Investing in Our Future.
2021 Annual Report
B
2021 Annual Report Investing in Our Future.
1
Investing in Our Future “ Investing in our
future builds value”
2
Mark Kenney
President and Chief Executive Officer
2021 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
70,000 residential apartment suites,
townhomes and manufactured housing
community sites well-located across
Canada, the Netherlands and Ireland
as of December 31, 2021.
2021 Highlights & Objectives
HIGHLIGHTS
OBJECTIVES
• Another resilient year despite the 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, developments,
intensifications and strong financial management; and
• To invest capital within the property portfolio in order
to maximize earnings and cash flow potential and to
help ensure the life safety of residents.
• Focused asset allocation strategy continues
to build value
• Revenues rise on portfolio growth and
increased rents
• Proactive and close resident relations drive 99%
of rents collected
• NFFO up 3.4% on strong operating performance
• Solid accretive growth with NFFO per unit rising 2.0%
• Strong, flexible balance sheet and liquidity position
• Over 99% of mortgage portfolio with low 2.5%
fixed interest rate
• $1.0 billion increase in fair market value on portfolio
investments, strong sector fundamentals
• Fully integrated ESG programs delivering value
3
Investing in Our Future 2021 Selected Financial Highlights
Selected Financial Highlights
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)
2021
2020
$
$
$
$
$
$
98.1%
1,149
933,137
609,993
65.4%
2.262
2.318
1.409
62.6%
61.0%
36.12%
52.26%
2.47%
5.65
1.97
4.02
$
$
$
$
$
$
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
Available liquidity – Acquisition and Operating Facility (000s)(1)
Available cash and cash equivalents (000s)(1)
$
$
384,510
73,411
$
$
627,997
121,722
(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.
(3) Based on the trailing four quarters.
4
2021 Annual Report
“ Investing in our
people builds value”
5
Investing in Our Future Canadian Portfolio
Strong & Diversified
Portfolio
59,620
Total Suites and Sites
98.6%
Residential Occupancy
$1,319
Residential Net Average Monthly Rent
Canada
In Canada, our focus is on growing our portfolio of mid-tier, value-add properties in
well-located suburban markets in and around Canada’s largest cities. We have proven
our ability to invest in these properties to increase value, while the stability of cash
flows results from continuing high stable occupancy, larger average suite size, and
affordable rental rates.
10%
4%
British Columbia
Total Suites
Occupancy
Net Avg Rent
5,777
99.2%
$1,449
0%
Saskatchewan
Total Suites
Occupancy
Net Avg Rent
234
97.0%
$1,033
Alberta
Total Suites
Occupancy
Net Avg Rent
2,318
98.1%
$1,118
41%
Ontario
Total Suites
24,455
Occupancy
Net Avg Rent
99.2%
$1,439
As at December 31, 2021
6
21%
MHC
Total Suites
Occupancy
Net Avg Rent
Québec
Total Suites
Occupancy
18%
12,201
95.8%
$396
10,710
97.2%
Net Avg Rent
$1,048
Nova Scotia
Total Suites
Occupancy
Net Avg Rent
3,288
98.6%
$1,315
Prince Edward Island
Total Suites
Occupancy
Net Avg Rent
637
98.7%
$1,103
5%
1%
2021 Annual Report 6,545
Total Suites
98.6%
Occupancy
€927
Net Average Monthly Rent
Netherlands
As one of Europe’s only fully integrated, professional
residential rental property management platforms,
our investment in European Residential REIT (ERES)
is delivering strong growth in property management
fees, while our ownership interest generates solid
dividend income.
3,829
Total Suites
99.1%
Occupancy
€1,678
Net Average Monthly Rent
Ireland
Since its initial investment in the Dublin residential
rental market in 2014, we have received strong and
growing property management fee and dividend
income from our 18.7% ownership interest in Irish
Residential REIT (IRES). Effective January 31, 2022,
CAPREIT’s investment management agreement with
IRES was terminated.
As at December 31, 2021
European Portfolio
7
Investing in Our Future Scott Cryer
Chief Financial Officer
Corinne Pruzanski
General Counsel and
Corporate Secretary
Jodi Lieberman
Chief People, Culture
and Brand Officer
Mark Kenney
President and
Chief Executive Officer
Since 1997, we have responsibly invested in our assets and
our people, building one of Canada’s largest portfolios of
residential rental properties and one of the best teams and
operating platforms in our business. Going forward, we will
continue to build value by Investing in Our Future.
8
2021 Annual Report Report to Unitholders
Report to
Unitholders
Despite operating for a full year under the significant and
unprecedented challenges presented by the COVID-19 pandemic,
CAPREIT generated another year of record growth and performance
in 2021. Our goals throughout the pandemic were to preserve capital,
maintain a strong, flexible financial position, and mitigate risk. Thanks
to the experience and dedication of all our teams, we met these
objectives and will emerge from the pandemic stronger than ever
before. Looking ahead, we are confident in our ability to capitalize on
the strong fundamentals in our business, our proven growth programs
and asset allocation strategy, and the quality of our asset base to
continue building value for our Unitholders.
KEY METRICS
Operating Revenue
(000s)
7
3
1
,
3
3
9
,
3
4
6
2
8
8
4
8
8
7
7
7
,
5
8
5
8
8
6
,
,
2
4
8
8
3
6
NOI
(000s)
8
5
2
3
9
3
,
6
5
0
9
3
4
,
,
3
9
9
9
0
6
1
7
1
,
8
7
5
0
5
1
,
8
0
5
NFFO
(000s)
,
5
3
3
9
8
2
,
4
7
4
0
5
2
4
9
1
,
2
0
4
8
5
9
8
8
3
,
1
2
1
,
9
3
3
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
9
Investing in Our Future Another
Record Year
10
2021 Annual Report Report to Unitholders
Operating revenues for the year ended December 31,
2021 rose 5.7% to $993.1 million, driven by our portfolio
growth and increasing average monthly rents. With
this revenue growth, combined with our proven and
successful property management programs, Net
Operating Income (NOI) rose 5.5% to $610.0 million
for the year.
Normalized Funds from Operations (NFFO), our key
performance benchmark, increased 3.4% in 2021
to $402.2 million, resulting in another year of accretive
growth as NFFO per Unit rose 2.0% to $2.318.
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 36.1% 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 5.7 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 2.47% at
December 31, 2021.
Additionally, our liquidity position remains strong and
flexible. Including cash, available capacity on our credit
lines, our ability to up-finance existing mortgages, and
potential financing on our portfolio of $1,180 million
unencumbered assets, we had total liquidity available
of approximately $1.2 billion at year end. If we were
to access all these liquidity resources, our leverage
ratio would remain a conservative 40%.
...our liquidity position
remains strong and
flexible.
Our strong 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 a testament to the
exceptional contribution made by our people and the
execution of our proven growth programs and asset
allocation strategy. Looking ahead, we will continue to
invest in our assets, our people, and our future.
NFFO per Unit – Inception to 2021
NFFO per Unit – Inception to 2021
NFFO per Unit
NFFO Payout Ratio
NFFO per Unit
NFFO per Unit
NFFO Payout Ratio
NFFO Payout Ratio
2.400 –
1.900 –
1.400 –
0.900 –
0.400 –
0.000 –
2.000 –
2.000 –
1.800 –
1.800 –
1.600 –
1.600 –
1.400 –
1.400 –
1.200 –
1.200 –
1.000 –
1.000 –
0.800 –
0.800 –
0.600 –
0.600 –
0.400 –
0.400 –
0.200 –
0.200 –
0.000 –
0.000 –
’98 ’99
’00
’01
’02
’03
’04
’05
’06
’07
‘98
‘98
’08
‘99
‘99
’09
‘00
‘00
’10
‘01
‘01
’11
‘02
‘02
’12
‘03
‘03
’13
‘04
‘04
’14
‘05
‘05
’15
‘06
‘06
’16
‘07
‘07
’17
‘08
‘08
’18
‘09
‘09
’19
‘10
‘10
’20
‘1 1
‘1 1
’21
– 120%
– 100%
– 80%
– 60%
– 40%
– 20%
– 0%
‘12
‘12
‘13
‘13
‘14
‘15
‘16
‘17
‘18
‘19
‘20
11
– 120%
– 100%
– 80%
– 60%
– 40%
– 20%
– 0%
Investing in Our Future Investing
in Our Assets
12
2021 Annual Report During 2021, we acquired a total of 3,744 residential
suites and manufactured housing community (MHC)
sites well-located in our target markets for a total
purchase price of $1,053.5 million. Our portfolio
grew to 66,165 suites and sites with a book value of
$17.1 billion at year end, maintaining our position as
Canada’s largest multi-family residential REIT.
Looking ahead, we will continue to deliver on our
proven asset allocation strategy.
Our primary focus targets further growth in the
Canadian apartment business, expanding our portfolio
of primarily value-add properties in the mid-tier
segment in well-located suburban markets in Toronto,
Vancouver and Montreal – Canada’s three largest
cities. 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. Our growing
development pipeline will also generate future
accretive growth. Over the long term, we have the
potential to add approximately 10,000 new apartment
suites to our portfolio through our intensification and
redevelopment initiatives on our owned land.
Our second area of growth is the Canadian MHC
business. Revenues are highly stable in this sector,
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. With home ownership costs rising
significantly, MHCs provide a very affordable option.
Our third focus is on Europe, where we are generating
significant and growing dividend and fee income from
our investments in the Netherlands. As one of the only
professionally managed operating platforms in Europe,
and with access to very low-cost European debt, the
opportunities for further growth and enhanced value
are significant.
We continue to invest in our properties and leading-
edge technologies to enhance the value of our asset
base and increase its income-producing potential.
Our proven capital programs are reducing operating
costs through energy saving and other initiatives,
making our properties more attractive to current and
prospective new residents, increasing our operating
efficiency, and helping us meet our ESG commitment
to enhanced environmental performance.
All of these investments continue to generate strong
increases in our net asset value. In 2021, we recorded
a $1,049 million gain in the fair value of our income
producing properties following a $596 million gain in
2020. With increasing demand and little new supply
of rental properties, we believe the value of our asset
base will continue to increase, providing another
strong driver of Unitholder value over the long term.
OUR ASSET ALLOCATION STRATEGY IS WORKING
Apartment Focus
MHC Focus
Europe Focus
Portfolio growth is driven by targeting
With residents owning their homes, the
As one of Europe’s only professionally
value-add properties in the mid-tier
Canadian MHC sector provides highly
managed operating platforms, fee income
segment in well-located suburban markets
stable and growing revenues with low
is increasing from our asset and property
in and around Canada’s largest cities.
capital and maintenance needs.
management services.
13
Investing in Our Future Investing
in Our People.
One of the most important reasons for our success
throughout the pandemic, and indeed for the more
than twenty-four years since CAPREIT’s founding, is the
experience and dedication of our people. We believe we
have one of the best operating teams and platforms in the
business, and we will continue to invest in our employees,
fostering an environment of employee inclusion and
engagement to ensure we attract and retain the best and
most productive people.
We were very proud to have ranked in the “Above Canada
Top Quartile Average” for the eighth consecutive year in
Kincentric’s 2021 Best Employers Program. Our innovative
internal leadership training and coaching programs, our
communications and engagement initiatives, including our
quarterly “Fireside Chats” with senior management, are
building a close and unified team that is highly engaged
with CAPREIT’s goals and objectives.
Our commitment to diversity is a key element. 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 we celebrate the more
than 61 languages spoken at CAPREIT, a reflection of
the diverse makeup of the Canadian population and our
resident communities.
The pandemic, while presenting us with unprecedented
challenges and issues, also allowed us to get closer to
our residents. Our new “Resident Portals” now enable
residents to conveniently transact directly with us. Through
our “Compassionate Care” program, we personally
reached out to our residents to check on their well-being
and discuss any rent issues they were experiencing, while
our innovative rent payment programs assisted many
through these challenging times. As a measure of our
success, we collected over 99% of our rents through the
pandemic and maintained strong occupancies, rising to
98.1% at December 31, 2021.
These, and many other resident-focused programs,
were invaluable in helping us meet our goals during
the pandemic and gaining insight into the needs of our
resident community. Many of these innovations will be
maintained going forward to ensure we stay close to
our customers.
14
2021 Annual Report 15
Investing in Our Future Report to Unitholders
Investing
in Our
Future.
16
Looking ahead, we are confident that our long-term
focus on making CAPREIT “The Best Place to Live,
Work and Invest” will generate strong and growing
value for our Unitholders.
Our growing property portfolio meets the increasing
demand for more affordable, high-quality homes, and
our predominantly suburban locations with larger
suites, townhomes and MHC sites attract families
seeking more space. Our strong acquisition pipeline
and development opportunities are driving accretive
portfolio growth, and the low interest rate environment
provides the opportunity to acquire properties at
strong cap rate spreads with reduced interest costs.
Finally, our industry-leading balance sheet, low leverage
and significant liquidity position give us the financial
capacity and flexibility to maintain our growth objectives
for years to come.
In closing, we thank everyone at CAPREIT for their
ongoing commitment and effort over the last year.
We also thank our more than 70,000 resident families
for their support. We are very proud of our record
performance in what was a very challenging year, a
testament to our ongoing commitment to investing in
our assets, our people and our future. We look for this
progress to continue in the years ahead.
Mark Kenney
Michael Stein
President and Chief
Executive Officer
Chairman
2021 Annual Report Financial
Reporting
Scott Cryer
Chief Financial Officer
17
Investing in Our Future 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 2021 Results of Operations
Acquisitions and Dispositions
Key Performance Indicators
Performance Measures
SECTION III: OPERATIONAL AND FINANCIAL RESULTS
Net and Occupied Average Monthly Rents and Occupancy
Results of Operations
NOI by Region
Stabilized NOI by Region
Net Income and Other Comprehensive Income
SECTION IV: UNIT CALCULATIONS, NON-IFRS
FINANCIAL MEASURES
Per Unit Calculations
Non-IFRS Financial Measures
Adjusted Cash Generated from Operating Activities
SECTION V: CAPITAL INVESTMENT, INVESTMENT PROPERTY,
CAPITAL STRUCTURE, FINANCIAL CONDITION
Property Capital Investments
Investment Properties
Development
Capital Structure
Liquidity and Financial Condition
Unitholder Taxation
SECTION VI: COMPLIANCE AND GOVERNANCE DISCLOSURES,
RISKS AND UNCERTAINTIES
Selected Consolidated Quarterly Information
Selected Consolidated Financial Information
Accounting Policies and Critical Accounting Estimates,
Assumptions and Judgments
Controls and Procedures
Risks and Uncertainties
Related Party Transactions
Commitments and Contingencies
Subsequent Events
Future Outlook
SECTION VII: SUPPLEMENTAL INFORMATION
Property Portfolio
19
19
20
20
20
22
23
24
27
28
32
35
36
37
40
41
46
47
48
51
52
52
56
57
60
60
60
61
71
72
72
72
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 Mortgages Receivable
Note 9 Other Assets
Note 10 Other Current Liabilities
Note 11 Accounts Payable and Accrued Liabilities
Note 12 ERES Units Held by Non-Controlling Unitholders
Note 13 Mortgages Payable
Note 14 Bank Indebtedness
Note 15 Unit-based Compensation Financial Liabilities
Note 16 Unit-Based Compensation Expense
Note 17 Exchangeable LP Units
Note 18 Unitholders’ Equity
Note 19 Distributions on Trust Units
Note 20 Financial Instruments, Investment Properties and
Risk Management
Note 21 Derivative Financial Instruments
Note 22 Capital Management
Note 23 Income Taxes
Note 24 Accumulated Other Comprehensive (Loss) Income
Note 25 Interest and Other Financing Costs
Note 26 Joint Arrangements
Note 27 Supplemental Cash Flow Information
Note 28 Revenue and Other Income
Note 29 Related Party Transactions
Note 30 Commitments
Note 31 Contingencies
Note 32 Segmented Information
Note 33 Subsequent Events
84
85
86
86
97
99
100
101
104
104
105
105
105
106
106
107
108
109
111
111
112
112
116
117
118
119
120
120
120
123
123
126
126
127
127
18
2021 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, 2021,
dated February 23, 2022, should be read in conjunction with CAPREIT’s audited consolidated annual financial
statements for the year ended December 31, 2021.
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, obtain financings at favourable interest rates, and
the impact and continued availability of government relief programs; 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 that the expectations of CAPREIT’s management will prove to be correct. For a detailed
discussion of risk factors, refer to 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.
19
Investing in Our FutureManagement’s Discussion and Analysis 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 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, Adjusted Cash Generated from Operating Activities, and
Net Trust Expenses (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. These Non-IFRS measures have been assessed for compliance
with the new National Instrument 52-112 and 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 owns or has interests in,
and manages, approximately 70,000 residential apartment suites, townhomes and manufactured housing community
sites well-located across Canada, in the Netherlands and Ireland as of December 31, 2021.
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, 2021, CAPREIT had
1,076 employees (1,071 employees as at December 31, 2020).
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
2021 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 continues to review and refine
its multi-year ESG strategy and road map and integrate it into its corporate strategy. The ESG strategy and road map
are supported by CAPREIT’s Board of Trustees and all levels of the organization contribute to the implementation of
the strategy and achievement of deliverables. This road map allows CAPREIT to better demonstrate its environmental
responsibility, attract and retain the best people in the business, build strong relationships with its residents
and the communities in which they live, adopt best practice programs in corporate governance, and maintain
open and transparent communication with its investors. CAPREIT focuses on several ESG-specific deliverables.
Through building in-house ESG subject matter expertise, 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 out 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. In support of CAPREIT’s ongoing commitment to ESG integration and performance, management
continues to support submission to the Global Real Estate Sustainability Benchmark, the results of which will inform
future cycles of improvement and the evolution of CAPREIT’s strategy going forward. Refer to CAPREIT’s ESG
Report for a detailed discussion. The 2021 ESG Report will be issued in May 2022.
21
Investing in Our FutureManagement’s Discussion and Analysis SECTION II: KEY HIGHLIGHTS
Summary of Year End 2021 Results of Operations
Key Transactions and Events
• CAPREIT continues to invest in accretive opportunities with total acquisitions for the year ended December 31, 2021
amounting to $805 million comprised of interests in 3,245 suites and sites located in Canada, and $249 million
comprised of 499 suites located in the Netherlands
• During the year, CAPREIT completed another buyout of an operating lease in midtown Toronto, Ontario for a net
purchase price of $4.5 million. As of December 31, 2021, CAPREIT has two remaining operating leases
• Total dispositions for the year ended December 31, 2021 of $143 million, which included 592 suites located in
Ontario and one single family home located in the Netherlands
Strong Operating Results
• Consistent with prior year, 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, 2021 increased by 5.9% on 21.8% of
the Canadian portfolio, compared to an increase of 7.9% on 18.7% of the Canadian portfolio for the year ended
December 31, 2020
• Net Average Monthly Rent (“Net AMR”) for the stabilized portfolio as at December 31, 2021 increased by
1.9% compared to December 31, 2020, while occupancies increased to 98.1% compared to 97.6% as at
December 31, 2020
• Net Operating Income (“NOI”) margin for the total portfolio decreased slightly to 65.4% for the year ended
December 31, 2021 from 65.5% for the year ended December 31, 2020
• NFFO per unit was up 2.0% for the year ended December 31, 2021 compared to last year
Strong and Flexible Balance Sheet
• CAPREIT’s financial position remains strong, with $384.5 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 2022, excluding financings on acquisitions
• CAPREIT closed mortgage refinancing of $1,023.4 million for the year ended December 31, 2021, with top-ups
of $502.0 million with a weighted average term to maturity of 8.0 years and a weighted average interest rate
of 1.97%, and discharges of $86.8 million
• For the year ended December 31, 2021, the fair value of investment properties increased by $2,101.3 million.
Excluding the impact of net acquisitions, operating lease buyout and foreign exchange, the fair value of investment
properties increased by $1,374.5 million for the year ended December 31, 2021
2222
2021 Annual ReportManagement’s Discussion and Analysis Acquisitions and Dispositions
The tables below summarize property acquisitions for the year ended December 31, 2021.
Canadian Acquisitions Completed During the Year Ended December 31, 2021
($ Thousands)
May 5, 2021
May 31, 2021
June 2, 2021
June 9, 2021
June 24, 2021
June 25, 2021
July 5, 2021
August 31, 2021(4)
September 7, 2021
September 22, 2021(5)
October 1, 2021
Suite or
Site Count
485
154
228
77
30
548
342
787
193
141
260
Region(s)
Oshawa, ON
Montréal, QC
Victoria, BC
Victoria, BC
Victoria, BC
London, ON
Lakeshore, ON
Toronto, ON
West Kelowna, BC
Toronto, ON
Québec City, QC
Total
3,245
2020 Acquisition financing
Total
Acquisition
Costs
$ 105,904
$
Assumed
Mortgage
Funding
Subsequent
Acquisition
Financing
–(3) $ 54,673(3)
31,727
78,306
20,263
9,906
110,461
21,703
165,626
63,385
123,111
74,159
$ 804,551
–
–
–(3)
–(3)
–(3)
–
18,037
33,702
–(3)
–(3)
–(3)
8,573
37,225
–(3)
34,077
–(3)
–
–(3)
–
–(3)
54,673
$ 146,644(7)
$ 131,614 $
The Netherlands Acquisitions Completed During the Year Ended December 31, 2021
Suite or
Site Count
Region(s)
Total
Acquisition
Costs
104
The Netherlands
$ 45,879
$
($ Thousands)
June 30, 2021
June 30, 2021
November 30, 2021
November 30, 2021
December 22, 2021
Total
The Netherlands
The Netherlands
The Netherlands
The Netherlands
33
63
162
137
499
Assumed
Mortgage
Funding
Subsequent
Acquisition
Financing
– $ 21,593(6)
13,995(6)
–
13,949(6)
41,921(6)
24,839(6)
–
–
–
27,202
29,966
88,732
57,167
$ 248,946
$
– $ 116,297
Interest
Rate (%)(1)
1.88(3)
1.78
Term to
Maturity
(Years)(2)
3.00(3)
4.58
3.08
1.67
–(3)
–(3)
–(3)
–(3)
–(3)
–(3)
4.08
3.16
4.17
7.68
–(3)
–(3)
1.93
0.17
–(3)
–(3)
1.84(7)
5.41(7)
Interest
Rate (%)(1)
1.16(6)
1.16(6)
1.16(6)
1.16(6)
1.16(6)
Term to
Maturity
(Years)(2)
6.00(6)
6.00(6)
5.75(6)
5.75(6)
5.75(6)
(1) Weighted average stated interest rate on mortgage funding.
(2)
(3)
(4)
(5)
(6)
Weighted average term to maturity on mortgage funding.
The acquisition was funded from CAPREIT’s cash and cash equivalents and CAPREIT’s Acquisition and Operating Facility.
CAPREIT purchased the remaining 50% interest in a portfolio of 787 apartment suites and townhouse units. CAPREIT acquired its initial 50% interest
on July 31, 2008.
Total acquisition cost was increased by $8.0 million, relating to the difference between the agreed upon issuance price of $56.00 per Exchangeable LP
Unit and the fair value of the Exchangeable LP Units on the acquisition date. Refer to note 17 of the accompanying audited consolidated annual financial
statements for further information.
Subsequent acquisition financing obtained is collateralized by a pool of investment properties. The amount of subsequent acquisition financing shown
above has been allocated based on fair value of these properties as determined by the lender. The interest rates shown include the corresponding
interest rate swaps.
(7) Subsequent acquisition financing of $146.6 million relates to properties acquired in 2020.
The table below summarizes the dispositions completed during the year ended December 31, 2021.
