2019 Annual Report
Building on Our Strengths
Kings Club in Liberty Village, Toronto, ON
CAPREIT Profile
Canadian Apartment Properties REIT (“CAPREIT”) is one of Canada’s largest real estate
investment trusts. CAPREIT owns approximately 55,100 suites, including townhomes
and manufacturing housing sites, in Canada and, indirectly through its investment in
ERES, approximately 5,600 suites in the Netherlands. CAPREIT manages approximately
59,200 of its owned suites in Canada and the Netherlands, and additionally 3,700 suites
in Ireland as at December 31, 2019.
2019 Highlights and Objectives
Objectives
Highlights
• To provide Unitholders with long-term, stable and
• Strong accretive portfolio growth and diversification
• Now country’s second largest participant in strong and
predictable monthly cash distributions;
• To grow NFFO, sustainable distributions and Unit value
through the active management of its properties, accretive
acquisitions, developments, intensifications and strong
financial management; and
• To invest capital within the property portfolio in order to
maximize earnings and cash flow potential and to help
ensure life safety of residents.
stable MHC business
• Modernizing portfolio with acquisition of newer
properties
• Accretive development and intensification projects begun
• Increased returns from investments in Irish and
Netherlands markets
• Revenues up on continuing high occupancies and
increases in average monthly rents
• Solid organic growth with same property NOI up 4.9%
• NFFO up 17.2% on revenue growth, increased NOI
• Strong accretive growth as NFFO per Unit up 5.7%
• Maintaining strong and flexible balance sheet and
financial position to facilitate future growth
2019 Selected Financial Highlights
For more than 21 years, CAPREIT has delivered
strong and accretive growth for its Unitholders.
2019 was yet another record year as we achieved
solid increases in all of our key performance
benchmarks.
For the Year Ended December 31
Portfolio Performance
Overall portfolio occupancy(1)
Overall portfolio net Average Monthly Rents(1)
Operating revenues (000s)
NOI (000s)(2)
NOI margin(2)
Financial Performance
FFO per Unit – basic(3)
NFFO per Unit – basic(3)
Cash distributions per Unit
FFO payout ratio(3)
NFFO payout ratio(3)
Liquidity and Leverage
Total debt to gross book value(1)
Total debt to gross historical cost(1)
Weighted average mortgage interest rate(1)
Weighted average mortgage term (years)(1)
Debt service coverage (times)(4)
Interest coverage (times)(4)
2019
2018
$
$
$
$
$
$
$
$
$
$
$
$
98.2%
1,084
777,884
508,150
65.3%
2.111
2.139
1.372
65.5%
64.6%
34.99%
48.24%
2.78%
5.13
1.87
3.69
98.9%
1,103
688,585
440,565
64.0%
1.995
2.024
1.313
66.7%
65.7%
39.37%
54.54%
3.05%
5.10
1.75
3.44
66,325
25,713
Available liquidity – Acquisition and Operating Facility (000s)(1)
Available cash and cash equivalents (000s)(1)
$
$
146,170
477,329
$
$
(1) As at December 31.
(2) 2018 comparative balances have been adjusted to conform with the current period due to the adoption of IFRS 16, which is effective January 1, 2019. For details,
see NOI in Section III.
(3) These measures are not defined by IFRS, do not have standard meanings and may not be comparable with other industries or companies (see Section I – Non-IFRS
Financial Measures).
(4) Based on the trailing four quarters.
1
CAPREIT | 2019 | ANNUAL REPORT Canadian Portfolio
Strong & Diversified
Portfolio
43,401
Total Suites
99.2%
Occupancy
$1,260
Net Average
Monthly
Rent
12%
6%
1%
53%
23%
1%
Alberta
Saskatchewan
Ontario
Quebec
PEI
Alberta
Total Suites
Occupancy
Net Avg Rent
Nova Scotia
Total Suites
Occupancy
Net Avg Rent
5,101
99.1%
$1,403
10,172
99.2%
$1,006
Saskatchewan
Total Suites
Occupancy
Net Avg Rent
P.E.I.
Total Suites
Occupancy
Net Avg Rent
2,398
97.3%
$1,113
1,659
98.1%
$1,184
Ontario
234
Total Suites
97.9%
$1,035
Occupancy
Net Avg Rent
643
99.1%
$1,083
British
Columbia
British Columbia
Total Suites
Occupancy
Net Avg Rent
Quebec
Total Suites
Occupancy
Net Avg Rent
2
4%
Nova
Scotia
23,194
99.2%
$1,375
CAPREIT | 2019 | ANNUAL REPORT De Kameleon Amsterdam Karspeldreef
Netherlands
European Portfolio
Netherlands
Through our ownership interest in
European Residential REIT (ERES),
we are generating a growing base
of fee revenues for our asset and
property management services in
the vibrant Netherlands market.
5,632
Total Suites
97.2%
Occupancy
$1,231
Net Average
Monthly Rent
Ireland
In 2019 we increased our ownership
in Irish Residential REIT (IRES). We
provide property management services
to IRES’ portfolio in Ireland, generating
a 10.3% increase in fees in 2019 and
over $7.2 million in dividends.
3,666
Total Suites
98.3%
Occupancy
$2,327
Net Average
Monthly Rent
Beacon South Quarter
Sandyford Dublin
3
CAPREIT | 2019 | ANNUAL REPORT (Clockwise from left)
Mark Kenney, President and Chief Executive Officer • Scott Cryer, Chief Financial Officer
Corinne Pruzanski,General Counsel and Corporate Secretary • Jodi Lieberman, Chief Human Resources Officer
Looking ahead, we will continue to deliver on the programs and
strategies that have generated such strong growth and performance
since CAPREIT’s founding in 1997, focusing on our long-term
mission of making CAPREIT the best place to Live, Work and Invest.
4
CAPREIT | 2019 | ANNUAL REPORT Report to Unitholders
Nursery Heights, 301 Nursery Hill, Victoria, BC
Report to Unitholders
2019 was another record year for CAPREIT as strong and accretive portfolio
growth, combined with our proven and successful property management
programs, drove solid increases in all our key performance benchmarks, while
at the same time we maintained a strong and conservative balance sheet.
Looking ahead, we are confident our continued growth and strong operating
performance will achieve our goal of making CAPREIT the best place to live
for our residents, the best place to work for our people, and the best place to
invest for our Unitholders.
Key Metrics
Operating Revenue
(000s)
4
8
8
,
7
7
7
5
8
5
,
8
8
6
2
4
8
,
8
3
6
1
3
8
,
6
9
5
8
9
7
,
3
3
5
NOI
(000s)
NFFO
(000s)
0
5
1
,
8
0
5
6
5
0
,
9
3
4
8
5
2
,
3
9
3
7
4
9
,
6
6
3
4
1
6
,
4
2
3
1
2
1
,
9
3
3
5
3
3
,
9
8
2
4
7
4
,
0
5
2
8
0
8
,
1
3
2
7
2
0
,
0
0
2
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
5
CAPREIT | 2019 | ANNUAL REPORT Report to Unitholders
Another Record Year
Operating revenues for the year ended December 31,
2019 rose 13.0% to $777.9 million, driven by our strong
portfolio growth during the year, our continuing near-full
occupancies, and a solid 4.1% increase in stabilized average
monthly rents. With this revenue growth, combined with
our proven and successful property management programs,
Net Operating Income (NOI) rose a very strong 15.3% to
$508.2 million for the year. We also generated another year
of industry-leading organic growth as NOI for our stabilized
property portfolio increased 4.9%.
Normalized Funds from Operations (NFFO), our key
performance benchmark, increased 17.2% in 2019 to
$339.1 million, resulting in another year of accretive
growth as NFFO per Unit rose 5.7% to $2.139 despite the
10.9% increase in the weighted average number of Units
outstanding. Our payout ratio of distributions declared to
NFFO remained very conservative at 64.6%.
Importantly, we continue to maintain one of the strongest
balance sheets in our business. Total debt to gross book
value was a conservative 34.99% at year end, well within
our guidelines and providing the resources and flexibility
to maintain our track record of growth. Our mortgage
portfolio remained well-balanced with a weighted average
term to maturity of 5.13 years, adding to the stability of our
long-term cash flows. We also continue to benefit from a
low cost of debt with a weighted average interest rate of only
2.78% at December 31, 2019.
NFFO per Unit – Inception to 2019
Looking ahead, we are confident we will continue to
generate enhanced value for our Unitholders over the long
term. By capitalizing on our strengths and building on the
solid foundation established since our founding in 1997, we
see an exciting future ahead.
BUILDING ON OUR STRENGTHS
Growing and Diversifying our Portfolio
During 2019, we acquired 9,241 residential suites and MHC
sites well-located in our target markets for a total purchase
price of $1.4 billion. With this growth, our total portfolio
consisted of 60,713 suites and sites with a book value of
$13.1 billion at year end, maintaining our position as
Canada’s largest multi-family residential REIT.
Building on the solid
foundation established
since our founding
in 1997, we see an
exciting future ahead.
NFFO per Unit
NFFO Payout Ratio
– 120%
– 100%
– 80%
– 60%
– 40%
– 20%
– 0%
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
$2.500 –
2.000 –
1.500 –
1.000 –
0.500 –
0.000 –
6
CAPREIT | 2019 | ANNUAL REPORT Fraser Flats Apartments, 3618–3688 Sawmill Crescent, Vancouver, BC
BUILDING ON OUR STRENGTHS
Modernizing Our Portfolio
Approximately 27% of our residential property purchases in 2019 were newer properties, further modernizing our asset base.
As an example, six of our acquisitions were brand new and highly attractive properties with features and amenities in high
demand in the market. Our purchase of a 33.3% ownership interest in downtown Toronto’s Kings Club was another example.
These three residential towers containing 506 high-quality luxury rental suites are located over 160,000 square feet of high-end
retail space and 10,000 square feet of office space. The suites range across a number of sizes with many designed for families.
These newer and more modern properties generate higher rents, attract stronger residents, require much less ongoing
maintenance and capital spending, and serve to further strengthen and diversify our overall portfolio. Looking ahead, we
will continue to focus on purchasing newer properties that further enhance our asset base.
Kings Club, 1100 King Street West, Toronto, ON
7
CAPREIT | 2019 | ANNUAL REPORT Report to Unitholders
BUILDING ON OUR STRENGTHS
Capitalizing on Accretive
Development Opportunities
To further achieve our goal of modernizing our property
portfolio, we are prudently evaluating development and
expansion projects at our owned properties. We currently
have two active applications for new developments in
downtown Toronto that will add 274 suites in brand new
buildings. In Montreal, we have been issued a building
permit to add 52 new suites within an existing property to
better utilize vacant commercial space.
Over the long term, we believe we can add more than 8,800
new rental suites, primarily in the strong Toronto, Vancouver
and Montreal markets where demand remains high and
monthly rents support profitable development. Additionally,
these investments generate very accretive returns for our
Unitholders as the projects are on land that we already own.
Davisville, Toronto, ON
BUILDING ON OUR STRENGTHS
Expanding Presence in the MHC Business
In 2019, we acquired 5,183 Manufactured Home Community (MHC) sites, increasing our total MHC portfolio to 11,680
sites in 72 properties well-located across the country. With this growth, CAPREIT is now the second largest owner of MHC
properties in Canada, accounting for approximately 19.2% of our total portfolio by suite count at year end.
We really like the MHC business. Revenues are highly stable, and since residents own their homes, capital requirements and
maintenance needs are significantly reduced. From a geographic standpoint, MHCs enable us to have a presence in smaller
markets we wouldn’t normally enter. They also provide another level of diversification within our portfolio and allow for great
operational efficiency as we leverage the same platforms and people used at our other properties. Finally, we can boost future
revenues by selling homes to residents looking to upgrade or move to one of our MHC properties. We look for the strong and
stable returns generated by our MHC investments to continue going forward.
Total Sites
Operating Revenue
(000s)
NOI
(000s)
0
8
6
,
1
1
8
6
4
,
7
4
9
8
2
,
6
1
5
4
,
6
6
5
4
,
6
3
9
5
,
6
9
6
1
,
7
2
7
8
0
,
9
2
6
9
6
,
0
3
0
4
8
,
1
3
5
9
2
,
1
3
3
3
7
,
8
1
0
7
0
,
9
1
1
2
4
,
0
2
5
1
0
,
7
1
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
8
CAPREIT | 2019 | ANNUAL REPORT Antoni van Leeuwenhoekhof 1-6, Huizen, Netherlands
BUILDING ON OUR STRENGTHS
Capitalizing on Geographic Diversification
In addition to our presence as one of Canada’s largest
residential landlords, we have further diversified our
asset base with investments in the strong Ireland and
Netherlands markets.
During 2019, we increased our ownership interest to 18.3%
in Irish Residential REIT (IRES), a publicly traded residential
REIT owning a portfolio of 3,666 high-quality residential
suites in Ireland. CAPREIT provides property management
services to IRES, generating $8.0 million in fees in 2019, up
10.3% from the prior year. Dividends from our investment in
IRES have totalled over $7.2 million in 2019, and we expect
to see further growth in fee revenues and dividend income
as IRES continues to grow and expand its highly profitable
presence in the Irish residential rental market.
We continue to grow in
the strong Ireland and
Netherlands markets.
Our presence in the Netherlands through our 66.0%
ownership interest in European Residential REIT (ERES)
also continues to drive value for our Unitholders. During
2019, we sold a total of 2,710 residential suites to ERES for
over $742.4 million, and at year end we had transferred
ownership of all our Netherlands properties to ERES,
generating a growing base of fee revenues for our asset
and property management services. Through 2019, we
earned a total of $56.2 million in NOI from these European
properties. Looking ahead, ERES’ strong presence in the
vibrant Netherlands market further diversifies our business
and provides the opportunity for additional growth
going forward.
Our presence in Ireland and the Netherlands also allows us
to capitalize on the attractive spreads between capitalization
rates and interest rates in these markets, estimated at
approximately 3.04% and 2.35%, respectively. These strong
spreads compare very favourably to the estimated 1.04%
in Canada, and we expect they will remain strong for the
foreseeable future.
9
CAPREIT | 2019 | ANNUAL REPORT Report to Unitholders
BUILDING ON OUR STRENGTHS
A Focus on Growing Urban Markets
Our growth and success over the last 22 years is also the
result of strong fundamentals in the residential rental
sector. Our focus remains on large urban centres that are
experiencing strong population growth and rising demand
for the quality rental properties provided by CAPREIT.
BUILDING ON OUR STRENGTHS
The Best Place to Live, Work and Invest
Looking ahead, we will continue to deliver on the programs
and strategies that have generated such strong growth and
performance since CAPREIT’s founding in 1997, focusing
on our long-term goal of making CAPREIT the best place to
Live, Work and Invest.
Many factors are driving this strong demand. First, natural
population growth around the world, combined with
immigration trends that largely favour moving to cities, are
increasing demand. The global trend to urbanization with
families and young people gravitating to urban centres for
jobs and a quality lifestyle is another factor, as is the trend
for younger people to delay having families and remain in
apartments and townhouses longer before purchasing a
home. Toronto, Montreal and Vancouver, three of our key
target markets, have become hotspots for global tech talent,
further driving demand. Seniors are also downsizing their
homes and finding rental properties more affordable and
desirable. They are also looking to live on one floor and
avoid stairs as they age, a perfect market for an apartment.
Finally, there continues to be a lack of much new rental
property development in most urban centres. We believe
these fundamentals will continue to drive demand in all our
target markets going forward.
We will continue to enhance the lives of our residents
by building strong relationships through our hands-on
approach to management, a relentless focus on attracting
and retaining the best residents, and the use of new and
innovative technologies to keep them connected to us.
To ensure we attract and retain the best people, we are
introducing new solutions to help everyone on our team stay
in touch and up to date on CAPREIT and the industry. We
have developed innovative leadership training programs to
engage and help advance their careers, while implementing
state-of-the-art technologies to become more efficient.
Most importantly, our ultimate goal remains to enhance
Unitholder value, and CAPREIT has been one of the
best places to invest for more than 22 years. Many of our
initiatives in all these areas are described in the ESG Report
attached to this year’s Annual Report.
In closing, we thank everyone at CAPREIT for their ongoing
commitment and effort over the last year. It is the hard work
of our people that has led to our track record of profitable
growth over the last two decades and will continue to drive
our success in the years ahead.
Mark Kenney
President and Chief
Executive Officer
Michael Stein
Chairman
10
CAPREIT | 2019 | ANNUAL REPORT Financial
Reporting
CAPREIT | 2019 | ANNUAL REPORT
11
Financial Reporting Table of Contents
Consolidated Financial Statements
Management’s Responsibility for Financial Statements
Independent Auditor’s Report
Consolidated Balance Sheets
Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Unitholders’ Equity
Consolidated Statements of Cash Flows
Note 1 Organization of the Trust
Note 2
Summary of Significant Accounting Policies
Note 3 Critical Accounting Estimates, Assumptions
and Judgments
Note 4
Business Combinations and Recent Investment
Property Acquisitions
Note 5 Dispositions
Note 6
Investment Properties
Note 7 Other Assets
Note 8 Other Liabilities
Note 9 Accounts Payable and Accrued Liabilities
Note 10 ERES Units Held by Non-Controlling Interest
Note 11 Mortgages Payable
Note 12 Bank Indebtedness
Note 13
Unit-based Compensation Financial Liabilities
and Exchangeable Units
Note 14 Unit-based Compensation Expenses
Note 15 Unitholders’ Equity
Note 16 Distributions on Trust Units
Note 17
Financial Instruments, Investment Properties
and Risk Management
Note 18
Realized and Unrealized Gains and Losses on
Derivative Financial Instruments
Note 19 Capital Management
Note 20 Income Taxes
Note 21 Accumulated Other Comprehensive Income (Loss)
Note 22 Interest and Other Financing Costs
Note 23 Joint Arrangements
Note 24 Supplemental Cash Flow Information
Note 25 Revenues and Other Income
Note 26 Related Party Transactions
Note 27 Commitments
Note 28 Contingencies
Note 29 Segmented Information
Note 30 Subsequent Events
70
71
73
74
75
76
77
77
87
88
91
91
95
95
96
96
96
97
98
100
103
105
105
108
110
111
112
113
113
113
115
116
118
118
118
119
Management’s Discussion and Analysis
SECTION I: OVERVIEW AND DISCLAIMER
Basis of Presentation
Forward-Looking Disclaimer
Non-IFRS Financial Measures
Overview
Objectives and Business Strategy
Business Combinations, Acquisitions and Dispositions
SECTION II: KEY HIGHLIGHTS
Summary of Year End 2019 Results of Operations
Key Performance Indicators
Performance Measures
SECTION III: OPERATIONAL AND FINANCIAL RESULTS
Net and Occupied Average Monthly Rents and Occupancy
Results of Operations
NOI by Region
Stabilized NOI by Region
Net Income and Other Comprehensive Income
SECTION IV: UNIT CALCULATIONS, NON-IFRS
FINANCIAL MEASURES
Per Unit Calculations
Non-IFRS Financial Measures
Adjusted Cash Generated from Operating Activities
SECTION V: CAPITAL INVESTMENT, INVESTMENT PROPERTY,
CAPITAL STRUCTURE, FINANCIAL CONDITION
Property Capital Investments
Investment Properties
Development
Capital Structure
Liquidity and Financial Condition
Unitholder Taxation
SECTION VI: COMPLIANCE AND GOVERNANCE DISCLOSURES,
RISKS AND UNCERTAINTIES
Selected Consolidated Quarterly Information
Selected Consolidated Financial Information
Accounting Policies and Critical Accounting Estimates,
Assumptions and Judgments
Controls and Procedures
Risks and Uncertainties
Related Party Transactions
Commitments and Contingencies
Subsequent Events
Future Outlook
SECTION VII: SUPPLEMENTAL INFORMATION
Property Portfolio
13
13
14
14
14
16
18
19
21
22
26
28
30
31
34
35
40
41
42
44
46
47
51
52
55
55
55
56
65
65
65
66
67
12
CAPREIT | 2019 | ANNUAL REPORT
Management’s Discussion and Analysis
SECTION I: OVERVIEW AND DISCLAIMER
Basis of Presentation
The following Management’s Discussion and Analysis (“MD&A”) of Canadian Apartment Properties Real Estate Investment
Trust’s (“CAPREIT”) results of operations and financial condition for the year ended December 31, 2019, dated February 26,
2020, should be read in conjunction with CAPREIT’s audited consolidated annual financial statements for the year ended
December 31, 2019.
Forward-Looking Disclaimer
Certain statements contained, or contained in documents incorporated by reference, in this MD&A constitute forward-
looking information within the meaning of securities laws. Forward-looking information may relate to CAPREIT’s future
outlook and anticipated events or results and may include statements regarding the future financial position, business
strategy, budgets, litigation, occupancy rates, productivity, projected costs, capital investments, development and development
opportunities, financial results, taxes, plans and objectives of or involving CAPREIT. Particularly, statements regarding
CAPREIT’s future results, performance, achievements, prospects, costs, opportunities and financial outlook, including
those relating to acquisition and capital investment strategies and the real estate industry generally, are forward-looking
statements. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”,
“plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue” or the negative thereof, or other similar
expressions concerning matters that are not historical facts. Forward-looking statements are based on certain factors and
assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. In
addition, certain specific assumptions were made in preparing forward-looking information, including: that the Canadian,
Irish, Dutch, German and Belgian economies will generally experience growth, which, however, may be adversely impacted
by the global economy; that inflation will remain low; that interest rates will remain low in the medium term; that Canada
Mortgage and Housing Corporation (“CMHC”) mortgage insurance will continue to be available and that a sufficient
number of lenders will participate in the CMHC-insured mortgage program to ensure competitive rates; that the Canadian
capital markets will continue to provide CAPREIT with access to equity and/or debt at reasonable rates; that vacancy rates
for CAPREIT properties will be consistent with historical norms; that rental rates on renewals will grow at levels similar to
the rate of inflation; that rental rates on turnovers will grow; that CAPREIT will effectively manage price pressures relating
to its energy usage; and, with respect to CAPREIT’s financial outlook regarding capital investments, assumptions respecting
projected costs of construction and materials, availability of trades, the cost and availability of financing, CAPREIT’s
investment priorities, the properties in which investments will be made, the composition of the property portfolio and the
projected return on investment in respect of specific capital investments. Although the forward-looking statements contained
in this MD&A are based on assumptions, management believes they are reasonable as of the date hereof; however, there can
be no assurance actual results will be consistent with these forward-looking statements, and they may prove to be incorrect.
Forward-looking statements necessarily involve known and unknown risks and uncertainties, many of which are beyond
CAPREIT’s control, that may cause CAPREIT’s or the industry’s actual results, performance, achievements, prospects and
opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements.
These risks and uncertainties include, among other things, risks related to: reporting investment properties at fair value,
real property ownership, investment restrictions, operating risk, energy costs, environmental matters, catastrophic events,
insurance, capital investments, indebtedness, taxation-related risks, government regulations, controls over financial reporting,
other legal and regulatory risks, the nature of units of CAPREIT (“Trust Units”), unitholder liability, liquidity and price
fluctuation of Trust Units, dilution, distributions, participation in CAPREIT’s distribution reinvestment plan, potential
conflicts of interest, dependence on key personnel, general economic conditions, competition for residents, competition for
real property investments, risks related to acquisitions, cyber security risk and foreign operation and currency risks. There can
be no assurance that the expectations of CAPREIT’s management will prove to be correct. For a detailed discussion of risk
factors, refer to CAPREIT’s MD&A contained in CAPREIT’s 2019 Annual Report in the Risks and Uncertainties section in
Section VI of this MD&A. Subject to applicable law, CAPREIT does not undertake any obligation to publicly update or revise
any forward-looking information.
13
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Non-IFRS Financial Measures
CAPREIT prepares and releases unaudited consolidated interim financial statements and audited consolidated annual
financial statements in accordance with International Financial Reporting Standards (“IFRS”). In this MD&A, earnings
releases and investor conference calls, CAPREIT discloses financial measures not recognized under IFRS which do not have
standard meanings prescribed by IFRS. These include stabilized net rental income (“Stabilized NOI”), Funds From Operations
(“FFO”), Normalized Funds From Operations (“NFFO”), Adjusted Cash Flow from Operations (“ACFO”), FFO and NFFO
per Unit amounts and FFO, NFFO and ACFO payout ratios, and Adjusted Cash Generated from Operating Activities
(collectively, the “Non-IFRS Measures”). Since these measures are not recognized under IFRS, they may not be comparable to
similar measures reported by other issuers. CAPREIT presents Non-IFRS measures because management believes Non-IFRS
measures are relevant measures of the ability of CAPREIT to earn revenue and to evaluate its performance and cash flows. A
reconciliation of these Non-IFRS measures to the comparable IFRS measures, along with further definitions and discussion, is
provided in Section IV under Non-IFRS Financial Measures. The Non-IFRS measures should not be construed as alternatives
to net income or cash flows from operating activities determined in accordance with IFRS as indicators of CAPREIT’s
performance or the sustainability of our distributions.
Overview
CAPREIT is one of Canada’s largest real estate investment trusts. CAPREIT owns approximately 55,100 suites, including
townhomes and manufacturing housing sites, in Canada and, indirectly through its investment in ERES, approximately 5,600
suites in the Netherlands. CAPREIT manages approximately 59,200 of its owned suites in Canada and the Netherlands, and
additionally 3,700 suites in Ireland as at December 31, 2019.
CAPREIT’s concentration on the residential real estate market is aimed at solid year-over-year income growth in a portfolio
with stable occupancy. In addition, CAPREIT mitigates risk through demographic diversification by operating properties
across the affordable, mid-tier and luxury sectors as well as through geographic diversification.
CAPREIT was established under the laws of the Province of Ontario by a declaration of trust (the “DOT”) dated February 3,
1997, as most recently amended and restated on May 24, 2017. As at December 31, 2019, CAPREIT had 1,026 employees (897
employees as at December 31, 2018).
Objectives and Business Strategy
CAPREIT’s objectives are to:
Provide Unitholders with long-term, stable and predictable monthly cash distributions;
•
• Grow NFFO, sustainable distributions and Unit value through the active management of its properties, accretive
•
acquisitions, developments and intensifications and strong financial management; and
Invest capital within the property portfolio in order to maximize earnings and cash flow potential and to help ensure life
safety and satisfaction of residents.
To meet its objectives, CAPREIT has established the following strategies:
Customer Service – CAPREIT recognizes that it is in a “people business” and strives to be recognized as the landlord of choice
in all of its chosen markets by providing its residents with safe, secure and comfortable homes. It takes a hands-on approach
to managing its properties, stressing open and frequent communications to ensure residents’ needs are met efficiently and
effectively, thereby maintaining a high occupancy level. Numerous initiatives, such as newsletters, special events, resident
committees and other initiatives, are aimed at building a true sense of community at its properties. CAPREIT’s strong sales
and marketing team continues to execute innovative and highly effective strategies to help attract and retain residents and
adapt to changing conditions in specific markets. In addition, CAPREIT’s lease administration system improves control of
rent-setting by suite, increasing resident service and enhancing the overall profile of its resident base. These initiatives are
further enhanced by CAPREIT’s strong information technology platform.
14
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Cost Management – While ensuring the needs of its residents are met, CAPREIT also carefully monitors operating costs to
ensure it is delivering services to residents both efficiently and cost-effectively. CAPREIT strives to capture potential economies
of scale and cost synergies generated by the growth in its property portfolio. CAPREIT’s enterprise-wide procurement system
streamlines and centralizes purchasing controls and procedures and is realizing reduced costs through national master
sourcing contracts, improved pricing and enhanced operating efficiencies.
Capital Investments – CAPREIT strives to acquire both newer properties or value-add properties at prices below their current
replacement costs and is committed to improving its operating performance by investing in appropriate capital investments
in order to maintain the productive capacity of its property portfolio and sustain the portfolio’s rental income-generating
potential over its useful life. CAPREIT continues to invest in innovative technology solutions that enhance productivity as well
as environment-friendly and energy-saving initiatives that improve net operating income. CAPREIT completes a review of
its portfolio and revises its long-term capital investment plan on an annual basis, which allows management to ensure capital
investments extend the useful economic life of CAPREIT’s properties, enhance life safety, maximize earnings and improve the
long-term cash flow potential of its portfolio.
Portfolio Growth – CAPREIT aims to grow and modernize its portfolio over the long term through accretive acquisitions
of newer or value add properties that meet its strategic criteria and, where possible, enhance geographic diversification and
reduce the average age of the portfolio while capturing economies of scale and cost synergies, thereby increasing net operating
income. As a component of this growth strategy, CAPREIT will monitor its portfolio and, from time to time, identify certain
non-core, older properties for divestiture. The funds from these divestitures will primarily be used to acquire additional, more
modern strategic assets better suited to CAPREIT’s portfolio composition and property management objectives or to pay
down existing debt. Management believes the continued realization and reinvestment of capital is a fundamental component
of its growth strategy and demonstrates the success of CAPREIT’s capital investment programs and its ability to maximize
and manage the earnings and cash flow potential of its property portfolio. Furthermore, management continues to seek
development opportunities within its portfolio to ensure existing assets are put towards their most accretive use and to further
modernize the overall portfolio. In addition, management investigates opportunities to enter into joint venture relationships
which could potentially develop new multi-unit rental residential properties on excess land owned by CAPREIT.
Financial Management – CAPREIT takes a conservative approach and strives to manage its exposure to interest rate volatility
by proactively managing its mortgage debt portfolio to fix and, where possible, reduce average interest rates, effectively
manage the average term to maturity and stagger maturity dates. In addition, CAPREIT strives to maintain a conservative
overall liquidity position and achieve a balance in its overall capital resource requirements between debt and equity.
Environmental, Social and Governance (“ESG”) Strategy Integration – CAPREIT ensures it remains a responsible steward of
the environment, attracts and retains the best people in its business, builds strong relationships with its residents and the
communities in which they live, adopts best practice programs in corporate governance, and maintains open and transparent
communication with its investors. In CAPREIT’s continued commitment to be ESG conscious, CAPREIT incorporates ESG
factors into our day-to-day operations and explores opportunities for longer-term value creation across our managed real
estate assets. CAPREIT focuses on a number of ESG-specific deliverables. Building the in-house ESG subject matter expertise
by onboarding our ESG Strategy Integration team in early 2019, we established the necessary foundation to better understand
our exposure to ESG-related risks and opportunities, while also looking to advance projects supportive of our vision to be the
landlord, employer and investment of choice in our industry sector. For a detailed discussion, refer to CAPREIT’s ESG Report
contained in CAPREIT’s 2019 Annual Report.
15
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Business Combinations, Acquisitions and Dispositions
European Residential Real Estate Investment Trust
The ERES Acquisition
On March 29, 2019, CAPREIT NL Holding B.V. (“Holding BV”) completed the reverse acquisition (the “Acquisition”)
of European Commercial Real Estate Investment Trust (“ECREIT”), and the ongoing entity adopted the name European
Residential Real Estate Investment Trust (“ERES”), creating Canada’s first Europe-focused multi-residential real estate
investment trust (“REIT”). Pursuant to the Acquisition, CAPREIT, the sole shareholder of Holding BV, exchanged all its
shares of Holding BV for Class B Limited Partnership units (“Class B LP Units”) of ERES Limited Partnership (“ERES LP”).
The purchase price for the initial properties of approximately $633.5 million was satisfied with $326.5 million through the
issuance of 81.6 million Class B LP Units of ERES LP, a subsidiary of ERES, plus approximately $307.0 million in assumed
mortgages. CAPREIT determined that ECREIT meets the definition of a business and the Acquisition has been accounted for
as a business combination.
Pipeline Transactions
Pursuant to the terms of the pipeline agreement dated March 29, 2019 (the “Pipeline Agreement”), on May 31, 2019,
wholly-owned subsidiaries of CAPREIT sold to ERES 26 properties representing an aggregate of 1,257 residential suites,
ancillary commercial space and parking facilities, located in 24 cities and towns across the Netherlands. The sale price of the
portfolio was at the original acquisition cost of $350.3 million adjusted for working capital, satisfied through the transfer of
$146.5 million in mortgages plus $203.8 million satisfied through the receipt of 50.6 million Class B LP Units of ERES LP.
On June 28, 2019, wholly-owned subsidiaries of CAPREIT sold to ERES 21 properties representing an aggregate of
511 residential suites located in 6 locations across the Netherlands at the original acquisition cost of $145.9 million adjusted
for working capital, and earned an underwriting fee of $1.6 million. ERES paid $123.7 million in cash and $23.8 million
through the issuance of 8.3 million Class B LP Units of ERES LP.
On September 30, 2019, wholly-owned subsidiaries of CAPREIT sold to ERES 18 properties representing an aggregate of
942 residential suites located in 7 locations across the Netherlands at the original acquisition cost of $246.2 million, and
earned an underwriting fee of $2.4 million. ERES paid $243.6 million in cash and $5.0 million through the issuance of
1.1 million Class B LP Units of ERES LP.
As at December 31, 2019, all of the Netherlands properties are held through ERES and their results are consolidated with
CAPREIT’s results.
Ownership
The Class B LP Units are exchangeable to ERES units on a one-to-one basis. Upon exchange and together with CAPREIT’s
holding of ERES units, CAPREIT will own approximately 66.0% of the issued and outstanding ERES units, with the
remaining 34.0% held by non-controlling unitholders (“ERES units held by non-controlling interest”).
16
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Acquisitions and Dispositions
The tables below summarize property acquisitions for the year ended December 31, 2019 and the property acquisitions and
dispositions for the year ended 2018. There were no property dispositions for the year ended December 31, 2019. The below
tables do not include $14.7 million of CAPREIT’s operating lease buyouts.
Acquisitions Completed During the Year Ended December 31, 2019
($ thousands)
February 26, 2019
March 14, 2019
April 15, 2019
May 27, 2019
May 28, 2019
June 7, 2019
June 20, 2019
July 31, 2019(7)
August 1, 2019
August 30, 2019
August 30, 2019
September 30, 2019
October 15, 2019
October 31, 2019
November 21, 2019
December 12, 2019
December 16, 2019
December 19, 2019
Suite or
Site
Count
511
1,104
191
181
3,898
72
98
506
942
553
42
315
64
294
121
79
222
48
Region(s)
The Netherlands
Various(4)
Langley, BC
Various(5)
Various(6)
Victoria, BC
Langley, BC
Toronto, Ontario
The Netherlands
London, Ontario
Charlottetown, PEI
The Netherlands
Summerside, PEI
The Netherlands
Montreal, QC
Calgary, AB
The Netherlands
New Westminster, BC
Total
Acquisition
Costs
$
153,424
$
66,866
70,000
11,317
204,955
26,558
39,045
63,790
246,602
70,301
7,430
95,076
11,844
98,295
33,990
19,578
152,362
13,475
Assumed
Mortgage
Funding
–
–(3)
–
–(3)
74,345
–
–
–(3)
–
–(3)
–(3)
–
–(3)
–
–(3)
–(3)
–(8)
–(3)
Subsequent
Acquisition
Financing
$
89,586
–
44,222
–
–
18,368
22,839
–
Interest
Rate(1)
0.97%
–(3)
2.90%
–(3)
3.38%
2.44%
2.92%
–(3)
143,367
1.28%
–
–
77,639
–
58,220
–
–
–
–
–(3)
–(3)
1.45%
–(3)
1.55%
–(3)
–(3)
–(8)
–(3)
Term to
Maturity
(Years)(2)
4.00
–(3)
15.00
–(3)
2.39
10.00
15.00
–(3)
7.00
–(3)
–(3)
7.00
–(3)
7.00
–(3)
–(3)
–(8)
–(3)
Total
9,241
Acquisition financing
$
1,384,908
$
74,345
$
$
454,241
73,719(9)
3.00%(9)
10.00(9)
(1) Weighted average stated interest rate on mortgage funding.
(2) Weighted average term to maturity on mortgage funding.
(3) The acquisition was funded from CAPREIT’s Acquisition and Operating Facility (see Liquidity and Financial Condition section).
(4) The acquisition comprised 13 properties consisting of 407 sites in Ontario, 615 sites in Alberta, and 82 sites in British Columbia.
(5) The acquisition comprised 3 properties consisting of 56 sites in Ontario and 125 sites in British Columbia.
(6) The acquisition comprised 24 properties consisting of 800 sites in Ontario, 1,050 sites in Alberta, 1,211 sites in New Brunswick, 128 sites in Nova Scotia, 280 sites in
Prince Edward Island, and 429 sites in Quebec.
(7) In 2015, CAPREIT entered into an agreement to acquire one-third undivided interest in the residential component of a property upon completion. On July 31, 2019,
CAPREIT acquired a 19.8% interest in the property, with an additional 5.3% interest acquired on each August 31, 2019 and September 30, 2019, and a final interest
of 3% acquired on October 31, 2019. As at December 31, 2019, CAPREIT’s interest stood at 33.3%.
(8) The acquisition was primarily funded from the ERES Credit Facility with the balance funded from CAPREIT’s Acquisition and Operating Facility.
(9) Subsequent acquisition financing of $73.7 million with a weighted average interest rate of 3.00% and a weighted average term to maturity of 10.0 years relates to a
property acquired in 2018.
17
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Acquisitions Completed During the Year Ended December 31, 2018
($ thousands)
April 24, 2018
April 30, 2018
August 7, 2018
August 15, 2018
September 27, 2018
November 13, 2018
December 3, 2018
December 5, 2018
December 5, 2018
Suite or
Site
Count
Region(s)
134
Swift Current, SK
$
2
90
3
269
11
881
376
25
Burlington, ON
Langley, BC
New Westminster, BC
Vancouver, BC
New Westminster, BC
The Netherlands
The Netherlands
New Westminster, BC
Total
Acquisition
Costs
5,744
2,404
34,310
2,536
103,169
3,373
253,410
93,396
6,368
Total
1,791
Acquisition financing
$
504,710
$
$
Assumed
Mortgage
Funding
–(3) $
–(3)
21,088
–(3)
–(3)
–(3)
–
–
1,827
22,915
$
$
Subsequent
Acquisition
Financing
Interest
Rate(1)
Term to
Maturity
(Years)(2)
–
–
–
–
–
–
104,796(4)
46,456(5)
–
151,252
26,766(6)
–(3)
–(3)
2.56
–(3)
–(3)
–(3)
1.98(4)
1.98(5)
2.49
–(3)
–(3)
8.83
–(3)
–(3)
–(3)
7.00(4)
7.00(5)
6.17
3.49%(6)
10.00(6)
(1) Weighted average stated interest rate on mortgage funding.
(2) Weighted average term to maturity on mortgage funding.
(3) The acquisition was funded from CAPREIT’s Acquisition and Operating Facility (see Liquidity and Financial Condition section).
(4) The acquisition, comprising 881 suites, was financed by a new non-amortizing mortgage of €67.6 million ($104.8 million) with a term to maturity of 7.0 years with
an interest rate of 1.98% and the balance in cash from CAPREIT’s Acquisition and Operating Facility.
(5) The acquisition, comprising 376 suites, was financed by a new non-amortizing mortgage of €29.9 million ($46.5 million) with a term to maturity of 7.0 years with
an interest rate of 1.98% and the balance in cash from CAPREIT’s Acquisition and Operating Facility.
(6) Subsequent acquisition financing of $26.8 million with a weighted average interest rate of 3.49% and a weighted average term to maturity of 10.0 years relates to
properties acquired in 2016 and 2017.
Dispositions Completed During the Year Ended December 31, 2018
($ thousands)
August 15, 2018
September 6, 2018
October 11, 2018
December 12, 2018
Total
Suite Count
Region(s)
Sale Price
Cash Proceeds
Saskatoon, SK
Vancouver, BC
Longueuil, QC
Québec City, QC
102
162
419
217
900
$
10,195
$
70,000
35,831
24,900
$
140,926
$
2,425
49,900
15,168
14,404
81,897
Mortgage
Discharged
7,476
19,948
20,564
10,224
58,212
$
$
SECTION II: KEY HIGHLIGHTS
Summary of Year End 2019 Results of Operations
Key Transactions
• During the year, CAPREIT closed on three equity offerings for the issuance and sale of 22,488,250 Units for gross
proceeds of $1.1 billion
• On March 29, 2019, CAPREIT closed on the ERES Acquisition; for details, see Section I – The ERES Acquisition
• During the year, ERES completed two equity offerings for the issuance and sale of 71,100,400 ERES units for proceeds of
$310.5 million. CAPREIT purchased 10,197,000 ERES units amounting to $45.0 million
• During the year, CAPREIT completed the early buyouts of two existing operating leases at a net purchase price of
$14.7 million. The operating lease buyouts resulted in the conversion from operating leasehold interests to traditional fee
simple property interests
• On December 10, 2019, CAPREIT announced it has entered into an agreement to acquire a portfolio of eight properties
containing 14 apartment buildings totalling 1,503 rental suites in Halifax, Nova Scotia, for a purchase price of
$391.0 million. The acquisition closed subsequent to year end
Total acquisitions for the year ended December 31, 2019 of 9,241 suites and sites for a total of $1.4 billion of which 1,453
suites were subsequently sold to ERES. As at December 31, 2019, all of the Netherlands properties are held through ERES
•
18
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Strong Operating Results Supported by Strong Market Fundamentals
• Growth in revenue and net operating income (“NOI”) from stabilized properties driven by higher monthly rents
compared to last year
• On turnovers, monthly residential rents for the year ended December 31, 2019 increased by 13.5% on 19.0% of
the Canadian portfolio, compared to an increase of 11.4% on 21.5% of the Canadian portfolio for the year ended
December 31, 2018
• On renewals, monthly residential rents for the year ended December 31, 2019 increased by 2.1% on 85.9% of
the Canadian portfolio, compared to an increase of 2.2% on 85.4% of the Canadian portfolio for the year ended
December 31, 2018
• Net Average Monthly Rent (“Net AMR”) for the stabilized portfolio as at December 31, 2019 increased by 4.1% compared
to December 31, 2018, while occupancies remained stable at 98.9%
• Net AMR increased due to the strong rents on turnovers in Ontario, British Columbia and Nova Scotia and above
•
guideline increases in Ontario
Year-over-year NOI increased significantly by 4.9% for the stabilized portfolio for the year ended December 31, 2019,
compared to a year-over-year NOI increase of 8.0% for the stabilized portfolio for the year ended December 31, 2018
• NOI for the total portfolio increased by 15.3% for the year ended December 31, 2019 compared to last year, primarily due
to contributions from acquisitions and increased same property monthly rents
• NOI margin for the total portfolio increased to 65.3% for the year ended December 31, 2019 from 64.0% for the year
ended December 31, 2018 due to organic margin growth and acquisitions of high margin properties.
Continued Fair Value Increases in Investment Properties
•
For the year ended December 31, 2019, the fair value of investment properties increased by $892.2 million, primarily
as a result of (i) rental increases on turnover and renewals, (ii) continued cap rate compression, and (iii) progress on
CAPREIT’s strategy to buy out and convert operating leasehold interests to traditional fee simple property interests
Strong and Flexible Balance Sheet
• CAPREIT’s financial position continues to strengthen, with reduced leverage ratios
• Debt to gross book value (“GBV”) reduced to 34.99% as at December 31, 2019 from 39.37% as at December 31, 2018, due
to increases in fair value of investment properties and proceeds of the equity raise used to repay debt
• Debt Service Coverage (“DSC”) ratio improved to 1.87 as at December 31, 2019 compared to 1.75 as at December 31, 2018
In addition to $477.3 million of cash and cash equivalent, liquidity available on our Credit Facilities is $146.2 million
•
as at December 31, 2019. In addition, there is $200.0 million of borrowing capacity under the Bridge Facility and
$108.6 million available under the ERES Credit Facility and the ERES Bridge Facility
• Closed mortgage refinancing of $300.5 million for the year ended December 31, 2019, with top-up of $68.2 million, a
weighted average term to maturity of 8.3 years and a weighted average interest rate of 2.73%
• CAPREIT’s mortgage weighted average term to maturity and the weighted average interest rate as at December 31, 2019
are 5.1 years and 2.78%, respectively. CAPREIT continues to fix long-term mortgages to defend against the risk of rising
interest rates
Delivering Unitholder Value
• NFFO was up 17.2% for the year ended December 31, 2019
• NFFO per Unit was up 5.7% for the year ended December 31, 2019 despite an increase of 10.9% weighted average
number of Units outstanding
Key Performance Indicators
To assist management and investors in monitoring and evaluating CAPREIT’s achievement of its objectives, CAPREIT
has defined a number of key operating and performance indicators (“KPIs”) to measure the success of its operating and
financial strategies:
Occupancy – Through a focused, hands-on approach, CAPREIT strives to achieve occupancies at or greater than market
conditions in each of the geographic regions where it operates. Management believes annual occupancies can be maintained
between 97% to 99% over the long term, and same property Net AMR will continue to gradually increase; thus, providing the
basis for sustainable year-over-year increases in revenue.
19
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Net AMR (previously defined as “AMR”) – Through its active property management strategies, lease administration system and
proactive capital investment programs, CAPREIT strives to achieve the highest possible Net AMR in accordance with local
market conditions.
Net Operating Income (“NOI”) – NOI is a widely used operating performance indicator in the real estate industry, and is
presented in the consolidated statements of income and comprehensive income as net rental income. Management has chosen
to refer to net rental income as NOI in all instances in its MD&A. As a measure of its operating performance, CAPREIT
currently expects to achieve an annual NOI margin in the range of 62% to 66% of operating revenues. CAPREIT has
increased its target range from 60% to 64%, to 62% to 66% as a result of organic margin growth and acquisitions of higher
margin properties.
FFO and NFFO – CAPREIT is focused on achieving steady increases in these metrics. Management believes these measures are
indicative of CAPREIT’s operating performance.
Payout Ratio – CAPREIT anticipates a long-term annual NFFO payout ratio of between 65% and 75%. This ratio is not meant
to be a measure of the sustainability of CAPREIT’s distributions. Although CAPREIT intends to continue to sustain and
grow distributions, the actual amount of distributions in respect of the CAPREIT Units will depend upon numerous factors
including, but not limited to, the amount of debt refinancings, tenant inducements, capital expenditures and other factors that
may be beyond the control of CAPREIT.
Portfolio Growth – Management’s objective is to pursue acquisitions and development opportunities to accretively increase
NFFO and continue to further diversify the portfolio by geography and demographic sector. In addition, management
investigates opportunities to add new suites and sites and to enter into joint venture relationships, which could potentially
develop new multi-unit rental residential properties on excess land owned by CAPREIT.
Leverage Ratios and Terms – CAPREIT takes a proactive approach with its mortgage portfolio, striving to manage interest
expense volatility risk by fixing the lowest possible average interest rates for long-term mortgages, while mitigating refinancing
risk by prudently managing the portfolio’s average term to maturity and staggering the maturity dates. For this purpose,
CAPREIT strives to ensure its overall leverage ratios and interest and debt service coverage ratios are maintained at a
sustainable level. CAPREIT focuses on maintaining capital adequacy by complying with investment and debt restrictions in
its DOT, Large Borrower Agreement with CMHC (“LBA”) and the financial covenants in its credit agreements. CAPREIT’s
credit agreements consist of an acquisition and operating facility which includes Euro LIBOR and US LIBOR borrowings
(“Acquisition and Operating Facility”), a non-revolving term credit facility, and the ERES Credit Facility (collectively, the
“Credit Facilities”), as described under Liquidity and Financial Condition in Section V.
20
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Performance Measures
The following table presents an overview of certain IFRS and non-IFRS financial measures of CAPREIT for the years ended
December 31, 2019 and 2018. Management believes these measures are useful in assessing CAPREIT’s performance in relation
to its objectives and business strategy. Effective March 2019, monthly cash distributions declared to Unitholders increased to
$0.1150 per unit ($1.38 annually) compared to $0.1108 per unit ($1.33 annually) effective May 2018 and $0.1067 per unit
($1.28 annually) effective March 2017.
For the Year Ended December 31,
Portfolio Performance
Overall portfolio occupancy(1)
Overall portfolio net Average Monthly Rents(1)
Operating revenues (000s)
NOI (000s)(2)
NOI margin(2)
Financial Performance
FFO per Unit – basic(3)
NFFO per Unit – basic(3)
Cash distributions per Unit
FFO payout ratio(3)
NFFO payout ratio(3)
Liquidity and Leverage
Total debt to gross book value(1)
Total debt to gross historical cost(1)
Weighted average mortgage interest rate(1)
Weighted average mortgage term (years)(1)
Debt service coverage (times)(4)
Interest coverage (times)(4)
Available liquidity – Acquisition and Operating Facility (000s)(1)
Available cash and cash equivalents (000s)(1)
2019
2018
98.2%
1,084
777,884
508,150
65.3%
2.111
2.139
1.372
65.5%
64.6%
34.99%
48.24%
2.78%
5.13
1.87
3.69
146,170
477,329
$
$
$
$
$
$
$
98.9%
1,103
688,585
440,565
64.0%
1.995
2.024
1.313
66.7%
65.7%
39.37%
54.54%
3.05%
5.10
1.75
3.44
66,325
25,713
$
$
$
$
$
$
$
(1) As at December 31.
(2) 2018 comparative balances have been adjusted to conform with the current period due to the adoption of IFRS 16, which is effective January 1, 2019. For details, see
NOI in Section III.
(3) These measures are not defined by IFRS, do not have standard meanings and may not be comparable with other industries or companies (see Section I – Non-IFRS
Financial Measures). For a reconciliation to IFRS, see Section IV – Non-IFRS Financial Measures.
(4) Based on the trailing four quarters.
For the Year Ended December 31,
Other Measures
Weighted average number of Units – basic (000s)
Number of residential suites and sites acquired
Number of suites disposed
Closing price of Trust Units(1)
Market capitalization (millions)(1)
(1) As at December 31.
2019
2018
158,553
9,241
–
53.01
9,013
$
$
142,974
1,791
900
44.30
6,491
$
$
21
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis SECTION III: OPERATIONAL AND FINANCIAL RESULTS
Net and Occupied Average Monthly Rents and Occupancy
Net AMR is defined as actual residential rents, excluding vacant units, divided by the total number of suites or sites in
the property, and does not include revenues from parking, laundry or other sources. Occupied AMR is defined as actual
residential rents, excluding vacant units, divided by the total number of occupied suites or sites in the property, and does not
include revenues from parking, laundry or other sources. Stabilized AMR includes all properties held as at December 31, 2018
and are not disposed of.
Total Portfolio: Net AMR, Occupied AMR and Occupancy by Geography
As at December 31,
Residential Suites
Ontario
Greater Toronto Area
Ottawa
London / Kitchener / Waterloo
Other Ontario
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria
Alberta
Edmonton
Calgary
Nova Scotia
Halifax
Saskatchewan
Regina
Prince Edward Island
Charlottetown
Europe
The Netherlands(1), (2)
Total Residential Suites
MHC Sites
Ontario
Québec
British Columbia
Alberta
Nova Scotia
Saskatchewan
Prince Edward Island
New Brunswick
Total MHC sites
Total suites and sites
Net AMR
Occupied AMR
Occupancy %
2019
AMR ($)
2018
AMR ($)
% Change
AMR
2019
AMR ($)
2018
AMR ($)
% Change
AMR
2019
2018
1,451
1,325
1,023
1,353
1,375
981
1,080
1,006
1,448
1,301
1,403
1,192
1,096
1,113
1,383
1,260
998
1,284
1,321
941
1,054
970
1,336
1,211
1,297
1,165
1,068
1,086
1,184
1,125
1,035
1,035
1,083
1,027
1,231
1,257
1,268
1,209
489
260
477
451
248
426
165
273
383
537
–
455
436
–
400
149
268
395
1,084
1,103
4.9
5.2
2.5
5.4
4.1
4.3
2.5
3.7
8.4
7.4
8.2
2.3
2.6
2.5
5.2
–
5.5
(2.9)
4.0
(8.9)
100.0
4.8
3.4
100.0
6.5
10.7
1.9
(3.0)
(1.7)
1,464
1,327
1,034
1,357
1,387
989
1,092
1,014
1,462
1,309
1,415
1,217
1,128
1,144
1,390
1,261
1,013
1,295
1,329
948
1,065
977
1,356
1,220
1,313
1,181
1,088
1,105
1,207
1,141
5.3
5.2
2.1
4.8
4.4
4.3
2.5
3.8
7.8
7.3
7.8
3.0
3.7
3.5
5.8
1,057
1,076
(1.8)
1,093
1,038
1,267
1,272
1,295
1,221
489
260
478
490
250
427
165
298
399
538
–
455
439
–
401
149
287
405
1,104
1,115
5.3
(2.2)
4.2
(9.1)
100.0
5.1
11.6
100.0
6.5
10.7
3.8
(1.5)
(1.0)
99.1
99.9
99.0
99.7
99.2
99.3
98.9
99.2
99.0
99.4
99.1
97.9
97.2
97.3
98.1
97.9
99.1
97.2
98.8
99.8
100.0
99.8
91.9
99.2
99.7
99.9
91.5
96.0
98.2
99.5
99.9
98.5
99.1
99.4
99.3
99.0
99.2
98.5
99.3
98.7
98.6
98.2
98.3
98.6
96.2
98.9
97.9
99.1
99.9
–
100.0
99.3
–
99.7
99.6
93.5
97.6
98.9
(1) Includes foreign exchange impact and service charge income. The amounts in Euros for the total portfolio for Net AMR are €844 and €812 as at December 31, 2019
and December 31, 2018, respectively, and for Occupied AMR are €869 and €829 as at December 31, 2019 and December 31, 2018, respectively.
(2) Includes all residential properties owned by ERES.
22
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Stabilized Portfolio: Net AMR, Occupied AMR and Occupancy by Geography
Net AMR
Occupied AMR
Occupancy %
2019
AMR ($)
2018
AMR ($)
% Change
AMR
2019
AMR ($)
2018
AMR ($)
% Change
AMR
2019
2018
As at December 31,
Residential Suites
Ontario
Greater Toronto Area
Ottawa
London / Kitchener / Waterloo
Other Ontario
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria
Alberta
Edmonton
Calgary
Nova Scotia
Halifax
Saskatchewan
Regina
Prince Edward Island
Charlottetown
Europe
The Netherlands(1), (2)
Total Residential Suites
MHC Sites
Ontario
British Columbia
Alberta
Saskatchewan
Prince Edward Island
New Brunswick
Total MHC sites
Total suites and sites
1,454
1,325
1,052
1,353
1,390
978
1,080
1,003
1,414
1,279
1,372
1,192
1,085
1,105
1,383
1,260
998
1,284
1,321
941
1,054
970
1,336
1,211
1,297
1,165
1,068
1,086
1,184
1,125
1,035
1,035
1,047
1,027
5.1
5.2
5.4
5.4
5.2
3.9
2.5
3.4
5.8
5.6
5.8
2.3
1.6
1.7
5.2
0.0
1.9
1,459
1,327
1,063
1,357
1,395
983
1,092
1,010
1,428
1,287
1,383
1,217
1,118
1,137
1,390
1,261
1,013
1,295
1,329
948
1,065
977
1,356
1,220
1,313
1,181
1,088
1,105
1,207
1,141
5.0
5.2
4.9
4.8
5.0
3.7
2.5
3.4
5.3
5.5
5.3
3.0
2.8
2.9
5.8
1,057
1,076
(1.8)
1,057
1,038
1,235
1,258
1,268
1,209
(2.6)
4.1
1,259
1,269
1,295
1,221
550
468
453
426
156
284
412
537
455
436
400
149
268
395
1,149
1,104
2.4
2.9
3.9
6.5
4.7
6.0
4.3
4.1
551
469
456
427
156
307
424
538
455
439
401
149
287
405
1,162
1,115
1.8
(2.8)
3.9
2.4
3.1
3.9
6.5
4.7
7.0
4.7
4.2
99.7
99.9
98.9
99.7
99.6
99.5
98.9
99.3
99.0
99.4
99.2
97.9
97.0
97.2
98.1
97.9
99.1
97.7
99.2
99.8
99.6
99.3
99.7
100.0
92.6
97.3
98.9
99.5
100.0
98.5
99.1
99.4
99.3
99.0
99.2
98.5
99.3
98.7
98.6
98.2
98.3
98.6
96.2
98.9
97.9
99.1
99.9
100.0
99.3
99.7
99.6
93.5
97.6
98.9
(1) Includes foreign exchange impact and service charge income. The amounts in Euros for the stabilized portfolio for Net AMR are €847 and €812 as at December 31,
2019 and December 31, 2018, respectively, resulting in a Net AMR change of 4.3%. The Occupied AMR for the stabilized portfolio is €863 and €829 as at
December 31, 2019 and December 31, 2018, respectively, resulting in an Occupied AMR change of 4.1%.
(2) Includes all residential properties owned by ERES.
Overall Net AMR for the stabilized residential suite portfolio as at December 31, 2019 increased by approximately 4.1%
(including the Netherlands) and 4.6% (excluding the Netherlands) compared to the same period last year, while occupancies
increased to 99.2%.
The rate of growth in stabilized Net AMR has been primarily due to (i) significant rental increases on turnover in the strong
rental markets of British Columbia and Ontario and strong contributions from certain regions and (ii) increases due to above
guideline increases (“AGI”) achieved in Ontario.
23
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Annual Rental Guidelines as per Rental Board
The chart below presents the annual rental guideline increases in provinces under rent control legislation which impacts
lease renewals.
Ontario
British Columbia(1)
2020
2.2%
2.6%
2019
1.8%
2.5%
2018
1.8%
4.0%
(1) On September 26, 2018, British Columbia announced that effective January 1, 2019, the annual allowable rent increase will be 2.5% instead of the previously
announced 4.5%.
Suite Turnovers and Lease Renewals – Total Portfolio
The tables below summarizes the changes in the monthly rent due to suite turnovers and lease renewals compared to the
prior year.
Canadian Portfolio
For the Year Ended December 31,
Suite turnovers
Lease renewals
Weighted average of turnovers and renewals
2019
Turnovers and
Renewals(1)
%
19.0
85.9
Change in Monthly Rent
$
167.3
25.0
50.8
%
13.5
2.1
4.2
2018
Turnovers and
Renewals(1)
%
21.5
85.4
Change in Monthly Rent
$
131.3
26.1
47.2
%
11.4
2.2
4.1
(1) Percentage of suites turned over or renewed during the year based on the total weighted number of residential suites (excluding co-ownerships) held during the year.
