Cominar REIT
Annual Report 2016

Plain-text annual report

1 34 DISTRIBUTIONS 35 LIQUIDITY AND CAPITAL RESOURCES 38 FINANCIAL INSTRUMENTS 40 PROPERTY PORTFOLIO 41 ACQUISITIONS, INVESTMENTS AND 43 REAL ESTATE OPERATIONS 45 ISSUED AND OUTSTANDING UNITS 45 RELATED PARTY TRANSACTIONS DISPOSITIONS CHANGES AND ESTIMATES DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING 46 46 SIGNIFICANT ACCOUNTING POLICIES 50 FUTURE ACCOUNTING POLICY 50 RISKS AND UNCERTAINTIES 57 CONSOLIDATED FINANCIAL 64 NOTES TO CONSOLIDATED 89 CORPORATE INFORMATION 90 UNITHOLDERS INFORMATION FINANCIAL STATEMENTS STATEMENTS HIGHLIGHTS DECEMBER 31, 2016 LOOKING STATEMENTS REAL ESTATE PORTFOLIO MESSAGE TO UNITHOLDERS MANAGEMENT’S DISCUSSION & ANALYSIS 4 6 9 10 HIGHLIGHTS OF THE YEAR ENDED 12 SUBSEQUENT EVENTS 12 CAUTION REGARDING FORWARD- 13 NON-IFRS FINANCIAL MEASURES 13 PERFORMANCE INDICATORS 14 FINANCIAL AND OPERATIONAL 15 SELECTED QUARTERLY 16 SELECTED ANNUAL INFORMATION 17 GENERAL BUSINESS OVERVIEW 17 OBJECTIVES AND STRATEGY 18 RECONCILIATIONS TO COMINAR’S 20 PERFORMANCE ANALYSIS 21 RESULTS OF OPERATIONS 29 FUNDS FROM OPERATIONS 31 ADJUSTED FUNDS FROM PROPORTIONATE SHARE INFORMATION OPERATIONS 2 3 PROPERTY PORTFOLIO 4 5 MESSAGE TO UNITHOLDERS 6 7 8 MD&A 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 fiscal year ended December 31, 2016, in comparison with the year 2015, as well as its financial position as at that date and its outlook. Dated March 7, 2017, 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. 9 HIGHLIGHTS OF THE YEAR ENDED DECEMBER 31, 2016 10 11 SUBSEQUENT EVENTS On January 10, 2017, Cominar filed a short form base shelf prospectus allowing it to issue up to $1.0 billion in securities during the 25-month period that this prospectus remains valid. On January 13, 2017 and February 15, 2017, Cominar declared a monthly distribution of $0.1225 per unit for both of these months. On January 31, 2017, Cominar completed the sale of one industrial and mixed-use property and one retail property located in the Toronto area, for a total sales price of $58.4 million, at an average capitalization rate of 7.0%. On March 3, 2017, Cominar completed the sale of a portfolio of 8 retail properties located in the Montréal area and in Ontario for a total sales price of $35.3 million, at a capitalization rate of 6.7 %. 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 2017 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 schedules and to raise capital to finance growth as well as the interest rate variations. We caution readers 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 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 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;  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;  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 2016 2015 % 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) 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 and diluted) Adjusted net income (diluted)(1) Recurring funds from operations (FD)(1)(2) Recurring adjusted funds from operations (FD)(1)(2) Distributions Payout ratio of recurring adjusted funds from operations(1) Cash payout ratio of recurring adjusted funds from operations(1) 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 the average net rent of renewed leases DEVELOPMENT ACTIVITIES Properties under development – Cominar’s proportionate share(1) 866,982 889,175 877,095 898,042 468,609 487,488 474,354 492,378 461,438 463,852 (2.5) (2.3) (3.9) (3.7) (0.5) 241,738 272,434 (11.3) (8.8) 7.6 (7.8) (8.5) 1.3 0.8 (13.6) (11.2) (9.5) (10.3) — 272,669 298,910 284,090 263,942 278,570 302,240 239,477 261,645 254,456 251,295 8,287,785 8,225,697 1.40 1.58 1.62 1.39 1.470 105.8% 98.0% 52.4% 2.65:1 4.23% 4.5 53.0% 1.62 1.78 1.79 1.55 1.470 94.8% 65.1% 53.9% 2.67:1 4.09% 4.5 53.6% 3,736,476 3,621,513 1.62:1 1.52:1 539 566 44,919 45,352 92.4% 68.2% 1.8% 91.9% 78.6% (1.5)% 63,647 65,574 21 21 22 23 23 28 29 33 30 32 34 20 28 29 30 32 34 32 32 37 37 37 37 38 38 38 40 40 43 43 43 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 and debentures divided by the total assets minus the total of cash and cash equivalents. (4) Net operating income less Trust administrative expenses divided by finance charges. (5) Senior unsecured debt divided by total debt. (6) Fair value of unencumbered income properties divided by the unsecured debt. 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 2016 Sept. 30, 2016 June 30, 2016 March 31, 2016 Dec. 31, 2015 Sept. 30, 2015 June 30, 2015 March 31, 2015 Financial statements 210,350 217,946 217,262 221,424 217,049 217,946 224,769 229,411 Operating revenues – Cominar’s proportionate share(4) Net operating income(4) – Financial statements Net operating income(4) – 213,008 220,371 219,859 223,857 219,201 220,102 226,871 231,868 114,301 124,569 116,069 113,670 122,775 122,854 122,793 119,066 Cominar’s proportionate share 115,790 126,055 117,456 115,053 123,958 124,057 124,111 120,252 Net income Adjusted net income(4) Cash flows provided by operating activities Recurring FFO(4) Recurring AFFO(4) Distributions PER UNIT Net income (basic and diluted) Adjusted net income (diluted)(4) Recurring FFO (FD)(3)(4) Recurring AFFO (FD)(3)(4) Distributions 26,341 (1) 77,529 (2) 67,996 66,805 69,787 69,787 68,081 68,081 53,000 (1) 77,244 73,995 75,097 74,286 75,416 71,153 71,153 102,031 120,213 70,869 60,142 67,156 68,011 57,698 63,513 23,214 70,855 61,788 61,817 38,632 107,679 100,635 68,835 59,849 61,970 78,169 67,989 63,198 75,900 65,429 62,959 25,427 76,188 65,711 62,769 30,201 71,983 62,516 62,369 0.14 (1) 0.37 0.39 0.33 0.46 0.39 0.40 0.34 0.41 0.41 0.42 0.37 0.40 0.40 0.41 0.35 0.31 (1) 0.45 0.46 0.40 0.44 0.44 0.45 0.39 0.44 0.45 0.45 0.39 0.43 0.43 0.44 0.38 0.3675 0.3675 0.3675 0.3675 0.3675 0.3675 0.3675 0.3675 (1) Includes the change in fair value of investment properties of-$46.7 million in 2016 [-$23.3 million in 2015]. (2) Includes the net proceeds of $10.7 million from the settlement approved by the court between Target Canada and its creditors. (3) Fully diluted (4) 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 2016 2015 2014 Operating revenues – Financial statements Operating revenues – Cominar’s proportionate share(4) Net operating income(4) – Financial statements Net operating income(4) – Cominar’s proportionate share Net income(2) Adjusted net income(4) Cash flows provided by operating activities Recurring FFO(4) Recurring AFFO(4) Distributions Total assets PER UNIT Net income (basic) Net income (diluted) Adjusted net income (diluted)(4) Recurring FFO (FD)(1)(4) Recurring AFFO (FD)(1)(4) Distributions 866,982 877,095 468,609 474,354 241,738 272,669 284,090 278,570 239,477 254,456 889,175 898,042 487,488 492,378 272,434 298,910 263,942 302,240 261,645 251,295 739,884 748,682 411,279 416,202 199,453 (3) 253,148 229,030 255,150 220,363 203,375 8,287,785 8,225,697 8,109,419 1.40 1.40 1.58 1.62 1.39 1.470 1.62 1.62 1.78 1.79 1.55 1.470 1.47 1.45 1.81 1.86 1.61 1.453 (1) Fully diluted (2) Includes the change in fair value of investment properties. (3) 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. (4) Non-IFRS financial measure. See relevant section for definition and reconciliation to closest IFRS measure. 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, 2016, Cominar owned and managed a high- quality portfolio of 539 properties including 134 office buildings, 168 retail buildings and 237 industrial and mixed-use buildings located in Quebec, Ontario, the Atlantic Provinces and Western Canada, representing a total leasable area of 44.9 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 $8.3 billion as at December 31, 2016. Cominar’s asset and property management is internalized. Cominar is an integrated and self-managed real estate investment operation. This property management structure enables us to rapidly and efficiently respond to our clients’ needs, while minimizing our operating cost. PROPERTIES SUMMARY AS AT DECEMBER 31, 2016 Segment Office Retail Industrial and mixed-use TOTAL Number of properties Leasable area (sq. ft.) Occupancy rate (%) 134 168 237 539 14,522,000 12,372,000 18,025,000 44,919,000 89.6 93.0 94.3 92.4 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 capital optimization strategy through asset dispositions. The net proceeds from the disposition of assets shall be used to pay down debt. Cominar targets a long-term debt to gross book value ratio of assets that should generally be about 50%. 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. Consolidated financial statements 2016 Joint ventures $ $ 2015 Cominar’s proportionate share(1) $ Consolidated financial statements $ Joint ventures $ Cominar’s proportionate share(1) $ As at December 31 ASSETS Investment properties Income properties Properties under development Land held for future development 45,776 90,820 17,871 41,288 63,647 132,108 49,114 71,646 7,676,134 99,197 7,775,331 7,614,990 91,585 16,460 32,333 7,706,575 65,574 103,979 7,812,730 158,356 7,971,086 7,735,750 140,378 7,876,128 Income properties held for sale 143,130 — 143,130 163,733 — 163,733 Investments in joint ventures 90,194 (90,194) — 74,888 (74,888) Goodwill Mortgage receivable Accounts receivable Prepaid expenses and other assets Cash and cash equivalents 166,971 8,250 42,518 14,139 9,853 — — 305 88 692 166,971 166,971 8,250 42,823 14,227 10,545 8,250 56,756 14,099 5,250 — — 1,122 71 221 — 166,971 8,250 57,878 14,170 5,471 Total assets 8,287,785 69,247 8,357,032 8,225,697 66,904 8,292,601 LIABILITIES Mortgages payable Mortgage payable related to a property held for sale Debentures Bank borrowings Accounts payable and accrued liabilities Deferred tax liabilities Total liabilities UNITHOLDERS’ EQUITY Unitholders’ equity 2,048,009 56,437 2,104,446 2,052,640 51,156 2,103,796 — 1,970,566 332,121 109,861 11,715 — — — 8,590 1,970,566 1,995,506 10,800 342,921 2,010 111,871 — 11,715 381,166 118,921 10,877 — — 8,590 1,995,506 12,501 3,247 — 393,667 122,168 10,877 4,472,272 69,247 4,541,519 4,567,700 66,904 4,634,604 3,815,513 — 3,815,513 3,657,997 — 3,657,997 Total liabilities and unitholders’ equity 8,287,785 69,247 8,357,032 8,225,697 66,904 8,292,601 (1) Non-IFRS financial measure. 18 For the quarters ended December 31 2016 2015 Consolidated financial statements Joint ventures $ $ Cominar’s proportionate share(1) $ Consolidated financial statements $ Joint ventures $ Cominar’s proportionate share(1) $ Operating revenues 210,350 2,658 213,008 217,049 2,152 219,201 Operating expenses 96,049 1,169 97,218 94,274 969 95,243 Net operating income 114,301 1,489 115,790 122,775 1,183 123,958 Finance charges Trust administrative expenses Share of joint ventures’ net income Change in fair value of investment (42,482) (4,490) 5,795 (692) (22) (5,795) (43,174) (41,652) (626) (42,278) (4,512) — (4,138) (399) (34) 399 (4,172) — properties (46,675) 5,020 (41,655) (23,322) (922) (24,244) Income before income taxes Income taxes 26,449 (108) Net income and comprehensive income 26,341 (1) Non-IFRS financial measure. — — — 26,449 53,264 (108) (264) 26,341 53,000 — — — 53,264 (264) 53,000 For the years ended December 31 2016 2015 Consolidated financial statements Joint ventures $ $ Cominar’s proportionate share(1) $ Consolidated financial statements $ Joint ventures $ Cominar’s proportionate share(1) $ Operating revenues 866,982 10,113 877,095 889,175 8,867 898,042 Operating expenses 398,373 4,368 402,741 401,687 3,977 405,664 Net operating income 468,609 5,745 474,354 487,488 4,890 492,378 Finance charges (170,645) (2,691) (173,336) (176,208) (2,507) (178,715) Trust administrative expenses (16,719) (68) (16,787) (16,384) (34) (16,418) Share of joint ventures’ net income 8,006 (8,006) — 1,427 (1,427) — Change in fair value of investment properties (46,675) 5,020 (41,655) (23,322) (922) (24,244) Income before income taxes 242,576 Income taxes (838) Net income and comprehensive income 241,738 (1) Non-IFRS financial measure. — — — 242,576 273,001 (838) (567) 241,738 272,434 — — — 273,001 (567) 272,434 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, 2016 and 2015, 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 assets LIABILITIES Mortgages payable 2016 2015 $ Δ % Δ 7,676,134 7,614,990 45,776 90,820 49,114 71,646 7,812,730 7,735,750 61,144 (3,338) 19,174 76,980 0.8 (6.8) 26.8 1.0 143,130 90,194 166,971 8,250 42,518 14,139 9,853 163,733 (20,603) (12.6) 74,888 166,971 8,250 56,756 14,099 5,250 15,306 20.4 — — — — (14,238) (25.1) 40 4,603 62,088 0.3 87.7 0.8 8,287,785 8,225,697 2,048,009 2,052,640 (4,631) (0.2) Mortgage payable related to a property held for sale — 8,590 (8,590) (100.0) 1,970,566 1,995,506 (24,940) (1.2) 332,121 109,861 11,715 381,166 118,921 10,877 (49,045) (12.9) (9,060) 838 (7.6) 7.7 (2.1) 4,472,272 4,567,700 (95,428) 3,815,513 8,287,785 3,657,997 157,516 8,225,697 62,088 4.3 0.8 Debentures Bank borrowings Accounts payable and accrued liabilities Deferred tax liabilities Total liabilities UNITHOLDERS’ EQUITY Unitholders’ equity Total liabilities and unitholders’ equity 20 RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table indicates the main changes in our results of operations for the periods ended December 31, 2016 and 2015, as shown in our consolidated financial statements: Quarter Year-to-date For the periods ended December 31 2016 2015 Operating revenues Operating expenses Net operating income Finance charges Trust administrative expenses 210,350 217,049 96,049 94,274 114,301 122,775 (42,482) (41,652) (4,490) (4,138) % Δ (3.1) 1.9 (6.9) 2.0 8.5 866,982 398,373 889,175 401,687 468,609 487,488 (170,645) (176,208) (16,719) (16,384) Share of joint ventures’ net income 5,795 (399) 1,552.4 8,006 1,427 2016 2015 % Δ Change in fair value of investment properties (46,675) (23,322) Income taxes Net income (108) (264) 26,341 53,000 100.1 (59.1) (50.3) OPERATING REVENUES (46,675) (23,322) (838) (567) 241,738 272,434 (11.3) (2.5) (0.8) (3.9) (3.2) 2.0 461.0 100.1 47.8 For the periods ended December 31 2016 2015 % Δ 2016 2015 % Δ Quarter Year-to-date Operating revenues – Financial statements 210,350 217,049 Operating revenues – Joint ventures 2,658 2,152 (3.1) 23.5 866,982 10,113 889,175 8,867 (2.5) 14.1 Operating revenues – Cominar’s proportionate share(1) (1) Non-IFRS financial measure. 