Dispositions Completed During the Year Ended December 31, 2021
Disposition Date
September 2, 2021(1)
September 29, 2021
October 1, 2021(3)
Total
Suite Count
Region(s)
Sale Price
Cash Proceeds(4)
VTB Issued(2)
The Netherlands
Toronto, ON
Toronto, ON
1
86
506
593
$
$
461
52,000
90,920
143,381
$
$
461
$
5,200
22,730
28,391
$
–
46,800
68,190
114,990
(1) Represents disposition of one individual single family home.
(2) Refer to note 8 of the accompanying audited consolidated annual financial statements for further information.
(3) CAPREIT disposed of its 33.3% interest in 506 apartment suites.
(4) Prior to working capital adjustments.
2323
Investing in Our FutureManagement’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 and the financial covenants in its credit and mortgage agreements.
CAPREIT’s credit agreements consist of a revolving acquisition and operating facility, which includes euro LIBOR,
USD LIBOR and Canadian dollar borrowings (“Acquisition and Operating 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
2021 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, 2021; however, this may not be indicative
of CAPREIT’s future performance.
Rent Collection
Consistent with prior year, 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.
Update on Rental Revenue
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. In addition, tenant incentives
which are occasionally used to support revenues may fluctuate significantly from historical trends and depend on
the length and severity of the COVID-19 pandemic.
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:
• The provinces of Ontario and British Columbia passed legislation to freeze rent increases until December 31,
2021, except for approved above guideline increases. In addition, Ontario and British Columbia have issued rent
guideline increases of 1.2% and 1.5% for 2022, respectively. As a result of the expiry of the regulatory rent freeze
in Ontario and British Columbia, CAPREIT served tenant notices to 44% of its Canadian tenants, across which
the weighted average rental increase was 1.3%, effective January 1, 2022.
• The province of Nova Scotia has capped residential rent increases at 2% each year, retroactive to September 1, 2020
until December 31, 2023, and has capped MHC rent increases at 1.9% for 2021 and at 1.0% for 2022. The rental
increase rates will stay at the same level if the state of emergency extends beyond 2023 due to the pandemic.
• 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.
• The federal government had ended the Canada Recovery Benefit (“CRB”) on October 23, 2021 and introduced
the Canada Worker Lockdown Benefit (“CWLB”). This new program is effective between October 24, 2021 and
May 7, 2022 and will provide $300 a week to eligible workers who are directly impacted by government imposed
lockdowns and are not otherwise eligible for EI. The federal government has temporarily expanded the eligibility
for the CWLB to include workers subject to capacity limits of 50% or more, effective between December 19, 2021
and February 12, 2022.
• The federal government had replaced the expired Canada Emergency Rent Subsidy (“CERS”) with the Tourism
and Hospitality Recovery Program (“THRP”) and Hardest Hit Business Recovery Program (“HHBRP”), which provide
similar support to the previous program for eligible businesses. The program will be available until May 7, 2022,
with the proposed subsidy rates available through to March 13, 2022. Afterwards, the subsidy rates will decrease
by half. On December 22, 2021, the federal government announced the Local Lockdown Program to temporarily
expand eligibility for wage and rent subsidies. Employers who are subject to capacity limit restrictions of 50%
or more with at least a 25% decline in revenue will be eligible for the benefits.
25
Investing in Our FutureManagement’s Discussion and Analysis • The Dutch government has announced rent increase freezes until June 30, 2022 on regulated suites which are
subject to rent control. For liberalized suites not subject to rent control previously, the government enacted a rental
cap on annual indexation at CPI + 1.0% from May 1, 2021 to April 30, 2024.
• Assistance programs, such as wage subsidies, government loans, and tax deferrals have also been enacted by
the Dutch government.
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.
For the year ended December 31, 2021, the fair value of investment properties increased by $2,101.3 million.
Excluding the impact of net acquisitions, operating lease buyout and foreign exchange, the fair value of investment
properties increased by $1,374.5 million for the year ended December 31, 2021.
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 any potential impact to be short term and will normalize over the
long term. As at December 31, 2021, CAPREIT has limited, whenever necessary, 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. This has not significantly impacted
CAPREIT’s capital expenditure plan for the year.
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.
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 Canadian liquidity position as at December 31, 2021 remains
strong with:
• $384.5 million available on the Acquisition and Operating Facility; and
• $1,180.2 million of Canadian investment properties that are not encumbered by mortgages. Refer to note 13 to
the accompanying consolidated annual financial statements for further details.
In addition, management expects to raise between $850 and $900 million in total mortgage renewals and
refinancings for 2022, 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.
26
2021 Annual ReportManagement’s Discussion and Analysis Performance Measures
The following table presents an overview of certain IFRS and non-IFRS financial measures of CAPREIT for the years
ended December 31, 2021 and 2020. 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)
Cash and cash equivalents (000s)(1)
(1) As at December 31.
$
$
$
$
$
$
2021
2020
$
$
$
$
$
$
98.1%
1,149
933,137
609,993
65.4%
2.262
2.318
1.409
62.6%
61.0%
36.12%
52.26%
2.47%
5.65
1.97
4.02
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
$
$
384,510
73,411
$
$
627,997
121,722
(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.
For the Year Ended December 31,
Other Measures
Weighted average number of units – basic (000s)
Number of residential suites and sites acquired(1)
Number of suites disposed
Closing price of Trust Units on the TSX(2)
Market capitalization (millions)(2)
(1)
Includes a 50% interest in 787 suites.
(2) As at December 31.
2021
2020
173,508
3,744
593
59.96
10,539
$
$
171,123
3,262
194
49.99
8,639
$
$
27
Investing in Our FutureManagement’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, 2020 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(1)
London / Kitchener / Waterloo
Ottawa
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria and Other
British Columbia
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
2021
AMR ($)
2020
AMR ($)
% Change
AMR
2021
AMR ($)
2020
AMR ($)
% Change
AMR
Occupancy %
2021
2020
1,519
1,090
1,395
1,439
1,016
1,138
1,048
1,490
1,069
1,363
1,418
991
1,095
1,016
1,476
1,466
1,398
1,449
1,301
1,413
1,315
1,197
1,108
1,153
1,118
1,056
1,079
1,061
1,103
1,100
1,033
1,319
1,335
1,321
396
1,149
984
1,282
1,375
1,293
390
1,121
1.9
2.0
2.3
1.5
2.5
3.9
3.1
0.7
7.5
2.5
9.9
4.9
6.9
5.4
0.3
5.0
2.9
(2.9)
2.2
1.5
2.5
1,532
1,098
1,402
1,451
1,046
1,169
1,078
1,513
1,078
1,372
1,437
1,025
1,118
1,048
1,491
1,484
1,405
1,460
1,306
1,426
1,334
1,259
1,119
1,209
1,139
1,108
1,223
1,133
1,117
1,109
1,065
1,338
1,354
1,340
414
1,171
1,042
1,311
1,399
1,322
407
1,151
1.3
1.9
2.2
1.0
2.0
4.6
2.9
0.5
7.6
2.4
6.0
1.0
(1.1)
0.5
0.7
2.2
2.1
(3.2)
1.4
1.7
1.7
99.1
99.3
99.5
99.2
97.2
97.3
97.2
99.0
99.6
99.2
98.6
99.0
95.4
98.1
98.7
97.0
98.6
98.6
98.6
95.8
98.1
98.5
99.2
99.4
98.7
96.7
97.9
97.0
98.8
99.6
99.1
95.1
95.3
88.2
93.7
99.2
94.4
97.8
98.3
97.9
95.8
97.5
(1)
(2)
Other Ontario has been reclassified into Greater Toronto Area. Prior year comparative figures have been adjusted to conform with current
period presentation.
Includes foreign exchange impact and service charge income. The amounts in euros for the European portfolio for Net AMR are €927 and
€882 as at December 31, 2021 and December 31, 2020, respectively, and for Occupied AMR are €941 and €896 as at December 31, 2021
and December 31, 2020, respectively.
28
2021 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
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
2021
AMR ($)
2020(1)
AMR ($)
% Change
AMR
2021
AMR ($)
2020(1)
AMR ($)
% Change
AMR
Occupancy %
2021
2020
1,515
1,104
1,395
1,444
1,020
1,105
1,041
1,476
1,353
1,441
1,488
1,069
1,363
1,415
991
1,095
1,016
1,466
1,301
1,413
1,315
1,197
1,108
1,153
1,118
1,056
1,079
1,061
1,103
1,100
1,033
1,316
1,321
1,316
396
1,140
984
1,280
1,375
1,292
390
1,119
1.8
3.3
2.3
2.0
2.9
0.9
2.5
0.7
4.0
2.0
9.9
4.9
6.9
5.4
0.3
5.0
2.8
(3.9)
1.9
1.5
1.9
1,527
1,111
1,402
1,455
1,047
1,138
1,070
1,491
1,357
1,452
1,506
1,078
1,372
1,431
1,025
1,118
1,048
1,484
1,306
1,426
1,334
1,259
1,119
1,209
1,139
1,108
1,223
1,133
1,117
1,109
1,065
1,333
1,339
1,334
413
1,162
1,042
1,308
1,399
1,319
407
1,148
1.4
3.1
2.2
1.7
2.1
1.8
2.1
0.5
3.9
1.8
6.0
1.0
(1.1)
0.5
0.7
2.2
1.9
(4.3)
1.1
1.5
1.2
99.2
99.3
99.5
99.2
97.4
97.1
97.3
99.0
99.7
99.2
98.6
99.0
95.4
98.1
98.7
97.0
98.7
98.7
98.7
95.7
98.1
98.8
99.2
99.4
98.9
96.7
97.9
97.0
98.8
99.6
99.1
95.1
95.3
88.2
93.7
99.2
94.4
97.9
98.3
98.0
95.8
97.6
(1)
(2)
Prior year comparable Net and Occupied AMR and occupancy has been restated for properties disposed of since December 31, 2020. Other Ontario
has been reclassified into Greater Toronto Area. Prior year comparative figures have been adjusted to conform with current period presentation.
Includes foreign exchange impact and service charge income. The amounts in euros for the stabilized portfolio for Net AMR are €918 and €882 as at
December 31, 2021 and December 31, 2020, respectively, resulting in a Net AMR change of 4.1%. The Occupied AMR for the stabilized portfolio is €930
and €896 as at December 31, 2021 and December 31, 2020, respectively, resulting in an Occupied AMR change of 3.8%.
The rate of growth in stabilized Net AMR has been primarily due to (i) rental increases on turnover in the rental
markets of Ontario, British Columbia and Nova Scotia, (ii) rental increases on renewals where permissible, and
(iii) strengthening occupancy rates in Alberta and Nova Scotia. Weighted average gross rent per square foot
for Canadian residential suites was approximately $1.65 as at December 31, 2021, a small improvement from
December 31, 2020.
29
Investing in Our FutureManagement’s Discussion and Analysis Annual Rental Guidelines as per Rental Board
The chart below presents the annual rental guideline increases in provinces under rent control legislation which
impacts lease renewals.
Ontario
British Columbia
2022
1.2%
1.5%
2021(1)
0.0%
0.0%
2020(2)
2.2%
2.6%
(1)
The provinces of Ontario and British Columbia have passed legislation to freeze rent until December 31, 2021. This is further discussed in Section II under
The COVID-19 Pandemic. CAPREIT did not issue any rental renewal increases in Ontario and British Columbia during 2021, other than approved above
guideline increases in selected suites and sites. As a result, CAPREIT can issue rental renewal increases for the majority of its Ontario and British
Columbia portfolio on January 1, 2022.
(2) The rent increases were not applicable in certain periods due to the pandemic.
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.
British Columbia has also announced a change to the annual rental increase formula that will now factor in landlords’
costs for necessary capital expenditures. These buildings which incur eligible capital expenditures will be eligible
for AGIs. Effective on July 1, 2021, landlords may apply all eligible capital expenditures made over the previous
18 months for AGIs. In addition, the increase will be capped at 3% each year but may be spread out over 3 years
to a maximum of 9% over the 3-year period in addition to normal annual increases.
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, 2021 –
December 31, 2021
January 1, 2020 –
December 31, 2020
1,023
0.55%
0.61%
7,879
2.06%
970
2.13%
2.31%
8,138
1.88%
(2)
(3)
(4)
For applications settled during the year ended December 31, 2021, the weighted average total increase approved is to apply over a weighted average
of 1.0 year (1.8 years for the year ended December 31, 2020).
For applications settled during the year ended December 31, 2021, the weighted average total increase applied for was to apply over a weighted
average of 1.0 year (1.8 years for the year ended December 31, 2020).
For applications outstanding as at December 31, 2021, the weighted average total increase applied for was to apply over a weighted average of 1.4 years
(1.3 years for the year ended December 31, 2020).
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
2021
2020
Change in
monthly rent
Turnovers and
Renewals(1)
Change in
monthly rent
Turnovers and
Renewals(1)
$
80.9
15.6
38.7
%
5.9
1.4
3.0
%
21.8
39.8
$
106.7
16.7
32.7
%
7.9
1.3
2.5
%
18.7
86.5
(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.
30
2021 Annual ReportManagement’s Discussion and Analysis The Netherlands Portfolio
For the Year Ended December 31,
Suite turnovers
Lease renewals
Weighted average of turnovers and renewals
2021
Change in
monthly rent
€
%
140.0
16.1
22.8
46.7
2.3
5.1
2020
Turnovers and
Renewals(1)
Change in
monthly rent
Turnovers and
Renewals(1)
%
13.9
54.3
€
82.4
18.9
27.4
%
9.3
2.3
3.2
%
14.2
92.5
(1) 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 portfolio (excluding co-ownerships) during the year ended
December 31, 2021 resulted in monthly rent increasing by approximately $81 or 5.9% compared to an increase of
approximately $107 or 7.9% for last year, primarily due to the strong rental markets in Ontario, British Columbia and
Nova Scotia. 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. Although there were reduced increases in monthly rent, 22% of the
suites in the Canadian residential portfolio turned over during the year ended December 31, 2021, an increase
compared to 19% of suites turned over during last year. Additionally, turnover rates have been increasing quarter
by quarter in 2021 with fourth quarter monthly rents increasing by approximately $120 or 8.6%.
Monthly rents on lease renewals on the Canadian residential portfolio (excluding co-ownerships) for the year ended
December 31, 2021 resulted in monthly rent increasing by approximately $16 or 1.4% compared to an increase of
approximately $17 or 1.3% for last year. The reduced renewal increases are mainly due to the impact of the COVID-19
pandemic rent freezes as discussed in Section II under The COVID-19 Pandemic. As a result of the expiry of the
regulatory rent freeze in Ontario and British Columbia, CAPREIT served tenant notices to 44% of its Canadian
tenants, across which the weighted average rental increase was 1.3%, effective January 1, 2022.
For the Netherlands portfolio, suite turnovers in the residential suite portfolio during the year ended December 31,
2021 resulted in monthly rent increasing by approximately €140 or 16.1% compared to an increase of approximately
€82 or 9.3% last year. The tenant notices for rent renewal increases beginning on July 1, 2021, with a weighted
average rental increase of 2.3%, were served to 94% of the Dutch liberalized residential suites, which comprised
54.3% of the total Netherlands portfolio. There were no increases on regulated suites due to the impact of COVID-19
pandemic rent freezes as discussed in Section II under The COVID-19 Pandemic.
Given the current market environment with the COVID-19 pandemic, there is a high level of uncertainty establishing
current market rents. As such it is difficult to estimate the differential between market rents and current rents.
Management expects market rents to stabilize in the medium term.
Tenant Inducements, Vacancy Loss and Expected Credit Loss Expense
($ 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 vacancy loss
Bad debt allowance recognized as an expense
(1) As a percentage of total operating revenues.
2021
7,693
30
7,723
6,781
26,483
33,264
5,708
%(1)
0.7
2.8
3.5
0.6
$
$
$
$
$
$
$
$
$
$
2020
2,659
–
2,659
1,984
20,417
22,401
5,219
%(1)
0.2
2.3
2.5
0.6
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
Investing in Our FutureManagement’s Discussion and Analysis
Results of Operations
Total Operating Revenues by Geography(1)
For the Year Ended December 31,
($ Thousands)
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria and Other British Columbia
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 residential suites and MHC sites
(1) Comprised of residential, commercial, and ancillary revenue.
2021
Revenue
332,391
47,297
34,372
414,060
108,219
38,111
146,330
68,698
31,328
100,026
52,702
27,265
7,651
34,916
8,483
2,802
759,319
103,395
10,523
113,918
873,237
(%)
35.7
5.1
3.7
44.5
11.6
4.1
15.7
7.4
3.4
10.8
5.6
2.9
0.8
3.7
0.9
0.3
81.5
11.1
1.1
12.2
93.7
59,900
933,137
6.3
100.0
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2020(4)
Revenue
322,080
39,507
27,912
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
(%)
36.5
4.4
3.2
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(2)
(3)
(4)
In € thousands, €69,778 and €62,592 for years ended December 31, 2021 and December 31, 2020, respectively.
Comprised of revenues for the commercial properties located in Germany and Belgium. In € thousands, €7,094 for the year ended December 31, 2021
and €7,288 for the year ended December 31, 2020.
Other Ontario has been reclassified into Greater Toronto Area. Prior year comparative figures have been adjusted to conform with current
period presentation.
32
2021 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 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, 2021 and 2020. 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
2021
895,299
31,875
927,174
$
$
2020
836,035
32,614
868,649
$
$
(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.
Net rental revenue net of dispositions for the 12 months ended December 31, 2021 was $873.4 million
(2020 – $831.5 million).
NOI
Management believes NOI is a key indicator of operating performance in the real estate industry. NOI includes
all rental revenues and other related ancillary income (including MHC home sales) generated at the property level,
less: (i) related direct costs such as realty taxes, utilities, R&M costs, on-site wages and salaries, insurance costs
and bad debts; and (ii) an appropriate allocation of overhead costs. It may not, however, be comparable to similar
measures presented by other real estate investment trusts or companies.
Stabilized properties for the year ended December 31, 2021 are defined as all properties owned by CAPREIT
continuously since December 31, 2019, and therefore do not take into account the impact on performance of
acquisitions or dispositions completed during 2021 and 2020. As at December 31, 2021, stabilized suites and
sites represented 90.0% of CAPREIT’s total portfolio.
($ Thousands)
For the Year Ended December 31,
Total NOI
Stabilized NOI
2021
2020
%(1)
2021
2020
%(1)
Operating Revenues
Net rental revenues
Other(2)
Total operating revenues
Operating Expenses
Realty taxes
Utilities
Other(3)
Total operating expenses
NOI
NOI margin
$
$
$
$
884,748
48,389
933,137
(87,698)
(68,901)
(166,545)
(323,144)
609,993
65.4%
$
$
$
$
837,384
45,259
882,643
(81,596)
(65,459)
(157,417)
(304,472)
578,171
65.5%
5.7
6.9
5.7
7.5
5.3
5.8
6.1
5.5
$
$
$
$
813,816
44,683
858,499
(79,905)
(62,913)
(151,637)
(294,455)
564,044
65.7%
$
$
$
$
805,185
43,361
848,546
(78,070)
(61,811)
(149,946)
(289,827)
558,719
65.8%
1.1
3.0
1.2
2.4
1.8
1.1
1.6
1.0
(1) Represents the year-over-year percentage change.
(2) Comprises ancillary income such as parking, laundry and antenna revenue.
(3) Comprises R&M, wages, insurance, advertising, legal costs and bad debt.
Operating Revenues
For the year ended December 31, 2021, total operating revenues for the total and stabilized portfolio increased
compared to last year, due to increases in monthly rents on turnovers and renewals offset by increases in vacancy
loss and in tenant allowances mainly in the Greater Toronto Area and Greater Montréal Region. Contributions from
acquisitions further contributed to higher operating revenues for the total portfolio.
33
Investing in Our FutureManagement’s Discussion and Analysis
Operating Expenses
Realty Taxes
For the year ended December 31, 2021, the stabilized portfolio’s realty tax increased compared to last year, primarily
because of the reclassification of tax recoveries from netting against realty tax expenses to increasing commercial
lease revenue impacting primarily 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
2021
23,359
17,096
28,446
68,901
$
$
2020
23,322
15,857
26,280
65,459
%(1)
0.2
7.8
8.2
5.3
2021
$
21,065
15,645
26,203
62,913
$
2020
21,187
15,076
25,548
61,811
%(1)
(0.6)
3.8
2.6
1.8
$
$
$
$
(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, 2021
Decrease due to
consumption
Increase
due to rate
Electricity
Natural gas
Water
Total
(1.4)%
(2.4)%
(1.8)%
(2.0)%
0.8%
6.2%
4.4%
3.8%
Explanation
Reduced consumption due to warmer weather,
partially offset by increased rates
Increased rates due to carbon tax impact, partially offset
by reduced consumption due to warmer weather
Higher rates, partially offset by lower consumption
As at December 31, 2021, tenants who pay their hydro charges directly represented 71% of the total 17,860
sub-metered suites in Ontario, Alberta, and Nova Scotia.
Other Operating Expenses
Stabilized other operating expenses for the year ended December 31, 2021 increased compared to last year,
primarily due to higher R&M costs in Ontario and higher overall insurance costs, partially offset by lower advertising
costs, legal and collection costs. The higher R&M costs were primarily due to the increased ability to complete
work given restrictions and limitations in connection with the COVID-19 pandemic were less impactful in 2021.
The increased insurance costs were driven by higher insurance rates.
34
2021 Annual ReportManagement’s Discussion and Analysis
NOI by Region
For the Year Ended December 31,
2021
2020(4)
($ Thousands)
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria and Other
British Columbia
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)
NOI
Margin
(%)
NOI
NOI %(1)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
213,866
30,338
23,277
267,481
64,781
23,750
88,531
35.2
5.0
3.8
44.0
10.6
3.9
14.5
48,188
7.9
22,598
70,786
3.7
11.6
31,219
5.1
14,822
4,132
18,954
2.4
0.7
3.1
4,448
0.7
1,421
482,840
79,552
8,655
88,207
571,047
0.2
79.2
13.0
1.4
14.4
93.6
38,946
609,993
6.4
100.0
64.3
64.1
67.7
64.6
59.9
62.3
60.5
70.1
72.1
70.8
59.2
54.4
54.0
54.3
52.4
50.7
63.6
76.9
82.2
77.4
65.4
65.0
65.4
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
208,978
26,048
18,350
253,376
64,613
22,465
87,078
36.1
4.5
3.2
43.8
11.2
3.9
15.1
47,081
8.1
18,790
65,871
3.2
11.3
27,014
16,060
4,503
20,563
4,321
1,467
459,690
72,578
8,893
81,471
541,161
4.7
2.8
0.8
3.6
0.7
0.3
79.5
12.6
1.5
14.1
93.6
37,010
6.4
578,171
100.0
Increase
(Decrease)
NOI
Change
(%)
NOI
Margin
(%)
64.9
65.9
65.7
65.1
61.4
61.6
61.4
70.5
72.0
70.9
58.0
55.5
57.9
56.0
51.5
51.6
64.0
75.7
79.9
76.2
65.5
64.9
65.5
2.3
16.5
26.9
5.6
0.3
5.7
1.7
2.4
20.3
7.5
15.6
(7.7)
(8.2)
(7.8)
2.9
(3.1)
5.0
9.6
(2.7)
8.3
5.5
5.2
5.5
(1) Represents percentage of the portfolio by NOI.
(2)
(3)
(4)
In € thousands, €53,681 and €47,413 for the years ended December 31, 2021 and December 31, 2020, respectively.
Comprised of NOI for the commercial properties located in Germany and Belgium. In € thousands, €5,837 and €5,827 for the years ended
December 31, 2021 and December 31, 2020, respectively.
Other Ontario has been reclassified into Greater Toronto Area. Prior year comparative figures have been adjusted to conform with current
period presentation.
