Annual Report 2020
West Block
Toronto, ON
Letter to Unitholders
Fellow Unitholders,
By all accounts, 2020 was a challenging year for each of us.
The COVID-19 pandemic significantly impacted our
communities and our day-to-day lives. In response, we took
thoughtful actions to mitigate the effects of the pandemic on
our business operations and focused on the best interests of
our employees, tenants and other stakeholders. Although we
are encouraged by the rollout of vaccines, we remain
concerned about the evolving impact of the pandemic on our
tenants, including recent enhanced lockdown restrictions in
certain parts of the country. The uncertainty we experienced
in 2020 is continuing into 2021, but we are ready for it. With
that backdrop in mind, we are pleased with our financial
results this past quarter, demonstrating that our business
model, stable tenant base and disciplined approach to
financial management continue to position us well.
Our diversified portfolio of retail, industrial and office
properties is well occupied at approximately 97.1% and leased
to high-quality tenants across Canada. Our retail portfolio is
primarily leased to grocery stores, pharmacies or other
necessity-based tenants, who continue to perform well in this
environment. Our industrial and office assets provide
diversification and added stability to our overall portfolio. This
stability is evident by our industry leading rent collections,
which were 98% for the fourth quarter.
Our development program continues to provide us with
exceptional opportunities to add high-quality real estate to
our portfolio at a reasonable cost. In 2020, we completed and
transferred to our income producing portfolio $197.4 million of
properties under development, including a mix of at-grade
retail intensification, larger scale greenfield development and
the first phase of our West Block mixed use development in
Downtown Toronto. With our active development pipeline we
are expanding our growing presence in the rental residential
market and expect two of our larger rental residential projects
in Toronto to be completed in 2021. We also recently
commenced construction on two new residential projects in
the GTA and in Ottawa.
Beyond our development program, and despite the
uncertainty from the pandemic, we were successful in
executing our capital recycling program in 2020. During the
year, we disposed of $499.4 million in assets, including $430.6
million of retail assets, at pricing that was above our IFRS fair
values. This activity demonstrates the investor demand for
strong, grocery anchored retail properties.
We also acquired $505.7 million of assets in 2020. This included
the acquisition of the Weston Centre, a multi-tenant office and
retail site that includes a Loblaw grocery store located in
mid-town Toronto, and the remaining ownership interest in West
Block, a mixed-use site that combines retail shops anchored by a
Loblaw grocery store and office space located in downtown
Toronto in Q3. Through acquisitions we continued to grow our
industrial platform by adding $169.7 million in highly sought after
industrial assets comprising approximately 1.0 million square feet
in 2020.
Collectively, we completed over $1 billion of real estate
transactions through our capital recycling program, including
$288.0 million of acquisitions funded with equity consideration.
This activity demonstrates our ability to generate stable and
growing net operating income, lower our leverage through
efficient equity issuance and to improve the overall quality
of our portfolio. We expect to continue our capital recycling
program in 2021.
Our business is supported by an industry leading balance sheet
that provides Choice Properties flexibility in the face of broader
market volatility. From a liquidity perspective, we have
approximately $1.5 billion available under our credit facility and
$223.7 million of available cash on our balance sheet at the end
of 2020. Throughout the year, we made significant progress in
further strengthening our balance sheet, including refinancing
our debt maturities, increasing our weighted average term of
debt and increasing our available liquidity by issuing $1 billion of
unsecured debentures, the proceeds of which were primarily
used to meet all debt maturities until the third quarter of 2021.
In September 2020, DBRS Limited upgraded our issuer credit
rating from BBB to BBB (high).
Our operating results for the fourth quarter and for the year
were strong and reflect the strength and stability of our income
producing portfolio. We are confident that the strategic and
operating decisions we have made across our business positions
us well to withstand the pandemic and assist our tenants where
we can. Our top priority remains ensuring the health and
well-being of our employees and tenants, and we are working
diligently to ensure that our business continues to run as
smoothly and effectively as possible.
We thank you for your continued support and confidence.
Rael L. Diamond
President & Chief Executive Officer
February 10, 2021
1
Annual Report 2020 • Management’s
Discussion
and Analysis
525 University Ave
Toronto, ON
(1) See Section 14, “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 3 of this MD&A
2
Annual Report 2020 • 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, 2020 and accompanying
notes (“2020 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’
2020 Annual 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 14, “Non-GAAP Financial
Measures” for a list of defined non-GAAP financial
measures and reconciliations thereof.
This Annual Report, including this MD&A, contains
forward-looking statements about Choice
Properties’ objectives, 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 13, “Outlook and Impact
of COVID-19”. 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
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.
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 valuations 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, 2020. 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.
Choice Properties 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’ 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 (“Loblaw”), the
Trust’s primary tenant and prior to November 2018,
the Trust’s largest Unitholder. 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, 2020, GWL held a 61.8% direct
effective interest in Choice Properties. Choice
Properties’ ultimate parent is Wittington
Investments, Limited (“Wittington”).
Additional information about Choice Properties has
been filed electronically with the Canadian
securities regulatory authorities through the System
for Electronic Document Analysis and Retrieval
(“SEDAR”) and is available online at www.sedar.
com.
The information in this MD&A is current to February
10, 2021, unless otherwise noted.
All amounts in this MD&A are reported in thousands
of Canadian dollars, except where otherwise noted.
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
Section 12 “Enterprise Risks and Risk Management”
of this MD&A and the Trust’s Annual Information
Form (“AIF”) for the year ended December 31, 2020.
Selected highlights of such risks and uncertainties
include:
•
•
•
•
•
•
the duration and impact of the COVID-19
pandemic on the business, operations and
financial condition of Choice Properties and its
tenants, as well as on consumer behaviours and
the economy in general;
changes in economic conditions, including
changes in interest rates and the rate of
inflation;
failure by Choice Properties to effectively and
efficiently manage its property and leasing
management processes;
the inability of Choice Properties to make
acquisitions and dispositions of properties in
accordance with its near and long-term
strategies;
failure by Choice Properties to anticipate,
identify and react to demographic changes,
including shifting consumer preferences toward
digital commerce, which may result in a
decrease in demand for physical space by retail
tenants; and
the inability of Choice Properties’ information
technology infrastructure to support 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.
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.
Choice Properties’ financial results are impacted by
adjustments to the fair value of the Exchangeable
Units, unit-based compensation and investment
properties. Exchangeable Units and 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
3
Annual Report 2020 •
1460 East Hastings St
Vancouver, BC
4
Annual Report 2020 • Our Portfolio Mix
Portfolio Mix by Asset Class(i)(ii)
For the three months ended December 31, 2020
79%
Retail
7%
Office
1%
Residential
13%
Industrial
(i) As a % of total NOI on a cash basis(1)
(ii) Residential properties are included in the retail
segment for reporting purposes
5
Annual Report 2020 • A Stable
Retail Portfolio
Strategic & Diversified Retail Tenant Mix
% of Retail NOI
Tenants
Grocery Stores & Pharmacy
71%
Specialty Retailers
Essential Personal Service
Restaurants & Cafes
6%
5%
4%
Fitness & Other Personal Services
4%
Value Retailers
Furniture & Home
Other
Total
4%
4%
2%
100%
Calculated as a % of total NOI on a
cash basis(1) for the three months ended
December 31, 2020
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 a strategic relationship
and long-term leases with Loblaw, Canada’s largest retailer.
This relationship 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.
6
Annual Report 2020 • Our Portfolio Mix
Industrial Portfolio
The industrial portfolio is centred around distribution facilities,
warehouses, and buildings used for light manufacturing of a size and
configuration that readily accommodates 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
a product that appeals to a wide range of potential users, so that the
leasing or re-leasing time frame is reduced.
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 risk. As the managing partner,
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
The residential portfolio is a recent addition to the Choice Properties
asset mix. Rental residential real estate provides additional income
diversification and 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
rental buildings and residential-focused mixed-use communities, many
of which are in close proximity to public transportation.
Top: Great Plains Business Park, Calgary, AB
Middle: 175 Bloor St E, Toronto, ON
Bottom: VIA 123, Toronto, ON
7
Annual Report 2020 • Our Portfolio Mix
Retail
573
Properties
Industrial
122
Properties
Office
15
Properties
Residential(i)
3
Properties
97.4%
Occupancy
45.1M
sq. ft. GLA
97.3%
Occupancy
17.2M
sq. ft. GLA
92.1%
Occupancy
3.6M
sq. ft. GLA
0.2M
sq. ft. GLA
Development
18
10 Retail
2 Industrial
6 Residential
Properties
Total
731
Properties
97.1%
Occupancy
66.1M
sq. ft. GLA
(i) Residential properties are included in the retail segment for reporting purposes
8
Annual Report 2020 • 2994 Peddie Rd
Milton, ON
9
Annual Report 2020 • Development
Program
Bovaird West
Brampton, ON
Development initiatives are a key component of Choice
Properties’ business model, providing the opportunity to add
high quality real estate at a reasonable cost. Choice
Properties has internal development capabilities as well as
established relationships with strong real estate developers.
With significant intensification 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.
10
Annual Report 2020 • Development
Program
Intensification
Greenfield Development
Intensifications are focused on adding retail density
within the existing portfolio. As at December 31, 2020,
Choice Properties had 17 active intensification projects
representing a total of 197,000 square feet.
Mixed-Use Development
Choice Properties currently has a number of sites planned
for mixed-use development with five of these sites in an
active pre-development stage. The five properties are
in key urban markets, including four 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 $55.3 million has been invested to date on land
acquisition and other initial development costs.
Development activities include greenfield projects that
are primarily focused on unenclosed retail shopping
centres and industrial parks. As at December 31, 2020,
Choice Properties had 15 greenfield development projects
in the pipeline that, upon completion, will comprise
approximately 0.5 million square feet. A total of $176.8
million has been invested to date in the pipeline. The Trust
currently expects to invest a total of $31.4 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.
Residential
The Trust expects to invest an additional $27.5 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.
Choice Properties has six residential projects in the
pipeline representing 1,119 residential units. As at
December 31, 2020, a total of $182.7 million had been
invested in these projects and Choice Properties expects
to invest an additional $326.8 million(2) to complete the
developments.
11
Annual Report 2020 •
Ownership by
Asset Class
Net operating income, cash basis, excluding bad
debt expense(1)(i), shown in percentage below
Retail
Industrial
Office
Residential
British
Columbia
Total
Retail
Industrial
Office
Residential
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
Atlantic
47
42
3
2
0
Total
Retail
Industrial
Office
Residential
135
77
54
2
2
Total
Retail
Industrial
Office
Residential
17
17
0
0
0
Total
Retail
Industrial
Office
Residential
14
14
0
0
0
Total
Retail
Industrial
Office
Residential
286
235
43
7
1
Total
Retail
Industrial
Office
Residential
113
107
4
2
0
Total
Retail
Industrial
Office
Residential
101
81
18
2
0
573
Retail
122
Industrial
15
Office
3
Residential
(i) For the three months ended December 31, 2020
12
Annual Report 2020 • Stability
& Growth
Huntington Hills
Calgary, AB
13
Annual Report 2020 • 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 Net Asset Value appreciation, stable NOI growth and
capital preservation, all with a long term focus.
Size, Scale and
Reach as Canada’s
Largest REIT
Stable Portfolio Backed
by an Established
Operating Platform
with a Proven Track
Record of Success
Transformational
Development Pipeline
Providing Long-Term Value
Creation and Growth
Industry Leading
Balance Sheet
Supported by Prudent
Capital Structure
14
Annual Report 2020 • Environment, Social
and Governance
Choice Properties aspires to develop healthy,
resilient communities through our dedication to
social, economic and environmental sustainability.
Sustainability Targets
Choice Properties has developed sustainability targets to
be reached by 2023 relating to energy use, water use,
waste, lighting, greenhouse gas emissions, building
certifications, and employee volunteering. In 2020, Choice
Properties continued to make progress towards achieving
its targets. The annual ESG Report, planned to be released
in Q2, will provide an update on the Trust’s progress
towards these targets.
Visibility and Reporting
Choice Properties is committed to transparency and
accuracy in its ESG reporting. In 2020, in its ESG report,
Choice Properties followed the Sustainability Accounting
Standards Board (“SASB”) reporting standard and also
had key indicators verified by a third-party. With these
efforts, the Trust’s ESG report received the highest possible
grade of “A” from the GRESB Public Disclosure Benchmark.
Over the past year, Choice Properties has focused on
continuing to integrate Environmental, Social and
Governance (“ESG”) into the Trust’s corporate strategy,
making progress towards our sustainability targets, and
enhancing reporting formats that provide visibility on
the Trust’s progress and achievements against these
objectives.
Improving our
ESG Performance
Choice Properties uses the Global Real Estate
Sustainability Benchmark (“GRESB”) to evaluate the
continued growth and expansion of its ESG program.
In 2020, Choice Properties achieved a 16 point increase
over its 2019 GRESB score (on a 100-point scale).
ESG and Corporate
Strategy
Choice Properties’ focus on ESG is central to its business
operations. This is reflected in the Choice Properties
mission of “creating enduring value for generations.”
The long-term approach to property ownership and
management compels Choice Properties to consider
opportunities to improve social, economic and
environmental sustainability in its operations for the long
term. In 2020, Choice Properties began working on its
long-term strategy for its ESG Program with a goal of
becoming a North American real estate ESG leader. To
achieve this goal, Management intends to focus on three
areas where Choice Properties can have a significant
impact on social and environmental sustainability: Climate
Action, Sustainable Developments, and Employee Equity
and Wellness. Management looks forward to sharing more
on these programs as they are further developed.
15
Annual Report 2020 • Environment
Choice Properties continuously
works to improve its environmental
footprint within both its income
producing and development
portfolio so that it can do its part to
preserve the planet for current and
future generations.
Choice Properties’ environmental programs include:
• Implementing programs which reduce resource use
and emissions at income producing properties;
• Integrating climate-friendly design features into
development projects; and
• Achieving green building certifications including
BOMA BEST and LEED.
2020 Key Achievements
19M ft2
certified under LEED
or BOMA BEST
Over 120 sites
upgraded lighting
to LED
4
pillars outlined in
our new Sustainable
Development Standard
9
office energy
audits completed
16
Annual Report 2020 • Social
Choice Properties promotes
positive citizenship amongst its
colleagues by empowering them
to lead philanthropic initiatives for
the communities in which they live
and work.
Choice Properties has a strong commitment to
diversity and inclusion where all people are valued
and differences are seen as strengths. The Trust’s
culture is grounded by its CORE Values – Care,
Ownership, Respect and Excellence – and three
culture principles – be authentic, build trust and make
connections.
2020 Key Achievements
1,330 hours
of paid
volunteer time
$350,000
raised in support of
charities across Canada
100%
of employees received
Diversity & Inclusion
training
signatory to
the Black North
Initiative
17
Annual Report 2020 • Governance
Choice Properties’ Board of
Trustees and management team
are dedicated to strong governance
practices designed to maintain
high standards of oversight,
accountability, integrity and ethics.
Choice Properties employs a dedicated ESG team
whose primary responsibility is to integrate the Trust’s
Sustainability & Responsibility Commitment into its
day-to-day operations. The sustainability team reports
progress on this front to the ESG Steering Committee.
Choice utilizes five ESG subcommittees to coordinate
activities related to its ESG program.
2020 Key Achievements
+16
Point increase over the
Trust’s 2019 GRESB score
(on a 100-point scale)
44%
of Board of Trustees
and Senior Management
collectively identify as
female(i)
100%
properties assessed for
physical climate risk
and resiliency
(i) Defined as those at the Senior Vice President level and above
25%
of employees involved
in sustainability
committees
18
Annual Report 2020 • Cundles & Duckworth
Barrie, ON
19
Annual Report 2020 • Key Performance Indicators
and Financial Information
The analysis of the indicators focuses on trends and significant events
affecting the financial condition and results of operations.
Q4 2020
Q4 2019
YTD 2020
YTD 2019
Net Income (Loss)
The quarterly decrease compared to the prior year was mainly due
to an unfavourable change in the adjustment to fair value on the
Exchangeable Units, partially offset by a favourable change in the
fair value of investment properties, including those held within
equity accounted joint ventures.
The year-over-year increase was primarily due to a favourable
change in the adjustment to fair value on the Exchangeable Units
and reduced interest and financing charges, partially offset by
declines related to unfavourable changes in the fair value of
investment properties and increased bad debt expense.
Rental Revenue (GAAP)
The quarterly increase in revenue was mainly due to the net
contribution from acquisitions and development transfers
completed in 2020, offset by declines due to dispositions.
The year-to-date decrease was primarily due to the forgone revenue
from the September 2019 disposition of a 30-property portfolio for
$426.3 million to an affiliate of Oak Street Real Estate Capital LLC
(the “Oak Street disposition”).
FFO Per Unit Diluted(1)
Funds from operations increased in the current quarter primarily
due to non-recurring activity in the prior year, coupled with lower
borrowing and general and administrative costs, partially offset
by higher bad debt expense.
The decrease in FFO on an annual basis was primarily due to
a reduction in net operating income attributable to an increase
in bad debt expense, partially offset by lower borrowing costs
from the use of proceeds from deleveraging activities and
capital recycling.
The change on a per unit basis was also impacted by the higher
weighted average number of units outstanding as a result of: (i) the
May 2019 equity offering where proceeds were used to lower debt
levels, (ii) the Trust units issued as consideration for the acquisition
of two assets from Wittington in July 2020 and (iii) the Exchangeable
Units issued as consideration for the acquisition of six assets from
Weston Foods (Canada) Inc., a wholly-owned subsidiary of GWL, in
December 2020.
* As at and for the three months and year ended December 31, 2020
and 2019 ($ thousands except where otherwise indicated)
$116,570
$293,261
$450,685
$581,357
$750,000
$500,000
$250,000
$0
$250,000
$321,862
$317,986
$1,270,614
$1,288,554
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$0.239
$0.237
$0.921
$0.987
$0
$0
$0.200
$0.400
$0.600
$0.900
20
Annual Report 2020 • AFFO Per Unit Diluted(1)
Adjusted funds from operations increased during the current
quarter primarily due to an increase in FFO.
The decline on an annual basis was mainly due to an overall
reduction in funds from operations and increased property capital
and internal leasing costs, partially offset by a decline in straight
line rent.
For the year ended December 31, 2020, the AFFO payout ratio
was 92.6%.
Same-Asset NOI, Cash Basis(1)
The decrease of 2.3% and 1.6% for the three months and year ended
December 31, 2020, respectively, was mainly due to an increase in
bad debt expense, offset by the contribution from contractual
rental steps in the retail segment.
Excluding bad debt expense, same-asset NOI on a cash basis
decreased by 1.3% and increased by 0.9% for the three months and
year ended December 31, 2020, respectively.
Period End Occupancy
Overall period end occupancy decreased compared to the prior
year, primarily due to vacancies in the Ontario and Western retail
portfolios, as well as the Western industrial portfolio, partially offset
by the contributions from acquisitions, net of dispositions, and
development transfers.
Normalized Debt to EBITDAFV(1)
The increase in normalized debt to EBITDAFV is primarily due to an
increase in bad debt expense during the fiscal 2020 partially offset
by deleveraging from the capital raised through the May 2019 equity
offering.
Debt to EBITDAFV on a 12-month normalized basis excluded the
non-GAAP and proforma results from the Oak Street disposition.
Q4 2020
Q4 2019
YTD 2020
YTD 2019
Q3 YTD 2020
$0.189
$0.184
$0.800
$0.853
$0
$0.100
$0.200
$0.300
$0.400
$0.500
$0.600
$0.800
$201,167
$205,876
$795,532
$808,597
$0
$200,000
$400,000
$600,000
$800,000
80.0%
85.0%
90.0%
95.0%
7.6
7.5
0.0
2.0
4.0
6.0
8.0
97.1%
97.7%
$150,158
$139,568
Development Spending
(Proportionate)(1)
Development activity reflects spending on active projects during
the three months and year ended December 31, 2020 and 2019.
$45,092
$30,273
$0
$30,000
$60,000
$100,000
Transfers From Properties
Under Development to Income
Producing (Proportionate)(1)
During the year ended December 31, 2020, approximately 438,000
square feet were transferred from properties under development to
income producing.
$114,565
$ 197,411
$0
$40,000
$80,000
$120,000
$160,000
$200,000
21
Annual Report 2020 • The Weston Centre
Toronto, ON
22
Annual Report 2020 • Fourth Quarter
Financial Performance
During the three months ended December 31, 2020
Operating
Investing
• Reported net income for the quarter of $116.6 million.
• Completed $213.7 million in acquisitions, including:
• Acquired a portfolio of four industrial assets for $86.0
million that is 100% leased to a national logistics
company with long-term leases in place;
• Acquired five retail assets from Loblaws for $46.6 million;
and
• Acquired a portfolio of six industrial properties from Weston
Foods (Canada) Inc., a subsidiary of GWL, in exchange
for 5.82 million Exchangeable Units, which were valued at
$79.1 million.
• Completed $332.4 million in dispositions, including:
• Sold a 50% non-managing interest in a retail property
portfolio to an institutional partner for an aggregate sale
price of $169.0 million, comprising eleven assets and
656,000 square feet;
• Disposed two retail property portfolios comprising eight
assets and 496,000 square feet for an aggregate sale
price of $107.4 million; and
• Sold two assets in Windsor and a land parcel in Quebec
City for gross proceeds of $56.0 million.
• Ongoing investment in the development program with $45.1
million of spending during on a proportionate share basis(1).
• Transferred $82.8 million of properties under development
to income producing status during the quarter, delivering
approximately 180,000 square feet of new GLA on a
proportionate share basis(i).
Included in this amount was a $103.9 million adjustment
due to a favourable change in the fair value of
investment properties on a proportionate share basis(1),
partially offset by $3.5 million in bad debt expense,
and a $86.4 million decrease related to the adjustment
to the fair value of the Exchangeable Units attributable
to the unit price increase for Choice Properties during
the quarter.
• Reported FFO per unit diluted(1) for the quarter was $0.239.
Excluding the effect of the bad debt expense, FFO per
Unit would have been $0.244.
• AFFO per unit diluted(1) for the quarter was $0.189. The
increase in AFFO reflects an increase in FFO for the
quarter and a reduction in tenant improvements and
direct leasing costs, partially offset by an increase in
project capital costs.
• Same-asset NOI on a cash basis, excluding bad debt
expense(1) decreased by 1.3% over the same quarter in
2019 primarily due to lower parking revenue and the
timing of capital recoveries from investments in income
producing properties, partially offset by contractual
rental steps in the retail portfolio. Including bad debt
expense, same-asset NOI on a cash basis(1) declined by
2.3%.
• Period end occupancy remained strong at 97.1%, with
retail at 97.4%, industrial at 97.3% and office at 92.1%.
• Net fair value gain on investment properties was $103.9
million on a proportionate share basis(1) primarily due to
fair value gains from transaction activity, coupled with a
significant fair value gain for a development property
that was sold to a third party in February 2021.
Financing
• Utilized net proceeds from current quarter capital activity
to repay remaining balance of credit facility.
• Upfinanced a mortgage for a development property with
an additional draw of $5.4 million at 2.40%, maturing in
August 2028.
• Ended quarter with debt-to-gross book value(1) at 43.8%, and
normalized debt to EBITDAFV(1) and interest coverage ratios(1)
of 7.6 and 3.7 times, respectively.
• Strong liquidity position with approximately $1.5 billion of available
credit and a $12.2 billion pool of unencumbered properties.
23
Annual Report 2020 • Annual Financial
Performance
During the year ended December 31, 2020
Operating
Investing
• Active capital recycling with dispositions of $499.4 million of
which the proceeds were utilized to facilitate acquisitions of
$505.7 million.
• Ongoing investment in the development program with
$150.2 million of spending during the year on intensification,
greenfield, mixed-use and residential development projects
on a proportionate share basis(i).
• Transferred $197.4 million of properties under development
to income producing status during the year, delivering
approximately 438,000 square feet of new GLA on a
proportionate share basis(i).
• Reported net income for the year of $450.7 million.
Included in this amount was a $354.3 adjustment to the
fair value of the Exchangeable Units attributable to the
unit price decrease for Choice Properties during the year.
• Reported FFO per unit diluted(i) for the year was $0.924.
Excluding the effect of the bad debt expense, FFO per
Unit would have been $0.944.
• AFFO per unit diluted(i) for the year was $0.800, reflecting
an 92.6% payout ratio. The decrease in AFFO reflects the
decline in FFO for the year and increased spending on
capital projects, partially offset by a reduction in
straight- line rental revenue.
• Same-asset NOI on a cash basis, excluding bad debt
expense(i) increased by 0.9% over the prior year primarily
due to a general reduction in operating and realty tax
costs. Including bad debt expense, same-asset NOI on a
cash basis(i) declined by 1.6%.
• Period end occupancy remained strong at 97.1%, with
retail at 97.4%, industrial at 97.3% and office at 92.1%.
Financing
• Completed a $500 million dual-tranche offering of senior
• DBRS Limited (DBRS Morningstar) upgraded the Issuer
unsecured debentures, with $400 million Series N at
2.981% maturing in March 2030 and $100 million Series O
at 3.827% maturing in March 2050.
Rating and Senior Unsecured Debenture rating on Choice
Properties Limited Partnership and Choice Properties REIT to
BBB (high), with all trends being rated as Stable.
• Completed the $500 million offering of Series P senior
unsecured debentures at 2.848%, maturing in May 2027.
• Early redeemed at par the $300 million Series 8 senior
unsecured debentures in January 2020 and early
redeemed at a $0.3 million premium the $250 million
Series E senior unsecured debentures in March 2020.
• Ended the year with a debt-to-gross book value(i) at 43.8%,
and normalized debt to EBITDAFV(i) and interest coverage
ratios(i) of 7.6 and 3.7 times, respectively.
• Strong liquidity position with approximately $1.5 billion of
available credit and a $12.2 billion pool of unencumbered
properties.
• Early redeemed at par the $100 million Series B-C senior
unsecured debentures with an initial maturity date of
January 2021 and the $250 million senior unsecured
debentures with an initial maturity date of February 2021.
The early redemption premiums paid for these two senior
unsecured debentures was $6.8 million.
24
Annual Report 2020 • Table of Contents
Section 1: Key Performance Indicators and Selected Financial Information
27
Section 2: Balance Sheet
Section 3:
Investment Properties
Section 4: Liquidity and Capital Resources
Section 5: Results of Operations
Section 6: Leasing Activity
Section 7: Results of Operations – Segment Information
Section 8: Quarterly Results of Operations
Section 9: Related Party Transactions
Section 10: Critical Accounting Estimates and Judgments
Section 11: Controls and Procedures
Section 12: Enterprise Risks and Risk Management
Section 13: Outlook and Impact of COVID-19
Section 14: Non-GAAP Financial Measures
28
30
41
50
54
56
64
65
67
68
69
78
80
25
Annual Report 2020 • 42 Overlea Blvd
Toronto, ON
26
Annual Report 2020 • 1.
KEY PERFORMANCE INDICATORS AND SELECTED FINANCIAL INFORMATION
Choice Properties has identified key financial and operating performance indicators that were derived from, and should be
read in conjunction with, the consolidated financial statements of the Trust dated December 31, 2020 and 2019. The analysis
of the indicators focuses on trends and significant events affecting the financial condition and results of operations of the
Trust.
As at or for the year ended December 31
($ thousands except where otherwise indicated)
2020
2019
Number of investment properties
GLA (in millions of square feet)
Occupancy*
Total assets (GAAP)
Total liabilities (GAAP)
Rental revenue (GAAP)
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
731
66.1
97.1%
15,647,242
(12,124,702)
1,270,614
450,685
0.637
0.921
80.5%
$
$
$
$
$
$
0.800
$
92.6%
0.740
$
$
$
$
$
$
$
$
$
726
65.8
97.7%
2018
753
66.8
97.7%
15,576,195 $
15,549,215
(12,478,177) $
(12,049,229)
1,288,554 $
(581,357) $
1,148,273
649,577
(0.843) $
0.987 $
75.0%
0.853 $
86.8%
0.740 $
1.111
1.033
71.4%
0.827
89.2%
0.740
Weighted average number of Units outstanding – diluted
707,764,714
689,285,790
584,605,228
Debt to total assets(i)*
Debt service coverage(i)*
Normalized Debt to EBITDAFV(1)(ii)(iii)*
Indebtedness(iv) – weighted average term to maturity*
Indebtedness(iv) – weighted average interest rate*
* Denotes a key performance indicator
42.7%
3.2x
7.6x
5.7 years
3.65%
43.1%
3.0x
7.5x
5.2 years
3.74%
47.2%
3.0x
8.0x
5.2 years
3.72%
(i)
Debt ratios exclude Exchangeable Units, see Section 4, “Liquidity and Capital Resources”. The ratios are non-GAAP financial measures calculated based
on the Trust Indentures, as supplemented.
As at December 31, 2019, Debt to EBITDAFV calculated on a trailing 12-month normalized basis excludes the effect of the Oak Street disposition.
(ii)
(iii) Normalized Debt to EBITDAFV, net of cash, was 7.4x at December 31, 2020, 7.2x at December 31, 2019, and 7.9x at December 31, 2018
(iv)
Indebtedness reflects senior unsecured debentures and mortgages only.
Choice Properties REIT
2020 Annual Report 27
2.
BALANCE SHEET
The following table reconciles Choice Properties’ balance sheet on a GAAP basis to a proportionate share basis(1) as at the
dates indicated:
($ thousands)
Assets
As at December 31, 2020
As at December 31, 2019
GAAP Basis Reconciliation
Proportionate
Share Basis(1)
GAAP Basis Reconciliation
Proportionate
Share Basis(1)
Investment properties
$ 14,389,000 $
1,015,000 $ 15,404,000
$ 14,373,000 $
938,000 $
15,311,000
Equity accounted joint ventures
573,649
(573,649)
Financial real estate assets
Mortgages, loans and notes
receivable
Intangible assets
Accounts receivable and other
assets
Assets held for sale
68,373
(68,373)
263,946
29,000
116,055
—
—
—
562
—
—
—
606,089
(606,089)
22,800
(22,800)
263,946
332,286
29,000
30,000
116,617
—
72,230
97,800
41,990
—
—
10,581
—
9,494
—
—
332,286
30,000
82,811
97,800
51,484
Cash and cash equivalents
207,219
16,498
223,717
Total Assets
$ 15,647,242 $
390,038 $ 16,037,280
$ 15,576,195 $
329,186 $
15,905,381
Liabilities and Equity
Long term debt
Credit facility
Exchangeable Units
Trade payables and other
liabilities
$ 6,485,521 $
363,450 $
6,848,971
$ 6,413,452 $
314,798 $
6,728,250
—
5,149,182
—
—
—
127,233
5,149,182
5,424,368
—
—
127,233
5,424,368
489,999
26,588
516,587
513,124
14,388
527,512
Total Liabilities
12,124,702
390,038
12,514,740
12,478,177
329,186
12,807,363
Equity
Unitholders’ equity
3,514,739
Non-controlling interests
7,801
Total Equity
3,522,540
—
—
—
3,514,739
3,090,217
7,801
7,801
3,522,540
3,098,018
—
—
—
3,090,217
7,801
3,098,018
Total Liabilities and Equity
$ 15,647,242 $
390,038 $ 16,037,280
$ 15,576,195 $
329,186 $
15,905,381
Choice Properties REIT
2020 Annual Report 28
Balance Sheet Analysis (GAAP Basis)
Line Item
$ Change Variance Commentary
Investment properties
and Assets held for
sale
$
Equity accounted
joint ventures
Financial real estate
assets
Mortgages, loans and
notes receivable
Intangible assets
Working Capital
Long term debt and
credit facility
Exchangeable Units
(81,800) The decrease compared to December 31, 2019 is primarily attributable to an unfavourable fair value
adjustment on investment properties of $220,000, and dispositions of $509,000, partially offset by
various property acquisitions for $459,000, development and operating capital expenditures of
$132,000, transfers from equity accounted joint ventures of $43,000 and straight line rent
amortization of $14,000.
