Committed
for more than
10 years
2016
BTB Real Estate Investment Trust
Annual Report
Profile
BTB is a real estate investment trust listed on the Toronto Stock Exchange.
It owns and manages a portfolio of 72 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 $658 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 accretive
and acquisition strategies in order to increase available income and fund
distributions;
• managing assets internally in a centralized and controlled fashion in order
to reduce operating expenses, management fees and rental expenses;
• maximising the value of its assets through dynamic and responsible
management so as to ensure the long-term value of its units.
Table of contents
1 Highlights
15 Message from the Chairman of the Board
of Trustees and from the President
and Chief Executive Officer
17 Executive Team
19 Our Properties
21 Management Discussion and Analysis
59 Audited Consolidated Financial Statements
99 Corporate Information
100 Unitholder Information
2
BTB Rapport annuel 2013 Highlights
$73.4 M
$658 M
Rental income
Total assets
72
Number
of properties
5.1 M
83.4%
Number
of square feet
Payout ratio on recurring
distributable income
59.1%
90.5%
Mortgage debt ratio
Occupancy rate
BTB Annual Report 2016
1
Highlights
Evolution of rental income
for the years ending December 31st
Evolution of net operating income
for the years ending December 31st
(in thousands of dollars)
(in thousands of dollars)
201 6
201 5
201 4
201 3
201 2
201 1
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
73,384
72,892
67,170
63,435
48,1 1 8
41,459
201 6
201 5
201 4
201 3
201 2
201 1
50,000
40,000
30,000
20,000
10,000
0
41,339
41,294
37,983
35,336
26,996
22,122
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Evolution of recurring distributable income
for the years ending December 31st
Evolution of total leasable area
for the years ending December 31st
(in thousands of dollars)
(in thousands square feet)
201 6
201 5
201 4
201 3
201 2
201 1
20,000
15,000
10,000
5,000
0
19,7 1 1
18,733
16,626
12,610
7,805
5,026
201 6
201 5
201 4
201 3
201 2
201 1
5,144
5,095
4,822
4,580
4,341
3,272
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BTB Annual Report 2016
2
Highlights
Performance on the markets
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BTB’s
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Breakdown of portfolio by geographical region
at December 31st, 2016
Breakdown by asset type
at December 31st, 2016
(per leasable area)
(per leasable area)
Greater Montreal area
Greater Quebec city area
Ottawa area
Sherbrooke
London area
48.3%
23.4%
19.0%
5.3%
4.0%
Office
Retail
Industrial
Mixed-use
38.6%
22.3%
30.2%
8.9%
Total
100 %
Total
100 %
BTB Annual Report 2016
3
Our commitment is to create
strong performance, profitability
and value creation for our
unitholders.
Our returns are driven by the strength of our team,
the strength of our assets and how they are managed,
along with all the relationships at every level of the
value chain. We ranked among the top-performing real
estate trusts, providing unitholders with a total
five-year return of 54%.
BTB Annual Report 2016
4
Sylvie Laporte
Vice President Property Management
Before I joined BTB seven months ago, company president,
Michel Léonard, told me to get ready to rock! “Ça bouge!”
he said. That was an understatement. We’re a great team
and we never stop. There are always new challenges,
constant lease renewals, changes and improvements. In the
past, I’ve worked for dynamic companies that were always
on the move, but nothing like this. My job is to manage
our 72 properties, which also involves managing people,
which is a great pleasure. I’m also pleased to be BTB’s
first female executive, and I think I bring a fresh perspective
to the business!
BTB Annual Report 2016
5
We acquire quality
real estate assets and
improve them.
We continue to grow by managing the 72 properties
in our portfolio and maximizing tenant satisfaction.
We also invest wisely and uncompromisingly in our assets
to ensure tenant retention and attract new tenants with
superior covenants.
BTB Annual Report 2016
6
Michelle Lauzier
Director of Administration
Clinique Neuro Rive-Sud
We’ve been located at 4896 Taschereau Boulevard in
Longueuil since 1992. It’s obvious we like the location,
especially the ample parking for our clients. Since we
moved here, we’ve doubled in size and in 2015, we under-
took a major renovation of our facilities. We were delighted
that our landlord, BTB, invested in the renovation of the
corridors, elevator cab and washrooms, which added an
important image enhancement to our own renovations.
They are excellent building managers and I would definitely
recommend BTB as a landlord. They ask for our opinion,
and they quickly respond to our requests. We appreciate
that very much.
BTB Annual Report 2016
7
Our tenants are the engine
of our success.
They are our key asset. They sustain our profitability
and growth. We see client satisfaction as the core
of everything we do.
BTB Annual Report 2016
8
Bernard Robitaille
Executive Director, Quebec
COFOMO
Moving represents a complete change in environment.
The service we received from BTB was excellent. We built
out our space completely, and the result was even better
than we expected. BTB was very accommodating. They
listen and they responded to our needs generating a high
level of satisfaction. It sounds like a small thing, but on
our first day of work in our new premises, they installed
a sign welcoming us. We are very pleased with our
choice of building and landlord.
BTB Annual Report 2016
9
The relationships we nurture
and maintain with the brokerage
community contribute to
the growth of the organization.
They partner with us to ensure the right
tenant is going into the best suitable space
in order to remain for the long term.
BTB Annual Report 2016
10
Isabelle Gosselin
Administrative Assistant
TINK/BKOM
My principal contact at BTB is Nathalie Laurin and she’s
super to work with and amazingly efficient. We expanded
our space recently and BTB acted really fast and responded
rapidly to our need to get the plans done and the construc-
tion underway. BTB has a really efficient team, and
they treat every request as a high priority. As a tenant
you can’t ask for more.
BTB Annual Report 2016
11
BTB’s team is the key
to its growth and that makes
the difference between
good and great.
They understand that every individual must
contribute meaningfully for us to succeed.
BTB Annual Report 2016
12
Employees Recognition Awards Winners 2016
Isabelle Tremblay
Lease Manager
I am so proud to be part of this great organization, where
I have worked since 2008. Over that period of time we’ve
more than tripled in size but our values haven’t changed. I
prepare offers to lease and other legal documentation for
our leasing and property management departments, so
my clients are internal; they are my colleagues.
BTB is like a big family and teamwork is the norm. We all
understand that we’re nothing without each other, and
that everything we do is connected to everything everyone
else is doing. We communicate and work together.
Gilles Giguère
Assistant Property Manager – Building Services
As a property manager, I negotiate contracts with various
suppliers, oversee the construction of tenant improvements
for our tenants and new tenants, as well as maintain the
HVAC systems of our 8 properties. I had been working
with the previous property manager since 2011 and when
BTB took over the management of its Quebec City Portfolio
in 2015, I decided to switch to BTB. What a difference!At
BTB, we work as a team. It is fantastic to have superiors
and colleagues I can lean on for support. It is an honour
to work for an organization who is getting recognized in
Quebec City for great tenant service and has the highest
standards of building management. I’m proud to be part of
BTB’s success.
Étienne Charbonneau
Principal Controller
When I arrived at BTB, I was surprised and delighted to
see that the structures, the systems and the reporting
mechanisms exceeded the norm for such a comparatively
young company. They put in place the structures of a very
mature and diligent organization. Running a real estate
investment trust is a complex operation to manage, with
many variables and considerations. Having timely and
accurate information is key to making the right decision at
the right time. That said, the organization is not afraid to
shed old processes to adopt new and better ones.
From left to right:
Gilles Giguère, Assistant Property Manager – Building Services,
Isabelle Tremblay, Lease Manager, Sylvie Laporte,
Vice-President, Property Manager, Mathieu Dallaire, Technical
Supervisor, Étienne Charbonneau, Principal Controller
Mathieu Dallaire
Technical Supervisor
My job is to work with the property managers to insure
that the mechanical systems are performing optimally.
The property managers are my internal clients, as are our
tenants. There’s a huge advantage to having a technical
supervision as an internal resource and not an external
supplier. Naturally, I also work with external suppliers as
well as a project manager and supervisor, to ensure
work gets done in the building, on time, with quality and
on budget. The benefits for our building managers, our
tenants and for investors are clear. Tenants get the
personalized service that distinguishes our buildings from
many others. I’m accessible and act as an advisor to them.
For our investors, it means that we’re taking care of our
most important assets: our tenants and our buildings.
BTB Annual Report 2016
13
Message from the Chairman of the Board of Trustees
and from the President and Chief Executive Officer
Committed
to BTB’s success
October 2016 marked our tenth anniversary and
this event quite naturally prompted a period of
reflection and strategic planning for the board of
trustees and the senior management of BTB. It saw
us recommitting to our various values of integrity,
teamwork, leadership, respect and quality. It also
allowed us to reaffirm the strategic direction that
has guided us over the last decade; that is, to pursue
growth without compromising profitability.
2016 was not the most favourable year for real
estate investment trusts and for the real estate
industry as a whole, which is sensitive to increases
in interest rates. A rising tide raises all boats and
the contrary is also true. Rumours of interest rate
hikes at the beginning of the year created uncertainty,
and the stock market where the majority of REITs
are traded were affected. Despite this less favourable
market environment and despite other factors as
well, we managed to outperform many of the other
real estate trusts. In fact our five-year return to
investors is 54%.
Through a successful public share offering in June
2016 we raised over $33 million, which has allowed
us to redeem before maturity the Series D debenture
maturing on July 31, 2018. This transaction allowed
us to reduce our total debt ratio by 4%, which
we believe represents a level of debt that is more
acceptable to unitholders who are looking to reduce
risk. Only two series of debentures remain for a total
of $46 million, maturing in 2020. Series E may be
redeemed prior to maturity as of March 2018 and
Series F as of December 2019. Our priority remains
the reduction of the debt level of BTB.
We have stayed the course in 2016 and are moving
forward, based on careful analysis and scrutiny
of our assets that in turn has led to finely-honed
investment and property management strategies –
all with an eye to improving the performance of the
portfolio as a whole. To that effect, we have taken
over the management of our properties located
in Ottawa. We believe that our direct involvement in
the management of our buildings creates better rela-
tions with our clients and better service, at reduced
cost. We are aligning our leasing strategy to retain
and attract quality tenants by negotiating leases that
are in the interests of both BTB as the landlord and
our clients as tenants.
Our portfolio now includes 72 office, industrial
and retail properties totalling more than 5.1 million
square feet. We have invested in repositioning key
assets through renovation programs. Among the
notable renovation projects completed, are the lobby
and common areas to par of 1001 Sherbrooke
St. East in Montreal and the complete modernization
of the façade of our building on the Trans-Canada
Highway in Dorval, which reflects the change in
destination of the property. We renovated the facades
of two shopping centres in Sherbrooke as well.
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BTB Annual Report 2016
15
Message from the Chairman of the Board of Trustees
and from the President and Chief Executive Officer
The fact that we manage almost all (but two) of
the buildings in our portfolio gives us a strategic
advantage in terms of understanding the needs and
requirements of our tenants, and it makes us
responsive to their needs. It also allows us to contain
costs. The newly created position of in-house tech-
nical supervisor provides technical support to our
property managers. Managing the mechanical sys-
tems is a highly specialized task requiring specific
training and experience. This resource provides the
knowledge and the ability to proactively optimize
our systems at a reasonable cost.
We are very pleased to have welcomed Sylvie
Laporte to the executive team as our new Vice
President, Property Management. Sylvie is a sea-
soned real estate professional with a track record
in property management and real estate investment
trusts. She is a welcomed addition to our seasoned
team and has already proven her worth to the
organization. Dominic Gilbert, who occupied Sylvie’s
position previously, remains with the organization
and is now Vice President, Leasing. We understand
the crucial importance of increasing the occupancy
in our buildings and, in that regard, Dominic has
already made inroads.
We saw a slight change in the composition of
the board of trustees. Mr. Claude Garcia retired from
the board after serving since 2006. Mr. Garcia’s
wise counsel served the board very well and his
insights proved very useful to BTB unitholders. We
thank him sincerely for his valuable contribution.
To fill Mr. Garcia’s vacancy, we welcomed Luc
Martin as a trustee in 2016. Mr. Martin is a CPA
and brings more than 30 years experience in finance,
accounting and business management to the board
and to the organization. In addition, he comes to
us as a seasoned director and a former partner at
Deloitte, where he held a variety of positions of
increasing responsibility.
In conclusion, 2016 was a year of introspection
and consolidation for BTB, where we have marshalled
the strengths of all our assets and resources. We
enter 2017 committed as always to growth, committed
to providing solid returns to our unitholders, com-
mitted to our tenants and confident that we have the
systems and the human capital in place to achieve
those returns for our unitholders.
Jocelyn Proteau
Chairman, Board of Trustees
Michel Léonard
President and Chief Executive Officer
BTB Annual Report 2016
16
Executive Team
From left to right: Benoit Cyr, Michel Léonard,
Sylvie Laporte and Dominic Gilbert.
Michel Léonard
President and Chief Executive Officer
Benoit Cyr, CPA, CA, MBA
Vice President and Chief Financial Officer
Sylvie Laporte
Vice President, Property Management
Dominic Gilbert, B.A.A.