35
Investing in Our FutureManagement’s Discussion and Analysis
Increase (Decrease)
NOI
Margin
(%)
Revenue
Change
(%)
Expense
Change
(%)
NOI
Change
(%)
Stabilized NOI by Region
For the Year Ended December 31,
2021
($ Thousands)
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
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
Other Europe
Total residential suites
MHC Sites
Total MHC sites
Total suites and sites
Stabilized suites and sites
Stabilized
NOI
NOI
Margin
(%)
207,285
26,363
19,354
253,002
62,868
22,957
85,825
46,959
19,285
66,244
64.7
65.7
68.5
65.1
60.0
62.1
60.5
70.3
72.1
70.8
15,228
59.6
14,838
3,018
17,856
54.4
51.8
54.0
4,452
52.5
1,421
444,028
73,497
8,613
82,110
526,138
37,906
564,044
59,553
50.7
64.0
76.9
81.7
77.4
65.8
65.0
65.7
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2020(11)
Stabilized
NOI
206,749
25,452
17,993
250,194
63,037
22,456
85,493
46,967
18,790
65,757
65.1
66.1
65.7
65.2
61.0
61.6
61.2
70.5
72.0
70.9
14,947
60.2
15,300
3,792
19,092
55.4
58.9
56.0
0.9
4.1
3.1
1.3(1)
1.6
1.5
1.5(2)
0.4
2.5
1.0
2.8
(1.3)
(9.5)
(2.9)(5)
2.0
5.2
(5.5)
1.8(1)
4.4
0.4
3.4(2)
1.2
2.1
1.5(3)
4.2(4)
0.8
6.0
1.7(6)
4,326
51.7
1.3
(0.4)
1,467
441,276
71,628
8,938
80,566
521,842
36,877
558,719
59,553
51.6
64.3
75.7
81.6
76.4
65.9
64.9
65.8
(1.4)(7)
1.2
1.0
(3.7)
0.5
1.1
2.5
1.2
0.4(8)
2.1
(4.1)
(4.0)
(4.1)(9)
1.6
2.1(10)
1.6
0.3
3.6
7.6
1.1
(0.3)
2.2
0.4
0.0
2.6
0.7
1.9
(3.0)
(20.4)
(6.5)
2.9
(3.1)
0.6
2.6
(3.6)
1.9
0.8
2.8
1.0
(1)
(2)
Higher expenses: higher R&M, bad debt and insurance costs, partially offset by lower utilities and realty taxes. Revenue growth has been impacted
by higher vacancy loss and tenant inducements.
Higher expenses: higher realty taxes, insurance and bad debt, partially offset by lower R&M. Revenue growth has been impacted by higher vacancy
loss and tenant inducements.
(3) Higher expenses: higher utilities, partially offset by lower bad debt and R&M.
(4) Higher expenses: higher utilities and R&M, partially offset by lower advertising costs.
(5) Lower revenues: lower rents, higher rental vacancies and higher tenant incentives.
(6) Higher expenses: higher utilities, partially offset by lower advertising costs.
(7) Lower revenues: higher tenant incentives.
(8) Higher expenses: higher realty taxes, partially offset by lower R&M.
(9)
In € thousands, NOI of €55,436 and €52,694 for the years ended December 31, 2021 and December 31, 2020, respectively. NOI increased by €2,742
and 5.2%. Lower expenses: lower site costs and R&M, partially offset by higher insurance costs.
(10) Higher expenses: higher realty taxes, site costs and wages, partially offset by lower utilities.
(11)
Other Ontario has been reclassified into Greater Toronto Area. Prior year comparative figures have been adjusted to conform with current
period presentation.
36
2021 Annual ReportManagement’s Discussion and Analysis
Net Income and Other Comprehensive Income
($ Thousands)
For the Year Ended December 31,
NOI
(Less) plus:
Trust expenses
Unit-based compensation expense
Fair value adjustments of investment properties
Fair value adjustments of Exchangeable LP Units
Fair value adjustments of investments
Realized loss on disposition of investment properties
Amortization of property, plant and equipment
(Loss) gain on non-controlling interest
Gain (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
(Loss) gain on foreign currency translation
Other income
Net income before income taxes
Current and deferred income tax expense
Net income
Other comprehensive (loss) income, including items that may be reclassified
subsequently to net income
Amortization of losses from (AOCL) AOCI to interest and other financing costs
$
2,440
$
(Loss) gain on foreign currency translation
Other comprehensive (loss) income
Comprehensive income
2021
2020
$
609,993
$
578,171
(51,366)
(15,111)
1,048,742
(665)
14,088
(241)
(8,250)
(38,651)
50,282
(1,119)
(148,334)
(6,110)
(4,900)
(6,095)
31,713
$ 1,473,976
(81,181)
$ 1,392,795
$
$
(43,268)
(5,160)
595,859
(1,230)
(3,979)
(1,387)
(7,668)
24,478
(52,672)
(441)
(151,722)
(7,955)
(4,507)
5,982
29,990
954,491
(28,563)
925,928
2,570
86,987
89,557
(115,884)
(113,444)
$ 1,279,351
$
1,015,485
37
Investing in Our FutureManagement’s Discussion and Analysis
Trust Expenses and Net 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. While Net Trust
Expenses are calculated based on items in the financial statements or supporting notes, Net Trust Expenses itself is
not a standardized financial measure under IFRS and may not be comparable to similarly termed financial measures
disclosed by other real estate investment trusts or companies in similar or different industries.
($ 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 fees from ERES attributed to ERES
non-controlling unitholders(1)
Less: Asset and property management fees income from IRES(2)
Net Trust Expenses
Net Trust Expenses as % of Operating Revenue
(1) These fees are eliminated upon consolidation.
$
2021
43,287
8,079
51,366
(2,805)
(732)
(9,863)
37,966
4.1%
2020
35,370
7,898
43,268
(2,546)
(430)
(9,592)
30,700
3.5%
(2) These amounts are included within other income on the statements of income and comprehensive income.
Trust expenses increased for the year ended December 31, 2021 to $51.4 million compared to $43.3 million last year
primarily as a result of higher salaries and benefits, compliance expenses, and IT expenses, which were partially
offset by lower consulting fees. For the year ended December 31, 2021, trust expenses included non-routine items
of approximately $3.7 million related to acquisition research expenses and reorganization costs, compared to
approximately $0.8 million non-routine items related to ERES acquisition research costs that were not completed,
restructuring costs, and one-time TSX listing and legal fees for the year ended December 31, 2020.
With the termination of the investment management agreement (“IMA”) with IRES, CAPREIT will cease to generate
asset and property management fees income from IRES and cease to incur certain related trust expenses. For further
details please see the Other Income section in Section III of this MD&A.
Unit-based Compensation Expense
Unit-based compensation expense (recovery) has been separated into two components: (i) the amortization of
the fair value at grant date of the award over its vesting period, and (ii) the remeasurement of awards outstanding
at period end at fair value.
($ 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
2021
7,914
7,197
15,111
$
$
$
$
2020
(2,170)
7,330
5,160
38
2021 Annual ReportManagement’s Discussion and Analysis
Gain (Loss) on Derivative Financial Instruments
The gain (loss) on derivative financial instruments is due to changes in the fair value of derivatives for which hedge
accounting is not applied. The gain on derivative financial instruments for the year ended December 31, 2021
primarily relates to changes in foreign exchange rates. 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. See
note 21 to the accompanying audited consolidated annual financial statements for further details about derivatives.
(Loss) Gain on Non-Controlling Interest
For the year ended December 31, 2021, CAPREIT recorded a loss of $38.7 million on ERES units held by
non-controlling unitholders. This includes distributions to ERES non-controlling unitholders of $12.8 million for
the year ended December 31, 2021. The remaining balance is the mark-to-market gain or loss due to fluctuations
in the ERES unit market price.
Gain (Loss) on Foreign Currency Translation
CAPREIT is exposed to gain/loss on foreign currency translation due to its holdings of assets and liabilities through
its investment in IRES, its ERES subsidiary, and foreign-denominated cash and borrowings held by CAPREIT. The
following table summarizes the gain or loss recorded in other comprehensive (loss) income and net income on this
exposure and its associated derivative instruments. Between December 31, 2020 and December 31, 2021, the euro
weakened against the Canadian Dollar from a closing price of 1.5608 to 1.4391.
As of December 31,
($ Thousands)
Total Foreign Assets(1)
Total Foreign Liabilities(2)
Net Equity(3)
Cross-Currency Swap
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
Net Foreign Exchange Exposure and Gain (Loss)
Net Foreign Exchange Exposure – Excluding
Non-controlling Interest(3)
996,190
1,088,665
442,358
646,307
343,199
Balance
1,677,856(4)
761,266
916,590
442,358
474,232
223,402
€
€
€
€
€
2021
Other Comprehensive
Income (Loss)
Net Income
Gain (Loss)
Total Foreign
Exchange Gain (Loss)
Balance
Year Ended
Year Ended
Year Ended
€ 2,084,855(4)
$
(221,924)
$
106,040
(115,884)
–
$
(115,884)
$
(1,399)
(4,696)
(6,095)
44,563
38,468
$
(223,323)
101,344
(121,979)
44,563
$
(77,416)
2020
Other Comprehensive
Income (Loss)
Net Income
Gain (Loss)
Total Foreign
Exchange Gain (Loss)
Year Ended
Year Ended
Year Ended
$
159,233
$
(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
$
(1)
(2)
(3)
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 (loss) income.
Foreign liabilities are comprised of ERES liabilities and CAPREIT’s euro borrowings: (a) foreign exchange gains or losses related to loans secured by
ERES are recorded in foreign currency translation under other comprehensive (loss) income; (b) gains or losses on CAPREIT’s euro borrowings are
recorded in foreign currency translation under net income.
As at December 31, 2021, net equity includes €891,495 (December 31, 2020 – €737,734) relating to ERES in which CAPREIT has a 66%
(December 31, 2020 – 66%) interest. Taking into consideration the non-controlling interest of ERES, net foreign exchange exposure is €343,199
(December 31, 2020 – €223,402).
(4)
Includes ERES assets of €1,887,685 and CAPREIT’s investment in IRES of €184,162 (December 31, 2020 – €1,499,000 and €168,632, respectively).
39
Investing in Our FutureManagement’s Discussion and Analysis
Other Income
Other income primarily consists of income received from investments (see note 9 of the accompanying audited
consolidated annual financial statements), net profit from investment in associate, asset management and property
management fees and profit from sale of MHC homes.
($ Thousands)
For the Year Ended December 31,
Investment income
Net profit from investment in associate(1)
Asset and property management fees(2)
Interest income from mortgages receivable
Profit from sale of MHC inventory(3)
Other(4)
Total
$
$
2021
1,493
18,455
9,863
778
945
179
$
31,713
$
2020
1,226
17,173
9,592
–
–
1,999
29,990
(1)
(2)
CAPREIT’s share of IRES’s investment property fair value change, earnings and foreign exchange effects thereon. For the years ended December 31, 2021
and 2020, CAPREIT’s share of IRES’s investment property fair value gain is $9.3 million and $6.1 million respectively.
Other income includes asset and property management fees from IRES, which CAPREIT has an 18.7% ownership in as at December 31, 2021
(December 31, 2020 – 18.8%), and excludes asset and property management fees and service fees from ERES, in which CAPREIT has a 65.8% ownership
as at December 31, 2021 (December 31, 2020 – 66.0%).
($ Thousands)
For the Year Ended December 31,
Total fee income generated
Asset and property management fees, acquisition fees and service fees from ERES
which are 100% eliminated on consolidation
Asset and property management fees from IRES recognized in other income
2021
$
24,239
14,376
9,863
$
2020
22,068
12,476
9,592
$
$
(3) Consists of income from sale of MHC home inventory of $3.5 million offset by cost of sales of $2.5 million. Previously, this was included within NOI.
(4) The non-recurring other income is mainly due to the interest earned on cash and cash equivalents held in 2020.
On January 31, 2022, CAPREIT’s IMA with IRES was terminated, while CAPREIT continues to provide transition services
for a period of three months for total fees of approximately $1.5 million. There is no change in the fees earned in
the first quarter of 2022. As a result of the termination of the IMA, the impact on CAPREIT’s net income is expected
to be approximately $3.0 to $4.0 million for 2022, driven by a decrease in asset and property management fees
partially offset by a decrease in related trust expenses. The termination of the IMA will free up a significant amount
of head office resources and allow CAPREIT to reallocate its resources to new opportunities.
SECTION IV: UNIT CALCULATIONS, NON-IFRS FINANCIAL MEASURES
Per Unit Calculations
As a result of CAPREIT being an open-ended mutual fund trust, Unitholders are entitled to redeem their Trust Units
in accordance with the conditions specified in the DOT. The impact of this redemption feature causes CAPREIT’s
Trust Units to be treated as financial liabilities under IFRS. Consequently, all per unit calculations are considered
non-IFRS measures.
40
2021 Annual ReportManagement’s Discussion and Analysis
The following table explains the number of units used in calculating non-IFRS financial measures on a per unit basis:
($ Thousands)
For the Year Ended December 31,
Trust Units
Exchangeable LP Units(2)
Units under the DUP(3)
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
2021
172,620
705
183
2020
170,685
278
160
173,508
171,123
533
174,041
571
171,694
2021
173,406
1,679
196
175,281
480
175,761
%(1)
98.7
1.0
0.1
99.7
0.3
100.0
(1) Represents percentage of total diluted units.
(2) See note 17 to the accompanying audited consolidated annual financial statements for details on Exchangeable LP Units.
(3)
See notes 15 and 16 to the accompanying audited consolidated annual financial statements for the year ended December 31, 2021 for details
of CAPREIT’s unit-based compensation plans.
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
2021
2020
$
243,348
$
235,649
1,119
441
1,012
245,479
(75,739)
(1,012)
1,013
237,103
(68,108)
(1,013)
$
168,728
$
167,982
31.3%
29.2%
(1)
Comprises non-cash distributions related to the DUP and the RUR Plan (see notes 15 and 16 to CAPREIT’s accompanying audited consolidated annual
financial statements for the year ended December 31, 2021 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, (ii) the adjustment for amortization
of property, plant, and equipment, (iii) the one-time write-off of prepaid CMHC premiums on expired mortgages
and (iv) 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. A reconciliation
of net income to FFO is as follows:
41
Investing in Our FutureManagement’s Discussion and Analysis
($ 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 LP Units
Deferred income tax expense(1)
Loss (gain) on foreign currency translation
FFO adjustment for income from investment in associate
(Gain) 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(3)
Net mortgage prepayment costs(4)
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
2021
2020
$ 1,392,795
$
925,928
(1,048,742)
(595,859)
241
665
(14,088)
7,914
1,119
77,417
6,095
(9,271)
(50,282)
25,895
12,756
(17,138)
8,250
(1,207)
–
–
392,419
2.262
2.255
245,479
62.6%
168,728
223,691
43.0%
$
$
$
$
$
$
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%
$
$
$
$
$
$
(1)
(2)
(3)
(4)
The adjustment for the year ended December 31, 2021 consists of $76.6 million of deferred income tax expenses as well as $0.8 million tax adjustment
related to the 2019 deemed disposition of investment properties associated with the reorganization of legal structure of the Netherlands subsidiaries.
The adjustment for the 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 is based on applying the 34% weighted average ownership held by ERES non-controlling unitholders (December 31, 2020 – 34%)
to ERES’s FFO of $52.5 million (€35.4 million) (December 31, 2020 – $47.9 million or €31.2 million) and adjusting for $2.1 million of acquisition fees
in the year ended December 31, 2021 charged by CAPREIT to ERES, which are eliminated upon consolidation.
Consists of $5.0 million of expensed CMHC premiums relating to mortgages refinanced during the year ended December 31, 2020 and $9.4 million
of expensed prepaid CMHC premiums relating to mortgages refinanced in prior years.
Consists of non-recurring mortgage prepayment costs related to mortgages of the bought out operating leasehold properties. There costs were incurred
in order to accelerate refinancing and take advantage of the favourable interest rate environment.
Normalized Funds From Operations
Management considers NFFO to be the key measure of CAPREIT’s operating performance. NFFO is calculated
by excluding from FFO the effects of certain items that are not indicative of CAPREIT’s medium and/or long-term
performance. These items include amortization of losses on certain hedging instruments previously settled and paid,
mortgage prepayment penalties, accelerated vesting of previously granted RUR units, large acquisition research
costs relating to transactions that were not completed, one-time IRES internalization expenses impacting FFO
adjustment from investment in associate and reorganization, senior management termination, and retirement costs.
As it is an operating performance metric, no adjustment is made to NFFO for capital expenditures. NFFO facilitates
better comparability than FFO to prior years’ performance and provides a better indicator of CAPREIT’s long-term
operating performance. For further information on CAPREIT’s total property capital investments, please refer to the
Property Capital Investments in Section V. See discussions under the Net Income and Other Comprehensive Income
in Section III for additional information on hedging instruments currently in place. NFFO is not a measure of the
sustainability of distributions. A reconciliation of FFO to NFFO is as follows:
42
2021 Annual ReportManagement’s Discussion and Analysis
($ Thousands, except per Unit amounts)
For the Year Ended December 31,
FFO
Adjustments:
Amortization of losses from (AOCL) AOCI to interest and other financing costs
Mortgage prepayment cost
Reorganization, senior management termination, and retirement costs(2)
Acquisition research costs(3)
IRES internalization expense impact to CAPREIT’s equity pickup(4)
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.
2021
2020
$
392,419
$
386,388
2,440
2,517
2,747
899
1,172
402,194
2.318
2.311
245,479
61.0%
168,728
233,466
42.0%
$
$
$
$
$
$
2,570
–
–
–
–
388,958
2.273
2.265
237,103
61.0%
167,982
220,976
43.2%
$
$
$
$
$
$
%(1)
1.6
(5.1)
100.0
100.0
100.0
100.0
3.4
2.0
2.0
3.5
0.4
5.7
(2)
Includes severance and other employee costs relating to reorganization, senior management termination, and retirement.
(3) Expenses included in trust expenses and related to transactions that were not completed.
(4) Represents the impact of $6.2 million (€4.2 million) of internalization expenses incurred by IRES at CAPREIT’s ownership of 18.7%.
FFO and NFFO may be subject to a certain degree of fluctuation from period to period as a result of CMHC
premium write-offs which occur upon the refinancing of a mortgage. These write-offs are not added back to FFO
or NFFO and as a result may cause fluctuation depending on the timing and amount of mortgages coming due.
For further details, please refer to the Liquidity and Financial Condition section found in Section V of the MD&A.
NFFO for the year ended December 31, 2021 increased by 3.4% compared to last year, primarily due to the
contribution from acquisitions and higher NOI for properties owned prior to December 31, 2019. Asset and property
management fees, acquisition fees and service fees received from ERES increased FFO and consequently NFFO
by $4.9 million for the year ended December 31, 2021 compared to $4.2 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, 2021, basic NFFO per unit increased by 2.0% compared to last year, despite an
approximate 1.4% increase in the weighted average number of units outstanding. 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, 2021
remained stable at 61.0% compared to last year. The effective NFFO payout ratio, which compares NFFO to net
distributions paid, improved for the year ended December 31, 2021 to 42.0% from 43.2% last year.
Adjusted Cash Flows From Operations and Distributions Declared
As a measure of economic cash flows, CAPREIT calculates ACFO in accordance with the recommendations
of REALpac.
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
Investing in Our FutureManagement’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, actual 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)
Investment income(6)
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
2021
2020(9)
$
551,433
$
481,356
–
(133,665)
(78,006)
(7,471)
(14,574)
8,469
(18,927)
(6,107)
–
301,152
245,479
55,673
81.5%
$
$
$
18,116
(130,398)
(70,545)
(3,909)
(23,725)
11,670
(12,792)
(5,664)
1,155
265,264
237,103
28,161
89.4%
$
$
$
(1)
On a quarterly basis, a review of working capital is performed to determine whether changes in prepaid expenses, 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 of European Commercial Real Estate Investment Trust
(“ECREIT”) on March 29, 2019 was added back for the year ended December 31, 2020.
(2) Excludes interest with respect to leases, distributions to ERES non-controlling unitholders, and holders of Exchangeable LP Units.
(3)
(4)
(5)
(6)
(7)
(8)
Non-discretionary property capital investments for the year ended December 31, 2021 and 2020 are based on the actual annual 2021 and 2020,
respectively. Refer to the “Non-Discretionary Property Capital Actuals to Forecast Reconciliation” for further information.
Comprises tenant inducements and direct leasing costs.
Includes amortization of deferred financing costs, CMHC premiums, deferred loan costs and fair value adjustments.
The investment income in 2020 includes non-recurring interest earned on cash and cash equivalents. In addition, a portion of 2021 dividends from IRES
to CAPREIT have not yet been received as at December 31, 2021 due to withholding taxes in Ireland.
The adjustment is based on applying the 34% weighted average ownership held by ERES non-controlling unitholders (December 31, 2020 – 34%).
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 2020 comparative figures have been adjusted to conform with current period presentation.
For the year ended December 31, 2021, CAPREIT’s ACFO was in excess of distributions declared by $55.7 million.
As per OSC Staff Notice 51-724, if distributions are in excess of ACFO, then it represents a return of capital, rather
than a return on capital, since they represent cash payments in excess of cash generated from CAPREIT’s continuing
operations during the period.
44
2021 Annual ReportManagement’s Discussion and Analysis
The table below reconciles actual non-discretionary capital investments incurred to the forecasted amount:
Non-Discretionary Property Capital Actuals to Forecast Reconciliation
($ Thousands)
For the Year Ended December 31,
Actual
Forecast
Difference
2021
78,006
80,117
(2,111)
$
$
$
$
2020
70,545
67,801
2,744
For the year ended December 31, 2021, CAPREIT’s actual non-discretionary property capital investments of
$78.0 million were lower than the forecast by approximately $2.1 million, mainly due to reduced ability to proceed
on planned projects given restrictions and limitations imposed in connection with the COVID-19 pandemic.
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 $800 to $1,200 per residential suite annually over the last five years
and are expensed to NOI.
Discretionary Property Capital Investments are capital expenditures made to the property that are not essential
to the operation of the business in the short term. These investments may enhance the property’s operating
effectiveness, including its profitability, through increases in revenues or reductions in costs over the long term.
Included in discretionary capital expenditures are items such as suite and common area improvements,
energy-saving initiatives, equipment, boilers, elevators and risers.
The following table presents the actual 2021, 2020 and 2019 Non-Discretionary Property Capital Investments
per suite and site:
($ Thousands)
Non-discretionary property capital investments
Weighted average number of suites and sites
Non-discretionary property capital investments per suite and site
2021 Actual
2020 Actual
2019 Actual
$
$
78,006
63,671
1,225
$
$
70,545
60,929
1,158
$
$
65,532
55,175
1,188
45
Investing in Our FutureManagement’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(1)
Adjusted Cash Generated from Operating Activities
Total distributions declared
Excess
2021
2020
$
551,433
$
481,356
(133,665)
417,768
245,479
172,289
$
$
$
(130,398)
350,958
237,103
113,855
$
$
$
(1) 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 paid
2021
$ 1,392,795
$
$
$
417,768
245,479
168,728
$ 1,147,316
$ 1,224,067
$
$
172,289
249,040
2020
925,928
350,958
237,103
167,982
688,825
757,946
113,855
182,976
$
$
$
$
$
$
$
$
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, 2021, CAPREIT’s Adjusted Cash Generated from Operating Activities exceeded
distributions declared by $172.3 million. As per OSC Staff Notice 51-724, if distributions are in excess of Adjusted
Cash Generated from Operating Activities, then it represents a return of capital, rather than a return on capital, since
they represent cash payments in excess of cash generated from CAPREIT’s continuing operations during the period.
Management believes, should it occur, there is adequate overall liquidity to fund excess distributions over Adjusted
Cash Generated from Operating Activities on an annual basis through the Acquisition and Operating Facility.
