BTB Real Estate Investment Trust
Annual Report 2017
Building on Quality
Profile
BTB is a real estate investment trust listed on the Toronto Stock Exchange.
It owns and manages a portfolio of 73 commercial, industrial and office
properties, located primarily in the Montreal, Quebec City and Ottawa areas.
Its portfolio comprises more than 5.4 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 $762 million, making BTB a major player in
the real estate industry of the Province of Quebec.
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
4 Message from the Chairman of the Board
of Trustees and from the President
and Chief Executive Officer
6 Board of Trustees
7 Executive Team
20 Our Top 10 Tenants
21 Our Tenants
22 Recent Acquisitions
24 Our Properties
27 Management Discussion and Analysis
67 Audited Consolidated Financial Statements
107 Corporate Information
108 Unitholders Information
2
BTB Rapport annuel 2013
Highlights
$73.3M
$762M
Rental income
Total assets
73
Number of properties
5.4M
Number of square feet
93.7%
Payout ratio on recurring
distributable income (1)
56.5%
Mortgage debt ratio
91.4%
Occupancy rate
(1) Non-IFRS financial measures. See appropriate sections of the Management
Discussion and Analysis for definition and reconciliation to the closest IFRS measure.
BTB Annual Report 2017
1
Highlights
Evolution of rental income
for the years ending December 31st
Evolution of net operating income
for the years ending December 31st (1)
(in thousands of dollars)
(in thousands of dollars)
201 7
201 6
201 5
201 4
201 3
201 2
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
73,3 1 7
73,384
72,892
67,170
63,435
48,1 1 8
201 7
201 6
201 5
201 4
201 3
201 2
40,394
41,339
41,294
37,983
35,336
26,996
50,000
40,000
30,000
20,000
10,000
0
2
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2
5
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2
Evolution of recurring distributable income
for the years ending December 31st (1)
Evolution of total leasable area
for the years ending December 31st
(in thousands of dollars)
(in thousands square feet)
201 7
201 6
201 5
201 4
201 3
201 2
20,000
15,000
10,000
5,000
0
1 9,7 2 1
19,7 1 1
18,733
16,626
12,610
7,805
201 7
201 6
201 5
201 4
201 3
201 2
5,435
5,144
5,095
4,822
4,580
4,341
6,000
5,000
4,000
3,000
2,000
1,000
0
2
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(1) Non-IFRS financial measures. See appropriate sections of the Management
Discussion and Analysis for definition and reconciliation to the closest IFRS measure.
BTB Annual Report 2017
2
Highlights
Performance on the markets
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Breakdown of portfolio by geographical region
at December 31st, 2017
Breakdown by asset type
at December 31st, 2017
(per leasable area)
(per leasable area)
Greater Montreal area
Greater Quebec city area
Ottawa area
Sherbrooke
London area
49.4%
24.0%
17.8%
5.0%
3.8%
Office
Retail
Industrial
Mixed-use
38.6%
24.6%
29.1%
7.7%
Total
100 %
Total
100 %
BTB Annual Report 2017
3
Message from the Chairman of the Board of Trustees
and from the President and Chief Executive Officer
Building on the quality of its
portfolio to generate stable
distributions for its unitholders.
Building on quality
In 2017 BTB initiated an ambitious strategy to
build on its strengths and set higher objectives
to evolve into a stronger organization. Commitment
to continuous improvement by our people, at every
level of the organization, has been extraordinary.
At the heart of our strategy was repositioning our
portfolio. The process began with an in-depth analysis
of each asset by management to identify under-
performing properties. Whether large or small, all our
properties were analysed. A proposed course of ac-
tion was presented to our board of trustees. Once
the board agreed with our conclusions, we proceeded
with the sale of the targeted properties. We proposed
to sell nine properties representing approximately
256,000 square feet. During the year we sold
three buildings for a total consideration of $11.5M
and after the year end we sold an additional three
buildings for total proceeds of $11.9M. The plan
was to sell these properties to acquire larger assets
to achieve a better performance. We sold “3627-
3645 des Sources Boulevard”, Dollard-des-Ormeaux,
QC; “1125-1135 Saint-Martin Boulevard West”, Laval,
QC; and “665-669 Thibeau Boulevard”, Trois-Rivières,
QC. We then acquired four larger properties inclu-
ding a commercial property located on F.-X. Sabourin
St. in St-Hubert, a retail property in the City of Levis
known as “Carrefour St-Romuald” and two office proper-
ties in the Montreal Technoparc. The total acquisition
price of these properties amounts to more than $94M.
To illustrate the benefit of our capital redeployment,
three of the disposed properties generated
$590,000 of annual Net Operating Income (NOI)
and the total sale price was $11,5M. We redeployed
this capital, purchasing the property located on
F.-X. Sabourin St. in St-Hubert. This property alone
generates upwards of $1.7M of annual NOI and
the purchase price was $23.2M. We therefore spent
twice as much as the proceeds of the sale of the
said three properties to generate almost three times
the NOI. This is an example of the execution of our
strategic plan that saw us migrating to better properties
to provide stability and strength.
In addition, our leasing activities were the best
leasing activity since our inception. BTB leased
526,000 square feet to new tenants and renewed
leases for 591,000 square feet. Therefore our
leasing activities totalled 1,117,000 square feet.
Regarding our lease renewals, they were concluded
at an average increase of revenue of 5.6%.
Our mortgage debt ratio decreased from 59.1%
to 56.5%
Our operating revenues were $73.3M for 2017
equivalent to the previous year which were $73.4M
and our net income for the year was $28.2M, showing
an increase from $22.1M for the prior year.
Because of our acquisition activities, our total assets
increased from $658M to $762M, an increase of 16%.
BTB Annual Report 2017
4
Message from the Chairman of the Board of Trustees
and from the President and Chief Executive Officer
Building on the quality of its
portfolio to generate stable
distributions for its unitholders.
To complement the implementation of our strategic
plan, we successfully raised $25.3 million by a unit
offering in September. The offering was met with
success as it was oversubscribed. It allowed us
to complete the above-mentioned acquisitions. On
December 31, 2017, our portfolio included 73 office,
industrial and retail properties totalling more than
5.4 million square feet.
We invested in the improvement of our properties
as part of our leasing and client retention strategy.
It is important to ensure that the quality of our pro-
perties remains competitive as client retention is the
foundation of our business. For example, we reno-
vated the lobby and common areas of our building
located at 50 Saint-Charles in Longueuil where
we saw its occupancy rate evolve from almost 0%
to 50% in 2017. The real estate business is cyclical
both on a macro and micro level, as supply and demand
fluctuate and as tenants make decisions to move or
stay at lease expiry and as their space needs increase
or shrink. In 2017 more than 16% of our leases
were expiring. This in itself was a major challenge.
We are proud to say that our leasing and property
management teams, supported by all the other areas
of the operation, understood the significance of
the challenge and rose to it extremely successfully.
Because of this colossal effort in lease renewals
and concluding transactions with new tenants, our
occupancy rate increased from 90.5% (in 2016)
to 91.4% (in 2017).
BTB Annual Report 2017
5
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Excellence in property management retains the
best tenants, attracts new ones and ultimately con-
tributes positively to our results. The high standard
of property management is a source of pride at BTB
and reflects our commitment to providing the highest
level of client service.
The need to improve our properties does not stop
there. We believe our people should be searching
for continuous improvement as well. That is why our
high performing people are committed to a continuous
improvement process and investment in themselves.
They know that continuous improvement and building
on quality are a responsibility for those who strive
to be outstanding performers. Those are values we
identify with very much at BTB.
We worked very hard to achieve our unique posi-
tion, and we are proud of our results. We conclude
the year with a portfolio of high performing assets that
will produce, over time, better results for our
unitholders.
Jocelyn Proteau
Chairman of the Board of Trustees
Michel Léonard
President and Chief Executive Officer
Board of Trustees
From left to right
Lucie Ducharme
President, Human Resources
and Governance Committee
and trustee
Michel Léonard
President and Chief Executive Officer
and trustee
Jean-Pierre Janson
Vice President of the Board of Trustees
and trustee
Sylvie Lachance
Trustee
Jocelyn Proteau
Chairman of the Board of Trustees
and trustee
Fernand Perreault
President of the Investment Committee
and trustee
Luc Lachapelle
Secretary of the Board of Trustees
and trustee
Luc Martin
President, Audit Committee
and trustee
Peter Polatos
Trustee
BTB Annual Report 2017
6
Executive Team
From left to right
Michel Léonard
President and Chief Executive Officer
Sylvie Laporte
Vice President, Property Management
Dominic Gilbert, B.B.A
Vice President, Leasing
Benoit Cyr, CPA, CA, MBA
Vice President and Chief Financial Officer
BTB Annual Report 2017
7
BTB, at every level of the organization,
is building on its existing quality
as it continues to be a top-performing
real estate investment trust.
Jocelyn Proteau
Chairman of the Board of Trustees
In 2017, just a little over 10 years after we
were founded, we undertook an important
reflection on the future of BTB. We deve-
loped a strategy to reposition our assets and
embark on phase II of our growth. Today,
the larger scale of BTB provides a cushion
against the turbulence of the markets and
in some cases even allows us to take advan-
tage of it.
BTB Annual Report 2017
8
Building on the quality
of its properties by continuously
improving them to ensure
client retention.
Olivier Marcadet
Chief Financial Officer
Veolia Water Technologies Canada
In 2017, Veolia and BTB renewed their
commitment and signed a 10-year lease
that has consolidated their partnership.
BTB brought their support and financing
resources to Veolia Water Technologies
Canada by working with us on the renova-
tion of the building and its amenities.
BTB is a very effective partner, always
available and responsive to our needs.
They have been very supportive when it
came time for us to choose to renew our
lease agreement, and the outcome is an
indication of the trust and mutual respect
that we have developed.
BTB Annual Report 2017
10
Building on quality
by responding
to tenants’ needs.
Marjorie Théodore
Chief Executive Officer
Vues et Voix
Vues et Voix is a non-profit organization,
and the individuals that benefit from our esta-
blishment have their share of disabilities.
BTB has been responsive to our needs in acces-
sibility so that our clients can enjoy a safe
environment. When we met BTB’s property
managers, we were pleasantly surprised.
BTB welcomed us with open arms, and made
it easy for us to move into the building.
BTB Annual Report 2017
12
Building on quality
by committing
to client satisfaction.
Marc Parent
CEO
Commissionaires Quebec
We decided to lease space in BTB’s building
at 1001 Sherbrooke East because of its
location, and for the openness exhibited by
BTB from the moment we started negotiations.
We’ve been in the building for a little
more than four months, and we can say
without reservation that we are completely
satisfied with our space and the profile it
offers us. BTB is always available and flexible,
and those qualities are what characterize
our business relationship. Perhaps even more
importantly, we have direct access to
the decision makers at BTB when we need
to reach them.
BTB Annual Report 2017
14
Building on quality
by developing a shared
vision with our tenants.
Bruno Tobelem
Owner
Franchisee, Dunn’s West Island
Marché de l’ouest has been on my mind for
several years to open a version 2.0 of
Dunn’s, because of its location, and because
it’s at the epicentre of the West Island.
We’ve had great help from BTB to achieve
great success in this new market. They
listened to my needs and tried to find the
right deal for me and for my company.
It’s always a big challenge to build a new
restaurant, and BTB’s response has always
been quick and efficient. I’m very happy
to be here.
16
BTB Rapport annuel 2017 17
BTB Rapport annuel 2017 Employees Recognition Awards
Winners 2017
Building on the quality
of our team by recruiting and
retaining the best people.
Julie Loiselle, lawyer
Lease Manager
Sylvain Moquin
Maintenance Technician
I’m pleased to be part of the BTB team,
working with many other departments
in the organization – people in accounting,
leasing, construction and property manage-
ment to name just a few. I support those
teams. We work closely together for effec-
tive management of our operations. I enjoy
being involved in every aspect of our day-
to-day operations, and I strongly believe that
we all contribute in many ways to the
success of the company. I understand how
lease management fits in with all the other
functions to ensure we are building on the
existing quality of the organization at all levels.
We are a family, and the company is much
stronger than just one person. I’ve been
working for BTB for seven years now, ensu-
ring the buildings I care for are maintained
to the highest quality, and I always give my
one hundred percent. I am so proud to have
won this Meritas award and I really thank
the company for recognizing my contribution.
We share the same values and commitment
to building on the quality of our work.
BTB Annual Report 2017
18
Employees Recognition Awards
Winners 2017
Véronique Simard
Administrative Assistant – Operations and
Property Management Team
David Barbarush
Property Manager
At BTB our priority is to provide a level of
service that our clients expect. The pleasure
I get from working together on a daily basis
colors everything I do including my relation-
ship with our tenants. I believe that small
things taken together can make a big diffe-
rence and that is why I am constantly
looking for ways to improve our services
and stay in touch with our clients.
I love the company I’m working for, and
we’re growing and moving forward as a
team. Property Management is the engine
that drives BTB and it is the heart of how
we operate. It touches and calls on every
part of the company: construction, leasing,
accounting, executive and other depart-
ments. My Meritas Award just motivates
me all the more to work with all the people
who support me, and coordinate our efforts
to achieve more for BTB’s success.
BTB Annual Report 2017
19
Our Top 10 Tenants
Building on the quality of its clients
by attracting and retaining a quality
mix of successful tenants.
BTB Annual Report 2017
20
Our Tenants
Here are some of our successful
achievements in terms of leasing and
lease renewals for the year 2017.
