginning of year
Acquisitions of investment properties (note 5)
Disposals of investment properties (note 6)
Capital expenditures
Government grants
Capitalized leasing fees
Capitalized lease incentives
Lease incentives amortization
Straight-line lease adjustment
Net changes in fair value of investment properties (note 20)
Balance end of year
2015
$
571,462
63,383
(13 053)
4,332
(286)
778
2,364
(2,084)
702
(4,947)
622,651
2014
$
529,432
40,121
(4,725)
5,572
(120)
1,137
3,088
(1,793)
610
(1,860)
571,462
The fair value of a subset of the Trust’s investment properties comprised of a selection of the 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.
At December 31, 2015 external appraisals were obtained for investment properties with an aggregate fair
value of $394,213 (December 31, 2014 - $381,600) and management’s internal valuations were used for
investment properties with an aggregate fair value of $228,438 (December 31, 2014 - $189,862).
BTB Annual Report 2015
113
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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 year between levels. The significant inputs used to determine the fair value of the Trust’s investment
properties are as follows:
As at December 31, 2015
Capitalization rate
Terminal capitalization rate
Discount rate
As at December 31, 2014
Capitalization rate
Terminal capitalization rate
Discount rate
Commercial
Office
Industrial General purpose
6.25% - 10.00%
6.50% - 9.25%
6.50% - 9.75%
7.00% - 8.25%
7.00% - 8.50%
6.75% - 7.75%
7.75% - 9.75%
7.25% - 8.00%
7.75% - 9.00%
7.50% - 8.50%
8.25% - 10.50%
7.75% - 8.50%
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%
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
$
669,495
645,138
622,651
601,320
581,600
Change in
fair value
$
46,844
22,487
—
(21,331)
(41,051)
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 2015
114
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
5. Acquisitions
(a) 2015 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 2015 were as follows:
Acquisition date
Property type
Location
Interest
acquired
January 2015
January 2015
August 2015
August 2015
Transaction costs
Total
Industrial
Commercial
Office
Office
Ottawa, ON
Delson, QC
Ottawa, ON
Ottawa, ON
%
100
100
100
100
Fair value recognized on acquisition
Investment
properties,
including
transaction
costs
Mortgage
loans
payable
$
12,525
21,500
8,560
19,350
1,448
63,383
$
—
—
—
—
—
—
Trade and
other
payables,
including
transaction
costs
$
—
123
(59)
324
1,448
1,836
Total cash
consideration
paid
$
12,525
21,377
8,619
19,026
—
61,547
(b) 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
Interest
acquired
Fair value recognized on acquisition
Investment
properties,
including
transaction
costs
Mortgage
loans
payable
Total cash
consideration
paid
Trade and
other
payables,
including
transaction
costs
May 2014
Commercial
August 2014
Industrial
Saint-Jean-sur-
Richelieu, QC
Saint-Augustin-de-
Desmaures, QC
Transaction costs
Total
%
100
$
31,600
100
8,300
221
40,121
$
—
—
—
—
$
24
—
221
245
$
31,576
8,300
—
39,876
BTB Annual Report 2015
115
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
6. Disposals
(a) 2015 Asset Disposals
The following table presents relevant information on disposals recognized in the consolidated financial
statements during 2015:
Disposal date
Property type
Location
Gross
proceeds
Trade and
other payables,
including
transaction
costs
Balance of
sale
Net proceeds
November 2015
November 2015
December 2015
December 2015
Transaction costs*
Total
Office
Office
General purpose
General purpose
Boucherville, QC
St-Bruno-de-Montarville, QC
Laval, QC
Montreal, QC
$
2,945
3,983
3,125
3,000
—
13,053
$
(13)
(4)
(40)
(33)
(276)
(366)
—
(600)
—
—
—
(600)
$
2,932
3,379
3,085
2,967
(276)
12,087
*Transaction costs are recognized in profit and loss under Net changes in fair value of investment properties and disposals
transaction costs.
(b) 2014 Asset Disposals
The following table presents relevant information on disposals recognized in the consolidated financial
statements during 2014:
Disposal date
Property type
Location
Gross
proceeds
Net proceeds
Trade and other
payables,
including
transaction costs
April 2014
May 2014
Transaction costs*
Total
Commercial
Office**
Montreal, QC
Sherbooke, QC
$
4,200
525
—
4,725
$
(66)
(3)
—
(69)
$
4,134
522
—
4,656
*Transaction costs are recognized in profit and loss under Net changes in fair value of investment properties and disposals
transaction costs.