46
2021 Annual ReportManagement’s Discussion and Analysis
SECTION V: CAPITAL INVESTMENT, INVESTMENT PROPERTY, CAPITAL
STRUCTURE, FINANCIAL CONDITION
Property Capital Investments
CAPREIT capitalizes all capital investments related to the improvement of its properties. These investments have
the objective of growing future NOI, increasing property value over the long term, ensuring life safety and
safeguarding of assets.
An important component of CAPREIT’s property capital investment strategy is to acquire properties significantly
below current replacement cost and improve their operating performance by investing annually. This ensures
sustainable growth to maximize the portfolio’s future rental income-generating potential.
Energy-saving initiatives and suite and common area improvement costs generally tend to increase NOI more
quickly compared to other capital investment categories. A breakdown of property capital investments (excluding
head office assets and development) is summarized by category below.
Property Capital Investments by Category
($ Thousands)
Year Ended December 31, 2021
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, 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
Actual Total
Portfolio
% of Actual
$
70,583
6,248
1,175
78,006
105,634
71,884
20,506
16,193
2,348
1,399
1,692
219,656
$
297,662
23.7
2.1
0.4
26.2
35.5
24.1
6.9
5.4
0.8
0.5
0.6
73.8
100.0
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
47
Investing in Our FutureManagement’s Discussion and Analysis
The table below includes estimated 2022 capital expenditures expected to be completed in 2022. The following
budgeted capital expenditures may vary from actuals as the planned expenditures may be accelerated or otherwise
adjusted as necessary.
2022 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
$
64,795
13,164
6,194
84,153
79,837
77,223
36,356
11,035
16,995
2,696
2,498
$
226,640
310,793
20.8
4.2
2.0
27.0
25.7
24.9
11.7
3.6
5.5
0.9
0.8
73.0
100.0
0.4
0.1
0.0
0.5
0.5
0.5
0.2
0.1
0.1
0.0
0.0
1.4
1.9
Set out in the table below is management’s current estimate, established through consultation with an independent
engineering firm, of CAPREIT’s investments in building improvements, including investments in MHC sites, for 2022
through 2025 for properties owned as of December 31, 2021.
Future Investments in Building Improvements
($ Thousands)
2022
2023
2024
2025
Building Improvements
Estimated Range
$58,000 – $72,000
$32,000 – $40,000
$30,000 – $37,000
$32,000 – $39,000
Management believes CAPREIT has sufficient liquidity (see Liquidity and Financial Condition in Section V) to execute
the above property capital investment strategy.
Investment Properties
Investment property is defined as property held to earn rental income or for capital appreciation, or both. Investment
property is recognized initially at cost. Subsequent to initial recognition, all investment property is measured using
the fair value model, whereby changes in fair value are recognized for each reporting period in net income.
Beginning in the year ended December 31, 2021, CAPREIT appraises some of its Canadian investment properties
using valuations prepared by its internal valuation team using generally the same process and methodology as its
external appraiser. CAPREIT’s objective is to have a portion of its Canadian investment properties appraised externally
every year, on a rotational basis. The partial internalization of valuations for the Canadian portfolio builds synergies
within the various CAPREIT sub-functions including Acquisitions, Development, and Asset Management functions.
48
2021 Annual ReportManagement’s Discussion and Analysis External valuations for the Canadian portfolio, where obtained, are performed at year-end with quarterly updates
provided on capitalization rates. CAPREIT obtains external valuations for a cross-section of investment properties
that represent different geographical locations across the Canadian portfolio. For internal valuations, the appraisal
methodologies used are consistent with the practices employed by the external appraiser. The fair values of all
of CAPREIT’s European residential portfolio are determined by qualified external appraisers quarterly. The qualified
external appraisers hold recognized relevant professional qualifications and have recent experience in the location
and category of the respective property.
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:
Acquisitions
Property capital investments(1)
Capitalized leasing costs(2)
Right-of-use asset(3)
Operating lease buyout
Fair value adjustments
(Loss) gain on foreign currency translation
Less:
Dispositions
Balance, end of the year
2021
2020
$ 15,000,591
$ 13,096,426
1,053,497
314,385
1,313
10,067
4,457
1,048,742
(187,752)
825,681
242,063
659
–
158,565
595,859
138,098
(143,381)
(56,760)
$ 17,101,919
$ 15,000,591
(1) See Section V – Property Capital Investments, Conversions, Infill, and Redevelopment included within the Development Summary.
(2) Comprised of tenant inducements, straight-line rent and direct leasing costs.
(3)
On April 1, 2021, the basic annual rent of an existing land lease was increased in accordance with the lease agreement, which stipulates that the basic
annual rent be renegotiated every 20 years to reflect the land market value.
During the year ended December 31, 2021, CAPREIT completed the buyout of another operating lease property for
a net buyout price of approximately $4.5 million, resulting in the conversion from an operating leasehold interest,
with an option to purchase, to a traditional fee simple property interest, resulting in a fair value gain of $3.1 million.
The operating lease buyout coincides with CAPREIT’s strategic initiative of simplifying the company’s ownership
structure, increasing net asset value, and strengthening overall liquidity and flexibility.
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, 2021, there was a $2,101.3 million increase in fair value
primarily due to capitalization rate compression, new acquisitions, the buyout of one operating lease, progress on
the development pipeline, partially offset by foreign exchange loss on the European properties. Excluding the impact
of net acquisitions, operating lease buyout and foreign exchange, the fair value of investment properties increased
by $1,374.5 million, or 9.2%.
49
Investing in Our FutureManagement’s Discussion and Analysis
Investment Properties by Geography
Dec 2020
Fair Value Change Due To
Dec
2021
Dec
2021
Dec
2020
Net
Acquisi-
tions
Fair Value
Adjust-
ments
Foreign
Exchange
Translation
CAPEX(2)
Right-of-Use
Asset(4)
Fair Value
Cap Rates(3) Cap Rates(3)
($ Millions)
Fair Value(1)
Greater Toronto Area
$ 5,964
$
1,142
2,043
1,619
745
427
95
28
12,063
2,300
638
256
110
106
172
–
–
–
–
644
248
22
$
123
$
28
49
24
27
15
2
2
270
29
17
$
$
446
125
52
78
33
(9)
4
1
730
287
32
–
–
–
–
–
–
–
–
–
(188)
–
–
–
–
–
–
10
–
–
$ 6,789
1,405
2,250
1,893
805
443
101
31
10
13,717
–
–
2,676
709
$ 15,001
$
914
$
316
$ 1,049
$
(188)
$
10
$ 17,102
3.25%
3.83%
4.02%
3.69%
4.17%
4.33%
5.13%
5.12%
3.60%
3.55%
5.66%
3.68%
For the Year Ended December 31, 2021
Components of Fair Value Adjustments
3.43%
4.00%
4.18%
3.80%
4.43%
4.37%
5.47%
5.51%
3.80%
3.87%
5.96%
3.91%
Total
446
125
52
78
33
(9)
4
1
730
287
32
$
1,049
Capitalization
Rates
Normalized NOI(5)
CAPEX(2)
$
362
$
207
$
(123)
$
75
82
54
47
1
7
2
630
286
32
948
$
78
19
48
13
5
(1)
1
370
30
17
417
(28)
(49)
(24)
(27)
(15)
(2)
(2)
(270)
(29)
(17)
(316)
$
$
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
(1)
(2)
(3)
(4)
Certain properties in Other Ontario have been reclassified into Greater Toronto Area. The opening balances have been adjusted to conform with current
period presentation.
Represents property capital investments and capitalized leasing costs during the year ended December 31, 2021.
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, 2021 for operating
and land leasehold interests. Capitalization rates for Europe represent the implied capitalization rates for these properties.
On April 1, 2021, the basic annual rent of an existing land lease was increased in accordance with the lease agreement, which stipulates that the basic
annual rent be renegotiated every 20 years to reflect the land market value.
(5)
Represents fair value adjustments due to normalized net operating income for valuation purposes.
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, 2021
($ Millions)
Change in Capitalization Rate(1)
Change in NOI
(2.00)%
(1.00)%
–%
+1.00%
(0.50)% $
2,388
$
2,586
$
2,784
$
2,982
$
(0.25)%
– %
+0.25 %
+0.50 %
918
(340)
(1,429)
(2,381)
1,100
(170)
(1,270)
(2,232)
1,283
–
(1,111)
(2,083)
1,466
170
(952)
(1,933)
+2.00%
3,179
1,649
340
(793)
(1,784)
(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.
50
2021 Annual ReportManagement’s Discussion and Analysis
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 projects and proposed
net new units by major market which are targeted for planning approval assessment in the next 12 months, are
pending approval, or are approved:
Major Market
Greater Toronto Area (GTA)
Québec
Prince Edward Island
Total
Pre-Application
(# of projects)
Active Application
(# of projects)
Zoning Entitlement
(# of projects)
Construction
(# of projects)
3
1
–
4
–
1
–
1
1(1),(2)
–
1(3)
2
–
–
–
–
Potential Growth
(Estimated # of
net new units)(4)
3,454
501
59
4,014
(1)
(2)
141 Davisville Avenue, Toronto, Ontario was approved in December 2020 by the Local Planning Appeal Tribunal. The Zoning By-law Amendment
permits 120 net new units in a 14-storey infill building.
Previously included in the development pipeline are 128 new units at 100 Wellesley Street East in Toronto, Ontario. Management has reassessed
the construction costs for the project and decided to halt further development activity at the current time. Upon discussions with CAPREIT’s external
valuators, no adjustment was needed as a result of this decision due to the property’s development value potential.
(3)
CAPREIT is currently assessing market conditions in order to proceed with building permit submission.
(4) 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
For the Year Ended December 31,
($ Thousands)
Conversion
Infill(1)
Redevelopment(1)
Total for development
2021
Actual Total
Portfolio
5,890
1,960
116
7,966
$
$
2020
Actual Total
Portfolio
$
10,936
3,289
1,174
$
15,399
(1)
Infill and Redevelopment costs relate primarily to pre-approval costs such as application, consultant fees, and levies.
Development costs include costs related to planning, rezoning, architectural surveys, application fees and building
permits. Actual costs may vary 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. In addition, projects are impacted by variable costs which affect financial viability. As such,
CAPREIT is no longer providing forecasted development spending due to the highly variable nature of costs
depending on numerous external factors.
51
Investing in Our FutureManagement’s Discussion and Analysis
Capital Structure
In the short term, CAPREIT utilizes the Credit Facilities, where necessary, 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, 2021, CAPREIT is in compliance with all the investment and debt restrictions and financial
covenants contained in the DOT 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(4)
Debt service coverage ratio (times)(1)
Interest coverage ratio (times)(1)
December 31, 2021
December 31, 2020
$ 6,100,065
$
5,401,202
310,866
10,399,886
100,684
118,553
9,273,702
16,632
$ 16,911,501
$ 14,810,089
36.12%
34.37%
52.26%
37.82%
35.54%
34.78%
50.11%
38.98%
Threshold
Maximum 62.50%
Minimum of $5,000,000
$ 10,522,332
$
9,307,613
Minimum 1.40
Minimum 1.65
December 31, 2021
December 31, 2020
1.97
4.02
2.01
3.95
(1) See note 22 to the accompanying audited consolidated annual financial statements for details.
(2)
(3)
(4)
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, prepaid CMHC premiums and deferred loan costs, minus fair value adjustment on investment properties.
Based on market capitalization as defined in the Performance Measures table in Section II of the MD&A, plus total debt.
CAPREIT’s FFO payout ratio did not exceed 100% for the trailing four quarters ended December 31, 2021. As at December 31, 2021, CAPREIT
is in compliance with its debt covenant on the FFO payout ratio.
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 Canadian liquidity position as at December 31, 2021 remains strong with $384.5 million available
on the Acquisition and Operating Facility.
52
2021 Annual ReportManagement’s Discussion and Analysis
CAPREIT has investment properties with a fair value of approximately $1,182.4 million as at December 31, 2021
that are not encumbered by mortgages. Of these, $893.3 million of the investment properties are located in Canada
and secure only the Acquisition and Operating Facility. $274.2 million of these investment properties also carry
a negative pledge relating to the ERES Credit Facility. Refer to note 14 to the accompanying consolidated annual
financial statements for further details. CAPREIT intends to maintain unencumbered investment properties with an
aggregate fair value in the range of $800 million to $900 million over the medium term. The majority of CAPREIT’s
MHC sites are included in this pool.
The working capital deficiency, as presented on CAPREIT’s consolidated balance sheet as at December 31, 2021,
is funded through the DRIP and the Credit Facilities. Management does a liquidity forecast on a monthly basis which
includes refinancings, property capital investments, potential acquisitions and potential dispositions to monitor
the available capacity.
Mortgages Payable
CAPREIT is in compliance with all of its CMHC and lender requirements.
($ 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)
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 mortgages on the MHC sites and European financings.
2021
98.5%
99.1%
2.47%
5.65
2020
98.7%
99.3%
2.56%
5.76
$
675,319
$
675,765
0.24%
1.18%
2.39
0.24%
1.19%
3.29
(2) Taking into consideration interest rate swaps where hedge accounting is not being applied, 100% of mortgages are subject to fixed rates.
(3)
(4)
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
(loss) income, the effective portfolio weighted average interest rate as at December 31, 2021 would be 2.52% (December 31, 2020 – 2.61%).
The mortgages on the Canadian and European properties have a weighted average term to maturity of 6.1 years and 3.9 years
(December 31, 2020 – 6.1 years and 4.4 years), respectively.
(5) Euro equivalent of €442.4 million (December 31, 2020 – €442.4 million) and excludes ERES cross-currency interest rate swaps.
During 2021, CAPREIT’s Large Borrower Agreement (“LBA”) with CMHC expired. The expiry of the LBA has not
affected the manner in which CAPREIT conducts its business or its approach to mortgage financing, including the
use of CMHC financing. CAPREIT continues to obtain CMHC financing under substantively similar provisions.
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 of $675.3 million is 0.85%. The swaps have
been staggered between one to five years to take advantage of the low rates, with a current weighted average
swap term of 2.39 years as at December 31, 2021.
53
Investing in Our FutureManagement’s Discussion and Analysis
The following table presents refinancings, weighted average interest rates obtained, and mortgage top-ups closed
or committed up to 2021:
($ Thousands)
The Canadian Portfolio
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Acquisitions
Original Mortgage
Amount
Original Stated
Interest Rate
New Mortgage
Amount
$
89,073
121,578
162,152
88,391
–
1.76% $
3.90%
2.80%
3.20%
–%
38,363
344,753
329,409
198,070
201,317
Total and Weighted Average
$
461,194
2.97% $ 1,111,912
The ERES Portfolio
Refinancings
Acquisitions
60,181
–
Total and Weighted Average
$
60,181
2.05%
–%
2.05% $
112,756
116,297
229,053
Weighted
Average
New Stated
Interest Rate(1)
Weighted
Average Term on
New Mortgages
(Years)
2.23%
2.40%
1.90%
2.20%
1.85%
2.11%
1.16%
1.16%
1.16%
7.6
9.9
6.1
8.5
4.8
7.5
6.0
5.8
5.9
$
Net Top-Up
Financing
Amount
(50,710)(2)
223,175(2)
167,257(2)
109,679
201,317
$
650,718
52,575
116,297(3)
168,872
$
Grand Total and
Weighted Average
$
521,375
2.86% $ 1,340,965
1.95%
7.3
$
819,590
(1) Excludes prepaid CMHC premiums, other financing costs and impact of hedging.
(2)
(3)
Includes $86.8 million of mortgage discharges not refinanced, including the repayment of the non-revolving $65.0 million credit facility on two of
the MHC sites.
ERES financing obtained is collateralized by a pool of investment properties. The amount of refinancing and acquisition financing shown above has been
allocated based on fair value of these properties as determined by the lender. The interest rates shown include the corresponding interest rate swaps.
Management expects to raise between $850 and $900 million in total mortgage renewals and refinancings for
2022, 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.
CMHC premiums are amortized over the amortization period of the underlying mortgage loans when incurred.
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. CAPREIT accelerates the amortization for prepaid CMHC premiums for
mortgages that management intends to fully refinance within the next year, from the date the decision is made
to refinance to the date the mortgage is due to be refinanced. During the year ended December 31, 2021, CMHC
amortization expense including net write-offs of CMHC premiums on refinancings amounted to $10.0 million.
CMHC amortization expense, including write-offs, for next year is expected to be in the range of $10.0 million to
$11.0 million, depending on refinancing activity. Due to the timing of refinancing activities, a larger portion of the
expense is expected to be incurred in the first half of the year.
54
2021 Annual ReportManagement’s Discussion and Analysis
For purposes of estimating top-up financing potential, the following table provides annualized NOI for those properties
with mortgages maturing over the next five years and beyond. A property’s full NOI is included in the first year in
which a mortgage matures. The balance of mortgages remaining on the same property but maturing in other years
is also shown.
As at December 31, 2021
($ Thousands)
Year of Maturity
Mortgage Maturities(1)
Mortgages on the
Same Properties
Maturing in
Other Years(1)
$
15,603
187,410
115,318
31,145
(11,287)
(338,189)
NOI of Properties
with Maturing
Total Mortgages
Mortgage(s)(2),(3)
$
501,841
$
594,979
595,265
838,315
771,241
1,991,748
74,552
72,929
52,821
93,202
79,126
175,234
547,864
$
486,238
407,569
479,947
807,170
782,528
2,329,937
$
5,293,389
$
–
$
5,293,389
$
2022
2023
2024
2025
2026
2027 onwards
Total
(1) Mortgage balance due upon maturity.
(2) NOI for the 12 months ended December 31, 2021.
(3) Projected NOI included for acquisitions since December 31, 2020.
The breakdown of CAPREIT’s Canadian dollar-denominated future principal repayments, including mortgage
maturities, and effective weighted average interest rates as at December 31, 2021 is as follows:
As at December 31, 2021
($ Thousands)
Period
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031–2036
$
Principal
Amortization
154,070
136,642
123,741
114,445
91,667
70,573
63,664
69,790
35,614
62,847
$
Mortgage
Maturities
414,407
321,223
366,124
480,388
505,956
265,238
268,091
289,874
290,875
926,816
$
Mortgage
Balance
568,477
457,865
489,865
594,833
597,623
335,811
331,755
359,664
326,489
989,662
$
923,053
$
4,128,992
$
5,052,044
% of Total
Mortgage
Balance
11.3
9.1
9.7
11.8
11.8
6.6
6.6
7.1
6.5
19.5
100.0%
Interest
Rate (%)(1),(2)
3.23
3.39
2.93
2.57
2.40
2.70
2.73
2.83
2.27
2.74
2.69%
Deferred financing costs, fair value adjustments
and prepaid CMHC premiums, net
Total
Weighted average term
to maturity (years)
(120,815)
4,931,229
$
6.07
(1) Effective weighted average interest rates for maturing mortgages only.
(2)
Effective weighted average interest rate includes the amortization of deferred financing costs, prepaid CMHC premiums, and fair value adjustments.
55
Investing in Our FutureManagement’s Discussion and Analysis
The breakdown for ERES of future principal repayments, including mortgage maturities, and effective weighted
average interest rates as at December 31, 2021 is as follows:
As at December 31, 2021
($ Thousands)
Period
2022
2023
2024
2025
2026
2027
Deferred financing costs and
fair value adjustments, net
Total
Weighted average term
to maturity (years)
Principal
Amortization
Mortgage
Maturities
Mortgage
Balance ($)
$
3,152
$
71,831
$
74,983
€
3,163
2,556
410
–
–
86,346
113,823
326,782
276,572
289,043
89,509
116,379
327,192
276,572
289,043
$
9,281
$ 1,164,397
$ 1,173,678
€
Mortgage
Balance (€)
52,104(3)
62,198(3)
80,869(3)
227,301(3)
192,184(3)
200,850(3)
815,506
% of Total
Mortgage
Balance
6.4
7.6
9.9
27.9
23.6
24.6
Interest
Rate (%)(1),(2)
1.43
1.08
1.39
1.87
1.47
1.29
100.0%
1.52%
(4,842)
$ 1,168,836
3.93
(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.
Market capitalization and units outstanding are as follows:
As at December 31, 2021
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
$ 10,538,673
175,761,719
173,406,406
196,423
479,700
1,679,190
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.
For the year ended December 31, 2021, Unitholders may expect to be allocated capital gain as a result of CAPREIT’s
disposal of some properties. 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.
56
2021 Annual ReportManagement’s Discussion and Analysis
SECTION VI: COMPLIANCE AND GOVERNANCE DISCLOSURES,
RISKS AND UNCERTAINTIES
Selected Consolidated Quarterly Information
Q4 21
Q3 21
Q2 21
Q1 21
Q4 20
Q3 20
Q2 20
Q1 20
Overall portfolio net AMR
Operating revenues (000s)(1)
NOI (000s)(1),(2)
NOI Margin(1)
Net Income (000s)
FFO (000s)(1),(2)
NFFO (000s)(1),(2)
Total debt to gross book value(3)
1,143 $
1,149 $
1,105
$
$ 240,678 $ 236,097 $ 228,856 $ 227,506 $ 225,238 $ 221,420 $ 219,925 $ 216,060
$ 153,429 $ 158,126 $ 151,786 $ 146,652 $ 148,646 $ 148,234 $ 143,233 $ 138,058
63.9%
1,115 $
1,118 $
1,121 $
1,113 $
1,104 $
66.0%
66.9%
65.1%
64.5%
63.7%
66.3%
67.0%
$ 644,959 $ 190,213 $ 453,561 $ 104,062 $ 484,958 $ 300,075 $ 61,262 $ 79,633
$ 97,270 $ 102,962 $ 97,503 $ 94,684 $ 99,311 $ 100,342 $ 94,056 $ 92,513
$ 100,353 $ 105,819 $ 100,080 $ 95,942 $ 99,985 $ 101,114 $ 94,712 $ 93,147
35.86%
36.12%
35.21%
37.20%
36.37%
35.70%
35.54%
36.02%
FFO per unit(1) – basic
NFFO per unit(1) – basic
$
$
0.556 $
0.593 $
0.564 $
0.573 $
0.610 $
0.579 $
0.549 $
0.556 $
0.577 $
0.585 $
0.551 $
0.581 $
0.589 $
0.555 $
0.544
0.547
Weighted average number
of units (000s) – basic
Weighted average number
of units (000s) – diluted
175,089 173,495 172,950 172,469 172,054 171,628 170,588 170,206
175,567 173,985 173,512 173,072 172,616 172,188 171,175 170,780
(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 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 2021 increased by 6.9% over the same quarter in 2020, and NOI
increased by 3.2%, driven by acquisitions and higher operating revenues. Net income in the fourth quarter of 2021
increased over the same period last year to $645.0 million, mainly due to higher fair value adjustments of investment
properties of $568.3 million compared to $398.4 million for the same period last year. Loan interest and mortgage
interest decreased by $13.7 million due to a large one-time CMHC premium amortization adjustment recorded in
the prior year. Higher NFFO for the fourth quarter of 2021 was primarily due to NOI contribution from acquisitions
completed over the prior 12 months offset by a 2.0% decrease in stabilized property. The decrease in stabilized
property NOI was mainly driven by increases in R&M costs, tenant incentives and utilities. The increased R&M costs
are mainly due to the increased ability to complete work given restrictions and limitations in connection with the
COVID-19 pandemic were less impactful in the fourth quarter of 2021.
57
Investing in Our FutureManagement’s Discussion and Analysis
The following table shows the NOI and the NOI margin attained for each regional market for the periods ended
December 31, 2021 and 2020.
