BTB Real Estate Investment Trust Annual Report 2020

Plain-text annual report

2020 Annual Report Our values, your added value. s ’ B T B s e u l a V Mission Developing sustainable relationships for our clients’ commercial real estate needs and investments. At BTB, our two main clients are our investors and our tenants, who both have specifi c demands and requirements. On the investors side, they are looking to maximize their returns and by doing so, they entrust BTB to proactively ensure that through our management philosophy, we generate stable growth, expand our real estate assets and in turn, optimize their value, therefore maximizing the long-term value of our assets. BTB Reit 2020 Annual Report Page 3 In terms of our tenants, BTB prides itself in ensuring a hands-on, tailored approach to respond to our clients’ needs, and this in a timely manner. At the forefront, our clients expect quality customer service and impeccable building maintenance and to meet these needs, BTB’s property management philosophy and customer-service on all levels of the organization is centered around the idea that at BTB, our tenants are not simply offi ce or commercial occupants. They are clients, and our mission of client satisfaction rotates around the idea that our business is based on attracting and retaining our clients and this, on a long-term basis. To ensure the achievement of our two-fold client mission, BTB relies on the implementation of the following core values: Teamwork Integrity Leadership Respect People sharing ideas and fostering an environment of collectivity allows for quicker problem solving, better results and fostering an environment for innovative ideas. Our ethical principles of honesty are ingrained within our values. Without integrity and transparency, we would not be able to ensure an honest relationship with our clients. As we aim to be at the forefront of our industry, we invest in goal-oriented employees who are motivated and can take charge in innovative projects to meet our client’s requirements. We strive to always ensure a work environment that is positive regardless of age, race, sex, gender, religion, or sexual orientation. We believe that we are all capable of achieving our missions if we are all accepting of one another by showing compassion and considera tion for others. Employee kitchen space, Demers Beaulne Accounting Cabinet 3111 Saint-Martin Blvd, Laval Page 4 s t h g i l h g i H It goes without saying that the past year It goes without saying that the past year demanded responsiveness, agility, and demanded responsiveness, agility, and adaptation. As these three key elements adaptation. As these three key elements were already part of BTB’s DNA it allowed were already part of BTB’s DNA it allowed us, in addition to our strong corporate us, in addition to our strong corporate values, to adapt to our new normal within values, to adapt to our new normal within a quick time frame. a quick time frame. Throughout this year, our fellow Throughout this year, our fellow collaborators demonstrated their collaborators demonstrated their comprehensiveness, conciliation, comprehensiveness, conciliation, and accepted sacriﬁ ces. Our teamwork and accepted sacriﬁ ces. Our teamwork and collaboration with our suppliers and collaboration with our suppliers greatly contributed to this years’ success. greatly contributed to this years’ success. As the saying goes: “It’s when the tough As the saying goes: “It’s when the tough times come that you know who your true times come that you know who your true friends and allies really are”. This year friends and allies really are”. This year enabled us to validate this saying on enabled us to validate this saying on a company-wide scale. It also showed a company-wide scale. It also showed and reminded us of the importance to and reminded us of the importance to surround ourselves well and to wisely surround ourselves well and to wisely choose our collaborators. choose our collaborators. Our results, for the fourth quarter of Our results, for the fourth quarter of 2020 are solid and positive despite 2020 are solid and positive despite the ﬁ rst couple of months of the quarter the ﬁ rst couple of months of the quarter and we are proud to report the following and we are proud to report the following highlights. highlights. Employee lounge space, BKOM Studios 815-825 Lebourgneuf Blvd, Quebec City BTB Reit 2020 Annual Report Page 5 Properties64 $92.9M Rental income $927M Total assets 92.2% Occupancy rate 52.9% Mortgage debt ratio 24.2M Recurring funds from operations (FFO) 22.1M Recurring adjusted funds from operations (AFFO) 5.3M Number of square feet Geographic Locations Our assets are located within the primary markets of the Greater Montréal Area, the Greater Quebec City Area as well as the Greater Ottawa Area. BTB focuses on primary markets due to the centrality and strategic locations of the assets within established neighbourhoods and business hubs. By concentrating our geographic spread within these regions, BTB is able to offer to its client’s various locations within 3 key areas in Eastern Canada, therefore offering various solutions to our clients. Greater Montréal area 53.5 % Greater Quebec city 25.9 % Ottawa area 20.6 % Montréal Ontario Quebec city BTB is focused in the greater area of the island of Montréal, mainly concentrating our assets on the island. BTB’s ﬁrst acquisition in 2006 was a retail property in Laval, still owned by BTB today. BTB has properties in the following primary areas: • Downtown Montréal • Saint-Laurent • Laval • South Shore (Longueuil, Brossard, Saint-Bruno, Saint-Hilaire, Boucherville, St-Jean-sur-Richelieu). • North Shore (Terrebonne & Ste-Thérèse) BTB pierced the Ontarian market in 2007 with its ﬁrst acquisition in the industrial hub of Cornwall, Ontario. BTB later expanded into Ottawa with the acquisition of office properties, therefore solidifying an important presence in this office market with national tenants. BTB’s Ontario locations are the following: • Cornwall • Ottawa • Nepean • Kanata • Gatineau As a complementary strategic location to the Island of Montréal, Quebec City is Québec’s second most thriving cities. With many Quebec based and international tenants having dual businesses in both Montréal and Quebec City, BTB’s expansion to the area was imminent. Having pierced the market in 2007, BTB has established a sound portfolio in Quebec City primarily composed of Retail and Office properties. BTB’s properties are in the following neighbourhoods: • Lebourgneuf • Lévis • St-Augustin de Desmaures • Trois-Rivières Breakdown by asset type When searching for new assets, BTB favours those with long-term stability which follow the following criteria: • Assets which house tenants with long-term leases. • Assets with high occupancy rates. • Assets which contain a tenant mix which is well established such as government institutions and national or international enterprises. Our assets are broken down into three primary categories: Office Retail Industrial A single or multiple storey property which primarily houses office tenants. These types of assets are usually leased to multiple tenants operating various businesses which do not serve a retail client base.* A single-story property which houses only retail tenants. Speciﬁc, to BTB’s portfolio, these include our Power Centers which are occupied by big-box tenants. A single storey property which contains a large ﬂoorplate with an incredible ceiling height, higher than 18 feet. These properties allow for maximum vertical usage as the raw spaces are primarily used for stacking and warehousing solutions. * The mixed-use category found in previous annual reports has been removed from our asset type breakdown. Properties previously found in this segment have been reclassiﬁed under the “office” category. 48.8% 26.5% 24.7% Page 8 Evolution* Rental Income 2020 201 9 201 8 201 7 201 6 92,969 93,602 87,423 73,039 73,384 Recurring adjusted funds from operations (AFFO)(1) 2020 ............ 22,145 201 9 ........... 21,409 201 8 ........... 21,584 201 7 ............ 17,599 201 6 ............. 17,391 Net operating income 2020 ............ 51,260 201 9 .......... 50,897 201 8 ............. 47,637 201 7 .......... 40,394 201 6 ............. 41,339 Recurring funds from operations (FFO)(1) 2020 201 9 201 8 201 7 201 6 24,229 23,313 23,598 19,262 17,710 * For the years ending December 31st (1) Non-IFRS ﬁnancial measures Performance on the markets (The performance drop observed in this graphic is due to the COVID-19 pandemic) 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 170 160 150 140 130 120 110 100 90 80 70 60 6 1 0 2 , t s 1 . n a J 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 0 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 0 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 0 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 0 3 . c e D 0 2 0 2 , t s 1 3 h c r a M 0 2 0 2 , h t 0 3 e n u J 0 2 0 2 , h t 0 3 . t p e S 0 2 0 2 , t s 0 3 . c e D BTB BTB Reit Reit Rapport annuel Rapport annuel 2020 2020 Page Page 9 5 Page 10 e g a s s e M BTB Reit 2020 Annual Report Page 11 Message from Chairman of the Board of Trustees and the President and Chief Executive Ofﬁcer The year 2020 started off with a bang when BTB’s stock price reached its peak at $5.49 per unit in February 2020, but no one anticipated the effect that Covid-19 would have on the economy, and this, on a worldwide scale. We then took the necessary steps to protect and ensure the perennity of the business and the safeguard of our cash ﬂow. Our tenants, our allies We are very grateful for the support we received from our tenants during 2020. We achieved a rent collection rate of approximately 99% for the period ranging between March to December 2020, almost a record for Canadian real estate investment trusts. We also helped our tenants that were in need. We were proactive from the beginning of the pandemic. We were among the ﬁrst building owners to learn about and internally implement the federal government’s CECRA (Canada Emergency Commercial Rent Assistance) program. We made sure that our tenants who qualiﬁed for the program completed the required forms and received the required funds, so that we could do our part and give them the required credits. BTB, through its employees, was able to mitigate the risks associated with the pandemic by adopting a hands-on approach, managing tenant requests on a case-by-case personalized basis to respect BTB’s core values. Tenants are a priority at BTB and we have sought to listen and help them. Our greatest strength, our employees As the saying goes “It’s when the going get’s tough that you know who your true friends and allies are”. This year enabled us to validate this saying on a company-wide scale. One of BTB’s strengths is its employees. Over the past year, they have invested a lot of time, energy, and effort to help our tenants. Employees agreed to a salary freeze, trustees and senior executives reduced their pay. The Board of Trustees opted for an adjustment of the annual distribution from ¢42.0 to ¢30.0. Throughout this year when the challenges were numerous, our employees demonstrated comprehensiveness, conciliation, and accepted sacriﬁces. Our teamwork and the collaboration with our suppliers greatly contributed to this year’s success. It also showed and reminded us of the importance to surround ourselves well and to wisely choose our business collaborators. The entire BTB team has worked hard to overcome the tough challenges that 2020 had in store for us. Our results were affected by the economic conditions, especially in the second quarter of 2020, but the third and fourth quarter results were robust and positive despite the ﬁrst months of the second quarter. When we look at our performance against comparable groups, public companies in the same environment as us, we can see that we have done well and that our performance is better than that of others. I think that the Market saw it and that is one of the reasons why BTB, despite having fallen to $2.29 per unit in its low, still rose to $3.54 to close 2020 and is currently surpassing $4.00 per unit. An overview of our results for the fourth quarter of 2020 BTB disposed of the following properties this year: As of March 12th, 2021, we have collected 100% of our fourth quarter invoiced rents, which is in line with our collection record through the months of March to December 2020. The eff orts to collect rents have been maintained at high levels despite the events. We also report a signiﬁ cant reduction of the balance of receivables to a normalized level of $5.2 million compared to $8.6 million for the second quarter. Our lease renewal activities remained strong during the quarter. Since the beginning of the year, 66% of the expiring leases have been renewed at an average rate of increase of 6.8%, a record rate since 2015. BTB renewed a total of 836,302 square feet of leasable area during the year 2020. During the quarter, we successfully leased a total of 56,589 square feet of leasable area to new tenants. Our FFO payout ratio is 75.5% for the quarter and 88.7% for the year, while the AFFO payout ratio is 76.3% for the quarter and 97.1% for the year, a signiﬁ cant improvement in these ratios for a second consecutive quarter. Our total debt ratio continues to demonstrate BTB’s persistence in maintaining that ratio below 60%. At the end of Q4 2020, that ratio stood at 59.4%. A portfolio repositioning strategy that is paying off The strategic repositioning of our portfolio, which began over two years ago, has been proven to be very fruitful. The result of the repositioning, by disposing of less effi cient buildings to purchase more effi cient buildings, is showing its strength. In line with the strategic repositioning of BTB’s portfolio towards superior quality properties in the primary markets of Montréal, Ottawa and Quebec City, and following attractive off ers that were received, we disposed of four properties for total proceeds of $48.5 million dollars. 1. 311, Ingersoll Street South, Ingersoll (Ontario); 2. 5600, chemin de la Côte-de-Liesse, Montréal (Québec); 3. 1001, Sherbrooke Street East, Montréal (Québec); 4. 550-560, Henri-Bourassa Boulevard West, Montréal (Québec). BTB acquired two properties for a total consideration of $29.85 million dollars. The following properties were acquired throughout the year: 1. 2611, Queensview Drive, Ottawa (Ontario); 2. 2005, Le Chatelier Street, Laval (Québec). To complete the disposition strategy pursuant to the strategy review, to this date, only one property remains to be disposed to bring the strategy repositioning to a close. During 2020, we had the opportunity to test our foundations and validate their solidity since they have been tried enormously. The signiﬁ cant steps taken since 2017 to recalibrate BTB and ensure its long-term proﬁ tability have solidiﬁ ed BTB’s foundation. We are ﬂ exible and agile. We have demonstrated our ability to question ourselves, including our work methods, to adapt and optimize processes according to the situations encountered. Our ﬂ exibility, our acceptance of change and our ability to confront reality have helped us to perform despite all the pitfalls encountered in 2020 Knowing with certainty that our foundation is solid; we can conﬁ dently continue to grow. Jocelyn Proteau Chairman of the Board of Trustees Michel Léonard President and Chief Executive Offi cer BTB Reit 2020 Annual Report Page 13 f o d r a o B s e e t s u r T Top row : Fernand Perreault President of the Investment Committee and trustee Peter Polatos Trustee Lucie Ducharme President of the Human Resources and Governance Committee and trustee Middle row : Jocelyn Proteau Chairman of the Board of Trustees and trustee Jean-Pierre Janson Vice President of the Board of Trustees and trustee Michel Léonard President and Chief Executive Officer and Trustee Bottom row : Luc Lachapelle Trustee Sylvie Lachance Trustee Luc Martin President of the Audit Committee and trustee m a e T e v i t u c e x E Mathieu Bolté Vice President and Chief Financial Officer Michel Léonard President and Chief Executive Officer Page 14 e g a s s e M BTB Reit 2020 Annual Report Page 15 Message from the Chairman of the Board of Trustees The past year has been marked by an unprecedented crisis that has disrupted the entire planet, its inhabitants, businesses, and our structures. No one has been spared from the effects of COVID-19. All businesses have faced unknown challenges until now and have been affected by the severity of this crisis. I would say BTB has done extremely well and even better than most companies, thanks to the resilience of our entire organization and the quick and structured response from Management and the Board of Trustees. What made the difference for us was the unwavering commitment of each of our resources. All our past work methods were questioned, starting with the implementation of working from home, which was essential to protect our employees. I must also pay tribute to our tenants for their collaboration and their ability to adjust to this unknown context. Some of our tenants have been able to depend on governmental support, which put in place special grant programs to help them. Our ﬁnancial results have obviously been affected and forced us, as did most of our peers, to adjust the amount of our distributions. In fact, some went as far as eliminating them. Despite this decision, our performance is even more attractive as an investment for our unitholders. We are committed to maintain our performance and improving it when conditions permit. If I compare BTB’s results in 2020 in this turbulent environment to those of previous years, I would say these are our most impressive results of the past four or ﬁve years. With the rollout of the vaccination program, we will begin to see a return to a more normal life. One thing is certain though: when this crisis is over, nothing will be the same. I remain convinced that BTB will emerge as more solid and agile and adjust to the economic situation, thanks to our resources, tenants, customers, but above all, thanks to our employees! At the time of writing this message, it seems that under the government rules still in effect, our annual general meeting with our unitholders will be virtual once again this year. It is with regret because it is an important moment for management and trustees to meet investors. We must however follow the government guidelines. This meeting will further mark the departure of two members of the Board of Trustees who have been occupying their positions since its inception of BTB in 2006. Mr. Peter Polatos and Mr. Luc Lachapelle will end their tenure as trustees on the Board of BTB. I want to pay tribute to them and thank them for their contribution in the development and success of BTB. Many thanks to both of you. Page 16 s a t i r e M Award – Teamwork Karin Waldhart Account Payables Supervisor I started to work for BTB in October 2017 in an administration role for the operations department and won my ﬁ rst Méritas that year. At the beginning of 2020, I was off ered the opportunity to start a new chapter in the accounting team as the Account Payables Supervisor. The core idea of my job is to get the bills paid on time, but what is not often realized about Accounts Payables is how the smallest delays, or that the way I choose to complete my tasks and manage my team can aff ect the whole company and the diff erent departments, each with tremendous impacts. When I ﬁ rst got here, I was really impressed by BTB’s culture. The company really believes in the wellbeing of their employees. The saying: “work hard, play hard“, applies here. Being at BTB, you like coming to work. From day one, I could feel the positive energy here. BTB has a set of values and you can feel and live them everyday. We feel valued and equal, we know there is a hierarchy, but we do not feel it. BTB has a strength in their workforce. The people I work with know what they are doing, and they are happy to be here. What I like most about my job is the perfectionism, the structured and organized side of my work. My job is in the details, everything must be perfect and executed ﬂ awlessly. There is no gray area in what I do. People might think that what I do is repetitive, but I can guarantee you that it is never dull. I am someone who likes variety and what I do might be repetitive in its function, but deﬁ nitely not in its form. For instance, I work with BTB’s entire portfolio and each building has its challenges and ways to operate, which means I get to work with diff erent people every day and at the end, my decision in terms of Payables impacts all of the diff erent teams here at BTB. Cue in all these factors and this brings the variety notion in what is typically thought as a totally stable and somewhat predictable job. A month after I started in my new position, COVID-19 