**Partial disposal of one of the two buildings constituting the investment property.
BTB Annual Report 2015
116
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
7. Property and Equipment
Owner-occupied
land
Owner-occupied
building
Equipment,
furniture and
fixtures
Rolling
stock
$
494
—
494
—
494
$
1,924
10
1,934
11
1,945
310
69
379
69
448
494
494
1,555
1,497
$
472
67
539
55
594
259
81
340
72
412
199
182
$
82
—
82
88
170
19
15
34
17
51
48
119
Total
$
2,972
77
3,049
154
3,203
588
165
753
158
911
2,296
2,292
Cost
Balance at December 31, 2013
Additions
Balance at December 31, 2014
Additions
Balance at December 31, 2015
Accumulated Depreciation
Balance at December 31, 2013
Depreciation for the year
Balance at December 31, 2014
Depreciation for the year
Balance at December 31, 2015
Net carrying amount
Balance at December 31, 2014
Balance at December 31, 2015
8. Restricted Cash
Restricted cash consists of an amount of $51 (December 31, 2014 - $1,717) provided in guarantee of
mortgage loans. The permitted use of restricted cash is to fund certain future capital expenditures.
9. Other Assets
As at December 31,
Prepaid expenses
Deposits
Total
2015
$
1,285
684
1,969
2014
$
2,599
840
3,439
BTB Annual Report 2015
117
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
10. Receivables
As at December 31,
Rents receivable
Provision for doubtful accounts
Net rents receivable
Unbilled recoveries
Other receivables
Balance of sale (note 6)
Total
2015
$
1,125
(329)
796
105
480
600
1,981
2014
$
1,195
(312)
883
65
394
—
1,342
Balance of sale is comprise of one mortgage loan receivable bearing interest at an interest rate of 2.75%,
payable semi-annually, maturing in November 2020.
11. Mortgage Loans Payable
Mortgage loans payable are secured by immovable hypothecs on investment properties having a fair
value of approximately $616,301 as at December 31, 2015 (December 31, 2014 – $565,187).
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
2015
$
361,450
6,503
1,026
(2,383)
366,596
3.95%
5.48
2014
$
317,677
13,107
1,270
(2,111)
329,943
4.13%
4.68
2.83% - 6.80%
2.63% - 6.80%
BTB Annual Report 2015
118
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
As at December 31, 2015, the mortgage loan scheduled repayments are as follows:
2016
2017
2018
2019
2020
Thereafter
Unamortized fair value assumption adjustments
Unamortized financing costs
Scheduled
repayments
$
11,174
8,317
6,574
5,165
4,640
35,197
71,067
Principal
maturity
$
70,408
57,226
35,493
37,872
17,577
78,310
296,886
Total
$
81,582
65,543
42,067
43,037
22,217
113,507
367,953
1,026
(2,383)
366,596
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, 2015, the outstanding principal amount was $6,503
(December 31, 2014 – $6,756). The Trust does not apply hedge accounting to such cash flow hedging
relationships (see note 14).
12. Convertible Debentures
As at December 31, 2015, the Trust had three series of subordinated, convertible, redeemable
debentures outstanding.
Series D
Series E
Series F
Capital
Interest rates
Coupon
Effective
23,000
23,000
26,700
%
7.25
6.90
7.15
%
8.47
7.90
8.47
Unit
conversion
price
$
6.10
6.15
5.65
Interest
payments
Maturity
July 2018
Semi-annual
Semi-annual
March 2020
Semi-annual December 2020
BTB Annual Report 2015
119
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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 D
$
21,346
1,654
23,000
Series E
$
Series F
$
22,690
310
23,000
26,700
—
26,700
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 31,2015
Non-derivative liability component upon issuance
Accretion of non-derivative liability component
Unamortized financing costs
Series D
$
Series E
$
Series F
$
Total
$
21,346
932
22,278
(651)
22,690
106
22,796
(828)
26,700
—
26,700
(1,429)
70,736
1,038
71,774
(2,908)
Non-derivative liability component
21,627
21,968
25,271
68,866
Conversion and redemption options (asset) liability
component at fair value
(5)
2
11
8
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 asset
component at fair value
(12)
(19)
(22)
(53)
BTB Annual Report 2015
120
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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.
