Choice Properties REIT Annual Report 2019

FY2019 Annual Report · Choice Properties REIT

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2019
Annual Report

Rendering of West Block | Toronto ON

300 Veterans Blvd NE | Airdrie AB

Letter to Unitholders

Fellow Unitholders,

Choice Properties is well-positioned for long term value
creation with an exceptional portfolio of
income
producing properties and an impressive pipeline of
future development opportunities. This combination
provides the foundation for us to deliver on our goals
of stability and growth for our investors over a long-
term investment horizon. For us, stability means the
preservation of your capital investment and the reliability
of your monthly distribution. Growth means responsible
distribution and net asset value growth over time.

Our income producing property portfolio is comprised
of 708 properties and 66 million square feet of
gross leasable area representing a total asset value
of approximately $14.9 billion. Retail real estate
represents the majority of our portfolio, with a focus on
grocery-anchored properties with necessity-based
tenants. We believe this asset class is less sensitive to
short term economic fluctuations and the ever-changing
retail environment. We are diversified beyond retail
real estate through our ownership of industrial, office
and residential properties with a national footprint in
Canada’s largest markets. This diversification reduces
risk, helps stabilize cash flows and opens more avenues
for investment and growth. Our portfolio continues to
deliver stability and growth with year end occupancy of
97.7% and same-asset net operating income growth of
2.6% over the prior year.

Our development initiatives continue to provide us with
opportunities to add high-quality real estate to our
portfolio at a reasonable cost. In 2019, we completed
32 development projects at a total cost of $232 million,
delivering over 1 million square feet of best-in class real
estate to our income producing portfolio.

Looking forward, over time we anticipate investing
approximately $1 billion
in our current active
development pipeline, of which $410 million has already
been invested. We will continue to deliver commercial
properties to our income producing portfolio, through
a mix of at-grade retail intensification and larger scale
greenfield development of both retail centres and new
generation industrial assets. Through development, we
will also look to expand our growing presence in the
rental residential market. Most of our active pipeline
consists of rental residential projects within the Greater
Toronto Area and with close proximity to major transit.

In addition to our current development program,
one of our significant competitive advantages is the
opportunity to redevelop our grocery anchored retail
properties. We expect that these urban projects will be
close to public transportation and will be transformed
into major mixed-use communities with a residential
focus. Currently we have four major mixed-use sites in
the planning stages, and we own many retail properties
where residential density could be added. These are
exciting opportunities and ones that we think will allow
Choice to grow its footprint in residential real estate and
allow us to add high quality real estate to our portfolio
for years to come.

Our business is supported by an industry leading
balance sheet. This is a key enabler for both the stability
and growth that underpin our business model. In 2019,
we made significant progress in strengthening our
balance sheet and improving our leverage metrics. We
issued equity in May 2019 for total gross proceeds of
$395 million and in September we closed on the sale of
a 30-property portfolio for total proceeds of $426 million.
The proceeds from these transactions were used to
repay debt and lower our leverage. Over the past year,
we reduced our leverage ratio from 8.0x to 7.5x and are
currently one of the lowest levered REITs in Canada. The
strength of our balance sheet provides us with future
financial flexibility to fund our development pipeline.

As Canada’s preeminent real estate investment trust, we
are ideally positioned to achieve our goals. Our income
producing portfolio is stable and we have meaningful
traction in our development program. Together the
unique combination of stability and growth is at the core
of Choice’s commitment to driving long term value for
our unitholders.

Thank you for your continued confidence.

Rael L. Diamond
President & Chief Executive Officer

February 12, 2020

Rendering of 985 Woodbine Ave | Toronto ON

Management’s
Discussion and Analysis

(1) See Section 15, “Non-GAAP Financial Measures”, of this MD&A.
(2) To be read in conjunction with the “Forward-Looking Statements” included in the Notes for Readers located on page 4 of this MD&A.

Notes for Readers

Please refer to the Choice Properties Real
Estate Investment Trust (“Choice Properties”
or the “Trust”) audited consolidated financial
statements for the year ended December 31,
2019 and accompanying notes (“2019 Financial
Statements”) when reading this Management’s
Discussion and Analysis (“MD&A”). In addition,
this MD&A should be read in conjunction with
the Trust’s “Forward-Looking Statements” as
listed below. Choice Properties’ 2019 Financial
Statements have been prepared in accordance
with International Financial Reporting Standards
(“IFRS” or “GAAP”) and were authorized for
issuance by the Board of Trustees (“Board”).

In addition to using performance measures
determined in accordance with IFRS, Choice
Properties’ management
also measures
performance using certain additional non-GAAP
measures and provides these measures
in
this MD&A so that investors may do the same.
Such measures do not have any standardized
definitions prescribed under IFRS and are,
therefore, unlikely to be comparable to similar
measures presented by other
real estate
investment trusts or enterprises. Please refer to
Section 15, “Non-GAAP Financial Measures” for
a list of defined non-GAAP financial measures
and reconciliations thereof.

On May 4, 2018, Choice Properties completed the
acquisition of Canadian Real Estate Investment
Trust (“CREIT”), an unincorporated, closed-end
real estate investment trust that traded on the
TSX, by acquiring all the assets and assuming all
the liabilities for total consideration of $3.7 billion.
The consideration was comprised of $1.65 billion
in cash with the balance funded through the
issuance of 182,836,481 Units (the “Acquisition
Transaction”). The Acquisition Transaction
brought together two leading Canadian REITs
and introduced asset class diversification to
Choice Properties, while continuing to leverage
its strategic relationship with Loblaw. The impact
of the Acquisition Transaction on the Trust’s
operating results and key performance indicators
is discussed throughout this MD&A.

This Annual Report, including this MD&A,
contains
forward-looking statements about
Choice Properties’ objectives, outlook, plans,
goals, aspirations, strategies, financial condition,
results of operations, cash flows, performance,
prospects, opportunities, and legal and regulatory
matters. Specific statements with respect to
anticipated future results and events can be
found in various sections of this MD&A, including
but not limited to, Section 3, “Investment
Properties”, Section 5, “Results of Operations”,
Section 6, “Leasing Activity”, Section 7,
“Results of Operations - Segment Information”,
and Section 14, “Outlook”. Forward-looking
statements are typically identified by words such
as “expect”, “anticipate”, “believe”, “foresee”,
“could”, “estimate”, “goal”, “intend”, “plan”,
“seek”, “strive”, “will”, “may”, “should” and
similar expressions, as they relate to Choice
Properties and its management.

Forward-looking statements reflect Choice
Properties’ current estimates, beliefs and
assumptions, which are based on management’s
perception of historic trends, current conditions,
outlook and expected future developments, as
well as other factors it believes are appropriate in
the circumstances.

Choice Properties’ expectation of operating
and financial performance is based on certain
assumptions, including assumptions about the
Trust’s future growth potential, prospects and
opportunities, industry trends, future levels of
indebtedness, tax laws, economic conditions
and competition. Management’s estimates,
beliefs and assumptions are inherently subject to
significant business, economic, competitive and
other uncertainties and contingencies regarding
future events and as such, are subject to change.
Choice Properties can give no assurance that
such estimates, beliefs and assumptions will
prove to be correct.

Numerous risks and uncertainties could cause
the Trust’s actual results to differ materially
from those expressed, implied or projected
in the forward-looking statements,
including
those described in the “Enterprise Risks and
Risk Management” section of this MD&A and
the Trust’s Annual Information Form (“AIF”) for
the year ended December 31, 2019. Selected
highlights of such risks and uncertainties include:
• failure by Choice Properties to realize the
its
anticipated benefits associated with
strategic priorities and major
initiatives,
including failure to develop quality assets
and
effectively manage development,
redevelopment, and renovation initiatives;
• failure by Choice Properties to effectively and
efficiently manage its property and leasing
management processes;

• failure by Choice Properties to anticipate,
identify and react to demographic changes,
including shifting consumer preferences
toward electronic commerce, which may
result in a decrease in demand for physical
space by retail tenants;

to support

infrastructure

• the inability of Choice Properties’ information
technology
the
requirements of Choice Properties’ business,
failure by Choice Properties to identify and
respond to business disruptions, or the
occurrence of any internal or external security
breaches, denial of service attacks, viruses,
worms or other known or unknown cyber
security or data breaches;

• changes in economic conditions, including
changes in interest rates and the rate of
inflation; and

• changes in Choice Properties’ competitiveness

in the real estate market.

and

Units

Choice Properties’ financial results are
impacted by adjustments to the fair value
of
the Exchangeable Units, unit-based
compensation and investment properties.
Exchangeable
unit-based
compensation liabilities are recorded at their
fair value based on the market trading price
of the Trust Units, which results in a negative
impact to the financial results when the Trust
Unit price rises and a positive impact when
the Trust Unit price declines. Investment
properties are recorded at fair value based on
valuations performed by the Trust’s internal
valuation team. These adjustments to fair
value impact certain of the GAAP reported
figures of the Trust, including net income.

Additional risks and uncertainties are
discussed in Choice Properties’ materials
filed with the Canadian securities regulatory
authorities from time to time, including without
limitation, the Trust’s AIF for the year ended
December 31, 2019. Readers are cautioned
not to place undue reliance on these forward-
looking statements, which reflect Choice
Properties’ expectations only as of the date
of this Annual Report. Except as required by
applicable law, Choice Properties does not
undertake to update or revise any forward-
looking statements, whether as a result of
new information, future events or otherwise.

fund

is an unincorporated,
Choice Properties
trust governed
open-ended mutual
by the laws of the Province of Ontario and
established pursuant to a declaration of trust
amended and restated as of May 2, 2018,
as may be amended from time to time (the
“Declaration of Trust”). Choice Properties’
Trust Units are listed on the Toronto Stock
Exchange (“TSX”) and are traded under the
symbol “CHP.UN”.

The Trust was created in 2013 from the owned
real estate of Loblaw Companies Limited
largest Unitholder
(“Loblaw”), the Trust’s
and primary tenant. On November 1, 2018,
Loblaw and George Weston Limited (“GWL”)
completed a reorganization under which
Loblaw spun out its direct effective interest in
Choice Properties to its majority shareholder,
GWL. As of December 31, 2019, GWL had
a 62.9% direct effective interest in Choice
Properties.

about

information

Additional
Choice
Properties has been filed electronically with
the Canadian securities regulatory authorities
through the System for Electronic Document
Analysis and Retrieval
is
available online at www.sedar.com.

(SEDAR) and

This is not an exhaustive list of the factors that
may affect Choice Properties’ forward-looking
statements. Other risks and uncertainties not
presently known to Choice Properties could also
cause actual results or events to differ materially from
those expressed in its forward-looking statements.

The information in this MD&A is current to
February 12, 2020, unless otherwise noted.

All amounts in this MD&A are reported in
thousands of Canadian dollars, except where
otherwise noted.

175 Bloor St East | Toronto ON

2019 Annual Report

Our Portfolio Mix
To generate long term value by owning, managing and
developing a diversified portfolio of high quality properties.

Retail Portfolio

The retail portfolio is primarily focused on
necessity-based retail tenants. Management
views the retail portion of the portfolio
as the foundation for maintaining reliable
cash flow. In addition to having a national
footprint concentrated in Canada’s largest
markets, stability is attained through the
strategic relationship and long term leases
with Loblaw - Canada’s largest retailer. This
strategic alliance provides Choice Properties
with access to future tenancy and related
opportunities with Loblaw, Shoppers Drug
Mart and other members of the Loblaw group
of companies.

Great Plains Business Park | Calgary AB

North Barrie Crossing Shopping Centre | Barrie ON

Industrial Portfolio

The industrial portfolio is centered around distribution
facilities, warehouses, and buildings used for light
manufacturing of a size and configuration that will
readily accommodate the diverse needs of a broad
range of tenants. Management’s focus in this sector is
on large, purpose-built distribution assets for Loblaw
and high-quality “generic” industrial assets. The
properties are located in target distribution markets
across Canada, where Choice Properties can build
up critical mass to enjoy management efficiencies
and to accommodate the expansion or contraction
requirements of the tenant base. The term “generic”
refers to product that appeals to a wide range of
potential users, so that the leasing or re-leasing time
frame is reduced.

Calgary Place | Calgary AB

Office Portfolio

The office portfolio is focused on
large, well-located buildings in target
markets, with an emphasis on the
downtown core in some of Canada’s
largest cities. Management’s objective
is to seek institutional partners for
these assets as a means to diversify
the managing partner,
risk. As
Choice Properties’ overall
returns
are enhanced through the generation
of fee income from the day-to-day
management and leasing activities at
these properties.

Residential Portfolio (i)

VIA123 | Toronto ON

and

residential

The residential portfolio is a recent
addition to the Choice Properties
real
asset mix. Rental
estate provides additional
income
diversification
generates
further investment opportunities for
asset base growth. Many of these
opportunities to develop residential
properties are by densifying existing
retail sites with residential buildings.
The Choice Properties portfolio of
residential properties is located in
Canada’s largest cities and includes
both newly developed purpose built
residential-
rental buildings and
focused mixed use communities,
many of which are in close proximity
to public transportation.

(i) Residential properties are included in the retail
segment for reporting purposes.

Our Portfolio Mix

RETAIL

576

Properties

INDUSTRIAL

98.0%

Occupancy

46.3M

sq. ft. GLA

113

Properties

97.9%

Occupancy

16.1M

sq. ft. GLA

OFFICE

Properties (ii)

RESIDENTIAL (i)

Properties

DEVELOPMENT

93.3%

Occupancy

3.2M

sq. ft. GLA

0.2M

sq. ft. GLA

Retail

Industrial

Residential

TOTAL

726

Properties (ii)

97.7%

Occupancy

65.8M

sq. ft. GLA

(i) Residential properties are included in the retail segment for reporting purposes.
(ii) Includes development properties.

7020 4th St NW | Calgary AB

2019 Annual Report

Development Program

Development initiatives are a key component of Choice Properties’
business model, providing the opportunity to add high quality real
estate to the portfolio at a reasonable cost. Choice Properties has
internal development capabilities as well as established relationships
with strong real estate developers. With a significant amount of inten-
sification and redevelopment opportunities and a long-term pipeline
of potential mixed-use development projects, Choice Properties is
well positioned for long-term growth and value creation.

2211-20th Sideroad Rd | Innisfil ON

Oshawa Gateway | Oshawa ON

Rendering of Golden Mile | Toronto ON

Rendering of 390 Dufferin St | Toronto ON

10 Lower Jarvis St | Toronto ON

2211-20th Sideroad Rd | Innisfil ON

Intensification

Intensifications are focused on adding retail density
within the existing portfolio. As at December 31, 2019,
Choice Properties had 27 ongoing intensification projects
representing a total of 435,000 square feet.

Greenfield Development

Choice Properties’ development activities include greenfield
projects which are primarily focused on unenclosed retail
shopping centres and industrial parks. As at December 31,
2019, Choice Properties had 17 greenfield development
projects in the pipeline which upon completion will comprise
approximately 1.2 million square feet. A total of $233.6
million has been invested to date in the pipeline. The Trust
currently expects to invest a total of $46.8 million(2) in the
next three to five years.

An advantage of greenfield developments is that they lend
themselves to phased construction creating flexibility to
time developments to take advantage of changing market
conditions.

Oshawa Gateway | Oshawa ON

Major Mixed Use Development

Rendering of Golden Mile | Toronto ON

Rendering of 390 Dufferin St | Toronto ON

Choice Properties currently has a number of sites planned for
major mixed use development with four of these sites in an
active pre-development stage. The four properties are in key
urban markets, including three sites in Toronto, Ontario, and
one in Coquitlam, British Columbia. These developments
are residential focused, mixed use communities with close
proximity to public transportation. A total of $31.0 million
has been invested to date on land acquisition and other
initial development costs. The Trust expects to invest an
additional $20.2 million(2) on pre-development activities
for these projects over the next two to five years before
beginning construction. The projects are in various phases
of pre-development, and Choice Properties continues
to work on finalizing the assembly of land parcels for the
developments.

Residential

Choice Properties has six residential projects in the pipeline
representing 1,246 residential units. As at December 31,
2019, a total of $118.1 million has been invested in these
projects to date and Choice Properties expects to invest
an additional $423.9 million(2) to complete the developments
before transferring them to income producing properties.

2019 Annual Report

Ownership by Asset Class

British
Columbia

Alberta

Saskat-
chewan

Manitoba

Ontario

Total

Retail
Industrial
Office
Residential

39
3
2
0

Total

136

Total

Retail
Industrial
Office
Residential

79
52
2
3

Retail
Industrial
Office
Residential

17
0
0
0

Total

Retail
Industrial
Office
Residential

14
0
0
0

Total

Retail
Industrial
Office
Residential

280

235
38
6
1

(i) As at December 31, 2019.
(ii) Including Illinois, USA.

INCOME PRODUCING

708 PROPERTIES

(i)

576

113

RETAIL

INDUSTRIAL

OFFICE

RESIDENTIAL

Quebec

New-
foundland

New-
Brunswick

Prince Edward
Island

Total

113

Total

Retail
Industrial
Office
Residential

109
2
2
0

Retail
Industrial
Office
Residential

8
1
0
0

Total

Retail
Industrial
Office
Residential

26
2
0
0

Total

Retail
Industrial
Office
Residential

4
0
0
0

Nova
Scotia

Total

Retail
Industrial
Office
Residential

45
15
3
0

STABI LITY &
GROW TH

Strategic Framework

Choice Properties aims to create long
term value by owning, managing and
developing high-quality assets.

Our high-quality and diversified portfolio
provides reliable cash flows and includes
an impressive pipeline of future
development opportunities.

We seek to maximize long term value by
taking a disciplined and sustainable
approach to property operations and
financial management, and by unlocking
value through development activities.

Our goal is to provide NAV appreciation,
stable NOI growth and capital
preservation, all with a long term focus.

110 Yonge St | Toronto ON

3201 Greenbank Rd | Ottawa ON

Sustainability and Responsibility

Choice Properties is committed to conducting business in a manner that is respectful of the environment
and the communities in which Choice Properties operates in. Over the past year, Choice Properties
has focused on developing a formalized and comprehensive sustainability program that addresses
environmental, social and governance (ESG) issues. The program encompasses three key initiatives,
including: (i) integrating ESG into our daily business activities; (ii) establishing targets, and the design of
methodologies to measure achievements; and (iii) developing reporting formats that provide visibility on
Choice Properties’ progress and achievements.

In 2019 we advanced these key initiatives by:

• Posting our Sustainability & Responsibility Commitment publicly on our website;

• Publishing our inaugural Sustainability & Responsibility Highlights Report;

• Committing to 5-year targets that include the reduction of energy, water, waste and greenhouse gases,

certifying our properties under LEED or BOMA BEST, and supporting employee volunteering;

• Achieving a Green Star in our first submission to GRESB, a global assessment that benchmarks real

estate entities’ ESG performance; and

• Launching Choice Cares, a program dedicated to charitable volunteering and philanthropy, and raising

over $300,000 for eight local and national charities.

Choice Properties employs a sustainability team whose primary responsibility is to integrate the Trust’s
Sustainability & Responsibility Commitment into its day-to-day operations. The sustainability team is
supported by a cross-functional steering committee that meets regularly to discuss activities and progress
towards meeting the Trust’s sustainability targets.

For a copy of the Choice Properties Sustainability & Responsibility Commitment and Highlights Report, including additional details about
our strategy and targets, please visit our website under “About Us”.

2019 Annual Report

Our Highlights for 2019...

$0.987
FFO per unit
diluted (1)

+2.6%
Same-asset NOI,
Cash Basis (1)

97.7%
Occupancy

7.5x
Normalized Debt
to EBITDAFV (1)

$1.3B
Rental Revenue
(IFRS)

1801 Hollis St | Halifax NS

...and Q4 2019

$0.237
FFO per unit
diluted (1)

+3.1%
Same-asset NOI,
Cash Basis (1)

97.7%
Occupancy

7.5x
Normalized Debt
to EBITDAFV (1)

$318M
Rental Revenue
(IFRS)

2019 Annual Report

Key Performance Indicators
and Selected Financial Information

The analysis of the indicators focuses on trends and significant
events affecting the financial condition and results of operations.

Q4 2019

Q4 2018

YTD 2019

YTD 2018

*As at or for the three months and year ended December 31, 2019 ($ thousands except where otherwise indicated).

NET INCOME (LOSS) (IFRS)
The quarterly increase was mainly due to a
favourable change in fair value for investment
properties and lower acquisition transaction
and borrowing costs, partially offset by a
reduction in the year-over-year gain recognized
with respect to the fair value adjustment
on Exchangeable Units, an allowance
for
expected credit losses associated with certain
mortgages and loans receivable, non-recurring
reimbursement of contract revenue to Loblaw
for incorrectly allocated solar rooftop leases and
reduced contribution from equity accounted
joint ventures.

The year-over-year decline was primarily due
to cumulative adverse fair value adjustments
for the Exchangeable Units due to increases
in the unit price, partially offset by a decline
in acquisition transaction costs, a full year of
contribution from the Acquisition Transaction
as compared to eight months in the prior year
and a favourable change in the fair value for
investment properties.

RENTAL REVENUE (IFRS)
The quarterly decrease was primarily due to the
effect of dispositions in the third quarter of 2019.
On an annual basis,
increase was
primarily related due to the contribution from
development
the properties
transfers and
acquired as part of the Acquisition Transaction.

the

FFO PER UNIT DILUTED (1)
FFO decreased on a quarterly basis primarily
due to the non-recurring reimbursement of
revenue to Loblaw for incorrectly allocated solar
rooftop leases, offset primarily by a decline in
borrowing costs. On an annual basis, in addition
to the above, FFO increased due to a full year
of contribution from the Acquisition Transaction.

On a per unit basis, the decline in both the
quarter and full year periods was due to
deleveraging in the year arising from the
May 2019 equity offering and the Oak Street
disposition.

AFFO PER UNIT DILUTED (1)
AFFO increased on a quarterly basis primarily
due to a reduction in property capital spending.
On an annual basis, AFFO further increased due
to positive contribution from FFO.

On a per unit basis, for the three months and
year ended December 31, 2019, reported AFFO
per unit diluted of $0.184 and $0.853, with a
payout ratio of 100.3% and 86.8%, respectively.

SAME-ASSET NOI, CASH BASIS (1)
The increase of 3.1% and 2.6% for the
three months and year ended December 31,
2019, respectively, was primarily due to the
contribution from contractual rental steps in the
retail portfolio.

PERIOD END OCCUPANCY
Overall period end occupancy was consistent
year-over-year as positive absorption in the
Ontario and Alberta industrial and Ontario retail
portfolios was offset by net portfolio changes
due to the sale of fully occupied assets.

NORMALIZED DEBT TO EBITDAFV (1)
Debt to EBITDAFV on a 12-month normalized
basis excluded the non-GAAP and proforma
results from the Oak Street disposition.

improvement

The
to
EBITDAFV is primarily a result of the capital
raised through the May 2019 equity offering.

in normalized debt

DEVELOPMENT SPENDING
(PROPORTIONATE) (1)
Development activity reflects spending on 24
active projects during the three months ended
December 31, 2019.

TRANSFERS FROM PROPERTIES UNDER
DEVELOPMENT TO INCOME PRODUCING
(PROPORTIONATE) (1)
As at December 31, 2019, 34 phases were
transferred during the year from properties
under development
income producing,
to
including 8 transfers in the current quarter.

2019 Annual Report

Annual Financial Performance
During the year ended December 31, 2019

NOTABLE HIGHLIGHTS

• Completed the disposition of a 30-property portfolio for an aggregate sale price of $426.3 million to an affiliate of Oak
Street Real Estate Capital LLC (the “Oak Street disposition”). The unencumbered portfolio consisted of 27 stand-alone retail
properties and 3 distribution centres with an average lease term of approximately twelve years with Loblaw.

OPERATING PERFORMANCE

INVESTING AND FINANCING

• Reported net loss for the year of $581.4 million. Included
in this amount was a $932.0 million adjustment to the fair
value of the Exchangeable Units attributable to the unit
price increase for Choice Properties during the year. The
annual net income also included $8.4 million of costs
related to the Acquisition Transaction.

• Active capital recycling with dispositions of $467.9
million in assets, of which the proceeds were utilized to
facilitate $153.1 million in acquisitions, including $133.3
million of income producing properties and $19.8 million
of development properties, and the balance utilized to
repay term debt.

• Reported FFO per unit diluted(1) for 2019 of $0.987.

• AFFO per unit diluted(1) for 2019 was $0.853, reflecting an

86.8% payout ratio.

• Same-asset NOI on a cash basis(1) increased by 2.6%

over the prior year.

• Period end occupancy remained strong at 97.7%, with
retail at 98.0%, industrial at 97.9% and office at 93.3%.
Overall, there was positive absorption of 403,000 sq. ft.,
primarily in the retail and industrial portfolios.

• Net fair value loss on investment properties of $15.3
million on a proportionate share basis(1) due to increases
in fair value on select industrial and office assets, as
well as realized gains from the Oak Street disposition,
offset by a decline in the fair value for power centre retail
assets and a retail asset in Oak Brook, Illinois.

• Ongoing

investment

the development program
with $139.6 million of spending during the year on
intensification, greenfield, major mixed use and
residential development projects.

• During the year, transferred $256.3 million of properties
under development
income producing status,
delivering 1.1 million sq ft of new GLA on a proportionate
share basis.

• Completed a $395.0 million equity offering for 30,042,250
units at $13.15 per unit in May 2019, with net proceeds
of $381.0 million applied to the credit facility.

• Completed a 10-year, $750.0 million debenture offering
at 3.53% in June 2019, with proceeds utilized to repay
$300.0 million of 2019 debenture maturities and $400.0
million of variable rate term loans.

• Ended the year with a debt-to-gross book value(1) at
43.1%, and normalized debt to EBITDAFV(1) and interest
coverage ratios(1) of 7.5 and 3.5 times, respectively.

• Strong liquidity position with $1.4 billion of available credit
and an $11.8 billion pool of unencumbered properties.

650 Portland St | Dartmouth NS

2994 Peddie Rd | Milton ON

Rendering of Block 4 | Brampton ON

525 University Ave | Toronto ON

Fourth Quarter Financial Performance
During the three months ended December 31, 2019

OPERATING PERFORMANCE

INVESTING AND FINANCING

• Reported net income for the quarter of $293.3 million.
Included in this amount was a $206.7 million adjustment
to the fair value of the Exchangeable Units attributable
to the unit price increase for Choice Properties during
the quarter, a $3.0 million allowance for expected
credit losses associated with certain mortgages and
loans receivable, as well as a $7.1 million non-recurring
reimbursement of contract revenue to Loblaw for
incorrectly allocated solar rooftop leases.

• Reported FFO per unit diluted(1) of $0.237. Excluding the
impact of the non-recurring reimbursement of contract
revenue to Loblaw of $7.1 million, FFO for the fourth
quarter was $172.9 million or $0.247 per unit diluted

• AFFO per unit diluted(1) of $0.184, reflecting a 100.3%

payout ratio.

• Same-asset NOI on a cash basis(1) increased by 3.1% over
the same quarter in 2018 primarily due to the increased
rental rates in the retail and industrial portfolios.

• Period end occupancy remained strong at 97.7%, with
retail at 98.0%, industrial at 97.9% and office at 93.3%.

• Net fair value loss on investment properties of $5.9
million on a proportionate share basis(1) due to decreases
in fair value on select retail assets primarily in Ontario
and Alberta, offset by increased fair value on an Ontario
residential development.

• Acquired one retail income producing property in Toronto,
Ontario for $10.9 million and one industrial income
producing property in Toronto, Ontario for $13.8 million.

• Acquired our partner’s 15% interest in two industrial
income producing properties in Milton, Ontario for $28.7
million.

• Sold a fully leased retail property in Red Deer, Alberta for
$8.5 million and our 50% interest in development lands
located in Strathcona County, Alberta for $15.8 million.

• Ongoing investment in the development program
with $30.3 million of spending during the quarter
on intensification, greenfield, major mixed use and
residential development projects.

• Transferred $28.5 million of properties under development
to income producing status, delivering 96,000 square
feet of new GLA on a proportionate share basis.

• Ended the quarter with a debt-to-gross book value(1) at
43.1%, and normalized debt to EBITDAFV(1) and interest
coverage ratios(1) of 7.5 and 3.5 times, respectively.

• Strong liquidity position with $1.4 billion of available credit
and an $11.8 billion pool of unencumbered properties.

Rendering of 39 East Liberty St | Toronto ON

Table of Contents

SECTION 1 - Key Performance Indicators and Selected Financial Information . . . . . . . . . . . . . . . . 24

SECTION 2 - Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

SECTION 3 - Investment Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

SECTION 4 - Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

SECTION 5 - Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

SECTION 6 - Leasing Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

SECTION 7 - Results of Operations - Segment Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

SECTION 8 - Quarterly Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

SECTION 9 - Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

SECTION 10 - Critical Accounting Estimates and Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

SECTION 11 - Accounting Policy Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

SECTION 12 - Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

SECTION 13 - Enterprise Risks and Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

SECTION 14 - Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

SECTION 15 - Non-GAAP Financial Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

KEY PERFORMANCE INDICATORS AND SELECTED FINANCIAL INFORMATION

Choice Properties has identified key financial and operating performance indicators that were derived from, and should be read
in conjunction with, the consolidated financial statements of the Trust dated December 31, 2019 and 2018. The analysis of the
indicators focuses on trends and significant events affecting the financial condition and results of operations of the Trust.

As at or for the years ended December 31
($ thousands except where otherwise indicated)

Number of investment properties

GLA (in millions of square feet)

Occupancy*

Total assets (IFRS)

Total liabilities (IFRS)

Rental revenue (IFRS)

Net income (loss)

Net income (loss) per unit diluted

FFO(1) per unit diluted*

FFO(1) payout ratio*

AFFO(1) per unit diluted*

AFFO(1) payout ratio*

Distribution declared per Unit

2019

726

65.8

97.7%

15,576,195

(12,478,177)

1,288,554

(581,357)

(0.843)

0.987

75.0%

0.853

86.8%

0.740

2018

753

66.8

97.7%

15,549,215

(12,049,229)

1,148,273

649,577

1.111

1.033

71.4%

0.827

89.2%

0.740

2017

546

44.1

98.9%

9,923,511

(8,986,530)

830,630

405,345

0.981

1.072

68.1%

0.863

84.6%

0.730

Weighted average number of Units outstanding – diluted

689,285,790

584,605,228

413,208,961

Debt to total assets(i)*

Debt service coverage(i)*

Normalized Debt to EBITDAFV(1)(ii)*

Indebtedness(iii) – weighted average term to maturity*

Indebtedness(iii) – weighted average interest rate*

* Denotes a key performance indicator

43.1%

3.0x

7.5x

5.2 years

3.74%

47.2%

3.0x

8.0x

5.2 years

3.72%

44.3%

3.7x

7.1x

4.5 years

3.62%

(i)

Debt ratios exclude Exchangeable Units, see Section 4, “Liquidity and Capital Resources”, of this MD&A. The ratios are non-GAAP financial measures calculated
based on the Trust Indentures, as supplemented.

(ii) Calculated on a trailing 12-month normalized basis, excluding lease surrender revenue from Loblaw and the effect of the Oak Street disposition. As at December
31, 2018, calculated on a trailing 12-month normalized basis, excluding lease surrender revenue from Loblaw and includes proforma results of CREIT.

(iii)

Indebtedness reflects senior unsecured debentures and mortgages only.

24 Choice Properties REIT 2019 Annual Report

BALANCE SHEET

The following table reconciles Choice Properties’ balance sheet on a GAAP basis to a proportionate share basis as at the dates
indicated:

($ thousands)

Assets

As at December 31, 2019

As at December 31, 2018

GAAP Basis Reconciliation

Proportionate
Share Basis(1)

GAAP Basis Reconciliation

Proportionate
Share Basis(1)

Investment properties

$ 14,373,000

938,000

15,311,000

$ 14,501,000

1,011,000

15,512,000

Equity accounted joint ventures

606,089

(606,089)

—

734,167

(734,167)

—

Mortgages, loans and notes

receivable
Intangible assets

Accounts receivable and other

assets

Assets held for sale

Cash and cash equivalents

332,286

30,000

95,030

97,800

41,990

—

(12,219)

—

9,494

332,286

30,000

82,811

97,800

51,484

213,410

30,000

39,925

—

30,713

—

9,653

—

10,080

213,410

30,000

49,578

—

40,793

Total Assets

$ 15,576,195

329,186

15,905,381

$ 15,549,215

296,566

15,845,781

Liabilities and Equity

Long term debt

Credit facility and term loans

Exchangeable Units

Trade payables and other

liabilities

Total Liabilities

Equity

$ 6,413,452

314,798

6,728,250

$ 6,062,951

278,443

6,341,394

127,233

5,424,368

—

127,233

5,424,368

1,114,407

4,492,359

—

1,114,407

4,492,359

513,124

14,388

527,512

379,512

18,123

397,635

12,478,177

329,186

12,807,363

12,049,229

296,566

12,345,795

Unitholders’ equity

Non-controlling interests

Total Equity

3,090,217

7,801

3,098,018

—

3,090,217

3,492,185

7,801

3,098,018

3,499,986

—

3,492,185

7,801

3,499,986

Total Liabilities and Equity

$ 15,576,195

329,186

15,905,381

$ 15,549,215

296,566

15,845,781

Balance Sheet Analysis (GAAP Basis)

Line Item

Investment
properties

$ Change Variance Commentary

$ (128,000) The decrease compared to December 31, 2018 is primarily attributable to the sale of
investment properties, net of acquisitions totalling $358,382. The significant activity included
the Oak Street disposition ($426,318), partially offset by capital spending for income
producing properties of $59,365 and properties under development of $72,174, in addition
to the acquisition of the Trust’s partner’s interest in two equity accounted joint ventures which
resulted in the transfer of $181,909 from equity accounted joint ventures during the year.

Equity accounted
joint ventures

(128,078) The net decrease is primarily attributable to the transfer of two properties in Milton, Ontario
to investment properties, offset by the acquisition of Choice Properties’ partner’s interest in
two buildings at an industrial property in Calgary, Alberta, in addition to increased capital
spending and an increase in working capital due to timing.

Mortgages, loans
and notes
receivable

118,876 The increase is primarily attributable to the timing of distributions paid for the Exchangeable
Units held by GWL, which are deferred in exchange for advances on notes receivable.
Included in the year was a $3,000 allowance for expected credit losses associated with
certain mortgages and loans receivable.

Working Capital

(67,230) Net change is primarily a function of timing of business activities.

Long-term debt,
credit facility and
term loans

Exchangeable
Units
Unitholders’ equity

(636,673) The net decrease is primarily due to repayments of the credit facility and term loans with the
use of proceeds from equity financing and proceeds from dispositions of investment
properties.

932,009 As this liability is measured at fair value, the change is due to the increase in the unit price

for Choice Properties since December 31, 2018.

(401,968) Net decrease is primarily due to the annual net loss and distributions to Unitholders, offset

by the proceeds from the Units issued as part of the May 2019 equity offering.

Choice Properties REIT 2019 Annual Report 25

INVESTMENT PROPERTIES

To expand the portfolio and participate in development opportunities, Choice Properties owns varying interests in real estate
entities which hold investment properties. Under GAAP, many of these interests are recorded as equity accounted joint ventures
and, as such, the Trust’s portion of investment properties of these entities is presented on the balance sheet as a summarized
value, not as part of the total investment properties. In addition, the Trust also has one financial real estate asset which is not
included with its investment properties as prepared under GAAP. Refer to Section 15.1, “Investment Properties Reconciliation”,
of this MD&A, for a reconciliation of the continuity of investment properties determined in accordance with GAAP.

The following continuity schedules present Choice Properties’ portfolio inclusive of its financial real estate asset and equity
accounted joint ventures prepared on a proportionate share ownership basis for the periods ended, as indicated:

As at and for the periods ended
December 31, 2019
($ thousands)

Income
producing
properties

Properties
under
development

Investment
Properties(i)

Income
producing
properties

Three Months

Year Ended

Properties
under
development

Investment
Properties(i)

GAAP balance, beginning of period

14,015,000

187,000

14,202,000

14,261,616

239,384

14,501,000

Acquisitions of investment properties(ii)

52,548

917

53,465

133,335

14,860,000

432,000

15,292,000

14,980,616

845,000

245,000

1,090,000

719,000

292,000

1,011,000

Adjustments to reflect equity accounted

joint ventures and financial real
estate asset on a proportionate share
basis(i)

Non-GAAP proportionate share
balance, beginning of period

Capital expenditures

Development capital(iii)

Building improvements

Capitalized interest

Operating capital expenditures

Property capital

Direct leasing costs

Tenant improvement allowances

Amortization of straight-line rent

Transfer to assets held for sale

Transfers from properties under

development

Dispositions

Foreign currency translation

Adjustment to fair value of investment

properties

Non-GAAP proportionate share
balance, December 31, 2019

—

1,452

—

18,859

3,099

7,413

5,622

(68,678)

28,486

(8,500)

(2,328)

29,355

—

918

—

(28,486)

(15,786)

531,384

19,779

15,512,000

153,114

133,870

—

5,698

—

6,815

5,698

30,658

8,172

21,417

26,185

(97,800)

29,355

1,452

918

18,859

3,099

7,413

5,622

—

6,815

—

30,658

8,172

21,417

26,185

(68,678)

(97,800)

—

256,299

(256,299)

—

(24,286)

(436,893)

(31,015)

(467,908)

—

(2,328)

(5,971)

—

(5,971)

(12,973)

7,082

(5,891)

(37,833)

22,583

(15,250)

14,885,000

426,000

15,311,000

14,885,000

426,000

15,311,000

(i)
(ii)
(iii)

Refer to Section 15.1, “Investment Properties Reconciliation”, of this MD&A, for a reconciliation of the continuity of investment properties determined in accordance with GAAP.
Includes acquisition costs.
Development capital included $353 and $4,577 of site intensification payments paid to Loblaw for the three months and year ended December 31, 2019 (December 31, 2018 -
$5,858).

Included in certain investment properties acquired from Loblaw is excess land with development potential. Choice Properties
will compensate Loblaw, over time, with intensification payments determined by a site intensification payment grid as outlined
in the Strategic Alliance Agreement (see Section 9, “Related Party Transactions”, of this MD&A), should Choice Properties pursue
activity resulting in the intensification of such excess land. The fair value of this excess land has been recorded in the unaudited
interim condensed consolidated financial statements.

As at December 31, 2019, the Trust classified its only US retail property as an asset held for sale. The sale of the property to a
third party closed on January 24, 2020, at a sale price of $97,800, excluding transaction costs, for cash consideration.

26 Choice Properties REIT 2019 Annual Report

3.1

Valuation Method

Investment properties are measured at fair value, primarily determined using the discounted cash flow method. Under this
methodology, discount rates are applied to the projected annual operating cash flows, generally over a minimum term of ten
years, including a terminal value based on a capitalization rate applied to the estimated NOI(1) in the terminal year. The portfolio
is internally valued with external appraisals performed each quarter for a portion of the portfolio. The majority of the properties
will be subject to an external appraisal at least once over a four-year period. The fair value of investment properties reflects,
among other things, rental income from current leases and assumptions about rental income from future leases in light of current
market conditions.

Valuations are most sensitive to changes in capitalization rates. Choice Properties’ valuation inputs, including capitalization
rates, are supported by quarterly reports from independent nationally recognized valuation firms. Below are the weighted averages
of key rates used in the valuation models for the Trust’s investment properties (including those within equity accounted joint
ventures) by asset class:

As at December 31, 2019

Discount rate

Terminal capitalization rate

Overall capitalization rate

As at December 31, 2018

Discount rate

Terminal capitalization rate

Overall capitalization rate

Retail

6.88%

6.24%

5.97%

Retail

6.86%

6.21%

5.94%

Industrial

Office

Total Investment Properties

6.51%

5.78%

5.48%

6.05%

5.29%

5.13%

6.77%

6.10%

5.84%

Industrial

Office

Total Investment Properties

6.91%

6.15%

5.84%

6.07%

5.33%

5.16%

6.81%

6.15%

5.87%

Capitalization Rate Commentary

Retail

Capitalization rates remained relatively unchanged as increases in the select power centre assets were partially
offset by decreases in well located, stand alone urban assets.