hit. The way I was taught to do things had to be changed and I had to step up and adapt to a new normal. We had to centralize and reorganize how the department works and how we think. Everything went through me since the accountants were working from home. It was an adaption process in a good way. I see this as a blessing in disguise. This pandemic gave us the chance to change the way we did things, to ﬁ nd a new and better way to work with everybody. When thinking about Teamwork, I think about working together, not one for another, not less than someone, not more than someone else. Teamwork is making sure that we can all accomplish what we need to do by helping others achieve what they need to do, and not by doing it for them. In 2020, it was understood that we had to do adapt and, sometimes, we had to do a little more to help others to make sure that they made it through 2020 was one heck of a year and winning the Méritas for teamwork this year means a little more, than having won it in a “regular year”, since the past year was a rollercoaster. You had to change, and you had to adapt, and I think this shows strength in company growth, but also, personal growth. So, the fact that it was recognized during this time makes it sweeter and means a lot to me. BTB Reit 2020 Annual Report Page 17 Award – Integrity Mitch Provost Director, Property Management for Ottawa and Cornwall Regions I have been working in real estate for over 35 years and with BTB since March 2018. I started as a Property Manager and was then promoted to Director, Property Management for the Ottawa and Cornwall regions as of 2020. I am responsible for managing all of our properties in our Ottawa portfolio as well as managing the leasing aspect for our vacant units, supervising construction and managing our regional offi ce and team of 6. In addition to this, I’m also part of the special committee that is responsible for ﬁ nding active solutions to better the company and the way we work. Working at BTB, I can really apply all my expertise and knowledge on a day-to-day basis and my experience brings a lot to the company. In the real estate world, there is never a dull moment. I’m a person that ﬁ nds satisfaction in results and one of my greatest achievements is having put BTB back on the map in Ottawa and making us a landlord of choice. When I started, we had high vacancies and no staff in Ottawa. I was basically a one man show and did everything, from changing light bulbs to service calls, leasing and construction. Today, we have an amazing team in place that sticks together and know where we are going. I am always one to evolve and grow and the team that I built and myself are ready for more properties. I’m always on the hunt for more space, more buildings in Ottawa to grow our portfolio. We are ready to grow! When thinking about BTB, the words that come to mind are transparent, ﬂ exible, driven, and motivated. In turn, I also apply these words to everything I do. We are open and honest about everything we do and I share my experience and knowledge to help my colleagues. I am willing to share with anyone who wants to learn. BTB has a CEO that has the drive to keep us moving forward. He communicates with his team and by team I mean the entire BTB team and not just upper management. He lets us know where we are, where we are heading, and nobody is left in the dark. Communication is very important especially when our portfolio is concentrated in diff erent regions. Our CEO is open to criticism and I encourage employees to speak their mind. What they have to say might be something that might open our eyers or a whole new venue. There is a reason why BTB maintains its Great Place to Work as it recognizes its employees. When we do something, it is very satisfying to know that the work is recognized, and we can feel it. I have zero tolerance for a negative work environment, and I maintain an open- door policy, much like the rest of upper management does. I encourage the team to go out to our diff erent locations and make connections with our technicians and get to know our buildings. Now they are like a brotherhood sisterhood and get along extremely well. Since we spend more time at work than at home, we might as well make the best of it! Despite the COVID-19 pandemic, 2020 was a great year for me. I was shocked to have won the Méritas for Integrity since it used to be always employees from the Montréal offi ce that got these awards. I devote so much time and eff ort to the company. I am a ﬁ rm believer of always acting as if somebody is watching and to maintain an honest spirit. I encourage my team to do so as well. Integrity comes from the top and if you show integrity and treat people with respect, it goes a long way. Page 18 s a t i r e M Award – Respect Dalia Mizher Corporate Accountant Technician I have been working as a corporate accountant technician at BTB for the last two years. I arrived in Canada from the United Sates in 1999 not knowing a word of French. Learning to read and write French within 6 months was by far one of the hardest and most challenging things I have ever accomplished. It is also what I am the proudest of. I was the fastest student to complete and graduate from the intensive French Program in my teachers’ 21 years of professional experience. As a corporate accounting technician, I work very closely with the Chief Corporate Accountant and we work on cashﬂ ow management, corporate administration and accounting, month- end, quarter-end, year-end activities, payroll and day-to-day exceptions. With all of these responsibilities and diff erent aspects of our work, we never know what the day has in store for us! My role can de demanding at times, but I love the challenge and I can say I never get bored. I tend to be the quiet one around the offi ce, however, I do get the chance to be in contact with colleagues from all departments which I love. What I like the most about working at BTB is getting to work on a daily basis with an amazing group of people that I have the privilege of calling my colleagues. This group of people truly make the workdays that much more enjoyable as we collaborate so well as a team. I am very inspired by the healthy work relationship we build. We are constantly developing and pushing to strive to better our ways. Many things make me proud to work at BTB, but their contribution to the bee population with their sustainable rooftop project is my top for 2020. I am very passionate about animals, so this project really means a lot to me. If I had to describe BTB in four words, it would be motivating, progressive, respectful, and professional. The company has many core values, such as transparency, ﬂ exibility, and respect. BTB has created a friendly welcoming onboarding experience for all its new employees and it made me felt like I ﬁ t right in from day one. The work environment at BTB is fast paced, but also an exciting and wholesome place to work. BTB thrives on their Great Place to Work certiﬁ cation, that keeps up its name by the way management treats their employees, by being supportive and motivating. Upper management at BTB has always been professional and highly engaging, being always ready and available for their employees. BTB is constantly seeking the development and advancement of their employees, by pushing us to create challenging stretch goals. While they encourage us to take on responsibilities outside of our daily tasks, but also provides a healthy work-life balance, due to their ﬂ exibility. Receiving the Méritas for Respect, I feel very honored and I am very thankful for everyone who voted for me. I do believe many people at BTB deserve this award as well! I am lucky to work in an environment where everyone around me is just as respectful as they believe I am. Everyone at BTB has always been respectful towards each other, which was a quality I noticed and appreciated since the ﬁ rst day I started. BTB Reit 2020 Annual Report Page 19 Award – Quality Katy Sedaghatian Chief Property Accountant I have more than 20 years of experience in real estate accounting and I have had the opportunity to work for real estate companies both in Québec and Ontario. I started my career as a junior accountant when I was 23 years old at a real estate company where I was the youngest out of more than 400 employees. This was my ﬁ rst exposure to real estate accounting and I just loved it. February 2020 marked my 8-year anniversary at BTB. I started working here in February of 2013 as a property accountant and by late 2015 I took over the accounting for most of our Ontario properties which were externally managed in addition to my original portfolio. In December 2017, I was promoted to Chief Property Accountant and since, I have been involved in all the special projects as well as ensuring the day-to-day ﬂ ow. I also started the social committee at BTB, which is now responsible for organizing all the company’s social activities during the year. I love real estate accounting which is why I have always stayed in the ﬁ eld of real estate and at BTB, you are given the opportunity to do everything from A to Z of the ﬁ nancial aspect of a building, so you get to see the entire cycle ﬁ rsthand. Reconciling items, whether it be for a variance analysis, budgets, or other items, once I get my head into solving a problem, I can lose all track of time and my days ﬂ y by. BTB is a company that is constantly improving its technology, procedures and reports amongst other things and there is constant change which can be demanding on some employees, but in return when it is time to let loose, BTB really knows how to reward its employees to a fun and relaxed time. As certiﬁ ed year after year, BTB is a Great Place To Work and we really do deserve this certiﬁ cation. BTB encourages a very friendly and team spirited work environment by organising great teambuilding activities every year. BTB’s priority is its tenants and customer service and so in that regard, we make sure that the tenants’ questions are answered in a very timely manner and that they have everything they need to run their business. This has left BTB with many content and devoted tenants year after year. Winning the Méritas award for Quality Winning the Méritas award for Quality is very humbling as you are chosen is very humbling as you are chosen by your peers and it means the world by your peers and it means the world to me to know that they acknowledge to me to know that they acknowledge and appreciate my work and eff ort. and appreciate my work and eff ort. I take great pride in my work and I take great pride in my work and how it is done! I really love what how it is done! I really love what I do at BTB and my great relationship I do at BTB and my great relationship with my immediate superior and all my with my immediate superior and all my coworkers in the diff erent departments coworkers in the diff erent departments is very inspiring. The communication is is very inspiring. The communication is great, and we work together to produce great, and we work together to produce excellent quality of work. This makes excellent quality of work. This makes me proud to be part of BTB. me proud to be part of BTB. Page 20 r u O s t n a n e T Main offi ce hallway, Intrado Life & Safety Canada 7150, Alexander-Fleming St., St-Laurent BTB Reit 2020 Annual Report Page 21 Below is a list of some of our achievements in terms of lease agreements and renewals in 2020. Renewals • National Bank • Cineplex Entertainement • Desjardins • E2IP Technologies Inc. • FNX Innov • Government of Québec • Government of Canada (Public Works Canada) • Immagix Immobilier • Strongco • Trévi New Lease Agreements • CMP Advanced Mechanicals • Restaurant Vago • Claigan Environmental Inc. • Société Québécoise des Infrastructures • Groupe BBA Inc. • Canada Gap Program • CISSS de la Montérégie Centre Page 22 r u O t n e c e R s n o i t i s i u q c A 1 2005 Le Chatelier Street, Laval November 16th, 2020 $8.1 million 34,200 square feet Industrial The property is entirely leased to Kolostat, an industry leader in the field of mechanical solutions for HVAC systems. With offices located in Montréal and Toronto, Kolostat has a multidisciplinary team composed of engineers, designers, draftsmen, control technicians and project managers in order to maintain global projects. BTB Reit 2020 Annual Report Page 23 3 2 4A 4B 5 2 2611 Queensview Drive, Ottawa February 3rd, 2020 $21.75 million 77,500 square feet Office This property is LEED® Silver and is fully leased to various tenants. The main tenant is the engineering consulting ﬁrm WSP, one of the world’s largest environmental professional services ﬁrms that is also listed in the Toronto Stock Exchange. WSP has been occupying spaces in the property since its construction in 2012. An excess of land was also part of this transaction, on which an additional 60,00 square feet of office space could be built. This land can be developed or sold by BTB. 3 2425 Pitﬁeld Boulevard, Saint-Laurent May 10th, 2019 $11.9 million 66,625 square feet Office and industrial 4 1465-1495 and 1011-1191 Saint-Bruno Boulevard and 800 de l’Étang Street, Saint-Bruno-de-Montarville June 20th, 2019 $43 million 366,490 square feet Retail 5 340-360, 370-380, 375 and 377-383 Sir-Wilfrid-Laurier Boulevard, Mont-Saint- Hilaire June 20th, 2019 $19.6 million 127,767 square feet Office and retail Page 24 r u O s e i t r e p o r P BTB Reit 2020 Annual Report Page 25 Montréal South Shore of Montréal Quebec City Area • 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 • 2101 Sainte-Catherine Street West, Montréal • 3761-3781 des Sources Blvd, Dollard-des-Ormeaux • 11590-11800 de Salaberry Blvd, Dollard-des-Ormeaux • 1325 Hymus Blvd, Dorval • 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 • 22900 Jacques-Bureau Street, Laval • 4535 Louis B. Mayer Street, Laval • 3695 Des Laurentides (Highway-15), Laval • 3111 Saint-Martin Blvd West, Laval • 3131 Saint-Martin Blvd West, Laval • 81-83 Turgeon Street, Ste-Thérèse • 5791 Laurier Blvd, Terrebonne • 2175 Des Entreprises Blvd, Terrebonne • 2205-2225 Des Entreprises Blvd, Terrebonne • 2005 Le Chatelier Street, Laval • 4890-4898 Taschereau Blvd, • 6655 Pierre-Bertrand Blvd, Brossard Quebec City • 2340 Lapinière Blvd, Brossard • 6700 Pierre-Bertrand Blvd, • 204 De Montarville Blvd, Boucherville Quebec City • 909-915 Pierre-Bertrand Blvd, • 32 Saint-Charles Street West, Quebec City Longueuil • 50 Saint-Charles Street West, Longueuil • 85 Saint-Charles Street West, Longueuil • 2111 Fernand-Lafontaine Blvd, • 825 Lebourgneuf Blvd, Quebec City • 815 Lebourgneuf Blvd, Quebec City • 1170 Lebourgneuf Blvd, Quebec City Longueuil • 625-675 De la Concorde Street, • 2350 Chemin du Lac, Longueuil • 1939-1979 F.-X. Sabourin Street, St-Hubert • 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 Lévis • 1200-1252 De la Concorde Street, Lévis • 191 D’Amsterdam Street, St-Augustin-de-Desmaures • 175 De Rotterdam Street, St-Augustin-de-Desmaures • 505 Des Forges Street and 1500 Royale Street, Trois-Rivières • 2059 René-Patenaude Street, Magog Ottawa Area, Ontario • 80 Aberdeen Street, Ottawa • 245 Menten Place, Ottawa • 1-9 and 10 Brewer Hunt Way and 1260-1280 Teron Rd, Ottawa 400 Hunt Club Rd, Ottawa • 2200 Walkley Street, Ottawa • 2204 Walkley Street, Ottawa • 2611 Queensview Drive, Ottawa • 7 and 9 Montclair Blvd, Gatineau • 705 Boundary Road, Cornwall • 725 Boundary Road, Cornwall • 805 Boundary Road, Cornwall * 2901 Marleau Avenue, Cornwall * Considered as two properties Page 26 BTB Reit 2020 Annual Report Page 27 Management Discussion and Analysis Year ended December 31, 2020 TABLE OF CONTENTS 28 Introduction 47 Funds from Operations (FFO) 28 Forward-Looking Statements – Caveat 48 Adjusted Funds from Operations (AFFO) 29 Non-IFRS Financial Measures 49 Cash Flows 30 The Trust 51 Segmented Information 30 Objectives and Business Strategies 52 Assets 31 Highlights of the Fourth Quarter and Year Ended December 31, 2020 33 Selected Financial Information 34 Selected Annual Information 34 Selected Quarterly Information 35 Real Estate Portfolio 36 Real Estate Operations 41 Operating Results 54 Capital Resources 59 Sustainable Development 60 Income Taxes 60 Taxation of Unitholders 61 61 Accounting Policies and Estimates Risks and Uncertainties 62 Disclosure Controls and Procedures and Internal Control Over Financial Reporting 45 Operating Results – Same-Property Portfolio 62 Appendix 1 – Performance Indicators 46 Distributions 63 Appendix 2 – Deﬁnitions Page 28 Introduction The purpose of this Management Discussion and Analysis is to allow the reader to evaluate the operating results of BTB Real Estate Investment Trust (“BTB” or the “Trust”) for the year ended December 31, 2020 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, 2021 should be read together with the consolidated ﬁnancial statements and accompanying notes for the year ended December 31, 2020. 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. Additional information about the Trust, including the 2020 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 quarterly ﬁnancial 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 forward looking statements. These factors include general economic conditions in Canada and elsewhere, the effects of competition in the markets where we operate, the impact of changes in laws and regulations, including tax laws, successful execution of our strategy, our ability to complete and integrate strategic acquisitions successfully, potential dilution, our ability to attract and retain key employees and executives, the ﬁnancial position of lessees, our ability to reﬁnance our debts upon maturity, 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. BTB Reit 2020 Annual Report Page 29 COVID-19 On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. The Federal and Provincial governments have taken many steps in their management of the health crisis, including the closure of all non-essential stores and services for a period and other restrictive measures were introduced by various levels of governments in Canada. Since the beginning of the crisis, BTB has set up a COVID-19 task force to ensure full management of all collateral effects on our tenants, suppliers, creditors, as well as our employees. Several actions have been taken, including the review of rent agreements with tenants and the coordination with 80 tenants for the application of the federal grant under the CECRA program; the participation with our creditors to reduce our mortgage payments during this period; appropriate implementation of cost control and control of our investments; strengthening sanitation, health and safety measures in our properties and restricting access to our buildings. During this period, several companies announced bankruptcies and restructurings, mainly in the retail sector. To date, BTB’s portfolio has been affected very little by this news. BTB continues to closely monitor business operations and is aware that the impact of COVID-19 on the global economy and its duration remains uncertain. BTB may take further actions in response to directives of government and public health authorities or that are in the best interests of employees, tenants, suppliers, or other stakeholders, as necessary. BTB will continue to work with the different tenants that are participating in the Canada Emergency Rent Subsidy (‘CERS’), a program that is expected to continue through June 2021. The full extent and the ﬁnancial impact of COVID-19 on communities and the economy remains uncertain. Therefore, BTB has taken the following proactive measures to provide greater ﬁnancial strength and ﬂexibility: 1) implementation of a cost reduction program to limit direct expenses and corporate expenses, 2) to review the current credit lines in place to ensure additional ﬂexibility and cost reduction, and 3) to reﬁnance properties to provide additional equity and to take advantage of a low-rate environment. Non-IFRS Financial Measures “Net operating income,” “net operating income of the same-property portfolio”, “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. Page 30 The Trust BTB is an unincorporated open-ended real estate trust formed and governed under the laws of the Province of Québec pursuant to a trust agreement. BTB began its real estate operations on October 3, 2006, and as of December 31, 2020, it owns 64 retail, office and industrial properties located in primary 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 G and H convertible debentures are traded on the Toronto Stock Exchange under the symbols “BTB.UN”, “BTB.DB. G” and “BTB.DB. H”, 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, 62 of the Trust’s 64 properties held as at December 31, 2020 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, 2020(1) Number of properties 64 Leasable area (sq. ft.) 5,323,642 Fair value (thousands of $) 903,870 (1) These ﬁgures include a 50% interest in a 17,114 square-foot building in a Montréal suburb and a 50% interest in one building totaling 74,940 sq. ft. in Gatineau, Québec. Objectives 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 dispose of certain investments. BTB may dispose of certain assets if their size, location and/or proﬁtability no longer meet the Trust’s investment criteria. In such cases, BTB expects to use the proceeds from the sale of assets to reduce debt thereon and/or redeploy capital in accretive acquisitions. BTB Reit 2020 Annual Report Page 31 Highlights of the Fourth Quarter Ended December 31, 2020 • During the fourth quarter, BTB’s portfolio continued to show its resilience and its limited exposure to bankruptcies. As reported in our Q2 2020 MD&A, only four tenants, representing roughly 2% of our tenant base on a per square foot basis, underwent corporate restructuring or ﬁled for bankruptcy. At the end of Q4 2020, BTB has not received any additional bankruptcy or restructuring notices from its tenants. • The Canada Emergency Commercial Rent Assistance (CECRA) program was enacted to provide rental support to tenants, which was available throughout the period ranging between April to September 2020. Throughout the year, we successfully ﬁled applications for approximately 80 tenants, which represents roughly 15% of the leases managed by the Trust. All subsidies were received by the end of Q4 2020, and the program has now ended. • After the end of the CECRA program, the Federal government announced the implementation of the CERS Program (Canada Emergency Rent Subsidy). This program is administered by the Federal Government and does not require landlords to grant rent abatements or concessions. Since landlords are no longer directly involved in the administration of the program, the Trust continues to guide its tenants to better understand the various programs offered by the federal government in order to further mitigate collection risks. At the end of the fourth quarter, only a handful of tenants expressed their intention to participate in the CERS program, which has not affected rent collection. In addition, at the end of Q4 2020, no additional rent deferral agreements were negotiated with tenants, further solidifying future revenues. • COVID-19 has affected our results in the following fashion: ($1.3 million) for our NOI; $1.4 million in additional provisions for credit losses; therefore, a total of $2.7 million of negative impact on our FFO and AFFO results. As far as our fair value adjustment for our investment properties, the Trust has recorded a reduction in the fair value of its retail and office properties of $26.3 million and an increase in the fair value of its industrial properties of $17.9 million, thereby generating an adjustment to its total fair value of ($8.4 million) for the year 2020. 