The Netherlands Portfolio(1)
For the Year Ended December 31,
Suite turnovers
Lease renewals
Weighted average of turnovers and renewals
2019
Turnovers and
Renewals(2)
%
12.6
84.2
Change in Monthly Rent
€
52.6
27.4
30.7
%
6.4
3.5
3.9
2018
Turnovers and
Renewals(2)
%
11.6
83.2
Change in Monthly Rent
€
89.1
23.6
31.6
%
11.4
3.1
4.1
(1) Includes all residential properties owned by ERES.
(2) Percentage of suites turned over or renewed during the year based on the total weighted number of Dutch residential suites held during the year.
Overall, suite turnovers in the Canadian residential suite portfolio (excluding co-ownerships) during the year ended
December 31, 2019 resulted in monthly rent increasing by approximately $167 or 13.5% compared to an increase of
approximately $131 or 11.4% for last year, primarily due to the strong rental markets of British Columbia and Ontario.
Monthly rents on lease renewals on the Canadian residential portfolio (excluding co-ownerships) for the year ended
December 31, 2019 resulted in monthly rent increasing by approximately $25 or 2.1% compared to an increase of
approximately $26 or 2.2% for last year.
For the Netherlands portfolio, suite turnovers in the residential suite portfolio during the year ended December 31, 2019
resulted in monthly rent increasing by approximately €53 or 6.4% compared to an increase of approximately €89 or 11.4%
for last year. Monthly rents on lease renewals for the Netherlands portfolio for the year ended December 31, 2019 increased by
approximately 27.4 or 3.5% compared to an increase of 23.6 or 3.1% last year.
24
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Above Guideline Increases
Management continues to pursue applications in Ontario for AGIs where it believes increases above the annual guideline are
supported by market conditions to raise monthly rents on lease renewals. The maximum allowable annual increase is up to
3% above the annual rental guideline, with the exception of applications based on an increase in the cost of municipal taxes
and charges.
The following table summarizes the status of cumulative AGI applications settled and outstanding:
Applications Settled:
Number of suites and sites
Weighted average total increase approved(1), (2)
Weighted average total increase applied for(1), (3)
Applications Outstanding:
Number of suites and sites
Term weighted average total increase applied for(1), (4)
January 1, 2019–
December 31, 2019
January 1, 2018–
December 31, 2018
1,565
1.70%
2.27%
4,409
1.89%
5,309
1.99%
2.35%
2,252
2.50%
(1) Weighted by number of impacted suites and sites filed.
(2) For applications settled during the year ended December 31, 2019, the weighted average total increase approved is to apply over a weighted average of 2.10 years
(1.68 years for the year ended December 31, 2018).
(3) For applications settled during the year ended December 31, 2019, the weighted average total increase applied for was to apply over a weighted average of 1.78 years
(1.64 years for the year ended December 31, 2018).
(4) For applications outstanding as at December 31, 2019, the weighted average total increase applied for was to apply over a weighted average of 1.28 years (1.96 years
as at the year ended December 31, 2018).
Tenant Inducements, Vacancy Loss and Expected Credit Loss Expense
The table below shows the new tenant inducements incurred during the year ended December 31, 2019 and 2018 as well as the
amortization of tenant inducements, loss from vacancies and expected credit loss (“ECL”) allowance (formerly known as bad
debt expense) included in net rental revenue for the same years.
($ thousands)
For the Year Ended December 31,
New tenant inducements incurred – residential
New tenant inducements incurred – commercial
Total new tenant inducements incurred
Tenant inducements amortized
Vacancy loss incurred
Total amortization and loss
Additional ECL allowance recognized as an expense
(1) As a percentage of total operating revenues.
2019
%(1)
2018
%(1)
$ 1,089
149
$ 1,238
$ 1,243
1,111
$ 2,354
$ 1,707
13,416
$ 15,123
$ 2,896
0.2
1.7
1.9
0.4
$ 1,840
10,568
$ 12,408
$ 2,445
0.3
1.5
1.8
0.4
25
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis
Results of Operations
Total Operating Revenues by Geography
($ thousands)
For the Year Ended December 31,
2019
2019
Revenue (%)
Residential Suites
Ontario
Greater Toronto Area
Ottawa
London / Kitchener / Waterloo
Other Ontario
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria
Alberta
Edmonton
Calgary
Nova Scotia
Halifax
Saskatchewan
Saskatoon(1)
Regina
Prince Edward Island
Charlottetown
Europe
The Netherlands(2)
Other Europe(3)
Total residential suites
MHC Sites
Ontario
Québec
British Columbia
Alberta
Nova Scotia
Saskatchewan
Prince Edward Island
New Brunswick
Total MHC sites
Total residential suites and MHC sites
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
279,162
26,109
32,626
29,773
367,670
97,883
35,648
133,531
61,056
24,910
85,966
7,145
28,928
36,073
24,033
–
2,860
2,860
7,241
64,259
8,783
73,042
730,416
21,488
781
2,760
8,397
230
1,905
1,279
10,628
47,468
777,884
35.9
$
3.4
4.2
3.8
47.3
12.6
4.6
17.2
7.8
3.2
11.0
0.9
3.7
4.6
3.1
–
0.4
0.4
0.9
8.3
1.1
9.4
93.9
2.8
0.1
0.3
1.1
0.0
0.2
0.2
1.4
6.1
100.0
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2018
266,013
24,828
28,921
28,217
347,979
97,227
36,342
133,569
50,837
22,668
73,505
6,854
28,573
35,427
22,816
725
2,916
3,641
6,661
33,147
–
33,147
656,745
17,547
–
1,466
2,273
–
1,628
898
8,028
31,840
688,585
2018
Revenue (%)
38.6
3.6
4.2
4.1
50.5
14.1
5.3
19.4
7.4
3.3
10.7
1.0
4.2
5.2
3.3
0.1
0.4
0.5
1.0
4.8
–
4.8
95.4
2.6
–
0.2
0.3
–
0.2
0.1
1.2
4.6
100.0
(1) The Saskatoon property was disposed of on August 15, 2018.
(2) In € thousands, €43,239 and €21,658 for year ended December 31, 2019 and December 31, 2018, respectively.
(3) Comprised of ERES’ revenues for two commercial properties located in Germany and one in Belgium. In € thousands, €6,033 for the year ended December 31, 2019.
26
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Estimated Net Rental Revenue Run-Rate
The table below shows the estimated net rental revenue run-rate (net of average historical vacancy loss, tenant inducements
and bad debt) based on Net AMRs in place for CAPREIT’s share of residential suites and sites and commercial leases as at
December 31, 2019 and 2018.
($ thousands)
As at December 31,
Residential rent roll(1), (2)
Commercial rent roll(1), (2)
Annualized net rental revenue run-rate
2019
766,020
41,941
807,961
$
$
2018
662,687
23,068
685,755
$
$
(1) Based on rent roll as at December 31, net of vacancy loss, tenant inducements and bad debt for the 12 months ended on such date.
(2) Includes rent roll for all properties owned as at December 31.
The estimated annualized net rental revenue run-rate improved by 17.8% to $808.0 million compared to $685.8 million
primarily as a result of the extensive MHC portfolio growth, substantial acquisitions in the Netherlands and significant growth
in the commercial rent roll primarily as a result of the ERES commercial income. Net rental revenue net of dispositions for the
12 months ended December 31, 2019 was $746.1 million (2018 – $643.6 million).
NOI
Stabilized properties for the year ended December 31, 2019 are defined as all properties owned by CAPREIT continuously
since December 31, 2017, and therefore do not take into account the impact on performance of acquisitions or dispositions
completed during 2019 and 2018. As at December 31, 2019, stabilized suites and sites represented 83.3% of CAPREIT’s total
portfolio excluding co-ownerships.
($ thousands)
Total NOI
Stabilized NOI
For the Year Ended December 31,
2019
2018
%(1)
2019
2018
%(1)
Operating Revenues
Net rental revenues
Other(2)
Total operating revenues
Operating Expenses
Realty taxes
Utilities
Other(3), (4)
Total operating expenses
NOI
NOI margin
$
736,526
$
651,203
41,358
37,382
$
777,884
$
688,585
(73,546)
(59,197)
(136,991)
(269,734)
508,150
65.3%
$
$
(68,488)
(56,913)
(122,619)
(248,020)
440,565
64.0%
$
$
13.1
10.6
13.0
7.4
4.0
11.7
8.8
15.3
$
667,616
$
639,901
38,620
37,001
$
706,236
$
676,902
(70,088)
(56,453)
(125,203)
(251,744)
454,492
64.4%
$
$
(67,604)
(56,055)
(120,131)
(243,790)
433,112
64.0%
$
$
4.3
4.4
4.3
3.7
0.7
4.2
3.3
4.9
(1) Represents the year-over-year percentage change.
(2) Comprises ancillary income such as parking, laundry and antenna revenue.
(3) Comprises R&M, wages, general and administrative, insurance, advertising and legal costs.
(4) 2018 comparative balances have been restated to reflect adjustments to conform with the current period presentation for land and air rights leases. Prior to IFRS 16
which is effective January 1, 2019, land and air rights lease expenses were deducted as an “operating expense” to calculate NOI. Post IFRS 16 being effective, leases are
capitalized as an asset with a corresponding lease liability and the fixed land and air rights lease payments are not deducted as an operating expense through NOI. In
2019, the fixed land and air rights lease payments are deducted as interest expense and principal repayment. Therefore, 2018 NOI comparatives have been restated to
conform with the current period presentation for land leases, and will not agree to the 2018 Net Rental Income presented in the financial statements. For the year
ended December 31, 2018, Total and Stabilized NOI has increased by $1,509 thousand by adding back the fixed land and air rights lease expense, increasing the Total
NOI margin from 63.8% to 64.0% and increasing the Stabilized NOI margin from 63.8% to 64.0%.
Operating Revenues
For the year ended December 31, 2019, total operating revenues for the total and stabilized portfolio increased compared
to last year, due to increases in monthly rents and continuing high occupancies. Contributions from acquisitions further
contributed to higher operating revenues for the total portfolio.
27
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Operating Expenses
Realty Taxes
For the year ended December 31, 2019, the stabilized portfolio’s realty tax increased compared to last year, primarily because
of increased property assessment values in Alberta, British Columbia, Ontario and Québec.
Utilities
CAPREIT’s utility costs can be highly variable from year to year depending on energy consumption and rates. The table below
provides CAPREIT’s utility costs by type.
($ thousands)
For the Year Ended December 31,
Electricity
Natural gas
Water
Total
2019
21,452
15,388
22,357
59,197
$
$
Total Utilities
2018
21,135
15,837
19,941
56,913
$
$
$
(1) Represents the year-over-year percentage change.
%(1)
1.5
(2.8)
12.1
4.0
2019
20,800
15,082
20,571
56,453
$
$
Stabilized Utilities
2018
20,838
15,444
19,773
56,055
$
$
$
%(1)
(0.2)
(2.3)
4.0
0.7
As at December 31, 2019, tenants who pay their hydro charges directly represented 70% of the total 17,144 sub-metered suites
in Ontario, Alberta and Halifax.
For the stabilized portfolio, natural gas costs decreased for the year ended December 31, 2019 compared to last year primarily
due to improved rates in Ontario achieved as a result of hedging the supply rates, partially offset by higher consumption.
Water costs for the stabilized portfolio increased for the year ended December 31, 2019 compared to last year due to increased
water rates in 2019.
A summary of CAPREIT’s fixed natural gas contracts can be found in note 27 to CAPREIT’s consolidated annual financial
statements for the year ended December 31, 2019.
Other Operating Expenses
The stabilized operating expenses for the year ended December 31, 2019 increased compared to last year primarily due to higher
R&M costs and rising insurance costs driven by higher replacement cost valuations, and overall increases in insurance rates.
NOI Margin
For the year ended December 31, 2019, the NOI margin on the total portfolio increased to 65.3% compared to 64.0% last year.
NOI by Region
Management believes NOI is a key indicator of operating performance in the real estate industry. NOI includes all rental
revenues and other related ancillary income (including MHC home sales) generated at the property level, less: (i) related direct
costs such as utilities, realty taxes, insurance, R&M costs and on-site wages and salaries; and (ii) an appropriate allocation of
overhead costs. It may not, however, be comparable to similar measures presented by other real estate trusts or companies.
28
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis The following tables show each region’s NOI and NOI margin for the periods ended December 31, 2019 and 2018:
For the Year Ended December 31,
2019
2018
Increase
(Decrease)
($ thousands)
Residential Suites
Ontario
Greater Toronto Area(2)
Ottawa
London / Kitchener / Waterloo
Other Ontario
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region(2)
Victoria
Alberta
Edmonton
Calgary(2)
Nova Scotia
Halifax
Saskatchewan
Saskatoon(3)
Regina
Prince Edward Island
Charlottetown
Europe
The Netherlands(4)
Other Europe(5)
Total residential suites
MHC Sites
Ontario
Québec
British Columbia
Alberta
Nova Scotia
Saskatchewan
Prince Edward Island
New Brunswick
Total MHC sites
Total suites and sites
NOI
NOI %(1)
NOI
Margin (%)
NOI(2)
NOI %(1)
NOI
Margin (%)
NOI
Change (%)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
182,661
16,988
21,247
18,738
239,634
57,483
20,994
78,477
42,242
18,437
60,679
4,728
17,141
21,869
14,733
–
1,600
1,600
3,655
49,100
7,108
56,208
476,855
14,854
552
2,089
5,899
109
1,248
591
5,953
31,295
508,150
36.0
3.3
4.2
3.7
47.2
11.3
4.1
15.4
8.3
3.6
11.9
0.9
3.4
4.3
2.9
–
0.3
0.3
0.7
9.7
1.4
11.1
93.8
3.0
0.1
0.4
1.2
0.0
0.2
0.1
1.2
6.2
100.0
65.4
65.1
65.1
62.9
65.2
58.7
58.9
58.8
69.2
74.0
70.6
66.2
59.3
60.6
61.3
–
55.9
55.9
50.5
76.4
80.9
77.0
65.3
69.1
70.7
75.7
70.3
47.4
65.5
46.2
56.0
65.9
65.3
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
171,637
16,472
18,377
17,617
224,103
56,466
21,396
77,862
36,630
16,600
53,230
4,667
17,149
21,816
14,004
269
1,745
2,014
3,355
23,760
–
23,760
420,144
11,895
–
1,152
1,490
–
1,042
428
4,414
20,421
440,565
39.0
3.7
4.1
4.0
50.8
12.8
4.8
17.6
8.3
3.8
12.1
1.1
3.9
5.0
3.2
0.1
0.4
0.5
0.8
5.4
–
5.4
95.4
2.7
–
0.3
0.3
–
0.2
0.1
1.0
4.6
100.0
64.5
66.3
63.5
62.4
64.4
58.1
58.9
58.3
72.1
73.2
72.4
68.1
60.0
61.6
61.4
37.1
59.8
55.3
50.4
71.7
–
71.7
64.0
67.8
–
78.6
65.6
–
64.0
47.7
55.0
64.1
64.0
6.4
3.1
15.6
6.4
6.9
1.8
(1.9)
0.8
15.3
11.1
14.0
1.3
–
0.2
5.2
–
(8.3)
(20.6)
8.9
106.6
–
136.6
13.5
24.9
–
81.3
295.9
–
19.8
38.1
34.9
53.2
15.3
(1) Represents percentage of the portfolio by NOI.
(2) 2018 comparative balances have been restated to reflect adjustments to conform with current period presentation for land and air rights leases. For details, refer to
NOI section under the Results of Operations section.
(3) The Saskatoon property was disposed of on August 15, 2018.
(4) In € thousands, €33,076 and €15,537 for the years ended December 31, 2019 and December 31, 2018, respectively.
(5) Comprised of ERES’ NOI for two commercial properties located in Germany and one in Belgium. In € thousands, €4,818 for the year ended December 31, 2019.
The significant improvement in the NOI contribution in 2019 was primarily the result of higher operating revenues due
to contributions from acquisitions and increased same property monthly rents. CAPREIT remains focused on continuing
to further improve NOI and NOI margin through a combination of accretive and value-enhancing acquisitions, successful
29
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis sales and marketing strategies to further improve revenues, and investments in capital programs to further reduce costs and
enhance the quality and value of its portfolio. For a comprehensive analysis of stabilized NOI growth or decline compared to
the same period last year by region, refer to the Stabilized NOI by Region section.
Stabilized NOI by Region
For the Year Ended December 31,
2019
2018
Increase (Decrease)
($ thousands)
Residential Suites
Ontario
Greater Toronto Area(1)
Ottawa
London / Kitchener / Waterloo
Other Ontario
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region(1)
Victoria
Alberta
Edmonton
Calgary(1)
Nova Scotia
Halifax
Saskatchewan
Regina
Prince Edward Island
Charlottetown
Europe
The Netherlands(12)
Total residential suites
MHC Sites
Ontario
British Columbia
Alberta
Saskatchewan
Prince Edward Island
New Brunswick
Total MHC sites
Total suites and sites
Stabilized suites and sites
Stabilized
NOI
NOI
Margin (%)
Stabilized
NOI
NOI
Margin (%)
Revenue
Change (%)
Expense
Change (%)
NOI
Change (%)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
182,579
16,988
20,058
18,738
238,363
57,322
20,994
78,316
33,064
17,723
50,787
4,728
17,085
21,813
14,733
1,600
3,366
24,211
433,189
12,259
1,574
1,627
827
429
4,587
21,303
454,492
48,601
65.6
65.1
65.5
62.9
65.3
58.7
58.9
58.7
67.7
73.7
69.7
66.2
59.2
60.6
61.3
55.9
49.4
74.4
64.3
68.3
81.2
67.1
64.9
46.7
55.1
64.9
64.4
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
171,639
16,472
18,377
17,617
224,105
55,207
20,360
75,567
33,214
16,600
49,814
4,667
17,149
21,816
14,004
1,745
3,355
22,554
412,960
11,895
1,152
1,490
773
428
4,414
20,152
433,112
48,601
64.5
66.3
63.5
62.4
64.4
58.4
59.2
58.6
71.6
73.2
72.2
68.1
60.0
61.6
61.4
59.8
50.4
68.0
63.8
67.8
78.6
65.6
63.8
47.7
55.0
64.1
64.0
4.7
5.2
5.9
5.5
4.9
3.4
3.7
3.5
5.3
6.1
5.6
4.2
1.0
1.6
5.3
(1.9)
2.3
(1.8)
4.1
2.2
32.3
6.7
5.2
2.3
3.7
4.5
4.4
1.6
9.2
0.2
4.1
2.2
2.7
4.6
3.2
19.8
4.3
14.9
10.5
3.0
4.2
5.5
7.6
4.4
(21.4)
2.7
0.5
16.2
2.0
2.1
4.3
3.5
2.2
3.6
6.4
3.1
9.1
6.4
6.4(2)
3.8
3.1
3.6(3)
(0.5)
6.8
2.0(4)
1.3
(0.4)
0.0(5)
5.2(6)
(8.3)(7)
0.3
7.3
4.9
3.1
36.6(8)
9.2(9)
7.0
0.2(10)
3.9(11)
5.7(13)
4.9
(1) 2018 comparative balances have been restated to reflect adjustments to conform with current period presentation for land and air rights leases. For details, refer to
NOI section under the Results of Operations section.
(2) Higher expenses: higher realty taxes, insurance costs and R&M costs, partially offset by lower utilities costs and wages.
(3) Higher expenses: higher realty taxes, on-site costs and insurance costs, partially offset by lower utilities costs, R&M costs and wages.
(4) Higher expenses: higher realty taxes, utilities costs and wages, partially offset by lower insurance costs.
(5) Higher expenses: higher realty taxes, utilities costs, R&M costs and on-site costs, partially offset by lower wages.
(6) Higher expenses: higher realty taxes and insurance costs, partially offset by lower advertising costs.
(7) Higher expenses: higher advertising costs and R&M costs, partially offset by lower wages.
(8) Higher revenues: include home sales. Excluding home sales of $408 thousand, revenues increased by $66 thousand and 4.5%. Higher expenses: higher wages
partially offset by lower R&M costs.
(9) Higher revenues: increased home rental revenues due to 16 rental homes purchased in mid-2018 on an existing site making a full impact in 2019.
(10) Higher expenses: higher realty taxes and utilities, partially offset by lower R&M costs.
(11) Higher expenses: higher realty taxes and wages, partially offset by lower insurance costs.
(12) In € thousands, €16,293 and €14,759 for the years ended December 31, 2019 and December 31, 2018, respectively.
(13) Excluding home sales of $515 thousand, total revenues increased by $1.0 million and 3.2% and total NOI increased by $739 thousand and 3.7%.
30
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis For the year ended December 31, 2019, stabilized NOI increased by 4.9% compared to last year. Furthermore, the NOI margin
for the year ended December 31, 2019 increased to 64.4% from 64.0% last year.
The following table reconciles stabilized NOI and NOI from net acquisitions to total NOI for the years ended December 31,
2019 and December 31, 2018:
($ thousands)
For the Year Ended December 31,
Stabilized NOI
Net acquisitions NOI(1)
Total NOI
2019
454,492
53,658
508,150
$
$
NOI Margin
(%)
64.4
76.4
65.3
$
$
2018
433,112
7,453
440,565
NOI Margin
(%)
64.0
58.8
64.0
(1) Represents the NOI of acquisitions and dispositions completed during 2019 and 2018.
Net Income and Other Comprehensive Income
($ thousands)
For the Year Ended December 31,
NOI
(Less) plus:
Trust expenses
Transaction costs
Unit-based compensation expenses
Fair value adjustments of investment properties
Realized loss on disposition of investment properties
Amortization of property, plant and equipment
Fair value adjustments of Exchangeable Units
Loss on non-controlling interest
Fair value adjustments of investments
(Loss) gain on derivative financial instruments
Interest on Exchangeable Units
Interest on mortgages payable and other financing costs
Interest on bank indebtedness and other financing costs
Interest on leases(1)
Gain (loss) on foreign currency translation
Other income
Net income before income taxes
Current and deferred income tax expense
Net income
Other comprehensive (loss) income, including items that may be reclassified subsequently
to net income
Amortization of losses from AOCL to interest and other financing costs
Loss on foreign currency translation
Other comprehensive (loss) income
Comprehensive income
2019
2018
$
508,150
$
439,056
(46,244)
(8,527)
(14,838)
892,156
–
(6,290)
–
(47,058)
6,522
(3,684)
–
(123,899)
(9,279)
(2,038)
37,933
34,904
1,217,808
(22,361)
1,195,447
3,810
(52,166)
(48,356)
$
$
(39,515)
–
(34,672)
990,529
(2,594)
(4,976)
(840)
–
3,740
13,141
(95)
(116,676)
(18,440)
–
(34,489)
42,310
1,236,479
(18,808)
1,217,671
2,659
28,530
31,189
$
$
$
1,147,091
$
1,248,860
(1) Upon adoption of IFRS 16, effective January 1, 2019, CAPREIT’s land and air rights leases were required to be capitalized with a corresponding lease liability. This
has led to the recording of lease interest on these lease liabilities. For further details, please refer to note 2 of CAPREIT’s consolidated annual financial statements.
Trust Expenses
Trust expenses include costs directly attributable to head office, such as salaries, trustee fees, professional fees for legal and
advisory services, trustees’ and officers’ insurance premiums, providing third-party property and asset management services,
and other general and administrative expenses, net of amounts allocated to property operating expenses for properties owned
by CAPREIT. Trust expenses increased for the year ended December 31, 2019 to $46.2 million from $39.5 million last year,
primarily due to higher salaries, legal fees, and trust expenses associated with ERES of $4.8 million. Trust expenses for the year
ended December 31, 2019 include non-routine items of approximately $0.8 million related to legal, consulting, accounting
and tax costs incurred in connection with initial ERES structuring and $0.6 million related to other non-routine consulting
31
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis
and legal costs. For last year, trust expenses included approximately $4.3 million non-routine items including severances,
consulting, legal and general expenses.
Transaction Costs
Transaction costs are related to the one-time business combination fees associated with the Acquisition, consisting of legal,
audit, tax, consulting and financial advisory fees.
Unit-based Compensation Expenses
Unit-based compensation benefits are provided to officers, trustees and certain employees and are intended to facilitate
long-term ownership of Trust Units and to provide additional incentives by increasing the participants’ interest, as owners, in
CAPREIT. Unit-based compensation expenses include costs attributable to these incentive plans, namely the Restricted Unit
Rights Plan (“RUR Plan”), Unit Option Plan (“UOP”), Deferred Unit Plan (“DUP”), Long-Term Incentive Plan (“LTIP”),
Senior Executive Long-Term Incentive Plan (“SELTIP”) and the ERES unit options (“ERES UOP”) (see notes 13 and 14 of the
consolidated annual financial statements). On April 4, 2014, the LTIP, SELTIP and UOP were terminated by the trustees of
CAPREIT. In 2018, the UOP, LTIP and SELTIP were all settled and no further awards remain outstanding.
The Unit-based compensation expenses have been separated into two components: (i) the amortization of the fair value at
grant date of the award over its vesting period, and (ii) the remeasurement of awards outstanding at year end at fair value.
($ thousands)
For the Year Ended December 31,
Remeasurement of Unit-based compensation liabilities
Amortization of fair value on grant date of Unit-based compensation
Total
2019
8,286
6,552
14,838
$
$
2018
29,428
5,244
34,672
$
$
CAPREIT’s remeasurement of Unit-based compensation liabilities for the year ended December 31, 2019 decreased to
$8.3 million compared to a remeasurement expense of $29.4 million in the prior year, primarily due to the fact that all
outstanding LTIP and SELTIP units were settled in 2018. CAPREIT’s amortization of fair value on grant date of Unit-based
compensation expense for the year ended December 31, 2019 increased to $6.6 million compared to $5.2 million in the prior
year, primarily due to ERES unit options amortization, and accelerated RUR amortization expense relating to the former
President and CEO in the first quarter.
Fair Value Adjustments of Investment Properties
CAPREIT recognizes its investment properties at fair value at each reporting period, with any unrealized gain or loss upon
remeasurement recognized in the consolidated statements of income for the period. A description of the key components of
the change in the fair value of investment properties is included in the Investment Properties in Section V.
Amortization
These costs represent the amortization of right-of-use assets as per IFRS 16 and head office property, plant and equipment on
a straight-line basis over their estimated useful lives, ranging primarily between three and five years.
Loss on Non-Controlling Interest
For the year ended December 31, 2019, CAPREIT recorded a loss on non-controlling interest on the ERES units of
$47.1 million, which includes a mark-to-market loss of $43.1 million and distributions to ERES units held by non-controlling
interest of $3.9 million. The mark-to-market loss arises from an increase in ERES’ unit price on a quarter and year-to-date
basis to a December 31, 2019 unit price of $4.65.
Interest on Mortgages Payable and Other Financing Costs
Information on the interest on mortgages payable and other financing costs is included in note 22 to the accompanying audited
consolidated annual financial statements and included in Liquidity and Financial Condition in Section V of this report.
Interest on Bank Indebtedness
Interest on bank indebtedness relates to borrowings under the Credit Facilities (see Liquidity and Financial Condition
discussion in Section V).
32
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Gain (Loss) on Foreign Currency Translation
CAPREIT is exposed to gain/loss in foreign exchange due to its holdings of assets and liabilities through its investment in IRES
and its ERES subsidiary. The following table summarizes the gain or loss recorded in other comprehensive income and net
income on this exposure and its associated hedged instruments.
As of December 31,
($ thousands)
Total foreign assets(1)
Total foreign liabilities(2)
Net equity(3)
Cross-currency swap
Net FX gain (loss) exposure
As of December 31,
($ thousands)
Total foreign assets(1)
Total foreign liabilities(2)
Net equity
Cross-currency swap
Net FX gain (loss) exposure
2019
Other Comprehensive
Gain (Loss)
Net Income
Gain (Loss)
Total Foreign Exchange
Exposure Gain (Loss)
Balance
Year Ended
Year Ended
Year Ended
€
1,543,055
$
634,284
908,772
442,358
466,414
Balance
799,105
500,834
298,271
163,540
134,731
€
€
€
$
(87,380)
35,214
(52,166)
–
$
(52,166)
$
2018
6,289
31,644
37,933
1,448
39,381
$
(81,091)
66,858
(14,233)
1,448
$
(12,785)
Other Comprehensive
Gain (Loss)
Net Income
Gain (Loss)
Total Foreign Exchange
Exposure Gain (Loss)
Year Ended
Year Ended
Year Ended
$
40,912
(12,382)
28,530
–
$
28,530
$
$
–
$
(34,489)
(34,489)
12,976
(21,513)
$
40,912
(46,871)
(5,959)
12,976
7,017
(1) Foreign assets are comprised of CAPREIT’s Euro cash, ERES’ assets, and investment in IRES. Foreign exchange gains or losses related to CAPREIT’s Euro cash are
recorded in foreign currency translation under Net Income. Foreign exchange gain or losses related to ERES’ assets and investment in IRES are recorded in foreign
currency translation under OCI.
(2) Foreign liabilities are comprised of third-party loans secured by the Netherlands properties and Euro LIBOR borrowings: (a) FX gains or losses related to loans
secured by ERES are recorded in foreign currency translation under OCI; (b) gain or losses on Euro LIBOR borrowings are recorded in foreign currency translation
under Net Income.
(3) Net equity includes €773,875 relating to ERES which CAPREIT has 66% interest in. Taking into consideration the non-controlling interest of ERES, net FX exposure
is €228,823.
Other Income
Other income primarily consists of income received from investments (see note 7 of the accompanying audited consolidated
annual financial statements), income from investment in associate, and asset management and property management fees.
($ thousands)
For the Year Ended December 31,
Investment income
Net profit from equity-accounted investment(1)
Asset and property management fees(2)
Other(3)
Total
2019
1,674
23,440
8,038
1,752
34,904
$
$
2018
1,384
32,633
7,285
1,008
42,310
$
$
(1) CAPREIT’s share of IRES’ investment property fair value change, earnings and foreign exchange effects thereon. For the years ended December 31, 2019 and 2018,
CAPREIT’s share of IRES’ investment property fair value gain is $15.2 million and $25.2 million, respectively.
(2) Other income includes asset and property management fees from IRES, which CAPREIT has a 18.3% ownership in, and excludes asset and property management
fees and service fees from ERES, which CAPREIT has a 66.0% ownership in.
($ thousands)
For the Year Ended December 31,
Total fee income generated
Asset and property management fees and service fees from ERES eliminated on consolidation
Asset and property management fee from IRES recognized in other income
2019
14,168
6,130
8,038
$
$
$
$
2018
8,312
1,027
7,285
(3) The non-recurring increase is due to the interest earned on a significant amount of cash and cash equivalents held as of year end.
33
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis
Income Taxes
CAPREIT has foreign subsidiaries in a number of countries with varying statutory rates of taxation. During the year ended
December 31, 2019, income tax expenses increased to $22.4 million from $18.8 million. The increase in income tax expense
is primarily due to an increase in fair value adjustments of investment properties. As a result of the Acquisition, capital gains
were triggered on the reorganization of the legal structure of the Netherlands subsidiaries. Therefore, $18.1 million previously
included in deferred tax liability was reclassified to current tax liability.
($ thousands)
For the Year Ended December 31,
Current income tax expense triggered on Acquisition
Current income tax expense (recovery) not related to the Acquisition
Current Income tax expense (net)
($ thousands)
For the Year Ended December 31,
Deferred income tax recovery triggered on Acquisition
Deferred income tax expense not related to the Acquisition
Deferred income tax expense (net)
2019
18,050
(768)
17,282
2019
(18,050)
23,129
5,079
$
$
$
$
$
$
$
$
2018
–
–
–
2018
–
18,808
18,808
SECTION IV: UNIT CALCULATIONS, NON-IFRS FINANCIAL MEASURES
Per Unit Calculations
As a result of CAPREIT being an open-ended mutual fund trust, Unitholders are entitled to redeem their Trust Units, subject
to certain restrictions. The impact of this redemption feature causes CAPREIT’s Trust Units to be treated as financial liabilities
under IFRS. Consequently, all per Unit calculations are considered non-IFRS measures.
The following table explains the number of Units used in calculating non-IFRS financial measures on a per Unit basis:
(thousands)
For the Year Ended December 31,
Trust Units
Exchangeable Units(1)
Units under the DUP(2)
Basic number of Units
Plus:
Dilutive Units under the LTIP(2), (3)
Dilutive Units under the SELTIP(2), (3)
Unit rights under the RUR Plan(2)
Dilutive unexercised options under the UOP(2), (4)
Diluted number of Units
Weighted Average Number of Units
Outstanding
Number of Units
2019
158,333
–
220
158,553
–
–
562
–
2018
142,618
85
271
142,974
288
290
579
44
2019
169,869
–
151
170,020
–
–
542
–(5)
159,115
144,175
170,562
(1) See note 13 to the accompanying consolidated annual financial statements for details of Exchangeable Units.
(2) See notes 13 and 14 to the accompanying audited consolidated annual financial statements for the year ended December 31, 2019 for details of CAPREIT’s
Unit-based compensation plans.
(3) Calculated using the treasury method after taking into account the respective subscriptions receivable (see note 14 to the accompanying consolidated annual
financial statements).
(4) Calculated using the treasury method after taking into account the exercise prices.
(5) There are nil unexercised options outstanding under the UOP.
34
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Distribution Reinvestment Plan (“DRIP”) and Net Distributions Paid
(thousands)
For the Year Ended December 31,
Distributions declared on Trust Units
Distributions declared on Exchangeable Units
Distributions declared on awards outstanding under Unit-based compensation plans(1)
Total distributions declared
Less:
Distributions on Trust Units reinvested
Distributions on Unit awards reinvested(1)
Net distributions paid
Percentage of distributions reinvested
2019
$
218,136
$
–
1,070
219,206
(67,393)
(1,070)
150,743
31.2%
$
$
2018
187,848
95
2,181
190,124
(52,216)
(2,181)
135,727
28.6%
(1) Comprises non-cash distributions related to the DUP and the RUR Plan (see notes 13 and 14 to CAPREIT’s accompanying audited consolidated annual financial
statements for the year ended December 31, 2019 for a discussion of these plans).
Under CAPREIT’s DRIP, a participant may purchase additional Units with the cash distributions paid on the eligible Units,
registered in the participant’s name or held in a participant’s account maintained pursuant to the DRIP. Each participant
has the right to receive an additional amount equal to 5% of their monthly distributions reinvested pursuant to the DRIP,
which will automatically be paid on each distribution date in the form of additional Units. The price at which Units will be
purchased with cash distributions will be the weighted average trading price for CAPREIT’s Trust Units on the Toronto Stock
Exchange (“TSX”) for the five trading days immediately preceding the relevant distribution date. Reinvestments pursuant
to the DRIP will increase the total number of Units outstanding over time, which may result in upward pressure on the total
amount of net distributions paid if those participants do not elect to join the DRIP or choose cash distributions.
The average participation rate in the DRIP and other plans under which distributions are reinvested increased for the
year ended December 31, 2019 to 31.2% from 28.6% last year. The DRIP participation rate is subject to factors beyond
management’s control and varies among investors.
Non-IFRS Financial Measures
Funds From Operations
FFO is a measure of operating performance based on the funds generated by the business before reinvestment or provision
for other capital needs. FFO as presented is in accordance with the recommendations of the Real Property Association of
Canada (“REALpac”), with the exception of (i) the adjustment for unrealized gains or losses on fair value through profit or
loss (“FVTPL”) marketable securities in its calculation of FFO, (ii) the adjustment for amortization of certain other assets
consistent with prior years and (iii) the deduction of the impact attributable to the non-controlling interest of ERES. It may
not, however, be comparable to similar measures presented by other real estate investment trusts or companies in similar or
different industries. Management considers FFO to be an important measure of CAPREIT’s operating performance.
Effective January 1, 2019, IFRS 16, the new standard on leases, supersedes IAS 17, Leases and related interpretations. IFRS 16
eliminates the classification of leases as either operating leases or finance leases and instead introduces a single lessee
accounting model where most leases are capitalized. This results in an increase in assets and liabilities, and an increase in
interest expense to record the use of the asset. CAPREIT currently has four land leases and one air rights lease. Prior to
IFRS 16, land and air rights lease expenses were deducted as an “operating expense” to calculate NOI. Post IFRS 16 being
effective, fixed land and air rights lease expenses over the term of the respective leases are present valued and capitalized
to investment property with a corresponding lease liability and not deducted as an operating expense through Net Rental
Income. For CAPREIT’s office leases, previously they were deducted within CAPREIT’s trust expenses. These payments have
now been capitalized, and interest expense is now flowing through the consolidated statements of income and comprehensive
income with the principal lease liability being repaid over the term. For leases capitalized as investment properties, there
is an interest expense component calculated on the lease liability recorded in the consolidated statements of income and
comprehensive income with the principal lease liability being repaid over the term. CAPREIT has deducted the lease principal
repayments from the FFO in accordance with the amended FFO Whitepaper.
35
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis CAPREIT adopted the new standard IFRS 9, Financial Instruments (“IFRS 9”) on the required effective date of January 1,
2018. One impact of adopting this new standard is that the unrealized gains or losses on marketable securities classified
as FVTPL are now included in net income, whereas they were recorded in other comprehensive income (“OCI”) in 2017
and prior years’ consolidated financial statements. Based on the FFO definition currently set forth by REALpac, which was
amended in April 2014 and again in February 2019, the unrealized gains or losses on FVTPL marketable securities should be
included in FFO. However, CAPREIT believes that including such unrealized gains or losses in FFO does not represent the
recurring operating performance of CAPREIT.
A reconciliation of net income to FFO is as follows:
($ thousands, except per Unit amounts)
For the Year Ended December 31,
Net income
Adjustments:
2019
2018
$
1,195,447
$
1,217,671
Unrealized gain on remeasurement of investment properties
(892,156)
(990,529)
Realized loss on disposition of investment properties
Remeasurement of Exchangeable Units
Remeasurement of Investments(1)
Remeasurement of Unit-based compensation liabilities
Interest on Exchangeable Units
Deferred income taxes(2)
Loss (gain) on foreign currency translation
FFO adjustment for income from equity-accounted investments(3)
Loss (gain) on derivative financial instruments
Net FFO impact attributable to non-controlling interest
Fair value mark-to-market loss on ERES units held by non-controlling interest
Distributions on ERES units held by non-controlling interest
Net FFO impact attributable to ERES units held by non-controlling interest(4)
Amortization of property, plant and equipment
Lease principal repayment(5)
Transaction costs(6)
FFO
FFO per Unit – basic
FFO per Unit – diluted
Total distributions declared
FFO payout ratio
Net distributions paid
Excess FFO over net distributions paid
FFO effective payout ratio
–
–
(6,522)
8,286
–
23,129
(37,933)
(15,201)
3,684
–
43,120
3,938
(4,706)
6,290
(1,275)
8,527
334,628
2.111
2.103
219,206
65.5%
150,743
183,885
45.0%
$
$
$
$
$
$
2,594
840
(3,740)
29,428
95
17,872
34,489
(25,159)
(13,141)
9,821
–
–
–
4,976
–
–
285,217
1.995
1.978
190,124
66.7%
135,727
149,490
47.6%
$
$
$
$
$
$
(1) Effective January 1, 2018, CAPREIT adopted IFRS 9, Financial Instruments. Under this standard, this investment has been designated as FVTPL whereas previously
it was designated as available-for-sale. Under the guidance in this new standard, any mark-to-market gains or losses are recorded in the statement of income and
comprehensive income whereas previously they were recorded through OCI. The cumulative mark-to-market gains/losses have also been reclassified from
accumulated OCI to retained earnings on adoption of this standard.
(2) Included in the adjustment relating to deferred income tax for the year ended December 31, 2019 are deferred income tax expense of $5.1 million and $18.1 million
of income taxes triggered on the deemed disposition of investment properties associated with the reorganization of the legal structure of the Netherlands subsidiaries.
(3) Relates to unrealized gain on remeasurement of investment properties.
(4) This calculation is based on the weighted average ownership held by ERES non-controlling interest unitholders.
(5) Upon adoption of IFRS 16, there is no impact on FFO. Currently, lease principal repayments are deducted from FFO, which were previously expensed under NOI
and deducted from FFO as per IAS 17.
(6) Costs include legal, audit, tax, consulting, and financial advisory fees related to the Acquisition.
36
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis
Normalized Funds From Operations
Management considers NFFO to be the key measure of CAPREIT’s operating performance. NFFO is calculated by excluding
from FFO the effects of certain non-recurring items, including amortization of losses on certain hedging instruments
previously settled and paid, mortgage prepayment penalties, offset by write-off of fair value adjustment on assumed
mortgages that were refinanced early, accelerated vesting of previously granted RUR Units, and large acquisition research costs
relating to transactions that were not completed. As it is an operating performance metric, no adjustment is made to NFFO
for capital expenditures. NFFO facilitates better comparability than FFO to prior year’s performance and provides a better
indicator of CAPREIT’s long-term operating performance. For further information on CAPREIT’s total property capital
investments, please refer to the Property Capital Investments in Section V. See discussions under the Net Income and Other
Comprehensive Income in Section III for additional information on hedging instruments currently in place. NFFO is not a
measure of sustainability of distributions.
A reconciliation of FFO to NFFO is as follows:
($ thousands, except per Unit amounts)
For the Year Ended December 31,
FFO
Adjustments:
Amortization of losses from AOCL to interest and other financing costs
Net mortgage prepayment cost
Other employee costs(1)
Acquisition research costs(2)
NFFO
NFFO per Unit – basic
NFFO per Unit – diluted
Total distributions declared
NFFO payout ratio
Net distributions paid
Excess NFFO over net distributions paid
Effective NFFO payout ratio
2019
$
334,628
$
2,556
347
751
839
339,121
2.139
2.131
219,206
64.6%
150,743
188,378
44.5%
$
$
$
$
$
$
$
$
$
$
$
$
2018
285,217
2,659
1,459
–
–
289,335
2.024
2.007
190,124
65.7%
135,727
153,608
46.9%
(1) Expenses included in Unit-based compensation expenses relate to accelerated vesting of previously granted RUR Units.
(2) Expenses included in trust expenses relate to transactions that were not completed.
NFFO for the year ended December 31, 2019 increased by 17.2% compared to last year, primarily due to the contribution
from acquisitions, and higher NOI for properties owned prior to December, 31 2017. Asset management fees and property
management fees received from ERES increased FFO and consequently NFFO by $1,086 thousand for the year ended
December 31, 2019, representing the amount of fees attributed to the ERES units held by non-controlling interest based on
the weighted average ownership throughout the year.
For the year ended December 31, 2019, basic NFFO per Unit increased by 5.7% compared to last year, despite an approximate
10.9% increase in the weighted average number of Units outstanding resulting from the January, April and December 2019
equity offerings (see Liquidity and Financial Condition in Section V). Management expects per Unit FFO and NFFO and
related payout ratios to strengthen further in the medium term as a result of NOI contributions from recent acquisitions.
Comparing total distributions declared to NFFO, the NFFO payout ratio for the year ended December 31, 2019 improved
to 64.6% compared to 65.7% last year. The effective NFFO payout ratio, which compares NFFO to net distributions paid,
improved for the year ended December 31, 2019 to 44.5% from 46.9% last year.
Adjusted Cash Flows From Operations and Distributions Declared
As a measure of economic cash flows, CAPREIT calculates ACFO using guidelines from the white paper published by
REALpac, “White Paper on Adjusted Cashflow From Operations (ACFO) for IFRS”, dated February 2017 and updated as of
February 2019.
37
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis There may be periods when actual distributions declared exceed ACFO due to weaker performance in certain periods from
seasonal fluctuations, regional market volatility, or from year to year based on the timing of property capital investments and
the impact of acquisitions. Excess distributions (shortfalls) are funded by the Acquisition and Operating Facility.
ACFO is a measure of economic cash flow based on the operating cash flows generated by the business adjusted to deduct
items such as interest expense, non-discretionary capital expenditures as described below, capitalized leasing costs, tenant
improvements and amortization of other financing costs, partially offset by investment income. ACFO as calculated by
CAPREIT is in accordance with the corresponding definition recommended by REALpac, with the exception of (i) the
adjustment for investment income and (ii) the deduction of the non-controlling interest of ERES. It may not, however, be
comparable to similar measures presented by other real estate investment trusts or companies in similar or different industries.
The following table reconciles cash generated from operating activities (per the consolidated financial statements) to ACFO:
($ thousands, except per Unit amounts)
For the Year Ended December 31,
Cash generated from operating activities
Adjustments:
Working capital adjustment(1)
Interest expense included in cash flow from financing activities
Non-discretionary property capital investments(2)
Capitalized leasing costs(3)
Amortization of other financing costs(4)
Non-controlling Interest
Transactions costs(5)
Investment income
Net ACFO impact attributed to ERES units held by non-controlling interest(6)
Lease principal and interest repayments(7)
ACFO
Total distributions declared
Excess ACFO over distributions declared
ACFO payout ratio
2019
2018(8)
$
454,629
$
431,177
8,485
(119,609)
(65,532)
(1,518)
(8,601)
–
8,527
10,039
(4,179)
(3,402)
278,839
219,206
59,633
78.6%
$
$
$
–
(114,271)
(51,252)
(1,046)
(6,464)
(216)
–
7,442
–
–
265,370
190,124
75,246
71.6%
$
$
$
(1) On a quarterly basis, a review of working capital is performed to determine whether changes in prepaids, receivables, deposits, accounts payable and other liabilities,
security deposits and other non-cash operating assets and liabilities were attributed to items which were not indicative of sustainable cash flows available for
distribution in line with the ACFO guidance provided by REALpac. As a result, the one-time special distribution to the pre-existing unitholders of ECREIT was
added back.
(2) Non-discretionary property capital investments for the years ended December 31, 2019 and 2018 are based on the actual annual 2019 and annual 2018, respectively.
For a reconciliation of actual non-discretionary property capital investments incurred during the period to forecast, see the table on the next page.
(3) Comprises tenant inducements and direct leasing costs.
(4) Includes amortization of deferred financing costs, CMHC premiums, deferred loan costs and fair value adjustments.
(5) Relates to expensed transaction costs associated with the Acquisition.
(6) This calculation is based on the weighted average ownership held by ERES non-controlling interest unitholders.
(7) Upon adoption of IFRS 16, effective January 1, 2019, CAPREIT’s leases were required to be capitalized with a corresponding lease liability. This has led to the
recording of lease interest on these lease liabilities, and lease repayments. This deduction is allowed under the amended REALpac whitepaper for ACFO dated
February, 2019.
(8) Certain 2018 comparative balances have been restated to conform with current year presentation.
For the year ended December 31, 2019, CAPREIT’s ACFO was in excess of distributions declared by $59.6 million.
The table below reconciles actual non-discretionary capital investments incurred to the forecasted amount:
Non-Discretionary Property Capital Actuals to Forecast Reconciliation
($ thousands)
For the Year Ended December 31,
Actual
Forecast
Difference
2019
65,532
67,245
(1,713)
$
$
2018
51,252
56,029
(4,777)
$
$
For the year ended December 31, 2019, CAPREIT’s actual non-discretionary property capital investments of $65.5 million
were lower than the forecast by approximately $1.7 million, mainly related to the deferral of structural work into 2020.
38
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis
CAPREIT’s capital investments programs are affected by seasonal cycles, and professional judgment is used by management to
determine timing of property capital investments. Therefore, actual and forecasted capital investments may differ during the
applicable periods.
Significant non-discretionary property capital investment programs are usually completed within three to five years. Actual
completion of such projects may differ from the forecasted timelines as they are longer term in nature and professional
judgment is applied to forecast completion dates.
Discretionary and Non-Discretionary Property Capital Investments
Management does not differentiate between maintenance and value-enhancing property capital investments. Maintenance
property capital investments are generally not clearly identifiable, nor do they have a common definition and would require
significant judgment to classify property capital investments as maintenance or value-enhancing capital investments. In
addition, there is no generally accepted definition of maintenance capital investments in the Canadian real estate industry.
Management has decided to classify property capital investments into two categories: discretionary and non-discretionary.
Management is of the view that this classification, while still requiring a degree of professional judgment, provides a better
measure of economic cash flows.
Non-Discretionary Property Capital Investments are those investments management believes are essential for the safety of
residents and to ensure the structural integrity of the properties. These investments may enhance the property’s operating
effectiveness, including its profitability, through increases in revenues or reductions in costs over the long term. Included
in non-discretionary capital expenditures are items such as building improvements, which include items such as roof,
structural, balcony, sidewalks, windows, brick, electrical, MHC infrastructure investments, and life and safety. Management
uses its professional judgment to include other capital expenditure categories that could impact the safety of residents. These
Non-Discretionary Property Capital Investments are in addition to regular R&M costs, which have been in the range of $750
to $1,100 per residential suite annually over the last five years and are expensed to NOI.
Discretionary Property Capital Investments are capital expenditures made to the property that are not essential to operation
of the business in the short term. These investments may enhance the property’s operating effectiveness, including its
profitability, through increases in revenues or reductions in costs over the long term. Included in discretionary capital
expenditures are items such as suite and common area improvements, energy-saving initiatives, equipment, boilers, elevators
and risers.
The following table presents the actual 2019, 2018 and 2017 Non-Discretionary Property Capital Investments per suite and site:
($ thousands)
Non-discretionary property capital investments(1)
Discretionary property capital investments(1), (2)
Total property capital investments(2)
Non-discretionary property capital investments
Weighted average number of suites and sites
Non-discretionary property capital investments per suite and site
(1) See Property Capital Investments in Section V for further details.
(2) Excludes property capital investments relating to development and intensification.
2019 Actual
2018 Actual
2017 Actual
$
$
$
$
65,532
155,693
221,225
65,532
55,175
1,188
$
$
$
$
51,252
142,202
193,454
51,252
49,595
1,033
$
$
$
$
38,724
112,643
151,367
38,724
48,307
802
39
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Adjusted Cash Generated from Operating Activities
As required by National Policy 41-201, “Income Trusts and Other Indirect Offerings”, the following table quantifies cash
generated from operating activities net of interest expense included in cash flow from financing activities.
($ thousands, except per Unit amounts)
For the Year Ended December 31,
Cash generated from operating activities
Adjustments:
Interest expense included in cash flow from financing activities
Adjusted Cash Generated from Operating Activities
Total distributions declared
Excess
2019
454,629
(119,609)
335,020
219,206
115,814
$
$
$
$
2018(1)
431,177
(114,271)
316,906
190,124
126,782
$
$
$
$
(1) Certain 2018 comparative balances have been restated to conform with current year presentation.
The following table outlines the differences between adjusted cash generated from operating activities and total distributions
declared, as well as the differences between net income and total distributions, in accordance with the guidelines:
($ thousands, except per Unit amounts)
For the Year Ended December 31,
Net income
Adjusted Cash Generated from Operating Activities
Total distributions declared
Net distributions paid
Excess of net income over total distributions declared
Excess of net income over net distributions paid
Excess of Adjusted Cash Generated from Operating Activities over total distributions declared
Excess of Adjusted Cash Generated from Operating Activities over net distributions declared
(1) Certain 2018 comparative balances have been restated to conform with current year presentation.
2019
1,195,447
335,020
219,206
150,743
976,241
1,044,704
115,814
184,277
$
$
$
$
$
$
$
$
2018(1)
1,217,671
316,906
190,124
135,727
1,027,547
1,081,944
126,782
181,179
$
$
$
$
$
$
$
$
CAPREIT does not use net income as a basis for distributions as it includes fair value change in investment properties,
remeasurement of Unit-based compensation liabilities and fair value change in derivative financial instruments, which are not
reflective of CAPREIT’s ability to make distributions. Amounts retained in excess of the declared distributions are used for
mortgage principal repayments, tenant inducements and capital expenditure requirements.
For the year ended December 31, 2019, CAPREIT’s Adjusted Cash Generated from Operating Activities exceeded distributions
declared by $115.8 million. As per OSC Staff Notice 51-724, if distributions are in excess of Adjusted Cash Generated from
Operating Activities, then it represents a return of capital, rather than a return on capital, since they represent cash payments
in excess of cash generated from CAPREIT’s continuing operations during the period. Management believes, should it occur,
there is adequate overall liquidity to fund excess distributions over Adjusted Cash Generated from Operating Activities on an
annual basis through: (i) mortgage debt secured by its investment properties; and (ii) the Acquisition and Operating Facility.
40
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis
SECTION V: CAPITAL INVESTMENT, INVESTMENT PROPERTY,
CAPITAL STRUCTURE, FINANCIAL CONDITION
Property Capital Investments
CAPREIT capitalizes all capital investments related to the improvement of its properties. These investments have the objective
of growing future NOI, increasing property value over the long term, ensuring life safety and safeguarding of assets.
An important component of CAPREIT’s property capital investment strategy is to acquire properties significantly below
current replacement costs and improve its operating performance by investing annually. This ensures sustainable growth to
maximize the portfolio’s future rental income-generating potential.
For the year ended December 31, 2019, CAPREIT made property capital investments (excluding head office assets and
development) of $221.2 million compared to $193.5 million for the same period last year. Energy-saving initiatives and suite
and common area improvement costs generally tend to increase NOI more quickly compared to other capital investment
categories. A breakdown of property capital investments (excluding head office assets and development) is summarized by
category below:
Property Capital Investments by Category
($ thousands)
Year Ended December 31, 2019
Non-discretionary property capital investments:
Building improvements
MHC infrastructural
Life and safety
Discretionary property capital investments:
Suite improvements
Common area
Energy-saving initiatives
Equipment
Elevators and risers
Others
MHC common area
Total
($ thousands)
Year Ended December 31, 2018
Non-discretionary property capital investments:
Building improvements
MHC infrastructural
Life and safety
Discretionary property capital investments:
Suite improvements
Common area
Energy-saving initiatives
Equipment
Elevators and risers
Others
MHC common area
Total
Actual
Total Portfolio
% of Actual
61,869
2,605
1,058
65,532
68,907
45,517
15,132
14,752
8,505
1,900
980
155,693
221,225
28.0
1.2
0.5
29.7
31.1
20.6
6.8
6.7
3.8
0.9
0.4
70.3
100.0
Actual
Total Portfolio
% of Actual
$
$
$
47,612
1,653
1,987
51,252
53,863
44,342
20,140
13,243
9,056
1,031
527
142,202
193,454
$
24.6
0.9
1.0
26.5
27.9
22.9
10.4
6.8
4.7
0.5
0.3
73.5
100.0
41
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis The table below includes estimated 2020 capital expenditures for buildings expected to be completed in 2020. The following
budgeted capital expenditures may vary from actuals as the planned expenditures may be accelerated or adjusted as necessary.
2020 Capital Expenditure Budget
Investment Properties
($ thousands)
Non-discretionary property capital investments:
Building improvements
MHC infrastructural
Life and safety
Discretionary property capital investments:
Suite improvements
Common area
Energy-saving initiatives
Equipment
Elevators and risers
Others
MHC common area
Total
Actual
Total Portfolio(1)
% of Actual
60,519
7,516
2,385
70,420
59,561
54,632
22,163
9,469
11,622
3,305
2,116
162,868
233,288
25.9
3.2
1.0
30.1
25.5
23.4
9.5
4.1
5.0
1.4
0.9
69.9
100.0
(1) The 2020 Capital Expenditure Budget includes expenditures related to the European properties.
Set out in the next table is management’s current estimate, established through consultation with an independent engineering
firm, of CAPREIT’s investments in building improvements, including investments in MHC sites, for 2020 through 2023 for
properties owned as of December 31, 2019.
Future Investments in Building Improvements
($ thousands)
2020
2021
2022
2023
Building Improvements
Estimated Range
$57,000–$70,000
$40,000–$49,000
$27,000–$33,000
$15,000–$19,000
Management believes CAPREIT has sufficient liquidity (see Liquidity and Financial Condition in Section V) to execute the
above property capital investment strategy.
Investment Properties
Investment property is defined as property held to earn rental income or for capital appreciation or both. Investment property
is recognized initially at cost. Subsequent to initial recognition, all investment property is measured using the fair value model,
whereby changes in fair value are recognized for each reporting period in net income.
The fair value of investment properties is established by qualified, independent appraisers annually. Each quarter, CAPREIT
utilizes internal market assumptions for rent increases and capitalization and discount rates provided by the independent
appraisers to determine the fair value of the investment properties for interim reporting purposes. Capitalization rates
employed by the appraisers are based on recently closed transactions, generally within the last three months, and other current
market indicators for similar properties. To the extent that the externally provided capitalization rates or results of operations
change from one reporting period to the next, the fair value of the investment properties would increase or decrease accordingly.
For a discussion of risk factors associated with the valuation of investment properties, refer to Risks and Uncertainties in
Section VI. For a detailed description of valuation methods and key assumptions used for investment properties, see note 6 to
the accompanying audited consolidated annual financial statements for the year ended December 31, 2019.
42
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis The following table summarizes the changes in the investment properties portfolio during the years:
($ thousands)
For the Year Ended December 31,
Balance, beginning of the year
Add: Impact of IFRS 16 adopted in 2019(3)
Restated balance, beginning of the year
Add:
Properties acquired through business combinations(1)
Acquisitions
Property capital investments(2)
Foreign currency translation
Gain on remeasurement at fair value
Capitalized leasing costs(3)
Right-of-use assets(4)
Operating lease buyout
Less:
Dispositions
Realized loss on dispositions
Investment Properties at fair value, end of the year
2019
2018
$
10,473,544
$
8,886,556
29,843
10,503,387
–
8,886,556
135,533
1,384,908
236,659
(78,910)
892,156
27
7,920
14,746
–
504,710
198,110
35,324
990,529
1,046
–
–
–
–
(140,137)
(2,594)
$
13,096,426
$
10,473,544
(1) Represents the fair value of the properties acquired as part of the business combination. For details, please refer to note 4 to the accompanying consolidated annual
financial statements.
(2) See Section V – Property Capital Investments, Conversions, Infill, and Redevelopment included within the Development Summary.
(3) Comprised of tenant inducements, straight-line rent and direct leasing costs.
(4) Lease and air rights leases previously expensed are now recognized as right-of-use assets and included in the fair value of investment properties. Due to the reduction
in fair value from principal repayments, the amortization of land and air rights lease principal payments are deducted from the right-of-use assets as per IFRS 16.
