BTB Real Estate Investment Trust Annual Report 2019

Plain-text annual report

2019 ANNUAL REPORT Our clients’ environment: at the heart of our priorities. The 14 beehives located on the rooftops of some of our properties produce more than 1,400 jars of honey a year, thus helping pollination efforts in the surrounding area. Photo courtesy of Alvéole. All rights reserved. OUR MISSION To provide our clients with high-quality, environmentally friendly spaces. Photo courtesy of Alvéole. All rights reserved. Highlights 66 Properties $93.6M Rental income 99.8% Payout ratio on distributable income(1) 93.2% Occupancy rate 4 (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$939M Total assets 5.7M Number of square feet 52.8% Mortgage debt ratio 5 In keeping with our commitment to creating workplaces that enhance our clients’ quality of life, we try and provide a maximum of green space at each of our properties. 2019Highlights Evolution of the rental Income* (in thousands of dollars) 2014 2015 2016 2017 2018 2019 Evolution of the net operating income* (in thousands of dollars) 2014 2015 2016 2017 2018 2019 67,170 72,892 73,384 76,039 87,423 93,602 37,983 41,294 41,339 40,394 47,637 50,897 Evolution of the distributable income* (in thousands of dollars) 2014 2015 2016 2017 2018 2019 16,626 18,733 19,711 19,721 23,897 25,063 Evolution of the total leasable area* (in thousands of square feet) 2014 2015 2016 2017 2018 2019 6 4,822 5,095 5,144 5,435 5,432 5,650 * For the years ending December 31st BTB ANNUAL REPORTBreakdown of portfolio by geographical region (per leasable area) Greater Montreal area 54.8% Greater Quebec city 24.7% Ottawa area 16.9% London area 3.6% Breakdown by asset type (per leasable area) 38.0 % 26.6 % 25.3 % 10.1 % Office Industrial Retail Mixed-use Environmental Actions Rooftop beehives 14 BOMA Certified buildings Bicycle parking structures R-410A norm HVAC installations 24 77 750 Performance on the markets BTB’s Total Return S&P/TSX Index Total Return S&P/TSX Capped REIT Index Total Return e u l a V e v i t a l e R 180 170 160 150 140 130 120 110 100 90 80 5 1 0 2 , t s 1 . n a J 5 1 0 2 , t s 1 3 h c r a M 5 1 0 2 , h t 0 3 e n u J 5 1 0 2 , h t 0 3 . t p e S 5 1 0 2 , t s 1 3 . c e D 6 1 0 2 , t s 1 3 h c r a M 6 1 0 2 , h t 0 3 e n u J 6 1 0 2 , h t 0 3 . t p e S 6 1 0 2 , t s 1 3 c e D 7 1 0 2 , t s 1 3 h c r a M 7 1 0 2 , h t 0 3 e n u J 7 1 0 2 , h t 0 3 . t p e S 7 1 0 2 , t s 1 3 . c e D 8 1 0 2 , t s 1 3 h c r a M 8 1 0 2 , h t 0 3 e n u J 8 1 0 2 , h t 0 3 . t p e S 8 1 0 2 , t s 1 3 . c e D 9 1 0 2 , t s 1 3 h c r a M 9 1 0 2 , h t 0 3 e n u J 9 1 0 2 , h t 0 3 . t p e S 9 1 0 2 , t s 1 3 . c e D 7 2019 We strive to continuously improve our environmental performance without ever compromising the efficiency and quality of the services offered to our clients. 8 BTB ANNUAL REPORTMessage from the Chairman of the Board of Trustees and the President and Chief Executive Officer Globally, 2019 was a year of great awareness regarding the impact we are all having on our environment. Many advocacy groups increased their efforts to emphasize the urgency of taking action, thus fuelling the momentum of companies around the world to reduce their carbon footprint. At BTB, we have, for some time now, been emphasizing to our employees and clients the necessity of embracing this business responsibility. With this in mind, we deemed it sensible and responsible to be even more proactive in this regard during the year, in line with our clients’ expectations and their environmental aspirations. Historic highs for BTB The portfolio repositioning strategy we launched in 2018 is paying off not only impacting our revenues positively, but it brought our market capitalization to over $300 million and making us one of the top real estate owners in Canada. Also we closed the year with the fair value of assets north of $900M, also a first, namely at $940 million, closing in on our $1-billion target. These new milestones brings us unparalleled visibility and makes us even more appealing to the market’s leading players and investors. Our growth strategy, which is rooted in acquiring well positioned properties in primary markets, allows us not only to attract national tenants, but also we generate more revenue from recently acquired properties in comparison to those that we disposed of. The following are some of our acquisitions concluded during 2019: • 2425 Pitfield Boulevard, Saint-Laurent, Québec • 375, 340-360, 370-380 and 377-383 Sir-Wilfred- Laurier Boulevard, Mont-Saint-Hilaire, Québec • 1011-1191 and 1465-1495 Saint-Bruno Boulevard, Saint-Bruno-de-Montarville, Québec • 800 De l’Étang Street, Saint-Bruno-de-Montarville, Province of Québec After the end of our fiscal year, we purchased a property located at 2611 Queenview Drive, Ottawa, Ontario. During the year we sold the following four properties: • 15-41 Georges-Gagné Boulevard South, Delson, Québec • 37 Georges-Gagné Boulevard South, Delson, Québec • 1400-1440 Antonio-Barbeau Street, Montréal, Québec • 3885 Harvey Boulevard, Saguenay, Québec. We will continue to maximize the value of our assets during the coming year by maintaining and improving our properties in order to draw in a class of clients that will ensure our long-term success and enable us to incorporate value-added properties into our portfolio. Dynamic growth in our leasing operations Our employees and collaborators invested a lot of time and effort in securing new clients and renewing leases coming to maturity. Thanks to their combined efforts, our clients can enjoy the best possible environment, and we are proud to state that. 9 2019Our occupancy rate rose to a record high for BTB, closing the year at 93.2%. Our retention strategy has enabled us renew 75.6% of our leases where more than 692,000 square feet were renewed during the year, up significantly from 54.2% and 455,000 square feet in 2018. Among these lease renewals, the leases for three government agency tenants located in Ottawa were renewed for an approximate area of 200,000 square feet, as well as the lease for BTB’s first acquisition in 2006, the Germain Larivière store in Laval with a leasable area of more than 100,000 square feet. We closed for the year with a total portfolio occupancy rate of 93.2% (5.65 million square feet), an increase of 2.2 % compared with the 91% posted in the fourth quarter of 2018. Environmental stewardship: a key factor of our business strategy At BTB, we are proud of our commitment to the environment, which is helping to position our company more favourably in the eyes of clients and financial markets alike. We all share the conviction that our growth and our long-term viability depend on being environmentally responsible. Initiatives in this realm include the installation of beehives on the roof of certain office properties, namely in Quebec City, Ottawa and Montréal, abiding by stricter energy-efficiency standards when replacing and installing new heating and air-conditioning equipment, efforts to reuse and recycle construction materials when constructing tenant leasehold improvements and the creation of green spaces and the installation of electric vehicle charging stations. Everyone at BTB, from senior management through to front-line staff, is behind our pledge to minimize our carbon footprint, while making sure our tenants enjoy the best possible workplace environment. This approach applies both to our acquisition strategy, which prioritizes properties that meet leading environmental standards (such as BOMA and LEED standards), and to the ongoing upgrades we make to our properties. A strategy focusing on continuous growth and value creation Our strategies when acquiring new properties and our ability to retain our current clients are contributing factors that allow us to exceed our performance expectations and those of our unitholders. yearly goals and exceed our unitholders expectations. Rental income increased from $87.4 million in 2018 to $93.6 million in 2019, while net operating income was up more than $3.3 million, growing from $47.6 million to $50.9 million. Also, BTB’s net income for 2019 rose from $41.3 million to $51.9 million. This translated to an increase in distributable income from $23.9 million to $25.1 million. BTB’s total asset value also posted an increase of more than 9%, climbing from $855 million to $939 million and allowing us to be a step closer to reach our goal of achieving a total asset value in excess of $1-billion. Our mortgage debt ratio continued to decline, driven by our strategic dispositions and acquisitions and the sound management of our assets, reaching 52.8% by year-end compared to 55.8% in 2018. As a result, our total debt ratio has dipped below 60%. For everyone at BTB, these results confirm that, by working together in a strategic and synergistic manner, by remaining responsive to our tenants’ needs no matter their demands and taking our commitment to the environment seriously, we will be able to attract a better clientele and improve the quality of our portfolio. This approach will continue to help us differentiate ourselves in this fiercely competitive sector and further strengthen our position in the industry. We would like to thank our trustees and all of our employees for their passion, their drive and their dedication, all of which are helping BTB to become one of the pre-eminent players in our field. We are determined to pursue our efforts to reposition our portfolio and enhance our offering in order to resonate with corporate clients poised to take on the challenges of tomorrow. And we will draw inspiration from the words of a young Swedish activist: “The moment we decide to fulfil something, we can do anything.” Jocelyn Proteau Chairman of the Board of Trustees The different strategies that we have implemented over the course of the year regarding our acquisition strategy, leasing strategy and client retention strategy have allowed us to meet and exceed our Michel Léonard President and Chief Executive Officer 10 BTB ANNUAL REPORTBoard of Trustees From left to right Fernand Perreault Jean-Pierre Janson President of the Investment Committee and trustee Vice President of the Board of Trustees and trustee Peter Polatos Trustee Lucie Ducharme President of the Human Resources and Governance Committee and trustee Jocelyn Proteau Chairman of the Board of Trustees and trustee Michel Léonard President and Chief Executive Officer and Trustee Luc Lachapelle Secretary of the Board of Trustees and trustee Sylvie Lachance Trustee Luc Martin President of the Audit Committee and trustee Executive Team From left to right Benoit Cyr Vice President and Chief Financial Officer Michel Léonard President and Chief Executive Officer Paolo Valente Vice President, Leasing Sylvie Laporte Vice President, Property Management 11 201912 BTB ANNUAL REPORTWe aim to strike a balance between financial performance and environmental responsibility when selecting assets. Jocelyn Proteau Chairman of the Board of Trustees In 2019, we continued to execute our strategy to reposition our real estate portfolio, a shift that has been ongoing for the past two years. We chose to invest in future-oriented, high-density markets in urban and central business districts. As a result, we divested properties in several promising secondary markets that were no longer aligned with our new strategy. This approach has enabled us to keep up our growth trajectory and generate better results for our unitholders. Our acquisition strategy, paired with our commitment to sustainable development — which applies not only to the new properties in our portfolio but also to our existing assets, is positioning our business favourably in the eyes of prospective tenants and addresses modern-day environmental concerns. We firmly believe in these priorities and in the importance ascribed to such issues by individual and institutional investors alike. Throughout the year, our teams have demonstrated versatility, discipline and adaptability as they have helped to increase BTB’s profile within the industry. Integrity is a guiding principle in everything we undertake. The way we see it, this forms the foundation of trust we seek to build with both our tenants and our unitholders. As BTB continues to grow, we will continue to deliver on our pledge to continuously improve our organization and increasingly make it a force to be reckoned with. 13 2019Aïda Maalouf Chief Property Accountant, Greater Quebec City Award: Respect I’ve been working for BTB for more than a decade. I have been recently promoted as the Chief Property Accountant for the Greater Quebec City market and my focus has been on integrating our Quebec City procedures with the head office procedures in Montréal. The environment at BTB is stimulating for the people who work here. There’s a nice sense of synergy within the various levels of the organization. The company is constantly growing and evolving at a brisk pace and I’m proud of what I’ve been able to contribute and accomplish over the past decade. I’m thrilled to be the recipient of a Méritas Award. It always means a lot to know people appreciate what you do. Nathalie Jacques Chief Corporate Accountant Award: Integrity I’ve been working for BTB for about nine years. My job requires me to play an active role in every aspect of our month-end, quarter-end and year-end procedures. The wide range of duties I’m responsible for sometimes mean I have to put in long hours and absorb the pressure and stress of deadlines. I’m proud to work for BTB and be a part of its success. It’s a great company with a lot going for it, along with a few shortcomings for good measure. But there’s a wonderful spirit of teamwork and collaboration shown by management and across the organization. I’m grateful to my co-workers for recognizing my efforts and the way I approach my job. Stéphanie Léonard Director of Communications and Lease Renewals Award: Leadership I’ve been working for BTB for five years and just a little over a year ago I was appointed as the Director of Communications and Lease Renewals. As part of my role, I promote BTB’s image and portfolio, manage our relationships with our investors and negotiate the renewals with our existing clients. The atmosphere at BTB is special. There’s a real family feel, combined with the excitement and fast pace flow that comes with a publicly traded company. Creativity and diversity are part and parcel of our everyday operations, which gives us the agility to move quickly and the flexibility and autonomy we need to get things done. I’m so grateful that my co-workers picked me for this award. I feel like I really belong here at BTB! 14 BTB ANNUAL REPORT2019 Meritas Award Winners The Meritas Award program is the only initiative of its kind in the industry, where employees vote for their co-workers who have shown outstanding effort, attitude, dedication and achievement throughout the year. This year’s five winners embody the vitality and commitment to excellence that drive every single person in our organization. Congratulations to them and to all our employees for making BTB a certified “Great Place to Work” in Canada. Étienne Charbonneau Principal Controller Award: Teamwork I’ve been BTB’s Controller for the past four years. My job mainly consist of ensuring that BTB has the best reporting and analytical tools to help improve the REIT’s performance. BTB understands the necessity of change. They give people room to grow and encourage them in their progress. I like the environment I work in and I have a great relationship with all my teammates. Entrepreneurship, energy and integrity are three values that are shared by the key teams within the organization. I firmly believe that these values have been responsible for BTB’s success over the years. I’m surprised and delighted to receive the Méritas Award for teamwork, something that means a great deal to me personally. Lise Brind’Amour (missing) Accounts Payable Clerk, Quebec City Award: Quality I am very proud to have worked for BTB for close to 10 years now, responding to accounting-related requests from internal and external collaborators. The trust BTB has shown us, the respect they have for their employees and the pleasant work environment we have are all great sources of motivation and important values for me. I learn something new every day, and I am very lucky to work with a talented, friendly and respectful group of people. Because BTB is growing, we as employees have the chance to grow with it. And I’m proud of my ability to face the daily challenges of my job and come out on top. I’m very touched to have received the Méritas Award for quality this year. 15 2019Yaourti’s story began with our grandmother, who used to always say: “a yogurt a day keeps the doctor away.” She firmly believed in the health benefits of rich and creamy Greek yogurt, the main ingredient in her tzatziki, her chocolate mousse and other desserts that were as delicious as they were satisfying. Many years later, and a continent away, our story migrated to Montréal, where our dream of sharing these recipes came true with the genesis of Yaourti. After months of looking for the perfect location, we visited 1407 Crescent Street, in the heart of downtown Montréal. We were impressed by the bright interior, the central location and the charm of this Art Deco building. From day one, the BTB team was very open to our concept of healthy Mediterranean cuisine. They believed in us, and their support and advice have helped us develop something our grandmother would have been proud of. When we found out that BTB had rooftop beehives at some of their properties, we knew we shared the same environmental priorities. For us, that means composting as much as we can to avoid waste wherever possible, including our utensils and takeout containers. It’s no wonder that we’re quick to recommend BTB to anyone looking for office or commercial space. Their high-quality standards, their service, their commitment to making their clients happy and their human touch all make them an excellent business partner. Theodoros and Cleo Bertzeloto YAOURTI 16 In an effort to encourage our clients reducing their greenhouse gas emissions, we are installing 77 electric vehicle charging stations at our properties. BTB ANNUAL REPORTAs a leading insurance brokerage firm, we want to make sure that our office space adds to the quality of life of our employees and all of our collaborators. Ever since we renewed the lease for our offices with the BTB team, they have been great at addressing our needs and helping us meet the challenges that have risen as we grow. Day after day, their flexibility, expertise and responsiveness prove that we made the right decision in choosing this location. From the get-go, BTB made things easy. Having a direct access to their service portal means that we receive quick callbacks, often within five minutes if the situation warrants it. This proactive approach is one of the reasons we have renewed our lease for the next 12 years. Beyond the advantages we have experienced as a tenant, BTB’s commitment to environmental sustainability is consistent with our core values. As a paperless office, we were happy to learn about BTB’s actions to reduce their carbon footprint and are proud to follow their lead to keep doing more for the planet. We have eliminated drinking fountains and water bottles and installed a filtration system instead. Little steps towards a big difference. Joanne Walker SATCOM DIRECT AVIONICS 17 Jay Alexander Glowa GPL ASSURANCE Satcom Direct Avionics is a leading manufacturer of cabin and flight deck systems for international business aviation and government customers. The decision to develop the purpose-built engineering and production facility was driven by a significant rise in global demand for SD’s advanced connectivity hardware products. Strategically located in Kanata, just outside Ottawa, our offices put us in close proximity to a full array of complementary resources. In addition to the layout that BTB custom developed for us, we have appreciated their responsiveness on daily issues which makes them stand out from other landlords. For instance, the day we were moving in there was a huge snowstorm. Our property manager, Mitch Provost, got there before us and made sure the snow was cleared so the move was as hassle-free as possible. BTB clearly cares about our needs and our work environment, as well as the environment in general. Between the rooftop beehives they have at some of their properties, the heat recovery systems they have put in place and much more, they are setting an example and encouraging us to do the same. 2019Our Tenants We focus on the quality and diversity of our clients and strive to build and maintain an exceptional roster of tenants. 50 Saint-Charles Street West, Longueuil 18 BTB ANNUAL REPORTBelow is a list of some of our achievements in terms of lease agreements and renewals in 2019. • International Datacasting • Germain Larivière Inc. Corporation • EXO (Réseau de transport métropolitain) • John Mansville Canada Inc. • Fieldless Farms Inc. • FNX Innov Inc. • AFS Interculture Canada • Statcom Direct Avionics • Telus Retail Limited • Demers Beaulne Groupe Conseil Inc. • Facturation.net • Publicité Maca Inc. • Hydro Québec • Plastifab Industries Inc. • Groupe BBA Inc. • Vallue Village Stores • TORQ Le Groupe Inc. • Société Québécoise des Infrastructures • Otsuka Canada Pharmaceutical • GPL Assurance Inc. • Englobe Corporation • Public Works and Government Services Canada • GBI Expert Conseils Inc. • Centre Financier SFL 19 50 Saint-Charles Street West, Longueuil 2019This LEED Silver building is a striking example of BTB’s pledge to being environmentally responsible. Our Recent Acquisitions 20 2611 Queensview Drive, Ottawa (acquired after December 31st, 2019) BTB ANNUAL REPORT1011-1191 and 1465-1495 Saint-Bruno Blvd, Saint-Bruno-de-Montarville 2425 Pitfield Blvd, St-Laurent 375 Sir-Wilfrid-Laurier Blvd, Mont-Saint-Hilaire 21 We’ve introduced a policy on recycling construction materials to give a second life to items such as steel doors, glass partitions, etc.2019800 de l’Étang Street, Saint-Bruno-de-Montarville 377-383 Sir-Wilfrid-Laurier Blvd, Mont-Saint-Hilaire 340-360 Sir-Wilfrid-Laurier Blvd, Mont-Saint-Hilaire 22 370-380 Sir-Wilfrid-Laurier Blvd, Mont-Saint-Hilaire By hiring Shred-It to recycle our confidential records since 2012, we’ve saved the equivalent of 175 trees, or 2,290,000 sheets of paper. BTB ANNUAL REPORTOur Properties Montréal South Shore of Montréal Greater London Area, Ontario 1327-1333 Ste-Catherine Street West and 1405-1411 Crescent Street, Montréal 5810 Sherbrooke Street East, Montréal 5878-5882 Sherbrooke Street East, Montréal 7001-7035 St-Laurent Blvd and 25 Mozart, Avenue Montréal 1001 Sherbrooke Street East, Montréal 2101 Sainte-Catherine Street West, Montréal 550-560 Henri-Bourassa Blvd West, Montréal 3761-3781 des Sources Blvd, Dollard-des-Ormeaux 11590-11800 de Salaberry Blvd, Dollard-des-Ormeaux 1325 Hymus Blvd, Dorval 5600 Côte-de-Liesse, Mount-Royal 4105 Sartelon Street, St-Laurent 208-244 Migneron Street and 3400-3410 Griffith Street, St-Laurent 7777 Transcanada Highway, St-Laurent 2250 Alfred-Nobel Blvd, St-Laurent 7150 Alexander-Fleming Street, St-Laurent 2425 Pitfield Blvd, St-Laurent 2665-2673 et 2681, Côte Saint-Charles, Saint-Lazare North Shore of Montréal 4890-4898 Taschereau Blvd, Brossard 311 Ingersoll Street, Ingersoll 2340 Lapinière Blvd, Brossard Ottawa Area, Ontario 204 De Montarville Blvd, Boucherville 32 Saint-Charles Street West, Longueuil 50 Saint-Charles Street West, Longueuil 85 Saint-Charles Street West, Longueuil 2111 Fernand-Lafontaine Blvd, Longueuil 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 Street, Ottawa 2204 Walkley Street, Ottawa 7 and 9 Montclair Blvd, Gatineau 705 Boundary Road, Cornwall 2350 Chemin du Lac, Longueuil 725 Boundary Road, Cornwall 1939-1979 F.