1
2019
Annual Report
Cominar Real Estate Investment Trust
Fiscal Year Ended December 31, 2019
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Table of
contents
5
8
Message to unitholders
Corporate profile
10
Values
12
Market context
16
Office
18
Retail
22
Industrial and flex
25
Development and intensification
26
Employee experience and human capital management
30
Social responsibility and environment
32
Governance
36
Environmental management
40
Social engagement
Cominar’s annual report includes a section on corporate social responsibility,
which is based in part on the guidelines of the Global Reporting Initiative (GRI),
a recognized benchmark for reporting on sustainable development activities.
Cover page: Alexis Nihon
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77
82
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103
Management’s Discussion and Analysis
Real Estate Portfolio
Highlights of Fiscal 2019
Subsequent Events
Caution Regarding Forward-Looking Statements
Non-IFRS Financial Measures
Financial and Operational Highlights
Selected Quarterly Information
Selected Annual Information
General Business Overview
Our Objectives, Our Outlook, Our Strategy
Overview of Fiscal 2019
Reconciliations to Cominar’s Proportionate Share
Performance Analysis
Results of Operations
Funds from Operations and Adjusted Funds from Operations
Adjusted Cash Flow from Operations
Distributions
Liquidity and Capital Resources
Financial Instruments
Property Portfolio
Acquisitions, Investments and Dispositions
Real Estate Operations
Issued and Outstanding Units
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Significant Accounting Policies and Estimates
Risks and Uncertainties
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117
Consolidated Financial Statements
Notes to Consolidated Financial Statements
139
Corporate Information
140
Unitholders Information
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René Tremblay
Chairman of the Board of Trustees
Sylvain Cossette
President and Chief Executive Officer
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Message
to unitholders
A pivotal year
for Cominar
After 2018, which marked the beginning of Cominar’s transformation, 2019 was the year these
efforts crystallized and started generating the outcomes we hoped to see in our financial and
organizational performance. The improvement in our results arose from a structured,
deliberate path forward and a collective effort involving all of our teams and employees.
It all began with the transformation of our management team and the new expertise and
experience that came with it, coupled with an ongoing commitment to diversity. We are proud
to lead the way in terms of female representation among senior executives of publicly traded
companies in Quebec and nation-wide.
As part of the refreshment of the management team, we welcomed Bernard Poliquin as
Executive Vice President, Office and Industrial, and Chief Real Estate Operations Officer. His
arrival helped round out the team in charge of financial and operational activities, the leadership
of which is also shared by Heather C. Kirk, Executive Vice President and Chief Financial Officer,
and Marie-Andrée Boutin, Executive Vice President, Retail, and Chief Development Officer. We
also enhanced our technological, portfolio management and asset management skill sets to
put value creation front and centre of everything we do and to build a future where technology
will be a major differentiator within the real estate industry.
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Bernard Poliquin, Executive Vice President, Office and Industrial and Chief Real Estate Operations Officer / Marie-Andrée Boutin, Executive Vice President, Retail
and Chief Development Officer / Heather C. Kirk, Executive Vice President and Chief Financial Officer / Sylvain Cossette, President and Chief Executive Officer
Strategic planning and
organizational alignment
In 2019, we developed and rolled out a
new strategic plan, which identified our
most important value creation levers to
maximize our financial performance and
accelerate our transformation.
$700 million in credit facilities) and repaid
$997 million in debt, thus affording us
greater financial flexibility. Thanks to
these initiatives, combined with gains
in value within our portfolio, we reduced
our debt ratio from 55.3% to 51.4%.
We also established a structured plan to
improve our organic growth by utilizing
several levers to boost our earnings and
cut costs, and we were diligent in exe-
cuting on this plan throughout the year.
Our employees’ dedication to putting
these principles into practice every day
was a key driver of our ability to achieve
a significant improvement in our same
property net operating income growth.
One of the pillars of our plan has been
to strengthen our balance sheet. Accor-
dingly, we re-established our access
to the fixed-income market, secured
$1.6 billion in financing (including
In a bid to strengthen our ties with the
investment community and shed light
on the efforts we have undertaken to
improve our performance, we held our
first-ever Investor Day in Toronto on
October 4. Almost every member of the
management team was on hand to
present their strategic plan to close to
100 investors providing an unpreceden-
ted level of transparency. This provided
the investment community with a clear
view of our strategic plan, our company
and our ambitions, and opened the door
to a constructive conversation with
regards to the next steps on our path.
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Improved operational
performance
During the year, our key financial indica-
tors edged upward, and our performance
continued to gain momentum in all three
asset classes. Our same property net
operating income grew by 3.2% over
2018, up considerably over last year’s
1% growth rate.
Our industrial portfolio delivered 7.2%
growth in same property net operating
income. This is due to the proactive
stance we took in this booming market,
which translated into 10.1% growth in
average net rent and an increase in the
committed occupancy rate from 95% in
2018 to 97.1% in 2019.
It was also a strong year for our office
portfolio, with 4.0% growth in same
property net operating income and
a 4.1% increase in average net rent.
We undertook the development of the
Palladium complex (100,000 square feet),
located in the heart of Ottawa’s flouri-
shing tech scene. It is now fully leased
and will be occupied by the tenant as
of September 2020.
Despite ongoing challenges in the retail
sector, our shopping centre portfolio
returned to positive growth in the second
half of 2019. Our same property net
operating income closed out the year
with only a slight decline of 0.5% – a
marked improvement over the decline
3.4% last year. The arrival of several
high-profile retailers in our malls will
undoubtedly help us keep working on
this key asset class while expanding our
offering to woo and wow our customers.
We have identified several development
and intensification opportunities in our
retail portfolio to take advantage of the
positioning of our assets, located close
to public transit systems in our three
main markets of Montreal, Québec City
and Ottawa.
Employee wellbeing and
our societal impact
Our employees are the cornerstone of
our success. The outcome of our trans-
formation is largely contingent on their
day-to-day efforts and their willingness
to follow our lead. Keenly aware of the
fact that healthy teams make for a
healthy organization, we have adopted
an employer value proposition focused
on employee wellbeing. As such, we have
embraced a major shift in our talent
management policies and programs to
promote a culture of excellence and
deliver an inspiring employee experience.
Significant efforts have been made
to align specific behaviours with the
objectives in our strategic plan. Our
first engagement survey, conducted in
early 2019, sent a clear message about
our pledge to improving our dialogue
with staff members and to being more
transparent in our communications. The
positive repercussions of this decision are
already being felt in the organizational
environment and performance.
We have also reasserted our commitment
to being a force for change in society.
We realize that our actions can have an
impact on everyone we work with. It is
therefore our goal to make a tangible
contribution to today’s society and influ-
ence the welfare of future generations.
To guide our actions in this regard, we
have created a company-wide committee
that will focus on environmental, social
and governance (ESG) issues and set out
a well-defined three-year plan to tackle
each of these aspects.
Our outlook for the future is one of opti-
mism and enthusiasm. We will continue
to focus on enhancing our financial
performance and our balance sheet,
while striving to have a positive impact
on society as a whole. To do so, we will
draw on diverse perspectives, a clear,
cohesive vision, and the collaboration
of the management team, our workforce
and our board of trustees working in a
common direction.
All of these elements will empower us
to keep creating value for you, our
unitholders, and for society as a whole.
René Tremblay
Chairman of the Board of Trustees
Sylvain Cossette
President and Chief Executive Officer
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Corporate
profile
Creating
long-term value
Cominar is one of the largest diversified
real estate investment trusts in Canada
and is the largest commercial property
owner and manager in Quebec. Our
portfolio consists of high-quality office,
industrial and retail properties in three
key markets, namely Montreal, Québec
City and Ottawa.
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In 2019, our management team rolled out a new strategic
plan to create long-term value for unitholders, based on
four main pillars:
› Grow net operating income, through strategies
tailored to each property type and concerted efforts
to reduce cost and increase revenue
› Optimize the portfolio by capitalizing on the strength
of the Montreal real estate market and industrial
properties, and by setting up a structured plan to
shift from a property management mindset to one
centred on asset management
› Strengthen the balance sheet by improving financial
and credit metrics to increase financial flexibility and
by creating a free cash flow focused culture
› Transform how our teams work by leveraging tech-
nology and fostering a culture of excellence through
organizational alignment.
Thinking like investors
It is against this backdrop that we have striven to build
a culture of excellence informed by the following prin-
ciples: never compromise on talent, set clear standards
to measure our performance, both collectively and
individually, and fuel empowerment at all levels of the
organization. Although it is the role of senior management
to create an inspiring vision and map out a clear way
forward for the organization, every employee can contri-
bute to the success of our strategic plan, every single
day, through their ideas and their actions.
It quickly became apparent to us that we could not move
forward with our transformation without the proper
organizational alignment. We therefore welcomed a
number of new members to the leadership team in 2019,
to draw on their diverse experience and insights, and to
bolster our commitment to the strategic plan. Our senior
executives reviewed the structure of their respective
teams, focusing on more high-value-added tasks and the
right fit between individual talents and organizational
needs. As a team, they examined our services and prio-
rities to ensure that a value creation mindset underlies
everything we do.
In an effort to develop strategies aimed at enhancing
our performance, we formalized our portfolio and asset
management function during the year in order to
structure our approach to creating value. This translates
to three main objectives: improving the quality of our
portfolio, optimizing work methodologies and monitoring
real estate markets to capitalize on promising business
opportunities. The new asset management team provides
direct support to the various business units in growing
and stabilizing expected returns and in creating value.
Finally, this transformation is deeply reliant on technolo-
gical optimization. Accordingly, we have transformed our
IT Department to create a centralized function focused
on data and technology. The purpose of this new approach
is to align our business architecture and technology
systems with our organizational needs, while maintaining
data integrity and infrastructure security. The end goal
for this function is to contribute significantly to driving
revenues and long-term value.
The team’s priorities going forward will be to capture
opportunities in the industrial market, boost the perfor-
mance of the existing portfolio, prepare it for upcoming
economic shifts and ensure our strategic plan is being
executed in line with our priorities.
Our culture of excellence, organizational alignment and
optimized data and technology strategy has already had
a tangible impact on the transformation of our company.
By focusing on these elements, we have reinforced our
disciplined data-based decision process with a view to
creating value.
Transforming the way we work
We firmly believe that every effort, big or small, made
by each of our employees and service partners is
what will enable us to create long-term value, both for
our unitholders and for everyone else with a stake in our
future. That is why transforming the way we work is one
of the pillars of our strategic plan.
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Values
While we were developing our strategic
plan and accelerating our organizatio-
nal transformation, we felt compelled
to take a long hard look at our corporate
values. We hoped to be able to strike
a balance between those that are an
inextricable part of our DNA and the
rich legacy that Cominar has built over
time, and new, inspiring values that
clearly express what we are aiming
to become.
We brought together a group of leaders
to reflect on these questions during a
work session. Cominar’s new values are
the result of their efforts. They guide us
in our action every day and embody our
pledge to embrace excellence in all
our investment practices.
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We act like
owners
We think big and we hold ourselves accountable
to deliver value and investment returns.
We communicate
to connect
We build partnerships, not silos;
one team comes first.
We are
the change
We act with relentless curiosity and constantly
evolve to learn and innovate.
We are proactively
shaping the future
We are bold in our ambition to constantly
wow our clients.
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A very
favourable
market
environment
In 2019, Quebec posted some of the
strongest economic growth figures in
the country. The province’s real GDP
grew at a healthy pace throughout
the year. And year-end unemployment
figures were among the lowest in the
country, after dipping down to a record
4.7% in August.
During the year, substantial investments were made in our three main markets, which will stimulate
economic vitality over the long term. Montreal leads the pack in this respect, with more than
$25 billion invested in infrastructure improvement. These projects include the new Samuel De
Champlain Bridge, which opened to traffic midway through the year; the Turcot interchange,
which is expected to be completed by the end of 2020; the Réseau express métropolitain (REM),
the first departures of which are slated for 2021; and new cruise and container terminals at the
Port of Montreal.
Québec City will also see nearly $5 billion in infrastructure investments to help build the Réseau
structurant de transport en commun (tramway/trambus network) between 2022 and 2026. And
Ottawa’s light rail transit system opened in the fall. The second stage of the project is already
underway, with a third stage planned to extend the system as far west as Kanata.
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Strong market prospects
Our three main markets are well poised to flourish
in the future, both in Canada and internationally.
Montreal is considered to be one of the world’s
top cities for deep learning and artificial intel-
ligence research and is the Canadian capital of
visual effects and animation. Not only that, but it
is the fifth-largest video game centre in the world.
Montreal also ranks second in North America with
respect to the aerospace sector and sixth for life
sciences and health technologies. This vitality
has helped drive the average rent per square foot
upward, which has grown 54% per year since 2016.
The British-based fDi Magazine, owned by the
Financial Times Group, put Québec City in second
place nation-wide in terms of business-friendliness
and economic potential. Québec City also ranked
second in Canada in the American Cities of the
Future category. In addition to its thriving private
sector, which plays a leading role in its economic
development, the provincial capital can rely on a
strong government presence as a source of long-
term stability.
Similarly, Ottawa reaps the benefits of a strong
government-driven economy but also boasts a
vibrant and growing tech sector.
Strong market performance
confirming the astuteness of
our strategic choices
In recent years, Cominar has opted to focus on the
three core markets of Montreal, Québec City and
Ottawa. The economic context in all three cities is
positive, buoyed in part by infrastructure projects
designed to enhance roads and highways and build
new mass transit systems. The strategic location
of our properties near these systems means that
we are particularly well positioned to harness this
momentum in the office, retail and industrial sectors
within these three markets.
Finally, Cominar’s industrial portfolio represents a
tremendous competitive advantage against the
current backdrop, which is marked by an increa-
sing scarcity of industrial space in Montreal and
Québec City.
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Focused on
a well-balanced,
market-leading
portfolio
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1201 Marie-Victorin Street, Saint-Bruno-de-Montarville
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Office
With a portfolio refocused on the
Montreal, Québec City and Ottawa
markets, 2019 proved to be a banner
year for Cominar’s office segment.
All of our markets have fared, and continue to fare, exceptionally well, and this has trickled
over to spur our own growth. The robust financial and demographic health in these cities is
reflected not only in our occupancy rates but also in the increase in our net operating income
throughout the year. And our portfolio in Ottawa surpassed our expectations, posting stellar
growth rates in net rents.