Industrial

Capitalization rates experienced compression in 2019 primarily due to recent trading activity in this sector,
reflecting strong demand.

Office

Capitalization rates in this sector remain relatively consistent with the prior year, with slight compression reflecting
the continued strength in demand for office space in urban markets.

Choice Properties REIT 2019 Annual Report 27

3.2

Investment Property Transactions

Acquisitions of Investment Properties
The following table summarizes the investment properties acquired in the year ended December 31, 2019:

($ thousands except where otherwise indicated)

Consideration

Location

Date of
Acquisition

Segment

Ownership
Interest

Acquisitions from related parties:

Kingston, ON

Toronto, ON

Langford, BC

Toronto, ON

Mar 7

Sep 25

Dec 13

Retail

Industrial

100%

100%(iv)

100%

Total acquisitions from related parties

Acquisitions from third-parties:

Toronto, ON

Calgary, AB

Toronto, ON

Milton, ON

Mar 29

Land(i)

May 6

Oct 7

Nov 1

Industrial(ii)

Retail(v)

Industrial

50%

50%(ii)

100%

15%(iii)

Total acquisitions from third-parties

GLA

(square
feet)

Purchase
Price

Purchase
Price incl.
Related
Costs

Net Debt
Repayment

Mortgage
Receivable
Settlement

Cash

37,863 $

6,660 $

6,813 $

— $

6,813

114,864

127,549

120,000

400,276

—

138,772

16,840

95,249

99,746

350,607

29,658

22,800

13,250

72,368

18,000

20,000

10,500

13,760

14,440

76,700

30,386

23,462

13,786

74,447

18,862

20,126

10,918

14,034

14,727

78,667

—

30,386

23,462

13,786

74,447

—

18,862

13,537

1,401

5,188

—

13,537

—

10,918

11,749

12,330

25,480

2,285

2,397

39,650

Total acquisitions

750,883 $ 149,068 $

153,114 $

13,537 $

25,480 $ 114,097

(i)

(ii)

Land is currently under development for residential purposes and classified as properties under development.

The property was acquired as part of an equity accounted joint venture.

(iii) Represents additional ownership interest acquired increasing the ownership interest in this property to 100%. As a result, this property was transferred from

an equity accounted joint venture to a consolidated investment as of the acquisition date.

(iv) The acquired property has been recognized as a financial asset classified at fair value through profit and loss under IFRS.

(v) Property acquired from third-party includes a Loblaw lease.

Disposition of Investment Properties
The following table summarizes the investment properties sold in the year ended December 31, 2019:

($ thousands except where otherwise indicated)

Consideration

Location

Olds, AB (parcel)

Brampton, ON

Cowansville, QC(ii)

Portfolio of 30 assets across Canada(i)

Strathcona County, AB

Red Deer, AB(ii)

Total dispositions

Date of
Disposition

Jan 7

Apr 15

Aug 7

Sep 30

Nov 22

Dec 2

Segment

Retail

Development

Retail

Retail/Industrial

Development

Retail

Ownership
Interest

Sale Price excl.
Selling Costs

Cash

50%

100%

50%

100%

600 $

15,229

1,475

426,318

15,786

8,500

467,908 $

600

15,229

1,475

426,318

15,786

8,500

467,908

(i)

On September 30, 2019, Choice Properties sold a 30-property portfolio consisting of 27 stand-alone retail properties and 3 distribution centres with an average
lease term of approximately twelve years.

(ii)

Property dispositions included a Loblaw lease

28 Choice Properties REIT 2019 Annual Report

Acquisitions of Investment Properties
The following table summarizes the investment properties acquired in the year ended December 31, 2018:

($ thousands except where otherwise indicated)

Consideration

Date of

Location

Acquisition Segment

Acquisitions from related parties:

Ownership
Interest

Sainte-Julie, QC

Calgary, AB

Bedford, NS

Kanata, ON

Langley, BC

Jul 3

Nov 14

Land

Retail

Dec 7

Industrial

Total acquisitions from related parties

Acquisitions from third-parties:

Toronto, ON

Riviere-du-Loup, QC

Toronto, ON

Sherbrooke, QC

Toronto, ON

Ottawa, ON

Calgary, AB

Jan 10

Jan 22

Jan 31

Feb 1

Mar 20

May 29

Oct 1

Land

Retail

Land

Retail

Land

Retail

Total acquisitions from third-parties

75%

100%

GLA

(square
feet)

Purchase
Price

Purchase
Price incl.
Related
Costs

Other
liabilities
(assets)
assumed, net

Debt
assumed

Cash

— $

1,575 $

1,616 $

(9) $

— $

1,625

104,773

80,103

103,152

130,563

418,591

1,860

19,363

1,900

22,528

45,285

—

5,408

96,344

31,780

8,950

14,660

20,280

77,245

2,775

2,350

2,807

4,470

31,780

9,084

14,758

20,866

78,104

2,950

2,409

2,990

4,561

17,000

17,915

2,024

1,224

2,086

1,224

32,650

34,135

251

(16)

160

456

—

118

—

145

—

31,529

9,100

14,598

20,796

77,648

2,928

2,407

2,987

4,561

2,805

14,992

—

2,086

1,224

2,805

31,185

Total acquisitions

514,935 $ 109,895 $ 112,239 $

601 $

2,805 $ 108,833

The property acquired was combined with the adjacent Choice Properties owned site.

(i)
(ii) While purchased for the value of the land, some ancillary commercial space was acquired as part of the transaction.

Disposition of Investment Properties
The following table summarizes the investment properties sold in the year ended December 31, 2018.

($ thousands except where otherwise indicated)

Location

Victoriaville, QC

Portfolio of 7 assets in Dartmouth, NS

Ottawa, ON

Calgary, AB

Total dispositions

Date of
Disposition

Jun 21

Aug 27

Oct 1

Dec 4

Segment

Retail

Industrial

Office

Consideration

Ownership
Interest

Sale Price excl.
Selling Costs

Cash

100%

50%

2,745 $

17,300

3,150

104,000

127,195 $

2,745

17,300

3,150

104,000

127,195

Choice Properties REIT 2019 Annual Report 29

3.3

Development Activities

Choice Properties believes that development of properties to their highest and best use is a key driver of incremental and
accretive growth. The Trust’s pipeline of development opportunities includes: (i) intensification of excess density within its
existing retail portfolio (see Section 3.4, “Intensification”), (ii) greenfield developments in large markets, including retail and
industrial projects (see Section 3.5, “Greenfield Development”), (iii) major mixed use development in urban markets (see Section
3.6, “Major Mixed-Use Development”) and (iv) residential development (see Section 3.7, “Residential”).

Choice Properties’ development program, at the Trust’s ownership share(1), as at December 31, 2019 is summarized below:

($ thousands except where otherwise
indicated)

GLA
(square feet)

Total Investment(i)

Project type

Intensification

Retail - Active

Retail - In Planning

Subtotal intensification

Greenfield development

Retail

Industrial

Currently
under
development

Future(2)
development

Total
development

To-date In progress(2)(ii) Future(2)(iii)

Total

99,000

44,000

143,000 $

24,870 $

13,182 $

16,271 $

54,323

—

99,000

255,000

79,000

292,000

336,000

304,000

571,000

292,000

5,122

—

98,158

103,280

435,000

29,992

13,182

114,429

157,603

559,000

204,288

39,558

41,907

285,753

650,000

29,342

7,265

48,195

84,802

Subtotal greenfield development

334,000

875,000

1,209,000

233,630

46,823

90,102

370,555

Major mixed use

Subtotal major mixed use

Residential

Subtotal residential

—

999,000

—

30,955

999,000

118,074

999,000

118,074

20,162

423,895

—

51,117

541,969

Total development - cost

1,432,000

1,211,000

2,643,000 $ 412,651 $

504,062 $ 204,531 $ 1,121,244

Total development - fair value

$ 426,000

(i)
(ii)
(iii)

Compiled on a non-GAAP proportionate share basis. Investment to-date was compiled on a cash basis, excluding adjustments to fair value of on-going projects.
In progress investments relate to estimated spending on projects that have commenced.
Future investments relate to planned projects that have not yet commenced.

3.4

Intensification

Intensifications are focused on adding retail density within the existing portfolio. As at December 31, 2019, Choice Properties
had 27 ongoing intensification projects representing a total of 435,000 square feet. This includes:

•

11 intensification projects that are under active development representing 143,000 square feet and a total investment of
$54.3 million to complete(2) over the next two to three years; and

16 intensification projects that are in planning representing 292,000 square feet and, if they proceed as planned, will require
a total investment of $103.3 million to complete(2) over the next two to four years.

30 Choice Properties REIT 2019 Annual Report

3.5

Greenfield Development

Choice Properties’ development activities include greenfield projects which are primarily focused on unenclosed retail shopping
centres and industrial parks. As at December 31, 2019, Choice Properties had 17 greenfield development projects in the pipeline
which upon completion will comprise approximately 1.2 million square feet. A total of $233.6 million has been invested to date
in the pipeline. The Trust currently expects to invest a total of $46.8 million(2) in the next three to five years.

An advantage of greenfield developments is that they lend themselves to phased construction creating flexibility to time
developments to take advantage of changing market conditions.

Choice Properties had seven greenfield properties under active development as at December 31, 2019, representing 333,000
square feet. Included in this total are:

• Six retail properties representing 254,000 square feet, of which 93% had been pre-leased; and

• One industrial project representing 79,000 square feet. In certain instances, industrial development will commence on a

speculative basis as the time to construct an industrial building is greater than the lead time required by tenants.

As at December 31, 2019, a total of $80.9 million has been invested to date in these seven developments. The Trust expects to
invest an additional $37.3 million to complete the developments before transferring them to income producing properties(2).

The greenfield projects, at the Trust’s ownership share, currently under active development as at December 31, 2019 are as
follows:

($ thousands except where otherwise indicated)

GLA
(square feet)

Total investment(i)

Ownership
%

Committed
to lease

Not
committed
to lease

Total

To-date

In
progress(2)

Total

Project / Location

Retail

1 Harvest Pointe, Edmonton, AB

2 Harvest Hills, Edmonton, AB

3 Sunwapta West (Coopers) Lands, Edmonton, AB

4 Erin Ridge Retail Lands, St. Albert, AB

5 Oshawa Retail Lands, Oshawa, ON

6 Bathurst and Lake Shore, Toronto, ON

Subtotal retail

Industrial

1 Great Plains Business Park, Calgary, AB

50%

Subtotal industrial

Total active greenfield development

Total non-active greenfield development

Total greenfield development

50%

40%

3,000

49,000

63,000

25,000

11,000

84,000

235,000

—

235,000

2,000

5,000 $

1,059 $

1,295 $

2,354

—

1,000

16,000

19,000

79,000

98,000

49,000

63,000

25,000

12,000

100,000

254,000

79,000

4,210

2,968

6,026

3,866

50,764

68,893

12,011

11,905

9,040

2,424

454

16,115

12,008

8,450

4,320

9,360

60,124

34,478

103,371

2,836

14,847

333,000 $

80,904 $

37,314 $

118,218

152,726 $

9,509

233,630 $

46,823

(i)

Compiled on a non-GAAP proportionate share basis. Investment to-date was compiled on a cash basis, excluding adjustments to fair value of on-going projects.

3.6

Major Mixed-Use Development

Choice Properties currently has a number of sites planned for major mixed-use development with four of these sites in an active
pre-development stage. The four properties are in key urban markets, including three sites in Toronto, Ontario, and one in
Coquitlam, British Columbia. These developments are residential focused, mixed use communities in close proximity to public
transportation. A total of $31.0 million has been invested to date on land acquisition and other initial development costs. The
Trust expects to invest an additional $20.2 million(2) on pre-development activities for these projects over the next two to five
years before beginning construction. The projects are in various phases of pre-development, and Choice Properties continues
to work on finalizing the assembly of land parcels for the developments.

434-455 North Rd., Coquitlam, BC
The approximately seven acre site is in the City of Coquitlam in the Greater Vancouver Area. The site is well located and transit
oriented, in close proximity to Lougheed Town Centre Station on the Vancouver SkyTrain system. The current redevelopment
plans contemplate a mixed-use project with a focus on high density residential and retail at grade.

Choice Properties REIT 2019 Annual Report 31

The site was approved for a transit oriented, mixed use development through the City of Coquitlam’s Official Community Plan
and Choice Properties is currently in design discussions with the City in preparation of making a formal Development Permit
Application.

1806-1880 Eglinton Ave E., Toronto, ON
The approximately 19 acre site is located along Eglinton Avenue in the Golden Mile district of Toronto. The current redevelopment
plans contemplate a large, mixed use master-plan community to be built in phases with a focus on high density residential and
retail uses. The site is directly adjacent to new transit stations along the first phase of the Eglinton Crosstown LRT, which is
currently under construction.

The Official Plan Application was submitted to the City of Toronto and the Trust is working with the City on their Secondary
Planning Study for the Golden Mile Area.

2280 Dundas St. W., Toronto, ON
The approximately 15 acre site is located at the southeast corner of Dundas Street West and Bloor Street West in Toronto. The
site is at the intersection of several major transit corridors including a TTC subway station, a GO train station and the Union-
Pearson Express train. The current redevelopment plans contemplate a large mixed-use community integrated with the
surrounding transit services with a focus on high density residential, office, retail and other community uses.

The Official Plan Application was submitted to the City of Toronto and Choice Properties is preparing a Rezoning Application
for submission to the City.

985 Woodbine Ave., Toronto, ON
The approximately 1.6 acre site is located at the north east intersection of Woodbine Avenue and Danforth Avenue in the Danforth
neighbourhood of Toronto. The site is directly adjacent to the Woodbine TTC subway station. The current redevelopment plan
contemplates two mid-rise rental residential buildings with retail at grade.

The Rezoning Application was submitted to the City of Toronto and the Trust is in preliminary discussions with the City.

3.7

Residential

Choice Properties has six residential projects in the pipeline representing 1,246 residential units. As at December 31, 2019, a
total of $118.1 million has been invested in these projects to date and Choice Properties expects to invest an additional $423.9
million(2) to complete the developments before transferring them to income producing properties. Choice Properties' residential
development projects, at the Trust’s ownership share(1), as at December 31, 2019, are as follows:

($ thousands except where otherwise
indicated)

Project / Location

Residential

1 Bovaird West - Block 4, Brampton, ON(i)

2 Richmond Road, Ottawa, ON(i)

3 Dufferin Street, Toronto, ON

4 East Liberty, Toronto, ON

5 Sheppard Ave West, Toronto, ON(i)

6 Grosvenor-Grenville, Toronto, ON(i)

GLA
(square feet)

Total investment(iii)

Ownership
%

Number of
Units(ii)

Commercial
under
development

Residential
under
development

Total

To-date

In progress(2)
(ii)

Total

50%

100%

47%

50%

149

253

187

207

100

350

149,000

149,000 $

1,980 $

84,519 $

86,499

203,000

32,000

156,000

188,000

—

127,000

64,000

69,000

7,587

50,215

32,908

4,882

75,978

40,448

46,007

33,955

83,565

90,663

78,915

38,837

255,000

263,000

20,502

142,988

163,490

—

5,000

8,000

Total residential

1,246

45,000

954,000

999,000 $

118,074 $

423,895 $

541,969

(i)

(ii)

Preliminary stages of development.

Choice Properties’ share.

(iii) Compiled on a non-GAAP proportionate share basis. Investment to-date was compiled on a cash basis, excluding adjustments to fair value of on-going projects.

32 Choice Properties REIT 2019 Annual Report

3.8

Completed Developments

For the year ended December 31, 2019, Choice Properties transferred the following from properties under development to
income producing properties as presented on a proportionate share basis:

Property type

Ownership %

Transferred GLA
(square feet)

Cost of assets
transferred

($ thousands except where otherwise indicated)

Project / Location

Intensification

Veterans Blvd. NE, Airdrie, AB

2 Mahogany Village Market, Calgary, AB

South Edmonton Common, Edmonton, AB

Lougheed Hwy., Coquitlam, BC

5 Bennett Dr., Gander, NF

6 Dartmouth Crossing, Dartmouth, NS

7 King St. S., Alliston, ON

8 Mill St., Angus, ON

9 Queen’s Plate Dr., Etobicoke, ON

10 Mavis & Elmcreek, Mississauga, ON

11 16th St. E., Owen Sound, ON

12 Neilson Rd, Toronto, ON

13 Rue Jean-Talon E., Montreal, QC

14 Carlton Spur, Prince Albert, SK

15 Highway 88 West, Bradford, ON

16 River Rd., Ottawa, ON

17 Campbell Rd., Rothesay, NB

18 Coxwell Ave., Toronto, ON

19 Boul Laurier, Laplaine, QC

20 Rue King George, Longueil, QC

21 St. Clair Rd. E., Guelph, ON

Subtotal intensification

Greenfield development

Retail

1 Great Plains Business Park, Calgary, AB

Industrial

2 Harvest Pointe, Edmonton, AB

Erin Ridge, St. Albert, AB

4 Cundles and Duckworth, Barrie, ON

5 Upper Sherman, Hamilton, ON

Peddie Road, Milton, ON

7 Chemin du Fer-Cheval, St. Julie, QC

Stockyards, Prince Albert, SK

9 Oshawa Retail Lands, Oshawa, ON

10 Harvest Hills, Edmonton, AB

Subtotal greenfield development

Residential

Retail

Industrial

Retail

1 Centre in the Park, Sherwood Park, AB

Residential

50%

Subtotal residential

Total Transferred Properties at Cost

Total Transferred Properties at Fair Value

100%

50%

100%

50%

100%

25%

100%

50%

100%

85%

75%

100%

50%

46,995 $

15,385

3,336

1,395

15,864

2,563

5,857

8,900

10,430

8,000

13,115

9,200

2,379

8,864

4,175

37,017

12,991

2,107

33,000

10,041

4,965

1,200

2,140

739

9,203

191

1,895

4,202

3,327

4,349

4,725

4,571

1,445

3,445

1,139

14,027

5,851

1,192

9,352

2,606

1,407

886

242,394

92,077

60,305

6,967

3,294

15,049

50,299

565,425

54,977

943

741

10,228

768,228

53,000

1,063,622 $

8,382

3,201

1,495

6,871

14,352

70,026

15,655

314

340

1,493

122,129

17,456

231,662

256,299

Choice Properties REIT 2019 Annual Report 33

3.9

Development Project Capital

Choice Properties expects to invest a total of approximately $564.7 million, at the Trust’s ownership share(1), by the end of the
year 2022(2).

($ thousands)

Intensification

Greenfield development

Major mixed use

Residential

Estimated total capital annual spend(i)

(i) Compiled on a non-GAAP proportionate share basis.

2020

2021

2022

40,800

42,800

13,800

35,100

15,800

115,000

32,800

4,000

106,800

26,000

300

131,500

Total

97,400

93,900

20,100

353,300

206,700

186,400

171,600

564,700

34 Choice Properties REIT 2019 Annual Report

LIQUIDITY AND CAPITAL RESOURCES

4.1

Major Cash Flow Components

For the periods ended December 31
($ thousands)

Cash and cash equivalents, beginning

Three Months

Year Ended

2019

2018

Change

2019

2018

Change

of period

54,946

82,006

(27,060)

30,713

6,407

24,306

Cash flows from operating activities

207,460

200,465

6,995

580,556

405,192

175,364

Cash flows from (used in) investing

activities

Cash flows from (used in) financing

activities

Cash and cash equivalents, end of

(123,665)

17,481

(141,146)

61,597

(1,582,842)

1,644,439

(96,751)

(269,239)

172,488

(630,876)

1,201,956

(1,832,832)

period

41,990

30,713

11,277

41,990

30,713

11,277

Cash Flows from Operating Activities

Three Months

Year Ended

The increase in cash flows from operating activities was
primarily due to a decline in acquisition transaction costs and
other related expenses and a reduction of working capital
requirements for the current quarter, partially offset by lower
net operating income attributable to the Oak Street disposition
in September 2019.

The increase in cash flows from operating activities was
primarily attributable to the positive contribution from the
Acquisition Transaction, a reduction in net interest cash
outflows due to the change in capital structure and a reduction
in acquisition transaction costs and other related expenses,
partially offset by an increase in working capital requirements.

Cash flows from operating activities are used to fund ongoing operations, and expenditures for leasing capital and property
capital(2).

Cash Flows from (used in) Investing Activities

Three Months

Year Ended

The change in cash flows from (used in) investing activities
primarily relates to the change in the timing of settlement for
notes receivables from related party and a reduction in property
transactions activity, as Sun Life Plaza was sold in the
comparative period in 2018, partially offset by a reduction in
capital spending on investment properties.

The increase in cash flows from (used in) investing activities
primarily relates to non-recurring use of funds as part of the
closing of the Acquisition Transaction in May 2018, offset by
the receipt of proceeds from the various dispositions in 2019
and a reduction in capital spending on investment properties.

Cash Flows from (used in) Financing Activities

Three Months

Year Ended

The decrease in cash used in financing activities was primarily
attributable to the deferral of payments on distributions on
Exchangeable Units during the current quarter.

The change in cash flows from (used in) financing activities
was primarily due to a reduction in non-recurring debt financing
incurred as part of the Acquisition Transaction in the prior year
and overall net repayments on the credit facility and term loans
partly financed from the net proceeds received from the Oak
Street disposition, partially offset by proceeds from the equity
offering completed in May 2019 and the deferral of payments
on distributions on Exchangeable Units.

Choice Properties REIT 2019 Annual Report 35

4.2

Liquidity and Capital Structure

Choice Properties expects to fund its ongoing operations and finance future growth primarily through the use of: (i) existing cash;
(ii) cash flows from operations; (iii) short term financing through the committed credit facility; (iv) the issuance of unsecured
debentures and equity (including Exchangeable Units), subject to market conditions; and (v) secured mortgages. Given reasonable
access to capital markets, Choice Properties does not foresee any impediments in obtaining financing to satisfy its short- and
long-term financial obligations, including its capital investment commitments(2).

($ thousands)

Cash and cash equivalents - non-GAAP proportionate share basis(1)

Unused portion of the credit facility(i)

Liquidity

Unencumbered assets - non-GAAP proportionate share basis(1)

As at December
31, 2019

As at December 31,
2018

51,484

40,793

1,368,000

1,419,484

11,800,000

1,175,000

1,215,793

11,750,000

Change

10,691

193,000

203,691

50,000

(i)

Choice Properties has an accordion commitment from the lenders which allows the Trust to increase the limit by an additional $500,000 (subject to certain
conditions).

Base Shelf Prospectus
On January 9, 2018, Choice Properties filed a Short Form Base Shelf Prospectus allowing for the issuance of up to $2,000,000
of Units and debt securities, or any combination thereof over a 25-month period.

4.3

Components of Total Debt

Choice Properties’ debt structure was as follows:

As at December 31, 2019
($ thousands)

Construction loans

Credit facility

less: Debt placement costs

Variable rate debt

Senior unsecured debentures

Mortgages

less: Debt placement costs, discounts and premiums

Fixed rate debt

Total debt, net

As at December 31, 2018
($ thousands)

Construction loans

Credit facility

Term loans

less: Debt placement costs

Variable rate debt

Senior unsecured debentures

Mortgages

less: Debt placement costs, discounts and premiums

Fixed rate debt

Total debt, net

36 Choice Properties REIT 2019 Annual Report

Proportionate Share Basis(1)

Proportionate
Share Basis(1)

Weighted
average term to
maturity (years)

Weighted
average interest
rate (%)

114,601

132,000

(4,767)

241,834

5,175,000

1,458,224

(19,575)

6,613,649

6,855,483

1.4

3.3

2.4

5.1

5.5

5.2

3.71%

3.46%

3.58%

3.67%

4.01%

3.74%

Proportionate Share Basis(1)

Proportionate
Share Basis(1)

Weighted
average term to
maturity (years)

Weighted
average interest
rate (%)

GAAP Basis

24,842

132,000

(4,767)

152,075

5,175,000

1,230,569

(16,959)

6,388,610

6,540,685

GAAP Basis

21,330

325,000

800,000

(10,593)

119,131

325,000

800,000

(10,593)

1,135,737

1,233,538

4,725,000

1,328,280

(11,659)

6,041,621

7,177,358

4,725,000

1,510,674

(13,411)

6,222,263

7,455,801

0.8

4.3

4.1

3.8

5.1

5.6

5.2

3.89%

3.76%

3.64%

3.70%

3.61%

4.07%

3.72%

Construction Loans
For the purpose of financing the development of certain retail, industrial and residential properties, various investments in equity
accounted joint ventures and co-ownerships have variable rate non-revolving construction facilities in which certain subsidiaries
of the Trust guarantee its own share. These construction loans, which mature throughout 2020 to 2022, have a maximum amount
available to be drawn at the Trust’s ownership interest of $225,477 (December 31, 2018 - $216,921).

As at December 31, 2019, $114,601 was drawn and the construction loans had a weighted average effective interest rate of
3.71% and a weighted average term to maturity of 1.4 years.

Credit Facility
Choice Properties has a $1,500,000 senior unsecured committed revolving credit facility maturing May 4, 2023, provided by a
syndicate of lenders. The credit facility bears interest at variable rates of either Prime plus 0.45% or Bankers’ Acceptance rate
plus 1.45%. The pricing is contingent on Choice Properties’ credit ratings from DBRS and S&P remaining at BBB. Choice
Properties has an accordion commitment from the lenders which allows the Trust to increase the limit by an additional $500,000
(subject to certain conditions). As at December 31, 2019, $132,000 was drawn under the syndicated facility.

The credit facility contains certain financial covenants. As at December 31, 2019, the Trust was in compliance with all its financial
covenants for the credit facility.

Senior Unsecured Debentures
On June 11, 2019, Choice Properties issued, on a private placement basis, $750,000 aggregate principal amount of series M
senior unsecured debentures of the Trust bearing interest at a rate of 3.53% per annum maturing on June 11, 2029. The net
proceeds of the issuance were used to repay existing indebtedness, including the redemption in full of the $200,000 aggregate
principal amount of the 3.00% series 7 senior unsecured debentures due September 20, 2019 and the $100,000 aggregate
principal amount of the 2.56% series C-C senior unsecured debentures due November 30, 2019.

Term Loans
At December 31, 2018, Choice Properties had two unsecured term loans outstanding from a syndicate of lenders: a $175,000
term loan maturing on May 4, 2022 and a $625,000 term loan maturing on May 4, 2023. On June 11, 2019, Choice Properties
repaid in full the $175,000 unsecured term loan maturing on May 4, 2022 and repaid $225,000 of the unsecured term loan
maturing on May 4, 2023, using a portion of the net proceeds from the issuance of the Series M senior unsecured debentures.
On September 30, 2019, Choice Properties repaid the remaining $400,000 balance on the unsecured term loan maturing on
May 4, 2023, using a portion of the net proceeds from the investment properties sold during the year.

Prior to being repaid, the term loans were charged interest at variable rates of either Prime plus 0.45% or Bankers’ Acceptance
rate plus 1.45%. This pricing was contingent on Choice Properties’ credit ratings from DBRS and S&P remaining at BBB.

Summary of Total Debt Activities
The following outlines the net changes to the components of Choice Properties’ variable rate debt on a non-GAAP proportionate
share basis during the year ended December 31, 2019:

For the year ended December 31, 2019
($ thousands)

Principal balance outstanding, beginning of year

Net repayments

Principal balance outstanding, end of year

Credit facility

Term loans

Construction
loans

Total variable rate debt

325,000

800,000

119,131

1,244,131

(193,000)

(800,000)

(4,530)

132,000

— $

114,601

(997,530)

246,601

The following outlines the changes to the components of Choice Properties’ fixed rate debt on a non-GAAP proportionate share
basis during the year ended December 31, 2019:

For the year ended December 31, 2019
($ thousands)

Principal balance outstanding, beginning of year

Issuances

Repayments

Principal balance outstanding, end of year

Senior unsecured
debentures

Mortgages payable

Total fixed rate debt

4,725,000

1,510,674

750,000

(300,000)

62,815

(115,265)

5,175,000

1,458,224

6,235,674

812,815

(415,265)

6,633,224

Choice Properties REIT 2019 Annual Report 37

Schedules of Repayments and Cash Flow Activities
The schedule of principal repayment of total long-term debt, on a non-GAAP proportionate share basis, based on maturity, is
as follows:

As at December 31, 2019
($ thousands)

Credit facility

Construction
loans

Senior unsecured
debentures

Mortgages
payable

2020

2021

2022

2023

2024

Thereafter

— $

36,011

550,000

234,920

—

132,000

—

58,573

20,017

—

550,000

600,000

575,000

750,000

2,150,000

143,932

205,806

109,435

157,346

606,785

Total debt outstanding

132,000

114,601

5,175,000

1,458,224

Total

820,931

752,505

825,823

816,435

907,346

2,756,785

6,879,825

In order to reduce refinancing risk, Choice Properties attempts to stagger debt maturities and future financing obligations to
ensure no large maturities or financing needs occur in any one year.

(i)
(ii)
(iii)

Presented on a non-GAAP proportionate share basis.
The credit facility matures on May 4, 2023.
Includes cash and cash equivalents.

38 Choice Properties REIT 2019 Annual Report

4.4

Financial Condition

Choice Properties is subject to certain financial and non-financial covenants in its senior unsecured debentures, credit facility
and term loans, that include maintaining certain leverage and debt service ratios. These ratios are monitored by management
on an ongoing basis to ensure compliance. Choice Properties was in compliance with all these covenants as at December 31,
2019 and December 31, 2018.

The Trust’s compliance with leverage and coverage ratios, as they relate to its debentures, are shown below:

Debt to Total Assets Ratio(i)

Limit: Maximum excluding convertible debt is 60.0%

Debt Service Coverage Ratio(i)

Limit: Minimum 1.5x

Debt to EBITDAFV(1)(i)(ii)(iv)(v)

Interest Coverage Ratio(1)(iii)

As at December
31, 2019

As at December
31, 2018

43.1%

3.0x

7.3x

3.5x

47.2%

3.0x

8.9x

3.4x

(i)

Debt ratios exclude Exchangeable Units. The ratios are non-GAAP financial measures calculated based on the Trust Indentures, as supplemented.

(ii) Refer to Section 15.8, “Earnings Before Interest, Taxes, Depreciation, Amortization and Fair Value”, of this MD&A, for a reconciliation of net income to EBITDAFV

used in this ratio.

(iii) Refer to Section 15.7, “Net Interest Expense and Other Financing Charges Reconciliation”, of this MD&A, for a reconciliation of proportionate share basis to

GAAP basis for net interest expense and other financing charges used in the ratio.

(iv) On an unadjusted basis the debt to EBITDAFV at December 31, 2019 is 7.3x. On September 30, 2019, Choice Properties completed the Oak Street disposition
and utilized the proceeds to repay debt. The debt to EBITDAFV ratio is calculated on a trailing 12-month basis which would include the earnings of the properties
sold as part of the Oak Street disposition. Normalized to exclude the income (loss) from the Oak Street disposition and excluding lease surrender revenue
from Loblaw, the Debt/EBITDAFV ratio as at December 31, 2019 is 7.5x.

(v) Normalized to include the proforma results of CREIT and exclude lease surrender revenue from Loblaw, the Debt/EBITDAFV ratio as at December 31, 2018 is

8.0x.

4.5

Credit Ratings

Choice Properties’ debt securities are rated by two independent credit rating agencies: DBRS and S&P. Choice Properties’
ratings are linked to and equivalent to those of Loblaw, largely because of Loblaw’s significant relationship with the Trust, and
the contractual arrangements and the strategic relationship between the Trust and Loblaw.

Choice Properties has maintained its BBB credit rating with both S&P and DBRS. On August 23, 2019, DBRS confirmed the
rating at BBB with a stable trend and on October 4, 2019, S&P confirmed the rating at BBB with a stable outlook. A credit rating
of BBB- or higher is an investment grade rating.

The following table sets out the current credit ratings for Choice Properties as at December 31, 2019:

Credit ratings (Canadian standards)

Credit rating

Issuer rating

Senior unsecured debentures

BBB

Trend

Stable

Credit rating

BBB

Outlook

Stable

N/A

DBRS

S&P

Choice Properties REIT 2019 Annual Report 39

4.6

Unit Equity

Unit equity, for the purposes of this MD&A, includes both Units and Exchangeable Units, which are economically equivalent to
Units and receive equal distributions. The following is a continuity of Choice Properties’ unit equity:

Units, beginning of year

Units issued through equity financing

Units issued under the Distribution Reinvestment Plan

Distribution in Units

Consolidation of Units

Units issued under unit-based compensation arrangements

Units repurchased for unit-based compensation arrangement

Units, end of year

Exchangeable Units, beginning of year

Issued in conjunction with the Acquisition Transaction

Exchangeable Units, end of year

Year ended
December 31, 2019

Year ended
December 31, 2018

278,202,559

30,042,250

—

1,569,400

(1,569,400)

2,203,950

(155,890)

94,300,965

182,836,481

125,749

—

1,516,670

(577,306)

310,292,869

278,202,559

389,961,783

—

389,961,783

319,080,557

70,881,226

389,961,783

Total Units and Exchangeable Units, end of year

700,254,652

668,164,342

Units Issued through Equity Financing
On May 9, 2019, the Trust completed a bought deal equity offering of 30,042,250 Units at a price of $13.15 per Unit, for aggregate
gross proceeds of approximately $395.1 million, and net proceeds of approximately $380.8 million. As part of this bought deal,
GWL acquired 3,805,000 Units. In connection with the Acquisition Transaction in May 2018, Choice Properties issued 182,836,481
Units at a price of $11.25 per unit, for aggregate gross and net proceeds of totalling approximately $2.1 billion.

Distribution in Units and Consolidation of Units
As a result of the increase in taxable income generated primarily from the sale transactions in the year ended December 31,
2019, the Board declared a special non-cash distribution on December 31, 2019 of 1,569,400 Units at $0.07 per Unit totalling
$21.7 million. Immediately following the issuance of Units, the Units were consolidated such that each unitholder held the same
number of Units after the consolidation as each unitholder held prior to the special non-cash distribution. As at December 31,
2019, the special distribution declared was recorded to Trust Units in accordance with IAS 32, “Financial Instruments:
Presentation”.

Units Issued under Unit-Based Compensation Arrangements
Units were issued in connection with settlements under the Unit Option Plan and the Unit-Settled Restricted Unit Plan.

Units Repurchased for Unit-Based Compensation Arrangement
On November 15, 2019, Choice Properties received approval from the TSX to purchase up to 25,856,839 Trust Units during the
twelve-month period from November 19, 2019 to November 18, 2020, under a normal course issuer bid (“NCIB”). During the
years ended December 31, 2019 and 2018, in connection with the Unit-Settled Restricted Unit Plan, the Trust acquired Units
which were then granted to certain employees and are subject to vesting conditions and disposition restrictions.

40 Choice Properties REIT 2019 Annual Report

Distributions
In the year ended December 31, 2019, Choice Properties declared $532,054 in distributions (December 31, 2018 - $431,392),
including distributions to holders of Exchangeable Units, which are reported as interest expense.

The distributions declared for the periods ended December 31, 2019 and December 31, 2018 were as follows:

For the periods ended December 31
($ thousands)

Three Months

Year Ended

2019

2018

Change

2019

2018

Change

Cash distributions declared

$ 129,546

$ 123,612

5,934

$ 510,333

$ 431,392

78,941

Add:

Special non-cash distribution(i)

21,721

—

21,721

—

21,721

Total distributions declared

$ 151,267

$ 123,612

27,655

$ 532,054

$ 431,392

$ 100,662

Less:

Distributions reinvested through the DRIP

—

(1,487)

1,487

Net distributions declared

$ 151,267

$ 123,612

27,655

$ 532,054

$ 429,905

$ 102,149

(i)

The special non-cash distribution was settled through the the issuance of Units. Immediately following the issuance of Units, the Units were consolidated such that each unitholder held
the same number of Units after the consolidation as each unitholder held prior to the special non-cash distribution.

Choice Properties’ Board retains full discretion with respect to the timing and quantum of distributions, however the total income
distributed will not be less than the amount necessary to ensure the Trust will not be liable to pay income taxes under Part I of
the Income Tax Act (Canada) for the year ended December 31, 2019. The taxable income allocated to the Trust and Exchangeable
Unitholders may vary in certain taxation years. Over time, such differences, in aggregate, will be minimal.

Distribution Reinvestment Plan (“DRIP”)
Choice Properties instituted a DRIP that allows eligible Unitholders to elect to automatically reinvest their regular monthly cash
distributions in additional Units and to receive a bonus distribution in Units equivalent to 3% of each distribution. The DRIP
provides an efficient and cost-effective way for Choice Properties to issue additional equity to its existing Unitholders while
offering Unitholders the opportunity to increase their ownership in Choice Properties on a regular basis without incurring any
commission or brokerage fees. Cash not distributed by Choice Properties due to the issuance of additional Units under the DRIP
is used by Choice Properties for future property acquisitions, capital improvements and working capital purposes.

Units issued under the DRIP will be issued directly from treasury at a price based on the volume-weighted average closing price
for the five trading days immediately preceding the relevant distribution date. Choice Properties reserves the right to amend,
suspend or terminate the DRIP at any time, but such actions will have no retroactive effect that would prejudice the interests of
DRIP participants. All administrative costs associated with the operation of the DRIP will be paid by Choice Properties.

To date, Choice Properties has reserved for issuance with the TSX an aggregate of 9,075,000 additional Units to accommodate
the ongoing purchase of Units under the DRIP. Persons who do not reside in Canada for purposes of the Tax Act are not permitted
to participate in the DRIP.

On April 25, 2018, the Board temporarily suspended the DRIP commencing with the distribution declared in May 2018. On
February 12, 2020, the Board approved an amendment and reinstatement of the DRIP. The Board also approved the elimination
of the 3% bonus distribution under the amended DRIP. During the year ended December 31, 2019, there were no Units issued
under the DRIP (December 31, 2018 - 125,749 Units).

At its most recent meeting on February 12, 2020, the Board reviewed and approved the current rate of distributions of $0.74
per unit per annum. In determining the amount of distributions to be made to Unitholders, Choice Properties’ Board considers
many factors, including provisions in its Declaration of Trust, macro-economic and industry specific environments, the overall
financial condition of the Trust, future capital requirements, debt covenants, and taxable income. In accordance with Choice
Properties’ Distribution Policy, management and the Board regularly review Choice Properties’ rate of distributions to assess
the stability of cash and non-cash distributions.

Normal Course Issuer Bid
Choice Properties may from time to time purchase Units in accordance with the rules prescribed under applicable stock exchange
or regulatory policies. On September 18, 2018, Choice Properties received approval from the TSX to purchase up to 13,880,839
Units during the twelve-month period from September 20, 2018 to September 19, 2019, under a Normal Course Issuer Bid
(“NCIB”).

On November 15, 2019, Choice Properties received approval from the TSX to purchase up to 25,856,839 Units during the twelve-
month period from November 19, 2019 to November 18, 2020, by way of a NCIB over the facilities of the TSX or through
alternative trading systems. During the year ended December 31, 2019, in connection with Choice Properties’ Unit-Settled
Restricted Unit Plan, Choice Properties acquired Units which were then granted to certain employees and are subject to vesting
conditions and disposition restrictions.