213,008 219,201 (2.8) 877,095 898,042 (2.3) During fiscal 2016, operating revenues according to the financial statements decreased by 2.5% compared to fiscal 2015, primarily due to the dispositions of income properties completed in 2015 and 2016. For the periods ended December 31 2016 2015 % Δ 2016 2015 % Δ Quarter Year-to-date Same property portfolio – Financial statements 205,512 207,306 2,196 2,091 (0.9) 5.0 846,620 847,817 8,846 8,806 (0.1) 0.5 Same property portfolio – Joint ventures Same property portfolio(1) – Cominar’s proportionate share(2) Acquisitions, developments and dispositions – Financial statements Acquisitions and developments – Joint ventures Operating revenues – Cominar’s proportionate share(2) 207,708 209,397 (0.8) 855,466 856,623 (0.1) 4,838 462 9,743 (50.3) 61 657.4 20,362 1,267 41,358 (50.8) 61 1,977.0 213,008 219,201 (2.8) 877,095 898,042 (2.3) (1) The same property portfolio includes the properties owned by Cominar as at December 31, 2014, except for the properties sold in 2015 and 2016, but does not include the results of properties acquired and those under development in 2015 and 2016. (2) Non-IFRS financial measure. During fiscal 2016, operating revenues of the same property portfolio according to the financial statements remained stable compared to fiscal 2015. 21 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. 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, share of joint ventures’ net income, finance charges, Trust administrative expenses 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 2016 2015 % Δ 2016 2015 % Δ Quarter Year-to-date Net operating income – Financial statements 114,301 122,775 Net operating income – Joint ventures 1,489 1,183 (6.9) 25.9 468,609 487,488 5,745 4,890 (3.9) 17.5 Net operating income – Cominar’s proportionate share(1) (1) Non-IFRS financial measure. 115,790 123,958 (6.6) 474,354 492,378 (3.7) 22 During fiscal 2016, NOI according to the financial statements decreased by 3.9% from fiscal 2015, primarily due to the dispositions of income properties completed in 2015 and 2016. For the periods ended December 31 2016 2015 % Δ 2016 2015 % Δ Quarter Year-to-date Same property portfolio – Financial statements 111,224 115,660 1,228 1,139 (3.8) 7.8 456,501 459,006 4,937 4,846 (0.5) 1.9 Same property portfolio – Joint ventures Same property portfolio(1) – Cominar’s proportionate share(2) Acquisitions, developments and dispositions – Financial statements Acquisitions and developments – Joint ventures Net operating income – Cominar’s proportionate share(2) 112,452 116,799 (3.7) 461,438 463,852 (0.5) 3,078 260 7,115 (56.7) 44 490.9 12,109 807 28,482 (57.5) 44 1734.1 115,790 123,958 (6.6) 474,354 492,378 (3.7) (1) The same property portfolio includes the properties owned by Cominar as at December 31, 2014, except for the properties sold in 2015 and 2016, but does not include the results of properties acquired and those under development in 2015 and 2016. (2) Non-IFRS financial measure. For the periods ended December 31 2016 2015 % Δ 2016 2015 % Δ Quarter Year-to-date Operating segment Office Retail Industrial and mixed-use Same property portfolio net operating income – Cominar’s proportionate share(1) (1) Non-IFRS financial measure. 45,752 43,195 23,505 48,855 44,026 23,918 (6.4) (1.9) (1.7) 190,072 179,976 91,390 197,160 173,057 93,635 (3.6) 4.0 (2.4) 112,452 116,799 (3.7) 461,438 463,852 (0.5) Same property net operating income according to the financial statements decreased by 0.5% during fiscal 2016 from fiscal 2015. 23 The chart below 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. 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 2016 2015 % Δ 2016 2015 % Δ Quarter Year-to-date Operating segment Office Retail Industrial and mixed-use Net operating income – Cominar’s proportionate share(1) (1) Non-IFRS financial measure. 46,928 44,014 24,848 51,941 46,478 25,539 (9.7) (5.3) (2.7) 193,309 183,961 97,084 208,724 184,729 98,925 (7.4) (0.4) (1.9) 115,790 123,958 (6.6) 474,354 492,378 (3.7) For the periods ended December 31 2016 2015 2016 2015 Quarter Year-to-date Operating segment Office Retail Industrial and mixed-use 40.5% 38.0% 21.5% 41.9% 37.5% 20.6% 40.7% 38.8% 20.5% 42.4% 37.5% 20.1% 100.0% 100.0% 100.0% 100.0% Net operating income for the office segment decreased during fiscal 2016 compared with fiscal 2015, due mainly to the disposition of 2 income properties on September 30, 2015, and the lower average occupancy rate for this segment. 24 Net operating income for the retail segment decreased during fiscal 2016 compared with fiscal 2015, due mainly to the dispositions of income properties completed in 2016. Net operating income for the industrial and mixed-use segment decreased during fiscal 2016 compared with fiscal 2015, due mainly to the disposition of 1 income property on September 30, 2015. Cominar management is confident that the efforts of its leasing and property management teams will contribute to improving growth in these three segments in the next quarters. BY GEOGRAPHIC MARKET For the periods ended December 31 2016 2015 % Δ 2016 2015 % Δ Quarter Year-to-date Geographic market Québec Montréal Ontario(1) Atlantic Provinces Western Canada Net operating income – Cominar’s proportionate share(2) 27,258 61,058 17,048 4,704 5,722 28,275 64,795 (3.6) (5.8) 19,535 (12.7) 5,130 6,223 (8.3) (8.1) 111,611 246,334 72,035 21,031 23,343 113,174 253,698 79,701 20,903 24,902 (1.4) (2.9) (9.6) 0.6 (6.3) 115,790 123,958 (6.6) 474,354 492,378 (3.7) (1) For presentation purposes, the Gatineau area is included in the Ontario geographic market. (2) Non-IFRS financial measure. For the periods ended December 31 2016 2015 2016 2015 Quarter Year-to-date Geographic market Québec Montréal Ontario(1) Atlantic Provinces Western Canada 23.6% 52.7% 14.7% 4.1% 4.9% 22.8% 52.3% 15.8% 4.1% 5.0% 23.6% 51.9% 15.2% 4.4% 4.9% 23.0% 51.5% 16.2% 4.2% 5.1% 100.0% 100.0% 100.0% 100.0% (1) For presentation purposes, the Gatineau area is included in the Ontario geographic market. The decrease in net operating income in the Québec and Montréal areas and in Ontario for fiscal 2016 when compared to fiscal 2015 is due mainly to the disposition of income properties in 2015 and 2016. 25 NET OPERATING INCOME BY GEOGRAPHIC MARKET NET OPERATING INCOME BY OPERATING SEGMENT (1) For presentation purposes, the Gatineau area is included in the Ontario geographic market. 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 during the period, 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, during fiscal 2016, management revalued the entire real estate portfolio and determined that a decrease of $41.7 million (taking into account an upward adjustment of $5.0 million in the joint ventures) was necessary to adjust the carrying amount of investment properties to their fair value [decrease of $24.2 million in 2015]. In 2016, the fair value of investment properties from external valuations amounted to 14% [17% in 2015] 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. 26 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 2016 of 0.1% in the applied capitalization rates for the entire real estate portfolio would result in a decrease or increase of approximately $135.3 million [$124.6 million in 2015] in the fair value of its investment properties. Internally and externally used capitalization and discount rates are consistent. WEIGHTED AVERAGE CAPITALIZATION AND DISCOUNT RATES As at December 31 Québec Montréal Ontario Atlantic Provinces Western Canada 2016 2015 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% 6.1% 6.0% 7.2% 6.4% 6.2% 6.3% N/A N/A N/A 5.4% 5.6% 6.7% N/A N/A N/A N/A N/A N/A N/A N/A N/A 5.4% 5.6% 6.7% 6.2% 6.4% 7.0% 6.1% 5.8% 5.7% 7.7% 6.2% 5.9% 6.1% N/A N/A N/A 5.9% 6.1% 6.9% N/A N/A N/A N/A N/A N/A N/A N/A N/A 5.9% 6.1% 6.9% 6.1% 6.4% 7.0% 7.0% 6.8% 6.9% 7.7% 6.8% 6.9% 7.0% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 7.2% 7.3% 7.8% Capitalization rate 6.3 % 6.2 % 6.0 % 7.4 % 6.4 % 6.2 % 6.4% Discounted cash flow method Overall capitalization rate Terminal capitalization rate Discount rate N/A N/A N/A 5.6 % 5.8 % 6.7 % N/A N/A N/A N/A N/A N/A N/A N/A N/A 5.6 % 5.8 % 6.7 % 6.2% 6.4% 7.0% (1) For the year ended December 31, 2016, no industrial and mixed-use properties have been subject to external valuation according to the discounted cash flow method. 27 FINANCE CHARGES For the periods ended December 31 2016 2015 % Δ 2016 2015 % Δ Quarter Year-to-date Interest on mortgages payable Interest on debentures Interest on convertible debentures Interest on bank borrowings Net amortization of premium and discount on 22,152 20,898 — 2,091 21,544 19,864 — 2.8 5.2 — 3,306 (36.8) 87,780 83,456 — 9,747 88,959 80,150 (1.3) 4.1 7,010 (100.0) 9,931 (1.9) debenture issuances (203) (200) 1.5 (801) (787) 1.8 Amortization of deferred financing costs and other costs 898 891 0.8 3,771 6,664 (43.4) Amortization of fair value adjustments on assumed indebtedness Less: Capitalized interest(1) Total finance charges – Financial statements (1,468) (1,886) 42,482 (2,178) (32.6) (1,575) 19.7 (6,501) (6,807) 41,652 2.0 170,645 (9,483) (31.4) (6,236) 176,208 9.2 (3.2) Percentage of operating revenues 20.2% 19.2% Weighted average interest rate on total debt 19.7% 4.23% 19.8% 4.09% (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 $5.6 million decrease in finance charges for the year ended December 31, 2016, compared to fiscal 2015, was mainly due to a decrease in the average total debt for the year following the recent dispositions of income properties of $107.2 million and the issuance of $191.5 million of units on September 23, 2016, whose cash flow was used to pay down debt. TRUST ADMINISTRATIVE EXPENSES During fiscal 2016, Trust administrative expenses stood at $16.7 million, accounting for 1.9% of operating revenues, up $0.3 million from fiscal 2015. NET INCOME For the periods ended December 31 2016 2015 % Δ 2016 2015 % Δ Quarter Year-to-date Net income 26,341 53,000 (50.3) 241,738 272,434 (11.3) Net income per unit (basic and diluted) 0.14 0.31 (54.8) 1.40 1.62 (13.6) Weighted average number of units (basic) 181,566,067 170,156,688 172,131,831 167,867,983 Weighted average number of units (diluted) 181,735,991 170,249,416 172,505,427 168,047,951 Net income for fiscal 2016 amounted to $241.7 million, down $30.7 million compared to net income for fiscal 2015. This decrease resulted from the $18.9 million decrease in net operating income previously explained, a $5.6 million reduction in finance charges, a $0.3 million increase in Trust administrative expenses, a $6.6 million increase in the share of joint ventures’ net income, an increase in the devaluation of investment properties of $23.4 million and an increase in the provision for income taxes of $0.3 million compared to fiscal 2015. 28 ADJUSTED NET INCOME Adjusted net income is not an IFRS financial measure. The calculation method used by Cominar may differ from those used by other entities. Cominar calculates an adjusted net income to eliminate the change in fair value of investment properties, the net proceeds from the settlement of the claim against Target Canada and to eliminate 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 2016 2015 % Δ 2016 2015 % Δ Quarter Year-to-date Net income 26,341 53,000 (50.3) 241,738 272,434 (11.3) Change in fair value of investment properties – Cominar’s proportionate share Write-off of deferred financing costs(1) Other income – non-recurring(1) 41,655 24,244 71.8 41,655 24,244 71.8 — — — — — — — 2,232 (100.0) (10,724) — (100.0) Adjusted net income 67,996 77,244 (12.0) 272,669 298,910 (8.8) Adjusted net income per unit (diluted) 0.37 0.45 (17.8) 1.58 1.78 (11.2) Weighted average number of units (diluted) 181,735,991 170,249,416 172,505,427 168,047,951 (1) In 2016, net proceeds of $10.7 million were received from the settlement of the claim against Target Canada. 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. Adjusted net income for fiscal 2016 decreased by 8.8% from fiscal 2015, due mainly to the decrease in net operating income following the dispositions of income properties completed in 2015 and 2016. 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, changes in fair value of investment properties, deferred taxes, initial and re-leasing salary costs, adjustments relating to accounting of joint ventures under the equity method and transaction costs incurred upon a business combination. FFO is not a substitute for net income 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. 