Strongco GP Inc.
Collège April-Fortier Inc.
Groupe Canam Inc.
Cision Québec Inc.
Deloitte s.e.c.
Englobe Corp.
Veolia Water Technologies Canada Inc.
Morneau Shepell Ltd
Edward D. Jones
Vues et Voix
Médias Transcontinental senc.
Corps canadiens des Commissionnaires
Randstad Interim Inc.
Ville de St-Jean-sur-Richelieu
Brookfield
Dunn’s Restaurant West Island
BTB Annual Report 2017
21
Recent Acquisitions
Building on the quality
of its assets through strategic
acquisition and growth.
7150 Alexander-Fleming Street, St-Laurent
2250 Alfred-Nobel Blvd, St-Laurent
BTB Annual Report 2017
22
Recent Acquisitions
1200-1252 De la Concorde Street, Lévis
1939-1979 F.-X. Sabourin Street, St-Hubert
BTB Annual Report 2017
23
Our Properties
204 De Montarville Blvd, Boucherville
50 St-Charles Street West, Longueuil
32 St-Charles Street West, Longueuil
245 Menten Place, Ottawa
Portfolio listing
Montreal
1400-1440 Antonio-Barbeau Street, Montreal
5810 Sherbrooke Street East, Montreal
5878-5882 Sherbrooke Street East, Montreal
7001-7035 St-Laurent Blvd and 25 Mozart Avenue,
Montreal
1001 Sherbrooke Street East, Montreal
2101 Sainte-Catherine Street West, Montreal
550-560 Henri-Bourassa Blvd, Montreal
3761-3781 des Sources Blvd, Dollard-des-Ormeaux
11590-11800 De Salaberry Blvd, Dollard-des-Ormeaux
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
2250 Alfred-Nobel Blvd, St-Laurent
7150 Alexander-Fleming Street, St-Laurent
2665-2673 and 2681 Côte Saint-Charles, Saint-Lazare
North Shore of Montreal
2900 Jacques-Bureau Street, 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
1939-1979 F.-X. Sabourin Street, St-Hubert
145 St-Joseph Blvd, St-Jean-sur-Richelieu
315-325 MacDonald Street, St-Jean-sur-Richelieu
1000 Du Séminaire Blvd North, St-Jean-sur-Richelieu
15,19,21,31,35 and 41 Georges-Gagné Blvd South, Delson
BTB Annual Report 2017
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Our Properties
31 Georges-Gagné Blvd South, Delson
1252 De la Concorde Street, Lévis
2204 Walkley Road, Ottawa
175 de Rotterdam Street, St-Augustin-de-Desmaures
18
Quebec City
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
1200-1252 De la Concorde Street, Lévis
191 D’Amsterdam Street, St-Augustin-de-Desmaures
175 de Rotterdam Street, St-Augustin-de-Desmaures
505 Des Forges Street and 1500 Royale Street,
Trois-Rivières
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
Properties sold after December 31st, 2017
1863-1865 Trans-Canada Highway, Dorval
2153-2155 Crescent Street, Montreal
1100-1104 and 1108-1136 St-Joseph Blvd, Drummondville
2905 Marleau Avenue, Cornwall
*Properties in redevelopment
BTB Annual Report 2017
25
Management Discussion and Analysis
December 31, 2017
27
BTB Rapport annuel 2017 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, 2017
Selected Financial Information
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
Sustainable Development
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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BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
28
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, 2017, 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 8, 2018 should be read together with the audited consolidated financial statements and
accompanying notes for the years ended December 31, 2017 and 2016. It discusses any significant information
available up to the date of this MD&A. The Trust’s consolidated annual financial statements were prepared in
accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting
Standards Board (“IASB”). Unless otherwise indicated, all amounts are in thousands of Canadian dollars, except for per
unit and per square foot amounts. Per unit amounts are calculated using the weighted average number of trust units
outstanding for the quarters and years ended December 31, 2017 and 2016. Additional information about the Trust,
including the 2017 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 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 Discussion and Analysis – December 31, 2017
29
NON-IFRS FINANCIAL MEASURES
“Net operating income,” “net operating income of the same-property portfolio,” “distributable income,” “recurring
distributable income,” “funds from operations” ("FFO"), “recurring FFO,” “adjusted funds from operations” (“AFFO”),
recurring 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 Discussion and Analysis – December 31, 2017
30
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, 2017,
it owns 73 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 70 of the Trust’s 73 properties held as at December 31,
2017 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 real estate portfolio:
As at December 31, 2017(1)
Number of
properties
73
Leasable area
(sq. ft.)
5,435,332
Fair value
(thousands of $)
751,110
(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 on to 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 Discussion and Analysis – December 31, 2017
31
HIGHLIGHTS OF THE YEAR ENDED DECEMBER 31, 2017
27.6% increase in net income and comprehensive income, from $22.1 million to $28.2 million.
Record leasing activities with the renewal of close to 591,000 square feet of leasable area and the leasing of
almost 526,000 square feet to new tenants.
Increase in occupation rate from 90.5% to 91.4%.
Decrease in mortgage debt ratio from 59.1% to 56.5%.
Increase of 8.8% in recurring FFO, from $17.7 million to $19.3 million.
15.8% increase in assets, from $658 million to $762 million.
Slight decrease of 3.5% in net cash from operating activities, from $39.8 million to $38.5 million.
11.5% decrease in recurring distributable income per unit and 10.6% for recurring AFFO because of a lower
effective occupancy rate in 2017 as compared to 2016.
Property sales and purchases
Acquisition of four investment properties for a total cost of $94.2 million, generating annual net operating income
of $6.5 million.
As part of the Trust’s strategic repositioning of its portfolio, sale of three investment properties for total proceeds
of $11.5 million.
Capital transaction
On October 23, 2017, issuance of 5,561,400 units, at a price of $4.55, for net proceeds of $24.1 million, which was
used to purchase other investment properties.
Summary of significant items as at December 31, 2017
73 properties
Approximately 5.4 million leasable square feet
$762 million in assets
$224 million in market capitalization
Subsequent events
In January and February 2018, the Trust sold four properties for a consideration totalling $124 million. Net proceeds
from the sale of these properties were applied against the Trust’s credit facilities.
In February 2018, the Trust purchased a retail property located in the city of Delson, Québec, for a consideration of
$1,865.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
32
SELECTED FINANCIAL INFORMATION
As at December 31, 2017, the Trust owns 73 properties generating, on an annualized basis, revenues of close to
$85 million.
The following table presents highlights and selected financial information for the quarters and years ended
December 31, 2017 and 2016:
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)
Cash flows from operating activities
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 debt 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
Retention rate
Reference
Quarter
2017
$
2016
$
Year
2017
$
2016
$
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19,733
10,460
15,498
5,837
14,121
4,916
5,079
4,865
4,370
18,270
10,121
9,130
6,365
13,250
5,047
4,442
4,808
4,485
47,023
33.0¢
10.5¢
10.5¢
103.3%
10.3¢
104.4%
9.3¢
116.2%
42,283
21.6¢
11.9¢
10.5¢
88.0%
11.4¢
92.4%
10.6¢
99.0%
(0.4)%
10.1%
73,317
40,394
28,171
24,333
38,449
19,721
18,486
19,262
17,599
762,390
751,110
428,382
48,183
73,384
41,339
22,085
26,292
39,850
19,711
16,444
17,710
17,391
658,462
645,485
384,350
47,692
56.5%
6.5%
2.2%
65.0%
3.72%
59.1%
7.6%
–%
65.7%
3.79%
248,947
222,262
212,963
189,270
48,423
43,671
64.5¢
45.2¢
42.0¢
93.7%
44.1¢
96.0%
40.3¢
105.0%
5.14
4.59
0.0%
100%
73
5,435
91.4%
5.6%
55.9%
42,342
38,546
57.3¢
51.1¢
42.0¢
83.4%
45.9¢
92.8%
45.1¢
94.6%
5.04
4.47
0.0%
100%
72
5,144
90.5%
5.6%
61.0%
(1) Non-IFRS financial measures. See appropriate sections for definition and reconciliation to the closest IFRS measure.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
33
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 per unit data)
Rental income
Net operating income(1) (5)
Fair value adjustment on investment properties
Net income
Net cash from operating activities
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
Recurring payout ratio on distributable income (4) (5)
2017
$
73,317
40,394
10,855
28,171
38,449
19,719
19,262
17,597
18,486
762,390
476,565
2016
$
73,384
41,339
6,200
22,085
39,850
19,711
17,710
17,391
16,443
658,462
432,042
64.5¢
45.2¢
44.1¢
40.3¢
42.0¢
93.7%
57.3¢
51.1¢
45.9¢
45.1¢
42.0¢
83.4%
2015
$
72,892
41,294
(5,223)
8,669
38,238
18,733
17,164
16,260
14,478
633,082
445,262
25.2¢
54.4¢
49.8¢
47.2¢
42.0¢
77.3%
(1) Defined as rental income from investment properties less operating expenses.
(2)See “Funds from operations” on page 47 for reconciliation to net income.
(3) See “Adjusted funds from operations” on page 48 for reconciliation to FFO and net income.
(4) Represents total distributions divided by recurring distributable income.
(5) See appropriate sections for definition and reconciliation to the closest IFRS measure.
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)
2017
Q-4
$
2017
Q-3
$
2017
Q-2
$
2017
Q-1
$
2016
Q-4
$
2016
Q-3
$
2016
Q-2
$
2016
Q-1
$
19,733
17,507
17,712
18,365
18,270
18,264
18,300
18,550
10,460
10,044
10,045
9,848
10,121
10,633
10,466
10,119
Net income and comprehensive income
15,498
4,327
4,362
3,984
9,130
5,422
3,982
3,551
Net income and comprehensive income per unit
33.0¢
10.1¢
10.3¢
9.4¢
21.6¢
13.0¢
11.4¢
10.2¢
Net cash from operating activities
Recurring distributable income(1)
14,121
10,161
4,916
4,883
8,749
4,979
5,417
13,250
10,342
9,549
4,943
5,047
5,285
4,924
6,709
4,455
Recurring distributable income per unit(1)
10.5¢
11.4¢
11.7¢
11.7¢
11.9¢
12.7¢
14.1¢
12.8¢
Recurring funds from operations (FFO)(1)
4,865
4,902
4,884
4,611
4,808
3,994
4,692
4,216
Recurring FFO per unit(1)
10.3¢
11.5¢
11.5¢
10.9¢
11.4¢
9.6¢
13.4¢
12.1¢
Recurring adjusted funds from operations (AFFO)(1)
4,370
4,516
4,463
4,250
4,485
4,733
4,333
3,840
Recurring AFFO per unit(1)
Distributions
Distributions per unit
9.3¢
10.6¢
10.5¢
10.0¢
10.6¢
11.4¢
12.4¢
11.0¢
5,079
4,483
4,469
4,456
4,442
4,449
3,897
3,655
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.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
34
PERFORMANCE INDICATORS
The indicators used to measure BTB’s financial performance are presented and explained in Appendix 1.
REAL ESTATE PORTFOLIO
BTB owns 73 quality properties which have a fair value of $751 million representing a total leasable area of
approximately 5.4 million square feet. A concise description of the properties owned as at December 31, 2017, can be
found in the Trust’s Annual Information Form available at www.sedar.com.
Summary of properties as at December 31, 2017
Operating segment
Office
Retail
Industrial
Mixed use
Subtotal
Properties under redevelopment
Number of
properties
Leasable area
(sq. ft.)
Occupancy rate
(%)
29
18
20
4
71
2
2,050,462
1,304,773
1,542,093
406,650
5,303,978
131,354
85.2%
96.3%
94.9%
90.0%
91.4%
Total
On January 1, 2016, the Trust reclassified some properties to better reflect the current mix of tenant activities.
5,435,332
73
Strategic deliberations
a) Sale of 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 mortgages and any remaining proceeds
will be allocated to the acquisition of accretive properties.
Nine properties representing a leasable area of approximately 256,000 square feet have been put on the market. The
proceeds of disposal are estimated at $30 million. Following repayment of mortgage financings and payment of
transaction costs, the Trust expects to recover a net amount of approximately $12 million.
In March 2017, the Trust sold an investment property for a total consideration of $7.0 million. In September 2017, the
Trust sold two investment properties put on the market for a total consideration of $4.450 million.
After year-end, the Trust sold four investment properties for a total consideration of $11.9 million. The disposal of
three properties in 2017 and four properties at the beginning of 2018 will deprive the Trust of $1.1 million in
annualized net operating income.
b) Property acquisitions
In these strategic deliberations, the Trust agreed to allocate the net proceeds of sale of the properties to the
acquisition of accretive properties.
Accordingly, in August 2017, the Trust acquired an investment property for a consideration of $23.2 million. This
property is expected to generate annual net operating income of $1.7 million.
In November 2017, the Trust acquired a retail investment property located in the Quebec City area for $35.9 million.
This property is expected to generate approximately $2.4 million in annual net operating income.
In November 2017, the Trust also acquired two office properties located in Montreal, in the Ville Saint-Laurent
borough, Québec, for $35.1 million. These properties are expected to generate more than $2.4 million in annual net
operating income.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
35
REAL ESTATE OPERATIONS
Leasing activities
The following table summarizes changes in available leasable area during the quarters and years ended December 31,
2017 and 2016.
