1
TABLE OF CONTENTS
4
8
10
12
12
13
13
14
15
16
17
17
18
20
21
31
35
MESSAGE TO UNITHOLDERS
MANAGEMENT’S DISCUSSION AND
ANALYSIS
HIGHLIGHTS OF THE YEAR ENDED
DECEMBER 31, 2015
SUBSEQUENT EVENTS
CAUTION REGARDING FORWARD-
LOOKING STATEMENTS
NON-IFRS FINANCIAL MEASURES
PERFORMANCE INDICATORS
FINANCIAL AND OPERATIONAL
HIGHLIGHTS
SELECTED QUARTERLY INFORMATION
SELECTED ANNUAL INFORMATION
GENERAL BUSINESS OVERVIEW
OBJECTIVES AND STRATEGY
RECONCILIATIONS TO COMINAR’S
PROPORTIONATE SHARE
PERFORMANCE ANALYSIS
RESULTS OF OPERATIONS
DISTRIBUTABLE INCOME AND
DISTRIBUTIONS
FUNDS FROM OPERATIONS
37
40
43
45
47
48
50
51
ADJUSTED FUNDS FROM OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL INSTRUMENTS
ACQUISITIONS, INVESTMENTS AND
DISPOSITIONS
PROPERTY PORTFOLIO
REAL ESTATE OPERATIONS
ISSUED AND OUTSTANDING UNITS
RELATED PARTY TRANSACTIONS
FUTURE ACCOUNTING POLICY CHANGES
DISCLOSURE CONTROLS AND
PROCEDURES AND INTERNAL CONTROL
OVER FINANCIAL REPORTING
SIGNIFICANT ACCOUNTING POLICIES AND
ESTIMATES
RISKS AND UNCERTAINTIES
51
52
56
56
65
72
99
100 UNITHOLDERS INFORMATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
CORPORATE INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
1
2
3
4
5
6
7
MANAGEMENT’S DISCUSSION
AND ANALYSIS
The following Management's Discussion and Analysis (“MD&A”) is provided to
enable the reader to assess the results of operations of Cominar Real Estate
Investment Trust (“Cominar,” the “Trust” or the “REIT”) for the year ended
December 31, 2015, in comparison with the year 2014, as well as its financial
position as at that date and its outlook. Dated March 1, 2016, this MD&A
reflects all significant information available as of that date and should be read
in conjunction with the consolidated financial statements and accompanying
notes included in this report.
Unless otherwise indicated, all amounts are in thousands of Canadian
dollars, except for per unit and per square-foot amounts, and are
based on the consolidated financial statements prepared in accordance with
issued by the
International Financial Reporting Standards (“IFRS”), as
International Accounting Standards Board (“IASB”).
BASIS OF PRESENTATION
Certain financial information in this MD&A present the consolidated balance
sheets and consolidated statements of comprehensive income including
Cominar’s proportionate share in the assets, liabilities, revenues and charges of
its joint ventures, hereinafter referred to as “Cominar’s proportionate share”,
which are non-IFRS measures. Management believes that presenting the
operating and financial results of Cominar, including its proportionate share in
the assets, liabilities, revenues and charges of its joint ventures, provides more
useful information to current and prospective investors to assist them in
understanding Cominar’s financial performance. The reader is invited to refer
to the section Reconciliations to Cominar’s proportionate share for a complete
reconciliation of Cominar’s consolidated financial statements prepared in
accordance with IFRS to the financial information including its proportionate
share in the assets, liabilities, revenues and charges of its joint ventures
presented in this MD&A.
Additional information on Cominar, including its 2015 Annual Information
Form, is available on Cominar’s website at www.cominar.com and on the
Canadian Securities Administrators’ (“CSA”) website at www.sedar.com.
The Board of Trustees, under the recommendation of the Audit Committee, has
approved the contents of this MD&A.
8
9
10
11
SUBSEQUENT EVENTS
On January 13, 2016 and February 16, 2016, Cominar declared a monthly distribution of $0.1225 per unit for both of these
months.
On January 20, 2016 Cominar announced the suspension of the distribution reinvestment plan based on the fact that the
market value of units does not reflect the intrinsic value of Cominar and that units issued under the distribution reinvestment
plan offset the advantages generated by purchases of units made under Cominar’s normal course issuer bid (“NCIB”).
The suspension of the distribution reinvestment plan does not affect the regular monthly cash distribution per unit.
On January 29, 2016, Cominar completed the sale of a portfolio of ten retail properties located in the Québec and Montréal
areas and in Ontario, for a sales price of $15.2 million at a 6.7% capitalization rate reflecting an increase in the fair value of
these properties in our books.
Under the NCIB, for a maximum number of 4,000,000 units, Cominar has repurchased, since the beginning of fiscal year
2016, 2,072,976 units at an average price of $14.46, for a total consideration of $30.0 million paid cash. Since December 10,
2015, Cominar has repurchased, under this program, a total of 2,603,812 units at an average price of $14.49, for a total
consideration of $37.7 million paid cash.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
From time to time, we make written or oral forward-looking statements within the meaning of applicable Canadian securities
legislation. We may make such statements in this document and in other reports filed with Canadian regulators, in reports to
unitholders or in other communications. These forward-looking statements include, among other things, statements with
respect to our medium-term and 2016 objectives, and strategies to achieve our objectives, as well as statements with respect
to our beliefs, outlooks, plans, objectives, expectations, anticipations, estimates and intentions. The words "may," "could,"
"should," "would," "suspect," "outlook," "believe," "plan," "anticipate," "estimate," "expect," and "intend," and the use of the
conditional tense, and words and expressions of similar import are intended to identify forward-looking statements.
By their very nature, forward-looking statements involve numerous factors and assumptions, and are subject to inherent risks
and uncertainties, both general and specific, which give rise to the possibility that predictions, forecasts, projections and other
forward-looking statements will not be achieved. We caution readers not to place undue reliance on these statements as a
number of important factors could cause our actual results to differ materially from the expectations expressed in such
forward-looking statements. These factors include financial conditions in Canada and elsewhere in the world; the effects of
competition in the markets where we operate; the impact of changes in laws and regulations, including tax laws; successful
execution of our strategy; our ability to complete and integrate acquisitions successfully; our ability to attract and retain key
employees and executives; the financial position of clients; our ability to refinance our debts upon maturity and to lease vacant
space; our ability to complete developments according to plans and to raise capital to finance growth as well as the interest
rate variations.
We caution that the foregoing list of important factors that may affect future results is not exhaustive. When relying on our
forward-looking statements to make decisions with respect to Cominar, investors and others should carefully consider the
foregoing factors, as well as other factors and uncertainties. Unless otherwise stated, all forward-looking statements are valid
only as at the date of this MD&A. We do not assume any obligation to update the aforementioned forward-looking
statements, except as required by applicable laws.
Additional information about these factors can be found in the “Risks and Uncertainties” section of this MD&A, as well as in
the “Risk Factors” section of Cominar’s 2015 Annual Information Form.
12
NON-IFRS FINANCIAL MEASURES
In this MD&A, we provide guidance and report on certain non-IFRS measures, including “net operating income,” “adjusted net
income,” “recurring distributable income,” “recurring funds from operations,” “recurring adjusted funds from operations” and
“proportionate share in joint ventures adjustments,” which management uses to evaluate Cominar’s performance. Because
non-IFRS measures do not have standardized meanings and may differ from similar measures presented by other entities,
securities regulations require that non-IFRS measures be clearly defined and qualified, reconciled with their closest IFRS
measure and given no more prominence than the latter. You may find such information in the sections dealing with each of
these measures.
PERFORMANCE INDICATORS
Cominar measures the success of its strategy using a number of performance indicators:
Same property net operating income, which provides an indication of the operating profitability of the same property
portfolio, that is, Cominar’s ability to increase revenues, reduce costs, and generate organic growth;
Recurring distributable income ("DI") per unit, which represents a benchmark that investors can use to evaluate the
stability of distributions;
Recurring funds from operations ("FFO") per unit, which represents a standard real estate benchmark used to
measure an entity’s performance;
Recurring adjusted funds from operations ("AFFO") per unit, which, by excluding the items not affecting cash flows
and the investments needed to maintain the property portfolio’s ability to generate rental income from the calculation of
funds from operations, provides a meaningful measure of Cominar’s ability to generate stable cash flows;
Payout ratio of recurring distributable income, which allows investors to assess the stability of distributions;
Debt ratio, which is used to assess the financial balance essential to the smooth running of an organization;
Interest coverage ratio, which is used to assess Cominar’s ability to pay interest on its debt from operating revenues;
Occupancy rate, which gives an indication of the economic health of the geographical regions and sectors in which
Cominar owns properties;
Retention rate, which helps assess client satisfaction and loyalty;
Growth in the average net rent of renewed leases, which is a measure of organic growth and gives an indication of
our capacity to increase our rental revenue;
Leasable area growth, a decisive factor in Cominar’s strategy for reaching its main objectives of providing unitholders
with growing cash distributions and increasing and maximizing unit value;
Segment and geographic diversification, which contributes to revenue stability by spreading real estate risk.
The above-mentioned performance indicators are not IFRS financial measures. Definitions and other relevant information
regarding these performance indicators are provided in the appropriate sections.
13
FINANCIAL AND OPERATIONAL HIGHLIGHTS
For the years ended December 31
2015
2014
% Δ
Page
FINANCIAL PERFORMANCE
Operating revenues – Financial statements
Operating revenues – Cominar’s proportionate share(1)
Net operating income(1) – Financial statements
Net operating income(1) – Cominar’s proportionate share
Same property net operating income(1)
Net income
Adjusted net income(1)
Recurring distributable income(1)
Cash flows provided by operating activities
Recurring funds from operations(1)
Recurring adjusted funds from operations(1)
Distributions
Total assets
PER UNIT FINANCIAL PERFORMANCE
Net income (basic)
Adjusted net income (diluted)(1)
Recurring distributable income (basic)(1)
Recurring funds from operations (FD)(1)(2)
Recurring adjusted funds from operations (FD)(1)(2)
Distributions
Payout ratio of recurring DI
Payout ratio of recurring adjusted funds from operations
Cash payout ratio of recurring adjusted funds from operations
FINANCING
Debt ratio(3)
Interest coverage ratio(4)
Weighted average interest rate on total debt
Residual weighted average term of total debt (years)
Senior unsecured debts-to-total-debt ratio(5)
Unencumbered income properties
Unencumbered assets to unsecured debt ratio(6)
OPERATIONAL DATA
Number of investment properties
Leasable area (in thousands of sq. ft.)
Occupancy rate
Retention rate
Growth in average net rent of renewed leases
DEVELOPMENT ACTIVITIES
Properties under development – Cominar’s proportionate share(1)
889,175
739,884
898,042
748,682
487,488
411,279
492,378
416,202
20.2
19.9
18.5
18.3
346,896
347,371
(0.1)
36.6
18.1
19.4
15.2
18.5
18.7
23.6
1.4
10.2
(1.7)
(3.6)
(3.8)
(3.7)
1.2
272,434
199,453
298,910
253,148
268,852
225,156
263,942
229,030
302,240
255,150
261,645
220,363
251,295
203,375
8,225,697 8,109,419
1.62
1.78
1.60
1.79
1.55
1.470
91.9%
94.2%
64.6%
53.9%
2.67:1
4.09%
4.5
53.6%
1.47
1.81
1.66
1.86
1.61
1.453
87.5%
89.7%
62.9%
56.1%
2.67:1
4.29%
4.2
52.8%
3,621,513 3,692,149
1.52:1
1.54:1
566
563
45,352
45,252
91.9%
78.6%
(1.5)%
94.4%
74.3%
2.4%
65,574
55,956
21
21
23
23
23
29
30
31
33
35
38
31
20
29
20
31
35
38
31
31
38
38
42
43
42
42
41
41
41
47
47
48
48
48
18
(1) Non-IFRS financial measure. See relevant section for definition and reconciliation to closest IFRS measure.
(2) Fully diluted.
(3) Total of cash and cash equivalents, bank borrowings, mortgages payable, debentures and convertible debentures divided by total assets less cash and cash
equivalents.
(4) Net operating income less Trust administrative expenses divided by finance charges.
(5) Senior unsecured debts divided by total debt.
(6) Fair value of unencumbered income properties divided by the unsecured debt (excluding convertible debentures).
14
SELECTED QUARTERLY INFORMATION
The following table presents, in summary form, Cominar’s financial information for the last eight quarters:
For the quarters ended
Operating revenues –
Dec. 31,
2015
Sept. 30,
2015
June 30,
2015
March 31,
2015
Dec. 31,
2014
Sept. 30,
2014
June 30,
2014
March 31,
2014
Financial statements
217,049
217,946
224,769
229,411
217,492
171,262
177,459
173,671
Operating revenues –
Cominar’s proportionate share(5)
Net operating income(5) –
Financial statements
Net operating income(5) –
219,201
220,102
226,871
231,868
219,734
173,497
179,625
175,826
122,775
122,854
122,793
119,066
125,435
97,792
97,274
90,778
Cominar’s proportionate share
123,958
124,057
124,111
120,252
126,539
99,131
Net income
Adjusted net income(5)
Recurring distributable income(5)
Cash flows provided by
operating activities
Recurring FFO(5)
Recurring AFFO(5)
Distributions
PER UNIT
Net income (basic)
Net income (diluted)
Adjusted net income (diluted)(5)
Recurring DI (basic)(5)
Recurring FFO (FD)(2)(5)
Recurring AFFO (FD)(2)(5)
Distributions
53,000
(1)
77,244
70,472
73,995
75,097
67,229
107,679
100,635
78,169
67,989
63,198
75,900
65,429
62,959
(1)
0.31
(1)
0.31
0.45
0.41
0.46
0.40
0.44
0.44
0.44
0.40
0.45
0.39
74,286
75,416
67,454
25,427
76,188
65,711
62,769
0.44
0.44
0.45
0.40
0.45
0.39
71,153
71,153
63,697
45,827
(1)(4)
38,997
(3)
77,497
70,517
61,022
53,579
30,201
110,266
71,983
62,516
62,369
77,429
68,541
59,199
48,436
61,713
52,331
51,211
0.43
0.43
0.43
0.39
0.44
0.38
0.29
0.29
(1)(4)
(1)(4)
0.30
0.30
(3)
(3)
0.48
0.45
0.49
0.43
0.45
0.41
0.47
0.40
98,539
59 559
59,559
52,051
26,112
60,308
51,172
46,688
0.47
0.45
0.45
0.41
0.47
0.40
91,993
55,070
55,070
49,009
44,216
55,700
48,319
46,277
0.43
0.42
0.42
0.39
0.44
0.38
0.368
0.368
0.368
0.368
0.368
0.365
0.360
0.360
(1) Includes the change in fair value of investment properties of -$23.3 million in 2015 and of -$34.0 million in 2014.
(2) Fully diluted
(3) Includes non-recurring transaction costs of $21.5 million resulting from the acquisition of an investment property portfolio for a purchase price of $1.63 billion
in 2014.
(4) Includes non-recurring transaction costs of $5.2 million resulting from the acquisition of an investment property portfolio for a purchase price of $1.63 billion
in 2014.
(5) Non-IFRS financial measure. See relevant section for definition and reconciliation to closest IFRS measure.
15
SELECTED ANNUAL INFORMATION
The following table presents a summary of Cominar’s financial information for the last 3 fiscal years:
For the years ended December 31
2015
2014
2013
Operating revenues – Financial statements
Operating revenues – Cominar’s proportionate share(3)
Net operating income(3) – Financial statements
Net operating income(3) – Cominar’s proportionate share
Net income
Adjusted net income(3)
Recurring DI(3)
Cash flows provided by operating activities
Recurring FFO(3)
Recurring AFFO(3)
Distributions
Total assets
PER UNIT
Net income (basic)
Net income (diluted)
Adjusted net income (diluted)(3)
Recurring DI (basic) (3)
Recurring FFO (FD)(1)(3)
Recurring AFFO (FD)(1)(3)
Distributions
889,175
898,042
487,488
492,378
272,434
298,910
(4)
268,852
263,942
302,240
261,645
251,295
739,884
748,682
411,279
662,053
662,053
368,210
416,202
199,453
(2)(4)
368,210
254,969
(4)
253,148
225,156
229,030
255,150
220,363
203,375
224,114
198,479
202,760
225,855
194,776
182,977
8,225,697
8,109,419
5,997,330
1.62
1.62
1.78
1.60
1.79
1.55
1.470
1.47
(2)
1.45
(2)
1.81
1.66
1.86
1.61
1.453
2.03
1.98
1.76
1.58
1.77
1.54
1.440
(1) Fully diluted
(2) Includes non-recurring transaction costs of $26.7 million resulting from the acquisition of an investment property portfolio for a purchase price of $1.63 billion.
(3) Non-IFRS financial measure. See relevant section for definition and reconciliation to closest IFRS measure.
(4) Includes the change in fair value of investment properties.
16
GENERAL BUSINESS OVERVIEW
Cominar Real Estate Investment Trust is one of the largest diversified REITs in Canada and remains the largest commercial
property owner and manager in the province of Quebec. As at December 31, 2015, Cominar owned and managed a high-
quality portfolio of 566 properties including 134 office buildings, 197 retail buildings and 235 industrial and mixed-use
buildings located in Quebec, Ontario, the Atlantic Provinces and Western Canada, representing a total leasable area of
45.4 million square feet. Cominar’s properties are mostly situated in prime locations and benefit from high visibility and easy
access by both our tenants and their clients.
Since its inception in 1998, Cominar has made a series of acquisitions and completed numerous construction and property
development projects, increasing the value of its assets to $8.2 billion as at December 31, 2015.
Cominar’s asset and property management is internalized. Cominar is an integrated and self-managed real estate investment
operation. This property management structure enables to rapidly and efficiently respond to our clients’ needs, while
minimizing our operating cost.
PROPERTIES SUMMARY AS AT DECEMBER 31, 2015
Segment
Office
Retail
Industrial and mixed-use
TOTAL
Number of
properties
Leasable area
(sq. ft.)
Occupancy rate
(%)
134
197
235
566
14,574,000
12,890,000
17,888,000
45,352,000
90.3
90.3
94.3
91.9
OBJECTIVES AND STRATEGY
Cominar’s primary objectives are to provide unitholders with stable and growing monthly cash distributions which are tax
deferred, from investments in a diversified portfolio of properties, and to increase and maximize unit value through the
proactive management of properties and the ongoing expansion of its real estate portfolio.
To reach its objectives, Cominar continues to manage growth, operational risks and debt in a flexible and prudent manner.
In accordance with Cominar’s financial management policies on maintaining a sound and strong financial position over the
long-term, Cominar developed a strategy of assets disposals. The proceeds on disposal of assets shall be used to pay down
debt and to repurchase units under the NCIB. In the context of the current market conditions, Cominar believes that to
repurchase units under the NCIB is currently a good investment of its liquidity. While we are maintaining our long-term debt
ratio target of 50%, we have set our 2016 year-end target goal at 53%.
17
RECONCILIATIONS TO COMINAR’S PROPORTIONATE SHARE
According to IFRS 11, joint ventures are accounted for under the equity method in Cominar’s consolidated financial
statements. Management considers that presenting operating and financial results including Cominar’s proportionate share of
assets, liabilities, revenues and charges of its joint ventures, provides more complete information on Cominar’s financial
performance.
The following tables present the reconciliations between Cominar’s consolidated financial statements prepared in accordance
with IFRS and consolidated financial statements including its proportionate share of assets, liabilities, revenues and charges of
its joint ventures.
As at December 31, 2015
ASSETS
Investment properties
Income properties
Consolidated
financial
statements
2015
Joint
ventures
$
$
2014
Cominar’s
proportionate
share(1)
$
Consolidated
financial
statements
$
Joint
ventures
$
Cominar’s
proportionate
share(1)
$
7,614,990
91,585
7,706,575
7,697,823
86,719
7,784,542
Properties under development
Land held for future development
49,114
71,646
16,460
32,333
65,574
103,979
53,150
68,788
2,806
6,013
55,956
74,801
7,735,750
140,378
7,876,128
7,819,761
95,538
7,915,299
Income properties held for sale
163,733
—
163,733
Investments in joint ventures
74,888
(74,888)
—
Goodwill
Mortgage receivable
Accounts receivable
Prepaid expenses and other assets
Cash and cash equivalents
166,971
8,250
56,756
14,099
5,250
—
—
1,122
71
221
166,971
8,250
57,878
14,170
5,471
—
41,633
166,971
8,250
52,044
14,851
5,909
—
(41,633)
—
—
496
40
204
—
—
166,971
8,250
52,540
14,891
6,113
Total assets
8,225,697
66,904
8,292,601
8,109,419
54,645
8,164,064
LIABILITIES
Mortgages payable
Mortgage payable related to a property
held for sale
Debentures
Convertible debentures
Bank borrowings
Accounts payable and accrued liabilities
Deferred tax liabilities
Total liabilities
UNITHOLDERS’ EQUITY
Unitholders’ equity
2,052,640
51,156
2,103,796
1,968,919
52,327
2,021,246
8,590
1,995,506
—
381,166
118,921
10,877
—
—
—
8,590
1,995,506
1,945,627
—
12,501
393,667
3,247
122,168
—
10,877
183,081
457,323
133,728
10,310
—
—
—
2,318
—
1,945,627
183,081
457,323
136,046
10,310
4,567,700
66,904
4,634,604
4,698,988
54,645
4,753,633
3,657,997
—
3,657,997
3,410,431
—
3,410,431
Total liabilities and unitholders’ equity
8,225,697
66,904
8,292,601
8,109,419
54,645
8,164,064
(1) Non-IFRS financial measure.
18
For the quarters ended December 31
2015
2014
Consolidated
financial
statements
Joint
ventures
$
$
Cominar’s
proportionate
share(1)
$
Consolidated
financial
statements
$
Joint
ventures
$
Cominar’s
proportionate
share(1)
$
Operating revenues
217,049
2,152
219,201
217,492
2,242
219,734
Operating expenses
94,274
969
95,243
92,057
1,138
93,195
Net operating income
122,775
1,183
123,958
125,435
1,104
126,539
Finance charges
Trust administrative expenses
Share of joint ventures’ net income and
(41,652)
(4,138)
(626)
(34)
(42,278)
(46,402)
(626)
(47,028)
(4,172)
(3,723)
—
(3,723)
comprehensive income
(399)
399
—
8,923
(8,923)
—
Change in fair value of investment
properties
(23,322)
(922)
(24,244)
(33,951)
8,445
(25,506)
Transaction costs – business combination
—
Income before income taxes
Income taxes
53,264
(264)
Net income and comprehensive income
53,000
(1) Non-IFRS financial measure.
—
—
—
—
—
(5,143)
53,264
45,139
(264)
688
53,000
45,827
—
—
—
(5,143)
45,139
688
45,827
For the years ended December 31
2015
2014
Consolidated
financial
statements
Joint
ventures
$
$
Cominar’s
proportionate
share(1)
$
Consolidated
financial
statements
$
Joint
ventures
$
Cominar’s
proportionate
share(1)
$
Operating revenues
889,175
8,867
898,042
739,884
8,798
748,682
Operating expenses
401,687
3,977
405,664
328,605
3,875
332,480
Net operating income
487,488
4,890
492,378
411,279
4,923
416,202
Finance charges
(176,208)
(2,507)
(178,715)
(149,385)
(2,450)
(151,835)
Trust administrative expenses
(16,384)
(34)
(16,418)
(12,977)
—
(12,977)
Share of joint ventures’ net income and
comprehensive income
1,427
(1,427)
—
10,918
(10,918)
—
Change in fair value of investment
properties
(23,322)
(922)
(24,244)
Transaction costs – business combination
—
Income before income taxes
273,001
Income taxes
(567)
Net income and comprehensive income
272,434
(1) Non-IFRS financial measure.
—
—
—
—
(33,951)
(26,667)
—
273,001
199,217
(567)
236
272,434
199,453
8,445
—
—
—
—
(25,506)
(26,667)
199,217
236
199,453
19
PERFORMANCE ANALYSIS
FINANCIAL POSITION
The following table indicates the changes in assets and liabilities as well as in unitholders’ equity as at December 31, 2015 and
2014, as shown in our consolidated financial statements:
As at December 31
ASSETS
Investment properties
Income properties
Properties under development
Land held for future development
Income properties held for sale
Investments in joint ventures
Goodwill
Mortgage receivable
Accounts receivable
Prepaid expenses and other assets
Cash and cash equivalents
Total
LIABILITIES
Mortgages payable
2015
2014
$ Δ
% Δ
7,614,990
7,697,823
(82,833)
49,114
71,646
53,150
68,788
(4,036)
2,858
7,735,750
7,819,761
(84,011)
(1.1)
(7.6)
4.2
(1.1)
163,733
74,888
166,971
8,250
56,756
14,099
5,250
—
163,733
100.0
41,633
33,255
79.9
166,971
8,250
52,044
14,851
5,909
—
—
4,712
(752)
(659)
—
—
9.1
(5.1)
(11.2)
8,225,697
8,109,419
116,278
1.4
2,052,640
1,968,919
83,721
4.3
Mortgage payable related to a property held for sale
8,590
—
8,590
100.0
1,995,506
1,945,627
49,879
2.6
—
183,081
(183,081)
(100.0)
381,166
118,921
10,877
457,323
(76,157)
(16.7)
133,728
(14,807)
(11.1)
10,310
567
5.5
(2.8)
4,567,700
4,698,988
(131,288)
3,657,997
8,225,697
3,410,431
247,566
8,109,419
116,278
7.3
1.4
Debentures
Convertible debentures
Bank borrowings
Accounts payable and accrued liabilities
Deferred tax liabilities
Total
UNITHOLDERS’ EQUITY
Unitholders’ equity
Total
20
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table indicates the main changes in our results of operations for the years ended December 31, 2015 and 2014,
as shown in our consolidated financial statements:
For the periods ended December 31
2015
2014
% Δ
2015
2014
% Δ
Quarter
Cumulative
Operating revenues
Operating expenses
Net operating income
Finance charges
Trust administrative expenses
Share of joint ventures’ net income
217,049
94,274
122,775
(41,652)
(4,138)
(399)
217,492
92,057
125,435
(0.2)
2.4
(2.1)
889,175
401,687
487,488
739,884
328,605
411,279
(46,402)
(10.2)
(176,208)
(149,385)
(3,723)
11.1
(16,384)
(12,977)
20.2
22.2
18.5
18.0
26.3
8,923
(104.5)
1,427
10,918
(86.9)
Change in fair value of investment properties
(23,322)
(33,951)
(31.3)
(23,322)
(33,951)
(31.3)
Transaction costs – business combination
—
(5,143)
(100.0)
—
(26,667)
(100.0)
Income taxes
Net income
(264)
53,000
688
(138.4)
(567)
236
(340.3)
45,827
15.7
272,434
199,453
36.6
OPERATING REVENUES
For the periods ended December 31
2015
2014
% Δ
2015
2014
% Δ
Quarter
Cumulative
Operating revenues – Financial statements
217,049
217,492
Operating revenues of joint ventures
2,152
2,242
(0.2)
(4.0)
889,175
739,884
8,867
8,798
20.2
0.8
Operating revenues – Cominar’s
proportionate share(1)
(1) Non-IFRS financial measure.
