Delivering
today
Building for
the future
2023 Annual Report
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 have a
proven strategy to maximize the value of
our portfolio and create enduring value for
all our stakeholders. Our business is strong,
and we are well positioned to continue to
deliver on our Strategic Framework and
achieve our goals.
Our priorities of maintaining our market-
leading portfolio, sustaining operational
excellence and delivering on our
development pipeline remain the same,
while our near-term focus areas are
reflective of who we are and where we are
going. While delivering on our priorities we
continue to focus on strengthening our
unmatched foundation.
2
Annual Report 2023 Proven Strategic
Framework
Canada’s Preeminent REIT
S Creating
Enduring Value
L
A
O
G
Preservation
of capital
Stable and growing
cash flows
Increases in NAV and
distribution over time
1
2
3
Maintaining
market-leading portfolio
Sustaining
operational excellence
Delivering
development pipeline
S
E
U
L
A
V
Care
Ownership
Respect
Excellence
Strategic relationship with one of
Canada’s largest retailers
Embedded ESG practices
Experienced, engaged
and diverse team
Industry-leading balance sheet
S
E
I
T
I
R
O
R
P
I
N
O
I
T
A
D
N
U
O
F
3
Annual Report 2023 Our Near-Term
Focus
We continue to focus on improving the quality of
our portfolio, delivering a best-in-class operational
platform, and driving growth through development.
Through these actions, we are well-positioned to grow
cash flows and deliver stable and growing distributions.
S
E
I
T
I
R
O
R
P
I
Building
for the
Future
1
Maintaining
market-leading
portfolio
2
Sustaining
operational
excellence
3
Delivering
development
pipeline
Maximizing value
in our core asset
classes
Improving quality
through balanced
capital recycling
Delivering best-
in-class property
operations
capabilities
Executing on our
near-term Industrial
opportunity
Creating value
by advancing our
Mixed-Use and
Residential platform
Foundation
Strengthening our unmatched foundation
I
G
N
R
U
S
A
E
M
S
S
E
C
C
U
S
• Stable and growing cash flows from existing portfolio
• Growth through development pipeline
• Maintaining our industry leading balance sheet
• Stable and growing distributions
4
Annual Report 2023
Message
from the
President &
CEO
Delivering on our Strategic Framework
Fellow Unitholders,
Our business delivered another year of strong financial
and operational performance in 2023. At the beginning of
the year, we set out our three key financial goals:
preservation of capital, generating stable and growing
cash flow, and delivering net asset value appreciation
and distribution growth over time. We delivered on these
goals this past year by focusing on our strategic priorities
of maintaining a market leading portfolio, sustaining
operational excellence, and delivering on our
development pipeline. This would not have been possible
without the effort and performance of our most valuable
asset, our colleagues, and I thank each and every one of
them.
Our Portfolio
Our market leading portfolio is focused on retail,
industrial, and mixed-use & residential. Each of these
distinct asset classes has its own set of fundamentals
that support our goal of long-term value creation. We
continued to refine and improve our portfolio through the
careful execution of our capital recycling program in
2023. Specifically, we successfully completed $335
million in property dispositions, including the sale of our
remaining non-strategic office properties, and executed
$284 million in acquisitions of high-quality retail and
industrial properties.
Supporting our portfolio and tenants, our diverse and
talented team continued providing best-in-class property
management, leasing, and tenant engagement. Leasing
activities across our three asset classes remained strong,
supported by the strength of our tenant base, and we
maintained near full occupancy in 2023.
Our necessity-based retail portfolio continued to be one
of the largest and most resilient in Canada and provided
stable and consistent cash flow growth throughout 2023.
Our national footprint not only mirrors that of our largest
tenants but also means our neighbourhood centres are in
communities where Canadians live and work. Our tenants
remain resilient, with many retailers actively seeking to
expand their presence, especially in non-urban markets,
which continues to drive robust leasing demand for our
neighbourhood centres.
Our well-located industrial portfolio continued to be
exceptionally strong in 2023 and is well positioned to
drive cash flow growth as we capitalize on higher market
rents as our leases mature in this asset class. With limited
new industrial real estate supply and robust tenant
demand in key markets, we have a tremendous
opportunity to drive growth in this area.
We continued to execute on growing our mixed-use and
residential portfolio, positioning it for long-term growth.
The overall lack of housing supply continued to support
rental rate growth across our assets and provides us with
an opportunity to help build additional housing for
Canada’s growing population.
Beyond our leading income producing portfolio, we
demonstrated our ability to execute on our development
pipeline. We improved our portfolio and diversified our
tenant base by adding 1.8 million square feet of new
commercial retail and industrial space and a new
purpose-built residential rental building. Our investment
in these developments of approximately $295 million,
delivered significant value creation with a fair value of
over $425 million and an average yield of 7.7%.
5
Annual Report 2023 MESSAGE FROM THE PRESIDENT & CEO
Our remaining development pipeline is significant and
continues to provide us with a meaningful opportunity to
add high-quality real estate to our portfolio. We have 14
active developments comprised of 11 retail, 2 industrial
and 1 residential project. In addition to our active
development projects, we have a substantial pipeline of
future developments with 27 projects totaling over 4.3
million square feet of commercial space and 10.4 million
square feet of mixed-use & residential space in different
stages of the rezoning and planning process.
Our Financial Strength
Early in 2023 we outlined our financial framework and
Outlook, and we successfully delivered on it with Same-
Asset NOI (cash basis) growth of 4.6% and FFO growth of
4.0% to $1.003/unit. We also ended 2023 with strong
debt metrics and ample liquidity. Our Adjusted Debt to
EBITDA ratio, net of cash, at the end of the year was 7.0
times, and we have a strong liquidity position with $1.5
billion available on our credit facility and approximately
$12.7 billion of unencumbered properties. We continued
to be disciplined in maintaining our balanced debt
maturity ladder and extended our weighted average
term to maturity to 5.7 years.
We are committed to maintaining a conservative yet
flexible balance sheet. Our prudent financial
management is crucial for stability and gives us a
competitive advantage to pursue opportunities when
they arise. With strong cash flow growth and a sound
financial position, we not only approved a distribution
increase in the first half of 2023, but are pleased to
announce another increase effective March 2024. This
underscores our commitment to sharing earnings growth
with you, our unitholders.
Sustainable Future
We recognize our responsibility as a significant landlord
in Canada, and we aspire to develop healthy and
resilient communities through dedication to social,
economic, and environmental sustainability. To achieve
this aspiration, we are focused on two areas where we
can have significant impact on environmental and social
sustainability: Fighting Climate Change and
Strengthening Communities to Prosper.
We advanced these pillars in 2023, including the
completion of asset-specific net-zero transition plans for
all income producing properties in our portfolio,
integrating low-carbon heating into development and
retrofit projects, starting on our first net-zero retail
development, and developing a social impact
framework.
We also enhanced our sustainability transparency with
the publishing of another detailed annual ESG Report,
achieved a second consecutive 4-star rating for the
GRESB Standing Investment (Operations) response (score
of 82 out of 100), and received an upgrade of our MSCI
ESG rating to “BBB” from “BB”.
Closing Remarks
In summary, 2023 was another successful year for our
business. Since our inception in 2013, we have created an
unmatched, high-quality portfolio, and a strong balance
sheet that can support our transformational
development pipeline. As the preeminent REIT in
Canada, our platform is strategically designed to deliver
stable and consistent returns for unitholders into the
future. We remain focused on delivering day-to-day
excellence in addition to our long-term objectives. On
behalf of Choice Properties, we thank you for your
continued support and confidence.
Rael L. Diamond
President & CEO
6
Annual Report 2023 Management’s
Discussion
and Analysis
3045 Mavis Road
Mississauga, ON
“ We delivered strong operating and financial results for the
quarter and year ended December 31, 2023. Our performance
was supported by stable and growing cash flows, reflecting the
strength and resilience of our grocery-anchored and necessity-
based retail portfolio and demand for our well-located
industrial assets.”
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 9 of this MD&A.
7
Annual Report 2023 Table of
Contents
Corporate Profile
Creating Enduring Value
Proven Strategic Framework
Our Near-Term Focus
Message from the President & CEO
Management’s Discussion and Analysis
Notes for Readers
A Snapshot of Choice
Market Leading Portfolio
Sustaining Operational Excellence
Transformational Development Program
Environmental, Social and
Governance Program
Prudent Financial Management
2
3
4
5
9
11
12
17
19
24
27
Financial Review
Key Performance Indicators and
Selected Financial Information
35
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 Judgments
36
38
56
65
69
75
82
83
85
Controls and Procedures 86
Enterprise Risks and Risk Management 87
Environmental, Social and
Governance (ESG)
Outlook
Non-GAAP Financial Measures
95
97
98
8
Annual Report 2023
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, 2023 and accompanying
notes (“2023 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’
2023 Financial Statements have been prepared in
accordance with International Financial Reporting
Standards as issued by the International Accounting
Standards Board (“IFRS Accounting Standards” 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 and as
such, are subject to change. Choice Properties can
give no assurance that such estimates, beliefs and
assumptions will prove to be correct.
Numerous risks and uncertainties could cause the
Trust’s actual results to differ materially from those
expressed, implied or projected in the forward-
looking statements, including those described in
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, 2023.
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
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;
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;
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 and
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.
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 (“Class B 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, 2023. 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.
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 (“Trust Units” or “Units”)
are listed on the Toronto Stock Exchange (“TSX”) and
are traded under the symbol “CHP.UN”.
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, 2023, 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.sedarplus.ca.
The information in this MD&A is current to February 14,
2024, unless otherwise noted.
All amounts in this MD&A are reported in thousands of
Canadian dollars, except where otherwise noted.
9
Annual Report 2023 301 Moore Avenue
Toronto, ON
10
Annual Report 2023 A Snapshot of Choice
Canada’s Preeminent REIT
Alberta
Total
Retail
Industrial
Mixed-Use & Residential
130
78
50
2
Saskatchewan
Total
Retail
16
16
Atlantic
Total
Retail
Industrial
96
79
17
2%
2%
19%
2%
9%
13%
45%
10%
British Columbia
Total
Retail
Industrial
43
38
5
Manitoba
Total
Retail
14
14
Ontario
295
Total
242
Retail
Industrial
45
Mixed-Use & Residential 8
Quebec
Total
Retail
Industrial
111
106
5
Retail
Industrial
Mixed-Use & Residential
705
66.1M
98.0%
16M+
High-quality properties
across Canada(i)
70+
Sites with future
development potential
sq. ft. of GLA(ii)
Occupancy(ii)
sq. ft. development pipeline(iii)
BBB (High)
DBRS rating
7.0x
Net-Zero
Adjusted Debt to
EBITDAFV, net of cash
By 2050
(i) Effective the fourth quarter of 2023, the Trust reassessed its internal definition of a distinct income producing property. The net impact was to increase the
number of income producing properties by two.
(ii) Includes 1.8 million sq. ft. that represents the building area on properties where the Trust has leased the underlying sites to the tenants through ground leases.
Effective the fourth quarter of 2023, building area associated with the Trust’s ground leases has been included in occupancy.
(iii) Includes 1.0 million sq. ft. that represents the building area on properties where the Trust will lease the underlying sites to the tenants through ground leases.
11
Annual Report 2023
Market
Leading
Portfolio
Canada’s Preeminent 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.
705
66.1M
Properties(i)
sq. ft. of GLA(ii)
NOI, Cash Basis(iii)
Income Producing
Properties Asset Value(iv)
Legend
Retail
Predominately necessity-
based grocery anchored
retail portfolio
Industrial
Flexible well-located
industrial portfolio
Mixed-Use & Residential
Transit oriented mixed-use and
residential portfolio
79%
70%
17%
4%
25%
5%
(i) Effective the fourth quarter of 2023, the Trust reassessed its internal definition of a distinct income producing property. The net impact was to increase the
number of income producing properties by two.
(ii) Includes 1.8 million sq. ft. that represents the building area on properties where the Trust has leased the underlying sites to the tenants through ground leases.
(iii) As a % of total NOI, Cash Basis(1) for the three months ended December 31, 2023.
(iv) As a % of total asset value(1) excluding development as at December 31, 2023.
12
Annual Report 2023
Winning Retail
Portfolio
Necessity-based, well-
located assets supported
by strong anchor tenants
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.
44.7M
573
sq. ft. of GLA(i)
Properties(ii)
$11.0B
97.7%
Fair value (Proportionate)(1)
Occupancy(i)
Strong Necessity-Based Retail Anchor Tenants
Reliable and stable cash flow
+64%
of revenue from Loblaw banners
+68%
of revenue is from grocery and pharmacy
+83%
of revenue from necessity-based retail
Calculated as a % of the retail segment’s gross rental revenue as at December 31, 2023 (Section 6)
(i) Includes 0.6 million sq. ft. that represents the building area on properties where the Trust has leased the underlying sites to the tenants through
ground leases. Effective the fourth quarter of 2023, building area associated with the Trust’s ground leases has been included in occupancy.
(ii) Effective the fourth quarter of 2023, the Trust reassessed its internal definition of a distinct income producing property. The net
impact was to decrease the number of retail income producing properties by three.
13
Annual Report 2023 High-Demand
Industrial
High-quality generic
industrial assets in key
distribution markets
Our industrial portfolio is centred around large, purpose-
built distribution facilities for Loblaw and high-quality
“generic”(i) industrial assets that readily accommodate the
diverse needs of a broad range of tenants.
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 accommodate the
expansion or contraction requirements of our tenant base.
19.7M
99.0%
sq. ft. of GLA(ii)
Occupancy(ii)
$3.9B
122
Fair value (Proportionate)(1)
Properties(iii)
Edmonton
10%
BC
Vancouver
AB
Calgary
10%
26%
SK
MB
sq. ft. (M)
% of Total
Distribution
Warehouse
Total GLA
16.9
2.8
19.7
86%
14%
Atlantic
7%
PE
NB
ON
QC
Montreal
8%
GTA
33%
Ottawa 1%
Kitchener/Cambridge/Waterloo 5%
Calculated as a % of total GLA as at December 31, 2023. Warehouse includes certain Small Bay assets.
(i) 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.
(ii) Includes 1.2 million sq. ft. that represents the building area on properties where the Trust has leased the underlying sites to the tenants through
ground leases. Effective the fourth quarter of 2023, building area associated with the Trust’s ground leases has been included in occupancy.
(iii) Effective the fourth quarter of 2023, the Trust reassessed its internal definition of a distinct income producing property. The net impact was to
increase the number of industrial income producing properties by five.
14
Annual Report 2023 Purpose-built rental
in key markets
Mixed-Use
& Residential
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.
1.7M
sq. ft. of GLA(i)
$0.8B
Fair value (Proportionate)(1)
10
Properties
94.2%
Occupancy(ii)
(i) 1.7 million sq. ft. of GLA includes 0.6 million sq. ft. associated with
Choice Properties’ 772 residential units.
(ii) Occupancy shown is for retail and office portion of Mixed-Use
properties, residential units are excluded.
15
Annual Report 2023 2994 Peddie Road
Milton, ON
16
Annual Report 2023 Sustaining Operational
Excellence
At Choice Properties, we strive to understand the
needs and values of our tenants so that we can 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 monitor and manage resource consumption
proactively through our environmental programs,
focused on reducing emissions and waste.
Recognized Management Excellence
We are proud to be one of the founding members of the
Accelerating Accessibility Coalition (“AAC”). In 2023, we
had accessibility experts assess over twenty properties
to identify how we could do better for Canadians of all
abilities. We continue to be recognized by the Fitwel
Viral Response module for efforts to prioritize the health
and safety of our colleagues, tenants, visitors and
other stakeholders. Moreover, we use green building
standards such as LEED and BOMA BEST to showcase
exemplary operational practices.
Delivering operational excellence, coupled with
proactive leasing, results in high occupancy rates,
income stability and long-term net asset value
appreciation.
Occupancy
sq. ft. GLA(i)
Fair Value
(Proportionate)(1)
Retail
97.7%
44.7M
$11.0B
Industrial
99.0% 19.7M
3.9B
Mixed-Use
& Residential(ii)
Development(iii)
94.2% 1.7M
0.8B
-
-
0.9B
Total(iv)
98.0% 66.1M
$16.6B
(i) Includes 1.8 million sq. ft. that represents the building area on properties where the Trust has leased the
underlying sites to the tenants through ground leases.
(ii) Occupancy shown is for retail and office portion of Mixed-Use properties, residential units are excluded.
1.7 million sq. ft. of GLA includes 0.6 million sq. ft. associated with Choice Properties’ 772 residential units.
(iii) Properties Under Development
(iv) Information presented here and throughout this report represents information as at December 31, 2023.
17
Annual Report 2023
The Weston Centre
Toronto, ON
18
Annual Report 2023 Transformational
Development
Program
Choice Industrial Centre
Surrey, BC
Leveraging Green Technology
We strive to reduce our environmental impact by
incorporating sustainable technologies into our new
developments. Across the country, we are integrating
technologies and products that reduce the carbon
footprint of our properties – this includes building
products such as insulation and concrete that have
reduced embodied carbon emissions and all-electric
or duel-fuel rooftop units that transition away from
carbon-intensive energy sources.
Activating Our Potential
Development initiatives are a key component of our
business plan, positioning Choice Properties for long-
term growth and value creation. Many of 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.
At Choice Properties, we have 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 impacts 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.
19
Annual Report 2023 Developing
with Purpose
Diversifying our tenant base while delivering steady growth
Retail
Delivering steady growth and maintaining
portfolio quality
Our retail projects include intensifications focused on adding at-grade retail density
at our existing retail properties and greenfield projects. These projects provide the
opportunity to expand our retail footprint and add new tenants, further diversifying
our high-quality tenant mix.
Industrial
Capitalizing on market trends with 6.0M sq. ft. of high-quality
industrial developments in core markets
Our industrial 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.
Mixed-Use & Residential
Transforming communities with long-term
development opportunities
Rendering
Mixed-use developments are a critical part of our long-term growth strategy. These
projects enable us to transform neighbourhoods into communities that are self-
sustaining and inclusive.
Development Pipeline 16.8M sq. ft.
Active
Zoned and Ready
In Planning
Total(i)(ii)
sq. ft.
Retail
2.0M
sq. ft.
0.1M
Retail
8.0M
sq. ft.
0.2M
Retail
Industrial
1.8M
Industrial
4.2M
Industrial
Mixed-Use
& Residential
0.1M
Mixed-Use
& Residential
3.6M
Mixed-Use
& Residential
6.8M
sq. ft.
n/a
n/a
6.8M
Retail
Industrial
Mixed-Use
& Residential
16.8M
0.3M
6.0M
10.5M
(i) At the Trust’s Share
(ii) Includes 1.0 million sq. ft. that represents the building area on properties where the Trust
will lease the underlying sites to the tenants through ground leases.
20
Annual Report 2023 2023 Achievements
We advanced our industrial portfolio, delivering 1.6M sq. ft. of new generation
logistics facilities.
Choice Eastway
Industrial Centre, Phase 1
East Gwillimbury, ON
Automated multi-temperature industrial facility
Rendering
Rendering
Element
Ottawa, ON
A unique rental community in the vibrant
Westboro Village, one of Ottawa’s most desirable
neighbourhoods
Completed
projects
Transferred
GLA (sq. ft.)
Total
Investment
Expected
stabilized
yield(2)
Retail(i)
Industrial(ii)
Mixed-Use
& Residential
Total
10
3
1
14
0.2M
$35.8M
7.7%
1.6M
200.8M
8.4%
0.1M
57.9M
5.1%
1.9M
$294.5M
7.7%
(i) Includes 0.1 million sq. ft. that represents the building area on properties where the Trust has leased the
underlying sites to the tenants through ground leases.
(ii) Includes 0.9 million sq. ft. that represents the building area on properties where the Trust has leased the
underlying sites to the tenants through ground leases.
21
Annual Report 2023 On the Move
We are focused on delivering our active development projects that will strengthen
our portfolio across each asset class.
Rendering
14
Projects under active
development
$479M
Estimated total
investment(2)
2.0M
sq. ft. estimated upon
completion(i)(2)
175
Estimated number of
residential units
Choice Caledon Business Park
(Buildings A&H)
Caledon, ON
Industrial development designed to deliver new
generation logistics space
Rendering
Rendering
Mount Pleasant Village
Brampton, ON
Residential development designed to deliver
geothermal heating and reduce embodied carbon
Strengthening Communities
At Choice Properties, we are proud to be an ILEO (Inclusive Local Economic
Opportunity) Corporate Charter signatory. The ILEO initiative brings together the
private, public, and community sectors to find innovative ways to reduce gaps in
economic prosperity at the neighbourhood level. In 2023, we organized a local pop-
up market with emerging business owners residing in the Golden Mile area as part of
ILEO’s Storefront Starter Program.
(i) Includes 1.0 million sq. ft. that represents the building area on properties where
the Trust will lease the underlying sites to the tenants through ground leases.
22
Annual Report 2023 Immense Opportunity
At Choice Properties, we continue to grow and create value through
its pipeline of potential commercial and mixed-use developments.
Mixed-Use & Residential
Industrial
10.4M
sq. ft. Potential Density(i)
12,000
228
Net Developable Acres(i)
4.2M
Potential Residential Units(i)
sq. ft. Potential Development(i)
Rendering
Rendering
Golden Mile
Toronto, ON
Choice Caledon Business Park
Caledon, ON
Zoning Approved (section 3.6)
Zoning Approved (section 3.6)
Rendering
25 Photography Drive
Toronto, ON
(i) At the Trust’s Share
23
Annual Report 2023 Environmental,
Social &
Governance
Program
“ Enabling our properties to adapt to
evolving environmental and societal
demands is fundamental to our ability to
support our tenants and strengthen our
communities.”
Orit Sarfaty
Vice President, Sustainability and Placemaking
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,
we aspire 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.
24
Annual Report 2023 2023 Highlights
Net-Zero
Completed asset-specific
net-zero transition plans
for all income producing
properties
Green Buildings
Achieved 5-year target of
certifying 65% of portfolio
GLA (at 100% share) under
LEED or BOMA BEST
Green Leasing
Rolled out new green lease
clauses to promote energy
efficiency, renewable
energy, and low-carbon
design
Culture
Named one of Greater
Toronto’s Top Employers (2023
& 2024) in recognition of
programs such as DEI-focused
group benefits enhancements
and mentorship program
Placemaking
The introduction of Vice
President, Sustainability
and Placemaking adds ESG
role to the senior leadership
team
Recognition
Maintained GRESB 4-star
rating for second consecutive
year (scored 82 on a 100-point
scale), ISS ESG Prime Status
Cybersecurity
Cybersecurity maturity
rating exceeds the industry
benchmark by over 16%
Choice Cares
Over $600K and 1,400 hours
of colleague time donated
to Canadian charities in
support of empowering
youth in low-income
communities
Social Impact
Framework
Developed a social impact
framework that will allow
us to further embed social
sustainability practices
across the business
and drive impact for
community stakeholders
25
Annual Report 2023 Focused
Pillars
Embedding ESG
We focus our ESG program around two pillars where we
can best create enduring value and which align with
our stakeholder interests: Fighting Climate Change and
Strengthening Communities to Prosper.
Fighting Climate Change
Strengthening Communities to Prosper
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 has ambitious science-based net-zero
greenhouse gas emissions 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.
At Choice Properties, we continue to take meaningful
steps to minimize our environmental impact by improving
the energy 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. In 2023, asset-specific net-zero transition plans
were completed for all income producing properties.
These plans provide the blueprint to continue to
improve the efficiency of our operations and focus on
transitioning from carbon-intensive equipment.
We at Choice Properties have a longstanding commitment
to advancing diversity, equity and inclusion (“DEI”) within
our organization. Our internal DEI programs, focused on
career advancement and cultural awareness training,
empower us to serve and connect better with our diverse
customers and stakeholders. 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.
We are committed to enhancing the economic well-being
and social fabric of the communities where we operate
and build. Since 2019, through our Choice Cares program,
we have contributed over $1.9 million and over 5,000 paid
volunteer hours to various Canadian charities selected by
our colleagues.
In 2023, to embed social sustainability practices further
across our business operations, we developed a social
impact framework. The framework outlines how we can
leverage our assets and non-profit partnerships across the
country to promote local economic development and social
cohesion at the neighbourhood level. We believe, that by
focusing our social impact efforts, coupled with our internal
DEI programs, we will be able to strengthen communities to
prosper.
26
Annual Report 2023
Prudent Financial
Management
TD Bank
Mississauga, ON
“ We have demonstrated our ability to successfully access the
debt markets, while maintaining our balanced debt ladder and
strong liquidity position. The quality of our portfolio and health
of our tenants combined with our industry leading balance sheet
continues to position Choice well in any environment.”
Mario Barrafato
Chief Financial Officer
27
Annual Report 2023 Harvest Pointe
Edmonton, AB
28
Annual Report 2023 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 2023
Q4 2022
Year Ended 2023
Year Ended 2022
Net Income (Loss)
Net loss decreased for the three months ended December 31, 2023 compared
to the prior year, primarily due to changes in the non-cash adjustment to fair
values, including: a $356.2 million favourable change in the adjustment to fair
value of the Trust’s Exchangeable Units(i) due to the change in the Trust’s Unit
price and a $47.4 million favourable change in the adjustment to fair value of
the investment in the real estate securities of Allied, driven by the increase in
Allied’s unit price in the fourth quarter, compared to a decrease in the prior year
quarter. The decrease was partially offset by an unfavourable change in the
adjustment to fair value of investment properties of $267.8 million as a result of
a fair value loss recognized in the fourth quarter compared to a gain in the prior
year quarter.
Net income increased for the year ended December 31, 2023 compared to the
prior year, primarily due to changes in the non-cash adjustment to fair values,
including: a $184.3 million favourable change in the adjustment to fair value of
the investment in the real estate securities of Allied, driven by lower mark-to-
market loss recorded in 2023 compared to 2022 and a $150.4 million favourable
change in the adjustment to fair value of the Trust’s Exchangeable Units(i) due to
the change in the Trust’s Unit price. The increase was partially offset by a $314.8
million decrease in income from equity accounted joint ventures primarily due
to the fair value gains recognized in the industrial development portfolio in the
prior year. In addition, increases in net operating income, interest income and
investment income, partially offset by increases in interest expense and general
and administrative expenses, contributed to the increase in net income.
Rental Revenue (GAAP)
Rental revenue increased for the three months and year ended December
31, 2023 compared to the prior year primarily due to higher rental rates on
renewals, new leasing, and contractual rent steps, mainly in the retail and
industrial portfolios. Further contributing to the increase were higher capital
and operating recoveries, acquisitions and completed developments, and
higher lease surrender revenue. The year ended December 31, 2023 increase
was partially offset by foregone revenue following the sale of six office assets
to Allied during the first quarter of 2022 (the “Allied Transaction”) and other
dispositions completed in the current and prior years.
FFO Per Unit Diluted(1)
FFO per unit diluted(1) increased for the three months and year ended
December 31, 2023 compared to the prior year, primarily due to the increase
in Same-Asset NOI, an increase in investment income as a result of the
special distribution announced by Allied (Section 3.9), income from the sale
of residential inventory, and an increase in interest income. The increase
was partially offset by increases in interest expense and general and
administrative expenses. The year-to-date increase was also negatively
impacted by the Allied Transaction which resulted in the loss of NOI, partially
offset by the distribution and interest income earned from the limited
partnership units and promissory note received from Allied in exchange for
the properties sold.
$(445,684)
$(579,000)
$600,000 $400,000 $200,000
$0
$200,000 $400,000 $600,000 $800,000
$796,691
$744,253
$329,109
$314,382
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,309,170
$1,264,594
$0.255
$0.241
$0
$0.200
$0.400
$0.600
$0.800
$1.000
$1.003
$0.964
(i) Exchangeable Units are required to be classified as financial liabilities at fair value through profit and loss under GAAP.
They are recorded at their fair value based on the market trading price of the Trust Units, which results in a negative impact
to the financial results when the Trust Unit price rises and a positive impact when the Trust Unit price declines.
*As at and for the three months and year ended December 31, 2023 and 2022 ($ thousands except where otherwise indicated)
29
Annual Report 2023 Q4 2023
Q4 2022
Year Ended 2023
Year Ended 2022
YTD Q3 2023
AFFO Per Unit Diluted(1)
AFFO per unit diluted(1) increased 0.6% and 2.9% for the three months
and year ended December 31, 2023, respectively, compared to the
prior year, primarily due to increases in FFO as noted above, and a
favourable change in the straight-line rent adjustment, partially offset
by an increase in capital spending.
$0.176
$0.175
$0
$0.150
$0.300
$0.450
$0.600
$0.750
$0.900
$0.827
$0.804
Same-Asset NOI, Cash Basis(1)
Same-Asset NOI, cash basis(1) increased 4.2% and 4.6% for the three
months and year ended December 31, 2023, respectively, compared
to the prior year, primarily due to increased revenue from higher rental
rates on renewals, contractual rent steps, and new leasing in the retail
and industrial portfolios. The increase was also impacted by higher
capital and operating recoveries.
$236,861
$227,273
$0
$150,000
$300,000
$450,000
$600,000
$750,000
$900,000
$932,101
$891,111
Period End Occupancy(i)
The increase was primarily due to the impact of development transfers
and transactions. Absorption over the year was relatively flat as expiring
leases were largely renewed or backfilled with new tenants.
80%
85%
90%
95%
100%
98.0%
97.9%
Adjusted Debt to EBITDAFV, Net of Cash(1)
Adjusted Debt to EBITDAFV, net of cash(1) improved compared to the
prior year. The change was primarily a result of an increase in excess
cash held at year end 2023 following the repayment of the promissory
note from Allied (Section 3.9). Further contributing to the improvement
was NOI growth, higher interest income, and higher investment income.
0.0
2.0
4.0
6.0
7.0
7.4
8.0
10.0
Development Spending (Proportionate)(1)
Development activity reflects the three months and year ended
December 31, 2023 and 2022 spending on active projects.
Development spending may vary depending on the stage of the
projects currently in progress.
$92,055
$37,431
$0
$40,000
$80,000
$120,000
$160,000
$200,000
$240,000
$125,585
$225,594
Transfers From Properties Under Development
to Income Producing (Proportionate)(1)
$72,350
$427,075
For the year ended December 31, 2023, the Trust transferred approximately
1,787,000 square feet of new commercial space and 126 units of residential
space (at the Trust’s share) from properties under development to income
producing.
$0
$50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000
(i) Effective the fourth quarter of 2023, building area associated with the Trust’s ground leases has been
included in occupancy in the current and comparative period.
30
Annual Report 2023 Mega Centre
Lebourgneuf, QC
31
Annual Report 2023 Fourth Quarter
Highlights
For the three months ended December 31, 2023
Operating
Investing
•
•
•
•
•
•
Reported FFO per unit diluted(1) for the quarter was $0.255,
an increase of $0.014 per unit diluted or 5.8% from the
prior year.
•
AFFO per unit diluted(1) for the quarter was $0.176,
compared to $0.175 in the prior year.
Same-Asset NOI on a cash basis(1) increased by 4.2% from
the fourth quarter 2022.
•
•
• Mixed-Use & Residential increased by 9.3%.
Retail increased by 3.2%;
Industrial increased by 8.5%; and
•
•
The Trust completed $238.1 million of transactions in the
quarter:
•
The acquisition of two retail properties and one
industrial property from Loblaw for an aggregate
purchase price of $82.5 million;
The disposition of four properties classified as asset
held for sale as at September 30, 2023, comprised
of a retail property, two industrial properties, and
Choice’s remaining non-core office property for
aggregate proceeds of $92.8 million; and
The disposition of two retail properties, a parcel
of land adjacent to a retail site, and an industrial
property for aggregate proceeds of $62.8 million.
•
•
Period end occupancy(i) improved to 98.0% from 97.7%
at September 30, 2023, with retail at 97.7%, industrial at
99.0% and mixed-use & residential at 94.2%(ii).
Choice’s fourth quarter results included income from the
Allied special distribution of $5.7 million as a result of the
sale of its urban data centre portfolio and income of $4.6
million recognized in relation to the sale of the Trust’s
ownership of 94 condominium units at its Mount Pleasant
Village residential project.
Net fair value loss on investment properties in the
quarter was $73.3 million on a proportionate share basis(1)
primarily resulting from the expansion of capitalization
rates for industrial and retail to reflect current market
conditions.
The Trust invested $92.1 million in its development
program during the quarter on a proportionate share
basis(1).
