Annual Report 2022
Creating
Enduring
Value
West Block
Creating
Enduring Value
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.
2
Annual Report 2022 Stability
and Growth
Choice Building Blocks
Our Choice Building Blocks
illustrate our strategic
framework, which aims to
deliver stability and growth
to our stakeholders.
The combination of stability and growth is at the core of our commitment
to creating enduring value for our stakeholders and the communities in
which we operate. Our business strategy aims to achieve net asset value
appreciation, stable NOI growth and capital preservation, all with a long
term focus.
Our business strategy is guided by a
shared set of values and a sense of social
responsibility.
Development
program provides
long-term value
creation and
growth
Sustainability
practices
create value for
all stakeholders,
now and in the
future
CORE
Values
Our actions are grounded by a shared
commitment to Care, Ownership, Respect
and Excellence.
Fighting
Climate Change
We continue to take meaningful steps to
minimize our environmental footprint in
order to preserve our planet’s resources for
current and future generations.
Advancing
Social Equity
We hold ourselves accountable for
advancing diversity, equity and inclusion
for all stakeholders. We view the collection
of varied experiences, talents and
perspectives as a strength.
Portfolio delivers
a reliable and
growing cash flow
Industry leading
balance sheet
creates financial
flexibility
Operational excellence
ensures income stability
from an engaged, strong
tenant base, and long-
term net asset value
appreciation
Ethics &
Compliance
We are dedicated to strong governance
practices designed to maintain high
standards of oversight, accountability,
ethics and compliance.
3
Annual Report 2022 Message
from the
President
& CEO
A Year of Positive Momentum
Fellow Unitholders,
2022 was another year of positive momentum for our
business as we significantly advanced our strategic
agenda and continued to demonstrate the stability of
our portfolio and strength of our balance sheet, all
thanks to the talent and hard work of our people.
Improving our Portfolio
Collectively this year we completed over $1.2 billion of
real estate transactions through our capital recycling
program, demonstrating our ability to continue to
enhance the overall quality of our portfolio, and
ultimately grow our net asset value over the long-term.
Included in these transactions was the disposition of
over $800 million of office properties.
Last year we made the strategic decision to exit the
office asset class to focus our time and capital on the
opportunities available in our core business of essential
retail, industrial, our growing residential platform, and
our robust development pipeline. This decision
manifested itself in the sale of six high-quality office
properties to Allied Properties REIT for approximately
$730 million, in the first quarter of 2022. To date, we
have successfully disposed, or are under contract to
dispose, of 9 of our 11 non-core office properties. We
continue to closely monitor the market and will sell
when the time and price is right.
Our portfolio today consists of three strategic asset
classes, each with its own set of exceptional
fundamentals to support long-term value creation, and
where we have achieved or have the capability to
achieve scale.
Strategically Positioned Across Three Asset Classes
Our portfolio of retail, industrial, and mixed-use and
residential properties is well-occupied at approximately
97.8%, and leased to stable, high-quality tenants across
Canada and supported by a best-in-class operating
framework.
Our retail portfolio is one of the best performing in the
Canadian REIT industry. It is primarily leased to grocery
stores, pharmacies and other necessity-based tenants,
who continue to provide stable and steady cash flow
growth to our business. In 2022, we saw strong new
leasing velocity and tenant retention, driven by
increasing consumer spending and retailer confidence
in opening new locations.
Our industrial portfolio was our strongest performing
asset class in 2022. It provides new generation logistics
space that is well-connected, supported by strong
labour markets, and flexible in accommodating the
diverse needs of tenants.
Our mixed-use and transit-oriented residential portfolio
consists of 10 high performing assets that are
approximately 95% leased.
Advancing our Development Pipeline and Expanding
our Industrial Platform
We have a transformational development pipeline of
over 18 million square feet which provides us with
exceptional opportunities to add high-quality real
estate to our portfolio at a reasonable cost. In 2022, we
transferred $71 million from properties under
development to our income producing portfolio and
achieved several key zoning milestones at our future
industrial and mixed-use and residential development
sites.
4
Annual Report 2022 MESSAGE FROM THE PRESIDENT & CEO
Looking at our industrial development pipeline, we
achieved zoning at two sites in the Greater Toronto
Area for over 6.0 million square feet at share in 2022,
bringing our total industrial development pipeline to
approximately 7.0 million square feet. Our three active
industrial development projects located in the GTA,
Vancouver and Edmonton are expected to deliver 1.4
million square feet of new generation logistics space by
the end of 2023. Our development team is actively
working on the planning for the remaining 5.6 million
square feet of future industrial space at our two sites in
the GTA.
Turning to our active mixed-use and residential
development pipeline, in 2022 we continued to advance
projects that will expand our footprint in the rental
residential market with two ongoing projects located in
Brampton and Ottawa, Ontario which are expected to
be completed in the second half of 2023. Beyond our
active development projects, we have a substantial
pipeline of larger, more complex mixed-use
developments with 12 projects representing over 10.4
million square feet in different stages of the rezoning
and planning process.
Maintaining our Industry Leading Balance Sheet
Beyond the bricks and mortar, we took steps to ensure
we maintained our industry leading balance sheet
despite pressures from rising inflation and interest
rates. At the end of 2022, we had approximately $1.2
billion available under our credit facility, $88 million of
available cash on our balance sheet and $12.3 billion in
unencumbered assets.
Our disciplined and conservative approach to financial
management continues to position us well in the face of
broader market volatility, allowing us to navigate
through challenging times without disrupting our
operations or monthly distributions to unitholders.
Building, More Sustainable Future
Overlaying our operation and financial performance, is
our focus on long-term sustainability. As one of
Canada’s largest real estate entities, we understand
the impact of our operations on the environment and
the communities in which we operate. We continued to
lead the way in sustainability and made significant
advancements in our two pillars of Fighting Climate
Change and Advancing Social Equity. In 2022, we
became one of the first entities in Canada to have its
net-zero targets validated by the Science Based Targets
Initiative (SBTi) and release our inaugural Pathway to
Net Zero Report which outlines our approach to
achieving net-zero greenhouse gas emissions by 2050.
We also achieved the Women Lead Here 2022
benchmark in recognition of the representation of
women on our leadership team and were named one of
Greater Toronto’s Top Employers (2023) in recognition of
our colleague-focused programs. We donated over
$620 thousand to local charities across Canada, and
formed a social impact team to support the
development of new community involvement initiatives.
We look forward to releasing further details on our
progress in our upcoming 2022 ESG Report.
A Year of Strength, A Future of Growth
Our operating and financial results for the year were
strong and reflect the strength of our stable income
producing portfolio, our ability to unlock value in our
transformational development pipeline, and our
unwavering commitment to operational excellence. We
continue to demonstrate that our strategy and business
model positions us well to preserve capital, generate
stable and growing cash flows, and drive net asset
value over time for you – our unitholders.
I am proud of what we have accomplished over this
past year. It could not have been done without the
dedication, collaboration and diverse talents
demonstrated by our colleagues every day. We are a
team of disciplined individuals with a track record of
success. We are focused on building relationships with
our tenants, business partners and with one another to
gain insight and deliver excellent results. Our shared set
of values of Care, Ownership, Respect and Excellence
empower us to make the right choices for our business,
our unitholders, and our communities.
On behalf of the entire Choice Properties team, we
thank you for your continued support and confidence.
We look forward to building on our positive momentum
in 2023.
Rael L. Diamond
President & CEO
5
Annual Report 2022 Management’s
Discussion
and Analysis
3045 Mavis Road
Mississauga, ON
“We continue to focus on improving the quality of our
portfolio and driving growth through development. In 2022
we completed over $1.2 billion of real estate transactions
and made significant advances in our industrial and
mixed-use and residential development pipelines.”
Rael L. Diamond
President & Chief Executive Officer
(1) See Section 15, “Non-GAAP Financial Measures”, of this MD&A
(2) To be read in conjunction with the “Forward-Looking Statements” included in the Notes for Readers located on page 8 of this MD&A
6
Annual Report 2022 Table of Contents
Corporate Profile
Creating Enduring Value
Stability and Growth
Message from the President & CEO
Management’s Discussion & Analysis
Notes for Readers
High-Quality Portfolio
Operational Excellence
Transformational Development Program
Environment, Social &
Governance Program
Prudent Financial Management
Financial Review
Key Performance Indicators and
Financial Information
Balance Sheet
Investment Properties
Liquidity and Capital Resources
Results of Operations
Leasing Activity
Results of Operations
- Segment Information
Quarterly Results of Operations
Related Party Transactions
Critical Accounting Estimates
and Judgements
Controls and Procedures
Enterprise Risks and Risk Management
Environmental, Social and
Governance (ESG)
Outlook
Non-GAAP Financial Measures
2
3
4
8
10
16
18
22
25
33
34
36
53
62
66
72
79
80
82
83
84
92
94
95
77
Annual Report 2022
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, 2022 and accompanying
notes (“2022 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’
2022 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 15, “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”,
Section 13, “Environmental, Social and Governance
(“ESG”)”, and Section 14, “Outlook”. Forward-looking
statements are typically identified by words such as
“expect”, “anticipate”, “believe”, “foresee”, “could”,
“estimate”, “goal”, “intend”, “plan”, “seek”, “strive”,
“will”, “may”, “should”, “aspire”, “pledge, “aim”, 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, including the COVID-19 pandemic, and, as
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such, are subject to change. Choice Properties can
give no assurance that such estimates, beliefs and
assumptions will prove to be correct.
Numerous risks and uncertainties could cause the
Trust’s actual results to differ materially from those
expressed, implied or projected in the forward-
looking statements, including those described in
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, 2022.
Selected highlights of such risks and uncertainties
include:
changes in economic conditions, including
changes in interest rates and inflation rates, and
supply chain constraints;
failure by Choice Properties to realize the
anticipated benefits associated with its strategic
priorities and major initiatives, including failure
to develop quality assets and effectively
manage development, redevelopment, and
renovation initiatives and the timelines and costs
related to such initiatives;
failure to adapt to environmental and social
risks, including failure to execute against the
Trust’s environmental and social equity
initiatives, and in the context of the Trust’s
environmental, social and governance (“ESG”)
disclosures, additional factors such as the
availability, accessibility and sustainability of
comprehensive and high-quality data, and the
development of applicable national and
international laws, policies and regulations;
Choice Properties’ financial results are impacted by
adjustments to the fair value of the Class B LP units
of Choice Properties Limited Partnership (the
“Exchangeable Units”), unit-based compensation,
the exchangeable Class B limited partnership units
of Allied Properties Exchangeable Limited
Partnership (“Allied Units”), a subsidiary of Allied
Properties Real Estate Investment Trust (“Allied”) 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 a
positive impact when the Trust Unit price declines.
The Allied Units are recorded at fair value based on
market trading prices of the publicly traded units of
Allied. 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, 2022. 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
MD&A. 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.
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;
Choice Properties is an unincorporated, open
ended mutual fund trust governed by the laws of
the Province of Ontario and established pursuant to
an amended and restated declaration of trust
dated April 30, 2021, as may be amended,
supplemented or restated 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”.
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;
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.
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.
George Weston Limited (“GWL”) is the controlling
unitholder of the Trust and the controlling
shareholder of Loblaw Companies Limited
(“Loblaw”), the Trust’s largest tenant. As of
December 31, 2022, GWL held a 61.7% effective
interest in Choice Properties. Choice Properties’
ultimate parent is Wittington Investments, Limited
(“Wittington”), the controlling shareholder of GWL.
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
15, 2023, unless otherwise noted.
All amounts in this MD&A are reported in thousands
of Canadian dollars, except where otherwise noted.
8
Annual Report 2022 301 Moore Avenue
Toronto, ON
9
Annual Report 2022 High-Quality
Portfolio
Canada’s Largest REIT
Choice Properties is Canada’s largest REIT. Our
portfolio is comprised of retail properties primarily
leased to necessity-based tenants, as we benefit
from our strategic relationship with Loblaw
Companies Limited, one of Canada’s largest
retailers. We also own a portfolio of high-quality
industrial, mixed-use and residential assets
concentrated in attractive markets across Canada.
702Properties
63.9M
Sq. Ft. of GLA
Portfolio Asset Mix by
Asset Class(i)
Retail
80%
(i) As a % of total NOI on a cash basis(1) for
the three months ended December 31, 2022
Industrial
Mixed-Use,
Residential
& Other
15%
5%
10
Annual Report 2022 HIGH-QUALITY PORTFOLIO
Resilient
Retail
Portfolio
The retail portion of our portfolio is the foundation for
maintaining reliable cash flow. Our portfolio is
primarily leased to grocery stores, pharmacies, and
other necessity-based tenants, and stability is
attained through a strategic relationship and long-
term leases with Loblaw. This relationship provides us
with access to future tenancy and related
opportunities with Loblaw, Shoppers Drug Mart and
other members of the Loblaw group of companies.
Retail Category
(Section 6)
% of Retail Revenue
Tenants
1460 East Hastings Street
Vancouver, BC
Grocery & Pharmacy
Essential Services
Specialty & Value
67%
14%
6%
Fitness & Other Personal Services
5%
Furniture & Home
Full-Service Restaurants
Other
Total
3%
3%
2%
100%
Calculated as a % of the retail
segment’s gross rental revenue as at
December 31, 2022
44.2 million
Sq. Ft. of GLA
81%
Necessity
Based
574
Income Producing
Properties
$10.7 billion
of Income Producing
Properties
11
Annual Report 2022 HIGH-QUALITY PORTFOLIO
Growing
Industrial
Portfolio
Choice Properties’ industrial portfolio is centered
around large, purpose-built distribution facilities for
Loblaw and high-quality “generic” industrial assets
that readily accommodate the diverse needs of a
broad range of tenants. The term “generic” refers to a
product that appeals to a wide range of potential
users, so that the leasing or re-leasing timeframe is
reduced.
Our industrial properties are located in target
distribution markets across Canada, where demand
is the highest and we can build a critical mass to
enjoy management efficiencies and to
accommodate the expansion or contraction
requirements of our tenant base.
Great Plains Business Park
Calgary, AB
Building Critical Mass in
Target Distribution Markets
116
Income Producing
Properties
17.4 million
Sq. Ft. of GLA
$3.5 billion
of Income Producing
Properties
Calculated as a % of total NOI on a cash basis(1) for
the three months ended December 31, 2022
12
Annual Report 2022 HIGH-QUALITY PORTFOLIO
Mixed-Use,
Residential &
Other
Our rental residential properties provide additional income diversification and
generate further investment opportunities for portfolio growth. Many of the
opportunities to develop residential properties stem from densifying existing retail
sites with residential buildings. Our residential properties are transit accessible and
well located in Canada’s largest cities. They include both newly developed purpose-
built rental buildings and residential-focused mixed-use communities.
Our mixed-use segment also includes assets with an office component which are
primarily leased to entities within the Weston Group of companies.
12
Income Producing
Properties
2.3 million
Sq. Ft. of GLA (1)
646
Residential Units
$0.9 billion
of Income Producing
Properties
West Block
Toronto, ON
(i) 2.3 million sq. ft. of GLA includes 0.5 million sq. ft. associated with Choice’s 646 residential units
13
Annual Report 2022 HIGH-QUALITY PORTFOLIO
Ownership by
Asset Class
Net operating income, cash basis(1)(i),
shown in percentage below
Retail
Industrial
Mixed-Use, Residential & Other
British
Columbia
Total
Retail
Industrial
Mixed-Use,
Residential
& Other
44
40
4
0
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
Atlantic
126
76
46
4
Total
Retail
Industrial
Mixed-Use,
Residential
& Other
Total
Retail
Industrial
Mixed-Use,
Residential
& Other
16
16
0
0
Total
Retail
Industrial
Mixed-Use,
Residential
& Other
14
14
0
0
293
242
44
7
Total
Retail
Industrial
Mixed-Use,
Residential
& Other
108
104
4
0
Total
Retail
Industrial
Mixed-Use,
Residential
& Other
Total
Retail
Industrial
Mixed-Use,
Residential
& Other
101
82
18
1
574
Retail
116
Industrial
12
Mixed-Use,
Residential & Other
(i) For the three months ended December 31, 2022
14
Annual Report 2022 2994 Peddie Road
Milton, ON
15
Annual Report 2022 Operational
Excellence
At Choice Properties, we strive to understand the needs
and values of our tenants to provide best in class
service. We manage our properties to the highest
standard, creating spaces that promote the success
and well-being of our tenants and the communities in
which we operate. To sustain operational excellence we
prioritize building efficiency and climate resilience. We
partner with our tenants, contractors and suppliers to
proactively monitor and manage resource consumption
through our environmental programs, focused on
reducing emissions and waste.
Delivering operational excellence, coupled with pro-
active leasing, results in high occupancy rates, income
stability and long-term net asset value appreciation.
Recognized Management Excellence
We prioritize the health and safety of our colleagues,
tenants, visitors and other stakeholders by utilizing
evidence-based best practices recognized by the
Fitwel Viral Response Module. Moreover, we use Green
Building standards such as LEED and BOMA BEST to
showcase exemplary operational practices.
Pioneer Park
Kitchener, ON
Occupancy
Sq. Ft. GLA
Value (1)
Retail
97.8%
44.2M
$10.7B
Industrial
98.9%
17.4M
Mixed-Use,
Residential &
Other
(i)
Properties Under
Development
3.5B
0.9B
87.7%
2.3M
--
--
1.1B
Total
97.8%
63.9M
$16.2B
(i) Office properties are included in the Mixed-Use, Residential & Other for reporting purposes,
occupancy disclosed excludes residential units
16
Annual Report 2022
The Weston Centre
Toronto, ON
17
Annual Report 2022 Transformational
Development
Program
Rendering of
Choice Industrial Centre
Surrey, BC
Activating Our Potential
Development initiatives are a key component of our
business plan, positioning Choice Properties for long-
term growth and value creation. Our income producing
properties offer significant intensification and
redevelopment opportunities in Canada’s largest
markets, enabling us to add high-quality real estate to
our portfolio at a reasonable cost. Our long-term
pipeline of potential mixed-use developments enables
us to transform and revitalize neighbourhoods into
communities that are self-sustaining and inclusive.
Choice Properties has internal development
capabilities as well as established relationships with
strong real estate developers who share our
commitment to building healthy, resilient communities.
From project concept through to operations, we
consider the environmental and social impact of our
developments. By implementing environmental design
features and taking a community-based approach to
development, we aspire to deliver a product that
positively influences the entire area for generations.
Leveraging Green Technology
We strive to reduce our environmental impact by
incorporating sustainable technologies into our new
developments. Across the country, we are
investigating opportunities to integrate energy from
renewable sources into our properties – this includes
geothermal in the Greater Toronto Area, and solar in
numerous provinces including Alberta.
18
Annual Report 2022 TRANSFORMATIONAL DEVELOPMENT PROGRAM
Developing
with
Purpose
Advancing Accessibility Together
Choice Properties is proud to be one of the founding
members of the Accelerating Accessibility Coalition
(“AAC”). The AAC will help bring the voices of
Canadians living with disabilities to the forefront of
shaping our built environment, as its members include
accessibility leaders such as AccessNow, Rick Hansen
Foundation, StopGap Foundation, among others. We
are putting our commitment to accessibility into action
through achieving Rick Hansen Foundation
Accessibility Certified Gold – Pre-construction Approval
at our Mount Pleasant Village.
Mount Pleasant Village
Brampton, ON
Mixed-Use
Transforming Communities
Mixed-use developments are a critical part of Choice
Properties’ long-term growth strategy. These projects
allow us to transform neighbourhoods into communities
that are self-sustaining and inclusive. These
developments will deliver attractive residential and
commercial spaces in close proximity to public
transportation. Our projects are in various phases of
planning and rezoning, and we continue to work on
finalizing any necessary land assemblies.
Greenfield Development
Adapting to Market Trends
Choice Properties’ development activities include
greenfield projects that are primarily focused on
new generation logistics facilities in key distribution
markets across Canada. An advantage of greenfield
developments is that they lend themselves to
phased construction, creating flexibility to time
developments with changing market conditions.
Intensification
Delivering Steady Growth
Our intensifications are focused on adding at-grade
retail density at our existing retail properties. These
projects provide the opportunity to add new tenants and
further expand our high-quality tenant mix. Our pipeline
of intensification projects provides steady growth to our
business.
Residential
Diversifying Our Portfolio
Residential development further diversifies our
portfolio. These developments are primarily
purpose-built rental assets with close proximity to
major transit, local amenities, and well-established
communities.
19
Annual Report 2022 TRANSFORMATIONAL DEVELOPMENT PROGRAM
On the
Move
We are focused on delivering
our active development
projects that will strengthen
our portfolio across each asset
class.
18
Projects Under
Development
$388M
Total
Investment (2)
1.9M
Sq. Ft.(i)
348
Residential
Units
(i) Including 1.0M sq. ft. associated with ground leases
Rendering
Automated, multi-temperature
industrial facility
Choice Eastway
Industrial Centre
Greater Toronto Area,
ON
Rendering
Choice Industrial
Centre
Surrey, BC
New generation logistic
facility targeting LEED silver
certification
Rendering
Mount Pleasant
Village
Brampton, ON
Residential development
designed to deliver
geothermal heating and
embodied carbon reduction
20
Annual Report 2022 TRANSFORMATIONAL DEVELOPMENT PROGRAM
Immense
Value Opportunity
Choice Properties continues
to grow and create value
through its pipeline of potential
commercial and mixed-use
developments.
Mixed-Use & Residential
10.4M
Sq. Ft. Potential
Density(i)
12,000
Potential
Residential Units(i)
Rendering
Rendering
Golden Mile
Toronto, ON
Zoning Approved
(section 3.6)
25 Photography Drive
Toronto, ON
Industrial
364
Net Developable
Acres(i)
5.6M
Sq. Ft. Potential
Development(i)
(i) At the Trust’s share
Choice Caledon
Business Park
Caledon, ON
Zoning Approved
(section 3.6)
21
Annual Report 2022 Environmental,
Social &
Governance
Program
“Building a sustainable
and equitable future is
integral to our ability
to create spaces
that improve how our
tenants live, work,
and connect and the
enduring value that
comes from it.”
Ana Radic
Chief Operating Officer
Environmental, Social and Governance (“ESG”)
practices are aligned with our commitment to
create enduring value through the ownership,
operation and development of high-quality
commercial and residential properties.
Recognizing that our responsibility extends
beyond the spaces we own, and to a broad set
of stakeholders, Choice Properties aspires to
develop healthy, resilient communities through
its dedication to social, economic and
environmental sustainability.
More information about Choice Properties’
ESG practices and programs can be found in
our latest Environmental, Social and
Governance Report available at www.
choicereit.ca/sustainability.
22
Annual Report 2022 ENVIRONMENT, SOCIAL AND GOVERNANCE PROGRAM
2022 Highlights
Net-Zero
One of the first entities to
have its net zero emissions
targets validated by the
Science Based Targets
initiative (SBTi)
Green Buildings
Over 40M sq. ft. certified
under LEED or BOMA BEST,
including over 160 properties
certified in 2022
Climate Action
Published inaugural
Pathway to Net Zero report
outlining the necessary
actions to achieve emissions
targets
Culture
Named one of Greater
Toronto’s Top Employers
(2023) in recognition
of colleague-focused
programs including hybrid
work
Choice Cares
Over $620K and 1,240+
hours of colleague time
donated to Canadian
charities in support of
empowering youth in low-
income communities
Diversity
Achieved the Women Lead
Here 2022 benchmark
in recognition of
representation of women on
our leadership team
Recognition
Achieved an ISS ESG Prime
rating and improved GRESB
Rating to 4-star (scored 82 on
a 100-point scale)
Suppliers
Released our Supplier
Code of Conduct and
implemented it on large new
contracts
Cybersecurity
Cybersecurity maturity
rating exceeds the industry
benchmark by over 20%
23
Annual Report 2022 ENVIRONMENTAL, SOCIAL AND GOVERNANCE PROGRAM
Focused Pillars
Choice Properties focuses its ESG program around two pillars where we can best create enduring value and
which align with our stakeholder interests: Fighting Climate Change and Advancing Social Equity.
Fighting Climate Change
Advancing Social Equity
Our goal of creating enduring value is aligned with the need to
promote a more sustainable future to prevent the effects of
climate change in our communities and on our business.
We have established ambitious science-based net-zero
greenhouse gas emissions targets. In July 2022, we became
one of the first entities in Canada to have our net-zero targets
validated by the Science Based Targets initiative (SBTi). Our
targets cover our entire value chain, including our own
operational emissions, and those from our tenants and
developments. We are committed to achieving net-zero
emissions by 2050, including by reducing absolute scope 1, 2
and 3 emissions by 90% by 2050 from a 2019 base year. This
commitment builds on the progress Choice Properties has
made over the past few years since issuing our first emissions
reduction targets in 2019.
Choice Properties continues to take meaningful steps to
minimize our environmental impact by improving the energy
and water efficiency of our portfolio, embedding sustainable
design features in our new developments, and certifying a
substantial portion of our portfolio under green building
standards including LEED and BOMA BEST.
Choice Properties is committed to advancing diversity,
equity and inclusion (“DEI”) for all stakeholders. This
commitment is demonstrated through programs focused
on our colleagues and culture, and programs that enhance
the community fabric in which we operate.
We have established a DEI Framework which identifies four
focus areas through which the Trust can meaningfully
advance DEI through our business. As part of this
Framework, we have set and made progress towards
ambitious DEI targets that commit to recruiting, advancing
and retaining colleagues who self-identify as women and
visible minorities within our organization at the Board of
Trustees, Executive and Senior Management levels.
The Trust’s commitment to advancing social equity in our
communities can be seen through our Choice Cares
program. Since 2019, through Choice Cares, our activities
have contributed over $1.62 million and over 5,040 paid
volunteer hours to various Canadian charities selected by
our colleagues.
Choice Properties looks forward to expanding our
community building program by taking a multi-sector
collaborative approach to development. An example of this
approach is our Grenville and Grosvenor development in
Toronto, Ontario where we are working closely with local
government to deliver an affordable housing component.
24
Annual Report 2022 Prudent
Financial
Management
Woodside Power Centre
Markham, ON
“In the current economic environment, we have
taken proactive steps to ensure we maintain
our financial strength. Our industry leading
balance sheet and disciplined approach to
financial management provides flexibility and
stability.”
Mario Barrafato
Chief Financial Officer
25
Annual Report 2022 Harvest Pointe
Edmonton, AB
26
Annual Report 2022 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 2022
Q4 2021
YTD Q4 2022
YTD Q4 2021
Net Income
The quarterly decrease compared to the prior year was
primarily due to a $486.8 million unfavourable change in
the adjustment to fair value of the Trust’s Exchangeable
Units, due to the increase in the Trust’s unit price, coupled
with a $20.8 million unfavourable adjustment to the fair
value of its investment in the real estate securities of Allied
Properties Real Estate Investment Trust (“Allied”) due to
changes in Allied’s unit price, held pursuant to the sale of
six office assets to Allied in Q1 of 2022 (the “Allied
Transaction”). These increases were partially offset by a
$97.1 million favourable adjustment to the fair value of
investment properites.
The year-to-date increase compared to the prior year was
primarily due to a $1,033.0 million favourable adjustment
to fair value of the Trust’s Exchangeable Units, due to the
change in the Trust’s unit price, coupled with a $286.9
million increase in income from equity accounted joint
ventures primarily due to fair value increases in the
industrial development portfolio. The increases were
partially offset by a $345.7 million unfavourable change in
the adjustment to fair value of investment properties, and
a $248.3 million unfavourable adjustment to fair value of
the investment in the real estate securities of Allied.
Rental Revenue (GAAP)
The quarterly and annual decrease were primarily due to
the forgone revenue following the Allied Transaction. The
decrease was partially offset by improved occupancy and
higher rental rates in the retail and industrial portfolios,
and higher recoveries.
FFO Per Unit Diluted(1)
Funds from Operations for the fourth quarter declined slightly
as compared to the fourth quarter of 2021. Increases
in Same-Asset NOI were largely offset by increases in interest
and general and administrative expenses and the impact of
the Allied Transaction. The impact of the Allied Transaction
includes the loss of NOI, partially offset by the distribution
and interest income earned from the consideration received
in exchange for properties sold. In addition, a non-recurring
gain recognized in the prior year quarter due to the reversal
of an expected credit loss related to a specific mortgage
receivable contributed to the decline in FFO.
The year-to-date increase in Funds from Operations
was primarily due to increases in Same-Asset NOI, partially
offset by increases in interest and general and administrative
expenses and the impact of the Allied Transaction.
* As at and for the three months and year ended December 31,
2022 and 2021 ($ thousands except when otherwise indicated)
$(579,000)
$(163,087)
$23,008
$744,253
$600,000
$400,000
$200,000
0
$200,000
$400,000
$600,000
$314,382
$325,763
$0
$400,000
$800,000
$1,200,000
$1,264,594
$1,292,321
$0.241
$0.242
$0
$0.200
$0.400
$0.600
$0.800
$0.964
$0.954
27
Annual Report 2022
AFFO Per Unit Diluted(1)
The quarterly increase was primarily due to a higher
proportion of the annual spend occurring prior to the
fourth quarter in 2022 than in 2021.
The annual decrease was primarily as a result of an
increase in capital spending, partially offset by an increase
in FFO coupled with a decrease in straight line rental
revenue adjustment. The AFFO payout ratio for the year
ended December 31, 2022 was 92.0%, consistent with the
prior year’s payout ratio.
Same-Asset NOI, Cash Basis(1)
The increase of 3.9% and 3.8% for the three months and
year ended December 31, 2022, respectively, was primarily
due to increased revenue from improved occupancy,
contractual rent steps, higher recovery revenues, and a
decrease in bad debt expense.
Period End Occupancy
Overall period end occupancy increased compared to the
prior year due to positive absorption in the industrial
portfolio, development transfers and transactions
contributed to the net increase in occupancy.
Adjusted Debt to EBITDAFV(1)
Adjusted Debt to EBITDAFV (1) increased compared to the
prior year primarily due to an increase in debt from
advances made on construction loans and the credit
facility, which were used to fund development projects and
acquistions, and the impact of the Allied transaction.
Development Spending
(Proportionate)(1)
Development activity reflects spending on active projects
during the three months and year ended December 31, 2022
and 2021. Development spending may vary depending on
the stage of the projects currently in progress.
Transfers From Properties
Under Development to Income
Producing (Proportionate)(1)
During the year ended December 31, 2022, the Trust
transferred approximately 68,000 square feet of new retail
space and 107,000 square feet of new industrial space from
properties under development to income producing.
Q4 2022
Q4 2021
YTD Q4 2022
YTD Q4 2021
YTD Q3 2022
$0.175
$0.164
$0
$0.150
$0.300
$0.450
$0.600
$0.750
$227,078
$218,593
$0.804
$0.811
$893,876
$861,131
$0
$150,000
$300,000
$450,000
$600,000
$750,000
$900,000
80.0%
85.0%
90.0%
95.0%
97.8%
97.1%
7.5
7.2
0.0
2.0
4.0
6.0
8.0
$37,431
$41,056
$125,585
$133,468
$0
$40,000
$80,000
$120,000
$71,436(i)
$55,769(i)
(i) $28.7 million of the 2022 transfers relates to an industrial site initially acquired for
$0
$20,000
$40,000
$60,000
redevelopment. The property was reclassified to income producing due to a change
in intention to lease the property in its entirety without redevelopment by the Trust
28
Annual Report 2022
Grandview Central
Surrey, BC
29
Annual Report 2022 Fourth Quarter
Financial Performance
During the three months ended December 31, 2022
Operating
• Reported net loss for the quarter of $579.0 million,
compared to net loss of $163.1 million in the prior year. The
decrease is primarily due to a $486.8 million
unfavourable change in the adjustment to the fair value
of Exchangeable Units(i) due to the increase in the Trust’s
unit price as well as an unfavourable adjustment to fair
value of the investment in the real estate securities of
Allied of $20.8 million. These decreases were partially
offset by a $97.1 million favourable change in the
adjustment to fair value of investment properties.
• Reported FFO per unit diluted(1) for the quarter was $0.241,
as compared to $0.242 in the prior year.
• AFFO per unit diluted(1) for the quarter was $0.175,
compared to $0.164 in the prior year. The increase is
primarily due to a greater proportion of the annual
capital spend occurring prior to the fourth quarter in
2022.
• Same-asset NOI on a cash basis(1) increased by 3.9% over
the same quarter in the prior year, mainly due to
increased revenue from contractual rent steps and
increased recoveries, a decrease in bad debt expense,
and higher rental rates and occupancy in the retail and
industrial portfolios.
• Period end occupancy improved to 97.8% from 97.7%,
with retail at 97.8%, industrial at 98.9% and mixed-use,
residential and other at 87.7%.
• Net fair value gain on investment properties was $207.2
million on a proportionate share basis(1) primarily due to
fair value gains from the Trust’s industrial portfolio
reflecting the continued rent growth from the Trust’s
industrial assets.
Subsequent Events
• Subsequent to quarter-end, the Trust:
Financing
• Advanced one mortgage with a balance of $4.7 million
bearing interest at a rate of 5.49%.
• Ended the quarter with adjusted debt to total assets(1) at
40.6%, and adjusted debt to EBITDAFV(1) and debt
service coverage ratios(1) of 7.5 and 3.1 times, respectively.
• Strong liquidity position with approximately $1.2 billion of
available credit and a $12.3 billion pool of unencumbered
properties.
Investing
• Completed the acquisition of two strategic retail assets
in Toronto, ON for $73.1 million on a proportionate basis(1)
including the Shoppes on Queen West for consideration of
$53.3 million.
• Completed $45.3 million in dispositions on a
proportionate basis(1), including an office property in
Halifax, NS for proceeds of $40.0 million.
• Ongoing investment in the development program with
$37.4 million of spending during the quarter on a
proportionate share basis(1).
• The Trust transferred $15.7 million of properties under
development to income producing status, delivering
approximately 44,000 square feet of new GLA on a
proportionate share basis(1).
• Repaid the $125.0 million Series D-C senior unsecured debentures upon maturity;
• completed the acquisition of three retail assets from Loblaw for $98.6 million;
• announced an increase of distributions to $0.75 per unit per annum from the previous rate of $0.74 per unit per annum (an
increase of 1.4% or $0.000833 monthly). The increase will be effective for Unitholders of record on March 31, 2023; and
• entered into mortgage commitments for approximately $161.8 million. The debt financings include mortgages secured primarily
by newly acquired properties and the upfinancing of an existing mortgage.
(i) Exchangeable Units are required to be classified as financial liabilities at fair value through profit and loss under GAAP. They
are recorded at their fair value based on the market trading price of the Trust Units, which results in a negative impact to the
financial results when the Trust Unit price rises and a positive impact when the Trust Unit price declines.
30
Annual Report 2022
Year Ended
Financial Performance
During the year ended December 31, 2022
Operating
Financing
• Reported net income for the year of $744.3 million,
compared to net income of $23.0 million in the prior year.
The increase is primarily due to a $1,033.0 million
favourable change in the adjustment to the fair value of
the Exchangeable Units(i) attributable to the change in
unit price for Choice Properties during the year coupled
with a $286.9 million increase in income from equity
accounted joint ventures. The increase was partially
offset by $345.7 million decrease in the adjustment to
fair value of investment properties, and an unfavourable
adjustment to the fair value of the investment in the real
estate securities of Allied of $248.3 million.
• Reported FFO per unit diluted(1) for the year was $0.964,
an increase of $0.010 per unit diluted from the prior year.
• AFFO per unit diluted(1) for the year was $0.804, reflecting
a 92.0% payout ratio. The decrease in AFFO was
primarily due to an increase in spending on capital
projects, partially offset by an increase in FFO and a
reduction in straight-line rental revenue adjustment.
• Same-asset NOI on a cash basis(1) increased by 3.8%
over the prior year primarily due to increased revenue
from contractual rent steps and increased recoveries,
higher rental rates and occupancy in the retail and
industrial portfolios, and a decrease in bad debt
expense.
• Period end occupancy improved to 97.8% from 97.1%,
with retail at 97.8%, industrial at 98.9% and mixed-use
residential and other at 87.7%.
• Completed the issuance of $500 million of Series R senior
unsecured debentures at 6.003% for a term of 10 years.
The proceeds were used to early redeem the $300 million
Series 10 senior unsecured debentures and to repay a
portion of the balance drawn on the credit facility.
• Ended the year with a debt-to-gross book value(1) at 40.6%,
adjusted debt to EBITDAFV(1), and interest coverage ratios(1)of
7.5 and 3.4 times, respectively.
• Strong liquidity position with approximately $1.2 billion of
available credit and a $12.3 billion pool of unencumbered
properties.
Investing
• Focused our capital on the opportunities in our core
business of essential retail and industrial, our growing
residential platform and our robust development
pipeline through:
• The disposition of $890.3 million of non-core assets,
including eight office assets for aggregate proceeds
of $800.8 million on a proportionate share basis(1);
• The acquisition of $204.3 million of essential retail,
industrial, and residential income producing
properties and $166.8 million of industrial development
assets on a proportionate basis(1);
• Ongoing investment in the development program with
$125.6 million of spending during the year on industrial,
residential, and retail intensifications and greenfield
development projects on a proportionate share
basis(1); and
• Transferred $71.4 million of properties under
development to income producing status during the
year, delivering approximately 176,000 square feet of
new GLA on a proportionate share basis(1).