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 leases terminated and renewed before term
Leasable area of renewed leases
Leasable area of new leases signed
Other
Quarter
Year
2017
2016
2017
2016
500,712
2,180
42,310
170,935
27,327
47,684
(111,573)
(233,419)
7,204
444,999
—
—
166,111
5,575
—
(70,766)
(73,404)
(410)
472,105
(7,414)
42,310
905,227
86,149
65,385
(590,956)
(525,894)
6,448
408,243
—
—
520,883
61,705
—
(319,392)
(200,332)
998
Available leasable area at end of period
453,360
472,105
453,360
472,105
Fiscal 2017 was quite challenging since more than 905,000 square feet of leasable area expired at the end of leases,
and more than 151,000 square feet expired before term, for a total of 1,057,000 square feet (2016: 583,000 square
feet). Our property managers renewed close to 591,000 square feet of leasable area, while the leasing team signed
new leases with new tenants for almost 526,000 square feet, for a total of 1,117,000 square feet (2016: 520,000
square feet). In both cases, these were record results in the Trust’s history.
During the fourth quarter, close to 246,000 square feet (2016: 172,000 square feet) expired at the end of leases
(171,000 square feet) or before term (75,000 square feet). Close to 112,000 square feet (2016: 71,000 square feet)
were renewed and more than 233,000 square feet (2016: 73,000 square feet) were leased to new tenants.
The “805 Boundary Road” property in Cornwall, Ontario and “100, 1ère rue Ouest” in Thetford Mines, Québec, currently
under redevelopment, are not included in these statistics.
The 1863-1865 Transcanadienne property in Montréal was reclassified as an active property during the quarter and a
new lease was signed for its total area.
The average rental rate of expired and renewed leases decreased 0.4% during the fourth quarter (2016: 10.1%
increase). The average rate rose 5.6% (2016: 5.6%) for the year.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
36
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. Approximately 120,000 square feet of rental space is currently subject
to firm lease agreements for occupancy over the next few months.
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,
2017
September 30,
2017
%
85.2
96.3
94.9
94.0
91.4
%
84.7
96.2
90.8
94.1
90.0
June 30,
2017
%
85.1
94.5
87.0
95.2
88.6
March 31,
2017
December 31,
2016
%
83.5
93.4
93.5
93.1
89.5
%
84.5
94.0
94.1
95.8
90.5
December 31,
2017
%
September 30,
2017
%
June 30,
2017
%
March 31,
2017
%
December 31,
2016
%
97.7
91.5
95.1
85.7
92.6
81.9
100.0
91.4
97.7
90.5
94.6
85.0
86.4
81.9
100.00
90.0
December 31,
2017
September 30,
2017
%
90.9
93.5
91.4
%
90.6
88.0
90.0
97.7
91.1
93.8
85.2
79.7
81.3
100.0
88.6
June 30,
2017
%
90.4
82.1
88.6
97.7
89.8
92.7
83.3
90.1
78.5
100.0
89.5
97.4
89.3
91.9
89.4
88.8
79.5
100.0
90.5
March 31,
2017
December 31,
2016
%
89.1
91.2
89.5
%
90.6
90.1
90.5
The overall occupancy rate is up by 1.4% since September 30, 2017 and 0.9% since December 31, 2016. It stood at
91.4% at the end of the fourth quarter of 2017.
All of the operating segments and geographic sectors that make up the Trust’s portfolio were stable or had higher
occupancy rates in the fourth quarter due to significant leasing activity in the Trust’s properties and the sustained
efforts of resources assigned to the leasing of rental spaces.
The effective occupancy rate as at December 31, 2017, without the effect of the firm lease agreements, is 88.0% (2016:
89.1%). Vacant space totalling more than 180,000 square feet as at December 31, 2017 is subject to firm lease
agreements and will generate additional income in the next few months.
Retention rate
The renewal rate for leases that expired in 2017 was 55.9% (2016: 61.0%).
In 2017, the retention rate was down 5.1% from 2016 due to the loss of industrial tenants that had occupied large
leasable areas. Most of this space was re-leased or is subject to firm lease offers for future occupancy.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
37
Lease maturity
More than 900,000 square feet of leasable area expired in 2017, making this a record year for leasing activity.
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
2018
2019
2020
2021
2022
239,670
289,309
168,517
282,206
252,657
$14.75
$13.79
$16.11
$13.00
$14.30
11.7%
14.1%
8.2%
13.8%
12.3%
182,711
188,583
$12.57
$12.70
73,272
$14.66
126,669
$13.60
70,741
$16.69
14.0%
14.5%
5.6%
9.7%
5.4%
133,347
94,482
224,677
408,886
240,071
$4.72
8.6%
$4.34
6.1%
$5.02
14.6%
$6.87
26.5%
$5.38
15.6%
24,766
$15.58
42,861
$13.38
81,411
$13.29
109,349
$10.97
47,867
$12.80
6.1%
10.5%
20.0%
26.9%
11.8%
580,494
615,235
547,877
927,091
611,336
$12.00
$11.98
$10.95
$10.03
$10.96
10.9%
11.6%
10.3%
17.5%
11.5%
As at December 31, 2017, BTB managed more than 650 leases, with an average area of more than 8,000 square feet.
The three largest tenants are Public Works Canada, Provigo Distribution Inc. and Atis Portes et Fenêtres Corp.,
accounting respectively for 6.7%, 2.1% and 1.9% of revenues, generated by a number of leases whose maturities are
spread over time. More than 29.3% 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.
The following table shows the contribution of the Trust’s top 10 tenants as a percentage of revenues as at
December 31, 2017. This contribution accounts for 22.1% of rental income for the year for 20.6% of leased area.
Client
Public Works Canada
Provigo Distribution Inc. (Loblaws)
Atis Portes et Fenêtres Corp.
Shoppers Realty Inc.
Flextronics
Société québécoise des infrastructures (SQI)
Strongco
Le Groupe SM inc.
Germain Larivière Inc.
CNESST
% of
revenue
% of leased
area
Leased area
(square feet)
6.7
2.1
1.9
1.8
1.8
1.7
1.7
1.5
1.5
1.4
3.9
2.0
4.7
1.2
0.9
1.4
1.5
2.1
1.9
0.9
205,836
107,642
251,878
64,304
48,731
76,003
81,442
109,185
101,194
46,421
22.1
20.6
1,092,636
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
38
OPERATING RESULTS
The following table summarizes financial results for the quarters and years ended December 31, 2017 and 2016. 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 on investment properties
Investment property disposal costs
Net income and comprehensive income
(1) Non-IFRS financial measure
Rental income
Quarter
Year
2017
$
19,733
9,273
10,460
(50)
4,768
1,074
(10,855)
25
15,498
2016
$
18,270
8,149
10,121
(59)
4,088
1,177
(4,215)
—
9,130
2017
$
73,317
32,923
40,394
(83)
18,761
4,317
(10,855)
83
28,171
2016
$
73,384
32,045
41,339
(307)
21,431
4,330
(6,200)
—
22,085
Reference
Page 39
Page 39
Page 40
Page 41
Page 42
Page 42
Page 43
Page 43
BTB disposed of properties during the year, generating an estimated shortfall of approximately $288 for the quarter.
BTB covered this shortfall through the acquisition of accretive properties in 2017. The recent acquisitions described in
more detail on page 51 of this MD&A generated additional income of $1,704 during the quarter.
Combined with the net effect of these transactions, rental income increased by $1,463 or 8.0% for the fourth quarter
compared to the same quarter of 2016. However, this increase was offset in recent quarters by the lower “in place”
occupancy rate compared to the same quarters of 2016. Several spaces that had been vacated in 2017 have since been
re-leased and will generate rental income in 2018.
In the fourth quarter of 2017, rent payable adjustments of $182 (2016: $2 receivable) were recorded on a straight-line
basis.
BTB also recorded amortization of $636 (2016: $610) as a reduction in rental income, which represents amortization of
lease incentives afforded to lessees.
Recent acquisitions generated additional income of $2,104 for fiscal 2017, while disposals generated a $870 shortfall
since the beginning of the year. Despite the net combined effect of these transactions, rental income for fiscal 2017 did
not increase compared to 2016 due to a lower average occupancy rate in 2017 than in 2016.
For fiscal 2017, rent payable adjustments of $443 (2016: $246) were recorded on a straight-line basis and amortization
of $2,449 (2016: $2,177) from lease incentives afforded to lessees was recorded as a reduction in rental income.
Operating expenses
BTB recorded an increase in operating expenses of $1,124, or 13.8%, between the fourth quarter of 2016 and the
fourth quarter of 2017.
Recent acquisitions contributed to an increase of $547 in operating expenses for the quarter, while disposals resulted
in an estimated reduction of $93. During the last months of the year, BTB invested significant amounts in preventive
property maintenance of its properties, which significantly increased certain operating expenses.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
39
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
2017
$
3,574
5,699
9,273
47.0
2016
$
3,058
5,091
8,149
44.6
2017
$
12,209
20,714
32,923
44.9
2016
$
11,558
20,487
32,045
43.7
For the entire year, recent acquisitions contributed to an increase of $679 in operating expenses, while the year’s
disposals allowed for a reduction in operating expenses of $346. Before the effect of these transactions, annual
operating expenses had increased approximately $590 or 1.8% compared to last year, a rate comparable to the
increase in the consumer price index (1.6%).
As a percentage of rental income, operating costs in the quarter of 2017 increased by 2.4% to 47.0% and by 1.2% to
44.9% for the year.
Net operating income
Net operating income for the quarter increased by $1,156 because of the year’s acquisitions, while management
estimates at approximately $195 the net shortfall after disposals.
Had it not been for the effect of these transactions, net operating income would have significantly decreased because
of the increase in the portfolio’s effective vacancy rate, that will be resolved in 2018, and recent investments in
preventive maintenance of the portfolio buildings. The increase in operating expenses, which was greater than the
increase in rental income, explains the decrease in percentage of net operating income over rental income from 55.4%
to 53.0% for the quarter, and from 56.3% to 55.1% for the year.
Periods ended December 31
(in thousands of dollars)
Net operating income(1)
% of rental income
(1) Non-IFRS financial measure
Quarter
Year
2017
$
2016
$
2017
$
10,460
10,121
40,394
53.0
55.4
55.1
2016
$
41,339
56.3
On an annual basis, net operating income was down $945, or 2.3%, despite the effect of acquisitions during the year
that contributed to a $1,421 increase, while management estimates the shortfall from disposals at approximately
$525.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
40
Net operating income is reduced by non-cash rental income adjustments. Before these 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
Financial expenses
Quarter
Year
2017
$
10,460
(182)
636
10,914
54.1
2016
2017
$
10,121
2
610
10,733
56.8
$
40,394
(443)
2,449
42,400
56.3
2016
$
41,339
(246)
2,177
43,270
57.5
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
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
2017
$
3,984
874
205
30
5,093
–
254
12
2016
$
3,658
874
94
34
4,660
–
240
11
2017
$
14,871
3,496
351
117
18,835
–
1,008
45
2016
$
14,582
4,471
519
128
19,700
1,088
1,074
192
5,359
4,911
19,888
22,054
(591)
4,768
(823)
4,088
(1,127)
18,761
(623)
21,431
Interest expenses increased by $433 during the fourth quarter of 2017 compared to the same period of 2016, mainly
due to the financing of recent acquisitions which contributed to a $411 increase in interest expense on mortgage loans
repayable and the use of the line of credit for these acquisitions. This increase was offset, however, by disposals which
generated estimated savings of $86 on interest expense on mortgage loans payable for the quarter.
If not for these transactions, interest expense on mortgage loans payable would have been similar to that of the fourth
quarter of 2016.
Financial expenses can be allocated among interest expenses amounting to $5,093 for the quarter (2016: $4,660) and
non-monetary items. Non-monetary items include the accretion of effective interest and the liability component of
convertible debentures and fair value adjustments on financial instruments. BTB recognized an increase in the value of
derivative financial instruments of $591 for the quarter. The increase, which generated the equivalent in income
recorded as a reduction of financial expenses, was due to rising interest rates in Canadian markets over the last few
months.
As at December 31, 2017, the average weighted contractual rate of interest on mortgage loans payable was 3.72%,
7 basis points lower than the rate in effect as at December 31, 2016. Interest rates on first-ranking mortgage financings
ranged from 2.0% to 6.8% as at December 31, 2017. The weighted average term of financing in place as at
December 31, 2017 was 6.4 years (5.9 years as at December 31, 2016).
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
41
At the end of the year, interest expense on mortgage loans payable increased by $379. Acquisitions during the year
contributed to a $503 increase, while disposals generated estimated savings of $179. If not for these transactions,
expenses for 2017 would have been similar to 2016. Interest expense on debentures decreased by $97 due to the
repayment of Series D convertible debentures in 2016. This redemption also gave rise to a non-recurring expense of
$1,088 in 2016. The lines of credit were also used less extensively during 2017, generating savings of approximately
$179 compared to the previous year.
Lastly, upward adjustments to financial instruments recorded during the year resulted in the recognition of income of
$1,127 as a reduction of financial expenses in 2017 compared to $623 in 2016. Total financial expenses were down by
$2,670 in 2017 compared to 2016.
Trust administration expenses
Periods ended December 31
(in thousands of dollars)
Administrative expenses
Amortization
Unit-based compensation
Trust administration expenses
Quarter
Year
2017
$
952
15
107
1,074
2016
$
1,075
15
87
1,177
2017
$
3,940
58
319
4,317
2016
$
4,063
61
206
4,330
Fair value adjustment on investment properties
Under IAS 40, the Trust accounts for its investment properties at fair value and recognizes the gain or loss arising from
a change in the fair value in profit or loss for the periods in which it arises.