29 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 2016 2015 % Δ 2016 2015 % Δ Quarter Year-to-date Net income + Change in fair value of investment properties(2) + Deferred income taxes + Initial and re-leasing salary costs + Capitalizable interest on properties under development – joint ventures Funds from operations(2) + Write-off of deferred financing costs(1) - Other income – non-recurring(1) Recurring funds from operations(2) Per unit information: Recurring funds from operations (FD)(3)(4) Weighted average number of units outstanding for recurring funds from operations (FD)(3) 26,341 41,655 108 797 1,968 70,869 — — 53,000 (50.3) 241,738 272,434 (11.3) 24,244 71.8 264 661 (59.1) 20.6 41,655 838 3,095 24,244 567 2,763 71.8 47.8 12.0 — 100.0 1,968 — 100.0 78,169 (9.3) 289,294 300,008 (3.6) 70,869 78,169 (9.3) — — — — — 2,232 (100.0) (10,724) 278,570 — (100.0) 302,240 (7.8) 0.39 0.46 (15.2) 1.62 1.79 (9.5) 181,735,991 170,249,416 172,505,427 173,711,158 Payout ratio(5) Cash payout ratio(6) 94.2% 74.5% 79.9% 56.2% 90.7% 84.2% 82.1% 56.3% (1) In 2016, net proceeds of $10.7 million were received from the settlement of the claim against Target Canada. In 2015, $2.2 million of deferred financing costs were written off following the early repurchase of all Series E debentures effective on July 6, 2015 and Series D effective on September 8, 2015. (2) Including Cominar’s proportionate share in joint ventures. (3) Fully diluted. (4) 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 in an amount of $nil for the year ended December 31, 2016 [$8.0 million in 2015]. (5) The payout ratio corresponds to the distribution per unit, divided by fully diluted recurring FFO per unit. (6) The cash payout ratio corresponds to the cash distribution per unit, divided by fully diluted recurring FFO per unit. Recurring FFO for fiscal 2016 decreased by 7.8% from fiscal 2015, due mainly to the dispositions of income properties completed in 2015 and 2016. Recurring FFO per unit on a fully diluted basis stood at $1.62 for the year ended December 31, 2016, down 9.5% from fiscal 2015, due mainly to the dispositions of income properties completed in 2015 and 2016. TRACK RECORD OF RECURRING FUNDS FROM OPERATIONS PER UNIT For the years ended December 31 2016 2015 2014 2013 2012 Recurring funds from operations per unit (FD)(1) 1.62 1.79 1.86 1.77 1.78 (1) Fully diluted. 30 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. 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 and the recognition of leases on a straight-line basis, 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 its ability to maintain and increase distributions over the long term. AFFO is not an IFRS measure and should not be substituted for 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 the convertible debentures at their conversion price, if dilutive. 31 The following table presents a reconciliation of FFO and AFFO: ADJUSTED FUNDS FROM OPERATIONS For the periods ended December 31 2016 2015 % Δ 2016 2015 % Δ Quarter Year-to-date Funds from operations(1) - Net amortization of premium and discount on debenture issuances + Amortization of deferred financing costs(1) - Amortization of fair value adjustments of 70,869 78,169 (9.3) 289,294 300,008 (3.6) (203) 906 (200) 898 1.5 0.8 (801) 3,801 (787) 1.8 6,285 (39.5) assumed indebtedness (1,468) (2,178) (32.6) (6,501) (9,483) (31.4) + Amortization of fair value adjustment of bond investments — 6 (100.0) 12 51 (76.5) + Compensation expense related to long-term incentive plan 248 486 (49.0) 1,028 1,970 (47.8) - Capital expenditures – maintenance of rental income generating capacity (3,014) (2,483) 21.4 (8,498) (7,207) 17.9 + Accretion of the liability component of convertible debentures - Provision for leasing costs - Recognition of leases on a straight-line basis(1) - Other income – non-recurring(6) — (6,390) (806) — — — — 411 (100.0) (5,100) 25.3 (24,090) (22,300) 8.0 (1,609) (49.9) (4,044) (7,303) (44.6) — — (10,724) — (100.0) Recurring adjusted funds from operations(1) 60,142 67,989 (11.5) 239,477 261,645 (8.5) Per unit information: Recurring adjusted funds from operations (FD)(2)(3) Weighted average number of units outstanding for recurring adjusted funds from operations (FD)(2) 0.33 0.40 (17.5) 1.39 1.55 (10.3) 181,735,991 170,249,416 172,505,427 173,711,158 Payout ratio(4) Cash payout ratio(5) 111.4% 88.1% 91.9% 64.7% 105.8% 98.0% 94.8% 65.1% (1) Including Cominar’s proportionate share in joint ventures. (2) Fully diluted. (3) The calculation of fully diluted recurring adjusted funds from operations per unit includes elimination of interest on the dilutive convertible debentures in an amount of $nil for the year ended December 31, 2016 [$1.3 million in 2015]. (4) The payout ratio corresponds to the distribution per unit, divided by fully diluted recurring AFFO per unit. (5) The cash payout ratio corresponds to the cash distribution per unit, divided by fully diluted recurring AFFO per unit. (6) In 2016, net proceeds of $10.7 million were received from the settlement of the claim against Target Canada. Recurring AFFO for fiscal 2016 decreased by 8.5% compared with fiscal 2015, due mainly to the dispositions of income properties completed in 2015 and 2016. Fully diluted recurring AFFO per unit totalled $1.39 for the year ended December 31, 2016, down 10.3% from fiscal 2015. TRACK RECORD OF RECURRING ADJUSTED FUNDS FROM OPERATIONS PER UNIT For the years ended December 31 2016 2015 2014 2013 2012 Recurring adjusted funds from operations per unit (FD)(1) 1.39 1.55 1.61 1.54 1.50 (1) Fully diluted. 32 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. The Canadian Securities Administrators (“CSA”) requires Cominar to reconcile cash flows provided by operating activities as shown in the consolidated financial statements to adjusted funds from operations (non-IFRS measures) presented in this Management’s Discussion & Analysis. The following table presents this reconciliation: For the periods ended December 31 2016 2015 2016 2015 Quarter Year-to-date Cash flows provided by operating activities as per the consolidated financial statements + Adjustments – Investments in joint ventures(1) - Amortization of other assets - Provision for leasing costs + Initial and re-leasing salary costs + Capitalizable interest on properties under development – Joint ventures + Change in non-cash working capital items - Capital expenditures – maintenance of rental income generating capacity - Other income – non-recurring(2) Recurring adjusted funds from operations(1) 102,031 107,679 284,090 263,942 2 (260) (6,390) 797 444 (404) 2,103 (1,121) 2,018 (1,079) (5,100) (24,090) (22,300) 661 3,095 2,763 1,968 — (34,992) (32,808) (3,014) (2,483) — — 60,142 67,989 1,968 (7,346) (8,498) (10,724) 239,477 — 23,508 (7,207) — 261,645 (1) Including Cominar’s proportionate share in joint ventures. (2) In 2016, net proceeds of $10.7 million were received from the settlement of the claim against Target Canada. 33 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 disposition of investment properties and certain other items not affecting cash, if applicable. DISTRIBUTIONS TO UNITHOLDERS For the periods ended December 31 2016 2015 % Δ 2016 2015 % Δ Quarter Year-to-date Cash distributions 53,119 44,492 19.4 236,000 172,512 36.8 Distributions reinvested under the distribution reinvestment plan(1) Distributions to unitholders Percentage of distributions reinvested Per unit distributions 14,037 67,156 20.9% 0.3675 18,706 (25.0) 6.3 63,198 29.6% 0.3675 18,456 254,456 7.3% 1.4700 78,783 (76.6) 251,295 1.3 31.4% 1.4700 (1) This amount includes units to be issued under the plan upon payment of distributions. Distributions to unitholders for the fourth quarter of 2016 totalled $67.2 million, up 6.3% from the corresponding period of 2015 and $254.5 million for the year ended December 31, 2016, up 1.3% from fiscal 2015. On September 14, 2016, Cominar announced the resumption of its Distribution Reinvestment Plan, suspended since January 20, 2016. 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 2016 2015 2014 Net income 241,738 272,434 199,453 Cash flows provided by operating activities as per the consolidated financial statements Distributions to unitholders Cash distributions Excess of cash flows from operating activities over cash distributions to unitholders 284,090 254,456 236,000 48,090 263,942 251,295 172,512 91,430 229,030 203,375 142,517 86,513 For the year ended December 31, 2016 and the previous years, cash flows from operating activities were sufficient to fund cash distributions to unitholders. 34 The chart below presents Cominar’s distributions over the past 10 years. DISTRIBUTIONS PAID (1) Amount of distribution in dollars per unit. LIQUIDITY AND CAPITAL RESOURCES During fiscal 2016, Cominar generated $284.1 million in cash flows from operating activities. Cominar foresees no difficulty in meeting its short-term obligations and its commitments, including the regular payment of its distributions, using the funds from operations, refinancing of mortgages payable, debenture or unit issuances, amounts available on its credit facility and cash and cash equivalents. On January 10, 2017, Cominar filed a short form base shelf prospectus allowing it to issue up to $1.0 billion in debt or equity instruments during the 25-month period that this prospectus remains valid. MORTGAGES PAYABLE As at December 31, 2016, the nominal balance of mortgages payable was $2,046.0 million, down $5.3 million from $2,051.3 million as at December 31, 2015. This decrease is explained by contracted net mortgages payable for $241.6 million at a weighted average contractual rate of 3.50%, by the repayments of balances at maturity for $192.0 million at a weighted average contractual rate of 5.44% and by the monthly repayments of capital for $54.9 million. As at December 31, 2016, the weighted average contractual rate was 4.37%, down 9 basis points from 4.46% as at December 31, 2015. As at December 31, 2016, the effective weighted average interest rate was 4.09%, compared to 4.05% as at December 31, 2015. Cominar’s mortgages payable contractual maturity dates are staggered over a number of years to reduce risks related to renewal. As at December 31, 2016, the residual weighted average term of mortgages payable was 5.5 years, compared to 5.4 years as at December 31, 2015. 35 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 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 and thereafter Total 56,418 45,986 38,490 39,890 38,987 37,655 33,414 24,679 17,583 5,850 10,157 198,088 443,806 4,141 82,013 89,437 56,036 254,650 181,733 29,548 345,685 11,711 254,506 489,792 42,631 121,903 128,424 93,691 288,064 206,412 47,131 351,535 21,868 349,109 1,696,848 2,045,957 4.60% 4.94% 6.18% 4.37% 5.48% 4.14% 4.56% 4.21% 3.55% 3.51% 4.19% 4.37% SENIOR UNSECURED DEBENTURES The following table presents the features of Cominar’s senior unsecured debentures: Series 1 Series 2 Series 3 Series 4 Series 7 Series 8 Series 9 Date of issuance Contractual interest rate Effective interest rate Dates of interest payments June 2012(1) 4.274% 4.32% June 15 and December 15 June 4 and Maturity date Nominal value as at December 31, 2016 $ June 2017 250,000 December 2012(2) 4.23% 4.37% December 4 December 2019 300,000 May 2013 4.00% 4.24% November 2 November 2020 100,000 May 2 and July 2013(3) 4.941% 4.81% September 2014 3.62% 3.70% July 27 and January 27 December 21 and June 21 June 8 and July 2020 300,000 June 2019 300,000 December 2014 4.25% 4.34% December 8 December 2021 200,000 June 2015 4.164% 4.25% June 1 and December 1 May 23 and November 23 June 2022 300,000 May 2023 225,000 Series 10 May 2016 4.247% 4.34% Weighted average interest rate 4.23% 4.30% Total 1,975,000 (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). On May 20, 2016, Cominar issued $225.0 million in Series 10 senior unsecured debentures bearing interest at a rate of 4.247% and maturing in May 2023. On September 21, 2016, Cominar reimbursed at maturity its Series 6 senior unsecured debentures totalling $250.0 million and bearing interest at a variable rate using its unsecured revolving operating and acquisition credit facility. As at December 31, 2016, the residual weighted average term of senior unsecured debentures was 3.7 years. 