Transactions that optimize and balance our portfolio
Our strategic advantage lies in the sheer size of our office portfolio, which allows us to manage
risk in an optimal way. As a result, we are well poised to strike an effective balance in terms
of the exposure of our three respective markets to the various segments, while proactively
targeting future-facing businesses and trends.
This is the perspective that shaped several major transactions carried out in 2019 in order to
optimize and balance our portfolio, which included the following:
› We pre-leased an entire office building currently under development in Kanata, most of which
has been earmarked for Ford’s self-driving vehicles division. The transaction, concluded
before construction was complete, speaks to the vigorous demand for high-quality properties
in the Ottawa area and is fully consistent with our strategy targeting future-facing industries.
› An agreement was finalized with the Commission scolaire de Montréal for 180,000 square
feet at 5100 Sherbrooke Street East, in Montreal and we are in advanced discussions with
Public Services and Procurement Canada to renew their leases for 320,000 square feet
of office space at 550 de la Cité Boulevard in Gatineau. Both transactions will fulfill our
objective to foster stability within our portfolio.
The Québec City market also posted enviable results during the year. With an occupancy rate
just shy of full (98.5%) and average rents 7% above current market rates, our portfolio continues
to deliver a strong performance.
Total number
of properties
80
Total leasable
area (sq. ft.)
11.1M
Committed
occupancy rate
92.9%
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Four strategic thrusts
Drawing on the strategic plan presented at our Investor Day in the fall, our strategy
revolves around four major thrusts that inform our behaviours in a context where
the competition for the best and brightest talent is fierce.
1 Amenity offering
First, in an effort to optimize occupancy in our suburban properties, we aim to
enhance our amenity offering in order to be both competitive and ahead of the
curve, and thus completely in sync with tenants’ expectations.
2 Public transit
Our focus is also trained on enhancing value in properties in the vicinity of current
and future public transit systems. A large majority of our properties (74%) are
within a kilometre of transportation facilities that are already operational or will
be in the next few years. The strategic alignment of lease expiries and the incor-
poration of redevelopment clauses will help us take full advantage of promising
opportunities in this regard.
3 Emerging industries
We are also proactively targeting tenants in emerging industries. We are delibera-
tely positioning ourselves as a partner in the strategic growth of these companies,
especially those in the tech sector, by offering innovative, flexible solutions to meet
their short-, medium- and long-term needs for space.
4 Government leases
The last pillar of our office strategy is based on the stability of government leases.
Our objective is to maintain a stable weighting in this portfolio to ensure a steady
cash flow. The Québec City market is the perfect example of this strategy in action.
The fact that 98% of our government leases in the market are renewed allows
us to maintain stability in this area at the desired level. In the Ottawa/Gatineau
market, buildings occupied by federal government tenants represent 47% of
our portfolio.
3055 Saint-Martin Boulevard West, Laval
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Retail
In 2019, the retail market continued to
undergo profound changes, especially
from the perspective of consumer
needs and online shopping. This
transformation prompted us to step up
our focus on experience and conve-
nience in our malls and to seize the
multitude of opportunities generated
by these changes.
Backed by a portfolio of market-dominant
assets, many of which boast a strategic
location along the future REM (light rail)
network in Montreal or the Québec City
tramway/trambus network, we are well
positioned to implement various strategies
to tap into the evolution of the retail mar-
ket. Examples of this include enhancing
the food offering in our shopping centres,
redeveloping former Sears stores and
acting on intensification opportunities.
Alexis Nihon
Total number
of properties
46
Total leasable
area (sq. ft.)
9.5M
Committed
occupancy rate
94.1%
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Regional
malls
60%
Mixed-use
Community
24%
7%
Strips/
freestanding
4%
Power
centre
5%
Urban
38%
Secondary
22%
Breakdown based on 2019 NOI
New and exciting retail tenants
The arrival of Quebec’s first Lee Valley at DUO Centre Laval and our portfolio’s
second Decathlon store at Îlot Mendel in Québec City speaks volumes about our
commitment to partnering with strong, traffic-driving brands. Building on this
momentum, several other major openings are slated to happen in 2020, among them
an Éconofitness Extra (15,000+ square feet) at Alexis Nihon and a Mayrand grocery
wholesaler (50,000+ square feet) at Mail Champlain.
Aware of consumers’ growing interest in a broader array of dining options, we are
looking to position our centres in a way that capitalizes on this forward-looking
trend. The brand-new food hall concept at Rockland is an excellent example of what
we are aiming for. In 2020, we will kick off a similar project at Alexis Nihon, where
the food court will be completely reconfigured.
Creating memorable shopping experiences
In 2019, we continued our efforts to create memorable shopping experiences for
consumers. This has translated to a series of pop-up tours, allowing us to revitalize
vacant retail space, as well as several partnerships that have brought vibrancy and
energy to our properties, such as classical music concerts with I Musici de Montréal
and a host of dynamic marketing activities. Shoppers have greeted all of these initia-
tives with enthusiasm and come out in droves to enjoy them.
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Rockland
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3 Operations
Several initiatives were undertaken in 2019, including
the renegotiation of service agreements designed to
drive cost savings and a lease audit to optimize our
work procedures and audit methodology. We have
also empowered our property managers to be more
proactive in their initiatives and to closely monitor
retail operations to maximize customer satisfaction.
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Intensification
We are actively analyzing the potential for intensifying
our shopping malls. Given the link between densi-
fication and value creation, we have targeted 10 of
our properties where there are opportunities in this
regard, for a total of roughly 10,000 residential units.
5 Selective dispositions
We sold multiple retail properties during the course
of the year. Our goal in this was to dispose of our
non-core assets so we can concentrate on those with
greater potential for creating value.
6 Marketing and digital transformation
Innovative marketing events and shopping expe-
riences continue to be a priority within our strategy.
We will also strive to implement new technologies
and digital channels to generate a more personalized
lineup of services for our customers.
7 Social responsibility and environment
The sustainable operation of our retail properties is
at the heart of everything we do. This allows us to
have a real and lasting impact on the environment
and the communities where our centres are located.
In 2019, we continued our efforts in this regard and
worked on new social and environmental responsi-
bility initiatives that will soon be rolled out.
A seven-pillared strategy
Our strategy for our retail portfolio is based on seven
pillars, designed to consolidate our activities and
ensure their growth.
1 Leasing
We wish to boost our food and entertainment offe-
ring, decrease our exposure to the fashion sector
and attract retailers that generate recurring traffic
to our centres.
2 Sears redevelopment
Our efforts have been geared toward maximizing the
redevelopment potential of the premises formerly
occupied by Sears. As illustrated in the following
chart, 64% of these spaces have been leased out or
are in advanced discussions and will generate 144%
more in rental income.
Leased & advanced discussions
144%
64%
leased or
in advanced
discussions
47%
leased
s
r
a
e
S
y
b
d
e
s
a
e
l
a
e
r
a
l
a
t
o
T
Former
Sears area
Rental
income
s
r
a
e
S
m
o
r
f
e
m
o
c
n
i
l
a
t
n
e
R
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Industrial
and flex
The popularity of Canadian industrial properties was
extremely strong during the year, and our markets
in Montreal and Québec City were no exception.
Given tenants’ growing demand for these types of properties,
availability became increasingly limited and rents climbed
upward as a result.
505 du Parc-Technologique Boulevard, Québec City
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The Montreal market surged to historic highs in 2019, and vacancy rates tumbled
to under the 3% mark. As we own the largest industrial portfolio in Montreal, we
were determined to take advantage of this favourable context – bearing in mind
that when vacancy rates fell this low in Vancouver and Toronto, rents inevitably
ballooned within the following 24 months. In the next three years, close to 50% of
the leases for our industrial properties – representing 7.3 million square feet – will
be coming up for renewal, which puts us in an excellent position. We will therefore be
consolidating our rents to leverage the value of our industrial portfolio and reassert
our leadership within the industry.
The market in Québec City is also booming. There is a similar dearth of available
space, which will enable us to maximise our rents as soon as leases come up for
renewal. The area’s largest industrial park belongs to us, representing close to
20% of the properties in this segment. Once again, this is an ideal opportunity for
us to reinforce our position as a market leader.
In addition, to optimize the potential of our portfolio, we are scaling back incentives
offered for new rentals and lease renewals. This will allow us to maximize our returns
and strengthen our future position.
Total number
of properties
191
Total leasable
area (sq. ft.)
15.4M
Committed
occupancy rate
97.1%
Three strategic thrusts
to optimize growth
As part of our efforts to drive the value of our investments upward, we are looking at
opportunities over the next five to ten years. Three strategic pillars are underpinning
our industrial strategy.
1
Insight into future market trends
The first pillar involves identifying future hubs for our markets so we can strategi-
cally position ourselves over the long term in these forward-looking sectors.
2 Strategic investments
Second, considering the shortage of available land and space, we are analyzing pro-
perties and sites where the development or redevelopment potential is significant,
in addition to opportunities to group properties together to maximize their value.
We have already identified a number of promising development sites, including a
1.7 million sq. ft. piece of land in Laval, which is drumming up a great deal of interest
among potential tenants.
3 Selective development
Third, given this outlook and in a market where rents are on a sharp rise, we are
currently analyzing the possibility of several speculative and custom-built
construction projects.
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3400 De Maisonneuve Boulevard West, Montreal
25
Development and
intensification
Development and intensification are an
integral part of our strategic plan. This
stems from our commitment to maximizing
the value of our assets, in particular by
redeveloping select properties to incorporate
a variety of uses aligned with market trends.
In this context, key resources were added to our
Development and Intensification Department during
the course of the year.
As part of our target projects, our teams work closely
with partners who are elite players in their respec-
tive operating segments, in addition to engaging
in discussions with municipal administrations to
amend zoning requirements to add residential
units, increase density or make other adjustments.
As it currently stands, nearly a dozen of our retail
properties are prime candidates for intensification,
with a total potential of close to 10,000 residential
units, subject to securing the necessary permits and
zoning changes from the corresponding municipal
authorities. Among them are the Mail Champlain/
Place du Commerce hub in Brossard, with a possi-
bility of an additional 2,300 units, Centropolis in
Laval, where a first phase would add 500 units, and
the Central Station Complex in downtown Montreal,
where 1,800 units could be created.
Our teams are also working to develop a vacant
industrial site on Curé-Labelle Boulevard in Laval
and to add a 125,000 square foot office building on
an existing site in Kanata.
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Employee
experience and
human capital
management
In 2019, we identified three key ingredients to the success of our transfor-
mation: the development of a culture of excellence, better organizational
alignment and the optimal use of technology. Our approach to human capital
consists in adopting programs and tools to help attract, hire and develop
talent that will contribute to Cominar’s vision and strategic objectives. By
leveraging our organizational leadership, performance and health, we hope
to create a work environment conducive to a thriving workforce.
Organizational leadership
The past year saw a renewal of our leadership team, bringing
together unprecedented real estate expertise and a wide
diversity of experience and outlooks. Two new strategic functions
were also created, namely Data and Technology, and Portfolio
and Asset Management.
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Maria Gabriela González / Design
In the midst of these changes, we upheld our
commitment to gender diversity at the management
level. We were even singled out by La Presse for our
leadership in this regard in a 2019 report on publicly
traded companies in Quebec, which identified
Cominar as having the province’s highest proportion
of female senior executives.
We are also proud of our track record with respect
to career mobility. More than 10% of our workforce
changed roles or received a promotion during the
course of the year. Organizational leadership is
something that ripples through the entire company,
and our goal is to provide fulfilling career opportuni-
ties to employees at all levels.
Organizational performance
At the beginning of 2019, we floated the idea that
there was room to enhance our business practices
and streamline our efficiency and productivity.
And we were right in this assertion: not only did
we manage to significantly improve our financial
performance, but we did so with a workforce
that was close to 15% leaner. To achieve this, we
focused on being more effective in prioritizing and
planning our activities and processes, aligning
our organizational structure with our strategic
objectives and client needs, and optimizing the fit
between roles and talents. This was a challenging
step to take, but it was necessary in order for us to
move forward. It was greeted favourably by most
of our personnel, as is reflected in our employee
engagement and satisfaction rates, both of which
went up during the year.
In addition, our efforts to define our new corporate
values has helped us fine-tune our performance
management system to make sure it is conducive
to our desired behaviours.
28
Simon Légaré / Marketing
29
29
Organizational health
It would be impossible for us to attain a satisfac-
tory level of organizational performance without
focusing on the well-being of our company and the
people who work here. That is why we have placed
a high priority on fostering an open, flexible work
environment during the transformation process.
For example, we introduced a flex-time policy, based
on the principles of mutual trust, to favour greater
flexibility and personal accountability around time
management. We also enhanced the employee
experience through a wide range of health-related
activities and challenges – something that was
appreciated by everyone in the organization.
After conducting our first engagement survey in
2019, which 85% of our employees responded to, we
followed up with a second survey in January 2020.
The response rate rose to 90% and, as the figures
below show, positive growth was observed for each
of the surveyed topics.
We have also maintained our commitment to work-
place health and wellness by holding a number of
training sessions during the year. As a result, on-the-job
accidents were down by over 50% compared with
the previous three years. Lastly, we make it a point to
impose strict standards in terms of employee health
and safety, sanitation and hygiene, and environmental
compliance in all our office and work spaces.
Health challenge
Employee engagement rate: 74% (+6 points)
Engagement rate for our highest-performing employees: 79% (+5 points)
Improvement in our key engagement levers
› Senior leaders have communicated a
motivating and inspiring vision of the
› The leaders at Cominar are good
role models for our company values:
future: +30 points
+19 points
› Communication from senior leaders
› Cominar is on track to be successful
is consistent and transparent:
in the future: +15 points
+28 points
› Senior leadership is open and responsive
to ideas from employees: +21 points
›
I am confident I can achieve my
career goals at Cominar: +13 points
30
Social
responsibility
and environment
In a constantly changing world, we
believe that, in our role as property
manager, we need to set an example in
terms of sustainability, while making
sure we continue to act in the best
interests of our clients, our customers,
our employees and society as a whole.
We care about the well-being of the com-
munities where we operate and we are
committed to building a better future for
everyone. That is why we place a great deal
of importance on sustainability, the environ-
ment, energy efficiency, water consumption,
volunteer engagement, corporate donations
and sponsorships, and health and safety.