(i) Exchangeable Units are required to be classified as financial liabilities at fair value through profit and loss under GAAP. They
are recorded at their fair value based on the market trading price of the Trust Units, which results in a negative impact to the
financial results when the Trust Unit price rises and a positive impact when the Trust Unit price declines.
31
Annual Report 2022
Rendering
25 Photography Drive
Toronto, ON
32
Annual Report 2022 1.
KEY PERFORMANCE INDICATORS AND SELECTED FINANCIAL INFORMATION
Choice Properties has identified key financial and operating performance indicators that were derived from, and should be
read in conjunction with, the consolidated financial statements of the Trust as at and for the years ended December 31, 2022
and 2021. The analysis of the indicators focuses on trends and significant events affecting the financial condition and results
of operations of the Trust.
As at or for the year ended December 31
($ thousands except where otherwise indicated)
Number of income producing properties
GLA (in millions of square feet)
Occupancy*
Total assets (GAAP)
Total liabilities (GAAP)
Rental revenue (GAAP)
Net income
Net income 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
2022
702
63.9
97.8%
16,819,527
(12,995,374)
1,264,594
744,253
1.029
0.964
76.7%
$
$
$
$
$
$
0.804 $
92.0%
0.740 $
$
$
$
$
$
$
$
$
2021
709
65.8
97.1%
2020
713
66.1
97.1%
16,172,603 $
15,647,242
(12,862,412) $
(12,124,702)
1,292,321 $
23,008 $
1,270,614
450,685
0.032 $
0.954 $
77.6%
0.811 $
91.2%
0.740 $
0.637
0.921
80.5%
0.800
92.6%
0.740
Weighted average number of Units outstanding – diluted(i)
723,523,362
723,127,566
707,764,714
Adjusted debt to total assets(ii)*
Debt service coverage(ii)*
Adjusted Debt to EBITDAFV(1)*
Indebtedness(iii) – weighted average term to maturity*
Indebtedness(iii) – weighted average interest rate*
* Denotes a key performance indicator
40.6%
3.1x
7.5x
5.3 years
3.77%
40.1%
3.3x
7.2x
5.5 years
3.59%
42.7%
3.2x
7.6x
5.7 years
3.65%
(i)
(ii)
(iii)
Includes Trust Units and Exchangeable Units.
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.
Indebtedness reflects only senior unsecured debentures, fixed rate mortgages and fixed rate construction loans.
Choice Properties REIT
2022 Annual Report 33
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, 2022
As at December 31, 2021
GAAP Basis Reconciliation
Proportionate
Share Basis(1)
GAAP Basis Reconciliation
Proportionate
Share Basis(1)
Investment properties
$ 14,444,000 $
1,710,000 $ 16,154,000
$ 14,930,000 $
1,113,000 $
16,043,000
Equity accounted joint ventures
Financial real estate assets
Residential development
inventory
Mortgages, loans and notes
receivable
Investment in real estate
securities
Intangible assets
Accounts receivable and other
assets
Assets held for sale
Cash and cash equivalents
995,822
109,509
18,785
(995,822)
(109,509)
—
—
564,378
(564,378)
86,603
(86,603)
—
—
—
18,785
10,142
—
10,142
680,475
(96,072)
584,403
354,901
(7,972)
346,929
302,314
21,369
—
—
302,314
21,369
—
28,000
—
—
—
28,000
132,117
(2,116)
130,001
114,275
(1,844)
112,431
50,400
64,736
—
23,379
50,400
88,115
—
—
—
84,304
39,976
124,280
Total Assets
$ 16,819,527 $
529,860 $ 17,349,387
$ 16,172,603 $
492,179 $
16,664,782
Liabilities and Equity
Long term debt
Credit facility
$ 6,294,101 $
496,493 $
6,790,594
$ 6,230,010 $
444,428 $
6,674,438
Exchangeable Units
5,841,809
257,617
—
—
257,617
—
5,841,809
6,011,997
—
—
—
6,011,997
Trade payables and other
liabilities
601,847
33,367
635,214
620,405
47,751
668,156
Total Liabilities
12,995,374
529,860
13,525,234
12,862,412
492,179
13,354,591
Equity
Unitholders’ equity
Total Equity
3,824,153
3,824,153
—
—
3,824,153
3,310,191
3,824,153
3,310,191
—
—
3,310,191
3,310,191
Total Liabilities and Equity
$ 16,819,527 $
529,860 $ 17,349,387
$ 16,172,603 $
492,179 $
16,664,782
Choice Properties REIT
2022 Annual Report 34
Balance Sheet Analysis (GAAP Basis)
Line Item
Investment
properties
Equity accounted
joint ventures
Financial real
estate assets
Residential
development
inventory
$ Change Variance Commentary
$ (486,000) The decrease compared to December 31, 2021 is primarily attributable to dispositions of
$890.3 million, $733.8 million of which related to the disposition of six office assets to
Allied in the year. In addition, four properties with a fair value of $50.4 million were
transferred to assets held for sale at December 31st. The decrease was partially offset by
the favourable fair value adjustment on investment properties of $113.1 million,
acquisitions of $163.7 million, as well as development and capital spend of $144.6 million.
431,444 The increase is primarily attributable to fair value gains on properties held within equity
accounted joint ventures of $324.4 million and contributions made to joint ventures of
$126.9 million, mainly used to fund industrial development projects. These increases were
partially offset by distributions of $68.1 million received from joint ventures in the current
year.
22,906 The increase was mainly attributable to the acquisition of two assets from Loblaw for
$17.6 million, and additions of $4.6 million.
8,643 The increase was attributable to development expenditures incurred for a residential
condominium project in Brampton, ON.
Mortgages, loans
325,574 The increase was primarily due to mortgages and notes receivable advanced, including:
and notes
receivable
Investment in Real
Estate Securities
Intangible assets
Working Capital
Long term debt
and credit facility
(i) The issuance of a promissory note, with a fair value of $193.2 million, as a part of the
disposition of six office assets to Allied;
(ii) $102.0 million advanced to an entity in which the Trust is a partner to acquire land for
development;
(iii) $170.8 million of notes receivable advanced to GWL;
(iv) various net advances to third-party borrowers and development partners totaling $40.5
million;
(v) $28.0 million advanced as a part of the disposition of an office asset in Halifax, NS.
These advances were partially offset by a $40.6 million settlement of an outstanding
mortgage receivable on the acquisition of a property and repayment of GWL’s prior year
outstanding notes receivable balance of $168.3 million.
302,314 As part of the consideration received for the disposal of six office assets to Allied, the
Trust received 11,809,145 exchangeable Class B limited partnership units with a value of
$550.7 million. The Trust recorded a fair value loss of $248.3 million on these real estate
securities in the year due to the decrease in Allied’s unit price.
(6,631) The decrease was primarily due to the Trust derecognizing a portion of its intangible
assets in relation to two of the office properties disposed in the first quarter of 2022.
16,832 The net change was primarily due to an increase in the value of the Trust’s hedging
instruments of $9.6 million, and an increase of $7.1 million in accrued and other
receivables.
321,708 Net increase was primarily attributable to the issuance of the $500.0 million Series R
senior unsecured debentures, $260.0 million of net draws made on the credit facility and
the $26.3 million net advances of construction loans. The increase was partially offset by
the redemption of the $300.0 million Series 10 senior unsecured debentures, and $153.3
million of principal repayments of mortgages at maturity and through regular principal
repayments throughout the year. The remaining variance relate to debt placement cost
incurred, net of amortization.
Exchangeable
Units
(170,188) As this liability is measured at fair value, the change was due to the decrease in the unit
price for Choice Properties since December 31, 2021.
Unitholders’ equity
513,962 Net increase was primarily due to year-to-date net income, partially offset by the
distributions to Unitholders.
Choice Properties REIT
2022 Annual Report 35
3.
INVESTMENT PROPERTIES
To expand the portfolio and participate in development opportunities, Choice Properties owns varying interests in real estate
entities that hold investment properties. Under GAAP, many of these interests are recorded as equity accounted joint
ventures and, as such, the Trust’s share of the investment properties owned by these entities is presented on the balance
sheet as a summarized value, not as part of the total investment properties. In addition, the Trust also has financial real estate
assets which are not included with investment properties as prepared under GAAP. Refer to Section 15.1, “Investment
Properties Reconciliation”, for a reconciliation of the continuity of investment properties determined in accordance with
GAAP.
The following continuity schedule presents Choice Properties’ portfolio inclusive of its financial real estate assets and equity
accounted joint ventures prepared on a proportionate share basis(1) for the periods ended, as indicated:
Three Months
Year Ended
As at or for the period ended December 31, 2022
($ thousands)
Investment
Properties(i)
Investment
Properties(i)
Income
producing
properties
Properties
under
development
Income
producing
properties
Properties
under
development
GAAP balance, beginning of period
$ 13,894,000 $
311,000 $ 14,205,000 $ 14,707,000 $
223,000 $ 14,930,000
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),
968,000
712,000
1,680,000
893,000
220,000
1,113,000
beginning of period
14,862,000
1,023,000
15,885,000
15,600,000
443,000
16,043,000
Acquisitions of investment properties(ii)
74,553
—
74,553
204,336
166,759
371,095
Capital expenditures
Development capital(iii)
Building improvements
Capitalized interest(iv)
Property capital
Direct leasing costs
Tenant improvement allowances
Amortization of straight-line rent
Transfer to assets held for sale
—
146
—
35,918
2,443
5,491
1,496
(50,400)
Transfers from properties under development(v)
15,667
(15,667)
Transfers to properties under development
Dispositions
—
(45,325)
—
—
34,211
34,211
—
119,374
119,374
—
3,220
—
—
—
—
—
146
3,220
35,918
2,443
5,491
1,496
5,676
—
72,477
9,312
21,045
4,627
(50,400)
(50,400)
—
6,211
—
—
—
—
—
—
—
71,436
(71,436)
(22,945)
22,945
5,676
6,211
72,477
9,312
21,045
4,627
(50,400)
—
—
(45,325)
(876,502)
(13,768)
(890,270)
Adjustment to fair value of investment properties
Non-GAAP proportionate share balance(1),
206,011
1,236
207,247
68,938
372,915
441,853
December 31, 2022
$ 15,108,000 $
1,046,000 $ 16,154,000 $ 15,108,000 $
1,046,000 $ 16,154,000
(i)
(ii)
(iii)
(iv)
(v)
Refer to Section 15.1, “Investment Properties Reconciliation” for a reconciliation of the continuity of investment properties determined in accordance with GAAP.
Includes acquisition costs.
Development capital included $922 and $2,687 of site intensification payments paid to Loblaw for the three months and year ended December 31, 2022, respectively
(December 31, 2021 - $1,047 and $2,208).
Interest was capitalized to qualifying development projects based on a weighted average interest rate of 3.74% (December 31, 2021 - 3.64%).
Transfers from properties under development for the three months and year ended December 31, 2022, included fair value adjustments recognized within properties
under development of $1,972 and $7,072, respectively (December 31, 2021 - $3,786 and $6,948).
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.
As at December 31, 2022, the Trust has classified three retail properties and one office property with a total fair value of
$50,400 as assets held for sale. As at December 31, 2021, there were no investment properties classified as assets held for
sale.
Choice Properties REIT
2022 Annual Report 36
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 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. Overall capitalization rates are applied when undertaking the
Direct Capitalization method of the Income Approach. This methodology applies the overall capitalization rate to the
estimated stabilized NOI for one year. Currently, this method is only applied to value residential assets and certain land
leases.
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. 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.
Valuations are most sensitive to changes in capitalization rates. The terminal capitalization rates and discount rates are the
most relevant to the portfolio, under the application of the discounted cash flow method. The weighted average valuation
metrics for the Trust's investment properties (including financial real estate assets and those properties held within equity
accounted joint ventures) are listed below by asset class:
As at December 31, 2022
Discount rate
Terminal capitalization rate
Overall capitalization rate
As at December 31, 2021
Discount rate
Terminal capitalization rate
Overall capitalization rate
Valuation Commentary
Mixed-Use,
Residential &
Other
5.86%
5.25%
5.08%
Mixed-Use,
Residential &
Other
5.30%
4.61%
4.68%
Industrial
5.99%
5.24%
4.94%
Industrial
5.98%
5.28%
5.05%
Retail
7.42%
6.58%
6.41%
Retail
6.94%
6.20%
6.04%
Total Investment Properties
6.99%
6.19%
5.99%
Total Investment Properties
6.59%
5.86%
5.72%
Throughout the year, the Trust revalued its portfolio primarily based on reaching milestone-based achievements for its
development projects, reviewing adjustments to capitalization rates for selected properties, contractual changes in cash
flows, changes in market leasing assumptions, pending transactions and macro considerations.
For the year ended December 31, 2022 the Trust recorded a favourable adjustment of $113.1 million on a GAAP basis and
a favourable adjustment of $441.9 million on a proportionate share basis(1) to the value of investment properties.
Fair value gains for the year ended December 31, 2022 include a gain of $372.9 million, on a proportionate share basis(1),
within the development portfolio. The gain was primarily driven by observed market transactions and the completion of
development milestones for industrial projects. In addition, the Trust recognized a fair value gain of $68.9 million, on a
proportionate share basis(1), within income producing properties. Despite capitalization rate expansion in the retail and
industrial portfolios, the net fair value gain for the year ended December 31, 2022 was largely attributed to the industrial
portfolio and the continued growth of contractual cash flow and market rent assumptions.
For the three months ended December 31, 2022 the Trust recorded a favourable adjustment of $193.4 million on a GAAP
basis and $207.2 million on a proportionate share basis(1) to the value of investment properties. The gain was primarily due
to cash flow growth and changes in rent assumptions within the industrial and retail portfolios. Despite the continued
growth of the industrial portfolio, the fair value gain was partially offset by mitigating capitalization rate adjustments.
Choice Properties REIT
2022 Annual Report 37
3.2
Investment Property and Other Transactions
Acquisitions of Investment Properties
The following table summarizes the investment properties acquired in the year ended December 31, 2022:
($ thousands except where otherwise indicated)
Consideration
Location
Date of
Acquisition
Segment
Ownership
Interest
Acquired
GLA
(square
feet)
Purchase
Price incl.
Related
Costs
Mortgage
Receivable
Settlement
Debt
Assumed
from Seller
Assumed
Liabilities
Cash
Investment properties
Ottawa, ON
Mar 1
Montreal, QC(i)
Mar 9
Halifax, NS(i)
Jun 17
Acquisitions from related parties
Burlington, ON
May 2
Toronto, ON
Jul 6
Toronto, ON
Sep 1
Toronto, ON
Oct 5
Toronto, ON
Dec 1
Vaughan, ON
Dec 5
Acquisitions from third-parties
Industrial Under
Development
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
100%
100%
100%
100%
100%
100%
100%
100%
100%
N/A $
27,218 $
— $
— $
— $
27,218
15,526
2,343
98,125
15,228
113,651
44,789
131,473
42,059
N/A
687
34,177
19,180
1,600
1,488
89,690
53,315
22,388
19,750
279,328
136,479
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
483
1,860
2,034
13,194
2,517
42,272
588
41,471
—
687
131
19,049
—
—
—
1,488
53,315
19,750
719
135,760
Toronto, ON(ii)
Jan 14
Toronto, ON(ii)
Jan 14
Mixed-Use,
Residential &
Other
Mixed-Use,
Residential &
Other
Edmonton, AB
April 7
Industrial
Caledon, ON(iii)
April 19
East Gwillimbury,
ON
May 31
Industrial Under
Development
Industrial Under
Development
3%
7,956
18,735
—
3,526
1,015
14,194
3%
50%
85%
75%
11,488
17,090
—
5,152
921
11,017
89,978
14,461
2,066
N/A
86,741
—
—
—
—
—
12,395
86,741
N/A
52,800
38,794
—
8,647
5,359
Acquisitions in equity accounted joint ventures
109,422
189,827
40,860
8,678
10,583
129,706
Total acquisitions of investment properties
502,401 $
371,095 $
40,860 $
8,678 $
13,819 $
307,738
(i)
(ii)
(iii)
These properties are classified as financial real estate assets under GAAP.
Represents the 3% additional ownership interest acquired from a third party, increasing the Trust’s ownership interest in these properties to 50%. The purchase price
and related consideration also included the nullification of a third party’s option to acquire an additional 13.67% of the Trust’s ownership in these properties.
This acquisition resulted in ownership of an additional 25 residential units.
Cash consideration includes a mezzanine loan advanced by the Trust to the joint venture for the purpose of acquiring land for development.
On January 31, 2023, the Trust acquired three retail assets from Loblaw for an aggregate purchase price of $98,630.
Choice Properties REIT
2022 Annual Report 38
50%
N/A
3,643
—
—
—
—
—
3,643
Dispositions of Investment Properties
The following table summarizes the investment properties sold in the year ended December 31, 2022:
($ thousands except where otherwise indicated)
Consideration
Location
Date of
Disposition
Segment
Investment properties
Ownership
Interest
Disposed
GLA
(square
feet)
Sale Price
excl.
Selling
costs
Debt
Assumed
by
Purchaser
Promissory
Note
Real
Estate
Securities
De-
recognition
of
Intangible
Asset
Mortgage
Receivable
Advanced
Cash
Edmonton, AB Jan 31
Industrial
100%
94,681 $
9,700 $
Edmonton, AB Feb 25
Industrial
100%
266,901
19,750
— $
—
Feb 28
Retail
50%
222,959
25,750
14,805
— $
— $
—
—
—
—
— $
—
— $
9,700
—
19,750
—
—
10,945
Mar 31
50%-100% 1,233,706
733,810
—
193,155
550,660
(5,631)
—
(4,374)
Brampton, ON Jun 23
50%
N/A
10,125
Swift Current,
SK
Jun 28
Retail
100%
136,084
6,500
Dartmouth, NS Jul 6
Retail (Parcel)
100%
N/A
117
Calgary, AB
Jul 18
Retail
100%
20,728
6,550
50%
6,238
2,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10,125
—
—
—
—
6,500
117
6,550
2,000
Campbell
River, BC
Portfolio of 6
assets across
Canada(i)
Mixed-Use,
Residential &
Other
Retail Under
Development
Edmonton, AB Jul 28
Edmonton, AB Aug 12
Montreal, QC
Sep 13
Retail (Parcel)
Mixed-Use,
Residential &
Other Under
Development
Mixed-Use,
Residential &
Other
Quebec, QC
Oct 5
Retail (Parcel)
50%
24,773
4,325
Beaverton, ON Dec 21
Retail
100%
4,410
1,000
100%
293,195
27,000
—
—
—
—
—
—
—
—
—
—
—
—
—
27,000
—
—
4,325
1,000
Halifax, NS
Dec 28
Mixed-Use,
Residential &
Other
100%
223,723
40,000
—
—
—
—
28,000
12,000
Total dispositions of investment properties
2,527,398 $ 890,270 $
14,805 $
193,155 $ 550,660 $
(5,631) $
28,000 $ 109,281
(i)
The Trust disposed of its interests in a portfolio of six office assets to Allied Properties Real Estate Investment Trust (“Allied”). The consideration received consisted of
exchangeable Class B limited partnership units of Allied Properties Exchangeable Limited Partnership, an affiliated entity of Allied (Section 3.10, “Investment in Real
Estate Securities”) and a promissory note (Section 3.9, “Mortgages, Loans and Notes Receivable”). The Trust incurred transaction costs of $5.1 million associated with
the disposition to Allied.
Choice Properties REIT
2022 Annual Report 39
Acquisitions of Investment Properties
The following table summarizes the investment properties acquired in the year ended December 31, 2021:
($ thousands except where otherwise indicated)
Consideration
Date of
Acquisition
Segment
Ownership
Interest
Acquired
GLA
(square
feet)
Purchase Price
incl. Related
Costs
Contingent
Consideration (ii)
Assumed
Liabilities
Mortgage
Receivable
Settlement
Cash
Location
Investment properties
Guelph, ON(i)
Dec 10
Retail
100%
96,983 $
15,134 $
— $
3,182 $
— $
11,952
Acquisitions from related parties
96,983
15,134
—
3,182
—
11,952
Toronto, ON
Toronto, ON
Sep 2
Nov 12
Retail
Retail
100%
12,099
31,574
100%
12,330
23,365
Acquisitions from third-parties
24,429
54,939
Calgary, AB
Feb 1
Industrial
50%(iii)
277,676
25,375
—
—
—
—
Caledon, ON (ii)
Caledon, ON
Mar 30
Nov 22
Land(iv)
Land(iv)
85%
85%
N/A
N/A
138,000
38,000
7,945
—
Acquisitions in equity accounted joint ventures
277,676
171,320
38,000
—
—
—
—
—
—
—
—
31,574
—
23,365
—
54,939
4,846
20,529
—
100,000
—
7,945
4,846
128,474
Total acquisitions of investment properties
399,088 $
241,393 $
38,000 $
3,182 $
4,846 $ 195,365
This property is classified as a financial real estate asset under GAAP.
The acquisition was funded through a $100,000 cash payment and a commitment to pay the remaining balance based on certain milestones being met over the
(i)
(ii)
development lifecycle.
(iii)
(iv)
Represents additional ownership interest acquired increasing the ownership interest in this property to 100%.
Land was acquired for future industrial development.
Choice Properties REIT
2022 Annual Report 40
Dispositions of Investment Properties
The following table summarizes the investment properties sold in the year ended December 31, 2021:
($ thousands except where otherwise indicated)
Date of
Disposition
Segment
Ownership
Interest
Sale Price excl.
Selling Costs
Consideration
Mortgage
receivable
advanced
Cash
Location
Investment properties
Brampton, ON(i)
Brampton, ON
Kanata, ON
St-Hyacinthe, QC
Calgary, AB
Jan 19
Mar 31
Aug 19
Oct 4
Nov 1
Land
Land
Land
Land
Retail
Retail
Retail
Retail
Portfolio of 2 assets across Canada
Dec 6
Magog, QC
Quebec, QC
Dec 15
Dec 20
Portfolio of 5 assets in Calgary, AB
Dec 20
Industrial
Drummondville, QC
Dec 22
Retail
Dispositions to third parties
Richmond Hill, ON
Oshawa, ON
Waterloo, ON
Feb 1
Dec 15
Dec 22
Land
Retail
Land
Dispositions of equity accounted joint ventures
70%
50%
50%
100%
100%
100%
100%
50%
100%
100%
50%
50%
50%
$
25,000 $
— $
25,000
5,000
4,147
3,800
36,000
52,250
22,000
49,625
45,000
11,500
254,322
66,375
3,025
5,250
74,650
—
—
—
—
—
—
—
—
—
—
—
—
5,250
5,250
5,000
4,147
3,800
36,000
52,250
22,000
49,625
45,000
11,500
254,322
66,375
3,025
—
69,400
Total dispositions of investment properties
$
328,972 $
5,250 $
323,722
On January 19, 2021, the trust sold its 70% interest which resulted in a disposition of the property under development for $25,000 and a distribution to the subsidiary’s
(i)
30% non-controlling interest of $7,801.
Choice Properties REIT
2022 Annual Report 41
3.3
Completed Developments
For the year ended December 31, 2022, Choice Properties completed a total of $35.6 million in development projects
delivering 175,684 square feet of commercial space (including 9,298 square feet associated with ground leases) with a
weighted average project yield of 7.6%.
During the quarter, the Trust delivered six retail developments including two Shoppers Drug Mart stores in Bradford, Ontario
and Drummondville, Quebec and two gas bars in Innisfil, Ontario and Edmonton, Alberta. At Olds, Alberta and Oshawa,
Ontario, the Trust delivered retail space primarily occupied by quick service restaurants.
The Trust discloses the expected stabilized yield(2) for each of its completed projects and projects under active development.
Expected stabilized yield is calculated by dividing the expected stabilized net rental income for each development by the
estimated total project costs. Stabilized net rental income is based on contracted rental rates on leased units, and market
rental rates on non-leased units which are based on the Trust’s market knowledge and, where applicable, supported by
external market studies. Estimated project costs include land costs, soft and hard construction costs, development and
construction management fees, tenant allowances and inducements, capitalized financing costs, and other carrying costs.
During the year ended December 31, 2022, there were no material changes to the previously disclosed ranges for expected
stabilized yields for completed developments and there were no events in the period that would cause actual results to
materially differ from those previously disclosed, unless otherwise noted.
For the year ended December 31, 2022, Choice Properties transferred the following from properties under development to
income producing properties as presented on a proportionate share basis(1):
($ thousands except where otherwise indicated)
Project / Location
Commercial
Retail
Glen Erin, Mississauga, ON
Erin Ridge, St. Albert, AB(i)
Harvest Pointe, Edmonton, AB(i)
Erin Ridge, St. Albert, AB(i)(ii)
Cornerstone, Olds, AB(ii)
Highway 88 West, Bradford, ON
Boul. St. Joseph, Drummondville, QC
20th Sideroad, Innisfil, ON(i)(ii)
Sunwapta Centre, Edmonton, AB(i)(ii)
Oshawa Gateway, Oshawa, ON
Subtotal retail development
Industrial
Completion
date
Ownership
%
Transferred
GLA
(square feet)
Cost of
assets
transferred
Expected
stabilized
yield(2)
Q1 2022
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q4 2022
Q4 2022
Q4 2022
Q4 2022
Q4 2022
50 %
100 %
50 %
50 %
50 %
100 %
100 %
100 %
50 %
50 %
17,120 $
5,589
1,149
1,046
2,500
12,607
15,586
2,745
3,007
7,105
6,107
2,674
548
516
58
4,856
2,993
334
1,034
4,310
68,454
23,430
107,230
107,230
175,684 $
$
12,156
12,156
35,586
42,768
7.5 %
7.8 %
10.5 %
12.9 %
9.1 %
6.8 %
7.0 %
21.9 %
11.3 % (iii)
5.1 % (iv)
7.9 %
7.1 %
7.1 %
7.6 %
Horizon Business Park, Edmonton, AB
Q2 2022
50 %
Subtotal industrial development
Total transferred properties at cost
Total transferred properties at fair value
(i)
(ii)
(iii)
(iv)
Phased development project. No material changes from previously disclosed expected stabilized yield range.
The development is a ground lease. Represents associated GLA, which is excluded from total portfolio square footage for lease reporting purposes.
Expected stabilized yield for this development has increased due to decrease in costs.
Expected stabilized yield for this development has decreased due to increase in costs.
In addition to the completed developments above, the Trust reclassified the Sheffield Road asset (Ottawa, Ontario) from
properties under development to income producing properties (at a cost of $28.7 million) in the third quarter. This property
was initially acquired for redevelopment, it was reclassified when the Trust subsequently entered a long-term lease for the
entirety of the site as is.
Choice Properties REIT
2022 Annual Report 42
3.4
Development Activities
Development initiatives are a key component of Choice Properties’ business model, providing the Trust with an opportunity
to add high quality real estate at a reasonable cost and drive net asset value appreciation over time. The Trust has a mix of
active development projects ranging in size, scale and complexity, including retail intensification projects, industrial
development, and rental residential projects located in urban markets with a focus on transit accessibility. Choice Properties
continues to drive long-term growth and value creation through the development of commercial and residential projects and
has a significant long-term pipeline of potential mixed-use projects. The Trust views its development activities through the
stages of the development lifecycle, including the process of potential site identification, planning and rezoning, construction,
and finally to development completion.
Choice Properties’ development program on a proportionate share basis(1) as at December 31, 2022, is summarized below:
($ thousands except where otherwise indicated)
GLA(i)(ii)
(square feet)
Investment(i)(iii)
Project type
Projects under active development
Retail
Industrial
Residential
Subtotal projects under active development
Developments in planning
Retail
Industrial
Mixed-Use and Residential
Section
Number of
Projects
Estimated
upon
completion(2)
Estimated
cost to
completion(2)(iv)
To-date
Estimated
total
3.5
3.5
3.5
3.6
3.6
3.6
13
239,000 $
8,001 $
37,753 $
45,754
3
2
1,402,000
236,000
90,097
80,140
96,472
186,569
75,886
156,026
18
1,877,000
178,238
210,111
388,349
13
213,000
37,114
2
5,550,000
260,916
12
10,430,000
126,213
Subtotal developments in planning
27
16,193,000
424,243
Total development - cost
45
18,070,000 $
602,481
Total development - fair value(v)
$
1,046,000
(i)
(ii)
(iii)
(iv)
(v)
Choice Properties’ share.
Estimated GLA is based on current development plans and final development square footage may differ. For developments in planning, GLA is an estimate and may
differ as the developments complete the rezoning and entitlement process. Includes GLA associated with ground leases, which is excluded from total portfolio square
footage for lease reporting purposes.
Compiled on a non-GAAP proportionate share basis(1). Investment to-date compiled on a cash basis, excluding adjustments to fair value of on-going projects.
The Trust expects to invest approximately 83% during 2023 and the remainder in 2024.
Total development fair value excludes residential development inventory of $18,785 as at December 31, 2022 (December 31, 2021 - $10,142).
3.5 Properties Under Active Development
Projects under active development are sites under construction or sites with appropriate approvals in place which are
expected to commence construction in the next six to twelve months. Currently, the Trust has 18 active developments
comprised of 13 retail, three industrial and two residential projects. Upon completion, the projects under active development
are expected to deliver a total of 1,641,000 square feet of commercial space (including 1,033,000 square feet associated with
ground leases) and 348 residential units at the Trust’s share. The Trust has invested a total of $178.2 million to date and is
expected to invest an additional $210.1 million over the next two years to complete these projects(2).
Choice Properties REIT
2022 Annual Report 43
Projects Under Active Development – Retail
The Trust invests in retail development projects through intensification of its existing retail assets. The Trust currently has
239,000 square feet at share of active retail development (including 133,000 square feet associated with ground leases),
which is expected to be completed in the next one to two years(2).
The following table details the Trust’s retail projects under active development on a proportionate share basis(1) as of
December 31, 2022:
($ thousands except where otherwise
indicated)
GLA(i)
(square feet)
Investment(i)(ii)
Project / Location
Retail
Ownership
%
Expected
completion
date (iii)
Estimated
upon
completion(2)
%
Leased To-date
Estimated
cost to
completion(2)
Estimated
total
Expected
stabilized
yield(2)(iv)
Jocelyn Rd., Port Hope, ON
100%
H1 2023
15,000
100 % $ 2,903 $
2,189 $
5,092
6.75%-7.25%
1
2
Erin Ridge Retail Lands, St. Albert, AB
3 Harvest Hills Market, Edmonton, AB(v)(vi)
4
5
Portland St., Dartmouth, NS
Joseph Howe Dr., Halifax, NS
6 Oxford St. E., London, ON
7 Calgary Trail, Edmonton, AB
50%
50%
100%
100%
100%
100%
H1 2023
H1 2023
H2 2023
H2 2023
H2 2023
H2 2023
8 Countryview Dr., Dartmouth, NS(v)
50%
H1 2024
10,000
100 %
9 Guelph St., Georgetown, ON
100%
H1 2024
25,000
100 %
10 Sunwapta West, Edmonton, AB(v)(vi)
50%
H1 2024
3,000
100 %
11 Princess St., Kingston, ON(vi)
100%
H2 2024
117,000
100 %
12 Carlton Spur, Prince Albert, SK
25%
H2 2024
2,000
100 %
13 200 Street, Maple Ridge, BC(vi)
100%
H1 2026
12,000
100 %
6,000
100 %
1,562
410
1,972
6.00%-6.50%
9,000
100 %
2,893
1,841
4,734
7.00%-7.50% (vii)
5,000
100 %
307
1,888
2,195
7.00%-7.50%
5,000
100 %
136
1,665
1,801
8.75%-9.25%
15,000
100 %
183
5,507
5,690
6.75%-7.25%
15,000
100 %
—
17
—
—
—
—
—
4,217
4,217
6.00%-6.50% (vii)
2,617
2,634
7.75%-8.25%
7,900
7,900
8.00%-8.50% (viii)
500
500 36.00%-36.50%
2,439
2,439 11.00%-11.50%
740
740
8.25%-8.75%
5,840
5,840
8.75%-9.25%
Total retail developments
239,000
$ 8,001 $
37,753 $ 45,754
8.00% - 8.50%
(i)
(ii)
(iii)
(iv)
(v)
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.
H1 represents the first six months of the year. H2 represents the last six months of the year.
Unless otherwise noted, there were no material changes in previously reported expected stabilized yields.
Development project with phased completion. Reported expected stabilized yield may vary as phases are completed or as future phases are added to the
development.
The development includes a ground lease, which is excluded from total portfolio square footage for lease reporting purposes.
Expected stabilized yield for this development has decreased due to increase in costs.
(vi)
(vii)
(viii) Expected stabilized yield for this development has decreased due to lower stabilized NOI.
Choice Properties REIT
2022 Annual Report 44
Projects Under Active Development – Industrial
The Trust invests in industrial development projects through development of greenfield industrial land. The Trust currently has
three active development projects, which are expected to deliver 1,402,000 square feet at share (including 900,000 square
feet associated with ground leases) of new generation logistics space in the near term(2).
The industrial project at Horizon Business Park in Edmonton, Alberta, is nearing completion with occupancy of the last
building of the project anticipated in the second half of 2023. Construction also continues at a second active industrial site,
Choice Industrial Centre, a modern logistics facility located in a prime industrial node in Surrey, British Columbia, comprising
353,000 square feet, with substantial completion anticipated in the second half of 2023. At the third industrial development,
Choice Eastway Industrial Centre, located in East Gwillimbury, Ontario, in which the Trust holds a 75% ownership interest,
site preparation is underway on the entire site. The development plan for the property is to build a multi-phase industrial park
with the potential for approximately 1,800,000 total square feet of new generation logistics space. For the first phase of the
development, Choice Properties has entered into an approximately 100-acre ground lease with Loblaw, which has
commenced construction on a 1,200,000 square foot, automated, multi-temperature industrial facility, allowing Loblaw to add
capacity and advance its supply chain capabilities.
The following table details the Trust’s industrial projects under active development on a proportionate share basis(1) as of
December 31, 2022:
($ thousands except where otherwise
indicated)
GLA(i)
(square feet)
Investment(i)(ii)
Project / Location
Industrial
Ownership
%
Expected
completion
date (iii)
Estimated
upon
completion(2)
%
Leased
Estimated
cost to
completion(2)
Estimated
total
Expected
stabilized
yield(2)(iv)
To-date
1 Horizon Business Park, Edmonton, AB(v)
50%
H2 2023
149,000
100 % $ 10,287 $
10,672 $ 20,959
6.00%-6.50% (viii)
2 Choice Industrial Centre, Surrey, BC(vi)
100%
H2 2023
353,000
— %
33,209
38,701
71,910
7.25%-7.75%
Choice Eastway Industrial Centre -
Phase 1, East Gwillimbury, ON(vii)
3
75%
H2 2023
900,000
100 %
46,601
47,099
93,700
6.75%-7.25% (viii)
Total industrial developments
1,402,000
$ 90,097 $
96,472 $ 186,569 6.75% - 7.25%
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
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.
H2 represents the last six months of the year.
Unless otherwise noted, there were no material changes in previously reported expected stabilized yields.
Development project with phased completion. Reported expected stabilized yield may vary as phases are completed or as future phases are added to the
development.
Site comprises 17 acres of developable land.
The development is a ground lease, which is excluded from total portfolio square footage for lease reporting purposes. The first phase of the development is 1.2 million
total square feet or 0.9 million square feet at share.
(viii) Expected stabilized yield for this development has increased due to higher stabilized NOI.
Choice Properties REIT
2022 Annual Report 45
Projects Under Active Development - Residential
Choice Properties has two residential projects under active development. At Mount Pleasant Village in Brampton, Ontario,
construction is progressing well, with concrete structure completed on both the condominium building and the rental
building. At Element in Ottawa, Ontario, both exterior and interior work is progressing well. Both projects are targeted to be
completed in the second half of 2023.
The following table details the Trust’s residential projects under active development on a proportionate share basis(1) as of
December 31, 2022:
($ thousands except where otherwise
indicated)
GLA(i)
(square
feet)
Investment(i)(ii)
Project / Location
% Type
Ownership
Expected
completion
date(iii)
Estimated
number of
units(i)
Estimated
upon
completion(2)
Estimated
cost to
completion(2)
Estimated
total
Expected
stabilized
yield(2)(iv)
To-date
1
Mount Pleasant Village,
Brampton, ON
Mount Pleasant Village,
Brampton, ON
2 Element, Ottawa, ON
Total residential
50%
Rental
H2 2023
151
101,000 $
30,313 $
33,141 $
63,454
3.75%-4.25% (v)
50%
50%
Inventory
H2 2023
71
49,000
18,785
16,527
35,312
Rental
H2 2023
126
86,000
31,042
26,218
57,260
4.75%-5.25%
348
236,000 $
80,140 $
75,886 $ 156,026
4.25%-4.75%
(i)
(ii)
(iii)
(iv)
(v)
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.
H2 represents the last six months of the year.
Unless otherwise noted, there were no material changes in previously reported expected stabilized yields.
Expected stabilized yield for this development has decreased due to increase in costs related to higher interest and other costs.