2021
2020(4)
Increase
(Decrease)
NOI
NOI %(1)
NOI
Margin (%)
NOI
NOI %(1)
NOI
Margin (%)
NOI
Change (%)
NOI by Geography
For the Three Months Ended
December 31,
($ Thousands)
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria and Other British Columbia
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Europe
The Netherlands(2)
Other Europe(3)
Total residential suites
MHC sites
Total MHC sites
Total suites and sites
Total Canadian residential suites
$ 121,756
$
54,511
7,995
5,860
$
68,366
$
14,956
6,307
$
21,263
$
11,712
6,592
$
18,304
7,532
3,634
1,116
4,750
$
$
$
1,182
359
$
$
$
20,627
1,913
22,540
$ 144,296
35.8
5.2
3.8
44.8
9.7
4.1
13.8
7.6
4.3
11.9
4.9
2.4
0.7
3.1
0.8
0.2
79.5
13.4
1.2
14.6
94.1
63.4 $
62.4
67.7
63.7 $
52,690
7,101
4,995
64,786
54.8 $
61.2
56.6 $
16,289
5,737
22,026
67.6 $
70.8
68.7 $
12,457
4,653
17,110
55.1
7,007
52.0 $
53.9
52.5 $
3,857
1,104
4,961
55.3 $
1,137
50.7
318
61.7 $ 117,345
19,370
77.5 $
85.9 $
78.1 $
21,578
63.8 $ 138,923
2,208
35.4
4.8
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
64.8
66.1
66.7
65.1
61.7
61.9
61.7
74.6
71.4
73.7
55.9
56.3
55.7
56.2
53.7
45.8
64.3
76.8
79.9
77.1
66.0
66.5
66.0
3.5
12.6
17.3
5.5
(8.2)
9.9
(3.5)
(6.0)
41.7
7.0
7.5
(5.8)
1.1
(4.3)
4.0
12.9
3.8
6.5
(13.4)
4.5
3.9
(6.1)
3.2
$
9,133
$ 153,429
5.9
100.0
62.4 $
9,723
63.7 $ 148,646
6.5
100.0
(1) Represents percentage of the portfolio by NOI.
(2)
(3)
(4)
In € thousands, €14,309 and €12,464 for the three months ended December 31, 2021 and December 31, 2020, respectively.
Comprised of NOI for the commercial properties located in Germany and Belgium. In € thousands, €1,331 for the three months ended December 31, 2021
and €1,421 for the three months ended December 31, 2020.
Other Ontario has been reclassified into Greater Toronto Area. Prior year comparative figures have been adjusted to conform with current period
presentation.
58
2021 Annual ReportManagement’s Discussion and Analysis
The stabilized portfolio performance for the three months ended December 31, 2021 compared to December 31, 2020,
is summarized as follows:
Three Months Ended December 31,
2021
2020(9)
Increase (Decrease)
Stabilized
NOI
NOI
Margin (%)
Stabilized
NOI
NOI
Margin (%)
Revenue
Change (%)
Expense
Change (%)
NOI
Change (%)
($ Thousands)
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Europe
The Netherlands
Other Europe
Total residential suites
MHC sites
Total MHC sites
Total suites and sites
Stabilized suites and sites
$
51,602
6,548
4,902
$
63,052
$
14,423
5,511
$
19,934
$
11,403
4,801
$
16,204
63.7 $
64.6
68.9
64.2 $
51,936
6,567
4,638
63,141
54.9 $
59.9
56.2 $
15,706
5,727
21,433
67.6 $
70.5
68.4 $
12,342
4,653
16,995
$
3,791
56.4 $
3,564
3,634
857
$
4,491
52.0
52.9
52.2 $
3,859
852
4,711
$
1,182
55.3 $
1,139
$
359
$
18,599
1,913
$
20,512
$ 129,525
50.7 $
318
62.1 $ 111,301
18,547
77.6 $
85.9
78.3 $
20,846
64.2 $ 132,147
2,299
$
9,343
$ 138,868
59,553
64.0 $
9,589
64.2 $ 141,736
59,553
Total Canadian residential suites
$ 109,013
64.9
66.7
66.4
65.2
60.9
61.8
61.1
74.7
71.4
73.7
58.1
56.3
56.5
56.4
53.8
45.8
64.6
76.7
83.1
77.4
66.3
66.4
66.3
1.1
2.9
2.0
1.3(1)
1.9
(0.7)
1.2(2)
2.0
4.4
2.7
9.5
2.0
7.4
2.9
1.1
2.0
1.9
(0.9)
(19.5)
(2.8)
1.2
1.1
1.2
4.3
9.4
(5.4)
4.1(1)
17.5
4.3
14.0(2)
30.4
7.4
23.3(3)
13.9(4)
12.0
16.2
12.8(5)
(2.0)
(7.2)(6)
9.0
(4.8)
(32.8)
(6.9)(7)
7.6
8.4(8)
7.6
(0.6)
(0.3)
5.7
(0.1)
(8.2)
(3.8)
(7.0)
(7.6)
3.2
(4.7)
6.4
(5.8)
0.6
(4.7)
3.8
12.9
(2.1)
0.3
(16.8)
(1.6)
(2.0)
(2.6)
(2.0)
(1)
(2)
Higher expenses: higher R&M and bad debt, partially offset by lower utilities and realty taxes. Revenue growth has been impacted by higher
tenant inducements.
Higher expenses: higher R&M, realty taxes, and utilities, partially offset by lower advertising costs. Revenue growth has been impacted by higher
tenant inducements.
(3) Higher expenses: higher R&M and utilities costs, partially offset by lower bad debt.
(4) Higher expenses: higher R&M and utilities costs, partially offset by lower advertising costs.
(5) Higher expenses: higher utilities, R&M, and bad debt, partially offset by advertising costs.
(6) Lower expenses: lower R&M costs.
(7)
In € Thousands, €14,235 and €13,425 for the three months ended December 31, 2021 and December 31, 2020, respectively. NOI increased by
€810 and 6.0%. Lower expenses: lower site costs and R&M, partially offset by higher bad debt.
(8) Higher expenses: higher R&M and realty taxes, partially offset by lower utilities.
(9)
Other Ontario has been reclassified into Greater Toronto Area. Prior year comparative figures have been adjusted to conform with current
period presentation.
59
Investing in Our FutureManagement’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
2021
2020
2019(1)
$
933,137
$ 1,392,795
$
$
243,348
1.409
$
$
$
$
882,643
925,928
235,649
1.380
$
$
$
$
780,780
1,195,447
218,136
1.372
$ 17,101,919
$ 17,712,973
$ 6,100,065
$
310,866
$ 15,000,591
$ 13,096,426
$ 15,499,131
$ 13,938,182
$
$
5,401,202
118,553
$
$
4,228,805
623,893
(1) Certain 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, 2021.
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, 2021.
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, 2021, 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, 2021.
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.
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2021 Annual ReportManagement’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, 2021, 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, 2021.
CAPREIT did not make any changes to the design of internal controls over financial reporting in 2021 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 college and university campuses, household consolidation (young adults moving back in with their parents),
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 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 on attractive terms; 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 covenants.
The current public health crisis has also resulted in general economic slowdown and increased 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.
61
Investing in Our FutureManagement’s Discussion and Analysis Related to Reporting Investment Property at Fair Value
CAPREIT holds investment property to earn rental income, for capital appreciation or both. All investment properties
are measured using the fair value model, whereby changes in fair value are recognized for each reporting period in
the consolidated statements of income and comprehensive income. Management values each investment property
based on the most probable price for which such property could be sold in an open, competitive market as of a
specified date. Such valuation takes into account all requisite conditions to a fair sale, such as the buyer and seller
each acting prudently and knowledgeably, and the assumption that such price is not affected by undue stimulus.
Each investment property has been valued on a highest and best use basis.
An appraisal is an estimate of market value, and caution should be used in evaluating data with respect to
appraisals. It is a measure of value based on information gathered in the investigation, appraisal techniques
employed and reasoning both quantitative and qualitative, leading to an opinion of value. Market assumptions
applied for appraisals and valuation purposes do not necessarily reflect CAPREIT’s specific history or experience
and the conditions for realizing the fair values through a sale may change or may not be realized. In addition,
there is an inherent risk related to the reliance on and use of a limited number of appraisers, as this approach
may not adequately capture the range of fair values that market participants would assign to the investment
properties. CAPREIT mitigates this risk by undertaking a detailed review of the assumptions utilized, which includes
a comparison of assumptions used by appraisers to the corresponding benchmarks derived from management’s
own observations of market transactions. 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 carrying 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, environmental matters and investment restrictions.
In addition, pursuant to the DOT, CAPREIT’s overall leverage is limited to 70% of its reported gross book value,
unless a majority of trustees, at their discretion, determine that the maximum amount of indebtedness shall be
based on the appraised value of the real properties of CAPREIT. 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. Additionally, the portfolio is
currently weighted with 43.7% of the overall portfolio (by number of suites and sites) in Ontario (27.0% in the GTA),
making CAPREIT’s performance particularly sensitive to economic conditions in and changes affecting Ontario
and, in particular, the GTA.
62
2021 Annual ReportManagement’s Discussion and Analysis 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). In addition, the ongoing COVID-19 pandemic
could result in legislation or regulations that may restrict CAPREIT’s ability to enforce material provisions under its
leases (see “COVID-19 and Other Public Health Crises” under 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.
Energy Costs
As a significant part of CAPREIT’s operating expenses is attributable to energy and energy-related charges and fees,
fluctuations in the price of energy and any related charges and fees (including transportation costs and commodity
taxes) can have a material impact on the performance of CAPREIT, its ability to pay distributions and the value of its
units. The impact of such fluctuations could be exacerbated if such energy costs cannot be hedged.
From time to time, CAPREIT may enter into agreements to pay fixed prices on all or certain of its energy
requirements (principally natural gas and electricity in certain markets) to offset the risk of rising expenditures
resulting from the increase in the prices of these energy commodities; however, if the prices of these energy
commodities decline beyond the levels set in these agreements, CAPREIT will not benefit from such declines
in energy prices and will be required to pay the higher price for such energy supplies in accordance with these
agreements.
Environmental Matters
Environmental and ecological legislation and policies have become increasingly important, and generally more
restrictive, in recent years. Under various laws CAPREIT could be liable for the costs of removal or remediation of
certain hazardous or toxic substances released on or in monitoring its properties or disposed of by or on behalf of
CAPREIT at other locations. The failure to 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 CAPREIT’s 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.
63
Investing in Our FutureManagement’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 Dutch subsidiaries are required to comply
with the EU General Data Protection Regulation (GDPR). Under GDPR, CAPREIT and its subsidiaries 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 subsidiaries
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.
CAPREIT has implemented processes, procedures and controls to help mitigate these risks. However, these
measures, as well as increased awareness of risks of a cyber-incidents, do not guarantee that its financial results
will not be negatively impacted by such an incident.
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.
In addition, transitioning to a low carbon economy will drive extensive regulatory, market, and technology changes
to address mitigation and adaptation requirements related to climate change. How CAPREIT meets these challenges
will also impact our reputation. Regulatory changes may include those related to carbon pricing, a shift to low
emission energy sources, the adoption of energy efficiency measures and technology, and changes to building
codes to allow for climate resiliency and mitigation. Market changes may include adjustments in the goods and
services purchased by CAPREIT as well as shifts in the preferences of occupants. Technology is moving towards
more climate-friendly options including renewable energy, battery storage and energy efficiency equipment.
CAPREIT’s reputation is important to all stakeholders and will include considerations of the company’s demonstrated
understanding of climate-related financial risk and its plan to manage (mitigate or adapt to) these risks.
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.
64
2021 Annual ReportManagement’s Discussion and Analysis 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 understand and address material risks. In the event that
material risks are identified, such strategy will support CAPREIT’s investment and development decisions and
the ongoing management of CAPREIT’s 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 impacts, 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.
Captive Insurance
Captive insurance risk is the exposure to financial loss resulting from a wholly-owned subsidiary reinsuring certain
risks related to CAPREIT. The captive insurance program was created to reduce CAPREIT’s overall insurance
costs. The wholly owned subsidiary will reinsure the first $10 million per claim under CAPREIT’s property insurance
program and the first $2 million per claim under CAPREIT’s general liability insurance program. CAPREIT’s aggregate
liability for claims made on an annual basis under the reinsurance agreement is limited to $25 million.
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 (excluding ERES) currently has access to the government-backed mortgage insurance program through
the National Housing Act, which is administered by CMHC. 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.
65
Investing in Our FutureManagement’s Discussion and Analysis CAPREIT’s Credit Facilities are 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 in Canada, 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 Regulations and Taxes
Rent Control Regulations
Multi-unit residential rental properties are subject to rent control legislation in most provinces in Canada. Each
province in which CAPREIT operates maintains distinct regulations with respect to tenants’ and landlords’ rights and
obligations. The legislation in various degrees imposes restrictions on the ability of a landlord to increase rents above
an annually prescribed guideline or requires the landlord to give tenants sufficient notice prior to an increase in rent,
or restricts the frequency of rent increases permitted during the year. The annual rent increase guidelines as per
applicable legislation attempt to link the annual rent increases to some measure of the change in the cost of living
index over the previous year. The legislation also, in most cases, provides for a mechanism to ensure rents can be
increased above the guideline increases for extraordinary circumstances. 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 lack of availability of affordable housing and related housing policy and regulations 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., including in relation to the ongoing COVID-19 pandemic, may
become more stringent in the future. CAPREIT may incur increased operating costs as part of its compliance with
any such additional government legislation and regulations relating to housing matters, which may 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.
66
2021 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 Trust Unitholders. If CAPREIT ceases to
qualify as a “mutual fund trust”, the income tax considerations would be materially and adversely different in certain
respects and there may be 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 Unitholder.
If CAPREIT ceases to qualify as a “mutual fund trust” or “registered investment” under the Tax Act and Trust Units
cease to be listed on a designated stock exchange, Trust Units will cease to be qualified investments for trusts
governed by designated savings plans. CAPREIT will endeavour to ensure 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 Trust Units are “prohibited
investments” for registered retirement savings plans, registered retirement income funds, registered disability
savings plans, registered education savings plans, or tax-free savings accounts.
There are rules under the Tax Act (the “SIFT Rules”) that apply to specified investment flow-through trusts or
partnerships (“SIFTs”), and their beneficiaries or partners. Under the SIFT Rules, certain distributions will not be
deductible in computing the SIFT’s taxable income and the SIFT will be subject to tax on such distributions at
a rate that is substantially equivalent to the general tax rate applicable to Canadian corporations. The SIFT Rules
do not apply to certain real estate investment trusts that satisfy a number of technical tests relating to the nature
of the revenue and investments of the trust for the particular taxation year (the “REIT Exemption”). Although CAPREIT
expects to qualify for the REIT Exemption throughout 2022 and in future years, there can be no assurance that
CAPREIT will not be subject to the SIFT Rules. If the SIFT Rules apply, the impact to Unitholders will depend in part
on the status of the Unitholder and, in part on the amount of income distributed which would not be deductible
by CAPREIT in computing its income in a particular year, and on what portions of CAPREIT’s distributions constitute
“non-portfolio earnings”, other than income and returns of capital.
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, to qualify for
the REIT Exception in the following year.
There can be no assurance that Canadian federal income tax laws, the judicial interpretation thereof, or the
administrative and assessing practices and policies of the Canada Revenue Agency (“CRA”) or the Minister of
Finance (Canada) will not change in a manner that adversely affects CAPREIT, its affiliates or the Unitholders.
In addition, the Tax Act may impose additional withholding or other taxes on distributions made by CAPREIT to
Unitholders that are non-residents and these taxes and any reduction thereof under a tax treaty between Canada
and a foreign jurisdiction may change from time to time. There is also a risk that the tax laws and treaties of
the foreign jurisdictions where CAPREIT operates may change in the future. Any such changes could adversely
affect the taxes payable, including withholding taxes, the effective tax rate in those jurisdictions 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.
CAPREIT has foreign subsidiaries in a number of countries with varying statutory rates of taxation. Judgment is
required in the estimation of income taxes and deferred income tax assets and liabilities in each of CAPREIT’s
operating jurisdictions. Income taxes may be paid where activities carried on by the foreign subsidiaries are
considered to be taxable in those countries.
CAPREIT 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.
67
Investing in Our FutureManagement’s Discussion and Analysis In addition, there is a risk that the tax laws and treaties of the foreign jurisdictions may change in the future. Any
such changes could adversely affect the taxes payable, including withholding taxes, the effective tax rate in the
jurisdictions in which the foreign subsidiaries operate and the portion of distributions which would be income for
Canadian income tax purposes. Any such changes may have a material adverse effect on Unitholders’ returns.
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.
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.
68
2021 Annual ReportManagement’s Discussion and Analysis 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, subject to limits imposed by the TSX. Any issuance of additional units may have a dilutive
effect on the holders of units. Furthermore, timing differences may occur between the issuance of additional
units and the time such proceeds may be used to invest in new properties. Depending on the duration of such
timing difference, this may be dilutive.
Distributions
Cash distributions are not guaranteed. Distributions on the units are established by the Board of Trustees and
are subject to change at the discretion of the Board of Trustees. While CAPREIT has historically made monthly
cash distributions to Unitholders, the actual amount of distributions paid in respect of the units will depend upon
numerous factors, all of which 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 over 142 million ERES Class B LP Units
and 10.2 million ERES units, which upon the exchange of the ERES Class B LP Units into ERES units, represents
approximately 66% 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.
69
Investing in Our FutureManagement’s Discussion and Analysis 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.
Certain trustees of CAPREIT are also trustees of ERES, and certain CAPREIT employees are officers of ERES, which
may give rise to conflicts of interest with their roles at CAPREIT and ERES. The ERES declaration of trust provides
that certain matters which have the potential to give rise to a conflict of interest between ERES and CAPREIT or with
any related party of CAPREIT, must be approved by a majority of the non-restricted ERES trustees, in addition to
a majority of the ERES trustees generally.
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.
Human Resources Shortages
CAPREIT relies on qualified staff to manage its buildings, service tenants, and provide back-office support.
A shortage of available, qualified employees may impact CAPREIT’s service delivery and the overall tenant experience.
Additionally, a shortage of available, and qualified staff may lead to upward pressure on wages.
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
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.
70
2021 Annual ReportManagement’s Discussion and Analysis Competition for Residents
The real estate business is competitive. Numerous other developers, managers and owners of properties compete
with CAPREIT in seeking residents. Competition for residents also comes from opportunities for individual home
ownership, including condominiums, which can be particularly attractive when home mortgage loans are available
at relatively low interest rates. The existence of competing developers, managers and owners and competition for
CAPREIT’s residents could have an adverse effect on CAPREIT’s ability to lease suites in its properties and on the
rents charged, and may increase leasing and marketing costs and refurbishing costs necessary to lease and re-lease
suites, all of which could adversely affect CAPREIT’s revenues and, consequently, its ability to meet its obligations
and pay distributions. For example, increased condominium construction in the GTA could impact the rental market
and affect residential rental fundamentals. In addition, any increase in the supply of available rental accommodation
in the markets in which CAPREIT operates or may operate could have an adverse effect on CAPREIT.
Furthermore, low interest rates may encourage residents to purchase condominiums or other types of housing,
which could result in a reduction in demand for rental properties. Changes in interest rates may also have effects
on vacancy rates, rent levels, refurbishing costs and other factors affecting CAPREIT’s business and profitability,
including its financing costs.
Competition for Real Property Investments
CAPREIT competes for suitable real property investments with individuals, corporations and institutions (both
Canadian and foreign) and other real estate investment trusts that are presently seeking, or which may seek in
the future, real property investments similar to those desired by CAPREIT. A number of these investors may have
greater financial resources than those of CAPREIT, or operate without the investment or operating restrictions
of CAPREIT or according to more flexible conditions. An increase in the availability of investment funds and/or
an increase in interest in real property investments may tend to increase competition for real property investments,
thereby increasing purchase prices and reducing the yield on them.
Acquisitions
CAPREIT’s external growth prospects will depend in large part on identifying suitable acquisition opportunities
that meet CAPREIT’s investment criteria and satisfy its rigorous due diligence process. In addition, external growth
prospects will be affected by purchase price, ability to obtain adequate financing or financing on reasonable
terms, consummating acquisitions (including obtaining necessary consents) and effectively integrating and
operating the acquired properties. Acquired properties may not meet financial or operational expectations due to
unexpected costs associated with acquiring the property, as well as the general investment risks inherent in any
real estate investment or acquisition, including future refinancing risks. Moreover, newly acquired properties may
require significant management attention or property capital investments that would otherwise be allocated to
other properties. If CAPREIT is unable to manage its growth and integrate its acquisitions effectively, its business,
operating results and financial condition could be adversely affected.
Foreign Operation and Currency Risks
In connection with CAPREIT’s investment in IRES and its investment and management of ERES and its investment in
IRES, 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 ERES and IRES is the euro.
Related Party Transactions
A summary of related party transactions can be found in note 29 to CAPREIT’s consolidated annual financial
statements for the year ended December 31, 2021.
71
Investing in Our FutureManagement’s Discussion and Analysis Commitments and Contingencies
A summary of commitments and contingencies can be found in notes 30 and 31 to CAPREIT’s consolidated annual
financial statements for the year ended December 31, 2021.
Subsequent Events
A summary of subsequent events can be found in note 33 to CAPREIT’s consolidated annual financial statements
for the year ended December 31, 2021.
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, improving environment
performance and/or enhancing property values through 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 where management believes it can enhance returns on investment through its
established property management platform. 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 CAPREIT’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 and may also enhance the environment performance of the assets.
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.
72
2021 Annual ReportManagement’s Discussion and Analysis CAPREIT will prudently investigate the opportunity to develop new multi-residential properties on land it owns, as
well as add new rental suites in certain properties where the opportunity exists. Such investments are 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 major markets 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 and
lengthening mortgage terms within its mortgage portfolio to reduce exposure 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.
CAPREIT maintains a conservative approach to its capital structure, leverage and coverage ratios to further improve
its distribution payout ratio. CAPREIT believes its successful equity financing and mortgage refinancing programs
have resulted in CAPREIT 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.
In April 2021, the federal government unveiled the proposed 2021 budget which included a wide variety of changes
including spending measures and income tax changes. Upon initial examination, these tax changes are expected
to have minimal to no impact on CAPREIT.
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.
The COVID-19 pandemic may also have an impact on certain aspects of the economy such as supply chains and
inflation. Various costs including trust expenses, wages, and repairs and maintenance costs are expected to further
increase in 2022 due to inflationary cost pressures.
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 two properties located in the Greater Toronto
Area as at December 31, 2021, compared to three properties as at December 31, 2020. The leases mature in 2034
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 76 MHCs, whereby CAPREIT
owns the sites, which it rents to residents.
73
Investing in Our FutureManagement’s Discussion and Analysis 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
Portfolio Diversification
2021
52,314
274
1,376
53,964
12,201
66,165
%
79.1
0.4
2.1
81.6
18.4
100.0
2020
50,219
339
1,376
51,934
11,856
63,790
%
78.7
0.5
2.2
81.4
18.6
100.0
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(1)
London / Kitchener / Waterloo
Ottawa
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Region
Victoria and Other British Columbia
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
2021
%
2020
%
17,897
3,808
2,750
24,455
7,933
2,777
10,710
3,743
2,034
5,777
3,288
1,775
543
2,318
637
234
47,419
6,545
53,964
12,201
66,165
27.0
5.7
4.2
36.9
12.0
4.2
16.2
5.7
3.1
8.8
5.0
2.7
0.8
3.5
1.0
0.3
71.7
9.9
81.6
18.4
100.0
17,862
3,261
2,750
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
27.9
5.1
4.3
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
(1)
Other Ontario has been reclassified into Greater Toronto Area. Prior year comparative figures have been adjusted to conform with current
period presentation.
74
2021 Annual ReportManagement’s Discussion and Analysis 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.
Portfolio of Operating Leasehold Interests
CAPREIT has the option to acquire fee simple interests in two of the properties, which are exercisable between
the 26th and 35th years of the respective leases. In 2021, CAPREIT completed the early buyout of one operating
lease and converted the property into a fee simple interest. 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 $42 million to $50 million if each of the options
were exercised in the 26th and 35th years, respectively, of the lease terms. If CAPREIT elected to exercise any
option prior to the maturity of the lease term, CAPREIT would be entitled to receive a pro rata amount of the prepaid
lease amount based on the remaining lease term. In addition, under certain circumstances, the option price may
be reduced by the unamortized portion of capital expenditures incurred during the final 10 years of the lease term.