The fair value of investment properties is determined using the discounted cash flow method, the capitalized net
operating income method or the comparable method, which are generally accepted valuation methods.
Management receives quarterly capitalization rate and discount rate data from external chartered valuators and
independent experts. The capitalization rate reports provide a range of rates for various geographic regions and for
various types and qualities of properties within each region. The Trust utilizes capitalization and discount rates within
ranges provided by external valuators. To the extent that the externally provided capitalization rate ranges change
from one reporting period to the next, or should another rate within the provided ranges be more appropriate than
the rate previously used, the fair value of the investment properties would increase or decrease accordingly.
The Trust annually uses external chartered valuators to appraise a significant portion of its portfolio. The 10 largest
properties and approximately a third of the remaining properties are independently appraised. In addition, as part of
financing or refinancing and at the request of lenders, other properties were independently appraised during the last
months of the year.
As at December 31, 2017, 71.4% (2016: 63.4%) of the fair value of the real estate portfolio was subject to an external
independent appraisal and 28.6% (2016: 36.6%) was internally appraised by the Trust’s personnel.
Following these appraisals, the Trust recorded an increase in value of $10.9 million on its real estate portfolio. Of this
amount, $2.3 million was recorded to reflect the selling price of properties sold subsequent to year-end. In addition, a
$6.6 million increase in value was recognized on four major properties, which significantly increased the expected
operating results for 2018. Lastly, a $1.0 million increase in value was recorded on a property following a decrease in
the capitalization rate.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
42
The following tables highlight the significant assumptions used in the modelling process for both internal and external
appraisals:
As at December 31, 2017
Capitalization rate
Terminal capitalization rate
Discount rate
As at December 31, 2016
Capitalization rate
Terminal capitalization rate
Discount rate
Retail
Office
Industrial
Mixed use
6.25% – 10.00%
6.25% – 8.00%
7.25% – 8.75%
6.25% – 8.50%
6.50% – 7.75%
7.00% – 8.75%
6.50% – 9.75%
7.00% – 9.50%
7.75% – 10.50%
6.75% – 7.50%
6.75% – 7.50%
7.50% – 8.50%
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%
The weighted average capitalization rate for the entire portfolio as at December 31, 2017 was 7.05% (December 31,
2016: 7.20%), down 15 basis points since December 31, 2016.
As at December 31, 2017, 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 $26.7 million.
Investment property disposal costs
On March 28, 2017, the Trust disposed of the investment property “3627-3645 Des Sources” in Dollard-des-Ormeaux
for $7.0 million. The Trust realized a $482 gain on disposal of this property and incurred transaction and early
mortgage repayment fees amounting to $350. This property had been acquired in February 2007 at a cost of
$4.7 million, including acquisition costs.
On September 5, 2017, the Trust disposed of the investment property “665-669 Thibeau Blvd.” in Trois-Rivières for
$1.825 million. The Trust realized a $97 loss on disposal of this property and incurred transaction costs amounting to
$74. This property had been acquired in August 2008 at a cost of $1.851 million, including acquisition costs.
On September 11, 2017, the Trust disposed of the investment property “1125-1135 St-Martin Blvd. West” in Laval for
$2.625 million. The Trust realized a $6 loss on disposal of this property and incurred transaction and early mortgage
repayment fees amounting to $116. This property had been acquired in February 2007 at a cost of $2.480 million,
including acquisition fees.
Net income and comprehensive income
BTB generated net income of $15.5 million for the fourth quarter of 2017, up $6.4 million from $9.1 million in the
fourth quarter of 2016. Net income for the year totalled $28.2 million, up $6.1 million from 2016.
Periods ended December 31
(in thousands of dollars, except for per unit data)
Net income and comprehensive income
Per unit
Adjusted net income and comprehensive income
Quarter
Year
2017
$
15,498
33.0¢
2016
$
2017
$
2016
$
9,130
28,171
22,085
21.6¢
64.5¢
57.3¢
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 real estate
portfolio fluctuate based on the stock market volatility of BTB units, the forward interest rate curve and the discount
and capitalization rates of the real estate portfolio.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
43
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 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
2017
$
2016
$
2017
$
2016
$
15,498
9,130
28,171
22,085
(10,855)
(591)
4,052
8.6¢
(4,215)
(823)
4,092
9.7¢
(10,855)
(1,127)
16,189
37.1¢
(6,200)
(623)
15,262
39.6¢
This table shows a slight decrease of 1.0% in quarterly adjusted net income and an increase of 6.1% in annual adjusted
income, before the non-monetary items mentioned above. The portfolio’s lower effective occupancy rate in the fourth
quarter and for the year, compared to the same periods of 2016, substantially reduced the contribution to net income
from acquisitions for the year. For the fourth quarter of 2017, quarterly adjusted net income per unit decreased 11.3%
and annual adjusted net income decreased 6.3%. Income per unit was reduced by the issuance of 5.6 million units
finalized on October 23, 2017, and the timing difference between receipt of the net proceeds and their allocation to
accretive property acquisitions.
OPERATING RESULTS – SAME-PROPERTY PORTFOLIO
Same-property portfolio
The same-property portfolio includes all the properties owned by BTB as at January 1, 2016, but does not include the
financial spin-offs of acquisitions and developments completed in 2016 and 2017, as well as the contribution during
the ownership period of properties sold in 2016 and 2017.
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
2017
2016
%
$
$
17,814
8,507
9,307
3,470
5,837
17,663
7,794
9,868
3,503
6,365
0.9
9.1
(5.7)
(0.9)
(7.9)
2017
$
69,608
31,419
38,189
13,856
24,333
2016 %
$
70,959
30,664
40,295
14,003
26,292
(1.9)
2.5
(5.2)
(1.0)
(7.5)
Decrease in net property income from the same-property portfolio
7.9
7.5
(1) Non-IFRS financial measure
Rental income of the same-property portfolio was up 0.9%, but was limited by the lower effective occupancy rate of
the same-property portfolio in 2017 compared to that of 2016. Net operating income and net property income were
down for the fourth quarter of 2017 compared to the same period of 2016. Significant capital expenditures in
preventive maintenance across the portfolio explain the decrease in the same-property portfolio’s performance.
For the year, a lower effective occupancy rate and higher preventive maintenance costs explain the decrease in the
same-property portfolio’s performance. Currently vacant space totalling more than 180,000 square feet is subject to
firm lease agreements and will generate income in the next few months. Based on current rental activities,
management is optimistic that the same-property portfolio’s performance indicators will soon improve.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
44
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(1)
Unusual item
Dispute settlement(2)
Recurring distributable income
(1) Non-IFRS financial measures
(2)
Income from a dispute settlement
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
2017
$
15,498
(10,855)
37
107
12
(591)
636
(182)
254
–
2016
$
9,130
(4,215)
37
87
11
(823)
610
2
240
–
2017
$
28,171
(10,855)
154
319
45
(1,127)
2,449
(443)
1,008
–
4,916
5,079
19,721
2016
$
22,085
(6,200)
170
206
192
(623)
2,177
(246)
1,074
1,088
19,923
–
4,916
(32)
–
(212)
5,047
19,721
19,711
Quarter
Year
2017
$
4,423
656
5,079
2016
$
3,927
515
4,442
2017
$
16,199
2,287
18,486
2016
$
14,474
1,970
16,444
12.9%
11.6%
12.4%
12.0%
10.5¢
10.5¢
10.5¢
103.3%
90.0%
12.0¢
11.9¢
10.5¢
88.0%
77.8%
45.2¢
45.2¢
42.0¢
93.7%
82.1%
51.7¢
51.1¢
42.0¢
83.4%
73.4%
(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.
Distributable income for the fourth quarter decreased by $163, from $5,079 to $4,916, between 2016 and 2017.
Recurring distributable income per unit for the fourth quarter of 2017 was 10.5¢ compared to 11.9¢ in 2016, an 11.8%
decrease. Recurring distributable income for the year was the same as last year, while recurring distributable income
per unit was down from 51.7¢ to 45.2¢.
Distributions to unitholders totalled 10.5¢ per issued unit for each quarter of 2017 and 2016 and 42.0¢ for the year.
The payout ratio for recurring distributable income was 103.3% in the fourth quarter of 2017 compared to 88.0% in the
fourth quarter of 2016, and 93.7% for 2017 compared to 83.4% for 2016. Management attributes the decrease in
distributable income per unit to the portfolio’s effective occupancy rate, which was lower in 2017 than in 2016, and to
higher preventive maintenance costs during the fourth quarter of 2017, as well as the issuance of 5.6 million units on
October 23, 2017 and the timing difference between receipt of the net proceeds and their allocation to accretive
property acquisitions. Lastly, 180,000 square feet of leasable area are currently subject to firm lease agreements which
will generate rental income over the next few quarters and significantly improve these performance indicators.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
45
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
- Expenses related to disposal of investment properties
± Net change in non-cash operating items
-
-
-
-
Interest expense on mortgage loans payable
Interest expense on convertible debentures
Interest expense on acquisition line of credit
Interest expense on operating line of credit and other interest expenses
Distributable income
Quarter
Year
2017
$
14,122
50
(25)
(4,138)
(3,984)
(874)
(205)
(30)
4,916
2016
$
13,250
27
—
(3,538)
(3,658)
(874)
(94)
(34)
2017
$
38,449
83
(83)
107
(14,871)
(3,496)
(351)
(117)
5,079
19,721
2016
$
39,850
95
—
(322)
(14,582)
(4,471)
(519)
(128)
19,923
The following table, presented in accordance with CSA instructions, enables readers to assess the performance of
distributed funds and reconcile them with cash flows and net income.
Years ended December 31
(in thousands of dollars)
Net cash flows from operating activities (IFRS)
- Interest paid
Net cash flows from operating activities
Net income
Total distributions
Cash distributions
Surplus (deficit) of net cash flows from operating activities compared to
total distributions
Excess (deficiency) of net income over total distributions
2017
$
38,448
(18,593)
19,855
28,171
18,486
16,199
1,369
9,685
2016
$
39,850
(20,630)
19,220
22,085
16,443
14,474
2,777
5,642
2015
$
38,238
(20,855)
17,383
8,669
14,478
12,688
2,905
(5,809)
For the years ended December 31, net cash flows from operating activities exceeded total distributions. If necessary,
BTB has access to lines of credit totalling $22 million to cover seasonal fluctuations in certain disbursements.
Distribution reinvestment plan
In the fourth quarter of 2017, 12.9% of distributions (2016: 11.6%) and 12.4% (2016: 12.0%) were reinvested under the
distribution reinvestment plan implemented by BTB in 2011. Approximately $2.3 million (2016: $1.8 million) of the
Trust’s cash was thereby preserved through unit conversions during 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 Discussion and Analysis – December 31, 2017
46
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, 2017 and 2016:
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
- Costs on disposal of investment properties
+ Amortization of a property recognized at cost
+ Amortization of lease incentives
± Fair value adjustment on derivative financial instruments
+ Leasing payroll expenses
FFO(1)
Unusual item
Dispute settlement
Recurring FFO(1)
FFO per unit
Recurring FFO per unit
Recurring FFO payout ratio(2)
Recurring FFO cash payout ratio(3)
Quarter
Year
2017
$
15,498
(10,855)
25
8
636
(591)
144
4,865
–
4,865
10.3¢
10.3¢
104.4%
90.9%
2016
$
9,130
(4,215)
—
15
610
(823)
123
4,840
2017
$
28,171
(10,855)
83
30
2,449
(1,127)
511
19,262
(32)
4,808
—
19,262
11.4¢
11.4¢
92.4%
81.7%
44.1¢
44.1¢
96.0%
84.1%
2016
$
22,085
(6,200)
—
61
2,177
(623)
422
17,922
(212)
17,710
46.5¢
45.9¢
92.8%
81.7%
(1) Non-IFRS financial measure
(2) The recurring FFO payout ratio corresponds to total distributions divided by recurring FFO.
(3) The recurring FFO cash payout ratio corresponds to cash distributions divided by recurring FFO.
For fiscal 2017, recurring FFO was 44.1¢, compared to 45.9¢ in 2016, a 3.9% decrease. The payout ratio stood at 96.0%
for fiscal 2017 compared to 92.8% for 2016.