The Trust transferred $354.7 million of properties
under development to income producing status,
delivering approximately 1,434,000 square feet(iii) of
new commercial GLA on a proportionate share basis(1),
including Choice Eastway Industrial Centre located
in East Gwillimbury, ON and Choice Industrial Centre
located in Surrey, BC, as well as Element, a purpose-built
residential rental building, located in Ottawa, ON, with
126 units at the Trust’s share.
(i) Effective the fourth quarter of 2023, building area associated with the Trust’s ground leases has been included in occupancy.
(ii) Occupancy shown is for retail and office portion of Mixed-Use properties, residential units are excluded.
(iii) Includes 1.0 million sq. ft. that represents the building area on properties where the Trust has leased the underlying sites to the tenants
through ground leases.
32
Annual Report 2023 Year Ended
Highlights
For the year ended December 31, 2023
Operating
Investing
•
•
•
•
•
Reported FFO per unit diluted(1) for the year was $1.003, an
increase of $0.039 per unit diluted or 4.0% from the prior
year.
•
AFFO per unit diluted(1) for the year was $0.827, compared
to $0.804 in the prior year. The year-to-date AFFO payout
ratio was 90.5% compared to 92.0% in the prior year.
Same-Asset NOI on a cash basis(1) increased by 4.6% from
2022.
•
•
• Mixed-Use & Residential increased by 11.7%.
Retail increased by 3.6%;
Industrial increased by 8.3%; and
Period end occupancy(i) improved to 98.0% from 97.9%
at December 31, 2022, with retail at 97.7%, industrial at
99.0% and mixed-use & residential at 94.2%(ii).
During the year, the Trust and Loblaw renewed 47 of 49
leases expiring in 2024, comprising 2.80 million of 2.84
million square feet, at a weighted average extension term
of 4.9 years, and an average spread of 7.5%.
Financing
The Trust continued to focus on its capital recycling
efforts, disposing of non-core assets and reinvesting in
opportunities in its core business of essential retail and
industrial, our growing residential platform and our robust
development pipeline through:
•
The disposition of $334.6 million of non-core
assets, including our remaining office assets, on a
proportionate share basis(1);
The acquisition of $284.0 million essential retail
and industrial income producing properties, on a
proportionate basis(1);
•
•
• Ongoing investment in the development program
with $225.6 million of spending during the year on
industrial, residential, and retail intensifications and
greenfield development projects on a proportionate
share basis(1); and
Transferred $427.1 million of properties under
development to income producing status during
the year, delivering approximately 1,787,000 square
feet(iii) of new commercial GLA on a proportionate
share basis(1) including 1,582,000 square feet of
new generation industrial logistics space and 126
residential rental units (at the Trust’s share).
•
•
•
•
•
Choice Properties demonstrated its ability to access debt markets and obtain financing during the year, completing
$900.0 million of debenture issuances and obtaining approximately $350.0 million of mortgage financing including:
•
•
• Completed $187.3 million of mortgage financings, on a proportionate share basis(1), with an average rate of 5.09% and
The issuance of $550.0 million of Series S senior unsecured debentures bearing interest at 5.400% with a 10 year term.
The issuance of $350.0 million Series T senior unsecured debentures bearing interest at 5.699% with a 10.5 year term.
an average term of 12.8 years, from various banks and life insurance companies.
• Obtained CMHC-insured mortgages secured by two Toronto residential properties (The Brixton and Liberty House),
held within joint ventures, of $162.1 million at share, bearing interest at an average rate of 4.126% and a term of 10
years.
Other notable financing activity included the repayment upon maturity of the $250.0 million Series G senior unsecured
debentures, bearing interest at 3.196%, the $200.0 million Series B senior unsecured debentures, bearing interest at
4.903%, and the $125.0 million Series D-C senior unsecured debentures, bearing interest at 2.951%.
Ended the year with Adjusted Debt to Total Assets(1) at 40.4%, Adjusted Debt to EBITDAFV, net of cash(1) of 7.0x, and Interest
Coverage ratio(1) of 3.4x.
Strong liquidity position with $1.5 billion available on our credit facility and a $12.7 billion pool of unencumbered
properties.
Subsequent to year end, the Trust:
• Announced an increase of distributions to $0.76 per unit per annum from the previous rate of $0.75 per unit per annum
(an increase of 1.3%). The increase will be effective for Unitholders of record on March 31, 2024.
Repaid the $200.0 million Series D senior unsecured debentures upon maturity, bearing interest at 4.293%.
•
(i) Effective the fourth quarter of 2023, building area associated with the Trust’s ground leases has been included in occupancy.
(ii) Occupancy shown is for retail and office portion of Mixed-Use properties, residential units are excluded.
(iii) Includes 1.0 million sq. ft. that represents the building area on properties where the Trust has leased the underlying sites to the tenants through ground leases.
33
Annual Report 2023
Rendering of
25 Photography Drive
Toronto, ON
34
Annual Report 2023 1.
KEY PERFORMANCE INDICATORS AND SELECTED FINANCIAL INFORMATION
Choice Properties has identified key financial and operating performance indicators that were derived from, and should be
read in conjunction with, the consolidated financial statements of the Trust as at and for the years ended December 31, 2023
and 2022. The analysis of the indicators focuses on trends and significant events affecting the financial condition and results
of operations of the Trust.
As at or for the year ended December 31
($ thousands except where otherwise indicated)
2022
2023
Number of income producing properties(i)
GLA (in millions of square feet)(ii)
Occupancy*(ii)
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
705
66.1
98.0 %
17,308,727
12,940,225
1,309,170
796,691
1.101
1.003
74.6 %
$
$
$
$
$
$
704
64.5
97.9 %
16,819,527
12,995,374
1,264,594
744,253
1.029
0.964
76.7 %
$
$
$
$
$
$
0.827
$
0.804
$
90.5 %
92.0 %
0.749
$
0.740
$
$
$
$
$
$
$
$
$
2021
712
66.4
97.2 %
16,172,603
12,862,412
1,292,321
23,008
0.032
0.954
77.6 %
0.811
91.2 %
0.740
Weighted average number of units outstanding – diluted(iii)
723,666,503
723,523,362
723,127,566
Adjusted debt to total assets(iv)*
Debt service coverage(iv)*
Adjusted Debt to EBITDAFV(1)(v)*
Indebtedness(vi) – weighted average term to maturity*
Indebtedness(vi) – weighted average interest rate*
* Denotes a key performance indicator
40.4 %
3.0x
7.2x
5.7 years
4.03 %
40.6 %
3.1x
7.5x
5.3 years
3.77 %
40.1 %
3.3x
7.2x
5.5 years
3.59 %
(i)
(ii)
Effective the fourth quarter of 2023, the Trust reassessed its internal definition of a distinct income producing property. The net impact on the comparative
periods was to increase the number of income producing properties by two in 2023 and 2022, and three in 2021.
Includes 1,848,000 sq. ft. that represents the building area on properties where the Trust has leased the underlying sites to the tenants through ground
leases (December 31, 2022 - 635,000 sq. ft.; December 31, 2021 - 632,000 sq. ft.). Effective the fourth quarter of 2023, building area associated with the
Trust’s ground leases has been included in occupancy in the current and comparative periods.
Includes Trust Units and Exchangeable Units.
(iii)
(iv) 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.
Adjusted Debt to EBITDAFV, net of cash was 7.0x at December 31, 2023, 7.4x at December 31, 2022, and 7.1x at December 31, 2021.
Indebtedness reflects only senior unsecured debentures, fixed rate mortgages and fixed rate construction loans.
(v)
(vi)
Choice Properties REIT
2023 Annual Report 35
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, 2023
As at December 31, 2022
GAAP Basis Reconciliation
Proportionate
Share Basis(1)
GAAP Basis Reconciliation
Proportionate
Share Basis(1)
Investment properties
$ 14,923,000 $
1,722,000 $ 16,645,000
$ 14,444,000 $
1,710,000 $ 16,154,000
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
883,712
195,457
(883,712)
(195,457)
—
—
995,822
109,509
(995,822)
(109,509)
—
—
8,681
—
8,681
18,785
—
18,785
656,001
(95,756)
560,245
680,475
(96,072)
584,403
238,308
13,964
—
—
238,308
13,964
302,314
21,369
—
—
302,314
21,369
137,180
10,247
147,427
132,117
(2,116)
130,001
Assets held for sale
—
—
—
Cash and cash equivalents
252,424
23,195
275,619
50,400
64,736
—
23,379
50,400
88,115
Total Assets
$ 17,308,727 $
580,517 $ 17,889,244
$ 16,819,527 $
529,860 $ 17,349,387
Liabilities and Equity
Long term debt
Credit facility
Exchangeable Units
Trade payables and other
liabilities
Total Liabilities
Equity
Unitholders’ equity
Total Equity
$ 6,695,923 $
529,129 $
7,225,052
$ 6,294,101 $
496,493 $ 6,790,594
—
5,521,222
—
—
—
257,617
5,521,222
5,841,809
—
—
257,617
5,841,809
723,080
51,388
774,468
601,847
33,367
635,214
12,940,225
580,517
13,520,742
12,995,374
529,860
13,525,234
4,368,502
4,368,502
—
—
4,368,502
3,824,153
4,368,502
3,824,153
—
—
3,824,153
3,824,153
Total Liabilities and Equity
$ 17,308,727 $
580,517 $ 17,889,244
$ 16,819,527 $
529,860 $ 17,349,387
Choice Properties REIT
2023 Annual Report 36
Balance Sheet Analysis (GAAP Basis)
Line Item
Investment
properties
$ Change Variance Commentary
$ 479,000 The increase was primarily attributable to a transfer from equity accounted joint ventures
of $192.8 million, a favourable fair value adjustment on investment properties of $116.3
million, capital and leasing expenditures of $261.8 million, and acquisitions of $165.4
million. The increase was partially offset by dispositions of $187.3 million and transfers to
assets held for sale of $92.8 million.
Equity accounted
joint ventures
(112,110) The decrease was primarily attributable to the Trust’s acquisition of its partner’s interest in
Horizon Business Park LP during the first quarter of 2023. Upon completion of the
acquisition, the Trust de-recognized the equity accounted joint venture and consolidated
the assets and liabilities of the partnership. The decrease is partially offset by income
earned from equity accounted joint ventures.
Financial real
estate assets
Residential
development
inventory
85,948 The increase was attributable to the acquisition of two assets from Loblaw for $86.5
million during the first quarter of 2023.
(10,104) The decrease was due to the cost of sales recognized in relation to the sale of the Trust’s
ownership interest of 94 condominium units of its residential project in Brampton, ON,
partially offset by development expenditures incurred during the year.
Mortgages, loans
(24,474) The decrease was primarily due to the repayment of a $200.0 million promissory note
and notes
receivable
from Allied (Section 3.8 and 3.9), and $93.1 million of other mortgage receivable
repayments. The decrease was partially offset by the $295.8 million of notes advanced to
GWL in the current year, less the repayment of GWL’s prior year outstanding notes
receivable balance of $170.8 million, in addition to $77.3 million of vendor take-back
mortgages advanced by the Trust on completed dispositions in the current year (Section
3.2) and $63.9 million of mortgages receivable advanced to third-parties.
Investment in real
estate securities
Intangible assets
(64,006) The decrease was due to a fair value loss of $64.0 million on the real estate securities in
the year due to the decrease in the price of Allied’s publicly traded units.
(7,405) The decrease was primarily due to the Trust de-recognizing a portion of its intangible
assets in relation to the three office properties and two retail properties transacted on
during the current year.
Assets held for sale
(50,400) During the year ended December 31, 2023, the Trust disposed of all properties that were
classified as assets held for sale as at December 31, 2022 as well as, additional properties
transferred to assets held for sale and subsequently disposed of during the current year.
Working capital
71,518 The increase was primarily due to the $200 million promissory note repaid by Allied,
partially offset by the increase in distributions deferred by GWL in exchange for notes
receivable.
Long term debt
and credit facility
144,205 The increase was primarily attributable to the issuances of the $550.0 million Series S and
$350.0 million Series T senior unsecured debentures, net construction loan advances of
$50.8 million and net mortgage advances of $27.4 million. The increase was partially
offset by the repayment of the $250.0 million Series G, $125.0 million Series D-C, and
$200.0 million Series B senior unsecured debentures, in addition to the net repayment of
$260.0 million on the Trust’s credit facility.
Exchangeable
Units
(320,587) As this liability is measured at fair value, the change was due to the decrease in the unit
price for Choice Properties since December 31, 2022.
Unitholders’ equity
544,349 The increase was primarily due to year-to-date net income, partially offset by the
distributions to Unitholders.
Choice Properties REIT
2023 Annual Report 37
3.
INVESTMENT PROPERTIES
To expand the portfolio and participate in development opportunities, Choice Properties owns varying interests in real estate
entities that hold investment properties. Under GAAP, many of these interests are recorded as equity accounted joint
ventures and, as such, the Trust’s share of the investment properties owned by these entities is presented on the balance
sheet as a summarized value, not as part of the total investment properties. In addition, the Trust also has financial real estate
assets which are not included with investment properties as prepared under GAAP. Refer to Section 15.1, “Investment
Properties Reconciliation”, for a reconciliation of the continuity of investment properties determined in accordance with
GAAP.
The following continuity schedule presents Choice Properties’ portfolio inclusive of its financial real estate assets and equity
accounted joint ventures prepared on a proportionate share basis(1) for the periods ended, as indicated:
Three Months
Year Ended
As at or for the period ended December 31, 2023
($ thousands)
Investment
Properties(i)
Investment
Properties(i)
Income
Producing
Properties
Properties
Under
Development
Income
Producing
Properties
Properties
Under
Development
GAAP balance, beginning of period
$ 14,440,000 $
402,000 $ 14,842,000 $ 14,119,000 $
325,000 $ 14,444,000
Adjustments to reflect investment properties held in
equity accounted joint ventures and as financial
real estate assets on a proportionate share
basis(i)
Non-GAAP proportionate share balance(1),
beginning of period
961,000
741,000
1,702,000
989,000
721,000
1,710,000
15,401,000
1,143,000
16,544,000
15,108,000
1,046,000
16,154,000
Acquisitions of investment properties(ii)
82,533
—
82,533
265,235
18,728
283,963
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
—
7,338
—
46,765
1,662
5,647
1,072
—
89,997
89,997
—
218,512
218,512
—
2,058
—
—
—
—
—
7,338
2,058
46,765
1,662
5,647
1,072
—
—
16,207
—
85,878
6,403
25,517
715
(92,754)
—
7,082
—
—
—
—
—
16,207
7,082
85,878
6,403
25,517
715
(92,754)
427,075
(427,075)
—
Transfers from properties under development(v)
354,725
(354,725)
Dispositions
Adjustment to fair value of investment properties
Non-GAAP proportionate share balance(1),
(56,491)
(87,251)
(6,300)
(62,791)
(187,263)
(6,300)
(193,563)
13,970
(73,281)
101,987
31,053
133,040
December 31, 2023
$ 15,757,000 $
888,000 $ 16,645,000 $ 15,757,000 $
888,000 $ 16,645,000
(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.
Inclusive of acquisition costs.
Development capital included $13,410 and $14,377 of site intensification payments made to Loblaw for the three months and year ended December 31, 2023,
respectively (December 31, 2022 - $922 and $2,687, respectively).
Interest was capitalized to qualifying development projects based on a weighted average interest rate of 4.05% (December 31, 2022 - 3.74%).
Transfers from properties under development for the three months and year ended December 31, 2023 included fair value adjustments recognized within properties
under development of $121,198 and $132,789, respectively (December 31, 2022 - $1,972 and $7,072, respectively).
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 had classified three retail properties and one office property with an aggregate fair value
of $50,400 as assets held for sale. All four properties were disposed of during the year ended December 31, 2023 (see
Section 3.2). As at September 30, 2023, the Trust classified two industrial properties, one retail property and one office
property with an aggregate fair value of $92,754 as assets held for sale. During the fourth quarter, the Trust completed the
disposition of all four properties for aggregate proceeds of of $92,754.
Choice Properties REIT
2023 Annual Report 38
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 a future
estimated stabilized NOI. Currently, this method is only applied to value residential assets and certain ground 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, 2023
Discount rate
Terminal capitalization rate
Overall capitalization rate
As at December 31, 2022
Discount rate
Terminal capitalization rate
Overall capitalization rate
Valuation Commentary
Retail
7.38%
6.59%
6.37%
Retail
7.42%
6.58%
6.41%
Industrial
Mixed-Use &
Residential
Total Investment Properties
6.41%
5.59%
5.33%
Industrial
5.99%
5.24%
4.94%
5.87%
5.27%
5.01%
Mixed-Use &
Residential
5.86%
5.25%
5.08%
7.06%
6.27%
6.04%
Total Investment Properties
6.99%
6.19%
5.99%
For the three months ended December 31, 2023 the Trust recorded an unfavourable adjustment of $74.4 million on a GAAP
basis and an unfavourable adjustment of $73.3 million on a proportionate share basis(1) to the value of investment
properties.
For the year ended December 31, 2023 the Trust recorded a favourable adjustment of $116.3 million on a GAAP basis and a
favourable adjustment of $133.0 million on a proportionate share basis(1) to the value of investment properties.
Fair value adjustments for the three months and year ended reflected property-specific updates to leasing assumptions and
changes in contractual rents, fair value gains and losses as a result of transaction activity, and adjustments to capitalization
rates. The fair value loss in the fourth quarter was primarily a result of expansions to capitalization rates of certain properties
in the industrial and retail segments to reflect current market conditions.
Choice Properties REIT
2023 Annual Report 39
3.2
Investment Property and Other Transactions
Acquisitions of Investment Properties
The following table summarizes the investment properties acquired in the year ended December 31, 2023:
($ thousands except where otherwise indicated)
Consideration
Location
Date of
Acquisition
Segment
Investment properties
Vernon, BC
Calgary, AB(i)
Calgary, AB(i)
Jan 31
Jan 31
Jan 31
Retail
Retail
Retail
Ownership
Interest
Acquired
GLA
(square
feet)
Purchase
Price incl.
Related
Costs
Investment
Property
Debt
Assumed
from Seller
Mortgage
Receivable
Settlement
Assumed
Liabilities
De-
recognition of
Intangible
Assets
Cash
100%
46,504 $
12,697 $
— $
— $
— $
— $
— $ 12,697
100% 146,627
42,476
100% 161,540
43,976
Calgary, AB
Dec 7
Industrial
100% 424,760
50,389
Montreal, QC
Dec 7
Blainville, QC
Dec 7
Retail
Retail
100%
88,305
20,241
100%
43,348
11,903
Acquisitions from related parties
911,084
181,682
Toronto, ON
Feb 24
Whitby, ON
Mar 24
Retail
Retail
100%
19,735
23,049
100%
46,512
17,876
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Calgary, AB(ii)
Mar 30
Toronto, ON
Apr 4
Hamilton, ON
Aug 14
Mixed-Use &
Residential
Retail
Retail
50%
162,836
19,850
5,300
13,346
100%
1,800
1,915
100%
22,968
7,501
—
—
—
—
Acquisitions from third-parties
253,851
70,191
5,300
13,346
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
42,476
— 43,976
— 50,389
1,728
— 18,513
—
— 11,903
1,728
— 179,954
—
—
—
—
—
—
— 23,049
— 17,876
1,204
—
—
1,915
—
7,501
1,204 50,341
Edmonton, AB
Mar 16
Industrial
50%
129,990
32,090
—
15,995
5,385
4,187
—
6,523
Acquisitions in equity accounted joint ventures
129,990
32,090
—
15,995
5,385
4,187
—
6,523
Total acquisitions of investment properties
1,294,925 $ 283,963 $
5,300 $
29,341 $
5,385 $
5,915 $
1,204 $ 236,818
(i)
(ii)
These properties are classified as financial real estate assets under GAAP.
The Trust completed an exchange of office properties with its partner. The exchange resulted in the Trust disposing of its 50% interest in Calgary Place (see disposition table below)
in exchange for the partner’s 50% interest in Altius Centre and a vendor take-back mortgage (Section 3.8).
Choice Properties REIT
2023 Annual Report 40
Dispositions of Investment Properties
The following table summarizes the investment properties sold in the year ended December 31, 2023:
($ thousands except where otherwise indicated)
Consideration
Location
Date of
Disposition
Segment
Ownership
Interest
Disposed
GLA
(square
feet)
Sale
Price
excl.
Selling
Costs
Debt
Assumed
by
Purchaser
De-
recognition
of
Intangible
Asset
Investment
Property
Mortgage
Receivable
Advanced
Lease
Termination
Payment
Cash
Investment properties
Courtenay, BC
Mar 8
Calgary, AB(i)
Mar 30
Scarborough, ON
May 12
Brampton, ON(ii)
Jun 14
Retail
(land)
Mixed-Use
&
Residential
Retail
(land)
Mixed-Use
&
Residential
100%
N/A $
4,613 $
— $
— $
— $
— $
— $
4,613
50%
295,695
48,402
34,617
5,300
(2,655)
11,140
—
—
100%
N/A
3,557
—
—
—
—
—
3,557
100%
125,000
74,200
—
—
51,000
(8,300)
31,500
—
—
Dartmouth, NS
Dec 14
Industrial
100%
61,465
7,230
—
—
Kamloops, BC(iii)(iv)
Dec 28
Retail
50%
120,853
49,261
20,067
—
(611)
—
—
—
7,230
—
29,805
Dispositions of investment properties
603,013 187,263
54,684
5,300
(3,266)
62,140
(8,300)
76,705
Assets held for sale
Kingston, ON
Cornwall, ON
Feb 21
Apr 21
Retail
Retail
100%
104,286
23,000
100%
127,000
10,000
—
—
Dartmouth, NS
Jun 19
Mixed-Use
&
Residential
50%
103,546
13,360
7,678
Windsor, ON
Jul 7
Retail
100%
11,685
1,900
Dartmouth, NS(v)
Oct 5
Industrial
100%
88,694
11,580
Moncton, NB
Oct 12
Retail
100%
362,205
61,174
—
—
—
Calgary, AB
Oct 31
Mixed-Use
&
Residential
100%
326,852
20,000
—
Dispositions of assets held for sale
1,124,268 141,014
7,678
Equity accounted joint ventures
Edmonton, AB
Dec 20
Retail
(land)
50%
N/A
6,300
Dispositions in equity accounted joint ventures
—
6,300
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
23,000
—
10,000
(1,935)
5,495
—
2,122
—
—
—
—
—
—
1,900
—
11,580
9,624
—
51,550
—
—
—
20,000
(1,935)
15,119
— 120,152
—
—
—
—
—
6,300
—
6,300
Total dispositions of investment properties
$ 1,727,281 $ 334,577 $ 62,362 $
5,300 $
(5,201) $
77,259 $
(8,300) $ 203,157
(i)
(ii)
(iii)
(iv)
(v)
The Trust completed an exchange of office properties with its partner. The exchange resulted in the Trust disposing of its 50% interest in Calgary Place in exchange for the
partner’s 50% interest in Altius Centre (see acquisition table above) and a vendor take-back mortgage (Section 3.8).
This data centre asset was leased to Loblaw. In connection with the disposition, Choice made a lease termination payment of $8,300 to Loblaw to terminate its lease early.
Comprised of two retail assets located in Kamloops, BC.
Included in the debt assumed by purchaser is $128 of debt discounts, net of accumulated amortization.
Comprised of two industrial assets located in Dartmouth, NS.
Choice Properties REIT
2023 Annual Report 41
Acquisitions of Investment Properties
The following table summarizes the investment properties acquired in the year ended December 31, 2022:
($ thousands except where otherwise indicated)
Consideration
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
Location
Investment properties
Ottawa, ON
Montreal, QC
Halifax, NS(i)
Mar 1
Mar 9
Jun 17
Acquisitions from related parties
Burlington, ON
Toronto, ON
Toronto, ON
Toronto, ON
Toronto, ON
Vaughan, ON
May 2
Jul 6
Sep 1
Oct 5
Dec 1
Dec 5
Industrial Under
Development
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Acquisitions from third-parties
Toronto, ON(ii)
Toronto, ON(ii)
Edmonton, AB
Jan 14
Jan 14
April 7
Caledon, ON(iii)
April 19
East Gwillimbury, ON
May 31
Mixed-Use &
Residential
Mixed-Use &
Residential
Industrial
Industrial Under
Development
Industrial Under
Development
100%
100%
100%
100%
100%
100%
100%
100%
100%
3%
3%
50%
85%
75%
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
7,956 $
18,735
—
3,526
1,015
14,194
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.
Choice Properties REIT
2023 Annual Report 42
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 $
— $
— $
— $
— $
— $ 9,700
Industrial
100%
266,901
19,750
—
Retail
50%
222,959
25,750
14,805
—
—
—
—
—
—
— 19,750
— 10,945
50%-100% 1,233,706
733,810
—
193,155
550,660
(5,631)
—
(4,374)
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
Edmonton, AB Jul 28
Retail (Parcel)
50%
6,238
2,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 10,125
—
6,500
—
117
—
6,550
—
2,000
Edmonton, AB Feb 25
Campbell
River, BC
Feb 28
Portfolio of 6
assets across
Canada(i)
Mar 31
Brampton, ON Jun 23
Mixed-Use &
Residential
Retail Under
Development
Edmonton, AB Aug 12
Montreal, QC
Sep 13
Mixed-Use &
Residential
Under
Development
Mixed-Use &
Residential
50%
N/A
3,643
—
—
—
—
—
3,643
100%
293,195
27,000
Quebec, QC
Oct 5
Retail (Parcel)
50%
24,773
4,325
Beaverton, ON Dec 21
Retail
100%
4,410
1,000
Halifax, NS
Dec 28
Mixed-Use &
Residential
100%
223,723
40,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 27,000
—
4,325
—
1,000
—
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. The consideration received consisted of Class B units (Section 3.9, “Investment in Real Estate
Securities”) and a promissory note (Section 3.8, “Mortgages, Loans and Notes Receivable”). The Trust incurred transaction costs of $5,108 associated with the disposition to Allied.
Choice Properties REIT
2023 Annual Report 43
3.3
Completed Developments
For the year ended December 31, 2023, Choice Properties completed a total of $294.6 million in development projects
delivering 1,786,537 square feet of commercial space (including 1,052,959 square feet associated with ground leases) and
86,000 square feet of residential space comprising 126 units with a weighted average yield of 7.7%.
The Trust delivered ten retail developments including three Shoppers Drug Mart stores, two in Ontario and one in Alberta, as
well as retail spaces in British Columbia, Alberta, Ontario and Nova Scotia, primarily occupied by national retailers, financial
institutions, and quick service restaurants.
In addition, the Trust delivered three industrial developments. During the first quarter, the Trust purchased the remaining
50% ownership interest in Horizon Business Park in Alberta a 65-acre, six building project with over 1,250,000 square feet in
Edmonton’s premiere warehouse and logistics business park. During the third quarter, the Trust delivered the final building
of this phased development, bringing this project to completion. During the fourth quarter, the Trust delivered Choice
Industrial Centre in British Columbia, its first development in Campbell Heights. This development boasts a 17 acre site with
353,000 square feet in first-class industrial distribution facility featuring unprecedented 40 foot clear ceilings. In addition,
during the fourth quarter, the Trust delivered the first phase at Choice Eastway Industrial Centre in Ontario, in which the
Trust holds a 75% ownership interest. This phase is tenanted by Loblaw through an approximately 97 acre ground lease.
Loblaw’s construction of its 1,240,000 square foot distribution centre remains ongoing with rent commencing in the first
quarter of 2024.
During the fourth quarter, the Trust also delivered one residential development, Element, in Ontario, in which the Trust owns
a 50% interest. This development of 252 units offers a unique rental community in the vibrant Westboro Village, one of
Ottawa’s most desirable neighbourhoods.
The Trust also 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, 2023, 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.
Choice Properties REIT
2023 Annual Report 44
For the year ended December 31, 2023, 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
Jocelyn Rd., Port Hope, ON
Erin Ridge Shopping Centre, St. Albert, AB
Portland St., Dartmouth, NS
Joseph Howe Dr., Halifax, NS
Oxford St. E., London, ON
Harvest Hills Market, Edmonton, AB
27th Street, Grand Forks, BC(i)
Princess St., Kingston, ON(i)
Calgary Trail, Edmonton, AB
Seton Way SE, Edmonton, AB
Subtotal retail development
Industrial
Horizon Business Park, Edmonton, AB
Choice Industrial Centre, Surrey, BC
Choice Eastway Industrial Centre - Ph 1, East
Gwillimbury, ON(i)(v)
Subtotal industrial development
Mixed-Use & Residential
Element, Ottawa, ON(v)
Subtotal mixed-use & residential development
Total transferred properties at cost
Total transferred properties at fair value
Completion
date
Ownership
%
Transferred
GLA
(square feet)
Transferred
residential
units
Cost of
assets
transferred
Expected
stabilized
yield(2)
15,003
— $
Q1 2023
Q1 2023
Q1 2023
Q1 2023
Q3 2023
Q3 2023
Q4 2023
Q4 2023
Q4 2023
Q4 2023
Q3 2023
Q4 2023
Q4 2023
100 %
50 %
100 %
100 %
100 %
50 %
100 %
100 %
100 %
100 %
5,647
5,000
4,500
16,678
8,406
4,832
117,299
15,170
12,488
205,023
100 %
100 %
297,212
353,474
75 %
930,828
4,979
1,812
2,237
1,617
5,875
4,358
529
2,548
5,121
6,747
6.9 %
7.0 %
7.1 %
10.1 %
6.7 %
7.0 %
18.0 % (ii)
10.8 % (iii)
6.5 %
8.2 % (iv)
35,823
7.7 %
39,881
75,206
85,746
6.5 %
10.2 % (iii)
(iv)
7.8 %
—
—
—
—
—
—
—
—
—
—
—
—
—
1,581,514
—
200,833
8.4 %
Q4 2023
50 %
86,000
86,000
126
126
57,912
57,912
5.1 %
5.1 %
1,872,537
126 $ 294,568
7.7 %
$ 427,075
(i)
(ii)
(iii)
(iv)
(v)
Developments include ground leases.
Expected stabilized yield for this development has decreased due to lower income.
Expected stabilized yield for this development has decreased due to higher costs.
Expected stabilized yield for this development has increased due to lower costs.
Cost of assets transferred for these developments includes their proportion of notional interest previously capitalized for FFO.
Choice Properties REIT
2023 Annual Report 45
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, 2023 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
Section
Number of
projects
Estimated
upon
completion(2)
Estimated
cost to
completion(2)(iv)
To-date
Estimated
total
3.5
3.5
3.5
11
122,000 $
6,820 $
42,823 $
49,643
2
1
1,793,000
109,099
239,688
348,787
117,000
66,295
13,884
80,179
Subtotal projects under active development
14
2,032,000
182,214
296,395
478,609
Developments in planning
Retail
Industrial
Mixed-Use & Residential
3.6
3.6
3.6
12
170,000
29,414
2
4,180,000
198,777
13
10,430,000
145,274
Subtotal developments in planning
27
14,780,000
373,465
Total development - cost
Total development - fair value(v)
41
16,812,000 $
555,679
$
888,000
(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.
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 45% during 2024 and the remainder thereafter.
Total development fair value excludes residential development inventory of $8,681 as at December 31, 2023 (December 31, 2022 - $18,785).
Choice Properties REIT
2023 Annual Report 46
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 14 active developments
comprised of 11 retail, 2 industrial and 1 residential projects. Upon completion, the projects under active development are
expected to deliver a total of 1,915,000 square feet of commercial space (including 972,000 square feet associated with
ground leases) and 117,000 square feet comprising 175 units of residential space at the Trust’s share. The Trust has invested
a total of $182.2 million to date and is expected to invest an additional $296.4 million over the next 12-18 months to
complete these projects(2).
Projects Under Active Development – Retail
The Trust invests in retail development projects through intensification of its existing retail assets. The Trust currently has
122,000 square feet at share of active retail development (including 8,000 square feet associated with ground leases), which
is expected to be completed in the next 12-18 months(2).