-X. Sabourin Street, St-Hubert 805 Boundary Road, Cornwall * & ** 2901 Marleau Avenue, Cornwall * Properties in redevelopment ** Considered as two properties Properties acquired after December 31st, 2019 2611 Queensview Drive, Ottawa Properties sold after December 31st, 2019 311 Ingersoll Street, Ingersoll 5600 Côte-de-Liesse, Mount-Royal 145 Saint-Joseph Blvd, St-Jean-sur-Richelieu 315-325 MacDonald Street, St-Jean-sur-Richelieu 1000 Du Séminaire Blvd North, St-Jean-sur-Richelieu 340-360, 370-380, 375 and 377-383 Sir-Wilfrid-Laurier Blvd, Mont-Saint-Hilaire 1465-1495 and 1011-1191 Saint-Bruno Blvd and 800 de l’Étang Street, Saint-Bruno-de-Montarville 2059 René-Patenaude Street, Magog Quebec City 6655 Pierre-Bertrand Blvd, Québec 6700 Pierre-Bertrand Blvd, Québec 909-915 Pierre-Bertrand Blvd, Québec 2900 Jacques-Bureau Street, Laval 825 Lebourgneuf Blvd, Québec 4535 Louis B. Mayer Street, Laval 815 Lebourgneuf Blvd, Québec 3695 Des Laurentides (Highway-15), Laval 3111 Saint-Martin Blvd West, Laval 3131 Saint-Martin Blvd West, Laval 81-83 Turgeon Street, Ste-Thérèse 1170 Lebourgneuf Blvd, Québec 625-675 De la Concorde Street, Lévis 1200-1252 De la Concorde Street, Lévis 5791 Laurier Blvd, Terrebonne 2175 Des Entreprises Blvd, Terrebonne 2205-2225 Des Entreprises Blvd, Terrebonne 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 23 201924 BTB ANNUAL REPORTManagement Discussion and Analysis Year ended December 31, 2019 TABLE OF CONTENTS 26 Introduction 46 Funds from Operations (FFO) 26 Forward-Looking Statements – Caveat 47 Adjusted Funds from Operations (AFFO) 27 Non-IFRS Financial Measures 48 Cash Flows 27 The Trust 28 Objectives and Business Strategies 28 Highlights of the Fourth Quarter Ended December 31, 2019 50 Segmented Information 51 Financial Position 52 Assets 54 Capital Resources 29 Highlights of the Year Ended December 31, 2019 60 Sustainable Development 30 Selected Financial Information 31 Summary of the Fourth Quarter 2019 32 Selected Annual Information 33 Selected Quarterly Information 33 Performance Indicators 34 Real Estate Portfolio 35 Real Estate Operations 38 Operating Results 43 Operating Results – Same-Property Portfolio 44 Distributable Income and Distributions 61 Income Taxes 62 Taxation of Unitholders 62 Accounting Policies and Estimates 62 New Accounting Policies 63 Risks and Uncertainties 64 Disclosure Controls and Procedures and Internal Control Over Financial Reporting 64 Appendix 1 – Performance Indicators 65 Appendix 2 – Definitions 25 2019Introduction 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, 2019 as well as its financial position on that date. The report also presents a summary of the Trust’s business strategies and the business risks it faces. This MD&A dated March 12, 2020 should be read together with the audited consolidated financial statements and accompanying notes for the years ended December 31, 2019 and 2018. It discusses 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, 2019 and 2018. Additional information about the Trust, including the 2019 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 reviewed the contents of this Management Discussion and Analysis and the annual financial audited statements and the Trust’s Board of Trustees has approved them. 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, in other filings with Canadian regulators, in reports to unitholders and in other communications. These forward-looking statements may 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 forwardlooking 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, our ability to renew leases coming to 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. 26 BTB ANNUAL REPORTNon-IFRS Financial Measures “Net operating income,” “net operating income of the same-property portfolio,” “distributable income,” “funds from operations” (“FFO”), “adjusted funds from operations” (“AFFO”), “adjusted net income and comprehensive income” and “net property income” and per unit information, if applicable, are non-IFRS performance measures and do not have standardized meanings prescribed by IFRS. These measures are used by BTB to improve the investing public’s understanding of operating results and the Trust’s performance. IFRS are International Financial Reporting Standards defined and issued by the IASB, in effect as at the date of this MD&A. These measures cannot be compared to similar measures used by other issuers. However, BTB presents its FFO in accordance with the Real Property Association of Canada (REALPAC) White Paper on Funds from Operations, as revised in February 2019. 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. 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 as of December 31, 2019, it owns 66 retail, office and industrial properties located in primary and secondary markets of the Provinces of Québec and Ontario. Since its inception, BTB has become an important property owner in the province of Québec and in Eastern Ontario. The units and Series F and G convertible debentures are traded on the Toronto Stock Exchange under the symbols “BTB.UN”, “BTB.DB. F” and “BTB.DB. G”, respectively. 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. Through this, 64 of the Trust’s 66 properties held as at December 31, 2019 are managed by the Trust’s employees. The two remaining properties are managed by third party managers dealing at arm’s length with the Trust. Management’s objective is, when favourable circumstances will prevail, to directly manage the Trust’s remaining properties to possibly achieve savings in management and operating fees through centralized and improved property management operations. The following table provides a summary of the real estate portfolio. As at December 31, 2019(1) Number of properties 66 Leasable area (sq. ft.) 5,650,130 Fair value (thousands of $) 924,320 (1) These figures include a 50% interest in a 17,114 square-foot building in a Montréal suburb and a 50% interest in two buildings totalling 74,940 square feet in Gatineau, Québec. 27 2019Objectives and Business Strategies BTB’s primary objective is to maximize total return to unitholders. Returns include cash distributions and long-term appreciation of the value of its 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 acquisitions 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 properties and therefore its units. Strategically, BTB seeks to acquire properties with high occupancy rates, good tenant quality, superior locations or low potential lease turnover and properties that are well maintained and require fewer capital expenditures. BTB’s management regularly performs strategic portfolio assessments to determine whether it is financially advisable to retain certain of its investments. BTB may dispose of certain assets if their size, location and/or profitability do not meet the Trust’s investment criteria. In such cases, BTB expects to use the proceeds from the sale of assets to reduce debt and/or redeploy capital in accretive acquisitions. Highlights of the Fourth Quarter Ended December 31, 2019 vs. the Fourth Quarter Ended December 31, 2018 • Increase of net income and comprehensive income from $24,396 to $41,552; • Increase of 5.8% of the same-property portfolio NOI (1); • Increase in the average lease renewal rate of 4.3%; • Increase of $34 million of the fair value of the portfolio (2018: $21 million); • Improvement in all other important key performance indicators. (1) Non IFRS financial measures. 28 BTB ANNUAL REPORTHighlights of the Year Ended December 31, 2019 vs. the Year Ended December 31, 2018 • Increase of net income and comprehensive income from $41,337 to $51,881; • Increase of 3.9% of the same property portfolio NOI (1); • Occupancy rate increased to 93.2% from 91.0%; • Increase of the retention rate from 54.2% to 75.6% and increase of the average renewal rate by 5.5%; • Reduction of the total debt ratio to 59.1% and reduction of the mortgage debt ratio to 52.8%. (1) Non IFRS financial measures Sale of properties • In January 2019, the Trust disposed of a retail property located at 15–41 South Georges-Gagné Blvd. in Delson, Québec, for total proceeds of $22.5 million. • In March 2019, the Trust disposed of a retail condominium located at 37 South Georges-Gagné Blvd. in Delson, Québec, for total proceeds of $1.95 million. • In May 2019, the Trust disposed of a mixed-use property located at 1400–1440 Antonio-Barbeau Street in Montréal, Québec for total proceeds of $7.1 million. • In August 2019, the Trust disposed of an office property located at 3885 Harvey Boulevard in Saguenay, Québec, for total proceeds of $4.4 million. Property acquisitions • In May 2019, the Trust acquired a 65,000-square-foot industrial property located at 2425 Pitfield Blvd. in Saint-Laurent, Québec, for total proceeds of $11.8 million. • In June 2019, the Trust purchased two retail properties, Méga Centre Saint-Bruno and Développements Mont-Saint-Hilaire, respectively located in Saint-Bruno, Québec and Saint-Hilaire, Québec, for a total consideration of $62.2 million. Financing activities • On June 14, 2019, the Trust issued 6,157,100 units, including the overallotment option, at a price of $4.67 per unit, for approximately $27 million of proceeds, net of issue costs. • On October 7, 2019 the Trust issued the Series G convertible debentures for total proceeds of $24 million at an interest rate of 6.00%. The net proceeds were mainly used to redeem the Series E convertible debentures in the amount of $23 million, bearing interest at a rate of 6.90%, the redemption taking effect on November 1, 2019. Subsequent events • In January 2020, the Trust disposed of an industrial property located at 311 Ingersoll St. South in Ingersoll, Ontario, for total proceeds of $13.3 million. • In February 2020, the Trust acquired a 77,500-square-foot office property located at 2611 Queensview Drive in Ottawa, Ontario, for total proceeds of $21.8 million. • In February 2020, the Trust disposed of an industrial property located at 5600, Côte-de-Liesse in Mount Royal, Québec, for total proceeds of $9.2 million. Summary of significant items as at December 31, 2019 • Properties: 66 • Leasable area: approximately 5.7 million square feet • Total asset value: $939 million • Market capitalization: $321.8 million 29 2019Selected Financial Information The following table presents highlights and selected financial information for the quarters and years ended December 31, 2019 and 2018: Periods ended December 31 (in thousands of dollars, except for ratios and per unit data) Reference (page) Quarter 2019 $ 2018 $ Year 2019 $ 2018 $ Financial information Rental income Net operating income(1) Net income and comprehensive income Adjusted net income(1) Net property income from the same-property portfolio(1) Distributable income(1) Distributions Funds from operations (FFO)(1) Adjusted funds from operations (AFFO)(1) Cash flow from operating activities Total assets Investment properties Mortgage loans Convertible debentures Mortgage debt ratio Debt ratio – convertible debentures Debt 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) Class B LP units outstanding (000) Weighted average number of units outstanding (000) Weighted average number of units and Class B LP units outstanding (000) Net income and comprehensive income Adjusted net income(1) Distributable income(1) Distributions Payout ratio on distributable income(1) FFO(1) Payout ratio on FFO(1) AFFO(1) 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 Retention rate Increase in average lease renewal rate (1) Non-IFRS financial measures. 30 39 40 43 43 43 44 45 46 47 48 51 52 55 56 57 57 57 57 55 58 59 58 59 59 43 43 44 45 45 46 46 47 47 58 61 62 34 34 36 36 35 25,558 14,174 41,552 6,445 6,266 7,466 6,584 7,421 6,795 17,235 22,082 11,624 24,396 4,278 5,702 5,212 5,859 3,858 3,371 15,695 93,602 50,897 51,881 20,518 25,247 25,063 25,141 23,313 21,409 47,223 939,130 924,320 493,152 49,096 87,423 47,637 41,337 20,860 23,665 23,897 22,154 21,528 19,514 44,724 855,223 839,015 471,162 48,716 52.8% 5.4% 1.1% 59.1% 3.92% 55.8% 5.9% 1.8% 62.5% 3.99% 356,139 321,843 298,377 240,633 62,252 497 59,098 55,318 532 52,121 55,240 55,773 59,628 52,536 62,139 62,661 66.2¢ 10.3¢ 11.9¢ 10.5¢ 88.1% 11.8¢ 88.7% 10.8¢ 96.8% 43.7¢ 7.7¢ 9.3¢ 10.5¢ 112.4% 6.9¢ 151.8% 6.0¢ 173.9% 87.0¢ 34.4¢ 42.1¢ 42.0¢ 99.8% 39.1¢ 107.4% 35.9¢ 117.0% 5.72 5.17 0.0% 100% 66 5,650 93.2% 75.6% 5.5% 78.8¢ 39.8¢ 45.6¢ 42.0¢ 92.2% 41.1¢ 102.3% 37.2¢ 112.9% 5.34 4.35 0.0% 100% 67 5,432 91.0% 54.2% 2.7% 4.3% 3.3% BTB ANNUAL REPORT Summary of the Fourth Quarter 2019 Occupancy rate In the fourth quarter of 2019, the committed occupancy rate increased by 2.2%, from 91.0% as at December 31, 2018, to 93.2% as at December 31, 2019. This ratio includes firm lease agreements committed as of the end of the quarter and these firm lease agreements may not yet generate revenues. More than 88,000 square feet were leased for occupancy scheduled over the next few months and will progressively generate additional income. Lastly, since the beginning of the year, more than 75% of leases expiring in 2019 were renewed. Debt ratio The total debt and mortgage debt ratios declined respectively from 62.5% to 59.1% and from 55.8% to 52.8% since December 31, 2018. These decreases are mostly explained by the increase in the fair value of our real estate portfolio. Payout ratio and per unit ratio As expected, the distributable income and FFO payout ratios were below 100%. After three consecutive quarters and at the end of the fiscal year 2018 and the beginning of 2019, with ratios higher than 100%, the cause of the higher payout ratio has now mostly been resolved. The decline in per unit and payout ratios over the last three fiscal years are due to higher vacancy rates which have corrected a reduction in our total debt ratio. Same-property portfolio Mostly due to an increase in the occupancy rate from 91.0% on December 31, 2018 to 93.2% as at December 31, 2019, the same-property portfolio rose significantly resulting in an increase of 5.8% of the NOI in the fourth quarter of 2019 and 3.9% for the cumulative 12-month period. 31 2019Selected Annual Information The following table summarizes the Trust’s selected 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 and comprehensive income Net cash from operating activities Distributable income(5) FFO(2)(5) AFFO(3)(5) Distributions Total assets Long-term debt Financial information per unit Net income and comprehensive income Distributable income(5) FFO(2)(5) AFFO(3)(5) Distributions Payout ratio on distributable income(4)(5) 2019 $ 2018 $ 2017 $ 93,602 50,897 34,113 51,881 47,223 25,063 23,313 21,409 25,141 87,423 47,637 22,142 41,337 44,724 23,897 21,528 19,514 22,154 939,130 542,248 855,223 519,878 76,039 40,394 10,855 28,171 38,449 19,721 19,179 17,516 18,486 762,390 476,565 87.8¢ 42.1¢ 39.1¢ 35.9¢ 42.0¢ 99.8% 78.7¢ 45.6¢ 41.1¢ 37.2¢ 42.0¢ 92.2% 64.5¢ 45.2¢ 45.1¢ 40.2¢ 42.0¢ 93.7% (1) Defined as rental income from investment properties less operating expenses. (2) See “Funds from operations” on page 46 for reconciliation to net income. (3) See “Funds from operations” on page 47 for reconciliation to FFO and net income. (4) Represents total distributions divided by distributable income. (5) Non-IFRS financial measures. See appropriate sections for definition and reconciliation to the closest IFRS measure. 32 BTB ANNUAL REPORT Selected Quarterly Information The following table summarizes the Trust’s selected financial information for the last eight quarters. (in thousands of dollars except for per unit data) 2019 Q-4 $ 2019 Q-3 $ 2019 Q-2 $ 2019 Q-1 $ 2018 Q-4 $ 2018 Q-3 $ 2018 Q-2 $ 2018 Q-1 $ Rental income 25,558 23,973 22,347 21,634 22,082 23,098 20,803 20,803 Net operating income(1) Net income and comprehensive income Net income and comprehensive income per unit 14,174 13,476 12,196 11,051 11,624 13,330 11,225 11,225 41,552 5,632 3,316 1,381 24,396 5,793 4,593 4,593 66.2¢ 9.0¢ 5.8¢ 2.5¢ 43.7¢ 10.4¢ 9.3¢ 9.3¢ Adjusted net income 6,445 5,813 4,518 3,742 4,278 6,177 4,378 6,027 Adjusted net income per unit 10.3¢ 9.3¢ 7.9¢ 6.7¢ 7.7¢ 11.1¢ 8.8¢ 8.8¢ Cash from operating activities Distributable income(1) 17,235 7,466 9,875 6,780 11,897 5,550 8,216 5,268 15,695 12,540 5,212 7,478 7,804 5,521 7,804 5,521 Distributable income per unit(1) 11.9¢ 10.9¢ 9.7¢ 9.4¢ 9.3¢ 13.4¢ 11.1¢ 11.1¢ Funds from operations (FFO)(1) 7,421 6,684 4,925 4,283 3,858 6,996 5,217 5,217 FFO per unit(1) Adjusted funds from operations (AFFO)(1) AFFO per unit(1) Distributions(2) Distributions per unit 11.8¢ 10.7¢ 8.6¢ 7.7¢ 6.9¢ 12.6¢ 10.5¢ 11.2¢ 6,795 6,024 4,363 4,227 3,371 6,326 4,874 4,874 10.8¢ 9.6¢ 6,584 6,563 10.5¢ 10.5¢ 7.6¢ 6,113 10.5¢ 7.6¢ 6.0¢ 11.4¢ 9.8¢ 9.8¢ 5,881 5,859 5,843 5,353 5,353 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. (2) Includes distributions on Class B LP units. Performance Indicators The Trust’s performance indicators used to measure BTB’s financial performance are presented and explained in Appendix 1. The Trust adopted IFRS 16, Leases, during the first quarter of 2019. Comparative balances have not been restated; however, the Trust considers the impact on its performance indicators to be minimal. 33 2019 Real Estate Portfolio BTB owns 66 quality properties which have a fair market value of $924 million, generating approximately $90 million in annual income and representing a total leasable area of approximately 5.7 million square feet. A description of the properties owned as at December 31, 2019 can be found in the Trust’s Annual Information Form available at www.sedar.com. Summary of investment properties as at December 31, 2019 Operating segment Number of properties Leasable area (sq. ft.) Committed occupancy rate (%) Office Retail Industrial Mixed-use Subtotal Properties under redevelopment Total Sale of investment properties 28 12 18 7 65 1 66 2,118,025 1,409,564 1,482,282 564,919 5,574,790 75,340 5,650,130 89.3 96.0 96.4 92.4 93.2 Pursuant to the conclusions of the last strategic review of its portfolio, the Trust has elected to sell certain properties when circumstances are favorable. The proceeds of disposition from the sale of these assets are used to either repay related mortgages and any remaining proceeds may be used to repay lines of credit and/or to acquire accretive properties in line with its investment criteria. In January 2019, the Trust disposed of the retail property located at 15–41 South Georges-Gagné Blvd. in Delson, Québec, for total proceeds of $22.5 million. In March 2019, the Trust disposed of a retail condominium located at 37 South Georges-Gagné Blvd. in Delson, Québec, for total proceeds of $1.95 million. In May 2019, the Trust disposed of a mixed-use property located at 1400-1440 Antonio-Barbeau Street in Montréal, Québec, for total proceeds of $7.1 million. In August 2019, the Trust disposed of an office property located at 3885 Harvey Boulevard in Saguenay, Québec, for total proceeds of $4.4 million. Property acquisitions In May 2019, the Trust acquired a 65,000-square-foot industrial property located at 2425 Pitfield Blvd. in Saint-Laurent, Québec, for total proceeds of $11.8 million. In June 2019, the Trust purchased two retail properties, Méga Centre Saint-Bruno and Développements Mont-Saint-Hilaire, respectively located in Saint-Bruno, Québec and Saint-Hilaire, Québec, for a total consideration of $62.2 million. 