Choice Properties REIT
2022 Annual Report 46
3.6 Development in Planning
Beyond the projects under active development, Choice Properties has a substantial pipeline of larger, more complex mixed-
use developments and land held for future commercial development, which collectively are expected to drive meaningful net
asset value growth in the future. The Trust continues to advance the rezoning status for several mixed-use and industrial sites
currently in different stages of the rezoning and planning process.
As of December 31, 2022, the Trust has identified 27 sites with potential for future development. This includes 13
opportunities totaling 213,000 square feet at existing retail sites, 2 industrial sites totaling 5,550,000 square feet, and 12
residential and mixed-use projects totaling 10,430,000 square feet and 12,014 residential units (at the Trust’s share). The
development plan for each property is subject to the Trust’s completion of its full review of each opportunity. The expected
project scope may change over time or the Trust may decide not to proceed with that development upon completion of full
due diligence. To date, the Trust has invested a total of $424.2 million on land acquisition and initial development and
planning costs at these sites.
Retail Development in Planning
Retail intensification is focused on adding at-grade retail density within the existing retail portfolio. These projects provide the
opportunity to add new tenants, further expand the high-quality tenant mix and provide steady growth to the business.
($ thousands except where otherwise indicated)
Retail developments in planning
Number of Sites Investment To-date(i)(ii)
13 $
37,114
(i)
(ii)
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.
The Trust has identified approximately 150 additional retail sites with potential for future development.
Industrial Development in Planning
($ thousands except where otherwise indicated)
Industrial developments in planning - zoning approved
Number of Sites Investment To-date(i)(ii)
2 $
260,916
(i)
(ii)
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.
The Trust has obtained zoning approval on two industrial development sites. The following table details the Trust’s industrial
developments in planning:
Project / Location
Choice Caledon
Business Park, Caledon,
ON
Description
During the third quarter, the joint venture achieved entitlement to convert the lands from agricultural uses to
employment uses through a Ministerial Zoning Order. Site Plan Applications for the first phase are being
prepared to facilitate the development of warehouse, distribution, and industrial uses totaling over 6 million
square feet (at 100% share). This site has 380 net developable acres and the Trust has invested $240.2 million
to date, including land acquisition.
Choice Eastway
Industrial Centre -
Phase 2, East
Gwillimbury, ON
The second phase of the Trust’s project constitutes approximately 54 acres of developable land and is fully
zoned. The Trust continues progress on site preparation. The second phase is anticipated to be approximately
0.6 million total square feet (at 100% share). The Trust has invested $20.7 million to date, including land
acquisition.
Choice Properties REIT
2022 Annual Report 47
Residential and Mixed-Use Development in Planning
Mixed-use development represents a key component of Choice Properties’ long-term development strategy. The Trust
endeavours to create enduring value through high-quality mixed-use assets with a significant rental residential component.
Leveraging the Trust’s sizable portfolio in key urban markets, Choice Properties believes there are considerable value
creation opportunities through rezoning existing grocery anchored assets into mixed-use sites. The development plan for
each project is subject to municipal review and approval which may take several years to realize.
Once zoning and entitlement is obtained, the Trust can further create value by pursuing ground up development,
repositioning existing retail and maximizing available density for residential and mixed-use development. Choice Properties is
working through the zoning and entitlement process for several of its future projects.
The Trust has obtained zoning approval on three residential and mixed-use developments, and has submitted applications
for seven residential and mixed-use projects. During the fourth quarter, the Trust submitted its zoning application for Carlaw
Avenue, Toronto, Ontario. A total of $126.2 million has been invested to date on land acquisition and initial development and
planning costs.
The following table details the Trust’s residential and mixed-use development projects by zoning status:
($ thousands except where otherwise indicated)
Project / Location
Type
Ownership % Acreage(i)
Zoning approved
Estimated GLA(i)(ii)
(‘000 square feet)
Estimated
number
of units(i)
Commercial Residential
Total
Investment
to-date (i)(iii)
1 Grenville & Grosvenor, Toronto, ON
Residential
50 %
0.5
385
2 Sheppard Ave. W., Toronto, ON
Residential
50 %
0.3
100
17
5
320
337 $
32,742
64
69
6,861
3 Golden Mile, Toronto, ON
Mixed-use
100 %
19.0
3,597
323
2,907
3,230
12,280
Subtotal zoning approved
19.8
4,082
345
3,291 3,636
51,883
Zoning applications submitted
1 Broadview Ave.,Toronto, ON
2 Dundas St. W., Toronto, ON
3 Parkway Forest Dr., Toronto, ON
4 Photography Dr., Toronto, ON
5 Warden Ave., Toronto, ON
6 Woodbine Ave., Toronto, ON
7 Carlaw Ave., Toronto, ON
Mixed-use
Mixed-use
Residential
Mixed-use
Residential
Mixed-use
Mixed-use
100 %
100 %
50 %
100 %
100 %
100 %
100 %
3.3
13.0
1.5
7.7
6.5
1.7
5.6
503
23
409
432
3,467
1,923
178
1,477
1,655
43,158
170
2,356
1,500
400
1,080
—
50
10
23
84
131
131
657
2,010 2,060
3,841
1,072 1,082
11,422
334
357
4,513
993
1,077
4,617
Subtotal zoning applications submitted
39.3
7,932
368
6,426 6,794
71,675
Zoning applications to be submitted
1 North Rd., Coquitlam, BC
Mixed-use
100 %
7.8
2 South Service Rd., Mississauga, ON
Mixed-use
100 %
10.4
Subtotal zoning applications to be submitted
Total residential and mixed-use
projects in planning
—
—
—
—
—
—
—
—
1,082
—
—
1,573
—
—
2,655
18.2
77.3
12,014
713
9,717 10,430 $ 126,213
(i)
(ii)
(iii)
Choice Properties’ share.
Estimated GLA is based on current development plans and final development square footage may differ. For projects in planning, GLA is an estimate and may differ as
the projects complete the rezoning and entitlement process.
Investment to-date is comprised of incremental land assembly and development planning costs.
Choice Properties REIT
2022 Annual Report 48
Zoning Applications Approved
Obtaining zoning is a significant milestone in the development lifecycle. Zoning approval allows the Trust to unlock significant
land value through the realization of residential density potential. Once zoning is approved, the next phase of the
development process is obtaining all necessary permits, which allows the project to proceed to active development with
construction commencement. The Trust has completed approvals on one mixed-use and two residential developments in
Toronto, Ontario. As of December 31, 2022, the Trust has invested a total of $51.9 million to date on land acquisition and
initial development and planning costs.
Project / Location
Grenville & Grosvenor,
Toronto, ON
The approximately 1 acre site is located in the area of Yonge Street and College Street in downtown Toronto.
The current development plan contemplates two residential towers providing a total 0.7 million square feet of
total gross floor area, including 35,000 square feet of commercial GLA and approximately 770 rental residential
units (at 100% share). 30% of the residential units will be affordable housing units.
Description
Sheppard Avenue West,
Toronto, ON
The 0.6 acre site is located at the northeast corner of Allen Road and Sheppard Avenue West in Toronto. The
site is approximately 400 meters from the Sheppard West TTC subway station and in close proximity to
Downsview Park and Downsview Airport. The current development plans include a 15 storey residential building
comprising 10,000 square feet of commercial GLA and approximately 200 residential units (at 100% share).
Golden Mile, 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 current plan includes
approximately 3.2 million square feet of total ground floor area, with 0.3 million square feet of commercial GLA
and approximately 3,600 residential units. The development will transform the area through the introduction of
the Golden Mile Community Innovation District by bringing together expertise from all stakeholders including
community organizations, the local councillor, and post-secondary educational institutions. The development
will create a community comprising retail, residential, institutional and office uses along with privately owned
public spaces including a new park. The Official Plan and Zoning By-law Amendment Applications have been
approved by the City of Toronto and the Trust continues to work with the City to fulfill conditions of subdivision
and site plan.
Zoning Applications Submitted
Choice Properties has submitted zoning applications for five mixed-use and two residential developments in Toronto,
Ontario. As of December 31, 2022, the Trust has invested a total of $71.7 million to date on land acquisition and initial
development and planning costs.
Project / Location
Broadview Avenue,
Toronto, ON
Dundas Street West,
Toronto, ON
Description
The approximately 3 acre site is located at the southwest corner of Danforth Avenue and Broadview Avenue in
Toronto's east end and is situated less than 150 metres from the Broadview TTC subway station. The current
development proposal includes one residential tower, a new grocery store and a public park. The submitted
application proposes 0.4 million square feet of total ground floor area, and approximately 500 residential units.
The Trust continues to refine the vision for a mixed-use, transit-oriented development that will transform an
underutilized site while highlighting the natural heritage and green connections of the existing community. The
Official Plan, Zoning By-law Amendment and Draft Plan of Subdivision Applications have been submitted to the
City of Toronto.
The approximately 13 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 submitted application proposes approximately 1.7 million square feet of
total ground floor area, including 0.2 million square feet of commercial GLA, and approximately 1,900 residential
units. The development plan contemplates neighbourhood retail and community uses, including a public park.
The Official Plan, Rezoning, Plan of Subdivision and Site Plan Applications have been submitted to the City of
Toronto.
Choice Properties REIT
2022 Annual Report 49
Project / Location
Parkway Forest Drive,
Toronto, ON
Photography Drive,
Toronto, ON
Description
The approximately 3 acre site is located at the southeast intersection of Parkway Forest Drive and Sheppard
Avenue East in Toronto. The site is located 350 meters from the Don Mills TTC subway station and currently
features a 19-storey rental building and ten rental townhouses. The proposed development will replace five of
the existing townhouses with a 29-storey residential building comprised of 339 units (at 100% share). This
intensification will support future growth in the City of Toronto by providing additional rental housing stock in a
transit-connected neighbourhood. The Official Plan Amendment, Zoning By-law Amendment and Draft Plan of
Subdivision Applications have been submitted to the City of Toronto.
The approximately 7.7 acre site is located at the southwest corner of Eglinton Avenue West and Black Creek
Drive in Toronto. The site is within close proximity to several major transit corridors, including the Kitchener GO
Line, UP Express and the future Eglinton Crosstown LRT. The proposed redevelopment is comprised of seven
mixed-use buildings including residential and retail uses. The application includes a total gross floor area of
approximately 2.1 million square feet and 2,400 residential units. Choice Properties continues to refine the vision
for a mixed-use, inclusive community where people can live and access amenities, services, transit, and a brand
new grocery store, all within walking distance. The Official Plan and Zoning By-law Amendment Applications
have been submitted to the City of Toronto.
Warden Avenue,
Toronto, ON
The approximately 6.5 acre site is located south of the intersection of St. Clair Avenue and Warden Avenue in
Toronto and 500 meters from the Warden TTC subway station. The current development plan includes over
1,500 residential units, over 1 million square feet of gross floor area and a proposal for a public park. Choice
Properties has submitted an Official Plan Amendment and Zoning By-law Amendment to the City of Toronto.
Woodbine Avenue,
Toronto, ON
Carlaw Avenue,
Toronto, ON
The approximately 1.7 acre site is located at the northeast 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 includes at-grade grocery retail, upgraded TTC access and two mixed-
use residential buildings, with a potential density of approximately 400 residential units. The design of this
project will incorporate the urban design significance of the Danforth neighbourhood and sustainable
architecture. The current plan includes a large privately owned public space located off Woodbine Avenue, which
provides a seamless transition from the existing neighbourhood to the new retail offering proposed at grade. A
revised rezoning application that is more aligned with the evolving planning policies in the Danforth corridor is
currently being prepared for submission to the City of Toronto.
In partnership with the Province of Ontario, Choice Properties has developed a concept for the future transit-
oriented community at the northeast corner of Gerrard Street East and Carlaw Avenue. The approximately 5.6
acre commercial centre, currently occupied by several tenants, will become the anchor of the Gerrard TTC
subway station on the future Ontario Line. The concept proposes three towers with approximately 1,000
residential units, retail offerings including a new food store, privately owned public space over the transit
corridor, a new public street and a public park. Construction for the transit project is anticipated to commence in
2024 until 2030+ at which point, Choice Properties will begin construction on the residential towers. This project
will transform the community and provide access to open space, retail and transit, creating the ultimate
complete community. The Trust has submitted a Zoning Application by way of the Transit Oriented Communities
Program.
3.7 Future Pipeline
Choice Properties’ long-term development strategy is to create value through residential and mixed-use development.
Beyond the projects that are currently in planning, the Trust has identified more than 70 sites encompassing over 500 acres
in its existing portfolio that provide potential for incremental residential and mixed-use density through the intensification of
an existing asset. Over 90% of the identified sites are in the greater Toronto, Montreal and Vancouver areas, providing the
opportunity to grow the residential platform in Canada’s largest cities. Choice Properties is actively reviewing and prioritizing
these sites to proceed with the rezoning and entitlement process.
Choice Properties REIT
2022 Annual Report 50
3.8
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.
GAAP Basis
As at December 31, 2022
($ thousands)
GAAP Basis
Proportionate
Share Basis(1)(i)
Weighted
average term to
maturity (years)
Weighted
average interest
rate (%)
Mortgages receivable
Notes receivable from GWL
Mortgages, loans and notes receivable
509,626
170,849
680,475
413,554
170,849
584,403
1.0
—
4.80 %
— %
(i) Adjustment to proportionate share basis(1) eliminates mortgage receivable balances advanced to an equity accounted joint venture at the Trust’s share.
GAAP Basis
As at December 31, 2021
($ thousands)
GAAP Basis
Proportionate
Share Basis(1)
Weighted
average term to
maturity (years)
Weighted
average interest
rate (%)
Mortgages receivable
Notes receivable from GWL
Mortgages, loans and notes receivable
186,567
168,334
354,901
178,595
168,334
346,929
1.7
—
7.11 %
— %
Holders of Exchangeable Units may, in lieu of receiving all or a portion of their distributions, choose to be loaned an amount
from Choice Properties Limited Partnership, and to have such distributions made on the first business day following the end
of the fiscal year in which such distribution would otherwise have been made. The loans do not bear interest and are due and
payable in full on the first business day following the end of the fiscal year during which the loan was made. During the twelve
months ended December 31, 2022, GWL elected to receive seven months of distributions from Choice Properties Limited
Partnership in the form of loans. As such, non-interest bearing short-term notes totalling $170,849 were issued during the
twelve months ended December 31, 2022 to GWL and were repaid in January 2023. Non-interest bearing short-term notes
totalling $168,334 with respect to the loans received in the 2021 fiscal year were settled against distributions payable by the
Trust to GWL in January 2022.
On March 31 2022, the Trust advanced a promissory note, with a face value of $200,000 (fair value of $193,155) as a part of
the disposition of its interests in a portfolio of six office assets to Allied (Sections 3.2 and 3.90). The note bears interest at a
rate of 1% for the 2022 calendar year and 2% subsequently until its maturity on December 31, 2023. The promissory note is
included in the mortgages receivable as it is secured by the six office assets.
In April 2022, the Trust advanced $96,552 to an existing development partnership, in which it owns the majority stake. The
funds were used to execute a strategic acquisition of a property adjacent to Choice Caledon Business Park, located in
Caledon, Ontario.
In May 2022, the Trust exercised an equity conversion right on an existing mezzanine loan. The mezzanine loan was partially
converted into 75% ownership interest in 154 acres of industrial development, Choice Eastway Industrial Centre, located in
East Gwillimbury, Ontario.
In June 2022, the Trust advanced a $3,364 mezzanine loan to a strategic partner. The loan is secured by two properties in
Toronto, Ontario.
In September 2022, the Trust advanced a $9,850 mezzanine loan to a development partner. The loan is secured by a
property in East Gwillimbury, Ontario.
In December 2022, the Trust advanced a $28,000 mezzanine loan as a part of the disposition of an office asset in Halifax,
Nova Scotia. The loan is secured by the disposed office property.
The Trust has issued approximately $506,905 of secured mortgages to third-party borrowers. These loans are with borrowers
who are strategic partners and counterparties of the Trust and are secured by real property assets.
Choice Properties REIT
2022 Annual Report 51
3.9
Investment in Real Estate Securities
On March 31, 2022, the Trust disposed of six office assets to Allied (Section 3.2, “Investment Property Transactions”). As
consideration, the Trust was issued 11,809,145 exchangeable Class B limited partnership units of Allied Properties
Exchangeable Limited Partnership (“Class B Units”), an affiliated entity of Allied, with a value of $550,660 ($46.63 per unit) on
the transaction date, and a promissory note with a fair value of $193,155 (Section 3.9, “Mortgages, Loans and Notes
Receivable”). Following the transaction, the Trust holds approximately an 8.5% effective interest in Allied through its
ownership of the Class B Units. The Trust does not have significant influence over Allied.
Allied is a leading operator of distinctive urban workspace in Canada’s major cities and network-dense urban data centre
space in Toronto. As at December 31, 2022(i), Allied’s income producing portfolio consisted of 199 properties across Canada
totalling 14.3 million square feet in gross leasable area and was valued at $8.2 billion. Allied reported net asset value of $7.1
billion or $50.96 per unit diluted at December 31, 2022(i).
The Class B Units are exchangeable into, and are economically equivalent to, the publicly traded units of Allied (“Allied
Units”), and were accompanied by a corresponding number of special voting units of Allied. There are no restrictions on the
exchange of Class B Units into Allied Units, but the Allied Units (if exchanged) are subject to a lock-up from the closing of the
Transaction, such that 25% of the Class B Units or Allied Units, as applicable, will be released from lock up every three
months following the first anniversary of closing of the Transaction. As a holder of the Class B Units, the Trust is entitled to
distributions paid by Allied. For the three months and year ended December 31, 2022, the Trust recognized distribution
income of $5,165 and $15,495 (December 31, 2021 - $nil and $nil) from its investment in Allied. The distributions are
recorded as investment income.
The Class B Units are recorded at their fair value based on market trading prices of Allied’s publicly traded units. The closing
price for Allied’s publicly traded units on the last trading day of the year ended December 31, 2022 was $25.60. For the three
months and year ended December 31, 2022, the Trust recognized a loss of $20,784 and $248,346, respectively, (December
31, 2021 - $nil and $nil) on its investment in Allied, due to the change in the price of Allied’s publicly traded units. As at
December 31, 2022 the Trust held 11,809,145 Class B Units with a value of $302,314 (December 31, 2021 - nil and $nil).
($ thousands)
Balance, beginning of year
Acquired
Adjustment to fair value of investment in real estate securities
Balance, end of year
Year Ended
Year Ended
December 31, 2022
December 31, 2021
$
$
— $
550,660
(248,346)
302,314 $
—
—
—
—
(i) Values are from Allied’s Annual Report, December 31, 2022. Please refer to Allied’s Annual Report for further details.
Choice Properties REIT
2022 Annual Report 52
4.
4.1
LIQUIDITY AND CAPITAL RESOURCES
Major Cash Flow Components
For the periods ended December 31
($ thousands)
2021 Change $
2022
2022
Three Months
Year Ended
2021 Change $
Cash and cash equivalents, beginning of period -
GAAP basis
$
36,430 $
29,074 $
7,356 $
84,304 $
207,219 $ (122,915)
Cash flows from operating activities
198,105
244,202
(46,097)
633,154
669,428
(36,274)
Cash flows from (used in) investing activities
(179,740)
146,178
(325,918)
(616,730)
(64,122)
(552,608)
Cash flows from (used in) financing activities
9,941
(335,150)
345,091
(35,992)
(728,221)
692,229
Cash and cash equivalents, end of period -
GAAP basis
$
64,736 $
84,304 $ (19,568) $
64,736 $
84,304 $ (19,568)
Cash Flows from Operating Activities
Three Months and Year Ended
The decrease in cash flows from operating activities for both the three months and year ended is mainly due to an
unfavourable change in net working capital of $30.6 million and $30.7 million respectively as well as increase in interest
paid for the three months ended of $14.0 million, particularly on interest on senior unsecured debentures, mortgages and
construction loans, and credit facilities.
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 used in investing activities was
primarily due to an increase in acquisitions and capital
spending of $41.2 million, an increase in net advances of
mortgages, loans, and notes receivable of $58.3 million, an
increase in net contributions to equity accounted joint
ventures of $23.6 million, and a decrease in proceeds
received on the disposition of investment properties of
$202.8 million.
Year Ended
The increase in cash flows used in investing activities was
primarily due to an increase in acquisitions and capital
spending of $156.8 million, an increase in net advances for
mortgages, loans, and notes receivable of $220.0 million, a
net increase in net contributions to equity accounted joint
ventures of $30.8 million, and a decrease in proceeds
received on the disposition of investment properties of
$145.0 million.
Cash Flows from (used in) Financing Activities
Three Months
The increase in cash from financing activities was primarily
due to an increase in net advances of credit facilities of
$255.0 million, an increase in net advances of mortgages
payable of $60.8 million, and a reduction of distributions paid
on Exchangeable Units of $75.7 million due to a change in
the amount of notes receivable advanced
lieu of
Exchangeable Units distributions as compared to the prior
year quarter (see Section 3.9). This was partially offset by
the impact of prior year debenture activity, which includes
the issuance of the Green Bond for approximately $348.3
million, and the redemption of the $300 million Series I
debentures.
in
Year Ended
The decrease in cash used in financing activities was
primarily due to the net issuance of debentures of $197.2
million in the current year compared to the net repayment of
debentures of $151.7 million in the prior year period, an
increase in net advances on the credit facility of $261.2
million, an increase in net advances of construction loans of
$38.6 million, and a decrease in the distributions paid on
Exchangeable units of $98.7 million due to a change in the
lieu of
amount of notes
Exchangeable Unit distributions as compared to the prior
year (see Section 3.9). The decrease was partially offset by
an increase of $53.5 million of mortgages repaid compared
to the prior year period.
receivable advanced
in
Choice Properties REIT
2022 Annual Report 53
4.2
Liquidity and Capital Structure
Choice Properties expects to fund its ongoing operations and finance future growth primarily through the use of: (i) existing
cash; (ii) cash flows from operations; (iii) short term financing through the committed credit facility; (iv) the issuance of
unsecured debentures and equity (including Exchangeable Units), subject to market conditions; and (v) secured mortgages.
Given reasonable access to capital markets, Choice Properties does not foresee any impediments in obtaining financing to
satisfy its short-term and long-term financial obligations, including its capital investment commitments(2).
($ thousands)
December 31, 2022
December 31, 2021
Change $
Cash and cash equivalents - proportionate share basis(1)
Unused portion of the credit facility
Liquidity
Unencumbered assets - proportionate share basis(1)
$
$
$
88,115 $
124,280 $
1,240,000
1,500,000
1,328,115 $
1,624,280 $
12,330,000 $
12,800,000 $
(36,165)
(260,000)
(296,165)
(470,000)
As at
As at
4.3
Components of Total Adjusted Debt
Choice Properties’ debt structure was as follows:
As at December 31, 2022
($ thousands)
GAAP Basis
Proportionate
Share Basis(1)
Construction loans
Mortgages payable
Less: Debt placement costs, discounts and premiums
Credit facility
Less: Debt placement costs
Variable rate debt
Construction loans
Senior unsecured debentures
Mortgages payable
Less: Debt placement costs, discounts and premiums
$
15,847 $
241,546
48,336
(532)
260,000
(2,383)
321,268
23,367
5,325,000
900,583
(18,500)
48,336
(532)
260,000
(2,383)
546,967
23,367
5,325,000
1,173,592
(20,715)
Fixed rate debt
Total adjusted debt, net
6,230,450
6,501,244
$
6,551,718 $
7,048,211
Proportionate Share Basis(1)
Weighted
average term to
maturity (years)
Weighted
average interest
rate (%)
0.6
1.3
4.7
2.6
8.3
5.2
5.8
5.3
5.91%
6.48%
5.95%
5.98%
2.08 %
3.79%
3.71 %
3.77%
Choice Properties REIT
2022 Annual Report 54
Proportionate Share Basis(1)
As at December 31, 2021
($ thousands)
GAAP Basis
Proportionate
Share Basis(1)
Weighted
average term to
maturity (years)
Construction loans
Credit facility
Less: Debt placement costs(i)
Variable rate debt
Senior unsecured debentures
Mortgages payable
$
12,906 $
180,709
—
—
—
—
12,906
180,709
5,125,000
1,112,310
5,125,000
1,391,398
Less: Debt placement costs, discounts and premiums
(20,206)
(22,669)
Fixed rate debt
Total adjusted debt, net
6,217,104
6,493,729
$
6,230,010 $
6,674,438
(i) Unamortized debt placement costs for the credit facility as at December 31, 2021 of $3,555 were included in other assets.
1.0
—
1.0
5.4
5.9
5.5
Weighted
average interest
rate (%)
2.06%
—%
2.06%
3.56%
3.69%
3.59%
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 and fixed rate non-revolving construction facilities in which
certain subsidiaries of the Trust guarantee its own share. These construction loans, which mature throughout 2023 and 2031,
have a maximum amount available to be drawn at the Trust’s ownership interest of $436,741 of which $345,951 relates to
equity accounted joint ventures as at December 31, 2022 (December 31, 2021 - $293,151 and $227,462, respectively).
As at December 31, 2022, $264,913, of which $225,699 relates to equity accounted joint ventures, was drawn and the
construction loans had a weighted average effective interest rate of 5.57% (December 31, 2021 - 2.06%) and a weighted
average term to maturity of 1.3 years (December 31, 2021 - 1.0 years).
Credit Facility
Choice Properties has a $1,500,000 senior unsecured committed revolving credit facility maturing September 1, 2027,
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 the credit ratings for Choice Properties from either DBRS and S&P
remaining at BBB (high). The credit facility is subject to an annual commitment fee of approximately $3,600, however the fee
is reduced in proportion to the amount drawn on the facility. As at December 31, 2022, $260,000 was drawn under the
syndicated facility (December 31, 2021 - $nil).
The credit facility contains certain financial covenants. As at December 31, 2022, the Trust was in compliance with all its
financial covenants for the credit facility.
During the year ended December 31, 2022, the Trust extended the maturity date for the credit facility from June 24, 2026 to
September 1, 2027 with all other terms and conditions remaining substantially the same.
Senior Unsecured Debentures
On June 24, 2022, the Trust completed an issuance, on a private placement basis, of $500 million aggregate principal
amount of Series R senior unsecured debentures bearing interest at a rate of 6.003% per annum and maturing on June 24,
2032. The Trust repaid (i) for the early redemption of Choice Properties Limited Partnership's $300 million principal amount
of 3.60% series 10 senior unsecured debentures on June 26, 2022, (ii) a portion of the balance drawn on the Trust's credit
facility, and (iii) for general business purposes.
Choice Properties REIT
2022 Annual Report 55
Summary of Total Adjusted Debt Activities
The following outlines the net changes to the components of Choice Properties’ variable rate debt on a GAAP basis and non-
GAAP proportionate share basis(1) during the year ended December 31, 2022:
GAAP Basis
Adjustment to
Proportionate
Share Basis(1)
Credit
For the year ended December 31
facility
($ thousands)
Construction
loans(i)
Construction
loans
Mortgages
payable
Proportionate
Share Basis(1)
Total Adjusted
debt, variable
rate
$
— $
4,686 $
— $
167,803 $
172,489
Principal balance outstanding, beginning of
period
Transfer upon renewal of mortgage under
variable rate (ii)
Issuances and advances
260,000
11,208
—
—
—
96,977
—
59,323
96,977
330,531
Repayments
—
(47)
(48,641)
(1,427)
(50,115)
Principal balance outstanding, end of period
$ 260,000 $
15,847 $
48,336 $
225,699 $
549,882
(i) Adjustment to proportionate share basis(1) reflects construction loans within equity accounted joint ventures.
(ii) Adjustment to reflect the transfers from fixed rate mortgages into variable upon renewal of terms.
The following outlines the changes to the components of Choice Properties’ fixed rate debt on a GAAP basis and non-GAAP
proportionate share basis(1) during the year ended December 31, 2022:
GAAP Basis
Adjustment to
Proportionate
Share Basis(1)
Proportionate
Share Basis(1)
Mortgages
For the year ended December 31
payable(i)
($ thousands)
Construction
loans
Mortgages
payable
Senior
unsecured
debentures
Total Adjusted
debt, fixed rate
$ 5,125,000 $ 1,112,310 $
8,220 $
279,088 $
6,524,618
Principal balance outstanding, beginning of
period
Transfer upon renewal of mortgage under
variable rate (ii)
Issuances and advances
500,000
4,738
15,147
Repayments
Assumed by purchaser
(300,000)
(104,683)
—
(14,805)
—
—
—
(96,977)
—
—
70,216
(76,295)
—
(96,977)
590,101
(480,978)
(14,805)
Principal balance outstanding, end of period $ 5,325,000 $
900,583 $
23,367 $
273,009 $
6,521,959
(i) Adjustment to proportionate share basis(1) reflects mortgages payable within equity accounted joint ventures.
(ii) Adjustment to reflect the transfers from fixed rate mortgages into variable upon renewal of terms.
Choice Properties REIT
2022 Annual Report 56
Schedules of Repayments and Cash Flow Activities
The schedule of principal repayment of total long term debt, on a GAAP basis and non-GAAP proportionate share basis(1),
based on maturity, is as follows:
GAAP Basis
Adjustment to Proportionate
Share Basis(1)
Proportionate
Share Basis(1)
Senior
As at December
unsecured
31, 2022
Construction
($ thousands)
loans
debentures
Mortgages
payable
Credit
facility
Mortgages
payable(i)
Construction
loans(i)
Total
2023
2024
2025
2026
2027
Thereafter
Total adjusted
debt
outstanding
$
— $
575,000 $
78,821 $
4,639 $
11,296 $
179,182 $
848,938
—
—
—
260,000
750,000
550,000
350,000
500,000
205,130
153,595
64,655
85,263
11,208
—
—
—
7,737
8,013
47,157
27,624
—
2,600,000
361,455
23,367
171,182
46,517
1,020,592
—
—
—
—
711,608
461,812
872,887
3,156,004
$ 260,000 $
5,325,000 $
948,919 $
39,214 $
273,009 $
225,699 $
7,071,841
(i) Adjustment to proportionate share basis(1) reflects mortgages payable and construction loans within equity accounted joint ventures.
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 September 1, 2027.
Includes cash and cash equivalents.
Choice Properties REIT
2022 Annual Report 57
4.4
Financial Condition
Choice Properties is subject to certain financial and non-financial covenants in its senior unsecured debentures and credit
facility 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, 2022
and December 31, 2021.
The Trust’s compliance with leverage and coverage ratios, as they relate to its debentures, are shown below:
Adjusted Debt to Total Assets(i)
Limit: Maximum excluding convertible debt is 60.0%
Debt Service Coverage Ratio(i)
Limit: Minimum 1.5x
Adjusted Debt to EBITDAFV(1)(i)(ii)
Interest Coverage Ratio(1)(iii)
As at
As at
December 31, 2022
December 31, 2021
40.6%
3.1x
7.5x
3.4x
40.1%
3.3x
7.2x
3.7x
(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 15.8, “Earnings Before Interest, Taxes, Depreciation, Amortization and Fair Value”, for a reconciliation of net income to EBITDAFV used in
this ratio.
Refer to Section 15.7, “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.
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 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 June 21, 2022, S&P confirmed the Choice Properties rating at BBB with a stable outlook, while on June 24, 2022, DBRS
confirmed the Choice Properties rating at BBB (high) with a stable trend. 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, 2022:
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
2022 Annual Report 58
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 period
Units issued under unit-based compensation arrangements
Units repurchased for unit-based compensation arrangements
Units, end of period
Year ended
December 31, 2022
Year ended
December 31, 2021
327,588,847
326,941,663
404,449
(222,147)
837,071
(189,887)
327,771,149
327,588,847
Exchangeable Units, beginning of period
395,786,525
395,786,525
Units issued to related party as part of investment properties acquisition
—
—
Exchangeable Units, end of period
395,786,525
395,786,525
Total Units and Exchangeable Units, end of period
723,557,674
723,375,372
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, 2022, Choice Properties received approval from the TSX to purchase up
to 27,566,522 Units during the twelve-month period from November 21, 2022 to November 22, 2023, 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,
as applicable.
Units Repurchased for Unit-Based Compensation Arrangement
The Trust acquired Units under its NCIB during the year ended December 31, 2022 and the year ended December 31, 2021,
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
The distributions declared for the three months and year ended December 31, 2022 and 2021, including distributions to
holders of Exchangeable Units, were as follows:
Three Months
Year Ended
For the periods ended December 31
($ thousands)
2021
2022
Change
$
2022
2021
Change
$
Total distributions declared
$
133,858 $
133,820 $
38 $
535,407 $
535,104 $
303
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 15, 2023, the Board reviewed and approved an increase of distributions to $0.75 per
unit per annum from the previous rate of $0.74 per unit per annum (an increase of 1.4% or $0.000833 monthly). The increase
will be effective for Unitholders of record on March 31, 2023. 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.
Choice Properties REIT
2022 Annual Report 59
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. On April 25, 2018, the Board suspended the DRIP commencing with the distribution
declared in May 2018. The DRIP will remain suspended until further notice.
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 15.5, “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 $
2022
2021
2022
2021
Change $
Adjusted Cash Flow from Operations(1)
$ 138,644
$ 117,323
$
21,321
$ 589,148
$ 606,292
$
(17,144)
Cash distributions declared
(133,858)
(133,820)
(38)
(535,407)
(535,104)
(303)
Cash retained after cash distributions
$
4,786
$
(16,497)
$
21,283
$
53,741
$
71,188
$
(17,447)
ACFO(1) payout ratio
96.5 %
114.1 %
(17.6) %
90.9 %
88.3 %
2.6 %
Three Months
The three months ACFO increased compared to the prior
year primarily due to a favourable change in non-cash
working capital, coupled with a reduction in property and
leasing capital spend of $8.3 million on a proportionate share
basis.
Year Ended
The year ended ACFO decreased compared to the prior year
primarily due to an increase in property and leasing capital
expenditures on a proportionate share basis of 18.0 million
coupled with an unfavourable change in non-cash working
capital.
4.8
Financial Instruments
Designated hedging derivatives consist of interest rate swaps to hedge the interest rate associated with an equivalent
amount of variable rate mortgages. During the year ended December 31, 2022, two interest rate swaps were settled upon
maturity of the underlying variable rate mortgages. As at December 31, 2022, the interest rates ranged from 2.8% to 4.4%
(December 31, 2021 - 2.8% to 4.4%).
The impact of the hedging instruments on the consolidated balance sheets was as follows:
($ thousands)
Derivative assets
Interest rate swaps
Derivative liabilities
Interest rate swaps
Maturity
Date
Notional
As at
As at
Amount
December 31, 2022
December 31, 2021
May 2023 - Jun 2030
$
157,926 $
12,909 $
3,266
—
—
—
1,925
During the year ended December 31, 2022, Choice Properties recorded an unrealized fair value gain in other comprehensive
income of $11,568 (December 31, 2021 - unrealized fair value gain of $6,343).
Choice Properties REIT
2022 Annual Report 60
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, 2022, the aggregate gross potential liability related
to these letters of credit totalled $32,897 (December 31, 2021 - $32,579).
4.10 Contractual Obligations
The undiscounted future principal and interest payments on Choice Properties’ debt instruments and other contractual
obligations as at December 31, 2022 were as follows:
($ thousands)
2023
2024
2025
2026
2027
Thereafter
Total
Senior unsecured debentures
$
771,006 $
926,067 $
696,011 $
481,695 $
615,979 $ 3,003,846 $ 6,494,604
Mortgage payable(i)
Mortgage payable(ii)
114,839
234,425
175,226
81,731
99,857
413,423
1,119,501
20,552
16,682
16,681
55,200
34,369
193,458
336,942
Total Mortgage Payable
135,391
251,107
191,907
136,931
134,226
606,881
1,456,443
Construction loan(i)
Construction loan(ii)
4,639
11,208
179,182
46,517
Total Construction Loans
183,821
57,725
—
—
—
—
—
—
—
—
—
—
—
—
—
23,367
39,214
—
225,699
23,367
264,913
260,000
—
260,000
237,003
7,896
12,331
189
151
765
258,335
$ 1,327,221 $ 1,242,795 $
900,249 $
618,815 $ 1,010,356 $ 3,634,859 $ 8,734,295
Credit facility(iii)
Other(iv)
Total
Compiled on a GAAP basis.
(i)
(ii) Mortgages payable and construction loans held within equity accounted joint ventures.
(iii)
(iv)
Excludes interest on the revolving credit facility and construction loans at a floating interest rate.
As at December 31, 2022, Choice Properties had commitments of $258,335 for future capital expenditures related to ongoing development and property capital
projects, and other contractual obligations such as operating rents, of which $106,131 relates to equity accounted joint ventures.
Choice Properties REIT
2022 Annual Report 61
5.