The mortgages on each of these two properties are scheduled to be fully repaid by their respective option exercise
dates, which management expects will enable CAPREIT to utilize the equity in these properties to fully finance the
option exercise prices.
Operating Leasehold Interests Portfolio by Lease Maturity
($ Thousands)
As at December 31, 2021
Year of Lease Maturity
Properties
Suites
2034
2037
Total Operating Leasehold Interests portfolio
1
1
2
75
199
274
(1) As at the acquisition dates of these leasehold interests by a CAPREIT predecessor.
Portfolio of Land Leasehold Interests
Option Exercise Prices
%
27.4
72.6
26th Year
35th Year
11,400
30,600
13,650
36,000
Prepaid Lease
Amount(1)
7,775
21,000
100.0
$ 42,000
$ 49,650
$ 28,775
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 variable rental payments associated with Land Leasehold Interests are included in other operating expenses
(see Results of Operations) with the fixed portion capitalized as per IFRS 16 and amortized.
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
2021
3,450
1,405
1,477
572
6,904
$
$
2020
2,947
1,370
1,157
648
6,122
75
Investing in Our FutureManagement’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, 2021, 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 23, 2022
Mark Kenney
President and Chief
Executive Officer
Scott Cryer
Chief Financial Officer
76 2021 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, 2021 and 2020, 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, 2021 and 2020;
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.
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, 2021. These matters were
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.
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 - Apartments and
Townhomes, Manufactured Home Communities
Land Lease Sites and certain 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, 2021 have a fair value of $17,102 million and
include Canadian Fee Simple Interests -
Apartments and Townhomes, Manufactured Home
Communities ("MHC") Land Lease Sites and
certain of the Trust’s European residential interests
through their 66% ownership interest in European
Residential Real Estate Investment Trust (the
European residential interests) with a combined fair
value of $16,720 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 either qualified
internal or external independent appraisers,
depending on the size and geography of each
property. 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 stabilized net operating income ("NOI")
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
– Stabilized NOI, by:
○ Comparing stabilized property revenue
to budgets and actual performance.
○ Comparing stabilized property
expenses to actual performance,
market data and budgets, where
applicable.
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 stabilized NOI.
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.
Key audit matter
How our audit addressed the key audit matter
reflecting market-based NOI assumptions. For the
European residential interests, the Trust utilizes a
DCF method and a DC method (the 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 stabilized NOI and the capitalization rates.
Stabilized cash flows and stabilized NOI
incorporate various assumptions including property
revenue and property operating expenses.
We considered this a key audit matter due to: i)
significant audit effort required to test the fair value
of the Canadian Fee Simple Interests - Apartments
and Townhomes, MHC Land Lease Sites and the
European residential interests determined by
management, ii) critical judgments made by
management through their use of qualified internal
or external independent appraisers when
determining the fair value including the
development of the critical assumptions, and iii) a
high degree of complexity in assessing audit
evidence to support the critical 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.
Other information
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.
Comparing the independent point estimate to
management’s estimate to evaluate the
reasonableness of management’s estimate.
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 23, 2022
Consolidated Balance Sheets
Consolidated Financial Statements
Note
December 31, 2021
December 31, 2020
(CA$ thousands)
As at
Non-current assets
Investment properties
Investment in associate
Mortgages receivable
Derivative asset
Other non-current assets
Total non-current assets
Current assets
Derivative asset
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
8
21
9
21
9
13
14
15, 16
12
21
23
13
14
15, 16
21
11
10
17
$ 17,101,919
$ 15,000,591
246,505
114,990
22,420
89,957
17,575,791
257,210
–
778
73,810
15,332,389
8,506
55,265
73,411
137,182
$ 17,712,973
55
44,965
121,722
166,742
$ 15,499,131
$ 5,456,605
$
4,811,131
310,866
14,272
356,695
1,157
133,974
48,316
104,810
14,123
328,535
8,023
59,964
36,565
6,321,885
5,363,151
643,460
–
22,623
2,816
141,499
15,492
43,675
100,684
20,953
991,202
590,071
13,743
19,624
15,366
131,888
13,985
41,218
16,632
19,751
862,278
$ 7,313,087
$
6,225,429
$ 4,194,093
$
4,103,912
(43,397)
6,249,190
70,047
5,099,743
$ 10,399,886
$ 17,712,973
$
9,273,702
$ 15,499,131
Accumulated other comprehensive (loss) income
24
Retained earnings
Total unitholders’ equity
Total liabilities and unitholders’ equity
See accompanying notes to the consolidated annual financial statements.
82 2021 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
Unit-based compensation expense
Fair value adjustments of investment properties
Fair value adjustments of Exchangeable LP Units
Fair value adjustments of investments
Realized loss on disposition of investment properties
Amortization of property, plant and equipment
(Loss) gain on non-controlling interest
Gain (loss) on derivative financial instruments
Interest and other financing costs
(Loss) gain on foreign currency translation
Other income
Net income before income taxes
Current and deferred income tax expense
Net income
Other comprehensive (loss) income, including items that may be reclassified
subsequently to net income
Amortization of losses from (AOCL) AOCI to interest and other financing costs
(Loss) gain on foreign currency translation
Other comprehensive (loss) income
Comprehensive income
See accompanying notes to the consolidated annual financial statements.
Note
2021
2020
28
$
933,137
$
882,643
(87,698)
(235,446)
(323,144)
609,993
(51,366)
(15,111)
1,048,742
(665)
14,088
(241)
(8,250)
(38,651)
50,282
(160,463)
(6,095)
31,713
1,473,976
(81,181)
(81,596)
(222,876)
(304,472)
578,171
(43,268)
(5,160)
595,859
(1,230)
(3,979)
(1,387)
(7,668)
24,478
(52,672)
(164,625)
5,982
29,990
954,491
(28,563)
$ 1,392,795
$
925,928
$
2,440
(115,884)
$
(113,444)
$ 1,279,351
$
$
$
2,570
86,987
89,557
1,015,485
16
6
17
5
12
21
25
28
23
24
24
Investing in Our Future
83
Consolidated Financial Statements
Consolidated Statements
of Unitholders’ Equity
(CA$ thousands)
Unitholders’ equity, January 1, 2021
$ 4,103,912
$ 5,099,743
$
70,047
$ 9,273,702
Note
Unit capital
Retained earnings
Accumulated
other
comprehensive
income (loss)
Total
Unit capital
Distribution Reinvestment Plan
RUR Plan
Employee Unit Purchase Plan
Total unit capital
Net income and other comprehensive loss
Net income
Other comprehensive loss
Total net income and other comprehensive loss
Distributions on Trust Units
Distributions declared and paid
Distributions payable
Total distributions on Trust Units
18
16, 18
16, 18
19
19
75,739
11,463
2,979
90,181
–
–
–
–
–
–
–
–
–
–
1,392,795
–
1,392,795
(222,395)
(20,953)
(243,348)
–
–
–
–
–
(113,444)
(113,444)
–
–
–
75,739
11,463
2,979
90,181
1,392,795
(113,444)
1,279,351
(222,395)
(20,953)
(243,348)
Unitholders’ equity, December 31, 2021
$ 4,194,093
$ 6,249,190
$
(43,397)
$ 10,399,886
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 Units LP Units
RUR Plan
Employee Unit Purchase Plan
Total unit capital
18
17
16, 18
16, 18
Net income and other comprehensive income
Net income
Other comprehensive income
Total net income and other comprehensive income
Distributions on Trust Units
Distributions declared and paid
Distributions payable
Total distributions on Trust Units
Unitholders’ equity, December 31, 2020
19
19
68,108
15,321
3,882
2,660
89,971
–
–
–
–
–
–
4,103,912
$
$
–
–
–
–
–
925,928
–
925,928
(215,898)
(19,751)
(235,649)
5,099,743
$
–
–
–
–
–
–
89,557
89,557
–
–
–
70,047
68,108
15,321
3,882
2,660
89,971
925,928
89,557
1,015,485
(215,898)
(19,751)
(235,649)
9,273,702
$
See accompanying notes to the consolidated annual financial statements.
84 2021 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 loss (gain) on ERES units
Loss on disposition of investment properties
(Gain) 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 loss (gain)
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 investment in associate
Disposition of investment properties
Change in restricted cash
Investment income received
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 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
2021
2020
$ 1,392,795
$
925,928
(1,048,742)
(595,859)
12
5
21
9, 24, 25
16
23
28
27
27
27
27
6, 27
29
27
27
27
27
27
27
27
27
665
(14,088)
25,895
241
(50,282)
25,242
15,111
(188)
76,642
(18,455)
6,095
151,848
(11,346)
551,433
(839,975)
(299,419)
(4,457)
–
29,194
(1,798)
8,469
1,230
3,979
(37,020)
1,387
52,672
33,963
5,160
(180)
25,213
(17,173)
(5,982)
143,078
(55,040)
481,356
(685,398)
(244,857)
(127,819)
(8,020)
33,312
(258)
11,670
(1,107,986)
(1,021,370)
1,340,965
(149,996)
(521,375)
(6,107)
(8,547)
(23,447)
(133,665)
189,305
3,138
(177,774)
512,497
(44,056)
(4,255)
121,722
$
73,411
$
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
121,722
Investing in Our Future
85
Notes to Consolidated Financial Statements
December 31, 2021
(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, 2021, CAPREIT directly and indirectly holds a 66% (December 31, 2020 – 66%) ownership
of publicly traded European Residential Real Estate Investment Trust (“ERES”), which operates primarily in the
Netherlands, with the remaining 34% (December 31, 2020 – 34%) 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 23, 2022.
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
2021 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 Irish
Residential REIT plc (“IRES”).
At each reporting date, CAPREIT evaluates whether there is objective evidence that its interest in an associate is
impaired. If impairment indicators exist, 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.
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Investing in Our FutureNotes 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 CAPREIT’s investment properties is determined at each balance sheet date by either
qualified internal or external independent appraisers, depending on the size and geography of each property.
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.
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.
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2021 Annual ReportNotes to Consolidated Financial Statements 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 10 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
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. CAPREIT measures the ECL allowance of its mortgage
receivables at an amount equal to the 12-month ECL at initial recognition or if there has been no significant increase
in credit risk of the mortgage receivables since initial recognition. CAPREIT will increase the loss allowance of the
mortgage receivables to an amount equal to the lifetime ECL if there has been a significant increase in credit risk
of the mortgage receivables since initial recognition.
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Investing in Our FutureNotes 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
Mortgages receivable
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
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. 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.
Mortgages receivable
Mortgages receivable arise when CAPREIT disposes of investment properties and provides the purchaser with a
vendor takeback mortgages (“VTB”). The VTB is a financial asset under IFRS 9 and is measured initially at fair value
and subsequently at amortized cost. Mortgages receivable are included in non-current assets, except for those
with maturities within 12 months after the consolidated balance sheet date, which are classified as current assets.
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.
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2021 Annual ReportNotes to Consolidated Financial Statements 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.
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 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.
Hedging Relationships
CAPREIT has previously designated some of its interest rate swap agreements and forward interest rate contracts
as cash flow hedges. At the inception of a transaction, CAPREIT documents the relationship between hedging
instruments and hedged items, as well as its risk management objectives and strategy for undertaking various
hedging transactions. CAPREIT also documents, both at hedge inception and on an ongoing basis, its assessment
of whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows of
hedged items. The effective portion of changes in the fair value of derivatives that are designated and qualify as
cash flow hedges is recognized in other comprehensive (loss) income. The gain or loss relating to the ineffective
portion is recognized immediately in the consolidated statements of income and comprehensive income under net
income. Should a hedging relationship become ineffective and/or hedge accounting become no longer appropriate,
previously unrealized gains and losses remain within accumulated other comprehensive (loss) income (“(AOCL) AOCI”)
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.
j) 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 term, 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.
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Investing in Our FutureNotes to Consolidated Financial Statements k) MHC Home Inventory
MHC home inventory consists of homes which CAPREIT intends to sell in the ordinary course of business. These
homes are sold to tenants on CAPREIT’s MHC sites. In accordance with IAS 2, Inventories (“IAS 2”), MHC home
inventory is recorded at the lower of cost and net realizable value. Net realizable value is the estimated selling price
in the ordinary course of business less selling costs and any costs of completion, if applicable. MHC home inventory
is reviewed for impairment at each reporting date. An impairment loss is recognized in the consolidated statements
of income and comprehensive income if the carrying value of the inventory exceeds its net realizable value. When
the circumstances that previously caused inventory to be impaired no longer exist or when there is clear evidence
of an increase in net realizable value because of changed economic circumstances, the impairment loss previously
recorded is reversed.
MHC home inventory is included within other current assets unless CAPREIT does not expect to sell these assets
in the ordinary course of business within the next 12 months after the reporting date.
Transfers between MHC home inventory and investment property occur if there is a change in use. A change in
use occurs when the property meets, or ceases to meet, the definition of investment property based on CAPREIT’s
intentions and when there is observable evidence of a change in use.
l) Mortgages Payable and Bank Indebtedness
Mortgages payable are recognized at amortized cost using the effective interest rate method. Under the effective
interest rate method, any transaction fees, costs and discounts directly related to the mortgage are recognized
within interest and other financing costs in the consolidated statements of income and comprehensive income
over the expected term of the mortgage. Mortgage maturities and repayments due more than 12 months after
the consolidated balance sheet date are classified as non-current. Bank indebtedness is recognized at amortized
cost and the amortization of related financing costs is recognized within interest and other financing costs in the
consolidated statements of income and comprehensive income over the contractual term of the debt.
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. CAPREIT accelerates the amortization for prepaid CMHC premiums for mortgages that
management intends to fully refinance within the next year, from the date the decision is made to refinance to the
date the mortgage is due to be refinanced. 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.
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.
m) 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 accounts payable
and accrued 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.
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2021 Annual ReportNotes to Consolidated Financial Statements n) Captive Insurance
Effective as of March 5, 2021, CAPREIT is self-insured for the first $10,000 per claim under CAPREIT’s property
insurance program and the first $2,000 per claim under CAPREIT’s general liability insurance program, through
a reinsurance agreement between CAPREIT’s wholly-owned captive insurance company and a licensed Canadian
insurance company. Pursuant to the reinsurance agreement, CAPREIT’s aggregate liability for claims made on an
annual basis is limited to $25,000. Claims and expenses are reported when it is probable that a loss has occurred
and the amount of the loss can be reasonably estimated.
o) Comprehensive Income and Accumulated Other Comprehensive (Loss) Income
Comprehensive income includes net income and other comprehensive (loss) income. Other comprehensive (loss)
income includes (loss) gain 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.
(AOCL) AOCI 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 (AOCL) AOCI are disclosed in note 24.
p) Revenue Recognition
Under IFRS 15, Revenue from Contracts with Customers (“IFRS 15”), revenue is recognized using a uniform, five-step
model. The five steps are as follows:
Identify the contract(s) with the customer
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.
Common area maintenance recoveries, except insurance and utility recoveries, and service charges 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 the sale of MHC home inventory is within the scope of IFRS 15 and is recognized at the point
in time when CAPREIT transfers control of the asset to the purchaser, which happens on the closing date. Upon
closing of the transaction, the purchaser has the ability to direct the use of, and obtain substantially all of the
remaining benefits from, the asset. Revenue from the sale of MHC home inventory is included in other income
in the statements of income and comprehensive income.
Revenue from investment properties, including property tax, insurance and utility recoveries, 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.
q) 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.
93
Investing in Our FutureNotes to Consolidated Financial Statements 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 15 and 16.
(2) Vesting fully on the third grant anniversary date.
(3) Vesting one-third on each grant anniversary date.
r) 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.
s) 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 23.
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 operating 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.
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2021 Annual ReportNotes to Consolidated Financial Statements t) 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 are not considered equity for the purposes of calculating net
income on a per unit basis. Consequently, CAPREIT does not report an Earnings per Unit calculation, as permitted
under IFRS.
u) 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
European 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.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and
of borrowings and other currency instruments designated as hedges of such investments, are recorded in other
comprehensive (loss) income. When a foreign operation is partially disposed of or sold, exchange differences that
were recorded in equity are recognized in the consolidated statements of income and comprehensive income.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts
of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and
translated at the spot rate of exchange at the reporting date.
v) 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
statements of income and comprehensive income.
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Investing in Our FutureNotes to Consolidated Financial Statements w) 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.
x) 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”).
y) Impact of Accounting Standards Effective January 1, 2021 on CAPREIT’s Current Year
Consolidated Financial Statements
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 introduced 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.
CAPREIT adopted the amendments on January 1, 2021 and assessed that there is no impact on transition in
the current reporting period based on current transactions in place. The credit facilities that CAPREIT and ERES
entered into in 2021 upon expiry of the previous ones contain benchmark replacement clauses relating to the IBOR
reform. As such, CAPREIT does not expect that there will be a material impact in future reporting periods in relation
to changes due to the interest rate benchmark reform. Refer to note 14 for further information on credit facilities.
z) Future Accounting Changes
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. In November 2021,
the IASB issued an exposure draft proposing amendments to the January 2020 amendments to IAS 1. The proposed
amendments would modify the requirements introduced by the January 2020 amendments on how an entity
classifies debt and other financial liabilities as current or non-current, particularly in circumstances when an entity’s
right to defer settlement of a liability is subject to compliance with conditions. The exposure draft also proposes
to defer the effective date of the 2020 amendments to no earlier than January 1, 2024. The IASB has tentatively
decided that the proposed amendments would be applied retrospectively. The amendments have not been early
adopted by CAPREIT. CAPREIT is currently assessing any potential impact of this amendment.
96
2021 Annual ReportNotes to Consolidated Financial Statements 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 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.
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 20.
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 20. 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.
97
Investing in Our FutureNotes to Consolidated Financial Statements A business generally consists of inputs, processes applied to those inputs, and resulting outputs that are, or will be,
used to generate revenues. In the absence of such criteria, a group of assets is deemed to have been acquired.
If goodwill is present in a transferred set of activities and assets, the transferred set is presumed to be a business.
CAPREIT applies judgment in determining whether property acquisitions qualify as a business combination in
accordance with IFRS 3 or as an asset acquisition.
When determining whether the acquisition of an investment property or a portfolio of investment properties is a
business combination or an asset acquisition, CAPREIT applies judgment when considering the following:
1. whether the investment property or properties are capable of producing outputs;
2. whether the market participant could produce outputs if missing elements exist;
3. whether employees were assumed in the acquisition; and
4. whether an operating platform has been acquired.
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(w) 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.
98
2021 Annual ReportNotes to Consolidated Financial Statements 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, 2021 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, 2021. Refer to note 7 for further information.
iv) Valuation of Goodwill
CAPREIT recognized goodwill pursuant to the reverse acquisition of European Commercial Real Estate Investment
Trust (“ECREIT”) on March 29, 2019. 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, 2021 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, 2021. Refer to note 9 for further information.
4. Recent Investment Property Acquisitions
CAPREIT completed the following investment property acquisitions since January 1, 2020, which have
contributed to the operating results effective from their respective acquisition dates. The below tables do
not include $4,457 relating to CAPREIT’s operating lease buyout in the year ended December 31, 2021
(December 31, 2020 – $158,565).
Acquisitions Completed During the Year Ended December 31, 2021
Acquisition Date
May 5, 2021
May 31, 2021
June 2, 2021
June 9, 2021
June 24, 2021
June 25, 2021
June 30, 2021
June 30, 2021
July 5, 2021
August 31, 2021(4)
September 7, 2021
September 22, 2021(5)
October 1, 2021
November 30, 2021
November 30, 2021
December 22, 2021
Suite or
Site Count
485
154
228
77
30
548
104
33
342
787
193
141
260
63
162
137
Region(s)
Oshawa, ON
Montréal, QC
Victoria, BC
Victoria, BC
Victoria, BC
London, ON
The Netherlands
The Netherlands
Lakeshore, ON
Toronto, ON
West Kelowna, BC
Toronto, ON
Québec City, QC
The Netherlands
The Netherlands
The Netherlands
Total
Acquisition
Costs
Assumed
Mortgage
Funding
Subsequent
Acquisition
Financing
$ 105,904
$
–(3)
$
54,673(3)
31,727
78,306
20,263
9,906
110,461
45,879
27,202
21,703
165,626
63,385
123,111
74,159
29,966
88,732
57,167
18,037
33,702
–(3)
–(3)
–(3)
–
–
8,573
37,225
–(3)
34,077
–(3)
–
–
–
–
–
–(3)
–(3)
–(3)
21,593(6)
13,995(6)
–
–
–(3)
–
–(3)
13,949(6)
41,921(6)
24,839(6)
Interest
Rate (%)(1)
1.88(3)
1.78
Term to
Maturity
(Years)(2)
3.00(3)
4.58
3.08
–(3)
–(3)
–(3)
1.16(6)
1.16(6)
4.08
3.16
–(3)
1.93
–(3)
1.16(6)
1.16(6)
1.16(6)
1.67
–(3)
–(3)
–(3)
6.00(6)
6.00(6)
4.17
7.68
–(3)
0.17
–(3)
5.75(6)
5.75(6)
5.75(6)
Total
3,744
$ 1,053,497
$ 131,614
$ 170,970
(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 and CAPREIT’s Acquisition and Operating Facility.
(4)
(5)
(6)
CAPREIT purchased the remaining 50% interest in a portfolio of 787 apartment suites and townhouse units. CAPREIT acquired its initial 50% interest
on July 31, 2008.
Total acquisition cost was increased by $7,985, relating to the difference between the agreed upon issuance price of $56.00 per Exchangeable LP Unit
and the fair value of the Exchangeable LP Units on the acquisition date. Refer to note 17 for further information.
Subsequent acquisition financing obtained is collateralized by a pool of investment properties. The amount of subsequent acquisition financing shown
above has been allocated based on fair value of these properties as determined by the lender. The interest rates shown include the corresponding
interest rate swaps.
99
Investing in Our FutureNotes to Consolidated Financial Statements
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)
Term to
Maturity
(Years)(2)
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
1.84
2.06
–(3)
–(3)
0.97
–(3)
4.77
0.97
–(3)
–(3)
0.97
–(3)
0.97
4.66
10.00
–(3)
–(3)
4.00
–(3)
7.94
4.00
–(3)
–(3)
4.00
–(3)
4.00
(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.
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 since January 1, 2020.
Disposition Completed During the Year Ended December 31, 2021
Disposition Date
September 2, 2021(1)
September 29, 2021
October 1, 2021(3)
Total
Suite Count
Region(s)
Sale Price
Cash Proceeds(4)
VTB Issued(2)
1
86
506
593
The Netherlands
$
Toronto, ON
Toronto, ON
461
52,000
90,920
$
143,381
$
$
461
5,200
22,730
28,391
$
–
46,800
68,190
$
114,990
(1) Represents disposition of one individual single family home.
(2) Refer to note 8 for further information.
(3) CAPREIT disposed of its 33.3% interest in 506 apartment suites.
(4) Prior to working capital adjustments.
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
Mortgage Discharged
$
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.
For the years ended December 31, 2021 and 2020, a loss of $241 and $1,387, 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.