The decrease in recurring FFO and recurring FFO per unit was due to a lower effective occupancy rate in 2017 than in
2016, significant preventive maintenance expenditures during the last quarter of 2017, and the issuance of 5.6 million
units on October 23, 2017 and the timing difference between receipt of the net proceeds and their allocation to
accretive property acquisitions. As mentioned above, strong leasing activity in recent months will significantly improve
these performance indicators in 2018.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
47
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 non-cash operating 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
Impact of early redemption of Series D convertible debentures
- Amortization of other property and equipment
FFO(1)
(1) Non-IFRS financial measure
ADJUSTED FUNDS FROM OPERATIONS (AFFO)
Quarter
Year
2017
$
14,122
182
50
8
144
(4,138)
(107)
(3,984)
(874)
(205)
(30)
(12)
(254)
–
(37)
4,865
2016
$
15,250
(2)
27
15
123
(5,538)
(87)
(3,658)
(874)
(94)
(34)
(11)
(240)
–
(37)
2017
$
38,449
443
83
30
511
107
(319)
(14,871)
(3,496)
(351)
(117)
(45)
(1,008)
–
(154)
4,840
19,262
2016
$
41,850
246
95
61
422
(2,322)
(206)
(14,582)
(4,471)
(519)
(128)
(192)
(1,074)
(1,088)
(170)
17,922
The following table provides a reconciliation of FFO and AFFO for the years ended December 31, 2017 and 2016:
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 debentures
- Provision for maintenance expenditures
- Provision for rental fees
AFFO(1)
Unusual item
Dispute settlement
Recurring AFFO(1)
AFFO per unit
Recurring AFFO per unit
Recurring AFFO payout ratio(2)
Recurring AFFO cash payout ratio(3)
Quarter
Year
2017
$
4,865
(182)
254
12
29
107
–
(395)
(320)
4,370
2016
$
4,840
2
240
11
22
87
–
(365)
(320)
4,517
2017
$
19,262
(443)
1,008
45
124
319
–
(1,467)
(1,249)
17,599
–
(82)
–
4,370
4,435
17,599
9.3¢
9.3¢
116.2%
101.2%
10.7¢
10.6¢
99.0%
87.6%
40.3¢
40.3¢
105.0%
92.0%
2016
$
17,922
(246)
1,074
192
109
206
1,088
(1,462)
(1,280)
17,603
(212)
17,391
45.7¢
45.1¢
94.6%
83.2%
(1) Non-IFRS financial measure
(2) The recurring AFFO payout ratio corresponds to total distributions divided by recurring AFFO.
(3) The recurring AFFO cash payout ratio corresponds to cash distributions divided by recurring AFFO.
Recurring AFFO was down $115 for the quarter and up $208 for the year. Recurring AFFO per unit amounted to 9.3¢
compared to 10.6¢ in 2016, and the payout ratio stood at 116.2% compared to 99.0% in the fourth quarter of 2016. It
stood at 40.3¢ compared to 45.7¢ for the full year, with a payout ratio of 105.0% compared to 94.6% in 2016.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
48
The decrease in recurring AFFO and recurring AFFO per unit was due to the lower effective occupancy rate in 2017
compared to 2016, significant preventive maintenance expenditures in the last quarter of 2017, and the issuance of
5.6 million units on October 23, 2017 and the timing difference between receipt of the net proceeds and their
allocation to accretive property acquisitions. As mentioned above, strong leasing activity in recent months will
significantly improve these performance indicators in 2018.
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
- Provision for maintenance expenditures
- Provision for rental fees
Adjusted funds from operations
SEGMENTED INFORMATION
Quarter
Year
2017
$
14,122
50
144
(4,138)
(3,984)
(874)
(205)
(30)
(395)
(320)
4,370
2016
$
13,250
27
123
(3,538)
(3,658)
(874)
(94)
(34)
(365)
(320)
2017
$
38,449
83
511
107
(14,871)
(3,496)
(351)
(117)
(1,467)
(1,249)
4,517
17,599
2016
$
39,850
95
422
(322)
(14,582)
(4,471)
(519)
(128)
(1,462)
(1,280)
17,603
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 years ended December 31,
2017 and 2016.
Quarters ended December 31
(in thousands of dollars)
Quarter ended December 31, 2017
Investment properties
Rental income from properties
Net operating income(1)
Quarter ended December 31, 2016
Investment properties
Rental income from properties
Net operating income(1)
(1) Non-IFRS financial measure
Years ended December 31
(in thousands of dollars)
Year ended December 31, 2017
Rental income from properties
Net operating income(1)
%
Year ended December 31, 2016
Rental income from properties
Net operating income(1)
%
Retail
Office
Industrial
General
purpose
$
%
$
%
$
%
$
%
Total
$
230,570
5,969
3,385
173,965
4,770
2,782
30.7
30.3
32.4
27.0
26.1
27.5
335,463
9,472
4,334
290,010
8,803
4,157
44.7
48.0
41.4
44.9
48.2
41.1
123,540
2,375
1,779
115,645
2,582
2,116
16.4
12.0
17.0
17.9
14.1
20.9
61,537
1,917
962
65,865
2,115
1,066
8.2
9.7
9.2
751,110
19,733
10,460
10.2
11.6
10.5
645,485
18,270
10,121
Retail
%
$
Office
%
$
Industrial
%
$
General
purpose
%
$
21,084
12,417
58.9
19,213
11,467
57.9
28.8
30.8
26.2
27.7
34,397
15,885
46.2
35,238
16,869
47.9
46.8
39.3
48.0
40.8
9,944
8,005
80.5
10,366
8,521
82.2
13.6
19.8
14.1
20.6
10.8
10.1
11.7
10.9
7,892
4,087
51.8
8,567
4,482
52.3
Total
$
73,317
40,394
55.1
73,384
41,339
56.3
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
49
Rental income and net operating income of retail properties increased due to the acquisition of the “FX Sabourin”
property in August 2017 and the “Carrefour St-Romuald” property in November 2017.
The effective occupancy rate of the office segment, which was affected by significant expiries in 2017, declined
significantly in certain properties, explaining the decrease in rental income and net operating income.
The industrial segment was affected by the expected departure following the discontinuance of business of a major
tenant in Cornwall, Ontario, which affected this category’s occupancy rate, rental income and net operating income.
The vacated space was partially filled at the end of the year and the beginning of 2018.
The decrease in rental income and net operating income of general purpose properties was due to the sale of two
major properties in this segment.
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, 2017 and December 31, 2016.
It should be read in conjunction with the Trust’s consolidated financial statements and the notes thereto.
(in thousands of dollars)
Assets
Investment properties
Amounts receivable from tenants and other receivables
Other assets
Cash and cash equivalents
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,
2017
December 31,
2016
Reference
$
$
Page 50
Page 52
Page 53
Page 53
Page 55
Page 55
Page 56
Page 57
751,110
4,212
5,150
1,918
762,390
428,382
48,183
18,130
18,748
513,443
248,947
762,390
645,485
2,743
3,821
6,667
658,716
384,350
47,692
—
13,711
445,753
212,963
658,716
The main changes in the balance sheet as at December 31, 2017 compared to the balance sheet as at December 31,
2016 reflect the acquisition and disposal of investment properties during the year and mortgage financing related to
these transactions.
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 $751 million as at December 31, 2017 compared to $645 million as at
December 31, 2016.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
50
Acquisitions
In August 2017, BTB purchased a retail property with a leasable area of approximately 123,000 square feet located on
the Montréal South Shore, for $23.2 million.
In November 2017, the Trust purchased a retail property with a leasable area of 121,000 square feet located on the
Québec City South Shore, for $35.9 million.
In November 2017, the Trust also purchased two office properties with a total leasable area of 132,000 square feet
located in Ville Saint-Laurent, Québec, for $35.1 million.
Disposal
In March 2017, the Trust sold a 35,823 square-foot mixed use property located in Dollard-des-Ormeaux, Québec, for
sales proceeds totalling $7.0 million.
In September 2017, the Trust sold a 13,471 square-foot property located in Trois-Rivières, Québec, for sale proceeds
totalling $1.8 million and a 9,900 square-foot retail property located in Laval, Québec, for sale proceeds totalling
$2.6 million.
After year-end, the Trust sold three investment properties totalling approximately 54,150 square feet for a total
consideration of $11.9 million.
Summary by operating segment
As at December 31
Number of
properties
2017
Leasable area
(sq. ft.)
Office
Retail
Industrial
Mixed use
Subtotal
Properties under redevelopment
Total
Investments in investment properties held
29
18
20
4
71
2
73
2,050,462
1,304,773
1,542,093
406,650
%
38.6
24.6
29.1
7.7
5,303,978
100.0
131,354
5,435,332
Number of
properties
2016
Leasable area
(sq. ft.)
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
27
17
19
6
69
3
72
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, 2017 totalled $1,493, compared to $1,024 for the same
quarter of 2016, of which $849 was recoverable (2016: $287). Capital expenditures totalled $4,327 for the year (2016:
$2,682), of which $1,451 was recoverable (2016: $740). 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 $2,826 for the fourth quarter and $7,360 for the year ended
December 31, 2017, compared to $968 and $4,088 for the same periods of 2016. The leasing fees and leasehold
improvements apply to both new tenants and tenants whose leases are renewed for all properties. The amount of
leasing fees and leasehold improvements varies depending on the renewal schedule, vacancy rates and tenancy
profile.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
51
The following table summarizes expenditures in maintenance capital expenditures, as well as incentives and leasing
fees, for the years ended December 31, 2017 and 2016.
Years ended December 31
(in thousands of dollars)
Recoverable maintenance capital expenditures
Non-recoverable maintenance capital expenditures (1)
Total maintenance capital expenditures
Leasing fees and leasehold improvements
Total
Quarter
Year
2017
$
848
646
1,494
2,818
4,312
2016
$
287
737
1,024
968
1,992
2017
$
1,451
2,876
4,327
7,360
11,687
2016
$
740
1,942
2,682
4,088
6,770
(1) For the quarter, includes $0 related to investment properties under redevelopment (December 31, 2016: $154). For the cumulative period, includes $26 related to
investment properties under redevelopment (December 31, 2016: $630).
The following table shows changes in the fair value of investment properties during the years ended December 31,
2017 and 2016.
Years ended December 31
(in thousands of dollars)
Balance, beginning of period
Additions:
Acquisitions
Dispositions
Capital expenditures net of grants
Leasing fees and leasehold improvements
Net changes in fair value of investment properties
Other non-monetary changes
Balance, end of period
Quarter
Year
2017
$
2016
$
2017
$
2016
$
663,933
639,432
645,485
622,651
72,464
–
1,494
2,818
10,855
(454)
458
–
1,024
968
4,215
(612)
96,057
(11,450)
4,327
7,360
11,337
(2,006)
11,795
–
2,682
4,088
6,200
(1,931)
751,110
645,485
751,110
645,485
Amounts receivable from tenants and other receivables
Amounts receivable from tenants and other receivables increased from $2,489 as at December 31, 2016 to $4,212 as
at December 31, 2017. These amounts are summarized below:
(in thousands of dollars)
Amounts receivable from tenants
Allowance for doubtful accounts
Operating expenses to be recovered
Balance of sale receivable
Other receivables
Amounts receivable from tenants and other receivables
December 31,
2017
December 31,
2016
$
2,721
(460)
2,261
457
600
894
4,212
$
1,619
(432)
1,187
254
600
702
2,743
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
52
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
CAPITAL RESOURCES
Long-term debt
December 31,
2017
December 31,
2016
$
3,335
(1,235)
2,100
1,175
1,370
505
5,150
$
3,259
(1,081)
2,178
983
242
418
3,821
The following table shows the balances of BTB’s indebtedness as at December 31, 2017, including mortgage loans
payable and convertible debentures, based on year of maturity and corresponding weighted average contractual
interest rates:
As at December 31, 2017
(in thousands of dollars)
Year of maturity
2018
2019
2020
2021
2022
2023 and thereafter
Total
Balance of
convertible
debentures
$
–
–
49,700
–
–
–
49,700
Balance of
mortgages
payable
Weighted average
contractual
interest rate
$
56,614
48,744
24,073
37,696
39,150
224,326
430,603
%
3.86
4.03
5.94
2.96
3.46
3.80
4.06
Weighted average contractual interest rate
As at December 31, 2017, the weighted average contractual interest rate of the Trust’s long-term debt stood at 4.06%,
i.e. 3.72% for mortgages payable and 7.03% for convertible debentures.
Mortgage loans payable
As at December 31, 2017, the Trust’s mortgage loans payable amounted to $431 million compared to $386 million as
at December 31, 2016, before deferred financing costs and valuation adjustments, a net increase of $45 million
following the financing of acquisitions completed in 2017, certain refinancings and principal repayments on monthly
payments and disposals.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
53
The following table summarizes changes in mortgage loans payable during the fourth quarter and year ended
December 31, 2017:
As at December 31, 2017
(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, 2017
Note: Before unamortized financing costs and valuation adjustments.
Quarter
$
386,264
85,175
(38,828)
(2,008)
430,603
Year
$
386,081
108,088
(51,586)
(11,980)
430,603
As at December 31, 2017, the weighted average interest rate was 3.72%, compared to 3.79% for mortgage loans on
the books as at December 31, 2016, a decrease of 7 basis points. As at December 31, 2017, except for three loans with
a cumulative balance of $21.6 million, all mortgages payable bear interest at fixed rates ($344.3 million) or are coupled
with an interest rate swap ($64.7 million).
The weighted average term of existing mortgage financings was 6.4 years as at December 31, 2017, and 5.9 years as at
December 31, 2016, an increase of 0.5 years (6 months) in one year.
BTB spreads the terms of its mortgages over many years in order to mitigate the risk associated with renewing them.
Except for one property under redevelopment valued at $0.3 million, and two properties partially securing the
acquisition and operating lines of credit as at December 31, 2017, all of the Trust’s other properties were mortgaged as
at December 31, 2017. Unamortized loan financing costs totalled $2,931 and are amortized under the effective interest
method over the term of the loans.