During the year, CAPREIT completed the early buyouts of two existing operating leases at a net purchase price of $14.7 million.
The operating lease buyouts resulted in the conversion from operating leasehold interests with options to purchase to
traditional fee simple property interests. As at December 31, 2019, CAPREIT is engaged in advanced discussions with respect
to the early buyout of an additional nine operating leases, one of which closed subsequent to year end and the remaining are
expected to close during 2020. The acceleration of the operating lease buyouts coincides with CAPREIT’s strategic initiative of
simplifying the company’s ownership structure, increasing net asset value, and strengthening overall liquidity and flexibility.
During the year ended December 31, 2019, CAPREIT recorded a fair value increase of $156.0 million associated with
acceleration of two closed operating lease buyouts and nine operating lease buyouts under discussion.
A summary of the fair values of CAPREIT’s investment properties and changes, along with key market assumptions, is
presented below:
Investment Properties by Geography
As at
Dec 2018
Change Due to Change in
Dec 2019
Dec 2019
Dec 2018
($ millions)
Fair
Value
Cap
Rates(1), (3), (5)
Normalized
NOI(2), (3)
Forex
Translation
Net
Acquisitions
Business
Combination
Fair Value
Cap Rates(1) Cap Rates(1)
Greater Toronto Area
$ 4,153
$
279
$
Other Ontario
Québec
British Columbia
Alberta
Nova Scotia
Saskatchewan
Prince Edward Island
Subtotal
MHC sites
Europe
Total(4)
1,170
1,583
1,367
448
274
32
66
9,093
340
1,041
33
63
(10)
(5)
34
1
–
395
(6)
27
$
267
79
163
71
6
20
(1)
5
610
16
85
–
–
–
–
–
–
–
–
–
–
(79)
(79)
$
109
$
69
34
148
20
–
–
19
399
250
752
$
1,401
$
–
–
–
–
–
–
–
–
–
–
136
136
$
$
$
$
$
$
$
$
$
$
$
$
4,808
1,351
1,843
1,576
469
328
32
90
10,497
600
1,962
13,059
3.63%
4.27%
4.45%
3.83%
4.47%
4.71%
5.53%
5.65%
4.01%
6.30%
3.89%
4.11%
3.78%
4.36%
4.63%
3.77%
4.46%
5.25%
5.70%
5.78%
4.13%
6.11%
3.80%
4.17%
$ 10,474
$
416
$
711
$
(1) Weighted average capitalization rates excluding implied capitalization rates on Operating and Land Leasehold Interests. See note 6 to the accompanying
consolidated annual financial statements for further valuation assumption details, including discount rates as at December 31, 2019 for Operating and Land
Leasehold Interests. Capitalization rates for Europe represent the implied capitalization rates for these properties.
(2) Represents normalized net operating income for valuation purposes.
(3) Fair value changes due to changes in rates and normalized NOI exclude properties acquired and disposed of during the year ended December 31, 2019.
(4) Excludes right-of-use assets and land and air rights lease principal repayments.
(5) Includes $156.0 million of fair value changes due to the two closed operating lease buyouts and the nine operating lease buyouts under discussions in the GTA.
43
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis For the years ended December 31, 2019 and 2018, the unrealized gain on remeasurement of investment properties is primarily
the result of increases in net operating income, capitalization rate compressions, and acceleration of operating lease buyouts
during 2019. The increase in net operating income is attributable to the growth in rents driven by the rental increases on
turnovers, as current rents are significantly below market rents, especially in major regions such as the GTA, other Ontario
and British Columbia. The unrealized gain on remeasurement of investment properties is offset by certain capital investments
not having an immediate effect on stabilized net operating income and thus not reflected in the fair value of the investment
properties at the measurement date.
As at December 31, 2019, a 25 basis point change in capitalization rates would have the following approximate effect on the
fair value of investment properties:
($ millions)
As at December 31, 2019
Weighted average capitalization rate
Weighted average capitalization rate
Change
(Basis Points)(1)
Estimated
(Decrease) Increase
+25
-25
$
$
(867)
725
(1) For Operating Leasehold Interests, CAPREIT applies discount rates to determine the fair value of these properties. However, for the purposes of the above sensitivity
analysis, CAPREIT has utilized the implied capitalization rates for Operating Leasehold Interests and the European properties to determine the impact on fair value
of the total portfolio.
Development
Development is a component in CAPREIT’s growth and value creation strategy. CAPREIT categorizes the projects within its
development program as follows:
Conversion – Projects within existing income producing properties (“IPP”) which typically involve increasing the density and/
or rentable square footage of the property through means of retrofit resulting in increase in NOI.
Infill – Projects on underutilized, often vacant owned land that are being constructed or developed from the ground up for
future use as IPPs where an existing NOI and asset is to remain resulting in increase in NOI.
Redevelopment – Existing IPPs, or components thereof, that are being repositioned through partial and/or full redevelopment,
which typically increases NOI and unit count by adding to the rentable area of the properties.
Development Progress
The development program remains a component of CAPREIT’s growth strategy by unlocking value within the portfolio’s
existing assets through intensification and redevelopment to deliver strong net asset value growth to its Unitholders. CAPREIT’s
development strategy encompasses a combination of three different approaches to add new units to the portfolio: (i) forward
purchase of newly constructed properties, (ii) intensification through means of conversion and infill of existing IPPs and
(iii) full or partial redevelopment. Through a highest and best use assessment, CAPREIT identified approximately 8,800 new
units in the development pipeline that are targeted for planning approval submission in 2020. CAPREIT continuously assesses
the highest and best use of all its assets where the value may be realized through development or sale of a property.
During the year, CAPREIT continued to make significant progress in advancing its development program by completing
detailed site feasibility assessments, meeting with City departments and stakeholders, appointing expert consultant teams and
working through the pre-application requirements on several properties expressed in the table below. These applications range
in their type from zoning by-law, official plan and building permit with the intent to establish a strong and steady pipeline
of planning approval submissions across the country that will support adding new units on an annual basis to the portfolio
going forward.
44
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Development Pipeline
Shown below are the number of sites and proposed net new units by major market targeted for planning approval submission
in 2020:
Major Market
British Columbia
Alberta
Greater Toronto Area (GTA)
Québec
Prince Edward Island
Total
Pre-Application
(# of sites)
Active Application
(# of sites)
Construction
(# of sites)
Completed
(# of sites)
6
3
7
2
1
19
–
–
2(1)
–
–
2(1)
–
–
–
–
–
–
–
–
–
1(3)
–
1
Potential Growth
(estimated # of
net new units)
1,300
500
6,500(2)
432(3)
58
8,790(3)
(1) 100 Wellesley – Toronto City Council accepted a settlement offer from CAPREIT for a revised development scheme to include 128 units in a 10-storey infill building;
and 141 Davisville, under review, includes 146 new units in a proposed 16-storey infill building.
(2) CAPREIT continuously assesses the highest and best use of all its assets where the value may be realized through development or sale of a property.
(3) 2525 Cavendish – 52 units were completed by October 2019, all of which are fully occupied. The total project cost was $6.9 million, within the previously estimated
project cost of $7.5 million.
The table below presents the actual and forecasted conversion and development costs estimated for 2019, which include
costs related to planning, rezoning, architectural surveys, application fees and building permits. The following forecasted
conversion, infill and development costs varied from actuals as expectations of processing time for development applications
become better defined.
Development Summary
($ thousands)
Year Ended December 31, 2019
Conversion(1)
Infill(2)
Redevelopment(2)
Total for development
($ thousands)
Year Ended December 31, 2018
Conversion(1)
Infill(2)
Redevelopment(2)
Total for development
Actual
Total Portfolio
2019 Annual Forecast
Total Portfolio
14,579
693
162
15,434
$
$
17,787
1,340
1,159
20,286
Actual
Total Portfolio
2018 Annual Forecast
Total Portfolio
5,402
836
153
6,391
$
$
13,908
–
–
13,908
$
$
$
$
(1) Includes costs from 2525 Cavendish.
(2) Infill and Redevelopment costs relate primarily to pre-approval costs such as application, consultant fees and levies.
Actual development costs for 2019 were lower than the amount forecasted for the year. Much of the difference is associated
with application fees paid upon submission of new development projects. The regulatory and application processing is subject
to factors beyond management’s control and varies between projects and as such, submission of a number of applications
were postponed for submission in early 2020.
45
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Capital Structure
CAPREIT defines capital as the aggregate of Unitholders’ equity, debt financing, Unit-based compensation liabilities and
Exchangeable Units. CAPREIT’s objectives when managing capital are to safeguard its ability to continue to fund distributions
to Unitholders, retain a portion to meet repayment obligations under its mortgages and credit facilities, and ensure sufficient
funds are available to meet capital commitments. Management aims to maintain an optimal degree of leverage relative
to the GBV of CAPREIT’s assets depending on a number of factors at any given time, which include expected cash flow
requirements, impact on near-term and long-term financial performance, current and expected state of the credit markets and
any risks, among other considerations. GBV is defined as the gross book value of CAPREIT’s assets as per CAPREIT’s financial
statements, determined on a fair value basis for investment properties, plus accumulated amortization on property, plant
and equipment, CMHC fees and deferred loan costs. Capital adequacy is monitored against investment and debt restrictions
contained in CAPREIT’s DOT and the Credit Facilities agreement.
CAPREIT’s Credit Facilities (see Liquidity and Financial Condition in Section V) require compliance with the financial
covenants shown in the table below. In addition, borrowings must not exceed the borrowing base, calculated as a predefined
percentage of the fair value of the investment properties determined on an annual basis.
In addition, CAPREIT must comply with all investment and debt restrictions and financial covenants under the agreement
with CMHC. Refer to Liquidity and Financial Condition in Section V of this report for further details.
In the short term, CAPREIT utilizes the Credit Facilities to finance its capital investments, which may include acquisitions.
In the long term, equity issuances, mortgage financings and refinancings, including top-ups, are put in place to finance the
cumulative investment in the property portfolio and ensure the sources of financing better reflect the long-term useful lives of
the underlying investments.
As at December 31, 2019, CAPREIT is in compliance with all the investment and debt restrictions and financial covenants
contained in the DOT, the LBA and the Credit Facilities. The total capital managed by CAPREIT and the results of compliance
with the key covenants and liquidity metrics are summarized below:
($ thousands)
As at
Mortgages payable
Bank indebtedness
Unitholders’ equity
Total capital
Total debt to gross book value(1)
Mortgage debt to gross book value
Total debt to gross historical cost(2)
Total debt to total capitalization(3)
Tangible net worth(1)
For the Four Quarters Ended
Debt service coverage ratio (times)(1)
Interest coverage ratio (times)(1)
December 31, 2019
December 31, 2018
$
4,308,572
$
3,728,333
623,893
8,403,895
567,365
6,316,700
$
13,336,360
$
10,612,398
34.99%
30.56%
48.24%
35.30%
39.37%
34.17%
54.54%
39.82%
Threshold
Maximum 70.00%
Minimum $2,400,000
$
8,421,096
$
6,349,505
Minimum 1.20
Minimum 1.50
December 31, 2019
December 31, 2018
1.87
3.69
1.75
3.44
(1) See note 19 to the accompanying consolidated annual financial statements for details.
(2) Based on the historical cost of investment properties, calculated as CAPREIT’s assets, as disclosed under IFRS, plus accumulated amortization on property, plant and
equipment, CMHC fees and deferred loan costs, minus fair value adjustment on investment properties.
(3) Based on market capitalization as defined in the Performance Measures table of Section II of the MD&A, plus total debt.
46
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Liquidity and Financial Condition
Liquidity and Capital Resources
Management believes there is adequate overall liquidity to fund property capital investment commitments to provide for
future growth in the business. CAPREIT finances these commitments through: (i) ACFO on an annual basis; (ii) secured
short-term debt financing with three Canadian chartered banks; (iii) mortgage debt secured by its investment properties; and
(iv) equity and funds reinvested from its DRIP. Management’s assessment of CAPREIT’s liquidity position continues to be
stable for the foreseeable future based on its evaluation of capital resources as summarized below:
i)
ii)
CAPREIT’s business continues to be stable and is expected to generate sufficient ACFO on annual basis to fund the
current level of distributions.
CAPREIT’s liquidity position as at December 31, 2019 remains strong at $146.2 million, in addition to $488.8 million
from the December equity issuance invested in short-term investments as cash and cash equivalents.
In addition to the $146.2 million of borrowing capacity under its Acquisition and Operating Facility, which bears an interest
rate of 1.08%, after factoring the cross-currency swaps as discussed in note 18 of the consolidated annual financial statements,
CAPREIT has $441.0 million of cash and cash equivalents invested in short-term investments generating interest revenue at a
rate of 1.50%.
($ thousands)
As at December 31, 2019
Facility
Less: USD LIBOR borrowings
Euro LIBOR borrowings
Letters of credit
Available borrowing capacity
Weighted average interest rate including interest rate swaps
Acquisition and
Operating Facility
$
740,000(1)
(579,821)(2), (4)
(6,846)(3)
(7,163)
$
146,170
1.08%
(1) In addition to the above Facility, there is a $200,000 Bridge Facility in place. There were no amounts drawn on this Bridge Facility as of December 31, 2019. The
Bridge Facility will expire March 15, 2020. There is also a $72,915 (€50,000) ERES Credit Facility and a $72,915 (€50,000) ERES Bridge Facility. There was
$37,226 drawn under the ERES Credit Facility and no amounts drawn on this ERES Bridge Facility as of December 31, 2019.
(2) CAPREIT has USD LIBOR borrowings of USD $446,428 (2018 – USD $187,000) that bears interest at the USD LIBOR rate plus a margin of 1.65% per annum.
(3) CAPREIT has Euro LIBOR borrowings of €4,694 (2018 – €200,000) that bears interest at the Euro LIBOR rate plus a margin of 1.65% per annum, subject to a
floor of 0%.
(4) CAPREIT entered into a number of cross-currency swaps to (i) hedge the USD-based loan into Euro, and (ii) convert the variable interest rate on the USD-based
loan of USD LIBOR plus 1.65% into a fixed interest rate of 1.07%.
Investment properties with a fair value of $12.2 billion have been pledged as security as at December 31, 2019. In addition,
CAPREIT has investment properties with a fair value of approximately $940.8 million as at December 31, 2019 that are
not encumbered by mortgages and secure only the Acquisition and Operating Facility. CAPREIT intends to maintain
unencumbered investment properties with an aggregate fair value in the range of $500 million to $550 million over the medium
term. This range mainly represents a pool of MHC sites and includes the closing of the recent MHC Portfolio acquisition.
The working capital deficiency, as presented on CAPREIT’s consolidated balance sheets as at December 31, 2019, is paid
through the Credit Facilities. Management does a liquidity forecast on a monthly basis which includes refinancings, property
capital investments, potential acquisitions and potential dispositions to monitor the available capacity.
Mortgages Payable
CAPREIT takes a conservative approach and actively manages its mortgage portfolio to reduce interest costs while ensuring it
is not overly exposed to interest rate volatility risk. Management takes a portfolio approach to its mortgage debt, proactively
staggering maturities to reduce risk while taking advantage of the current low interest rate environment.
CAPREIT primarily focuses on multi-unit residential real estate in Canada, which is eligible for government-backed insurance
for mortgages administered by CMHC, which benefits CAPREIT in two ways:
• CAPREIT obtains lower interest rate spreads for mortgage financing; and
• CAPREIT’s overall renewal risk for mortgage refinancings is reduced as the mortgage insurance coverage is transferable
between approved lenders and is effective for the full initial amortization period of the underlying mortgage ranging
between 25 and 40 years.
47
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis
In order to maintain and enhance its CMHC-insured financing program, and consistent with CMHC’s risk management
practices involving large borrowers, CAPREIT has entered into the LBA. Other than improving the efficiency and consistency
of such processes such as underwriting, the LBA has not materially affected the manner in which CAPREIT conducts its
business or its approach to mortgage financing.
As at December 31,
Percentage of CMHC-insured mortgages(1)
Percentage of fixed rate mortgages(2)
Weighted average mortgage interest rate(3)
Weighted average mortgage term to maturity (years)
2019
98.3%
99.0%
2.78%
5.13
2018
97.5%
100.0%
3.05%
5.10
(1) Excludes the mortgages on the MHC sites and European financings.
(2) Taking into consideration interest rate swaps where hedge accounting is not being applied, 100% of mortgages are subject to fixed rates.
(3) Weighted average mortgage interest rate includes deferred financing costs and fair value adjustments on an effective interest rate basis. Including the amortization of
the realized component of the loss on settlement of $32.5 million included in AOCL, the effective portfolio weighted average interest rate as at December 31, 2019
would be 2.84% (December 31, 2018 – 3.13%).
The following table summarizes the changes in the mortgage portfolio during the years:
($ thousands)
As at December 31,
Balance, beginning of the year
Add:
New borrowings on acquisitions
Mortgages assumed(1)
Refinanced
Gain on foreign currency translation
Less:
Mortgage principal amortization
Mortgages matured
Mortgages repaid on dispositions of investment properties
Change in deferred financing costs, fair value adjustments, net
Balance, end of the year
2019
2018
$
3,728,333
$
3,581,501
527,960
147,814
300,547
(35,214)
(125,902)
(232,336)
–
(2,630)
178,018
22,915
213,216
12,382
(116,877)
(103,734)
(58,212)
(876)
$
4,308,572
$
3,728,333
(1) Includes the mortgages on the properties assumed as part of the business combination. For details, please refer to note 4 of the consolidated annual
financial statements.
The following table presents refinancings, weighted average interests rates obtained, and mortgage top-ups closed or
committed up to 2019.
($ thousands)
First quarter
Second quarter
Third quarter
Fourth quarter
$
Original
Mortgage
Amount
5,955
97,767
99,082
29,532
Total and weighted average
$
232,336
Canadian acquisitions
The Netherlands acquisitions
Total and weighted average
with acquisitions
–
–
Original Stated
Interest Rate
4.62%
3.55%
3.37%
3.58%
3.50%
–
–
New
Mortgage
Amount
$
11,071
173,036
61,076
55,364
$
300,547
159,148
368,812
2.76%
2.86%
2.57%
2.49%
2.73%
2.90%
1.28%
2.12%
New Stated
Interest Rate(1), (2)
Weighted Average
Term on New
Mortgages (years)
Top-Up
Financing Amount
$
5,116
75,269
(38,006)(3)
25,832
$
68,211
–
–
10.4
7.1
10.0
10.0
8.3
12.1
6.3
$
232,336
3.50%
$
828,507
8.1
$
68,211
(1) Weighted average.
(2) Excludes CMHC, other financing costs and impact of hedging.
(3) $26.0 million in top-up is offset by $64.0 million in mortgage discharge.
48
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis For purposes of estimating top-up financing potential, the following table provides annualized NOI for those properties
with mortgages maturing over the next five years and beyond. A property’s full NOI is included in the first year in which a
mortgage matures. The balance of mortgages remaining on the same property but maturing in other years is also shown.
Management expects to raise between $480 million and $530 million in total mortgage renewals and refinancings for 2020
excluding financings on acquisitions.
As at December 31, 2019
($ thousands)
Year of Maturity
2020
2021
2022
2023
2024
2025 onward
Total
Mortgages on the Same
Properties Maturing in
Mortgage Maturities(1)
Other Years(1)
Total Mortgages
NOI of Properties with
Maturing Mortgage(s)(2), (3)
$
$
307,832
356,157
418,893
482,913
266,804
1,797,738
3,630,337
$
103,080
$
62,814
15,603
66,698
(56,222)
(191,973)
$
410,912
418,971
434,496
549,611
210,582
1,605,765
$
–
$
3,630,337
$
53,239
65,522
69,068
85,937
39,628
180,544
493,938
(1) Mortgage balance due upon maturity.
(2) NOI for the 12 months ended December 31, 2019.
(3) Projected NOI included for acquisitions since December 31, 2018.
The breakdown of CAPREIT’s Canadian dollar denominated future principal repayments, including mortgage maturities, and
effective weighted average interest rates as at December 31, 2019 is as follows:
As at December 31, 2019
($ thousands)
Period
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030–2034
Deferred financing costs,
fair value adjustments, net
Total
Principal
Amortization
Mortgage
Maturities
Mortgage Balance
% of Total
Mortgage Balance
Interest Rate (%)(1), (2)
$
126,830
115,132
105,605
87,272
71,866
62,826
41,807
25,814
19,970
10,658
13,984
$
307,832
356,157
346,104
327,029
244,356
322,083
298,212
135,238
121,444
215,918
86,137
$
434,662
471,289(3)
451,708
414,301
316,221
384,909
340,019
161,052
141,414
226,578
100,121
12.6
13.7
13.1
12.0
9.2
11.2
9.9
4.7
4.1
6.6
2.9
$
681,764
$
2,760,510
$
3,442,274
100.0%
2.70
3.36
3.09
3.26
3.73
2.76
2.74
3.09
3.22
2.91
2.93
3.07%(2)
(7,497)
$
3,434,777
(1) Effective weighted average interest rates for maturing mortgages only.
(2) Effective weighted average interest rate includes deferred financing costs and fair value adjustments, but excludes CMHC premiums.
(3) Included in mortgages payable is a $65.0 million non-amortizing credit facility on two of the MHC sites.
49
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis The breakdown for ERES of future principal repayments, including mortgage maturities, and effective weighted average
interest rates as at December 31, 2019 is as follows:
As at December 31, 2019
($ thousands)
Period
2020
2021
2022
2023
2024
2025
2026
Principal
Amortization
Mortgage
Maturities
Mortgage
Balance ($)
$
1,785
1,796
1,807
1,750
930
–
–
$
–
–
72,790
155,884
22,448
338,445
280,260
$
1,785
1,796
74,597
157,634
23,378
338,445
280,260
$
8,068
$
869,827
$
877,895
€
Deferred financing costs,
fair value adjustments, net
Total
(4,100)
$
873,795
(1) Effective weighted average interest rates for maturing mortgages only.
(2) Effective weighted average interest rate includes deferred financing costs and fair value adjustments.
Mortgage
Balance (€)
1,224
€
1,232
51,153
108,095
16,031
232,139
192,182
602,056
% of Total
Mortgage Balance
Interest Rate (%)(1), (2)
0.2
0.2
8.5
18.0
2.7
38.6
31.8
100.0%
0.00
0.00
1.43
1.50
1.88
1.88
1.47
1.64%(2)
To ensure CAPREIT is not overly exposed to interest rate volatility risk, management has been successful in staggering the
maturity dates within its mortgage portfolio or entering into long-term financing arrangements.
To reduce its interest cost and cost of capital, management will continue to leverage its balance sheet strength and the stability of
its property portfolio to fund acquisitions and its capital investment plan, and to refinance its mortgage principal repayments.
Unitholders’ Equity and Units Awarded under Unit-based Compensation Plans
Unitholders’ Equity represents the issued and outstanding Trust Units, and excludes the Exchangeable Units and any Units
issued in connection with Unit-based incentive plans. For the purposes of the discussion below, Exchangeable Units and Units
issued in connection with Unit-based incentive plans are treated as equity as they have claims similar or identical to those of
the Trust Units.
Equity offerings and over-allotments for the periods ending December 31, 2019:
($ thousands, except per Unit amounts)
December 2019 (the “December 2019 Equity Offering”)
Price per Unit
Gross Proceeds
Transaction Costs
Net Proceeds
Units Issued
Bought-deal (December 6, 2019)
Over-allotment (December 6, 2019)
Total
$
$
53.60
53.60
$
$
425,048
63,757
488,805
$
$
17,612
2,641
20,253
$
$
407,436
61,116
468,552
7,930,000
1,189,500
9,119,500
($ thousands, except per Unit amounts)
April 2019 (the “April 2019 Equity Offering”)
Bought-deal (April 23, 2019)
Over-allotment (April 23, 2019)
Total
($ thousands, except per Unit amounts)
January 2019 (the “January 2019 Equity Offering”)
Bought-deal (January 4, 2019)
Over-allotment (January 11, 2019)
Total
Price per Unit
Gross Proceeds
Transaction Costs
Net Proceeds
Units Issued
$
$
49.00
49.00
$
300,125
45,019
$
345,144
$
$
13,807
950
14,757
$
286,318
44,069
$
330,387
6,125,000
918,750
7,043,750
Price per Unit
Gross Proceeds
Transaction Costs
Net Proceeds
Units Issued
$
$
45.50
45.50
$
250,250
37,538
$
287,788
$
$
11,512
900
12,412
$
238,738
36,638
$
275,376
5,500,000
825,000
6,325,000
50
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis
Market capitalization and units outstanding:
As at December 31, 2019
Market capitalization ($ thousands)
Number of Units outstanding
Deferred Units
RUR Plan Units
Ownership by trustees, officers and senior managers
$
9,012,770
170,562,280
150,996
542,087
0.7%
Unitholder Taxation
For taxable Canadian resident Unitholders, the distributions are treated as follows for income tax purposes:
For the year ended December 31,
Taxable to Unitholders as other income
Taxable to Unitholders as capital gain income
Income tax deferral
Total
Total effective non-taxable portion of distributions
2019
29%
0%
71%
100%
71%
2018
33%
25%
42%
100%
54%
The portion of CAPREIT’s distributions to Canadian resident Unitholders treated as taxable for the year ended December 31,
2019 decreased over the prior year primarily due to capital gain income from property dispositions in 2018 that did not occur
in 2019.
51
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis SECTION VI: COMPLIANCE AND GOVERNANCE DISCLOSURES,
RISKS AND UNCERTAINTIES
Selected Consolidated Quarterly Information
Overall portfolio net AMR
Operating revenues (000s)(1)
NOI (000s)(1), (2)
NOI margin(1)
Net income (000s)
FFO (000s)(1), (2)
NFFO (000s)(1), (2)
Total debt to gross book value
FFO per Unit(1) – basic
NFFO per Unit(1) – basic
Weighted average number of
Units (000s) – basic
Weighted average number of
Units (000s) – diluted
Q4 19
1,084
$
Q3 19
1,069
$
Q2 19
1,050
$
Q1 19
1,093
$
Q4 18
1,103
$
Q3 18
1,079
$
Q2 18
1,065
$
Q1 18
1,054
$
$ 206,878
$ 198,760
$ 190,735
$ 181,511
$ 177,667
$ 172,298
$ 170,601
$ 168,019
$ 135,704
$ 132,844
$ 125,767
$ 113,835
$ 112,313
$ 113,850
$ 110,868
$ 102,402
65.6%
66.8%
65.9%
62.7%
63.0%
66.1%
65.0%
60.9%
$ 492,267
$ 330,341
$ 167,329
$ 205,510
$ 736,267
$ 119,594
$ 261,612
$ 100,198
$
$
$
$
87,863
89,341
34.99%
0.538
0.547
$
$
$
$
88,860
89,513
36.74%
0.554
0.558
$
$
$
$
84,091
85,062
36.34%
0.531
0.538
$
$
$
$
73,814
75,205
37.67%
0.485
0.484
$
$
$
$
69,312
71,414
39.37%
0.477
0.492
$
$
$
$
77,290
77,933
40.48%
0.535
0.540
$
$
$
$
76,165
76,829
40.53%
0.530
0.535
$
$
$
$
63,386
64,095
41.48%
0.457
0.463
163,295
160,328
158,237
152,212
145,199
144,431
143,623
138,554
163,840
160,895
158,806
152,778
145,784
145,831
144,982
140,022
(1) Includes the results of investment properties owned as at the period end.
(2) Non-IFRS financial measures are reconciled with IFRS reported amounts in the respective quarterly SEDAR filings.
CAPREIT’s operations are affected by seasonal cycles, and operating performance in one quarter may not be indicative of
operating performance in any other quarter of the year. The fourth and first quarters of each year typically tend to generate
weaker performance due to increased energy consumption in the winter months. There may be periods where actual
distributions declared may exceed cash generated from (utilized in) operating activities after interest paid, primarily due to
weaker performance in certain periods from seasonal fluctuations. These seasonal or short-term fluctuations are funded, if
necessary, with our Acquisition and Operating Facility. CAPREIT determines distributions and the distribution rate by, among
other considerations, its assessment of ACFO (a non-IFRS measure). As such, CAPREIT believes the cash distributions are not
an economic return of capital, but a distribution of adjusted cash flow from operating activities.
Fourth Quarter
Operating revenues in the fourth quarter of 2019 increased by 16.4% over the same quarter in 2018, and NOI increased by a
significant 20.8%, driven by acquisitions and higher operating revenues. Net income in the fourth quarter of 2019 decreased
over the same period last year to $492.3 million, mainly due to lower fair value adjustments of investment properties of
$418.6 million compared to $710.5 million for the same period last year. Trust expenses for the quarter ended included
approximately $0.9 million related to non-routine items including legal, consulting and tax costs incurred in connection with
initial ERES structuring expenses and acquisition research costs of acquisitions that did not occur. Loan interest and mortgage
interest increased by $7.2 million, offset by higher NOI of $135.7 million. Higher NFFO for the fourth quarter of 2019 was
primarily due to a 4.9% increase in stabilized property NOI and the NOI contribution from acquisitions completed over the
prior 12 months.
52
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis The following table shows the NOI and the NOI margin attained for each regional market for the periods ended December 31,
2019 and 2018.
NOI by Geography
For the Three Months Ended
December 31,
($ thousands)
Residential Suites
Ontario
Greater Toronto Area(2)
Ottawa
London / Kitchener / Waterloo
Other Ontario
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region(2)
Victoria
Alberta
Edmonton
Calgary(2)
Nova Scotia
Halifax
Saskatchewan
Regina
Prince Edward Island
Charlottetown
Europe
The Netherlands(3)
Other Europe(4)
Total residential suites
MHC sites
Ontario
Québec
British Columbia
Alberta
Nova Scotia
Saskatchewan
Prince Edward Island
New Brunswick
Total MHC sites
Total suites and sites
2019
2018
Increase
(Decrease)
NOI
NOI %(1)
NOI
Margin (%)
NOI(2)
NOI %(1)
NOI
Margin (%)
NOI
Change (%)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
47,334
4,489
5,986
4,466
62,275
14,692
5,319
20,011
11,035
4,790
15,825
1,239
4,552
5,791
3,850
398
398
1,068
14,880
2,393
17,273
126,491
4,072
218
608
1,975
31
325
158
1,826
9,213
135,704
35.0
3.3
4.4
3.3
46.0
10.8
3.9
14.7
8.1
3.5
11.6
0.9
3.4
4.3
2.8
0.3
0.3
0.8
11.0
1.7
12.7
93.2
3.0
0.2
0.5
1.5
0.0
0.2
0.1
1.3
6.8
100.0
66.2
67.3
64.5
59.2
65.5
58.7
58.9
58.8
67.8
73.4
69.4
67.7
62.8
63.8
62.3
55.4
55.4
51.2
74.1
82.9
75.2
65.6
69.0
65.1
73.7
68.6
32.6
67.3
41.3
59.1
65.9
65.6
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
43,225
4,601
4,667
4,487
56,980
13,899
5,494
19,393
9,686
4,188
13,874
1,195
4,232
5,427
3,315
422
422
828
6,912
–
6,912
107,151
2,917
–
288
433
–
305
111
1,108
5,162
112,313
38.4
4.1
4.2
4.0
50.7
12.4
4.9
17.3
8.6
3.7
12.3
1.0
3.8
4.8
3.0
0.4
0.4
0.7
6.2
–
6.2
95.4
2.6
–
0.3
0.4
–
0.3
0.1
1.0
4.6
100.0
64.0
72.9
63.1
61.9
64.4
56.8
59.8
57.6
71.4
72.0
71.6
68.0
58.8
60.6
56.5
58.5
58.5
49.0
64.0
–
64.0
63.2
66.1
–
77.8
70.9
–
66.0
48.9
54.9
63.7
63.2
9.5
(2.4)
28.3
(0.5)
9.3
5.7
(3.2)
3.2
13.9
14.4
14.1
3.7
7.6
6.7
16.1
(5.7)
(5.7)
29.0
115.3
100.0
149.9
18.0
39.6
–
111.1
356.1
–
6.6
42.3
64.8
78.5
20.8
(1) Represents percentage of the portfolio by NOI.
(2) 2018 comparative balances have been restated to reflect adjustments to conform with the current period presentation for land and air rights leases. For further
details, refer to the NOI section under the Results of Operations section.
(3) In € thousands, €10,226 and €4,478 for the three months ended December 31, 2019 and December 31, 2018, respectively.
(4) Comprised of ERES’ NOI for two commercial properties located in Germany and one in Belgium. In € thousands, €1,571 for the three months ended December 31,
2019.
53
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis
The stabilized portfolio performance for the three months ended December 31, 2019 compared to December 31, 2018, is
summarized as follows:
Three Months Ended December 31,
2019
2018
Increase (Decrease)
Stabilized
NOI
NOI
Margin (%)
Stabilized
NOI
NOI
Margin (%)
Revenue
Change (%)
Expense
Change (%)
NOI
Change (%)
($ thousands)
Residential Suites
Ontario
Greater Toronto Area(1)
Ottawa
London / Kitchener / Waterloo
Other Ontario
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region(1)
Victoria
Alberta
Edmonton
Calgary(1)
Nova Scotia
Halifax
Saskatchewan
Regina
Prince Edward Island
Charlottetown
Europe
The Netherlands(13)
Total residential suites
MHC Sites
Ontario
British Columbia
Alberta
Saskatchewan
Prince Edward Island
New Brunswick
Total MHC sites
Total suites and sites
Stabilized suites and sites
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
47,216
4,489
5,141
4,466
61,312
14,531
5,319
19,850
7,879
4,468
12,347
1,239
4,496
5,735
3,850
398
827
5,968
110,287
3,117
421
417
211
113
1,278
5,557
115,844
48,601
66.5
67.3
65.9
59.2
65.9
58.6
58.9
58.7
63.2
72.7
66.4
67.7
62.7
63.7
62.3
55.4
56.2
73.5
64.5
68.8
81.3
68.2
64.9
48.9
60.5
66.7
64.5
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
43,227
4,601
4,667
4,487
56,982
13,970
5,320
19,290
8,344
4,188
12,532
1,195
4,232
5,427
3,315
422
828
5,706
104,502
2,917
288
433
208
111
1,108
5,065
109,567
48,601
64.0
72.9
63.1
61.9
64.4
57.2
60.6
58.1
70.3
72.0
70.9
68.0
58.8
60.6
56.5
58.4
57.3
60.4
63.0
66.1
77.8
70.9
68.0
48.9
54.9
63.8
63.0
5.1
5.6
5.4
4.0
5.1
1.6
2.8
1.9
5.1
5.6
5.3
4.1
(0.2)
0.6
5.3
(0.6)
1.7
(2.1)
27.2
(2.8)
11.3
0.6
(1.7)
7.2
0.5
30.3
2.9
21.7
5.0
(9.5)
(7.2)
9.2
(2.4)
10.2
(0.5)
7.6(2)
4.0
0.0
2.9(3)
(5.6)
6.7
(1.5)(4)
3.7
6.2
5.7(5)
(8.8)
16.1(6)
6.7
4.2
(5.7)(7)
(0.1)
4.6
5.5
6.9(8)
46.2(9)
(3.7)(10)
1.4(11)
1.8
15.3(12)
9.7(14)
5.7
(14.1)
3.1
(42.6)
(1.1)
2.7
40.0
0.0
6.2
1.8
4.7
4.8
3.2
(5.4)
18.3
9.0
16.3
1.7
(8.3)
(3.7)
(1.9)
(1) 2018 comparative balances have been restated to reflect adjustments to conform with current period presentation for land and air rights leases. For details, refer to
NOI section under the Results of Operations section.
(2) Higher expenses: higher realty taxes and utilities costs, partially offset by lower R&M costs and wages.
(3) Higher expenses: higher realty taxes, on-site costs and legal costs, partially offset by lower R&M costs and utilities costs.
(4) Higher expenses: higher realty taxes, utilities costs and wages, partially offset by lower insurance costs.
(5) Lower expenses: lower R&M costs, wages and insurance costs, partially offset by higher realty taxes and on-site costs.
(6) Lower expenses: lower utilities costs, R&M costs and wages, partially offset by higher insurance costs.
(7) Higher expenses: higher utilities costs and R&M costs.
(8) Lower expenses: lower realty taxes and R&M costs, partially offset by higher wages and insurance costs.
(9) Higher revenue: includes home sales. Excluding home sales of $122 thousand, revenue increased by $23 thousand and 6.0%. Higher expenses: higher R&M costs.
(10) Higher expenses: higher R&M costs and realty taxes, partially offset by lower utilities costs and wages.
(11) Higher expenses: higher utilities costs, wages and insurance costs.
(12) Lower expenses: lower R&M costs and insurance costs, offset partially by higher realty taxes.
(13) In € thousands, €4,078 and €3,690 for the three months ended December 31, 2019 and December 31, 2018, respectively.
(14 ) Excluding home sales of $157 thousand, total revenues increased by $298 thousand and 3.8% and total NOI increased by $405 thousand and 8.1%.
54
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Selected Consolidated Financial Information
The following table presents a summary of selected financial information for the fiscal years indicated below:
($ thousands, except per Unit amounts)
Year Ended December 31,
Income Statement
Operating revenues
Net income
Distributions
Distributions declared
Distributions per Unit
Balance Sheet
Investment properties
Total assets
Mortgages payable
Bank indebtedness
2019
2018
2017
$
$
$
$
$
$
$
$
777,884
1,195,447
218,136
1.372
13,096,426
14,017,949
4,308,572
623,893
$
$
$
$
$
$
$
$
688,585
1,217,671
187,848
1.313
10,473,544
10,842,263
3,728,333
567,365
$
$
$
$
$
$
$
$
638,842
836,811
173,072
1.275
8,886,556
9,187,170
3,581,501
446,895
Accounting Policies and Critical Accounting Estimates, Assumptions and Judgments
Summary of Significant Accounting Policies
A summary of significant accounting policies can be found in note 2 to CAPREIT’s consolidated annual financial statements
for the year ended December 31, 2019.
Critical Accounting Estimates, Assumptions and Judgments
A summary of accounting estimates, assumptions and judgments can be found in note 3 to CAPREIT’s consolidated annual
financial statements for the year ended December 31, 2019.
Controls and Procedures
Disclosure Controls and Procedures
CAPREIT’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be
disclosed is recorded, processed, summarized and reported within the time periods specified under Canadian securities laws,
and include controls and procedures designed to ensure information is accumulated and communicated to management,
including the executive officers, to allow timely decisions regarding required disclosure.
As at December 31, 2019, CAPREIT’s executive officers, with the assistance of management, evaluated the effectiveness of the
disclosure controls and procedures in accordance with the rules adopted by the Canadian Securities Administrators under
National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings, and based on that evaluation
concluded that the design and operation of the disclosure controls and procedures were effective as at December 31, 2019.
Management has designed an adequate and appropriate control framework for the fair value assessment processes to ensure
values reported accurately reflect market conditions. For the fair value assessment process of investment properties and Unit-
based compensation, these controls include a comprehensive review of the assumptions and estimates including those used by
the independent appraisers or third parties on an annual basis, as well as multiple levels of reviews of such key assumptions and
data within CAPREIT by management, with final approval by the Board of Trustees, on an interim and annual basis.
Internal Controls over Financial Reporting
Management is responsible for establishing and maintaining adequate internal controls over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements
for external purposes in accordance with IFRS. As at December 31, 2019, CAPREIT’s executive officers, with the assistance
of management, assessed the effectiveness of the internal controls over financial reporting using the criteria set forth in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in 2013 and, based on that assessment, determined that the internal controls over financial reporting were designed
and operating effectively as at December 31, 2019.
55
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis CAPREIT did not make any changes to the design of internal controls over financial reporting in 2019 that have materially
affected, or are reasonably likely to materially affect, the internal controls over financial reporting.
Risks and Uncertainties
There are certain risks inherent in an investment in the Units and the activities of CAPREIT. The following is a description
of the principal risks in CAPREIT’s business, defined as either those that could have a significant impact on CAPREIT if they
were to occur or those that are significant to CAPREIT’s day-to-day operations. Investors should carefully consider these risks
before investing in CAPREIT Units.
Related to Reporting Investment Property at Fair Value
CAPREIT holds investment property to earn rental income, for capital appreciation or both. All investment property
is measured using the fair value model, whereby changes in fair value are recognized for each reporting period in the
consolidated statements of income and comprehensive income. Management values each investment property based on
the most probable price for which such property could be sold in an open, competitive market as of a specified date. Such
valuation takes into account all requisite conditions to a fair sale, such as the buyer and seller each acting prudently and
knowledgeably, and the assumption that such price is not affected by undue stimulus. Each investment property has been
valued on a highest and best use basis.
An appraisal is an estimate of market value and caution should be used in evaluating data with respect to appraisals. It is a
measure of value based on information gathered in the investigation, appraisal techniques employed and reasoning both
quantitative and qualitative, leading to an opinion of value. Market assumptions applied for appraisals and valuation purposes
do not necessarily reflect CAPREIT’s specific history or experience and the conditions for realizing the fair values through a
sale may change or may not be realized. In addition, there is an inherent risk related to the reliance on and use of a limited
number of appraisers, as this approach may not adequately capture the range of fair values that market participants would
assign to the investment properties. CAPREIT mitigates this risk by undertaking a detailed review of the assumptions utilized
by the appraiser in its valuation, which includes a comparison of such assumptions to the corresponding benchmarks derived
from management’s own observations of market transactions and a secondary appraiser. Downturns in the real estate market
could negatively affect CAPREIT’s operating revenues and cash flows; such a downturn could also significantly impact the fair
values of CAPREIT’s investment properties, as well as certain of its financial ratios and covenants.
Related to Ownership and Operation of Real Property
Real Property Ownership
Real property investments are relatively illiquid. This illiquidity will tend to limit the ability of CAPREIT to respond to
changing economic or investment conditions. If CAPREIT were required to quickly liquidate assets, there is a risk the proceeds
realized from such a sale would be less than the book value of the assets or less than what could be expected to be realized
under normal circumstances. By specializing in a particular type of real estate, CAPREIT is exposed to adverse effects on that
segment of the real estate market and does not benefit from a broader diversification of its portfolio by property class.
Investment Restrictions
CAPREIT has been structured and operates in adherence to the stringent investment restrictions and operating policies set
out in its DOT and as applicable under tax laws relating to real estate investment trusts (also see Taxation-Related Risks in this
section). These policies cover such matters as the type and location of properties that CAPREIT can acquire, the maximum
leverage allowed and environmental matters. In addition, pursuant to the DOT, CAPREIT’s overall leverage is limited to 70%
of its reported gross book value. Fluctuations in the capitalization rates of CAPREIT’s properties could impact these fair
values and CAPREIT’s debt covenant compliance.
56
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Operating Risk
CAPREIT is subject to general business risks and to risks inherent in the multi-residential rental property industry and in
the ownership of real property. These risks include fluctuations in occupancy levels, the inability to achieve economic rents
(including anticipated increases in rent), controlling bad debt exposure, rent control regulations, increases in labour costs and
other operating costs including property taxes and the costs of utilities, as well as possible future changes in labour relations,
competition from other landlords or the oversupply of rental accommodations, the imposition of increased taxes or new taxes
and capital investment requirements.
In general, economic conditions will also affect the performance of the portfolio. Additionally, the portfolio is currently
weighted with 44.8% of the overall portfolio (by number of suites and sites) in Ontario (26.6% in the GTA), making CAPREIT’s
performance particularly sensitive to economic conditions in and changes affecting Ontario and, in particular, the GTA.
CAPREIT’s investment properties generate income through rental payments made by residents. Residential tenant leases are
relatively short, exposing CAPREIT to market rental-rate volatility. Upon the expiry of any lease, there can be no assurance
that such lease will be renewed or the resident replaced. The terms of any subsequent lease may be less favourable to CAPREIT
than the existing lease. Renewal rates may be subject to restrictions on increases to the then current rent (see Government
Regulations in this section). As well, unlike commercial leases, which are generally “net” leases and allow a landlord to recover
expenditures, residential leases are generally “gross” leases (with the exception of sub-metering of certain utilities at some
properties) under which the landlord is not able to pass on costs to residents. Moreover, there is no assurance that occupancy
levels achieved to date at the properties will continue to be achieved and/or that occupancy levels expected in the future will
be achieved. Any one, or a combination, of these factors may adversely affect the cash available to or the financial position
of CAPREIT.
Energy Costs
As a significant part of CAPREIT’s operating expenses is attributable to energy and energy-related charges and fees,
fluctuations in the price of energy and any related charges and fees (including transportation costs and commodity taxes) can
have a material impact on the performance of CAPREIT, its ability to pay distributions and the value of its Units. The impact
of such fluctuations could be exacerbated if such energy costs cannot be hedged.
From time to time, CAPREIT may enter into agreements to pay fixed prices on all or certain of its energy requirements
(principally natural gas and electricity in certain markets) to offset the risk of rising expenditures resulting from the increase
in the prices of these energy commodities; however, if the prices of these energy commodities decline beyond the levels set in
these agreements, CAPREIT will not benefit from such declines in energy prices and will be required to pay the higher price
for such energy supplies in accordance with these agreements.
Environmental Matters
Environmental and ecological legislation and policies have become increasingly important, and generally more restrictive,
in recent years. Under various laws CAPREIT could be liable for the costs of removal or remediation of certain hazardous or
toxic substances released on or in monitoring its properties, or disposed of by or on behalf of CAPREIT at other locations.
The failure to remove, monitor or remediate any such substances, if any, may adversely affect CAPREIT’s ability to sell its real
estate, or to borrow using such real estate as collateral, and could potentially also result in regulatory enforcement proceedings
and/or private claims against CAPREIT.
Although CAPREIT is not aware of any material non-compliance with environmental laws at any of its properties nor is it
aware of any pending or threatened investigations or actions by environmental regulatory authorities in connection with
any of its properties or any material pending or threatened claims relating to environmental conditions at its properties, no
assurance can be given that environmental laws will not result in significant liability to CAPREIT in the future or otherwise
adversely affect CAPREIT’s business, financial condition or results of operations.
Environmental laws and regulations can change rapidly and CAPREIT may become subject to more stringent environmental
laws and regulations in the future. Compliance with more stringent environmental laws and regulations could have a material
adverse effect on CAPREIT’s business, financial condition or results of operation.
57
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis CAPREIT has formal policies and procedures to review and monitor environmental exposure. CAPREIT has made, and will
continue to make, the necessary capital expenditures for compliance with environmental laws and regulations.
Catastrophic Events
CAPREIT’s properties may be impacted by acts of nature, such as climate-related events. Depending on their severity,
these events could cause threats to the safety of CAPREIT’s tenants and significant damage to CAPREIT’s properties and
interruptions to CAPREIT’s normal operations. CAPREIT may be required to incur significant unanticipated costs to manage
the impact of these events. Management of the impact of a catastrophic event would also result in time and effort being
diverted from CAPREIT’s day-to-day operations. There is also a possibility that CAPREIT’s ability to generate revenues from
impacted properties could be significantly impaired. The increased costs, time, effort and potential revenue loss could be more
significant if multiple properties or operating regions are impacted by catastrophic events within a relatively short time frame.
Climate Change
Climate change presents a multi-faceted risk for CAPREIT considering its investment in and management of real estate assets
in multiple geographical territories.
Increases in frequency and magnitude of climate-related risks such as floods, fires, windstorms and ice storms in certain
locales can lead to increased capital expenditure, repairs and maintenance and interruptions to the operation. Ongoing
operating costs such as energy can potentially be impacted by more extreme weather, and anticipation of more frequent and
severe weather events may have an adverse effect on insurance premiums. Investment properties in areas that are more prone
to weather-related events may be subject to adverse effects on valuations.
Lenders, investors, credit rating agencies and regulators are increasingly viewing climate change as an important issue that
requires greater consideration. A lack of investment strategy, and operational management plan concerning climate change,
may have an adverse effect on CAPREIT’s ability to raise funds via debt and/or equity, as well as related investment returns
and sentiment.
CAPREIT is evaluating the potential impact of climate change related considerations with a view to developing a climate risk
and resiliency strategy in order to address any material risks. In the event that material risks are identified, such strategy will
support investment and development decisions. Additionally, CAPREIT maintains a strong insurance program that considers
the impacts of weather-related events by providing coverage for property damage and business interruption.
Insurance
It is CAPREIT’s policy to maintain a comprehensive insurance program to cover general liabilities, such as fire, flood, injury or
death, rental loss and environmental insurance, with limits and deductibles as deemed appropriate based on the nature of the
risk, historical experience and industry standards. However, there are some types of losses, including those of a catastrophic
nature, that are generally uninsurable or not economically feasible to insure, or which may be subject to insurance coverage
limitations, such as large deductibles, co-payments or limitations in policy language. There can be no assurance that insurance
coverage will continue to be available on commercially acceptable terms.
Capital Investments
For prudent management of its property portfolio, CAPREIT makes significant property capital investments throughout the
period of ownership of its properties (for example, to upgrade and maintain building structure, balconies, parking garages,
electrical and mechanical systems). CAPREIT has prepared building condition reports and has committed to a multi-year
property capital investment plan. CAPREIT must continuously monitor its properties to ensure appropriate and timely capital
repairs and replacements are carried out in accordance with its property capital investment programs. CAPREIT requires
sufficient capital to carry out its planned property capital investment and repair and refurbishment programs to upgrade its
properties or be exposed to operating business risks arising from structural failure, electrical or mechanical breakdowns, fire
or water damage, etc., which may result in significant loss of earnings to CAPREIT. A significant increase in capital investment
requirements or difficulty in securing financing or the availability of financing on reasonable terms could adversely impact the
cash available to CAPREIT and its ability to pay distributions.
58
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Related to Financing
Indebtedness
A portion of CAPREIT’s cash flow is devoted to servicing its debt, and there can be no assurance that CAPREIT will continue
to generate sufficient cash flow from operations to meet required interest and principal payments. CAPREIT has and will
continue to have substantial outstanding consolidated indebtedness, comprising mainly property mortgages and indebtedness
under its Credit Facilities. CAPREIT is subject to the risks associated with debt financing, including the risk that CAPREIT
may be unable to make interest or principal payments or meet loan covenants, the risk that defaults under a loan could result
in cross defaults or other lender rights or remedies under other loans, and the risk that existing indebtedness may not be
able to be refinanced or that the terms of such refinancing may not be as favourable as the terms of existing indebtedness
or expectations of future interest rates. In such circumstances, CAPREIT could be required to seek renegotiation of such
payments or obtain additional equity, debt or other financing, and its ability to make property capital investments and
distributions to Unitholders could be adversely affected.
CAPREIT currently has access to the government-backed mortgage insurance program through the National Housing Act,
which is administered by CMHC. CAPREIT entered into the LBA with CMHC during the third quarter of 2010. There can
be no guarantee that the provisions of the mortgage insurance program will not be changed in the future so as to make the
costs of obtaining mortgage insurance prohibitive or restrict access to the insurance program. To the extent that any financing
requiring CMHC consent or approval is not obtained or that such consent or approval is only available on unfavourable
terms, CAPREIT may be required to finance a conventional mortgage, which may be less favourable to CAPREIT than a
CMHC-insured mortgage.
CAPREIT’s Acquisition and Operating Facility matures on June 30, 2022. CAPREIT’s Acquisition and Operating Facility is
at a floating interest rate and, accordingly, changes in short-term borrowing rates will affect CAPREIT’s costs of borrowing.
CAPREIT’s financial condition and results of operations would be adversely affected if it were unable to obtain financing or
cost-effective financing. As at the date hereof, it is difficult to forecast the future state of the commercial loan market. If, because
of CAPREIT’s level of indebtedness, the level of cash flows, lenders’ perceptions of CAPREIT’s creditworthiness or other
reasons, management is unable to renew, replace or extend the Credit Facilities on acceptable terms, or to arrange for alternative
financing, CAPREIT may be required to take measures to conserve cash until the markets stabilize or alternative credit
arrangements or other funding can be arranged, if such financing is available on acceptable terms, or at all. Such measures
could include deferring property capital investments, dispositions of one or more properties on unfavourable terms, reducing
or eliminating future cash distributions or other discretionary uses of cash, or other more severe actions. Also, disruptions in
the credit markets and uncertainty in the economy could adversely affect the banks that currently provide the Credit Facilities,
could cause the banks or a bank to elect not to participate in any new Credit Facilities sought, or could cause other banks that
are not currently participants in the Credit Facilities to be unwilling or unable to participate in any such new facility.
Furthermore, given the relatively small size of the Canadian marketplace, there are a limited number of lenders from which
CAPREIT can reasonably expect to borrow, and the number of lenders currently participating in the CMHC-insured
mortgage market is even smaller. Consequently, it is possible that financing which CAPREIT may require in order to grow and
expand its operations upon the expiry of the term of existing financing, or the refinancing of any particular property owned
by CAPREIT or otherwise, may not be available or may not be available on favourable terms.
Related to Taxes and Regulations
Taxation-Related Risks
CAPREIT currently qualifies as a mutual fund trust for Canadian income tax purposes. It is the current policy of CAPREIT to
distribute all of its taxable income to Unitholders and it is therefore generally not subject to tax on such amount. In order to
maintain its current mutual fund trust status, CAPREIT is required to comply with specific restrictions regarding its activities
and the investments held by it. If CAPREIT were to cease to qualify as a “mutual fund trust”, the consequences could be adverse.
There can be no assurance that Canadian federal income tax laws in respect of the treatment of mutual fund trusts will not
be changed in a manner that adversely affects CAPREIT or its Unitholders. If CAPREIT ceases to qualify as a “mutual fund
trust”, CAPREIT will be required to pay tax under Part XII.2 of the Income Tax Act (“Tax Act”). The payment of Part XII.2
tax by CAPREIT may have adverse income tax consequences for certain of CAPREIT’s Unitholders, including non-resident
persons and trusts governed by registered retirement savings plans, registered disability savings plans, deferred profit-sharing
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CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis plans, registered retirement income funds, tax-free savings accounts and registered education savings plans (“designated
savings plans”), which acquired an interest in CAPREIT directly or indirectly from another CAPREIT Unitholder. If CAPREIT
ceases to qualify as a “mutual fund trust” or “registered investment” under the Tax Act and CAPREIT Units cease to be listed
on a designated stock exchange, CAPREIT Units will cease to be qualified investments for trusts governed by designated
savings plans. CAPREIT will endeavour to ensure CAPREIT Units continue to be qualified investments for trusts governed
by the designated savings plans; however, there can be no assurance that this will be so. The Tax Act imposes penalties for the
acquisition or holding of non-qualified investments by such trusts. Unitholders should consult their own tax advisors in this
regard, including as to whether CAPREIT Units are “prohibited investments” for registered retirement savings plans, registered
retirement income funds or tax-free savings accounts.
A REIT is defined under the SIFT Rules as a trust that is resident in Canada throughout the taxation year and that satisfies all
of the following criteria:
i.
At each time in the taxation year, the total fair market value at that time of all 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 non-portfolio properties
held by the trust;
ii. Not less than 90% of the trust’s gross REIT revenue for the taxation year is from one or more of the following: 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 the trust’s gross REIT revenue for the taxation year is from one or more of the following: rent from
real or immovable properties, interest from mortgages, or hypothecs, 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 a real or immovable
property that is a capital property, an eligible resale property, an indebtedness of a Canadian corporation represented by a
bankers’ acceptance, a property described by either paragraph (a) or (b) of the definition “qualified investment” in section
204, or a deposit with a credit union; and
Investments in the trust are, at any time in the taxation year, listed or traded on a stock exchange or other public market.
v.
For this purpose, “real or immovable property” includes a security of any trust, corporation or partnership that itself satisfies
the above criteria in (i)–(iv) above, but does not include any depreciable property of a prescribed class for which the rate of
capital cost allowance exceeds 5%.
Excluded from the definition of a SIFT is a partnership, such as CAPLP and CAPLP2, that is not publicly traded and of which
the equity (and equity-like debt) is wholly owned by any combination of a SIFT, a REIT or a taxable Canadian corporation.
If CAPREIT does not qualify for the REIT Exception at any point in time in a given future year, the SIFT Rules will apply to
CAPREIT for that taxation year. To the extent that CAPREIT does not qualify for the REIT Exception, CAPREIT will consider
alternative measures, including restructuring, assuming that these measures are in the best interests of its Unitholders, in order
to qualify for the REIT Exception in the following year. No assurances can be given that CAPREIT will continue to qualify for
the REIT Exception. If applicable, the SIFT Rules may have a material adverse effect on Unitholders’ returns.
CAPREIT has foreign subsidiaries in a number of countries with varying statutory rates of taxation. Judgment is required in the
estimation of income taxes and deferred income tax assets and liabilities in each of CAPREIT’s operating jurisdictions. Income
taxes may be paid where activities carried on by the foreign subsidiaries are considered to be taxable in those countries.
CAPREIT or its subsidiaries may be reassessed for taxes from time to time. Such reassessments, together with associated
interest and penalties, could adversely affect CAPREIT and CAPREIT’s Unitholders.
CAPREIT has foreign subsidiaries that are subject to the tax laws of foreign jurisdictions. Distributions from those foreign
subsidiaries may be subject to withholding tax, which may increase the overall taxes payable by CAPREIT and its subsidiaries,
and reduce the amount of cash available for distribution to Unitholders. For Canadian income tax purposes, any such foreign
withholding tax incurred by CAPREIT will generally be allocated to the CAPREIT Unitholders and such Unitholders may be
entitled to claim a foreign tax credit in respect of such taxes.
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CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis In addition, there is a risk that the tax laws and treaties of the foreign jurisdictions may change in the future. Any such changes
could adversely affect the taxes payable, including withholding taxes, the effective tax rate in the jurisdictions in which the
foreign subsidiaries operate and the portion of distributions which would be income for Canadian income tax purposes. Any
such changes may have a material adverse effect on Unitholders’ returns.
Rent Control Regulations
Multi-unit residential rental properties are subject to rent control legislation in most provinces in Canada. Each province in
which CAPREIT operates maintains distinct regulations with respect to tenants’ and landlords’ rights and obligations. The
legislation in various degrees imposes restrictions on the ability of a landlord to increase rents above an annually prescribed
guideline or requires the landlord to give tenants sufficient notice prior to an increase in rent, or restricts the frequency of
rent increases permitted during the year. The annual rent increase guidelines as per applicable legislation attempt to link the
annual rent increases to some measure of the change in the cost of living index over the previous year. The legislation also, in
most cases, provides for a mechanism to ensure rents can be increased above the guideline increases for extraordinary costs. As
a result of rent controls, CAPREIT may incur property capital investments in the future that will not be fully recoverable from
rents charged to tenants.
