Rising
to the
challenge,
together.
2020 ANNUAL REPORT
2
2020 Annual Report 3
Rising to the challenge, together.Rising to the challenge, together. “ Our people
drive our solid
growth.”
Mark Kenney
President and Chief Executive Officer
4
2020 Annual Report Profile
As Canada’s largest publicly traded provider of quality
rental housing, Canadian Apartment Properties REIT
(“CAPREIT”) owns or has interests in approximately
67,500 residential apartment suites, townhomes and
manufactured housing community sites well located
across Canada, the Netherlands and Ireland.
2020 Highlights & Objectives
HIGHLIGHTS
OBJECTIVES
• Record performance despite COVID-19 pandemic
• To provide Unitholders with long-term, stable and
predictable monthly cash distributions;
• To grow NFFO, sustainable distributions and
Unit value through the active management of its
properties, accretive acquisitions, development,
intensification 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 the life safety of residents.
• Focused asset allocation strategy generating
enhanced value
• Strong accretive portfolio growth across all platforms
• Revenues up 13.0% due to portfolio growth and
increased rents
• Investment properties up $1.9 billion compared to
last year
• Solid organic growth with same property NOI up 3.9%
• NFFO up 14.7% on revenue growth and increased
NOI, while NFFO per unit is up 6.3%
• Increased contribution from investments in Ireland
and the Netherlands
• Strong and flexible balance sheet with record
liquidity position
• Deliver sustainable initiatives that drive our
operational, social and governance performance
3
Rising to the challenge, together. 2020 Selected Financial Highlights
For more than 23 years, Canadian Apartment
Properties REIT has delivered strong and accretive
growth for its Unitholders. 2020 was yet another
record year as we achieved solid increases in the
majority 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)
NOI margin
Financial Performance
FFO per Unit – basic(2)
NFFO per Unit – basic(2)
Cash distributions per Unit
FFO payout ratio(2)
NFFO payout ratio(2)
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)(3)
Interest coverage (times)(3)
2020
2019(4)
$
$
$
$
$
$
97.5%
1,121
882,643
578,171
65.5%
2.258
2.273
1.380
61.4%
61.0%
35.54%
50.11%
2.56%
5.76
2.01
3.95
$
$
$
$
$
$
98.2%
1,084
780,780
508,150
65.1%
2.111
2.139
1.372
65.5%
64.6%
34.70%
48.08%
2.85%
5.13
1.87
3.69
Available liquidity – Acquisition and Operating Facility (000s)(1)
Available cash and cash equivalents (000s)(1)
$
$
627,997
121,722
$
$
146,170
477,328
(1) As at December 31.
(2) 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 in the Management’s
Discussion and Analysis.
(3) Based on the trailing four quarters.
(4) Certain 2019 comparative figures have been adjusted to conform with current period presentation.
4
2020 Annual Report “ We are empowered to
make a difference.”
Marta Montenegro
Customer Care Coordinator
Canadian Portfolio
Strong & Diversified
Portfolio
Canada
In Canada, our growth is focused on expanding our portfolio of value-add properties
where we can make acquisitions at less than 50% of replacement cost. We have
proven our ability to invest in these assets to increase their value, and the stability of
their cash flows is driven by continuing high occupancies and affordable rental rates.
9%
4%
British Columbia
Total Suites
Occupancy
Net Avg Rent
Alberta
Total Suites
Occupancy
Net Avg Rent
5,248
99.1%
$1,413
2,319
93.7%
$1,061
0%
41%
Saskatchewan
Total Suites
Occupancy
Net Avg Rent
Ontario
Total Suites
Occupancy
Net Avg Rent
234
94.4%
$984
23,873
98.7%
$1,418
6
57,743
Total Suites and Sites
97.8%
Residential Occupancy
$1,282
Residential Net Average Monthly Rent
21%
18%
6%
1%
MHC
Total Sites
Occupancy
Net Avg Rent
Québec
Total Suites
Occupancy
Net Avg Rent
Nova Scotia
Total Suites
Occupancy
Net Avg Rent
11,856
95.8%
$390
10,288
97.0%
$1,016
3,288
95.1%
$1,197
Prince Edward Island
Total Suites
Occupancy
Net Avg Rent
637
99.2%
$1,100
2020 Annual Report 6,047
Total Suites
98.3%
Occupancy
€882
Net Average Monthly Rent
Netherlands
Revenues at European Residential REIT (“ERES”) rose 67.7%
in 2020 on portfolio growth and increased average monthly
rents and occupancies, driving a 62.5% increase in FFO to
€31.2 million or €0.14 per Unit. CAPREIT’s ownership interest
in ERES provides strong and growing property management
fee and distribution income, and the opportunity to generate
enhanced value by leveraging the country’s only professional
management platform in a high-value and growing residential
rental market.
3,688
Total Suites Managed
98.4%
Occupancy
€1,624
Net Average Monthly Rent
Ireland
In 2020, CAPREIT generated fees of $9.6 million and received
$8.5 million in dividends, which is an increase of 19.3% and
18.1% from 2019.
European Portfolio
7
Rising to the challenge, together. With the onset of the COVID-19 pandemic, we implemented
new and innovative programs to maintain our growth while
fostering strong relationships with our residents and our
people. Our record performance in 2020 is proof that we
are rising to the challenge, together.
From top left:
• Mark Kenney, President and Chief Executive Officer • Jodi Lieberman, Chief Human Resources Officer
• Corinne Pruzanski, General Counsel and Corporate Secretary • Scott Cryer, Chief Financial Officer
8
2020 Annual Report Report to Unitholders
Report to
Unitholders
With the outbreak of the COVID-19 pandemic in March, CAPREIT
faced significant and unprecedented challenges in how to manage
our business and ensure the well-being and safety of our residents
and employees. As we look back, we are so proud of the commitment
and resilience shown by our teams as we met our goals of preserving
capital, maintaining a strong and flexible financial position, and mitigating
risk. Most importantly, despite the numerous challenges presented by
the pandemic, we generated another record year of growth and strong
financial performance in 2020, a testament to the experience and
dedication of the CAPREIT team.
KEY METRICS
Operating Revenue
(000s)
NOI
(000s)
NFFO
(000s)
,
3
4
6
2
8
8
,
0
8
7
0
8
7
7
1
0
,
1
4
6
0
3
0
,
1
9
6
,
3
5
4
9
9
5
1
7
1
,
8
7
5
0
5
1
,
8
0
5
6
5
0
9
3
4
,
,
7
4
9
6
6
3
8
5
2
3
9
3
,
,
5
3
3
9
8
2
8
0
8
,
1
3
2
,
4
7
4
0
5
2
8
5
9
8
8
3
,
1
2
1
,
9
3
3
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
9
Rising to the challenge, together. Report to Unitholders
Another
Solid Year
Operating revenues for the year ended December 31,
2020 rose 13.0% to $882.6 million, driven by our
portfolio growth, continuing near-full occupancies
and a solid increase in average monthly rents. With
this revenue growth, combined with our proven and
successful property management programs, Net
Operating Income (NOI) rose a very strong 13.8% to
$578.2 million for the year. We also generated another
year of solid organic growth as NOI for our stabilized
property portfolio increased 3.9%.
Normalized Funds from Operations (NFFO), our key
performance benchmark, increased 14.7% in 2020 to
$389.0 million, resulting in another year of accretive
growth as NFFO per Unit rose 6.3% to $2.273 per unit
despite the 7.9% increase in the weighted average
number of Units outstanding. Our payout ratio
of distributions declared to NFFO remained very
conservative at 61.0%.
Importantly, we met our goal of maintaining a strong and
flexible financial position. Total debt to gross book value
was a conservative 35.5% 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 5.8 years, adding to the
stability of our long-term cash flows. We also continued
to capitalize on low interest rates, reducing our weighted
average interest rate to 2.6% at December 31, 2020.
Our liquidity position is the strongest in our more than
23-year history. Including cash, available capacity on
our credit lines, the ability to up-finance our existing
mortgages, and potential financing on our portfolio of
$977 million in unencumbered assets, including our
recent operating lease buyouts, we have total liquidity
available of over $1.9 billion. Clearly, we do not intend
to access all of these capital resources at one time, but
even if we did, our leverage ratio would remain a very
conservative 42%.
...our liquidity position is
the strongest in our more
than 23-year history.
Our solid performance through the pandemic is further
proof that CAPREIT can generate strong and growing
returns for Unitholders, in both good and bad economic
times. Our results are also a testament to the exceptional
contribution made by our people. It is their expertise
that will get us through these challenging times as we
emerge stronger than ever.
NFFO per Unit – Inception to 2020
NFFO per Unit
NFFO Payout Ratio
NFFO per Unit
NFFO Payout Ratio
2.000 –
1.800 –
1.600 –
1.400 –
1.200 –
1.000 –
0.800 –
0.600 –
0.400 –
0.200 –
0.000 –
‘98
‘99
‘00
‘01
‘02
‘03
‘04
‘05
‘06
‘07
‘98
‘08
‘99
‘09
‘00
‘10
‘01
‘02
‘12
‘03
‘04
‘05
‘15
‘06
‘16
‘07
‘08
‘18
‘17
‘14
‘13
‘1 1
‘09
‘19
‘10
‘20
– 120%
– 100%
– 80%
– 60%
– 40%
– 20%
– 0%
‘1 1
‘12
‘13
‘14
‘15
‘16
‘17
‘18
‘19
‘20
– 120%
– 100%
– 80%
– 60%
– 40%
– 20%
– 0%
2.500 –
2.000 –
1.500 –
1.000 –
0.500 –
0.000 –
10
2020 Annual Report “ We strive to
reach new levels
of innovation.”
Marc Kaddissi
Senior. Manager, Technical Services & Sustainability
11
Rising to the challenge, together. “ Welcoming diversity
and fostering
inclusion is our
commitment.”
12
Saleema Kassam
Legal Counsel
2020 Annual Report Portfolio Growth and
Diversification Continues
During 2020, we acquired 3,262 residential suites
and Manufactured Housing Community (“MHC”) sites
well located in our target markets for a total purchase
price of $820.2 million. Our total portfolio grew to
63,790 suites and sites with a fair value of $15.0 billion
at year-end, maintaining our position as Canada’s largest
multi-family residential REIT.
In late 2019 and through 2020, we were pleased to
have completed the buyout of 12 of our 15 operating
leases in the Greater Toronto Area for a total cost of
$173.3 million. We acted on these buyouts earlier than
scheduled, resulting in a 31% discount to the agreed
upon price for the properties. The transition to fee
simple ownership for these properties adds material
new financing capacity, meaningful net asset value
accretion, and unlocks the potential for future new
development opportunities.
Our Asset Allocation Strategy
is Working
Looking ahead, we will continue to deliver on our proven
asset allocation strategy in three targeted areas.
Our primary focus targets further growth in the Canadian
apartment business, expanding our portfolio of primarily
value-add properties in the mid-tier segment that we
are purchasing at well under 50% of replacement cost.
We have proven our ability to invest in these assets
to increase their value, and the stability of their cash
flows is driven by continuing high stable occupancies
and affordable rental rates. On average, we are renting
our apartments at approximately $1.60 per square foot,
much less than the $3.00 to $5.00 per square feet
found in the rental condominium and new apartment
construction markets.
Our second area of growth is the Canadian MHC
business. Revenues are highly stable, and with
residents owning their own homes, capital requirements
and maintenance needs are significantly reduced. MHC
properties also provide another level of diversification
by increasing our presence in rural and smaller markets.
We are also investigating opportunities to further
increase revenues in this business.
Our third focus is on Europe, where we are generating
significant and growing dividend, distribution and
fee income from our investments. Dividends and
distributions`` in 2020 from ERES and IRES totalled
$32.9 million, while our property management fee
income rose 5.2% to $22.1 million for the year. As
the only professionally managed operating platform
in Europe, the opportunities for further growth and
enhanced value are significant. However, we will target
our exposure to the European market at approximately
15%. Investors can always increase their own position
in Units of these two quality REITs.
MHC KEY METRICS
Total Sites
0
8
6
,
1
1
6
5
8
,
1
1
1
5
4
6
,
6
5
4
6
,
3
9
5
6
,
Operating Revenue
(000s)
NOI
(000s)
0
3
0
7
5
,
1
3
6
7
4
,
0
1
0
7
3
,
5
9
2
,
1
3
3
3
1
,
9
2
9
1
7
0
3
,
4
0
9
,
1
3
3
3
7
8
1
,
0
7
0
9
1
,
1
2
4
0
2
,
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
13
Rising to the challenge, together. Report to Unitholders
Rising
to the
challenge,
together.
With the onset of the pandemic in March, we implemented
a number of programs aimed at strengthening relationships
with our residents and understanding the issues they
faced. In our “Compassionate Care” program, we made
approximately 3,500 calls per month, reaching out to
our residents to check on their well-being and discuss
any rent issues they were experiencing. To help
them, our rent payment programs assisted many
through these challenging times, and at year-end
approved payment plans represented approximately
0.5% of our resident base. We also temporarily,
voluntarily suspended any rent increases beginning
in April 2020, before any legislative restrictions
were introduced.
We have made considerable investments in technology
solutions to make our business processes more efficient
and scalable. During the pandemic, these new solutions
proved invaluable. We accelerated the launch of our
“Resident Portals” during the year, enabling residents
to transact with us virtually. A key feature was our
Pre-Authorized Payment plan and other online methods
of paying rents, enhancing convenience for our residents
and improving the timing of rent collections and our
ability to react to resident issues. A key focus through
the pandemic has been on rent collection, and at year-
end we had collected approximately 99% of rents due.
We launched our virtual property tours and online lease
applications to ensure we could keep in touch with
prospective new residents. Since March, we have signed
on average 2,700 leases each quarter remotely, ensuring
the safety of our residents and staff and efficiently filling
vacant suites. With these and other programs, we were
pleased that occupancies remained strong and stable
during the pandemic, ending the year at 97.5%.
14
2020 Annual Report A Commitment to Diversity
One reason for our strong performance during the
pandemic, and over the past many years, is our commitment
to diversity. Our success in building a diverse and inclusive
workforce helps us to better interact with and support the
communities in which we live and work, enabling us to
deliver innovative approaches and solutions both within
and outside the organization.
Our employee base includes an almost equal gender split
between men and women, and since 2017 women have
represented about half of our annual recruitment. We
celebrate the more than 55 languages spoken at CAPREIT,
a reflection of the diverse makeup of the Canadian
population and our resident communities. Our workforce
is also highly multi-generational, ensuring we represent
the interests of all age groups.
We are very proud to be working with social housing
agencies and programs, leasing suites to them where we
can and where most needed. Almost 2,100 apartments
in our portfolio have been leased by these agencies for
people in need.
More information about our commitment to diversity, our
environmental performance, governance and other
important topics can be found in our 2020 ESG Report.
From top:
• Jonathan Cheong, Financial Reporting Manager
• Annemari Fernando, HR Lead Business Partner
• Georgeta Morar, Senior Director, Operations
15
Rising to the challenge, together. Report to Unitholders
The best
place to
live, work
and invest.
Looking ahead, we are confident that our long-term
focus on making CAPREIT the best place to live, work
and invest will take us through this challenging time
as we emerge stronger than ever.
We remain committed to building strong relationships
with our residents, providing them with a safe and
affordable place to live. Our teams continue to capitalize
on their experience and our efficient and well-tuned
operating platform to deliver the best possible operating
results. And from an investment perspective, we believe
the apartment industry remains a very defensive sector,
one that has proven its ability to generate solid returns
in both good times and bad.
We remain very optimistic about our future. We have
a highly conservative balance sheet with low leverage,
strong liquidity with numerous sources of capital, and
as we execute on our proven asset allocation strategy
we are confident we will see further growth and strong
operating performance in the years ahead.
In closing, we thank everyone at CAPREIT for their
ongoing commitment and effort over the past year, and
our residents for their continued support. 2020 was
an unprecedented year, but together we rose to the
challenge, proving once again our ability to generate
strong, stable and increasing value for our Unitholders
over the long term.
Mark Kenney
Michael Stein
President and Chief
Executive Officer
Chairman
16
2020 Annual Report Financial
Reporting
Scott Cryer
Chief Financial Officer
17
Rising to the challenge, together. Financial Reporting
Table of Contents
Management’s Discussion and Analysis
Consolidated Financial Statements
SECTION I: OVERVIEW AND DISCLAIMER
Basis of Presentation
Forward-Looking Disclaimer
Non-IFRS Financial Measures
Overview
Objectives and Business Strategy
SECTION II: KEY HIGHLIGHTS
Summary of Year End 2020 Results of Operations
Acquisitions and Dispositions
Key Performance Indicators
The COVID-19 Pandemic
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
19
19
20
20
20
22
23
24
24
27
28
32
35
36
37
40
41
46
47
48
50
51
51
55
56
59
59
59
60
70
71
71
71
73
Management’s Responsibility for Financial Statements
Independent Auditor’s Report
Consolidated Balance Sheets
76
77
82
Consolidated Statements of Income and Comprehensive Income 83
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 Recent Investment Property Acquisitions
Note 5 Dispositions
Note 6
Investment Properties
Note 7
Investment in Associate
Note 8 Other Assets
Note 9 Other Current Liabilities
Note 10 Accounts Payable and Accrued Liabilities
Note 11 ERES Units Held by Non-Controlling Unitholders
Note 12 Mortgages Payable
Note 13 Bank Indebtedness
Note 14 Unit-based Compensation Financial Liabilities
Note 15 Unit-based Compensation Expense
Note 16 Exchangeable LP Units
Note 17 Unitholders’ Equity
Note 18 Distributions on Trust Units
Note 19 Financial Instruments, Investment Properties and
Risk Management
Note 20 Realized and Unrealized Gains and Losses on
Derivative Financial Instruments
Note 21 Capital Management
Note 22 Income Taxes
Note 23 Accumulated Other Comprehensive Income (Loss)
Note 24 Interest and Other Financing Costs
Note 25 Joint Arrangements
Note 26 Supplemental Cash Flow Information
Note 27 Revenue and Other Income
Note 28 Related Party Transactions
Note 29 Commitments
Note 30 Contingencies
Note 31 Segmented Information
Note 32 Subsequent Events
Unitholder Information
84
85
86
86
96
99
100
101
105
105
106
106
106
107
107
108
110
111
112
114
114
118
120
121
122
122
122
123
125
125
127
128
128
128
129
18
2020 Annual ReportManagement’s Discussion and Analysis
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, 2020,
dated February 24, 2021, should be read in conjunction with CAPREIT’s audited consolidated annual financial
statements for the year ended December 31, 2020.
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, rental 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 and the ongoing health crisis related to the novel coronavirus (“COVID-19”) pandemic and
its direct or indirect impacts on the business of CAPREIT. These impacts may include the ability to enforce leases,
perform capital expenditure work, increase rents and apply for above guideline increases, and obtain mortgage
financings; 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 the difference between
in-place and market-based rents will be reduced upon such turnovers and renewals; 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: public health crises, disease
outbreaks, 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
19
Rising to the challenge, together.Management’s Discussion and Analysis 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 2020 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.
Non-IFRS Financial Measures
CAPREIT prepares and releases unaudited condensed 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 Canada’s largest publicly-traded provider of quality rental housing. CAPREIT currently owns or has
interests in, and manages, approximately 67,500 residential apartment suites, townhomes and manufactured housing
community sites well-located across Canada, in the Netherlands and Ireland.
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 April 1, 2020. As at December 31, 2020, CAPREIT had
1,029 employees (1,026 employees as at December 31, 2019).
Objectives and Business Strategy
CAPREIT’s objectives are to:
• Provide holders of Trust Units (“Unitholders”) with long-term, stable and predictable monthly cash distributions;
• Grow NFFO, sustainable distributions and Trust 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.
20
2020 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 cost, 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 toward their most accretive use
and to further modernize the overall portfolio. In addition, management investigates opportunities to enter into
joint venture relationships that 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 remains committed to embedding
its multi-year ESG road map into its corporate growth strategy. Supported by CAPREIT’s Board of Trustees, all levels
of the organization remain accountable in the delivery of a resilient and adaptive multi-year ESG performance that
keeps it a responsible steward of the environment, attracts and retains the best people in the 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. CAPREIT focuses
on several ESG-specific deliverables. Building the in-house ESG subject matter expertise by onboarding our ESG
Strategy Integration team in early 2019, CAPREIT established the necessary foundation to empower its people to
be advocates and enablers of ESG transparency and performance, develop and monitor cross-functional policies,
carry ongoing stakeholder engagements, establish frameworks, platforms and practices to deliver investment-grade
data, identify and monitor its progress and build standardized and comprehensive ESG disclosures. For a detailed
discussion, refer to the 2020 ESG Report contained in CAPREIT’s 2020 Annual Report.
21
Rising to the challenge, together.Management’s Discussion and Analysis SECTION II: KEY HIGHLIGHTS
Summary of Year End 2020 Results of Operations
Key Transactions and Events
• During the year, CAPREIT completed the buyout of 10 of the 13 remaining operating leases in the Greater Toronto
Area for a total purchase price of $158.6 million
• On June 22, 2020, CAPREIT was included in the S&P/TSX 60 Composite index, a prestigious stock market index
of 60 large companies listed on the Toronto Stock Exchange in 10 industry sectors
• CAPREIT continues to invest in accretive opportunities, with total acquisitions for the year ended December 31,
2020 amounting to $690 million comprising 2,847 suites and sites located in Canada, and $130 million comprising
415 suites located in the Netherlands
• Total dispositions for the year ended December 31, 2020 of $57 million of two Canadian properties comprising
of 194 suites and one commercial property owned by ERES
Strong Operating Results
• CAPREIT has maintained a very high level of rent collection, with over 99% of rents collected year to date
• On turnovers, monthly residential rents for the year ended December 31, 2020 increased by 7.9% on 18.7% of
the Canadian portfolio, compared to an increase of 13.5% on 19.0% of the Canadian portfolio for the year ended
December 31, 2019
• On renewals, monthly residential rents for the year ended December 31, 2020 increased by 1.3% on 86.5% of
the Canadian portfolio, compared to 2.1% on 85.9% of the Canadian portfolio for the year ended December 31,
2019. The reduced increases are primarily due to rent freezes enacted in April 2020 as a result of the
COVID-19 pandemic
• Net Average Monthly Rent (“Net AMR”) for the stabilized portfolio as at December 31, 2020 increased by 3.1%
compared to December 31, 2019 where it increased by 4.1%, while occupancies slightly decreased to 97.5%
• Year-over-year NOI increased by 3.9% for the stabilized portfolio for the year ended December 31, 2020, compared
to a year-over-year NOI increase of 4.9% for the stabilized portfolio for the year ended December 31, 2019
• NOI margin for the total portfolio increased to 65.5% for the year ended December 31, 2020 from 65.1% for the
year ended December 31, 2019
• NFFO per unit was up 6.3% for the year ended December 31, 2020 compared to last year despite an increase of
7.9% in weighted average number of units outstanding
Strong and Flexible Balance Sheet
• CAPREIT’s financial position remains strong, with $121.7 million of cash and cash equivalents and $628.0 million
of available liquidity on CAPREIT’s Acquisition and Operating Facility
• Management expects to raise between $850 million and $900 million in total mortgage renewals and refinancings
for 2021, excluding financings on acquisitions
• CAPREIT closed mortgage refinancing of $1,148.6 million for the year ended December 31, 2020, with top-ups
of $783.4 million, a weighted average term to maturity of 10.2 years and a weighted average interest rate of 1.83%
• For the year ended December 31, 2020 the fair value of investment properties increased by $1,904.2 million,
primarily as a result of (i) capitalization rate compression based on recent market activity, (ii) increases in stabilized
NOI, (iii) new acquisitions, (iv) the buyout of operating leases, (v) progress on the development pipeline, and
(vi) foreign exchange gains on the European properties. Excluding the impact of net acquisitions and operating
lease buyouts, the fair value of the Canadian portfolio increased by $749.9 million, or 6.7% for the year ended
December 31, 2020
2222
2020 Annual ReportManagement’s Discussion and Analysis Acquisitions and Dispositions
The tables below summarize property acquisitions and dispositions for the year ended December 31, 2020. The
table below does not include $158.6 million relating to CAPREIT’s operating lease buyouts.
Canadian Acquisitions Completed During the Year Ended December 31, 2020
($ Thousands)
Suite or
Site Count
Region(s)
Total
Acquisition
Costs
Assumed
Mortgage
Funding
Subsequent
Acquisition
Financing
Interest
Rate (%)(1)
February 10, 2020
1,503
Halifax, NS
$ 394,734
$ 108,744 $
76,174
March 4, 2020
March 16, 2020
August 13, 2020
September 21, 2020
October 1, 2020
November 26, 2020
November 30, 2020
December 2, 2020
Total
2019 Acquisition financing
112
109
88
301
169
147
380
38
2,847
Montreal, QC
Edmonton, AB
Halifax, NS
London & Sarnia, ON
Espanola, Wingham & Midland, ON
Maple Ridge, BC
Ottawa, ON
Halifax, NS
44,331
28,392
23,033
51,097
9,909
29,272
97,482
12,149
$ 690,399
3,911
–
–(3)
–(3)
–(3)
33,427
–(3)
–(3)
–(3)
–
–(3)
–(3)
–(3)
–(3)
–(3)
–(3)
$ 112,655 $ 109,601
$ 103,480(4)
Term to
Maturity
(Years)(2)
4.66
10.00
–(3)
–(3)
–(3)
7.94
–(3)
–(3)
–(3)
1.84
2.06
–(3)
–(3)
–(3)
4.77
–(3)
–(3)
–(3)
1.91(4)
8.09(4)
The Netherlands Acquisitions Completed During the Year Ended December 31, 2020
($ Thousands)
September 1, 2020
October 1, 2020
December 1, 2020
December 29, 2020
Total
2019 Acquisition financing
Suite or
Site Count
120
113
84
98
415
Region(s)
The Netherlands
The Netherlands
The Netherlands
The Netherlands
(1) Weighted average stated interest rate on mortgage funding.
(2) Weighted average term to maturity on mortgage funding.
Total
Acquisition
Costs
Assumed
Mortgage
Funding
Subsequent
Acquisition
Financing
Interest
Rate (%)(1)
Term to
Maturity
(Years)(2)
$ 32,233
$
– $
17,526
42,353
35,667
19,840
$ 130,093
$
–
–
–
22,831
19,375
10,792
– $
70,524
$ 97,808(4)
0.97
0.97
0.97
0.97
4.00
4.00
4.00
4.00
1.58(4)
6.11(4)
(3) The acquisition was funded from CAPREIT’s cash and cash equivalents invested in short-term investments.