During the second quarter of 2015, conversion options were exercised by holders on debentures
representing a nominal amount of $146. The remaining debentures were redeemed in December 2015, in
the amount of $22,854.
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”).
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.
BTB Annual Report 2015
121
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
Series F
In December 2015, the Trust issued Series F subordinated convertible, redeemable, unsecured
debentures bearing 7.15% interest payable semi-annually and maturing in December 2020, in the amount
of $26,700. The debentures are convertible at the holder’s option at any time before December 2020, at a
conversion price of $5.65 per unit (“Series F Conversion Price”).
These debentures are not redeemable before December 31, 2018, except in the case of a change in
control. As of December 31, 2018, but before December 31, 2019, 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 December 31, 2019, but before December 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, 2015, $9,800 was due under the
acquisition line of credit (December 31, 2014 - $nil).
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, 2015 and 2014, no amount
was due under the operating credit facility.
The acquisition line of credit and the operating credit facility are secured by an immoveable first rank
hypothec on three properties having a value of $7,666, by an immoveable second rank hypothec on three
properties having a value of $66,850 and by an immoveable third rank hypothec on a property having a
value of $21,000.
BTB Annual Report 2015
122
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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, deposits, trade and other payables and distributions payable to
unitholders, which approximated their carrying amount as at December 31, 2015 and December 31, 2014
because of their short-term maturity.
As at December 31, 2015
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
Bank loans (note 13)
Level 1
$
$
Level 2 Level 3
$
$
8
372
—
—
—
372
366,596
68,874
9,800
—
72,012
—
377,459
—
9,800
8
—
—
—
—
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)
—
—
—
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 2015
123
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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:
Year ended December 31, 2015
Balance beginning of year
Change for the year recognized in profit and loss under Net adjustment to fair
value of derivative financial instruments
Balance end of year
Year ended December 31, 2014
Balance beginning of year
Change for the year recognized in profit and loss under Net adjustment to fair
value of derivative financial instruments
Balance end of year
Conversion and redemption
options of convertible
debentures
$
(53)
61
8
Conversion and redemption
options of convertible
debentures
$
1,723
(1,776)
(53)
BTB Annual Report 2015
124
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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, 2015:
Volatility sensitivity
Increase (decrease)
(0.50%)
December 31, 2015
0.50%
Conversion and redemption
options of convertible
debentures
$
(100)
8
125
Volatility
%
20.24
20.74
21.24
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 2015
125
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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
2015
21
—
—
—
—
—
—
2014
(3)
17
—
0.40
15.93%
8.88%
0.94%
The following table presents relevant information on changes in the number of unit options during the
year:
For the years ended December 31,
Outstanding, beginning of year
Forfeited / Cancelled
Exercised
Outstanding, end of year
Options vested
Units
options
74,000
—
(74,000)
—
—
2015
Weighted
average
exercise price
4.50
—
4.50
—
Units
options
98,000
(24,000)
—
74,000
—
74,000
2014
Weighted
average
exercise price
4.51
4.54
—
4.50
4.50
BTB Annual Report 2015
126
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
(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
year:
For the years ended December 31,
Outstanding, beginning of year
Trustees’ compensation
Distributions paid in units
Units settled
Outstanding, end of year
2015
Deferred Units
2014
Deferred Units
—
—
—
—
—
29,771
5,619
1,649
(37,039)
—
As at December 31, 2015, the liability related to the plan was $nil (December 31, 2014 - $nil). No expense
was recorded in profit and loss for the year ended December 31, 2015 (for year ended December 31,
2014 - $39). As part of the settlement, the Trust issued 36,491 units and paid an amount of $3 under this
plan during the third quarter of 2014 (no issuance and no amount for the year ended December 31, 2015).
(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 service with the Trust. For each two units purchased by an employee, the
Trust issues one unit from treasury.