The availability of affordable housing and related housing policy and regulation is continuing to increase in prominence as
a topic of concern at the various levels of government. Accordingly, through different approaches, governments may enact
policy, or amend legislation, in a manner that may have a material adverse effect on the ability of CAPREIT to grow or
maintain the historical level of cash flow from its properties. In addition, laws and regulations providing for compliance with
various housing matters involving tenant evictions, work orders, health and safety issues or fire and maintenance standards,
etc. may become more stringent in the future. Compliance with increased regulatory oversight over these matters may lead to
increased operating costs and have an adverse effect on revenues.
Controls over Financial Reporting
CAPREIT maintains information systems, procedures and controls over financial reporting. As a result of the inherent
limitations in all control systems, there cannot be complete assurance that the objectives of the control system will be met.
Furthermore, no evaluation of controls can provide absolute assurance that all control issues, including instances of fraud, if
any, will be detected or prevented. These inherent limitations include, without limitation, the possibility that management’s
assumptions and judgments may ultimately prove to be incorrect under varying conditions and circumstances, and the impact
of isolated errors.
In addition, controls may be circumvented by the unauthorized acts of individuals, by collusion of two or more people or
by management override. The design of any system of controls is also based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential conditions.
Other Legal and Regulatory Risks
CAPREIT is subject to a wide variety of laws and regulations across all jurisdictions, and faces risks associated with legal and
regulatory changes and litigation. If CAPREIT or its advisors fail to monitor and become aware of changes in applicable laws
and regulations or if CAPREIT fails to comply with these changes in an appropriate and timely manner, it could result in fines
and penalties, litigation or other significant costs, as well as significant time and effort to remediate any violations. Additionally,
such violations could result in reputational damage to CAPREIT both from an operating and an investment perspective.
Related to CAPREIT’s Securities, Organization and Structure
Nature of CAPREIT Trust Units
Trust Units are not traditional equity investments and Trust Unitholders do not have all of the statutory rights normally
associated with ownership of shares of a company including, for example, the right to bring “oppression” or “derivative”
actions against CAPREIT. The Trust Units are not “deposits” within the meaning of the Canada Deposit Insurance
Corporation Act and are not insured under the provisions of that Act or any other legislation. Furthermore, CAPREIT is not
a trust company and, accordingly, it is not registered under any trust and loan company legislation as it does not carry on or
intend to carry on the business of a trust company. In addition, although CAPREIT is intended to qualify as a “mutual fund
trust” as defined by the Tax Act, CAPREIT is not a “mutual fund” as defined by applicable securities legislation.
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CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Securities like the Trust Units are hybrids in that they share certain attributes common to both equity securities and debt
instruments. The Trust Units do not represent a direct investment in the business of CAPREIT and should not be viewed
by investors as shares or interests in CAPREIT, or any other company or entity. The Trust Units do not represent debt
instruments and there is no principal amount owing to Trust Unitholders under the Trust Units. Each Trust Unit represents an
equal, undivided, beneficial interest in CAPREIT as compared to all other Trust Units of the same class.
Unitholder Liability
Recourse for any liability of CAPREIT is limited to the assets of CAPREIT. The DOT provides that no Unitholder, Special
Unitholder or annuitant (an “annuitant”) under a plan of which a Unitholder or Special Unitholder acts as a trustee or carrier
will be held to have any personal liability and that no recourse shall be had to the private property of any Unitholder, Special
Unitholder or annuitant for satisfaction of any obligation or claim arising out of or in connection with any contract or
obligation of CAPREIT or of the trustees.
Certain provincial legislatures have passed legislation that provides for statutory limited liability for unitholders of public
income trusts governed as a contractual matter by the laws of their jurisdictions. Certain of these statutes have not yet been
judicially considered and it is possible that reliance on such statutes by a Unitholder, Special Unitholder or annuitant could be
successfully challenged on jurisdictional or other grounds.
Liquidity and Price Fluctuation of Units
CAPREIT is an unincorporated “open-ended” investment trust and its Units are listed on the TSX. There can be no assurance
that an active trading market in the Units will be sustained.
A publicly traded real estate investment trust will not necessarily trade at values determined solely by reference to the
underlying value of its real estate assets. The prices at which Units will trade cannot be predicted. The market price of the
Units could be subject to significant fluctuations in response to variations in quarterly operating results, distributions and
other factors beyond the control of CAPREIT. One of the factors that may influence the market price of the Units is the
annual yield on the Units. Accordingly, an increase in market interest rates may lead purchasers of Units to demand a higher
annual yield, which could adversely affect the market price of the Units. In addition, the securities markets have experienced
significant price and volume fluctuations from time to time in recent years that often have been unrelated or disproportionate
to the operating performance of particular issuers. These broad fluctuations may adversely affect the market price of the Units.
Accordingly, the Units may trade at a premium or a discount to the value of CAPREIT’s underlying assets.
In addition, changes in CAPREIT’s creditworthiness or perceived creditworthiness may affect the market price or value and/or
liquidity of the Units.
The DOT imposes various restrictions on Unitholders. Non-residents and non-Canadian partnerships are prohibited from
beneficially and collectively owning more than 49% of the outstanding Units on a non-diluted or diluted basis. These
restrictions may limit, or inhibit the exercise of, the rights of certain non-resident persons and partnerships to acquire Units,
to continue to hold Units, or to initiate and complete takeover bids in respect of the Units. As a result, these restrictions may
limit the demand for Units from certain Unitholders and other investors, and thereby adversely affect the liquidity and market
value of the Units.
Dilution
Subject to applicable laws, CAPREIT is authorized to issue an unlimited number of Units for the consideration, and on the
terms and conditions, that the Board of Trustees determines, without Unitholders’ approval. Unitholders have no pre-emptive
right in connection with any further issuance. The Board of Trustees has the discretion to issue additional Units in other
circumstances pursuant to CAPREIT’s various incentive plans. Any issuance of additional Units may have a dilutive effect on
the holders of Units. Furthermore, timing differences may occur between the issuance of additional Units and the time such
proceeds may be used to invest in new properties. Depending on the duration of such timing difference, this may be dilutive.
Distributions
Cash distributions are not guaranteed. Distributions on the Units are established by the Board of Trustees and are subject
to change at the discretion of the Board of Trustees. While CAPREIT has historically made monthly cash distributions to
Unitholders, the actual amount of distributions paid in respect of the Units will depend upon numerous factors, all of which
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CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis are susceptible to a number of risks and other factors beyond the control of CAPREIT. The market value of the Units will
deteriorate if CAPREIT is unable to meet its distribution targets in the future, and that deterioration could be significant.
In addition, the composition of the cash distributions for tax purposes may change over time and could affect the after-tax
return for Unitholders.
Distribution Reinvestment Plan (“DRIP”) Participation
Participation by Unitholders in CAPREIT’s DRIP is determined by factors such as CAPREIT’s overall performance and also by
many factors outside the control of management such as, but not limited to, market trends and general economic conditions.
Declining DRIP participation may adversely affect funds available for distribution to Unitholders, to make interest and
principal payments or to make property capital investments. Additionally, such effects may adversely affect Unit prices.
Risk Related to CAPREIT’s Investment in ERES
CAPREIT currently beneficially owns, controls or exercises direction over 142,040,821 Class B LP Units and 10,197,000 ERES
units, representing approximately 66.0% of the issued and outstanding units of ERES, on a fully diluted basis. The trading
price of ERES units may be volatile, and subject to fluctuations due to market conditions and other factors which are often
unrelated to operating results and which are beyond CAPREIT’s control. Fluctuations in the market price and valuations of
CAPREIT’s holding in ERES may affect the price of the Units.
Potential Conflicts of Interest
CAPREIT may be subject to various conflicts of interest because certain of the trustees and officers of CAPREIT are engaged
in a wide range of real estate and other business activities. CAPREIT may become involved in transactions which conflict with
the interests of the foregoing.
The trustees may from time to time deal with persons, firms, institutions or corporations with which CAPREIT may be
dealing, or which may be seeking investments similar to those desired by CAPREIT. The interests of these persons could
conflict with those of CAPREIT. In addition, from time to time these persons may be competing with CAPREIT for available
investment opportunities.
CAPREIT’s DOT contains “conflicts of interest” provisions requiring trustees to disclose material interests in material
contracts and transactions and to refrain from voting thereon.
Dependence on Key Personnel
The success of CAPREIT depends to a significant extent on the efforts and abilities of its executive officers and other members
of management, as well as its ability to attract and retain qualified personnel to manage existing operations and future growth.
Although CAPREIT has entered into employment agreements with certain of its key employees, it cannot be certain that any
of those persons will not voluntarily terminate his or her employment with CAPREIT.
The loss of an executive officer or other key employee could lead to material disruption to the business.
Related to the Real Estate Industry
General Economic Conditions
All real property investments are subject to elements of risk. The real value of real property and any improvements thereto
depend on the credit and financial stability of residents and the vacancy rates of such properties. The properties generate
revenue through rental payments made by residents. CAPREIT is affected by changes in general economic conditions (such
as the availability and cost of mortgage funds), local real estate markets (such as an oversupply of space or a reduction in
demand for real estate in the area), government regulations, changing demographics, competition from other available rental
premises, including new developments, and various other factors. If a significant number of residents are unable to meet their
obligations under their leases or if a significant amount of available space in the properties becomes vacant and cannot be
leased on economically favourable lease terms, cash available for distribution may be adversely affected.
The global economy may face increasing uncertainty due to trade protectionism, disputes and political events around the world,
which could potentially impact Canadian trade and lead to impact on the Canadian economy at large. This could have an
impact on employment in the markets in which CAPREIT operates and in turn have an adverse effect on CAPREIT.
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CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Competition for Residents
The real estate business is competitive. Numerous other developers, managers and owners of properties compete with
CAPREIT in seeking residents. Competition for residents also comes from opportunities for individual home ownership,
including condominiums, which can be particularly attractive when home mortgage loans are available at relatively low
interest rates. The existence of competing developers, managers and owners and competition for CAPREIT’s residents could
have an adverse effect on CAPREIT’s ability to lease suites in its properties and on the rents charged, and may increase leasing
and marketing costs and refurbishing costs necessary to lease and re-lease suites, all of which could adversely affect CAPREIT’s
revenues and, consequently, its ability to meet its obligations and pay distributions. For example, increased condominium
construction in the GTA could impact the rental market and affect residential rental fundamentals. In addition, any increase
in the supply of available rental accommodation in the markets in which CAPREIT operates or may operate could have an
adverse effect on CAPREIT.
Furthermore, low interest rates may encourage residents to purchase condominiums or other types of housing, which could
result in a reduction in demand for rental properties. Changes in interest rates may also have effects on vacancy rates, rent
levels, refurbishing costs and other factors affecting CAPREIT’s business and profitability, including its financing costs.
Competition for Real Property Investments
CAPREIT competes for suitable real property investments with individuals, corporations and institutions (both Canadian
and foreign) and other real estate investment trusts that are presently seeking, or which may seek in the future, real property
investments similar to those desired by CAPREIT. A number of these investors may have greater financial resources than
those of CAPREIT, or operate without the investment or operating restrictions of CAPREIT or according to more flexible
conditions. An increase in the availability of investment funds and/or an increase in interest in real property investments may
tend to increase competition for real property investments, thereby increasing purchase prices and reducing the yield on them.
Acquisitions
CAPREIT’s external growth prospects will depend in large part on identifying suitable acquisition opportunities that meet
CAPREIT’s investment criteria and satisfy its rigorous due diligence process. In addition, external growth prospects will be
affected by purchase price, ability to obtain adequate financing or financing on reasonable terms, consummating acquisitions
(including obtaining necessary consents) and effectively integrating and operating the acquired properties. Acquired
properties may not meet financial or operational expectations due to unexpected costs associated with acquiring the property,
as well as the general investment risks inherent in any real estate investment or acquisition, including future refinancing risks.
Moreover, newly acquired properties may require significant management attention or property capital investments that
would otherwise be allocated to other properties. If CAPREIT is unable to manage its growth and integrate its acquisitions
effectively, its business, operating results and financial condition could be adversely affected.
Acquisition agreements entered into with third parties may be subject to unknown, unexpected or undisclosed liabilities
which could have a material adverse impact on the operations and financial results of CAPREIT. CAPREIT’s due diligence
investigations and representations and warranties obtained from third-party vendors may not adequately protect against these
liabilities and any recourse against such vendors may be limited by the financial capacity of such vendors.
Privacy and Cyber Security Risk
CAPREIT may be vulnerable to privacy and cyber security incidents given its reliance on processing personal and business
confidential information using information technology systems. Third-party vendors, such as cloud host providers and
software and application providers and consultants, may also expose CAPREIT to cyber security or privacy incidents.
Sources of cyber security and/or privacy incidents include employees visiting websites that contain malicious code, phishing
attacks, social engineering, ransomware attacks, software vulnerabilities that provide hackers access to computers and
networks, human error such as misdirected emails containing sensitive information, and lost or stolen computers, laptops,
iPads, handheld devices and removable data storage media.
A cyber security and/or privacy incident can lead to: (a) unauthorized access to or disclosure of business confidential
and personal information, particularly that belonging to CAPREIT and its tenants, employees and vendors, (b) personal
information being compromised leading to identity theft, fraudulent activities and direct losses to stakeholders, including
tenants and employees, (c) destruction or corruption of data (in particular, tenant data), (d) lost revenues, (e) disruption
to operations, including delays in processing rental applications and rent payments and the time and attention required by
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CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis management to investigate and respond to a cyber security incident, (f) remediation costs, including to restore or recover lost
data, (g) litigation, fines and liabilities, including third-party liabilities, for failure to comply with applicable privacy and data
protection laws or contractual obligations, (h) regulatory investigations, (i) reputational damage to CAPREIT and (j) increased
insurance premiums.
As technology continues to become more sophisticated and complex, governments are responding with stricter legislation,
requiring higher levels of data protection. In Canada, CAPREIT is subject to federal and provincial privacy, anti-spam, and
data protection laws. In Europe, CAPREIT and its Irish and Dutch affiliates are required to comply with the EU General
Data Protection Regulation (GDPR). Under GDPR, CAPREIT and its affiliates are classified as either data processors,
sub-processors, or controllers, based on their function with regards to processing of EU personal data. Controllers and
(sub)processors may share liability, to varying degrees, in the event of a breach. Non-compliance with either of the Canadian
or Europeans laws would also expose CAPREIT and/or its affiliates to the risks above.
CAPREIT has implemented a number of preventative measures and mitigation techniques to lessen the risks of cyber security
and privacy incidents. Employees receive annual awareness training on data privacy and protection. Access to business
confidential and personal information is controlled through organizational measures such as restriction, authorization and
minimization processes, physical security (e.g., locked offices and storage locations, alarm monitoring, and security cameras)
and technical IT security mechanisms (e.g., authentication, password protection, firewalls, antivirus and encryption).
CAPREIT also has in place a disaster recovery plan and has engaged a third party to assist in monitoring and detecting cyber
security threats. Additionally, CAPREIT maintains cyber security insurance coverage and continues to monitor and assess
the risks surrounding collection, usage, storage, protection and retention/destruction practices of business confidential and
personal information. These measures, however, do not guarantee that CAPREIT’s financial results will not be negatively
impacted by such an incident.
The Board of Trustees and Management as a whole are responsible for CAPREIT’s privacy and cyber security strategies. All
privacy and/or cyber security incidents are to be reported to CAPREIT’s Privacy Officer and IT security team in order to
assess the potential impact and determine whether CAPREIT has any notification or reporting obligations to third parties or
regulatory agencies.
Foreign Operation and Currency Risks
The Irish, Dutch, Belgian and German real estate markets differ from the Canadian environment and CAPREIT’s experience
and expertise in managing Canadian properties may not apply perfectly to a foreign operation. Additionally, these foreign
markets may differ from Canadian markets with respect to laws and regulations, economic conditions and market norms.
Operating success in these foreign markets will depend on CAPREIT’s ability to recognize these differences and adapt its
business model accordingly. CAPREIT’s growth in foreign jurisdictions also requires management oversight and resources
that may have been otherwise focused on its Canadian properties. Additionally, it is possible that CAPREIT’s subsidiaries and
involvement in foreign operations will expose CAPREIT to foreign currency risk, as CAPREIT’s functional and presentation
currency is the Canadian dollar, while the functional currency of CAPREIT’s foreign operations and its investment in IRES
and ERES is the Euro.
Related Party Transactions
As at December 31, 2019, CAPREIT has an 18.3% share ownership in IRES and has determined it has significant influence
over IRES. Additionally, CAPREIT has a controlling interest of 66.0% effective ownership in ERES. A summary of related
party transactions can be found in note 26 to CAPREIT’s consolidated annual financial statements for the year ended
December 31, 2019.
Commitments and Contingencies
A summary of commitments and contingencies can be found in notes 27 and 28 to CAPREIT’s consolidated annual financial
statements for the year ended December 31, 2019.
Subsequent Events
A summary of subsequent events can be found in note 30 to CAPREIT’s consolidated annual financial statements for the year
ended December 31, 2019.
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CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Future Outlook
CAPREIT believes the multi-unit residential rental business will continue to strengthen in the majority of the markets in
which it operates. With these strong market fundamentals, and through its proven property and asset management programs,
CAPREIT expects to generate modest annual increases in same property Net AMR while stabilizing average occupancies in
the range of 97% to 99% on an annual basis. CAPREIT also anticipates operating revenues will benefit from programs that
enhance ancillary revenues, including fees for parking, commercial leases, laundry, cable, telecommunications and other
income sources. In addition, numerous successful cost management initiatives are proving effective, leading to stable and
growing same property NOI over the long term.
CAPREIT believes the strong defensive characteristics of its property portfolio, due to diversification by geography in Canada
and the Netherlands, and by property type, including its strong presence in the Canadian MHC business, will serve to mitigate
the negative impact of any future unfavourable economic conditions that certain regions may experience.
CAPREIT continues to evaluate opportunities to expand and diversify its property portfolio through accretive acquisitions
at below replacement cost where management believes it can enhance returns on investment by increasing and stabilizing
occupancy, growing Net AMRs, reducing operating costs, and enhancing property values through its capital investment
and property improvement programs. CAPREIT is also targeting modernizing and reducing the average age of its property
portfolio by acquiring newer, recently constructed properties. Newer properties attract higher-quality residents and require
less repair and maintenance or capital improvement costs. While CAPREIT’s strategy is to remain principally focused on its
core Canadian markets, CAPREIT continues to consider select opportunities in other geographic markets.
CAPREIT has defined a number of strategies to capitalize on its strengths and achieve its objectives of providing Unitholders
with stable and predictable monthly cash distributions while growing distributions and Unit value over the long term:
• CAPREIT maintains a focus on maximizing occupancy and Net AMR in accordance with local conditions in each of its
markets. Since its inception in May 1997, CAPREIT’s hands-on management style has focused on ensuring it maintains
strong relations with its residents while its capital investment and property improvement programs are aimed at
enhancing the lives of its residents and ensuring properties and amenities meet their needs.
• CAPREIT continues to invest in and adopt the latest technologies and solutions to enhance the REIT’s risk management,
market research and operating efficiency, while reducing costs and strengthening relationships with its residents.
• CAPREIT’s building infrastructure improvement programs are designed to upgrade and reposition properties through
value-enhancing capital investments. These investments are expected to enhance the life safety of residents, improve the
portfolio’s long-term cash flow generating potential and increase the portfolio’s useful life over the long term.
From time to time, CAPREIT may identify certain non-core assets for sale that do not conform to its current portfolio
composition or operating strategies, or where CAPREIT believes their value has been maximized. CAPREIT believes the
realization and reinvestment of capital from such non-core property dispositions are fundamental components of its growth
strategy and demonstrate the success of its investment programs.
CAPREIT will prudently investigate the opportunity to develop new multi-unit rental residential properties on land it owns,
as well as add new rental suites in certain properties where the opportunity exists. Such investments are highly accretive as
no land costs are incurred and serve to further modernize and reduce the average age of its portfolio. CAPREIT believes its
current portfolio provides the opportunity to add in excess of 8,800 new rental suites over time through its development and
intensification initiatives, primarily in Vancouver and Toronto where demand remains strong and monthly rents support
profitable investment.
CAPREIT continues to manage interest costs by leveraging its balance sheet strength and the stability of its property portfolio
to reduce borrowing costs on its credit facilities while appropriately staggering the maturity dates within its mortgage
portfolio to ensure it is not exposed to refinancing risk. CAPREIT believes that, with the continuing availability of lower cost
CMHC-insured financing, CAPREIT is well positioned to meet its financing and refinancing objectives at reasonable costs.
66
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis CAPREIT maintains a conservative approach to its capital structure, leverage and coverage ratios to further improve its
payout ratio. CAPREIT believes its successful equity financing and mortgage refinancing programs have resulted in the REIT
possessing one of the strongest balance sheets in its industry, well suited to delivering consistent, stable and secure monthly
cash distributions over the long term.
Through numerous ESG programs, CAPREIT ensures it remains a responsible steward of the environment, attracts and retains
the best people in its business, builds strong relationships with its residents and the communities in which they live, adopts
best practice programs in corporate governance, and maintains open and transparent communication with its investors.
SECTION VII: SUPPLEMENTAL INFORMATION
Property Portfolio
Types of Property Interests
CAPREIT’s investments in its property portfolio reflect different forms of property interests, including: Fee Simple Interests –
Apartments and Townhomes, Operating Leasehold Interests, Land Leasehold Interests and Fee Simple Interests – MHC Sites.
Fee Simple Interests – Apartments and Townhomes – The majority of CAPREIT’s investment in its property portfolio is in the
form of fee simple interests, representing freehold ownership of the properties subject only to typical encumbrances, such
as mortgages.
Operating Leasehold Interests – CAPREIT owns leasehold interests in 13 properties located in the Greater Toronto Area.
The leases mature between 2033 and 2037. While separate lease arrangements exist for each property, the general structure
is common across all leases: each lease is for a 35-year term and the rent for the entire lease term was fully paid at the time
the leasehold interest was acquired. Each lease also provides CAPREIT with a purchase option exercisable between the 26th
and 35th year of the lease term. In the case of one of the properties, the purchase option entitles CAPREIT to acquire a
prepaid operating leasehold interest in the property maturing in 2072 (see Portfolio of Operating Leasehold Interests for
additional information).
Land Leasehold Interests – CAPREIT owns leasehold interests in three land parcels in Alberta and one land parcel in British
Columbia. CAPREIT acquired a residential building on each of the four land parcels and pays ground rent on an annual basis
for its use of the land. One land lease matures in 2045, two mature in 2068 and another matures in 2070. CAPREIT does not
have the unilateral right to acquire the land or extend the lease term at the maturity of the respective leases (see Portfolio of
Land Leasehold Interests for additional information).
Fee Simple Interests – MHC Land Lease Sites – CAPREIT has fee simple interests in 72 MHCs, whereby CAPREIT owns the
sites, which it rents to residents.
Portfolio by Type of Property Interest
As at December 31,
Fee simple interests – apartments and townhomes
Operating leasehold interests
Land leasehold interests
Total residential suites
Fee simple interests – MHC land lease sites
Total suites and sites
2019
44,408
3,574
1,051
49,033
11,680
60,713
%
73.2
5.9
1.7
80.8
19.2
100.0
2018
40,069
3,815
1,051
44,935
6,593
51,528
%
77.8
7.4
2.0
87.2
12.8
100.0
67
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Portfolio Diversification
CAPREIT’s property portfolio continues to be diversified by geography and balanced among asset types. Management’s
long-term goal is to further enhance the geographic diversification and defensive nature of its portfolio through acquisitions
and development.
Portfolio by Geography
As at December 31,
Residential Suites
Ontario
Greater Toronto Area
Ottawa
London / Kitchener / Waterloo
Other Ontario
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria
Alberta
Edmonton
Calgary
Nova Scotia
Halifax
Saskatchewan
Regina
Prince Edward Island
Charlottetown
Europe
The Netherlands(1)
Total residential suites
MHC Sites
Ontario
Québec
British Columbia
Alberta
Nova Scotia
Saskatchewan
Prince Edward Island
New Brunswick
Total MHC sites
Total suites and sites
2019
16,155
2,377
2,960
1,702
23,194
7,655
2,517
10,172
3,551
1,550
5,101
435
1,963
2,398
1,659
234
234
643
5,632
49,033
3,962
429
488
2,079
127
376
772
3,447
11,680
60,713
%
26.6
3.9
5.0
2.8
38.3
12.6
4.1
16.7
5.8
2.6
8.4
0.7
3.2
3.9
2.7
0.4
0.4
1.1
9.3
80.8
6.5
0.7
0.8
3.4
0.2
0.6
1.3
5.7
19.2
100.0
2018
15,658
2,377
2,407
1,702
22,144
7,482
2,517
9,999
3,217
1,478
4,695
435
1,884
2,319
1,659
234
234
537
3,348
44,935
2,703
–
272
418
–
380
504
2,316
6,593
51,528
%
30.4
4.6
4.7
3.3
43.0
14.5
4.9
19.4
6.2
2.9
9.1
0.8
3.7
4.5
3.2
0.5
0.5
1.0
6.5
87.2
5.3
–
0.5
0.8
–
0.7
1.0
4.5
12.8
100.0
(1) Includes all residential properties owned by ERES.
While maintaining a strong and strategic presence in Ontario’s vibrant residential market, CAPREIT continues to focus on
diversifying its geographic portfolio outside of Ontario by increasing its presence in other markets with strong fundamentals.
CAPREIT continues to look for investment opportunities that meet its investment criteria and that, where possible, will
further its diversification strategy. The geographic diversification of its portfolio also enables CAPREIT to mitigate the risks
arising from potential downturns in any specific markets.
68
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis
Portfolio of Operating Leasehold Interests
CAPREIT has the option to acquire fee simple interests in 12 of the properties, which are exercisable between the 26th and
35th years of the respective leases. In the case of a 13th property, comprised of 327 suites, CAPREIT’s option entitles it to
acquire a prepaid operating leasehold interest in the property maturing in 2033 and an air rights lease maturing in 2072.
In 2019, CAPREIT completed the early buyout of two operating leases and converted the properties into fee simple interests.
For further details, please see Section V – Investment Properties for further details.
The purchase options are independently exercisable, enabling CAPREIT to acquire additional interests in any or all of the
properties. The option prices vary by property and by the year in which the option is to be exercised. The aggregate range
of option prices would be approximately $262 million to $312 million if each of the options were exercised in the 26th and
35th years, respectively, of the lease terms. If CAPREIT elected to exercise any option prior to the maturity of the lease term,
CAPREIT would be entitled to receive a pro rata amount of the prepaid lease amount based on the remaining lease term. In
addition, under certain circumstances, the option price may be reduced by the unamortized portion of capital expenditures
incurred during the final 10 years of the lease term.
The mortgages on each of these 13 properties are scheduled to be fully repaid by their respective option exercise dates, which
management expects will enable CAPREIT to utilize the equity in these properties to fully finance the option exercise prices.
Operating Leasehold Interests Portfolio by Lease Maturity
As at December 31, 2019 and 2018
($ thousands)
Year of Lease Maturity
Properties
2033
2034
2035
2037
Total Operating Leasehold Interests portfolio
9
1
1
2
13
Option Exercise Prices
%
82.4
2.1
5.6
9.9
26th Year
35th Year
Prepaid Lease
Amount(1)
$
188,771
$
225,596
$
127,561
11,400
14,200
47,200
13,650
17,000
56,000
7,775
9,000
33,500
Suites
2,944
75
200
355
3,574
100.0
$
261,571
$
312,246
$
177,836
(1) As at the acquisition dates of these leasehold interests by a CAPREIT predecessor.
Portfolio of Land Leasehold Interests
In the absence of any new arrangements negotiated between CAPREIT and the landowners of the four parcels on which
CAPREIT has Land Leasehold Interests, CAPREIT’s interests in one property matures in 2045, in two properties in 2068
and in one property in 2070. Generally, each lease provides for annual ground rent and additional rent calculated from the
properties’ operating results. All rental payments associated with Land Leasehold Interests are included in other operating
expenses (see Results of Operations).
Land Leasehold Interests Portfolio by Lease Maturity
Year Ended December 31,
($ thousands)
Year of Lease Maturity
2045
2068
2070
Total Land Leasehold Interests portfolio
Suites
473
306
272
1,051
%
45.0
29.1
25.9
100.0
Annual Ground Rent
2019
2,291
1,275
1,169
4,735
$
$
2018
1,174
430
1,224
2,828
$
$
69
CAPREIT | 2019 | ANNUAL REPORTManagement’s Discussion and Analysis Management’s Responsibility for Financial Statements
Management’s Responsibility for
Financial Statements
The accompanying consolidated financial statements and information included in this Annual Report have been prepared by
the management of CAPREIT in accordance with International Financial Reporting Standards, and include amounts based
on management’s informed judgments and estimates. Management is responsible for the integrity and objectivity of these
consolidated financial statements. The financial information presented elsewhere in this Annual Report is consistent with that
in the consolidated financial statements in all material respects.
To assist management in the discharge of these responsibilities, management has established the necessary internal
controls, based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in 2013. These internal controls are designed to ensure that CAPREIT’s
financial records are reliable for preparing financial statements; other financial information and transactions are properly
authorized and recorded; and assets are safeguarded.
As at December 31, 2019, CAPREIT’s President and Chief Executive Officer and Chief Financial Officer evaluated, or caused
an evaluation under their direct supervision, of the design and operating effectiveness of CAPREIT’s internal controls
over financial reporting (as defined in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and
Interim Filings) and, based on that evaluation, determined that CAPREIT’s internal controls over financial reporting were
appropriately designed and operating effectively.
PricewaterhouseCoopers LLP, the independent auditor appointed by the Unitholders, have examined the consolidated
financial statements in accordance with Canadian generally accepted auditing standards to enable them to express to the
Unitholders their opinion on the consolidated financial statements. Their report as auditor is set forth below.
The consolidated financial statements have been further reviewed and approved by the Board of Trustees and its
Audit Committee.
This committee meets regularly with management and the auditor, who have full and free access to the Audit Committee.
February 26, 2020
Mark Kenney
President and Chief Executive Officer
Scott Cryer
Chief Financial Officer
70
CAPREIT | 2019 | ANNUAL REPORT Independent Auditor’s Report
Independent Auditor’s Report
To the Unitholders of Canadian Apartment Properties Real Estate Investment Trust
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial
position of Canadian Apartment Properties Real Estate Investment Trust and its subsidiaries (together, the Trust) as at
December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).
What we have audited
The Trust’s consolidated financial statements comprise:
•
•
•
•
•
the consolidated balance sheets as at December 31, 2019 and 2018;
the consolidated statements of income and comprehensive income for the years then ended;
the consolidated statements of unitholders’ equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include a summary of significant accounting policies.
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 Auditor’s responsibilities for the audit of the consolidated financial statements section of
our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Trust in accordance with the ethical requirements that are relevant to our audit of the consolidated
financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.
Other information
Management is responsible for the other information. The other information comprises the Management’s Discussion and
Analysis and the information, other than the consolidated financial statements and our auditor’s report thereon, included in
the annual report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the consolidated
financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Trust’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Trust or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Trust’s financial reporting process.
71
CAPREIT | 2019 | ANNUAL REPORT Independent Auditor’s Report
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s 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 auditing 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 influence the
economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient
and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, 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 effectiveness of the Trust’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
•
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Trust’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the consolidated financial 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
auditor’s report. However, future events or conditions may cause the Trust to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
•
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Trust to express an opinion on the consolidated financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought
to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Lee-Anne Kovacs.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
February 26, 2020
72
CAPREIT | 2019 | ANNUAL REPORT Consolidated Balance Sheets
(CA$ thousands)
As at
Non-current assets
Investment properties
Other non-current assets
Current assets
Other current assets
Cash and cash equivalents
Non-current liabilities
Mortgages payable
Bank indebtedness
Unit-based compensation financial liabilities
ERES units held by non-controlling interest
Other non-current liabilities
Deferred income tax liability
Lease liability
Current liabilities
Mortgages payable
Unit-based compensation financial liabilities
Accounts payable and accrued liabilities
Other current liabilities
Security deposits
Distributions payable
6
7
7
11
12
13,14
10
8
20
2
11
13,14
9
8
Unitholders’ equity
Unit capital
Accumulated other comprehensive (loss) income
21
Retained earnings
See accompanying notes to the consolidated annual financial statements.
Consolidated Balance Sheets
Note
December 31, 2019
December 31, 2018
$
13,096,426
$
10,473,544
385,435
13,481,861
307,375
10,780,919
58,760
477,328
536,088
35,631
25,713
61,344
$
14,017,949
$
10,842,263
$
3,872,125
$
3,324,381
623,893
14,391
364,928
3,361
32,312
37,775
567,365
13,336
–
926
26,428
–
4,948,785
3,932,436
436,447
18,658
116,544
34,512
39,575
19,533
665,269
403,952
19,469
108,427
9,875
35,261
16,143
593,127
$
5,614,054
$
4,525,563
$
4,013,941
$
2,855,701
(19,510)
4,409,464
8,403,895
14,017,949
$
$
28,846
3,432,153
6,316,700
10,842,263
$
$
73
CAPREIT | 2019 | ANNUAL REPORT Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Income and
Comprehensive Income
(CA$ thousands)
For the Year Ended December 31,
Operating revenues
Revenue from investment properties
Operating expenses
Realty taxes
Property operating costs
Net rental income
Trust expenses
Transaction costs
Unit-based compensation expenses
Fair value adjustments of investment properties
Realized loss on disposition of investment properties
Amortization of property, plant and equipment
Fair value adjustments of Exchangeable Units
Loss on non-controlling interest
Fair value adjustments of investments
(Loss) gain on derivative financial instruments
Interest and other financing costs
Gain (loss) on foreign currency translation
Other income
Net income before income taxes
Current and deferred income tax expense
Net income
Other comprehensive (loss) income, including items that may be reclassified
subsequently to net income
Amortization of losses from AOCL to interest and other financing costs
(Loss) gain on foreign currency translation
Other comprehensive (loss) income
Comprehensive income
See accompanying notes to the consolidated annual financial statements.
Note
25
4
14
6
5
13
10
18
22
25
20
21
2019
2018
$
777,884
$
688,585
(73,546)
(196,188)
(269,734)
508,150
(46,244)
(8,527)
(14,838)
892,156
–
(6,290)
–
(47,058)
6,522
(3,684)
(135,216)
37,933
34,904
1,217,808
(22,361)
(68,488)
(181,041)
(249,529)
439,056
(39,515)
–
(34,672)
990,529
(2,594)
(4,976)
(840)
–
3,740
13,141
(135,211)
(34,489)
42,310
1,236,479
(18,808)
$
1,195,447
$
1,217,671
$
$
$
3,810
(52,166)
(48,356)
1,147,091
$
$
$
2,659
28,530
31,189
1,248,860
74
CAPREIT | 2019 | ANNUAL REPORT Consolidated Statements of Unitholders’ Equity
Consolidated Statements of Unitholders’ Equity
(CA$ thousands)
Unitholders’ Equity, January 1, 2019
$ 2,855,701
$ 3,432,153
$
28,846
$ 6,316,700
Note
Unit Capital
Retained Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Unit capital
New Units issued
Distribution Reinvestment Plan
Unit Option Plan
Deferred Unit Plan
RUR Plan
Employee Unit Purchase Plan
Retained earnings and other comprehensive loss
Net income
Other comprehensive loss
Distributions on Trust Units
Distributions declared and paid
Distributions payable
15
15
14,15
14,15
14,15
14
16
16
1,074,315
67,393
–
7,900
6,586
2,046
1,158,240
–
–
–
–
–
–
–
–
–
–
–
–
–
1,195,447
–
1,195,447
(198,603)
(19,533)
(218,136)
–
–
–
–
–
–
–
–
(48,356)
(48,356)
–
–
–
1,074,315
67,393
–
7,900
6,586
2,046
1,158,240
1,195,447
(48,356)
1,147,091
(198,603)
(19,533)
(218,136)
Unitholders’ Equity, December 31, 2019
$ 4,013,941
$ 4,409,464
$
(19,510)
$ 8,403,895
Unitholders’ Equity, January 1, 2018
$ 2,523,419
$ 2,402,330
$
(2,343)
$ 4,923,406
Note
Unit Capital
Retained Earnings
Accumulated
Other
Comprehensive
Income
Total
Unit capital
New Units issued
Distribution Reinvestment Plan
Unit Option Plan
Deferred Unit Plan
RUR Plan
Long-Term Incentive Plan
Senior Executive Long-Term Incentive Plan
Employee Unit Purchase Plan
Retained earnings and other comprehensive income
Net income
Other comprehensive income
Distributions on Trust Units
Distributions declared and paid
Distributions payable
15
15
14,15
14,15
14,15
14,15
14,15
14
16
16
170,534
51,490
48,772
273
2,146
25,097
32,185
1,785
332,282
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,217,671
–
1,217,671
(171,705)
(16,143)
(187,848)
–
–
–
–
–
–
–
–
–
–
31,189
31,189
–
–
–
170,534
51,490
48,772
273
2,146
25,097
32,185
1,785
332,282
1,217,671
31,189
1,248,860
(171,705)
(16,143)
(187,848)
Unitholders’ Equity, December 31, 2018
$ 2,855,701
$ 3,432,153
$
28,846
$ 6,316,700
See accompanying notes to the consolidated annual financial statements.
75
CAPREIT | 2019 | ANNUAL REPORT Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
(CA$ thousands)
For the Year Ended December 31,
Cash provided by (used in):
Operating activities
Net income
Items related to operating activities not affecting cash:
Fair value adjustments – investment properties
Fair value adjustments – Exchangeable Units
Fair value adjustments – investments
Mark-to-market loss on ERES units
Loss on disposition of investment properties
Loss (gain) on derivative financial instruments
Amortization
Unit-based compensation expenses
Straight-line rent adjustment
Deferred income tax expense
Net profit from equity accounted investments
Unrealized foreign currency (gain) loss
Net income items related to financing and investing activities
Changes in non-cash operating assets and liabilities
Cash provided by operating activities
Investing activities
Acquisition of investment properties
Capital investments
Operating lease buyout
Acquisition of investments
Disposition of investment properties
Change in restricted cash
Investment income received
Cash acquired on business combination
Cash used in investing activities
Financing activities
Mortgage financings
Mortgage principal repayments
Mortgages repaid on maturity
Lease payments
Financing costs
CMHC premiums on mortgages payable
Interest paid
Bank indebtedness
Settlement of redemption liability
Proceeds on issuance of ERES units, net of issuance costs
Proceeds on issuance of Units, net of issuance costs
Net cash distributions to Unitholders and non-controlling interest
Cash provided by financing activities
Changes in cash and cash equivalents during the year
Effect of exchange rate changes on cash
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
See accompanying notes to the consolidated annual financial statements.
76
Note
2019
2018
$
1,195,447
$
1,217,671
(892,156)
(990,529)
10
5
18
7,21,22
14
20
25
24
24
24
24
6
26
24
4
24
24
24
24
8
9
24
24
–
(6,522)
43,120
–
3,684
18,709
14,838
(132)
5,079
(23,440)
(37,933)
320,694
118,915
15,020
454,629
(1,327,400)
(242,357)
(14,746)
(40,668)
–
(935)
10,039
9,069
840
(3,740)
–
2,594
(13,141)
14,100
34,672
(87)
18,794
(32,634)
34,489
283,029
122,504
25,644
431,177
(482,152)
(203,784)
–
(25,443)
81,872
(1,045)
7,442
–
(1,606,998)
(623,110)
828,507
(125,902)
(232,336)
(3,402)
(6,561)
(9,852)
(119,609)
87,000
–
250,746
1,076,107
(146,521)
1,598,177
445,808
5,807
25,713
477,328
$
391,234
(116,877)
(103,734)
–
(2,412)
(3,469)
(114,271)
85,981
(16,611)
–
208,948
(134,929)
193,860
1,927
2,200
23,786
27,913
$
CAPREIT | 2019 | ANNUAL REPORT
Notes to Consolidated Financial Statements
DECEMBER 31, 2019
(CA $ thousands, except Unit and per Unit amounts)
1. Organization of the Trust
Canadian Apartment Properties Real Estate Investment Trust (“CAPREIT”) owns and manages interests in multi-unit
residential rental properties, including apartments, townhomes and manufactured home communities (“MHC”), principally
located in and near major urban centres across Canada. CAPREIT’s net assets and operating results are substantially derived
from income-producing real estate located in Canada, where it is also domiciled, and in Europe.
CAPREIT converted from a closed-end real estate investment trust to an open-ended mutual fund trust on January 8, 2008,
and is governed under the laws of the Province of Ontario by a Declaration of Trust (“DOT”) dated February 3, 1997, as
most recently amended and restated on May 24, 2017. CAPREIT commenced active operations on February 4, 1997 when
it acquired an initial portfolio of properties, and became a reporting issuer on May 21, 1997, pursuant to an initial public
offering prospectus dated May 12, 1997.
CAPREIT Limited Partnership (“CAPLP”) is a wholly-owned consolidated subsidiary of CAPREIT established under the
laws of the Province of Manitoba pursuant to a limited partnership agreement dated June 26, 2007, and as amended on
April 1, 2008, owns directly or indirectly the beneficial interest of all its properties along with the related mortgages and all
the corporate debt obligations of CAPREIT.
CAPREIT’s wholly-owned subsidiary, IRES Fund Management Limited, entered into an external investment management
agreement to perform property and asset management services for Irish Residential Properties REIT plc (“IRES”), an
Irish residential REIT listed on the Euronext Dublin exchange. As at December 31, 2019, CAPREIT holds 95.5 million
(December 31, 2018 – 78.0 million) ordinary shares, representing 18.3% (December 31, 2018 – 18.0%) of the issued share
capital of IRES. Refer to note 26 for further details.
On March 29, 2019, CAPREIT NL Holding B.V. (“Holding BV”), which indirectly owned the beneficial interest in a portfolio
of 2,091 residential suites in the Netherlands, completed the reverse acquisition (the “Acquisition”) of European Commercial
Real Estate Investment Trust (“ECREIT”), and the ongoing entity adopted the name European Residential Real Estate
Investment Trust (“ERES”). Pursuant to the Acquisition, CAPREIT, the sole shareholder of Holding BV, exchanged all its
shares of Holding BV for 81.6 million Class B Limited Partnership units (“Class B LP Units”) of ERES Limited Partnership
(“ERES LP”). Class B LP Units are exchangeable, on a one-for-one basis, for units of ERES (“ERES units”) at the option of the
holder, and have economic and voting rights through special voting units of ERES that are equivalent, in all material respects,
to ERES units. CAPREIT determined that ECREIT meets the definition of a business and the Acquisition has been accounted
for as a business combination. Refer to note 4 for additional details. Subsequent to the Acquisition, CAPREIT received an
additional 142.0 million Class B LP Units of ERES LP and 10.2 million ERES units. Refer to note 26 for additional details.
Upon exchange of the ERES LP Class B LP Units and together with its holding of ERES units, CAPREIT holds a 66.0%
ownership of ERES, with the remaining 34.0% held by non-controlling unitholders (“non-controlling interest”).
CAPREIT is listed on the Toronto Stock Exchange (“TSX”) under the symbol “CAR.UN” and its registered address is
11 Church Street, Suite 401, Toronto, Ontario, Canada M5E 1W1.
2. Summary of Significant Accounting Policies
a) Statement of Compliance
CAPREIT has prepared these consolidated annual financial statements in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board applicable to the preparation of consolidated
annual financial statements. These policies have been consistently applied to all years presented, unless stated otherwise.
These consolidated annual financial statements were approved by CAPREIT’s Board of Trustees on February 26, 2020.
77
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements b) Basis of Presentation
These consolidated annual financial statements have been prepared on a going concern basis, presented in Canadian dollars,
which is also CAPREIT’s functional currency, and have been prepared on an historical cost basis except for:
Investment properties and certain financial instruments, which are stated at fair value;
i)
ii) Certain Unit-based compensation accounts, which are stated at fair value; and
iii) ERES units held by non-controlling interest, which are stated at fair value.
The consolidated annual financial statements are presented in Canadian dollars and all values are rounded to the nearest
thousand ($000), except Unit or per Unit amounts or when otherwise noted.
Certain prior year figures have been restated to conform with current year presentation.
c) Principles of Consolidation
i) Subsidiaries
These consolidated annual financial statements comprise the assets and liabilities of all subsidiaries and the results of
all subsidiaries for the financial period. CAPREIT and its subsidiaries are collectively referred to as “CAPREIT” in these
consolidated annual financial statements. Subsidiaries are all entities over which CAPREIT has control. CAPREIT controls an
entity when CAPREIT is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability
to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date control commences and deconsolidated from the date control ceases. Where
CAPREIT consolidates a subsidiary in which it does not have 100% ownership and where the non-controlling interest
contains an option or a redemption feature, the non-controlling interest is classified as a financial liability.
On consolidation of subsidiaries, CAPREIT eliminates in full intragroup assets and liabilities, equity, income, expenses and
cash flows relating to transactions between entities of the group. IAS 12, Income Taxes, applies to temporary differences that
arise from the elimination of profits and losses resulting in intragroup transactions.
ii) Joint Arrangements
CAPREIT has joint arrangements in and joint control of a number of properties. CAPREIT has assessed the nature of its joint
arrangements and determined them to be joint operations. For joint operations, CAPREIT recognizes its share of revenues,
expenses, assets and liabilities, which are included in their respective descriptions in the consolidated balance sheets and
consolidated statements of income and comprehensive income. In general, CAPREIT has recourse against all of the assets of
the joint operations in the event that CAPREIT is called on to pay liabilities in excess of its proportionate share.
All balances and effects of transactions between joint operations and CAPREIT have been eliminated to the extent of
CAPREIT’s interest in the joint operations.
iii) Investment in Associates
An associate is an entity over which the investor has significant influence, but not control. Generally, CAPREIT is considered
to exert significant influence when it directly or indirectly holds 20% or more of the voting power of the investee. However,
determining significant influence is a matter of judgment and specific circumstances; therefore, holding less than 20% of an
entity does not necessarily preclude an entity from having significant influence as the entity may exert significant influence
through representation on the Board of Trustees, direction of management or through contractual agreements.
The financial results of CAPREIT’s associates are included in CAPREIT’s consolidated financial statements using the equity
method, whereby the investment is carried on the consolidated balance sheets at cost, adjusted for CAPREIT’s proportionate
share of post-acquisition changes in CAPREIT’s share of the net assets of the associate. CAPREIT’s share of profits and
losses is recognized in other income in the consolidated statements of income and comprehensive income. IFRS provides
an exception to recognizing the share of the net assets of the associate if the reporting periods of the entity and the investee
are not aligned, provided the information used in preparing the financial statements is not more than three months old. The
standard further requires adjustments to this information for any significant transactions or events which may have occurred
between the entity’s reporting date and its investee’s most recent reporting date. CAPREIT has applied this guidance in
accounting for its investment in IRES.
78
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements At each reporting date, CAPREIT evaluates whether there is objective evidence that its interest in an associate is impaired.
The entire carrying amount of the associate is compared to the recoverable amount, which is the higher of value in use or fair
value less costs to sell. The recoverable amount of the investment is considered separately.
d) Investment Properties
CAPREIT considers its income properties to be investment properties under International Accounting Standard (“IAS”) 40,
Investment Property (“IAS 40”), and has chosen the fair value model to account for investment properties in its consolidated
annual financial statements. Fair value represents the amount at which the properties could be exchanged between a
knowledgeable and willing buyer and a knowledgeable and willing seller in an arm’s-length transaction at the date of valuation.
CAPREIT’s investment properties have been valued on a highest and best use basis and do not include any portfolio premium
that may be associated with economies of scale from owning a large portfolio or the consolidation value from having
compiled a large portfolio of properties over a long period of time, often through individual property acquisitions.
Investment properties comprise investment interests held in land and buildings (including integral equipment) held for
the purpose of producing rental income, capital appreciation, or both. CAPREIT’s investments in its property portfolio
reflect different forms of property interests, including: (i) Fee Simple Interests – Apartments and Townhomes, (ii) Operating
Leasehold Interests, (iii) Land Leasehold Interests, and (iv) Fee Simple Interests – Manufactured Home Communities Land
Lease Sites. These four forms of property interests meet the definition of investment property and are classified and accounted
for as such. All investment properties are recorded at cost, including transaction costs, at their respective acquisition dates
and are subsequently stated at fair value at each consolidated balance sheet date, with any gain or loss arising from a change
in fair value recognized within net income in the consolidated statements of income and comprehensive income for the
period. For Operating Leasehold Interests, all of which are held under prepaid operating leases, CAPREIT has classified all
such interests as finance leases, including the fair value of options to purchase, and these are accounted for and presented as
investment properties.
The fair value of all of CAPREIT’s investment properties is determined annually by qualified external appraisers. Management
regularly undertakes a review of its investment property valuation between external appraisal dates to assess the continuing
validity of the underlying assumptions, such as cash flows, capitalization rates and discount rates. These assumptions are
tested against market information obtained from an independent appraisal firm. Where increases or decreases are warranted,
the carrying values of CAPREIT’s investment properties are adjusted. See notes 3 and 6 for a detailed discussion of the
significant assumptions, estimates and valuation methods used.
Investment properties are derecognized either when they have been disposed of or when they are permanently withdrawn
from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds
and the carrying amount of the asset is recognized in profit or loss in the period of derecognition.
e) Property Acquisitions
At the time of acquisition of a property or a portfolio of investment properties, CAPREIT evaluates whether the acquisition
is a business combination or asset acquisition. IFRS 3, Business Combinations (“IFRS 3”), is only applicable if it is considered
that a business has been acquired. A business, according to IFRS 3, is defined as an integrated set of activities and assets
conducted and managed for the purpose of providing a return to investors or lower costs or other economic benefits directly
and proportionately to CAPREIT.
When determining whether the acquisition of an investment property or a portfolio of investment properties is a business
combination or an asset acquisition, CAPREIT applies judgment when determining whether an integrated set of activities is
acquired in addition to the property or portfolio of properties. Activities can include whether employees were assumed in the
acquisition or an operating platform was acquired.
79
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements The acquisition method of accounting is used for acquisitions meeting the definition of a business combination. The
consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition
date fair values of the assets transferred to the acquirer and the liabilities incurred by the acquirer. For each business
combination, CAPREIT measures the non-controlling interest in the acquiree at fair value if the acquiree is a REIT or at the
proportionate share of the acquiree’s identifiable net assets if the acquiree is a corporation. Any transaction costs incurred with
respect to the business combination are expensed in the period incurred.
When an acquisition does not represent a business as defined under IFRS 3, CAPREIT classifies these properties or portfolio
of properties as an asset acquisition. Identifiable assets acquired and liabilities assumed in an asset acquisition are measured
initially at their fair values at the acquisition date. Acquisition-related transaction costs are capitalized to the property.
f) Presentation of Non-current Assets Classified as Held-for-Sale
Investment properties are reclassified to assets held-for-sale when criteria set out in IFRS 5, Non-current Assets Held for Sale
and Discontinued Operations (“IFRS 5”), are met. CAPREIT presents non-current assets classified as held-for-sale and their
associated liabilities separately from other assets and liabilities on the consolidated balance sheets and in the notes beginning
from the period in which they were first classified as “for sale” and the sale is highly probable. The sale of one or a group
of investment properties by CAPREIT will generally be presented as non-current assets held-for-sale and not discontinued
operations. If a group of assets held-for-sale is considered to meet the definition of a discontinued operation, then income
or expense recognized in the consolidated statements of income and comprehensive income relating to that group of assets
is presented separately from continuing operations. A discontinued operation is a component of operations that represents a
separate major line of business or geographic area of operations that has been disposed of or is held-for-sale, or is a subsidiary
acquired exclusively with a view to resale.
g) Property, Plant and Equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and mainly comprise head office and
regional offices leasehold improvements, corporate and information technology systems, and are presented within other non-
current assets on the consolidated balance sheets. These items are amortized on a straight-line basis over their estimated useful
lives ranging from three to five years or, in the case of leasehold improvements, are amortized over the shorter of the lease
term and their estimated useful lives ranging from 10 to 15 years.
h) Tenant Inducements
Incentives such as cash, rent-free periods and move-in allowances may be provided to lessees to enter into a lease. These
incentives are capitalized and amortized on a straight-line basis over the term of the lease as a reduction of rental revenue.
The carrying amounts of the tenant inducements are included in the fair value of investment properties.
i) Prepaid CMHC Premiums
Fees and insurance premiums paid to Canada Mortgage and Housing Corporation (“CMHC”) are presented within other
non-current assets. They are amortized over the amortization period of the underlying mortgage loans when incurred
(initial amortization period is typically 25 to 35 years) and are included in interest and other financing costs in the
consolidated statements of income and comprehensive income.
j) Financial Instruments
Determination of Fair Value
Financial assets and financial liabilities
Under IFRS 9, Financial Instruments (“IFRS 9”), financial assets and financial liabilities are initially recognized at fair value
and are subsequently accounted for based on the purpose for which the financial instruments were acquired or issued, their
characteristics and CAPREIT’s designation of such instruments. The standards require that all financial assets and financial
liabilities be classified as fair value through profit or loss (“FVTPL”), amortized cost, or fair value through other comprehensive
income (“FVOCI”). Amortized cost is determined using the effective interest method.
80
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements Classification of financial instruments
The following summarizes the type and measurement CAPREIT has applied to each of its significant categories of financial
instruments:
Type
Financial assets
Cash and cash equivalents
Restricted cash
Other receivables
Investments
Derivative financial assets
Financial liabilities
Mortgages payable
Bank indebtedness
Accounts payable and accrued liabilities and other liabilities
Security deposits
Exchangeable Units
ERES units held by non-controlling interest
Derivative financial liabilities
Measurement Base
Amortized cost
Amortized cost
Amortized cost
Fair value through profit or loss
Fair value through profit or loss(1)
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value through profit or loss
Fair value through profit or loss(1)
(1) CAPREIT has previously designated some of its interest rate swap agreements and forward interest rate contracts as cash flow hedges. For CAPREIT’s accounting
policy on hedging, see k) Hedging Relationships below. Derivatives not designated as a hedging relationship are measured at fair value with changes recognized
directly through the consolidated statements of income and comprehensive income within net income.
Cash and cash equivalents and restricted cash
Cash and cash equivalents include cash and short-term investments with an original maturity of three months or less.
Restricted cash does not meet the definition of cash and cash equivalents and is included in other current assets on the
consolidated balance sheets. Interest earned or accrued on these financial assets is included in other income.
Other receivables
Such receivables arise when CAPREIT provides services to a third party, such as a tenant, and are included in current assets, except
for those with maturities more than 12 months after the consolidated balance sheet date, which are classified as non-current
assets. Other receivables are included in other assets on the consolidated balance sheets and are accounted for at amortized cost.
Investments
Financial instruments in this category are recognized initially and subsequently at fair value. Gains and losses arising from
changes in fair value are presented within net income in the consolidated statements of income and comprehensive income in
the period in which they arise. Financial assets at FVTPL are classified as current, except for the portion expected to be realized
or paid more than 12 months after the consolidated balance sheet date, which is classified as non-current.
Financial liabilities
Such financial liabilities are recorded initially at fair value and subsequently at amortized cost and include all liabilities other
than derivatives or liabilities, which are accounted for at fair value.
Transaction costs
Transaction costs related to financial assets classified as FVTPL are expensed as incurred. Transaction costs related to financial
assets and financial liabilities, measured at amortized cost, are netted against the carrying value of the asset or liability and
amortized over the expected life of the instrument using the effective interest rate method.
Derivatives
Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and
subsequently remeasured at fair value. The method of recognizing the resulting gain or loss depends on whether the derivative
financial instrument is designated as a hedging instrument and, if so, the nature of the item being hedged. For CAPREIT’s
accounting policy on hedging, see k) Hedging Relationships below.
Derivatives not designated as a hedging relationship are measured at fair value with changes recognized directly through the
consolidated statements of income and comprehensive income within net income.
81
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements k) Hedging Relationships
CAPREIT has previously designated some of its interest rate swap agreements and forward interest rate contracts as cash
flow hedges. At the inception of a transaction, CAPREIT documents the relationship between hedging instruments and
hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. CAPREIT
also documents, both at hedge inception and on an ongoing basis, its assessment of whether the derivatives used in hedging
transactions are highly effective in offsetting changes in cash flows of hedged items. The effective portion of changes in the fair
value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive (loss) income.
The gain or loss relating to the ineffective portion is recognized immediately in the consolidated statements of income and
comprehensive income under net income. Should a hedging relationship become ineffective and/or hedge accounting become
no longer appropriate, previously unrealized gains and losses remain within AOCL and are amortized to the relevant item in
the consolidated statements of income and comprehensive income in the same periods during which the hedged items affect
earnings, while future changes in the fair value of the hedging derivatives are recognized within net income in the consolidated
statements of income and comprehensive income.
l) Mortgages Payable and Bank Indebtedness
Mortgages payable are recognized at amortized cost using the effective interest rate method. Under the effective interest rate
method, any transaction fees, costs and discounts directly related to the mortgage are recognized within interest and other
financing costs in the consolidated statements of income and comprehensive income over the expected term of the mortgage.
Mortgage maturities and repayments due more than 12 months after the consolidated balance sheet date are classified as
non-current. Bank indebtedness is recognized at amortized cost and the amortization of related financing costs is recognized
within interest and other financing costs in the consolidated statements of income and comprehensive income over the
contractual term of the debt.
m) Exchangeable Units
Issued and outstanding Class B LP Units of CAPLP are exchangeable on demand for Trust Units (“Exchangeable Units”).