The following table details the Trust’s retail projects under active development on a proportionate share basis(1) as of
December 31, 2023:
($ 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)
1 Harvest Hills Market, Edmonton, AB(v)(vi)
2 Carlton Spur, Prince Albert, SK
50 %
25 %
3 Guelph St., Georgetown, ON
100 %
H1 2024
26,000
100 %
H1 2024
2,000
100 %
—
—
740
740
8.25%-8.75%
7,900
7,900
8.75%-9.25%
H1 2024
1,000
100 % $
128 $
389 $
517
9.75%-10.25%
4
5
6
43rd Ave., Innisfail, AB
100 %
H1 2024
17,000
100 %
3,922
2,796
6,718
6.00%-6.50%
137 Ave., Edmonton, AB
100 %
H1 2024
7,000
100 %
—
4,793
4,793
6.25%-6.75%
Sunwapta West, Building 2 & 6-8
Edmonton, AB(v)(vi)
50 %
H2 2024
13,000
100 %
1,783
4,603
6,386
6.50%-7.00%
7 Country Village Rd NE, Calgary, AB
100 %
H2 2024
29,000
100 %
649
12,062
12,711
6.00%-6.50%
8 Countryview Dr., Dartmouth, NS(vi)
50 %
H2 2024
3,000
100 %
9
100th Street, Morinville, AB
100 %
H2 2024
17,000
100 %
—
—
1,702
1,702
7.25%-7.75%
6,881
6,881
5.75%-6.25%
10 4270 Innes Road, Ottawa, ON(v)
100 %
H1 2025
5,000
100 %
11
235
246
46.50%-47.00%
11 Harvest Hills Market, Edmonton, AB(vi)
50 %
H1 2025
2,000
100 %
327
722
1,049
7.25%-7.75%
Total retail developments
122,000
$ 6,820 $
42,823 $ 49,643
6.75%-7.25%
(i)
(ii)
(iii)
(iv)
(v)
(vi)
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.
There were no material changes in previously reported expected stabilized yields.
This development includes a ground lease.
Development project with phased completion. Reported expected stabilized yield may vary as phases are completed or as future phases are added to the
development.
Choice Properties REIT
2023 Annual Report 47
Projects Under Active Development – Industrial
The Trust invests in industrial development projects through development of greenfield industrial land. The Trust currently has
two active development projects, which are expected to deliver 1,793,000 square feet at share (including 964,000 square feet
associated with ground leases) of new generation logistics space in the near term(2).
The following table details the Trust’s industrial projects under active development on a proportionate share basis(1) as of
December 31, 2023:
($ thousands except where otherwise
indicated)
GLA(i)
(square feet)
Project / Location
Industrial
Ownership
%
Expected
completion
date(iii)
Estimated
upon
completion(2)
%
Leased
To-date
Investment(i)(ii)
Estimated
cost to
completion(2)
Estimated
total
Expected
stabilized yield(2)(iv)
1
2
(i)
(ii)
(iii)
(iv)
(v)
Choice Caledon Business Park -
Building A, Caledon, ON(v)
Choice Caledon Business Park -
Building H, Caledon, ON
85 %
H2 2024
964,000
100 % $ 73,818 $
50,712 $ 124,530
7.25%-7.75%
85 %
H1 2026
829,000
100 %
35,281
188,976
224,257
6.75%-7.25%
Total industrial developments
1,793,000
$ 109,099 $
239,688 $ 348,787
7.00%-7.50%
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.
There were no material changes in previously reported expected stabilized yields.
The development is a ground lease. This phase of the development is estimated at 1.1 million square feet or 1.0 million square feet at share based on the current site
plan subdivision.
Choice Caledon Business Park, in which the Trust holds an 85% ownership interest, is located in Caledon, Ontario. During
the second quarter, the Trust submitted a Draft Plan of Subdivision and Site Plan Application for the first phase of the
development. Based on these submissions, the Trust received a grading permit and commenced site works. Servicing for the
entire site is expected to commence early 2024 and will take place over 12 to 18 months(2). Site preparation cost for the
subdivision is expected to be approximately $167.0 million in total, or $142.0 million at share. This four phased development
will construct eight state of the art multi-use industrial buildings over the next 60 months(2). The first phase of this
development has commenced and will deliver Buildings A and H, with the next phase expected to commence in 2026. The
Trust has entered into an approximately 90 acre ground lease with Loblaw for Building A, with rent commencement expected
in the first quarter of 2025(2). During the fourth quarter, the Trust entered into a lease agreement with a leading logistics
provider for Building H, with rent commencement expected in the second quarter of 2026(2).
The following table details the Trust’s costs for the buildings under active development as of December 31, 2023:
($ thousands except where otherwise indicated)
At 100%
Project / Location
1
2
Choice Caledon Business Park -
Building A, Caledon, ON
Choice Caledon Business Park -
Building H, Caledon, ON
Total industrial developments
$
$
Land &
servicing costs
Site specific &
construction costs
Total
At Share
118,229 $
28,276 $
146,505 $
124,530
56,585
207,247
263,832
174,814 $
235,523 $
410,337 $
224,257
348,787
Choice Properties REIT
2023 Annual Report 48
Projects Under Active Development - Residential
Choice Properties has one residential project under active development. At Mount Pleasant Village in Brampton, Ontario,
construction continues to progress. For the condominium, fixture installation and the pre-delivery inspection processes are
nearly complete. During the fourth quarter, the Trust recognized income related to the sale of its ownership interest of 94
condominium units, with the remainder expected in the first quarter of 2024(2) with final closing shortly thereafter. For the
rental building, branded “Uniti”, occupancy permits for the lower half of the building was granted by the municipality as at
year end 2023. Internal pre-delivery and quality control checks have been completed on these floors and move-in
commenced in early 2024. On the upper level units, interior finishes are progressing well. Kitchen and tiling installation is
nearly complete and appliances have been installed in approximately half of the units.
The following table details the Trust’s residential project under active development on a proportionate share basis(1) as of
December 31, 2023:
($ thousands except where otherwise indicated)
GLA(i)
(square feet)
Investment(i)(ii)
Project / Location
Ownership
%
Type
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
Mount Pleasant Village,
Brampton, ON
Mount Pleasant Village,
Brampton, ON(v)
50 % Rental
H1 2024
151
101,000 $ 57,614 $
11,711 $ 69,325
3.75%-4.25%
50 % Inventory
H1 2024
24
16,000
8,681
2,173
10,854
Total residential developments
175
117,000 $ 66,295 $
13,884 $ 80,179 3.75%-4.25%
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.
There were no material changes in previously reported expected stabilized yields.
Represents remaining condominium units to be sold.
1
(i)
(ii)
(iii)
(iv)
(v)
Choice Properties REIT
2023 Annual Report 49
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, 2023, the Trust has identified 27 sites with potential for future development. This includes 12
opportunities totaling 170,000 square feet at existing retail sites, 2 industrial sites totaling 4,180,000 square feet, and 13
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 $373.5 million on land acquisition and initial development and
planning costs at these sites.
Retail Development in Planning
Retail intensification is focused on adding at-grade retail density within the existing retail portfolio. These projects provide the
opportunity to add new tenants, further expand the high-quality tenant mix and provide steady growth to the business.
($ thousands except where otherwise indicated)
Retail developments in planning
Number of Sites Investment To-date(i)(ii)
12 $
29,414
(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 $
198,777
(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 -
Remaining Phases,
Caledon, ON
Description
During the third quarter of 2022, the joint venture achieved entitlement to convert the lands from agricultural
uses to employment uses through a Ministerial Zoning Order. Draft Plan of Subdivision and Site Plan
Applications for the first phase were submitted during the second quarter of 2023 and the grading permit was
received and site works commenced. During the fourth quarter of 2023 the Trust entered into a lease for Block
5, which has been classified as Active Development. The remainder of the development is expected to consist
of warehouse, distribution, and industrial uses totaling approximately 4.2 million square feet on 221 net
developable acres (at 100% share). The Trust has invested $171.4 million to date, including land acquisition,
related to the remaining phases of the development.
Choice Eastway
Industrial Centre -
Phase 2, East
Gwillimbury, ON
The second phase of the Trust’s project constitutes approximately 54 acres (at 100% share) of developable
land and is fully zoned. The Trust continues progress on site preparation. The second phase is anticipated to be
approximately 0.8 million total square feet (at 100% share). The Trust has invested $27.3 million to date,
including land acquisition.
Choice Properties REIT
2023 Annual Report 50
Mixed-Use & Residential 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. A total of $145.3 million has been invested to date on land acquisition and initial
development and planning costs.
The following table details the Trust’s residential and mixed-use development projects by zoning status:
($ thousands except where otherwise indicated)
Project / Location
Zoning approved
Type
Ownership % Acreage(i)
Estimated
number
of units(i) Commercial Residential
Investment
to-date (i)(iii)
Total
Estimated GLA(i)(ii)
(‘000 square feet)
1 Golden Mile, Toronto, ON
Mixed-Use
100 %
19.0
3,597
323
2,907
3,230 $
15,216
2 Grenville & Grosvenor, Toronto, ON
Residential
3 Sheppard Ave. W., Toronto, ON
Residential
50 %
50 %
0.5
0.3
385
100
17
5
320
64
337
35,612
69
6,969
Subtotal zoning approved
19.8
4,082
345
3,291
3,636
57,797
Zoning applications submitted
1 Broadview Ave., Toronto, ON
2 Carlaw Ave., Toronto, ON
Mixed-Use
Mixed-Use
100 %
100 %
3.3
5.6
503
1,080
23
84
409
993
432
4,070
1,077
7,062
3 Dundas St. W., Toronto, ON
Mixed-Use
100 %
13.0
1,923
178
1,477
1,655
45,075
4 Parkway Forest Dr., Toronto, ON
5 Photography Dr., Toronto, ON
6 Warden Ave., Toronto, ON
7 Woodbine Ave., Toronto, ON
Residential
Mixed-Use
Residential
Mixed-Use
50 %
100 %
100 %
100 %
1.5
7.7
6.5
1.7
170
2,356
1,500
400
—
50
10
23
131
131
951
2,010
2,060
4,332
1,072
1,082
12,349
334
357
5,862
Subtotal zoning applications submitted
39.3
7,932
368
6,426
6,794
79,701
Zoning applications to be submitted
1
Lower Jarvis, Toronto, ON
2 North Rd., Coquitlam, BC
Mixed-Use
Mixed-Use
100 %
100 %
4.1
7.8
3 South Service Rd., Mississauga, ON
Mixed-Use
100 %
10.4
Subtotal zoning applications to be submitted
22.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,342
2,431
2,003
7,776
Total mixed-use & residential
projects in planning
81.4
12,014
713
9,717
10,430 $ 145,274
(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
2023 Annual Report 51
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, 2023, the Trust has invested a total of $57.8 million to date on land acquisition and
initial development and planning costs.
Project / Location
Golden Mile, Toronto,
ON
Grenville & Grosvenor,
Toronto, ON
Description
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(2). The development
will create a community comprising residential and commercial 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.
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 34,000 square feet of commercial GLA and approximately 770 rental residential
units (at 100% share). 30% of the residential units will be affordable housing units(2).
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).
Zoning Applications Submitted
Choice Properties has submitted zoning applications for five mixed-use and two residential developments in Toronto,
Ontario. As of December 31, 2023, the Trust has invested a total of $79.7 million to date on land acquisition and initial
development and planning costs.
Project / Location
Broadview Avenue,
Toronto, ON
Carlaw Avenue,
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.
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 and
beyond(2) 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.
Choice Properties REIT
2023 Annual Report 52
Project / Location
Dundas Street West,
Toronto, ON
Parkway Forest Drive,
Toronto, ON
Photography Drive,
Toronto, ON
Warden Avenue,
Toronto, ON
Woodbine Avenue,
Toronto, ON
Description
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.
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 approximately 340 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.
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
approximately 1,500 residential units, over 1.1 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.
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 was
submitted during the fourth quarter of 2023 to the City of Toronto.
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 approximately 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
2023 Annual Report 53
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.
On March 30, 2023, the Trust advanced a vendor take-back mortgage as part of an exchange of office properties with its
partner (Section 3.2). The mortgage receivable had a face value of $13,529 and a fair value of $11,140. The mortgage bears
interest at a rate of 3% for the first 3 years and 5% subsequently until its maturity on June 30th, 2028, and is secured by the
disposed office property.
On June 14, 2023, the Trust advanced a vendor take-back mortgage with a face and fair value of $51,000. (Section 3.2). The
mortgage bears interest at a rate of prime plus 3.3% and is secured by the disposed property.
On June 19, 2023, the Trust advanced a vendor take-back mortgage with a face value of $5,700 and a fair value of $5,495.
(Section 3.2). The mortgage bears interest at a rate of 6% and is secured by the disposed property.
On October 12, 2023, the Trust advanced a vendor take-back mortgage with a face value of $10,000 and a fair value of
$9,624 (Section 3.2). The mortgage bears interest at a rate of 6.5% and is secured by the disposed property.
On December 13, 2023, the Trust advanced a $17,130 mezzanine loan to a development partner. The loan bears interest at a
rate of 10.7% and is secured by a development property in Brampton, ON.
On December 29, 2023, Allied repaid a promissory note to the Trust, with a face value of $200,000 (Section 3.9). The
promissory note was included in mortgages receivable as it was secured by a portfolio of six office assets disposed to Allied
in March 2022. Subsequent to year end, on February 8, 2024, the proceeds received from the promissory note were used to
repay the Series D senior unsecured debentures in full upon maturity (Section 4.3).
The Trust has issued $365,150 (December 31, 2022 - $506,905) of secured mortgages to third-party borrowers. These
loans have been extended to borrowers who are strategic partners and counterparties of the Trust and are secured by real
property assets.
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 year
ended December 31, 2023, GWL elected to receive distributions from Choice Properties Limited Partnership in the form of
loans. As such, non-interest bearing short-term notes totalling $295,851 were issued during the year ended December 31,
2023 to GWL and were repaid in January 2024. Non-interest bearing short-term notes totalling $170,849 with respect to the
loans received in the 2022 fiscal year were settled against distributions payable by the Trust to GWL in January 2023.
As at December 31, 2023
($ thousands)
GAAP Basis
Proportionate
Share Basis(1)(i)
Mortgages receivable
Notes receivable from GWL
Mortgages, loans and notes receivable
$
$
360,150 $
295,851
656,001 $
264,394
295,851
560,245
GAAP Basis
Weighted
average term to
maturity (years)
Weighted
average interest
rate (%)
0.8
—
8.14 %
— %
(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, 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.
Choice Properties REIT
2023 Annual Report 54
3.9
Investment in Real Estate Securities
On March 31, 2022, the Trust disposed of six office assets to Allied. As consideration, the Trust was issued 11,809,145 Class
B Units 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. As at December 31, 2023, the Trust holds an approximate 8.4% 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 owner-operator of distinctive urban workspace in Canada’s major cities. As at December 31, 2023(i),
Allied’s income producing portfolio consisted of 201 properties across Canada totalling 14.9 million square feet in gross
leasable area and was valued at $8.5 billion. Allied reported net asset value of $6.4 billion or $45.60 per unit diluted at
December 31, 2023(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 at December 31, 2023, there were 2,952,286 of the
Class B Units subject to lock-up.
As a holder of the Class B Units, the Trust is entitled to distributions paid by Allied. For the year ended December 31, 2023,
the Trust recognized distribution income of $26,928 (December 31, 2022 - $15,495) from its investment in Allied. For the year
ended December 31, 2023, $5,668 of the distribution income recognized was related to the special distribution announced by
Allied on December 15, 2023 as a result of the sale of their urban data centre portfolio. 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 period ended December 31, 2023 was $20.18 (December
31, 2022 - $25.60). For the year ended December 31, 2023, the Trust recognized a loss of $64,006 (December 31, 2022 -
$248,346) on its investment in Allied, due to the change in the price of Allied’s publicly traded units. As at December 31, 2023
the Trust held 11,809,145 Class B Units with a fair value of $238,308 (December 31, 2022 - 11,809,145 Class B Units with a
fair value of $302,314).
($ 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, 2023
December 31, 2022
$
$
302,314 $
—
(64,006)
238,308 $
—
550,660
(248,346)
302,314
(i) Values are from Allied’s Annual Report, December 31, 2023. Please refer to Allied’s Annual Report for further details.
Choice Properties REIT
2023 Annual Report 55
4.
4.1
LIQUIDITY AND CAPITAL RESOURCES
Major Cash Flow Components
For the periods ended December 31
($ thousands)
Cash and cash equivalents, beginning of period -
2022 Change $
2023
Three Months
Year Ended
2023
2022 Change $
GAAP basis
$
59,268 $
36,430 $ 22,838 $
64,736 $ 84,304 $ (19,568)
Cash flows from operating activities
Cash flows from (used in) investing activities
207,667
62,033
191,260
16,407
641,972
668,418
(26,446)
(173,201)
235,234
(361,345)
(656,683)
295,338
Cash flows from (used in) financing activities
(76,544)
10,247
(86,791)
(92,939)
(31,303)
(61,636)
Cash and cash equivalents, end of period - GAAP
basis
$
252,424 $
64,736 $ 187,688 $
252,424 $ 64,736 $ 187,688
Cash Flows from Operating Activities
Three Months
Cash flows from operating activities increased for the three
months ended primarily due to an increase in net operating
income, higher
in
distributions from equity accounted joint ventures. The
increase was partially offset by an increase in general and
administrative expenses.
interest received, and an
increase
Year Ended
Cash flows from operating activities decreased for the year
ended primarily due to the impact of lower distributions from
equity accounted joint ventures, an unfavourable change in
working capital, an increase in interest paid, and an increase
in general and administrative expenses. The decrease was
partially offset by an increase in net operating income and
higher interest received.
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
Cash flows from investing activities for the three months
increased primarily due to the repayment of the Allied
promissory note (Section 3.8), an increase in mortgages,
loans, and notes receivables repayments from other third-
parties, and an increase in proceeds from dispositions of
investment properties, net of acquisitions. The increase was
partially offset by an increase in capital spending on
investment properties and an
in mortgage
receivable advances.
increase
Cash Flows from (used in) Financing Activities
Three Months
Cash flows used in financing activities increased for the three
months primarily due to a decrease in net advances of the
credit
in net repayments of
increase
mortgages payable.
facility and an
to
the repayment of
Year Ended
Cash flows used in investing activities decreased for the year
ended primarily due
the Allied
promissory note (Section 3.8), a decrease in contributions to
equity accounted joint ventures, a decrease in mortgages,
loans, and notes receivables advances to third-parties, and
an increase in proceeds from dispositions of investment
properties, net of acquisitions. The decrease was partially
offset by an increase in capital spending on investment
properties, the acquisitions of financial real estate assets
from Loblaw, and an increase in notes receivables advances
to GWL due to deferral of all of its 2023 distributions on
Exchangeable units.
Year Ended
Cash flows used in financing activities increased for year
ended primarily due to an increase in net repayments of the
credit facility. The increase was partially offset by an
increase in proceeds from the issuance of new senior
unsecured debentures, net of repayments, an increase in net
in
advances of mortgages payable, and a decrease
distributions paid on exchangeable units as GWL has taken
all of the 2023 distributions as notes receivable, as described
above.
Choice Properties REIT
2023 Annual Report 56
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, 2023
December 31, 2022
Change $
Cash and cash equivalents - proportionate share basis(1)(i)
Unused portion of the credit facility
Liquidity
Unencumbered assets - proportionate share basis(1)
$
$
$
275,619 $
88,115 $
1,500,000
1,240,000
1,775,619 $
1,328,115 $
12,718,125 $
12,330,000 $
187,504
260,000
447,504
388,125
As at
As at
(i) As at December 31, 2023, cash and cash equivalents included $144,441 of short-term investments (December 31, 2022 - $nil).
Base Shelf Prospectus
On June 16, 2023, Choice Properties filed a Short Form Base Shelf Prospectus allowing for the issuance of units and debt
securities over a 25-month period.
4.3
Components of Total Adjusted Debt
Choice Properties’ debt structure was as follows:
As at December 31, 2023
($ thousands)
GAAP Basis
Proportionate
Share Basis(1)
Proportionate Share Basis(1)
Weighted
average term to
maturity (years)
Weighted
average interest
rate (%)
Construction loans
Credit facility
Less: Debt placement costs(i)
Variable rate debt
Construction loans
Senior unsecured debentures
Mortgages payable
$
49,603 $
160,370
—
—
—
—
49,603
160,370
40,456
40,456
5,650,000
5,650,000
976,661
1,402,858
Less: Debt placement costs, discounts and premiums
(20,797)
(28,632)
Fixed rate debt
Total adjusted debt, net
6,646,320
7,064,682
$
6,695,923 $
7,225,052
(i) Unamortized debt placement costs for the credit facility of $2,232 were included in other assets as at December 31, 2023.
0.7
—
0.7
7.3
5.5
6.6
5.7
6.84 %
— %
6.84%
2.08 %
4.07 %
3.94 %
4.03%
Choice Properties REIT
2023 Annual Report 57
Proportionate Share Basis(1)
As at December 31, 2022
($ thousands)
GAAP Basis
Proportionate
Share Basis(1)
Weighted
average term to
maturity (years)
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
0.6
1.3
4.7
2.6
8.3
5.2
5.8
5.3
Weighted
average interest
rate (%)
5.91 %
6.48 %
5.95 %
5.98 %
2.08 %
3.79 %
3.71 %
3.77 %
Construction Loans
For the purpose of financing the development of certain industrial, mixed-use & 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 2024 to 2031,
have a maximum capacity to be drawn at the Trust’s ownership interest of $447,987, of which $328,261 relates to equity
accounted joint ventures as at December 31, 2023 (December 31, 2022 - $436,741 and $345,951, respectively).
As at December 31, 2023, $200,826 was drawn on the construction loans, of which $110,767 relates to equity accounted
joint ventures. The construction loans had a weighted average interest rate of 5.88% (December 31, 2022 - 5.57%) and a
weighted average term to maturity of 2.0 years (December 31, 2022 - 1.3 years).
Credit Facility
Choice Properties has a $1,500,000 senior unsecured committed revolving credit facility provided by a syndicate of lenders.
During the year ended December 31, 2023, the Trust extended the maturity date for the credit facility from September 1,
2027 to September 1, 2028.
Under the credit facility, the Trust has the ability to draw funds at variable rates in either Canadian dollars or U.S. dollars.
Canadian dollar-denominated borrowings bear interest at either the Canadian bank prime rate plus 0.20% or Canadian
Bankers’ Acceptance rate plus 1.20%, and U.S. dollar-denominated borrowings bear interest at the U.S. prime rate plus
0.20% or Secured Overnight Financing Rate (“SOFR”) plus 1.30%. The pricing is contingent on the credit ratings for Choice
Properties from either DBRS and S&P remaining at BBB (high). Concurrently with the U.S. dollar draws, the Trust enters into
cross currency swaps to exchange its U.S. dollar borrowings into Canadian dollar borrowings. The Trust applies hedge
accounting to the cross currency swaps.
As at December 31, 2023, $nil was drawn in U.S. dollar-denominated borrowings (December 31, 2022 - $nil) and $nil was
drawn in Canadian dollar borrowings (December 31, 2022 - $260,000). The unamortized balance for debt placement costs at
December 31, 2023 of $2,232 was included in other assets.
The credit facility contains certain financial covenants. As at December 31, 2023, the Trust was in compliance with all its
financial covenants for the credit facility.
Senior Unsecured Debentures
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 2.95% (effective interest rate of 3.30%) Series D-C senior unsecured debentures
outstanding. The repayment of the Series D-C senior unsecured debentures was funded by an advance on the Trust’s credit
facility.
Choice Properties REIT
2023 Annual Report 58
On March 1, 2023, the Trust completed an issuance, on a private placement basis, of $550 million aggregate principal
amount of Series S senior unsecured debentures bearing interest at a rate of 5.40% per annum and maturing on March 1,
2033. The Trust used the net proceeds of the issuance and repaid (i) its $250 million principal amount of the 3.20% Series G
senior unsecured debentures upon maturity on March 7, 2023 and (ii) a portion of the balance drawn on the Trust's credit
facility.
On July 5, 2023, the Trust paid in full upon maturity, at par, plus accrued and unpaid interest thereon, the $200 million
aggregate principal amount of the 4.90% Series B senior unsecured debentures outstanding. The repayment of the Series B
senior unsecured debentures was funded by an advance on the Trust’s credit facility.
On August 1, 2023, the Trust completed an issuance, on a private placement basis, of $350 million aggregate principal
amount of Series T senior unsecured debentures bearing interest at a rate of 5.70% per annum and maturing on February 28,
2034. The Trust used the net proceeds of the issuance and repaid (i) the balance drawn on the Trust’s credit facility and (ii) for
general business purposes.
Subsequent to year end, on February 8, 2024, the Trust paid in full upon maturity, at par, plus accrued and unpaid interest
thereon, the $200 million aggregate principal amount of the 4.29% Series D senior unsecured debentures outstanding. The
repayment of the Series D senior unsecured debentures was funded by proceeds received from the repayment of the Allied
promissory note (Section 3.8).
Summary of Total Adjusted Debt Activities
The following outlines the net changes to the components of Choice Properties’ variable rate debt on a GAAP basis and non-
GAAP proportionate share basis(1) during the year ended December 31, 2023:
GAAP Basis
Adjustment to
Proportionate
Share Basis (1)
Proportionate
Share Basis(1)
For the year ended December 31, 2023 ($ thousands)
Credit
facility
Construction
loans
Mortgages
payable
Construction
loans(i)
Total adjusted
debt, variable rate
549,882
77,728
Principal balance outstanding, beginning of year
$ 260,000 $
15,847 $
48,336 $
225,699 $
Issuances and advances
Repayments
Assumed from seller
Assumed by purchaser
Transfer from equity accounted joint venture
—
21,363
—
56,365
(260,000)
(19,473)
(27,065)
(155,426)
(461,964)
—
—
—
—
—
13,346
(34,617)
15,995
—
31,866
—
(31,866)
29,341
(34,617)
—
Principal balance outstanding, end of year
$
— $
49,603 $
— $
110,767 $
160,370
(i) Adjustment to proportionate share basis(1) reflects construction loans within equity accounted joint ventures.
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, 2023:
For the year ended December 31, 2023 ($ thousands)
GAAP Basis
Adjustment to
Proportionate
Share Basis(1)
Proportionate
Share Basis(1)
Senior
unsecured
debentures
Mortgages
payable
Construction
loans
Mortgages
payable(i)
Total adjusted
debt, fixed rate
Principal balance outstanding, beginning of year
$ 5,325,000 $
900,583 $
23,367 $
273,009 $
6,521,959
Issuances and advances(ii)
Repayments
Assumed by purchaser
900,000
167,705
17,089
164,631
1,249,425
(575,000)
(63,754)
—
(27,873)
—
—
(11,443)
—
(650,197)
(27,873)
Principal balance outstanding, end of year
$ 5,650,000 $
976,661 $
40,456 $
426,197 $
7,093,314
(i) Adjustment to proportionate share basis(1) reflects mortgages payable within equity accounted joint ventures.
(ii) Mortgages payable issuances and advances is shown net of a refinance of an existing mortgage payable of $17.0 million.
Choice Properties REIT
2023 Annual Report 59
Schedules of Repayments and Cash Flow Activities
The schedule of principal repayment of total long term debt, on a GAAP basis and non-GAAP proportionate share basis(1),
based on maturity is as follows:
GAAP Basis
Adjustment to
Proportionate Share Basis(1)
Proportionate
Share Basis(1)
Senior
unsecured
As at December 31, 2023
debentures
($ thousands)
Construction
loans
Mortgages
payable
Credit
facility
Mortgages
payable(i)
Construction
loans(i)
Total
2024
2025
2026
2027
2028
Thereafter
Total adjusted debt
outstanding
$
— $
750,000 $
166,696 $
49,603 $
9,777 $
96,194 $
1,072,270
—
—
—
—
550,000
121,600
350,000
500,000
750,000
67,755
88,523
48,438
—
—
—
—
9,798
49,018
29,563
26,594
—
2,750,000
483,649
40,456
301,447
14,573
—
—
—
—
695,971
466,773
618,086
825,032
3,575,552
$
— $ 5,650,000 $
976,661 $
90,059 $
426,197 $
110,767 $
7,253,684
(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).
Includes cash and cash equivalents.
The credit facility matures on September 1, 2028.
Choice Properties REIT
2023 Annual Report 60
4.4
Financial Condition
Choice Properties is subject to certain financial and non-financial covenants on 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, 2023
and December 31, 2022.
The Trust’s compliance with leverage and coverage ratios, as they relate to its debentures, are shown below:
As at
As at
December 31, 2023
December 31, 2022
Adjusted Debt to Total Assets(i)
Limit: Maximum excluding convertible debt is 60.0%
40.4 %
40.6 %
Debt Service Coverage Ratio(i)
Adjusted Debt to EBITDAFV(1)(i)(ii)(iv)(v)
Interest Coverage Ratio(1)(iii)(iv)
Limit: Minimum 1.5x
3.0x
7.2x
3.4x
3.1x
7.5x
3.4x
(i)
(ii)
(iii)
(iv)
(v)
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 this ratio.
The senior unsecured debentures and credit facility financial covenants do not include the Adjusted Debt to EBITDAFV and Interest Coverage Ratio metrics.
These metrics are used to assess financial leverage and are useful in determining the Trust’s ability to meet financial obligations. Refer to Section 15 “Non-
GAAP Financial Measures”.
Adjusted Debt to EBITDAFV, net of cash, was 7.0x at December 31, 2023 and 7.4x at December 31, 2022.
4.5
Credit Ratings
Choice Properties’ debt securities are rated by two independent credit rating agencies: DBRS and S&P.
On May 18, 2023, S&P confirmed the Choice Properties rating at BBB with a stable outlook. On August 16, 2023, 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, 2023:
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
2023 Annual Report 61
4.6
Unit Equity
Unit equity, for the purposes of this MD&A, includes both Units and Exchangeable Units, which are economically equivalent
to Units and receive equal distributions. The following is a continuity of Choice Properties’ unit equity:
Units, beginning of year
Units issued under unit-based compensation arrangements
Units repurchased for unit-based compensation arrangements
Units, end of year
Exchangeable Units, end of year
Total Units and Exchangeable Units, end of year
Year ended
December 31, 2023
Year ended
December 31, 2022
327,771,149
327,588,847
329,716
(240,893)
327,859,972
395,786,525
723,646,497
404,449
(222,147)
327,771,149
395,786,525
723,557,674
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, 2023, Choice Properties received approval from the TSX to purchase up
to 27,563,002 Units during the twelve-month period from November 21, 2023 to November 20, 2024, 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 Arrangements
The Trust acquired Units under its NCIB during the years ended December 31, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, including
distributions to holders of Exchangeable Units, were as follows:
For the periods ended December 31
($ thousands)
Change $
2023
2022
2023
Three Months
Year Ended
2022
Change $
Total distributions declared
$
135,683 $
133,858 $
1,825 $
541,529 $
535,407 $
6,122
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.
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% monthly). The increase was effective for Unitholders of record
on March 31, 2023.
At its most recent meeting on February 14, 2024, the Board reviewed and approved an increase of distributions to $0.76 per
unit per annum from the previous rate of $0.75 per unit per annum (an increase of 1.3%). The increase will be effective for
Unitholders of record on March 31, 2024.
In determining the amount of distributions to be made to Unitholders, Choice Properties’ Board considers many factors,
including provisions in its Declaration of Trust, macro-economic and industry specific environments, the overall financial
condition of the Trust, future capital requirements, debt covenants, and taxable income. In accordance with Choice
Properties’ Distribution Policy, management and the Board regularly review Choice Properties’ rate of distributions to assess
the stability of cash and non-cash distributions.
Distribution Reinvestment Plan (“DRIP”)
Choice Properties instituted a DRIP that allows eligible Unitholders to elect to automatically reinvest their regular monthly
cash distributions in additional Units. 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.
Choice Properties REIT
2023 Annual Report 62
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
2023
2023
2022
Change $
Adjusted Cash Flow from Operations(1)
$ 138,248
$ 134,815
$
3,433
$ 608,763
$ 592,744
$ 16,019
Cash distributions declared
135,683
133,858
1,825
541,529
535,407
6,122
Cash retained after cash distributions
$
2,565
$
957
$
1,608
$
67,234
$
57,337
$
9,897
ACFO(1) payout ratio
98.1 %
99.3 %
(1.2) %
89.0 %
90.3 %
(1.3) %
Three Months and Year Ended
ACFO(1) increased for the three months and year ended primarily due to the increase in net operating income and interest
income, as well as a favourable change in non-cash working capital items. The increase was partially offset by an increase in
interest expense due to higher interest rates, an increase in capital expenditures, and an increase in general and
administrative expenses.
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, and cross currency swaps to hedge foreign exchange associated with the equivalent
amount borrowed in US$ on the Trust’s credit facility. During the year ended December 31, 2023, an interest rate swap was
settled and refinanced concurrently with the refinancing of the underlying variable rate mortgage. The cross currency swaps
matured as the US$ borrowings were repaid. As at December 31, 2023, the interest rates associated with the interest rate
swaps ranged from 2.8% to 5.0% (December 31, 2022 - 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
Total derivative assets
Derivative liabilities
Interest rate swaps
Total derivative liabilities
Maturity
Date
Notional
As at
As at
Amount
December 31, 2023
December 31, 2022
Nov 2025 - Jun 2030
Feb 2024 - Mar 2030
$
$
$
$
78,791 $
78,791 $
109,034 $
109,034 $
7,872 $
7,872 $
1,337 $
1,337 $
12,909
12,909
—
—
During the year ended December 31, 2023, Choice Properties recorded an unrealized fair value loss in other comprehensive
income (loss) of $6,374 (December 31, 2022 - unrealized fair value gain of $11,568).