34 BTB ANNUAL REPORT Real Estate Operations Leasing activities The following table summarizes the changes in available leasable area for the quarters and years ended December 31, 2019 and 2018. Periods ended December 31 (in square feet) Available leasable area at beginning of the period Available leasable area purchased (sold) Area under redevelopment Quarter Year 2019 2018 355,067 548,184 — — 5,028 132,665 218,015 2019 479,420 (37,204) — 2018 453,360 25,360 — 915,652 1,006,966 Leasable area of expired leases at term or before end of term 401,640 Leasable area of renewed leases Leasable area of new leases signed Other (322,441) (132,193) (691,934) (454,878) (54,368) (295,001) (284,160) (546,206) (2) 2,722 (1,878) (5,182) Available leasable area at end of the period 379,896 479,420 379,896 479,420 Fourth quarter of 2019 At the beginning of the quarter, approximately 355,000 square feet were vacant. Approximately 402,000 square feet have expired at the end of the term of leases or prior, including 35,000 square feet following the bankruptcy of the Ashley Furniture store in our F.X. Sabourin property on the South Shore of Montréal. More than 322,000 square feet have been renewed with our existing tenants. Lastly, the Trust leased more than 54,000 square feet to new tenants, leaving approximately 380,000 square feet of leasable area available at the end of the quarter, resulting in a 0.4% increase in the vacancy rate for the quarter and an occupancy rate of 93.2% at the end of the quarter. Fiscal year 2019 As at January 1, 2019, more than 479,000 square feet of leasable area, or 9.0% of total leasable area, was available for rent. More than 37,000 square feet have been removed from the vacant leasable area subsequent to the net effect of purchase and sale of investment properties during the year. More than 915,000 square feet (2018: 1,007,000) of leasable area became available as a result of lease expirations. This availability allowed the Trust to negotiate new leases, for a total of approximately 284,000 square feet (2018: 546,000). Approximately 692,000 square feet (2018: 455,000) were renewed with our existing tenants during the year. As a result of these transactions, 380,000 square feet remained vacant, which results in a 6.8% vacancy rate, a decrease of 2.2% for the year. The average renewal rate The following table shows a breakdown of the average rate of increase by operating segment: Operating segment Office Retail Industrial Mixed-use Total Quarter Square feet 80,000 132,000 83,000 27,000 322,000 (%) 2.6 1.4 21.6 0.6 4.3 Year Square feet 362,000 196,000 88,000 46,000 692,000 (%) 5.5 1.4 21.7 0.8 5.5 35 2019 The average rental rate of expired and renewed leases during the fourth quarter increased by 4.3% (3.3% increase in 2018). The industrial segment increased by 21.6% and the office segment increased by 2.7%. For the year, the average rate increased by 5.5% (2.7% increase in 2018). Retention rate Approximately 692,000 square feet of leases expiring in 2019 were renewed for a retention rate of 75.6% (2018: 54.2%). Occupancy rates The following tables detail the Trust’s committed occupancy rates by operating segment and geographic sector, including firm lease agreements signed as at the date of this report. Operating segment Office Retail Industrial Mixed-use Total portfolio Geographic sector Laval and North Shore Island of Montréal Montréal South Shore Québec City and surrounding area Ottawa and surrounding area Central Ontario December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 December 31, 2018 % 89.3 96.0 96.4 92.4 93.2 % 88.4 98.0 97.1 93.1 93.6 % 88.0 98.2 95.6 93.2 93.1 % 85.5 97.9 95.6 92.1 91.7 % 85.4 96.6 93.6 93.1 91.0 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 December 31, 2018 % 99.6 90.3 93.0 90.1 94.9 100.0 93.2 % 98.4 89.3 94.7 90.3 96.8 100.0 93.6 % 98.1 90.5 95.0 90.9 91.1 100.0 93.1 % 96.1 90.1 93.5 89.5 90.2 100.0 91.7 % 95.9 90.1 92.5 89.9 86.9 100.0 91.0 By province Québec Ontario Total portfolio December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 December 31, 2018 % 92.6 95.5 93.2 % 92.8 97.2 93.6 % 93.3 92.2 93.1 % 91.8 91.4 91.7 % 91.7 88.5 91.0 36 BTB ANNUAL REPORT The overall occupancy rate decreased by 0.4% since September 30, 2019 and increased by 2.2% since December 31, 2018. It stood at 93.2% at the end of the fourth quarter of 2019. The decrease in the occupancy rate since September 2019 is mainly due to the bankruptcy of the Ashley Furniture store in our F.X. Sabourin property which added 35,000 square feet of additional space available for lease. The following table shows the in-place occupancy rate compared to the committed occupancy rate by operating segment as at December 31, 2019. Operating segment Office Retail Industrial Mixed-use Occupancy rate (%) Square feet In-place Committed Committed 85.8 95.7 95.8 91.9 91.6 89.3 96.0 96.4 92.4 93.2 75,500 1,500 8,200 2,900 88,100 The in-place occupancy rate as at December 31, 2019, without taking into account firm committed lease agreements for tenants that are not occupying their spaces, was 91.6% (2018: 86.4%), a 5.2% increase, representing more than 280,000 square feet that were leased in the last year and have generated rental income. Vacant spaces totalling approximately 88,100 square feet as at December 31, 2019 are subject to firm lease agreements and will generate additional income in the next few quarters. The following are examples of firm lease agreements that will soon take effect. Properties Square feet Tenants Expected occupancy date 1-9 and 10 Brewer Hunt Way, Ottawa, Ontario 3131 Saint-Martin Blvd West, Laval, Québec 208-244 Migneron Street, St-Laurent, Québec 315-325 MacDonald Street, St-Jean-sur-Richelieu, Québec 32,000 20,000 8,200 7,400 Satcom City of Laval Eventure Group Government of Québec March 2020 May 2020 April 2020 April 2020 Lease maturities The following table shows the Trust’s 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 2020 2021 2022 2023 2024 202,962 $14.16 8.6% 108,401 $11.01 6.4% 260,434 $5.30 16.0% 127,930 $13.42 17.7% 232,497 $12.88 250,717 $14.11 252,019 $14.26 195,842 $12.90 11.0% 11.8% 11.9% 9.3% 96,139 $15.17 290,319 $11.24 147,815 $10.40 82,484 $15.71 6.8% 20.6% 10.5% 5.9% 342,664 $7.40 251,122 $5.63 45,483 $5.83 88,393 $9.00 23.1% 17.0% 3.1% 6.0% 124,466 $11.86 98,148 $15.58 50,116 $12.99 12,966 $13.79 22.0% 17.4% 8.9% 2.3% 699,727 $10.13 795,766 $10.64 890,305 $10.95 495,432 $12.21 379,685 $12.63 12.6% 14.3% 16.0% 8.9% 6.8% 37 2019 Top 10 tenants On December 31, 2019, BTB managed more than 620 leases, with an average leasable area of approximately 8,500 square feet. The three largest tenants of the Trust are Public Works Canada, West Safety Services Canada and Walmart Canada Inc., representing respectively 4.8%, 2.0% and 1.8% of revenues, generated by multiple leases whose maturities are spread over time. More than 27% of the Trust’s total revenues are generated by leases signed with government agencies (federal, provincial and municipal) and public companies, thus generating 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, 2019. This contribution accounts for 18.1% of annual rental income and 20.0% of leased area. Client Public Works Canada West Safety Canada Inc. Walmart Canada inc. Atis Portes et Fenêtres Corp. Strongco Propriétés Shoppers Inc. Sail Plein Air Provigo Distribution Inc. (Loblaws) CISSS Montérégie-Centre (Government of Québec) Société québécoise des infrastructures (SQIGovernment of Québec) Operating results % of revenue % of leased area Leased area (square feet) 4.8 2.0 1.8 1.7 1.5 1.4 1.3 1.3 1.2 1.1 18.1 3.7 1.1 4.7 3.9 1.5 0.9 0.8 0.6 1.3 1.5 20.0 207,202 61,845 264,550 219,941 81,442 47,551 45,496 34,446 70,242 82,196 1,114,912 The following table summarizes financial results for the quarters and years ended December 31, 2019 and 2018. The table should be read in conjunction with our consolidated financial statements and the accompanying notes. Periods ended December 31 (in thousands of dollars) Rental income Operating expenses Net operating income(1) Net financial expenses Administration expenses Transaction costs and prepayment penalties Gain on disposal of property and equipment Gain on write-off of debt Fair value adjustment on investment properties Net income and comprehensive income (1) Non-IFRS financial measure. Reference (page) 39 39 40 40 41 41 42 Quarter Year 2019 $ 25,558 11,384 14,174 5,564 1,198 — — — 2018 $ 22,082 10,458 11,624 7,447 1,222 1,205 (7) — (34,140) (22,639) 41,552 24,396 2019 $ 93,602 42,705 50,897 26,634 5,515 980 — — (34,113) 51,881 2018 $ 87,423 39,786 47,637 22,791 4,906 2,070 (1,192) (133) (22,142) 41,337 38 BTB ANNUAL REPORT Rental income BTB’s rental income increased by $3.5 million in its fourth quarter compared to the same quarter last year. During the year, the Trust acquired three properties. These acquisitions contributed to an increase in rental income of approximately $2.6 million for the quarter, while the Trust estimates the rental income associated with the disposal of properties during the same period at $1.3 million in the quarter. During the quarter, the Trust agreed to cancel the lease agreement with Jensen Company in consideration of a cancellation payment of $1,062. In accordance with IFRS standards, this amount was fully recognized as rental income during the fourth quarter of 2019. This amount improved net profit and comprehensive income, distributable profit, the FFO and AFFO for the fourth quarter and for the fiscal year by approximately 1.7 ¢ per unit. The Jensen space was immediately released on similar terms under a 10-year lease to an accounting firm. Accordingly, the Trust did not suffer any impact caused by the departure of the Jensen Company. However, the new tenant does benefit from a 6-month period of free rent. This free rent period is recognized as an ajustement to rental income over the life of the lease in accordance with the straight-line method. In the fourth quarter of 2019, straight line adjustments to rent payable of $469 (2018: $93) were recorded. BTB also recorded amortization of lease incentives granted to tenants of $756 (2018: $608) as a reduction of rental income. For the fiscal year 2019, the Trust reported an increase of $6.2 million or 7.1% of its rental income. Acquisitions completed during the past four quarters contributed to an increase of approximately $5.2 million, while the Trust estimates the rental income associated with the disposed properties completed during the year at approximately $3.3 million. For the fiscal year 2019, rent payable adjustments of $703 (2018: $525) were recorded on a straight-line basis and an amortization of $3,003 (2018: $3,223) of lease incentives granted to tenants was recorded as a reduction in rental income. Operating expenses BTB recorded an increase in operating expenses of $926, or 8.9%, between the fourth quarter of 2019 and the fourth quarter of 2018. The increase resulted mainly from the net effect of acquisitions vs. dispositions completed in 2019, which added 220,000 square feet of new rental space. The following table shows the breakdown of operating expenses for the quarters and years ended December 31, 2019 and 2018. Periods ended December 31 (in thousands of dollars) Operating expenses Maintenance, repairs and other operating costs Property taxes, public utilities and insurance Total operating expenses % of rental income Quarter 2019 $ 3,874 7,510 11,384 44.5 2018 $ 3,586 6,872 10,458 47.4 Year 2019 $ 14,330 28,375 42,705 45.6 2018 $ 13,140 26,646 39,786 45.5 For the fourth quarter, our recent acquisitions contributed to an increase of $1.7 million in operating expenses, while recent dispositions reduced operating expenses by $0.7 million, hence a net increase of $1 million. As a percentage of rental income, operating expenses for the fourth quarter of 2019 decreased by 2.9% to 44.5% and increased by 0.1% to 45.6% for the entire fiscal year 2019. 39 2019Net operating income Periods ended December 31 (in thousands of dollars) Net operating income(1) % of rental income (1) Non-IFRS financial measure. Quarter Year 2019 $ 14,174 55.5 2018 $ 11,624 52.6 2019 $ 50,897 54.4 2018 $ 47,637 54.5 Total net operating income (NOI) increased by $2,550 or 21.9% between the fourth quarter of 2018 and the same quarter of 2019. For the fiscal year 2019, the Trust reported an increase of $3.3 million or 6.8% of its NOI. For the entire fiscal year 2019, the NOI includes the reception of a payment of $1,062 as a penalty in a lease cancellation in the fourth quarter while the fiscal year 2018 was enhanced by receiving a penalty of $1,477 in the third quarter. Financial expenses The following table shows the breakdown of financial expenses for the quarters and years ended December 31, 2019 and 2018: Periods ended December 31 (in thousands of dollars) Interest on mortgage loans Interest on convertible debentures Interest on bank loans Other interest expenses Interest income Net interest expenses Distributions on Class B LP units Financial expenses before non-monetary items Accretion of effective interest on mortgage loans, convertible debentures and bank loans Accretion of non-derivative liability component of convertible debentures Net financial expenses before the following items: Net fair value adjustment on derivative financial instruments Fair value adjustment on Class B LP units Net financial expenses Quarter Year 2019 $ 4,928 955 164 137 (120) 6,064 56 6,120 2018 $ 4,650 874 267 26 (14) 5,803 56 5,859 2019 $ 18,941 3,577 915 444 (475) 23,402 224 23,626 2018 $ 17,512 3,496 929 116 (76) 21,977 131 22,108 384 259 1,172 1,039 27 6,531 (1,184) 217 5,564 13 6,131 1,561 (245) 7,447 66 24,864 1,340 430 26,634 49 23,196 (229) (176) 22,791 Net interest expenses increased by $261 during the fourth quarter of 2019 compared to the same period of 2018 and by $1,425 for the year, due to the net effect of financing of acquisitions and concluding dispositions in recent quarters, as well as higher interest rates on mortgage refinancing completed during recent quarters. In addition to net interest expenses, distributions on Class B LP units amounted to $56 for the quarter and $224 for the year. Under IFRS, the Class B LP units are considered a financial instrument classified as a liability and therefore the related distributions must be recognized as an expense. 40 BTB ANNUAL REPORT Financial income mainly consists of interest income generated from a balance of sale held by the Trust for the principal amount of $6 million pursuant to the sale in 2019 of a property located in Delson, Québec. Net financial expenses include the net interest expenses plus distributions on Class B LP units, amounting to $6,120 for the quarter (2018: $5,859) and $23,626 for the year (2018: $22,108)non-monetary items. Non monetary items include the accretion of effective interest on mortgage loans and convertible debentures and fair value adjustments on financial instruments. BTB recognized an increase in the value of derivative financial instruments of $967 (2018: $1,316 decrease) for the quarter and a decrease of $1,770 (2018: $405 an increase) for the year. The decrease in the value of financial instruments, which generated an equivalent expense recorded as an increase in non-monetary items, is due to lower interest rates in Canadian financial markets during the reporting period. Conversely, an increase in the value of financial instruments, which generated an equivalent income recorded as a decrease in non-monetary expenses, is due to higher interest rates in Canadian markets during the reporting period. The fair value of Class B LP units is equal to the fair value of the Trust’s units traded on Canadian stock markets. An increase in the value of Class B LP units generates an equivalent expense recorded as an increase of non- monetary financial expenses during the reporting period. Conversely, a decrease in the value of Class B LP units generates the equivalent in income recorded as a decrease in non-monetary financial expenses during the reporting period. On December 31, 2019, the average weighted contractual rate of interest on mortgage loans outstanding was 3.92%, 7 basis points lower than the rate in effect as at December 31, 2018. Interest rates on first-ranking mortgage loans ranged from 2.77% to 6.80% as at December 31, 2019. The weighted average term of mortgage loans in place as at December 31, 2019 was 5.1 years (5.6 years as at December 31, 2018). Administration expenses Periods ended December 31 (in thousands of dollars) Administration expenses Doubtful accounts (recovery) Amortization Unit-based compensation Trust administration expenses Quarter Year 2019 $ 1,034 (78) — 242 1,198 2018 $ 1,021 129 — 72 2019 $ 4,346 493 — 676 2018 $ 4,115 431 5 355 1,222 5,515 4,906 Fair value adjustment of 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 Trust annually uses chartered appraisers to evaluate the fair value of a significant portion of its portfolio. Pursuant to its policy, the 10 largest properties and approximately a third of the remaining properties are independently appraised by independent appraisers. 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. For its properties that were not subject to independent appraisals, management receives quarterly capitalization rate and discount rate data from external chartered appraisers 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 appraisers. 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. 41 2019As at December 31, 2019, 62.9% (2018: 65.4%) of the fair value of the real estate portfolio was externally independently appraised and 37.1% (2018: 34.6%) was internally appraised by the Trust’s personnel. Following these appraisals, the Trust recorded an increase in value of $34.1 million (2018: $22.1 million) on its real estate portfolio. The change in fair value is broken down by segment as follows: Office Retail Industrial Mixed-use Total change in fair value $ 22,741 3,061 11,883 (3,545) 34,140 % 66.6 9.0 34.8 (10.4) 100% Office and industrial properties account for almost 100% of the portfolio’s increase in value, mainly due to lower capitalization rates in these segments. The following tables highlight the significant assumptions used in the modelling process for both internal and external appraisals: As at December 31, 2019 Capitalization rate Retail Office Industrial Mixed-use 6.00% – 7.75% 5.75% – 7.50% 5.75% – 8.50% 5.00% – 8.25% Terminal capitalization rate 6.25% – 7.25% 6.25% – 7.50% 6.00% – 7.25% 5.25% – 7.25% Discount rate 7.25% – 7.75% 6.75% – 8.00% 6.50% – 8.00% 6.25% – 8.00% As at December 31, 2018 Capitalization rate 6.25% – 7.75% 6.00% – 8.50% 5.75% – 8.50% 5.00% – 7.25% Terminal capitalization rate 6.25% – 7.75% 6.50% – 7.50% 6.25% – 8.25% 5.25% – 7.50% Discount rate 7.25% – 8.50% 7.00% – 8.00% 6.75% – 9.00% 6.25% – 8.25% The weighted average of the capitalization rate for the entire portfolio as at December 31, 2019 was 6.6% (December 31, 2018: 6.8%), 20 basis point lower than December 31, 2018. As at December 31, 2019, BTB has estimated that a variation of 0.25% in the capitalization rate applied to the overall portfolio would increase/decrease the fair value of the investment properties by approximately $35 million. Net income and comprehensive income BTB generated net income of $41.6 million for the fourth quarter of 2019, compared to $24.4 million for the fourth quarter of 2018, an increase of $17.2 million. For the year, the net income stood at $51.9 million, an increase of $10.5 million from the same period in 2018. Periods ended December 31 (in thousands of dollars, except for per unit data) Net income Per unit Quarter 2019 $ 2018 $ Year 2019 $ 2018 $ 41,552 24,396 51,881 41,337 66.2¢ 43.7¢ 87.0¢ 78.7¢ 42 BTB ANNUAL REPORTAdjusted net income Net income and comprehensive income fluctuate from one quarter to the next based on non-recurring items and certain volatile non-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’s units, the forward interest rate curve and the discount and capitalization rates of the real estate portfolio. The following table presents adjusted net income before these non-recurring and volatile non-monetary items. Periods ended December 31 (in thousands of dollars, except for per unit data) Quarter 2019 $ 2018 $ Year 2019 $ 2018 $ Net income and comprehensive income 41,552 24,396 51,881 41,337 Non-recurring items: + Transaction costs Volatile non-monetary items — 1,205 980 2,070 ± Fair value adjustment on derivative financial instruments (1,184) 1,561 1,340 (229) - Fair value adjustment on investment properties (34,140) (22,639) (34,113) (22,142) ± Fair value adjustment on Class B LP units Adjusted net income(1) Per unit (1) Non-IFRS financial measure. 217 6,445 10.3¢ (245) 4,278 430 20,518 (176) 20,860 7.7¢ 34.4¢ 39.8¢ This table shows an increase of 50.6% in adjusted net income for the quarter and a decrease of 0.2% for the year, before the items mentioned above. Quarterly adjusted net income per unit increased by 33.8% (13.6% decrease for the year). Operating Results – Same-Property Portfolio Same-property portfolio The same-property portfolio includes all the properties owned by BTB on January 1, 2019 and that are still owned by BTB on December 31, 2019, but it does not include acquisitions and developments completed during 2018 and 2019, nor the results of properties sold during the same periods. 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) Increase in net property income from the same-property portfolio (1) Non-IFRS financial measure. Quarter 2019 $ 2018 $ 18,593 17,802 8,668 9,925 3,659 6,266 8,417 9,385 3,683 5,702 Δ % 4.4 3.0 5.8 (0.7) Year 2019 $ 73,950 34,052 39,898 14,651 25,247 2018 $ 71,516 33,115 38,401 14,736 23,665 Δ % 3.4 2.8 3.9 (0.6) 9.9% 6.7% 43 2019 Rental income, NOI and net property income of the same-property portfolio increased by 4.4%, 5.8% and 9.9% respectively, for the fourth quarter of 2019 compared to the same period of 2018. The good results of the same-property portfolio in the third and fourth quarters of 2019 cancelled the negative first-quarter results, increasing rental income, NOI and net property income by 3.4%, 3.9% and 6.7%, respectively. Distributable Income and Distributions The following table shows the calculation of distributable income. Periods ended December 31 (in thousands of dollars) Quarter Year 2019 $ 2018 $ 2019 $ 51,881 (34,113) 107 — 676 — 66 1,340 430 3,003 (703) 1,172 980 224 2018 $ 41,337 (22,142) 90 (1,192) 335 (1,185) 49 (229) (176) 3,223 (525) 1,039 2,070 131 25,063 23,897 Net income (loss) and comprehensive income (IFRS) 41,552 24,396 - Fair value adjustment on properties (34,140) (22,639) + Amortization of property and equipment - Gain on disposition of the Trust owned and occupied land and building + Unit-based compensation expense - Gain on disposal of property and equipment + Accretion of the non-derivative liability component of convertible debentures ± Fair value adjustment on derivative financial instruments ± Fair value adjustment on Class B LP units + Amortization of lease incentives - Straight-line rental income adjustment + Accretion of effective interest + Transaction costs on acquisitions and dispositions of properties + Distributions -Class B LP units Distributable income(1) (1) Non-IFRS financial measure. 