219,201
219,734
(0.2)
898,042
748,682
19.9
For the periods ended December 31
2015
2014
% Δ
2015
2014
Quarter
Cumulative
Same property portfolio – Financial statements
154,272
154,623
2,091
2,242
(0.2)
(6.7)
635,256
632,831
8,806
8,798
% Δ
0.4
0.1
156,363
156,865
(0.3)
644,062
641,629
0.4
Same property portfolio – Joint ventures
Same property portfolio(1) – Cominar’s
proportionate share
Acquisitions, developments and dispositions –
Financial statements
62,777
62,869
(0.1)
253,980
107,053
Acquisitions and developments – Joint ventures
61
—
100.0
61
—
137.2
100.0
Operating revenues – Cominar’s
proportionate share(2)
219,201
219,734
(0.2)
898,042
748,682
19.9
(1) The same property portfolio includes the properties owned by Cominar as at December 31, 2013, except for the properties sold in 2014 and 2015, but does not
include the results of properties acquired and those under development in 2014 and 2015.
(2) Non-IFRS financial measure.
During fiscal 2015, operating revenues according to financial statements and to Cominar’s proportionate share rose
respectively by 20.2% and 19.9% from fiscal 2014. These increases resulted primarily from the contribution of acquisitions and
developments completed in 2014 and 2015.
21
During the fourth quarter of 2015, operating revenues of the same property portfolio according to financial statements
decreased by 0.3% from the corresponding quarter of 2014, due mainly to a lower occupancy rate.
During fiscal 2015, operating revenues of the same property portfolio according to financial statements rose by 0.4% from
fiscal 2014.
The chart below presents Cominar’s operating revenues based on the consolidated financial statements over the past 10 years.
OPERATING REVENUES
(1) Amounts not restated under IFRS, determined in accordance with Canadian GAAP before changeover.
22
NET OPERATING INCOME
Although net operating income (“NOI”) is not an IFRS financial measure, it is widely used in the real estate industry to assess
operating performance. We define it as operating income before the change in fair value of investment properties, finance
charges, Trust administrative expenses, transaction costs – business combination and income taxes. This definition may differ
from that of other entities and, therefore, Cominar’s NOI may not be comparable to similar measures presented by such other
entities.
For the periods ended December 31
2015
2014
% Δ
2015
2014
% Δ
Quarter
Cumulative
Net operating income – Financial statements
122,775
125,435
Net operating income – Joint ventures
1,183
1,104
(2.1)
7.2
487,488
411,279
4,890
4,923
18.5
(0.7)
Net operating income – Cominar’s
proportionate share
123,958
126,539
(2.0)
492,378
416,202
18.3
For the periods ended December 31
2015
2014
% Δ
2015
2014
% Δ
Quarter
Cumulative
Same property portfolio – Financial statements
Same property portfolio – Joint ventures
Same property portfolio(1) – Cominar’s
86,161
1,139
86,657
1,104
(0.6)
3.2
342,050
342,448
4,846
4,923
(0.1)
(1.6)
proportionate share
87,300
87,761
(0.5)
346,896
347,371
(0.1)
Acquisitions, developments and dispositions –
Financial statements
36,614
38,778
(5.6)
145,438
68,831
Acquisitions and developments – Joint ventures
44
—
100.0
44
—
111.3
100.0
Net operating income – Cominar’s
proportionate share
123,958
126,539
(2.0)
492,378
416,202
18.3
(1) The same property portfolio includes the properties owned by Cominar as at December 31, 2013, except for the properties sold in 2014 and 2015, but does not
include the results of properties acquired and those under development in 2014 and 2015.
For the periods ended December 31
2015
2014
% Δ
2015
2014
% Δ
Quarter
Cumulative
Operating segment
Office
Retail
Industrial and mixed-use
42,974
22,733
21,593
43,907
23,025
20,829
(2.1)
(1.3)
3.7
173,055
174,773
89,047
84,794
90,393
82,205
(1.0)
(1.5)
3.1
Same property portfolio net operating income –
Cominar’s proportionate share
87,300
87,761
(0.5)
346,896
347,371
(0.1)
During fiscal 2015, NOI according to financial statements and to Cominar’s proportionate share rose respectively by 18.5%
and 18.3% from fiscal 2014, due mainly to the acquisitions and developments completed in 2014 and 2015.
For fiscal 2015, same property net operating income remained fairly stable from fiscal 2014, while it has decreased by 0.5%
during the fourth quarter of 2015 compared to the same period in 2014, due mainly to a lower occupancy rate for the same
property portfolio.
23
The chart presents Cominar’s net operating income based on the consolidated financial statements over the past 10 years.
NET OPERATING INCOME
(1) Amounts not restated under IFRS, determined in accordance with Canadian GAAP before changeover.
24
SEGMENT NET OPERATING INCOME
Cominar analyses its segmented results of operations taking into account the proportionate share of its joint ventures to
assess the operating performance of its investment properties.
BY OPERATING SEGMENT
For the periods ended December 31
2015
2014
% Δ
2015
2014
% Δ
Quarter
Cumulative
Operating segment
Office
Retail
Industrial and mixed-use
Net operating income – Cominar’s
proportionate share
52,345
46,057
25,556
55,259
47,749
23,531
(5.3)
(3.6)
8.6
210,193
183,393
98,792
207,259
118,390
90,533
1.4
54.9
9.1
123,958
126,539
(2.0)
492,378
416,202
18.3
For the periods ended December 31
2015
2014
2015
2014
Quarter
Cumulative
Operating segment
Office
Retail
Industrial and mixed-use
42.2%
37.2%
20.6%
43.7%
37.7%
18.6%
42.7%
37.2%
20.1%
49.8%
28.4%
21.8%
100.0%
100.0%
100.0%
100.0%
Net operating income for the office segment decreased in the fourth quarter of 2015 compared to 2014, due mainly to the
disposal of two income properties during the third quarter of 2015 and to a lower average occupancy rate in this segment in
2015.
Net operating income for the retail segment decreased in the fourth quarter of 2015 from the same period in 2014, due to a
lower occupancy rate.
Cominar management is confident that the efforts of its leasing and retail property management teams will contribute to
improving growth in both segments in the next fiscal year.
During the fourth quarter of 2015, net operating income for the industrial and mixed-use segment progressed by 8.6%
compared to the same period in 2014.
25
BY GEOGRAPHIC MARKET
For the periods ended December 31
2015
2014
% Δ
2015
2014
% Δ
Quarter
Cumulative
Geographic market
Québec
Montréal
Ontario(1)
Atlantic Provinces
Western Canada
Net operating income – Cominar’s
proportionate share
28,276
64,543
19,786
5,130
6,223
28,599
65,250
21,583
(1.1)
(1.1)
(8.3)
5,733
(10.5)
5,374
15.8
113,177
253,444
79,952
20,903
24,902
87,666
217,832
62,638
22,748
25,318
29.1
16.3
27.6
(8.1)
(1.6)
123,958
126,539
(2.0)
492,378
416,202
18.3
(1) For presentation purposes, the Gatineau area is included in the Ontario geographic market.
For the periods ended December 31
2015
2014
2015
2014
Quarter
Cumulative
Geographic market
Québec
Montréal
Ontario(1)
Atlantic Provinces
Western Canada
22.8%
52.1%
16.0%
4.1%
5.0%
22.6%
51.6%
17.1%
4.5%
4.2%
23.0%
51.5%
16.2%
4.2%
5.1%
21.1%
52.3%
15.0%
5.5%
6.1%
100.0%
100.0%
100.0%
100.0%
(1) For presentation purposes, the Gatineau area is included in the Ontario geographic market.
During the fourth quarter of 2015, the Ontario market experienced a decrease of $1.8 million compared to 2014, due mainly
to a lower occupancy rate in the office segment in Ottawa. With regard to the Atlantic Provinces, the $0.6 million lower net
operating income resulted primarily from a client’s bankruptcy that occurred during the fiscal year.
NET OPERATING INCOME
BY GEOGRAPHIC MARKET
NET OPERATING INCOME
BY OPERATING SEGMENT
26
CHANGE IN FAIR VALUE OF INVESTMENT PROPERTIES
Cominar opted to present its investment properties in the consolidated financial statements according to the fair value model.
Fair value is determined based on evaluations performed using management’s internal estimates and by independent real
estate appraisers, plus capital expenditures made since the most recent appraisal, if applicable. External valuations were
carried out by independent national firms holding a recognised and relevant professional qualification and having recent
experience in the location and category of the investment properties being valued.
As per Cominar’s policy on valuing investment properties, at the end of 2015, management revalued the real estate portfolio
and determined that a decrease of $24.2 million (taking into account a downward adjustment of $0.9 million in the joint
ventures) was necessary to adjust the carrying value of investment properties to their fair value [decrease of $25.5 million in
2014]. In 2015, the fair value of investment properties from external valuations amounted to 17% [26% in 2014] of the total
fair value of all income properties.
Internally valued investment properties have been valued using the capitalized net operating income method. Externally valued
investment properties have been valued either with the capitalized net operating income method or the discounted cash flow
method. Here is a description of these methods and the key assumptions used:
Capitalized net operating income method – Under this method, capitalization rates are applied to standardized net operating
income in order to comply with current valuation standards. The standardized net operating income represents adjusted net
operating income for items such as administrative expenses, occupancy rates, the recognition of leases on a straight-line basis
and other non-recurring items. The key factor is the capitalization rate for each property or property type. Cominar regularly
receives publications from national firms dealing with real estate activity and trends. Such market data reports include
different capitalization rates by property type and geographical area.
Discounted cash flow method – Under this method, the expected future cash flows are discounted using an appropriate rate
based on the risk of the property. Expected future cash flows for each investment property are based upon, but not limited to,
rental income from current leases, budgeted and actual expenses, and assumptions about rental income from future leases.
The REIT uses leasing history, market reports, tenant profiles and building assessments, among other things, in determining
the most appropriate assumptions. Discount and capitalization rates are estimated using market surveys, available appraisals
and market comparables.
To the extent that the capitalization rate ranges change from one reporting period to the next, or if another rate within the
provided ranges is more appropriate than the rate previously used, the fair value of investment properties increases or
decreases accordingly. The change in the fair value of investment properties is reported in net income.
As required under IFRS, Cominar has determined that an increase or decrease in 2015 of 0.10% in the applied capitalization
rates for the entire real estate portfolio would result in a decrease or increase of approximately $124.6 million [$118.0 million
in 2014] in the fair value of its investment properties.
Internally and externally used capitalization and discount rates are consistent.
27
WEIGHTED AVERAGE CAPITALIZATION AND DISCOUNT RATES
As at December 31
Québec Montréal
Ontario
Atlantic
Provinces
Western
Canada
2015
2014
Weighted
average
rate
Weighted
average
rate
Office properties
Capitalized net operating income method
Capitalization rate
Discounted cash flow method
Overall capitalization rate
Terminal capitalization rate
Discount rate
Retail properties
Capitalized net operating income method
Capitalization rate
Discounted cash flow method
Overall capitalization rate
Terminal capitalization rate
Discount rate
Industrial and mixed-use properties
Capitalized net operating income method
Capitalization rate
Discounted cash flow method
Overall capitalization rate
Terminal capitalization rate
Discount rate
Total
Capitalized net operating income method
6.3%
6.3%
6.1%
7.3%
6.2%
6.3%
6.3%
6.4%
6.5%
7.0%
6.0%
6.2%
7.0%
6.8%
7.3%
7.8%
7.3%
7.3%
7.8%
N/A
N/A
N/A
6.2%
6.4%
7.0%
6.5%
6.8%
7.2%
6.3%
6.0%
5.9%
7.7%
6.3%
6.1%
6.6%
6.1%
6.3%
6.9%
6.5%
6.8%
7.3%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
6.1%
6.4%
7.0%
5.7%
5.9%
6.8%
7.2%
6.9%
6.9%
7.9%
6.8%
7.0%
7.2%
N/A
N/A
N/A
7.2%
7.3%
7.8%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
7.2%
7.3%
7.8%
6.9%
7.1%
7.4%
Capitalization rate
6.5%
6.3%
6.1%
7.5%
6.2%
6.4%
6.6%
Discounted cash flow method
Overall capitalization rate
Terminal capitalization rate
Discount rate
6.1%
6.4%
6.9%
6.3%
6.4%
7.1%
6.8%
7.3%
7.8%
7.3%
7.3%
7.8%
N/A
N/A
N/A
6.2%
6.4%
7.0%
6.0%
6.2%
6.9%
The slight decrease in the weighted average capitalization rate is explained mainly by the new segmented repartition of our
properties resulting from the increased retail segment and the acquisitions in the Greater Toronto Area.
28
FINANCE CHARGES
For the periods ended December 31
2015
2014
% Δ
2015
2014
% Δ
Quarter
Cumulative
Interest on mortgages payable
Interest on debentures
Interest on convertible debentures
Interest on bank borrowings
Net amortization of premium and discount on
21,544
19,864
—
3,306
25,017
(13.9)
17,436
13.9
2,861
(100.0)
2,709
22.0
88,959
80,150
7,010
9,931
91,684
54,512
(3.0)
47.0
11,445
(38.8)
5,379
84.6
debenture issuances
(200)
(183)
9.3
(787)
(575)
36.9
Amortization of deferred financing costs and
others
891
2,549
(65.0)
6,664
6,242
6.8
Amortization of fair value adjustments on
assumed indebtedness
Less: Capitalized interests(1)
Total finance charges – Financial statements
Percentage of operating revenues
Weighted average interest rate on total debt
(2,178)
(1,575)
41,652
19.2%
(2,793)
(22.0)
(1,194)
31.9
(9,483)
(6,236)
(11,946)
(20.6)
(7,356)
(15.2)
46,402
(10.2)
176,208
149,385
18.0
21.3%
19.8%
4.09%
20.2%
4.29%
(1) Includes capitalized interest on properties under development and on major revitalization projects for income properties that take place over a substantial period
of time.
The increase in finance charges was mostly due to increased financing related to the acquisition of income properties
completed in 2014. In addition, finance charges for fiscal 2015 include non-recurring charges of $2.2 million for deferred
financing costs that were written off following the early redemption, on July 6, 2015, and on September 8, 2015, of the
Series E and Series D convertible debentures respectively.
The weighted average interest rate on total debt decreased by 20 basis points since December 31, 2014.
TRUST ADMINISTRATIVE EXPENSES
During fiscal 2015, Trust administrative expenses stood at $16.4 million, accounting for 1.8% of operating revenues,
compared to 1.7% in 2014.
TRANSACTION COSTS – BUSINESS COMBINATION
During fiscal 2014, Cominar incurred non-recurring transaction costs of $26.7 million resulting from the acquisition of a
property portfolio from Ivanhoé Cambridge Inc. for a purchase price of $1.63 billion. Under IFRS, transaction costs related to
business combinations must be expensed when incurred.
NET INCOME
For the periods ended December 31
2015
2014
% Δ
2015
2014
% Δ
Quarter
Cumulative
Net income
53,000
45,827
15.7
272,434
199,453
36.6
Net income per unit (basic)
Net income per unit (diluted)
0.31
0.31
0.29
0.29
6.9
6.9
1.62
1.62
1.47
1.45
10.2
11.7
Weighted average number of units (basic)
170,156,688
157,737,011
167,867,983
136,024,611
Weighted average number of units (diluted)
170,249,416
168,590,169
168,047,951
146,876,155
The calculation of diluted net income per unit includes the elimination of interest at the effective rate on the convertible
debentures of $nil for the quarter ended December 31, 2015 [$3.3 million in 2014] and of $nil for fiscal 2015 [$13.2 million
in 2014].
29
ADJUSTED NET INCOME
Adjusted net income is not an IFRS financial measure. The calculation method used by Cominar may differ from the one used
by other entities. Cominar calculates an adjusted net income to eliminate transaction costs – business combination since they
do not affect current real estate operations and to eliminate the change in fair value of investment properties and the write-off
of deferred financing costs that are non-monetary and that have no impact on cash flows.
For the periods ended December 31
2015
2014
% Δ
2015
2014
% Δ
Quarter
Cumulative
Net income
53,000
45,827
15.7
272,434
199,453
36.6
Change in fair value of investment properties –
Cominar’s proportionate share
24,244
25,506
(4.9)
24,244
25,506
(4.9)
Transaction costs – business combination
Write-off of deferred financing costs(1)
—
—
5,143
(100.0)
—
26,667
(100.0)
1,021
(100.0)
2,232
1,522
46.6
Adjusted net income
77,244
77,497
(0.3)
298,910
253,148
18.1
Adjusted net income per unit (basic)
Adjusted net income per unit (diluted)
0.45
0.45
0.49
0.48
(8.2)
(6.3)
1.78
1.78
1.86
1.81
(4.3)
(1.7)
Weighted average number of units (basic)
170,156,688
157,737,011
167,867,983
136,024,611
Weighted average number of units (diluted)
170,249,416
168,590,169
168,047,951
146,876,155
(1) In 2015, deferred financing costs of $2.2 million were written off following the early redemptions of the Series E and Series D convertible debentures respectively
on July 6, 2015 and September 8, 2015. In 2014, the amortization of deferred financing costs included a non-recurring expense of $501 related to financing costs
paid for the secured operating and acquisition credit facility that has been replaced by an unsecured credit facility. Cominar also wrote off $1.0 million in deferred
financing costs paid for the unsecured bridge loan used for the acquisition of an investment property portfolio from Ivanhoé Cambridge, which has been repaid on
December 18, 2014, then cancelled.
Adjusted net income for the year rose by 18.1% from fiscal 2014, due mainly to the acquisitions and developments completed
in 2014 and 2015.
30
DISTRIBUTABLE INCOME AND DISTRIBUTIONS
Although the concept of distributable income ("DI") is not an IFRS financial measure, it is used by many investors in the
income trust industry. We consider DI an excellent tool for assessing Cominar’s performance. Given its historical nature, DI
per unit is also a useful benchmark enabling investors to evaluate the stability of distributions. Distributable income does not
substitute for net income or cash flows provided by operating activities presented in the consolidated financial statements
established in accordance with IFRS.
We define distributable income as net income determined under IFRS, before fair value adjustments, recognition of leases on a
straight-line basis, provision for leasing costs, transaction costs incurred upon a business combination and certain other items
not affecting cash, if applicable. This definition may differ from the one used by other entities, and therefore Cominar’s
distributable income may not be comparable to similar measures presented by other entities.
The following table presents the calculation of distributable income as well as its reconciliation to net income calculated in
accordance with IFRS:
DISTRIBUTABLE INCOME
For the periods ended December 31
2015
2014
% Δ
2015
2014
% Δ
Quarter
Cumulative
Net income
+ Change in fair value of investment properties(4)
- Net amortization of premium and discount on
debenture issuances
+ Amortization of deferred financing costs(4)
- Amortization of fair value adjustments of
53,000
24,244
(200)
898
45,827
25,506
15.7
(4.9)
272,434
24,244
199,453
25,506
(183)
9.3
2,497
(64.0)
(787)
6,285
(575)
6,041
36.6
(4.9)
36.9
4.0
assumed indebtedness
(2,178)
(2,793)
(22.0)
(9,483)
(11,946)
(20.6)
+ Amortization of fair value adjustments of bond
investments
6
19
(68.4)
51
76
(32.9)
+ Compensation expense related to long-term
incentive plan
486
377
28.9
1,970
1,414
39.3
+ Accretion of the liability component of
convertible debentures
+ Transaction costs – business combination
+ Deferred taxes
- Provision for leasing costs
+ Initial and re-leasing salary costs
- Recognition of leases on a straight-line basis(4)
—
—
264
(5,100)
661
(1,609)
55
(100.0)
5,143
(100.0)
(688)
(138.4)
411
—
567
212
93.9
26,667
(100.0)
(236)
(340.3)
(5,790)
(11.9)
(22,300)
(19,840)
620
6.6
(73) 2,104.1
2,763
(7,303)
2,238
(3,854)
12.4
23.5
89.5
Recurring distributable income(4)
70,472
70,517
(0.1)
268,852
225,156
19.4
DISTRIBUTIONS TO UNITHOLDERS
63,198
59,199
6.8
251,295
203,375
23.6
Distributions reinvested under the distribution
reinvestment plan(1)
Cash distributions
Percentage of distributions reinvested
Per unit information:
Recurring distributable income (basic)
Weighted average number of units outstanding for
the recurring distributable income (basic)
18,706
44,492
29.6%
18,158
41,041
30.7%
3.0
8.4
78,783
60,858
172,512
142,517
29.5
21.0
31.4%
29.9%
0.41
0.45
(8.9)
1.60
1.66
(3.6)
170,156,688
157,737,011
167,867,983
136,024,611
DISTRIBUTIONS PER UNIT
0.368
0.368
—
1.470
1.453
1.2
Payout ratio(2)
Cash payout ratio(3)
89.8%
63.2%
81.8%
56.7%
91.9%
63.0%
87.5%
61.4%
(1) This amount includes units to be issued under the plan upon payment of distributions.
(2) The payout ratio corresponds to the distribution per unit, divided by the basic recurring DI per unit.
(3) The cash payout ratio corresponds to the cash distribution per unit, divided by basic recurring DI per unit.
(4) Including Cominar’s proportionate share in joint ventures.
31
Recurring DI for fiscal 2015 amounted to $268.9 million, up 19.4% from fiscal 2014. This increase was primarily due to the
contribution of the acquisitions and developments completed in 2014 and 2015. On a basic per unit basis, it totalled $1.60,
down $0.06 from the corresponding period of 2014. This decrease resulted primarily from the increase in the weighted
average number of units outstanding following the issuance of units in 2014 and 2015, which led to a reduced debt ratio.
Distributions to unitholders for fiscal 2015 totalled $251.3 million, up 23.6% from fiscal 2014.
The recurring DI payout ratio for the fiscal year ended December 31, 2015 was 91.9%. During fiscal 2015, 31.4% of
distributions were reinvested as units under the distribution reinvestment plan [29.9% in 2014]. The recurring DI cash payout
ratio per unit (basic) stood at 63.0% for the year ended December 31, 2015. On January 20, 2016 Cominar announced the
suspension of the distribution reinvestment plan based on the fact that the market value of units does not reflect the intrinsic
value of Cominar and that units issued under the distribution reinvestment plan offset the advantages generated by purchases
of units made under Cominar’s NCIB. The suspension of the distribution reinvestment plan does not affect the regular monthly
cash distribution per unit.
TRACK RECORD OF RECURRING DI PER UNIT
For the years ended December 31
2015
2014
2013
2012
2011
Recurring distributable income per unit (basic)
1.60
1.66
1.58
1.55
1.56
The chart below presents Cominar’s recurring distributable income over the past 10 years.
RECURRING DISTRIBUTABLE INCOME
(1) Amounts not restated under IFRS, determined in accordance with Canadian GAAP before changeover.
The Canadian Securities Administrators (“CSA”) requires Cominar to reconcile cash flows provided by operating activities as
shown in the consolidated financial statements to distributable income and adjusted funds from operations (non-IFRS
measures) presented in this management’s discussion & analysis.
32
The following table presents this reconciliation:
For the periods ended December 31
2015
2014
2015
2014
Quarter
Cumulative
Cash flows provided by operating activities as shown in the
consolidated financial statements
+ Adjustments - investments in joint ventures(1)
- Amortization of other assets
+ Transaction costs – business combination
- Provision for leasing costs
+ Initial and re-leasing salary costs
+ Change in non-cash working capital items
Recurring distributable income(1)
- Capital expenditures – maintenance of rental income
generating capacity
Recurring adjusted funds from operations(1)
(1) Including Cominar’s proportionate share in joint ventures.
107,679
110,266
263,942
229,030
444
(404)
—
(5,100)
661
(32,808)
70,472
(2,483)
67,989
(332)
(243)
5,143
2,018
(1,079)
—
(5,790)
(22,300)
620
(39,147)
2,763
23,508
70,517
268,852
(1,976)
68,541
(7,207)
261,645
782
(884)
26,667
(19,840)
2,238
(12,837)
225,156
(4,793)
220,363
In accordance with CSA guidelines, Cominar also provides the following table to allow readers to assess sources of cash
distributions and how they reconcile to net income:
For the years ended December 31
2015
2014
2013
Net income
272,434
199,453
254,969
Cash flows provided by operating activities as shown in the consolidated
financial statements
Distributions to unitholders
Cash distributions
Excess of cash flows from operating activities over cash distributions to unitholders
Adjustments:
+ Restructuring charges
+ Transaction costs – business combination
- Unusual item – other revenues
+ Unusual item – Holman Grand Hotel
263,942
251,295
172,512
91,430
—
—
—
—
229,030
203,375
142,517
86,513
—
26,667
—
—
202,760
182,977
137,665
65,095
1,062
—
(4,906)
535
Excess of adjusted cash flows from operating activities over cash distributions
to unitholders
91,430
113,180
61,786
For the fiscal year ended December 31, 2015, and the prior years, cash flows from operating activities were sufficient to fund
cash distributions to unitholders, as have adjusted cash flows from operating activities.
33
The chart below presents Cominar’s distributions over the past 10 years.