65% of our investment properties were externally appraised in 2020. • Despite the challenges faced by the evolving events attributable to the pandemic, the Trust collected 100% of its fourth quarter invoiced rents, in line with its collection record through the months of March to December 2020. Rent collection continued to remain strong and we are reporting a signiﬁcant reduction of the balance of receivables from $8.7 million at the end of Q2 2020 to a normalized level of $5.2 million for the quarter. The balance of receivables reported includes $0.8 million to be received after year-end under deferral agreements concluded with tenants during Q2 2020. • Leasing activity remained strong during the quarter: 223,681 sq. ft. were renewed in anticipation with our existing tenants where their expirations were to take place in the years 2021 and after, therefore further solidifying the Trust’s future revenues. During the quarter, the Trust leased 56,589 sq. ft. of leasable area to new tenants, thereby leaving 412,765 sq. ft. of leasable area available for occupancy at the end of the quarter. Since the beginning of the year, 66% of the leases expiring in 2020 were renewed (over 281,970 sq. ft. were renewed) at an average rate of increase of 6.8%. • Since the beginning of the year, 281,970 sq. ft. was leased to new tenants. During the year 2020, the Trust managed to successfully renew leases expiring in the current year and expiring in coming years, for a total of 836,302 sq. ft. Therefore, the total leasing activity was approximately 1,1 million sq. ft. • Net income and comprehensive income totalled $3.85 million compared to $41.55 million for the same period in 2019. The decrease was primarily attributed to (i) in 2019 the Trust recorded an increase in the fair value of investment properties of $34.1 million compared to an increase in the fair value of $2.3 million in 2020 and (ii) in 2019, the Trust recorded an increase to the fair value of derivative ﬁnancial instruments of $1.2 million compared to a decrease of $2.9 million in 2020. Other than the fair value adjustment, we noted ﬁnancial improvements on different fronts during the year: (i) an increase in our Net Operating Income margin to 55.1% compared to 54.4% in 2019 and (ii) a reduction of the net ﬁnancial expenses attributable to the reﬁnancing of mortgages concluded during the current year. Page 32 • The net property income from the same-property portfolio for the three-month period ended on December 31, 2020 increased by $0.1 million or 0.2% compared to the same period in 2019. For the year, the same property NOI increased by 0.1%. The impact of the CECRA program and the loss of income from the previously reported bankruptcies of four tenants in the second quarter of this year were compensated by the impressive leasing activity and from additional productivity. Our comparative results were affected by a non- recurring event in Q4 2019, speciﬁcally then recording an indemnity received from a tenant pursuant to a lease cancellation prior to the end of the term in the amount of $1.1 million. • We are reporting a recurring FFO of $24.2 million for the year 2020, an increase of $0.9 million, or 3.9% compared to 2019. For the fourth quarter the FFO payout ratio stands at 75.5% and 88.7% for the year. For the fourth quarter the AFFO payout ratio stands at 76.3% and at 97.1% for the year. • On September 29, 2020, BTB announced that it closed a public offering for the principal amount of $30 million, on a bought deal basis, issuing, in consideration therefore, Series H 7.00% Convertible Unsecured Subordinated Debentures to mature on October 31, 2025 (the “Series H Debentures”). On October 26, BTB used the net proceeds of this issue to fully redeem the $26.7 million Series F debenture due on December 31, 2020 and for general trust purposes. In the fourth quarter, approximately $0.6 million of the debenture was converted into units at a price of $3.64. • BTB concluded the year on December 31, 2020 with a cash position of $9.1 million. The Trust has access to an operating credit facility with an authorized amount of $3 million and to an acquisition line of credit with an authorized amount of $19 million. As at December 31, 2020, the full amount of the operating credit facility was available to it and $3.7 million was available on the acquisition line of credit. • Debt metrics continue to demonstrate the Trust’s commitment to maintain a total debt ratio below 60% and as of December 31, 2020, the total debt ratio stood at 59.4% compared to 59.1% on December 31, 2019. Subsequent events • No events to report. Summary of signiﬁcant items as at December 31, 2020 • Total number of properties: 64 • Total leasable area: approximately 5.3 million sq. ft. • Total asset value: $927 million • Market capitalization: $224 million BTB Reit 2020 Annual Report Page 33 Selected Financial Information The following table presents highlights and selected ﬁnancial information for the quarters and years ended December 31, 2020 and 2019: Periods ended December 31 (in thousands of dollars, except for ratios and per unit data) Reference (page) Quarter 2020 $ 2019 $ Year 2020 $ 2019 $ Financial information Rental revenue Net operating income(1) Net income and comprehensive income Adjusted net income(1) Same-property portfolio(1) Distributions Recurring funds from operations (FFO)(1) Recurring adjusted funds from operations (AFFO)(1) Cash ﬂow from operating activities Total assets Investment properties Mortgage loans Convertible debentures Mortgage debt ratio Total debt ratio Weighted average contractual interest rate 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) Distributions Recurring FFO(1) Payout ratio on recurring FFO(1) Recurring AFFO(1) Payout ratio on recurring AFFO(1) Market price Tax on distributions Revenue Tax deferral Operational information Number of properties Leasable area (thousands of sq. ft.) Occupancy rate Increase in average lease renewal rate (1) Non-IFRS ﬁnancial measures. 41 42 44 45 45 46 47 48 49 34 52 54 56 56 56 54 58 57 58 58 44 45 46 47 47 48 48 60 60 35 35 35 37 22,455 12,767 3,850 5,066 6,585 4,778 6,322 6,253 15,954 25,558 14,174 41,552 6,445 6,447 6,584 7,421 6,795 17,235 63,228 62,139 92,969 51,260 2,919 20,102 26,850 21,513 24,229 22,145 45,145 926,666 903,870 484,639 48,316 93,602 50,897 51,881 20,518 26,836 25,141 24,293 22,389 47,223 939,130 924,320 493,152 49,096 52.9% 59.4% 3.57% 52.8% 59.1% 3.92% 223,941 321,843 63,439 397 62,810 62,252 497 59,098 63,625 62,661 63,241 59,628 6.1¢ 8.0¢ 7.5¢ 9.9¢ 75.5% 9.8¢ 76.3% 66.2¢ 10.3¢ 10.5¢ 11.8¢ 88.7% 10.8¢ 96.8% 0.0% 100% 0.0% 100% 16.6% 4.3% 4.6¢ 31.8¢ 34.0¢ 38.3¢ 88.7% 35.0¢ 97.1% 3.53 0.0% 100% 64 5,323 92.2% 6.8% 87.0¢ 34.4¢ 42.0¢ 40.7¢ 103.1% 37.5¢ 111.9% 5.17 0.0% 100% 66 5,650 93.2% 5.5% Page 34 Selected 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) 2020 $ 2019 $ 2018 $ Financial information Rental income Net operating income(1)(5) Fair value adjustment on investment properties Net income (loss) and comprehensive income (loss) Net cash from operating activities Recurring FFO(2)(5) Recurring AFFO(3)(5) Distributions Total assets Long-term debt Financial information per unit Net income and comprehensive income Recurring FFO(2)(5) Recurring AFFO(3)(5) Distributions Payout ratio on distributable income(4)(5) 92,969 51,260 (8,375) 2,919 46,145 24,229 22,145 21,513 93,602 50,897 34,113 51,881 47,223 24,293 22,389 25,141 87,423 47,637 22,142 41,337 44,724 23,598 21,584 22,154 926,666 532,775 939,130 542,248 855,223 519,878 4.6¢ 38.3¢ 35.0¢ 34.0¢ 68.1% 87.8¢ 40.7¢ 37.5¢ 42.0¢ 98.8% 78.7¢ 45.0¢ 41.2¢ 42.0¢ 92.2% (1) Deﬁned as rental income from investment properties less operating expenses. (2) See “Funds from operations” on page 47 for reconciliation to net income. (3) See “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. 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) 2020 Q-4 $ 2020 Q-3 $ 2020 Q-2 $ 2020 Q-1 $ 2019 Q-4 $ 2019 Q-3 $ 2019 Q-2 $ 2019 Q-1 $ Rental revenue 22,455 23,583 23,063 23,868 25,558 23,973 22,347 21,634 Net operating income(1) 12,767 13,308 12,419 12,766 14,174 13,476 12,196 11,051 Net income and comprehensive income Net income and comprehensive income per unit 3,850 5,757 (1,101) (5,587) 41,552 5,632 3,316 1,381 Adjusted net income 5,066 5,963 3,757 6.1¢ 9.1¢ (1.7)¢ (8.9)¢ 5,316 66.2¢ 9.0¢ 5.8¢ 2.5¢ 6,445 5,813 4,518 3,742 Adjusted net income per unit 8.0¢ 9.4¢ 6.0¢ 8.4¢ 10.3¢ 9.3¢ 7.9¢ 6.7¢ Cash from operating activities 15,954 8,983 10,534 10,674 17,235 9,875 11,897 8,216 Recurring funds from operations (FFO)(1) 6,322 6,920 4,710 6,277 Recurring FFO per unit(1) 9.9¢ 10.9¢ 7.5¢ 10.0¢ 7,421 11.8¢ 6,747 5,446 4,679 10.8¢ 9.5¢ 8.4¢ Recurring adjusted funds from operations (AFFO)(1) 6,253 6,139 4,237 5,517 6,795 6,087 4,884 4,623 Recurring AFFO per unit(1) 9.8¢ 9.7¢ 6.7¢ 8.8¢ 10.8¢ 9.7¢ Distributions(2) 4,778 4,752 5,375 6,618 6,584 6,563 Distributions per unit 7.5¢ 7.5¢ 8.5¢ 10.5¢ 10.5¢ 10.5¢ 8.5¢ 6,113 10.5¢ 8.3¢ 5,881 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. BTB Reit 2020 Annual Report Page 35 Performance Indicators The performance indicators used to measure BTB’s ﬁnancial performance are presented and explained in Appendix 1. Real Estate Portfolio At the end of 2020, BTB owned 64 properties, totalling a fair value of $904 million. The properties generated approximately $93 million in annual income and represented a total leasable area of roughly 5.3 million square feet. A description of the properties owned by the Trust as at December 31, 2020 can be found in the Trust’s Annual Information Form available at www.sedar.com. Summary of investment properties held as at December 31, 2020 Operating segment Number of properties Leasable area (sq. ft.) Committed occupancy rate (%) Office(1) Retail Industrial Total 34 12 18 64 2,597,827 1,409,565 1,316,250 5,323,642 89.9 93.3 95.8 92.2 (1) As of Q4 2020, 6 mixed-use properties have been re-classiﬁed as office properties. Sale of investment properties Pursuant to the conclusions of the last strategic review of its portfolio, the Trust has elected to sell certain properties when circumstances are favourable to concentrate its portfolio in the greater regions of Montréal, Québec City and Ottawa. The proceeds of disposition of these assets are primarily used to repay related mortgages, to repay lines of credit and to acquire accretive properties in line with the Trust’s investment strategy. Pursuant to the Trust’s repositioning of its portfolio, the Trust has concluded the following dispositions during 2020: • In January 2020, the Trust disposed of an industrial property located at 311 Ingersoll Street South in Ingersoll, Ontario, for total proceeds of $13.3 million. • In February 2020, the Trust disposed of an industrial property located at 5600, Côte-de-Liesse in Montréal, Québec, for total proceeds of $9.3 million. • In June 2020, the Trust disposed of an office property located at 1001 Sherbrooke Street East in Montréal, Québec, for total proceeds of $22.1 million. • In October 2020, the Trust disposed of an office property located at 550-560 Henri-Bourassa Boulevard West in Montréal, Québec, for total proceeds of $4.2 million. Acquisition of investment properties • In February 2020, the Trust acquired an office property located at 2611 Queensview Drive in Ottawa, Ontario, for a total consideration of $21.75 million, increasing BTB’s total leasable area by approximately 77,500 sq. ft. • In November 2020, the Trust acquired an industrial property located at 2005 Le Chatelier St. in Laval, Québec, for a total consideration of $8.1 million, increasing BTB’s total leasable area by 34,200 sq. ft. Page 36 Real Estate Operations Leasing activities The following table summarizes the changes in available leasable area for the periods and years ended December 31, 2020 and 2019. Periods ended December 31 (in sq. ft.) Available leasable area at beginning of the period Available leasable area purchased (sold) Leasable area reclassiﬁed into operating Leasable area of expired leases at term Leasable area of expired leases before end of term Quarter Year 2020 419,690 (16,753) — 154,021 238,358 2019 355,067 — — 233,244 168,396 2020 379,896 (53,843) 75,340 461,484 668,125 2019 479,420 (37,204) — 597,218 318,434 Leasable area of renewed leases at term (102,272) (148,363) (305,210) (421,250) Leasable area of renewed leases before end of term (223,681) (174,078) (531,092) (270,684) Leasable area of new signed leases (56,589) (54,368) (281,970) (284,160) Other — (2) 35 (1,878) Available leasable area at end of the period 412,765 379,896 412,765 379,896 Lease renewals During the quarter, leases representing 154,021 sq. ft. of leasable area expired, of which 102,272 sq. ft. were renewed, representing a renewal rate of 66%. Out of the total leasable area renewed during the quarter, 73,879 sq. ft. of renewals were concluded with office tenants, further conﬁrming a strong desire for businesses to revert to an office setting. A lease with a retail tenant occupying 30,452 sq. ft. on a short-term basis was maturing during the quarter. However, we were unable to conclude a lease renewal with the tenant as the tenant was not prepared to pay market rates, we therefore elected not to renew the lease. This non-renewal affects our renewal rate by 20%. Had this event not occurred, our renewal rate would have stood at 86%. In addition, it is important to note that we did not receive non-renewal notices during the quarter due to the COVID-19 pandemic. During the year, the total area of leases expiring was 461,484 sq. ft. of which 305,210 sq. ft. were renewed, representing a renewal rate of 66%. As reported in our Q3 2020 MD&A, the shortfall of 156,274 sq. ft. was caused by (i) the eviction proceedings against an industrial tenant occupying 80,000 sq. ft. (which space was rapidly re-leased); (ii) the bankruptcy of a 23,000 sq. ft. retail tenant located in Gatineau, Québec; as well as (iii) the departure of the 30,452 sq. ft. tenant discussed above. Accounting for a total of 133,452 sq. ft., had these events not occurred, our renewal rate would have stood at 95%. Anticipated renewals As the Trust proactively manages its lease renewal strategy to retain a solid tenant base, during the quarter, leases representing 223,681 sq. ft. were renewed to existing tenants in anticipation of the expiry of their term in future years namely 2021 and after, therefore further solidifying the Trust’s future revenues. These anticipated renewals were primarily from the office and industrial segments of the portfolio, with leases representing approximately 163,000 sq. ft. of industrial space being renewed as well as roughly 60,000 sq. ft. being renewed to office users. This further solidiﬁes the desire for office space users to occupy their spaces when safer to do so. Furthermore, one of our current Top 10 tenants was also active as Desjardins chose to renew, in anticipation, their 13,000 sq. ft. office/retail branch space located on the South Shore of Montréal and an office location in Québec City. Finally, in Québec City, we concluded a 33,000 sq. ft. lease renewal with the Government of Québec for a 5-year term. As such, for the year ended December 31, 2020 the Trust concluded anticipated lease renewals totalling approximately 531,000 sq. ft., which reduces the Trust’s risk linked to lease expiries for the years to come, showing a 96% increase in our early renewal strategy compared to the same period of 2019. Moreover, considering contractual and anticipated renewals, the Trust managed to successfully renew a total of 836,302 sq. ft. throughout 2020. BTB Reit 2020 Annual Report Page 37 Average renewal rate The following table shows a breakdown of the average increase of rental rates per operating segment: Operating segment(1) Office Retail Industrial Total Quarter Year Sq. ft. 136,066 6,633 183,255 325,954 % 20.5 0.9 12.9 16.6 Sq. ft. 371,268 154,560 310,475 836,302 % 7.3 2.2 9.0 6.8 (1) As of Q4 2020, 6 mixed-use properties have been re-classiﬁed as office properties. The average rental rate of expired and renewed leases during the fourth quarter increased by 16.6%, compared to a 4.3% increase in 2019. For the year, the average rental rate increased by 6.8%, compared to 5.5% in 2019. On a noteworthy basis, we must point out the 20.5 % increase in the office segment as well as a 12.9% average increase in our industrial segment. The 20.5% increase is primarily caused by a 10-year lease renewal that was concluded with a 47,000 sq. ft. office user located on the South Shore of Montréal. In addition, it is important to note that due to the consolidation of our formerly named “mixed-use” properties to the office segment, the 20.5% increase in rental rates can be attributed to certain retail tenants falling within this category. In terms of the 12.9% increase emanating from our industrial segment, with the industrial market continuing to show its strength, the Trust was able to negotiate market rates from this segment as the effects of the pandemic on this segment continue to be minimal. Therefore, as long-term leases are usually signed within this segment, the Trust was able to capitalize on positive market trends to increase rent to market standards. For the quarter, our retail segment continues to show identical trends as Q3 2020, where slight rent increases were reached as this segment was the most affected by the COVID-19 pandemic. On a quarterly basis, this segment saw a 0.9% increase and a 2.2% yearly increase in lease renewal rates, which was in-line with the Trust’s renewal strategy for this segment. As a reminder, to ensure occupancy within the portfolio during these turbulent times, the Trust found it advisable to be less demanding in proposing rent increases to its tenants operating in the retail sector to ensure favorable lease renewals and thereby insuring a stable occupancy rate. On a yearly basis, our average renewal rate of expired and renewed leases increased by 6.8% (or 1.3% increase in respect to 2019), representing an all-time high in the average renewal rate increases since the fourth