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, 2023, the aggregate gross potential liability related
to these letters of credit totalled $37,668 (December 31, 2022 - $32,897).
Choice Properties REIT
2023 Annual Report 63
4.10 Contractual Obligations
The undiscounted future principal and interest payments on Choice Properties’ debt instruments and other contractual
obligations as at December 31, 2023 were as follows:
($ thousands)
2024
2025
2026
2027
2028
Thereafter
Total
Senior unsecured debentures
$
975,714 $
745,657 $
531,342 $
665,626 $
892,838 $ 3,304,010 $ 7,115,187
Mortgage payable(i)
Mortgage payable(ii)
202,787
151,799
93,695
111,821
69,839
573,331
1,203,272
25,384
25,626
64,160
43,347
39,005
349,697
547,219
Total Mortgage Payable
228,171
177,425
157,855
155,168
108,844
923,028
1,750,491
Construction loan(i)(iii)
Construction loan(ii)(iii)
51,688
841
101,362
15,431
Total Construction Loans
153,050
16,272
357,789
68,116
841
—
841
477
841
—
841
207
841
42,415
97,467
—
—
116,793
841
42,415
214,260
99
666
427,354
$ 1,714,724 $ 1,007,470 $
690,515 $
821,842 $ 1,002,622 $ 4,270,119 $ 9,507,292
Other(iii)
Total
(i)
(ii)
(iii)
Compiled on a GAAP basis.
Mortgages payable and construction loans held within equity accounted joint ventures.
As at December 31, 2023, Choice Properties had commitments of $427,000 for future capital expenditures related to ongoing development and property capital
projects, and other contractual obligations such as operating rents, of which $339,000 relates to equity accounted joint ventures.
Choice Properties REIT
2023 Annual Report 64
5.
RESULTS OF OPERATIONS
Choice Properties’ results, as reported under GAAP, for the three months and year ended December 31, 2023 and December
31, 2022 are summarized below:
For the periods ended December 31
($ thousands)
Change $ % Change
2023
2022
Three Months
Year Ended
2023
2022
Change $ % Change
Net Operating Income
Rental revenue
Property operating costs
Residential Inventory Income
Gross sales
Cost of sales
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
$ 329,109 $ 314,382 $ 14,727
4.7 % $ 1,309,170 $ 1,264,594 $ 44,576
(94,386)
(87,180)
234,723
227,202
(7,206)
7,521
8.3 %
(369,060)
(363,953)
(5,107)
3.3 % 940,110
900,641
39,469
25,634 $
— $ 25,634
— %
25,634 $
— $ 25,634
(21,008)
4,626
9,971
10,983
1,125
—
—
(21,008)
4,626
— %
(21,008)
— %
4,626
—
—
(21,008)
4,626
12,691
(2,720)
(21.4) %
41,414
5,165
1,292
5,818
112.6 %
26,928
(167)
(12.9) %
4,287
27,360
15,495
3,793
14,054
11,433
494
(143,373)
(137,247)
(19,599)
(14,476)
(6,126)
(5,123)
4.5 %
(566,147)
(536,857)
(29,290)
35.4 %
(64,230)
(47,821)
(16,409)
3.5 %
1.4 %
4.4 %
— %
— %
— %
51.4 %
73.8 %
13.0 %
5.5 %
34.3 %
8,069
(250)
—
15,522
(7,453)
(48.0) %
39,069
353,867
(314,798)
(89.0) %
(250)
(82)
—
82
— %
(1,000)
(100.0) %
(34)
(1,000)
(5,108)
—
— %
5,074
(99.3) %
compensation
(1,435)
(2,665)
1,230
(46.2) %
938
(1,191)
2,129
(178.8) %
Adjustment to fair value of Exchangeable Units
(502,649)
(858,857)
356,208
(41.5) % 320,587
170,188
150,399
88.4 %
Adjustment to fair value of investment
properties
Adjustment to fair value of investment in real
(74,445)
193,370
(267,815)
(138.5) % 114,150
113,115
1,035
0.9 %
estate securities
26,570
(20,784)
47,354
(227.8) %
(64,006)
(248,346)
184,340
(74.2) %
Income (Loss) before Income Taxes
(445,684)
(579,119)
133,435
(23.0) % 796,692
744,136
52,556
7.1 %
Income tax recovery (expense)
—
119
(119)
(100.0) %
(1)
117
(118)
(100.9) %
Net Income (Loss)
$ (445,684) $ (579,000) $ 133,316
(23.0) % $ 796,691 $ 744,253 $ 52,438
7.0 %
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, Allied’s publicly traded unit price and market capitalization rates. These market factors can have a significant
impact on the Trust’s net income.
to
fair values
Three Months
Net loss decreased for the three months compared to the
prior year primarily due to changes
in the non-cash
adjustment
including: a $356.2 million
favourable change in the adjustment to fair value of the
Trust’s Exchangeable Units due to the change in the Trust’s
Unit price and a $47.4 million favourable change in the
adjustment to fair value of the investment in the real estate
securities of Allied, driven by the increase in Allied’s unit
price in the fourth quarter, compared to a decrease in the
fourth quarter of 2022. This decrease was partially offset by
an unfavourable change in the adjustment to fair value of
investment properties of $267.8 million as a result of a fair
value loss recognized in the fourth quarter compared to a
gain in the fourth quarter of 2022.
to
fair values
Year Ended
Net income increased for the year ended compared to the
prior year primarily due to changes
in the non-cash
adjustment
including: a $184.3 million
favourable change in the adjustment to fair value of the
investment in the real estate securities of Allied, driven by
lower mark-to-market loss recorded in 2023 compared to
2022 and a $150.4 million favourable change
in the
adjustment to fair value of the Trust’s Exchangeable Units
due to the change in the Trust’s Unit price. The increase was
partially offset by a $314.8 million decrease in income from
equity accounted joint ventures primarily due to the fair value
gains recognized in the industrial development portfolio in
the prior year.
In addition to the changes described above, increases in net
operating income, interest income and investment income,
partially offset by increases in interest expense and general
and administrative expenses contributed to the increase in
net income.
Choice Properties REIT
2023 Annual Report 65
Rental Revenue and Property Operating Costs
Rental revenue is comprised primarily of base rent, including straight-line rent, and recoveries from tenants for property
taxes, insurance, operating costs and qualifying capital expenditures. Growth in rental revenue is materially impacted by
newly acquired or constructed assets.
Property operating costs are comprised primarily of expenses to manage and maintain the properties for the benefit of the
tenants, including realty taxes and insurance, that are recoverable under the leases of most tenants. Non-recoverable
operating costs do not directly benefit the tenants and include property management fees paid by the Trust for properties
managed by its partners.
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2022
2023
2023
2022
Change $
Rental revenue
Property operating costs
Net Operating Income
$
329,109 $
314,382 $
14,727 $ 1,309,170 $ 1,264,594 $
44,576
(94,386)
(87,180)
(7,206)
(369,060)
(363,953)
(5,107)
$
234,723 $
227,202 $
7,521 $
940,110 $
900,641 $
39,469
Three Months and Year Ended
Rental revenue increased for the three months and year ended December 31, 2023 compared to the prior year primarily due
to higher rental rates on renewals, new leasing, and contractual rent steps, mainly in the retail and industrial portfolios.
Further contributing to the increase were higher capital and operating recoveries, acquisitions and completed
developments, and higher lease surrender revenue. The year ended December 31, 2023 increase was partially offset by
foregone revenue from the Allied Transaction during the first quarter of 2022 and other dispositions completed in the current
and prior years.
Residential Inventory Income
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2023
2022
2023
2022
Change $
Gross sales
Cost of sales
$
25,634 $
— $
25,634 $
25,634 $
— $
25,634
(21,008)
—
(21,008)
(21,008)
—
(21,008)
Residential Inventory Income
$
4,626 $
— $
4,626 $
4,626 $
— $
4,626
Three Months and Year Ended
In the fourth quarter, the Trust recognized gross sales and cost of sales related to the sale of the Trust’s ownership interest
of 94 condominium units of its residential project in Brampton, ON.
Choice Properties REIT
2023 Annual Report 66
Interest Income
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Interest income from mortgages and loans
Change $
2023
2022
2023
2022
Change $
receivable
$
7,109 $
5,273 $
1,836 $
25,933 $
19,120 $
Income earned from financial real estate assets
Income from financial real estate assets due to
changes in value
Other interest income
Interest Income
2,262
1,556
706
9,102
5,709
(1,024)
1,624
5,288
574
(6,312)
1,050
1,897
4,482
783
1,748
6,813
3,393
1,114
2,734
$
9,971 $
12,691 $
(2,720) $
41,414 $
27,360 $
14,054
Three Months
Interest income decreased for the three months primarily due
to the unfavourable change in the fair value of the financial
real estate assets.
The decrease was partially offset by increases in interest
income earned from a higher average mortgage and loan
receivable balance outstanding in the current year as a result
of vendor take-back mortgages issued in connection with
dispositions completed in the past twelve months and
advances made to development partners. The Trust also
earned additional interest income on excess cash during the
fourth quarter of 2023.
Year Ended
Interest income increased for the year ended primarily from a
higher average mortgage and
loan receivable balance
compared to the prior year as a result of the Trust’s $77.3
million of vendor-take-back mortgages issued in connection
with dispositions completed in the past twelve months and
advances made to development partners. The Trust also
earned additional interest income on excess cash during the
third and fourth quarters of 2023.
In addition, the change in the fair value of the financial real
estate assets and the impact of additional income earned
from financial real estate assets acquired throughout the year
contributed to the increase in interest income.
Fee Income
Fees charged to third parties include property management fees, leasing fees and project management fees relating to co-
owned properties which serve as a cash flow supplement to enhance returns from the co-owned assets. Fee income from
third parties is impacted by changes in the portfolio along with the timing of leasing transactions and project activity. Choice
Properties provides Wittington with property management services for certain properties with third-party tenancies and
development consulting services on a fee for service basis (see Section 9, “Related Party Transactions”).
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2023
2022
2023
2022
Change $
Fees charged to related party
$
167 $
535 $
(368) $
830 $
722 $
Fees charged to third parties
958
757
201
3,457
3,071
Fee Income
$
1,125 $
1,292 $
(167) $
4,287 $
3,793 $
108
386
494
Three Months
Fee income decreased for the three months primarily due to
timing of development consulting fees billed to Wittington in
2022, partially offset by an increase in leasing and project
management services provided to third parties.
Year Ended
Fee income increased for the year ended primarily due to an
increase
leasing and project management services
in
provided to third parties.
Choice Properties REIT
2023 Annual Report 67
Net Interest Expense and Other Financing Charges
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2022
2023
2023
2022
Change $
Interest on senior unsecured debentures
$
57,974 $
50,873 $
7,101 $
220,246 $
192,774 $
27,472
Interest on mortgages and construction loans
10,659
Interest on credit facility
Interest on right-of-use lease liabilities
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
612
13
50
1,160
(1,305)
69,163
74,210
9,324
3,125
22
117
1,298
(733)
64,026
73,221
1,335
41,898
39,128
2,770
(2,513)
9,638
8,839
(9)
(67)
(138)
(572)
63
30
4,639
(6,548)
148
933
5,084
(2,933)
799
(85)
(903)
(445)
(3,615)
5,137
269,966
243,973
25,993
989
296,181
292,884
3,297
$
143,373 $
137,247 $
6,126 $
566,147 $
536,857 $
29,290
Three Months and Year Ended
Net interest expense and other financing charges increased for the three months and year ended primarily due to new debt
issuances over the past twelve months bearing interest at a higher rate than maturing debt, as well as an increase in the
prime rate. In addition, a higher average debt balance contributed to the increase, as borrowings have been used to fund
acquisitions, net of cash proceeds from dispositions and repayment by Allied of its promissory note.
General and Administrative Expenses
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2022
2023
2023
2022
Change $
Salaries, benefits and employee costs
$
20,095 $
15,619 $
4,476 $
71,080 $
57,323 $
13,757
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:
730
1,597
3,152
1,238
321
570
980
830
1,001
1,968
975
286
375
601
(100)
596
1,184
263
35
195
379
3,301
5,112
8,273
4,970
1,311
1,812
3,225
2,959
3,498
7,075
3,901
1,201
1,510
2,062
342
1,614
1,198
1,069
110
302
1,163
28,683
21,655
7,028
99,084
79,529
19,555
Capitalized to properties under development
Allocated to recoverable operating expenses
(3,945)
(5,139)
(1,829)
(5,350)
(2,116)
(13,811)
(8,917)
(4,894)
211
(21,043)
(22,791)
1,748
General and administrative expenses
$
19,599 $
14,476 $
5,123 $
64,230 $
47,821 $
16,409
(i) The Services Agreement is described in Section 9, “Related Party Transactions”.
Three Months and Year Ended
General and administrative expenses increased for the three months and year ended primarily due to higher salary and
employee costs as a result of the impact of inflation, positioning the business for growth, severance and other one-time
payments incurred. The reduction in general and administrative expenses allocated to recoverable operating expenses
following the disposition of office assets in the current and prior year, along with expenditures related to information
technology, higher professional fees and shared services costs further contributed to the increase. The increases were
partially offset by an increase in general and administrative expenses capitalized to properties under development due to an
increase in development activity.
Choice Properties REIT
2023 Annual Report 68
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, 2023:
(in thousands of
square feet except
where otherwise
indicated)
Retail(i)
Industrial(ii)
Mixed-Use &
Residential(iii)
Total
September 30, 2023
Three Months
December 31, 2023
Leasable Occupied
% Expiries(iv)
New Renewals
Occupied
Subtotal:
Absorption
Portfolio
changes(v)
Acquired /
(Disposed)
vacancy Leasable Occupied
45,073 44,074
97.8 %
(727)
105
18,126 17,816
98.3 %
(400)
118
1,457
1,291
88.6 %
— —
64,656 63,181
97.7 %
(1,127)
223
572
395
—
967
(50)
113
(357)
1,529
(25) 44,691 43,667
— 19,655 19,458
—
63
(223)
949
(100)
1,134
1,068
(125) 65,480 64,193
Occupied
%
97.7 %
99.0 %
94.2 %
98.0 %
(i)
(ii)
(iii)
(iv)
(v)
Includes 657,000 sq. ft. that represents the building area on properties where the Trust has leased the underlying sites to the tenants through ground leases
(September 30, 2023 - 694,000 sq. ft.).
Includes 1,191,000 sq. ft. that represents the building area on properties where the Trust has leased the underlying sites to the tenants through ground leases
(September 30, 2023 - 290,000 sq. ft.).
Office properties are included in Mixed-Use & Residential for reporting purposes. Occupancy disclosed excludes residential units.
Expiries includes 100,000 square feet of early lease terminations, surrenders, bankruptcies, and relocations within the portfolio.
Represents changes in occupied square footage arising from acquisitions, dispositions, intensifications, expansions, and transfers from properties under development.
The following table details the changes for in-place occupancy by segment for the year ended December 31, 2023:
(in thousands of
square feet except
where otherwise
indicated)
Retail(i)
Industrial(ii)
Mixed-Use &
Residential(iii)
Total
December 31, 2022
Year Ended
December 31, 2023
Leasable Occupied
% Expiries(iv)
New Renewals
Occupied
Subtotal:
Absorption
Portfolio
changes(v)
Acquired /
(Disposed)
vacancy Leasable Occupied
44,792 43,830
97.9 %
(5,410)
332
5,001
(77)
(85)
(16) 44,691 43,667
17,430 17,241
98.9 %
(1,753)
323
1,436
6
2,210
15 19,655 19,458
1,821
1,597
87.7 %
(23)
27
6
10
(539)
(148)
1,134
1,068
64,043 62,668
97.9 %
(7,186)
682
6,443
(61)
1,586
(149) 65,480 64,193
Occupied
%
97.7 %
99.0 %
94.2 %
98.0 %
(i)
(ii)
(iii)
(iv)
(v)
Includes 657,000 sq. ft. that represents the building area on properties where the Trust has leased the underlying sites to the tenants through ground leases (December
31, 2022 - 635,000 sq. ft.).
Includes 1,191,000 sq. ft. that represents the building area on properties where the Trust has leased the underlying sites to the tenants through ground leases
(December 31, 2022 - nil).
Office properties are included in Mixed-Use & Residential for reporting purposes. Occupancy disclosed excludes residential units.
Expiries includes 222,000 sq. ft. of early lease terminations, surrenders, bankruptcies, and relocations within the portfolio.
Represents changes in occupied square footage arising from acquisitions, dispositions, intensifications, expansions, and transfers from properties under development.
At December 31, 2023, the Trust had 30 retail sites and 5 industrial sites leased to tenants through ground leases
(December 31, 2022 - 19 retail and 2 industrial). Tenants have constructed buildings on certain sites within the Trust’s retail
and industrial portfolios with gross building area of approximately 1,848,000 sq. ft. at the Trust’s share (December 31, 2022 -
635,000 sq. ft.). As of the fourth quarter 2023, the ground lease GLA has been included in the occupancy tables above. In
addition, the Trust has 178 gas bars in its retail segment (December 31, 2022 - 175), which have been excluded from the
occupancy tables.
Choice Properties REIT
2023 Annual Report 69
Three Months
Period end occupancy for the three months ended increased
to 98.0% as at December 31, 2023 from 97.7% as at
September 30, 2023. The Trust had positive absorption of
approximately 113,000 square feet in the Industrial segment
primarily due to new leasing in the Alberta portfolio, partially
offset by negative absorption of 50,000 in the retail portfolio
resulting from an early termination at a Calgary property. The
Trust elected to early terminate the space and reposition as
three separate units to achieve higher rents.
Year Ended
Period end occupancy for the year ended
increased
marginally to 98.0% as at December 31, 2023 from 97.9%
as at December 31, 2022.
The net occupancy increase is mainly due to acquisition of
five retail and one industrial properties from Loblaw and the
transfer of three completed industrial development assets
with higher average occupancy, as well as the disposition of
the office assets with lower average occupancy.
Portfolio changes of approximately 949,000 square feet are
primarily due to the transfer of two completed industrial
development properties in Ontario and British Columbia,
acquisition of one Alberta industrial property and two
Quebec retail properties from Loblaw, partially offset by the
disposition of the Trust’s last office property, as well as the
strategic disposition of one Atlantic and
two British
Columbia retail properties.
Choice Properties’ principal tenant, Loblaw, represents 57.7% of its total GLA (December 31, 2022 - 56.4%).
As at December 31, 2023
As at December 31, 2022
(in millions of square feet except where
otherwise indicated)
Portfolio
GLA
Occupied
GLA
Occupancy
(%)
WALT(i)
(years)
Portfolio
GLA
Occupied
GLA
Occupancy
(%)
WALT(i)
(years)
Loblaw banners(ii)
Third-party tenants(iii)
Total commercial GLA
37.8
27.7
65.5
37.8
26.4
64.2
100.0 %
95.4 %
98.0 %
6.5
5.4
6.0
36.1
27.9
64.0
36.1
26.5
62.6
100.0%
95.0 %
97.9 %
6.3
5.1
5.8
(i)
(ii)
(iii)
Weighted average lease term-to-maturity.
Included in Loblaw banners GLA is 0.9 million sq. ft. related to ground leases (December 31, 2022 - nil).
Included in third-party tenants GLA is 0.9 million sq. ft. related to ground leases (December 31, 2022 - 0.6 million sq. ft.).
The lease maturity profile for Choice Properties’ portfolio as at December 31, 2023 was as follows:
(in thousands of square feet
except where otherwise indicated)
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)
Month-to-month
2024
2025
2026
2027
2028
2029
2030 & Thereafter
Occupied GLA
Ground lease GLA(i)
Vacant GLA
Total
231
2,232
3,696
3,570
3,074
3,446
1,722
7,526
25,497
917
1,287
82
44
3,217
2,807
3,956
4,941
7,102
14,699
36,848
931
—
313
2,276
6,913
6,377
7,030
8,387
8,824
22,225
62,345
1,848
1,287
0.5 % $
5,057 $
3.5 %
10.6 %
9.7 %
10.7 %
12.8 %
13.5 %
33.9 %
95.2 %
2.8 %
2.0 %
28,307
88,119
95,230
114,556
134,587
136,687
367,854
970,397
20,644
—
27,701
37,779
65,480
100.0 % $
991,041 $
15.88
12.46
12.75
14.99
16.30
16.05
15.49
16.55
15.56
11.17
—
15.44
(i)
Represents the building area on properties where the Trust has leased the underlying sites to tenants through ground leases.
Choice Properties REIT
2023 Annual Report 70
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 as at December 31, 2023 represented approximately 57.2% of total gross rental revenue
and 73.5% 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
1.
2.
3.
4.
5.
6.
7.
8.
9.
Loblaws
Canadian Tire
TJX Companies
Dollarama
Goodlife
Liquor Control Board of Ontario (LCBO)
TD Canada Trust
Sobeys
Staples
10. Walmart
Total
% of Retail Gross
Rental Revenue
GLA
(000’s square feet)
64.3 %
30,945
1.8 %
1.5 %
1.5 %
0.9 %
0.7 %
0.7 %
0.7 %
0.7 %
0.7 %
911
665
584
362
198
132
283
333
544
73.5 %
34,957
The following table outlines further details of the Trust’s retail tenant composition as at December 31, 2023:
Retail Category
Grocery & Pharmacy
Essential Services
Specialty & Value
Fitness & Other Personal Services
Full-Service Restaurants
Furniture & Home
Other
Total
% of Retail Gross
Rental Revenue
GLA
(000’s square feet)
68.1 %
14.5 %
5.3 %
4.8 %
3.0 %
2.7 %
1.6 %
32,779
4,358
2,269
1,664
1,227
721
649
100.0 %
43,667
Choice Properties REIT
2023 Annual Report 71
The lease maturity profile for Choice Properties’ retail portfolio as at December 31, 2023 was as follows:
(in thousands of square feet
except where otherwise indicated)
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)
Month-to-month
2024(i)
2025
2026
2027
2028
2029
2030 & Thereafter
Occupied GLA
Ground lease GLA(ii)
Vacant GLA
Total
177
964
1,526
2,073
1,833
1,737
951
2,804
12,065
657
1,024
82
44
3,027
2,807
3,956
4,141
6,439
10,449
30,945
—
—
259
1,008
4,553
4,880
5,789
5,878
7,390
13,253
43,010
657
1,024
0.6 % $
4,682 $
2.3 %
10.2 %
10.9 %
13.0 %
13.2 %
16.5 %
29.5 %
17,568
70,088
80,237
101,539
105,475
120,968
257,982
96.2 %
758,539
1.5 %
2.3 %
6,655
—
13,746
30,945
44,691
100.0 % $
765,194 $
17.79
17.48
15.40
16.53
17.54
17.94
16.37
19.47
17.64
10.13
—
17.52
(i)
(ii)
The 1,008,000 sq. ft. of GLA maturing in 2024 is located in the following markets: 36.1% Greater Toronto Area, 16.3%Ottawa, 16.2% Greater Montreal Area, 7.8%
Calgary, and 23.6% other markets.
Represents the building area on properties where the Trust has leased the underlying sites to tenants through ground leases.
As at December 31, 2023 the average in place base rent for the Trust’s retail portfolio, excluding ground leases, was $16.80
per square foot.
Choice Properties REIT
2023 Annual Report 72
Industrial Tenant Profile
Choice Properties’ industrial portfolio is centred around large, purpose-built distribution facilities for Loblaw and high-quality
“generic” industrial assets that readily accommodate the diverse needs of a broad range of tenants. The term “generic” refers
to a product that appeals to a wide range of potential users, such that the leasing or re-leasing timeframe is reduced.
The Trust’s ten largest industrial tenants as at December 31, 2023 represented approximately 10.8% of total gross rental
revenue and 57.1% of industrial gross rental revenue, as calculated on a proportionate share basis(1). The names noted below
may be the names of the parent entities and are not necessarily the parties to the leases.
Industrial Tenants
1.
2.
3.
Loblaw
Amazon
Canada Cartage
4. Wonderbrands Inc.
5.
6.
7.
8.
9.
Pet Valu
NFI IPD
Uline Canada Corporation
Canadian Tire
Kimberly-Clark
10. Alberta Gaming, Liquor & Cannabis
Total
% of Industrial Gross
Rental Revenue
GLA
(000’s square feet)
28.5 %
5.1 %
4.6 %
3.9 %
3.8 %
2.7 %
2.4 %
2.1 %
2.1 %
1.9 %
6,093
1,020
672
1,050
353
354
635
486
514
424
57.1 %
11,601
The following table outlines further details of the Trust’s industrial tenant composition as at December 31, 2023:
Building Type / Tenant Use
Distribution
Large Bay-Loblaw Distribution
Warehouse(i)
Total
(i)
Warehouse includes certain Small Bay assets.
% of Industrial Gross
Rental Revenue
GLA
(000’s square feet)
Occupied GLA
(000’s square feet)
55.7 %
28.5 %
15.8 %
100.0 %
10,785
6,093
2,777
19,655
10,672
6,093
2,693
19,458
Occupancy
99.0 %
100.0 %
97.0 %
99.0 %
Choice Properties REIT
2023 Annual Report 73
The lease maturity profile for Choice Properties’ industrial portfolio as at December 31, 2023 was as follows:
(in thousands of square feet
except where otherwise indicated)
Third-party
GLA
Loblaw
GLA
Total GLA
Expiring GLA
as a % of
total GLA
Expiring
annualized
base rent
($ 000’s)
Average expiring
base rent
(per square foot)
Month-to-month
2024(i)
2025
2026
2027
2028
2029
2030 & Thereafter
Occupied GLA(ii)
Ground lease GLA(iii)
Vacant GLA
Total
54
1,227
2,157
1,421
1,169
1,698
729
4,650
13,105
260
197
—
—
189
—
—
772
663
3,538
5,162
931
—
54
1,227
2,346
1,421
1,169
2,470
1,392
8,188
18,267
1,191
197
0.3 % $
375 $
6.2 %
11.9 %
7.2 %
5.9 %
12.6 %
7.1 %
41.7 %
9,801
17,637
13,211
11,098
27,955
14,681
92,242
92.9 %
187,000
6.1 %
1.0 %
13,989
—
13,562
6,093
19,655
100.0 % $
200,989 $
6.89
7.99
7.52
9.30
9.50
11.32
10.55
11.27
10.24
11.75
—
10.33
(i)
The 1,227,000 sq. ft. of GLA maturing in 2024 is located in the following markets : 55.3% Greater Toronto Area, 23.7% Calgary, 8.9% Edmonton, and 12.1% other
markets.
Average in-place base rent per square foot for the major markets (excluding ground leases): $12.09 Vancouver, $9.88 Greater Montreal Area, $8.63 Edmonton, $8.62
(ii)
Greater Toronto Area, $8.13 Calgary, and $9.67 Other markets.
(iii)
Represents the building area on properties where the Trust has leased the underlying sites to tenants through ground leases.
As at December 31, 2023 the average in place base rent for the Trust’s industrial portfolio, excluding ground leases, was
$9.06 per square foot.
Choice Properties REIT
2023 Annual Report 74
7.
7.1
RESULTS OF OPERATIONS - SEGMENT INFORMATION
Net Income and Segment NOI Reconciliation
Choice Properties operates in three reportable segments: Retail, Industrial and Mixed-Use & Residential. Management
measures and evaluates the performance of the Trust based on net operating income, which is presented by segment below
at the proportionate share of the related revenue and expenses for these properties, while other net income items are
reviewed on a consolidated GAAP basis.
The following table reconciles net loss on a proportionate share basis(1) to net loss as determined in accordance with GAAP
for the three months ended December 31, 2023:
($ thousands)
Rental revenue, excluding straight-
line rental revenue and lease
surrender revenue
Retail
Industrial
Mixed-Use &
Residential
Proportionate
Share Basis(1)
Consolidation
and
Eliminations(i)
GAAP Basis
$
273,611 $
57,935 $
17,535 $
349,081 $
(20,565) $
328,516
Property operating costs
(78,633)
(16,532)
(6,879)
(102,044)
7,658
(94,386)
Net Operating Income, Cash
Basis(1)
194,978
41,403
10,656
247,037
(12,907)
234,130
Straight-line rental revenue
(2,500)
3,519
Lease surrender revenue
147
—
53
—
1,072
147
(626)
—
446
147
192,625
44,922
10,709
248,256
(13,533)
234,723
Net Operating Income, Accounting
Basis
Gross sales
Cost of sales
Residential Inventory Income
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
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
25,634
(21,008)
4,626
8,776
10,983
1,125
(148,806)
(19,599)
—
(250)
(1,435)
(502,649)
(73,281)
26,570
—
—
—
1,195
—
—
25,634
(21,008)
4,626
9,971
10,983
1,125
5,433
(143,373)
—
8,069
—
—
—
(19,599)
8,069
(250)
(1,435)
(502,649)
(1,164)
(74,445)
—
26,570
Net Loss
$
(445,684) $
— $
(445,684)
(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
2023 Annual Report 75
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, 2023:
($ thousands)
Rental revenue, excluding straight-
line rental revenue and lease
surrender revenue
Retail
Industrial
Mixed-Use &
Residential
Proportionate
Share Basis(1)
Consolidation
and
Eliminations(i)
GAAP Basis
$
1,079,865 $
222,203 $
74,846 $
1,376,914 $
(80,058) $
1,296,856
Property operating costs
(307,579)
(59,785)
(30,045)
(397,409)
28,349
(369,060)
772,286
162,418
44,801
979,505
(51,709)
927,796
(6,965)
14,784
7,455
—
225
2
715
14,786
(2,985)
(202)
(2,270)
14,584
780,105
169,873
45,028
995,006
(54,896)
940,110
Net Operating Income, Cash
Basis(1)
Straight-line rental revenue
Lease surrender revenue
Net Operating Income, Accounting
Basis
Gross sales
Cost of sales
Residential Inventory Income
Other Income and Expenses
Interest income
Investment income
Fee income
Net interest expense and other financing charges
General and administrative expenses
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 expense
Net Income
25,634
(21,008)
4,626
29,663
26,928
4,287
—
—
—
11,751
—
—
25,634
(21,008)
4,626
41,414
26,928
4,287
(586,973)
20,826
(566,147)
(64,230)
—
(64,230)
(1,000)
(34)
938
320,587
130,900
(64,006)
796,692
(1)
—
—
—
—
(16,750)
—
—
—
39,069
(1,000)
(34)
938
320,587
114,150
(64,006)
796,692
(1)
$
796,691 $
— $
796,691
Share of income from equity accounted joint ventures
—
39,069
(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
2023 Annual Report 76
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, 2023, 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, 2023 and
December 31, 2022 as summarized below.
Summary - Accounting Basis
Three Months
Year Ended
For the periods ended December 31
($ thousands)
%
Change
Change $
2023
2022
2023
2022
Change $
%
Change
Rental revenue
$ 333,385 $ 314,898 $
18,487
5.9 % $ 1,304,597 $ 1,249,204 $
55,393
4.4 %
Straight-line rental revenue
(2,325)
(167)
(2,158) 1,292.2 %
(5,822)
1,938
(7,760)
(400.4) %
Property operating costs
excluding bad debt expense
(96,289)
(86,986)
(9,303)
10.7 %
(372,098)
(356,885)
(15,213)
4.3 %
Same-Asset NOI, Accounting
Basis, excluding bad debt
expense
234,771
227,745
7,026
3.1 %
926,677
894,257
32,420
3.6 %
Bad debt expense
(235)
(639)
404
(63.2) %
(398)
(1,208)
810
(67.1) %
Same-Asset NOI, Accounting
Basis
Transactions NOI including
straight-line rental revenue,
excluding bad debt expense
Bad debt expense
Transactions NOI, Accounting
Basis
Lease surrender revenue
234,536
227,106
7,430
3.3 %
926,279
893,049
33,230
3.7 %
13,656
13,423
(83)
(214)
13,573
13,209
147
11
233
131
364
136
54,235
53,803
(294)
(290)
432
(4)
53,941
14,786
53,513
2,575
428
12,211
Total NOI, Accounting Basis
$ 248,256 $ 240,326 $
7,930
$ 995,006 $ 949,137 $
45,869
Choice Properties REIT
2023 Annual Report 77
Summary - Cash Basis
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $ % Change
2023
2022
2023
2022
Change $ % Change
Rental revenue
$ 333,385 $ 314,898 $ 18,487
5.9 % $ 1,304,597 $ 1,249,204 $ 55,393
4.4 %
Property operating costs
excluding bad debt expense
(96,289)
(86,986)
(9,303)
10.7 % (372,098)
(356,885)
(15,213)
4.3 %
Same-Asset NOI, Cash Basis,
excluding bad debt expense
237,096
227,912
9,184
4.0 % 932,499
892,319
40,180
4.5 %
Bad debt expense
(235)
(639)
404
(63.2) %
(398)
(1,208)
810
(67.1) %
Same-Asset NOI, Cash Basis
236,861
227,273
9,588
4.2 % 932,101
891,111
40,990
4.6 %
Transactions NOI excluding bad
debt expense
10,259
11,760
(1,501)
47,698
51,114
(3,416)
Bad debt expense
(83)
(214)
131
(294)
(290)
(4)
Transactions NOI, Cash Basis
10,176
11,546
(1,370)
47,404
50,824
(3,420)
Total NOI, Cash Basis
$ 247,037 $ 238,819 $
8,218
$ 979,505 $ 941,935 $ 37,570
Three Months and Year Ended
Same-Asset NOI, cash basis increased 4.2% and 4.6% for the three months and year ended, respectively, primarily due to
increased rental revenue from higher rental rates on renewals, new leasing, and contractual rent steps, mainly in the retail
and industrial portfolios, and higher capital and operating recoveries.