Vice President, Leasing
BTB Annual Report 2016
17
50 St-Charles Street West, Longueuil
15-41 Georges-Gagné Blvd, Delson
80 Aberdeen Street, Ottawa
815 Lebourgneuf Blvd, Quebec
145 St-Joseph Blvd, St-Jean-sur-Richelieu
1500, Royale Street, Three-Rivers
315-325 Macdonald Street, Saint-Jean-sur-Richelieu
11600-11800 De Salaberry Blvd, Dollard-des-Ormeaux
BTB Annual Report 2016
18
Our Properties
Portfolio listing
Montreal Area
1400-1440 Antonio-Barbeau Street, Montreal
5810 Sherbrooke Street East, Montreal
5878-5882 Sherbrooke Street East, Montreal
7001-7035 St-Laurent Blvd, Montreal
1001 Sherbrooke Street East, Montreal
2153-2155 Crescent Street, Montreal
2101 Ste-Catherine Street West, Montreal
550-560 Henri-Bourassa Blvd, Montreal
3627-3645 des Sources Blvd, Dollard-des-Ormeaux
3761-3781 des Sources Blvd, Dollard-des-Ormeaux
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 and 2681 Côte Saint-Charles,
Saint-Lazare
North Shore of Montreal
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
145 St-Joseph Blvd, St-Jean-sur-Richelieu
315-325 MacDonald Street, St-Jean-sur-Richelieu
1000 Du Séminaire Nord Blvd, St-Jean-sur-Richelieu
15,19,21,35 and 41 Georges-Gagné Blvd, Delson
Quebec City Area
6655 Pierre-Bertrand Blvd, Quebec
6700 Pierre-Bertrand Blvd, Quebec
909-915 Pierre-Bertrand Blvd, Quebec
825 Lebourgneuf Blvd, Quebec
815 Lebourgneuf Blvd, Quebec
1170 Lebourgneuf Blvd, Quebec
191 D’Amsterdam Street, St-Augustin-de-Desmaures
175 de Rotterdam Street, St-Augustin-de-Desmaures
1100 and 1108-1136 St-Joseph Blvd, Drummondville
505 Des Forges Street and 1500 Royale Street,
Three Rivers
665-669 Thibeau Blvd, Three Rivers
3885 Harvey Blvd, Saguenay
100 1st Street West, Thetford Mines*
Sherbrooke
2865-2885 De Portland Blvd, Sherbrooke
1640-1650 King Street West, Sherbrooke
30-66 Jacques-Cartier Blvd Nord, Sherbrooke
1635-1645 King Street East and 150-170 Duplessis Road,
Sherbrooke
747-805 King Street East, Sherbrooke
3705 Industrial Blvd, Sherbrooke
2059 René-Patenaude Street, Magog
Greater London Area, Ontario
311 Ingersoll Street, Ingersoll
Ottawa Area, Ontario
80 Aberdeen Street, Ottawa
245 Menten Place, Ottawa
1-9 and 10 Brewer Hunt Way and 1260-1280 Teron Rd,
Ottawa
400 Hunt Club Rd, Ottawa
2200 Walkley Road, Ottawa
2204 Walkley Road, Ottawa
7 and 9 Montclair Blvd, Gatineau
705 Boundary Road, Cornwall
725 Boundary Road, Cornwall
805 Boundary Road, Cornwall*
2901 Marleau Avenue, Cornwall
2905 Marleau Avenue, Cornwall
*Properties in redevelopment
BTB Annual Report 2016
19
1863-1865 Trans-Canada Highway, Dorval
Management Discussion and Analysis
Quarter ended December 31, 2016
21
BTB Rapport annuel 2016 TABLE OF CONTENTS
Introduction
Forward-Looking Statements Caveat
Non-IFRS Financial Measures
The Trust
Objectives and Business Strategies
Highlights of the Year Ended December 31, 2016
Selected Financial Information
Significant Events
Selected Annual Information
Selected Quarterly Information
Real Estate Portfolio
Real Estate Operations
Operating Results
Operating Results – Same-Property Portfolio
Distributable Income and Distributions
Funds from Operations (FFO)
Adjusted Funds from Operations (AFFO)
Segmented Information
Financial Position
Assets
Capital Resources
Income Taxes
Taxation of Unitholders
Accounting Policies and Estimates
New Accounting Policies
Risks and Uncertainties
Disclosure Controls and Procedures and Internal Control Over Financial Reporting
Appendix 1 - Performance Indicators
Appendix 2 - Definitions
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45
50
37
51
52
52
53
54
55
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
22
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, 2016, 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 10, 2017, should be read together with the audited consolidated financial statements and
accompanying notes for the years ended December 31, 2016 and 2015. 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, 2016, and 2015. Additional information about the Trust,
including the 2016 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 Management Discussion
and Analysis and the annual financial statements.
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.
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.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
23
NON-IFRS FINANCIAL MEASURES
“Net operating income, ” “net operating income of the same-property portfolio”, “distributable income”and “recurring
distributable income,” “funds from operations” ("FFO") and “recurring funds from operations” ("FFO"), “adjusted funds
from operations” ("AFFO") and “recurring adjusted funds from operations” ("AFFO"), “adjusted net income and
comprehensive income” and “net property income” and per unit information, if applicable, 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 April 2014.
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 Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
24
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, 2016,
it has acquired and owns 72 retail, 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 E and F
convertible debentures are traded on the Toronto Stock Exchange under the symbols “BTB.UN”, “BTB.DB.E”, and
“BTB.DB.F”, respectively.
Most of the Trust’s properties are managed internally, with 69 of the Trust’s 72 properties held as at December 31,
2016 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, 2016(1)
Number of
properties
Leasable area
(sq. ft.)
Fair value
(thousands of $)
72
5,143,955
645,485
(1)
These figures include a 50% interest in a 17,114 square-foot building in a Montréal suburb, a 75% interest in a 140,824 square-foot building in Québec City and a
50% interest in two buildings totalling 74,940 square feet in Gatineau, Québec.
BTB’s management is entirely internalized and no service agreements or asset management agreements are in force
between BTB and its officers. The Trust therefore ensures that the interests of management and of its employees are
aligned with those of the unitholders.
OBJECTIVES AND BUSINESS STRATEGIES
BTB’s primary objective is to maximize total returns to unitholders. Returns include cash distributions and long-term
appreciation in the value of units. More specifically, the objectives are as follows:
(i) Generate stable monthly cash distributions that are reliable and fiscally beneficial to unitholders.
(ii) Grow the Trust’s assets through internal growth and accretive acquisition strategies in order to increase
distributable income and therefore fund distributions.
(iii) Optimize the value of its assets through dynamic management of its properties in order to maximize the long-
term value of its units. Strategically, BTB has purchased and seeks to acquire properties with low vacancy rates,
good lessee quality, superior locations, low lease turnover potential and properties that are well maintained and
require a minimum of future capital expenditures.
BTB’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 and/or to make accretive
acquisitions.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
25
HIGHLIGHTS OF THE YEAR ENDED DECEMBER 31, 2016
Slight increase
•
In rental income, net operating income(1), recurring distributable income(1), recurring funds from operations
(FFO)(1), recurring adjusted funds from operations (AFFO)(1) and total assets.
(1) Non-IFRS financial measures.
Slight decrease
•
In net income of the same-property portfolio.
Reduction
•
In the total debt ratio and the average interest rate on mortgage debt.
Leasing activities
• More than 520,000 square feet of leases renewed and new leases signed during the year.
• 5.6% increase in the average rental rate of renewed leases during the year.
Financing activities
• $9.9 million in financings, with an average term of 4.2 years and an average rate of 3.59%.
• $87.2 million in refinancings, with terms varying from 1 year to 10 years, for a weighted average term of 7.5 years,
as well as fixed rates of 2.88% to 4.11% and a weighted average rate of 3.50%. These refinancings allowed for an
equity take-out of approximately $16 million.
Summary of significant items as at December 31, 2016
• 72 properties
• More than 5.1 million leasable square feet
• $658 million in assets
• $189 million in market capitalization
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
26
SELECTED FINANCIAL INFORMATION
As at December 31, 2016, the Trust owns 72 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, 2016, and December 31, 2015:
Periods ended December 31
(in thousands of dollars, except for ratios and per unit data)
Financial information
Rental income
Net operating income(1)
Net income and comprehensive income
Net property income from the same-property portfolio(1)
Recurring distributable income(1)
Distributions
Recurring Funds from operations (FFO)(1)
Recurring adjusted funds from operations (AFFO)(1)
Total assets
Investment properties
Mortgage loans payable
Convertible debentures
Mortgage liability ratio
Debt-equity ratio – convertible debentures
Debt-equity ratio – acquisition line of credit
Total debt ratio
Weighted average interest rate on mortgage debt
Unitholders’ equity
Market capitalization
Financial information per unit
Units outstanding (000)
Weighted average number of units outstanding (000)
Net income and comprehensive income
Recurring distributable income(1)
Distributions
Recurring payout ratio on distributable income(1)
Recurring FFO(1)
Recurring payout ratio on FFO(1)
Recurring AFFO(1)
Recurring payout ratio on AFFO(1)
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
Quarter
2016
$
18,270
10,121
9,130
5,498
5,047
4,442
4,808
4,485
2015
$
18,539
10,020
(2,124)
5,566
4,211
3,640
3,710
3,588
42,283
21.6¢
11.9¢
10.5¢
88.0%
11.4¢
92.4%
10.6¢
99.0%
34,649
(6.1¢)
12.2¢
10.5¢
86.4%
10.7¢
98.1%
10.4¢
101.4%
10.1%
10.0%
2016
$
73,384
41,339
22,085
23,236
19,711
16,444
17,710
17,391
658,462
645,485
384,350
47,692
59.1%
7.6%
—%
65.7%
3.79%
212,963
189,270
42,342
38,546
57.3¢
51.1¢
42.0¢
83.4%
45.9¢
92.8%
45.1¢
94.5%
5.04
4.47
0.0%
100%
72
5,144
90.5%
5.6%
Year
2015
$
72,892
41,294
8,669
24,060
18,733
14,478
16,333
17,165
633,082
622,651
366,596
68,866
58.4%
11.5%
1.6%
70.9%
3.95%
174,359
153,050
34,705
34,450
25.2¢
54.4¢
42.0¢
77.3%
49.8¢
88.6%
47.2¢
89.0%
5.02
4.41
0.0%
100%
71
5,095
91.7%
5.8%
Reference
Page 32
Page 33
Page 35
Page 36
Page 37
Page 38
Page 39
Page 40
Page 42
Page 42
Page 45
Page 47
Page 47
Page 47
Page 47
Page 47
Page 45
Page 49
Page 49
Page 49
Page 35
Page 38
Page 38
Page 38
Page 39
Page 39
Page 40
Page 40
Page 49
Page 51
Page 51
Page 43
Page 29
Page 30
Page 30
(1) Non-IFRS financial measures. See appropriate sections for definition and reconciliation to the closest IFRS measure.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
27
SIGNIFICANT EVENTS
On June 30, 2016, and July 19, 2016, on the exercising of the overallotment option, the Trust issued approximately
7.2 million units at $4.55 by public subscription, for approximately $31 million in proceeds, net of underwriting fees
and issue expenses.
The proceeds of issue were used to redeem the Series D debentures in the amount of $23 million bearing interest at
7.25% and a portion of the acquisition line of credit in the amount of $6.1 million bearing interest at 5.95%.
These transactions reduced the Trust’s overall debt rate by 400 basis points.
These transactions also reduced the per-unit ratios by 1.2¢ per quarter and significantly increased the various payout
ratios.
These transactions also resulted in the write-off of unamortized financing expenses and the liability component of the
convertible debenture. This write-off, a non-recurring transaction totalling $1,088, is not, in accordance with REALpac’s
recommendations, adjusted into the calculation of FFO. If it had been taken into account, FFO and recurring FFO would
have increased by 2.6¢ per unit for the quarter and the various quarterly payout ratios would have increased by 22.5%.
Management considers that the long-term benefits of the reduced debt rate outweigh the consequences of the
deterioration in the various per-unit and payout ratios.
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)
Recurring FFO(2) (5)
Recurring AFFO(3) (5)
Distributions
Total assets
Long-term debt
Financial information per unit
Net income
Recurring distributable income(5)
Recurring FFO(2) (5)
Recurring AFFO(3) (5)
Distributions
Payout ratio for recurring distributable income (4) (5)
2016
$
73,384
41,339
6,200
22,085
19,711
17,710
17,391
16,443
658,462
432,042
57.3¢
51.1¢
45.9¢
45.1¢
42.0¢
83.4%
2015
$
72,892
41,294
(5,223)
8,669
18,733
17,164
16,260
14,478
633,082
445,262
25.2¢
54.4¢
49.8¢
47.2¢
42.0¢
77.3%
2014
$
67,170
37,983
(1,860)
12,883
16,626
15,226
14,363
12,953
586,737
395,129
41.0¢
52.9¢
48.5¢
45.7¢
40.8¢
77.9%
(1) Defined as rental income from investment properties less operating expenses.
(2) See “Funds from operations” on page 56 for reconciliation to net income.
(3) See “Adjusted funds from operations” on page 56 for reconciliation to FFO and net income.
(4) Represents total distributions divided by recurring distributable income.
(5) Non-IFRS financial measures. See appropriate sections for definition and reconciliation to the closest IFRS measure.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
28
SELECTED QUARTERLY INFORMATION
The following table summarizes the Trust’s financial information for the last eight quarters.