quarter of 2015. Weighted Average Lease Term (WALT) For the year ended December 31, 2020, the Trust was able to increase the average lease term of its leases to an average tenancy of 5.94 years, compared to a WALT of 5.55 years for the same period in 2019. In addition to securing future revenues for the Trust and solidifying its tenant base, the renewal strategy is also focused on ensuring longevity in the lease term when appropriate. These results further demonstrate the Trust’s efforts to secure its tenant base and revenues to come. Laisser ces 3 tableaux sur la même page Page 38 New lease transactions During the quarter, the Trust leased 56,589 sq. ft. of leasable area to new tenants, leaving 412,765 sq. ft. of leasable area available at the end of the quarter. As announced in our Q2 2020 results, a 4,651 sq. ft. space was left vacant after a tenant ﬁled for bankruptcy. We were able to re-lease this space, which will generate revenue in 2021. Moreover, we concluded a new 10-year lease for 7,000 square feet on the South Shore of Montréal with one of our Top 10 tenants, the Government of Québec. Regarding our Ontario portfolio, an existing tenant expanded their office space located at 80 Aberdeen, leasing an additional 3,795 sq. ft. This expansion contributes to achieving a 100% occupancy rate for this property. Furthermore, as announced in our Q2 2020 results, a 9,913 sq. ft. space was leased in our Kanata property to a tenant operating in environmental compliance industry. This transaction began to generate income in the fourth quarter. Lastly, we concluded a lease in Cornwall, Ontario for an industrial space of 23,374 sq. ft. which began to generate income in the fourth quarter as well. For the year, we concluded transactions with new tenants for a total of 281,970 square feet. Overall, we are continuing all our leasing efforts and receive good market traction. We note that businesses are more cautious when leasing space thus, taking more time to review legal documentation and conﬁrming their commitment. Occupancy rates The following tables detail the Trust’s committed occupancy rates by operational segment and geographic sector, including ﬁrm (committed) lease agreements. Operating segment Office Retail Industrial 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, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 % 89.9 93.3 95.8 92.2 % 89.5 95.3 93.9 92.1 % 91.1 95.6 93.6 92.9 % 90.2 95.6 93.6 92.4 % 90.0 96.0 96.4 93.2 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 % 99.9 93.3 90.0 89.1 93.3 — 92.2 % 99.9 92.3 92.0 89.2 91.2 — 92.1 % 99.9 91.6 92.8 90.0 93.2 — 92.9 % 99.9 88.7 93.0 89.9 93.2 — 92.4 % 99.6 90.3 93.0 90.1 94.9 100.0 93.2 By province Québec Ontario Total portfolio December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 % 91.5 95.2 92.2 % 92.0 92.8 92.1 % 92.9 92.6 92.9 % 92.3 92.6 92.4 % 92.6 95.5 93.2 BTB Reit 2020 Annual Report Page 39 The occupancy rate at the end of the fourth quarter of 2020 stands at 92.2%, a 0.1% increase compared to our prior quarter or a 1.0 % decrease compared to the comparable period (Q4 2019). This result is mainly caused by a decrease of 2.7% in the occupancy rate of the retail sector for the comparable period. This reﬂects the departure of a 30,452 sq. ft. retail tenant as previously discussed as well as the effect of certain bankruptcies announced in our Q2 2020 MD&A for which we have not yet concluded ﬁrm lease agreements. In respect to the geographic sectors, the stability of our Laval and North Shore sectors are showing strength, which, for the last four consecutive quarters are stable at a 99.9% occupancy rate or a 0.3% increase for the comparable period (Q4 2019). The properties located within these sectors are mainly office and industrial properties, therefore the results are in-line with the concluded lease renewals as previously discussed. In addition, the acquisition of the fully leased industrial property located at 2005 Le Chatelier Street in Laval, Québec further contributes to this sector’s stable occupancy rate. The occupancy rate of our properties located in the Greater Montréal area is 94.4%, an all-time high since Q4 2017, demonstrating that our portfolio repositioning strategy is continuing to show its success. The following table shows the in-place occupancy rate compared to the committed occupancy rate by operating segments as at December 31, 2020. Operating segment Office Retail Industrial Occupancy rate (%) Sq. ft. In-place Committed Committed 89.7 93.3 95.5 92.1 89.9 93.3 95.8 92.2 5,656 — 4,171 9,827 The in-place occupancy rate as at December 31, 2020 (without taking into account ﬁrm committed lease agreements for tenants that are not yet occupying their spaces) stands at 92.1%, compared to 91.6% in 2019, resulting in a 0.5% increase. Spaces totalling 9,827 sq. ft. as at December 31, 2020 are subject to ﬁrm lease agreements and will, in the next few quarters, generate additional income. The following table demonstrates the lease agreements that will soon take effect. Properties 1327-1333 Ste-Catherine & 1411 Crescent, Montréal, Québec 6655 Pierre-Bertrand Blvd, Québec, Québec 208-244 Migneron & 3400-3410 Griffith, St-Laurent, Québec Sq. ft. 2,896 2,760 4,171 Tenants Expected occupancy date Telus Retail Limited January 2021 2164-3150 Québec Inc. (Services R. Baron Enr.) Eventure Group (expansion) March 2021 June 2021 Page 40 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 Total portfolio Leasable area (sq. ft.) Average lease rate/square foot ($) % of total portfolio 2021 2022 2023 2024 2025 270,776 $13.22 289,776 $15.11 305,245 $14.56 235,417 $13.31 238,788 $14.31 10.4% 11.2% 11.8% 9.1% 9.2% 124,370 $8.58 296,744 $11.58 182,180 $9.69 82,887 $15.69 233,227 $16.02 8.8% 21.1% 12.9% 5.9% 16.6% 51,423 $7.03 223,711 $4.42 45,483 $5.58 108,691 $8.57 80,000 $7.50 3.9% 17.0% 3.5% 8.3% 6.1% 446,570 $11.22 810,230 $10.87 8.4% 15.2% 533,908 426,996 $12.13 10.0% $12.57 552,015 $14.04 8.0% 10.4% The Trust’s efforts to conclude lease renewals in anticipation of their expirations allows it to stabilize the revenues of its portfolio and to reduce the risk of non-renewals for its upcoming lease expirations, thus further securing revenues and solidifying future occupancy. Top 10 tenants On December 31, 2020, BTB managed approximately 520 leases, which equates to an average leasable area of approximately 10,238 square feet per tenant. The Trust’s three largest tenants are the Government of Québec, the Government of Canada, and Walmart Canada Inc., representing respectively 7.1%, 6.2% and 3.0% of rental revenue. These revenues are generated by multiple leases with these tenants whose maturities are spread over time. More than 37.6% of the Trust’s total revenue is generated by leases signed with government agencies (federal, provincial, and municipal) and public companies, thus generating stable and high-quality cash ﬂow for the Trust’s operating activities. The following table shows the contribution of the Trust’s top 10 tenants as a percentage of revenue as at December 31, 2020. Their contribution accounts for 27.1% of annual rental revenue and 25.4% of leased area. Client Government of Québec Government of Canada Walmart Canada inc. Intrado Life & Safety Canada, Inc. Mouvement Desjardins WSP Canada Inc. Groupe BBA Inc. Strongco Germain Larivière Laval Inc. Lowe-Martin Company Inc. % of revenue % of leased area Leased area (sq. ft. ) 7.1 6.2 3.0 2.0 1.8 1.7 1.6 1.5 1.2 1.1 27.1 5.6 4.8 5.0 1.0 1.2 0.9 1.3 1.5 1.9 2.2 297,758 255,323 264,550 53,767 62,585 48,478 69,270 81,442 101,194 116,415 25.4 1,350,782 BTB Reit 2020 Annual Report Page 41 Operating Results The following table summarizes the ﬁnancial results for the quarters and years ended December 31, 2020 and 2019. 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 revenue Operating expenses Net operating income(1) Net ﬁnancial expenses and ﬁnancial income Administration expenses Transaction costs Fair value adjustment on investment properties Net income and comprehensive income (1) Non-IFRS ﬁnancial measure. Rental revenue Reference (page) 41 41 42 41 42 44 52 Quarter Year 2020 $ 22,455 9,688 12,767 9,356 1,537 154 (2,130) 3,850 2019 $ 25,558 11,384 14,174 5,564 1,198 — (34,140) 41,552 2020 $ 92,969 41,709 51,260 31,351 6,750 1,865 8,375 2,919 2019 $ 93,602 42,705 50,897 26,634 5,515 980 (34,113) 51,881 In the fourth quarter of 2020, BTB’s rental revenue decreased by $3.1 million or 12.1% compared to the same quarter last year. This offset the reduction in operating expenses during the same quarter. For the ﬁscal year 2020, the Trust reported a decrease in its revenue of $0.6 million or 0.1%. COVID-19 related impacts accounted for $1.7 million and were composed of four bankruptcies that took place in the second quarter, the CECRA program, and some rent abatements. Excluding those impacts, the Trust’s revenues would have increased by 1.1%. Operating expenses BTB recorded a decrease in operating expenses of $1.7 million, or 14.9%, between the fourth quarter of 2020 and the fourth quarter of 2019, resulting from mainly from energy savings, reduction of property taxes and overall productivity considering the reduction of operation at the beginning of the pandemic and during the last week of December. The following table shows the breakdown of operating expenses for the quarters and years ended December 31, 2020 and 2019. Periods ended December 31 (in thousands of dollars) Operating expenses Maintenance, repairs and other operating costs Energy Property taxes and insurance Total operating expenses % of rental revenue Quarter 2020 $ 2019 $ Year 2020 $ 2019 $ 3,184 1,229 5,275 9,688 3,874 1,659 5,851 11,384 13,913 5,531 22,265 41,709 14,330 6,228 22,147 42,705 43.1% 44.5% 44.9% 45.6% Page 42 Net operating income Periods ended December 31 (in thousands of dollars) Net operating income(1) % of rental revenue (1) Non-IFRS ﬁnancial measure. Financial expenses and income Quarter 2020 $ 12,767 56.9% 2019 $ 14,174 55.5% Year 2020 $ 2019 $ 51,260 50,897 55.1% 54.4% The following table shows the breakdown of ﬁnancial expenses for the quarters and years ended December 31, 2020 and 2019: Periods ended December 31 (in thousands of dollars) Financial income Interest on mortgage loans Interest on convertible debentures Interest on bank loans Other interest expense Interest expense Distributions on Class B LP units Early repayment fees Quarter Year 2020 $ (208) 4,578 1,024 224 69 5,895 30 — 2019 $ (120) 4,928 955 164 137 2020 $ (564) 18,786 3,542 836 303 2019 $ (475) 18,941 3,577 915 444 6,184 23,467 23,877 56 — 157 79 224 — 24,101 Net ﬁnancial expenses before non-monetary items 5,925 6,240 23,703 Accretion of effective interest on mortgage loans and convertible debentures Accretion of non-derivative liability component of convertible debentures Net ﬁnancial expenses before the following items Net adjustment to fair value of derivative ﬁnancial instruments Fair value adjustment on Class B LP units Net ﬁnancial expenses 343 384 1,244 1,172 104 6,372 2,950 242 9,564 27 6,651 (1,184) 217 5,684 104 25,051 7,642 (778) 31,915 66 25,339 1,340 430 27,109 Financial income mainly consists of interest income generated from a balance of sale granted by the Trust for the principal amount of $6 million pursuant to the sale in 2019 of a retail property located in Delson, Québec. Interest expense decreased by $289 during the fourth quarter of 2020 compared to the same period of 2019, and by $410 for the year, mainly due to the net effect of acquisitions, dispositions and decrease in the prime rate impacting ﬂoating interest rates of mortgages in recent quarters. Distributions on Class B LP units amounted to $30 for the quarter and to $157 for the year. Under IFRS, although the Class B LP units can be exchanged at the option of holders for units that are traded on the public market, they are considered a ﬁnancial instrument to be classiﬁed as a liability and therefore the related distributions are recognized as an expense. BTB Reit 2020 Annual Report Page 43 Net ﬁnancial expenses described above include non-monetary items. These non monetary items include the accretion of effective interest on mortgage loans and on convertible debentures, the accretion of non-derivative liability component of convertible debentures and fair value adjustments on derivative ﬁnancial instruments and on Class B LP units. BTB recognized a fair value adjustment resulting in a non-monetary expense of $3,192 (2019: revenue of $967) for the quarter and a non-monetary expense of $6,864 for the cumulative period (2019: $1,770). • The COVID-19 pandemic has created economic uncertainty and increased the volatility of the ﬁnancial markets. The increase in the value of derivative ﬁnancial instruments, which generated an equivalent expense recorded as an increase in non-monetary items, is caused by lower interest rates in Canadian ﬁnancial markets during the reporting period and the increase in market value of BTB’s unit since the issuance of Series H debentures. • 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, 2020, the average weighted contractual rate of interest on mortgage loans outstanding was 3.57%, 35 basis points lower than the average rate posted as at December 31, 2019 (3.92%). Interest rates on ﬁrst-ranking mortgage loans ranged from 2.37% to 6.80% as at December 31, 2020. The weighted average term of mortgage loans in place as at December 31, 2020 was 4.7 years (5.1 years as at December 31, 2019). Administration expenses Periods ended December 31 (in thousands of dollars) Administration expenses Expected credit losses Unit-based compensation Trust administration expenses Quarter Year 2020 $ 1,653 (397) 281 1,537 2019 $ 1,034 (78) 242 1,198 2020 $ 5,152 1,417 181 6,750 2019 $ 4,346 493 676 5,515 For the ﬁscal year 2020, the Trust reports an increase in administration expenses of $1.2 million. The COVID-19 related impacts accounted for $0.9 million in additional credit losses compared to previous year and $0.3 million of abandoned acquisition projects. 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 COVID-19 pandemic has created economic uncertainty and increased volatility in the ﬁnancial markets. These factors have led us, at the end of the ﬁrst quarter of 2020, to increase capitalization rates of properties considered to be more vulnerable to the effects of the pandemic, mostly in the Trust’s retail segment, where tenants had to temporarily cease operations. At the end of the second quarter, the Trust recorded a decrease in the fair value of its investment properties, nevertheless without adjusting capitalization rates. This decrease of the fair value was speciﬁc to two properties. No fair value adjustment was made in the third quarter. During the fourth quarter, the Trust retained the services of independent external appraisers to evaluate the fair value of a signiﬁcant portion of its portfolio. Pursuant to its policy, the 10 most important properties and approximately a third of the remaining properties are annually appraised by independent external appraisers. In addition, as part of ﬁnancing or reﬁnancing and at the request of lenders, other properties are also independently appraised during the year. For its properties that were not subject to independent appraisals, management receives quarterly capitalization rate and discount rate data reﬂecting real estate market conditions from independent external 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. Page 44 As at December 31, 2020, 64.7% (2019: 62.9%) of the fair value of the real estate portfolio was externally independently appraised and 35.3% (2019: 37.1%) was internally appraised by the Trust’s personnel. Following these appraisals, the Trust recorded an increase in value of $2.3 million (2019: $34.1 million) on its real estate portfolio. The change in fair value is broken down by segment as follows: Periods ended December 31 (in thousands of dollars) Office Retail Industrial Total change in fair value Quarter 2020 Year 2020 $ (5,581) (10,541) 18,450 2,328 $ (7,443) (18,839) 17,907 (8,375) Office and retail properties have suffered the most from the impact of COVID-19. The decrease in value is mainly due to higher capitalization and discount rates in these segments and deterioration of other assumptions such as lag vacancy, normalized occupancy, and growth of market rent. However, industrial properties have beneﬁted from the current environment and have seen major increase in value mostly explained by lower capitalization and discount rates combined with increase in market rent. The following tables highlight the signiﬁcant assumptions used in the modelling process for both internal and external appraisals: As at December 31, 2020 Capitalization rate Terminal capitalization rate Discount rate As at December 31, 2019 Capitalization rate Terminal capitalization rate Discount rate Retail Office Industrial 5.25% – 8.00% 5.00% – 8.50% 5.00% – 8.50% 5.50% – 8.00% 6.00% – 7.50% 5.50% – 7.00% 6.25% – 8.75% 6.75% – 8.25% 6.25% – 7.75% 6.00% – 7.75% 5.00% – 8.25% 5.75% – 8.50% 6.25% – 7.25% 5.25% – 7.50% 6.00% – 7.25% 7.25% – 7.75% 6.25% – 8.00% 6.50% – 8.00% The weighted average capitalization rate for the entire portfolio as at December 31, 2020 was 6.51% (December 31, 2019: 6.59%), 8 basis points lower since December 31, 2019. As at December 31, 2020, BTB has estimated that if a variation of 0.25% in the capitalization rate was applied to the overall portfolio, this variation would change the fair value of the investment properties by approximately $35 million. The change of the capitalization rate is an appropriate proxy for the changes for the discount and terminal rates. Net income and comprehensive income BTB generated a net income of $3,850 for the fourth quarter of 2020, compared to a net income of $41,552 for the fourth quarter of 2019, a decrease of approximately $37,000. For the cumulative period, the net income stood at $2,919, compared to net income of $51,881 for the same period of 2019. The change in cumulative net income is essentially attributable to the reduction in the fair value of investment properties of $8,375 recorded in 2020 compare to an increase in the fair value of $34,113 for 2019. Periods ended December 31 (in thousands of dollars, except for per unit data) Net income Per unit Quarter Year 2020 $ 3,850 6.1¢ 2019 $ 41,552 66.2¢ 2020 $ 2,919 4.6¢ 2019 $ 51,881 87.0¢ BTB Reit 2020 Annual Report Page 45 Adjusted 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 investment properties ﬂuctuate based on the stock market volatility of BTB’s units, the forward interest rate curve and the discount and capitalization rates of its 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 2020 $ 2019 $ Year 2020 $ 2019 $ Net income and comprehensive income 3,850 41,552 2,919 51,881 Non-recurring items: Transaction costs on acquisitions and dispositions of investment properties and early repayment fees Volatile non-monetary items Fair value adjustment on investment properties Fair value adjustment on derivative ﬁnancial instruments Fair value adjustment on Class B LP units Adjusted net income(1) Per unit (1) Non-IFRS ﬁnancial measure. 