This environmentally and socially responsible
approach is the common thread that runs
through all the projects and activities here
at Cominar.
Through concrete action, we can improve the
status quo and do our part to create a better
world. Building on this idea, we have put
various strategies in place and launched a
number of initiatives in the past few years.
We have formed a committee to develop and
implement an action plan targeting the short,
medium and long term. The committee ‘s
mission will be to define and achieve a set of
objectives and incorporate sustainability-
minded practices into every aspect of the
business. These initiatives are directly related
to the policy on social responsibility and the
environment that the Board of Trustees adop-
ted in 2018. The committee is specifically
tasked with examining various environmental,
social and governance (ESG) issues and
coming up with lasting solutions that will help
Cominar and our clients face the climate and
social challenges of today and tomorrow. We
have our sights set on becoming an industry
leader in this field. As such, we keep a close
eye on market trends that we can use to stay
ahead of the curve. And we are committed
to taking innovative action to strengthen
our societal impact and ensure long-term
stability and growth.
31
32 32
Governance
As part of our strategic review, and driven
by our direct and active dialogue with our
unitholders, we focused on best-in-class
governance practices to ensure proper
stewardship of the REIT.
We modernized our practices, established policies
and procedures that both require and encourage our
trustees and the REIT’s management to thoughtfully
work together to achieve success.
The Board is responsible for recruiting and retaining
trustees who combine deep real estate experience
with complementary skills and knowledge to ensure
optimal results.
Role of the Board
of Trustees
The Board of Trustees oversees the REIT’s operations,
strategy and performance. Its duties and responsi-
bilities include establishing guidelines and principles
related to governance, compliance and ethics, appoin-
ting the CEO, managing the Board’s affairs, ensuring
strategic planning, overseeing the succession plan,
monitoring financial and corporate performance and
overseeing risk management. The Board discharges
these responsibilities directly and through delegation
to its various committees.
33 33
Governance
structure
Board of
Trustees
› Approve strategic decisions and major
transactions
›
Implement a governance framework
consistent with the organization’s
core values
› Supervise the conduct of business and
ensure sustainable value for unitholders
› Oversee risk management
Audit
committee
Investment
committee
Nominating
and governance
committee
Human
resources
committee
› Analyze the financial situation
and results
› Review financial statements and
report to the Board
› Oversee financial management
including reporting, internal
controls, internal and external
audit procedures, financial and
operational risk management,
and compliance with the Code of
Ethics and Business Conduct as
well as legislative and regulatory
requirements
› Oversee capital allocation
› Review governance practices
› Approve acquisition,
disposition and financing
transactions, within the
scope of its authority
› Approve expansion, develop-
ment and redevelopment
projects, within the scope
of its authority
› Assist the Board in overseeing
investment operations and
reviewing performance
›
Implement assessment
criteria for the Board,
trustees and committees
› Review the Code of Ethics
and Business Conduct and
its application
› Oversee the ESG plan
› Review human resources-
related policies, programs
and practices
› Review executive compen-
sation and performance
Management
team
34
Ethics and
integrity
We strive to act with integrity in everything we do. This requires honesty
and transparency in all interactions with colleagues, clients and business
partners. Upon joining the organization, all employees are subject to the
Code of Ethics and Business Conduct and, as such, must avoid any situations
that would represent a conflict of interest with the REIT.
Our Code of Ethics and Business Conduct sets forth
the ethical standards incumbent on employees in
order to achieve and maintain the required level of
trust as it relates to:
› Compliance with applicable laws and regulations
› Competence and diligence
›
Integrity of accounting records
› Loyalty, honesty and integrity
› Confrontations with the law
› Obligations of loyalty and integrity including
following cessation of employment
› Priority accorded to our duties and activities
› Use of resources
› Relationships with co-workers
Policy for the confidential or
anonymous communication of
complaints about accounting,
financial and internal audit
matters
Any individual, including employees of the
REIT and its subsidiaries, may submit a
complaint about accounting, financial or
internal audit matters without threat of
reprisal. We are committed to observing all
laws and regulations to which the REIT is
subject, as well as all accounting standards,
internal controls and audit methods. The
audit committee is responsible for handling
any employee concerns in this regard.
For more information on our practices with
respect to governance, ethics and integrity,
please see our Management Proxy Circular,
available on our website.
35
35
585 Charest Boulevard East, Québec City
36
Environmental
management
Our environmental management program aims
to safeguard our assets and tenants and to
ensure our properties comply with applicable
environmental standards.
Our teams regularly monitor the situation and perform the
necessary due diligence prior to acquiring, financing or selling
a property, or applying for a municipal permit. We work with
external experts to conduct the required environmental
assessments.
Accordingly, we carried out approximately 125 site and soil
assessments in 2019, set up a regulatory groundwater moni-
toring process and performed environmental rehabilitation
work on certain properties. We also started an environmental
registry so we can quickly and easily identify environmental
issues in our portfolio. This registry has allowed us to be
proactive in detecting properties that may be at risk because
of their permitted use or where tenants are involved in
activities considered as high risk under the law, as well as
those where mechanisms are required to monitor water and
biogases, those where preventive action is needed and other
environmental liabilities.
Adopting good environmental management practices in our
properties and with our tenants lets us be proactive and step
in before an incident occurs. As a result, we can be more
thorough in monitoring our assets and come up with effective,
innovative environmental solutions for all of our properties.
37
37
Benoit Dupont / Operations
Environmentally responsible
property management
We are constantly introducing new
environmentally responsible practices
to reduce our carbon footprint, achieve
energy savings, reduce operating expen-
ses and improve the comfort of our
tenants. The long-term benefits of these
initiatives are manifold. The improved
energy efficiency in our properties, for
one, inevitably has a positive impact on
our properties’ sustainability and value.
The modernization and optimization
of electromechanical systems not only
increase tenants’ well-being, but they
also make our properties more appealing
and increase the useful life of our equip-
ment, all while reducing greenhouse
gas emissions.
ment and the centre’s environmental
management system. Rockland has
successfully diverted 91% of waste from
landfill, including 200 tonnes of organic
waste that is turned into compost every
year and used to enrich the soil of local
farms. Additionally, there are no conven-
tional waste bins at Rockland – only a
central sorting station, which attendants
use to separate the various materials
and maximize the compostability of
uneaten food in the new dining hall (La
Cuisine Rockland). Efforts at Rockland
have been ongoing from year to year to
ensure the management of this Montreal-
based shopping centre continues to be
respectful of the environment.
Green practices
Several initiatives rolled out in recent
years are helping to make our properties
more environmentally responsible every
day. For example, in an effort to shrink
its carbon footprint, Rockland set up a
comprehensive six-pronged program
covering energy, water, waste reduction,
emissions and effluents, indoor environ-
In Laval, Centropolis is also leading the
way in sustainable development. Its
strategy is built around several core
commitments and a desire to be a local
pioneer in incorporating sustainability
into urban planning practices. Its carbon
footprint reduction initiatives include an
ornamental vegetable garden in the heart
of its central plaza, which was set up in
2009. Not only does this garden need a
minimal amount of water to operate, but
the food it produces is put to good use
by the Centre de bénévolat et moisson
Laval. Vegetables are harvested two to
three times a year, for an annual yield
of approximately 100 kilograms. An
open-air retention pond, comparable to
a natural pond, has also been built to
collect rainwater in large quantities. Its
innovative design means that some of
the water is absorbed and filtered by
herbaceous perennials, while some is
released into the air through evapo-
transpiration. Any leftover water is sent
to a municipal wastewater facility where
it is filtered and treated. This retention
pond is a thriving green space that contri-
butes to local biodiversity by providing
a habitat for birds and other animals.
In addition, the more than 1,500 trees
around the site help to beautify pedes-
trian spaces and counter the heat island
effect. In addition, 3055 Saint-Martin
Boulevard West, one of the buildings in
the complex, is certified LEED-CS Gold
in recognition of its responsible use of
energy, materials and water.
38
38
The 59 electric vehicle charging stations
in our properties were used 34,609 times
during the year. And the Electrobac bins
installed in many of our properties
helped collect metals, plastics and other
recyclables and use them to make new
products. Any electronic devices reco-
vered through the Electrobac program
that can still be used are refurbished
after undergoing extensive testing and
having their data wiped. As a result,
41,039 devices were kept out of landfill
sites in 2019. All in all, this works out
to the equivalent of 3,113 mature trees,
51,700 litres of petroleum and 116,607
plastic bottles saved.
Lastly, we make it a point to use 100%
environmentally friendly and biodegra-
dable cleaning products in most of our
properties. Many of the food courts in our
shopping centres now have composting
programs and facilities in place for
consumer and restaurateur use. We also
recycle restaurant grease in several of our
malls. We hire specialized contractors to
recover and treat used oil and ensure it
is recycled properly. Moreover, some of
our retail properties are now equipped
with low-flow toilets and urinals, as well
as sensor-controlled sinks, to help reduce
the amount of potable water used.
In Québec City, innovative landscape
irrigation practices were introduced at
Complexe Jules-Dallaire to curtail,
and even eliminate, the need to water
the grounds. The LEED Gold–certified
complex has a reservoir to collect runoff
water from the roof and non-irrigated
surfaces. This is then used to meet 10%
to 40% of the watering needs for the
property’s green spaces, as a complement
to natural rainfall.
On Montreal’s South Shore, two beehives
were set up at Place Longueuil in 2018.
The 50,000 to 80,000 bees that live
in them help pollinate the trees and
flowers within a 5 kilometre radius. In
2019, the honey harvested during the
summer months produced no fewer
than 200 jars of honey, 100 beeswax
candles, 100 bars of soap and 100 tubes
of lip balm. Proceeds from the sale of
these items went to the Fondation du
Centre jeunesse de la Montérégie.
Environmentally friendly
systems and products
Of the many measures undertaken in our
properties systems in 2019 to promote
environmentally responsible manage-
ment, a few stand out from the rest. For
example, we installed a heat recovery
chiller at Place de la Cité in Québec City
and optimized the control sequences of
the electromechanical systems. These
two actions alone were responsible for
cutting energy consumption by more
than 20%. In Montreal, we replaced a
chiller at 2001 McGill College with a
higher-performance model. The result:
lower energy consumption and mainte-
nance bills and a smaller carbon foot-
print. In the Ottawa area, we upgraded
the electromechanical and lighting
system controls at 1 Antares Road, in
Nepean, which yielded annual energy
savings of 8%.
39
Energy management
We keep a close eye on the energy
consumption in all our properties in
order to reduce energy and maintenance
costs without compromising on occu-
pant comfort. Monitoring energy use
patterns is also a great way to zero in
on efficiency problems and introduce
measures to address them. Our strategy
in this regard is based on a series of
low-cost energy savings initiatives. And
our participation in energy providers’
efficiency programs help us optimize the
ROI of our projects.
This translated into the following in 2019:
› Modernization of LED lighting systems
in certain properties, thereby reducing
the energy bill by 11%
›
Installation of variable frequency
drives on fans at 2 Place Laval, gene-
rating more than 5% in yearly energy
savings
› Preparation of a study on energy
savings potential at 979 De Bourgogne
Avenue in Québec City
› Participation in the Hydro-Québec
demand response (DR) program which
is designed to reduce spikes in demand
after a DR notice is issued during the
winter season.
Overall, 92% of the energy consumed
in our portfolio comes from a renewable
source. The remaining 8% is non-renewable
energy (natural gas). We are equipped to
monitor and analyze energy consump-
tion in almost all of our properties. This
allows us to quantify the efficiency of
our initiatives and propose solutions
aimed at optimizing our results. In 2019,
the results of these energy-efficiency
efforts translated to a reduction of more
than 30% in energy use compared to the
2017 reference year.
40
Social
engagement
Social engagement has always been inherent in
Cominar’s DNA. We encourage employees to give
back to their community in a variety of ways and
we are proud to contribute to the causes that are
near and dear to their hearts.
Our volunteering program Once a volunteer, always a volunteer! lets staff
members use some of their paid personal time off to lend a hand to a
charitable organization. They can also request up to $500 in financial
assistance on behalf of a cause they actively support. And of course, we
match employee contributions made during our annual Centraide/United
Way campaigns, which in turn are used to back a wide range of commu-
nity organizations serving disadvantaged segments of the population.
We are especially partial to causes dedicated to health and children.
As part of our ongoing partnership with Opération Enfant Soleil, we ask
clients and shoppers in our retail properties to support the work they do.
We are also actively involved in the Grand défi Pierre Lavoie: we have a
team in place for their 1,000 KM event, one of the members of which is
41
41
Community gardens
Sandra Lécuyer / Talent and organization
CEO Sylvain Cossette, and several of our
employees have signed up for an activity
known as the Loop. A few are also on the
organization’s School Tour team, helping
to encourage children and youth to take
part in regular physical activity. This
is a particularly rewarding way for our
volunteers to appreciate the impact of
their efforts.
Our rooftop gardens, launched by our
maintenance teams in 2018, expanded in
2019, with the active participation of the
management team. Some 60 kilograms
of produce was donated to community
organizations as a result.
Also in 2019, some 40 of our employees
hiked a total of close to 65,000 metres
on Mont-Sainte-Anne, near Québec City,
during the Défibrose fundraiser for cystic
fibrosis. Besides raising a substantial
amount of money for a cause that is
important to our people, the event allowed
them to combine physical activity and
teamwork – a perfect reflection of our
social engagement philosophy.
Grand défi Pierre Lavoie / Marc Duval, Patrick Boisvert,
Isabelle Dumas, Mario Beauregard, Sylvain Cossette
Défibrose
42
42
Management’s
discussion
and analysis
43
Management's Discussion and Analysis
The following Management's Discussion and Analysis ("MD&A") is provided to enable the reader to assess the results of operations of
Cominar Real Estate Investment Trust ("Cominar," the "Trust" or the "REIT") for the fiscal year ended December 31, 2019, in comparison
with the fiscal year ended December 31, 2018, as well as its financial position as at that date and its outlook. Dated March 3, 2020, 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 International Financial Reporting Standards ("IFRS"),
as issued by the 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. Readers are
referred 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 2018 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.