100
2021 Annual ReportNotes to Consolidated Financial Statements
6. Investment Properties
Reconciliation of Carrying Amounts of Investment Properties by Type
For the Year Ended December 31, 2021
Balance of investment properties, beginning
of the year
Additions:
Acquisitions
Property capital investments
Capitalized leasing costs(1)
Right-of-use asset(2)
Operating lease buyout(3)
Dispositions
Transfer between investment property types(3)
Fair value adjustments
Loss on foreign currency translation
Fee Simple
and MHC Land
Lease Sites
Operating
Leasehold
Interests
Land
Leasehold
Interests
Total
$ 14,624,762
$
114,775
$
261,054
$ 15,000,591
1,053,497
303,850
1,386
–
–
(143,381)
23,810
1,043,649
(187,752)
–
2,580
2
–
4,457
–
(23,810)
16,146
–
–
7,955
(75)
10,067
–
–
–
(11,053)
–
1,053,497
314,385
1,313
10,067
4,457
(143,381)
–
1,048,742
(187,752)
Balance of investment properties, end of the year
$ 16,719,821
$
114,150
$
267,948
$ 17,101,919
(1) Comprises tenant inducements, straight-line rent and direct leasing costs.
(2)
On April 1, 2021, the basic annual rent of an existing land lease was increased in accordance with the lease agreement, which stipulates that the basic
annual rent be renegotiated every 20 years to reflect the land market value.
During the year ended December 31, 2021, CAPREIT purchased the freehold interest on one of its operating leasehold properties and converted the
ownership into fee simple.
(3)
For the Year Ended December 31, 2020
Balance of investment properties, beginning
of the year
Additions:
Acquisitions
Property capital investments
Capitalized leasing costs(1)
Operating lease buyout(2)
Dispositions
Transfer between investment property types(2)
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
–
(56,760)
945,507
604,662
138,098
–
5,304
(4)
158,565
–
(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
(1) Comprises tenant inducements, straight-line rent and direct leasing costs.
(2)
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.
Valuation Basis
Beginning in the year ended December 31, 2021, CAPREIT appraises some of its Canadian investment properties
using valuations prepared by its internal valuation team. This team consists of individuals who are knowledgeable
and have specialized industry experience in real estate valuations and report directly to a senior member of
CAPREIT’s management. The internal valuation team’s processes and results are reviewed and approved by senior
management of CAPREIT, including the President and Chief Executive Officer and Chief Financial Officer.
As at December 31, 2021, CAPREIT had approximately 94% by value or 68% by number of properties of its Canadian
investment properties appraised by a qualified external appraiser (December 31, 2020 – 100% and 100%, respectively).
External valuations for the Canadian portfolio, where obtained, are performed at year-end with quarterly updates
provided on capitalization rates. CAPREIT obtains external valuations for a cross-section of investment properties
that represent different geographical locations across the Canadian portfolio. For internal valuations, the appraisal
methodologies used are consistent with the practices employed by the external appraiser. The fair values of all of
CAPREIT’s European residential portfolio are determined by qualified external appraisers quarterly. The qualified
external appraisers hold recognized relevant professional qualifications and have recent experience in the location
and category of the respective property.
101
Investing in Our FutureNotes to Consolidated Financial Statements
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.
Fair values for investment properties are classified as Level 3 in the fair value hierarchy, as disclosed in note 20.
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. Capitalization rates and discount rates
used are based on recently closed transactions for similar properties and other current market indicators for similar
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.
For its European portfolio, CAPREIT utilizes the DC method, described above, and the DCF 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”).
102
2021 Annual ReportNotes to Consolidated Financial Statements 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 2045
and 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.
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, 2021 and December 31, 2020:
As at December 31, 2021
Type of Interest
Fee simple interests(1)
MHC sites
Operating leasehold interests(2),(3)
Land leasehold interests(4)
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, 2020
Type of Interest
Fee simple interests(1)
MHC sites
Operating leasehold interests(2),(3)
Land leasehold interests(4)
Total Investment Properties excluding
right-of-use assets
Add: Right-of-use assets, net of fair
value change
Total Investment Properties
Fair Value
$ 16,011,231
$
708,590
114,150
221,842
$ 17,055,813
46,106
$ 17,101,919
Fair Value
$ 13,986,832
$
637,930
114,775
224,440
$ 14,963,977
36,614
$ 15,000,591
WA NOI /
Cash Flow(5)
3,591
1,913
2,854
3,316
Rate Type
Capitalization rate
Capitalization rate
Discount rate(6)
Discount rate(6)
Max
9.53%
8.14%
5.25%
7.50%
Min
2.05%
4.85%
5.00%
5.50%
Weighted
Average
3.57%
5.67%
5.08%
6.43%
WA NOI /
Cash Flow(5)
3,768
1,881
2,487
3,122
Rate Type
Capitalization rate
Capitalization rate
Discount rate(6)
Discount rate(6)
Max
8.61%
8.14%
5.50%
7.50%
Min
2.25%
4.68%
5.25%
5.50%
Weighted
Average
3.82%
5.96%
5.32%
6.47%
(1)
(2)
(3)
(4)
(5)
(6)
The fee simple interests include $2,676,150 (December 31, 2020 – $2,299,435) of CAPREIT’s European portfolio with an implied capitalization rate
of 3.55% (December 31, 2020 – 3.87%), which were valued using the DCF method at a weighted average discount rate of 5.64% and a terminal
capitalization rate of 4.46% (December 31, 2020 – 5.75% and 4.92%, respectively).
The fair values of operating leasehold interests include the fair values of the options to purchase the related freehold interests of $50,010 as at
December 31, 2021 (December 31, 2020 – $42,235).
For the two operating leasehold interests remaining as at December 31, 2021 (December 31, 2020 – three), the contractual weighted average remaining
lease term on operating leasehold interests is 14.4 years (December 31, 2020 – 14.9 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 two operating leasehold
interests is 4.4 years as at December 31, 2021 (December 31, 2020 – 4.9 years).
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.
Weighted average (“WA”) net operating income (“NOI”) or cash flow by property fair value.
Represents the discount rate used to determine the fair value of operating leasehold and land leasehold interests using the DCF method.
A weighted average stabilized net operating income growth for operating leasehold interests of 3.0% has been assumed as at December 31, 2021
and December 31, 2020, respectively.
103
Investing in Our FutureNotes to Consolidated Financial Statements
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,
2021
Change in
Capitalization Rate(1)
Change in NOI
(2.00)%
(1.00)%
–%
+1.00%
+2.00%
(0.50)%
$ 2,387,826
$ 2,585,721
$ 2,783,615
$ 2,981,509
$ 3,179,403
(0.25)%
–%
+0.25%
+0.50%
917,510
(340,046)
(1,428,749)
(2,381,028)
1,100,401
(169,987)
(1,269,799)
(2,231,795)
1,283,292
–
(1,110,849)
(2,082,563)
1,466,183
170,131
(951,900)
(1,933,330)
1,649,074
340,190
(792,950)
(1,784,098)
(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.
7. Investment in Associate
As at December 31, 2021, CAPREIT has an 18.7% (December 31, 2020 – 18.8%) share ownership in IRES, an Irish
residential REIT listed on the Euronext Dublin exchange. CAPREIT’s subsidiary, IRES Fund Management Limited,
entered into an external investment management agreement to perform property and asset management services
for 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 and influence
exerted over IRES by its independent board of directors and CEO. As at December 31, 2021, 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 29 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, 2021
December 31, 2020
$
246,505
$
257,210
18.7%
18.8%
98,910,000
98,910,000
1.68
1.50
$
238,564
$
231,568
(1)
CAPREIT has determined that the deficiency of the market capitalization of IRES over the carrying amount of the investment as at December 31, 2021 is
an indicator of impairment. An impairment analysis was performed and no impairment was identified for the year ended December 31, 2021 (year ended
December 31, 2020 – no impairment).
8. Mortgages Receivable
As disclosed in note 5, CAPREIT issued VTBs in connection with the disposal of two investment properties.
Interest is payable monthly or quarterly, with the principal due at maturity. The borrowers can prepay the principal,
in whole or in part, at any time or times during the term of the mortgage without notice or penalty. The table
below presents the mortgages receivable:
Issuance date
September 29, 2021(1)
October 1, 2021
Total
Maturity year
Interest rate
December 31, 2021
December 31, 2020
2023
2024
2.33%
3.00%
$
$
46,800
68,190
114,990
$
$
–
–
–
(1) The borrower has the option to extend the VTB for an additional year at an interest rate of 4.00% per annum.
104
2021 Annual ReportNotes to Consolidated Financial Statements
9. 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
MHC home inventory
Total
Note
December 31, 2021
December 31, 2020
$
47,430
$
23
$
$
(33,606)
13,824
3,365
1,339
51,286
5,010
15,133
89,957
10,732
17,866
10,986
7,543
8,138
$
$
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
–
$
55,265
$
44,965
(1) Consists of head office and regional offices’ leasehold improvements, corporate assets and information technology systems.
(2) On October 25, 2021, CAPREIT issued a lease extension notice to extend one of its existing leases by five years. As a result, CAPREIT reassessed
the lease term and increased the right-of-use asset and the lease liability by $2,833. Amortization during the year ended December 31, 2021 is $609
(year ended December 31, 2020 – $636).
(3) Represents deferred loan costs related to the revolving credit facilities net of accumulated amortization of $1,673 (December 31, 2020 – $12,994).
(4)
CAPREIT has determined that the decline in the market capitalization of ERES as at December 31, 2021 is an indicator of impairment and as such,
an impairment assessment was performed. No impairment has been recorded for the year ended December 31, 2021 (December 31, 2020 – $nil).
10. Other Current Liabilities
As at
Current tax liability
Mortgage interest payable
Current lease liabilities
Total
11. Accounts Payable and Accrued Liabilities
As at
Accounts payable
Accrued liabilities
Deferred revenue
Distributions payable to ERES non-controlling unitholders
Other
Total
Note
23
December 31, 2021
December 31, 2020
$
$
2,808
11,565
1,119
15,492
$
$
2,362
10,446
1,177
13,985
December 31, 2021
December 31, 2020
$
56,835
63,659
15,708
745
4,552
$
58,378
51,843
14,399
920
6,348
$
141,499
$
131,888
105
Investing in Our FutureNotes to Consolidated Financial Statements
12. 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.
As at December 31, 2021, CAPREIT valued the ERES units held by non-controlling unitholders at $356,695
(December 31, 2020 – $328,535) based on the closing price on the TSX and classified the units as a liability on the
consolidated balance sheets. The mark-to-market loss (gain) arises from the (increase) decrease in ERES’s unit price.
For the Year Ended December 31,
Mark-to-market loss (gain) on ERES units
Distributions to ERES non-controlling unitholders
Loss (gain) on non-controlling interest
2021
25,895
12,756
38,651
$
$
2020
(37,020)
12,542
(24,478)
$
$
13. Mortgages Payable
As at December 31, 2021, mortgages payable bear interest at a weighted average effective rate of 2.52%
(December 31, 2020 – 2.61%) and mature between 2022 and 2036. The effective interest rate as at December 31,
2021 includes 0.05% (December 31, 2020 – 0.05%) for the amortization of the realized component of the loss on
settlement of derivative financial instruments of $32,494 included in accumulated other comprehensive (loss) income
(December 31, 2020 – $32,494). As at December 31, 2021, 99.1% of CAPREIT’s mortgages payable are financed
at fixed interest rates (December 31, 2020 – 99.3%). Investment properties at fair value of $15,919,474 have been
pledged as security as at December 31, 2021 (December 31, 2020 – $14,023,910). CAPREIT has investment properties
with a fair value of $1,182,445 as at December 31, 2021 that are not encumbered by mortgages (December 31, 2020 –
$976,681). Of these, $893,320 of the investment properties are located in Canada (December 31, 2020 – $974,480)
and secure only CAPREIT’s acquisition and operating facility (“Acquisition and Operating Facility”). $274,240 of these
Canadian investment properties also carry a negative pledge relating to the ERES revolving credit facility (“ERES
Credit Facility”). Refer to note 14 for further information. As at December 31, 2021, unamortized deferred financing
costs of $17,989, unamortized fair value loss of $1,992 and unamortized prepaid CMHC premiums of $109,660 are
netted against mortgages payable (December 31, 2020 – $15,453, $1,330 and $96,255, respectively).
Future principal repayments as at December 31, 2021 for the years indicated are as follows:
As at December 31, 2021
2022
2023
2024
2025
2026
2027 – 2036
Deferred financing costs, fair value adjustments and prepaid CMHC premiums
Total portfolio
As at
Represented by:
Mortgages payable – non-current(1)
Mortgages payable – current(1)
(1)
Included in mortgages payable as at December 31, 2021 are non-amortizing mortgages from ERES.
$
Principal Amount
643,460(1)
547,374(1)
606,244(1)
922,025(1)
874,195(1)
2,632,424(1)
6,225,722
(125,657)
$ 6,100,065
% of Total Principal
10.3
8.8
9.7
14.8
14.0
42.4
100.0
December 31, 2021
December 31, 2020
$ 5,456,605
$
4,811,131
643,460
590,071
$ 6,100,065
$
5,401,202
106
2021 Annual ReportNotes to Consolidated Financial Statements
14. Bank Indebtedness
Effective June 18, 2021, CAPREIT entered into a new credit facility agreement upon expiry of the previous
one. CAPREIT made the following changes to its credit facility agreement, among other things: (i) decreased
its Acquisition and Operating Facility from $740,000 to $600,000, (ii) lower margin and fees, (iii) replaced
the conversion feature with a three-year term from June 18, 2021 including the possibility to request a renewal
or extension at any time, subject to the lenders’ consent, and (iv) changed certain financial covenants, which
are further discussed in note 22.
Effective June 30, 2020, CAPREIT amended its credit facility 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. The bridge facility on the Acquisition and Operating Facility
expired on March 15, 2020.
CAPREIT’s credit facilities include the $600,000 Acquisition and Operating Facility, which can be borrowed
in US dollars (“USD”), euros or Canadian dollars (collectively, the “Credit Facilities”). The $65,000 five-year
non-revolving term credit facility (included in mortgages payable) that was included in the previous Credit Facilities
was repaid on January 15, 2021. It bore interest at the bankers’ acceptance rate plus 1.4% per annum. The
Acquisition and Operating Facility matures on June 18, 2024. 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.
The ERES revolving credit facility (“ERES Credit Facility”) and the ERES one-year revolving bridge credit facility
(“ERES Bridge Facility”), each originally maturing on July 8, 2021, were extended to October 29, 2021, under
the same terms and conditions. On October 29, 2021, ERES amended and renewed its existing ERES Credit
Facility with the same two Canadian chartered banks, providing up to €100,000 for a three-year period ending on
October 29, 2024, which resulted in (i) combining the ERES Credit Facility and the ERES Bridge Facility; (ii) lower
interest rates and fees, (iii) certain modifications to CAPREIT’s financial covenants; and (iv) a negative pledge of an
unencumbered property pool provided by CAPREIT, such that it represents 1.50x the facility amount of €100,000.
As at December 31, 2021
Facility
Less: USD LIBOR borrowings
Canadian borrowings
Letters of credit
Available borrowing capacity
Weighted average interest rate including interest rate swaps
As at December 31, 2020
Facility
Less: USD LIBOR borrowings
Letters of credit
Available borrowing capacity
Acquisition and
Operating Facility
$
600,000
(104,329)(1)
(104,488)(2)
(6,673)
ERES Credit
Facility
$
143,910
(102,049)(4)
–
–
Consolidated
Total
$
743,910
(206,378)
(104,488)
(6,673)
$
384,510
$
1.44%(3)
41,861
0.57%(5)
$
426,371
1.15%
Acquisition and
Operating Facility
$
740,000
(104,810)(1)
(7,193)
ERES Credit
Facility
$
156,080
(13,743)(4)
–
Consolidated
Total
$
896,080
(118,553)
(7,193)
$
627,997
$
142,337
$
770,334
Weighted average interest rate including interest rate swaps
1.10%(3)
0.65%(5)
1.05%
(1)
CAPREIT has net USD LIBOR borrowings of USD $82,292 (December 31, 2020 – USD $82,320) that bear interest at the USD LIBOR rate plus a margin
of 1.35% per annum as at December 31, 2021 (December 31, 2020 – 1.65%).
(2) Canadian borrowings bear interest at the bankers’ acceptance rate plus a margin of 1.35% per annum as at December 31, 2021 (December 31,
2020 – 1.65%).
(3)
(4)
(5)
Excluding the impact of cross-currency interest rate swaps, the weighted average interest rate on the Acquisition and Operating Facility is 1.76%
(December 31, 2020 – 1.78%). For details of the swaps, refer to note 21.
ERES has USD LIBOR borrowings of USD $80,300 (December 2020 – USD $10,800) that bear interest at the USD LIBOR rate plus a margin of 1.35%
per annum as at December 31, 2021 (December 31, 2020 – 1.65%).
Excluding the impact of cross-currency interest rate swaps, the weighted average interest rate on the ERES Credit Facility is 1.45% (December 31,
2020 – 1.79% on the ERES Credit Facility and ERES Bridge Facility). For details of the swaps, refer to note 21.
107
Investing in Our FutureNotes to Consolidated Financial Statements
15. 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, 2021, the
maximum number of units issuable under CAPREIT’s unit-based incentive plans (excluding ERES) is 9,500,000 units
(December 31, 2020 – 9,500,000 units). The maximum number of units available for future issuance under these
unit-based incentive plan agreements as at December 31, 2021 is 355,228 units (December 31, 2020 – 550,279 units).
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, 2021, the maximum number of unit options issuable under the ERES UOP is 18,419,405 unit
options (December 31, 2020 – 18,861,857 unit options).
The unit rights and unit options issued or outstanding under CAPREIT’s incentive plans and the ERES UOP as at
December 31, 2021 and 2020 are as follows:
Year Ended December 31, 2021
(Number of units)
Unit rights and unit options outstanding as at
January 1, 2021
Issued, cancelled or granted during the year
Issued or granted
Exercised or settled in Trust Units
Cancelled or forfeited
Distributions reinvested
Unit rights and unit options outstanding as at
December 31, 2021
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 in Trust Units
Cancelled or forfeited
Distributions reinvested
Unit rights and unit options outstanding as at
December 31, 2020
(1) Total CAPREIT excluding ERES UOP.
ERES UOP
DUP
RUR
Total CAPREIT(1)
4,199,694
174,805
563,387
738,192
530,000
–
(30,000)
–
17,103
–
–
4,515
113,511
(204,683)
(5,831)
13,316
130,614
(204,683)
(5,831)
17,831
4,699,694
196,423
479,700
676,123
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
The table below summarizes the change in the total unit-based compensation financial liabilities for the years ended
December 31, 2021 and 2020, including the settlement of such liabilities through the issuance of Trust Units and
ERES units.
For the Year Ended
December 31, 2021
December 31, 2020
Total unit-based compensation financial liabilities, beginning of the year
$
Unit-based compensation expense
Settlement of unit-based compensation awards for Trust Units and ERES units
(Gain) loss on foreign currency translation
33,747
14,615
(11,306)
(161)
$
33,049
4,705
(4,043)
36
Total unit-based compensation financial liabilities, end of the year
$
36,895
$
33,747
108
2021 Annual ReportNotes to Consolidated Financial Statements
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, 2021
December 31, 2020
$
$
$
$
$
14,179
93
14,272
11,777
8,038
2,808
22,623
36,895
$
$
$
$
$
13,887
236
14,123
8,738
9,345
1,541
19,624
33,747
Units or Unit-based Compensation Financial Liabilities Held by Trustees, Officers and Other
Senior Management
As at December 31, 2021, 0.7% (December 31, 2020 – 0.7%) of all Trust Units outstanding and unit-based
compensation financial liabilities were held by trustees, officers and other senior management of CAPREIT.
16. 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, 2021
and 2020, as follows:
For the Year Ended December 31,
DUP
RUR Plan
EUPP
ERES UOP
Unit-based compensation expense
a) DUP
$
2021
3,048
10,453
496
1,114
$
$
15,111
$
2020
733
3,331
455
641
5,160
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 2021 is 100.0% (2020 – 100.0%) of a trustee’s annual Board compensation of
$85 for 2021 and 2020.
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. Distribution Units are issued based on the
five-business-day weighted average closing price of the Trust Units on the TSX prior to the distribution date.
109
Investing in Our FutureNotes to Consolidated Financial Statements
The details of the units issued under the DUP are shown below:
For the Year Ended
December 31, 2021
December 31, 2020
Weighted
Average
Issue Price
Fair Value
per Unit
Number of
Units
Weighted
Average
Issue Price
Fair Value
per Unit
Number of
Units
Outstanding, beginning
of the year
Granted during the year
Additional unit distributions
$
32.42
$
49.99
174,805
$
30.09
$
53.01
57.83
57.13
–
–
17,103
4,515
46.69
49.38
–
–
Outstanding, end of the year
$
35.20
$
59.96
196,423
$
32.42
$
49.99
150,996
19,263
4,546
174,805
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.
b) RUR Plan
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. Distribution RURs are issued 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, 2021
December 31, 2020
Weighted
Average
Issue Price
Fair Value
per Unit
Number of
Units
Weighted
Average
Issue Price
Fair Value
per Unit
Number of
Units
Outstanding, beginning
of the year
Granted during the year
Additional unit distributions
Settled or cancelled during
the year
$
38.71
$
49.99
563,387
$
32.69
$
53.01
50.29
56.59
32.96
–
–
–
113,511
13,316
(210,514)
59.00
48.96
24.73
–
–
–
Outstanding, end of the year
$
44.47
$
59.96
479,700
$
38.71
$
49.99
542,087
87,985
16,116
(82,801)
563,387
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.
110
2021 Annual ReportNotes to Consolidated Financial Statements
17. Exchangeable LP Units
On September 22, 2021, Exchangeable LP units were issued in connection with the acquisition of an investment
property as described in notes 4 and 27. On June 30, 2020, Exchangeable LP Units were issued in connection with
the operating lease buyouts as described in notes 6 and 27.
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
$100,684 as at December 31, 2021 (December 31, 2020 – $16,632), which is based on the closing price of the Trust
Units on the TSX. 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
2021
332,703
1,346,487
–
1,679,190
2020
–
632,761
(300,058)
332,703
18. 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, 2021, 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 year in connection with the following:
Exchangeable LP Units
DRIP
EUPP
RUR Plan
Trust Units outstanding, end of the year
2021
2020
171,751,839
169,869,197
–
1,397,445
52,439
204,683
300,058
1,448,190
53,986
80,408
173,406,406
171,751,839
111
Investing in Our FutureNotes to Consolidated Financial Statements
a) New Trust Units Issued
Year Ended December 31, 2021
There were no new Trust Units issued during the years ended December 31, 2021 and 2020.
b) Exchangeable LP Units
During the year ended December 31, 2021, no Exchangeable LP Units were exchanged for Trust Units.
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 years ended December 31, 2021 and 2020, no DUP units were settled.
f) Restricted Unit Rights Plan
During the year ended December 31, 2021, 210,514 RUR units were settled or cancelled, out of which 204,683 RUR
units were settled for an equivalent number of Trust Units and the remaining RUR units were forfeited. 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.
19. 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 August 2021, monthly cash
distributions declared to Unitholders increased to $0.1208 ($1.45 annually) from $0.1150 ($1.38 annually).
For the Year Ended December 31,
Distributions declared on Trust Units
Distributions per unit
2021
243,348
1.409
$
$
2020
235,649
1.380
$
$
20. 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, 2021, the fair value of CAPREIT’s mortgages payable is estimated to be $6,294,000
(December 31, 2020 – $5,854,000) due to changes in interest rates and foreign exchange 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).
112
2021 Annual ReportNotes to Consolidated Financial Statements
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.
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, 2021, 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.
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
Level 1
Quoted prices
in active markets
for identical assets
and liabilities
Level 2
Level 3
Significant other
observable
inputs
Significant
unobservable
inputs
$
–
–
–
51,286(2)
–
–
(356,695)
–
–
–
–
–
–
$ 16,719,821(1)
114,150(1)
267,948(1)
–
30,926(3)
(3,973)(3)
–
(36,895)
(100,684)
–
–
–
–
–
Total
$ 16,719,821
114,150
267,948
51,286
30,926
(3,973)
(356,695)
(36,895)
(100,684)
$
(305,409)
$
(110,626)
$ 17,101,919
$ 16,685,884
(1)
(2)
(3)
Fair values for investment properties are calculated using either the DC or the DCF 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.