RESULTS OF OPERATIONS
Choice Properties’ results, as reported under GAAP, for the three months and year ended December 31, 2022 and December
31, 2021 are summarized below:
Three Months
Year Ended
For the periods ended December 31
($ thousands)
2021 Change $
2022
2022
%
Change
2021 Change $
%
Change
Net Operating Income
Rental revenue
$ 314,382 $ 325,763 $ (11,381)
(3.5) % $ 1,264,594 $ 1,292,321 $ (27,727)
(2.1) %
Property operating costs
(87,180)
(95,691)
8,511
(8.9) %
(363,953)
(380,306)
16,353
(4.3) %
227,202
230,072
(2,870)
(1.2) % 900,641
912,015
(11,374)
(1.2) %
Other Income and Expenses
Interest income
Investment income
Fee income
Net interest expense and other
12,691
7,312
5,165
1,292
—
946
5,379
5,165
73.6 %
27,360
20,079
7,281
36.3 %
— %
15,495
—
15,495
— %
346
36.6 %
3,793
3,801
(8)
(0.2) %
financing charges
(137,247)
(134,320)
(2,927)
2.2 %
(536,857)
(534,525)
(2,332)
0.4 %
General and administrative
expenses
Reversal of expected credit loss
on mortgage receivable
Share of income from equity
accounted joint ventures
(14,476)
(11,799)
(2,677)
22.7 %
(47,821)
(40,917)
(6,904)
16.9 %
—
1,026
(1,026)
(100.0) %
—
1,502
(1,502)
(100.0) %
15,522
18,338
(2,816)
(15.4) % 353,867
66,952
286,915
428.5 %
Amortization of intangible assets
(250)
(250)
—
— %
(1,000)
(1,000)
—
— %
Transaction costs and other
related expenses
Adjustment to fair value of unit-
(82)
—
(82)
— %
(5,108)
—
(5,108)
— %
based compensation
(2,665)
666
(3,331)
(500.2) %
(1,191)
(1,580)
389
(24.6) %
Adjustment to fair value of
Exchangeable Units
Adjustment to fair value of
investment properties
Adjustment to fair value of
investment in real estate
securities
Income (Loss) before Income
(858,857)
(372,039)
(486,818)
130.9 % 170,188
(862,815)
1,033,003
(119.7) %
193,370
96,275
97,095
100.9 % 113,115
458,817
(345,702)
(75.3) %
(20,784)
—
(20,784)
— %
(248,346)
—
(248,346)
— %
Taxes
(579,119)
(163,773)
(415,346)
253.6 % 744,136
22,329
721,807
3232.6 %
Income tax recovery
119
686
(567)
(82.7) %
117
679
(562)
(82.8) %
Net Income (Loss)
$ (579,000) $ (163,087) $ (415,913)
255.0 % $ 744,253 $ 23,008 $ 721,245
3134.8 %
Three Months
The quarterly decrease compared to the prior year was
primarily due to a $486.8 million unfavourable change in the
adjustment to the fair value of the Trust’s Exchangeable
Units due to the increase in the Trust’s unit price, coupled
with a a $20.8 million unfavourable adjustment to fair value
of the Trust’s investment in the real estate securities of
Allied, as a result of the decrease in Allied’s unit price.
These decreases were partially offset by a $97.1 million
favourable change in the fair value of investment properties
attributed to leasing and cash flow growth in the industrial
portfolio.
Year Ended
The year ended increase compared to the prior year was
mainly due to a $1,033.0 million favourable change in the
adjustment to the fair value of the Trust’s Exchangeable
Units due to the decrease in the Trust’s unit price, and a
$286.9 million increase in income from equity accounted
joint ventures from fair value increases in the development
portfolio. These increases were partially offset by a $345.7
million unfavourable change in the fair value of investment
properties, as a result of the expansion of capitalization rates
for retail properties, and a $248.3 million unfavourable
adjustment to fair value of the Trust’s investment in the real
estate securities of Allied.
Adjustments to fair value can vary widely from quarter-to-quarter as they are impacted by market factors such as the Trust’s
Unit price and market capitalization rates.
Choice Properties REIT
2022 Annual Report 62
Rental Revenue and Property Operating Costs
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2021
2022
2022
2021
Change $
Net Operating Income
Rental revenue
Property operating costs
$
314,382 $
325,763 $
(11,381) $ 1,264,594 $ 1,292,321 $
(27,727)
(87,180)
(95,691)
8,511
(363,953)
(380,306)
16,353
$
227,202 $
230,072 $
(2,870) $
900,641 $
912,015 $
(11,374)
Three Months and Year Ended
The quarterly and year ended decreases in net rental income were primarily driven by forgone revenues following the
disposition of six office assets to Allied in Q1 2022. The decreases were partially offset by increases in recoveries due to the
impact of higher capital spend throughout 2022, higher rental rates in the retail and industrial portfolios, and a decline in bad
debt expense recorded compared to the prior year.
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 $
2021
2022
2022
2021
Change $
Interest income on mortgages and loans
receivable
$
5,273 $
3,217 $
2,056 $
19,120 $
11,224 $
7,896
Income earned from financial real estate assets
1,556
1,116
440
5,709
4,295
1,414
Income from financial real estate assets due to
changes in value
Other interest income
Interest Income
5,288
574
2,380
599
2,908
(25)
783
1,748
2,556
2,004
(1,773)
(256)
$
12,691 $
7,312 $
5,379 $
27,360 $
20,079 $
7,281
Three Months and Year Ended
The quarterly and year ended increases in interest income were primarily due to increases on interest from mortgages and
loans receivable from a higher outstanding balance during the period. The quarterly change was further increased by a
favourable change in the fair value recognized on financial real estate assets.
Choice Properties REIT
2022 Annual Report 63
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. Fee income from
third parties is impacted by changes in the portfolio along with the timing of leasing transactions and project activity. Choice
Properties provides Wittington with property management services for certain properties with third-party tenancies and
development consulting services on a fee for service basis (see Section 9, “Related Party Transactions”).
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2021
2022
2022
2021
Change $
Fees charged to related party
$
535 $
63 $
472 $
722 $
315 $
Fees charged to third parties
757
883
(126)
3,071
3,486
Fee Income
$
1,292 $
946 $
346 $
3,793 $
3,801 $
407
(415)
(8)
Three Months
The increase in fee income is primarily attributed to an
increase in development consulting fees and property
management fees from Wittington.
Year Ended
The decrease in fee income is primarily attributed to a
decrease in property management fees related to co-
ownerships, partially offset by the increase in related party
fee income from Wittington.
Net Interest Expense and Other Financing Charges
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2022
2021
2022
2021
Change $
Interest on senior unsecured debentures
$
50,873 $
46,376 $
4,497 $
192,774 $
186,671 $
6,103
Fees incurred on early repayment of debentures
Interest on mortgages and construction loans
Interest on credit facility
Interest on right-of-use lease liability
Amortization of debt discounts and premiums
Amortization of debt placement costs
Capitalized interest
Distributions on Exchangeable Units to GWL
Net interest expense and other financing
charges
—
9,324
3,125
22
117
1,298
(733)
64,026
73,221
1,512
11,065
1,235
35
242
1,301
(667)
61,099
73,221
(1,512)
(1,741)
1,890
(13)
(125)
(3)
(66)
—
1,512
39,128
46,260
8,839
4,275
148
933
5,084
(2,933)
147
687
4,731
(2,642)
2,927
243,973
241,641
—
292,884
292,884
(1,512)
(7,132)
4,564
1
246
353
(291)
2,332
—
$
137,247 $
134,320 $
2,927 $
536,857 $
534,525 $
2,332
Three Months
The quarterly increase was primarily due to a $4.5 million
increase in interest on unsecured debentures following the
issuances of the Series Q and R unsecured debentures in
November 2021 and June 2022, respectively, for proceeds
of $850 million in aggregate. This increase was partially
offset by the early repayments of the Series I and 10
unsecured debentures in December 2021 and June 2022,
respectively, of $600 million. Additionally, the interest on the
credit facility increased due to rising interest rates and
higher balance carried compared
to prior year. The
increases were partially offset by a decline in interest
expense from mortgages and construction loans due to a
decline in the outstanding balance as a result of paying
down mortgages on maturity.
Year Ended
The year ended increase was attributable to a $6.1 million
increase in interest on unsecured debentures, which is due
to the
issuances of the Series Q and R unsecured
debentures in November 2021 and June 2022, respectively,
for proceeds of $850 million in aggregate. This increase was
partially offset by the early repayments of the Series I and 10
unsecured debentures in December 2021 and June 2022,
respectively, of $600 million. Additionally, the interest on the
credit facility increased due to rising interest rates and a
higher balance carried compared
to prior year. The
increases were partially offset by a decline in interest on
mortgages and construction loans of $7.1 million, due to a
decline in the outstanding balance as a result of paying
down mortgages on maturity.
Choice Properties REIT
2022 Annual Report 64
General and Administrative Expenses
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2021
2022
2022
2021
Change $
Salaries, benefits and employee costs
$
15,619 $
13,363 $
2,256 $
57,323 $
51,302 $
6,021
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:
830
1,001
1,968
975
286
375
601
551
942
1,642
748
410
279
59
326
227
(124)
1,853
(1,478)
(72)
673
2,218
(53)
512
2,959
3,498
7,075
3,901
1,201
1,510
2,062
2,616
4,079
6,324
3,094
1,294
2,861
483
79,529
72,053
343
(581)
751
807
(93)
(1,351)
1,579
7,476
(8,917)
(7,076)
(1,841)
(22,791)
(24,060)
1,269
21,655
19,437
Capitalized to properties under development
Allocated to recoverable operating expenses
(1,829)
(5,350)
(1,776)
(5,862)
General and administrative expenses
$
14,476 $
11,799 $
2,677 $
47,821 $
40,917 $
6,904
(i) The Services Agreement is described in Section 9, “Related Party Transactions”.
Three Months and Year Ended
The quarterly and year ended increases were primarily due to higher salary and employee related costs, an increase in
shared services costs, and an increase in other costs. For the year ended, there were also less allocated costs to
recoverable operating expenses due to the disposition of six office properties to Allied. The above items were partially offset
by decreases in office rental cost and an increase in cost capitalized to properties under development.
Choice Properties REIT
2022 Annual Report 65
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 details the changes for in-place occupancy by segment for the three months ended December 31, 2022:
September 30, 2022
Three Months
December 31, 2022
(in thousands of square
feet except where
otherwise indicated)
Retail
Industrial
Mixed-Use,
Residential & Other(ii)
Leasable Occupied
% Expiries
New Renewals
Occupied
Subtotal:
Absorption
Portfolio
changes(i)
Acquired /
(Disposed)
vacancy Leasable Occupied
Occupied
%
44,052 43,024
97.7 %
(507)
131
17,430 17,253
99.0 %
(757)
2,045
1,801
88.1 %
(90)
99
12
415
646
74
39
(12)
(4)
132
—
(200)
(27) 44,157 43,195
— 17,430 17,241
(24)
1,821
1,597
97.8 %
98.9 %
87.7 %
Total
63,527 62,078
97.7 %
(1,354)
242
1,135
23
(68)
(51) 63,408 62,033
97.8 %
(i)
(ii)
Represents changes in occupied square footage arising from acquisitions, dispositions, intensifications, expansions, and transfers from properties under development.
Occupancy disclosed excludes residential units.
The following table details the changes for in-place occupancy by segment for the year ended December 31, 2022:
December 31, 2021
Year Ended
December 31, 2022
(in thousands of square
feet except where
otherwise indicated)
Leasable Occupied
% Expires
New Renewals
Occupied
Subtotal:
Absorption
Portfolio
changes(i)
Acquired /
(Disposed)
vacancy Leasable Occupied
Retail
Industrial
44,152 43,035
97.5 %
(1,971)
335
1,652
17,571 17,234
98.1 %
(2,607) 1,197
1,524
16
114
144
(107)
(139) 44,157 43,195
(34) 17,430 17,241
Mixed-Use,
Residential & Other(ii)
3,535
3,119
88.2 %
(235)
69
173
7
(1,529)
(185)
1,821
1,597
Total
65,258 63,388
97.1 %
(4,813) 1,601
3,349
137
(1,492)
(358) 63,408 62,033
Occupied
%
97.8 %
98.9 %
87.7 %
97.8 %
(i)
(ii)
Represents changes in occupied square footage arising from acquisitions, dispositions, intensifications, expansions, and transfers from properties under development.
Occupancy disclosed excludes residential units.
At December 31, 2022, the Trust had 19 retail sites and 2 industrial sites leased to tenants through ground leases (September
30, 2022 - 18 retail and 2 industrial; December 31, 2021 - 18 retail and 2 industrial). Tenants have constructed buildings on
certain sites within the Trust’s retail portfolio with gross building area of approximately 635,000 square feet at the Trust’s
share (September 30, 2022 - 632,000 square feet; December 31, 2021 - 632,000 square feet). No buildings have yet been
constructed on the industrial properties. In addition, the Trust has 175 gas bars in its retail segment (September 30, 2022 -
173; December 31, 2021 - 172). The ground leases and gas bars are excluded from the occupancy tables above.
Three Months
Period end occupancy increased to 97.8% as at December
31, 2022 from 97.7% as at September 30, 2022. The Trust
had positive absorption of approximately 39,000 square feet
in Retail segment primarily due to new leasing in Quebec
and Ontario portfolios.
Portfolio changes of approximately 68,000 square feet is
primarily related to the disposition of one office asset in
Halifax, partially offset by the acquisition of three retail
assets in Ontario.
Year Ended
Period end occupancy increased to 97.8% as at December
31, 2022 from 97.1% as at December 31, 2021. The positive
absorption is mainly from leasing in the Alberta and Ontario
industrial portfolios.
Portfolio changes of 1,492,000 square feet is primarily in
relation to the sale of six office properties to Allied
Properties REIT in the first quarter.
Choice Properties REIT
2022 Annual Report 66
Choice Properties’ principal tenant, Loblaw, represents 57.0% of its total GLA (December 31, 2021 - 56.0%). At December
31, 2022, the weighted average lease term-to-maturity on the Loblaw leases was 6.3 years (December 31, 2021 - 6.5 years).
(in millions of square feet except where otherwise
indicated)
Portfolio
GLA
Occupied
GLA
Occupancy
(%)
Portfolio
GLA
Occupied
GLA
Occupancy
(%)
As at December 31, 2022
As at December 31, 2021
Loblaw banners
Third-party tenants
Total commercial GLA
36.1
27.3
63.4
36.1
25.9
62.0
100.0 %
95.0 %
97.8 %
36.5
28.7
65.2
36.5
26.9
63.4
100.0%
93.5 %
97.1 %
The lease maturity profile for Choice Properties’ portfolio as at December 31, 2022, was as follows:
(in thousands of square feet
except where otherwise
indicated)
Month-to-month
2023
2024
2025
2026
2027
2028
2029 & Thereafter
Occupied GLA
Vacant GLA
Total
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)
234
2,234
3,099
3,782
3,469
3,253
2,437
7,414
25,922
1,375
27,297
—
336
2,858
3,218
2,719
4,003
4,787
18,190
36,111
—
36,111
234
2,570
5,957
7,000
6,188
7,256
7,224
25,604
62,033
1,375
63,408
0.4 % $
3,960 $
4.1 %
9.4 %
11.0 %
9.8 %
34,093
79,453
90,034
94,341
11.4 %
117,386
11.4 %
116,213
40.3 %
412,641
97.8 %
948,121
2.2 %
—
100.0 % $
948,121 $
16.92
13.27
13.34
12.86
15.25
16.18
16.09
16.12
15.28
—
15.28
Choice Properties REIT
2022 Annual Report 67
Retail Tenant Profile
Choice Properties’ retail portfolio is the foundation for maintaining reliable cash flow. It is primarily leased to grocery stores,
pharmacies, and other necessity-based tenants. Stability is attained through a strategic relationship and long-term leases
with Loblaw.
The Trust’s ten largest retail tenants for the three months ended December 31, 2022, represented approximately 58.6% of
total gross rental revenue and 72.7% of Retail 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.
Retail Tenants
Loblaws
Canadian Tire(i)
TJX Companies
Dollarama
Goodlife
Staples
1.
2.
3.
4.
5.
6.
Lowe's (i)
7.
8. Wal-Mart (i)
Sobeys
Liquor Control Board of Ontario (LCBO)
9.
10.
Total
% of Retail Gross
Rental Revenue
GLA
(000’s square feet)
63.4 %
30,508
1.8 %
1.6 %
1.3 %
0.9 %
0.8 %
0.8 %
0.7 %
0.7 %
0.7 %
845
692
554
362
358
353
478
258
198
72.7 %
34,606
(i) Included in % of Retail Gross Rental Revenues above are base rents in relation to sites the Trust has leased to Canadian Tire, Lowes, and Wal-Mart through ground
leases. The gross building area of the tenant’s buildings on these sites is excluded from GLA in the table.
The following table outlines further details of the Trust’s retail tenant composition at December 31, 2022:
Retail Category(i)(ii)
Grocery & Pharmacy
Essential Services
Specialty & Value
Fitness & Other Personal Services
Furniture & Home
Full-Service Restaurants
Other
Total
% of Retail Gross
Rental Revenue
GLA
(000’s square feet)
67.0 %
14.2 %
5.7 %
4.8 %
3.4 %
3.0 %
1.9 %
32,210
4,180
2,347
1,713
1,333
721
691
100.0 %
43,195
(i) In the previous reporting period this metric was calculated using net operating income attributable to each tenant category.
(ii) Effective Q4 2022, the Trust made the following changes to its retail tenant categories:
•
•
•
•
Wal-Mart, Costco, and Giant Tiger were reclassified from Value Retailers to Grocery & Pharmacy.
Essential Personal Services is now Essential Services. In addition to the personal services included previously tenants in the following businesses have been
reclassified to Essential Services: Pet and pet supply (previously in Specialty Retailers), auto service (previously in Specialty Retailers), limited service restaurants
(previously in Restaurants and Cafes), dollar store (previously in Value Retailers), convenience store (previously in Other), and day care. Significant tenants that
have changed categories as a result of this change include: Canadian Tire, Pet Valu, Restaurant Brands International, and Starbucks.
Specialty Retailers and Value Retailers have been combined into one category: Specialty and Value.
Restaurants and Cafes has been renamed Full-Service Restaurants and as noted above no longer includes limited service restaurants.
Choice Properties REIT
2022 Annual Report 68
The lease maturity profile for Choice Properties’ Retail portfolio as at December 31, 2022, was as follows:
(in thousands of square feet
except where otherwise
indicated)
Month-to-month
2023(i)
2024
2025
2026
2027
2028
2029 & Thereafter
Occupied GLA
Vacant GLA
Total
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)
220
1,009
1,430
1,496
2,202
2,039
1,177
3,113
12,686
962
—
185
2,695
3,029
2,719
4,003
4,138
13,740
30,509
—
220
1,194
4,125
4,525
4,921
6,042
5,315
16,853
43,195
962
0.5 % $
3,863 $
2.7 %
9.3 %
10.2 %
11.1 %
13.7 %
12.0 %
38.3 %
22,995
64,029
70,207
81,388
104,461
93,122
308,933
97.8 %
748,998
2.2 %
—
13,648
30,509
44,157
100.0 % $
748,998 $
17.56
19.26
15.52
15.52
16.54
17.29
17.52
18.33
17.34
—
17.34
(i) The 1,194,000 square feet of GLA maturing in 2023 is located in the following markets : 27.2% Greater Montreal Area, 26.1% Greater Toronto Area, and 46.7% other
markets.
As at December 31, 2022 the average in place base rent for the Trust’s Retail portfolio was $16.51 per square foot.
Choice Properties REIT
2022 Annual Report 69
Industrial Tenant Profile
Choice Properties’ industrial portfolio is centred around large, purpose-built distribution facilities for Loblaw and high-quality
“generic” industrial assets that readily accommodate the diverse needs of a broad range of tenants. The term “generic” refers
to a product that appeals to a wide range of potential users, so that the leasing or re-leasing timeframe is reduced.
The Trust’s ten largest industrial tenants for the three months ended December 31, 2022, represented approximately 8.9%
of gross rental revenue and 57.8% of Industrial 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.
Industrial Tenants
1.
2.
3.
Loblaws
Amazon
Canada Cartage
4. Wonder Brands Inc.
5.
6.
7.
8.
9.
Uline Canada Corporation
Canadian Tire
Kimberly-Clark
Alberta Gaming, Liquor & Cannabis
NFI IPD
10. Ecco Heating Products
Total
% of Industrial Gross
Rental Revenue
GLA
(000’s square feet)
27.7 %
6.4 %
5.2 %
4.8 %
2.7 %
2.4 %
2.4 %
2.3 %
2.1 %
1.8 %
4,738
760
672
1,164
635
486
514
424
231
374
57.8 %
9,998
The following table outlines further details of the Trust’s industrial tenant composition at December 31, 2022:
Building Type / Tenant Use
% of Industrial Gross
Rental Revenue
GLA
(000’s square feet)
Occupied GLA
(000’s square feet)
Distribution
Loblaw Distribution
Warehouse (i)
Total
(i) Warehouse includes certain Small Bay assets.
55.0 %
28.3 %
16.7 %
4,745
9,758
2,927
4,745
9,671
2,825
100.0 %
17,430
17,241
Occupancy
100.0 %
99.1 %
96.5 %
98.9 %
Choice Properties REIT
2022 Annual Report 70
The lease maturity profile for Choice Properties’ Industrial portfolio as at December 31, 2022, was as follows:
(in thousands of square feet
except where otherwise
indicated)
Month-to-month
2023(i)
2024
2025
2026
2027
2028
2029 & Thereafter
Occupied GLA(ii)
Vacant GLA
Total
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)
7
1,197
1,520
2,165
1,160
1,115
1,218
4,123
12,505
189
12,694
—
151
163
189
—
—
621
3,612
4,736
—
4,736
7
1,348
1,683
2,354
1,160
1,115
1,839
7,735
17,241
189
— % $
20 $
7.7 %
9.7 %
13.5 %
6.7 %
6.4 %
10.6 %
44.3 %
10,730
12,510
17,608
10,678
10,570
21,437
81,640
98.9 %
165,193
1.1 %
—
17,430
100.0 % $
165,193 $
2.86
7.96
7.43
7.48
9.21
9.48
11.66
10.55
9.58
—
9.58
(i) The 1,348,000 square feet of GLA maturing in 2023 is located in the following markets : 30.2% Calgary, 19.4% Edmonton, 11.9% Greater Toronto Area, 10.1% Greater
Montreal Area, and 28.4% other markets.
(ii) Average in-place base rent per square foot for the major markets (excluding ground leases): $11.69 Vancouver, $9.29 Greater Montreal Area, $8.37 Edmonton,$8.11
Greater Toronto Area, $7.84 Calgary, and $7.74 Other markets.
As at December 31, 2022 the average in place base rent for the Trust’s Industrial portfolio was $8.43 per square foot.
Choice Properties REIT
2022 Annual Report 71
7.
7.1
RESULTS OF OPERATIONS - SEGMENT INFORMATION
Net Income and Segment NOI Reconciliation
Choice Properties operates in three reportable segments: Retail, Industrial and Mixed-use, Residential & Other. Management
measures and evaluates the performance of the Trust based on net operating income which is presented by segment below
at the proportionate share of the related revenue and expenses for these properties, while other net income items are
reviewed on a consolidated GAAP basis.
In the first quarter of 2022, the Trust disposed of a portfolio of six office assets to Allied (Section 3.2), significantly reducing
the size of its office portfolio. Concurrent with the disposition, the Trust revised its internal reporting structure, combining its
remaining office properties and residential properties into the mixed-use, residential, and other segment.
The following table reconciles net income on a proportionate share basis(1) to net loss as determined in accordance with
GAAP for the three months ended December 31, 2022:
($ thousands)
Retail
Industrial
Mixed-Use,
Residential &
Other
Proportionate
Share Basis(1)
Consolidation
and
eliminations(i)
GAAP Basis
Rental revenue, excluding straight
line rental revenue and lease
surrender revenue
$
260,351 $
51,629 $
21,187 $
333,167 $
(19,634) $
313,533
Property operating costs
(71,621)
(13,226)
(9,501)
(94,348)
7,168
(87,180)
Net Operating Income, Cash
Basis(1)
188,730
38,403
11,686
238,819
(12,466)
226,353
Straight line rental revenue
(1,534)
2,760
Lease surrender revenue
11
—
270
—
1,496
11
(658)
—
838
11
187,207
41,163
11,956
240,326
(13,124)
227,202
Net Operating Income, Accounting
Basis
Other Income and Expenses
Interest income
Investment income
Fee income
Net interest expense and other financing charges
General and administrative expenses
Share of income from equity accounted joint ventures
Amortization of intangible assets
Transaction costs and other related expenses
Adjustment to fair value of unit-based compensation
Adjustment to fair value of Exchangeable Units
Adjustment to fair value of investment properties
Adjustment to fair value of investment in real estate securities
Loss before Income Taxes
Income tax recovery
Net Loss
5,700
5,165
1,292
(141,735)
(14,476)
—
(250)
(82)
(2,665)
(858,857)
207,247
(20,784)
(579,119)
119
6,991
12,691
—
—
5,165
1,292
4,488
(137,247)
—
15,522
—
—
—
—
(14,476)
15,522
(250)
(82)
(2,665)
(858,857)
(13,877)
193,370
—
—
—
(20,784)
(579,119)
119
$
(579,000) $
— $
(579,000)
(i)
Reconciling items adjust Choice Properties’ proportionate share of joint ventures and financial real estate assets to reflect the equity method of accounting
and financial instrument accounting treatment under GAAP.
Choice Properties REIT
2022 Annual Report 72
The following table reconciles net income on a proportionate share basis(1) to net income as determined in accordance with
GAAP for the year ended December 31, 2022:
($ thousands)
Retail
Industrial
Mixed-Use,
Residential &
Other
Proportionate
Share Basis(1)
Consolidation
and
eliminations(i)
GAAP Basis
Rental revenue, excluding straight
line rental revenue and lease
surrender revenue
$
1,033,758 $
201,485 $
97,072 $
1,332,315 $
(72,640) $
1,259,675
Property operating costs
(293,770)
(53,947)
(42,663)
(390,380)
26,427
(363,953)
739,988
147,538
54,409
941,935
(46,213)
895,722
(3,042)
2,304
7,024
146
645
125
4,627
2,575
(2,073)
(210)
2,554
2,365
739,250
154,708
55,179
949,137
(48,496)
900,641
Net Operating Income, Cash
Basis(1)
Straight line rental revenue
Lease surrender revenue
Net Operating Income, Accounting
Basis
Other Income and Expenses
Interest income
Investment income
Fee income
Net interest expense and other financing charges
General and administrative expenses
Share of income from equity accounted joint ventures
Amortization of intangible assets
Transaction costs and other related expenses
Adjustment to fair value of unit-based compensation
Adjustment to fair value of Exchangeable Units
Adjustment to fair value of investment properties
Adjustment to fair value of investment in real estate securities
Income before Income Taxes
Income tax recovery
Net Income
19,828
15,495
3,793
7,532
—
—
27,360
15,495
3,793
(552,692)
15,835
(536,857)
(47,821)
—
(47,821)
—
353,867
353,867
(1,000)
(5,108)
(1,191)
170,188
441,853
(248,346)
744,136
117
—
—
—
—
(328,738)
—
—
—
(1,000)
(5,108)
(1,191)
170,188
113,115
(248,346)
744,136
117
$
744,253 $
— $
744,253
(i)
Reconciling items adjust Choice Properties’ proportionate share of joint ventures and financial real estate assets to reflect the equity method of accounting
and financial instrument accounting treatment under GAAP.
Choice Properties REIT
2022 Annual Report 73
7.2
Net Operating Income Summary(1)
NOI(1) is a supplemental measure of operating performance widely used in the real estate industry. There is no industry-
defined definition of NOI(1). Refer to Section 15.2, “Net Operating Income”, of this MD&A, for a definition of NOI(1) and a
reconciliation to net income (loss) determined in accordance with GAAP.
Management also measures performance of operating segments using NOI(1) as calculated on a proportionate share basis(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, 2022, 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, 2022 and
December 31, 2021 as summarized below.
Summary - Accounting Basis
Three Months
Year Ended
For the periods ended December 31
2022
($ thousands)
Change
$
%
Change
2022
2021
2021
Change
$
%
Change
Rental revenue
$ 315,048 $ 306,930 $ 8,118
2.6 % $ 1,254,107 $ 1,217,511 $ 36,596
3.0 %
Straight line rental revenue
(433)
238
(671) (281.9) %
818
6,202
(5,384)
(86.8) %
Property operating costs excluding bad
debt expense
Same-Asset NOI, Accounting Basis,
excluding bad debt expense
(87,603)
(86,990)
(613)
0.7 %
(359,370)
(350,707)
(8,663)
2.5 %
227,012
220,178
6,834
3.1 %
895,555
873,006
22,549
2.6 %
Bad debt expense
(367)
(1,347)
980
(72.8) %
(861)
(5,673)
4,812
(84.8) %
Same-Asset NOI, Accounting Basis
226,645
218,831
7,814
3.6 %
894,694
867,333
27,361
3.2 %
Transactions NOI including straight line
rental revenue, excluding bad debt
expense
14,156
20,376
(6,220)
52,505
80,045
(27,540)
Bad debt expense
(486)
598
(1,084)
(637)
225
(862)
Transactions NOI, Accounting Basis
13,670
20,974
(7,304)
51,868
80,270
(28,402)
Lease surrender revenue
11
1,840
(1,829)
2,575
4,363
(1,788)
Total NOI, Accounting Basis
$ 240,326 $ 241,645 $ (1,319)
$ 949,137 $ 951,966 $ (2,829)
Choice Properties REIT
2022 Annual Report 74
Summary - Cash Basis
Three Months
Year Ended
For the periods ended December 31
2022
($ thousands)
Change
$
%
Change
2022
2021
2021
Change
$
%
Change
Rental revenue
$ 315,048 $ 306,930 $ 8,118
2.6 % $ 1,254,107 $ 1,217,511 $ 36,596
3.0 %
Property operating costs excluding bad
debt expense
Same-Asset NOI, Cash Basis, excluding
bad debt expense
(87,603)
(86,990)
(613)
0.7 %
(359,370)
(350,707)
(8,663)
2.5 %
227,445
219,940
7,505
3.4 %
894,737
866,804
27,933
3.2 %
Bad debt expense
(367)
(1,347)
980
(72.8) %
(861)
(5,673)
4,812
(84.8) %
Same-Asset NOI, Cash Basis
227,078
218,593
8,485
3.9 %
893,876
861,131
32,745
3.8 %
Transactions NOI excluding bad debt
expense
12,227
19,483
(7,256)
48,696
76,143
(27,447)
Bad debt expense
(486)
598
(1,084)
(637)
225
(862)
Transactions NOI, Cash Basis
11,741
20,081
(8,340)
48,059
76,368
(28,309)
Total NOI, Cash Basis
$ 238,819 $ 238,674 $
145
$ 941,935 $ 937,499 $ 4,436
Three Months and Year Ended
Same-Asset NOI, cash basis, increased 3.9% and 3.8% for the three months and year-ended respectively, primarily due
to increased revenue from improved occupancy at higher rental rates, contractual rent steps, a reduction in bad debt
expense, and higher capital recoveries driven from higher capital spend The current year results were also impacted by
non-recurring items, including successful realty tax appeals, recoveries from bankrupt tenants, and other items.
The decrease in transactions NOI was primarily due to foregone income from the disposition of six office assets in Q1 of
2022, partially offset by the contribution from other transactions and development transfers completed in 2021 and 2022.
Retail Segment
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
$
%
Change
2022
2021
2022
2021
Change
$
%
Change
Rental revenue
$ 252,312 $ 245,999 $ 6,313
2.6 % $ 1,007,543 $ 977,548 $ 29,995
3.1 %
Property operating costs excluding bad
debt expense
Same-Asset NOI, Cash Basis, excluding
bad debt expense
(69,479)
(69,411)
(68)
0.1 %
(287,196)
(280,794)
(6,402)
2.3 %
182,833
176,588
6,245
3.5 % 720,347
696,754
23,593
3.4 %
Bad debt expense
(15)
(1,228)
1,213
(98.8) %
(290)
(4,775)
4,485
(93.9) %
Same-Asset NOI, Cash Basis
182,818
175,360
7,458
4.3 % 720,057
691,979
28,078
4.1 %
Transactions NOI excluding bad debt
expense
6,115
6,159
(44)
20,063
25,052
(4,989)
Bad debt expense
(203)
771
(974)
(132)
578
(710)
Transactions NOI, Cash Basis
5,912
6,930
(1,018)
19,931
25,630
(5,699)
Total NOI, Cash Basis
$ 188,730 $ 182,290 $ 6,440
$ 739,988 $ 717,609 $ 22,379
Three Months and Year Ended
The 4.3% and 4.1% increases in retail segment Same-Asset NOI, cash basis, for the three months and year ended
respectively, were primarily driven by increased revenue from contractual rent steps, higher capital recoveries due to 2022
capital spend, higher rental rates, higher occupancy, and a reduction in bad debt expense. The current year results
were also impacted by higher capital recoveries due to late 2021 capital spend and non-recurring items, including
successful realty tax appeals, recoveries from bankrupt tenants, and other items.
Transaction NOI declined primarily due to the foregone income from dispositions, partially offset by the contributions from
acquisitions and completed developments.
Choice Properties REIT
2022 Annual Report 75
Industrial Segment
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
$
%
Change
2021
2022
2022
2021
Change
$
%
Change
Rental revenue
$ 49,263 $ 47,644 $ 1,619
3.4 % $ 194,184 $ 188,795 $ 5,389
2.9 %
Property operating costs excluding bad
debt expense
Same-Asset NOI, Cash Basis, excluding
bad debt expense
(12,584)
(11,979)
(605)
5.1 %
(50,878)
(48,967)
(1,911)
3.9 %
36,679
35,665
1,014
2.8 % 143,306
139,828
3,478
2.5 %
Bad debt expense
(109)
20
(129)
(645.0) %
(317)
(43)
(274)
637.2 %
Same-Asset NOI, Cash Basis
36,570
35,685
885
2.5 % 142,989
139,785
3,204
2.3 %
Transactions NOI excluding bad debt
expense
1,827
1,940
(113)
4,582
7,384
(2,802)
Bad debt expense
6
(25)
Transactions NOI, Cash Basis
1,833
1,915
31
(82)
(33)
115
(148)
4,549
7,499
(2,950)
Total NOI, Cash Basis
$ 38,403 $ 37,600 $ 803
$ 147,538 $ 147,284 $ 254
Three Months and Year Ended
Same-Asset NOI, cash basis, for the industrial segment increased by 2.5% and 2.3% for the three months and year ended
respectively. The increase was primarily due to increased revenue from contractual rent steps, positive leasing activity in the
Ontario and Western regions, and higher base rent in the Quebec region due to lease commencement of a significant unit’s
turnover. The unit was backfilled at a higher rental rate. The current year results were also impacted by a temporary
decrease in rental revenue of the significant unit due to a fixturing and free rent period upon turnover.
Transaction NOI decreased as compared to the prior year mainly due to the foregone income from dispositions in prior
quarters, partially offset by the contributions from acquisitions.
Mixed-Use, Residential & Other Segment
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change
$
%
Change
2021
2022
2022
2021
Change
$
%
Change
Rental revenue
$ 13,473 $ 13,287 $ 186
1.4 % $ 52,380 $ 51,168 $ 1,212
2.4 %
Property operating costs excluding bad
debt expense
Same-Asset NOI, Cash Basis, excluding
bad debt expense
(5,540)
(5,600)
60
(1.1) %
(21,296)
(20,946)
(350)
1.7 %
7,933
7,687
246
3.2 %
31,084
30,222
862
2.9 %
Bad debt expense
(243)
(139)
(104)
74.8 %
(254)
(855)
601
(70.3) %
Same-Asset NOI, Cash Basis
7,690
7,548
142
1.9 %
30,830
29,367
1,463
5.0 %
Transactions NOI excluding bad debt
expense
4,285
11,384
(7,099)
24,051
43,707
(19,656)
Bad debt expense
(289)
(148)
(141)
(472)
(468)
(4)
Transactions NOI, Cash Basis
3,996
11,236
(7,240)
23,579
43,239
(19,660)
Total NOI, Cash Basis
$ 11,686 $ 18,784 $ (7,098)
$ 54,409 $ 72,606 $ (18,197)
Three Months and Year Ended
Same-Asset NOI, cash basis, for the mixed-use, residential & other segment increased by 1.9% and 5.0% for the three
months and year ended respectively. The increase for the three months was primary due to increased revenue from positive
leasing activity in the Ontario region, partially offset by increased bad debt expense. The current year results were also
positively impacted by contractual rent steps and higher recovery revenue in the Ontario region, and a reduction in bad debt
expense, partially offset by decrease in Western region occupancy resulting in lower base rent and recovery revenue.
Transaction NOI decreased as compared to the prior year mainly due to forgone income from the disposition of six office
assets in Q1 of 2022 and additional sale of the Quebec office in Q4 of 2022, partially offset by contributions from
development transfers completed in the prior year.