44
Real Estate
Portfolio
Properties
317
Leasable area (sq. ft.) 35.9 M
Assets
$6.9 B
Same Property Net Operating Income by Property Type
45
39.5%
26.0%
34.5%
Office
80 properties
11.1M sq ft
Retail
46 properties
9.5M sq ft
Industrial
and flex
191 properties
15.4M sq ft
Same Property Net Operating Income by Geographic Market
63.6%
30.5%
5.9%
Montreal
198 properties
23.7M sq ft
Québec City
100 properties
9.8M sq ft
Ottawa
19 properties
2.4M sq ft
46
Highlights
Fiscal Year Ended December 31, 2019
Growth in same property net operating income¹ 3.2%
Growth in the average net rent of renewed leases 2.8%
Increase in the committed occupancy rate
from 93.6% to
Retention rate
Reduction in leverage ¹
from 55.3% to
AFFO¹ payout ratio
1 Refer to section "Non-IFRS Financial Measures".
95.1%
77.3%
51.4%
93.5%
Office
Growth in same property net
operating income ¹
4.0%
47
Growth in average net rent
of renewed leases
4.1%
Decrease in retention rate
from 76.2% to
Increase in the committed
occupancy rate
from 91.5% to
74.3%
92.9%
Retail
Decline in same property net
operating income ¹
(0.5)%
Decline in average net rent
of renewed leases
Decrease in retention rate
from 83.3% to
Increase in the committed
occupancy rate
from 93.8% to
(1.7)%
77.7%
94.1%
Industrial
and flex
Growth in same property net
operating income ¹
7.2%
Growth in average net rent
of renewed leases
Increase in retention rate
from 70.3% to
Increase in the committed
occupancy rate
from 95.0% to
1 Refer to section "Non-IFRS Financial Measures".
10.1%
79.1%
97.1%
48
Subsequent Events
On January 6, 2020, Cominar repaid $2.2 million in mortgages payable before maturity using available cash.
On January 7, 2020, Cominar repaid $3.0 million in mortgages payable before maturity using available cash.
On January 8, 2020, Cominar repaid $80.2 million in mortgages payable before maturity using available cash.
On January 16 and February 19, 2020, Cominar declared a monthly distribution of $0.06 per unit for each of these months.
On January 21, 2020, Cominar completed the sale of two retail properties held for sale located in the Montreal area for a total selling
price of $0.9 million.
On January 23, 2020, Cominar completed the sale of an investment property held for sale (retail land) located in the Québec City area
for a total selling price of $1.9 million.
On March 3, 2020, Cominar contracted a new mortgage of $83.4 million with a 5.5 years term and bearing interest at 2.86%.
On March 3, 2020, Cominar refinanced a mortgage having a balance of $5.4 million, maturing in November 2024 and bearing interest
at 3.90% with a new mortgage of $20,0 million maturing in March 2027 and bearing interest at 3.48%.
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. By their nature, forward-looking statements involve risks, uncertainties and assumptions. Such forward-looking
statements reflect our intentions, plans, expectations and opinions regarding our future growth, operating results, performance and
business prospects and opportunities. Forward-looking statements are often identified by words and expressions such as "plans,"
"expects," "is expected," "budgeted," "scheduled," "estimated," "seeks," "aims," "forecasts," "intends," "anticipates," "believes," or by
statements that certain actions, events or results "may," "could," "would," "might" or "will" be taken, occur, or be achieved, and other
variants and similar expressions, as well as the negative and conjugated forms, as they relate to Cominar.
Cominar is subject to risks and uncertainties which may cause actual results of the REIT to be materially different from results expressed
or implied in these forward looking statements. Assumptions that could cause actual results, performance or achievements to differ
materially from those expressed or implied by forward-looking statements, include, but are not limited to, access to capital and debt
financing, the effects of general economic and business conditions, risks associated with the ownership of the immoveable properties,
including climate change, industry competition, inflation, currency and interest rate fluctuations, risks associated with future property
acquisitions, dispositions or developments, the recruitment and retention of employees and executives, legislative and/or regulatory
developments, compliance with environmental laws and regulations, increases in maintenance and operating costs, limits on our
activities, general uninsured losses, potential conflicts of interest, security threats and reliance on technology and related cybersecurity
risk.
Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other
factors which may cause our actual results or performance to be materially different from the outlook or any future results or performance
implied by such statements.
We caution readers that the foregoing list of 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 2018 Annual Information Form.
49
Non-IFRS Financial Measures
Cominar's Consolidated financial statements are prepared in accordance with IFRS. However, in this MD&A, we provide guidance and
report on certain non-IFRS measures and other performance indicators 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. These measures, as well as the reasons why management believes these measures are
useful to investors, are described below. Reconciliation can be found in the section dealing with each of these measures.
Cominar measures the success of its strategy using a number of performance indicators:
Non-IFRS Performance Indicators
•
•
•
•
•
•
•
•
•
Cominar’s proportionate share: Cominar accounts for investments in joint ventures and associates as equity accounted
investments in accordance with IFRS. Cominar’s proportionate share is a non-IFRS measure that adjusts Cominar’s financial
statements to reflect Cominar’s equity accounted investments and its share of net income (loss) from equity accounted
investments on a proportionately consolidated basis at Cominar’s ownership interest of the applicable investment. Cominar
believes this measure is important for investors as it is consistent with how Cominar reviews and assesses operating performance
of its entire portfolio. Throughout this MD&A, the balances at Cominar’s proportionate share have been reconciled back to relevant
IFRS measures;
Net operating income ("NOI"): NOI is a measure presented in the statement of comprehensive income in Cominar’s consolidated
financial statements, which is calculated as revenues less property operating expenses such as utilities, repairs and maintenance
and realty taxes. NOI does not include charges for interest or other expenses not specific to the day-to-day operation of Cominar's
properties. Cominar considers NOI to be a valuable measure for evaluating the operating performance of its properties;
Same property NOI: Same property NOI is a non-IFRS measure used by Cominar to provide an indication of the period-over-period
operating profitability of the same property portfolio, that is, Cominar’s ability to increase revenues, manage costs, and generate
organic growth. Same property NOI includes the results of properties owned by Cominar as at December 31 2017, with the exception
of results for properties sold, acquired or under development in 2018 and 2019, as well as the rental income arising from the
recognition of leases on a straight-line basis that is a non-cash item and which, by excluding it, will allow this measure to present
the impact of actual rents collected by Cominar;
Funds from operations ("FFO"):FFO is a non-IFRS measure which represents a standard real estate benchmark used to measure
an entity’s performance, and is calculated by Cominar as defined by REALpac as net income (calculated in accordance with IFRS)
adjusted for, among other things, changes in the fair value of investment properties, deferred taxes and income taxes related to
a disposition of properties, derecognition and impairment of goodwill, initial and re-leasing salary costs, adjustments relating to
the accounting of joint ventures and transaction costs incurred upon a business combination or a disposition of properties. It is
Cominar’s view that net income does not necessarily provide a complete measure of Cominar’s recurring operating performance
since net income includes items such as changes in fair value of investment property which may not be representative of recurring
performance. Cominar considers FFO as a key measure of operating performance as it adjusts net income for items that are not
recurring including gain (loss) on sale of real estate assets as well as non-cash items such as the fair value adjustments on
investment properties and Cominar ties employee incentives to this measure;
Adjusted funds from operations ("AFFO"):AFFO is a non-IFRS measure which, by excluding from the calculation of FFO the rental
income arising from the recognition of leases on a straight-line basis, the investments needed to maintain the property portfolio’s
capacity to generate rental income and a provision for leasing costs is calculated as defined by REALpac. Cominar considers
AFFO to be a useful measure of recurring economic earnings and considers AFFO in determining the appropriate level of
distributions;
Adjusted cash flow from operations ("ACFO"):ACFO is a non-IFRS measure that is derived from the operating cash flows provided
by operating activities (in accordance with IFRS) and is calculated by Cominar as defined by REALpac and provides a helpful real
estate benchmark to measure Cominar’s ability to generate stable cash flows;
Debt ratio: Debt ratio is a non-IFRS measure used by Cominar to assess the financial balance essential to the prudent running of
an organization. Debt ratio is calculated by adding mortgages payable, debentures, bank borrowings less cash and cash equivalents
divided by the total assets minus cash and cash equivalent. Cominar’s Declaration of Trust limits the indebtedness of Cominar
to a maximum of 65% of its total assets;
Debt to earnings before interest, income taxes, depreciation and amortization ("EBITDA") ratio: Debt to EBITDA is a non-IFRS
measure widely used in the real estate industry and is used by Cominar to assess Cominar’s ability to pay down its debts. Cominar
defines EBITDA as net operating income minus adjusted Trust administrative expenses and recognition of lease on a straight-line
basis;
Interest coverage ratio: Interest coverage ratio is a non-IFRS measure used by Cominar to assess Cominar’s ability to pay interest
on its debt from operating revenues and is calculated using net operating income minus adjusted Trust administrative expenses,
divided by adjusted finance charges;
50
Other Performance Indicators
•
•
•
•
Committed occupancy rate: Committed occupancy is a measure used by Cominar to give an indication of the future economic
health of the geographical regions and sectors in which Cominar owns properties by taking the leasable area occupied by clients
to which is added the leasable area of the leases signed but which have not already started, divided by the leasable area of our
real estate portfolio excluding the areas currently under redevelopment;
In-place occupancy rate: In-place occupancy is a measure used by Cominar to give an indication of the current economic health
of the geographical regions and sectors in which Cominar owns properties by taking the leasable area occupied by clients, divided
by the leasable area of our real estate portfolio;
Retention rate: Retention rate is a measure used by Cominar to assess client satisfaction and loyalty;
Growth in the average net rent on renewed leases: Growth in the average net rent on renewed leases is a measure used by Cominar
to measure organic growth and gives an indication of Cominar’s capacity to increase its rental income.
Reconciliation with closest IFRS measure and other relevant information regarding these performance indicators are provided in the
appropriate sections of this MD&A.
Financial and Operational Highlights
Years ended December 31
2019
$
2018 ¹
$
%Í Page
51
Financial performance
Operating revenues — Financial statements
Operating revenues — Cominar’s proportionate share 2
NOI — Financial statements
NOI — Cominar’s proportionate share 2
Same property NOI 2
Change in fair value of investment properties — Financial statements
Impairment of goodwill - Financial statements
Net income (net loss)
Adjusted net income
Funds from operations (FFO) 2, 3
Adjusted funds from operations (AFFO) 2, 3
Cash flows provided by operating activities — Financial statements
Adjusted cash flows from operations (ACFO) 2, 3
Distributions
Total assets
Per unit financial performance
Net income (net loss) (basic and diluted)
Adjusted net income (diluted) ²
Funds from operations (FFO)(FD) 2, 3, 4
Adjusted funds from operations (AFFO)(FD) 2, 3, 4
Adjusted cash flows from operations (ACFO)(FD) 2, 3, 4
Distributions
Payout ratio of adjusted cash flows from operations (ACFO) 2, 3, 4
Payout ratio of adjusted funds from operations (AFFO) 2, 3, 4
Book value per unit 5
Financing
Debt ratio 2, 6
Debt/EBITDA ratio 2
Interest coverage ratio 2, 7
Weighted average interest rate on total debt
Residual weighted average term of total debt (years)
Unsecured debt-to-total-debt ratio 8
Unencumbered income properties
Unencumbered assets to unsecured debt ratio 9
Operational data
Number of investment properties 10
Leasable area (in thousands of sq. ft.)
Committed occupancy rate
In-place occupancy rate
Retention rate
Growth in the average net rent of renewed leases
Development activities
Properties under development — Cominar’s proportionate share 2
704,041
721,235
358,322
368,155
354,882
276,475
734,650
751,095
372,464
381,957
344,032
(4.2)
(4.0)
(3.8)
(3.6)
3.2
(267,098)
(203.5)
—
(120,389)
100.0
(212,282)
(317.9)
462,504
202,273
195,127
140,960
191,868
144,392
131,068
206,797
206,416
160,151
182,939
154,481
143,730
(2.2)
(5.5)
(12.0)
4.9
(6.5)
(8.8)
5.3
6,892,420
6,543,711
2.54
1.11
1.07
0.77
0.79
0.72
91.1%
93.5%
17.30
51.4%
10.6x
2.36:1
4.06%
3.7
36.5%
(1.17)
(317.1)
(1.8)
(5.3)
(12.5)
(9.2)
(8.9)
(1.9)
4.1
11.8
1.13
1.13
0.88
0.87
0.79
92.9%
89.8%
15.47
55.3%
10.3x
2.32:1
4.14%
3.5
51.8%
2,125,836
2,864,637
1.82:1
1.53:1
317
35,895
95.1%
91.7%
77.3%
2.8%
428
38,127
93.6%
89.2%
75.8%
0.6%
47,371
41,685
60
60
63
63
65
60
74
75
76
77
77
82
82
82
57
75
76
77
77
82
82
82
77
56
87
87
88
83
83
88
88
88
90
90
95
95
96
96
57
1 Year ended December 31, 2018 includes results of 95 non-core properties sold for total consideration of $1.14 billion during the first quarter of 2018.
2 Refer to section "Non-IFRS Financial Measures".
3 Year ended December 31, 2019 includes $1.0 million from the settlement approved by the court between Target Canada and its creditors, $5.2 million of penalties paid on mortgages
repayments before maturity, $1.1 million of debenture redemption costs, $4.8 million of restructuring costs and a $1.0 million severance allowance paid in Q1-2019 following the
departure of an executive officer.
4 Fully diluted.
5 Total equity divided by the total number of outstanding units as of the end of the period
6 Total of bank borrowings, mortgages payable and debentures, less cash and cash equivalents, divided by the total assets minus the total of cash and cash equivalents.
7 Net operating income less adjusted Trust administrative expenses divided by finance charges.
8 Unsecured debt divided by total debt.
9 Fair value of unencumbered income properties divided by the unsecured net debt.
10 During the first quarter of 2019, Cominar reassessed its number of properties by grouping individual addresses within the same plot of land or related plots of land as one property.
52
Selected Quarterly Information
Quarters ended
Financial performance
Dec.
2019
$
Sept.
2019
$
Jun.
2019
$
Mar.
2019
$
Dec.
Sept.
Jun.
Mar.