As the Trust Units are redeemable at the holder’s option, the Exchangeable Units are classified as current liabilities. The
distributions on the Exchangeable Units are recognized in the consolidated statements of income and comprehensive income
as interest expense under IFRS and the interest payable at the reporting date is reported under other current liabilities on the
consolidated balance sheets. These Exchangeable Units are remeasured at each reporting date at their amortized cost, which
approximates fair value, as they are considered to be puttable instruments under IAS 32, Financial Instruments: Presentation
(“IAS 32”), with changes in the carrying amount recognized as fair value adjustments of Exchangeable Units within net
income in the consolidated statements of income and comprehensive income. No Exchangeable Units were outstanding as of
December 31, 2019.
n) Comprehensive Income
Comprehensive income includes net income and other comprehensive (loss) income. Other comprehensive (loss) income
includes foreign currency translation relating to foreign operations and the effective portion of cash flow hedges, less any
amounts reclassified to interest and other financing costs and associated income taxes.
o) Accumulated Other Comprehensive Income (Loss) (“AOCL”)
AOCL is included on the consolidated balance sheets as Unitholders’ Equity and includes foreign currency translation relating
to foreign operations and the unrealized gains and losses of changes in the fair value of cash flow hedges, and derivatives.
The components of AOCL are disclosed in note 21.
p) Revenue Recognition
Under IFRS 15, Revenue from Contracts with Customers (“IFRS 15”), revenue is recognized using a uniform, five-step model.
The five steps are as follows:
Identify the contract(s) with the customer
Identify the performance obligations
1.
2.
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations
5. Recognize revenue as the performance obligations are satisfied
82
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements External asset and property management fees are considered non-lease components and are within the scope of IFRS 15. They
are recognized when services under the agreement are performed, and spread over the course of the year, as management
services represent a series of services that are substantially the same and have the same pattern of transfer.
Common area maintenance recoveries are considered non-lease components and are within the scope of IFRS 15. They are
recognized over time, as they represent a series of services that are substantially the same and have the same pattern of transfer
to commercial tenants.
Revenue from investment properties is within the scope of IFRS 16, Leases (“IFRS 16”), and is recognized using the straight-
line method, whereby the total amount of revenue from investment properties to be received from all leases is accounted for
on a straight-line basis over the term of the related leases. The difference between the revenue from investment properties
recognized and the amounts contractually due under the lease agreements is accrued as rent receivable, which is included as a
component of other current assets on the consolidated balance sheets.
q) Borrowing Costs and Interest on Mortgages Payable
Interest and other financing costs include mortgage interest, which is expensed at the effective interest rate, and transaction
costs incurred in connection with the revolving credit facilities, which are capitalized and presented as other non-current
assets and amortized over the term of the facility to which they relate.
r) Unit-based Compensation and Incentive Plans
Unit-based compensation benefits are provided to officers, trustees and certain employees and are intended to facilitate
long-term ownership of Trust Units and provide additional incentives by increasing the participants’ interest, as owners, in
CAPREIT. Unit-based compensation liabilities are classified as current, except for the portion expected to be realized or paid
beyond 12 months of the consolidated balance sheet date, including amounts where CAPREIT has the unconditional right to
defer settlement of vested awards.
CAPREIT accounts for its Unit-based compensation plans using the fair value-based method, under which compensation
expense is recognized over the vesting period. The key drivers of the recognition and measurement of compensation expense
are summarized as follows:
Incentive Plan(1)
LTIP
SELTIP
DUP
RUR Plan
UOP
ERES UOP
Type
Issued Units
Issued Units
Rights
Rights
Options
Options
Vesting Period
Type of Amortization
Distributions Applied to
Mark-to-Market until
2 years(2)
2 years(2)
Grant date
3 years(3)
Reporting period(4)
3 years(5)
Graded
Graded
Immediate
Straight-line
Straight-line
Graded
Secured loan
Secured loan
Additional Units
Additional Units
N/A
N/A
Loan repaid
Loan repaid
Settled
Settled
Exercised
Exercised
(1) For definitions of these plans, refer to notes 13 and 14.
(2) Vesting one-third on grant date and one-third on each of the subsequent two grant anniversary dates.
(3) Vesting fully on the third grant anniversary date.
(4) Vesting of the options is subject to satisfaction of performance criteria over the annual reporting period.
(5) Vesting one-third on each grant anniversary date.
s) Consolidated Statements of Cash Flows
Cash and cash equivalents consist of cash on hand, balances with banks and investments in money market instruments with
an original term to maturity of 90 days or less at acquisition. Investing and financing activities that do not require the use of
cash or cash equivalents are excluded from the consolidated statements of cash flows and are disclosed separately in the notes
to the consolidated annual financial statements.
IFRS permits the classification of interest paid as operating cash flows because they enter into the determination of profit or
loss, or alternatively as financing cash flows because they are costs of obtaining financial resources. CAPREIT has applied its
judgment and concluded that debt financing, which is used to provide leveraged returns to its Unitholders, is an integral part
of its capital structure and not directly associated with its principal revenue-producing activities. Therefore, interest paid is
classified as a financing activity in CAPREIT’s consolidated statements of cash flows.
83
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements Income Taxes
t)
CAPREIT is taxed as a Mutual Fund Trust for income tax purposes and intends, at the discretion of the Board of Trustees, to
distribute its income for income tax purposes each year to Unitholders to such an extent that it would not be liable for income
tax under Part I of the Income Tax Act (Canada) (“Tax Act”). Accordingly, no provision for current income taxes payable is
required, with the exception of income earned by subsidiaries that reside in foreign jurisdictions, as discussed below. For a
comprehensive discussion of CAPREIT’s liability for tax purposes, see note 20.
CAPREIT and its wholly-owned subsidiaries satisfied certain conditions available to Real Estate Investment Trusts (“REITs”)
(the “REIT Exception”) under amendments to the Tax Act intended to permit a corporate income tax rate of nil as long as the
specified conditions continue to be met.
CAPREIT has foreign subsidiaries in a number of countries with varying statutory rates of taxation. Judgment is required in
the estimation of income taxes and deferred income tax assets and liabilities in each of CAPREIT’s operating jurisdictions.
Income taxes may be paid where activities carried on by the foreign subsidiaries are considered to be taxable in those countries.
Deferred income tax relating to foreign subsidiaries is recognized, using the asset and liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.
Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the consolidated
balance sheet date, and are expected to apply when the related deferred income tax asset is realized or the deferred income tax
liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will
be available against which the temporary differences can be utilized. The carrying amount of a deferred tax asset is reduced to
the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that
deferred tax asset to be utilized. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable
profit will be available.
u) Earnings per Unit
As a result of the redemption feature of CAPREIT’s Trust Units, these Units are considered financial liabilities under IAS 33,
Earnings per Share, and they may not be considered as equity for the purposes of calculating net income on a per Unit basis.
Consequently, CAPREIT has elected not to report an Earnings per Unit calculation, as permitted under IFRS.
v) Foreign Currency Translation
The consolidated financial statements are presented in Canadian dollars, which is the functional currency of CAPREIT and
the presentation currency for the consolidated financial statements.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions. At the end of each reporting period, foreign currency denominated monetary assets and liabilities are
translated into the functional currency using the prevailing rate of exchange at the consolidated balance sheet date. Foreign
exchange gains and losses resulting from the settlement of such transactions, and from the translation at period end exchange
rates of monetary assets and liabilities denominated in foreign currencies, are recognized in the consolidated statements of
income and comprehensive income. Non-monetary items that are measured at their historical cost in a foreign currency are
translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a
foreign currency are translated using the exchange rates at the date when the fair value is determined. Foreign exchange gains
and losses are presented in the consolidated statements of income and comprehensive income.
In determining the functional currency of CAPREIT’s foreign subsidiaries, CAPREIT considers factors such as (i) the currency
that mainly influences sale prices for goods and services and the country whose competitive forces and regulations mainly
determine the sale prices of those goods and services and (ii) the currency that mainly influences labour, material and other
costs of providing goods and services. The functional currency for CAPREIT’s Irish and Dutch subsidiaries is the Euro.
The results and financial position of all the subsidiaries that have a functional currency different from the presentation
currency are translated into the presentation currency as follows:
i. Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet;
ii.
iii. All resulting exchange differences are recognized in other comprehensive income.
Income and expenses for each statement of income and comprehensive income are translated at average exchange rates; and
84
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of
borrowings and other currency instruments designated as hedges of such investments, are recorded in other comprehensive
(loss) income. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are
recognized in the consolidated statements of income and comprehensive income.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of
assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the
spot rate of exchange at the reporting date.
w) ERES Units
ERES units are redeemable at the option of the holder and therefore are considered puttable instruments that meet the
definition of a financial liability under IAS 32. Although IAS 32 allows ERES to classify these units as equity in its own balance
sheet, this exception is not available to CAPREIT, and therefore the non-controlling interest that these ERES units represent is
classified as a liability in the consolidated balance sheet and is measured at fair value, with changes in the fair value recorded as
fair value adjustment on non-controlling interest in the consolidated statement of income and comprehensive income.
x) IFRIC 21, Levies
This is an interpretation of IAS 37, Provisions, Contingent Liabilities and Contingent Assets. IAS 37 sets out criteria for the
recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event
(known as an obligating event). The interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is
the activity described in the relevant legislation that triggers the payment of the levy.
y) Goodwill
Goodwill is not amortized but tested for impairment annually, or more frequently if there are indicators of impairment.
Goodwill is allocated to the group of cash-generating units (“CGU”) that are expected to benefit from the synergies of the
combination, at the lowest level at which goodwill is monitored for internal management purposes, and not larger than an
operating segment (a goodwill CGU). CAPREIT evaluates whether goodwill may be impaired by determining whether the
recoverable amount is less than the carrying amount for the goodwill CGU. Impairment losses relating to goodwill cannot be
reversed in future periods.
z) Reportable Operating Segments
Reportable operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. The chief operating decision-maker is the person or group that allocates resources to and assesses the
performance of the operating segments of an entity. CAPREIT has determined that its chief operating decision-maker is the
President and Chief Executive Officer.
aa) Impact of Accounting Standards Effective January 1, 2019 on CAPREIT’s Current Year Consolidated
Financial Statements
IFRS 16, Leases
This new standard on leases supersedes IAS 17, Leases (“IAS 17”), and related interpretations. IFRS 16 sets out the principles
for the recognition, measurement, presentation and disclosure of leases for both parties to a contract: i.e., the customer
(“lessee”) and the supplier (“lessor”). From a lessee perspective, IFRS 16 eliminates the classification of leases as either
operating leases or finance leases as required by IAS 17 and, instead, introduces a single lessee accounting model.
CAPREIT has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has
not been restated and continues to be reported under IAS 17 and IFRIC 4, Determining Whether an Arrangement Contains
a Lease, as permitted under the specific transitional provisions in the standard. Any adjustments resulting from the new
standard have been recognized in the opening balance sheet on January 1, 2019.
From a lessor point of view, there was no material impact upon adoption.
From a lessee point of view, leases impacted by the adoption of IFRS 16 encompass CAPREIT’s four land lease parcels in
Alberta and British Columbia, an air rights lease and leased office space. Prior to January 1, 2019, these leases were classified
as operating leases with payments expensed as operating expense in the statement of income and comprehensive income
85
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements over the period of the lease. From January 1, 2019, these leases are recorded as a right-of-use asset with a corresponding lease
liability derived by discounting the future payments of each lease by the rate implicit in the lease, where determinable, or
the incremental borrowing rate specific to the lease. These right-of-use assets related to land and air rights leases meet the
definition of investment property under IAS 40; therefore, the fair value model is applied to those assets. Interest expense on
the lease liability and fair value gain (loss) on the right-of-use asset is recorded through CAPREIT’s consolidated statements of
income and comprehensive income. CAPREIT elected to apply the recognition exemptions relating to leases that end within
12 months of the commencement date and which have no renewal or purchase option, and leases for which the underlying
asset is of low value.
These land and air rights lease payments are calculated based upon a specified minimum payment, and at several intervals
throughout the lease, are recalculated based upon land values on a specified date. CAPREIT measures lease liabilities at the
present value of lease payments to be made over the lease term. The lease liability is determined based on future fixed and
in-substance fixed payments, and excludes any variable payments. Variable payments are calculated as a percentage of
revenues, net operating income, etc. and are recognized as an expense in the period in which the event or condition that
triggers the payment occurs.
Right-of-use assets not meeting the definition of investment property are measured at cost less any accumulated amortization.
For other leases of low value assets or short-term leases less than 12 months, CAPREIT has elected to apply the recognition
exemptions specified in IFRS 16 allowing CAPREIT to continue to expense the lease payments in the period in which they
are incurred.
On adoption of IFRS 16, CAPREIT recognized lease liabilities in relation to leases which had previously been classified as
‘operating leases’ under the principles of IAS 17. These leases include CAPREIT’s land and air rights leases and leased office
spaces. These liabilities were measured at the present value of the remaining lease payments, discounted using the incremental
borrowing rate relating to each specific lease. The weighted average rate as of January 1, 2019 was 5.4%.
The right-of-use assets for property leases were initially measured at cost, which is equal to the initial lease liability recorded.
The recognized right-of-use assets relate to the following types of assets:
Right-of-use Assets
Land and Air Leasehold Interests (included under Investment Property)
Office Leases (included under Other Assets)
Total right-of-use assets
The total lease liabilities that have been recorded on the balance sheet are as follows:
Lease Liabilities
Land and Air Leasehold Interest Liabilities
Office Lease Liabilities
Total lease liabilities
January 1, 2019
29,843
2,503
32,346
January 1, 2019
29,843
2,503
32,346
$
$
$
$
Practical expedients applied
In applying IFRS 16 for the first time, CAPREIT has used the following practical expedient permitted by the standard:
•
•
•
relied on its assessment of whether leases are onerous immediately before the date of initial application;
excluded initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
applied recognition exemptions to leases with lease terms that end within 12 months at the date of initial application and
with no renewal options, and leases for which the underlying asset is of low value.
ab) Future Accounting Changes
As at February 26, 2020, the following new or amended IFRS have been issued by the International Accounting Standards
Board (“IASB”) and are expected to apply to CAPREIT for annual reporting periods beginning after December 31, 2019:
86
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements IFRS 3
In October 2018, the IASB published an amendment to the requirements of IFRS 3 in relation to whether a transaction
meets the definition of a business combination. The amendment clarifies the definition of a business and provides additional
illustrative examples, including those relevant to the real estate industry. A significant change in the amendment is the option
for an entity to assess whether substantially all of the fair value of the gross assets acquired is concentrated in a single asset
or group of similar assets. If such a concentration exists, the transaction is not viewed as an acquisition of a business and no
further assessment of the business combination guidance is required. This will be relevant where the value of the acquired
entity is concentrated in one property, or a group of similar properties. The amendment is effective for periods beginning
on or after January 1, 2020 with earlier application permitted. There will be no impact on transition as the amendments are
effective for business combinations for which the acquisition date is on or after the transition date.
3. Critical Accounting Estimates, Assumptions and Judgments
The preparation of consolidated annual financial statements in accordance with IFRS requires the use of estimates,
assumptions and judgments that in some cases relate to matters that are inherently uncertain, and which affect the amounts
reported in the consolidated annual financial statements and accompanying notes. Areas of such estimation include, but are
not limited to: valuation of investment properties, remeasurement at fair value of financial instruments, valuation of accounts
receivable, capitalization of costs, accounting accruals, the amortization of certain assets, accounting for deferred income
taxes and determining whether an acquisition is a business combination or an asset acquisition. Changes to estimates and
assumptions may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated annual financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates under different assumptions and conditions.
The estimates deemed to be more significant, due to subjectivity and the potential risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year, are discussed below.
i) Valuation of Investment Properties
Investment properties are measured at fair value as at the consolidated balance sheet dates. Any changes in fair value are
included within net income in the consolidated statements of income and comprehensive income. Fair value is determined
using independent external valuations prepared by management’s specialists or detailed internal valuations prepared by
management using market-based assumptions, each in accordance with recognized valuation techniques. The techniques
used comprise both the Direct Income Capitalization (“DC”) and the Discounted Cash Flow (“DCF”) methods, and include
estimating, among other things (all considered Level 3 inputs), future stabilized net operating income, capitalization rates,
reversionary capitalization rates, discount rates and other future cash flows applicable to investment properties. Fair values for
investment properties are classified as Level 3 in the fair value hierarchy, as disclosed in note 17.
The fair value of investment properties is established annually by qualified, independent appraisers. Each quarter, CAPREIT
utilizes market assumptions for rent increases, capitalization rates and discount rates provided by external appraisal firms to
determine the fair value of the investment properties for interim reporting purposes. Capitalization rates employed by the
appraisal firms are based on recently closed transactions, generally within the last three months, and other current market
indicators for similar properties.
CAPREIT’s internal valuations prepared by management and the independent external valuations prepared by management’s
specialists are both subject to significant judgments, estimates and assumptions about market conditions in effect as at the
consolidated balance sheet date. See note 6 for a detailed discussion of valuation methods and the significant assumptions and
estimates used.
ii) Valuation of Financial Instruments
The fair value of derivative assets and liabilities is based on assumptions that involve significant estimates. The basis of
valuation for CAPREIT’s derivatives is set out in note 17. The fair values of derivatives reported may differ materially from the
amounts they are ultimately settled for if there is volatility between the valuation date and settlement date.
87
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements iii) Investment in Irish Residential Properties REIT plc (“IRES”)
CAPREIT has determined that its investment in IRES should be accounted for using the equity method of accounting,
given the significant influence it has over IRES. In making the determination that CAPREIT does not control IRES,
CAPREIT used judgment when considering the extent of its ownership interest in IRES, the level of its involvement,
responsibilities and remuneration as IRES’ investment manager, and the control exerted over IRES by its independent board
of directors. Management reassesses this conclusion when its ownership interest or the terms of the investment management
agreement change.
iv) Business Combination
Accounting for business combinations under IFRS 3 applies when it is determined that a business has been acquired. IFRS 3
defines a business as an integrated set of activities and assets that is capable of being conducted and managed for the purpose
of providing a return in the form of dividends, lower costs or other economic benefits directly to investors.
A business generally consists of inputs, processes applied to those inputs, and resulting outputs that are, or will be, used to
generate revenues. In the absence of such criteria, a group of assets is deemed to have been acquired. If goodwill is present
in a transferred set of activities and assets, the transferred set is presumed to be a business. CAPREIT applies judgment in
determining whether property acquisitions qualify as a business combination in accordance with IFRS 3 or as an asset acquisition.
When determining whether the acquisition of an investment property or a portfolio of investment properties is a business
combination or an asset acquisition, CAPREIT applies judgment when considering the following:
1. whether the investment property or properties are capable of producing outputs;
2. whether the market participant could produce outputs if missing elements exist;
3. whether employees were assumed in the acquisition; and
4. whether an operating platform has been acquired.
When CAPREIT acquires properties or a portfolio of properties and does not take on or assume employees or does not
acquire an operating platform, it classifies the acquisition as an asset acquisition.
When CAPREIT determines the acquisition is a business combination, CAPREIT considers the following when determining
the acquirer for accounting purposes:
1. whether the former owners of the entity being acquired own the majority of the units, and control the majority of votes,
in the combined entity; and
2. whether management of the combined entity is drawn predominantly from the entity whose units are acquired.
Refer to notes 1 and 4 for further information on the acquisition of ERES and factors considered when determining whether
CAPREIT controls ERES. It was determined that CAPREIT controls ERES and, therefore, the financial position and results
of operations of ERES are consolidated with CAPREIT in its consolidated financial statements. The Acquisition has been
accounted for as a business combination under IFRS.
v) Valuation of Goodwill
The acquisition method of accounting is used for acquisitions meeting the definition of a business combination. The
consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition
date fair values of the assets transferred to the acquirer and the liabilities incurred by the acquirer. Goodwill arising on
acquisition is recognized as an asset and is initially measured at cost as the excess of the total consideration transferred
over the net fair value of the identifiable assets acquired and liabilities assumed. Goodwill is initially recognized at cost and
is subsequently measured at cost less any accumulated impairment losses. Refer to note 2(y) for details on the goodwill
impairment test.
4. Business Combinations and Recent Investment Property Acquisitions
Business Combinations
On March 29, 2019, Holding BV completed the Acquisition of ECREIT, and the ongoing entity adopted the name ERES.
Holding BV indirectly owned the beneficial interest in a portfolio of 2,091 residential suites in the Netherlands as of the time
88
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements of acquisition, through its Dutch subsidiaries. Pursuant to the Acquisition, CAPREIT, the sole shareholder of Holding BV,
exchanged all of its shares of Holding BV for Class B LP Units of ERES LP. The transaction resulted in CAPREIT owning
approximately 81.6 million Class B LP Units of ERES LP as at March 29, 2019, which are exchangeable on a one-to-one basis
to ERES units. As at March 29, 2019, upon exchange, CAPREIT holds an 82.8% ownership of ERES, with the remaining 17.2%
held by non-controlling interest. CAPREIT determined that ECREIT met the definition of a business and the Acquisition has
been accounted for as a business combination under IFRS, as Holding BV acquired existing property leases with tenants, a
third-party asset management agreement that was in place before the acquisition, key management personnel of ECREIT and
key strategic processes relevant to the operation of the investment properties.
In addition, CAPREIT determined that it met the definition of control as defined under IFRS 10, Consolidated Financial
Statements (“IFRS 10”), with respect to its investment in ERES. In making this determination it considered (i) its 82.8%
voting interest of ERES, (ii) its ability to appoint three out of the six current ERES Board members, and (iii) its ability to
appoint the CEO and CFO via the asset management agreement. As a result of the above, CAPREIT has power over ERES and
the ability to affect the amount of returns earned.
CAPREIT’s consolidation of ERES on March 29, 2019 was recorded as follows:
i)
ii)
The financial position and results of operations of ERES are consolidated with CAPREIT in its consolidated financial
statements.
The ERES units held by non-controlling interest are presented as a liability on CAPREIT’s statements since these
ERES units are redeemable at any time, in whole or in part, on demand by the external unitholders. These ERES units
represented 17.2% of issued and outstanding combined ERES units and Class B LP Units at that time.
This transaction represents a reverse takeover under IFRS 3, and Holding BV has been identified as the accounting acquirer.
Transaction costs of $8,527 were expensed and included as part of transaction expenses in the consolidated annual statements
of income and comprehensive income.
The provisional purchase price allocation in respect of consideration paid, the fair value of assets acquired and liabilities
assumed, and the goodwill at the acquisition date resulted in an excess of the total consideration transferred over the fair value
of net identifiable assets and liabilities acquired of $16,692. During the fourth quarter of 2019, the carrying amount of the
provisional goodwill was adjusted as a result of completing the initial accounting from the acquisition date. The impact was
a decrease to accounts payable and other liabilities of $1,059 and an increase in deferred tax liabilities of $174. The following
table summarizes the final purchase price allocation in respect of consideration paid, the fair value of assets acquired and
liabilities assumed, and the goodwill at the acquisition date.
Fair value of ERES units held by non-controlling interest
Distribution payable
Total consideration transferred
Recognized amounts of identifiable assets acquired and liabilities assumed
Units
16,969,764
Investment Properties
Cash and Cash Equivalents
Other Current Assets
Derivative financial assets
Mortgages Payable
Accounts Payable and Other Liabilities
Unit-based compensation financial liabilities
Current and Deferred Income Tax Liabilities
Derivative financial liabilities
Total Identifiable Assets and Liabilities
Goodwill
Total
$
67,878
8,485
76,363
135,533
9,069
2,141
659
(73,469)
(10,021)
(487)
(872)
(1,997)
60,556
15,807
76,363
89
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements The total consideration transferred for the Acquisition comprised 16,969,764 ERES units and a distribution payable of $8,485
to fund a one-time special distribution of $0.50 per unit to pre-existing unitholders of ECREIT.
The fair value of the ERES units was based on $4.00, which is the closing unit price of $4.50 on the closing date of the
Acquisition, adjusted for the special distribution of $0.50 per unit.
Refer to notes 2 and 10 for details on the presentation and measurement of the ERES units held by non-controlling interest.
For the year ended December 31, 2019, $9,087 of operating revenues and $17,710 of net income of ECREIT, the acquiree, are
included in the consolidated statements of income and comprehensive income. It is estimated that if the Acquisition had taken
place on January 1, 2019, the consolidated operating revenues and net income of CAPREIT for the year ended December 31,
2019 would have been approximately $780,717 and $1,196,560, respectively.
Recent Investment Property Acquisitions
CAPREIT completed the following investment property acquisitions since January 1, 2018, which have contributed to the
operating results effective from their respective acquisition dates:
The tables below summarize property acquisitions for the year ended December 31, 2019 and the property acquisitions and
dispositions for the year ended December 31, 2018. There were no property dispositions for the year ended December 31,
2019. The below tables do not include $14.7 million of CAPREIT’s operating lease buyouts.
Acquisitions Completed During the Year Ended December 31, 2019
Acquisition Date
February 26, 2019
March 14, 2019
April 15, 2019
May 27, 2019
May 28, 2019
June 7, 2019
June 20, 2019
July 31, 2019(7)
August 1, 2019
August 30, 2019
August 30, 2019
September 30, 2019
October 15, 2019
October 31, 2019
November 21, 2019
December 12, 2019
December 16, 2019
December 19, 2019
Suite or
Site
Count
511
1,104
191
181
3,898
72
98
506
942
553
42
315
64
294
121
79
222
48
Region(s)
The Netherlands
Various(4)
Langley, BC
Various(5)
Various(6)
Victoria, BC
Langley, BC
Toronto, Ontario
The Netherlands
London, Ontario
Charlottetown, PEI
The Netherlands
Summerside, PEI
The Netherlands
Montréal, QC
Calgary, AB
The Netherlands
New Westminster, BC
Total
Acquisition
Costs
Assumed
Mortgage
Funding
Subsequent
Acquisition
Financing
Interest
Rate(1)
Term to
Maturity
(years)(2)
$
153,424
$
66,866
70,000
11,317
204,955
26,558
39,045
63,790
246,602
70,301
7,430
95,076
11,844
98,295
33,990
19,578
152,362
13,475
–
–(3)
–
–(3)
74,345
–
–
–(3)
–
–(3)
–(3)
–
–(3)
–
–(3)
–(3)
–(8)
–(3)
$
89,586
–
44,222
–
–
18,368
22,839
–
143,367
–
–
77,639
–
58,220
–
–
–
–
0.97
–(3)
2.90
–(3)
3.38
2.44
2.92
–(3)
1.28
–(3)
–(3)
1.45
–(3)
1.55
–(3)
–(3)
–(8)
–(3)
4.00
–(3)
15.00
–(3)
2.39
10.00
15.00
–(3)
7.00
–(3)
–(3)
7.00
–(3)
7.00
–(3)
–(3)
–(8)
–(3)
Total
9,241
$
1,384,908
$
74,345
$
454,241
(1) Weighted average stated interest rate on mortgage funding.
(2) Weighted average term to maturity on mortgage funding.
(3) The acquisition was funded from CAPREIT’s Acquisition and Operating Facility.
(4) The acquisition comprised 13 properties consisting of 407 sites in Ontario, 615 sites in Alberta, and 82 sites in British Columbia.
(5) The acquisition comprised 3 properties consisting of 56 sites in Ontario and 125 sites in British Columbia.
(6) The acquisition comprised 24 properties consisting of 800 sites in Ontario, 1,050 sites in Alberta, 1,211 sites in New Brunswick, 128 sites in Nova Scotia, 280 sites in
Prince Edward Island, and 429 sites in Québec. The balance of the purchase was funded from CAPREIT’s Acquisition and Operating Facility.
(7) In 2015, CAPREIT entered into an agreement to acquire one-third undivided interest in the residential component of a property upon completion. On July 31, 2019,
CAPREIT acquired a 19.8% interest in the property, with an additional 5.3% interest acquired on each August 31, 2019 and September 30, 2019, and a final interest
of 3% acquired on October 31, 2019. As at December 31, 2019, CAPREIT’s interest stood at 33.3%.
(8) The acquisition was primarily funded from the ERES Credit Facility with the balance funded from CAPREIT’s Acquisition and Operating Facility.
90
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements For the Year Ended December 31, 2018
($ thousands)
April 24, 2018
April 30, 2018
August 7, 2018
August 15, 2018
September 27, 2018
November 13, 2018
December 3, 2018
December 5, 2018
December 5, 2018
Suite or
Site
Count
Region(s)
134
Swift Current, SK
$
2
90
3
269
11
881
376
25
Burlington, ON
Langley, BC
New Westminster, BC
Vancouver, BC
New Westminster, BC
The Netherlands
The Netherlands
New Westminster, BC
Total
Acquisition
Costs
5,744
2,404
34,310
2,536
103,169
3,373
253,410
93,396
6,368
$
Assumed
Mortgage
Funding
–(3) $
–(3)
21,088
–(3)
–(3)
–(3)
–
–
1,827
Subsequent
Acquisition
Financing
Interest
Rate(1)
Term to
Maturity
(Years)(2)
–
–
–
–
–
–
104,796(4)
46,456(5)
–
–(3)
–(3)
2.56
–(3)
–(3)
–(3)
1.98(4)
1.98(5)
2.49
–(3)
–(3)
8.83
–(3)
–(3)
–(3)
7.00(4)
7.00(5)
6.17
Total
1,791
$
504,710
$
22,915
$
151,252
(1) Weighted average stated interest rate on mortgage funding.
(2) Weighted average term to maturity on mortgage funding.
(3) The acquisition was funded from CAPREIT’s Acquisition and Operating Facility.
(4) The acquisition, consisting of 881 suites, was financed by a new non-amortizing mortgage of €67,554 ($104,796) with a term to maturity of 7.0 years with an
interest rate of 1.98% and the balance in cash from CAPREIT’s Acquisition and Operating Facility.
(5) The acquisition, consisting of 376 suites, was financed by a new non-amortizing mortgage of €29,946 ($46,456) with a term to maturity of 7.0 years with an interest
rate of 1.98% and the balance in cash from CAPREIT’s Acquisition and Operating Facility.
The total purchase consideration, including mortgages payable and bank indebtedness, is allocated to investment properties
and other assets acquired based on the relative fair value of each at the time of purchase.
5. Dispositions
There were no property dispositions for the year ended December 31, 2019.
The table below summarizes the dispositions completed during the year ended December 31, 2018.
Dispositions Completed During the Year Ended December 31, 2018
Disposition Date
August 15, 2018
September 6, 2018
October 11, 2018
December 12, 2018
Total
Suite Count
Region(s)
Sale Price
Cash Proceeds
Saskatoon, SK
Vancouver, BC
Longueuil, QC
Québec City, QC
102
162
419
217
900
$
10,195
$
70,000
35,831
24,900
$
140,926
$
2,425
49,900
15,168
14,404
81,897
Mortgage
Discharged
7,476
19,948
20,564
10,224
58,212
$
$
For the years ended December 31, 2019 and 2018, a loss of $nil and $2,594, respectively, was recognized in connection with
property dispositions. The loss represents the difference between the net proceeds after transaction costs from the dispositions
and the fair value of the respective properties at the date of disposition.
6. Investment Properties
Valuation Basis
Investment properties are carried at fair value, which is the amount at which the individual properties could be sold between
willing parties in an arm’s-length transaction, based on current prices in an active market for similar properties in the same
location, considering the highest and best use of the asset, with any gain or loss arising from a change in fair value recognized
in the consolidated statements of income and comprehensive income for the period. Valuations do not take into account any
potential portfolio premium.
91
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements The fair values of all of CAPREIT’s investment properties are determined annually by qualified external appraisers. The
qualified external appraisers hold recognized relevant professional qualifications and have recent experience in the location
and category of the respective property. Each quarter, CAPREIT utilizes internal market assumptions for rent increases
and capitalization and discount rates provided by the independent appraisers to determine the fair value of the investment
properties. Capitalization rates used by the appraisers are based on recently closed transactions for similar properties. To the
extent that the stabilized forecasted cash flows of an investment property change significantly in a quarter, the fair value of the
investment property would be reassessed by the external appraisers and the fair value adjusted accordingly.
Fair values for investment properties are classified as Level 3 in the fair value hierarchy, as disclosed in note 17. On an annual basis,
CAPREIT verifies all major inputs (as detailed above) to the valuation and reviews the results with the external appraisers for all
independent valuations. On a quarterly basis, market assumptions on inputs such as rent increases, management fees, capitalization
and discount rates provided by the external appraisers are used in determining the fair value of the investment properties.
Discussion of the valuation process, the valuation methodology (as mentioned below), key inputs and results is held between
CAPREIT and the qualified external appraisers at least once every quarter, in line with CAPREIT’s quarterly reporting dates.
Changes in Level 3 fair values are analyzed at each reporting date as part of the quarterly valuation discussion between
CAPREIT and the qualified external appraisers. As part of this discussion, the external valuators present a report that explains
the reasons for the fair value movements.
To determine fair value, CAPREIT first considers whether it can use current prices in an active market for a similar property in
the same location and condition. CAPREIT has concluded there is insufficient market evidence on which to base investment
property valuation using this approach, and has therefore determined to use either the DC or the DCF methods to arrive
at the fair value of the investment properties. Investment properties have been valued using the following methods and key
assumptions:
a) Fee Simple and MHC Land Lease Sites
For its Canadian portfolio, CAPREIT utilizes the DC method. Under this method, capitalization rates are applied to a
stabilized net operating income (“NOI”) representing market-based NOI assumptions (property revenue less property
operating expenses adjusted for market-based assumptions such as long-term vacancy rates, management fees, R&M costs,
and general and administration costs). The most significant assumption is the capitalization rate for each specific property.
The capitalization rate is based on the actual location, size and quality of the property, taking into account any available
market data at the valuation date. Generally, an increase in stabilized NOI will result in an increase to the fair value of an
investment property. An increase in the capitalization rate will result in a decrease to the fair value of an investment property.
The capitalization rate magnifies the effect of a change in stabilized NOI, with a lower capitalization rate causing more change
in fair value than would a higher capitalization rate.
For its European portfolio, CAPREIT utilizes the DCF method. Under this method, discount rates are applied to the forecasted
cash flows reflecting market-based NOI assumptions as described above. The most significant assumptions are the stabilized
cash flows, the discount rate applied over the term of the cash flows, and the capitalization rate used to determine the terminal
value of the investment properties. Generally, an increase in forecasted cash flows will result in an increase to the fair value of
an investment property. The discount rate is generally the weighted average cost of capital that is appropriate to the cash flow
risk for the investment property. An increase in the discount rate will result in a decrease to the fair value of an investment
property. The terminal capitalization rate is generally determined with reference to recent transactions for similar investment
properties. An increase in the terminal capitalization rate will result in a decrease to the fair value of an investment property.
b) Operating Leasehold Interests
CAPREIT utilizes the DCF method. Under this method, discount rates are applied to the forecasted cash flows reflecting
market-based leasing assumptions for that specific property as well as assumptions about renewal and new leasing activity.
The most significant assumption is the discount rate applied over the initial term of the lease. The discount rate is generally
the weighted average cost of capital that is appropriate to the cash flow risk for the investment property. In the case of one
property, the forecasted cash flows are adjusted for contractual air rights payments and the discount rate is adjusted for
uncertainty regarding the renegotiation of the air rights lease at the end of the term. Generally, an increase in forecasted cash
flows will result in an increase to the fair value of an investment property. An increase in the discount rate will result in a
decrease to the fair value of an investment property.
92
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements c) Options to Purchase the Related Operating Leasehold Interests
CAPREIT utilizes the DC method at the reversion date (earlier of option exercise date and early buyout date) to estimate the
future value, which is then discounted to a present value. Under this method, the stabilized income is adjusted to a projected
NOI as at the end of the operating lease term and the capitalization rate is adjusted to a “reversionary capitalization rate”
reflecting the incremental risk associated with future uncertainty. The value of the option is then determined based on the
difference between the estimated fair value of the property at such date and the option buyout price, discounted back to its
present value using a risk-adjusted discount rate (the “option discount rate”).
d) Land Leasehold Interests
Four of the investment properties have ground leases with various expiry dates (subject to revisions at periodic intervals)
between March 31, 2045 and March 31, 2070. One land lease matures in 2045, two mature in 2068 and another matures in
2070. Generally, each lease provides for annual rent and additional rent calculated from the results of property operations.
CAPREIT utilizes the DCF method for properties that are subject to land or air rights leases. Under this method, discount
rates are applied to the forecasted cash flows reflecting market-based leasing assumptions for that specific property as well
as assumptions about renewal and new leasing activity. The most significant assumption is the discount rate applied over
the term of the lease. Forecasted cash flows are reduced for contractual land lease payments and the discount rates reflect
uncertainty regarding the renegotiation of land lease payments during and at the end of the term of the leases.
A summary of the market assumptions and ranges for each type of property interest, along with their fair values, are presented
below as at December 31, 2019 and December 31, 2018:
As at December 31, 2019
Type of Interest
Fee simple interests(7)
MHC sites
Operating leasehold interests(2), (3), (4)
Land leasehold interests(2)
Total Investment Properties
excluding right-of-use assets
Add: Right-of-use assets, net of fair
value change(6)
Total Investment Properties
As at December 31, 2018
Type of Interest
Fee simple interests(7)
MHC sites
Operating leasehold interests(2), (3), (4)
Land leasehold interests(2)
Total Investment Properties
WA NOI/
Cash Flow(1) Rate Type
3,579
1,872
4,637
3,547
Capitalization rate
Capitalization rate
Discount rate(5)
Discount rate(5)
Max
7.00%
9.57%
6.00%
8.00%
Min
2.15%
5.00%
5.50%
6.50%
Weighted
Average
3.99%
6.30%
5.58%
7.27%
Fair Value
$ 11,332,684
$
601,820
962,879
161,920
$ 13,059,303
37,123
$ 13,096,426
Fair Value
$ 9,078,457
$
341,890
873,067
180,130
$ 10,473,544
WA NOI/
Cash Flow(1) Rate Type
3,236
2,629
4,133
3,623
Capitalization rate
Capitalization rate
Discount rate(5)
Discount rate
Max
7.19%
7.31%
6.00%
7.00%
Min
2.91%
5.11%
5.50%
6.50%
Weighted
Average
4.10%
6.11%
5.57%
6.81%
(1) Weighted average (“WA”) net operating income (“NOI”) or cash flow by property fair value.
(2) The fair values of operating leasehold interests subject to a contractual air rights lease and land leasehold interests subject to land leases reflect the estimated air
rights or land lease payments over the term of the leases.
(3) The fair values of operating leasehold interests include the fair values of the options to purchase the related freehold interests of $470,169 as at December 31, 2019
(December 31, 2018 – $325,817). The increase is due to (i) $156,041 of fair value increase due to the two closed operating lease buyouts and nine operating lease
buyouts under discussion, (ii) $23.6 million of fair value gain on the remaining four operating leasehold interests, offset by (iii) $35.3 million of exercised options
transferred to fee simple upon conversion of the leasehold interest into fee simple.
(4) For the nine pending operating lease buyouts, it is assumed that the buyout will occur within 12 months from December 31, 2019. For the four remaining operating
leasehold interests, the contractual weighted average remaining lease term on operating leasehold interests is 16.4 years as at December 31, 2019 (December 31,
2018 – 14.8 years) based on the assumption that the early purchase option is not exercised. If the purchase option is exercised at the earliest allowable date, the
weighted average remaining lease term on the four remaining operating leasehold interests is 6.4 years as at December 31, 2019 (December 31, 2018 – 4.8 years).
(5) Represents the discount rate used to determine the fair value of operating leasehold interests using the Discounted Cash Flow (“DCF”) method. A weighted average
stabilized net operating income growth of 3.1% and 2.9% has been assumed as at December 31, 2019 and December 31, 2018, respectively.
(6) Under IFRS 16, effective January 1, 2019, land and air right leases previously expensed are now recognized as right-of-use assets and included in fair value of
investment properties. These right-of-use assets relate to operating leasehold and land leasehold interests as shown in the reconciliation below. Please refer to note 2
for further details.
(7) The fee simple interests include $1,962,949 (December 31, 2018 – $1,040,707) of CAPREIT’s European portfolio with an implied capitalization rate of 3.89%
(December 31, 2018 – 3.80%) which were valued using the DCF method at a weighted average discount rate of 5.81% and a terminal capitalization rate of 5.16%
(December 31, 2018 – 6.06% and 5.17%, respectively).
93
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements Reconciliation of Carrying Amounts of Investment Properties by Type
For the Year Ended December 31, 2019
Balance, beginning of the year
Impact of IFRS 16 adopted in 2019(3)
Restated balance, beginning of the year
Additions:
Properties acquired through business combinations(1)
Acquisitions
Property capital investments
Capitalized leasing costs(2)
Right-of-use assets(3)
Operating lease buyout(4)
Foreign currency translation
Transfer between investment property types(4)
Fair value adjustments
Fee Simple MHC
Land Lease Sites
Operating
Leasehold Interests
Land Leasehold
Interests
$
9,420,347
$
–
9,420,347
135,533
1,384,908
211,660
154
–
–
(78,910)
103,610
757,202
873,067
3,000
876,067
–
–
17,356
27
–
14,746
–
(103,610)
161,283
965,869
$
180,130
26,843
206,973
–
–
7,643
(154)
7,920
–
–
–
(26,329)
196,053
$
Total
$
10,473,544
29,843
10,503,387
135,533
1,384,908
236,659
27
7,920
14,746
(78,910)
–
892,156
$
13,096,426
Balance of Investment Properties, end of the year
$
11,934,504
$
(1) Represents the fair value of the properties acquired as part of the Acquisition. For details, please refer to note 4.
(2) Comprises tenant inducements, straight-line rent and direct leasing costs.
(3) Under IFRS 16, effective January 1, 2019, land and air right leases previously expensed are now recognized as right-of-use assets and included in fair value of
investment properties. These right-of-use assets relate to operating leasehold and land leasehold interests. Please refer to note 2 for further details.
(4) During the year CAPREIT purchased the freehold interest on two of its operating leasehold properties and converted the ownership into fee simple.
For the Year Ended December 31, 2018
Balance, beginning of the year
Additions:
Acquisitions
Property capital investments
Capitalized leasing costs(1)
Foreign currency translation
Dispositions
Realized loss on disposition on investment properties
Fair value adjustments
Fee Simple MHC
Land Lease Sites
Operating
Leasehold Interests
Land Leasehold
Interests
Total
$
7,961,816
$
738,990
$
185,750
$
8,886,556
504,710
176,404
216
35,324
(140,137)
(2,594)
884,608
–
16,909
50
–
–
–
–
4,797
780
–
–
–
117,118
873,067
(11,197)
180,130
$
504,710
198,110
1,046
35,324
(140,137)
(2,594)
990,529
$
10,473,544
Balance of Investment Properties, end of the year
$
9,420,347
$
(1) Comprises tenant inducements, straight-line rent and direct leasing costs.
94
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements
7. Other Assets
As at
Other non-current assets
Property, plant and equipment(1)
Accumulated amortization of property, plant and equipment
Net property, plant and equipment
Right-of-use asset, net of amortization(2)
Prepaid CMHC premiums, net(3)
Deferred loan costs, net(4)
Fair value through profit or loss investment
Investment in associate(6)
Derivative asset
Deferred tax asset
Goodwill(5)
Total
Other current assets
Prepaid expenses
Other receivables
Restricted cash
Deposits
Total
Note
December 31, 2019
December 31, 2018
18
20
4
$
$
$
$
51,306
(36,366)
14,940
1,777
79,767
1,320
41,177
224,812
3,984
1,810
15,848
385,435
8,032
13,973
8,959
27,796
58,760
$
$
$
$
46,151
(30,757)
15,394
–
74,695
1,182
34,655
181,449
–
–
–
307,375
6,702
9,887
8,141
10,901
35,631
(1) Consists of head office and regional offices’ leasehold improvements, corporate assets and information technology systems.
(2) Adoption of IFRS 16 for Office Leases; see note 2 for further details. Amortization during the year ended December 31, 2019 is $726.
(3) Represents prepaid CMHC premiums on mortgages payable net of accumulated amortization of $32,175 (December 31, 2018 – $27,395).
(4) Represents deferred loan costs related to the revolving credit facilities net of accumulated amortization of $11,690 (December 31, 2018 – $10,091).
(5) Goodwill arising from the acquisition of ECREIT on March 29, 2019, as discussed in note 4, was fully allocated to the Europe segment described in note 29 given
that it is expected to benefit from the synergies of that acquisition. As a result of finalizing the purchase price allocation relating to the business combination,
CAPREIT performed the annual goodwill impairment test for year end purposes as described in note 2. CAPREIT did not identify any goodwill impairment as a
result of the analysis.
(6) CAPREIT has determined that its investment in IRES should be accounted for using the equity method of accounting given the significant influence it has over
IRES. In making the determination that CAPREIT does not control IRES, CAPREIT used judgment when considering the extent of its ownership interest in IRES,
the level of its involvement, responsibilities and remuneration as IRES’ investment manager, and the control and influence exerted over IRES by its independent
Board of Directors and CEO. As at December 31, 2019, CAPREIT concluded that it continues to exert significant influence over IRES. CAPREIT will continue to
reassess this conclusion should its ownership interest or the terms of the asset management agreement change. Refer to note 26 for further details.
The table below discloses CAPREIT’s ownership in IRES and IRES’ share price:
As at
IRES Investment
Share ownership (%)
Number of IRES shares
IRES share price (€)
8. Other Liabilities
As at
Other non-current liabilities
Derivative liability
Total
Other current liabilities
Current tax liability(1)
Derivative liability
Mortgage interest payable
Current lease liability
Total
December 31, 2019
December 31, 2018
18.3%
95,510,000
1.59
18.0%
78,010,000
1.35
Note
December 31, 2019
December 31, 2018
18
20
18
2
$
$
$
$
3,361
3,361
17,646
3,734
12,011
1,121
34,512
$
$
$
$
926
926
–
–
9,875
–
9,875
(1) The current tax liability is primarily a result of reorganization of legal structures of the Netherlands subsidiaries in connection with the Acquisition.
95
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements 9. Accounts Payable and Accrued Liabilities
As at
Accounts payable
Accrued liabilities
Deferred revenue
Distributions payable to non-controlling interest
Other
Total
December 31, 2019
December 31, 2018
$
$
47,096
51,824
11,920
832
4,872
$
116,544
$
53,214
43,124
9,471
–
2,618
108,427
10. ERES Units Held by Non-Controlling Interest
The ERES units held by non-controlling interest are classified as equity on ERES’ balance sheets but are classified as a
liability on CAPREIT’s consolidated balance sheets. ERES units are redeemable at any time, in whole or in part, by the
unitholder. Upon receipt of the redemption notice by ERES, all rights to and under the units tendered for redemption shall be
surrendered, and the holder shall be entitled to receive a price per unit equal to the lesser of (i) 90% of the weighted average
market price of the ERES units on the principal exchange or market on which the ERES units are listed or quoted for trading
during the 10 consecutive trading days ending on the date (the “Redemption Date”) on which the units were surrendered for
redemption of ERES units; and (ii)100% of the closing market price on the principal exchange or market on which the ERES
units are listed or quoted for trading on the Redemption Date.
On September 24, 2019, ERES completed an offering of 40,185,000 ERES units for a price of $4.15 per unit for aggregate
proceeds of $166,768. The net proceeds after underwriters’ commission and other closing costs totalling $9,182 was $157,586.
CAPREIT purchased 4,820,000 ERES units amounting to $20,003.
On December 18, 2019, ERES completed an offering of 30,915,400 ERES units for a price of $4.65 per unit for aggregate
proceeds of $143,757. The net proceeds after underwriters’ commission and other closing costs totalling $5,591 was $138,166.
CAPREIT purchased 5,377,000 ERES units amounting to $25,003.
As at December 31, 2019, CAPREIT valued the ERES units held by non-controlling interest at $364,928 (2018 – $nil) and
classified the units as a liability on the consolidated balance sheets. Due to the change in the market value of the ERES units
and the distributions paid to non-controlling interest, CAPREIT recorded a loss on non-controlling interest for the year ended
December 31, 2019 of $47,058 in the consolidated statements of income and comprehensive income. The mark-to-market loss
arises from the increase in ERES’ unit price.
For the year ended
Mark-to-market loss on ERES units
Distributions to non-controlling interest
Loss on non-controlling interest
December 31, 2019
$
$
43,120
3,938
47,058
11. Mortgages Payable
As at December 31, 2019, mortgages payable bear interest at a weighted average effective rate of 2.84% (December 31, 2018 –
3.13%) and mature between 2020 and 2034. The effective interest rate as at December 31, 2019 includes 0.06% (December 31,
2018 – 0.08%) for the amortization of the realized component of the loss on settlement of derivative financial instruments of
$32,494 included in AOCL. As at December 31, 2019, 99.0% of CAPREIT’s mortgages payable are financed at fixed interest
rates. Investment properties at fair value of $12,155,617 have been pledged as security as at December 31, 2019. CAPREIT has
investment properties with a fair value of $940,809 as at December 31, 2019 that are not encumbered by mortgages and secure
only the Acquisition and Operating Facility. As at December 31, 2019, unamortized deferred financing costs of $12,788 and
unamortized fair value loss of $1,191 are netted against mortgages payable.
96
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements
Future principal repayments as at December 31, 2019 for the years indicated are as follows:
As at December 31, 2019
Principal Amount
% of Total Principal
2020
2021
2022
2023
2024
2025–2034
Deferred financing costs and fair value adjustments
Total Portfolio
$
436,447
473,085(1)
526,305
571,935
339,599
1,972,798
4,320,169
(11,597)
$
4,308,572
10.1
11.0
12.2
13.2
7.9
45.6
100.0
(1) Included in mortgages payable as at December 31, 2019 is a $65,000 fully drawn, non-amortizing credit facility on two of the MHC sites.
As at
Represented by:
Mortgages payable – non-current(1)
Mortgages payable – current
December 31, 2019
December 31, 2018
$
$
3,872,125
436,447
4,308,572
$
$
3,324,381
403,952
3,728,333
(1) Included in mortgages payable as at December 31, 2019 is a $65,000 fully drawn, non-amortizing credit facility on two of the MHC sites.
12. Bank Indebtedness
Effective November 15, 2019, CAPREIT amended its credit agreement to, among other things: (i) increase its Acquisition
and Operating Credit Facility by $100,000 to $740,000, (ii) increase its Acquisition and Operating Facility by $200,000 for
four months via a Bridge Facility maturing on March 15, 2020, as well as (iii) amend the tangible net worth requirement to
$2,400,000. The Bridge Facility cannot be drawn once repaid.
Effective June 28, 2019, CAPREIT amended its credit agreement to amend the “conversion date” to June 30, 2020 for when the
revolving facility converts to a two-year non-revolving term facility, and to remove the sublimit on the aggregate amount of
Euro LIBOR borrowings.
Effective November 26, 2018, CAPREIT amended its credit agreement to, among other things: (i) increase its Acquisition and
Operating Credit Facility by $100,000 to $640,000, (ii) amend the aggregate amount of Euro LIBOR borrowings at any time to a
maximum of €200,000, and (iii) amend the tangible net worth requirement to $2,100,000. CAPREIT also increased its Acquisition
and Operating Facility by $200,000 for three months via a Bridge Facility. The Bridge Facility cannot be drawn once repaid.
CAPREIT’s Credit Facilities include the $740,000 Acquisition and Operating Facility, which can be borrowed in USD, Euro or
CAD, and the existing $65,000 five-year non-revolving term credit facility (collectively, the “Credit Facilities”). The $65,000
five-year non-revolving term credit facility bears interest at the bankers’ acceptance rate plus 1.4% per annum (included in
mortgages payable). The Acquisition and Operating Facility matures on June 30, 2022 and the margins are renegotiated annually.
The interest rate on the Acquisition and Operating Facility is determined by interest rates on prime advances and bankers’
acceptances utilized during the year. The Credit Facilities are subject to compliance with the various provisions of the Credit
Facilities. The Credit Facilities are used to fund operations, acquisitions, capital improvements, letters of credit and other uses.
As part of the Acquisition, CAPREIT, indirectly through ERES, assumed a Canadian dollar denominated unsecured credit
agreement with a Canadian chartered bank, with a maximum principal amount of $3,000, bearing interest at a rate equal to the
bank’s prime rate plus 1.0% per annum or bankers’ acceptances plus 2.5% per annum. The facility expired on June 30, 2019.
On July 8, 2019, ERES entered into a new revolving credit facility (“ERES Credit Facility”) for up to $72,915 (€50,000) with
two Canadian chartered banks. The ERES Credit Facility will expire July 8, 2021.
97
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements On December 12, 2019, ERES entered into a one-year revolving Bridge Credit Facility (“ERES Bridge Facility”) for up to
$72,915 (€50,000) with the same two Canadian chartered banks. The ERES Bridge Facility will expire December 6, 2020. As of
December 31, 2019, no amounts were drawn on the ERES Bridge Facility.
As at December 31, 2019
Facility
Less: USD LIBOR borrowings
Euro LIBOR borrowings
Letters of credit
Available borrowing capacity
Weighted average interest rate including interest rate swaps(7)
As at December 31, 2018
Facility
Less: USD LIBOR borrowings
Euro LIBOR borrowings
Letters of credit
Available borrowing capacity
Weighted average interest rate including interest rate swaps(7)
Acquisition and
Operating Facility
ERES Credit Facility
$
740,000(1)
(579,821)(2), (6)
(6,846)(3)
(7,163)
$
146,170
1.08%
$
$
72,915(4)
(37,226)
–
–
35,689
3.57%
Acquisition and
Operating Facility
ERES Credit Facility
$
$
640,000(5)
(255,105)(2), (6)
(312,260)(3), (6)
(6,310)
66,325
1.45%
$
$
–
–
–
–
–
–%
(1) In addition to the above Facility, there is a $200,000 Bridge Facility in place. There were no amounts drawn on this Bridge Facility as of December 31, 2019. The
Bridge Facility will expire March 15, 2020.
(2) CAPREIT has USD LIBOR borrowings of USD $446,428 (2018 – USD $187,000) that bears interest at the USD LIBOR rate plus a margin of 1.65% per annum.
(3) CAPREIT has Euro LIBOR borrowings of €4,694 (2018 – €200,000) that bears interest at the Euro LIBOR rate plus a margin of 1.65% per annum, subject to a floor
of 0%.
(4) In addition to the above ERES Credit Facility, there is a $72,915 (€50,000) ERES Bridge Facility. No amounts are drawn on this Bridge Facility as of December 31,
2019. The Bridge Facility will expire December 6, 2020.
(5) The Facility, in addition, had a $200,000 Bridge Facility in place for three months. The drawn bridge amount could not be redrawn once repaid. The drawn bridge
amount was repaid in Q4 2018 and the bridge expired in February 2019. The Bridge Facility availability as of December 31, 2018 was $53,146.
(6) For details on cross-currency interest rate swaps, refer to note 18.
(7) Excluding the impact of interest rate swaps, the weighted average interest rate on the Acquisition and Operating Facility is 3.44% (December 31, 2018 – 2.69%).
13. Unit-based Compensation Financial Liabilities and Exchangeable Units
Units are issuable pursuant to CAPREIT’s Unit-based compensation plans, namely the Unit Option Plan (“UOP”), the
Employee Unit Purchase Plan (“EUPP”), the Deferred Unit Plan (“DUP”) and the Restricted Unit Rights Plan (“RUR Plan”),
each of which is more fully described in note 14. As at December 31, 2019, the maximum number of Units issuable under
all of CAPREIT’s Unit-based incentive plans is 9,500,000 Units (December 31, 2018 – 9,500,000). The maximum number
of Units available for future issuance under all Unit incentive plans as at December 31, 2019 is 729,783 Units (December 31,
2018 – 887,823 Units).
On April 4, 2014, the Long-Term Incentive Plan (“LTIP”), the Senior Executive Long-Term Incentive Plan (“SELTIP”) and
the Unit Purchase Plan (“UPP”) were terminated by the trustees of CAPREIT, although awards previously granted under the
LTIP and SELTIP remained outstanding under the original terms of such plans. As at December 31, 2019, no further awards
remained outstanding under the LTIP and SELTIP given that the remaining balance was settled in 2018.
During 2018, 1,263,962 unit options were exercised and an equivalent number of Trust Units were issued. As at December 31,
2019, no further unit options remained outstanding under the UOP.
Included within the Unit-based compensation financial liabilities are ERES unit options assumed as part of the Acquisition.
ERES unit options are issuable pursuant to ERES’ unit-based compensation plan (the “ERES UOP”). Under the terms of the
ERES UOP, ERES’ board of trustees may from time to time, in its discretion, grant options to purchase ERES units to trustees,
officers, employees and technical consultants of ERES and its affiliates. ERES unit options vest in one-third instalments
annually on the anniversary of the grant date and expire 10 years from the date the options were granted. The ERES unit
options can only purchase ERES units and cannot be converted to CAPREIT Units.
98
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements
The Units, Unit Rights and Unit Options issued or outstanding under CAPREIT’s incentive plans, the ERES UOP and
Exchangeable Units as at December 31, 2019 and 2018 are as follows:
Year Ended December 31, 2019
(Number of Units)
Units, Unit rights and Unit options outstanding as at January 1, 2019
Issued, cancelled or granted during the year
Assumed
Issued or granted
Exercised or settled
Cancelled or forfeited
Distributions reinvested
ERES UOP
–
1,143,014
3,220,000
(13,666)
(93,334)
–
Units, Unit rights and Unit options outstanding as at December 31, 2019
4,256,014
DUP
286,696
–
17,267
(159,080)
(1)
6,114
150,996
RUR
578,120
–
83,124
(130,353)
(3,952)
15,148
542,087
Total
CAPREIT(3)
864,816
100,391
(289,433)
(3,953)
21,262
693,083
Total
Year Ended December 31, 2018
(Number of Units)
Units, Unit rights and Unit options
outstanding as at January 1, 2018
Issued, cancelled or granted during
the year
Issued or granted
Exercised or settled
Cancelled or forfeited
Distributions reinvested
Units, Unit rights and Unit options
outstanding as at December 31, 2018
ERES UOP
UOP
DUP
RUR
SELTIP/LTIP(1)
Exch. Units(2)
CAPREIT(3)
–
–
–
–
–
–
1,263,962
260,159
521,980
1,025,398
130,655
3,202,154
–
(1,263,962)
–
–
–
23,903
(5,924)
–
8,558
111,146
(58,603)
(14,591)
18,188
286,696
578,120
–
–
135,049
(1,025,398)
(130,655)
(2,484,542)
–
–
–
–
–
–
(14,591)
26,746
864,816
(1) The distributions payable on SELTIP and LTIP Units do not increase the number of Units outstanding on these plans but are incorporated into the fair value of the plans.