(32,440) Net decrease was primarily attributable to transferring the Trust’s 40% interest in a joint venture to
investment properties upon acquisition of the joint venture partner’s 60% share, coupled with an
unfavourable adjustment in the fair value for properties held in joint ventures and higher bad debt
expense.
45,573 Net increase was mainly attributable to the acquisition of a portfolio of five assets from Loblaw. These
assets have been recognized as financial instruments because they did not meet the criteria of a
transfer of control under IFRS 15 due to the sale-leaseback arrangement with Loblaw.
(68,340) The decrease was primarily attributable to the timing of distributions paid for Exchangeable Units of
the Trust held by GWL, which were deferred in exchange for advances on notes receivable. In
addition, a specific mortgage receivable was settled upon acquisition of the underlying investment
property which was used as security for the mortgage. These declines were partially offset by
additional advances to various partners during the year.
(1,000) The decrease was attributable to amortization of the Trust’s intangible assets during the year.
232,179 Net change was primarily due to proceeds received from the net disposition of investment properties,
coupled with a net decline in the distribution payable owing to GWL.
(55,164) Net decrease in debt levels primarily attributable to redemptions of Series E, 8, C, and B-C senior
unsecured debentures totaling $900,000, a $132,000 reduction in draws on the credit facility, and a
$25,000 net decrease in mortgages payable, partially offset by the issuance of Series N, O and P
senior unsecured debentures, totaling $1,000,000.
(275,186) As this liability is measured at fair value, the change was primarily due to the decrease in the unit
price for Choice Properties since December 31, 2019, partially offset by the issuance of
Exchangeable Units as consideration to acquire a portfolio of six industrial assets from GWL in
December 2020.
Unitholders’ equity
424,522 Net increase was primarily due to the issuance of Trust Units on acquisition of two investment
properties, coupled with year-to-date net income, partially offset by distributions to Unitholders.
Choice Properties REIT
2020 Annual Report 29
3.
INVESTMENT PROPERTIES
To expand the portfolio and participate in development opportunities, Choice Properties owns varying interests in real estate
entities that hold investment properties. Under GAAP, many of these interests are recorded as equity accounted joint
ventures and, as such, the Trust’s share of the investment properties owned by these entities is presented on the balance
sheet as a summarized value, not as part of the total investment properties. In addition, the Trust also has financial real estate
assets which are not included with its investment properties as prepared under GAAP. Refer to Section 14.1, “Investment
Properties Reconciliation”, for a reconciliation of the continuity of investment properties determined in accordance with
GAAP.
The following continuity schedule presents Choice Properties’ portfolio inclusive of its financial real estate assets and equity
accounted joint ventures prepared on a proportionate share basis(1) for the periods ended, as indicated:
Three Months
Year Ended
As at or for the periods ended December 31, 2020
($ thousands)
Investment
Properties(i)
Investment
Properties(i)
Income
producing
properties
Properties
under
development
Income
producing
properties
Properties
under
development
GAAP balance, beginning of period
$ 13,845,000 $
235,000 $
14,080,000 $ 14,210,000 $
163,000 $
14,373,000
Adjustments to reflect investment properties held in
equity accounted joint ventures and as financial real
estate assets on a proportionate share basis(i)
Non-GAAP proportionate share balance(1), beginning of
688,000
253,000
941,000
675,000
263,000
938,000
period
14,533,000
488,000
15,021,000
14,885,000
426,000
15,311,000
Acquisitions of investment properties(ii)
219,284
—
219,284
423,778
81,893
505,671
Capital expenditures
Development capital(iii)
Building improvements
Capitalized interest(iv)
Operating capital expenditures
Property capital
Direct leasing costs
Tenant improvement allowances
Amortization of straight-line rent
Transfer from assets held for sale
Transfers from properties under development
Dispositions
Disposition to equity accounted joint venture
Adjustment to fair value of investment properties
Non-GAAP proportionate share balance(1),
—
43,256
43,256
—
145,219
145,219
14,890
—
22,498
2,091
4,873
4,231
32,510
82,846
(66,400)
—
—
1,836
14,890
17,411
1,836
—
—
4,939
—
—
—
—
—
22,498
33,146
2,091
4,873
4,231
8,100
20,850
16,113
32,510
—
—
—
—
—
—
(82,846)
—
197,411
(197,411)
17,411
4,939
33,146
8,100
20,850
16,113
—
—
—
—
(66,400)
(391,878)
—
(9,734)
—
—
(391,878)
(9,734)
77,177
26,754
103,931
(273,197)
16,360
(256,837)
December 31, 2020
$ 14,927,000 $
477,000 $
15,404,000 $ 14,927,000 $
477,000 $
15,404,000
(i)
(ii)
(iii)
(iv)
Refer to Section 14.1, “Investment Properties Reconciliation” for a reconciliation of the continuity of investment properties determined in accordance with GAAP.
Includes acquisition costs.
Development capital included $509 and $995 of site intensification payments paid to Loblaw for the three months and year ended December 31, 2020,
(December 31, 2019 - $353 and $4,577).
Interest was capitalized to qualifying development projects based on a weighted average interest rate of 3.70% (December 31, 2019 - 3.70%).
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”), should Choice Properties pursue
activity resulting in the intensification of the excess land. The fair value of this excess land has been recorded in the
consolidated financial statements.
Choice Properties REIT
2020 Annual Report 30
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 financial real estate assets
and those properties held within equity accounted joint ventures) by asset class:
As at December 31, 2020
Discount rate
Terminal capitalization rate
Overall capitalization rate
As at December 31, 2019
Discount rate
Terminal capitalization rate
Overall capitalization rate
Retail
6.97%
6.22%
6.06%
Retail
6.88%
6.24%
5.97%
Industrial
6.52%
5.73%
5.50%
Industrial
6.51%
5.78%
5.48%
Office
6.21%
5.32%
5.15%
Office
6.05%
5.29%
5.13%
Total Investment Properties
6.84%
6.07%
5.90%
Total Investment Properties
6.77%
6.10%
5.84%
Valuation Commentary
The Trust recorded a favourable adjustment to the fair value of investment properties of $103.9 million for the three months
ended December 31, 2020 and an unfavourable adjustment to the fair value of investment properties of $256.8 million for
the year ended December 31, 2020.
During the three months ended December 31, 2020, the Trust revalued its portfolio primarily through adjustments to
contractual changes in cash flows, changes in market rents, pending transactions and macro considerations. Based on
external data points, the Trust revalued its small and mid bay industrial portfolio in the Greater Toronto Area, reflecting the
strength in leasing fundamentals in this segment and market. In addition, the Trust recognized a fair value increase within
the Quebec industrial segment due to securing a lease agreement with a large multi-national e-commerce provider in the
fourth quarter. Grocery-anchored retail continued to demonstrate ongoing resilience, resulting in moderate fair value
increases due to organic NOI growth within the Loblaw leases. In addition, a $29.0 million fair value gain related to a
development property was recognized after the Trust entered into an agreement to sell the asset. The sale of this property
closed in February 2021.
During the three months ended December 31, 2020, management determined that no major changes in discount rates were
warranted. The net increase in the fair value of investment properties for the quarter was primarily due to a change in leasing
assumptions in the industrial portfolio reflecting the strong underlying fundamentals, substantiated by third party data
points, as well as known leasing transactions. In addition, the resiliency and growth of the grocery anchored portfolio also
positively contributed to fair value increases for the quarter.
Choice Properties REIT
2020 Annual Report 31
Toronto, ON
Toronto, ON(i)
Portfolio of 5
assets across
Canada
Portfolio of 6
assets across
Canada
3.2
Investment Property Transactions
Acquisitions of Investment Properties
The following table summarizes the investment properties acquired in the year ended December 31, 2020:
($ thousands except where otherwise indicated)
Consideration
Location
Acquisition Segment
Date of
Acquisitions from related parties
Ownership
Interest
Acquired
GLA
(square
feet)
Purchase
Price incl.
Related
Costs
Issuance of
Trust /
Exchange-
able Units(ii)
Assumed
Liabilities
Mortgage
Receivable
Settlement
Cost to
Complete
Receivable
Cash
Toronto, ON
Jun 10
Land
100%
N/A $
8,190 $
— $
— $
Jul 31
Jul 31
Office
Office
100%
328,260
130,754
128,500
60%
262,000
65,350
80,435
—
—
— $
—
— $
8,190
—
2,254
—
(16,404)
1,319
Nov 24
Retail
100%
146,000
46,712
—
—
—
—
46,712
Dec 18
Industrial
100%
835,500
82,357
79,100
2,400
—
—
857
Total acquisitions from related parties
1,571,760
333,363
288,035
2,400
—
(16,404)
59,332
Acquisitions from third-parties
Coquitlam, BC
Toronto, ON
Barrie, ON
Portfolio of 4
assets across
Canada
Feb 11
Apr 9
Sep 23
Retail
Land
Retail
100%
9,400
21,840
100%
3,200
8,354
100%
156,460
51,899
Oct 16
Industrial
100%
180,632
87,330
Calgary, AB
Dec 22
Retail
N/A
N/A
2,885
Total acquisitions from third-parties
349,692
172,308
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
21,840
—
8,354
50,000
—
1,899
—
—
—
87,330
—
2,885
50,000
— 122,308
Total acquisitions
1,921,452 $
505,671 $
288,035 $
2,400 $
50,000 $
(16,404) $ 181,640
(i)
(ii)
Represents the 60% additional ownership interest acquired from Wittington, increasing the Trust’s ownership interest in this property to 100%.
The assets acquired from Wittington were satisfied in full by the issuance of 16,500,000 Units of Choice Properties. The assets acquired from GWL were satisfied in full
by the issuance of 5,824,742 Exchangeable Units.
Choice Properties REIT
2020 Annual Report 32
Disposition of Investment Properties and Assets Held for Sale
The following table summarizes the dispositions in the year ended December 31, 2020:
($ thousands except where otherwise indicated)
Consideration
Date of
Disposition
Segment
Ownership
Interest
Sale Price
excl. Selling
Costs
Cash
Lease
Receivable
Debt
Assumed by
Purchaser
Location
Assets held for sale
Chicago, USA
Dispositions of assets held for sale
97,800
97,800
Jan 24
Retail
100%
$
97,800 $
97,800 $
— $
—
—
—
Investment properties
Edmonton, AB
Creston, BC
Halifax, NS
Milton, ON
Jan 29
Residential
Feb 3
Retail (parcel)
Feb 13
Sep 28
Office
Industrial
Portfolio of 11 assets across Canada (ii)
Oct 28
Retail
Quebec City, QC
Nov 23
Retail (parcel)
Portfolio of 3 assets across Canada
Nov 27
Portfolio of 5 assets across Canada (ii)
Windsor, ON (iii)
Dec 1
Dec 23
Retail
Retail
Retail
Dispositions of investment properties
Equity accounted joint ventures
50%
100%
100%
100%
50%
50%
100%
100%
100%
9,750
375
26,700
2,561
375
8,956
22,613
22,613
169,040
169,040
5,000
5,000
64,000
64,000
43,400
43,400
51,000
51,000
391,878
366,945
—
—
—
—
—
—
—
—
—
—
Ottawa, ON
Jul 1
Land
50%(i)
Disposition to equity accounted joint venture
9,734
9,734
—
—
9,734
9,734
7,189
—
17,744
—
—
—
—
—
—
24,933
—
—
Total dispositions
$
499,412 $
464,745 $
9,734 $
24,933
(i)
(ii)
(iii)
On July 1, 2020, the Trust entered into a 99-year ground lease with an equity accounted joint venture in which the Trust has a 50% ownership interest. On a
proportionate share basis(1), the disposition reflects the Trust’s joint venture partner’s 50% interest in the land held by the joint venture, with the lease receivable at the
Trust reflecting the balance owing to the Trust by its joint venture partner for the corresponding ground lease payments.
Choice Properties sold two portfolios consisting of 16 retail properties that were leased to Loblaw.
Property disposition included a Loblaw lease.
Choice Properties REIT
2020 Annual Report 33
Acquisitions of Investment Properties
The following table summarizes the investment properties acquired in the year ended December 31, 2019:
($ thousands except where otherwise indicated)
Location
Date of
Acquisition
Segment
Ownership
Interest
Acquired
GLA
(square
feet)
Acquisitions from related parties
Consideration
Purchase
Price incl.
Related
Costs
Net Debt
Repayment
Mortgage
Receivable
Settlement
Cash
Kingston, ON
Toronto, ON
Langford, BC
Toronto, ON
Mar 7
Mar 7
Sep 25
Retail
Retail
Retail
Dec 13
Industrial
Total acquisitions from related parties
Acquisitions from third-parties
Toronto, ON
Calgary, AB
Toronto, ON
Milton, ON
Milton, ON
Mar 29
Land(i)
May 6
Oct 7
Nov 1
Nov 1
Industrial(ii)
Retail
Industrial
Industrial
100%
100%
100%
100%
50%
50%(ii)
100%
15%(iii)
15%(iii)
37,863 $
6,813 $
— $
— $
6,813
114,864
30,386
127,549
23,462
120,000
13,786
400,276
74,447
—
—
—
—
—
—
—
—
30,386
23,462
13,786
74,447
—
18,862
—
—
18,862
138,772
20,126
13,537
1,401
5,188
16,840
10,918
95,249
14,034
99,746
14,727
—
—
—
—
10,918
11,749
12,330
2,285
2,397
Total acquisitions from third-parties
350,607
78,667
13,537
25,480
39,650
Total acquisitions
750,883 $
153,114 $
13,537 $
25,480 $
114,097
(i)
(ii)
(iii)
Land was under development for residential purposes and classified as properties under development upon acquisition.
The property was acquired as part of an equity accounted joint venture.
Represents additional ownership interest acquired increasing the ownership interest in this property to 100%.
Disposition of Investment Properties
The following table summarizes the dispositions in the December 31, 2019:
($ thousands except where otherwise indicated)
Consideration
Location
Investment properties
Olds, AB (parcel)
Brampton, ON
Cowansville, QC
Portfolio of 30 assets across Canada(i)
Strathcona County, AB
Red Deer, AB
Total dispositions
Date of
Disposition
Segment
Ownership
Interest
Sale Price excl.
Selling Costs
Cash
Jan 7
Apr 15
Aug 7
Sep 30
Nov 22
Dec 2
Retail
Development
Retail
Retail/Industrial
Development
Retail
50%
50%
100%
100%
50%
100%
$
600 $
15,229
1,475
600
15,229
1,475
426,318
426,318
15,786
8,500
15,786
8,500
$
467,908 $
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.
Choice Properties REIT
2020 Annual Report 34
3.3
Development Activities
Choice Properties believes that the development of properties to their highest and best use is a key driver of 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 including retail and industrial projects (see
Section 3.5, “Greenfield Development”), (iii) mixed-use development in urban markets (see Section 3.6, “Mixed-Use
Development”) and (iv) residential development (see Section 3.7, “Residential”).
Choice Properties’ development program on a proportionate share basis(1) as at December 31, 2020 is summarized below:
($ thousands except where otherwise
indicated)
GLA
(square feet)
Total Investment(i)
Project type
Intensification
Retail - Active
Currently
under
development
Future(2)
development
Total
development
To-date In progress(2)(ii) Future(2)(iii)
Total
69,000
—
69,000 $ 15,090 $
10,938 $
— $
26,028
Retail - In Planning
—
128,000
128,000
3,387
—
45,682
49,069
Subtotal intensification
69,000
128,000
197,000
18,477
10,938
45,682
75,097
Greenfield development
Retail
Industrial
169,000
91,000
260,000 161,838
28,900
5,396
196,134
—
259,000
259,000
14,914
2,498
23,152
40,564
Subtotal greenfield development
169,000
350,000
519,000 176,752
31,398
28,548
236,698
Mixed-use
Mixed-use
Subtotal mixed-use
Residential
Residential
Subtotal residential
—
—
897,000
897,000
—
—
—
—
—
55,253
—
55,253
27,528
27,528
—
—
82,781
82,781
897,000 182,719
326,789
—
509,508
897,000 182,719
326,789
—
509,508
Total development - cost
1,135,000
478,000
1,613,000 $ 433,201 $
396,653 $ 74,230 $ 904,084
Total development - fair value
$ 477,000
(i)
(ii)
(iii)
Compiled on non-GAAP proportionate share basis(1). Investment to-date 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.
Choice Properties REIT
2020 Annual Report 35
3.4
Intensification
Intensifications are focused on adding retail density within the existing portfolio. As at December 31, 2020, Choice Properties
had 17 ongoing intensification projects representing a total of 197,000 square feet. This includes:
•
•
5 intensification projects under active development representing 69,000 square feet and a total investment of
approximately $26.0 million to complete(2) over the next one to two years; and
12 intensification projects in planning representing 128,000 square feet. If proceeded with as planned, these projects will
require a total investment of approximately $49.1 million to complete(2) over the next two to four years.
3.5
Greenfield Development
Development activities include greenfield projects that are primarily focused on retail shopping centres and industrial parks.
As at December 31, 2020, Choice Properties had 15 greenfield development projects in the pipeline that, upon completion,
will comprise approximately 0.5 million square feet. A total of $176.8 million has been invested to date in the pipeline. The
Trust currently expects to invest a total of $31.4 million(2) in these projects over the next three to five years.
An advantage of greenfield developments is that they lend themselves to phased construction, thereby creating flexibility to
time developments to take advantage of changing market conditions.
Choice Properties had six greenfield retail properties under active development as at December 31, 2020, representing
169,000 square feet, of which 80% had been pre-leased. To-date, a total of $27.9 million has been invested in these six
developments and the Trust expects to invest an additional $26.1 million to complete the developments before transferring
them to income producing properties(2).
The greenfield projects, at the Trust’s ownership share, currently under active development as at December 31, 2020 are as
follows:
($ thousands except where otherwise indicated)
Project / Location
Retail
GLA
(square feet)
Total investment(i)
Ownership
%
Committed
to lease
Not
committed
to lease
Total
To-date
In progress(2)
Total
1 Harvest Pointe, Edmonton, AB
50 %
18,000
—
18,000 $
2,759 $
5,736 $
8,495
2 Harvest Hills, Edmonton, AB
50 %
49,000
7,000
56,000
6,127
9,928
16,055
3 Sunwapta West (Coopers) Lands, Edmonton, AB
50 %
63,000
—
63,000
12,110
790
12,900
4 Erin Ridge Retail Lands, St. Albert, AB
50 %
3,000
—
3,000
1,250
577
1,827
5 Oshawa Retail Lands, Oshawa, ON
50 %
3,000
4,000
7,000
1,281
1,977
3,258
6 Bathurst and Lake Shore, Toronto, ON
100 %
—
22,000
22,000
4,406
7,060
11,466
Total active greenfield development
136,000
33,000
169,000 $
27,933 $
26,068 $
54,001
Total non-active greenfield development
Total greenfield development
148,819
5,330
$
176,752 $
31,398
(i)
Compiled on a non-GAAP proportionate share basis(1). Investment to-date was compiled on a cash basis, excluding adjustments to fair value of on-going projects.
Choice Properties REIT
2020 Annual Report 36
3.6
Mixed-Use Development
Choice Properties currently has a number of sites planned for mixed-use development with five of these sites in an active
pre-development stage. The five properties are in key urban markets, including four 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 $55.3 million has been invested to date on land acquisition and other initial development
costs. The Trust expects to invest an additional $27.5 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 7 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.
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 approval.
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 and Zoning By-law Amendment Applications were 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 discussions with the City.
685 Warden Ave., Toronto, ON
The approximately 6.5 acre site is located near the intersection of St. Clair Avenue and Warden Avenue in Toronto. The site is
adjacent to the Warden TTC subway station. Choice Properties is currently in the early stages of the development concept
creation.
Choice Properties REIT
2020 Annual Report 37
3.7
Residential
Choice Properties has six residential projects in the pipeline representing 1,119 residential units. As at December 31, 2020, a
total of $182.7 million had been invested in these projects and Choice Properties expects to invest an additional $326.8
million(2) to complete the developments before transferring them to income producing properties. Choice Properties'
residential development projects, at the Trust’s ownership share(1), as at December 31, 2020, are as follows:
($ thousands except where otherwise
indicated)
Project / Location
1 Bovaird West, Brampton, ON
2 Kirkwood Ave., Ottawa, ON (iv)
GLA(ii)
(square feet)
Total investment(ii) (iii)
Ownership
%
Number of
Units
Commercial
under
development
Residential
under
development
Total
To-date
In progress(2)
Total
50 %
50 %
149
126
—
—
149,000 149,000 $
13,747 $
72,752 $ 86,499
101,000 101,000
3,885
47,217 51,102
3 Dufferin St., Toronto, ON
47 %
187
32,000
156,000 188,000
80,159
10,504 90,663
4 East Liberty St., Toronto, ON
5 Sheppard Ave. West, Toronto, ON (i)
6 Grosvenor-Grenville, Toronto, ON (i)
47 %
50 %
50 %
207
100
350
—
127,000 127,000
56,974
21,941 78,915
5,000
64,000
69,000
5,880
32,958 38,838
8,000
255,000 263,000
22,074
141,417 163,491
Total
1,119
45,000
852,000 897,000 $ 182,719 $
326,789 $ 509,508
(i)
(ii)
(iii)
(iv)
Preliminary stages of development.
Choice Properties’ share.
Compiled on a non-GAAP proportionate share basis(1). Investment to-date was compiled on a cash basis, excluding adjustments to fair value of on-going projects.
On July 1, 2020, the Trust entered into a 99-year ground lease with an equity accounted joint venture in which the Trust has a 50% ownership interest. Total investment
represents the Trust’s share of project costs.
Choice Properties REIT
2020 Annual Report 38
3.8
Completed Developments
For the year ended December 31, 2020, Choice Properties transferred the following from properties under development to
income producing properties as presented on a proportionate share basis(1):
($ thousands except where otherwise indicated)
Project / Location
Intensification
1 Mahogany Village Market, Calgary, AB
2 Sunwapta Centre, Edmonton, AB
3 Stony Plain Road, Edmonton, AB
4 Mayor McGrath Drive, Lethbridge, AB
5 Winners Circle, Arnprior, ON
6 South Edmonton Common, Edmonton, AB
7 Pioneer Park, Kitchener, ON
8 Upper Centennial Pkwy, Stoney Creek. ON
9 Highway 2A, Lacombe, AB
Subtotal intensification
Greenfield development
1 Oshawa Retail Lands, Oshawa, ON
2
Erin Ridge Retail Lands, St. Albert, AB
3 Harvest Pointe, Edmonton, AB
4 Bathurst and Lake Shore, Toronto, ON
5 Great Plains Business Park, Calgary, AB
6 Richmond Rd. (Land), Ottawa, ON(i)
Subtotal greenfield development
Total Transferred Properties at Cost
Total Transferred Properties at Fair Value
Property
type
Ownership
%
Transferred GLA
(square feet)
Cost of assets
transferred
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Mixed-Use
Industrial
Retail
100 %
50 %
100 %
100 %
100 %
50 %
100 %
100 %
100 %
50 %
50 %
50 %
100 %
50 %
100 %
4,322 $
3,257
2,065
16,058
7,967
3,530
28,138
3,000
12,639
80,976
11,398
24,636
5,593
2,688
1,336
750
7,543
3,142
1,584
8,909
281
3,673
29,906
4,456
8,088
2,663
237,043
125,352
78,534
n/a
14,718
5,490
357,204
160,767
438,180 $
190,673
$
197,411
(i)
Represents the ground lease with an equity accounted joint venture to facilitate the Kirkwood Ave. residential development project.
3.9
Development Project Capital
Choice Properties expects to invest a total of approximately $403 million, at the Trust’s ownership share(1), by the end of the
year 2023(2).
($ thousands)
Intensification
Greenfield development
Mixed-use
Residential
2021
2022
2023
$
12,000 $
43,000 $
1,000 $
39,000
14,000
90,000
5,000
7,000
101,000
—
5,000
86,000
Estimated total capital annual spend(i)
$
155,000 $
156,000 $
92,000 $
(i) Compiled on a non-GAAP proportionate share basis(1).
Total
56,000
44,000
26,000
277,000
403,000
Choice Properties REIT
2020 Annual Report 39
3.10
Mortgages, Loans and Notes Receivable
As a means to generate acquisition opportunities, Choice Properties has established a program with a group of strong real
estate developers whereby Choice Properties provides mezzanine and/or co-owner financing. Such financing activities
generally provide Choice Properties with an option or other rights to acquire an interest in the developed income producing
property. Mortgages and loans receivable represent amounts advanced under mezzanine loans, joint venture financing,
vendor take-back financing and other arrangements.
($ thousands)
Mortgages receivable
Loans receivable
Notes receivable from related party
Allowance for expected credit losses on mortgage receivable
Mortgages, loans and notes receivable
As at
As at
December 31, 2020
December 31, 2019
$
$
165,470 $
2,285
96,191
—
263,946 $
185,350
5,649
144,287
(3,000)
332,286
Non-interest-bearing short-term notes totalling $144,287 were repaid by GWL in January 2020. Non-interest-bearing short-
term notes totalling $96,191 were issued during 2020 to GWL and repaid in January 2021.
In the first quarter of 2020, the borrower on the Trust’s $23,000 mortgage receivable for an asset in Barrie, Ontario, defaulted
on its loan from the Trust. The loan was secured by a property that is adjacent to a grocery anchored shopping centre owned
by the Trust. The loan was also cross-collateralized by two other properties where the Trust is a joint venture partner with the
borrower. The Trust’s security was subordinate to a senior lender who provided construction financing.
After default, the Trust repaid the borrower’s obligation to the senior lender of $43,000 such that the Trust became the only
secured creditor on the property. In the second quarter of 2020, the Trust applied to the court to have a receiver appointed,
who launched a process to market and sell the property. The Trust submitted an unconditional bid to the receiver to acquire
the property. In September 2020, the Trust’s offer was accepted by the court and ownership of the property was transferred
by court order to the Trust. Upon close of the acquisition, the allowance for expected credit losses associated with this
mortgage receivable was written off.
The Trust has approximately $160 million of secured mortgages to other third-party borrowers. These loans are with
borrowers who are strategic development partners of the Trust and have strong credit metrics.
Choice Properties REIT
2020 Annual Report 40
4.
4.1
LIQUIDITY AND CAPITAL RESOURCES
Major Cash Flow Components
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
2020
2019
2020
2019
Change
Cash and cash equivalents, beginning of period
$
28,301 $
54,946 $
(26,645) $
41,990 $
30,713 $ 11,277
Cash flows from operating activities
255,960
207,460
48,500
621,184
580,556
40,628
Cash flows from (used in) investing activities
43,031
(123,665)
166,696
155,194
61,597
93,597
Cash flows from (used in) financing activities
(120,073)
(96,751)
(23,322)
(611,149)
(630,876)
19,727
Cash and cash equivalents, end of period
$
207,219 $
41,990 $
165,229 $
207,219 $
41,990 $ 165,229
Cash Flows from Operating Activities
Three Months
The increase in cash flows from operating activities is mainly
due to lower working capital requirements, partially offset by
decreased collections in relation to COVID-19.
Year Ended
The increase in cash flows from operating activities is
primarily due to lower working capital requirements, partially
offset by lower net operating income due to the Oak Street
disposition in 2019 and decreased collections in relation to
COVID-19.
Cash flows from operating activities are partially used to fund ongoing operations and expenditures for leasing capital and
property capital(2).
Cash Flows from (used in) Investing Activities
Three Months
The increase in cash flows from investing activities was
from net
primarily due
dispositions completed in current period, partially offset by
an increase in capital spending and net advances to
mortgages receivable.
receipt of proceeds
the
to
Cash Flows from (used in) Financing Activities
Three Months
The increase in cash used in financing activities was
primarily due to the use of proceeds from net dispositions
completed in the fourth quarter to repay the balance
outstanding on the credit facility.
Year Ended
The increase in cash flows from investing activities was
primarily due to net repayments of mortgages, loans, and
notes receivable and a decrease in contributions to equity
accounted joint ventures in the current year, partially offset
by an increase in acquisition and capital spending.
to a decrease
Year Ended
The decrease in cash used in financing activities was mainly
attributable
the net repayment of
borrowings, partially offset by an issuance of Trust units in
the prior year comparative period. The decrease was
partially offset by an increase in distributions paid on
exchangeable units, due to a greater deferral of the
distributions in exchange for notes receivable in the prior
year.
in
Choice Properties REIT
2020 Annual Report 41
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 - proportionate share basis(1)
Unused portion of the credit facility
Liquidity
Unencumbered assets - proportionate share basis(1)
As at
As at
December 31, 2020
December 31, 2019
$
$
$
223,717 $
51,484 $
1,500,000
1,368,000
1,723,717 $
1,419,484 $
12,200,000 $
11,800,000 $
Change
172,233
132,000
304,233
400,000
Base Shelf Prospectus
On March 4, 2020, Choice Properties filed a Short Form Base Shelf Prospectus allowing for the issuance of up to $2,000,000
of Units and debt securities, or any combination thereof over a 25-month period.
4.3
Components of Total Debt
Choice Properties’ debt structure was as follows:
Proportionate
As at December 31, 2020
Share Basis(1)
($ thousands)
GAAP Basis
Weighted
average term to
maturity (years)
Weighted
average interest
rate (%)
Proportionate Share Basis(1)
Construction loans
Credit facility
Less: Debt placement costs(i)
Variable rate debt
Senior unsecured debentures
Mortgages payable
$
25,193 $
166,169
—
—
—
—
25,193
166,169
5,275,000
1,206,638
5,275,000
1,431,451
Less: Debt placement costs, discounts and premiums
(21,310)
(23,649)
Fixed rate debt
Total debt, net
6,460,328
6,682,802
$
6,485,521 $
6,848,971
(i) Unamortized debt placement costs for the credit facility as at December 31, 2020 of $3,337 have been included in other assets.
0.8
—
0.8
6.0
5.3
5.7
2.18%
—%
2.18%
3.61%
3.82%
3.65%
Proportionate Share Basis(1)
As at December 31, 2019
($ thousands)
GAAP Basis
Proportionate
Share Basis(1)
Weighted
average term to
maturity (years)
Construction loans
Credit facility
Less: Debt placement costs
Variable rate debt
Senior unsecured debentures
Mortgages payable
$
24,842 $
132,000
(4,767)
152,075
5,175,000
1,230,569
114,601
132,000
(4,767)
241,834
5,175,000
1,458,224
Less: Debt placement costs, discounts and premiums
(16,959)
(19,575)
Fixed rate debt
Total debt, net
6,388,610
6,613,649
$
6,540,685 $
6,855,483
1.4
3.3
2.4
5.1
5.5
5.2
Weighted
average interest
rate (%)
3.71%
3.46%
3.58%
3.67%
4.01%
3.74%
Choice Properties REIT
2020 Annual Report 42
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 2021 to 2022, have a
maximum amount available to be drawn at the Trust’s ownership interest of $226,145 (December 31, 2019 - $225,477).
As at December 31, 2020, $166,169 was drawn and the construction loans had a weighted average effective interest rate of
2.18% and a weighted average term to maturity of 0.8 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 0.20% or Bankers’ Acceptance
rate plus 1.20%. The pricing is contingent on Choice Properties’ credit ratings from either DBRS and S&P remaining at BBB
(high). As at December 31, 2020, $nil was drawn under the syndicated facility.
The credit facility contains certain financial covenants. As at December 31, 2020, the Trust was in compliance with all its
financial covenants for the credit facility.
Senior Unsecured Debentures
On January 20, 2020, Choice Properties redeemed the $300,000 series 8 senior unsecured debenture bearing interest at
3.60% due April 20, 2020.