2018
2018
2018 2018 ¹
$
$
$
$
Operating revenues — Financial statements
173,931
171,539
176,627
181,944
176,073
172,665
177,047
208,865
Operating revenues — Cominar’s proportionate
share 2
178,161
175,884
180,946
186,244
180,116
176,820
181,280
212,879
NOI — Financial statements
NOI — Cominar’s proportionate share 2
91,216
93,695
91,438
93,914
88,983
91,468
86,685
89,078
91,128
90,977
89,813
100,546
93,526
93,548
92,256
102,627
Change in fair value of investment properties —
Financial statements
Impairment of goodwill — Financial Statements
Net income (net loss)
Adjusted net income
FFO 2
AFFO 2
Cash flows provided by operating activities —
Financial statements
ACFO 2
Distributions
Per unit
Net income (net loss) (basic)
Net income (net loss) (diluted)
Adjusted net income (diluted) ²
FFO (FD) 2, 7
AFFO (FD) 2, 7
ACFO (FD) 2, 7
Distributions
—
—
(4,331)
—
270,964
(2,559)
8,291
(221)
(276,160)
13,393
—
319,265
53,423
—
47,456
51,688
—
51,474
50,250
—
(120,389)
—
44,309
(353,353)
64,649
46,445
29,977
46,912
50,684
51,850
51,401
52,862
49,165 3
51,802 4
47,273 5
46,887 6
50,883
52,733
49,063
53,737
35,622 3
38,370 4
33,441 5
33,527 6
39,047
41,249
37,576
42,279
79,712
29,490
32,773
74,579
36,599
32,769
14,126
40,497
32,768
23,451
37,806
32,758
74,118
88,049
1,437
19,335
38,372
41,453
34,327
40,329
32,749
32,749
32,749
45,483
1.75
1.75
0.29
0.27 3
0.20 3
0.16
0.26
0.26
0.28
0.28 4
0.21 4
0.20
0.28
0.28
0.28
0.26 5
0.18 5
0.22
0.24
0.24
0.26
0.26 6
0.18 6
0.21
(1.94)
(1.94)
0.28
0.28
0.21
0.21
0.36
0.35
0.28
0.29
0.23
0.23
0.26
0.25
0.28
0.27
0.21
0.19
0.16
0.16
0.29
0.29
0.23
0.22
0.1800
0.1800
0.1800
0.1800
0.1800
0.1800
0.1800
0.2500
1 Quarter ended March 31, 2018 includes results of 95 non-core properties sold for a total consideration of $1.14 billion.
2 Refer to "Non-IFRS Financial Measures."
3 Includes $5.2 million of penalties paid on mortgages repayments before maturity.
4 Includes $1.0 million from the settlement approved by the court between Target Canada and its creditors, $1.1 million of debenture redemption costs and $0.9 million of restructuring
costs.
5 Includes $3.9 million of restructuring costs.
6 Includes a $1.0 million severance allowance paid in 2019 following the departure of an executive officer.
7 Fully diluted.
Selected Annual Information
Years ended December 31
Financial performance
Operating revenues — Financial statements
Operating revenues — Cominar’s proportionate share 4
NOI — Financial statements
NOI — Cominar’s proportionate share 4
Change in fair value of investment properties — Financial statements
Impairment of goodwill — Financial Statements
Net income (net loss) ᶟ
Adjusted net income
FFO 4
AFFO 4
Cash flows provided by operating activities — Financial Statements
ACFO 4
Distributions
Total assets
Per unit
Net income (net loss) (basic and diluted)
Adjusted net income (basic) ⁴
FFO (FD) 2, 4
AFFO (FD) 2, 4
ACFO (FD) 2, 4
Distributions
53
2019
$
2018 ¹
$
704,041
721,235
358,322
368,155
276,475
—
462,504
202,273
195,127
140,960
191,868
144,392
131,068
734,650
751,095
372,464
381,957
(267,098)
(120,389)
(212,282)
206,797
206,416
160,151
182,939
154,481
143,730
2017 ¹
$
835,489
848,840
436,037
443,586
(616,354)
—
(391,725)
255,798
249,689
210,427
233,225
211,296
246,523
6,892,420
6,543,711
7,824,993
2.54
1.11
1.07
0.77
0.79
0.72
(1.17)
(2.13)
1.13
1.13
0.88
0.85
0.79
1.39
1.35
1.14
1.15
1.33
1 Results for fiscal years ended December 31, 2018 and December 31, 2017 include results of 95 non-core properties sold for total consideration of $1.14 billion during the first
quarter of 2018.
2 Fully diluted.
3 Includes the change in fair value of investment properties and the depreciation of goodwill in 2018 and 2017.
4 Non-IFRS financial measure. See relevant section for definition and reconciliation to closest IFRS measure.
54
General Business Overview
Cominar Real Estate Investment Trust is one of the largest property owners and managers in the Province of Quebec. As at
December 31, 2019, Cominar owned a diversified portfolio of 3171 properties, composed of office, retail and industrial and flex buildings,
of which 198 were located in the Montreal area, 100 in the Québec City area and 19 in the Ottawa area. Cominar's portfolio consisted
of approximately 11.1 million square feet of office space, 9.5 million square feet of retail space and 15.4 million square feet of industrial
and flex space, representing total leasable area of 35.9 million square feet.
Cominar’s focus is on growing NOI and net asset value and exploiting, when economically viable, expansion or redevelopment
opportunities that provide attractive risk adjusted returns. Growth in cash flows from existing properties in the portfolio is expected to
be achieved by: (i) increases in rental rates on existing and new leases; (ii) improved occupancy and retention rates, as well as proactive
leasing strategies; (iii) sound management of operating costs; and (iv) disciplined allocation of capital and rigorous control of capital
expenditures.
Real Estate Portfolio Summary as at December 31, 2019
Our properties are primarily in urban areas, located along or in proximity of major traffic arteries, in proximity to existing and/or future
transit infrastructure and generally benefit from high visibility while providing ease of access for Cominar's clients and their customers.
Property type
Office
Retail
Industrial and flex
Total
Geographic market
Montreal
Québec City
Ottawa
Total
Number of
properties 1
80
46
191
317
Number of
properties 1
198
100
19
317
Leasable
area
(sq. ft.)
11,056,000
9,488,000
15,351,000
35,895,000
Leasable
area
(sq. ft.)
23,690,000
9,763,000
2,442,000
35,895,000
Committed
occupancy
rate
In-place
occupancy
rate
92.9%
94.1%
97.1%
95.1%
89.2%
87.3%
96.2%
91.7%
Committed
occupancy
rate
In-place
occupancy
rate
94.8%
96.0%
93.7%
95.1%
91.5%
93.3%
87.5%
91.7%
1 During the first quarter of 2019, Cominar reassessed its number of properties by grouping individual addresses within the same plot of land or related plots of land as one property.
55
Our Objectives, Our Outlook, Our Strategy
Objectives
Cominar’s primary objective is to maximize total return to unitholders through a combination of sustainable, tax-effective cash
distributions and maximizing the Unit value through the proactive management of its portfolio of properties.
Our Strategy
In 2019, we completed a detailed strategic review of our operations and began the implementation of a clearly defined plan, presented
to investors in October 2019, to solidify Cominar’s financial position, create value for unitholders and position the REIT for growth.
Our strategic objectives are to deliver over a three year period 1) annual same property NOI growth consistently above 2%, 2) 15% Net
Asset Value growth, 3) 15% FFO per unit growth and 4) a reduction in leverage to less than 50% of asset value and to 9.5x Debt
to / EBITDA.
Our initiatives in 2019 have allowed us to make significant progress toward these goals, putting us on track to achieve our targets. We
are confident that our transformation plan will deliver operating efficiencies, accelerate NOI growth and crystallize untapped portfolio
value in order to generate short term and long-term value for our unitholders.
The plan includes:
•
•
•
•
•
•
A series of concrete actions to add additional revenue streams, reduce operating costs and streamline G&A, which are to
have a collective positive impact on FFO and materially accelerate our organic growth. Initiatives include new sources of
revenue, workforce optimization, outsourcing arrangements, operating cost reductions, process automation, leveraging
technology and lease auditing among others. These initiatives are targeted to increase FFO by approximately $15 million
and in 2019 $10 million was realized on a run rate basis.
Creation of a dedicated asset management platform to maximize portfolio returns and enhance the investment decision-
making process. Our asset management team is in place and we have completed a thorough review of the majority of our
portfolio.
A focus on further strengthening and de-risking our balance sheet and a commitment to prudent management of our capital
structure. We are targeting a disciplined reduction in leverage through growing EBITDA, higher retained cash flow, driving
growth in our portfolio value and selective dispositions. As at December 31, 2019 our debt ratio was 51.4% (55.3% at
December 31, 2018) and Debt to EBITDA was 10.6x (10.3x at December 31, 2018).
Strategic refinancing and multi-year planning, including the repayment of low loan to value and high interest rate mortgages
to improve credit metrics and drive FFO. Our unencumbered asset ratio was 1.82:1 at December 31, 2019 up from 1.53:1 at
December 31, 2018. We expect our credit metrics to continue to improve through 2020 as a result of planned dispositions
and a budgeted increase in same property net operating income.
A responsible approach to CAPEX aimed at creating value with a targeted run rate of $125 million per year. Capital expenditures
for 2019 totaled $134 million excluding development, down from $221 million in 2018 excluding development.
Targeted dispositions, including the reduction of our exposure to lower-quality non-core assets, include the disposition of
fully valued liquid assets at historically low cap rates to provide price discovery and unlock trapped equity value. In 2019 we
disposed of 46 non-core properties for gross proceeds $260.6 million, 54% of which were retail properties. Our asset strategy
also includes the exploration of joint venture opportunities to capitalize on interest in the strong Quebec market
The plan is being executed, we are building momentum through quick wins and our team of seasoned leaders is committed to our new
strategic direction.
56
Overview of Fiscal 2019
Net Income: Net income (net loss) for the fiscal year ended December 31, 2019 amounted to $462.5 million compared to $(212.3) million
in the previous year. This reflects positive increase of $543.6 million in change in fair value of investment properties, decreases of
$120.4 million in goodwill impairment, of $16.4 million in transaction costs and $6.0 million in trust administrative expenses and
increase of $4.8 million in restructuring costs .
Adjusted Net Income1: For the fiscal year ended December 31, 2019, Cominar generated adjusted net income of $202.3 million compared
to $206.8 million for the fiscal year ended December 31, 2018.
FFO1: Fully diluted funds from operations ("FFO") for the fiscal year ended December 31, 2019 was $1.07 per unit compared to $1.13
for the previous year due mainly to the sale of $260.6 million of properties year over year and infrequent items, partially offset by growth
in same property NOI. Excluding infrequent items, FFO per unit would have been $1.13.
AFFO1: Fully diluted adjusted funds from operations ("AFFO") for the fiscal year ended December 31, 2019 was $0.77 per unit compared
to $0.88 for the previous year. AFFO decreased due to the decrease in FFO, to a $3.0 million increase in the provision for leasing costs
and a $6.7 million increase in capital expenditures to maintain rental income generating capacity. Excluding infrequent items, AFFO
would have been $0.83 per unit.
Same Property NOI1: Same property NOI ("SPNOI")increased to 3.2% for the fiscal year ended December 31, 2019. The increase reflected
growth of 4.0% in the office portfolio, 7.2% in the industrial and flex portfolio and (0.5)% in the retail portfolio. The increase in SPNOI
was mainly related to an increase in average in-place occupancy for all property types and for all geographic markets.
Occupancy: As at December 31, 2019, Cominar’s in-place occupancy was 91.7% compared to 89.2% at year-end 2018. The year over
year increase in occupancy was related to increase in all property types. As at December 31, 2019 the committed occupancy rate
was 95.1%, up 150 basis points from 93.6% at year-end 2018.
Leasing activity: The retention rate for the year ended December 31, 2019 was 77.3%,up from 75.8% for the year ended December 31,
2018. Average net rent on 3.8 million sq.ft. of lease renewals increased 2.8% (4.1% for the office portfolio, (1.7)% for the retail portfolio
and 10.1% for the industrial portfolio). New leasing totaled 2.0 million sq.ft. New and renewal leasing for the year ended December 31,
2019 represented 117.8% of 2019 lease maturities.
Disposition activity: For the fiscal year ended December 31, 2019, Cominar completed asset sales totaling $260.6 million at pricing in
line with our IFRS values.
Book value per unit: As at December 31, 2019, Cominar's book value per unit increased 11.8% year over year to $17.30 per unit from
$15.47 per unit at year-end 2018 due to fair value gains in the industrial and office portfolio, partially offset by a fair value loss in the
retail portfolio as well as the repayment of debt with proceeds from dispositions.
Balance sheet: As at December 31, 2019, Cominar’s debt ratio was 51.4%, down from 55.3% at year-end 2018. The year over year
decrease in debt ratio reflects the use of proceeds from the sale of $260.6 million of properties to pay down debt and a $276.5 million
increase in the fair value of investment properties. The debt to EBITDA ratio at the fiscal year ended December 31, 2019 increased
to 10.6x, from 10.3x at fiscal year ended December 31, 2018. As at December 31, 2019 our unencumbered asset pool totaled $2.1 billion
and our unencumbered asset ratio was 1.82x, up from 1.53x at year-end 2018.
Our available liquidity of $552.6 million consisted of $400.0 million of availability under our unsecured credit facility and $152.6 million
of cash and cash equivalents at December 31, 2019.
1 Refer to section "Non-IFRS Financial Measures".
57
Reconciliations to Cominar’s Proportionate Share
In accordance with IFRS 11, joint ventures are accounted for under the equity method in Cominar’s consolidated financial statements.
Cominar considers that presenting operating and financial results including Cominar’s proportionate share of the assets, liabilities,
revenues and charges of its joint ventures, provides more complete information on Cominar’s financial performance.
The following tables present reconciliations of Cominar’s consolidated financial statements prepared in accordance with IFRS with its
consolidated financial statements including its proportionate share of the assets, liabilities, revenues and charges of its joint ventures.