25 — 242 — 27 (1,184) 217 756 (469) 384 — 56 7,466 26 (7) 72 — 13 1,561 (245) 608 (93) 259 1,205 56 5,212 44 BTB ANNUAL REPORT Distributions and per unit data Periods ended December 31 (in thousands of dollars, except for per unit data) Distributions Cash distributions Cash distributions – Class B LP units Distributions reinvested under the distribution reinvestment plan Total distributions to unitholders Percentage of reinvested distributions Per unit data(1) Distributable income Distributions Payout ratio on distributable income(2) Cash payout ratio(3) Quarter 2019 $ 2018 $ Year 2019 $ 2018 $ 5,690 56 838 6,584 5,107 56 696 5,859 21,763 224 3,154 25,141 19,305 131 2,718 22,154 12.7% 11.9% 12.5% 12.3% 11.9¢ 10.5¢ 88.1% 77.0% 9.3¢ 10.5¢ 112.4% 99.1% 42.1¢ 42.0¢ 99.8% 87.7% 45.6¢ 42.0¢ 92.2% 81.3% (1) Including Class B LP units. (2) The payout ratio corresponds to distributions per unit divided by distributable income per unit. (3) The cash payout ratio corresponds to cash distributions divided by distributable income. Distributable income for the fourth quarter increased by $2,254 from $5,212 to $7,466 between 2018 and 2019. Distributable income per unit for the fourth quarter of 2019 was 11.9¢ compared to 9.3¢ in 2018, up by 28.0%. Distributable income for the year increased by $1,166 or 4.9%. Per unit, the distributable income for the year is 42.1¢ (2018: 45.6¢). The annual decrease was mainly recorded during the first two quarters of the year and the events that led to the decrease were previously explained and are now mostly resolved. Distributions to unitholders totalled 10.5¢ per issued unit for each quarter of 2019 and 2018, and 42.0¢ per issued unit for each fiscal year of 2019 and 2018. The payout ratio for distributable income was 88.1% in the fourth quarter of 2019 compared to 112.4% in the fourth quarter of 2018, and 99.8% for the year compared to 92.2% in 2018. Distribution reinvestment plan (DRIP) In the fourth quarter of 2019, 12.7% of distributions (2018: 11.9%) were reinvested under the DRIP. Approximately $3.2 million (2018: $2.7 million) of the Trust’s cash has thereby been preserved through unit conversions since the beginning of the year. 45 2019 Funds From Operations (FFO) The following table provides the reconciliation of net income and comprehensive income established according to IFRS and FFO for the quarters and years ended December 31, 2019 and 2018: Periods ended December 31 (in thousands of dollars, except for per unit data) Quarter 2019 $ 2018 $ Year 2019 $ 2018 $ Net income and comprehensive income (IFRS) 41,552 24,396 51,881 41,337 - Gains on disposition of property and equipment and other disposition costs — (7) — (1,192) - Fair value adjustment on investment properties (34,140) (22,639) (34,113) (22,142) ± Fair value adjustment on Class B LP units + Amortization of a property recognized at cost + Amortization of lease incentives ± Fair value adjustment on derivative financial instruments + Leasing payroll expenses + Distributions -Class B LP units FFO(1) Non-recurring item Transaction cost on acquisitions and dispositions of investment properties Recurring FFO(1) FFO per unit(2) Recurring FFO per unit(2) FFO payout ratio(3) Recurring FFO payout ratio(3) FFO cash payout ratio(4) Recurring FFO cash payout ratio 217 — 756 (1,184) 164 56 7,421 — 7,421 11.8¢ 11.8¢ 88.7% 88.7% 77.4% 77.4% (245) — 608 1,561 128 56 430 — 3,003 1,340 548 224 (176) 3 3,223 (229) 573 131 3,858 23,313 21,528 1,205 5,063 6.9¢ 9.1¢ 151.8% 115.7% 133.8% 102.0% 980 24,293 2,070 23,598 39.1¢ 40.7¢ 107.4% 103.1% 94.3% 90.5% 41.1¢ 45.0¢ 102.3% 93.3% 90.3% 82.4% (1) Non-IFRS financial measures. (2) Including Class B LP units. (3) The FFO payout ratio corresponds to distributions per unit divided by FFO per unit. (4) The FFO cash payout ratio corresponds to cash distributions divided by FFO. For the fourth quarter of 2019, FFO per unit was 11.8¢, compared to 6.9¢ in 2018, a 72% increase. After taking into account the transaction costs in the disposition of investment properties, recurring FFO was 11.8¢ per unit compared to 9.1¢ in 2018. The FFO payout ratio stood at 88.7% for the fourth quarter of 2019 compared to 151.8% for the same quarter of 2018, and the recurring FFO payout ratio stood at 88.7% compared to 115.7% in the same quarter of 2018. For the entire fiscal year 2019, the Trust posted an FFO of $23.3 million, an increase of $1.8 million over 2018. Excluding the non-recurring item, the annual FFO increased by $0.7 million from 2018 to 2019. Per unit, the annual FFO and recurring FFO show a decrease of 2.0¢ and 4.3¢ respectively. These decreases mainly occurred during the first two quarters of the year. 46 BTB ANNUAL REPORT Adjusted Funds from Operations (AFFO) The following table provides the reconciliation of FFO and AFFO for the quarters and years ended December 31, 2019 and 2018: Periods ended December 31 (in thousands of dollars, except for per unit data) FFO - Straight-line rental income adjustment + Accretion of effective interest + Accretion of the liability component of convertible debentures + Amortization of other property and equipment + Unit-based compensation expenses - Provision for non-recoverable capital expenditures - Provision for unrecovered rental fees AFFO(1) Non-recurring item Transaction costs on purchase and sale of properties Recurring AFFO(1) AFFO per unit(2) Recurring AFFO per unit(2) AFFO payout ratio(3) Recurring AFFO payout ratio(3) AFFO cash payout ratio(3) Recurring AFFO cash payout ratio(4) Quarter 2019 $ 2018 $ Year 2019 $ 2018 $ 7,421 (469) 384 27 25 242 (490) (345) 6,795 — 6,795 10.8¢ 10.8¢ 96.8% 96.8% 84.6% 84.6% 3,858 (93) 259 13 26 72 (439) (325) 3,371 1,205 4,576 6.0¢ 8.2¢ 173.7% 128.0% 153.2% 112.8% 23,313 (703) 1,172 66 107 676 (1,842) (1,380) 21,409 980 22,389 35.9¢ 37.5¢ 117.0% 111.9% 102.7% 98.2% 21,528 (525) 1,039 49 87 355 (1,719) (1,300) 19,514 2,070 21,584 37.2¢ 41.2¢ 112.9% 102.0% 99.6% 90.0% (1) Non-IFRS financial measures. (2) Including Class B LP units. (3) The AFFO payout ratio corresponds to distributions per unit divided by AFFO per unit. (4) The AFFO cash payout ratio corresponds to cash distributions divided by AFFO. AFFO per unit totalled 10.8¢ for the fourth quarter of 2019 compared to 6.0¢ for the fourth quarter of 2018, an 80% increase. Recurring AFFO per unit, after taking into account the transaction costs on the sale of investment properties in 2018, was 10.8¢ per unit for the quarter compared to 9.7¢ for the same quarter in 2018. The AFFO payout ratio stood at 96.8% for the fourth quarter of 2019 compared to 173.7% for the fourth quarter of 2018. At the end of fiscal 2019, the Trust presented an AFFO of $22.4 million, a $0.8 million increase over the same quarter in 2018. AFFO per unit decreased from 37.2¢ to 35.9¢. Again, this annual decrease mainly occurred during the first two quarters of the year. In calculating AFFO, the Trust deducts a provision for non-recoverable capital expenditures to take into account capital expenditures invested to maintain properties in good condition and to preserve rental income. This provision is based on our assessment of industry practices and our investment forecasts for the next few years. 47 2019The following table compares the amount of the provision for non-recoverable capital investments to the amount of investment actually made during the current comparative period and in the last few years. Years ended December 31 (in thousands of dollars) Provision for non-recoverable capital expenditures Non-recoverable capital expenditures December 31, 2019 December 31, 2018 December 31, 2017 $ 1,851 2,603 $ 1,719 1,871 $ 1,467 2,876 The Trust intends to achieve a balance between actual investment and the estimated provisions over the long term. Management may change the provision calculation, as required. Cash Flows Net cash flow from operating activities, funds available under the Trust’s credit facilities and surplus cash are the main sources of cash to fund distributions, debt service, capital expenditures in investment properties, lease incentives and rental fees. The Trust expects to be able to meet its commitments. Management expects to have sufficient liquidity generated from cash surpluses, net cash from operating activities and the Trust’s ability to raise capital. Periods ended December 31 (in thousands of dollars) Net cash from (used in): Operating activities Investing activities Financing activities Net change in cash during the period Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Quarter 2019 $ 17,235 (3,139) (14,140) (44) 1,847 1,803 2018 $ 15,620 129 (9,061) 6,688 2,136 8,824 Year 2019 $ 47,223 (18,566) (35,678) (7,021) 8,824 1,803 2018 $ 44,724 (57,747) 19,929 6,906 1,918 8,824 Cash from operating activities increased by $1.6 million to $17.2 million for the quarter and by $2.5 million to $47.2 million for the entire year. 48 BTB ANNUAL REPORTThe following table provides a reconciliation of distributable income (a non-IFRS financial measure) and net cash flows from operating activities presented in the financial statements. Periods ended December 31 (in thousands of dollars) Net cash flows from operating activities (IFRS) ± Net change in non-cash operating items + Debt prepayment penalty - Net interest expense - Other items Distributable income Quarter 2019 $ 17,235 (3,706) — 2018 $ 15,620 (4,533) — Year 2019 $ 2018 $ 47,223 44,724 1,065 176 1,150 — (6,063) (5,803) (23,401) (21,977) — 7,466 (72) 5,212 — — 25,063 23,897 The following table is provided to enable readers to assess the performance of distributed funds and reconcile them with net cash flows and net income. Years ended December 31 (in thousands of dollars) Net cash from operating activities (IFRS) - Interest paid Net cash from operating activities Net income Total distributions Surplus (deficit) of net cash from operating activities compared to total distributions Surplus (deficit) of net income over total distributions 2019 $ 47,223 (23,442) 23,781 51,881 25,141 (1,360) 26,740 2018 $ 44,724 (21,851) 22,873 41,337 22,154 719 19,183 2017 $ 38,449 (18,593) 19,856 28,171 18,486 1,370 9,685 The Trust presented distributions in excess of net cash flows from operating activities (IFRS) of $1,360, net of interest paid during the quarter ended December 31, 2019. In 2018 and 2017, the Trust presented surplus distributions of $719 and $1,370. The Trust may use authorized lines of credit totaling $22 million to finance surplus distributions. During the year ended December 31, 2019, the Trust presented a deficit of net cash flow from operating activities over total distributions of $1,360 (2018: surplus of $719). The Trust is confident that during the course of the fiscal year 2020 it will present adequate coverage of net cash flow over total distributions and intends to maintain the current level of its distributions. 49 2019 The following table provides the reconciliation of net cash from operating activities presented in the financial statements and AFFO, and FFO (non-IFRS financial measures). Periods ended December 31 (in thousands of dollars, except for per unit data) Cash flows from operating activities (IFRS) + Leasing payroll expenses + Gain on debt extinguishment - Transaction costs on purchase and sale of properties + Debt prepayment penalty + Net change in non-cash operating items - Net interest expense - Provision for non-recoverable capital expenditures - Provision for non-recovered rental fees + Other items AFFO(1) + Provision for non-recoverable capital expenditures + Provision for non-recovered rental fees + Straight-line rental income adjustment - Unit-based compensation expenses - Accretion of non-derivative liability component of convertible debentures - Accretion of effective interest - Amortization of property and equipment - Other items FFO(1) (1) Non-IFRS financial measure. Segmented Information Quarter 2019 $ 17,235 164 — — — (3,706) (6,063) (490) (345) — 6,795 490 345 469 (242) (27) (384) (25) — 7,421 2018 $ Year 2019 $ 2018 $ 15,620 47,223 44,724 128 — (1,205) — (4,533) (5,803) (439) (325) (72) 3,371 439 325 93 (72) (13) (259) (26) — 3,858 545 — (980) 176 1,065 573 133 (2,070) — 1,150 (23,401) (21,977) (1,851) (1,380) 12 21,409 1,851 1,380 703 (676) (66) (1,172) (107) (9) 23,313 (1,719) (1,300) — 19,514 1,719 1,300 525 (355) (49) (1,039) (87) — 21,528 The Trust’s operations are generated from four segments of properties located in the Provinces of Québec and of Ontario. The following tables present each segment’s contribution to revenues and to net operating income for the quarters and years ended December 31, 2019 and 2018. Quarters ended December 31 (in thousands of dollars) Retail Office Industrial Mixed-use Total $ % $ % $ % $ % $ Quarter ended December 31, 2019 Investment properties 265,487 28.7 395,425 42.8 158,720 17.2 104,688 11.3 924,320 Rental income from properties Net operating income(1) 7,612 4,677 29.8 33.0 11,180 43.7 3,657 5,509 38.9 2,311 14.3 16.3 3,109 1,677 12.2 25,558 11.8 14,174 Quarter ended December 31, 2018 Investment properties 249,370 29.7 372,190 44.4 130,305 15.5 87,150 10.4 839,015 Rental income from properties 6,928 31.4 10,180 46.1 2,306 10.4 2,668 12.1 22,082 Net operating income(1) 4,193 36.1 4,590 39.5 1,543 13.3 1,298 11.2 11,624 (1) Non-IFRS financial measure. 50 BTB ANNUAL REPORT Years ended December 31 (in thousands of dollars) Retail % $ Office % $ Industrial Mixed-use Total $ % $ % $ Year ended December 31, 2019 Rental income from properties 26,935 28.8 43,206 46.2 12,852 13.7 10,609 11.3 93,602 Net operating income(1) 16,102 31.6 21,190 41.6 8,236 16.2 5,369 10.6 50,897 Year ended December 31, 2018 Rental income from properties 26,266 30.0 42,507 48.6 9,785 11.2 8,865 10.1 87,423 Net operating income(1) 15,925 33.4 20,005 42.0 7,226 15.2 4,481 9.4 47,637 (1) Non-IFRS financial measure. Financial Position The following table presents a summary of the Trust’s balance sheet as at December 31, 2019 and December 31, 2018. It should be read in conjunction with the Trust’s consolidated financial statements and the accompanying notes. (in thousands of dollars) Assets Investment properties Balance of sale Amounts receivable from tenants and other receivables Other assets Cash and cash equivalents Total assets Liabilities Mortgage loans payable Convertible debentures Lease liabilities Bank loans Class B LP units Accounts payable and other liabilities Total liabilities Equity Unitholders’ equity Total liabilities and equity December 31, 2019 December 31, 2018 Reference (page) $ $ 52 54 54 54 48 55 56 56 58 58 58 924,320 839,015 6,035 3,809 3,163 1,803 — 3,246 4,138 8,824 939,130 855,223 493,152 49,096 4,454 12,460 2,571 21,258 582,991 356,139 939,130 471,162 48,716 — 15,000 2,315 19,653 556,846 298,377 855,223 The main changes in the balance sheet as at December 31, 2019, compared to the balance sheet as at December 31, 2018, reflect the purchase and sale of investment properties, adjustments of the fair market value of investment properties, mortgage loans and the repayment of mortgage loans related to these transactions. 51 2019 Assets Investment properties Over the years, BTB has fuelled its growth through high-quality property acquisitions based on its 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 two jointly controlled investment properties. The fair market value of its investment properties stood at $924 million as at December 31, 2019 compared to $839 million as at December 31, 2018. Acquisitions In May 2019, the Trust acquired a 65,000-square-foot industrial building in St-Laurent, Québec for $11.8 million. In June 2019, the Trust purchased two retail properties, Méga Centre Saint-Bruno and Développements Mont Saint-Hilaire, respectively located in Saint-Bruno, Québec and Saint-Hilaire, Québec, for a total consideration of $62.2 million. Dispositions In January 2019, the Trust disposed of the retail property located at 15-41 South Georges-Gagné Blvd., in Delson, Québec, for total proceeds of $22.5 million. In March 2019, the Trust disposed of a retail condominium located at 37 South Georges-Gagné Blvd., in Delson, Québec, for total proceeds of $1.95 million. In May 2019, the Trust disposed of the mixed-use property located on Antonio-Barbeau Street in Montréal, Québec for total proceeds of $7.1 million. In August 2019, the Trust disposed of the office property located at 3885 Harvey Boulevard in Saguenay, Québec, for total proceeds of $4.4 million. Summary by operating segment As at December 31 2019 Number of properties Leasable area (sq. ft.) Office Retail Industrial Mixed-use Subtotal Properties under redevelopment Total 28 12 18 7 65 1 66 2,118,025 1,409,564 1,482,282 564,919 5,574,790 75,340 5,650,130 % 38.0 25.3 26.6 10.1 100.0 2018 Number of properties Leasable area (sq. ft.) 28 14 18 6 66 1 67 2,120,680 1,316,414 1,482,278 437,151 5,356,523 75,340 5,431,863 % 39.6 24.6 27.7 8.1 100.0 52 BTB ANNUAL REPORT Improvements in investment properties BTB invests capital to improve its properties to preserve the quality of their infrastructure and services provided to tenants. These disbursements include value-added maintenance investments corresponding to expenditures required to upkeep properties, as well as property improvement and redevelopment projects intended to increase leasable area, occupancy rates or quality of space available for rental. In some cases, capital expenditures are amortized and may be recovered from rent. Capital expenditures for the quarter ended December 31, 2019 totalled $2,625, compared to $1,504 for the same quarter of 2018, of which $1,278 was recoverable (2018: $754). Capital expenditures do not include repair and maintenance costs. Capital expenditures vary from one quarter to another depending on the investment required or planned for each property. Upon the signing of several leases, the Trust may make disbursements for leasehold improvements and for lease incentives applicable to the leased areas to meet the specific needs of tenants, as well as leasing commissions that are paid to independent brokers. These disbursements totalled $1,214 for the fourth quarter 2019 and $4,394 for the year compared to $1,282 and $5,250 for the same periods of 2018. The leasing fees and the cost of leasehold improvements/incentives may apply to both new tenants and tenants whose leases were renewed in the Trust’s properties. The amount of leasing fees and leasehold improvements/incentives varies depending on the lease renewal transaction concluded and tenancy profile. The following table summarizes capital expenditures, incentives and leasing fees, for the quarters and years ended December 31, 2019 and 2018. Periods ended December 31 (in thousands of dollars) Recoverable capital expenditures Non-recoverable capital expenditures Total capital expenditures Leasing fees and leasehold improvements Total Quarter Year 2019 $ 1,278 1,347 2,625 1,214 3,839 2018 $ 750 754 1,504 1,282 2,786 2019 $ 2,888 2,603 5,491 4,394 9,885 2018 $ 2,471 1,871 4,342 5,250 9,592 The following table shows changes in the fair value of investment properties during the quarters and years ended December 31, 2019 and 2018. Periods ended December 31 (in thousands of dollars) Quarter 2019 $ 2018 $ Year 2019 $ 2018 $ Balance, beginning of the period 886,648 819,375 839,015 751,110 Additions: Initial recognition of right-of-use assets Acquisitions Dispositions Capital expenditures Leasing fees and capitalized lease incentives Fair value adjustment on investment properties Other non-monetary changes Balance, end of the period — (19) — 2,625 1,214 34,140 (288) — 25,180 3,900 75,658 (30,450) (35,950) 1,504 1,282 22,639 (515) 5,491 4,394 34,113 (2,301) — 104,613 (45,744) 4,341 5,250 22,142 (2,697) 924,320 839,015 924,320 839,015 53 2019Balance of sale In June 2019, the Trust granted a balance of sale when it disposed of its Delson property. The principal amount of the balance of sale is $6 million, bearing interest at 7% for the first 3 years, 7.5% for the 4th year and 8% for the 5th year. It will mature on or before February 1st, 2024. Amounts receivable from tenants and other receivables Amounts receivable from tenants and other receivables increased from $3,246 as at December 31, 2018 to $3,809 as at December 31, 2019. These amounts are summarized below: (in thousands of dollars) Rent receivable from tenants Allowance for doubtful accounts Unbilled recoveries Other receivables Amounts receivable from tenants and other receivables Other assets December 31, 2019 December 31, 2018 $ 2,801 (716) 2,085 776 948 3,809 $ 2,556 (567) 1,989 430 827 3,246 Other assets include property and equipment required for the Trust’s operations, net of accumulated depreciation 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 Deposits Other assets Capital Ressources Long-term debt December 31, 2019 December 31, 2018 $ 1,067 (804) 263 1,921 304 675 3,163 $ 1,027 (698) 329 1,366 1,599 844 4,138 The following table shows the balances of BTB’s indebtedness on December 31, 2019, including mortgage loans and convertible debentures, based on the year of maturity and corresponding weighted average contractual interest rates: Au December 31, 2019 (in thousands of dollars) Balance of convertible debentures Balance of mortgages payable Weighted average contractual interest rate Year of maturity 2020 2021 2022 2023 2024 2025 and thereafter Total 54 $ 26,700 — — 24,000 — 50,700 $ 74,320 67,702 32,353 20,980 88,764 211,128 495,247 % 5.39 3.42 3.51 4.19 4.57 3.71 4.17 BTB ANNUAL REPORT Weighted average contractual interest rate As at December 31, 2019, the weighted average contractual interest rate of the Trust’s long-term debt stood at 4.17%, i.e., 3.92% mortgage loans and 6.61% for convertible debentures. Mortgage loans As at December 31, 2019, the Trust’s total mortgage loans amounted to $495 million compared to $473 million on December 31, 2018, before deferred financing expenses and valuation adjustments, an increase of $22 million following the financing of acquisitions completed in 2019, refinancing and principal repayments on monthly payments and dispositions. The following table summarizes changes in mortgage loans payable during the quarters and years ended December 31, 2019: Periods ended December 31 (in thousands of dollars) Balance at beginning of the period Mortgage loans contracted Balance repaid at maturity or upon disposal Monthly principal repayments Balance as at December 31, 2019 Quarter $ 496,937 2,000 — (3,679) 495,247 Year $ 473,205 67,180 (31,608) (13,530) 495,247 Note: Before unamortized financing expenses and valuation adjustments. As at December 31, 2019, the weighted average interest rate was 3,92% compared to 3.99% on December 31, 2018, a decrease of 7 basis points. As at December 31, 2019, except for five loans with a cumulative balance of $46.2 million, all mortgages payable bear interest at fixed rates ($387.0 million) or are subject to an interest rate swap ($62.0 million). The weighted average term of existing mortgage loans was 5.1 years as at December 31, 2019. It was 5.6 years as at December 31, 2018, a decrease of 0.5 years (or 6 months) in one year. The decrease is mainly due to the assumption of a mortgage loan with a remaining term of three years when the Trust purchased a property and the short-term financing of the property “1327-1333 Ste-Catherine Street West and 1411 Crescent Street” with a loan with a 2-year term until the leasing of this property is stabilized. BTB attempts to spread the maturities of its mortgages over many years in order to mitigate the risk associated with renewing them. Except for three properties, two of them partially securing the acquisition and operating lines of credit as at December 31, 2019 all of the Trust’s other properties were subject to mortgages as at December 31, 2019. Unamortized loan financing expenses totalled $2,723 and are amortized under the effective interest method over the term of the loans. The following table, as at December 31, 2019, shows future mortgage loan repayments for the next few years: As at December 31, 2019 (in thousands of dollars) Maturity 2020 2021 2022 2023 2024 2025 and thereafter Total + Valuation adjustments on assumed loans - Unamortized financing expenses Balance as at December 31, 2019 Principal repayment Balance at maturity Total % of total $ $ $ 14,574 13,369 11,750 10,311 8,253 36,582 94,839 73,015 63,846 27,882 18,697 76,529 140,439 87,589 77,215 39,632 29,008 84,782 177,021 17.7 15.6 8.0 5.9 17.1 35.7 400,408 495,247 100.0 628 (2,723) 493,152 55 2019 As at December 31, 2019, the Trust was in compliance with all the covenants to which it was subject except for one mortgage loan’s debt service coverage ratio. The mortgage loan is maturing in July 2020. The balance of the said mortgage loan as at December 31, 2019 was $18 million. The Trust has always met the other mortgage loan provisions and has never been late on a monthly payment. The Trust believes that the said mortgage loan will be refinanced at maturity for the entire amount outstanding. Convertible debentures (in thousands of dollars) Par value Contractual interest rate Effective interest rate Date of issuance Per-unit conversion price Series F(1)(3) Series G(2)(3) Total 26,700 7.15% 8.47% 24,000 6.00% 7.30% December 2015 October 2019 $5.65 $5.42 Date of interest payment June 30 and December 31 April 30 and October 31 Maturity date Balance as at December 31, 2019 December 2020 October 2024 26,364 22,732 49,096 (1) Redeemable by the Trust before December 31, 2020, at a redemption price equal to their principal amount plus accrued and unpaid interest. (2) Redeemable by the Trust, under certain conditions, as of October 31, 2022, but before October 31, 2023, 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 G conversion price and, as of October 31, 2023, but before October 31, 2024, 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 F and G debentures by issuing freely tradable units to Series F and G debenture holders. Bank loan – operating credit facility BTB has an operating credit facility of $3 million with a Canadian chartered bank. The facility bears interest at a rate of 0.75% above the said bank’s prime rate. As at December 31, 2019, $2,260 of the operating credit facility was used. Bank loan – acquisition credit facility BTB has an acquisition credit facility of $19 million with a Canadian chartered bank. The facility bears interest at a rate of 3.25% above the said bank’s prime rate. As at December 31, 2019, $10.2 million of the acquisition credit facility was used. These two credit facilities are secured by a first-ranking collateral mortgage on two properties and a second- ranking collateral mortgage on six properties. 