On March 3, 2020, Choice Properties completed a $500,000 dual-tranche offering of senior unsecured debentures on a
private placement basis. The first tranche was the $400,000 series N senior unsecured debenture bearing interest at 2.98%
per annum maturing on March 4, 2030, while the second tranche was the $100,000 series O senior unsecured debenture
bearing interest at 3.83% per annum maturing on March 4, 2050. The net proceeds of the issuances were used to repay
existing indebtedness, including the early redemption in full on March 13, 2020, of the $250,000 series E senior unsecured
debenture bearing interest at 2.30% due September 14, 2020.
On May 21, 2020, Choice Properties completed a $500,000 offering on a private placement basis of the series P senior
unsecured debenture bearing interest at 2.85% per annum maturing on May 21, 2027. The net proceeds of the issuance
were used to repay existing indebtedness, including the early redemptions in full on June 12, 2020, of the $100,000 series B-
C senior unsecured debenture bearing interest at 3.06% due January 15, 2021 and the $250,000 series C senior unsecured
debenture bearing interest at 3.50% due February 8, 2021, as well as to repay all or a portion of the balance drawn on the
Trust’s credit facility.
Summary of Total Debt Activities
The following outlines the net changes to the components of Choice Properties’ variable rate debt on a non-GAAP
proportionate share basis(1) during the year ended December 31, 2020:
For the year ended December 31, 2020
($ thousands)
Credit facility Construction loans
Total variable rate
debt
Principal balance outstanding, beginning of year
Net advances (repayments)
Principal balance outstanding, end of year
$
$
132,000 $
114,601 $
(132,000)
51,568
— $
166,169 $
246,601
(80,432)
166,169
The following outlines the changes to the components of Choice Properties’ fixed rate debt on a non-GAAP proportionate
share basis(1) during the year ended December 31, 2020:
For the year ended December 31, 2020
($ thousands)
debentures Mortgages payable
Senior unsecured
Total fixed rate
debt
Principal balance outstanding, beginning of year
$
5,175,000 $
1,458,224 $
6,633,224
Issuances and advances
Repayments
Assumed by purchaser on sale
1,000,000
(900,000)
—
78,049
(79,889)
(24,933)
1,078,049
(979,889)
(24,933)
Principal balance outstanding, end of year
$
5,275,000 $
1,431,451 $
6,706,451
Choice Properties REIT
2020 Annual Report 43
Schedules of Repayments and Cash Flow Activities
The schedule of principal repayment of total long term debt, on a proportionate share basis(1), based on maturity, is as
follows:
As at December 31, 2020
($ thousands)
Senior unsecured
debentures
Construction
loans
Credit facility
Mortgages
payable
2021
2022
2023
2024
2025
Thereafter
$
— $
108,522 $
200,000 $
205,012 $
—
—
—
—
—
57,647
—
—
—
—
600,000
575,000
750,000
550,000
2,600,000
223,740
112,557
160,556
155,957
573,629
Total
513,534
881,387
687,557
910,556
705,957
3,173,629
Total debt outstanding
$
— $
166,169 $
5,275,000 $
1,431,451 $
6,872,620
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 proportionate share basis(1).
The credit facility matures on May 4, 2023.
Includes cash and cash equivalents.
Choice Properties REIT
2020 Annual Report 44
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, 2020 and December 31, 2019.
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)
Interest Coverage Ratio(1)(iii)
As at
As at
December 31, 2020
December 31, 2019
42.7%
3.2x
7.6x
3.7x
43.1%
3.0x
7.3x
3.5x
(i)
(ii)
(iii)
Debt ratios exclude Exchangeable Units. The ratios are non-GAAP financial measures calculated based on the Trust Indentures, as supplemented.
Refer to Section 14.8, “Earnings Before Interest, Taxes, Depreciation, Amortization and Fair Value”, for a reconciliation of net income to EBITDAFV used in
this ratio.
Refer to Section 14.7, “Net Interest Expense and Other Financing Charges Reconciliation”, for a reconciliation of proportionate share basis(1) to GAAP basis
for net interest expense and other financing charges used in the ratio.
(iv) 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, the Debt/EBITDAFV ratio as at December 31, 2019 was 7.5x.
(v)
Normalized Debt to EBITDAFV, net of cash, was 7.4x at December 31, 2020 and 7.2x at December 31, 2019.
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. On September 17, 2020,
DBRS upgraded the Choice Properties rating to BBB (high) with a stable trend, while on June 22, 2020, S&P confirmed the
Choice Properties 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, 2020:
Credit ratings (Canadian standards)
Issuer rating
Senior unsecured debentures
DBRS
Credit rating
BBB (high)
BBB (high)
Trend
Stable
Stable
S&P
Credit rating
BBB
BBB
Outlook
Stable
N/A
Choice Properties REIT
2020 Annual Report 45
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, net of issuance costs
Units issued to related party as part of investment properties acquisition
Distribution in Units
Consolidation of Units
Units issued under unit-based compensation arrangements
Units repurchased for unit-based compensation arrangements
Year ended
December 31, 2020
Year ended
December 31, 2019
310,292,869
278,202,559
—
30,042,250
16,500,000
2,277,457
(2,277,457)
307,877
(159,083)
—
1,569,400
(1,569,400)
2,203,950
(155,890)
Units, end of year
326,941,663
310,292,869
Exchangeable Units, beginning of year
389,961,783
389,961,783
Units issued to related party as part of investment properties acquisition
5,824,742
—
Exchangeable Units, end of year
395,786,525
389,961,783
Total Units and Exchangeable Units, end of year
722,728,188
700,254,652
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.
Units Issued to Related Party as part of Investment Properties Acquisition
During the year ended December 31, 2020, the acquisition of two office assets from Wittington was satisfied in full by the
issuance of 16,500,000 Units of Choice Properties, while the acquisition of six industrial assets from GWL was satisfied in full
by the issuance of 5,824,742 Exchangeable Units.
Distribution in Units and Consolidation of Units
As a result of the increase in taxable income generated primarily from sale transactions in the year ended December 31,
2020, the Board declared a special non-cash distribution on December 31, 2020, of 2,277,457 Units at $0.09 per Unit
totalling $29,425. During 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, 2020 and
2019, the special distributions declared were recorded to Trust Units in accordance with IAS 32, “Financial Instruments:
Presentation”.
Normal Course Issuer Bid (“NCIB”)
Choice Properties may from time to time purchase Units in accordance with the rules prescribed under applicable stock
exchange or regulatory policies. On November 17, 2020, Choice Properties received approval from the TSX to purchase up
to 25,846,904 Units during the twelve-month period from November 19, 2020 to November 18, 2021, by way of a NCIB over
the facilities of the TSX or through alternative trading systems. Choice Properties intends to file a Notice of Intention to make
a NCIB with the TSX upon the expiry of its current NCIB.
Units Issued under Unit-Based Compensation Arrangements
Units were issued as part of settlements under the Unit Option Plan and grants under the Unit-Settled Restricted Unit Plan.
Units Repurchased for Unit-Based Compensation Arrangement
The Trust acquired Units under its NCIB during the year ended December 31, 2020 and the year ended December 31, 2019,
which were then granted to certain employees in connection with the Unit-Settled Restricted Unit Plan, and are subject to
vesting conditions and disposition restrictions.
Choice Properties REIT
2020 Annual Report 46
Distributions
In the year ended December 31, 2020, Choice Properties declared $554,157 in distributions (December 31, 2019 - $532,054),
including distributions to holders of Exchangeable Units, which are reported as interest expense. The distributions declared
for the periods ended December 31, 2020 and December 31, 2019 were as follows:
Three Months
Year Ended
For the periods ended December 31
2020
($ thousands)
Change
2020
2019
2019
Change
Cash distributions declared
$
132,986 $
129,546 $
3,440
$
524,732 $
510,333 $
14,399
Add:
Special non-cash distribution(i)
29,425
21,721
7,704
29,425
21,721
7,704
Total distributions declared
$
162,411 $
151,267 $
11,144
$
554,157 $
532,054 $
22,103
(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). The taxable income allocated to the Trust and Exchangeable Unitholders may vary in
certain taxation years. Over time, such differences, in aggregate, are expected to be minimal.
At its most recent meeting on February 10, 2021, 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.
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. On
April 25, 2018, the Board temporarily suspended the DRIP commencing with the distribution declared in May 2018. In the first
quarter of 2020, the Board determined that the DRIP will remain suspended until further notice.
Choice Properties REIT
2020 Annual Report 47
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 instalments, and the timing of semi-annual debenture instalments, 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 14.5, “Adjusted Cash Flow from Operations”, 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:
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
2020
2019
2020
2019
Change
Adjusted Cash Flow from Operations(1)
$ 166,221
$ 136,636
$ 29,585
$ 592,610
$ 597,650
$
(5,040)
Cash distributions declared
(132,986)
(129,546)
(3,440)
(524,732)
(510,333)
(14,399)
Cash retained after cash distributions
$ 33,235
$ 7,090
$ 26,145
$ 67,878
$ 87,317
$ (19,439)
ACFO(1) payout ratio
Three Months
80.0 %
94.8 %
(14.8) %
88.5 %
85.4 %
3.1 %
Year Ended
ACFO increased compared to the prior year primarily as a result of
an increase in cash flows from operating activities in the current
year, mainly due to lower working capital requirements, partially
offset by an unfavourable adjustment for changes in non-cash
working capital.
ACFO payout ratio decreased primarily due to the increase in ACFO,
partially offset by the increased distributions declared as a result of
the Trust and Exchangeable Units issued in exchange for assets
acquired during the current year.
ACFO decreased primarily due to the unfavourable changes in non-
cash working capital and lower acquisition transaction costs,
partially offset by the increase in cash flows from operating activities
and lower interest expense and financing charges.
ACFO payout ratio increased primarily due to the decline in ACFO
coupled with the increased distributions declared as a result of the
Trust and Exchangeable Units issued in exchange for assets
acquired during the current year.
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. During the year ended December 31, 2020, an interest rate swap was settled upon
maturity of the underlying variable rate mortgage. In addition, a variable rate mortgage was renewed and upfinanced which
resulted in the associated interest rate swap being increased and designated at a higher notional amount. As at December
31, 2020, the interest rates ranged from 1.8% to 4.4% (December 31, 2019 - 1.8% to 5.1%).
The impact of the hedging instruments on the consolidated balance sheets was as follows:
($ thousands)
Derivative assets
Interest rate swaps
Derivative liabilities
Interest rate swaps
Maturity
Date
June 2030
Jan 2021 - Sept 2026
$
$
Notional
As at
As at
Amount
December 31, 2020
December 31, 2019
65,000 $
377 $
182
193,700
6,560
2,811
The unrealized gain and loss recorded in OCI for the three months and year ended December 31, 2020, was a fair value gain
of $1,677 and loss of $3,554, respectively (December 31, 2019 - a fair value gain of $1,793 and loss of $2,044, respectively).
Choice Properties REIT
2020 Annual Report 48
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, 2020, the aggregate gross potential liability related
to these letters of credit totalled $33,916 including $1,543 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, 2019 - $36,110 including $1,790 posted by Loblaw).
4.10 Contractual Obligations
The undiscounted future principal and interest payments on Choice Properties’ debt instruments and other contractual
obligations as at December 31, 2020 were as follows:
($ thousands)
2021
2022
2023
2024
2025
Thereafter
Total
Senior unsecured debentures
$
390,264 $
778,549 $
732,394 $
887,456 $
657,400 $ 3,047,826 $ 6,493,889
Mortgages payable
Construction loans(i)
Credit facility(i)
Lease liability
Other(ii)
Total
254,963
264,818
149,023
191,283
180,032
661,135
1,701,254
108,522
57,647
—
768
—
753
—
—
—
—
633
512
132,083
104,715
86,981
50,033
—
—
351
362
—
—
166,169
—
2,261
5,278
2,005
376,179
$
886,600 $ 1,206,482 $
969,031 $ 1,129,284 $
838,145 $ 3,713,227 $ 8,742,769
(i)
(ii)
Excludes interest on the revolving credit facility and construction loans at a floating interest rate.
As at December 31, 2020, Choice Properties had commitments of $376,179 for future capital expenditures related to ongoing development and property
capital projects, and other contractual obligations such as operating rents, of which $54,708 relates to equity accounted joint ventures.
Choice Properties REIT
2020 Annual Report 49
5.
RESULTS OF OPERATIONS
Choice Properties’ results, as reported under GAAP, for the three months and year ended December 31, 2020 and December
31, 2019 are summarized below:
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
2020
2019
2020
%
Change
2019
Change
%
Change
Net Operating Income
Rental revenue
$ 321,862 $ 317,986 $
3,876
1.2 % $ 1,270,614 $ 1,288,554 $
(17,940)
(1.4) %
Property operating costs
(96,460)
(93,872)
(2,588)
2.8 %
(384,016)
(368,132)
(15,884)
4.3 %
225,402
224,114
1,288
0.6 % 886,598
920,422
(33,824)
(3.7) %
Other Income and Expenses
Interest income
Fee income
Net interest expense and other
2,770
1,136
3,456
1,530
(686)
(19.8) %
13,639
14,551
(394)
(25.8) %
4,416
4,556
(912)
(140)
(6.3) %
(3.1) %
financing charges
(133,121)
(133,893)
772
(0.6) %
(540,720)
(551,843)
11,123
(2.0) %
General and administrative
expenses
Allowance for expected credit
(8,778)
(9,760)
982
(10.1) %
(36,718)
(39,292)
2,574
(6.6) %
losses on mortgage receivable
—
(3,000)
3,000
(100.0) %
(7,830)
(3,000)
(4,830)
161.0 %
Share of income (loss) from equity
accounted joint ventures
9,036
(5,296)
14,332
(270.6) %
(5,570)
24,366
(29,936)
(122.9) %
Amortization of intangible assets
(250)
—
(250)
— %
(1,000)
—
(1,000)
— %
Foreign exchange gain
reclassified from other
comprehensive income
Acquisition transaction costs and
other related expenses
Other fair value gains (losses),
—
—
—
—
—
—
— %
1,184
—
1,184
— %
— %
(1,589)
(8,363)
6,774
(81.0) %
net
1,347
1,744
(397)
(22.8) %
2,210
(7,109)
9,319
(131.1) %
Adjustment to fair value of
Exchangeable Units
Adjustment to fair value of
investment properties
Income (Loss) before Income
(86,370)
206,680
(293,050)
(141.8) % 354,286
(932,009)
1,286,295
(138.0) %
103,601
7,608
95,993
N/M
(220,018)
(4,434)
(215,584)
N/M
Taxes
114,773
293,183
(178,410)
(60.9) % 448,888
(582,155)
1,031,043
(177.1) %
Income tax recovery
1,797
78
1,719
2,203.8 %
1,797
798
999
125.2 %
Net Income (Loss)
$ 116,570 $ 293,261 $ (176,691)
(60.3) % $ 450,685 $ (581,357) $ 1,032,042
(177.5) %
Three Months
The quarterly decrease in net income compared to the prior
year was mainly due to an unfavourable change in the
adjustment to fair value on the Exchangeable Units, partially
offset by a favourable change in the fair value of investment
properties, including those held within equity accounted joint
ventures.
Year Ended
The year-over-year increase in net income was primarily due
to a favourable change in the adjustment to fair value on the
Exchangeable Units and reduced interest and financing
charges, partially offset by declines related to unfavourable
changes in the fair value of investment properties and
increased bad debt expense.
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.
Choice Properties REIT
2020 Annual Report 50
Rental Revenue and Property Operating Costs
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
2020
2019
2020
2019
Change
Net Operating Income
Rental revenue
Property operating costs
$ 321,862 $ 317,986 $
3,876 $ 1,270,614 $ 1,288,554 $
(17,940)
(96,460)
(93,872)
(2,588)
(384,016)
(368,132)
(15,884)
$ 225,402 $ 224,114 $
1,288 $ 886,598 $ 920,422 $
(33,824)
Three Months
Net operating income in the prior year included a non-
recurring reimbursement of contract revenue to Loblaw for
incorrectly allocated solar rooftop leases of $7.1 million.
Excluding this amount, net operating income in 2020 would
have declined compared to 2019, primarily due to the bad
debt expense
the
for
COVID-19 pandemic and the reduced contribution from sold
properties, partially offset by contributions from acquisitions
and development transfers.
tenants affected by
recorded
Year Ended
The decrease in net operating income was primarily driven
by the bad debt expense recorded for tenants affected by
the COVID-19 pandemic and the reduced contribution from
sold properties, partially offset by contributions
from
acquisitions and additional
from completed
development transfers.
revenue
In the current year the Trust and its tenants also benefited
from COVID-related realty tax relief measures provided by
various municipalities. These measures are reflected in net
operating income through a reduction in realty tax expense
and a corresponding decline in realty tax recovery revenue.
Rental revenue is comprised primarily of base rent, including straight-line rent, and recoveries from tenants for property
taxes, insurance, operating costs and qualifying capital expenditures. Growth in rental revenue is materially impacted by
newly acquired or constructed assets.
Property operating costs are comprised primarily of expenses to manage and maintain the properties for the benefit of the
tenants, including realty taxes and insurance, that are recoverable under the leases of most tenants. Non-recoverable
operating costs do not directly benefit the tenants and include property management fees paid by the Trust for properties
managed by its partners.
Interest Income
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
2020
2019
2020
2019
Change
Interest income on mortgages and loans receivable
$
3,013 $
2,838 $
175 $ 12,309 $ 13,621 $
(1,312)
Interest income earned from financial real estate assets
648
Interest income (loss) from financial real estate assets
due to changes in value
Other interest income
Interest Income
378
—
240
270
1,741
378
1,363
(1,148)
(1,148)
17
737
—
552
(1,148)
185
(1,148)
257
$
2,770 $
3,456 $
(686) $ 13,639 $ 14,551 $
(912)
Three Months
The decline in interest income is primarily due to the
unfavourable changes in value for the financial real estate
assets acquired in December 2020, partially offset by
income earned from the acquired financial real estate assets.
Year Ended
The decline in interest income is primarily due to timing of
advances and repayments made on the mortgages and
loans receivable, with fewer mortgages outstanding as
compared to the prior year, as well as unfavourable changes
in value for the financial real estate assets acquired in
December 2020.
These declines were partially offset by full year contribution
in income earned from the prior year acquisition of a
financial real estate asset and other interest income.
Choice Properties REIT
2020 Annual Report 51
Fee Income
Fees charged to third-parties include property management fees, leasing fees and 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”).
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
2020
2019
2020
2019
Change
Fees charged to related party
Fees charged to third-parties
Fee Income
$
221 $
245 $
(24) $
858 $
922 $
915
1,285
(370)
3,558
3,634
(64)
(76)
$
1,136 $
1,530 $
(394) $
4,416 $
4,556 $
(140)
Three Months
Fee income is impacted by changes in the portfolio and the
timing of leasing transactions and project activity. Compared
to prior year, the decline in fee income can be primarily
attributed to a reduction in project and leasing fees, partially
offset by an increase in property management fees related to
the new co-ownerships entered into by the Trust in the
current year.
Net Interest Expense and Other Financing Charges
Year Ended
Fee income is impacted by changes in the portfolio and the
timing of leasing transactions and project activity. The
decline in fee income can be primarily attributed to a
reduction in leasing fees, partially offset by an increase in
property management
the new co-
fees
ownerships entered into by the Trust in the current year.
related
to
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
2020
2019
2020
2019
Change
Interest on senior unsecured debentures(i)
$ 47,826 $ 47,861 $
(35) $ 196,741 $ 182,522 $ 14,219
Interest on mortgages
12,010
12,299
(289)
48,960
51,907
(2,947)
Interest on credit facility and term loans
1,237
2,256
(1,019)
7,316
28,352
(21,036)
Interest on right-of-use asset
41
69
(28)
216
281
Distributions on Exchangeable Units(ii)
72,502
72,143
359
288,932
288,573
(65)
359
Amortization of debt discounts and premiums
94
(923)
1,017
(1,806)
(3,720)
1,914
Amortization of debt placement costs
1,038
1,014
24
4,592
8,352
(3,760)
Capitalized interest
(1,627)
(826)
(801)
(4,231)
(4,424)
193
Net interest expense and other financing charges
$ 133,121 $ 133,893 $
(772) $ 540,720 $ 551,843 $
(11,123)
(i)
(ii)
Includes early redemption premiums of $6.8 million paid during the year ended December 31, 2020.
Represents interest on indebtedness due to related parties.
Three Months
The quarterly decrease was primarily due to a general
reduction in indebtedness as the Trust utilized proceeds
from transaction activity in the current quarter to repay its
credit facility in full, while also benefiting from refinancing
activity over the last year at lower interest rates.
Year Ended
The decrease was primarily due to refinancing activity
completed over the last year at lower interest rates, in
addition to there being lower levels of debt as the term loan
was repaid in the prior year.
This decrease was partially offset by an early redemption
premium paid of $6.8 million for two unsecured debentures
maturing in 2021 that were repaid in the current year.
Choice Properties REIT
2020 Annual Report 52
General and Administrative Expenses
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
2020
2019
2020
2019
Change
Salaries, benefits and employee costs
$ 12,529 $
9,863 $
2,666
$ 47,940 $ 42,999 $
4,941
Investor relations and other public entity costs
Professional fees
Information technology costs
Services Agreement expense charged by related party(i)
Amortization of other assets
Office related costs
Other
Less:
523
1,197
1,420
680
229
509
(194)
483
2,354
1,132
798
30
858
639
16,893
16,157
40
(1,157)
288
(118)
199
(349)
(833)
736
2,318
4,506
4,460
3,095
548
2,590
901
2,128
4,519
3,505
3,095
130
3,705
2,141
190
(13)
955
—
418
(1,115)
(1,240)
66,358
62,222
4,136
Capitalized to investment properties
(1,985)
(733)
(1,252)
(6,682)
(3,055)
(3,627)
Allocated to recoverable operating expenses
(6,130)
(5,664)
(466)
(22,958)
(19,875)
(3,083)
General and administrative expenses
$
8,778 $
9,760 $
(982) $ 36,718 $ 39,292 $
(2,574)
(i) The Services Agreement is described in Section 9, “Related Party Transactions”.
Three Months
The quarterly decline was primarily due to higher salary
related and information technology costs, much of which
was capitalized to investment properties and allocated to
recoverable operating costs. In addition, the Trust had a
decline
fees and office related costs
compared to prior year primarily due to timing of activity.
in professional
Year Ended
The year-to-date decline was primarily due to higher salary
related and information technology costs, much of which
was capitalized to investment properties and allocated to
recoverable operating costs. The Trust also experienced a
reduction in office related costs due to the ongoing work
from home situation on account of the COVID-19 pandemic.
Other Fair Value Gains (Losses), Net
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
2019
2020
2020
2019
Change
Adjustment to fair value of unit-based compensation
$
(1,369) $
1,744 $
(3,113) $
(506) $
(7,109) $
6,603
Fair value gain from release of holdback payable
6,750
— $
6,750
6,750
— $
6,750
Adjustment to fair value on mortgage receivable
classified as FVTPL
(4,034)
— $
(4,034)
(4,034)
—
(4,034)
Other fair value gains (losses), net
$
1,347 $
1,744 $
(397) $
2,210 $
(7,109) $
9,319
Three Months
In the current quarter the Trust recognized a fair value gain
from the derecognition of a holdback payable related to a
prior year acquisition that is no longer owing to the vendor.
Year Ended
In the current year the Trust recognized a fair value gain
from the derecognition of a holdback payable related to a
prior year acquisition that is no longer owing to the vendor.
This fair value gain was partially offset by an unfavourable
adjustment to the fair value of unit based compensation
relative to the prior year, in addition to an unfavourable
adjustment to the
fair value of a specific mortgage
receivable.
the Trust also
In addition,
favourable
adjustment to the fair value of unit based compensation
relative to the prior year, which was partially offset by an
unfavourable adjustment to the fair value of a specific
mortgage receivable.
recognized a
Choice Properties REIT
2020 Annual Report 53
6.
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
adding tenants in complementary business sectors to retail sites anchored by Loblaw food and drug stores.
The following table detail the changes for in-place occupancy by segment for the three months ended December 31, 2020:
(in thousands of
square feet except
where otherwise
indicated)
September 30, 2020
Three Months
December 31, 2020
Leasable Occupied
% Expiries
New Renewals
Occupied
Subtotal:
Absorption
Portfolio
changes(i)
Acquired /
(Disposed)
vacancy Leasable Occupied
Occupied
%
Retail
46,399
45,221
97.5 %
(767)
239
470
(58)
(1,223)
(68)
45,108
43,940
97.4 %
Industrial
16,064
15,522
96.6 %
(404)
260
186
42
1,134
(40)
17,158
16,699
97.3 %
Office
Total
3,448
3,204
92.9 %
(161)
27
92
(42)
158
(1)
3,604
3,320
92.1 %
65,911
63,947
97.0 %
(1,332)
526
748
(58)
69
(109)
65,870
63,959
97.1 %
(i)
Represents changes in occupied square footage arising from acquisitions, dispositions, intensifications, expansions, and transfers from properties under development.
The following table details the changes for in-place occupancy by segment for the year ended December 31, 2020:
(in thousands of
square feet except
where otherwise
indicated)
December 31, 2019
Occupied
Leasable Occupied
% Expiries
New Renewals
Year Ended
December 31, 2020
Subtotal:
Absorption
Portfolio
changes(i)
Acquired /
(Disposed)
vacancy Leasable Occupied
Occupied
%
Retail
46,315
45,371
98.0 %
(1,608)
406
972
(230)
(1,201)
(6)
45,108
43,940
97.4 %
Industrial
16,142
15,807
97.9 %
(2,330) 1,136
970
(224)
1,116
(100)
17,158
16,699
97.3 %
Office
Total
3,188
2,975
93.3 %
(294)
40
175
(79)
425
(9)
3,604
3,320
92.1 %
65,645
64,153
97.7 %
(4,232) 1,582
2,117
(533)
340
(115)
65,870
63,959
97.1 %
(i)
Represents changes in occupied square footage arising from acquisitions, dispositions, intensifications, expansions, and transfers from properties under development.
Three Months
Period end occupancy increased slightly to 97.1% at
December 31, 2020 from 97.0% at September 30, 2020.
The net increase was primarily due to a general reduction in
GLA with net disposition activity during the quarter inclusive
of vacancy being partially offset by negative absorption in
the Ontario retail portfolio.
Year Ended
Period end occupancy declined from 97.7% at December
31, 2019 to 97.1% at December 31, 2020. Negative
absorption during the year was primarily due to vacancies in
the Ontario and Western retail portfolios, as well as the
the
Western
contributions from acquisitions, net of dispositions, and
development transfers.
industrial portfolio, partially offset by
Choice Properties’ principal tenant, Loblaw, represents 55.3% of its total GLA (December 31, 2019 - 56.3%). At December
31, 2020, the weighted average lease term-to-maturity on the Loblaw leases was 7.4 years (December 31, 2019 - 8.2 years).
(in millions of square feet except where otherwise
indicated)
Portfolio
GLA
Occupied
GLA
Occupancy
(%)
Portfolio
GLA
Occupied
GLA
Occupancy
(%)
As at December 31, 2020
As at December 31, 2019
Loblaw banners
Third-party tenants
Total commercial GLA
36.4
29.4
65.8
36.4
27.5
63.9
100.0%
93.5%
97.1%
37.0
28.7
65.7
37.0
27.2
64.2
100.0%
94.8%
97.7%
Choice Properties REIT
2020 Annual Report 54
The lease maturity profile for Choice Properties’ portfolio as at December 31, 2020 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)
433
2,253
3,239
3,264
3,115
3,382
2,494
9,341
1,911
90
7
74
3,891
2,922
3,218
2,730
23,506
—
29,432
36,438
523
2,260
3,313
7,155
6,037
6,600
5,224
32,847
1,911
65,870
0.8 % $
6,559 $
3.4 %
5.0 %
29,436
46,132
10.9 %
100,223
9.2 %
10.0 %
7.9 %
83,549
88,911
84,433
49.9 %
536,216
2.9 %
—
100.0 % $
975,459 $
12.54
13.02
13.92
14.01
13.84
13.47
16.16
16.32
—
14.81
Retail segment
Industrial segment
Office segment
Total
Expiring
GLA
as a % of
total GLA
0.7%
1.9%
GLA
36
813
2.0%
1,616
7.3%
2,002
6.4%
1,501
6.7%
1,966
6.4%
771
Expiring
GLA
as a % of
total GLA
0.1%
1.2%
2.5%
3.0%
2.3%
3.0%
1.2%
Expiring
GLA
as a % of
total GLA
0.2%
GLA
523
0.3%
2,260
0.6%
3,313
0.4%
7,155
0.5%
6,037
0.4%
6,600
0.4%
5,224
GLA
45
200
403
327
313
238
253
35.4%
7,994
12.1%
1,541
2.3%
32,847
16,699
3,320
63,959
1.8%
459
0.7%
284
0.4%
1,911
68.6%
17,158
26.1%
3,604
5.5%
65,870
GLA
442
1,247
1,294
4,826
4,223
4,396
4,200
23,312
43,940
1,168
45,108
Expiring GLA
as a % of
total GLA
0.8 %
3.4 %
5.0 %
10.9 %
9.2 %
10.0 %
7.9 %
49.9 %
2.9 %
100.0 %
(in thousands of square feet
except where otherwise
indicated)
Month-to-month
2021
2022
2023
2024
2025
2026
2027 & Thereafter
Vacant
Total
(in thousands of square feet
except where otherwise
indicated)
Month-to-month
2021
2022
2023
2024
2025
2026
2027 & Thereafter
Occupied GLA
Vacant GLA
Total
Top 10 Tenants
Choice Properties’ ten largest tenants for the three months ended December 31, 2020, represented approximately 63.6% 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 parties to the leases.
Tenants
Loblaw
Canadian Tire
TJX Companies
Dollarama
Goodlife
Staples
Liquor Control Board of Ontario (LCBO)
1.
2.
3.
4.
5.
6.
7.
8. Weston Foods
9.
TD Canada Trust
10.
Lowe's
Total
% of Gross Rental
Revenue
GLA
(square feet)
55.6 %
2.1 %
1.0 %
1.0 %
0.8 %
0.7 %
0.6 %
0.6 %
0.6 %
0.6 %
63.6 %
36,292
1,605
617
522
386
426
220
1,176
153
522
41,919
Choice Properties REIT
2020 Annual Report 55
7.
7.1
RESULTS OF OPERATIONS - SEGMENT INFORMATION
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.
The following table reconciles net income on a proportionate share basis(1) to net income (loss) as determined in accordance
with GAAP for the three months ended December 31, 2020:
($ thousands)
Retail
Industrial
Office
Proportionate
Share Basis(1)
Consolidation
and eliminations(i)
GAAP Basis
Rental revenue, excluding
straight-line rental revenue
and lease surrender revenue
$ 255,534 $
44,066 $ 32,910
$
332,510
$
(14,794) $
317,716
Property operating costs
(74,974)
(12,216)
(14,967)
(102,157)
5,697
(96,460)
180,560
31,850
17,943
230,353
(9,097)
221,256
1,338
680
1,212
1,556
438
173
4,106
1,291
(889)
(362)
3,217
929
182,578
33,500
19,672
235,750
(10,348)
225,402
Net Operating Income, Cash
Basis(1)
Straight line rental 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 (loss) from equity accounted joint ventures
Amortization of intangible assets
Other fair value gains (losses), net
Adjustment to fair value of Exchangeable Units
Adjustment to fair value of investment properties
Income before Income Taxes
Income tax recovery
Net Income (Loss)
3,093
1,136
(135,086)
(8,778)
—
(250)
1,347
(86,370)
103,931
114,773
1,797
$
116,570
$
(323)
—
1,965
—
9,036
—
—
—
(330)
—
—
—
2,770
1,136
(133,121)
(8,778)
9,036
(250)
1,347
(86,370)
103,601
114,773
1,797
$
116,570
(i)
Reconciling items adjust Choice Properties’ proportionate share of joint ventures to reflect the equity method of accounting under GAAP.