Transactions NOI decreased for the three months primarily due to the foregone income from dispositions, partially offset by
the contribution from acquisitions and development transfers. Transactions NOI decreased for the year ended primarily due
to the foregone income from the dispositions of six office assets during the first quarter of 2022 as part of the Allied
Transaction.
Retail Segment
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $ % Change
2023
2022
2023
2022
Change $ % Change
Rental revenue
$ 265,427 $ 252,914 $ 12,513
4.9 % $ 1,040,795 $ 1,005,217 $ 35,578
3.5 %
Property operating costs
excluding bad debt expense
(76,279)
(69,405)
(6,874)
9.9 % (296,269)
(285,899)
(10,370)
3.6 %
Same-Asset NOI, Cash Basis,
excluding bad debt expense
189,148
183,509
5,639
3.1 % 744,526
719,318
25,208
3.5 %
Bad debt expense
(82)
(237)
155
(65.4) %
(2)
(534)
532
(99.6) %
Same-Asset NOI, Cash Basis
189,066
183,272
5,794
3.2 % 744,524
718,784
25,740
3.6 %
Transactions NOI excluding bad
debt expense
Bad debt expense
5,864
5,439
48
19
Transactions NOI, Cash Basis
5,912
5,458
425
29
454
28,014
21,092
6,922
(252)
112
(364)
27,762
21,204
6,558
Total NOI, Cash Basis
$ 194,978 $ 188,730 $
6,248
$ 772,286 $ 739,988 $ 32,298
Three Months and Year Ended
Same-Asset NOI, cash basis for the retail segment increased 3.2% and 3.6% for the three months and year ended,
respectively, primarily due to increased revenue from higher rental rates on renewals, new leasing, contractual rent steps,
and higher capital and operating recoveries.
Transactions NOI for the retail segment increased for the three months and year ended primarily due to the contribution
from acquisitions and development transfers, partially offset by the foregone income from dispositions in the current and
prior years.
Choice Properties REIT
2023 Annual Report 78
Industrial Segment
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $ % Change
2023
2022
2023
2022
Change $ % Change
Rental revenue
$ 55,430 $ 49,788 $
5,642
11.3 % $ 213,069 $ 196,296 $ 16,773
8.5 %
Property operating costs
excluding bad debt expense
(15,017)
(12,689)
(2,328)
18.3 %
(55,944)
(51,318)
(4,626)
9.0 %
Same-Asset NOI, Cash Basis,
excluding bad debt expense
40,413
37,099
3,314
8.9 % 157,125
144,978
12,147
8.4 %
Bad debt expense
(281)
(109)
(172)
157.8 %
(502)
(364)
(138)
37.9 %
Same-Asset NOI, Cash Basis
40,132
36,990
3,142
8.5 % 156,623
144,614
12,009
8.3 %
Transactions NOI excluding bad
debt expense
Bad debt expense
1,282
1,407
(11)
6
Transactions NOI, Cash Basis
1,271
1,413
(125)
(17)
(142)
5,803
2,910
2,893
(8)
14
(22)
5,795
2,924
2,871
Total NOI, Cash Basis
$ 41,403 $ 38,403 $
3,000
$ 162,418 $ 147,538 $ 14,880
Three Months and Year Ended
Same-Asset NOI, cash basis for the industrial segment increased 8.5% and 8.3% for the three months and year ended,
respectively, primarily due to increased revenue from higher rental rates for renewals, new leasing at market rates, and
contractual rent steps. Further NOI growth came from the Quebec region as a result of a fixturing and free rent period upon
turnover of a significant unit in the prior year.
Transactions NOI for the industrial segment decreased for the three months ended primarily due to the foregone income
related to dispositions and operating costs incurred at recently completed development transfers that are not recoverable
during the fixturing period.
Transactions NOI for the industrial segment increased for the year ended primarily due to the net contribution from
acquisitions in the current and prior years.
Mixed-Use & Residential Segment
Three Months
Year Ended
For the periods ended December 31
($ thousands)
2022 Change $ % Change
2023
2023
2022
Change $ % Change
Rental revenue
$ 12,528 $ 12,196 $
332
2.7 % $ 50,733 $ 47,691 $
3,042
6.4 %
Property operating costs
excluding bad debt expense
(4,993)
(4,892)
(101)
2.1 %
(19,885)
(19,668)
(217)
1.1 %
Same-Asset NOI, Cash Basis,
excluding bad debt expense
Bad debt expense
7,535
7,304
128
(293)
Same-Asset NOI, Cash Basis
7,663
7,011
231
421
652
3.2 %
30,848
28,023
2,825
10.1 %
(143.7) %
106
(310)
416
(134.2) %
9.3 %
30,954
27,713
3,241
11.7 %
Transactions NOI excluding bad
debt expense
3,113
4,914
(1,801)
13,881
27,112
(13,231)
Bad debt expense
(120)
(239)
119
(34)
(416)
382
Transactions NOI, Cash Basis
2,993
4,675
(1,682)
13,847
26,696
(12,849)
Total NOI, Cash Basis
$ 10,656 $ 11,686 $
(1,030)
$ 44,801 $ 54,409 $
(9,608)
Three Months and Year Ended
Same-Asset NOI, cash basis for the mixed-use and residential segment increased 9.3% and 11.7% for the three months
and year ended, respectively, primarily due to higher rental revenue from improved average occupancy and increased
residential rental rates, coupled with higher capital recoveries and decreased bad debt expense. Further contributing to the
year ended increase were other non-recurring items, including final billing adjustments.
Transactions NOI for the mixed-use and residential segment decreased for the three months and year ended primarily due
to foregone income from the Allied Transaction and the subsequent sale of five additional office properties, partially offset
by residential development transfers.
Choice Properties REIT
2023 Annual Report 79
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, 2023 and December 31, 2022 are summarized below:
For the periods ended December 31
($ thousands)
Change
2022
2023
2023
Three Months
Year Ended
2022
Change
Funds from Operations(1)
FFO(1) per unit basic
FFO(1) per unit diluted
FFO(1) payout ratio - diluted
$ 184,640
$ 174,183
$ 10,457
$ 726,134
$ 697,728
$ 28,406
$
$
0.255
0.255
$
$
0.241
$ 0.014
0.241
$ 0.014
$
$
1.003
1.003
$
$
0.964
$ 0.039
0.964
$ 0.039
73.5 %
76.8 %
(3.3) %
74.6 %
76.7 %
(2.1) %
Adjusted Funds from Operations(1)
$ 127,095
$ 126,935
$ 160
$ 598,432
$ 581,752
$ 16,680
AFFO(1) per unit basic
AFFO(1) per unit diluted
$
$
0.176
0.176
$
$
0.175
$ 0.001
0.175
$ 0.001
$
$
0.827
0.827
$
$
0.804
$ 0.023
0.804
$ 0.023
AFFO(1) payout ratio - diluted
106.8 %
105.5 %
1.3 %
90.5 %
92.0 %
(1.5) %
Distribution declared per unit
$
0.188
$
0.185
$ 0.003
$
0.749
$
0.740
$ 0.009
Weighted average number of units outstanding
- basic(i)
Weighted average number of units outstanding
- diluted(i)
723,646,497
723,544,974
101,523
723,643,248
723,481,581
161,667
723,662,727
723,586,201
76,526
723,666,503
723,523,362
143,141
Number of units outstanding, end of period(i)
723,646,497
723,557,674
88,823
723,646,497
723,557,674
88,823
(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 and Year Ended
FFO(1) increased for the three months and year ended primarily due to an increase in net operating income, an increase in
investment income as a result of the special distribution announced by Allied (Section 3.9), income from the sale of
residential inventory, and an increase in interest income. The increase was partially offset by increases in interest expense
and general and administrative expenses. The year ended increase was also impacted by the net impact of the Allied
Transaction which includes the loss of NOI, partially offset by the distribution and interest income earned from the limited
partnership units and promissory note received from Allied in exchange for the properties sold.
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 and Year Ended
AFFO(1) increased for the three months and year ended primarily due to increases in FFO as noted above and a favourable
change in the straight-line rental revenue adjustment, partially offset by an increase in maintenance spending.
Choice Properties REIT
2023 Annual Report 80
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 $
2023
2022
2023
Three Months
Year Ended
2022
Change $
Property capital
Direct leasing costs
Tenant improvements
Total property capital and leasing
expenditures, proportionate share
basis(1)
$
46,765 $
35,918 $
10,847 $
85,878 $
72,477 $
13,401
1,662
5,647
2,443
5,491
(781)
156
6,403
25,517
9,312
(2,909)
21,045
4,472
$
54,074 $
43,852 $
10,222 $
117,798 $
102,834 $
14,964
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, 2023, Choice Properties
incurred $85,878 of property capital expenditures, which may be recoverable from tenants under the terms of their leases
over the useful life of the improvements (December 31, 2022 - $72,477). Recoverable capital improvements may include
items such as parking lot resurfacing and roof replacements. These items are recorded as part of investment properties and
the recoveries from tenants are recorded as revenue.
Capital expenditures for leasing activities, such as direct leasing costs or leasing commissions and tenant improvement
allowances, are considered to be operational and are deducted in the calculation of AFFO(1) and ACFO(1). Leasing capital
expenditures vary with tenant demand and the balance between new and renewal leasing, as capital expenditures relating to
securing new tenants are generally higher than the cost for renewing existing tenants.
Choice Properties REIT
2023 Annual Report 81
8.
QUARTERLY RESULTS OF OPERATIONS
The following is a summary of selected consolidated financial information for each of the eight most recently completed
quarters.
Selected Quarterly Information
($ thousands except where
otherwise indicated)
Fourth Quarter
2023
Third Quarter
2023
Second Quarter
2023
First Quarter
2023
Fourth Quarter
2022
Third Quarter
2022
Second Quarter
2022
First Quarter
2022
Number of income
producing properties(i)
705
706
704
705
704
703
703
702
Gross leasable area
(in millions of
square feet)(ii)
66.1
Occupancy
Rental revenue (GAAP)
Net income (loss)
Net income (loss) per unit
Net income (loss) per unit -
diluted
Net operating income,
cash basis(1)
FFO(1)
FFO(1) per unit - diluted
AFFO(1)
AFFO(1) per unit - diluted
Distribution declared per
unit
Market price per unit -
closing
Number of units
98.0 %
329,109
(445,684)
(0.616)
(0.616)
247,037
184,640
0.255
127,095
0.176
0.188
13.95
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
65.2
97.7 %
325,077
435,903
0.602
0.602
244,886
181,013
0.250
136,558
0.189
0.188
12.68
$
$
$
$
$
$
$
$
$
$
$
64.5
97.4 %
330,327
535,668
0.740
0.740
243,530
183,590
0.254
170,400
0.235
0.188
13.57
64.9
97.7 %
324,657
270,804
0.374
0.374
244,052
176,891
0.244
164,379
0.227
0.186
14.52
$
$
$
$
$
$
$
$
$
$
$
64.5
97.9 %
314,382
(579,000)
(0.795)
(0.795)
238,819
174,183
0.241
126,935
0.175
0.185
14.76
$
$
$
$
$
$
$
$
$
$
$
64.7
97.7 %
309,082
948,077
1.310
1.310
234,540
173,119
0.239
130,360
0.180
0.185
12.41
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
64.8
97.7 %
313,081
(11,810)
(0.016)
(0.016)
231,299
175,290
0.242
163,708
0.226
0.185
14.05
64.6
97.0 %
328,049
386,986
0.535
0.535
237,277
175,136
0.242
160,749
0.222
0.185
15.49
$
$
$
$
$
$
$
$
$
$
$
outstanding, period end
723,646,497
723,646,497
723,646,497
723,646,497
723,557,674
723,544,974
723,544,974
723,544,974
Adjusted debt to total
assets(iii)
Debt service coverage(iii)
40.4 %
3.0x
40.6%
3.0x
40.5%
3.1x
41.0%
3.1x
40.6%
3.1x
41.0%
3.1x
41.9%
3.3x
39.5%
3.4x
(i)
(ii)
(iii)
Effective the fourth quarter of 2023, the Trust reassessed its internal definition of a distinct income producing property. The impact on the comparative periods was an
increase of two in 2022, except for the first quarter of 2022 in which increased by three.
Includes GLA that represents the building area on properties where the Trust has leased the underlying sites to the tenants through ground leases.
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, investment in real estate securities, and unit-based compensation and therefore was often not
comparable from quarter to quarter.
Choice Properties REIT
2023 Annual Report 82
9.
RELATED PARTY TRANSACTIONS
Choice Properties’ parent corporation is GWL, which, as at December 31, 2023, 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, 2023. 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 57.1% of Choice Properties’ rental revenue on a proportionate share basis(1) and 57.7% of
its commercial GLA as at December 31, 2023 (December 31, 2022 - 57.3% and 56.4%, respectively).
Leases
During the year ended December 31, 2023, the Trust and Loblaw renewed 47 of 49 leases expiring in 2024, comprising 2.80
million of 2.84 million square feet at a weighted average extension term of 4.9 years and an average spread of 7.5%
(December 31, 2022 - 42 of 44 leases expiring in 2023, comprising of 2.9 million of 3.1 million square feet, at a weighted
average extension term of 7.7 years and an average spread of 7.1%).
Acquisitions
During the year ended December 31, 2023, Choice Properties acquired from Loblaw two financial real estate assets for an
aggregate purchase price of $86,300, as well as three retail properties and one industrial property for an aggregate purchase
price of $91,889, in each case excluding transaction costs.
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.
Dispositions
During the year ended December 31, 2023, Choice Properties disposed of a data centre asset tenanted by Loblaw to a third
party for net proceeds of $74,200. In connection with the transaction, Choice Properties made an $8,300 payment to Loblaw
to terminate its lease early.
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.
Lease Surrender Revenue
During the year ended December 31, 2023, Choice Properties recognized $1,393 of lease surrender revenue from Loblaw
(December 31, 2022 - $nil).
Services Agreement
During the year ended December 31, 2023, GWL provided Choice Properties with corporate, administrative and other
support services for an annualized cost of $4,970 (December 31, 2022 - $3,901).
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 expired on July 5, 2023. Upon expiry of the initial term, the Strategic Alliance Agreement renewed until
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
2023 Annual Report 83
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 $14,377 in connection with completed gross
leasable area for which tenants took possession during the year ended December 31, 2023 (December 31, 2022 - $2,687). In
addition, Choice Properties compensated Loblaw with an intensification payment of $2,100 (December 31, 2022 - $nil) in
relation to the disposition of a parcel of excess land.
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 year ended December 31, 2023, distributions declared on the Exchangeable Units totalled
$296,181 (December 31, 2022 - $292,884).
As at December 31, 2023, Choice Properties had distributions on Exchangeable Units payable to GWL of $320,587
(December 31, 2022 - $195,256). The payable to GWL includes deferred distributions of $295,851 which has been paid on
the first business day of the 2024 fiscal year (December 31, 2022 - $170,849).
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 year
ended December 31, 2023, GWL elected to receive distributions from Choice Properties Limited Partnership in the form of
loans. As such, non-interest bearing short-term notes totalling $295,851 were issued during the year ended December 31,
2023 to GWL and were repaid in January 2024. Non-interest bearing short-term notes totalling $170,849 with respect to the
loans received in the 2022 fiscal year were settled against distributions payable by the Trust to GWL in January 2023.
Trust Unit Distributions
During the year ended December 31, 2023, Choice Properties declared cash distributions of $37,912 on the Units held by
GWL (December 31, 2022 - $37,490). As at December 31, 2023, $3,166 of Trust Unit distributions declared were payable to
GWL (December 31, 2022 - $3,124). There were no non-cash distributions settled through the issuance of additional Trust
Units during the year ended December 31, 2023 (December 31, 2022 - $nil).
During the year ended December 31, 2023, Choice Properties declared cash distributions of $12,348 on the Units held by
Wittington (December 31, 2022 - $12,210). As at December 31, 2023, $1,031 of Trust Unit distributions declared were
payable to Wittington (December 31, 2022 - $1,018). There were no non-cash distributions settled through the issuance of
additional Trust Units during the year ended December 31, 2023 (December 31, 2022 - $nil).
Choice Properties REIT
2023 Annual Report 84
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.
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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, 2023.
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 2023 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, 2023.
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12.
ENTERPRISE RISKS AND RISK MANAGEMENT
Choice Properties is committed to maintaining a framework that ensures risk management is an integral part of its activities.
The 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.
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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. 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; and (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.
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.
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 Debentures and the Revolving Credit Facility that include maintaining
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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 as
well as 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
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.
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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
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
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
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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 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 may 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 allocate operational capital adequately 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 attract and retain talented and experienced employees effectively 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 verify fully 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 integrate and operate them successfully 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 integrate new acquisitions
quickly and efficiently, 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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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 re-lease space vacated by an anchor tenant quickly and/ or 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 could decrease.
Choice Properties’ Revolving Credit Facility and the Debentures also contain covenants that require it to maintain certain
financial ratios on a consolidated basis. If Choice Properties does not maintain such ratios, its ability to make distributions to
Unitholders may be limited or suspended.
Choice Properties analyzes its interest rate risk and the impact of rising and falling interest rates on operating results and
financial condition on a regular basis.
Liquidity and Capital Availability Risk
Liquidity risk is the risk that Choice Properties cannot meet a demand for cash or fund its obligations as they come due.
Although a portion of the cash flows generated by 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; and 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 by 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.
Choice Properties REIT
2023 Annual Report 93
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.
Choice Properties REIT
2023 Annual Report 94
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 prioritizes maintaining a market-leading portfolio, sustaining operational excellence and delivering
on its development pipeline. 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 Strengthening Communities to Prosper.
Fighting Climate Change
The Trust has 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. Actions taken in 2023 to support the Trust’s efforts against climate
change included:
•
•
•
•
The completion of asset-specific net-zero transition plans for all income producing properties within the portfolio.
These net-zero transition plans provide measures and capital planning guidance to enable the decarbonization of
the Trust’s portfolio;
Continued integration of energy-efficient, low-carbon heating into upcoming development and retrofit projects. This
includes the installation of hybrid electric and fully electric HVAC units on select units;
Certifying over 46 million square feet of the portfolio under LEED or BOMA BEST, bringing the total certified to over
65% of building area by GLA (at 100% share), achieving our target established in 2019; and
Silver Level 2023 Green Lease Leader recognition in both the Landlord and Team Transaction category in
recognition of green leasing practices.
Progress against the Trust’s 2023 environmental targets noted above will be made available in the upcoming ESG Report to
be issued later this year.
Strengthening Communities to Prosper
The Trust aims to enhance the economic well-being and social fabric of the communities it serves. To do so, Choice
Properties is focused on advancing diversity, equity and inclusion (“DEI”) across the organization and on engaging in
charitable volunteering and philanthropy. The Trust’s commitment to creating inclusive, prosperous communities has
continued to grow in 2023. Highlights for 2023 include:
•
•
•
•
•
•
•
•
Establishment of a social impact framework which outlines how the Trust can leverage its assets and non-profit
partnerships, in order to promote local economic development and social cohesion in the communities where it
operates and builds;
Establishment of one property license agreement – the revenue of which will be dedicated to advancing the Trust’s
social impact efforts;
Becoming an ILEO (Inclusive Local Economic Opportunity) Corporate Charter signatory and hosting a local pop-up
market with emerging business owners residing in the Golden Mile area;
Continued empowerment of the Trust’s employee-led DEI Committee to organize events focused on education and
training, networking, and the celebration of culture;
Donation of over $600,000 and 1,400 hours of colleague time in support of Canadian charities focused on
empowering youth in low-income communities, through the Choice Cares program;
Continued collection of self-identification data on a voluntary basis from colleagues to understand where gaps exist
and to monitor progress on diversity initiatives;
Partnership with a community organization to create employment for diverse candidates, enabling success by
fostering an environment of learning and support; and
Completion of approximately 600 hours of foundational DEI related training by colleagues, on topics including
equitable leadership, bias, privilege and anti-racism.
Choice Properties REIT
2023 Annual Report 95
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 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.
Some of the 2023 highlights related to ESG reporting and disclosure included:
•
•
Submission of response to the CDP Climate Change questionnaire for the second year. The CDP Climate Change
questionnaire is an independent evaluation of public disclosures related to climate change. The Trust’s 2023
response received a rating of “B”;
Second consecutive 4-star rating for the Trust’s GRESB Standing Investment (Operations) response (a score of 82
on a 100-point scale);
• Maintenance of “Prime” rating by ISS ESG, the responsible investment arm of Institutional Shareholder Services Inc.
•
(“ISS”), a provider of sustainable and responsible investment research; and
Upgrading of the Trust’s MSCI ESG rating to “BBB”. MSCI ESG ratings aim to measure a company’s management
of financially relevant ESG risks and opportunities.
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.”
Choice Properties REIT
2023 Annual Report 96
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 complete our 2024 lease renewals. We also continue to
advance our development program, with a focus on commercial developments in the near term, 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. In 2024, 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 2.5%-3.0% year-over-year growth in Same-Asset NOI, cash
basis;
Annual FFO per unit diluted in a range of $1.02 to $1.03, reflecting 2.0%-3.0% year-over-year growth; and
Strong leverage metrics, targeting Adjusted Debt to EBITDAFV slightly below 7.5x.
Choice Properties REIT
2023 Annual Report 97
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
•
Represents financial information adjusted to reflect the Trust’s equity
accounted joint ventures and financial real estate assets and its
share of net income (loss) 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.
•
Proportionate
Share
Net Operating
Income (“NOI”),
Accounting Basis
NOI, Cash Basis
•
•
• 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.
is used to evaluate the period-over-period
Same-Asset NOI
performance of
those commercial properties and stabilized
residential properties, owned and operated by Choice Properties
since January 1, 2022, inclusive.
NOI from properties that have been (i) purchased, (ii) disposed, (iii)
subject to significant change as a result of new development,
redevelopment, expansion, or demolition, or
residential
properties not yet stabilized
(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.
(iv)
•
Same-Asset NOI,
Cash Basis
and
Same-Asset NOI,
Accounting Basis
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”
Section 7.2, “Net Operating
Income Summary”
Choice Properties REIT
2023 Annual Report 98
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,
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 January 2023.
• 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
2023 Annual Report 99
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
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(1) 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.
This 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, measure its ability to meet financial obligations, and
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.
Section 15.8, “Earnings
before Interest, 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
Condition”
Section 15.9, “Selected
Information for Comparative
Purposes”
Section 4.4, “Financial
Condition”
Section 15.9, “Selected
Information for Comparative
Purposes”
Section 4.4, “Financial
Condition”
•
•
•
Calculated as EBITDAFV divided by interest expense on the Total
Adjusted Debt incurred by Choice Properties for the period.
This ratio is useful in determining Choice Properties’ ability to
service the interest requirements of its outstanding debt.
Section 4.4, “Financial
Condition”
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 4, “Liquidity and
Capital Resources”
Section 4.2, “Liquidity and
Capital Structure”
Choice Properties REIT
2023 Annual Report 100
Balance, beginning of
period
Acquisitions of investment
properties(ii)
Capital expenditures
Capitalized interest
Property capital
Direct leasing costs
Tenant improvement
allowances
Amortization of straight-
line rent
Transfers from properties
under development
Reclassification of lease
receivable(iii)
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, 2023:
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)
$ 14,440,000 $
961,000 $ 15,401,000 $
402,000 $
741,000 $
1,143,000 $ 14,842,000 $ 16,544,000
Development capital
—
82,533
—
—
82,533
—
—
—
82,533
82,533
—
41,468
48,529
89,997
41,468
89,997
Building improvements
9,214
(1,876)
7,338
—
—
46,491
1,357
—
274
305
46,765
1,662
—
1,058
4,381
1,266
5,647
446
626
1,072
—
1,000
—
—
—
—
—
2,058
9,214
1,058
7,338
2,058
—
—
—
—
46,491
46,765
1,357
1,662
4,381
5,647
446
—
1,072
—
—
—
—
—
—
—
—
164,600
190,125
354,725
(164,600)
(190,125)
(354,725)
24,988
(24,988)
—
—
—
24,988
Dispositions
(56,491)
—
(56,491)
(6,300)
(6,300)
(56,491)
(62,791)
Adjustment to fair value of
investment properties
Balance, as at December
31, 2023
(82,519)
(4,732)
(87,251)
8,074
5,896
13,970
(74,445)
(73,281)
$ 14,635,000 $
1,122,000 $ 15,757,000 $
288,000 $
600,000 $
888,000 $ 14,923,000 $ 16,645,000
(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
2023 Annual Report 101
Capitalized interest
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
Reclassification of lease
receivable(iii)
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, 2023:
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)
Balance, beginning of
period
Acquisitions of investment
properties(ii)
Capital expenditures
$ 14,119,000 $
989,000 $ 15,108,000 $
325,000 $
721,000 $
1,046,000 $ 14,444,000 $ 16,154,000
165,421
99,814
265,235
—
18,728
18,728
165,421
283,963
Development capital
—
—
—
122,264
96,248
218,512
122,264
218,512
Building improvements
20,141
(3,934)
16,207
—
85,516
5,622
—
362
781
—
85,878
6,403
22,833
2,684
25,517
(2,270)
2,985
715
(92,754)
—
(92,754)
—
5,402
—
1,680
—
20,141
16,207
7,082
5,402
7,082
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
85,516
85,878
5,622
6,403
22,833
25,517
(2,270)
715
(92,754)
(92,754)
153,842
(153,842)
—
38,968
(38,968)
—
192,810
232,200
194,875
427,075
(232,200)
(194,875)
(427,075)
—
24,988
(24,988)
—
—
—
24,988
—
—
—
—
—
Dispositions
(187,263)
—
(187,263)
(6,300)
(6,300)
(187,263)
(193,563)
Adjustment to fair value of
investment properties
Balance, as at December
31, 2023
87,724
14,263
101,987
28,566
2,487
31,053
116,290
133,040
$ 14,635,000 $
1,122,000 $ 15,757,000 $
288,000 $
600,000 $
888,000 $ 14,923,000 $ 16,645,000
(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
2023 Annual Report 102
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
2023
2023
Three Months
Year Ended
2022
Change $
Net Income (Loss)
$
(445,684) $
(579,000) $
133,316 $
796,691 $
744,253 $ 52,438
Residential inventory income
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 tax (recovery) expense
Net Operating Income, Accounting
Basis - GAAP
Straight-line rental revenue
Lease surrender revenue
Net Operating Income, Cash Basis -
GAAP
Adjustments for equity accounted joint
ventures and financial real estate
assets
Net Operating Income, Cash Basis -
Proportionate Share(1)
(4,626)
(9,971)
(10,983)
(1,125)
143,373
19,599
—
(4,626)
(4,626)
—
(4,626)
(12,691)
2,720
(41,414)
(27,360)
(14,054)
(5,165)
(1,292)
137,247
14,476
(5,818)
(26,928)
(15,495)
(11,433)
167
(4,287)
(3,793)
(494)
6,126
5,123
566,147
536,857
29,290
64,230
47,821
16,409
(8,069)
(15,522)
7,453
(39,069)
(353,867)
314,798
250
—
250
82
—
(82)
1,000
1,000
—
34
5,108
(5,074)
1,435
2,665
(1,230)
(938)
1,191
(2,129)
502,649
858,857
(356,208)
(320,587)
(170,188)
(150,399)
74,445
(193,370)
267,815
(114,150)
(113,115)
(1,035)
(26,570)
20,784
(47,354)
64,006
248,346
(184,340)
—
(119)
119
1
(117)
118
234,723 —
227,202 —
7,521 —
940,110 —
900,641 —
39,469
(446)
(147)
(838)
(11)
392
(136)
2,270
(2,554)
4,824
(14,584)
(2,365)
(12,219)
234,130 —
226,353 —
7,777 —
927,796 —
895,722 —
32,074
12,907
12,466
441
51,709
46,213
5,496
$
247,037 $
238,819 $
8,218 $
979,505 $
941,935 $ 37,570
Choice Properties REIT
2023 Annual Report 103
15.3
Funds from Operations
The following table reconciles net income (loss), 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 $
2023
2022
2023
2022
Change $
Net Income (Loss)
$
(445,684)
$
(579,000)
$ 133,316
$
796,691
$
744,253
$ 52,438
Add (deduct) impact of the following:
Amortization of intangible assets
Transaction costs and other related expenses
250
—
250
82
—
(82)
Adjustment to fair value of unit-based compensation
1,435
2,665
(1,230)
1,000
34
(938)
1,000
5,108
1,191
—
(5,074)
(2,129)
Adjustment to fair value of Exchangeable Units
502,649
858,857
(356,208)
(320,587)
(170,188)
(150,399)
Adjustment to fair value of investment properties
74,445
(193,370)
267,815
(114,150)
(113,115)
(1,035)
Adjustment to fair value of investment property held in
equity accounted joint ventures
(1,164)
(13,877)
12,713
(16,750)
(328,738)
311,988
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
Funds from Operations
FFO per unit - diluted
FFO payout ratio - diluted(i)
(26,570)
20,784
(47,354)
64,006
248,346
(184,340)
2,670
74,210
2,399
—
2,790
73,221
1,900
(119)
(120)
11,457
8,589
989
499
119
296,181
292,884
9,189
1
8,515
(117)
2,868
3,297
674
118
$
$
184,640
0.255
$
$
174,183
$ 10,457
0.241
$ 0.014
$
$
726,134
1.003
$
$
697,728
$ 28,406
0.964
$ 0.039
73.5 %
76.8 %
(3.3) %
74.6 %
76.7 %
(2.1) %
Distribution declared per unit
0.188
0.185
0.003
0.749
0.740
0.009
Weighted average number of units outstanding - diluted(ii)
723,662,727
723,586,201
76,526
723,666,503
723,523,362
143,141
(i)
(ii)
FFO payout ratio is calculated as cash distributions declared divided by FFO.
Includes Trust Units and Exchangeable Units.
Choice Properties REIT
2023 Annual Report 104
FFO as calculated on a proportionate share basis(1):
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2023
2022
2023
2022
Change $
Net Operating Income, Cash Basis
$
247,037
$
238,819
$
8,218
$ 979,505
$ 941,935
$ 37,570
Straight-line rental revenue
Lease surrender revenue
1,072
147
1,496
11
(424)
136
715
14,786
4,627
2,575
(3,912)
12,211
Net Operating Income, Accounting Basis
$
248,256
$
240,326
$
7,930
$ 995,006
$ 949,137
$ 45,869
Residential inventory income
Interest income
Investment income
Fee income
4,626
8,776
10,983
1,125
—
5,700
5,165
1,292
4,626
3,076
5,818
(167)
4,626
29,663
26,928
4,287
—
19,828
4,626
9,835
15,495
11,433
3,793
494
Net interest expense and other financing charges
(148,806)
(141,735)
(7,071)
(586,973)
(552,692)
(34,281)
Distributions on Exchangeable Units
74,210
73,221
989
296,181
292,884
3,297
Interest otherwise capitalized for development in equity
accounted joint ventures
2,670
2,790
(120)
11,457
8,589
2,868
General and administrative expenses
(19,599)
(14,476)
(5,123)
(64,230)
(47,821)
(16,409)
Internal expenses for leasing
2,399
1,900
499
9,189
8,515
674
Funds from Operations
FFO per unit - diluted
FFO payout ratio - diluted(i)
$
$
184,640
0.255
$
$
174,183
$ 10,457
$ 726,134
$ 697,728
$ 28,406
0.241
$
0.014
$
1.003
$
0.964
$
0.039
73.5 %
76.8 %
(3.3) %
74.6 %
76.7 %
(2.1) %
Distribution declared per unit
$
0.188
$
0.185
$
0.003
$
0.749
$
0.740
$
0.009
Weighted average number of units outstanding - diluted(ii)
723,662,727
723,586,201
76,526
723,666,503
723,523,362
143,141
(i)
(ii)
FFO payout ratio is calculated as cash distributions declared divided by FFO.
