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