(2) Exchangeable Units are entitled to distributions equivalent to distributions on Trust Units, must be exchanged solely for Trust Units on a one-for-one basis, and are
exchangeable at any time at the option of the holder. An equivalent number of Special Voting Units were issued at the same time as the Exchangeable Units. The
holders of these Units have no entitlement to any share of or interest in the distributions or net assets of CAPREIT. Through Special Voting Units, holders of
Exchangeable Units are entitled to an equivalent number of votes at all meetings of Unitholders or in respect of any written resolution of Unitholders equal to the
number of Exchangeable Units held. All Exchangeable Units have been exercised as of December 31, 2018.
(3) Total CAPREIT excluding ERES UOP.
The table below summarizes the change in the total Unit-based compensation financial liabilities for the years ended
December 31, 2019 and 2018, including the settlement of such liabilities through the issuance of Trust and ERES Units.
As at
Total Unit-based compensation financial liabilities, beginning of the year
Unit-based compensation expenses
ERES UOP assumed as part of the Acquisition
Settlement of Unit-based compensation awards for Trust Units
Total Unit-based compensation financial liabilities, end of the year
Unit-based compensation financial liabilities are as follows:
As at
Current
DUP
RUR
ERES UOP
Non-current
RUR
ERES UOP
Total Unit-based compensation financial liabilities, end of the year
December 31, 2019
December 31, 2018
$
$
32,805
14,497
487
(14,740)
33,049
$
$
64,560
34,373
–
(66,128)
32,805
December 31, 2019
December 31, 2018
$
$
$
$
8,005
9,662
991
18,658
14,080
311
14,391
33,049
$
$
$
$
12,695
6,774
–
19,469
13,336
–
13,336
32,805
99
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements Units or Unit-based Compensation Financial Liabilities Held by Trustees, Officers and Other Senior Management
As at December 31, 2019, 0.7% (December 31, 2018 – 1.0%) of all Trust Units outstanding were held by trustees, officers and
other senior management of CAPREIT.
14. Unit-based Compensation Expenses
These costs represent Unit-based compensation expenses, which include fair value remeasurements at each reporting date
recognized over the respective vesting periods for each plan for the years ended December 31, 2019 and 2018, as follows:
For the Year Ended December 31,
UOP
LTIP
SELTIP
DUP
RUR Plan
EUPP
ERES UOP
$
$
2019
–
–
–
3,209
10,412
341
876
2018
4,201
7,730
11,036
3,263
8,143
299
–
Unit-based compensation expenses
$
14,838
$
34,672
a) UOP
Under the terms of the UOP, options are granted to trustees, officers and key employees based on a performance incentive for
improved service and enhancing profitability. In February 2010, the former President and CEO’s employment agreement was
amended to provide that during his term, the former President and CEO would be awarded options to acquire three percent
(3%) of the number of Units issued by the Trust pursuant to any equity offering or acquisition transaction (not including
pursuant to any compensation arrangements) at the market price of the Units at the time of completion of each such treasury
issuance, in accordance with the terms of the UOP, as amended from time to time.
A summary of unit option activity for the years ended December 31, 2019 and 2018 is presented below. As indicated in
note 13, all unit options under the UOP were settled in 2018 and no unit options were outstanding as at December 31, 2019.
For the Year Ended December 31,
(Number of Units)
Outstanding unit options, beginning of the year
Granted
Exercised
Outstanding unit options, end of the year
Exercisable unit options, end of year
2019
–
–
–
–
–
2018
1,263,962
–
(1,263,962)
–
–
b) LTIP and SELTIP
The Board of Trustees awarded LTIP and SELTIP Units, subject to the attainment of specified performance objectives,
to certain officers and key employees (collectively, the “Participants”). SELTIP Units were awarded to the former Chief
Executive Officer and a former Chief Financial Officer of the Trust. The Participants subscribed for Units of CAPREIT at a
purchase price equal to the weighted average trading price of the Units for five trading days prior to issuance. The purchase
price is payable in instalments, with an initial instalment of 5% paid when the Units are issued. The balance, represented by
Instalment Receipts, is due over a term not exceeding 10 years for the LTIP and 30 years in the case of the SELTIP. Participants
are required to pay interest at 10-year and 30-year fixed rates, respectively, based on the Trust’s fixed borrowing rate for long-
term mortgage financing, and are required to apply cash distributions received on these Units toward the payment of interest
and the remaining instalments. In the case of the SELTIP, following the 10th anniversary, cash distributions shall be applied
to pay interest only and any excess will be distributed to the Participants. Participants may pre-pay any remaining instalments
at their discretion. The Instalment Receipts are non-recourse to the Participants and are secured by the Units as well as the
distributions on the Units. If a Participant fails to pay interest and/or principal, CAPREIT may elect to reacquire or sell the
Units in satisfaction of the outstanding amounts.
The LTIP and SELTIP were terminated on April 4, 2014 by the Trustees of CAPREIT, although awards previously granted
remain outstanding. The terms of the LTIP and SELTIP continue in effect as long as any awards pursuant to the LTIP and
SELTIP remain outstanding. No further awards under the LTIP and SELTIP plans remain outstanding as at December 31, 2019.
100
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements
The fair value of LTIP and SELTIP awards is determined by using an option pricing model that uses market-based
valuation assumptions.
The details of the Units issued under the LTIP and SELTIP are as shown below:
Year Ended December 31,
Number of Units
Balance, beginning of the year
Settled during the year
Balance, end of the year
LTIP
–
–
–
The details of the LTIP and SELTIP Instalment Receipts are shown below:
Year Ended December 31,
Instalment Receipts
Balance, beginning of the year
Principal repayments during the year
Balance, end of the year
$
$
LTIP
–
–
–
$
$
2019
SELTIP
–
–
–
2019
SELTIP
–
–
–
LTIP
470,683
(470,683)
–
$
$
LTIP
3,667
(3,667)
–
$
$
2018
SELTIP
554,715
(554,715)
–
2018
SELTIP
6,822
(6,822)
–
The Instalment Receipts are recognized as a deduction from Unit-based compensation liability. During the year ended
December 31, 2018, interest payments in the amounts of $435 were applied to the outstanding Unit-based compensation
liability. The outstanding balance of the instalments receivable is used in determining the fair value of the Units and the
related fair value adjustments.
c) DUP
The DUP gives the non-executive trustees the right to receive a percentage of their annual retainer in the form of deferred
units (“Deferred Units”). Each trustee who elects to participate may be paid 25%, 50%, 75% or 100% (the “Elected
Percentage”) of their annual retainer payable in respect of a calendar year (the “Elected Amount”), subject to an annual
maximum Elected Percentage established by the Human Resources and Compensation Committee, in the form of Deferred
Units, in lieu of cash. CAPREIT will match the Elected Amount in the form of Deferred Units having a value equal to the
volume weighted average price of all Units traded on the TSX for the five trading days immediately preceding the date on
which Board compensation is payable. The maximum Elected Percentage in respect of 2019 is 100.0% (2018 – 100.0%) of a
trustee’s annual Board compensation of $85 for 2019 and $85 for 2018.
The Deferred Units earn notional distributions based on the same distributions paid on the Units, and such notional
distributions are used to acquire additional Deferred Units (“Distribution Units”). The Deferred Units and additional
Distribution Units are credited to each trustee’s Deferred Unit account and are not issued to the trustee until the trustee elects
to withdraw such Units. Each trustee may elect to withdraw up to 20% of the Deferred Units credited to their Deferred Unit
account only once in a five-year period. The fair value of the Distribution Units represents the closing price of the Units on the
TSX on the distribution date.
The details of the Units issued under the DUP are shown below:
As at
Outstanding, beginning of the year
Granted during the year
Additional Unit distributions
Settled or cancelled during the year
Outstanding, end of the year
Weighted Average
Issue Price
$
$
26.31
51.54
49.79
26.37
30.09
Fair Value
per Unit
$
44.30
–
–
–
$
53.01
December 31, 2019
Number of Units
Weighted Average
Issue Price
286,696
17,267
6,114
(159,081)
150,996
$
$
24.34
42.78
41.75
28.65
26.31
Fair Value
per Unit
$
37.32
–
–
–
$
44.30
December 31, 2018
Number of Units
260,159
23,903
8,558
(5,924)
286,696
The fair value of DUPs represents the closing price of the Units on the TSX on the last trading day on which the Units traded
prior to the reporting date, representing the fair value of the redemption price.
101
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements
d) RUR Plan
In 2010, CAPREIT adopted the RUR Plan as the primary plan through which long-term incentive compensation will be
awarded. The RUR Plan was approved by the Unitholders on May 19, 2010. The Human Resources and Compensation
Committee of the Board of Trustees may award RURs, subject to the attainment of specified performance objectives, to certain
officers and key employees (collectively, the “Participants”). The purpose of the RUR Plan is to provide its Participants with
additional incentive and to further align the interests of its Participants with Unitholders through the use of RURs which, on
vesting, are exercisable for Units. RUR Plan Units will be issued from treasury on vesting. The RURs vest in their entirety on
the third anniversary of the grant date. The RURs earn notional distributions in respect of each distribution paid on RURs
commencing from the grant date, and such notional distributions are used to calculate additional RURs (“Distribution
RURs”), which are accrued for the benefit of the Participants. The Distribution RURs are credited to the Participants only
when the underlying RURs on which the Distribution RURs are earned become vested. The fair value of the Distribution
RURs is based on the five-business-day weighted average closing price of the Units on the TSX prior to the distribution date.
The details of the RURs granted under the RUR Plan (including the Distribution RURs) are as follows:
As at
December 31, 2019
Outstanding, beginning of the year
Granted during the year
Additional Unit distributions
Settled or cancelled during the year
Outstanding, end of the year
Weighted Average
Issue Price
Fair Value
per Unit
Number of Units
Weighted Average
Issue Price
$
$
29.23
47.84
50.52
29.18
32.69
$
44.30
578,119
$
–
–
–
$
53.01
83,124
15,148
(134,304)
542,087
$
27.11
36.35
41.49
28.01
29.23
Fair Value
per Unit
$
37.32
–
–
–
$
44.30
December 31, 2018
Number of Units
521,980
111,146
18,187
(73,194)
578,119
The fair value of RURs represents the closing price of the Units on the TSX on the last trading day on which the Units traded
prior to the reporting date, representing the fair value of the redemption price.
e) EUPP
The EUPP grants all employees the right to receive an additional amount equal to 20% of the Units they acquire, paid in the
form of additional Units. This additional amount is expensed as compensation on issuance of the Units.
f) ERES UOP
Under the terms of the ERES UOP, options are granted to trustees, officers, employees and technical consultants based on
a performance incentive for improved service and enhancing profitability. The ERES options vest in one-third instalments
annually on the anniversary of the grant date and expire 10 years from the date the ERES options were granted
A summary of unit option activity for the years ended December 31, 2019 and 2018 is presented below.
As at
Outstanding unit options, beginning of the year
Assumed
Issued or granted
Exercised or settled
Cancelled or forfeited
Outstanding unit options, end of the year
Exercisable unit options, end of the year
December 31, 2019
December 31, 2018
Weighted Average
Issue Price
Number of Units
Weighted Average
Issue Price
Number of Units
–
3.97
4.55
3.75
4.04
4.41
3.88
$
$
–
1,143,014
3,220,000
(13,666)
(93,334)
4,256,014
621,254
–
–
–
–
–
–
–
–
–
–
–
–
–
–
102
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements
The fair value of ERES options is determined as at the grant date and subsequent interim and annual valuations are
determined by adjusting market-based valuation assumptions used in arriving at the estimated fair value. The weighted average
assumptions utilized to arrive at the estimated fair value for the outstanding grants at the respective periods were as follows:
As at
Number of Units
Weighted average issue price
Weighted average risk-free rate (%)
Weighted average distribution yield (%)
Weighted average expected years
Weighted average volatility (%)
Weighted average unit option value
December 31, 2019
December 31, 2018
4,256,014
4.41
1.68
3.29
4.38
25.00
0.82
$
$
–
N/A
N/A
N/A
N/A
N/A
N/A
15. Unitholders’ Equity
All Trust Units outstanding are fully paid, have no par value and are voting Trust Units. The authorized capital of CAPREIT
consists of an unlimited number of Units, an unlimited number of Special Voting Units and 25,840,600 Preferred Units.
As at December 31, 2019, no Preferred Units or Special Voting Units were issued and outstanding. Trust Units represent a
Unitholder’s proportionate undivided beneficial interest in CAPREIT. No Trust Unit has any preference or priority over
another. No Unitholder has or is deemed to have any right of ownership in any of the assets of CAPREIT. Each Unit confers
the right to one vote at any meeting of Unitholders and to participate pro rata in any distributions by CAPREIT and, in the
event of termination of CAPREIT, in the net assets of CAPREIT remaining after satisfaction of all liabilities. Units will be
issued in registered form and are transferable. Issued and outstanding Units may be subdivided or consolidated from time to
time by the trustees without Unitholder approval. No certificates for fractional Units will be issued and fractional Units will
not entitle the holders thereof to vote.
By virtue of CAPREIT being an open-ended mutual fund trust, Unitholders of Trust Units are entitled to redeem their Units
at any time at prices determined and payable in accordance with the conditions specified in the DOT. As a result, under IFRS,
Trust Units are defined as financial liabilities; however, for the purposes of financial statement classification and presentation,
the Trust Units may be presented as equity instruments as they meet the puttable instrument exemption under IAS 32. For the
purposes of presenting earnings on a per Unit basis as well as for Unit-based compensation plans, CAPREIT’s Trust Units are
not treated as equity instruments.
The number of issued and outstanding Trust Units (excluding Units, Unit Rights and Unit Options issued or outstanding
under CAPREIT’s incentive plans) is as follows:
For the Year Ended December 31,
Units outstanding, beginning of the year
Issued or granted during the year in connection with the following:
New Units issued
Exchangeable Units
Distribution Reinvestment Plan ("DRIP")
EUPP
DUP
RUR Plan
UOP
LTIP
SELTIP
Ref
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
2019
2018
145,653,982
136,911,892
22,488,250
–
1,397,192
40,340
159,080
130,353
–
–
–
4,910,500
130,655
1,304,098
42,950
5,924
58,603
1,263,962
470,683
554,715
Units outstanding, end of the year
169,869,197
145,653,982
103
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements a) New Units Issued
2019
December 2019 (the “December 2019 Equity Offering”)
Bought-deal (December 6, 2019)
Over-allotment (December 6, 2019)
Total
$
$
53.60
53.60
$
$
425,048
63,757
488,805
$
$
17,612
2,641
20,253
$
$
407,436
61,116
468,552
7,930,000
1,189,500
9,119,500
Price per Unit
Gross Proceeds
Transaction Costs
Net Proceeds
Units Issued
April 2019 (the “April 2019 Equity Offering”)
Bought-deal (April 23, 2019)
Over-allotment (April 23, 2019)
Total
Price per Unit
Gross Proceeds
Transaction Costs
Net Proceeds
Units Issued
$
$
49.00
49.00
$
300,125
45,019
$
345,144
$
$
13,807
950
14,757
$
286,318
44,069
$
330,387
6,125,000
918,750
7,043,750
January 2019 (the “January 2019 Equity Offering”)
Bought-deal (January 4, 2019)
Over-allotment (January 11, 2019)
Total
2018
Price per Unit
Gross Proceeds
Transaction Costs
Net Proceeds
Units Issued
$
$
45.50
45.50
$
250,250
37,538
$
287,788
$
$
11,512
900
12,412
$
238,738
36,638
$
275,376
5,500,000
825,000
6,325,000
March 2018 (the “March 2018 Equity Offering”)
Bought-deal (March 15, 2018)
Over-allotment (March 15, 2018)
Total
Price per Unit
Gross Proceeds
Transaction Costs
Net Proceeds
Units Issued
$
$
35.15
35.15
$
150,091
22,514
$
172,605
$
$
6,780
901
7,681
$
143,311
21,613
$
164,924
4,270,000
640,500
4,910,500
b) Exchangeable Units
During 2018, pursuant to the terms of the Exchangeable Units, 130,655 Exchangeable Units were exchanged for 130,655 Trust
Units.
c) Distribution Reinvestment Plan
The terms of the DRIP grant participants the right to receive an additional amount equal to 5% of their monthly distributions
paid in the form of additional Units. The total consideration for Units issued represents the amount of cash distributions
reinvested in additional Units.
d) Employee Unit Purchase Plan
The EUPP grants all employees the right to receive an additional amount equal to 20% of the Units they acquire, paid in the
form of additional Units.
e) Deferred Unit Plan
During 2019, 159,081 DUP Units were settled, out of which 159,080 DUP Units were settled for an equivalent number of
Trust Units and the remaining DUP Unit was settled in cash. During 2018, in accordance with the DUP, one trustee exercised
5,924 Deferred Units, and they were settled for an equivalent number of Trust Units.
f) Restricted Unit Rights Plan
During 2019, 134,305 RUR Units were settled, out of which 130,353 RUR Units were settled for an equivalent number of Trust
Units and the remaining RUR Units were cancelled. During 2018, 58,603 RUR Units were settled for an equivalent number of
Trust Units and 14,591 RUR Units were cancelled.
104
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements
g) Unit Option Plan
During 2018, 1,263,962 options were exercised and an equivalent number of Trust Units were issued.
h) Long-Term Incentive Plan
During 2018, 470,683 Units previously issued were settled. The remaining instalments were repaid in full in respect of the
settled Units.
i) Senior Executive Long-Term Incentive Plan (“SELTIP”)
During 2018, 554,715 Units previously issued were settled. The remaining instalments were repaid in full in respect of the
settled Units.
16. Distributions on Trust Units
CAPREIT paid distributions to its Unitholders in accordance with its DOT. Distributions declared by its Board of Trustees
were paid monthly, on or about the 15th day of each month. Effective March 2019, monthly cash distributions declared to
Unitholders increased to $0.1150 ($1.38 annually) compared to $0.1108 ($1.33 annually) effective May 2018.
For the Year Ended December 31,
Distributions declared on Trust Units
Distributions per Unit
2019
218,136
1.372
$
$
2018
187,848
1.313
$
$
17. Financial Instruments, Investment Properties and Risk Management
a) Fair Value of Financial Instruments
The fair value of CAPREIT’s financial assets and liabilities, except as noted below and elsewhere in the consolidated annual
financial statements, approximates their carrying amount due to the short-term and variable rate nature of these instruments.
As at December 31, 2019, the fair value of CAPREIT’s mortgages payable is estimated to be $4,196,000 (December 31, 2018 –
$3,646,000) due to changes in interest rates since the dates the individual mortgages were financed and the impact of the
passage of time on the primarily fixed rate nature of CAPREIT’s mortgages. The fair value of the mortgages payable is based
on discounted future cash flows using rates that reflect current rates for similar financial instruments with similar duration,
terms and conditions, which are considered Level 2 inputs (as described below).
CAPREIT has classified and disclosed the fair value for each class of financial instrument based on the fair value hierarchy
in accordance with IFRS 13. The fair value hierarchy distinguishes between market value data obtained from independent
sources and CAPREIT’s own assumptions about market value. The hierarchy levels are defined below:
Level 1 – Inputs based on quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs based on factors other than quoted prices included in Level 1, which may include quoted prices for similar
assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices),
such as interest rates and yield curves that are observable at commonly quoted intervals; and
Level 3 – Inputs which are unobservable for the asset or liability, and typically based on CAPREIT’s own assumptions as there
is little, if any, related market activity.
CAPREIT’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment
and considers factors specific to the asset or liability.
105
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements The following table presents CAPREIT’s estimates of assets and liabilities measured at fair value on a recurring basis based on
information available to management as at December 31, 2019, and aggregated by the level in the fair value hierarchy within
which those measurements fall. These estimates are not necessarily indicative of the amounts CAPREIT could ultimately realize.
Level 1
Quoted Prices in Active
Markets for Identical
Assets and Liabilities
Level 2
Level 3
Significant Other
Observable Inputs
Significant
Unobservable Inputs
Total
Recurring Measurements
Assets
Investment properties
Fee simple and MHC land lease sites
$
Operating leasehold interests
Land leasehold interests
Investments
Derivative financial assets(3)
Liabilities
Derivative financial liabilities(3)
ERES units held by non-controlling interest
Total
$
–
–
–
41,177(2)
–
–
–
–
–
–
3,984
(7,095)
–
$
11,934,504(1)
965,869(1)
196,053(1)
–
–
–
–
$
11,934,504
965,869
196,053
41,177
3,984
(7,095)
(364,928)
(364,928)
(323,751)
$
$
(3,111)
$
13,096,426
$
12,769,564
(1) Fair values for investment properties are calculated using either the direct income capitalization or the discounted cash flow methods, which results in these
measurements being classified as Level 3 in the fair value hierarchy. See note 6 for detailed information on the valuation methodologies and fair value reconciliation.
(2) CAPREIT’s investments (excluding CAPREIT’s equity accounted investment in IRES) are accounted for as FVTPL and are measured at fair value based on the
quoted market price in an active market of the asset.
(3) The valuation of the interest rate swap and cross-currency swap instruments is determined using widely accepted valuation techniques including discounted cash
flow analysis on the expected cash flows of the derivatives. The fair value is determined using the market standard methodology of netting the discounted future
fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates (forward
curves) derived from observable market interest rate curves. If the total mark-to-market value is positive, CAPREIT will consider a credit value adjustment to reflect
the credit risk of the counterparty, and if the total mark-to-market value is negative, CAPREIT will consider a credit value adjustment to reflect CAPREIT’s own
credit risk in the fair value measurement of the interest rate swap agreements.
Although CAPREIT has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair
value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of
current credit spreads, to evaluate the likelihood of default by CAPREIT. As at December 31, 2019, CAPREIT has assessed
the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and
has determined that the credit valuation adjustment is not significant to the overall valuation of the derivative. As a result,
CAPREIT has determined that the derivative valuations in their entirety should be classified as Level 2 of the fair value
hierarchy. For assets and liabilities measured at fair value as at December 31, 2019, there were no transfers between Level 1,
Level 2 and Level 3 during the period.
b) Risk Management
The main risks arising from CAPREIT’s financial instruments are interest rate, liquidity, credit and foreign currency risks.
CAPREIT’s approach to managing these risks is summarized as follows:
Interest Rate Risk
CAPREIT is subject to the risks associated with debt financing, including the risk that mortgages and credit facilities will not
be able to be refinanced on terms as favourable as those of the existing indebtedness. In addition, interest on CAPREIT’s bank
indebtedness is subject to floating interest rates. CAPREIT is also subject to the risks associated with changes in interest rates
or different financing terms from the hedging derivative assumptions, which may result in the hedging relationship being
ineffective, causing volatility in earnings.
106
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018, a 100 basis point change in interest rates would have the following effect:
Floating rate debt
Floating rate debt
Cross-currency interest rate swaps(1)
Cross-currency interest rate swaps(1)
Increase (Decrease) in Net Income
Change in Interest
Rates (basis points)
+100
-100
+100
-100
$
$
$
$
2019
11
(11)
10,445
(10,640)
$
$
$
$
2018
(674)
674
3,549
(3,643)
(1) Represents the parallel interest rate shift of both the LIBOR and EURIBOR forward rates.
CAPREIT’s objective in managing interest rate risk is to minimize the volatility of interest expenses due to fluctuations in
market interest rates. As at December 31, 2019, interest rate risk has been minimized as 99.0% (December 31, 2018 – 100.0%)
of the mortgages payable are financed at fixed interest rates, with maturities staggered over a number of years. Taking into
consideration interest rate swaps where hedge accounting has not been applied, 100.0% of the mortgages payable are financed
at fixed interest rates.
Liquidity Risk
Liquidity risk is the risk that CAPREIT may encounter difficulties in accessing capital and refinancing its financial obligations
as they come due. Approximately 98.3% of CAPREIT’s mortgages are CMHC-insured (excluding $1,013,718 of mortgages
on the MHC sites and the ERES properties), which reduces the risk in refinancing mortgages. CAPREIT’s overall risk for
mortgage refinancings is further reduced as the unamortized mortgage insurance premiums are transferable between
approved lenders and are effective for the full amortization period of the underlying mortgages, ranging between 25 and
40 years. To mitigate the risk associated with the refinancing of maturing debt, CAPREIT staggers the maturity dates of its
mortgage portfolio over a number of years.
In addition, CAPREIT manages its overall liquidity risk by maintaining sufficient available credit facilities and unencumbered
assets to fund its ongoing operational and capital commitments, distributions to Unitholders, and to provide future growth in
its business. As at December 31, 2019, CAPREIT had undrawn lines of credit in the amount of $146,170 (December 31, 2018 –
$66,325), excluding borrowing capacity under the ERES Credit Facility, the Bridge Facility and the ERES Bridge Facility.
Including the additional borrowing capacity under the ERES Credit Facility, the Bridge Facility and the ERES Bridge Facility,
CAPREIT had undrawn lines of credit in the amount of $454,774 (December 31, 2018 – $266,325).
The contractual maturities and repayment obligations of CAPREIT’s financial liabilities as at December 31, 2019 are as follows:
Mortgages payable
Bank indebtedness
Mortgage interest(1)
Bank indebtedness interest(1)
Other liabilities(4)
Lease liabilities
Security deposits
Distributions payable
Swap premium(3)
2020(2)
2021–2022
$
436,447
$
–
110,586
8,273
149,935
1,121
39,575
19,533
–
999,390
623,893
181,151
12,342
1,088
2,196
–
–
456
$
2023–2024
911,534
–
121,788
–
496
1,241
–
–
430
2025 Onward
$
1,972,798
–
640,919
–
366,705
34,338
–
–
159
$
765,470
$
1,820,516
$
1,035,489
$
3,014,919
(1) Based on current in-place interest rates for the remaining term to maturity.
(2) Estimates of the amounts as at December 31, 2019.
(3) Related to interest rate swaps on ERES commercial properties.
(4) Related to accounts payable and accrued liabilities, derivative financial liabilities and ERES units held by non-controlling interest.
Credit Risk
Credit risk is the risk that: (i) counterparties to contractual financial obligations will default; and (ii) the possibility that
CAPREIT’s residents may experience financial difficulty and be unable to meet their rental obligations.
107
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements CAPREIT monitors its risk exposure regarding obligations with counterparties through the regular assessment of
counterparties’ credit positions.
CAPREIT mitigates the risk of credit loss with respect to residents by evaluating the creditworthiness of new residents,
obtaining security deposits wherever permitted by legislation and geographically diversifying its portfolio.
CAPREIT monitors its collection experience on a monthly basis and ensures that a stringent policy is adopted to provide for
all past due amounts. CAPREIT’s bad debt experience has historically been less than 0.5% of revenue in the past three years.
The maximum exposure to credit risk at the reporting date is the carrying value of the tenant receivables.
Foreign Currency Risk
Foreign currency risk is the financial risk exposure to unanticipated changes in the exchange rate between two currencies.
CAPREIT is exposed to foreign currency risk as CAPREIT’s functional and presentation currency is Canadian dollars
while the functional currency of CAPREIT’s fund management subsidiary in Ireland, investment in IRES, and CAPREIT’s
subsidiaries in the Netherlands, including ERES, is the Euro.
CAPREIT manages and mitigates the exposure to foreign currency risk on its investment in IRES and subsidiaries in the
Netherlands with its US LIBOR borrowings, cross-currency swap and Euro LIBOR borrowings. The (loss) gain on foreign
currency translation relating to CAPREIT’s subsidiaries in Ireland, and the Netherlands and IRES investment is recognized in
OCI. The mark-to-market on the cross-currency swap and foreign exchange translation on the US LIBOR and Euro LIBOR
borrowings are recognized in the consolidated statement of income and comprehensive income.
18. Realized and Unrealized Gains and Losses on Derivative Financial Instruments
a) Contracts for Which Hedge Accounting Is Being Applied
(i) In June 2011, CAPREIT entered into a hedging program, which effectively hedged interest rates on approximately
$312,000 of mortgages maturing between September 2011 and June 2013. The maturing mortgages have been refinanced
for 10-year terms and as a result bear interest rates between a floor rate of 3.00% and a ceiling rate of 3.62%, before the
credit spread. The change in the intrinsic value of the forward interest rate hedge has been included in OCI (see note 21).
The hedging program matured in June 2013, for which hedge accounting was applied. The ineffective portion and the
difference between the settled amount and the mark-to-market have been recognized in net income. All contracts have
been settled.
The forward interest rate derivative liability has been summarized as follows:
As at
Derivative liability in AOCL, beginning of the year
Amortization from AOCL to interest and other financing costs
Derivative liability in AOCL, end of the year
December 31, 2019
December 31, 2018
$
$
(8,270)
2,265
(6,005)
$
$
(10,547)
2,277
(8,270)
b) Contracts for Which Hedge Accounting Is No Longer Effective
(ii) During 2005, CAPREIT entered into interest rate forward contracts aggregating to $145,740 (the “Interest Rate Forward
Contracts”) to hedge its exposure to the potential rise in interest rates for refinancings of mortgages maturing in 2009.
CAPREIT settled these Interest Rate Forward Contracts in 2009. The associated cumulative unamortized loss of $9,908
included in AOCL at September 30, 2008 is being amortized to mortgage interest expense over the original terms of the
hedged contracts. For the year ended December 31, 2019, $270 (December 31, 2018 – $358) was amortized from AOCL to
mortgage interest expense.
(iii) CAPREIT had a $65,000 interest rate swap agreement fixing the bankers’ acceptance rate at 2.20%, which had a
maturity date of September 2022, for which hedge accounting was not being applied. The agreement effectively converts
borrowings on a bankers’ acceptance-based floating rate credit facility to a fixed rate facility for a 10-year term (see
note 11 for further details). The related floating rate credit facility is for a five-year non-revolving term with an effective
interest rate of 3.60%, and any principal that is repaid may not be reborrowed. The hedge became ineffective in July 2017.
On September 26, 2019, the $65,000 swap was settled.
108
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements c) Contracts for Which Hedge Accounting Is Not Being Applied
(iv) In June 2017, CAPREIT entered into a cross-currency swap to (i) hedge a US-based loan of USD $186,436 into €163,540
effective July 2017, and (ii) convert the variable interest rate on the US-based loan of LIBOR plus 1.65% to a fixed
interest rate of EURIBOR plus 1.65%, equalling 1.20%, and maturing in June 2019. The US-based loan was drawn from
the Acquisition and Operating Facility in July 2017. As at June 30, 2019, the cross-currency swap matured and settled.
(v) In June 2019, CAPREIT entered into a new cross-currency swap to (i) hedge a US-based loan of USD $186,190 into
€163,540 effective June 2019, and (ii) convert the variable interest rate on the US-based loan of LIBOR plus 1.65% to a
fixed interest rate of EURIBOR plus 1.65%, equalling 1.08%, and maturing in June 2021. The gain on the derivative has
been recorded under (loss) gain on derivative financial instruments of $3,254 in the consolidated statements of income
and comprehensive income for the year ended December 31, 2019 and the cumulative mark-to-market gain of $3,254 is
in other non-current assets as at December 31, 2019.
(vi) In January 2019, CAPREIT entered into a recurring monthly cross-currency swap to convert surplus Canadian dollars
into Euro denominated amounts to pay down Euro debt throughout 2019. The cross-currency swap was unwound as
Canadian dollars were required. As at December 20, 2019, CAPREIT exited this swap program.
(vii) As part of CAPREIT’s acquisition of ERES, CAPREIT assumed the following interest rate swaps:
a.
A €7,500 interest rate swap fixing the variable three-month EURIBOR rate at 0.60%, which matures on December 31,
2023, and results in fixed effective interest rate of 1.82%.
b.
A €25,500 interest rate swap fixing the variable three-month EURIBOR rate at 0.49%, which matures on January 13,
2025, and results in a fixed effective interest rate of 1.87%.
In connection with these two interest rate swap agreements, there is an interest rate floor agreement, which stipulates that any
variable rate associated with the agreement will not be below 0%. This results in a $730 derivative financial asset and $2,273
derivative financial liability as presented in the statements of financial position. During the year ended December 31, 2019,
loss on the derivative financial instruments of $200 has been recorded.
(viii) In September 2019, CAPREIT entered a cross-currency swap to (i) hedge a $65,000 CAD-based loan into €44,818 effective
September 2019, and (ii) convert the variable interest rate on the CAD-based loan of bankers’ acceptance plus 1.40% to a
EURIBOR fixed interest rate of 0.97%, and maturing June 28, 2021 to match the maturity on the credit facility (see note 9
for further details). The loss on the derivative has been recorded under (loss) gain on derivative financial instruments of
$395 in the consolidated statements of income and comprehensive income for the year ended December 31, 2019 and the
cumulative mark-to-market loss of $395 is in other non-current liabilities as at December 31, 2019.
(ix) In September 2019, ERES entered into two foreign exchange forward contracts to hedge movement in the Canadian
and Euro exchange rates in connection with proceeds from its September 2019 equity offering. The contracts matured
on September 24, 2019. The loss on the forward contracts of $1,164 have been recorded under gain (loss) on derivative
financial instruments in the consolidated statements of income and comprehensive income for the year ended
December 31, 2019.
(x) In November 2019, ERES entered into a 3-month cross-currency EURIBOR/LIBOR interest rate swap in connection with
the US dollar draw on the revolving credit facility of USD $28,634 to hedge into €26,000 (see note 10 for further details).
Interest is paid at floating rates of EURIBOR plus 1.55% and LIBOR plus1.65% on the Euro and US dollar notional
amounts, respectively. The loss on the derivative has been recorded under (loss) gain on derivative financial instruments
of $593 in the consolidated statements of income and comprehensive income for the year ended December 31, 2019 and
the cumulative mark-to-market loss of $593 is in other current liabilities as at December 31, 2019.
(xi) In December 2019, ERES entered into three foreign exchange forward contracts to hedge movement in the Canadian
and Euro exchange rates in connection with proceeds from its December 2019 equity offering. The contracts matured
on December 18, 2019. The loss on the forward contracts of $784 have been recorded under gain (loss) on derivative
financial instruments in the consolidated statements of income and comprehensive income for the year ended
December 31, 2019.
109
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements (xii) In December 2019, CAPREIT entered a cross-currency swap to (i) hedge a USD $177,296 US-based loan into €160,000
effective December 2019, and (ii) convert the variable interest rate on the US-based loan of US LIBOR plus 1.65%
to a EURIBOR fixed interest rate of 1.06%, and maturing November 30, 2020. The loss on the derivative has been
recorded under (loss) gain on derivative financial instruments of $3,141 in the consolidated statements of income and
comprehensive income for the year ended December 31, 2019 and the cumulative mark-to-market loss of $3,141 is in
other current liabilities as at December 31, 2019.
(xiii) In December 2019, CAPREIT entered a cross-currency swap to (i) hedge a USD $82,525 US-based loan into €74,000
effective December 2019, and (ii) convert the variable interest rate on the US-based loan of US LIBOR plus 1.65%
to a EURIBOR fixed interest rate of 1.05%, and maturing December 31, 2021. The gain on the derivative has been
recorded under (loss) gain on derivative financial instruments of $693 in the consolidated statements of income and
comprehensive income for the year ended December 31, 2019 and the cumulative mark-to-market loss of $693 is in
other non-current liability as at December 31, 2019.
19. Capital Management
CAPREIT defines capital as the aggregate of Unitholders’ equity, mortgages payable and bank indebtedness. CAPREIT’s
objectives when managing capital are to safeguard its ability to continue to fund its distributions to Unitholders, meet its
repayment obligations under its mortgages and credit facilities, and ensure sufficient funds are available to meet capital
commitments. Capital adequacy is monitored against investment and debt restrictions contained in CAPREIT’s DOT and
Credit Facilities.
CAPREIT’s Credit Facilities (see note 12) require compliance with certain financial covenants. In addition, borrowings must
not exceed the borrowing base, calculated at a predefined percentage of the market value of the properties.
In the short term, CAPREIT utilizes the Credit Facilities to finance its capital investments, which may include acquisitions.
In the long term, equity issuances, mortgage financings and refinancings, including “top-ups”, are put in place to finance the
cumulative investment in the property portfolio and ensure that the sources of financing better reflect the long-term useful
lives of the underlying investments.
Under the terms of CAPREIT’s Large Borrower Agreement (“LBA”) with CMHC, total indebtedness of CAPREIT is limited
to the greater of (i) 60% of gross book value determined on a fair value basis or (ii) 70% of gross book value determined on a
historical basis, and may only be increased above such limits with CMHC’s consent.
The LBA provides for, among other things: (i) certain financial covenants and limitations on indebtedness; (ii) the posting of
a revolving letter of credit with respect to certain capital expenditures on a portfolio rather than an individual property basis;
and (iii) cross-collateralization of mortgage loans for certain CMHC-insured mortgage lenders.
The total capital managed by CAPREIT is as follows:
As at
Mortgages payable
Bank indebtedness
Unitholders’ equity
Total capital
December 31, 2019
December 31, 2018
$
4,308,572
$
3,728,333
623,893
8,403,895
567,365
6,316,700
$
13,337,746
$
10,612,398
110
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements The results of CAPREIT’s compliance with the key covenants is summarized below:
As at
Mortgages payable
Bank indebtedness
Unit-based compensation liabilities
Unitholders’ equity
Total capital
Total debt to gross book value(1)
Tangible net worth(2)
Debt service coverage ratio (times)(3), (4)
Interest coverage ratio (times)(3), (5)
December 31, 2019
December 31, 2018
$
4,308,572
$
3,728,333
623,893
33,049
8,404,362
567,365
32,805
6,316,700
$
13,369,876
$
10,645,203
Threshold
December 31, 2019
December 31, 2018
Maximum 70.00%
34.99%
39.37%
Minimum $2,400,000
$
8,421,096
$
6,349,505
Minimum 1.20
Minimum 1.50
1.87
3.69
1.75
3.44
(1) CAPREIT’s DOT limits the maximum amount of total debt to 70% of the gross book value (“GBV”) of CAPREIT’s total assets. GBV is defined as the gross book
value of CAPREIT’s assets as per CAPREIT’s consolidated financial statements, determined on a fair value basis for investment properties, plus accumulated
amortization on property, plant and equipment, CMHC fees and deferred loan costs. In addition, the DOT provides for investment restrictions on type and
maximum limits on single property investments. Under the terms of CAPREIT’s LBA with CMHC, total indebtedness of CAPREIT is limited to the greater of
(i) 60% of gross book value, determined on a fair value basis, of total assets or (ii) 70% of gross book value, determined on a historical basis, of total assets, and
may only be increased above such limits with CMHC’s consent.
(2) As per the Credit Facilities agreement, the tangible net worth is generally represented by Unitholders’ Equity and Unit-based rights and compensation liabilities or
assets, including Exchangeable Units added back, and excluding goodwill. The tangible net worth requirement is $2,400,000 (2018 – $2,100,000).
(3) Based on the trailing four quarters.
(4) As per the Credit Facilities agreement and DOT, the debt service coverage ratio is defined as earnings before interest, income taxes, depreciation and amortization
and other adjustments, including non-cash costs (“EBITDA”), less income taxes paid divided by the sum of principal and interest payments.
(5) As per the Credit Facilities agreement and DOT, the interest coverage ratio is defined as EBITDA less taxes paid divided by interest payments.
CAPREIT’s subsidiary, ERES, is subject to various debt covenants contained in ERES’ credit facilities. ERES must have a
maximum debt to gross book value of 65%, a minimum tangible net worth of €372,400, a minimum debt service coverage
ratio of 1.35, and a minimum interest coverage ratio of 1.50. For the year ended December 31, 2019, ERES is in compliance
with its debt covenants.
20. Income Taxes
CAPREIT is taxed as a “mutual fund trust” as defined under the Income Tax Act (Canada) (the “Tax Act”) and continues to
meet the prescribed conditions relating to the nature of its assets and revenues in order to qualify as a Real Estate Investment
Trust eligible for the REIT exception to the specified investment flow-through (“SIFT”) rules. The Trust expects to distribute
all of its taxable income to its Unitholders; accordingly, no provision for Canadian income tax has been made. Income tax
obligations relating to the distributions from CAPREIT are with the individual unitholder, with the exception of withholding
taxes for distributions to non-resident Unitholders.
CAPREIT has foreign subsidiaries in a number of countries with varying statutory rates of taxation. Judgment is required in
the estimation of income taxes and deferred income tax assets and liabilities in each of CAPREIT’s operating jurisdictions.
Income taxes may be paid where activities relating to the foreign subsidiaries are considered to be taxable in those countries.
For the Year Ended December 31,
Income before income taxes
Income not subject to taxation
Income before income taxes in subsidiary entities
Tax calculated at the Dutch corporate tax rate of 25%
Increase (decrease) resulting from:
Expenses not deductible for tax
Effect of different tax rates in countries in which the REIT operates
Adjustments to deferred taxes for the current and future years’ change in tax rates
Adjustments for difference in tax rates for first €200 of income
Other adjustments
$
$
2019
1,217,808
(1,105,127)
112,681
28,170
$
$
2018
1,236,479
(1,159,944)
76,535
19,134
318
(2,646)
(3,304)
(523)
346
–
–
(214)
(192)
80
Provision for income taxes
$
22,361
$
18,808
111
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements A breakdown of current and deferred income tax expense is as follows:
For the Year Ended December 31,
Current income tax expense
Deferred income tax expense
Deferred and current income tax expense (net)
2019
17,282
5,079
22,361
$
$
2018
–
18,808
18,808
$
$
Deferred income tax assets (liabilities) is primarily due to the following:
As at
Deferred tax liability related to difference in tax and book basis of investment properties
Deferred tax assets related to loss carryforward
December 31, 2019
December 31, 2018
$
(33,000)
$
(26,428)
2,498
–
Due to the reorganization of the legal structure of the Netherlands subsidiaries as a result of the Acquisition, capital gains were
triggered. Therefore, $18,050 was reclassified from deferred income tax liability to current income tax liability during the year
ended December 31, 2019.
As at December 31, 2019, CAPREIT has recognized total non-capital loss carryforwards of $12,459 (December 31, 2018 –
$8,432). Of these losses, $8,972 are in respect of the Netherlands subsidiaries and expire between 2025 and 2027. The
remaining losses of $3,487 are in respect of German subsidiaries and have no expiry period.
21. Accumulated Other Comprehensive Income (Loss)
For the Year Ended December 31,
AOCL balance, beginning of the year
Other comprehensive (loss) income:
Amortization from AOCL to interest and other financing costs(1),(2)
Foreign currency translation
Other comprehensive (loss) income
AOCL balance, end of the year
AOCL comprises:
Loss on derivative financial instruments
Cumulative realized loss
Accumulated amortization to interest and other financing costs
Unamortized balance of loss on cash flow hedges previously settled
Loss on interest rate swap agreements
Loss on forward interest rate hedge
Accumulated amortization to interest and other financing costs
Cumulative (loss) gain on foreign currency translation
Reversal of cumulative foreign currency translation relating to IRES ownership dilution
2019
28,846
3,810
(52,166)
(48,356)
(19,510)
$
$
$
$
2018
(2,343)
2,659
28,530
31,189
28,846
December 31, 2019
December 31, 2018
$
$
(9,908)(1)
9,261
(61)
–
(22,884)(2)
16,880
(15,925)
3,127
(9,908)(1)
8,991
(82)
(1,253)
(22,884)(2)
14,614
36,241
3,127
28,846
AOCL balance, end of the year
$
(19,510)
$
(1) The cumulative realized loss on derivative financial instruments aggregating to $9,908 will be amortized to net income as mortgage interest expense over periods
ending December 2017 to September 2022, being the original terms of the hedged contracts. The estimated amount of the amortization that is expected to be
reclassified to net income from AOCL in the next 12 months is $271.
(2) The realized loss component of the $22,884 OCI loss on forward interest rate hedges is $22,586, which will be amortized to net income as mortgage interest expense
over the original 10-year term of the hedged contracts. The estimated amount of the amortization expected to be reclassified to net income from AOCL in the next
12 months is $2,251.
112
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements
22. Interest and Other Financing Costs
For the Year Ended December 31,
Interest on mortgages payable(1)
Amortization of CMHC premiums and fees
Interest on bank indebtedness and other deferred costs(2)
Interest on Exchangeable Units
Interest on land and air rights lease liability
Non-controlling interest costs(3)
2019
$
119,119
$
4,780
9,279
–
2,038
–
$
135,216
$
2018
112,762
3,914
8,404
95
–
10,036
135,211
(1) Includes amortization of deferred financing costs, fair value adjustments and OCI hedge interest for the year ended of $4,711 (December 31, 2018 – $4,381).
(2) Includes amortization of deferred loan costs of $1,666 (December 31, 2018 – $828) and OCI hedge interest of $1,253.
(3) Represents costs related to the non-controlling interest of the minority shareholders in CAPREIT’s foreign subsidiaries.
23. Joint Arrangements
CAPREIT’s share of the assets, liabilities, revenues, expenses and cash flows from joint arrangement activities is summarized
as follows:
Year Ended December 31,
Assets
Liabilities
Revenues
Expenses and other adjustments
Net income
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
24. Supplemental Cash Flow Information
a) Net Income Items Related to Investing and Financing Activities
For the Year Ended December 31,
Dividend and interest income
Interest paid on Exchangeable Units
Interest paid on mortgages payable
Interest paid on bank indebtedness
Interest paid on leases
Non-cash non-controlling interest costs
Net proceeds
b) Changes in Non-cash Operating Assets and Liabilities
For the Year Ended December 31,
Prepaid expenses
Tenant inducements, direct leasing costs and other adjustments
Other receivables
Deposits
Accounts payable and other liabilities
Security deposits
Current tax liability
Net increase (decrease) in non-cash operating assets and liabilities
$
$
$
$
$
$
2019
332,606
89,734
18,313
(63,713)
82,026
9,169
(2,653)
2,228
2019
(2,732)
–
111,790
7,819
2,038
–
$
118,915
$
$
2019
(1,373)
104
(1,945)
10
(4,186)
4,118
18,292
15,020
$
$
2018
242,141
70,702
16,882
(6,984)
25,593
10,870
(2,637)
(7,911)
2018
(1,588)
115
106,593
7,563
–
9,821
122,504
2018
(956)
2,496
(811)
(1,910)
23,733
3,092
–
$
25,644
113
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements c) Net Cash Distributions to Unitholders and Non-Controlling Interest
For the Year Ended December 31,
Distributions declared to Unitholders
Add: Distributions payable to Unitholders at beginning of the year
Less: Distributions payable to Unitholders at end of the year
Less: Distributions to participants in the DRIP
Add: Distributions payable to non-controlling interest at beginning of the year
Less: Distributions payable to non-controlling interest at end of the year
Net disbursement
d) Capital Investments
For the Year Ended December 31,
Capital investments
Change in capital investments included in accounts payable and other liabilities
Net disbursement
e) Acquisition of Investment Properties
For the Year Ended December 31,
Acquired properties
Fair value adjustment of assumed debt
Assumed debt
Deposit on purchases
Contributions from non-controlling interest
Net disbursement
f) Disposition of Investment Properties
For the Year Ended December 31,
Proceeds
Closing costs
Mortgages assumed by purchasers and discharged
Net proceeds
g) Issuance of Trust Units
For the Year Ended December 31,
Issuance of Trust Units
Conversion of Exchangeable Units to Trust Units
Settlement of Unit-based Compensation Awards for Trust Units
Net proceeds
$
2019
(218,136)
(16,143)
19,533
67,393
–
832
$
2018
(187,848)
(14,714)
16,143
51,490
–
–
$
(146,521)
$
(134,929)
2019
(241,814)
(543)
(242,357)
$
$
2018
(203,799)
15
(203,784)
$
$
2019
2018
$
(1,384,908)
$
(504,710)
68
74,345
(16,905)
–
(1,972)
22,915
1,399
216
$
(1,327,400)
$
(482,152)
$
$
2019
–
–
–
–
2019
$
1,090,847
–
(14,740)
$
1,076,107
2018
140,926
(842)
(58,212)
81,872
2018
280,793
(5,716)
(66,129)
208,948
$
$
$
$
114
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements h) Mortgage Portfolio
The following table summarizes the movement in mortgages payable during the period:
As at December 31,
Balance, beginning of the year
Add:
New borrowings on acquisitions
Refinanced
Less:
Mortgage principal amortization
Mortgages matured
Mortgages repaid on dispositions of investment properties
Non-cash Adjustments:
Mortgages assumed(1)
Foreign currency translation
Change in deferred financing costs, fair value adjustments, net
Balance, end of the year
2019
2018
$
3,728,333
$
3,581,501
527,960
300,547
(125,902)
(232,336)
–
147,814
(35,214)
(2,630)
178,018
213,216
(116,877)
(103,734)
(58,212)
22,915
12,382
(876)
$
4,308,572
$
3,728,333
(1) Includes the mortgages on the properties acquired as part of the Acquisition. For details, please refer to note 4 of the consolidated annual financial statements.
i) Bank Indebtedness
The following table summarizes the movement in bank indebtedness during the year:
As at December 31,
Balance, beginning of the year
Net borrowings before foreign currency translation
Foreign currency translation
Balance, end of the year
25. Revenues and Other Income
Other Income
For the Year Ended December 31,
Investment income
Net profit from equity-accounted investment(1)
Asset and property management fees(2)
Other
Total
2019
567,365
87,000
(30,472)
623,893
2019
1,674
23,440
8,038
1,752
34,904
$
$
$
$
2018
446,895
85,981
34,489
567,365
2018
1,384
32,633
7,285
1,008
42,310
$
$
$
$
(1) CAPREIT’s share of IRES’ investment property fair value change, earnings and foreign exchange effects thereon. For the years ended December 31, 2019 and 2018,
CAPREIT’s share of IRES’ investment property fair value gain is $15,201 and $25,159, respectively.
(2) Based on investment management agreement with IRES, which owns properties in Ireland.
In accordance with the adoption of IFRS 15, management has evaluated the lease and non-lease components of its revenue
and income. Revenues under IFRS 15 consist of asset and property management fees listed above and miscellaneous revenues.
For the year ended December 31, 2019, miscellaneous revenues of $9,243 were included in revenue from investment properties
(year ended December 31, 2018 – $7,423). Miscellaneous revenues consist of cable income, common area maintenance
recoveries and premium service components.
115
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements 26. Related Party Transactions
a) IRES Transactions
As at December 31, 2019, CAPREIT has an 18.3% share ownership in IRES and has determined that it has significant
influence over IRES. In May and November 2018, the former CEO of CAPREIT, David Ehrlich, exercised 11,793,333 and
716,667 IRES options, respectively, and sold the shares issued to him by IRES to CAPREIT. The sale of these shares by the
former CEO resulted in CAPREIT’s share ownership in IRES increasing to 18.0% from 15.7% prior to May 2018. Pursuant to
a placing of shares completed by IRES in June 2019 and July 2019, CAPREIT’s share ownership increased to 18.3%. The share
ownership is held through a wholly-owned subsidiary of CAPREIT, Irish Residential Properties Fund. See note 7 for a more
detailed description.
Included in other income for the year ended December 31, 2019 is $8,038 (2018 – $7,285) from asset management and
property management fees. Expenses related to the asset and property management services are included in trust expenses.
The amount receivable from IRES as at December 31, 2019 is $2,730 (December 31, 2018 – $1,237).
b) Transactions with Key Management Personnel
Key management personnel are eligible to participate in the EUPP. In addition, certain key management personnel also
participate in the RUR Plan and trustees currently participate in the DUP. Pursuant to employee contracts, key management
personnel are entitled to termination benefits that provide for payments of up to 36 months of benefits (based on base salary,
bonus and other benefits), depending on cause.
Key management personnel and trustee compensation included in the consolidated statements of income and comprehensive
income comprises:
For the Year Ended December 31,
Short-term employee benefits
Unit-based compensation – grant date amortization(1)
Unit-based compensation – fair value remeasurement
Other benefits
Total
$
$
2019
2,692
3,178
5,870
4,411
–
2018
3,337
2,683
6,020
3,739
2,983
$
10,281
$
12,742
(1) 2019 figures include $750 of accelerated vesting of previously granted RUR Units related to the former President and CEO.
c) ERES Transactions
New Management Agreement
Upon closing of the Acquisition, CAPREIT and CanLiving (together, the “Manager”) entered into a new management
agreement with ERES pursuant to which the Manager will act as the asset manager to ERES, except for the commercial
properties (the “New Management Agreement”). The Manager will, among other things, provide strategic, advisory, asset
management, project management, construction management and administrative services necessary for ERES.
The New Management Agreement provides for a broad range of asset management services for the following fees:
a)
b)
An annual asset management fee in the amount of 0.35% of the historical purchase price of ERES’ properties excluding
the commercial properties plus HST/VAT;
An acquisition fee in the amount of (i) 1.0% of the purchase price paid by ERES or one or more of its subsidiaries
for the purchase of a residential or commercial real property of ERES located in Europe, on the first €100,000 of such
properties acquired in each fiscal year, (ii) 0.75% of the purchase price paid by ERES or one or more of its subsidiaries for
the purchase of such a property, on the next €100,000 of such properties acquired in each fiscal year, and (iii) 0.50% of
the purchase price paid by ERES or one or more of its subsidiaries for the purchase of such a property, on properties in
excess of €200,000 acquired in each fiscal year, plus VAT;
c)
A capital expenditure fee equal to 5.0% of all hard construction costs incurred on each capital project (other than in
respect of the commercial properties) with costs in excess of €1,000, excluding work done on behalf of tenants or any
maintenance expenditures, plus VAT; and
116
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements d)
A financing fee equal to 0.25% of the debt and equity of all financing or refinancing transactions completed for ERES
or any of its subsidiaries, which is intended to cover the actual expenses incurred by the Manager in supplying services
to ERES relating to financing transactions. To the extent that the Financing Fees paid by ERES exceed the actual amount
of such expenses, the Manager will reimburse ERES for the difference. To the extent that the Financing Fees charged by
the Manager are less than the actual amount of such expenses, ERES will pay the difference as an additional Financing
Fee amount.
During the year ended December 31, 2019, the Manager recorded asset management fees from ERES of $3,543 (year ended
December 31, 2018 – $nil). In addition, the Manager earned acquisition fees of $2,826 (year ended December 31, 2018 – $nil).
Any asset management fees and acquisition fees charged by the Manager to ERES are eliminated upon consolidation in these
consolidated annual financial statements.
Property Management Agreement
Prior to closing of the Acquisition, ERES had a property management agreement with CanLiving. Under the terms of the
agreement, CanLiving received 3.5%, effective February 2019 (2.5% previously), of EGI (effective gross income) for its
services. CanLiving was a subsidiary of Holding BV prior to December 27, 2018, when Holding BV transferred the shares of
CanLiving to CAPREIT.
Upon closing of the Acquisition, CanLiving entered into a new property management agreement with ERES pursuant to which
CanLiving will act as the property manager to ERES for residential properties and receive 3.5% of EGI for its services.
During the year ended December 31, 2019, CAPREIT recorded property management fees from ERES of $2,208. During the
year ended December 31, 2018, CAPREIT recorded property management fees from CAPREIT Holding B.V. of $1,027, which
was eliminated on consolidation.
Any property management fees charged by CanLiving to ERES will be eliminated upon consolidation in these consolidated
annual financial statements.
Services Agreement
The Manager has entered into a services agreement with ERES, pursuant to which the Manager will provide ERES with certain
administrative services, including financial, information technology, internal audit and other support services as may be
reasonably required from time to time. The Manager will provide these services to ERES on a cost recovery basis.
During the year ended December 31, 2019, CAPREIT recorded service fees from ERES of $379 (year ended December 31,
2018 – $nil).
Any service fees charged by the Manager to ERES will be eliminated upon consolidation in these consolidated annual financial
statements.
Pipeline Agreement
CAPREIT entered into a pipeline agreement with ERES (the “Pipeline Agreement”) on March 29, 2019, pursuant to which
CAPREIT, for a period ending on the two-year anniversary of the entering into of the Pipeline Agreement, will make up
to $238 million (€165 million) (the “Total Commitment”) available to acquire Pipeline Properties that comply with ERES’
investment policy and do not contravene the investment policy of CAPREIT for which ERES wishes to purchase but is unable
to do so (a “Suitable Property Investment”). Once any part of the Total Commitment has been repaid by cash or units, that
part of the Total Commitment will be available for reuse under the terms of the Pipeline Agreement.
Pursuant to the terms of the Pipeline Agreement, on May 31, 2019, wholly-owned subsidiaries of CAPREIT sold to ERES
26 properties representing an aggregate of 1,257 residential suites, ancillary commercial space and parking facilities, located in
24 cities and towns across the Netherlands. The sale price of the portfolio was at the original acquisition cost of $350.3 million,
satisfied through the transfer of $146.5 million in mortgages plus $203.8 million satisfied through the receipt of 50.6 million
Class B LP Units of ERES LP.
117
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements On June 28, 2019, wholly-owned subsidiaries of CAPREIT sold to ERES 21 properties representing an aggregate of 511
residential suites located in 6 locations across the Netherlands at the original acquisition cost of $145.9 million, and earned an
underwriting fee of $1.6 million under the Pipeline Agreement. ERES paid $123.7 million in cash and $33.4 million through
the issuance of 8.3 million Class B LP Units of ERES LP.
On September 30, 2019, wholly-owned subsidiaries of CAPREIT sold to ERES 18 properties representing an aggregate of
942 residential suites located in 7 locations across the Netherlands at the original acquisition cost of $246.2 million, and
earned an underwriting fee of $2.4 million under the Pipeline Agreement. ERES paid $243.6 million in cash and $5.0 million
through the issuance of 1.1 million Class B LP Units of ERES LP.
27. Commitments
Natural Gas
Through the combination of fixed and variable price contracts, CAPREIT is committed as at December 31, 2019 in the
aggregate amount of $10,632 for its natural gas and transport requirements. These commitments, which range from one to
three years, fix the price of natural gas and transport for a portion of CAPREIT’s requirements as summarized below.