DISTRIBUTIONS PAID
(1) Amount of distribution in dollars per unit.
34
FUNDS FROM OPERATIONS
Although the concept of funds from operations ("FFO") is not an IFRS financial measure, it is widely used in the real estate
investment trust industry. REALpac defines this measure as net income (calculated in accordance with IFRS), adjusted for,
among other things, change in fair value of investment properties, deferred taxes, initial and re-leasing salary costs and
transaction costs incurred upon a business combination.
FFO does not substitute for net income or cash flows from operating activities established in accordance with IFRS when
measuring Cominar’s performance. While our method of calculating FFO complies with REALpac recommendations, it may
differ from methods applied by other entities. This measure may not be useful for comparisons with other entities.
The fully diluted weighted average number of units outstanding for the calculation of FFO is adjusted to take into account the
potential issuance of units under the long-term incentive plan and the potential conversion of convertible debentures at their
conversion price, if dilutive.
The following table presents a reconciliation of net income, as determined in accordance with IFRS, and FFO:
FUNDS FROM OPERATIONS
For the periods ended December 31
2015
2014
% Δ
2015
2014
% Δ
Quarter
Cumulative
Net income
+ Change in fair value of investment properties(6)
+ Deferred income taxes
+ Transaction costs – business combinations
+ Initial and re-leasing salary costs
Funds from operations(6)
53,000
24,244
264
—
661
78,169
45,827
25,506
15.7
(4.9)
(688)
(138.4)
5,143
(100.0)
620
76,408
6.6
2.3
272,434
24,244
567
—
2,763
199,453
25,506
36.6
(4.9)
(236)
(340.3)
26,667
(100.0)
2,238
300,008
253,628
+ Write-off of deferred financing costs (1)
Recurring funds from operations(6)
—
1,021
(100.0)
2,232
1,522
78,169
77,429
0.9
302,240
255,150
23.5
18.3
46.6
18.5
Per unit information:
Recurring funds from operations (FD)(2)(3)
Weighted average number of units outstanding
for recurring funds from operations (basic)
Weighted average number of units outstanding
for recurring funds from operations (FD)(2)
0.46
0.49
(6.1)
1.79
1.86
(3.8)
170,156,688
157,737,011
167,867,983
136,024,611
170,249,416
166,235,988
173,711,158
144,521,973
Payout ratio(4)
Cash payout ratio(5)
80.0%
56.3%
75.1%
52.0%
81.7%
56.0%
77.3%
54.2%
(1) In 2015, deferred financing costs of $2.2 million were written off following the early redemptions of the Series E and Series D convertible debentures respectively
effective July 6, 2015 and September 8, 2015. In 2014, the amortization of deferred financing costs included a non-recurring expense of $501 related to financing
costs paid for the secured operating and acquisition credit facility that has been replaced by an unsecured credit facility, and have been completely expensed over the
third quarter, after closing this facility. Cominar also wrote off $1.0 million in deferred financing costs paid for the unsecured bridge loan used for the acquisition of
an investment property portfolio from Ivanhoé Cambridge, which has been repaid on December 18, 2014, then cancelled.
(2) Fully diluted.
(3) The calculation of fully diluted recurring funds from operations per unit includes the elimination of interest at the effective rate on the dilutive convertible debentures
of $nil for the quarter ended December 31, 2015 [$3.3 million in 2014] and of $8.0 million for the year ended December 31, 2015 [$13.2 million in 2014].
(4) The payout ratio corresponds to the distribution per unit, divided by basic recurring FFO per unit.
(5) The cash payout ratio corresponds to the cash distribution per unit, divided by basic recurring FFO per unit.
(6) Including Cominar’s proportionate share in joint ventures.
Recurring FFO for fiscal 2015 rose 18.5% from the previous year, due mainly to the acquisitions and developments completed
in 2014 and 2015. Recurring FFO per unit on a fully diluted basis stood at $1.79 for the year ended December 31, 2015,
down $0.07 from fiscal 2014. This decrease resulted primarily from the increase in the weighted average number of units
outstanding following the issuance of units in 2014 and 2015, which contributed to a reduced debt ratio.
35
TRACK RECORD OF RECURRING FUNDS FROM OPERATIONS PER UNIT
For the years ended December 31
2015
2014
2013
2012
2011
Recurring funds from operations per unit (FD)(1)
1.79
1.86
1.77
1.78
1.65
(1) Fully diluted.
The chart below presents Cominar’s recurring funds from operations over the past 10 years.
RECURRING FUNDS FROM OPERATIONS
(1) Amounts not restated under IFRS, determined in accordance with Canadian GAAP before changeover.
36
The following table presents a reconciliation of the cash flows from operating activities as shown in the consolidated financial
statements with funds from recurring operations:
For the periods ended December 31
2015
2014
2015
2014
Quarter
Cumulative
Cash flows provided by operating activities as shown in the
consolidated financial statements
- Adjustments – investments in joint ventures(2)
+ Amortization
- Compensation expense related to long-term incentive plan
+ Recognition of leases on straight-line basis(2)
+ Excess of proportionate share of net income and comprehensive
income over distributions received from the joint ventures
+ Transaction costs – business combination
+ Write-off of deferred financing costs(1)
+ Initial and re-leasing salary costs
+ Change in non-cash working capital items
Recurring funds from operations(2)
107,679
110,266
263,942
229,030
836
1,077
(486)
1,609
(399)
—
—
661
(8,528)
185
(377)
73
8,173
5,143
1,021
620
759
2,476
(1,970)
7,303
1,227
—
2,232
2,763
(32,808)
(39,147)
23,508
78,169
77,429
302,240
(8,673)
5,320
(1,414)
3,854
9,443
26,667
1,522
2,238
(12,837)
255,150
(1) In 2015, deferred financing costs of $2.2 million were written off following the early redemptions of the Series E and Series D convertible debentures respectively
effective July 6, 2015 and September 8, 2015. In 2014, the amortization of deferred financing costs included a non-recurring expense of $501 related to financing
costs paid for the secured operating and acquisition that has been replaced by an unsecured credit facility, and have been completely expensed over the third quarter,
after closing this facility. Cominar also wrote off $1.0 million in deferred financing costs paid for the unsecured bridge loan used for the acquisition of an investment
property portfolio from Ivanhoé Cambridge, which has been repaid on December 18, 2014, then cancelled.
(2) Including Cominar’s proportionate share in joint ventures.
ADJUSTED FUNDS FROM OPERATIONS
The concept of adjusted funds from operations ("AFFO") is a key financial measure in the real estate investment trust industry.
Cominar defines this measure as FFO adjusted for certain non-cash items such as the amortization of deferred financing
costs, the amortization of fair value adjustments on assumed indebtedness, the compensation expense related to the long-
term incentive plan, recognition of leases on a straight-line basis and fair value adjustments of investments, net of investments
required to maintain Cominar’s ability to generate rental income from its property portfolio. AFFO is an additional indicator
used to assess Cominar’s financial performance and its ability to maintain and increase distributions over the long term. AFFO
is not an IFRS measure and should not be substituted for net income or cash flows from operating activities established in
accordance with IFRS when measuring Cominar’s performance. Cominar’s method of calculating AFFO may differ from the
methods used by other entities, and therefore may not be appropriate for comparative analysis purposes.
In calculating AFFO, Cominar deducts a provision for leasing costs incurred on an ongoing basis in order to maintain its
capacity to generate rental income. These leasing costs include, among other things, leasehold improvements and initial direct
costs, which are added to the carrying amount of investment properties in accordance with IFRS. Cominar also deducts capital
expenditures incurred under its program to maintain its capacity to generate rental income from its property portfolio. These
expenditures, which primarily include non-recoverable major expenditures for maintenance and repairs, are typically incurred
unevenly during a fiscal year. Therefore, AFFO could vary from quarter to quarter, and such variances could be material.
The fully diluted weighted average number of units outstanding for the calculation of AFFO takes into account the potential
issuance of units under the long-term incentive plan and the potential conversion of convertible debentures at their conversion
price, if dilutive.
37
The following table presents a reconciliation of FFO and AFFO:
ADJUSTED FUNDS FROM OPERATIONS
For the periods ended December 31
2015
2014
% Δ
2015
2014
% Δ
Quarter
Cumulative
Funds from operations(5)
- Net amortization of premium and discount on
debenture issuances
+ Amortization of deferred financing costs(5)
- Amortization of fair value adjustments of
78,169
76,408
2.3
300,008
253,628
18.3
(200)
898
(183)
9.3
2,497
(64.0)
(787)
6,285
(575)
6,041
36.9
4.0
assumed indebtedness
(2,178)
(2,793)
(22.0)
(9,483)
(11,946)
(20.6)
+ Amortization of fair value adjustment of bond
investments
6
19
(68.4)
51
76
(32.9)
+ Compensation expense related to long-term
incentive plan
486
377
28.9
1,970
1,414
39.3
- Capital expenditures – maintenance of rental
income generating capacity
(2,483)
(1,976)
25.7
(7,207)
(4,793)
50.4
+ Accretion of the liability component of
convertible debentures
- Provision for leasing costs
- Recognition of leases on a straight-line basis(5)
—
(5,100)
(1,609)
55
(100.0)
411
(5,790)
(11.9)
(22,300)
(73) 2,104.1
(7,303)
212
(19,840)
(3,854)
93.9
12.4
89.5
Recurring adjusted funds from operations(5)
67,989
68,541
(0.8)
261,645
220,363
18.7
Per unit information:
Recurring adjusted funds from operations (FD)(1)(2)
Weighted average number of units outstanding for
recurring adjusted funds from operations (basic)
Weighted average number of units outstanding for
recurring adjusted funds from operations (FD)(1)
0.40
0.43
(7.0)
1.55
1.61
(3.7)
170,156,688
157,737,011
167,867,983
136,024,611
170,249,416
166,235,988
173,711,158
144,521,973
Payout ratio(3)
Cash payout ratio(4)
92.0%
64.8%
85.6%
59.3%
94.2%
64.6%
89.7%
62.9%
(1) Fully diluted.
(2) The calculation of fully diluted recurring adjusted funds from operations per unit includes the elimination of interest on the dilutive convertible debentures of $nil for
the quarter ended December 31, 2015 [$3.0 million in 2014] and of $7.3 million for the year ended December 31, 2015 [$11.9 million in 2014].
(3) The payout ratio corresponds to the distribution per unit, divided by basic recurring AFFO per unit.
(4) The cash payout ratio corresponds to the cash distribution per unit, divided by basic recurring AFFO per unit.
(5) Including Cominar’s proportionate share in joint ventures.
Recurring AFFO amounted to $261.6 million for fiscal 2015, up 18.7% from fiscal 2014, mainly as a result of the acquisitions
and developments completed in 2014 and 2015.
Fully diluted recurring AFFO per unit totalled $1.55 for the year ended December 31, 2015, down $0.06 from fiscal 2014.
This decrease resulted primarily from the increase in the weighted average number of units outstanding following the issuance
of units in 2014 and 2015, which led to a reduced debt ratio.
38
TRACK RECORD OF RECURRING ADJUSTED FUNDS FROM OPERATIONS PER UNIT
For the years ended December 31
2015
2014
2013
2012
2011
Recurring adjusted funds from operations per unit (FD)(1)
1.55
1.61
1.54
1.50
1.50
(1) Fully diluted.
The chart below presents Cominar’s recurring adjusted funds from operations over the past 10 years.
RECURRING ADJUSTED FUNDS FROM OPERATIONS
(1) Amounts not restated under IFRS, determined in accordance with Canadian GAAP before changeover.
39
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 2015, Cominar generated $263.9 million in cash flows from operating activities. Of this amount, $172.5 million
has been allocated to cash distributions to unitholders. Cominar foresees no difficulty in meeting its short-term obligations
and its commitments with funds from operations, refinancing of mortgages payable, debenture or unit issuances, amounts
available on its credit facility and cash and cash equivalents.
On November 27, 2014, Cominar filed a short form base shelf prospectus allowing it to issue up to $1.5 billion in securities
during the 25-month period that this prospectus remains valid. Since then, Cominar has issued $200.0 million in senior
unsecured debentures in December 2014 and $300.0 million in June 2015, as well as $155.3 million in units in January 2015,
leaving an available balance of $844.7 million for future issuances.
MORTGAGES PAYABLE(1)
As at December 31, 2015, the nominal balance of mortgages payable was $2,051.3 million up $102.8 million from
$1,948.5 million as at December 31, 2014. This increase is explained by contracted net mortgages payable for $371.4 million
at a weighted average contractual rate of 3.07%, by the repayments of balances at maturity for $211.4 million at a weighted
average contractual rate of 4.77% and by the monthly repayments of capital for $57.1 million. At the end of the year, the
weighted average contractual rate was 4.46%, down 33 basis points from 4.79% as at December 31, 2014. As at December
31, 2015, the effective weighted average interest rate was 4.05% [4.17% in 2014].
Cominar’s mortgages payable contractual maturity dates are staggered over a number of years to reduce risks related to
renewal.
As at December 31, 2015, the residual weighted average term of mortgages payable was 5.4 years, compared to 5.0 years as
at December 31, 2014.
The following table shows mortgage contractual maturity dates for the specified years:
CONTRACTUAL MATURITY DATES OF MORTGAGES PAYABLE
For the years ending December 31
Repayment of
principal
Balances at
maturity
Weighted average
contractual rate
Total
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026 and thereafter
Total
53,260
50,993
40,115
32,427
33,736
32,530
30,953
26,405
17,600
12,309
7,503
204,980
177,190
451,983
4,255
82,013
89,517
56,136
254,826
181,733
210,838
33
258,240
228,183
492,098
36,682
115,749
122,047
87,089
281,231
199,333
223,147
7,536
337,831
1,713,504
2,051,335
4.77%
4.70%
4.91%
6.20%
4.37%
5.48%
4.14%
4.56%
4.09%
3.15%
3.37%
4.46%
Cominar’s management intends to refinance a portion of the mortgages payable maturing in 2016 and to increase, in general,
the loan/value ratio of the properties used as collateral.
(1) Including the $8.6 million mortgage payable related to a property held for sale.
40
SENIOR UNSECURED DEBENTURES
The following table presents the features of Cominar’s senior unsecured debentures:
Contractual
interest
rate
Effective
interest
rate
Date of
issuance
Dates of
interest
payments
Maturity date
Nominal value as at
December 31, 2015
$
June 2017
250,000
Series 1
Series 2
Series 3
Series 4
Series 6
Series 7
Series 8
Series 9
Weighted average interest rate
Total
4.274%
4.32%
June 2012(1)
4.23%
4.37%
December
2012(2)
June 15 and
December 15
June 4 and
December 4 December 2019
300,000
May 2 and
4.00%
4.24%
May 2013
November 2 November 2020
100,000
4.941%
4.81%
July 2013(3)
July 27 and
January 27
September 22,
December 22,
March 22 and
July 2020
300,000
1.94%(4)
2.11% September 2014
June 22 September 2016
250,000
3.62%
3.70% September 2014
December 21
and June 21
June 8 and
June 2019
300,000
4.25%
4.34% December 2014
December 8 December 2021
200,000
4.164%
3.95%
4.25%
4.02%
June 2015
June 1 and
December 1
June 2022
300,000
2,000,000
(1) Re-opened in September 2012 ($125.0 million).
(2) Re-opened in February 2013 ($100.0 million).
(3) Re-opened in January 2014 ($100.0 million) and March 2014 ($100.0 million).
(4) Variable interest rate fixed quarterly for the period from December 22, 2015 to March 21, 2016 (corresponding to the three-month CDOR rate plus 108 basis
points).
On June 1, 2015, Cominar issued $300.0 million in Series 9 senior unsecured debentures bearing interest at a rate of 4.164%
and maturing in June 2022.
On October 9, 2015, Cominar redeemed at maturity the Series 5 senior unsecured debentures bearing a floating interest rate
and totalling $250.0 million using the unsecured revolving operating and acquisition credit facility.
As at December 31, 2015, the residual weighted average term of senior unsecured debentures was 3.9 years.
The following table presents information on Cominar’s unencumbered assets and senior unsecured debts:
As at December 31
2015
2014
Number of
properties
Fair value of
properties ($)
Number of
properties
Fair value of
properties ($)
Unencumbered income properties
326
3,621,513
286
3,692,149
Unencumbered assets to unsecured debt ratio(1)(2)
Senior unsecured debts-to-total-debt ratio(2)(3)
1.52:1
53.6%
1.54:1
52.8%
(1) Fair value of unencumbered income properties divided by the unsecured debt (excluding convertible debentures).
(2) These ratios are not defined by IFRS and may differ from similar measures presented by other entities.
(3) Senior unsecured debts divided by total debt.
41
As at December 31, 2015, Cominar owned unencumbered income properties whose fair value was approximately $3.6 billion.
The unencumbered assets to unsecured debt ratio stood at 1.52:1, which represents considerable flexibility compared to the
1.30:1 ratio that Cominar must meet.
CONVERTIBLE DEBENTURES
On July 6, 2015, Cominar redeemed early all of the Series E convertible debentures totalling $86.3 million and bearing
interest at 5.75%.
On September 8, 2015, Cominar redeemed early all of the Series D convertible debentures totalling $99.7 million and bearing
interest at 6.50%.
These redemptions will result in interest savings in the next quarters and in the removal of the dilution arising from these
convertible debentures.
BANK BORROWINGS
As at December 31, 2014, Cominar had an unsecured revolving operating and acquisition credit facility of up to
$550.0 million. On October 7, 2015, it was increased to $700.0 million and will mature in August 2018. This credit facility
bears interest at prime rate plus 70 basis points or at bankers’ acceptance rate plus 170 basis points. This credit facility
contains certain restrictive clauses, with which Cominar was in compliance as at December 31, 2015 and 2014. As at
December 31, 2015, bank borrowings totalled $381.2 million and cash available is $318.8 million.
DEBT SUMMARY
As at December 31
Mortgages payable
Debentures
Convertible debentures
Bank borrowings
Total debt
2015
Weighted
average
contractual
rate
Residual
weighted
average term
$
4.46%
3.95%
—
2.85%
4.09%
5.4 years
1,968,919
3.9 years
1,945,627
—
2.6 years
183,081
457,323
4.5 years
4,554,950
2014
Weighted
average
contractual
rate
4.79%
3.89%
6.15%
3.13%
4.29%
Residual
weighted
average term
5.0 years
4.0 years
2.1 years
2.6 years
4.2 years
$
2,061,230
1,995,506
—
381,166
4,437,902
During fiscal 2015, the weighted average interest rate on Cominar’s total debt decreased by 20 basis points from 4.29% as at
December 31, 2014, to 4.09% as at December 31, 2015.
DEBT RATIO
The following table presents the evolution of debt ratios:
As at December 31
Cash and cash equivalents
Mortgages payable
Debentures
Convertible debentures
Bank borrowings
Total net debt
Total assets less cash and cash equivalents
Debt ratio(1)(2)
2015
2014
(5,250)
2,061,230
1,995,506
—
381,166
4,432,652
8,220,447
53.9%
(5,909)
1,968,919
1,945,627
183,081
457,323
4,549,041
8,103,510
56.1%
(1) Total of cash and cash equivalents, bank borrowings, mortgages payable, debentures and convertible debentures divided by total assets less cash and
cash equivalents.
(2) This ratio is not defined by IFRS and may differ from similar measures presented by other entities.
42
As at December 31, 2015, the debt ratio was 53.9%, down from 56.1 % as at December 31, 2014.
In accordance with Cominar’s financial management policies on maintaining a sound and strong financial position over the
long-term, Cominar developed a strategy of assets disposals. The proceeds on disposal of assets shall be used to pay down
debt and to repurchase units under the NCIB. In the context of the current market conditions, Cominar believes that to
repurchase units under the NCIB is currently a good investment of its liquidity. While we are maintaining our long-term debt
ratio target of 50%, we have set our 2016 year-end target goal at 53%.
INTEREST COVERAGE RATIO
Cominar calculates its interest coverage ratio by dividing net operating income less Trust administrative expenses by finance
charges. The interest coverage ratio is used to assess Cominar’s ability to pay interest on its total debt from operating
revenues. For the year ended December 31, 2015, the interest coverage ratio stood at 2.67:1 [2.67:1 as at December 31,
2014], evidence of its capacity to meet its interest payment obligations.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL COMMITMENTS
Cominar has no off-balance sheet arrangements that have or are likely to have a significant impact on its results of operations
or its financial position, including its cash position and sources of financing.
Cominar has no significant contractual commitments other than those arising from its long-term debt and payments due under
emphyteutic leases on land held for income properties.
FINANCIAL INSTRUMENTS
CLASSIFICATION AND FAIR VALUE
Financial instruments and their carrying amounts and fair values, when the fair values do not approximate the carrying
amounts, are classified as follows:
Other financial liabilities
Mortgages payable
Debentures
Convertible debentures
December 31, 2015
December 31, 2014
Level
Carrying
amount
$
Fair
value
$
Carrying
amount
$
Fair
value
$
2
2
1
2,061,230
2,140,424
1,968,919
2,033,907
1,995,506
2,026,127
1,945,627
2,004,418
—
—
183,081
191,121
Cominar uses a three-level hierarchy to classify its financial instruments and its investment properties. The hierarchy reflects
the relative weight of inputs used in the valuation of financial assets and liabilities at fair value. The levels in the hierarchy are:
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)
Level 3 – Inputs for the asset or liability that are not based on observable market data (i.e., unobservable inputs)
Cominar’s policy is to recognize transfers between hierarchy levels on the date of changes in circumstances that caused the
transfer. There was no transfer between hierarchy levels in fiscals 2015 and 2014.
The fair value of cash and cash equivalents, mortgages receivable, accounts receivable, accounts payable and accrued liabilities
and bank borrowings approximates the carrying amount since they are short-term in nature or bear interest at current market
rates.
The fair value of mortgages payable and debentures has been estimated based on current market rates for financial
instruments with similar terms and maturities.
43
The fair value of convertible debentures is based on the quoted market price at year-end.
RISK MANAGEMENT
The main risks arising from Cominar’s financial instruments are credit risk, interest rate risk and liquidity risk. The strategy for
managing these risks is summarized below.
Credit risk
Credit risk arises from the possibility that tenants may experience financial difficulty and be unable to fulfill their lease
commitments.
Cominar mitigates credit risk via segment and geographic portfolio diversification, staggered lease maturities, and
diversification of revenue sources through a varied tenant mix as well as by avoiding dependence on any single tenant by
ensuring that no individual tenant contributes a significant portion of Cominar’s operating revenues and by conducting credit
assessments on all new tenants.
Cominar has a broad, highly diversified client base, consisting of approximately 6,000 tenants occupying an average area of
approximately 7,000 square feet each. The three largest tenants account for approximately 4.7%, 3.4% and 3.2% of net
operating income, respectively, representing several leases with staggered maturities. The stability and quality of cash flows
from operating activities are enhanced by the fact that approximately 9.6% of operating revenues come from government
agencies.
Cominar regularly assesses its accounts receivable and records a provision for doubtful accounts when there is a risk of non-
collection.
The maximum credit risk to which Cominar is exposed corresponds to the carrying amount of its accounts receivable, mortgage
receivable and cash and cash equivalents position.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in
market interest rates. Cominar’s objective in managing this risk is to minimize the net impact on future cash flows. Cominar
reduces its exposure to interest rate risk by staggering the maturities of its borrowings over several years and by generally
using long-term debt bearing interest at fixed rates.
Accounts receivable, except for the receivables bearing interest, and accounts payable and accrued liabilities do not bear
interest.
Nearly all mortgages payable (91%), debentures, except Series 6 debentures, and convertible debentures bear interest at fixed
rates.
Cominar is exposed to interest rate fluctuations mainly due to bank borrowings, the mortgage receivable and Series 6
debentures, which bear interest at variable rates.
As required under IFRS, a 25-basis-point increase or decrease in the average interest rate on variable interest debts during
the period, assuming that all other variables are held constant, would have resulted in a $2,1 million increase or decrease in
Cominar’s net income for the year ended December 31, 2015 [$1.4 million in 2014].
Liquidity risk
Liquidity risk is the risk that Cominar will be unable to meet its financial obligations as they come due.
Cominar manages this risk by managing its capitalization, continuously monitoring current and projected cash flows and
adhering to its capital management policy.
Undiscounted contractual cash flows (interest and principal) related to financial liabilities as at December 31, 2015 are
as follows:
44
Mortgages payable
Debentures(1)
Bank borrowings
Accounts payable and accrued liabilities(2)
Under
one year
$
347,720
327,688
10,978
107,349
Cash flows
One to
five years
$
1,102,821
1,479,823
409,525
—
Over
five years
$
1,090,271
527,238
—
—
(1) The rate used for the variable rate debentures (Series 6) is the CDOR three-month rate plus 108 basis points as at year-end.
(2) Excludes consumption taxes and other non-financial liabilities
ACQUISITIONS, INVESTMENTS AND DISPOSITIONS
Over the years, Cominar has achieved much of its growth through the acquisition of companies and high-quality properties
based on strict selection criteria, while maintaining an appropriate allocation among its three business segments, namely,
office buildings, retail buildings and industrial and mixed-use properties, and geographic diversification of its property
portfolio.
ACQUISITION OF INCOME PROPERTIES
On April 23, 2015, Cominar acquired a portfolio of 3 industrial properties with total leasable area of approximately 697,000
square feet, located in the greater Montréal area, for a purchase price of $34.5 million paid cash. The capitalization rate for
this transaction was 8.1%.
The following table presents additional information on these acquisitions:
Investment property
2125 23rd Avenue
2177 23rd Avenue
5205 Fairway Street
(1) I: Industrial and mixed-use.
City/Province Business segment(1)
Leasable area
Montréal, Qc
Montréal, Qc
Montréal, Qc
I
I
I
sq. ft.
199,000
210,000
288,000
697,000
TRANSFERS TO INCOME PROPERTIES
During the second quarter of 2015, Cominar completed the construction of an industrial and mixed-use property that it
transferred from property under development to income property. Located in Lévis, in the suburbs of Québec, this property
valued at $5.9 million, with a leasable area of 33,000 square feet, has an occupancy rate of 100%. The capitalization rate
is 8.1%.