36 BANK BORROWINGS As at December 31, 2016, Cominar had an unsecured revolving operating and acquisition credit facility of up to $700.0 million maturing in August 2019. This credit facility bears interest at the prime rate plus 70 basis points or at bankers’ acceptance rate plus 170 basis points. This credit facility contains certain covenants, with which Cominar was in compliance as at December 31, 2016. As at December 31, 2016, bank borrowings totalled $332.1 million and cash available was $367.9 million. DEBT SUMMARY As at December 31 Mortgages payable Debentures Bank borrowings Total debt 2016 Weighted average contractual rate Residual weighted average term 2015 Weighted average contractual rate $ 4.37% 4.23% 2.81% 4.23% 5.5 years 2,061,230 3.7 years 1,995,506 2.6 years 381,166 4.5 years 4,437,902 4.46% 3.95% 2.85% 4.09% Residual weighted average term 5.4 years 3.9 years 2.6 years 4.5 years $ 2,048,009 1,970,566 332,121 4,350,696 As at December 31, 2016, the weighted average interest rate on Cominar’s total debt was 4.23% compared to 4.09% as at December 31, 2015, due mainly to the issuance, in May 2016, of $225.0 million of senior unsecured debentures bearing interest at 4.247%, whose net proceeds were used to repay the operating credit facility outstanding, which was then used for the reimbursement in September 2016 of $250.0 million of senior unsecured debentures bearing interest at a variable rate. DEBT RATIO The following table presents the changes in the debt ratio: As at December 31 Cash and cash equivalents Mortgages payable Debentures Bank borrowings Total net debt Total assets less cash and cash equivalents Debt ratio(1)(2) 2016 2015 (9,853) 2,048,009 1,970,566 332,121 4,340,843 8,277,932 52.4% (5,250) 2,061,230 1,995,506 381,166 4,432,652 8,220,447 53.9% (1) The debt ratio is equal to the total of cash and cash equivalents, bank borrowings, mortgages payable and 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. Including the dispositions of income properties completed on January 31, 2017 and March 3, 2017, for aggregate proceeds of disposition of $93.7 million, the pro-forma debt ratio was 51.9% as at December 31, 2016. In accordance with Cominar’s financial management policies on maintaining a sound and strong financial position over the long-term, Cominar developed a capital optimization strategy through asset dispositions. The net proceeds from the disposition of assets shall be used to pay down debt. Cominar targets a long-term debt to gross book value ratio of assets that should generally be about 50%. INTEREST COVERAGE RATIO Cominar calculates its interest coverage ratio by dividing net operating income less Trust administrative expenses by finance charges. The interest coverage ratio is used to assess Cominar’s ability to pay interest on its total debt from operating revenues. As at December 31, 2016, the annualized interest coverage ratio stood at 2.65:1 [2.67:1 as at December 31, 2015], evidence of its capacity to meet its interest payment obligations. 37 UNENCUMBERED ASSETS AND UNSECURED DEBTS The following table presents information on Cominar’s unencumbered income properties and senior unsecured debts: As at December 31 2016 2015 Number of properties Fair value of properties ($) Number of properties Fair value of properties ($) Unencumbered income properties 322 3,736,476 326 3,621,513 Unencumbered assets to unsecured debt ratio(1)(2) Senior unsecured debts-to-total-debt ratio(2)(3) 1.62:1 53.0% 1.52:1 53.6% (1) Fair value of unencumbered income properties divided by the unsecured debt. (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. As at December 31, 2016, Cominar owned unencumbered income properties whose fair value was approximately $3.7 billion. The unencumbered assets to unsecured debt ratio stood at 1.62:1. OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL COMMITMENTS Cominar has no off-balance sheet arrangements that have or are likely to have a material 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 December 31, 2016 December 31, 2015 Level Carrying amount $ Fair value $ Carrying amount $ Fair value $ 2 2 2,048,009 2,104,025 2,061,230 2,140,424 1,970,566 2,019,802 1,995,506 2,026,127 Cominar uses a three-level hierarchy to classify its financial instruments. 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 fiscal years 2016 and 2015. 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. 38 The fair value of mortgages payable and debentures has been estimated based on current market rates for financial instruments with similar terms and maturities. 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 retail client base consisting of about 5,900 clients occupying an average of approximately 7,100 square feet each. The top three clients, Public Works Canada, Société québécoise des infrastructures and Canadian National Railway Company, account respectively for approximately 4.9%, 4.8% and 4.0% of operating revenues from several leases with staggered maturities. The stability and quality of cash flows from operating activities are enhanced by the fact that approximately 10.5% of operating revenues come from government agencies, representing approximately 100 leases. 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. All mortgages payable and debentures bear interest at fixed rates. Cominar is exposed to interest rate fluctuations mainly due to bank borrowings and the mortgage receivable, 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 $1.5 million increase or decrease in Cominar’s net income for the year ended December 31, 2016 [$2.1 million in 2015]. 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. 39 Undiscounted contractual cash flows (interest and principal) related to financial liabilities as at December 31, 2016 are as follows: Under one year $ 329,818 328,263 9,964 99,099 Cash flows One to five years Over five years $ $ 1,057,500 1,413,820 347,896 — 1,173,312 544,783 — — Mortgages payable Debentures Bank borrowings Accounts payable and accrued liabilities(1) (1) Excludes consumption taxes and other non-financial liabilities PROPERTY PORTFOLIO The following table presents information on the property portfolio, including Cominar’s proportionate share: As at December 31 2016 2015 Δ % 0.9 7,706,575 163,733 (12.6) Income properties – Cominar’s proportionate share(1) Income properties held for sale Properties under development and land held for future development – Cominar’s 7,775,331 143,130 proportionate share(1) Number of income properties Leasable area (sq. ft.) (1) Non-IFRS financial measure. 195,755 169,553 15.5 539 566 44,919,000 45,252,000 SUMMARY BY OPERATING SEGMENT As at December 31 2016 2015 Office Retail Industrial and mixed-use Total Number of properties Leasable area (sq. ft.) Number of properties Leasable area (sq. ft.) 134 168 237 539 14,522,000 12,372,000 18,025,000 44,919,000 134 197 235 566 14,574,000 12,890,000 17,888,000 45,352,000 SUMMARY BY GEOGRAPHIC MARKET As at December 31 2016 2015 Québec Montréal Ontario(1) Atlantic Provinces Western Canada Total Number of properties Leasable area (sq. ft.) Number of properties Leasable area (sq. ft.) 129 288 48 60 14 10,139,000 25,254,000 5,703,000 2,715,000 1,108,000 136 301 55 60 14 10,312,000 25,462,000 5,774,000 2,698,000 1,106,000 539 44,919,000 566 45,352,000 (1) For presentation purposes, the Gatineau area is included in the Ontario geographic market. 40 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. 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 asset dispositions. TRANSFER TO INCOME PROPERTIES During the third quarter of 2016, Cominar completed the construction of an industrial and mixed-use property that was transferred from properties under development to income properties. Located in Québec, this $5.6 million property, with a leasable area of 46,000 square feet, has an occupancy rate of 100% and its capitalization rate is 8.5%. During the fourth quarter of 2016, Cominar completed the construction of two properties that were transferred from properties under development to income properties. The first one, a $2.3 million retail property located in Trois-Rivières with a leasable area of 6,000 square feet, has an occupancy rate of 100% and its capitalization rate is 7.6%. The second one, a $20.0 million industrial and mixed-use property located in Laval with a leasable area of 130,000 square feet, has an occupancy rate of 100 % and its capitalization rate is 8.4%. These properties have been subject to an overall increase in their carrying amount to their fair value of $3.8 million when transferred to income properties. DISPOSITIONS OF INCOME PROPERTIES HELD FOR SALE On January 29, 2016, Cominar completed the sale of a portfolio of 10 retail properties located in Quebec and Ontario, for a total price of $14.9 million, net of costs to sell, at a capitalization rate of 6.7%. The net sale proceeds of these properties were used to repay a portion of the credit facility as well as to repurchase units under the NCIB. On March 31, 2016, Cominar completed the sale of a portfolio of 14 retail properties located in Quebec and Ontario, for a total price of $55.5 million, net of costs to sell, at a capitalization rate of 7.1%. The net sale proceeds of these properties were used to repay a portion of the credit facility. On May 2, 2016, Cominar completed the sale of a portfolio of 5 retail properties located in the Québec and Montréal areas, for a total price of $39.3 million, net of costs to sell, at a capitalization rate of 7.0%. The net sale proceeds of these properties were used to repay a portion of the credit facility. On December 19, 2016, Cominar completed the sale of two retail properties located in the Montréal area, for a total price of $5.9 million, net of costs to sell, at a capitalization rate of 5.6%. The net sale proceeds of these properties were used to repay a portion of the credit facility. The properties sold by Cominar during fiscal 2016 have been subject to an overall decrease in their carrying amount to their fair value of $1.4 million. These properties had been subject to an increase in their carrying amount to their fair value of $4.8 millions in 2015. INVESTMENTS IN INCOME PROPERTIES 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 2016, Cominar incurred $110.7 million [$108.2 million in 2015] in capital expenditures particularly to increase the rental income generating capacity of its properties or to reduce the related operating expenses. During fiscal 2016, Cominar also incurred $8.5 million [$7.2 million in 2015] 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. 41 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 2016, Cominar made investments of $45.0 million in this respect [$32.8 million in 2015]. INCOME PROPERTIES HELD FOR SALE Cominar has undertaken a process of selling some income properties and plans to close these transactions over the next months. Cominar’s management intends to use the total net proceeds of these dispositions to pay down debt. Here is the fair value of these income properties less costs to sell by operating segment as at December 31, 2016: Retail $ Industrial and mixed-use $ Total $ Income properties held for sale 93,630 49,500 143,130 PROPERTIES UNDER CONSTRUCTION AND DEVELOPMENT PROJECTS Cominar owns an office property currently 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 $31.8 million, including leasing costs and leasehold improvements. The occupancy rate of this property is currently 75 % and occupancy will continue in 2017. 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. This project, Espace Bouvier, will consist of an office building of approximately 83,000 square feet and five retail buildings totalling 194,000 square feet. The first retail building, a property of 65,000 square feet 100% leased by a single tenant, was delivered in December 2015. The second retail building, a property of 25,000 square feet 100% leased by a single tenant, was delivered to the tenant in May 2016. The third retail building, a property of 9,000 square feet 100% leased by a single tenant, was completed and delivered to the tenant towards the end of 2016. The office building, the construction cost of which is estimated at $16.5 million, is currently 57% leased. The delivery is scheduled for the next quarters. The construction cost of the last two retail buildings totalling 95,000 square feet is estimated at $12.0 million. The expected weighted average capitalization rate of these properties is estimated at 8.8%. Moreover, Cominar, at 75%, and Groupe Dallaire Inc., are in joint ventures for the purpose of commercial land development strategically located in Québec. During the first quarter of 2017, Cominar will start the work to develop a new commercial centre located on Highway 40, one of the main arteries of Québec, which will be developed around the new IKEA store announced in the fall of 2016. This commercial complex of approximately 415,000 square feet will have eight buildings of various sizes. The first phases will be delivered in the third quarter of 2018, when the brand new IKEA store opens. When completed, this $85 million project will have a capitalization rate of 8.5%. 42 REAL ESTATE OPERATIONS OCCUPANCY RATE As at December 31, 2016, the average occupancy rate of our properties was 92.4%, compared to 91.9% as at December 31, 2015. The following table presents the occupancy rates by operating segment. OCCUPANCY RATE TRACK RECORD December 31, 2016 December 31, 2015 December 31, 2014 December 31, 2013 December 31, 2012 Operating segment (%) Office Retail Industrial and mixed-use Portfolio total 89.6 93.0 94.3 92.4 90.3 90.3 94.3 91.9 93.5 94.7 94.9 94.4 93.3 94.2 92.4 93.1 94.3 94.6 93.1 93.9 LEASING ACTIVITY The following table summarizes Cominar’s leasing activity in 2016: Leases that matured in 2016 Number of clients Leasable area (sq. ft.) Average minimum rent ($/sq. ft.) Renewed leases in 2016 Number of clients Leasable area (sq. ft.) Average minimum rent of renewed leases ($/sq. ft.) Retention rate (%) New leases in 2016 Number of clients Leasable area (sq. ft.) Average minimum rent ($/sq. ft.) Office Retail Industrial and mixed-use Total 414 563 303 1,280 2,015,000 1,611,000 3,088,000 6,714,000 17.18 21.69 6.12 12.97 259 433 214 906 1,146,000 1,352,000 2,078,000 4,576,000 17.31 56.9 135 759,000 15.88 21.09 83.9 161 619,000 14.67 6.30 67.3 13.13 68.2 110 406 1,364,000 2,742,000 5.42 10.21 In 2016, 15.2% of leasable area expired. 