(4) Subsequent acquisition financing of $201.3 million relates to properties acquired in 2019.
Dispositions Completed During the Year Ended December 31, 2020
($ Thousands)
January 31, 2020(1)
March 30, 2020
July 15, 2020
Total
Suite Count
Region(s)
Sale Price
Cash Proceeds
Germany
Charlottetown, PEI
Calgary, AB
–
6
188
194
$
$
25,585
675
30,500
56,760
$
$
15,419
675
19,335
$
35,429
$
(1) This is a commercial property held by ERES consisting of 58,513 square feet.
Mortgage
Discharged
10,166
–
11,165
21,331
2323
Rising to the challenge, together.Management’s Discussion and Analysis
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. These KPIs may be impacted by and should be read in conjunction with the risks and
uncertainties discussed under The COVID-19 Pandemic.
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 at between 97% to 99% over the long term.
Net 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. Management believes same property Net AMR will continue to gradually increase, providing the basis
for sustainable year-over-year increases in revenue.
Net Operating Income – 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 over the long term.
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 60% and 70%. 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 a revolving 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.
The COVID-19 Pandemic
The COVID-19 pandemic has given rise to uncertainty throughout the global economy, which may have various
direct or indirect impacts on the global real estate market. CAPREIT continues to monitor this evolving situation with
a focus on protecting the health and safety of its employees and tenants and implementing appropriate cautionary
measures to address potential risks to its business. CAPREIT has implemented a number of support measures
to help ease the burden on its various tenants impacted by the pandemic, including a temporary moratorium
on evictions and a freeze on rental increases in Canada. CAPREIT is also reviewing and implementing flexible
temporary payment plans on a case-by-case basis.
24
2020 Annual ReportManagement’s Discussion and Analysis The long-term impacts of the COVID-19 pandemic on financial forecasts, including the KPIs discussed above, are
subject to a degree of uncertainty and remain subject to further review and consideration given the uncertainty
associated with the full impact of the COVID-19 pandemic.
CAPREIT’s financial position and liquidity remain strong, providing it with the financial resources and flexibility to
manage through these challenging times. CAPREIT did not see a substantial impact from the COVID-19 pandemic on
the majority of its operational results for the year ended December 31, 2020; however, this may not be indicative
of CAPREIT’s future performance.
Rent Collection
CAPREIT has maintained a very high level of rent collection, with over 99% of rents collected year to date.
CAPREIT is closely monitoring its tenant receivables, and residents approved for the deferred rent payment
program are approximately 0.5% of total residents.
Update on Rental Revenue
As a result of the COVID-19 pandemic, as well as related legislative changes restricting rent increases, CAPREIT
has temporarily suspended the issuance and collection of any further rental increases in Canada during this period
of crisis, commencing with April 2020 rental payments. To the extent that such restrictions have been relaxed,
CAPREIT has started to increase rents as appropriate.
Due to the current economic uncertainty, there is a greater risk that CAPREIT’s estimated net rental revenue
run-rate may vary from actual rental revenue, and that such variation may be significant.
There are expected delays in the settlement of above guideline increase (“AGI”) applications, and when settled,
these increases will be excluded from the government-imposed rent freeze. CAPREIT has started imposing these
increases where appropriate.
The real estate market has been affected by various measures taken by Canadian federal and provincial
governments with regard to the prevention of further spread of COVID-19 and to help individuals and businesses
affected by the crisis. Some of the legislative initiatives announced include:
• In March 2020, Alberta and British Columbia announced rent increase freezes during the state of emergency.
The freeze in Alberta expired in June 2020. British Columbia has extended the state of emergency for rent
increases until July 10, 2021, except for approved above guideline increases.
• The province of Ontario has passed legislation to freeze rent increases until December 31, 2021, except for
approved above guideline increases.
• The province of Nova Scotia has capped residential rent increases at 2% retroactively from September 1, 2020,
until February 1, 2022, and has capped land-lease community rent increases at 1.9% for 2021.
• In each of the Canadian provinces where CAPREIT holds properties, eviction freeze orders for non-payment of rent
were announced, which limit new evictions and suspend existing evictions. As of December 31, 2020, the eviction
ban has expired in all provinces where it was instated. Landlords may now pursue evictions for non-payment of
rent. As of January 12, 2021, Ontario has reinstated enforcement freezes of eviction orders. Landlords may pursue
evictions, however enforcement of eviction orders will be postponed, except under special circumstances.
• In February 2021, the Dutch government has announced rent increase freezes for 2021 on regulated suites which
are subject to rent control.
• Rental tribunal hearings were rescheduled, suspended or stopped in most provinces at the onset of the
health emergency. At this time, most rental tribunal hearings have reopened or have converted to online or
telephone hearings.
• British Columbia and Prince Edward Island announced they were providing temporary rental assistance to tenants,
ranging from $250–$500 per month. This has now ended in both provinces as of December 31, 2020.
25
Rising to the challenge, together.Management’s Discussion and Analysis • The federal government previously introduced the Canada Emergency Response Benefit (“CERB”) in response
to the COVID-19 pandemic. The benefit period for this program has ended on October 3, 2020. Going forward,
support has transitioned from CERB to the Employment Insurance program (“EI”) to provide support to Canadians.
Additionally, the federal government announced new recovery benefits including benefits for those not eligible
for EI, called the Canada Recovery Benefit (“CRB”). These programs are expected to remain available until
September 25, 2021.
• The federal government, in partnership with provincial governments, has announced the Canada Emergency
Commercial Rent Assistance (“CECRA”) program to provide relief for small businesses impacted by the COVID-19
pandemic. This program is now closed to new applicants as of December 31, 2020. The federal government has
announced the new Canada Emergency Rent Subsidy (“CERS”) to provide similar relief as well as mortgage
support until June 2021.
• Assistance programs, such as wage subsidies, government loans, and tax deferrals have also been enacted
by the Dutch government.
Residential lease renewals generally occur on July 1 in the Netherlands. The weighted average rental increase
for the Dutch portfolio was 2.3%, below management’s intended increase for 2020. This reflects the uncertain
environment and the risk of potential stresses that may have affected some tenants due to the COVID-19 pandemic,
as well as related governmental or similar measures limiting economic activity to essential services and imposing
physical distancing restrictions.
The above list is not exhaustive and reflects only certain legislation enacted by government. As the situation
continues to evolve, the legislation enacted by government may be subject to change.
Valuation
Due to the COVID-19 pandemic and its ongoing impact on the economy, and specifically its unknown future impact
on the real estate market, there is heightened uncertainty surrounding the valuation of investment properties.
Consequently, there is a need to apply a higher degree of judgment as it pertains to the forward-looking assumptions
that underlie CAPREIT’s valuation methodologies. In addition, less weight can be ascribed to pre-pandemic market
evidence to inform opinions of value compared to recent market activity applicable to the current state of the
economy. Given this impact on the availability of reliable market metrics, greater caution must be exercised
in valuations than would normally be the case, as the fair values are subject to change and such changes could
be significant.
There was a $1,904.2 million increase in fair value for the year ended December 31, 2020, resulting from
capitalization rate compression based on recent market activity, increases in stabilized NOI, new acquisitions, buyout
of operating leases, progress on the development pipeline, and foreign exchange gains on the European properties.
Excluding the impact of net acquisitions and operating lease buyouts, the fair value of the Canadian portfolio
increased by $749.9 million, or 6.7%.
Management performed additional risk-based procedures to assess valuations, subject to the unknown direct and
indirect impacts of the COVID-19 pandemic on the real estate market. Specifically, in these scenarios, management
considered the pandemic-related economic risks which could negatively impact property cash flows in the short
term, and in turn their valuations.
Capital Expenditures
Capital investments and developments may be impacted by factors such as a lack of access to tenant suites and
physical distancing restrictions. CAPREIT expects the impact to be short term and will normalize over the long term.
As at December 31, 2020, CAPREIT has limited its capital investments to those that can be done safely following
appropriate physical distancing measures such as non-discretionary exterior work, and those required on an
emergency basis or to protect the safety of residents.
The COVID-19 pandemic may result in delays in development application processing by municipalities. Given
the evolving situation, CAPREIT will continue to assess and revise, if necessary, the number of applications to
be submitted.
26
2020 Annual ReportManagement’s Discussion and Analysis Liquidity
Management has determined that CAPREIT is in a strong financial position despite the changes in the market and
the heightened risk environment. CAPREIT’s liquidity position as at December 31, 2020 remains strong with:
• $628.0 million available on the Acquisition and Operating Facility;
• $121.7 million of cash and cash equivalents; and
• $976.7 million of investment properties that are not encumbered by mortgages.
In addition, management expects to raise between $850 million and $900 million in total mortgage renewals and
refinancings for 2021, excluding financings on acquisitions. CAPREIT’s mortgage program has remained stable since
the outbreak of the COVID-19 pandemic, with refinancings proceeding as scheduled with favourable interest rates
for longer terms, including 10-year terms. The actual refinancing amounts may vary from the forecast due to the
evolving situation.
Performance Measures
The following table presents an overview of certain IFRS and non-IFRS financial measures of CAPREIT for the years
ended December 31, 2020 and 2019. Management believes these measures are useful in assessing CAPREIT’s
performance in relation to its objectives and business strategy.
For the Year Ended December 31,
Portfolio Performance
Overall portfolio occupancy(1)
Overall portfolio net Average Monthly Rents(1)
Operating revenues (000s)
NOI (000s)
NOI margin
Financial Performance
FFO per unit – basic(2)
NFFO per unit – basic(2)
Cash distributions per unit
FFO payout ratio(2)
NFFO payout ratio(2)
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)(3)
Interest coverage (times)(3)
Available liquidity – Acquisition and Operating Facility (000s)(1)
Available cash and cash equivalents (000s)(1)
(1) As at December 31.
2020
2019(4)
$
$
$
$
$
$
$
$
$
$
$
$
97.5%
1,121
882,643
578,171
65.5%
2.258
2.273
1.380
61.4%
61.0%
35.54%
50.11%
2.56%
5.76
2.01
3.95
627,997
121,722
$
$
98.2%
1,084
780,780
508,150
65.1%
2.111
2.139
1.372
65.5%
64.6%
34.70%
48.08%
2.85%
5.13
1.87
3.69
$
$
146,170
477,328
(2)
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.
(3) Based on the trailing four quarters.
(4) Certain 2019 comparative figures have been adjusted to conform with current period presentation.
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.
2020
2019
171,123
3,262
194
49.99
8,639
$
$
158,553
9,241
–
53.01
9,013
$
$
27
Rising to the challenge, together.Management’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, 2019 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
London / Kitchener / Waterloo
Ottawa
Other Ontario
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Total Canadian residential suites
Europe
The Netherlands(1)
Total residential suites
MHC Sites
Total MHC sites
Total suites and sites
Net AMR
Occupied AMR
2020
AMR ($)
2019
AMR ($)
% Change
AMR
2020
AMR ($)
2019
AMR ($)
% Change
AMR
Occupancy %
2020
2019
1,499
1,069
1,363
1,409
1,418
991
1,095
1,016
1,466
1,301
1,413
1,451
1,023
1,325
1,353
1,375
981
1,080
1,006
1,448
1,301
1,403
1,197
1,184
1,056
1,079
1,061
1,096
1,192
1,113
3.3
4.5
2.9
4.1
3.1
1.0
1.4
1.0
1.2
–
0.7
1.1
(3.6)
(9.5)
(4.7)
1,523
1,078
1,372
1,421
1,437
1,025
1,118
1,048
1,484
1,306
1,426
1,464
1,034
1,327
1,357
1,387
989
1,092
1,014
1,462
1,309
1,415
1,259
1,207
1,108
1,223
1,133
1,128
1,217
1,144
1,100
1,083
1.6
1,109
1,093
984
1,282
1,375
1,293
1,035
1,260
1,231
1,257
(4.9)
1.7
11.7
2.9
1,042
1,311
1,399
1,322
1,057
1,273
1,267
1,272
390
1,121
383
1,084
1.8
3.4
407
1,151
399
1,104
4.0
4.3
3.4
4.7
3.6
3.6
2.4
3.4
1.5
(0.2)
0.8
4.3
(1.8)
0.5
(1.0)
1.5
(1.4)
3.0
10.4
3.9
2.0
4.3
98.4
99.2
99.4
99.2
98.7
96.7
97.9
97.0
98.8
99.6
99.1
99.1
99.0
99.9
99.7
99.2
99.3
98.9
99.2
99.0
99.4
99.1
95.1
98.1
95.3
88.2
93.7
97.2
97.9
97.3
99.2
99.1
94.4
97.8
98.3
97.9
95.8
97.5
97.9
99.0
97.2
98.8
96.0
98.2
(1)
Includes foreign exchange impact and service charge income. The amounts in euros for the total portfolio for Net AMR are €882 and €844 as at
December 31, 2020 and December 31, 2019, respectively, and for Occupied AMR are €896 and €869 as at December 31, 2020 and December 31,
2019, respectively.
28
2020 Annual ReportManagement’s Discussion and Analysis Stabilized Portfolio: Net AMR, Occupied AMR and Occupancy by Geography
As at December 31
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Other Ontario
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Total Canadian residential suites
Europe
The Netherlands(2)
Total residential suites
MHC Sites
Total MHC sites
Total suites and sites
Net AMR
Occupied AMR
2020
AMR ($)
2019(1)
AMR ($)
% Change
AMR
2020
AMR ($)
2019(1)
AMR ($)
% Change
AMR
Occupancy %
2020
2019
1,499
1,080
1,390
1,409
1,427
981
1,095
1,009
1,466
1,329
1,424
1,451
1,023
1,325
1,353
1,375
981
1,080
1,006
1,448
1,301
1,403
3.3
5.6
4.9
4.1
3.8
–
1.4
0.3
1.2
2.2
1.5
1,523
1,090
1,393
1,421
1,446
1,015
1,118
1,041
1,484
1,335
1,438
1,464
1,034
1,327
1,357
1,387
989
1,092
1,014
1,462
1,309
1,415
1,160
1,184
(2.0)
1,248
1,207
1,056
986
1,042
1,097
1,192
1,116
(3.7)
(17.3)
(6.6)
1,108
1,150
1,116
1,126
1,217
1,144
1,100
1,086
1.3
1,109
1,096
984
1,286
1,382
1,298
1,035
1,261
1,231
1,257
(4.9)
2.0
12.3
3.3
1,042
1,315
1,406
1,326
1,057
1,273
1,267
1,273
391
1,118
383
1,084
2.1
3.1
408
1,147
399
1,104
4.0
5.4
5.0
4.7
4.3
2.6
2.4
2.7
1.5
2.0
1.6
3.4
(1.6)
(5.5)
(2.4)
1.2
(1.4)
3.3
11.0
4.2
2.3
3.9
98.4
99.2
99.8
99.2
98.7
96.7
97.9
97.0
98.8
99.6
99.0
99.1
99.0
99.9
99.7
99.2
99.3
98.9
99.2
99.0
99.4
99.1
93.0
98.1
95.3
85.8
93.4
97.4
97.9
97.5
99.2
99.1
94.4
97.8
98.3
97.9
95.8
97.5
97.9
99.0
97.2
98.8
96.0
98.2
(1) Prior year comparable Net and Occupied AMR and occupancy has been restated for properties disposed of since December 31, 2019.
(2)
Includes foreign exchange impact and service charge income. The amounts in euros for the stabilized portfolio for Net AMR are €886 and €844 as at
December 31, 2020 and December 31, 2019, respectively, resulting in a Net AMR change of 5.0%. The Occupied AMR for the stabilized portfolio is €901
and €869 as at December 31, 2020 and December 31, 2019, respectively, resulting in an Occupied AMR change of 3.7%.
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 the Netherlands and Ontario, slightly offset by an increase in vacancy seen in
Nova Scotia, a currently weakening Alberta and Saskatchewan markets, both due to economic impacts related to
the COVID-19 pandemic and (ii) increases on renewals due to AGIs achieved in Ontario. Weighted average gross
rent per square foot for Canadian residential suites was approximately $1.60 as at December 31, 2020.
29
Rising to the challenge, together.Management’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(1)
British Columbia(2)
2021
0.0%
1.4%
2020
2.2%
2.6%
2019
1.8%
2.5%
(1) Ontario has passed legislation to freeze rent at 2020 levels. The rent freeze period will end on December 31, 2021.
(2)
British Columbia announced a freeze on rent increases, which will expire on July 10, 2021. This is further discussed in Section II under The
COVID-19 Pandemic.
Suite Turnovers and Lease Renewals – Total Portfolio
The tables below summarize 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
2020
Change in
monthly rent
Turnovers and
Renewals(1)
$
106.7
16.7
32.7
%
7.9
1.3
2.5
%
18.7
86.5
2019
Change in
monthly rent
$
%
167.3
13.5
25.0
50.8
2.1
4.2
Turnovers and
Renewals(1)
%
19.0
85.9
(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
(1)
Includes all residential properties owned by ERES.
2020
2019
Change in
monthly rent
Turnovers and
Renewals(2)
Change in
monthly rent
Turnovers and
Renewals(2)
€
82.4
18.9
27.4
%
9.3
2.3
3.2
%
14.2
92.5
€
52.6
27.4
30.7
%
6.4
3.5
3.9
%
12.6
84.2
(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, 2020 resulted in monthly rent increasing by approximately $107 or 7.9% compared to an increase
of approximately $167 or 13.5% for last year, primarily due to the strong rental markets in Ontario, Nova Scotia, and
Québec. The reduced turnover increases are mainly due to the impact of the COVID-19 pandemic as discussed
in Section II under The COVID-19 Pandemic.
Monthly rents on lease renewals on the Canadian residential portfolio (excluding co-ownerships) for the year ended
December 31, 2020 resulted in monthly rent increasing by approximately $17 or 1.3% compared to an increase
of approximately $25 or 2.1% for last year. The reduced renewal increases are mainly due to the impact of the
COVID-19 pandemic rent freezes as discussed in Section II under The COVID-19 Pandemic.
For the Netherlands portfolio, suite turnovers in the residential suite portfolio during the year ended December 31,
2020 resulted in monthly rent increasing by approximately €82 or 9.3% compared to an increase of approximately
€53 or 6.4% last year. The rent renewal increases that began on July 1, 2020 represent 92.5% of the Dutch
residential suites, with a weighted average rental increase of 2.3%.
30
2020 Annual ReportManagement’s Discussion and Analysis Management estimates the weighted average Canadian residential market rents are approximately 20% higher than
average occupied Canadian residential AMR of $1,311. This is an indicator of CAPREIT’s mark-to-market potential
on turnover, as well as its ability to sustain current revenue levels. However, the actual change in monthly rent on
turnover will vary depending on the age of tenancy.
Above Guideline Increases
Management continues to pursue applications in Ontario for AGIs to raise monthly rents on lease renewals where it
believes increases above the annual guideline are supported by market conditions. The maximum allowable annual
increase is up to 3% above the annual rental guideline, with the exception of applications based on an increase in
the cost of municipal taxes and charges.
The following table summarizes the status of cumulative AGI applications settled and outstanding:
Applications Settled:
Number of suites and sites
Weighted average total increase approved(1),(2)
Weighted average total increase applied for(1),(3)
Applications Outstanding:
Number of suites and sites
Term weighted average total increase applied for(1),(4)
(1) Weighted by number of impacted suites and sites filed.
January 1, 2020 –
December 31, 2020
January 1, 2019 –
December 31, 2019
970
2.13%
2.31%
8,138
1.88%
1,565
1.70%
2.27%
4,409
1.89%
(2)
For applications settled during the year ended December 31, 2020, the weighted average total increase approved is to apply over a weighted average
of 1.81 years (2.10 years for the year ended December 31, 2019).
(3) For applications settled during the year ended December 31, 2020, the weighted average total increase applied for was to apply over a weighted
average of 1.81 years (1.78 years for the year ended December 31, 2019).
(4) For applications outstanding as at December 31, 2020, the weighted average total increase applied for was to apply over a weighted average of
1.26 years (1.28 years for the year ended December 31, 2019).
Tenant Inducements, Vacancy Loss and Expected Credit Loss Expense
($ 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 bad debt allowance recognized as an expense
(1) As a percentage of total operating revenues.
2020
2,659
–
2,659
1,984
20,417
22,401
5,219
%(1)
0.2
2.3
2.5
0.6
$
$
$
$
$
$
$
$
$
$
2019
1,089
149
1,238
1,707
13,416
15,123
2,896
%(1)
0.2
1.7
1.9
0.4
The increase in residential tenant inducements, vacancy loss, and expected credit loss/bad debt expense
(“bad debt”) was due to circumstances caused by the COVID-19 pandemic, as discussed in Section II under
The COVID-19 Pandemic.
31
Rising to the challenge, together.Management’s Discussion and Analysis
Results of Operations
Total Operating Revenues by Geography
For the Year Ended December 31,
($ Thousands)
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Other Ontario
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Total Canadian residential suites
Europe
The Netherlands(1)
Other Europe(2)
Total residential suites
MHC Sites
Total MHC sites
Total residential suites and MHC sites
2020
Revenue
291,131
39,507
27,912
30,949
389,499
105,281
36,450
141,731
66,781
26,113
92,894
46,564
28,943
7,783
36,726
8,389
2,842
718,645
95,838
11,130
106,968
825,613
(%)
33.0
4.4
3.2
3.5
44.1
11.9
4.1
16.0
7.5
3.0
10.5
5.3
3.3
0.9
4.2
1.0
0.3
81.4
10.9
1.3
12.2
93.6
57,030
882,643
6.4
100.0
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2019(3)
Revenue
279,809
32,680
26,116
29,805
368,410
98,493
35,687
134,180
61,240
24,925
86,165
24,253
29,408
7,155
36,563
7,237
2,896
659,704
64,516
8,929
73,445
733,149
(%)
35.8
4.2
3.3
3.8
47.1
12.6
4.6
17.2
7.8
3.2
11.0
3.1
3.8
0.9
4.7
0.9
0.4
84.4
8.3
1.1
9.4
93.8
47,631
780,780
6.2
100.0
(1)
In € thousands, €62,592 and €43,603 for years ended December 31, 2020 and December 31, 2019, respectively.
(2) Comprised of ERES revenues for the commercial properties located in Germany and Belgium. In € thousands, €7,288 for the year ended December 31,
2020 and €6,051 for the period from March 29, 2019 to December 31, 2019.
(3) Certain 2019 comparative figures have been adjusted to conform with current period presentation.
32
2020 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 and tenant
inducements) based on Net AMRs in place for CAPREIT’s share of residential suites and sites and commercial leases
as at December 31, 2020 and 2019. Increases or decreases in net rental revenue run-rate are primarily due to
acquisitions or dispositions, respectively, within the last 12 months.
($ Thousands)
As at December 31,
Residential rent roll(1),(2)
Commercial rent roll(1),(2)
Annualized net rental revenue run-rate
2020
836,035
32,614
868,649
$
$
2019(3)
768,921
41,941
810,862
$
$
(1) Based on the rent roll as at December 31, net of vacancy loss and tenant inducements for the 12 months ended on such date.
(2) Includes the rent roll for all properties owned as at December 31.
(3) Certain 2019 comparative figures have been adjusted to conform with current period presentation.
Net rental revenue net of dispositions for the 12 months ended December 31, 2020 was $831.5 million (2019 –
$749.0 million).
NOI
Management believes NOI is a key indicator of operating performance in the real estate industry. NOI includes all
rental revenues and other related ancillary income (including MHC home sales) generated at the property level,
less: (i) related direct costs such as realty taxes, utilities, R&M costs, on-site wages and salaries, insurance costs
and bad debts; and (ii) an appropriate allocation of overhead costs. It may not, however, be comparable to similar
measures presented by other real estate investment trusts or companies.
Stabilized properties for the year ended December 31, 2020 are defined as all properties owned by CAPREIT
continuously since December 31, 2018, and therefore do not take into account the impact on performance of
acquisitions or dispositions completed during 2020 and 2019. As at December 31, 2020, stabilized suites and sites
represented 78.6% of CAPREIT’s total portfolio excluding co-ownerships.
($ Thousands)
For the Year Ended December 31,
Operating Revenues
Net rental revenues
Other(2)
Total operating revenues
Operating Expenses
Realty taxes
Utilities
Other(3)
Total operating expenses
NOI
NOI margin
Total NOI
Stabilized NOI
2020
2019(4)
%(1)
2020
2019(4)
%(1)
$
$
837,384
45,259
882,643
(81,596)
(65,459)
(157,417)
$
(304,472)
$
578,171
$
$
$
$
739,422
41,358
780,780
(73,546)
(59,197)
(139,887)
(272,630)
13.2
9.4
13.0
10.9
10.6
12.5
11.7
$
$
716,621
39,381
756,002
(72,970)
(57,875)
(132,509)
$
(263,354)
508,150
13.8
$
492,648
$
$
$
$
693,801
39,941
733,742
(70,788)
(57,113)
(131,612)
(259,513)
3.3
(1.4)
3.0
3.1
1.3
0.7
1.5
474,229
3.9
65.5%
65.1%
65.2%
64.6%
(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, legal costs and bad debt.
(4)
Bad debt, previously offset against revenues, has now been reclassified under other expenses in net operating income to conform with current
period presentation.
Operating Revenues
For the year ended December 31, 2020, total operating revenues for the total and stabilized portfolio increased
compared to last year, due to increases in monthly rents on renewals and turnovers throughout the year and
full year impact in 2020 from last year’s rental increases, slightly offset by increases in tenant inducements mainly
in the Greater Toronto Area. Contributions from acquisitions further contributed to higher operating revenues
for the total portfolio.
33
Rising to the challenge, together.Management’s Discussion and Analysis
Operating Expenses
Realty Taxes
For the year ended December 31, 2020, the stabilized portfolio’s realty tax increased compared to last year, primarily
because of increased property assessment values in Ontario, British Columbia, Alberta 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
Total Utilities
Stabilized Utilities
2020
23,322
15,857
26,280
65,459
$
$
$
$
2019
21,452
15,388
22,357
59,197
%(1)
8.7
3.0
17.5
10.6
2020
20,163
14,488
23,224
57,875
$
$
$
2019
20,880
15,113
%(1)
(3.4)
(4.1)
21,120
10.0
$
57,113
1.3
(1) Represents the year-over-year percentage change.
The table below breaks down the factors causing the above changes in the stabilized portfolio. Refer to the
Operational Efficiency and Resilience section of the 2020 ESG Report for details on our conservation efforts.