Includes Trust Units and Exchangeable Units.
Choice Properties REIT
2023 Annual Report 105
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 $
2023
2022
2023
2022
Change $
Funds from Operations
$
184,640
$
174,183
$
10,457
$
726,134
$
697,728
$ 28,406
Add (deduct) impact of the following:
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
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)
(2,399)
(446)
(1,900)
(838)
(499)
392
(9,189)
2,270
(8,515)
(674)
(2,554)
4,824
(626)
(658)
32
(2,985)
(2,073)
(912)
(46,491)
(35,456)
(11,035)
(85,516)
(70,937)
(14,579)
(1,357)
(4,381)
(2,258)
(5,188)
(1,845)
(950)
$
$
127,095
0.176
$
$
126,935
0.175
$
$
901
807
(895)
160
0.001
(5,622)
(8,741)
3,119
(22,833)
(19,382)
(3,451)
(3,827)
(3,774)
(53)
$
$
598,432
0.827
$
$
581,752
$ 16,680
0.804
$ 0.023
106.8 %
105.5 %
1.3 %
90.5 %
92.0 %
(1.5) %
Distribution declared per unit
$
0.188
$
0.185
$
0.003
$
0.749
$
0.740
$ 0.009
Weighted average number of units outstanding - diluted(ii)
723,662,727
723,586,201
76,526
723,666,503
723,523,362
143,141
(i)
(ii)
AFFO payout ratio is calculated as cash distributions declared divided by AFFO.
Includes Trust Units and Exchangeable Units.
Choice Properties REIT
2023 Annual Report 106
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(i)
Change $
2023
2023
2022(i)
Change $
Cash Flows from Operating Activities
$
207,667
$
191,260
$
16,407
$ 641,972
$ 668,418
$ (26,446)
Add (deduct) impact of the following:
Net interest expense and other financing charges in excess of
interest paid(ii)
Distributions on Exchangeable Units included in net interest
expense and other financing charges
Interest and other income in excess of interest received(ii)
Interest otherwise capitalized for development in equity
accounted joint ventures
Portion of internal expenses for leasing relating to
development activity
Adjustment for property capital expenditures on a
proportionate share basis(1)
Adjustment for leasing expenditures on a proportionate share
basis(1)
Transaction costs and other related expenses
Adjustment for proportionate share of operating income from
equity accounted joint ventures(iii)
Adjustment for distributions from equity accounted joint
ventures
Adjustment for additions to residential inventory
Adjustment for changes in non-cash working capital items not
indicative of sustainable operating cash flows(iv)
(88,250)
(81,087)
(7,163)
(303,626)
(293,048)
(10,578)
74,210
1,415
73,221
989
296,181
292,884
3,297
7,657
(6,242)
9,739
9,551
188
2,670
2,790
(120)
11,457
8,589
2,868
1,200
950
250
4,595
4,258
337
(46,765)
(35,918)
(10,847)
(85,878)
(72,477)
(13,401)
(1,571)
—
(488)
82
(1,083)
(3,465)
(82)
34
(2,234)
5,108
(1,231)
(5,074)
6,905
1,645
5,260
22,319
25,129
(2,810)
(9,587)
2,020
(6,637)
2,207
(2,950)
(33,913)
(68,076)
34,163
(187)
9,758
8,285
1,473
(11,666)
(20,867)
9,201
39,590
6,357
33,233
Adjusted Cash Flow from Operations
$
138,248
$
134,815
$
3,433
$ 608,763
$ 592,744
$ 16,019
Cash distributions declared
135,683
133,858
1,825
541,529
535,407
6,122
Cash Retained after Distributions
$
2,565
$
957
$
1,608
$ 67,234
$ 57,337
$ 9,897
ACFO Payout Ratio(v)
98.1 %
99.3 %
(1.2) %
89.0 %
90.3 %
(1.3) %
(i)
(ii)
(iii)
(iv)
(v)
Certain comparative figures were reclassified in the Trust’s statement of cash flow to conform to the current period presentation. The 2022 ACFO adjustments have
been updated to reflect the change in cash flow presentation. The net impact to ACFO for the three months and year ended December 31, 2023 is a decrease of
$3,638 and $2,506, respectively (December 31, 2022 - $1,115 and $35,264, respectively).
The timing of the recognition of interest expense and income differs from the cash payment and collection. The ACFO calculations for the periods ended December 31,
2023 and December 31, 2022 were adjusted for this factor to make the periods more comparable(2).
Excludes adjustment to fair value of investment properties for equity accounted joint ventures.
ACFO is adjusted each quarter for fluctuations in non-cash working capital due to the timing of transactions for realty taxes prepaid or payable, and prepaid insurance.
The payments for these operating expenses tend to have quarterly, seasonal fluctuations that even out on an annual basis. ACFO is also adjusted each quarter to
remove fluctuations in non-cash working capital, which are not related to sustainable operating activities.
ACFO payout ratio is calculated as the cash distributions declared divided by ACFO.
Based on the Real Property Association of Canada’s Adjusted Cashflow from Operations (ACFO) for IFRS issued in January
2023, Choice Properties adjusts ACFO for amounts included in the net change in non-cash working capital, a component of
cash flows from operating activities, to eliminate fluctuations that are not indicative of sustainable cash available for
distribution. The resulting remaining impacts on ACFO from changes in non-cash working capital are calculated below:
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2023
2022
2023
2022 Change $
Net change in non-cash working capital(i)
Adjustment for changes in non-cash working capital
items not indicative of sustainable operating cash
flows
Net non-cash working capital increase included in
$
19,781 $
25,217 $
(5,436) $
(40,198) $
(3,905) $ (36,293)
(11,666)
(20,867)
9,201
39,590
6,357
33,233
ACFO
$
8,115 $
4,350 $
3,765 $
(608) $
2,452 $
(3,060)
(i)
As calculated and disclosed in the Trust’s audited consolidated financial statements.
Choice Properties REIT
2023 Annual Report 107
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 $
2023
2022
2023
2022
Change $
Cash flows from operating activities
$ 207,667 $
191,260 $
16,407 $
641,972 $
668,418 $
(26,446)
Less: Cash distributions declared
(135,683)
(133,858)
(1,825)
(541,529)
(535,407)
(6,122)
Excess of cash flows provided by operating
activities over cash distributions declared
$
71,984 $
57,402 $
14,582 $
100,443 $
133,011 $
(32,568)
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Change $
2023
2022
2023
2022
Change $
Net income (loss)
Add: Distributions on Exchangeable Units
included in net interest expense and other
financing charges
Net income attributable to Unitholders
excluding distributions on Exchangeable
Units
$ (445,684) $
(579,000) $
133,316 $
796,691 $
744,253 $
52,438
74,210
73,221
989
296,181
292,884
3,297
(371,474)
(505,779)
134,305
1,092,872
1,037,137
55,735
Less: Cash distributions declared
(135,683)
(133,858)
(1,825)
(541,529)
(535,407)
(6,122)
Excess (shortfall) of net income (loss)
attributable to Unitholders, less
distributions on Exchangeable Units, over
cash distributions declared
$ (507,157) $
(639,637) $
132,480 $
551,343 $
501,730 $
49,613
Three Months
Year Ended
For the periods ended December 31
($ thousands)
Adjusted Cash Flow from Operations(1)
$ 138,248 $
134,815 $
3,433 $
Change $
2022
2023
2023
608,763 $
2022
Change $
592,744 $
16,019
Less: Cash distributions declared
(135,683)
(133,858)
(1,825)
(541,529)
(535,407)
(6,122)
Excess of ACFO after distributions
$
2,565 $
957 $
1,608 $
67,234 $
57,337 $
9,897
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
2023 Annual Report 108
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, 2023 and 2022:
For the three months ended December 31
($ thousands)
Proportionate
Share Basis(1)
Proportionate
Share Basis(1)
GAAP Basis
Consolidation
and
Eliminations(i)
2023
2022
Consolidation
and
Eliminations(i)
GAAP Basis
Interest on senior unsecured debentures
$
57,974 $
— $
57,974 $
50,873 $
— $
50,873
Interest on mortgages and construction loans
16,865
(6,206)
10,659
Interest on credit facility
612
—
612
Subtotal (for use in Debt Service Coverage(1)
calculation)
Distributions on Exchangeable Units(ii)
75,451
74,210
(6,206)
—
69,245
74,210
16,280
3,125
70,278
73,221
(6,956)
—
(6,956)
—
9,324
3,125
63,322
73,221
Subtotal (for use in EBITDAFV(1) calculation)
149,661
(6,206)
143,455
143,499
(6,956)
136,543
Interest on right-of-use lease liabilities
Amortization of debt discounts and premiums
Amortization of debt placement costs
Capitalized interest
Net interest expense and other financing
13
121
1,316
(2,305)
—
(71)
(156)
1,000
13
50
1,160
(1,305)
22
188
1,304
(3,278)
—
(71)
(6)
2,545
22
117
1,298
(733)
charges
$
148,806 $
(5,433) $
143,373 $
141,735 $
(4,488) $
137,247
(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)
2023
Consolidation
and
Eliminations(i)
GAAP Basis
Proportionate
Share Basis(1)
2022
Consolidation
and
Eliminations(i)
GAAP Basis
Interest on senior unsecured debentures
$
220,246 $
— $
220,246 $
192,774 $
— $
192,774
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 liabilities
Amortization of debt discounts and premiums
Amortization of debt placement costs
Capitalized interest
Net interest expense and other financing
63,846
9,638
293,730
296,181
589,911
63
312
4,915
(8,228)
(21,948)
—
41,898
9,638
58,136
8,839
(19,008)
—
39,128
8,839
(21,948)
271,782
259,749
(19,008)
240,741
—
296,181
292,884
—
292,884
(21,948)
567,963
552,633
(19,008)
533,625
—
(282)
(276)
1,680
63
30
4,639
(6,548)
148
1,217
5,263
—
(284)
(179)
(6,569)
3,636
148
933
5,084
(2,933)
charges
$
586,973 $
(20,826) $
566,147 $
552,692 $
(15,835) $
536,857
Choice Properties REIT
2023 Annual Report 109
15.8
Earnings Before Interest, Taxes, Depreciation, Amortization and Fair Value
The following table reconciles net income (loss), 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
For the periods ended December 31
($ thousands)
Change $
2023
2022
2023
2022
Change $
Net Income (Loss)
$
(445,684) $
(579,000) $
133,316 $
796,691 $
744,253 $
52,438
Add (deduct) impact of the following:
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 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) expense
—
1,435
502,649
74,445
82
2,665
(82)
(1,230)
34
(938)
5,108
1,191
(5,074)
(2,129)
858,857
(356,208)
(320,587)
(170,188)
(150,399)
(193,370)
267,815
(114,150)
(113,115)
(1,035)
(1,164)
(13,877)
12,713
(16,750)
(328,738)
311,988
(26,570)
149,661
20,784
143,499
321
250
—
286
250
(119)
(47,354)
6,162
35
—
119
64,006
589,911
1,311
1,000
1
248,346
(184,340)
552,633
37,278
1,201
1,000
(117)
110
—
118
Earnings Before Interest, Taxes, Depreciation,
Amortization and Fair Value (EBITDAFV)
$
255,343 $
240,057 $
15,286 $
1,000,529 $
941,574 $
58,955
(i)
As calculated in Section 15.7, “Net Interest Expense and Other Financing Charges Reconciliation”.
Choice Properties REIT
2023 Annual Report 110
15.9
Selected Information For Comparative Purposes
The following table reconciles net income (loss), 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
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 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
2023
Third
Quarter
2023
Second
Quarter
2023
First
Quarter
2023
Fourth
Quarter
2022
Third
Quarter
2022
Second
Quarter
2022
First
Quarter
2022
Year
Ended
2021
$ (445,684)
$ 435,903
$ 535,668
$ 270,804
$ (579,000)
$ 948,077
$
(11,810)
$ 386,986
$
23,008
250
—
250
—
250
9
250
25
250
82
250
13
250
250
1,000
(223)
5,236
—
1,435
(643)
(998)
(732)
2,665
(476)
(2,064)
1,066
1,580
502,649
(352,250)
(375,997)
(94,989)
858,857
(577,848)
(569,933)
118,736
862,815
74,445
(26,775)
(86,053)
(75,767)
(193,370)
(141,277)
523,775
(302,243)
(458,817)
(1,164)
346
132
(16,064)
(13,877)
(202,968)
(1,456)
(110,437)
(43,478)
(26,570)
44,757
31,176
14,643
20,784
68,847
158,715
—
—
2,670
2,933
2,939
2,915
2,790
3,071
2,488
240
3,173
74,210
74,210
74,210
73,551
73,221
73,221
73,221
73,221
292,884
2,399
2,282
2,254
2,254
1,900
2,213
2,323
2,079
8,412
—
—
—
1
(119)
(4)
4
2
(679)
Funds from Operations
$ 184,640
$ 181,013
$ 183,590
$ 176,891
$ 174,183
$ 173,119
$ 175,290
$ 175,136
$ 689,898
FFO per unit - diluted
$
0.255
$
0.250
$
0.254
$
0.244
$
0.241
$
0.239
$
0.242
$
0.242
$
0.954
FFO payout ratio -
diluted(i)
Distribution declared per
unit
Weighted average
number of units
outstanding - diluted(ii)
73.5 %
75.0 %
73.9 %
76.0 %
76.8 %
77.3 %
76.4 %
76.4 %
77.6 %
$
0.188
$
0.188
$
0.188
$
0.186
$
0.185
$
0.185
$
0.185
$
0.185
$
0.740
723,662,727
723,664,818
723,656,668
723,665,160
723,586,201
723,577,162
723,593,236
723,466,930
723,127,566
(i)
(ii)
FFO payout ratio is calculated as cash distributions declared divided by FFO.
Includes Trust Units and Exchangeable Units.
Choice Properties REIT
2023 Annual Report 111
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.
Fourth
Quarter
2023
Third
Quarter
2023
Second
Quarter
2023
First
Quarter
2023
Fourth
Quarter
2022
Third
Quarter
2022
Second
Quarter
2022
First
Quarter
2022
Year
Ended
2021
$
184,640
$ 181,013
$ 183,590
$ 176,891
$ 174,183
$ 173,119
$ 175,290
$ 175,136
$ 689,898
(2,399)
(2,282)
(2,254)
(2,254)
(1,900)
(2,213)
(2,323)
(2,079)
(8,412)
(446)
839
898
979
(838)
(995)
(210)
(511)
(7,893)
(626)
(925)
(777)
(657)
(658)
(475)
(541)
(399)
(2,211)
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
Property capital
(46,491)
(31,513)
(5,764)
(1,748)
(35,456)
(30,119)
(2,998)
(2,364)
(60,012)
Direct leasing costs
(1,357)
(1,681)
(793)
(1,791)
(2,258)
(3,326)
(1,358)
(1,799)
(6,426)
Tenant improvements
(4,381)
(8,323)
(3,686)
(6,443)
(5,188)
(4,757)
(3,320)
(6,117)
(16,379)
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
Cash distributions
declared
AFFO payout ratio -
diluted(i)
Weighted average
number of units
outstanding -
diluted(ii)
(1,845)
(570)
(814)
(598)
(950)
(874)
(832)
(1,118)
(2,059)
$
127,095
$ 136,558
$ 170,400
$ 164,379
$ 126,935
$ 130,360
$ 163,708
$ 160,749
$ 586,506
$
0.176
$
0.189
$
0.235
$
0.227
$
0.175
$
0.180
$
0.226
$
0.222
$
0.811
135,683
135,684
135,684
134,478
133,858
133,856
133,857
133,836
535,104
106.8 %
99.4 %
79.6 %
81.8 %
105.5 %
102.7 %
81.8 %
83.0 %
91.2 %
723,662,727
723,664,818
723,656,668
723,665,160
723,586,201
723,577,162
723,593,236
723,466,930
723,127,566
(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 ratio 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
2023
Third
Quarter
2023
Second
Quarter
2023
First
Quarter
2023
Fourth
Quarter
2022
Third
Quarter
2022
Second
Quarter
2022
First
Quarter
2022
Year Ended
2021
Total Assets -
Proportionate Basis
$ 17,889,244 $ 17,800,387 $ 17,624,482 $ 17,483,341 $ 17,349,387 $ 16,941,805 $ 16,676,996 $ 16,910,210 $ 16,664,782
Debt Service
Coverage Ratio -
Denominator
$
84,686 $
84,449 $
79,923 $
79,121 $
78,148 $
76,253 $
70,330 $
68,639 $
287,611
Choice Properties REIT
2023 Annual Report 112
Financial
Statements
Mount Pleasant Village
Brampton, ON
Annual Report 2023 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
Material Accounting Policy Information
Change in Accounting Standards
Critical Accounting Judgments and Estimates
Investment Property and Other Transactions
Investment Properties
Equity Accounted Joint Ventures
Co-Ownership Property Interests
Financial Real Estate Assets
Note 10.
Residential Development Inventory
Note 11.
Mortgages, Loans and Notes Receivable
Note 12.
Investment in Real Estate Securities
Note 13.
Intangible Assets
Note 14.
Accounts Receivable and Other Assets
Note 15.
Long Term Debt
Note 16.
Credit Facility
Note 17.
Unitholders' Equity
Note 18.
Income Taxes
Note 19.
Trade Payables and Other Liabilities
Note 20.
Unit-Based Compensation
Note 21.
Rental Revenue
Note 22.
Property Operating Costs
Note 23.
Interest Income
Note 24.
Fee Income
Note 25.
Net Interest Expense and Other Financing Charges
Note 26.
General and Administrative Expenses
Note 27.
Financial Risk Management
Note 28.
Financial Instruments
Note 29.
Capital Management
Note 30.
Supplemental Cash Flow Information
Note 31.
Segment Information
Note 32.
Contingencies, Commitments, and Guarantees
Note 33.
Related Party Transactions
121
122
123
124
125
125
125
134
135
136
140
143
145
145
145
146
148
148
149
150
153
154
155
156
157
160
160
160
161
161
161
162
164
165
166
167
168
169
Choice Properties REIT
2023 Annual Report 114
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 (the “IFRS Accounting Standards” or “GAAP”). 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 14, 2024
[signed]
Rael Diamond
President and Chief Executive Officer
[signed]
Mario Barrafato
Chief Financial Officer
Choice Properties REIT
2023 Annual Report 115
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, 2023 and 2022, and its financial performance and its cash flows for the years
then ended in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (IFRS Accounting Standards).
What we have audited
The Trust’s consolidated financial statements comprise:
the consolidated balance sheets as at December 31, 2023 and 2022;
the consolidated statements of income and comprehensive income for the years then ended;
the consolidated statements of changes in equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, comprising material accounting policy information
and other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Trust in accordance with the ethical requirements that are relevant to our audit
of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in
accordance with these requirements.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2023. 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.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2500, Toronto, Ontario, Canada, M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215, ca_toronto_18_york_fax@pwc.com
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Key audit matter
How our audit addressed the key audit matter
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.
Valuation of income producing properties
Refer to note 2 – Significant accounting policies,
note 4 – Critical accounting judgments and
estimates and note 6 – Investment properties to the
consolidated financial statements.
The Trust measures its income producing
properties at fair value and, as at December 31,
2023, these assets were valued at $14.6 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 skill and
knowledge in the field of real estate valuations.
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 Accounting Standards, 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 14, 2024
Choice Properties Real Estate Investment Trust
Consolidated Balance Sheets
(in thousands of Canadian dollars)
Note
December 31, 2023
December 31, 2022
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
Contingencies, Commitments, and Guarantees (Note 32)
See accompanying notes to the audited consolidated financial statements
6
7
9
10
11
12
13
14
5,6
30(c)
15
16
17
19
17
$
$
$
14,923,000
$
14,444,000
883,712
195,457
8,681
656,001
238,308
13,964
137,180
—
252,424
995,822
109,509
18,785
680,475
302,314
21,369
132,117
50,400
64,736
17,308,727
$
16,819,527
6,695,923
$
—
5,521,222
723,080
12,940,225
4,368,502
4,368,502
$
17,308,727
$
6,294,101
257,617
5,841,809
601,847
12,995,374
3,824,153
3,824,153
16,819,527
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
2023 Annual Report 121
Choice Properties Real Estate Investment Trust
Consolidated Statements of Income and Comprehensive Income
Year Ended
Note
December 31, 2023
December 31, 2022
$
1,309,170
$
(in thousands of Canadian dollars)
Net Rental Income
Rental revenue
Property operating costs
Residential Inventory Income
Gross sales
Cost of sales
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 (expense)
Net Income
(369,060)
940,110
25,634
(21,008)
4,626
41,414
26,928
4,287
(566,147)
(64,230)
39,069
(1,000)
(34)
938
320,587
114,150
(64,006)
796,692
(1)
796,691
$
1,264,594
(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
21
22
10
10
23
12
24
25
26
7
13
5
20
17
6
12
18
$
$
$
Net Income
Other Comprehensive Income (Loss)
Unrealized gain (loss) on designated hedging instruments
28
Other comprehensive income (loss)
Comprehensive Income
See accompanying notes to the audited consolidated financial statements
796,691
$
744,253
(6,374)
(6,374)
790,317
$
11,568
11,568
755,821
Choice Properties REIT
2023 Annual Report 122
Choice Properties Real Estate Investment Trust
Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars)
Equity, December 31, 2022
Net Income
Other comprehensive income (loss)
Distributions
Units issued under unit-based compensation arrangements
17
1,362
Reclassification of vested Unit-Settled Restricted Units
liability to equity
Units repurchased for unit-based compensation
arrangements
17
17
1,497
(3,479)
Attributable to Choice Properties’ Unitholders
Note
Trust
Units
Cumulative
net income
Accumulated
other
comprehensive
income
Cumulative
distributions
to
Unitholders
Total
Unitholders’
equity
$ 3,661,605 $ 1,578,995 $
12,925 $ (1,429,372) $ 3,824,153
796,691
—
—
—
—
—
—
(6,374)
—
—
796,691
(6,374)
—
—
—
—
(245,348)
(245,348)
—
—
—
1,362
1,497
(3,479)
Equity, December 31, 2023
$ 3,660,985 $ 2,375,686 $
6,551 $ (1,674,720) $ 4,368,502
(in thousands of Canadian dollars)
Equity, December 31, 2021
Net Income
Other comprehensive income (loss)
Distributions
Units issued under unit-based compensation arrangements
17
2,776
Reclassification of vested Unit-Settled Restricted Units
liability to equity
Units repurchased for unit-based compensation
arrangements
Equity, December 31, 2022
See accompanying notes to the audited consolidated financial statements
17
17
1,337
(3,449)
Attributable to Choice Properties’ Unitholders
Note
Trust
Units
Cumulative
net income
Accumulated
other
comprehensive
income
Cumulative
distributions
to
Unitholders
Total
Unitholders’
equity
$ 3,660,941 $
834,742 $
1,357 $ (1,186,849) $ 3,310,191
744,253
—
—
—
—
—
—
11,568
—
—
744,253
11,568
—
—
—
—
(242,523)
(242,523)
—
—
—
2,776
1,337
(3,449)
$ 3,661,605 $ 1,578,995 $
12,925 $ (1,429,372) $ 3,824,153
—
—
—
—
—
—
Choice Properties REIT
2023 Annual Report 123
Choice Properties Real Estate Investment Trust
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Note
December 31, 2023
December 31, 2022
Year Ended
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
25
23
7
Distributions from equity accounted joint ventures
7, 30(d)
Additions to residential inventory
Direct leasing costs and tenant improvement allowances
Cash paid on vesting of restricted and performance units
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
Mortgages, loans and notes receivable advances
Mortgages, loans and notes receivable repayments
Proceeds from dispositions
Cash Flows 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 (repayments) of credit facility
Payment of credit facility extension fee
Cash received on exercise of options
Repurchase of units for unit-based compensation arrangement
Distributions paid on Exchangeable Units
Distributions paid on Trust Units
Cash Flows used in Financing Activities
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
10
30(d)
30(d)
30(a)
30(b)
5
5, 9
6
9
7
11
11
5
15
15
15
15
16
16
20
17
$
796,691 $
566,147
(262,521)
(41,414)
31,675
(39,069)
33,913
(9,758)
(28,455)
(2,952)
(362,087)
(40,198)
641,972
(143,843)
(86,452)
(228,962)
(470)
(31,816)
(359,765)
293,106
196,857
(361,345)
894,983
(575,000)
76,169
18,979
(260,000)
(677)
1,156
(3,479)
—
(245,070)
(92,939)
187,688
64,736
Cash and Cash Equivalents, End of Year
30(c)
$
252,424 $
Supplemental disclosure of non-cash operating activities (Note 30)
See accompanying notes to the audited consolidated financial statements
744,253
536,857
(243,809)
(27,360)
17,809
(353,867)
68,076
(8,285)
(28,123)
(4,689)
(28,539)
(3,905)
668,418
(162,978)
(15,054)
(151,624)
(4,552)
(126,911)
(340,702)
35,857
109,281
(656,683)
497,179
(300,000)
(148,759)
26,308
260,000
(677)
2,610
(3,449)
(122,035)
(242,480)
(31,303)
(19,568)
84,304
64,736
Choice Properties REIT
2023 Annual Report 124
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, 2023, 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. Material Accounting Policy Information
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 Accounting Standards” or
“GAAP”) 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 14, 2024.
b. Basis of Preparation
The consolidated financial statements are prepared on a historical cost basis except for investment properties (Note 6),
financial real estate assets (Note 9), investment in real estate securities (Note 12), Class B LP Units (the “Exchangeable
Units”) which are exchangeable for Trust Units at the option of the holder (Note 17), liabilities for unit-based
compensation arrangements (Note 20) and certain financial instruments (Note 28) 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 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
2023 Annual Report 125
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
2023 Annual Report 126
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 6. 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 de-recognized when disposed.
Income Producing Properties
Additions to income producing properties are expenditures incurred for the expansion and/or improvement of existing
income producing properties that increase the revenue generating ability of the properties and are considered revenue
enhancing 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
2023 Annual Report 127
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 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”, 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
2023 Annual Report 128
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
2023 Annual Report 129
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
De-recognition of Financial Instruments
Financial assets are de-recognized 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 de-recognized when obligations under the contract expire, are discharged or cancelled. The
difference between the carrying amount of the financial liability de-recognized and the consideration paid and payable is
recognized in net income.
j.
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”.
k. 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.
Mortgages, loans, and notes receivables are assessed for impairment under an ECL model. The Trust applies the
general approach for the mortgages, loans and notes receivables measured at amortized cost. 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
2023 Annual Report 130
Notes to the Consolidated Financial Statements
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.
m. Leases
As lessor
When the Trust acts as a lessor, it determines and classifies each lease as a finance lease or operating lease at the lease
commencement date.
When a lease transfers to the lessee substantially all the risk and rewards of ownership incidental to the ownership of the
underlying asset, the lease is classified as a finance lease; otherwise, the lease is classified as an operating lease. To
make this assessment, the Trust considers certain indicators including whether the lease is for the major part of the
economic life of the asset or the present value of lease payments is substantially all the fair value of the underlying asset.
The majority of the lease agreements entered into by the Trust as a lessor are classified as operating leases. The Trust’s
policy for these leases are discussed further in the accounting policy for revenue recognition.
At the commencement date of a finance lease, the Trust recognizes a lease receivable at the amount of its net
investment in the lease, which is measured at the present value of lease payments to be made over the lease term. The
lease payments include fixed payments, variable lease payments that depend on an index or a rate and amounts
expected to be paid under residual value guarantees, less any lease incentives payable. The lease payments also include
the exercise price of a purchase option reasonably certain to be exercised by the lessee and payments of penalties for
terminating a lease, if the lease term reflects the lessee exercising the option to terminate. The variable lease payments
that do not depend on an index or a rate are recognized as rental revenue in the period on which the event or condition
that triggers the payment occurs.
n. Cash and Cash Equivalents
Cash and cash equivalents consist of unrestricted cash on hand and marketable investments with an original maturity
date of 90 days or less from the date of acquisition.
o. Financial Derivative Instruments
The Trust does not use derivative instruments for speculative purposes. Any embedded derivative instruments that may
be identified are separated from their host contract and recorded on the consolidated balance sheet at fair value.
Derivative instruments are recorded in current or non-current assets and liabilities based on their remaining terms to
maturity. All changes in fair values of the derivative instruments are recorded in net earnings unless the derivative
qualifies and is effective as a hedging item in a designated hedging relationship. The Trust has cash flow hedges which
are used to manage exposure to fluctuations in interest rates. The effective portion of the change in fair value of the
hedging item is recorded in other comprehensive income. If the change in fair value of the hedging item is not completely
offset by the change in fair value of the hedged item, the ineffective portion of the hedging relationship is recorded in net
income. Amounts accumulated in other comprehensive income are reclassified to net earnings when the hedged item is
recognized in net income.
p. 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
Choice Properties REIT
2023 Annual Report 131
Notes to the Consolidated Financial Statements
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”. These property management services are considered one performance obligation, meeting the criteria for
over time recognition and are recognized in the period that recoverable costs are incurred, or services are performed.
Interest Income
Interest income is the interest earned on the amounts advanced under the Trust’s mezzanine loans, vendor take-back
loans and joint venture financing arrangements together with bank interest earned from deposits. Interest income is
recognized in accordance with the terms set out in the financing arrangements using the effective interest method.
Fee Income
Fee income consists mainly of property management fees, leasing fees, project management fees and other
miscellaneous fees. Property management fees are generally based on a percentage of property revenues and are
recognized when earned in accordance with the property management or co-ownership agreements. Leasing fees are
incurred when the Trust is the leasing manager for co-owned properties and are recognized when earned in accordance
with the property management or co-ownership agreements.
Residential Inventory Income
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 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
Choice Properties REIT
2023 Annual Report 132
Notes to the Consolidated Financial Statements
value of each tranche is valued separately using a Black-Scholes option pricing model, and includes the following
assumptions:
•
•
•
•
The expected distribution yield is estimated based on the expected annual distribution prior to the balance
sheet date and the closing unit price as at the balance sheet date;
The expected Unit price volatility is estimated based on the average volatility of the Trust over a period
consistent with the expected life of the options;
The risk-free interest rate is estimated based on the Government of Canada bond yield in effect at the balance
sheet date for a term to maturity equal to the expected life of the options; and
The effect of expected exercise of options prior to expiry is incorporated into the weighted average expected
life of the options, which is based on expectations of option holder behaviour.
Restricted Unit Plan
Restricted Units entitle certain employees to receive the value of the RU award in cash or Units at the employees’
discretion at the end of the applicable vesting period, which is usually three years in length. The RU plan provides for the
crediting of additional RUs in respect of distributions paid on Units for the period when a RU is outstanding. The fair
value of each RU granted is measured based on the market value of a Unit at the balance sheet date.
Performance Unit Plan
Performance Units entitle certain employees to receive the value of the PU award in cash or Units at the end of the
applicable performance period, which is usually three years in length, based on the Trust achieving certain performance
conditions. The PU plan provides for the crediting of additional PUs in respect of distributions paid on Units for the
period when a PU is outstanding. The fair value of each PU granted is measured based on the market value of a Unit and
an estimate of the performance conditions being met at the balance sheet date.
Trustee Deferred Unit Plan
Non-management members of the Board are required to receive a portion of their annual retainer in the form of DUs and
may also elect to receive up to 100% of their remaining fees in DUs. Distributions paid earn fractional DUs, which are
treated as additional awards. DUs vest upon grant. The fair value of each DU granted is measured based on the market
value of a Unit at the balance sheet date.
Unit-Settled Restricted Unit Plan
Unit-Settled Restricted Units are accounted for as cash-settled awards. Typically, full vesting of the URUs would not
occur until the employee had remained with Choice Properties for three or five years from the grant date. Depending on
the nature of the grant, the URUs are subject to a six- or seven-year holding period during which the Units cannot be
disposed. The fair value of each URU granted is measured based on the market value of a Unit at the balance sheet
date, less a discount to account for the vesting and holding period restriction placed on the URUs.