Choice Properties REIT
2020 Annual Report 56
The following table reconciles net income on a proportionate share basis(1) to net income (loss) as determined in accordance
with GAAP for the year ended December 31, 2020:
($ thousands)
Retail
Industrial
Office
Proportionate
Share Basis(1)
Consolidation
and eliminations(i)
GAAP Basis
Rental revenue, excluding
straight-line rental revenue
and lease surrender revenue
$ 1,031,576 $ 171,470 $ 111,178
$
1,314,224
$
(59,514) $
1,254,710
Property operating costs
(313,898)
(46,700)
(45,545)
(406,143)
22,127
(384,016)
717,678
124,770
65,633
8,538
1,053
4,172
3,403
989
278
908,081
16,113
2,320
(37,387)
(2,167)
(362)
870,694
13,946
1,958
727,269
129,931
69,314
926,514
(39,916)
886,598
Net Operating Income, Cash
Basis(1)
Straight line rental 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
Allowance for expected credit losses on mortgage receivable
Share of income (loss) from equity accounted joint ventures
Amortization of intangible assets
Foreign exchange gain reclassified from other comprehensive income
Acquisition transaction costs and other related expenses
Other fair value gains (losses), net
Adjustment to fair value of Exchangeable Units
Adjustment to fair value of investment properties
Income before Income Taxes
Income tax recovery
Net Income (Loss)
13,053
4,416
(548,801)
(36,718)
(7,830)
—
(1,000)
1,184
(1,589)
2,210
354,286
(256,837)
448,888
1,797
$
450,685
$
586
—
8,081
—
—
(5,570)
—
—
—
—
—
36,819
—
—
—
13,639
4,416
(540,720)
(36,718)
(7,830)
(5,570)
(1,000)
1,184
(1,589)
2,210
354,286
(220,018)
448,888
1,797
$
450,685
(i)
Reconciling items adjust Choice Properties’ proportionate share of joint ventures to reflect the equity method of accounting under GAAP.
Choice Properties REIT
2020 Annual Report 57
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 14.2, “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(1)
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, 2020, 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(1) to incorporate Choice Properties’ investment in equity
accounted joint ventures as if they were owned directly for the three months and year ended December 31, 2020 and
December 31, 2019 as summarized below.
Summary - Accounting Basis
Three Months
Year Ended
For the periods ended December 31
($ thousands)
%
Change
Change
2020
2019
2020
2019
Change
%
Change
Rental revenue
$ 287,459 $ 292,511 $
(5,052)
(1.7) % $ 1,151,769 $ 1,151,521 $
248
— %
Straight line rental revenue
1,326
4,094
(2,768)
(67.6) %
10,340
20,658
(10,318)
(49.9) %
Property operating costs excluding
bad debt expense
Same-Asset NOI, Accounting Basis,
excluding bad debt expense
(84,203)
(86,661)
2,458
(2.8) %
(335,175)
(342,153)
6,978
(2.0) %
204,582
209,944
(5,362)
(2.6) %
826,934
830,026
(3,092)
(0.4) %
Bad debt expense
(2,089)
38
(2,127)
N/M
(21,062)
(856)
(20,206)
N/M
Same-Asset NOI, Accounting Basis
202,493
209,982
(7,489)
(3.6) %
805,872
829,170
(23,298)
(2.8) %
Transactions NOI including straight
line rental revenue, excluding
bad debt expense
33,369
30,601
2,768
120,949
138,341
(17,392)
Bad debt expense
(1,403)
(12)
(1,391)
(2,627)
(6)
(2,621)
Transactions NOI, Accounting Basis
31,966
30,589
1,377
118,322
138,335
(20,013)
Reimbursed contract revenue
—
(7,100)
7,100
—
(7,100)
7,100
Lease surrender revenue
1,291
1,306
(15)
2,320
3,678
(1,358)
Total NOI, Accounting Basis
$ 235,750 $ 234,777 $
973
$ 926,514 $ 964,083 $ (37,569)
Choice Properties REIT
2020 Annual Report 58
Summary - Cash Basis
Three Months
Year Ended
For the periods ended December 31
($ thousands)
%
Change
Change
2020
2019
2020
2019
Change
%
Change
Rental revenue
$ 287,459
$ 292,511
$
(5,052)
(1.7) % $ 1,151,769
$ 1,151,521
$
248
— %
Property operating costs excluding
bad debt expense
Same-Asset NOI, Cash Basis,
excluding bad debt expense
(84,203)
(86,673)
2,470
(2.8) %
(335,175)
(342,068)
6,893
(2.0) %
203,256
205,838
(2,582)
(1.3) % 816,594
809,453
7,141
0.9 %
Bad debt expense
(2,089)
38
(2,127)
N/M
(21,062)
(856)
(20,206)
N/M
Same-Asset NOI, Cash Basis
201,167
205,876
(4,709)
(2.3) % 795,532
808,597
(13,065)
(1.6) %
Transactions NOI excluding bad
debt expense
30,589
29,085
1,504
115,176
132,729
(17,553)
Bad debt expense
(1,403)
(12)
(1,391)
(2,627)
(6)
(2,621)
Transactions NOI, Cash Basis
29,186
29,073
113
112,549
132,723
(20,174)
Total NOI, Cash Basis
$ 230,353
$ 234,949
$
(4,596)
$ 908,081
$ 941,320
$ (33,239)
Three Months
Same-asset NOI on a cash basis in the current quarter
included increases from contractual rent steps in the retail
segment, partially offset by bad debt provisions and lower
parking revenue. In addition, prior year NOI included one-
time adjustments for solar revenue and capital recoveries
that led to increased NOI in the prior year quarter.
Year Ended
NOI decreased on a year-to-date basis primarily due to
higher bad debt expense recorded on account of COVID-19.
Excluding bad debt expense, same-asset NOI increased
0.9% on a cash basis primarily driven by leasing activity and
contractual rent steps in the retail segment, in addition to
increased contribution across all asset classes.
The increase in transaction NOI was primarily due to the
contribution from acquisitions and development transfers
throughout the year, partially offset by foregone NOI from
sold properties.
The decline in transaction NOI was primarily due to the
properties sold as part of the Oak Street disposition, partially
offset by the contribution from acquisitions and development
transfers.
In addition, during the year ended December 31, 2020, the
Trust and its tenants benefited from COVID-related realty tax
relief measures provided by various municipalities. These
measures are reflected in NOI through a reduction in realty
tax expense and a corresponding decline in realty tax
recovery revenue.
Choice Properties REIT
2020 Annual Report 59
Retail Segment
Three Months
For the periods ended December 31
($ thousands)
%
Change
Change
2020
2019
2020
Year Ended
2019
Change
%
Change
Rental revenue
$ 224,499
$ 228,521
$
(4,022)
(1.8) % $ 903,061
$ 901,559
$ 1,502
0.2 %
Property operating costs excluding
bad debt expense
Same-Asset NOI, Cash Basis,
excluding bad debt expense
Bad debt expense
(63,680)
(66,410)
2,730
(4.1) % (258,363)
(263,707)
5,344
(2.0) %
160,819
162,111
(1,415)
8
(1,292)
(1,423)
(0.8) % 644,698
637,852
6,846
N/M (18,372)
(687)
(17,685)
1.1 %
N/M
Same-Asset NOI, Cash Basis
159,404
162,119
(2,715)
(1.7) % 626,326
637,165
(10,839)
(1.7) %
Transactions NOI excluding bad
debt expense
22,468
24,590
(2,122)
93,850
107,299
(13,449)
Bad debt expense
(1,312)
(2)
(1,310)
(2,498)
—
(2,498)
Transactions NOI, Cash Basis
21,156
24,588
(3,432)
91,352
107,299
(15,947)
Total NOI, Cash Basis
$ 180,560
$ 186,707
$
(6,147)
$ 717,678
$ 744,464
$ (26,786)
Three Months
The 0.8% decrease in same-asset NOI excluding bad debt
expense was primarily driven by a reduction in capital
recoveries from investments in income producing properties
due to timing, partially offset by contractual rental steps in
the Ontario and Western regions.
Transaction NOI declined primarily due to the foregone
income from current year dispositions, partially offset by the
contribution from acquisitions and development transfers.
Year Ended
The 1.1% increase in same-asset NOI excluding bad debt
expense was primarily driven by
leasing activity and
contractual rent steps across the Ontario and Western
regions.
The decline in transaction NOI was primarily due to the
properties sold as part of the Oak Street disposition, partially
offset by the contribution from acquisitions and development
transfers.
Industrial Segment
Three Months
For the periods ended December 31
($ thousands)
%
Change
Change
2020
2019
2020
Year Ended
2019
Change
%
Change
Rental revenue
$ 37,609
$ 37,943
$
(334)
(0.9) % $ 148,856
$ 148,767
$
89
0.1 %
(10,451)
(10,017)
(434)
4.3 % (39,710)
(39,944)
234
(0.6) %
Property operating costs excluding
bad debt expense
Same-Asset NOI, Cash Basis,
excluding bad debt expense
Bad debt expense
Same-Asset NOI, Cash Basis
26,981
27,930
27,158
27,926
(177)
4
(768)
(181)
(949)
(2.8) % 109,146
108,823
N/M
(779)
(49)
(3.4) % 108,367
108,774
323
(730)
(407)
0.3 %
N/M
(0.4) %
Transactions NOI excluding bad
debt expense
4,873
3,807
1,066
16,407
22,897
(6,490)
Bad debt expense
(4)
—
(4)
(4)
(1)
(3)
Transactions NOI, Cash Basis
4,869
3,807
1,062
16,403
22,896
(6,493)
Total NOI, Cash Basis
$ 31,850
$ 31,737
$
113
$ 124,770
$ 131,670
$ (6,900)
Three Months
Same-asset NOI excluding bad debt expense decreased by
2.8% on a cash basis primarily due to a reduction in capital
recoveries from investments in income producing properties
due to timing,
Transaction NOI increased as compared to the prior year
mainly due to the contribution
from acquisitions and
development transfers.
Year Ended
Same-asset NOI excluding bad debt expense increased by
0.3% on a cash basis primarily due to positive leasing
activity in the Ontario region
Transaction NOI decreased as compared to the prior year
mainly due to the 2019 Oak Street dispositions. offset by
contribution from acquisitions and development transfers.
Choice Properties REIT
2020 Annual Report 60
Office Segment
Three Months
For the periods ended December 31
($ thousands)
%
Change
Change
2020
2019
2020
Year Ended
2019
Change
%
Change
Rental revenue
$ 25,351
$ 26,047
$
(696)
(2.7) % $ 99,852
$ 101,195
$
(1,343)
(1.3) %
Property operating costs excluding
bad debt expense
Same-Asset NOI, Cash Basis,
excluding bad debt expense
Bad debt expense
(10,072)
(10,246)
174
(1.7) % (37,102)
(38,502)
1,400
(3.6) %
15,279
15,801
(497)
26
(522)
(523)
(3.3) % 62,750
62,693
57
0.1 %
N/M
(1,911)
(120)
(1,791)
N/M
Same-Asset NOI, Cash Basis
14,782
15,827
(1,045)
(6.6) % 60,839
62,573
(1,734)
(2.8) %
Transactions NOI excluding bad
debt expense
Bad debt expense
Transactions NOI, Cash Basis
3,248
(87)
3,161
688
(10)
678
2,560
(77)
2,483
4,919
2,630
2,289
(125)
(17)
(108)
4,794
2,613
2,181
Total NOI, Cash Basis
$ 17,943
$ 16,505
$ 1,438
$ 65,633
$ 65,186
$
447
Three Months
Same-asset NOI excluding bad debt expense decreased by
3.3% on a cash basis primarily due to lower transient parking
revenue, partially offset by positive leasing activity in the
Ontario and Quebec regions.
Year Ended
Same-asset NOI excluding bad debt expense on a cash
basis was in line with prior year as positive leasing activity in
the Ontario and Western regions was partially offset by lower
transient parking revenue.
The increase in transaction NOI is mainly due to the
acquisition of two office assets in Toronto during the prior
quarter.
increase
The
in transaction NOI was mainly due to
contributions from the two office assets acquired in July
2020, partially offset by the year-to-date foregone revenue
from an office property sold in the first quarter of 2020.
Choice Properties REIT
2020 Annual Report 61
7.3
Other Key Performance Indicators
FFO(1) and AFFO(1) are included in the Trust’s summary of key performance indicators. See Section 14, “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 uses these measures. FFO(1) and AFFO(1) for the three months and year ended December
31, 2020 and December 31, 2019 are summarized below:
For the periods ended December 31
2020
($ thousands)
Change
2020
2019
Three Months
Year Ended
2019
Change
Funds from Operations(1)
$ 171,519
$ 165,795
FFO(1)(i) per unit basic
FFO(1)(i) per unit diluted
$
$
0.239
0.239
$
$
0.237
0.237
FFO(1)(i) payout ratio - diluted
77.5 %
78.1 %
Adjusted Funds from Operations(1)
$ 136,054
$ 129,187
AFFO(1)(i) per unit basic
AFFO(1)(i) per unit diluted
$
$
0.190
0.189
$
$
0.184
0.184
$
$
$
$
$
$
5,724
$ 652,007
$ 680,278
0.002
0.002
$
$
0.922
0.921
$
$
0.987
0.987
(0.6) %
80.5 %
75.0 %
6,867
$ 566,469
$ 587,695
0.006
0.005
$
$
0.801
0.800
$
$
0.853
0.853
$
$
$
$
$
$
(28,271)
(0.065)
(0.066)
5.5 %
(21,226)
(0.052)
(0.053)
AFFO(1)(i) payout ratio - diluted
97.7 %
100.3 %
(2.6) %
92.6 %
86.8 %
5.8 %
Distribution declared per Unit
$
0.185
$
0.185
$
—
$
0.740
$
0.740
$
—
Weighted average Units outstanding
- basic
717,789,820
700,251,450
17,538,370
707,545,107
689,016,850
18,528,257
Weighted average Units
outstanding - diluted
Number of Units outstanding, end
718,026,576
700,544,380
17,482,196
707,764,714
689,285,790
18,478,924
of period
722,728,188
700,254,652
22,473,536
722,728,188
700,254,652
22,473,536
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 14.3, “Funds from Operations”, for a reconciliation of FFO(1) to net income determined in accordance with GAAP.
Three Months
Funds from operations increased in the current quarter
primarily due to non-recurring activity in the prior year which
included the reimbursement of revenue to Loblaw for
incorrectly allocated solar rooftop leases and an allowance
for expected credit losses on a mortgage receivable,
coupled with lower borrowing and general and administrative
costs in the current year, partially offset by higher bad debt
expense.
Year Ended
The decrease in FFO on an annual basis was primarily due
to a reduction in net operating income attributable to the
Oak Street disposition and an increase in bad debt expense,
partially offset by lower borrowing costs from the use of
proceeds from de-leveraging activities and capital recycling.
The change on a per unit basis was also impacted by the higher weighted average number of units outstanding as a result of:
(i) the May 2019 equity offering where proceeds were used to lower debt levels, (ii) the Trust units issued as consideration for
the acquisition of two assets from Wittington in July 2020 and (iii) the Exchangeable Units issued as consideration for the
acquisition of six assets from Weston Foods (Canada) Inc., a wholly-owned subsidiary of GWL, in December 2020.
Choice Properties REIT
2020 Annual Report 62
Adjusted Funds from Operations (“AFFO”)(1)
Choice Properties calculates 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 excluded from the calculation for management’s review
purposes. Refer to Section 14.4, “Adjusted Funds from Operations”, for a reconciliation of AFFO(1) to net income determined
in accordance with GAAP.
Three Months
Adjusted funds from operations increased during the current
quarter primarily due to an increase in FFO, a decline in
tenant improvements and direct leasing costs, as well as
straight line rental revenue, partially offset by an increase in
property capital costs.
The decrease in the AFFO payout ratio was primarily as a
result of the increase in the AFFO for the quarter, partially
offset by the higher weighted average number of units
outstanding as discussed above.
Year Ended
Adjusted funds from operations declined primarily due to an
overall reduction in funds from operations and increased
spending on property capital and internal leasing costs,
partially offset by a reduction in straight line rental revenue.
The increase in the AFFO payout ratio was primarily due to
the reduction in AFFO during the year, coupled with a higher
weighted average number of units outstanding as discussed
above.
Operating Capital Expenditures
Choice Properties endeavours to fund operating capital requirements from cash flows from operations.
For the periods ended December 31
($ thousands)
Change
2020
2019
2020
Three Months
Year Ended
2019
Change
Property capital
Leasing capital:
Direct leasing costs
Tenant improvement allowances
Total operating capital expenditures,
proportionate share basis(1)
$
22,498 $
18,859 $
3,639
$
33,146 $
30,658 $
2,488
2,091
4,873
3,099
7,413
(1,008)
(2,540)
8,100
8,172
20,850
21,417
(72)
(567)
$
29,462 $
29,371 $
91
$
62,096 $
60,247 $
1,849
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, 2020, Choice Properties
incurred $33,146 of property capital expenditures, which may be recoverable from tenants under the terms of their leases
over the useful life of the improvements (2019 - $30,658). Recoverable capital improvements may include items such as
parking lot resurfacing and roof replacements. These items are recorded as part of investment properties and the recoveries
from tenants are recorded as revenue.
Leasing Capital
Capital expenditures for leasing activities, such as leasing commissions or tenant improvement allowances, are considered to
be operational and are deducted in the calculation of AFFO(1) and ACFO(1). Leasing capital varies with tenant demand and the
balance between new and renewal leasing, as capital expenditures relating to securing new tenants are generally higher than
the costs for renewing existing tenants.
Choice Properties REIT
2020 Annual Report 63
8.
QUARTERLY RESULTS OF OPERATIONS
The following is a summary of selected consolidated financial information for each of the eight most recently completed
quarters.
($ thousands except where
otherwise indicated)
Fourth
Quarter
2020
Number of investment properties
731
Gross leasable area
(in millions of square feet)
66.1
Third
Quarter
2020
725
66.1
Second
Quarter
2020
724
65.6
First
Quarter
2020
724
65.6
Fourth
Quarter
2019
726
65.8
Third
Quarter
2019
726
65.5
Second
Quarter
2019
756
68.0
First
Quarter
2019
756
67.7
Occupancy
97.1 %
97.0 %
96.8 %
97.5 %
97.7 %
97.8 %
97.7 %
97.4 %
Rental revenue (GAAP)
$ 321,862
$ 308,956
$ 314,885
$ 324,911
$ 317,986
$ 323,306
$ 324,289
$ 322,973
Net income (loss)
Net income (loss) per Unit
Net income (loss) per Unit
diluted
Net operating income,
cash basis(1)
$ 116,570
$
$
0.161
0.162
$
$
$
97,186
0.136
0.137
$
$
$
(95,813)
$ 332,742
$ 293,261
$
(210,796)
$ 238,310
$
(902,132)
(0.137)
(0.137)
$
$
0.475
0.475
$
$
0.419
0.419
$
$
(0.301)
(0.301)
$
$
0.341
0.347
$
$
(1.348)
(1.346)
$ 230,353
$ 229,891
$ 216,431
$ 231,531
$ 234,949
$ 239,047
$ 234,715
$ 232,609
FFO(1)
$ 171,519
$ 169,173
$ 140,645
$ 170,670
$ 165,795
$ 174,982
$ 170,241
$ 169,260
FFO(1) per Unit - diluted
$
0.239
$
0.238
$
0.201
$
0.244
$
0.237
$
0.250
$
0.248
$
0.252
AFFO(1)
$ 136,054
$ 147,594
$ 131,173
$ 151,773
$ 129,187
$ 152,032
$ 151,803
$ 154,673
AFFO(1) per Unit - diluted
Distribution declared per Unit
Market price per Unit - closing
$
$
$
0.189
0.185
13.01
$
$
$
0.207
0.185
12.78
$
$
$
0.187
0.185
12.74
$
$
$
0.217
0.185
12.92
$
$
$
0.184
0.185
13.91
$
$
$
0.217
0.185
14.44
$
$
$
0.221
0.185
13.68
$
$
$
0.231
0.185
14.06
Units outstanding, period end
722,728,188
716,903,446
700,403,446
700,403,446
700,254,652
700,247,802
699,572,174
669,312,915
Debt to total assets(i)
Debt service coverage(i)
42.7 %
43.8 %
44.3 %
43.8 %
43.1 %
43.5 %
45.0 %
47.6 %
3.2x
3.0x
2.6x
3.1x
3.0x
3.1x
3.0x
3.0x
(i)
The Exchangeable Units are excluded from the debt ratio calculations. The ratios are non-GAAP financial measures calculated based on the Trust Indentures, as
supplemented.
Choice Properties’ quarterly results were impacted by acquisition and disposition activity and the development of additional
GLA. 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.
Choice Properties REIT
2020 Annual Report 64
9.
RELATED PARTY TRANSACTIONS
Choice Properties’ parent corporation is George Weston Limited (“GWL”), which as at December 31, 2020, held a 61.8%
direct effective interest in the Trust through ownership of 50,661,415 Units and all of the Exchangeable Units, which are
economically equivalent to and exchangeable to Units. GWL is also the parent company of Loblaw, with ownership of 52.6%
of Loblaw’s outstanding common shares as at December 31, 2020.
In the normal course of operations, 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 55.6% of Choice Properties’ quarterly rental revenue on a proportionate share basis(1) and
55.3% of its commercial GLA as at December 31, 2020 (December 31, 2019 - 56.3% and 56.3%, respectively).
Acquisitions
During the year ended December 31, 2020, Choice Properties acquired six industrial assets from Weston Foods (Canada)
Inc., a wholly-owned subsidiary of GWL, for a purchase price of $81,500, excluding transaction costs. The acquisition was
satisfied in full through the issuance of 5,824,742 Exchangeable Units for $79,100 and assumed liabilities of $2,400.
During the year ended December 31, 2020, Choice Properties acquired a development property from Loblaw for a purchase
price of $8,100, excluding transaction costs. Choice Properties also acquired from Loblaw five financial real estate assets for
a purchase price of $45,673, excluding transaction costs. Each acquisition was settled with cash.
On July 31, 2020, Choice Properties acquired two real estate assets from Wittington Properties Limited, a subsidiary of
Wittington, for an aggregate purchase price of $208,935, excluding transaction costs, which was satisfied in full by the
issuance of 16,500,000 Units of Choice Properties. The transaction was measured at market terms and conditions. The
assets acquired included: (i) an office property in Toronto, Ontario, for $128,500 and (ii) the remaining 60% interest of the
joint venture for 500 Lake Shore Boulevard West in Toronto, Ontario, for $80,435, less a cost-to-complete receivable of
$16,404, giving the Trust 100% ownership of the joint venture.
During 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 Trust also acquired
an industrial property from GWL for a purchase price of $13,250, excluding transaction costs. All transactions were settled
with cash.
Dispositions
During the year ended December 31, 2020, Choice Properties disposed interests in 17 retail properties which had Loblaw
leases for an aggregate sale price of $263,440, excluding transaction costs.
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. 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 additional dispositions of retail properties which had
Loblaw leases, for an aggregate sale price of $9,975, excluding transaction costs.
Operating Lease
Choice Properties was a tenant in an acquired office asset in Toronto, Ontario, having entered into a ten-year lease with
Wittington Properties Limited, in 2014 with lease payments totalling $2,664 over the term of the lease. As of the acquisition
date, Choice Properties derecognized its right-of-use assets and lease liabilities associated with the office lease and ceased
paying rent to Wittington Properties Limited.
Lease Surrender Payments
In the year ended December 31, 2019, Loblaw made lease surrender payments of $3,156 to the Trust.
Services Agreement
For the year ended December 31, 2020, GWL provided Choice Properties with corporate, administrative and other support
services for an annualized cost of $3,095 (2019 - $3,095).
Choice Properties REIT
2020 Annual Report 65
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 has the right of first offer to purchase any property in Canada that Loblaw seeks to sell;
Loblaw is 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.
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
are calculated in accordance with a payment grid that takes into account the region, market ranking and type of use for the
property.
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. The property management agreement was terminated effective
December 31, 2020.
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.
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. The sublease administration agreement was terminated effective December 31,
2020.
Site Intensification Payments
Choice Properties compensated Loblaw with intensification payments of $995 in connection with completed gross leasable
area for which tenants took possession during the year ended December 31, 2020 (December 31, 2019 - $4,577).
Distributions on Exchangeable Units
GWL holds all of the Exchangeable Units issued by Choice Properties Limited Partnership, a subsidiary of Choice Properties.
During the three months and year ended December 31, 2020, distributions declared on the Exchangeable Units totalled
$72,502 and $288,932 (December 31, 2019 - $72,143 and $288,573) of which $120,598 were payable to GWL (December 31,
2019 - $168,334).
Trust Unit Distributions
In the three months and year ended December 31, 2020, Choice Properties declared cash distributions of $9,373 and
$37,490 on the Units held by GWL (December 31, 2019 - $9,372 and $36,551). For the three months and year ended
December 31, 2020, $4,660 of non-cash distributions were settled through the issuance of additional Trust Units (December
31, 2019 - $3,546). As at December 31, 2020, $3,124 of Trust Unit distributions declared were payable to GWL
(December 31, 2019 - $3,124).
Joint Venture
On December 9, 2014, Choice Properties and its joint venture partner, Wittington Properties Limited, completed the
acquisition of 500 Lake Shore Boulevard West in Toronto, Ontario, for $15,576 from Loblaw. Choice Properties accounted for
its investment in the joint venture as an equity accounted joint venture until July 31, 2020, when the Trust acquired the
remaining 60% interest from Wittington Properties Limited, after which the 100% owned joint venture is accounted for on a
consolidated basis. Wittington Properties Limited will continue to act as development and construction manager for the
commercial space at 500 Lake Shore Boulevard West until development is completed. The Trust recorded a $16,404
receivable from Wittington Properties Limited for 60% of the remaining costs to complete the development.
Choice Properties contributed $6,200 to the joint venture and received distributions of $nil during the year ended December
31, 2020 (December 31, 2019 - contributions $13,240 and distributions $nil). The joint venture earned interest income during
the year ended December 31, 2020 of $2,102 (2019 - $86).
Choice Properties REIT
2020 Annual Report 66
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.
a.
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 properties acquired in the current year to be asset acquisitions.
Key Sources of Estimation
The fair value of income producing properties is dependent on future cash flows over the holding period and terminal
capitalization rates and discount rates applicable to those assets. The review of future cash flows involves assumptions
relating to occupancy, rental rates and residual value. In addition to reviewing future 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.
d.
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.
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11.
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, 2020.
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 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 2020 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, 2020.
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12.
ENTERPRISE RISKS AND RISK MANAGEMENT
Choice Properties is committed to maintaining a framework that ensures risk management is an integral part of its activities.
The effective governance and management of risk within the Trust is a key priority for the Board and management and, to this
end, the Trust has adopted an 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 plans throughout the
business.
Risks are not eliminated through the ERM program, but rather, are identified and managed in line with the Trust’s risk
appetite and within approved risk tolerances. The ERM program is designed to:
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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;
develop a process to assess and ensure that the Trust engages in activities that are within the approved risk
appetite and tolerance levels;
promote a culture of awareness of risk management and compliance within the Trust;
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, through the Audit Committee, oversees the ERM program, including a review of the Trust’s risks and risk
prioritization, annual approval of the ERM policy and Risk Appetite Statement. The Risk Appetite Statement articulates key
aspects of the Trust, values, and brands and provides directional guidance on risk taking. Management is responsible for
managing risk and implementing risk mitigation strategies and operating within the approved risk appetite thresholds.
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.
On a quarterly basis, 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 and anticipated impacts in future quarters. In addition, the long-term
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.
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12.1
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. The duration and full impact of the
COVID-19 pandemic on the Trust remains unknown at this time. As such, it is not possible to reliably estimate the length and
severity of COVID-19 related impacts on the future financial results and operations of the Trust.
As a response to the COVID-19 pandemic, the Trust introduced several protocols to protect its employees, tenants and
guests including mandating that employees work from home to the full extent possible, increasing sanitation and health and
safety measures at its properties and restricting access to its office buildings. The Trust established a COVID-19 response
team to coordinate critical aspects of crisis management and continues to actively execute its pandemic plan to ensure
business continuity while safeguarding the well being of its employees, tenants, and guests.
As the pandemic evolves, the Trust continues to support its tenants and employees. The Trust implemented additional safety
measures at all of its properties, including increased frequency in cleaning and disinfecting as well as physical distancing
practices. Furthermore, the Trust will continue to act according to direction provided by the federal, provincial and municipal
governments. With the rise in the number of COVID-19 cases globally and mutations of the virus, the Trust continues to
prepare for this and other future waves of the pandemic as well as the implications of economic recovery and opening
activities. The Trust continues to closely monitor business operations and may take further actions in response to directives
of government and public health authorities or that are in the best interests of employees, tenants, suppliers or other
stakeholders, as necessary.
These changes and any additional changes in operations in response to COVID-19 could materially adversely impact the
financial results of the Trust and may include tenants’ ability to pay rent in full or at all, consumer demand for tenants’
products or services, impact to the fair value of the Trust’s properties and other investments, potential changes in leasing
activity, temporary or long-term stoppage of development projects, temporary or long-term labour shortages or disruptions,
temporary or long-term impacts on domestic and global supply chains, increased risks to IT systems and networks and the
Trust’s ability to access capital on acceptable terms or at all. Uncertain economic conditions resulting from the COVID-19
pandemic may, in the short or long term, materially adversely impact operations and the financial performance of the Trust.
The spread of COVID-19 has caused an economic slowdown and increased volatility in financial markets, which has partially
negatively impacted the market price for the securities of the Trust. Governments and central banks have responded with
monetary and fiscal interventions intended to stabilize economic conditions. However, it remains unknown how these
interventions will impact debt and equity markets or the economy generally, including in the long-term. Although the ultimate
impact of COVID-19 on the global economy and its duration remains uncertain, disruptions caused by COVID-19 may
materially adversely affect the performance of the Trust. Uncertain economic conditions resulting from the COVID-19
pandemic may, in the short or long term, materially adversely impact the Trust’s tenants and/or the debt and equity markets,
both of which could materially adversely affect the Trust’s operations and financial performance.
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12.2 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.
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, pandemics, power failures or other national or international catastrophes. Any of these events may have a
material adverse effect on Choice Properties’ reputation, business, cash flows, financial condition and results of operations
and its ability to make distributions to Unitholders.
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, pandemics 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.
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.
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.
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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.
Choice Properties 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 Choice Properties 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 Choice Properties’ or its third-
party service providers’ information systems are damaged, destroyed, shut down, interrupted or cease to function properly,
Choice Properties’ business could be disrupted and Choice Properties 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.
Property Valuation
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 Trust’s 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 Choice Properties’ property valuation model include fluctuations in the current market capitalization
rate which can significantly impact the value of Choice Properties’ overall real estate portfolio. In addition, Choice Properties
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 Choice Properties’
property valuation which in turn could impact financial covenants.
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)
changes in zoning and land use laws; (d) the ability to achieve an acceptable level of occupancy upon completion; (e) the
potential that Choice Properties may fail to recover expenses already incurred if it abandons redevelopment opportunities
after commencing to explore them; (f) the potential that Choice Properties may expend funds on and devote management
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time to projects which are not completed; (g) 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; (h) 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; (i) the cost and timely completion of construction (including risks beyond Choice Properties’ control,
such as weather, labour conditions or material shortages); (j) contractor and subcontractor disputes, strikes, labour disputes
or supply disruptions; (k) occupancy rates and rents of a completed project may not be sufficient to make the project
profitable; (l) 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 (m) 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.