The following table, as at December 31, 2017, shows future mortgage loan repayments for the next few years:
As at December 31, 2017
(in thousands of dollars)
Maturity
2018
2019
2020
2021
2022
2023 and thereafter
Total
+ Valuation adjustments on assumed loans
- Unamortized financing costs
Balance as at December 31, 2017
Principal
repayment
$
Balance at
maturity
$
11,560
9,912
9,856
9,160
8,372
45,545
94,405
55,307
46,496
21,849
33,341
33,097
146,108
336,198
% of total
15.5
13.1
7.4
9.9
9.6
44.5
100.0
Total
$
66,867
56,408
31,705
42,501
41,469
191,653
430,603
710
(2,931)
428,382
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
54
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
Series E(1) (3)
23,000
6.90%
7.90%
Series F(2) (3)
26,700
7.15%
8.47%
Total
February 2013
$6.15
March 31 and September 30
March 2020
December 2015
$5.65
June 30 and December 31
December 2020
Balance as at December 31, 2017
22,412
25,771
48,183
(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.
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 on one property. The facility bears interest at the bank’s base rate, plus 0.75%. As at
December 31, 2017, $1.480 million of the operating credit facility had been used.
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, 2017, $16.560 million of the acquisition credit facility had been used. Following the sale of
two properties used as collateral and partial repayment of the authorized acquisition credit facility, the facility was
reduced to $15.350 million on February 7, 2018.
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 Discussion and Analysis – December 31, 2017
55
The following table presents the Trust’s debt ratios as at December 31, 2017 and December 31, 2016.
(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 debt 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,
2017
December 31,
2016
$
(1,918)
430,603
49,700
16,650
495,035
761,707
56.5%
6.5%
2.2%
65.0%
$
(6,667)
386,081
49,700
—
429,114
653,130
59.1%
7.6%
—%
65.7%
According to the table above, the mortgage debt ratio, excluding the convertible debentures and acquisition credit
facility as at December 31, 2017, amounted to 56.5%, down 2.6% from December 31, 2016, mainly due to the
appreciation in value of the real estate portfolio. Including the convertible debentures and the acquisition credit
facility, net of free cash flow, the overall debt ratio stood at 65.0%, down 0.7% from December 31, 2016.
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, 2017, the interest coverage ratio stood at 2.07, down slightly by 11 basis points
from the fourth quarter of 2016. The ratio increased by 4 basis points, to 2.15, for the year.
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
2017
$
10,460
5,043
2.07
2016
$
10,121
4,633
2.18
2017
$
40,394
18,752
2.15
2016
$
41,339
19,605
2.11
(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
Operating expenses to be reimbursed
Accounts payable and other liabilities
December 31,
2017
December 31,
2016
$
16,034
1,695
498
521
18,748
$
11,385
1,482
284
560
13,711
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
56
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,
2017
December 31,
2016
$
244,115
92,488
(87,656)
248,947
$
217,816
64,317
(69,170)
212,963
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, 137,668 units were issued
during the fourth quarter of 2017 (2016: 119,006 units) and 496,248 units were issued during the year (2016: 455,342
units). Close to $2.3 million in cash was thereby preserved in 2017 under the plan.
Units outstanding
On October 23, 2017, the Trust issued 5,561,400 units at a price of $4.55, for net proceeds of $24.1 million, net of
underwriters’ and professional fees.
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
Units outstanding, end of quarter
Weighted average number of units outstanding
Unit options
Quarter
Year
2017
2016
2017
2016
42,724,050
42,223,367
42,342,373
34,705,151
5,561,400
137,668
–
–
–
119,006
–
–
5,561,400
496,248
9,062
14,035
7,159,342
455,342
8,340
14,198
48,423,118
47,023,012
42,342,373
42,283,216
48,423,118
43,670,943
42,342,373
38,546,160
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,
2017, there were no unit options outstanding.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
57
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 31, 2017 and 2016.
Years 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
2017
10,190
2,140
–
12,330
2016
2,226
2,007
–
4,233
2017
4,233
8,097
–
12,330
2016
–
4,233
–
4,233
Under this plan, beneficiaries are awarded restricted units that become fully vested over a period of up to three years.
The purpose of the plan is to encourage senior officers 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, 2017 and 2016.
Years 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
2017
115,628
–
–
–
115,628
2016
77,673
–
–
–
77,673
2017
77,673
51,990
–
(14,035)
115,628
2016
51,083
42,919
(2,131)
(14,198)
77,673
The Trust offers an optional employee unit purchase plan to all its employees. Under this plan, the employees may
contribute, each year, a maximum of 3% to 7% of their base salary depending on their years of experience with the
Trust. For each two units purchased by an employee, the Trust shall issue one unit from treasury. During the quarter
ended December 31, 2017, no units were issued (2016: nil). During fiscal 2017, 9,691 units were issued.
Subsequent events
On January 25, 2018, the Trust sold the property located at 1863-1865 Autoroute Transcanadienne in Dorval, Québec,
for sale proceeds totalling $5.650 million.
On February 6, 2018, the trust sold the property located at 2153-2155 Crescent Street in Montréal, Québec, for sale
proceeds totalling $3.150 million.
On February 27, 2018, the Trust sold the property located at 1100 and 1108-1136 Saint-Joseph Blvd. in Drummondville,
Québec, for sale proceeds totalling $3.075 million.
In February 2018, the Trust sold a property located at 2905 Marleau in Cornwall, Ontario, for sale proceeds totalling
$490.
In February 2018, the Trust purchased a retail property located in the city of Delson, Québec, for a consideration of
$1,865.
Off-balance sheet arrangements and contractual commitments
BTB does not have any other off-balance sheet arrangements or commitments 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, 2017, BTB complied with all of its loan commitments and was not in default with any
covenant at the balance sheet date.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
58
SUSTAINABLE DEVELOPMENT
In line with the principles of sustainable development, BTB incorporates environmental and social considerations into
its business practices. Under BTB’s Social Responsibility and Sustainable Development Policy, property is managed and
operated so as to integrate sustainable development values into the Trust’s activities, protect the health and well-
being of employees and the communities where it operates, involve key shareholders in managing its environmental
footprint, and demonstrate a commitment to transparency and continuous improvement of sustainability practices.
Ongoing improvement of properties through investment in environmental projects, among other things, is a top
priority for BTB. The tangible results of BTB’s responsible behaviour include BOMA BEST certification for 26 portfolio
properties, publication of the Social Responsibility and Sustainable Development Policy, a sustainable development
good practices guide for tenants, benchmarking of the real estate portfolio’s energy performance, a partnership with a
social reintegration organization for parking lot clean-up, development of Sentinelle client service and preventive
maintenance software, and environmental risk management.
As mentioned above, BTB Real Estate Investment Trust contributes to sustainable development and is committed to
mobilizing employees, tenants and suppliers to make it a reality. The Trust believes that its commitment to reduce its
environmental footprint should be reflected not only across property operation, maintenance and management, but in
everything it does. Accordingly, since September 2015, 26 properties in BTB’s portfolio have received various levels of
BOMA BEST certification, including Gold (2), Silver (3), Bronze (5) and Certified (16). This prestigious certification
recognizing BTB’s excellence in environmental property management was awarded by the Association des
propriétaires et administrateurs d’immeubles - BOMA Québec, a leader in the real estate industry since 1927.
In future, BTB plans to continue improving the environmental footprint of its properties. Major projects, such as the
Halles St-Jean energy efficiency project in St-Jean-sur-Richelieu, are in the works to optimize overall equipment
performance and upgrade buildings. BTB also expects to keep its BOMA BEST certifications and achieve the highest
level of performance for certain properties.
INCOME TAXES
The Trust is taxed as a mutual fund trust for Canadian income tax purposes. The trustees intend to distribute or
allocate all of the taxable income to its unitholders and to deduct these distributions for income tax purposes.
A special tax regime applies to trusts that are considered specified investment flow-through (SIFT) entities as well as
those individuals who invest in SIFT entities. Under this regime, SIFT entities must generally pay taxes on their income
at rates that are close to those of companies. In short, a SIFT entity is an entity (including a trust) that resides in
Canada, whose investments are listed on a stock exchange or other public market and that holds one or more non-
portfolio properties.
However, for a given taxation year, BTB is not considered a SIFT entity and is therefore not subject to SIFT rules if,
during that year, it constitutes a real estate investment trust (REIT).
Generally, to qualify as a REIT, a trust must be resident in Canada and meet the following conditions all year long:
(i) the total fair market value of all the ”non-portfolio properties“ that are “qualified REIT properties” held by the trust
is at least 90% of the total fair market value at that time of all the “non-portfolio assets” held by the trust (ii) not less
than 90% of its “gross REIT revenue” for the taxation year is from one or more of the following sources: rent from “real
or immovable properties,” interest, disposals of “real or immovable properties” that are capital properties, dividends,
royalties and disposals of “eligible resale properties” (iii) not less than 75% of its “gross REIT revenue” for the taxation
year comes from one or more of the following sources: rent from “real or immovable properties,” interest from
mortgages on “real or immovable properties,” and disposals of “real or immovable properties” that are capital
properties (iv) at each time in the taxation year, an amount that is equal to 75% or more of the equity value of the
trust at that time, is the amount that is the total fair market value of all properties held by the trust, each of which is
“real or immovable property” which is a capital property, an “eligible resale property,” an indebtedness of a Canadian
corporation represented by a banker’s acceptance, cash or, generally, an amount receivable from the Government of
Canada or from certain other public agencies; and (v) the investments that are made therein are, at any time in the
taxation year, listed or traded on a stock exchange or other public market.
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
59
As at December 31, 2017, 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 ongoing 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 2017 or any other subsequent year.
TAXATION OF UNITHOLDERS
For Canadian unitholders, distributions are qualified as follows for taxation purposes:
Years ended December 31
Taxable as other income
Tax deferred
Total
2017
2016
%
–
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.
NEW ACCOUNTING POLICIES
a) Change in accounting policy
In January 2016, the IASB issued Disclosure Initiative Amendments to IAS 7 as part of the IASB’s Disclosure Initiative.
These amendments require entities to provide additional disclosures that will enable financial statement users to
evaluate changes in liabilities arising from financing activities, including changes arising from cash flows and non-cash
changes. The Trust adopted the amendments to IAS 7 in its financial statements for the first quarter of 2017, resulting
in an additional disclosure.
b) Pending standards
The following standards have been issued but were not in effect for the quarter ended December 31, 2017, 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, 2017.
IFRS 9, Financial Instruments
(i)
(ii) IFRS 15, Revenues from Contracts with Customers
(iii) IFRS 16, Leases
(iv) Amendment to IAS 40, Investment Property
BTB Real Estate Investment Trust – Management Discussion and Analysis – December 31, 2017
60
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 2017
Annual Information Form for the year ended December 31, 2017, which is hereby incorporated by reference. Such risks
and uncertainties include:
Interest Rate Increases
Competition and Rising Property Prices
Access to Capital and to Debt Financing
Ownership of Immovable Property
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.
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, 2017, 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, 2017, 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 2017, 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 Discussion and Analysis – December 31, 2017
61
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 Discussion and Analysis – December 31, 2017
62
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 $431 million as at December 31, 2017,
compared to $386 million as at December 31, 2016.
Series E and F convertible debentures for a total par value of $49.7 million.
Operating and acquisition lines of credit used as needed.
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 Discussion and Analysis – December 31, 2017
63
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, 2016, but does not include the
financial impacts from disposals, acquisitions and developments completed in 2016 and 2017.
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:
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 Discussion and Analysis – December 31, 2017
64
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¢ (2016: 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 Discussion and Analysis – December 31, 2017
65
Audited Consolidated Financial Statements
Year ended December 31, 2017
TABLE OF CONTENTS
69 Management’s responsibility for Financial Reporting
70 Independent Auditor’s Report
72 Consolidated Statements of Financial Position
73 Consolidated Statements of Comprehensive Income
74 Consolidated Statements of Changes in Unitholders’ Equity
75 Consolidated Statements of Cash Flows
76 Notes to Consolidated Financial Statements
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
68
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, 2017, 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, 2017 and
2016 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 9, 2018
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
69
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, 2017 and
December 31, 2016, 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, 2017 and
December 31, 2016, and its consolidated financial performance and its consolidated cash flows for the
years then ended in accordance with International Financial Reporting Standards.
March 9, 2018
Montréal, Canada
*CPA auditor, CA, public accountancy permit No. A105973
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31, 2017 and 2016
(Audited - in thousands of CAD dollars)
ASSETS
Investment properties
Property and equipment
Derivative financial instruments
Other assets
Receivables
Cash and cash equivalents
Total assets
LIABILITIES AND UNITHOLDERS’ EQUITY
Mortgage loans payable
Convertible debentures
Bank loans
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 9, 2018.
Notes
4, 5, 6
7
13
8
9
10
11
12
14
2017
$
751,110
2,100
1,370
1,680
4,212
1,918
762,390
428,382
48,183
18,130
498
16,555
1,695
513,443
248,947
762,390
2016
$
645,485
2,178
242
1,401
2,743
6,667
658,716
384,350
47,692
—
284
11,945
1,482
445,753
212,963
658,716
Michel Léonard, Trustee
Jocelyn Proteau, Trustee
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
72
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2017 and 2016
(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
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
16
17
18
2017
$
2016
$
73,317
73,384
20,714
12,209
32,923
20,487
11,558
32,045
40,394
41,339
—
212
19,805
21,959
(1,127)
18,678
4,317
17,399
(623)
21,336
4,330
15,885
10,772
6,200
28,171
22,085
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
73
CONSOLIDATED STATEMENTS OF CHANGES IN UNITHOLDERS’ EQUITY
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars)
Balance at January 1, 2017
Issuance of units
Distributions to unitholders
Comprehensive income
Balance as at December 31, 2017
Balance at January 1, 2016
Issuance of units
Distributions to unitholders
Comprehensive income
Balance as at December 31, 2016
See accompanying notes to consolidated financial statements.