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.
Choice Properties REIT
2023 Annual Report 133
Notes to the Consolidated Financial Statements
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.
Note 3. Change in Accounting Standards
Amendments to IAS 1, Presentation of Financial Statements – Disclosure of Accounting Policies
In February 2021, the IASB issued amendments to IAS 1, “Presentation of Financial Statements”, to require companies to
disclose their material accounting policy information rather than their significant accounting policies. The amendments define
what is material accounting policy, (being information that, when considered together with other information included in a
company’s financial statements, can reasonably be expected to influence decisions that the primary users of general purpose
financial statements make on the basis of those financial statements), and explain how to identify when accounting policy
information is material. The amendments further clarify that immaterial accounting policy does not need to be disclosed. If it
is disclosed, it should not obscure material accounting policy information The standard is effective for annual reporting
periods beginning on or after January 1, 2023. The implementation of these amendments has resulted in the removal of
certain immaterial accounting policies from Note 2.
Choice Properties REIT
2023 Annual Report 134
Notes to the Consolidated Financial Statements
Note 4. 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’ material 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
2023 Annual Report 135
Notes to the Consolidated Financial Statements
Note 5. Investment Property and Other Transactions
The following table summarizes the investment properties acquired in the year ended December 31, 2023:
($ thousands except where otherwise indicated)
Consideration
Date of
Acquisition
Segment
Ownership
Interest
Acquired
Purchase
Price
Purchase
Price incl.
Related
Costs
Investment
Property
Debt
Assumed
from Seller
Assumed
Liabilities
De-
recognition
of
Intangible
Assets
Cash
Location
Investment properties
Vernon, BC
Jan 31
Retail
Calgary, AB
Montreal, QC
Blainville, QC
Dec 7
Dec 7
Dec 7
Industrial
Retail
Retail
Acquisitions from related parties (Note 33)
Toronto, ON
Whitby, ON
Calgary, AB(i)
Toronto, ON
Hamilton, ON
Feb 24
Mar 24
Mar 30
Apr 4
Aug 14
Retail
Retail
Mixed-Use &
Residential
Retail
Retail
100%
100%
100%
100%
100%
100%
50%
100%
100%
$
12,330 $
12,697 $
— $
— $
50,340
50,389
17,734
20,241
11,485
11,903
91,889
95,230
21,872
23,049
17,500
17,876
—
—
—
—
—
—
—
—
—
—
—
—
19,850
19,850
5,300
13,346
1,728
1,915
—
—
7,300
7,501
Acquisitions from third-parties
68,250
70,191
5,300
13,346
— $
—
1,728
—
1,728
—
—
—
—
—
—
— $
12,697
—
—
—
—
—
—
1,204
—
—
50,389
18,513
11,903
93,502
23,049
17,876
—
1,915
7,501
1,204
50,341
Total acquisitions of investment properties
160,139
165,421
5,300
13,346
1,728
1,204
143,843
Financial real estate assets
Calgary, AB
Calgary, AB
Jan 31
Jan 31
Retail
Retail
100%
100%
42,400
43,900
42,476
43,976
Acquisitions of financial real estate assets (Note 33)
86,300
86,452
—
—
—
—
—
—
—
—
—
—
—
42,476
43,976
—
86,452
Total acquisitions
$
246,439 $
251,873 $
5,300 $
13,346 $
1,728 $
1,204 $
230,295
(i) The Trust completed an exchange of office properties with its partner. The exchange resulted in the Trust disposing of its 50% interest in Calgary Place (see disposition
table below) in exchange for the partner’s 50% interest in Altius Centre and a vendor take-back mortgage.
Choice Properties REIT
2023 Annual Report 136
Notes to the Consolidated Financial Statements
The following table summarizes the investment properties sold in the year ended December 31, 2023:
($ thousands except where otherwise indicated)
Consideration
Date of
Disposition
Segment
Ownership
Interest
Disposed
Sale
Price
excl.
Selling
Costs
Debt
Assumed
by
Purchaser
De-
recognition
of
Intangible
Asset
Investment
Property
Mortgage
Receivable
Advanced
Lease
Termination
Payment
Cash
Location
Investment properties
Courtenay, BC
Mar 8
Retail (land)
100%
4,613
—
—
—
—
—
4,613
Calgary, AB(i)
Mar 30
Mixed-Use &
Residential
50%
48,402
34,617
5,300
(2,655)
11,140
—
—
Scarborough, ON
May 12
Retail (land)
100%
3,557
—
Brampton, ON(ii)
Jun 14
Mixed-Use &
Residential
100% 74,200
Dartmouth, NS
Dec 14
Industrial
100%
7,230
—
—
Kamloops, BC(iii)(iv)
Dec 28
Retail
50%
49,261
20,067
—
—
—
—
—
—
—
3,557
—
51,000
(8,300)
31,500
—
(611)
—
—
—
7,230
—
29,805
Total dispositions of investment properties
187,263
54,684
5,300
(3,266)
62,140
(8,300)
76,705
Assets held for sale
Kingston, ON
Cornwall, ON
Feb 21
Apr 21
Retail
Retail
100% $ 23,000 $
— $
100% 10,000
—
Dartmouth, NS
Jun 19
Windsor, ON
Dartmouth, NS(v)
Jul 7
Oct 5
Mixed-Use &
Residential
50%
13,360
7,678
Retail
100%
1,900
Industrial
100% 11,580
Moncton, NB
Oct 12
Retail
100% 61,174
Calgary, AB
Oct 31
Mixed-Use &
Residential
100% 20,000
—
Total dispositions of assets held for sale
141,014
7,678
—
—
—
— $
—
—
—
—
—
—
—
— $
— $
— $ 23,000
—
—
—
10,000
(1,935)
5,495
—
2,122
—
—
—
—
—
—
—
1,900
—
11,580
9,624
—
51,550
—
—
20,000
(1,935)
15,119
— 120,152
Total dispositions
$ 328,277 $ 62,362 $
5,300 $
(5,201) $
77,259 $
(8,300) $ 196,857
(i)
(ii)
(iii)
(iv)
(v)
The Trust completed an exchange of office properties with its partner. The exchange resulted in the Trust disposing of its 50% interest in Calgary Place in exchange for
the partner’s 50% interest in Altius Centre (see acquisition table above) and a vendor take-back mortgage (Note 11).
This data centre asset was leased to Loblaw. In connection with the disposition, Choice made a lease termination payment of $8,300 to Loblaw to terminate its lease
early.
Comprised of two retail assets located in Kamloops, BC.
Included in debt assumed by purchaser is $128 of debt discounts, net of accumulated amortization.
Comprised of two industrial assets located in Dartmouth, NS.
Choice Properties REIT
2023 Annual Report 137
Notes to the Consolidated Financial Statements
The following table summarizes the investment properties acquired in the year ended December 31, 2022:
($ thousands)
Location
Investment properties
Ottawa, ON
Acquisitions from related parties (Note 33)
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
483
1,860
15,010
15,228
2,034
13,194
Acquisitions of financial real estate assets (Note 33)
17,210
17,571
2,517
15,054
Total acquisitions
$
174,208 $
181,268 $
3,236 $
178,032
Choice Properties REIT
2023 Annual Report 138
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 $
Edmonton, AB Feb 25
Industrial
100%
19,750
— $
—
— $
—
— $
—
— $
—
— $
9,700
—
19,750
Campbell
River, BC
Feb 28
Retail
50%
25,750
14,805
—
—
—
—
10,945
50%-100%
733,810
—
193,155
550,660
(5,631)
—
(4,374)
Portfolio of 6
assets across
Canada(i)
Mar 31
Brampton, ON Jun 23
Mixed-Use &
Residential
Retail Under
Development
50%
10,125
Swift Current,
SK
Jun 28
Retail
100%
Dartmouth, NS Jul 6
Retail (Parcel)
100%
Calgary, AB
Jul 18
Retail
100%
Edmonton, AB Jul 28
Retail (Parcel)
50%
6,500
117
6,550
2,000
Edmonton, AB Aug 12
Montreal, QC
Sep 13
Mixed-Use &
Residential
Under
Development
Mixed-Use &
Residential
50%
3,643
100%
27,000
Quebec, QC
Oct 5
Retail (Parcel)
50%
Beaverton, ON Dec 21
Retail
100%
4,325
1,000
Mixed-Use &
Residential
100%
40,000
Halifax, NS
Dec 28
Total dispositions
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10,125
—
6,500
—
117
—
6,550
—
2,000
—
3,643
—
27,000
—
4,325
—
1,000
—
28,000
12,000
$
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 12) and a promissory note
(Note 11). The Trust incurred transaction costs of $5,108 associated with the disposition to Allied.
Choice Properties REIT
2023 Annual Report 139
Notes to the Consolidated Financial Statements
Note 6.
Investment Properties
($ thousands)
Income producing
properties
Properties under
development
Year ended
December 31, 2023
Year ended
December 31, 2022
Note
Balance, beginning of year
$
14,119,000 $
325,000 $
14,444,000 $
14,930,000
5
165,421
—
165,421
163,697
Acquisitions - including purchase
costs of $5,282 (2022 - $6,699)
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
Reclassification of lease receivable
Dispositions
Adjustment to fair value of investment
properties(iii)
25
7
14
5
—
20,141
—
85,516
5,622
22,833
(2,270)
(92,754)
122,264
—
5,402
—
—
—
—
—
122,264
20,141
5,402
85,516
5,622
22,833
(2,270)
(92,754)
153,842
38,968
192,810
71,896
1,773
2,575
70,937
8,741
19,382
2,554
(50,400)
—
—
—
232,200
24,988
(187,263)
(232,200)
—
—
—
24,988
(187,263)
(890,270)
87,724
28,566
116,290
113,115
Balance, end of year
$
14,635,000 $
288,000 $
14,923,000 $
14,444,000
(i)
(ii)
(iii)
Development capital included $14,377 of site intensification payments paid to Loblaw (December 31, 2022 - $2,687) (Note 33).
Interest was capitalized to qualifying development projects based on a weighted average interest rate of 4.05% (December 31, 2022 - 3.74%).
The unrealized adjustment to fair value of investment properties was $91,742 (December 31, 2022 - $88,836)
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 33) 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 audited consolidated financial statements.
As at December 31, 2023, there were no investment properties classified as assets held for sale. As at December 31, 2022,
the Trust had classified three retail properties and one office property with an aggregate fair value of $50,400 as assets held
for sale. All four properties were disposed of during the year ended December 31, 2023. During the current year, the Trust
classified two industrial properties, one retail property and one office property with an aggregate fair value of $92,754 as
assets held for sale. During the fourth quarter, the Trust completed the disposition of all four properties for aggregate
proceeds of of $92,754.
Choice Properties REIT
2023 Annual Report 140
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, 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 generally valued based on comparable sales of commercial land.
Choice Properties REIT
2023 Annual Report 141
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, 2023
As at December 31, 2022
Discount rate
Terminal capitalization rate
Retail
Discount rate
Terminal capitalization rate
Industrial
Discount rate
Terminal capitalization rate
Mixed-Use & Residential
Discount rate
Terminal capitalization rate
5.50% - 10.50%
4.75% - 9.95%
7.10%
6.31%
5.00% - 10.50%
4.25% - 9.95%
5.50% - 10.50%
4.75% - 9.95%
7.36%
6.58%
5.25% - 10.50%
4.75% - 9.95%
5.75% - 8.75%
5.00% - 8.00%
6.41%
5.59%
5.00% - 8.50%
4.25% - 7.75%
5.50% - 7.50%
5.00% - 6.75%
6.79%
6.10%
5.00% - 9.00%
4.50% - 8.00%
7.03%
6.22%
7.41%
6.58%
5.97%
5.22%
6.56%
5.90%
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)
Year ended
December 31, 2023
Year ended
December 31, 2022
Number of income
producing
properties
Fair value
Number of income
producing
properties
Fair value
79 $
3,057,000
75 $
3,821,000
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 %
5.56 % $
15,763,000 $
1,128,000
6.35 % $
15,465,000 $
830,000
5.81 %
15,355,000
6.06 %
14,980,000
6.31 %
14,635,000
6.56 %
14,316,000
6.81 %
14,021,000
7.06 %
13,747,000
720,000
345,000
—
(319,000)
(614,000)
(888,000)
6.60 %
15,181,000
6.85 %
14,905,000
7.10 %
14,635,000
7.35 %
14,371,000
7.60 %
14,114,000
7.85 %
13,862,000
546,000
270,000
—
(264,000)
(521,000)
(773,000)
Choice Properties REIT
2023 Annual Report 142
Notes to the Consolidated Financial Statements
Note 7. Equity Accounted Joint Ventures
Choice Properties accounts for its investments in joint ventures using the equity method. These investments hold primarily
development properties and some income producing properties. The table below summarizes the Trust’s investment in joint
ventures.
Retail
Industrial
Mixed-Use & Residential
Land held for development
Total equity accounted joint ventures
Choice Properties’ investment in equity accounted joint
ventures
As at December 31, 2023
As at December 31, 2022
Number of
joint ventures
Ownership
interest
Number of
joint ventures
Ownership
interest
15
—
3
3
21
25% - 75%
15
25% - 75%
—
50%
50% - 85%
50%
50%
50% - 85%
1
3
3
22
$
883,712
$
995,822
Summarized financial information for equity accounted joint ventures at 100% and Choice Properties’ ownership interest are
set out below:
($ thousands)
Ownership
Current
assets
Non-current
assets
Current
liabilities
Non-current
liabilities
Net assets at
100%
As at December 31, 2023
Tullamore Industrial LP
Woodbine One LP
Other joint ventures
Net assets at 100%
Investment in equity accounted
joint ventures
85% $
75%
1,273 $
622,353 $
(129,952) $
(17,145) $
476,529
1,307
218,668
(92,914)
—
25%-75%
78,684
1,616,508
(177,039)
(766,779)
127,061
751,374
$
$
81,264 $
2,457,529 $
(399,905) $
(783,924) $
1,354,964
31,539 $
1,541,134 $
(265,477) $
(423,484) $
883,712
($ 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, 2023
9,264
68,026
Tullamore Industrial LP
85% $
— $
— $
Woodbine One LP
75%
1,018
(281)
— $
—
— $
(10,880) $
(10,880)
(229)
8,756 $
Other joint ventures
25%-75%
120,068
(43,270)
3,578
(37,310)
24,960 $
Net income and comprehensive
income at 100%
Share of net income and
comprehensive income in
equity accounted joint
ventures
$
121,086 $
(43,551) $
3,578 $
(37,539) $
22,836 $
66,410
$
66,012 $
(24,274) $
2,306 $
(19,827) $
14,852 $
39,069
Choice Properties REIT
2023 Annual Report 143
Notes to the Consolidated Financial Statements
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
The following table reconciles the changes in cash flows from equity accounted joint ventures:
($ thousands)
Balance, beginning of year
Contributions to equity accounted joint ventures
Distributions from equity accounted joint ventures
Total cash flow activities
Transfers from equity accounted joint venture to consolidated investments
Acquisition of interest in equity accounted joint venture upon settlement of
mortgage receivable
6
11
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, 2023
Year ended
December 31, 2022
$
995,822 $
31,816
(33,913)
(2,097)
(154,956)
5,385
489
39,069
(110,013)
883,712 $
564,378
126,911
(68,076)
58,835
—
40,860
(22,118)
353,867
372,609
995,822
On March 16, 2023, the Trust acquired its partner’s interest in Horizon Business Park LP and obtained control of the
partnership. Net assets at the date of acquisition were $154,956, comprised of investment properties with a carrying value of
$192,810, debt with a carrying value of $31,866, and working capital of $(5,988), each at 100% share. Upon obtaining control
of the partnership the Trust de-recognized the equity accounted joint venture with a carrying value of $154,956 and
consolidated the partnership.
Choice Properties REIT
2023 Annual Report 144
Notes to the Consolidated Financial Statements
Note 8. Co-Ownership Property Interests
Choice Properties has the following co-owned property interests and includes its proportionate share of the related assets,
liabilities, revenue and expenses of these properties in the audited consolidated financial statements.
Retail
Industrial
Mixed-Use & Residential
Total co-ownership property interests
Note 9. Financial Real Estate Assets
($ thousands)
Balance, beginning of year
Acquisitions
Additions
As at December 31, 2023
As at December 31, 2022
Number of co-
owned properties
Ownership
interest
Number of co-
owned properties
35
2
6
43
50% - 75%
50% - 67%
50%
37
2
9
48
Ownership
interest
50% - 75%
50% - 67%
50%
Year Ended
Year ended
Note
December 31, 2023
December 31, 2022
$
$
109,509 $
86,452
(2,401)
1,897
86,603
17,571
4,552
783
195,457 $
109,509
Income from financial real estate assets due to changes in value
23
Balance, end of year
As at December 31, 2023 the weighted average discount rate and terminal capitalization rate used to determine the fair value
of the Trust’s financial real estate assets are 6.85% and 6.27%, respectively (December 31, 2022 - 6.64% and 6.00%,
respectively).
Note 10. 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
Cost of sales
Balance, end of year
Year Ended
Year ended
Note
December 31, 2023
December 31, 2022
25
$
$
18,785 $
9,758
1,146
(21,008)
10,142
8,285
358
—
8,681 $
18,785
The following table provides details on residential inventory income recognized for the year ended December 31, 2023:
($ thousands)
Gross sales
Cost of sales
Residential inventory income
Year Ended
Year ended
Note
December 31, 2023
December 31, 2022
$
$
25,634 $
(21,008)
4,626 $
—
—
—
Choice Properties REIT
2023 Annual Report 145
Notes to the Consolidated Financial Statements
Note 11. 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)
33
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, 2023
December 31, 2022
As at
As at
$
$
$
$
199,197 $
160,953
295,851
656,001 $
84,277 $
571,724
656,001 $
346,499
163,127
170,849
680,475
201,996
478,479
680,475
(i)
The fair value of the mortgages, loans and notes receivable classified as amortized cost was $500,700 (December 31, 2022 - $512,800) (Note 28).
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, 2023
December 31, 2022
Weighted average
interest rate
Weighted average term
to maturity (years)
Weighted average
interest rate
Weighted average term
to maturity (years)
Mortgages receivable
Total
8.14%
8.14%
0.8
0.8
4.80%
4.80%
1.0
1.0
Notes Receivable from GWL
Non-interest bearing short-term notes totalling $295,851 were issued during the year ended December 31, 2023 to GWL and
were repaid in January 2024. Non-interest bearing short-term notes totalling $170,849 with respect to the loans received in
the 2022 fiscal year were settled against distributions payable by the Trust to GWL in January 2023. (Note 33).
Schedules of Maturity and Cash Flow Activities
The schedule of repayment of mortgages, loans and notes receivable based on maturity and redemption rights is as follows:
($ thousands)
Principal repayments
2024
2025
2026
2027
2028
Total
Mortgages receivable
$
273,482 $
42,717 $
23,916 $
— $
17,645 $
357,760
Notes receivable from GWL
295,851
—
—
Total principal repayments
569,333
42,717
23,916
—
—
—
—
17,645
—
295,851
653,611
2,390
Interest accrued
Total repayments
2,390
—
—
$
571,723 $
42,717 $
23,916 $
— $
17,645 $
656,001
Choice Properties REIT
2023 Annual Report 146
Notes to the Consolidated Financial Statements
The following table reconciles the changes in cash flows from investing activities for mortgages, loans and notes receivable:
December 31, 2023
December 31, 2022
($ thousands)
Note
Mortgages
receivable
Notes receivable
from GWL
Mortgages, loans
and notes receivable
Mortgages, loans
and notes receivable
Balance, beginning of year
$
509,626
$
170,849 $
680,475 $
Advances (i)
Repayments
Interest received
Total cash flow activities
Acquisition of interest in equity accounted
joint venture upon settlement of
mortgage receivable
Advance upon disposition of properties
Settlement against distributions payable
Interest accrued
Total non-cash activities
Balance, end of year
7
5
23
63,914
(293,106)
(18,091)
(247,283)
(5,385)
77,259
—
25,933
97,807
295,851
—
—
295,851
—
—
(170,849)
—
(170,849)
$
360,150
$
295,851 $
359,765
(293,106)
(18,091)
48,568
(5,385)
77,259
(170,849)
25,933
(73,042)
656,001 $
354,901
340,702
(35,857)
(10,352)
294,493
(40,860)
221,155
(168,334)
19,120
31,081
680,475
(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 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 30, 2023, the Trust advanced a vendor take-back mortgage as part of an exchange of office properties with its
partner (Note 5). The mortgage receivable had a face value of $13,529 and a fair value of $11,140 at the time of issuance. The
mortgage bears interest at a rate of 3% for the first 3 years and 5% subsequently until its maturity in 2028 and is secured by
the disposed office property.
On June 14, 2023, the Trust advanced a vendor take-back mortgage with a face and fair value of $51,000 (Note 5). The
mortgage bears interest at a rate of prime plus 3.3% and is secured by the disposed property.
On June 19, 2023, the Trust advanced a vendor take-back mortgage with a face value of $5,700 and a fair value of $5,495
(Note 5). The mortgage bears interest at a rate of 6.0% and is secured by the disposed property.
On October 12, 2023, the Trust advanced a vendor take-back mortgage with a face value of $10,000 and a fair value of
$9,624 (Note 5). The mortgage bears interest at a rate of 6.5% and is secured by the disposed property.
On December 13, 2023, the Trust advanced a $17,130 mezzanine loan to a development partner. The loan bears interest at a
rate of 10.7% and is secured by a development property in Brampton, ON.
On December 29, 2023, Allied repaid a promissory note to the Trust, with a face value of $200,000 (Note 12). The promissory
note was included in mortgages receivable as it was secured by a portfolio of six office assets disposed to Allied in March
2022.
The Trust has issued $365,150 (December 31, 2022 - $506,905) of secured mortgages to third-party borrowers. These
loans have been extended to 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 investment. The Trust mitigates this risk by obtaining guarantees and registered
mortgage charges, which are often cross-collateralized on several different commercial properties that are in various stages
of development.
Choice Properties REIT
2023 Annual Report 147
Notes to the Consolidated Financial Statements
Note 12. Investment in Real Estate Securities
On March 31, 2022, the Trust disposed of six office assets to Allied. 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. As at December 31, 2023, the Trust holds an approximate 8.4% 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 at December 31, 2023, there were 2,952,286 of the
Class B Units subject to lock-up.
As a holder of the Class B Units, the Trust is entitled to distributions paid by Allied. For the year ended December 31, 2023,
the Trust recognized distribution income of $26,928 (December 31, 2022 - $15,495) from its investment in Allied. For the year
ended December 31, 2023, $5,668 of the distribution income recognized relates to the special distribution announced by
Allied on December 15, 2023. 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 period ended December 31, 2023 was $20.18 (December
31, 2022 - $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 (December 31,
2022 - $11,809). For the year ended December 31, 2023, the Trust recognized a loss of $64,006 (year ended December 31,
2022 - $248,346) on its investment in Allied due to the change in the price of its publicly traded units. As at December 31,
2023 the Trust held 11,809,145 Class B Units with a fair value of $238,308 (December 31, 2022 - 11,809,145 Class B Units
and $302,314).
($ thousands)
Balance, beginning of year
Acquired
Adjustment to fair value of investment in real estate securities
Balance, end of year
Note 13. Intangible Assets
Year ended December
31, 2023
Year ended
December 31, 2022
$
$
302,314 $
—
(64,006)
238,308 $
—
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.
During the year ended December 31, 2023, the Trust completed transactions of properties (Note 5) in which, prior to the
transactions, the Trust generated cash flows from property management fees from these properties. The Trust had
recognized intangible assets based on the expectation of these future cash flows. Accordingly, management de-recognized
$5,201 (December 31, 2022 - $5,631) to reflect the reduced value of the intangible asset following the transaction.
As at December 31, 2023, the carrying value was $13,964 (December 31, 2022 - $21,369), net of accumulated amortization
of $4,000 (December 31, 2022 - $3,000). The remaining useful economic life of these assets is 14 years.
Choice Properties REIT
2023 Annual Report 148
Notes to the Consolidated Financial Statements
Note 14. Accounts Receivable and Other Assets
($ thousands)
Note
December 31, 2023
December 31, 2022
As at
As at
Rent receivables(i) - net of expected credit loss of $13,954 (2022 - $14,681)
$
1,760 $
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 $2,465 (2022 -
$1,849)
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
22,198
—
49,671
4,440
3,138
4,419
8,045
412
21,097
1,413
2,792
9,923
7,872
137,180 $
23,519 $
113,661
137,180 $
33
33
18
28
$
$
$
11,137
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
132,117
52,088
80,029
132,117
(i)
(ii)
Includes net rent receivable of $1,080 from Loblaw, and $129 from Wittington (December 31, 2022 - $nil and $122, respectively) (Note 33).
Other receivables due from related parties include $2,626 from Loblaw and $512 from GWL (December 31, 2022 - $57 and $623, respectively) (Note 33).
Rent receivables
In determining the expected credit losses, the Trust takes into account the payment history and future expectations of likely
default events (i.e. asking for rental concessions or stating they will not be making rental payments on the due date) based on
actual or expected insolvency filings or company voluntary arrangements and likely deferrals of payments due. These
assessments are made on a tenant-by-tenant basis.
The Trust’s assessment of expected credit losses is inherently subjective due to the forward-looking nature of the
assessments. As a result, the value of the expected credit loss is subject to a degree of uncertainty and is made on the basis
of assumptions which may not prove to be accurate.
Restricted cash
Restricted cash includes property-specific deposits held by the Trust's solicitors in the name of the Trust. These funds will be
released upon funding the construction of the residential inventory projects, after posting the requisite security, or upon
closing of such projects. Funds held in trust may also relate to certain funds held in escrow pursuant to agreements of
purchase and sale, which are to be used for the acquisition of investment properties.
Choice Properties REIT
2023 Annual Report 149
Notes to the Consolidated Financial Statements
Note 15. Long Term Debt
($ 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)
Series
Issuance /
Assumption Date
Jul 5, 2013
Feb 8, 2014
Maturity
Date
Jul 5, 2023
Feb 8, 2024
Nov 24, 2015
Nov 24, 2025
Mar 7, 2016
Mar 7, 2016
Mar 7, 2023
Mar 7, 2046
Jan 12, 2018
Jan 10, 2025
Mar 8, 2018
Mar 8, 2018
Sept 9, 2024
Mar 8, 2028
Jun 11, 2019
Jun 11, 2029
Mar 3, 2020
Mar 3, 2020
Mar 4, 2030
Mar 4, 2050
May 22, 2020
May 21, 2027
Nov 30, 2021
Nov 30, 2026
Jun 24, 2022
Jun 24, 2032
Mar 1, 2023
Aug 1, 2023
Mar 1, 2033
Feb 28, 2034
B
D
F
G
H
J
K
L
M
N
O
P
Q
R
S
T
As at
As at
December 31, 2023
December 31, 2022
5,632,522 $
5,308,928
973,342
90,059
945,959
39,214
6,695,923 $
6,294,101
5,731,427 $
964,496
6,695,923 $
5,638,368
655,733
6,294,101
$
$
$
$
Interest Rate
December 31, 2023
December 31, 2022
As at
As at
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%
5.40%
5.70%
3.30%
$
— $
200,000
200,000
—
100,000
350,000
550,000
750,000
750,000
400,000
100,000
500,000
350,000
500,000
550,000
350,000
—
5,650,000
—
(17,478)
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)
5,308,928
D-C
May 4, 2018
Jan 18, 2023
Total principal outstanding
Debt discounts and premiums - net of accumulated amortization of $17,536
(2022 - $17,513)
Debt placement costs - net of accumulated amortization of $21,889 (2022 -
$18,301)
Senior unsecured debentures
$
5,632,522 $
As at December 31, 2023, the senior unsecured debentures had a weighted average interest rate of 4.07% and a weighted
average term to maturity of 5.5 years (December 31, 2022 - 3.79% and 5.2 years, respectively). Senior unsecured debentures
Series B through Series T 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.
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 3.30% Series D-C senior unsecured debentures outstanding.
Choice Properties REIT
2023 Annual Report 150
Notes to the Consolidated Financial Statements
On March 1, 2023, the Trust completed an issuance, on a private placement basis, of $550 million aggregate principal
amount of Series S senior unsecured debentures bearing interest at a rate of 5.40% per annum and maturing on March 1,
2033.
On July 5, 2023, the Trust paid in full upon maturity, at par, plus accrued and unpaid interest thereon, the $200 million
aggregate principal amount of the 4.90% Series B senior unsecured debentures outstanding.
On August 1, 2023, the Trust completed an issuance, on a private placement basis, of $350 million aggregate principal
amount of Series T senior unsecured debentures bearing interest at a rate of 5.70% per annum and maturing on February 28,
2034.
Subsequent to year end, on February 8, 2024, the Trust paid in full upon maturity, at par, plus accrued and unpaid interest
thereon, the $200 million aggregate principal amount of the 4.29% Series D senior unsecured debentures outstanding.
Mortgages Payable
($ thousands)
Mortgage principal
Net debt discounts and premiums - net of accumulated amortization of $6,108 (2022
- $5,973)
Debt placement costs - net of accumulated amortization of $714 (2022 - $491)
Mortgages payable
As at
As at
December 31, 2023
December 31, 2022
976,661 $
948,919
(1,170)
(2,149)
(1,305)
(1,655)
973,342 $
945,959
$
$
As at December 31, 2023, the mortgages had a weighted average interest rate of 4.03% and a weighted average term to
maturity of 6.1 years (December 31, 2022 - 3.92% and 5.0 years, respectively).
Construction Loans
As at December 31, 2023, $90,059 was outstanding on the construction loans (December 31, 2022 - $39,214), with a
weighted average interest rate of 4.61% and a weighted average term to maturity of 3.5 years (December 31, 2022 - 3.54%
and 5.5 years, respectively). Of the outstanding construction loans, $49,603 was financed at a variable rate, while $40,456
was financed at a fixed rate.
For the purpose of financing the development of certain industrial, mixed-use & 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 2024 to 2031,
have a maximum capacity to be drawn at the Trust’s ownership interest of $447,987, of which $328,261 relates to equity
accounted joint ventures as at December 31, 2023 (December 31, 2022 - $436,741 and $345,951, respectively).
Schedules of Repayments and Cash Flow Activities
The schedule of principal repayment of long term debt, based on maturity, is as follows:
($ thousands)
2024
2025
2026
2027
2028 Thereafter
Total
Senior unsecured debentures
$ 750,000 $ 550,000 $ 350,000 $ 500,000 $ 750,000 $ 2,750,000 $ 5,650,000
Mortgages payable
Construction loans
Total
166,696
121,600
67,755
88,523
48,438
483,649
976,661
49,603
—
—
—
—
40,456
90,059
$ 966,299 $ 671,600 $ 417,755 $ 588,523 $ 798,438 $ 3,274,105 $ 6,716,720
Choice Properties REIT
2023 Annual Report 151
Notes to the Consolidated Financial Statements
The following table reconciles the changes in cash flows from financing activities for long term debt:
($ thousands)
Senior
unsecured
debentures
Mortgages
payable
Construction
loans
Long term debt
Long term debt
December 31, 2023 December 31, 2022
Balance, beginning of year
$ 5,308,928 $
945,959 $
39,214 $
6,294,101 $
6,230,010
Issuances and advances
900,000
167,705
38,452
1,106,157
(575,000)
(90,819)
(19,473)
(685,292)
Repayments
Debt placement costs
Total cash flow activities
Assumed by purchaser
Assumed from seller
Transfer from equity accounted joint venture
Amortization of debt discounts and premiums
Amortization of debt placement costs
Total non-cash activities
Balance, end of year
(5,017)
(717)
—
319,983
76,169
18,979
—
—
—
23
3,588
3,611
(62,490)
13,346
—
135
223
—
—
31,866
—
—
(48,786)
31,866
(13,309)
(10,637)
$ 5,632,522 $
973,342 $
90,059 $
6,695,923 $
6,294,101
531,093
(453,371)
(2,994)
74,728
(14,805)
—
—
933
3,235
(5,734)
415,131
(62,490)
13,346
31,866
158
3,811
Choice Properties REIT
2023 Annual Report 152
Notes to the Consolidated Financial Statements
Note 16. Credit Facility
($ thousands)
Credit facility
$1,500,000 syndicated
Debt placement costs - net of accumulated amortization of $11,435 (2022 - $10,607)
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, 2023
December 31, 2022
$
$
$
$
— $
—
— $
— $
—
— $
260,000
(2,383)
257,617
257,617
—
257,617
Choice Properties has a $1,500,000 senior unsecured committed revolving credit facility provided by a syndicate of lenders.