Regulatory Compliance
Choice Properties is subject to laws and regulations governing the ownership and leasing of real property, securities,
intellectual property, privacy, employment standards and other matters. It is possible that future changes in applicable
federal, provincial, municipal, local or common laws or regulations or changes in their enforcement or regulatory
interpretation could result in changes in the legal requirements affecting the Trust. Also, to retain its tax status as a REIT,
Choice Properties must comply with the REIT exception to the SIFT Rules at all times. Choice Properties’ failure to comply
with the REIT exception would result in certain distributions from the Trust not being deductible in computing its taxable
income and the Trust being subject to tax on such distributions at a rate that is substantially equivalent to the general tax rate
applicable to Canadian corporations. Any non-compliance under the Tax Act or non-compliance with other laws or
regulations could subject Choice Properties to civil or regulatory actions, investigations or proceedings, which in turn could
negatively impact Choice Properties’ operations and financial position. There can be no assurance that the Canadian federal
income tax laws respecting real estate investment trusts, or the ways in which these rules are interpreted and applied by the
Canada Revenue Agency, will not be changed in a manner which adversely affects Choice Properties and/or Unitholders. It is
impossible to predict whether there will be any future changes in the regulatory regimes to which the Trust will be subject or
the effect of any such changes on its investments.
Workplace Health and Safety
Choice Properties is subject to various occupational health and safety laws and regulations. Any failure by Choice Properties
to adhere to appropriate and established workplace health and safety procedures and to ensure compliance with applicable
laws and regulations could have an adverse effect on the operations, financial performance and reputation of Choice
Properties.
Environmental Matters
As an owner of real property in Canada, Choice Properties is subject to various federal, provincial, territorial and municipal
laws relating to environmental matters. Such laws provide that Choice Properties could be, or become, liable for
environmental harm, damage or costs, including with respect to the release of hazardous, toxic or other regulated
substances into the environment, and the removal or other remediation of hazardous, toxic or other regulated substances
that may be present at or under its properties. Further, liability may be incurred by Choice Properties with respect to the
release of such substances from or to the Properties. Applicable laws often impose liability regardless of whether the
property owner knew of, or was responsible for, the presence of such substances. Additional liability may be incurred by
Choice Properties with respect to the release of such substances from the Properties to properties owned by third- parties,
including properties adjacent to the Properties or with respect to the exposure of persons to such substances. Laws also
govern the maintenance and removal of materials containing asbestos in the event of damage, demolition or renovation of a
property and also govern emissions of, and exposure to, asbestos fibres in the air.
The portfolio of Properties may contain ground contamination, hazardous substances and/or other residual pollution and
environmental risks. Buildings and their fixtures might contain asbestos or other hazardous substances above the allowable
or recommended thresholds, or other environmental risks could be associated with the buildings. Some of the Properties
have, or have had, tenants that would or currently use, hazardous, toxic or other regulated substances. For example, retail
gas stations and dry-cleaning operations are currently located, or have been located in the past, at some of the Properties.
In such cases, Choice Properties will bear the risk of cost-intensive assessment, remediation or removal of such ground
contamination, hazardous substances or other residual pollution. The discovery of any such residual pollution on the sites
and/or in the buildings, particularly in connection with the lease or sale of properties or borrowing using the real estate as
security, could trigger claims for rent reductions or termination of leases for cause, for damages and other breach of warranty
claims against Choice Properties. The remediation of any pollution and the related additional measures Choice Properties
would have to undertake could have a materially adverse effect on Choice Properties and could involve considerable
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additional costs. Choice Properties will also be exposed to the risk that recourse against the polluter or the previous owners
of the Properties might not be possible. Moreover, the existence or even the mere suspicion of the existence of ground
contamination, hazardous materials or other residual pollution can adversely affect the value of a property and Choice
Properties’ ability to lease or sell such property.
Choice Properties’ operating policy is to obtain a Phase I environmental site assessment, conducted by an independent and
experienced environmental consultant, prior to acquiring a property and to have Phase II environmental site assessment work
completed where recommended in a Phase I environmental site assessment. Although such environmental site assessments
would provide Choice Properties with some level of assurance about the condition of such properties, Choice Properties may
become subject to liability for undetected contamination or other environmental conditions at its Properties.
Choice Properties intends to make the necessary capital and operating expenditures to comply with environmental laws and
address any material environmental issues and such costs may have a material adverse effect on Choice Properties’
business, financial condition or results of operations and decrease or eliminate the amount of cash available for distribution
to Unitholders. Environmental laws can change and Choice Properties may become subject to even more stringent
environmental laws in the future, with increased enforcement of laws by the government. Compliance with more stringent
environmental laws, which may be more rigorously enforced, the identification of currently unknown environmental issues or
an increase in the costs required to address a currently known condition, may have a material adverse effect on Choice
Properties’ financial condition and results of operations and decrease or eliminate the amount of cash available for
distribution to Unitholders.
Climate Change Risk
Choice Properties may be exposed to the impact of events caused by climate change, such as natural disasters and serious
weather conditions. Such events could interrupt Choice Properties’ operations and activities, damage its properties and
require Choice Properties to incur additional expenses. Choice Properties’ financial position and results from operations
could be adversely affected by the materialization of any of the risks identified herein related to climate change.
Furthermore, as a real estate property owner and manager, Choice Properties faces the risk that its properties will be subject
to government initiatives and reforms aimed at countering climate change, such as reduction in greenhouse gas emissions.
Choice Properties may require operational changes and/or incur financial costs to comply with various reforms. Any failure to
adhere and adapt to climate change could result in fines or adversely affect Choice Properties’ reputation, operations or
financial performance.
Acquisitions and Dispositions
Acquired properties may be subject to unknown, unexpected or undisclosed liabilities which could have a material adverse
impact on the operations and financial results of Choice Properties. Representations and warranties given by third-parties to
Choice Properties may not adequately protect against these liabilities and any recourse against third- parties may be limited
by the financial capacity of such third-parties. Furthermore, it is not always possible to obtain from the seller the records and
documents that are required in order to fully verify that the buildings to be acquired are constructed in accordance, and that
their use complies, with planning laws and building code requirements. Accordingly, in the course of acquiring a property,
specific risks might not be or might not have been recognized or correctly evaluated. These circumstances could lead to
additional costs and could have a material adverse effect on rental income of the relevant properties or the sale prices of
such properties upon a disposition of such properties.
Choice Properties’ ability to acquire properties on satisfactory terms and successfully integrate and operate them is subject
to the following additional risks: (a) Choice Properties may be unable to acquire desired properties because of (i) constraints
imposed by the terms of the Strategic Alliance Agreement, or (ii) competition from other real estate investors with more
capital, including other real estate operating companies, real estate investment trusts and investment funds; (b) Choice
Properties may acquire properties that are not accretive to results upon acquisition, and Choice Properties may not
successfully manage and lease those properties to meet its expectations; (c) competition from other potential acquirers may
significantly increase the purchase price of a desired property; (d) Choice Properties may be unable to generate sufficient
cash from operations, or obtain the necessary debt or equity financing to consummate an acquisition or, if obtainable,
financing may not be on satisfactory terms; (e) Choice Properties may need to spend more than budgeted amounts to make
necessary improvements or renovations to acquired properties; (f) agreements for the acquisition of properties are typically
subject to customary conditions to closing, including satisfactory completion of due diligence investigations, and Choice
Properties may spend significant time and money on potential acquisitions that Choice Properties does not consummate; (g)
the process of acquiring or pursuing the acquisition of a new property may divert the attention of Choice Properties’ senior
management team from existing business operations; (h) Choice Properties may be unable to quickly and efficiently integrate
new acquisitions, particularly acquisitions of portfolios of properties, into existing operations; (i) market conditions may result
in higher than expected vacancy rates and lower than expected rental rates; and (j) Choice Properties may acquire properties
without any recourse, or with only limited recourse, for liabilities, whether known or unknown, such as clean-up of
environmental contamination, claims by tenants, vendors or other persons against the former owners of the properties and
claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the
properties.
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After the acquisition of a property, the market in which the acquired property is located may experience unexpected changes
that adversely affect the property’s value. The occupancy of properties that are acquired may decline during Choice
Properties’ ownership, and rents that are in effect at the time a property is acquired may decline thereafter. If Choice
Properties cannot complete property acquisitions on favourable terms, or operate acquired properties to meet Choice
Properties’ goals or expectations, Choice Properties’ business, financial condition, results of operations and cash flows, the
per Unit trading price and its ability to satisfy debt service obligations and to make distributions to Unitholders could be
materially and adversely affected.
In addition, Choice Properties undertakes strategic property dispositions from time to time in order to recycle its capital and
maintain an optimal portfolio composition. Failure to dispose of certain assets not aligned with Choice Properties’ investment
criteria may adversely affect its operations and financial performance.
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 and retain 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 Choice Properties’ competitive position or result in increased costs and competition for, or high turn-over of,
employees. Any of the foregoing could negatively affect Choice Properties’ ability to operate its business and execute its
strategies, which in turn, could adversely affect its reputation, operations or financial performance.
Tenant Concentration
The Trust’s 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. The future financial performance and operating results of Loblaw are
subject to inherent risks, uncertainties, and other factors. 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.
Geographic Concentration
The Properties are all located in Canada, the majority of which are located in Ontario, Quebec and Western Canada. As a
result, Choice Properties’ performance, the market value of the Properties, the income generated and Choice Properties’
performance are particularly sensitive to changes in the economic condition and regulatory environment of Ontario, Quebec
and Western Canada. Adverse changes in the economic condition or regulatory environment of Ontario, Quebec or Western
Canada may have a material adverse effect on Choice Properties’ business, cash flows, financial condition and results of
operations and its ability to make distributions to Unitholders.
Choice Properties REIT
2020 Annual Report 75
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.
Competition
Choice Properties competes with other investors, developers, managers and owners of properties in seeking tenants and for
the purchase and development of desirable real estate properties. Competitors may have newer or better located properties,
greater financial or other resources, or greater operating flexibility than Choice Properties. An increase in the availability of
funds for investment or an increase in interest in real estate property investments may increase the competition for real estate
property investments, thereby increasing purchase prices and reducing the yield on the investment. Increased competition to
lease properties could adversely impact Choice Properties’ ability to find suitable tenants at the appropriate rent and may
negatively impact the financial performance of the Trust.
Vendor Management, Partnerships and Third-Party Service Providers
Choice Properties currently relies on third-party vendors, joint venture partners, developers, co-owners and strategic partners
to provide the Trust with various services or to complete projects. The lack of an effective process for developing joint
venture arrangements or for contract tendering, drafting, review, approval and monitoring may pose a risk for the Trust.
Choice Properties may not be able to negotiate contracts with terms, services levels and rates that are optimal for Choice
Properties. In addition, co-owners or joint venture partners may fail to fund their share of capital, may not comply with the
terms of any governing agreements or may incur reputational damage which could negatively impact the Trust. Inefficient,
ineffective or incomplete vendor management / partnership strategies, policies and procedures could impact the Trust’s
reputation, operations and/or financial performance.
12.3
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 29 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 decrease.
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 the 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
Choice Properties REIT
2020 Annual Report 76
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 Exchangeable Units, which are economically
equivalent to and exchangeable for Units, as well as the issuance of unit-based compensation. The Exchangeable Units and
unit-based compensation liabilities are recorded at their fair value based on market trading prices. The Exchangeable Units
and unit-based compensation negatively impact operating income when the Unit price rises and positively impact operating
income when the Unit price declines.
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 for expected credit 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.
Credit Rating Risk
Credit ratings assigned to the Trust, Partnership or any of their respective securities may be changed at any time based on
the judgment of the credit rating agencies and may also be impacted by a change in the credit rating of GWL, Loblaw and
their respective affiliates. In addition, the Trust, GWL, Loblaw and their respective affiliates may incur additional indebtedness
in the future, which could impact current and future credit ratings. A reduction in credit ratings could materially adversely
affect the market value of the Trust’s outstanding securities and the Trust’s access to and cost of financing.
Choice Properties REIT
2020 Annual Report 77
13.
OUTLOOK AND IMPACT OF COVID-19(2)
Choice Properties is a leading Real Estate Investment Trust that creates enduring value through the ownership, operation and
development of high-quality commercial and residential properties. Our goal is to provide net asset value appreciation, stable
net operating income growth and capital preservation. Although the duration and longer-term impact of the COVID-19
pandemic cannot be predicted at this time, Choice Properties remains confident that its business model and disciplined
approach to financial management will enable it to weather the impact of COVID-19.
Our diversified portfolio of office, retail and industrial properties is 97.1% occupied and leased to high-quality tenants across
Canada. Our retail portfolio is primarily leased to grocery stores, pharmacies or other necessity-based tenants, who continue
to perform well in this environment and the diversification of income provided by our industrial and office assets provides
stability to our overall portfolio This stability is evident by our rent collections, which were 98% for the fourth quarter.
Despite the ongoing impact of the COVID-19 pandemic, Choice Properties continues to advance our development initiatives,
which will 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 expect to complete
construction on two of our rental residential projects underway in Toronto in 2021 and have commenced construction on two
additional high-rise residential projects, including one project in Brampton located next to the Mount Pleasant GO Station
and one in the Westboro neighbourhood in Ottawa. We have invested approximately $182.7 million into residential
developments to date, and will continue to invest in our development pipeline, with an additional $326.8 million of spending
planned on 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 on four major mixed-use sites and we expect that these initiatives will be a significant part of our growth
going forward.
As evidenced by our capital recycling initiatives during 2020, we continue to seek opportunities to improve our portfolio
quality. Furthermore, 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 2021, we
will continue to seek out opportunities, when available, to strengthen our balance sheet by extending our debt maturities with
longer term debt.
Choice Properties has taken proactive steps to ensure its financial strength and stability during and after the pandemic.
Choice Properties’ strong balance sheet provides the flexibility necessary to help insulate the Trust in the face of broader
market volatility. During 2020, the Trust made significant progress in further strengthening its balance sheet, including
refinancing unsecured debt maturities, increasing the weighted average term of debt and increasing available liquidity by
issuing $1 billion of unsecured debentures, the proceeds of which were primarily used to fund all unsecured debt maturities
until the third quarter of 2021 and repay amounts drawn on the Trust’s revolving credit facility. From a liquidity perspective,
the Trust has approximately $1.7 billion available comprised of $1.5 billion as the unused portion of the Trust’s revolving
credit facility and $223.7 million in cash and cash equivalents, in addition to approximately $12.2 billion in unencumbered
assets.
Choice Properties REIT
2020 Annual Report 78
Update on Rent Collection(2)
As one of Canada’s largest landlords, the Trust continued to support its tenants who have been negatively impacted by the
pandemic by providing rent relief through rent deferrals and other arrangements, including participating in the CECRA
program. Rent collection for the fourth quarter was at the higher end of collections within the industry and was primarily due
to the stability of the Trust’s necessity-based portfolio.
For the three months ended December 31, 2020, the Trust collected or expects to collect approximately 98% of contractual
rents:
% Collected
Retail
Industrial
Office(1)
Fourth Quarter 2020
98%
100%
97%
98%
Total
(1) Uncollected portion primarily relates to retail
tenants in office buildings
In determining the expected credit losses on rent receivables, the Trust takes into account the payment history and future
expectations of likely default events (i.e. asking for rental concessions, applications for rental relief through government
programs such as the CECRA program, or stating they will not be making rental payments on the due date) based on actual
or expected insolvency filings or company voluntary arrangements and likely deferrals of payments due, and potential
abatements to be granted by the landlord under CECRA. These assessments are made on a tenant-by-tenant basis.
The Trust’s assessment of expected credit losses is inherently subjective due to the forward-looking nature of the
assessments. As a result, the value of the expected credit loss is subject to a degree of uncertainty and is made on the basis
of assumptions which may not prove to be accurate given the uncertainty caused by COVID-19. Based on its review, the
Trust recorded bad debt expense of $3.5 million in property operating costs, on a proportionate share basis(1), during the
three months ended December 31, 2020, with a corresponding amount recorded as an expected credit loss against its rent
receivables. Of the $3.5 million bad debt expense recorded in the fourth quarter, approximately $1.6 million related to
uncollected amounts from recurring billings in the period, while the balance pertains to past due amounts for a national
retailer and smaller tenants that have declared bankruptcy.
($ thousands)
Total recurring tenant billings
Less: CECRA collections
Less: Amounts received and deferrals repaid to date
Balance outstanding
Total rents expected to be collected pursuant to deferral arrangements
Total rents to be collected excluding collectible deferrals
Less: Provision recorded related to recurring tenant billings
Balance expected to be recovered in time
$
Nine months ended
December 31, 2020
As a %
$
1,100,269
100.0 %
(10,467)
1.0 %
(1,059,726)
96.3 %
30,076
(5,194)
24,882
(20,883)
3,999
2.7 %
(0.4) %
2.3 %
(1.9) %
0.4 %
The Trust’s provision for recurring tenant billings for the nine months ended December 31, 2020, is comprised of the
following:
($ thousands)
Provisions for CECRA-eligible tenants (reflects 25% landlord share)
Provisions for tenants with negotiated rent abatements
Provisions for additional expected credit losses
Total provision recorded related to recurring tenant billings
Nine months ended
December 31, 2020
$
$
(5,371)
(10,510)
(5,002)
(20,883)
Choice Properties REIT
2020 Annual Report 79
14.
NON-GAAP FINANCIAL MEASURES
The financial statements of Choice Properties are prepared in accordance with GAAP. However, in this MD&A, a number of
measures are presented that do not have any standardized meaning under GAAP. 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 GAAP 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
Proportionate
Share
Net Operating
Income (“NOI”),
Accounting Basis
•
Represents financial information adjusted to reflect the Trust’s equity
accounted joint ventures and financial real estate assets and its share
of net income (losses) from equity accounted joint ventures and
financial real estate assets 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.
Reconciliation
Section 2, “Balance Sheet”
Section 7.1, “Net Income
and Segment NOI
Reconciliation”
Section 7.1, “Net Income
and Segment NOI
Reconciliation”
•
•
•
•
•
NOI, Cash Basis
Same-Asset NOI,
Cash Basis
and
Same-Asset NOI,
Accounting Basis
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 7.1, “Net Income
and Segment NOI
Reconciliation”
is used
to evaluate
Same-asset NOI
the period-over-period
performance of those properties owned and operated by Choice
Properties since January 1, 2019, inclusive.
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 and
development activities.
Section 7.2, “Net Operating
Income Summary”
Choice Properties REIT
2020 Annual Report 80
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.
Section 14.3, “Funds from
Operations”
•
• 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.
•
•
•
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 14.4, “Adjusted
Funds from Operations”
Section 14.5, “Adjusted
Cash Flow from Operations”
FFO, AFFO and
ACFO Payout
Ratios
•
•
FFO, AFFO and ACFO payout ratios are supplementary measures
used by Management to assess the sustainability of the Trust's
distribution payments.
The ratios are calculated using cash distributions declared by FFO,
AFFO and ACFO, as applicable.
Section 7.3, “Other Key
Performance Indicators”
Choice Properties REIT
2020 Annual Report 81
•
•
•
•
Earnings before
Interest, Taxes,
Depreciation,
Amortization and
Fair Value
(“EBITDAFV”)
Cash Retained
after Distributions
Total Debt
Debt to Total
Assets
Debt Service
Coverage
Debt to
EBITDAFV,
Normalized Debt
to EBITDAFV,
and
Normalized Debt
to EBITDAFV, net
of cash
•
Defined as net income attributable to Unitholders, reversing, where
applicable, income taxes, interest expense, amortization expense,
fair value and other
depreciation expense, adjustments
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.
to
Section 14.8, “Earnings
before Taxes, Depreciation,
Amortization and Fair Value”
Represents the portion of ACFO retained within Choice Properties
which can be used to invest in new acquisitions, development
properties and capital activity.
Section 14.6, “Distribution
Excess / Shortfall Analysis”
Defined as variable rate debt (construction loans and credit facility)
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.
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.
•
•
•
•
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.
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 presents this ratio on a trailing 12-month normalized
basis to exclude the proforma results of the Oak Street disposition
revenue.
• Management also presents this ratio on a trailing 12-month
normalized basis to exclude the proforma results of the Oak Street
disposition, with Total Debt calculated as net of cash and cash
equivalents at the measurement date.
Section 4.3, “Components
of Total Debt”
Section 4.4, “Financial
Condition”
Section 4.4, “Financial
Condition”
Section 4.4, “Financial
Condition”
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
Properties’ ability to service the
outstanding debt.
in determining Choice
its
interest requirements of
is useful
Choice Properties REIT
2020 Annual Report 82
14.1
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. Similarly, Choice Properties owns real estate assets,
whereby the acquisition involved a sale-leaseback arrangement with the seller. As a result of the arrangement the Trust did
not meet the GAAP definition of control, and as such, these assets are presented on the balance sheet as financial real estate
assets and not as part of investment properties. While the reconciliation for Choice Properties’ balance sheet on a GAAP
basis to a proportionate share basis(1) is detailed in Section 2, “Balance Sheet“, the following continuity schedule presents
Choice Properties’ investment properties inclusive of its proportionate share ownership in equity accounted joint ventures
and financial real estate assets for the period ended as indicated:
Three Months
Year Ended
As at December 31, 2020
($ thousands)
GAAP Basis Reconciliation
Proportionate
Share Basis(1) GAAP Basis Reconciliation
Proportionate
Share Basis(1)
Balance, beginning of period
$ 14,080,000 $
941,000 $ 15,021,000 $ 14,373,000 $
938,000 $ 15,311,000
172,572
46,712
219,284
458,959
46,712
505,671
Acquisitions of investment
properties(i)
Capital expenditures
Development capital
Building improvements
Capitalized interest
Operating capital expenditures
Property capital
Direct leasing costs
Tenant improvement allowances
Amortization of straight-line rent
Transfer from equity accounted
joint ventures
Dispositions
Disposition to equity accounted
joint venture
Adjustment to fair value of
investment properties
Transfers from assets held for sale
32,510
24,987
8,532
1,627
22,592
1,051
4,711
3,217
—
(66,400)
—
18,269
6,358
209
43,256
14,890
1,836
(94)
22,498
2,091
4,873
4,231
32,510
1,040
162
1,014
—
—
—
—
57,693
10,948
4,231
33,112
6,519
19,269
13,946
—
87,526
145,219
6,463
708
34
1,581
1,581
2,167
—
17,411
4,939
33,146
8,100
20,850
16,113
—
—
—
42,687
(42,687)
(66,400)
(391,878)
—
(391,878)
—
(19,468)
9,734
(9,734)
103,601
330
103,931
(220,018)
(36,819)
(256,837)
Balance, as at December 31, 2020
$ 14,389,000 $
1,015,000 $ 15,404,000 $ 14,389,000 $
1,015,000 $ 15,404,000
(i)
Includes acquisition costs.
Choice Properties REIT
2020 Annual Report 83
14.2
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 14, “Non-GAAP Financial
Measures”, for further details about this non-GAAP measure.
For the periods ended December 31
($ thousands)
Change
2020
2019
2020
Three Months
Year Ended
2019
Change
Net income (loss)
$
116,570 $
293,261 $
(176,691) $
450,685 $
(581,357) $ 1,032,042
Straight line rental revenue
Reimbursed contract revenue
Allowance for expected credit losses on
mortgage receivable
Lease surrender revenue
General and administrative expenses
Fee income
(3,217)
—
—
(929)
8,778
(1,136)
(5,433)
7,100
3,000
(1,306)
9,760
(1,530)
Net interest expense and other financing
charges
Interest income
133,121
133,893
(2,770)
(3,456)
2,216
(7,100)
(3,000)
377
(982)
394
(772)
686
Share of income (loss) from equity accounted
joint ventures
(9,036)
5,296
(14,332)
Amortization of intangible assets
Foreign exchange gain reclassified from
other comprehensive income
Acquisition transaction costs and other
related expenses
250
—
—
—
—
—
Other fair value gains (losses), net
(1,347)
(1,744)
250
—
—
397
(13,946)
(25,146)
11,200
—
7,100
(7,100)
7,830
(1,958)
3,000
(3,678)
4,830
1,720
36,718
39,292
(2,574)
(4,416)
(4,556)
140
540,720
551,843
(11,123)
(13,639)
(14,551)
912
5,570
1,000
(1,184)
1,589
(2,210)
(24,366)
29,936
—
—
8,363
7,109
1,000
(1,184)
(6,774)
(9,319)
Adjustment to fair value of Exchangeable
Units
Adjustment to fair value of investment
properties
86,370
(206,680)
293,050
(354,286)
932,009
(1,286,295)
(103,601)
(7,608)
(95,993)
220,018
4,434
215,584
Income tax recovery
(1,797)
(78)
Net Operating Income, Cash Basis
221,256
224,475
(1,719)
(3,219)
(1,797)
(798)
(999)
870,694
898,698
(28,004)
Adjustments for equity accounted joint
ventures
Proportionate Share(1) Net Operating
Income, Cash Basis
9,097
10,474
(1,377)
37,387
42,622
(5,235)
$
230,353 $
234,949 $
(4,596) $
908,081 $
941,320 $
(33,239)
Choice Properties REIT
2020 Annual Report 84
14.3
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 14, “Non-GAAP Financial
Measures”, for further details about this non-GAAP measure.
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
2019
2020
2020
2019
Change
Net income (loss)
$
116,570
$
293,261
$
(176,691)
$
450,685
$
(581,357)
$ 1,032,042
Amortization of intangible assets
Foreign exchange gain reclassified from other
comprehensive income
Acquisition transaction costs and other related
expenses
250
—
—
—
—
—
Other fair value gains (losses), net
(1,347)
(1,744)
250
—
—
397
1,000
(1,184)
1,589
(2,210)
—
—
8,363
7,109
1,000
(1,184)
(6,774)
(9,319)
Adjustment to fair value of Exchangeable Units
86,370
(206,680)
293,050
(354,286)
932,009
(1,286,295)
Adjustment to fair value of investment properties
(103,601)
(7,608)
(95,993)
220,018
4,434
215,584
Adjustment to fair value of investment property held
in equity accounted joint ventures
(330)
13,499
(13,829)
36,819
10,816
26,003
Interest otherwise capitalized for development in
equity accounted joint ventures
Exchangeable Units distributions
Internal expenses for leasing
Income tax recovery
Funds from Operations
FFO per Unit - diluted(i)
FFO payout ratio - diluted(i)(ii)
1,005
72,502
1,897
(1,797)
1,387
72,143
1,615
(382)
359
282
(78)
(1,719)
5,112
4,978
288,932
288,573
7,329
(1,797)
6,151
(798)
134
359
1,178
(999)
$
$
171,519
0.239
$
$
165,795
0.237
$
$
5,724
0.002
$
$
652,007
0.921
$
$
680,278
0.987
$
$
(28,271)
(0.066)
77.5 %
78.1 %
(0.6) %
80.5 %
75.0 %
5.5 %
Distribution declared per Unit
$
0.185
$
0.185
$
—
$
0.740
$
0.740
$
—
Weighted average Units outstanding - diluted
718,026,576
700,544,380
17,482,196
707,764,714
689,285,790
18,478,924
(i)
FFO payout ratio is calculated as cash distributions declared divided by FFO.
Choice Properties REIT
2020 Annual Report 85
FFO as calculated on a proportionate share basis(1):
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
2020
2019
2020
2019
Change
Net operating income, cash basis
$
230,353
$
234,949
$
(4,596)
$
908,081
$
941,320
$
(33,239)
Straight line rental revenue
Reimbursed contract revenue
Lease surrender revenue
4,106
—
1,291
5,622
(7,100)
1,306
(1,516)
7,100
(15)
16,113
26,185
(10,072)
—
2,320
(7,100)
3,678
7,100
(1,358)
Net operating income, accounting basis
$
235,750
$
234,777
$
973
$
926,514
$
964,083
$
(37,569)
Interest income
Fee income
3,093
1,136
3,418
1,530
(325)
(394)
13,053
4,416
15,500
4,556
(2,447)
(140)
Net interest expense and other financing charges
(135,086)
(136,315)
1,229
(548,801)
(561,271)
12,470
Distributions on Exchangeable Units
72,502
72,143
359
288,932
288,573
Interest otherwise capitalized for development in
equity accounted joint ventures
General and administrative expenses
Allowance for expected credit losses on mortgage
receivable
Internal expenses for leasing
Funds from Operations
FFO per Unit - diluted(i)
FFO payout ratio - diluted(i)(ii)
1,005
(8,778)
—
1,897
1,387
(9,760)
(3,000)
1,615
$
$
171,519
0.239
$
$
165,795
0.237
$
$
(382)
982
3,000
282
5,724
0.002
5,112
4,978
(36,718)
(39,292)
2,574
(7,830)
7,329
(3,000)
6,151
(4,830)
1,178
$
$
652,007
0.921
$
$
680,278
0.987
$
$
(28,271)
(0.066)
77.5 %
78.1 %
(0.6) %
80.5 %
75.0 %
5.5 %
359
134
Distribution declared per Unit
$
0.185
$
0.185
$
—
$
0.740
$
0.740
$
—
Weighted average Units outstanding - diluted
718,026,576
700,544,380
17,482,196
707,764,714
689,285,790
18,478,924
(i)
FFO payout ratio is calculated as cash distributions declared divided by FFO.
14.4
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 14, “Non-GAAP Financial Measures”, for further details about this non-GAAP measure.
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
2020
2019
2020
2019
Change
Funds from Operations
$
171,519
$
165,795
$
5,724
$
652,007
$
680,278
$
(28,271)
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)
(1,897)
(4,106)
(1,615)
(5,622)
(282)
1,516
(7,329)
(6,151)
(1,178)
(16,113)
(26,185)
10,072
(22,498)
(18,859)
(3,639)
(33,146)
(30,658)
(2,488)
(2,091)
(4,873)
(3,099)
(7,413)
$
$
136,054
0.189
$
$
129,187
0.184
$
$
1,008
2,540
6,867
0.005
(8,100)
(8,172)
(20,850)
(21,417)
72
567
$
$
566,469
0.800
$
$
587,695
0.853
$
$
(21,226)
(0.053)
97.7 %
100.3 %
(2.6) %
92.6 %
86.8 %
5.8 %
Distribution declared per Unit
$
0.185
$
0.185
$
—
$
0.740
$
0.740
$
—
Weighted average Units outstanding - diluted
718,026,576
700,544,380
17,482,196
707,764,714
689,285,790
18,478,924
(i)
AFFO payout ratio is calculated as cash distributions declared divided by AFFO.
Choice Properties REIT
2020 Annual Report 86
14.5
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 4.7, “Adjusted Cash Flow from Operations” and Section 14, “Non-GAAP
Financial Measures”, for further details about this non-GAAP measure.
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
2020
2019
2020
2019
Change
Cash flows from operating activities
$ 255,960
$ 207,460
$ 48,500
$ 621,184
$ 580,556
$ 40,628
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
(95,169)
(97,352)
2,183
(283,306)
(289,691)
6,385
expense and other financing charges
72,502
72,143
359
288,932
288,573
359
Interest and other income in excess of interest received(i)
(617)
4,125
(4,742)
2,094
8,453
(6,359)
Interest otherwise capitalized for development in equity
accounted joint ventures
1,005
1,387
(382)
5,112
4,978
134
Allowance for expected credit losses on mortgage receivable
—
(3,000)
3,000
(7,830)
(3,000)
(4,830)
Portion of internal expenses for leasing relating to
development activity
949
808
141
3,665
3,076
589
Property capital expenditures on a proportionate share basis
(22,498)
(18,859)
(3,639)
(33,146)
(30,658)
(2,488)
Leasing capital expenditures on a proportionate share basis
(6,964)
(10,512)
3,548
(28,950)
(29,589)
639
Acquisition transaction costs and other related expenses
—
—
—
1,589
8,363
(6,774)
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)
8,706
8,203
503
31,249
35,182
(3,933)
(47,653)
(27,767)
(19,886)
(7,983)
21,407
(29,390)
Adjusted Cash Flow from Operations
166,221
$ 136,636
$ 29,585
592,610
$ 597,650
$
(5,040)
Cash distributions declared
132,986
129,546
3,440
524,732
510,333
14,399
Cash retained after distributions
$ 33,235
$
7,090
$ 26,145
$ 67,878
$ 87,317
$
(19,439)
ACFO payout ratio(iv)
80.0 %
94.8 %
(14.8) %
88.5 %
85.4 %
3.1 %
(i)
(ii)
(iii)
(iv)
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, 2020
and December 31, 2019 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.