As at December 31
2019
2018
Consolidated
financial
statements
Joint
ventures
Cominar's
proportionate
share1
Consolidated
financial
statements
Joint
ventures
Cominar's
proportionate
share1
$
$
$
$
$
$
6,412,739
171,573
6,584,312
6,058,191
166,765
6,224,956
Assets
Investment properties
Income properties
Properties under development
Land held for future development
41,471
100,507
5,900
7,631
47,371
108,138
34,293
93,750
7,392
8,400
6,554,717
185,104
6,739,821
6,186,234
182,557
Investment properties held for sale
Investments in joint ventures
Goodwill
Accounts receivable
Prepaid expenses and other assets
Cash and cash equivalents
Total assets
Liabilities
11,730
97,456
15,721
37,930
22,232
152,634
—
(97,456)
—
431
94
639
6,892,420
88,812
11,730
—
15,721
38,361
22,326
153,273
6,981,232
41,685
102,150
6,368,791
188,727
—
15,721
41,586
17,998
1,959
188,727
—
92,468
15,721
41,162
17,901
1,498
(92,468)
—
424
97
461
6,543,711
91,071
6,634,782
Mortgages payable
2,114,021
82,981
2,197,002
1,742,104
85,534
1,827,638
Mortgages payable related to the
investment properties held for sale
Debentures
Bank borrowings
Accounts payable and accrued liabilities
Deferred tax liabilities
Current tax liabilities
Total liabilities
Unitholders' equity
Unitholders' equity
—
1,320,962
180,000
126,543
93
—
—
—
4,100
1,731
—
—
—
1,320,962
184,100
128,274
93
—
123
1,722,586
152,950
103,347
142
6,763
—
—
4,000
1,538
—
—
123
1,722,586
156,950
104,885
142
6,763
3,741,619
88,812
3,830,431
3,728,015
91,072
3,819,087
Total liabilities and unitholders' equity
6,892,420
88,812
1 Refer to section "Non-IFRS Financial Measures".
3,150,801
—
3,150,801
6,981,232
2,815,696
6,543,711
—
91,072
2,815,696
6,634,783
Quarters ended December 31
2019
2018
58
Consolidated
financial
statements
Joint
ventures
Operating revenues
Operating expenses
NOI
Finance charges
Trust administrative expenses
Change in fair value of investment
properties
Share of joint ventures’ net income
Transaction costs
Impairment of goodwill
Derecognition of goodwill
$
173,931
(82,715)
91,216
(40,416)
(4,145)
270,964
2,822
(1,225)
—
—
Net income (loss) before income taxes
319,216
Income taxes
Current
Deferred
—
49
49
Net income (loss) and comprehensive
income
319,265
1 Refer to section "Non-IFRS Financial Measures".
$
4,230
(1,751)
2,479
(979)
(17)
1,339
(2,822)
—
—
—
—
—
—
—
—
Cominar's
proportionate
share1
$
178,161
(84,466)
93,695
(41,395)
(4,162)
272,303
—
(1,225)
—
—
319,216
—
49
49
319,265
(353,353)
Years ended December 31
2019
2018 ¹
Consolidated
financial
statements
Joint
ventures
$
$
704,041
17,194
Consolidated
financial
statements
Joint
ventures
$
$
734,650
16,445
Operating revenues
Operating expenses
NOI
Finance charges
Trust administrative expenses
Change in fair value of investment
properties
Share of joint ventures’ net income
Transaction costs
Restructuring costs
Impairment of goodwill
Derecognition of goodwill
(345,719)
358,322
(151,051)
(17,254)
276,475
7,200
(6,463)
(4,774)
—
—
Net income (loss) before income taxes
462,455
Income taxes
Current
Deferred
—
49
49
Net income (loss) and comprehensive
income
462,504
Cominar's
proportionate
share 2
$
721,235
(353,080)
368,155
(155,004)
(17,273)
277,814
—
(6,463)
(4,774)
—
—
462,455
—
49
49
(7,361)
9,833
(3,953)
(19)
1,339
(7,200)
—
—
—
—
—
—
—
—
—
1 The year ended December 31, 2018 includes results of 95 non-core properties sold for total consideration of $1.14 billion during the first quarter of 2018.
2 Refer to section "Non-IFRS Financial Measures".
462,504
(212,282)
Consolidated
financial
statements
Joint
ventures
$
176,073
(84,945)
91,128
(36,393)
(6,106)
(276,160)
1,083
(2,866)
(120,389)
(3,278)
(352,981)
(372)
—
(372)
(362,186)
372,464
(152,237)
(23,255)
(267,098)
5,176
(22,847)
—
(120,389)
(3,872)
(212,058)
(6,763)
6,539
(224)
Cominar's
proportionate
share1
$
180,116
(86,590)
93,526
(37,396)
(6,119)
(276,459)
—
(2,866)
(120,389)
(3,278)
(352,981)
(372)
—
(372)
(353,353)
Cominar's
proportionate
share 2
$
751,095
(369,138)
381,957
(156,205)
(23,305)
(267,397)
—
(22,847)
—
(120,389)
(3,872)
(212,058)
(6,763)
6,539
(224)
(212,282)
$
4,043
(1,645)
2,398
(1,003)
(13)
(299)
(1,083)
—
—
—
—
—
—
—
—
(6,952)
9,493
(3,968)
(50)
(299)
(5,176)
—
—
—
—
—
—
—
—
—
Performance Analysis
Financial Position
The following table indicates the changes in assets and liabilities as well as in unitholders’ equity as at December 31, 2019, and
December 31, 2018, as shown in our consolidated financial statements:
59
As at December 31
Assets
Investment properties
Income properties
Properties under development
Land held for future development
Investment properties held for sale
Investments in joint ventures
Goodwill
Accounts receivable
Prepaid expenses and other assets
Cash and cash equivalents
Total assets
Liabilities
Mortgages payable
Mortgages payable related to the investment properties held for sale
Debentures
Bank borrowings
Accounts payable and accrued liabilities
Deferred tax liabilities
Current tax liabilities
Total liabilities
Unitholders' equity
Unitholders' equity
Total liabilities and unitholders' equity
2019
$
2018
$
$Í
%Í
6,412,739
41,471
100,507
6,554,717
11,730
97,456
15,721
37,930
22,232
152,634
6,892,420
6,058,191
354,548
34,293
93,750
7,178
6,757
6,186,234
368,483
188,727
(176,997)
92,468
15,721
41,162
17,901
1,498
6,543,711
4,988
—
(3,232)
4,331
151,136
348,709
2,114,021
1,742,104
371,917
—
1,320,962
180,000
126,543
93
—
123
(123)
1,722,586
(401,624)
152,950
103,347
142
6,763
27,050
23,196
(49)
(6,763)
13,604
3,741,619
3,728,015
3,150,801
6,892,420
2,815,696
6,543,711
335,105
348,709
5.9
20.9
7.2
6.0
(93.8)
5.4
—
(7.9)
24.2
10,089.2
5.3
21.3
(100.0)
(23.3)
17.7
22.4
(34.5)
(100.0)
0.4
11.9
5.3
60
Results of Operations
The following table highlights our results of operations for the fiscal years ended December 31, 2019 and 2018, as shown in our
consolidated financial statements:
Periods ended December 31
Operating revenues
Operating expenses
NOI
Finance charges
Trust administrative expenses
Quarter
2019
2018
$
$
173,931
176,073
(82,715)
91,216
(40,416)
(4,145)
(84,945)
91,128
(36,393)
Year
2019
2018 ¹
$
$
704,041
734,650
(345,719)
(362,186)
358,322
372,464
(151,051)
(152,237)
%Í
(4.2)
(4.5)
(3.8)
(0.8)
%Í
(1.2)
(2.6)
0.1
11.1
(6,106)
(32.1)
(17,254)
(23,255)
(25.8)
Change in fair value of investment properties
270,964
(276,160)
(198.1)
276,475
(267,098)
(203.5)
Share of joint ventures’ net income
Transaction costs
Restructuring costs
Impairment of goodwill
Derecognition of goodwill
2,822
(1,225)
—
—
—
1,083
(2,866)
—
(120,389)
(3,278)
160.6
(57.3)
—
100.0
100.0
7,200
(6,463)
(4,774)
5,176
(22,847)
39.1
(71.7)
—
(100.0)
—
—
(120,389)
(3,872)
100.0
100.0
Net income (loss) before income taxes
319,216
(352,981)
(190.4)
462,455
(212,058)
(318.1)
Income taxes
Current
Deferred
—
49
49
(372)
—
(372)
Net income (loss) and comprehensive income
319,265
(353,353)
100.0
100.0
(113.2)
(190.4)
—
49
49
(6,763)
6,539
(224)
462,504
(212,282)
100.0
(99.3)
(121.9)
(317.9)
1 The year ended December 31, 2018 includes results of 95 non-core properties sold to Slate for total consideration of $1.14 billion during the first quarter of 2018.
Operating Revenues
Periods ended December 31
Operating revenues — Financial statements
Operating revenues — Joint ventures
Operating revenues — Cominar's proportionate share 2
Quarter
2019
2018
$
$
173,931
176,073
4,230
4,043
178,161
180,116
Year
2019
2018 ¹
%Í
(1.2)
4.6
(1.1)
$
704,041
17,194
721,235
$
734,650
16,445
751,095
%Í
(4.2)
4.6
(4.0)
1 Operating revenues for the year ended December 31, 2018 include operating revenues of 95 non-core properties sold for total consideration of $1.14 billion during the first quarter
of 2018.
2 Refer to section "Non-IFRS Financial Measures".
The decrease in operating revenues according to the consolidated financial statements in fiscal 2019 compared with fiscal 2018
resulted mainly from a $46.9 million decrease attributable to properties sold in 2018 and 2019 and $18.3 million of growth in same
property operating revenues.
The chart below presents Cominar's operating revenues based on the consolidated financial statements over the past 10 years.1
61
Operating Revenues
889,175
866,982
835,489 ¹
734,650 ¹
704,041 ¹
739,884
662,053
564,537
317,741
282,385
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
1 Decreases in operating revenues due mainly to dispositions of income properties of $260.6 million in 2019 [$1.151 billion in 2018 and $104.4 million in 2017].
Operating Revenues by Property Type
Periods ended December 31
2019
2018
2019
2018 ¹
Quarter
Year
Property type
Office
Retail
Industrial and flex
Operating revenues —
Cominar's proportionate share2
$
$
%Í
$
$
%Í
75,636
64,361
38,164
76,331
65,757
38,028
178,161
180,116
(0.9)
(2.1)
0.4
(1.1)
301,414
260,424
159,397
319,010
274,232
157,853
721,235
751,095
(5.5)
(5.0)
1.0
(4.0)
1 Operating revenues for the year ended December 31, 2018 include operating revenues of 95 non-core properties sold for total consideration of $1.14 billion during the first quarter
of 2018.
2 Refer to section "Non-IFRS Financial Measures".
62
Operating Expenses
Periods ended December 31
Operating expenses — Financial statements
Operating expenses — Joint ventures
Operating expenses — Cominar's proportionate share 2
Quarter
2019
$
82,717
1,751
84,468
2018
$
84,945
1,645
86,590
%Í
(2.6)
6.4
(2.5)
Year
2019
2018 ¹
$
$
345,721
362,186
7,361
6,952
353,082
369,138
%Í
(4.5)
5.9
(4.3)
1 Operating expenses for the year ended December 31, 2018 include operating expenses of 95 non-core properties sold for total consideration of $1.14 billion during the first quarter
of 2018.
2 Refer to section "Non-IFRS Financial Measures".
The decrease in operating expenses according to the consolidated financial statements in fiscal 2019 compared with fiscal 2018
resulted mainly from a $23.7 million decrease attributable to properties sold in 2018 and 2019 and a $7.5 million increase in same
property operating expenses.
The chart below presents Cominar's operating expenses based on the consolidated financial statements over the past 10 years.
Operating Expenses
401,687
398,374
399,452
362,186 ¹
345,719 ¹
328,605
293,843
246,722
133,032
117,627
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
1 Decreases in operating expenses due mainly to dispositions of income properties of $260.6 million in 2019 [$1.151 billion in 2018].
63
Operating Expenses by Property Type
Periods ended December 31
2019
2018
2019
2018 ¹
Quarter
Year
Property type
Office
Retail
Industrial and flex
Operating Expenses —
Cominar's proportionate share2
$
$
%Í
$
$
%Í
38,620
31,785
14,063
39,604
32,033
14,953
84,468
86,590
(2.5)
(0.8)
(6.0)
(2.5)
155,807
131,417
65,858
166,993
135,761
66,384
353,082
369,138
(6.7)
(3.2)
(0.8)
(4.3)
1 Operating expenses for the year ended December 31, 2018 include operating expenses of 95 non-core properties sold for total consideration of $1.14 billion during the first quarter
of 2018.
2 Refer to section "Non-IFRS Financial Measures".
Net Operating Income
NOI is a measure presented in the statement of comprehensive income in Cominar’s consolidated financial statements, which is
calculated as operating revenues less property operating expenses such as utilities, repairs and maintenance and realty taxes. NOI
does not include charges for interest or other expenses not specific to the day-to-day operation of Cominar's properties. Cominar
considers NOI to be a valuable measure for evaluating the operating performance of its properties
Cominar analyzes its segmented results of operations taking into account the proportionate share of its joint ventures to assess the
operating performance of its investment properties.
Periods ended December 31
NOI — Financial statements
NOI — Joint ventures
NOI — Cominar's proportionate share 2
Quarter
2019
$
91,216
2,479
93,695
2018
$
91,128
2,398
93,526
%Í
0.1
3.4
0.2
Year
2019
2018 ¹
$
$
358,322
372,464
9,833
9,493
368,155
381,957
%Í
(3.8)
3.6
(3.6)
1 Net operating income for the year ended December 31, 2018 includes net operating income of 95 non-core properties sold for total consideration of $1.14 billion during the first
quarter of 2018.
2 Refer to section "Non-IFRS Financial Measures".
The increase in NOI on a proportionate basis in fiscal 2019 compared with fiscal 2018 resulted mainly from a $23.2 million decrease
attributable to properties sold in 2018 and 2019 and $10.9 million of growth in same property net operating income.
The chart below presents Cominar's net operating income based on the consolidated financial statements, over the past 10 years.
64
Net Operating Income
487,488
468,608
436,037 ¹
372,464 ¹
358,322 ¹
411,279
368,210
317,815
184,709
164,758
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
1 Decreases in net operating income due mainly to dispositions of income properties of $260.6 million in 2019 [$1.151 billion in 2018 and $104.4 million in 2017].