Choice Properties REIT
2022 Annual Report 76
7.3
Other Key Performance Indicators
FFO(1) and AFFO(1) are included in the Trust’s summary of key performance indicators. See Section 15, “Non-GAAP Financial
Measures”, of this MD&A, for details on how these measures are defined, calculated and reconciled to GAAP financial
measures and why management uses these measures. FFO(1) and AFFO(1) for the three months and year ended December
31, 2022 and December 31, 2021 are summarized below:
For the periods ended December 31
($ thousands)
2021 Change $
2022
2022
Three Months
Year Ended
2021 Change $
Funds from Operations(1)
FFO(1) per unit basic
FFO(1) per unit diluted
FFO(1) payout ratio - diluted
$ 174,183
$ 174,797
$
(614)
$ 697,728
$ 689,898
$ 7,830
$
$
0.241
0.241
$
$
0.242
$ (0.001)
0.242
$ (0.001)
$
$
0.964
0.964
$
$
0.954
$ 0.010
0.954
$ 0.010
76.8 %
76.6 %
0.2 %
76.7 %
77.6 %
(0.9) %
Adjusted Funds from Operations(1)
$ 126,935
$ 118,924
$ 8,011
$ 581,752
$ 586,506
$ (4,754)
AFFO(1) per unit basic
AFFO(1) per unit diluted
$
$
0.175
0.175
$
$
0.164
$ 0.011
0.164
$ 0.011
$
$
0.804
0.804
$
$
0.811
$ (0.007)
0.811
$ (0.007)
AFFO(1) payout ratio - diluted
105.5 %
112.5 %
(7.0) %
92.0 %
91.2 %
0.8 %
Distribution declared per Unit
$
0.185
$
0.185
$ —
$
0.740
$
0.740
$ —
Weighted average Units outstanding - basic(i)
723,544,974
723,302,244
242,730
723,481,581
723,087,042
394,539
Weighted average Units outstanding - diluted(i)
723,586,201
723,363,313
222,888
723,523,362
723,127,566
395,796
Number of Units outstanding, end of period(i)
723,557,674
723,375,372
182,302
723,557,674
723,375,372
182,302
(i)
Includes Trust Units and Exchangeable Units.
Funds from Operations (“FFO”)(1)
FFO(1) is calculated in accordance with the Real Property Association of Canada’s Funds from Operations & Adjusted Funds
from Operations for IFRS issued in January 2022. From time to time the Trust may enter into transactions that materially
impact the calculation and are excluded from the calculation for management’s review purposes. Refer to Section 15.3,
“Funds from Operations”, for a reconciliation of FFO(1) to net income determined in accordance with GAAP.
Three Months
Funds from Operations for the fourth quarter declined
slightly as compared to the fourth quarter of 2021. Increases
in Same-Asset NOI were largely offset by increases in
interest and general and administrative expenses and the
impact of the Allied Transaction. The impact of the Allied
Transaction includes the loss of NOI, partially offset by the
distribution and
the
consideration received in exchange for properties sold. In
addition, a non-recurring gain recognized in the prior year
quarter due to the reversal of an expected credit loss related
to a specific mortgage receivable contributed to the
decrease in FFO.
income earned
interest
from
Year Ended
The year-to-date increase in Funds from Operations of $7.8
was primarily due to increases in Same-Asset NOI, partially
offset by increases in interest and general and administrative
expenses and the impact of the Allied Transaction.
Adjusted Funds from Operations (“AFFO”)(1)
Choice Properties calculates AFFO(1) in accordance with the Real Property Association of Canada’s Funds from Operations &
Adjusted Funds from Operations for IFRS issued in January 2022. From time to time the Trust may enter into transactions
that materially impact the calculation and are excluded from the calculation for management’s review purposes. Refer to
Section 15.4, “Adjusted Funds from Operations”, for a reconciliation of AFFO(1) to net income determined in accordance with
GAAP.
Three months
The quarterly increase of $8.0 million was primarily due to a
higher proportion of the annual spend occurring prior to the
fourth quarter in 2022 than in 2021.
Year Ended
The year ended decrease of $4.8 million was primarily due
to an increase in capital spending during 2022, partially
offset by an increase in FFO.
Choice Properties REIT
2022 Annual Report 77
Property Capital and Leasing Expenditures
Choice Properties endeavours to fund operating capital requirements from cash flows from operations.
For the periods ended December 31
($ thousands)
Change $
2022
2021
2022
Three Months
Year Ended
2021
Change $
Property capital
Direct leasing costs
Tenant improvements
Total property capital and leasing
expenditures, proportionate share
basis(1)
$
35,918 $
41,259 $
(5,341) $
72,477 $
60,100 $
12,377
2,443
5,491
2,266
8,657
177
(3,166)
9,312
21,045
7,129
17,647
2,183
3,398
$
43,852 $
52,182 $
(8,330) $
102,834 $
84,876 $
17,958
Property capital expenditures incurred to sustain the existing GLA for investment properties are considered to be operational
and are deducted in the calculation of AFFO(1) and ACFO(1). During the year ended December 31, 2022, Choice Properties
incurred $72,477 of property capital expenditures, which may be recoverable from tenants under the terms of their leases
over the useful life of the improvements (2021 - $60,100). Recoverable capital improvements may include items such as
parking lot resurfacing and roof replacements. These items are recorded as part of investment properties and the recoveries
from tenants are recorded as revenue.
Capital expenditures for leasing activities, such as direct leasing costs or leasing commissions and tenant improvement
allowances, are considered to be operational and are deducted in the calculation of AFFO(1) and ACFO(1). Leasing capital
expenditures vary with tenant demand and the balance between new and renewal leasing, as capital expenditures relating to
securing new tenants is generally higher than the cost for renewing existing tenants.
Choice Properties REIT
2022 Annual Report 78
8.
QUARTERLY RESULTS OF OPERATIONS
The following is a summary of selected consolidated financial information for each of the eight most recently completed
quarters.
Selected Quarterly Information
($ thousands except where
otherwise indicated)
Number of income producing
properties
Fourth
Quarter
2022
702
Gross leasable area
(in millions of square feet)
63.9
Third
Quarter
2022
Second
Quarter
2022
701
64.0
701
64.2
First
Quarter
2022
699
64.0
Fourth
Quarter
2021
709
65.8
Third
Quarter
2021
718
66.5
Second
Quarter
2021
717
66.4
First
Quarter
2021
715
66.2
Occupancy
97.8 %
97.7 %
97.6 %
97.0 %
97.1 %
97.0 %
96.9 %
97.0 %
Rental revenue (GAAP)
$
314,382
Net income (loss)
$ (579,000)
Net income (loss) per Unit
Net income (loss) per Unit -
diluted
Net operating income,
cash basis(1)
FFO(1)
FFO(1) per Unit - diluted
AFFO(1)
AFFO(1) per Unit - diluted
Distribution declared per Unit
Market price per Unit - closing
$
$
$
$
$
$
$
$
$
(0.795)
(0.795)
238,819
174,183
0.241
126,935
0.175
0.185
14.76
$
$
$
$
$
$
$
$
$
$
309,082
948,077
1.310
1.310
234,540
173,119
0.239
130,360
0.180
0.185
12.41
$
$
$
$
$
$
$
$
$
$
313,081
(11,810)
(0.016)
(0.016)
231,299
175,290
0.242
163,708
0.226
0.185
14.05
$
$
$
$
$
$
$
$
$
$
328,049
$
325,763
386,986
$
(163,087)
0.535
0.535
237,277
175,136
0.242
160,749
0.222
0.185
15.49
$
$
$
$
$
$
$
$
$
(0.225)
(0.225)
236,674
174,797
0.242
118,924
0.164
0.185
15.19
$
$
$
$
$
$
$
$
$
$
$
316,083
163,672
0.226
0.226
236,004
172,651
0.239
153,566
0.212
0.185
14.25
$
$
$
$
$
$
$
$
$
$
$
323,936
84,621
0.117
0.117
233,188
171,842
0.238
158,700
0.219
0.185
14.29
$
$
$
$
$
$
$
$
$
$
$
326,539
(62,198)
(0.086)
(0.086)
229,633
170,608
0.236
155,316
0.215
0.185
13.56
Units outstanding, period end
723,557,674
723,544,974
723,544,974
723,544,974
723,375,372
723,302,244
723,148,168
722,728,188
Adjusted debt to total assets(i)
40.6 %
41.0%
41.9%
39.5%
Debt service coverage(i)
3.1x
3.1x
3.3x
3.4x
40.1 %
3.3x
41.0 %
3.3x
40.9 %
3.2x
42.3 %
3.2x
(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
2022 Annual Report 79
9.
RELATED PARTY TRANSACTIONS
Choice Properties’ parent corporation is GWL, which as at December 31, 2022, held either directly or indirectly, a 61.7%
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, 2022. Choice Properties’ ultimate parent is Wittington
Investments, Limited, the controlling shareholder of GWL.
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 57.3% of Choice Properties’ quarterly rental revenue on a proportionate share basis(1) and
57.0% of its commercial GLA as at December 31, 2022 (December 31, 2021 - 55.5% and 56.0%, respectively).
Leases
In the third quarter, the Trust and Loblaw renewed 42 of 44 retail leases from the initial public offering portfolio expiring in
2023, comprising 2.9 million of 3.1 million square feet, at a weighted extension term of 7.7 years.
Acquisitions
During the year ended December 31, 2022, Choice Properties acquired from Loblaw two financial real estate assets for an
aggregate purchase price of $17,210, and a development property for a purchase price of $25,663, in each case excluding
transaction costs.
During year ended December 31, 2021, Choice Properties acquired a financial real estate asset from Loblaw for a purchase
price of $14,777, excluding transaction costs.
During the year ended December 31, 2020, Choice Properties acquired six industrial assets from Weston Foods (Canada)
Inc., a wholly-owned subsidiary of GWL, 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. Weston
Foods (Canada) Inc. amalgamated with George Weston Limited in July 2021 and the Exchangeable Units held by Weston
Foods (Canada) Inc. were transferred to GWL. On December 29, 2021, GWL completed the sale of its entire Weston Foods
bakery business and any leases with Weston Foods (Canada) Inc. were transferred to a third-party buyer as part of the sale.
Dispositions
During the year ended December 31, 2022, Choice Properties disposed of one retail property which had a Loblaw lease for a
sale price of $25,750, excluding transaction costs.
During year ended December 31, 2021, Choice Properties disposed of 2 retail properties which had Loblaw leases for an
aggregate sale price of $33,500, excluding transaction costs.
Services Agreement
For the year ended December 31, 2022, GWL provided Choice Properties with corporate, administrative and other support
services for an annualized cost of $3,901 (2021 - $3,094).
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 initial term of the Strategic
Alliance Agreement expires on July 5, 2023. Upon expiry of the initial term, the Strategic Alliance Agreement will be
automatically renewed until the earlier of July 5, 2033 or the date on which GWL and its affiliates own less than 50% of the
Trust on a fully diluted basis. 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.
Choice Properties REIT
2022 Annual Report 80
Management Agreements
Choice Properties provides Wittington with property management services for certain properties with third-party tenancies
and development consulting services on a fee for service basis.
Site Intensification Payments
Choice Properties compensated Loblaw with intensification payments of $2,687 in connection with completed gross leasable
area for which tenants took possession during the year ended December 31, 2022 (year ended December 31, 2021 - $2,208).
Distributions on Exchangeable Units
GWL, directly or indirectly, 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, 2022, distributions declared on the
Exchangeable Units totalled $73,221 and $292,884 (December 31, 2021 - $73,221 and $292,884).
As at December 31, 2022, Choice Properties had distributions on Exchangeable Units payable to GWL of $195,256
(December 31, 2021 - $192,741)
Notes Receivable
Holders of Exchangeable Units may, in lieu of receiving all or a portion of their distributions, choose to be loaned an amount
from Choice Properties Limited Partnership, and to have such distributions made on the first business day following the end
of the fiscal year in which such distribution would otherwise have been made. The loans do not bear interest and are due and
payable in full on the first business day following the end of the fiscal year during which the loan was made. During the twelve
months ended December 31, 2022, GWL elected to receive seven months of distributions from Choice Properties Limited
Partnership in the form of loans. As such, non-interest bearing short-term notes totalling $170,849 were issued during the
twelve months ended December 31, 2022 to GWL and were repaid in January 2023. Non-interest bearing short-term notes
totalling $168,334 with respect to the loans received in the 2021 fiscal year were settled against distributions payable by the
Trust to GWL in January 2022.
Trust Unit Distributions
During the three months and year ended December 31, 2022, Choice Properties declared cash distributions of $9,373 and
$37,490 on the Units held by GWL (December 31, 2021 - $9,373 and $37,490). As at December 31, 2022, $3,124 of Trust
Unit distributions declared were payable to GWL (December 31, 2021 - $3,124). There were no non-cash distributions settled
through the issuance of additional Trust Units during the year ended December 31, 2022 and 2021.
During the three months and year ended December 31, 2022, Choice Properties declared cash distributions of $3,052 and
$12,210 on the Units held by Wittington (December 31, 2021 - $3,052 and $12,210). As at December 31, 2022, $1,018 of
Trust Unit distributions declared were payable to Wittington (December 31, 2021 - $1,018). There were no non-cash
distributions settled through the issuance of additional Trust Units during the year ended December 31, 2022 and 2021.
Choice Properties REIT
2022 Annual Report 81
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 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 significant assumptions related to discount rates and
terminal capitalization rates, and other assumptions related to future cash flows over the holding period. The review of
future cash flows involves assumptions relating to market rents, as well as current leasing and/or development activity,
renewal probability, downtime on lease expiry, vacancy allowances, and expected maintenance costs. 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
2022 Annual Report 82
11.
INTERNAL CONTROL OVER FINANCIAL REPORTING
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, 2022.
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 2022 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, 2022.
Choice Properties REIT
2022 Annual Report 83
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 Trust’s Enterprise Risk Management (“ERM”) program assists all areas of the business in managing risks within
appropriate levels of tolerance by bringing a systematic approach and methodology for evaluating, measuring and monitoring
key risks. The results of the ERM program and other business planning processes are used to identify emerging risks to the
Trust, prioritize risk mitigation activities and develop a risk-based internal audit plan.
Risks are not eliminated through the ERM program, but rather, are identified and managed in line with the Trust’s Risk
Appetite Statement and within approved risk tolerances. The Risk Appetite Statement articulates key aspects of the Trust’s
business and values and provides directional guidance on risk taking.
(i) 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.
(ii) Any of the key risks have the potential to negatively affect the Trust and its financial performance. The Trust 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.
Choice Properties REIT
2022 Annual Report 84
12.1 Operating Risks and Risk Management
The following discussion of risks identifies significant factors that may adversely affect the Trust’s business, operations and
financial condition or future performance. The COVID-19 pandemic continues to be an overarching risk factor that may
impact the operations and financial performance of the Trust, including as a result of uncertain economic conditions, volatile
debt and equity markets, impacts to available workforce, supply chain disruptions and impact on the Trust’s tenants.
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.
Economic Environment
Choice Properties’ financial results may be affected to varying degrees by the general business and economic conditions in
the geographic regions in which it operates. Continued concerns about the uncertainty over whether the economy will be
adversely affected by various factors, including, 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
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 to maintain occupancy
rates in the properties, which could harm Choice Properties’ financial condition. In a prolonged negative economic
environment, 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.
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
time to projects which are not completed; (g) construction or redevelopment costs of a project, including rising construction
costs and development charges and shortages of experienced labour in certain construction related trades, 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.
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.
Choice Properties REIT
2022 Annual Report 85
Capitalization Rate Risk
The fair market property valuation process is dependent on several inputs, including the current market capitalization rate.
Risks associated with the Trust’s property valuation model include fluctuations in the current market capitalization rate which
can significantly impact the value of 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 the Trust’s property valuation
which in turn could impact financial covenants.
Environmental and Social
ESG considerations are an integral component of the Trust’s corporate strategy. As a leading real estate company, Choice
Properties is committed to creating positive environmental and social change by focusing on the issues that matter most to
the Trust’s tenants, employees, communities, investors and other stakeholders, with a particular focus on combating climate
change and advancing social equity. Any failure or perceived failure to advance the ESG priorities of the Trust may
negatively affect the Trust’s reputation, operations or financial performance.
Environmental
Choice Properties faces environmental risks that could, directly or indirectly, negatively impact the Trust’s reputation,
operations or performance over the short or long term. In particular, Choice Properties is confronted with issues related to
climate change. Choice Properties defines climate-related risk as the risk of loss, either directly through financial loss or
indirectly through reputational damage, resulting from the inability or failure to adequately prepare for the impacts from
climate change or the transition to a lower-carbon economy. Choice Properties may be exposed to the impact of events
caused by climate change, such as natural disasters, severe weather events, floods, forest fires and rising sea levels. Such
events could interrupt Choice Properties’ operations and activities, damage its properties and require Choice Properties to
incur additional expenses to recover or repair properties from a natural disaster and inclement weather. 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
transitioning to a low carbon economy and may entail extensive changes to policies, regulations and technologies to address
mitigation and adaption efforts. 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.
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 its 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 its properties to properties owned by third- parties, including
properties adjacent to its 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
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
Choice Properties REIT
2022 Annual Report 86
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.
Social
Choice Properties faces risks associated with social issues and has established certain priorities in response, including
achieving adequate representation of traditionally under-represented groups on the Board and in management positions and
the employee population as a whole and building a culture of inclusion. The Trust recognizes its responsibility to respect and
protect the human rights of all people who support and intersect with the business, and will not tolerate abuse, discrimination
or harassment in any form. In addition, 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.
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.
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
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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.
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 in the Trust’s portfolio
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.
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.
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.
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, including
ineffective contingency planning, 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.
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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.
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.
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
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2022 Annual Report 89
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.
12.2
Financial Risks and Risk Management
Choice Properties is exposed to a number of financial risks, which have the potential to affect its operating and financial
performance. The following is a summary of Choice Properties’ financial risks:
Interest Rate Risk
Choice Properties requires extensive financial resources to complete the implementation of its strategy. Successful
implementation of Choice Properties’ strategy will require cost effective access to additional funding. There is a risk that
interest rates may increase which could impact long-term borrowing costs and negatively impact financial performance.
The majority of Choice Properties’ debt is financed at fixed rates with maturities staggered over the long-term, 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 Trust 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 its 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,
property maintenance costs, development spending, other capital expenditures, 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 Indentures. 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 adjust its portfolio
promptly in response to changing economic or investment conditions or in the event it seeks to sell real estate assets as a
source of liquidity. 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 revenue. 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.
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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 net income when the Unit price rises and positively impact net 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, and derivatives 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.
The risk related to its mortgages, loans and notes receivable arise in the event that the borrowers default on the repayment of
such financing. Choice Properties has established a program with a group of strategic development partners whereby the
Trust provides financing in the form of mezzanine loans, joint venture financing, vendor take-back financing and other
arrangements. In exchange, the Trust generally receives an option or other rights to acquire an interest in real property
assets. The Trust mitigates this risk by ensuring the loans are well secured by real property assets and by obtaining
guarantees where necessary.
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 operating costs, 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 and any of their respective securities may be changed at any time based on
the judgement 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.
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13.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
Environmental, Social and Governance (“ESG”) practices are fully integrated into the Trust’s day-to-day business activities,
and are aligned with the Trust’s purpose of creating enduring value for generations. ESG is embedded in the Trust’s
corporate strategy, which seeks 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. Some of the ways in which
ESG creates enduring value for stakeholders include:
•
•
•
Protecting the planet for future generations while reducing resource consumption and costs;
Attracting, retaining and empowering a diverse, engaged workforce to bring unique perspectives and experiences to
strategic decisions;
Preserving asset value and the reputation of the Trust by managing the risks of changing regulations and
stakeholder expectations;
• Generating stable returns and long-term NAV appreciation by attracting like-minded tenants;
•
Strengthening relationships with stakeholders by working collaboratively to achieve positive social, economic and
environmental outcomes; and
Enhancing long-term investment returns by allocating capital to sustainable opportunities and attracting a broader
spectrum of investors.
•
The Board oversees the Trust’s ESG program, for which the Trust’s President and Chief Executive Officer is the executive
sponsor.
The Trust aspires to develop healthy, resilient communities through its dedication to social, economic and environmental
sustainability. To achieve this aspiration, the Trust has refined its focus to two areas where it can have significant impact on
environmental and social sustainability: Fighting Climate Change and Addressing Social Equity.
Fighting Climate Change
The Trust, in 2022, adopted net-zero greenhouse gas emissions reduction targets that apply to its entire portfolio of income-
producing and development properties. These targets were validated by the Science Based Targets initiative (SBTi) in line
with their Corporate Net-Zero Standard, making Choice Properties one of the first entities in Canada to have net-zero targets
approved by the SBTi. The Trust’s targets are consistent with the primary goal of the Paris Agreement – to limit the rise in
global temperature this century to 1.5 degrees Celsius. In addition to its net zero commitment, other actions taken in 2022 to
support the Trust’s efforts against climate change included:
•
•
•
•
The publication of the Trust’s inaugural Pathway to Net-Zero Report, which details the Trust’s approach to achieving
net-zero emissions across its entire portfolio, including scope 1 and 2 emissions and scope 3 emissions from tenant
energy use and development activities, by 2050.
Certifying an additional 160 properties under LEED or BOMA BEST, bringing the total certified to over 60% of
building area by GLA at 100% share (towards the 2023 target of 65%);
Updating green lease clauses in the Trust’s retail and industrial leases; and
Continued integration of energy-efficient, electric heating into upcoming development and retrofit projects (including
geo-exchange, district energy and heat pump heating technologies) .
Progress against The Trust’s 2023 environmental targets not noted above will be made available in the upcoming
Environmental, Social, and Governance Report to be issued later this year.
Addressing Social Equity
The Trust aims to make a positive difference in the communities it serves, including by focusing on advancing diversity,
equity and inclusion (DEI) through its operations, promoting health and wellness and charitable volunteering and philanthropy.
The Trust has a long-standing commitment to diversity, equity and inclusion, which has continued to grow in 2022. Highlights
for 2022 include:
•
•
•
•
•
Establishment of a dedicated Social Impact team to advance social equity across the organization;
Continued empowerment of the Trust’s employee-led Diversity, Equity, and Inclusion Committee to organize events
focused on education & training, networking, and celebration of culture;
Joining the Canadian Centre for Diversity and Inclusion as a member and the Accelerating Accessibility Coalition as
a founding member;
Donation of over $620,000 and 1,220 hours of colleague time in support of Canadian charities focusing on
empowering children in low-income communities, through the Choice Cares program; and
Continued collection of self-identification data on a voluntary basis from colleagues to understand where gaps exist
and to monitor progress on diversity initiatives.
Reporting and Disclosure
As part of the Trust’s continued efforts to enhance communication with its stakeholder community, it publishes an annual
ESG Report, which is available on the Trust’s website at www.choicereit.ca. The ESG Report is overseen by the Board of
Trustees and the controls related to the Trust's ESG disclosures are reviewed by the Audit Committee. The Trust also
engages a third party to assure the energy, water, waste and GHG emission statements.
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2022 Annual Report 92
Some of the 2022 highlights related to ESG reporting and disclosure included:
•
•
•
Submission of inaugural response to the CDP Climate Change questionnaire, an independent evaluation of public
disclosures related to climate change, and received a rating of “B”;
An increase in the Trust’s GRESB Standing Investment (Operations) score to 82 (on a 100-point scale), representing
a 44% improvement from its initial submission in 2019; and
Receiving “Prime” rating by ISS ESG, the responsible investment arm of Institutional Shareholder Services Inc. (ISS),
a provider of sustainable and responsible investment research.
In addition to the initiatives noted above, the Trust has a robust governance framework in place, elements of which are
discussed in the Management Proxy Circular, available on the Trust’s website at www.choicereit.ca, including the section
titled “Statement of Governance Practices.”
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14.
OUTLOOK(2)
We are focused on capital preservation, delivering stable and growing cash flows and net asset value appreciation, all with a
long-term focus. Our high-quality portfolio is primarily leased to necessity-based tenants and logistics providers, who are less
sensitive to economic volatility and therefore provide stability to our overall portfolio. We continue to experience positive
leasing momentum across our portfolio and are well positioned to handle our 2023 lease renewal exposure. We also continue
to advance our development program, with a focus on industrial opportunities, which provides us with the best opportunity to
add high-quality real estate to our portfolio at a reasonable cost and drive net asset value appreciation over time.
We are confident that our business model, stable tenant base, strong balance sheet and disciplined approach to financial
management will continue to position us well for future success; however, the Trust cannot predict the precise impacts of the
broader economic environment on its 2023 financial results. In 2023, Choice Properties will continue to focus on its core
business of essential retail and industrial, our growing residential platform and our robust development pipeline, and is
targeting:
•
•
•
Stable occupancy across the portfolio, resulting in 2-3% year-over-year growth in Same-Asset NOI, Cash Basis;
Annual FFO per Unit Diluted in a range of $0.98 to $0.99, reflecting 2-3% year over year growth; and
Stable leverage metrics, targeting Adjusted Debt to EBITDAFV of approximately 7.5x.
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15.
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 and ratios
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
NOI, Cash 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.
•
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.
• Management believes NOI, Cash Basis is a useful measure in
understanding period-over-period changes in income from operations
due to occupancy, rental rates, operating costs and realty taxes.
Reconciliation
Section 2, “Balance Sheet”
Section 7.1, “Net Income
and Segment NOI
Reconciliation”
Section 7.1, “Net Income
and Segment NOI
Reconciliation”
Section 7.1, “Net Income
and Segment NOI
Reconciliation”
Section 15.2, “Net
Operating Income”
•
•
•
Same-Asset NOI,
Cash Basis
and
Same-Asset NOI,
Accounting Basis
is used
expansion,
to evaluate
Same-Asset NOI
the period-over-period
performance of those properties owned and operated by Choice
Properties since January 1, 2021, inclusive.
NOI from properties that have been (i) purchased, (ii) disposed, or (iii)
subject to significant change as a result of new development,
redevelopment,
(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.
demolition,
or
Section 7.2, “Net Operating
Income Summary”
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2022 Annual Report 95
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”) Funds From Operations (FFO) & Adjusted
Funds From Operations (AFFO) for IFRS issued in January 2022.
• 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, investment in real estate securities, 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 Funds From Operations
(FFO) & Adjusted Funds From Operations (AFFO) for IFRS issued in
January 2022.
Section 15.3, “Funds from
Operations”
Section 15.9, “Selected
Information for Comparative
Purposes”
•
• 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 GAAP, such as straight-line rent, but also includes capital
and leasing costs incurred during the period which are capitalized
for GAAP purposes. From time to time the Trust may enter into
the calculation and are
transactions
eliminated from the calculation for management’s review purposes.
that materially
impact
•
•
•
Calculated in accordance with REALpac’s Adjusted Cashflow from
Operations (ACFO) for IFRS issued in February 2019.
• Management views ACFO as a useful measure of the cash
generated from operations after providing for operating capital
requirements, and in evaluating the ability of Choice Properties to
fund distributions to Unitholders. ACFO adjusts cash flows from
operations as calculated under GAAP including, but not limited to,
removing the effects of distributions on Exchangeable Units,
deducting amounts for property capital expenditures to sustain
existing GLA and for leasing capital expenditures.
The resulting ACFO will include the impact of the seasonality of
property capital expenditures and the impact of fluctuations from
normal operating working capital, such as changes to net rent
receivable from tenants, trade accounts payable and accrued
liabilities.
From time to time the Trust may enter into transactions that
materially impact the calculation and are eliminated from the
calculation for management’s review purposes.
•
•
Section 15.4, “Adjusted
Funds from Operations”
Section 15.9, “Selected
Information for Comparative
Purposes”
Section 15.5 , “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 divided
by FFO, AFFO and ACFO, as applicable.
Section 7.3, “Other Key
Performance Indicators”
Choice Properties REIT
2022 Annual Report 96
Earnings before
Interest, Taxes,
Depreciation,
Amortization and
Fair Value
(“EBITDAFV”)
Cash Retained
after Distributions
Total Adjusted
Debt
Adjusted Debt to
Total Assets
Debt Service
Coverage
Adjusted Debt to
EBITDAFV,
and
Adjusted Debt to
EBITDAFV, net of
cash
Interest Coverage
Liquidity
•
Defined as net income attributable to Unitholders, reversing, where
applicable, income taxes, interest expense, amortization expense,
depreciation expense, adjustments
fair value and other
adjustments as allowed in the Trust Indentures, as supplemented.
• Management believes EBITDAFV is useful in assessing the Trust’s
ability to service its debt, finance capital expenditures and provide
for distributions to its Unitholders.
to
•
•
•
•
Represents the portion of ACFO retained within Choice Properties
which can be used to invest in new acquisitions, development
properties and capital activity.
Defined as variable rate debt (construction loans, mortgages, and
credit facility) and fixed rate debt (senior unsecured debentures,
construction loans and mortgages), as measured on a proportionate
share basis(1), 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 Adjusted 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, and defeasance or other prepayments of
debt.
Determined by dividing Total Adjusted Debt (as defined above) by
total assets as presented on a proportionate share 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
Adjusted 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 Adjusted Debt divided by EBITDAFV.
This ratio is used to assess the financial leverage of Choice
Properties, to measure its ability to meet financial obligations and to
provide a snapshot of its balance sheet strength.
• Management also presents this ratio with Total Adjusted Debt
calculated as net of cash and cash equivalents at the measurement
date.
•
•
•
Calculated as EBITDAFV divided by interest expense on the Total
Adjusted 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
Liquidity is a non-GAAP measure calculated based on the sum of
total cash and cash equivalents, and undrawn revolving unsecured
operating line of credit.
Section 15.8, “Earnings
before Taxes, Depreciation,
Amortization and Fair Value”
Section 15.6, “Distribution
Excess / Shortfall Analysis”
Section 4.3, “Components
of Total Adjusted Debt”
Section 4.4, “Financial
Conditions”
Section 15.9, “Selected
Information for Comparative
Purposes”
Section 4.4, “Financial
Conditions”
Section 15.9, “Selected
Information for Comparative
Purposes”
Section 4.4, “Financial
Condition”
Section 4.4, “Financial
Condition”
Section 4, “Liquidity and
Capital Resources”
Section 4.2, “Liquidity and
Capital Structure”
Choice Properties REIT
2022 Annual Report 97
15.1
Investment Properties Reconciliation
To expand the portfolio and participate in development opportunities, Choice Properties owns varying interests in real estate
entities which hold investment properties. Under GAAP, many of these interests are recorded as equity accounted joint
ventures and, as such, the Trust’s portion of the investment properties of these entities is presented on the balance sheet as
a summarized value, not as part of the total investment properties. 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 three months ended December 31, 2022:
Income Producing Properties
Properties Under Development
Total Investment Properties
As at or for the three months
ended December 31
($ thousands except where
otherwise indicated)
Adjustment to
Proportionate
Share
Basis(1)(i)
Adjustment to
Proportionate
Share
Basis(1)(i)
Proportionate
Share Basis(1)
GAAP Basis
GAAP Basis
Proportionate
Share Basis(1)
GAAP Basis
Proportionate
Share Basis(1)
$ 13,894,000 $
968,000 $ 14,862,000 $
311,000 $
712,000 $
1,023,000 $ 14,205,000 $ 15,885,000
74,553
—
74,553
—
—
—
74,553
74,553
Balance, beginning of
period
Acquisitions of investment
properties(ii)
Capital expenditures
Development capital
Building improvements
Capitalized interest
Property capital
Direct leasing costs
Tenant improvement
allowances
Amortization of straight-line
rent
Transfers to assets held
for sale
Transfers from properties
under development
Other transfers
Dispositions
Adjustment to fair value of
investment properties
Balance, as at December
31, 2022
—
183
—
35,456
2,258
5,188
838
—
(37)
—
462
185
303
658
—
146
—
35,918
2,443
5,491
1,496
(50,400)
—
(50,400)
—
675
—
—
—
—
—
22,204
12,007
34,211
22,204
34,211
—
2,545
—
3,220
183
675
146
3,220
—
—
—
—
—
—
—
—
—
—
35,456
35,918
2,258
5,188
2,443
5,491
838
1,496
(50,400)
(50,400)
—
—
—
—
(45,325)
(45,325)
10,306
5,361
15,667
(10,306)
(5,361)
(15,667)
111
(45,325)
(111)
—
—
(45,325)
(111)
—
111
—
—
—
191,832
14,179
206,011
1,538
(302)
1,236
193,370
207,247
$ 14,119,000 $
989,000 $ 15,108,000 $
325,000 $
721,000 $
1,046,000 $ 14,444,000 $ 16,154,000
(i)
(ii)
Adjustment to Proportionate Share Basis(1) reflects the Trust’s investment properties inclusive of its proportionate share ownership in equity accounted joint ventures
and financial real estate assets.
Includes acquisition costs.
Choice Properties REIT
2022 Annual Report 98
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 year ended December 31, 2022
Income Producing Properties
Properties Under Development
Total Investment Properties
As at or for the year ended
December 31
($ thousands except where
otherwise indicated)
Adjustment to
Proportionate
Share Basis(1)(i)
Adjustment to
Proportionate
Share Basis(1)(i)
Proportionate
Share Basis(1)
GAAP Basis
GAAP Basis
Proportionate
Share Basis(1)
GAAP Basis
Proportionate
Share Basis(1)
$ 14,707,000 $
893,000 $ 15,600,000 $
223,000 $
220,000 $
443,000 $ 14,930,000 $ 16,043,000
136,479
67,857
204,336
27,218
139,541
166,759
163,697
371,095
—
1,773
—
70,937
8,741
—
3,903
—
1,540
571
5,676
—
72,477
9,312
19,382
1,663
21,045
2,554
2,073
4,627
(50,400)
—
(50,400)
—
71,896
47,478
119,374
71,896
119,374
—
2,575
—
3,636
—
6,211
1,773
2,575
5,676
6,211
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
70,937
72,477
8,741
9,312
19,382
21,045
2,554
4,627
(50,400)
(50,400)
—
—
—
—
50,125
21,311
71,436
(50,125)
(21,311)
(71,436)
(22,834)
(111)
(22,945)
22,834
(876,502)
—
(876,502)
(13,768)
111
—
22,945
(13,768)
(890,270)
(890,270)
Balance, beginning of
period
Acquisitions of investment
properties(ii)
Capital expenditures
Development capital
Building improvements
Capitalized interest
Property capital
Direct leasing costs
Tenant improvement
allowances
Amortization of straight-
line rent
Transfers to assets held
for sale
Transfers from properties
under development
Other transfers
Dispositions
Adjustment to fair value of
investment properties
Balance, as at December
31, 2022
71,745
(2,807)
68,938
41,370
331,545
372,915
113,115
441,853
$ 14,119,000 $
989,000 $ 15,108,000 $
325,000 $
721,000 $
1,046,000 $ 14,444,000 $ 16,154,000
(i)
(ii)
Adjustment to Proportionate Share Basis(1) reflects the Trust’s investment properties inclusive of its proportionate share ownership in equity accounted joint ventures
and financial real estate assets.
Includes acquisition costs.
Choice Properties REIT
2022 Annual Report 99
15.2
Net Operating Income
The following table reconciles net income (loss), as determined in accordance with GAAP, to Net Operating Income, Cash
Basis, for the periods ended as indicated. Refer to Section 7, “Results of Operations - Segment Information” and Section 15,
“Non-GAAP Financial Measures”, for further details about this non-GAAP measure.
For the periods ended December 31
($ thousands)
Change $
2022
2021
2022
Three Months
Year Ended
2021
Change $
Net income (loss)
$
(579,000) $
(163,087) $ (415,913) $
744,253 $
23,008 $ 721,245
Reversal of expected credit loss on mortgage
receivable
—
(1,026)
General and administrative expenses
14,476
11,799
1,026
2,677
—
(1,502)
47,821
40,917
Fee income
(1,292)
(946)
(346)
(3,793)
(3,801)
1,502
6,904
8
Net interest expense and other financing charges
137,247
134,320
2,927
536,857
534,525
2,332
Interest income
Investment income
Share of income from equity accounted joint
ventures
Amortization of intangible assets
Transaction costs and other related expenses
Adjustment to fair value of unit-based
compensation
(12,691)
(7,312)
(5,379)
(27,360)
(20,079)
(7,281)
(5,165)
—
(5,165)
(15,495)
—
(15,495)
(15,522)
(18,338)
2,816
(353,867)
(66,952)
(286,915)
250
82
250
—
—
82
1,000
5,108
1,000
—
—
5,108
2,665
(666)
3,331
1,191
1,580
(389)
Adjustment to fair value of Exchangeable Units
858,857
372,039
486,818
(170,188)
862,815
(1,033,003)
Adjustment to fair value of investment properties
(193,370)
(96,275)
(97,095)
(113,115)
(458,817)
345,702
Adjustment to fair value of investment in real estate
securities
20,784
—
20,784
248,346
—
248,346
Income tax recovery
(119)
(686)
567
(117)
(679)
562
Net Operating Income, Accounting Basis -
GAAP
Straight line rental revenue
Lease surrender revenue
227,202 —
230,072 —
(2,870) —
900,641 —
912,015 —
(11,374)
(838)
(11)
(339)
(499)
(1,840)
1,829
(2,554)
(2,365)
(7,893)
(4,363)
5,339
1,998
Net Operating Income, Cash Basis - GAAP
226,353 —
227,893 —
(1,540) —
895,722 —
899,759 —
(4,037)
Adjustments for equity accounted joint ventures
and financial real estate assets
Net Operating Income, Cash Basis -
Proportionate Share(1)
12,466
10,781
1,685
46,213
37,740
8,473
$
238,819 $
238,674 $
145 $
941,935 $
937,499 $
4,436
Choice Properties REIT
2022 Annual Report 100
15.3
Funds from Operations
The following table reconciles net income, as determined in accordance with GAAP, to Funds from Operations for the periods
ended as indicated. Refer to Section 7, “Results of Operations - Segment Information” and Section 15, “Non-GAAP Financial
Measures”, for further details about this non-GAAP measure.