For the Year Ended
December 31, 2020
Electricity
Natural gas
Water
Total
Increase (decrease)
due to consumption
Increase (decrease)
due to rate
(4.2)%
(7.1)%
4.0%
(4.6)%
0.8%
3.0%
6.0%
5.9%
Warmer winter and cooler summer reduced consumption
Explanation
Warmer winter reduced consumption, partially
offset by increased rates
Higher usage during the COVID-19 pandemic,
coupled with increased rates
As at December 31, 2020, tenants who pay their hydro charges directly represented 70% of the total 17,788
sub-metered suites in Ontario, Alberta, and Halifax.
A summary of CAPREIT’s fixed natural gas contracts can be found in note 29 to CAPREIT’s consolidated annual
financial statements for the year ended December 31, 2020.
Other Operating Expenses
The stabilized operating expenses for the year ended December 31, 2020 increased compared to last year, primarily
due to higher bad debt, insurance costs and advertising costs, partially offset by lower R&M costs and on-site costs.
The increased bad debt was driven by the economic instability caused by the COVID-19 pandemic leading to some
commercial tenants and residential tenants forgoing rent payments. The increased insurance costs were driven by
higher replacement cost valuations, and overall increases in insurance rates. The increased advertising costs were
also due to the COVID-19 pandemic in an effort to increase occupancies in some weakened markets.
34
2020 Annual ReportManagement’s Discussion and Analysis
NOI by Region
For the Year Ended December 31,
2020
2019(4)
($ Thousands)
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Other Ontario
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Total Canadian residential suites
Europe
The Netherlands(2)
Other Europe(3)
Total residential suites
MHC Sites
Total MHC sites
Total suites and sites
NOI
NOI %(1)
189,667
26,048
18,350
19,311
32.8
4.5
3.2
3.3
253,376
43.8
64,613
22,465
87,078
47,081
18,790
65,871
11.2
3.9
15.1
8.1
3.2
11.3
NOI
Margin
(%)
65.1
65.9
65.7
62.4
65.1
61.4
61.6
61.4
70.5
72.0
70.9
27,014
4.7
58.0
16,060
4,503
20,563
2.8
0.8
3.6
55.5
57.9
56.0
4,321
0.7
51.5
1,467
459,690
72,578
8,893
81,471
541,161
0.3
79.5
12.6
1.5
14.1
93.6
37,010
6.4
578,171
100.0
51.6
64.0
75.7
79.9
76.2
65.5
64.9
65.5
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Increase
(Decrease)
NOI
Change
(%)
NOI
Margin
(%)
65.3
65.0
65.0
62.9
65.0
58.4
58.8
58.5
69.0
74.0
70.4
3.8
22.6
8.0
3.1
5.7
12.4
7.0
11.0
11.5
1.9
8.6
NOI
NOI %(1)
182,661
21,247
16,988
18,738
36.0
4.2
3.3
3.7
239,634
47.2
57,483
20,994
78,477
42,242
18,437
60,679
11.3
4.1
15.4
8.3
3.6
11.9
14,733
2.9
60.7
83.4
17,141
4,728
21,869
3.4
0.9
4.3
58.3
66.1
59.8
(6.3)
(4.8)
(6.0)
3,655
0.7
50.5
18.2
1,600
420,647
49,100
7,108
56,208
476,855
0.3
82.7
9.7
1.4
11.1
93.8
31,295
6.2
508,150
100.0
55.2
63.8
76.1
79.6
76.5
65.0
65.7
65.1
(8.3)
9.3
47.8
25.1
44.9
13.5
18.3
13.8
(1) Represents percentage of the portfolio by NOI.
(2) In € thousands, €47,413 and €33,076 for the years ended December 31, 2020 and December 31, 2019, respectively.
(3)
Comprised of ERES’s NOI for the commercial properties located in Germany and Belgium. In € thousands, €5,827 for the year ended December 31, 2020
and €4,818 from March 29, 2019 onwards for the year ended December 31, 2019.
(4) Certain 2019 comparative figures have been adjusted to conform with current period presentation.
35
Rising to the challenge, together.Management’s Discussion and Analysis
Stabilized NOI by Region
For the Year Ended December 31,
2020
($ Thousands)
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Other Ontario
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Total Canadian residential suites
Europe
The Netherlands
Total residential suites
MHC Sites
Total MHC sites
Total suites and sites
Stabilized suites and sites
Stabilized
NOI
NOI
Margin
(%)
188,425
21,634
17,993
19,311
247,363
61,751
22,456
84,207
42,159
17,633
59,792
65.4
67.1
65.7
62.4
65.3
61.1
61.6
61.2
70.7
71.8
71.0
14,947
60.2
14,419
3,792
18,211
54.9
58.9
55.7
3,386
49.7
1,467
429,373
40,881
470,254
22,394
492,648
50,118
51.6
64.3
75.9
65.2
64.9
65.2
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2019(9)
Stabilized
NOI
182,579
20,058
16,988
18,738
238,363
57,322
20,994
78,316
40,019
17,723
57,742
65.4
65.4
65.0
62.9
65.2
58.3
58.8
58.5
69.3
73.6
70.6
14,733
60.7
15,341
4,728
20,069
57.3
66.1
59.1
3,351
49.6
1,600
414,174
38,331
452,505
21,724
474,229
50,118
55.2
63.8
75.3
64.6
64.8
64.6
Increase (Decrease)
NOI
Margin
(%)
Revenue
Change
(%)
Expense
Change
(%)
NOI
Change
(%)
3.2
5.2
4.9
3.8
3.6
2.8
2.1
2.6
3.2
2.0
2.9
2.4
(1.8)
(10.0)
(3.6)
0.9
(1.9)
2.8
5.8
3.0
2.9
3.0
3.3
0.1
3.1
5.2
3.2
(4.0)
(4.8)
(4.2)
(1.5)
9.1
1.3
3.9
3.7
9.0
4.7
0.8
6.1
1.3
3.1
1.4
2.6
1.5
3.2
7.9
5.9
3.1
3.8(1)
7.7
7.0
7.5(2)
5.3
(0.5)
3.6(3)
1.5(4)
(6.0)
(19.8)
(9.3)(5)
1.0
(8.3)
3.7(6)
6.7(7)
3.9
3.1(8)
3.9
(1) Higher expenses: higher utilities cost, bad debt and realty taxes partially offset by lower R&M costs.
(2) Lower expenses: lower R&M costs and utilities partially offset by higher realty taxes.
(3) Higher expenses: higher bad debt and realty taxes.
(4) Higher expenses: higher advertising costs and bad debt partially offset by lower wages.
(5) Higher expenses: higher realty taxes and advertising costs partially offset by lower bad debt.
(6) Higher expenses: higher R&M costs and utilities.
(7)
In € thousands, NOI of €26,580 and €25,801 for the years ended December 31, 2020 and December 31, 2019, respectively. NOI increased by
€779 and 3.0%. Higher expenses: higher R&M and on-site costs partially offset by lower service charges.
(8) Higher expenses: higher wages and insurance costs partially offset by lower on-site costs.
(9) Certain 2019 comparative figures have been adjusted to conform with current period presentation.
36
2020 Annual ReportManagement’s Discussion and Analysis
The following table reconciles stabilized NOI and NOI from net acquisitions to total NOI for the years ended
December 31, 2020 and December 31, 2019:
($ Thousands)
For the Year Ended December 31,
Stabilized NOI
Net acquisitions NOI(1)
Total NOI
2020
492,648
85,523
578,171
$
$
NOI
Margin
(%)
65.2
69.5
65.5
2019(2)
474,229
33,921
508,150
$
$
NOI
Margin
(%)
64.6
85.2
65.1
(1) Represents the NOI of acquisitions and dispositions completed during 2020 and 2019.
(2) Certain 2019 comparative figures have been adjusted to conform with current period presentation.
Net Income and Other Comprehensive Income
($ Thousands)
For the Year Ended December 31,
NOI
(Less) plus:
Trust expenses
Transaction costs
Unit-based compensation expense
Fair value adjustments of investment properties
Realized loss on disposition of investment properties
Amortization of property, plant and equipment
Fair value adjustments of Exchangeable LP Units
Gain (loss) on non-controlling interest
Fair value adjustments of investments
Loss on derivative financial instruments
Interest on Exchangeable LP Units
Interest on mortgages payable and other financing costs
Interest on bank indebtedness and other financing costs
Interest on leases
Gain on foreign currency translation
Other income
Net income before income taxes
Current and deferred income tax expense
Net income
Other comprehensive income (loss), including items that may be reclassified
subsequently to net income
Amortization of losses from AOCI (AOCL) to interest and other financing costs
Gain (loss) on foreign currency translation
Other comprehensive income (loss)
Comprehensive income
2020
2019
$
578,171
$
508,150
(43,268)
–
(5,160)
595,859
(1,387)
(7,668)
(1,230)
24,478
(3,979)
(52,672)
(441)
(151,722)
(7,955)
(4,507)
5,982
29,990
954,491
(28,563)
925,928
(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
2,570
86,987
89,557
$
3,810
(52,166)
(48,356)
$
$
$
$ 1,015,485
$
1,147,091
37
Rising to the challenge, together.Management’s Discussion and Analysis
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 include costs related to the generation
of asset management and services fees to ERES and asset and property management fees to Irish Residential
Properties REIT plc (“IRES”). The table below shows trust expenses net of external fees income:
($ Thousands)
For the Year Ended December 31,
Trust expenses attributable to CAPREIT (excluding ERES)
$
Trust expenses attributable to ERES
Trust Expenses
Less: Asset management and services fees income from ERES attributed to ERES
non-controlling unitholders(1)
Less: Acquisition and underwriting fees from ERES attributed to ERES
non-controlling unitholders(1)
Less: Asset and property management fees income from IRES
Net Trust Expenses
Net Trust Expenses as % of Operating Revenue
(1) These fees are eliminated upon consolidation.
$
2020
35,370
7,898
43,268
(2,546)
(430)
(9,592)
30,700
3.5%
2019
37,525
8,719
46,244
(706)
(1,226)
(8,038)
36,274
4.6%
Trust expenses decreased for the year ended December 31, 2020 to $43.3 million compared to $46.2 million
last year primarily as a result of lower office and travel expenses due to the COVID-19 pandemic and lower legal
expenses, which were partially offset by higher salaries and benefits paid. For the year ended December 31, 2020,
trust expenses included non-routine items of approximately $0.8 million related to ERES acquisition research costs
on transactions that were not completed, restructuring costs, and one-time TSX listing and legal fees. For the year
ended December 31, 2019, trust expenses included non-routine items of approximately $0.8 million related to legal,
consulting, accounting and tax costs incurred in connection with initial ERES structuring and $0.6 million related
to other non-routine consulting and legal costs. For 2021, net trust expenses as a percentage of operating revenue
are expected to return to normal levels similar to 2019. However, given the uncertainty around the COVID-19
pandemic, actual results may vary.
Transaction Costs
Transaction costs are related to the one-time business combination fees associated with the reverse acquisition
in 2019 (the “Acquisition”) of European Commercial Real Estate Investment Trust (“ECREIT”), consisting of legal, audit,
tax, consulting and financial advisory fees.
Unit-based Compensation Expense
Unit-based compensation expense (recovery) has been separated into two components: (i) the amortization of the
fair value at grant date of the award over its vesting period, and (ii) the remeasurement of awards outstanding at
period end at fair value.
($ 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
Realized loss on disposition of investment properties
2020
(2,170)
7,330
5,160
$
$
2019
8,286
6,552
14,838
$
$
For the year ended December 31, 2020, a loss of $1.4 million (December 31, 2019 – $nil) was recognized in
connection with property dispositions during the year. The loss represents the difference between the net proceeds
after transaction costs from the disposition of each property compared to the fair value of the respective properties
at the date of disposition.
38
2020 Annual ReportManagement’s Discussion and Analysis
Loss on Derivative Financial Instruments
The loss on derivative financial instruments is due to changes in the fair value of derivatives for which hedge
accounting is not applied. The loss on derivative financial instruments for the year ended December 31, 2020
primarily relates to CAPREIT’s cross-currency interest rate swaps and is a result of the strengthening of the euro in
comparison to the US dollar. CAPREIT uses derivative financial instruments to minimize its exposure to fluctuations
in interest rates and foreign exchange rates. These derivative financial instruments allow CAPREIT to take advantage
of the low EURIBOR rates, resulting in significant interest savings, and to convert its borrowings to euro-denominated
liabilities to hedge against a majority of its euro-denominated assets.
Gain (Loss) on Non-Controlling Interest
For the year ended December 31, 2020, CAPREIT recorded a gain of $24.5 million on ERES units held by non-
controlling unitholders. This include distributions to ERES non-controlling unitholders of $12.5 million. The remaining
balance is the mark-to-market gain or loss due to fluctuations in the ERES unit price.
Gain on Foreign Currency Translation
CAPREIT is exposed to gain/loss on foreign currency translation due to its holdings of assets and liabilities through
its investment in IRES, its ERES subsidiary, and foreign-denominated cash and borrowings held by CAPREIT. The
following table summarizes the gain or loss recorded in other comprehensive income (loss) and net income on this
exposure and its associated derivative instruments.
Net Foreign Exchange Exposure and Gain (Loss)
Net Foreign Exchange Exposure – Excluding
Non-controlling Interest(3)
€
€
As of December 31,
($ Thousands)
Total Foreign Assets(1)
Total Foreign Liabilities(2)
Net Equity(3)
Cross-Currency Swap
As of December 31,
($ Thousands)
Total Foreign Assets(1)
Total Foreign Liabilities(2)
Net Equity(3)
Cross-Currency Swap
2020
Other Comprehensive
Gain (Loss)
Net Income
Gain (Loss)
Total Foreign
Exchange Gain (Loss)
Balance
Year Ended
Year Ended
Year Ended
€ 1,677,856
$
159,233
$
761,266
916,590
442,358
474,232
223,402
(72,246)
86,987
–
$
86,987
$
533
5,449
5,982
(54,661)
(48,679)
$
159,766
(66,797)
92,969
(54,661)
38,308
$
2019
Other Comprehensive
Gain (Loss)
Net Income
Gain (Loss)
Total Foreign
Exchange Gain (Loss)
Balance
Year Ended
Year Ended
Year Ended
€
1,543,055
$
$
(87,380)
35,214
(52,166)
–
6,289
31,644
37,933
442
$
(81,091)
66,858
(14,233)
442
$
(52,166)
$
38,375
$
(13,791)
634,284
908,771
442,358
466,413
234,884
Net Foreign Exchange Exposure and Gain (Loss)
Net Foreign Exchange Exposure – Excluding
Non-controlling Interest(3)
€
€
(1)
Foreign assets are comprised of CAPREIT’s euro cash, ERES assets, and CAPREIT 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 gains or losses related to ERES assets and
CAPREIT’s investment in IRES are recorded in foreign currency translation under other comprehensive income (loss).
(2) Foreign liabilities are comprised of ERES liabilities and CAPREIT’s LIBOR borrowings: (a) foreign exchange gains or losses related to loans secured
by ERES are recorded in foreign currency translation under other comprehensive income (loss); (b) gains or losses on CAPREIT’s euro LIBOR borrowings
are recorded in foreign currency translation under net income.
(3)
As at December 31, 2020, net equity includes €737,734 (December 31, 2019 – €701,974) relating to ERES in which CAPREIT has a 66% (December 31,
2019 – 66%) interest. Taking into consideration the non-controlling interest of ERES, net foreign exchange exposure is €223,402 (December 31,
2019 – €234,884).
39
Rising to the challenge, together.Management’s Discussion and Analysis
Other Income
Other income primarily consists of income received from investments (see note 8 of the accompanying audited
consolidated annual financial statements), net profit from investment in associate and asset management and
property management fees.
($ Thousands)
For the Year Ended December 31,
Investment income
Net profit from investment in associate(1)
Asset and property management fees(2)
Other(3)
Total
$
2020
1,226
17,173
9,592
1,999
$
2019
1,674
23,440
8,038
1,752
$
29,990
$
34,904
(1)
(2)
CAPREIT’s share of IRES’s investment property fair value change, earnings and foreign exchange effects thereon. For the year ended December 31, 2020
and 2019, CAPREIT’s share of IRES’s investment property fair value gain is $6.1 million and $15.2 million respectively.
Other income includes asset and property management fees from IRES, which CAPREIT has an 18.8% ownership in as at December 31, 2020
(December 31, 2019 – 18.3%), and excludes asset and property management fees and service fees from ERES, in which CAPREIT has a 66.0%
ownership as at December 31, 2020 (December 31, 2019 – 66.0%).
($ Thousands)
For the Year Ended December 31,
Total fee income generated
Asset and property management fees, acquisition fees, underwriting fees and service fees
from ERES eliminated on consolidation
Asset and property management fees from IRES recognized in other income
(3) The non-recurring increase is mainly due to the interest earned on cash and cash equivalents held.
2020
$
22,068
12,476
9,592
$
2019
20,980
12,942
8,038
$
$
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 LP Units(2)
Units under the DUP
Basic number of units
Plus:
Unit rights under the RUR Plan(3)
Diluted number of units
Weighted Average Number of Units
Outstanding Number of Units
2020
170,685
278
160
2019
158,333
–
220
2020
171,752
333
175
171,123
158,553
172,260
571
171,694
562
159,115
563
172,823
%(1)
99.4
0.2
0.1
99.7
0.3
100.0
(1) Represents percentage of total diluted units.
(2)
(3)
See note 16 to the accompanying audited consolidated annual financial statements for details on Exchangeable LP Units.
See notes 14 and 15 to the accompanying audited consolidated annual financial statements for the year ended December 31, 2020 for details
of CAPREIT’s unit-based compensation plans.
40
2020 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
2020
2019
$
235,649
$
218,136
441
1,013
237,103
(68,108)
(1,013)
–
1,070
219,206
(67,393)
(1,070)
$
167,982
$
150,743
29.2%
31.2%
(1)
Comprises non-cash distributions related to the DUP and the RUR Plan (see notes 14 and 15 to CAPREIT’s accompanying audited consolidated annual
financial statements for the year ended December 31, 2020 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. Exchangeable LP Units are not eligible for the DRIP.
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, (iii) the deduction of the impact attributable to the
non-controlling interest of ERES, (iv) the one-time write-off of prepaid CMHC premiums on expired mortgages and
(v) the adjustment for non-recurring mortgage prepayment penalties. 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.
41
Rising to the challenge, together.Management’s Discussion and Analysis
A reconciliation of net income to FFO is as follows:
($ Thousands, except per Unit amounts)
For the Year Ended December 31,
Net income
Adjustments:
Fair value adjustments of investment properties
Realized loss on disposition of investment properties
Remeasurement of Exchangeable LP Units
Remeasurement of investments
Remeasurement of unit-based compensation liabilities
Interest on Exchangeable Units
Deferred income taxes(1)
(Gain) on foreign currency translation
FFO adjustment for income from investment in associate
Loss on derivative financial instruments
Fair value mark-to-market adjustment on ERES units held by non-controlling unitholders
Distributions on ERES units held by non-controlling unitholders
Net FFO impact attributable to ERES units held by non-controlling unitholders(2)
Amortization of property, plant and equipment
Lease principal repayment
Prepaid CMHC Premiums write-offs(4)
Net mortgage prepayment costs(5)
Transaction costs(3)
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
2020
2019
$
925,928
$
1,195,447
(595,859)
(892,156)
1,387
1,230
3,979
(2,170)
441
26,368
(5,982)
(6,141)
52,672
(37,020)
12,542
(16,275)
7,668
(1,157)
14,348
4,429
–
386,388
2.258
2.250
237,103
61.4%
167,982
218,406
43.5%
$
$
$
$
$
$
–
–
(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%
$
$
$
$
$
$
(1)
The adjustment for year ended December 31, 2020 consists of $25.2 million of deferred income tax expenses as well as $1.2 million of current income
taxes on the disposition of a German investment property. The adjustment for the year ended December 31, 2019 consists of $5.1 million of deferred
income tax expense 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.
(2) This calculation is based on the weighted average ownership held by ERES non-controlling unitholders.
(3) Costs include legal, audit, tax, consulting, and financial advisory fees related to the Acquisition.
(4)
(5)
Consists of $9.4 million of expensed prepaid CMHC premiums relating to mortgages refinanced in prior years and $5.0 million of expensed CMHC
premiums relating to mortgages refinanced during the year ended December 31, 2020. For further details, please refer to the Liquidity and Financial
Condition section found in Section V of the MD&A.
Consists of non-recurring mortgage prepayment costs related to mortgages of the recently bought out operating leasehold properties. These costs
were incurred in order to accelerate refinancing and take advantage of the favourable interest rate environment. For further details, please refer to the
Liquidity and Financial Condition section found in Section V of the MD&A.
Normalized Funds From Operations
Management considers NFFO to be the key measure of CAPREIT’s operating performance. NFFO is calculated by
excluding from FFO the effects of certain, mainly non-recurring, items including amortization of losses on certain
hedging instruments previously settled and paid, and mortgage prepayment penalties, accelerated vesting of
previously granted RUR units, and large acquisition research costs relating to transactions that were not completed.
As it is an operating performance metric, no adjustment is made to NFFO for capital expenditures. NFFO facilitates
better comparability than FFO to prior years’ performance and provides a better indicator of CAPREIT’s long-term
operating performance. For further information on CAPREIT’s total property capital investments, please refer to the
Property Capital Investments in Section V. See discussions under the Net Income and Other Comprehensive Income
in Section III for additional information on hedging instruments currently in place. NFFO is not a measure of the
sustainability of distributions.
42
2020 Annual ReportManagement’s Discussion and Analysis
A reconciliation of FFO to NFFO is as follows:
($ Thousands, except per Unit amounts)
For the Year Ended December 31,
FFO
Adjustments:
Amortization of losses from AOCI (AOCL) to interest and other financing costs
Net mortgage prepayment cost
Other employee costs(2)
Acquisition research costs(3)
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
(1) Represents the year-over-year percentage change.
2020
2019
$
386,388
$
334,628
2,570
–
–
–
388,958
2.273
2.265
237,103
61.0%
167,982
220,976
43.2%
$
$
$
$
$
$
2,556
347
751
839
339,121
2.139
2.131
219,206
64.6%
150,743
188,378
44.5%
$
$
$
$
$
$
%(1)
15.5
0.5
(100.0)
(100.0)
(100.0)
14.7
6.3
6.3
8.2
11.4
17.3
(2) Expenses included in unit-based compensation expenses relate to accelerated vesting of previously-granted RUR units.
(3) Expenses included in trust expenses relate to transactions that were not completed.
NFFO for the year ended December 31, 2020 increased by 14.7% compared to last year, primarily due to the
contribution from acquisitions and higher NOI for properties owned prior to December 31, 2018. Asset and property
management fees, acquisition fees, underwriting fees and service fees received from ERES increased FFO and
consequently NFFO by $4.2 million for the year ended December 31, 2020 compared to $1.1 million last year. These
fees represent the amount of fees attributed to the ERES units held by non-controlling unitholders based on the
weighted average ownership throughout the year.
For the year ended December 31, 2020, basic NFFO per unit increased by 6.3% compared to last year, despite
an approximate 7.9% 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, 2020
improved to 61.0% compared to 64.6% last year. The effective NFFO payout ratio, which compares NFFO to net
distributions paid, improved for the year ended December 31, 2020 to 43.2% from 44.5% 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.
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.
43
Rising to the challenge, together.Management’s Discussion and Analysis
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 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(2)
Non-discretionary property capital investments(3)
Capitalized leasing costs(4)
Amortization of other financing costs(5)
Transactions costs(6)
Investment income
Net ACFO impact attributed to ERES units held by non-controlling unitholders(7)
Lease principal and interest repayments
Tax on disposition(8)
ACFO
Total distributions declared
Excess ACFO over distributions declared
ACFO payout ratio
2020
2019(9)
$
481,356
$
458,564
18,116
(130,398)
(70,545)
(3,909)
(23,725)
–
11,670
(13,346)
(5,664)
1,155
264,710
237,103
27,607
89.6%
$
$
$
8,485
(119,609)
(65,532)
(1,518)
(8,601)
8,527
10,039
(4,179)
(3,402)
–
282,774
219,206
63,568
77.5%
$
$
$
(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 current income tax payment of $18.1 million
relating to current income tax expense triggered on the Acquisition was added back for the year ended December 31, 2020. The one-time special
distribution to the pre-existing unitholders of ECREIT was added back for the year ended December 31, 2019.
(2) Excludes interest with respect to leases, distributions to ERES non-controlling unitholders, and holders of Exchangeable LP Units.
(3) Non-discretionary property capital investments for the years ended December 31, 2020 and 2019 are based on the actual annual 2020 and annual 2019,
respectively. For a reconciliation of actual non-discretionary property capital investments incurred during the period to forecast, see the table on the
next page.
(4) Comprises tenant inducements and direct leasing costs.
(5) Includes amortization of deferred financing costs, CMHC premiums, deferred loan costs and fair value adjustments. The adjustment in 2020 includes
$9.4 million of expensed prepaid CMHC premiums relating to mortgages refinanced in prior years and $5.0 million of expensed CMHC premiums relating
to mortgages refinanced during the year ended December 31, 2020.
(6) Relates to expensed transaction costs associated with the Acquisition.
(7)
This calculation is based on the weighted average ownership held by ERES non-controlling unitholders.
(8) Represents $1.2 million of income tax expense on the disposition of a German investment property for the year ended December 31, 2020.
(9) Certain 2019 comparative figures have been adjusted to conform with current period presentation.
For the year ended December 31, 2020, CAPREIT’s ACFO was in excess of distributions declared by $27.6 million.
As per OSC Staff Notice 51-724, if distributions are in excess of ACFO, then it represents a return of capital, rather
than a return on capital, since they represent cash payments in excess of cash generated from CAPREIT’s continuing
operations during the period.
44
2020 Annual ReportManagement’s Discussion and Analysis
The table below reconciles actual non-discretionary capital investments incurred to the forecasted amount:
Non-Discretionary Property Capital Actuals to Forecast Reconciliation
($ Thousands)
For the Year Ended December 31,
Actual
Forecast
Difference
2020
70,545
67,801
2,744
$
$
2019
65,532
67,245
(1,713)
$
$
For the year ended December 31, 2020, CAPREIT’s actual non-discretionary property capital investments of
$70.5 million were higher than the forecast by approximately $2.7 million, mainly due to warmer than expected
weather conditions in the fourth quarter of 2020 which enabled the completion of additional non-discretionary
capital work.
CAPREIT’s capital investments programs are affected by seasonal cycles, and professional judgment is used by
management to determine the timing of property capital investments. Therefore, actual and forecasted capital
investments may differ during the applicable periods. Management continues to monitor the rollout of the capital
expenditure plan in an effort to continuously improve the accuracy of its capital expenditure budgets.