(in thousands of dollars except for per unit data)
Rental income
Net operating income(1)
2016
Q-4
$
2016
Q-3
$
2016
Q-2
$
2016
Q-1
$
2015
Q-4
$
2015
Q-3
$
2015
Q-2
$
2015
Q-1
$
18,270
18,264
18,300
18,550
18,539
18,421
17,603
18,329
10,121
10,633
10,466
10,119
10,020
10,958
10,184
10,132
Net income (loss) and comprehensive income
9,130
5,422
3,982
3,551
(2,124)
3,669
3,724
3,400
Net income (loss) and comprehensive income per unit
Recurring distributable income(1)
Recurring distributable income per unit(1)
Recurring funds from operations (FFO)(1)
Recurring FFO per unit(1)
Recurring adjusted funds from operations (AFFO)(1)
Recurring AFFO per unit(1)
Distributions
Distributions per unit
21.6¢
13.0¢
11.4¢
10.2¢
(6.1¢)
10.6¢
10.8¢
9.9¢
5,047
5,285
4,924
4,455
4,211
5,286
4,739
4,497
11.9¢
12.7¢
14.1¢
12.8¢
12.2¢
15.3¢
13.8¢
13.1¢
4,808
3,994
4,692
4,216
3,710
4,321
4,420
4,066
11.4¢
9.6¢
13.4¢
12.1¢
10.7¢
12.5¢
12.9¢
11.9¢
4,485
4,733
4,333
3,840
3,588
4,663
4,132
3,876
10.6¢
11.4¢
12.4¢
11.0¢
10.4¢
13.5¢
12.0¢
11.3¢
4,442
4,449
3,897
3,655
3,640
3,628
3,615
3,596
10.5¢
10.5¢
10.5¢
10.5¢
10.5¢
10.5¢
10.5¢
10.5¢
(1) Non-IFRS financial measures. See appropriate sections for definition and reconciliation to the closest IFRS measure.
PERFORMANCE INDICATORS
The indicators used to measure BTB’s financial performance are presented and explained in Appendix 1.
REAL ESTATE PORTFOLIO
BTB owns 72 quality properties which have a fair value of $646 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 during fiscal 2016 are described
on page 28 of this MD&A.
Summary of properties as at December 31, 2016
Operating segment
Office
Retail
Industrial
Mixed use
Subtotal
Properties under redevelopment
Number of
properties
Leasable area
(sq. ft.)
Occupancy rate
(%)
27
17
19
6
69
3
1,920,977
1,107,058
1,499,783
442,472
4,970,290
173,665
85.8
94.0
94.1
96.4
91.1
Total
On January 1, 2016, the Trust reclassified some properties to better reflect the current mix of tenant activities.
5,143,955
72
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
29
REAL ESTATE OPERATIONS
Leasing activities
The following table summarizes changes in available leasable area during the periods ended December 31, 2016 and
2015.
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
Available leasable area at end of period
Quarter
Year
2016
2015
2016
2015
444,999
—
—
166,111
5,575
(70,766)
(73,404)
(410)
462,131
(22,119)
(8,020)
29,651
7,297
(15,286)
(37,027)
(8,384)
408,243
—
—
520,883
61,705
(319,392)
(200,332)
998
340,348
(19,053)
(8,020)
427,668
150,399
(248,567)
(224,399)
(10,133)
472,105
408,243
472,105
408,243
The average rental rate of expired and renewed leases rose 10.1% during the fourth quarter (2015: 10.0%). For the
year, the average rate increased by 5.6% (2015: 5.8%). The increase in the average rental rate was particularly
significant in the “Office” segment, standing at 9.2% for the year.
Occupancy rates
The following tables provide occupancy rates by operating segment and geographic sector based on firm lease
agreements signed as at the date of this report:
Operating segment
Office
Retail
Industrial
Mixed use
Total portfolio
Geographic sector
Laval and North Shore
Island of Montréal
Montréal South Shore
Québec City and surrounding area
Ottawa and surrounding area
Sherbrooke and surrounding area
Central Ontario
By province
Québec
Ontario
Total portfolio
December 31,
2016
September 30,
2016
%
84.5
94.0
94.1
95.8
90.5
%
85.5
93.9
94.4
96.3
91.0
June 30,
2016
%
85.3
92.7
95.6
96.3
91.0
March 31,
2016
December 31,
2015
%
85.8
92.1
97.1
95.6
91.5
%
85.8
92.5
97.1
96.3
91.7
December 31,
2016
%
September 30,
2016
%
June 30,
2016
%
March 31,
2016
%
December 31,
2015
%
97.4
89.3
91.9
89.4
88.8
79.5
100.0
90.5
97.4
86.5
92.3
90.7
92.5
79.5
100.0
91.0
December 31,
2016
September 30,
2016
%
90.6
90.1
90.5
%
90.4
93.3
91.0
97.4
86.2
91.3
89.6
94.7
78.4
100.0
91.0
June 30,
2016
%
89.6
95.5
91.0
97.2
86.2
91.9
90.1
95.2
81.1
100.0
91.5
96.9
85.5
92.5
89.9
96.7
80.6
100.0
91.7
March 31,
2016
December 31,
2015
%
90.1
96.0
91.5
%
89.9
97.2
91.7
30
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
The overall occupancy rate is down by 0.5% since September 30, 2016, and by 1.2% since December 31, 2015. It stood
at 90.5% at the end of the fourth quarter of 2016.
The office segment is down 1.0% since September 30, 2016, and 1.3% since December 31, 2015. In geographical terms,
the Québec City and Ottawa areas posted a quarterly and annual decrease.
The “1001 Sherbrooke Est” and “Henri-Bourassa” properties in Montréal, “50 St-Charles” on the Montréal South
Shore, “Complexe de Léry” classified in the Québec City area and “Aberdeen” in Ottawa are office buildings with an
occupancy rate below 75%, which explains essentially the segment’s rate below that of the portfolio. The “René-
Patenaude” property in the Sherbrooke area also had a 15% occupancy rate for several quarters and affects the
occupancy rate of the Sherbrooke area.
Retention rate
The renewal rate for leases expired in 2016 was 61.0%.
Lease maturity
The following table shows the lease maturity profile for the next five years:
Office
Leasable area (sq. ft.)
Average lease rate/square foot ($)
% of office portfolio
Retail
Leasable area (sq. ft.)
Average lease rate/square foot ($)
% of retail portfolio
Industrial
Leasable area (sq. ft.)
Average lease rate/square foot ($)
% of industrial portfolio
Mixed use
Leasable area (sq. ft.)
Average lease rate/square foot ($)
% of mixed use portfolio
Total portfolio
Leasable area (sq. ft.)
Average lease rate/square foot ($)
% of total portfolio
Top 10 tenants
2017
2018
2019
2020
2021
157,971
$12.51
181,798
$13.00
326,519
$13.97
116,015
$14.45
282,513
$12.37
8.2%
9.5%
17.0%
6.0%
14.7%
80,060
$13.21
149,723
$12.41
182,934
$11.79
68,956
$14.09
86,878
$12.75
7.2%
13.5%
16.5%
6.2%
7.9%
517,954
$4.35
34.6%
45,415
$12.83
10.3%
5,399
$5.78
0.4%
94,482
$3.75
24,062
$5.43
6.3%
1.6%
28,424
$15.00
49,955
$13.52
80,513
$2.54
6.4%
11.3%
18.2%
440,803
$6.34
29.4%
114,480
$9.58
25.9%
801,401
365,344
653,890
289,546
924,674
$7.32
16.1%
$6.34
7.4%
$4.87
13.2%
$3.81
5.8%
$5.41
18.6%
As at December 31, 2016, BTB managed more than 600 leases, with an average area of more than 8,000 square feet.
The three largest tenants are Public Works Canada, Société québécoise des infrastructures (SQI) and Provigo
Distribution Inc., accounting respectively for 5.8%, 2.5% and 2.2% of revenues, generated by a number of leases whose
maturities are spread over time. Approximately 34% 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 Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
31
The following table shows the contribution of the Trust’s top 10 tenants as a percentage of revenues as at
December 31, 2016:
Client
Public Works Canada
Société québécoise des infrastructures (SQI)
Provigo Distribution Inc. (Loblaws)
Atis Portes et Fenêtres Corp.
Shoppers Realty Inc.
Strongco
Flextronics
Le Groupe SM inc.
Germain Larivière Inc.
CSSS Haut-Richelieu-Rouville
OPERATING RESULTS
% of
revenue
Leased area
(square feet)
5.8
2.5
2.2
1.9
1.8
1.7
1.7
1.5
1.5
1.5
205,836
122,112
107,642
219,941
64,304
81,442
48,731
109,185
101,194
70,242
The following table summarizes financial results for the quarters and years ended December 31, 2016, and
December 31, 2015. 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(1)
Other income
Financial expenses
Trust administration expenses
Fair value adjustment to investment properties
Expenses for abandoned transaction
Net income and comprehensive income
(1) Non-IFRS financial measure
Rental income
Quarter
Year
2016
$
18,270
8,149
10,121
(59)
4,088
1,177
(4,215)
—
9,130
2015
$
18,539
8,519
10,020
(19)
5,948
992
5,223
—
(2,124)
2016
$
73,384
32,045
41,339
(307)
21,431
4,330
(6,200)
—
22,085
2015
$
72,892
31,598
41,294
(52)
23,203
4,044
5,223
207
8,669
Reference
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Page 35
BTB acquired a property during the first quarter of 2016 and disposed of four properties in the fourth quarter of 2015.
Due to the net effect of these transactions, rental income decreased by $269 for the fourth quarter compared to the
same quarter of 2015, and increased by $492 for fiscal 2016 compared to fiscal 2015.
BTB recovers operating expenses of the properties in question from most tenants. The decrease in operating expenses
recorded in the fourth quarter of 2016 compared to the same period of 2015, as presented below, explains most of the
decrease in revenues in the fourth quarter of 2016.
In the fourth quarter of 2016, rent adjustments of $2 (2015: payables of $141) were recorded on a straight-line basis.
For the year ended December 31, 2016, these adjustments totalled $246 (2015: $702).
In the fourth quarter of 2016, BTB recorded amortization of $610 (2015: $552) as a reduction in rental income, which
represents amortization of lease incentives afforded to lessees. For the year ended December 31, 2016, these
adjustments totalled $2,177 (2015: $2,084).
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
32
Operating expenses
BTB recorded a decrease in operating expenses of $370 or 4.3% between the fourth quarter of 2015 and the fourth
quarter of 2016, and an increase of $447 or 1.4% for the year compared to last year.
The following table shows the breakdown of operating expenses for the periods ended December 31, 2016, and 2015.
Periods ended December 31
(in thousands of dollars)
Operating expenses
Maintenance, repairs and other operating costs
Property taxes and public utilities
Total operating expenses
% of rental income
Quarter
Year
2016
$
3,058
5,091
8,149
44.6
2015
$
3,418
5,101
8,519
46.0
2016
$
11,558
20,487
32,045
43.7
2015
$
11,748
19,850
31,598
43.3
The decrease in maintenance, repairs and other operating costs in the fourth quarter of 2016 compared to the fourth
quarter of 2015 was due to the sale of four properties in 2015 and effective budgetary cost management in the fourth
quarter of 2016.
Net operating income
Periods ended December 31
(in thousands of dollars)
Net operating income(1)
% of rental income
(1) Non-IFRS financial measure
Quarter
Year
2016
$
2015
$
2016
$
10,121
10,020
41,339
55.4
54.0
56.3
2015
$
41,294
56.7
Net operating income is reduced by non-cash rental income adjustments. Before adjustments, net operating income
was as follows:
Periods ended December 31
(in thousands of dollars)
Net operating income
Straight-line rental income adjustments
Adjustments related to amortization of lease incentives
Net operating income before rental income adjustments(1)
% of rental income on the basis of in-place leases
(1) Non-IFRS financial measure
Other income
Quarter
Year
2016
$
10,121
2
610
10,733
56.8
2015
$
10,020
(141)
552
10,431
55.0
2016
$
41,339
(246)
2,177
43,270
57.5
2015
$
41,294
(702)
2,084
42,676
57.5
In addition to interest income in the amount of $27 (2015: $19), the Trust earned income of $32 from a dispute
settlement during the quarter.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
33
Financial expenses
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
Impact of early redemption of Series D convertible debentures
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
2016
$
3,658
874
94
34
4,660
—
—
240
11
2015
$
3,688
1,412
212
38
5,350
—
—
378
178
2016
$
14,582
4,471
519
128
19,700
—
1,088
1,074
192
2015
$
14,360
5,228
675
125
20,388
625
—
1,273
629
4,911
5,906
22,054
22,915
(823)
4,088
42
5,948
(623)
21,431
288
23,203
Financial expenses decreased by $690 during the fourth quarter of 2016 and by $688 for fiscal 2016 compared to the
same periods of fiscal 2015, mainly due to the repayment of Series D debentures on August 2, 2016 and partial
repayment of the acquisition line of credit using the proceeds of the unit issue in June 2016.