68.2% [78.6% in 2015] of these leases have been renewed and new leases were also signed, representing 2.7 million square feet of leasable area. Overall in 2016, 109.0% of the total leasable area maturing during the year was either renewed or subject to a new lease. GROWTH IN THE AVERAGE NET RENT OF RENEWED LEASES For the years ended December 31 Operating segment Office Retail Industrial and mixed-use Portfolio total 2016 % 2.0 (1.0) 2.5 1.8 2015 % (5.1) (1.7) 3.6 (1.5) Growth in the average net rent of renewed leases was 1.8% for the year ended December 31, 2016. 43 LEASE MATURITIES Office Leasable area (sq. ft.) Average minimum rent ($/sq. ft.) % of portfolio – Office Retail Leasable area (sq. ft.) Average minimum rent ($/sq. ft.) % of portfolio – Retail Industrial and mixed-use Leasable area (sq. ft.) 2017 2018 2019 2020 2021 2,132,000 2,246,000 1,816,000 1,113,000 1,357,000 17.27 14.7 17.84 15.5 18.16 12.5 18.16 7.7 17.15 9.3 2,198,000 2,306,000 1,642,000 1,296,000 1,213,000 18.93 17.8 16.64 18.6 18.97 13.3 22.65 10.5 22.86 9.8 3,826,000 2,313,000 1,354,000 2,161,000 1,590,000 Average minimum rent ($/sq. ft.) % of portfolio – Industrial and mixed-use 6.70 21.2 6.98 12.8 7.60 7.5 6.84 12.0 6.77 8.8 Portfolio total Leasable area (sq. ft.) Average minimum rent ($/sq. ft.) % of portfolio 8,156,000 6,865,000 4,812,000 4,570,000 4,160,000 12.56 18.2 13.67 15.3 15.39 10.7 14.03 10.2 14.79 9.3 The following table summarizes information on leases as at December 31, 2016: Office Retail Industrial and mixed-use Portfolio average Average remaining lease term Average leased area per client Average minimum rent/ sq. ft. years 4.5 4.3 4.4 4.4 sq. ft. 6,900 4,200 13,700 7,100 $ 17.54 18.73 6.71 13.35 Cominar has a broad, highly diversified retail client base consisting of about 5,900 clients occupying an average of approximately 7,100 square feet each. The top three clients, Public Works Canada, Société québécoise des infrastructures and Canadian National Railway Company, account respectively for approximately 4.9%, 4.8% and 4.0% of operating revenues from several leases with staggered maturities. The stability and quality of cash flows from operating activities are enhanced by the fact that approximately 10.5% of operating revenues come from government agencies, representing approximately 100 leases. The following table presents our top ten clients by percentage of operating revenues: Client Public Works Canada Société québécoise des infrastructures Canadian National Railway Company Scotiabank Thales Canada Harvest Operations Corp. Shoppers Drug Mart Dollarama Jean Coutu Group Kraft Canada Total 44 % of operating revenues 4.9 4.8 4.0 1.1 0.8 0.8 0.7 0.6 0.6 0.6 18.9 ISSUED AND OUTSTANDING UNITS In 2015, Cominar obtained the approval of the Toronto Stock Exchange to set up a NCIB for up to 4,000,000 units. The bid expired on September 1, 2016. In 2016, Cominar has repurchased a total of 2,717,396 units at an average price of $15.01, for a total consideration of $40.8 million paid cash. On September 14, 2016, Cominar announced the resumption of its Distribution Reinvestment Plan, suspended since January 20, 2016. In 2016, Cominar has issued 1,265,157 units under the distribution reinvestment plan at an average price of $14.59. On September 23, 2016, Cominar closed a public offering of 12,780,000 units at a price of $15.65 per unit. The total net proceeds to Cominar amounted to $191.7 million, after deducting the underwriters’ fee and the expenses of the offering. The net proceeds of the offering were used to pay down the unsecured revolving operating and acquisition credit facility. For the years ended December 31 2016 2015 Units issued and outstanding, beginning of year + Public offering - Repurchase of units under NCIB + Exercise of options + Distribution reinvestment plan + Conversion of convertible debentures + Conversion of deferred units and restricted units Units issued and outstanding, end of year Additional information Issued and outstanding units Outstanding unit options Deferred units and restricted units 170,912,647 12,780,000 (2,717,396) — 1,265,157 — 94,154 158,689,195 7,901,650 (530,836) 266,200 4,582,780 3,658 — 182,334,562 170,912,647 March 7, 2017 182,706,055 12,320,950 280,217 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 2015 and 2016, 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 – Acquisitions 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 Accounts payable 2016 $ 86,639 6,204 2,958 8,006 301 280 2016 $ 90,194 8,250 1,182 7,624 2015 $ 71,762 31,276 14,450 1,427 272 312 2015 $ 74,888 8,250 701 8,804 45 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 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 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, 2016, 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 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, 2016, 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 2016 that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting. 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. 46  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 CGUs, 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 amount 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.  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. 47 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, land held for future development and income properties held for sale. 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 during the period, where applicable. 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. Income properties held for sale are measured at fair value less estimated selling expenses. 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 amount 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. 48 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, 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 and 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. 49  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. 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. The adoption of this new standard will have no significant impact on Cominar’s consolidated financial statements since no important changes were made to the accounting model by the lessor. 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. RISK FACTORS RELATED TO THE BUSINESS OF COMINAR ACCESS TO CAPITAL AND DEBT FINANCING, AND CURRENT GLOBAL FINANCIAL CONDITIONS The real estate industry is capital intensive. Cominar requires 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, 50 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. Cominar’s access to the unsecured debenture market and the cost of Cominar’s borrowings under the Unsecured Revolving Credit Facility are also dependent on its credit rating. A negative change in its credit rating could materially adversely impact Cominar. See “Risk and Uncertainties – Risk Factors Related to the Ownership of Securities – Credit rating”. Market events and conditions, including disruptions in international and regional credit markets and in 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, including the Province of Alberta, is currently being adversely impacted by volatile oil prices. Failure to raise or access 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 its acquisition and development program. DEBT FINANCING Cominar has and will continue to have substantial outstanding consolidated borrowings comprised primarily of hypothecs, property mortgages, debentures, bridge loan, and borrowings under its acquisition and operating credit facilities. 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 able to refinance its existing debt or renegotiate the terms of repayment at favourable rates. In addition, the terms of Cominar’s indebtedness provide that, upon an event of default, such indebtedness becomes immediately due and payable and distributions that may be made by Cominar may be restricted. 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 2019. Cominar is exposed to debt financing risks, including the risk that the existing hypothecary borrowings 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 hypothecary borrowings, 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 hypothecary borrowings on such properties become due for refinancing. In the event the credit rating assigned by DBRS to Cominar and the Unsecured Debentures were to be downgraded, Cominar could be materially adversely impacted. See “Risk and Uncertainties – Risk Factors Related to the Ownership of Securities – Credit rating”. 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. Due to difficult conditions in the Canadian retail environment, certain retailers have announced the closure of their stores, including Target Canada Co. and other retailers, who were or are, as the case may be, tenants of Cominar. Other retailers may follow. The existing difficult retail environment is also impacting certain retail tenants of Cominar. Cominar has also been impacted by vacancies in the Montréal area’s suburban office market and the Ottawa office market. The Calgary office market is also adversely impacted by volatile oil prices. 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 Cominar’s properties cannot be leased on economically favourable lease terms, or simply re-leased. 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 Cominar’s properties will be affected by many factors, including the level of general economic activity and competition for tenants by other properties. Significant 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. 51 Certain significant expenditures, including property taxes, maintenance and operating costs, hypothecary 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 hypothecary 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 amount 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. ENVIRONMENTAL MATTERS Environmental and ecological legislation and 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 remediation of certain hazardous or toxic substances released on or in its 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 its properties, nor is Cominar aware of any environmental condition with respect to any of its properties that it believes would involve material expenditures by Cominar, other than in respect of remediation expenditures taken into consideration as part of the acquisition of properties. 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. See “Description of the Business – Investment Guidelines and Operating Policies – Operating Policies” on pages 11 and 12 of the 2015 AIF. 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, pension funds and other 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 52 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. See “Risk and Uncertainties – Risk Factors Related to the Business of Cominar – Environmental matters”. LIMIT ON ACTIVITIES In order to maintain its status as a “mutual fund trust” under the Tax Act, Cominar cannot carry on most 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 carries a blanket comprehensive general liability policy, and a property policy 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 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, 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 hypothecary 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 due to 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 participations 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. CYBERSECURITY EVENTS Cominar faces various security threats, including cybersecurity threats to gain unauthorized access to sensitive information, to render data or systems unusable, or otherwise affect Cominar’s ability to operate. Cybersecurity attacks in particular are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information and corruption of data. The occurrence of one of these events could cause a substantial decrease in revenues, increased costs to respond or other financial loss, damage to reputation, increased regulation or litigation or inaccurate information reported from Cominar’s operations. These developments may subject Cominar’s operations to increased risks, as well as increased costs, and, depending on their ultimate magnitude, could have a material adverse effect on Cominar’s financial position and results of operations. 53 RISK FACTORS RELATED TO THE OWNERSHIP OF SECURITIES 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 of 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. CREDIT RATING The credit rating assigned by DBRS to Cominar and the Unsecured Debentures is 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. Prospective investors should consult with DBRS with respect to the interpretation and implications of the rating. 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 or withdrawn. 