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 total value of the assets 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 failure to abide by this condition, the Trust has a 12-month delay from the date of knowledge to remedy the situation. 56 BTB ANNUAL REPORT The following table presents the Trust’s debt ratios as at December 31, 2019 and December 31, 2018. (in thousands of dollars) Free cash flow Mortgage loans outsanding(1) Convertible debentures(1) Acquisition credit facility Total long-term debt less free cash flow Total value of the assets of the Trust less free cash flow Mortgage debt ratio (excluding convertible debentures and acquisition credit facility) Debt ratio – convertible debentures Debt ratio – acquisition line of credit Total debt ratio (1) Gross amounts. December 31, 2019 December 31, 2018 $ (1,803) 495,247 50,700 10,200 554,344 938,131 52.8% 5.4% 1.1% 59.1% $ (8,824) 473,205 49,700 15,000 529,081 847,097 55.8% 5.9% 1.8% 62.5% According to the table above, the mortgage debt ratio, excluding the convertible debentures and acquisition credit facility as at December 31, 2019, amounted to 52.8%, down 3.0% from December 31, 2018. Including the convertible debentures and the acquisition credit facility, the total debt ratio stood at 59.1%, down 3.4% from December 31, 2018. The Trust seeks to finance its acquisitions with a maximum mortgage debt ratio of 65% since the cost of financing is lower than the capital cost of the Trust’s equity. Interest coverage ratio For the quarter ended December 31, 2019, the interest coverage ratio stood at 2.34, an increase of 34 basis points from the fourth quarter of 2018. For the year, the ratio stood at 2.18, a small increase of 1 basis points compared to 2018. Periods ended December 31 (in thousands of dollars, except for the ratios) Net operating income Net interest expense(1) Interest coverage ratio Quarter Year 2019 $ 14,174 6,064 2.34 2018 $ 11,624 5,803 2.00 2019 $ 50,897 23,402 2.18 2018 $ 47,637 21,977 2.17 (1) Interest expense excludes accretion of effective interest, distribution on class B LP units, accretion of non-derivative liability component of convertible debentures and the fair value adjustment on derivative financial instruments. 57 2019 Class B LP units Periods ended December 31, 2019 Class B LP units outstanding, beginning of period Exchange into Trust units Fair value adjustment Class B LP units outstanding, end of period Quarter Year Units 532,265 (35,000) — 497,265 $ 2,528 (174) 217 2,571 Units 532,265 (35,000) — 497,265 $ 2,315 (174) 430 2,571 The Class B LP units are exchangeable at any time, at the option of the holder, for an equal number of units of BTB trading on the TSX. They are entitled to receive the same distributions as declared on the BTB units. Distributions paid on Class B LP units are recorded as financial expenses when declared. Distributions declared are adjusted in calculating distributable income, FFO and AFFO. The Class B LP units were issued on May 30, 2018 in consideration for the acquisition of the residual portion of “Complexe Lebourgneuf – Phase II” in Québec City (less the portion related to the mortgage loan assumption by BTB). The holders of these units were entitled to a $56 distribution during the fourth quarter of 2019 and $224 for the year. Accounts payable and other liabilities (in thousands of dollars) Trade and other payables Distributions payable to unitholders Unit-based compensation Derivative financial instruments Accounts payable and other liabilities Unitholders’ equity Unitholders’ equity consists of the following: (in thousands of dollars) Trust units Cumulative comprehensive income Distributions Unitholders’ equity Distribution reinvestment plan December 31, 2019 December 31, 2018 $ 17,984 2,179 1,050 45 21,258 $ 17,048 1,936 669 — 19,653 December 31, 2019 December 31, 2018 $ 305,029 185,706 (134,596) 356,139 $ 274,231 133,825 (109,679) 298,377 A distribution reinvestment plan is in place under which unitholders may elect to receive payment of distributions in units, at a 3% discount on the market value of the units at the time of payment. Under the program, 178,531 units were issued during the fourth quarter of 2019 (2018: 155,871 units) and 677,771 units were issued in 2019 (2018: 603,951 units). 58 BTB ANNUAL REPORT Units outstanding The following table summarizes the total number of units outstanding during the reporting quarters and years and the weighted number of units outstanding for the same quarters and years. Periods ended December 31 (in number of units) Quarter Year 2019 2018 2019 2018 Units outstanding, beginning of the period 62,036,146 55,161,852 55,317,723 48,423,118 Units issued Public offering Distribution reinvestment plan Awards - employee unit purchase plan Awards - restricted unit compensation plan Class B LP units exchange into Trust units — — 6,157,100 6,250,250 178,531 155,871 677,771 603,951 — 1,881 35,000 — — — 9,253 54,711 35,000 9,691 30,713 — Units outstanding, end of the period 62,251,558 55,317,723 62,251,558 55,317,723 Weighted average number of units outstanding 62,139,488 55,240,257 59,098,137 52,120,760 Weighted average number of Class B LP units and units outstanding 62,661,481 55,772,522 59,627,813 52,435,744 Deferred unit compensation plan The Trust has implemented a deferred unit compensation plan for its trustees and certain executive officers. Under this plan, beneficiaries may elect to receive their compensation in cash, deferred units or a combination of both. The following table summarizes deferred units outstanding during the quarters and years ended December 31, 2019 and 2018. Periods ended December 31 (in number of units) Deferred units outstanding, beginning of the period Deferred units issued – Trustees’ compensation Distributions paid in units Quarter Year 2019 56,699 1,707 1,236 2018 34,143 2,115 797 2019 37,055 18,071 4,516 59,642 2018 12,330 22,173 2,552 37,055 Deferred units outstanding, end of the period 59,642 37,055 Restricted unit compensation plan Under this plan, beneficiaries are awarded restricted units that become fully vested over a period of up to three years. The purpose of the plan is to encourage senior officers and selected employees to support the Trust’s long-term growth objectives and align their interests with the interests of unitholders. The purpose of the plan is also an executive retention tool. 59 2019 The following table summarizes restricted units outstanding during the quarters and years ended December 31, 2019 and 2018. Periods ended December 31 (in number of units) Quarter Year 2019 2018 Restricted units outstanding, beginning of the period 167,892 138,919 Restricted units issued Restricted units cancelled Restricted units settled 153 (1,152) (1,881) — — — Restricted units outstanding, end of the period 165,012 138,919 2019 138,919 82,622 (1,818) (54,711) 165,012 2018 115,628 72,819 (18,815) (30,713) 138,919 Employee unit purchase plan The Trust offers its employees an optional unit purchase plan. Under this plan, the employees may contribute, each year, a maximum of 3% to 7% of their base salary depending on their years of tenure with the Trust. Subject to the plan’s conditions, for each two units purchased by an employee, the Trust shall issue one unit from treasury. During the quarter ended December 31, 2019, no units were issued (2018: nil). During fiscal 2019, 11,194 units were issued. (2018: 9,253) Off-balance sheet arrangements and contractual commitments BTB does not have any other off-balance sheet arrangement or commitment that have or are likely to have an impact on its operating results or financial position, specifically its cash position and sources of financing. 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, its properties are managed and operated to integrate sustainable development values into the Trust’s activities, to promote the health and well-being of its employees and the communities where it operates, to manage its environmental footprint, and to demonstrate a commitment to transparency and continuous improvement of sustainability practices. Ongoing improvement of properties through investment in environmental projects, amongst other things, is a top priority for BTB. The tangible results of BTB’s responsible behaviour include BOMA BEST certification for 23 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 a 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, 23 properties in BTB’s portfolio have received various levels of BOMA BEST certification, including Gold (2), Silver (3), Bronze (6) and Certified (12). This prestigious certification recognizing BTB’s excellence in environmental property management was awarded by the Building Owners & Managers Association - BOMA Québec, a leader in the real estate industry since 1927. In the future, BTB plans to continue to reduce 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 to upgrade buildings. BTB also expects to keep its BOMA BEST certifications and achieve the highest level of performance for certain of its properties. 60 BTB ANNUAL REPORTInitiatives BTB Bees – Alvéole: As an ecoresponsible landlord, BTB, in partnership with the firm Alvéole, has taken part in a unique initiative to help regenerate an endangered species by installing beehives on the roofs of 14 of its properties and this, since 2018. Alvéole’s dedicated beekeepers tend to the hives and its bees on a bi-weekly basis and following the late summer harvest, BTB distributes the packaged honey to its clients and collaborators. Ecosystem Protection - Grame: In early September 2019, BTB’s team, in partnership with the non-profit organization Grame, took part in a tree-planting event, not only to beautify the playground of a primary and secondary school located in Montréal’s West Island, but to also help purify and filter the ecosystem. More than forty-five of BTB’s employees volunteered their time to help plant more than 60 trees. Social Reintegration - Société de Développement Social de Montréal: Since 2016, BTB has entrusted the Société de Développement Social de Montréal (“SDS”) with the cleaning of its indoor parking facilities. With their mission of fighting against homelessness and the social exclusion of its members, their program, Action Méditation, provides psychosocial assistance to people who are or are at risk of becoming homeless, whilst facilitating cohabitation and collaboration among various communities located in Montréal. The foundation is based on a principle of social solidarity and the pooling of human, technical and economic resources to address serious societalissues. SDSact as an intermediary between the business world and communities by transparently and impartially involving businesses in more practical and humanitarian projects. 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 “nonportfolio assets” held by the trust (ii) not less than 90% of its “gross REIT revenue” for the taxation year is from one or more of the following sources: rent from “real or immovable properties,” interest, disposals of “real or immovable properties” that are capital properties, dividends, royalties and disposals of “eligible resale properties” (iii) not less than 75% of its “gross REIT revenue” for the taxation year comes from one or more of the following sources: rent from “real or immovable properties,” interest from mortgages on “real or immovable properties,” and disposals of “real or immovable properties” that are capital properties (iv) at each time in the taxation year, an amount that is equal to 75% or more of the equity value of the trust at that time, is the amount that is the total fair market value of all properties held by the trust, each of which is “real or immovable property” which is a capital property, an “eligible resale property,” an indebtedness of a Canadian corporation represented by a banker’s acceptance, cash or, generally, an amount receivable from the Government of Canada or from certain other public agencies; and (v) the investments that are made therein are, at any time in the taxation year, listed or traded on a stock exchange or other public market. As at December 31, 2019, 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 2020 or any other subsequent year. 61 2019Taxation of Unitholders For Canadian unitholders, distributions are qualified as follows for taxation purposes: Periods ended December 31 Taxable as other income Tax deferred Total 2019 % — 100 100 2018 % — 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 On January 1, 2019, the Trust implemented the following changes in accounting policies. i) IFRS 16, Leases The Trust has initially adopted IFRS 16, Leases, as at January 1, 2019. IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Trust, as a lessee, has recognized right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease payments. The Trust has applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognized in retained earnings at January 1, 2019. Accordingly, the comparative information presented for 2018 has not been restated. ii) Amendments to IFRS 3, Business combinations The Trust early adopted the amendments to IFRS 3, Business combinations, which clarified the definition of a business, with the objective of assisting entities in determining whether a transaction should be accounted for as a business combination or as an asset acquisition. These amendments also include an optional test (the concentration test) to permit a simplified assessment of whether an acquired set of activities and assets is not a business. These amendments were applied to transactions for which the acquisition date was on or after January 1, 2019. 62 BTB ANNUAL REPORTRisks 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 2019 Annual Information Form for the year ended December 31, 2019, which is hereby incorporated by reference. Such risks and uncertainties include: • Access to Capital and to Debt Financing • Interest Rate Increases • Ownership of Immovable Property • Competition and Rising Property Prices • Availability of Immovable Property for Acquisition • Development Programs • Recruitment and Retention of Employees and Executives • Government Regulation • Limit on Activities Under the Trust Agreement • Tax Regulations • Fluctuations in Cash Distributions • Reliance on Single or Anchor Tenants • Potential Unitholder Liability • Conflicts of Interest • Market Price of Units • Legal Rights Relating to Units • Dilution • Environmental Matters • Legal Risks • General Uninsured Losses • Retail Industry • A possible economic recession BTB has not identified any significant changes to the risks and uncertainties to which it is exposed in its business. 63 2019Disclosure 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, 2019, 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, 2019, 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 the fourth quarter of 2019, management made no changes to internal control over financial reporting that materially affected, or are likely to materially affect, internal control over financial reporting. 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 ratio, which is used to assess BTB’s financial stability and its capacity for additional acquisitions; • The interest coverage ratio, which is used to measure BTB’s ability to use operating income to pay interest on its debt using its operating revenues; • The committed occupancy rate, which provides an indication of the optimization of rental space and the potential revenue gain from the Trust’s property portfolio. This rate takes into account occupied leasable area and the leasable area of leases that have been signed as of the end of the year but not yet started; • The in-place occupancy rate, which shows the percentage of total income-producing leasable area held at period end; • 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. 64 BTB ANNUAL REPORTAppendix 2 – Definitions Class B LP Units Class B LP units means the Class B LP limited partnership units of BTB LP, which are exchangeable for units, on a one for one basis. Rental income 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 $495 million as at December 31, 2019, compared to $473 million as at December 31, 2018. • Series F and G convertible debentures for a total par value of $50.7 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 Administration expenses include administrative costs such as payroll expenses and professional fees associated with executive and administrative staff of the Trust, 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. 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. 65 2019Fair 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, 2019 and still owned as at December 31, 2019, but does not include the financial impacts from disposals, acquisitions and developments completed in 2018 and 2019, as well as the results of subsequently sold properties. 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 lease incentives; • Fair value adjustment on derivative financial instruments; • Leasing payroll expenses (starting in 2016); • Distributions on Class B LP limited partnership units. 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. 66 BTB ANNUAL REPORTAdjusted funds from operations (AFFO) The notion of adjusted funds from operations (“AFFO”) is widely used by real estate companies and real estate investment trusts. It is an additional measure to assess the Trust’s performance and its ability to maintain and increase distributions in the long term. However, AFFO is not a financial or accounting measure prescribed by IFRS. The method of computing may differ from those used by other companies or real estate investment trusts and may not be used for comparison purposes. BTB defines AFFO as its FFO, adjusted to take into account other non-cash items that impact comprehensive income and do not enter into the calculation of FFO, including: • Straight-line rental income adjustment; • Accretion of effective interest following amortization of financing expenses; • Accretion of the liability component of convertible debentures; • Amortization of other property and equipment; • Unit-based compensation expenses. Furthermore, the Trust deducts a provision for non-recoverable capital expenditures in calculating AFFO. The Trust allocates significant amounts to the regular maintenance of its properties to attempt to reduce capital expenses as much as possible. The allocation for non-recoverable capital expenditures 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¢ 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 not recovered directly in establishing the rent that the Trust will undertake. These disbursements consist of inducements paid or granted when leases are signed that are generally amortized over the term of the lease and are subject to an equivalent increase in rent per square foot, and of brokerage commissions and leasing payroll expenses. 67 201968 BTB ANNUAL REPORTAudited Consolidated Financial Statements Year ended December 31, 2019 TABLE OF CONTENTS 74 Consolidated Statements of Financial Position 75 Consolidated Statements of Comprehensive Income 76 Consolidated Statements of Changes in Unitholders’ Equity 77 Consolidated Statements of Cash Flows 78 Notes to Consolidated Financial Statements 69 2019Management’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, 2019, 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 LLP, 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, 2019 and 2018 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 11, 2020 70 BTB ANNUAL REPORTKPMG 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 Opinion We have audited the consolidated financial statements of BTB Real Estate Investment Trust (the "Entity"), which comprise: • • • • • the consolidated statements of financial position as at December 31, 2019 and 2018 the consolidated statements of comprehensive income for the years then ended the consolidated statements of changes in unitholders’ equity for the years then ended the consolidated statements of cash flows for the years then ended and notes to the consolidated financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards ("IFRS"). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors’ Responsibilities for the Audit of the Financial Statements" section of our auditors’ report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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. 