Significant non-discretionary property capital investments 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,
including 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 $1,100 per residential suite annually
over the last five years and are expensed to NOI.
Discretionary Property Capital Investments are capital expenditures made to the property that are not essential
to the operation of the business in the short term. These investments may enhance the property’s operating
effectiveness, including its profitability, through increases in revenues or reductions in costs over the long term.
Included in discretionary capital expenditures are items such as suite and common area improvements, energy-
saving initiatives, equipment, boilers, elevators and risers.
The following table presents the actual 2020, 2019 and 2018 Non-Discretionary Property Capital Investments
per suite and site:
($ Thousands)
Non-discretionary property capital investments
Weighted average number of suites and sites
Non-discretionary property capital investments per suite and site
2020 Actual
2019 Actual
2018 Actual
$
$
70,545
60,929
1,158
$
$
65,532
55,175
1,188
$
$
51,252
49,595
1,033
45
Rising to the challenge, together.Management’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(2)
Adjusted Cash Generated from Operating Activities
Total distributions declared
Excess
2020
2019(1)
$
481,356
$
458,564
(130,398)
350,958
237,103
113,855
$
$
$
(119,609)
338,955
219,206
119,749
$
$
$
(1) Certain 2019 comparative figures have been adjusted to conform with current period presentation.
(2) Excludes interest with respect to leases, distributions to ERES non-controlling unitholders, and holders of Exchangeable LP Units.
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
2020
925,928
350,958
237,103
167,982
688,825
757,946
113,855
182,976
$
$
$
$
$
$
$
$
2019(1)
1,195,447
338,955
219,206
150,743
976,241
1,044,704
119,749
188,212
$
$
$
$
$
$
$
$
(1) Certain 2019 comparative figures have been adjusted to conform with current period presentation.
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, 2020, CAPREIT’s Adjusted Cash Generated from Operating Activities exceeded
distributions declared by $113.9 million. As per OSC Staff Notice 51-724, if distributions are in excess of Adjusted
Cash Generated from Operating Activities, then it represents a return of capital, rather than a return on capital, since
they represent cash payments in excess of cash generated from CAPREIT’s continuing operations during the period.
Management believes, should it occur, there is adequate overall liquidity to fund excess distributions over Adjusted
Cash Generated from Operating Activities on an annual basis through the Acquisition and Operating Facility.
46
2020 Annual ReportManagement’s Discussion and Analysis
SECTION V: CAPITAL INVESTMENT, INVESTMENT PROPERTY, CAPITAL
STRUCTURE, FINANCIAL CONDITION
Property Capital Investments
CAPREIT capitalizes all capital investments related to the improvement of its properties. These investments have
the objective of growing future NOI, increasing property value over the long term, ensuring life safety and
safeguarding of assets.
An important component of CAPREIT’s property capital investment strategy is to acquire properties significantly
below current replacement cost and improve its operating performance by investing annually. This ensures
sustainable growth to maximize the portfolio’s future rental income-generating potential.
Energy-saving initiatives and suite and common area improvement costs generally tend to increase NOI more
quickly compared to other capital investment categories. A breakdown of property capital investments (excluding
head office assets and development) is summarized by category below.
Property Capital Investments by Category
($ Thousands)
Year Ended December 31, 2020
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, 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
Actual Total
Portfolio
% of Actual
$
64,447
5,495
603
70,545
68,092
51,196
18,574
13,855
6,489
1,459
918
160,583
$
231,128
27.9
2.4
0.3
30.6
29.4
22.2
8.0
6.0
2.8
0.6
0.4
69.4
100.0
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
47
Rising to the challenge, together.Management’s Discussion and Analysis
The table below includes estimated 2021 capital expenditures for buildings expected to be completed in 2021.
The following budgeted capital expenditures may vary from actuals as the planned expenditures may be
accelerated or adjusted as necessary.
2021 Capital Expenditure Budget
($ 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
Budget Total
Portfolio
% of
Budget
% of Investment
Properties Value
64,823
8,420
5,364
78,607
70,042
63,897
30,126
10,499
12,675
1,248
1,973
190,460
269,067
24.1
3.1
2.0
29.2
26.0
23.8
11.2
3.9
4.7
0.5
0.7
70.8
100.0
0.4
0.1
0.0
0.5
0.5
0.4
0.2
0.1
0.1
0.0
0.0
1.3
1.8
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 for the Canadian
portfolio and quarterly for the European portfolio. For the Canadian portfolio, CAPREIT utilizes market assumptions
for rent changes, capitalization rates and discount rates provided by the external appraisal firms to determine
the fair value of the investment properties on a quarterly basis for interim reporting purposes. Capitalization rates
employed by the appraisers are based on recently closed transactions for similar properties 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.
The following table summarizes the changes in the investment properties portfolio during the period:
($ Thousands)
For the Year Ended December 31,
Balance, beginning of the year
Add:
Properties acquired through business combination(1)
Acquisitions(2)
Property capital investments(3)
Capitalized leasing costs(4)
Operating lease buyout
Fair value adjustments
Gain (loss) on foreign currency translation
Less:
Dispositions
Balance, end of the year
2020
2019
$ 13,096,426
$ 10,511,307
–
825,681
242,063
659
158,565
595,859
138,098
(56,760)
135,533
1,384,908
236,659
27
14,746
892,156
(78,910)
–
$ 15,000,591
$ 13,096,426
(1)
(2)
Represents the fair value of the properties acquired as part of the Acquisition.
Includes additional transaction costs on acquisitions.
(3) See Section V – Property Capital Investments, Conversions, Infill, and Redevelopment included within the Development Summary.
(4) Comprised of tenant inducements, straight-line rent and direct leasing costs.
48
2020 Annual ReportManagement’s Discussion and Analysis
For the year ended December 31, 2020, CAPREIT completed early buyouts of 10 existing operating leases at a
net purchase price of $158.6 million. The operating lease buyouts resulted in the conversion from operating
leasehold interests, with options to purchase, to traditional fee simple property interests or land leasehold interest,
resulting in a fair value gain of $48.8 million. These operating lease buyouts coincide with CAPREIT’s strategic
initiative of simplifying the company’s ownership structure, increasing net asset value, and strengthening overall
liquidity and flexibility.
Included in the fair value adjustment for the year ended December 31, 2020 is $37.8 million fair value gain on the
100 Wellesley Street East and the 141 Davisville Avenue properties in Toronto, Ontario as a result of the progress
made on its development application and approval process. For further details, please refer to Section V under the
Development section.
A summary of the fair values of CAPREIT’s investment properties and changes, along with key market assumptions,
is presented below. For the year ended December 31, 2020, there was a $1,904.2 million increase in fair value
primarily due to capitalization rate compression, increases in stabilized NOI, new acquisitions, the buyout of
10 operating leases, progress on the development pipeline, and foreign exchange gain on the European properties.
Excluding the impact of net acquisitions and operating lease buyouts, the fair value of the Canadian portfolio
increased by $749.9 million, or 6.7%.
Investment Properties by Geography
Dec 2019
Fair Value Change Due To
($ Millions)
Fair
Value
Net
Acquisitions
CAPEX(1)
Fair Value
Adjustments
Greater Toronto Area
$
4,811
$
159
$
Dec
2020
Dec
2019
Dec
2020
Fair
Value Cap Rates(2) Cap Rates(2)
3.63%
3.43%
5,450
1,351
1,843
1,591
328
488
90
32
10,534
1,962
600
148
44
29
431
(2)
(1)
–
808
110
10
Other Ontario
Québec
British Columbia
Nova Scotia
Alberta
Prince Edward Island
Saskatchewan
Subtotal
Europe
MHC
Total
($ Millions)
Greater Toronto Area
Other Ontario
Québec
British Columbia
Nova Scotia
Alberta
Prince Edward Island
Saskatchewan
Subtotal
Europe
MHC
Total
89
31
36
23
16
10
1
2
208
16
19
$
391
$
126
120
(24)
(30)
(69)
5
(6)
513
74
9
Foreign
Exchange
Translation
$
–
–
–
–
–
–
–
–
–
138
–
1,656
2,043
1,619
745
427
95
28
12,063
2,300
638
$
$
325
88
108
15
(29)
8
6
(3)
518
10
29
557
69
48
(16)
15
(67)
–
(1)
203
80
(1)
282
$
(89)
(31)
(36)
(23)
(16)
(10)
(1)
(2)
(208)
(16)
(19)
4.00%
4.18%
3.80%
4.43%
4.37%
5.47%
5.51%
3.80%
3.87%
5.96%
3.91%
$
4.27%
4.45%
3.83%
4.71%
4.47%
5.65%
5.53%
4.01%
3.88%
6.30%
4.11%
Total
391
126
120
(24)
(30)
(69)
5
(6)
513
74
9
$ 13,096
$
928
$
243
$
596
$
138
$ 15,001
For the Year Ended December 31, 2020
Components of Fair Value Adjustments
Cap Rates(2)
Normalized NOI(3)
CAPEX(1)
$
155
$
(1) Represents property capital investments and capitalized leasing costs during the year ended December 31, 2020.
(2)
Weighted average capitalization rates excluding implied capitalization rates on operating and land leasehold interests. See note 6 to the accompanying
audited consolidated annual financial statements for further valuation assumption details, including discount rates as at December 31, 2020 for operating
and land leasehold interests. Capitalization rates for Europe represent the implied capitalization rates for these properties.
(3) Represents normalized net operating income for valuation purposes.
49
$
(243)
$
596
Rising to the challenge, together.Management’s Discussion and Analysis
The table below summarizes the impact of changes in both the capitalization rate and normalized NOI on
CAPREIT’s fair value of investment properties. It should be noted that the sensitivity analysis below utilizes the
direct capitalization method, where the impact of any short-term changes in NOI on fair value will be overstated.
Currently, management believes that any impact to NOI resulting from the COVID-19 pandemic would be short-term
in nature. Using a discounted cash flow model, the impact would be much smaller than that shown below.
As at December 31, 2020
($ Millions)
Change in Capitalization Rate(1)
Change in NOI
(2.00)%
(1.00)%
–%
+1.00%
(0.50)% $
1,904
$
2,075
$
2,247
$
2,419
$
(0.25)%
– %
+0.25 %
+0.50 %
723
(298)
(1,192)
(1,981)
883
(149)
(1,052)
(1,849)
1,043
–
(912)
(1,717)
1,202
149
(772)
(1,585)
+2.00%
2,590
1,362
298
(632)
(1,453)
(1)
For operating leasehold interests, land leasehold interests and European properties, CAPREIT applies discount rates to determine the fair value of these
properties. However, for the purposes of the sensitivity analysis above, CAPREIT has utilized the implied capitalization rates for operating leasehold
interests, land leasehold interests and the European properties to determine the impact on fair value of the total portfolio.
Development
Development Progress
The development program remains a component of CAPREIT’s growth strategy by allowing for the potential to
unlock 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 income producing properties (“IPPs”) and
(iii) full or partial redevelopment.
Development Pipeline
Over the long term, CAPREIT has intensification and redevelopment potential in excess of 10,000 units, subject
to market conditions, cost of construction, and other factors. Shown below are the number of sites and proposed
net new units by major market targeted for planning approval submission in the next 12 months:
Major Market
British Columbia
Greater Toronto Area (GTA)
Québec
Prince Edward Island
Total
Pre-
Application
(# of sites)
–(1)
3(1)
1
–
4
Active Application
(# of sites)
Zoning Entitlement
(# of sites)
Construction
(# of sites)
–
–
1
–
1
–
2(2)
–
1(3)
3
–
–
–
–
–
Potential Growth
(Estimated # of
net new units)(4)
–
3,582
501
58
4,141
(1) A redevelopment site in British Columbia and a redevelopment site in the GTA were suspended indefinitely due to market conditions.
(2)
(3)
(4)
100 Wellesley Street East and 141 Davisville Avenue, Toronto, Ontario were approved in May 2020 and December 2020, respectively, by the Local
Planning Appeal Tribunal. For 100 Wellesley Street East, Zoning By-Law Amendment permits 128 net new units in a 10-storey infill building with an
additional storey of amenity. For 141 Davisville Avenue, Zoning By-law Amendment permits 120 net new units in a 14-storey infill building. CAPREIT
recorded a fair value gain of $37.8 million in relation to the development progress on these two properties.
The existing zoning on a property currently allows for 58 additional units to be built. CAPREIT is currently assessing market conditions in order to
proceed with building permit submission.
CAPREIT regularly re-evaluates its assets for highest and best use where the value may be realized through development or sale of a property.
Development Summary
($ Thousands)
Conversion(1)
Infill(2)
Redevelopment(2)
Total for development
2020
Actual Total
Portfolio(3)
$
10,936
$
3,289
1,174
2019
Actual Total
Portfolio(3)
14,579
693
162
$
$
15,399
$
15,434
$
2021 Annual
Forecast Total
Portfolio
20,298
17,749
2,874
40,921
(1) Actual for 2020 and 2019 includes costs from 2525 Cavendish Boulevard, Montréal, Québec.
Infill and Redevelopment costs relate primarily to pre-approval costs such as application, consultant fees, and levies.
Includes costs related to planning, rezoning, architectural surveys, application fees and building permits.
(2)
(3)
50
2020 Annual ReportManagement’s Discussion and Analysis
Actual costs may vary from forecast as expectations of processing time for development applications become better
defined. The regulatory and application processing is subject to factors beyond management’s control and varies
between projects.
Capital Structure
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, 2020, 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
Exchangeable LP Units
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, 2020
December 31, 2019
$ 5,401,202
$
4,228,805
118,553
9,273,702
16,632
623,893
8,403,895
–
$ 14,810,089
$ 13,256,593
35.54%
34.78%
50.11%
38.98%
34.70%
30.24%
48.08%
35.00%
Threshold
Maximum 70.00%
Minimum $2,400,000
$ 9,307,613
$
8,421,096
Minimum 1.20
Minimum 1.50
December 31, 2020
December 31, 2019
2.01
3.95
1.87
3.69
(1) See note 21 to the accompanying audited 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 in Section II of the MD&A, plus total debt.
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) the
Acquisition and Operating Facility; (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 an annual basis to
fund the current level of distributions.
CAPREIT’s liquidity position as at December 31, 2020 remains strong with $628.0 million available on the
Acquisition and Operating Facility, and has $121.7 million of cash and cash equivalents.
51
Rising to the challenge, together.Management’s Discussion and Analysis
CAPREIT’s Acquisition and Operating Facility bears an interest rate of 1.10%, after factoring the cross-currency
interest rate swaps, as discussed in note 20 of the accompanying audited consolidated annual financial statements,
and has $73.3 million of cash and cash equivalents invested in short-term investments generating interest revenue
at a weighted average interest rate of 0.85% per annum.
($ Thousands)
As at December 31, 2020
Facility
Less: USD LIBOR borrowings
Letters of credit
Available borrowing capacity
Weighted average interest rate including interest rate swaps
$
Acquisition and
Operating Facility
740,000(1)
(104,810)(2),(3)
(7,193)
$
627,997
1.10%
(1)
In addition, there is a $78,040 (€50,000) ERES Credit Facility and a $78,040 (€50,000) ERES Bridge Facility. As of December 31, 2020, $13,743 (€8,805)
was drawn on the ERES Credit Facility and no amounts were drawn on the ERES Bridge Facility.
(2) CAPREIT has net USD LIBOR borrowings of USD $82,320 that bear interest at the USD LIBOR rate plus a margin of 1.65% per annum.
(3)
CAPREIT entered into a cross-currency interest rate swap to (i) hedge the USD-based loan into euros, and (ii) convert the variable interest rate on the
USD-based loan of USD LIBOR plus 1.65% into a weighted average fixed interest rate of 1.05% and a remaining weighted average term of 1.00 years.
CAPREIT has investment properties with a fair value of approximately $976.7 million as at December 31, 2020 that
are not encumbered by mortgages. Of these, $974.5 million of the investment properties are located in Canada and
secure only the Acquisition and Operating Facility, while the remaining properties are located in Europe. CAPREIT
intends to maintain unencumbered investment properties with an aggregate fair value in the range of $800 million
to $900 million over the medium term. The majority of CAPREIT’s MHC sites are included in this pool.
The working capital deficiency, as presented on CAPREIT’s consolidated balance sheet as at December 31, 2020, is
funded through the DRIP and the Credit Facilities. Management does a liquidity forecast on a monthly basis which
includes refinancings, property capital investments, potential acquisitions and potential dispositions to monitor the
available capacity.
Mortgages Payable
In order to maintain and enhance its CMHC-insured financing program, and consistent with CMHC’s risk management
practices involving large borrowers, CAPREIT entered into the LBA. Other than improving the efficiency and
consistency of processes such as underwriting, the LBA has not materially affected the manner in which CAPREIT
conducts its business or its approach to mortgage financing.
($ Thousands)
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)(4)
Cross-currency interest rate swaps(5),(6)
Weighted average interest rate on swaps – pay
Weighted average interest rate on swaps – receive
Weighted average remaining term to maturity on swaps (years)
(1) Excludes the mortgages on the MHC sites and European financings.
2020
98.7%
99.3%
2.56%
5.76
2019
98.3%
99.0%
2.85%
5.13
$
675,765
$
644,279
0.24%
1.18%
3.29
1.06%
3.37%
1.30
(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, fair value adjustments and prepaid CMHC premiums on an effective interest
rate basis. Including the amortization of the realized component of the loss on settlement of $32.5 million included in accumulated other comprehensive
income (loss), the effective portfolio weighted average interest rate as at Dwecember 31, 2020 would be 2.61% (December 31, 2019 – 2.91%).
(4)
The Canadian and European properties have a weighted average mortgage term to maturity of 6.1 years (December 31, 2019 – 5.1 years) and 4.4 years
(December 31, 2019 – 5.3 years), respectively.
(5) Euro equivalent of €442.4 million (December 31, 2019 - €442.4 million).
(6) The 2020 swap balance includes a €44.8 million swap that was entered into January 15, 2021. See note 32 of the accompanying audited consolidated
annual financial statements for more details on this swap.
52
2020 Annual ReportManagement’s Discussion and Analysis
Based on new cross-currency interest rate swaps entered in late 2020 and early January 2021, the weighted
average all-in effective interest rate on the total Canadian swapped debt ($675.8 million) is expected to range
between 0.24% and 0.80%, depending on the assumption of maturity date of debt being swapped. The swaps have
been staggered between 1 to 5 years to take advantage of the low rates, with a current weighted average swap
term of 3.29 years as at December 31, 2020. In 2019, the all-in effective interest rate on the Canadian swapped debt
($644.3 million) was 1.06%, with a remaining weighted average swap term of 1.30 years as at December 31, 2019.
The following table presents refinancings, weighted average interest rates obtained, and mortgage top-ups closed
or committed up to 2020:
($ Thousands)
Original Mortgage
Amount
Original Stated
Interest Rate
New Mortgage
Amount
New Stated
Interest Rate(1),(2)
The Canadian Portfolio
First Quarter
$
Second Quarter
Third Quarter
Fourth Quarter
Acquisitions
23,708
98,234
29,325
213,863
–
4.80%
$
57,896
2.20%
3.20%
2.50%
–%
165,396
43,916
881,344
213,081
Total and Weighted Average
with Acquisitions
$
365,130
2.61%
$ 1,361,633
2.20%
1.90%
1.70%
1.80%
1.85%
1.84%
Weighted
Average Term on
New Mortgages
(Years)
10.0
$
9.0
9.8
10.5
9.0
Top-Up
Financing
Amount
34,187
67,162
14,591
667,481
213,081
10.0
$
996,502
The ERES Portfolio
Total and Weighted Average
with Acquisitions
$
10,167
0.95%
$
168,332
1.33%
5.2
$
158,166
Grand Total and
Weighted Average
(1) Weighted average.
$
375,297
2.56%
$ 1,529,965
1.79%
9.5
$ 1,154,668
(2) Excludes prepaid CMHC premiums, other financing costs and impact of hedging.
Management expects to raise between $850 million and $900 million in total mortgage renewals and refinancings
for 2021, excluding financings on acquisitions, while continuing to benefit from the low interest rate environment.
As a strategy, CAPREIT leverages CMHC insurance to get access to stable financing at lower interest rates than
would be available with conventional mortgage financing or other forms of debt. The premiums associated with the
initial mortgage financing along with any additional premiums on future expected mortgage renewals or refinancing
are analyzed to ensure the all-in cost of CMHC financing continues to be CAPREIT’s cheapest form of debt.
Starting in 2020, management modified its debt strategy to have longer amortization terms on its CMHC-insured
mortgages, by extending the amortization period to 30 or 35 years compared to the 25 years historically used.
By executing this strategy, CAPREIT has been able to increase the total average debt outstanding over the term
of such mortgages, thereby locking in more total debt at current attractive long-term interest rates. Management
believes this strategy will also allow CAPREIT to continue to reduce its overall cost of CMHC premiums by reducing
the need to undertake full refinances in the future. As a result of this change in strategy, management reviewed
the estimated useful life of existing CMHC premiums and determined that CMHC premiums will now be amortized
over the amortization period of the underlying mortgages and written off at the time of refinancing of the mortgage
at which time new premiums on the full loan amount will need to be paid.
For the year ended December 31, 2020, $9.4 million of prepaid CMHC premiums relating to mortgages refinanced
in prior years were expensed, and $5.0 million of CMHC premiums were expensed relating to mortgages refinanced
during the year ended December 31, 2020. This was a one-time adjustment and accordingly added back to FFO.
CMHC amortization expense of existing premiums including the net write-offs of CMHC premiums on refinancings
in 2021 is expected to be approximately $9.0 million, which will not be added back to FFO. CMHC amortization
expense for the next three years is expected to be in the range of $9.0 million to $12.0 million depending on
refinancing activity.
53
Rising to the challenge, together.Management’s Discussion and Analysis
As part of its operating lease buyout strategy, CAPREIT early terminated mortgages on four of the 13 buyout
properties. This provided CAPREIT with significant additional financing capacity due to the increase in fair value
of these properties, the current low leverage on these properties, as well as the elimination of lending restrictions
applicable to the operating lease structure. CAPREIT obtained incremental mortgage financing of $210.9 million
on these properties at a weighted average interest rate of 2.24% and a weighted average term of 14.2 years.
The significant interest savings expected from these refinancings is only slightly offset by prepayment penalties
incurred of $4.3 million.
As at December 31, 2020
($ Thousands)
Year of Maturity
Mortgage Maturities(1)
Mortgages on the
Same Properties
Maturing in
Other Years(1)
NOI of Properties
with Maturing
Total Mortgages
Mortgage(s)(2),(3)
2021
2022
2023
2024
2025
2026 onwards
Total
$
444,232
$
109,064
$
553,296
$
419,442
477,844
428,713
676,410
2,179,893
15,603
204,595
103,271
31,145
(463,678)
435,045
682,439
531,984
707,555
1,716,215
$
4,626,534
$
–
$
4,626,534
$
78,153
68,794
76,342
49,565
83,613
182,605
539,072
(1) Mortgage balance due upon maturity.
(2) NOI for the 12 months ended December 31, 2020.
(3) Projected NOI included for acquisitions since December 31, 2019.
The breakdown of CAPREIT’s Canadian dollar-denominated future principal repayments, including mortgage
maturities, and effective weighted average interest rates as at December 31, 2020 is as follows:
As at December 31, 2020
($ Thousands)
Period
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031–2035
$
Principal
Amortization
142,464
132,783
115,922
102,405
94,451
74,037
57,347
49,028
37,101
23,551
42,516
$
Mortgage
Maturities
444,232
341,536
320,734
305,265
322,083
298,212
234,900
190,181
284,556
290,875
512,328
$
Mortgage
Balance
586,696(3)
474,319
436,656
407,670
416,534
372,249
292,247
239,209
321,657
314,426
554,845
Deferred financing costs, fair value adjustments, prepaid CMHC premiums, net
(105,999)
$
871,605
$
3,544,902
$
4,416,508
Total
Weighted average term to
maturity (years)
$
4,310,509
6.10
% of Total
Mortgage
Balance
13.3
10.7
9.9
9.2
9.4
8.4
6.6
5.4
7.3
7.1
Interest
Rate (%)(1),(2)
3.25
3.16
3.33
3.14
2.85
2.84
2.67
2.85
2.80
2.15
12.7
100.0%
2.25
2.80%(2)
(1) Effective weighted average interest rates for maturing mortgages only.
(2) Effective weighted average interest rate includes deferred financing costs, fair value adjustments and prepaid CMHC premiums.
(3)
Included in mortgages payable is a $65.0 million non-amortizing credit facility on two of the MHC sites.
The breakdown for ERES of future principal repayments, including mortgage maturities, and effective weighted
average interest rates as at December 31, 2020 is as follows:
54
2020 Annual ReportManagement’s Discussion and Analysis
As at December 31, 2020
($ Thousands)
Period
2021
2022
2023
2024
2025
2026
2027
Deferred financing costs, fair
value adjustments, net
Total
Weighted average term to
maturity (years)
Principal
Amortization
Mortgage
Maturities
Mortgage
Balance ($)
Mortgage
Balance (€)
$
3,375
$
–
$
3,375
€
3,418
3,431
2,772
444
–
–
77,906
157,110
123,448
354,327
299,698
69,143
81,324
160,541
126,220
354,771
299,698
69,143
$
13,440
$ 1,081,632
$ 1,095,072
€
2,182
52,104(3)
102,858(3)
80,869(3)
227,301(3)
192,184(3)
44,300(3)
701,798
% of Total
Mortgage
Balance
0.3
7.4
14.7
11.5
32.4
27.4
6.3
100.0%
Interest
Rate (%)(1),(2)
–
1.43
1.49
1.70
1.87
1.47
1.74
1.61%(2)
(4,379)
$ 1,090,693
4.40
(1) Effective weighted average interest rates for maturing mortgages only.
(2) Effective weighted average interest rate includes deferred financing costs and fair value adjustments.
(3)
Included in mortgages payable are non-amortizing mortgages from ERES.
Unitholders’ Equity and Units Awarded under Unit-based Compensation Plans
Unitholders’ Equity represents the issued and outstanding Trust Units, and excludes the Exchangeable LP Units
and any units issued in connection with unit-based incentive plans.