113
Investing in Our FutureNotes to Consolidated Financial Statements
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, 2021,
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, 2021, there were no transfers between Level 1, Level 2 and Level 3 during the period.
b) Risk Management
The main risks arising from CAPREIT’s financial instruments are interest rate, liquidity, credit and foreign currency
risks. CAPREIT’s approach to managing these risks is summarized as follows:
Interest Rate Risk
CAPREIT is subject to the risks associated with debt financing, including the risk that mortgages and credit facilities
will not be able to be refinanced on terms 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, 2021 and 2020, 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, 2021
December 31, 2020
+100
-100
+100
-100
$
$
$
$
1,204
(1,204)
13,881
(13,884)
$
$
$
$
1
(1)
3,977
(4,058)
(1) Represents the parallel interest rate shift of both the USD 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, 2021, interest rate risk has been minimized, as 99.1% (December 31,
2020 – 99.3%) 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, 2020 – 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 98.5% of CAPREIT’s mortgages are CMHC-insured (excluding
$1,205,252 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, 2021, CAPREIT had undrawn lines of credit in the amount
of $384,510 (December 31, 2020 – $627,997), excluding borrowing capacity under the ERES Credit Facility and the
ERES Bridge Facility, while available.
114
2021 Annual ReportNotes to Consolidated Financial Statements
CAPREIT has available borrowing capacity in its Credit Facilities, as described in note 14, 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.
The contractual maturities and repayment obligations of CAPREIT’s financial liabilities as at December 31, 2021
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
2022(2)
2023 – 2024
2025 – 2026
2027 onward
$
643,460
$
1,153,618
$
1,796,220
$
2,632,424
–
134,458
1,890
155,872
2,816
–
1,119
43,675
20,953
310,866
219,539
2,770
–
–
–
2,451
–
–
–
159,462
–
–
1,157
–
2,639
–
–
–
198,496
–
–
–
356,695
43,226
–
–
$
1,004,243
$
1,689,244
$
1,959,478
$
3,230,841
(1) Based on current in-place interest rates for the remaining term to maturity.
(2) Estimates of the amounts as at December 31, 2021.
(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.
CAPREIT mitigates the risk of credit loss with respect to the borrower of VTBs by ensuring that adequate collateral
has been obtained for the VTBs. The VTBs are secured by the property that was purchased by the borrower.
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 USD LIBOR borrowings, cross-currency swap and euro LIBOR borrowings. The (loss) gain
on foreign currency translation relating to CAPREIT’s subsidiaries in Ireland, the Netherlands and IRES investment
is recognized in other comprehensive (loss) income. The mark-to-market on the cross-currency swap and foreign
exchange translation on the USD LIBOR borrowings are recognized in the consolidated statements of income and
comprehensive income.
115
Investing in Our FutureNotes to Consolidated Financial Statements
21. Derivative Financial Instruments
a) Contracts for Which Hedge Accounting is Being Applied
In June 2011, CAPREIT entered into a hedging program, which effectively hedged interest rates on approximately
$312,000 of mortgages refinanced between September 2011 and June 2013. These mortgages have been
refinanced for 10-year terms maturing between 2021 and 2023, 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 (loss) income (see note 24). The hedging program
matured in June 2013, for which hedge accounting was applied. The ineffective portion and the difference between
the settled amount and the mark-to-market have been recognized in net income. All contracts have been settled.
The forward interest rate derivative liability has been summarized as follows:
As at
Derivative liability in (AOCL) AOCI, beginning of the year
Amortization from (AOCL) AOCI to interest and other financing costs
Derivative liability in (AOCL) AOCI, end of the year
December 31, 2021
December 31, 2020
$
$
(3,762)
2,170
(1,592)
$
$
(6,005)
2,243
(3,762)
b) Contracts for Which Hedge Accounting is No Longer Effective
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, 2021, $270 (December 31, 2020 – $271) was
amortized from (AOCL) AOCI to mortgage interest expense.
c) Contracts for Which Hedge Accounting is Not Being Applied
CAPREIT has certain derivative financial instruments in place, namely interest rate swaps and cross-currency
interest rate (“CCIR”) swaps. These derivative contracts, for which hedge accounting is not being applied, consist
of the following:
As at December 31, 2021
Type of instrument
CCIR Swap(1)
CCIR Swaps(2)
ERES Interest Rate Swap(3)
ERES Interest Rate Swaps
ERES CCIR Swaps(4)
Consolidated Total
As at December 31, 2020
Type of instrument
CCIR Swap(5)
CCIR Swap(1)
CCIR Swaps(2)
ERES Interest Rate Swap(3)
ERES CCIR Swaps(4)
Consolidated Total
(1) Euro equivalent of €74,000.
Notional amount
Maturity year
Weighted average
receiving leg rate
Weighted average
paying leg rate
Derivative asset
(liability)
US$
82,525
2022
US LIBOR +1.65%
1.05%
$
$
€
€
570,694
25,500
156,550
US$
80,300
2022 – 2025
1.07%
EURIBOR + 1.38%
EURIBOR
0.08%
0.49%
(0.06)%
US LIBOR + 1.35%
EURIBOR + 1.15%
Notional amount
Maturity year
Weighted average
receiving leg rate
Weighted average
paying leg rate
Derivative asset
(liability)
$
26,952
$
US$
$
€
US$
65,000
82,525
500,986
25,500
10,800
BA + 1.40%
0.97%
$
USD LIBOR + 1.65%
2022 – 2025
1.11%
EURIBOR + 1.38%
1.05%
0.10%
0.49%
USD LIBOR + 1.65%
EURIBOR + 1.20%
(2,115)
29,550
(769)
987
(701)
(5,048)
(10,318)
(5,844)
(1,401)
55
2025
2027
2022
2021
2021
2025
2021
$
(22,556)
(2) Euro equivalent of €368,358 (December 31, 2020 – €323,540). This CCIR swap consists of a current derivative asset of $8,506 (December 31, 2020 – $nil)
and a non-current derivative asset of $21,044 (December 31, 2020 – $(5,844)).
(3)
As at December 31, 2021, the interest rate swap consists of a non-current derivative asset of $389 (December 31, 2020 – $778) and a non-current
derivative liability of $1,157 (December 31, 2020 – $2,179).
(4) Euro equivalent of €71,050 (December 31, 2020 – €8,800).
(5) Euro equivalent of €44,818. The CCIR swap was terminated in January 2021 prior to its maturity date of June 2021. The gain on settlement was $966.
116
2021 Annual ReportNotes to Consolidated Financial Statements
22. 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 14) 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.
During 2021, CAPREIT’s Large Borrower Agreement (“LBA”) with CMHC expired. The expiry of the LBA has not
affected the manner in which CAPREIT conducts its business or its approach to mortgage financing, including the
use of CMHC financing. CAPREIT continues to obtain CMHC financing under substantively similar provisions.
The total capital managed by CAPREIT is as follows:
As at
Mortgages payable
Bank indebtedness
Unitholders’ equity
Exchangeable LP Units
Total capital
December 31, 2021
December 31, 2020
$ 6,100,065
$
5,401,202
310,866
10,399,886
100,684
118,553
9,273,702
16,632
$ 16,911,501
$ 14,810,089
As described in note 14, CAPREIT entered into a new credit facility agreement on June 18, 2021. The new Credit
Facilities introduced the following covenants: (i) total debt to gross book value of CAPREIT’s total assets shall be
less than 62.50%, and (ii) the funds from operations (“FFO”) payout ratio shall not exceed 100% based on the trailing
four quarters. FFO shall be calculated in accordance with the recommendations of the Real Property Association
of Canada (“REALpac”) and will be subject to the adjustments disclosed in the most recent annual report and such
other adjustments as may be agreed with the lender. Furthermore, the following changes were made to the financial
covenants under the new Credit Facilities: (i) the minimum tangible net worth increased from $2,400,000 to the sum
of $5,000,000 and 75% of the net cash proceeds received in connection with any issuance or sale of equity by
CAPREIT after the closing date of the new Credit Facilities, (ii) the minimum debt service coverage ratio increased
from 1.20 to 1.40, and (iii) the minimum interest coverage ratio increased from 1.50 to 1.65.
117
Investing in Our FutureNotes to Consolidated Financial Statements
The results of CAPREIT’s compliance with the key covenants are summarized below(1):
Total debt to gross book value(2)
Threshold
December 31, 2021
December 31, 2020
Maximum 62.50%
36.12%
35.54%
Tangible net worth(3)
Minimum of $5,000,000
$ 10,522,332
$
9,307,613
Debt service coverage ratio (times)(4),(5)
Interest coverage ratio (times)(4),(6)
Minimum 1.40
Minimum 1.65
1.97
4.02
2.01
3.95
(1)
CAPREIT’s FFO payout ratio did not exceed 100% for the trailing four quarters ended December 31, 2021. As at December 31, 2021, CAPREIT is in
compliance with its debt covenant on the FFO payout ratio.
(2) CAPREIT’s new Credit Facilities limit the maximum amount of total debt to 62.5% 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.
(3)
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. Per the Credit Facilities that CAPREIT entered into on June 18,
2021, tangible net worth should be at a minimum of $5,000,000 plus 75% of proceeds of future equity raises subsequent to June 18, 2021. There have
been no equity raises subsequent to June 18, 2021 to date.
(4) Based on the trailing four quarters.
(5)
As per the Credit Facilities agreement, 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.
(6)
As per the Credit Facilities agreement, 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 €375,000, a minimum debt service coverage ratio of 1.35 and a minimum interest coverage
ratio of 1.50. As at December 31, 2021, ERES is in compliance with its debt covenants.
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 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.
23. 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 real estate investment
trust (“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 operating 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.
118
2021 Annual ReportNotes to Consolidated Financial Statements
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
2021
2020
$ 1,473,976
$
954,491
(1,162,021)
311,955
77,989
–
252
4,036
(1,098)
709
(707)
(863,181)
91,310
22,828
1,209
(95)
4,547
(1,893)
592
1,375
$
81,181
$
28,563
(1)
Consists primarily of Canadian income including fair value adjustment of Canadian investment properties, interest on and fair value adjustments
of Exchangeable LP Units, and other adjustments.
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
2021
4,539
76,642
81,181
$
$
2020
3,350
25,213
28,563
$
$
The deferred income tax liability of $133,974 (December 31, 2020 – $59,964) is primarily related to the difference in
tax and book basis of investment properties. The deferred income tax asset of $5,010 (December 31, 2020 – $2,032)
also relates to the difference in the tax and book basis of investment properties, as well as loss carry-forwards.
As at December 31, 2021, CAPREIT has total non-capital loss carry-forwards of $18,040 (December 31, 2020 – $16,501).
Of these losses, $13,449 (December 31, 2020 – $11,948) 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 $4,591 (December 31, 2020 – $4,553) are in respect of German subsidiaries and have no expiry period.
CAPREIT has not recognized a deferred tax asset for a deductible temporary difference of $4,824 as it does not
expect this difference to reverse in the foreseeable future.
24. Accumulated Other Comprehensive (Loss) Income
For the Year Ended December 31,
(AOCL) AOCI balance, beginning of the year
Other comprehensive (loss) income:
Amortization from (AOCL) AOCI to interest and other financing costs(1)
(Loss) gain on foreign currency translation
Other comprehensive (loss) income
(AOCL) AOCI balance, end of the year
As at
(AOCL) AOCI comprises:
Net cumulative loss on derivative financial instruments
Net cumulative loss on forward interest rate hedge(1)
Cumulative (loss) gain on foreign currency translation
Reversal of cumulative foreign currency translation relating to IRES ownership dilution
(AOCL) AOCI balance, end of the year
2021
2020
$
70,047
$
(19,510)
2,440
(115,884)
(113,444)
$
(43,397)
$
2,570
86,987
89,557
70,047
December 31, 2021
December 31, 2020
$
$
(110)
(1,592)
(44,822)
3,127
$
(43,397)
$
(380)
(3,762)
71,062
3,127
70,047
(1) The estimated amount of the amortization expected to be reclassified to net income from (AOCL) AOCI in the next 12 months is $1,278.
119
Investing in Our FutureNotes to Consolidated Financial Statements
25. 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
2021
2020
$
138,293
$
133,217
10,041
6,110
1,119
4,900
18,505
7,955
441
4,507
$
160,463
$
164,625
(1)
(2)
(3)
Includes amortization of deferred financing costs, fair value adjustments and OCI hedge interest for the year ended December 31, 2021 of $6,263
(December 31, 2020 – $6,471).
During the year ended December 31, 2020, CAPREIT expensed $14,348 of prepaid CMHC premiums related to mortgages which were refinanced
in 2020 and previous years as these premiums no longer had future economic benefits.
Includes amortization of deferred loan costs of $710 (December 31, 2020 – $1,304).
26. 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
2021
2020
$
242,624
$
338,317
50,035
18,321
(14,134)
32,455
86,394
21,397
8,388
13,009
$
9,046
$
12,754
(19,788)
13,801
(4,116)
(9,498)
On August 31, 2021, CAPREIT purchased the remaining 50% interest in a joint arrangement located in Toronto, ON.
Refer to note 4 for further information.
On October 1, 2021, CAPREIT disposed of its 33.3% interest in a joint arrangement located in Toronto, ON.
Refer to note 5 for further information.
The results of the above two joint arrangements for the period during which they were in place are included in the
table above.
27. 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
$
2021
(1,672)
1,119
12,756
129,345
5,400
4,900
$
2020
(3,200)
441
12,542
122,138
6,650
4,507
$
151,848
$
143,078
120
2021 Annual ReportNotes to Consolidated Financial Statements
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
MHC home inventory
Accounts payable and other liabilities
Derivative liability
Security deposits
Current tax liability
$
$
2021
(1,279)
(1,125)
(864)
(4,219)
(8,138)
5,961
(979)
2,995
(3,698)
Net decrease in non-cash operating assets and liabilities
$
(11,346)
$
2020
(1,748)
(479)
(614)
(4,677)
–
2,237
(34,426)
1,369
(16,702)
(55,040)
Derivative liability, previously included in accounts payable and other liabilities, is now presented separately.
The comparative period has been reclassified to conform with current year presentation.
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 CAPREIT 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
Less: Distributions to non-controlling participants in the ERES DRIP
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
Issuance of Exchangeable LP Units
Change in investment properties included in accounts payable and other liabilities
Net disbursements
f) Operating Lease Buyout
For the Year Ended December 31,
Operating lease buyout
Issuance of Exchangeable LP Units
Net disbursements
2021
2020
$
(257,223)
$
(248,632)
(19,751)
20,953
75,739
(920)
745
2,265
(38)
406
50
(19,533)
19,751
68,108
(832)
920
–
–
38
109
$
(177,774)
$
(180,071)
2021
$
(309,744)
10,325
$
(299,419)
2020
(250,607)
5,750
(244,857)
$
$
2021
2020
$
(1,053,497)
$
(825,681)
1,246
131,614
(2,723)
83,385
–
187
112,655
22,252
–
5,189
$
(839,975)
$
(685,398)
2021
(4,457)
–
(4,457)
2020
(158,565)
30,746
(127,819)
$
$
$
$
121
Investing in Our FutureNotes to Consolidated Financial Statements
g) Disposition of Investment Properties
For the Year Ended December 31,
Proceeds
Closing costs
Working capital adjustments
Issuance of VTB
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
(Gain) loss on foreign currency translation
Net change in deferred financings costs, fair value adjustment and prepaid CMHC premiums
Balance, end of the year
j) Bank Indebtedness
For the Year Ended December 31,
Balance, beginning of the year
Net borrowings (repayments) before foreign currency translation
Loss (gain) on foreign currency translation
Balance, end of the year
2021
$
143,381
$
(241)
1,044
(114,990)
–
$
29,194
$
2021
$
14,444
–
(11,306)
$
3,138
$
$
2020
56,760
(1,387)
(730)
–
(21,331)
33,312
2020
21,863
(15,344)
(4,043)
2,476
2021
2020
$ 5,401,202
$
4,228,805
317,614
1,023,351
381,412
1,148,552
(149,996)
(521,375)
–
131,614
(87,069)
(15,276)
(136,087)
(353,966)
(21,331)
112,654
60,176
(19,013)
$ 6,100,065
$
5,401,202
2021
2020
$
118,553
$
623,893
189,305
3,008
(498,783)
(6,557)
$
310,866
$
118,553
122
2021 Annual ReportNotes to Consolidated Financial Statements
28. 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)
Interest income from mortgages receivable
Profit from sale of MHC home inventory(3)
Other
Total
$
$
2021
1,493
18,455
9,863
778
945
179
$
31,713
$
2020
1,226
17,173
9,592
–
–
1,999
29,990
(1)
CAPREIT’s share of IRES’s investment property fair value change, earnings and foreign exchange effects thereon. For the years ended December 31,
2021 and 2020, CAPREIT’s share of IRES’s investment property fair value gain is $9,271 and $6,141, respectively.
(2) Based on investment management agreement with IRES, which owns properties in Ireland.
(3) Consists of income from sale of MHC home inventory of $3,459 offset by cost of sales of $2,514.
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, 2021, miscellaneous revenues of $25,873 were included in revenue
from investment properties (year ended December 31, 2020 – $18,794). Miscellaneous revenues consist of
cable income, certain common area maintenance recoveries, service charges, premium service components
and sale of MHC home inventory.
29. Related Party Transactions
a) IRES Transactions
As at December 31, 2021, CAPREIT has an 18.7% share ownership in IRES and has determined that it has significant
influence over IRES. 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, 2021 are asset management and property management
fees of $9,863 (year ended December 31, 2020 – $9,592). Expenses related to the asset and property management
services are included in trust expenses. The amount receivable from IRES as at December 31, 2021 is $3,237
(December 31, 2020 – $1,831).
On March 31, 2021, CAPREIT provided 12 months’ notice of termination of its IMA with IRES, which will become
effective March 31, 2022. The services agreement will terminate automatically upon termination of the IMA. The initial
five-year term IMA between CAPREIT and IRES expired on November 1, 2020. The IMA subsequently rolled into a
second five-year term under the original terms. Under the second five-year term, 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.
On August 6, 2021, IRES served a notice of termination of the IMA and exercised its obligation to acquire IRES Fund
Management Limited for €1, effective January 31, 2022 and subject to approval from the Central Bank of Ireland.
In the interim, CAPREIT will continue to provide all the services pursuant to the current IMA and services agreement
on their existing terms.
123
Investing in Our FutureNotes to Consolidated Financial Statements
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 benefits
Unit-based compensation – grant date amortization
Unit-based compensation – fair value remeasurement
Total
c) ERES Transactions
$
$
2021
3,546
2,982
6,528
4,393
$
10,921
$
2020
3,862
2,618
6,480
(778)
5,702
Asset Management Agreement
CAPREIT entered into a management agreement with ERES pursuant to which CAPREIT acts as the asset
manager to ERES, except for the commercial properties (the “Asset Management Agreement”). CAPREIT provides,
among other things, strategic, advisory, asset management, project management, construction management and
administrative services necessary for ERES.
The Asset 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 CAPREIT 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, CAPREIT will reimburse ERES for the difference. To the extent that
the financing fees charged by CAPREIT are less than the actual amount of such expenses, ERES will pay the
difference as an additional financing fee amount.
Property Management Agreement
CAPREIT entered into a property management agreement with ERES pursuant to which CAPREIT acts as the
property manager to ERES for residential properties and receives 3.5% of EGI for its services.
124
2021 Annual ReportNotes to Consolidated Financial Statements
Services Agreement
CAPREIT has entered into a services agreement with ERES pursuant to which CAPREIT provides ERES with certain
administrative services, including financial, information technology, internal audit and other support services as
may be reasonably required from time to time. CAPREIT provides these services to ERES on a cost recovery basis.
Pipeline Agreement
CAPREIT entered into a pipeline agreement with ERES (the “Pipeline Agreement”) pursuant to which CAPREIT, for
a period ending on March 29, 2021, makes up to $237 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”). On March 20,
2021, the Pipeline Agreement was extended under the same terms and conditions for a subsequent two-year period,
ending on March 29, 2023. 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.
There were no acquisitions made pursuant to the Pipeline Agreement during the years ended December 31, 2021
and 2020.
Promissory Note
On December 20, 2021, ERES issued a $57,409 (€39,300) promissory note to CAPREIT, with a maturity date of
June 20, 2022 and an interest rate of 1.30% per annum. ERES repaid the promissory note in full on December 30,
2021, without penalty. ERES’s promissory note to CAPREIT represented contingency financing for ERES’s
December 22, 2021 acquisition portfolio, that was ultimately funded directly with long-term mortgage financing.
The table below summarizes fees charged to ERES:
For the Year Ended December 31,
Asset management fees
Acquisition fees
Property management fees
Service fees
Interest from promissory note
Total
$
$
2021
7,405
2,140
4,033
798
21
2020
6,896
1,266
3,722
592
–
$
14,397
$
12,476
Any fees charged by CAPREIT to ERES are eliminated upon consolidation in these consolidated annual
financial statements.
125
Investing in Our FutureNotes to Consolidated Financial Statements
30. Commitments
Natural Gas
Through the combination of fixed and variable price contracts, CAPREIT is committed as at December 31, 2021
in the aggregate amount of $14,048 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
2022
2023
2024
$
2.28
$
2.31
$
2.31
$
82.2%
68.1%
54.6%
$
1.11
$
0.81
$
0.75
$
69.7%
68.1%
54.6%
2025
2.26
32.0%
0.79
32.0%
(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 $37,153 were outstanding as at
December 31, 2021 (December 31, 2020 – $21,618).
31. 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 where appropriate.
126
2021 Annual ReportNotes to Consolidated Financial Statements
32. 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
819,219
(297,433)
521,786
760,988
Canada
775,675
(278,975)
496,700
523,144
$
$
$
$
$
$
For the Year Ended December 31, 2021
Europe
113,918
(25,711)
88,207
287,754
Consolidated
financial statements
$
$
$
933,137
(323,144)
609,993
1,048,742
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
$
$
$
$
$
$
Canada
Europe
As at December 31, 2021
Consolidated
financial statements
$ 14,425,769
$
2,676,150
$ 17,101,919
4,928,030
1,172,035
6,100,065
Canada
Europe
As at December 31, 2020
Consolidated
financial statements
$ 12,701,156
$
2,299,435
$ 15,000,591
4,306,405
1,094,797
5,401,202
33. Subsequent Events
On January 25, 2022, CAPREIT completed the acquisition of a six-storey 59-suite apartment and townhouse
property located in downtown Kelowna, British Columbia. CAPREIT paid $29,500, funded by the Acquisition and
Operating Facility and the assumption of a $17,135 mortgage maturing on December 1, 2026.
On January 31, 2022, CAPREIT’s IMA with IRES was terminated. As a result, CAPREIT ceased to have significant
influence over IRES, and its investment in IRES will now be recognized as an investment measured at FVTPL.
CAPREIT will continue to provide transition services for a period of three months for total fees of approximately
$1,500.
On January 31, 2022, ERES acquired a multi-residential property comprised of 45 suites located in Rijswijk,
the Netherlands, for a purchase price of $27,807 (€19,500). On January 26, 2022, ERES issued a $27,014 (€19,000)
promissory note to CAPREIT, with a maturity date of July 26, 2022 and an interest rate of 1.30% per annum.
The proceeds of the promissory note were used to fund the acquisition.
127
Investing in Our FutureNotes 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.capreit.ca
Officers
Michael Stein
Chairman
Mark Kenney
President and Chief Executive Officer
Scott Cryer
Chief Financial Officer
Jodi Lieberman
Chief People, Culture and Brand Officer
Corinne Pruzanski
General Counsel and Corporate Secretary
Investor Information
Analysts, Unitholders and others seeking financial
data should visit CAPREIT’s website at www.capreit.ca
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.”