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 usually provides broader contextual information regarding securities in rating reports, which generally set out the full rationale for the chosen rating symbol, and in other releases. On August 12, 2016, DBRS confirmed the credit rating of BBB (low) in respect of the Unsecured Debentures, but changed the trend to Negative from Stable. See “Credit Ratings”. DBRS’ revision reflected its concern that Cominar achieved slower- than-expected progress to reduce debt and bring its leverage metrics back to levels that were achieved prior to the $1.527 billion acquisition of a property portfolio from Ivanhoé Cambridge in August 2014. During the second half of the year ended December 31, 2016, Cominar accelerated its debt reduction efforts to reduce its debt ratio to 52.4%, notably by completing the September 2016 Unit Offering earlier than Management would have wanted. A “Negative” trend assigned by DBRS is not an indication that a rating change is imminent, but represents an indication that there is a greater likelihood that the rating could change in the future than would be the case if a “Stable” trend was assigned. In the event the credit rating assigned by DBRS to Cominar and the Unsecured Debentures were to be downgraded, Cominar could be materially adversely impacted. Real or anticipated changes in the credit rating in respect of the Unsecured Debentures may affect the market value of the Unsecured Debentures. In addition, real or anticipated changes in such credit rating can affect the ability of Cominar to access debt capital markets and increase the cost at which Cominar can do so. Any failure or inability on Cominar’s part to access debt capital markets on satisfactory terms, or at all, could have a material adverse effect on Cominar’s financial position and results of operations, including on its acquisition and development program. See “Risk and Uncertainties – Risk Factors Related to the Business of Cominar – Access to capital and debt financing, and current global financial conditions” and “Risk and Uncertainties – Risk Factors Related to the Business of Cominar – Debt financing”. ABSENCE OF MARKET FOR DEBT SECURITIES There is currently no trading market for any Debt Securities that may be offered. No assurance can be given that an active or liquid trading market for these securities will develop or be sustained. If an active or liquid market for these securities fails to develop or be sustained, the prices at which these securities trade may be adversely affected. Whether or not these securities will trade at lower prices depends on many factors, including liquidity of these securities, prevailing interest rates and the 54 markets for similar securities, the market price of the Units, general economic conditions and Cominar’s financial condition, historic financial performance and future prospects. 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 debts. 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 (an “annuitant”) 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 the assets of Cominar are intended to be 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 Québec 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 Québec for contract claims where the liability is not so disavowed is remote. Cominar uses all reasonable efforts to obtain acknowledgments from the hypothecary creditors under assumed hypothecs that assumed hypothec 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 Québec 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 a REIT 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. Accordingly, although this provision remains to be interpreted by the courts, it should provide additional protection to Unitholders with respect to such obligations. 55 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 DRIP, 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 Income Tax Act and remits such payment to the tax authorities on behalf of the Unitholder. The Income Tax Act contains measures to subject non- residents of Canada to withholding tax of 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 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 and results of operations, 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. STATUS FOR TAX PURPOSES 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 designations for income tax purposes. Certain of Cominar’s subsidiaries are subject to tax on their taxable income under the Income Tax Act and the Taxation Act (Québec). A special tax regime applies to trusts that are considered SIFTs 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 Income 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 (the “Real Estate Investment Trust Exception”). 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 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 fiscal 2017 or any other subsequent year. 56 CONSOLIDATED FINANCIAL STATEMENTS COMINAR REAL ESTATE INVESTMENT TRUST December 31, 2016 57 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, 2016, 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, 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, 2016 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. Chief Executive Officer GILLES HAMEL, CPA, CA Executive Vice President and Chief Financial Officer Québec, March 7, 2017 58 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, 2016 and December 31, 2015 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, 2016 and December 31, 2015, and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers LLP (1) March 7, 2017 Place de la Cité, Tour Cominar 2640 Laurier Boulevard, Suite 1700 Québec, Quebec G1V 5C2 Canada "PwC" refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. (1) CPA auditor, CA, public accountancy permit no. A104882 59 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 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, 2016 December 31, 2015 $ $ 5 6 6 7 8 9 10 11 7, 11 12 13 14 19 7,676,134 45,776 90,820 7,812,730 143,130 90,194 166,971 8,250 42,518 14,139 9,853 7,614,990 49,114 71,646 7,735,750 163,733 74,888 166,971 8,250 56,756 14,099 5,250 8,287,785 8,225,697 2,048,009 — 1,970,566 332,121 109,861 11,715 4,472,272 3,815,513 8,287,785 2,052,640 8,590 1,995,506 381,166 118,921 10,877 4,567,700 3,657,997 8,225,697 MICHEL DALLAIRE Chairman of the Board of Trustees Alban D’Amours President of the Audit Committee 60 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 $ $ $ $ Balance as at January 1, 2016 3,063,920 2,008,364 (1,421,233) 6,946 Net income and comprehensive income Distributions to unitholders Issuance of units Units issuance expense Repurchase of units under NCIB (1) Long-term incentive plan 15 15 15 15 — — 220,043 (8,491) (40,779) 241,738 — — — — — (254,456) — — — — — 842 — — (1,579) — — 198 Equity component of convertible debentures $ — — — — — — — Total $ 3,657,997 241,738 (254,456) 218,464 (8,491) (40,779) 1,040 Balance as at December 31, 2016 3,234,693 2,250,944 (1,675,689) 5,565 — 3,815,513 (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, 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 15 15 15 15 — — 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”) See accompanying notes to the consolidated financial statements. 61 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 Share of joint ventures’ net income Income before income taxes Income taxes Note 2016 $ 2015 $ 866,982 889,175 17 (185,436) (186,420) (196,822) (199,207) 17 (16,115) (16,060) (398,373) (401,687) 468,609 487,488 18 17 5 8 (170,645) (176,208) (16,719) (46,675) 8,006 (16,384) (23,322) 1,427 242,576 273,001 19 (838) (567) Net income and comprehensive income 241,738 272,434 Basic net income per unit Diluted net income per unit See accompanying notes to the consolidated financial statements. 20 20 1.40 1.40 1.62 1.62 62 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 over distributions received from the joint ventures Change in fair value of investment properties Depreciation and 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 Net proceeds from the sale of investment properties Contributions to the capital of the joint ventures Return of capital from a joint venture 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 Repayment of debentures at maturity Repayments of mortgages payable at maturity Monthly repayments of mortgages payable Cash flows 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 2016 $ 2015 $ 8 5 19 5 21 5 6 4 8 8 15 15 12 11 11 241,738 272,434 (7,206) 46,675 (2,398) 1,028 838 (3,931) 7,346 284,090 (1,227) 23,322 (2,476) 1,970 567 (7,140) (23,508) 263,942 (178,578) (178,537) (39,908) 107,157 (10,850) 2,750 (377) (12,591) 97,444 (33,259) 1,231 794 (119,806) (124,918) (236,000) (172,512) (49,045) 239,354 223,725 191,516 (40,779) — (250,000) (183,498) (54,954) (76,157) 369,676 298,327 153,233 (7,755) (185,961) (250,000) (211,414) (57,120) (159,681) (139,683) 4,603 5,250 9,853 (659) 5,909 5,250 181,469 191,134 8 800 200 63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2016 and 2015 [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, 2016, Cominar owned and managed a real estate portfolio of 539 high-quality properties that covered a total area of 44.9 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 7, 2017. 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.  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 64 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 amount 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.  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, land held for future development and income properties held for sale. 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 during the period, where applicable. 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 65 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. Income properties held for sale are measured at fair value less estimated costs to sell. 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 amount 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. Tenant inducements 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, 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 activities. Deferred financing costs Issue costs incurred to obtain term loan financing, typically through mortgages payable or debentures, are applied against the borrowings and are amortized using the effective interest rate method over the term of the related debt. 66 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. 67 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. The adoption of this new standard will have no significant impact on Cominar’s consolidated financial statements since no important changes were made to the accounting model by the lessor. 4) ACQUISITIONS AND DISPOSITIONS DISPOSITIONS OF INCOME PROPERTIES HELD FOR SALE IN 2016 On January 29, 2016, Cominar completed the sale of a portfolio of 10 retail properties located in Quebec and Ontario, for a total price of $14,949, net of costs to sell. On March 31, 2016, Cominar completed the sale of a portfolio of 14 retail properties located in Quebec and Ontario, for a total price of $55,482, net of costs to sell. On May 2, 2016, Cominar completed the sale of a portfolio of 5 retail properties located in the Québec and Montréal areas, for a total price of $39,293, net of costs to sell. On December 19, 2016, Cominar completed the sale of two retail properties located in the Montréal area, for a total price of $5,914, net of costs to sell. The properties sold by Cominar during fiscal 2016 have been subject to an overall decrease in their carrying amount to their fair value of $1,362. These properties had been subject to an increase in their carrying amount to their fair value of $4,836 in 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 selling price of $98,000. 68 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 TRANSFERS TO INCOME PROPERTIES IN 2016 During the third quarter of 2016, 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 $5,599, with a leasable area of 46,000 square feet, has an occupancy rate of 100%. The capitalization rate is 8.5%. During the fourth quarter of 2016, Cominar completed the construction of two properties that were transferred from properties under development to income properties. The first one, a $2,262 retail property located in Québec with a leasable area of 6,000 square feet, has an occupancy rate of 100% and its capitalization rate is 7.6%. The second one, a $19,970 industrial and mixed-use property located in Laval with a leasable area of 130,000 square feet, has an occupancy rate of 100 % and its capitalization rate is 8.4%. These properties have been subject to an overall increase from their carrying amount to their fair value of $3,773 when transferred to income properties. TRANSFERS TO INCOME PROPERTIES IN 2015 During the second quarter of 2015, Cominar completed the construction of an industrial and mixed-use property located in Lévis, in the suburbs of Québec, that it transferred from property under development to income property. At that time, the property valued at $5,940, with a leasable area of 33,000 square feet, had an occupancy rate of 100%. The capitalization rate was 8.1%. During the fourth quarter of 2015, Cominar completed the construction of an industrial and mixed-use property located in Québec, that it transferred from property under development to income property. At that time, the property valued at $7,352, with a leasable area of 68,000 square feet, had an occupancy rate of 80%. The capitalization rate was 8.4%. These two properties were transferred to income properties at their fair value. 