ACFO 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)
Change
2020
2019
2020
2019
Change
Net change in non-cash working capital(i)
$ 72,942 $ 33,507 $ 39,435 $ 21,657 $ (21,094) $ 42,751
Adjustment for changes in non-cash working capital items not
indicative of sustainable operating cash flows
(47,653)
(27,767)
(19,886)
(7,983)
21,407
(29,390)
Net non-cash working capital increase included in ACFO
$ 25,289 $ 5,740 $ 19,549 $ 13,674 $
313 $ 13,361
(i)
As calculated under GAAP and disclosed in the Trust’s consolidated financial statements.
Choice Properties REIT
2020 Annual Report 87
14.6
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)
Change
2020
2019
2020
2019
Change
Cash flows from operating activities
$ 255,960 $ 207,460 $
48,500
$ 621,184 $ 580,556 $
40,628
Less:
Cash distributions declared
(132,986)
(129,546)
(3,440)
(524,732)
(510,333)
(14,399)
Excess of cash flows provided by operating
activities over cash distributions declared
$ 122,974 $
77,914 $
45,060
$
96,452 $
70,223 $
26,229
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
2019
2020
2020
2019
Change
Net income (loss)
$ 116,570 $ 293,261 $ (176,691) $ 450,685 $ (581,357) $ 1,032,042
Add:
Distributions on Exchangeable Units
included in net interest expense and other
financing charges
Net income (loss) attributable to Unitholders
72,502
72,143
359
288,932
288,573
359
excluding distributions on Exchangeable Units
189,072
365,404
(176,332)
739,617
(292,784)
1,032,401
Less:
Cash distributions declared
(132,986)
(129,546)
(3,440)
(524,732)
(510,333)
(14,399)
Excess (shortfall) of net income (loss)
attributable to Unitholders, less distributions
on Exchangeable Units, over cash distributions
declared
$
56,086 $ 235,858 $ (179,772) $ 214,885 $ (803,117) $ 1,018,002
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
2020
2019
2020
2019
Change
Adjusted Cash Flow from Operations(1)
$ 166,221 $ 136,636 $
16,953
$ 592,610 $ 597,650 $
(5,040)
Less:
Cash distributions declared
(132,986)
(129,546)
(3,440)
(524,732)
(510,333)
(14,399)
Excess of ACFO after distributions
$
33,235 $
7,090 $
26,145
$
67,878 $
87,317 $
(19,439)
Choice Properties’ cash flows provided by operating activities exceeded its cash distributions declared for the three months
and year ended December 31, 2020.
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
2020 Annual Report 88
14.7
Net Interest Expense and Other Financing Charges Reconciliation
The following tables reconcile 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, 2020 and 2019:
For the three months ended December 31
($ thousands)
Proportionate
Share Basis(1)
Proportionate
Share Basis(1)
GAAP Basis
Consolidation
and
eliminations(i)
2020
2019
Consolidation
and
eliminations(i)
GAAP Basis
Interest on senior unsecured debentures
$
47,826 $
— $
47,826 $
47,861 $
— $
47,861
Interest on mortgages
Interest on credit facility and term loans
Subtotal (for use in Debt Service Coverage(1)
calculation)
Distributions on Exchangeable Units(ii)
14,098
1,237
63,161
72,502
(2,088)
—
(2,088)
—
12,010
1,237
61,073
72,502
14,738
2,256
64,855
72,143
(2,439)
—
(2,439)
—
12,299
2,256
62,416
72,143
Subtotal (for use in EBITDAFV(1) calculation)
135,663
(2,088)
133,575
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
Net interest expense and other financing
41
147
1,071
(1,836)
—
(53)
(33)
209
41
94
1,038
(1,627)
69
(882)
1,048
(918)
—
(41)
(34)
92
69
(923)
1,014
(826)
charges
$
135,086 $
(1,965) $
133,121 $
136,315 $
(2,422) $
133,893
For the year ended December 31
($ thousands)
Proportionate
Share Basis(1)
GAAP Basis
Proportionate
Share Basis(1)
Consolidation
and
eliminations(i)
2020
2019
Consolidation
and
eliminations(i)
GAAP Basis
Interest on senior unsecured debentures
$
196,741 $
— $
196,741 $
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)
Subtotal (for use in EBITDAFV(1) calculation)
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
Net interest expense and other financing
57,438
7,316
261,495
288,932
550,427
216
(8,478)
—
48,960
7,316
62,324
28,352
(10,417)
—
51,907
28,352
(8,478)
253,017
273,198
(10,417)
262,781
—
288,932
288,573
—
288,573
(8,478)
541,949
561,771
(10,417)
551,354
—
216
281
—
281
(1,627)
(179)
(1,806)
(3,553)
(167)
(3,720)
4,724
(4,939)
(132)
708
4,592
(4,231)
8,470
(5,698)
(118)
1,274
8,352
(4,424)
charges
$
548,801 $
(8,081) $
540,720 $
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.
Choice Properties REIT
2020 Annual Report 89
14.8
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 14, “Non-GAAP Financial Measures”, for further details about this non-GAAP measure.
Three Months
Year Ended
For the periods ended December 31
Change
($ thousands)
2020
2019
2020
2019
Change
Net income (loss)
$
116,570 $
293,261 $
(176,691) $
450,685 $
(581,357) $ 1,032,042
Add (deduct) impact of the following:
Acquisition transaction costs and other related expenses
—
—
Other fair value (gains) losses, net
(1,347)
(1,744)
—
863
1,589
(2,210)
8,363
7,109
(6,774)
(9,319)
Adjustment to fair value of Exchangeable Units
86,370
(206,680)
293,050
(354,286)
932,009
(1,286,295)
Adjustment to fair value of investment properties
(103,601)
(7,608)
(95,993)
220,018
4,434
215,584
Adjustment to fair value of investment property held in equity
accounted joint ventures
Interest expense(i)
Amortization of other assets
Amortization of intangible assets
Income tax recovery
(330)
13,499
(13,829)
36,819
10,816
26,003
135,663
136,998
(1,335)
550,427
561,771
(11,344)
229
250
30
—
199
250
548
1,000
(1,797)
(78)
(1,719)
(1,797)
130
—
(798)
418
1,000
(999)
Earnings Before Interest, Taxes, Depreciation, Amortization
and Fair Value (EBITDAFV)
$
232,007 $
227,678 $
4,329 $
902,793 $
942,477 $
(39,684)
(i)
As calculated in Section 14.7, “Net Interest Expense and Other Financing Charges Reconciliation”.
Choice Properties REIT
2020 Annual Report 90
Financial
Statements
Loblaw Distribution Centre
Surrey, BC
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.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Nature and Description of the Trust
Significant Accounting Policies
Critical Accounting Judgments and Estimates
Investment Property and Other Transactions
Investment Properties
Equity Accounted Joint Ventures
Co-Ownership Property Interests
Subsidiaries
Financial Real Estate Assets
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
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.
Other Fair Value Gains (Losses), Net
Note 26.
Financial Risk Management
Note 27.
Financial Instruments
Note 28.
Capital Management
Note 29.
Supplemental Cash Flow Information
Note 30.
Segment Information
Note 31.
Contingent Liabilities and Financial Guarantees
Note 32.
Related Party Transactions
Note 33.
Subsequent Events
93
94
99
100
101
102
103
103
103
113
114
117
120
122
122
122
123
124
125
126
128
129
131
131
132
135
135
136
136
136
137
137
137
139
140
141
142
144
145
149
Choice Properties REIT
2020 Annual Report 92
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 trustees 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 10, 2021
[signed]
Rael Diamond
President and Chief Executive Officer
[signed]
Mario Barrafato
Chief Financial Officer
Choice Properties REIT
2020 Annual Report 93
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, 2020 and December 31, 2019
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, 2020 and December 31, 2019, and its
consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the “Auditors’ Responsibilities for the
Audit of the Financial Statements” section of our auditors’ report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our
audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Choice Properties Real Estate Investment Trust
February 10, 2021
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial statements for the year ended December 31, 2020. These matters were addressed
in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated in our
auditors’ report.
Evaluation of the fair value of income producing properties
Description of the matter
We draw attention to Note 2g, 3a, and Note 5 of the financial statements. The income producing properties
are measured at fair value using valuations prepared by the Trust’s internal valuation team. The Entity
has recorded income producing properties at fair value for an amount of $14,199 million.
Significant assumptions in determining the fair value of income producing properties include:
•
•
future cash flows over the holding period
terminal capitalization rates and discount rates applied to these cash flows.
Why the matter is a key audit matter
We identified the evaluation of the fair value of income producing properties as a key audit matter. This
matter represented an area of significant risk of material misstatement given the magnitude of income
producing properties and the high degree of estimation uncertainty in determining the fair value of income
producing properties. In addition, significant auditor judgment and involvement of those with specialized
skills and knowledge were required in evaluating the results of our audit procedures due to the sensitivity
of the fair value of income producing properties to minor changes in certain significant assumptions.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
For a selection of income producing properties, we assessed the Entity’s ability to accurately forecast by
comparing the Entity’s future cash flows over the holding period used in the prior year’s fair value of
income producing properties to actual results.
For a selection of income producing properties, we compared the future cash flows over the holding period
to the actual historical cash flows generated by the income producing properties. We took into account
the changes in conditions and events affecting the income producing properties to assess the
adjustments, or lack of adjustments, made by the Entity in arriving at those future cash flows.
Choice Properties Real Estate Investment Trust
February 10, 2021
We involved valuations professionals with specialized skills and knowledge, who assisted in evaluating
the terminal capitalization rates and discount rates of the overall income producing properties portfolio.
These rates were evaluated by comparing them to published reports of real estate industry commentators
and considering the various characteristics of the portfolio.
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 “Annual Report 2020”.
•
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.
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.
Choice Properties Real Estate Investment Trust
February 10, 2021
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.
• Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events
in a manner that achieves fair presentation.
• 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.
Choice Properties Real Estate Investment Trust
February 10, 2021
• 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.
• Determine, from the matters communicated with those charged with governance, those matters that
were of most significance in the audit of the financial statements of the current period and are therefore
the key audit matters. We describe these matters in our auditors’ report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we determine
that a matter should not be communicated in our auditors’ report because the adverse consequences
of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report is Tony Marino.
Toronto, Canada
February 10, 2021
Choice Properties Real Estate Investment Trust
Consolidated Balance Sheets
(in thousands of Canadian dollars)
Note
December 31, 2020
December 31, 2019
As at
As at
Assets
Investment properties
Equity accounted joint ventures
Financial real estate assets
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
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 31)
Subsequent Events (Note 33)
See accompanying notes to the consolidated financial statements
5
6
9
10
11
12
4
29 (c)
13
14
15
17
8
$
$
$
14,389,000
$
14,373,000
573,649
68,373
263,946
29,000
116,055
—
207,219
606,089
22,800
332,286
30,000
72,230
97,800
41,990
15,647,242
$
15,576,195
6,485,521
$
—
5,149,182
489,999
12,124,702
3,514,739
7,801
3,522,540
6,413,452
127,233
5,424,368
513,124
12,478,177
3,090,217
7,801
3,098,018
15,576,195
$
15,647,242
$
Approved on behalf of the Board of Trustees
[signed]
Galen G. Weston
Chair, Board of Trustees
[signed]
Karen Kinsley
Chair, Audit Committee
Choice Properties REIT
2020 Annual Report 99
Choice Properties Real Estate Investment Trust
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(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
Allowance for expected credit losses on mortgage receivable
Share of income (loss) from equity accounted joint ventures
Amortization of intangible assets
Foreign exchange gain reclassified from other comprehensive income
Acquisition transaction costs and other related expenses
Other fair value gains (losses), net
Adjustment to fair value of Exchangeable Units
Adjustment to fair value of investment properties
Income (Loss) before income taxes
Income tax recovery
Net Income (Loss)
Net Income (Loss)
Other Comprehensive Income (Loss)
Foreign exchange gain (loss) on currency translation
Foreign exchange gain on currency translation reclassified to earnings
Unrealized gain (loss) on designated hedging instruments
27
Other comprehensive income (loss)
Comprehensive Income (Loss)
See accompanying notes to the consolidated financial statements
Note
December 31, 2020
December 31, 2019
Year Ended
19
20
21
22
23
24
10
6
11
25
15
5
16
$
1,270,614
$
1,288,554
(384,016)
886,598
13,639
4,416
(540,720)
(36,718)
(7,830)
(5,570)
(1,000)
1,184
(1,589)
2,210
354,286
(220,018)
448,888
1,797
(368,132)
920,422
14,551
4,556
(551,843)
(39,292)
(3,000)
24,366
—
—
(8,363)
(7,109)
(932,009)
(4,434)
(582,155)
798
$
$
450,685
$
(581,357)
450,685
$
(581,357)
1,016
(1,184)
(3,554)
(3,722)
(6,589)
—
(2,044)
(8,633)
$
446,963
$
(589,990)
Choice Properties REIT
2020 Annual Report 100
Choice Properties Real Estate Investment Trust
Consolidated Statements of Changes in Equity
Attributable to Choice Properties’ Unitholders
For the year ended December 31,
2020
(in thousands of Canadian dollars)
Cumulative
net income
Trust
Units
Note
Accumulated
other
comprehensive
loss
Cumulative
distributions
to
Unitholders
Total
Unitholders’
equity
Non-
controlling
interests
Total
equity
Equity, December 31, 2019
$ 3,409,836 $
361,049 $
(1,264) $
(679,404) $ 3,090,217 $
7,801 $ 3,098,018
Net income
Other comprehensive loss
Distributions
Units issued, net of costs
Distribution in Units
Units issued under unit-based
compensation arrangements
Reclassification of vested Unit-
Settled Restricted Units
liability to equity
Units repurchased for unit-
based compensation
arrangements
15,
32
15
15
15
15
—
—
—
208,935
29,425
4,841
1,929
(2,346)
450,685
—
—
—
—
—
—
—
—
(3,722)
—
—
450,685
(3,722)
—
—
—
—
—
—
(235,800)
(235,800)
—
208,935
(29,425)
—
—
—
—
4,841
1,929
(2,346)
—
—
—
—
—
—
—
—
450,685
(3,722)
(235,800)
208,935
—
4,841
1,929
(2,346)
Equity, December 31, 2020
$ 3,652,620 $
811,734 $
(4,986) $
(944,629) $ 3,514,739 $
7,801 $ 3,522,540
Attributable to Choice Properties’ Unitholders
For the year ended December 31,
2019
(in thousands of Canadian dollars)
Cumulative
net income
Trust
Units
Note
Accumulated
other
comprehensive
loss
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
Units issued under unit-based
compensation arrangements
Reclassification of vested Unit-
Settled Restricted Units
liability to equity
Units repurchased for unit-
based compensation
arrangements
15
15
15
15
15
—
—
—
380,758
21,721
29,055
2,081
(2,122)
(581,357)
—
—
—
—
—
—
—
—
(8,633)
—
—
(581,357)
(8,633)
—
—
—
—
—
—
(221,750)
(221,750)
—
380,758
(21,721)
—
—
—
—
29,055
2,081
(2,122)
—
—
—
—
—
—
—
—
(581,357)
(8,633)
(221,750)
380,758
—
29,055
2,081
(2,122)
Equity, December 31, 2019
$ 3,409,836 $
361,049 $
(1,264) $
(679,404) $ 3,090,217 $
7,801 $ 3,098,018
See accompanying notes to the consolidated financial statements
Choice Properties REIT
2020 Annual Report 101
Choice Properties Real Estate Investment Trust
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Operating Activities
Net income (loss)
Net interest expense and other financing charges
Interest paid
Interest income
Interest income received
Share of (income) loss from equity accounted joint ventures
Items not affecting cash and other items
Net change in non-cash working capital
Cash Flows from Operating Activities
Investing Activities
Acquisitions of investment properties
Acquisition of financial real estate asset
Additions to investment properties
Additions to financial real estate asset
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
Repayments of debentures
Net advances (repayments) of mortgages payable
Net advances on construction loans
Net advances (repayments) of credit facility and term loans
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
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 activities (Note 29)
See accompanying notes to the consolidated financial statements
Note
December 31, 2020
December 31, 2019
Year Ended
23
21
6
29 (a)
29 (b)
4
4, 9
5
9
6
6
10
10
4
13
13
13
13
14
15
15
18
15
$
450,685 $
540,720
(257,414)
(13,639)
11,545
5,570
(137,940)
21,657
621,184
(134,928)
(46,712)
(127,541)
(9)
(42,128)
32,549
(164,437)
173,655
464,745
155,194
994,681
(900,000)
614
351
(132,000)
—
—
1,799
(2,798)
(2,346)
(336,668)
(234,782)
(611,149)
165,229
41,990
29 (c)
$
207,219 $
(581,357)
551,843
(262,152)
(14,551)
6,098
(24,366)
926,135
(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
Choice Properties REIT
2020 Annual Report 102
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 700, 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, 2020, GWL held a 61.8% direct effective interest
in Choice Properties. Choice Properties’ ultimate parent is Wittington Investments, Limited (“Wittington”).
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 the
Choice Properties Board of Trustees (“Board”) on February 10, 2021.
b. Basis of Preparation
The consolidated financial statements are prepared on a historical cost basis except for investment properties (Note 5),
financial real estate assets (Note 9), 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 27) that have been measured at fair value. The consolidated financial statements are presented in
Canadian dollars, which is the Trust’s functional currency.
The Trust presents its consolidated balance sheet 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. Choice Properties considers this presentation to be reliable and more
relevant to the Trust’s business. Certain comparative information has been reclassified to conform with the financial
statement presentation adopted in the current year.
c.
Impact of COVID-19
The outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in the federal and
provincial governments enacting emergency measures to combat the spread of the virus. These measures, which
include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material
disruption to businesses resulting in an economic slowdown. Global equity and capital markets have also experienced
significant volatility and weakness. The governments have reacted with significant monetary and fiscal interventions
designed to stabilize economic conditions.
It is not possible to forecast with certainty the duration and full scope of the economic impact of COVID-19 and other
consequential changes it will have on the Trust’s business and operations, both in the short term and in the long term. In
a long term scenario, certain aspects of the Trust’s business and operations that could potentially be impacted include
rental income, occupancy, tenant inducements, future demand for space, and market rents, which all ultimately impact
the underlying valuation of investment property.
In the preparation of these consolidated financial statements, the Trust has incorporated the potential impact of
COVID-19 into its estimates and assumptions that affect the carrying amounts of its assets and liabilities, and the
reported amount of its results using the best available information as of December 31, 2020. Actual results could differ
from those estimates. The estimates and assumptions that the Trust considers critical and/or could be impacted by
COVID-19 include those underlying the valuation of investment properties and financial real estate assets, the carrying
amount of its investment in equity accounted joint ventures, the estimate of any expected credit losses on its accounts
receivable or mortgages, loans and notes receivable and determining the values of financial instruments for disclosure
purposes.
Choice Properties REIT
2020 Annual Report 103
Notes to the Consolidated Financial Statements
d. 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 (loss) and comprehensive income (loss) 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.
e. 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 expensed in the period 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.
f.
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 or loss 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 (loss) and comprehensive income (loss).
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.
Choice Properties REIT
2020 Annual Report 104
Notes to the Consolidated Financial Statements
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.
g.
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". Additionally, an investment property held
under a lease is classified as investment property if it meets the definition of investment property. At the inception of the
lease the investment property is recognized at the present value of the future minimum lease payments and an
equivalent amount is recognized as a lease obligation.
Subsequent to initial recognition, investment properties are measured at fair value in accordance with the valuation
policy discussed in Note 5. Gains and losses arising from changes in the fair value of investment properties are included
in the consolidated statements of income (loss) and comprehensive income (loss) in the period in which they arise.
Investment properties are derecognized when disposed.
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.
Choice Properties REIT
2020 Annual Report 105
Notes to the Consolidated Financial Statements
h. 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.
i.
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 based 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” (“IFRS 9”), 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;
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
Mortgages, loans and notes receivable - SPPI
Mortgages, loans and notes receivable - FVTPL
Financial real estate assets
Cash and cash equivalents
Long term debt:
Senior unsecured debentures
Mortgages payable
Construction loans
Credit facility
Trade payables and other liabilities
Designated hedging derivatives
Exchangeable Units
Classification and Measurement Basis
Amortized cost
Amortized cost
FVTPL
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
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.
Choice Properties REIT
2020 Annual Report 106
Notes to the Consolidated Financial Statements
Impairment losses, if incurred, would be recorded as expenses in the consolidated statements of income (loss) and
comprehensive income (loss) 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 statements of income (loss) and comprehensive income (loss). 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.
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
Financial real estate assets
Fair value is determined based on valuation methodology described in Note 5.
Mortgages, loans and notes receivable
The fair value of each mortgage, loan and note receivable is based on the current
market conditions for financing with similar terms and risks.
Accounts receivable, cash and cash equivalents,
and trade payables and other liabilities
The carrying amount approximates fair value due to the short-term maturity of these
instruments.
Unit Options
Fair value of each tranche is valued separately using a Black-Scholes option pricing
model.
Restricted Units, Performance Units, Trustee
Deferred Units and Exchangeable Units
Unit-Settled Restricted Units (“URU”)
Long term debt
Fair value is based on closing market trading price of Choice Properties’ Units.
Fair value of each grant 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.
Fair value is based on the present value of contractual cash flows, discounted at Choice
Properties’ current
for similar types of borrowing
arrangements or, where applicable, quoted market prices.
incremental borrowing rate
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.
Choice Properties REIT
2020 Annual Report 107
Notes to the Consolidated Financial Statements
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.
j. 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 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
Intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Intangible
assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an
indication that the intangible asset may be impaired. The amortization period and the amortization method for an
intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected
useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to
modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates.
Rent Receivables
Rent receivables are recognized initially at fair value, subsequently at amortized cost and, where relevant, adjusted for
the time value of money. The Trust assesses on a forward-looking basis the expected credit losses associated with its
rent receivables. A recognition of a loss allowance is made for the lifetime expected credit losses on initial recognition of
the receivable. In determining the expected credit losses the Trust takes into account any recent payment behaviours
and future expectations of likely default events. These assessments are made on a tenant-by-tenant basis.
k.
l.
m. Leases
As lessee
The Trust acting as lessee recognizes a right-of-use asset and a lease liability for all leases with a term of more than 12
months, unless the underlying asset is of low value.
Right-of-use assets
The Trust recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is
available for use). Right-of-use assets are measured at cost, less any accumulated amortization and impairment losses,
and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease
liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less
any lease incentives received. Right-of-use assets are amortized on a straight-line basis over the shorter of the lease
term and the estimated useful lives of the assets.
Lease liabilities
At the commencement date of the lease, the Trust recognizes lease liabilities measured at the present value of lease
payments to be made over the lease term. The lease payments include fixed payments less any lease incentives
receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be
exercised by the Trust and payments of penalties for terminating the lease, if the lease term reflects the Trust exercising
the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as rental
revenue in the period on which the event or condition that triggers the payment occurs.
Choice Properties REIT
2020 Annual Report 108
Notes to the Consolidated Financial Statements
In calculating the present value of lease payments, the Trust uses its incremental borrowing rate at the lease
commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement
date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments
made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease
term, a change in the lease payments or a change in the assessment of an option to purchase the underlying asset. IFRS
16, “Leases” (“IFRS 16”) requires certain adjustments to be expensed, while others are added to the cost of the related
right-of-use asset.
As lessor
When the Trust acts as a lessor, it determines and classifies each lease as a finance lease or operating lease at the lease
commencement date.
When a lease transfers to the lessee substantially all the risk and rewards of ownership incidental to the ownership of the
underlying asset, the lease is classified as a finance lease; otherwise, the lease is classified as an operating lease. To
make this assessment, the Trust considers certain indicators including whether the lease is for the major part of the
economic life of the asset or the present value of lease payments is substantially all the fair value of the underlying asset.
The majority of the lease agreements entered into by the Trust as a lessor are classified as operating leases. The Trust’s
policy for these leases are discussed further in the accounting policy for revenue recognition.
At the commencement date of a finance lease, the Trust recognizes a lease receivable at the amount of its net
investment in the lease, which is measured at the present value of lease payments to be made over the lease term. The
lease payments include fixed payments, variable lease payments that depend on an index or a rate and amounts
expected to be paid under residual value guarantees, less any lease incentives payable. The lease payments also include
the exercise price of a purchase option reasonably certain to be exercised by the lessee and payments of penalties for
terminating a lease, if the lease term reflects the lessee exercising the option to terminate. The variable lease payments
that do not depend on an index or a rate are recognized as rental revenue in the period on which the event or condition
that triggers the payment occurs.
n. 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.
o. 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.
p. 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.
Choice Properties REIT
2020 Annual Report 109
Notes to the Consolidated Financial Statements
Prior to disposing its only investment property in the United States during the year ended December 31, 2020, this
investment property was considered a foreign operation, which was financially and operationally independent from its
Canadian business. Assets and liabilities of this foreign operation were translated at the rate of exchange in effect at the
balance sheet date while revenue and expense items were translated at the average exchange rate for the period. Gains
or losses on translation were included in OCI as foreign currency translation gains or losses. When there was 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”) were reclassified to net
income.
q. 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 (the “Exchangeable Units”). GWL holds all the 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.
r.
Trust Units
With certain restrictions, the Units of Choice Properties 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.
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.
s. 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'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 taxes and insurance, which is included in revenue in the consolidated statements of income
(loss) and comprehensive income (loss) 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” (“IFRS 15”). 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.
Choice Properties REIT
2020 Annual Report 110
Notes to the Consolidated Financial Statements
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.
t. 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, as the Trust is an open-ended trust making its units redeemable, and thus requiring its unit-based
compensation plans to be recognized as a liability and carried at fair value. 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;
The expected Unit price volatility is estimated based on the average volatility of the Trust 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 employees’
discretion 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.
Choice Properties REIT
2020 Annual Report 111
Notes to the Consolidated Financial Statements
u.
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.
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.
Choice Properties REIT
2020 Annual Report 112
Notes to the Consolidated Financial Statements
Note 3. Critical Accounting Judgments and Estimates
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. Choice Properties’ significant accounting policies are disclosed in Note 2.
a.
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 properties acquired in the current year to be asset acquisitions.
Key Sources of Estimation
The fair value of income producing properties is dependent on future cash flows over the holding period and terminal
capitalization rates and discount rates applicable to those assets. The review of future cash flows involves assumptions
relating to occupancy, rental rates and residual value. In addition to reviewing future 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.
d.
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.
Choice Properties REIT
2020 Annual Report 113
Notes to the Consolidated Financial Statements
Note 4. Investment Property and Other Transactions
During the year ended December 31, 2020, Choice Properties completed the following acquisitions:
($ thousands)
Consideration
Location
Acquisition Segment
Date of
Consolidated investments
Ownership
Interest
Acquired
Purchase
Price
Purchase
Price incl.
Related
Costs
Issuance of
Trust /
Exchange-
able Units(ii)
Assumed
Liabilities
Mortgage
Receivable
Settlement
Cost-to-
Complete
Receivable
Cash
Toronto, ON
Jun 10
Land
100% $
8,100 $
8,190 $
— $
— $
— $
— $
8,190
Acquisition from Loblaw (Note 32)
8,100
8,190
—
—
—
—
8,190
Portfolio of 6 assets
across Canada
Dec 18
Industrial
100%
81,500
82,357
79,100
2,400
Acquisitions from GWL (Note 32)
81,500
82,357
79,100
2,400
Toronto, ON
Toronto, ON(i)
Jul 31
Jul 31
Office
Office
100%
128,500
130,754
128,500
60%
80,435
65,350
80,435
Acquisitions from Wittington (Note 32)
208,935
196,104
208,935
Coquitlam, BC
Toronto, ON
Barrie, ON
Portfolio of 4 assets
across Canada
Feb 11
Apr 9
Sep 23
Retail
Land
Retail
100%
21,150
21,840
100%
8,000
8,354
100%
50,000
51,899
Oct 16
Industrial
100%
85,895
87,330
Calgary, AB
Dec 22
Retail
N/A
1,500
2,885
Acquisitions from third-parties
166,545
172,308
—
—
—
—
—
—
—
—
—
—
857
857
—
—
2,254
—
(16,404)
1,319
—
(16,404)
3,573
—
—
50,000
—
21,840
—
—
8,354
1,899
—
—
—
87,330
—
2,885
—
—
—
—
—
—
—
—
—
50,000
— 122,308
Total acquisitions in consolidated investments
465,080
458,959
288,035
2,400
50,000
(16,404) 134,928
Financial real estate assets
Portfolio of 5 assets
across Canada
Nov 24
Retail
100%
45,673
46,712
Acquisitions of financial real estate assets (Note 32)
45,673
46,712
—
—
—
—
—
—
—
46,712
—
46,712
Total acquisitions
$ 510,753 $
505,671 $
288,035 $
2,400 $
50,000 $
(16,404) $ 181,640
(i)
(ii)
Represents the 60% additional ownership interest acquired from Wittington, increasing the Trust’s 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 32 for additional details.
The assets acquired from Wittington were satisfied in full by the issuance of 16,500,000 Units of Choice Properties (Note 32). The assets acquired from GWL were
satisfied in full by the issuance of 5,824,742 Exchangeable Units (Note 32).
Choice Properties REIT
2020 Annual Report 114
Notes to the Consolidated Financial Statements
The following table summarizes the investment properties sold in the year ended December 31, 2020:
($ thousands except where otherwise indicated)
Location
Assets held for sale
Date of
Disposition
Segment
Ownership
Interest
Sale Price
excl. Selling
Costs
Cash
Consideration
Lease Receivable
from Equity
Accounted Joint
Venture
Debt
Assumed by
Purchaser
Chicago, USA
Jan 24
Retail
100%
$
97,800 $
97,800 $
Dispositions of assets held for sale
97,800
97,800
— $
—
—
—
Investment properties
Edmonton, AB
Creston, BC
Halifax, NS
Milton, ON
Jan 29
Residential
Feb 3
Retail (parcel)
Feb 13
Sep 28
Office
Industrial
Portfolio of 11 assets across Canada (ii)
Oct 28
Retail
Quebec City, QC
Nov 23
Retail (parcel)
Portfolio of 3 assets across Canada
Nov 27
Portfolio of 5 assets across Canada (ii)
Dec 1
Windsor, ON (iii)
Dec 23
Retail
Retail
Retail
Dispositions of investment properties
Total dispositions in consolidated investments
Equity accounted joint ventures
50%
100%
100%
100%
50%
50%
100%
100%
100%
9,750
2,561
375
375
26,700
8,956
22,613
22,613
169,040
169,040
5,000
5,000
64,000
64,000
43,400
43,400
51,000
51,000
391,878
366,945
489,678
464,745
—
—
—
—
—
—
—
—
—
—
—
7,189
—
17,744
—
—
—
—
—
—
24,933
24,933
Ottawa, ON
Jul 1
Land
100%(i)
Disposition to equity accounted joint venture
19,468
19,468
—
—
19,468
19,468
—
—
Total dispositions
$
509,146 $
464,745 $
19,468 $
24,933
(i)
(ii)
(iii)
On July 1, 2020, the Trust entered into a 99-year ground lease with an equity accounted joint venture in which the Trust has a 50% ownership interest. Under IFRS 16,
this arrangement is accounted for as a disposition by the Trust and the inception of a lease receivable between the Trust and the limited partnership (Note 12). The
limited partnership has recognized an acquisition of investment property and a corresponding lease liability as part of this transaction (Note 6).