Notes
Unitholders’
contributions
Cumulative
distributions
Cumulative
comprehensive
income
15
15
15
15
217,816
26,299
—
244,115
—
244,115
184,853
32,963
—
217,816
—
217,816
(69,170)
—
(18,486)
(87,656)
—
(87,656)
(52,726)
—
(16,444)
(69,170)
—
(69,170)
64,317
—
—
64,317
28,171
92,488
42,232
—
—
42,232
22,085
64,317
Total
212,963
26,299
(18,486)
220,776
28,171
248,947
174,359
32,963
(16,444)
190,878
22,085
212,963
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
74
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars)
Notes
18
7
14
16
16
17
4, 5
6
7
25
25
Operating activities
Net income for the year
Adjustment for:
Net changes 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
Repayment of convertible debentures
Net proceeds from issue of units
Net distributions to unitholders
Reduction to restricted cash
Interest paid
Net cash from (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to consolidated financial statements.
2017
$
2016
$
28,171
22,085
(10,772)
154
319
(443)
2,449
18,678
38,556
(107)
38,449
(104,791)
10,690
(76)
(94,177)
107,036
(63,566)
18,130
—
—
23,963
(16,041)
50
(18,593)
50,979
(4,749)
6,667
1,918
(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
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
75
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(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, 2017 and 2016 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 9, 2018.
(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 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, 2017
76
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(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 independent external appraisers 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, 2017
77
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(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, 2017
78
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(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, 2017
79
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(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, 2017
80
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(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, 2017
81
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(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, 2017
82
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(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, 2017
83
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(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 January 2016, the IASB issued Disclosure Initiative Amendments to IAS 7 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. The Trust adopted the amendments to IAS 7 in its first quarter of 2017, resulting in an additional disclosure
(see note 25).
(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, 2017, 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 intends to adopt IFRS 9 in its financial statements for the annual period beginning on January 1,
2018 and does not expect the new standard to have a material impact on the financial statements.
(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
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
84
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
contains a single model that applies to contracts with customers and two approaches to recognising revenue: at
a point in time or over time. The model features a contract-based five-step analysis of transactions to determine
whether, how much and when revenue is recognized. The new standard is effective for the Trust’s annual period
beginning on January 1, 2018. The adoption of the new standard is not expected to have a material impact on
the financial statements except for the presentation on a gross basis of property tax recoveries and property tax
expenses related to certain single tenants who paid property taxes directly on behalf of the Trust. For the year
ended December 31, 2017, the presentation on a gross basis instead of net basis would result in an additional
amount in property tax recoveries to revenues, an amount that will equally offset by an increase to property tax
expenses thereby generating no incremental net operating income. The Trust’s most material revenue stream is
base rental revenue, which is outside the scope of IFRS 15. The recovery of costs related to the provision of
services is considered within the scope of IFRS 15 and the Trust has concluded that the pattern of revenue
recognition will remain unchanged. On the adoption of IFRS 15, the Trust will be required to disclose revenue
recognized from contracts with customers separately from other sources of revenue, including those included
within gross leases.
(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) 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
Capitalized leasing fees
Capitalized lease incentives
Lease incentives amortization
Straight-line lease adjustment
Net changes in fair value of investment properties (note 18)
Balance end of year
2017
$
645,485
96,057
(11,450)
4,327
1,119
6,241
(2,449)
443
11,337
751,110
2016
$
622,651
11,795
—
2,682
875
3,213
(2,177)
246
6,200
645,485
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
85
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
The fair value of a subset of the Trust’s investment properties comprised of a selection of the most significant
investment properties and approximately 1/3 of the remaining investment properties is determined annually on the
basis of valuations made by independent external appraisers having appropriate professional qualifications, using
recognized valuation techniques, comprising the Discounted Cash Flow, the Direct Capitalization and Comparable
methods. The selection of investment properties subject to independent 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, 2017 external appraisals were obtained for investment properties with an aggregate fair value of
$536,158 (December 31, 2016 - $409,135) and management’s internal valuations were used for investment properties
with an aggregate fair value of $214,952 (December 31, 2016 - $236,350).
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, 2017
Capitalization rate
Terminal capitalization rate
Discount rate
As at December 31, 2016
Capitalization rate
Terminal capitalization rate
Discount rate
Retail
Office
Industrial
Mixed use
6.25% - 10.00%
6.25% - 8.50%
6.50% - 9.75%
6.75% - 7.50%
6.25% - 8.00%
6.50% - 7.75%
7.00% - 9.50%
6.75% - 7.50%
7.25% - 8.75%
7.00% - 8.75%
7.75% - 10.50%
7.50% - 8.50%
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%
Valuations determined by the Direct Capitalization method are most sensitive to a change in the capitalization rate. 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.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
$
807,373
777,648
751,110
724,182
699,997
Change in
fair value
$
56,263
26,538
—
(26,928)
(51,113)
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
86
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
5. Acquisitions
(a) 2017 Asset Acquisitions
The fair value of the assets and liabilities recognized in the consolidated statement of financial position on the date of
the acquisition during the year ended December 31, 2017 were as follows:
Acquisition date
Property type
Location
Fair value recognized on acquisition
Investment
properties,
including
transaction costs
Interest
acquired
Mortgage
loans payable
Assets / (Trade and
other payables),
including
transaction costs
Total cash
consideration paid
August 2017
November 2017
November 2017
November 2017
Transaction costs
Total
Retail
Retail
Office
Office
Longueuil, QC
Levis, QC
Montreal, QC
Montreal, QC
%
100
100
100
100
$
23,200
35,900
19,278
15,772
1,907
96,057
$
—
—
—
—
—
—
$
107
(457)
(127)
(6)
(1,907)
(2,390)
$
23,307
35,443
19,151
15,766
—
93,667
(b) 2016 Asset Acquisitions
The 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
Investment
properties,
including
transaction costs
$
11,000
450
345
Total
*Acquisition of a condominium that is part of an investment property the Trust already owned.
11,795
6. Disposals
Fair value recognized on acquisition
Mortgage
loans payable
Trade and other
payables, including
transaction costs
Total cash
consideration paid
$
—
—
—
—
$
(41)
(21)
(345)
(407)
$
10,959
429
—
11,388
(a) 2017 Asset Disposals
The following table presents relevant information on disposals recognized in the consolidated financial statements
during the year ended December 31, 2017:
Disposal date
Property type
Location
March 2017
September 2017
September 2017
Transaction costs*
Mixed use
Retail
Retail
Dollard-des-Ormeaux, QC
Trois-Rivieres, QC
Laval, QC
Gross
proceeds
Restricted
Cash
Trade and other
payables, including
transaction costs
Net proceeds
$
7,000
1,825
2,625
—
—
(50)
—
—
$
(37)
(82)
(26)
(565)
$
6,963
1,693
2,599
(565)
Total
*Transaction costs are recognized in profit and loss under Net changes in fair value of investment properties and disposals transaction costs (see
11 450
(710)
(50)
10,690
note 18).
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
87
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
(b) 2016 Asset Disposals
There was no asset disposal during 2016.
7. Property and Equipment
Cost
Balance at December 31, 2015
Additions
Balance at December 31, 2016
Additions
Balance at December 31, 2017
Accumulated Depreciation
Balance at December 31, 2015
Depreciation for the year
Balance at December 31, 2016
Depreciation for the year
Balance at December 31, 2017
Net carrying amount
Balance at December 31, 2016
Balance at December 31, 2017
8. Other Assets
As at December 31,
Prepaid expenses
Deposits
Total
Owner-
occupied
land
Owner-
occupied
building
Equipment,
furniture and
fixtures
$
494
—
494
—
494
$
1,945
10
1,955
13
1,968
448
61
509
58
567
494
494
1,446
1,401
$
594
46
640
56
696
412
80
492
68
560
148
136
Rolling
stock
$
170
—
170
7
177
51
29
80
28
108
90
69
Total
$
3,203
56
3,259
76
3,335
911
170
1,081
154
1,235
2,178
2,100
2017
$
1,175
505
1,680
2016
$
983
418
1,401
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
88
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
9. Receivables
As at December 31,
Rents receivable
Provision for doubtful accounts
Net rents receivable
Unbilled recoveries(1)
Other receivables
Balance of sale(2)
Total
2017
$
2,721
(460)
2,261
457
894
600
4,212
2016
$
1,619
(432)
1,187
254
702
600
2,743
(1) At December 31, 2017 unbilled credits amounting to $521 are included in Trade and other payables (December 31,
2016 – $560).
(2) 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. The balance of sale is related to the disposal of an investment property
that occurred in November 2015.
10. Mortgage Loans Payable
Mortgage loans payable are secured by immovable hypothecs on investment properties having a fair value of
approximately $738,360 as at December 31, 2017 (December 31, 2016 – $638,635).
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
2017
$
344,313
86,290
710
(2,931)
2016
$
364,669
21,412
845
(2,576)
428,382
384,350
3.72%
6.36
3.79%
5.90
2.00% - 6.80%
2.77% - 6.80%
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
89
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
As at December 31, 2017, the mortgage loan scheduled repayments are as follows:
2018
2019
2020
2021
2022
Thereafter
Unamortized fair value assumption adjustments
Unamortized financing costs
Scheduled
repayments
Principal
maturity
$
11,560
9,912
9,856
9,160
8,372
45,545
94,405
$
55,307
46,496
21,849
33,341
33,097
146,108
336,198
Total
$
66,867
56,408
31,705
42,501
41,469
191,653
430,603
710
(2,931)
428,382
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 13). 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
November 2017
November 2017
Total
$
7,150
13,000
23,200
23,075
66,425
11. Convertible Debentures
%
4.02
3.45
3.8825
3.905
Monthly
Quarterly
Monthly
Monthly
April 2023
June 2026
November 2027
December 2027
As at December 31,
2017
Outstanding amount
As at December 31,
2016
$
5,963
12,412
23,200
23,075
64,650
$
6,238
12,804
—
—
19,042
As at December 31, 2017, 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
March 2020
Semi-annual
Semi-annual December 2020
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
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
90
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
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, 2017
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
195
22,885
(473)
26,700
—
26,700
(929)
49,390
195
49,585
(1,402)
22,412
25,771
48,183
Conversion and redemption options (asset) liability component at fair value
(4)
5
1
As at December 31, 2016
Non-derivative liability component upon issuance
Accretion of non-derivative liability component
Unamortized financing costs
Non-derivative liability component
Conversion and redemption options liability component at fair value
Series E
$
Series F
$
Total
$
22,690
149
22,839
(657)
26,700
—
26,700
(1,190)
22,182
25,510
4
3
49,390
149
49,539
(1,847)
47,692
7
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 on August 2, 2016 (see note 17).
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
volume of units traded on the Toronto Stock Exchange during a period of 20 consecutive trading days ending on the
fifth trading day prior to the date on which an advanced notice of redemption is given (the “current market price”) is at
least 125% of the conversion price. As of March 31, 2018, but before March 31, 2020, under certain conditions, the
debentures will be redeemable by the Trust, in whole or in part at any time and for a redemption price equal to the
principal amount thereof plus accrued and unpaid interest. The Trust may, under certain conditions, elect to satisfy its
obligation to pay the principal amount of the debentures that are to be redeemed or that have matured by issuing a
number of units obtained by dividing the principal amount of the debentures by 95% of the current market price on
the date of redemption or maturity.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
91
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
Series F
In December 2015, the Trust issued Series F subordinated convertible, redeemable, unsecured debentures bearing
7.15% interest payable semi-annually and maturing in December 2020, in the amount of $26,700. The debentures are
convertible at the holder’s option at any time before December 2020, at a conversion price of $5.65 per unit (“Series F
Conversion Price”).
These debentures are not redeemable before December 31, 2018, except in the case of a change in control. As of
December 31, 2018, but before December 31, 2019, under certain conditions, the debentures will be redeemable by
the Trust at a redemption price equal to their principal amount plus accrued, unpaid interest, provided that the
average weighted price based on the volume of units traded on the Toronto Stock Exchange during a period of 20
consecutive trading days ending on the fifth trading day prior to the date on which an advanced notice of redemption
is given (the “current market price”) is at least 125% of the conversion price.
As of December 31, 2019, but before December 31, 2020, under certain conditions, the debentures will be redeemable
by the Trust, in whole or in part at any time and for a redemption price equal to the principal amount thereof plus
accrued and unpaid interest. The Trust may, under certain conditions, elect to satisfy its obligation to pay the principal
amount of the debentures that are to be redeemed or that have matured by issuing a number of units obtained by
dividing the principal amount of the debentures by 95% of the current market price on the date of redemption or
maturity.
12. 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, 2017, $16,650 was due under the acquisition line of credit
(December 31, 2016 – $nil).
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, 2017, $1,480 was due under the operating credit facility
(December 31, 2016 – $nil).
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 $9,545 and by an immoveable second rank hypothec on four properties having a
value of $87,175.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
92
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
13. 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, receivables,
deposits, trade and other payables and distributions payable to unitholders, which approximated their carrying
amount as at December 31, 2017 and December 31, 2016 because of their short-term maturity.