154 — 1,944 980 (2,130) 2,950 242 5,066 (34,140) (1,184) 217 6,445 8,375 7,642 (778) 20,102 (34,113) 1,340 430 20,518 8.0¢ 10.3¢ 31.8¢ 34.4¢ 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, 2020, but it does not include the effect of acquisitions completed during 2019 and 2020, nor the disposition of properties during the same periods. The following table summarizes the results of the same-property portfolio. Periods ended December 31 (in thousands of dollars) Rental revenue Operating expenses Net operating income(1) Interest expense on mortgage loans payable Net property income(1) Increase (decrease) in net property income from the same-property portfolio (1) Non-IFRS ﬁnancial measure. Quarter Year 2020 $ 19,744 9,172 10,572 3,987 6,585 0.2% 2019 $ 20,311 9,610 10,701 4,254 6,447 Δ % (2.8) (4.6) (1.2) (6.3) 2020 $ 80,289 36,835 43,454 16,604 26,850 0.1% 2019 $ 81,401 37,588 43,813 16,977 26,836 Δ % (1.4) (2.0) (0.1) (0.7) Page 46 Net property income for the fourth quarter of 2020 increased by 0.2% compared to the same quarter last year with a net operating income decrease of 1.2% and savings coming from mortgage reﬁnancing over the last 12 months. Year-to-date, the decrease in rental revenue is attributable to the net impact of the CECRA program ($0.4 million) and the loss of income from bankruptcies or the temporary closure of tenants ($1.3 million). Operating expenses decreased by 2.0% due to savings resulting from the partial closure of some properties and additional productivity. The combination of these effects combined with the mortgage reﬁnancing beneﬁts resulted in an improvement of the net property income from the same-property portfolio of 0.1% for the cumulative period of twelve months. Distributions Distributions and per unit data Periods ended December 31 (in thousands of dollars) 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) Distributions (1) Including Class B LP units. Quarter 2020 $ 2019 $ Year 2020 $ 2019 $ 4,062 30 686 4,778 5,690 56 838 6,584 18,473 157 2,883 21,513 21,763 224 3,154 25,141 14.4% 12.7% 13.4% 12.5% 7.5¢ 10.5¢ 34.0¢ 42.0¢ Monthly distributions to unitholders totalled 3.5¢ per issued unit until the month of April 2020, and 2.5¢ per issued unit beginning May 2020, for a total of 7.5¢ for the fourth quarter of 2020 and 10.5¢ for each quarter of 2019. Distribution reinvestment plan (DRIP) In the fourth quarter of 2020, 14.4% of total distributions (2019: 12.7%) were reinvested under the DRIP. An amount of $2,883 (2019: $3,154) of the Trust’s cash has thereby been preserved through payment of distributions in units of the Trust since the beginning of the year. BTB Reit 2020 Annual Report Page 47 Funds From Operations (FFO) The following table provides a reconciliation of net income and comprehensive income established in accordance with IFRS and FFO for the quarters and years ended December 31, 2020 and 2019: Periods ended December 31 (in thousands of dollars, except for per unit data) Net income and comprehensive income (IFRS) Fair value adjustment on investment properties Fair value adjustment on Class B LP units 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 and early repayment fees Recurring FFO(1) FFO per unit(2) Recurring FFO per unit(2) FFO payout ratio(3) Recurring FFO payout ratio(3) Quarter 2020 $ 2019 $ Year 2020 $ 2019 $ 3,850 (2,130) 242 794 2,950 146 30 5,882 440 6,322 9.2¢ 9.9¢ 81.1% 75.5% 41,552 (34,140) 217 756 (1,184) 164 56 7,421 2,919 8,375 (778) 3,068 7,642 616 157 51,881 (34,113) 430 3,003 1,340 548 224 21,999 23,313 — 7,421 11.8¢ 11.8¢ 88.7% 88.7% 2,230 24,229 34.8¢ 38.3¢ 97.7% 88.7% 980 24,293 39.1¢ 40.7¢ 107.4% 103.1% (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. For the fourth quarter of 2020, recurring FFO was at 9.9¢ per unit, compared to 11.8¢ per unit in 2019. The recurring FFO payout ratio for the fourth quarter of 2020 stood at 75.5% compared to 88.7% for the same quarter of 2019. The improvement compared to the prior quarters of this year is principally the result of normalized revenues, limited credit losses and the reduction of the distribution to unitholders announced in May 2020. COVID-19 related impacts for the year amount to 4.3¢ per unit (four bankruptcies, CECRA program, abatements and additional provisions for credit losses). Page 48 Adjusted Funds From Operations (AFFO) The following table provides a reconciliation of FFO and AFFO for the quarters and years ended December 31, 2020 and 2019: Periods ended December 31 (in thousands of dollars, except for per unit data) FFO(1) Straight-line rental revenue 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 disposition of investment properties and early repayment fees Recurring AFFO(1) AFFO per unit(2) Recurring AFFO per unit(2) AFFO payout ratio(3) Recurring AFFO payout ratio(3) Quarter 2020 $ 5,882 108 343 — 23 281 (449) (375) 5,813 440 6,253 9.1¢ 9.8¢ 82.1% 76.3% 2019 $ 7,421 (469) 384 27 25 242 (490) (345) 6,795 — 6,795 10.8¢ 10.8¢ 96.8% 96.8% Year 2020 $ 2019 $ 21,999 (249) 1,244 — 100 181 (1,859) (1,500) 19,915 23,313 (703) 1,172 66 107 676 (1,842) (1,380) 21,409 2,230 22,145 31.5¢ 35.0¢ 108.0% 97.1% 980 22,389 35.9¢ 37.5¢ 117.0% 111.9% (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. For the fourth quarter of 2020, recurring AFFO was 9.8¢ per unit, compared to 10.8¢ per unit in 2019. The recurring AFFO payout ratio for the fourth quarter of 2020 stood at 76.3% compared to 96.8% for the same quarter of 2019. The improvement compared to the prior quarters of this year is principally the result of normalized revenues, limited credit losses and the reduction of the distribution to unitholders announced in May 2020. COVID-19 related impacts for the year amount to 4.3¢ per unit (four bankruptcies, CECRA program, abatements, and additional provisions for credit losses). In calculating AFFO, the Trust deducts a provision for non-recoverable capital expenditures to consider capital expenditures invested to maintain the condition of its properties and to preserve rental revenue. This provision is based on management’s assessment of industry practices and its investment forecasts for the coming years. BTB Reit 2020 Annual Report Page 49 The following table compares the amount of the provision for non-recoverable capital investments to the amount of investment made during the current comparative quarter 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, 2020 31 décembre 2019 31 décembre 2018 $ 1,859 2,055 $ 1,842 2,603 $ 1,719 1,871 The Trust intends to achieve a balance between actual investment and the estimated provisions over the long term. Management may change the calculation of the provision, as required. Cash Flows Net cash ﬂow from operating activities, funds available under the Trust’s credit facilities and cash surplus are the main sources of cash to fund distributions, debt service, capital expenditures in investment properties, lease incentives and rental fees. 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 periods Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Quarter 2020 $ 15,954 (7,217) (32,795) (24,058) 33,120 9,062 2019 $ 17,235 (3,139) (14,140) (44) 1,847 1,803 Year 2020 $ 46,145 12,130 (51,016) 7,259 1,803 9,062 2019 $ 47,223 (18,566) (35,678) (7,021) 8,824 1,803 Cash from operating activities decreased by $1,281 from $17,235 to $15,954 for the fourth quarter of 2020, mainly due to the decrease in adjustments for changes in other working capital items, lower net operating income and increase in administration expenses. Cash used in investing activities increased by $4,078 from $3,139 to $7,217 for the fourth quarter mainly due to the higher additions to investment properties partially offset by higher dispositions of investment properties. Cash used in ﬁnancing activities increased by $18,655 from $14,140 to $32,795 for the fourth quarter mainly due to the repayment of mortgages on sale of properties. Page 50 The following table enables 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 ﬂows from operating activities (IFRS) Interest paid Net cash ﬂows from operating activities Net income Total distributions (including Class B LP units) Surplus (deﬁcit) of net cash ﬂows from operating activities compared to total distributions Surplus (deﬁcit) of net income over total distributions 2020 $ 46,145 (21,787) 24,358 2,919 21,513 2,845 (21,439) 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 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 per unit data) Cash ﬂows from operating activities (IFRS) Leasing payroll expenses Transaction costs on purchase and disposition of investment properties and early repayment fees Adjustments for changes in other working capital items Financial income Interest expenses 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 revenue adjustment Unit-based compensation expenses Accretion of non-derivative liability component of convertible debentures Accretion of effective interest Amortization of property and equipment FFO(1) (1) Non-IFRS ﬁnancial measure. Quarter Year 2020 $ 15,954 146 — (3,518) 208 (5,895) (445) (375) (263) 5,813 449 375 (108) (281) — (343) (23) 5,882 2019 $ 17,235 164 — (3,706) 120 (6,184) (490) (345) — 6,795 490 345 469 (242) (27) (384) (25) 7,421 2020 $ 46,145 616 (1,790) 1,465 564 2019 $ 47,223 545 (804) 1,065 475 (23,467) (23,877) (1,855) (1,500) (263) 19,915 1,859 1,500 249 (181) — (1,244) (100) 21,999 (1,842) (1,380) 12 21,409 1,842 1,380 703 (676) (66) (1,172) (107) 23,313 BTB Reit 2020 Annual Report Page 51 Segmented Information The Trust’s operations are generated from three 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, 2020 and 2019. Periods ended December 31 (in thousands of dollars) Quarter ended December 31, 2020 Investment properties Rental revenue from properties Net operating income(1) Quarter ended December 31, 2019 Investment properties Rental revenue from properties Net operating income(1) (1) Non-IFRS ﬁnancial measure. Years ended December 31 (in thousands of dollars) Year ended December 31, 2020 Rental revenue from properties Net operating income(1) Year ended December 31, 2019 Rental revenue from properties Net operating income(1) (1) Non-IFRS ﬁnancial measure. Retail performance Retail % $ Office % $ Industrial Total $ % $ 246,415 7,230 4,486 265,487 7,612 4,677 27.3 32.2 35.1 28.7 29.8 33.0 493,800 12,465 6,468 500,113 14,289 7,186 54.6 55.5 50.7 54.1 55.9 50.7 163,655 2,760 1,813 158,720 3,657 2,311 18.1 12.3 14.2 17.2 14.3 16.3 903,870 22,455 12,767 924,320 25,558 14,174 Retail % $ Office % $ Industrial Total $ % $ 27,476 16,177 26,935 16,102 29.6 31.6 28.8 31.6 54,018 27,686 53,815 26,559 58.1 54.0 57.5 52.2 11,475 7,397 12,852 8,236 12.3 14.4 13.7 16.2 92,969 51,260 93,602 50,897 Although the effect of the pandemic and the resulting government mandated restrictions have certainly impacted the retail industry in general, BTB had limited exposure to bankruptcies. The Trust does not own enclosed malls and most of the properties are anchored with necessity goods tenants. The occupancy rate at the end of the fourth quarter of 2020 stood at 93.3%, a 2.7% decrease for the comparable period. This reﬂects the departure of a 30,452 sq. ft. retail tenant as previously discussed as well as the four bankruptcies announced in our Q2 2020 MD&A. The Trust was able to renew leases during the year for 154,560 sq. ft. at an average increase in the renewal rate of 2.2%. Considering the industry challenges during the year, the net operating income stayed ﬂat compared to 2019 with a NOI % of 31.6%. The Trust implemented multiple measures to navigate the COVID-19 pandemic and to reduce its ﬁnancial impacts: 1) partnered with tenants to ﬁle, on time, the CECRA requests for all 80 tenants that qualiﬁed; 2) put in place different productivity initiatives to reduce operating costs; 3) orchestrated a cross functional team to ensure adequate communication with its tenants to improve collection efforts; and 4) negotiated lease renewals in anticipation of their expiries. Office performance BTB owns suburban office properties and its portfolio excludes downtown high-rise towers that were the most impacted by the pandemic. Overall, the performance of the segment has been stable across the three regions (Montréal, Québec City, and Ottawa) and it has been supported by the quality of its tenants (the top two tenants are the Federal and Provincial government agencies). The occupancy rate of our office properties at the end of the fourth quarter of 2020 stood at 89.9%, a 0.1% decrease for the comparable period. The Trust was able to conclude lease renewals during the year for a total of 371,268 sq. ft. at an average renewal rate increase of 7.3%. The net operating income generated by the office sector improved compared to 2019 with a rate of 54.0%, up 1.8%. Throughout the year, BTB disposed of two underperforming properties in Montréal (1001 Sherbrooke Street East and 550-560 Henri-Bourassa Boulevard West) at favorable pricing. The Trust was able to invest the proceeds in the acquisition of a property located at 2611 Queensview Drive in Ottawa, which acquisition was accretive from a NOI standpoint. Page 52 Industrial performance The industrial segment continues to show good traction and performance. The occupancy rate at the end of the fourth quarter of 2020 stood at 95.8%, a 0.6% decrease for the comparable period. The decrease in the occupancy rate stemmed from the sale of two industrial properties at the beginning of 2020 (311 Ingersoll St. South in Ingersoll, Ontario, and 5600 Côte-de-Liesse in Montréal) that were 100% leased. These dispositions also impacted the NOI margin down 1.8%, at 14.4%. In November 2020, the Trust acquired an industrial property located at 2005 Le Chatelier St. in Laval, Québec, and this acquisition is accretive from a NOI standpoint going forward. The Trust was able to renew industrial leases during the year totalling 310,475 sq. ft. at an average increase in the renewal rate of 9.0%. Assets Investment properties BTB has grown through high-quality property acquisitions based on its selection criteria, while maintaining an appropriate allocation among three investment segments: office, retail and industrial 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 value of its investment properties stood at $904 million as at December 31, 2020 compared to $924 million as at December 31, 2019. Because of higher capitalization and discount rates and deterioration of other assumptions such as lag vacancy, normalized occupancy and growth of market rent, the Trust recorded a decrease in the value of its portfolio for the year ending December 31, 2020 of approximately $8.4 million. In addition, the net impact of the 2020 transactions explains most of the remaining difference. Summary by operating segment As at December 31 2020 Office Retail Industrial Subtotal Properties under redevelopment Total Number of properties Leasable area (sq. ft.) 34 12 18 64 — 64 2,597,827 1,409,565 1,316,250 5,323,642 — 5,323,642 Improvements in investment properties 2019 Number of properties Leasable area (sq. ft.) 35 12 18 65 1 66 2,682,944 1,409,564 1,482,282 5,574,790 75,340 5,650,130 % 48.8 26.5 24.7 100.0 — 100.0 % 47.5 25.0 26.2 98.7 1.3 100.0 BTB invests capital to improve its properties to preserve the quality of their infrastructure and services provided to tenants. These investments include value-added maintenance 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. BTB Reit 2020 Annual Report Page 53 The following table summarizes capital expenditures, incentives, and leasing fees, for the quarters and years ended December 31, 2020 and 2019. Periods ended December 31 (in thousands of dollars) Recoverable capital expenditures Non-recoverable capital expenditures Refund received Total capital expenditures Leasing fees and leasehold improvements Total Quarter Year 2020 $ 568 652 — 1,220 1,532 2,752 2019 $ 1,278 1,347 — 2,625 1,214 3,839 2020 $ 990 2,055 (280) 2,765 5,893 8,658 2019 $ 2,888 2,603 — 5,491 4,394 9,885 The following table shows changes in the fair value of investment properties during the quarters and years ended December 31, 2020 and 2019. Periods ended December 31 (in thousands of dollars) Balance, beginning of period Additions: Initial recognition of right-of-use assets Adjustments to 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 period Balance of sale Quarter 2020 $ 2019 $ Year 2020 $ 2019 $ 895,420 886,648 924,320 839,015 — 291 8,312 (4,133) 1,220 1,532 2,130 (902) — — (19) — 2,625 1,214 34,140 (288) — 291 30,560 (48,765) 2,765 5,893 (8,375) (2,819) 3,900 — 75,658 (35,950) 5,491 4,394 34,113 (2,301) 903,870 924,320 903,870 924,320 The Trust granted a balance of sale when it disposed in 2019 of a property located in Delson, Quebec. The principal amount of the balance of sale is $6,000, 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 1, 2024. Receivables Amounts receivable from tenants and other receivables increased from $3,809 as at December 31, 2019 to $5,212 as at December 31, 2020. These amounts are summarized below: (in thousands of dollars) December 31, 2020 December 31, 2019 Rent receivable Allowance for expected credit losses Net rent receivable Unbilled recoveries Other receivables Amounts receivable from tenants and other receivables $ 4,259 (1,132) 3,127 665 1,420 5,212 $ 2,801 (716) 2,085 776 948 3,809 The amount of rent receivable includes $787 to be received under payment deferral agreements agreed upon with tenants. Page 54 Other assets, Derivative ﬁnancial instruments and Property and equipment The table below summarizes other assets, derivative ﬁnancial instruments in debit position and property and equipment: (in thousands of dollars) December 31, 2020 December 31, 2019 Property and equipment Accumulated depreciation Prepaid expenses Deposits Derivative ﬁnancial instruments Other assets Capital Resources Long-term debt $ 1,238 (904) 334 1,498 656 — 2,488 $ 1,067 (804) 263 1,921 675 304 3,163 The following table shows the balance of BTB’s indebtedness on December 31, 2020, including mortgage loans and convertible debentures, based on the year of maturity and corresponding weighted average contractual interest rates: As at December 31, 2020 (in thousands of dollars) Balance of convertible debentures Balance of mortgages payable Weighted average contractual interest rate Year of maturity 2021 2022 2023 2024 2025 2026 and thereafter Total $ — — — 24,000 29,385 — 53,385 $ 105,563 36,108 35,704 83,107 45,161 180,599 486,242 % 3.61 3.86 3.62 4.63 4.87 3.19 3.86 Weighted average contractual interest rate As at December 31, 2020, the weighted average contractual interest rate of the Trust’s long-term debt stood at 3.86% (3.57% for mortgage loans and 6.55% for convertible debentures). Mortgage loans As at December 31, 2020, the Trust’s total mortgage loans amounted to $486,242 compared to $495,247 on December 31, 2019, before unamortized ﬁnancing expenses and fair value assumption adjustments. Fluctuations result from the ﬁnancing of acquisitions completed in 2020, reﬁnancing and principal repayments on monthly payments and dispositions. BTB Reit 2020 Annual Report Page 55 The following table summarizes changes in mortgage loans payable during the quarter and year ended December 31, 2020. Periods ended December 31 (in thousands of dollars) Balance at beginning Mortgage loans contracted or assumed Balance repaid at maturity or upon disposition Monthly principal repayments Balance as at December 31, 2020 Quarter $ 484,417 5,900 — (4,075) 486,242 Year $ 495,247 39,069 (35,691) (12,383) 486,242 Note: Before unamortized ﬁnancing expenses and fair value assumption adjustments. As at December 31, 2020, the weighted average interest rate was 3.57% compared to 3.92% as at December 31, 2019, a decrease of 35 basis points. As at December 31, 2020, except for ﬁve loans with a cumulative balance of $43,967, all mortgages payable bear interest at ﬁxed rates ($381,665) or are subject to an interest rate swap ($60,610). The weighted average term of existing mortgage loans was 4.7 years as at December 31, 2020. It was 5.1 years as at December 31, 2019. BTB attempts to spread the maturities of its mortgages over many years in order to mitigate the risk associated with renewing them. Except for four properties, two of them partially securing the acquisition and operating lines of credit as at December 31, 2020, all of the Trust’s other properties were subject to mortgages as at December 31, 2020. The following table, as at December 31, 2020, shows future mortgage loan repayments for the next few years: As at December 31, 2020 (in thousands of dollars) Maturity 2021 2022 2023 2024 2025 2026 and thereafter Total Unamortized fair value assumption adjustments Unamortized ﬁnancing expenses Balance as at December 31, 2020 Principal repayment Balance at maturity Total % of total $ $ $ 15,597 13,604 11,166 8,813 7,537 29,195 85,912 103,655 31,627 32,624 73,493 37,655 121,276 119,252 45,231 43,790 82,306 45,192 150,471 24.5 9.3 9.0 16.9 9.3 31.0 400,330 486,242 100.0 576 (2,179) 484,639 As at December 31, 2020, the Trust was in compliance with all the covenants to which it was subject. Page 56 Convertible debentures (in thousands of dollars) Par value Contractual interest rate Effective interest rate Date of issuance Per-unit conversion price Date of interest payment Maturity date Series G(1)(3) 24,000 6.00% 7.30% Series H(2)(3) 29,385(4) 7.00% 8.28% October 2019 September 2020 $5.42 $3.64 April 30 and October 31 April 30 and October 31 October 2024 October 2025 Total 53,385 Balance as at December 31, 2020 22,954 25,362 48,316 (1) 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. (2) Redeemable by the Trust, under certain conditions, as of October 31, 2023, but before October 31, 2024, 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 H conversion price and, as of October 31, 2024, but before October 31, 2025, 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 G and H debentures by issuing freely tradable units to Series G and H debenture holders. (4) Conversion of $615 of the Series H debenture in the fourth quarter 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 mortgage 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. The following table presents the Trust’s debt ratios as at December 31, 2020 and 2019. (in thousands of dollars) Cash and cash equivalent Mortgage loans outstanding(1) Convertible debentures(1) Acquisition credit facility Total long-term debt less free cash ﬂow Total gross 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, 2020 December 31, 2019 $ $ (9,062) 486,242 53,385 15,300 545,865 918,508 52.9% 5.8% 1.7% 59.4% (1,803) 495,247 50,700 10,200 554,344 938,131 52.8% 5.4% 1.1% 59.1% According to the table above, the mortgage debt ratio, excluding the convertible debentures and acquisition credit facility as at December 31, 2020, amounted to 52.9%, up by 0.1% from December 31, 2019. Including the convertible debentures and the acquisition credit facility, the total debt ratio stood at 59.4%, up by 0.3% from December 31, 2019. 