Choice Properties REIT 2019 Annual Report 41

4.7

Adjusted Cash Flow from Operations (“ACFO”)

Adjusted Cash Flow from Operations(1) excludes most of the short-term fluctuations in non-cash working capital, such as property
tax installments, and the timing of semi-annual debenture installments, although some fluctuations between quarters for
operational cash flows still exist. ACFO(1) also adjusts cash flows from operating activities for the working capital required for
operating capital expenditures to maintain productive capacity of the investment properties which adds volatility to the values
due to seasonality of capital projects. Management includes this non-GAAP measure in its assessment of cash flow available
for distributions. Refer to Section 15.5, “Adjusted Cash Flow from Operations”, of this MD&A, for a reconciliation of ACFO(1) to
cash flows from operating activities, as determined in accordance with GAAP.

The table below summarizes the ACFO(1) metrics:

For the periods ended December 31
($ thousands)

Three Months

Year Ended

2019

2018

Change

2019

2018

Change

Adjusted Cash Flow from Operations(1)

$ 136,636

$ 109,044

$ 27,592

$ 597,650

$ 491,371

$106,279

Cash distributions declared

129,546

123,612

5,934

510,333

431,392

78,941

Cash retained after cash distributions

7,090

$ (14,568)

$ 21,658

$ 87,317

$ 59,979

$ 27,338

ACFO(1) payout ratio

94.8%

113.4%

(18.6)%

85.4%

87.8%

(2.4)%

Three Months

Year Ended

ACFO increased primarily as a result of a decrease in capital
expenditures related to the timing of maintenance activity and
a reduction of acquisition transaction costs and other related
expenses, partially offset by the non-recurring reimbursement
of contract revenue to Loblaw.

ACFO payout ratio decreased primarily due to the increased
cash flows highlighted above, partially offset by the higher
amount of distributions declared as a result of the additional
units issued from the May 2019 equity offering.

ACFO increased primarily due to a full year of contribution from
the Acquisition Transaction as compared to eight months in
the prior year and a reduction of acquisition transaction costs
and other related expenses.

ACFO payout ratio declined marginally compared with the prior
year, as the growth in operating income was partially offset by
the higher amount of distributions declared as a result of the
additional units issued from the May 2019 equity offering.

4.8

Financial Instruments

Designated hedging derivatives consist of interest rate swaps to hedge the interest rate associated with an equivalent amount
of variable rate mortgages. The Trust did not enter into any new designated hedging derivatives during the year ended
December 31, 2019.

The impact of the hedging instruments on the consolidated balance sheets is as follows:

($ thousands)

As at December 31, 2019

Interest rate swaps

As at December 31, 2018

Interest rate swaps

Notional
Amount

Net
Asset (Liability)

Line Item in
Balance Sheet

Fair Value Gain (Loss)
Recorded in OCI

276,700

(2,629) Other assets or Other liabilities

(2,044)

321,700

585 Other assets or Other liabilities

597

4.9

Off-Balance Sheet Arrangements

Choice Properties issues letters of credit to support guarantees related to its investment properties including maintenance and
development obligations to municipal authorities. As at December 31, 2019, the aggregate gross potential liability related to
these letters of credit totaled $36,110 including $1,790 posted by Loblaw with the Province of Ontario and City of Toronto on
behalf of Choice Properties related to deferral of land transfer tax on properties acquired from Loblaw subsequent to the initial
public offering (December 31, 2018 - $38,540 including $3,248 posted by Loblaw).

42 Choice Properties REIT 2019 Annual Report

4.10 Contractual Obligations

The undiscounted future principal and interest payments on Choice Properties’ debt instruments and other contractual obligations
as at December 31, 2019 were as follows:

($ thousands)

2020

2021

2022

2023

2024

Thereafter

Total

Senior unsecured debentures

731,805 $

716,807 $

748,558 $

702,403 $

857,465 $ 2,506,455 $ 6,263,493

Mortgages payable

Construction loans(i)

Credit facility(i)

Other(ii)

Total

289,412

36,011

—

189,643

58,573

—

242,950

20,017

—

186,513

129,993

140,414

142,305

184,565

705,422

1,754,297

—

132,000

61,080

—

32,456

3,388

114,601

132,000

553,844

$ 1,243,741 $ 1,095,016 $ 1,151,939 $ 1,037,788 $ 1,074,486 $ 3,215,265 $ 8,818,235

(i)

(ii)

Excludes interest on the revolving credit facility and construction loans at a floating interest rate.

As at December 31, 2019, Choice Properties had commitments of approximately $553,844 for future capital expenditures related to ongoing development
and sustainable capital projects, and other contractual obligations such as operating rents, of which $184,633 relates to equity accounted joint ventures.

Choice Properties REIT 2019 Annual Report 43

RESULTS OF OPERATIONS

Choice Properties’ results, as reported under GAAP, for the three months and year ended December 31, 2019 and December 31,
2018 are summarized below:

For the periods ended December 31
($ thousands)

2019

2018

Change

%
Change

2019

2018

Change

%
Change

Three Months

Year Ended

Net Operating Income

Rental revenue

$ 317,986

$ 322,793

(4,807)

(1.5)% $ 1,288,554

$ 1,148,273

140,281

12.2 %

Property operating costs

(93,872)

(92,375)

224,114

230,418

(1,497)

(6,304)

1.6 %

(2.7)%

(368,132)

(314,436)

920,422

833,837

(53,696)

86,585

17.1 %

10.4 %

Other Income and Expenses

Interest income

Fee income

Net interest expense and other

456

1,530

4,095

1,134

(3,639)

(88.9)%

396

34.9 %

11,551

4,556

14,224

3,523

(2,673)

(18.8)%

1,033

29.3 %

financing charges

(133,893)

(138,552)

4,659

(3.4)%

(551,843)

(551,146)

(697)

0.1 %

General and administrative

expenses

Share of income from equity
accounted joint ventures

Acquisition transaction costs
and other related expenses

Adjustment to fair value of unit-

based compensation

Adjustment to fair value of
Exchangeable Units

Adjustment to fair value of
investment properties

Income (Loss) before Income

Taxes

Income taxes

(9,760)

(9,506)

(254)

2.7 %

(39,292)

(34,975)

(4,317)

12.3 %

(5,296)

8,116

(13,412)

(165.3)%

24,366

16,222

8,144

50.2 %

—

(11,044)

11,044

(100.0)%

(8,363)

(141,493)

133,130

(94.1)%

1,744

707

1,037

146.7 %

(7,109)

4,792

(11,901)

(248.4)%

206,680

214,479

(7,799)

N/M

(932,009)

593,706

(1,525,715)

(257.0)%

7,608

(18,548)

26,156

(141.0)%

(4,434)

(88,575)

84,141

(95.0)%

293,183

281,299

11,884

4.2 %

(582,155)

650,115

(1,232,270)

(189.5)%

(200)

278

(139.0)%

798

(538)

1,336

(248.3)%

Net Income (Loss)

$ 293,261

$ 281,099

12,162

4.3 % $ (581,357) $

649,577

$(1,230,934)

(189.5)%

Net Income (Loss)

Three Months

Net income increased mainly due to a favourable change in
fair value for investment properties and lower acquisition
transaction and borrowing costs, partially offset by a reduction
in the year-over-year gain recognized with respect to the fair
value adjustment on Exchangeable Units, an allowance for
expected credit losses associated with certain mortgages and
loans receivable, non-recurring reimbursement of contract
revenue to Loblaw for incorrectly allocated solar rooftop leases
and reduced contribution from equity accounted joint
ventures.

Year Ended

Net income decreased primarily due to cumulative adverse fair
value adjustments for the Exchangeable Units due to increases
in the unit price, partially offset by a decline in acquisition
transaction costs, a full year of contribution from the
Acquisition Transaction as compared to eight months in the
prior year and a favourable change in the fair value for
investment properties.

Adjustments to fair value can vary widely from quarter-to-quarter as they are impacted by market factors such as the Trust’s
Unit price and market capitalization rates.

44 Choice Properties REIT 2019 Annual Report

Rental Revenue and Property Operating Costs

For the periods ended December 31
($ thousands)

Net Operating Income

Rental revenue

Property operating costs

Three Months

Year Ended

2019

2018

Change

2019

2018

Change

317,986

322,793

(4,807) $ 1,288,554

$ 1,148,273

140,281

(93,872)

(92,375)

(1,497)

(368,132)

(314,436)

(53,696)

224,114

230,418

(6,304) $

920,422

833,837

86,585

Three Months

Year Ended

The decline is primarily attributed to the full quarter impact of
Choice Properties having sold a 30-property portfolio at
September 30, 2019, partially offset by contributions from
newly acquired properties and developments coming online.

The increase is primarily due to the full year contribution from
the Acquisition Transaction in the current year as compared to
eight months in the prior year, coupled with income earned
from newly acquired properties and completed developments,
offset by the foregone income from disposed properties,
highlighted by the 30-property portfolio sold at September 30,
2019.

Rental revenue is comprised primarily of base rent, including straight-line rent, and recoveries from tenants for property taxes,
insurance, operating costs and qualifying capital expenditures. Growth in rental revenue is materially impacted by newly acquired
or constructed assets.

Property operating costs are comprised primarily of expenses to manage and maintain the properties for the benefit of the
tenants, including realty taxes and insurance, that are recoverable under the leases of most tenants. Non-recoverable operating
costs do not directly benefit the tenants and include property management fees paid by the Trust for properties managed by
its partners.

Interest Income

For the periods ended December 31
($ thousands)

Interest income on mortgages and loans

receivable

Expected credit losses on mortgages and

loans receivable

Other interest income

Other income

Interest Income

Three Months

Year Ended

2019

2018

Change

2019

2018

Change

3,216

3,336

(120) $

13,999

10,691

3,308

(3,000)

240

—

759

—

(3,000)

(519)

—

552

—

3,461

(3,000)

(2,909)

(72)

456

4,095

(3,639) $

11,551

14,224

(2,673)

Three Months

Year Ended

The decrease is primarily attributable to recording an expected
credit loss of $3.0 million in the three months ended December
31, 2019, coupled with a lower weighted average balance
outstanding during the current period.

The decrease is primarily attributable to recording an expected
credit loss of $3.0 million in 2019, in addition to a decline in
income earned from the funds held in the security deposit
escrow in the prior year, partially offset by twelve months of
interest earned from the mezzanine financing program
acquired as part of the Acquisition Transaction as compared
to eight months in the prior year.

Choice Properties REIT 2019 Annual Report 45

Fee Income

Fees charged to third-parties include property management fees, leasing fees, project management fees relating to co-owned
properties which serves as a cash flow supplement to enhance returns from the co-owned assets. Choice Properties provides
property management services to Loblaw and also administers certain services in connection with Loblaw’s gas bar subleases
(see Section 9, “Related Party Transactions”, of this MD&A).

Three Months

Year Ended

For the periods ended December 31
($ thousands)

Fees charged to related party

Fees charged to third-parties

Fee Income

2019

2018

Change

2019

2018

Change

245

157

1,285

977

1,530

1,134

308

396

922

899

3,634

2,624

4,556

3,523

1,010

1,033

Three Months

Year Ended

Fee income is impacted by changes in the portfolio and the
timing of leasing transactions and project activity.

The increase is primarily due to the incremental income earned
from the third-party fee business acquired as part of the
Acquisition Transaction.

Net Interest Expense and Other Financing Charges

In 2018, Choice Properties’ capital structure was altered by the Acquisition Transaction, see Section 1.2, “Acquisition of Canadian
Real Estate Investment Trust” and Section 4, “Liquidity and Capital Resources”, of this MD&A. The impacts of those changes flow
through net interest expense and other financing charges as discussed below.

For the periods ended December 31
($ thousands)

2019

2018

Change

2019

2018

Change

Interest on senior unsecured debentures

47,861

43,343

4,518

182,522

164,010

18,512

Three Months

Year Ended

Distributions on Class C LP Units(i)

Interest on mortgages

Interest on credit facility and term loans

Interest on right-of-use asset

Distributions on Exchangeable Units(i)

Accelerated amortization of debt premium

Effective interest rate amortization of debt discounts

and premiums

Effective interest rate amortization of debt placement

costs

Capitalized interest

—

12,299

2,256

—

13,343

11,175

—

72,143

—

(923)

(979)

—

(1,044)

(8,919)

—

51,907

28,352

281

15,417

35,293

29,780

—

(15,417)

16,614

(1,428)

281

288,573

271,089

17,484

—

37,282

(37,282)

(3,720)

(2,387)

(1,333)

1,014

(826)

1,238

(1,711)

(224)

885

8,352

(4,424)

5,542

(4,880)

2,810

456

697

Net interest expense and other financing charges

133,893

138,552

(4,659)

551,843

551,146

Less: Accelerated amortization of debt premium

—

(37,282)

37,282

Net interest expense and other financing charges
excl. accelerated amortization of debt premium

(i)

Represents interest on indebtedness due to related parties.

133,893

138,552

(4,659)

551,843

513,864

37,979

46 Choice Properties REIT 2019 Annual Report

Three Months

Year Ended

The decline in interest expense is mainly due to:

The increase in interest expense is mainly due to:

(a) a reduction in interest expense from the term loans as the
balance was fully repaid as of September 30, 2019; and

(b) a decline in mortgage principal balances due to repayments
contributing to a lower interest expense;

(c) offset by a net increase in interest charges from the senior
unsecured debentures due to the change in capital structure
resulting in a higher principal amount outstanding as compared
to the prior year.

(a) accelerated amortization related to term loan placement
costs, concurrent with repaying the balance on both term
loans;

(b) increased interest expense related to additional borrowings
through debentures;

(d) increased costs associated with the Exchangeable Units
as compared to the Class C LP Units;

(e) offset by a decline due to the non-recurring accelerated
amortization upon conversion of the Class C LP Units held by
Loblaw into Exchangeable Units concurrent with the close of
the Acquisition Transaction in May 2018; and

(f) a reduction in interest expense from the term loans as the
balance was fully repaid as of September 30, 2019.

General and Administrative Expenses

Three Months

Year Ended

For the periods ended December 31
($ thousands)

2019

2018

Change

2019

2018

Change

Salaries, benefits and employee costs

9,814

12,733

(2,919)

42,772

40,960

1,812

Investor relations and other public entity costs

Professional fees

Services Agreement expense charged by

related party(i)

Amortization of other assets

Other

Less:

Capitalized to investment properties

Allocated to recoverable operating expenses

479

2,354

798

383

2,329

16,157

(733)

(5,664)

(10)

256

702

—

1,804

15,485

(730)

(5,249)

489

2,098

383

525

672

(3)

(415)

2,276

4,512

3,095

1,311

8,256

1,643

1,920

2,335

495

7,226

62,222

54,579

633

2,592

760

816

1,030

7,643

(3,055)

(3,261)

206

(19,875)

(16,343)

(3,532)

General and administrative expenses

9,760

9,506

254

39,292

34,975

4,317

(i)

The Services Agreement is described in the Section 9, “Related Party Transactions” of this MD&A.

Three Months

Year Ended

General and administrative expenses were consistent
compared to the prior period, as lower salary related costs
were offset by increased spending on professional fees. In
general, these expenses are impacted by transactions that can
vary by year and the timing of when expenses are incurred.

The increase reflects the increased cost for the Choice
Properties operating platform for a full year of activity
subsequent to the completion of the Acquisition Transaction
as compared to eight months in the prior year.

Acquisition Transaction Costs and Other Related Expenses

For the three months and year ended December 31, 2019, advisory fees, personnel and other integration costs related to the
Acquisition Transaction totalling nil and $8,363, respectively, were expensed (2018 - $11,044 and $141,493, respectively).

Choice Properties REIT 2019 Annual Report 47

Occupied
%

98.0%

97.9%

93.3%

97.7%

Occupied
%

98.0%

97.9%

93.3%

97.7%

LEASING ACTIVITY

Choice Properties’ leasing activities are focused on driving value by:

•

focusing on property operations and striving for superior service to tenants;

• managing properties to maintain high levels of occupancy;

•

increasing rental rates when market conditions permit; and

by adding tenants in complementary business sectors to retail sites anchored by Loblaw food and drug stores.

The following tables detail the changes for in-place occupancy by operating segment for the three months and year ended
December 31, 2019:

September 30, 2019

Three Months

December 31, 2019

(in thousands of
square feet
except where
otherwise
indicated)

Leasable Occupied

% Expiries

New Renewals

Occupied

Subtotal:
Absorption

Portfolio
changes(i)

New/
(Disposed)

vacancy Leasable Occupied

Retail

46,285

45,351

98.0%

Industrial

15,826

15,522

98.1%

Office

Total

3,191

2,973

93.2%

65,302

63,846

97.8% (1,277)

(606)

(471)

(200)

151

169

380

449

264

135

848

(6)

(38)

(5)

(49)

323

356

(7)

(10)

(13)

46,315

45,371

16,142

15,807

3,188

2,975

65,645

64,153

(i)

Represents changes in occupied square footage arising from acquisitions, dispositions, intensifications, expansions, and transfers from properties under development.

December 31, 2018

Year Ended

December 31, 2019

(in thousands of
square feet
except where
otherwise
indicated)

Leasable Occupied

% Expiries

New Renewals

Occupied

Subtotal:
Absorption

Portfolio
changes(i)

New/
(Disposed)

vacancy Leasable Occupied

Retail

47,018

46,069

98.0% (1,799)

Industrial

16,457

16,100

97.8% (1,737)

Office

Total

3,153

2,909

92.3%

(520)

66,628

65,078

97.7% (4,056)

1,623

2,836

694

675

254

1,282

1,248

306

177

186

403

(875)

(479)

172

164

46,315

45,371

16,142

15,807

3,188

2,975

(1,328)

345

65,645

64,153

(i)

Represents changes in occupied square footage arising from acquisitions, dispositions, intensifications, expansions, and transfers from properties under development.

Three Months

Year Ended

Period end occupancy slightly reduced from 97.8% to 97.7%
at December 31, 2019.

Period end occupancy remains unchanged at 97.7%.

During the quarter, there was negative absorption of 49,000
square feet, mainly due to vacancy in the Ontario industrial
portfolio.

Portfolio changes during the quarter primarily related to the
acquisition of an industrial property in Toronto, Ontario, in
addition to acquiring the Trust’s partner’s remaining 15%
interest in two industrial assets in Milton, Ontario.

Positive absorption during the year was highlighted by
increased leasing in the Ontario and Alberta industrial
portfolios during the second quarter and the Ontario retail
portfolio during the third quarter.

Portfolio changes were mainly due to the Oak Street
disposition of 2.6 million square feet of 100% occupied
space, offset by transfers of completed development
projects in the Ontario industrial and retail portfolios, as well
as acquisitions in the Ontario and British Columbia retail
segments and the Ontario and Alberta industrial portfolios.

Choice Properties’ principal tenant, Loblaw, represents 56.3% of its total GLA (December 31, 2018 - 58.9%). At December 31,
2019, the weighted average lease term-to-maturity on the Loblaw leases was 8.2 years (December 31, 2018 - 9.3 years).

(in millions of square feet except where otherwise indicated)

Loblaw banners

Third-party tenants

Total commercial GLA

As at December 31, 2019

As at December 31, 2018

Portfolio
GLA

Occupied
GLA

Occupancy
(%)

Portfolio
GLA

Occupied
GLA

Occupancy
(%)

37.0

28.7

65.6

37.0

27.2

64.2

100.0%

94.8%

97.7%

39.3

27.3

66.6

39.3

25.8

65.1

100%

94.5%

97.7%

48 Choice Properties REIT 2019 Annual Report

The commercial lease maturity profile for Choice Properties’ portfolio as at December 31, 2019 was as follows:

Third-party
GLA

Loblaw GLA

Total GLA

Expiring GLA
as a % of
total GLA

Expiring
annualized
base rent
($ 000’s)

Average expiring
base rent
(per square foot)

285

2,815

3,462

3,490

3,519

2,888

2,622

8,087

1,492

—

130

3,890

2,943

3,262

26,602

—

28,660

36,984

375

2,815

3,592

3,557

7,409

5,832

5,884

34,689

1,492

65,645

0.6% $

4,267

4.3%

5.5%

5.4%

11.3%

8.9%

9.0%

52.7%

2.3%

33,654

45,861

51,257

105,210

81,114

77,194

570,500

—

100.0% $

969,057

11.38

11.96

12.77

14.41

14.20

13.91

13.12

16.45

—

14.76

Retail segment

Industrial segment

Office segment

Total

Expiring
GLA
as a % of
total GLA

0.5%

1.7%

3.0%

2.6%

7.8%

6.2%

6.1%

41.3%

1.4%

GLA

298

1,138

1,971

1,681

5,091

4,086

4,006

27,100

944

Expiring
GLA
as a % of
total GLA

0.1%

2.2%

2.1%

2.3%

3.0%

2.2%

2.6%

9.6%

0.5%

GLA

1,450

1,346

1,483

1,987

1,465

1,708

6,325

335

46,315

70.6%

16,142

24.6%

Expiring
GLA
as a % of
total GLA

0.1%

0.3%

0.4%

0.6%

0.5%

0.4%

0.3%

1.9%

0.3%

4.8%

GLA

227

276

393

331

280

170

1,264

213

3,188

GLA

375

2,815

3,593

3,557

7,409

5,831

5,884

34,689

1,492

65,645

Expiring GLA
as a % of
total GLA

0.6%

4.3%

5.5%

5.4%

11.3%

8.9%

9.0%

52.7%

2.3%

100.0%

(in thousands of square feet
except where otherwise
indicated)

Month-to-month

2020

2021

2022

2023

2024

2025

2026 & Thereafter

Vacant

Total

(in thousands of square feet
except where otherwise
indicated)

Month-to-month

2020

2021

2022

2023

2024

2025

2026 & Thereafter

Vacant

Total

Top 10 Tenants

Choice Properties’ ten largest tenants for the three months ended December 31, 2019, represent approximately 64.4% of gross
rental revenue, as calculated on a proportionate share basis(1). The names noted below may be the names of the parent entities
and are not necessarily the covenants under the leases.

Tenants

Loblaw

Canadian Tire

TJX Companies

Dollarama

Staples

Sobeys

GoodLife

TD Canada Trust

Liquor Control Board of Ontario (LCBO)

10. Lowe's

Total

% of Gross Rental
Revenue

GLA
(square feet)

56.3%

2.6%

1.1%

0.8%

0.7%

0.6%

0.5%

36,984

1,817

664

473

426

338

314

156

199

522

64.4%

41,893

Choice Properties REIT 2019 Annual Report 49

RESULTS OF OPERATIONS - SEGMENT INFORMATION

7.1

Net Income and Segment NOI Reconciliation

Choice Properties operates in three reportable segments: retail, industrial and office. Management measures and evaluates the
performance of the Trust based on net operating income which is presented by segment below at the proportionate share of
the related revenue and expenses for these properties, while other net income (loss) items are reviewed on a consolidated GAAP
basis. Prior to the Acquisition Transaction, Choice Properties operated in only the retail segment and had no material equity
accounted joint ventures, such that management used results as calculated under GAAP to evaluate the performance of the
Trust.

The following table reconciles net income on a proportionate share basis to net income as determined in accordance with GAAP
for the three months ended December 31, 2019:

($ thousands)

Retail

Industrial

Office

Proportionate
Share Basis(1)(ii)

Consolidation
and
eliminations(i)

GAAP Basis(ii)

Rental revenue, excluding

straight-line rent, reimbursed
contract revenue and lease
surrender revenue

$ 263,462

43,164

$ 27,290

333,916

(15,569)

318,347

Property operating costs

(76,755)

(11,427)

(10,785)

(98,967)

5,095

(93,872)

186,707

31,737

16,505

234,949

4,157

(6,706)

1,128

1,023

(318)

—

442

(76)

178

5,622

(7,100)

1,306

(10,474)

(189)

—

224,475

5,433

(7,100)

1,306

185,286

32,442

17,049

234,777

(10,663)

224,114

Net Operating Income, Cash

Basis(1)

Straight-line rent

Reimbursed contract revenue

Lease surrender revenue

Net Operating Income,
Accounting Basis

Other Income and Expenses

Interest income

Fee income

Net interest expense and other financing charges

General and administrative expenses

Share of income from equity accounted joint ventures

Adjustment to fair value of unit-based compensation

Adjustment to fair value of Exchangeable Units

Adjustment to fair value of investment properties

Income before Income Taxes

Income taxes

Net Income

418

1,530

(136,315)

(9,760)

—

1,744

206,680

(5,891)

293,183

—

2,422

—

(5,296)

—

13,499

—

456

1,530

(133,893)

(9,760)

(5,296)

1,744

206,680

7,608

293,183

293,261

— $

293,261

(i)
(ii)

Reconciling items adjust Choice Properties’ proportionate share of joint ventures to reflect the equity method of accounting under GAAP.
Included in net operating income, accounting basis, is rental revenue related to the Acquisition Transaction of $97,201 on a GAAP basis ($112,958 on a
proportionate share basis).

50 Choice Properties REIT 2019 Annual Report

The following table reconciles net loss on a proportionate share basis to net loss as determined in accordance with GAAP for
the year ended December 31, 2019:

($ thousands)

Retail

Industrial

Office

Proportionate
Share Basis(1)(ii)

Consolidation
and
eliminations(i)

GAAP Basis(ii)

Rental revenue, excluding

straight-line rent, reimbursed
contract revenue and lease
surrender revenue

$1,045,702

179,682

$ 106,236

1,331,620

(64,790)

1,266,830

Property operating costs

(301,238)

(48,012)

(41,050)

(390,300)

22,168

(368,132)

744,464

131,670

65,186

19,189

(6,706)

3,415

4,867

2,129

(318)

(76)

190

941,320

26,185

(7,100)

3,678

(42,622)

(1,039)

—

898,698

25,146

(7,100)

3,678

760,362

136,292

67,429

964,083

(43,661)

920,422

Net Operating Income, Cash

Basis(1)

Straight-line rent

Reimbursed contract revenue

Lease surrender revenue

Net Operating Income,
Accounting Basis

Other Income and Expenses

Interest income

Fee income

Net interest expense and other financing charges

General and administrative expenses

Share of income from equity accounted joint ventures

Acquisition transaction costs and other related expenses

Adjustment to fair value of unit-based compensation

Adjustment to fair value of Exchangeable Units

Adjustment to fair value of investment properties

Loss before Income Taxes

Income taxes

Net Loss

12,500

4,556

(561,271)

(39,292)

—

(8,363)

(7,109)

(932,009)

(15,250)

(582,155)

798

(949)

—

9,428

—

24,366

—

10,816

—

11,551

4,556

(551,843)

(39,292)

24,366

(8,363)

(7,109)

(932,009)

(4,434)

(582,155)

798

(581,357)

— $

(581,357)

(i)
(ii)

Reconciling items adjust Choice Properties’ proportionate share of joint ventures to reflect the equity method of accounting under GAAP.
Included in net operating income, accounting basis, is rental revenue related to the Acquisition Transaction of $399,370 on an GAAP basis ($465,198 on a
proportionate share basis).

Choice Properties REIT 2019 Annual Report 51

7.2

Net Operating Income Summary(1)

NOI(1) is a supplemental measure of operating performance widely used in the real estate industry. There is no industry-defined
definition of NOI(1). Refer to Section 15.2, “Net Operating Income”, of this MD&A, for a definition of NOI(1) and a reconciliation to
net income (loss) determined in accordance with GAAP.

Management also measures performance of operating segments using NOI(1) as calculated on a proportionate share basis and,
in particular, same-asset NOI which isolates Management’s success at dealing with certain key performance factors. “Same-
Asset” refers to those properties that were owned and operated by Choice Properties for the entire 24 months ended December 31,
2019, and where such properties had no changes to income as a result of acquisitions, dispositions, new developments,
redevelopments and expansions, intensifications, transfers, or demolitions (collectively, “Transactions”). NOI related to
Transactions for the period are presented separately from the same-asset financial results.

Choice Properties’ NOI(1) is calculated on a proportionate share basis to incorporate Choice Properties’ investment in co-owned
properties as if they were owned directly, for the three months and year ended December 31, 2019 and December 31, 2018 is
summarized below.

Summary - Accounting Basis

Three Months

Year Ended

For the periods ended
December 31
($ thousands)

Rental revenue

Straight line rent

2019

2018

Change

%
Change

2019

2018

Change

%
Change

$ 180,828

$ 172,454

8,374

4.9 % $ 712,208

$ 693,353

$ 18,855

2.7 %

2,757

4,618

(1,861)

(40.3)%

14,633

21,859

(7,226)

(33.1)%

Property operating costs

(48,268)

(43,885)

(4,383)

10.0 % (190,757)

(185,329)

(5,428)

2.9 %

Same-Asset NOI,

Accounting Basis

Acquisition Transaction

Transactions

Reimbursed contract

revenue

Lease surrender and other

revenue

Total NOI, Accounting

Basis

135,317

133,187

73,283

31,971

(7,100)

1,306

80,406

27,277

—

409

2,130

(7,123)

4,694

(7,100)

897

1.6 %

536,084

529,883

309,063

214,301

122,358

105,053

1.2 %

6,201

94,762

17,305

(7,100)

—

(7,100)

3,678

10,886

(7,208)

$ 234,777

$ 241,279

(6,502)

$ 964,083

$ 860,123

$ 103,960

Three Months

Year Ended

The increase in Same-Asset NOI is primarily attributable to
increased capital recoveries resulting from investments in
income producing properties.

Increase in Same-Asset NOI is primarily due to positive
absorption during the year, as well as increasing rental rates
upon renewal of expiring leases.

The decrease in NOI attributable to the Acquisition Transaction
is primarily the result of dispositions completed subsequent to
September 30, 2018 of properties within this portfolio.

The increase in NOI attributable to the Acquisition Transaction
mainly relates to the full year contribution of properties
acquired in this portfolio compared to eight months in 2018.

52 Choice Properties REIT 2019 Annual Report

Summary - Cash Basis

Three Months

Year Ended

For the periods ended
December 31
($ thousands)

2019

2018

Change

%
Change

2019

2018

Change

Rental revenue

$ 180,828

$ 172,454

8,374

4.9% $ 712,208

$ 693,353

$ 18,855

Property operating costs

(48,268)

(43,885)

(4,383)

10.0% (190,757)

(185,329)

(5,428)

Same-Asset NOI, Cash

Basis

Transactions

132,560

128,569

102,389

103,937

3,991

(1,548)

3.1%

521,451

508,024

13,427

419,869

306,148

113,721

Total NOI, Cash Basis

$ 234,949

$ 232,506

2,443

$ 941,320

$ 814,172

$ 127,148

Retail Segment

For the periods ended
December 31
($ thousands)

Three Months

Year Ended

2019

2018

Change

%
Change

2019

2018

Change

Rental revenue

$ 163,240

$ 155,437

7,803

5.0% $ 643,771

$ 626,233

$ 17,538

Property operating costs

(43,924)

(39,716)

(4,208)

10.6% (174,291)

(168,863)

(5,428)

Same-Asset NOI, Cash

Basis

Transactions

119,316

115,721

67,391

67,806

3,595

(415)

3.1%

469,480

457,370

274,984

203,910

12,110

71,074

Total NOI, Cash Basis

$ 186,707

$ 183,527

3,180

$ 744,464

$ 661,280

$ 83,184

Industrial Segment

For the periods ended
December 31
($ thousands)

Three Months

Year Ended

2019

2018

Change

%
Change

2019

2018

Change

Rental revenue

14,305

13,837

468

3.4% $

55,368

53,996

1,372

Property operating costs

(3,478)

(3,421)

(57)

1.7%

(13,018)

(12,935)

(83)

Same-Asset NOI, Cash

Basis

Transactions

10,827

20,910

10,416

20,809

Total NOI, Cash Basis

31,737

31,225

411

101

512

3.9%

42,350

89,320

41,061

59,652

1,289

29,668

$ 131,670

$ 100,713

$ 30,957

Office Segment

For the periods ended
December 31
($ thousands)

Three Months

Year Ended

2019

2018

Change

%
Change

2019

2018

Change

Rental revenue

3,283

3,181

102

3.2 % $

13,069

13,124

(55)

Property operating costs

(866)

(748)

(118)

15.8 %

(3,448)

(3,531)

Same-Asset NOI, Cash

Basis

Transactions

2,417

14,088

2,433

(16)

(0.7)%

15,322

(1,234)

9,621

55,565

9,593

42,586

12,979

%
Change

2.7%

2.9%

2.6%

%
Change

2.8%

3.2%

2.6%

%
Change

2.5%

0.6%

3.1%

%
Change

(0.4)%

(2.4)%

0.3 %

Total NOI, Cash Basis

16,505

17,755

$ (1,250)

65,186

52,179

$ 13,007

Choice Properties REIT 2019 Annual Report 53

7.3

Other Key Performance Indicators

FFO(1) and AFFO(1) are included in the Trust’s summary of key performance indicators. See Section 15, “Non-GAAP Financial
Measures”, of this MD&A, for details on how these measures are defined, calculated and reconciled to GAAP financial measures
and why management analyzes these measures. FFO(1) and AFFO(1) for the three months and year ended December 31, 2019
and December 31, 2018 are summarized below:

For the periods ended December 31
($ thousands)

Funds from Operations(1)(i)

FFO(1)(i) per unit basic

FFO(1)(i) per unit diluted

FFO(1)(i) payout ratio - diluted

Adjusted Funds from Operations(1)(i)

AFFO(1)(i) per unit basic

AFFO(1)(i) per unit diluted

AFFO(1)(i) payout ratio - diluted

Distribution declared per Unit

Weighted average Units outstanding -

Three Months

Year Ended

2019

165,795

0.237

78.1%

129,187

0.184

100.3%

0.185

2018

Change

171,872

0.257

0.256

71.9%

110,332

0.165

112.0%

0.185

(6,077)

(0.020)

(0.019)

6.2 %

18,855

0.019

(11.7)%

—

2019

680,278

0.987

75.0%

587,695

0.853

86.8%

0.740

2018

603,840

1.038

1.033

71.4%

483,378

0.831

0.827

89.2%

0.740

Change

76,438

(0.051)

(0.046)

3.6 %

104,317

0.022

0.026

(2.4)%

—

basic

700,251,450

667,907,648

32,343,802

689,016,850

581,978,014

107,038,836

Weighted average Units outstanding -

diluted

700,544,380

670,486,393

30,057,987

689,285,790

584,605,228

104,680,562

Number of Units outstanding, end of

period

700,254,652

668,164,342

32,090,310

700,254,652

668,164,342

32,090,310

(i)

FFO(1), AFFO(1) and the related per unit amounts and payout ratios for the comparative period in 2018 were calculated excluding the accelerated amortization of debt premium of $37,282
(see Section 15, “Non-GAAP Financial Measures”, of this MD&A).

Funds from Operations (“FFO”)(1)
FFO(1) is calculated in accordance with the Real Property Association of Canada’s White Paper on Funds from Operations &
Adjusted Funds from Operations for IFRS issued in February 2019. From time to time the Trust may enter into transactions that
materially impact the calculation and are excluded from the calculation for management’s review purposes. Refer to Section
15.3, “Funds from Operations”, of this MD&A, for a reconciliation of FFO(1) to net income determined in accordance with GAAP.

Three Months

Year Ended

FFO decreased compared to the prior quarter primarily due to
a non-recurring reimbursement of revenue to Loblaw for
incorrectly allocated solar rooftop leases, offset by a decline
in borrowing costs.

On a per unit basis, the decline was primarily due to the higher
weighted average number of units outstanding as a result of
the May 2019 equity offering and higher net interest expense
related to the Acquisition Transaction, partially offset by growth
in net operating
to completed
development projects and contribution from the Acquisition
Transaction.

income attributable

FFO increased primarily due to a full year of contribution from
the Acquisition Transaction as compared to eight months in
the prior year, in addition to increased leasing activity and
development transfers and a general reduction in borrowing
costs, offset by non-recurring reimbursement of revenue to
Loblaw for incorrectly allocated solar rooftop leases and
interest costs related to the write-off of financing costs for the
fully repaid term loans.

On a per unit basis, the decline was primarily due to the higher
weighted average number of units outstanding as a result of
the May 2019 equity offering and higher net interest expense
related to the Acquisition Transaction, partially offset by the
contribution from the Acquisition Transaction and growth in
NOI attributable to completed development projects.

54 Choice Properties REIT 2019 Annual Report

Adjusted Funds from Operations (“AFFO”)(1)
Choice Properties calculates its AFFO(1) in accordance with the Real Property Association of Canada’s White Paper on Funds
from Operations & Adjusted Funds from Operations for IFRS issued in February 2019. From time to time the Trust may enter into
transactions that materially impact the calculation and are eliminated from the calculation for management’s review purposes.
Refer to Section 15.4, “Adjusted Funds from Operations”, of this MD&A, for a reconciliation of AFFO(1) to net income determined
in accordance with GAAP.

Three Months

Year Ended

AFFO increased primarily due to a decline in capital spending
year-over-year, offset by a decline in FFO as noted above.

AFFO payout ratio decreased primarily as a result of the higher
weighted average number of units outstanding as a result of
the May 2019 equity offering.

AFFO increased primarily due to a full year of contribution from
the Acquisition Transaction as compared to eight months in
the prior year, coupled with reduced capital spending year-
over-year.

AFFO payout ratio decreased primarily due to the higher
weighted average number of units outstanding as a result of
the May 2019 equity offering and lower overall capital
spending, partially offset by FFO growth and the net
contributions from the Acquisition Transaction and net
operating income attributable to completed development
projects.

Operating Capital Expenditures

Choice Properties endeavours to fund operating capital from cash flows from operations.

For the periods ended December 31
($ thousands)

Property capital

Leasing capital:

Direct leasing costs

Tenant improvement allowances

Total operating capital expenditures,

proportionate share basis(1)

Three Months

Year Ended

2019

2018

Change

2019

2018

Change

18,859

42,655

(23,796)

30,658

57,737

(27,079)

3,099

7,413

3,999

4,877

(900)

2,536

8,172

21,417

11,842

10,391

(3,670)

11,026

29,371

51,531

(22,160)

60,247

79,970

(19,723)

Property Capital
Property capital expenditures incurred to sustain the investment properties’ existing GLA are considered to be operational and
are deducted in the calculation of AFFO(1) and ACFO(1). During the year ended December 31, 2019, Choice Properties incurred
$30,658 of property capital expenditures, which may be recoverable from tenants under the terms of their leases over the useful
life of the improvements (2018 - $57,737). Recoverable capital improvements may include items such as parking lot resurfacing
and roof replacements. These items are recorded as part of investment properties and the recoveries from tenants are recorded
as revenue.

Leasing Capital
Capital expenditures for leasing activities, such as leasing commissions or tenant improvement allowances, are considered to
be operational and are deducted in the calculation of AFFO(1) and ACFO(1). Leasing capital varies with tenant demand and the
balance between new and renewal leasing, as capital expenditures relating to securing new tenants are generally higher than
the costs for renewing existing tenants.

Choice Properties REIT 2019 Annual Report 55

QUARTERLY RESULTS OF OPERATIONS

8.1

Results by Quarter

The following is a summary of selected consolidated financial information for each of the eight most recently completed quarters.