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2021
2022
2022
2021
Change $
Net income (loss)
$
(579,000)
$
(163,087)
$ (415,913)
$
744,253
$
23,008
$ 721,245
Amortization of intangible assets
Transaction costs and other related expenses
250
82
250
—
—
82
Adjustment to fair value of unit-based compensation
2,665
(666)
3,331
1,000
5,108
1,191
1,000
—
—
5,108
1,580
(389)
Adjustment to fair value of Exchangeable Units
858,857
372,039
486,818
(170,188)
862,815
(1,033,003)
Adjustment to fair value of investment properties
(193,370)
(96,275)
(97,095)
(113,115)
(458,817)
345,702
Adjustment to fair value of investment property held in
equity accounted joint ventures
(13,877)
(12,952)
(925)
(328,738)
(43,478)
(285,260)
Adjustment to fair value of investment in real estate
securities
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
FFO payout ratio - diluted(i)
20,784
2,790
73,221
1,900
(119)
—
20,784
248,346
—
248,346
393
2,397
8,589
3,173
5,416
73,221
—
292,884
292,884
2,560
(686)
(660)
567
8,515
(117)
8,412
(679)
—
103
562
$
$
174,183
0.241
$
$
174,797
$
(614)
0.242
$
(0.001)
$
$
697,728
0.964
$
$
689,898
$ 7,830
0.954
$ 0.010
76.8 %
76.6 %
0.2 %
76.7 %
77.6 %
(0.9) %
Distribution declared per Unit
$
0.185
$
0.185
$
—
$
0.740
$
0.740
$
—
Weighted average Units outstanding - diluted(ii)
723,586,201
723,363,313
222,888
723,523,362
723,127,566
395,796
(i)
(ii)
FFO payout ratio is calculated as cash distributions declared divided by FFO.
Includes Trust Units and Exchangeable Units.
Choice Properties REIT
2022 Annual Report 101
FFO as calculated on a proportionate share basis(1):
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2021
2022
2022
2021
Change $
Net operating income, cash basis
$ 238,819
$ 238,674
$
145
$ 941,935
$ 937,499
$ 4,436
Straight line rental revenue
Lease surrender revenue
1,496
1,131
365
11
1,840
(1,829)
4,627
2,575
10,104
(5,477)
4,363
(1,788)
Net operating income, accounting basis
$ 240,326
$ 241,645
$ (1,319)
$ 949,137
$ 951,966
$ (2,829)
Interest income
Investment income
Fee income
5,700
5,165
1,292
3,533
2,167
19,828
12,039
7,789
—
5,165
15,495
—
15,495
946
346
3,793
3,801
(8)
Net interest expense and other financing charges
(141,735)
(136,728)
(5,007)
(552,692)
(542,962)
(9,730)
Distributions on Exchangeable Units
73,221
73,221
—
292,884
292,884
—
Interest otherwise capitalized for development in equity accounted
joint ventures
2,790
393
2,397
8,589
3,173
5,416
General and administrative expenses
(14,476)
(11,799)
(2,677)
(47,821)
(40,917)
(6,904)
Reversal of expected credit loss on mortgage receivable
—
1,026
(1,026)
—
1,502
(1,502)
Internal expenses for leasing
Funds from Operations
FFO per Unit - diluted(i)
FFO payout ratio - diluted(i)(ii)
Distribution declared per Unit
1,900
2,560
(660)
8,515
8,412
103
$ 174,183
$ 174,797
$
(614)
$ 697,728
$ 689,898
$ 7,830
$
0.241
$
0.242
$ (0.001)
$
0.964
$
0.954
$ 0.010
76.8 %
76.6 %
0.2 %
76.7 %
77.6 %
(0.9) %
$
0.185
$
0.185
$ —
$
0.740
$
0.740
$ —
Weighted average Units outstanding - diluted
723,586,201
723,363,313
222,888
723,523,362
723,127,566
395,796
(i)
(ii)
FFO payout ratio is calculated as cash distributions declared divided by FFO.
Includes Trust Units and Exchangeable Units.
Choice Properties REIT
2022 Annual Report 102
15.4
Adjusted Funds from Operations
The following table reconciles FFO to AFFO for the periods ended as indicated. Refer to Section 7, “Results of Operations -
Segment Information” and Section 15, “Non-GAAP Financial Measures”, for further details about this non-GAAP measure.
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2022
2021
2022
2021
Change $
Funds from Operations
$
174,183
$
174,797
(614)
$
697,728
$
689,898
$ 7,830
Add (deduct) impact of the following:
Internal expenses for leasing
Straight line rental revenue
(1,900)
(2,560)
—
660
(838)
(339)
(499)
(8,515)
(2,554)
(8,412)
(103)
(7,893)
5,339
Adjustment for proportionate share of straight line rental
revenue from equity accounted joint ventures and financial
real estate assets
Property capital
Direct leasing costs
Tenant improvements
Adjustment for proportionate share of operating capital
expenditures from equity accounted joint ventures and
financial real estate assets
Adjusted Funds from Operations
AFFO per unit - diluted
AFFO payout ratio - diluted(i)
(658)
(792)
134
(2,073)
(2,211)
138
(35,456)
(41,073)
5,617
(70,937)
(60,012)
(10,925)
(2,258)
(5,188)
(2,258)
—
(8,741)
(6,426)
(2,315)
(8,265)
3,077
(19,382)
(16,379)
(3,003)
(950)
(586)
(364)
(3,774)
(2,059)
(1,715)
$
$
126,935
0.175
$
$
118,924
$ 8,011
0.164
$ 0.011
$
$
581,752
0.804
$
$
586,506
$
(4,754)
0.811
$
(0.007)
105.5 %
112.5 %
(7.0) %
92.0 %
91.2 %
0.8 %
Distribution declared per Unit
$
0.185
$
0.185
$ —
$
0.740
$
0.740
$
—
Weighted average Units outstanding - diluted(ii)
723,586,201
723,363,313
222,888
723,523,362
723,127,566
395,796
(i)
(ii)
AFFO payout ratio is calculated as cash distributions declared divided by AFFO.
Includes Trust Units and Exchangeable Units.
Choice Properties REIT
2022 Annual Report 103
15.5
Adjusted Cash Flow from Operations
The following table reconciles cash flows from operating activities, as determined in accordance with GAAP, to ACFO, for the
periods ended as indicated. Refer to Section 4.7, “Adjusted Cash Flow from Operations” and Section 15, “Non-GAAP
Financial Measures”, for further details about this non-GAAP measure.
Three Months
Year Ended
For the periods ended December 31
($ thousands)
2022
2021
Change
$
2022
2021
Change
$
Cash flows from operating activities
$ 198,105
$ 244,202
$ (46,097)
$ 633,154
$ 669,428
$ (36,274)
Net interest expense and other financing charges in excess of interest
paid(i)
Distributions on Exchangeable Units included in net interest expense and
(81,087)
(92,123)
11,036
(293,048)
(289,587)
(3,461)
other financing charges
73,221
73,221
—
292,884
292,884
—
Interest and other income in excess of interest received(i)
7,657
3,452
4,205
9,551
5,868
3,683
Interest otherwise capitalized for development in equity accounted joint
ventures
2,790
393
2,397
8,589
3,173
5,416
Reversal of expected credit loss on mortgage receivable
Portion of internal expenses for leasing relating to development activity
—
950
1,026
(1,026)
—
1,502
(1,502)
1,280
(330)
4,258
4,206
52
Property capital expenditures on a proportionate share basis
(35,918)
(41,259)
5,341
(72,477)
(60,100)
(12,377)
Leasing capital expenditures on a proportionate share basis
(7,934)
(10,923)
2,989
(30,357)
(24,776)
(5,581)
Transaction costs and other related expenses
82
—
82
5,108
—
5,108
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)
1,645
5,386
(3,741)
25,129
23,474
1,655
(20,867)
(67,332)
46,465
6,357
(19,780)
26,137
Adjusted Cash Flow from Operations
$ 138,644
$ 117,323
$ 21,321
$ 589,148
$ 606,292
$ (17,144)
Cash distributions declared
133,858
133,820
38
535,407
535,104
303
Cash retained after distributions
$
4,786
$ (16,497)
$ 21,283
$ 53,741
$ 71,188
$ (17,447)
ACFO payout ratio(iv)
96.5 %
114.1 %
(17.6) %
90.9 %
88.3 %
2.6 %
(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, 2022
and December 31, 2021 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, 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 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)
2021 Change $
2022
2022
2021 Change $
Net change in non-cash working capital(i)
$
30,947 $ 61,608 $ (30,661) $
(3,905) $ 26,865 $ (30,770)
Adjustment for changes in non-cash working capital items
not indicative of sustainable operating cash flows
(20,867)
(67,332)
46,465
6,357
(19,780)
26,137
Net non-cash working capital increase included in ACFO $
10,080 $
(5,724) $ 15,804 $
2,452 $
7,085 $
(4,633)
(i)
As calculated and disclosed in the Trust’s consolidated financial statements.
Choice Properties REIT
2022 Annual Report 104
15.6
Distribution Excess / Shortfall Analysis
The tables below summarize the excess or shortfall of certain GAAP and non-GAAP measures over cash distributions
declared:
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2022
2021
2022
2021
Change $
Cash flows from operating activities
$
198,105 $
244,202 $
(46,097) $
633,154 $
669,428 $
(36,274)
Less: Cash distributions declared
(133,858)
(133,820)
(38)
(535,407)
(535,104)
(303)
Excess (shortfall) of cash flows provided by
operating activities over cash
distributions declared
$
64,247 $
110,382 $
(46,135) $
97,747 $
134,324 $
(36,577)
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2022
2021
2022
2021
Change $
Net income (loss)
$
(579,000) $
(163,087) $
(415,913) $
744,253 $
23,008 $
721,245
Add: Distributions on Exchangeable Units
included in net interest expense and other
financing charges
Net income (loss) attributable to Unitholders
excluding distributions on Exchangeable
Units
73,221
73,221
—
292,884
292,884
—
(505,779)
(89,866)
(415,913)
1,037,137
315,892
721,245
Less: Cash distributions declared
(133,858)
(133,820)
(38)
(535,407)
(535,104)
(303)
Excess (shortfall) of net income (loss)
attributable to Unitholders, less
distributions on Exchangeable Units,
over cash distributions declared
$
(639,637) $
(223,686) $
(415,951) $
501,730 $
(219,212) $
720,942
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2022
2021
2022
2021
Change $
Adjusted Cash Flow from Operations(1)
$
138,644
117,323 $
21,321 $
589,148 $
606,292 $
(17,144)
Less: Cash distributions declared
(133,858)
(133,820)
(38)
(535,407)
(535,104)
(303)
Excess (shortfall) of ACFO after
distributions
$
4,786 $
(16,497) $
21,283 $
53,741 $
71,188 $
(17,447)
Management anticipates that distributions declared will, in the foreseeable future, continue to vary from net income (loss) as
this GAAP measure includes adjustments to fair value and other non-cash items(2).
Choice Properties REIT
2022 Annual Report 105
15.7
Net Interest Expense and Other Financing Charges Reconciliation
The following tables reconcile net interest expense and other financing charges on a proportionate share basis(1) to net
interest expense and other financing charges as determined in accordance with GAAP for the three months and year ended
December 31, 2022 and 2021:
For the three months ended December 31
($ thousands)
Proportionate
Share Basis(1)
Proportionate
Share Basis(1)
GAAP Basis
Consolidation
and
eliminations(i)
2022
2021
Consolidation
and
eliminations(i)
GAAP Basis
Interest on senior unsecured debentures
$
50,873 $
— $
50,873 $
46,376 $
— $
46,376
Fees incurred on early repayment of debentures
Interest on mortgages and construction loans
Interest on credit facility
Subtotal (for use in Debt Service Coverage(1)
calculation)
Distributions on Exchangeable Units(ii)
—
16,280
3,125
70,278
73,221
—
(6,956)
—
(6,956)
—
—
9,324
3,125
63,322
73,221
1,512
14,193
1,235
63,316
73,221
—
(3,128)
—
(3,128)
—
1,512
11,065
1,235
60,188
73,221
Subtotal (for use in EBITDAFV(1) calculation)
143,499
(6,956)
136,543
136,537
(3,128)
133,409
Interest on right of use lease liability
Amortization of debt discounts and premiums
Amortization of debt placement costs
Capitalized interest
Net interest expense and other financing
22
188
1,304
(3,278)
—
(71)
(6)
2,545
22
117
1,298
(733)
35
330
1,302
(1,476)
—
(88)
(1)
809
35
242
1,301
(667)
charges
$
141,735 $
(4,488) $
137,247 $
136,728 $
(2,408) $
134,320
(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.
For the year ended December 31
($ thousands)
Proportionate
Share Basis(1)
GAAP Basis
Proportionate
Share Basis(1)
Consolidation
and
eliminations(i)
2022
2021
Consolidation
and
eliminations(i)
GAAP Basis
Interest on senior unsecured debentures
$
192,774 $
— $
192,774 $
186,671 $
— $
186,671
Fees incurred on early repayment of debentures
Interest on mortgages and construction loans
Interest on credit facility
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 lease liability
Amortization of debt discounts and premiums
Amortization of debt placement costs
—
58,136
8,839
259,749
292,884
552,633
148
1,217
5,263
—
(19,008)
—
—
39,128
8,839
1,512
56,900
4,275
—
(10,640)
—
1,512
46,260
4,275
(19,008)
240,741
249,358
(10,640)
238,718
—
292,884
292,884
—
292,884
(19,008)
533,625
542,242
(10,640)
531,602
—
(284)
(179)
148
933
5,084
(2,933)
147
936
4,806
(5,169)
—
(249)
(75)
2,527
147
687
4,731
(2,642)
Capitalized interest
(6,569)
3,636
Net interest expense and other financing
charges
$
552,692 $
(15,835) $
536,857 $
542,962 $
(8,437) $
534,525
Choice Properties REIT
2022 Annual Report 106
15.8
Earnings Before Interest, Taxes, Depreciation, Amortization and Fair Value
The following table reconciles net income, as determined in accordance with GAAP, to EBITDAFV for the periods ended as
indicated. Refer to Section 15, “Non-GAAP Financial Measures”, for further details about this non-GAAP measure.
Three Months
Year Ended
Change
For the periods ended December 31
$
($ thousands)
2022
2021
2022
2021
Change
$
Net income (loss)
$
(579,000) $
(163,087) $ (415,913) $
744,253 $
23,008 $ 721,245
Transaction costs and other related expenses
Adjustment to fair value of unit-based compensation
82
2,665
—
82
(666)
3,331
5,108
1,191
—
5,108
1,580
(389)
Adjustment to fair value of Exchangeable Units
858,857
372,039
486,818
(170,188)
862,815
(1,033,003)
Adjustment to fair value of investment properties
(193,370)
(96,275)
(97,095)
(113,115)
(458,817)
345,702
Adjustment to fair value of investment property held in equity
accounted joint ventures and financial real estate assets
Adjustment to fair value of investment in real estate securities
Interest expense(i)
Amortization of other assets
Amortization of intangible assets
Income tax recovery
(13,877)
(12,952)
(925)
(328,738)
(43,478)
(285,260)
20,784
—
20,784
248,346
—
248,346
143,499
136,537
6,962
552,633
542,242
10,391
286
250
(119)
410
250
(686)
(124)
—
567
1,201
1,000
(117)
1,294
1,000
(93)
—
(679)
562
Earnings Before Interest, Taxes, Depreciation, Amortization
and Fair Value (EBITDAFV)
$
240,057 $
235,570 $
4,487 $
941,574 $
928,965 $ 12,609
(i)
As calculated in Section 15.7, “Net Interest Expense and Other Financing Charges Reconciliation”.
Choice Properties REIT
2022 Annual Report 107
15.9
Selected Information For Comparative Purposes
The following table reconciles net income, as determined in accordance with GAAP, to Funds from Operations for the periods
ended as indicated. Refer to Section 7, “Results of Operations - Segment Information” and Section 15, “Non-GAAP Financial
Measures”, for further details about this non-GAAP measure.
Net income (loss)
Amortization of
intangible assets
Foreign exchange gain
reclassified from other
comprehensive
income
Transaction costs and
other related expenses
Adjustment to fair value
of unit-based
compensation and
other fair value gains
(losses), net
Adjustment to fair value
of Exchangeable Units
Adjustment to fair value
of investment
properties
Adjustment to fair value
of investment property
held in equity
accounted joint
ventures
Adjustment to fair value
of investment in real
estate securities
Interest otherwise
capitalized for
development in equity
accounted joint
ventures
Exchangeable Units
distributions
Internal expenses for
leasing
Income tax recovery
(expense)
Fourth
Quarter
2022
Third
Quarter
2022
Second
Quarter
2022
First
Quarter
2022
Fourth
Quarter
2021
Third
Quarter
2021
Second
Quarter
2021
First
Quarter
2021
Year Ended
2020
$ (579,000)
$ 948,077
$
(11,810)
$ 386,986
$ (163,087)
$ 163,672
$ 84,621
$
(62,198)
$ 450,685
250
250
250
250
250
250
250
250
1,000
—
82
—
13
—
—
(223)
5,236
—
—
—
—
—
—
—
—
(1,184)
1,589
2,665
(476)
(2,064)
1,066
(666)
(159)
2,882
(477)
(2,210)
858,857
(577,848)
(569,933)
118,736
372,039
(15,831)
288,924
217,683
(354,286)
(193,370)
(141,277)
523,775
(302,243)
(96,275)
(34,944)
(268,855)
(58,743)
220,018
(13,877)
(202,968)
(1,456)
(110,437)
(12,952)
(16,428)
(11,946)
(2,152)
36,819
20,784
68,847
158,715
—
—
—
—
—
—
2,790
3,071
2,488
240
393
815
944
1,021
5,112
73,221
73,221
73,221
73,221
73,221
73,221
73,221
73,221
288,932
1,900
2,213
2,323
2,079
2,560
2,055
1,801
1,996
7,329
(119)
(4)
4
2
(686)
—
—
7
(1,797)
Funds from Operations
$ 174,183
$ 173,119
$ 175,290
$ 175,136
$ 174,797
$ 172,651
$ 171,842
$ 170,608
$ 652,007
FFO per Unit - diluted
$
0.241
$
0.239
$
0.242
$
0.242
$
0.242
$
0.239
$
0.238
$
0.236
$
0.921
FFO payout ratio -
diluted(i)
Distribution declared per
76.8 %
77.3 %
76.4 %
76.4 %
76.6 %
77.5 %
77.8 %
78.4 %
80.5 %
Unit
$
0.185
$
0.185
$
0.185
$
0.185
$
0.185
$
0.185
$
0.185
$
0.185
$
0.740
Weighted average Units
outstanding - diluted(ii)
723,586,201
723,577,162
723,593,236
723,466,930
723,363,313
723,346,150
723,265,565
722,930,485
707,764,714
(i)
(ii)
FFO payout ratio is calculated as cash distributions declared divided by FFO.
Includes Trust Units and Exchangeable Units.
Choice Properties REIT
2022 Annual Report 108
The following table reconciles FFO to AFFO for the periods ended as indicated. Refer to Section 7, “Results of Operations -
Segment Information” and Section 15, “Non-GAAP Financial Measures”, for further details about this non-GAAP measure.
Funds from
Operations
Internal expenses for
leasing
Straight line rental
revenue
Adjustment for
proportionate share
of straight line rental
revenue from equity
accounted joint
ventures and
financial real estate
assets
Fourth
Quarter
2022
Third
Quarter
2022
Second
Quarter
2022
First
Quarter
2022
Fourth
Quarter
2021
Third
Quarter
2021
Second
Quarter
2021
First
Quarter
2021
Year
Ended
2020
$ 174,183
$173,119
$175,290
$175,136
$174,797
$172,651
$171,842
$170,608
$ 652,007
(1,900)
(2,213)
(2,323)
(2,079)
(2,560)
(2,055)
(1,801)
(1,996)
(7,329)
(838)
(995)
(210)
(511)
(339)
(419)
(2,658)
(4,477)
(13,946)
(658)
(475)
(541)
(399)
(792)
(767) —
(306) —
(346) —
(2,167)
Property capital
(35,456)
(30,119)
(2,998)
(2,364)
(41,073)
(13,975)
(2,280)
(2,684)
(33,112)
Direct leasing costs
Tenant improvements
(2,258)
(5,188)
(3,326)
(1,358)
(1,799)
(2,258)
(1,272)
(1,852)
(1,044)
(6,519)
(4,757)
(3,320)
(6,117)
(8,265)
(208)
(3,644)
(4,262)
(19,269)
Adjustment for
proportionate share
of operating capital
expenditures from
equity accounted
joint ventures and
financial real estate
assets
Adjusted Funds from
Operations
(950)
(874)
(832)
(1,118)
(586)
(389) —
(601) —
(483) —
(3,196)
$126,935
$130,360
$163,708
$160,749
$118,924
$153,566
$158,700
$155,316
$ 566,469
AFFO per unit - diluted
$
0.175
$0.180
$0.226
$0.222
$0.164
$0.212
$0.219
$0.215
$
0.800
Cash distributions
declared
AFFO payout ratio -
diluted(i)
Weighted average
Units outstanding -
diluted(ii)
133,858
133,856
133,857
133,836
133,820
133,811
133,767
133,706
524,732
105.5 %
102.7%
81.8%
83.0%
112.5%
87.1%
84.3%
86.1%
92.6 %
723,586,201
723,577,162
723,593,236
723,466,930
723,363,313
723,346,150
723,265,565
722,930,485
707,764,714
(i)
(ii)
AFFO payout ratio is calculated as cash distributions declared divided by AFFO.
Includes Trust Units and Exchangeable Units.
Components of certain financial leverage ratios The following table includes the denominator applied to the calculation of
Total Adjusted Debt to Total Assets ratio and Debt Service Coverage Ratios for the periods indicated. Refer to section 4.4
“Financial Condition” and Section 15, “Non-GAAP Financial Measures” for further details about this non-GAAP measure.
Fourth
Quarter 2022
Third Quarter
2022
Second
Quarter 2022
First Quarter
2022
Fourth
Quarter 2021
Third Quarter
2021
Second
Quarter 2021
First Quarter
2021
Year Ended
2020
Total Assets -
Proportionate
Basis
Debt Service
Coverage Ratio
- Denominator
$ 17,349,387 $ 16,941,805 $ 16,676,996 $ 16,910,210 $ 16,664,782 $ 16,599,779 $ 16,395,858 $ 16,146,949 $ 16,037,280
$
78,148 $
76,253 $
70,330 $
68,639 $
72,362 $
71,063 $
72,830 $
71,356 $
300,052
Choice Properties REIT
2022 Annual Report 109
Financial
Statements
Mount Pleasant Village
Brampton, ON
Annual Report 2022 Financial Results
Consolidated Balance Sheets
Consolidated Statements of Income and Comprehensive Income
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
Financial Real Estate Assets
Residential Development Inventory
Note 10.
Mortgages, Loans and Notes Receivable
Note 11.
Investment in Real Estate Securities
Note 12.
Intangible Assets
Note 13.
Accounts Receivable and Other Assets
Note 14.
Long Term Debt
Note 15.
Credit Facility
Note 16.
Unitholders' Equity
Note 17.
Income Taxes
Note 18.
Trade Payables and Other Liabilities
Note 19.
Unit-Based Compensation
Note 20.
Rental Revenue
Note 21.
Property Operating Costs
Note 22.
Interest Income
Note 23.
Fee Income
Note 24.
Net Interest Expense and Other Financing Charges
Note 25.
General and Administrative Expenses
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
118
119
120
121
122
122
122
132
133
136
139
141
141
141
142
144
144
145
146
148
149
150
151
152
155
155
156
156
156
157
157
159
160
161
162
163
164
167
Choice Properties REIT
2022 Annual Report 111
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 for providing 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.
PricewaterhouseCoopers 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 15, 2023
[signed]
Rael Diamond
President and Chief Executive Officer
[signed]
Mario Barrafato
Chief Financial Officer
Choice Properties REIT
2022 Annual Report 112
Independent auditor’s report
To the Unitholders of Choice Properties Real Estate Investment Trust
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Choice Properties Real Estate Investment Trust and its subsidiaries (together, the
Trust) as at December 31, 2022 and its financial performance and its cash flows for the year then ended
in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board (IFRS).
What we have audited
The Trust’s consolidated financial statements comprise:
the consolidated balance sheet as at December 31, 2022;
the consolidated statement of income and comprehensive income for the year then ended;
the consolidated statement of changes in equity for the year then ended;
the consolidated statement of cash flows for the year then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Trust in accordance with the ethical requirements that are relevant to our audit
of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in
accordance with these requirements.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2022. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Valuation of investment properties
Refer to note 2 – significant accounting policies,
note 3 – critical accounting judgments and
estimates and note 5 – investment properties to
the consolidated financial statements.
The Trust measures its income producing
properties at fair value and, as at December 31,
2022, these assets were valued at $14.4 billion.
The fair values of these assets are prepared by
the Trust’s internal valuations team and reviewed
by management. 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. Income producing properties
are valued using the discounted cash flow
method. The significant assumptions under this
method include the discount rates and terminal
capitalization rates applicable to those assets.
We considered this a key audit matter due to
(i) significant audit effort required to assess the
fair values of income producing properties; (ii)
critical judgments by management when
determining the fair values of the income
producing properties, including the development
of the significant assumptions; and (iii) a high
degree of complexity in assessing audit evidence
related to the significant assumptions developed
by management. In addition, the audit effort
involved the use of professionals with specialized
Our approach to addressing the matter included
the following procedures, among others:
Developed a point estimate of the fair value of
each individual income producing property
using external market data and compared
each independent point estimate to
management’s estimate of each property to
evaluate the reasonableness of
management’s estimate.
For the individual estimates that fell outside of
the expected range established from the point
estimate, we tested how management
determined the fair value estimate of the
income producing property, which included
the following:
− Evaluated the appropriateness of the
valuation methodology used.
− Evaluated the reasonableness of the
discount rates and terminal capitalization
rates by comparing to externally available
market data. For certain properties,
professionals with specialized skill and
knowledge in the field of real estate
valuations assisted in evaluating the
reasonableness of the discount rates and
terminal capitalization rates.
− Tested the underlying data used in the
discounted cash flow method.
Key audit matter
How our audit addressed the key audit matter
skill and knowledge in the field of real estate
valuations.
Comparative information
The consolidated financial statements of the Trust for the year ended December 31, 2021 were audited by
another auditor who expressed an unmodified opinion on those statements on February 16, 2022.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis and the information, other than the consolidated financial statements and our
auditor’s report thereon, included in the annual report.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Trust’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless management either intends to liquidate the Trust or to
cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Trust’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Trust’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Trust’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the consolidated financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Trust to cease to continue as a
going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Trust to express an opinion on the consolidated financial statements. We
are responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Frank Magliocco.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
February 15, 2023
Choice Properties Real Estate Investment Trust
Consolidated Balance Sheets
(in thousands of Canadian dollars)
Note
December 31, 2022
December 31, 2021
As at
As at
Assets
Investment properties
Equity accounted joint ventures
Financial real estate assets
Residential development inventory
Mortgages, loans and notes receivable
Investment in real estate securities
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
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
8
9
10
11
12
13
5
29 (c)
14
15
16
18
16
$
14,444,000
$
14,930,000
995,822
109,509
18,785
680,475
302,314
21,369
132,117
50,400
64,736
564,378
86,603
10,142
354,901
—
28,000
114,275
—
84,304
$
$
16,819,527
$
16,172,603
6,294,101
$
6,230,010
257,617
5,841,809
601,847
12,995,374
3,824,153
3,824,153
$
16,819,527
$
—
6,011,997
620,405
12,862,412
3,310,191
3,310,191
16,172,603
Approved on behalf of the Board of Trustees
[signed]
Gordon A. M. Currie
Chair, Board of Trustees
[signed]
Karen Kinsley
Chair, Audit Committee
Choice Properties REIT
2022 Annual Report 118
Choice Properties Real Estate Investment Trust
Consolidated Statements of Income and Comprehensive Income
(in thousands of Canadian dollars)
Note
December 31, 2022
December 31, 2021
Year Ended
$
1,264,594
$
Net Rental Income
Rental revenue
Property operating costs
Other Income and Expenses
Interest income
Investment income
Fee income
Net interest expense and other financing charges
General and administrative expenses
Reversal of expected credit loss on mortgage receivable
Share of income from equity accounted joint ventures
Amortization of intangible assets
Transaction costs and other related expenses
Adjustment to fair value of unit-based compensation
Adjustment to fair value of Exchangeable Units
Adjustment to fair value of investment properties
Adjustment to fair value of investment in real estate securities
Income before income taxes
Income tax recovery
Net Income
Net Income
Other Comprehensive Income
20
21
22
11
23
24
25
10
6
12
4
16
5
11
17
Unrealized gain on designated hedging instruments
27
Other comprehensive income
Comprehensive Income
See accompanying notes to the consolidated financial statements
$
$
$
(363,953)
900,641
27,360
15,495
3,793
(536,857)
(47,821)
—
353,867
(1,000)
(5,108)
(1,191)
170,188
113,115
(248,346)
744,136
117
744,253
$
1,292,321
(380,306)
912,015
20,079
—
3,801
(534,525)
(40,917)
1,502
66,952
(1,000)
—
(1,580)
(862,815)
458,817
—
22,329
679
23,008
744,253
$
23,008
11,568
11,568
755,821
$
6,343
6,343
29,351
Choice Properties REIT
2022 Annual Report 119
Choice Properties Real Estate Investment Trust
Consolidated Statements of Changes in Equity
Attributable to Choice Properties’ Unitholders
(in thousands of Canadian dollars)
Note
Trust
Units
Cumulative
net income
Accumulated
other
comprehensive
income
Cumulative
distributions
to
Unitholders
Total
Unitholders’
equity
Non-
controlling
interests
Total
equity
Equity, December 31, 2021
$ 3,660,941 $
834,742 $
1,357 $ (1,186,849) $ 3,310,191 $
— $ 3,310,191
Net Income
Other comprehensive income
Distributions
Units issued under unit-based
compensation arrangements
Reclassification of vested Unit-
Settled Restricted Units
liability to equity
Units repurchased for unit-
based compensation
arrangements
16
16
16
—
—
—
2,776
1,337
(3,449)
744,253
—
—
—
—
—
—
11,568
—
—
744,253
11,568
—
—
—
—
(242,523)
(242,523)
—
—
—
2,776
1,337
(3,449)
—
—
—
—
—
—
744,253
11,568
(242,523)
2,776
1,337
(3,449)
Equity, December 31, 2022
$ 3,661,605 $ 1,578,995 $
12,925 $ (1,429,372) $ 3,824,153 $
— $ 3,824,153
Attributable to Choice Properties’ Unitholders
(in thousands of Canadian dollars)
Note
Trust
Units
Cumulative
net income
Accumulated
other
comprehensive
income (loss)
Cumulative
distributions
to
Unitholders
Total
Unitholders’
equity
Non-
controlling
interests
Total
equity
Equity, December 31, 2020
$ 3,652,620 $
811,734 $
(4,986) $
(944,629) $ 3,514,739 $
7,801 $ 3,522,540
Net Income
Other comprehensive income
Distributions
Units issued under unit-based
compensation arrangements
Reclassification of vested Unit-
Settled Restricted Units
liability to equity
Units repurchased for unit-
based compensation
arrangements
Distribution to non-controlling
interests
16
16
16
—
—
—
9,332
1,548
(2,559)
—
23,008
—
—
—
—
—
—
—
6,343
—
—
23,008
6,343
(242,220)
(242,220)
—
—
—
—
—
9,332
1,548
(2,559)
—
—
—
—
—
—
—
—
—
—
23,008
6,343
(242,220)
9,332
1,548
(2,559)
—
(7,801)
(7,801)
Equity, December 31, 2021
$ 3,660,941 $
834,742 $
1,357 $ (1,186,849) $ 3,310,191 $
— $ 3,310,191
See accompanying notes to the consolidated financial statements
Choice Properties REIT
2022 Annual Report 120
Choice Properties Real Estate Investment Trust
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Operating Activities
Net income
Net interest expense and other financing charges
Interest paid
Interest income
Interest received
Share of (income) from equity accounted joint ventures
Additions to residential inventory
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
Acquisitions of financial real estate assets
Additions to investment properties
Additions to financial real estate assets
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 (repayments) on construction loans
Net advances of credit facility
Payment of credit facility extension fee
Cash received on exercise of options
Note
December 31, 2022
December 31, 2021
Year Ended
24
22
6
9
29 (a)
29 (b)
4
4,8
5
8
6
6
10
10
4
14
14
14
14
15
15
19
$
744,253 $
536,857
(243,809)
(27,360)
17,809
(353,867)
(8,285)
(28,539)
(3,905)
633,154
(162,978)
(15,054)
(179,747)
(4,552)
(126,911)
68,076
(340,702)
35,857
109,281
(616,730)
497,179
(300,000)
(148,759)
26,308
260,000
(677)
2,610
(4,689)
(3,449)
(122,035)
(242,480)
—
(35,992)
(19,568)
84,304
23,008
534,525
(244,938)
(20,079)
14,211
(66,952)
—
402,788
26,865
669,428
(54,939)
(11,952)
(138,070)
(540)
(152,805)
124,751
(233,460)
148,571
254,322
(64,122)
348,230
(500,000)
(95,258)
(12,287)
—
(1,832)
7,983
(1,736)
(2,559)
(220,741)
(242,220)
(7,801)
(728,221)
(122,915)
207,219
84,304
Cash paid on vesting of restricted and performance units
Repurchase of Units for unit-based compensation arrangement
16
Distributions paid on Exchangeable Units
Distributions paid on Trust Units
Distribution to non-controlling interests
Cash Flows from (used in) Financing Activities
Change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and Cash Equivalents, End of Period
29 (c)
$
64,736 $
Supplemental disclosure of non-cash operating activities (Note 29)
See accompanying notes to the consolidated financial statements
Choice Properties REIT
2022 Annual Report 121
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 April 30, 2021, 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, mixed-use 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, 2022, GWL held either directly or indirectly, a
61.7% effective interest in Choice Properties. Choice Properties’ ultimate parent is Wittington Investments, Limited
(“Wittington”).
The principal 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 as issued by the International Accounting Standards Board (“IFRS”) 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 15, 2023.
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 8), investment in real estate securities (Note 11), Class B LP Units (the “Exchangeable
Units”) which are exchangeable for Trust Units at the option of the holder (Note 16), liabilities for unit-based
compensation arrangements (Note 19) 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.
c. Basis of Consolidation
The consolidated financial statements include the accounts of Choice Properties and other entities controlled by the
Trust (its subsidiaries). Control is achieved when the Trust has power over the entity, has exposure, or rights, to variable
returns from its involvement with the entity, and has the ability to use its power to affect its returns. Choice Properties
reassesses control on an ongoing basis.
Consolidation of a subsidiary begins when the Trust obtains control over the subsidiary and ceases when the Trust loses
control of the subsidiary. Income and expenses of a subsidiary acquired or disposed of during the year are included in
the consolidated statements of income and comprehensive income from the effective date of acquisition and up to the
effective date of disposal, as appropriate.
When Choice Properties does not own all of the equity in a subsidiary, the non-controlling equity interest is disclosed in
the consolidated balance sheet as a separate component of total equity. Changes in the Trust’s ownership interests in
subsidiaries that do not result in the Trust losing control over the subsidiaries are accounted for as equity transactions.
The carrying amounts of the Trust’s interests and any non-controlling interests are adjusted to reflect the changes in their
relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are
adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the
Unitholders of the Trust. When the Trust loses control of a subsidiary, for example through sale or partial sale, a gain or
loss is recognized and is calculated as the difference between (i) the aggregate of the fair value of the consideration
received and the fair value of any retained interest and (ii) the previous carrying amount of the assets and liabilities of the
subsidiary and any non-controlling interests.
Choice Properties REIT
2022 Annual Report 122
Notes to the Consolidated Financial Statements
d. Business Combinations
When an investment is acquired, the Trust considers the substance of the assets and activities of the acquisition in
determining whether the acquisition represents an asset acquisition or a business combination. The transaction is
considered to be a business combination if the acquired investment meets the definition of a business in accordance
with IFRS 3, “Business Combinations”, being an integrated set of activities and assets that are capable of being
managed for the purposes of providing a return to Unitholders.
The acquisition of a business is accounted for using the acquisition method. The cost of an acquisition is measured as
the aggregate of the consideration transferred at fair value on the date of acquisition. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are measured initially at fair value at the
acquisition date. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the
acquisition date. Acquisition-related costs are 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.
e.
Joint Arrangements
Joint arrangements are arrangements of which two or more parties have joint control. Joint control is the contractual
sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous
consent of the parties sharing control. Joint arrangements are classified as either joint operations or joint ventures
depending on the Trust’s rights and obligations in the arrangement based on factors such as the structure, legal form
and contractual terms of the arrangement.
Joint Ventures
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net
assets of the joint arrangement. The Trust’s investments in joint ventures are recorded using the equity method and are
initially recognized in the consolidated balance sheet at cost and adjusted thereafter to recognize the Trust’s share of the
profit or loss and other comprehensive income 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 and comprehensive income.