Choice Properties sold two portfolios consisting of 16 retail properties that were leased to Loblaw (Note 32).
Property disposition included a Loblaw lease (Note 32)
Choice Properties REIT
2020 Annual Report 115
Notes to the Consolidated Financial Statements
During the year ended December 31, 2019, Choice Properties completed the following acquisitions:
($ thousands except where otherwise indicated)
Date of
Acquisition
Segment
Ownership
Interest
Purchase
Price
Consideration
Purchase
Price incl.
Related
Costs
Other
liabilities
(assets)
assumed, net
Debt
assumed
Cash
Location
Consolidated investments
Kingston, ON
Toronto, ON
Mar 7
Mar 7
Retail
Retail
100%
29,658
30,386
100%
$
6,660 $
6,813 $
— $
— $
6,813
Acquisitions from Loblaw (Note 32)
36,318
37,199
Toronto, ON
Dec 13
Industrial
100%
13,250
13,786
Acquisitions from GWL (Note 32)
Toronto, ON(i)
Toronto, ON(ii)
Milton, ON(iii)
Milton, ON(iii)
Acquisitions from third-parties
Mar 29
Oct 7
Nov 1
Nov 1
Land
Retail
Industrial
Industrial
50%
100%
15%
15%
13,250
13,786
18,000
18,862
10,500
10,918
13,760
14,034
14,440
14,727
56,700
58,541
Total acquisitions in consolidated investments
106,268
109,526
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,749
12,330
30,386
37,199
13,786
13,786
18,862
10,918
2,285
2,397
24,079
34,462
24,079
85,447
Equity accounted joint ventures
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
100%
22,800
23,462
Acquisitions of financial real estate asset (Note 32)
22,800
23,462
—
—
—
—
23,462
23,462
Total acquisitions
$
149,068 $
153,114 $
13,537 $
25,480 $
114,097
(i)
(ii)
(iii)
Land is currently under development for residential purposes and classified as properties under development.
Property acquired from third-party includes a Loblaw lease (Note 32).
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.
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%
50%
100%
100%
50%
100%
$
600 $
15,229
1,475
426,318
15,786
8,500
600
15,229
1,475
426,318
15,786
8,500
$
467,908 $
467,908
(i)
(ii)
Property dispositions included a Loblaw lease (Note 32).
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 32).
Choice Properties REIT
2020 Annual Report 116
Notes to the Consolidated Financial Statements
Note 5.
Investment Properties
($ thousands)
Note
Income
producing
properties
Properties under
development
Year Ended
Year ended
December 31, 2020
December 31, 2019
Balance, beginning of year
$
14,210,000 $
163,000 $
14,373,000 $
14,501,000
Acquisitions - including purchase costs of
$10,283 (2019 - $3,258)
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 joint
ventures
Transfers from properties under
development
Dispositions
Disposition to equity accounted joint
venture
Foreign currency translation
Adjustment to fair value of investment
properties
Balance, end of year
4
23
6, 32
4
4
377,066
81,893
458,959
109,526
—
10,948
—
33,112
6,519
19,269
13,946
—
—
174,239
(391,878)
(19,468)
—
57,693
—
4,231
—
—
—
—
—
42,687
(174,239)
—
—
—
57,693
10,948
4,231
33,112
6,519
19,269
13,946
—
42,687
—
(391,878)
(19,468)
—
(234,753)
14,735
(220,018)
67,750
2,227
4,424
30,264
7,331
19,536
25,146
(97,800)
181,909
—
(467,908)
—
(5,971)
(4,434)
$
14,199,000 $
190,000 $
14,389,000 $
14,373,000
(i)
(ii)
Development capital included $995 of site intensification payments paid to Loblaw (December 31, 2019 - $4,577) (Note 32).
Interest was capitalized to qualifying development projects based on a weighted average interest rate of 3.70% (December 31, 2019 - 3.70%).
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 32) 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.
Choice Properties REIT
2020 Annual Report 117
Notes to 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 significant assumptions related to terminal
capitalization rates, discount rates and future cash flow assumptions such as 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. Where warranted, adjustments will be made to the internal valuations to reflect the assumptions contained
in the external valuations. The Trust will record the internal value in its consolidated financial statements.
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 terminal capitalization rate applied
to estimated net operating income, a non-GAAP measure, in the terminal year. This method involves the projection of future
cash flows for the specific asset. To the future cash flows 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 future 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. The future cash flows are 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 future cash flows, along with an estimate
of the terminal value anticipated at the end of the projection period, are 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 future cash outflow assumptions 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.
Impact of COVID-19
The Trust reviewed its future cash flow projections and the valuation of its properties in light of the COVID-19 pandemic
during the year ended December 31, 2020. The Trust expects that COVID-19 will have the most notable impact on its non-
grocery anchored retail portfolio. The carrying value for the Trust’s investment properties reflects its best estimate for the
highest and best use as at December 31, 2020.
It is not possible to forecast with certainty the duration and full scope of the economic impact of COVID-19 and other
consequential changes it will have on the Trust’s business and operations, both in the short term and in the long term. In a
long term scenario, certain aspects of the Trust’s business and operations that could potentially be impacted include rental
income, occupancy, tenant inducements, future demand for space, and market rents, which all ultimately impact the
underlying valuation of its investment properties.
Choice Properties REIT
2020 Annual Report 118
Notes to the Consolidated Financial Statements
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:
Total Income Producing Properties
Range Weighted average
Range Weighted average
As at December 31, 2020
As at December 31, 2019
Discount rate
Terminal capitalization rate
Retail
Discount rate
Terminal capitalization rate
Industrial
Discount rate
Terminal capitalization rate
Office
Discount rate
Terminal capitalization rate
4.75% - 11.45%
4.00% - 10.95%
6.83%
6.07%
5.00% - 11.45%
4.25% - 10.95%
5.00% - 11.45%
4.50% - 10.95%
6.97%
6.23%
5.00% - 11.45%
4.50% - 10.95%
4.75% - 9.00%
4.00% - 8.50%
6.50%
5.73%
5.25% - 9.00%
4.75% - 8.50%
5.25% - 8.50%
4.25% - 7.75%
6.21%
5.32%
5.00% - 8.25%
4.25% - 7.50%
6.77%
6.11%
6.89%
6.24%
6.51%
5.78%
6.05%
5.29%
The significant assumptions and inputs used in the valuation techniques to estimate the fair value of income producing
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.
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. Where warranted, adjustments will be made to the
internal valuations to reflect the assumptions contained in the external valuations. The Trust will record the internal value in its
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
18 $
18
18
21
2020
Fair value
765,000
850,000
675,000
715,000
Number of
investment
properties
22 $
26
18
19
2019
Fair value
785,000
800,000
645,000
800,000
75 $
3,005,000
85 $
3,030,000
Choice Properties REIT
2020 Annual Report 119
Notes to the Consolidated Financial Statements
Fair Value Sensitivity
The following table summarizes fair value sensitivity for the Trust’s income producing properties which are most sensitive to
changes in terminal capitalization rates and discount rates:
Terminal Capitalization Rate
Discount Rate
Rate
Sensitivity
Weighted Average
Terminal
Capitalization Rate
Fair Value
Change in Fair
Value
Weighted Average
Discount Rate
Fair Value
Change in Fair
Value
(0.75)%
(0.50)%
(0.25)%
—%
0.25%
0.50%
0.75%
5.32 % $
15,404,000 $
1,205,000
6.09 % $
15,094,000 $
895,000
5.57 %
14,961,000
5.82 %
14,564,000
6.07 %
14,199,000
6.32 %
13,873,000
6.57 %
13,572,000
6.82 %
13,279,000
762,000
365,000
—
(326,000)
(627,000)
(920,000)
6.34 %
14,791,000
6.59 %
14,492,000
6.83 %
14,199,000
7.08 %
13,923,000
7.33 %
13,651,000
7.58 %
13,383,000
592,000
293,000
—
(276,000)
(548,000)
(816,000)
Note 6. 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.
Note
As at December 31, 2020
As at December 31, 2019
Number of
joint ventures
Ownership
interest
Number of
joint ventures
Ownership
interest
Retail
Industrial
Residential
Mixed-use, with related party
32
Land, held for development
Total equity accounted joint ventures
16
2
3
—
1
22
25% - 75%
16
25% - 75%
50%
47% - 50%
— %
50 %
50%
47% - 50%
40%
— %
2
3
1
—
22
Summarized financial information for equity accounted joint ventures at 100% and Choice Properties’ ownership interest are
set out below:
($ thousands)
Ownership
Current assets
assets Current liabilities
As at December 31, 2020
Non-current
Non-current
liabilities
Net assets at
100%
Horizon Business Park LP
Great Plains Business Park LP
50% $
50%
2,935 $
214,776 $
(25,289) $
— $
192,422
2,231
211,374
(4,472)
(17,475)
Other joint ventures
25-75%
40,884
1,404,613
(413,693)
(301,007)
191,658
730,797
Net assets at 100%
Investment in equity accounted
joint ventures
$
$
46,050 $
1,830,763 $
(443,454) $
(318,482) $
1,114,877
25,141 $
948,938 $
(218,536) $
(181,894) $
573,649
Choice Properties REIT
2020 Annual Report 120
Notes to the Consolidated Financial Statements
Year ended December 31, 2020
($ thousands)
Ownership
Rental
Revenue
Property
operating
costs
Interest
income
Interest
expense
Adjustment
to fair value
Net income (loss)
and
comprehensive
income (loss) at
100%
Horizon Business Park LP
50% $
15,353 $
(4,458) $
Great Plains Business Park LP
50%
17,466
(4,599)
— $
(7)
— $
(3,110) $
—
(3,089)
7,785
9,771
Other joint ventures
25-75%
79,883
(31,470)
2,772
(16,823)
(61,304)
(26,942)
Net income and comprehensive
income at 100%
Share of net income (loss) and
comprehensive income (loss)
in equity accounted joint
ventures
$
112,702 $
(40,527) $
2,765 $
(16,823) $
(67,503) $
(9,386)
$
59,614 $
(21,986) $
1,496 $
(9,024) $
(35,670) $
(5,570)
($ thousands)
Ownership
Current assets
assets Current liabilities
As at December 31, 2019
Non-current
Non-current
liabilities
Net assets at
100%
Horizon Business Park LP
Great Plains Business Park LP
50% $
50%
1,575 $
164,515 $
(22,134) $
3,527
166,122
(35,095)
— $
—
Other joint ventures
25-75%
36,947
1,437,905
(140,499)
(435,659)
143,956
134,554
898,694
Net assets at 100%
Investment in equity accounted
joint ventures (at share)
$
$
42,049 $
1,768,542 $
(197,728) $
(435,659) $
1,177,204
19,871 $
915,638 $
(119,117) $
(210,303) $
606,089
($ thousands)
Ownership
Rental
Revenue
Property
operating
costs
Interest
income
Interest
expense
Adjustment
to fair value
Net income (loss)
and
comprehensive
income (loss) at
100%
Year ended December 31, 2019
Horizon Business Park LP
50% $
7,965 $
(2,399) $
Great Plains Business Park LP
50%
8,130
(2,720)
— $
—
— $
(17,405) $
(11,839)
—
(2,534)
2,876
39,247
Other joint ventures
25-50%
103,538
(38,005)
(17,304)
3,085
(12,067)
Net income and comprehensive
income at 100%
Share of net income (loss) and
comprehensive income (loss) in
equity accounted joint ventures
$
119,633 $
(43,124) $
(17,304) $
3,085 $
(32,006) $
30,284
$
65,448 $
(22,353) $
(9,428) $
1,427 $
(10,728) $
24,366
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 venture to consolidated investments(i)
Share of income (loss) from equity accounted joint ventures
Total non-cash activities
Balance, end of year
$
Year ended
December 31, 2020
606,089
42,128
(32,549)
9,579
(36,449)
(5,570)
(42,019)
$
573,649
(i)
Represents the Trust’s ownership interest in an equity accounted joint venture that was transferred to a consolidated investment following the acquisition of
the remaining 60% interest not already owned. Refer to Note 4 and Note 32 for additional details.
Choice Properties REIT
2020 Annual Report 121
Notes to the Consolidated Financial Statements
Note 7. 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.
As at December 31, 2020
As at December 31, 2019
Number of co-
owned properties
39
2
6
6
1
54
Ownership
interest
50% - 75%
50% - 67%
50%
50%
50%
Number of co-
owned properties
28
2
6
6
2
44
Ownership
interest
50% - 75%
50% - 67%
50%
50%
50%
Retail
Industrial
Office
Residential
Land, held for development
Total co-ownership property interests
Note 8. 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, 2020 and December 31, 2019, Brampton LP did not distribute to the
partners.
Note 9. Financial Real Estate Assets
($ thousands)
Balance, beginning of year
Acquisitions
Additions
Note
December 31, 2020
December 31, 2019
As at
As at
4
$
$
22,800 $
46,712
9
(1,148)
—
22,800
—
—
68,373 $
22,800
Interest income (loss) from financial real estate assets due to changes in value
21
Balance, end of year
Financial real estate assets are land and buildings purchased by the Trust that did not meet the criteria of a transfer of control
under IFRS 15 due to the sale-leaseback arrangement with the seller of the asset. In accordance with IFRS 16, the Trust
recognized these acquisitions as financial instruments under IFRS 9.
Choice Properties REIT
2020 Annual Report 122
Notes to the Consolidated Financial Statements
Note 10. Mortgages, Loans and Notes Receivable
($ thousands)
Note
December 31, 2020
December 31, 2019
As at
As at
Mortgages receivable classified as amortized cost(i)
$
111,882 $
Mortgages receivable classified as FVTPL
Loans receivable classified as amortized cost(i)
Notes receivable from related party classified as amortized cost(i)
32
Allowance for expected credit losses on mortgage receivable
Mortgages, loans and notes receivable
Classified as:
Non-current
Current
53,588
2,285
96,191
—
263,946 $
117,457 $
146,489
263,946 $
$
$
$
99,541
85,809
5,649
144,287
(3,000)
332,286
99,523
232,763
332,286
(i)
The fair value of the mortgages, loans and notes receivable classified as amortized cost was $208,700 (December 31, 2019 - $246,300) (Note 27).
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, 2020, the Trust recorded an allowance for expected credit losses of $nil
(December 31, 2019 - $3,000).
December 31, 2020
December 31, 2019
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
7.31%
8.00%
7.32%
2.1
3.7
2.2
7.52%
8.00%
7.54%
2.0
1.1
2.0
Notes Receivable from Related Party
Non-interest-bearing short-term notes totalling $144,287 were repaid by GWL in January 2020 (Note 32). Non-interest-
bearing short-term notes totalling $96,191 were issued during 2020 to GWL and repaid in January 2021 (Note 32).
Schedules of Maturity and Cash Flow Activities
The schedule of repayment of mortgages, loans and notes receivable based on maturity and redemption rights is as follows:
($ thousands)
Principal repayments
2021
2022
2023
2024
2025
Thereafter
Total
Mortgages receivable
$
48,746 $
63,000 $
— $
45,953 $
— $
6,219 $ 163,918
Loans receivable
Notes receivable from related party
—
96,191
—
—
—
—
2,285
—
Total principal repayments
144,937
63,000
—
48,238
—
—
—
—
—
—
2,285
96,191
6,219
262,394
—
1,552
Interest accrued
Total repayments
1,552
—
—
—
$
146,489 $
63,000 $
— $
48,238 $
— $
6,219 $ 263,946
Choice Properties REIT
2020 Annual Report 123
Notes to the Consolidated Financial Statements
The following table reconciles the changes in cash flows from investing activities for mortgages, loans and notes receivable:
($ thousands)
Mortgages
receivable
Loans receivable
Notes receivable from
related party
Mortgages, loans and
notes receivable
December 31, 2020
Balance, beginning of year
$
182,350 $
5,649 $
144,287 $
Advances
Repayments
Interest received
Total cash flow activities
Net write-off for expected credit losses
on mortgage receivable
Adjustment to fair value on mortgage
receivable classified as FVTPL
Settlement upon acquisition of
investment property
Transferred to accounts receivable
Interest accrued
Total non-cash activities
65,860
(23,658)
(8,550)
33,652
(7,830)
(4,034)
(50,000)
(500)
11,832
(50,532)
2,386
(5,710)
(517)
(3,841)
—
—
—
—
477
477
96,191
(144,287)
—
(48,096)
—
—
—
—
—
—
Balance, end of year
$
165,470 $
2,285 $
96,191 $
332,286
164,437
(173,655)
(9,067)
(18,285)
(7,830)
(4,034)
(50,000)
(500)
12,309
(50,055)
263,946
Choice Properties invests in mortgages and loans to facilitate acquisitions. Credit risks arise if 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 first quarter of 2020, the borrower on the Trust’s $23,000 mortgage receivable for an asset in Barrie, Ontario, defaulted
on its loan from the Trust. The loan was secured by a property that is adjacent to a grocery anchored shopping centre owned
by the Trust. The loan was also cross-collateralized by two other properties where the Trust is a joint venture partner with the
borrower. The Trust’s security was subordinate to a senior lender who provided construction financing.
After default, the Trust repaid the borrower’s obligation to the senior lender of $43,000 such that the Trust became the only
secured creditor on the property. In the second quarter of 2020, the Trust applied to the court to have a receiver appointed,
who launched a process to market and sell the property. The Trust submitted an unconditional bid to the receiver to acquire
the property. In September 2020, the Trust’s offer was accepted by the court and ownership of the property was transferred
by court order to the Trust (Notes 4 and 5). Upon close of the acquisition, the allowance for expected credit losses
associated with this mortgage receivable was written off.
The Trust has approximately $160 million of secured mortgages to other third-party borrowers. These loans are with
borrowers who are strategic development partners of the Trust and have strong credit metrics. 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.
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, 2020, the carrying value, net of accumulated amortization of $1,000 (2019 - $nil),
was $29,000 (December 31, 2019 - $30,000).
Choice Properties REIT
2020 Annual Report 124
Notes to the Consolidated Financial Statements
Note 12. Accounts Receivable and Other Assets
($ thousands)
Note
December 31, 2020
December 31, 2019
As at
As at
Rent receivables(i) - net of expected credit loss of $20,041 (2019 - $5,159)
$
19,341 $
Accrued recovery income
Lease receivable
Other receivables
Cost-to-complete receivable
Due from related parties(ii)
Restricted cash
Prepaid property taxes
Prepaid insurance
Other assets
Right-of-use assets - net of accumulated amortization of $1,241 (2019 - $988)
Deferred tax asset
Deferred acquisition costs and deposits on land
Designated hedging derivatives
Accounts receivable and other assets
Classified as:
Non-current
Current
4
4, 32
32
16
27
13,375
19,405
13,474
13,721
—
780
10,070
185
17,846
4,081
1,981
1,419
377
$
$
$
116,055 $
72,230
38,104 $
77,951
116,055 $
12,567
59,663
72,230
8,284
24,485
—
9,901
—
756
679
10,905
313
7,921
6,967
410
1,427
182
(i)
(ii)
Includes net rent receivable of $36 from Loblaw, $13 from GWL and $131 from Wittington (December 31, 2019 - $71, $nil and $nil).
Other net receivables due from related parties includes $nil from GWL and $nil from Loblaw (December 31, 2019 - $756 and $nil).
Rent receivables
In determining the expected credit losses the Trust takes into account the payment history and future expectations of likely
default events (i.e. asking for rental concessions, applications for rental relief through government programs such as the
Canada Emergency Commercial Rent Assistance (“CECRA”) program, or stating they will not be making rental payments on
the due date) based on actual or expected insolvency filings or company voluntary arrangements and likely deferrals of
payments due, and potential abatements to be granted by the landlord under CECRA. These assessments are made on a
tenant-by-tenant basis.
The Trust’s assessment of expected credit losses is inherently subjective due to the forward-looking nature of the
assessments. As a result, the value of the expected credit loss is subject to a degree of uncertainty and is made on the basis
of assumptions which may not prove to be accurate with the unprecedented uncertainty caused by COVID-19.
Choice Properties REIT
2020 Annual Report 125
Notes to the Consolidated Financial Statements
Note 13. Long Term Debt
($ thousands)
Senior unsecured debentures
Mortgages payable
Construction loans
Long term debt
Classified as:
Non-current
Current
Senior Unsecured Debentures
($ thousands)
Series
Issuance /
Assumption Date
Jul. 5, 2013
Feb. 8, 2014
Feb. 8, 2014
Feb. 5, 2015
Nov. 24, 2015
Mar. 7, 2016
Mar. 7, 2016
Jan. 12, 2018
Jan. 12, 2018
Mar. 8, 2018
Mar. 8, 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, 2019
Jun. 11, 2029
Mar. 3, 2020
Mar. 3, 2020
May 22, 2020
Jul. 4, 2013
Jul. 4, 2013
Jul. 4, 2013
May 4, 2018
May 4, 2018
Mar. 4, 2030
Mar. 4, 2050
May 21, 2027
Apr. 20, 2020
Sep. 20, 2021
Sep. 20, 2022
Jan. 15, 2021
Jan. 18, 2023
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
8
9
10
B-C
D-C
4.90%
3.50%
4.29%
2.30%
4.06%
3.20%
5.27%
3.01%
3.55%
3.56%
4.18%
3.53%
2.98%
3.83%
2.85%
3.20%
3.57%
3.84%
3.06%
3.30%
As at
As at
December 31, 2020
December 31, 2019
5,255,529 $
1,204,799
25,193
5,158,342
1,230,268
24,842
6,485,521 $
6,413,452
6,158,246 $
327,275
6,485,521 $
5,697,841
715,611
6,413,452
$
$
$
$
Effective Interest
Rate
As at
As at
December 31, 2020
December 31, 2019
$
200,000 $
—
200,000
—
200,000
250,000
100,000
300,000
350,000
550,000
750,000
750,000
400,000
100,000
500,000
—
200,000
300,000
—
125,000
5,275,000
(2,014)
(17,457)
5,255,529 $
200,000
250,000
200,000
250,000
200,000
250,000
100,000
300,000
350,000
550,000
750,000
750,000
—
—
—
300,000
200,000
300,000
100,000
125,000
5,175,000
(1,349)
(15,309)
5,158,342
Total principal outstanding
Debt discounts and premiums - net of accumulated amortization of $15,522
(2019 - $14,857)
Debt placement costs - net of accumulated amortization of $12,301 (2019 -
$9,130)
Senior unsecured debentures
$
As at December 31, 2020, the senior unsecured debentures had a weighted average effective interest rate of 3.61% and a
weighted average term to maturity of 6.0 years (December 31, 2019 - 3.67% and 5.1 years, respectively). Senior unsecured
debentures Series B through Series P were issued by the Trust, Series B-C and D-C were assumed by the Trust, and Series 8
through Series 10 were issued by the Partnership.
Choice Properties REIT
2020 Annual Report 126
Notes to the Consolidated Financial Statements
On January 20, 2020, Choice Properties redeemed the $300,000 series 8 senior unsecured debenture bearing interest at
3.60% due April 20, 2020.
On March 3, 2020, Choice Properties completed a $500,000 dual-tranche offering of senior unsecured debentures on a
private placement basis. The first tranche was the $400,000 series N senior unsecured debenture bearing interest at 2.98%
per annum maturing on March 4, 2030, while the second tranche was the $100,000 series O senior unsecured debenture
bearing interest at 3.83% per annum maturing on March 4, 2050. The net proceeds of the issuances were used to repay
existing indebtedness, including the early redemption in full on March 13, 2020, of the $250,000 series E senior unsecured
debenture bearing interest at 2.30% due September 14, 2020.
On May 21, 2020, Choice Properties completed a $500,000 offering on a private placement basis of the series P senior
unsecured debenture bearing interest at 2.85% per annum maturing on May 21, 2027. The net proceeds of the issuance
were used to repay existing indebtedness, including the early redemptions in full on June 12, 2020, of the $100,000 series B-
C senior unsecured debenture bearing interest at 3.06% due January 15, 2021 and the $250,000 series C senior unsecured
debenture bearing interest at 3.50% due February 8, 2021, as well as to repay all or a portion of the balance drawn on the
Trust’s credit facility. The Trust incurred early repayment charges of $6.8 million upon redeeming the series B-C and series C
debentures.
Mortgages Payable
($ thousands)
Mortgage principal
Net debt discounts and premiums - net of accumulated amortization of $5,602
(2019 - $4,461)
Debt placement costs - net of accumulated amortization of $138 (2019 - $129)
Mortgages payable
As at
As at
December 31, 2020
December 31, 2019
1,206,638 $
1,230,569
(934)
(905)
207
(508)
1,204,799 $
1,230,268
$
$
As at December 31, 2020, the mortgages had a weighted average effective interest rate of 3.83% and a weighted average
term to maturity of 5.5 years (December 31, 2019 - 4.05% and 5.6 years, respectively).
Construction Loans
As at December 31, 2020, $25,193 was outstanding on the construction loans (December 31, 2019 - $24,842), with a
weighted average effective interest rate of 2.42% and a weighted average term to maturity of 0.3 years (December 31, 2019 -
3.77% and 0.9 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 2021 to 2022, have a
maximum amount available to be drawn at the Trust’s ownership interest of $226,145, of which $198,002 relates to equity
accounted joint ventures as at December 31, 2020 (December 31, 2019 - $225,477 and $194,902, respectively).
Schedules of Repayments and Cash Flow Activities
The schedule of principal repayment of long term debt, based on maturity, is as follows:
($ thousands)
2021
2022
2023
2024
2025 Thereafter
Total
Senior unsecured debentures
$ 200,000 $ 600,000 $ 575,000 $ 750,000 $ 550,000 $ 2,600,000 $ 5,275,000
Mortgages payable
Construction loans
Total
106,763
216,596
109,150
157,029
152,306
464,794
1,206,638
25,193
—
—
—
—
—
25,193
$ 331,956 $ 816,596 $ 684,150 $ 907,029 $ 702,306 $ 3,064,794 $ 6,506,831
Choice Properties REIT
2020 Annual Report 127
Notes to the Consolidated Financial Statements
The following table reconciles the changes in cash flows from financing activities for long term debt:
($ thousands)
Senior unsecured
debentures
Mortgages
payable
Construction
loans
Long term debt
Year ended
December 31, 2020
Balance, beginning of year
$
5,158,342 $
1,230,268 $
24,842 $
Issuances and advances
Repayments
Debt placement costs
Total cash flow activities
Assumed by purchaser
Amortization of debt discounts and premiums
Amortization of debt placement costs
Total non-cash activities
Balance, end of year
Note 14. Credit Facility
1,000,000
(900,000)
(5,319)
94,681
—
(665)
3,171
2,506
74,809
(73,807)
(388)
614
(24,933)
(1,141)
(9)
(26,083)
351
—
—
351
—
—
—
—
6,413,452
1,075,160
(973,807)
(5,707)
95,646
(24,933)
(1,806)
3,162
(23,577)
$
5,255,529 $
1,204,799 $
25,193 $
6,485,521
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 0.20% or Bankers’ Acceptance
rate plus 1.20%. The pricing is contingent on Choice Properties’ credit ratings from either DBRS and S&P remaining at BBB
(high). As at December 31, 2020, $nil was drawn under the syndicated facility. The unamortized balance for debt placement
costs at December 31, 2020 of $3,337 have been included in other assets (Note 12) (2019 - $4,767).
The credit facility contains certain financial covenants. As at December 31, 2020, the Trust was in compliance with all its
financial covenants for the credit facility.
Schedule of Cash Flow Activities
The following table reconciles the changes in cash flows from financing activities for the credit facility:
($ thousands)
Balance, beginning of year
Net repayments of $1,500,000 syndicated credit facility
Total cash flow activities
Amortization of debt placement costs
Reclassified to other assets
Total non-cash activities
Balance, end of year
Year ended
December 31, 2020
$
$
127,233
(132,000)
(132,000)
1,430
3,337
4,767
—
Choice Properties REIT
2020 Annual Report 128
Notes to the Consolidated Financial Statements
Note 15. Unitholders' Equity
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. All Exchangeable Units are held by
GWL.
The 70,881,226 Exchangeable Units issued on May 4, 2018 in connection with the acquisition of Canadian Real Estate
Investment Trust 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
22,988,505
24,904,216
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
Amount
Units
Amount
Units, beginning of year
310,292,869 $ 3,409,836
278,202,559 $ 2,978,343
Units issued through equity financing, net of issuance costs
—
—
30,042,250
380,758
Units issued to related party as part of investment properties
Note
As at December 31, 2020
As at December 31, 2019
acquisition
Distribution in Units
Consolidation of Units
32
16,500,000
208,935
—
—
2,277,457
29,425
1,569,400
21,721
(2,277,457)
—
(1,569,400)
—
Units issued under unit-based compensation arrangements
18
307,877
4,841
2,203,950
29,055
Reclassification of vested Unit-Settled Restricted Units liability to
equity
—
1,929
—
2,081
Units repurchased for unit-based compensation arrangements
18
(159,083)
(2,346)
(155,890)
(2,122)
Units, end of year
326,941,663 $ 3,652,620
310,292,869 $ 3,409,836
Exchangeable Units, beginning of year
389,961,783 $ 5,424,368
389,961,783 $ 4,492,359
Units issued to related party as part of investment properties
acquisition
32
5,824,742
79,100
Adjustment to fair value of Exchangeable Units
—
(354,286)
—
—
—
932,009
Exchangeable Units, end of year
395,786,525 $ 5,149,182
389,961,783 $ 5,424,368
Total Units and Exchangeable Units, end of year
722,728,188
700,254,652
Choice Properties REIT
2020 Annual Report 129
Notes to the Consolidated Financial Statements
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.
Units Issued to Related Party as part of Investment Properties Acquisition
During the year ended December 31, 2020, the acquisition of two office assets from Wittington was satisfied in full by the
issuance of 16,500,000 Units of Choice Properties, while the acquisition of six industrial assets from GWL was satisfied in full
by the issuance of 5,824,742 Exchangeable Units.
Distribution in Units and Consolidation of Units
As a result of the increase in taxable income generated primarily from sale transactions in the year ended December 31,
2020, the Board declared a special non-cash distribution on December 31, 2020, of 2,277,457 Units at $0.09 per Unit
totalling $29,425. During 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, 2020 and
2019, the special distributions declared were recorded to Trust Units in accordance with IAS 32, “Financial Instruments:
Presentation”.
Normal Course Issuer Bid (“NCIB”)
Choice Properties may from time to time purchase Units in accordance with the rules prescribed under applicable stock
exchange or regulatory policies. On November 17, 2020, Choice Properties received approval from the TSX to purchase up
to 25,846,904 Units during the twelve-month period from November 19, 2020 to November 18, 2021, by way of a NCIB over
the facilities of the TSX or through alternative trading systems. Choice Properties intends to file a Notice of Intention to make
a NCIB with the TSX upon the expiry of its current NCIB.
Units Issued under Unit-Based Compensation Arrangements
Units were issued as part of settlements under the Unit Option Plan and grants under the Unit-Settled Restricted Unit Plan
(Note 18).
Units Repurchased for Unit-Based Compensation Arrangement
The Trust acquired Units under its NCIB during the year ended December 31, 2020 and the year ended December 31, 2019,
which were then granted to certain employees in connection with the Unit-Settled Restricted Unit Plan, and are subject to
vesting conditions and disposition restrictions.
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) (Note 16). The taxable income allocated to the Trust and Exchangeable Unitholders
may vary in certain taxation years. Over time, such differences, in aggregate, are expected to be minimal.
In the year ended December 31, 2020, Choice Properties declared cash distributions of $0.740 per unit (December 31, 2019 -
$0.740), or $554,157 in aggregate, including distributions to holders of Exchangeable Units, which are reported as interest
expense (December 31, 2019 - $532,054). 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.