71 2019 Other Information Page 2 Management is responsible for the other information. Other information comprises: the information, other than the financial statements and the auditors’ report thereon, included in Management’s • Autres informations Discussion and Analysis filed with the relevant Canadian Securities Commissions. La responsabilité des autres informations incombe à la direction. Les autres informations se • composent : the information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled “Annual Report”. • du rapport de gestion déposé auprès des commissions des valeurs mobilières canadiennes Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. compétentes; In connection with our audit of the financial statements, our responsibility is to read the other information identified • des informations contenues dans un document susceptible de s'intituler « Rapport annuel sur above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or papier », autres que les états financiers et le rapport des auditeurs sur ces états. our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated. Notre opinion sur les états financiers ne s'étend pas aux autres informations et nous n'exprimons et n'exprimerons aucune forme d'assurance que ce soit sur ces informations. We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other information, we En ce qui concerne notre audit des états financiers, notre responsabilité consiste à lire les autres conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ informations identifiées ci-dessus et, ce faisant, à apprécier s'il existe une incohérence significative report. entre celles-ci et les états financiers ou la connaissance que nous avons acquise au cours de l'audit, We have nothing to report in this regard. et à demeurer attentifs aux éléments indiquant que les autres informations semblent comporter une The information, other than the financial statements and the auditors’ report thereon, included in a document likely to be anomalie significative. entitled “Annual Report” is expected to be made available to us after the date of this auditors’ report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are Nous avons obtenu les informations contenues dans le rapport de gestion déposé auprès des required to report that fact to those charged with governance. commissions des valeurs mobilières canadiennes compétentes à la date du présent rapport des auditeurs. Si, à la lumière des travaux que nous avons effectués sur ces autres informations, nous Responsibilities of Management and Those Charged with Governance for the Financial Statements concluons à la présence d'une anomalie significative dans ces autres informations, nous sommes tenus de signaler ce fait dans le rapport des auditeurs. Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that Nous n'avons rien à signaler à cet égard. are free from material misstatement, whether due to fraud or error. Nous nous attendons à obtenir les informations contenues dans un document susceptible de s'intituler In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going « Rapport annuel sur papier », autres que les états financiers et le rapport des auditeurs sur ces états, concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. après la date du présent rapport des auditeurs. Si, à la lumière des travaux que nous effectuerons sur ces autres informations, nous concluons à la présence d'une anomalie significative dans ces autres Those charged with governance are responsible for overseeing the Entity’s financial reporting process. informations, nous serons tenus de signaler ce fait aux responsables de la gouvernance. Auditors’ Responsibilities for the Audit of the Financial Statements Responsabilités de la direction et des responsables de la gouvernance à l’égard Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material des états financiers misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. La direction est responsable de la préparation et de la présentation fidèle des états financiers Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with conformément aux Normes internationales d’information financière (IFRS), ainsi que du contrôle Canadian generally accepted auditing standards will always detect a material misstatement when it exists. interne qu’elle considère comme nécessaire pour permettre la préparation d’états financiers exempts Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could d’anomalies significatives, que celles-ci résultent de fraudes ou d’erreurs. reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Lors de la préparation des états financiers, c’est à la direction qu’il incombe d’évaluer la capacité de l’entité à poursuivre son exploitation, de communiquer, le cas échéant, les questions relatives à la continuité de l’exploitation et d’appliquer le principe comptable de continuité d’exploitation, sauf si la direction a l’intention de liquider l’entité ou de cesser son activité ou si aucune autre solution réaliste ne s’offre à elle. Il incombe aux responsables de la gouvernance de surveiller le processus d’information financière de l’entité. 72 BTB ANNUAL REPORTAs part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment Page 2 and maintain professional skepticism throughout the audit. We also: Autres informations • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. La responsabilité des autres informations incombe à la direction. Les autres informations se Page 4 composent : The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud • Communicate with those charged with governance regarding, among other matters, the planned • du rapport de gestion déposé auprès des commissions des valeurs mobilières canadiennes may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. scope and timing of the audit and significant audit findings, including any significant deficiencies compétentes; in internal control that we identify during our audit. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate • • des informations contenues dans un document susceptible de s'intituler « Rapport annuel sur • Provide those charged with governance with a statement that we have complied with relevant in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity’s internal control. papier », autres que les états financiers et le rapport des auditeurs sur ces états. ethical requirements regarding independence, and communicate with them all relationships and Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related other matters that may reasonably be thought to bear on our independence, and where disclosures made by management. applicable, related safeguards. • Notre opinion sur les états financiers ne s'étend pas aux autres informations et nous n'exprimons et n'exprimerons aucune forme d'assurance que ce soit sur ces informations. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant En ce qui concerne notre audit des états financiers, notre responsabilité consiste à lire les autres doubt on the Entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we informations identifiées ci-dessus et, ce faisant, à apprécier s'il existe une incohérence significative are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such entre celles-ci et les états financiers ou la connaissance que nous avons acquise au cours de l'audit, disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a going et à demeurer attentifs aux éléments indiquant que les autres informations semblent comporter une concern. anomalie significative. The engagement partner on the audit resulting in this auditors’ report is Philippe Grubert. Page 4 Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and • Nous avons obtenu les informations contenues dans le rapport de gestion déposé auprès des whether the financial statements represent the underlying transactions and events in a manner that achieves fair commissions des valeurs mobilières canadiennes compétentes à la date du présent rapport des presentation. Montréal, Canada • Communicate with those charged with governance regarding, among other matters, the planned auditeurs. Si, à la lumière des travaux que nous avons effectués sur ces autres informations, nous Communicate with those charged with governance regarding, among other matters, the planned scope and timing of • scope and timing of the audit and significant audit findings, including any significant deficiencies March 11, 2020 concluons à la présence d'une anomalie significative dans ces autres informations, nous sommes tenus the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our in internal control that we identify during our audit. de signaler ce fait dans le rapport des auditeurs. audit. • Provide those charged with governance with a statement that we have complied with relevant Provide those charged with governance with a statement that we have complied with relevant ethical requirements • Nous n'avons rien à signaler à cet égard. ethical requirements regarding independence, and communicate with them all relationships and regarding independence, and communicate with them all relationships and other matters that may reasonably be thought other matters that may reasonably be thought to bear on our independence, and where to bear on our independence, and where applicable, related safeguards. applicable, related safeguards. Nous nous attendons à obtenir les informations contenues dans un document susceptible de s'intituler « Rapport annuel sur papier », autres que les états financiers et le rapport des auditeurs sur ces états, après la date du présent rapport des auditeurs. Si, à la lumière des travaux que nous effectuerons sur ces autres informations, nous concluons à la présence d'une anomalie significative dans ces autres informations, nous serons tenus de signaler ce fait aux responsables de la gouvernance. Responsabilités de la direction et des responsables de la gouvernance à l’égard des états financiers The engagement partner on the audit resulting in this auditors’ report is Philippe Grubert. La direction est responsable de la préparation et de la présentation fidèle des états financiers conformément aux Normes internationales d’information financière (IFRS), ainsi que du contrôle Montréal, Canada interne qu’elle considère comme nécessaire pour permettre la préparation d’états financiers exempts March 11, 2020 d’anomalies significatives, que celles-ci résultent de fraudes ou d’erreurs. Lors de la préparation des états financiers, c’est à la direction qu’il incombe d’évaluer la capacité de l’entité à poursuivre son exploitation, de communiquer, le cas échéant, les questions relatives à la continuité de l’exploitation et d’appliquer le principe comptable de continuité d’exploitation, sauf si la direction a l’intention de liquider l’entité ou de cesser son activité ou si aucune autre solution réaliste ne s’offre à elle. *CPA auditor, CA, public accountancy permit No. A120220 Il incombe aux responsables de la gouvernance de surveiller le processus d’information financière de l’entité. 73 *CPA auditor, CA, public accountancy permit No. A120220 2019 Consolidated Statements of Financial Position As at December 31, 2019 and 2018 (in thousands of CAD dollars) Notes 2019 $ 2018 $ 4 11 5 4 6 7 8 9 23 10 12 11 924,320 839,015 263 304 2,596 6,035 3,809 1,803 329 1,599 2,210 — 3,246 8,824 939,130 855,223 493,152 49,096 12,460 4,454 2,571 1,050 45 17,984 2,179 582,991 356,139 939,130 471,162 48,716 15,000 — 2,315 669 — 17,048 1,936 556,846 298,377 855,223 ASSETS Investment properties Property and equipment Derivative financial instruments Other assets Balance of sale Receivables Cash and cash equivalents Total assets LIABILITIES AND UNITHOLDERS’ EQUITY Mortgage loans payable Convertible debentures Bank loans Lease liabilities Class B LP Units Unit-based compensation Derivative financial instruments 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 11, 2020. Michel Léonard, Trustee Jocelyn Proteau, Trustee 74 BTB ANNUAL REPORT Consolidated Statements of Comprehensive Income For the years ended December 31, 2019 and 2018 (in thousands of CAD dollars) Notes 2019 $ 2018 $ 14 93,602 87,423 Operating revenues Rental revenues Operating expenses Public utilities and other operating expenses Property taxes and insurance Net operating income Financial income Expenses Financial expenses 10 10 15 Distributions - Class B LP Units Fair value adjustment – Class B LP Units Net adjustment to fair value of derivative financial instruments Net financial expenses Administration expenses Gain on disposition of property and equipment Gain on debt extinguishment Prepayment penalties Net change in fair value of investment properties, net of disposition expenses 4 Net income being total comprehensive income for the year See accompanying notes to consolidated financial statements. 20,558 22,147 42,705 19,666 20,120 39,786 50,897 47,637 475 76 25,115 224 430 1,340 27,109 23,141 131 (176) (229) 22,867 5,515 4,906 — — 176 (1,192) (133) — (33,309) 51,881 (20,072) 41,337 75 2019 Consolidated Statements of Changes in Unitholders’ Equity For the years ended December 31, 2019 and 2018 (in thousands of CAD dollars) Notes Unitholders’ contributions Cumulative distributions Cumulative comprehensive income Total Balance at January 1, 2019 Issuance of units, net of issuance costs Distributions to unitholders Comprehensive income Balance as at December 31, 2019 Balance at January 1, 2018 Issuance of units, net of issuance costs Distributions to unitholders Comprehensive income 13 13 13 13 (109,679) 133,825 298,377 274,231 30,798 — 305,029 — — (24,917) (134,596) — 305,029 (134,596) — — 133,825 51,881 185,706 30,798 (24,917) 304,258 51,881 356,139 244,115 30,116 — 274,231 (87,656) 92,488 248,947 — (22,023) (109,679) — — 92,488 41,337 30,116 (22,023) 257,040 41,337 Balance as at December 31, 2018 274,231 (109,679) 133,825 298,377 See accompanying notes to consolidated financial statements. 76 BTB ANNUAL REPORT Consolidated Statements of Cash Flows For the years ended December 31, 2019 and 2018 (in thousands of CAD dollars) Operating activities Net income for the year Adjustment for: Notes 2019 $ 2018 $ 51,881 41,337 Net change in fair value of investment properties and disposition expenses 4 (33,309) (20,072) Gain on debt extinguishment Gain on disposition of property and equipment Depreciation of property and equipment Unit-based compensation Straight-line lease adjustment Lease incentive amortization Financial income Net financial expenses Net change in non-cash operating items Net cash from operating activities Investing activities Increase in investment properties Acquisition of a business Net proceeds from disposition of investment properties Additions to property and equipment Disposition of Owner-occupied land and Building Net cash used in investing activities Financing activities Mortgage loans, net of financing expenses Repayment of mortgage loans Bank loans, net of financing expenses Repayment of bank loans Lease liability payments Net proceeds from issuance of convertible debentures Repayment of convertible debentures Net proceeds from issuance of units Net distributions to unitholders Net distributions – Class B LP units Interest paid Net cash (used in) from financing activities Net change 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. 12 14 14 15 4 4 4 13 10 — — 106 676 (703) 3,003 (475) 27,109 48,288 (1,065) 47,223 (133) (1,192) 90 355 (525) 3,223 (76) 22,867 45,874 (1,150) 44,724 (35,082) (104,262) — 16,556 (40) — (18,566) 17,841 (32,604) 14,560 (17,100) (42) 22,678 (23,000) 27,220 (21,565) (224) (23,442) (35,678) (7,021) 8,824 1,803 (43) 43,690 (214) 3,082 (57,747) 103,180 (66,292) 16,580 (19,710) — — — 27,239 (19,086) (131) (21,851) 19,929 6,906 1,918 8,824 77 2019 Notes to Consolidated Financial Statements For the years ended December 31, 2019 and 2018 (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 1411 Crescent Street, Suite 300, Montreal, Quebec, Canada. The consolidated financial statements of BTB for the years ended December 31, 2019 and 2018 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 consolidated financial statements have been prepared in accordance with International Financial Reporting Standard (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). This is the first set of the Trust’s annual financial statements in which IFRS 16 Leases and Amendments to IFRS 3, Business combinations have been applied. Changes to significant accounting policies are described in Note 3 (a) i) and ii). These consolidated financial statements were approved by the Board of Trustees on March 11, 2020. 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 which are measured at fair value: • Investment properties (including right-of-use assets); • Derivative financial instruments; • Unit-based compensation; • Class B LP Units. 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: 78 BTB ANNUAL REPORTi) Critical judgements in applying accounting policies The following are critical judgements that management has made in the process of applying accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements: Business combinations The Trust acquires entities that own real estate. At the time of acquisition, the Trust considers whether the acquisition represents the acquisition of a business, i.e., where an integrated set of activities is acquired in addition to the investment property. More specifically, the following criteria are considered: • The extent to which an acquired process (or group of processes) is considered substantive 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 and types of investment properties acquired. In addition, the Trust can elect for each transaction or other event to apply the optional test (the concentration test) to permit a simplified assessment of whether an acquired set of activities and assets is not a business. 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 in which case, 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. Partially owner-occupied property The Trust owns a property which is partially owner-occupied with the rest being held for rental income and capital appreciation. The Trust has determined that only an insignificant portion is owner-occupied and therefore the entire property has been accounted for as an investment property. In determining whether the portion is insignificant the Trust used a 10% threshold on the fair value of the property. 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 the Discounted Cash Flow Method and the Direct Capitalization method and in some cases, the Comparable method. 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. 79 2019The 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 Discounted Cash Flow method involves the projection of a series of periodic cash flows either to an operating investment property or a development investment property. To this projected cash flow series, an appropriate, market-derived discount rate is applied to establish an indication of the present value of the income stream associated with the investment property. The calculated periodic cash flow is typically estimated as gross income less vacancy and collection losses and less operating expenses/outgoings. A series of periodic net operating incomes, along with an estimate of the reversion/terminal/exit value anticipated at the end of the projection period, are discounted to present value. The aggregate of the net present values equals the estimated fair value of the investment property. The Direct Capitalization method converts anticipated future cash flow benefits in the form of rental income into present value. This approach requires estimation of normalized annual future cash inflows and application of investor yield or return requirements. 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 and if the entire contract is not measured at fair value with changes in fair value recognized in profit and loss. 3. Significant Accounting Policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. a) New accounting standards adopted On January 1, 2019, the Trust adopted IFRS 16 Leases (“IFRS 16”) and amendments to IFRS 3 Business combinations (“IFRS 3”). The impacts are described below. i) IFRS 16 The Trust adopted all of the requirements of IFRS 16 with a date of initial application of January 1, 2019. See note 3 (f) for a discussion of the impact of the adoption and the change in significant accounting policy. ii) Amendments to IFRS 3, Business combinations: On January 1, 2019, the Trust early adopted the amendments to IFRS 3, Business combinations, which clarified the definition of a business, with the objective of assisting entities in determining whether a transaction should be accounted for as a business combination or as an asset acquisition. These amendments also include an optional test (the concentration test) to permit a simplified assessment of whether an acquired set of activities and assets is not a business. These amendments were applied to transactions for which the acquisition date was on or after January 1st, 2019. 80 BTB ANNUAL REPORTb) 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 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 identifiable assets acquired and liabilities assumed, generally at fair value, 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. 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. Subsidiaries are consolidated 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. c) Financial instruments i) Recognition and initial measurement 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. If a financial asset or liability is not subsequently measured at fair value through profit or loss (FVTPL), the initial measurement includes transaction costs that are directly attributable to its acquisition or issue. Financial assets and liabilities are offset and the net amount is reported in the statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. ii) Classification and subsequent measurement The Trust classifies its financial assets and financial liabilities in the following measurement categories: • those to be measured subsequently at FVTPL; and • those to be measured at amortized cost. The classification of financial assets depends on the business model for managing the financial assets and the contractual terms of the cash flows, and on the Trust’s designation of such instruments. Financial liabilities are classified as those to be measured at amortized cost unless they are designated as those to be measured subsequently at FVTPL. Financial instruments are not reclassified subsequent to their initial recognition, unless the Trust identifies changes in its business model in managing financial assets and would reassess the classification of financial instruments. 81 2019The Trust’s business model objective is to collect contractual cash flows and the contractual cash flows are solely payments of principal and/or interest, and as such financial assets are generally subsequently measured at amortized cost using the effective interest method net of any impairment loss. All other financial assets, including derivatives, are subsequently measured at FVTPL. Financial assets measured at amortized cost comprise cash and cash equivalents, restricted cash, receivables and deposits. 