Selected Quarterly Information

($ thousands except where
otherwise indicated)

Number of investment

properties

Fourth
Quarter
2019

726

Gross leasable area
(in millions of square feet)

65.8

Third
Quarter
2019

Second
Quarter
2019

First
Quarter
2019

Fourth
Quarter
2018

Third
Quarter
2018

Second
Quarter
2018

First
Quarter
2018

726

65.5

756

68.0

756

67.7

753

66.8

751

66.8

757

67.0

548

44.2

Occupancy

97.7%

97.8%

97.7%

97.4%

97.7%

97.6%

98.8%

Rental revenue (IFRS)

Net income (loss)

Net income (loss) per Unit

Net income (loss) per Unit
diluted
Net operating income,
cash basis(1)

FFO(1)

FFO(1) per Unit - diluted

AFFO(1)

AFFO(1) per Unit - diluted

Distribution declared per Unit

Market price per Unit - closing

317,986

293,261

0.419

234,949

165,795

0.237

129,187

0.184

0.185

13.91

323,306

(210,796)

(0.301)

239,047

174,982

0.250

152,032

0.217

0.185

14.44

324,289

238,310

0.341

0.347

234,715

170,241

0.248

151,803

0.221

0.185

13.68

322,973

(902,132)

(1.348)

(1.346)

232,609

169,260

0.252

154,673

0.231

0.185

14.06

322,793

281,099

0.421

0.419

232,506

171,872

0.256

110,332

0.165

0.185

11.52

315,584

62,620

0.094

0.093

229,969

169,683

0.253

137,544

0.205

0.185

12.07

294,648

(321,133)

(0.481)

(0.557)

201,914

156,600

0.272

140,333

0.243

0.185

12.11

215,248

626,991

1.516

1.513

149,783

105,685

0.255

95,360

0.230

0.185

11.61

Units outstanding, period end

700,254,652

700,247,802

699,572,174

669,312,915

668,164,342

667,847,540

667,224,978

413,459,836

Debt to total assets(i)

43.1%

43.5%

Debt service coverage(i)

3.0x

3.1x

45%

3.0x

47.6%

47.2%

48.6%

51.9%

3.0x

3.1x

3.5x

(i)

Debt ratio calculations for the first quarter of 2018 include Class C LP Units while the Exchangeable Units are excluded from the calculations in each subsequent quarter. The ratios are
non-GAAP financial measures calculated based on the Trust Indentures, as supplemented.

Choice Properties’ quarterly results were positively impacted by acquisition activity and development of additional GLA. In
particular, quarterly results were impacted by the Acquisition Transaction on May 4, 2018. In addition, net income (loss) was
impacted by fluctuations in adjustments to fair value of Exchangeable Units, investment properties, and unit-based compensation
and therefore was often not comparable from quarter to quarter.

56 Choice Properties REIT 2019 Annual Report

RELATED PARTY TRANSACTIONS

Choice Properties’ parent corporation is George Weston Limited (“GWL”), which held a 62.9% direct effective interest in the
Trust through ownership of 50,661,415 Units and all of the Exchangeable Units as at December 31, 2019. GWL is also the parent
company of Loblaw, with ownership of 52.2% of Loblaw’s outstanding common shares as at December 31, 2019.

On November 1, 2018, Loblaw and GWL completed a reorganization under which Loblaw spun out its effective interest in Choice
Properties to GWL. Prior to the reorganization, Loblaw held a 61.6% direct effective interest in the Trust through ownership of
21,500,000 Units and 100% of the Exchangeable Units as at October 31, 2018. The reorganization had no significant impact
on the ongoing relationship between Loblaw and Choice Properties. All current agreements and arrangements with Loblaw
remain in place and Loblaw continues to be Choice Properties’ largest tenant.

In the ordinary course of business, Choice Properties’ enters into various transactions with related parties. These transactions
are measured at the exchange amount, which is the amount of consideration established and agreed upon by the related parties.
Loblaw represents approximately 56.3% of Choice Properties’ quarterly rental revenue on a proportionate share basis, and
56.3% of its commercial GLA as at December 31, 2019 (December 31, 2018 - 57.1% and 58.9%, respectively).

Investment Property Transactions
In the year ended December 31, 2019, Choice Properties acquired two investment properties and one financial real estate asset
from Loblaw with an aggregate purchase price of $59,118, excluding transaction costs, and one industrial investment property
from GWL with a fair value of $13,250, excluding transaction costs. The acquisitions were settled with cash.

On September 30, 2019, Choice Properties completed the disposition of a portfolio of 30 income producing properties which
had Loblaw leases, the Oak Street disposition, for an aggregate sale price of $426,318, excluding transaction costs. Immediately
prior to the closing date, Loblaw and Choice Properties agreed to amend certain applicable leases such that each lease had a
remaining term of at least 12 years and Choice Properties’ right to collect future capital recoveries by the purchaser would be
waived.

In the year ended December 31, 2019, Choice Properties completed two dispositions of retail properties which had Loblaw
leases, for an aggregate sale price of $9,975, excluding transaction costs.

In 2018, Choice Properties acquired a 100% interest in three retail properties from Loblaw for a combined purchase price of
$55,390, excluding acquisition costs. Included in the investment properties acquired as part of the Acquisition Transaction were
17 properties containing a Loblaw food or drug store, with annual rental revenue of approximately $12,841.

On December 7, 2018, Choice Properties acquired an industrial property from GWL for a purchase price of $20,280, excluding
transaction costs. The acquisition was settled with cash.

The acquisitions from related parties are disclosed in Section 3.2, “Investment Property Transactions”, of this MD&A.

In the year ended December 31, 2019, Loblaw made lease surrender payments of $3,156 to the Trust (2018 - $10,204).

Choice Properties compensated Loblaw with intensification payments of $4,577 in connection with completed gross leasable
area for which tenants have taken possession during the year ended December 31, 2019 (December 31, 2018 - $5,858).

On December 9, 2014, Choice Properties and its joint venture partner, Wittington Properties Limited (“Wittington”) completed
the acquisition of the West Block project at Lake Shore Boulevard and Bathurst Street in Toronto, Ontario for $15,576 from
Loblaw. Wittington’s parent company is Wittington Investments, Limited, which holds a majority interest in GWL. The joint venture
partners intend to develop the West Block project into a mixed-used property. Choice Properties contributed $13,240 to the
joint venture and received distributions of nil during the year ended December 31, 2019 (December 31, 2018 - contributions of
$7,080 and distributions of $7,200). Operating activities have not begun at the property; however, the joint venture did earn
interest income during the year ended December 31, 2019 of $86 (2018 - $2,070).

Strategic Alliance Agreement
The Strategic Alliance Agreement creates a series of rights and obligations between Choice Properties and Loblaw intended to
establish a preferential and mutually beneficial business and operating relationship. The Strategic Alliance Agreement expires
on July 5, 2023. The Strategic Alliance Agreement provides Choice Properties with important rights that are expected to
meaningfully contribute to the Trust’s growth. Subject to certain exceptions, rights include:

• Choice Properties will have the right of first offer to purchase any property in Canada that Loblaw seeks to sell;
•

Loblaw will be generally required to present shopping centre property acquisitions in Canada to Choice Properties to
allow the Trust a right of first opportunity to acquire the property itself; and

• Choice Properties has the right to participate in future shopping centre developments involving Loblaw.

Choice Properties REIT 2019 Annual Report 57

Included in certain investment properties acquired from Loblaw is excess land with development potential. In accordance with
the Strategic Alliance Agreement, Choice Properties will compensate Loblaw, over time, with intensification payments, as Choice
Properties pursues development, intensification or redevelopment of such excess land. The payments to Loblaw will be calculated
in accordance with a payment grid that takes into account the region, market ranking and type of use for the property.

Services Agreement
During 2019, GWL provided Choice Properties with administrative and other support services for $3,095 (2018 - nil). During
2018, Loblaw provided Choice Properties with administrative and other support services for an annualized amount of $2,335.
This agreement was terminated on December 31, 2018.

Property Management Agreement
Choice Properties provides Loblaw with property management services for Loblaw’s properties with third-party tenancies on a
fee for service basis with automatic one-year renewals.

Sublease Administration Agreement
On July 17, 2017, in connection with Loblaw’s sale of substantially all of its gas bar operations, Choice Properties agreed to
provide Loblaw with certain administrative services in respect of the subleases on a fee for service basis for an initial five-year
term with automatic one-year renewals.

Reimbursed contract revenue
On certain properties sold to Choice Properties, the revenue received with respect to solar rooftop leases was incorrectly allocated
to Choice Properties. During the year ended December 31, 2019, Choice Properties reimbursed Loblaw $7,100 for revenue
received in prior periods, and Choice Properties and Loblaw acknowledged that all future revenue and liabilities relating to the
solar rooftop leases and related rooftop repair costs belong to Loblaw.

Distributions on Exchangeable Units and Notes Receivable
Subsequent to the reorganization on November 1, 2018, GWL holds all of the Exchangeable Units issued by Choice Properties
Limited Partnership, a subsidiary of Choice Properties. During the year ended December 31, 2019, distributions declared on the
Exchangeable Units totalling $168,334 were payable to GWL (December 31, 2018 - $50,274).

Subsequent to the reorganization on November 1, 2018, GWL assumed the notes receivable from Loblaw entities of $26,226.
On the first business day of 2019, distributions payable for Exchangeable Units of $26,226 were paid and the corresponding
notes receivable from GWL were cancelled.

Trust Unit Distributions
In the year ended December 31, 2019, Choice Properties declared cash distributions of $36,551 on the Units held by GWL, and
$3,546 in non-cash distributions paid by the issuance of additional Trust Units (December 31, 2018 - $21,416 and $nil). As at
December 31, 2019, $3,124 of Trust Unit distributions declared were payable to GWL (December 31, 2018 - $2,889).

10.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of the consolidated financial statements requires management to make judgments and estimates in applying
Choice Properties’ accounting policies that affect the reported amounts and disclosures made in the consolidated financial
statements and accompanying notes.

Within the context of these consolidated financial statements, a judgment is a decision made by management in respect of the
application of an accounting policy, a recognized or unrecognized financial statement amount and/or note disclosure, following
an analysis of relevant information that may include estimates and assumptions. Estimates and assumptions are used mainly
in determining the measurement of balances recognized or disclosed in the consolidated financial statements and are based
on a set of underlying data that may include management’s historical experience, knowledge of current events and conditions
and other factors that are believed to be reasonable under the circumstances. Management continually evaluates the estimates
and judgments it uses.

The following are the accounting policies subject to judgments and key sources of estimation uncertainty that Choice Properties
believes could have the most significant impact on the amounts recognized in the consolidated financial statements.

Investment Properties
Judgments Made in Relation to Accounting Policies Applied
Judgment is applied in determining whether certain costs are additions to the carrying value of investment properties,
identifying the point at which substantial completion of a development property occurs, and identifying the directly
attributable borrowing costs to be included in the carrying value of the development property. Choice Properties also applies
judgment in determining whether the properties it acquires are considered to be asset acquisitions or business combinations.
Choice Properties considers all the properties it has acquired to date to be asset acquisitions.

58 Choice Properties REIT 2019 Annual Report

Key Sources of Estimation
The fair value of investment properties is dependent on available comparable transactions, future cash flows over the holding
period and discount rates and capitalization rates applicable to those assets. The review of anticipated cash flows involves
assumptions relating to occupancy, rental rates and residual value. In addition to reviewing anticipated cash flows,
management assesses changes in the business climate and other factors, which may affect the ultimate value of the property.
These assumptions may not ultimately be achieved.

b. Joint Arrangements

Judgments Made in Relation to Accounting Policies Applied
Judgment is applied in determining whether the Trust has joint control and whether the arrangements are joint operations
or joint ventures. In assessing whether the joint arrangements are joint operations or joint ventures, management applies
judgment to determine the Trust’s rights and obligations in the arrangement based on factors such as the structure, legal
form and contractual terms of the arrangement.

c. Leases

Judgments Made in Relation to Accounting Policies Applied
Choice Properties is required to make judgments in determining whether certain leases are operating or finance leases, in
particular long-term leases. All tenant leases where Choice Properties is the lessor have been determined to be operating
leases.

Income Taxes
Judgments Made in Relation to Accounting Policies Applied
Choice Properties is a mutual fund trust and a REIT as defined in the Income Tax Act (Canada). Choice Properties is not
liable to pay Canadian income taxes provided that its taxable income is fully distributed to Unitholders each year. Choice
Properties is a REIT if it meets the prescribed conditions under the Income Tax Act (Canada). Choice Properties uses
judgment in reviewing these conditions in assessing its interpretation and application to its assets and revenue.

Choice Properties has determined that it qualifies as a REIT for the current period. Choice Properties expects to continue
to qualify as a REIT under the Income Tax Act (Canada), however, should it no longer qualify, it would not be able to flow
through its taxable income to Unitholders and would therefore be subject to tax.

11.

ACCOUNTING POLICY CHANGES

Accounting Standards Implemented in 2019
In January 2016, the IASB issued IFRS 16, “Leases” (“IFRS 16”) replacing IAS 17, “Leases” and related interpretations. The
standard introduces a single on-balance sheet recognition and measurement model for lessees, eliminating the distinction
between operating and finance leases. Lessors continue to classify leases as finance or operating leases. The Trust adopted
IFRS 16 using the modified retrospective approach effective January 1, 2019. Under this method, the standard is applied
retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application.

At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the
remaining lease payments, discounted at the Trust’s incremental borrowing rate as at January 1, 2019. The Trust elected to
measure all its right-of-use assets at an amount equal to the lease liability, adjusted for any prepaid or accrued lease payments,
in addition to a number of practical expedients.

As at January 1, 2019, the Trust recognized right-of-use lease liabilities of $7,955 recorded in trade payables and other liabilities
and right-of-use assets of $7,955 recorded in accounts receivable and other assets on its balance sheet. The nature and timing
of the related expenses will change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge
for right-of-use assets and interest expense on lease liabilities.

12.

CONTROLS AND PROCEDURES

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 financial reports for external purposes
in accordance with IFRS.

As required by National Instrument 52-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings” (“NI 52-109”), the
President and Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) have caused the effectiveness of the
internal controls over financial reporting to be evaluated using the framework established in ‘Internal Control - Integrated
Framework (COSO Framework)’ (2013) published by The Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). Based on that evaluation, they have concluded that the design and operation of the Trust’s internal controls over
financial reporting were effective as at December 31, 2019.

In designing such controls, it should be recognized that due to inherent limitations, any control, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control objectives and may not prevent or detect

Choice Properties REIT 2019 Annual Report 59

misstatements. Projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Additionally, management is required to use judgment in evaluating controls and procedures.

Changes in Internal Controls Over Financial Reporting
There were no changes in the Trust’s internal controls over financial reporting in 2019 that materially affected or are reasonably
likely to materially affect the Trust’s internal control over financial reporting.

Disclosure Controls and Procedures
Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reasonable
assurance that all material information relating to Choice Properties is gathered and reported to senior management on a timely
basis so that appropriate decisions can be made regarding public disclosure.

As required by NI 52-109, the CEO and CFO have caused the effectiveness of the disclosure controls and procedures to be
evaluated. Based on that evaluation, they have concluded that the design and operation of the system of disclosure controls
and procedures were effective as at December 31, 2019.

13.

ENTERPRISE RISKS AND RISK MANAGEMENT

Choice Properties is committed to maintaining a framework that ensures risk management is an integral part of its activities. To
ensure the continued growth and success of the Trust, risks are identified and managed through the Trust’s Enterprise Risk
Management (“ERM”) program.

The ERM program assists all areas of the business in managing risks within appropriate levels of tolerance by bringing a systematic
approach and methodology for evaluating, measuring and monitoring key risks. The results of the ERM program and other
business planning processes are used to identify emerging risks to the Trust, prioritize risk mitigation activities and develop a
risk-based internal audit plan.

Risks are not eliminated through the ERM program, but rather, are identified and managed in line with the Trust’s risk appetite
and within understood risk tolerances. The ERM program is designed to:

•

facilitate effective corporate governance by providing a consolidated view of risks across the Trust;

enable the Trust to focus on key risks that could impact its strategic objectives in order to reduce harm to financial performance
through responsible risk management;

ensure that the Trust’s risk appetite and tolerances are defined and understood;

promote a culture of awareness of risk management and compliance within Choice Properties;

assist in developing consistent risk management methodologies and tools across the Trust including methodologies for the
identification, assessment, measurement and monitoring of risks; and

•

anticipate and provide early warnings of risks through key risk indicators.

The Board oversees the ERM program, including a review of the Trust’s risks and risk prioritization, annual approval of the ERM
policy and risk appetite framework. The risk appetite framework articulates key aspects of the Trust, values, and brands and
provides directional guidance on risk taking. Key risk indicators are used to monitor and report on risk performance and whether
Choice Properties is operating within its risk appetite. Risk owners are assigned relevant risks by the Board and are responsible
for managing risk and implementing risk mitigation strategies.

Risk identification and assessments are important elements of the Trust’s ERM process and framework. An annual ERM
assessment is completed to assist in the update and identification of internal and external risks. This assessment is carried out
in parallel with strategic planning through interviews, surveys and facilitated workshops with management and the Board to align
stakeholder views. Risks are assessed and evaluated based on the Trust’s vulnerability to the risk and the potential impact that
the underlying risks would have on the Trust’s ability to execute on its strategies and achieve its objectives.

At least semi-annually, management provides an update to the Board (or a committee of the Board) on the status of the key
risks based on significant changes from the prior update, anticipated impacts in future quarters and significant changes in key
risk indicators. In addition, the long-term (three-year) risk level is assessed to monitor potential long- term risk impacts, which
may assist in risk mitigation planning activities.

Any of the key risks have the potential to negatively affect the Trust and its financial performance. Choice Properties has risk
management strategies in place for key risks. However, there can be no assurance that the risks will be mitigated or will not
materialize or that events or circumstances will not occur that could adversely affect the reputation, operations or financial
condition or performance of the Trust.

60 Choice Properties REIT 2019 Annual Report

13.1 Operating Risks and Risk Management

The following discussion of risks identifies significant factors that may adversely affect the Trust’s business, operations and
financial condition or future performance. This information should be read in conjunction with the Trust’s consolidated financial
statements and related notes. The following discussion of risks is not exhaustive but is designed to highlight the key risks inherent
in the Trust’s business.

Property Development and Construction
Choice Properties engages in development, redevelopment and major renovation activities with respect to certain properties.
It is subject to certain risks, including: (a) the availability and pricing of financing on satisfactory terms or availability at all; (b)
the availability and timely receipt of zoning, occupancy, land use and other regulatory and governmental approvals; (c) the ability
to achieve an acceptable level of occupancy upon completion; (d) the potential that Choice Properties may fail to recover
expenses already incurred if it abandons redevelopment opportunities after commencing to explore them; (e) the potential that
Choice Properties may expend funds on and devote management time to projects which are not completed; (f) construction or
redevelopment costs of a project, including certain fees payable to Loblaw under the Strategic Alliance Agreement, may exceed
original estimates, possibly making the project less profitable than originally estimated, or unprofitable; (g) the time required to
complete the construction or redevelopment of a project or to lease-up the completed project may be greater than originally
anticipated, thereby adversely affecting Choice Properties’ cash flows and liquidity; (h) the cost and timely completion of
construction (including risks beyond Choice Properties’ control, such as weather, labour conditions or material shortages); (i)
contractor and subcontractor disputes, strikes, labour disputes or supply disruptions; (j) occupancy rates and rents of a completed
project may not be sufficient to make the project profitable; (k) Choice Properties’ ability to dispose of properties redeveloped
with the intent to sell could be impacted by the ability of prospective buyers to obtain financing given the current state of the
credit markets; and (l) the availability and pricing of financing to fund Choice Properties’ development activities on favourable
terms or availability at all.

The above risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent
the initiation of development activities or the completion of development activities once undertaken. In addition, development
projects entail risks that investments may not perform in accordance with expectations and can carry an increased risk of
litigation (and its accompanying risks) with contractors, subcontractors, suppliers, partners and others. Any failure by Choice
Properties to develop quality assets and effectively manage all development, redevelopment and major renovation initiatives
may negatively impact the reputation and financial performance of the Trust.

Asset Management
Certain significant expenditures, including property taxes, maintenance costs, debt service payments, insurance costs and
related charges, must be made throughout the period of ownership of real property, regardless of whether the property is
producing sufficient income to pay such expenses. In order to retain desirable rentable space, increase tenant demand and to
generate adequate revenue over the long-term, Choice Properties must maintain or, in some cases, improve each property’s
condition to meet market demand. Property management services, including lease management and facility repairs and
maintenance must be executed in a timely and cost-effective manner. Maintaining a rental property in accordance with market
standards can entail significant costs, which Choice Properties may not be able to recover from its tenants. All of the Loblaw
Leases contain exclusions on certain operating costs and/or tax recoveries. In addition, property tax reassessments based on
updated appraised values may occur, which Choice Properties may not be able to recover from its tenants. As a result, Choice
Properties may bear the economic cost of such operating costs and/or taxes which may adversely impact the financial condition
and results of operations and decrease the amount of cash available for distribution to Unitholders. Numerous factors, including
the age of the relevant building, the materials used at the time of construction or currently unknown building code violations
could result in substantial unbudgeted costs for refurbishment or modernization. In addition, the timing and amount of capital
expenditures may indirectly affect the amount of cash available for distribution to Unitholders. Distributions may be reduced, or
even eliminated, at times when Choice Properties deems it necessary to make significant capital or other expenditures.

If the actual costs of maintaining or upgrading a property exceed Choice Properties’ estimates, or if hidden defects are discovered
during maintenance or upgrading which are not covered by insurance or contractual warranties, additional and unexpected
costs will be incurred. If similar properties located in the vicinity of one of the Properties are substantially refurbished and the
Property is not similarly refurbished, the net operating income derived from, and the value of, such Property could be reduced.
Any failure by Choice Properties to undertake appropriate maintenance and refurbishment work in response to the factors
described above could adversely affect the rental income that is earned from such properties. Any such event could have a
material adverse effect on Choice Properties’ business, cash flows, financial condition or results of operations and its ability to
make distributions to Unitholders.

In addition, a failure by Choice Properties to adequately allocate operational capital could negatively impact occupancy levels,
attraction of high-quality tenants and lease renewals, which could have a material adverse effect on Choice Properties’ operations
and financial performance.

Choice Properties REIT 2019 Annual Report 61

Demographic and Tenant Changes
A large portion of Choice Properties’ existing real estate portfolio is comprised of necessity-based retail tenants. Shifting consumer
preferences toward e-commerce may result in a decrease in the demand for physical space by retail tenants. The failure of
Choice Properties to adapt to changes in the retail landscape, including finding new tenants to replace any lost income stream
from existing tenants that reduce the amount of physical space they rent from Choice Properties, could adversely affect Choice
Properties’ operations or financial performance.

Information and Cyber Security
Choice Properties requires segregation and protection of its information, including security over tenant lease details, employee
information, financial records and operational data (“Confidential Information”). Some of this Confidential Information is held
and managed by third-party service providers. Any failure in data security or any system vulnerability (internal or external) could
result in harm to the reputation or competitive position of the Trust. To reduce the level of vulnerability, the Trust has implemented
security measures, including monitoring and testing, maintenance of protective systems and contingency plans, to protect and
to prevent unauthorized access of Confidential Information and to reduce the likelihood of disruptions to its IT systems.

Despite these measures, all of the Trust’s information systems, including its back-up systems and any third-party service provider
systems that it employs, are vulnerable to damage, interruption, disability or failures due to a variety of reasons, including physical
theft, fire, power loss, computer and telecommunication failures or other catastrophic events, as well as from internal and external
security breaches, denial of service attacks, viruses, worms and other known or unknown disruptive events.

The Trust or its third-party service providers may be unable to anticipate, timely identify or appropriately respond to one or more
of the rapidly evolving and increasingly sophisticated means by which computer hackers, cyber terrorists and others may attempt
to breach the Trust’s security measures or those of our third-party service providers’ information systems.

As cyber threats evolve and become more difficult to detect and successfully defend against, one or more cyber threats might
defeat the Trust’s security measures or those of its third-party service providers. Moreover, employee error or malfeasance,
faulty password management or other irregularities may result in a breach of the Trust’s or its third-party service providers’
security measures, which could result in a breach of Confidential Information.

If the Trust does not allocate and effectively manage the resources necessary to build and sustain a reliable IT infrastructure,
fails to timely identify or appropriately respond to cybersecurity incidents, or the Trust’s or its third-party service providers’
information systems are damaged, destroyed, shut down, interrupted or cease to function properly, the Trust’s business
could be disrupted and the Trust could, among other things, be subject to: the loss of or failure to attract new tenants; the
loss of revenue; the loss or unauthorized access to Confidential Information or other assets; the loss of or damage to trade
secrets; damage to its reputation; litigation; regulatory enforcement actions; violation of privacy, security or other laws and
regulations; and remediation costs.

Data Governance and Decision Support
Choice Properties depends on relevant and reliable information to operate its business. As the volume of data being generated
and reported continues to increase across Choice Properties, data accuracy, quality and governance are required for effective
decision making. Failure by Choice Properties to leverage data in a timely manner may adversely affect its ability to execute its
strategy and therefore its financial performance.

Business Continuity
Choice Properties’ ability to continue critical operations and processes could be negatively impacted by adverse events resulting
from various incidents, including severe weather, development site work stoppages, prolonged IT systems failure, terrorist
activity, power failures or other national or international catastrophes. Ineffective contingency planning, business interruptions,
crises or potential disasters could adversely affect the reputation, operations and financial performance of the Trust.

Economic Environment
Continued concerns about the uncertainty over whether the economy will be adversely affected by the systemic impact of
unemployment, volatile energy costs, geopolitical issues and the availability and cost of credit have contributed to increased
market volatility and weakened business and consumer confidence. This difficult operating environment could adversely affect
Choice Properties’ ability to generate revenues, thereby reducing its operating income and earnings. It could also have a material
adverse effect on the ability of Choice Properties’ operators to maintain occupancy rates in the properties, which could harm
Choice Properties’ financial condition. If these economic conditions continue, Choice Properties’ tenants may be unable to meet
their rental payments and other obligations owing to Choice Properties, which could have a material adverse effect on Choice
Properties.

62 Choice Properties REIT 2019 Annual Report

Property Valuation Process
Choice Properties conducts a valuation assessment of its properties on a quarterly basis. As property values fluctuate over time
in response to market factors, or as underlying assumptions and inputs to the valuation model change, the fair value of the
Trust’s portfolio could change materially. Choice Properties is responsible for the reasonableness of the assumptions and for
the accuracy of the inputs into the property valuation model. Errors in the inputs to the valuation model or inappropriate
assumptions may result in an inaccurate valuation of the Properties. In addition to a market activity report that is tailored to
Choice Properties’ portfolio, management uses the market information obtained in external appraisals, across multiple firms,
commissioned during the reporting period to assess whether changes to market-related assumptions are required for the balance
of the portfolio. The Trust is responsible for monitoring the value of its portfolio going forward and evaluating the impact of any
changes in property value over time. Any changes in the value of the Properties may impact Unitholder value.

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. Accordingly, the Units may trade at a premium or a discount to values implied by the above-
mentioned valuations.

Capitalization Rate Risk
The fair market property valuation process is dependent on several inputs, including the current market capitalization rate. Risks
associated with the Trust’s property valuation model include fluctuations in the current market capitalization rate which can
significantly impact the value of the Trust’s overall real estate portfolio. In addition, the Trust is subject to certain financial and
non-financial covenants in the Trust Debentures and the Revolving Credit Facility that include maintaining certain leverage ratios.
Changes in the market capitalization rate could impact the Trust’s property valuation which in turn could impact financial
covenants.

Talent Management and Succession Planning
Choice Properties’ continued growth is dependent on its ability to hire, retain and develop its leaders and other key personnel.
Any failure to effectively attract talented and experienced employees and to establish adequate succession planning and retention
strategies could result in a lack of requisite knowledge, skill and experience. This could erode the Trust’s competitive position
or result in increased costs and competition for, or high turn-over of, employees. Any of the foregoing could negatively affect
the Trust’s ability to operate its business and execute its strategies, which in turn, could adversely affect its reputation, operations
or financial performance.

Tenant Concentration
Investment properties generate income through rent payments made by tenants, and particularly rent payments made by Loblaw
as Choice Properties’ largest tenant. Upon the expiry of any lease, there can be no assurance that the lease will be renewed, or
the tenant replaced. Furthermore, the terms of any subsequent lease may be less favourable than the existing lease, including
the addition of restrictive covenants. In addition, historical occupancy rates and rents are not necessarily an accurate prediction
of future occupancy rates. Choice Properties’ cash flows and financial position would be adversely affected if its tenants (and
especially Loblaw) were to become unable to meet their obligations under their leases or if a significant amount of available
space in the Properties was not able to be leased on economically favourable lease terms. In the event of default by a tenant,
Choice Properties may experience delays or limitations in enforcing its rights as lessor and incur substantial costs in protecting
its investment. In addition, restrictive covenants and the terms of the Strategic Alliance Agreement may narrow the field of
potential tenants at a property and could contribute to difficulties in leasing space to new tenants.

Choice Properties’ net income could also be adversely affected in the event of a downturn in the business, or the bankruptcy
or insolvency, of Loblaw, as Choice Properties’ largest tenant. Choice Properties derives a large majority of its annual base
minimum rent from Loblaw. Consequently, revenues are dependent on the ability of Loblaw to meet its rent obligations and
Choice Properties’ ability to collect rent from Loblaw. If Loblaw were to terminate its tenancies, default on or cease to satisfy its
payment obligations, it would have a material adverse effect on Choice Properties’ financial condition or results of operations
and its ability to make distributions to Unitholders.

The closing of an anchor store at a Property could also have a material adverse effect on the value of that property. Vacated
anchor tenant space also tends to adversely affect the entire property because of the loss of the departed anchor tenant’s power
to draw customers to the property, which in turn may cause other tenants’ operations to suffer and adversely affect such other
tenants’ ability to pay rent or perform any other obligations under their leases. No assurance can be given that Choice Properties
will be able to quickly re-lease space vacated by an anchor tenant on favourable terms, if at all. In addition, certain leases contain
a provision requiring tenants to maintain continuous occupancy of leased premises, and there can be no assurance that such
tenants will continue to occupy such premises. Furthermore, at any time, an anchor tenant may seek the protection of bankruptcy,
insolvency or similar laws which could result in the rejection and termination of the lease of the tenant and thereby cause a
reduction in Choice Properties’ cash flows, financial condition or results of operations and its ability to make distributions to
Unitholders.

Choice Properties REIT 2019 Annual Report 63

13.2

Financial Risks and Risk Management

Choice Properties is exposed to a number of financial risks, which have the potential to affect its operating and financial
performance. The following is a summary of Choice Properties’ financial risks:

Interest Rate Risk
Choice Properties requires extensive financial resources to complete the implementation of its strategy. Successful
implementation of Choice Properties’ strategy will require cost effective access to additional funding. There is a risk that interest
rates may increase which could impact long-term borrowing costs and negatively impact financial performance.

The majority of Choice Properties’ debt is financed at fixed rates with maturities staggered over 26 years, thereby mitigating the
exposure to near term changes in interest rates. To the extent that Choice Properties incurs variable rate indebtedness (such as
borrowings under the revolving credit facility), this will result in fluctuations in Choice Properties’ cost of borrowing as interest
rates change. If interest rates rise, Choice Properties’ operating results and financial condition could be materially adversely
affected and the amount of cash available for distribution to Unitholders would be decreased.

Choice Properties’ revolving credit facility and the debentures also contain covenants that require it to maintain certain financial
ratios on a consolidated basis. If Choice Properties does not maintain such ratios, its ability to make distributions to Unitholders
may be limited or suspended.

Choice Properties analyzes its interest rate risk and the impact of rising and falling interest rates on operating results and financial
condition on a regular basis.

Liquidity and Capital Availability Risk
Liquidity risk is the risk that Choice Properties cannot meet a demand for cash or fund its obligations as they come due. Although
a portion of the cash flows generated by Choice Properties is devoted to servicing such outstanding debt, there can be no
assurance that Choice Properties will continue to generate sufficient cash flows from operations to meet interest payments and
principal repayment obligations upon an applicable maturity date. If Choice Properties is unable to meet interest payments or
principal repayment obligations, it could be required to renegotiate such payments or issue additional equity or debt or obtain
other financing. The failure of Choice Properties to make or renegotiate interest or principal payments or issue additional equity
or debt or obtain other financing could materially adversely affect Choice Properties’ financial condition and results of operations
and decrease or eliminate the amount of cash available for distribution to Unitholders.

The real estate industry is highly capital intensive. Choice Properties requires access to capital to fund operating expenses, to
maintain its properties, to fund its strategy and certain other capital expenditures from time to time, and to refinance indebtedness.
Although Choice Properties expects to have access to the revolving credit facility, there can be no assurance that it will otherwise
have access to sufficient capital or access to capital on favourable terms. Further, in certain circumstances, Choice Properties
may not be able to borrow funds due to limitations set forth in the Declaration of Trust, the Indenture, as supplemented by the
Supplemental Indenture, and the Fifth Supplemental Assumed Indenture. Failure by Choice Properties to access required capital
could have a material adverse effect on its financial condition or results of operations and its ability to make distributions to
Unitholders.

Liquidity and capital availability risks are mitigated by maintaining appropriate levels of liquidity, by diversifying the Trust’s sources
of funding, by maintaining a well-diversified debt maturity profile and actively monitoring market conditions.

Liquidity of Real Property
An investment in real estate is relatively illiquid. Such illiquidity will tend to limit Choice Properties’ ability to vary its portfolio
promptly in response to changing economic or investment conditions. In recessionary times, it may be difficult to dispose of
certain types of real estate. The costs of holding real estate are considerable and during an economic recession Choice Properties
may be faced with ongoing expenditures with a declining prospect of incoming receipts. In such circumstances, it may be
necessary for Choice Properties to dispose of properties at lower prices in order to generate sufficient cash for operations and
for making distributions to Unitholders.

Unit Price Risk
Choice Properties is exposed to Unit price risk as a result of the issuance of the Class B LP Units, which are economically
equivalent to and exchangeable for Units, as well as the issuance of unit-based compensation. The Class B LP Units and unit-
based compensation liabilities are recorded at their fair value based on market trading prices. The Class B LP Units and unit-
based compensation negatively impact operating income when the Unit price rises and positively impact operating income
when the Unit price declines.

64 Choice Properties REIT 2019 Annual Report

Credit Risk
Choice Properties is exposed to credit risk resulting from the possibility that counterparties could default on their financial
obligations to Choice Properties. Exposure to credit risk relates to rent receivables, cash and cash equivalents, short-term
investments, security deposits, derivatives and mortgages, loans and notes receivable.

Choice Properties mitigates the risk of credit loss related to rent receivables by evaluating the creditworthiness of new tenants,
obtaining security deposits wherever permitted by legislation, ensuring its tenant mix is diversified and by limiting its exposure
to any one tenant (except Loblaw). Choice Properties establishes an allowance for doubtful accounts that represents the estimated
losses with respect to rent receivables. The allowance is determined on a tenant-by-tenant basis based on the specific factors
related to the tenant.

The risk related to cash and cash equivalents, short-term investments, security deposits, derivatives and mortgages, loans and
notes receivable is reduced by policies and guidelines that require Choice Properties to enter into transactions only with Canadian
financial and government institutions that have a minimum short-term rating of “A-2” and a long-term credit rating of “A-” from
S&P or an equivalent credit rating from another recognized credit rating agency and by placing minimum and maximum limits
for exposures to specific counterparties and instruments.

Despite such mitigation efforts, if Choice Properties’ counterparties default, it could have a material adverse impact on Choice
Properties’ financial condition or results of operations and its ability to make distributions to Unitholders.

Degree of Leverage
Choice Properties’ degree of leverage could have important consequences to Unitholders, including: (i) Choice Properties’ ability
to obtain additional financing in the future for working capital, capital expenditures, acquisitions, development or other general
business purposes, (ii) a larger portion of Choice Properties’ cash flows being dedicated to the payment of the principal of and
interest on, its indebtedness, thereby reducing the amount of funds available for distributions to Unitholders, and (iii) making
Choice Properties more vulnerable to a downturn in business or the economy in general. Under the Declaration of Trust, the
maximum amount that Choice Properties can leverage is (i) 60% excluding any convertible Indebtedness and (ii) 65% including
any convertible Indebtedness.

To reduce this risk, Choice Properties actively monitors its degree of leverage to ensure it is within acceptable levels.

Any of these risks could have an adverse effect on Choice Properties’ financial condition, results of operations, cash flows, the
trading price of the Units, distributions to Unitholders and its ability to satisfy principal and interest obligations on its outstanding
debt.

Choice Properties REIT 2019 Annual Report 65

14.

OUTLOOK (2)

Choice Properties is Canada’s premier diversified REIT with a real estate platform that is positioned to deliver both income
stability and long-term growth for our investors, underpinned by disciplined financial management.

Our income producing property portfolio provides a solid foundation for stable cash flows through effective management and
portfolio diversification. The portfolio is diversified by both geography and product type including retail, industrial, office and
residential assets. Overall, we expect that our income producing portfolio will continue to operate at high occupancy levels and
will deliver low single digit same asset NOI growth.

Our development initiatives provide us with the best opportunity to add high-quality real estate to our portfolio at a reasonable
cost. We have a mix of development projects ranging in size, scale and complexity, including retail intensification projects which
provide incremental growth to our existing sites, to larger, more complex major mixed-use developments which will drive net
asset value growth in the future.

The majority of our active development pipeline is focused on growing our rental residential portfolio. We now have six high-
quality rental residential projects underway in Ontario, with five projects in the GTA and one project in Ottawa. To date, we are
under construction with two of the projects in the GTA and we expect to commence construction on two additional projects in
2020, including one project in Brampton located next to the Mount Pleasant GO Station and one in the Westboro neighborhood
of Ottawa. We have invested approximately $120 million into these residential developments, with an additional $425 million of
additional spending planned on these six residential projects.

In addition to our ongoing residential development, we are evaluating opportunities within our portfolio to redevelop and transform
some of our grocery anchored retail projects into large scale major mixed-use projects. We are in the early planning stages with
four major mixed-use sites and we expect that these initiatives will be a significant part of our growth going forward.

We will continue to improve our portfolio quality. Where we have opportunities to acquire properties with favourable market
fundamentals, we expect that these acquisitions will be financed primarily through the disposition of non-core properties. While
this may neutralize near term cash flow growth, we feel this trade will result in greater growth over the long term.

Our disciplined approach to financial management is based on a conservative approach to leverage and financing risk. Over
the past year, we reduced our overall leverage ratio and improved our debt maturity profile. In 2020, we will continue to seek
out opportunities, when available, to strengthen our balance sheet by extending our debt maturities with longer term debt.

66 Choice Properties REIT 2019 Annual Report

15.

NON-GAAP FINANCIAL MEASURES

The financial statements of Choice Properties are prepared in accordance with IFRS. However, in this MD&A, a number of
measures are presented that do not have any standardized meaning under IFRS. Such measures and related per-unit amounts
therefore should not be construed as alternatives to net income or cash flow from operating activities determined in accordance
with GAAP and may not be comparable to similar measures presented by other real estate investment trusts or enterprises.
These terms are defined below and are cross referenced, as applicable, to a reconciliation elsewhere in this MD&A to the most
comparable IFRS measure. Choice Properties believes these non-GAAP financial measures provide useful information to both
management and investors in measuring the financial performance and financial condition of the Trust for the reasons outlined
below.

Non-GAAP
Measure

Description

Reconciliation

Proportionate
Share

Net Operating
Income (“NOI”),
Accounting Basis

NOI, Cash Basis

• Represents financial information adjusted to reflect the Trust’s equity
accounted investments and its share of net income (losses) from equity
accounted investments on a proportionately consolidated basis at the
Trust’s ownership percentage of the related investment.

• Management views this method as relevant in demonstrating the Trust's
ability to manage the underlying economics of the related investments,
including the financial performance and cash flows and the extent to
which the underlying assets are leveraged, which is an important
component of risk management.

• Defined as property rental revenue including straight line rental revenue,
reimbursed contract revenue and lease surrender revenue, less direct
property operating expenses and realty taxes, and excludes certain
expenses such as interest expense and indirect operating expenses in
order to provide results that reflect a property’s operations before
consideration of how it is financed or the costs of operating the entity
in which it is held.