Gas Commodity
Fixed weighted average cost per GJ(1)
Total of CAPREIT’s estimated requirements
Transport
Fixed weighted average cost per GJ(1)
Total of CAPREIT’s estimated requirements
$
$
2020
2.17
82.5%
1.21
76.3%
$
$
2021
1.70
67.7%
1.41
67.7%
$
$
2022
1.85
33.4%
1.28
33.4%
(1) Fixed weighted average cost per gigajoule (“GJ”) excludes other administrative costs.
Property capital investments
Commitments primarily related to capital investments in investment properties of $29,483 were outstanding as at
December 31, 2019 (December 31, 2018 – $30,063).
28. Contingencies
CAPREIT is contingently liable under guarantees provided to certain of CAPREIT’s and CAPREIT’s subsidiaries’ lenders in
the event of default, and with respect to litigation and claims that arise in the ordinary course of business. Matters relating to
litigation and claims are generally covered by insurance, or have been provided for in Trust expenses where appropriate.
29. Segmented Information
CAPREIT has determined upon recent acquisitions of additional European properties resource allocation, the chief operating
decision-maker now reviews operating results for the European properties to make decisions about resources to be allocated
to the segment and assess its performance.
CAPREIT owns and operates investment properties located in Canada, the Netherlands, Germany and Belgium. In measuring
performance, CAPREIT distinguishes its operations on a geographic basis and, accordingly, has identified two reportable
segments for disclosure purposes after aggregation. Segments include (i) Canada and (ii) the Netherlands and other
European markets.
Selected income statement items
Revenue from investment properties
Operating expenses
Net rental income
Fair value adjustments of investment properties
118
Canada
704,842
(252,900)
451,942
786,981
$
$
$
$
$
$
For the Year Ended December 31, 2019
Europe
73,042
(16,834)
56,208
105,175
Consolidated
Financial Statements
$
$
$
777,884
(269,734)
508,150
892,156
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements Selected income statement items
Revenue from investment properties
Operating expenses
Net rental income
Fair value adjustments of investment properties
Selected balance sheet items
Investment properties
Mortgages payable
Selected balance sheet items
Investment properties
Mortgages payable
Canada
655,438
(240,142)
415,296
897,170
$
$
$
$
$
$
For the Year Ended December 31, 2018
Europe
33,147
(9,387)
23,760
93,359
Consolidated
Financial Statements
$
$
$
688,585
(249,529)
439,056
990,529
Canada
Europe
As at December 31, 2019
Consolidated
Financial Statements
$
11,133,477
$
1,962,949
$
13,096,426
3,429,921
878,651
4,308,572
Canada
Europe
As at December 31, 2018
Consolidated
Financial Statements
$
9,432,837
$
1,040,707
$
10,473,544
3,258,641
469,692
3,728,333
30. Subsequent Events
On January 9, 2020, CAPREIT completed the buyout of an existing operating lease on an apartment property located at
111 Davisville in Toronto, Ontario, converting the ownership to a traditional fee simple property interest. The net purchase
price for the leased property was $17,334, funded by cash from CAPREIT’s December equity offering.
On January 31, 2020, ERES closed on its sale of one commercial property located in Dusseldorf, Germany, for a sale price of
$24,764 (€16,900). The proceeds have been used to settle the outstanding mortgage with a principal balance of $10,166 (€6,938).
On February 10, 2020, CAPREIT completed the acquisition of a portfolio of eight properties containing 14 apartment
buildings totalling 1,503 rental suites in Halifax, Nova Scotia. The purchase price of $391,000 was satisfied by the assumption
of $109,014 in mortgages with a weighted average interest rate of 1.94% and a weighted average term to maturity of 1.14 years,
with the balance in cash from CAPREIT’s December equity offering and its Acquisition and Operating Credit Facility.
119
CAPREIT | 2019 | ANNUAL REPORTNotes to Consolidated Financial Statements
Unitholder Information
Unitholder Information
Head Office
11 Church Street, Suite 401
Toronto, Ontario M5E 1W1
Tel: 416.861.9404
Fax: 416.861.9209
website: www.caprent.com or www.capreit.net
Officers
Michael Stein
Chairman
Mark Kenney
President and Chief Executive Officer
Scott Cryer
Chief Financial Officer
Jodi Lieberman
Chief Human Resources Officer
Corinne Pruzanski
General Counsel and Corporate Secretary
Investor Information
Analysts, Unitholders and others seeking financial data
should visit CAPREIT’s website at www.caprent.com or
www.capreit.net or contact:
Mark Kenney
President and Chief Executive Officer
Tel: 416.861.9404
E-mail: ir@capreit.net
Registrar and Transfer Agent
Computershare Trust Company of Canada
100 University Avenue, 9th Floor
Toronto, Ontario M5J 2Y1
Tel: 1.800.663.9097
E-mail: caregistry@computershare.com
Auditor
PricewaterhouseCoopers LLP
Legal Counsel
Stikeman Elliott LLP
Stock Exchange Listing
Units of CAPREIT are listed on the Toronto Stock Exchange
under the trading symbol “CAR.UN.”
120
CAPREIT | 2019 | ANNUAL REPORT 2019 ESG Report
Personifying CAPREIT’s Best
About CAPREIT
Canadian Apartment Properties REIT (“CAPREIT”) is one of Canada’s
largest real estate investment trusts. CAPREIT owns approximately
55,100 suites, including townhomes and manufacturing housing sites, in
Canada and, indirectly through its investment in ERES, approximately
5,600 suites in the Netherlands. CAPREIT manages approximately
59,200 of its owned suites in Canada and the Netherlands, and
additionally 3,700 suites in Ireland as at December 31, 2019.
Reporting Boundaries
This report discloses CAPREIT’s ESG-related performance for our fiscal year ended December 31st, 2019.
Although CAPREIT’s consolidated financial statements include CAPREIT’s operational footprint in Europe, our
2019 ESG reporting boundaries solely include CAPREIT’s Canadian business operations. This report has been
prepared in accordance with the Global Reporting Initiative (“GRI”) Standards: Core option. For additional
report boundaries, please see our ESG Scorecard.
Table of Contents
In Conversation with Our Leadership
CAPREIT’s 2019 ESG Report Highlights:
The Investor’s Digest
Integrating a Corporate-wide ESG Strategy
Environmental Stewardship
Acquisitions & Development
Operational Footprint Management
Environmental and Operational Health &
Safety Management
The Olympic Village, Montreal, QC
2
4
5
7
8
10
14
Our People, Partners and Communities
Our People
Supply Chain Management
Resident Engagement
Investing in Our Communities
Corporate Governance
Corporate Governance and Integrity
Industry Awards, Certifications and Recognitions
CAPREIT’s 2019 ESG Performance Scorecard
GRI Content Index: General Disclosures
17
18
29
32
38
41
42
48
50
52
1
CAPREIT | 2019 | ESG REPORT
In Conversation with Our Leadership
Investor expectations are constantly evolving. As part of that investor evolution, CAPREIT recognizes
that environmental, social and governance (“ESG”) disclosure is increasingly being associated with
investor expectations. Mark Kenney, President and Chief Executive Officer, and Elaine Todres, Chair
of Human Resources and Compensation (HR&C) Committee and Independent Trustee at CAPREIT,
sat down to discuss what ESG competency means for our organization and its implications on our
corporate strategy and expected performance.
How does CAPREIT define ESG strategy
and what does it mean to our organization?
CAPREIT understands that the evolving global market is
introducing new risk factors and opportunities for value
creation for investors and their funds. The integration of
an ESG strategy can help proactively address these risks
and create new value-add opportunities, thereby assuring
investors that CAPREIT is not only effectively managing
our operations but that we have the necessary governance
structure in place. At CAPREIT, our investments extend
beyond managing our buildings to include the people we
employ, the residents we house, the suppliers we engage
and the communities in which we operate. Through these
strategic alignments, we generate positive returns for our
investors, while also making meaningful contributions to the
communities we impact and the environment in which we
operate. Building and delivering ESG competency means we
have a common corporate definition and understanding of
ESG and how responsibility and accountability are trickled
across varying decision-making processes and departments.
We kicked off 2019 with the official unveiling of Elevation
2023, our five-year corporate growth strategy. Through
Elevation 2023, we sought to clarify our priorities, ensure
the delivery of a common understanding and create
energy, focus and momentum. Elevation 2023 presented
an opportunity to reflect deeply on the issues that matter
most to our stakeholders and the many ways that we, as one
of the country’s leading residential providers, can deliver a
meaningful impact. The major focus of this growth strategy
ensures that our key stakeholders are front and centre of this
delivery – namely our employees, residents and investors.
We have committed to our employees to be the best place to
work. We aspire to be the best place to live for our residents
who choose CAPREIT as their home. And we seek to drive
strong returns for our Unitholders. Elevation 2023 sets the
stage for vision, expectation and continued success. The
qualitative and quantitative measurement of progress will
make our leadership accountable through execution of all
key deliverables for an integrated ESG strategy.
22
CAPREIT | 2019 | ESG REPORT
CAPREIT | 2019 | ESG REPORTQ& Q & A with Mark Kenney (President and CEO) and Elaine Todres (Chair of HR&C Committee)
How is ESG integrated into CAPREIT’s
corporate strategy?
Integration starts by understanding and acknowledging roles
and responsibilities, along with accountability. That said,
integrating elements of sustainability-related initiatives have
been a foundational part of our corporate culture for close
to 10 years. For example, on page 10 you can read about the
energy conservation efforts that have helped us achieve 25%
reduction in energy use intensity (“EUI”) across our Ontario
portfolio over the last decade. Conservation efforts such as
lighting retrofits and the installation of smart meters have
improved the operating efficiency of our buildings while
keeping resident comfort top of mind. On page 18, you can
read how we have consistently invested in the development
of our talent pool by delivering close to 13,200 hours of
in-house training in 2019, which was one of the many
reasons we maintained the Aon Best Employer recognition
seven years running. This recognition is a testament to
our leadership team’s exceptional commitment to support
workplace diversity and professional development to
help attract and retain the best talent in the industry. We
are also thrilled to report the launch of Resident Portal
on page 33, detailing the online portal tool that will
enhance the resident experience by enabling access to and
reservation of CAPREIT amenities and the submission of
maintenance requests.
Although we have been applying sustainable practices
throughout our operations for over a decade, developing
an ESG strategy is the evolution of our current business
environment. We see the value in developing and integrating
an ESG strategy to help deliver better programs and services
to our stakeholders, and ultimately better-measured results
to our Unitholders. Through our collaborative culture,
we have established the necessary building blocks to
better understand our exposure to ESG-related risks and
opportunities and advance ESG-related projects. Page 4
details some of the notable ESG achievements in 2019, one
of which includes building the in-house ESG subject-matter
expertise by onboarding our Director of ESG Strategy
Integration in early 2019, who is working closely with our
leadership team to ensure that ESG is firmly embedded in
CAPREIT’s collaborative culture. With our commitment
to an integrative strategy, we are excited to introduce and
disclose our ESG performance.
What is different about CAPREIT’s
approach to ESG integration?
We understand our commitment to ESG is a strategic
competitive differentiator that helps us attract and retain
the best people in the business, better serve our residents
and the communities we operate in, deliver value to our
Unitholders and stay ahead of what’s next for our industry.
Over the past 21 years, we have built what we believe is one
of the most efficient and effective operating platforms in
the multi-residential business. Through further investments
in technology, innovation and our people, we will continue
to strengthen and enhance our operations to ensure we are
achieving the highest possible returns for our Unitholders.
What can our stakeholders expect from
CAPREIT on delivering our ESG strategy
going forward?
Our stakeholders can remain confident in our delivery of a
strong ESG disclosure in 2020 that supports our Elevation
2023 strategy. By mid-2020, we will be submitting our
inaugural Global Real Estate Sustainability Benchmark
(“GRESB”) application, an industry-leading global assessor
of the ESG performance of real estate assets and their
managers. In support of our commitment to evolve our ESG
disclosure and reporting, we will also look to complete a
materiality assessment to help us identify the most material
issues affecting our key stakeholders. In 2020, we will also
look to evolve our understanding and commitment to
demonstrating alignment on matters such as climate-related
risks and opportunities, which are increasingly important
to our residents, employees, investors and the communities
we serve. We will continue to drive resident satisfaction to
maintain our high occupancies and tenant comfort. Taking
this vision forward and continuing to build on all that we
have built to date is what energizes us and our team every
single day. We are excited for CAPREIT’s future. As we
look ahead, we remain committed to advancing our ESG
initiatives and reporting our progress. In the spirit of our
Elevation 2023 commitment to be the best place to work,
live and invest, we are excited to showcase what CAPREIT’s
best looks like throughout our 2019 ESG Report.
– MARK KENNEY, PRESIDENT AND CHIEF EXECUTIVE OFFICER
– ELAINE TODRES, CHAIR OF HR&C COMMITTEE
CAPREIT | 2019 | ESG REPORT
33
CAPREIT | 2019 | ESG REPORT&A CAPREIT’s 2019 ESG Report Highlights:
The Investor’s Digest
With a workforce of over 1,000 employees coast to coast, supporting a resident base of over 80,000 people
spread across more than 55,000 residential rental apartments, townhouse suites and manufactured home
communities, we have a lot to report on. We understand not everyone might have time to read in detail
CAPREIT’s industry-leading achievements, so we condensed our report highlights into one page to
illustrate how we are aligning our ESG strategy integration into our Elevation 2023 commitment to be
the best place to work, live and invest. Enjoy our summarized report below.
2019 ESG-Related Initiatives
7th
consecutive year
platinum-level Aon Best
Employer in Canada
•
•
•
•
51:49 gender split between
self-identified women and men.
Celebrating over 61 spoken
languages.
Over 13,200 hours of internal courses
and conferences completed
by employees.
Best-in-class leadership
development programs:
rotational management training
and mentoring programs.
~8/10
overall staff performance
score on our resident
satisfaction survey
• Resident Portal launch across
96 properties in key Canadian
residential markets.
• 830+ ENERGY STAR certified
in-suite appliances purchased
since 2018.
• Over $15 million invested to improve
building operational performance
and deliver resident comfort.
• Over 135 hours of fun and engaging
events delivered by CAPREIT staff
for a tailored resident experience.
~43%
self-identified female
representation on
CAPREIT’S Board
•
~88% Board independence,
consisting of a diversely strong,
independent and evolving
corporate governance.
•
•
•
Adoption of comprehensive corporate
governance policies and procedures,
including a formalized corporate ESG
policy approved by our Board of Trustees.
Bronze-level parity certification
achieved for advancing women in both
their leadership and career development,
and facilitating access to Board seats.
Building ESG corporate-
wide competency through
sub-committees designed to
support ESG strategy integration.
The Best Place to Work
Through our culture of excellence
and supportive work environment
we continue to attract and retain
the high performers and top talent
that are essential to our corporate
and financial success.
The Best Place to Live
We work proactively to anticipate
the growing expectations of our
residents and community partners
through operational improvements,
along with engagement and
relationship-building activities.
The Best Place to Invest
Our dedication to timely disclosure
and transparency, along with our
robust leadership and governance
practices, demonstrate the leadership
and vision needed to ensure long-
term value for shareholders.
4
CAPREIT | 2019 | ESG REPORT Integrating a Corporate-wide ESG Strategy
Building a narrative that personifies CAPREIT’s best.
In our inaugural year of formalizing CAPREIT’s ESG strategy, understanding our corporate narrative was essential to assuring
an impactful performance disclosure. As the owner and operator of a sizable and growing portfolio of existing residential
apartment buildings, manufactured homes and new developments across Canada, we recognize the impact our narrative poses
on attracting and retaining the best employees, the value added to the lives of our residents and of the communities in which
we operate and the resulting implications to our Unitholders. CAPREIT’s two-decade-long narrative is well encapsulated
in our Elevation 2023 corporate strategy, which is our corporate commitment to be the best place to work, live and invest.
Integrating elements of sustainability-related initiatives are foundational to CAPREIT’s corporate culture, and the launch of
a formalized ESG strategy in 2019 was second nature to our business characteristic.
In addition to establishing our corporate narrative, we are proud to have delivered some foundational building blocks in 2019
that will set the tone for an effective ESG strategy integration going forward. Some of those initial key deliverables include:
Building a Corporate-wide ESG Competency
One of the early deliverables for our ESG team was to build a corporate-wide ESG competency, starting from the Board
and executive level, and trickling throughout various business functions. Our ESG strategy integration team conducted
in-person presentations and leveraged virtual conference tools to socialize our ESG strategy coast to coast, resulting in
over 30% employee engagement rate. That translates into 15 hours of ESG-related engagement across our corporate and
operational teams.
Halifax Regional Office
Vancouver Regional Office
Quebec City Regional Office
5
CAPREIT | 2019 | ESG REPORT Integrating a Corporate-wide ESG Strategy
Setting ESG Sub-committees
In an effort to ensure the effective integration of CAPREIT’s
ESG strategy into the day-to-day operations and decision-
making of both the corporate and operational teams, we
established two ESG sub-committees, who are overseen
by our ESG Steering Committee. These two ESG sub-
committees are:
Building Efficiency: Provides feedback and formalizes
ESG-related policies and programs impacting
CAPREIT’s operational performance, including
approving our national sustainability & conservation
standard and reviewing resident engagement-related
programs. In doing so, the Building Efficiency
sub-committee supports the sustainable development,
operations and management of our operational
footprint.
Building Accountability: Similar to the Building
Efficiency sub-committee, this sub-committee
provides feedback and formalizes ESG policies and
programs impacting CAPREIT’s corporate
performance. Key project deliverables resulting from
the sub-committee’s work include our PaperCut pilot
project and developing a sustainability office
challenge, which will launch in 2020.
Meeting a minimum of once a quarter, both sub-
committees are represented by varying business
partners, and are co-chaired by the ESG strategy
integration and sustainability & conservation teams.
Formalizing Our Corporate ESG Policy
By the end of 2019, with the guidance of our ESG Steering
Committee, we formalized our Corporate ESG Policy, which
is our corporate commitment to assess the application of
ESG-related factors across all stages of our decision-making
processes. The policy states corporate, departmental and
employee-level roles and responsibilities to effectively
support our ESG strategy integration. In addition,
departmental-level KPIs have been set to help promote target
setting, measurement, management and reporting of our
ESG performance.
Looking
Ahead
In 2019, we focused on building ESG competency across
our organization, while also setting an ESG narrative
that our employees are proud to convey. Recognizing the
achievements we have made to date, we also understand
that we still have a long journey to full ESG integration.
As we look to further socialize the formalization of our
ESG strategy, added key deliverables will include:
• Following our Global Real Estate Sustainability
Benchmark (“GRESB”) pre-assessment in 2018, we will
be completing our inaugural GRESB submission in 2020,
which will assess our ESG-related performance against our
industry peers.
• Continuing our analysis to complete a materiality
assessment to help identify key measures to support our
strategic integration and planning process.
• Developing cross-departmental stakeholder engagement
initiatives that will look to align our goals with supply
chain partners, employees, residents and our investor base.
The UN Sustainable Development Goals (“SDGs”) are a call
to action designed to focus on fundamental environmental
and social issues. Recognizing our responsibility in supporting
the SDGs and building a more sustainable future, CAPREIT’s
corporate policies and program alignment with the SDGs
are illustrated where applicable at the end of each section of
the report.
CAPREIT’s ESG team
6
CAPREIT | 2019 | ESG REPORT Environmental
Stewardship
Over 15%
25%
water reduction
over 10 years
reduction in energy use
intensity over 10 years
in our Ontario portfolio
Fraser Flats, Vancouver, BC
7
CAPREIT | 2019 | ESG REPORT CAPREIT’s acquisitions team
Acquisitions & Development
Assessing ESG-related factors to make an informed decision
in addressing risks and capitalizing on opportunities.
Acquisitions
As a long-term owner and manager of real estate with
a portfolio spanning over 55,000 units coast to coast,
CAPREIT’s high-quality property portfolio is well-diversified
demographically, geographically and by property type, and
is strongly positioned in key Canadian urban markets. Since
1997, CAPREIT has continued to increase its presence in the
higher-return luxury and mid-tier demographic segments
while entering the stable and growing manufactured home
communities market.
With an annualized Canadian portfolio growth of 14.32%
in 2019, CAPREIT remains committed to assessing every
investment based on its specific opportunities and risk
factors, including asset location, neighbourhood-specific
amenities, features and growth opportunities. CAPREIT’s
current acquisition due diligence checklist includes
environmental and social factors when assessing the
qualitative and quantitative risk analysis of each investment,
such as:
• CAPREIT’s environmental processes and procedures to
action any added investigation or remediation that may
result from a phase 1 environmental assessment report
• Review of CAPREIT’s Commissioned Fire Safety Report
by our in-house liability, life and fire safety team
• Review and assessment of a minimum of 12 months of
utility bills and contracts to determine if business terms
and operational performance align with CAPREIT’s
sustainability & conservation standard
8
CAPREIT | 2019 | ESG REPORT Development
CAPREIT has invested in residential real estate for two
decades, often consciously acquiring proprieties with future
development in mind. As such, CAPREIT continuously
seeks to create value and future-proof asset growth through
identification, management, design and entitlement of new
income producing property (“IPP”) rental assets within our
existing portfolio. In response to the recent demand for a
purpose-built residential rental product for Canada’s market
economy, CAPREIT has several projects in our pipeline.
The first major development project is anticipated to break
ground in 2021. As our development projects progress, we
will aim to support responsible property investment and
development best practices that align with leading industry
standards for long-term hold assets.
Looking
Ahead
Starting in 2020, we will further assess our inclusion of
ESG-related measures as part of our due diligence process
and decision-making on all new acquisitions under the
Board’s review, particularly climate-related resilience and
adaptation factors. We will continue to strengthen our due
diligence process and ensure key risks are uncovered through
the following priority actions:
• Identification – Defining the ESG-related boundaries
of our due diligence process.
• Analysis – Perform a desktop review by collecting and
reviewing available documentation, including a checklist
approach throughout the due diligence process to identify
ESG-related risks and opportunities that are currently or
potentially materializing over the investment horizon.
• Recommendation – Prepare a document for the
Investment Committee summarizing key findings,
including material ESG risks, opportunities and
corrective actions.
Sustainable Development Goals Alignment
Acquisitions & Development
As we create value and future asset growth through our
developments, we will ensure that resilient and adaptive
climate and socio-economic related design factors are
incorporated by adopting inclusive and innovative
development design approaches, such as:
• Tenant communication strategy & protocol – Address
resident engagement and notification in the development
process, as well as appropriate personnel training.
• Internal stakeholder consultation plan – Identify the
required internal stakeholders, as well as how feedback and
comments are incorporated at various stages of the design
process to optimize project execution.
• New development design standards – Establish a guiding
document for building and operational standards for
all newly developed properties and existing buildings
undergoing major retrofits.
• Establish a development committee – Provide
governance oversight on development-specific capital
expenditure, pro forma and go ahead to move forward
on development projects.
CAPREIT’s development team
9
CAPREIT | 2019 | ESG REPORT Operational Footprint Management
Powering resident comfort through smart operations management.
For over two decades, CAPREIT has delivered an ongoing commitment to sustainability through integrating environmentally
responsible strategies and practices into every aspect of operating our business. By optimizing energy consumption at our
buildings, enabling employees and tenants with water conservation and waste diversion tools and implementing sustainability
practices across our portfolio, we seek to not only do our part in reducing related adverse impacts on the environment but to
also deliver sustainable returns to our Unitholders.
In maintaining our industry leadership, CAPREIT continuously invests in conservation measures across our portfolio.
In 2019, we invested over $15 million in improving the operational performance of our buildings, reducing our utility
consumption and increasing both tenant comfort and satisfaction in the process.
For existing buildings, new acquisitions and potential developments, CAPREIT continuously audits and benchmarks
properties to find opportunities to implement new conservation projects. We partner with industry experts to design,
evaluate and execute projects using both proven and leading-edge technologies.
Energy Management – Powering Smart
Energy conservation measures
• High-efficiency central boiler retrofits
• Building Automation System (“BAS”) with remote
monitoring & performance analytics
• In-suite radiator heat reflectors
• Heated garage CO monitoring system
• Mid- and high-efficiency make-up air and air handling
• Sub-metering
• LED lighting retrofit
• Lighting controls (occupancy & motion detection,
daylight harvesting, dimming technology, etc.)
• Variable frequency drives on pump and fan motors
• Central heating controls for electrically heated buildings
• In-suite smart thermostats
• Combined heat and power
• Chiller replacement
• Heat-recovery technology
10
Over $47 million
invested in energy conservation
measures, representing ~8.4%
of our capital spent in the last
three years
Over 8% energy
savings in the last decade.
This is equivalent to providing
5,551 homes with electricity
for one year
GHG emission
reductions of over
8,500 tCO2e in the last
decade. This is equivalent to
taking 2,686 cars off the road
for one year
CAPREIT | 2019 | ESG REPORT Energy and Water Reporting and
Benchmarking (“EWRB”)
As part of Ontario’s voluntary Energy and Water Reporting and
Benchmarking (“EWRB”) initiative intended to help building
owners and managers improve their buildings’ operational
efficiency, CAPREIT reported on the building performance
of 47% of our Ontario portfolio. Reporting on properties of
100,000 square feet or greater, CAPREIT’s 10 years of building
data demonstrated a 25% reduction in energy use intensity
(“EUI”) as a result of CAPREIT’s conservation efforts.
100
50
0
Operational Footprint Management
Ontario Weather Normalized Site EUI Trend (kBtu/ft2)
78.6
78.2
75.1
72.6
71.0
68.8
65.0
63.4
63.6
64.1
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
25% reduction in EUI over 10 years in our Ontario portfolio
Key Energy Project Deliverables
Zero carbon buildings: A pathway powered by innovative technologies and renewable energy sources
Heat-Recovery Project
CAPREIT implemented a major retrofit project at a
property in Montreal, which included a new electric
heat pump replacing the existing natural gas boiler, and
added heat-recovery technology that will help reduce
the electrical consumption of the unit. The new unit
will eliminate 100% of our natural gas consumption
and provide better ventilation and control of the
building pressure. This project will reduce the building’s
annual GHG emissions by 188 tonnes of CO2e which is
equivalent to taking 52 vehicles off the road for one year.
Total Investment
Energy Subsidies
Project Payback
$743,000
$400,000
4.1 years
Annual GHG Reduction
Equivalency
188 tonnes CO2e
Removed 52 vehicles off the road
Renewable Natural Gas (“RNG”)
As an alternative to fossil fuel, CAPREIT successfully
implemented its first renewable natural gas (“RNG”)
project at two of our iconic properties in Quebec.
Transforming organic matter, such as table scraps into
energy, is one way to explore a natural gas solution that
is produced from a 100% renewable and carbon-neutral
source. RNG is produced locally and can be added to
the existing gas grid while providing our buildings with
renewable heat that brings our operational footprint one
step closer to cleaner fuel sources.
As of 2019
Natural Gas Replaced
40,000 m3
Annual GHG Reduction
Equivalency
71 tonnes of CO2e
Energy for 17 homes in a year
65 Sherbrooke, Montreal, QC
315 Boulevard
Rene Levesque,
Montreal, QC
30 Sainte-Ursule,
Quebec City, QC
11
CAPREIT | 2019 | ESG REPORT Operational Footprint Management
“Uncovering opportunities to invest in clean energy sources to
reduce our managed properties’ GHG emissions was our focus
in 2019. We anticipate expanding our operational sustainability
& conservation strategies by actively seeking new opportunities
and technologies to reduce our environmental footprint.”
MARC KADDISSI, P.ENG, SENIOR MANAGER,
TECHNICAL SERVICES AND SUSTAINABILITY
BAS Energy Management Pilot Project
Rolled across nine pilot sites, CAPREIT’s energy
management project is an online platform that provides
centralized access to live and historical BAS and integrated
weather data. The platform equips our sustainability &
conservation controls team with precise controls and the
ability to optimize energy usage while improving resident
comfort.
The pilot will serve to prove several benefits, including:
• Real-time insights into our BAS data, alerts and energy-
related KPIs
• Proactive monitoring and centralized response rates
through enhanced notifications
• Improved response times
• Increased tenant comfort
Pending on the pilot’s implementation results, we anticipate
a progressive project rollout across our Canadian portfolio.
Water Conservation
Our water conservation approach includes investigating
water fixture replacement and renewal opportunities,
along with applying practical procurement practices that
contribute to building-level water performance. CAPREIT
continues to evaluate the installation of the latest water-
efficient fixtures available on the market. For over a
decade, CAPREIT’s water conservation initiatives have
resulted in an aggregated over 15% water consumption
reduction, mainly delivered through the installation of:
• Ultra-high-efficiency three-litre toilets
• Low-flow showerheads
• Low-flow aerators
Reduction in Annual Water Consumption (m3/suite)
125
120
115
110
105
100
120.20
116.99 117.26
114.85
2016
2017
2018
2019
m3/suite
Average (m3/suite)
WaterSense
Over the past three years, CAPREIT invested $1.7 million in water conservation projects, resulting in
estimated water savings of over 43,000 m3. That is the equivalent of filling 17 Olympic-size swimming pools!
$1.7 million
invested in water conservation
projects since 2017
Over 15%
water reduction
over 10 years
Over 43,000 m3
in estimated water
savings since 2017
12
CAPREIT | 2019 | ESG REPORT Waste Diversion
Key Waste Diversion Highlights
and Accomplishments
Effective in 2019, our sustainability & conservation
team leveraged our Building Efficiency and Building
Accountability sub-committees to implement
conservation measures both at our building-level
operations and corporate offices.
Operational Footprint Management
PaperCut
Targeting departmental paper reduction
across our corporate head office in
Toronto, the PaperCut program is
the Building Accountability sub-
committee’s first pilot initiative. By introducing a tap and
release print function, the PaperCut pilot program is set
to help streamline our current printing process and needs.
CAPREIT is currently running this initiative as a pilot project
which includes 44 users across 13 corporate departments.
A full program rollout will be assessed in 2020.
CAPREIT’s Sustainable Office Challenge
In early 2019, our sustainability &
conservation team, with support
from the Building Efficiency and
Accountability sub-committees,
initiated our Sustainable Office
Challenge plan to empower employees
to incorporate sustainable practices
into their daily business operations. Focusing on building
awareness around corporate waste, energy conservation,
transportation and wellness, the Sustainable Office Challenge
is a corporate-wide initiative that will be further socialized in
2020 to help contribute to a positive workplace environment.
Some of the office-specific changes we
will look to implement include:
• Reduction of office paper use
• Elimination of single-use plastics
• Introduction of tri-bin waste sorting for waste, recycling
and compost
• Incorporating sustainability signage and messaging inside
CAPREIT offices to promote positive behaviour change
• Installation of LED lights, motion sensors and
programmable thermostats
• Introduction of smart appliances
• Promotion of cycling and carpooling
Looking
Ahead
CAPREIT will continue to investigate new technology
opportunities at applicable building sites. In collaboration
with our existing sub-committees, we will also assess the
opportunity to develop and apply building-level target
reductions across our portfolio.
Sustainable Development Goals Alignment
Kings Club, Toronto, ON
13
CAPREIT | 2019 | ESG REPORT Environmental and Operational Health
& Safety Management
Enhancing a workplace culture of health and safety and risk management.
Maintaining a culture of occupational health and safety is a continuing key objective at CAPREIT. Ongoing measures are
taken to establish, maintain and improve environmental, health and safety (“EHS”) policies and procedures that provide a
safe, secure and respectful work environment. CAPREIT’s dedicated team of EHS practitioners ensure we remain proactive in
assessing and mitigating operational risks, and that all employees are trained and understand the potential hazards inherent in
their job functions.
Spread across two segments, our EHS program consists of both an environmental management and a health and safety team.
The environmental management team is responsible for the oversight, review and management of environmental residential
and commercial risks during acquisitions, financing, development and operations, as well as assessing and managing
hazardous building materials. The health and safety team assesses and identifies risk-mitigating opportunities from an
employee, management, third-party and corporate perspective. This includes monitoring compliance to applicable legislation,
training, incident investigations and developing health and safety-related policies, programs and procedures for all
applicable stakeholders.
2019 EHS Initiatives
Key innovative and engaging solutions used to socialize policy and procedure adoption include:
~24 specialized, in-person fire
safety and incident reporting &
investigation sessions delivered
Revised, improved and socialized
47 OHS-specific related policies,
procedures and programs
A company-wide competition
that generated 20 OHS videos
submitted by departments coast
to coast
14 bilingual
micro-learning videos
Initiated rollout of our
National OH&S
seminars to solicit higher
engagement and knowledge
retention of OH&S-related
subject matter
14
CAPREIT | 2019 | ESG REPORT Environmental and Operational Health & Safety Management
“Ops-in-a-Box”: A six-part risk management module
A custom operational risk management system, “Ops-in-a-Box” is designed to
identify, analyze and help staff drive action on managing CAPREIT’s safe workplace
performance. Included in one of the six modules, the Occupational Health and Safety
module is a tool through which departments can collect and utilize varying types of
incident-related data to improve existing processes, ensure compliance and implement
industry best practices. For example, if a workplace injury incurs, both the EHS and
HR teams would be notified of the incident and initiate the appropriate action.
As we build a workplace culture of health and safety, CAPREIT can leverage the generated data to analyze and
establish metrics on frequency, location and type of reported risks. This will assist our operations support team to
determine how we can be proactive in mitigating potential operational risks attributed to specific equipment,
training, safety measures, procedures and other related attributes.
Policies
Procedures
Title
Status
Title
Incident & Injury Investigation
Revised & Actioned
Incident & Injury Investigation
Incident & Injury Reporting
Revised & Actioned
Incident & Injury Reporting
Hazard Identification & Control
Revised & Actioned
Hazard Identification & Control
Status
Revised & Actioned
Revised & Actioned
Revised & Actioned
Confined Space
Revised & Actioned
Asbestos Management Program Ontario
Revised & Actioned
Contractor & Sub-Contractor
Revised & Actioned
Personal Protective Equipment
Fire Safety
First Aid
Health & Safety Committee
Hearing Loss Prevention
Hot Work
Lock-Out/Tag-Out
Revised & Actioned
Workplace Inspections
Revised & Actioned
Asbestos Management Program Nova Scotia
Revised & Actioned
Revised & Actioned
Asbestos Management Program Quebec
Revised & Actioned
Revised & Actioned
Revised & Actioned
Revised & Actioned
Programs
Title
Status
Emergency Response Plan
To be Actioned in 2020
Revised & Actioned
Revised & Actioned
Corporate Occupational Health & Safety
Revised & Actioned
WHMIS
Working Alone
Working at Heights
Workplace Inspections
Revised & Actioned
Revised & Actioned
Revised & Actioned
Revised & Actioned
Psychological Safety & Well-Being
To be Actioned in 2020
Environmental Risk Management Policy
To be Actioned in 2020
The Tides, Summerside, PEI
Le Saint-Laurent, Quebec City, QC
15
CAPREIT | 2019 | ESG REPORT Environmental and Operational Health & Safety Management
CAPREIT’s risk and insurance,
and EHS team members
Sustainable Development Goals Alignment
Looking
Ahead
As a reflection of our commitment to being an industry-
leader in occupational health and safety, we will continue to
prioritize the assessment and mitigation of environmental,
health and safety risks to our key stakeholders by introducing
the following documents and initiatives in 2020:
• The adoption of a Psychological Health and Well-
being Policy as part of our commitment to foster a
psychologically healthy, positive and safe workplace for all
employees.
• A revised CAPREIT National Fire Safety Program to
continuously support our staff with the necessary training
and tools to provide a fire-safe environment.
16
CAPREIT | 2019 | ESG REPORT Our People,
Partners and
Communities
~7,400
gallons of low-VOC
paints purchased
for our units
$217,000
in charitable funds raised
in 2019
17
CAPREIT | 2019 | ESG REPORT Our People
Building a transformative workplace that attracts
and cultivates extraordinary talent.
The foundation of any real estate business rests in the people it attracts, retains and supports. Our people are the backbone of
our business and CAPREIT prides itself in having one of the strongest HR departments in the residential real estate industry.
CAPREIT’s HR team acts as a strategic partner for our employees and managers by overseeing all talent acquisition, employee
relations, internal communication, compensation and benefits, and leadership development. As Canada’s Platinum-level
Aon Best Employer for seven consecutive years, we continue to maintain our core objective of attracting top talent and high
performers, while providing learning and development opportunities.
As of 2019, at CAPREIT, we:
Hold a 51:49
gender split between
self-identified women
and men
Celebrate over 61
spoken languages
Employ over
1,000
employees
coast to coast
Manage a
multi-generational
workforce from
20 to 60+
years of age
Completed over
13,200 hours
of internal courses
and conferences
2019 Employee Gender Split, Broken Down by Position Category
2019 Employee Breakdown by Generation
100%
42%
58%
50%
25%
75%
57%
43%
71%
29%
51%
49%
% Male
% Female
0%
Corporate
Executives
Regional
Site/Crew
Managers
& Senior
Managers
45%
10%
20%
34%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Footnote
Corporate: Corporate office employees without direct reports (excluding Managers and Senior Managers).
Executives: C-suite staff and Executive Vice Presidents.
Managers and Senior Managers: Managing Directors and non-executive VPs.
Regional: Regional office employees without direct reports (excluding Managers and Senior Managers).
Site/Crew: Property staff without direct reports (excluding Managers and Senior Managers).
Millennial (21–40)
Generation Z (20 and under)
Generation X (41–50)
Baby Boomer (50+)
18
CAPREIT | 2019 | ESG REPORT Our People
Fostering a Corporate Culture of Diversity, Inclusion and Equity
Our diverse and national workforce is a strong representation of the stakeholders we interact with and who we support in
our daily business engagements. Fostering a culture of diversity, inclusion and equity across varying levels of the organization
enables us to deliver innovative approaches and business solutions to daily organizational challenges. Either through
self-identified gender expression, age, ethnicity, physical or
mental ability, functional expertise, culture and geographic
representation, CAPREIT employees display a well-represented
and diverse workforce. Recognizing diversity helps us to
understand how each one of us contributes uniquely to the
overall organizational success.
On average, women have
represented 47% of annual
hires since 2017
Our Strategic Hiring Approach
Our exceptional recruitment track record and strategic hiring
processes are foundational in support of our goal of being the
best place to work. These processes ensure that the candidates
we hire not only hold the necessary skills for the job, but that
they also exemplify and support CAPREIT’s core business
values. As part of our commitment to deliver an incredible
workplace experience, starting from the employee’s initial
application to their first day of work and ensuring a rewarding
career, CAPREIT has implemented a new HR platform that
leverages cutting-edge technology to enhance and streamline
the hiring process for both candidates and hiring managers.
The system was fully rolled out across our portfolio in 2019,
and will allow CAPREIT to remain competitive in today’s
hiring market. The system is further supplemented by our
Employee Handbook, designed to provide employees with
the necessary tools to succeed in their job and feel integrated
into CAPREIT’s corporate objective.
Top 3 roles hired in 2019
• Leasing Specialist
• Site Administrator
• Site Manager
Employee Programs and Benefits
Featured Operations Staff: Leasing Specialist
Top filled position for the past three consecutive years,
leasing specialists are our front-line customer service
representatives who are often our residents’ first point
of contact. As key representatives of CAPREIT’s service
excellence, leasing specialists are equipped to deliver a
consistent customer service experience coast to coast.
CAPREIT’s talent acquisition team
CAPREIT’s 2019 Employee Benefits Include:
• Bereavement leave
• Employee discounts with vendor partners (e.g., gym
memberships, cellphone plans, paint, furniture, etc.)
• Critical illness benefit
• Emergency family & responsibility leave (Ontario)
• Employee and family assistance program (“EFAP”)
• Employee recognition programs
• Employee referral program
• Employee savings program (“ESP”)
• Flexible benefits plan
• Parental leave
• Paid time off (including vacation,
sick leave, personal and 11 statutory holidays)
• Performance-based bonuses
• Talent development program
• Short-term and long-term disability coverage
• Summer hours
• Tuition and professional association
reimbursement
• Waiving of last month’s deposit at CAPREIT properties
19
CAPREIT | 2019 | ESG REPORT Our People
Employee and Family Assistance Program
Through the Employee and Family Assistance Program, employees have access to free and confidential specialty
counselling and coaching to help address a range of possible lifestyle, health and career challenges, including:
Lifestyle
• Childcare and parenting
• Elder and family care
• Relationships
• Financial
• Legal
• Relocation assistance
Health
• Nutrition
• Lifestyle changes
• Weight management
• Smoking cessation
Career
• Career planning
• Workplace issues
• Pre-retirement
• Shift work
Employee Savings Plan (“ESP”)
Whether it’s a sunny retirement, a child’s education or a home
renovation, our ESP helps employees reach their long- and short-term
goals. Employees are able to purchase Units by making regular financial
contributions to the plan; a portion of which is matched by CAPREIT.
The program is an easy way for employees to save for their future while
also benefitting directly from CAPREIT’s success.
Percent of Eligible
Employees Enrolled in
Employee Savings Plan
40%
35%
34%
35%
32%
30%
25%
2017
2018
2019
Health and Wellness in the Workplace
Investing in the Well-being of Our Key Assets:
Our People
We believe that healthy employees lead to healthy companies.
CAPREIT wants its employees to make their health a priority,
and as such, we adopt a holistic approach that supports their
physical, emotional, social and financial well-being. We strive
to lead by example by offering programs and policies that
promote healthy habits and improved physical and mental
well-being in the workplace. This is why we designed our
benefit offerings with flexibility and work-life balance in
mind. Our comprehensive range of healthcare coverage can
be tailored and adjusted to meet the evolving needs of each
employee, while our financial programs and contributions
provide enhanced security and stability against unexpected
setbacks. Going above and beyond to ensure our benefits
meet the needs of our employees helps make CAPREIT the
best place to work.
20
CAPREIT | 2019 | ESG REPORT Our People
CAPREIT matches 20%
of the contributions
employees make into
the ESP
Over 10 chair yoga
sessions held since
October 2018
122 KitchenMate
meals have been eaten
by CAPREIT employees
as of November 2019
Bending over Backwards for Our
Employees: Chair Yoga
Since 2018, CAPREIT offers chair yoga
sessions to employees at our corporate
office who want to recharge. The
sessions are led by Jermaine Stennett,
CAPREIT’s Executive Assistant and
Executive Communication Advisor, who
is a certified yoga instructor, and are
designed to enhance physical health and
mindfulness.
“Yoga is one of my passions – I’ve been practicing
for about 15 years. Because I love it so much, it makes
me happy to be able to share it and bring its many
health benefits to CAPREIT.”
JERMAINE STENNETT, EXECUTIVE ASSISTANT
AND EXECUTIVE COMMUNICATION ADVISOR
Making Healthy Food Choices Easy
CAPREIT partnered with KitchenMate to pilot a ready-to-eat healthy meal
experience for our employees at the corporate head office. The program grants
employees access to subsidized tasty, truly nutritious meals that are convenient,
affordable and packed with nutrients to power their day.
21
CAPREIT | 2019 | ESG REPORT Our People
Training and Development
Investing in the Success of Our Talent Pipeline
We recognize that being the best place to work requires providing our employees with the opportunities and resources to
further both their professional growth and personal interests. Our commitment to employee success is delivered through
various training, leadership development and recognition programs that enhance employees’ ability to manage the demands
of their role effectively, with increased confidence and greater insight resulting from the new knowledge and skills they
have gained.
Learning Management System
CAPREIT’s Learning Management System (“LMS”) allows us to provide our employees with training, while also ensuring we
meet compliance and regulatory standards. Through the LMS, our employees are directed to both mandatory and optional
industry-specific training content. The system is used to make sure new and existing employees are on track, in compliance
and keeping up with all of their training.
Currently, employees are provided with over 340 courses that cover a range of topics, including:
Governance/Corporate
Policies
• Ethics
• Privacy and
confidentiality
• Whistleblowing
• Cyber security risks
• Data protection
regulations
Health and Safety
• Fire and life safety
• WHMIS
• Hazard identification
and risk assessment
• Electrical safety
• Ladder safety
• Office safety
Operations
• Customer service
• Techniques for difficult
situations
• Leasing training
Personal Development
• Performance
management
• Time management
• Roles of a leader
External Development and
Training Programs
Our external training programs help employees develop
their skills, improve their knowledge on a specific subject
and introduce new ideas into the organization. CAPREIT
is committed to supporting external development
opportunities by encouraging training courses, certifications
and professional association memberships.
Professional Memberships
and Industry Accreditations
• Chartered Professional Accountant (“CPA”)
• Chartered Financial Analyst (“CFA”)
• Human Resources Professionals Association
(“HRPA”)
• Law Society of Ontario (“LSO”)
• LEED Green Associate (“LEED GA”)
• WELL Accredited Professional (“WELL AP”)
22
CAPREIT | 2019 | ESG REPORT Our People
Internal Conferences
A training and development focus for 2019 has been on the expansion and harmonization of our internal conferences. These
conferences provide valuable face-to-face opportunities to engage, collaborate and align our employees with business strategy.
National Education Sessions
Every year, our in-house education and training team hosts CAPREIT’s National Education Sessions (“NES”) coast to coast.
These mandatory sessions provide an opportunity for employees to meet with and learn directly from the senior members
of our education and training team. Attendees receive refresher training on key corporate policies, benefits and strategy
alignment, while also learning about best practices and innovative techniques to help them excel in their role.
96 hours of training delivered through National Education Sessions
in 2019
Departmental Conferences – An Interdisciplinary Approach to Delivering Results
At CAPREIT, we recognize the value of interdisciplinary teamwork in which different departmental groups work together
to share their respective expertise, knowledge and skills. Through CAPREIT’s departmental conferences, we can improve
service coordination, create new avenues for service and program implementation, and foster a culture of innovation. In
2019, a number of different teams, such as finance, procurement and technical services, were invited to present and speak at
departmental conferences.
Operational Leadership Conference
CAPREIT strongly believes that developing effective
leaders ensures a healthy succession pipeline. With
that in mind, directors and managers from across
varying departments and regions take part in an
annual leadership conference to help refine their
leadership skills. This year’s conference was designed
to coach attendees on diversity and unconscious bias
when hiring, attracting and retaining top talent and
advocating for mental health in the workplace.
Elevation 2023 Project Showcase
New this year, the Leadership Conference featured
CAPREIT’s inaugural Elevation 2023 Project
Showcase. Ten corporate teams showcased their
latest project updates and how they each supported
CAPREIT’s corporate strategy of being the best place
to live, work and invest. Attendees attended sessions
on the strategic integration of ESG and how it impacts
their day-to-day decision-making.
23
CAPREIT | 2019 | ESG REPORT Our People
Members of CAPREIT’s technical services team at the Operational Leadership Conference, July 2019
Leadership Development Programs – Influencing the Leaders of Tomorrow
CAPREIT takes pride in hiring, training and mentoring the best talent in the industry. Ensuring a healthy succession pipeline
by providing learning and development opportunities makes our HR department one of the strongest in the residential real
estate industry. We offer both general and tailored leadership development programs to address the unique needs of each
audience. Through these training programs, employees from all departments, at all levels, and across all regions have the
opportunity to become be the best possible leaders for their teams.
Mark Kenney, President and Chief Executive Officer, and Scott Cryer, Chief Financial Officer, participating in an
“Ask Me Anything” question and answer session with CAPREIT staff in 2019
24
CAPREIT | 2019 | ESG REPORT Our People
What does leadership competency look like?
In developing a strong and focused organization that clearly defines how it intends to lead, CAPREIT’s leadership style
is adopted in our everyday behaviours by our seven leadership competencies, commonly referred to as the“7Cs”.
• Creative: We are willing to challenge the status quo, value innovative ideas, listen to everyone and collaborate and
share ideas across the organization.
• Ambitious: Achieving high performance, pushing for the best, remaining positive and overcoming challenges.
• Proactive: Taking the initiative, overlooking boundaries, leading teams and acting on opportunities will cultivate a
positive, “can do” attitude.
• Results Focused: Achieving results, monitoring success, adjusting actions and giving feedback will ensure we are
continuously improving.
• Executive Minded: Balancing the short- and long-term views of our business, maintaining our composure when
faced with challenges, building strong teams and communicating a clear vision are ways in which we can be more
executive minded.
• Investment Minded: When we make decisions to spend or invest, we balance the impact on short- and long-term
growth. Improving financial returns is the goal, which we can achieve through the use of good judgement and the
optimization of capital.
• Thoughtful: By taking the time to value the common good, respecting others, winning support and earning trust,
we can maximize team effectiveness.
25
CAPREIT | 2019 | ESG REPORT Our People
Building Leaders
The Building Leaders Program is designed to strengthen the development of future leaders through experiential learning.
We have designed a four-tier Building Leaders Program suited to support leadership development across our operations and
corporate staff. Through experiential learning opportunities and individually tailored coaching, the program helps develop
leadership skills over the course of two years and ensures appropriate succession planning within our organization.
The 2019–2021 Building Leaders core cohort
Over 1,000 hours of mentoring delivered by CAPREIT’s senior
leadership team (Director-level and above) since 2017
LEAD Mentoring Program by the Numbers
Mentee Gender Distribution by Year
Mentors Gender Distribution by Year
2017–2019 Mentees by Age
100%
100%
34%
66%
50%
48%
52%
58%
42%
% Male
% Female
50%
55%
45%
59%
41%
58%
42%
% Male
% Female
42%
Mentors Gender Distribution by Year
Mentors Gender Distribution by Year
2017–2019 Mentees by Age
100%
0%
100%
0%
2017
2018
2019
2017
2018
2019
50%
55%
45%
59%
41%
58%
42%
% Male
% Female
50%
55%
45%
59%
41%
58%
42%
% Male
42%
% Female
2017
2018
2019
0%
2017
2018
2019
0%
26
20%
38%
41–50
21–30
31–40
20%
38%
41–50
21–30
31–40
CAPREIT | 2019 | ESG REPORT Our People
“As a CAPREIT mentor, I have the equal opportunity to learn what
leadership means and witness how CAPREIT’s 7Cs come alive. I
am so proud of our LEAD Mentoring Program – it is a truly unique
professional development opportunity both for our participating
mentees and mentors. And it is unparalleled among our real
estate peers.”
MARK KENNEY, PRESIDENT AND CHIEF EXECUTIVE OFFICER
AND FORMER LEAD MENTORING PROGRAM MENTOR
“Each rotation has provided an opportunity for us to
receive valuable coaching from leaders in our organization
and develop the necessary skills to excel in the role
of an Operations Manager. Through the Rotational
Management Training Program, we have been challenged
to recognize our own true potential and have been
provided with all the resources, tactics and guidance
to become leaders in the workplace.”
CARMELA LINDA SERPA, MANAGER
AND DEMETRI PSARIANOS, MANAGER
LEAD Mentoring
Program
Introduced in 2014, CAPREIT’s LEAD Mentoring Program
allows employees at all levels of our organization to develop
leadership competencies through formal mentoring. In this
one-year program, high-potential CAPREIT employees are
paired with a mentor, receive presentation skills training and
work in teams to develop and present a business proposal.
Employees grow as they refine their leadership skills and
network with subject-matter experts within our organization.
LEAD Rotational Management
Training Program
CAPREIT’s LEAD Rotational Management Training
Program (“RMTP”) is a two-year program designed to
prepare future operations managers for the role. In the first
year, participants rotate through every aspect of the business
to help them understand the roles of each department, which
includes marketing, human resources, operations and much
more. The second year is spent working hands-on at one of
our properties.
“A highlight of the LEAD Mentoring Program for me was being
exposed to my peers in so many different departments and coming
together as one to share experiences, skills and work as a tight-
knit group. The exposure and insight from my mentor and peers
presented me with an unforgettable experience, and I would highly
recommend it.”
KHALIL PARKER, RESIDENT MANAGER
AND FORMER LEAD MENTORING PROGRAM MENTEE
27
CAPREIT | 2019 | ESG REPORT Our People
2019 Tom Schwartz
Legacy Award Winner
Jenny Mailman, an Associate
Director at CAPREIT, is the
first recipient of the Tom
Schwartz Legacy Award.
Employee Recognition Programs
Employees not only want competitive compensation with comprehensive benefits; they also want fair treatment in the
workplace, to make a substantial contribution to the organization’s growth through their work, to be seen as a valued team
member and appreciated for their efforts. Recognizing the efforts made by our employees is integral to CAPREIT’s corporate
culture. Through the following employee recognition programs we are increasing engagement, encouraging trust in leaders,
enhancing employee retention and reinforcing the culture of our company:
• KUDOS – Introduced in 2019, KUDOS supports our
culture of thoughtfulness by making it easy to praise a
peer, congratulate a co-worker or support a supervisor at
any time throughout the year.
• ACES Awards – These awards differ from KUDOS in that
nominations are only accepted twice per year and are
intended to shine a spotlight on individual colleagues who
consistently demonstrate specific qualities.
• Star Awards – Unlike KUDOS and ACES, which are peer-
nominated programs, CAPREIT Star Award winners are
selected by senior management and must demonstrate
a strong track record of stellar performance plus an
outstanding contribution to their portfolio.
• Tom Schwartz Legacy Award – In honour of our co-
founder, past president and CEO, the Tom Schwartz
Legacy Award recognizes an employee who best embodies
all of the factors in CAPREIT’s leadership competency
framework. The prestigious award is granted to one highly
deserving employee each year.
Looking
Ahead
In our continued effort to foster a diverse, equitable and
inclusive workplace that supports professional development
and personal growth, CAPREIT will continue to formalize our
diversity, inclusion and equity strategy, including formalizing
a policy in 2020. We will also continue to evolve our training
and benefits programs to ensure they support industry best
practices. Currently, we are finalizing the following programs,
benefits and policies to be implemented in 2020:
• The opening of a Training Program Centre in Toronto
to facilitate with in-house talent development.
• The rollout of wellness & lifestyle credits, which in
addition to our traditional benefits offerings, will include
fitness memberships and dues, personal development
courses and other wellness-related activities to help
promote a lifestyle of wellness.
• The launch of a Flex Workplace Policy to promote
alternate workplace arrangements that will support
varying work lifestyles.
Sustainable Development Goals Alignment
28
CAPREIT | 2019 | ESG REPORT “Building and maintaining trust and encouraging
innovative partnerships with our base of
supply chain partners is core to CAPREIT’s
business success. In order to build and deliver
a sustainable practice across our supply chain,
we need technical innovations, management
innovations, process innovations and cultural
innovations. These are business opportunities
we are actively looking to explore with our
supply chain partners.”
TONIA KAGIANNIS, DIRECTOR, PROCUREMENT
CAPREIT’s procurement team members
Supply Chain Management
Building trust and encouraging innovative partnerships.
With an extensive and diverse base of over 1,700 supply chain partners, CAPREIT’s procurement team is responsible for
managing our supply chain by procuring quality goods and services at the right price, from the right source, and at the
right specification. In close collaboration with our base of supply chain partners, we can realize compliance with corporate
strategy, policies and procedures, and industry regulations that not only support our commitment to being the best place
to live, work and invest, but also organically help drive our ESG performance. CAPREIT believes that by managing and
improving our environmental, social and economic performance throughout our active supply chain management, we can
conserve resources, optimize processes, uncover product innovations and increase influence through the promotion of our
corporate values.
We continuously strive to build and maintain trusted working partnerships across our network of supply chain partners who
share our values and demonstrate responsible practices. In that effort, we focused on developing formal channels in 2019
through which we can integrate guidelines, policies and standards that will be communicated throughout our organization,
upheld by all levels of management and considered across our supply chain activities.
Key Procurement Achievements
Formalizing ESG-related provisions into our contractual
agreements and policies to include alignments on but not
limited to:
• Business integrity: Ensuring compliance with federal,
local and municipal laws, conflict of interest, anti-bribery
and anti-corruption.
• Responsible business practices: Alignment with our
corporate privacy policy, business resumption and
contingency planning, and environmental management.
To ensure our supply chain partners are held to a consistent
standard and align with our corporate core values, we
utilize an online screening platform. The platform allows
us to centralize and streamline the process for collecting,
retaining and tracking key documentation from our
supply chain partners, such as certifications, health and
safety policies and procedures, workers’ compensation and
insurance certificates. Through this process, we can ensure
our partners remain in compliance with regulatory and
corporate requirements.
90% of our top supply chain partners based on
spend are enrolled in our online screening platform
29
CAPREIT | 2019 | ESG REPORT Supply Chain Management
Over 1,400 litres of
eco-conscious cleaning
products purchased in 2019
~ 7,400 gallons of
low-VOC paints purchased
for our units
Over 830 ENERGY STAR
certified in-suite appliances
purchased since 2018
Driving ESG Performance Through Smart Procurement
Good/Service ESG Alignment/Benefits
Advertising
– Transitioning to digital advertising to stay in step with how customers expect to be engaged and to improve our environmental
performance through reduced paper consumption.
Appliances and
Fixtures
– Purchasing high-efficiency and low-flow appliances and fixtures to enhance energy and water efficiencies.
Cleaning
– Purchasing eco-friendly cleaning products that require less processing, produce less waste and reduce the number of shipments needed.
Elevator
Maintenance
– Repairing and upgrading elevators to meet current standards and improve energy efficiency.
– Ensuring elevator reliability to meet resident needs and comfort.
HVAC/Plumbing
– Repairing and upgrading our HVAC and plumbing systems to improve energy and water efficiency, as well as improve tenant comfort.
Information
Technology
–
Investing in the latest software and hardware helps us scale our business while also enabling:
• Metadata analytics
• Remote work capabilities
•
Streamlined and integrative communication platforms to connect the company with internal and external stakeholders
–
Privacy and data protection management.
Landscaping
– Creating and enhancing green space for recreational enjoyment and to promote stormwater infiltration.
– Using native species to create native habitats and reduce water requirements.
– Creating dog-friendly spaces.
Security
– Hiring security personnel and installing monitoring cameras for our properties to enhance resident safety and security, as well as
mitigate liability risks.
Waste
Management
– Engaging both municipal and private waste handlers in opportunities to reduce waste contamination and minimize waste production.
30
Kings Club, Toronto, ON
CAPREIT | 2019 | ESG REPORT Supply Chain Management
Nursery Heights, Victoria, BC
Looking
Ahead
As supply chain management increases in complexity and
regulatory scrutiny, CAPREIT will continue to manage
third-party risks that could result from our procurement
activities. We will continue to encourage our supply chain
partners to remain accountable for their environmental and
social performance by integrating adaptable ESG measures
across the supply chain and socializing the adoption of these
measures. Starting with the mapping of our supply chain,
CAPREIT will strive to establish and communicate our
expectations through a formalized supplier code of conduct,
an important step in involving our supply chain partners in
integrating our ESG strategy.