During the fourth quarter of 2015, Cominar completed the construction of an industrial and mixed-use property that it
transferred from property under development to income property. Located in Québec, this property valued at $7.4 million, with
a leasable area of 68,000 square feet, has an occupancy rate of 80%. The capitalization rate is 8.4%.
DISPOSITIONS OF INCOME PROPERTIES
On September 30, 2015, Cominar announced that it had completed the sale of one industrial and mixed-use property and two
office properties located in Montréal, for a total purchase price of $98.0 million. The net sale proceeds of these properties
were used to reimburse a portion of the credit facility.
The sale of these properties did not have a significant impact on Cominar’s results.
INVESTMENTS IN INCOME PROPERTIES
45
Cominar continues to develop its income properties in the normal course of business. Investments made include additions,
expansions, modernizations, modifications and upgrades to existing properties with a view to increasing or maintaining their
rental income generating capacity.
During fiscal 2015, Cominar incurred $108.2 million [$92.5 million in 2014] in capital expenditures particularly to increase the
rental income generating capacity of its properties or to reduce the related operating expenses. During fiscal 2015, Cominar
also incurred $7.2 million [$4.8 million in 2014] in capital expenditures to maintain rental income generating capacity,
consisting mainly of major expenditures for maintenance and repairs, as well as property equipment replacements, which will
garner benefits for Cominar for the coming years. These expenditures do not include current repair and maintenance costs.
Finally, Cominar invests in leasehold improvements that aim to increase the value of its properties through higher lease rates,
as well as in other leasing costs, mostly brokerage fees and tenant inducements. The level of investment required may vary
from quarter to quarter since it closely depends on lease renewals and the signing of new leases. It also depends on increases
in rental space due to newly acquired, expanded or upgraded properties, or rental space transferred from properties under
development. During fiscal 2015, Cominar made investments of $32.8 million in this respect [$36.0 million in 2014].
INCOME PROPERTIES HELD FOR SALE
During the fourth quarter of 2015 and the first quarter of 2016, Cominar entered into sale agreements of income properties
subject to usual closing requirements. Cominar’s management intends to use the total net proceeds of these disposals to
reduce debt and to repurchase units under the NCIB, and expects to close these transactions during fiscal year 2016. Here is
the fair value of these income properties less costs of sale by geographic market:
Assets – Retail properties
Income properties held for sale
Liabilities
Québec
Montréal
Ontario
Atlantic
Provinces
$
$
$
$
Total
$
78,308
62,142
9,683
13,600
163,733
Mortgage payable related to a property held for sale
—
8,590
—
—
8,590
PROPERTIES UNDER CONSTRUCTION AND DEVELOPMENT PROJECTS
As part of the acquisition of the investment property portfolio from Ivanhoé Cambridge in 2014 for an amount of
$1.63 billion, Cominar acquired an office property under development with a leasable area of 118,000 square feet located in
Laval as part of the Centropolis complex, for total estimated cost of $30.7 million, including leasing cost and leasehold
improvements. Occupancy of this property began at the end of 2014 and will be continued during 2016. The capitalization
rate of this property is estimated at 7.1%.
Cominar, at 50%, and Groupe Dallaire Inc., are in joint venture for the purpose of commercial land development located on
Highway 40, one of the main arteries of Québec. It is foreseen that this project, Espace Bouvier, will consist primarily of
commercial space, the first three phases being comprised of an office building of approximately 83,000 square feet and two
commercial buildings totalling approximately 90,000 square feet. The average capitalization rate of these properties is
estimated at 8.8%. During the fourth quarter, one of the retail properties, which has an area of approximately 66,000 square
feet and is occupied at 100%, was transferred from properties under development to income properties.
Moreover, Cominar, at 75%, and Groupe Dallaire Inc., are in joint venture for the purpose of commercial land development
located on this same artery.
Cominar has begun a project on Louis-B.-Mayer Street, in Laval, of an industrial and mixed-use property for a single tenant
occupying 100% of the leasable area of 130,000 square feet, with a total estimated cost of $14.9 million. The estimated
capitalization rate of the project is 8.7% and the delivery is expected in December 2016.
46
PROPERTY PORTFOLIO
The following table presents information on the property portfolio, including Cominar’s proportionate share:
As at December 31
2015
2014
% Δ
Income properties – Cominar’s proportionate share(1)
Income properties held for sale
Properties under development and land held for future development – Cominar’s
proportionate share(1)
Number of income properties
Leasable area (sq. ft.)
7,706,575
163,733
7,784,542
—
(1.0)
100.0
169,553
130,757
3.0
566
563
45,352,000
45,252,000
(1) Non-IFRS financial measure. See relevant section for definition and reconciliation to closest IFRS measure.
SUMMARY BY OPERATING SEGMENT
As at December 31
Office
Retail
Industrial and mixed-use
Total
2015
2014
Number of
properties
Leasable area
(sq. ft.)
Number of
properties
Leasable area
(sq. ft.)
134
197
235
566
14,574,000
12,890,000
17,888,000
45,352,000
136
196
231
563
14,994,000
12,845,000
17,413,000
45,252,000
SUMMARY BY GEOGRAPHIC MARKET
As at December 31
2015
2014
Québec
Montréal
Ontario(1)
Atlantic Provinces
Western Canada
Total
Number of
properties
Leasable area
(sq. ft.)
Number of
properties
Leasable area
(sq. ft.)
136
301
55
60
14
10,312,000
25,462,000
5,774,000
2,698,000
1,106,000
133
301
55
60
14
10,202,000
25,468,000
5,766,000
2,709,000
1,107,000
566
45,352,000
563
45,252,000
(1) For presentation purposes, the Gatineau area is included in the Ontario geographic market.
47
REAL ESTATE OPERATIONS
OCCUPANCY RATE
As at December 31, 2015, the average occupancy rate of our properties was 91.9%, compared to 94.4% as at
December 31, 2014. This decrease is mainly due to a lower occupancy rate in the retail segment, particularly following Target
stores closure and to the weakness of the office segment in the Montréal area and in Ottawa.
OCCUPANCY RATE TRACK RECORD
December 31, 2015 December 31, 2014 December 31, 2013 December 31, 2012 December 31, 2011
Operating segment (%)
Office
Retail
Industrial and mixed-use
Portfolio total
90.3
90.3
94.3
91.9
93.5
94.7
94.9
94.4
93.3
94.2
92.4
93.1
94.3
94.6
93.1
93.9
95.2
96.9
91.8
93.6
LEASING ACTIVITY
The following table summarizes Cominar’s leasing activity in 2015:
LEASING ACTIVITY
Leases that matured in 2015
Number of clients
Leasable area (sq. ft.)
Average net rent ($/sq. ft.)
Renewed leases in 2015
Number of clients
Leasable area (sq. ft.)
Average net rent of leases maturing ($/sq. ft.)
Average net rent of renewed leases ($/sq. ft.)
Retention rate (%)
New leases in 2015
Number of clients
Leasable area (sq. ft.)
Average net rent ($/sq. ft.)
Office
Retail
Industrial
and mixed-use
Total
426
512
336
1,274
2,531,000
1,308,000
3,415,000
7,254,000
12.71
17.33
5.70
10.24
285
383
247
915
1,674,000
1,106,000
2,922,000
5,702,000
12.54
11.90
66.1
121
596,000
17.33
16.95
16.66
84.6
113
264,000
10.95
5.60
5.80
85.6
94
882,000
5.69
9.83
9.68
78.6
328
1,742,000
10.47
In 2015, 16.0% of leasable area expired. 78.6% [74.3 % in 2014] of these leases were renewed and new leases were also
signed, representing 1.7 million square feet of leasable area.
The following table shows the average net rent growth of renewed leases:
GROWTH IN AVERAGE NET RENT OF RENEWED LEASES
For the years ended December 31
Operating segment
Office
Retail
Industrial and mixed-use
Portfolio total
2015
%
(5.1)
(1.7)
3.6
(1.5)
2014
%
1.3
3.6
4.2
2.4
The decrease in average net rent of renewed leases in the office segment comes mainly from the Ottawa region.
48
The following table presents lease maturities over the next five years:
LEASE MATURITIES
Office
Leasable area (sq. ft.)
Average net rent ($/sq. ft.)
% of portfolio – Office
Retail
Leasable area (sq. ft.)
Average net rent ($/sq. ft.)
% of portfolio – Retail
Industrial and mixed-use
Leasable area (sq. ft.)
Average net rent ($/sq. ft.)
% of portfolio – Industrial and mixed-use
Portfolio total
Leasable area (sq. ft.)
Average net rent ($/sq. ft.)
% of portfolio
2016
2017
2018
2019
2020
2,087,000
1,917,000
2,018,000
1,693,000
1,002,000
12.92
14.3
14.12
13.2
13.28
13.8
12.56
11.6
14.17
6.9
1,737,000
1,684,000
2,036,000
1,519,000
1,423,000
15.74
13.5
14.89
13.1
13.54
15.8
15.30
11.8
19.47
11.0
3,136,000
2,941,000
2,504,000
1,073,000
2,181,000
5.68
17.5
6.57
16.4
6.40
14.0
6.89
6.0
6.36
12.2
6,960,000
6,542,000
6,558,000
4,285,000
4,606,000
10.36
15.3
10.93
14.4
10.73
14.5
12.11
9.4
12.11
10.2
The following table summarizes information on leases as at December 31, 2015:
Office
Retail
Industrial and mixed-use
Portfolio average
Average remaining
lease term
Average leased area
per client
Average net rent/
sq. ft.
years
4.5
4.2
4.5
4.4
sq. ft.
6,900
4,100
13,800
7,000
$
13.78
14.85
6.07
10.99
Cominar has a broad, highly diversified retail client base consisting of about 6,000 clients occupying an average of
approximately 7,000 square feet each. Our top three clients, Public Works Canada, Canadian National Railway Company and
Société québécoise des infrastructures, account for approximately 4.7%, 3.4% and 3.2% of our net operating income,
respectively, arising from several leases with staggered maturities. The stability and quality of our cash flows from operating
activities are enhanced by the fact that approximately 9.6% come from government agencies representing approximately
100 leases.
49
The following table presents our top ten clients by percentage of net operating income:
Client
Public Works Canada
Canadian National Railway Company
Société québécoise des infrastructures
Jean Coutu Group
Scotiabank
Harvest Operations Corp.
Shoppers Drug Mart
Cinram Canada
Thales Canada
Desjardins Real Estate Group Inc.
Total
% of net
operating income
4.7
3.4
3.2
1.4
1.0
0.9
0.8
0.8
0.7
0.7
17.6
ISSUED AND OUTSTANDING UNITS
On January 30, 2015, Cominar closed a public offering of 7,901,650 units including the full exercise of the over-allotment
option at a price of $19.65 per unit. Total net proceeds received by Cominar amounted to $148.7 million, after deducting the
underwriters’ fee and costs related to the offering. Net proceeds from this offering were used to repay the unsecured
revolving credit facility.
On August 28, 2015, Cominar obtained the approval of the Toronto Stock Exchange to set up a NCIB for up to
4,000,000 units. The bid expires on September 1, 2016, or on any earlier date on which Cominar would have completed the
maximum purchase pursuant to the bid.
During fiscal 2015, Cominar has repurchased 530,836 shares at an average price of $14.61 for a total consideration of
$7.7 million paid cash. Since the beginning of fiscal year 2016, Cominar has repurchased 2,072,976 units at an average price
of $14.46, for a total consideration of $30.0 million paid cash. Since December 10, 2015, Cominar has repurchased, under
this program, a total of 2,603,812 units at an average price of $14.49, for a total consideration of $37.7 million paid cash.
For the years ended December 31
2015
2014
Units issued and outstanding, beginning of year
+ Public offering
+ Private placement
- Repurchase of units under NCIB
+ Exercise of options
+ Distribution reinvestment plan
+ Conversion of convertible debentures
+ Conversion of deferred units
Units issued and outstanding, end of year
Additional information
Issued and outstanding units
Outstanding unit options
Deferred units and restricted units
158,689,195
7,901,650
—
(530,836)
266,200
4,582,780
3,658
—
127,051,095
15,131,700
13,158,000
—
92,000
3,247,589
—
8,811
170,912,647
158,689,195
March 1, 2016
168,839,671
10,387,950
236,834
50
RELATED PARTY TRANSACTIONS
Michel Dallaire and Alain Dallaire, trustees and members of Cominar’s management team, exercise indirect control over
Dallaire Group Inc. and Dalcon Inc. During fiscal years 2014 and 2015, Cominar had operations with these companies, the
details of which are as follows:
For the years ended December 31
Investment properties – Capital costs
Investment properties held by joint ventures – Capital costs
Share of joint ventures’ net income
Net rental revenue from investment properties
Interest income
Balances shown in the consolidated balance sheets are detailed as follows:
As at December 31
Investments in joint ventures
Mortgage receivable
Accounts receivable – related parties
Accounts payable – related parties
2015
$
71,762
14,450
1,427
272
312
2015
$
74,888
8,250
701
8,804
2014
$
73,612
344
10,918
160
306
2014
$
41,633
8,250
398
3,455
These transactions were entered into in the normal course of business and were measured at the exchange amount. By
retaining the services of related companies for property construction work and leasehold improvements, Cominar achieves
significant time and cost savings while providing better service to its clients.
DISCLOSURE CONTROLS AND PROCEDURES AND
INTERNAL CONTROL OVER FINANCIAL REPORTING
The President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer of Cominar are
responsible for establishing and maintaining disclosure controls and procedures (“DC&P”) and internal control over financial
reporting (“ICFR”), as defined in Canadian Securities Administrators’ Multilateral Instrument 52-109.
Evaluations are performed regularly to assess the effectiveness of DC&P, including this MD&A and the consolidated financial
statements. Based on these evaluations, the President and Chief Executive Officer and the Executive Vice President and Chief
Financial Officer concluded that the DC&P were effective as at the end of the year ended December 31, 2015, and that the
current controls and procedures provide reasonable assurance that material information about Cominar, including its
consolidated subsidiaries, is made known to them during the period in which these reports are being prepared.
Evaluations are also performed to assess the effectiveness of ICFR. Based on those evaluations, the President and Chief
Executive Officer and the Executive Vice President and Chief Financial Officer of Cominar concluded that ICFR was effective
as at the end of the year ended December 31, 2015, and, more specifically, that the financial reporting is reliable and that the
consolidated financial statements have been prepared for financial reporting purposes in accordance with IFRS.
No changes were made to the Trust’s internal controls over financial reporting during fiscal 2015 that have materially affected,
or are reasonably likely to materially affect, internal controls over financial reporting.
51
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
a) Basis of presentation
Cominar’s consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards ("IFRS"). The accounting policies and application methods thereof have been consistently applied throughout
each of the fiscal years presented in these consolidated financial statements.
b) Basis of preparation
Consolidation
These consolidated financial statements include the accounts of Cominar and its wholly-owned subsidiaries.
Use of estimates, assumptions and judgments
The preparation of financial statements in accordance with IFRS requires management to make estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities in the financial statements. Those estimates,
assumptions and judgments also affect the disclosure of contingencies as at the date of the financial statements and the
reported amounts of revenues and expenses during the year. Actual results that could differ materially from those
estimates, assumptions and judgments, are described below:
Investment properties
Investment properties are recorded at fair value at the balance sheet date. Fair value is determined using both
management’s internal measurements and valuations from independent real estate appraisers, performed in accordance
with recognized valuation techniques. Techniques used include the capitalized net operating income method and the
discounted cash flow method, including notably estimates of capitalization rates and standardized net operating
income as well as estimates of discount rates and future cash flows applicable to investment properties, respectively.
Management’s fair value internal measurements rely on internal financial information and are corroborated by
capitalization rates obtained from independent experts. However, internal measurements and values obtained from
independent appraisers are both subject to significant judgments, estimates and assumptions about market conditions
at the balance sheet date.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of a business combination is the value,
at the acquisition date, of the assets transferred, liabilities incurred and Unitholders’ equity instruments issued in
exchange for control of the acquired business. When the cost of a business combination exceeds the fair value of the
assets acquired and liabilities assumed, such excess is recorded as goodwill. Transaction-related costs, as well as costs
related to the acquisition of real estate assets, are expensed as incurred.
Cominar accounts for investment property acquisitions in accordance with IFRS 3, “Business Combinations” (“IFRS 3”),
only when it considers that a business has been acquired. Under IFRS 3, a business is defined as an integrated set of
activities and assets that could be conducted and managed for the purpose of providing a direct return to investors in
the form of lower costs or other economic benefits. If the investment properties acquisition does not correspond to the
definition of a business, a group of assets is deemed to have been acquired. If goodwill is present, the acquisition is
presumed to be a business. Judgment is therefore used by management in determining if the acquisition qualifies as a
business combination in accordance with IFRS 3 or as an asset acquisition.
Generally, based on its judgment, when Cominar acquires a property or property portfolio without taking on the
management of personnel or acquiring an operational platform, it categorizes the acquisition as an asset acquisition.
Joint arrangements
Upon the creation of a joint arrangement, Cominar’s management reviews its classification criteria to determine if it is a
joint venture to be accounted for using the equity method or if it is a joint operation for which we must recognize the
proportionate share of assets, liabilities, revenues and expenses. Cominar holds 50% and 75% interests in its joint
arrangements. It has joint control over them since, under the contractual agreements, unanimous consent is required
from all parties to the agreements in decisions concerning all relevant activities. The joint arrangements in which
Cominar is involved are structured so that they provide Cominar rights to these entities’ net assets. Therefore, these
arrangements are presented as joint ventures and are accounted for using the equity method.
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Impairment of goodwill
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the net identifiable
assets acquired. Its useful life is indefinite. It is not amortized but is tested for impairment on an annual basis or more
frequently if events or circumstances indicate that it is more likely than not that goodwill may be impaired. Goodwill
resulting from business combinations is allocated to each group of cash-generating units (“CGU”) expected to benefit
from the combination. To test impairment, Cominar must determine the recoverable value of net assets of each group
of CGU, making assumptions about standardized net operating income and capitalization rates. These assumptions are
based on Cominar’s past experience as well as on external sources of information. The recoverable value is the fair
value less the cost of disposal. Should the carrying value of a group of cash-generating units, including goodwill,
exceed its recoverable value, impairment is recorded and recognized in profit or loss in the period during which the
impairment occurs.
Financial instruments
Financial instruments must be initially measured at fair value. Cominar must also estimate and disclose the fair value of
certain financial instruments for information purposes in the financial statements presented for subsequent periods.
When fair value cannot be derived from active markets, it is determined using valuation techniques, namely the
discounted cash flow method. If possible, data used in these models are derived from observable markets, and if not,
judgment is required to determine fair value. Judgments take into account liquidity risk, credit risk and volatility. Any
changes in assumptions related to these factors could modify the fair value of financial instruments.
Convertible debentures
Upon initial recognition, Cominar’s management must estimate, if applicable, the fair value of the conversion option
included in the convertible debentures. Under IFRS, the remaining amount obtained after deducting, from the fair value
of the compound financial instrument considered as a whole, the established amount of the Liability component must
be allocated to the Unitholders’ equity component. Should this estimate be inappropriate, it will have an impact on the
interest expense recognized in the financial statements.
Unit options
The compensation expense related to unit options is measured at fair value and is amortized based on the graded
vesting method using the Black-Scholes model. This model requires management to make many estimates on various
data, such as expected life, volatility, the weighted average dividend yield of distributions, the weighted average risk-
free interest rate and the expected forfeiture rate. Any changes to certain assumptions could have an impact on the
compensation expense related to unit options recognized in the financial statements.
Income taxes
Deferred taxes of Cominar’s subsidiaries are measured at the tax rates expected to apply in the future as temporary
differences between the reported carrying amounts and the tax bases of the assets and liabilities reverse. Changes to
deferred taxes related to changes in tax rates are recognized in income in the period during which the rate change is
substantively enacted. Any changes in future tax rates or in the timing of the reversal of temporary differences could
affect the income tax expense.
Investment properties
An investment property is an immovable property held by Cominar to earn rentals or for capital appreciation, or both,
rather than for use in the production or supply of goods and services or for administrative purposes, or for sale in the
ordinary course of business. Investment properties include income properties, properties under development and land held
for future development.
Cominar presents its investment properties based on the fair value model. Fair value is the amount for which the property
could be exchanged between knowledgeable, willing parties in an arm’s length transaction. Any change in the fair value is
recognized in profit or loss in the period in which it arises. The fair value of investment properties should reflect market
conditions at the end of the reporting period. Fair value is time-specific as at a given date. As market conditions could
change, the amount presented as fair value could be incorrect or inadequate at another date. The fair value of investment
properties is based on measurements derived from management’s estimates or valuations from independent appraisers,
plus capital expenditures made since the most recent appraisal. Management regularly reviews appraisals of its investment
properties between the appraisal dates in order to determine whether the related assumptions, such as standardized net
operating income and capitalization rates, still apply. These assumptions are compared to market data issued by
independent experts. When increases or decreases are required, Cominar adjusts the carrying amount of its investment
properties.
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The fair value of Cominar’s investment properties recorded on the balance sheet in accordance with IFRS is the sum of the
fair values of each investment property considered individually and does not necessarily reflect the contribution of the
following elements that characterize Cominar: (i) the composition of the property portfolio diversified through its client
base, geographic markets and business segments; (ii) synergies among different investment properties; and (iii) a fully
integrated management approach. Therefore, the fair value of Cominar’s investment properties taken as a whole could
differ from that appearing on the consolidated balance sheet.
Properties under development in the construction phase are measured at cost until their fair value can be reliably
determined, usually when development has been completed. The fair value of land held for future development is based on
recent prices derived from comparable market transactions.
Capitalization of costs
Cominar capitalizes into investment properties the costs incurred to increase their capacity, replace certain components
and make improvements after the acquisition date. Cominar also capitalizes major maintenance and repair expenses
providing benefits that will last far beyond the end of the reporting period. For construction, expansion or major
revitalization projects of income properties that take place over a substantial period of time, Cominar capitalizes the
borrowing costs that are directly attributable to the investments in question.
Leasehold improvements, incurred directly by Cominar or through an allowance to tenants, which represent capital
investments that increase the service capacity and value of properties and for which the economic advantage will extend
beyond the term of the lease and will mainly benefit Cominar, as well as initial direct costs, mostly brokerage fees incurred
to negotiate or prepare leases, are added to the carrying value of investment properties when incurred, and are not
amortized subsequently.
Concerning properties under development and land held for future development, Cominar capitalizes all direct costs
incurred for their acquisition, development and construction. Such capitalized costs also include borrowing costs that are
directly attributable to the property concerned. Cominar begins capitalizing borrowing costs when it incurs expenditures
for the properties in question and when it undertakes activities that are necessary to prepare these properties for their
intended use. Cominar ceases capitalizing borrowing costs when the asset is ready for management’s intended use.
When Cominar determines that the acquisition of an investment property is an asset acquisition, it capitalizes all costs that
are directly related to the acquisition of the property, as well as all expenses incurred to carry out the transaction.
Leasing costs
Tenant inducements, mostly the payment of a monetary allowance to tenants and the granting of free occupancy periods,
are added to the carrying amount of investment properties as they are incurred and are subsequently amortized against
rental revenue from investment properties on a straight-line basis over the related lease term.
Financial instruments
Cominar groups its financial instruments into classes according to their nature and characteristics. Management
determines such classification upon initial measurement, which is usually at the date of acquisition.
Cominar uses the following classifications for its financial instruments:
Cash and cash equivalents, the mortgage receivable and accounts receivable are classified as “Loans and receivables.”
They are initially measured at fair value. Subsequently, they are measured at amortized cost using the effective interest
method. For Cominar, this value generally represents cost.
Mortgages payable, debentures, convertible debentures, bank borrowings and accounts payable and accrued liabilities
are classified as “Other financial liabilities.” They are initially measured at fair value. Subsequently, they are measured
at amortized cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents consist of cash and investments that are readily convertible into a known amount of cash, that
are not subject to a significant risk of change in value and that have original maturities of three months or less. Bank
borrowings are considered to be financing arrangements.
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Deferred financing costs
Issue costs incurred to obtain term loan financing, typically through mortgages payable, debentures and convertible
debentures, are applied against the borrowings and are amortized using the effective interest rate method over the term of
the related debt.
Financing costs related to the operating and acquisition credit facility are recorded as assets under prepaid expenses and
other assets and are amortized on a straight-line basis over the term of the credit facility.
Revenue recognition
Management has determined that all leases concluded between Cominar and its tenants are operating leases. Minimum
lease payments are recognized using the straight-line method over the term of the related leases, and the excess of
payments recognized over amounts payable is recorded on Cominar’s consolidated balance sheet under investment
properties. Leases generally provide for the tenants’ payment of maintenance expenses for common elements, realty taxes
and other operating costs, such payment being recognized as operating revenues in the period when the right to payment
vests. Percentage leases are recognized when the minimum sales level has been reached pursuant to the related leases.
Lease cancellation fees are recognized when they are due. Lastly, incidental income is recognized when services are
rendered.
Long term incentive plan
Cominar has a long term incentive plan in order to attract, retain and motivate its employees to attain Cominar’s objectives.
This plan does not provide for any cash settlements.
Unit purchase options
Cominar recognizes a compensation expense on units granted, based on their fair value on the date of the grant, which is
calculated using an option valuation model. The compensation expense is amortized using the graded vesting method.
Restricted units
Cominar recognizes a compensation expense on restricted unit options granted, based on their fair value, which
corresponds to the market value of Cominar units on the date of the grant. The compensation expense is amortized on a
straight-line basis over the duration of the vesting period.
Deferred units
Cominar recognizes compensation expense on deferred units granted, based on their fair value, which corresponds to the
market value of Cominar units on the date of the grant. The compensation expense is amortized using the graded vesting
method.
Income taxes
Cominar is considered a mutual fund trust for income tax purposes. Pursuant to the Contract of Trust, the trustees intend
to distribute or designate all taxable income directly earned by Cominar to unitholders and to deduct such distributions and
allocations from its income for tax purposes. Therefore, no provision for income taxes is required.