• Management believes that NOI is an important measure of operating
performance for the Trust’s commercial real estate assets that is used
by real estate industry analysts, investors and management, while also
being a key input in determining the fair value of the Choice Properties
portfolio.

• Defined as property rental revenue excluding straight line rental revenue,
direct property operating expenses and realty taxes and excludes
certain expenses such as interest expense and indirect operating
expenses in order to provide results that reflect a property’s operations
before consideration of how it is financed or the costs of operating the
entity in which it is held.

• Useful measure in understanding period-over-period changes in income
from operations due to occupancy, rental rates, operating costs and
realty taxes.

Section 2, “Balance Sheet”

Section 7.1, “Net Income
and Segment NOI
Reconciliation”

• Same-asset NOI

the period-over-period
performance of those properties owned and operated by Choice
Properties since January 1, 2018, inclusive.

to evaluate

is used

Same-Asset NOI,
Cash Basis

and

Same-Asset NOI,
Accounting Basis

• NOI from properties that have been (i) purchased, (ii) disposed, or (iii)
subject to significant change as a result of new development,
redevelopment, expansion, or demolition (collectively, “Transactions”)
are excluded from the determination of same-asset NOI.

• Same-asset NOI, Cash Basis is useful in evaluating the realization of
contractual rental rate changes embedded in lease agreements and/or
the expiry of rent-free periods, while also being a useful measure in
understanding period-over-period changes in NOI due to occupancy,
rental rates, operating costs and realty taxes, before considering the
changes in NOI that can be attributed to the Transactions, the
Acquisition Transaction and development activities.

Section 7.2, “Net Operating
Income Summary”

Choice Properties REIT 2019 Annual Report 67

Funds from
Operations
(“FFO”)

Adjusted Funds
from Operations
(“AFFO”)

Adjusted Cash
Flow from
Operations
(“ACFO”)

• Calculated in accordance with the Real Property Association of
Canada’s (“REALpac”) White Paper on Funds from Operations &
Adjusted Funds from Operations for IFRS issued in February 2019.
• Management considers FFO to be a useful measure of operating
performance as it adjusts for items included in net income (or net loss)
that do not arise from operating activities or do not necessarily provide
an accurate depiction of the Trust’s past or recurring performance,
such as adjustments to fair value of Exchangeable Units, investment
properties and unit-based compensation. From time to time the Trust
may enter into transactions that materially impact the calculation and
are eliminated from the calculation for management’s review purposes.
• Management uses and believes that FFO is a useful measure of the
Trust’s performance that, when compared period over period, reflects
the impact on operations of trends in occupancy levels, rental rates,
operating costs and realty taxes, acquisition activities and interest
costs.

• Calculated in accordance with REALpac’s White Paper on Funds from
Operations & Adjusted Funds from Operations for IFRS issued in
February 2019.

• Management considers AFFO to be a useful measure of operating
performance as it further adjusts FFO for capital expenditures that
sustain income producing properties and eliminates the impact of
straight-line rent. AFFO is impacted by the seasonality inherent in the
timing of executing property capital projects.
In calculating AFFO, FFO is adjusted by excluding straight-line rent
adjustments, as well as costs incurred relating to internal leasing
activities and property capital projects. Working capital changes,
viewed as short-term cash requirements or surpluses, are deemed
financing activities pursuant to the methodology and are not
considered when calculating AFFO.

•

• Capital expenditures which are excluded and not deducted in the
calculation of AFFO comprise those which generate a new investment
stream, such as constructing a new retail pad during property
expansion or intensification, development activities or acquisition
activities.

• Accordingly, AFFO differs from FFO in that AFFO excludes from its
definition certain non-cash revenues and expenses recognized under
IFRS, such as straight-line rent, but also includes capital and leasing
costs incurred during the period which are capitalized for IFRS
purposes. From time to time the Trust may enter into transactions that
materially impact the calculation and are eliminated from the
calculation for management’s review purposes.

Section 15.3, “Funds from
Operations”

Section 15.4, “Adjusted
Funds from Operations”

• Calculated in accordance with REALpac’s White Paper on Adjusted
Cashflow from Operations (ACFO) for IFRS issued in February 2019.
• Management views ACFO as a useful measure of the cash generated
from operations after providing for operating capital requirements, and
in evaluating the ability of Choice Properties to fund distributions to
Unitholders. ACFO adjusts cash flows from operations as calculated
under GAAP including, but not limited to, removing the effects of
distributions on Exchangeable Units, deducting amounts for property
capital expenditures to sustain existing GLA and for leasing capital
expenditures.
The resulting ACFO will include the impact of the seasonality of
property capital expenditures and the impact of fluctuations from
normal operating working capital, such as changes to net rent
receivable from tenants, trade accounts payable and accrued liabilities.
From time to time the Trust may enter into transactions that materially
impact the calculation and are eliminated from the calculation for
management’s review purposes.

•

Section 15.5, “Adjusted
Cash Flow from Operations”

68 Choice Properties REIT 2019 Annual Report

Earnings before
Interest, Taxes,
Depreciation,
Amortization and
Fair Value
(“EBITDAFV”)

• Defined as net income attributable to Unitholders, reversing, where
applicable, income taxes, interest expense, amortization expense,
depreciation expense, adjustments to fair value and other adjustments
as allowed in the Trust Indentures, as supplemented.

• Management believes EBITDAFV is useful in assessing the Trust’s
ability to service its debt, finance capital expenditures and provide for
distributions to its Unitholders.

Section 15.8, “Earnings
before Taxes, Depreciation,
Amortization and Fair Value”

Cash Retained
after Distributions

• Represents the portion of ACFO retained within Choice Properties
which can be used to invest in new acquisitions, development
properties and capital activity.

Section 15.6, “Distribution
Excess / Shortfall Analysis”

Total Debt

• Defined as variable rate debt (construction loans, credit facility and
term loan) and fixed rate debt (senior unsecured debentures and
mortgages), as measured on a proportionate share basis, and does
not include the Exchangeable Units which are included as part of Unit
Equity on account of the Exchangeable Units being economically
equivalent and receiving equal distributions to the Trust Units.
Total Debt is also presented on a net basis to include the impact of
other finance charges such as debt placement costs and discounts or
premiums.

•

Section 4.3, “Components
of Total Debt”

Debt to Total
Assets

• Determined by dividing Total Debt (as defined above) by total assets
as presented on a proportionate basis and can be interpreted as the
proportion of the Trust’s assets that are financed by debt.

• Management believes this ratio is useful in evaluating the Trust’s

flexibility to incur additional financial leverage.

Section 4.4, “Financial
Condition”

Debt Service
Coverage

• Calculated as EBITDAFV divided by interest expense on the Total Debt
and all regularly scheduled principal payments made with respect to
indebtedness during such period (other than any balloon, bullet or
similar principal payable at maturity or which repays such indebtedness
in full). This ratio is calculated based on the Trust Indentures, as
supplemented.
The debt service coverage ratio is useful in determining the ability of
Choice Properties to service the interest requirements of its
outstanding debt.

•

Section 4.4, “Financial
Condition”

Debt to
EBITDAFV

and

Normalized Debt
to EBITDAFV

• Calculated as Total Debt divided by EBITDAFV.
•

This ratio is used to assess the financial leverage of Choice Properties,
to measure its ability to meet financial obligations and to provide a
snapshot of its balance sheet strength.

• Management also presents this metric on a trailing 12-month
normalized basis to exclude the proforma results of the Acquisition
Transaction, lease surrender revenue and the Oak Street disposition.

Section 4.4, “Financial
Condition”

Interest Coverage

• Calculated as EBITDAFV divided by interest expense on the Total Debt

•

incurred by Choice Properties for the period.
The interest coverage ratio is useful in determining Choice Properties’
ability to service the interest requirements of its outstanding debt.

Section 4.4, “Financial
Condition”

Choice Properties REIT 2019 Annual Report 69

15.1

Investment Properties Reconciliation

To expand the portfolio and participate in development opportunities, Choice Properties owns varying interests in real estate
entities which hold investment properties. Under GAAP, many of these interests are recorded as equity accounted joint ventures
and, as such, the Trust’s portion of the investment properties of these entities is presented on the balance sheet as a summarized
value, not as part of the total investment properties. While the reconciliation for Choice Properties’ balance sheet on a GAAP
basis to a proportionate share basis is detailed in Section 2, “Balance Sheet“, the following continuity schedules present Choice
Properties’ investment properties inclusive of its proportionate share ownership in equity accounted joint ventures for the periods
ended as indicated:

As at December 31, 2019
($ thousands)

GAAP Basis Reconciliation

Proportionate
Share Basis(1) GAAP Basis Reconciliation

Proportionate
Share Basis(1)

Balance, beginning of period(i)

$ 14,178,538

1,113,462

15,292,000

$ 14,501,000

1,011,000

15,512,000

Three Months

Year Ended

Acquisitions of investment

properties(ii)

Capital expenditures

Development capital

Building improvements

Capitalized interest

Operating capital expenditures

Property capital

Direct leasing costs

Tenant improvement allowances

Amortization of straight-line rent

Transfers to assets held for sale

Transfer from equity accounted

investment

Dispositions

Foreign currency translation

Adjustment to fair value of
investment properties

53,465

—

53,465

109,526

43,588

153,114

11,299

18,056

749

826

18,973

2,796

6,696

5,433

(68,678)

181,909

(24,286)

(2,328)

703

(114)

303

717

189

—

29,355

1,452

918

18,859

3,099

7,413

5,622

67,750

2,227

4,424

30,264

7,331

19,536

25,146

(68,678)

(97,800)

66,120

4,588

1,274

394

841

1,881

1,039
—

(181,909)

—

181,909

(181,909)

—

(24,286)

(467,908)

(2,328)

(5,971)

—

133,870

6,815

5,698

30,658

8,172

21,417

26,185

(97,800)

—

(467,908)

(5,971)

7,608

(13,499)

(5,891)

(4,434)

(10,816)

(15,250)

Balance, as at December 31, 2019

$ 14,373,000

938,000

15,311,000

$ 14,373,000

938,000

15,311,000

(i)

The opening balance for the three months on a GAAP basis has been adjusted to exclude a financial real estate asset which is included as part of the
proportionate share reconciliation adjustments at the beginning of the period. Refer to Section 3.2 of this MD&A for details.

(ii)

Includes acquisition costs.

70 Choice Properties REIT 2019 Annual Report

15.2

Net Operating Income

The following table reconciles net income (loss), as determined in accordance with GAAP, to NOI, Cash Basis for the periods
ended as indicated. Refer to Section 7, “Results of Operations - Segment Information” and Section 15, “Non-GAAP Financial
Measures”, of this MD&A, for further details about this non-GAAP measure.

For the periods ended December 31
($ thousands)

Net income (loss)

Add (deduct) impact of the following:

Straight-line rental revenue

Reimbursed contract revenue

Lease surrender revenue

General and administrative expenses

Fee income

Three Months

Year Ended

2019

2018

Change

2019

2018

Change

$ 293,261

$ 281,099

$ 12,162

$ (581,357) $ 649,577

$(1,230,934)

(5,433)

7,100

(1,306)

9,760

(1,530)

(8,033)

—

(409)

9,506

(1,134)

2,600

7,100

(897)

254

(396)

(4,659)

3,639

(25,146)

(34,076)

7,100

—

(3,678)

(10,886)

39,292

(4,556)

34,975

(3,523)

551,843

551,146

(11,551)

(14,224)

13,412

(24,366)

(16,222)

8,930

7,100

7,208

4,317

(1,033)

697

2,673

(8,144)

Net interest expense and other financing charges

133,893

138,552

Interest income

Share of income from equity accounted joint ventures

(456)

5,296

(4,095)

(8,116)

Acquisition transaction costs and other related expenses

—

11,044

(11,044)

Adjustment to fair value of unit-based compensation

(1,744)

(707)

Adjustment to fair value of Exchangeable Units

(206,680)

(214,479)

(1,037)

7,799

Adjustment to fair value of investment properties

(7,608)

18,548

(26,156)

Income taxes

Net Operating Income, Cash Basis

Adjustments for equity accounted joint ventures

Proportionate Share Net Operating Income, Cash

(78)

200

224,475

221,976

10,474

10,531

(278)

2,499

(57)

8,363

7,109

141,493

(133,130)

(4,792)

11,901

932,009

(593,706)

1,525,715

4,434

(798)

88,575

538

(84,141)

(1,336)

898,698

788,875

109,823

42,622

25,297

17,325

Basis

$ 234,949

$ 232,507

2,442

$ 941,320

$ 814,172

$ 127,148

Choice Properties REIT 2019 Annual Report 71

15.3

Funds from Operations

The following table reconciles net income, as determined in accordance with GAAP, to Funds from Operations for the periods
ended as indicated. Refer to Section 7, “Results of Operations - Segment Information” and Section 15, “Non-GAAP Financial
Measures”, of this MD&A, for further details about this non-GAAP measure.

Three Months

Year Ended

For the periods ended December 31
($ thousands)

2019

2018

Change

2019

2018

Change

Net income (loss)

293,261

281,099

12,162

(581,357)

649,577

$ (1,230,934)

—

11,044

(11,044)

8,363

141,493

(133,130)

Acquisition transaction costs and other related

expenses

Adjustment to fair value of unit-based

compensation

Adjustment to fair value of Exchangeable Units

(206,680)

(214,479)

Adjustment to fair value of investment properties

(7,608)

18,548

(1,744)

(707)

(1,037)

7,799

(26,156)

7,109

932,009

4,434

(4,792)

11,901

(593,706)

1,525,715

88,575

(84,141)

13,499

1,240

12,259

10,816

5,254

5,562

Adjustment to fair value of investment property

held in equity accounted joint ventures

Interest otherwise capitalized for development in

equity accounted joint ventures

Exchangeable Units distributions

Internal expenses for leasing

Income taxes

Funds from Operations

1,387

72,143

1,615

(78)

1,140

72,143

1,644

200

165,795

171,872

Accelerated amortization of debt premium(i)

—

Funds from Operations, for management

purposes(i)

FFO per Unit - diluted(i)

FFO payout ratio - diluted(i)(ii)

Distribution declared per Unit

165,795

0.237

78.1%

0.185

171,872

0.256

71.9%

0.185

247

—

(29)

(278)

4,978

288,573

6,151

(798)

3,102

271,089

5,428

538

1,876

17,484

723

(1,336)

(6,077)

680,278

566,558

113,720

—

37,282

(37,282)

(6,077)

(0.019)

6.2%

—

680,278

0.987

75.0%

0.740

603,840

1.033

71.4%

0.740

76,438

(0.046)

3.6%

—

Weighted average Units outstanding - diluted

700,544,380

670,486,393

30,057,987

689,285,790

584,605,228

104,680,562

(i)

For 2018, FFO per unit on a diluted basis and the FFO payout ratio were calculated using FFO for management purposes which excludes the impact of the accelerated amortization of
the debt premium.

(ii)

FFO payout ratio is calculated as cash distributions declared divided by FFO.

72 Choice Properties REIT 2019 Annual Report

15.4

Adjusted Funds from Operations

The following table reconciles FFO to AFFO for the periods ended as indicated. Refer to Section 7, “Results of Operations -
Segment Information” and Section 15, “Non-GAAP Financial Measures”, of this MD&A, for further details about this non-GAAP
measure.

Three Months

Year Ended

For the periods ended December 31
($ thousands)

2019

2018

Change

2019

2018

Change

Funds from Operations

165,795

171,872

(6,077)

680,278

566,558

113,720

Accelerated amortization of debt premium(i)

—

37,282

(37,282)

Funds from Operations, for management

purposes(i)

Add (deduct) impact of the following:

Internal expenses for leasing

Straight-line rental revenue

Property capital

Direct leasing costs

Tenant improvements

Adjusted Funds from Operations

AFFO per unit - diluted(i)

AFFO payout ratio - diluted(i)(ii)

Distribution declared per Unit

165,795

171,872

(6,077)

680,278

603,840

76,438

(1,615)

(5,622)

(1,644)

(8,365)

(18,859)

(42,655)

(3,099)

(7,413)

129,187

0.184

100.3%

0.185

(3,999)

(4,877)

110,332

0.165

112.0%

0.185

2,743

23,796

900

(6,151)

(26,185)

(30,658)

(8,172)

(2,536)

(21,417)

18,855

0.019

(11.7)%

—

587,695

0.853

86.8%

0.740

(5,428)

(35,064)

(57,737)

(11,842)

(10,391)

483,378

0.827

89.2%

0.740

(723)

8,879

27,079

3,670

(11,026)

104,317

0.026

(2.4)%

—

Weighted average Units outstanding - diluted

700,544,380

670,486,393

30,057,987

689,285,790

584,605,228

104,680,562

(i)

For 2018, AFFO per unit on a diluted basis and the AFFO payout ratio were calculated using AFFO for management purposes which excludes the impact of the accelerated amortization
of the debt premium.

(ii)

AFFO payout ratio is calculated as cash distributions declared divided by AFFO.

Choice Properties REIT 2019 Annual Report 73

15.5

Adjusted Cash Flow from Operations

The following table reconciles cash flows from operating activities to ACFO, as determined in accordance with GAAP, for the
periods ended as indicated. Refer to Section 4.6, “Unit Equity” and Section 15, “Non-GAAP Financial Measures”, of this MD&A,
for further details about this non-GAAP measure.

Three Months

Year Ended

For the periods ended December 31
($ thousands)

2019

2018

Change

2019

2018

Change

Cash flows from operating activities

$ 207,460

$ 200,465

6,995

$ 580,556

$ 405,192

$ 175,364

Add (deduct) impact of the following:

Net interest expense and other financing charges in excess

of interest paid(i)

Distributions on Exchangeable Units included in net interest

expense and other financing charges

Interest and other income in excess of interest received(i)

Interest otherwise capitalized for development in equity

accounted joint ventures

Portion of internal expenses for leasing relating to

development activity

Property capital expenditures on a proportionate share basis

Leasing capital expenditures on a proportionate share basis

Acquisition transaction costs and other related expenses

Adjustments for proportionate share of income from equity

accounted joint ventures(ii)

Adjustment for changes in non-cash working capital items
not indicative of sustainable operating cash flows(iii)

(97,352)

(102,423)

5,071

(289,691)

(235,424)

(54,267)

72,143

1,125

72,143

835

1,387

1,140

808

(18,859)

(10,512)

—

822

(42,655)

(8,876)

11,044

—

290

247

(14)

23,796

(1,636)

(11,044)

288,573

271,089

5,453

4,195

17,484

1,258

4,978

3,102

1,876

3,076

(30,658)

(29,589)

2,714

(57,737)

(22,233)

362

27,079

(7,356)

8,363

141,493

(133,130)

8,203

9,356

(1,153)

35,182

21,476

13,706

(27,767)

(32,807)

5,040

21,407

(42,496)

63,903

Adjusted Cash Flow from Operations

$ 136,636

$ 109,044

27,592

$ 597,650

$ 491,371

$ 106,279

Cash distributions declared

129,546

123,612

5,934

510,333

431,392

78,941

Cash retained after distributions(iv)

7,090

(14,568)

21,658

87,317

59,979

27,338

ACFO payout ratio(iv)

94.8%

113.4%

(18.6)%

85.4%

87.8%

(2.4)%

(i)

(ii)

(iii)

The timing of the recognition of interest expense and income differs from the payment and collection. The ACFO calculations for the periods ended December 31, 2019 and December 31,
2018 were adjusted for this factor to make the periods more comparable(2).

Excludes adjustment to fair value of investment properties for equity accounted joint ventures.

ACFO is adjusted each quarter for fluctuations in non-cash working capital due to the timing of transactions for realty taxes prepaid or payable, and prepaid insurance. The payments
for these operating expenses tend to have quarterly, seasonal fluctuations that even out on an annual basis. ACFO is also adjusted each quarter to remove fluctuations in non-cash
working capital due to capital expenditure accruals, which are not related to sustainable operating activities.

(iv)

Adjusted Cash Flow from Operations payout ratio is calculated as the cash distributions declared divided by the ACFO.

Based on the Real Property Association of Canada’s White Paper on Adjusted Cashflow from Operations (ACFO) for IFRS issued
in February 2019, Choice Properties adjusts ACFO for amounts included in the net change in non-cash working capital, a
component of cash flows from operating activities, to eliminate fluctuations that are not indicative of sustainable cash available
for distribution. The resulting remaining impacts on ACFO from changes in non-cash working capital are calculated below:

Three Months

Year Ended

For the periods ended December 31
($ thousands)

2019

2018

Change

2019

2018

Change

Net change in non-cash working capital(i)

$ 33,507

$ 28,025

5,482

$ (21,094) $ 40,077

$ (61,171)

Adjustment for changes in non-cash working capital items not

indicative of sustainable operating cash flows

(27,767)

(32,807)

5,040

21,407

(42,496)

63,903

Net non-cash working capital increase included in ACFO

5,740

$ (4,782) $ 10,522

313

$ (2,419) $

2,732

(i)

As calculated under GAAP and disclosed in the Trust’s consolidated financial statements and the accompanying notes in this Annual Report.

74 Choice Properties REIT 2019 Annual Report

15.6

Distribution Excess / Shortfall Analysis

The tables below summarize the excess or shortfall of certain GAAP and non-GAAP measures over cash distributions declared:

Three Months

Year Ended

For the periods ended December 31
($ thousands)

2019

2018

Change

2019

2018

Change

Cash flows from operating activities

$ 207,460

$ 200,465

6,995

$ 580,556

$ 405,192

$ 175,364

Less:

Cash distributions declared

(129,546)

(123,612)

(5,934)

(510,333)

(431,392)

(78,941)

Excess (shortfall) of cash flows provided by

operating activities over cash
distributions declared

77,914

76,853

1,061

70,223

(26,200) $

96,423

Three Months

Year Ended

For the periods ended December 31
($ thousands)

2019

2018

Change

2019

2018

Change

Net income (loss)

$ 293,261

$ 281,099

12,162

$ (581,357) $ 649,577

$(1,230,934)

Add:

Distributions on Exchangeable Units

included in net interest expense and
other financing charges

Net income (loss) attributable to Unitholders

excluding distributions on Exchangeable Units

72,143

—

288,573

271,089

17,484

365,404

353,242

12,162

(292,784)

920,666

(1,213,450)

Less:

Cash distributions declared

(129,546)

(123,612)

(5,934)

(510,333)

(431,392)

(78,941)

Excess (shortfall) of net income (loss) attributable

to Unitholders, less distributions on
Exchangeable Units, over cash distributions
declared

$ 235,858

$ 229,630

6,228

$ (803,117) $ 489,274

$(1,292,391)

Three Months

Year Ended

For the periods ended December 31
($ thousands)

2019

2018

Change

2019

2018

Change

Adjusted Cash Flow from Operations(1)

$ 136,636

$ 109,044

16,953

$ 597,650

$ 491,371

$ 106,279

Less:

Cash distributions declared

(129,546)

(123,612)

(5,934)

(510,333)

(431,392)

(78,941)

Excess of ACFO after distributions

7,090

(14,568) $

21,658

87,317

59,979

27,338

Choice Properties’ shortfall of net income (loss) attributable to Unitholders, less distributions on Exchangeable Units, over cash
distributions declared for the year ended December 31, 2019 was primarily attributable to accounting fair value adjustments
related to Exchangeable Units.

Management anticipates that distributions declared will, in the foreseeable future, continue to vary from net income as this GAAP
measure includes adjustments to fair value and other non-cash items(2).

Choice Properties REIT 2019 Annual Report 75

15.7

Net Interest Expense and Other Financing Charges Reconciliation

The following table reconciles net interest expense and other financing charges on a proportionate share basis to net interest
expense and other financing charges as determined in accordance with GAAP for the three months and year ended December
31, 2019:

For the periods ended December 31
($ thousands)

Three Months

Consolidation
and
eliminations(i)

Proportionate
Share Basis(1)

GAAP
Basis

Proportionate
Share Basis(1)

Year Ended

Consolidation
and
eliminations(i)

GAAP
Basis

Interest on senior unsecured debentures

47,861

— $

47,861

182,522

— $

182,522

Interest on mortgages

Interest on credit facility and term loans

Subtotal (for use in Debt Service Coverage(1)

calculation)

Distributions on Exchangeable Units(ii)

14,738

2,256

64,855

72,143

(2,439)

12,299

—

2,256

(2,439)

—

62,416

72,143

Subtotal (for use in EBITDAFV(1) calculation)

136,998

(2,439)

134,559

Interest on right of use asset

Effective interest rate amortization of debt discounts

and premiums

Effective interest rate amortization of debt placement

costs

Capitalized interest

(882)

1,048

(918)

—

(41)

(34)

(923)

1,014

(826)

62,324

28,352

273,198

288,573

561,771

281

(3,553)

8,470

(5,698)

(10,417)

—

51,907

28,352

(10,417)

262,781

—

288,573

(10,417)

551,354

—

281

(167)

(118)

(3,720)

8,352

1,274

(4,424)

Net interest expense and other financing charges

136,315

(2,422) $

133,893

561,271

(9,428) $

551,843

(i)

(ii)

Reconciling items adjust Choice Properties’ proportionate share of joint ventures to reflect the equity method of accounting under GAAP.

Represents interest on indebtedness due to related parties.

15.8

Earnings Before Interest, Taxes, Depreciation, Amortization and Fair Value

The following table reconciles net income, as determined in accordance with GAAP, to EBITDAFV for the periods ended as
indicated. Refer to Section 15, “Non-GAAP Financial Measures” of this MD&A, for further details about this non-GAAP measure.

Three Months

Year Ended

2019

2018

Change

2019

2018

Change

$ 293,261

$ 281,099

12,162

$ (581,357) $ 649,577

$(1,230,934)

For the periods ended December 31
($ thousands)

Net income (loss)

Add (deduct) impact of the following:

Accelerated amortization of debt premium

Acquisition transaction costs and other related expenses

—

11,044

(11,044)

—

37,282

(37,282)

8,363

7,109

141,493

(133,130)

(4,792)

11,901

Adjustment to fair value of unit-based compensation

(1,744)

(707)

(1,037)

Adjustment to fair value of Exchangeable Units

(206,680)

(214,479)

7,799

932,009

(593,706)

1,525,715

Adjustment to fair value of investment properties

(7,608)

18,548

(26,156)

4,434

88,575

(84,141)

Adjustment to fair value of investment property held in

equity accounted joint ventures

13,499

1,240

12,259

10,816

5,254

5,562

Interest expense(i)

Amortization of other assets

Income taxes

136,998

130,080

6,918

561,771

237,055

324,716

383

(78)

—

200

383

(278)

1,311

(798)

495

538

816

(1,336)

Earnings Before Interest, Taxes, Depreciation,
Amortization and Fair Value (EBITDAFV)

$ 228,031

$ 227,025

1,006

$ 943,658

$ 561,771

$ 381,887

(i)

As calculated in Section 15.7, “Net Interest Expense and Other Financing Charges Reconciliation” of this MD&A.

76 Choice Properties REIT 2019 Annual Report

(This page has been left blank intentionally.)

Horizon Business Park | Edmonton AB

Financial
Statements

Financial Results

Management’s Statement of Responsibility for Financial Reporting

Independent Auditor’s Report

Consolidated Balance Sheets

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

Consolidated Statements of Changes in Equity

Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

Note 1. Nature and Description of the Trust

Note 2. Significant Accounting Policies

Note 3. Critical Accounting Judgments and Estimates

Note 4. Acquisition of Canadian Real Estate Investment Trust ("CREIT")

Note 5.

Investment Property and Other Transactions

Note 6.

Investment Properties

Note 7.

Equity Accounted Joint Ventures

Note 8. Co-Ownership Property Interests

Note 9. Subsidiaries

Note 10. Mortgages, Loans and Notes Receivable

Note 11.

Intangible Assets

Note 12. Accounts Receivable and Other Assets

Note 13. Long Term Debt

Note 14. Credit Facility and Term Loans

Note 15. Unitholders' Equity

Note 16.

Income Taxes

Note 17. Trade Payables and Other Liabilities

Note 18. Unit-Based Compensation

Note 19. Rental Revenue

Note 20. Property Operating Costs

Note 21.

Interest Income

Note 22. Fee Income

Note 23. Net Interest Expense and Other Financing Charges

Note 24. General and Administrative Expenses

Note 25. Financial Risk Management

Note 26. Financial Instruments

Note 27. Capital Management

Note 28. Supplementary Information

Note 29. Segment Information

Note 30. Contingent Liabilities and Financial Guarantees

Note 31. Related Party Transactions

Note 32. Subsequent Events

100

102

104

105

106

108

109

111

112

114

115

118

119

120

123

127

131

Choice Properties REIT 2019 Annual Report 79

Management’s Statement of Responsibility for Financial Reporting

The management of Choice Properties Real Estate Investment Trust (the “Trust”) is responsible for the preparation, presentation
and integrity of the accompanying consolidated financial statements, Management’s Discussion and Analysis and all other
information in the Annual Report. This responsibility includes the selection and consistent application of appropriate accounting
principles and methods in addition to making the judgments and estimates necessary to prepare the consolidated financial
statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board. It also includes ensuring that the financial information presented elsewhere in the Annual Report is consistent with that
in the consolidated financial statements.

Management is also responsible to provide reasonable assurance that assets are safeguarded, and that relevant and reliable
financial information is produced. Management is required to design a system of internal controls and certify as to the design and
operating effectiveness of internal controls over financial reporting. A dedicated control compliance team reviews and evaluates
internal controls, the results of which are shared with management on a quarterly basis. KPMG LLP, whose report follows, are
the independent auditors engaged to audit the consolidated financial statements of the Trust.

The Board of Trustees, acting through an Audit Committee comprised solely of directors who are independent, is responsible
for determining that management fulfills its responsibilities in the preparation of the consolidated financial statements and the
financial control of operations. The Audit Committee recommends the independent auditors for appointment by the Unitholders.
The Audit Committee meets regularly with senior and financial management and the independent auditors to discuss internal
controls, auditing activities and financial reporting matters. The independent auditors and internal auditors have unrestricted
access to the Audit Committee. These consolidated financial statements and Management’s Discussion and Analysis have been
approved by the Board of Trustees for inclusion in the Annual Report based on the review and recommendation of the Audit
Committee.

Toronto, Canada
February 12, 2020

[signed]
Rael Diamond
President and Chief Executive Officer

[signed]
Mario Barrafato
Chief Financial Officer

80 Choice Properties REIT 2019 Annual Report

KPMG LLP
Bay Adelaide Centre
333 Bay Street, Suite 4600
Toronto ON M5H 2S5
Canada
Tel 416-777-8500
Fax 416-777-8818

INDEPENDENT AUDITORS' REPORT

To the Unitholders of Choice Properties Real Estate Investment Trust

Opinion

We have audited the consolidated financial statements of Choice Properties Real
Estate Investment Trust (the Entity), which comprise:



the consolidated balance sheets as at December 31, 2019 and December 31,
2018

the consolidated statements of income (loss) and comprehensive income (loss)
for the years then ended

the consolidated statements of changes in equity for the years then ended

the consolidated statements of cash flows for the years then ended

 and notes to the consolidated financial statements, including a summary of

significant accounting policies

(Hereinafter referred to as the "financial statements").

In our opinion, the accompanying financial statements present fairly, in all material
respects, the consolidated financial position of the Entity as at December 31, 2019
and December 31, 2018, and its consolidated financial performance and its
consolidated cash flows for the years then ended in accordance with International
Financial Reporting Standards (IFRS).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing
standards. Our responsibilities under those standards are further described in the
"Auditors' Responsibilities for the Audit of the Financial Statements" section of
our auditors' report.

We are independent of the Entity in accordance with the ethical requirements that are
relevant to our audit of the financial statements in Canada and we have fulfilled our
other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.

KPMG LLP, is a Canadian limited liability partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP.

Page 2

Other Information

Management is responsible for the other information. Other information comprises:



the information included in Management's Discussion and Analysis filed with the
relevant Canadian Securities Commissions.

the information, other than the financial statements and the auditors' report
thereon, included in a document entitled "2019 Annual Report".

Our opinion on the financial statements does not cover the other information and we
do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the 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 financial statements or our knowledge
obtained in the audit and remain alert for indications that the other information appears
to be materially misstated.

We obtained the information included in Management's Discussion and Analysis filed
with the relevant Canadian Securities Commissions as at the date of this auditors'
report thereon. If, based on the work we have performed on this other information, we
conclude that there is a material misstatement of this other information, we are
required to report that fact in the auditors' report.

We have nothing to report in this regard.

Responsibilities of Management and Those Charged with
Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial
statements in accordance with International Financial Reporting Standards (IFRS),
and for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether
due to fraud or error.

In preparing the financial statements, management is responsible for assessing the
Entity'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 Entity or to cease operations, or has no
realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Entity's financial
reporting process.

Page 3

Auditors' Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud or
error, and to issue an auditors' report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with Canadian generally accepted 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 the 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 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 Entity'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 Entity's ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditors' report
to the related disclosures in the 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 auditors' report. However, future events
or conditions may cause the Entity to cease to continue as a going concern.

Page 4

 Evaluate

the overall presentation, structure and content of

financial
statements, including the disclosures, and whether the financial statements
represent the underlying transactions and events in a manner that achieves fair
presentation.

the

 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.

 Provide those charged with governance with a statement that we have complied
with relevant ethical requirements regarding independence, and communicate
with them all relationships and other matters that may reasonably be thought to
bear on our independence, and where applicable, related safeguards.

 Obtain sufficient appropriate audit evidence regarding the financial information of
the entities or business activities within the group Entity to express an opinion on
the financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit
opinion.

Chartered Professional Accountants, Licensed Professional Accountants

The engagement partner on the audit resulting in this auditors' report is Tony Marino.

Toronto, Canada

February 12, 2020

Choice Properties Real Estate Investment Trust
Consolidated Balance Sheets

(in thousands of Canadian dollars)

Note

December 31, 2019

December 31, 2018

As at

Assets

Investment properties

Equity accounted joint ventures

Mortgages, loans and notes receivable

Intangible assets

Accounts receivable and other assets

Assets held for sale

Cash and cash equivalents

Total Assets

Liabilities and Equity

Long term debt

Credit facility and term loans

Exchangeable Units

Trade payables and other liabilities

Total Liabilities

Equity

Unitholders’ equity

Non-controlling interests

Total Equity

Total Liabilities and Equity

Contingent Liabilities and Financial Guarantees (note 30)
Subsequent Events (notes 6, 15 and 32)
See accompanying notes to the consolidated financial statements

Note 2

14,373,000

14,501,000

606,089

332,286

30,000

95,030

97,800

41,990

734,167

213,410

30,000

39,925

—

30,713

15,576,195

15,549,215

6,413,452

127,233

5,424,368

513,124

12,478,177

3,090,217

7,801

3,098,018

15,576,195

6,062,951

1,114,407

4,492,359

379,512

12,049,229

3,492,185

7,801

3,499,986

15,549,215

Approved on behalf of the Board of Trustees

[signed]
Galen G. Weston
Board of Trustees Chair

[signed]
Paul R. Weiss
Audit Committee Chair

Choice Properties REIT 2019 Annual Report 85

Choice Properties Real Estate Investment Trust
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

Year Ended

Note

December 31, 2019

December 31, 2018

1,288,554

1,148,273

(368,132)

920,422

11,551

4,556

(551,843)

(39,292)

24,366

(8,363)

(7,109)

(932,009)

(4,434)

(582,155)

798

(581,357)

(314,436)

833,837

14,224

3,523

(551,146)

(34,975)

16,222

(141,493)

4,792

593,706

(88,575)

650,115

(538)

649,577

(581,357)

649,577

(6,589)

(2,044)

(8,633)

6,772

597

7,369

(589,990)

656,946

(in thousands of Canadian dollars)

Net Operating Income

Rental revenue

Property operating costs

Other Income and Expenses

Interest income

Fee income

Net interest expense and other financing charges

General and administrative expenses

Share of income from equity accounted joint ventures

Acquisition transaction costs and other related expenses

Adjustment to fair value of unit-based compensation

Adjustment to fair value of Exchangeable Units

Adjustment to fair value of investment properties

Income (Loss) before income taxes

Income taxes

Net Income (Loss)

Other Comprehensive Income (Loss)

Foreign exchange (loss) gain on currency translation

Unrealized (loss) gain on designated hedging instruments

Other comprehensive income (loss)

Comprehensive Income (Loss)

See accompanying notes to the consolidated financial statements

86 Choice Properties REIT 2019 Annual Report

Choice Properties Real Estate Investment Trust
Consolidated Statements of Changes in Equity

Attributable to Choice Properties’ Unitholders

For the year ended December 31,
2019
(in thousands of Canadian dollars) Note

Trust
Units

Cumulative
net income

Accumulated
other
comprehensive
income

Cumulative
distributions
to
Unitholders

Total
Unitholders’
equity

Non-
controlling
interests

Total
equity

Equity, December 31, 2018

$ 2,978,343

942,406

7,369

(435,933) $ 3,492,185

7,801

$ 3,499,986

Net loss

Other comprehensive loss

Distributions

Units issued, net of costs

Distribution in Units

Issuance of Units under unit-

based compensation
arrangements

Repurchase of Units for unit-

based compensation
arrangements

—

380,758

21,721

31,136

(2,122)

(581,357)

—

(8,633)

—

(581,357)

(8,633)

(221,750)

—

380,758

(21,721)

—

31,136

(2,122)

—

(581,357)

(8,633)

(221,750)

380,758

—

31,136

(2,122)

Equity, December 31, 2019

$ 3,409,836

361,049

(1,264) $

(679,404) $ 3,090,217

7,801

$ 3,098,018

Attributable to Choice Properties’ Unitholders

For the year ended December 31,
2018
(in thousands of Canadian dollars) Note

Trust
Units

Cumulative
net income

Accumulated
other
comprehensive
income

Cumulative
distributions
to
Unitholders

Total
Unitholders’
equity

Non-
controlling
interests

Total
equity

Equity, December 31, 2017

911,081

292,829

— $

(275,630) $

928,280

8,701

936,981

Net income

Other comprehensive income

Distributions

—

Units issued, net of costs

2,056,628

Issuance of Units under the
Distribution Reinvestment
Plan

Issuance of Units under unit-

based compensation
arrangements

Repurchase of Units for unit-

based compensation
arrangements

Distribution from non-
controlling interests

1,487

16,261

(7,114)

—

649,577

—

7,369

—

649,577

7,369

(160,303)

—

2,056,628

1,487

16,261

(7,114)

—

649,577

7,369

(160,303)

2,056,628

1,487

16,261

(7,114)

—

(900)

Equity, December 31, 2018

$ 2,978,343

942,406

7,369

(435,933) $ 3,492,185

7,801

$ 3,499,986

See accompanying notes to the consolidated financial statements

Choice Properties REIT 2019 Annual Report 87

Choice Properties Real Estate Investment Trust
Consolidated Statements of Cash Flows

(in thousands of Canadian dollars)

Operating Activities

Net income (loss)

Straight-line rental revenue

Net interest expense and other financing charges

Interest paid

Interest income

Interest income received

Unit-based compensation expense

Share of income in equity accounted joint ventures

Adjustment to fair value of Exchangeable Units

Adjustment to fair value of investment properties

Net change in non-cash working capital

Cash Flows from Operating Activities

Investing Activities

Acquisition of CREIT, net of cash acquired

Acquisitions of investment properties

Acquisition of financial real estate asset

Additions to investment properties

Contributions to equity accounted joint ventures

Distributions from equity accounted joint ventures

Mortgages, loans and notes receivable advances

Mortgages, loans and notes receivable repayments

Proceeds from dispositions

Cash Flows from (used in) Investing Activities

Financing Activities

Proceeds from issuance of debentures, net of debt placement costs

Repayments of debentures

Net advances (repayments) of mortgages payable, net of placement costs

Net advances on construction loans

Repayment on conversion of Class C LP Units

Net advances (repayments) of credit facility and term loans, net of placement costs

Issuance of units

Trust Unit issuance costs

Cash received on exercise of options

Cash paid on vesting of restricted and performance units

Repurchase of Units for unit-based compensation arrangement

Distributions paid on Exchangeable Units

Distributions paid on Trust Units

Distribution to non-controlling interests

Cash Flows from (used in) Financing Activities

Change in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and Cash Equivalents, End of Year

Supplemental disclosure of non-cash operating, investing and financing activities (note 28)

See accompanying notes to the consolidated financial statements

88 Choice Properties REIT 2019 Annual Report

Year Ended

Note

December 31, 2019

December 31, 2018

(581,357) $

5, 12

(25,146)

551,843

(262,152)

(11,551)

6,098

11,838

(24,366)

932,009

4,434

(21,094)

580,556

—

(85,447)

(23,462)

(127,108)

(86,252)

56,457

(203,432)

62,933

467,908

61,597

746,078

(300,000)

(97,903)

3,512

—

(993,000)

395,056

(14,298)

24,133

(2,239)

(2,122)

(170,513)

(219,580)

—

(630,876)

11,277

30,713

41,990

649,577

(34,076)

551,146

(278,440)

(14,224)

10,029

2,456

(16,222)

(593,706)

88,575

40,077

405,192

(1,619,099)

(108,833)

—

(274,203)

(27,656)

25,339

(247,555)

541,970

127,195

(1,582,842)

1,940,089

(525,000)

11,400

11,747

(98,659)

481,737

—

(283)

9,920

(1,677)

(7,114)

(471,829)

(147,475)

(900)

1,201,956

24,306

6,407

30,713

Notes to the Consolidated Financial Statements

Note 1. Nature and Description of the Trust

Choice Properties Real Estate Investment Trust (“Choice Properties” or the “Trust”) is an unincorporated, open-ended mutual
fund trust governed by the laws of the Province of Ontario and established pursuant to a declaration of trust amended and
restated as of May 2, 2018, as may be amended from time to time (the “Declaration of Trust”). Choice Properties, Canada’s
preeminent diversified real estate investment trust, is the owner, manager and developer of a high-quality portfolio of commercial
retail, industrial, office and residential properties across Canada. The principal, registered, and head office of Choice Properties
is located at 22 St. Clair Avenue East, Suite 500, Toronto, Ontario, M4T 2S5. Choice Properties’ trust units (“Trust Units” or
“Units”) are listed on the Toronto Stock Exchange (“TSX”) and are traded under the symbol “CHP.UN”.