Equity offerings and over-allotments for the years ended December 31, 2020 and December 31, 2019:
December 2019 (the “December 2019 Equity Offering”)
April 2019 (the “April 2019 Equity Offering”)
January 2019 (the “January 2019 Equity Offering”)
Market capitalization and units outstanding:
As at December 31, 2020
Market capitalization ($ Thousands)
Total number of units outstanding
Trust Units
Deferred units
RUR Plan units
Exchangeable LP Units
Ownership by trustees, officers and other senior management
Price per Unit
$
$
$
53.60
49.00
45.50
Units Issued
9,119,500
7,043,750
6,325,000
$
8,639,408
172,822,734
171,751,839
174,805
563,387
332,703
0.7%
Unitholder Taxation
Portions of the distributions received by taxable Canadian Unitholders are characterized as other income, capital
gain income, or return of capital. While return of capital is not immediately taxable, it reduces the tax cost of
Units, and thus will increase future gain for Unitholders on the sale of the Units. The deferral rate is the portion
of distributions treated as return of capital. Management expects that for the year ended December 31, 2020,
the deferral rate will be in the range of 55%-60% (December 31, 2019 – 71%).
For the year ended December 31, 2020, Unitholders may expect to be allocated capital gain as a result of
CAPREIT’s disposal of some properties (which did not occur in 2019). The capital gain will decrease the deferral
for Unitholders compared to a year when no dispositions occurred.
As CAPREIT expands its presence in Europe, the deferral rate may decrease. Also, Unitholders may expect the
deferral rate to decrease gradually as depreciation claimed to offset taxable income diminishes over time. However,
an increase in CAPREIT’s payout ratio will increase the deferral rate.
55
Rising to the challenge, together.Management’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),(3)
NOI (000s)(1),(2)
NOI Margin(1),(3)
Net Income (000s)
FFO (000s)(1),(2)
NFFO (000s)(1),(2)
Total debt to gross book value
Q4 20
Q3 20
Q2 20
Q4 19
Q3 19
Q2 19
Q1 19
1,113 $
1,121 $
1,093
$
$ 225,238 $ 221,420 $ 219,925 $ 216,060 $ 208,183 $ 199,417 $ 191,285 $ 181,896
$ 148,646 $ 148,234 $ 143,233 $ 138,058 $ 135,704 $ 132,844 $ 125,767 $ 113,835
62.6%
1,104 $
1,069 $
1,084 $
1,050 $
65.2%
65.7%
66.6%
66.9%
63.9%
66.0%
65.1%
Q1 20
1,105 $
$ 484,958 $ 300,075 $ 61,262 $ 79,633 $ 492,267 $ 330,341 $ 167,329 $ 205,510
$ 99,311 $ 100,342 $ 94,056 $ 92,513 $ 87,863 $ 88,860 $ 84,091 $ 73,814
$ 99,985 $ 101,114 $ 94,712 $ 93,147 $ 89,341 $ 89,513 $ 85,062 $ 75,205
37.35%
36.02%
36.43%
34.70%
35.86%
36.02%
35.70%
35.54%
FFO per unit(1) – basic
NFFO per unit(1) – basic
$
$
0.577 $
0.585 $
0.551 $
0.581 $
0.589 $
0.555 $
0.544 $
0.547 $
0.538 $
0.554 $
0.531 $
0.485
0.547 $
0.558 $
0.538 $
0.484
Weighted average number of
units (000s) – basic
Weighted average number of
units (000s) – diluted
172,054 171,628 170,588 170,206 163,295 160,328 158,237 152,212
172,616 172,188 171,175 170,780 163,840 160,895 158,806 152,778
(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.
(3) Certain 2019 comparative figures have been adjusted to conform with current period presentation.
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 its annual distributions and the annual 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 2020 increased by 8.2% over the same quarter in 2019, and NOI
increased by a significant 9.5%, driven by acquisitions and higher operating revenues. Net income in the fourth
quarter of 2020 decreased over the same period last year to $485.0 million, mainly due to lower fair value
adjustments of investment properties of $398.4 million compared to $418.6 million for the same period last year.
Loan interest and mortgage interest increased by $13.3 million, offset by higher NOI of $148.6 million. Higher
NFFO for the fourth quarter of 2020 was primarily due to a 3.2% increase in stabilized property NOI and the NOI
contribution from acquisitions completed over the prior 12 months.
56
2020 Annual ReportManagement’s Discussion and Analysis The following table shows the NOI and the NOI margin attained for each regional market for the periods ended
December 31, 2020 and 2019.
NOI by Geography
For the Three Months Ended
December 31,
($ Thousands)
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Other Ontario
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Total Canadian residential suites
Europe
The Netherlands(2)
Other Europe(3)
Total residential suites
MHC sites
Total MHC sites
Total suites and sites
2020
2019(4)
Increase
(Decrease)
NOI
NOI %(1)
NOI
Margin (%)
NOI
NOI %(1)
NOI
Margin (%)
NOI
Change (%)
$
47,669
7,101
4,995
5,021
$
64,786
$
16,289
5,737
$
22,026
$
12,457
4,653
$
17,110
$
7,007
$
$
3,857
1,104
4,961
$
1,137
$
318
$ 117,345
$
$
$
19,370
2,208
21,578
$ 138,923
32.0
4.8
3.4
3.4
43.6
11.0
3.9
14.9
8.4
3.1
11.5
4.7
2.6
0.7
3.3
0.8
0.2
79.0
13.0
1.5
14.5
93.5
64.9 $
66.1
66.7
63.8
65.1 $
47,334
5,986
4,489
4,466
62,275
61.7 $
61.9
61.7 $
14,692
5,319
20,011
74.6 $
71.4
73.7 $
11,035
4,790
15,825
55.9 $
3,850
56.3 $
55.7
56.2 $
4,552
1,239
5,791
53.7 $
1,068
45.8 $
398
64.3 $ 109,218
14,880
76.8 $
79.9 $
77.1 $
17,273
66.0 $ 126,491
2,393
35.0
4.4
3.3
3.3
46.0
10.8
3.9
14.7
8.1
3.5
11.6
2.8
3.4
0.9
4.3
0.8
0.3
80.5
11.0
1.7
12.7
93.2
$
9,723
$ 148,646
6.5
100.0
66.5 $
9,213
66.0 $ 135,704
6.8
100.0
65.9
64.3
67.4
59.0
65.3
57.9
58.9
58.1
67.6
73.4
69.2
0.7
18.6
11.3
12.4
4.0
10.9
7.9
10.1
12.9
(2.9)
8.1
61.7
82.0
60.8
67.7
62.2
(15.3)
(10.9)
(14.3)
51.3
6.5
55.0
63.9
73.8
78.9
74.5
65.1
65.8
65.2
(20.1)
7.4
30.2
(7.7)
24.9
9.8
5.5
9.5
(1) Represents percentage of the portfolio by NOI.
(2)
(3)
In € thousands, €12,464 and €10,226 for the three months ended December 31, 2020 and December 31, 2019, respectively.
Comprised of ERES’s NOI for the commercial properties located in Germany and Belgium. In € thousands, €1,421 for the three months ended
December 31, 2020 and €1,571 for the three months ended December 31, 2019.
(4) Certain 2019 comparative figures have been adjusted to conform with current period presentation.
57
Rising to the challenge, together.Management’s Discussion and Analysis
The stabilized portfolio performance for the three months ended December 31, 2020 compared to December 31,
2019, is summarized as follows:
Three Months Ended December 31,
2020
2019(1)
Increase (Decrease)
($ Thousands)
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
Total residential suites
MHC sites
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 (%)
$
47,151
4,638
5,586
5,021
$
62,396
$
15,408
5,727
$
21,135
$
11,146
4,361
$
15,507
$
$
852
3,643
4,495
65.0 $
66.4
67.8
63.8
65.2 $
47,231
4,489
5,142
4,466
61,328
61.0 $
61.8
61.2 $
14,524
5,327
19,851
75.2 $
71.2
74.0 $
9,761
4,468
14,229
56.5 $
55.9
56.0 $
1,239
4,063
5,302
$
3,564
58.1 $
3,850
$
$
318
907
$
10,446
$ 118,768
45.8 $
398
52.4 $
822
76.2 $
9,380
65.5 $ 115,160
$
5,930
$ 124,698
50,118
67.7 $
5,670
65.6 $ 120,830
50,118
66.2
67.4
65.8
59.0
65.7
57.7
58.9
58.0
66.4
72.7
68.3
67.7
60.0
61.6
61.7
55.0
48.4
73.2
64.5
66.8
64.6
1.8
4.8
5.5
4.0
2.5
0.4
2.5
1.0
0.8
(0.3)
0.5
(17.6)
(3.8)
(6.7)
(1.6)
(4.1)
1.9
7.0
1.7
3.2
1.7
5.7
7.9
(0.6)
(8.0)
4.0
(7.3)
(4.7)
(6.6)
(25.6)
5.1
(17.8)
11.2
6.0
6.9
(0.2)
3.3
8.6
12.4
1.7(2)
6.1
7.5
6.5(3)
14.2
(2.4)
9.0(4)
(31.2)
(10.3)
(15.2)(5)
7.7
(7.4)(6)
15.3
(20.1)(7)
(5.9)
(5.0)
(1.0)
0.4
(0.9)
10.3(8)
11.4(9)
3.1
4.6(10)
3.2
(1) Certain 2019 comparative figures have been adjusted to conform with current period presentation.
(2) Higher expenses: higher realty taxes and utilities costs, partially offset by lower wages.
(3) Lower expenses: lower on-site costs, utilities and R&M costs, partially offset by higher advertising costs and realty taxes.
(4) Lower expenses: lower R&M costs and the timing of land lease expenses in the prior year, partially offset by higher bad debt and realty tax costs.
(5) Higher expenses: higher realty tax costs, partially offset by lower bad debt and on-site costs.
(6) Higher expenses: higher advertising costs, partially offset by lower wages
(7) Higher expenses: higher R&M and utilities costs, partially offset by lower bad debt.
(8) Lower expenses: lower R&M and utilities costs.
(9)
In € Thousands, €6,673 and €6,411 for the three months ended December 31, 2020 and December 31, 2019, respectively.
(10) Higher expenses: higher R&M costs and wages, partially offset by lower realty taxes.
58
2020 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
2020
2019(1)
2018(1)
$
$
$
$
882,643
925,928
235,649
1.380
$
$
$
$
780,780
1,195,447
218,136
1.372
$
$
$
$
691,030
1,217,671
187,848
1.313
$ 15,000,591
$ 15,499,131
$ 5,401,202
$
118,553
$ 13,096,426
$ 10,473,544
$ 13,938,182
$ 10,767,567
$
$
4,228,805
623,893
$
$
3,653,637
567,365
(1) Certain 2018 and 2019 comparative figures have been adjusted to conform with current period presentation.
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, 2020.
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, 2020.
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, 2020, 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, 2020.
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.
59
Rising to the challenge, together.Management’s Discussion and Analysis
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, 2020, 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, 2020.
CAPREIT did not make any changes to the design of internal controls over financial reporting in 2020 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 Trust 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 Trust Units.
COVID-19 and Other Public Health Crises
Public health crises, including the ongoing health crisis related to the COVID-19 pandemic, or relating to any other
virus, flu, epidemic, pandemic or any other similar disease or illness (each a “Health Crisis”) could adversely impact
CAPREIT, including through: a general or acute decline in economic activity in the countries and regions in which
CAPREIT’s properties and investments are located; increased unemployment, reduced immigration, closure of
colleges and universities, household consolidation, supply shortages, mobility restrictions and other quarantine
measures; increased government regulation, inability to access governmental programs or processes on a timely
basis, efficacy of governmental relief efforts; and the quarantine or contamination of one or more of CAPREIT’s
properties. Contagion in a property or market in which CAPREIT operates could negatively impact its occupancy,
reputation or attractiveness of that market. Furthermore, increased government regulation relating to a Health
Crisis could result in legislation or regulations that may restrict CAPREIT’s ability to enforce material provisions
under its leases, including in respect of the collection of rent or other payment obligations, among other potential
adverse impacts. All of these occurrences may have a material adverse effect on the business, cash flows, financial
condition and results of operations of CAPREIT, including, but not limited to: the ability to implement rent increases;
rent collection and receivables; vacancy levels; mortgage renewals and refinancings; submission and processing
of various applications and approvals; deferral of certain capital expenditures and R&M expenditures; valuation of
investment properties; and CAPREIT’s ability to meet its debt covenant restrictions.
The current public health crisis has also resulted in general economic slowdown and extreme volatility in financial
markets. In addition to impacting CAPREIT’s Trust Unit price, this may create difficulty in raising capital in debt and
equity markets, which could in turn adversely impact CAPREIT’s strategy. While various governments and central
banks have announced or implemented a range of measures targeted to alleviate these impacts and encourage
economic growth, the impact of these measures remains uncertain, particularly in the short term. In the medium to
long term, government debt accumulated as a result of relief measures may lead to tax increases for consumers
and businesses. The duration and impact of the COVID-19 pandemic on CAPREIT remains unknown at this time.
As such, it is not possible to reliably estimate the length and severity of COVID-19 related impacts on the financial
results and operations of CAPREIT.
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.
60
2020 Annual ReportManagement’s Discussion and Analysis 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.
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. The portfolio is currently weighted
with 43.9% of the overall portfolio (by number of suites and sites) in Ontario (25.3% 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 financial position of CAPREIT.
61
Rising to the challenge, together.Management’s Discussion and Analysis 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 monitoring or removal or
remediation of certain hazardous or toxic substances released on its properties, or disposed of by or on behalf of
CAPREIT at other locations. The failure to monitor, remove 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
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 operations.
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. Refer to our 2020 ESG report for more details on our supporting policies and programs.
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 the 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 costs 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.
62
2020 Annual ReportManagement’s Discussion and Analysis 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 CAPREIT’s investment and development decisions and the management of
its standing investments. 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,
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.
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.
63
Rising to the challenge, together.Management’s Discussion and Analysis 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, 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
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 varying 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.
In the Netherlands, rental properties where rent is greater than the government prescribed rent control threshold
are subject to rent control, which includes a limit on the amount of starting rent that can be charged, as well as the
amount of annual rent increases.
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 of these matters may lead to increased operating costs and have an adverse effect
on revenues.
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.
64
2020 Annual ReportManagement’s Discussion and Analysis 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 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 Trust Units cease to be listed on a designated stock exchange, CAPREIT
Trust Units will cease to be qualified investments for trusts governed by designated savings plans. CAPREIT
will endeavour to ensure CAPREIT Trust 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 Trust 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
v. Investments in the trust are, at any time in the taxation year, listed or traded on a stock exchange or other
public market.
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.
65
Rising to the challenge, together.Management’s Discussion and Analysis 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 CAPREIT
Unitholders and such Unitholders may be entitled to claim a foreign tax credit in respect of such taxes.
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.
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.
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.
66
2020 Annual ReportManagement’s Discussion and Analysis 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 Trust Units
CAPREIT is an unincorporated “open-ended” investment trust and its Trust Units are listed on the TSX. There can
be no assurance that an active trading market in the Trust 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 Trust Units will trade cannot be predicted.
The market price of the Trust 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 Trust Units is the annual yield on the Trust Units. Accordingly, an increase in market
interest rates may lead purchasers of Trust Units to demand a higher annual yield, which could adversely affect the
market price of the Trust 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 Trust Units.
Accordingly, the Trust 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 Trust 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 Trust 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 Trust Units, to continue to hold Trust Units, or to initiate and complete takeover bids in
respect of the Trust Units. As a result, these restrictions may limit the demand for Trust Units from certain Unitholders
and other investors, and thereby adversely affect the liquidity and market value of the Trust Units.
Dilution
Subject to applicable laws, CAPREIT is authorized to issue an unlimited number of Trust Units and 25,840,600
Preferred 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.
67
Rising to the challenge, together.Management’s Discussion and Analysis 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 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 Trust Unit prices.
Risk Related to CAPREIT’s Investment in ERES
CAPREIT currently beneficially owns, controls or exercises direction 142,040,821 ERES 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. For further details, please see the Related Party section in Section VI of the MD&A. 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 beyond CAPREIT’s control. Fluctuations in the market price and valuations of
CAPREIT’s holdings in ERES may affect the price of the Trust 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.
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 and the impact of the COVID-19
68
2020 Annual ReportManagement’s Discussion and Analysis pandemic), 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.
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.
69
Rising to the challenge, together.Management’s Discussion and Analysis 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. Given the increased work from home
policies as a result of the COVID-19 pandemic, CAPREIT’s reliance on using information technology systems is
further elevated during this time period.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.
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.
A cyber security and/or privacy incident can lead to: (a) unauthorized access to or disclosure of business confidential
and personal information, belonging to CAPREIT and its tenants, employees or vendors, (b) identity theft, fraudulent
activities and direct losses to stakeholders, including tenants and employees, (c) destruction or corruption of data
affecting timeliness or accuracy of financial reporting, (d) lost revenues, (e) disruption to operations, including
delays in processing rental applications and rent payments and the time, (f) attention required by management to
investigate and respond to a cyber security incident, (g) remediation costs, including to restore or recover lost
data, (h) litigation, fines and liabilities, including third-party liabilities, for failure to comply with applicable privacy and
data protection laws or contractual obligations, (i) regulatory investigations, (j) increased insurance premiums and (k)
reputational damage to CAPREIT.
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
On March 29, 2019, CAPREIT NL Holding B.V. (“Holding BV”) completed the Acquisition of ECREIT, and the ongoing
entity adopted the name European Residential Real Estate Investment Trust, 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 (“ERES 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 ERES Class B LP Units, 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. In addition, pursuant to the terms of the pipeline
agreement dated March 29, 2019, there were a number of transactions occurring in 2019 resulting in further
ownership of ERES Class B LP Units. For further information, please see CAPREIT’s 2019 Annual Report. ERES
Class B LP Units are exchangeable for ERES units on a one-to-one basis. As at December 31, 2020, CAPREIT
has a controlling interest of 66.0% effective ownership in ERES.
70
2020 Annual ReportManagement’s Discussion and Analysis As at December 31, 2020, CAPREIT has an 18.8% share ownership in IRES and has determined it has significant
influence over IRES. A summary of related party transactions can be found in note 28 to CAPREIT’s consolidated
annual financial statements for the year ended December 31, 2020.
Commitments and Contingencies
A summary of commitments and contingencies can be found in notes 29 and 30 to CAPREIT’s consolidated annual
financial statements for the year ended December 31, 2020.
Subsequent Events
A summary of subsequent events can be found in note 32 to CAPREIT’s consolidated annual financial statements
for the year ended December 31, 2020.
Future Outlook
CAPREIT believes the multi-unit residential rental business will continue to strengthen in the majority of the markets
in which it operates over the long term. With 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, which may be temporarily
impacted by the COVID-19 pandemic. 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 (please refer to “COVID-19 and Other Public Health Crises” above).
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 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.
71
Rising to the challenge, together.Management’s Discussion and Analysis 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 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. Effective July 1, 2020, CMHC has revised its requirements for the eligibility of multi-
unit CMHC-insured financing and limited it to financing for the purpose of property purchase, construction, capital
repairs or improvements, or securing permanent financing. Due to CAPREIT’s well-defined use of proceeds, the rule
changes are not expected to have a material impact.
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 governance, and maintains open and transparent communication
with its investors. In support of CAPREIT’s ESG integration, CAPREIT initiated its inaugural Global Real Estate
Sustainability Benchmark (“GRESB”) submission in 2020, the results of which will underpin the development
of our strategy going forward. Further details on the progress of CAPREIT’s ESG performance are disclosed in
its 2020 ESG Report.
As discussed in context in various sections of this MD&A, management continues to monitor the potential impact to
CAPREIT of the COVID-19 pandemic and assess and implement, as applicable, various measures designed to help
ensure the health and safety of our communities and to mitigate the potential areas of risk to our business.
72
2020 Annual ReportManagement’s Discussion and Analysis 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 three properties located in the Greater
Toronto Area as at December 31, 2020, compared to 13 properties as at December 31, 2019. 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.
Land Leasehold Interests – CAPREIT owns ground leasehold interests in three land parcels in Alberta and one land
parcel in British Columbia, as well as an air leasehold interest in the space occupied by an apartment in the Greater
Toronto Area. 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 lease matures in 2045, two mature in 2068, one matures in 2070, and
another matures in 2072. 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 75 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
2020
50,219
339
1,376
51,934
11,856
63,790
%
78.7
0.5
2.2
81.4
18.6
100.0
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
73
Rising to the challenge, together.Management’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
London / Kitchener / Waterloo
Ottawa
Other Ontario
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Total Canadian residential suites
Europe
The Netherlands
Total residential suites
MHC Sites
Total MHC sites
Total suites and sites
2020
%
2019
%
16,160
3,261
2,750
1,702
23,873
7,771
2,517
10,288
3,551
1,697
5,248
3,288
1,775
544
2,319
637
234
45,887
6,047
51,934
11,856
63,790
25.3
5.1
4.3
2.6
37.3
12.2
3.9
16.1
5.6
2.7
8.3
5.1
2.8
0.9
3.7
1.0
0.4
71.9
9.5
81.4
18.6
100.0
16,155
2,960
2,377
1,702
23,194
7,655
2,517
10,172
3,551
1,550
5,101
1,659
1,963
435
2,398
643
234
43,401
5,632
49,033
11,680
60,713
26.6
5.0
3.9
2.8
38.3
12.6
4.1
16.7
5.8
2.6
8.4
2.7
3.2
0.7
3.9
1.1
0.4
71.5
9.3
80.8
19.2
100.0
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.
74
2020 Annual ReportManagement’s Discussion and Analysis Portfolio of Operating Leasehold Interests
CAPREIT has the option to acquire fee simple interests in three of the properties, which are exercisable between
the 26th and 35th years of the respective leases. In 2020, CAPREIT completed the early buyout of 10 operating
leases and converted the properties into nine fee simple and one land leasehold interest. 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 $48 million to $56 million if each of the options were
exercised in the 26th and 35th years, respectively, of the lease terms. If CAPREIT elected to exercise any option
prior to the maturity of the lease term, CAPREIT would be entitled to receive a pro rata amount of the prepaid
lease amount based on the remaining lease term. In addition, under certain circumstances, the option price may be
reduced by the unamortized portion of capital expenditures incurred during the final 10 years of the lease term.
The mortgages on each of these three properties are scheduled to be fully repaid by their respective option
exercise dates, which management expects will enable CAPREIT to utilize the equity in these properties to fully
finance the option exercise prices.
Operating Leasehold Interests Portfolio by Lease Maturity
($ Thousands)
As at December 31, 2020
Year of Lease Maturity
Properties
Suites
2033
2034
2037
Total Operating Leasehold Interests portfolio
1
1
1
3
65
75
199
339
(1) As at the acquisition dates of these leasehold interests by a CAPREIT predecessor.
Portfolio of Land Leasehold Interests
Option Exercise Prices
26th Year
35th Year
Prepaid Lease
Amount(1)
$
5,662
$
6,766
$
11,400
30,600
13,650
36,000
3,800
7,775
21,000
%
19.2
22.1
58.7
100.0
$ 47,662
$ 56,416
$ 32,575
In the absence of any new arrangements negotiated between CAPREIT and the landowners of the five investment
properties on which CAPREIT has Land Leasehold Interests, CAPREIT’s interests in one property matures in 2045,
in two properties in 2068, one property in 2070 and another property in 2072. Generally, each lease provides
for annual ground rent or air rights 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
($ Thousands)
Year Ended December 31,
Year of Lease Maturity
2045
2068
2070
2072
Total Land Leasehold Interests portfolio
Suites
471
306
272
327
1,376
%
34.2
22.2
19.8
23.8
100.0
$
$
$
Annual Rent
2020
2,947
1,370
1,157
648
6,122
$
$
$
2019
2,291
1,275
1,169
614
5,349
75
Rising to the challenge, together.Management’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, 2020, 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 on the
recommendation of the Audit Committee. This committee meets regularly with management and the auditor, who
have full and free access to the Audit Committee.
February 24, 2021
Mark Kenney
President and Chief
Executive Officer
Scott Cryer
Chief Financial Officer
76 2020 Annual 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, 2020 and 2019, 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, 2020 and 2019;
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 significant accounting policies and
other explanatory information.
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.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2020. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Valuation of investment properties: Canadian
fee simple interests and MHC land lease sites
and European residential interests.
Refer to note 2 – Summary of Significant
Accounting Policies, note 3 – Critical Accounting
Estimates, Assumptions and Judgments and
note 6 – Investment Properties to the consolidated
financial statements.
The Trust’s investment properties are measured at
fair value as at the consolidated balance sheet
dates. Total investment properties as at
December 31, 2020 have a fair value of $15,001
million and include Canadian fee simple interests
and MHC land lease sites and European residential
interests with a combined fair value of $14,458
million. Fair value is determined in accordance with
recognized valuation techniques. The techniques
used comprise both the Direct Income
Capitalization (DC) and the Discounted Cash Flow
(DCF) methods. Management is responsible for
determining the fair value of the Trust’s investment
properties, using independent external valuations
prepared by qualified external appraisers. Critical
judgments are made by management in respect of
the fair values of investment properties.
For the Canadian fee simple interests and MHC
land lease sites, the Trust utilizes the DC method.
Under the DC method, capitalization rates are
applied to a future stabilized net operating income
(NOI) reflecting market-based NOI assumptions.
For the European residential interests, the Trust
utilizes a DCF method and a DC method (the
Our approach to addressing the matter included the
following procedures, among others:
For a sample of Canadian fee simple interests and
MHC land lease sites, tested how management
determined the fair value, which included the
following:
• Evaluated the appropriateness of the DC
method used.
• Tested the underlying data used in the DC
method.
• Evaluated the reasonableness of the following
critical assumptions:
− Capitalization rates, by comparing to
current industry data or comparable market
transactions, as applicable; and
− Future stabilized NOI, by:
o Comparing stabilized property revenue
to budgets and actual performance,
o Comparing stabilized property
expenses to actual performance,
market data and budgets, where
applicable.
o Considering whether the assumptions
are aligned with evidence obtained in
other areas of our audit.
• Professionals with specialized skill and
knowledge in the field of real estate valuations
further assisted us in evaluating the
reasonableness of the capitalization rates and
future stabilized NOI.
Key audit matter
How our audit addressed the key audit matter
valuation methods). The most critical assumptions
used in the DCF method include the stabilized cash
flows, the discount rate applied over the term of the
cash flows and the terminal capitalization rate. The
most critical assumptions used in the DC method
include the future stabilized NOI and the
capitalization rates. Stabilized cash flows and
future stabilized NOI incorporate various
assumptions including property revenue and
property operating expenses.
We considered this a key audit matter due to the
critical judgments made by management when
determining the fair values of the investment
properties related to the Canadian fee simple
interests and MHC land lease sites and European
residential interests, and the high degree of
complexity in assessing audit evidence related to
the significant assumptions made by management.
In addition, the audit effort involved the use of
professionals with specialized skill and knowledge
in the field of real estate valuations.
For the European residential interests, valued using
the DC Method, tested how management
determined the fair value, which included the
following:
• Evaluated the appropriateness of the valuation
method used.