As at December 31, 2015, the liability related to the plan was $37 representing a total of 8,340 units to
issue (December 31, 2014 - $37, representing a total of 7,758 units to issue). The related expense
recorded in profit and loss amounted to $37 for the year ended December 31, 2015 (for the year ended
December 31, 2014 - $37). The 8,340 units related to 2015 purchases were issued in February 2016
(7,758 units related to 2014 purchases - February 2015).
BTB Annual Report 2015
127
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
(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 are eligible to receive restricted units.
The following table presents relevant information on changes in the restricted units:
For the years ended December 31,
Outstanding, beginning of year
Granted
Vested / Settled
Outstanding, end of year
2014
Restricted units Restricted units
2015
39,816
62,868
(51,601)
51,083
—
49,816
(10,000)
39,816
As at December 31, 2015, the liability related to the plan was $136 (December 31, 2014 - $159). The
related expense recorded in profit and loss amounted to $221 for the year ended December 31, 2015 (for
the year ended December 31, 2014 - $205). As part of settlement, the Trust issued 51,601 units under
this plan for year ended December 31, 2015 (10,000 units for the year ended December 31, 2014).
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.
BTB Annual Report 2015
128
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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 year
Issue pursuant to a public issue
Unit issue costs
Issue pursuant to the distribution reinvestment plan (a)
Issue pursuant to conversion of convertible debentures (note
12)
Issue pursuant to the unit option plan (note 15 (a))
Issue pursuant to the deferred unit compensation plan (note
15 (b))
Issue pursuant to the employee unit purchase plan (note 15
(c))
Issue pursuant to the restricted unit compensation plan (note
15 (d))
Units
34,133,967
—
—
34,133,967
408,625
29,200
74,000
—
7,758
2015
$
182,284
—
—
182,284
1,772
144
371
—
37
Units
28,325,538
5,436,000
—
33,761,538
318,482
—
—
36,491
7,456
51,601
245
10,000
2014
$
157,207
24,734
(1,305)
180,636
1,400
—
—
169
33
46
Units outstanding, end of year
34,705,151
184,853
34,133,967
182,284
(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%.
(b) Distributions
For the years ended December 31,
Distributions to unitholders
Distributions per unit
2015
$
14,478
0.42
2014
$
12,953
0.41
BTB Annual Report 2015
129
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
17. Rental Revenues from Properties
For the years ended December 31,
Rental income contractually due from tenants
Lease incentive amortization
Straight-line lease adjustment
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
Early repayment fees of a mortgage loan
Net adjustment to fair value of derivative financial instruments
2015
$
74,274
(2,084)
702
72,892
2015
$
(52)
14,360
5,228
690
110
2014
$
68,353
(1,793)
610
67,170
2014
$
(77)
13,523
5,096
172
66
629
561
1,273
625
288
23,151
1,069
—
(1,379)
19,031
19. Expenses for abandoned transaction
For the year ended December 31, 2015, due diligence expenses of $207 were incurred for the proposed
acquisition of a major property portfolio (for the year ended December 31, 2014 - $nil). As certain
preliminary conditions were not met, management decided to terminate the acquisition project.
BTB Annual Report 2015
130
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
20. Net changes in fair value of investment properties and disposals transaction
costs
For the years ended December 31,
Net changes in fair value of investment properties
Disposals transaction costs
21. Expenses by Nature
For the years ended December 31,
Depreciation
Employee benefits expense
22. Earnings per Unit
2015
$
4,947
276
5,223
2015
$
158
4,128
2014
$
1,860
—
1,860
2014
$
165
3,947
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
2015
$
8,669
34,449,596
2014
$
12,883
31,418,057
0.25
0.41
BTB Annual Report 2015
131
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
23. Operating Lease Income
The Trust as lessor enters 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,
2015 are as follows:
Within one year
Beyond one year but within five years
Beyond five years
2015
$
45,680
126,664
70,150
242,494
24. 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.
(a) 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 2015
132
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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
(b) 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)
2015
$
367,953
72,700
9,800
450,453
174,359
624,812
2014
$
330,784
69,000
—
399,784
177,599
577,383
2015
%
71.2
59.7
2014
%
68.1
56.4
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.
(i) 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, 2015, overdue rent receivable amounted to
$638 (December 31, 2014 - $507), of which a provision for doubtful account of $329 (December 31,
BTB Annual Report 2015
133
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
2014 - $312) has been 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.