During the year ended December 31, 2023, the Trust extended the maturity date for the credit facility from September 1,
2027 to September 1, 2028.
Under the credit facility, the Trust has the ability to draw funds at variable rates in either Canadian dollars or U.S. dollars.
Canadian dollar-denominated borrowings bear interest at either the Canadian bank prime rate plus 0.20% or Canadian
Bankers’ Acceptance rate plus 1.20%, and U.S. dollar-denominated borrowings bear interest at the U.S. prime rate plus
0.20% or Secured Overnight Financing Rate (“SOFR”) plus 1.30%. The pricing is contingent on the credit ratings for Choice
Properties from either DBRS and S&P remaining at BBB (high). Concurrently with the U.S. dollar draws, the Trust enters into
cross currency swaps to exchange its U.S. dollar borrowings into Canadian dollar borrowings. The Trust applies hedge
accounting to the cross currency swaps.
As at December 31, 2023, $nil was drawn in U.S. dollar-denominated borrowings (December 31, 2022 - $nil) and $nil was
drawn in Canadian dollar borrowings (December 31, 2022 - $260,000). The unamortized balance for debt placement costs at
December 31, 2023 of $2,232 was included in other assets (Note 14).
The credit facility contains certain financial covenants. As at December 31, 2023, the Trust was in compliance with all its
financial covenants for the credit facility.
Schedule of Cash Flow Activities
The following table reconciles the changes in cash flows from financing activities for the credit facility:
($ thousands)
Balance, beginning of year
$
Net advances (repayments) of $1,500,000 syndicated credit facility
Extension fee and related costs 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, 2023
December 31, 2022
257,617 $
(260,000)
(677)
(260,677)
828
2,232
3,060
—
260,000
(677)
259,323
1,849
(3,555)
(1,706)
$
— $
257,617
Choice Properties REIT
2023 Annual Report 153
Notes to the Consolidated Financial Statements
Note 17. 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, 2023
As at December 31, 2022
($ thousands except where otherwise indicated)
Units
Amount
Units
Amount
Units, beginning of year
327,771,149 $ 3,661,605
327,588,847 $ 3,660,941
Units issued under unit-based compensation arrangements
20
329,716
1,362
404,449
2,776
Reclassification of vested Unit-Settled Restricted Units liability to
equity
—
1,497
—
1,337
Units repurchased for unit-based compensation arrangements
20
(240,893)
(3,479)
(222,147)
(3,449)
Units, end of year
327,859,972 $ 3,660,985
327,771,149 $ 3,661,605
Exchangeable Units, beginning of year
395,786,525 $ 5,841,809
395,786,525 $ 6,011,997
Adjustment to fair value of Exchangeable Units
—
(320,587)
—
(170,188)
Exchangeable Units, end of year
395,786,525 $ 5,521,222
395,786,525 $ 5,841,809
Total Units and Exchangeable Units, end of year
723,646,497
723,557,674
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, 2023, Choice Properties received approval from the TSX to purchase up
to 27,563,002 Units during the twelve-month period from November 21, 2023 to November 20, 2024, 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 20).
Choice Properties REIT
2023 Annual Report 154
Notes to the Consolidated Financial Statements
Units Repurchased for Unit-Based Compensation Arrangements
The Trust acquired Units under its NCIB during the year ended December 31, 2023 and the year ended December 31, 2022,
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 18). 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, 2023, Choice Properties declared cash distributions of $0.749 per unit or $541,529 in
aggregate, (December 31, 2022 - $0.74, or $535,407, respectively) including distributions to holders of Exchangeable Units,
which are reported as interest expense. 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 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% monthly). The increase was effective for Unitholders of record
on March 31, 2023.
At its most recent meeting on February 14, 2024, the Board reviewed and approved an increase of distributions to $0.76 per
unit per annum from the previous rate of $0.75 per unit per annum (an increase of 1.3%). The increase will be effective for
Unitholders of record on March 31, 2024.
The holders of Exchangeable Units may elect to defer receipt of all, or a portion of distributions declared by the Partnership
until the first date following the end of the fiscal year. If the holder elects to defer, the Partnership will loan the holder the
amount equal to the deferred distribution without interest, and the loan will be due and payable in full on the first business
day following the end of the fiscal year the loan was advanced.
Distribution Reinvestment Plan (“DRIP”)
Choice Properties instituted a DRIP that allows eligible Unitholders to elect to automatically reinvest their regular monthly
cash distributions in additional Units. On April 25, 2018, the Board suspended the DRIP commencing with the distribution
declared in May 2018. The DRIP will remain suspended until further notice.
Base Shelf Prospectus
On June 16, 2023, Choice Properties filed a Short Form Base Shelf Prospectus allowing for the issuance of Units and debt
securities over a 25-month period.
Note 18. Income Taxes
The Trust is taxed as a “mutual fund trust” and a REIT under the Income Tax Act (Canada). The Trustees intend to distribute
all of the Trust’s taxable income to the Unitholders and accordingly, the Trust is not taxable on its Canadian investment
property income. The Trust is subject to taxation on certain taxable entities in Canada and the United States.
Income taxes recognized in the consolidated statements of income and comprehensive income was as follows:
($ thousands)
Current income tax recovery (expense)
Deferred income tax recovery
Income tax recovery (expense)
Year Ended
December 31, 2023
December 31, 2022
$
$
(1) $
—
(1) $
(2)
119
117
A deferred income tax asset of $2,792 (Note 14) 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, 2022 - $2,792).
Choice Properties REIT
2023 Annual Report 155
Notes to the Consolidated Financial Statements
Note 19. Trade Payables and Other Liabilities
($ 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, 2023
December 31, 2022
As at
As at
$
43,514 $
97,542
39,318
60,077
60,905
323,036
17,214
15,482
20,665
1,453
17,508
25,029
1,337
33
20
28
36,577
120,367
38,896
60,740
51,074
196,785
16,724
16,033
20,387
1,960
20,263
22,041
—
$
$
$
723,080 $
601,847
24,628 $
698,452
723,080 $
23,377
578,470
601,847
(i)
(ii)
(iii)
(iv)
Includes amounts payable to Loblaw of $7,428 (December 31, 2022 - $13,963) (Note 33).
Includes construction allowances payable to Loblaw of $26,726 (December 31, 2022 - $16,106) (Note 33).
Includes distributions accrued on Exchangeable Units of $320,587 payable to GWL (December 31, 2022 - $195,256); $1,050 payable for shared costs
incurred by GWL, the Services Agreement expense and other related party charges (December 31, 2022 - $1,233); and $296 of reimbursed contract
revenue and other related party charges payable to Loblaw (December 31, 2022 - $296) (Note 33).
Includes distributions payable to GWL of $3,166 and Wittington of $1,031 (December 31, 2022 - $3,124 and $1,018, respectively) (Note 33).
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 $17,214 as at December 31, 2023. (December 31, 2022 - $16,724).
Choice Properties REIT
2023 Annual Report 156
Notes to the Consolidated Financial Statements
Note 20. Unit-Based Compensation
($ 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, 2023
December 31, 2022
$
$
$
$
(131) $
2,720
1,378
1,407
5,374 $
6,312 $
(938)
5,374 $
263
3,608
2,241
1,860
7,972
6,781
1,191
7,972
As at December 31, 2023, the carrying value of the unit-based compensation liability was $15,482 (December 31, 2022 -
$16,033) (Note 19).
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, 2023
Year ended December 31, 2022
Number of awards
Weighted average
exercise price/unit Number of awards
Weighted average
exercise price/unit
Outstanding Unit Options, beginning of year
253,154 $
Exercised
Expired
Outstanding Unit Options, end of year
Unit Options exercisable, end of year
(88,823)
(31)
164,300 $
164,300 $
12.01
12.17
13.93
11.92
11.92
435,456 $
(182,302)
—
253,154 $
253,154 $
12.84
13.98
—
12.01
12.01
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, 2023
As at December 31, 2022
5.38%
11.26%
0.06%
0.1 Year
4.94%
13.66% - 20.93%
0.05% - 4.36%
0.1 - 0.7 Years
The following table details the Unit Options outstanding as at December 31, 2023:
Exercise Price
$11.92
Expiry Date
2025
Number of Unit Options outstanding
as at December 31, 2023
Remaining weighted
average life (in years)
164,300
1.2
Choice Properties REIT
2023 Annual Report 157
Notes to the Consolidated Financial Statements
Restricted Unit Plans
Choice Properties has a Restricted Unit Plan and a Unit-Settled Restricted Unit Plan as described below.
Restricted Unit Plan
Restricted Units (“RU”) entitle certain employees to receive the value of the RU award in cash or units at the end of the
applicable vesting period, which is usually three years in length. The RU plan provides for the crediting of additional RUs in
respect of distributions paid on Units for the period when a RU is outstanding. The fair value of each RU granted is measured
based on the market value of a Trust Unit at the balance sheet date. No outstanding RUs had vested as at December 31,
2023 (December 31, 2022 - nil).
The following is a summary of Choice Properties’ RU plan activity:
(Number of awards)
Outstanding Restricted Units, beginning of year
Granted
Reinvested
Exercised
Cancelled
Expired
Outstanding Restricted Units, end of year
Year Ended
Year ended
December 31, 2023
December 31, 2022
271,147
128,795
16,361
(96,308)
(54,657)
—
265,338
439,574
94,355
16,329
(257,604)
(21,499)
(8)
271,147
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 1,503,185
URUs vested but still subject to disposition restrictions as at December 31, 2023 (December 31, 2022 - 1,217,340).
The following is a summary of Choice Properties’ URU plan activity for units not yet vested:
(Number of awards)
Outstanding Unit-Settled Restricted Units, beginning of year
Granted
Cancelled
Vested
Outstanding Unit-Settled Restricted Units, end of year
Year Ended
Year ended
December 31, 2023
December 31, 2022
666,719
240,893
(4,942)
(197,269)
705,401
600,919
230,682
(1,989)
(162,893)
666,719
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, 2023 (December 31, 2022 - nil).
Choice Properties REIT
2023 Annual Report 158
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 year
Granted
Reinvested
Exercised
Cancelled
Added by performance factor
Outstanding Performance Units, end of year
Year Ended
Year ended
December 31, 2023
December 31, 2022
238,418
97,056
14,148
(107,057)
(19,737)
33,846
256,674
197,609
85,221
12,081
(67,397)
(5,069)
15,973
238,418
Trustee Deferred Unit Plan
Non-management members of the Board are required to receive a portion of their annual retainer in the form of Deferred
Units (“DU”) and may also elect to receive up to 100% of their remaining fees in DUs. Distributions paid earn fractional DUs,
which are treated as additional awards. The fair value of each DU granted is measured based on the market value of a unit at
the balance sheet date. All DUs vest when granted, however, they cannot be exercised while Trustees are members of the
Board.
The following is a summary of Choice Properties’ DU plan activity:
(Number of awards)
Outstanding Trustee Deferred Units, beginning of year
Granted
Reinvested
Exercised
Outstanding Trustee Deferred Units, end of year
Year Ended
Year ended
December 31, 2023
December 31, 2022
506,556
111,047
30,029
(88,252)
559,380
389,462
95,099
21,995
—
506,556
Choice Properties REIT
2023 Annual Report 159
Notes to the Consolidated Financial Statements
Note 21. Rental Revenue
Rental revenue is comprised of the following:
($ thousands)
Base rent
Property tax and insurance
recoveries
Related
Parties(i) Third-party
Year ended
December 31, 2023
Related
Parties(i)
Third-party
Year ended
December 31, 2022
$ 520,087 $ 353,994 $
874,081 $ 516,475 $ 346,704 $
863,179
Operating cost recoveries
84,623
80,294
164,917
73,596
146,178
102,372
248,550
142,082
97,228
78,322
239,310
151,918
Lease surrender and other
revenue
1,393
20,229
21,622
—
10,187
10,187
Rental revenue
$ 752,281 $ 556,889 $
1,309,170 $ 732,153 $ 532,441 $
1,264,594
(i)
Refer to Note 33, 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)
2024
2025
2026
2027
2028
Thereafter
Total
Note 22. Property Operating Costs
($ thousands)
Property taxes and insurance
Recoverable operating costs
Non-recoverable operating costs
Property operating costs
$
931,740
890,746
807,266
711,204
592,331
1,892,531
$
5,825,818
Year Ended
December 31, 2023
December 31, 2022
$
$
260,483 $
104,419
4,158
369,060 $
254,463
105,652
3,838
363,953
Included in non-recoverable operating expenses are expected credit losses of $684 for the year ended December 31, 2023
(December 31, 2022 - $1,593). Refer to Note 14 for discussion on rents receivable and the related expected credit losses.
Note 23. Interest Income
Year Ended
($ thousands)
Note
December 31, 2023
December 31, 2022
Interest income from mortgages and loans receivable(i)
11
$
25,933 $
Income earned from financial real estate assets
Income from financial real estate assets due to changes in value
9
Other interest income
Interest income
9,102
1,897
4,482
$
41,414 $
19,120
5,709
783
1,748
27,360
(i)
Interest income from mortgages and loans receivable includes $3,647 accretion income in relation to the promissory note issued to Allied and vendor take-
back mortgages issued to partners for the year ended December 31, 2023 (December 31, 2022 - $3,758).
Choice Properties REIT
2023 Annual Report 160
Notes to the Consolidated Financial Statements
Note 24. Fee Income
($ thousands)
Fees charged to related party
Fees charged to third parties
Fee income
Note 25. Net Interest Expense and Other Financing Charges
($ thousands)
Interest on senior unsecured 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)
Year Ended
Note
December 31, 2023
December 31, 2022
33
$
$
830 $
3,457
4,287 $
722
3,071
3,793
Year Ended
Note
December 31, 2023
December 31, 2022
$
220,246 $
41,898
9,638
63
30
4,639
296,181
572,695
(6,548)
15
15,16
33
6, 10
192,774
39,128
8,839
148
933
5,084
292,884
539,790
(2,933)
536,857
Year Ended
Note
December 31, 2023
December 31, 2022
$
57,269 $
48,406
3,301
5,112
8,273
4,970
1,311
1,812
3,225
85,273
(21,043)
64,230 $
2,959
3,498
7,075
3,901
1,201
1,510
2,062
70,612
(22,791)
47,821
Net interest expense and other financing charges
$
566,147 $
(i)
(ii)
Represents interest on indebtedness due to GWL.
Interest was capitalized to qualifying development projects based on a weighted average interest rate of 4.05% (December 31, 2022 - 3.74%).
Note 26. 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 expense charged by related party
33
Amortization of other assets
Office related costs
Other
Total
Less: Allocated to recoverable operating expenses
General and administrative expenses
$
(i)
Salaries, benefits and employee costs is shown net of costs capitalized to properties under development.
Choice Properties REIT
2023 Annual Report 161
Notes to the Consolidated Financial Statements
Note 27. 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.
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 could
decrease.
Choice Properties’ Revolving Credit Facility and the Debentures also contain covenants that require it to maintain certain
financial ratios on a consolidated basis. If Choice Properties does not maintain such ratios, its ability to make
distributions to Unitholders may be limited or suspended.
Choice Properties analyzes its interest rate risk and the impact of rising and falling interest rates on operating results and
financial condition on a regular basis. An increase of 1.0% per annum in the variable component of the interest rate for
the credit facility would result in an increase to liabilities and a decrease in net income of $15,000 (December 31, 2022 -
$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.
Choice Properties REIT
2023 Annual Report 162
Notes to the Consolidated Financial Statements
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 (December 31, 2022 - $395,787) and Unit-based
compensation liabilities of $1,232 (December 31, 2022 - $1,268).
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 12), 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.
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; and 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 by actively monitoring market
conditions.
The undiscounted future principal and interest payments on Choice Properties’ debt instruments are as follows:
($ thousands)
2024
2025
2026
2027
2028
Thereafter
Total
Senior unsecured debentures $
975,714 $
745,657 $
531,342 $
665,626 $
892,838 $ 3,304,010 $
7,115,187
Mortgages payable
Construction loans
202,787
151,799
93,695
111,821
69,839
573,331
1,203,272
51,688
841
841
841
841
42,415
97,467
Total
$ 1,230,189 $
898,297 $
625,878 $
778,288 $
963,518 $ 3,919,756 $
8,415,926
Choice Properties REIT
2023 Annual Report 163
Notes to the Consolidated Financial Statements
Note 28. Financial Instruments
The following table presents the fair value hierarchy of financial assets and liabilities, excluding those classified as amortized
cost that are short term in nature.
($ thousands)
Assets
As at December 31, 2023
As at December 31, 2022
Note
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
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:
11
14
9
12
14
Mortgages, loans and notes
receivable
Cash and cash equivalents
11
30(c)
Liabilities
Fair value through profit and loss:
Exchangeable Units
Unit-based compensation
Designated hedging derivatives
Amortized cost:
Long term debt
Credit facility
17
20
19
15
16
$
— $
— $ 160,953 $ 160,953
$
— $
— $ 163,127 $ 163,127
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
195,457
195,457
238,308
7,872
—
—
238,308
7,872
—
500,700
500,700
252,424
—
252,424
5,521,222
15,482
1,337
—
—
—
5,521,222
15,482
1,337
—
—
6,599,055
6,599,055
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
23,426
23,426
109,509
109,509
302,314
12,909
—
—
302,314
12,909
—
512,800
512,800
64,736
—
64,736
5,841,809
16,033
—
—
—
—
5,841,809
16,033
—
—
5,946,834
5,946,834
257,617
—
257,617
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, and cross currency swaps to hedge foreign exchange associated with the equivalent
amount borrowed in US$ on the Trust’s credit facility (Note 14). During the year ended December 31, 2023, an interest rate
swap was settled and refinanced concurrently with the refinancing of the underlying variable rate mortgage. The cross
currency swaps matured as the US$ borrowings were repaid. As at December 31, 2023, the interest rates associated with the
interest rate swaps ranged from 2.8% to 5.0% (December 31, 2022 - 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
Total Derivative Assets
Derivative Liabilities
Interest rate swaps
Total Derivative Liabilities
Note
Maturity
Date
Notional
As at
As at
Amount
December 31, 2023
December 31, 2022
14
Nov 2025 - Jun 2030
19
Feb 2024 - Mar 2030
$
$
$
$
78,791 $
78,791 $
109,034 $
109,034 $
7,872 $
7,872 $
1,337 $
1,337 $
12,909
12,909
—
—
During the year ended December 31, 2023, the Trust recorded an unrealized fair value loss in other comprehensive income
(loss) of $6,374 (December 31, 2022 - unrealized fair value gain of $11,568).
Choice Properties REIT
2023 Annual Report 164
Notes to the Consolidated Financial Statements
Note 29. Capital Management
In order to maintain or adjust its capital structure, Choice Properties may issue new Units and debt, repay debt, or adjust the
amount of distributions paid to Unitholders. Choice Properties manages its capital structure with the objective of:
complying with the guidelines set out in its Declaration of Trust;
complying with debt covenants;
•
•
• maintaining credit rating metrics consistent with those of investment grade REITs;
•
ensuring sufficient liquidity is available to support its financial obligations and to execute its operating and strategic
plans;
• maintaining financial capacity and flexibility through access to capital to support future growth and development;
and
• minimizing its cost of capital while taking into consideration current and future industry, market and economic risks
and conditions.
Financing activity during the years ended December 31, 2023 and 2022 consisted of the repayment and issuance of various
senior unsecured debentures and the issuance of various mortgages (Note 15).
Choice Properties has certain key covenants in its debentures and its committed credit facility. The key financial covenants
include debt service ratios and leverage ratios, as defined in the respective agreements. These ratios are measured by the
Trust on an ongoing basis to ensure compliance with the agreements. Choice Properties was in compliance with each of the
key financial covenants under these agreements as at December 31, 2023 and December 31, 2022.
The following schedule details the capitalization of Choice Properties:
($ thousands)
Liabilities
Senior unsecured debentures
Mortgages payable
Construction loans
Credit facility
Exchangeable Units
Equity
Unitholders’ equity
Total
Note
As at December 31,
2023
As at December 31,
2022
15
15
15
16
17
17
$
5,650,000 $
5,325,000
976,661
90,059
—
5,521,222
4,368,502
$
16,606,444 $
948,919
39,214
260,000
5,841,809
3,824,153
16,239,095
Choice Properties REIT
2023 Annual Report 165
Notes to the Consolidated Financial Statements
Note 30. Supplemental Cash Flow Information
(a)
Items not affecting cash and other items
($ thousands)
Straight-line rental revenue
Year Ended
Note
December 31, 2023
December 31, 2022
6
$
2,270 $
Unit-based compensation expense included in general and administrative
expenses
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
Adjustment to fair value of unit-based compensation
20
13
17
12
20
6,312
1,000
(320,587)
(114,150)
64,006
(938)
Items not affecting cash and other items
$
(362,087) $
(2,554)
6,781
1,000
(170,188)
(113,115)
248,346
1,191
(28,539)
(b) Net change in non-cash working capital
Year Ended
($ thousands)
Note
December 31, 2023
December 31, 2022
Net change in accounts receivable and other assets
Cost of sales recognized - residential development inventory
Net change in trade payables and other liabilities
Net change in non-cash working capital
(c) Cash and cash equivalents
($ thousands)
Cash
Short-term investments
Cash and cash equivalents
14
10
19
$
$
$
$
(32,856) $
21,008
(28,350)
(40,198) $
(11,122)
—
7,217
(3,905)
As at
As at
December 31, 2023
December 31, 2022
107,983 $
144,441
252,424 $
64,736
—
64,736
(d) Change in cash flow presentation
The comparative figures for the year ended relating to cash paid on vesting of restricted and performance units of $4,689
have been reclassified from financing activities to operating activities; direct leasing costs and tenant improvement
allowances of $28,123 have been reclassified from investing activities to operating activities; and distributions from equity
accounted joint ventures of $68,076 have been reclassified from investing activities to operating activities to conform to the
current period presentation.
Choice Properties REIT
2023 Annual Report 166
Notes to the Consolidated Financial Statements
Note 31. Segment Information
Choice Properties operates in three reportable segments: retail, industrial and mixed-use & residential. The segments are
reported in a manner consistent with the internal reporting provided to the chief operating decision maker (“CODM”),
determined to be the senior leadership team, which is comprised of the Chief Executive Officer (“CEO”), the Chief Financial
Officer (“CFO”) and Chief Operating Officer (“COO”) of the Trust. The CODM measures and evaluates the performance of the
Trust based on net rental income.
The tables below presents net rental income for the year ended December 31, 2023 and December 31, 2022 in a manner
consistent with internal reporting. The accounting policies of the segments presented here are the same as those described
in Note 2 of the annual financial statements, except that segment rental revenue and segment property operating costs
include the proportionate share of revenue and direct operating costs of joint ventures and financial real estate assets.
($ thousands)
Rental revenue
Retail
Industrial
Mixed-Use &
Residential
Consolidation
and eliminations(ii)
Year ended
December 31, 2023
$ 1,087,684 $ 229,658 $
75,073 $
(83,245) $
1,309,170
Property operating costs
(307,579)
(59,785)
(30,045)
28,349
Net Rental Income
$ 780,105 $ 169,873 $
45,028 $
(54,896) $
(369,060)
940,110
(i)
Reconciling items to 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, respectively, under GAAP.
($ thousands)
Rental revenue
Retail
Industrial
Mixed-Use &
Residential
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 to 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, respectively, under GAAP.
The tables below presents investment properties for the year ended December 31, 2023 and 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 income producing properties and segment properties under
development include the proportionate share of joint ventures and financial real estate assets.
($ thousands)
Retail
Industrial
Mixed-Use &
Residential
Consolidation
and eliminations(i)
Year ended
December 31, 2023
Income producing properties
$ 11,025,128 $ 3,897,983 $
833,889
(1,122,000) $
14,635,000
Properties under development
185,024
587,524
115,452
(600,000)
288,000
Investment Properties
$ 11,210,152 $ 4,485,507 $
949,341 $
(1,722,000) $
14,923,000
(i)
Reconciling items to 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, respectively, under GAAP.
($ thousands)
Retail
Industrial
Mixed-Use &
Residential
Consolidation
and eliminations(i)
Year ended December
31, 2022
Income producing properties
$ 10,716,120 $ 3,497,610 $
894,270
(989,000) $
14,119,000
Properties under development
182,304
742,519
121,177
(721,000)
325,000
Investment Properties
$ 10,898,424 $ 4,240,129 $ 1,015,447 $
(1,710,000) $
14,444,000
(i)
Reconciling items to 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, respectively, under GAAP.
Choice Properties REIT
2023 Annual Report 167
Notes to the Consolidated Financial Statements
Note 32. Contingencies, Commitments, and 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 audited 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, 2023, the aggregate gross
potential liability related to these letters of credit totalled $37,668 (December 31, 2022 - $32,897).
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 $427,000, of which $339,000 relates to equity
accounted joint ventures, as at December 31, 2023 (December 31, 2022 - $258,000 and $106,000, respectively).
d. Contingent Liabilities
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. The Trust has exposure to its partners’
share of mortgage debt obligations within its equity accounted joint ventures in the amount of $399,071 as at December
31, 2023 (December 31, 2022 - $244,579). 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 equity accounted joint ventures are sufficient for the purpose of
satisfying any obligation of the Trust should the Trust’s partner default.
Choice Properties REIT
2023 Annual Report 168
Notes to the Consolidated Financial Statements
Note 33. Related Party Transactions
Choice Properties’ parent corporation is GWL, which, as at December 31, 2023, 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, 2023. 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
Services Agreement
During the year ended December 31, 2023, GWL provided Choice Properties with corporate, administrative and other
support services for an annualized cost of $4,970 (December 31, 2022 - $3,901).
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 year ended December 31, 2023, distributions declared on the Exchangeable Units totalled
$296,181 (December 31, 2022 - $292,884).
As at December 31, 2023, Choice Properties had distributions on Exchangeable Units payable to GWL of $320,587
(December 31, 2022 - $195,256). The payable to GWL includes deferred distributions of $295,851 to be paid on the first
business day of the 2024 fiscal year (December 31, 2022 - $170,849).
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 year
ended December 31, 2023, GWL elected to receive distributions from Choice Properties Limited Partnership in the form of
loans. As such, non-interest bearing short-term notes totalling $295,851 were issued during the year ended December 31,
2023 to GWL and were repaid in January 2024. Non-interest bearing short-term notes totalling $170,849 with respect to the
loans received in the 2022 fiscal year were settled against distributions payable by the Trust to GWL in January 2023.
Trust Unit Distributions
During the year ended December 31, 2023, Choice Properties declared cash distributions of $37,912 on the Units held by
GWL (December 31, 2022 - $37,490). As at December 31, 2023, $3,166 of Trust Unit distributions declared were payable to
GWL (December 31, 2022 - $3,124). There were no non-cash distributions settled through the issuance of additional Trust
Units during the year ended December 31, 2023 (December 31, 2022 - $nil).
Transaction Summary as Reflected in the Consolidated Financial Statements
Transactions with GWL recorded in the consolidated statements of income and comprehensive income were comprised as
follows:
($ thousands)
Rental revenue
Services Agreement expense
Distributions on Exchangeable Units
Year Ended
Note
December 31, 2023
December 31, 2022
$
21
26
25
3,103 $
(4,970)
3,029
(3,901)
(296,181)
(292,884)
Choice Properties REIT
2023 Annual Report 169
Notes to the Consolidated Financial Statements
The balances due from (to) GWL and subsidiaries were as follows:
($ thousands)
Notes receivable
Other receivables
Exchangeable Units
Accrued liabilities
Distributions payable on Exchangeable Units
Distributions payable on Trust Units
Due from (to) GWL and subsidiaries
Transactions and Agreements with Loblaw
Note
December 31, 2023
December 31, 2022
As at
As at
11
14
17
19
19
19
$
295,851 $
512
170,849
623
(5,521,222)
(5,841,809)
(1,050)
(320,587)
(3,166)
(1,233)
(195,256)
(3,124)
$
(5,549,662) $
(5,869,950)
Acquisitions
During the year ended December 31, 2023, Choice Properties acquired from Loblaw two financial real estate assets for an
aggregate purchase price $86,300, and four retail properties for a purchase price of $91,889, in each case excluding
transaction costs.
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.
Dispositions
During the year ended December 31, 2023, Choice Properties disposed of a data centre asset tenanted by Loblaw to a third
party for net proceeds of $74,200. In connection with the transaction, Choice made an $8,300 payment to Loblaw to
terminate its lease early.
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.
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 expired on July 5, 2023. Upon expiry of the initial term, the Strategic Alliance Agreement renewed until
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.
Leases
During the year ended December 31, 2023, the Trust and Loblaw renewed 47 of 49 leases expiring in 2024 (December 31,
2022 - 42 of 44 leases expiring in 2023).
Lease Surrender Revenue
During the year ended December 31, 2023, Choice Properties recognized $1,393 of lease surrender revenue from Loblaw
(December 31, 2022 - $nil).
Choice Properties REIT
2023 Annual Report 170
Notes to the Consolidated Financial Statements
Site Intensification Payments
Choice Properties compensated Loblaw with intensification payments of $14,377 in connection with completed gross
leasable area for which tenants took possession during the year ended December 31, 2023 (December 31, 2022 - $2,687). In
addition, Choice properties compensated Loblaw with an intensification payment of $2,100 (December 31, 2022 - $nil) in
relation to the disposition of a parcel of retail land.
Transaction Summary as Reflected in the Consolidated Financial Statements
Loblaw is the largest tenant for Choice Properties, representing approximately 57.1% of Choice Properties’ rental revenue for
the year ended December 31, 2023 (December 31, 2022 - 57.5%). Transactions with Loblaw recorded in the consolidated
statements of income and comprehensive income were comprised as follows:
($ thousands)
Rental revenue
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, 2023
December 31, 2022
21
$
747,616 $
727,593
Note
December 31, 2023
December 31, 2022
As at
As at
$
14
14
19
19
19
1,080 $
2,626
(7,428)
(26,726)
(296)
$
(30,744) $
—
57
(13,963)
(16,106)
(296)
(30,308)
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, 2023, Choice Properties declared cash distributions of $12,348 on the Units held by
Wittington (December 31, 2022 - $12,210). As at December 31, 2023, $1,031 of Trust Unit distributions declared were
payable to Wittington (December 31, 2022 - $1,018). There were no non-cash distributions settled through the issuance of
additional Trust Units during the year ended December 31, 2023 (December 31, 2022 - nil).
Transaction Summary as Reflected in the Consolidated Financial Statements
Transactions with Wittington recorded in the consolidated statements of income and comprehensive income were comprised
as follows:
($ thousands)
Rental revenue
Fee income
The balances due from (to) Wittington and subsidiaries were as follows:
($ thousands)
Rent receivable
Cost-to-complete receivable
Distributions payable
Due from (to) Wittington and subsidiaries
Year Ended
Note
December 31, 2023
December 31, 2022
$
21
24
1,562 $
830
1,531
722
Note
December 31, 2023
December 31, 2022
As at
As at
14
14
19
$
$
129 $
4,440
(1,031)
3,538 $
122
8,501
(1,018)
7,605
Choice Properties REIT
2023 Annual Report 171
Notes to the Consolidated Financial Statements
Transactions and Agreements with other related parties
Mortgages receivable
During the year ended December 31, 2023, $114,524 of mortgages receivable included within mortgages, loans and notes
receivable were to entities which the Trust has an ownership interest in (December 31, 2022 - $113,780).
Transactions with Key Personnel
Key personnel are comprised of Trustees and certain members of the executive team of Choice Properties. Compensation of
key personnel was as follows:
($ thousands)
December 31, 2023
December 31, 2022
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
$
$
4,144 $
4,204
(626)
7,722 $
3,666
3,937
562
8,165
Choice Properties REIT
2023 Annual Report 172
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 15, 2024 at 10:00 AM (ET) with a simultaneous audio
webcast. To access via teleconference, please dial +1 (240) 789-2714 or +1 (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.sedarplus.ca. 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.
Non-Management Trustees
Gordon A. M. Currie - Chair
Executive Vice President and Chief Legal Officer,
George Weston Limited
L. Jay Cross1
President, The Howard Hughes
Corporation
Diane A. Kazarian1
Corporate Director
Nancy H.O. Lockhart2
Corporate Director
Cornell Wright
President, Wittington Investments, Limited
Karen A. Kinsley1
Corporate Director
Dale R. Ponder1
Corporate Director
Graeme M. Eadie2
Corporate Director
R. Michael Latimer2
Corporate Director
Qi Tang1
CFO, Skyservice Investments, Inc.
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