Choice Properties commenced operations on July 5, 2013 when it issued Units and debt for cash pursuant to an initial public
offering (the “IPO”) and completed the acquisition of 425 properties from Loblaw Companies Limited and its subsidiaries
(“Loblaw”). Pursuant to a reorganization transaction on November 1, 2018, Loblaw spun out its 61.6% effective interest in Choice
Properties to George Weston Limited (“GWL”). As at December 31, 2019, GWL held a 62.9% direct effective interest in
Choice Properties.

The active subsidiaries of the Trust included in Choice Properties’ consolidated financial statements are Choice Properties
Limited Partnership (the “Partnership”), Choice Properties GP Inc. (the “General Partner”) and CPH Master Limited Partnership
(“CPH Master LP”).

Note 2.

Significant Accounting Policies

a. Statement of Compliance

The consolidated financial statements of Choice Properties are prepared in accordance with International Financial Reporting
Standards (“IFRS” or “GAAP”) as issued by the International Accounting Standards Board (“IASB”) and using the accounting
policies described herein. These consolidated financial statements were authorized for issuance by Choice Properties' Board
of Trustees (“Board”) on February 12, 2020.

b. Basis of Preparation

The consolidated financial statements are prepared on a historical cost basis except for investment properties (note 6), Class
B LP Units (the “Exchangeable Units”) which are exchangeable for Trust Units at the option of the holder (note 15), liabilities
for unit-based compensation arrangements (note 18) and certain financial instruments (note 26). The consolidated financial
statements are presented in Canadian dollars, which is the Trust’s functional currency.

In the current year, the Trust modified the presentation of its consolidated balance sheet to be based on the liquidity method,
whereby all assets and liabilities are presented in ascending order of liquidity, while the notes to the consolidated financial
statements distinguish between current and non-current assets and liabilities. The Trust also modified the presentation of
its consolidated statements of cash flows, whereby interest paid is presented as a cash flow from operating activities in the
current year, as opposed to a cash flow from investing activities as in the prior year. Choice Properties considers this
presentation to be reliable and more relevant to the Trust’s business. The comparative amounts in the consolidated balance
sheet and consolidated statement of cash flows have been reclassified to conform to the current year presentation.

c. Basis of Consolidation

The consolidated financial statements include the accounts of Choice Properties and other entities controlled by the Trust
(its subsidiaries). Control is achieved when the Trust has power over the entity, has exposure, or rights, to variable returns
from its involvement with the entity, and has the ability to use its power to affect its returns. Choice Properties reassesses
control on an ongoing basis.

Consolidation of a subsidiary begins when the Trust obtains control over the subsidiary and ceases when the Trust loses
control of the subsidiary. Income and expenses of a subsidiary acquired or disposed of during the year are included in the
consolidated statements of income and comprehensive income from the effective date of acquisition and up to the effective
date of disposal, as appropriate.

When Choice Properties does not own all of the equity in a subsidiary, the non-controlling equity interest is disclosed in the
consolidated balance sheet as a separate component of total equity. Changes in the Trust’s ownership interests in subsidiaries
that do not result in the Trust losing control over the subsidiaries are accounted for as equity transactions. The carrying
amounts of the Trust’s interests and any non-controlling interests are adjusted to reflect the changes in their relative interests
in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value
of the consideration paid or received is recognized directly in equity and attributed to the Unitholders of the Trust. When the
Trust loses control of a subsidiary, for example through sale or partial sale, a gain or loss is recognized and is calculated as
the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained
interest and (ii) the previous carrying amount of the assets and liabilities of the subsidiary and any non-controlling interests.

Choice Properties REIT 2019 Annual Report 89

Notes to the Consolidated Financial Statements

d. Business Combinations

When an investment is acquired, the Trust considers the substance of the assets and activities of the acquisition in determining
whether the acquisition represents an asset acquisition or a business combination. The transaction is considered to be a
business combination if the acquired investment meets the definition of a business in accordance with IFRS 3, “Business
Combinations”, being an integrated set of activities and assets that are capable of being managed for the purposes of
providing a return to Unitholders.

The acquisition of a business is accounted for using the acquisition method. The cost of an acquisition is measured as the
aggregate of the consideration transferred at fair value on the date of acquisition. Identifiable assets acquired and liabilities
and contingent liabilities assumed in a business combination are measured initially at fair value at the acquisition date. Any
contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Acquisition-
related costs are recognized in the consolidated statement of income as incurred.

If the acquisition of an investment does not represent a business, it is accounted for as an acquisition of a group of assets
and liabilities. The cost of the acquisition is allocated to the assets and liabilities acquired based upon their relative fair values
at the acquisition date, and no goodwill is recognized. Acquisition-related costs are capitalized to the investment at the time
the acquisition is completed.

e. Joint Arrangements

Joint arrangements are arrangements of which two or more parties have joint control. Joint control is the contractual sharing
of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of
the parties sharing control. Joint arrangements are classified as either joint operations or joint ventures depending on the
Trust’s rights and obligations in the arrangement based on factors such as the structure, legal form and contractual terms
of the arrangement.

Joint Ventures
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net
assets of the joint arrangement. The Trust’s investments in joint ventures are recorded using the equity method and are
initially recognized in the consolidated balance sheet at cost and adjusted thereafter to recognize the Trust’s share of the
profit or loss and other comprehensive income of the joint venture. The Trust’s share of the joint venture’s profit or loss is
recognized in the Trust’s consolidated statements of income and comprehensive income.

The financial statements of the equity accounted joint ventures are prepared for the same reporting period as the Trust.
Where necessary, adjustments are made to bring the accounting policies in line with those of the Trust.

A joint venture is considered to be impaired if there is objective evidence of impairment, as a result of one or more events
that occurred after initial recognition of the joint venture, and that event has a negative impact on the future cash flows of
the joint venture that can be reliably estimated.

Joint Operations
A joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets and obligations
for the liabilities relating to the arrangement. The financial statements of the joint operations are prepared for the same
reporting period as the Trust. Where necessary, adjustments are made to bring the accounting policies in line with those of
the Trust. The Trust accounts for its interests in joint operations by recognizing its proportionate share of jointly controlled
assets, liabilities, revenues and expenses.

Investment Properties
Investment properties include income producing properties and properties under development that are held by the Trust to
earn rental income or for capital appreciation or both. The Trust accounts for its investment properties in accordance with
International Accounting Standard ("IAS") 40, "Investment Properties".

Subsequent to initial recognition, investment properties are measured at fair value in accordance with the valuation policy
discussed in Note 6. Gains and losses arising from changes in the fair value of investment properties are included in the
consolidated statement of income in the period in which they arise. Investment properties are de-recognized when disposed.

90 Choice Properties REIT 2019 Annual Report

Income Producing Properties
Additions to income producing properties are expenditures incurred for the expansion and/or redevelopment of existing
income producing properties that result in additional gross leasable area and are considered revenue producing capital
expenditures. Extending and improving the productive capacity of leasable area of existing income producing properties
owned by the Trust requires significant on-going capital expenditures. The Trust considers its operating capital expenditures
to be the following:

• Property capital: Major expenditures such as parking lot resurfacing and roof replacements which are significant items
of improvement incurred pursuant to a capital plan are capitalized and recoverable from tenants under the terms of their
leases over the useful life of the improvements. All other repair and maintenance costs are expensed when incurred.

• Direct leasing costs: These include direct third-party brokerage fees incurred in the successful negotiation of a lease.

•

Tenant improvement allowances: Amounts expended to meet the Trust’s lease obligations are characterized as either
tenant improvements, which are owned by the Trust, or tenant inducements. An expenditure is determined to be a tenant
improvement when it primarily benefits and / or is owned by the Trust. In such circumstances, the Trust is considered
to have acquired an asset which is recorded as an addition to income producing properties. Tenant inducements are
amortized on a straight-line basis over the term of the lease as a reduction of revenue.

Properties Under Development
The cost of land and buildings under development (consisting of commercial development sites, density or intensification
rights and related infrastructure) are specifically identifiable costs incurred in the period before construction is complete.
Costs capitalized in development capital include:

• Permits, architect fees, hard construction costs;

• Payments to tenants under lease obligations when the payment is reimbursement for construction which Choice

Properties will receive benefit after the tenant vacates; and

• Site intensification payments, project management fees, professional fees, and property taxes.

Directly attributable borrowing costs associated with acquiring or constructing a qualifying investment property are
capitalized. Capitalization of borrowing costs commences when the activities necessary to prepare an asset for development
or redevelopment begin, and ceases once the asset is substantially complete, or if there is a prolonged period where
development activity is interrupted. The amount of borrowing costs capitalized is determined first by reference to borrowings
specific to the project, where relevant, and otherwise by applying a weighted average cost of borrowings to eligible
expenditures after adjusting for borrowings associated with other specific developments.

Properties under development are transferred to income producing properties, at their fair value, upon practical completion.
The Trust considers practical completion to have occurred when the property is capable of operating in the manner intended
by management.

g. Assets Held for Sale

An investment property is classified as held for sale when it is expected that the carrying amount will be recovered principally
through sale rather than from continuing use. For this to be the case, the property must be available for immediate sale in
its present condition, subject only to terms that are usual and customary for sales of such property, and its sale must be
highly probable, generally within one year. Upon designation as held for sale, the investment property continues to be
measured at fair value and is presented separately on the consolidated balance sheets.

h. Financial Instruments

Financial assets and liabilities are recognized when Choice Properties becomes a party to the contractual provision of the
financial instrument.

Classification and Measurement
Financial assets are classified and measured based on three categories: amortized cost, fair value through other
comprehensive income (“FVOCI”), and fair value through profit or loss (“FVTPL”). Financial liabilities are classified and
measured on two categories: amortized cost or FVTPL. Derivatives embedded in contracts where the host is a financial asset
in the scope of IFRS 9, “Financial Instruments” are not separated, but the hybrid financial instrument as a whole is assessed
for classification.

The classification and measurement of financial assets based on the Trust’s business model for managing these financial
assets and their contractual cash flow characteristics, is summarized as follows:

• Assets held for the purpose of collecting contractual cash flows that represent solely payments of principal and interest

(“SPPI”) are measured at amortized cost;

Choice Properties REIT 2019 Annual Report 91

Notes to the Consolidated Financial Statements

• Assets held within a business model where assets are held for both the purpose of collecting contractual cash flows
and selling financial assets prior to maturity, and the contractual cash flows represent solely payments of principal and
interest, are measured at FVOCI; and

• Assets held within another business model or assets that do not have contractual cash flow characteristics that are

SPPI are measured at FVTPL.

Financial assets are not reclassified subsequent to their initial recognition, unless the Trust identifies changes in its business
model in managing financial assets and would reassess the classification of financial assets. All financial liabilities are
measured subsequently at amortized cost using the effective interest method or at FVTPL.

The following summarizes the classification and measurement of financial assets and liabilities:

Asset/Liability
Accounts receivable

Classification and Measurement Basis
Amortized cost

Mortgages, loans and notes receivable - SPPI

Amortized cost

Mortgages, loans and notes receivable - FVTPL

Financial real estate asset

Cash and cash equivalents

Long term debt:

Senior unsecured debentures

Mortgages payable

Construction loans

Credit facility and term loans

Trade payable and other liabilities

Designated hedging derivatives

Exchangeable Units

FVTPL

Amortized cost

FVTPL

Impairment
An allowance for expected credit losses (“ECL”) is recognized at each balance sheet date for all financial assets measured
at amortized cost or those measured at FVOCI, except for investments in equity instruments. The ECL model requires
considerable judgment, including consideration of how changes in economic factors affect ECLs, which are determined on
a probability-weighted basis.

Impairment losses, if incurred, would be recorded as expenses in the consolidated statement of income and comprehensive
income with the carrying amount of the financial asset or group of financial assets reduced through the use of impairment
allowance accounts. In periods subsequent to the impairment where the impairment loss has decreased, and such decrease
can be related objectively to conditions and changes in factors occurring after the impairment was initially recognized, the
previously recognized impairment loss would be reversed through the consolidated statement of income and comprehensive
income. The impairment reversal would be limited to the lesser of the decrease in impairment or the extent that the carrying
amount of the financial asset at the date the impairment is reversed does not exceed what the amortized cost would have
been had the impairment not been recognized, after the reversal.

Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date, regardless of whether that price is directly observable or estimated using
another valuation technique. In estimating the fair value of an asset or a liability, the Trust takes into account the characteristics
of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability
at the measurement date. Fair value for measurement and / or disclosure purposes in these consolidated financial statements
is determined on such basis, unless otherwise noted.

92 Choice Properties REIT 2019 Annual Report

Choice Properties measures financial assets and financial liabilities under the following fair value hierarchy. The different
levels have been defined as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly

(i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Determination of fair value and the resulting hierarchy requires the use of observable market data whenever available. The
classification of a financial instrument in the hierarchy is based upon the lowest level of input that is significant to the
measurement of fair value.

Acquisition costs, other than those related to financial instruments classified as FVTPL which are expensed as incurred, are
capitalized to the carrying amount of the instrument and amortized using the effective interest method.

Valuation process
The determination of the fair value of financial instruments is performed by Choice Properties’ treasury and financial reporting
departments on a quarterly basis. The following table describes the valuation techniques used in the determination of the
fair values of financial instruments:

Type

Valuation approach

Accounts receivable, cash and cash
equivalents, and accounts payable

The carrying amount approximates fair value due to the short-term maturity of
these instruments.

Mortgages, loans and notes receivable

and financial real estate asset

The fair value of each mortgage, loan and note receivable is based on the current
market conditions for financing with similar terms and risks.

Unit Options

Fair value of each tranche is valued separately using a Black-Scholes option
pricing model.

Restricted Units, Performance Units and

Fair value is based on closing market trading price of Choice Properties’ Units.

Trustee Deferred Units

Exchangeable Units

Long term debt

Fair value is based on closing market trading price of Choice Properties’ Units.

Fair value is based on the present value of contractual cash flows, discounted
at Choice Properties’ current incremental borrowing rate for similar types of
borrowing arrangements or, where applicable, quoted market prices.

Derecognition of Financial Instruments
Financial assets are derecognized when the contractual rights to receive cash flows and benefits from the financial asset
expire, or if Choice Properties transfers the control or substantially all the risks and rewards of ownership of the financial
asset to another party. The difference between the assets carrying amount and the sum of the consideration received and
receivable is recognized in net income.

Financial liabilities are derecognized when obligations under the contract expire, are discharged or cancelled. The difference
between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in
net income.

i. Mortgages, Loans and Notes Receivable

The Trust’s mortgages, loans and notes receivable are classified into two categories: (1) those held for the purpose of collecting
contractual cash flows that represent SPPI and are classified and measured at amortized cost; and (2) those that do not
meet the SPPI criteria that are classified and measured at FVTPL.

Interest income for mortgages and loans receivable is recognized using the effective interest method. At the end of each
reporting period management reviews its SPPI mortgages, loans and notes receivable to determine whether there is an event
or change in circumstance that indicates a possible impairment loss. If such indication exists, the recoverable amount of the
asset is estimated in order to measure any impairment loss and an allowance for expected credit losses is recorded.

An impairment indicator is present when there is objective evidence of impairment as a result of one or more events, such
as a deterioration in the credit quality of the borrower to the extent that there is a reasonable doubt as to the timely collection
of the principal and interest. An impairment loss is recognized if the present value of estimated future cash flows discounted
at the original effective interest rate inherent in the loan is less than its carrying value and is measured as the difference
between the two amounts. When the amounts and timing of future cash flows cannot be estimated with reasonable reliability,
impairment is recognized if either (a) the fair value of the underlying security, net of any realization costs and amounts legally
required to be paid to the borrowers, or (b) the observable market price for the loan, is less than the carrying value. The

Choice Properties REIT 2019 Annual Report 93

Notes to the Consolidated Financial Statements

valuation of such amounts is subjective and is based upon assumptions regarding market conditions that could differ materially
from actual results in future periods.

Intangible Assets
Indefinite life intangible assets are measured at cost less any accumulated impairment loss. These assets are not amortized
but are tested for impairment annually. The assessment of indefinite life is reviewed annually to determine whether the
indefinite life continues to be supportable. At each balance sheet date, the Trust reviews the carrying amount of its intangible
assets to determine whether there is any indication of impairment. If such indication exists, the asset is then tested for
impairment by comparing its recoverable amount to its carrying value. The recoverable amount of the intangible asset is the
higher of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows from
the intangible asset discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risk specific to the asset. The fair value less costs to sell is based on the best information
available to reflect the amount that could be obtained from the disposal of the asset in an arm’s length transaction between
knowledgeable and willing parties, net of estimates of costs of disposal. An impairment loss is recognized if the carrying
amount exceeds the recoverable amount. Impairment losses and reversals are recognized in general and administrative
expenses.

k. Cash and Cash Equivalents

Cash and cash equivalents consist of unrestricted cash on hand and marketable investments with an original maturity date
of 90 days or less from the date of acquisition.

l. Financial Derivative Instruments

The Trust does not use derivative instruments for speculative purposes. Any embedded derivative instruments that may be
identified are separated from their host contract and recorded on the consolidated balance sheet at fair value. Derivative
instruments are recorded in current or non-current assets and liabilities based on their remaining terms to maturity. All changes
in fair values of the derivative instruments are recorded in net earnings unless the derivative qualifies and is effective as a
hedging item in a designated hedging relationship. The Trust has cash flow hedges which are used to manage exposure to
fluctuations in interest rates. The effective portion of the change in fair value of the hedging item is recorded in other
comprehensive income. If the change in fair value of the hedging item is not completely offset by the change in fair value of
the hedged item, the ineffective portion of the hedging relationship is recorded in net income. Amounts accumulated in other
comprehensive income are reclassified to net earnings when the hedged item is recognized in net income.

m. Foreign Currency Translation

The functional currency of the Trust is the Canadian dollar. The assets and liabilities of foreign operations that have a functional
currency different from that of the Trust are translated into Canadian dollars at the foreign currency exchange rate in effect
at the balance sheet date. The resulting foreign currency exchange gains or losses are recognized in the foreign currency
translation adjustment as part of other comprehensive income (“OCI”). When such foreign operation is disposed of, the
related foreign currency translation reserve is recognized in net earnings as part of the gain or loss on disposal. On the partial
disposal of such foreign operation, the relevant proportion is reclassified to net income.

Asset and liabilities denominated in foreign currency held in foreign operations that have the same functional currency as
the Trust are translated into Canadian dollars at the foreign currency exchange rate in effect at the balance sheet date. The
resulting foreign currency exchange gains or losses are recognized in net income. Revenue and expenses of foreign operations
are translated into Canadian dollars at the foreign currency exchange rates that approximate the rates in effect at the dates
when such items are transacted.

The Trust has a property in the United States that is considered a foreign operation, which is financially and operationally
independent from its Canadian business. Assets and liabilities of this foreign operation are translated at the rate of exchange
in effect at the balance sheet date while revenue and expense items are translated at the average exchange rate for the
period. Gains or losses on translation are included in OCI as foreign currency translation gains or losses. When there is a
reduction in the net investment as a result of a dilution or sale, or reduction in equity of the foreign operation as a result of
a dividend, amounts previously recognized in accumulated other comprehensive income (“AOCI”) are reclassified to net
income.

n. Exchangeable Units

The Class B LP Units of the Trust’s subsidiary, the Partnership, are exchangeable into Trust Units at the option of the holder.
GWL holds all Exchangeable Units. These Exchangeable Units are considered puttable instruments and are required to be
classified as financial liabilities at FVTPL. Distributions paid on the Exchangeable Units are accounted for as interest expense.

o. Trust Units

With certain restrictions, Choice Properties’ Units are redeemable at the option of the holder, and, therefore, are considered
puttable instruments in accordance with IAS 32, “Financial Instruments - Presentation” (“IAS 32”). Puttable instruments are
required to be accounted for as financial liabilities, except where certain conditions are met in accordance with IAS 32, in
which case, the puttable instruments may be presented as equity.

94 Choice Properties REIT 2019 Annual Report

To be presented as equity, a puttable instrument must meet all of the following conditions: (i) it must entitle the holder to a
pro-rata share of the entity’s net assets in the event of the entity’s dissolution; (ii) it must be in the class of instruments that
is subordinate to all other instruments; (iii) all instruments in the class in (ii) above must have identical features; (iv) other than
the redemption feature, there can be no other contractual obligations that meet the definition of a liability; and (v) the expected
cash flows for the instrument must be based substantially on the profit or loss of the entity or change in fair value of the
instrument. The Trust Units meet the conditions of IAS 32 and accordingly are presented as equity in the consolidated financial
statements.

p. Revenue Recognition

Property Rental Revenue
Choice Properties has retained substantially all of the risks and benefits of ownership of its investment properties and therefore
accounts for its leases with tenants as operating leases. The Trust commences revenue recognition on its leases based on
a number of factors. In most cases, revenue recognition under a lease begins when the tenant takes possession of, or
controls, the physical use of the leased property. Generally, this occurs on the later of the lease commencement date, or
when the Trust is required to make additions to the leased property in the form of tenant improvements, upon substantial
completion of such additions.

The Trust enters as a lessor into lease agreements that fall within the scope of IFRS 16, “Leases” (“IFRS 16”) which are
classified as operating leases. The Trust's revenues are earned from lease contracts with tenants and include both a lease
component and a non-lease component. The Trust recognizes revenue from lease components on a straight-line basis over
the lease term, including the recovery of property tax and insurance, and is included in revenue in the consolidated statements
of income due to its operating nature, except for contingent rental income which is recognized when it arises. An accrued
straight-line rent receivable is recorded from tenants for the difference between the straight-line rent and the rent that is
contractually due from the tenant.

The lease agreements include certain services offered to tenants such as cleaning, utilities, security, landscaping, snow
removal, property maintenance costs, as well as other support services. The consideration charged to tenants for these
services includes fees charged based on a percentage of the rental income and reimbursement of certain expenses incurred.
The Trust has determined that these services constitute a distinct non-lease component (transferred separately from the right
to use the underlying asset) and are within the scope of IFRS 15, “Revenue from Contracts with Customers”. These property
management services are considered one performance obligation, meeting the criteria for over time recognition and are
recognized in the period that recoverable costs are incurred, or services are performed.

Interest Income
Interest income is the interest earned on the amounts advanced under the Trust’s mezzanine loans, vendor take-back loans
and joint venture financing arrangements together with bank interest earned from deposits. Interest income is recognized in
accordance with the terms set out in the financing arrangements using the effective interest method.

Fee Income
Fee income consists mainly of property management fees, leasing fees, project management fees and other miscellaneous
fees. Property management fees are generally based on a percentage of property revenues and are recognized when earned
in accordance with the property management or co-ownership agreements. Leasing fees are incurred when the Trust is the
leasing manager for co-owned properties and are recognized when earned in accordance with the property management
or co-ownership agreements.

Lease Termination Income
Lease termination income represents amounts earned from tenants in connection with the cancellation or the early termination
of their remaining lease obligations and is recognized when a lease termination agreement is signed, and collection is
reasonably assured.

q. Unit-Based Compensation

The Trust has five unit-based compensation plans. The (1) Unit Option, (2) Restricted Unit (“RU”), (3) Performance Unit (“PU”),
(4) Trustee Deferred Unit (“DU”) and (5) Unit-Settled Restricted Unit (“URU”) plans are accounted for as cash-settled awards.
The fair value in respect of each plan is re-measured at each balance sheet date. Compensation expense is recognized in
general and administrative expenses over the vesting period for each tranche with a corresponding change in the liability.

Unit Option Plan
Unit Options have a five to ten year term, vest 25% cumulatively on each anniversary date of the grant and are exercisable
at the designated Unit price, which is based on the greater of the volume weighted average trading price of a Unit for the
five trading days prior to the date of grant or the trading day immediately preceding the grant date. The fair value of each
tranche is valued separately using a Black-Scholes option pricing model, and includes the following assumptions:

•

The expected distribution yield is estimated based on the expected annual distribution prior to the balance sheet date
and the closing unit price as at the balance sheet date;

Choice Properties REIT 2019 Annual Report 95

Notes to the Consolidated Financial Statements

•

The expected Unit price volatility is estimated based on the average volatility of investment grade entities in the Standard
& Poor’s/TSX REIT Index over a period consistent with the expected life of the options;

The risk-free interest rate is estimated based on the Government of Canada bond yield in effect at the balance sheet
date for a term to maturity equal to the expected life of the options; and

The effect of expected exercise of options prior to expiry is incorporated into the weighted average expected life of the
options, which is based on expectations of option holder behaviour.

Restricted Unit Plan
Restricted Units entitle certain employees to receive the value of the RU award in cash or Units at the end of the applicable
vesting period, which is usually three years in length. The RU plan provides for the crediting of additional RUs in respect of
distributions paid on Units for the period when a RU is outstanding. The fair value of each RU granted is measured based
on the market value of a Unit at the balance sheet date.

Performance Unit Plan
Performance Units entitle certain employees to receive the value of the PU award in cash or Units at the end of the applicable
performance period, which is usually three years in length, based on the Trust achieving certain performance conditions.
The PU plan provides for the crediting of additional PUs in respect of distributions paid on Units for the period when a PU
is outstanding. The fair value of each PU granted is measured based on the market value of a Unit and an estimate of the
performance conditions being met at the balance sheet date.

Trustee Deferred Unit Plan
Non-management members of the Board are required to receive a portion of their annual retainer in the form of DUs and
may also elect to receive up to 100% of their remaining fees in DUs. Distributions paid earn fractional DUs, which are treated
as additional awards. DUs vest upon grant. The fair value of each DU granted is measured based on the market value of a
Unit at the balance sheet date.

Unit-Settled Restricted Unit Plan
Unit-Settled Restricted Units are accounted for as cash-settled awards. Typically, full vesting of the URUs would not occur
until the employee had remained with Choice Properties for three or five years from the grant date. Depending on the nature
of the grant, the URUs are subject to a six- or seven-year holding period during which the Units cannot be disposed. The
fair value of each URU granted is measured based on the market value of a Unit at the balance sheet date, less a discount
to account for the vesting and holding period restriction placed on the URUs.

Income Taxes
Choice Properties qualifies as a “mutual fund trust” and a real estate investment trust (“REIT”) under the Income Tax Act
(Canada). Certain legislation relating to the federal income taxation of Specified Investment Flow Through trusts or
partnerships (“SIFT”) provide that certain distributions from a SIFT will not be deductible in computing the SIFT’s taxable
income and that 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.

Under the SIFT rules, the taxation regime will not apply to a REIT that meets prescribed conditions relating to the nature of
its assets and revenue (the “REIT Conditions”) and distributions may be deducted against the REIT’s taxable income. Choice
Properties has reviewed the SIFT rules and has assessed its interpretation and application to its assets and revenue and has
determined that it meets the REIT Conditions. The Trustees intend to annually distribute all taxable income directly earned
by Choice Properties to Unitholders and to deduct such distributions for income tax purposes and, accordingly, no net
current income tax expense or deferred income tax assets or liabilities have been recorded in the consolidated financial
statements related to its Canadian investment properties.

The Trust also consolidates certain taxable entities in Canada and in the United States for which current and deferred income
taxes are recorded. Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using
tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
years.

Deferred tax is recognized using the asset and liability method of accounting for temporary differences arising between the
financial statement carrying values of existing assets and liabilities and their respective income tax bases. Deferred tax is
measured using enacted or substantively enacted income tax rates expected to apply in the years in which those temporary
differences are expected to be recovered or settled. A deferred tax asset is recognized for temporary differences as well as
unused tax losses and credits to the extent that it is probable that future taxable profits will be available against which they
can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realized.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and
they relate to income taxes levied by the same taxation authority on the same taxable entity, or on different taxable entities
where the Choice Properties intends to settle its current tax assets and liabilities on a net basis.

96 Choice Properties REIT 2019 Annual Report

Deferred tax is recorded on temporary differences arising on investments in subsidiaries, except where the timing of the
reversal of the temporary difference is controlled by the Trust and it is probable that the temporary difference will not reverse
in the foreseeable future.

s. Accounting Standard Implemented in 2019

In January 2016, the IASB issued IFRS 16 replacing IAS 17, “Leases” (“IAS 17”) and related interpretations. The standard
introduced a single on-balance sheet recognition and measurement model for lessees, eliminating the distinction between
operating and finance leases. Lessors continue to classify leases as finance or operating leases. The Trust adopted IFRS 16
using the modified retrospective approach effective January 1, 2019. Under this method, the standard was applied
retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application.

At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of
the remaining lease payments, discounted at the Trust’s incremental borrowing rate as at January 1, 2019. The Trust elected
to measure all its right-of-use assets at an amount equal to the lease liability, adjusted for any prepaid or accrued lease
payments.

The Trust elected the following practical expedients when applying IFRS 16 to leases previously classified as operating leases
under IAS 17:

• Applied IFRS 16 only to contracts that were previously identified as leases;

• Applied the exemption to not recognize right-of-use assets and lease liabilities with less than 12 months of lease term;

•

Excluded initial direct costs from measuring right-of-use assets; and

• Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.

As at January 1, 2019, the Trust recognized right-of-use lease liabilities of $7,955 recorded in trade payables and other
liabilities and right-of-use assets of $7,955 recorded in accounts receivable and other assets on its balance sheet. The nature
and timing of the related expenses will change as IFRS 16 replaces the straight-line operating lease expense with a depreciation
charge for right-of-use assets and interest expense on lease liabilities.

Note 3. Critical Accounting Judgments and Estimates

Investment Properties

Judgments Made in Relation to Accounting Policies Applied
Judgment is applied in determining whether certain costs are additions to the carrying value of investment properties,
identifying the point at which substantial completion of a development property occurs, and identifying the directly
attributable borrowing costs to be included in the carrying value of the development property. Choice Properties also applies
judgment in determining whether the properties it acquires are considered to be asset acquisitions or business combinations.
Choice Properties considers all the properties it has acquired to date to be asset acquisitions.

Choice Properties REIT 2019 Annual Report 97

Notes to the Consolidated Financial Statements

b. Joint Arrangements

c. Leases

Note 4. Acquisition of Canadian Real Estate Investment Trust ("CREIT")

On May 4, 2018, Choice Properties completed its acquisition of CREIT (the “Acquisition Transaction”), an unincorporated, closed-
end real estate investment trust that traded on the TSX, by acquiring all the assets and assuming all the liabilities for total
consideration of $3,708,429. The consideration was comprised of $1,651,518 in cash with the balance funded through the
issuance of 182,836,481 Trust Units.

In connection with the acquisition, Choice Properties arranged a new $1,500,000 committed revolving credit facility. Concurrent
with closing of the acquisition, Choice Properties repaid and cancelled its existing credit facilities and those acquired from CREIT.

Also, concurrent with the closing of the acquisition, Choice Properties converted all its outstanding Class C LP Units held by
Loblaw into 70,881,226 Class B LP Units (“Exchangeable Units”). A conversion difference of $98,659 was paid to Loblaw in
cash. These Exchangeable Units were subject to an undertaking by Loblaw, and subsequently confirmed by GWL, to the TSX
that restrict its voting rights and the exercise of its exchange transfer rights to be consistent with the terms of the converted
Class C LP Units.

98 Choice Properties REIT 2019 Annual Report

($ thousands)

Assets

Investment properties

Equity accounted joint ventures

Mortgages, loans and notes receivable

Intangible assets

Accounts receivable and other assets

Cash and cash equivalents

Total assets

Liabilities

Mortgages payable

Senior unsecured debentures

Constructions loans

Credit facility

Trade payables and other liabilities

Restricted unit plan liability

Total liabilities

Net Assets Acquired

Consideration

Cash

Units issued

Total Consideration

As at

May 4, 2018

4,729,687

683,289

195,597

30,000

50,645

32,419

5,721,637

1,309,677

451,853

9,583

70,000

169,421

2,674

2,013,208

3,708,429

1,651,518

2,056,911

3,708,429

The Trust had one year from the date of acquisition to finalize the fair value of the assets acquired and the liabilities assumed.
The Trust finalized its purchase price allocation during the quarter ended March 31, 2019.

For the year ended December 31, 2019, the Trust incurred acquisition transaction costs and other related expenses comprised
of advisory fees, personnel and other integration costs of $8,363 (2018 - $141,493).

Choice Properties REIT 2019 Annual Report 99

Notes to the Consolidated Financial Statements

Note 5.

Investment Property and Other Transactions

During the year ended December 31, 2019, Choice Properties completed the following acquisitions:

($ thousands)

Location

Consolidated investments

Kingston, ON

Toronto, ON

Acquisitions from Loblaw

Date of

Acquisition Segment

Ownership
Interest

Purchase
Price

Consideration

Purchase
Price incl.
Related
Costs

Net Debt
Repayment

Mortgage
Receivable
Settlement

Cash

Mar 7

Retail

100%

6,660 $

6,813 $

— $

Toronto, ON

Dec 13

Industrial

100%

Acquisition from GWL

Toronto, ON

Milton, ON

Mar 29

Oct 7

Nov 1

Land(i)

Retail(ii)

Industrial

50%

100%

15%(iii)

Acquisitions from third-parties

Total acquisitions in consolidated

investments

Equity Accounted Joint Ventures

29,658

36,318

13,250

18,000

10,500

13,760

14,440

56,700

30,386

37,199

13,786

18,862

10,918

14,034

14,727

58,541

106,268

109,526

—

11,749

12,330

24,079

6,813

30,386

37,199

13,786

18,862

10,918

2,285

2,397

34,462

24,079

85,447

Calgary, AB

May 6

Industrial

50%

20,000

20,126

13,537

1,401

5,188

Total acquisitions from third-parties in
equity accounted joint ventures

Financial real estate asset

20,000

20,126

13,537

1,401

5,188

Langford, BC

Sep 25

Retail(iv)

100%

22,800

23,462

Acquisitions of financial real estate asset

from Loblaw

22,800

23,462

—

23,462

Total acquisitions

149,068 $

153,114 $

13,537 $

25,480 $

114,097

(i)

(ii)

Land is currently under development for residential purposes and classified as properties under development.

Property acquired from third-party includes a Loblaw lease (note 31).

(iii) Represents additional ownership interest acquired increasing the ownership interest in this property to 100%. As a result, this property has been transferred

from an equity accounted joint venture to a consolidated investment as of the acquisition date.

(iv) The acquired property has been recognized as a financial asset classified at FVTPL under IFRS (note 12).

During the year ended December 31, 2019, Choice Properties completed the following dispositions:

($ thousands)

Location

Consolidated investments

Olds, AB (parcel)

Brampton, ON

Cowansville, QC(i)

Portfolio of 30 assets across Canada(ii)

Strathcona County, AB

Red Deer, AB(i)

Total dispositions

Date of
Disposition

Segment

Ownership
Interest

Sale Price excl.
Selling Costs

Cash

Consideration

Jan 7

Apr 15

Aug 7

Sep 30

Nov 22

Dec 2

Retail

Development

Retail

Retail/Industrial

Development

Retail

50%

100%

50%

100%

600 $

15,229

1,475

426,318

15,786

8,500

467,908 $

600

15,229

1,475

426,318

15,786

8,500

467,908

Property dispositions included a Loblaw lease (note 31).

(i)
(ii) Choice Properties sold a 30-property portfolio consisting of 27 stand-alone retail properties and 3 distribution centres that were leased to Loblaw with an

average lease term of approximately twelve years (note 31).

100 Choice Properties REIT 2019 Annual Report

($ thousands)

Location

Consolidated investments

Sainte-Julie, QC

Calgary, AB

Bedford, NS

Kanata, ON

Acquisitions from Loblaw

During the year ended December 31, 2018, excluding the acquisition of CREIT (note 4), Choice Properties completed the following
acquisitions:

Date of

Acquisition Segment

Ownership
Interest

Purchase
Price

Consideration

Purchase
Price incl.
Related
Costs

Other
liabilities
(assets)
assumed,
net

Debt
assumed

Cash

Jul 3

Nov 14

Land

Retail

75%

100%

Langley, BC

Dec 7

Industrial

100%

Acquisition from GWL

Toronto, ON

Riviere-du-Loup, QC

Toronto, ON

Sherbrooke, QC

Toronto, ON

Ottawa, ON

Calgary, AB

Acquisitions from third-parties

Jan 10

Jan 22

Jan 31

Feb 1

Mar 20

May 29

Oct 1

Land

Retail

Land

Retail

Land

Retail

100%

1,575 $

1,616 $

(9) $

— $

31,780

8,950

14,660

56,965

20,280

2,775

2,350

2,807

4,470

31,780

9,084

14,758

57,238

20,866

2,950

2,409

2,990

4,561

17,000

17,915

2,024

1,224

2,086

1,224

32,650

34,135

251

(16)

160

386

—

118

—

145

1,625

31,529

9,100

14,598

56,852

20,796

2,928

2,407

2,987

4,561

—

2,805

14,992

—

2,086

1,224

2,805

31,185

Total acquisitions

109,895 $

112,239 $

601 $

2,805 $

108,833

During the year ended December 31, 2018, Choice Properties completed the following dispositions:

($ thousands)

Location

Consolidated investments

Victoriaville, QC

Portfolio of 7 assets in Dartmouth, NS

Ottawa, ON

Calgary, AB

Total dispositions

Date of
Disposition

Jun 21

Aug 27

Oct 1

Dec 4

Segment

Retail

Industrial

Office

Ownership
Interest

Sale Price excl.
Selling Costs

Cash

Consideration

100%

50%

2,745 $

17,300

3,150

104,000

127,195 $

2,745

17,300

3,150

104,000

127,195

Choice Properties REIT 2019 Annual Report 101

Notes to the Consolidated Financial Statements

Note 6.