• For a sample of properties, tested the
underlying data, and evaluated critical
assumptions, such as property revenue, and
property operating expenses, used in the
valuation method.
Professionals with specialized skill and knowledge
in the field of real estate valuations assisted us in
evaluating the valuation methods of the European
residential interests by:
• Evaluating the reasonableness of the fair value
of the European residential interests by
developing an independent point estimate of
the fair value using a DC method. This involved
the use of available market data to
independently develop assumptions related to
capitalization rates and stabilized NOI, which
incorporated various assumptions including
property revenue and property operating
expenses; and
• Comparing the independent point estimate to
management’s estimate to evaluate the
reasonableness of management’s estimate.
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.
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.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
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 24, 2021
Consolidated Balance Sheets
Consolidated Financial Statements
Note
December 31, 2020
December 31, 2019
(CA$ thousands)
As at
Non-current assets
Investment properties
Investment in associate
Derivative asset
Other non-current assets
Total non-current assets
Current assets
Derivative assets
Other current assets
Cash and cash equivalents
Total current assets
Total assets
Non-current liabilities
Mortgages payable
Bank indebtedness
Unit-based compensation financial liabilities
ERES units held by non-controlling unitholders
Derivative liability
Deferred income tax liability
Lease liabilities
Total non-current liabilities
Current liabilities
Mortgages payable
Bank indebtedness
Unit-based compensation financial liabilities
Derivative liability
Accounts payable and accrued liabilities
Other current liabilities
Security deposits
Exchangeable LP Units
Distributions payable
Total current liabilities
Total liabilities
Unitholders’ equity
Unit capital
6
7
20
8
20
8
12
13
14,15
11
20
22
12
13
14,15
20
10
9
16
$ 15,000,591
$ 13,096,426
257,210
778
73,810
224,812
3,984
76,872
15,332,389
13,402,094
55
44,965
121,722
166,742
–
58,760
477,328
536,088
$ 15,499,131
$ 13,938,182
$ 4,811,131
$
3,792,358
104,810
14,123
328,535
8,023
59,964
36,565
623,893
14,391
364,928
3,361
32,312
37,775
5,363,151
4,869,018
590,071
13,743
19,624
15,366
131,888
13,985
41,218
16,632
19,751
862,278
436,447
–
18,658
3,734
116,544
30,778
39,575
–
19,533
665,269
$ 6,225,429
$
5,534,287
$ 4,103,912
$
4,013,941
70,047
5,099,743
(19,510)
4,409,464
$ 9,273,702
$ 15,499,131
$
8,403,895
$ 13,938,182
Accumulated other comprehensive income (loss)
23
Retained earnings
Total unitholders’ equity
Total liabilities and unitholders’ equity
See accompanying notes to the consolidated annual financial statements.
82 2020 Annual Report
Consolidated Financial Statements
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
Total operating expenses
Net rental income
Trust expenses
Transaction costs
Unit-based compensation expense
Fair value adjustments of investment properties
Realized loss on disposition of investment properties
Amortization of property, plant and equipment
Fair value adjustments of Exchangeable LP Units
Gain (loss) on non-controlling interest
Fair value adjustments of investments
Loss on derivative financial instruments
Interest and other financing costs
Gain on foreign currency translation
Other income
Net income before income taxes
Current and deferred income tax expense
Net income
Other comprehensive income (loss), including items that may be reclassified
subsequently to net income
Amortization of losses from AOCI (AOCL) to interest and other financing costs
Gain (loss) on foreign currency translation
Other comprehensive income (loss)
Comprehensive income
See accompanying notes to the consolidated annual financial statements.
Note
2020
2019
27
$
882,643
$
780,780
(81,596)
(222,876)
(304,472)
578,171
(43,268)
–
(5,160)
595,859
(1,387)
(7,668)
(1,230)
24,478
(3,979)
(52,672)
(164,625)
5,982
29,990
954,491
(28,563)
(73,546)
(199,084)
(272,630)
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)
$
925,928
$
1,195,447
$
$
2,570
86,987
89,557
$ 1,015,485
$
$
$
3,810
(52,166)
(48,356)
1,147,091
15
6
5
16
11
20
24
27
22
23
23
Rising to the challenge, together.
83
Consolidated Financial Statements
Consolidated Statements of
Unitholders’ Equity
(CA$ thousands)
Unitholders’ equity, January 1, 2020
$ 4,013,941
$ 4,409,464
$
(19,510)
$ 8,403,895
Note
Unit capital
Retained earnings
Accumulated
other
comprehensive
income (loss)
Total
Unit capital
Distribution Reinvestment Plan
Settlement of Exchangeable LP Units
RUR Plan
Employee Unit Purchase Plan
Total unit capital
Retained earnings and other
comprehensive income
Net income
Other comprehensive income
Total retained earnings and other
comprehensive income
Distributions on Trust Units
Distributions declared and paid
Distributions payable
Total distributions on Trust Units
17
16
15,17
15
18
18
68,108
15,321
3,882
2,660
89,971
–
–
–
–
–
–
–
–
–
–
–
925,928
–
–
–
–
–
–
–
89,557
68,108
15,321
3,882
2,660
89,971
925,928
89,557
925,928
89,557
1,015,485
(215,898)
(19,751)
(235,649)
–
–
–
(215,898)
(19,751)
(235,649)
Unitholders’ equity, December 31, 2020
$ 4,103,912
$ 5,099,743
$
70,047
$ 9,273,702
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 Trust Units issued
Distribution Reinvestment Plan
Deferred Unit Plan
RUR Plan
Employee Unit Purchase Plan
Total unit capital
Retained earnings and other
comprehensive loss
Net income
Other comprehensive loss
Total retained earnings and other comprehensive loss
Distributions on Trust Units
Distributions declared and paid
Distributions payable
Total distributions on Trust Units
18
18
17
17
15,17
15,17
15
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
84 2020 Annual Report
Consolidated Financial Statements
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 LP Units
Fair value adjustments – investments
Mark-to-market (gain) loss on ERES units
Loss on disposition of investment properties
Loss on derivative financial instruments
Amortization
Unit-based compensation expense
Straight-line rent adjustment
Deferred income tax expense
Net profit from investment in associate
Unrealized foreign currency gain
Total items related to operating activities not affecting cash
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 on mortgages and bank indebtedness
Bank indebtedness
Proceeds on issuance of ERES units, net of issuance costs
Proceeds on issuance of Trust Units, net of issuance costs
Net cash distributions
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.
Note
2020
2019
$
925,928
$
1,195,447
(595,859)
(892,156)
11
5
20
8,23,24
15
22
27
26
26
26
26
6,25
28
26
26
26
26
26
26
11
26
26
1,230
3,979
(37,020)
1,387
52,672
33,963
5,160
(180)
25,213
(17,173)
(5,982)
393,318
143,078
(55,040)
481,356
(685,398)
(244,857)
(127,819)
(8,020)
33,312
(258)
11,670
–
–
(6,522)
43,120
–
3,684
18,709
14,838
(132)
5,079
(23,440)
(37,933)
320,694
124,989
12,881
458,564
(1,327,400)
(242,357)
(14,746)
(40,668)
–
(935)
10,039
9,069
(1,021,370)
(1,606,998)
1,529,964
(136,087)
(353,966)
(5,664)
(7,025)
(34,994)
(130,398)
(498,783)
–
2,476
(180,071)
185,452
(354,562)
(1,044)
477,328
828,507
(125,902)
(232,336)
(3,402)
(6,561)
(9,852)
(119,609)
87,000
250,746
1,076,107
(150,456)
1,594,242
445,808
5,807
25,713
$
121,722
$
477,328
Rising to the challenge, together.
85
Notes to Consolidated Financial Statements
December 31, 2020
(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-ended mutual fund 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 April 1, 2020. CAPREIT commenced active operations on February 4,
1997 when it acquired an initial portfolio of properties. CAPREIT became a reporting issuer on May 21, 1997 pursuant
to an initial public offering prospectus of its units (“Trust Units”) dated May 12, 1997.
CAPREIT Limited Partnership (“CAPLP”), a subsidiary of CAPREIT established under the laws of the Province of
Manitoba pursuant to a limited partnership agreement dated June 26, 2007, and as most recently amended and
restated on June 22, 2020, owns directly or indirectly the beneficial interest of all its properties along with the
related mortgages and all the debt obligations of CAPREIT.
As at December 31, 2020, CAPREIT directly and indirectly holds a 66.0% (December 31, 2019 – 66.0%) ownership
of European Residential Real Estate Investment Trust (“ERES”), which operates primarily in the Netherlands, with
the remaining 34.0% (December 31, 2019 – 34.0%) held by non-controlling unitholders. CAPREIT owns units of
ERES (“ERES units”) and Class B Limited Partnership units (“ERES Class B LP Units”) of ERES Limited Partnership
(“ERES LP”). ERES Class B LP Units are exchangeable, on a one-for-one basis, for 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 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 (“IASB”) 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 24, 2021.
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 a historical cost basis
except for:
investment properties and certain financial instruments, which are stated at fair value;
certain unit-based compensation accounts, which are stated at fair value;
i)
ii)
iii) ERES units held by non-controlling unitholders, which are stated at fair value; and
iv) Class B limited partnership units of CAPLP (“Exchangeable LP Units”), which are stated at fair value.
86
2020 Annual ReportNotes to Consolidated Financial Statements In these consolidated annual financial statements, 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. International Accounting Standard (“IAS”) 12,
Income Taxes (“IAS 12”), 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.
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.
87
Rising to the challenge, together.Notes to Consolidated Financial Statements d) Investment Properties
CAPREIT considers its income properties to be investment properties under 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 measures all such interests
at fair value, 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 an 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 that is capable of being conducted and managed for the purpose
of providing goods or services to customers, generating investment income (such as dividends or interest)
or generating other income from ordinary activities.
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. Under IFRS 3, CAPREIT has the
option 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. The optional concentration
test will be applied on a case-by-case basis.
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2020 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 real estate investment trust (“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 assets 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) 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.
At each reporting date, financial assets measured at amortized cost are assessed for impairment under an
expected credit loss (“ECL”) approach. CAPREIT applies the simplified approach, which uses lifetime ECLs, for other
receivables, which consist primarily of tenant receivables. CAPREIT monitors its collection rate on a monthly basis
and ensures that all past due amounts are provided for.
89
Rising to the challenge, together.Notes 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 LP Units
ERES units held by non-controlling unitholders
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
Fair value through profit or loss
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 j) 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 method.
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2020 Annual ReportNotes to Consolidated Financial Statements 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 j) Hedging Relationships below.
Derivatives not designated as hedging relationships are measured at fair value with changes recognized directly
through the consolidated statements of income and comprehensive income within net income.
j) 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 income (loss). 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 accumulated other comprehensive income (loss) (“AOCI
(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.
k) Leases
IFRS 16, Leases (“IFRS 16”) sets out the principles for the recognition, measurement, presentation and disclosure of
leases for both the lessee and the lessor.
From a lessee point of view, leases impacted by IFRS 16 encompass CAPREIT’s four land lease parcels in Alberta
and British Columbia, an air rights lease and leased office space. These leases are recorded as right-of-use assets
with corresponding lease liabilities 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 liabilities and fair value gain (loss) on the right-of-use
assets is recorded through CAPREIT’s consolidated statements of income and comprehensive income.
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. These lease liabilities are
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 and are included within other assets. Such right-of-use assets are depreciated over the shorter of the
asset’s useful life and the lease term on a straight-line basis.
For other leases of low-value assets or short-term leases that end within 12 months of the commencement date and
which have no renewal or purchase option, 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.
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
91
Rising to the challenge, together.Notes to Consolidated Financial Statements 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) Prepaid CMHC Premiums
Fees and insurance premiums paid to Canada Mortgage and Housing Corporation (“CMHC”) are netted against
mortgages payable. They are amortized over the amortization period of the underlying mortgage loans when
incurred (initial amortization period is typically 25 to 35 years) and amortization expenses are included in interest
and other financing costs in the consolidated statements of income and comprehensive income. If CAPREIT fully
refinances an existing mortgage, any unamortized prepaid CMHC premiums and fees associated with the existing
mortgages on that property will be written off through interest and other financing costs in the period in which
full refinancing occurs. Any premium credits received upon refinancing will be capitalized and amortized over the
new amortization period. Similarly, if CAPREIT discharges an existing mortgage, any unamortized prepaid CMHC
premiums and fees associated with that mortgage will be written off through interest and other financing costs in the
period in which the discharge occurs. If CAPREIT renews a mortgage, CAPREIT will continue to amortize the existing
prepaid CMHC premiums and fees associated with the existing mortgage over the remaining amortization period.
n) Exchangeable LP Units
Issued and outstanding Exchangeable LP Units are exchangeable on demand for Trust Units. As the Trust Units are
redeemable at the holder’s option, the Exchangeable LP Units are classified as current liabilities. The distributions on
the Exchangeable LP 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 LP Units are remeasured at each reporting date at fair
value, as they are considered to be puttable instruments under IAS 32, Financial Instruments: Presentation (“IAS 32”),
with changes in the fair value recognized as fair value adjustments of Exchangeable LP Units within net income in
the consolidated statements of income and comprehensive income.
o) Comprehensive Income
Comprehensive income includes net income and other comprehensive income (loss). Other comprehensive income
(loss) includes gain (loss) on 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.
p) Accumulated Other Comprehensive Income (Loss)
AOCI (AOCL) is included on the consolidated balance sheets as Unitholders’ equity and includes gains and losses
from 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 AOCI (AOCL) are disclosed in note 23.
q) 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
1.
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations
5. Recognize revenue as the performance obligations are satisfied
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.
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2020 Annual ReportNotes to Consolidated Financial Statements 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 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.
r) 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.
s) 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)
DUP
RUR Plan
ERES UOP
Type
Rights
Rights
Options
Vesting Period
Type of Amortization
Distributions Applied To
Mark-to-Market Until
Grant date
3 years(2)
3 years(3)
Immediate
Straight-line
Graded
Additional units
Additional units
N/A
Settled
Settled
Exercised
(1) For definitions of these plans refer to notes 14 and 15.
(2) Vesting fully on the third grant anniversary date
(3) Vesting one-third on each grant anniversary date
t) 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 holders of Trust Units (“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.
u) Income Taxes
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 22.
93
Rising to the challenge, together.Notes to Consolidated Financial Statements CAPREIT and its subsidiaries satisfied certain conditions available to 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.
v) Earnings per Unit
As a result of the redemption feature of CAPREIT’s Trust Units, these Trust Units are considered financial liabilities
under IAS 33, Earnings per Share (“IAS 33”), and they may not be considered 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.
w) 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.
ii.
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the
balance sheet;
income and expenses for each statement of income and comprehensive income are translated at average
exchange rates; and
iii. all resulting exchange differences are recognized in other comprehensive income.
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2020 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 income (loss). 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.
x) ERES Units Held by Non-Controlling Unitholders
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 on 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 on 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.
y) IFRIC 21, Levies
This is an interpretation of IAS 37, Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”). 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.
z) 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.
aa) 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 (“CEO”).
ab) Impact of Accounting Standards Effective January 1, 2020 on CAPREIT’s Current Year
Consolidated Financial Statements
IFRS 3
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 was no impact on transition as the amendment is effective for business combinations for which the
acquisition date is on or after the transition date. Therefore, no adjustment was required for acquisitions that were
completed prior to January 1, 2020. The amendment was applied during the year ended December 31, 2020.
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Rising to the challenge, together.Notes to Consolidated Financial Statements Interest Rate Benchmark Reform (Phase 1)
The IASB published ‘Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)’ as a first
reaction to the potential effects of the IBOR reform. The amendments made to IFRS 9, IAS 39, Financial Instruments:
Recognition and Measurement (“IAS 39”) and IFRS 7, Financial Instruments: Disclosures (“IFRS 7”) provide certain
reliefs in relation to the interest rate benchmark reform. The reliefs relate to hedge accounting and have the effect
that the reforms should not generally cause hedge accounting to terminate. However, any hedge ineffectiveness
should continue to be recorded in the income statement. The amendments are effective for annual periods
beginning on or after January 1, 2020. CAPREIT has assessed the impact and concluded that there is no material
impact to CAPREIT as the amendments affect entities with hedging relationships directly affected by the interest
rate benchmark reform and which apply the hedge accounting requirements of IFRS 9 or IAS 39.
ac) Future Accounting Changes
Interest Rate Benchmark Reform (Phase 2)
The IASB published ‘Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4
and IFRS 16)’ in relation to the modification of financial assets, financial liabilities and lease liabilities, specific hedge
accounting requirements, and disclosure requirements applying IFRS 7 to accompany the amendments regarding
modifications and hedge accounting. The IASB introduces a practical expedient for modifications required as a
direct consequence of the IBOR reform and made on an economically equivalent basis, which are accounted for
by updating the effective interest rate. All other modifications are accounted for using the current IFRS requirements.
A similar practical expedient is proposed for lessee accounting applying IFRS 16. Under the amendments, hedge
accounting is not discontinued solely because of the IBOR reform, but hedging relationships must be amended
to reflect modifications to the hedged item, hedging instrument and hedged risk. Amended hedging relationships
should meet all qualifying criteria to apply hedge accounting, including effectiveness requirements. The amendments
are effective for annual periods beginning on or after January 1, 2021, and are applied retrospectively, with earlier
application permitted. The amendments have not been early adopted by CAPREIT, and are not expected to have
a material impact on CAPREIT in the current or future reporting periods and on foreseeable future transactions.
IAS 1, Presentation of Financial Statements (“IAS 1”)
The IASB issued ‘Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)’ in January 2020,
affecting the presentation of liabilities in the statement of financial position. The narrow-scope amendments to
IAS 1 clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end
of the reporting period. Classification is unaffected by the expectations of the entity or events after the reporting
date. The amendments also clarify what IAS 1 means when it refers to the ‘settlement’ of a liability. The amendments
must be applied retrospectively in accordance with the normal requirements of IAS 8, Accounting Policies, Changes
in Accounting Estimates and Errors (“IAS 8”). The amendments are effective for annual periods beginning on or after
January 1, 2023 (in accordance with ‘Classification of Liabilities as Current or Non-Current – Deferral of Effective
Date (Amendment to IAS 1) issued by the IASB in July 2020), with earlier application permitted. The amendments
have not been early adopted by CAPREIT. CAPREIT is currently assessing any potential impact of this amendment.
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, valuation of the investment in Irish Residential REIT plc (“IRES”),
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.
96
2020 Annual ReportNotes to Consolidated Financial Statements The estimates or judgments deemed to be more significant, due to subjectivity and the potential risk of causing
a significant 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 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 19.
The valuation of investment properties is 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 19. The fair values of derivatives reported may differ
significantly from the amounts they are ultimately settled for if there is volatility between the valuation date and
settlement date.
iii) Investment in 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’s 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 goods or services to customers, generating investment income (such as
dividends or interest) or generating other income from ordinary activities.
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:
whether the investment property or properties are capable of producing outputs;
1.
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.
97
Rising to the challenge, together.Notes to Consolidated Financial Statements As outlined in note 2, CAPREIT has the option 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 under IFRS 3. 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. The optional concentration test will be applied on a case-by-case basis.
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.
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(z) for details on the goodwill impairment test.
In addition to the discussion of these critical accounting estimates and judgments as set out above, the significant
global uncertainty resulting from the novel coronavirus (“COVID-19”) pandemic has the following impact:
i) Valuation of Investment Properties
The availability of reliable market metrics to inform opinions of value is reduced, and therefore a higher degree
of judgment must be applied. Consequently, fair values are subject to significant change. Refer to note 6 for
further information.
ii) Valuation of Financial Instruments
The fair value of CAPREIT’s derivatives as reported may differ significantly from the amounts they are ultimately
settled for due to volatility between the valuation date and settlement date. In response to the developing
COVID-19 pandemic, there is increased volatility in the financial markets. CAPREIT is subject to these market
fluctuations, impacting interest rates upon which the fair values of CAPREIT’s interest rate swaps are derived,
and expects to continue to experience significant volatility in interest rates as the situation evolves. As a result,
there is uncertainty in the future expected interest rates (forward curves) upon which are based the expected
variable cash receipts, thereby impacting the fair values of CAPREIT’s interest rate swaps.
iii) Investment in IRES
In response to the developing COVID-19 pandemic, there is increased volatility in the financial markets. IRES is
subject to these market fluctuations, impacting its share price, which may continue to experience significant volatility
as the situation evolves. CAPREIT has determined that the deficiency of the market capitalization of IRES over the
carrying amount of the investment as at December 31, 2020 is an indicator of impairment. As such, an impairment
assessment was performed. The recoverable amount was determined using a value in use approach using inputs
classified as Level 3 in the fair value hierarchy. Based on this analysis, an impairment of $nil was recorded for the
year ended December 31, 2020. Refer to note 7 for further information.
98
2020 Annual ReportNotes to Consolidated Financial Statements iv) Valuation of Goodwill
CAPREIT recognized goodwill pursuant to the reverse acquisition (the “Acquisition”) of European Commercial Real
Estate Investment Trust (“ECREIT”) on March 29, 2019, which was tested for impairment in the fourth quarter of the
year ended December 31, 2019, resulting in an impairment of $nil being recorded. Due to the COVID-19 pandemic,
there is an increased risk that goodwill may be impaired as a result of the economic uncertainty and the financial
market response. CAPREIT has determined that the decline in the market capitalization of ERES as at December 31,
2020 is an indicator of impairment and as such, an impairment assessment was performed. An impairment of $nil
has been recorded for the year ended December 31, 2020.
4. Recent Investment Property Acquisitions
CAPREIT completed the following investment property acquisitions since January 1, 2019, which have contributed to
the operating results effective from their respective acquisition dates. The below tables do not include $158,565 and
$14,746 relating to CAPREIT’s operating lease buyouts in the years ended December 31, 2020 and December 31,
2019, respectively.
Acquisitions Completed During the Year Ended December 31, 2020
Acquisition Date
Suite or
Site Count
Region(s)
Total
Acquisition
Costs
Assumed
Mortgage
Funding
Subsequent
Acquisition
Financing
Interest
Rate (%)(1)
February 10, 2020
1,503
Halifax, NS
$ 394,734
$ 108,744
$
76,174
March 4, 2020
March 16, 2020
August 13, 2020
September 1, 2020
September 21, 2020
October 1, 2020
October 1, 2020
November 26, 2020
November 30, 2020
December 1, 2020
December 2, 2020
December 29, 2020
112
109
88
120
301
169
113
147
380
84
38
98
Montreal, QC
Edmonton, AB
Halifax, NS
The Netherlands
London & Sarnia, ON
Espanola, Wingham &
Midland, ON
The Netherlands
Maple Ridge, BC
Ottawa, ON
The Netherlands
Halifax, NS
The Netherlands
44,331
28,392
23,033
32,233
51,097
9,909
42,353
29,272
97,482
35,667
12,149
19,840
–
–(3)
–(3)
–
–(3)
3,911
–
–(3)
–(3)
–
–(3)
–
33,427
–(3)
–(3)
17,526
–(3)
–
22,831
–(3)
–(3)
19,375
–(3)
10,792
Total
3,262
$ 820,492
$ 112,655
$ 180,125
(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 cash and cash equivalents invested in short-term investments.
Term to
Maturity
(Years)(2)
4.66
10.00
–(3)
–(3)
4.00
–(3)
7.94
4.00
–(3)
–(3)
1.84
2.06
–(3)
–(3)
0.97
–(3)
4.77
0.97
–(3)
–(3)
0.97
4.00
–(3)
–(3)
0.97
4.00
99
Rising to the challenge, together.Notes to Consolidated Financial Statements
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
Total
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
Assumed
Mortgage
Funding
$
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)
Subsequent
Acquisition
Financing
$
89,586
–
44,222
–
–
18,368
22,839
–
143,367
–
–
77,639
–
58,220
–
–
–
–
Interest
Rate (%)(1)
Term to
Maturity
(Years)(2)
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)
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 three properties consisting of 56 sites in Ontario and 125 sites in British Columbia.
(6)
(7)
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.
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 of 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.
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
The table below summarizes the dispositions completed during the year ended December 31, 2020.
Dispositions Completed During the Year Ended December 31, 2020
Disposition Date
January 31, 2020(1)
March 30, 2020
July 15, 2020
Total
Suite Count
–
6
188
194
Region(s)
Germany
Charlottetown, PEI
Calgary, AB
Sale Price
25,585
675
30,500
56,760
$
$
Cash Proceeds
Discharged Mortgage
$
15,419
$
10,166
675
19,335
35,429
$
–
11,165
21,331
$
(1) This is a commercial property held by ERES consisting of 58,513 square feet.
There were no property dispositions during the year ended December 31, 2019.
100
2020 Annual ReportNotes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019, a loss of $1,387 and $nil, 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
Reconciliation of Carrying Amounts of Investment Properties by Type
For the Year Ended December 31, 2020
Balance of investment properties, beginning
of the year
Additions:
Acquisitions(1)
Property capital investments
Capitalized leasing costs(2)
Operating lease buyout(3)
Dispositions
Transfer between investment property types(3)
Fair value adjustments
Gain on foreign currency translation
Fee Simple
and MHC Land
Lease Sites
Operating
Leasehold
Interests
Land
Leasehold
Interests
Total
$ 11,934,504
$
965,869
$
196,053
$ 13,096,426
825,681
231,822
1,248
–
5,304
(4)
–
158,565
(56,760)
945,507
604,662
138,098
–
(1,023,879)
8,920
–
–
4,937
(585)
–
–
78,372
(17,723)
–
825,681
242,063
659
158,565
(56,760)
–
595,859
138,098
Balance of investment properties, end of the year
$ 14,624,762
$
114,775
$
261,054
$ 15,000,591
Includes additional transaction costs on acquisitions.
(1)
(2) Comprises tenant inducements, straight-line rent and direct leasing costs.
(3)
During the year ended December 31, 2020, CAPREIT purchased the freehold interest on 10 of its operating leasehold properties and converted the
ownership into nine fee simple and one land leasehold interest.
For the Year Ended December 31, 2019
Fee Simple
and MHC Land
Lease Sites
Operating
Leasehold
Interests
Land
Leasehold
Interests
Total
Balance of investment properties, beginning of the year
$
9,420,347
$
876,067
$
214,893
$ 10,511,307
Additions:
Properties acquired through business combination(1)
Acquisitions
Property capital investments
Capitalized leasing costs(2)
Operating lease buyout(3)
Transfer between investment property types(3)
Fair value adjustments
Loss on foreign currency translation
135,533
1,384,908
211,660
154
–
103,610
757,202
(78,910)
–
–
17,356
27
14,746
(103,610)
161,283
–
–
–
7,643
(154)
–
–
(26,329)
–
135,533
1,384,908
236,659
27
14,746
–
892,156
(78,910)
Balance of investment properties, end of the year
$ 11,934,504
$
965,869
$
196,053
$ 13,096,426
(1)
Represents the fair value of the properties acquired as part of the Acquisition. For details, please refer to the audited consolidated annual financial
statements for the year ended December 31, 2019.