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. Financial liabilities are generally subsequently measured at amortized cost using the effective interest method unless they are held for trading, they are derivatives or they have been designated as those to be measured subsequently at FVTPL. Financial liabilities measured at amortized cost comprise mortgage loans payable, convertible debentures, bank loans, trade and other payables and distributions payable to unitholders. The Trust derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. Derivative financial instruments are subsequently measured at fair value, and changes therein are recognized immediately in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payments of principal and interest. Embedded derivatives in financial liabilities are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract, a separate instrument with the same terms as the embedded derivative meets the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss. The following table summarizes the classification under IFRS 9: Asset/Liability Cash and cash equivalents Restricted cash Receivables Deposits Mortgage loans payable Convertible debentures Bank loans Trade and other payables Distribution payable to unitholders Derivative financial instruments Class B LP Units 82 Classification under IFRS 9 Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Fair value through profit and loss Fair value through profit and loss BTB ANNUAL REPORTiii) Impairment The Trust uses the expected credit loss (ECL) model for calculating impairment and recognizes expected credit losses as a loss allowance in the consolidated statement of financial position if they relate to a financial asset measured at amortized cost. For trade receivables, the Trust applies the simplified approach as permitted by IFRS 9 which requires lifetime expected credit losses be recognized from initial recognition of receivables. The carrying amount of these assets in the consolidated statement of financial position is stated net of any loss allowance. Impairment losses are recorded in the Trust administration expenses in the consolidated statement of comprehensive income with the carrying amount of the financial asset or group of financial assets reduced through the use of impairment allowance accounts. In periods subsequent to the impairment where the impairment loss has decreased, and such decrease can be related objectively to conditions and changes in factors occurring after the impairment was initially recognized, the previously recognized impairment loss would be reversed through the consolidated statement of comprehensive income. The impairment reversal would be limited to the lesser of the decrease in impairment or the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized, after the reversal. iv) 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. v) Convertible debentures The convertible debentures, which are considered financial liabilities, are convertible into Trust units. Since BTB’s trust units meet the definition of a financial liability, the conversion and redemption options are considered embedded derivatives. As the conversion and redemption options are not considered closely related to the debt contract host, the non-derivative and derivative components of the convertible debentures are separated upon initial recognition using the residual fair value approach. Subsequently, the non-derivative liability component is measured at amortized cost. vi) Class B LP Units The Class B LP Units issued by one of the limited partnerships that the Trust controls, are classified as “financial liabilities”, as they are exchangeable into Trust units on a one-for-one basis at any time at the option of the holder. The Class B LP Units are measured at fair value and presented as part of the liabilities in the statement of financial position, with changes in fair value recorded in the statement of comprehensive income. The fair value of the Class B LP Units is determined with reference to the market price of the Trust units on the date of measurement. Distributions on the Class B LP Units are recognized in the statement of comprehensive income when declared. d) Investment properties Investment properties are held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment properties are measured at cost on initial recognition and subsequently at fair value with any change therein recognized in profit or loss. The Trust capitalizes the costs incurred to increase 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 properties 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 properties. 83 2019The 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 properties and then considered in the fair value adjustment of the investment properties at the next reporting period. Should the use of an investment property change and be reclassified as property and equipment, its fair value at the date of reclassification would become its cost for subsequent accounting. e) Property and equipment i) Recognition and measurement Property and equipment is measured at cost less accumulated depreciation and accumulated impairment losses. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components). Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment, and are recognized within profit or loss on a net basis. ii) Depreciation Depreciation is calculated over the depreciable amount, which is the cost of an asset, less its residual value. Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows: Equipment, furniture and fixtures Rolling stock 3 - 10 years 3 - 5 years Depreciation methods, useful lives and residual values are reviewed at each annual reporting date and adjusted when appropriate. iii) Impairment The carrying amount of the Trust’s property and equipment is reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. An impairment loss is recognized if the carrying amount of an asset exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. f) Leases The Trust has initially adopted IFRS 16 Leases as at January 1, 2019. IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Trust, as a lessee, has recognized right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease payments. Lessor accounting remains similar to previous accounting policies. The Trust has applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognized in retained earnings at January 1, 2019. Accordingly, the comparative information presented for 2018 has not been restated – i.e. it is presented, as previously reported, under IAS 17 and related interpretations. The details of the changes in accounting policies are disclosed below. On transition to IFRS 16, the Trust elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts entered into or changed on or after January 1, 2019. The Trust also applied the exemption not to recognize right-of-use assets and lease liabilities for leases previously classified as an operating lease applying IAS 17 where the lease term at the transition date is less than 12 months. 84 BTB ANNUAL REPORTAs a result of the adoption of IFRS 16, the Trust updated its accounting policy for leases as follows: i) Significant accounting policies At contract inception, the Trust now assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration At inception or on reassessment of a contract that contains a lease component, the Trust allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices. ii) As a lessor The Trust leases out its investment property, including right-of-use assets. The Trust has classified these leases as operating leases. The accounting policies applicable to the Trust as a lessor are not different from those under IAS 17. The Trust is not required to make any adjustments on transition to IFRS 16 for leases in which it acts as a lessor. However, the Trust has applied IFRS 15 Revenue from Contracts with Customers to allocate consideration in the contract to each lease and non-lease component. iii) As a lessee Prior to the adoption of IFRS 16, leases of assets classified as finance leases were presented in the consolidated statements of financial position according to their nature. The interest element of the lease payment was recognized over the term of the lease based on the effective interest rate method and was included in financing expense. Payments made under operating leases were recognized in expenses on a straight-line basis over the term of the lease. Since the adoption of IFRS 16, the Trust recognizes a right-of-use asset and a lease liability at the lease commencement date. Right-of-use assets that meet the definition of investment property are presented within investment property. These right-of-use assets are initially measured at cost, and subsequently measured at fair value, in accordance with the Trust’s accounting policies. However, the Trust has elected not to recognize right-of-use assets and lease liabilities for some leases of low-value assets (e.g. equipment). The Trust recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Trust’s incremental borrowing rate for similar assets. Generally, the Trust uses its incremental borrowing rate as the discount rate. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised. iv) Consequences of transition Previously, the Trust classified its emphyteutic leases of land as operating leases under IAS 17 and included the related rent expense in operating costs. At transition, the related lease liabilities were measured at the present value of the remaining lease payments, discounted at the Trust’s incremental borrowing rate as at January 1, 2019 for a similar term as that of the lease obligations being measured (the weighted-average rate applied is 5%), giving rise to an amount of $3,900. Right-of-use assets for these emphyteutic leases, which are classified as investment property, were measured at their fair value on transition, which amount approximated the amount of the lease liability. The Trust also leases equipment that is included in one of its investment properties. This lease was classified as finance leases under IAS 17. For this finance lease, the carrying amount of the right-of-use asset and the lease liability as at January 1, 2019 were determined to be the carrying amount of the leased asset and lease liability under IAS 17 immediately before transition, i.e., an amount of $596. 85 2019The following table reconciles the operating lease commitments disclosed under IAS 17 as at December 31, 2018 and the lease liabilities recognized on January 1, 2019: Operating lease commitments as at December 31, 2018 as disclosed in the Trust’s consolidated financial statements Recognition exemption for short-term leases and leases of low-value items Impact of discounting using the incremental borrowing rate as at January 1, 2019 Finance lease liabilities previously recognized as at December 31 2018 under IAS 17 Lease liabilities recognized as at January 1st, 2019 January 1st, 2019 $ 15,012 (107) (11,005) 596 4,496 g) 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. h) Revenue recognition i) Rental revenue – lease components Rental revenue for lease components is recognized when the service has been rendered and the amount of expected consideration can be reliably estimated, which is over the term of the related lease. 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 straight-line lease adjustments are recognized within investment properties. 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 and are recognized as adjustments to the carrying amount of investment properties. 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. Cancellation fees or premiums received to terminate leases are recognized in profit and loss at the effective date of the lease termination and when the Trust no longer has any performance obligations under the related lease. ii) Rental revenue – non-lease components Leases generally provide for the tenants’ payment of maintenance expenses of common elements and other operating costs. These services are considered to be a single performance obligation rendered to tenants over time. These recoveries are accounted for as variable consideration and are recognized as operating revenues in the periods in which the services are provided. i) 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. 86 BTB ANNUAL REPORT j) 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 Trust units outstanding during the period. k) Financial income and financial expenses Financial income comprises interest income on funds invested and balance of sale. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Financial expenses comprise interest on mortgage loans payable, convertible debentures, bank loans, lease liabilities 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 and convertible debentures. Net financial expenses comprise financial expenses, distributions to Class B LP unitholders, fair value adjustment on Class B LP Units and changes in the fair value of derivative financial instruments. l) 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. m) Unit-based compensation i) 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 units, 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. ii) 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 units, and are revalued at settlement date. Any changes in fair value are recognized as compensation expense in profit or loss. iii) 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 units, 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. n) 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. 87 2019o) Fair value measurement The Trust measures financial instruments, such as derivatives, and non-financial assets, such as investment properties (including right-of-use assets), at fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • In the principal market for the asset or liability, or • In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Trust. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability assuming that market participants act in their economic best interests. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Trust uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: • Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities • Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable • Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognized in the financial statements on a recurring basis, the Trust determines whether transfers have occurred between Levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. For the purpose of fair value disclosures, the Trust has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. 4. Investment Properties For the years ended December 31, Balance beginning of year Initial recognition of right-of-use assets Acquisitions of investment properties (note 4(a)) Business combination Dispositions of investment properties (note 4(b)) Capital expenditures Capitalized leasing fees Capitalized lease incentives Lease incentives amortization Straight-line lease adjustment Net changes in fair value of investment properties (note 4 (c)) Balance end of year 88 2019 $ 839,015 3,900 75,658 — (35,950) 5,491 1,301 3,093 (3,004) 703 34,113 924,320 2018 $ 751,110 — 97,114 7,500 (45,744) 4,341 1,636 3,614 (3,223) 525 22,142 839,015 BTB ANNUAL REPORTThe 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, 2019, external appraisals were obtained for investment properties with an aggregate fair value of $581,420 (December 31, 2018 - $548,940) and management’s internal valuations were used for investment properties with an aggregate fair value of $342,900 (December 31, 2018 - $290,075). 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, 2019 Capitalization rate Retail Office Industrial Mixed-use 6.00% - 7.75% 5.75% - 7.50% 5.75% - 8.50% 5.00% - 8.25% Terminal capitalization rate 6.25% - 7.25% 6.25% - 7.50% 6.00% - 7.25% 5.25% - 7.25% Discount rate As at December 31, 2018 Capitalization rate 7.25% - 7.75% 6.75% - 8.00% 6.50% - 8.00% 6.25% - 8.00% 6.25% - 7.75% 6.00% - 8.50% 5.75% - 8.50% 5.00% - 7.25% Terminal capitalization rate 6.25% - 7.75% 6.50% - 7.50% 6.25% - 8.25% 5.25% - 7.50% Discount rate 7.25% - 8.50% 7.00% - 8.00% 6.75% - 9.00% 6.25% - 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 $ 1,001,900 962,018 924,320 890,382 858,558 Change in fair value $ 77,580 37,698 — (33,938) (65,762) 89 2019 a) Acquisitions The fair value of the assets and liabilities recognized in the consolidated statement of financial position on the date of the acquisition during years ended December 31, were as follows: i) Asset Acquisitions in 2019 Acquisition date Property type Location Interest acquired Industrial St-Laurent, QC Mixed-use St-Hilaire, QC Retail St-Bruno, QC % 100 100 100 May 2019 June 2019 June 2019 Transaction costs Total ii) Asset acquisitions in 2018 Acquisition date Property type Location Interest acquired February 2018 Retail Delson, QC Mixed-use Montréal, QC Retail Office Lévis, QC Laval, QC July 2018 July 2018 December 2018 Transaction costs Total % 100 100 100 100 Fair value recognized on acquisition Investment properties, including transaction costs $ 11,790 19,238 42,931 Mortgage loan $ (8,050) (12,700) (28,000) Receivable / (Trade and other payables), including transaction costs $ 33 301 (32) 1,699 — 75,658 (48,750) (1,699) (1,397) Total cash consideration paid $ 3,773 6,839 14,899 — 25,511 Fair value recognized on acquisition Investment properties, including transaction costs Balance of purchase price $ $ 1,865 (1,399)(1) 25,200 42,600 24,478 2,971 97,114 — — — — (1,399) Receivable / (Trade and other payables), including transaction costs $ — (121) 349 (201) (2,971) (2,944) Total cash consideration paid $ 466 25,079 42,949 24 277 — 92,771 (1) The balance of purchase price is comprised of one mortgage loan payable bearing interest at 4.00%, payable monthly, which matured in December 2018. iii) 2018 Acquisition of a subsidiary accounted as a business combination On May 30, 2018, the Trust acquired 25% of the interest in Complexe Lebourgneuf-Phase II joint operation. As a result, the Trust’s interest in Complexe Lebourgneuf-Phase II increased from 75% to 100% and the Trust obtained control of Complexe Lebourgneuf-Phase II. 90 BTB ANNUAL REPORT b) Dispositions i) 2019 Asset dispositions Disposition date Property type Location Gross proceeds Mortgage Assumption Balance of sale February 2019 March 2019 May 2019 Retail Retail Retail Delson, QC Delson, QC Montreal, QC August 2019 Office Saguenay, QC Transaction costs [(note 4 (c)] Total $ $ $ 22,500 (12,533) (6,000) 1,950 7,100 4,400 — — — — — — — — 35,950 (12,533) (6,000) Receivable / (Trade and other payables), including transaction costs $ (20) (5) (31) (1) Net proceeds $ 3,947 1,945 7,069 4,399 (804) (861) (804) 16,556 The balance of sale consists of a loan, expiring on January 31, 2024, bearing interest at 7% for the first 3 years, at 7.50% for the 4th year, and at 8% for the 5th year. The balance of sale as at December 31, 2019 is $6,035 and includes $35 of accrued interest. ii) 2018 Asset dispositions Disposition date Property type Location Gross proceeds Receivable / (Trade and other payables), including transaction costs January 2018 February 2018 February 2018 July 2018 August 2018 October 2018 Transaction costs [(note 4 (c)] Total Industrial Industrial Dorval, QC Cornwall, ON Retail Retail Retail Drummondville, QC Thetford Mines, QC Chambly, QC $ 5,650 490 3,075 475 5,604 Mixed-use Sherbrooke, QC 30,450 — 45,744 $ (1) (6) (31) — 32 (35) (2,013) (2,054) Net proceeds $ 5,649 484 3,044 475 5,636 30,415 (2,013) 43,690 91 2019 c) Net changes in fair value of investment properties, net of disposition expenses Year ended December 31, 2019 2018 Net changes in fair value of investment properties (note 4) Business combination expenses Disposition expenses (note 4 (b)) 34,113 — (804) 33,309 22,142 (57) (2,013) 20,072 Net changes in fair value of investment properties includes the net changes in fair value of right-of-use assets related to the investment properties to which a lease is attached. The disposition expenses include mainly commissions and debt prepayment penalties on mortgage loans related to disposed properties. 5. Other Assets As at December 31, Prepaid expenses Deposits Total 6. Receivables As at December 31, Rents receivable Allowance for expected credit losses Net rents receivable Unbilled recoveries Other receivables Total 7. Mortgage Loans Payable 2019 $ 1,921 675 2,596 2019 $ 2,801 (716) 2,085 776 948 3,809 2018 $ 1,366 844 2,210 2018 $ 2,556 (567) 1,989 430 827 3,246 Mortgage loans payable are secured by immovable hypothecs on investment properties having a fair value of approximately $913,620 as at December 31, 2019 (December 31, 2018 – $822,945). As at December 31, Fixed rate mortgage loans payable Floating rate mortgage loans payable Unamortized fair value assumption adjustments Unamortized financing expenses Mortgage loans payable Short-term portion Weighted average interest rate Weighted average term to maturity (years) Range of annual rates 92 2019 $ 387,029 108,218 628 (2,723) 493,152 87,589 3.92% 5.12 2018 $ 370,988 102,217 839 (2,882) 471,162 70,086 3.99% 5.56 2.77% - 6.80% 2.77% - 6.80% BTB ANNUAL REPORTAs at December 31, 2019, the mortgage loan scheduled repayments are as follows: 2020 2021 2022 2023 2024 Thereafter Unamortized fair value assumption adjustments Unamortized financing expenses Scheduled repayments $ 14,574 13,369 11,750 10,311 8,253 36,582 94,839 Principal maturity $ 73,015 63,846 27,882 18,697 76,529 140,439 400,408 Total $ 87,589 77,215 39,632 29,008 84,782 177,021 495,247 628 (2,723) 493,152 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 11). The following table presents relevant information on interest rate swap agreements: Transaction date Original principal amount Effective fixed interest rate Settlement basis Maturity date Outstanding amount As at December 31, 2019 As at December 31, 2018 March 2013 June 2016 November 2017 November 2017 Total $ 7,150 13,000 23,200 23,075 66,425 8. Convertible Debentures % 4.12 3.45 3.8825 3.905 Monthly Quarterly April 2023 June 2026 Monthly November 2027 Monthly December 2027 $ 5,391 11,628 23,098 21,943 62,060 $ 5,684 12,020 23,200 22,524 63,428 As at December 31, 2019, the Trust had two series of subordinated, convertible, redeemable debentures outstanding. Capital 26,700 24,000 Series F Series G Interest rates Coupon Effective Unit conversion price Interest payments Maturity % 7.15 6.00 % 8.47 7.30 $ 5.65 5.42 Semi-annual December 2020 Semi-annual October 2024 93 2019 For both the Series F and the Series G subordinated, convertible, redeemable debentures, the fair value of the conversion and redemption options liability component at initial issuance was determined to be nil. The accretion of the non-derivative liability component of the subordinated convertible debentures, when applicable, 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, 2019 Non-derivative liability component upon issuance Unamortized financing expenses Series E Series G $ $ 26,700 (336) 24,000 (1,268) Total $ 50,700 (1,604) Non-derivative liability component 26,364 22,732 49,096 Conversion and redemption options liability component at fair value 45 — 45 As at December 31, 2018 Non-derivative liability component upon issuance Accretion of non-derivative liability component Unamortized financing expenses Non-derivative liability component Conversion and redemption options (asset) liability component at fair value Series E 22,690 244 22,934 (273) 22,661 (48) Series E Series F $ $ Total $ 49,390 244 49,634 (918) 48,716 26,700 — 26,700 (645) 26,055 3 (45) In February 2013, the Trust issued Series E subordinated convertible, redeemable, unsecured debentures bearing 6.90% interest payable semi-annually and initially maturing in March 2020, in the amount of $23,000. The debentures were redeemed for their nominal value on November 1, 2019. The excess of the redemption amount over the carrying amount, which totalled $117 and would have otherwise been amortized over time, was charged to net financial expenses on November 1, 2019 (see note 15). 