The financial statements of the equity accounted joint ventures are prepared for the same reporting period as the Trust.
Where necessary, adjustments are made to bring the accounting policies in line with those of the Trust.
A joint venture is considered to be impaired if there is objective evidence of impairment, as a result of one or more
events that occurred after initial recognition of the joint venture, and that event has a negative impact on the future cash
flows of the joint venture that can be reliably estimated.
Joint Operations
A joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets and
obligations for the liabilities relating to the arrangement. The financial statements of the joint operations are prepared for
the same reporting period as the Trust. Where necessary, adjustments are made to bring the accounting policies in line
with those of the Trust. The Trust accounts for its interests in joint operations by recognizing its proportionate share of
jointly controlled assets, liabilities, revenues and expenses.
Choice Properties REIT
2022 Annual Report 123
Notes to the Consolidated Financial Statements
f.
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 and comprehensive income 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 these on-going 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
2022 Annual Report 124
Notes to the Consolidated Financial Statements
g. Residential Development Inventory
Residential development inventory, which is developed for sale in the ordinary course of business, is stated at the lower
of cost and estimated net realizable value. Residential development inventory is reviewed for impairment at each
reporting date. An impairment loss is recognized as an expense when the carrying value of the property exceeds its net
realizable value. Net realizable value is based on projections of future cash flows, which take into account the
development plans for each project and management’s best estimate of the most probable set of anticipated economic
conditions.
The cost of residential development inventory includes borrowing costs directly attributable to projects under active
development. 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. Borrowing costs are not capitalized on residential
development inventory where no development activity is taking place.
Transfers between residential inventory and investment property occur when there is a change in use. A change in use
occurs when the property meets, or ceases to meet, the definition of investment property based on management's
intentions and there is observable evidence of a change in use.
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.
Choice Properties REIT
2022 Annual Report 125
Notes to the Consolidated Financial Statements
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
Investment in real estate securities
Cash and cash equivalents
Long term debt:
Senior unsecured debentures
Mortgages payable
Construction loans
Credit facility
Trade payables and other liabilities
Derivative instruments designated as hedge
Derivative instruments not designated as hedge
Exchangeable Units
Classification and Measurement Basis
Amortized cost
Amortized cost
FVTPL
FVTPL
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVOCI
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.
Impairment losses, if incurred, would be recorded as expenses in the consolidated statements of income and
comprehensive income with the carrying amount of the financial asset or group of financial assets reduced through the
use of impairment allowance accounts. In periods subsequent to the impairment where the impairment loss has
decreased, and such decrease can be related objectively to conditions and changes in factors occurring after the
impairment was initially recognized, the previously recognized impairment loss would be reversed through the
consolidated statements of income and comprehensive income. The impairment reversal would be limited to the lesser
of the decrease in impairment or the extent that the carrying amount of the financial asset at the date the impairment is
reversed does not exceed what the amortized cost would have been had the impairment not been recognized, after the
reversal.
Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of whether that price is directly observable or
estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Trust takes into
account the characteristics of the asset or liability if market participants would take those characteristics into account
when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in
these consolidated financial statements is determined on such basis, unless otherwise noted.
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.
Choice Properties REIT
2022 Annual Report 126
Notes to the Consolidated Financial Statements
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.
Investment in real estate securities
Fair value is based on closing market trading price of Allied Properties Real Estate
Investment Trust (“Allied”).
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.
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.
Choice Properties REIT
2022 Annual Report 127
Notes to the Consolidated Financial Statements
k.
l.
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.
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.
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
Choice Properties REIT
2022 Annual Report 128
Notes to the Consolidated Financial Statements
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. 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.
q. 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.
r. 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 and
comprehensive income due to its operating nature, except for contingent rental income which is recognized when it
arises. An accrued straight-line rent receivable is recorded from tenants for the difference between the straight-line rent
and the rent that is contractually due from the tenant.
The lease agreements include certain services offered to tenants such as cleaning, utilities, security, landscaping, snow
removal, property maintenance costs, as well as other support services. The consideration charged to tenants for these
services includes fees charged based on a percentage of the rental income and reimbursement of certain expenses
incurred. The Trust has determined that these services constitute a distinct non-lease component (transferred separately
from the right to use the underlying asset) and are within the scope of IFRS 15, “Revenue from Contracts with
Customers” (“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.
Choice Properties REIT
2022 Annual Report 129
Notes to the Consolidated Financial Statements
Interest Income
Interest income is the interest earned on the amounts advanced under the Trust’s mezzanine loans, vendor take-back
loans and joint venture financing arrangements together with bank interest earned from deposits. Interest income is
recognized in accordance with the terms set out in the financing arrangements using the effective interest method.
Fee Income
Fee income consists mainly of property management fees, leasing fees, project management fees and other
miscellaneous fees. Property management fees are generally based on a percentage of property revenues and are
recognized when earned in accordance with the property management or co-ownership agreements. Leasing fees are
incurred when the Trust is the leasing manager for co-owned properties and are recognized when earned in accordance
with the property management or co-ownership agreements.
Residential Development Inventory
The revenue generated from contracts with customers on the sale of residential condominium units is recognized at a
point in time when control of the asset (i.e. condominium unit) has transferred to the purchaser (i.e., generally, when the
purchaser takes possession of the condominium unit) as the purchaser has the ability to direct the use of and obtain
substantially all of the remaining benefits from the asset. The amount of revenue recognized is based on the transaction
price included in the purchasers' contracts. Any funds received prior to the purchasers taking possession of their
respective assets are recognized as deferred revenue (contractual liability).
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. Lease termination income is recognized on a straight-line basis over the
modified lease term; commencing when a lease termination agreement is signed, and ending at the amended lease
expiration date.
s. 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.
Choice Properties REIT
2022 Annual Report 130
Notes to the Consolidated Financial Statements
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.
t.
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 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 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
2022 Annual Report 131
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 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 significant assumptions related to discount rates and
terminal capitalization rates, and other assumptions related to the future cash flows over the holding period. The review
of future cash flows involves assumptions relating to market rents, as well as current leasing and/or development
activity, renewal probability, downtime on lease expiry, vacancy allowances, and expected maintenance costs. 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
2022 Annual Report 132
Notes to the Consolidated Financial Statements
Note 4. Investment Property and Other Transactions
The following table summarizes the investment properties acquired in the year ended December 31, 2022:
($ thousands except where otherwise indicated)
Location
Investment properties
Ottawa, ON
Acquisitions from related parties (Note 32)
Burlington, ON
Toronto, ON
Toronto, ON
Toronto, ON
Toronto, ON
Vaughan, ON
Date of
Acquisition
Segment
Ownership
Interest
Acquired
Purchase
Price
Consideration
Purchase
Price incl.
Related
Costs
Assumed
Liabilities
Cash
Industrial
Under
Development
Retail
Retail
Retail
Retail
Retail
Retail
Mar 1
May 2
Jul 6
Sep 1
Oct 5
Dec 1
Dec 5
100%
$
25,663 $
27,218 $
— $
27,218
25,663
27,218
—
27,218
100%
100%
100%
100%
100%
100%
40,360
42,059
588
41,471
650
687
—
687
18,350
19,180
131
19,049
1,407
1,488
51,218
53,315
19,350
19,750
—
—
—
1,488
53,315
19,750
Acquisitions from third-parties
131,335
136,479
719
135,760
Total acquisitions of investment properties
156,998
163,697
719
162,978
Financial real estate assets
Montreal, QC
Halifax, NS
Mar 9
Jun 17
Retail
Retail
100%
100%
2,200
2,343
15,010
15,228
483
2,034
1,860
13,194
Acquisitions of financial real estate assets (Note 32)
17,210
17,571
2,517
15,054
Total acquisitions
$
174,208 $
181,268 $
3,236 $
178,032
Choice Properties REIT
2022 Annual Report 133
Notes to the Consolidated Financial Statements
The following table summarizes the investment properties sold in the year ended December 31, 2022:
($ thousands except where otherwise indicated)
Consideration
Location
Date of
Disposition
Segment
Investment properties
Ownership
Interest
Disposed
Sale Price
excl.
Selling
Costs
Debt
Assumed
by
Purchaser
Promissory
Note
Real
Estate
Securities
De-
recognition
of
Intangible
Asset
Mortgage
Receivable
Advanced
Cash
Edmonton, AB Jan 31
Industrial
100% $
9,700 $
— $
— $
— $
— $
— $
9,700
Edmonton, AB Feb 25
Industrial
100%
19,750
—
Feb 28
Retail
50%
25,750
14,805
—
—
—
—
—
—
—
19,750
—
10,945
Campbell
River, BC
Portfolio of 6
assets across
Canada(i)
Mixed-Use,
Residential &
Other
Retail Under
Development
Mar 31
50%-100%
733,810
—
193,155
550,660
(5,631)
—
(4,374)
Brampton, ON Jun 23
50%
10,125
Swift Current,
SK
Jun 28
Retail
100%
6,500
Dartmouth, NS Jul 6
Retail (Parcel)
100%
117
Calgary, AB
Jul 18
Retail
100%
6,550
Edmonton, AB Jul 28
Retail (Parcel)
50%
2,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10,125
—
6,500
—
117
—
6,550
—
2,000
Edmonton, AB Aug 12
Montreal, QC
Sep 13
Mixed-Use,
Residential &
Other Under
Development
Mixed-Use,
Residential &
Other
50%
3,643
—
—
—
—
—
3,643
100%
27,000
Quebec, QC
Oct 5
Retail (Parcel)
50%
4,325
Beaverton, ON Dec 21
Retail
100%
1,000
—
—
—
—
—
—
—
—
—
—
—
—
—
27,000
—
4,325
—
1,000
Halifax, NS
Dec 28
Mixed-Use,
Residential &
Other
100%
40,000
—
—
—
—
28,000
12,000
Total dispositions
$ 890,270 $
14,805 $ 193,155 $ 550,660 $
(5,631) $
28,000 $ 109,281
(i)
The Trust disposed of its interests in a portfolio of six office assets to Allied Properties Real Estate Investment Trust (“Allied”). The consideration received consisted of
exchangeable Class B limited partnership units of Allied Properties Exchangeable Limited Partnership, an affiliated entity of Allied (Note 11) and a promissory note
(Note 10). The Trust incurred transaction costs of $5.1 million associated with the disposition to Allied.
Choice Properties REIT
2022 Annual Report 134
Notes to the Consolidated Financial Statements
The following table summarizes the investment properties acquired in the year ended December 31, 2021:
($ thousands)
Location
Investment properties
Toronto, ON
Toronto, ON
Acquisitions from third-parties
Financial real estate assets
Date of
Acquisition
Segment
Ownership
Interest
Acquired
Purchase
Price
Consideration
Purchase
Price incl.
Related
Costs
Assumed
Liabilities
Cash
Sep 2
Nov 12
Retail
Retail
100%
$
30,300 $
31,574 $
— $
31,574
100%
22,423
23,365
52,723
54,939
—
—
23,365
54,939
Guelph, ON
Dec 10
Retail
100%
14,777
15,134
3,182
11,952
Acquisitions of financial real estate assets (Note 32)
14,777
15,134
3,182
11,952
Total acquisitions
$
67,500 $
70,073 $
3,182 $
66,891
The following table summarizes the investment properties sold in the year ended December 31, 2021:
($ thousands except where otherwise indicated)
Consideration
Location
Investment properties
Brampton, ON(i)
Brampton, ON
Kanata, ON
St-Hyacinthe, QC
Calgary, AB
Portfolio of 2 assets across Canada
Magog, QC
Quebec, QC
Portfolio of 5 assets in Calgary, AB
Drummondville, QC
Total dispositions
Date of
Disposition
Segment
Ownership
Interest Disposed
Sale Price excl.
Selling Costs
Cash
Jan 19
Mar 31
Aug 19
Oct 4
Nov 1
Dec 6
Dec 15
Dec 20
Dec 20
Dec 22
Land
Land
Land
Land
Retail
Retail
Retail
Retail
Industrial
Retail
70%
50%
50%
100%
100%
100%
100%
50%
100%
100%
$
25,000 $
25,000
5,000
4,147
3,800
36,000
52,250
22,000
49,625
45,000
11,500
5,000
4,147
3,800
36,000
52,250
22,000
49,625
45,000
11,500
$
254,322 $
254,322
On January 19, 2021, the trust sold its 70% interest which resulted in a disposition of the property under development for $25,000 and a distribution to the subsidiary’s
(i)
30% non-controlling interest of $7,801.
On January 31, 2023, the Trust acquired three retail assets from Loblaw for an aggregate purchase price of $98,630.
Choice Properties REIT
2022 Annual Report 135
Notes to the Consolidated Financial Statements
Note 5.
Investment Properties
($ thousands)
Income producing
properties
Properties under
development
Note
Year Ended
Year Ended
December 31, 2022
December 31, 2021
Balance, beginning of year
$
14,707,000 $
223,000 $
14,930,000 $
14,389,000
Acquisitions - including purchase
costs of $6,699 (2021 - $2,216)
Capital expenditures
Development capital(i)
Building improvements
Capitalized interest(ii)
Property capital
Direct leasing costs
Tenant improvement allowances
Amortization of straight-line rent
Transfers to assets held for sale
Transfer from equity accounted joint
ventures
Transfers from properties under
development
Transfers to residential development
inventory
Transfers to properties under
development
Dispositions
Adjustment to fair value of investment
properties
Balance, end of year
4
136,479
27,218
163,697
54,939
—
1,773
—
70,937
8,741
19,382
2,554
(50,400)
—
71,896
—
2,575
—
—
—
—
—
—
50,125
(50,125)
—
—
(22,834)
(876,502)
22,834
(13,768)
71,896
1,773
2,575
70,937
8,741
19,382
2,554
(50,400)
—
—
—
—
51,167
4,086
2,642
60,012
6,426
16,379
7,893
—
143,103
—
(10,142)
—
(890,270)
(254,322)
24
6
9
4
71,745
41,370
113,115
458,817
$
14,119,000 $
325,000 $
14,444,000 $
14,930,000
(i)
(ii)
Development capital included $2,687 of site intensification payments paid to Loblaw (December 31, 2021 - $2,208) (Note 32).
Interest was capitalized to qualifying development projects based on a weighted average interest rate of 3.74% (December 31, 2021 - 3.64%).
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.
As at December 31, 2022, the Trust has classified three retail properties and one office property with a total fair value of
$50,400 as assets held for sale. As at December 31, 2021, there were no investment properties classified as assets held for
sale.
Choice Properties REIT
2022 Annual Report 136
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 and discount rates and other assumptions such as future cash flow assumptions including market rents,
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 stabilized net operating income, a non-GAAP measure, in the terminal year. The significant assumptions under
this method include the discount rate and the terminal capitalization rate. This method also involves the projection of future
cash flows for the specific asset. For 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,
lease costs, and other operating 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 vacant land parcels held
for future development, are valued based on comparable sales of commercial land.
Choice Properties REIT
2022 Annual Report 137
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, 2022
As at December 31, 2021
Discount rate
Terminal capitalization rate
Retail
Discount rate
Terminal capitalization rate
Industrial
Discount rate
Terminal capitalization rate
Mixed-Use, Residential & Other
Discount rate
Terminal capitalization rate
5.00% - 10.50%
4.25% - 9.95%
7.03%
6.22%
5.00% - 11.45%
4.25% - 10.95%
5.25% - 10.50%
4.75% - 9.95%
7.41%
6.58%
5.00% - 11.45%
4.25% - 10.95%
5.00% - 8.50%
4.25% - 7.75%
5.97%
5.22%
5.00% - 8.50%
4.25% - 7.75%
5.00% - 9.00%
4.50% - 8.00%
6.56%
5.90%
5.25% - 8.75%
4.25% - 7.75%
6.68%
5.95%
6.92%
6.19%
5.95%
5.26%
6.25%
5.43%
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.
The properties independently appraised each year represent a subset of the property types and geographic distribution of the
overall portfolio and includes properties owned within equity accounted joint ventures and properties recognized as financial
real estate assets. A breakdown of the aggregate fair value of investment properties independently appraised during each
year, in accordance with the Trust’s policy, is as follows:
($ thousands except where otherwise indicated)
Number of income
producing
properties
Fair value
Number of income
producing
properties
2022
2021
Fair value
75 $
3,821,000
78 $
3,655,000
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:
($ thousands)
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 %
5.47 % $
15,235,000 $
1,116,000
6.28 % $
14,924,000 $
5.72 %
14,831,000
5.97 %
14,460,000
6.22 %
14,119,000
6.47 %
13,804,000
6.72 %
13,513,000
6.97 %
13,242,000
712,000
341,000
—
(315,000)
(606,000)
(877,000)
6.53 %
14,649,000
6.78 %
14,381,000
7.03 %
14,119,000
7.28 %
13,863,000
7.53 %
13,613,000
7.78 %
13,369,000
805,000
530,000
262,000
—
(256,000)
(506,000)
(750,000)
Choice Properties REIT
2022 Annual Report 138
Notes to the Consolidated Financial Statements
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.
Retail
Industrial
Mixed-Use, Residential & Other
Land, held for development
Total equity accounted joint ventures
Choice Properties’ investment in equity accounted joint
ventures
As at December 31, 2022
As at December 31, 2021
Number of
joint ventures
Ownership
interest
Number of
joint ventures
Ownership
interest
15
25% - 75%
15
25% - 75%
50%
50%
50% - 85%
1
3
3
22
50%
47% - 50%
50% - 85%
1
3
2
21
$
995,822
$
564,378
Summarized financial information for equity accounted joint ventures at 100% and Choice Properties’ ownership interest are
set out below:
As at December 31, 2022
($ thousands)
Ownership
Current
assets
Non-current
assets
Current
liabilities
Non-current
liabilities
Net assets at
100%
Horizon Business Park LP
Tullamore Industrial LP
Other joint ventures
Net assets at 100%
Investment in equity accounted
joint ventures
50% $
85%
7,083 $
320,600 $
(42,307) $
1,586
604,706
(119,598)
— $
—
25-75%
40,830
1,725,422
(403,964)
(564,476)
285,376
486,694
797,812
$
$
49,499 $
2,650,728 $
(565,869) $
(564,476) $
1,569,882
30,664 $
1,608,667 $
(326,199) $
(317,310) $
995,822
Year ended December 31, 2022
($ thousands)
Ownership
Rental
Revenue
Property
operating
costs
Interest
income
Interest
expense
Adjustment
to fair value
Net income and
comprehensive
income at 100%
Horizon Business Park LP
50% $
19,007 $
(5,603) $
Tullamore Industrial LP
85%
—
(2)
— $
—
(300) $
22,805 $
35,909
—
322,122
322,120
Other joint ventures
25-75%
101,646
(38,958)
2,716
(31,669)
56,006
89,741
Net income and comprehensive
income at 100%
Share of net income and
comprehensive income in
equity accounted joint
ventures
$
120,653 $
(44,563) $
2,716 $
(31,969) $
400,933 $
447,770
$
65,453 $
(24,412) $
708 $
(17,044) $
329,162 $
353,867
Choice Properties REIT
2022 Annual Report 139
Notes to the Consolidated Financial Statements
($ thousands)
Ownership
Current
assets
Non-current
assets
Current
liabilities
Non-current
liabilities
Net assets at
100%
As at December 31, 2021
Horizon Business Park LP
50% $
5,102 $
242,051 $
(36,628) $
Tullamore Industrial LP
Dartmouth Crossing Master LP
85%
75%
1,312
172,691
(10,657)
44,995
199,444
(22,643)
(125,240)
— $
—
210,525
163,346
96,556
Other joint ventures
25-50%
23,986
1,263,212
(251,876)
(523,867)
511,455
Net assets at 100%
Investment in equity accounted
joint ventures
$
$
75,395 $
1,877,398 $
(321,804) $
(649,107) $
981,882
49,292 $
1,027,634 $
(164,503) $
(348,045) $
564,378
($ thousands)
Ownership
Rental
Revenue
Property
operating
costs
Interest
income
Interest
expense
Adjustment
to fair value
Net income and
comprehensive
income at 100%
Year ended December 31, 2021
Horizon Business Park LP
50% $
16,430 $
(4,922) $
Tullamore Industrial LP
85%
—
—
— $
1
— $
12,214 $
23,722
—
—
Dartmouth Crossing Master LP
75%
21,285
(9,410)
427
(4,946)
5,505
Other joint ventures
25-50%
60,949
(20,984)
2,023
(12,240)
67,527
Net income and comprehensive
income at 100%
Share of net income and
comprehensive income in equity
accounted joint ventures
$
98,664 $
(35,316) $
2,451 $
(17,186) $
85,246 $
133,859
$
53,910 $
(19,771) $
341 $
(9,682) $
42,154 $
66,952
The following table reconciles the changes in cash flows from equity accounted joint ventures:
1
12,861
97,275
($ thousands)
Balance, beginning of year
Contributions to equity accounted joint ventures
Distributions from equity accounted joint ventures
Total cash flow activities
Acquisition of interest in equity accounted joint venture upon settlement of mortgage
receivable
10
Settlement, Net of Accretion of contingent consideration payable
Share of income from equity accounted joint ventures
Total non-cash activities
Balance, end of year
Note
Year ended
December 31, 2022
$
$
564,378
126,911
(68,076)
58,835
40,860
(22,118)
353,867
372,609
995,822
Choice Properties REIT
2022 Annual Report 140
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, 2022
As at December 31, 2021
Number of co-
owned properties
Ownership
interest
Number of co-
owned properties
37
2
9
48
50% - 75%
50% - 67%
50%
38
2
12
52
Ownership
interest
50% - 75%
50% - 67%
50%
Retail
Industrial
Mixed-Use, Residential & Other
Total co-ownership property interests
Note 8. Financial Real Estate Assets
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, “Revenue from Contracts with Customers”, due to the sale-leaseback arrangement with the seller of the
asset. In accordance with IFRS 16, “Leases”, the Trust has recognized these acquisitions as financial instruments under IFRS
9, “Financial Instruments”.
($ thousands)
Balance, beginning of year
Acquisitions
Additions
Income from financial real estate assets due to changes in value
22
Balance, end of year
Year Ended
Year Ended
Note
December 31, 2022
December 31, 2021
$
$
86,603 $
17,571
4,552
783
109,509 $
68,373
15,134
540
2,556
86,603
As at December 31, 2022 the weighted average discount rate and terminal capitalization rate used to determine the fair value
of the Trust’s financial real estate assets are 6.64% and 6.00%, respectively. An increase of 0.50% in the discount rate or
terminal capitalization rate would result in a decrease of $3,972 or $5,010, respectively, in the value of the financial real estate
assets. A decrease of 0.50% in the discount rate or terminal capitalization rate would result in an increase of $4,165 or
$5,944, respectively, in the value of the financial real estate assets.
Note 9. Residential Development Inventory
Residential development inventory consists of a co-owned development project located in Brampton, Ontario, for the
purpose of developing and selling residential condominium units.
The following table summarizes the activity in residential development inventory:
($ thousands)
Balance, beginning of year
Development capital
Capitalized interest
Transfers from investment properties
Balance, end of year
Year Ended
Year Ended
Note
December 31, 2022
December 31, 2021
$
$
24
5
10,142 $
8,285
358
—
18,785 $
—
—
—
10,142
10,142
Choice Properties REIT
2022 Annual Report 141
Notes to the Consolidated Financial Statements
Note 10. Mortgages, Loans and Notes Receivable
($ thousands)
Mortgages receivable classified as amortized cost(i)
Mortgages receivable classified as fair value through profit and loss ("FVTPL")
Notes receivable from GWL classified as amortized cost(i)
32
Mortgages, loans and notes receivable
Classified as:
Expected to be recovered in more than twelve months
Expected to be recovered in less than twelve months
Note
December 31, 2022
December 31, 2021
As at
As at
$
$
$
$
346,499 $
163,127
170,849
680,475 $
201,996 $
478,479
680,475 $
89,944
96,623
168,334
354,901
109,526
245,375
354,901
(i)
The fair value of the mortgages, loans and notes receivable classified as amortized cost was $512,800 (December 31, 2021 - $257,800) (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.
December 31, 2022
December 31, 2021
Weighted average
effective interest rate
Weighted average term
to maturity (years)
Weighted average
effective interest rate
Weighted average term
to maturity (years)
Mortgages receivable
Total
4.80%
4.80%
1.0
1.0
7.11%
7.11%
1.7
1.7
Notes Receivable from GWL
Non-interest bearing short-term notes totalling $168,334 with respect to the loans received in the 2021 fiscal year were
settled against distributions payable by the Trust to GWL in January 2022. (Note 32) Non-interest bearing short-term notes
totalling $170,849 were issued during the twelve months ended December 31, 2022 to GWL and were repaid in January
2023. (Note 32)
Schedules of Maturity and Cash Flow Activities
The schedule of repayment of mortgages, loans and notes receivable based on maturity and redemption rights is as follows:
($ thousands)
Principal repayments
2023
2024
2025
2026
2027
Thereafter
Total
Mortgages receivable
$
305,465 $ 180,760 $
15,108 $
— $
6,128 $
— $ 507,461
Notes receivable from GWL
170,849
—
—
Total principal repayments
476,314
180,760
15,108
2,165
—
—
—
—
—
—
6,128
—
—
—
—
170,849
678,310
2,165
$
478,479 $ 180,760 $
15,108 $
— $
6,128 $
— $ 680,475
Interest accrued
Total repayments
Choice Properties REIT
2022 Annual Report 142
Advances (i)
Repayments
Interest received
Total cash flow activities
Reversal of expected
credit loss on
mortgage receivable
Acquisition of interest in
equity accounted joint
venture upon
settlement of
mortgage receivable
Advance upon
disposition of
properties
Settlement against
distributions payable
6
4
Interest accrued
22
Total non-cash activities
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)
Note
Mortgages
receivable
Loans
receivable
Notes receivable
from GWL
Mortgages, loans
and notes receivable
Mortgages, loans
and notes receivable
December 31, 2022
December 31, 2021
Balance, beginning of year
$
186,567 $
— $
168,334 $
354,901 $
168,982
(34,986)
(10,351)
123,645
871
(871)
(1)
(1)
170,849
—
—
170,849
340,702
(35,857)
(10,352)
294,493
263,946
233,460
(148,571)
(7,912)
76,977
—
—
(40,860)
221,155
—
19,119
199,414
—
—
—
1
1
—
1,502
(40,860)
(4,846)
—
—
—
221,155
(168,334)
(168,334)
—
(168,334)
19,120
31,081
6,098
—
11,224
13,978
Balance, end of year
$
509,626 $
— $
170,849 $
680,475 $
354,901
(i)
Advances include funds advanced to an entity in which the Trust is a partner. The funds advanced were used for development within equity accounted joint venture.
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.
On March 31, 2022, the Trust advanced a promissory note, with a face value of $200,000 (fair value of $193,155) as a part of
the disposition of its interests in a portfolio of six office assets to Allied (Note 4). The note bears interest at a rate of 1% for
the 2022 calendar year and 2% subsequently until its maturity on December 31, 2023. The promissory note is included in the
mortgages receivable as it is secured by the six office assets.
In April 2022, the Trust advanced $96,552 to an existing development partnership, in which it owns the majority stake. The
funds were used to execute a strategic acquisition of a property adjacent to Choice Caledon Business Park, located in
Caledon, Ontario.
In May 2022, the Trust exercised the equity conversion right on an existing mezzanine loan of $38,794. The mezzanine loan
was partially converted into 75% ownership interest in 154 acres of the industrial development Choice Eastway Industrial
Centre, located in East Gwillimbury, Ontario.
In June 2022, the Trust advanced a $3,364 mezzanine loan to a strategic partner. The loan is secured by two properties in
Toronto, Ontario.
In September 2022, the Trust advanced a $9,850 mezzanine loan to a development partner. The loan is secured by a
property in East Gwillimbury, Ontario.
In December 2022, the Trust advanced a $28,000 mezzanine loan as a part of the disposition of an office asset in Halifax,
Nova Scotia. The loan is secured by the disposed office property.
The Trust has issued approximately $506,905 of secured mortgages to third-party borrowers. These loans are with borrowers
who are strategic partners and counterparties of the Trust and are secured by real property assets. 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
Choice Properties REIT
2022 Annual Report 143
Notes to the Consolidated Financial Statements
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. Investment in Real Estate Securities
On March 31, 2022, the Trust disposed of six office assets to Allied (Note 4). As consideration, the Trust was issued
11,809,145 exchangeable Class B limited partnership units of Allied Properties Exchangeable Limited Partnership (“Class B
Units”), an affiliated entity of Allied, with a value of $550,660 ($46.63 per unit) on the transaction date, and a promissory note
with a fair value of $193,155 (Note 10). Following the transaction, the Trust holds approximately an 8.5% effective interest in
Allied through its ownership of the Class B Units. The Trust does not have significant influence over Allied.
The Class B Units are exchangeable into, and are economically equivalent to, the publicly traded units of Allied (“Allied
Units”), and were accompanied by a corresponding number of special voting units of Allied. There are no restrictions on the
exchange of Class B Units into Allied Units, but the Allied Units (if exchanged) are subject to a lock-up from the closing of the
Transaction, such that 25% of the Class B Units or Allied Units, as applicable, will be released from lock up every three
months following the first anniversary of closing of the Transaction. As a holder of the Class B Units, the Trust is entitled to
distributions paid by Allied. For the year ended ended December 31, 2022, the Trust recognized distribution income of
$15,495 (December 31, 2021 - $nil) from its investment in Allied. The distributions are recorded as investment income.
The Class B Units are recorded at their fair value based on market trading prices of Allied’s publicly traded units. The closing
price for Allied’s publicly traded units on the last trading day of the year ended December 31, 2022 was $25.60. A change of
one dollar in the underlying price of Allied’s publicly traded units would result in a change to the fair value of the investment in
real estate securities and a corresponding change in net income of $11,809 (2021 - $nil). For the year ended December 31,
2022, the Trust recognized a loss of $248,346 (December 31, 2021 - $nil) on its investment in Allied, due to the change in the
price of Allied’s publicly traded units. As at December 31, 2022 the Trust held 11,809,145 Class B Units with a value of
$302,314 (December 31, 2021 - nil and $nil).
($ thousands)
Balance, beginning of year
Acquired
Adjustment to fair value of investment in real estate securities
Balance, end of year
Note 12. Intangible Assets
Year ended December
31, 2022
Year ended December
31, 2021
$
$
— $
550,660
(248,346)
302,314 $
—
—
—
—
The intangible assets for Choice Properties relate to its 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.
On March 31, 2022, the Trust disposed of six office assets to Allied (Note 4). Included in the disposal is a co-owned property,
of which the Trust generates cash flow from property management fees. The Trust had recognized an intangible asset based
on the expectation of these future cash flows. Accordingly, management derecognized $5,631 (Note 4) to reflect the reduced
value of the intangible asset resulting from the disposal of the co-owned property.
As at December 31, 2022, the carrying value was $21,369 (December 31, 2021 - $28,000), net of accumulated amortization
of $3,000 (December 31, 2021 - $2,000). The remaining useful economic life of these assets is 22 years.
Choice Properties REIT
2022 Annual Report 144
Notes to the Consolidated Financial Statements
Note 13. Accounts Receivable and Other Assets
($ thousands)
Note
December 31, 2022
December 31, 2021
As at
As at
Rent receivables(i) - net of expected credit loss of $14,681 (2021 - $17,066)
$
11,137 $
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 $1,849 (2021 - $1,290)
Deferred tax asset
Deferred acquisition costs and deposits on land
Designated hedging derivatives
Accounts receivable and other assets
Classified as:
Expected to be recovered in more than twelve months
Expected to be recovered in less than twelve months
21,610
23,426
13,792
8,501
680
3,052
6,378
1,030
16,456
2,029
2,792
8,325
12,909
32
32
17
27
$
$
$
132,117 $
114,275
52,088 $
80,029
132,117 $
42,098
72,177
114,275
12,815
14,476
22,351
13,711
8,501
2,044
239
4,465
813
18,335
1,956
2,673
8,630
3,266
(i)
(ii)
Includes net rent receivable of $nil from Loblaw, $nil from GWL and $122 from Wittington (December 31, 2021 - $1,474, $nil and $nil) (Note 32).
Other receivables due from related parties include $57 from Loblaw and $623 from GWL (December 31, 2021 - $2,044 and $nil) (Note 32).
Rent receivables
In determining the expected credit losses the Trust takes into account the payment history and future expectations of likely
default events (i.e. asking for rental concessions or stating they will not be making rental payments on the due date) based on
actual or expected insolvency filings or company voluntary arrangements and likely deferrals of payments due. These
assessments are made on a tenant-by-tenant basis.
The Trust’s assessment of expected credit losses is inherently subjective due to the forward-looking nature of the
assessments. As a result, the value of the expected credit loss is subject to a degree of uncertainty and is made on the basis
of assumptions which may not prove to be accurate.
Restricted cash
Restricted cash includes property-specific deposits held by the Trust's solicitors in the name of the Trust. These funds will be
released upon funding the construction of the residential inventory projects, after posting the requisite security, or upon
closing of such projects. Funds held in trust may also relate to certain funds held in escrow pursuant to agreements of
purchase and sale, which are to be used for the acquisition of investment properties.
Choice Properties REIT
2022 Annual Report 145
Notes to the Consolidated Financial Statements
Note 14. Long Term Debt
($ thousands)
Senior unsecured debentures
Mortgages payable
Construction loans
Long term debt
Classified as:
Expected to be settled in more than twelve months
Expected to be settled in less than twelve months
Senior Unsecured Debentures
($ thousands)
As at
As at
December 31, 2022
December 31, 2021
5,308,928 $
945,959
39,214
5,107,760
1,109,344
12,906
6,294,101 $
6,230,010
5,638,368 $
655,733
6,294,101 $
5,711,500
518,510
6,230,010
$
$
$
$
Series
Issuance /
Assumption Date
Maturity
Date
Effective Interest
Rate
As at
As at
December 31, 2022
December 31, 2021
B
D
F
G
H
J
K
L
M
N
O
P
Q
R
Jul. 5, 2013
Jul. 5, 2023
Feb. 8, 2014
Feb. 8, 2024
Nov. 24, 2015
Nov. 24, 2025
Mar. 7, 2016
Mar. 7, 2023
Mar. 7, 2016
Mar. 7, 2046
Jan. 12, 2018
Jan. 10, 2025
Mar. 8, 2018
Sep. 9, 2024
Mar. 8, 2018
Mar. 8, 2028
Jun. 11, 2019
Jun. 11, 2029
Mar. 3, 2020
Mar. 4, 2030
Mar. 3, 2020
Mar. 4, 2050
May 22, 2020
May 21, 2027
Nov. 30, 2021
Nov. 30, 2026
Jun. 24, 2022
Jun. 24, 2032
10
D-C
Jul. 4, 2013
Sep. 20, 2022
May 4, 2018
Jan. 18, 2023
Total principal outstanding
4.90%
4.29%
4.06%
3.20%
5.27%
3.55%
3.56%
4.18%
3.53%
2.98%
3.83%
2.85%
2.46%
6.00%
3.84%
3.30%
Debt discounts and premiums - net of accumulated amortization of $17,513
(2021 - $16,575)
Debt placement costs - net of accumulated amortization of $18,301 (2021 -
$15,250)
$
200,000 $
200,000
200,000
250,000
100,000
350,000
550,000
750,000
750,000
400,000
100,000
500,000
350,000
500,000
—
125,000
5,325,000
(23)
(16,049)
Senior unsecured debentures
$
5,308,928 $
200,000
200,000
200,000
250,000
100,000
350,000
550,000
750,000
750,000
400,000
100,000
500,000
350,000
—
300,000
125,000
5,125,000
(961)
(16,279)
5,107,760
As at December 31, 2022, the senior unsecured debentures had a weighted average effective interest rate of 3.79% and a
weighted average term to maturity of 5.2 years (December 31, 2021 - 3.56% and 5.4 years, respectively). Senior unsecured
debentures Series B through Series R were issued by the Trust, Series D-C was assumed by the Trust on May 4, 2018,
following the acquisition of Canadian Real Estate Investment Trust, and Series 10 was issued by the Partnership.
On June 24, 2022, the Trust completed an issuance, on a private placement basis, of $500 million aggregate principal
amount of Series R senior unsecured debentures bearing interest at a rate of 6.003% per annum and maturing on June 24,
2032. The Trust repaid (i) for the early redemption of Choice Properties Limited Partnership's $300 million principal amount
of 3.60% series 10 senior unsecured debentures on June 26, 2022, (ii) a portion of the balance drawn on the Trust's credit
facility, and (iii) for general business purposes.
Choice Properties REIT
2022 Annual Report 146
Notes to the Consolidated Financial Statements
Mortgages Payable
($ thousands)
Mortgage principal
Net debt discounts and premiums - net of accumulated amortization of $5,973
(2021 - $5,968)
Debt placement costs - net of accumulated amortization of $491 (2021 - $307)
Mortgages payable
As at
As at
December 31, 2022
December 31, 2021
948,919 $
1,112,310
(1,305)
(1,655)
(1,300)
(1,666)
945,959 $
1,109,344
$
$
As at December 31, 2022, the mortgages had a weighted average effective interest rate of 3.92% and a weighted average
term to maturity of 5.0 years (December 31, 2021 - 3.75% and 5.2 years, respectively).