65
NOI by Property Type
Periods ended December 31
2019
2018
2019
2018 ¹
Quarter
Year
Property type
Office
Retail
Industrial and flex
NOI — Cominar's proportionate share 2
$
$
%Í
$
$
%Í
37,018
32,576
24,101
93,695
36,727
33,724
23,075
93,526
0.8
(3.4)
4.4
0.2
145,609
129,007
93,539
368,155
152,017
138,471
91,469
381,957
(4.2)
(6.8)
2.3
(3.6)
1 Net operating income for the year ended December 31, 2018 includes net operating income of 95 non-core properties sold for total consideration of $1.14 billion during the first
quarter of 2018.
2 Refer to section "Non-IFRS Financial Measures".
Results of Operations - Same Property Portfolio
Cominar analyzes its segmented results of operations taking into account the proportionate share of its joint ventures to assess the
operating performance of its investment properties and pays particular attention to the performance of its same property portfolio.
Same property portfolio includes the results of properties owned by Cominar as at December 31 2017, with the exception of results
from the properties sold, acquired or under development in 2018 and 2019, as well as the rental income arising from the recognition
of leases on a straight-line basis.
Quarter
Year
Periods ended December 31
2019
2018
2019
2018
Same property operating revenues1 - Cominar's
proportionate share 2
Same property operating expenses1 - Cominar's
proportionate share 2
Same property NOI1 - Cominar's proportionate share2
$
$
%Í
$
$
%Í
174,439
168,924
(82,952)
91,487
(80,977)
87,947
3.3
2.4
4.0
696,609
678,270
(341,727)
(334,238)
354,882
344,032
2.7
2.2
3.2
1 Same property portfolio includes the results of properties owned by Cominar as at December 31 2017, with the exception of results from properties sold, acquired or under
development in 2018 and 2019, as well as the rental income arising from the recognition of leases on a straight-line basis.
2 Refer to section "Non-IFRS Financial Measures".
Operating Revenues - Same Property Portfolio
Periods ended December 31
Operating revenues — Financial statements
Operating revenues — Joint ventures
Operating revenues — Cominar's proportionate share 2
Acquisitions, developments and dispositions —
Cominar's proportionate share 2
Same property Operating Revenues —
Cominar's proportionate share 2
Quarter
2019
2018
$
$
173,931
176,073
4,230
4,043
178,161
180,116
Year
2019
2018 ¹
%Í
(1.2)
4.6
(1.1)
$
704,041
17,194
721,235
$
734,650
16,445
751,095
%Í
(4.2)
4.6
(4.0)
(3,722)
(11,192)
(66.7)
(24,626)
(72,825)
(66.2)
174,439
168,924
3.3
696,609
678,270
2.7
1 Operating revenues for the year ended December 31, 2018 include operating revenues of 95 non-core properties sold for total consideration of $1.14 billion during the first quarter
of 2018.
2 Refer to section "Non-IFRS Financial Measures".
66
Periods ended December 31
Quarter
2019
2018
$
$
Same property portfolio — Financial statements
170,249
164,984
Same property portfolio — Joint ventures
Same property Operating Revenues 1 —
Cominar's proportionate share 2
4,190
3,940
174,439
168,924
Year
2019
2018
$
679,719
16,890
$
661,994
16,276
696,609
678,270
%Í
2.7
3.8
2.7
%Í
3.2
6.3
3.3
1 Same property operating revenues include the operating revenues of properties owned by Cominar as at December 31 2017, with the exception of results from properties sold,
acquired or under development in 2018 and 2019, as well as the rental income arising from the recognition of leases on a straight-line basis.
2 Refer to section "Non-IFRS Financial Measures".
The increase in same property operating revenues according to the consolidated financial statements in fiscal 2019 compared with
fiscal 2018 is mainly due to the increase in average in-place occupancy for all property types and for all geographic markets and to the
increase of the average net rent on lease renewals from fiscal 2019 and fiscal 2018.
Operating Revenues by Property Type and Geographic Market - Same Property Portfolio
Same property operating revenues by property type
Periods ended December 31
2019
2018
2019
2018
Quarter
Year
Property type
Office
Retail
Industrial and flex
Same property Operating Revenues 1 —
Cominar's proportionate share 2
$
$
%Í
$
$
%Í
73,470
63,168
37,801
70,715
61,898
36,311
174,439
168,924
3.9
2.1
4.1
3.3
290,361
249,294
156,954
282,724
246,644
148,902
696,609
678,270
2.7
1.1
5.4
2.7
1 Same property operating revenues include the operating revenues of properties owned by Cominar as at December 31 2017, with the exception of results from properties sold,
acquired or under development in 2018 and 2019, as well as the rental income arising from the recognition of leases on a straight-line basis.
2 Refer to section "Non-IFRS Financial Measures".
Same property operating revenues by geographic market
Periods ended December 31
Geographic market
Montreal
Québec City
Ottawa 1
Same property Operating Revenues 2 —
Cominar's proportionate share 3
Quarter
Year
2019
2018
$
$
%Í
%Í
2019
2018
$
$
%Í
%Í
110,165
107,827
52,064
12,210
49,513
11,584
174,439
168,924
2.2
5.2
5.4
3.3
441,945
205,777
48,887
433,025
197,279
47,966
696,609
678,270
2.1
4.3
1.9
2.7
1 For presentation purposes, the Gatineau area is included in the Ottawa geographic market.
2 Same property operating revenues include the operating revenues of properties owned by Cominar as at December 31 2017, with the exception of results from properties sold,
acquired or under development in 2018 and 2019, as well as the rental income arising from the recognition of leases on a straight-line basis.
3 Refer to section "Non-IFRS Financial Measures".
67
Operating Expenses - Same Property Portfolio
Periods ended December 31
Operating expenses — Financial statements
Operating expenses — Joint ventures
Operating expenses — Cominar's proportionate share 2
Acquisitions, developments and dispositions —
Cominar's proportionate share 2
Same property Operating Expenses —
Cominar's proportionate share 2
Quarter
2019
$
82,715
1,759
84,474
2018
$
84,945
1,645
86,590
%Í
(2.6)
6.9
(2.4)
Year
2019
2018 ¹
$
$
345,719
362,186
7,369
6,952
353,088
369,138
%Í
(4.5)
6.0
(4.3)
(1,522)
(5,613)
(72.9)
(11,361)
(34,900)
(67.4)
82,952
80,977
2.4
341,727
334,238
2.2
1 Operating expenses for the year ended December 31, 2018 include operating expenses of 95 non-core properties sold for total consideration of $1.14 billion during the first quarter
of 2018.
2 Refer to section "Non-IFRS Financial Measures".
Periods ended December 31
Same property portfolio — Financial statements
Same property portfolio — Joint ventures
Same property Operating Expenses 1 —
Cominar's proportionate share 2
Quarter
2019
$
81,225
1,727
2018
$
79,369
1,608
82,952
80,977
%Í
2.3
7.4
2.4
Year
2019
2018
$
$
334,487
327,354
7,240
6,884
341,727
334,238
%Í
2.2
5.2
2.2
1 Same property operating expenses include the operating expenses of properties owned by Cominar as at December 31 2017, with the exception of results from properties sold,
acquired or under development in 2018 and 2019, as well as the rental income arising from the recognition of leases on a straight-line basis.
2 Refer to section "Non-IFRS Financial Measures".
The increase in same property operating expenses according to the consolidated financial statements in fiscal 2019 compared with
fiscal 2018 is mainly due to space under redevelopment (790 ,000 square feet as at December 31,2018) that became income producing
in 2019.
Operating Expenses by Property Type and Geographic Market - Same Property Portfolio
Same property operating expenses by property type
Periods ended December 31
2019
2018
2019
2018
Quarter
Year
Property type
Office
Retail
Industrial and flex
Same property Operating Expenses 1 —
Cominar's proportionate share 2
$
$
%Í
$
$
%Í
37,587
31,378
13,987
36,708
30,236
14,033
2.4
3.8
(0.3)
150,401
126,686
64,640
148,117
123,371
62,750
82,952
80,977
2.4
341,727
334,238
1.5
2.7
3.0
2.2
1 The same property operating expenses include the operating expenses of properties owned by Cominar as at December 31 2017, with the exception of results from the properties
sold, acquired or under development in 2018 and 2019, as well as the rental income arising from the recognition of leases on a straight-line basis.
2 Refer to section "Non-IFRS Financial Measures".
68
Same property operating expenses by geographic market
Periods ended December 31
Geographic market
Montreal
Québec City
Ottawa 1
Same property Operating Expenses 2 —
Cominar's proportionate share 3
Quarter
2019
2018
$
$
51,587
24,150
7,215
51,594
23,007
6,376
82,952
80,977
%Í
%Í
0.0
5.0
13.2
2.4
Year
2019
2018
$
$
%Í
%Í
216,149
212,157
97,658
27,920
95,384
26,697
341,727
334,238
1.9
2.4
4.6
2.2
1 For presentation purposes, the Gatineau area is included in the Ottawa geographic market.
2 The same property operating expenses include the operating expenses of properties owned by Cominar as at December 31 2017, with the exception of results from the properties
sold, acquired or under development in 2018 and 2019, as well as the rental income arising from the recognition of leases on a straight-line basis.
3 Refer to section "Non-IFRS Financial Measures".
Net Operating Income - Same Property Portfolio
Periods ended December 31
NOI — Financial statements
NOI — Joint ventures
NOI — Cominar's proportionate share 2
Acquisitions, developments and dispositions —
Cominar's proportionate share
Same property NOI —
Cominar's proportionate share 2
Quarter
2019
$
91,216
2,479
93,695
2018
$
91,128
2,398
93,526
%Í
0.1
3.4
0.2
Year
2019
2018 ¹
$
$
358,322
372,464
9,833
9,493
368,155
381,957
%Í
(3.8)
3.6
(3.6)
(2,208)
(5,579)
(60.4)
(13,273)
(37,925)
(65.0)
91,487
87,947
4.0
354,882
344,032
3.2
1 Net operating income for the year ended December 31, 2018 includes net operating income of 95 non-core properties sold for total consideration of $1.14 billion during the first
quarter of 2018.
2 Refer to section "Non-IFRS Financial Measures".
Periods ended December 31
Same property portfolio — Financial statements
Same property portfolio — Joint ventures
Same property portfolio 1 —
Cominar's proportionate share 2
Quarter
2019
$
89,024
2,463
2018
$
85,615
2,332
91,487
87,947
%Í
4.0
5.6
4.0
Year
2019
2018
$
$
345,232
334,640
9,650
9,392
354,882
344,032
%Í
3.2
2.7
3.2
1 The same property NOI includes the NOI of properties owned by Cominar as at December 31 2017, with the exception of results from the properties sold, acquired or under
development in 2018 and 2019, as well as the rental income arising from the recognition of leases on a straight-line basis.
2 Refer to section "Non-IFRS Financial Measures".
Fourth quarter increase of 4.0% in same property NOI according to Cominar’s proportionate share is attributable to the increase, in all
property types and all geographic markets, of the average in-place occupancy rate for the quarter ended December 31, 2019.
NOI by Property Type and Geographic Market - Same Property Portfolio
Same property NOI by property type
Periods ended December 31
2019
2018
2019
2018
Quarter
Year
Property type
Office
Retail
Industrial and flex
Same property NOI — Cominar's proportionate share 1
1 Refer to section "Non-IFRS Financial Measures".
$
$
%Í
$
$
%Í
35,883
31,790
23,814
91,487
34,007
31,662
22,278
87,947
5.5
0.4
6.9
4.0
139,960
122,608
92,314
354,882
134,607
123,273
86,152
344,032
4.0
(0.5)
7.2
3.2
69
Same property NOI weighting by property type
Periods ended December 31
Property type
Office
Retail
Industrial and flex
Same property NOI — Cominar's proportionate share 1
1 Refer to section "Non-IFRS Financial Measures".
Quarter
2019
39.3%
34.7%
26.0%
100.0%
2018
38.7%
36.0%
25.3%
100.0%
Year
2019
39.5%
34.5%
26.0%
100.0%
2018
39.2%
35.8%
25.0%
100.0%
Year over year, Cominar’s weighting to retail same property NOI decreased 130 basis points to 34.5% while industrial increased 100 basis
points to 26.0% and office increased 30 basis points to 39.5%.
Same Property NOI by Property type
Industrial and flex
26.0%
Office 39.5%
Retail 34.5%
Same property NOI by geographic market
Periods ended December 31
2019
2018
2019
2018
Quarter
Year
Geographic market
Montreal
Québec City
Ottawa 1
Same property NOI — Cominar's proportionate share 2
$
$
%Í
$
$
%Í
58,578
27,914
4,995
91,487
56,233
26,506
5,208
87,947
4.2
5.3
(4.1)
4.0
225,796
108,119
20,967
354,882
220,868
101,895
21,269
344,032
2.2
6.1
(1.4)
3.2
1 For presentation purposes, the Gatineau area is included in the Ottawa geographic market.
2 Refer to section "Non-IFRS Financial Measures".
70
Same property NOI weighting by geographic market
Periods ended December 31
Geographic market
Montreal
Québec City
Ottawa 1
Same property NOI — Cominar's proportionate share 2
Quarter
2019
64.0%
30.5%
5.5%
100.0%
2018
64.0%
30.1%
5.9%
100.0%
Year
2019
63.6%
30.5%
5.9%
100.0%
2018
64.2%
29.6%
6.2%
100.0%
1 For presentation purposes, the Gatineau area is included in the Ottawa geographic market.
2 Refer to section "Non-IFRS Financial Measures".
Same Property NOI by Geographic Market
Montreal 63.6%
Québec City
30.5%
Ottawa 5.9%
Same property average in-place occupancy by property type
Periods ended December 31
2019
2018
2019
2018
Quarter
Year
Property type
Office
Retail
Industrial and flex
Total
$
$
Í
$
$
Í
89.2%
86.7%
95.5%
91.2%
86.8%
85.6%
92.6%
89.0%
2.4
1.1
2.9
2.2
88.5%
85.7%
94.5%
90.3%
86.7%
84.0%
92.0%
88.3%
1.8
1.7
2.5
2.0
71
Same property average in-place occupancy by geographic market
Periods ended December 31
2019
2018
2019
2018
Quarter
Year
Geographic market
Montreal
Québec City
Ottawa 1
Total
$
$
Í
$
$
Í
91.2%
93.0%
84.3%
91.2%
89.4%
91.1%
75.7%
89.0%
1.8
1.9
8.6
2.2
90.4%
92.3%
80.5%
90.3%
88.3%
91.1%
75.6%
88.3%
2.1
1.2
4.9
2.0
1 For presentation purposes, the Gatineau area is included in the Ottawa 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 valuations performed during the year using management’s internal estimates and by independent real
estate appraisers, plus capital expenditures made after the valuation and deemed to increase the rental income generating capacity
of the property, or according to definitive agreements to sell investment properties. External valuations were carried out by independent
national firms holding a recognized and relevant professional qualification and having recent experience in the location and category
of the investment properties being valued.