Financial expenses can be allocated among interest expenses amounting to $4,660 for the quarter (2015: $5,350) and
$19,700 for the year (2015: $20,388) and non-monetary items. Non-monetary items include, but are not limited to, the
accretion of effective interest and the liability component of convertible debentures and fair value adjustments on
financial instruments. To this effect, during the third quarter, the Trust incurred special charges totalling $1,088, which
would have been recognized in the future, i.e. $515 as accretion of effective interest and $573 as accretion of the
liability component, following the redemption on August 2, 2016, of the Series D convertible debentures. Lastly,
geopolitical instability over the last few months has led to greater interest rate volatility and higher bond yields,
resulting in a value gain of $833 on our interest rate swaps during the quarter ended December 31, 2016.
As at December 31, 2016, the average weighted contractual rate of interest on mortgage loans payable was 3.79%,
16 basis points lower than the rate in effect at December 31, 2015. For 33 consecutive quarters, the weighted average
interest rate has remained stable or declined. Interest rates on first-ranking mortgage financings ranged from 2.77% to
6.80% as at December 31, 2016. The weighted average term of financing in place as at December 31, 2016, was
5.9 years (5.5 years as at December 31, 2015).
Trust administration expenses
Periods ended December 31
(in thousands of dollars)
Administrative expenses
Amortization
Unit-based compensation
Trust administration expenses
Quarter
Year
2016
2015
2016
$
1,075
15
87
1,177
$
907
17
68
992
$
4,063
61
206
4,330
2015
$
3,696
69
279
4,044
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
34
Fair value adjustment on investment properties
At year-end, the Trust uses professional valuators to perform an independent external valuation of a portion of its
portfolio. A sample of the portfolio’s largest properties and approximately a third of the remaining properties were
subject to an independent external valuation. As at December 31, 2016, 63% (2015: 63%) of the portfolio’s market
value was subject to an independent external valuation. However, as at December 31, 2016, 16 properties with a total
fair value of $82 million had not been subject to an independent external valuation over the past three years. Most of
these 16 properties are single-tenant properties with long-term leases located in stable markets, or small lower-value
properties.
Market conditions in the Trust’s geographic market remained relatively stable during the fourth quarter and fiscal
2016.
Nonetheless, management determined that a fair value adjustment to the portfolio as at December 31, 2016 was
required. Accordingly, management recognized an impairment gain of $6,200 as at December 31, 2016 (2015:
impairment of $5,223).
The following tables highlight the significant assumptions used in the modelling process for both internal and external
appraisals:
As at December 31, 2016
Capitalization rate
Terminal capitalization rate
Discount rate
As at December 31, 2015
Capitalization rate
Terminal capitalization rate
Discount rate
Retail
Office
Industrial
Mixed use
6.25% – 10.00%
6.75% – 8.00%
7.25% – 8.75%
6.50% – 8.50%
6.75% – 8.75%
7.50% – 9.25%
6.50% – 9.75%
7.00% – 7.75%
7.50% – 8.50%
6.75% – 7.75%
7.00% – 7.75%
7.50% – 8.25%
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%
7.25% – 8.25%
7.50% – 8.00%
8.00% – 8.50%
The weighted average capitalization rate for the entire portfolio as at December 31, 2016, was 7.20% (December 31,
2015: 7.34%), down 14 basis points since December 31, 2015.
As at December 31, 2016, 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 $23 million.
Net income and comprehensive income
BTB generated net income of $9.1 million for the fourth quarter of 2016, up $11.2 million compared to a $2.1 million
loss in the fourth quarter of 2015. For the year, net income totalled $22.1 million, up $13.4 million from 2015. At the
end of fiscal 2015, the Trust had recognized a $5.2 million impairment; in 2016, the Trust recognized a $6.2 million
appreciation in value, a difference of more than $11 million.
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
2016
$
9,130
21.6¢
2015
$
2016
$
(2,124)
(6.1¢)
22,085
57.3¢
2015
$
8,669
25.2¢
Net income and comprehensive income fluctuate from one quarter 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.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
35
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(1)
Per unit
(1) Non-IFRS financial measure
Quarter
Year
2016
$
2015
$
2016
$
9,130
(2,124)
22,085
(4,215)
(823)
4,092
9.7¢
5,223
42
3,141
9.1¢
(6,200)
(623)
15,262
39.6¢
2015
$
8,669
5,223
288
14,180
41.2¢
This table shows an increase of 30.3% in quarterly adjusted net income and an increase of 7.6% in annual adjusted net
income, before the non-monetary items mentioned above. Quarterly adjusted net income per unit increased 6.6% and
annual adjusted net income per unit decreased 3.6%.
OPERATING RESULTS – SAME-PROPERTY PORTFOLIO
Same-property portfolio
The same-property portfolio includes all the properties owned by BTB as at January 1, 2015, but does not include the
financial spin-offs of disposals, acquisitions and developments completed in 2015 and 2016.
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(1)
Interest expense on mortgage loans payable
Net property income(1)
Quarter
Year
2016
2015
∆%
$
$
15,863
7,162
8,701
3,203
5,498
16,185
7,334
8,851
3,285
5,566
(2.0)
(2.3)
(1.7)
(2.5)
(1.2)
2016
$
64,143
28,100
36,043
12,807
23,236
2015
∆%
$
65,557
28,357
37,200
13,140
24,060
(2.2)
(0.9)
(3.1)
(2.5)
(3.4)
Decrease in net property income from the same-property portfolio
(1.2)%
(3.4)%
(1) Non-IFRS financial measure
A lower occupancy rate in the office segment largely explains the decrease in the same-property portfolio’s
performance. In addition, some premises subject to firm lease agreements have yet to generate income. The same-
property portfolio has therefore also seen a temporary decrease in income-producing area.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
36
DISTRIBUTABLE INCOME AND DISTRIBUTIONS
The following table shows the calculation of distributable income.
Periods ended December 31
(in thousands of dollars)
Net income (loss) and comprehensive income (IFRS)
± Fair value adjustment on investment properties
+ Amortization of 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
+ Impact of early redemption of Series D convertible debentures
Distributable income(4)
Unusual Item
Dispute settlement(1)
Early repayment fees(2)
Expenses for abandoned transaction(3)
Recurring distributable income(4)
Income from a dispute settlement
(1)
(2) Early repayment fees incurred for a transaction as part of a refinancing before term
(3) Due diligence expenses incurred for an unrealized acquisition
(4) Non-IFRS financial measure
Quarter
Year
2015
$
2016
$
(2,124)
22,085
2015
$
8,669
5,223
158
279
629
288
2,084
(702)
1,273
—
(6,200)
170
206
192
(623)
2,177
(246)
1,074
1,088
5,223
35
68
178
42
552
(141)
378
—
4,211
—
—
—
19,923
17,901
(212)
—
—
—
625
207
2016
$
9,130
(4,215)
37
87
11
(823)
610
2
240
—
5,079
(32)
—
—
5,047
4,211
19,711
18,733
The following table shows the reconciliation of distributable income (non-IFRS financial 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 non-cash operating items
-
-
-
-
- Early repayment fees
Interest expense on mortgage loans payable
Interest expense on convertible debentures
Interest expense on acquisition line of credit
Interest expense on operating line of credit and other interest expenses
Distributable income
Quarter
Year
2016
$
13,250
27
(3,538)
(3,658)
(874)
(94)
(34)
—
5,079
2015
$
12,157
19
(2,615)
(3,688)
(1,412)
(212)
(38)
—
2016
$
39,850
95
(322)
(14,582)
(4,471)
(519)
(128)
—
4,211
19,923
2015
$
38,238
52
624
(14,360)
(5,228)
(675)
(125)
(625)
17,901
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
37
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
2016
$
3,927
515
4,442
2015
$
3,154
486
3,640
2016
$
14,474
1,970
16,444
2015
$
12,668
1,810
14,478
11.6%
13.4%
12.0%
12.5%
12.0¢
11.9¢
10.5¢
88.0%
77.8%
12.2¢
12.2¢
10.5¢
86.4%
74.9%
51.7¢
51.1¢
42.0¢
83.4%
73.4%
52.0¢
54.4¢
42.0¢
77.3%
67.6%
(1) The payout ratio corresponds to total distributions divided by recurring distributable income.
(2) The cash payout ratio corresponds to cash distributions divided by recurring distributable income.
The decrease in distributable income and distributable income per unit, and in the payout ratios, was due to the
issuance of 7.2 million units at $4.55 for net proceeds of $31 million and the early repayment of Series D debentures in
the amount of $23 million, bearing interest at 7.25%, and $6.1 million of the acquisition line of credit bearing interest
at 5.95%. Management considers that these transactions reduced the per-unit ratios by 1.2¢ per quarter and
significantly increased the payout ratios.
Distribution reinvestment plan
In the fourth quarter of 2016, 11.6% of distributions (2015: 13.4%) were reinvested under the distribution
reinvestment plan implemented by BTB in 2011. Approximately $2.0 million (2015: $1.8 million) of the Trust’s cash has
thereby been preserved through unit conversions since the beginning of the year. Until April 15, 2016, the plan’s
discount rate was 5%. As of May 16, 2016, the rate was lowered to 3% in line with the discount offered by most
Canadian REITs.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
38
FUNDS FROM OPERATIONS (FFO)
The following table provides a reconciliation of net income and comprehensive income established according to IFRS
and FFO for the periods ended December 31, 2016, and 2015:
Periods ended December 31
(in thousands of dollars, except for per unit data)
Net income 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
+ Leasing payroll expenses
FFO(6)
Unusual item
Dispute settlement(1)
Early repayment fees(2)
Expenses for abandoned transaction(3)
Recurring FFO(6)
FFO per unit
Recurring FFO per unit
Recurring FFO payout ratio(4)
Recurring FFO cash payout ratio(5)
Quarter
Year
2016
$
9,130
(4,215)
15
610
(823)
123
4,840
(32)
—
—
4,808
11.4¢
11.4¢
92.4%
81.7%
2015
$
(2,124)
5,223
17
552
42
—
3,710
—
—
—
3,710
10.7¢
10.7¢
98.1%
85.0%
2016
$
22,085
(6,200)
61
2,177
(623)
422
17,922
(212)
—
—
17,710
46.5¢
45.9¢
92.8%
81.7%
2015
$
8,669
5,223
69
2,084
288
—
16,333
—
625
207
17,165
47.4¢
49.8¢
88.6%
77.6%
Income from a dispute settlement
(1)
(2) Early repayment fees incurred for a transaction as part of a refinancing before term.
(3) Due diligence expenses incurred for an unrealized acquisition
(4) The recurring FFO payout ratio corresponds to total distributions divided by recurring FFO
(5) The recurring FFO cash payout ratio corresponds to cash distributions divided by recurring FFO
(6) Non-IFRS financial measure
For the year, recurring FFO per unit was 45.9¢ compared to 49.8¢ in 2015, a 7.8% decrease. The payout ratio stood at
92.8% for fiscal 2016 compared to 88.6% for fiscal 2015. The performance of recurring FFO, recurring FFO per unit and
the payout ratios was affected by the issuance of 7.2 million units at $4.55 for net proceeds of $31 million and the
early repayment of Series D debentures in the amount of $23 million, bearing interest at 7.25%, and $6.1 million of the
acquisition line of credit bearing interest at 5.95%. Management considers that these transactions reduced the per-
unit ratios by 1.2¢ per quarter and significantly increased the payout ratios.
The reconciliation of FFO and recurring FFO does not take account of the write-offs of unamortized financing costs and
unamortized liability component of convertible debentures related to the early redemption of the Series D debentures
in July 2016. If they had been taken into account, these write-offs in the amount of $1,088 would have increased FFO
and recurring FFO correspondingly to $19,010 and $18,798 respectively. FFO and recurring FFO per unit would have
been 49.3¢ and 48.8¢ respectively. The payout and cash payout ratios would have been 87.5% and 77.0% respectively.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
39
The following table provides a reconciliation of FFO (non-IFRS financial 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)
± Straight-line rental income adjustment
+ Financial revenues
+ Amortization of a property recognized at cost
+ Leasing payroll expenses
± Net change in working capital items
- Unit-based compensation expenses
Interest on mortgage loans payable
-
Interest on convertible debentures
-
Interest on the acquisition line of credit
-
- Other interest expense and operating line of credit
- Accretion of the liability component of convertible debentures
- Accretion of effective interest
- Early repayment fees
-
- Amortization of property and equipment
Impact of early redemption of Series D convertible debentures
FFO(1)
ADJUSTED FUNDS FROM OPERATIONS (AFFO)
Quarter
Year
2016
$
15,250
(2)
27
15
123
(5,538)
(87)
(3,658)
(874)
(94)
(34)
(11)
(240)
—
—
(37)
4,840
2015
$
12,157
141
19
17
—
(2,615)
(68)
(3,688)
(1,412)
(212)
(38)
(178)
(378)
—
—
(35)
3,710
2016
$
41,850
246
95
61
422
(2,322)
(206)
(14,582)
(4,471)
(519)
(128)
(192)
(1,074)
—
(1,088)
(170)
17,922
2015
$
38,238
702
52
69
—
624
(279)
(14,360)
(5,228)
(675)
(125)
(629)
(1,273)
(625)
—
(158)
16,333
The following table provides a reconciliation of FFO and AFFO for the quarters and years ended December 31, 2016,
and 2015:
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
+ Impact of early redemption of Series D convertible debentures
- Provision for non-recoverable capital expenses
- Provision for rental fees
AFFO(6)
Unusual items
Dispute settlement(1)
Early repayment fees(2)
Expenses for abandoned transaction(3)
Recurring AFFO(6)
AFFO per unit
Recurring AFFO payout ratio
Recurring AFFO payout ratio(4)
Recurring AFFO cash payout ratio(5)
Quarter
Year
2016
$
4,840
2
240
11
22
87
—
(365)
(320)
4,517
(32)
—
—
2015
$
3,710
(141)
378
178
18
68
—
(371)
(252)
3,588
—
—
—
2016
$
17,922
(246)
1,074
192
109
206
1,088
(1,462)
(1,280)
17,603
(212)
—
—
2015
$
16,333
(702)
1,273
629
89
279
—
(1,456)
(1,017)
15,428
—
625
207
4,485
3,588
17,391
16,260
10.7¢
10.6¢
99.0%
87.6%
10.4¢
10.4¢
101.4%
87.9%
45.7¢
45.1¢
94.5%
83.2%
44.8¢
47.2¢
89.0%
77.9%
Income from a dispute settlement
(1)
(2) Early repayment fees incurred for a transaction as part of a refinancing before term.