Investment Properties

($ thousands)

Balance, beginning of year

Acquisition of CREIT

Acquisitions of investment properties - including
acquisition costs of $3,258 (2018 - $2,344)

Capital expenditures

Development capital(i)

Building improvements

Capitalized interest(ii)

Operating capital expenditures

Property capital

Direct leasing costs

Tenant improvement allowances

Amortization of straight-line rent

Transfer to assets held for sale

Transfer from equity accounted investments

Transfers from properties under development

Dispositions

Foreign currency translation

Adjustment to fair value of investment properties

Note

Income producing
properties

Properties under
development

Year ended
December 31, 2019

Year ended
December 31, 2018

14,261,616

239,384

14,501,000

—

9,551,000

4,729,687

89,747

19,779

109,526

112,239

—

2,227

—

30,264

7,331

19,536

25,146

(97,800)

177,675

148,621

(436,893)

(5,971)

(11,499)

67,750

—

4,424

—

4,234

(148,621)

(31,015)

—

7,065

67,750

2,227

4,424

30,264

7,331

19,536

25,146

(97,800)

181,909

—

(467,908)

(5,971)

(4,434)

187,856

7,741

4,880

57,586

11,392

9,628

34,076

—

(123,869)

7,359

(88,575)

Balance, end of year

14,210,000

163,000

14,373,000

14,501,000

(i)
(ii)

Development capital included $4,577 of site intensification payments paid to Loblaw (December 31, 2018 - $5,858) (note 31).
Interest was capitalized to qualifying development projects based on a weighted average interest rate of 3.70% (December 31, 2018 - 3.63%).

Included in certain investment properties acquired from Loblaw is excess land with development potential. Choice Properties
will compensate Loblaw, over time, with intensification payments determined by a site intensification payment grid as outlined
in the Strategic Alliance Agreement (note 31), should Choice Properties pursue activity resulting in the intensification of such
excess land. The fair value of this excess land has been recorded in the consolidated financial statements.

Valuation Methodology and Process
The investment properties (including those owned through equity accounted joint ventures) are measured at fair value using
valuations prepared by the Trust’s internal valuation team. The team reports directly to the Chief Financial Officer, with the
valuation processes and results reviewed by Management at least once every quarter. The valuations exclude any portfolio
premium or value for the management platform and reflect the highest and best use for each of the Trust's investment properties.
As part of Management's internal valuation program, the Trust considers external valuations performed by independent national
real estate valuation firms for a cross-section of properties that represent different geographical locations and asset classes
across the Trust's portfolio. On a quarterly basis, the valuation team reviews and updates, as deemed necessary, the valuation
models to reflect current market data. Updates may be made to capitalization rates, discount rates, market rents, as well as
current leasing and/or development activity, renewal probability, downtime on lease expiry, vacancy allowances, and expected
maintenance costs.

When an external valuation is obtained, the internal valuation team assesses all major inputs used by the independent valuators
in preparing their valuation reports and holds discussions with the independent valuators on the reasonableness of their
assumptions. The reports are then used by the internal valuation team for consideration in preparing the valuations as reported
in these consolidated financial statements.

102 Choice Properties REIT 2019 Annual Report

Income Producing Properties
Income producing properties are valued using the discounted cash flow method. Under the discounted cash flow method, fair
value is estimated using assumptions regarding the benefits and liabilities of ownership over the asset’s life, generally over a
minimum term of 10 years, including a terminal value based on the application of a capitalization rate applied to estimated net
operating income, a non-GAAP measure, in the terminal year. This method involves the projection of a series of cash flows for
the specific asset. To this projected cash flow series, a market-derived discount rate is applied to establish the present value of
the income stream associated with the asset. The terminal capitalization rate is separately determined and may differ from the
discount rate.

The duration of the cash flows and the specific timing of inflows and outflows are determined by events such as rent reviews,
new and renewed leasing and related re-leasing, redevelopment, or refurbishment. The appropriate duration is typically driven
by market behaviour that is a characteristic of the related asset class. Periodic cash flow is typically estimated as gross income
less vacancy, non-recoverable expenses, collection losses, lease incentives, maintenance costs, agent and commission costs
and other operating and management expenses. The series of periodic cash flows, along with an estimate of the terminal value
anticipated at the end of the projection period, is then discounted.

Properties Under Development
Properties under active development are generally valued with reference to market land values and costs invested to date. Where
significant leasing and construction is in place and the future income stream is reasonably determinable, the development
property is valued on a discounted cash flow basis which includes cash outflows for future capital outlays, construction and
development costs. Development risks such as planning, zoning, licenses, and building permits are considered in the valuation
process. Properties not under active development, such as land parcels held for future development, are valued based on
comparable sales of commercial land.

Significant Valuation Assumptions
The following table highlights the significant assumptions used in determining the fair value of the Trust’s income producing
properties by asset class:

As at December 31, 2019

As at December 31, 2018

Total Investment Properties

Discount rate

Terminal capitalization rate

Overall capitalization rate

Retail

Discount rate

Terminal capitalization rate

Overall capitalization rate

Industrial

Discount rate

Terminal capitalization rate

Overall capitalization rate

Office

Discount rate

Terminal capitalization rate

Overall capitalization rate

Range

5.00% - 11.45%

4.25% - 10.95%

4.00% - 10.70%

5.00% - 11.45%

4.50% - 10.95%

4.00% - 10.70%

5.25% - 9.00%

4.75% - 8.50%

4.25% - 8.25%

5.00% - 8.25%

4.25% - 7.50%

4.00% - 7.00%

Weighted
average

Range

Weighted
average

6.77% 5.00% - 11.45%

6.11% 4.25% - 10.95%

5.84% 4.00% - 10.70%

6.89% 5.00% - 11.45%

6.24% 4.25% - 10.95%

5.97% 4.00% - 10.70%

6.51%

5.25% - 9.00%

5.78%

4.50% - 8.50%

5.48%

4.25% - 8.25%

6.05%

5.00% - 8.25%

5.29%

4.25% - 7.50%

5.13%

4.00% - 7.00%

6.82%

6.15%

5.88%

6.87%

6.22%

5.95%

6.91%

6.15%

5.84%

6.07%

5.33%

5.16%

The key assumptions and inputs used in the valuation techniques to estimate the fair value of investment properties are classified
as Level 3 in the fair value hierarchy as certain inputs for the valuation are not based on observable market data points.

Choice Properties REIT 2019 Annual Report 103

Notes to the Consolidated Financial Statements

Independent Appraisals
Properties are typically independently appraised at the time of acquisition. In addition, Choice Properties has engaged
independent nationally-recognized valuation firms to appraise its investment properties such that the majority of the portfolio
will be independently appraised at least once over a four-year period. When an independent appraisal is obtained, the internal
valuation team assesses all major inputs used by the independent valuators in preparing their reports and holds discussions
with them on the reasonableness of their assumptions. The reports are then used by the internal valuation team for consideration
in preparing the valuations as reported in these consolidated financial statements.

The properties independently appraised each year represent a subset of the property types and geographic distribution of the
overall portfolio. A breakdown of the aggregate fair value of investment properties independently appraised each quarter, in
accordance with the Trust’s policy, is as follows:

($ thousands except where otherwise indicated)

March 31

June 30

September 30

December 31

Total

Number of
investment
properties

2019

Fair value

785,000

800,000

645,000

800,000

Number of
investment
properties

2018

Fair value

711,000

603,000

593,000

884,000

3,030,000

105

2,791,000

Fair Value Sensitivity
The following table summarizes fair value sensitivity for the portion of the Trust’s investment properties which is most sensitive
to changes in capitalization rates:

Capitalization rate sensitivity
increase/(decrease)
($ thousands)

Weighted
average overall
capitalization rate

Fair value of
investment
properties

(0.75)%

(0.50)%

(0.25)%

—%

0.25%

0.50%

0.75%

5.09% $

16,492,000

5.34%

5.59%

5.84%

6.09%

6.34%

6.59%

15,719,000

15,016,000

14,373,000

13,783,000

13,239,000

12,737,000

Fair value
variance

2,119,000

1,346,000

643,000

—

(590,000)

(1,134,000)

(1,636,000)

% Change

15 %

9 %

4 %

— %

(4)%

(8)%

(11)%

Note 7.

Equity Accounted Joint Ventures

Choice Properties accounts for its investments in joint ventures using the equity method. These investments hold primarily
development properties and some income producing properties. The table below summarizes the Trust’s investment in joint
ventures.

Retail

Industrial(i)

Residential

Mixed-use, with related party

Total equity accounted joint ventures

Note

As at December 31, 2019

As at December 31, 2018

Number of
joint ventures

Ownership
interest

Number of
joint ventures

Ownership
interest

25% - 75%

50%

47% - 50%

40%

50% - 85%

47% - 50%

40%

(i)

During the year, the Trust acquired its partner’s interest in two equity accounted joint ventures, thereby increasing its ownership interest to 100%. As a result,
these interests have been transferred from an equity accounted joint ventures to consolidated investments as of the acquisition date.

104 Choice Properties REIT 2019 Annual Report

Summarized financial information for equity accounted joint ventures at 100% and Choice Properties’ ownership interest are
set out below:

($ thousands)

Current assets

Non-current assets

Current liabilities

Non-current liabilities

Net assets at 100%

Investment in equity accounted joint ventures

($ thousands)

Rental revenue

Property operating costs

Interest expense

Interest income

Adjustment to fair value of investment properties

Net income and comprehensive income at 100%

Share of net income and comprehensive income in equity accounted joint ventures

As at December 31,
2019

As at December 31,
2018

42,049

1,768,542

(197,728)

(435,659)

1,177,204

606,089

36,990

1,924,527

(220,641)

(342,082)

1,398,794

734,167

Year ended
December 31, 2019

Year ended
December 31, 2018

119,633

(43,124)

(17,304)

3,085

(32,006)

30,284

24,366

70,851

(22,890)

(10,220)

2,070

(17,396)

22,415

16,222

The following table reconciles the changes in cash flows from equity accounted joint ventures:

($ thousands)

Balance, beginning of year

Contributions to equity accounted joint ventures

Distributions from equity accounted joint ventures

Total cash flow activities

Transfers from equity accounted joint ventures to consolidated investments(i)

Share of income from equity accounted joint ventures

Total non-cash activities

Balance, end of year

Year ended
December 31, 2019

734,167

86,252

(56,457)

29,795

(182,239)

24,366

(157,873)

606,089

(i)

Represents additional ownership interest acquired increasing the ownership interest in this property to 100%. As a result, this property has been transferred
from an equity accounted joint venture to a consolidated investment as of the acquisition date. Balance includes investment properties and working capital.
Refer to Note 5 for additional details on investment properties.

Note 8. Co-Ownership Property Interests

Choice Properties has the following co-owned property interests and includes its proportionate share of the related assets,
liabilities, revenue and expenses of these properties in the consolidated financial statements.

Retail

Industrial

Office

Residential

Land, held for development

Total co-ownership property interests

As at December 31, 2019

As at December 31, 2018

Number of
co-owned
properties

Ownership
interest

Number of
co-owned
properties

Ownership
interest

50% - 75%

50% - 67%

50 %

50%

50% - 67%

50%

50% - 75%

Choice Properties REIT 2019 Annual Report 105

Summarized financial information for co-ownerships at 100% and Choice Properties’ ownership interest are set out below:

($ thousands)

Current assets

Non-current assets

Current liabilities

Non-current liabilities

Net assets at 100%

Choice Properties’ proportionate share

($ thousands)

Rental revenue

Property operating costs

Interest expense

Interest income

Adjustment to fair value of investment properties

Net income and comprehensive income at 100%

As at December
31, 2019

As at December 31,
2018

70,608

2,847,694

(146,875)

(1,083,544)

1,687,883

865,056

40,237

2,811,218

(324,774)

(987,778)

1,538,903

696,340

Year ended
December 31, 2019

Year ended
December 31, 2018

260,134

(101,091)

(45,302)

—

(130,430)

(16,689)

195,778

(77,060)

(38,896)

146

(48,010)

31,958

15,745

Proportionate share of net income (loss) and comprehensive income in co-ownerships

(10,181) $

Note 9.

Subsidiaries

On November 7, 2014, Choice Properties acquired a 70% controlling interest in Choice Properties PRC Brampton Limited
Partnership (“Brampton LP”), a subsidiary which holds land intended for future retail development in Brampton, Ontario. As a
result, Choice Properties consolidated the results of this subsidiary and recognized a 30% non-controlling interest for the interests
of PL Ventures Ltd., a subsidiary of PenEquity Realty Corporation (“PenEquity”). Operating activities have not begun at Brampton
LP. In the year ended December 31, 2019, Brampton LP did not distribute to the partners (December 31, 2018 - $3,000 was
distributed to the partners, of which $900 was attributable to non-controlling interests).

Note 10. Mortgages, Loans and Notes Receivable

($ thousands)

Mortgages receivable(i)

Loans receivable(i)

Notes receivable from related party(i)

Allowance for expected credit losses

Mortgages, loans and notes receivable

Classified as:

Non-current

Current

Note

As at December 31, 2019

As at December 31, 2018

185,350

5,649

144,287

(3,000)

332,286

99,523

232,763

332,286

181,605

5,579

26,226

—

213,410

88,300

125,110

213,410

(i)

The fair value of the mortgages, loans and notes receivable includes $85,809 classified as FVTPL and $246,300 classified as amortized cost (December 31,
2018 - $75,692 and $137,718, respectively) (note 26).

Choice Properties REIT 2019 Annual Report 106

Mortgages and Loans Receivable
Mortgages and loans receivable represent amounts advanced under mezzanine loans, joint venture financing, vendor take-back
financing and other arrangements. Choice Properties mitigates its risk by diversifying the number of entities and assets to which
it loans funds. As at December 31, 2019, the Trust has recorded an allowance for expected credit losses of $3,000 (December 31,
2018 - nil).

December 31, 2019

December 31, 2018

Weighted average
effective interest rate

Weighted average term
to maturity (years)

Weighted average
effective interest rate

Weighted average term
to maturity (years)

Mortgages receivable

Loans receivable

Total

7.52%

8.00%

7.54%

2.0

1.1

2.0

7.14%

8.00%

7.17%

2.0

2.2

2.0

Notes Receivable from Related Party
Non-interest-bearing short-term notes totalling $26,226 were repaid by GWL in January 2019 (note 31). Non-interest-bearing
short-term notes totalling $144,287 were issued during 2019 to GWL and repaid in January 2020 (note 31).

Schedules of Maturity and Cash Flow Activities
The schedule of repayment of mortgages, loans and notes receivable based on maturity and redemption rights is as follows:

($ thousands)

Principal repayments

Mortgages receivable

Loans receivable

Notes receivable from related party

Total principal repayments

Interest accrued

Total repayments

2020

2021

2022

2023

2024 Thereafter

Total

81,671 $

16,813 $

54,612 $

3,546 $

18,073 $

6,129

$ 180,844

5,261

144,287

231,219

1,544

350

—

17,163

54,612

3,546

18,073

—

6,129

—

5,611

144,287

330,742

1,544

$ 232,763 $

17,163 $

54,612 $

3,546 $

18,073 $

6,129

$ 332,286

The following table reconciles the changes in cash flows from investing activities for mortgages, loans and notes receivable:

Year ended
December 31, 2019

($ thousands)

Mortgages
receivable

Loans receivable

Notes receivable
from related party

Mortgages, loans
and notes receivable

Balance, beginning of year

181,605

5,579

26,226

Advances

Repayments

Interest received

Total cash flow activities

Settlement upon acquisition of

equity accounted joint ventures

Allowance for credit losses

Interest accrued

Total non-cash activities

57,264

(34,890)

(7,991)

14,383

(24,079)

(3,000)

13,441

(13,638)

1,881

(1,817)

(447)

(383)

—

453

144,287

(26,226)

—

118,061

—

Balance, end of year

182,350

5,649

144,287

213,410

203,432

(62,933)

(8,438)

132,061

(24,079)

(3,000)

13,894

(13,185)

332,286

Choice Properties invests in mortgages and loans to facilitate acquisitions. Credit risks arise in the event that the borrowers
default on repayment of their mortgages and loans to the Trust. Choice Properties’ receivables, including mezzanine financings,
are typically subordinate to prior ranking mortgage charges and generally represent equity financing for the Trust’s co-owners
or development partners. Not all of the Trust’s mezzanine financing activities will result in acquisitions. At the time of advancing
financing, the Trust’s co-owners or development partners would typically have some of the equity invested in the form of cash
with the balance being financed by third-party lenders and Choice Properties.

In the event of a large commercial real estate market correction, the fair market value of an underlying property may be unable
to support the investment. The Trust mitigates this risk by obtaining guarantees and registered mortgage charges, which are
often cross-collateralized on several different commercial properties that are in various stages of development.

Choice Properties REIT 2019 Annual Report 107

Notes to the Consolidated Financial Statements

Note 11.

Intangible Assets

Choice Properties’ intangible assets relate to the third-party revenue streams associated with property and asset management
contracts for co-ownership property interests and joint ventures. The Trust has the continuing rights, based on the co-ownership
agreements, to property and asset management fees from investment properties where it manages the interests of co-owners.
As at December 31, 2019, the value of the intangibles assets was $30,000 (December 31, 2018 - $30,000). The key assumptions
and inputs used in the valuation techniques to estimate the fair value of intangible assets are classified as Level 3 in the fair
value hierarchy as certain inputs for the valuation are not based on observable market data points. Based on the annual impairment
test performed, no provisions were recorded at December 31, 2019 (December 31, 2018 - nil).

Note 12. Accounts Receivable and Other Assets

($ thousands)

Note

As at December
31, 2019

As at December
31, 2018

Net rent receivable(i) - net of allowance for doubtful accounts of $5,159 (2018 - $5,017)

8,284

Accrued recovery income

Other receivables

Due from related parties(ii)

Restricted cash

Prepaid property taxes

Prepaid insurance

Other assets

Right-of-use assets - net of accumulated amortization of $988 (2018 - nil)

Financial real estate asset

Deferred tax asset

Deferred acquisition costs and deposits on land

Designated hedging derivatives

Accounts receivable and other assets

Classified as:

Non-current

Current

24,485

9,901

756

679

10,905

313

7,921

6,967

22,800

410

1,427

182

95,030

35,367

59,663

95,030

5, 31

8,095

6,238

7,068

1,339

946

6,338

1,119

5,520

—

2,226

1,036

39,925

1,950

37,975

39,925

Includes net rent receivable of $71 from Loblaw (December 31, 2018 - $421).

(i)
(ii) Other net receivables due from related parties includes $nil from Loblaw and $756 from GWL (December 31, 2018 - $1,339 and $nil, respectively).

108 Choice Properties REIT 2019 Annual Report

Note 13. Long Term Debt

($ thousands)

Senior unsecured debentures

Mortgages payable

Construction loans

Long term debt

Classified as:

Non-current

Current

Senior Unsecured Debentures

($ thousands)

Series

Issuance /
Assumption Date

B-C

C-C

D-C

Jul 5, 2013

Feb 8, 2014

Feb 5, 2015

Nov 24, 2015

Mar 7, 2016

Jan 12, 2018

Mar 8, 2018

Jun 11, 2019

Jul 4, 2013

May 4, 2018

Maturity
Date

Jul 5, 2023

Feb 8, 2021

Feb 8, 2024

Sep 14, 2020

Nov 24, 2025

Mar 7, 2023

Mar 7, 2046

Mar 21, 2022

Jan 10, 2025

Sep 9, 2024

Mar 8, 2028

Jun 11, 2029

Sep 20, 2019

Apr 20, 2020

Sep 20, 2021

Sep 20, 2022

Jan 15, 2021

Nov 30, 2019

Jan 18, 2023

Effective Interest
Rate

4.90%

3.50%

4.29%

2.30%

4.06%

3.20%

5.27%

3.01%

3.55%

3.56%

4.18%

3.53%

3.04%

3.20%

3.57%

3.84%

3.06%

2.60%

3.30%

Total principal outstanding

Debt discounts and premiums - net of accumulated amortization of $14,857

(2018 - $13,531)

Debt placement costs - net of accumulated amortization of $9,130 (2018 -

$6,674)

Senior unsecured debentures

As at December 31, 2019

As at December 31, 2018

5,158,342

1,230,268

24,842

6,413,452

5,697,841

715,611

6,413,452

4,711,134

1,330,487

21,330

6,062,951

5,566,915

496,036

6,062,951

As at December 31, 2019

As at December 31, 2018

200,000

250,000

200,000

250,000

200,000

250,000

100,000

300,000

350,000

550,000

750,000

—

300,000

200,000

300,000

100,000

—

125,000

5,175,000

(1,349)

(15,309)

200,000

250,000

200,000

250,000

200,000

250,000

100,000

300,000

350,000

550,000

750,000

—

200,000

300,000

200,000

300,000

100,000

125,000

4,725,000

(22)

(13,844)

4,711,134

5,158,342

As at December 31, 2019, the senior unsecured debentures had a weighted average effective interest rate of 3.67% and a
weighted average term to maturity of 5.1 years (December 31, 2018 - 3.61% and 5.1 years, respectively). Senior unsecured
debentures Series B through Series M were issued by the Trust, Series B-C through D-C were assumed by the Trust, and Series
7 through Series 10 were issued by the Partnership.

On June 11, 2019, Choice Properties issued, on a private placement basis, $750,000 aggregate principal amount of series M
senior unsecured debentures of the Trust bearing interest at a rate of 3.53% per annum maturing on June 11, 2029. The net
proceeds of the issuance were used to repay existing indebtedness, including the redemption in full of the $200,000 aggregate
principal amount of the 3.00% series 7 senior unsecured debentures due September 20, 2019 and the $100,000 aggregate
principal amount of the 2.56% series C-C senior unsecured debentures due November 30, 2019.

Choice Properties REIT 2019 Annual Report 109

Notes to the Consolidated Financial Statements

On May 4, 2018, as part of the acquisition of CREIT (note 4), Choice Properties assumed $450,000 aggregate principal amount
of senior unsecured debentures together with accrued but unpaid interest in four series:

• Series A-C, $125,000 aggregate principal due July 24, 2018, with an effective interest rate of 3.68% per annum;

• Series B-C, $100,000 aggregate principal due January 15, 2021, with an effective interest rate of 3.06% per annum;

• Series C-C, $100,000 aggregate principal due November 30, 2019, with an effective interest rate of 2.60% per annum; and

• Series D-C, $125,000 aggregate principal due January 18, 2023, with an effective interest rate of 3.30% per annum.

The Series B-C, C-C, and D-C debentures have been guaranteed by each of the General Partner, the Partnership and certain
other subsidiaries of Choice Properties. In the case of default by the Trust, the indenture trustee will be entitled to seek redress
from the guarantors for the guaranteed obligations in the same manner and upon the same terms that it may seek to enforce
the obligations of the Trust. These guarantees are intended to eliminate structural subordination, which would otherwise arise
as a consequence of Choice Properties’ assets being primarily held in various subsidiaries of the Trust. On July 24, 2018, Choice
Properties redeemed, at par, $125,000 Series A-C senior unsecured debentures at the original maturity date.

On March 8, 2018, Choice Properties issued, on a private placement basis: (1) $550,000 aggregate principal amount of Series
K senior unsecured debentures of the Trust bearing interest at a rate of 3.56% per annum maturing on September 9, 2024; and,
(2) $750,000 aggregate principal amount of Series L senior unsecured debentures of the Trust bearing interest at a rate of 4.18%
due March 8, 2028.

On January 12, 2018, Choice Properties issued, on a private placement basis: (1) $300,000 aggregate principal amount of Series
I senior unsecured debentures of the Trust bearing interest at a rate of 3.01% per annum maturing on March 21, 2022; and, (2)
$350,000 aggregate principal amount of Series J senior unsecured debentures of the Trust bearing interest at a rate of 3.55%
due January 10, 2025.

Mortgages Payable

($ thousands)

Mortgage principal

Net debt discounts and premiums - net of accumulated amortization of $4,461 (2018 -

$2,068)

Debt placement costs - net of accumulated amortization of $129 (2018 - $52)

Mortgages payable

As at December 31,
2019

As at December 31,
2018

1,230,569

1,328,280

207

(508)

2,600

(393)

1,230,268

1,330,487

As at December 31, 2019, the mortgages had a weighted average effective interest rate of 4.05% and a weighted average term
to maturity of 5.6 years (December 31, 2018 - 4.08% and 6.0 years, respectively). The mortgages are secured by charges on
56 investment properties (2018 - 59 investment properties) with a carrying value of $2,450,687 (2018 - $2,630,633).

Construction Loans
As at December 31, 2019, $24,842 was outstanding on the construction loans (December 31, 2018 - $21,330), with a weighted
average effective interest rate of 3.77% and a weighted average term to maturity of 0.9 years (December 31, 2018 - 4.30% and
1.1 years, respectively).

For the purpose of financing the development of certain retail, industrial and residential properties, various investments in equity
accounted joint ventures and co-ownerships have variable rate non-revolving construction facilities in which certain subsidiaries
of the Trust guarantee its own share. These construction loans, which mature throughout 2020 to 2022, have a maximum amount
available to be drawn at the Trust’s ownership interest of $225,477, of which $194,902 relates to equity accounted joint ventures
as at December 31, 2019 (December 31, 2018 - $216,921 and $184,346 respectively).

Schedules of Repayments and Cash Flow Activities

The schedule of principal repayment of long-term debt, based on maturity, is as follows:

($ thousands)

2020

2021

2022

2023

2024 Thereafter

Total

Senior unsecured debentures

550,000 $ 550,000 $

600,000 $

575,000 $

750,000 $ 2,150,000

$ 5,175,000

Mortgages payable

Construction loans

Total

154,503

120,088

198,743

106,112

153,904

497,219

1,230,569

12,016

12,826

—

24,842

716,519 $ 682,914 $

798,743 $

681,112 $

903,904 $ 2,647,219

$ 6,430,411

110 Choice Properties REIT 2019 Annual Report

The following table reconciles the changes in cash flows from financing activities for long term debt:

Senior
unsecured
debentures
4,711,134

Mortgages
payable

Construction
loans

Long term debt

$ 1,330,487

21,330

6,062,951

Year ended
December 31, 2019

750,000

12,000

3,512

(300,000)

(109,711)

(3,922)

446,078

(1,326)

2,456

1,130

(192)

(97,903)

(2,393)

(2,316)

—

3,512

—

765,512

(409,711)

(4,114)

351,687

(3,719)

2,533

(1,186)

5,158,342

$ 1,230,268

24,842

6,413,452

($ thousands)

Balance, beginning of year

Issuances

Repayments

Debt placement costs

Total cash flow activities

Amortization of debt discounts and premiums

Amortization of debt placement costs

Total non-cash activities

Balance, end of year

Note 14. Credit Facility and Term Loans

($ thousands)

Credit facility

$1,500,000 syndicated(i)

Debt placement costs - net of accumulated amortization of $5,715 (2018 - $4,285)

Credit facility

Term loans

Unsecured term loan maturing May 4, 2022

Unsecured term loan maturing May 4, 2023

Debt placement costs - net of accumulated amortization of $nil (2018 - $717)

Term loans

Credit facility and term loans

Classified as:

Non-current

Current

As at December 31,
2019

As at December 31,
2018

132,000

(4,767)

127,233

—

325,000

(6,197)

318,803

175,000

625,000

(4,396)

795,604

127,233

1,114,407

127,233

1,114,407

—

127,233

1,114,407

(i)

Choice Properties has an accordion commitment from the lenders which allows the Trust to increase the limit by an additional $500,000 (subject to certain
conditions).

Choice Properties REIT 2019 Annual Report 111

Notes to the Consolidated Financial Statements

The credit facility contains certain financial covenants. As at December 31, 2019, the Trust was in compliance with all its financial
covenants for the credit facility.

Term Loans
At December 31, 2018, Choice Properties had two unsecured term loans outstanding from a syndicate of lenders: a $175,000
term loan maturing on May 4, 2022 and a $625,000 term loan maturing on May 4, 2023. On June 11, 2019, Choice Properties
repaid in full the $175,000 unsecured term loan maturing on May 4, 2022 and repaid $225,000 of the unsecured term loan
maturing on May 4, 2023, using a portion of the net proceeds from the issuance of the Series M senior unsecured debentures
(note 13). On September 30, 2019, Choice Properties repaid the remaining $400,000 balance on the unsecured term loan maturing
on May 4, 2023, using a portion of the net proceeds from the investment properties sold during the year (note 5).

Schedule of Cash Flow Activities
The following table reconciles the changes in cash flows from financing activities for credit facility and term loans:

($ thousands)

Balance, beginning of year

Net repayments of $1,500,000 syndicated credit facility

Repayment of unsecured term loan maturing May 4, 2022

Repayment of unsecured term loan maturing May 4, 2023

Total cash flow activities

Amortization of debt placement costs - non-cash activities

Balance, end of year

Note 15. Unitholders' Equity

Credit facility

Term loans

Year ended
December 31, 2019

Credit facility and
term loans

318,803

795,604

1,114,407

(193,000)

—

(193,000)

1,430

127,233

—

(175,000)

(625,000)

(800,000)

4,396

— $

(193,000)

(175,000)

(625,000)

(993,000)

5,826

127,233

Trust Units (authorized - unlimited)
Each Trust Unit (“Unit”) represents a single vote at any meeting of Unitholders and entitles the Unitholder to receive a pro-rata
share of all distributions. With certain restrictions, a Unitholder has the right to require Choice Properties to redeem its Units on
demand. Upon receipt of a redemption notice by Choice Properties, all rights to and under the Units tendered for redemption
shall be surrendered and the holder thereof shall be entitled to receive a price per unit as determined by a market formula and
shall be paid in accordance with the conditions provided for in the Declaration of Trust.

Exchangeable Units (authorized - unlimited)
Exchangeable Units issued by the Partnership are economically equivalent to Units, receive distributions equal to the distributions
paid on the Units and are exchangeable, at the holder’s option, to Units. As at December 31, 2019 and 2018, all Exchangeable
Units were held by GWL.

The 70,881,226 Exchangeable Units issued on May 4, 2018 in connection with the Acquisition Transaction (note 4) contain voting
and exchange restrictions which will expire based on the following schedule:

Voting and exchange rights restriction period expiration dates

Numbers of Exchangeable Units eligible for voting and transfer

July 5, 2027

July 5, 2028

July 5, 2029

22,988,505

24,904,216

112 Choice Properties REIT 2019 Annual Report

Special Voting Units
Each Exchangeable Unit is accompanied by one Special Voting Unit which provides the holder thereof with a right to vote on
matters respecting the Trust equal to the number of Units that may be obtained upon the exchange of the Exchangeable Units
for which each Special Voting Unit is attached.

Units Outstanding

($ thousands except where otherwise indicated)

Units, beginning of year

Note

As at December 31, 2019

As at December 31, 2018

Units

Amount

Units

Amount

278,202,559

2,978,343

94,300,965

911,081

Units issued through equity financing, net of issuance costs

30,042,250

380,758

182,836,481

2,056,628

Units issued under the Distribution Reinvestment Plan

—

125,749

1,487

Distribution in Units

Consolidation of Units

Units issued under unit-based compensation arrangements

Units repurchased for unit-based compensation arrangement

Units, end of year

Exchangeable Units, beginning of year

Units issued

Adjustment to fair value of Exchangeable Units

1,569,400

(1,569,400)

2,203,950

(155,890)

310,292,869

389,961,783

—

21,721

—

31,136

(2,122)

—

1,516,670

(577,306)

3,409,836

278,202,559

4,492,359

319,080,557

—

70,881,226

932,009

—

16,261

(7,114)

2,978,343

4,259,724

826,341

(593,706)

Exchangeable Units, end of year

389,961,783

5,424,368

389,961,783

4,492,359

Total Units and Exchangeable Units, end of year

700,254,652

668,164,342

Units Issued through Equity Financing
On May 9, 2019, the Trust completed a bought deal equity offering of 30,042,250 Units at a price of $13.15 per Unit, for aggregate
gross proceeds of approximately $395,056, and net proceeds of approximately $380,758. As part of this bought deal, GWL
acquired 3,805,000 Units. In connection with the Acquisition Transaction in May 2018, Choice Properties issued 182,836,481
Units at a price of $11.25 per unit, for aggregate gross and net proceeds of totalling approximately $2,056,628.

Distribution in Units and Consolidation of Units
As a result of the increase in taxable income generated primarily from the sale transactions in the year ended December 31,
2019, the Board declared a special non-cash distribution on December 31, 2019 of 1,569,400 Units at $0.07 per Unit totalling
$21,721. Immediately following the issuance of Units, the Units were consolidated such that each unitholder held the same
number of Units after the consolidation as each unitholder held prior to the special non-cash distribution. As at December 31,
2019, the special distribution declared was recorded to Trust Units in accordance with IAS 32, “Financial Instruments:
Presentation”.

Units Issued under Unit-Based Compensation Arrangements
Units were issued in connection with settlements under the Unit Option Plan and the Unit-Settled Restricted Unit Plan (note 18).

Units Repurchased for Unit-Based Compensation Arrangement
Choice Properties may from time to time purchase Units in accordance with the rules prescribed under applicable stock exchange
or regulatory policies. On September 18, 2018, Choice Properties received approval from the TSX to purchase up to 13,880,839
Units during the twelve-month period from September 20, 2018 to September 19, 2019, under a Normal Course Issuer Bid
(“NCIB”).

Distributions
Choice Properties’ Board retains full discretion with respect to the timing and quantum of distributions, however the total income
distributed will not be less than the amount necessary to ensure the Trust will not be liable to pay income taxes under Part I of
the Income Tax Act (Canada) for the year ended December 31, 2019 (note 16). The taxable income allocated to the Trust and
Exchangeable Unitholders may vary in certain taxation years. Over time, such differences, in aggregate, will be minimal.

Choice Properties REIT 2019 Annual Report 113

Notes to the Consolidated Financial Statements

In the year ended December 31, 2019, Choice Properties declared cash distributions of $0.740 per unit (December 31, 2018 -
$0.740), or $532,054 in aggregate, including distributions to holders of Exchangeable Units, which are reported as interest
expense (December 31, 2018 - $431,392). Distributions declared to Unitholders of record at the close of business on the last
business day of a month are paid on or about the 15th day of the following month.

The holders of Exchangeable Units may elect to defer receipt of all, or a portion of distributions declared by the Partnership until
the first date following the end of the fiscal year. If the holder elects to defer, the Partnership will loan the holder the amount
equal to the deferred distribution without interest, and the loan will be due and payable in full on the first business day following
the end of the fiscal year the loan was advanced.

Note 16. Income Taxes

The Trust is taxed as a “mutual fund trust” and a REIT under the Income Tax Act (Canada). The Trustees intend to distribute all
of the Trust’s taxable income to the Unitholders and accordingly, the Trust is not taxable on its Canadian investment property
income. The Trust is subject to taxation on certain taxable entities in Canada and the United States.

Income taxes recognized in the consolidated statements of income (loss) and comprehensive income (loss) was as follows:

($ thousands)

Current income taxes

Deferred income taxes

Income tax recovery (expense)

Year Ended

December 31, 2019

December 31, 2018

(181) $

979

798

(49)

(489)

(538)

A deferred income tax asset of $410 (note 12) was recognized due to temporary differences between the carrying value and the
tax basis of net assets held in the Trust’s taxable subsidiaries (December 31, 2018 - liability of $509 (note 17)).

114 Choice Properties REIT 2019 Annual Report

Note 17. Trade Payables and Other Liabilities

($ thousands)

Trade accounts payable

Accrued liabilities and provisions

Accrued acquisition transaction costs and other related expenses

Accrued capital expenditures(i)

Accrued interest expense

Due to related party(ii)

Unit-based compensation

Distributions payable(iii)

Right-of-use lease liabilities

Tenant deposits

Deferred revenue

Designated hedging derivatives

Deferred tax liability

Trade payables and other liabilities

Classified as:

Non-current

Current

Note

As at December
31, 2019

As at December 31,
2018

9,430

83,010

38,999

60,807

61,352

179,111

11,408

19,326

7,138

16,882

22,850

2,811

—

15,740

77,561

38,176

73,504

60,442

50,274

11,125

17,156

—

13,868

19,536

1,621

509

513,124

379,512

12,267

500,857

513,124

6,530

372,982

379,512

(i)
(ii)

(iii)

Includes payable to Loblaw of $5,278 for construction allowances (2018 - nil).
Includes distributions accrued on Exchangeable Units of $168,334 payable to GWL (December 31, 2018 - $50,274) and $3,676 payable for Services Agreement
expense and other related party charges (note 31).
Includes payable to GWL of $3,124 (December 31, 2018 - $2,889).

Note 18. Unit-Based Compensation

Choice Properties’ unit-based compensation expense was:

($ thousands)

Unit Option plan

Restricted Unit plans

Performance Unit plan

Trustee Deferred Unit plan

Unit-based compensation expense

Recorded in:

General and administrative expenses

Adjustment to fair value of unit-based compensation

Year Ended

December 31, 2019

December 31, 2018

5,187

4,161

593

1,897

11,838

4,729

7,109

11,838

(3,578)

5,511

183

340

2,456

7,248

(4,792)

2,456

As at December 31, 2019, the carrying value of the unit-based compensation liability was $11,408 (December 31, 2018 - $11,125)
(note 17).

Choice Properties REIT 2019 Annual Report 115

Notes to the Consolidated Financial Statements

Unit Option Plan
Choice Properties maintains a Unit Option plan for certain employees. Under this plan, Choice Properties may grant Unit Options
totalling up to 19,744,697 Units, as approved at the annual and special meeting of Unitholders on April 29, 2015. The Unit
Options vest in tranches over a period of four years. The following is a summary of Choice Properties’ Unit Option plan activity:

Year ended December 31, 2019

Year ended December 31, 2018

Number
of awards

Weighted average
exercise price/unit

Outstanding Unit Options, beginning of year

3,764,107

Granted

Exercised

Cancelled

Expired

Outstanding Unit Options, end of year

Unit Options exercisable, end of year

— $

(2,048,060)

(417,439)

(11,294)

1,287,314

561,779

11.66

—

11.04

11.96

14.21

12.51

12.27

Number
of awards

4,403,857

724,571

(899,566)

(464,755)

— $

3,764,107

2,287,879

Weighted average
exercise price/unit

11.56

11.92

11.01

12.41

—

11.66

11.24

The assumptions used to measure the fair value of the Unit Options under the Black-Scholes model (level 2) were as follows:

Expected average distribution yield

Expected average Unit price volatility

Average risk-free interest rate

Expected average life of options

As at December 31, 2019

As at December 31, 2018

5.38%

6.42%

13.87% - 18.27%

14.39% - 25.19%

0.02% - 1.74%

0.1 - 3.6 Years

0.02% - 1.88%

0.1 - 4.6 Years

The following table details the Unit Options outstanding as at December 31, 2019:

Exercise Price

$11.51

$12.39

$14.19

$11.92

$11.51 to $14.19

Number of Unit Options
outstanding as at
December 31, 2019

Remaining weighted
average life (in years)

Expiry Date

2022

2023

2024

2025

174,589

371,575

291,097

450,053

1,287,314

2.2

3.2

4.2

5.1

3.4

Restricted Unit Plans
Choice Properties has a Restricted Unit Plan and a Unit-Settled Restricted Unit Plan as described below.

Restricted Unit Plan
Restricted Units (“RU”) entitle certain employees to receive the value of the RU award in cash or Units at the end of the applicable
vesting period, which is usually three years in length. The RU plan provides for the crediting of additional RUs in respect of
distributions paid on Units for the period when a RU is outstanding. The fair value of each RU granted is measured based on
the market value of a Trust Unit at the balance sheet date. There were no RUs vested as at December 31, 2019 (December 31,
2018 - nil).