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. BTB Reit 2020 Annual Report Page 57 Liquidity refers to the Trust having credit availability under committed credit facilities and/or generating sufficient amounts of cash and cash equivalents to fund the ongoing operational commitments including maintenance capital and development capital expenditures, distributions to Unitholders and planned growth in the business. BTB maintains an operating credit facility to provide ﬁnancial liquidity which can be drawn or repaid on short notice, reducing the need to hold liquid resources in cash and deposits. Management continues to believe the Trust is well positioned to manage through the pandemic based on the improved balance sheet over the years (total debt ratio below 60%), a short term debt maturities that are under way to be reﬁnanced, a pool of assets that can be used to structure new lines of credit, and the liquidity of the portfolio in the event of an opportunistic asset sale. Interest coverage ratio For the quarter ended December 31, 2020, the interest coverage ratio stood at 2.24, a decrease of 10 basis point from the fourth quarter of 2019. For the year, the ratio stood at 2.24, an increase of 6 basis points compared to 2019. Periods ended December 31 (in thousands of dollars, except for the ratios) Net operating income Interest expenses net of ﬁnancial income(1) Interest coverage ratio Quarter Year 2020 $ 12,767 5,687 2.24 2019 $ 14,174 6,064 2.34 2020 $ 51,260 22,903 2.24 2019 $ 50,897 23,402 2.18 (1) Interest expenses excludes early repayment fees, 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 and Class B LP units. Class B LP units Periods ended December 31, 2020 (in number of units) Class B LP units outstanding, beginning of period Exchange into Trust units Fair value adjustment Quarter Year Units 397,265 — — $ 1,160 — 242 Units 497,265 (100,000) — Class B LP units outstanding, end of period 397,265 1,402 397,265 $ 2,571 (391) (778) 1,402 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. In accordance with IFRS principles, distributions paid on Class B LP units are recorded as ﬁnancial expenses when declared. Distributions declared are adjusted in calculating FFO and AFFO. On May 4, 2020, at the request of the holders, 100,000 Class B LP units were exchanged for units of BTB. The Class B LP units were issued on May 30, 2018 in payment for the acquisition of a residual portion of “Complexe Lebourgneuf – Phase II” in Québec City (less the portion related to the mortgage loan assumption by BTB). The holders of the Class B LP units were entitled to a $30 distribution during the fourth quarter of 2020, and a $157 distribution for the year. Distribution reinvestment plan 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, 214,660 units were issued during the fourth quarter of 2020 (2019: 178,531 units). Page 58 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 2020 2019 2020 2019 Units outstanding, beginning of the period 63,047,077 62,036,146 62,251,558 55,317,723 Units issued — — — 6,157,100 Distribution reinvestment plan 214,660 178,531 836,685 677,771 Issued – deferred unit compensation plan Issued – employee unit purchase plan Issued – restricted unit compensation plan Class B LP units exchanged into Trust units Issued – conversion of convertible debentures — — 8,742 — 168,956 — — 1,881 35,000 — 2,973 11,194 68,069 100,000 168,956 — 9,253 54,711 35,000 — Units outstanding, end of the period 63,439,435 62,251,558 63,439,435 62,251,558 Weighted average number of units outstanding 63,228,210 62,139,488 62,809,836 59,098,137 Weighted average number of Class B LP units and units outstanding 63,625,475 62,661,481 63,240,981 59,627,813 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, 2020 and 2019. Periods ended December 31 (in number of units) Deferred units outstanding, beginning of the period Trustees’ compensation Distributions paid in units Settled Quarter Year 2020 83,466 2,512 1,942 — 2019 56,699 1,707 1,236 — 2020 59,642 23,956 7,295 (2,973) 87,920 2019 37,055 18,071 4,516 — 59,642 Deferred units outstanding, end of the period 87,920 59,642 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 growth objectives and align their interests with the interests of unitholders. The purpose of the plan is also an executive retention tool. The following table summarizes restricted units outstanding during the quarters and years ended December 31, 2020 and 2019. Periods ended December 31, (in number of units) Restricted units outstanding, beginning of the period Granted Cancelled Settled Restricted units outstanding, end of the period Quarter Year 2020 143,951 11,656 (7,141) (8,742) 139,724 2019 167,892 153 (1,152) (1,881) 165,012 2020 165,012 60,893 (18,112) (68,069) 139,724 2019 138,919 82,622 (1,818) (54,711) 165,012 BTB Reit 2020 Annual Report Page 59 Employee unit purchase plan The Trust offers its employees an optional unit purchase plan. Under this plan, the employees may contribute, each year, from 3% to a maximum of 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 to the employee one unit from treasury. 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, among 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 lots clean-up, development of a client service and preventive maintenance software, and environmental risk management. As mentioned above, BTB contributes to sustainable development and is committed to mobilize 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 implemented 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. Initiatives 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 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 school located in Montréal’s West Island, but to also help purify and ﬁlter the ecosystem. More than forty-ﬁve 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. Their mission is to ﬁght 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 societal issues. SDS acts as an intermediary between the business world and communities by transparently and impartially involving businesses in more practical and humanitarian projects. Page 60 Income Taxes The Trust is taxed as a mutual fund trust for Canadian income tax purposes. The trustees intend to distribute or allocate all of the taxable income to its unitholders and to deduct these distributions for income tax purposes. A special tax regime applies to trusts that are considered speciﬁed investment ﬂow-through (SIFT) entities as well as those individuals who invest in SIFT entities. Under this regime, SIFT entities must generally pay taxes on their income at rates that are close to those of companies. In short, a SIFT entity is an entity (including a trust) that resides in Canada, whose investments are listed on a stock exchange or other public market and that holds one or more non-portfolio properties. However, for a given taxation year, BTB is not considered a SIFT entity and is therefore not subject to SIFT rules if, during that year, it constitutes a real estate investment trust (REIT). Generally, to qualify as a REIT, a trust must be resident in Canada and meet the following conditions all year long: (i) the total fair market value of all the ”non-portfolio properties“ that are “qualiﬁed REIT properties” held by the trust is at least 90% of the total fair market value at that time of all the “non portfolio assets” held by the trust (ii) not less than 90% of its “gross REIT revenue” for the taxation year is from one or more of the following sources: rent from “real or immovable properties,” interest, dispositions of “real or immovable properties” that are capital properties, dividends, royalties and dispositions of “eligible resale properties” (iii) not less than 75% of its “gross REIT revenue” for the taxation year comes from one or more of the following sources: rent from “real or immovable properties,” interest from mortgages on “real or immovable properties,” and dispositions of “real or immovable properties” that are capital properties (iv) at each time in the taxation year, an amount that is equal to 75% or more of the equity value of the trust at that time, is the amount that is the total fair market value of all properties held by the trust, each of which is “real or immovable property” which is a capital property, an “eligible resale property,” the 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, 2020, 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. Taxation of Unitholders For Canadian unitholders, to the best of the Trust management’s knowledge, distributions are qualiﬁed as follows for taxation purposes: Periods ended December 31 Taxable as other income Tax deferred Total 2020 % – 100 100 2019 % – 100 100 BTB Reit 2020 Annual Report Page 61 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. Risks and Uncertainties Numerous risks and uncertainties could cause BTB’s actual results to differ materially from those expressed, implied or projected in the forward-looking statements, including those described in the “Risk Factors” section of BTB’s 2020 Annual Information Form for the year ended December 31, 2020, 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 Page 62 Disclosure Controls and Procedures and Internal Control Over Financial Reporting The President and Chief Executive Officer and the 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, 2020, 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, 2020, 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 2020, 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; • 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 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 revenue; • 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 quarter 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 revenue. BTB Reit 2020 Annual Report Page 63 Appendix 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 revenue Rental revenue 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 revenue 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 revenue 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 $486 million as at December 31, 2020, compared to $495 million as at December 31, 2019. • Series G and H convertible debentures for a total par value of $48.3 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 expected credit losses 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. Page 64 Fair value adjustment on investment properties Under IAS 40, the Trust accounts for its investment properties at fair value and recognizes the gain or loss arising from a change in the fair value in proﬁt or loss for the quarters in which it arises. The fair value of investment properties is determined using the discounted cash ﬂow method, the capitalized net operating income method or the comparable method, which are generally accepted valuation methods. Management receives quarterly capitalization rate and discount rate data from external chartered valuators and independent experts. The capitalization rate reports provide a range of rates for various geographic regions and for various types and qualities of properties within each region. The Trust utilizes capitalization and discount rates within ranges provided by external valuators. To the extent that the externally provided capitalization rate ranges change from one reporting quarter to the next or should another rate within the provided ranges be more appropriate than the rate previously used, the fair value of the investment properties would increase or decrease accordingly. Same-property portfolio The same-property portfolio includes all the properties owned by BTB as at January 1, 2020 and still owned as at December 31, 2020, but does not include the ﬁnancial impacts from dispositions, acquisitions and developments completed in 2019 and 2020, 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 revenue from properties from the same-property portfolio, less operating expenses and interest on mortgage ﬁnancing of the same portfolio. 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. BTB Reit 2020 Annual Report Page 65 Adjusted funds from operations (AFFO) The notion of adjusted funds from operations (“AFFO”) is widely used by real estate companies and real estate investment trusts. It is an additional measure to assess the Trust’s performance and its ability to maintain and increase distributions in the long term. However, AFFO is not a ﬁnancial or accounting measure prescribed by IFRS. The method of computing may differ from those used by other companies or real estate investment trusts and may not be used for comparison purposes. BTB deﬁnes AFFO as its FFO, adjusted to consider other non-cash items that impact comprehensive income and do not enter into the calculation of FFO, including: • Straight-line rental revenue 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. Page 66 BTB Reit 2020 Annual Report Page 67 Audited Consolidated Financial Statements Year ended December 31, 2020 TABLE OF CONTENTS 72 Consolidated Statements of Financial Position 73 Consolidated Statements of Comprehensive Income 74 Consolidated Statements of Changes in Unitholders’ Equity 75 Consolidated Statements of Cash Flows 76 Notes to Consolidated Financial Statements Page 68 Management’s Responsibility For Financial Reporting The accompanying consolidated ﬁ nancial 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 ﬁ nancial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”). Financial information appearing throughout our MD&A is consistent with these consolidated ﬁ nancial statements. In discharging our responsibility for the integrity and fairness of the consolidated ﬁ nancial 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, 2020, the President and Chief Executive Offi cer and the Vice President and Chief Financial Offi cer of BTB had an evaluation carried out, under their direct supervision, of the eff ectiveness of the controls and procedures used for the preparation of ﬁ lings, as deﬁ ned in Multilateral Instrument 52-109 of the Canadian Securities Administrators. Based on that evaluation, they concluded that the disclosure controls and procedures were eff ective. The Board of Trustees oversees management’s responsibility for ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial 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, 2020 and 2019 and their report follows. The auditors have full and unrestricted access to the Audit Committee to discuss their audit and related ﬁ ndings. Michel Léonard President and Chief Executive Offi cer Mathieu Bolté Vice President and Chief Financial Offi cer Montréal, March 12, 2021 BTB Reit 2020 Annual Report Page 69 KPMG LPP 600 de Maisonneuve Blvd. West Suite 1500, Tour KPMG Montréal (Québec) H3A 0A3 Canada Telephone (514) 840-2100 Fax (514) 840-2187 Internet 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, 2020 and 2019 • 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, 2020 and 2019, 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. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our auditors’ report. Evaluation of the fair value of investment properties Description of the matter We draw attention to Note 2 (e)(ii) and Note 4 to the financial statements. Investment properties are stated at fair value at each reporting date. The Entity has recorded investment properties at fair value for an amount of $903,870 thousand. Fair value is determined by management using internally generated valuation models and by independent expert appraisers using recognized valuation techniques. The determination of the fair value of investment properties requires the use of estimates such as future cash flows from assets. The significant inputs used to determine the fair value of investment properties are capitalization rate, terminal capitalization rate and discount rate. © 2020 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved Page 70 Why the matt er is a key audit matt er We identi fi ed the evaluati on of the fair value of investment properti es as a key audit matt er. This matt er represented an area of signifi cant risk of material misstatement given the magnitude of investment properti es and the high degree of esti mati on uncertainty in determining the fair value of investment properti es. In additi on, signifi cant auditor judgment and specialized skills and knowledge were required in performing, and evaluati ng the results of, our audit procedures due to the sensiti vity to the Enti ty’s determinati on fair value of investment properti es to minor changes to signifi cant inputs. How the matt er was addressed in the audit The primary procedures we performed to address this key audit matt er included the following: We evaluated the design and tested the operati ng eﬀ ecti veness of certain controls over the Enti ty’s process for determining the fair values of investment properti es, including controls related to the development of the esti mates of future cash fl ows from assets and signifi cant inputs. For a selecti on of investment properti es, we compared the esti mate of future cash fl ows from assets to the actual historical cash fl ows. We assessed the adjustments, or lack of adjustments, made in arriving at the esti mate of future cash fl ows from assets by taking into account changes in conditi ons and events aﬀ ecti ng the investment properti es and the Enti ty. For a selecti on of investment properti es, we involved valuati ons professionals with specialized skills and knowledge, who assisted in evaluati ng the capitalizati on rates, terminal capitalizati on rates and discount rates. These rates were evaluated by comparing them to published reports of real estate industry commentators and considering the features of the specifi c investment property. We evaluated the competence, capabiliti es and objecti vity of the independent expert appraisers by: • Inspecti ng evidence that the appraisers are in good standing with the Appraisal Insti tute; • Considering whether the appraisers have appropriate knowledge in relati on to the specifi c type of investment properti es; and • Reading the reports of the external independent appraisers which refers to their independence Other Informati on Management is responsible for the other informati on. Other informati on comprises: • the informati on, other than the fi nancial statements and the auditors’ report thereon, included in Management’s Discussion and Analysis fi led with the relevant Canadian Securiti es Commissions. • the informati on, other than the fi nancial statements and the auditors’ report thereon, included in a document likely to be enti tled “Annual Report”. Our opinion on the fi nancial statements does not cover the other informati on and we do not and will not express any form of assurance conclusion thereon. In connecti on with our audit of the fi nancial statements, our responsibility is to read the other informati on identi fi ed above and, in doing so, consider whether the other informati on is materially inconsistent with the fi nancial statements or our knowledge obtained in the audit and remain alert for indicati ons that the other informati on appears to be materially misstated. We obtained the informati on included in Management’s Discussion and Analysis fi led with the relevant Canadian Securiti es Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other informati on, we conclude that there is a material misstatement of this other informati on, we are required to report that fact in the auditors’ report. We have nothing to report in this regard. The informati on, other than the fi nancial statements and the auditors’ report thereon, included in a document likely to be enti tled “Annual Report” is expected to be made available to us aft er the date of this auditors’ report. If, based on the work we will perform on this other informati on, we conclude that there is a material misstatement of this other informati on, we are required to report that fact to those charged with governance. Responsibiliti es of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparati on and fair presentati on of the fi nancial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparati on of fi nancial statements that are free from material misstatement, whether due to fraud or error. BTB Reit 2020 Annual Report Page 71 In preparing the fi nancial statements, management is responsible for assessing the Enti ty’s ability to conti nue as a going concern, disclosing as applicable, matt ers related to going concern and using the going concern basis of accounti ng unless management either intends to liquidate