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”). 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. Series G In October 2019, the Trust issued Series G subordinated convertible, redeemable, unsecured debentures bearing 6.00% interest payable semi-annually and maturing in October 2024, in the amount of $24,000. The debentures are convertible at the holder’s option at any time before October 2024, at a conversion price of $5.42 per unit (“Series G Conversion Price”). 94 BTB ANNUAL REPORT These debentures are not redeemable before October 31, 2024, except in the case of a change in control. As of October 31, 2022, but before October 31, 2023, 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 October 31, 2023, but before October 31, 2024, 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. 9. 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, 2019, $10,200 was due under the acquisition line of credit (December 31, 2018 – $15,000). 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, 2019, $2,260 was due under the operating credit facility (December 31, 2018 – nil). The acquisition line of credit and the operating credit facility are secured by an immoveable first rank hypothec on two properties having a fair value of $6,375 and by an immoveable second rank hypothec on six properties having a fair value of $131,625. 10. Class B LP Units Units outstanding, beginning of year Issuance of Class B LP units - Acquisitions Exchange into Trust units Fair value adjustment Units outstanding, end of year Year ended December 31, 2019 Year ended December 31, 2018 Units 532,265 — (35,000) 497,265 $ 2,315 — (174) 430 2,571 Units — 532,265 — 532,265 $ — 2,491 — (176) 2,315 The Class B LP Units are exchangeable into Trust units on a one-for-one basis at any time at the option of the holder. During the year ended December 31, 2019, 35,000 Class B LP Units were exchanged into Trust units. The Class B LP Units are entitled to distributions equal to distributions declared on Trust units, on a one-to-one basis. Distributions on Class B LP Units are recognized in the statement of comprehensive income when declared. Monthly distributions of $0.035 per Class B LP Unit were declared for a total amount of $224 during the year ended December 31, 2019 ($131 for the year ended December 31, 2018). 11. 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, balance of sale, trade and other payables and distributions payable to unitholders, which approximated their carrying amount as at December 31, 2019 and December 31, 2018 because of their short- term maturity or because they bear interest at current market rates. 95 2019As at December 31, 2019 Measured at fair value Conversion and redemption options of convertible debentures (note 8) Interest rate swap asset Class B LP Units (note 10) For which fair values are disclosed Mortgage loans payable (note 7) Convertible debentures, including their conversion and redemption features (note 8) Bank loans (note 9) As at December 31, 2018 Measured at fair value Conversion and redemption options of convertible debentures (note 8) Interest rate swap asset Class B LP Units (note 10) For which fair values are disclosed Mortgage loans payable (note 7) Convertible debentures, including their conversion and redemption features (note 8) Bank loans (note 9) Carrying amount $ 45 (304) 2,571 Carrying amount $ (45) (1,554) 2,315 Level 1 Level 2 Level 3 Fair value $ — — 2,571 $ — (304) — 493,152 — 506,430 49,141 12,460 52,827 — — 12,460 Level 1 Level 2 Level 3 $ — — 2,315 $ — (1,554) — 471,162 — 459,633 48,671 15,000 49,946 — — 15,000 $ 45 — — — — — Fair value $ (45) — — — — — The fair value of mortgage loans payable was calculated by discounting cash flows from future payments of principal and interest using the period end market rate for various loans with similar risk and credit profiles. The period end market rates have been estimated by reference to published mortgage rates by major financial institutions for similar maturities. The fair value of convertible debentures, including their conversion and redemption features, was determined with reference to the last quoted trading price preceding the period end. The fair value of the Class B LP Units is determined with reference to the market price of the Trust units as at 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 market price of the Trust units 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. 96 BTB ANNUAL REPORT The following tables provide a reconciliation of Level 3 fair value measurements on the consolidated statements of financial position: Year ended December 31, 2019 Balance beginning of year Change for the year recognized in profit or loss under Net adjustment to fair value of derivative financial instruments Balance end of year Conversion and redemption options of convertible debentures $ (45) 90 45 Conversion and redemption options of convertible debentures Year ended December 31,2018 Balance beginning of year Change for the year recognized in profit or loss under Net adjustment to fair value of derivative financial instruments Balance end of year 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, 2019: Volatility sensitivity Increase (decrease) (0.50%) December 31, 2019 0.50% Conversion and redemption options of convertible debentures $ (41) 45 140 $ 1 (46) (45) Volatility % 10.02 10.52 11.02 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. 12. Unit-based Compensation a) 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 2019 2018 Deferred units Deferred units 37,055 18,071 4,516 59,642 12,330 22,173 2,552 37,055 97 2019 As at December 31, 2019, the liability related to the plan was $306 (December 31, 2018 - $153). The related expense recorded in profit or loss amounted to $153 for the year ended December 31, 2019 ($97 for the year ended December 31, 2018). b) 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, 2019, the liability related to the plan was $58 representing a total of 11,194 units to issue (December 31, 2018 - $41, representing a total of 9,253 units to issue). The related expense recorded in profit and loss amounted to $61 for the year ended December 31, 2019 (for the year ended December 31, 2018 - $40). The 11,194 units related to 2019 purchases were issued in February 2020 (9,253 units related to 2018 purchases issued in February 2019). c) 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 years ended December 31, Outstanding, beginning of year Granted Cancelled Settled Outstanding, end of year 2019 2018 Restricted units Restricted units 138,919 82,622 (1,818) (54,711) 165,012 115,628 72,819 (18,815) (30,713) 138,919 As at December 31, 2019, the liability related to the plan was $686 (December 31, 2018 - $475). The related expense recorded in profit and loss amounted to $462 for the year ended December 31, 2019 (for the year ended December 31, 2018 - $218). 13. 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 trust units are redeemable at the option of the holder, however they are presented as equity in accordance with IAS 32. In June 2019, the Trust completed a public issue of 6,157,100 trust units, including the over-allotment option, for total net proceeds of $27,220. In June 2018, the Trust completed a public issue of 6,250,250 trust units, including the over-allotment option, for total net proceeds of $27,239. 98 BTB ANNUAL REPORTTrust units issued and outstanding are as follows: For the years ended December 31, Units 2019 $ Units Trust units outstanding, beginning of year 55,317,723 274,231 48,423,118 Issue pursuant to a public issue Trust unit issuance costs 6,157,100 28,754 6,250,250 — (1,534) — 2018 $ 244,115 28,751 (1,512) Issue pursuant to the distribution reinvestment plan (a) Issue pursuant to the employee unit purchase plan (note 12 (b)) Issue pursuant to the restricted unit compensation plan (note 12 (c)) Class B LP units exchange into Trust units Trust units outstanding, end of year a) Distribution reinvestment plan 61,474,823 301,451 54,673,368 271,354 677,771 9,253 54,711 35,000 3,110 603,951 2,691 43 251 174 9,691 30,713 — 44 142 — 62,251,558 305,029 55,317,723 274,231 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 Trust unit 14. Rental Revenues For the years ended December 31, Base rent and other lease generated revenues Lease cancellation fees Property tax and insurance recoveries Operating expenses recoveries and other revenues Lease incentive amortization Straight-line lease adjustment 2019 $ 24,917 0.42 2019 $ 56,844 1,062 18,434 76,340 19,562 (3,003) 703 93,602 2018 $ 22,023 0.42 2018 $ 53,384 1,482 17,200 72,066 18,055 (3,223) 525 87,423 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. The Trust has classified these leases as operating leases, because they do not transfer substantially all of the risks and rewards incidental to the ownership of the assets. 99 2019Future minimum base rentals receivable under non-cancellable operating leases as at December 31, 2019 are as follows: Within one year Beyond one year but within two years Beyond two year but within three years Beyond three year but within four years Beyond four year but within five years Beyond five years 15. Net Financial Expenses For the years ended December 31, Interest on mortgage loans payable Interest on convertible debentures Interest on bank loans Interest on lease liabilities (Note 23) Other interest expense Accretion of non-derivative liability component of convertible debentures Accretion of effective interest on mortgage loans payable and convertible debentures Distributions - Class B LP Units Fair value adjustment – Class B LP Units Impact of early redemption of convertible debenture series E (note 8) Net adjustment to fair value of derivative financial instruments 16. Expenses by Nature For the years ended December 31, Depreciation Employee compensation and benefits expense 17. Earnings per Unit 2019 $ 57,272 50,681 42,623 35,162 30,050 86,608 302,396 2018 $ 17,512 3,496 929 — 116 49 1,039 131 (176) — (229) 22,867 2018 $ 90 6,527 2019 $ 18,941 3,577 915 271 173 43 1,078 224 430 117 1,340 27,109 2019 $ 106 7,367 BTB’s trust units being puttable financial instruments presented as equity in accordance with IAS 32, the Trust is not required to report a profit or loss per trust unit figure on its consolidated statements of comprehensive income. However, for disclosure purposes only, the Trust has determined basic earnings per unit using the same basis that would apply in accordance with lAS 33, Earnings per Share. Net earnings per unit are calculated based on the weighted average number of trust units outstanding as follows: For the years ended December 31, Net income Weighted average number of trust units outstanding – basic Earnings per unit – basic 2019 $ 51,881 2018 $ 41,337 59,098,137 52,120,760 0.88 0.79 100 BTB ANNUAL REPORT 18. Capital and Financial Risk Management This note presents information about the Trust’s management of capital and the Trust’s exposure to financial risk and its objectives, policies and processes for measuring and managing risk. a) Capital Management The Trust’s capital consists of contributions by unitholders, convertible debentures, mortgage loans and bank loans, excluding issuance costs. In managing its capital, the Trust’s objectives are to ensure that it has adequate resources for its operations and development, while maximizing returns for unitholders and maintaining a balance between debt and equity. The Trust manages its capital structure based on changes in its operations, the economic climate and the availability of capital. The Trust’s capital is as follows: As at December 31, 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 11) 2019 $ (1,803) 495,247 50,700 10,200 554,344 939,130 804 (1,803) 938,131 2019 % 59.1 52.8 2018 $ (8,824) 473,205 49,700 15,000 529,081 855,223 698 (8,824) 847,097 2018 % 62.5 55.9 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. 101 2019 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 establishes an allowance for expected credit losses that represents its estimate of lifetime expected credit losses to be incurred in respect of its trade receivables. As at December 31, 2019, overdue rent receivable amounted to $1,959 (December 31, 2018 - $1,794), for which an allowance for expected credit losses of $716 (December 31, 2018 - $567) 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 equivalents with Canadian financial institutions with high credit ratings. Credit ratings are actively monitored and these financial institutions are expected to meet their obligations. The Trust is also exposed to credit risk with respect to derivative financial instruments that are in an unrealized gain position, for which the credit exposure is equal to the positive fair value of the outstanding contracts. The Trust only enters into derivative financial instruments with Canadian financial institutions with high credit ratings. ii) Interest rate risk Interest rate risk reflects the risk of changes in the fair value or future cash flows of a financial instrument because of fluctuations in market interest rates. Except for five mortgage loans outstanding of $46,158 as at December 31, 2019, all other mortgage loans payable and convertible debentures bear interest at fixed rates or are covered by a floating-to-fixed 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 $4,616 on the Trust’s comprehensive income for the year ended December 31, 2019. 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; • 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, 2019, the Trust was in compliance with all the covenants to which it was subject except for one mortgage loan’s debt service coverage ratio. The mortgage loan is maturing in July 2020 and is therefore already included in the 2020 scheduled repayments. The balance of the mortgage loan as at December 31, 2019 was $18,000. The Trust has always met the other mortgage loan provisions and has never been late on a monthly payment. The Trust believes that the mortgage loan will be refinanced at maturity for the entire amount outstanding. 102 BTB ANNUAL REPORTThe Trust’s cash position is regularly monitored by management. The following are the contractual maturities of financial liabilities, including estimated interest payments: As at December 31, 2019 Estimated payment schedule Carrying amount Total contractual cash flows 2020 2021 2022 2023 2024 $ $ $ 17,984 18,110 18,028 2,179 4,454 12,460 2,179 10,594 12,460 2,179 322 12,460 $ 67 — 330 — $ 9 — 332 — $ 6 — 334 — $ — — 294 — 2025 and thereafter $ — — 8,982 — 542,248 579,325 637,567 135,746 93,462 680,910 168,735 93,859 53,371 53,712 41,021 117,764 41,361 118,058 196,203 205,185 Trade and other payables Distributions payable to unitholders Lease liabilities Bank loans Mortgage loans payable and convertible debentures As at December 31, 2018 Estimated payment schedule Carrying amount Total contractual cash flows 2019 2020 2021 2022 2023 2025 and thereafter $ $ $ $ $ $ $ 17,048 17,140 16,385 256 168 124 124 1,936 15,000 1,936 1,936 15,000 15,000 — — — — — — — — $ 83 — — 519,878 553,862 614,913 90,723 123,444 81,762 48,349 30,234 240,401 648,989 124,044 123,700 81,930 48,473 30,358 240,484 Trade and other payables Distributions payable to unitholders Bank loans Mortgage loans payable and convertible debentures 19. Subsidiaries and Joint Arrangements a) Subsidiaries The principal entities included in the Trust’s consolidated financial statements are as follows: Entity BTB, Acquisition and operating Trust (“BTB A&OT”) BTB Real Estate Management Inc. Immeuble BTB Crescent Sainte-Catherine Inc Cagim Real Estate Corporation (“CREC”) Type Trust Corporation Corporation Corporation Lombard SEC Limited Partnership Place d’affaire Lebourgneuf Phase II, SENC (“PAL II”) General Partnership Société immobilière Cagim, SEC Limited Partnership Relationship 100% owned by BTB Real Estate Investment Trust 100% owned by BTB A&OT 100% owned by BTB A&OT 100% owned by BTB A&OT 99.9% owned by BTB A&OT 0.1% owned by CREC 99.9% owned by BTB A&OT 0.1% owned by CREC 70.4% owned by BTB A&OT 29.5% owned by PAL II 0.1% owned by CREC 103 2019 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 Location Terrebonne, QC Gatineau, QC 2019 % 50 50 2018 % 50 50 The consolidated financial statements include the Trust’s proportionate share of the assets, liabilities, revenues and expenses of these joint arrangements. Summarised financial information is as follows: As at and for the years ended December 31, Assets Liabilities Revenues Expenses 20. Operating Segments 2019 $ 20,007 10,141 2,372 1,420 2018 $ 19,917 10,523 605 110 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, 2019 Investment properties Rental revenue from properties Net operating income Year ended December 31, 2018 Investment properties Rental revenue from properties Net operating income Retail $ 265,487 26,935 16,102 249,370 26,266 15,925 Office Industrial Mixed-use $ $ $ Total $ 395,425 43,206 21,190 372,190 42,507 20,005 158,720 12,852 8,236 130,305 9,785 7,226 104,688 924,320 10,609 5,369 93,602 50,897 87,150 8,865 4,481 839,015 87,423 47,637 104 BTB ANNUAL REPORT21. Supplemental Cash Flow Information The following table provides a reconciliation of movements of liabilities to cash flows arising from financing activities Convertible debentures Mortgage loans payable Year ended December 31,2019 Balance beginning of year Mortgage loans, net of financing costs Repayment of mortgage loans Asset acquisitions mortgage assumption Asset dispositions mortgage assumption Net proceeds from issuance of convertible debentures Repayment of convertible debentures Fair value assumption adjustments and financing costs amortization Accretion of non-derivative liability component Impact of early redemption of convertible debenture series E Balance end of year 22. 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 $ 48,716 — — — — 22,678 (23,000) 542 43 117 49,096 2019 $ 2,191 604 2,795 $ 471,162 17,841 (32,604) 48,750 (12,533) — — 536 — — 493,152 2018 $ 2,142 333 2,475 Key management personnel are comprised of the Company’s executive officers. 105 2019 23. Leases, Commitments and Contingencies a) Leases Lease liabilities As at December 31, Maturity analysis – contractual undiscounted cash flows Within one year Beyond one year but within five years Beyond five years Total undiscounted lease liabilities Lease liabilities included in the statement of financial position Current Non-current Amounts recognised in profit and loss and statement of cash flow As at December 31, Profit and loss Interest on lease liabilities (Note 17) Expenses relating to leases of low-value assets, excluding short-term leases of low- value assets Statement of cash flow Total cash outflow for leases Finance lease as lessee – 2018 2019 $ 322 1,290 8,982 10,594 4,454 105 4,349 2019 $ 271 105 418 The annual future payments required under finance leases expiring between 2020 and 2025 are as follows: As at December 31, 2018 Future minimum lease payments Interest Present value of minimum lease payments Within one year Beyond one year but within five years Beyond five years $ 124 496 83 703 $ 33 72 2 107 $ 91 424 81 596 The present value of the minimum lease payments was recorded in Trade and other payables. 106 BTB ANNUAL REPORT b) Litigation The Trust is involved in litigation and claims which arise from time to time in the normal course of business. These litigation 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. 24. Subsequent Event In January 2020, the Trust completed the sale of an industrial property in Ingersoll (Ontario) for $13,300. As part of the transaction, the buyer assumed a mortgage loan of $9,068 discharging the Trust from is obligation under the mortgage loan. In February 2020, the Trust completed the purchase of an office property in Ottawa (Ontario) for $21,750. As part of the transaction, the Trust assumed a mortgage loan of $13,474. In February 2020, the Trust completed the sale of an industrial property in Montreal (Quebec) for $9,250. The Trust used $6,100 from the proceeds to repay outstanding mortgage loan. 25. Comparatives Figures Certain comparative figures have been reclassified to conform to the current year’s presentation. 107 2019Corporate Information Board of Trustees Jocelyn Proteau(2) Jean-Pierre Janson(2) Fernand Perreault(3) Chairman of the Board of Trustees and trustee Vice President of the Board of Trustees and trustee President of the Investment Committee and trustee Michel Léonard Luc Martin(1) President and Chief Executive Officer and Trustee President of the Audit Committee and trustee Lucie Ducharme(1)(2) President of the Human Resources and Governance Committee and trustee 108 BTB ANNUAL REPORTExecutive Team Luc Lachapelle(1) Secretary of the Board of Trustees and trustee Michel Léonard President and Chief Executive Officer and trustee Sylvie Lachance(3) Trustee Peter Polatos(3) Trustee Benoit Cyr, CPA, CA, MBA Vice-President and Chief Financial Officer Paolo Valente Vice President, Leasing Sylvie Laporte Vice President, Property Management (1) Member of the Audit Committee (2) Member of the Human Resources and Governance Committee (3) Member of the Investment Committee 109 2019At BTB, we encourage all our staff and tenants to uphold the 3Rs: reduce, reuse, recycle. Unitholders Information Head office BTB Real Estate Investment Trust 1411 Crescent, Suite 300 Montreal, Quebec, H3G 2B3 T 514 286 0188 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.F BTB.DB.G 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 2019, 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 8, 2020 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. P O U R P O SITIO N SEULE M EN T 2019 ANNUAL REPORT btbreit.com

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