(3) Due diligence expenses incurred for an unrealized acquisition.
(4) The recurring AFFO payout ratio corresponds to total distributions divided by recurring AFFO.
(5) The recurring AFFO cash payout ratio corresponds to cash distributions divided by recurring AFFO.
(6) Non-IFRS financial measure
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
40
Recurring AFFO was up $897 for the quarter and $1,131 on a cumulative basis. Recurring AFFO per unit amounted to
10.6¢ compared to 10.4¢ in 2015, and the payout ratio stood at 99.0% compared to 101.4% for the fourth quarter of
2015.
Despite these improvements, the performance of recurring AFFO, recurring AFFO per unit and the payout ratios was
affected by the issuance of 7.2 million units at $4.55 for net proceeds of $31 million and the early repayment of
Series D debentures in the amount of $23 million, bearing interest at 7.25%, and $6.1 million of the acquisition line of
credit bearing interest at 5.95%. Management considers that these transactions reduced the per-unit ratios by 1.2¢ per
quarter and significantly increased the payout ratios.
The following table provides a reconciliation of AFFO (non-IFRS financial measure) and cash flows from operating
activities presented in the financial statements.
Periods ended December 31
(in thousands of dollars, except for per unit data)
Cash flows from operating activities (IFRS)
+ Financial revenues
+ Leasing payroll expenses
± Net change in non-cash operating items
Interest on mortgage loans payable
-
Interest on convertible debentures
-
-
Interest on the acquisition line of credit
- Other interest expense and operating line of credit
- Early repayment fees
- Provision for non-recoverable capital expenses
- Provision for rental fees
Adjusted funds from operations
SEGMENTED INFORMATION
Quarter
Year
2016
$
13,250
27
123
(3,538)
(3,658)
(874)
(94)
(34)
—
(365)
(320)
4,517
2015
$
12,157
19
—
(2,615)
(3,688)
(1,412)
(212)
(38)
—
(371)
(252)
3,588
2016
$
39,850
95
422
(322)
(14,582)
(4,471)
(519)
(128)
—
(1,462)
(1,280)
17,603
2015
$
38,238
52
—
624
(14,360)
(5,228)
(675)
(125)
(625)
(1,456)
(1,017)
15,428
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, 2016, and 2015.
Quarters ended December 31
(in thousands of dollars)
Quarter ended December 31, 2016
Investment properties
Rental income from properties
Net operating income(1)
Quarter ended December 31, 2015
Investment properties
Rental income from properties
Net operating income(1)
Years ended December 31
(in thousands of dollars)
Year ended December 31, 2016
Rental income from properties
Net operating income(1)
Year ended December 31, 2015
Rental income from properties
Net operating income(1)
Retail
%
$
Office
$
%
Industrial
$
%
General
purpose
$
%
Total
$
173,965
4,770
2,782
167,513
4,836
2,850
27.0 290,010
26.1
8,803
27.5
4,157
44.9 115,645
48.2
2,582
41.1
2,116
26.9 276,063
26.1
8,923
28.4
4,075
44.3 116,950
48.1
2,539
40.7
2,086
17.9
14.1
20.9
18.8
13.7
20.8
65,865
2,115
1,066
10.2 645,485
11.6
18,270
10.5
10,121
62,125
2,241
1,009
10.0 622,651
12.1
18,539
10.1
10,020
Retail
%
$
Office
$
%
Industrial
$
%
General
purpose
$
%
Total
$
19,213
11,467
26.2
27.7
35,238
16,869
48.0
40.8
10,366
8,521
19,015
11,567
26.1
28.0
33,963
16,380
46.6
39.7
10,605
8,795
14.1
20.6
14.5
21.3
8,567
4,482
11.7
10.9
73,384
41,339
9,309
4,552
12.8
11.0
72,892
41,294
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
41
(1) Non-IFRS financial measure
On January 1, 2016, the Trust reclassified some properties to better reflect the current mix of tenant activities. The
comparative figures were reclassified to conform to the current period presentation.
FINANCIAL POSITION
The following table presents a summary of the Trust’s balance sheet as at December 31, 2016, and December 31,
2015. It should be read in conjunction with the Trust’s consolidated 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 restricted 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,
2016
December 31,
2015
Reference
$
$
Page 42
Page 44
Page 45
Page 45
Page 45
Page 47
Page 47
Page 48
Page 49
645,485
2,489
3,821
6,667
658,462
384,350
47,692
—
13,457
445,499
212,963
658,462
622,651
1,981
4,261
4,189
633,082
366,596
68,866
9,800
13,461
458,723
174,359
633,082
The main changes in the balance sheet as at December 31, 2016, compared to the balance sheet as at December 31,
2015 reflect the acquisition of a property and recognition of an appreciation in value on the portfolio, mortgage
financings related to the acquisition, mortgage refinancings during the year, and the unit issue completed on June 30,
2016.
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, retail, industrial and mixed use
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 three jointly-controlled investment properties.
The fair value of investment properties stood at $645 million as at December 31, 2016 compared to $623 million as at
December 31, 2015.
Acquisition of investment properties
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.
On November 1, 2016, the Trust acquired a section of a 7,927-square-foot office building attached to a building already
owned by the Trust, for $458, including acquisition fees.
Proposed disposals 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 related debt and any remaining proceeds will
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
42
later be allocated to the acquisition of accretive properties. There were no disposals during the year ended
December 31, 2016.
Summary by operating segment
As at December 31
Number of
properties
2016
Leasable area
(sq. ft.)
Office
Retail
Industrial
Mixed use
Subtotal
Properties under redevelopment
Total
Investments in investment properties held
27
17
19
6
69
3
72
1,920,977
1,107,058
1,499,783
442,472
%
38.6
22.3
30.2
8.9
4,970,290
100.0
173,665
5,143,955
Number of
properties
2015
Leasable area
(sq. ft.)
26
17
19
6
68
3
71
1,871,995
1,106,951
1,490,887
442,473
4,912,306
182,560
5,094,866
%
38.1
22.5
30.4
9.0
100.0
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 ended December 31, 2016, totalled $1,024 compared to $623 for the same
quarter of 2015, of which $287 was recoverable. These expenditures totalled $2,682 for the entire year (2015: $4,046),
of which $740 was recoverable (2015: $1,183). Capital expenditures do not include repair and maintenance costs.
Capital expenditures vary from one quarter 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 and incentives
applicable to the leased areas to meet the specific needs of tenants, as well as leasing fees that are paid to
independent brokers. These disbursements totalled $968 for the fourth quarter and $4,088 for the year ended
December 31, 2016, compared to $652 and $3,142 for the same periods of 2015. 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.
The following table summarizes expenditures in maintenance capital expenditures, as well as incentives and leasing
fees, for the periods ended December 31, 2016, and 2015.
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
(1)
(2)
Includes $154 related to investment properties under redevelopment (December 31, 2015: $320).
Includes $630 related to investment properties under redevelopment (December 31, 2015: $325).
Quarter
Year
2016
$
287
—
287
737(1)
1,024
968
1,992
2015
$
39
(154)
(115)
738
623
652
1,275
2016
$
740
—
740
1,942(2)
2,682
4,088
6,770
2015
$
1,469
(286)
1,183
2,863
4,046
3,142
7,188
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
43
The following table shows changes in the fair value of investment properties during the periods ended December 31.
Periods ended December 31
(in thousands of dollars)
Balance, beginning of period
Additions:
Acquisitions
Dispositions
Capital expenditures net of grants
Leasing fees and leasehold improvements
Fair value gains (losses)
Other non-monetary changes
Balance, end of period
Quarter
2016
$
2015
$
2016
$
Year
2015
$
639,432
639,787
622,651
571,462
458
—
1,024
968
4,215
(612)
—
(13,053)
623
652
(4,947)
(411)
11,795
—
2,682
4,088
6,200
(1,931)
63,383
(13,053)
4,046
3,142
(4,947)
(1,382)
645,485
622,651
645,485
622,651
Investment properties under redevelopment
The Trust decided to invest amounts in redeveloping and repositioning one property:
•
1863-1865 Transcanadienne, Montréal – Québec - This industrial property is currently completely vacant. The
Trust has so far invested approximately $978 to repurpose this property.
The Trust is considering investing amounts in redeveloping and repositioning two properties:
•
•
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 reposition the other section,
which is currently subject to a few short-term leases.
100, 1ère rue Ouest, Thetford Mines – Québec – The Trust is currently considering various repositioning scenarios.
Amounts receivable from tenants and other receivables
Amounts receivable from tenants and other receivables increased from $1,981 as at December 31, 2015, to $2,489 as
at December 31, 2016. The increase is mainly due to arrears of $405 on rent from a tenant refinancing its business.
Excluding this situation, the value of amounts receivable from tenants, net of the allowance for doubtful accounts, was
similar to that of December 31, 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
Amounts receivable from tenants and other receivables
December 31,
2016
December 31,
2015
$
1,619
(432)
1,187
—
600
702
2,489
$
1,125
(329)
796
105
600
480
1,981
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
44
Other assets
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
Other assets
Cash, cash equivalents and restricted cash
(in thousands of dollars)
Available cash
Restricted cash
Cash, cash equivalents and restricted cash
CAPITAL RESOURCES
Long-term debt
December 31,
2016
December 31,
2015
$
3,259
(1,081)
2,178
983
242
418
3,821
$
3,203
(911)
2,292
1,285
—
684
4,261
December 31,
2016
December 31,
2015
$
6,667
—
6,667
$
4,138
51
4,189
The following table shows the balances of BTB’s indebtedness as at December 31, 2016, including mortgage loans
payable and convertible debentures, based on year of maturity and corresponding weighted average contractual
interest rates:
As at December 31, 2016
(in thousands of dollars)
Year of maturity
2017
2018
2019
2020
2021
2022 and thereafter
Total
Balance of
convertible
debentures
$
—
—
—
49,700
—
49,700
Balance of
mortgages
payable
Weighted average
contractual
interest rate
$
66,181
40,294
41,038
24,818
38,783
174,967
386,081
%
3.84
3.83
3.57
5.92
2.96
4.01
4.16
Weighted average contractual interest rate
As at December 31, 2016, the weighted average contractual interest rate of the Trust’s long-term debt stood at 4.16%,
i.e. 3.79% for mortgages payable and 7.03% for convertible debentures.
Mortgage loans payable
As at December 31, 2016, the Trust’s mortgage loans payable amounted to $386 million compared to $368 million as
at December 31, 2015, before deferred financing costs and valuation adjustments, an increase of $18 million due to
acquisition financings completed in 2016, certain refinancings and principal repayments on monthly payments and
disposals.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
45
As at December 31, 2016, the weighted average interest rate was 3.79%, compared to 3.95% for mortgage loans on
the books as at December 31, 2015, a drop of 16 basis points. As at December 31, 2016, except for a loan balance of
$4,370, 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 5.9 years as at December 31, 2016, and 5.5 years as at
December 31, 2015, an increase of 5 months in one year.
BTB spreads the terms of its mortgages over many years in order to mitigate the risk associated with renewing them.
The following table summarizes changes in mortgage loans payable during the fourth quarter and the year ended
December 31, 2016:
As at December 31, 2016
(in thousands of dollars)
Balance at beginning of the period
Mortgage loans contracted or assumed
Balance repaid at maturity or upon disposal
Monthly principal repayments
Balance as at December 31, 2016
Note: Before unamortized financing costs and valuation adjustments.
Quarter
$
375,616
61,000
(47,569)
(2,965)
386,081
Year
$
367,953
87,716
(57,750)
(11,838)
386,081
Except for two properties under redevelopment valued at $4.6 million, and a property partially securing the acquisition
and operating lines of credit as at December 31, 2016, all of the Trust’s other properties were mortgaged as at
December 31, 2016. Unamortized loan financing costs totalled $2,756 and are amortized under the effective interest
method over the term of the loans.