the Enti ty or to cease operati ons, or has no realisti c alternati ve but to do so. Those charged with governance are responsible for overseeing the Enti ty’s fi nancial reporti ng process. Auditors’ Responsibiliti es for the Audit of the Financial Statements Our objecti ves are to obtain reasonable assurance about whether the fi nancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditi ng standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to infl uence the economic decisions of users taken on the basis of the fi nancial statements. As part of an audit in accordance with Canadian generally accepted auditi ng standards, we exercise professional judgment and maintain professional skepti cism throughout the audit. We also: • Identi fy and assess the risks of material misstatement of the fi nancial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suffi cient and appropriate to provide a basis for our opinion. The risk of not detecti ng a material misstatement resulti ng from fraud is higher than for one resulti ng from error, as fraud may involve collusion, forgery, intenti onal omissions, misrepresentati ons, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the eﬀ ecti veness of the Enti ty’s internal control. • Evaluate the appropriateness of accounti ng policies used and the reasonableness of accounti ng esti mates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounti ng and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditi ons that may cast signifi cant doubt on the Enti ty’s ability to conti nue as a going concern. If we conclude that a material uncertainty exists, we are required to draw att enti on in our auditors’ report to the related disclosures in the fi nancial statements or, if such 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 conditi ons may cause the Enti ty to cease to conti nue as a going concern. • Evaluate the overall presentati on, structure and content of the fi nancial statements, including the disclosures, and whether the fi nancial statements represent the underlying transacti ons and events in a manner that achieves fair presentati on. • Communicate with those charged with governance regarding, among other matt ers, the planned scope and ti ming of the audit and signifi cant audit fi ndings, including any signifi cant defi ciencies in internal control that we identi fy during our audit. • Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relati onships and other matt ers that may reasonably be thought to bear on our independence, and where applicable, related safeguards. The engagement partner on the audit resulti ng in this auditors’ report is Philippe Grubert. Montréal, Canada March 12, 2021 *CPA auditor, CA, public accountancy permit No. A120220 Page 72 Consolidated Statements of Financial Position As at December 31, 2020 and 2019 (in thousands of CAD dollars) Notes 2020 $ 2019 $ 4 11 5 4 6 7 8 9 23 10 12 11 903,870 924,320 334 — 2,154 6,034 5,212 9,062 263 304 2,596 6,035 3,809 1,803 926,666 939,130 484,639 48,316 15,300 4,232 1,402 810 10,017 18,297 1,586 584,599 342,067 926,666 493,152 49,096 12,460 4,454 2,571 1,050 45 17,984 2,179 582,991 356,139 939,130 ASSETS Investment properties Property and equipment Derivative ﬁnancial instruments Other assets Balance of sale Receivables Cash and cash equivalent 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 Distribution payable to unitholders Total liabilities Unitholders’ equity See accompanying notes to consolidated ﬁnancial statements. Approved by the Board on March 12, 2021. Michel Léonard, Trustee Jocelyn Proteau, Trustee BTB Reit 2020 Annual Report Page 73 Consolidated Statements of Comprehensive Income For the years ended December 31, 2020 and 2019 (in thousands of CAD dollars) Operating revenue Rental revenue Operating expenses Public utilities and other operating expenses Property taxes and insurance expenses Total Operating expenses Résultat d’exploitation net Financial income Expenses Financial expenses Distribution - 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 Prepayment penalties 10 10 15 Net change in fair value of investment properties and disposition expenses 4 Net income being total comprehensive income for the year See accompanying notes to consolidated ﬁnancial statements. Notes 2020 $ 2019 $ 14 92,969 93,602 19,444 22,265 41,709 20,558 22,147 42,705 51,260 50,897 564 475 24,894 157 (778) 7,642 31,915 6,750 — 10,240 2,919 25,115 224 430 1,340 27,109 5,515 176 (33,309) 51,881 Page 74 Consolidated Statements of Changes in Unitholders’ Equity For the years ended December 31, 2020 and 2019 (in thousands of CAD dollars) Balance as at January 1, 2020 305,029 (134,596) 185,706 Notes Unitholders’ contributions Cumulative distribution Cumulative comprehensive income Issuance of units, net of issuance expenses Distribution to unitholders Comprehensive income Balance as at December 31, 2020 Balance as at January 1, 2019 Issuance of units, net of issuance expenses Distribution to unitholders Comprehensive income 13 13 13 13 4,365 — 309,394 — — (21,356) (155,952) — — — 185,706 2,919 309,394 (155,952) 188,625 342,067 Total 356,139 4,365 (21,356) 339,148 2,919 (109,679) 133,825 298,377 274,231 30,798 — 305,029 — — (24,917) (134,596) — — — 133,825 51,881 185,706 30,798 (24,917) 304,258 51,881 356,139 Balance as at December 31, 2019 305,029 (134,596) See accompanying notes to consolidated ﬁnancial statements. BTB Reit 2020 Annual Report Page 75 Consolidated Statements of Cash Flows For the years ended December 31, 2020 and 2019 (in thousands of CAD dollars) Operating activities Net income for the year Adjustment for: Net change in fair value of investment properties and disposition expenses Depreciation of property and equipment Unit-based compensation Straight-line lease adjustment Lease incentive amortization Financial income Net ﬁnancial expenses Adjustments for changes in other working capital items Net cash from operating activities Investing activities Additions to investment properties Net proceeds from disposition of investment properties Acquisition of property and equipment Net cash from (used in) investing activities Financing activities Mortgage loans, net of ﬁnancing expenses Repayment of mortgage loans Bank loans Repayment of bank loans Lease liability payments Net proceeds from convertible debentures issue Repayment of convertible debentures Net proceeds from unit issue Net distribution to unitholders Net distribution – Class B LP units Interest paid Net cash (used in) ﬁnancing activities Net change in cash and cash equivalent Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year See accompanying notes to consolidated ﬁnancial statements. Notes 4 12 14 14 15 4 4 10 2020 $ 2,919 2019 $ 51,881 10,240 (33,309) 100 181 (249) 3,068 (564) 31,915 47,610 (1,465) 46,145 (24,973) 37,274 (171) 12,130 25,297 (39,846) 6,860 (4,020) (56) 28,407 (26,700) — (19,014) (157) (21,787) (51,016) 7,259 1,803 9,062 106 676 (703) 3,003 (475) 27,109 48,288 (1,065) 47,223 (35,082) 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 Page 76 Notes Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (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, Montréal, Quebec, Canada. The consolidated ﬁnancial statements of BTB for the years ended December 31, 2020 and 2019 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”). These consolidated ﬁnancial statements were approved by the Board of Trustees on March 12, 2021. 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) Risks and uncertainties related to the coronavirus pandemic (COVID-19) The COVID-19 pandemic has resulted in the federal and provincial governments enacting emergency measures to combat the spread of the virus. These measures, which included the implementation of travel bans, self-imposed quarantine periods, restrictions on or closures of non-essential businesses and social distancing, have caused an economic slowdown and material disruption to businesses in Canada and globally. Given the continuously evolving circumstances surrounding COVID-19, it is difficult to predict with certainty the nature, extent and duration of COVID-19, and the duration and intensity of resulting business disruptions and related ﬁnancial, social and public health impacts. Such effects could be adverse and material, including their potential effects on the Trust’s business, operations and ﬁnancial performance both in the short-term and long-term. Estimates and assumptions that are most subject to increased uncertainty caused by the COVID-19 relate to the valuation of investment properties and the determination of expected credit losses on receivables (Note 4 and Note 6). The amounts recorded in these consolidated ﬁnancial statements are based on the latest reliable information available to management at the time the consolidated ﬁnancial statements were prepared where that information reﬂects conditions at the date of the consolidated ﬁnancial statements. However, given the heightened level of uncertainty caused by COVID-19, these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the affected asset or liability in the future. d) 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. BTB Reit 2020 Annual Report Page 77 e) 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, and the differences may be material. i) Critical judgements in applying accounting policies The following are critical judgements that management has made in the process of applying accounting policies and that have the most signiﬁcant effect on the amounts recognized in the consolidated ﬁnancial statements: Business combinations The Trust acquires entities that own real estate. At the time of acquisition, the Trust considers whether the acquisition represents the acquisition of a business, i.e., where an integrated set of activities is acquired in addition to the investment property. More speciﬁcally, the following criteria are considered: • The extent to which 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 at acquisition date. ii) Signiﬁcant sources of estimation uncertainty The following are signiﬁcant 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 external appraisers 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. Page 78 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 or stabilized net operating income) and discount, capitalization and terminal capitalization rates applicable to those cash ﬂows. These estimates are based on local market conditions existing at the reporting date. The carrying value for the Trust’s investment properties reﬂects its best estimate for the highest and best use as at December 31, 2020 taking into account the expected impact of COVID-19 at that date (see Note 4). The signiﬁcant methods and assumptions used by management and the independent external appraisers in estimating the fair value of investment properties are set out below: Techniques used for valuing investment properties The 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 income 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 in the form of capitalization rates. 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. Determination of expected credit losses on receivables As a result of COVID-19, the Trust has received numerous requests from tenants asking for rental concessions or payment deferrals. The Trust has agreed to assist some of its tenants with rent deferrals, rent abatements and has participated in the Canada Emergency Commercial Rent Assistance (‘’CECRA’’) Program. In determining its allowance for expected credit losses as at December 31, 2020, the Trust has considered the credit proﬁle of its tenants, historical loss rates as well as the current economic environment. 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) 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 BTB Reit 2020 Annual Report Page 79 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 fairvalue, 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. b) 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. The 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. Page 80 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 Financial Instruments (‘’IFRS 9’’): Asset/Liability Cash and cash equivalents Receivables Mortgage loans payable Convertible debentures Bank loans Trade and other payables Distribution payable to unitholders Derivative ﬁnancial instruments Class B LP Units iii) Impairment Classiﬁcation under IFRS 9 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 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. BTB Reit 2020 Annual Report Page 81 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. c) 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. The Trust makes payments to agents for services in connection with negotiating lease contracts with the Trust’s lessees. These leasing fees are capitalized within the carrying amount of the related investment 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. Page 82 d) 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. e) Leases At contract inception, the Trust assesses whether a contract is or contains a lease based on the deﬁnition of a lease. Under IFRS 16 Leases (‘’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. i) As a lessor The Trust leases out its investment properties, including right-of-use assets. The Trust has classiﬁed these leases as operating leases. The Trust has applied IFRS 15 Revenue from Contracts with Customers to allocate consideration in the contract to each lease and non-lease component. ii) As a lessee 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 properties. 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. BTB Reit 2020 Annual Report Page 83 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. f) Provisions Provisions are recognized when the Trust has a present obligation (legal or constructive) as a result of a past event, it is probable that an outﬂow of resources embodying economic beneﬁts will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where the Trust expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset. The expense relating to any provision is presented in proﬁt or loss, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current rate that reﬂects the risks speciﬁc to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a ﬁnance cost. g) Revenue recognition 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. h) Government grants Government grants are recognized initially as deferred income at fair value when there is reasonable assurance that they will be received and the Trust will comply with the conditions associated with the grant. Grants that compensate the Trust for expenses incurred are recognized in proﬁt or loss on a systematic basis in the same periods in which the expenses are recognized. Grants that compensate the Trust for the cost of an asset are deducted from the carrying amount of the asset. Page 84 i) Earnings per unit The Trust presents basic earnings per unit data for its Trust units. Basic earnings per unit are calculated by dividing the proﬁt or loss attributable to unit holders of the Trust by the weighted average number of Trust units outstanding during the period. j) 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. k) Operating segment An operating segment is a component of the Trust that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Trust’s other components. All operating segments’ operating results are reviewed regularly by the Trust’s Chief Executive Officer (‘’CEO’’) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete ﬁnancial information is available. Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. l) 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. m) Income taxes BTB is a mutual fund trust and a Real Estate Investment Trust (‘’REIT’’) pursuant to the Income Tax Act (Canada). Under current tax legislation, a REIT is entitled to deduct distributions of taxable income such that, it is not liable to pay income tax provided that its taxable income is fully distributed to unitholders. BTB has reviewed the proscribed conditions under the Income Tax Act (Canada) and has determined that it qualiﬁes as a REIT for the year. BTB intends to continue to qualify as a REIT and to make distributions not less than the amount necessary to ensure that BTB will not be liable to pay income taxes. Accordingly, no current or deferred income taxes have been recorded in the consolidated ﬁnancial statements. BTB Reit 2020 Annual Report Page 85 n) 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 pay 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 Adjustments to right-of-use assets Acquisitions of investment properties (note 4(a)) 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 2020 $ 924,320 — 291 30,560 (48,765) 2,765 1,280 4,613 (3,068) 249 (8,375) 903,870 2019 $ 839,015 3,900 — 75,658 (35,950) 5,491 1,301 3,093 (3,004) 703 34,113 924,320 Page 86 The fair value of a subset of the Trust’s investment properties comprised of a selection of the most signiﬁcant investment properties and approximately 1/3 of the remaining investment properties is determined annually on the basis of valuations made by independent external appraisers having appropriate professional qualiﬁcations, using recognized valuation techniques, comprising the Discounted Cash Flow, the Direct Capitalization and Comparable methods. The selection of investment properties subject to independent external appraisal 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 valuation models based on the Direct Capitalization method. In determining the fair value of investment properties, the Trust has considered the effects of COVID-19 on assumptions such as rent growth, vacancy loss assumptions, credit loss assumptions, as well as valuation metrics. The Trust has adjusted cash ﬂow assumptions for its estimate of near-term disruptions to cash ﬂows to reﬂect collections, vacancy and assumptions on new leasing. The Trust undertook a process to assess the appropriateness of the rates considering changes to property level cash ﬂows and any risk premium inherent in such cash ﬂow changes. These considerations are reﬂected in the fair value adjustments of investment properties. At December 31, 2020, independent external appraisals were obtained for investment properties with an aggregate fair value of $584,745 (December 31, 2019 - $581,420). The fair value of investment properties is based on Level 3 inputs. There have been no transfers during the period between levels. The signiﬁcant assumptions used to determine the fair value of the Trust’s investment properties are as follows: As at December 31, 2020 Capitalization rate Terminal capitalization rate Discount rate As at December 31, 2019 Capitalization rate Terminal capitalization rate Discount rate Retail Office Industrial 5.25% – 8.00% 5.00% – 8.50% 5.00% – 8.50% 5.50% – 8.00% 6.00% – 7.50% 5.50% – 7.00% 6.25% – 8.75% 6.75% – 8.25% 6.25% – 7.75% 6.00% – 7.75% 5.00% – 8.25% 5.75% – 8.50% 6.25% – 7.25% 5.25% – 7.50% 6.00% – 7.25% 7.25% – 7.75% 6.25% – 8.00% 6.50% – 8.00% During the fourth quarter of 2020, the six investment properties classiﬁed as Mixed use were designated by the management as Office. Consequently, the “mixed-use” category is no longer used by management. The comparative ﬁgures have been reclassiﬁed to conform to the current year’s presentation. The following table provides a sensitivity analysis of the fair value of investment properties for changes in the weighted average capitalization rate as at December 31, 2020, which is representative of the sensitivity to changes in the discount rate and terminal capitalization rate as at December 31, 2020. Capitalization rate sensitivity Increase (decrease) (0.50%) (0.25%) Base rate 0.25% 0.50% Fair Value $ 980,565 940,523 903,870 870,140 838,378 Change in fair value $ 76,695 36,653 — (33,730) (65,492) BTB Reit 2020 Annual Report Page 87 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) Acquisitions in 2020 Fair value recognized on acquisition Investment properties, including transaction costs Mortgage loan $ $ 21,750 (13,684) Receivable / (Trade and other payables), including transaction costs $ (587) Total cash consideration paid $ 7,479 8,100 710 — (8) 8,092 30,560 (13,684) (710) (1,305) — 15,571 Fair value recognized on acquisition Investment properties, including transaction costs $ 11,790 19,238 42,931 1,699 75,658 Mortgage loan $ (8,050) (12,700) (28,000) — (48,750) Receivable / (Trade and other payables), including transaction costs $ 33 301 (32) (1,699) (1,397) Total cash consideration paid $ 3,773 6,839 14,899 — 25,511 Acquisition date Property type Location Interest acquired % 100 100 February 2020 Office Ottawa, ON Industrial Laval, QC November 2020 Transaction costs Total ii) 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 b) Dispositions i) Dispositions in 2020 Disposal date Property type Location January 2020 Industrial Ingersoll, ON February 2020 Industrial Montréal, QC June 2020 October 2020 Office Office Montréal, QC Montréal, QC Transaction costs (note 4(c)) Total Gross proceeds $ 13,300 9,250 22,082 4,133 Purchaser’s Mortgage assumption $ (9,068) — — — 48,765 (9,068) Receivable / (Trade and other payables), including transaction costs $ (103) (57) (576) 178 (1,865) (2,423) Net proceeds $ 4,129 9,193 21,506 4,311 (1,865) 37,274 Page 88 ii) Dispositions in 2019 Disposal date Property type Location February 2019 March 2019 May 2019 Retail Retail Retail Delson, QC Delson, QC Montréal, QC August 2019 Office Saguenay, QC Transaction costs (note 4(c)) Total Gross proceeds $ Purchaser’s Mortgage assumption Balance of sale $ $ 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) (804) (861) Net proceeds $ 3,947 1,945 7,069 4,399 (804) 16,556 The balance of sale consists of a loan receivable due 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, 2020 is $6,034 (December 31, 2019 - $6,035). c) Net changes in fair value of investment properties and disposition expenses Year ended December 31, Net changes in fair value of investment properties (note 4) Disposition expenses (note 4 (b)) 2020 $ 8,375 1,865 10,240 2019 $ (34,113) 804 (33,309) 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 2020 $ 1,498 656 2,154 2020 $ 4,259 (1,132) 3,127 665 1,420 5,212 2019 $ 1,921 675 2,596 2019 $ 2,801 (716) 2,085 776 948 3,809 BTB Reit 2020 Annual Report Page 89 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. In assessing the adequacy of the allowance for expected credit losses on tenant receivables, management has considered the likelihood of collection of current receivables given the impact on tenant operations of COVID-19 restrictions imposed by various levels of government and the expected eligibility of those tenants to government programs. The Trust’s assessment of expected credit losses is inherently subjective due to the forward-looking nature of the assessments. As a result, the value of the expected credit loss is subject to a degree of uncertainty and is made on the basis of assumptions which may not prove to be accurate with the unprecedented uncertainty caused by COVID-19. 