(ii) Interest rate risk
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.
As at December 31, 2015, all 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 no impact on the Trust’s comprehensive income for the year
ended December 31, 2015.
(iii) 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, 2015, the Trust was in compliance with all the covenants to which it was subject.
BTB Annual Report 2015
134
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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, 2015
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
2016
2017
2018
2019
2020
$
$
$
11,693
11,693
11,693
1,215
9,800
1,215
9,800
1,215
9,800
$
—
—
—
$
—
—
—
$
—
—
—
$
—
—
—
2021 and
thereafter
$
—
—
—
435,462
528,364
100,661
458,170
551,072
123,369
81,276
81,276
77,571
77,571
52,722
52,722
79,456
79,456
136,678
136,678
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
BTB Annual Report 2015
135
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
25. 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**
2015
%
50
50
75
2014
%
50
50
75
* The three investment properties are located in province of Quebec.
** 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 2015
136
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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
26. Operating Segments
2015
$
48,025
30,098
5,587
3,444
2014
$
47,454
30,898
5,341
2,015
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 2015
137
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
Year ended December 31, 2015
Investment properties
Rental revenue from properties
Net operating income
Year ended December 31, 2014
Investment properties
Rental revenue from properties
Net operating income
Commercial
Office
Industrial
$
$
$
155,838
17,670
10,801
137,362
14,087
8,687
229,288
28,014
12,930
209,200
27,771
13,500
124,125
11,242
9,422
109,025
9,946
8,083
General
purpose
$
113,400
15,966
8,141
115,875
15,366
7,713
Total
$
622,651
72,892
41,294
571,462
67,170
37,983
27. 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
2015
$
1,976
264
2,240
2014
$
1,935
209
2,144
Key management personnel are comprised of the Company’s executive officers.
BTB Annual Report 2015
138
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
28. Commitments and Contingencies
(a) Operating leases as lessee
The annual future payments required under operating leases expiring between 2017 and 2070 are as
follows:
Within one year
Beyond one year but within five years
Beyond five years
Total
$
197
787
14,508
15,492
The related expense recorded in profit and loss amounted to $183 for the year ended December 31, 2015
(for the year ended December 31, 2014 - $88).
(b) Finance lease as lessee
The annual future payments required under finance leases expiring between 2018 and 2024 are as
follows:
As at December 31,
Future minimum lease
payments
Interest
Present value of minimum
lease payments
2014
2015
2015
2014
2015
2014
Within one year
Beyond one year but within five years
Beyond five years
$
244
534
455
1,233
$
47
201
139
387
$
55
144
47
246
$
19
56
25
100
$
189
390
408
987
$
28
145
114
287
The present value of the minimum lease payments is recorded 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.
BTB Annual Report 2015
139
Consolidated Financial Statements
BTB Real Estate Investment Trust
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(Audited - in thousands of CAD dollars, except per unit amounts)
29. Subsequent Events
In February 2016, the Trust acquired an office building located in the city of Montreal for a purchase price
of $11,000. As part of the transaction, the Trust secured a 5 year first ranked mortgage loan of $7,250
bearing interest at a rate of 2.77% and a 2 year second ranked mortgage loan of $2,650 bearing interest
at a rate of 5.90%.
In February 2016, the Trust concluded a refinancing agreement for one of its properties owned at 75% for
a total amount of $1,644, at an interest rate of 3.30% maturing in 5 years.
30. Comparatives Figures
Certain comparative figures have been reclassified to conform to the current year’s presentation.
BTB Annual Report 2015
140
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 2015
143
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 LLP.
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.D
BTB.DB.E
BTB.DB.F
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 Investor Services.
Transfer Agent
Computershare Investor Services
1500 Robert-Bourassa Blvd
7th floor
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 2015, for all Canadian unitholders, the distributions were
fiscally treated as follow:
Other revenues: 0%
Fiscal Deferral: 100%
Auditors
KPMG LLP.
600 De Maisonneuve Blvd. West
Suite 1500
Montreal, Quebec, H3A 0A3
BTB Annual Report 2015
144
BTB Real Estate Investment Trust
2155, Crescent
Montreal, Quebec, H3G 2C1
T 514 286 0188
F 514 286 0011
www.btbreit.com