69 5) INCOME PROPERTIES For the years ended December 31 Note Balance, beginning of year Acquisitions and related costs Change in fair value Capital costs Dispositions 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 6 7 , 2016 $ 2015 $ 7,614,990 7,697,823 10,648 (49,086) 149,011 — 27,831 (96,397) 15,206 3,931 33,081 (23,322) 137,161 (97,444) 13,292 (163,733) 10,992 7,140 Balance, end of year 7,676,134 7,614,990 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 during the period, where 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, during fiscal 2016, management revalued the entire real estate portfolio and determined that a decrease of was necessary to change the carrying amount in fair value of investment properties [decrease of $23,322 in 2015]. The change in fair value related to investment properties held as at the year-end date amounts to $45,313. In 2016, the fair value of investment properties from external valuations amounted to 14% [17% in 2015] of the total fair value of all income properties. $46,675 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 2016 of 0.1% in the applied capitalization rates for the entire real estate portfolio would result in a decrease or increase of approximately $135,300 [$124,600 in 2015] in the fair value of its investment properties. 70 Internally and externally used capitalization and discount rates are consistent. Capitalization and discount rates 2016 2015 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(1) 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 4.8% - 9.3% 6.2% 5.0% - 9.3% 5.3% - 6.3% 5.6% - 6.5% 6.6% - 7.0% 5.4% 5.6% 6.7% 5.5% - 7.5% 5.5% - 7.5% 6.5% - 8.0% 5.0% - 9.0% 5.9% 5.3% - 9.0% 5.8% - 6.3% 6.0% - 6.5% 6.8% - 7.3% 5.9% 6.1% 6.9% 6.0% - 6.5% 6.3% - 6.8% 6.8% - 7.3% 5.5% - 11.0% 6.9% 5.8% - 11.0% 6.8% - 7.8% 7.0% - 7.8% 7.5% - 8.3% 6.2% 5.6% 5.8% 6.7% 6.3% 6.2% 6.4% 7.0% 6.1% 6.1% 6.4% 7.0% 7.0% 7.2% 7.3% 7.8% 6.4% 6.2% 6.4% 7.0% (1) For the year ended December 31, 2016, no industrial and mixed-use properties have been subject to external valuation according to the discounted cash flow method. 6) PROPERTIES UNDER DEVELOPMENT AND LAND HELD FOR FUTURE DEVELOPMENT For the years ended December 31 Balance, beginning of year Acquisitions and related costs Change in fair value of properties transferred to income properties Capital costs Capitalized interest Transfers to income properties Change in initial direct costs Balance, end of year Breakdown: Properties under development Land held for future development Note 5 2016 $ 120,760 14,818 3,773 19,191 5,252 (27,831) 633 136,596 45,776 90,820 2015 $ 121,938 — — 6,776 5,239 (13,292) 99 120,760 49,114 71,646 71 7) INCOME PROPERTIES HELD FOR SALE Cominar has undertaken the process of selling some of its income properties and expects to close these transactions over the next few months. Cominar’s management intends to use the total net proceeds from these dispositions to pay down debt. Here is the fair value of these income properties less costs to sell by operating segment: Note Retail properties $ Industrial and mixed-use properties Total $ $ 4 5 163,733 — 163,733 (117,000) — (117,000) 46,897 49,500 96,397 , , , 93,630 49,500 143,130 Retail properties $ 8,590 (109) (8,481) — Industrial and mixed-use properties $ — — — — Total $ 8,590 (109) (8,481) — As at December 31, 2016 Assets Income properties held for sale Balance, beginning of year Dispositions Transfers of income properties Balance, end of year As at December 31, 2016 Liabilities Mortgage payable related to an income property held for sale Balance, beginning of year Monthly repayments of principal Disposition Balance, end of year 8) 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 Espace Bouvier Québec, Quebec Société en commandite Chaudière-Duplessis De la Chaudière Boulevard Québec, Quebec Société en commandite Marais Du Marais Street Québec, Quebec 2016 2015 Ownership interest Ownership interest 50% 50% 75% 75% 50% 50% 75% 75% The business objective of these joint ventures is the ownership, management and development of real estate projects. 72 The following table summarizes the financial information on 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 Contributions to the capital of the joint ventures Share of joint ventures’ net income Cash distributions by a joint venture Return of capital from a joint venture Investments in joint ventures, end of year The following tables summarize the joint ventures’ net assets and net income: As at December 31 Income properties Properties under development Land held for future development Other assets Mortgages payable Bank borrowings(1) Other liabilities Net assets of the joint ventures Proportionate share of joint ventures’ net assets (1) Société en commandite Bouvier-Bertrand holds a $25,000 credit facility, which is secured by Cominar. For the years ended December 31 Operating revenues Operating expenses Net operating income Change in fair value Finance charges Administrative expenses Net income Share of joint ventures’ net income 2016 $ 74,888 10,850 8,006 (800) (2,750) 90,194 2016 $ 198,394 35,741 55,050 2,126 (112,873) (21,600) (3,942) 152,896 90,194 2015 $ 41,633 33,259 1,427 (200) (1,231) 74,888 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 2016 $ 20,226 8,736 11,490 9,461 (5,383) (134) 15,434 8,006 On January 13, 2017, Cominar completed the acquisition of an additional 25% ownership interest in Société en commandite Chaudière-Duplessis, for a purchase price of $10,016. On that date, Société en commandite Chaudière-Duplessis became a wholly owned subsidiary of Cominar. 73 9) 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 CGUs expected to benefit from the combination. To test impairment, Cominar must determine the recoverable value of net assets of each group of CGUs, 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 amount 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 group CGUs and comparing it to the carrying amount, including goodwill. As at December 31, 2016 and 2015, goodwill was not impaired. Goodwill is measured using Level 3 inputs of 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 $ As at December 31, 2015 and 2016 98,073 51,212 17,686 166,971 The capitalization rates used to value the recoverable amount of net assets for each group of CGUs are as follows: Capitalization rates 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 74 2016 2015 Weighted average Weighted average 5.8% 5.7% 6.5% 5.9% 2016 $ 27,693 (8,557) 19,136 1,182 1,044 6,295 14,861 42,518 6.89% 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% 11) MORTGAGES PAYABLE For the years ended December 31 Balance, beginning of year Net mortgages payable, contracted or assumed Monthly repayments of principal Repayments of balances at maturity or assigned Plus: Fair value adjustments on assumed mortgages payable Less: Deferred financing costs Balance, end of year(1) 2016 Weighted average contractual rate $ % $ 2,051,335 241,555 (54,954) (191,979) 2,045,957 7,746 (5,694) 2,048,009 4.46 3.50 — 5.44 4.37 1,948,462 371,407 (57,120) (211,414) 2,051,335 14,246 (4,351) 2,061,230 2015 Weighted average contractual rate % 4.79 3.07 — 4.77 4.46 (1) Including the $nil [$8,590 as at December 31, 2015] mortgage payable related to a property held for sale. Contractual maturity dates of mortgages payable are as follows as at December 31, 2016: For the years ending December 31 2017 2018 2019 2020 2021 2022 and thereafter Repayment of principal $ 56,418 45,986 38,490 39,890 38,987 129,338 349,109 Balances at maturity $ 198,088 443,806 4,141 82,013 89,437 879,363 1,696,848 Total $ 254,506 489,792 42,631 121,903 128,424 1,008,701 2,045,957 Mortgages payable are secured by immovable hypothecs on investment properties having a carrying amount of $4,072,140 [$4,162,353 as at December 31, 2015]. They bear annual contractual interest rates ranging from 2.52% to 7.75% [2.35% to 7.75% as at December 31, 2015], representing a weighted average contractual rate of 4.37% as at December 31, 2016 [4.46% as at December 31, 2015], and are renewable at various dates from January 2017 to January 2039. As at December 31, 2016, the weighted average effective interest rate was 4.09% [4.05% as at December 31, 2015]. As at December 31, 2016, 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, 2016 and 2015. 75 12) DEBENTURES On May 20, 2016, Cominar issued $225,000 in Series 10 senior unsecured debentures bearing interest at a rate of 4.247% and maturing in May 2023. On September 21, 2016, Cominar reimbursed at maturity its Series 6 senior unsecured debentures totalling $250,000 and bearing interest at a variable rate. The following table presents characteristics of outstanding debentures as at December 31, 2016: Date of issuance Contractual interest rate Effective interest rate Maturity date Par value as at December 31, 2016 Series 1 Series 2 Series 3 Series 4 Series 7 Series 8 Series 9 Series 10 Total June 2012(1) December 2012(2) May 2013 July 2013(3) September 2014 December 2014 June 2015 May 2016 % 4.274 4.23 4.00 4.941 3.62 4.25 4.164 4.247 4.23 % 4.32 4.37 4.24 4.81 3.70 4.34 4.25 4.34 4.30 June 2017 December 2019 November 2020 July 2020 June 2019 December 2021 June 2022 May 2023 (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). The following table presents changes in debentures for the years indicated: For the years ended December 31 2016 2015 Weighted average contractual rate % $ $ Balance, beginning of year 2,000,000 3.95 1,950,000 Issuances Repayment at maturity Less: Deferred financing costs Plus: Net premium and discount on issuance Balance, end of year 225,000 (250,000) 1,975,000 (6,552) 2,118 1,970,566 4.25 1.97 4.23 300,000 (250,000) 2,000,000 (7,413) 2,919 1,995,506 $ 250,000 300,000 100,000 300,000 300,000 200,000 300,000 225,000 1,975,000 Weighted average contractual rate % 3.89 4.16 3.03 3.95 Debentures, under the trust indenture, contain covenants, with which Cominar was in compliance as at December 31, 2016 and 2015. 13) BANK BORROWINGS As at December 31, 2016, Cominar had an unsecured renewable revolving operating and acquisition credit facility of up to $700,000 maturing in August 2019. This credit facility bears interest at prime rate plus 70 basis points or at the bankers’ acceptance rate plus 170 basis points. This credit facility contains certain restrictive clauses, with which Cominar was in compliance as at December 31, 2016 and 2015. As at December 31, 2016, bank borrowings totalled $332,121 and cash available was $367,879. 76 14) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES As at December 31 Trade accounts payable Accounts payable – related parties Accrued interest payable Prepaid rent and tenants’ deposits Other accounts payable and accrued expenses Commodity taxes and other non-financial liabilities 2016 $ 4,848 7,624 18,818 27,848 39,961 10,762 2015 $ 7,720 8,804 17,488 25,797 47,540 11,572 109,861 118,921 15) 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 all Cominar distributions. All issued units are fully paid. For the years ended December 31 2016 2015 Units $ Units $ Units issued and outstanding, beginning of year 170,912,647 3,063,920 158,689,195 2,839,515 Public offering Repurchase of units under NCIB Exercise of options Distribution reinvestment plan Conversion of convertible debentures Conversion of deferred units and restricted units 12,780,000 (2,717,396) 191,516 7,901,650 148,701 (40,779) (530,836) — — 266,200 1,265,157 18,457 4,582,780 — 94,154 — 1,579 3,658 — (7,755) 4,741 78,643 75 — Units issued and outstanding, end of year 182,334,562 3,234,693 170,912,647 3,063,920 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, 2016, options to purchase 12,455,450 units were outstanding. The following table shows characteristics of outstanding options at year-end: Date of grant vesting method Expiration date price $ options options Graded Exercise Outstanding Exercisable As at December 31, 2016 August 24, 2012 August 31, 2012 December 19, 2012 August 5, 2013 December 17, 2013 December 16, 2014 December 15, 2015 December 13, 2016 50% 50% August 24, 2017 August 31, 2017 33 1/3% December 19, 2017 50% 33 1/3% 33 1/3% 33 1/3% 33 1/3% August 5, 2018 December 17, 2018 December 16, 2019 December 15, 2022 December 13, 2023 24.55 23.93 22.70 20.09 17.55 18.07 14.15 14.90 150,000 300,000 1,487,250, 150,000, 1,857,400, 2,235,200, 2,851,400, 3,424,200, 150,000 300,000 1,487,250, 150,000, 1,857,400, 1,512,100, 951,400, — 12,455,450 6,408,150 As at December 31, 2016, the average weighted contractual life of outstanding options was 4.3 years [4.0 years as at December 31, 2015]. 