Cominar’s subsidiaries that are incorporated as business corporations are subject to tax on their taxable income under the
Income Tax Act (Canada) and the taxation acts of the provinces concerned. These subsidiaries account for their taxes
payable or recoverable at the current enacted tax rates and use the asset and liability method to account for deferred taxes.
The net deferred tax liability represents the cumulative amount of taxes applicable to temporary differences between the
reported carrying amounts and tax bases of the assets and liabilities.
Per unit calculations
Basic net income per unit is calculated based on the weighted average number of units outstanding for the year. The
calculation of net income per unit on a diluted basis considers the potential issuance of units in accordance with the long
term incentive plan and the potential issuance of units under convertible debentures, if dilutive.
Segment information
Segment information is presented in accordance with IFRS 8, “Operating segments,” which recommends presenting and
disclosing segment information in accordance with information that is regularly assessed by the chief operating decision
makers in order to determine the performance of each segment.
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FUTURE ACCOUNTING POLICY CHANGES
IFRS 9, “Financial Instruments”
In July 2014, the International Accounting Standards Board (“IASB”) published its final version of IFRS 9, which will replace
IAS 39, “Financial Instruments: Recognition and Measurement” and modifications to IFRS 7, “Financial Instruments:
Disclosures,” in order to add disclosure requirements regarding the transition to IFRS 9. The new standard includes guidance
on recognition and derecognition of financial assets and financial liabilities, impairment and hedge accounting. IFRS 9 will be
effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. Cominar is currently
assessing the impacts of adopting this new standard on its consolidated financial statements.
IFRS 15, “Revenue from Contracts with Customers”
In May 2014, the IASB issued IFRS 15, “Revenue from Contracts with Customers.” IFRS 15 specifies how and when to
recognize revenue and requires entities to provide users of financial statements with more informative, relevant disclosures.
The standard will supersede IAS 18, “Revenue,” IAS 11, “Construction Contracts,” and related interpretations. Adoption of the
standard will be mandatory for all IFRS reporters, and will apply to nearly all contracts with customers: the main exceptions
are leases, financial instruments and insurance contracts. IFRS 15 will be effective for annual periods beginning on or after
January 1, 2018, with earlier adoption permitted. Cominar is currently assessing the impacts of adopting this new standard on
its consolidated financial statements.
IFRS 16, “Leases”
In January 2016, the IASB issued IFRS 16, “Leases”. IFRS 16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases for both parties to a contract, i.e. the customer (lessee) and the supplier (lessor). IFRS
16 will cancel and replace the previous leases Standard, IAS 17, “Leases”, and related interpretations. IFRS 16 will be
effective for annual periods beginning on or after January 1, 2019, with earlier adoption permitted if IFRS 15 is also applied.
Cominar is currently assessing the impacts of adopting this new standard on its consolidated financial statements.
RISKS AND UNCERTAINTIES
Like all real estate entities, Cominar is exposed, in the normal course of business, to various risk factors that may have an
impact on its ability to attain strategic objectives, despite all the measures implemented to counter them. Accordingly,
unitholders should consider the following risks and uncertainties when assessing Cominar’s outlook in terms of investment
potential.
ACCESS TO CAPITAL AND DEBT FINANCING, AND CURRENT GLOBAL FINANCIAL CONDITIONS
The real estate industry is capital intensive. Cominar will require access to capital to maintain its properties, as well as to fund
its growth strategy and significant capital expenditures from time to time. There can be no assurances that Cominar will have
access to sufficient capital (including debt financing) on terms favourable to Cominar for future property acquisitions and
developments, for the financing or refinancing of properties, for funding operating expenses or for other purposes. In addition,
Cominar may not be able to borrow funds under its credit facilities due to limitations on Cominar’s ability to incur debt set
forth in the contract of trust or conditions in its debt instruments. Failure by Cominar to access required capital could
adversely impact Cominar’s financial position and results of operations and reduce the amount of cash available for
distributions.
Market events and conditions, including disruptions that sometimes affect international and regional credit markets and other
financial systems and global economic conditions, could impede Cominar’s access to capital (including debt financing) or
increase the cost of such capital. The Canadian economy is currently being adversely impacted by low and falling oil prices.
Failure to raise capital in a timely manner or under favourable terms could have a material adverse effect on Cominar’s financial
position and results of operations, including on property acquisition and development.
DEBT FINANCING
Cominar has and will continue to have substantial outstanding consolidated borrowings comprised primarily of mortgages
payable, property mortgages, debentures, and borrowings under its unsecured revolving credit facility. Cominar intends to
finance its growth strategy, including acquisitions and developments, through a combination of its working capital and liquidity
resources, including cash flows from operations, additional borrowings and public or private sales of equity or debt securities.
Cominar’s activities are therefore partially dependent upon the interest rates applied to its existing debt. Cominar may not be
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able to refinance its existing debt or renegotiate the terms of repayment at favourable rates. In addition, the terms of
Cominar’s indebtedness generally contain customary provisions that, upon an event of default, result in accelerated repayment
of the amounts owed and that restrict the distributions that may be made by Cominar. Therefore, upon an event of default
under such borrowings or an inability to renew same at maturity, Cominar’s ability to make distributions will be adversely
affected.
A portion of Cominar’s cash flows is dedicated to servicing its debt, and there can be no assurance that Cominar will continue
to generate sufficient cash flows from operations to meet required interest or principal payments, such that it could be
required to seek renegotiation of such payments or obtain additional financing, including equity or debt financing.
The unsecured revolving credit facility in the stated amount of $700.0 million is repayable in one tranche in August 2018. As at
December 31, 2015, $381.2 million was drawn down under the unsecured revolving credit facility and cash available was
$318.8 million.
Cominar is exposed to debt financing risks, including the risk that the existing mortgages payable secured by its properties and
the unsecured revolving credit facility cannot be refinanced or that the terms of such refinancing will not be as favourable as
the terms of the existing loans. In order to minimize this risk as regards the mortgages payable, Cominar tries to appropriately
structure the timing of the renewal of significant tenant leases on its respective properties in relation to the times at which the
mortgages payable on such properties become due for refinancing.
OWNERSHIP OF IMMOVABLE PROPERTY
All immovable property investments are subject to risk exposures. Such investments are affected by general economic
conditions, local real estate markets, demand for leased premises, competition from other vacant premises, municipal
valuations and assessments, and various other factors.
The value of immovable property and improvements thereto may also depend on the solvency and financial stability of tenants
and the economic environment in which they operate. Recently, due to difficult conditions in the Canadian retail environment,
certain retailers have announced the closure of their stores, including Target Canada and other retailers, which are tenants of
Cominar. Other retailers may follow. Cominar’s income and distributable income would be adversely affected if one or more
major tenants or a significant number of tenants were unable to meet their lease obligations or if a significant portion of
vacant space in the properties in which Cominar has an interest cannot be leased on economically favourable lease terms. In
the event of default by a tenant, delays or limitations may be experienced in enforcing Cominar’s rights as a lessor and
substantial costs may be incurred to protect Cominar’s investment. The ability to rent unleased space in the properties in which
Cominar has an interest will be affected by many factors, including the level of general economic activity and competition for
tenants by other properties. Costs may need to be incurred to make improvements or repairs to property as required by a new
tenant. The failure to rent unleased space on a timely basis or at all or at rents that are equivalent to or higher than current
rents would likely have an adverse effect on Cominar’s financial position and the value of its properties.
Certain significant expenditures, including property taxes, maintenance costs, mortgage payments, insurance costs and related
charges must be made throughout the period of ownership of immovable property regardless of whether the property is
producing any income. If Cominar is unable to meet mortgage payments on a property, a loss could be sustained as a result of
the mortgage creditor’s exercise of its mortgage remedies.
Immovable property investments tend to be relatively illiquid, with the degree of liquidity generally fluctuating in relationship
with the demand for and the perceived desirability of such investments. Such illiquidity may tend to limit Cominar’s ability to
make changes to its portfolio promptly in response to changing economic or investment conditions. If Cominar were to be
required to liquidate its immovable property investments, the proceeds to Cominar might be significantly less than the
aggregate carrying value of its properties.
Leases for Cominar’s properties, including those of significant tenants, will mature from time to time over the short and long
term. There can be no assurance that Cominar will be able to renew any or all of the leases upon maturity or that rental rate
increases will occur or be achieved upon any such renewals. The failure to renew leases or achieve rental rate increases may
adversely impact Cominar’s financial position and results of operations and decrease the distributable income.
ENVIRONMENTAL MATTERS
Environmental and ecological related policies have become increasingly important in recent years. As an owner or operator of
real property, Cominar could, under various federal, provincial and municipal laws, become liable for the costs of removal or
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remediation of certain hazardous or toxic substances released on or in our properties or disposed of at other locations. The
failure to remove or remediate such substances, or address such matters through alternative measures prescribed by the
governing authority, may adversely affect Cominar’s ability to sell such real estate or to borrow using such real estate as
collateral, and could, potentially, also result in claims against Cominar by private plaintiffs or governmental agencies. Cominar
is not currently aware of any material non-compliance, liability or other claim in connection with any of our properties, nor is
Cominar aware of any environmental condition with respect to any properties that it believes would involve material
expenditures by Cominar.
Pursuant to Cominar’s operating policies, Cominar shall obtain or review a Phase I environmental audit of each immovable
property to be acquired by it.
LEGAL RISKS
Cominar’s operations are subject to various laws and regulations across all of its operating jurisdictions and Cominar faces
risks associated with legal and regulatory changes and litigation.
COMPETITION
Cominar competes for suitable immovable property investments with individuals, corporations and institutions (both Canadian
and foreign) which are presently seeking, or which may seek in the future, immovable property investments similar to those
desired by Cominar. Many of those investors have greater financial resources than Cominar, or operate without the investment
or operating restrictions applicable to Cominar or under more flexible conditions. An increase in the availability of investment
funds and heightened interest in immovable property investments could increase competition for immovable property
investments, thereby increasing the purchase prices of such investments and reducing their yield.
In addition, numerous property developers, managers and owners compete with Cominar in seeking tenants. The existence of
competing developers, managers and owners and competition for Cominar’s tenants could have an adverse effect on Cominar’s
ability to lease space in its properties and on the rents charged, and could adversely affect Cominar’s revenues and,
consequently, its ability to meet its debt obligations.
ACQUISITIONS
Cominar’s business plan is focused in part on growth by identifying suitable acquisition opportunities, pursuing such
opportunities, completing acquisitions and effectively operating and leasing such properties. If Cominar is unable to manage its
growth effectively, this could adversely impact Cominar’s financial position and results of operations, and decrease the
distributable income. There can be no assurance as to the pace of growth through property acquisitions or that Cominar will be
able to acquire assets on an accretive basis, and as such there can be no assurance that distributions to Unitholders will
increase in the future.
PROPERTY DEVELOPMENT PROGRAM
Information regarding Cominar’s development projects, development costs, capitalization rates and expected returns are
subject to change, which may be material, as assumptions regarding items such as, but not limited to, tenant rents, building
sizes, leasable areas, project completion timelines and project costs, are updated periodically based on revised site plans,
Cominar’s cost tendering process, continuing tenant negotiations, demand for leasable space in Cominar’s markets, the
obtaining of required building permits, ongoing discussions with municipalities and successful property re-zonings. There can
be no assurance that any assumptions in this regard will materialize as expected and any changes in these assumptions could
have a material adverse effect on Cominar’s development program, asset values and financial performance.
RECRUITMENT AND RETENTION OF EMPLOYEES AND EXECUTIVES
Management depends on the services of certain key personnel. Competition for qualified employees and executives is intense.
If Cominar is unable to attract and retain qualified and capable employees and executives, the conduct of its activities may be
adversely affected.
GOVERNMENT REGULATION
Cominar and its properties are subject to various government statutes and regulations. Any change in such statutes or
regulations that is adverse to Cominar and its properties could affect Cominar’s operating results and financial performance.
In addition, environmental and ecological legislation and policies have become increasingly important in recent decades. Under
various laws, Cominar could become liable for the costs of removal or remediation of certain hazardous or toxic substances
released on or in its properties or disposed of at other locations, or for the costs of other remedial or preventive work. The
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failure to remove or remediate such substances, or to effect such remedial or preventive work, if any, may adversely affect
Cominar’s ability to sell such real estate or to borrow using such real estate as collateral, and could potentially also result in
claims against Cominar by private plaintiffs or governmental agencies. Notwithstanding the above, Cominar is not aware of
any material non-compliance, liability or other claim in connection with any of its properties, nor is Cominar aware of any
environmental condition with respect to any of its properties that it believes would involve material expenditure by Cominar.
LIMIT ON ACTIVITIES
In order to maintain its status as a “mutual fund trust” under the Tax Act, Cominar cannot carry on certain active business
activities and is limited in the types of investments it may make. The contract of trust contains restrictions to this effect.
GENERAL UNINSURED LOSSES
Cominar subscribed a blanket comprehensive general liability including insurance against fire, flood, extended coverage and
rental loss insurance with policy specifications, limits and deductibles customarily carried for similar properties. There are,
however, certain types of risks (generally of a catastrophic nature such as from wars or environmental contamination) which
are either uninsurable or not insurable on an economically viable basis. Cominar also carries insurance for earthquake risks,
subject to certain policy limits and deductibles, and will continue to carry such insurance if it is economical to do so. Should an
uninsured or underinsured loss occur, Cominar could lose its investment in, and anticipated profits and cash flows from, one or
more of its properties, but Cominar would continue to be obligated to repay any mortgage recourse or mortgage indebtedness
on such properties.
Many insurance companies have eliminated coverage for acts of terrorism from their policies, and Cominar may not be able to
obtain coverage for terrorist acts at commercially reasonable rates or at any price. Damage to a property sustained as a result
of an uninsured terrorist or similar act would likely adversely impact Cominar’s financial condition and results of operation and
decrease the amount of cash available for distribution.
POTENTIAL CONFLICTS OF INTEREST
Cominar may be subject to conflicts of interest because of the fact that the Dallaire Family and related entities are engaged in
a wide range of real estate and other business activities. Mr. Michel Dallaire is also Chairman and Chief Executive Officer of
Dallaire Group Inc., an affiliate of the Dallaire Family which operates a real estate business in the Québec City Area. Dalcon
Inc. is a wholly-owned subsidiary of Dallaire Group Inc. Cominar rents premises to Dallaire Group Inc. and to Dalcon Inc.
Dalcon Inc. also performs leasehold improvements and carries out construction and development projects, all on behalf of
Cominar. Finally, Cominar owns two participations of 50% and two of 75% in joint ventures with Dallaire Group Inc. The
business objective of these four joint ventures is the ownership, management and development of real estate projects. The
Dallaire Family and related entities may become involved in transactions or leasing opportunities which conflict with the
interests of Cominar. The contract of trust contains “conflicts of interest” provisions requiring trustees to disclose material
interests in material contracts and transactions and refrain from voting thereon.
RISK FACTORS RELATED TO THE OWNERSHIP OF UNITS
Market price
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
initial appraisal of the value of its properties or the value of such properties from time to time.
Although Cominar intends to make distributions of its available cash to unitholders, these cash distributions are not assured.
The actual amount distributed will depend on numerous factors including, but not limited to, Cominar’s financial performance,
debt covenants and obligations, working capital requirements and future capital requirements. The market price of the units
may deteriorate if Cominar is unable to meet its cash distribution targets in the future.
The after-tax return from an investment in units to unitholders subject to Canadian income tax will depend, in part, on the
composition for tax purposes of distributions paid by Cominar (portions of which may be fully or partially taxable or may
constitute non-taxable returns of capital). The composition for tax purposes of those distributions may change over time, thus
affecting the after-tax return to unitholders.
Factors that may influence the market price of the units include the annual yield on the units, the number of units issued and
outstanding and Cominar’s payout ratio. An increase in market interest rates may lead purchasers of units to demand a higher
annual yield which could adversely affect the market price of the units. Unlike fixed-income securities, there is no obligation
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for Cominar to distribute to unitholders any fixed amount and reductions in, or suspensions of, distributions may occur that
would reduce yield based on the market price of the units. In addition, the market price for the units may be affected by
changes in general market conditions, fluctuations in the markets for equity securities, changes in the economic environment
and numerous other factors beyond the control of Cominar.
Structural subordination of securities
In the event of a bankruptcy, liquidation or reorganization of Cominar or any of its subsidiaries, holders of certain of their
indebtedness and certain trade creditors will generally be entitled to payment of their claims from the assets of Cominar and
those subsidiaries before any assets are made available for distribution to the holders of securities. The securities will be
effectively subordinated to most of the other indebtedness and liabilities of Cominar and its subsidiaries. Neither Cominar, nor
any of its subsidiaries will be limited in their ability to incur additional secured or unsecured indebtedness.
Availability of cash flow
Distributable income may exceed actual cash available to Cominar from time to time because of items such as principal
repayments, tenant allowances, leasing commissions and capital expenditures. Cominar may be required to use part of its debt
capacity or to reduce distributions in order to accommodate such items. Cominar may need to refinance its debt obligations
from time to time, including upon expiration of its debt. There could be a negative impact on distributable income if debt
obligations of Cominar are replaced with debt that has less favourable terms or if Cominar is unable to refinance its debt. In
addition, loan and credit agreements with respect to debt obligations of Cominar, include, and may include in the future,
certain covenants with respect to the operations and financial condition of Cominar and distributable income may be restricted
if Cominar is unable to maintain any such covenants.
Unitholder liability
The Contract of Trust provides that no unitholder or annuitant under a plan of which a Unitholder acts as trustee or carrier will
be held to have any personal liability as such, and that no resort shall be had to the private property of any unitholder or
annuitant for satisfaction of any obligation or claim arising out of or in connection with any contract or obligation of Cominar
or of the Trustees. Only assets of Cominar are intended to be liable and subject to levy or execution.
The Contract of Trust further provides that certain written instruments signed by Cominar (including all immovable hypothecs
and, to the extent the trustees determine to be practicable and consistent with their obligation as trustees to act in the best
interests of the unitholders, other written instruments creating a material obligation of Cominar) shall contain a provision or be
subject to an acknowledgment to the effect that such obligation will not be binding upon unitholders or annuitants personally.
Except in case of bad faith or gross negligence on their part, no personal liability will attach under the laws of the Province of
Quebec to unitholders or annuitants for contract claims under any written instrument disclaiming personal liability as
aforesaid.
However, in conducting its affairs, Cominar will be acquiring immovable property investments, subject to existing contractual
obligations, including obligations under hypothecs or mortgages and leases. The trustees will use all reasonable efforts to
have any such obligations, other than leases, modified so as not to have such obligations binding upon any of the unitholders
or annuitants personally. However, Cominar may not be able to obtain such modification in all cases. If a claim is not satisfied
by Cominar, there is a risk that a unitholder or annuitant will be held personally liable for the performance of the obligations of
Cominar where the liability is not disavowed as described above. The possibility of any personal liability attaching to
unitholders or annuitants under the laws of the Province of Quebec for contract claims where the liability is not so disavowed
is remote.
Cominar uses all reasonable efforts to obtain acknowledgments from the mortgage creditors under assumed mortgages that
assumed mortgages obligations will not be binding personally upon the trustees or the unitholders.
Claims against Cominar may arise other than under contracts, including claims in delict, claims for taxes and possibly certain
other statutory liabilities. The possibility of any personal liability of unitholders for such claims is considered remote under the
laws of the Province of Quebec and, as well, the nature of Cominar’s activities are such that most of its obligations arise by
contract, with non-contractual risks being largely insurable. In the event that payment of Cominar’s obligation were to be
made by a unitholder, such unitholder would be entitled to reimbursement from the available assets of Cominar.
Article 1322 of the Civil Code of Québec effectively states that the beneficiary of a trust is liable towards third persons for the
damage caused by the fault of the trustees of such trust in carrying out their duties only up to the amount of the benefit such
beneficiary has derived from the act of such trustees and that such obligations are to be satisfied from the trust patrimony.
60
Accordingly, although this provision remains to be interpreted by the courts, it should provide additional protection to
unitholders with respect to such obligations.
The trustees will cause the activities of Cominar to be conducted, with the advice of counsel, in such a way and in such
jurisdictions as to avoid, to the extent they determine to be practicable and consistent with their duty to act in the best
interests of the unitholders, any material risk of liability on the unitholders for claims against Cominar.
Dilution
The number of units Cominar is authorized to issue is unlimited. The trustees have the discretion to issue additional units in
other circumstances. Additional units may also be issued pursuant to the distribution reinvestment plan, the equity incentive
plan and any other incentive plan of Cominar. Any issuance of units may have a dilutive effect on unitholders.
Restrictions on certain unitholders and liquidity of units
The Contract of Trust imposes restrictions on non-resident unitholders, who are prohibited from beneficially owning more
than 49% of the units. These restrictions may limit the rights of certain unitholders, including non-residents of Canada, to
acquire units, to exercise their rights as unitholders and to initiate and complete take-over bids in respect of the units. As a
result, these restrictions may limit the demand for units from certain unitholders and thereby adversely affect the liquidity and
market value of the units held by the public unitholders who are non-residents of Canada are required to pay all withholding
taxes payable in respect of distributions by Cominar. Cominar withholds such taxes as required by the Tax Act and remits such
payment to the tax authorities on behalf of the unitholder. The Tax Act contains measures to subject to Canadian non-resident
withholding tax certain otherwise non-taxable distributions of Canadian mutual funds to non-resident unitholders. This may
limit the demand for units and thereby affect their liquidity and market value.
Cash distributions are not guaranteed
There can be no assurance regarding the amount of income to be generated by the Cominar’s properties. The ability of
Cominar to make cash distributions, and the actual amounts distributed, will be entirely dependent on the operations and
assets of Cominar and its subsidiaries, and will be subject to various factors including financial performance, obligations under
applicable credit facilities, fluctuations in working capital, the sustainability of income derived from anchor tenants and capital
expenditure requirements. The market value of the units will deteriorate if Cominar is unable to meet its distribution targets in
the future, and that deterioration may be significant. In addition, the composition of cash distributions for tax purposes may
change over time and may affect the after-tax return for investors.
Nature of investment
A unitholder does not hold a share of a body corporate. As holders of units, the unitholders will not have statutory rights
normally associated with ownership of shares of a corporation including, for example, the right to bring “oppression” or
“derivative” actions. The rights of unitholders are based primarily on the Contract of Trust. There is no statute governing the
affairs of Cominar equivalent to the CBCA, which sets out the rights, and entitlements of shareholders of corporation in
various circumstances.
Tax risk
Cominar is considered a mutual fund trust for income tax purposes. Pursuant to the Contract of Trust, the Trustees intend to
distribute or designate all taxable income directly earned by Cominar to holders and to deduct such distributions and
allocations of its income for tax purposes.
Certain of Cominar’s subsidiaries are subject to tax on their taxable income under the Tax Act and the Taxation Act (Québec).
A special tax regime applies to trusts that are considered specified investment flow-through (“SIFT”) entities as well as those
individuals who invest in SIFTs. Under the SIFT rules, a SIFT is subject to tax in a manner similar to corporations on income
from business carried on in Canada and on income (other than taxable dividends) or capital gains from “non-portfolio
properties” (as defined in the Tax Act), at a combined federal/provincial tax rate similar to that of a corporation.
The SIFT rules apply unless (among other exceptions not applicable here) the trust qualifies as a “real estate investment trust”
for the year. If Cominar fails to qualify for the Real Estate Investment Trust exception, Cominar will be subject to the tax
regime introduced by the SIFT rules.
Management believes that Cominar currently meets all the criteria required to qualify for the Real Estate Investment Trust
exception, as per the Real Estate Investment Trust exception currently in effect. As a result, management believes that the
61
SIFT rules do not apply to Cominar. Management intends to take all the necessary steps to meet these conditions on an on-
going basis in the future. Nonetheless, there is no guarantee that Cominar will continue to meet all the required conditions to
be eligible for the Real Estate Investment Trust exception for the remainder of fiscal 2016 and any other subsequent year.
RISK FACTORS RELATED TO THE OWNERSHIP OF DEBENTURES
Credit Ratings
The credit ratings assigned to Cominar and the debentures by DBRS are not a recommendation to buy, hold or sell securities
of Cominar. A rating is not a comment on the market price of a security nor is it an assessment of ownership given various
investment objectives. There is no assurance that any rating will remain in effect for any given period of time and ratings may
be upgraded, downgraded, placed under review, confirmed and discontinued. Non-credit risks that can meaningfully impact
the value of the securities issued include market risk, trading liquidity risk and covenant risk. DBRS uses rating symbols as a
simple and concise method of expressing its opinion to the market, although DBRS ratings usually consist of broader
contextual information regarding the security provided by DBRS in rating reports, which generally set out the full rationale for
the chosen rating symbol, and in other releases.
Debentures Credit Risk, Prior Ranking Indebtedness and Structural Subordination of the debentures
The likelihood that purchasers of the debentures will receive payments owing to them under the terms of the debentures will
depend on the financial health of Cominar and its creditworthiness. In addition, the debentures are unsecured obligations of
Cominar and, therefore, if Cominar becomes bankrupt, liquidates its assets, reorganizes or enters into certain other
transactions, Cominar’s assets will be available to pay its obligations with respect to the debentures only after it has paid all of
its secured indebtedness in full. There may be insufficient assets remaining following such payments to pay amounts due on
any or all of the debentures then outstanding.
Liabilities of a parent entity with assets held by various subsidiaries may result in the structural subordination of the lenders of
the parent entity. The parent entity is entitled only to the residual equity of its subsidiaries after all debt obligations of its
subsidiaries are discharged. In the event of a bankruptcy, liquidation or reorganization of Cominar, holders of indebtedness of
Cominar (including holders of debentures) may become subordinate to lenders to the subsidiaries of Cominar.
Trading market for debentures
There is no market through which the debentures may be sold and purchasers may not be able to resell debentures purchased
under the base shelf prospectus, as supplemented by the prospectus supplements. This may affect the pricing of the
debentures in the secondary market, the transparency and availability of trading prices, the liquidity of the debentures and the
extent of issuer regulation. No assurance can be given as to whether an active trading market will develop or be maintained for
the debentures. To the extent that an active trading market for the debentures does not develop, the liquidity and trading
prices for the debentures may be adversely affected.