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. On
April 25, 2018, the Board temporarily suspended the DRIP commencing with the distribution declared in May 2018. In the first
quarter of 2020, the Board determined that the DRIP will remain suspended until further notice.
Base Shelf Prospectus
On March 4, 2020, Choice Properties filed a Short Form Base Shelf Prospectus allowing for the issuance of up to $2,000,000
of Units and debt securities, or any combination thereof over a 25-month period.
Choice Properties REIT
2020 Annual Report 130
Notes to the Consolidated Financial Statements
Note 16. Income Taxes
The Trust is taxed as a “mutual fund trust” and a REIT under the Income Tax Act (Canada). The Trustees intend to distribute
all of the Trust’s taxable income to the Unitholders and accordingly, the Trust is not taxable on its Canadian investment
property income. The Trust is subject to taxation on certain taxable entities in Canada and the United States.
Income taxes recognized in the consolidated statements of income (loss) and comprehensive income (loss) was as follows:
($ thousands)
Current income tax recovery (expense)
Deferred income tax recovery (expense)
Income tax recovery
Year Ended
December 31, 2020
December 31, 2019
$
$
226 $
1,571
1,797 $
(181)
979
798
A deferred income tax asset of $1,981 (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, 2019 - $410).
Note 17. Trade Payables and Other Liabilities
($ 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
Trade payables and other liabilities
Classified as:
Non-current
Current
Note
As at
December 31, 2020
As at
December 31, 2019
$
20,493 $
108,016
38,655
59,765
57,171
121,264
12,930
20,344
4,224
19,867
20,710
6,560
32
18
27
9,430
83,010
38,999
60,807
61,352
179,111
11,408
19,326
7,138
16,882
22,850
2,811
$
$
$
489,999 $
513,124
13,734 $
476,265
489,999 $
12,267
500,857
513,124
(i)
(ii)
(iii)
Includes payable to Loblaw of $7,869 for construction allowances (2019 - $5,278) (Note 32).
Includes distributions accrued on Exchangeable Units of $120,598 payable to GWL (2019 - $168,334); $332 payable for shared costs incurred by GWL, the
Services Agreement expense and other related party charges (2019 - $3,676); and $334 of reimbursed contract revenue and other related party charges
payable to Loblaw (2019 - $nil).
Includes distributions payable to GWL of $3,124 and Wittington of $1,018 (December 31, 2019 - $3,124 and $nil) (Note 32).
Choice Properties REIT
2020 Annual Report 131
Notes to the Consolidated Financial Statements
Note 18. Unit-Based Compensation
($ 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, 2020
December 31, 2019
202
$
3,495
503
1,144
5,344
$
4,838
$
506
5,344
$
5,187
4,161
593
1,897
11,838
4,729
7,109
11,838
$
$
$
$
As at December 31, 2020, the carrying value of the unit-based compensation liability was $12,930 (December 31, 2019 -
$11,408) (Note 17).
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:
Outstanding Unit Options, beginning of year
Exercised
Cancelled
Expired
Outstanding Unit Options, end of year
Unit Options exercisable, end of year
Year ended December 31, 2020
Year ended December 31, 2019
Number of awards
Weighted average
exercise price/unit
Number of awards
Weighted average
exercise price/unit
1,287,314 $
(148,794) $
(54,414) $
(1,466) $
1,082,640 $
706,804 $
12.51
12.09
13.15
13.93
12.54
12.56
3,764,107 $
(2,048,060) $
(417,439) $
(11,294) $
1,287,314 $
561,779 $
11.66
11.04
11.96
14.21
12.51
12.27
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, 2020
As at December 31, 2019
5.54%
5.38%
15.58% - 35.02%
13.87% - 18.27%
0.01% - 0.27%
0.1 - 2.7 Years
0.02% - 1.74%
0.1 - 3.6 Years
The following table details the Unit Options outstanding as at December 31, 2020:
Exercise Price
$11.51
$12.39
$14.20
$11.92
$11.51 to $14.20
Expiry Date
Number of Unit Options outstanding
as at December 31, 2020
Remaining weighted
average life (in years)
2022
2023
2024
2025
117,954
328,102
247,582
389,002
1,082,640
1.2
2.2
3.2
4.2
2.7
Choice Properties REIT
2020 Annual Report 132
Notes to the Consolidated Financial Statements
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. No RUs had vested as at December 31, 2020
(December 31, 2019 - 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
Year Ended
Year ended
December 31, 2020
December 31, 2019
484,544
69,227
24,451
(161,044)
(11,465)
405,713
446,341
239,483
26,547
(106,355)
(121,472)
484,544
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 Properties 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 764,385
URUs vested but still subject to disposition restrictions as at December 31, 2020 (December 31, 2019 - 1,147,753).
The following is a summary of Choice Properties’ URU plan activity for units not yet vested:
(Number of awards)
Outstanding Unit-Settled Restricted Units, beginning of year
Granted
Cancelled
Vested
Outstanding Unit-Settled Restricted Units, end of year
Year Ended
Year ended
December 31, 2020
December 31, 2019
624,419
159,083
—
(194,968)
588,534
717,815
155,946
(40,796)
(208,546)
624,419
Choice Properties REIT
2020 Annual Report 133
Notes to the Consolidated Financial Statements
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, 2020 (December 31, 2019 - 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
Year ended
December 31, 2020
December 31, 2019
103,868
59,273
7,241
(40,205)
(3,543)
9,061
135,695
104,449
50,686
5,867
(58,282)
(21,471)
22,619
103,868
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)
Outstanding Trustee Deferred Units, beginning of year
Granted
Reinvested
Cancelled
Exercised
Outstanding Trustee Deferred Units, end of year
Year Ended
Year ended
December 31, 2020
December 31, 2019
277,139
76,632
17,338
—
(2,819)
368,290
302,589
68,123
17,046
(185)
(110,434)
277,139
Choice Properties REIT
2020 Annual Report 134
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, 2020
Related
Parties(i)
Third-party
Year ended
December 31, 2019
$ 526,348 $ 347,929 $
874,277 $ 546,662 $ 343,703 $
890,365
146,407
57,138
27
—
96,882
86,034
9,849
—
243,289
154,264
143,172
55,170
96,549
85,209
9,876
3,912
10,185
—
(7,100)
—
250,813
140,379
14,097
(7,100)
Rental revenue
$ 729,920 $ 540,694 $
1,270,614 $ 752,908 $ 535,646 $
1,288,554
(i)
Refer to Note 32, 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.
During the year ended December 31, 2020, the Trust and its tenants benefited from pandemic-related realty tax relief
measures provided by various municipalities. These measures are reflected through a reduction in property tax expense
(Note 20) and a corresponding decline in property tax recoveries.
Future base rent revenue, excluding adjustments for straight-line rent, for the years ended December 31 is as follows:
($ thousands)
2021
2022
2023
2024
2025
Thereafter
Total
Note 20. Property Operating Costs
($ thousands)
Property taxes and insurance
Recoverable operating costs
Non-recoverable operating costs
Property operating costs
$
892,451
864,456
807,090
721,675
647,045
2,417,898
$
6,350,615
Year Ended
December 31, 2020
December 31, 2019
$
$
256,930
$
103,310
23,776
384,016
$
263,687
100,811
3,634
368,132
Included in non-recoverable operating expenses are expected credit losses of $21,694 for the year ended December 31,
2020, (2019 - $777). Refer to Note 12 for discussion on rents receivable and the related expected credit losses.
Choice Properties REIT
2020 Annual Report 135
Notes to the Consolidated Financial Statements
Note 21. Interest Income
($ thousands)
Note
December 31, 2020
December 31, 2019
Interest income on mortgages and loans receivable
10
$
12,309 $
13,621
Year Ended
Interest income earned from financial real estate assets
Interest income (loss) from financial real estate assets due to changes in value
9
9
1,741
(1,148)
737
378
—
552
$
13,639 $
14,551
Other interest income
Interest income
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
Interest on mortgages and construction loans
Interest on credit facility and term loans
Interest on right-of-use lease liabilities
Amortization of debt discounts and premiums
Amortization of debt placement costs
Distributions on Exchangeable Units(i)
Less: Capitalized interest(ii)
Note
December 31, 2020
December 31, 2019
Year Ended
32
$
$
922
3,634
4,556
858 $
3,558
4,416 $
Year Ended
Note
December 31, 2020
December 31, 2019
$
196,741 $
48,960
7,316
216
(1,806)
4,592
288,932
544,951
(4,231)
17
13
13,14
32
5
182,522
51,907
28,352
281
(3,720)
8,352
288,573
556,267
(4,424)
551,843
Net interest expense and other financing charges
$
540,720 $
(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% (2019 - 3.70%).
Choice Properties REIT
2020 Annual Report 136
Notes to the Consolidated Financial Statements
Note 24. General and Administrative Expenses
($ thousands)
Salaries, benefits and employee costs
Investor relations and other public entity costs
Professional fees
Information technology costs
Year Ended
Note
December 31, 2020
December 31, 2019
$
47,940 $
42,999
2,318
4,506
4,460
3,095
548
2,590
901
2,128
4,519
3,505
3,095
130
3,705
2,141
Services Agreement expense charged by related party
32
Amortization of other assets
Office related costs
Other
Total general and administrative expenses
66,358
62,222
Less:
Capitalized to investment properties
Allocated to recoverable operating expenses
(6,682)
(22,958)
General and administrative expenses
$
36,718 $
(3,055)
(19,875)
39,292
Note 25. Other Fair Value Gains (Losses), Net
($ thousands)
Note
December 31, 2020
December 31, 2019
Adjustment to fair value of unit-based compensation
Fair value gain from release of holdback payable
Adjustment to fair value on mortgage receivable classified as FVTPL
Other fair value gains (losses), net
18
17
10
$
$
(506) $
(7,109)
6,750
(4,034)
—
—
2,210 $
(7,109)
Year Ended
Note 26. 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 for expected credit 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.
Choice Properties REIT
2020 Annual Report 137
Notes to the Consolidated Financial Statements
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 29 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
decrease.
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 (2019 - $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 Exchangeable Units, which are
economically equivalent to and exchangeable for Units, as well as the issuance of unit-based compensation. The
Exchangeable Units and unit-based compensation liabilities are recorded at their fair value based on market trading
prices. The Exchangeable 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 due to Exchangeable Units of $395,787 (2019 - $389,962) and Unit-based compensation
liabilities of $1,568 (2019 - $1,560).
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 the 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.
Choice Properties REIT
2020 Annual Report 138
Notes to the Consolidated Financial Statements
The undiscounted future principal and interest payments on Choice Properties’ debt instruments are as follows:
($ thousands)
2021
2022
2023
2024
2025
Thereafter
Total
Senior unsecured debentures $
390,264 $
778,549 $
732,394 $
887,456 $
657,400 $ 3,047,826 $
6,493,889
Mortgages payable
Construction loans(i)
Credit facility(i)
150,512
253,501
141,590
183,851
172,600
542,955
1,445,009
25,193
—
—
—
—
—
—
—
—
—
—
—
25,193
—
Total
$
565,969 $ 1,032,050 $
873,984 $ 1,071,307 $
830,000 $ 3,590,781 $
7,964,091
(i) Excludes interest on the revolving credit facility and construction loans at a floating interest rate.
Note 27. 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
Lease receivable
Financial real estate assets
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
Note
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
As at December 31, 2020
As at December 31, 2019
10
12
9
12
10
15
17
17
13
14
$
— $
— $
53,588 $
53,588
$
— $
— $
85,809 $
85,809
—
—
—
—
207,219
—
—
377
—
—
19,405
19,405
68,373
68,373
—
377
208,700
208,700
—
—
—
—
—
207,219
41,990
—
—
182
—
—
—
—
22,800
22,800
—
182
246,300
246,300
—
41,990
5,149,182
—
—
—
12,930
6,560
—
5,149,182
5,424,368
—
—
12,930
6,560
—
—
—
11,408
2,811
—
5,424,368
—
—
11,408
2,811
—
7,071,105
—
7,071,105
—
6,627,647
—
6,627,647
—
—
—
—
—
127,233
—
127,233
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.
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. During the year ended December 31, 2020, an interest rate swap was settled upon
maturity of the underlying variable rate mortgage. In addition, a variable rate mortgage was renewed and upfinanced which
resulted in the associated interest rate swap being increased and designated at a higher notional amount. As at December
31, 2020, the interest rates ranged from 1.8% to 4.4% (December 31, 2019 - 1.8% to 5.1%).
Choice Properties REIT
2020 Annual Report 139
Notes to the Consolidated Financial Statements
The impact of the hedging instruments on the consolidated balance sheets was as follows:
($ thousands)
Derivative assets
Interest rate swaps
Derivative liabilities
Interest rate swaps
Maturity
Date
Notional
As at
As at
Amount
December 31, 2020
December 31, 2019
June 2030
$
65,000 $
377 $
182
Jan 2021 - Sep 2026
$
193,700
6,560
2,811
During the year ended December 31, 2020, the Trust recorded an unrealized fair value loss in OCI of $3,554 (December 31,
2019 - fair value loss of $2,044).
Note 28. Capital Management
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 March 4, 2020, Choice Properties filed a Short Form Base Shelf Prospectus allowing for the issuance of up to $2,000,000
of Units and debt securities, or any combination thereof over a 25-month period.
Financing activity during the year ended December 31, 2020 and 2019, consisted of the repayment and issuance of various
senior unsecured debentures (Note 13), the repayment of the Trust’s term loans n (Note 14), completion of a bought deal
equity offering (Note 15) and the issuance of Trust and Exchangeable Units as consideration for investment property
acquisitions (Notes 4 and 15).
Choice Properties has certain key covenants in its debentures and its committed credit facility. The key financial covenants
include debt service ratios and leverage ratios, as defined in the respective agreements. These ratios are measured by the
Trust on an ongoing basis to ensure compliance with the agreements. Choice Properties was in compliance with each of the
key financial covenants under these agreements as at December 31, 2020 and December 31, 2019.
The following schedule details the capitalization of Choice Properties:
($ thousands)
Liabilities
Senior unsecured debentures
Mortgages payable
Construction loans
Credit facility
Exchangeable units
Equity
Unitholders’ equity
Non-controlling interests
Total
Note
As at December 31, 2020
As at December 31, 2019
$
13
13
13
14
15
15
15
5,275,000 $
1,206,638
25,193
—
5,149,182
3,514,739
7,801
$
15,178,553 $
5,175,000
1,230,569
24,842
132,000
5,424,368
3,090,217
7,801
15,084,797
Choice Properties REIT
2020 Annual Report 140
Notes to the Consolidated Financial Statements
Note 29. Supplemental Cash Flow Information
(a)
Items not affecting cash and other items
($ thousands)
Straight line rental revenue
Unit based compensation expense included in general and administrative
expenses
Allowance for expected credit losses on mortgage receivable
Amortization of intangible assets
Foreign exchange gain reclassified from other comprehensive income
Adjustment to fair value of Exchangeable Units
Adjustment to fair value of investment properties
Other fair value (gains) losses, net
Note
December 31, 2020
December 31, 2019
Year Ended
5
18
10
11
15
5
25
$
(13,946) $
(25,146)
4,838
7,830
1,000
(1,184)
(354,286)
220,018
(2,210)
4,729
3,000
—
—
932,009
4,434
7,109
Items not affecting cash and other items
$
(137,940) $
926,135
(b)
Net change in non-cash working capital
($ thousands)
Note
December 31, 2020
December 31, 2019
Net change in accounts receivable and other assets
12
$
(43,825) $
(28,643)
Year Ended
Add back (deduct):
Additions to (disposition of) right of use assets
Additions to lease receivable
Transfer from mortgage receivable
Cost-to-complete receivable acquired
Accounts receivable and other assets transferred from equity accounted
joint venture
Deferred financing costs included in other assets
Change to designated hedging derivative assets
Net change in trade payables and other liabilities
Add back (deduct):
Disposition of (additions to) lease liabilities
Net change in distributions payable
Net change in unit-based compensation liability
Net change to accrued interest expense
Trade payables and other liabilities transferred from equity accounted joint
venture
Liability assumed on acquisition of investment property
Change to designated hedging derivative liabilities
Release of holdback payable
Impact of foreign exchange rate changes
Impact of currency translation
Net change in non-cash working capital
(c) Cash and cash equivalents
($ thousands)
Cash
Short-term investments
Cash and cash equivalents
Choice Properties REIT
12
12
10
4, 5
12
12
12
17
17
17
17
4, 5
4
17
17, 25
$
$
$
(1,841)
19,468
500
16,404
765
3,337
195
(23,125)
1,921
(1,018)
(1,522)
53,506
(7,003)
(2,400)
(3,749)
6,750
(126)
3,420
21,657 $
7,955
—
—
—
—
—
(854)
133,612
(7,955)
(2,170)
(283)
(118,970)
—
—
(1,190)
—
—
(2,596)
(21,094)
As at
As at
December 31, 2020
December 31, 2019
72,248 $
134,971
207,219 $
41,990
—
41,990
2020 Annual Report 141
Notes to the Consolidated Financial Statements
Note 30. 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 Chief Executive
Officer (“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, lease surrender
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.
The chart below presents net operating income for the year ended December 31, 2020, in a manner consistent with internal
reporting. The accounting policies of the segments presented here are the same as those described in Note 2.
($ thousands)
Rental revenue
Retail
Industrial
Office
Consolidation and
eliminations(i)
Year ended December
31, 2020
$ 1,041,167 $ 176,631 $ 114,859 $
(62,043) $
1,270,614
Property operating costs
(313,898)
(46,700)
(45,545)
Net Operating Income, Accounting Basis
727,269
129,931
69,314
Less:
Straight line rental revenue
Lease surrender revenue
(8,538)
(1,053)
(4,172)
(3,403)
(989)
(278)
22,127
(39,916)
2,167
362
Net Operating Income, Cash Basis
717,678
124,770
65,633
(37,387)
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
Allowance for expected credit losses on mortgage receivable
Share of income (loss) from equity accounted joint ventures
Amortization of intangible assets
Foreign exchange gain reclassified from other comprehensive income
Acquisition transaction costs and other related expenses
Other fair value gains (losses), net
Adjustment to fair value of Exchangeable Units
Adjustment to fair value of investment properties
Income before income taxes
Income tax recovery
Net Income (Loss)
(384,016)
886,598
(13,946)
(1,958)
870,694
15,904
886,598
13,639
4,416
(540,720)
(36,718)
(7,830)
(5,570)
(1,000)
1,184
(1,589)
2,210
354,286
(220,018)
448,888
1,797
450,685
$
(i)
Reconciling items adjust Choice Properties’ proportionate share of joint ventures to reflect the equity method of accounting under IFRS.
Choice Properties REIT
2020 Annual Report 142
Notes to the Consolidated Financial Statements
The chart below presents net operating income for the year ended December 31, 2019, in a manner consistent with internal
reporting. The accounting policies of the segments presented here are the same as those 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
22,168
(43,661)
Less:
Straight line rental revenue
(19,189)
(4,867)
(2,129)
1,039
Reimbursed contract revenue
Lease surrender revenue
6,706
(3,415)
318
(73)
76
(190)
—
—
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
Allowance for expected credit losses on mortgage receivable
Share of income (loss) from equity accounted joint ventures
Acquisition transaction costs and other related expenses
Other fair value gains (losses), net
Adjustment to fair value of Exchangeable Units
Adjustment to fair value of investment properties
Income before income taxes
Income tax recovery
Net Income (Loss)
(368,132)
920,422
(25,146)
7,100
(3,678)
898,698
21,724
920,422
14,551
4,556
(551,843)
(39,292)
(3,000)
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.
Choice Properties REIT
2020 Annual Report 143
Notes to the Consolidated Financial Statements
Note 31. 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, 2020, the aggregate gross
potential liability related to these letters of credit totalled $33,916 including $1,543 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 32) (December 31, 2019 - $36,110 including $1,790 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 Canadian Real Estate Investment Trust prior to being acquired by the Trust in May 2018. 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,
2020 subject to such guarantees, and therefore the maximum exposure to credit risk, was $35,671 with an estimated
weighted average remaining term of 2.5 years (December 31, 2019 - $36,690 and 3.5 years, respectively).
c. Commitments
Choice Properties has entered into contracts for development and property capital projects and has other contractual
obligations such as operating rents. The Trust is committed to future payments of approximately $376,000, of which
$55,000 relates to equity accounted joint ventures as at December 31, 2020 (December 31, 2019 - $553,844 and
$184,633, respectively).
d. Contingent Liabilities
The Trust held debt obligations in the amount of $191,873 in its equity accounted joint ventures as at December 31,
2020 (December 31, 2019 - $193,172). 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.
Choice Properties REIT
2020 Annual Report 144
Notes to the Consolidated Financial Statements
Note 32. Related Party Transactions
Choice Properties’ parent corporation is George Weston Limited (“GWL”), which as at December 31, 2020, held a 61.8%
direct effective interest in the Trust through ownership of 50,661,415 Units and all of the Exchangeable Units, which are
economically equivalent to and exchangeable to Units. GWL is also the parent company of Loblaw, with ownership of 52.6%
of Loblaw’s outstanding common shares as at December 31, 2020.
In the normal course of operations, 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.
Transactions and Agreements with GWL
Acquisitions
During the year ended December 31, 2020, Choice Properties acquired six industrial assets from Weston Foods (Canada)
Inc., a wholly-owned subsidiary of GWL, for a purchase price of $81,500, excluding transaction costs. The acquisition was
satisfied in full through the issuance of 5,824,742 Exchangeable Units for $79,100 (Notes 4 and 15) and assumed liabilities of
$2,400 (Note 4).
In the year ended December 31, 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 4).
Services Agreement
For the year ended December 31, 2020, GWL provided Choice Properties with corporate, administrative and other support
services for an annualized cost of $3,095 (2019 - $3,095).
Operating Lease
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. On July 31, 2020, the Trust acquired the office building in which it was sub-leasing the office
space from Weston Foods.
Distributions on Exchangeable Units and Notes Receivable
GWL holds all of the Exchangeable Units issued by Choice Properties Limited Partnership, a subsidiary of Choice Properties.
During the year ended December 31, 2020, distributions declared on the Exchangeable Units totalled $288,932 (December
31, 2019 - $288,573) of which $120,598 were payable to GWL (December 31, 2019 - $168,334).
Trust Unit Distributions
In the year ended December 31, 2020, Choice Properties declared cash distributions of $37,490 on the Units held by GWL
(December 31, 2019 - $36,551), while $4,660 of non-cash distributions were settled through the issuance of additional Trust
Units (December 31, 2019 - $3,546). As at December 31, 2020, $3,124 of Trust Unit distributions declared were payable to
GWL (December 31, 2019 - $3,124).
Transaction Summary as Reflected in the Consolidated Financial Statements
Transactions with GWL recorded in the consolidated statements of income (loss) and comprehensive income (loss) were
comprised as follows:
($ thousands)
Rental revenue
Services Agreement expense
Interest expense and other financing charges
Office rent expense
Note
December 31, 2020
December 31, 2019
Year Ended
19
24
23
$
4,971 $
(3,095)
(288,932)
—
3,547
(3,095)
(288,573)
(183)
Choice Properties REIT
2020 Annual Report 145
Notes to the Consolidated Financial Statements
The balances due from (to) GWL and subsidiaries were as follows:
($ thousands)
Notes receivable
Rent 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
December 31, 2020
December 31, 2019
As at
As at
10
12
12
15
17
17
17
$
96,191 $
144,287
13
—
—
756
(5,149,182)
(5,424,368)
(332)
(120,598)
(3,124)
(3,676)
(168,334)
(3,124)
$
(5,177,032) $
(5,454,459)
Acquisitions
During the year ended December 31, 2020, Choice Properties acquired a development property from Loblaw for a purchase
price of $8,100, excluding transaction costs. Choice Properties also acquired from Loblaw five financial real estate assets for
a purchase price of $45,673, excluding transaction costs. Each acquisition was settled with cash (Note 4).
During 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 4).
Dispositions
During the year ended December 31, 2020, Choice Properties disposed interests in 17 retail properties which had Loblaw
leases for an aggregate sale price of $263,440, excluding transaction costs.
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. 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 additional dispositions of retail properties which had
Loblaw leases, for an aggregate sale price of $9,975, excluding transaction costs.
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 has the right of first offer to purchase any property in Canada that Loblaw seeks to sell;
Loblaw is 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.
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
are calculated in accordance with a payment grid that takes into account the region, market ranking and type of use for the
property.
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. The property management agreement was terminated effective
December 31, 2020.
Lease Surrender Payments
In the year ended December 31, 2019, Loblaw made lease surrender payments of $3,156 to the Trust.
Choice Properties REIT
2020 Annual Report 146
Notes to the Consolidated Financial Statements
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.
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. The sublease administration agreement was terminated effective December 31,
2020.
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 compensated Loblaw with intensification payments of $995 in connection with completed gross leasable
area for which tenants took possession during the year ended December 31, 2020 (December 31, 2019 - $4,577).
Letters of Credit
As at December 31, 2020, letters of credit totalling $1,543 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, 2019 - $1,790) (Note 31).
Transaction Summary as Reflected in the Consolidated Financial Statements
Loblaw is the largest tenant for Choice Properties, representing approximately 57.0% of Choice Properties’ rental revenue for
the year ended December 31, 2020 (December 31, 2019 - 58.2%) and 55.3% of its gross leasable area as at December 31,
2020 (December 31, 2019 - 56.3%). Transactions with Loblaw recorded in the consolidated statements of income (loss) and
comprehensive income (loss) were comprised as follows:
($ thousands)
Rental revenue
Fee income
The balances due from (to) Loblaw were as follows:
($ thousands)
Rent receivable
Accrued liabilities
Construction allowances payable
Reimbursed contract payable
Due to Loblaw
Year Ended
Note
December 31, 2020
December 31, 2019
19
22
$
724,292 $
858
749,361
922
Note
December 31, 2020
December 31, 2019
As at
As at
12
17
17
17
$
$
36 $
(26)
(7,869)
(308)
(8,167) $
71
—
(5,278)
(7,100)
(12,307)
Transactions and Agreements with Wittington
Acquisitions
On July 31, 2020, Choice Properties acquired two real estate assets from Wittington Properties Limited, a subsidiary of
Wittington, for an aggregate purchase price of $208,935, excluding transaction costs, which was satisfied in full by the
issuance of 16,500,000 Units of Choice Properties. The transaction was measured at market terms and conditions. The
assets acquired included: (i) an office property in Toronto, Ontario, for $128,500 and (ii) the remaining 60% interest of the
joint venture for 500 Lake Shore Boulevard West in Toronto, Ontario, for $80,435, less a cost-to-complete receivable of
$16,404, giving the Trust 100% ownership of the joint venture (Note 6).
Choice Properties REIT
2020 Annual Report 147
Notes to the Consolidated Financial Statements
Operating Lease
Choice Properties was a tenant in an acquired office asset in Toronto, Ontario, having entered into a ten-year lease with
Wittington Properties Limited, in 2014 with lease payments totalling $2,664 over the term of the lease. As of the acquisition
date, Choice Properties derecognized its right-of-use assets and lease liabilities associated with the office lease and ceased
paying rent to Wittington Properties Limited.
Property Management Agreement
Choice Properties provides Wittington with property management services for certain properties with third-party tenancies on
a fee for service basis.
Joint Venture
On December 9, 2014, Choice Properties and its joint venture partner, Wittington Properties Limited, completed the
acquisition of 500 Lake Shore Boulevard West in Toronto, Ontario, for $15,576 from Loblaw. Choice Properties accounted for
its investment in the joint venture as an equity accounted joint venture until July 31, 2020, when the Trust acquired the
remaining 60% interest from Wittington Properties Limited, after which the 100% owned joint venture is accounted for on a
consolidated basis. Wittington Properties Limited will continue to act as development and construction manager for the
commercial space at 500 Lake Shore Boulevard West until development is completed.
Choice Properties contributed $6,200 to the joint venture and received distributions of $nil during the year ended December
31, 2020 (December 31, 2019 - contributions $13,240 and distributions $nil). The joint venture earned interest income during
the year ended December 31, 2020 of $2,102 (2019 - $86).
Summarized financial information for the Trust’s share of the related party equity accounted joint venture is set out below:
($ thousands)
Current assets
Non-current assets
Current liabilities
Net assets at 100%
Investment in equity accounted joint venture at 40%
($ thousands)
As at
As at
December 31, 2020
December 31, 2019
$
$
$
— $
—
—
— $
— $
7,107
117,500
(17,565)
107,042
42,817
Year Ended
December 31, 2020
December 31, 2019
Share of income (loss) and comprehensive income (loss) in equity accounted joint
venture at 40%
$
(13,305) $
(3,398)
Transaction Summary as Reflected in the Consolidated Financial Statements
Transactions with Wittington recorded in the consolidated statements of income (loss) and comprehensive income (loss) were
comprised as follows:
($ thousands)
Rental revenue
The balances due from (to) Wittington and subsidiaries were as follows:
($ thousands)
Rent receivable
Cost-to-complete receivable
Distributions payable
Due from Wittington and subsidiaries
Year Ended
Note
December 31, 2020
December 31, 2019
19
$
657 $
—
Note
December 31, 2020
December 31, 2019
As at
As at
12
12
17
$
$
131 $
13,721
(1,018)
12,834 $
—
—
—
—
Choice Properties REIT
2020 Annual Report 148
Notes to the Consolidated Financial Statements
Transactions with Key Personnel
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
Note 33. Subsequent Events
December 31, 2020
December 31, 2019
3,416
$
4,405
3,148
217
6,781
$
2,687
1,088
8,180
$
$
On February 1, 2021, the Trust completed the disposition of its 50% equity accounted joint venture interest in land held for
development for aggregate proceeds of $66,000, net of transaction and estimated closing costs.
Choice Properties REIT
2020 Annual Report 149
Corporate Profile
Choice Properties is a leading Real Estate Investment Trust that creates enduring value through the ownership, operation and
development of high-quality commercial and residential properties.
We believe that value comes from creating spaces that improve how our tenants and communities come together to live,
work, and connect. We strive to understand the needs of our tenants and manage our properties to the highest standard. We
aspire to develop healthy, resilient communities through our dedication to social, economic, and environmental sustainability.
In everything we do, we are guided by a shared set of values grounded in Care, Ownership, Respect and Excellence.
Conference Call and Webcast
Management will host a conference call on Thursday, February 11, 2021 at 10:30AM (ET) with a simultaneous audio webcast.
To access via teleconference, please dial (647) 427-7450 or (888) 231-8191. A playback will be made available two hours
after the event at (416) 849-0833 or (855) 859-2056, access code: 9790288. The link to the audio webcast will be available on
www.choicereit.ca in the “Investors” section under “Events & Webcasts”.
Head Office
Choice Properties Real Estate Investment Trust
The Weston Centre
700-22 St. Clair Avenue East
Toronto, Ontario
M4T 2S5
Tel: 416-628-7771
Toll free:1-855-322-2122
Fax: 416-628-7777
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 (outside of Canada and US)
Fax toll free: 1 (888) 249-6189 (Canada and US)
E-Mail: inquiries@astfinancial.com
Website: www.astfinancial.com/ca-en
Investor Relations
Tel: 416-628-7771
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
Kerry D. Adams2
President, K. Adams & Associates
Limited
Christie J.B. Clark1
Corporate Director
L. Jay Cross1
President, The Howard Hughes Corporation
Graeme M. Eadie2
Corporate Director
Karen A. Kinsley1
Corporate Director
R. Michael Latimer2
Corporate Director
Nancy H.O. Lockhart2
Corporate Director
Dale R. Ponder1
Co-Chair, Osler, Hoskin and Harcourt
LLP
1 Audit Committee
2 Governance, Compensation and Nominating Committee
Ce rapport est disponible en français.
Head Office
The Weston Centre
700-22 St. Clair Avenue East
Toronto, Ontario