77 The following table presents changes in the number of options for the years indicated: For the years ended December 31 2016 Weighted average Outstanding, beginning of year Exercised Granted Forfeited or cancelled Expired Outstanding, end of year Options exercise price Options 10 493 750 — 3 424 200 (561 800) (900 700) 12 455 450 $ 18,15 — 14,90 17,51 21,80 17,02 9,221,200 (266,200) 3,070,200 (809,850) (721,600) 10,493,750 Exercisable options, end of year 6 408 150 18,89 5,203,350 2015 Weighted average exercise price $ 19.81 17.55 14.15 19.69 20.93 18.15 20.61 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. The following table presents changes in the number of restricted units for the years indicated: For the years ended December 31 Outstanding, beginning of year Exercised Granted Accrued distributions Outstanding, end of year Vested restricted units, end of year 2016 4,047 (637) 1,373 467 5,250 — 2015 1,147 — 2,582 318 4,047 — 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. Once a year, the deferred unit holder can convert its vested deferred units into Cominar units. 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 units 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 78 2016 2015 180,434 (93,517) 54,520 20,239 161,676 37,185 80,872 — 85,304 14,258 180,434 52,397 Unit-based compensation The compensation expense related to the options granted in 2016 and 2015 was calculated using the Black-Scholes option pricing model based on the following assumptions: Date of grant Volatility(1) Exercise price(2) Weighted average return December 15, 2015 December 13, 2016 12.61% 14.34% $ 14.15 14.90 Weighted average risk-free interest rate Weighted average expected life (years) 8.39% 9.51% 0.69% 1.04% 4.5 4.5 Weighted average fair value per unit $ 0.14 0.18 (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 2016 was calculated based on the market price of Cominar units on the grant date, which was $15,28. The overall compensation expense for the fiscal year was $1,028 [$1,970 in 2015]. A maximum of 16,819,525 units may be issued under the long term incentive plan. 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 2016 $ 254,456 1.470 2015 $ 251,295 1.470 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% of the cash distributions. For the year ended December 31, 2016, 1,265,157 units [4,582,780 in 2015] were issued for a total net consideration of $18,457 [$78,643 in 2015] under this plan. On September 14, 2016 Cominar announced the resumption of its Distribution Reinvestment Plan, suspended since January 20, 2016. 79 16) OPERATING LEASE INCOME a) The future minimum lease payments from tenants are as follows: - Less than one year - More than one year to five years - More 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, 2016 $ 473,548 1,257,999 782,487 2016 $ 7,417 2015 $ 6,851 17) OPERATING COSTS, PROPERTY MANAGEMENT EXPENSES AND TRUST ADMINISTRATIVE EXPENSES The following table presents the main components of operating costs, property management expenses 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 18) 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 other costs Amortization of fair value adjustments on assumed borrowings Less: Capitalized interest(1) Total finance charges 2016 $ 68,209 66,063 50,088 2,205 556 31,149 218,270 2016 $ 87,780 83,456 — 9,747 (801) 3,771 (6,501) (6,807) 2015 $ 69,373 68,115 48,472 1,941 720 30,243 218,864 2015 $ 88,959 80,150 7,010 9,931 (787) 6,664 (9,483) (6,236) 170,645 176,208 (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 2016 was 4.21% [4.37% in 2015]. 80 19) 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, 2016 and 2015, Cominar believes that it met all of these conditions and qualified as a REIT. As a result, the SIFT trust tax rules for 2016 and 2015 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 2016 $ 2015 $ 242,576 273,001 28.16% 68,309 27.44% 74,906 (68,107) (74,427) 636 838 2016 $ 30 250 280 88 567 2015 $ 59 263 322 Income properties Deferred taxes (net) , (11,995) (11,199) (11,715) (10,877) 81 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 2016 $ 10,877 838 11,715 2015 $ 10,310 567 10,877 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, 2015 Origination and reversal of timing differences included in profit or loss Balance as at December 31, 2015 Origination and reversal of timing differences included in profit or loss Balance as at December 31, 2016 Deferred tax liabilities Balance as at January 1, 2015 Origination and reversal of timing differences included in profit or loss Balance as at December 31, 2015 Origination and reversal of timing differences included in profit or loss Balance as at December 31, 2016 20) PER UNIT CALCULATION BASIS Mortgages payable Tax losses $ $ 94 (35) 59 (29) 30 276 (13) 263 (13) 250 Total $ 370 (48) 322 (42) 280 Income properties $ (10,680) (519) (11,199) (796) (11,995) 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 Weighted average number of units outstanding – diluted 2016 Units 2015 Units 172,131,831 167,867,983 373,596 179,968 172,505,427 168,047,951 The calculation of the diluted weighted average number of units outstanding does not take into account the effect of the conversion into units of 7,140,850 options outstanding for the year ended December 31, 2016 [8,411,533 options in 2015] since the exercise price of the options, including the unrecognized portion of the related compensation expense, is higher than the average price of the units. The calculation also does not take into account 5,663,207 units for the year ended December 31, 2015 with regard to the dilution related to convertible debentures, as they are antidilutive for that period. 82 21) SUPPLEMENTAL CASH FLOW INFORMATION For the years ended December 31 Accounts receivable Prepaid expenses Accounts payable and accrued liabilities Changes in non-cash working capital items Other information Unpaid acquisitions and investments with respect to investment properties 2016 $ 14,238 (1,572) (5,320) 7,346 2015 $ (4,712) (1,890) (16,906) (23,508) 11,898 15,638 22) RELATED PARTY TRANSACTIONS During fiscal years 2016 and 2015, 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 – Acquisition 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 Accounts payable Note 8 2016 $ 86,639 6,204 2,958 8,006 301 280 2015 $ 71,762 31,276 14,450 1,427 272 312 Note 2016 $ 2015 $ 8 90,194 74,888 8,250 1,182 7,624 8,250 701 8,804 23) 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 2016 $ 4,928 169 650 5,747 2015 $ 5,525 166 1,455 7,146 Unit options granted to senior executives and other officers may 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 unit price has remained at 83 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. 24) 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 Bank borrowings Unitholders’ equity Total capitalization Debt ratio(1) Interest coverage ratio(2) 2016 $ (9,853) 2,048,009 1,970,566 332,121 3,815,513 2015 $ (5,250) 2,061,230 1,995,506 381,166 3,657,997 8,156,356 8,090,649 52.4% 2.65:1 53.9% 2.67:1 (1) The debt ratio is equal to the total of cash and cash equivalents, bank borrowings, mortgages payable and 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, 2016, Cominar had maintained a debt ratio of 52.4%. 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, 2016, the interest coverage ratio was 2.65:1, reflecting Cominar’s capacity to meet its debt- related obligations. Capital management objectives remain unchanged from the previous period. 25) FAIR VALUE Cominar uses a three-level hierarchy to classify its financial instruments measured at fair value. The hierarchy reflects the relative weight of inputs used in the valuation. 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 fiscal years 2016 and 2015. 84 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. 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: December 31, 2016 December 31, 2015 Level Carrying amount $ Fair value $ Carrying amount $ Fair value $ 3 3 3 2 2 7,676,134 7,676,134 7,614,990 7,614,990 143,130 143,130 163,733 163,733 90,820 90,820 71,646 71,646 2,048,009 2,104,025 2,061,230 2,140,424 1,970,566 2,019,802 1,995,506 2,026,127 RECURRING VALUATIONS OF NON-FINANCIAL ASSETS Income properties Income properties held for sale Land held for future development FINANCIAL LIABILITIES Mortgages payable Debentures 26) 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 retail client base consisting of about 5,900 clients occupying an average of approximately 7,100 square feet each. The top three clients, Public Works Canada, Société québécoise des infrastructures and Canadian National Railway Company, account respectively for approximately 4.9%, 4.8% and 4.0% of operating revenues from several leases with staggered maturities. The stability and quality of cash flows from operating activities are enhanced by the fact that approximately 10.5% of operating revenues come from government agencies, representing approximately 100 leases. 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 the 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. 85 Accounts receivable, except for the receivables bearing interest, and accounts payable and accrued liabilities do not bear interest. All mortgages payable and debentures bear interest at fixed rates. Cominar is exposed to interest rate fluctuations mainly due to bank borrowings and the mortgage receivable, 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 impacted Cominar’s net income by more or less $1,543 for the year ended December 31, 2016 [$2,138 in 2015]. 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, 2016 are as follows: Mortgages payable Debentures Bank borrowings Accounts payable and accrued liabilities(1) (1) Excludes consumption taxes and other non-financial liabilities Under one year $ 349,607 328,263 9,964 99,099 Cash flows One to five years $ 1,035,721 1,413,820 347,896 — Over five years $ 1,172,887 544,783 — — Note 11 12 13 14 86 27) 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 in the audited annual financial statements of the Trust. Cominar uses net operating income as its main criterion to measure operating performance, that is, the operating revenues less the 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, 2016 Rental revenue from investment properties Net operating income Share of joint ventures’ net income December 31, 2015 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 $ $ $ $ 380,761 193,309 334,187 183,961 162,147 97,084 877,095 474,354 — $ — $ — $ — $ (10,113) (5,745) 8,006 866,982 468,609 8,006 $ $ 398,808 208,724 — 336,972 184,729 — 162,262 98,925 — 898,042 492,378 — (8,867) (4,890) 1,427 889,175 487,488 1,427 Office properties Retail properties Industrial and mixed-use properties Cominar’s proportionate share Joint ventures Consolidated financial statements As at December 31, 2016 $ $ $ $ $ $ Income properties 3,327,390 2,974,870 1,473,071 7,775,331 (99,197) 7,676,134 Income properties held for sale Investments in joint ventures As at December 31, 2015 — — $ 93,630 49,500 143,130 — 143,130 — $ — $ — $ 90,194 90,194 $ $ Income properties 3,307,850 2,943,854 1,454,871 7,706,575 (91,585) 7,614,990 Income properties held for sale Investments in joint ventures — — 163,733 — — — 163,733 — — 74,888 163,733 74,888 87 28) 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 $61,191, are as follows: For the years ending December 31 2017 2018 2019 2020 2021 2022 and thereafter Emphyteutic Leases $ 634 634 634 648 654 22,106 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. 29) SUBSEQUENT EVENTS On January 10, 2017, Cominar filed a short form base shelf prospectus allowing it to issue up to $1.0 billion in securities during the 25-month period that this prospectus remains valid. On January 13, 2017 and February 15, 2017, Cominar declared a monthly distribution of $0.1225 per unit for both of these months. On January 31, 2017, Cominar completed the sale of one industrial and mixed-use property located in the Toronto area, for a total selling price of $58,400. On March 3, 2017, Cominar completed the sale of a portfolio of 8 retail properties located in the Montréal area and in Ontario for a total selling price of $35,300. 88 CORPORATE INFORMATION BOARD OF TRUSTEES Michel Dallaire, Eng. Chairman of the Board of Trustees Chief Executive Officer Cominar Real Estate Investment Trust Luc Bachand (1)(3)(4) Corporate director Mary-Ann Bell, Eng., M.Sc., ASC (1)(2) Corporate Director Alain Dallaire Executive Vice President, Operations Office and Industrial and Asset Management Cominar Real Estate Investment Trust Alban D’Amours, M.C., G.O.Q., FA dmA (1)(2)(4) Corporate Director KEY OFFICERS Michel Dallaire, Eng. Chief Executive Officer 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 89 UNITHOLDERS INFORMATION ANNUAL MEETING OF UNITHOLDERS May 17, 2017 11:00 a.m. (EDT) Hôtel Plaza Québec 3031 Laurier Boulevard Québec, Quebec UNITHOLDERS DISTRIBUTION REINVESTMENT PLAN On September 14, 2016, Cominar announced the resumption of its Distribution Reinvestment Plan, suspended since January 20, 2016. in to participate Cominar Real Estate Investment Trust offers unitholders its Unitholders the opportunity 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. 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. COMINAR REAL ESTATE INVESTMENT TRUST 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 2016, 76.78% of the distributions made by Cominar to unitholders were a return of capital, reducing the adjusted cost base of the units. LEGAL COUNSEL Davies Ward Phillips & Vineberg LLP AUDITORS PricewaterhouseCoopers LLP 90 91 92 

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