Market Price or Value Fluctuation
If the debentures are traded after their initial issuance, they may trade at a discount from their initial public offering price. The
market price or value of the debentures depends on many factors, including liquidity of the debentures, prevailing interest
rates and the markets for similar securities, general economic conditions and Cominar’s financial condition, historic financial
performance and prospects. Assuming all other factors remain unchanged, the market price or value of the debentures, which
carry a fixed interest rate, will likely decline as prevailing interest rates for comparable debt instruments rise, and increase as
prevailing interest rates for comparable debt instruments decline.
Challenging market conditions, the health of the economy as a whole and numerous other factors beyond the control of
Cominar may have a material effect on the business, financial condition, liquidity and results of operations of Cominar. In
recent years, financial markets have experienced significant price and volume fluctuations that have particularly affected the
market prices of securities of issuers and that have often been unrelated to the operating performance, underlying asset values
or prospects of such issuers. There can be no assurance that such fluctuations in price and volume will not occur. Accordingly,
the market price of the debentures may decline even if Cominar’s operating results, underlying asset values or prospects have
not changed. In periods of increased levels of volatility and market turmoil, Cominar’s operations could be adversely impacted
and the market price of the debentures may be adversely affected.
Debentures Redemption Right Risk
Cominar may choose to redeem the debentures prior to maturity, in whole or in part, at any time or from time to time,
especially when prevailing interest rates are lower than the rate borne by the debentures. If prevailing rates are lower at the
62
time of redemption, a purchaser may not be able to reinvest the redemption proceeds in a comparable security at an effective
interest rate as high as the interest rate on the debentures being redeemed.
Inability of Cominar to Purchase Debentures on a Change of Control
Cominar may be required to purchase all outstanding debentures upon the occurrence of a change of control. However, it is
possible that following a change of control, Cominar will not have sufficient funds at that time to make any required purchase
of outstanding debentures or that restrictions contained in other indebtedness will restrict those purchases.
63
64
CONSOLIDATED
FINANCIAL
STATEMENTS
COMINAR REAL ESTATE INVESTMENT TRUST
December 31, 2015
65
MANAGEMENT’S
RESPONSIBILITY FOR
FINANCIAL REPORTING
The accompanying consolidated financial statements of
Cominar Real Estate Investment Trust (“Cominar”) were
prepared by management, which is responsible for the
integrity and fairness of the
information presented,
including those amounts that must be based on estimates
and judgments. These consolidated financial statements
were prepared in accordance with International Financial
Reporting Standards (“IFRS”). The financial information in
our MD&A is consistent with these consolidated financial
statements.
In discharging our responsibility for the integrity and
fairness of the consolidated financial statements and for
the accounting systems from which they are derived, we
internal controls
maintain the necessary system of
designed to ensure that transactions are duly authorized,
assets are safeguarded and proper records are maintained.
As at December 31, 2015, the President and Chief
Executive Officer and the Executive Vice President and
Chief Financial Officer of Cominar had an evaluation
carried out, under their direct supervision, of the
effectiveness of the controls and procedures used for
the preparation of reports as well as internal control over
financial reporting, as defined in Multilateral Instrument
52-109 of the Canadian Securities Administrators. Based
on that evaluation, they concluded that the disclosure
controls and procedures were effective.
The Board of Trustees oversees management’s
responsibility for financial reporting through its Audit
Committee, which is composed entirely of trustees who
are not members of Cominar’s management or personnel.
This Committee reviews our consolidated financial
statements and recommends them to the Board for
the Audit
approval. Other key
internal control
Committee
procedures and their updates, the identification and
responsibilities of
reviewing our
include
management of risks, and advising the trustees on
auditing matters and financial reporting issues.
PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., a partnership
of
independent professional chartered accountants
appointed by the unitholders of Cominar upon the
recommendation of the Audit Committee and the Board of
Trustees, have performed an independent audit of the
Consolidated Financial Statements as at December 31,
2015 and their report follows. The auditors have full and
unrestricted access to the Audit Committee to discuss
their audit and related findings.
MICHEL DALLAIRE, Eng.
President and Chief Executive Officer
GILLES HAMEL, CPA, CA
Executive Vice President
and Chief Financial Officer
Québec, March 1, 2016
66
INDEPENDENT
AUDITOR’S REPORT
TO THE UNITHOLDERS OF
COMINAR REAL ESTATE INVESTMENT TRUST
We have audited the accompanying consolidated financial
statements of Cominar Real Estate Investment Trust and
its subsidiaries, which comprise the consolidated balance
sheets as at December 31, 2015 and December 31, 2014
and the consolidated statements of unitholders' equity,
comprehensive income and cash flows for the years then
ended, and the related notes, which comprise a summary
of significant accounting policies and other explanatory
information.
Management’s responsibility for the consolidated
financial statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in
accordance with
International Financial Reporting
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.
Auditor’s responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian
generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are
free from material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the
consolidated
financial statements. The procedures
selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud
or error. In making those risk assessments, the auditor
considers
the entity’s
preparation and fair presentation of the consolidated
financial statements in order to design audit procedures
internal control relevant
to
that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made
by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in
our audits is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial
position of Cominar Real Estate Investment Trust and its
subsidiaries as at December 31, 2015 and December 31,
2014, and their financial performance and their cash
flows for the years then ended in accordance with
International Financial Reporting Standards.
PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l.(1)
March 1, 2016
Place de la Cité, Tour Cominar
2640 Laurier Boulevard, Suite 1700
Québec, Quebec G1V 5C2
Canada
"PwC" refers to PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., an
Ontario limited liability partnership.
(1) CPA auditor, CA, public accountancy permit no. A104882
67
CONSOLIDATED BALANCE SHEETS
[in thousands of Canadian dollars]
ASSETS
Investment properties
Income properties
Properties under development
Land held for future development
Income properties held for sale
Investments in joint ventures
Goodwill
Mortgage receivable
Accounts receivable
Prepaid expenses and other assets
Cash and cash equivalents
Total assets
LIABILITIES
Mortgages payable
Mortgage payable related to a property held for sale
Debentures
Convertible debentures
Bank borrowings
Accounts payable and accrued liabilities
Deferred tax liabilities
Total liabilities
UNITHOLDERS’ EQUITY
Unitholders’ equity
Total liabilities and unitholders’ equity
See accompanying notes to the consolidated financial statements.
Approved by the Board of Trustees.
Note
December 31, 2015
December 31, 2014
$
$
5
6
6
7
8
9
10
11
7, 11
12
13
14
15
20
7,614,990
49,114
71,646
7,735,750
163,733
74,888
166,971
8,250
56,756
14,099
5,250
7,697,823
53,150
68,788
7,819,761
—
41,633
166,971
8,250
52,044
14,851
5,909
8,225,697
8,109,419
2,052,640
8,590
1,995,506
—
381,166
118,921
10,877
1,968,919
—
1,945,627
183,081
457,323
133,728
10,310
4,567,700
4,698,988
3,657,997
8,225,697
3,410,431
8,109,419
ROBERT DESPRÉS
Chairman of the Board of Trustees
MICHEL DALLAIRE
Trustee
68
CONSOLIDATED STATEMENTS
OF UNITHOLDERS’ EQUITY
For the years ended December 31
[in thousands of Canadian dollars]
Unitholders’
contributions
Cumulative
net income
Cumulative
distributions
Contributed
surplus
Note
Equity
component
of convertible
debentures
$
$
$
$
$
Total
$
Balance as at January 1, 2015
2,839,515
1,733,684
(1,169,938)
5,746
1,424
3,410,431
Net income and comprehensive income
Distributions to unitholders
Unit issuances
Unit issuance expenses
Repurchase of units under NCIB (1)
Long-term incentive plan
Early redemption of convertible
debentures
16
16
16
16
—
—
238,884
(6,724)
(7,755)
—
—
272,434
—
—
—
—
—
822
1,424
(251,295)
—
—
—
—
—
—
—
—
—
—
1,200
—
—
—
—
—
—
272,434
(251,295)
238,884
(6,724)
(7,755)
2,022
—
(1,424)
—
Balance as at December 31, 2015
3,063,920
2,008,364
(1,421,233)
6,946
—
3,657,997
(1) Normal course issuer bid (“NCIB”)
Unitholders’
contributions
Cumulative
net income
Cumulative
distributions
Contributed
surplus
of convertible
debentures
Note
$
$
$
$
$
Total
$
Equity
component
Balance as at January 1, 2014
2,251,974
1,533,573
(966,563)
4,972
1,424
2,825,380
Net income and comprehensive income
Distributions to unitholders
Unit issuances
Unit issuance expenses
Long-term incentive plan
—
—
600,001
(12,460)
16
16
16
199,453
—
—
—
—
(203,375)
—
—
—
—
658
—
—
—
—
774
—
—
—
—
—
199,453
(203,375)
600,001
(12,460)
1,432
Balance as at December 31, 2014
2,839,515
1,733,684
(1,169,938)
5,746
1,424
3,410,431
See accompanying notes to the consolidated financial statements.
69
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
For the years ended December 31
[in thousands of Canadian dollars, except per unit amounts]
Operating revenues
Rental revenue from investment properties
Operating expenses
Operating costs
Realty taxes and services
Property management expenses
Net operating income
Finance charges
Trust administrative expenses
Change in fair value of investment properties
Transaction costs – business combination
Share of joint ventures’ net income and comprehensive income
Income before income taxes
Income taxes
Note
2015
$
2014
$
889,175
739,884
186,420
199,207
16,060
401,687
151,199
163,270
14,136
328,605
487,488
411,279
(176,208)
(149,385)
(16,384)
(23,322)
—
1,427
(12,977)
(33,951)
(26,667)
10,918
273,001
199,217
18
19
18
5
4
8
20
(567)
236
Net income and comprehensive income
272,434
199,453
Basic net income per unit
Diluted net income per unit
See accompanying notes to the consolidated financial statements.
21
21
1.62
1.62
1.47
1.45
70
CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the years ended December 31
[in thousands of Canadian dollars]
OPERATING ACTIVITIES
Net income
Adjustments for:
Excess of share of net income and comprehensive income over distributions
received from the joint ventures
Change in fair value of investment properties
Amortization
Compensation expense related to long-term incentive plan
Deferred income taxes
Recognition of leases on a straight-line basis
Changes in non-cash working capital items
Cash flows provided by operating activities
INVESTING ACTIVITIES
Acquisitions of and investments in income properties
Acquisitions of and investments in properties under development and land held
for future development
Cash consideration paid upon business combination
Mortgage receivable
Return of capital from a joint venture
Net proceeds from disposition of a portion of the investment in a joint venture
Contribution to the capital of the joint ventures
Net proceeds from the sale of investment properties
Change in other assets
Cash flows used in investing activities
FINANCING ACTIVITIES
Distributions to unitholders
Bank borrowings
Mortgages payable
Net proceeds from issuance of debentures
Net proceeds from issuance of units
Repurchase of units under NCIB
Early redemption of convertible debentures
Repayments of debentures at maturity
Repayments of mortgages payable at maturity
Monthly repayments of mortgages payable
Cash flows provided by (used in) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Other information
Interest paid
Distributions received from joint ventures
See accompanying notes to the consolidated financial statements.
Note
2015
$
2014
$
272,434
199,453
8
5
(1,227)
23,322
(2,476)
1,970
567
5
22
(7,140)
(23,508)
(9,443)
33,951
(5,320)
1,414
(236)
(3,626)
12,837
263,942
229,030
5
6
4
8
8
8
4
16
16
13
12
11
11
(178,537)
(357,225)
(12,591)
(49,254)
—
—
1,231
—
(33,259)
97,444
794
(1,615,359)
(8,250)
53,116
20,150
(7,606)
2,000
(245)
(124,918)
(1,962,673)
(172,512)
(142,517)
(76,157)
369,676
298,327
153,233
(7,755)
(185,961)
(250,000)
351,626
248,596
949,610
526,470
—
—
—
(211,414)
(150,819)
(57,120)
(53,156)
(139,683)
1,729,810
(659)
5,909
5,250
(3,833)
9,742
5,909
191,134
158,339
8
200
1,475
71
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
[in thousands of Canadian dollars, except per unit amounts]
1) DESCRIPTION OF THE TRUST
Cominar Real Estate Investment Trust ("Cominar" or the "Trust") is an unincorporated closed-end real estate investment trust
created by a Contract of Trust on March 31, 1998, under the laws of the Province of Quebec. As at December 31, 2015,
Cominar owned and managed a real estate portfolio of 566 high-quality properties that covered a total area of 45.4 million
square feet in Quebec, Ontario, the Atlantic Provinces and Western Canada.
Cominar is listed on the Toronto Stock Exchange and its units trade under the symbol "CUF.UN." The head office is located at
Complexe Jules-Dallaire – T3, 2820 Laurier Boulevard, Suite 850, Québec, Quebec, Canada, G1V 0C1. Additional information
about the Trust is available on Cominar's website at www.cominar.com.
The Board of Trustees approved Cominar’s consolidated financial statements on March 1, 2016.
2) SIGNIFICANT ACCOUNTING POLICIES
a) Basis of presentation
Cominar’s consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards ("IFRS"). The accounting policies and application methods thereof have been consistently applied throughout
each of the fiscal years presented in these consolidated financial statements.
b) Basis of preparation
Consolidation
These consolidated financial statements include the accounts of Cominar and its wholly-owned subsidiaries.
Use of estimates, assumptions and judgments
The preparation of financial statements in accordance with IFRS requires management to make estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities in the financial statements. Those estimates,
assumptions and judgments also affect the disclosure of contingencies as at the date of the financial statements and the
reported amounts of revenues and expenses during the year. Actual results that could differ materially from those
estimates, assumptions and judgments, are described below:
Investment properties
Investment properties are recorded at fair value at the balance sheet date. Fair value is determined using both
management’s internal measurements and valuations from independent real estate appraisers, performed in accordance
with recognized valuation techniques. Techniques used include the capitalized net operating income method and the
discounted cash flow method, including notably estimates of capitalization rates and standardized net operating
income as well as estimates of discount rates and future cash flows applicable to investment properties, respectively.
Management’s fair value internal measurements rely on internal financial information and are corroborated by
capitalization rates obtained from independent experts. However, internal measurements and values obtained from
independent appraisers are both subject to significant judgments, estimates and assumptions about market conditions
at the balance sheet date.
72
Business combinations
Business combinations are accounted for using the acquisition method. The cost of a business combination is the value,
at the acquisition date, of the assets transferred, liabilities incurred and Unitholders’ equity instruments issued in
exchange for control of the acquired business. When the cost of a business combination exceeds the fair value of the
assets acquired and liabilities assumed, such excess is recorded as goodwill. Transaction-related costs, as well as costs
related to the acquisition of real estate assets, are expensed as incurred.
Cominar accounts for investment property acquisitions in accordance with IFRS 3, “Business Combinations” (“IFRS 3”),
only when it considers that a business has been acquired. Under IFRS 3, a business is defined as an integrated set of
activities and assets that could be conducted and managed for the purpose of providing a direct return to investors in
the form of lower costs or other economic benefits. If the investment properties acquisition does not correspond to the
definition of a business, a group of assets is deemed to have been acquired. If goodwill is present, the acquisition is
presumed to be a business. Judgment is therefore used by management in determining if the acquisition qualifies as a
business combination in accordance with IFRS 3 or as an asset acquisition.
Generally, based on its judgment, when Cominar acquires a property or property portfolio without taking on the
management of personnel or acquiring an operational platform, it categorizes the acquisition as an asset acquisition.
Joint arrangements
Upon the creation of a joint arrangement, Cominar’s management reviews its classification criteria to determine if it is a
joint venture to be accounted for using the equity method or if it is a joint operation for which we must recognize the
proportionate share of assets, liabilities, revenues and expenses. Cominar holds 50% and 75% interests in its joint
arrangements. It has joint control over them since, under the contractual agreements, unanimous consent is required
from all parties to the agreements in decisions concerning all relevant activities. The joint arrangements in which
Cominar is involved are structured so that they provide Cominar rights to these entities’ net assets. Therefore, these
arrangements are presented as joint ventures and are accounted for using the equity method.
Impairment of goodwill
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the net identifiable
assets acquired. Its useful life is indefinite. It is not amortized but is tested for impairment on an annual basis or more
frequently if events or circumstances indicate that it is more likely than not that goodwill may be impaired. Goodwill
resulting from business combinations is allocated to each group of cash-generating units (“CGU”) expected to benefit
from the combination. To test impairment, Cominar must determine the recoverable value of net assets of each group
of CGU, making assumptions about standardized net operating income and capitalization rates. These assumptions are
based on Cominar’s past experience as well as on external sources of information. The recoverable value is the fair
value less the cost of disposal. Should the carrying value of a group of cash-generating units, including goodwill,
exceed its recoverable value, impairment is recorded and recognized in profit or loss in the period during which the
impairment occurs.
Financial instruments
Financial instruments must be initially measured at fair value. Cominar must also estimate and disclose the fair value of
certain financial instruments for information purposes in the financial statements presented for subsequent periods.
When fair value cannot be derived from active markets, it is determined using valuation techniques, namely the
discounted cash flow method. If possible, data used in these models are derived from observable markets, and if not,
judgment is required to determine fair value. Judgments take into account liquidity risk, credit risk and volatility. Any
changes in assumptions related to these factors could modify the fair value of financial instruments.
Convertible debentures
Upon initial recognition, Cominar’s management must estimate, if applicable, the fair value of the conversion option
included in the convertible debentures. Under IFRS, the remaining amount obtained after deducting, from the fair value
of the compound financial instrument considered as a whole, the established amount of the Liability component must
be allocated to the Unitholders’ equity component. Should this estimate be inappropriate, it will have an impact on the
interest expense recognized in the financial statements.
Unit options
The compensation expense related to unit options is measured at fair value and is amortized based on the graded
vesting method using the Black-Scholes model. This model requires management to make many estimates on various
data, such as expected life, volatility, the weighted average dividend yield of distributions, the weighted average risk-
free interest rate and the expected forfeiture rate. Any changes to certain assumptions could have an impact on the
compensation expense related to unit options recognized in the financial statements.
73
Income taxes
Deferred taxes of Cominar’s subsidiaries are measured at the tax rates expected to apply in the future as temporary
differences between the reported carrying amounts and the tax bases of the assets and liabilities reverse. Changes to
deferred taxes related to changes in tax rates are recognized in income in the period during which the rate change is
substantively enacted. Any changes in future tax rates or in the timing of the reversal of temporary differences could
affect the income tax expense.
Investment properties
An investment property is an immovable property held by Cominar to earn rentals or for capital appreciation, or both,
rather than for use in the production or supply of goods and services or for administrative purposes, or for sale in the
ordinary course of business. Investment properties include income properties, properties under development and land held
for future development.
Cominar presents its investment properties based on the fair value model. Fair value is the amount for which the property
could be exchanged between knowledgeable, willing parties in an arm’s length transaction. Any change in the fair value is
recognized in profit or loss in the period in which it arises. The fair value of investment properties should reflect market
conditions at the end of the reporting period. Fair value is time-specific as at a given date. As market conditions could
change, the amount presented as fair value could be incorrect or inadequate at another date. The fair value of investment
properties is based on measurements derived from management’s estimates or valuations from independent appraisers,
plus capital expenditures made since the most recent appraisal. Management regularly reviews appraisals of its investment
properties between the appraisal dates in order to determine whether the related assumptions, such as standardized net
operating income and capitalization rates, still apply. These assumptions are compared to market data issued by
independent experts. When increases or decreases are required, Cominar adjusts the carrying amount of its investment
properties.
The fair value of Cominar’s investment properties recorded on the balance sheet in accordance with IFRS is the sum of the
fair values of each investment property considered individually and does not necessarily reflect the contribution of the
following elements that characterize Cominar: (i) the composition of the property portfolio diversified through its client
base, geographic markets and business segments; (ii) synergies among different investment properties; and (iii) a fully
integrated management approach. Therefore, the fair value of Cominar’s investment properties taken as a whole could
differ from that appearing on the consolidated balance sheet.
Properties under development in the construction phase are measured at cost until their fair value can be reliably
determined, usually when development has been completed. The fair value of land held for future development is based on
recent prices derived from comparable market transactions.
Capitalization of costs
Cominar capitalizes into investment properties the costs incurred to increase their capacity, replace certain components
and make improvements after the acquisition date. Cominar also capitalizes major maintenance and repair expenses
providing benefits that will last far beyond the end of the reporting period. For construction, expansion or major
revitalization projects of income properties that take place over a substantial period of time, Cominar capitalizes the
borrowing costs that are directly attributable to the investments in question.
Leasehold improvements, incurred directly by Cominar or through an allowance to tenants, which represent capital
investments that increase the service capacity and value of properties and for which the economic advantage will extend
beyond the term of the lease and will mainly benefit Cominar, as well as initial direct costs, mostly brokerage fees incurred
to negotiate or prepare leases, are added to the carrying value of investment properties when incurred, and are not
amortized subsequently.
Concerning properties under development and land held for future development, Cominar capitalizes all direct costs
incurred for their acquisition, development and construction. Such capitalized costs also include borrowing costs that are
directly attributable to the property concerned. Cominar begins capitalizing borrowing costs when it incurs expenditures
for the properties in question and when it undertakes activities that are necessary to prepare these properties for their
intended use. Cominar ceases capitalizing borrowing costs when the asset is ready for management’s intended use.
When Cominar determines that the acquisition of an investment property is an asset acquisition, it capitalizes all costs that
are directly related to the acquisition of the property, as well as all expenses incurred to carry out the transaction.
74
Leasing costs
Tenant inducements, mostly the payment of a monetary allowance to tenants and the granting of free occupancy periods,
are added to the carrying amount of investment properties as they are incurred and are subsequently amortized against
rental revenue from investment properties on a straight-line basis over the related lease term.
Financial instruments
Cominar groups its financial instruments into classes according to their nature and characteristics. Management
determines such classification upon initial measurement, which is usually at the date of acquisition.
Cominar uses the following classifications for its financial instruments:
Cash and cash equivalents, the mortgage receivable and accounts receivable are classified as “Loans and receivables.”
They are initially measured at fair value. Subsequently, they are measured at amortized cost using the effective interest
method. For Cominar, this value generally represents cost.
Mortgages payable, debentures, convertible debentures, bank borrowings and accounts payable and accrued liabilities
are classified as “Other financial liabilities.” They are initially measured at fair value. Subsequently, they are measured
at amortized cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents consist of cash and investments that are readily convertible into a known amount of cash, that
are not subject to a significant risk of change in value and that have original maturities of three months or less. Bank
borrowings are considered to be financing arrangements.
Deferred financing costs
Issue costs incurred to obtain term loan financing, typically through mortgages payable, debentures and convertible
debentures, are applied against the borrowings and are amortized using the effective interest rate method over the term of
the related debt.
Financing costs related to the operating and acquisition credit facility are recorded as assets under prepaid expenses and
other assets and are amortized on a straight-line basis over the term of the credit facility.
Revenue recognition
Management has determined that all leases concluded between Cominar and its tenants are operating leases. Minimum
lease payments are recognized using the straight-line method over the term of the related leases, and the excess of
payments recognized over amounts payable is recorded on Cominar’s consolidated balance sheet under investment
properties. Leases generally provide for the tenants’ payment of maintenance expenses for common elements, realty taxes
and other operating costs, such payment being recognized as operating revenues in the period when the right to payment
vests. Percentage leases are recognized when the minimum sales level has been reached pursuant to the related leases.
Lease cancellation fees are recognized when they are due. Lastly, incidental income is recognized when services are
rendered.
Long term incentive plan
Cominar has a long term incentive plan in order to attract, retain and motivate its employees to attain Cominar’s objectives.
This plan does not provide for any cash settlements.
Unit purchase options
Cominar recognizes a compensation expense on units granted, based on their fair value on the date of the grant, which is
calculated using an option valuation model. The compensation expense is amortized using the graded vesting method.
Restricted units
Cominar recognizes a compensation expense on restricted unit options granted, based on their fair value, which
corresponds to the market value of Cominar units on the date of the grant. The compensation expense is amortized on a
straight-line basis over the duration of the vesting period.
Deferred units
Cominar recognizes compensation expense on deferred units granted, based on their fair value, which corresponds to the
market value of Cominar units on the date of the grant. The compensation expense is amortized using the graded vesting
method.
75
Income taxes
Cominar is considered a mutual fund trust for income tax purposes. Pursuant to the Contract of Trust, the trustees intend
to distribute or designate all taxable income directly earned by Cominar to unitholders and to deduct such distributions and
allocations from its income for tax purposes. Therefore, no provision for income taxes is required.
Cominar’s subsidiaries that are incorporated as business corporations are subject to tax on their taxable income under the
Income Tax Act (Canada) and the taxation acts of the provinces concerned. These subsidiaries account for their taxes
payable or recoverable at the current enacted tax rates and use the asset and liability method to account for deferred taxes.
The net deferred tax liability represents the cumulative amount of taxes applicable to temporary differences between the
reported carrying amounts and tax bases of the assets and liabilities.
Per unit calculations
Basic net income per unit is calculated based on the weighted average number of units outstanding for the year. The
calculation of net income per unit on a diluted basis considers the potential issuance of units in accordance with the long
term incentive plan and the potential issuance of units under convertible debentures, if dilutive.
Segment information
Segment information is presented in accordance with IFRS 8, “Operating segments,” which recommends presenting and
disclosing segment information in accordance with information that is regularly assessed by the chief operating decision
makers in order to determine the performance of each segment.
3) FUTURE ACCOUNTING POLICY CHANGES
IFRS 9, “Financial Instruments”
In July 2014, the International Accounting Standards Board (“IASB”) published its final version of IFRS 9, which will replace
IAS 39, “Financial Instruments: Recognition and Measurement” and modifications to IFRS 7, “Financial Instruments:
Disclosures,” in order to add disclosure requirements regarding the transition to IFRS 9. The new standard includes guidance
on recognition and derecognition of financial assets and financial liabilities, impairment and hedge accounting. IFRS 9 will be
effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. Cominar is currently
assessing the impacts of adopting this new standard on its consolidated financial statements.