Sustainable Development Goals Alignment
Sourcing Sustainable Supplies
Eco-Conscious Cleaning Products
The cleaning concentrates we buy represent a more eco-friendly
alternative to traditional ready-to-use cleaning products.
The product is delivered to our properties in reusable plastic
bottles as a concentrated liquid that is then diluted on site. The
concentrates require less processing, smaller packaging and
fewer shipments compared to ready-to-use cleaning products,
which means there is less impact on the environment.
Low-VOC Paints – People. Planet. Paint.
Whether our units need a touch-up or a remodel, low-VOC
paints help maintain their aesthetics while also benefiting
our residents’ health and the indoor air environment through
reduced toxins.
Energy Efficient Appliances
We purchase ENERGY STAR certified appliances at our
properties. These appliances promote energy use reduction
without sacrificing performance; benefiting both our residents
and our planet through reduced utility costs and GHG emissions.
31
CAPREIT | 2019 | ESG REPORT Resident Engagement
Enhancing the resident experience by delivering authentic
service that builds trusting relationships.
At CAPREIT, we believe that being the best place to live means not just providing our residents with a home, but also
delivering on an authentic customer service experience. Earning the reputation as Canada’s leading landlord means
consistently delivering on that experience and this requires a commitment to improving the lives of our residents every day.
As a reflection of this commitment, we created a Tenant Experience Team that monitors and evaluates the services and
communication offered at our buildings, innovates new technology to improve self-service and promotes education and
awareness around the CAPREIT service offering. At the building level, we ensure our staff have the time, sensitivity and skills
needed to build strong relationships with their residents and deliver a high level of service. From the events we host, to the
services we offer, to a dedicated resident experience team championing the resident experience, we continue to prioritize and
take a holistic approach to our resident care.
Our residents are advocating for our service:
“CAPREIT has provided us with a sense of community and a residence that feels like
home each time we enter the building. As residents now for five years, we, like so many
others, have built a great relationship with the hard-working CAPREIT staff, who take
great pride in their work. The staff is caring, accessible and always willing to address
any issue, large or small. We are indeed proud to call CAPREIT ‘home’.”
LORNE & BARBARA BERNSTEIN, CAPREIT RESIDENTS
32
CAPREIT | 2019 | ESG REPORT Resident Tools & Support Programs
Resident Portal
In 2019, CAPREIT launched our Resident Portal pilot at
select properties across the Greater Toronto Area. Resident
Portal is an online platform that enables residents to reserve
CAPREIT amenities, submit and track maintenance requests
to completion, as well as receive timely communication from
CAPREIT conveniently to their email or via text to their
mobile device. Through an accompanying smartphone app,
maintenance staff can easily track and update the status of
maintenance requests as they are repaired. The portal is key
to supporting CAPREIT’s objective of being the best place
to live and work by providing benefits to both residents
and employees, including:
• Stronger connectivity between staff and residents;
• Increased business efficiency through digitizing our
resident services;
• Standardizing communications and quality of service
across our portfolio.
Through the overwhelmingly positive feedback from the
pilot group of residents, CAPREIT expanded the launch to
British Columbia, Alberta and Saskatchewan in the fall. By
the end of 2019, 21% of CAPREIT’s properties had adopted
the Resident Portal. Rollout across the rest of the portfolio is
anticipated to be completed in 2020, with continued support
and training across all properties.
Resident Engagement
Resident Portal Pilot Highlights
As of December 31st, 2019:
• 96 properties in key Canadian residential markets
• Tickets opened1: 10,085
• Tickets closed2: 8,583
• Happiness score3: 77%
• Recommend score4: 7.42/10
• Sign-up rate5: 50.6%
Tickets opened1:
Tickets closed2:
Happiness score3:
Recommend score4:
Sign-up rate5:
Number of maintenance tickets opened by
residents through the Resident Portal
Number of maintenance tickets closed through
the Resident Portal
Defined by residents’ satisfaction in addressing
maintenance tickets
Defined by residents on recommending
CAPREIT to friends or colleagues
The percentage of residents that signed up for
Resident Portal
33
CAPREIT | 2019 | ESG REPORT Resident Engagement
CAPCares and WeCare
Complementing our outreach to residents, CAPREIT also maintains two additional programs that assist and advocate for
resident experience. CAPCares is a toll-free ombudsperson program monitored by the tenant experience team to successfully
resolve escalated operational issues. In addition, WeCare is another program administered directly by the Tenant Experience
team to listen and respond to resident inquiries and concerns generated through online and social media channels. Both
programs are designed to ensure consistent and exceptional customer service delivery to our residents by addressing their
issues quickly and efficiently.
Resident Satisfaction Survey
Our residents are welcome to voice their input to help us build and deliver on our resident satisfaction. To measure our
success in delivering on residents’ expectations and identify the services they want delivered, we implement a third party-
delivered annual resident satisfaction survey that invites residents from coast to coast to provide input on topics ranging from
our buildings, to our people, our maintenance service and more. For 2019, we extended the resident survey response period
to encourage added participation and customized the survey specifically to reflect the unique needs and specifications for
all buildings and manufactured home communities across Canada. Through these survey adaptations, CAPREIT obtained a
more statistically relevant representation of resident satisfaction at the building level.
2019 Resident Satisfaction Survey Highlights
11,009 respondents
Translating into a 286% increase
in response rate compared to 2018
resident satisfaction survey results.
Top 3 reasons residents like
CAPREIT properties:
• The neighbourhoods where our
buildings are located
• Proximity to stores and transit
• Community/building features
(e.g., amenities, security
and appearance)
~8/10
Overall staff performance score
indicating high satisfaction
with building-level staff – from
maintenance staff, office and leasing
staff and their communication with
our residents
Resident Engagement Initiatives
Our resident demographic represents a broad cross-section of Canada’s diverse culture. We host a variety of events and
activities that reflect the interests and needs of each building’s community. Our site staff organize these initiatives to connect
with residents, create opportunities for open and continued dialogue, and foster a sense of community within our properties.
From coast to coast, our portfolio has delivered engaging and creative events designed to cultivate relationships among staff
and residents, raise social and environmental awareness and give back to the communities our residents call home.
CAPREIT’s resident engagement initiatives include:
• Sponsorships to resident social clubs
• Christmas Santa visits
• Distribution of recycling bags to residents
• Food drives
• Holiday-themed parties
• Move-in welcome packages with free merchandise from
local businesses
• Building-level newsletters
• Summer BBQs
• Recycling drives
• Toy drives
• Volunteering at programs, such as cleaning and restoring
toys for children in low-income neighbourhoods
34
CAPREIT | 2019 | ESG REPORT Resident Engagement
“For my dynamic team, focusing on the resident experience
means engaging with each building community to help develop
lasting resident relationships and a sense of pride at residing in a
CAPREIT-managed building. We find it important to give back to
our community and our residents through our events, as it allows
us the opportunity to create a memorable experience.”
SUNNY HANSRA, ASSOCIATE DIRECTOR, OPERATIONS
Resident Appreciation BBQs
Our properties host resident appreciation BBQs throughout the summer, spring and fall months. Our staff
organize face painting, ice cream trucks, music and visits from local vendors, as well as the local fire department.
These BBQs have become a staple event that our residents and communities look forward to every year.
CAPREIT’s staff engaging with residents
of our 100 Wellesley St. E. property in
Toronto, ON.
Communal BBQ for three communities:
Tamarack Estates in Lincoln, NB, Burton
Estates in Burton, NB, and Crown and
Currie Estates in Waasis, NB.
Residents enjoy free hot dogs
at our Hot Dog Party at Les
Habitats Apartments in
Quebec City.
Vista Tower, located in Calgary, Alberta,
along with a number of other
properties across our portfolio, provided
free breakfast for our residents.
The Western Canada CAPREIT team helped
donate holiday gifts for the Toys for Tots drive.
Snacks are placed in some CAPREIT
building lobbies to be handed out
to children for Halloween.
35
CAPREIT | 2019 | ESG REPORT Resident Engagement
“We can always count on Merideth to go that extra
mile to make everyone who walks into Garneau Towers
feel special. Her team knows how to put the “warm”
in housewarming.”
NANCY HOSFORD,
OPERATIONS DIRECTOR
Merideth Pourbaix, Leasing Specialist at Garneau Towers
Customizing the Resident Experience
Garneau Towers
Our Garneau Towers property located in Edmonton, Alberta, is the only family-friendly and pet-friendly building in the
immediate area. Our site staff consistently go above and beyond to find unique ways to engage residents and give back to the
community. Their creativity delivered engaging and custom initiatives that included:
Good dogs get
good treats!
Pawrents please help yourself
and reward your pooch
for good behaviour.
A doggie cookie jar for residents to pick up
a treat on their way to our dog park.
A CAPREIT kid’s surprise box in the
rental office with small treats and
toys for kids to choose from.
Welcome baskets in suites for new
residents to feel at home.
March Break Activities
CAPREIT offers support to parents during March Break by
organizing daily activities for children at select sites. Activities
include pancake breakfasts, board games, movies and
popcorn, as well as books and toy giveaways, and help foster
communities that are inclusive and fun!
Celebrating Pride
The Vancouver and Toronto Pride festivities are among the
largest in the world. This year, staff at our properties in these
major cities joined the celebrations and showed their support
for the LGBTQ+ community and their allies by showcasing
fun décor and signage. Staff also completed pride-themed
“arts & crafts”, where they raised money for Rexall™
OneWalk to Conquer Cancer™ and competed to create the
most creative, clever and colourful design!
Staff at our property in Mississauga,
ON, served breakfast to children
during March Break.
Staff take part in the Pride
celebrations at our 100 Wellesley
St. E. property in Toronto, ON.
The banner showcased at
our Ocean Park property
in West End Vancouver.
The winner of the arts & crafts competition
at our Chatsworth Regional Office in
Toronto, ON, with her “Love is Love”
poster!
36
CAPREIT | 2019 | ESG REPORT Resident Engagement
Summer Palooza
2019 marks the 10th year CAPREIT has sponsored Summer Palooza! This nine-
week program invites children to participate in games and activities, with a focus
on reading, at our properties across the Greater Toronto Area. For this 10th year we
extended the daily length of the program from one hour to three to allow for a more
significant impact and more time for fun and games. Staff volunteer their time for the
events and are encouraged to donate gently used children’s books. We are extremely
proud to offer this community building program and are exploring its potential
expansion to additional CAPREIT properties.
The Snack that Gives Back: Cons & Kernels
In 2019, our Murray Ross
property in North York, Ontario,
began purchasing popcorn from
Cons & Kernels, a Hamilton-
based company that not only
offers fresh gourmet popcorn,
but also provides reintegration
opportunities to ex-convicts
and leads educational awareness
campaigns. The purchased
popcorn is handed out to children at the property office and
at the property’s Rexall™ OneWalk to Conquer Cancer™
fundraising event.
A sukkah at The Thomas
When our residents expressed the need for a space to
celebrate the Jewish festival of Sukkot, Peter Rabe, an
Operations Manager at CAPREIT, sprang into action to
ensure their needs were addressed. With the help of Peter and
his team, a sukkah was constructed at one of our properties
in Toronto, Ontario, encouraging residents to gather, dine,
sing and communally enjoy the week-long Jewish festival
of Sukkot.
The sukkah at The Thomas property in Toronto, ON, was very well
received, with some residents even helping to decorate it!
135 hours of fun and engaging
events delivered by CAPREIT staff during
2019 Summer Palooza
Looking
Ahead
We will continue to drive service and satisfaction by
identifying new and innovative ways to engage our residents
and enhance their experience at our properties. Future
efforts will concentrate on broadening the scope of our
resident engagement initiatives to address added social and
environmental causes, as well as the importance of health
and well-being. Policies and programs currently in
development include:
• Life-Cycle Surveys for residents to complete at time of
move-in, move-out and every five years. The surveys will
help ensure we deliver a consistent customer experience
throughout our residents’ time at our properties and
uncover opportunities to change our service offerings
when the needs of our communities change.
• Investigating the pilot launch of urban gardens and bee
farming at select sites to educate and engage residents in
environmental stewardship efforts.
Sustainable Development Goals Alignment
37
CAPREIT | 2019 | ESG REPORT Investing in Our Communities
Building the future of our communities through raising awareness,
creating acts of service and igniting a desire to give back.
CAPREIT’s success is driven by our intention to build strong relationships with our residents and the
communities in which we operate. In that spirit, we foster a culture of corporate responsibility both at
our regional offices and our properties, by encouraging CAPREIT employees to engage with local communities and deliver
initiatives to help enact social and environmental change and impact. In 2019, our Cause Committee was rebranded to the
Building Futures Committee, which is made up of executives, management and employees across the country. The committee
is designed to engage CAPREIT in philanthropic initiatives and has proven to be an effective platform through which we can
add value to the lives of our residents and communities at large.
In 2019, CAPREIT donated over $217,000 to charitable organizations and participated in various community-giving
events and initiatives across the country, which include food banks, community clean-ups and offering summer activity
programming to children at our properties.
Since 2017, CAPREIT and our staff
have donated a total of over
$450,000
In 2019, CAPREIT donated over
$217,000 to 24 charitable
organizations
Pathways to Education
CAPREIT is a proud partner of Pathways to Education, an award-winning, national, charitable organization creating positive
social change by supporting youth living in low-income communities to overcome barriers to education, graduate from high
school and build the foundation for a successful future. In 2019, we launched our first corporate charitable partnership with
Pathways to Education and supported over 6,000 youth in the Pathways Program. Through our corporate contributions and
fundraising efforts, CAPREIT donated over $70,000 to Pathways to Education last year, and looks forward to continuing our
partnership to help ensure every young person in Canada has the opportunity to realize their full potential.
“At CAPREIT, we are proud to support the communities where we live
and work. With Building Futures, our national partnership with Pathways
to Education, and our many local initiatives, we have the opportunity to
engage and inspire everyone at the company to give back.“
CORINNE PRUZANSKI, GENERAL COUNSEL AND SECRETARY, AND BUILDING FUTURES COMMITTEE EXECUTIVE CHAIR
Painting for Pathways
As part of Pathways to Education’s
grade nine orientation lunch
fundraiser, our Montreal staff
brought out their inner artists for
a guided painting session. Their
artwork was auctioned off through
The Lobby, CAPREIT’s internal
communications network, and all
funds raised were donated.
38
CAPREIT | 2019 | ESG REPORT
Investing in Our Communities
“The Rexall™ OneWalk to Conquer Cancer™ fundraiser is
one of the many ways that CAPREIT not only demonstrates
our support to local communities, but also how we continue
to honour Tom and his legacy. I am honoured to lead a team
of such committed and caring individuals who contributed
in raising funds for such an important cause.”
JUDY HARKAI, MANAGING DIRECTOR
Rexall™ OneWalk to Conquer Cancer™
Since 2017, CAPREIT has proudly taken part in the Rexall™
OneWalk to Conquer Cancer™ by walking and raising funds
for cancer research at the Princess Margaret Cancer Centre.
CAPREIT’s dedication to the cause is to honour our late
co-founder and CEO Tom Schwartz’s battle with cancer.
CAPREIT employees are encouraged to fundraise for and attend
the Rexall™ OneWalk to Conquer Cancer™ event as part of our
CAPREIT Crusaders team. In addition to participating in the
event, our sites and offices host their own fundraisers to engage
residents and employees. In 2019, CAPREIT raised in excess
of $26,000 for Rexall™ OneWalk to Conquer Cancer™ and is
proud to be their top fundraiser among our industry to support
cancer research, a very special cause for CAPREIT.
CAPREIT Puts the “FUN” in FUNdraising!
In August of this year, staff at our Goodview Townhomes
properties, located in North York, Ontario, held their annual
Rexall™ OneWalk to Conquer Cancer™ fundraising event.
This all-day event featured a range of fun and family-friendly
fundraising activities for staff and residents to participate
in, such as raffle tickets, whipped cream bidding wars and
pie eating contests. The event was a smashing success and
raised a grand total of $2,650 for the Rexall™ OneWalk to
Conquer Cancer™.
Over $150,000 raised
by CAPREIT for the Rexall™ OneWalk
to Conquer Cancer™ since 2017
The 2019 CAPREIT Crusaders are our Rexall™ OneWalk
to Conquer Cancer™ fundraiser ambassadors
39
CAPREIT | 2019 | ESG REPORT Investing in Our Communities
CAPREIT and our employees supported 50+
community charitable initiatives since 2017:
• BC Children’s Hospital
• Bowmanville Hospital
Foundation
• Bramalea Baptist Church
• Canadian Tamil Medical
Association
• CAPREIT Student
Breakfast Program
• CAS Burlington
• Centre for Tamil Heritage
and Culture
• Children’s Aid Foundation
of Halton
• Covenant House Toronto
• Fredericton Food Bank
• Heart and Stroke Foundation
of Canada
• Hearth Place Cancer
Support Centre
• Hold’em For Life Challenge
• Immigrant Services Association
of Nova Scotia
• Interval House
• International Medical
Health Organization
• Jarvis Sports Club
• Jays Care Foundation
• Scarborough Community
• Scatcherd Scramble Charity
• Knightsbridge and Kings Cross
• Second Harvest
Neighbourhood Group
• Kurumbasiddy Nalanpuri
Sabai – Canada
• LivWise Foundation
• London Whitecaps
• Love Brampton
• Lung Cancer Canada
• Mahajana College Old Students
• South Huron Hospital
• St Christopher’s Church
• Summer Palooza
• Taste of Jane and Finch
• Tenant appreciation BBQs
across Canada
• The Calgary Food Bank
• The Journey Neighbourhood
• Moncton-area food banks
Centre
• MTGF Memorial
• Rexall™ OneWalk to
Conquer Cancer™
• Ontario Jewish Archives
• Pancreatic Cancer Canada
• Pathways to Education
• Ronald McDonald House
• Ryerson University City
Building Institute
• Salvation Army-Sarnia
• San Romanoway Revitalization
Association (SRRA)
• The Scarborough
Hospital Foundation
• The Scott Mission
• Toronto Firefighters
• University of Toronto
• University of Waterloo
• Uthayan Publishers
• Western Technical-Commercial
School
Sustainable Development Goals Alignment
40
CAPREIT | 2019 | ESG REPORT Corporate
Governance
50%
of CAPREIT’s executive
office positions are
held by self-identified
females
Over 30
industry-related awards
received since 2017
Fraser Flats, Vancouver, BC
41
CAPREIT | 2019 | ESG REPORT Corporate Governance and Integrity
Applying sound corporate governance is integral to
producing maximum benefits to our stakeholders.
Responsible governance and integrity underpin our business and are integral to our corporate strategy and commitment to
be the best place to work, live and invest. Elected by our Unitholders to oversee the management of the company, CAPREIT’s
Board of Trustees (the “Board”) also ensures that the long-term interests of Unitholders are advanced responsibly, while
balancing the interests of our employees, residents and our communities. Pursuant to the Declaration of Trust and our Board
Mandate, we aim to hold ourselves to high standards of ethical behaviour and transparency. Through our Code of Business
Ethics and Conduct, we aim to deliver on our commitment of accountability to our stakeholders. Our Board actively engages
with our management team to keep the protection and promotion of our stakeholders’ interests top of mind. By advising
on the right corporate strategy and applying effective governance measures and oversight, the Board helps identify principal
risks associated with CAPREIT’s business and assures the implementation of appropriate systems to manage these risks, while
identifying suitable opportunities for growth and the creation of continued long-term value.
The Board of Trustees – Board-level Oversight
We remain committed to the highest standards of governance, consistent with regulatory expectations, evolving industry
best practices, our corporate strategy and our risk appetite. As of December 31st, 2019, the Board consists of seven trustees:
Elaine Todres (Chair of Human Resources and Compensation Committee), Gina Cody (Chair of Governance and Nominating
Committee and Investment Committee), Harold Burke (Chair of Audit Committee), Jamie Schwartz, Mark Kenney, Michael
Stein (Chair of Board) and Poonam Puri. Per the Declaration of Trust and our Board Mandate, a majority of the Board must
be independent of management and hold the ability to act independently from management in fulfilling its duties. As such,
all trustees, other than Mr. Kenney, CAPREIT’s President & CEO, are independent. Our annual Management Information
Circular provides an overview of our corporate governance structure, policies and practices, and describes the core principles
that guide our approach to sound corporate governance.
42
Le DIX65, Boisbriand, QC
CAPREIT | 2019 | ESG REPORT The Board of Trustees is supported by four committees:
Board of Trustees
Corporate Governance and Integrity
Audit
Committee
Human Resources
and Compensation
Committee
Governance
and Nominating
Committee
Investment
Committee
Executive Leadership and
Senior Management
The Board carries out its responsibilities directly through the Audit Committee, Human Resources and
Compensation Committee, Governance and Nominating Committee and Investment Committee and such
other committees as it may establish. For more information about CAPREIT’s Board committees, visit
www.snl.com/IRW/CommitteeChart/4105050
Some highlights of our high governance standards are reflected in the following chart:
CAPREIT’s Corporate Governance Performance
Board independence
Independent (%)
Non-Independent (%)
Chair and CEO are separate
Board meetings (No. of meetings for the 12-month calendar period beginning January)
Full Board
Governance and Nominating Committee
Investment Committee
Audit Committee
Human Resources Committee and Compensation Committee
Average annual Board attendance
Board tenure
Average Board tenure (years)
Board diversity
% self-identified female independent trustees
% self-identified visible minority of all trustees
Average age of all trustees
Board governance
Board oversight of corporate responsibility
2019(1)
87.50%
12.50%
Yes
2019(1)
21
4
4
5
4
99%
2019(1)
7
2019(1)
42.85%(6)
12.5%
60
2019(1)
Yes
2018(2)
100%(4)
0%
Yes
2018(2)
15
4
6
8
4
87%(5)
2018(2)
10
2018(2)
25%
NA
65
2018(2)
Yes
2017(3)
88.89%
11.11%
Yes
2017(3)
19
5
12
6
4
98%
2017(3)
11
2017(3)
11%
NA
67
2017(3)
Yes
As discussed in the Management Information Circular dated April 17th, 2019.
As discussed in the Management Information Circular dated April 11th, 2018.
As discussed in the Management Information Circular dated March 31st, 2017.
(1)
(2)
(3)
(4), (5) Board independence and average annual Board attendance have been impacted by Tom Schwartz passing away on August 15th, 2017.
(6)
This includes Poonam Puri who was appointed as a trustee on June 13, 2019.
43
CAPREIT | 2019 | ESG REPORT Corporate Governance and Integrity
A Diversely Strong, Independent and Evolving Corporate Governance
As of December 31st, 2019:
43%* of CAPREIT’s independent
trustees are self-identified females –
up from 11% as reported in 2017
50% of CAPREIT’s executive
office positions are held by
self-identified females
13%* of CAPREIT’s
independent trustees are
self-identified minorities
4-year reduction
in average Board tenure
since 2017
*Percentage rounded to a whole number
44
The Carrington, Calgary, AB
CAPREIT | 2019 | ESG REPORT Corporate Governance and Integrity
Willoughby Walk, Langley, BC
Corporate Governance Approach
Key facts about CAPREIT’s approach to corporate governance
Appointment of the Auditor
Competencies and
Skills Matrix
In the course of undertaking an annual review of the performance of CAPREIT’s external auditor,
PricewaterhouseCoopers LLP, Chartered Professional Accountants (“PwC”), the Audit Committee
sought and received detailed information from CAPREIT’s senior management covering key factors of
audit quality, including: independence, objectivity and professional skepticism; quality of the
engagement team; and quality of communications and interactions between PwC and CAPREIT. Based
on its review and discussion of the information provided, and its own experience with, and
observations of, PwC’s work, the Audit Committee concluded that this information could be relied
upon to support the Audit Committee’s recommendation that PwC continue to be retained as
CAPREIT’s external auditor and that it be appointed as such on an annual basis.
In collaboration with the Governance and Nominating Committee, the Board reviews as necessary the
required skills, experience and talents on an ongoing basis. Holding a collective strong enterprise
leadership and management experience within real estate, a majority of the Board also holds strong
corporate governance and enterprise risk management competency. Although not yet formalized, the
Board’s collective competency and skills support sound elements around environment, social and
corporate governance oversight.
See Management
Information
Circular 2019
Page 14
Page 51 and 61
Diversity
In appointing executive officers of the management team, CAPREIT’s Board and the executive
leadership team consider the level of representation of women in executive office positions.
Page 70
Executive Compensation
The executive compensation program is designed to reward financial and strategic achievement as set
out in CAPREIT’s annual business plan. This includes continuously evaluating and resolving situations
strategically and with an enterprise-wide executive-minded lens.
Page 22 and 28
Trustee Compensation and
Incentive Plan Awards
Trustee Orientation and
Continuing Education
As per CAPREIT’s trustee compensation policy, the Board is compensated at the median of their peers
and receive a flat annual retainer. Upon the recommendation of the Compensation and Governance
Committee, the trustees are required to own or acquire, over a maximum period of three years, such
number of Units, including, following adoption of the Deferred Unit Plan, and having a value equal to
three times their annual compensation. As of April 17th, 2019, a majority of the trustees have either met
or exceeded the ownership guidelines established by the Board.
Page 45
CAPREIT ensures that new trustees have a general understanding of both the business of CAPREIT
and the roles and responsibilities of the Board and its committees. New trustees are invited to tour part
of CAPREIT’s portfolio with the executive management team in order to familiarize themselves with
CAPREIT’s operations, property management and a segment of the property portfolio.
Page 64
Highlights of the initiatives undertaken by the Board and its committees as described above are available in our Notice of
Annual and Special Meeting of Unitholders to be held on June 13, 2019 and Management Information Circular. CAPREIT’s
documentation about corporate governance practices are available on our corporate website.
45
CAPREIT | 2019 | ESG REPORT Corporate Governance and Integrity
Promoting Responsible Conduct Through Our Guiding Principles
While reaching our corporate goals is important to CAPREIT’s success, how we achieve them is of equal importance. That is
why the actions of our employees are subject to a number of internal policies, standards and guidelines which all CAPREIT
employees and the Board are subject to. To comply with these various standards and regulatory requirements, and to achieve
best practices, CAPREIT has adopted comprehensive corporate governance policies and procedures. Our key policies and
documents include the following:
Governance-related Policies
Description
Board Mandate
Code of Business Ethics and Conduct
Declaration of Trust
Disclosure Policy
Diversity Policy
Insider Trading Policy
Majority Voting Policy
Whistleblower Policy
Stipulates the Board’s duties and responsibilities set out in the Declaration of Trust, including the associated
procedures and organization in setting strategic planning, risk management, oversight management, corporate
governance and communications.
Addresses honesty and integrity, following the law, conflicts of interest, workplace behaviour, confidentiality,
privacy and protecting CAPREIT’s assets, whistleblower procedures, information security, disclosure and
internal controls by which all employees, trustees and officers are expected to abide. Reviewed annually by the
Governance and Nominating Committee.
Discloses the Board’s assumed responsibility for the stewardship of CAPREIT and lists the necessary actions to
carry out its responsibilities, which are also listed in our Management Information Circular 2019.
Ensures that communications to the investing public about CAPREIT are timely, factual and accurate, and
disseminated in accordance with all applicable legal and regulatory requirements. The policy extends to all
trustees, senior executives, employees and representatives of CAPREIT.
Stipulates that a truly diverse Board will include and make good use of differences in skills, qualities, regional and
industry experiences, geographic knowledge and location.
Provides guidance to all trustees, officers and employees, and their respective associates (including family
members), with respect to trading securities of CAPREIT, and communication of material non-public
information.
Applies only to uncontested elections of trustees, where each trustee should be elected by the vote of a majority
of the Units or Special Voting Units represented in person or by proxy at the Unitholders meeting convened for
such election of trustees.
Provides individuals, including trustees, officers and employees with a process for disclosing complaints or
concerns regarding inaccurate or incomplete reporting or recording of financial transactions (including financial
statement disclosure, theft, fraud or misrepresentation of assets), internal control violations, organizational
matters, compliance with laws, policies and procedures, safety and security issues, insider trading and unethical
practices (including Code violations).
Corporate Committee Structures
The Board approves CAPREIT’s strategic plans (taking into account the risks and opportunities of CAPREIT’s business) and
makes major policy decisions. It devotes time at several meetings each year to review major strategic initiatives to ensure that
the proposed actions are in accordance with Unitholder objectives.
The Board of Trustees has delegated certain responsibilities to four committees, each of which is composed solely of
independent trustees:
• The Audit Committee is responsible for the review of the consolidated financial statements, accounting policies and
reporting procedures of CAPREIT. In addition, it is responsible for reviewing, on an annual basis, the principal risks that
CAPREIT is faced with, and considering whether adequate systems are in place to manage such risks and that such systems
appear effective. It also supervises the activities of CAPREIT’s Director, Internal Audit;
• The Human Resources and Compensation Committee reviews matters relating to human resources, including
compensation of trustees and officers of CAPREIT.
• The Governance and Nominating Committee reviews matters relating to the governance of CAPREIT, including the
nomination of trustees.
• The Investment Committee is responsible for reviewing investment and disposition proposals of CAPREIT, subject to such
authority as the trustees may delegate to the officers of CAPREIT, and to perform such other duties as the trustees may
delegate pursuant to Article 8 of the Declaration of Trust.
46
CAPREIT | 2019 | ESG REPORT Corporate Governance and Integrity
Data Security and Privacy
Recognizing that the age of digitization is on the rise,
data security and privacy threats continue to evolve and
escalate, making data security and privacy top of mind to
us and our stakeholders. CAPREIT’s commitment to data
security and privacy is demonstrated in our approach to
governance and accountability. In response to an increased
focus on adapting and socializing data and privacy
policies across our organization, we are developing and
implementing a comprehensive data protection program to
ensure compliance with PIPEDA, GDPR, CASL and other
supporting privacy laws and regulations.
Privacy Laws and Regulations
• Personal Information Protection and Electronic
Documents Act (“PIPEDA”);
• General Data Protection Regulation (“GDPR”)*;
• Digital Privacy Act;
• Canada’s Anti-Spam Legislation (“CASL”);
• British Columbia’s Personal Information
Protection Act (“PIPA BC”);
• Alberta’s Personal Information Protection Act
(“PIPA AB”); and
• Quebec’s Act Respecting The Protection of Personal
Information in The Private Sector.
* CAPREIT provides services on behalf of its European affiliates, and as such, is
required to comply with GDPR and data protection obligations.
Looking
Ahead
In an era where ESG-related risk identification is on the
rise, we recognize the increasing importance of assessing its
potential impact on the long-term value of our portfolio and
our Unitholders. As we seek to grow our ESG-competency
across our organization, we understand the role our
corporate governance will play on identifying physical risks
associated with ESG factors; in particular, ways in which
ESG-related policies will impact prices, costs and demand
across varying economies affecting our business.
Board Oversight of Risk Management
As we continuously consider risks and opportunities for
the development and management of our real estate assets,
we preserve our business reputation with our investors and
stakeholders by keeping on top of emerging issues, while
assessing long-term decision horizons. The ability to manage
risk is one of our core competencies, and is supported by
our strong risk conduct and culture, as outlined on page 65
of our 2019 Management Information Circular, and an
effective risk management approach. CAPREIT created a
number of cross-functional, risk-focused sub-committees
to support awareness, identify opportunities, ensure
accountability and develop processes and guidelines to better
manage risk exposures.
Risk Management Committee
The Risk Management Committee assists the Board in
fulfilling its oversight of risk management and governance in
the following areas: (i) identification of risks inherent in the
company’s business, strategy, capital structure and operating
plans, (ii) establishing processes, guidelines, policies and
reports for monitoring risks, and (iii) organization and
performance of the company’s enterprise risk management
(“ERM”) function. In addition, the committee assists the
Audit Committee of the Board in fulfilling its responsibility
to the Board in the oversight of risk assessment and risk
management processes.
Disclosure Committee
The Disclosure Committee reports to the Board and oversees
the company’s disclosure activities and to assist the Board
in fulfilling its corporate responsibilities. The committee’s
purpose is to review all public disclosure to ensure the
highest level of transparency and compliance with regulatory
requirements and best practices to which CAPREIT is
subject to.
ESG Steering Committee
Launched in September 2018, the purpose of CAPREIT’s
ESG Steering Committee is to inform and enable the
integration of environmental, social and governance factors
(“ESG”) into CAPREIT’s strategic objectives. The committee
supports the company and the Board in fulfilling the
oversight, management and governance of ESG risk factors
in the following areas: (i) identification of ESG factors
inherent in CAPREIT’s business, strategy, capital structure
and operating plans, (ii) establishing policies, guidelines,
processes, reporting and monitoring of ESG risk factors, and
(iii) developing guidance and organization for the disclosure
of the company’s ESG performance to stakeholders.
47
CAPREIT | 2019 | ESG REPORT Industry Awards, Certifications and Recognitions
Celebrating a culture of excellence and innovation.
At CAPREIT, we are proud to be consistently recognized by our industry peers for our longstanding culture of excellence,
innovation, service, and financial and operational performance. Over the past three years, over 45% of the awards and
recognitions we have received highlight either our building performance or staff. These awards are a testament to CAPREIT’s
continued commitment to deliver shareholder value and exemplify how we invest to be the best place to work and live.
Awards and Recognitions
Corporate-Based Certifications
• 2019 Aon Platinum-level Best Employer in Canada
• 2018 Aon Platinum-level Best Employer in Canada
• 2017 Aon Platinum-level Best Employer in Canada
• 2016 Aon Platinum-level Best Employer in Canada
• 2015 Aon Platinum-level Best Employer in Canada
• 2014 Aon Platinum-level Best Employer in Canada
• 2013 Aon Platinum-level Best Employer in Canada
• 2019 Bronze-level Women in Governance Parity Certification,
first in our national peer group
• 2019 BOMA BEST Silver-level Certification
Industry-related organizations CAPREIT supports through corporate
and individual memberships:
• 2018 Best Lobby Renovation
• 2018 Customer Service Award of Excellence
• 2017 Lifetime Achievement Award
• 2016 Resident Manager of the Year
• 2016 Best Property Management Website
• 2015 Best Lobby Renovation
• 2014 Leasing Professional of the Year
• 2014 Resident Manager of the Year
• 2014 Best Lobby Renovation
• 2013 Resident Manager of the Year
• 2013 Advertising Excellence – Social Media
• 2013 Advertising Excellence – Corporate Branding
• 2011 Advertising Excellence – Corporate Branding
• 2010 Environmental Excellence
• 2010 Property Manager of the Year
• 2010 Advertising Excellence – Corporate Branding
• 2010 Advertising Excellence – Single Project
• 2010 Property Management Website
• 2009 Suite Renovation over $5000
• 2009 Resident Manager of the Year
• 2009 Property Management Website
• 2007 Property Management Website
• 2019 Property Manager of the Year
• 2018 On-Site Employee of the Year
• 2017 Property Manager of the Year
• 2017 Media Excellence
• 2016 Renovation of the Year
• 2016 Best Social Media Campaign
• 2016 Best Marketing Team of the Year
• 2016 Best Property Video
Over 30 industry-related awards
received since 2007
• 2018 Canada Clean 50
• 2019 Above and Beyond Award
48
47% of awards and recognitions
received since 2007 were in recognition
of our buildings and property staff
CAPREIT | 2019 | ESG REPORT 2019 Recognition Highlights
2019 Platinum-level Aon Best Employer
CAPREIT achieved Platinum-level Aon
Best Employer in Canada status for seven
consecutive years.
Industry Awards, Certifications and Recognitions
“The one constant in our business is change. Our company has
evolved over the years, thanks to the vision of our leaders and the
feedback from our team members. Through their feedback, we
have adapted to varying work conditions while continuing to deliver
results. Aon’s Platinum-level Best Employer recognition demonstrates
CAPREIT’s commitment to their staff through continuous engagement
on training, events, process enhancements and technology.”
RYAN MCDERMOTT, DIRECTOR OF
EDUCATION AND TRAINING
“This award caught me completely by surprise!
I am truly humbled and honoured to have
received this recognition, especially when
considering the calibre of the other nominees.
This achievement was a team effort and could
only be accomplished with the support and
resources offered by CAPREIT.”
JENNIFER BATEMAN HATCH, SENIOR OPERATIONS MANAGER
Jonathan Fleischer, EVP Operations and
Jennifer Bateman Hatch, Senior Operations Manager
“In becoming the first Canadian residential REIT
to have participated in and attained Bronze-
level Parity Certification, CAPREIT remains
committed to enabling women to achieve career
advancement and creating a pipeline of female
talent across varying levels of our organization.”
JODI LIEBERMAN, CHIEF HUMAN RESOURCES OFFICER
CFAA Property Manager of the Year
Jennifer Bateman Hatch, Senior
Operations Manager at CAPREIT, was
awarded the CFAA Property Manager
of the Year award in 2019. Her
excellence and professionalism in the
rental-housing industry is evident in
her highly engaged team as well as the
strong relationships she has cultivated
within the resident community.
Bronze-level Women in
Governance Parity Certification
In 2019, CAPREIT undertook an
inaugural participation in the Women
in Governance Parity Certification.
We are honoured to report that we
were awarded Bronze-level Parity
Certification for advancing women
in both their leadership and career
development, and access to board seats.
We will continue to seek opportunities
to promote the status of women within
our organization and the communities
that we serve.
Silver-level BOMA BEST Certification
In 2019, we attained our first Building Owners and Managers Association (“BOMA”) BEST
Silver-level certification in recognition of our excellence in energy and environmental
management at 460 Brant Street in Burlington, Ontario. This marks the first in a few BOMA
BEST certifications CAPREIT will look to attain in the coming years.
49
CAPREIT | 2019 | ESG REPORT CAPREIT’s 2019 ESG Performance Scorecard
The following table provides year-over-year company-wide data for metrics aligned to our priority areas.
Corporate Profile – Economic Disclosure
Number of units
Annual portfolio growth (%)
Net Operating Income (“NOI” in $M)
Dividends declared per unit
Investments in energy conservation measures ($M)
2019
2018
2017
GRI
Disclosure
SASB
Disclosure
55,081
14.32%
$451.9
$1.372
$15.13
48,180
-0.73%
$415.3
$1.313
$20.14
48,536
0.70%
$384.0
$1.275
$12.39
201-1
201-1
IF0403-C
Community donations ($)
$217,000
$123,000
$115,000
201-1
2019
2018
2017
2010
GRI
Disclosure
SASB
Disclosure
Environmental Performance(1), (2), (3)
Energy consumption – portfolio (eMWh)(4)
717,465
719,451
700,730
781,151
302-2
IF0402-03
Ten-year energy consumption reduction (%)(4)
-8%
302-4
Energy intensity (eMWh/suite)(4)
18.3
18.3
18.0
20.1
302-3
IF0402-01
Ten-year energy intensity reduction (%)(4 )
Greenhouse gas emissions – scope 1 absolute (CO2e tonnes)(5)
Greenhouse gas emissions – scope 2 absolute (CO2e tonnes)(6)
Greenhouse gas emissions – scope 3 absolute (CO2e tonnes)(7)
Greenhouse gas emissions – intensity (CO2e/MWh tonnes)
Ten-year greenhouse gas emissions intensity reduction (%)
90,686
11,042
2,956
2.67
-10%
89,328
11,350
2,935
2.64
-9%
86,978
11,534
2,658
2.60
97,182
15,643
626
2.92
302-3
305-1
305-2
305-3
305-4
305-5
Water consumption – absolute (m3)(4)
4,507,201
4,601,858
4,550,509
5,279,303
303-5
IF0402-08
Ten-year water reduction (%)(4)
-17%
Water consumption – intensity (m3/suite)(4)
114.8
117.3
117.0
136.0
304-3
IF0402-06
(1) The table compares CAPREIT’s residential portfolio’s energy and water consumption in 2019 vs adjusted historical years as per the GHG Protocol – A Corporate
Accounting and Reporting Standard (World Resources Institute, 2004).
(2) Excludes MHCs and office buildings and only properties owned for the duration of the comparison period are included.
(3) Normalized for differences in weather and occupancy.
(4) The acquisition of recently developed properties in BC and PEI resulted in an increase in the number of effective suites in 2017 and 2018. We are actively monitoring
and assessing energy and water efficiency measures for our newly acquired properties.
(5) Scope 1: heating fuels.
(6) Scope 2: non-submetered electricity.
(7) Scope 3: submetered electricity and water.
50
CAPREIT | 2019 | ESG REPORT ESG Performance Scorecard
2019
2018
2017
GRI
Disclosure
SASB
Disclosure
Social Performance
Total number of employees (number)
Employee diversity – Overall (% female)
Employee diversity – Corporate (% female)(8)
Employee diversity – Regional (% female)(9)
Employee diversity – Site/Crew (% female)(10)
Employee diversity – Manager and Senior Manager (% female)(11)
Employee diversity – Executive (% female)(12)
Employee diversity – Corporate recruitment (% female)(8)
Employee diversity – Regional recruitment (% female)(9)
Employee diversity – Site/Crew recruitment (% female)(10)
Employee diversity – Manager and Senior Manager recruitment (% female)(11)
Employee diversity – Executive recruitment (% female)(12), (13)
Employee engagement survey – employee response rate (%)
Employee engagement survey – overall engagement score (%)
Average employee turnover (%)
1,004
51%
58%
75%
49%
43%
29%
50%
56%
53%
47%
–
91%
82%
15%
902
52%
59%
78%
50%
42%
30%
58%
87%
50%
20%
–
82%
77%
19%
952
46%
60%
73%
40%
48%
25%
55%
57%
52%
14%
100%
90%
76%
24%
Internal employee training (number of hours)
13,281
15,047
13,830
Eligible employees enrolled in employee savings plan (%)
Staff performance score on resident satisfaction survey (%)
Resident Portal Happiness score – residents’ satisfaction in addressing
maintenance requests (%)
Resident Portal Recommend score – residents recommending CAPREIT
based on addressing maintenance requests (%)
35%
78%
77%
74%
32%
73%
N/A
N/A
34%
N/A
N/A
N/A
102-8
405-1
405-1
405-1
405-1
405-1
405-1
401-1
401-1
401-1
401-1
401-1
401-1
404-1
Corporate Governance(14)
Board independence (%)
Average annual board attendance
Board diversity – gender (%)
Average Board tenure (years)
Average age of all trustees
Board oversight of corporate responsibility
87.50%
100%
88.89%
102-22
99%
43%
7
60
Yes
87%
25%
10
65
Yes
98%
11%
11
67
Yes
102-22
102-18
(8) Corporate: Corporate office employees without direct reports (excluding Managers and Senior Managers).
(9) Regional: Regional office employees without direct reports (excluding Managers and Senior Managers).
(10) Site/Crew: Property staff without direct reports (excluding Managers and Senior Managers).
(11) Manager and Senior Manager: Managing Directors and non-executive VPs.
(12) Executive: C-suite staff and Executive Vice Presidents.
(13) No new executive hires for 2018 and 2019.
(14) Please refer to p. 43 of ESG Report for added scope. Note: Percentages are rounded to a whole number where applicable.
51
CAPREIT | 2019 | ESG REPORT GRI Content Index: General Disclosures
Disclosure Number
Disclosure Title
Disclosure Response
Foundation
N/A
Principles for defining report content and
quality, and the process for sustainability
reporting using the GRI Standards
Organizational Profile
This report aligns to the GRI Standards and UN SDGs and adheres to the following
principles:
• Stakeholder inclusiveness
• Sustainability context
• Materiality
• Completeness
• Accuracy
• Balance
• Clarity
• Comparability
• Reliability
• Timeliness
Name of organization
Canadian Apartment Properties Real Estate Investment Trust (“CAPREIT”)
102-1
102-2
102-3
102-4
102-5
102-6
102-7
Activities, brands, products and services
Location of headquarters
Location of operations
Ownership and legal form
Markets served
Scale of organization
CAPREIT is one of Canada’s largest real estate investment trusts. CAPREIT owns
approximately 55,100 suites, including townhomes and manufacturing housing sites, in
Canada and, indirectly through its investment in ERES, approximately 5,600 suites in the
Netherlands. CAPREIT manages approximately 59,200 of its owned suites in Canada
and the Netherlands, and additionally 3,700 suites in Ireland as at December 31, 2019.
As a growth-oriented investment trust, CAPREIT holds a track record of stable
performance supported by strong industry and economic market fundamentals.
CAPREIT’s investments in the Irish Residential Real Estate Investment Trust (“IRES
REIT”) and European Residential Real Estate Investment Trust (“ERES REIT”) have
allowed us to expand our market presence in geographies where we see potential organic
growth, with ownership interests at 18.3% and 66%, respectively. CAPREIT mitigates
risk through both demographic and geographic diversification by operating properties
across the affordable, mid-tier and luxury sectors. With more than $11.0 billion in
Canadian real estate assets, total capitalization of $4 billion in debt and $8.4 billion in
equity, and net operating income (“NOI”) of over $451 million as of December 31, 2019,
CAPREIT’s vision is to be the premier residential rental landlord in Canada and the
employer and the investment of choice in its industry sector. CAPREIT’s Canadian real
estate portfolio composition:
• Residential Units: 79%
• MHC Sites: 21%
Our head office is located at 11 Church Street in Toronto, Canada, with additional regional
offices located across Canada and a workforce of 1,004 as of December 31, 2019.
Data represents employees associated with our Canadian portfolio.
2019 Employee Headcount by Gender
Female
511
Male
493
Total
1,004
CAPREIT uses suppliers and consultants on a contract basis, including security, cleaning
and maintenance personnel, as well as professional services firms. Given that they do not
represent a significant portion of our activities, a full accounting of these individuals is
out of scope for this report.
Total headcount per employee type represents CAPREIT’s employee composition across
our Canadian portfolio as of December 31, 2019.
102-8
Information on employees and other
workers
52
CAPREIT | 2019 | ESG REPORT Disclosure Number
Disclosure Title
Disclosure Response
GRI Content Index: General Disclosures
Organizational Profile
102-9
Supply chain
102-10
Significant changes to the organization and
its supply chain
102-11
Precautionary Principle or approach
102-12
102-13
External initiatives
Membership of associations
CAPREIT’s supply chain includes over 1,700 supply chain partners that support the
improvement of our operational performance and our day-to-day business activities.
Due to the scope of our work, geographically diverse locations and requirements for
specialized services, CAPREIT relies on a diverse range of supply chain partners.
Typically, they provide utility, construction, professional and property services.
Additionally, CAPREIT purchases products for property and office use, ranging from
mechanical equipment for our managed sites to office paper use. For more information
on the goods and services supported by our supply chain partners, please see the Supply
Chain Management section on p. 29 of the 2019 ESG Report.
CAPREIT did not undergo any significant changes in size, structure, ownership or supply
chain in 2019 that would impact its supply chain disclosure. Supply chain partners for
IRES REIT and ERES REIT are managed separately by their respective alternative
investment fund managers, and are not reported in CAPREIT’s 2019 ESG Report.
CAPREIT does not formally apply the precautionary principle to decision-making across
all our activities. However, the principle continues to influence the decisions we make
and the actions we take. Our leadership competencies, commonly referred to as our
“7Cs” and illustrated on p. 25 of our ESG Report, align with a precautionary approach to
environmental stewardship and protection. Where the environmental or social impacts
of an action are unclear, CAPREIT adopts a precautionary approach until the risks and
opportunities have been properly assessed. For example, we assess and manage
environmental, safety, supply chain, operational and other risks as described throughout
our 2019 ESG Report.
We are proud of our employees who actively contribute to industry organizations and
initiatives focused on supporting sustainability and real estate. We are consistently
recognized by our industry peers for our longstanding culture of excellence, innovation,
service, and financial and operational success.
As such, CAPREIT subscribes to and/or endorses the following externally developed
economic, environmental and social charters, principles and initiatives:
• Association of Corporate Council (“ACC”)
• Canadian Coalition for Good Governance (“CCGG”)
• Canadian Federation of Apartment Associations (“CFAA”)
• Canadian Green Building Council (“CaGBC”)
• Human Resources Professionals Association (“HRPA”)
• Supply Chain Management Association (“SCMA”)
• Federation of Rental-Housing Providers of Ontario (“FRPO”)
• REALpac
• Building Owners and Managers Association (“BOMA”)
• Global Reporting Initiative (“GRI”) Standards
• United Nations Sustainable Development Goals (“SDGs”)
For added details, please refer to the Industry Awards, Certifications and Recognitions
section on p. 48 of our 2019 ESG Report.
Strategy
102-14
Ethics and Integrity
102-16
102-17
Statement from senior decision-maker
Refer to In Conversation with Our Leadership on p. 2 of our 2019 ESG Report.
Values, principles, standards and norms
of behaviours
Applying sound corporate governance is integral to producing maximum benefits to our
stakeholders. For more details on CAPREIT’s leadership style and corporate governance
approach, please refer to p. 25 and the Corporate Governance and Integrity section on
p. 42 of our 2019 ESG Report.
Mechanisms for advice and concerns
about ethics
Please refer to our Corporate Governance and Integrity section on p. 42 of our 2019 ESG
Report.
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CAPREIT | 2019 | ESG REPORT GRI Content Index: General Disclosures
Disclosure Number
Disclosure Title
Disclosure Response
Governance
102-18
Governance structure
For details on our governance structure, please refer to the following sections:
Integrating a Corporate-wide ESG Strategy, p. 5
The Board of Trustees – Board-level Oversight, p. 42
Corporate Governance Approach, p. 45
Promoting Responsible Conduct Through Our Guiding Principles, p. 46
Board Oversight of Risk Management, p. 47
Executive-level responsibility for economic,
environmental and social topics
Please refer to the Integrating a Corporate-wide ESG Strategy section on p. 5 of our
2019 ESG Report.
Composition of the highest governance
body and its committees
Please refer to the Corporate Governance section on p. 41 of our 2019 ESG Report.
Chair of the highest governance body
Please refer to the Corporate Governance section on p. 41 of our 2019 ESG Report.
Nominating and selecting the highest
governance body
Please refer to the Corporate Governance section on p. 41 of our 2019 ESG Report.
Conflicts of interest
Please refer to the Corporate Governance section on p. 41 of our 2019 ESG Report.
Role of highest governance body in setting
purpose, values and strategy
Please refer to our Notice of Annual and Special Meeting of Unitholders to be held on
June 13, 2019, and our Management Information Circular.
Collective knowledge of highest
governance body
Please refer to our Notice of Annual and Special Meeting of Unitholders to be held on
June 13, 2019, and our Management Information Circular.
Identifying and managing economic,
environmental and social impacts
Please refer to our Integrating a Corporate-wide ESG Strategy section on p. 5 and the
Acquisition and Development section on p. 8 of our 2019 ESG Report.
Effectiveness of risk management processes Please refer to the Corporate Governance section on p. 41 of our 2019 ESG Report.
Highest governance body’s role in
sustainability reporting
Please refer to the Integrating a Corporate-wide ESG strategy section on p. 5 of our
2019 ESG Report.
Communicating critical concerns
Please refer to our Notice of Annual and Special Meeting of Unitholders to be held on
June 13, 2019, and our Management Information Circular.
Nature and total number of critical
concerns
Please refer to our Notice of Annual and Special Meeting of Unitholders to be held on
June 13, 2019, and our Management Information Circular.
Remuneration policies
Please refer to our Notice of Annual and Special Meeting of Unitholders to be held on
June 13, 2019, and our Management Information Circular.
Process for determining remuneration
Please refer to our Notice of Annual and Special Meeting of Unitholders to be held on
June 13, 2019, and our Management Information Circular.
Stakeholders’ involvement in remuneration
Please refer to our Notice of Annual and Special Meeting of Unitholders to be held on
June 13, 2019, and our Management Information Circular.
102-20
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102-25
102-26
102-27
102-29
102-30
102-32
102-33
102-34
102-35
102-36
102-37
Stakeholder Engagement
102-40
List of stakeholder groups
CAPREIT’s key stakeholder groups are identified as follows:
• Employees: Employing a diverse workforce across Canada, CAPREIT is committed to
delivering programs and engagement that make us the best place to work.
• Residents: As Canada’s largest multi-family residential REIT, CAPREIT is committed
to delivering programs and engagement that make us the best place to live.
• Investors: As a publicly traded growth-oriented investment trust, CAPREIT holds a
fiduciary responsibility toward our Unitholders that makes us the best place to invest.
• Communities: Principally located in or near major urban centres across Canada,
CAPREIT engages the surrounding communities in decisions that will affect them.
• Supply Chain Partners: Our service providers and suppliers help us develop and
manage our buildings for use by our residents and our staff.
Based on the identification of these key stakeholders, CAPREIT will be conducting a
formal materiality assessment in 2020, which is a key input to our strategic ESG
integration. Key stakeholders will be formally identified and engaged to assess relative
importance of potentially material issues.
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CAPREIT | 2019 | ESG REPORT Disclosure Number
Disclosure Title
Disclosure Response
GRI Content Index: General Disclosures
Stakeholder Engagement
102-42
Identifying and selecting stakeholders
102-43
Approach to stakeholder engagement
102-44
Key topics and concerns raised
Building on our stakeholders’ disclosure in 102-40, our identified stakeholders are in
support of GRESB’s expectations for a real estate organization. CAPREIT will be
conducting a formal materiality assessment in 2020, a key input to our strategic ESG
planning process. Key stakeholders will be formally identified and engaged to assess
relative importance of potentially material issues. Through this exercise, we will be able
to identify sustainability factors material to our business and apply these insights to
inform business strategy.
Open, ongoing communication with stakeholders helps us understand stakeholder
expectations, identify priority issues, build trust and foster a sense of pride and
community among our offices and properties. We have ongoing dialogue with the
following key stakeholder groups:
Employees
• Integrating a Corporate-wide ESG Strategy, p. 5
• Training and Development, p. 22
• Leadership Development Programs, p. 24
• Employee Recognition Programs, p. 28
• Annual employee engagement survey
• Monthly engagement activities/events
• Internal intranet that allows employees, departments and executives to communicate
and connect across the organization
Residents
• Resident Engagement, p. 32
Investors
• Annual General Meeting
• Corporate website
• Dedicated email account for investor relations
• Press releases
• Quarterly conference calls
• Building tours with investors
• One-on-one meetings with institutional investors
Community
• Investing in Our Communities, p. 38
Supply Chain Partners
• Supply Chain Management, p. 29
• Engaging our supply chain partners in sustainability discussions to socialize the
adoption of ESG measures across the supply chain is a priority action for 2020
Building on these ongoing engagements, CAPREIT will be conducting a formal
materiality assessment in 2020, a key input to our strategic ESG integration. Key
stakeholders will be formally identified and engaged to assess relative importance of
potentially material issues. Through this exercise, we will be able to identify sustainability
factors material to our business and prioritize these insights to inform business strategy.
Building on our stakeholders’ disclosure for 102-40, 102-42 and 102-43, CAPREIT will
be conducting a formal materiality assessment in 2020, a key input to our strategic ESG
planning process. Key stakeholders will be formally identified and engaged to assess
relative importance of potentially material issues. The materiality assessment will include
a set of interviews with our executive leadership management team, senior management
from all business functions and geographies across Canada, Unitholders, suppliers and
industry association representatives who will be able to identify ESG-related factors
material to our business and apply these insights to inform our business strategy.
55
CAPREIT | 2019 | ESG REPORT GRI Content Index: General Disclosures
Disclosure Number
Disclosure Title
Disclosure Response
Reporting Practice
102-45
102-46
Entities included in the consolidated
financial statements
Defining report content and topic
boundaries
102-47
List of material topics
CAPREIT follows GRESB’s operational control definition to set its organizational
boundary. GRESB defines operational control as “the ability to introduce and implement
operating policies, health and safety policies and environmental policies”. CAPREIT is
deemed to have the ability to introduce and implement these policies for buildings that
CAPREIT manages or where we have a 25% or greater ownership interest in the building.
Although CAPREIT’s consolidated financial statements include CAPREIT’s operational
footprint in Europe, our 2019 ESG reporting boundaries include the following owned
and operated units in Canada:
• Residential Suites
• MHCs Sites
CAPREIT provides significant support, including senior and other personnel, to both
IRES REIT and ERES REIT through investment fund management services. However,
these investment management services are deemed out of scope for CAPREIT’s 2019
ESG Report.
Building on our stakeholders’ disclosure for 102-40 and 102-42, CAPREIT will be
conducting a formal materiality assessment in 2020, a key input to our strategic ESG
planning process. Key stakeholders will be formally identified and engaged to assess
relative importance of potentially material issues. Through this exercise, we will be able
to identify sustainability factors material to our business and prioritize these insights to
inform business strategy.
Building on our stakeholders’ disclosure for 102-40 and 102-42, CAPREIT will be
conducting a formal materiality assessment in 2020, a key input to our strategic ESG
planning process. Key stakeholders will be formally identified and engaged to assess
relative importance of potentially material issues. Through this exercise, we will be able
to identify sustainability factors material to our business and prioritize these insights to
inform business strategy.
102-48
102-49
102-50
102-51
102-52
102-53
102-54
102-55
102-56
Restatements of information
No restatements reported for CAPREIT’s 2019 ESG Report.
Changes in reporting
CAPREIT did not undergo any significant changes from previous reporting periods in
the list of material topics and topic boundaries that would impact its 2019 disclosure.
Operational boundaries for IRES REIT and ERES REIT are managed separately by their
respective alternative investment fund managers, and are not reported in CAPREIT’s
2019 ESG Report.
Reporting period
January 1, 2019 – December 31, 2019
Date of most recent report
February 26, 2019
Reporting cycle
CAPREIT reports on ESG performance through our annual ESG Report embedded in
our Annual Report.
Contact point for questions regarding the
report
Please contact Irena Stankovic, Director, ESG Strategy Integration
(i.stankovic@capreit.net) with questions regarding this report.
Claims of reporting in accordance with the
GRI Standards
This report has been prepared in accordance with the GRI Standards: Core option.
GRI Content Index
External assurance
Please refer to our ESG Scorecard on p. 50 of our 2019 ESG Report.
We did not obtain external assurance for our 2019 ESG Report. We will look to develop
the necessary assurance processes and accompanying policies in 2020.
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