The following table, as at December 31, 2016, shows future mortgage loan repayments for the next few years:
As at December 31, 2016
(in thousands of dollars)
Maturity
2017
2018
2019
2020
2021
2022 and thereafter
Total
+ Valuation adjustments on assumed loans
- Unamortized financing costs
Balance as at December 31, 2016
Principal
repayment
$
Balance at
maturity
$
10,868
9,080
7,729
7,278
6,480
37,820
79,255
64,670
38,091
37,873
21,849
33,341
111,002
306,826
% of total
19.6
12.2
11.8
7.5
10.3
38.6
100.0
Total
$
75,538
47,171
45,602
29,127
39,821
148,822
386,081
845
(2,576)
384,350
During the year, the Trust entered into two new financing agreements totalling $9.9 million with an average term of
4.2 years and an average rate of 3.59%. The Trust also entered into seven refinancing agreements totalling
$87.2 million. These agreements are for terms of one to ten years, with a weighted average term of 7.5 years, and
fixed rates ranging from 2.88% to 4.11%, with a weighted average rate of 3.50%. These refinancings allowed an equity
take-out of approximately $16 million.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
46
Convertible debentures
(in thousands of dollars)
Par value
Contractual interest rate
Effective interest rate
Date of issuance
Per-unit conversion price
Date of interest payment
Maturity date
Total
Series E(1) (3)
23,000
6.90%
7.90%
February 2013
$6.15
Series F(2) (3)
26,700
7.15%
8.47%
December 2015
$5.65
March 31 and September 30
March 2020
June 30 and December 31
December 2020
Balance as at December 31, 2016
22,182
25,510
47,692
(1) Redeemable by the Trust, under certain conditions, as of March 31, 2016, but before March 31, 2018, 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.
(2) Redeemable by the Trust, under certain conditions, as of December 31, 2018, but before December 31, 2019, 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.
(3) The Trust may, at its option and under certain conditions, elect to satisfy its obligation to pay the principal amount of the Series E and F
debentures by issuing freely tradable units to Series E and F debenture holders.
The Series D convertible debentures were redeemed on August 2, 2016.
Bank loan – operating credit facility
BTB has an operating credit facility of $3 million with a Canadian chartered bank. The 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,
2016, the operating credit facility was unused.
Bank loans – acquisition credit facility
BTB has an acquisition credit facility of $19 million with a Canadian chartered bank. The 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, 2016, the acquisition credit facility was unused.
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.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
47
The following table presents the Trust’s debt ratios as at December 31, 2016, and 2015.
(in thousands of dollars)
Free cash flow
Mortgage loans payable (1)
Convertible debentures (1)
Acquisition credit facility
Total long-term debt less free cash flow
Gross book value of the Trust less free cash flow
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.
December 31,
2016
December 31,
2015
$
(6,667)
386,081
49,700
—
429,114
652,876
59.1%
7.6%
—%
65.7%
$
(4,138)
367,953
72,700
9,800
446,315
629,855
58.4%
11.5%
1.6%
70.9%
According to the table above, the mortgage liability ratio, excluding the convertible debentures and acquisition credit
facility as at December 31, 2016, amounted to 59.1%, up 0.7% from December 31, 2015. Including the convertible
debentures and the acquisition credit facility, the overall debt ratio stood at 65.7%, down 5.2% from December 31,
2015.
The Trust seeks to finance its acquisitions with mortgage debt ratios of 60% to 65% because the cost of financings is
lower than the capital cost of the Trust’s equity.
Interest coverage ratio
For the quarter ended December 31, 2016, the interest coverage ratio stood at 2.18, up 30 basis points from the fourth
quarter of 2015. For fiscal 2016, the ratio improved eight basis points. These improvements are the result of the
July 31, 2016 redemption of Series D debentures, that reduced interest expenses.
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
2016
$
10,121
4,633
2.18
2015
$
10,020
5,331
1.88
2016
$
41,339
19,605
2.11
2015
$
41,294
20,336
2.03
(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
Accounts payable and other liabilities
December 31
2016
December 31
2015
$
11,691
1,482
284
—
13,457
$
11,693
1,215
173
380
13,461
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
48
Unitholders’ equity
Unitholders’ equity consists of the following:
(in thousands of dollars)
Trust units
Cumulative profit
Cumulative distributions to unitholders
Unitholders’ equity
Distribution reinvestment plan
December 31,
2016
December 31,
2015
$
217,816
64,317
(69,170)
212,963
$
184,853
42,232
(52,726)
174,359
On October 1, 2011, the Trust implemented a distribution reinvestment plan under which unitholders may elect to
receive distributions in units, with a 3% discount on their market value. Under the program, 119,006 units were issued
during the fourth quarter of 2016 (2015: 114,253 units) and 455,342 units were issued during the year (2015: 408,625
units). Close to $2 million in cash has thereby been preserved under this plan.
Units outstanding
The following table summarizes units issued during the reporting periods and the weighted number of units for the
same periods.
Periods ended December 31
(in number of units)
Units outstanding, beginning of quarter
Units issued
Public offering
Distribution reinvestment plan
Awards - employee unit purchase plan
Awards - restricted unit compensation plan
Unit options exercised
Conversion of Series C debentures
Units outstanding, end of quarter
Weighted average number of units outstanding
Unit options
Quarter
Year
2016
2015
2016
2015
42,223,367
34,590,898
34,705,151
34,133,967
—
119,006
—
—
—
—
—
114,253
—
—
—
—
7,159,342
455,342
8,340
14,198
—
—
—
408,625
7,758
51,601
74,000
29,200
42,342,373
42,283,216
34,705,151
34,648,520
42,342,373
38,546,160
34,705,151
34,449,596
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. 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. As at December 31,
2016, there were no unit options outstanding.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
49
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 periods ended December 2016 and 2015.
Periods ended December 31
(in number of units)
Deferred units outstanding, beginning of period
Deferred units issued
Deferred units settled
Deferred units outstanding, end of period
Restricted unit compensation plan
Quarter
Year
2016
2,226
2,007
—
4,233
2015
—
—
—
—
2016
—
4,233
—
4,233
2015
—
—
—
—
Under this plan, beneficiaries are awarded restricted units that become fully vested over a quarter of up to three
years. The purpose of the plan is to encourage senior officers and selected employees 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 periods ended December 31, 2016, and 2015.
Periods ended December 31
(in number of units)
Restricted units outstanding, beginning of period
Restricted units issued
Restricted units cancelled
Restricted units settled
Restricted units outstanding, end of period
Employee unit purchase plan
Quarter
Year
2016
77,673
—
—
—
77,673
2015
51,083
—
—
—
51,083
2016
51,083
42,919
(2,131)
(14,198)
77,673
2015
39,816
62,868
—
(51,601)
51,083
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 2016
quarter, no units were issued (December 31, 2015: nil). During fiscal 2016, 8,340 units were issued.
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, 2016, BTB complied with all of its loan commitments and was not in default with any covenant at the
balance sheet date, except for the following: due to the low occupancy rate of one of its properties, the Trust does not
meet the debt service coverage ratio for this loan, which must be at least 1.25. As at December 31, 2016, this ratio was
1.01. The balance of the loan as at December 31, 2016 was $5,302. The fair value of the mortgaged properties at the
same date was $9,100. The Trust has always met the other loan provisions and has never been late on a monthly
payment. The Trust believes that this default will be corrected in the normal course of business.
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
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
50
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, 2016, 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 2016 or any other subsequent year.
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
2016
2015
%
—
100
100
%
—
100
100
ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements requires management to make judgments, estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates are based on
historical experience and other assumptions that are considered reasonable under given circumstances. The result of
the continual review of these estimates is the basis for exercising judgment on the carrying amounts of assets and
liabilities and the reported amounts of revenues and expenses. Actual results may differ from these estimates. Critical
judgments made by BTB in applying significant accounting policies, the most significant of which is the fair value of
investment properties, are described in Note 2 to the consolidated financial statements.
The Trust used the income approach to determine fair value. Fair value is estimated by capitalizing the cash flow that a
property can reasonably be expected to produce over its remaining economic life. The income approach is based on
two methods: the overall capitalization rate method, whereby net operating income is capitalized at the requisite
overall capitalization rate, or the discounted cash flow method, whereby cash flows are projected over the expected
term of the investment plus a terminal value discounted using an appropriate discount rate.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
51
NEW ACCOUNTING POLICIES
Change in accounting policy
a)
In 2016, the Trust adopted the amendments to IAS 1 “Financial Statement Presentation″ and IFRS 11 “Joint
Arrangements.″ The application of these amendments has no impact on the Trust`s financial statements.
b) Pending standards
The following standards have been issued but were not in effect for the year ended December 31, 2016, and were
therefore not applied to this MD&A. They are described in more detail in the consolidated financial statements for the
year ended December 31, 2016.
IFRS 9, Financial Instruments
(i)
(ii) IFRS 15, Revenues from Contracts with Customers
(iii) IFRS 16, Leases
(iv) Amendment to IAS 7, Cash Flow Statements
(v) Amendment to IAS 40, Investment Property
RISKS AND UNCERTAINTIES
Numerous risks and uncertainties could cause BTB’s actual results to differ materially from those expressed, implied or
projected in the forward-looking statements, including those described in the “Risk Factors” section of BTB’s 2016
Annual Information Form for the year ended December 31, 2016, which is hereby incorporated by reference. Such risks
and uncertainties include:
Interest Rate Increases
• Access to Capital and to Debt Financing
•
• Ownership of Immovable Property
• Competition and Rising Property Prices
• Availability of Immovable Property for Acquisition
• Development Programs
• Recruitment and Retention of Employees and Executives
• Government Regulation
•
Limit on Activities Under the Trust Agreement
•
Tax Regulations
•
Fluctuations in Cash Distributions
• Reliance on Single or Anchor Tenants
•
• Conflicts of Interest
• Market Price of Units
•
• Dilution
•
•
• General Uninsured Losses
• Retail Industry
Environmental Matters
Legal Risks
Legal Rights Relating to Units
Potential Unitholder Liability
BTB has not identified any significant changes to the risks and uncertainties to which it is exposed in its business.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
52
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 December 31, 2016, and that the
current controls and procedures provide reasonable assurance that material information about BTB is made known to
them during the quarter 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 December 31, 2016, 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 2016, management made no changes to internal control over financial reporting that materially affected,
or are likely to materially affect, internal control over financial reporting.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
53
APPENDIX 1 – PERFORMANCE INDICATORS
• 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 payout ratios, which enable investors to assess the stability of distributions against distributable income, FFO
and AFFO;
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 retention rate, which is used to assess the Trust’s ability to renew leases and retain tenants;
The increase in average rate of renewed leases, which measures organic growth and the Trust’s ability to increase
its rental income.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
54
Rental income
APPENDIX 2 – DEFINITIONS
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.
Operating expenses
Operating expenses are expenses directly related to real estate operations and are generally charged back to tenants
as provided for in the contractual terms of the leases. Operating expenses include property taxes and public utilities,
costs related to indoor and outdoor maintenance, heating, ventilation and air conditioning, elevators, insurance,
janitorial services and management and operating fees. The amount of operating expenses that BTB can recover from
its tenants depends on the occupancy rate of the properties and the nature of the existing leases containing clauses
regarding the recovery of expenses. Most of BTB’s leases are net rental leases under which tenants are required to pay
their share of the properties’ operating expenses. BTB pays particular attention to compliance with existing leases and
the recovery of these operating expenses.
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 the combined operating expenses of investment properties. This definition may differ
from that of other issuers and accordingly, BTB’s net operating income may not be comparable to the net operating
income of other issuers.
Financial expenses
Financial expenses arise from the following loans and financings:
• Mortgage loans payable contracted or assumed totalling approximately $386 million as at December 31, 2016,
compared to $368 million as at December 31, 2015. The increase resulted from the financing of acquisitions and
refinancing of certain properties during the last 12 months.
•
Series E and F convertible debentures for a total par value of $49.7 million. Series D convertible debentures were
redeemed on August 2, 2016.
• Operating and acquisition lines of credit used as needed, which allowed primarily for the acquisition of properties
during fiscal 2015 and 2016.
•
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.
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. 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.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
55
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 quarters 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 quarter to the next, or should another rate within the provided ranges be more appropriate than
the rate previously used, the fair value of the investment properties would increase or decrease accordingly.
Same-property portfolio
The same-property portfolio includes all the properties owned by BTB as at January 1, 2015, but does not include the
financial impacts from disposals, acquisitions and developments completed in 2015 and 2016.
Net property income from the same-property portfolio
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.
Distributable income
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.
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 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
Leasing payroll expenses (starting in 2016)
•
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.
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 Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
56
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
Impact of early redemption of convertible debentures
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 25¢ (2015: 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 and leasing payroll expenses.
BTB Real Estate Investment Trust – Management and Discussion Analysis – December 31, 2016
57
Complexe Lebourgneuf, 815-825 Lebourgneuf Blvd, Quebec
Audited Consolidated Financial Statements
Year ended December 31, 2016
23
BTB Rapport annuel 2016 TABLE OF CONTENTS
61 Management’s responsibility for Financial Reporting
62
Independent Auditor’s Report
64 Consolidated Statements of Financial Position
65 Consolidated Statements of Comprehensive Income
66 Consolidated Statements of Changes in Unitholders’ Equity
67 Consolidated Statements of Cash Flows
68 Notes to Consolidated Financial Statements
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
60
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, 2016, 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, 2016 and
2015 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 10th 2017
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
61
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, 2016 and
December 31, 2015, 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, 2016 and
December 31, 2015, and its consolidated financial performance and its consolidated cash flows for the
years then ended in accordance with International Financial Reporting Standards.