The following is a summary of Choice Properties’ RU plan activity:

(Number of awards)

Outstanding Restricted Units, beginning of year

Granted

Reinvested

Exercised

Cancelled

Outstanding Restricted Units, end of year

116 Choice Properties REIT 2019 Annual Report

Year ended December 31, 2019

Year ended December 31, 2018

446,341

239,483

26,547

(106,355)

(121,472)

484,544

359,154

215,002

28,029

(118,670)

(37,174)

446,341

Unit-Settled Restricted Unit Plan
Under the terms of the Unit-Settled Restricted Unit (“URU”) plan, certain employees are granted URUs which are subject to
vesting conditions and disposition restrictions. Typically, full vesting of the URUs will not occur until the employee has remained
with Choice for three or five years from the date of grant. Depending on the nature of the grant, the URUs are subject to a six-
or seven-year holding period during which the Units cannot be disposed. There were 1,147,753 URUs vested, but still subject
to disposition restrictions as at December 31, 2019 (December 31, 2018 - 1,110,761).

The following is a summary of Choice Properties’ URU plan activity for units not yet vested:

(Number of awards)

Year ended December 31, 2019

Year ended December 31, 2018

Outstanding Unit-Settled Restricted Units, beginning of year

Assumed in conjunction with the Acquisition Transaction

Granted

Forfeited

Vested

Outstanding Unit-Settled Restricted Units, end of year

717,815

—

155,946

(40,796)

(208,546)

624,419

—

626,128

577,306

(28,946)

(456,673)

717,815

Performance Unit Plan
Performance Units (“PU”) entitle certain employees to receive the value of the PU award in cash or Units at the end of the
applicable performance period, which is usually three years in length, based on the Trust achieving certain performance
conditions. The PU plan provides for the crediting of additional PUs in respect of distributions paid on Units for the period when
a PU is outstanding. The fair value of each PU granted is measured based on the market value of a Trust Unit at the balance
sheet date. There were no PUs vested as at December 31, 2019 (December 31, 2018 - nil).
The following is a summary of Choice Properties’ PU plan activity:

(Number of awards)

Outstanding Performance Units, beginning of year

Granted

Reinvested

Exercised

Cancelled

Added by performance factor

Outstanding Performance Units, end of year

Year ended December 31, 2019

Year ended December 31, 2018

104,449

50,686

5,867

(58,282)

(21,471)

22,619

103,868

79,612

44,374

6,727

(18,906)

(16,194)

8,836

104,449

Trustee Deferred Unit Plan
Non-management members of the Board are required to receive a portion of their annual retainer in the form of Deferred Units
(“DU”) and may also elect to receive up to 100% of their remaining fees in DUs. Distributions paid earn fractional DUs, which
are treated as additional awards. The fair value of each DU granted is measured based on the market value of a Unit at the
balance sheet date. All DUs vest when granted, however, they cannot be exercised while Trustees are members of the Board.

The following is a summary of Choice Properties’ DU plan activity:

(Number of awards)

Year ended December 31, 2019

Year ended December 31, 2018

Outstanding Trustee Deferred Units, beginning of year

Granted

Reinvested

Cancelled

Exercised

Outstanding Trustee Deferred Units, end of year

302,589

68,123

17,046

(185)

(110,434)

277,139

283,704

56,705

17,631

(1,108)

(54,343)

302,589

Choice Properties REIT 2019 Annual Report 117

Notes to the Consolidated Financial Statements

Note 19. Rental Revenue

Rental revenue is comprised of the following:

($ thousands)

Base rent

Property tax and insurance

recoveries

Operating cost recoveries

Lease surrender and other

revenue

Reimbursed contract revenue

Related
Parties(i) Third-party

Year ended
December 31, 2019

Related
Parties(i)

Third-party

Year ended
December 31, 2018

546,662

343,703

890,365

$ 545,273

253,667

798,940

154,264

55,170

3,912

(7,100)

96,549

85,209

10,185

—

250,813

140,379

151,803

47,070

67,623

61,680

14,097

(7,100)

10,218

10,939

—

219,426

108,750

21,157

—

Rental Revenue

752,908

535,646

1,288,554

$ 754,364

393,909

1,148,273

(i)

Refer to Note 31, Related Party Transactions.

Choice Properties enters into long-term lease contracts with tenants for space in its properties. Initial lease terms are generally
between three and ten years for commercial units and longer terms for food store anchors. Leases generally provide for the
tenant to pay Choice Properties base rent, with provisions for contractual increases in base rent over the term of the lease, plus
operating cost, property tax and insurance recoveries. Many of the leases with Loblaw are for stand-alone retail sites. Loblaw
is directly responsible for the operating costs on such sites.

Future base rent revenue, excluding adjustments for straight-line rent, for the years ended December 31 is as follows:

($ thousands)

2020

2021

2022

2023

2024

Thereafter

Total

Note 20. Property Operating Costs

($ thousands)

Property taxes and insurance

Recoverable operating costs

Non-recoverable operating costs

Property operating costs

Note 21.

Interest Income

886,665

861,298

826,148

764,028

674,792

2,911,054

6,923,985

Year Ended

December 31, 2019

December 31, 2018

263,687

100,811

3,634

368,132

229,862

80,958

3,616

314,436

Year Ended

($ thousands)

Note

December 31, 2019

December 31, 2018

Interest income on mortgages and loans receivable

Expected credit losses on mortgages and loans receivable

Other interest income

Other income

Interest income

13,999

(3,000)

552

—

11,551

10,691

—

3,461

14,224

118 Choice Properties REIT 2019 Annual Report

Note 22. Fee Income

($ thousands)

Fees charged to related party

Fees charged to third-parties

Fee income

Note 23. Net Interest Expense and Other Financing Charges

($ thousands)

Interest on senior unsecured debentures

Distributions on Class C LP Units(i)

Interest on mortgages and construction loans

Interest on credit facility and term loans

Interest on right-of-use lease liabilities

Effective interest rate amortization of debt discounts and premiums

Accelerated amortization of debt premium on conversion of Class C LP Units

Effective interest rate amortization of debt placement costs

Distributions on Exchangeable Units(i)

Less: Capitalized interest(ii)

Year Ended

Note

December 31, 2019

December 31, 2018

922

3,634

4,556

899

2,624

3,523

Year Ended

Note

December 31, 2019

December 31, 2018

182,522

164,010

13, 14

—

51,907

28,352

281

(3,720)

—

8,352

288,573

556,267

(4,424)

15,417

35,293

29,780

—

(2,387)

37,282

5,542

271,089

556,026

(4,880)

551,146

Net interest expense and other financing charges

551,843

(i)
(ii)

Represents interest on indebtedness due to related parties.
Interest was capitalized to qualifying development projects based on a weighted average interest rate of 3.70% (2018 - 3.63%).

Note 24. General and Administrative Expenses

($ thousands)

Salaries, benefits and employee costs

Investor relations and other public entity costs

Professional fees

Services Agreement expense charged by related party

Amortization of other assets

Other

Total general and administrative expenses

Less:

Capitalized to investment properties

Allocated to recoverable operating expenses

General and administrative expenses

Year Ended

Note

December 31, 2019

December 31, 2018

42,772

40,960

2,276

4,512

3,095

1,311

8,256

62,222

(3,055)

(19,875)

39,292

1,643

1,920

2,335

495

7,226

54,579

(3,261)

(16,343)

34,975

Choice Properties REIT 2019 Annual Report 119

Notes to the Consolidated Financial Statements

Note 25. Financial Risk Management

As a result of holding and issuing financial instruments, Choice Properties is exposed to credit risk, market risk and liquidity and
capital availability risk. The following is a description of those risks and how the exposures are managed:

a. Credit Risk

Choice Properties is exposed to credit risk resulting from the possibility that counterparties could default on their financial
obligations to Choice Properties. Exposure to credit risk relates to rent receivables, cash and cash equivalents, short-term
investments, security deposits, derivatives and mortgages, loans and notes receivable.

Choice Properties mitigates the risk of credit loss related to rent receivables by evaluating the creditworthiness of new tenants,
obtaining security deposits wherever permitted by legislation, ensuring its tenant mix is diversified and by limiting its exposure
to any one tenant (except Loblaw). Choice Properties establishes an allowance for doubtful accounts that represents the
estimated losses with respect to rent receivables. The allowance is determined on a tenant-by-tenant basis based on the
specific factors related to the tenant.

The risk related to cash and cash equivalents, short-term investments, security deposits, derivatives and mortgages, loans
and notes receivable is reduced by policies and guidelines that require Choice Properties to enter into transactions only with
Canadian financial and government institutions that have a minimum short-term rating of “A-2” and a long-term credit rating
of “A-” from S&P or an equivalent credit rating from another recognized credit rating agency and by placing minimum and
maximum limits for exposures to specific counterparties and instruments.

b. Market Risk

Interest Rate Risk
Choice Properties requires extensive financial resources to complete the implementation of its strategy. Successful
implementation of Choice Properties’ strategy will require cost effective access to additional funding. There is a risk that
interest rates may increase which could impact long-term borrowing costs and negatively impact financial performance.

The majority of Choice Properties’ debt is financed at fixed rates with maturities staggered over 26 years, thereby mitigating
the exposure to near term changes in interest rates. To the extent that Choice Properties incurs variable rate indebtedness
(such as borrowings under the revolving credit facility), this will result in fluctuations in Choice Properties’ cost of borrowing
as interest rates change. If interest rates rise, Choice Properties’ operating results and financial condition could be materially
adversely affected and the amount of cash available for distribution to Unitholders would be decreased.

Choice Properties’ revolving credit facility and the debentures also contain covenants that require it to maintain certain
financial ratios on a consolidated basis. If Choice Properties does not maintain such ratios, its ability to make distributions
to Unitholders may be limited or suspended.

Choice Properties analyzes its interest rate risk and the impact of rising and falling interest rates on operating results and
financial condition on a regular basis. An increase of 1.0% per annum in the variable component of the interest rate for the
credit facility would result in an increase to liabilities and a decrease in net income of $15,000 (2018 - $15,000) (assuming
fully drawn credit facility).

Unit Price Risk
Choice Properties is exposed to Unit price risk as a result of the issuance of the Class B LP Units, which are economically
equivalent to and exchangeable for Units, as well as the issuance of unit-based compensation. The Class B LP Units and
unit-based compensation liabilities are recorded at their fair value based on market trading prices. The Class B LP Units and
unit-based compensation negatively impact operating income when the Unit price rises and positively impact operating
income when the Unit price declines.

An increase of $1.00 in the underlying price of Choice Properties’ Units would result in an increase to liabilities and decrease
in net income to Class B LP Units of $389,962 (2018 - $389,962) and Unit-based compensation liabilities of $1,560 (2018 -
$2,694).

c. Liquidity and Capital Availability Risk

Liquidity risk is the risk that Choice Properties cannot meet a demand for cash or fund its obligations as they come due.
Although a portion of the cash flows generated by Choice Properties is devoted to servicing such outstanding debt, there
can be no assurance that Choice Properties will continue to generate sufficient cash flows from operations to meet interest
payments and principal repayment obligations upon an applicable maturity date. If Choice Properties is unable to meet

120 Choice Properties REIT 2019 Annual Report

interest payments or principal repayment obligations, it could be required to renegotiate such payments or issue additional
equity or debt or obtain other financing. The failure of Choice Properties to make or renegotiate interest or principal payments
or issue additional equity or debt or obtain other financing could materially adversely affect Choice Properties’ financial
condition and results of operations and decrease or eliminate the amount of cash available for distribution to Unitholders.

The real estate industry is highly capital intensive. Choice Properties requires access to capital to fund operating expenses,
to maintain its properties, to fund its strategy and certain other capital expenditures from time to time, and to refinance
indebtedness. Although Choice Properties expects to have access to the revolving credit facility, there can be no assurance
that it will otherwise have access to sufficient capital or access to capital on favourable terms. Further, in certain circumstances,
Choice Properties may not be able to borrow funds due to limitations set forth in the Declaration of Trust, the Indenture, as
supplemented by the Supplemental Indenture, and the Fifth Supplemental Assumed Indenture. Failure by Choice Properties
to access required capital could have a material adverse effect on its financial condition or results of operations and its ability
to make distributions to Unitholders.

Liquidity and capital availability risks are mitigated by maintaining appropriate levels of liquidity, by diversifying the Trust’s
sources of funding, by maintaining a well-diversified debt maturity profile and actively monitoring market conditions.

The undiscounted future principal and interest payments on Choice Properties’ debt instruments are as follows:

($ thousands)

2020

2021

2022

2023

2024

Thereafter

Total

Senior unsecured debentures $

731,805 $

716,807 $

748,558 $

702,403 $

857,465 $

2,506,455

6,263,493

Mortgages payable

Construction loans(i)

Credit facility(i)

Total

201,090

160,720

231,795

135,035

177,295

582,985

1,488,920

12,016

12,826

—

132,000

—

24,842

132,000

944,911 $

890,353 $

980,353 $

969,438 $

1,034,760 $

3,089,440

7,909,255

(i) Excludes interest on the revolving credit facility and construction loans at a floating interest rate.

Note 26. Financial Instruments

The following table presents the fair value hierarchy of financial assets and liabilities, excluding those classified as amortized
cost that are short term in nature.

($ thousands)

Assets

Fair value through profit and loss:

Mortgages, loans and notes

receivable

Financial real estate asset

Designated hedging

derivatives

Amortized cost:

Mortgages, loans and notes

receivable - SPPI

Cash and cash equivalents

Liabilities

Fair value through profit and loss:

Exchangeable Units

Unit-based compensation

Designated hedging

derivatives

Amortized cost:

Long term debt

Credit facility and term loans

Note

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

As at December 31, 2019

As at December 31, 2018

— $

85,809

— $

75,692

—

41,990

—

182

—

22,800

—

182

246,300

—

41,990

30,713

—

1,036

—

1,036

—

137,718

—

30,713

5,424,368

—

11,408

2,811

— 6,627,647

—

127,233

—

5,424,368

4,492,359

11,408

2,811

—

11,125

1,621

6,627,647

127,233

— 6,096,363

— 1,114,407

—

4,492,359

11,125

1,621

6,096,363

1,114,407

The carrying value of the Trust’s assets and liabilities approximated fair value except for long term debt. The fair value of Choice
Properties’ senior unsecured debentures was calculated using market trading prices for similar instruments, whereas the fair
values for the mortgages was calculated by discounting future cash flows using appropriate discount rates. There were no
transfers between levels of the fair value hierarchy during the periods.

Choice Properties REIT 2019 Annual Report 121

Notes to the Consolidated Financial Statements

Designated Hedging Derivatives
Designated hedging derivatives consist of interest rate swaps to hedge the interest rate associated with an equivalent amount
of variable rate mortgages. The Trust did not enter into any new designated hedging derivatives during the year ended
December 31, 2019.

The impact of the hedging instruments on the consolidated balance sheets is as follows:

($ thousands)

As at December 31, 2019

Interest rate swaps

As at December 31, 2018

Interest rate swaps

Note 27. Capital Management

Notional
Amount

Net Asset
(Liability)

Line Item in
Balance Sheet

Fair Value Gain (Loss)
Recorded in OCI

276,700

(2,629) Other assets or Other liabilities

(2,044)

321,700

585 Other assets or Other liabilities

597

In order to maintain or adjust its capital structure, Choice Properties may issue new Units and debt, repay debt, or adjust the
amount of distributions paid to Unitholders. Choice Properties manages its capital structure with the objective of:

•

complying with the guidelines set out in its Declaration of Trust;

complying with debt covenants;

• maintaining credit rating metrics consistent with those of investment grade REITs;

•

ensuring sufficient liquidity is available to support its financial obligations and to execute its operating and strategic plans;

• maintaining financial capacity and flexibility through access to capital to support future growth and development; and

• minimizing its cost of capital while taking into consideration current and future industry, market and economic risks and

conditions.

On January 9, 2018, Choice Properties filed a Short Form Base Shelf Prospectus allowing for the issuance of up to $2,000,000
of Units and debt securities, or any combination thereof over a 25-month period.

Financing activity during the year ended December 31, 2019 and 2018, consisted of the repayment and issuance of various
senior unsecured debentures (note 13), the repayment of the Trust’s term loans (note 14) and completion of a bought deal equity
offering (note 15).

Choice Properties has certain key covenants in its debentures and its committed credit facility. The key financial covenants
include debt service ratios and leverage ratios, as defined in the respective agreements. These ratios are measured by the Trust
on an ongoing basis to ensure compliance with the agreements. Choice Properties was in compliance with each of the key
financial covenants under these agreements as at December 31, 2019 and December 31, 2018.

The following schedule details the capitalization of Choice Properties:

($ thousands)

Liabilities

Senior unsecured debentures

Mortgages payable

Construction loans

Credit facility

Term loans

Exchangeable units

Equity

Unitholders’ equity

Non-controlling interests

Total

122 Choice Properties REIT 2019 Annual Report

Note

As at December 31, 2019

As at December 31, 2018

5,175,000

1,230,569

24,842

132,000

—

5,424,368

3,090,217

7,801

15,084,797

4,725,000

1,328,280

21,330

325,000

800,000

4,492,359

3,492,185

7,801

15,191,955

Note 28. Supplementary Information

Change in Non-Cash Working Capital

($ thousands)

Note

December 31, 2019

December 31, 2018

Net change in accounts receivable and other assets

(55,105)

(12,941)

Year Ended

Add back (deduct):

Additions to right of use assets

Allowance for expected credit losses

Change to designated hedging derivative assets

Other assets from the Acquisition Transaction

Acquisition of financial real estate asset

Net assets from acquired properties

Net change in trade payables and other liabilities

Add back (deduct):

Additions to lease liabilities

Net change in distributions payable

Net change in unit-based compensation liability

Net change to accrued interest expense

Change to designated hedging derivative liabilities

Other liabilities assumed from the Acquisition Transaction

Liabilities from acquired properties

Impact of currency translation(i)

Change in non-cash working capital

7,955

3,000

(854)

—

23,462

—

133,612

(7,955)

(2,170)

(283)

(118,970)

(1,190)

—

(2,596)

(21,094)

(i)

For the year ended December 31, 2019, the impact of currency translation on cash held in foreign currency was $511 (2018 - $225).

—

1,036

47,505

—

149

(49,264)

—

(11,341)

2,888

234,679

(1,621)

(166,351)

(750)

(3,912)

40,077

Choice Properties REIT 2019 Annual Report 123

Notes to the Consolidated Financial Statements

Note 29. Segment Information

Choice Properties operates in three reportable segments: retail, industrial and office. The segments are reported in a manner
consistent with the internal reporting provided to the chief operating decision maker, determined to be the CEO of the Trust.
The CEO measures and evaluates the performance of the Trust based on net operating income, cash basis.

Net operating income, cash basis, is defined as property rental revenue less straight line rental revenue, direct property operating
expenses and realty taxes and excludes certain expenses such as interest expense and indirect operating expenses in order to
provide results that reflect a property’s operations before consideration of how it is financed or the costs of operating the entity
in which it is held. The amounts are presented by property type below and included in these consolidated financial statements
at the proportionate share. The remaining net income (loss) items and the balance sheet are reviewed on a consolidated basis
by the CEO and therefore are not included in the segmented disclosure below.

Prior to the second quarter of 2018, Choice Properties operated one reportable segment, retail, with all operations carried out
in Canada. Following the Acquisition Transaction, the Trust operates in three reportable segments: retail, industrial and office.

The chart below presents net income (loss) for the year ended December 31, 2019, in a manner consistent with internal reporting
and the accounting policies of the segments presented here are the same as the Trust's accounting policies as described in
note 2.

($ thousands)

Rental revenue

Retail

Industrial

Office

Consolidation
and
eliminations(i)

Year ended
December 31, 2019

$ 1,061,600

184,304

108,479

(65,829)

1,288,554

Property operating costs

(301,238)

(48,012)

(41,050)

Net Operating Income, Accounting Basis

760,362

136,292

67,429

Less:

Straight-line rent

Reimbursed contract revenue

Lease surrender revenue

(19,189)

(4,867)

(2,129)

6,706

(3,415)

318

(73)

(190)

22,168

(43,661)

1,039

—

Net Operating Income, Cash Basis

744,464

131,670

65,186

(42,622)

Add back: cash basis reconciling items

Net operating income, accounting basis

Interest income

Fee income

Net interest expense and other financing charges

General and administrative expenses

Share of income from equity accounted joint ventures

Acquisition transaction costs and other related expenses

Adjustment to fair value of unit-based compensation

Adjustment to fair value of Exchangeable Units

Adjustment to fair value of investment properties

Loss before Income Taxes

Income taxes

Net Loss

(368,132)

920,422

(25,146)

7,100

(3,678)

898,698

21,724

920,422

11,551

4,556

(551,843)

(39,292)

24,366

(8,363)

(7,109)

(932,009)

(4,434)

(582,155)

798

(581,357)

(i)

Reconciling items adjust Choice Properties’ proportionate share of joint ventures to reflect the equity method of accounting under IFRS.

124 Choice Properties REIT 2019 Annual Report

The chart below presents net income (loss) for the year ended December 31, 2018, in a manner consistent with internal reporting
and the accounting policies of the segments presented here are the same as the Trust's accounting policies as described in
note 2.

($ thousands)

Rental revenue

Retail

Industrial

Office

Consolidation and
eliminations(i)

Year ended December
31, 2018

954,417

143,804

89,315

(39,263)

1,148,273

Property operating costs

(254,818)

(37,669)

(34,926)

Net Operating Income, Accounting Basis

699,599

106,135

54,389

Less:

Straight-line rent

Lease surrender revenue

(27,994)

(10,325)

(5,416)

(6)

(1,655)

(555)

12,977

(26,286)

989

—

Net Operating Income, Cash Basis

661,280

100,713

52,179

(25,297)

Add back: cash basis reconciling items

Net Operating Income, Accounting Basis

Interest income

Fee income

Net interest expense and other financing charges

General and administrative expenses

Share of income from equity accounted joint ventures

Acquisition transaction costs and other related expenses

Adjustment to fair value of unit-based compensation

Adjustment to fair value of Exchangeable Units

Adjustment to fair value of investment properties

Loss before Income Taxes

Income taxes

Net Income

(314,436)

833,837

(34,076)

(10,886)

788,875

44,962

833,837

14,224

3,523

(551,146)

(34,975)

16,222

(141,493)

4,792

593,706

(88,575)

650,115

(538)

649,577

(i)

Reconciling items adjust Choice Properties’ proportionate share of joint ventures to reflect the equity method of accounting under IFRS.

Choice Properties REIT 2019 Annual Report 125

Notes to the Consolidated Financial Statements

Note 30. Contingent Liabilities and Financial Guarantees

Choice Properties is involved in and potentially subject to various claims by third-parties arising from the normal course of
conduct of its business including regulatory, property and environmental claims. In addition, Choice Properties is potentially
subject to regular audits from federal and provincial tax authorities, and as a result of these audits may receive assessments
and reassessments. Although such matters cannot be predicted with certainty, management currently considers Choice
Properties’ exposure to such claims and litigation, to the extent not covered by Choice Properties’ insurance policies or otherwise
provided for, not to be material to the consolidated financial statements, but they may have a material impact in future periods.

a. Legal Proceedings

Choice Properties is potentially the subject of various legal proceedings and claims that arise in the ordinary course of
business. The outcome of all these proceedings and claims is uncertain. Based on information currently available, any
proceedings and claims, individually and in the aggregate, are not expected to have a material impact on Choice Properties.

b. Guarantees

Choice Properties issues letters of credit to support guarantees related to its investment properties including maintenance
and development obligations to municipal authorities. As at December 31, 2019, the aggregate gross potential liability
related to these letters of credit totaled $36,110 including $1,790 posted by Loblaw with the Province of Ontario and City
of Toronto on behalf of Choice Properties related to deferral of land transfer tax on properties acquired from Loblaw
subsequent to the IPO (note 31) (December 31, 2018 - $38,540 including $3,248 posted by Loblaw).

Choice Properties’ credit facility and senior unsecured debentures are guaranteed by each of the General Partner, the
Partnership and any other person that becomes a subsidiary of Choice Properties (with certain exceptions). In the case of
default by the Trust, the indenture trustee will be entitled to seek redress from the guarantors for the guaranteed obligations
in the same manner and upon the same terms that it may seek to enforce the obligations of the Trust. These guarantees
are intended to eliminate structural subordination, which would otherwise arise as a consequence of Choice Properties’
assets being primarily held in various subsidiaries of the Trust.

CPH Master LP guarantees certain debt assumed by purchasers in connection with past dispositions of properties made
by CREIT before the Acquisition Transaction. These guarantees will remain until the debt is modified, refinanced or
extinguished. Credit risks arise in the event that the purchasers default on repayment of their debt. These credit risks are
mitigated by the recourse which the Trust has under these guarantees, in which case the Trust would have a claim against
the underlying property. The estimated amount of debt at December 31, 2019 subject to such guarantees, and therefore
the maximum exposure to credit risk, was $36,690 with an estimated weighted average remaining term of 3.5 years
(December 31, 2018 - $37,700 and 4.5 years, respectively).

c. Commitments

Choice Properties has entered into contracts for development and sustainable capital projects and has other contractual
obligations such as operating rents. The Trust is committed to future payments of approximately $553,844, of which $184,633
relates to equity accounted joint ventures as at December 31, 2019 (December 31, 2018 - $315,209 and $149,344
respectively).

The Trust held debt obligations in the amount of $193,172 in its equity accounted joint ventures as at December 31, 2019
(December 31, 2018 - $144,702). Generally, the Trust is only liable for its proportionate share of the obligations of the co-
ownerships and equity accounted joint ventures in which it participates, except in limited circumstances. Credit risk arises
in the event that the partners default on the payment of their proportionate share of such obligations. This credit risk is
mitigated as the Trust generally has recourse under its co-ownership agreements and joint venture arrangements in the
event of default of its partners, in which case the Trust’s claim would be against both the underlying real estate investments
and the partners that are in default. Management believes that the assets of its co-ownerships and joint ventures are sufficient
for the purpose of satisfying any obligation of the Trust should the Trust’s partner default.

126 Choice Properties REIT 2019 Annual Report

Note 31. Related Party Transactions

Choice Properties’ parent corporation is GWL, which held a 62.9% direct effective interest in the Trust through ownership of
50,661,415 Units and 100% of the Exchangeable Units as at December 31, 2019. GWL is also the parent company of Loblaw,
with ownership of 52.2% of Loblaw’s outstanding common shares as at December 31, 2019.

Transactions with GWL

Acquisitions
On December 13, 2019, Choice Properties acquired an industrial property from GWL for a purchase price of $13,250, excluding
transaction costs. The acquisition was settled with cash (note 5).

On December 7, 2018, Choice Properties acquired an industrial property from GWL for a purchase price of $20,280, excluding
transaction costs. The acquisition was settled with cash (note 5).

Services Agreement
During 2019, GWL provided Choice Properties with administrative and other support services for $3,095 (2018 - nil).

Operating Lease
Effective May 1, 2019, GWL entered into a sub-lease arrangement with Choice Properties for office space, which expired on
December 31, 2019. In the year ended December 31, 2019, Choice Properties earned sub-lease income of $756 from GWL.

Effective January 1, 2018, Choice Properties entered into a sub-lease for additional office space with Weston Foods, a subsidiary
of GWL, with a term effective until the end of the existing lease in 2024. Over the term of the sub-lease, lease payments will total
$1,282.

Distributions on Exchangeable Units and Notes Receivable
Subsequent to the reorganization on November 1, 2018, GWL holds all of the Exchangeable Units issued by the Partnership.
During the year December 31, 2019, distributions declared on the Exchangeable Units totalling $168,334 were payable to GWL
(December 31, 2018 - $50,274).

Transaction Summary as Reflected in the Consolidated Financial Statements
Transactions with GWL recorded in the consolidated statements of income (loss) and comprehensive income (loss) were
comprised as follows:

($ thousands)

Rental revenue

Services Agreement expense

Interest expense and other financing charges

Office rent expense

Year Ended

Note

December 31, 2019

December 31, 2018

3,547

(3,095)

(288,573)

(183)

2,296

—

(48,095)

(183)

Choice Properties REIT 2019 Annual Report 127

Notes to the Consolidated Financial Statements

The balances due from (to) GWL and subsidiaries were as follows:

($ thousands)

Notes receivable

Other receivables

Exchangeable Units

Accrued liabilities

Distributions payable on Exchangeable Units

Distributions payable

Due to GWL and subsidiaries

Transactions and Agreements with Loblaw

Note

As at December 31,
2019

As at December 31,
2018

144,287

756

26,226

—

(5,424,368)

(4,492,359)

(3,676)

(168,334)

(3,124)

—

(50,274)

(2,889)

(5,454,459) $

(4,519,296)

Acquisitions
Included in the investment properties acquired as part of the Acquisition Transaction were 17 properties containing a Loblaw
food or drug store, with annual rental revenue of approximately $12,841 (note 4).

In the year ended December 31, 2019, Choice Properties acquired two investment properties and one financial real estate asset
from Loblaw with an aggregate purchase price of $59,118, excluding transaction costs. The acquisitions were settled with cash
(note 5).

Dispositions
On September 30, 2019, Choice Properties completed the disposition of a portfolio of 30 income producing properties which
had Loblaw leases for an aggregate sale price of $426,318, excluding transaction costs (note 5). Immediately prior to the closing
date, Loblaw and Choice Properties agreed to amend certain applicable leases such that each lease had a remaining term of
at least 12 years and Choice Properties’ right to collect future capital recoveries by the purchaser would be waived.

In the year ended December 31, 2019, Choice Properties completed two dispositions of retail properties which had Loblaw
leases, for an aggregate sale price of $9,975, excluding transaction costs (note 5).

Lease Surrender Payments
In the year ended December 31, 2019, Loblaw made lease surrender payments of $3,156 to the Trust (2018 - $10,204) (note
19).

Site Intensification Payments
Included in certain investment properties acquired from Loblaw is excess land with development potential. Choice Properties
will compensate Loblaw, over time, with intensification payments, as Choice Properties pursues development, intensification
or redevelopment of such excess lands. The payments to Loblaw are calculated in accordance with a payment grid, set out in
the Strategic Alliance Agreement, that takes into account the region, market ranking and type of use for the property.

• Choice Properties will have the right of first offer to purchase any property in Canada that Loblaw seeks to sell;

•

Loblaw will be generally required to present shopping centre property acquisitions in Canada to Choice Properties to allow
the Trust a right of first opportunity to acquire the property itself; and

• Choice Properties has the right to participate in future shopping centre developments involving Loblaw.
128 Choice Properties REIT 2019 Annual Report

Services Agreement
During 2018, Loblaw provided Choice Properties with administrative and other support services for an annualized amount of
$2,335. This agreement was terminated on December 31, 2018.

Letters of Credit
As at December 31, 2019, letters of credit totalling $1,790 were posted by Loblaw with the Province of Ontario and City of
Toronto on behalf of Choice Properties related to deferral of land transfer tax on properties acquired from Loblaw (December 31,
2018 - $3,248) (note 30).

Distributions on Exchangeable and Class C LP Units
During the year ended December 31, 2018, distributions declared on the Exchangeable Units and Class C LP Units totalling
$222,994 and $15,417, respectively, were paid to Loblaw.

Conversion of Class C LP Units
Concurrent with the closing of the Acquisition Transaction, Choice Properties converted all its outstanding Class C LP Units into
70,881,226 Exchangeable Units. A conversion difference of $98,659 was due to Loblaw and settled in cash. These Exchangeable
Units were subject to an undertaking by Loblaw, and subsequently confirmed by GWL, to the TSX that restrict its voting rights
and the exercise of its exchange transfer rights to be consistent with the terms of the converted Class C LP Units.

The reorganization under which Loblaw spun out its effective interest in Choice Properties to GWL, included all the issued and
outstanding Exchangeable Units, of which 70,881,226 Exchangeable Units continue to be subject to restrictions for voting and
exchange transfer rights.

Trust Unit Distributions
During the year ended December 31, 2018, Choice Properties declared distributions of $13,258 on the Units held by Loblaw
prior to the transfer of its effective interest in Choice Properties to GWL.

Transaction Summary as Reflected in the Consolidated Financial Statements
Loblaw is also Choice Properties’ largest tenant, representing approximately 58.2% of Choice Properties’ rental revenue and
56.3% of its gross leasable area for the year ended December 31, 2019 (December 31, 2018 - 68.0% and 58.9%, respectively).
Transactions with Loblaw recorded in the consolidated statements of income (loss) and comprehensive income (loss) were
comprised as follows:

($ thousands)

Rental revenue

Fee income

Services Agreement expense

Interest expense and other financing charges

The balances due from (to) Loblaw were as follows:

($ thousands)

Rent receivable and other receivables

Construction allowances payable

Reimbursed contract payable

Year Ended

Note

December 31, 2019

December 31, 2018

749,361

922

—

752,621

899

(2,335)

(238,411)

Note

As at December 31,
2019

As at December 31,
2018

(5,278)

(7,100)

1,760

—

Choice Properties REIT 2019 Annual Report 129

Notes to the Consolidated Financial Statements

Transactions with Other Related Parties

Operating Lease
In 2014, Choice Properties entered into a ten-year lease for office space with Wittington Properties Limited (“Wittington”), GWL’s
parent company. Lease payments will total $2,664 over the term of the lease.

Joint Venture
On December 9, 2014, Choice Properties and its joint venture partner, Wittington, completed the acquisition of 500 Lake Shore
Boulevard West in Toronto, Ontario for $15,576 from Loblaw (note 7). Wittington is the development and construction manager
for the commercial space. Wittington’s parent company is Wittington Investments, Limited, which holds a majority interest in
GWL. Choice Properties contributed $13,240 to the joint venture and received distributions of nil during the year ended December
31, 2019 (December 31, 2018 - contributions $7,080 and distributions $7,200). Operating activities have not begun at the
property; however, the joint venture earned interest income during the year ended December 31, 2019 of $86 (2018 - $2,070).

Summarized financial information for the Trust’s share of the related party equity accounted joint venture is set out below:

($ thousands)

Current assets

Non-current assets

Current liabilities

Net assets at 100%

Investment in equity accounted joint venture at 40%

($ thousands)

Interest income

Adjustment to fair value of investment property

Net income and comprehensive income at 100%

Share of income and comprehensive income in equity accounted joint venture at 40% $

As at December 31,
2019

As at December 31,
2018

4,891

88,329

(11,075)

82,145

32,858

7,107

117,500

(17,565)

107,042

42,817

Year Ended

December 31, 2019

December 31, 2018

(8,581)

(8,495) $

(3,398) $

2,070

(473)

1,597

639

Transactions with Key Personnel

Choice Properties’ key personnel are comprised of Trustees and certain members of the executive team of Choice Properties.
Compensation of key personnel was as follows:

($ thousands)

Salaries, trustee fees, incentives and short-term employee benefits

Unit-based compensation recorded in:

General and administrative expenses

Adjustment to fair value of unit-based compensation

Compensation of key personnel

December 31, 2019

December 31, 2018

4,405

3,671

2,687

1,088

8,180

4,564

(3,566)

4,669

130 Choice Properties REIT 2019 Annual Report

Note 32. Subsequent Events

On January 20, 2020, Choice Properties Limited Partnership, redeemed in full, at par, the $300,000 aggregate principal amount
of the Series 8 senior unsecured debentures due on April 20, 2020, at a redemption price equal to $1,000 plus accrued and
unpaid interest for $300,000.

On January 24, 2020, Choice Properties completed the disposition of a retail property in the U.S. at a sale price of $97,800,
excluding transaction costs, for cash consideration.

On February 11, 2020, Choice Properties completed the acquisition of a development property in Coquitlam, British Columbia
for $21,150, excluding transaction costs, for cash consideration.

On February 12, 2020, the Board approved the redemption in full, by Choice Properties Limited Partnership, of $250,000 aggregate
principal amount of the Series E senior unsecured debentures due on September 14, 2020, at a redemption price equal to $1,000
plus accrued and unpaid interest for $250,000.

Subsequent to the year ended December 31, 2019, Choice Properties entered into an agreement to dispose of an office property
in Halifax, Nova Scotia, at a sale price of $26,700, excluding transaction costs, for cash consideration.

Choice Properties REIT 2019 Annual Report 131

Corporate Profile
Choice Properties, Canada’s preeminent diversified real estate investment trust, is the owner, manager and developer of a high-
quality portfolio comprising 726 properties totalling 65.8 million square feet of gross leasable area. The portfolio is comprised
of retail properties, predominantly leased to necessity-based tenants, industrial, office and residential assets concentrated in
attractive markets and offers an impressive and substantial development pipeline. Choice Properties' strategic alliance with its
principal tenant, Loblaw Companies Limited, the country's leading retailer, is a key competitive advantage providing long-term
growth opportunities.

Conference Call and Webcast
Management will host a conference call on Thursday, February 13, 2020 at 11:00AM (ET) with a simultaneous audio webcast.
To access via teleconference, please dial (647) 427-7450 or (888) 231-8191 toll free. A playback will be made available two hours
after the event at (416) 849-0833, access code: 5992745. The link to the audio webcast will be available on www.choicereit.ca
in the “Events and Webcast” section under “News and Events”.

Head Office
Choice Properties Real Estate Investment Trust
22 St. Clair Avenue East, Suite 500
Toronto, Ontario M4T 2S5
Tel: 416-960-6990
Toll free:1-855-322-2122
Fax: 905-861-2326

Stock Exchange Listing and Symbol
The Trust’s Units are listed on the Toronto Stock Exchange and
trade under the symbol “CHP.UN”

Distribution Policy
Choice Properties’ Board retains full discretion with respect to
the timing and quantum of distributions. Declared distributions
are paid to Unitholders of record at the close of business on
the last business day of a month on or about the 15th day of
the following month.

Independent Auditors
KPMG LLP
Chartered Professional Accountants
Toronto, Canada

Registrar and Transfer Agent
AST Trust Company (Canada)
P.O. Box 700, Station B
Montreal, QC, H3B 3K3
Tel: (416) 682-3860
Tel toll free: 1-800-387-0825 (Canada and US)
Fax: (514) 985-8843
Fax toll free: 1 (888) 249-6189 (Canada and US)
E-Mail: inquiries@astfinancial.com
Website: www.astfinancial.com/ca-en

Investor Relations
Tel: 416-960-6990
Toll free: 1-855-322-2122
Email: investor@choicereit.ca
Website: www.choicereit.ca

Additional financial information has been filed electronically
with various securities regulators in Canada through the
System for Electronic Document Analysis and Retrieval
(SEDAR), www.sedar.com. Choice Properties holds a
conference call shortly following the release of its quarterly
results. These calls are archived in the Investor Relations
section of the Trust’s website, www.choicereit.ca.

Trustees
Galen G. Weston - Chairman
Executive Chairman, Loblaw Companies Limited
Chairman and Chief Executive Officer, George
Weston Limited

Graeme M. Eadie2
Corporate Director

Kerry D. Adams2
President, K. Adams & Associates
Limited

Christie J.B. Clark1
Corporate Director

Anthony R. Graham
President and Chief Executive
Officer of Sumarria Inc.

Karen A. Kinsley1
Corporate Director

R. Michael Latimer2
President and Chief Executive Officer, OMERS

Nancy H.O. Lockhart2
Corporate Director

Dale R. Ponder1
Co-Chair, Osler, Hoskin and
Harcourt LLP

Paul R. Weiss1
Corporate Director

1 Audit Committee
2 Governance, Compensation and Nominating Committee

Ce rapport est disponible en français.

Head Office
22 St. Clair Avenue East, Suite 500
Toronto, Ontario M4T 2S5

Rendering of West Block | Toronto ON