IFRS 15, “Revenue from Contracts with Customers”
In May 2014, the IASB issued IFRS 15, “Revenue from Contracts with Customers.” IFRS 15 specifies how and when to
recognize revenue and requires entities to provide users of financial statements with more informative, relevant disclosures.
The standard will supersede IAS 18, “Revenue,” IAS 11, “Construction Contracts,” and related interpretations. Adoption of the
standard will be mandatory for all IFRS reporters, and will apply to nearly all contracts with customers: the main exceptions
are leases, financial instruments and insurance contracts. IFRS 15 will be effective for annual periods beginning on or after
January 1, 2018, with earlier adoption permitted. Cominar is currently assessing the impacts of adopting this new standard on
its consolidated financial statements.
IFRS 16, “Leases”
In January 2016, the IASB issued IFRS 16, “Leases”. IFRS 16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases for both parties to a contract, i.e. the customer (lessee) and the supplier (lessor). IFRS
16 will cancel and replace the previous leases Standard, IAS 17, “Leases”, and related interpretations. IFRS 16 will be
effective for annual periods beginning on or after January 1, 2019, with earlier adoption permitted if IFRS 15 is also applied.
Cominar is currently assessing the impacts of adopting this new standard on its consolidated financial statements.
76
4) ACQUISITIONS AND DISPOSITIONS
ACQUISITION OF INCOME PROPERTIES IN 2015
On April 23, 2015, Cominar acquired a portfolio of 3 industrial properties with total leasable area of 697,000 square feet,
located in the greater Montréal area, for a purchase price of $34,500 paid cash.
This transaction was accounted for using the acquisition method. The results of operations from the acquired income
properties are included in the consolidated financial statements as of their dates of acquisition.
The following table summarizes the fair values at the acquisition date of acquired net assets:
Income properties
Working capital
Deposit on acquisition(1)
Total cash consideration paid for the acquisition
(1) A deposit of $2,500 had been made during the fiscal year ended December 31, 2014.
Fair values
$
34,500
(26)
(2,500)
31,974
ACQUISITIONS OF INCOME PROPERTIES IN 2014
On February 26, 2014, Cominar acquired a portfolio of 11 office properties for a purchase price of $229,333, net of working
capital adjustments of $11,167, with $128,282 paid in cash and $101,051 by assuming mortgages payable. The acquired
portfolio consists of four office properties located in the Greater Toronto Area, with a total leasable area of 782,000 square
feet, and seven office properties located in Montréal, with a total leasable area of 407,000 square feet.
On February 27, 2014, Cominar acquired five retail properties with a total leasable area of 121,000 square feet located in the
Greater Montréal Area for a purchase price of $26,075 paid cash. As part of this transaction, Cominar also acquired a vacant
lot for $2,125 paid cash.
On May 1, 2014, Cominar acquired a portfolio of 14 mainly industrial and mixed-use properties in the Greater Toronto Area,
with a total leasable area of approximately 1,184,000 square feet, for a purchase price of $100,720, net of working capital
adjustments of $3,530, with $63,256 paid in cash and $37,464 by assuming mortgages payable.
On October 8, 2014, Cominar acquired a retail property with a leasable area of 17,000 square feet located in Québec, for a
purchase price of $2,175 paid cash.
These transactions were accounted for as an asset acquisition. The results of operations from the acquired income properties
are included in the consolidated financial statements as of their dates of acquisition.
The following table summarizes the fair values at the acquisition date of acquired net assets:
Income properties
Land held for future development
Assumed mortgages payable
Working capital adjustments
Total cash consideration paid for these acquisitions
Fair value
$
375,334
2,125
(140,849)
(14,697)
221,913
77
BUSINESS COMBINATION REALIZED IN 2014
On September 30 and October 17, 2014, Cominar acquired 35 income properties, one property under development and land
held for future development from Ivanhoé Cambridge Inc., a real estate subsidiary of La Caisse de dépôt et placement du
Québec. Cominar accounted for these acquisitions using the acquisition method in accordance with IFRS 3, “Business
Combinations.” The results of these properties were included in the consolidated financial statements from the date of
acquisition. As part of this transaction, Cominar incurred $26,667 in transaction costs. In accordance with IFRS, transaction
costs incurred in a business combination must be expensed as incurred.
The following table summarizes the fair value on the date of purchase of the net assets acquired:
Income properties
Property under development
Land held for future development
Working capital
Total cash consideration paid for the acquisition
Final acquisition
price allocation
$
1,595,115
28,200
8,000
(15,956)
1,615,359
The cash consideration paid for the acquisition was financed by the net proceeds of a public offering of units of $275,428, by
the issuance of two series of unsecured debentures of $548,031, by a private placement with Ivanhoé Cambridge Inc. of
$249,940, by two new mortgages payable totalling $250,000, by the temporary use of an unsecured bridge loan facility and
finally by a portion of the unsecured revolving operating and acquisition credit facility.
The purchase price allocation at fair value of the assets acquired and liabilities assumed was finalized during the third quarter
of 2015.
DISPOSITION OF INCOME PROPERTIES IN 2015
On September 30, 2015, Cominar announced that it had completed the sale of one industrial and mixed-use property and two
office properties located in Montréal, for a total purchase price of $98,000. The sale of these properties will not have a
significant impact on Cominar’s results.
DISPOSITION OF AN INCOME PROPERTY IN 2014
On May 7, 2014, Cominar sold a commercial building in Kentville, Nova Scotia, for $2,000. The sale of this property did not
have a significant impact on Cominar’s results.
TRANSFERS TO INCOME PROPERTIES IN 2015
During the second quarter of 2015, Cominar completed the construction of an industrial and mixed-use property that it
transferred from property under development to income property. Located in Lévis, in the suburbs of Québec, this property
valued at $5,940, with a leasable area of 33,000 square feet, has an occupancy rate of 100%. The capitalization rate is 8.1%.
During the fourth quarter of 2015, Cominar completed the construction of an industrial and mixed-use property that it
transferred from property under development to income property. Located in Québec, this property valued at $7,352, with a
leasable area of 68,000 square feet, has an occupancy rate of 80%. The capitalization rate is 8.4%.
TRANSFER TO INCOME PROPERTIES IN 2014
In 2014, Cominar completed the construction of an office building that is part of the Place Laval complex which was
transferred from properties under development to income properties. Located in Laval, this 14-storey, 310,000 square-foot
building valued at $58,353 is 100% occupied by a Québec government agency under a long-term lease. The capitalization rate
was 8.1%.
78
5)
INCOME PROPERTIES
For the years ended December 31
Note
Balance, beginning of year
Business combination
Acquisitions and related costs
Fair value adjustment
Capital costs
Dispositions
Transfer of an income property as contribution to a joint venture
Transfers from properties under development
Transfers to income properties held for sale
Change in initial direct costs
Recognition of leases on a straight-line basis
4
4
8
6
7
2015
$
2014
$
7,697,823
5,654,825
—
33,081
(23,322)
137,161
(97,444)
—
13,292
(163,733)
10,992
7,140
1,595,115
386,387
(33,951)
123,456
(2,000)
(97,850)
58,353
—
9,862
3,626
Balance, end of year
7,614,990
7,697,823
CHANGE IN FAIR VALUE OF INVESTMENT PROPERTIES
Cominar opted to present its investment properties in the consolidated financial statements according to the fair value model.
Fair value is determined based on evaluations performed using management’s internal estimates and by independent real
estate appraisers, plus capital expenditures made since the most recent appraisal, if applicable. External valuations were
carried out by independent national firms holding a recognised and relevant professional qualification and having recent
experience in the location and category of the investment properties being valued.
As per Cominar’s policy on valuing investment properties, at the end of 2015, management revalued the real estate portfolio
and determined that a decrease of $23,322 was necessary to adjust the carrying value of investment properties to their fair
value [decrease of $33,951 in 2014]. The fair value adjustment related to income properties held as at the year-end date
amounts to $15,517. In 2015, the fair value of investment properties from external valuations amounted to 17% [26% in
2014] of the total fair value of all income properties.
Internally valued investment properties have been valued using the capitalized net operating income method. Externally valued
investment properties have been valued either with the capitalized net operating income method or the discounted cash flow
method. Here is a description of these methods and the key assumptions used:
Capitalized net operating income method – Under this method, capitalization rates are applied to standardized net operating
income in order to comply with current valuation standards. The standardized net operating income represents adjusted net
operating income for items such as administrative expenses, occupancy rates, the recognition of leases on a straight-line basis
and other non-recurring items. The key factor is the capitalization rate for each property or property type. Cominar regularly
receives publications from national firms dealing with real estate activity and trends. Such market data reports include
different capitalization rates by property type and geographical area.
Discounted cash flow method – Under this method, the expected future cash flows are discounted using an appropriate rate
based on the risk of the property. Expected future cash flows for each investment property are based upon, but not limited to,
rental income from current leases, budgeted and actual expenses, and assumptions about rental income from future leases.
Discount and capitalization rates are estimated using market surveys, available appraisals and market comparables.
To the extent that the capitalization rate ranges change from one reporting period to the next, or if another rate within the
provided ranges is more appropriate than the rate previously used, the fair value of investment properties increases or
decreases accordingly. The change in the fair value of investment properties is reported in net income.
As required under IFRS, Cominar has determined that an increase or decrease in 2015 of 0.10% in the applied capitalization
rates for the entire real estate portfolio would result in a decrease or increase of approximately $124,600 [$118,000 in 2014]
in the fair value of its investment properties.
79
Internally and externally used capitalization and discount rates are consistent.
Capitalization and discount rates
2015
2014
Category
Office properties
Capitalized net operating income method
Capitalization rate
Discounted cash flow method
Overall capitalization rate
Terminal capitalization rate
Discount rate
Retail properties
Capitalized net operating income method
Capitalization rate
Discounted cash flow method
Overall capitalization rate
Terminal capitalization rate
Discount rate
Industrial and mixed-use properties
Capitalized net operating income method
Capitalization rate
Discounted cash flow method
Overall capitalization rate
Terminal capitalization rate
Discount rate
Total
Capitalized net operating income method
Capitalization rate
Discounted cash flow method
Overall capitalization rate
Terminal capitalization rate
Discount rate
Range Weighted average
Range
Weighted average
5.0% - 9.3%
6.3%
5.3% - 9.0%
5.5% - 7.5%
5.5% - 7.5%
6.5% - 8.0%
6.2%
6.4%
7.0%
5.8% - 7.8%
6.5% - 8.2%
6.5% - 8.3%
5.3% - 9.0%
6.1%
5.8% - 10.0%
6.0% - 6.5%
6.3% - 6.8%
6.8% - 7.3%
6.1%
6.4%
7.0%
5.1% - 8.0%
5.4% - 8.3%
6.3% - 9.0%
5.8% - 11.0%
7.0%
5.8% - 11.0%
6.8% - 7.8%
7.0% - 7.8%
7.5% - 8.3%
6.0% - 7.8%
6.3% - 7.8%
6.5% - 8.0%
7.2%
7.3%
7.8%
6.4%
6.2%
6.4%
7.0%
6.3%
6.5%
6.8%
7.2%
6.6%
5.7%
5.9%
6.8%
7.2%
6.9%
7.1%
7.4%
6.6%
6.0%
6.2%
6.9%
6) PROPERTIES UNDER DEVELOPMENT AND LAND HELD FOR FUTURE
DEVELOPMENT
For the years ended December 31
Balance, beginning of year
Business combination
Acquisitions and related costs
Capital costs
Capitalized interest
Transfers to income properties
Balance, end of year
Breakdown:
Properties under development
Land held for future development
80
Note
4
5
2015
$
121,938
—
—
6,875
5,239
(13,292)
120,760
49,114
71,646
2014
$
107,961
36,200
2,157
28,248
5,725
(58,353)
121,938
53,150
68,788
7)
INCOME PROPERTIES HELD FOR SALE
During the fourth quarter of 2015 and the first quarter of 2016, Cominar entered into sale agreements of income properties
subject to usual closing requirements. Cominar’s management intends to use the total net proceeds of these disposals to
reduce debt and to repurchase units under the NCIB, and expects to close these transactions during fiscal year 2016. Here is
the fair value of these income properties less costs of sale by geographic market:
Assets – Retail properties
Income properties held for sale
Liabilities
Québec Montréal Ontario
Atlantic
Provinces
$
$
$
$
Total
$
78,308
62,142
9,683
13,600
163,733
Mortgage payable related to a property held for sale
—
8,590
—
—
8,590
8)
JOINT VENTURES
The following table summarizes the information on the joint ventures:
As at December 31
Joint venture
Address
City/province
Société en commandite Complexe Jules-Dallaire
2820 Laurier Boulevard
Québec, Quebec
Société en commandite Bouvier-Bertrand
1020 Bouvier Street
Québec, Quebec
Société en commandite Chaudière-Duplessis
De la Chaudière Boulevard
Québec, Quebec
Société en commandite Marais
Du Marais Street
Québec, Quebec
2015
2014
Ownership
interest
Ownership
interest
50%
50%
75%
75%
50%
50%
—
—
The business objective of these joint ventures is the ownership, management and development of real estate projects.
The following table summarizes the financial information of the investments in these joint ventures accounted for under the
equity method:
For the years ended December 31
Investments in joint ventures, beginning of year
Contribution to the capital of a joint venture – transfer of an income property
to a joint venture
Disposition of a portion of the investment in a joint venture
Share of joint ventures’ net income and comprehensive income
Liquidities distributed by a joint venture
Contribution to the capital of the joint ventures
Return of capital from a joint venture
Investments in joint ventures, end of year
2015
$
41,633
—
—
1,427
(200)
33,259
(1,231)
74,888
2014
$
—
97,850
(20,150)
10,918
(1,475)
7,606
(53,116)
41,633
81
The following tables summarize the net assets and the net income and comprehensive income of the joint ventures:
As at December 31
Income properties
Properties under development
Land held for future development
Other assets
Mortgage payable bearing interest at a fixed rate of 4.79% and maturing
in February 2024
Bank borrowings
Other liabilities
Net assets of the joint ventures
Proportionate share of joint ventures’ net assets
For the years ended December 31
Operating revenues
Operating expenses
Net operating income
Change in fair value of investment properties
Finance charges
Administrative expenses
Net income and comprehensive income
Share of joint ventures’ net income and comprehensive income
9) GOODWILL
2015
$
183,168
32,921
43,122
2,806
(102,312)
(25,002)
(6,440)
128,263
74,888
2015
$
17,734
7,954
9,780
(2,004)
(5,013)
(70)
2,693
1,427
2014
$
173,438
5,612
12,026
1,480
(104,654)
—
(4,636)
83,266
41,633
2014
$
17,596
7,750
9,846
16,890
(4,900)
—
21,836
10,918
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the net identifiable assets
acquired. Its useful life is indefinite. It is not amortized but is tested for impairment on an annual basis or more frequently if
events or circumstances indicate that it is more likely than not that goodwill may be impaired. Goodwill resulting from business
combinations is allocated to each group of CGU expected to benefit from the combination. To test impairment, Cominar must
determine the recoverable value of net assets of each group of CGU, making assumptions about standardized net operating
income and capitalization rates. These assumptions are based on Cominar’s past experience as well as on external sources of
information. The recoverable value is the fair value less the cost of disposal. Should the carrying value of a group of CGU,
including goodwill, exceed its recoverable value, impairment is recorded and recognized in profit or loss in the period during
which the impairment occurs.
At year-end, Cominar tested its assets for impairment by determining the recoverable value of the net assets of each CGU and
comparing it to the carrying value, including goodwill. As at December 31, 2015 and 2014, goodwill was not impaired.
Goodwill is classified as Level 3 in the fair value hierarchy, which means that inputs for the asset or liability are not based on
observable market data (unobservable inputs).
Goodwill
Office
properties
$
Retail
properties
Industrial and
mixed-use properties
$
$
Total
$
Balance as at December 31, 2014 and 2015
98,073
51,212
17,686
166,971
82
The capitalization rates used to value the recoverable amount of net assets for each group of CGU are as follows:
Capitalization rate
Category
Office properties
Retail properties
Industrial and mixed-use properties
Total
10) ACCOUNTS RECEIVABLE
As at December 31
Trade receivables
Allowance for doubtful accounts
Accounts receivable – related parties
Interest-bearing accounts receivable(1)
Security deposits
Other receivables and accrued income
(1) Average effective interest rate
11) MORTGAGES PAYABLE
2015
2014
Weighted average
Weighted average
6.1%
5.9%
6.7%
6.1%
2015
$
26,674
(9,408)
17,266
701
1,016
5,533
32,240
56,756
7.21%
6.2%
6.5%
6.9%
6.4%
2014
$
35,091
(6,741)
28,350
398
1,775
6,790
14,731
52,044
7.35%
The following table presents changes in mortgages payable for the years indicated:
For the years ended December 31
2015
2014
Balance, beginning of year
Net mortgages payable, contracted or assumed
Monthly repayments of principal
Repayments of balances at maturity
Plus: Fair value adjustments on assumed mortgages payable
Less: Deferred financing costs
Balance, end of year(1)
(1) Including the $8,590 mortgage payable related to a property held for sale.
Weighted
average
contractual
rate
$
%
$
1,948,462
371,407
(57,120)
(211,414)
2,051,335
14,246
(4,351)
2,061,230
4.79
3.07
—
4.77
4.46
1,763,922
388,515
(53,156)
(150,819)
1,948,462
23,729
(3,272)
1,968,919
Weighted
average
contractual
rate
%
5.06
3.94
—
5.89
4.79
83
Contractual maturity dates of mortgages payable are as follows as at December 31, 2015:
For the years ending December 31
2016
2017
2018
2019
2020
2021 and thereafter
Repayment
of principal
$
Balances
at maturity
$
53,260
50,993
40,115
32,427
33,736
127,300
337,831
204,980
177,190
451,983
4,255
82,013
793,083
Total
$
258,240
228,183
492,098
36,682
115,749
920,383
1,713,504
2,051,335
Mortgages payable are primarily secured by immovable hypothecs on investment properties having a carrying value of
$4,162,353 [$4,003,053 as at December 31, 2014]. They bear annual contractual interest rates ranging from 2.35% to 7.75%
[2.69% to 7.75% as at December 31, 2014], representing a weighted average contractual rate of 4.46% as at December 31,
2015 [4.79% as at December 31, 2014], and are renewable at various dates from January 2016 to January 2039. As at
December 31, 2015, the weighted average effective interest rate was 4.05% [4.17% as at December 31, 2014].
As at December 31, 2015, nearly all mortgages payable were bearing interest at fixed rates. Some of the mortgages payable
include covenants, with which Cominar was in compliance as at December 31, 2015 and 2014.
12) DEBENTURES
On June 1, 2015, Cominar issued $300,000 in Series 9 senior unsecured debentures bearing interest at a rate of 4.164% and
maturing in June 2022.
On October 9, 2015, Cominar redeemed at maturity the $250,000 floating interest rate Series 5 senior unsecured debentures
using its unsecured revolving operating and acquisition credit facility.
The following table presents characteristics of outstanding debentures as at December 31, 2015:
Series 1
Series 2
Series 3
Series 4
Series 6
Series 7
Series 8
Series 9
Total
Date of issuance
Contractual
interest rate
Effective
interest rate
Maturity date
Nominal value as at
December 31, 2015
June 2012(1)
December 2012(2)
May 2013
July 2013(3)
September 2014
September 2014
December 2014
June 2015
%
4.274
4.23
4.00
4.941
1.94
3.62
(4)
4.25
4.164
3.95
%
4.32
4.37
4.24
4.81
2.11
3.70
4.34
4.25
4.02
June 2017
December 2019
November 2020
July 2020
September 2016
June 2019
December 2021
June 2022
$
250,000
300,000
100,000
300,000
250,000
300,000
200,000
300,000
2,000,000
(1) Re-opened in September 2012 ($125,000).
(2) Re-opened in February 2013 ($100,000).
(3) Re-opened in January 2014 ($100,000) and March 2014 ($100,000).
(4) Variable interest rate fixed quarterly for the period from December 22, 2015 to March 21, 2016 (corresponding to the three-month CDOR rate plus 108 basis
points).
84
The following table presents changes in debentures for the years indicated:
For the years ended December 31
2015
2014
Weighted
average
contractual
rate
%
$
$
Balance, beginning of year
1,950,000
3.89
1,000,000
Issuances
Repayment at maturity
Less: Deferred financing costs
Plus: Net premium and discount on issuance
Balance, end of year
300,000
(250,000)
2,000,000
(7,413)
2,919
1,995,506
4.164
3.026
950,000
—
3.95
1,950,000
(8,079)
3,706
1,945,627
Weighted
average
contractual
rate
%
4.06
3.70
—
3.89
Debentures, under the trust indenture, contain covenants, with which Cominar was in compliance as at December 31, 2015
and 2014.
13) CONVERTIBLE DEBENTURES
The following table presents the changes in debentures for the years indicated:
For the years ended December 31
2015
2014
Weighted
average rate
Weighted
average rate
$
%
$
%
Balance, beginning of year
186,036
6.15
186,036
6.15
Conversion at the option of unitholders
Early redemptions
(75)
(185,961)
6.50
6.15
Less
Deferred financing costs
Accretion of liability component
Balance, end of year
—
—
—
—
—
—
—
—
186,036
6.15
(2,544)
(411)
183,081
On July 6, 2015, Cominar called all its then outstanding Series E convertible debentures bearing interest at 5.75% and
totalling $86,250.
On September 8, 2015, Cominar called all its then outstanding Series D convertible debentures bearing interest at 6.50% and
totalling $99,711.
These redemptions will result in the next years in the removal of the dilution arising from these convertible debentures.
85
14) BANK BORROWINGS
As at December 31, 2014, Cominar had a revolving unsecured operating and acquisition credit facility of up to
$550,000. On October 7, 2015, it was increased to $700,000 and will mature in August 2018. This facility bears interest at
prime rate plus 70 basis points or at bankers’ acceptance rate plus 170 basis points. This credit facility contains certain
restrictive clauses, with which Cominar was in compliance as at December 31, 2015 and 2014.
15) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As at December 31
Trade accounts payable
Accounts payable – related parties
Accrued interest payable
Prepaid rents and tenants’ deposits
Other accounts payable and accrued expenses
Commodity taxes and other non-financial liabilities
2015
$
7,720
8,804
17,488
25,797
47,540
11,572
2014
$
7,557
3,455
20,705
20,086
74,527
7,398
118,921
133,728
16) ISSUED AND OUTSTANDING UNITS
Ownership interests in Cominar are represented by a single class of units, unlimited in number. Units represent a unitholder’s
undivided and proportionate ownership interest in Cominar. Each unit confers the right to one vote at any unitholders’ meeting
and to participate equally and rateably in any Cominar distributions. All issued units are fully paid.
On January 30, 2015, Cominar closed a public offering of 7,901,650 units including a full exercise of the over-allotment
option at a price of $19.65 per unit. Total net proceeds received by Cominar amounted to $148,701, after deducting the
underwriters’ fee and costs related to the offering. Net proceeds from this offering were used to repay the balance of the
unsecured revolving credit facility.
On August 28, 2015, Cominar obtained the approval of the Toronto Stock Exchange to set up an NCIB for up to 4,000,000
units. The bid expires on September 1, 2016, or on any earlier date on which Cominar would have completed the maximum of
the purchases pursuant to the bid. During fiscal 2015, Cominar repurchased 530 836 units for a total consideration of $7,755
paid cash.
The following table presents the evolution of units for the years indicated:
For the years ended December 31
2015
2014
Units
$
Units
$
Units issued and outstanding, beginning of year
158,689,195
2,839,515
127,051,095
2,251,974
Public offering
Private placement
Repurchase of units under NCIB
Exercise of options
Distribution reinvestment plan
Conversion of convertible debentures
Conversion of deferred units
Reversal of contributed surplus
7,901,650
148,701
15,131,700
—
—
13,158,000
(530,836)
266,200
(7,755)
4,672
—
92,000
4,582,780
78,643
3,247,589
3,658
—
—
75
—
69
—
8,811
—
275,428
249,940
—
1,426
60,534
—
—
213
Units issued and outstanding, end of year
170,912,647
3,063,920
158,689,195
2,839,515
86
LONG TERM INCENTIVE PLAN
Unit options
Cominar has granted unit options to management and employees under the long term incentive plan. As at December 31,
2015, options to purchase 10,493,750 units were outstanding.
The following table shows characteristics of outstanding options at year-end:
Date of grant
vesting method
Maturity date
price $
options
options
Graded
Exercise
Outstanding
Exercisable
As at December 31, 2015
December 15, 2011
33 1/3%
December 15, 2016
August 24, 2012
August 31, 2012
December 19, 2012
August 5, 2013
December 17, 2013
December 16, 2014
December 15, 2015
50%
50%
33 1/3%
50%
33 1/3%
33 1/3%
33 1/3%
August 24, 2017
August 31, 2017
December 19, 2017
August 5, 2018
December 17, 2018
December 16, 2019
December 15, 2022
21.80
24.55
23.93
22.70
20.09
17.55
18.07
14.15
954,000
150,000
300,000
1,571,150
150,000
1,946,300
2,352,100
3,070,200
954,000
150,000
300,000
1,571,150
150,000
1,262,700
815,500
—
10,493,750
5,203,350
As at December 31, 2015, the average weighted contractual life of outstanding options was 4.0 years [3.4 years as
at December 31, 2014].
The following table presents changes in the number of options for the years indicated:
For the years ended December 31
2015
2014
Outstanding, beginning of year
Exercised
Granted
Forfeited or cancelled
Expired
Outstanding, end of year
Weighted
average exercise
price
$
19.81
17.55
14.15
19.69
20.93
18.15
Options
9,221,200
(266,200)
3,070,200
(809,850)
(721,600)
10,493,750
7,835,500
(92,000)
2,659,500
(603,200)
(578,600)
9,221,200
Exercisable options, end of year
5,203,350
20.61
4,547,400
$
20.36
15.51
18.07
20.02
19.62
19.81
21.22
Options
Weighted average
exercise price
Restricted units
Restricted units consist of allocations whose values, for the participant, rise or fall according to the value of Cominar units on
the stock market. When the vesting period is over, each restricted unit provides the right to receive one Cominar unit on the
settlement date. Vesting periods are determined by the Board of Trustees on the date of the grant. These rights are usually
vested three years after the date of the grant. For each cash distribution on Cominar units, an additional number of restricted
units is granted to each participant. The fair value of restricted units is represented by the market value of Cominar units on
the date of the grant.