(2) Comprises tenant inducements, straight-line rent and direct leasing costs.
(3)
During the year ended December 31, 2019, CAPREIT purchased the freehold interest on two of its operating leasehold properties and converted the
ownership into fee simple.
101
Rising to the challenge, together.Notes to Consolidated Financial Statements
Valuation Basis
Investment properties are carried at fair value, which is the amount for 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.
The fair values of all of CAPREIT’s investment properties are determined by qualified external appraisers annually for
the Canadian portfolio and quarterly for the European portfolio. The qualified external appraisers hold recognized
relevant professional qualifications and have recent experience in the location and category of the respective
property. For the Canadian portfolio, CAPREIT utilizes market assumptions for rent changes, capitalization rates and
discount rates provided by external appraisal firms to determine the fair value of the investment properties on a
quarterly basis for interim reporting purposes. Capitalization rates used by the appraisers are based on recently
closed transactions for similar properties and other current market indicators 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.
Due to the COVID-19 pandemic and its ongoing impact on the economy, and specifically its unknown future
impact on the real estate market, there is heightened uncertainty surrounding the valuation of the investment
properties. Consequently, there is a need to apply a higher degree of judgment as it pertains to the forward-looking
assumptions that underlie CAPREIT’s valuation methodologies. In addition, less weight can be ascribed to previous
market evidence, for comparative purposes, to inform opinions of value. Given this impact on the availability of
reliable market metrics, fair values are subject to significant change. The fair values of CAPREIT’s investment
properties as at December 31, 2020 are therefore subject to significant change.
Fair values for investment properties are classified as Level 3 in the fair value hierarchy, as disclosed in note 19.
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.
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, repairs and maintenance 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.
102
2020 Annual ReportNotes to Consolidated Financial Statements For its European portfolio, CAPREIT utilizes the DCF method as the primary valuation method and corroborates the
valuations using the DC method. Under the DCF 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 a 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. 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.
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
CAPREIT’s land leasehold interests consist of four investment properties with ground leases and one investment
property with an air rights lease with various expiry dates (subject to revisions at periodic intervals) between
March 31, 2045 and December 31, 2072. One lease matures in 2045, two mature in 2068, one matures in 2070
and another matures in 2072. 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.
103
Rising to the challenge, together.Notes to Consolidated Financial Statements A summary of the market assumptions and ranges for each type of property interest, along with their fair values,
is presented below as at December 31, 2020 and December 31, 2019:
As at December 31, 2020
Type of Interest
Fee simple interests(6)
MHC sites
Operating leasehold interests(3),(4)
Land leasehold interests(2)
Total Investment Properties excluding
right-of-use assets
Add: Right-of-use assets, net of fair
value change
Total Investment Properties
As at December 31, 2019
Type of Interest
Fee simple interests(6)
MHC sites
Operating leasehold interests(2),(3),(4)
Land leasehold interests(2)
WA NOI /
Cash Flow(1)
3,768
1,881
2,487
3,122
Rate Type
Max
Min
Capitalization rate
Capitalization rate
Discount rate(5)
Discount rate(5)
7.71%
8.14%
5.50%
7.50%
2.25%
4.68%
5.25%
5.50%
Weighted
Average
3.82%
5.96%
5.32%
6.47%
Fair Value
$ 13,986,832
$
637,930
114,775
224,440
$ 14,963,977
36,614
$ 15,000,591
Fair Value
$ 11,332,684
$
601,820
962,879
161,920
WA NOI /
Cash Flow(1)
3,579
1,872
4,637
3,547
Rate Type
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%
Total Investment Properties excluding
right-of-use assets
Add: Right-of-use assets, net of fair
value change
Total Investment Properties
$ 13,059,303
37,123
$ 13,096,426
(1) Weighted average (“WA”) net operating income (“NOI”) or cash flow by property fair value.
(2)
The fair values of 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 $42,235 as at
December 31, 2020 (December 31, 2019 – $470,169). The decrease during the year ended December 31, 2020 is due to the early buyout of 10 operating
leases with an option fair value of $443,800.
(4)
(5)
(6)
For the three operating leasehold interests remaining as at December 31, 2020 (December 31, 2019 – 13), the contractual weighted average remaining
lease term on operating leasehold interests is 14.9 years (December 31, 2019 – 16.4 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 operating leasehold
interests is 4.9 years as at December 31, 2020 (December 31, 2019 – 6.4 years).
Represents the discount rate used to determine the fair value of operating leasehold and land leasehold interests using the Discounted Cash Flow
(“DCF”) method. A weighted average stabilized net operating income growth for operating leasehold interests of 3.0% and 3.1% has been assumed as at
December 31, 2020 and December 31, 2019, respectively.
The fee simple interests include $2,299,435 (December 31, 2019 – $1,962,949) of CAPREIT’s European portfolio with an implied capitalization rate of
3.87% (December 31, 2019 – 3.88%), which were valued using the DCF method at a weighted average discount rate of 5.75% and a terminal capitalization
rate of 4.92% (December 31, 2019 – 5.80% and 5.14%, respectively).
The table below summarizes the impact of changes in both the capitalization rate and stabilized NOI on the fair
value of CAPREIT’s investment properties:
As at December 31,
2020
Change in
Capitalization Rate(1)
Change in NOI
(2.00)%
(1.00)%
–%
+1.00%
+2.00%
(0.50)%
$ 1,903,713
$ 2,075,401
$ 2,247,089
$ 2,418,777
$ 2,590,466
(0.25)%
–%
+0.25%
+0.50%
723,419
(298,384)
(1,192,172)
(1,980,965)
883,064
(149,166)
(1,052,075)
(1,848,916)
1,042,708
–
(911,977)
(1,716,868)
1,202,353
149,270
(771,879)
(1,584,819)
1,361,997
298,488
(631,782)
(1,452,770)
(1)
For operating leasehold interests, land leasehold interests and European properties, 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, land leasehold interests and European properties to determine the impact on fair value of the total portfolio.
104
2020 Annual ReportNotes to Consolidated Financial Statements
7. Investment in Associate
CAPREIT’s subsidiary, IRES Fund Management Limited, entered into an external investment management agreement
to perform property and asset management services for IRES, an Irish residential REIT listed on the Euronext Dublin
exchange. 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’s investment manager, and the control and influence
exerted over IRES by its independent board of directors and CEO. As at December 31, 2020, 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 28 for further details.
The table below discloses further details about CAPREIT’s investment in IRES:
As at
Carrying value of investment in associate
Share ownership (%)
Number of IRES shares
IRES share price (€)
Fair value of investment in associate based on quoted market price(1)
December 31, 2020
December 31, 2019
$
257,210
$
224,812
18.8%
98,910,000
1.50
18.3%
95,510,000
1.59
$
231,568
$
221,459
(1)
CAPREIT has determined that the deficiency of the market capitalization of IRES over the carrying amount of the investment as at December 31, 2020
is an indicator of impairment. An impairment analysis was performed and an impairment of $nil was recorded for the year ended December 31, 2020, as
described in note 3 (December 31, 2019 – $nil).
8. 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)
Deferred loan costs, net(3)
Fair value through profit or loss investment
Deferred tax asset
Goodwill(4)
Total
Other current assets
Prepaid expenses
Other receivables
Restricted cash
Deposits
Total
Note
December 31, 2020
December 31, 2019
22
$
$
$
$
59,850
(43,330)
16,520
1,141
451
37,198
2,032
16,468
73,810
9,969
15,411
9,355
10,230
44,965
$
$
$
$
51,306
(36,366)
14,940
1,777
1,320
41,177
1,810
15,848
76,872
8,032
13,973
8,959
27,796
58,760
(1) Consists of head office and regional offices’ leasehold improvements, corporate assets and information technology systems.
(2) Amortization during the year ended December 31, 2020 is $636 (year ended December 31, 2019 – $726).
(3) Represents deferred loan costs related to the revolving credit facilities net of accumulated amortization of $12,994 (December 31, 2019 – $11,690).
(4)
Goodwill arising from the Acquisition was fully allocated to the Europe segment, as described in note 31, given that it is expected to benefit from
the synergies of that acquisition.
105
Rising to the challenge, together.Notes to Consolidated Financial Statements
9. Other Current Liabilities
As at
Current tax liability(1)
Mortgage interest payable
Current lease liabilities
Total
Note
22
December 31, 2020
December 31, 2019
$
$
2,362
10,446
1,177
13,985
$
$
17,646
12,011
1,121
30,778
(1)
The current tax liability as at December 31, 2019, which was paid in August 2020, is primarily a result of reorganization of legal structures of the
Dutch subsidiaries in connection with the Acquisition.
10. Accounts Payable and Accrued Liabilities
As at
Accounts payable
Accrued liabilities
Deferred revenue
Distributions payable to ERES non-controlling unitholders
Other
Total
December 31, 2020
December 31, 2019
$
58,378
51,843
14,399
920
6,348
$
47,096
51,824
11,920
832
4,872
$
131,888
$
116,544
11. ERES Units Held by Non-Controlling Unitholders
The ERES units held by non-controlling unitholders are classified as equity on ERES’s 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 at a cost of $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 at a cost of $25,003.
As at December 31, 2020, CAPREIT valued the ERES units held by non-controlling unitholders at $328,535
(December 31, 2019 – $364,928) and classified the units as a liability on the consolidated balance sheets. The
mark-to-market (gain) loss arises from the decrease (increase) in ERES’s unit price.
For the Year Ended December 31,
Mark-to-market (gain) loss on ERES units
Distributions to ERES non-controlling unitholders
(Gain) loss on non-controlling interest
2020
(37,020)
12,542
(24,478)
$
$
$
$
2019
43,120
3,938
47,058
106
2020 Annual ReportNotes to Consolidated Financial Statements
12. Mortgages Payable
As at December 31, 2020, mortgages payable bear interest at a weighted average effective rate of 2.61%
(December 31, 2019 – 2.91%) and mature between 2021 and 2035. The effective interest rate as at December 31,
2020 includes 0.05% (December 31, 2019 – 0.06%) for the amortization of the realized component of the loss on
settlement of derivative financial instruments of $32,494 included in accumulated other comprehensive income (loss)
(December 31, 2019 – $32,494). As at December 31, 2020, 99.3% of CAPREIT’s mortgages payable are financed
at fixed interest rates (December 31, 2019 – 99.0%). Investment properties at fair value of $14,023,910 have been
pledged as security as at December 31, 2020 (December 31, 2019 – $12,155,617). CAPREIT has investment properties
with a fair value of $976,681 as at December 31, 2020 that are not encumbered by mortgages (December 31,
2019 – $940,809). Of these, $974,480 of the investment properties are located in Canada (December 31, 2019 –
$785,835) and secure only CAPREIT’s acquisition and operating facility (“Acquisition and Operating Facility”), while
the remaining properties are located in Europe. As at December 31, 2020, unamortized deferred financing costs
of $15,453, unamortized fair value loss of $1,330 and unamortized prepaid CMHC premiums of $96,255 are netted
against mortgages payable (December 31, 2019 – $12,788, $1,191 and $79,767, respectively).
Future principal repayments as at December 31, 2020 for the years indicated are as follows:
As at December 31, 2020
Principal Amount
% of Total Principal
2021
2022
2023
2024
2025
2026–2035
Deferred financing costs, fair value adjustments, and prepaid CMHC premiums
Total Portfolio
As at
Represented by:
Mortgages payable – non-current(2)
Mortgages payable – current(1)
$
590,071(1)
555,643(2)
597,197(2)
533,890(2)
771,305(2)
2,463,474(2)
5,511,580
(110,378)
$
5,401,202
10.7
10.1
10.8
9.7
14.0
44.7
100.0
December 31, 2020
December 31, 2019
$ 4,811,131
$
3,792,358
590,071
436,447
$ 5,401,202
$
4,228,805
(1)
(2)
Included in mortgages payable as at December 31, 2020 is a $65,000 fully drawn, non-amortizing credit facility on two of the MHC sites. The
non-amortizing credit facility was prepaid on January 15, 2021 as described in note 32.
Included in mortgages payable as at December 31, 2020 are non-amortizing mortgages from ERES.
Prepaid CMHC premiums previously classified as other non-current assets are now presented as a reduction to
mortgages payable. The comparative period has been reclassified to conform with current year presentation. The
impact of this reclassification on the mortgages payable balance as at January 1, 2019 is a decrease of $74,695,
resulting in an adjusted balance of $3,653,638 and a corresponding reduction in the prepaid CMHC premium asset.
13. Bank Indebtedness
Effective June 30, 2020, CAPREIT amended its credit agreement to change the “conversion date” from June 30,
2020 to June 30, 2021 for when the revolving Acquisition and Operating Facility converts to a one-year non-revolving
term facility. Prior to the conversion date, CAPREIT can request a one-year extension. The lenders have discretion
on whether to grant the extension.
Effective November 15, 2019, CAPREIT amended its credit agreement to, among other things: (i) increase its
Acquisition and Operating 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 (“Bridge Facility”), as well as (iii) amend
the tangible net worth requirement to $2,400,000. The Bridge Facility cannot be drawn once repaid. On March 15,
2020, the Bridge Facility expired.
107
Rising to the challenge, together.Notes to Consolidated Financial Statements
CAPREIT’s credit facilities include the $740,000 Acquisition and Operating Facility, which can be borrowed in
US dollars (“USD”), euro or Canadian dollars, 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) and was repaid on January 15, 2021
as described in note 32. 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, bankers’ acceptances, and USD and euro LIBOR 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 working capital deficiencies.
On July 8, 2019, ERES entered into a new revolving credit facility (“ERES Credit Facility”) for up to $78,040 (€50,000)
with two Canadian chartered banks. The ERES Credit Facility will expire on July 8, 2021.
On December 12, 2019, ERES entered into a one-year revolving bridge credit facility (“ERES Bridge Facility”) for up
to $78,040 (€50,000) with the same two Canadian chartered banks. The ERES Bridge Facility will expire on July 8,
2021. As of December 31, 2020, no amounts were drawn on the ERES Bridge Facility (December 31, 2019 – €nil).
As at December 31, 2020
Facility
Less: USD LIBOR borrowings
Letters of credit
Available borrowing capacity
Weighted average interest rate including interest rate swaps
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
(104,810)(2)
(7,193)
$
$
627,997
$
1.10%(5)
ERES Credit
Facility
78,040(4)
(13,743)
–
64,297
0.65%(6)
Acquisition and
Operating Facility
$
740,000(1)
(579,821)(2)
(6,846)(3)
(7,163)
$
ERES Credit
Facility
72,915(4)
(37,226)
–
–
$
Consolidated
Total
818,040
(118,553)
(7,193)
$
692,294
1.05%
Consolidated
Total
$
812,915
(617,047)
(6,846)
(7,163)
$
146,170
1.08%(5)
$
35,689
1.15%(6)
$
181,859
1.08%
(1)
In addition to the above facility, there was a $200,000 Bridge Facility in place. There were no amounts drawn on this Bridge Facility as of December 31,
2019. The Bridge Facility expired on March 15, 2020.
(2) CAPREIT has net USD LIBOR borrowings of USD $82,320 (December 31, 2019 – USD $446,428) that bear interest at the USD LIBOR rate plus a margin of
1.65% per annum.
(3)
(4)
(5)
(6)
CAPREIT has net euro LIBOR borrowings of €nil (December 31, 2019 – €4,694) that bear interest at the euro LIBOR rate plus a margin of 1.65% per
annum, subject to a floor of 0%.
In addition to the above ERES Credit Facility, there is a $78,040 (€50,000) ERES Bridge Facility. No amounts are drawn on the ERES Bridge Facility as
of December 31, 2020. The ERES Bridge Facility will expire on July 8, 2021.
Excluding the impact of cross-currency interest rate swaps, the weighted average interest rate on the Acquisition and Operating Facility is 1.78%
(December 31, 2019 – 3.44%). For details of the swaps, refer to note 20. The Acquisition and Operating Facility matures on June 30, 2022 and the
USD LIBOR borrowings are thus classified as non-current bank indebtedness on the consolidated balance sheets as at December 31, 2020.
The ERES Credit Facility bears interest at the LIBOR rate plus a margin of 1.65% per annum. Excluding the impact of cross-currency interest rate swaps
swaps, the weighted average interest rate on the ERES Credit Facility is 1.79% (December 31, 2019 – 3.57%). For details of the swaps, refer to note 20. The
ERES Credit Facility matures on July 8, 2021 and the USD LIBOR borrowings are thus classified as current bank indebtedness on the consolidated
balance sheets as at December 31, 2020.
14. Unit-based Compensation Financial Liabilities
Units are issuable pursuant to CAPREIT’s unit-based compensation plans, namely the Employee Unit Purchase
Plan (“EUPP”), the Deferred Unit Plan (“DUP”) and the Restricted Unit Rights Plan (“RUR Plan”). As at December 31,
2020, the maximum number of units issuable under CAPREIT’s unit-based incentive plans (excluding ERES) is
9,500,000 units (December 31, 2019 – 9,500,000 units). The maximum number of units available for future issuance
under these unit-based incentive plan agreements as at December 31, 2020 is 550,279 units (December 31,
2019 – 729,783 units).
108
2020 Annual ReportNotes to Consolidated Financial Statements
ERES units are issuable pursuant to ERES’s unit options plan (“ERES UOP”). The maximum number of unit options
that may be reserved under the ERES UOP is 10% of the outstanding ERES units (including ERES Class B LP Units).
As at December 31, 2020, the maximum number of outstanding unit options issuable under the ERES UOP is
18,861,857 unit options (December 31, 2019 – 18,785,785 unit options).
The unit rights and unit options issued or outstanding under CAPREIT’s incentive plans and the ERES UOP as at
December 31, 2020 and 2019 are as follows:
Year Ended December 31, 2020
(Number of units)
Unit rights and unit options outstanding as at
January 1, 2020
Issued, cancelled or granted during the year
Issued or granted
Exercised or settled
Cancelled or forfeited
Distributions reinvested
Unit rights and unit options outstanding as at
December 31, 2020
Year Ended December 31, 2019
(Number of 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
Unit rights and unit options outstanding as at
December 31, 2019
(1) Total CAPREIT excluding ERES UOP.
ERES UOP
DUP
RUR
Total CAPREIT(1)
4,256,014
150,996
542,087
693,083
–
–
(56,320)
–
19,263
–
–
4,546
87,985
(80,408)
(2,393)
16,116
107,248
(80,408)
(2,393)
20,662
4,199,694
174,805
563,387
738,192
ERES UOP
DUP
RUR
Total CAPREIT(1)
–
286,696
578,120
864,816
1,143,014
3,220,000
(13,666)
(93,334)
–
–
17,267
(159,080)
(1)
6,114
–
83,124
(130,353)
(3,952)
15,148
–
100,391
(289,433)
(3,953)
21,262
4,256,014
150,996
542,087
693,083
The table below summarizes the change in the total unit-based compensation financial liabilities for the years ended
December 31, 2020 and 2019, including the settlement of such liabilities through the issuance of Trust Units and
ERES units.
For the Year Ended
December 31, 2020
December 31, 2019
Total unit-based compensation financial liabilities, beginning of the year
$
33,049
$
Unit-based compensation expense
ERES UOP assumed as part of the Acquisition
Settlement of unit-based compensation awards for Trust Units and ERES units
Loss on foreign currency translation
4,705
–
(4,043)
36
32,805
14,497
487
(14,740)
–
Total unit-based compensation financial liabilities, end of the year
$
33,747
$
33,049
Unit-based compensation financial liabilities are as follows:
As at
Non-current
RUR
ERES UOP
Current
DUP
RUR
ERES UOP
Total unit-based compensation financial liabilities
December 31, 2020
December 31, 2019
$
$
$
$
$
13,887
236
14,123
8,738
9,345
1,541
19,624
33,747
$
$
$
$
$
14,080
311
14,391
8,005
9,662
991
18,658
33,049
109
Rising to the challenge, together.Notes to Consolidated Financial Statements
Units or Unit-based Compensation Financial Liabilities Held by Trustees, Officers and Other
Senior Management
As at December 31, 2020, 0.7% (December 31, 2019 – 0.7%) of all Trust Units outstanding and unit-based
compensation financial liabilities were held by trustees, officers and other senior management of CAPREIT.
15. Unit-based Compensation Expense
These costs represent unit-based compensation expense, which include fair value remeasurements at each
reporting date recognized over the respective vesting periods for each plan for the years ended December 31, 2020
and 2019, as follows:
For the Year Ended December 31,
DUP
RUR Plan
EUPP
ERES UOP
Unit-based compensation expense
a) DUP
$
2020
733
3,331
455
641
$
2019
3,209
10,412
341
876
$
5,160
$
14,838
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 Trust 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 2020 is 100.0% (2019 – 100.0%) of a trustee’s annual Board compensation of $85 for 2020 and 2019.
The Deferred Units earn notional distributions based on the same distributions paid on the Trust 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 Trust Units on the TSX on the distribution date.
The details of the units issued under the DUP are shown below:
For the Year Ended
December 31, 2020
December 31, 2019
Weighted
Average
Issue Price
Fair Value
per Unit
Number of
Units
Weighted
Average
Issue Price
Fair Value
per Unit
Outstanding, beginning
of the year
Granted during the year
Additional unit distributions
Settled or cancelled during
the year
$
30.09
$
53.01
150,996
$
26.31
$
44.30
46.69
49.38
–
–
–
–
19,263
4,546
–
51.54
49.79
26.37
–
–
–
Outstanding, end of the year
$
32.42
$
49.99
174,805
$
30.09
$
53.01
Number of
Units
286,696
17,267
6,114
(159,081)
150,996
The fair value of DUPs represents the closing price of the Trust Units on the TSX on the last trading day on which
the Trust Units traded as of the reporting date.
110
2020 Annual ReportNotes to Consolidated Financial Statements
b) 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 Trust 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 Trust 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:
For the Year Ended
December 31, 2020
December 31, 2019
Weighted
Average
Issue Price
Fair Value
per Unit
Number of
Units
Weighted
Average
Issue Price
Fair Value
per Unit
Outstanding, beginning
of the year
Granted during the year
Additional unit distributions
Settled or cancelled during
the year
$
32.69
$
53.01
542,087
$
29.23
$
44.30
59.00
48.96
24.73
–
–
–
87,985
16,116
(82,801)
47.84
50.52
29.18
–
–
–
Outstanding, end of the year
$
38.71
$
49.99
563,387
$
32.69
$
53.01
Number of
Units
578,119
83,124
15,148
(134,304)
542,087
The fair value of RURs represents the closing price of the Trust Units on the TSX on the last trading day on which
the Trust Units traded as of the reporting date.
c) EUPP
The EUPP grants all employees the right to receive an additional amount equal to 20% of the Trust Units they
acquire, paid in the form of additional Trust Units. This additional amount is expensed as compensation on issuance
of the Trust Units.
16. Exchangeable LP Units
On June 30, 2020, Exchangeable LP Units were issued in connection with the operating lease buyouts as described
in notes 6 and 26. Exchangeable LP 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. Exchangeable LP Units are not eligible for the Distribution Reinvestment Plan (“DRIP”). An equivalent number
of special voting units (“Special Voting Units”) were issued at the same time as the Exchangeable LP Units. The
holders of these Special Voting 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 LP 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 LP Units held. The carrying value of the Exchangeable LP Units is measured at their fair value of
$16,632 as at December 31, 2020 (December 31, 2019 – $nil), which is based on the closing price of the Trust Units.
111
Rising to the challenge, together.Notes to Consolidated Financial Statements
The number of issued and outstanding Exchangeable LP Units is as follows:
For the Year Ended December 31,
Exchangeable LP Units outstanding, beginning of the year
Issued or granted
Exchanged for Trust Units
Exchangeable LP Units outstanding, end of the year
2020
–
632,761
(300,058)
332,703
2019
–
–
–
–
17. 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 Trust Units, an unlimited number of Special Voting Units and 25,840,600
preferred units (“Preferred Units”). As at December 31, 2020, no Preferred 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 Trust 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, and accordingly earnings
per unit has not been presented.
The number of issued and outstanding Trust Units (excluding unit rights issued or outstanding under CAPREIT’s
incentive plans) is as follows:
For the Year Ended December 31,
Trust Units outstanding, beginning of the year
Issued or granted during the period in connection with the following:
New Trust Units issued
Exchangeable LP Units
DRIP
EUPP
DUP
RUR Plan
Ref
169,869,197
145,653,982
2020
2019
(a)
(b)
(c)
(d)
(e)
(f)
–
22,488,250
300,058
1,448,190
53,986
–
80,408
–
1,397,192
40,340
159,080
130,353
Trust Units outstanding, end of the year
171,751,839
169,869,197
112
2020 Annual ReportNotes to Consolidated Financial Statements
a) New Trust Units Issued
Year Ended December 31, 2020
There were no new Trust Units issued during the year ended December 31, 2020.
Year Ended December 31, 2019
December 2019 (the “December 2019
Equity Offering”)
Bought-deal (December 6, 2019)
Over-allotment (December 6, 2019)
Total
April 2019 (the “April 2019 Equity Offering”)
Bought-deal (April 23, 2019)
Over-allotment (April 23, 2019)
Total
January 2019 (the “January 2019
Equity Offering”)
Bought-deal (January 4, 2019)
Over-allotment (January 11, 2019)
Total
b) Exchangeable LP Units
$
$
$
$
$
$
Price per Unit
Gross Proceeds
Transaction Costs
Net Proceeds
Units Issued
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
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
During the year ended December 31, 2020, pursuant to the terms of the Exchangeable LP Units agreement,
300,058 Exchangeable LP Units were exchanged for 300,058 Trust Units. The same number of Special Voting
Units was cancelled.
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 Trust Units they
acquire, paid in the form of additional Trust Units.
e) Deferred Unit Plan
During the year ended December 31, 2020, no DUP units were settled. During the year ended December 31, 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.
f) Restricted Unit Rights Plan
During the year ended December 31, 2020, 82,801 RUR units were settled or cancelled, out of which 80,408 RUR
units were settled for an equivalent number of Trust Units and the remaining RUR units were forfeited. During the
year ended December 31, 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 settled in cash.
113
Rising to the challenge, together.Notes to Consolidated Financial Statements
18. 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).