Construction Loans
As at December 31, 2022, $39,214 was outstanding on the construction loans (December 31, 2021 - $12,906), with a
weighted average effective interest rate of 3.54% and a weighted average term to maturity of 5.5 years which are due on
demand (December 31, 2021 - 2.08% and 6.0 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 and fixed rate non-revolving construction facilities in which
certain subsidiaries of the Trust guarantee its own share. These construction loans, which mature throughout 2023 and 2031,
have a maximum amount available to be drawn at the Trust’s ownership interest of $436,741, of which $345,951 relates to
equity accounted joint ventures as at December 31, 2022 (December 31, 2021 - $293,151 and $227,462, respectively).
Schedules of Repayments and Cash Flow Activities
The schedule of principal repayment of long term debt, based on maturity, is as follows:
($ thousands)
2023
2024
2025
2026
2027 Thereafter
Total
Senior unsecured debentures
$ 575,000 $ 750,000 $ 550,000 $ 350,000 $ 500,000 $ 2,600,000 $ 5,325,000
Mortgages payable
Construction loans
Total
78,821
205,130
153,595
64,655
85,263
361,455
948,919
4,639
11,208
—
—
—
23,367
39,214
$ 658,460 $ 966,338 $ 703,595 $ 414,655 $ 585,263 $ 2,984,822 $ 6,313,133
The following table reconciles the changes in cash flows from financing activities for long term debt:
December 31,
2022
December 31,
2021
($ thousands)
Senior
unsecured
debentures
Mortgages
payable
Construction
loans
Long term debt
Long term debt
Balance, beginning of year
$ 5,107,760 $ 1,109,344 $
12,906 $
6,230,010 $
6,485,521
Issuances and advances
500,000
4,738
26,355
531,093
392,292
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
(300,000)
(153,324)
(2,821)
(173)
(47)
—
197,179
(148,759)
26,308
—
938
3,051
3,989
(14,805)
(5)
184
(14,626)
—
—
—
—
(453,371)
(648,907)
(2,994)
74,728
(14,805)
933
3,235
(10,637)
(2,700)
(259,315)
—
687
3,117
3,804
$ 5,308,928 $
945,959 $
39,214 $
6,294,101 $
6,230,010
Choice Properties REIT
2022 Annual Report 147
Notes to the Consolidated Financial Statements
Note 15. Credit Facility
($ thousands)
Credit facility
$1,500,000 syndicated
Debt placement costs - net of accumulated amortization of $10,607 (2021 - $8,758)(i)
Credit facility
Classified as:
Expected to be settled in more than twelve months
Expected to be settled in less than twelve months
As at
As at
December 31, 2022
December 31, 2021
$
$
$
$
260,000 $
(2,383)
257,617 $
257,617 $
—
257,617 $
—
—
—
—
—
—
(i)
At December 31, 2021, as there were no drawings under the syndicated facility, the unamortized balance for debt placement costs of $3,555 was included
in other assets (Note 13).
Choice Properties has a $1,500,000 senior unsecured committed revolving credit facility maturing September 1, 2027,
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 the credit ratings for Choice Properties from either DBRS and S&P
remaining at BBB (high). The credit facility is subject to an annual commitment fee of approximately $3,600, however the fee
is reduced in proportion to the amount drawn on the facility. As at December 31, 2022, $260,000 was drawn under the
syndicated facility (December 31, 2021 - $nil).
The credit facility contains certain financial covenants. As at December 31, 2022, the Trust was in compliance with all its
financial covenants for the credit facility.
During the year ended December 31, 2022, the Trust extended the maturity date for the credit facility from June 24, 2026 to
September 1, 2027 with all other terms and conditions remaining substantially the same.
Schedule of Cash Flow Activities
The following table reconciles the changes in cash flows from financing activities for the credit facility:
($ thousands)
Balance, beginning of year
Net advances of $1,500,000 syndicated credit facility
Extension fee included in debt placement costs
Total cash flow activities
Amortization of debt placement costs
Reclassified to (from) other assets
Total non-cash activities
Balance, end of year
December 31, 2022
December 31, 2021
$
— $
260,000
(677)
259,323
1,849
(3,555)
(1,706)
$
257,617 $
—
—
(1,832)
(1,832)
1,614
218
1,832
—
Choice Properties REIT
2022 Annual Report 148
Notes to the Consolidated Financial Statements
Note 16. 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,
directly or indirectly, 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
Number 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
Note
As at December 31, 2022
As at December 31, 2021
($ thousands except where otherwise indicated)
Units
Amount
Units
Amount
Units, beginning of period
327,588,847 $ 3,660,941
326,941,663 $ 3,652,620
Units issued under unit-based compensation arrangements
19
404,449
2,776
837,071
9,332
Reclassification of vested Unit-Settled Restricted Units liability to
equity
—
1,337
—
1,548
Units repurchased for unit-based compensation arrangements
19
(222,147)
(3,449)
(189,887)
(2,559)
Units, end of period
327,771,149 $ 3,661,605
327,588,847 $ 3,660,941
Exchangeable Units, beginning of period
395,786,525 $ 6,011,997
395,786,525 $ 5,149,182
Adjustment to fair value of Exchangeable Units
—
(170,188)
—
862,815
Exchangeable Units, end of period
395,786,525 $ 5,841,809
395,786,525 $ 6,011,997
Total Units and Exchangeable Units, end of period
723,557,674
723,375,372
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, 2022, Choice Properties received approval from the TSX to purchase up
to 27,566,522 Units during the twelve-month period from November 21, 2022 to November 22, 2023, 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,
as applicable (Note 19).
Choice Properties REIT
2022 Annual Report 149
Notes to the Consolidated Financial Statements
Units Repurchased for Unit-Based Compensation Arrangement
The Trust acquired Units under its NCIB during the year ended December 31, 2022 and the year ended December 31, 2021,
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 17). 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, 2022, Choice Properties declared cash distributions of $0.740 per unit (December 31, 2021 -
$0.740), or $535,407 in aggregate, including distributions to holders of Exchangeable Units, which are reported as interest
expense (December 31, 2021 - $535,104). 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.
On February 15, 2023, the Trust announced an increase in the annual distribution by 1.4% to $0.75 per unit. The increase will
be effective for Unitholders of record on March 31, 2023.
The holders of Exchangeable Units may elect to defer receipt of all, or a portion of distributions declared by the Partnership
until the first date following the end of the fiscal year. If the holder elects to defer, the Partnership will loan the holder the
amount equal to the deferred distribution without interest, and the loan will be due and payable in full on the first business
day following the end of the fiscal year the loan was advanced.
Distribution Reinvestment Plan (“DRIP”)
Choice Properties instituted a DRIP that allows eligible Unitholders to elect to automatically reinvest their regular monthly
cash distributions in additional Units. On April 25, 2018, the Board suspended the DRIP commencing with the distribution
declared in May 2018. The DRIP will remain suspended until further notice.
Note 17. Income Taxes
The Trust is taxed as a “mutual fund trust” and a REIT under the Income Tax Act (Canada). The Trustees intend to distribute
all of the Trust’s taxable income to the Unitholders and accordingly, the Trust is not taxable on its Canadian investment
property income. The Trust is subject to taxation on certain taxable entities in Canada and the United States.
Income taxes recognized in the consolidated statements of income and comprehensive income was as follows:
($ thousands)
Current income tax expense
Deferred income tax recovery
Income tax recovery
Year Ended
December 31, 2022
December 31, 2021
$
$
(2) $
119
117 $
(13)
692
679
A deferred income tax asset of $2,792 (Note 13) 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, 2021 - $2,673).
Choice Properties REIT
2022 Annual Report 150
Notes to the Consolidated Financial Statements
Note 18. Trade Payables and Other Liabilities
($ thousands)
Trade accounts payable
Accrued liabilities and provisions(i)
Accrued acquisition transaction costs and other related expenses
Accrued capital expenditures(ii)
Accrued interest expense
Due to related party(iii)
Contingent consideration
Unit-based compensation
Distributions payable(iv)
Lease liabilities
Tenant deposits
Deferred revenue
Designated hedging derivatives
Trade payables and other liabilities
Classified as:
Expected to be settled in more than twelve months
Expected to be settled in less than twelve months
Note
December 31, 2022
December 31, 2021
As at
As at
$
36,577 $
120,367
38,896
60,740
51,074
196,785
16,724
16,033
20,387
1,960
20,263
22,041
—
32
19
27
40,283
106,744
38,643
67,967
53,402
193,927
38,843
14,285
20,344
1,920
21,960
20,162
1,925
$
$
$
601,847 $
620,405
23,377 $
578,470
601,847 $
22,332
598,073
620,405
(i)
(ii)
(iii)
(iv)
Includes amounts payable to Loblaw of $13,963 (December 31, 2021 - $nil) (Note 32).
Includes construction allowances payable to Loblaw of $16,106 (December 31, 2021 - nil) (Note 32).
Includes distributions accrued on Exchangeable Units of $195,256 payable to GWL (December 31, 2021 - $192,741); $1,233 payable for shared costs
incurred by GWL, the Services Agreement expense and other related party charges (December 31, 2021 - $835); and $296 of reimbursed contract revenue
and other related party charges payable to Loblaw (December 31, 2021 - $351).
Includes distributions payable to GWL of $3,124 and Wittington of $1,018 (December 31, 2021 - $3,124 and $1,018) (Note 32).
Contingent Consideration
On March 30, 2021, the Trust acquired an 85% interest in future industrial development land in Caledon, Ontario, for
$138,000. The purchase price comprised a $100,000 cash payment and a commitment to pay the remaining $38,000 balance
based on certain milestones being met over the development lifecycle, which represented the then present value of the
estimated amount payable. A payment of $23,100 was made upon reaching the first development milestone. The present
value of the remaining estimated amount payable is $16,724 as at December 31, 2022. (December 31, 2021 - $38,843)
Choice Properties REIT
2022 Annual Report 151
Notes to the Consolidated Financial Statements
Note 19. Unit-Based Compensation
($ 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, 2022
December 31, 2021
$
$
$
$
263 $
3,608
2,241
1,860
7,972 $
6,781 $
1,191
7,972 $
662
3,592
970
1,961
7,185
5,605
1,580
7,185
As at December 31, 2022, the carrying value of the unit-based compensation liability was $16,033 (December 31, 2021 -
$14,285) (Note 18).
Unit Option Plan
Choice Properties maintains a Unit Option plan for certain employees. Under this plan, Choice Properties may grant Unit
Options totalling up to 19,744,697 Units, as approved at the annual and special meeting of Unitholders on April 29, 2015. The
Unit Options vest in tranches over a period of four years. The following is a summary of Choice Properties’ Unit Option plan
activity:
Year ended December 31, 2022
Year ended December 31, 2021
Number of awards
Weighted average
exercise price/unit
Number of awards
Weighted average
exercise price/unit
Outstanding Unit Options, beginning of the period
435,456 $
Exercised
Outstanding Unit Options, end of the period
Unit Options exercisable, end of the period
(182,302)
253,154 $
253,154 $
12.84
13.98
12.01
12.01
1,082,640 $
(647,184)
435,456 $
292,592 $
12.54
12.34
12.84
13.13
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 remaining life of options
As at December 31, 2022
As at December 31, 2021
4.94%
5.03%
13.66% - 20.93%
13.38% - 21.46%
0.05% - 4.36%
0.001% - 0.84%
0.1 - 0.7 Years
0.1 - 1.7 Years
The following table details the Unit Options outstanding as at December 31, 2022:
Exercise Price
$14.21
$11.92
$11.92 to $14.21
Expiry Date
Number of Unit Options outstanding
as at December 31, 2022
Remaining weighted
average life (in years)
2024
2025
9,854
243,300
253,154
1.2
2.2
2.1
Restricted Unit Plans
Choice Properties REIT
2022 Annual Report 152
Notes to the Consolidated Financial Statements
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 outstanding RUs had vested as at December 31,
2022 (December 31, 2021 - nil).
The following is a summary of Choice Properties’ RU plan activity:
(Number of awards)
Outstanding Restricted Units, beginning of the period
Granted
Reinvested
Exercised
Cancelled
Expired
Outstanding Restricted Units, end of the period
Year Ended
Year Ended
December 31, 2022
December 31, 2021
439,574
94,355
16,329
(257,604)
(21,499)
(8)
271,147
405,713
119,134
22,014
(104,563)
(2,724)
—
439,574
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 1,217,340
URUs vested but still subject to disposition restrictions as at December 31, 2022 (December 31, 2021 - 996,896).
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 the period
Granted
Cancelled
Vested
Outstanding Unit-Settled Restricted Units, end of the period
Year Ended
Year Ended
December 31, 2022
December 31, 2021
600,919
230,682
(1,989)
(162,893)
666,719
588,534
189,887
—
(177,502)
600,919
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, 2022 (December 31, 2021 - nil).
Choice Properties REIT
2022 Annual Report 153
Notes to the Consolidated Financial Statements
The following is a summary of Choice Properties’ PU plan activity:
(Number of awards)
Outstanding Performance Units, beginning of the period
Granted
Reinvested
Exercised
Cancelled
Added by performance factor
Outstanding Performance Units, end of the period
Year Ended
Year Ended
December 31, 2022
December 31, 2021
197,609
85,221
12,081
(67,397)
(5,069)
15,973
238,418
135,695
82,847
9,403
(30,336)
—
—
197,609
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 the period
Granted
Reinvested
Exercised
Outstanding Trustee Deferred Units, end of the period
Year Ended
Year Ended
December 31, 2022
December 31, 2021
389,462
95,099
21,995
—
506,556
368,290
82,969
18,942
(80,739)
389,462
Choice Properties REIT
2022 Annual Report 154
Notes to the Consolidated Financial Statements
Note 20. 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
Related
Parties(i) Third-party
Year ended
December 31, 2022
Related
Parties(i)
Third-party
Year ended
December 31, 2021
$ 516,475 $ 346,704 $
863,179 $ 526,632 $ 357,396 $
884,028
142,082
73,596
97,228
78,322
239,310
146,172
100,301
151,918
62,999
86,091
246,473
149,090
—
10,187
10,187
1,798
10,932
12,730
Rental revenue
$ 732,153 $ 532,441 $
1,264,594 $ 737,601 $ 554,720 $
1,292,321
(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.
Future base rent revenue, excluding adjustments for straight-line rent, for the years ended December 31 is as follows:
($ thousands)
2023
2024
2025
2026
2027
Thereafter
Total
Note 21. Property Operating Costs
($ thousands)
Property taxes and insurance
Recoverable operating costs
Non-recoverable operating costs
Property operating costs
$
942,555
907,254
837,503
758,851
653,678
2,143,074
$
6,242,915
Year Ended
December 31, 2022
December 31, 2021
$
$
254,463 $
105,652
3,838
363,953 $
261,905
111,404
6,997
380,306
Included in non-recoverable operating expenses are expected credit losses of $1,593 for the year ended December 31, 2022,
respectively (2021 - $4,388). Refer to Note 13 for discussion on rents receivable and the related expected credit losses.
Choice Properties REIT
2022 Annual Report 155
Notes to the Consolidated Financial Statements
Note 22. Interest Income
Year Ended
($ thousands)
Note
December 31, 2022
December 31, 2021
Interest income from mortgages and loans receivable(i)
10
$
19,120 $
Income earned from financial real estate assets
Income from financial real estate assets due to changes in value
8
Other interest income
Interest income
5,709
783
1,748
$
27,360 $
11,224
4,295
2,556
2,004
20,079
(i)
Interest income from mortgages and loans receivable includes accretion income in relation to the promissory note issued to Allied of $3,758 for the year
ended December 31, 2022 (2021 - $nil)
Note 23. Fee Income
($ thousands)
Fees charged to related party
Fees charged to third parties
Fee income
Year Ended
Note
December 31, 2022
December 31, 2021
32
$
$
722 $
3,071
3,793 $
315
3,486
3,801
Note 24. Net Interest Expense and Other Financing Charges
($ thousands)
Note
December 31, 2022
December 31, 2021
Interest on senior unsecured debentures
$
192,774 $
186,671
Year Ended
Fees incurred on early repayment of debentures
Interest on mortgages and construction loans
Interest on credit facility
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)
—
39,128
8,839
148
933
5,084
292,884
539,790
(2,933)
14
14,15
32
5,9
Net interest expense and other financing charges
$
536,857 $
(i)
(ii)
Represents interest on indebtedness due to GWL.
Interest was capitalized to qualifying development projects based on a weighted average interest rate of 3.74% (2021 - 3.64%).
1,512
46,260
4,275
147
687
4,731
292,884
537,167
(2,642)
534,525
Choice Properties REIT
2022 Annual Report 156
Notes to the Consolidated Financial Statements
Note 25. General and Administrative Expenses
($ thousands)
Salaries, benefits and employee costs(i)
Investor relations and other public entity costs
Professional fees
Information technology costs
Services Agreement charged by related party
32
Amortization of other assets
Office related costs
Other
Total
Less: Allocated to recoverable operating expenses
Year Ended
Note
December 31, 2022
December 31, 2021
$
48,406 $
44,226
2,959
3,498
7,075
3,901
1,201
1,510
2,062
70,612
(22,791)
2,616
4,079
6,324
3,094
1,294
2,861
483
64,977
(24,060)
40,917
General and administrative expenses
$
47,821 $
(i)
Salaries, benefits and employee costs is shown net of costs capitalized to properties under development.
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, and derivatives 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.
The risk related to its mortgages, loans and notes receivable arise in the event that the borrowers default on the
repayment of such financing. Choice Properties has established a program with a group of strategic development
partners whereby the Trust provides financing in the form of mezzanine loans, joint venture financing, vendor take-back
financing and other arrangements. In exchange, the Trust generally receives an option or other rights to acquire an
interest in real property assets. The Trust mitigates this risk by ensuring the loans are well secured by real property
assets and by obtaining guarantees where necessary.
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.
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.
Choice Properties REIT
2022 Annual Report 157
Notes to the Consolidated Financial Statements
The majority of Choice Properties’ debt is financed at fixed rates with maturities staggered over the long-term, 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 Trust 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 (2021 - $15,000)
(assuming fully drawn credit facility).
Unit Price Risk - Exchangeable Units
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 net income when the Unit price rises
and positively impact net 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 (2021 - $395,787) and Unit-based compensation
liabilities of $1,268 (2021 - $1,299).
Unit Price Risk - Investment in Real Estate Securities
Choice Properties is exposed to unit price risk as a result of its investment in the Class B Units of Allied Properties
Exchangeable Limited Partnership (Note 11), which are economically equivalent to and exchangeable for the publicly
traded units of Allied. The Class B Units are recorded at their fair value based on market trading prices the publicly
traded units of Allied.
An decrease of $1.00 in the underlying price of Allied’s publicly traded units would result in a decrease to assets and
decrease in net income of $11,809 (2021 - $nil).
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 its 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, property maintenance costs, development spending, other capital expenditures, 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 Indentures. 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
2022 Annual Report 158
Notes to the Consolidated Financial Statements
The undiscounted future principal and interest payments on Choice Properties’ debt instruments are as follows:
($ thousands)
2023
2024
2025
2026
2027
Thereafter
Total
Senior unsecured debentures $
771,006 $
926,067 $
696,011 $
481,695 $
615,979 $ 3,003,846 $
6,494,604
Mortgages payable
Construction loans(i)
Credit facility(i)
114,839
234,425
175,226
81,731
99,857
413,423
1,119,501
4,639
11,208
—
—
—
—
—
—
—
23,367
260,000
—
39,214
260,000
Total
$
890,484 $ 1,171,700 $
871,237 $
563,426 $
975,836 $ 3,440,636 $
7,913,319
(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.
As at December 31, 2022
As at December 31, 2021
Note
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
($ thousands)
Assets
Fair value through profit and loss:
Mortgages, loans and notes
receivable
Lease receivable
Financial real estate assets
Investment in real estate
securities
Designated hedging derivatives
Amortized cost:
Mortgages, loans and notes
receivable - SPPI
10
13
8
11
13
10
Cash and cash equivalents
29 (c)
Liabilities
Fair value through profit and loss:
Exchangeable Units
Unit-based compensation
Designated hedging derivatives
Amortized cost:
Long term debt
Credit facility
16
19
18
14
15
$
— $
— $ 163,127 $ 163,127
$
— $
— $
96,623 $
96,623
—
—
—
—
23,426
23,426
109,509
109,509
—
302,314
—
12,909
—
—
302,314
12,909
—
—
—
512,800
512,800
64,736
—
64,736
—
—
—
—
—
—
—
—
—
3,266
22,351
22,351
86,603
86,603
—
—
—
3,266
—
257,800
257,800
84,304
—
84,304
—
5,841,809
—
5,841,809
—
6,011,997
—
6,011,997
—
—
—
16,033
—
—
—
16,033
—
—
5,946,834
5,946,834
—
257,617
—
257,617
—
—
—
—
14,285
1,925
—
—
14,285
1,925
—
6,526,570
6,526,570
—
—
—
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, 2022, two interest rate swaps were settled upon
maturity of the underlying variable rate mortgages. As at December 31, 2022, the interest rates ranged from 2.8% to 4.4%
(December 31, 2021 - 2.8% to 4.4%).
Choice Properties REIT
2022 Annual Report 159
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
Note
Maturity
Date
Notional
As at
As at
Amount
December 31, 2022
December 31, 2021
13
May 2023 - Jun 2030
$
157,926 $
12,909 $
3,266
18
—
—
—
1,925
During the year ended December 31, 2022, the Trust recorded an unrealized fair value gain in other comprehensive income of
$11,568 (December 31, 2021 - unrealized fair value gain of $6,343).
Note 28. Capital Management
In order to maintain or adjust its capital structure, Choice Properties may issue new Units and debt, repay debt, or adjust the
amount of distributions paid to Unitholders. Choice Properties manages its capital structure with the objective of:
complying with the guidelines set out in its Declaration of Trust;
complying with debt covenants;
•
•
• maintaining credit rating metrics consistent with those of investment grade REITs;
•
ensuring sufficient liquidity is available to support its financial obligations and to execute its operating and strategic
plans;
• maintaining financial capacity and flexibility through access to capital to support future growth and development;
and
• minimizing its cost of capital while taking into consideration current and future industry, market and economic risks
and conditions.
Financing activity during the year ended December 31, 2022 and 2021, consisted of the repayment and issuance of various
senior unsecured debentures (Note 14).
Choice Properties has certain key covenants in its debentures and its committed credit facility. The key financial covenants
include debt service ratios and leverage ratios, as defined in the respective agreements. These ratios are measured by the
Trust on an ongoing basis to ensure compliance with the agreements. Choice Properties was in compliance with each of the
key financial covenants under these agreements as at December 31, 2022 and December 31, 2021.
The following schedule details the capitalization of Choice Properties:
($ thousands)
Liabilities
Senior unsecured debentures
Mortgages payable
Construction loans
Credit facility
Exchangeable Units
Equity
Unitholders’ equity
Total
Note
As at December 31, 2022
As at December 31, 2021
14
14
14
15
16
16
$
5,325,000 $
948,919
39,214
260,000
5,841,809
5,125,000
1,112,310
12,906
—
6,011,997
$
3,824,153
16,239,095 $
3,310,191
15,572,404
Choice Properties REIT
2022 Annual Report 160
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
Reversal of expected credit loss on mortgage receivable
Amortization of intangible assets
Adjustment to fair value of Exchangeable Units
Adjustment to fair value of investment properties
Adjustment to fair value of investment in real estate securities
Other fair value (gains) losses, net
Items not affecting cash and other items
(b) Net change in non-cash working capital
Note
December 31, 2022
December 31, 2021
Year Ended
5
19
10
12
16
5
11
$
(2,554) $
6,781
—
1,000
(170,188)
(113,115)
248,346
1,191
(7,893)
5,605
(1,502)
1,000
862,815
(458,817)
—
1,580
$
(28,539) $
402,788
($ thousands)
Note
December 31, 2022
December 31, 2021
Net change in accounts receivable and other assets
Net change in trade payables and other liabilities
13
18
(11,122)
7,217
Net change in non-cash working capital
$
(3,905) $
3,369
23,496
26,865
Year Ended
(c) Cash and cash equivalents
($ thousands)
Cash
Cash and cash equivalents
As at
As at
December 31, 2022
December 31, 2021
$
$
64,736 $
64,736 $
84,304
84,304
Choice Properties REIT
2022 Annual Report 161
Notes to the Consolidated Financial Statements
Note 30. Segment Information
Choice Properties operates in three reportable segments: retail, industrial and mixed-use, residential, and other. The
segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker
(“CODM”), determined to be the senior leadership team, which is comprised of the Chief Executive Officer (“CEO”), the Chief
Financial Officer (“CFO”) and Chief Operating Officer (“COO”) of the Trust. The CODM measures and evaluates the
performance of the Trust based on net rental income.
In the first quarter of 2022, the Trust disposed of a portfolio of six office assets to Allied (Note 4), significantly reducing the
size of its office portfolio. Concurrent with the disposition the Trust revised its internal reporting structure, combining its
remaining office properties and residential properties into the mixed-use, residential, and other segment. Segment
information for the period ended December 31, 2021 has been revised to reflect this change.
The table below presents net rental income for the year ended December 31, 2022, in a manner consistent with internal
reporting. The accounting policies of the segments presented here are the same as those described in Note 2 of the annual
financial statements, except that segment rental revenue and segment property operating costs include the proportionate
share of revenues and property operating costs of joint ventures and financial real estate assets.
($ thousands)
Rental revenue
Retail
Industrial
Mixed-Use,
Residential
& Other
Consolidation
and eliminations(i)
Year ended
December 31, 2022
$ 1,033,020 $ 208,655 $
97,842 $
(74,923) $
1,264,594
Property operating costs
(293,770)
(53,947)
(42,663)
26,427
Net Rental Income
$ 739,250 $ 154,708 $
55,179 $
(48,496) $
(363,953)
900,641
(i)
Reconciling items adjust Choice Properties’ proportionate share of joint ventures to reflect the equity method of accounting under IFRS.
The table below presents net rental income for the year ended December 31, 2021, in a manner consistent with internal
reporting. The accounting policies of the segments presented here are the same as those described in Note 2 of the annual
financial statements, except that segment rental revenue and segment property operating costs include the proportionate
share of revenues and property operating costs of joint ventures and financial real estate assets.
($ thousands)
Rental revenue
(restated)
Retail
Industrial
Mixed-Use,
Residential
& Other
Consolidation
and eliminations(i)
Year ended
December 31, 2021
$ 1,016,387 $ 205,268 $ 132,002 $
(61,336) $
1,292,321
Property operating costs
(293,273)
(52,708)
(55,710)
21,385
Net Rental Income
$ 723,114 $ 152,560 $
76,292 $
(39,951) $
(380,306)
912,015
(i)
Reconciling items adjust Choice Properties’ proportionate share of joint ventures to reflect the equity method of accounting under IFRS.
Choice Properties REIT
2022 Annual Report 162
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, 2022, the aggregate gross
potential liability related to these letters of credit totalled $32,897 (December 31, 2021 - $32,579).
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.
c. Commitments
Choice Properties has entered into contracts for development and property capital projects and has other contractual
obligations. The Trust is committed to future payments of approximately $258,000, of which $106,000 relates to equity
accounted joint ventures as at December 31, 2022 (December 31, 2021 - $436,000 and $26,000, respectively).
d. Contingent Liabilities
The Trust held debt obligations in the amount of $244,579 in its equity accounted joint ventures as at December 31,
2022 (December 31, 2021 - $250,051). 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
2022 Annual Report 163
Notes to the Consolidated Financial Statements
Note 32. Related Party Transactions
Choice Properties’ parent corporation is GWL, which as at December 31, 2022, held either directly or indirectly, a 61.7%
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, 2022. Choice Properties’ ultimate parent is Wittington
Investments, Limited.
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, 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. Weston
Foods (Canada) Inc. amalgamated with George Weston Limited in July 2021 and the Exchangeable Units held by Weston
Foods (Canada) Inc. were transferred to GWL. On December 29, 2021, GWL completed the sale of its entire Weston Foods
bakery business and any leases with Weston Foods (Canada) Inc. were transferred to a third-party buyer as part of the sale.
Services Agreement
For the year ended December 31, 2022, GWL provided Choice Properties with corporate, administrative and other support
services for an annualized cost of $3,901 (2021 - $3,094).
Distributions on Exchangeable Units
GWL, directly or indirectly, 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, 2022, distributions declared on the
Exchangeable Units totalled $73,221 and $292,884 (December 31, 2021 - $73,221 and $292,884).
As at December 31, 2022, Choice Properties had distributions on Exchangeable Units payable to GWL of $195,256
(December 31, 2021 - 192,741). The payable to GWL includes deferred distributions of $170,849 to be paid on the first
business day of the 2023 fiscal year (December 31, 2021 - $168,334).
Notes Receivable
Holders of Exchangeable Units may, in lieu of receiving all or a portion of their distributions, choose to be loaned an amount
from Choice Properties Limited Partnership, and to have such distributions made on the first business day following the end
of the fiscal year in which such distribution would otherwise have been made. The loans do not bear interest and are due and
payable in full on the first business day following the end of the fiscal year during which the loan was made. During the twelve
months ended December 31, 2022, GWL elected to receive seven months of distributions from Choice Properties Limited
Partnership in the form of loans. As such, non-interest bearing short-term notes totalling $170,849 were issued during the
twelve months ended December 31, 2022 to GWL and were repaid in January 2023. Non-interest bearing short-term notes
totalling $168,334 with respect to the loans received in the 2021 fiscal year were settled against distributions payable by the
Trust to GWL in January 2022.
Trust Unit Distributions
During the year ended December 31, 2022, Choice Properties declared cash distributions of $37,490 on the Units held by
GWL (December 31, 2021 - $37,490). As at December 31, 2022, $3,124 of Trust Unit distributions declared were payable to
GWL (December 31, 2021 - $3,124). There were no non-cash distributions settled through the issuance of additional Trust
Units during the year ended December 31, 2022 (December 31, 2021 - $nil).
Choice Properties REIT
2022 Annual Report 164
Notes to the Consolidated Financial Statements
Transaction Summary as Reflected in the Consolidated Financial Statements
Transactions with GWL recorded in the consolidated statements of income and comprehensive income were comprised as
follows:
($ thousands)
Rental revenue
Services Agreement expense
Distributions on Exchangeable Units
The balances due from (to) GWL and subsidiaries were as follows:
($ thousands)
Notes receivable
Other receivables
Exchangeable Units
Accrued liabilities
Distributions payable on Exchangeable Units
Distributions payable on Trust Units
Due to GWL and subsidiaries
Transactions and Agreements with Loblaw
Year Ended
Note
December 31, 2022
December 31, 2021
20
25
24
$
3,029 $
(3,901)
(292,884)
13,995
(3,094)
(292,884)
Note
December 31, 2022
December 31, 2021
As at
As at
10
13
16
18
18
18
$
170,849 $
168,334
623
—
(5,841,809)
(6,011,997)
(1,233)
(195,256)
(3,124)
(835)
(192,741)
(3,124)
$
(5,869,950) $
(6,040,363)
Acquisitions
During year ended December 31, 2022, Choice Properties acquired two financial real estate assets for an aggregate
purchase price $17,210, excluding transaction costs and a development property for a purchase price of $25,663, excluding
transaction costs from Loblaw.
During year ended December 31, 2021, Choice Properties acquired a financial real estate asset from Loblaw for a purchase
price of $14,777, excluding transaction costs.
On January 31, 2023, the Trust acquired three retail assets from Loblaw for an aggregate purchase price of $98,630.
Dispositions
During year ended December 31, 2022, Choice Properties disposed of one retail property which had a Loblaw lease for a sale
price of $25,750, excluding transaction costs.
During year ended December 31, 2021, Choice Properties disposed of 2 retail properties which had Loblaw leases for an
aggregate sale price of $33,500, 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 initial term of the Strategic
Alliance Agreement expires on July 5, 2023. Upon expiry of the initial term, the Strategic Alliance Agreement will be
automatically renewed until the earlier of July 5, 2033 or the date on which GWL and its affiliates own less than 50% of the
Trust on a fully diluted basis. 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.
Choice Properties REIT
2022 Annual Report 165
Notes to the Consolidated Financial Statements
Leases
During the year, the Trust and Loblaw renewed 42 of 44 retail leases from the initial public offering portfolio expiring in 2023.
Site Intensification Payments
Choice Properties compensated Loblaw with intensification payments of $2,687 in connection with completed gross leasable
area for which tenants took possession during the year ended December 31, 2022 (December 31, 2021 - $2,208).
Transaction Summary as Reflected in the Consolidated Financial Statements
Loblaw is the largest tenant for Choice Properties, representing approximately 57.5% of Choice Properties’ rental revenue for
the year ended December 31, 2022 (December 31, 2021 - 55.9%). Transactions with Loblaw recorded in the consolidated
statements of income and comprehensive income were comprised as follows:
($ thousands)
Rental revenue
Fee income
The balances due from (to) Loblaw were as follows:
($ thousands)
Rent receivable
Other receivables
Accrued liabilities
Construction allowances payable
Reimbursed contract payable
Due from (to) Loblaw
Year Ended
Note
December 31, 2022
December 31, 2021
20
23
$
727,593 $
—
721,994
65
Note
December 31, 2022
December 31, 2021
As at
As at
$
13
13
18
18
18
— $
57
(13,963)
(16,106)
(296)
$
(30,308) $
1,474
2,044
(85)
—
(266)
3,167
Transactions and Agreements with Wittington
Management Agreements
Choice Properties provides Wittington with property management services for certain properties with third-party tenancies
and development consulting services on a fee for service basis.
Trust Unit Distributions
During the year ended December 31, 2022, Choice Properties declared cash distributions of $3,052 and $12,210 on the Units
held by Wittington (December 31, 2021 - $3,052 and $12,210). As at December 31, 2022, $1,018 of Trust Unit distributions
declared were payable to Wittington (December 31, 2021 - $1,018). There were no non-cash distributions settled through the
issuance of additional Trust Units during the year ended December 31, 2022 and 2021.
Transaction Summary as Reflected in the Consolidated Financial Statements
Transactions with Wittington recorded in the consolidated statements of income and comprehensive income were comprised
as follows:
($ thousands)
Rental revenue
Fee income
Year Ended
Note
December 31, 2022
December 31, 2021
$
20
23
1,531 $
722
1,612
250
Choice Properties REIT
2022 Annual Report 166
Notes to the Consolidated Financial Statements
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
Note
December 31, 2022
December 31, 2021
As at
As at
13
13
18
$
$
122 $
8,501 $
(1,018)
7,605 $
—
8,501
(1,018)
7,483
Transactions and Agreements with other related parties
Mortgages receivable
As at December 31, 2022, $113,780 of mortgages receivable included within mortgages, loans and notes receivable were to
entities which the Trust has an ownership interest in (December 31, 2021 - $9,378).
Transactions with Key Personnel
Key personnel are comprised of Trustees and certain members of the executive team of Choice Properties. Compensation of
key personnel was as follows:
($ 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
December 31, 2022
December 31, 2021
3,666
$
3,612
3,937
562
8,165
$
3,689
684
7,985
$
$
Note 33. Subsequent Events
On January 18, 2023, the Trust paid in full upon maturity, at par, plus accrued and unpaid interest thereon, the $125 million
aggregate principal amount of the Series D-C senior unsecured debentures outstanding. The repayment of the Series D-C
senior unsecured debenture was funded by an advance on the Trust’s credit facility.
On January 31, 2023, the Trust acquired three retail assets from Loblaw for an aggregate purchase price of $98,630.
On February 15, 2023, the Trust announced an increase in the annual distribution by 1.4% to $0.75 per unit. The increase will
be effective for Unitholders of record on March 31, 2023.
Subsequent to year end, the Trust entered into commitments for approximately $161,750 of mortgage financing.
Choice Properties REIT
2022 Annual Report 167
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 16, 2023 at 9:00 AM (ET) with a simultaneous audio webcast.
To access via teleconference, please dial (240) 789-2714 or (888) 330-2454 and enter the event passcode: 4788974. The link
to the audio webcast will be available on www.choicereit.ca/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.
Registrar and Transfer Agent
TSX Trust Company
P.O. Box 700, Station B
Montreal, QC, H3B 3K3
Tel: (416) 682-3860 (outside of Canada and US)
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: shareholderinquiries@tmx.com
Website: www.tsxtrust.com
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
Gordon A. M. Currie - Chair
Executive Vice President and Chief Legal Officer,
George Weston Limited
Christie J.B. Clark1
Corporate Director
L. Jay Cross1
President, The Howard Hughes
Corporation
Graeme M. Eadie2
Corporate Director
R. Michael Latimer2
Corporate Director
Cornell Wright
President, Wittington Investments, Limited
Diane A. Kazarian1
Corporate Director
Karen A. Kinsley1
Corporate Director
Nancy H.O. Lockhart2
Corporate Director
Dale R. Ponder1
Corporate Director
1 Audit Committee
2 Governance, Compensation and Nominating Committee
Ce rapport est disponible en français.
Value for
Generations
Head Office
The Weston Centre
700-22 St. Clair Avenue East
Toronto, Ontario