87
The following table presents changes in the number of restricted unit for the years indicated:
For the years ended December 31
Outstanding, beginning of year
Granted
Accrued distributions
Outstanding, end of year
Vested restricted units, end of year
2015
1,147
2,582
318
4,047
—
2014
530
536
81
1,147
—
Deferred units
Deferred units consist of allocations whose values, for the participant, rise or fall according to the value of Cominar units on
the stock market. Each deferred unit provides the right to receive one Cominar unit when the holder ceases to be a Cominar
trustee, member of management or employee. Vesting periods are determined by the Board of Trustees on the date of the
grant. These rights are usually vested at a rate of 33 1/3% per anniversary year of the grant date. For each cash distribution on
Cominar units, an additional number of deferred units is granted to each participant. The fair value of deferred units is
represented by the market value of Cominar units on the date of the grant.
The following table presents changes in the number of deferred unit for the years indicated:
For the years ended December 31
Outstanding, beginning of year
Exercised
Granted
Accrued distributions
Outstanding, end of year
Vested deferred units, end of year
2015
2014
80,872
—
85,304
14,258
180,434
52,397
38 280
(8 811)
45 261
6 142
80 872
12 926
Unit-based compensation
The compensation expense related to the options granted in 2015 and 2014 was calculated using the Black-Scholes option
pricing model based on the following assumptions:
Date of grant
Volatility(1)
December 16, 2014
December 15, 2015
11.67%
12.61%
Weighted
average return
Weighted
average
risk-free
interest rate
Average
weighted
expected life
(years)
8.38%
8.39%
1.15%
0.69%
3.5
4.5
Exercise
price(2)
$
18.07
14.15
Per unit
weighted
average fair
value
$
0.20
0.14
(1) The volatility is estimated by considering the historical volatility of Cominar’s units’ price.
(2) The exercise price of the options corresponds to the closing price of Cominar units the day before the grant.
The compensation expense related to restricted units and deferred units granted in February 2015 was calculated based on
the market price of Cominar units on the grant date, which was $19.80.
The overall compensation expense for the fiscal year was $1,970 [$1,414 in 2014].
A maximum of 12,756,610 units may be issued under the long term incentive plan.
88
DISTRIBUTIONS
Cominar is governed by a Contract of Trust whereby the trustees, under the discretionary power attributed to them, intend to
distribute a portion of its distributable income to unitholders. Distributable income generally means net income determined in
accordance with IFRS, before adjustments to fair value, transaction costs – business combinations, rental revenue derived
from the recognition of leases on a straight-line basis, the provision for leasing costs, gains on disposal of investment
properties and certain other items not affecting cash, if applicable.
For the years ended December 31
Distributions to unitholders
Distributions per unit
2015
$
251,295
1.470
2014
$
203,375
1.453
Unitholder distribution reinvestment plan
Cominar has adopted a distribution reinvestment plan under which unitholders may elect to receive all cash distributions from
Cominar automatically as additional units. The plan provides plan participants with a number of units equal to 103% [105%
until August 2015] of the cash distributions. For the year ended December 31, 2015, 4,582,780 units [3,247,589 in 2014]
were issued for a total net consideration of $78,643 [$60,534 in 2014] under this plan.
On January 20, 2016 Cominar announced the suspension of the distribution reinvestment plan based on the fact that the
market value of units does not reflect the intrinsic value of Cominar and that units issued under the distribution reinvestment
plan offset the advantages generated by purchases of units made under Cominar’s NCIB. The suspension of the distribution
reinvestment plan does not affect the regular monthly cash distribution per unit.
17) OPERATING LEASE INCOME
a) The minimum lease payments receivable from tenants are as follows:
- Not later than one year
- Later than one year and not later than five years
- Later than five years
b) Contingent rents included in revenues for the year are as follows:
For the years ended December 31
Contingent rents
As at December 31, 2015
$
473,019
1,314,094
813,420
2015
$
6,851
2014
$
3,886
89
18) OPERATING COSTS AND TRUST ADMINISTRATIVE EXPENSES
The following table presents the main components of operating costs and Trust administrative expenses based on their nature:
For the years ended December 31
Repairs and maintenance
Energy
Salaries and other benefits
Professional fees
Costs associated with public companies
Other expenses
19) FINANCE CHARGES
For the years ended December 31
Interest on mortgages payable
Interest on debentures
Interest on convertible debentures
Interest on bank borrowings
Net amortization of premium and discount on debenture issues
Amortization of deferred financing costs and others
Amortization of fair value adjustments on assumed borrowings
Less: Capitalized interest(1)
Total finance charges
2015
$
69,373
68,115
38,853
1,941
720
23,802
202,804
2015
$
88,959
80,150
7,010
9,931
(787)
6,664
(9,483)
(6,236)
176,208
2014
$
56,216
59,103
28,976
1,234
709
17,938
164,176
2014
$
91,684
54,512
11,445
5,379
(575)
6,242
(11,946)
(7,356)
149,385
(1) Includes capitalized interest on properties under development and on major revitalization projects for income properties that take place over a substantial period of
time. The weighted average capitalization rate used in 2015 was 4.37%.
During the fiscal year ended December 31, 2015, Cominar wrote off $2,232 in deferred financing costs following the
redemption of Series E and Series D convertible debentures effective July 6, 2015 and September 8, 2015 respectively.
During the fiscal year ended December 31, 2014, Cominar wrote off $501 in deferred financing costs for the secured
revolving operating and acquisition credit facility that has been replaced. Cominar also wrote off $1,021 in deferred financing
costs paid for the unsecured bridge loan used for the acquisition of an investment property portfolio from Ivanhoé Cambridge,
which has been repaid on December 18, 2014, then cancelled.
20) INCOME TAXES
Cominar is considered a mutual fund trust for income tax purposes. Pursuant to the Contract of Trust, the trustees intend to
distribute or designate all taxable income directly earned by Cominar to unitholders and to deduct such distributions and
allocations from its income for tax purposes. Therefore, no provision for income taxes is required.
Taxation of distributions of specified investment flow-through (“SIFT”) trusts
and exception for real estate investment trusts (“REITs”)
Since 2007, SIFT trusts are subject to income taxes on the distributions they make. In short, a SIFT trust is a trust that resides
in Canada, whose investments are listed on a stock exchange or other public market and that holds one or more non-portfolio
properties.
The SIFT trust rules do not apply to SIFT trusts that qualify as REITs for a given taxation year. Cominar has reviewed the
conditions to qualify as a REIT. For the fiscal years ended December 31, 2015 and 2014, Cominar believes that it met all of
90
these conditions and qualified as a REIT. As a result, the SIFT trust tax rules for 2015 and 2014 did not apply to Cominar and
no deferred tax provision, be it an asset or liability, was recorded in relation to the Trust’s activities. Cominar’s management
intends on taking the necessary steps to meet these conditions on an ongoing basis in the future.
Some of Cominar’s subsidiaries are subject to tax on their taxable income under the Income Tax Act (Canada) and the taxation
acts of the provinces concerned.
The income tax provision differs from the amount calculated by applying the combined federal and provincial tax rate to
income before income taxes. The following table presents the reasons for such difference:
For the years ended December 31
Income before income taxes
Canadian combined statutory tax rate
Income tax expense at the statutory tax rate
Income not subject to income tax
Other
Deferred taxes relating to incorporated subsidiaries are shown in the following table:
As at December 31
Deferred tax assets to be recovered after more than 12 months
Mortgages payable
Tax losses
Deferred tax liabilities to be settled after more than 12 months
Income properties
Deferred taxes (net)
Changes in the deferred income tax account were as follows:
For the years ended December 31
Balance, beginning of year
Income tax expense recorded in the consolidated statements of comprehensive income
Balance, end of year
2015
$
2014
$
273,001
199,217
27.44%
74,906
27.60%
54,976
(74,427)
(55,310)
88
567
2015
$
59
263
322
98
(236)
2014
$
94
276
370
(11,199)
(10,680)
(10,877)
(10,310)
2015
$
10,310
567
10,877
2014
$
10,546
(236)
10,310
91
Changes in deferred income tax assets and liabilities during the year, excluding the offsetting of balances within the same tax
jurisdiction, were as follows:
Deferred tax assets
Balance as at January 1, 2014
Origination and reversal of timing differences included in profit or loss
Balance as at December 31, 2014
Origination and reversal of timing differences included in profit or loss
Balance as at December 31, 2015
Deferred tax liabilities
Balance as at January 1, 2014
Origination and reversal of timing differences included in profit or loss
Balance as at December 31, 2014
Origination and reversal of timing differences included in profit or loss
Balance as at December 31, 2015
21) PER UNIT CALCULATION BASIS
Mortgages
payable
Tax losses
$
$
164
(70)
94
(35)
59
247
29
276
(13)
263
Total
$
411
(41)
370
(48)
322
Income properties
$
(10,957)
277
(10,680)
(519)
(11,199)
The following table provides a reconciliation of the weighted average number of units outstanding used to calculate basic and
diluted net income per unit for the years indicated:
For the years ended December 31
Weighted average number of units outstanding – basic
Dilutive effect related to the long-term incentive plan
Dilutive effect of convertible debentures
Weighted average number of units outstanding – diluted
2015
Units
2014
Units
167,867,983
136,024,611
179,968
179,753
—
10,671,791
168,047,951
146,876,155
The calculation of the diluted weighted average number of units outstanding does not take into account the effect of the
conversion into units of 8,411,533 options outstanding for the year ended December 31, 2015 [4,856,200 options in 2014]
since the exercise price of the options, including the unrecognized portion of the related compensation expense, is higher than
the average price of units. The calculation also does not take into account 5,663,207 units for the year ended December 31,
2015 relating to the dilutive effect of the convertible debentures as they are antidilutive for that period. The calculation of
diluted net income per unit also includes the elimination of interest at the effective rate on the convertible debentures of $nil
for the year ended December 31, 2015 [$13,191 in 2014].
92
22) SUPPLEMENTAL CASH FLOW INFORMATION
Changes in non-cash working capital items were as follows:
For the years ended December 31
Prepaid expenses and other assets
Accounts receivable
Accounts payable and accrued liabilities
Other information
Acquisitions of investment properties through assumption
of mortgages payable
Unpaid acquisitions and investments with respect to
investment properties
23) RELATED PARTY TRANSACTIONS
2015
$
(1,890)
(4,712)
(16,906)
(23,508)
2014
$
5,036
(8,650)
16,451
12,837
—
138,515
15,638
13,539
During fiscal 2015 and 2014, Cominar entered into transactions with companies controlled by unitholders who are also
officers of Cominar over which they have significant influence.
These transactions were entered into in the normal course of business and are measured at the exchange amount. They are
reflected in the consolidated financial statements as follows:
For the years ended December 31
Investment properties – Capital costs
Investment properties held by joint ventures – Capital costs
Share of joint ventures’ net income
Net rental revenue from investment properties
Interest income
As at December 31
Investments in joint ventures
Mortgage receivable
Accounts receivable – related parties
Accounts payable – related parties
Note
8
Note
8
10
15
2015
$
71,762
14,450
1,427
272
312
2015
$
74,888
8,250
701
8,804
2014
$
73,612
344
10,918
160
306
2014
$
41,633
8,250
398
3,455
93
24) KEY MANAGEMENT PERSONNEL COMPENSATION
Compensation of key management personnel is set out in the following table:
KEY MANAGEMENT PERSONNEL COMPENSATION
For the years ended December 31
Short-term benefits
Contribution to the retirement savings plans
Long term incentive plan
Total
2015
$
5,525
166
1,455
7,146
2014
$
4,218
131
1,071
5,420
Unit options granted to senior executives and other officers 0may not be exercised, even if they have vested, until the
following three conditions have been met. The first condition requires that the market price of the security must be at least
ten percent (10%) higher than the exercise price of the option, and this condition will be considered as met if the share price
has remained at such level for a period of twenty (20) consecutive trading days during the option’s term. The second condition
requires that the senior executive or other officer must undertake to hold a number of units corresponding to the multiple
determined for his base salary. The third condition is that when the options are exercised, if the senior executive or other
officer does not hold the required minimum number of units, he must retain at least five percent (5%) of the units purchased
until he has the multiple corresponding to his base salary.
25) CAPITAL MANAGEMENT
Cominar manages its capital to ensure that capital resources are sufficient for its operations and development, while
maximizing returns for unitholders by adequately maintaining the debt ratio. Cominar’s capital consists of cash and cash
equivalents, long-term debt, bank borrowings and unitholders’ equity.
Cominar’s capitalization is based on expected business growth and changes in the economic environment. It is not subject to
any capital requirements imposed by regulatory authorities.
Cominar’s capitalization is as follows:
As at December 31
Cash and cash equivalents
Mortgages payable
Debentures
Convertible debentures
Bank borrowings
Unitholders’ equity
Total capitalization
Debt ratio(1)
Interest coverage ratio(2)
2015
$
(5,250)
2,061,230
1,995,506
—
381,166
3,657,997
2014
$
(5,909)
1,968,919
1,945,627
183,081
457,323
3,410,431
8,090,649
7,959,472
53.9%
2.67:1
56.1%
2.67:1
(1) The debt ratio is equal to the total of cash and cash equivalents, bank borrowings, mortgages payable, debentures and convertible debentures divided by total assets
less cash and cash equivalents.
(2) The interest coverage ratio is equal to net operating income (operating revenues less operating expenses) less Trust administrative expenses divided by finance
charges.
Cominar’s Contract of Trust provides that it may not incur debt if, taking into consideration the debt thus incurred or assumed,
its total debt exceeds 60% of the carrying amount of its assets (65% if convertible debentures are outstanding). As at
December 31, 2015, Cominar had maintained a debt ratio of 53.9%.
94
The interest coverage ratio is used to assess Cominar’s ability to pay interest on its debt from operating revenues. As such, for
the year ended December 31, 2015, the interest coverage ratio was 2.67:1, reflecting Cominar’s capacity to meet its debt-
related obligations.
Capital management objectives remain unchanged from the previous period.
26) FAIR VALUE
Cominar uses a three-level hierarchy to classify its financial instruments and its non-financial assets. The hierarchy reflects
the relative weight of inputs used in the valuation of financial and non-financial assets and liabilities at fair value. The levels in
the hierarchy are:
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)
Level 3 – Inputs for the asset or liability that are not based on observable market data (i.e., unobservable inputs)
Cominar’s policy is to recognize transfers between hierarchy levels on the date of changes in circumstances that caused the
transfer. There was no transfer between hierarchy levels in fiscals 2015 and 2014.
The fair value of cash and cash equivalents, mortgages receivable, accounts receivable, accounts payable and accrued liabilities
and bank borrowings approximates the carrying amount since they are short-term in nature or bear interest at current market
rates.
The fair value of mortgages payable and debentures has been estimated based on current market rates for financial
instruments with similar terms and maturities.
The fair value of convertible debentures is based on the quoted market price at year-end.
CLASSIFICATION
Non-financial assets and their carrying amount and fair value as well as financial liabilities and their carrying amount and fair
value, when that fair value does not approximate the carrying amount, are classified as follows:
RECURRING VALUATIONS OF NON-FINANCIAL ASSETS
Income properties
Income properties held for sale
Land held for future development
FINANCIAL LIABILITIES
Mortgages payable
Debentures
Convertible debentures
December 31, 2015
December 31, 2014
Level
Carrying
amount
$
Fair
value
$
Carrying
amount
$
Fair
value
$
3
3
3
2
2
1
7,614,990
7,614,990
7,697,823
7,697,823
163,733
163,733
—
—
71,646
71,646
68,788
68,788
2,061,230
2,140,424
1,968,919
2,033,907
1,995,506
2,026,127
1,945,627
2,004,418
—
—
183,081
191,121
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27) FINANCIAL INSTRUMENTS
RISK MANAGEMENT
The main risks arising from Cominar’s financial instruments are credit risk, interest rate risk and liquidity risk. The strategy for
managing these risks is summarized below.
Credit risk
Credit risk arises from the possibility that tenants may experience financial difficulty and be unable to fulfill their lease
commitments.
Cominar mitigates credit risk via segment and geographic portfolio diversification, staggered lease maturities, and
diversification of revenue sources through a varied tenant mix as well as by avoiding dependence on any single tenant by
ensuring that no individual tenant contributes a significant portion of operating revenues and by conducting credit assessments
on all new tenants.
Cominar has a broad, highly diversified client base, consisting of approximately 6,000 tenants occupying an average area of
approximately 7,000 square feet each. The three largest tenants account for approximately 4.7%, 3.4% and 3.2% of net
operating income, respectively, representing several leases with staggered maturities. The stability and quality of cash flows
from operating activities are enhanced by the fact that approximately 9.6% of operating revenues comes from government
agencies.
Cominar regularly assesses its accounts receivable and records a provision for doubtful accounts when there is a risk of non-
collection.
The maximum credit risk to which Cominar is exposed corresponds to the carrying amount of accounts receivable, mortgage
receivable and cash and cash equivalents position.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in
market interest rates. Cominar’s objective in managing this risk is to minimize the net impact on future cash flows. Cominar
reduces its exposure to interest rate risk by staggering the maturities of its borrowings over several years and by generally
using long-term debt bearing interest at fixed rates.
Accounts receivable, except for the receivables bearing interest, and accounts payable and accrued liabilities do not bear
interest.
Nearly all mortgages payable (91%), debentures, except Series 6 debentures, and convertible debentures bear interest at fixed
rates.
Cominar is exposed to interest rate fluctuations mainly due to bank borrowings, the mortgage receivable and Series 6
debentures, which bear interest at variable rates.
As required under IFRS, a 25-basis-point increase or decrease in the average interest rate on variable interest debts during
the period, assuming that all other variables are held constant, would have resulted in a $2,138 increase or decrease in
Cominar’s net income for the year ended December 31, 2015 [$1,358 in 2014].
Liquidity risk
Liquidity risk is the risk that Cominar will be unable to meet its financial obligations as they come due.
Cominar manages this risk by managing its capitalization, continuously monitoring current and projected cash flows and
adhering to its capital management policy.
96
Undiscounted contractual cash flows (interest and principal) related to financial liabilities as at December 31, 2015 are as
follows:
Mortgages payable
Debentures(1)
Bank borrowings
Accounts payable and accrued liabilities(2)
Under
one year
$
347,720
327,688
10,863
107,349
Cash flows
One to
five years
$
1,102,821
1,479,823
409,229
—
Over
five years
$
1,090,271
527,238
—
—
Note
11
12
14
15
(1) The rate used for the variable rate debentures (Series 6) is the CDOR three-month rate plus 108 basis points as at year-end.
(2) Excludes consumption taxes and other non-financial liabilities
28) SEGMENT INFORMATION
Cominar’s activities include a diversified portfolio of three property types located in several Canadian provinces. The
accounting policies followed for each property type are the same as those disclosed in the significant accounting policies.
Cominar uses net operating income as its main criterion to measure operating performance, that is, operating revenues less
operating expenses of its investment properties. Management of expenses, such as interest and administrative expenses, is
centralized and, consequently, these expenses have not been allocated to Cominar’s segments.
The segments include Cominar’s proportionate share in joint ventures. The Joint ventures columns reconcile the segment
information including the proportionate share in assets, liabilities, revenues and charges, to the information presented in these
consolidated financial statements, where the investments in joint ventures are accounted for using the equity method.
The following tables provide financial information on Cominar’s three property types:
For the year ended
December 31, 2015
Rental revenue from investment
properties
Net operating income
Share of joint ventures’ net income
December 31, 2014
Rental revenue from investment
properties
Net operating income
Share of joint ventures’ net income
Office
properties
$
Retail
properties
$
Industrial and
mixed-use
properties
Cominar’s
proportionate
share Joint ventures
Consolidated
financial
statements
$
$
$
$
404,372
210,193
329,081
183,393
164,589
98,792
898,042
492,378
—
$
—
$
—
$
—
$
382,240
207,259
—
213,473
118,390
—
152,969
90,553
—
748,682
416,202
—
(8,867)
(4,890)
1,427
$
(8,798)
(4,923)
10,918
889,175
487,488
1,427
$
739,884
411,279
10,918
Office
properties
Retail
properties
Industrial and
mixed-use
properties
Cominar’s
proportionate
share Joint ventures
Consolidated
financial
statements
As at December 31, 2015
$
$
$
$
$
$
Income properties
3,253,449
3,002,584
1,450,542
7,706,575
(91,585)
7,614,990
Income properties held for sale
Investments in joint ventures
As at December 31, 2014
—
—
$
163,733
—
$
—
—
$
163,733
—
163,733
—
$
74,888
74,888
$
$
Income properties
3,349,259
3,070,310
1,364,973
7,784,542
(86,719)
7,697,823
Investments in joint ventures
—
—
—
—
41,633
41,633
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29) COMMITMENTS
The annual future payments required under emphyteutic leases expiring between 2046 and 2065, on land for three income
properties having a total fair value of $69,629, are as follows:
For the years ending December 31
2016
2017
2018
2019
2020
2021 and thereafter
Total
$
605
643
643
643
657
23,736
Cominar has no significant contractual commitments other than those arising from its long-term debt and payments due under
emphyteutic leases on land held for income properties.
30) SUBSEQUENT EVENTS
On January 13, 2016 and February 16, 2016, Cominar declared a monthly distribution of $0.1225 per unit for both of these
months.
On January 20, 2016 Cominar announced the suspension of the distribution reinvestment plan based on the fact that the
market value of units does not reflect the intrinsic value of Cominar and that units issued under the distribution reinvestment
plan offset the benefits generated by purchases of units made under Cominar’s NCIB. The suspension of the distribution
reinvestment plan does not affect the regular monthly cash distribution per unit.
On January 29, 2016, Cominar completed the sale of a portfolio of ten retail properties located in the Québec and Montréal
areas and in Ontario, for a sales price of $15.2 million at a 6.7% capitalization rate reflecting an increase in the fair value of
these properties in our books.
Under the NCIB, for a maximum number of 4,000,000 units, Cominar has repurchased, since the beginning of fiscal year
2016, 2,072,976 units at an average price of $14.46, for a total consideration of $29,985 paid cash. Since December 10,
2015, Cominar has repurchased, under this program, a total of 2,603,812 units at an average price of $14.49, for a total
consideration of $37,721 paid cash.
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CORPORATE
INFORMATION
BOARD OF TRUSTEES
Robert Després, M.Sc.C., FCPA (1)(3)
Chairman of the Board of Trustees
Cominar Real Estate Investment Trust
Corporate Director
Michel Dallaire, Eng.
President and Chief Executive Officer
Cominar Real Estate Investment Trust
Mary-Ann Bell, Eng., M.Sc., ASC (1)(2)
Corporate Director
Me Gérard Coulombe, c.r. (2)(3)
Senior Partner
Lavery, de Billy
Alain Dallaire
Executive Vice President, Operations –
Office and Industrial and Asset Management
Cominar Real Estate Investment Trust
KEY OFFICERS
Michel Dallaire, Eng.
Chief Executive Officer
Alban D’Amours, M.C., G.O.Q., FA dmA (1)(4)
Corporate Director
Ghislaine Laberge (2)(4)
Corporate Director
Johanne M. Lépine (3)(4)
President and Chief Executive Officer
Aon Parizeau Inc.
Michel Théroux, FCPA, FCA (1)(3)
Corporate Director
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nomination and Governance Committee
(4) Member of the Investment Committee
Todd Bechard, CPA, CMA, CFA
Executive Vice President, Acquisitions
Sylvain Cossette, B.C.L.
President and Chief Operating Officer
Jean Laramée, Eng.
Executive Vice President, Development
Gilles Hamel, CPA, CA
Executive Vice President
and Chief Financial Officer
Guy Charron, CPA, CA
Executive Vice President, Operations
Retail
Alain Dallaire
Executive Vice President, Operations
Office and Industrial and Asset Management
Michael Racine
Executive Vice President, Leasing
Office and Industrial
Manon Deslauriers
Vice President, Legal Affairs and
Corporate Secretary
99
UNITHOLDERS INFORMATION
COMINAR REAL ESTATE
INVESTMENT TRUST
UNITHOLDERS DISTRIBUTION
REINVESTMENT PLAN
in
to participate
Cominar Real Estate Investment Trust offers unitholders
the opportunity
its Unitholders
Distribution Reinvestment Plan (the “DRIP”). The DRIP
allows participants to receive their monthly distributions
as additional units of Cominar. In addition, participants
will be entitled to receive an additional distribution equal
to 3% of each cash distribution reinvested pursuant to the
DRIP, which will be reinvested in additional units.
On January 20, 2016 Cominar announced the suspension
of the DRIP. If Cominar elects to reinstate the DRIP in
the future, unitholders that were enrolled in the DRIP
at suspension and remain enrolled at reinstatement
will automatically resume participation
in the DRIP.
The suspension of the DRIP does not affect the regular
monthly cash distribution per unit.
For further information about the DRIP, please refer to
the DRIP section of our website at www.cominar.com or
contact us by email at info@cominar.com or contact the
Transfer Agent.
Complexe Jules-Dallaire – T3
2820 Laurier Boulevard, Suite 850
Québec, Quebec, Canada G1V 0C1
Tel.: 418 681-8151
Fax: 418 681-2946
Toll-free: 1-866 COMINAR
Email: info@cominar.com
Website: www.cominar.com
LISTING
The units of Cominar Real Estate Investment Trust are
listed on the Toronto Stock Exchange under the trading
symbol CUF.UN.
TRANSFER AGENT
Computershare Trust Company of Canada
1500 Robert-Bourassa Blvd., Suite 700
Montréal, Quebec, Canada H3A 3S8
Tel.: 514 982-7555
Fax: 514 982-7580
Toll-free: 1-800 564-6253
Email: service@computershare.com
TAXABILITY OF
DISTRIBUTIONS
In 2015, 73.94% of the distributions made by Cominar to
unitholders were tax deferred.
LEGAL COUNSEL
Davies Ward Phillips & Vineberg LLP
AUDITORS
PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l.
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101