Distributions declared on Trust Units
Distributions per unit
2020
235,649
1.380
$
$
2019
218,136
1.372
$
$
19. 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, 2020, the fair value of CAPREIT’s mortgages payable is estimated to be $5,854,000
(December 31, 2019 – $4,196,000) 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, Fair Value Measurement (“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.
114
2020 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, 2020, 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
Recurring Measurements
Assets
Investment properties
Fee simple and MHC land lease sites
$
Operating leasehold interests
Land leasehold interests
Investments
Derivative financial assets
Liabilities
Derivative financial liabilities
ERES units held by non-controlling unitholders
Unit-based compensation financial liabilities
Exchangeable LP Units
Total
$
–
–
–
37,198(2)
–
–
(328,535)
–
–
$
(291,337)
$
–
–
–
–
833(3)
(23,389)(3)
–
(33,747)
(16,632)
(72,935)
$ 14,624,762(1)
114,775(1)
261,054(1)
–
–
–
–
–
–
Total
$ 14,624,762
114,775
251,842
37,198
833
(23,389)
(328,535)
(33,747)
(16,632)
$ 15,000,591
$ 14,636,319
(1)
(2)
(3)
Fair values for investment properties are calculated using either the direct income capitalization or the discounted cash flow methods, which result 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.
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.
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, 2020,
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, 2020, 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:
115
Rising to the challenge, together.Notes to Consolidated Financial Statements
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 at least 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 cause volatility in earnings.
For the years ended December 31, 2020 and 2019, a 100 basis point change in interest rates would have the
following effect:
Floating rate debt
Floating rate debt
Cross-currency and/or interest rate swaps(1)
Cross-currency and/or interest rate swaps(1)
Increase (decrease) in net income
Change in interest
rates (basis points)
December 31, 2020
December 31, 2019
+100
-100
+100
-100
$
$
$
$
1
(1)
3,977
(4,058)
$
$
$
$
11
(11)
10,445
(10,640)
(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, 2020, interest rate risk has been minimized, as 99.3% (December 31,
2019 – 99.0%) 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 (December 31, 2019 – 100.0%).
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 98.7% of CAPREIT’s mortgages are CMHC-insured (excluding
$1,199,802 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, 2020, CAPREIT had undrawn lines of credit in the amount
of $627,997 (December 31, 2019 – $146,170), excluding borrowing capacity under the ERES Credit Facility, the
Bridge Facility and the ERES Bridge Facility.
CAPREIT has available borrowing capacity in its Credit Facilities, as described in note 13, in addition to cash on
hand. As a result, management has determined that CAPREIT is in a strong financial position despite the changes in
the market and the heightened risk environment resulting from the COVID-19 pandemic.
116
2020 Annual ReportNotes to Consolidated Financial Statements
The contractual maturities and repayment obligations of CAPREIT’s financial liabilities as at December 31, 2020
are as follows:
Mortgages payable
Bank indebtedness
Mortgage interest
Bank indebtedness interest(1)
Other liabilities(3)
Derivative financial liabilities
ERES units held by non-controlling unitholders
Lease liabilities
Security deposits
Distributions payable
2021(2)
2022–2023
2024–2025
2026 onward
$
590,071
$
1,152,840
$
1,305,195
$
2,463,474
–
124,229
1,865
144,696
15,366
–
1,177
41,218
19,751
118,553
204,141
922
–
1,107
–
1,675
–
–
–
144,032
–
–
6,916
–
1,305
–
–
–
176,213
–
–
–
328,535
33,585
–
–
$
938,373
$
1,479,238
$
1,457,448
$
3,001,807
(1) Based on current in-place interest rates for the remaining term to maturity.
(2) Estimates of the amounts as at December 31, 2020.
(3) Related to accounts payable and accrued liabilities, current tax liability and mortgage interest payable.
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.
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. 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 gain on
foreign currency translation relating to CAPREIT’s subsidiaries in Ireland, the Netherlands and IRES investment is
recognized in other comprehensive income (loss). 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 statements
of income and comprehensive income.
117
Rising to the challenge, together.Notes to Consolidated Financial Statements
20. 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 other comprehensive income (loss) (see note 23). 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 AOCI (AOCL), beginning of the year
Amortization from AOCI (AOCL) to interest and other financing costs
Derivative liability in AOCI (AOCL), end of the year
December 31, 2020
December 31, 2019
$
$
(6,005)
2,243
(3,762)
$
$
(8,270)
2,265
(6,005)
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, 2020, $271 (December 31, 2019 –
$270) was amortized from AOCI (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 12 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.
c) Contracts for Which Hedge Accounting Is Not Being Applied
CAPREIT has certain derivative financial instruments in place, namely interest rate swaps, cross-currency interest
rate (“CCIR”) swaps, foreign exchange (“FX”) swaps and forward FX contracts. These derivative contracts, for which
hedge accounting is not being applied, consist of the following:
118
2020 Annual ReportNotes to Consolidated Financial Statements
Type of instrument
Notional
amount
Interest Rate Swap(1)
CCIR Swap(2)
$
$
65,000
65,000
Maturity date
or settlement
date
September
2019
BA +1.40%
June 2021
BA +1.40%
CCIR Swap(3)
US$ 186,436
June 2019
CCIR Swap(4)
US$ 186,190
FX Swaps(5)
$
48,220
CCIR Swap(6)
US$ 177,296
CCIR Swap(7)
US$ 82,525
CCIR Swap(8)
$
247,728
CCIR Swap(9)
$
129,370
CCIR Swap(10)
CAPREIT Total
$
123,888
December
2020
December
2019
November
2020
December
2021
November
2025
December
2022
December
2024
Derivative asset (liability)
(Loss) gain on derivative
financial instruments
Year Ended December 31,
Receiving
leg rate
Paying
leg rate
December 31,
2020
December 31,
2019
2020
2019
3.60% $
0.97%
1.20%
1.08%
–
$
– $
–
$
(1,007)
(5,048)
(395)
(4,653)
(395)
–
–
–
–
–
–
1,038
3,254
(19,530)
3,254
–
–
–
(3,141)
(15,009)
(3,141)
N/A
N/A
1.06%
1.05%
(10,318)
(693)
(9,625)
(693)
US LIBOR
+1.65%
US LIBOR
+1.65%
US LIBOR
+1.65%
US LIBOR
+1.65%
1.33%
0.22%
(3,434)
0.75%
(0.06)%
(1,107)
1.04%
0.01%
$
(1,303)
(21,210) $
–
–
–
(975)
$
(3,434)
(1,107)
(1,303)
(54,661) $
–
–
–
(944)
Interest Rate Swaps(11)
€
25,500
January
2025
EURIBOR +
1.38%
0.49% $
(1,401) $
(1,543)
$
83 $
(199)
Forward FX Contracts(12)
$
139,039
December
2019
N/A
N/A
–
–
–
(1,948)
CCIR Swaps(13)
FX Swap(14)
ERES Total
Consolidated Total
US$ 10,800
January
2021
US LIBOR
+ 1.65%
US$ 33,558
July 2020
N/A
EURIBOR
+ 1.20%
0.46%
$
$
55
–
(1,346) $
(22,556) $
(593)
–
(2,136)
$
(3,111)
$
(1,449)
3,355
1,989 $
(52,672) $
(593)
–
(2,740)
(3,684)
(1) Refer to note 20(b)(iii) above for further information.
(2) This represents a CCIR swap to hedge a $65,000 loan into €44,818, effective September 2019. This swap was settled in January 2021, prior to the
original maturity date of June 2021. Refer to note 32 for further information.
(3) This represents a CCIR swap to hedge a USD $186,436 loan into €163,540, effective July 2017.
(4) This represents a CCIR swap to hedge a USD $186,190 loan into €163,540, effective June 2019. The CCIR swap was settled in December 2020, prior to
the original maturity date of June 2021.
(5)
Starting 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 2019,
CAPREIT exited this swap program by unwinding $48,220 on the last swap.
(6) This represents a CCIR swap to hedge a USD $177,296 loan into €160,000, effective December 2019.
(7) This represents a CCIR swap to hedge a USD $82,525 loan into €74,000, effective December 2019.
(8) This represents a CCIR swap to hedge $247,728 of mortgages into €160,000, effective November 2020.
(9) This represents a CCIR swap to hedge $129,370 of mortgages into €83,540, effective December 2020.
(10) This represents a CCIR swap to hedge $123,888 of mortgages into €80,000, effective December 2020.
(11)
(12)
(13)
(14)
As at December 31, 2020, the interest rate swap consists of a non-current derivative asset of $778 (December 31, 2019 – $730) and a non-current
derivative liability of $2,179 (December 31, 2019 – $2,273). As part of CAPREIT’s acquisition of ERES, CAPREIT assumed a €7,500 interest rate swap and
a €25,500 interest rate swap. In January 2020, ERES settled the €7,500 interest rate swap. The rate of EURIBOR + 1.38% represents the interest rate
on the remaining €25,500 swap.
ERES entered into forward exchange contracts, effective September 2019, to hedge the movement in the Canadian dollar and euro exchange rates for
their 2019 equity raises. In December 2019, ERES settled the last forward exchange contract of $139,039.
Starting November 2019, ERES entered into a series of CCIR swaps to hedge USD-denominated loans into euros. The CCIR swap in place as at
December 31, 2020 consists of a loan of USD $10,800 hedged into €8,800.
In April 2020, ERES entered into a three-month FX swap in connection to the excess proceeds from the mortgage financing drawn down during the
second quarter of USD $33,558 to hedge into €31,000. The USD proceeds were simultaneously invested into a three-month USD-denominated
guaranteed investment certificate, earning interest at a rate of 1.30% per annum.
119
Rising to the challenge, together.Notes to Consolidated Financial Statements
21. Capital Management
CAPREIT defines capital as the aggregate of Unitholders’ equity, mortgages payable, bank indebtedness and
Exchangeable LP Units. 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 13) 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
Exchangeable LP Units
Total capital
December 31, 2020
December 31, 2019
$ 5,401,202
$
4,228,805
118,553
9,273,702
16,632
623,893
8,403,895
–
$ 14,810,089
$ 13,256,593
The results of CAPREIT’s compliance with the key covenants are summarized below:
Total debt to gross book value(1)
Tangible net worth(2)
Debt service coverage ratio (times)(3),(4)
Interest coverage ratio (times)(3),(5)
Threshold
December 31, 2020
December 31, 2019
Maximum 70.00%
35.54%
34.70%
Minimum $2,400,000
$ 9,307,613
$
8,421,096
Minimum 1.20
Minimum 1.50
2.01
3.95
1.87
3.69
(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 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, 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 LP Units added back, and excluding goodwill. The tangible net worth requirement is $2,400,000
(December 31, 2019 – $2,400,000).
(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 repayments and
interest expense.
(5) As per the Credit Facilities agreement and DOT, the interest coverage ratio is defined as EBITDA less income taxes paid divided by interest expense.
CAPREIT’s subsidiary, ERES, is subject to various debt covenants contained in ERES’s credit facilities. ERES must
have a maximum debt to gross book value of 65%, a maximum debt to market value of portfolio of 60%, 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. As at December 31, 2020, ERES is in compliance with its debt covenants.
120
2020 Annual ReportNotes to Consolidated Financial Statements
Due to the emergence of the COVID-19 pandemic, CAPREIT has been closely monitoring its investment and debt
restrictions along with the financial covenants contained in CAPREIT’s Credit Facilities, LBA and DOT. Management
has performed stress-testing on CAPREIT’s covenants prescribed above to ensure that CAPREIT continues to meet
its covenant obligations in the long term.
22. Income Taxes
CAPREIT is taxed as a “mutual fund trust” as defined under the Income Tax Act (Canada) and continues to meet the
prescribed conditions relating to the nature of its assets and revenues in order to qualify as a REIT eligible for the
REIT exception to the specified investment flow-through (“SIFT”) rules. CAPREIT 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 Unitholders, with the exception of Canadian
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(1)
Income before income taxes in foreign 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 CAPREIT operates
Adjustments to deferred taxes for the change in tax rates
Adjustment for income taxed at a lower rate
Unrecognized deferred tax assets
Other adjustments
Current and deferred income tax expense (net)
(1) Relates to Canadian income subject to tax at the Unitholder level.
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
Current and deferred income tax expense (net)
2020
2019
$
954,491
$
1,217,808
(863,181)
91,310
22,828
1,209
(95)
4,547
(1,893)
592
1,375
28,563
(1,105,127)
112,681
28,170
318
(2,646)
(3,304)
(523)
–
346
$
22,361
2020
3,350
25,213
28,563
2019
17,282
5,079
22,361
$
$
$
$
$
Deferred income tax assets (liabilities) are 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, 2020
December 31, 2019
$
(61,632)
$
(33,000)
3,700
2,498
Due to the reorganization of the legal structure of the Dutch 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. This was paid in August 2020 as described in note 9.
As at December 31, 2020, CAPREIT has total non-capital loss carryforwards of $16,501 (December 31, 2019 –
$12,459). Of these losses, $11,948 (December 31, 2019 – $8,972) are in respect of the Dutch subsidiaries which,
starting on January 1, 2022, will have no expiry period but the utilization will be subject to annual limits. The
remaining losses of $4,553 (December 31, 2019 – $3,487) are in respect of German subsidiaries and have no
expiry period.
121
Rising to the challenge, together.Notes to Consolidated Financial Statements
23. Accumulated Other Comprehensive Income (Loss)
For the Year Ended December 31,
(AOCL) AOCI balance, beginning of the year
Other comprehensive income (loss):
Amortization from (AOCL) AOCI to interest and other financing costs(1)
Gain (loss) on foreign currency translation
Other comprehensive income (loss)
AOCI (AOCL) balance, end of the year
2020
2019
$
(19,510)
$
28,846
2,570
86,987
89,557
70,047
3,810
(52,166)
(48,356)
(19,510)
$
$
As at
December 31, 2020
December 31, 2019
AOCI (AOCL) comprises:
Net cumulative loss on derivative financial instruments
Unamortized balance of loss on cash flow hedges previously settled
Net cumulative loss on forward interest rate hedge(1)
Cumulative gain (loss) on foreign currency translation
Reversal of cumulative foreign currency translation relating to IRES ownership dilution
AOCI (AOCL) balance, end of the year
$
(380)
$
–
(3,762)
71,062
3,127
70,047
$
(647)
(61)
(6,004)
(15,925)
3,127
$
(19,510)
(1) The estimated amount of the amortization expected to be reclassified to net income from AOCI (AOCL) in the next 12 months is $2,233.
24. Interest and Other Financing Costs
For the Year Ended December 31,
Interest on mortgages payable(1)
Amortization of CMHC premiums and fees(2)
Interest on bank indebtedness and other deferred costs(3)
Interest on Exchangeable LP Units
Interest on land and air rights lease liability
Total
2020
2019
$
133,217
$
119,119
18,505
7,955
441
4,507
4,780
9,279
–
2,038
$
164,625
$
135,216
(1)
(2)
(3)
Includes amortization of deferred financing costs, fair value adjustments and OCI hedge interest for the year ended of $6,471 (December 31, 2019 – $4,711).
During the year ended December 31, 2020, CAPREIT expensed $14,348 of prepaid CMHC premiums related to mortgages which were refinanced in
current and previous years as these premiums no longer have future economic benefits.
Includes amortization of deferred loan costs of $1,304 (December 31, 2019 – $1,666) and OCI hedge interest of $nil (December 31, 2019 – $1,253).
25. Joint Arrangements
CAPREIT’s share of the assets, liabilities, revenues, expenses and cash flows from joint arrangement activities is
summarized as follows:
For the Year Ended December 31,
Assets
Liabilities
Revenues
Expenses and other adjustments
Net income
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
122
2020
2019
$
338,317
$
330,191
86,394
21,397
8,388
13,009
$
12,754
$
(4,116)
(9,498)
87,319
18,313
(63,713)
82,026
9,169
(2,653)
2,228
2020 Annual ReportNotes to Consolidated Financial Statements
26. Supplemental Cash Flow Information
a) Net Income Items Related to Investing and Financing Activities
For the Year Ended December 31,
Dividend and interest income
Distributions to holders of Exchangeable LP Units
Distributions to ERES non-controlling unitholders
Interest expense on mortgages
Interest expense on bank indebtedness
Interest expense on leases
Net disbursements
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
2020
$
(3,200)
$
441
12,542
122,138
6,650
4,507
2019
(2,732)
–
3,938
113,926
7,819
2,038
$
143,078
$
124,989
2020
$
(1,748)
$
(479)
(614)
(4,677)
(32,189)
1,369
(16,702)
(55,040)
$
2019
(1,373)
104
(1,945)
10
(6,325)
4,118
18,292
12,881
Net (decrease) increase in non-cash operating assets and liabilities
$
c) Net Cash Distributions
For the Year Ended December 31,
Distributions declared to Unitholders, ERES non-controlling unitholders and holders
of Exchangeable LP Units
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 ERES non-controlling unitholders at beginning of the year
Less: Distributions payable to ERES non-controlling unitholders at end of the year
Add: Distributions payable to holders of Exchangeable LP Units at beginning of the year
Less: Distributions payable to holders of Exchangeable LP Units at end of the year
Gain on foreign currency translation
Net disbursements
d) Capital Investments
For the Year Ended December 31,
Capital investments
Change in capital investments included in accounts payable and other liabilities
Net disbursements
e) Acquisition of Investment Properties
For the Year Ended December 31,
Acquired properties
Fair value adjustment of assumed debt
Assumed debt
Deposit on purchases
Change in investment properties included in accounts payable and other liabilities
Net disbursements
2020
2019
$
(248,632)
$
(222,074)
(19,533)
19,751
68,108
(832)
920
–
38
109
(16,143)
19,533
67,393
–
832
–
–
3
$
(180,071)
$
(150,456)
2020
$
(250,607)
5,750
$
(244,857)
2019
(241,814)
(543)
(242,357)
$
$
2020
2019
$
(825,681)
$
(1,384,908)
187
112,655
22,252
5,189
68
74,345
(16,905)
–
$
(685,398)
$
(1,327,400)
123
Rising to the challenge, together.Notes to Consolidated Financial Statements
f) Operating Lease Buyout
For the Year Ended December 31,
Operating lease buyout
Issuance of Exchangeable LP Units
Net disbursements
g) Disposition of Investment Properties
For the Year Ended December 31,
Proceeds
Closing costs
Working capital adjustments
Mortgages discharged
Net proceeds
h) Issuance of Trust Units
For the Year Ended December 31,
Issuance of Trust Units
Conversion of Exchangeable LP Units to Trust Units
Settlement of unit-based compensation awards for Trust Units
Net proceeds
i) Mortgage Portfolio
For the Year Ended 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)
Loss (gain) on foreign currency translation
Net change in deferred financings costs, fair value adjustment and prepaid CMHC premiums
$
$
$
$
2020
$
(158,565)
30,746
$
(127,819)
2020
56,760
(1,387)
(730)
(21,331)
33,312
2019
(14,746)
–
(14,746)
2019
–
–
–
–
–
$
$
$
$
2020
21,863
(15,344)
(4,043)
2,476
2019
$
1,090,847
–
(14,740)
$
1,076,107
2020
2019
$ 4,228,805
$
3,653,638
381,412
1,148,552
(136,087)
(353,966)
(21,331)
112,654
60,176
(19,013)
527,960
300,547
(125,902)
(232,336)
–
147,814
(35,214)
(7,702)
Balance, end of the year
$ 5,401,202
$
4,228,805
(1)
Includes the mortgages on the properties acquired as part of the Acquisition.
j) Bank Indebtedness
For the Year Ended December 31,
Balance, beginning of the year
Net (repayments) borrowings before foreign currency translation
Gain on foreign currency translation
Balance, end of the year
2020
2019
$
623,893
$
567,365
(498,783)
(6,557)
87,000
(30,472)
$
118,553
$
623,893
124
2020 Annual ReportNotes to Consolidated Financial Statements
27. Revenue and Other Income
Other income
For the Year Ended December 31,
Investment income
Net profit from investment in associate(1)
Asset and property management fees(2)
Other
Total
$
2020
1,226
17,173
9,592
1,999
$
2019
1,674
23,440
8,038
1,752
$
29,990
$
34,904
(1)
CAPREIT’s share of IRES’s investment property fair value change, earnings and foreign exchange effects thereon. For the years ended December 31,
2020 and 2019, CAPREIT’s share of IRES’s investment property fair value gain is $6,141 and $15,201, respectively.
(2) Based on investment management agreement with IRES, which owns properties in Ireland.
In accordance with 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, 2020, miscellaneous revenues of $18,794 were included in revenue
from investment properties (year ended December 31, 2019 – $18,159). Miscellaneous revenues consist of cable
income, common area maintenance recoveries and premium service components.
28. Related Party Transactions
a) IRES Transactions
As at December 31, 2020, CAPREIT has an 18.8% share ownership in IRES and has determined that it has significant
influence over IRES. Pursuant to a placing of shares completed by IRES in June 2019 and July 2019, CAPREIT’s
share ownership increased from 18.0% to 18.3%. Pursuant to the exercise of options assigned to CAPREIT in
November 2020, CAPREIT purchased 3,400,000 shares of IRES for $8,020, increasing CAPREIT’s share ownership
from 18.3% to 18.8%. The share ownership is held through a 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, 2020 are asset management and property management
fees of $9,592 (year ended December 31, 2019 – $8,038). Expenses related to the asset and property management
services are included in trust expenses. The amount receivable from IRES as at December 31, 2020 is $1,831
(December 31, 2019 – $2,730).
The initial five-year term investment management (“IMA”) contract between CAPREIT and IRES expired on November 1,
2020. The IMA has now rolled into a second five-year term under the existing terms. Since November 1, 2020,
both parties have termination rights under the IMA. IRES has the right to terminate the IMA if it determines that
internalization of the management of IRES, subject to relevant regulatory approval, is in IRES’s best interests.
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
Total
2020
3,862
2,618
6,480
(778)
5,702
$
$
$
2019
2,692
3,178
5,870
4,411
$
10,281
(1) 2019 figures include $750 of accelerated vesting of previously granted RUR units related to the former President and CEO.
125
Rising to the challenge, together.Notes to Consolidated Financial Statements
c) ERES Transactions
New Management Agreement
Upon closing of the Acquisition, CAPREIT 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) An annual asset management fee in the amount of 0.35% of the historical purchase price of ERES’s properties
excluding the commercial properties plus HST/VAT;
b) 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;
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
c)
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.
Property Management Agreement
Prior to closing of the Acquisition, ERES had a property management agreement with CAPREIT. Under the terms of
the agreement, CAPREIT received 3.5%, effective February 2019 (2.5% previously) of EGI (effective gross income)
for its services.
Upon closing of the Acquisition, CAPREIT entered into a new property management agreement with ERES pursuant
to which CAPREIT will act as the property manager to ERES for residential properties and receive 3.5% of EGI for
its services.
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.
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 March 29, 2021, will make up to $258 million (€165 million) (the “Total
Commitment”) available to acquire properties that comply with ERES’s 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. CAPREIT will receive an
underwriting fee in the amount of 1.0% of the purchase price on any acquisitions under the Pipeline Agreement.
126
2020 Annual ReportNotes to Consolidated Financial Statements There were no acquisitions made pursuant to the Pipeline Agreement during the year ended December 31, 2020.
Pursuant to the terms of the Pipeline Agreement, on May 31, 2019, 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 ERES Class B LP Units.
On June 28, 2019, subsidiaries of CAPREIT sold to ERES 21 properties representing an aggregate of 511 residential
suites located in six locations across Netherlands at the original acquisition cost of $145.9 million, and earned an
underwriting fee of $1.6 million. ERES paid $123.7 million in cash and $33.4 million through the issuance of 8.3 million
ERES Class B LP Units.
On September 30, 2019, wholly-owned subsidiaries of CAPREIT sold to ERES 18 properties representing an
aggregate of 942 residential suites located in seven 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 ERES Class B LP Units.
The table below summarizes fees charged to ERES:
For the Year Ended December 31,
Asset management fees
Acquisition fees
Property management fees
Service fees
Underwriting fees
Total
$
$
2020
6,896
1,266
3,722
592
–
2019
3,543
2,826
2,208
379
3,986
$
12,476
$
12,942
Any fees charged by CAPREIT to ERES are eliminated upon consolidation in these consolidated annual
financial statements.
29. Commitments
Natural Gas
Through the combination of fixed and variable price contracts, CAPREIT is committed as at December 31, 2020 in
the aggregate amount of $11,464 for its natural gas and transport requirements. These commitments, which range
from one to four 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
2021
2022
2023
$
1.73
70.6%
$
2.07
60.0%
$
2.34
53.4%
$
2024
2.50
16.7%
$
1.38
$
70.6%
1.06
60.0%
$
0.81
$
53.4%
0.65
16.7%
(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 $21,618 were outstanding as at
December 31, 2020 (December 31, 2019 – $29,483).
127
Rising to the challenge, together.Notes to Consolidated Financial Statements
30. 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.
31. Segmented Information
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. CAPREIT’s chief operating decision-maker reviews operating
results of the Canadian and European properties to make decisions about resources to be allocated to the
segments and assess their performance.
Selected income statement items
Revenue from investment properties
Operating expenses
Net rental income
Fair value adjustments of investment properties
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
775,675
(278,975)
496,700
523,144
Canada
707,335
(255,393)
451,942
786,981
$
$
$
$
$
$
For the Year Ended December 31, 2020
Europe
106,968
(25,497)
81,471
72,715
Consolidated
Financial Statements
$
$
$
882,643
(304,472)
578,171
595,859
For the Year Ended December 31, 2019
Europe
73,445
(17,237)
56,208
105,175
Consolidated
Financial Statements
$
$
$
780,780
(272,630)
508,150
892,156
$
$
$
$
$
$
As at December 31, 2020
Canada
Europe
Consolidated
Financial Statements
$ 12,701,156
4,306,405
$ 2,299,435
1,094,797
$ 15,000,591
5,401,202
Canada
$ 11,133,477
3,350,154
$
Europe
1,962,949
878,651
As at December 31, 2019
Consolidated
Financial Statements
$ 13,096,426
4,228,805
32. Subsequent Events
On January 15, 2021, CAPREIT terminated its $65,000 fully drawn, non-amortizing credit facility and its corresponding
CCIR swap, prior to the original maturity date of June 28, 2021. On the same date, CAPREIT entered into a CCIR
swap to (i) hedge existing mortgage payables of $69,708 into €44,818 and (ii) convert fixed Canadian dollar-based
mortgage payments with interest rate of 0.82% for fixed euro-based payments with an interest rate of -0.07%. The
new swap will mature on January 15, 2024.
128
2020 Annual ReportNotes to Consolidated Financial Statements
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.”