As at December 31, 2017
Measured at fair value
Conversion and redemption options of convertible debentures (note 11)
Interest rate swap
For which fair values are disclosed
Mortgage loans payable (note 10)
Convertible debentures, including their conversion and
redemption features (note 11)
Bank loans (note 12)
As at December 31, 2016
Measured at fair value
Conversion and redemption options of convertible debentures (note 11)
Interest rate swap
For which fair values are disclosed
Mortgage loans payable (note 10)
Convertible debentures, including their conversion and
redemption features (note 11)
Carrying
amount
$
1
(1,371)
428,382
Carrying
amount
$
7
(249)
384,350
Fair value
Level 1
Level 2
Level 3
$
—
—
—
$
—
(1,371)
423,677
—
18,130
$
1
—
—
—
—
48,184
18,130
50,988
—
Fair value
Level 1
Level 2
Level 3
$
—
—
—
$
—
(249)
395,410
$
7
—
—
—
47,699
50,980
—
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 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, 2017
93
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(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, 2017
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, 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
Conversion and redemption
options of convertible
debentures
$
7
(6)
1
Conversion and redemption
options of convertible
debentures
$
8
(1)
7
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, 2017:
Volatility sensitivity
Increase (decrease)
(0.50%)
December 31, 2017
0.50%
Conversion and
redemption
options of convertible
debentures
$
Volatility
%
(39)
1
41
13.33
13.83
14.33
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.
14. 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, 2017
94
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(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.
No options were outstanding as at December 31, 2017 and December 31, 2016.
(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:
For the years ended December 31,
Outstanding, beginning of year
Trustees’ compensation
Distributions paid in units
Outstanding, end of year
2017
Deferred units
2016
Deferred units
4,233
7,442
655
12,330
—
4,172
61
4,233
As at December 31, 2017, the liability related to the plan was $57 (December 31, 2016 - $19). The related expense
recorded in profit and loss amounted to $38 for the year ended December 31, 2017 (for the year ended December 31,
2016 - $19).
(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, 2017, the liability related to the plan was $44 representing a total of 9,691 units to issue
(December 31, 2016 - $40, representing a total of 9,062 units to issue).). The related expense recorded in profit and
loss amounted to $45 for the year ended December 31, 2017 (for the year ended December 31, 2016 - $39). The 9,691
units related to 2017 purchases were issued in February 2018 (9,062 units related to 2016 purchases - February 2017).
(d) Restricted unit compensation plan
The Trust offers a restricted unit compensation plan for all executive officers and key employees. Under this plan, the
executive officers and key employees are eligible to receive restricted units.
The following table presents relevant information on changes in the restricted units:
For the years ended December 31,
Outstanding, beginning of year
Granted
Cancelled
Settled
Outstanding, end of year
2017
2016
Restricted units
Restricted units
77,673
51,990
—
(14,035)
115,628
51,083
42,919
(2,131)
(14,198)
77,673
As at December 31, 2017, the liability related to the plan was $397 (December 31, 2016 - $225). The related expense
recorded in profit and loss amounted to $236 for the year ended December 31, 2017 (for the year ended
December 31, 2016 - $148). As part of settlement, the Trust issued 14,035 units under this plan for the year ended
December 31, 2017 (14,198 units for the year ended December 31, 2016).
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
95
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
15. 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 October 2017, the Trust completed a public issue of 5,561,400 units, including the over-allotment option, for total
net proceeds of $23,963.
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 the employee unit purchase plan (note 14 (c))
Issue pursuant to the restricted unit compensation plan (note 14 (d))
Units
42,342,373
5,561,400
—
47,903,773
496,248
9,062
14,035
2017
$
217,816
25,304
(1,341)
241,779
2,231
42
63
Units
34,705,151
7,159,342
—
41,864,493
455,342
8,340
14,198
Units outstanding, end of year
48,423,118
244,115
42,342,373
2016
$
184,853
32,575
(1,667)
215,761
1,961
35
59
217,816
(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.
(b) Distributions
For the years ended December 31,
Distributions to unitholders
Distributions per unit
16. Rental Revenues from Properties
For the years ended December 31,
Rental income contractually due from tenants
Lease incentive amortization
Straight-line lease adjustment
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
2017
$
18,486
0.42
2017
$
75,323
(2,449)
443
73,317
,
2016
$
16,444
0.42
2016
$
75,315
(2,177)
246
73,384
96
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
17. 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
(note 11)
Net adjustment to fair value of derivative financial instruments
18. 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 (note 4)
Disposals transaction costs (note 6)
19. Expenses by Nature
For the years ended December 31,
Depreciation
Employee benefits expense
20. Earnings per Unit
2017
$
(83)
14,871
3,496
382
86
2016
$
(95)
14,582
4,471
533
114
45
192
1,008
1,074
—
(1,127)
18,678
1,088
(623)
21,336
2017
$
11,337
(565)
10,772
2017
$
154
5,940
2016
$
6,200
—
6,200
2016
$
170
5,726
BTB’s trust units being puttable financial instruments presented as equity in accordance with IAS 32 (see note 15), 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.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
97
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
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
21. Operating Lease Income
2017
$
28,171
43,670,943
2016
$
22,085
38,546,160
0.65
0.57
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, 2017 are as
follows:
Within one year
Beyond one year but within five years
Beyond five years
22. Capital and Financial Risk Management
2017
$
57,584
182,505
159,689
399,778
This note presents information about the Trust’s management of capital and the Trust’s exposure to financial risk and
its objectives, policies and processes for measuring and managing risk.
(a) Capital Management
The Trust’s capital consists of contributions by unitholders, convertible debentures, mortgage loans and bank loans,
excluding issuance costs. In managing its capital, the Trust’s objectives are to ensure that it has adequate resources for
its operations and development, while maximizing returns for unitholders and maintaining a balance between debt
and equity.
The Trust manages its capital structure based on changes in its operations, the economic climate and the availability of
capital.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
98
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
The Trust’s capital is as follows:
As at December 31,
Cash and cash equivalents
Mortgage loans payable(1)
Convertible debentures(1)
Acquisition line of credit
Mortgage loans payable, Convertible debentures and Acquisition line of credit adjusted for Cash and cash
equivalents
Total assets
Accumulated depreciation on Property and equipment
Cash and cash equivalents
Totals assets adjusted for accumulated depreciation and cash and cash equivalents
(1) Excluding issue costs
As at December 31,
Mortgage loans payable, Convertible debentures and Acquisition line of credit adjusted for Cash and cash
equivalents / total assets adjusted for accumulated depreciation and cash and cash equivalents ratio
Mortgage loans payable / total assets adjusted for accumulated depreciation and cash and cash equivalents
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 13)
2017
$
(1,918)
430,603
49,700
16,650
495,035
762,390
1,235
(1,918)
761,707
2017
%
65.0
56.5
2016
$
(6,667)
386,081
49,700
—
429,114
658,716
1,081
(6,667)
653,130
2016
%
65.7
59.1
This note presents information about the Trust’s exposure to each of the above risks, the Trust’s objectives, policies
and processes for measuring and managing risk, and the Trust’s management of capital. Further quantitative
disclosures are included throughout these consolidated financial statements.
(i) Credit risk
Credit risk arises from the possibility that tenants may experience financial difficulty and be unable to fulfill their
lease commitments. The Trust mitigates this risk by varying its tenant mix and staggering lease terms; avoiding
dependence on a single tenant for a significant portion of the Trust’s operating revenues and conducting credit
assessments for all major new tenants. The Trust analyzes its trade receivable on a regular basis and records a
provision for doubtful accounts when there is a significant risk of non-recovery. As at December 31, 2017,
overdue rent receivable amounted to $1,851 (December 31, 2016 - $1,166), of which a provision for doubtful
account of $460 (December 31, 2016 - $432) 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.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
99
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
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 three mortgage loans outstanding of $21,640 as at December 31, 2017, 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 $216 on the Trust’s
comprehensive income for the year ended December 31, 2017.
(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, 2017, the Trust was in compliance with all the covenants to which it was subject.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
100
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(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, 2017
Estimated payment schedule
Trade and other
payables
Distributions payable
to unitholders
Bank loans
Mortgage loans
payable and
convertible
debentures
As at December 31, 2016
Trade and other
payables
Distributions payable
to unitholders
Mortgage loans
payable and
convertible
debentures
Carrying
amount
$
Total
contractual
cash flows
$
2018
2019
2020
2021
2022
$
$
$
$
$
16,555
16,733
15,688
277
269
168
124
1,695
18,130
1,695
18,130
1,695
18,130
—
—
—
—
—
—
—
—
2023 and
thereafter
$
207
—
—
476,565
512,945
578,994
615,552
85,628
121,141
72,944
73,221
95,009
95,278
52,507
52,675
50,236
50,360
222,670
222,877
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
—
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
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
101
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
23. Subsidiaries and Joint Arrangements
(a) Subsidiaries
The principal entities included in the Trust’s consolidated financial statements are as follows:
Entity
BTB Real Estate Investment Trust (“BTB REIT”)
BTB, Acquisition and operating Trust (“BTB A&ET”)
BTB Real Estate Management Inc.
Cagim Real Estate Corporation (“CREC”)
Lombard SEC
Place d’affaire Lebourgneuf Phase II, SENC (“PAL II”)
Société immobilière Cagim, SEC
Type
Trust
Trust
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**
2017
%
50
50
75
2016
%
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
2017
$
49,374
29,943
5,648
2,832
2016
$
48,319
30,647
5,581
3,266
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
102
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
24. Operating Segments
For investment properties, discrete financial information is provided to the 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
retail, office, industrial and mixed use segments.
Consequently, the Trust is considered to have four operating segments, as follows:
•
•
Retail
Office
Industrial
•
• Mixed use
Year ended December 31, 2017
Investment properties
Rental revenue from properties
Net operating income
Year ended December 31, 2016
Investment properties
Rental revenue from properties
Net operating income
25. Supplemental Cash Flow Information
Retail
$
230,570
21,084
12,417
173,965
19,213
11,467
Office
Industrial
Mixed use
$
$
$
335,463
34,397
15,885
290,010
35,238
16,869
123,540
9,944
8,005
115,645
10,366
8,521
61,537
7,892
4,087
65,865
8,567
4,482
Total
$
751,110
73,317
40,394
645,485
73,384
41,339
The following table provides a reconciliation of movements of liabilities to cash flows arising from financing activities
Year ended December 31, 2017
Balance beginning of year
Mortgage loans, net of financing costs
Repayment of mortgage loans
Fair value assumption adjustments and financing costs amortization
Accretion of non-derivative liability component
Balance end of year
26. 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
Convertible debentures
$
47,692
—
—
446
45
48,183
Mortgage loans payable
$
384,350
107,036
(63,566)
562
—
428,382
2017
$
1,934
287
2,221
2016
$
1,969
155
2,124
Key management personnel are comprised of the Company’s executive officers.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
103
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
27. Commitments and Contingencies
(a) Operating leases as lessee
The annual future payments required under operating leases expiring between 2018 and 2070 are as follows:
Within one year
Beyond one year but within five years
Beyond five years
Total
$
228
864
14,094
15,186
The related expense recorded in profit and loss amounted to $234 for the year ended December 31, 2017 (for the year
ended December 31, 2016 - $232).
(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
496
206
845
$
39
97
10
146
2017
Present
value of
minimum
lease
payments
$
104
399
196
699
Future
minimum
lease
payments
Interest
$
143
515
331
989
$
45
121
25
191
2016
Present
value of
minimum
lease
payments
$
98
394
306
798
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.
28. Subsequent Events
In January 2018, the Trust concluded the sale of one investment property for a gross proceed of $5,650. An amount of
$3,650 has been used to partially reimburse the acquisition line of credit.
In February 2018, the Trust concluded the sale of the owner-occupied land and building for a gross proceed of $3,150.
In February 2018, the Trust concluded the sale of one investment property for a gross proceed of $490. An amount of
$458 has been used to partially reimburse a mortgage loan.
In February 2018, the Trust acquired a commercial building located in the city of Delson for a purchase price of $1,865.
The transaction was partly financed by a balance of sale of $1,399 bearing interest at a rate of 4.00% maturing in
December 2018.
BTB Real Estate Investment Trust – Consolidated Financial Statements – December 31, 2017
104
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Audited - in thousands of CAD dollars, except per unit amounts)
In February 2018, the Trust concluded the sale of one investment property for a gross proceed of $3,075. An amount
of $1,237 has been used to completely reimburse the mortgage loan.
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, 2017
105
Corporate Information
Board of Trustees
Executive Team
Michel Leonard
President and Chief Executive Officer
Benoit Cyr, CPA, CA, MBA
Vice-President and Chief Financial Officer
Dominic Gilbert, B.B.A.
Vice President, Leasing
Sylvie Laporte
Vice President, Property Management
Jocelyn Proteau (2)
Chairman 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 Martin (1)
President, Audit Committee
Corporate Director
Fernand Perreault (3)
President of the Investment Committee
Corporate Director
Lucie Ducharme (1) (2)
President, Human Resources and Governance Committee
Corporate Director
Luc Lachapelle (1)
Secretary of the Board of Trustees
Corporate Director
Sylvie Lachance (3)
Corporate Director
Peter Polatos (3)
Corporate Director
(1) Member of the Audit Committee
(2) Member of the Human Resources and Governance Committee
(3) Member of the Investment Committee
BTB Annual Report 2017
107
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 2017, 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 12, 2018
11 : 00 a.m. (EDT)
Espace CDPQ
3 Place Ville-Marie
Montreal, Quebec, H3B 2E3
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.
BTB Annual Report 2017
108
BTB Real Estate Investment Trust
2155 Crescent
Montreal, Quebec, H3G 2C1
T 514 286 0188
F 514 286 0011
www.btbreit.com