7. Mortgage Loans Payable Mortgage loans payable are secured by immovable hypothecs on investment properties having a fair value of approximately $ 890,020 as at December 31, 2020 (December 31, 2019 – $913,620). 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 2020 $ 381,665 104,577 576 (2,179) 484,639 119,252 3.57% 4.69 2019 $ 387,029 108,218 628 (2,723) 493,152 87,589 3.92% 5.12 2.37 % – 6.80% 2.77% – 6.80% As at December 31, 2020, the mortgage loan scheduled repayments are as follows: 2021 2022 2023 2024 2025 Thereafter Unamortized fair value assumption adjustments Unamortized ﬁnancing expenses Scheduled repayments $ 15,597 13,604 11,166 8,813 7,537 29,195 85,912 Principal maturity $ 103,655 31,627 32,624 73,493 37,655 121,276 Total $ 119,252 45,231 43,790 82,306 45,192 150,471 400,330 486,242 576 (2,179) 484,639 Page 90 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 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 Outstanding amount As at December 31, 2020 As at December 31, 2019 $ 5,162 11,433 22,673 21,342 60,610 $ 5,391 11,628 23,098 21,943 62,060 As at December 31, 2020, the Trust had two series of subordinated, convertible, redeemable debentures outstanding. Capital 24,000 29,385 Series G Series H Interest rates Coupon Effective % 6.00 7.00 % 7.30 8.28 Unit conversion price $ 5.42 3.64 Interest payments Maturity Semi-annual Semi-annual October 2024 October 2025 As at December 31, 2020 Non-derivative liability component upon issuance Accretion of non-derivative liability component Conversion options exercised by holders Unamortized ﬁnancing expenses Non-derivative liability component Series G Series H $ $ 24,000 — 24,000 — 24,000 (1,046) 22,954 27,309 104 27,413 (561) 26,852 (1,490) 25,362 Total $ 51,309 104 51,413 (561) 50,852 (2,536) 48,316 Conversion and redemption options liability component at fair value 12 6,474 6,486 As at December 31, 2019 Non-derivative liability component upon issuance Charges de ﬁnancement non amorties Non-derivative liability component Series F Series G $ $ 26,700 (336) 26,364 24,000 (1,268) 22,732 Total $ 50,700 (1,604) 49,096 Conversion and redemption options liability component at fair value 45 — 45 BTB Reit 2020 Annual Report Page 91 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 were redeemed for their nominal value on October 26, 2020. 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”). 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. Series H In September 2020, the Trust issued Series H subordinated convertible, redeemable, unsecured debentures bearing 7.00% interest payable semi-annually and maturing on October 31, 2025, in the amount of $30,000. The debentures are convertible at the holder’s option at any time before October 31, 2025, at a conversion price of $3.64 per unit (“Series H Conversion Price”). These debentures are not redeemable before October 31, 2023, except in the case of a change in control. As of October 31, 2023, but before October 31, 2024, 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, 2024, but before October 31, 2025, 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. During the fourth quarter of 2020, conversion options have been exercised by holders on debentures representing a nominal amount of $618. 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, 2020, $15,300 was due under the acquisition line of credit (December 31, 2019 – $10,200). 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, 2020, no amount was due under the operating credit facility (December 31, 2019 – $2,260). Page 92 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 $5,700 and by an immoveable second rank hypothec on six properties having a fair value of $133,750. 10. Class B LP Units Units outstanding, beginning of year Exchange into Trust units (note 13) Fair value adjustment Units outstanding, end of year Year ended December 31, 2020 Year ended December 31, 2019 Units 497,265 (100,000) 397,265 $ 2,571 (391) (778) 1,402 Units 532,265 (35,000) 497,265 $ 2,315 (174) 430 2,571 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. The Class B LP Units are entitled to distribution equal to distribution declared on Trust units, on a one-to-one basis. Distribution on Class B LP Units are recognized in the statement of comprehensive income when declared. Distribution to Class B LP unitholders Distribution per Class B LP unit 11. Fair Value Measurement Year ended December 31, 2020 $ 157 0.34 2019 $ 224 0.42 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 equivalent, restricted cash, receivables, balance of sale, trade and other payables and distribution payable to unitholders, which approximated their carrying amount as at December 31, 2020 and December 31, 2019 because of their short-term maturity or because they bear interest at current market rates. As at December 31, 2020 Measured at fair value Conversion and redemption options of convertible debentures (note 8) Interest rate swap liability 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 $ 6,486 3,531 1,402 Level 1 Level 2 Level 3 Fair value $ $ $ — — 1,402 — 3,531 — 484,639 — 507,807 54,802 15,300 53,703 — — 15,300 6,486 — — — — — BTB Reit 2020 Annual Report Page 93 As 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) Carrying amount $ 45 (304) 2,571 Level 1 Level 2 Level 3 Fair value $ — — 2,571 $ — (304) — 493,152 — 506,430 49,141 12,460 52,827 — — 12,460 $ 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. The following tables provide a reconciliation of Level 3 fair value measurements on the consolidated statements of ﬁnancial position: Conversion and redemption options of convertible debentures Year ended December 31, 2020 Balance beginning of year Issue of Series H subordinated convertible redeemable debentures Conversion options exercised by holders Change for the period recognized in proﬁt or loss under Net adjustment to fair value of derivative ﬁnancial instruments Balance end of year $ 45 2,691 (57) 3,807 6,486 Conversion and redemption options of convertible debentures 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 $ (45) 90 45 Page 94 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, 2020: Conversion and redemption options of convertible debentures Volatility Volatility sensitivity Increase (decrease) (0.50%) December 31, 2020 0.50% $ % 6,422 6,486 6,664 28.59 29.09 29.59 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 Distribution paid in units Settled Outstanding, end of year 2020 2019 Deferred units Deferred units 59,642 23,956 7,295 (2,973) 87,920 37,055 18,071 4,516 — 59,642 As at December 31, 2020, the liability related to the plan was $306 (December 31, 2019 - $306). The related expense recorded in proﬁt or loss amounted to $16 for year ended December 31, 2020 ($153 for the year ended December 31, 2019). 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, 2020, the liability related to the plan was $47 representing a total of 14,351 units to issue (December 31, 2019 - $58, representing a total of 11,194 units to issue). The related expense recorded in proﬁt and loss amounted to $49 for the year ended December 31, 2020 (for year ended December 31, 2019 - $61). The 14,351 units related to 2020 purchases were issued in February 2021 (11,194 units related to 2019 purchases - February 2020). Garder avec la paragraphe précédent BTB Reit 2020 Annual Report Page 95 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 the years ended December 31, Outstanding, beginning of year Granted Cancelled Settled Outstanding, end of year 2020 2019 Restricted units Restricted units 165,012 60,893 (18,112) (68,069) 139,724 138,919 82,622 (1,818) (54,711) 165,012 As at December 31, 2020, the liability related to the plan was $457 (December 31, 2019 - $686). The related expense recorded in proﬁt and loss amounted to $116 for the year ended December 31, 2020 (for the year ended December 31, 2019 – $462). 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. Trust units issued and outstanding are as follows: For the years ended December 31, Units 2020 $ Units Trust units outstanding, beginning of year 62,251,558 305,029 55,317,723 Issue pursuant to a public issue Trust unit issuance costs — — — — 6,157,100 — 62,251,558 305,029 61,474,823 Issue pursuant to the distribution reinvestment plan (a) 836,685 2,935 677,771 Issue pursuant to the deferred unit compensation plan (note 12 (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 Issue pursuant to conversion of convertible debentures (note 8) 2,973 11,194 68,069 100,000 168,956 16 60 345 391 618 — 9,253 54,711 35,000 2019 $ 274,231 28,754 (1,534) 301,451 3,110 — 43 251 174 Trust units outstanding, end of year 63,439,435 309,394 62,251,558 305,029 a) Distribution reinvestment plan BTB offers a distribution reinvestment plan for its trust unitholders. Participation in the plan is optional and under the terms of the plan, cash distribution 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. Page 96 b) Distribution For the years ended December 31, Distribution to unitholders Distribution 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 Government assistance programs related rent abatements Government assistance programs Lease incentive amortization Straight-line lease adjustment 2020 $ 21,356 0.34 2020 $ 58,053 — 19,218 77,271 18,797 (2,122) 1,842 (3,068) 249 92,969 2019 $ 24,917 0.42 2019 $ 56,844 1,062 18,434 76,340 19,562 — — (3,003) 703 93,602 On May 25, 2020, the Government of Canada announced the CECRA program which provides relief for eligible businesses experiencing ﬁnancial hardship due to COVID-19. Under the CECRA program, the Trust abated 75% of gross rents due for April to September 2020 for CECRA-eligible tenants. In exchange of the abatements granted, the Trust was granted forgivable interest free loans from the Government of Canada amounting to 50% of gross rents due for April to September 2020, resulting in net abatements of 25%. In order to maximize the participation of commercial building owners in the CECRA program, the Government of Québec compensated 50% of the property owners’ loss. These owners, who were to commit to absorb a 25% loss by enrolling in this program, were eligible to receive an amount equivalent to 12.5% of the total cost of rent thereby reducing their loss by half. As at December 31, 2020, the Trust has met all the criteria under the CECRA program for the loans to be forgiven. 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. Future minimum base rentals receivable under non-cancellable operating leases as at December 31, 2020 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 2020 $ 57,833 52,437 44,532 38,775 33,484 88,050 315,111 BTB Reit 2020 Annual Report Page 97 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 (note 8) Accretion of effective interest on mortgage loans payable and convertible debentures Distribution - Class B LP Units (note 10) Fair value adjustment – Class B LP Units (note 10) Impact of early redemption of convertible debenture series E Early repayment fees of a mortgage loan 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 2020 $ 18,786 3,542 836 216 87 104 1,244 157 (778) — 79 7,642 31,915 2020 $ 100 7,752 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 18. Capital and Financial Risk Management 2020 $ 2,919 2019 $ 51,881 62,809,836 59,098,137 0.05 0.88 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. Page 98 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) 2020 $ (9,062) 486,242 53,385 15,300 545,865 926,666 904 (9,062) 918,508 2020 % 59.4 52.9 2019 $ (1,803) 495,247 50,700 10,200 554,344 939,130 804 (1,803) 938,131 2019 % 59.1 52.8 This note presents information about the Trust’s exposure to each of the above risks, the Trust’s objectives, policies and processes for measuring and managing risk, and the Trust’s management of capital. Further quantitative disclosures are included throughout these consolidated ﬁnancial statements. i) Credit risk Credit risk arises from the possibility that tenants may experience ﬁnancial difficulty and be unable to fulﬁll their lease commitments. The Trust mitigates this risk by varying its tenant mix and staggering lease terms; avoiding dependence on a single tenant for a signiﬁcant portion of the Trust’s operating revenues and conducting credit assessments for all major new tenants. The Trust analyzes its trade receivable on a regular basis and 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, 2020, overdue rent receivable amounted to $2,051 (December 31, 2019 - $1,959), for which an allowance for expected credit losses of $1,132 (December 31, 2019 - $716) 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. BTB Reit 2020 Annual Report Page 99 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 $43,967 as at December 31, 2020, 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 $4,397 on the Trust’s comprehensive income for the year ended December 31, 2020. iii) Liquidity risk Liquidity risk is the risk that the Trust will not be able to meet its ﬁnancial obligations as they come due. 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, 2020, the Trust was in compliance with all the covenants to which it was subject. The 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, 2020 Estimated payment schedule Carrying amount Total contractual cash ﬂows 2021 2022 2023 2024 2025 $ $ $ 18,297 18,355 18,327 1,586 10,333 15,300 1,586 224 15,300 $ 16 — 226 — $ 12 — 228 — $ — — 231 — $ — — 237 — 2026 and thereafter $ — — 9,187 — 640,965 139,003 62,138 58,579 117,805 83,596 686,539 174,440 62,380 58,819 118,036 83,833 179,844 189,031 Trade and other payables Distributions payable to unitholders Lease liabilities Bank loans Mortgage loans payable and convertible debentures 1,586 4,232 15,300 532,955 572,370 Page 100 As at December 31, 2019 Estimated payment schedule Carrying amount Total contractual cash ﬂows 2021 2022 2023 2024 2025 $ $ $ 17,984 18,110 18,028 2,179 4,454 2,179 10,594 2,179 322 12,460 12,460 12,460 $ 67 — 330 — $ 9 — 332 — $ 6 — 334 — 2026 and thereafter $ — — $ — — 294 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 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 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 BTB Real Estate Limited Partnership Limited Partnership 100% owned by BTB A&OT Lombard Limited Partnership Place d’affaire Lebourgneuf Phase II (“PAL II”) General Partnership Société immobilière Cagim Limited Partnership 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 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 2020 % 50 50 2019 % 50 50 BTB Reit 2020 Annual Report Page 101 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 2020 $ 19,157 9,941 1,957 (2,561) 2019 $ 20,007 10,141 2,372 1,420 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 and industrial segments. Consequently, the Trust is considered to have three operating segments, as follows: • Retail • Office • Industrial Year ended December 31, 2020 Investment properties Rental revenue from properties Net operating income Year ended December 31, 2019 Investment properties Rental revenue from properties Net operating income Retail $ 246,415 27,476 16,177 265,487 26,935 16,102 Office $ 493,800 54,018 27,686 500,113 53,815 26,559 Industrial $ Total $ 163,655 903,870 11,475 7,397 92,969 51,260 158,720 924,320 12,852 8,236 93,602 50,897 During the fourth quarter of 2020, the six investment properties classiﬁed as Mixed use were designated by management as Office. Consequently, the “mixed-use” category is no longer used by management. The comparative ﬁgures have been reclassiﬁed to conform to the current year’s presentation. Page 102 21. 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 Capitalized interest on mortgage loans Repayment of mortgage loans Asset acquisitions mortgage assumption Asset dispositions mortgage assumption Net proceeds from issuance of convertible debentures Initial recognition of conversion and redemption options liability component Repayment of convertible debentures Conversion of convertible debentures Fair value assumption adjustments and ﬁnancing costs amortization Accretion of non-derivative liability component Balance end of year $ 49,096 — — — — — 28,407 (2,691) (26,700) (561) 661 104 48,316 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 Key management personnel are comprised of the Company’s executive officers. 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 2020 $ 2,572 103 2,675 2020 $ 224 922 9,187 10,333 4,232 13 4,219 $ 493,152 25,297 837 (39,846) 13,684 (9,068) — — — — 583 — 484,639 2019 $ 2,191 604 2,795 2019 $ 322 1,290 8,982 10,594 4,454 105 4,349 BTB Reit 2020 Annual Report Page 103 Amounts recognised in proﬁt and loss and statement of cash ﬂow As at December 31, Proﬁt and loss Interest on lease liabilities (Note 15) Expenses relating to leases of low-value assets Statement of cash ﬂow Total cash outﬂow for leases b) Litigation 2020 2019 $ 216 108 372 271 105 418 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. Comparatives Figures Certain comparative ﬁgures have been reclassiﬁed to conform to the current year’s presentation. Page 104 e t a r o p r o C n o i t a m r o f n I Board of Trustees Jocelyn Proteau(2) Chairman of the Board of Trustees and Trustee Jean-Pierre Janson(2) Vice President of the Board of Trustees and Trustee Michel Léonard President and Chief Executive Officer and Trustee Luc Martin(1) President of the Audit Committee and Trustee BTB Reit 2020 Annual Report Page 105 Fernand Perreault(3) President of the Investment Committee and Trustee Lucie Ducharme(1)(2) President of the Human Resources and Governance Committee and Trustee Luc Lachapelle(1) Trustee Sylvie Lachance(3) Trustee Peter Polatos Trustee Executive Team Michel Léonard President and Chief Executive Officer and Trustee Mathieu Bolté Vice-President and Chief Financial Officer (1) Member of the Audit Committee (2) Member of the Human Resources and Governance Committee (3) Member of the investments Committee s r e d l o h t i n U n o i t a m r o f n I Head office BTB Real Estate Investment Trust 1411 Crescent, Suite 300 Montréal, Québec, 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.G BTB.DB.H Transfer Agent Computershare Investor Services 1500 Robert-Bourassa Blvd 7th ﬂoor, Montréal, Québec, 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 2020, 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 Montréal, Québec, H3A 0A3 Legal counsel De Grandpré Chait LLP. 800 Rene-Lévesque Boulevard West Suite 2600 Montréal, Québec, H3B 1X9 Annual Meeting of Unitholders June 15th 2021 10:00 a.m. (EDT) Virtual Webinar Montréal, Québec, 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. btbreit.com

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