March 10, 2017
Montréal, Canada
*FCPA auditor, FCA, public accountancy permit No. A106087
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31, 2016 and 2015
(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 10, 2017.
Notes
4, 5, 6
7
14
8
9
10
11
12
13
14
15
2016
$
645,485
2,178
242
—
1,401
2,489
6,667
658,462
384,350
47,692
—
—
284
11,691
1,482
445,499
212,963
658,462
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
Michel Léonard, Trustee
Jocelyn Proteau, Trustee
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
64
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars)
Operating revenues
Rental revenues from properties
Operating expenses
Property taxes and public utilities
Other operating costs
Net operating income
Other revenue
Dispute settlement
Expenses
Finance costs
Net adjustment to fair value
of derivative financial instruments
Net financing costs
Trust administration expenses
Expenses for abandoned transaction
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.
Notes
17
18
19
20
2016
$
2015
$
73,384
72,892
20,487
11,558
32,045
19,850
11,748
31,598
41,339
41,294
212
—
21,959
22,863
(623)
21,336
4,330
—
15,885
288
23,151
4,044
207
13,892
6,200
(5,223)
22,085
8,669
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
65
CONSOLIDATED STATEMENTS OF CHANGES IN UNITHOLDERS’ EQUITY
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars)
Balance at January 1, 2016
Issuance of units
Distributions to unitholders
Comprehensive income
Balance as at December 31, 2016
Balance at January 1, 2015
Issuance of units
Distributions to unitholders
Comprehensive income
Balance as at December 31, 2015
See accompanying notes to consolidated financial statements.
Notes
Unitholders’
contributions
Cumulative
distributions
Cumulative
comprehensive
income
16
16
16
16
184,853
32,963
—
217,816
—
217,816
182,284
2,569
—
184,853
—
184,853
(52,726)
—
(16,444)
(69,170)
—
(69,170)
(38,248)
—
(14,478)
(52,726)
—
(52,726)
42,232
—
—
42,232
22,085
64,317
33,563
—
—
33,563
8,669
42,232
Total
174,359
32,963
(16,444)
190,878
22,085
212,963
177,599
2,569
(14,478)
165,690
8,669
174,359
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
66
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars)
Notes
7
15
17
17
18
4, 5
7
Operating activities
Net income for the year
Adjustment for:
(Increase) 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 to restricted cash
Interest paid
Net cash (used in) from financing activities
Net increase (decrease) 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.
2016
$
2015
$
22,085
8,669
(6,200)
170
206
(246)
2,177
21,336
39,528
322
39,850
(17,813)
—
(56)
(17,869)
86,822
(69,587)
11,770
(21,570)
—
(23,000)
30,908
(14,216)
51
(20,630)
(19,452)
2,529
4,138
6,667
5,223
158
279
(702)
2,084
23,151
38,862
(624)
38,238
(68,735)
12,087
(154)
(56,802)
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
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
67
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(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, 2016 and 2015 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 10, 2017.
(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 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 International Financial Reporting Standards
(“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:
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
68
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
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 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
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
69
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
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 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.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
70
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
(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.
(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.
(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.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
71
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
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.
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.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
72
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
(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 - 7 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.
(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.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
73
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
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.
(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 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.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
74
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
(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. 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.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
75
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
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.
(o) Change in accounting policy
In 2016, the Trust adopted the amendments to IAS 1, Presentation of Financial Statements and to IFRS 11, Joint
Arrangements. The application of the amendments had no impact on the Trust’s consolidated financial statements.
(p) New standards and interpretations not yet adopted
A number of new standards, and amendments to standards and interpretations, are not yet effective for the year
ended December 31, 2016, and have not been applied in preparing these consolidated financial statements.
IFRS 9, Financial Instruments (“IFRS 9”)
(i)
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 Trust is currently assessing the impact of IFRS 9 and intends to adopt the new standard on the
required effective date.
(ii) IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
In May 2014 the IASB issued IFRS 15 in replacement of IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13
Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of
Assets from Customers, and SIC 31 Revenue – Barter Transactions Involving Advertising Services. The standard
contains a single model that applies to contracts with customers and two approaches to recognising revenue: at
a point in time or over time. The model features a contract-based five-step analysis of transactions to determine
whether, how much and when revenue is recognized. The new standard is effective for the Trust’s annual period
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
76
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
beginning on January 1, 2018. The Trust is currently assessing the impact of IFRS 15 and intends to adopt the
new standard on the required effective date.
(iii) 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.
(iv) Disclosure initiative (Amendments to IAS 7)
In January 2016, the IASB issued Disclosure Initiative Amendments to IAS 7 also as part of the IASB’s Disclosure
Initiative. These amendments require entities to provide additional disclosures that will enable financial
statements users to evaluate changes in liabilities arising from financing activities, including changes arising from
cash flows and non-cash changes. These amendments are effective for annual periods beginning on or after
January 1, 2017. The Trust intends to adopt the amendments to IAS 7 in its financial statements for the annual
period beginning on January 1, 2017. The Trust does not expect the amendments to have a material impact on
the financial statements.
(v) IAS 40, Investment Property (“IAS 40”)
In December 2016, the IASB issued an amendment to IAS 40 clarifying certain existing requirements. The
amendment requires that an asset be transferred to or from investment property only when there is a change in
use. A change in use occurs when the property meets, or ceases to meet, the definition of investment property
and there is evidence of the change in use. In isolation, a change in management’s intentions for the use of a
property does not provide evidence of a change in use. These amendments are effective for annual periods
beginning on or after January 1, 2018, with earlier adoption permitted. The Trust intends to adopt the
amendments to IAS 40 in its financial statements for the annual period beginning on January 1, 2018. The Trust
does not expect the amendments to have a material impact on the financial statements.
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
Balance end of year
2016
$
622,651
11,795
—
2,682
—
875
3,213
(2,177)
246
6,200
645,485
2015
$
571,462
63,383
(13,053)
4,332
(286)
778
2,364
(2,084)
702
(4,947)
622,651
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
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
77
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
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, 2016 external appraisals were obtained for investment properties with an aggregate fair value of
$409,135 (December 31, 2015 - $394,213) and management’s internal valuations were used for investment properties
with an aggregate fair value of $236,350 (December 31, 2015 - $228,438).
The fair value of investment properties is based on Level 3 inputs. There have been no transfers during the period
between levels. The significant inputs used to determine the fair value of the Trust’s investment properties are as
follows:
As at December 31, 2016
Capitalization rate
Terminal capitalization rate
Discount rate
As at December 31, 2015
Capitalization rate
Terminal capitalization rate
Discount rate
Commercial
Office
Industrial
General purpose
6.25% - 10.00%
6.50% - 8.50%
6.50% - 9.75%
6.75% - 7.75%
6.75% - 8.00%
6.75% - 8.75%
7.00% - 7.75%
7.00% - 7.75%
7.25% - 8.75%
7.50% - 9.25%
7.50% - 8.50%
7.50% - 8.25%
6.25% - 10.00%
6.50% - 9.25%
6.50% - 9.75%
7.25% - 8.25%
7.00% - 8.50%
6.75% - 7.75%
7.75% - 9.75%
7.50% - 8.00%
7.75% - 9.00%
7.50% - 8.50%
8.25% - 10.50%
8.00% - 8.50%
During the first quarter of 2016, the classification of six investment properties was updated. The comparative figures
have been reclassified to conform to the current year’s presentation.
Valuations determined by the Direct Capitalization method are most sensitive to a change in the 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
$
695,338
669,493
645,485
623,062
602,122
Change in
fair value
$
49,853
24,008
—
(22,423)
(43,363)
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 Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
78
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
5. Acquisitions
(a) 2016 Asset acquisition
The relative fair value of the assets and liabilities recognized in the consolidated statement of financial position on the
date of the acquisition during 2016 were as follows:
Acquisition date
Property type
Location
February 2016
November 2016*
Transaction costs
Office
Retail
Montreal, QC
Quebec city, QC
Interest
acquired
%
100
100
Total
11,795
*Acquisition of a condominium that is part of an investment property the Trust already owned.
Fair value recognized on acquisition
Investment
properties,
including
transaction costs
Mortgage
loans payable
Trade and other
payables,
including
transaction costs
Total cash
consideration paid
$
11,000
450
345
$
—
—
—
—
$
41
21
345
407
$
10,959
429
—
11,388
(b) 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
Fair value recognized on acquisition
Investment
properties,
including
transaction costs
Interest
acquired
Mortgage
loans
payable
Trade and other
payables,
including
transaction costs
Total cash
consideration
paid
Industrial
Commercial
Office
Office
Ottawa, ON
Delson, QC
Ottawa, ON
Ottawa, ON
%
100
100
100
100
$
12,525
21,500
8,560
19,350
1,448
63,383
$
—
—
—
—
—
—
$
—
123
(59)
324
1,448
1,836
$
12,525
21,377
8,619
19,026
—
61,547
January 2015
January 2015
August 2015
August 2015
Transaction costs
Total
6. Disposals
(a) 2016 Asset Disposals
There were no disposals during the year ended December 31, 2016.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
79
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
(b) 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.
7. Property and Equipment
Cost
Balance at December 31, 2014
Additions
Balance at December 31, 2015
Additions
Balance at December 31, 2016
Accumulated Depreciation
Balance at December 31, 2014
Depreciation for the year
Balance at December 31, 2015
Depreciation for the year
Balance at December 31, 2016
Net carrying amount
Balance at December 31, 2015
Balance at December 31, 2016
8. Restricted Cash
Owner-
occupied
land
Owner-
occupied
building
Equipment,
furniture and
fixtures
$
494
—
494
—
494
$
1,934
11
1,945
10
1,955
379
69
448
61
509
494
494
1,497
1,446
$
539
55
594
46
640
340
72
412
80
492
182
148
Rolling
stock
$
82
88
170
—
170
34
17
51
29
80
119
90
Total
$
3,049
154
3,203
56
3,259
753
158
911
170
1,081
2,292
2,178
As at December 31, 2015, restricted cash consisted of an amount of $51 provided in guarantee of mortgage loans.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
80
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
9. Other Assets
As at December 31,
Prepaid expenses
Deposits
Total
10. Receivables
As at December 31,
Rents receivable
Provision for doubtful accounts
Net rents receivable
Unbilled recoveries*
Other receivables
Balance of sale (note 6)
Total
2016
$
983
418
1,401
2016
$
1,619
(432)
1,187
—
702
600
2,489
2015
$
1,285
684
1,969
2015
$
1,125
(329)
796
105
480
600
1,981
* At December 31, 2016 the excess of billing for cost recoveries amounts to $306 and is included in Trade and other payables.
Balance of sale is comprised 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 $638,635 as at December 31, 2016 (December 31, 2015– $616,301).
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
2016
$
364,669
21,412
845
(2,576)
2015
$
361,450
6,503
1,026
(2,383)
384,350
366,596
3.79%
5.90
3.95%
5.48
2.77% - 6.80%
2.83% - 6.80%
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
81
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
As at December 31, 2016, the mortgage loan scheduled repayments are as follows:
2017
2018
2019
2020
2021
Thereafter
Unamortized fair value assumption adjustments
Unamortized financing costs
Scheduled
repayments
Principal
maturity
$
10,868
9,080
7,729
7,278
6,480
37,820
79,255
$
64,670
38,091
37,873
21,849
33,341
111,002
306,826
Total
$
75,538
47,171
45,602
29,127
39,821
148,822
386,081
845
(2,576)
384,350
The Trust may enter into floating-for-fixed interest rate swap agreements on floating interest rate mortgages to hedge
the variability in cash flows attributed to fluctuating interest rates. The Trust does not apply hedge accounting to such
cash flow hedging relationships (see note 14). The following table presents relevant information on interest rate swap
agreements:
Transaction
date
Original principal
amount
Effective fixed
interest rate
Settlement
basis
Maturity
date
March 2013
June 2016
Total
$
7,150
13,000
20,150
12. Convertible Debentures
%
4.02
3.45
Monthly
Quarterly
April 2023
June 2026
As at December 31,
2016
Outstanding amount
As at December 31,
2015
$
6,238
12,804
19,042
$
6,503
—
6,503
As at December 31, 2016, the Trust had two series of subordinated, convertible, redeemable debentures outstanding.
Series E
Series F
Interest rates
Coupon
Effective
Unit
conversion
price
%
6.90
7.15
%
7.90
8.47
$
6.15
5.65
Capital
23,000
26,700
Interest
payments
Maturity
Semi-annual
March 2020
Semi-annual December 2020
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
82
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(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 E
$
22,690
310
23,000
Series F
$
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, 2016
Non-derivative liability component upon issuance
Accretion of non-derivative liability component
Unamortized financing costs
Non-derivative liability component
Series E
$
Series F
$
Total
$
22,690
149
22,839
(657)
26,700
—
26,700
(1,190)
49,390
149
49,539
(1,847)
22,182
25,510
47,692
Conversion and redemption options liability component at fair value
4
3
7
As at December 31, 2015
Non-derivative liability component upon issuance
Accretion of non-derivative liability component
Unamortized financing costs
Non-derivative liability component
Conversion and redemption options (asset) liability component at fair value
Series D
$
Series E
$
Series F
$
Total
$
21,346
932
22,278
(651)
21,627
(5)
22,690
106
22,796
(828)
26,700
—
26,700
(1,429)
21,968
25,271
2
11
70,736
1,038
71,774
(2,908)
68,866
8
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 were redeemed
for their nominal value on August 2, 2016. The excess of the redemption cost over the carrying amount of the
debentures amounting to $1,088, that would have been otherwise amortized over time, was charged to net financing
costs during the third quarter (see note 18).
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”).
Until March 31, 2018, under certain conditions, the debentures are 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
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
83
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
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.
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 $19,000. This line of credit bears interest at a rate
of 3.25% above the prime rate. As at December 31, 2016, no amount was due under the acquisition line of credit
(December 31, 2015 - $9,800).
The Trust also has access to an operating credit facility for a maximum amount of $3,000. This facility bears interest at
a rate of 0.75% above the prime rate. As at December 31, 2016 and 2015, 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 $8,115 and by an immoveable second rank hypothec on four properties having a
value of $86,325.
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, 2016 and December 31, 2015 because of their short-term maturity.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
84
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
As at December 31, 2016
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
As at December 31, 2015
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)
Carrying
amount
Level 1
$
Level 2
$
$
7
(249)
384,350
—
—
—
—
(249)
395,410
47,699
50,980
—
Fair value
Level 3
$
7
—
—
—
Carrying
amount
$
8
372
366,596
Fair value
Level 1
Level 2
Level 3
$
—
—
—
$
—
372
377,459
—
9,800
$
8
—
—
—
—
68,874
9,800
72,012
—
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.
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 Dollar 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.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
85
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
The following tables provide a reconciliation of Level 3 fair value measurements on the consolidated statements of
financial position:
Year ended December 31, 2016
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, 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
Conversion and redemption
options of convertible
debentures
$
8
(1)
7
Conversion and redemption
options of convertible
debentures
$
(53)
61
8
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, 2016:
Volatility sensitivity
Increase (decrease)
(0.50%)
December 31, 2016
0.50%
Conversion and
redemption
options of convertible
debentures
$
Volatility
%
(14)
7
36
11.42
11.92
12.42
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
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
86
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
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.
All of the outstanding options have been exercised during the year ended December 31, 2015. As a result, there are no
options outstanding as at December 31, 2016 and December 31, 2015.
Unit-based compensation expense was $21 for the year ended December 31, 2015 (December 31, 2016 - $nil).
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
Units
options
—
—
—
—
2016
Weighted
average
exercise price
—
—
—
—
Units
options
74,000
—
(74,000)
—
2015
Weighted
average
exercise price
4.50
—
4.50
—
(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
Outstanding, end of year
2016
2015
Deferred units
Deferred units
—
4,172
61
4,233
—
—
—
—
As at December 31, 2016, the liability related to the plan was $19 (December 31, 2015 - $nil). The related expense
recorded in profit and loss amounted to $19 for the year ended December 31, 2016 (no expense 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, 2016, the liability related to the plan was $40 representing a total of 9,062 units to issue
(December 31, 2015 - $37, representing a total of 8,340 units to issue). The related expense recorded in profit and loss
amounted to $39 for year ended December 31, 2016 (for year ended December 31, 2015 - $37). The 9,062 units
related to 2016 purchases were issued in February 2017 (8,340 units related to 2015 purchases - February 2016).
(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.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
87
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
The following table presents relevant information on changes in the restricted units:
For the years ended December 31,
Outstanding, beginning of year
Granted
Cancelled
Settled
Outstanding, end of year
2016
Restricted units
2015
Restricted units
51,083
42,919
(2,131)
(14,198)
77,673
39,816
62,868
—
(51,601)
51,083
As at December 31, 2016, the liability related to the plan was $225 (December 31, 2015 - $136). The related expense
recorded in profit and loss amounted to $148 for the year ended December 31, 2016 (for the year ended
December 31, 2015 - $221). As part of settlement, the Trust issued 14,198 units under this plan for the year ended
December 31, 2016 (51,601 units for the year ended December 31, 2015).
16. Trust Units Issued and Outstanding
BTB is authorized to issue an unlimited number of trust units. Each trust unit represents a single vote at any meeting of
unitholders and entitles the unitholder to receive a pro rata share of all distributions. The unitholders have the right to
require BTB to redeem their trust units on demand. Upon receipt of the redemption notice, all rights to and under the
trust units tendered for redemption are surrendered and the holder thereof is entitled to receive a price per trust unit
("Redemption Price"), as determined by a market formula. The Redemption Price is to be paid in accordance with the
conditions provided for in the Declaration of Trust. BTB trust units are considered liability instruments under IFRS
because the units are redeemable at the option of the holder, however they are presented as equity in accordance
with IAS 32.
In June 2016, the Trust completed a public issue of 7,159,342 units, including the over-allotment option exercised in
July, for total net proceeds of $30,908.
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
Issue pursuant to the unit option plan (note 15 (a))
Issue pursuant to the employee unit purchase plan (note 15 (c))
Issue pursuant to the restricted unit compensation plan (note 15 (d))
Units
34,705,151
7,159,342
—
41,864,493
455,342
—
—
8,340
14,198
2016
$
184,853
32,575
(1,667)
215,761
1,961
—
—
35
59
Units
34,133,967
—
—
34,133,967
408,625
29,200
74,000
7,758
51,601
Units outstanding, end of year
42,342,373
217,816
34,705,151
2015
$
182,284
—
—
182,284
1,772
144
371
37
245
184,853
(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 3% discount.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
88
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
(b) Distributions
For the years ended December 31,
Distributions to unitholders
Distributions per unit
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
Impact of early redemption of convertible debenture series D
Early repayment fees of a mortgage loan
Net adjustment to fair value of derivative financial instruments
19. Expenses for abandoned transaction
2016
$
16,444
0.42
2015
$
14,478
0.42
2016
$
75,315
(2,177)
246
73,384
2016
$
(95)
14,582
4,471
533
114
192
1,074
1,088
—
(623)
2015
$
74,274
(2,084)
702
72,892
2015
$
(52)
14,360
5,228
690
110
629
1,273
—
625
288
21,336
23,151
For the year ended December 31, 2015, due diligence expenses of $207 were incurred 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 to date.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
89
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(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
2016
$
6,200
—
6,200
2016
$
170
5,726
2015
$
(4,947)
(276)
(5,223)
2015
$
158
4,128
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
23. Operating Lease Income
2016
$
2015
$
22,085
38,546,160
8,669
34,449,596
0.57
0.25
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, 2016 are as
follows:
Within one year
Beyond one year but within five years
Beyond five years
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
2016
$
46,146
144,140
120,022
310,308
90
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
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.
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)
2016
$
386,081
49,700
—
435,781
212,963
648,744
2016
%
66.2
58.6
2015
$
367,953
72,700
9,800
450,453
174,359
624,812
2015
%
71.2
59.7
This note presents information about the Trust’s exposure to each of the above risks, the Trust’s objectives, policies
and processes for measuring and managing risk, and the Trust’s management of capital. Further quantitative
disclosures are included throughout these consolidated financial statements.
(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
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
91
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
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, 2016,
overdue rent receivable amounted to $1,166 (December 31, 2015 - $638), of which a provision for doubtful
account of $432 (December 31, 2015 - $329) 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.
Interest rate risk
(ii)
Interest rate risk reflects the risk of changes in the fair value or future cash flows of a financial instrument
because of fluctuations in market interest rates.
Except for one mortgage loan outstanding of $2,370 as at December 31, 2016, all other mortgage loans payable
and convertible debentures bear interest at fixed rates or are covered by an interest rate swap agreement.
Accordingly a 100-basis point increase or decrease in the average interest rates for the fiscal year, assuming that
all other variables remain constant, would have an impact of approximately $24 on the Trust’s comprehensive
income for the year ended December 31, 2016.
(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, 2016, the Trust was in compliance with all the covenants to which it was subject except for the
following: due to the low occupancy rate of one of its properties, the Trust does not meet the debt service coverage
ratio for this loan, which must be at least 1.25. As at December 31, 2016, this ratio was 1.01. The balance of the loan as
at December 31, 2016 was $5,302. The fair value of the mortgaged properties at the same date was $9,100. The Trust
has always met the other loan provisions and has never been late on a monthly payment. The Trust believes that this
default will be corrected in the normal course of business.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
92
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(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, 2016
Estimated payment schedule
2017
2018
2019
2020
2021
Carrying
amount
$
Total
contractual
cash flows
$
$
11,691
11,691
10,327
1,482
1,482
1,482
$
383
—
$
307
—
$
246
—
$
123
—
2022 and
thereafter
$
305
—
Trade and other
payables
Distributions payable
to unitholders
Mortgage loans
payable and
convertible
debentures
432,042
445,215
522,578
535,751
92,795
104,604
61,672
62,055
58,133
58,440
89,125
89,371
46,623
46,746
174,230
174,535
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
10,365
333
272
190
125
1,215
9,800
1,215
9,800
1,215
9,800
—
—
—
—
—
—
—
—
2021 and
thereafter
$
408
—
—
435,462
458,170
528,364
551,072
100,661
122,041
81,276
81,609
77,571
77,843
52,722
52,912
79,456
79,581
136,678
137,086
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
93
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(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
Corporation
Corporation
Limited Partnership
General Partnership
Limited Partnership
Relationship
Parent
100% owned by BTB REIT
100% owned by BTB A&ET
100% owned by BTB A&ET
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**
2016
%
50
50
75
2015
%
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.
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
2016
$
48,319
30,647
5,581
3,266
2015
$
48,025
30,098
5,587
3,444
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
94
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(Audited - in thousands of CAD dollars, except per unit amounts)
26. Operating Segments
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
Industrial
General purpose
Year ended December 31, 2016
Investment properties
Rental revenue from properties
Net operating income
Year ended December 31, 2015
Investment properties
Rental revenue from properties
Net operating income
Commercial
Office
Industrial
$
$
$
173,965
19,213
11,467
167,513
19,015
11,567
290,010
35,238
16,869
276,063
33,963
16,380
115,645
10,366
8,521
116,950
10,605
8,795
General
purpose
$
65,865
8,567
4,482
62,125
9,309
4,552
Total
$
645,485
73,384
41,339
622,651
72,892
41,294
During the first quarter of 2016, the classification of six investment properties was modified. The comparative figures
have been reclassified to conform to the current year presentation.
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
2016
$
1,969
155
2,124
2015
$
1,976
264
2,240
Key management personnel are comprised of the Company’s executive officers.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
95
Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(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
$
233
883
14,424
15,540
The related expense recorded in profit and loss amounted to $232 for the year ended December 31, 2016 (for the year
ended December 31, 2015- $183).
(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,
Within one year
Beyond one year but within five years
Beyond five years
Future
minimum
lease
payments
Interest
$
143
515
331
989
$
45
121
25
191
2016
Present
value of
minimum
lease
payments
$
98
394
306
798
Future
minimum
lease
payments
Interest
$
244
534
455
1,233
$
55
144
47
246
2015
Present
value of
minimum
lease
payments
$
189
390
408
987
The present value of the minimum lease payments is recorded in Trade and other payables.
(c) Litigation
The Trust is involved in 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.
29. Comparatives Figures
Certain comparative figures have been reclassified to conform to the current year’s presentation.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2016
96
Corporate Information
Board of Trustees
Executive Team
Michel Leonard
President and Chief Executive Officer
Benoit Cyr, CPA, CA
Vice-President and Chief Financial Officer
Dominic Gilbert, B.A.A.
Vice President, Leasing
Sylvie Laporte
Vice President, Property Management
Jocelyn Proteau (2)
President of the Board of Trustees
Corporate Director
Michel Leonard
President and Chief Executive Officer
Jean-Pierre Janson (2)
Vice President of the Board of Trustees
Executive Vice President
Richardson GMP Ltd
Luc Lachapelle (1)
Secretary of the Board of Trustees
Corporate Director
Lucie Ducharme (1) (2)
President, Human Resources and Governance Committee
Executive Vice President
Groupe Petra
Luc Martin (1)
President, Audit Committee
Corporate Director
Fernand Perreault (3)
President of the Investment Committee
Corporate Director
Sylvie Lachance (3)
Executive Vice President
Real Estate Development
Sobeys inc.
Peter Polatos (3)
Corporate Directo
(1) Member of the Audit Committee
(2) Member of the Human Resources and Governance Committee
(3) Member of the Investment Committee
BTB Annual Report 2016
99
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
Listing
The units and debentures of BTB Real Estate
Investment Trust are listed on the Toronto Stock
Exchange under the trading symbols:
BTB.UN
BTB.DB.E
BTB.DB.F
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 2016, 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
Legal counsel
De Grandpré Chait LLP.
1000 De la Gauchetière St. West
Suite 2900
Montreal, Quebec, H3B 4W5
Annual Meeting of Unitholders
June 15, 2017
11 : 00 a.m. (EDT)
Conference Center Le 1000
1000, De la Gauchetière Street West
Montreal, Quebec, H3B 4W5
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 3%.
For further information about the Distribution Reinvestment
Plan, please refer to the Investor relations section of our
website at www.btbreit.com
or contact the Plan agent: Computershare Investor Services.
100
BTB Rapport annuel 2016 BTB Real Estate Investment Trust
2155, Crescent
Montreal, Quebec, H3G 2C1
T 514 286 0188
F 514 286 0011
www.btbreit.com