As per Cominar’s methodology of valuing investment properties, during fiscal 2019, management revalued the entire real estate portfolio
and determined that a net increase of $277.8 million (taking into account an upward adjustment of $1.3 million in the joint ventures)
was necessary to adjust the carrying amount of investment properties to their fair value [decrease of $267.4 million in 2018]. The
change in fair value related to investment properties still being held as at December 31, 2019 amounted to $271.5 million. In 2019, the
fair value of investment properties derived from external valuations or sources represented to 56% [19% in 2018] of the total fair value
of all investment properties.
The following table presents, in summary form, the changes in fair value for the entire Cominar portfolio according to the items in the
financial statements for 2019:
Income properties
Québec
City
$
Montreal
$
Ottawa
$
(8,906)
39,130
13,842
(47,723)
(66,739)
(12,165)
Property type
Office
Retail
Industrial and flex
9,540
351,600
—
Total
(47,089)
323,991
1,677
1 Non-IFRS financial measure.
Investment
properties
available
for sale
$
Properties
under
development
and land held
for future
development
$
Total
according
to financial
statements
$
Share in
joint
ventures
$
Total -
Cominar's
proportionate
share 1
$
(1,033)
274
(45)
(804)
2,553
(3,344)
(509)
(1,300)
45,586
3,931
(129,697)
(2,592)
360,586
276,475
—
1,339
49,517
(132,289)
360,586
277,814
The $49.5 million increase in fair value in 2019 of the office portfolio is mainly due to the compression of capitalization rates as well
as the expected increase in future net operating income.
For the retail portfolio, the decrease of $132.3 million in fair value results from an increase in capitalization rates.
Finally, the $360.6 million increase in the fair value of the industrial and mixed-use portfolio is mainly due to the compression of
capitalization rates as well as the expected increase in future net operating income based on market forecasts.
72
The following table presents, in summary form, the changes in fair value as a percentage for the entire Cominar portfolio according to
the items in the financial statements for 2019:
Income properties
Québec
City
$
Montreal
$
Ottawa
$
Investment
properties
available
for sale
$
Properties
under
development
and land held
for future
development
$
Total
according
to financial
statements
$
Share in
joint
ventures
$
Total -
Cominar's
proportionate
share 1
$
Property type
Office
Retail
Industrial and flex
Total
1 Non-IFRS financial measure.
(0.1%)
(0.7%)
0.1%
(0.7%)
0.6%
(1.0%)
5.4%
5.0%
0.2%
(0.2%)
—%
—%
—%
—%
—%
—%
—%
(0.1%)
—%
—%
0.7%
(2.0%)
5.5%
4.3%
0.1%
—%
—%
—%
0.8%
(2.0%)
5.5%
4.3%
Internally appraised investment properties have been valued mainly using the capitalized net operating income method. Externally
valued investment properties have been valued either with the capitalized net operating income method and/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, overall capitalization rates are applied to stabilized net operating
income in order to comply with current valuation standards. The stabilized net operating income represents adjusted net operating
income for items such as management expenses, occupancy rates, the recognition of leases on a straight-line basis and other non-
recurring items. The key factor is the overall 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 for recent transactions.
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 terminal
capitalization rates are estimated using available appraisals market comparables and market surveys.
To the extent that the capitalization rate ranges change from one reporting period to the next, or if another rate 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 the results.
As required under IFRS, Cominar has determined that an increase or decrease in 2019 of 0.1% in the applied capitalization rates for
the entire real estate portfolio, except for the investment properties held for sale, would result in a decrease or increase of approximately
$111.5 million [$101.1 million in 2018] in the fair value of its investment properties.
Capitalization and discount rates used in both the internal and external valuations are consistent.
73
Weighted Average Overall Capitalization Rates, Discount Rates
and Terminal Capitalization Rates
As at December 31
2019
Québec City
Montreal
Ottawa
Weighted
average
rate
2018
Weighted
average
rate
Office properties
Direct capitalized net operating income method
Overall capitalization rate
Discounted cash flow method
Discount rate
Terminal capitalization rate
Retail properties
Direct capitalized net operating income method
Overall capitalization rate
Discounted cash flow method
Discount rate
Terminal capitalization rate
Industrial and flex properties
Direct capitalized net operating income method
Overall capitalization rate
Discounted cash flow method
Discount rate
Terminal capitalization rate
Total
Direct capitalized net operating income method
Overall capitalization rate
Discounted cash flow method
Discount rate
Terminal capitalization rate
6.8%
6.4%
5.9%
7.3%
7.3%
6.8%
6.6%
7.6%
7.0%
7.0%
6.9%
6.4%
5.3%
6.6%
5.9%
5.8%
6.9%
6.1%
5.6%
6.7%
5.9%
5.5%
6.7%
6.0%
6.2%
7.1%
6.5%
N/A
7.5%
6.8%
N/A
N/A
N/A
6.2%
7.2%
6.6%
5.7%
6.6%
6.0%
6.3%
7.0%
6.4%
6.4%
6.8%
6.1%
6.0%
6.8%
6.2%
6.0%
5.9%
5.2%
6.3%
6.6%
5.8%
6.5%
6.2%
5.7%
6.2%
6.2%
5.5%
In 2019, 63% of investment properties were valued using the discounted cash flow method and 37% were valued using the direct
capitalized net operating income method compared to 15% valued using the discounted cash flow method and 85% using the direct
capitalized net operating income method in 2018. Consequently, the weighted average overall capitalization rates, discount rates and
terminal capitalization rates may not be comparable year over year.
74
Finance Charges
Periods ended December 31
2019
2018
2019
2018
Quarter
Year
Interest on mortgage payable
Interest on debentures
$
25,646
14,616
$
17,801
18,275
%Í
44.1
(20.0)
Interest on bank borrowings
1,368
1,550
(11.7)
Amortization of deferred financing costs and other
costs
Amortization of fair value adjustments on assumed
indebtedness
Less: Capitalized interest 1
Total finance charges — Financial statements
Adjusted finance charges 2
950
757
25.5
(66)
(2,098)
40,416
35,180
(68)
(1,922)
36,393
36,393
(2.9)
9.2
11.1
(3.3)
$
80,840
70,669
3,995
3,595
(264)
(7,784)
151,051
144,720
$
77,404
73,084
%Í
4.4
(3.3)
7,929
(49.6)
3,000
19.8
(1,440)
(7,740)
152,237
152,237
(81.7)
0.6
(0.8)
(4.9)
Percentage of operating revenues
23.2%
20.7%
Weighted average interest rate on total debt
21.5%
4.06%
20.7%
4.14%
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.
2 Excludes finance charges related to mortgages repayments before maturity and yield maintenance fees and costs paid in relation to the Series 2 senior unsecured debenture
redemption.
The decrease in finance charges during fiscal 2019, compared with fiscal 2018, is mainly due to the use of proceeds from the sale of
$260.6 million of properties during 2019 to pay down debt, partially offset by $1.1 million associated to the yield maintenance fees
and other costs paid in connection with the Series 2 senior unsecured debenture redemption and $5.2 million of penalties paid on
mortgages repayments before maturity.
Trust Administrative Expenses
Periods ended December 31
Salaries and other benefits
Compensation expense related to long-term incentive plan
Professional fees
Costs associated with public companies
Governance and strategic alternatives consulting fees
Other fees
Total Trust administrative expenses — Financial statements
Adjusted Trust administrative expenses 1
Quarter
2018
$
3,276
684
230
220
310
1,386
6,106
5,061
2019
$
2,483
831
400
218
—
213
4,145
4,145
%Í
(24.2)
21.5
73.9
(0.9)
(100.0)
(84.6)
(32.1)
(18.1)
Year
2019
2018
$
11,259
2,972
879
801
—
1,343
17,254
16,211
$
11,840
2,372
809
711
3,839
3,684
23,255
18,681
%Í
(4.9)
25.3
8.7
12.7
(100.0)
(63.5)
(25.8)
(13.2)
1 Excludes severance allowances and governance and strategic alternatives consulting fees.
During fiscal 2019, Trust administrative expenses decreased compared with fiscal 2018 mainly due to the decrease of $3.8 million in
governance and strategic alternatives consulting fees. Salaries and other benefits for the year ended December 31, 2019 include $1.0
million associated with the departure of an executive ($0.7 million in 2018).
Impairment and Derecognition of Goodwill
At year-end, Cominar tested its industrial and flex portfolio for impairment of goodwill by determining the recoverable value of the net
assets of that CGUs and comparing it to the carrying amount, including goodwill. As at December 31, 2019, the recoverable value of
this CGU was determined based on the value in use and calculated by discounting future net operating income expected to be generated
from continuing use. For fiscal years 2020 to 2030, net operating income projections are based on management’s budget projections
supported by past experience, assuming stable increase in net operating income. The discount and terminal capitalization rates are
estimated based on the segment weighted average overall capitalization rate. As at December 31, 2019, goodwill was not impaired
and was impaired by $120,389 as at December 31, 2018.
75
Total
$
139,982
(3,872)
(120,389)
15,721
—
15,721
Office
properties
$
Retail
properties
$
Industrial
and flex
properties
$
Balance as at January 1, 2018
Transfer to investment properties held for sale
Impairment of goodwill
Balance as at December 31, 2018
Impairment of goodwill
Balance as at December 31, 2019
79,496
(1,725)
(77,771)
—
—
—
44,648
(2,030)
(42,618)
—
—
—
Transaction Costs
Periods ended December 31
Brokerage fees
Professional fees
Assumed head leases
Penalties on debt repayment
Closing adjustments
Others
Total
Quarter
2019
2018
$
585
281
—
41
286
32
1,225
$
90
538
—
—
2,083
155
2,866
%Í
550.0
(47.8)
—
100.0
(86.3)
(79.4)
(57.3)
15,838
(117)
—
15,721
—
15,721
Year
2019
$
2,192
544
217
41
3,400
69
6,463
2018
$
5,790
2,912
4,201
945
8,244
755
22,847
%Í
(62.1)
(81.3)
(94.8)
(95.7)
(58.8)
(90.9)
(71.7)
The above transaction costs relate to the sales of properties. Refer to the section "Acquisitions, Investments and Dispositions" for more
information on property sales.
Restructuring Costs
During the quarter ended June 30, 2019, Cominar announced an organizational restructuring to streamline and enhance the
effectiveness of operations which the outcome, among others, has been the reduction of its workforce. During the quarter ended June
30, 2019, Cominar recorded a provision of $3.9 million related to this organizational restructuring, primarily related to severance benefits.
An additional provision of $0.9 million has been recorded during the quarter ended September 30, 2019 to include the second phase
of the organizational restructuring. Up to December 31, 2019, $2.6 million had been paid since the beginning of the restructuring.
Net Income
Periods ended December 31
Net income (net loss)
Net income (loss) per unit (basic and diluted)
Quarter
2019
2018
$
$
319,265
(353,353)
1.75
(1.94)
%Í
(190.4)
(190.2)
Year
2019
2018 ¹
$
$
462,504
(212,282)
2.54
(1.17)
%Í
(317.9)
(317.1)
Weighted average number of units outstanding (basic)
182,242,786
182,067,023
182,183,995
182,156,628
Weighted average number of units outstanding (diluted)
182,566,952
182,067,023
182,370,671
182,156,628
1 Net loss for the year ended December 31, 2018 includes results of 95 non-core properties sold to Slate for total consideration of $1.14 billion during the first quarter of 2018.
The increase in net income during fiscal 2019, compared with fiscal 2018 net loss, is mainly due to an increase of $547.1 million in
the fair value of investment properties, an increase of $4.0 million in finance charges and a decrease of $120.4 million in goodwill
impairment.
Adjusted Net Income
Adjusted net income is a non-IFRS financial measure. The calculation method used by Cominar may differ from those used by other
entities. Cominar calculates adjusted net income to eliminate the change in fair value of investment properties, impairment and
derecognition of goodwill, which are non-monetary as well as for severance allowances, transaction costs, penalties on mortgage
repayments before maturity, debenture redemption costs, the Target settlement, restructuring costs and governance and strategic
alternatives consulting fees which are not related to the trend in occupancy levels, rental rates and property operating costs.
76
Periods ended December 31
Net income (net loss)
Change in fair value of investment properties 2
Transaction costs
Severance allowance
Restructuring costs
Target settlement
Penalties on mortgages repayments before maturity
5,236
Debentures redemption costs
Governance and strategic alternatives consulting fees
Impairment of goodwill
Derecognition of goodwill
Adjusted net income ³
Adjusted net income per unit (diluted) ³
—
—
—
—
53,423
0.29
Quarter
2019
2018
$
$
319,265
(353,353)
(272,303)
276,459
1,225
—
—
—
2,866
735
—
—
—
—
310
120,389
3,278
50,684
0.28
Year
2019
2018 ¹
$
$
462,504
(212,282)
(277,814)
267,397
6,463
1,043
4,774
(1,028)
5,236
1,095
—
—
—
22,847
735
—
—
—
—
3,839
120,389
3,872
202,273
206,797
1.11
1.13
%Í
(317.9)
(203.9)
(71.7)
41.9
100.0
(100.0)
100.0
100.0
(100.0)
(100.0)
(100.0)
(2.2)
(1.8)
%Í
(190.4)
(198.5)
(57.3)
(100.0)
—
—
100.0
—
(100.0)
(100.0)
(100.0)
5.4
3.6
Weighted average number of units outstanding (diluted)
182,566,952
182,253,193
182,370,671
182,322,596
1 Adjusted net income for the year ended December 31, 2018 includes results of 95 non-core properties sold to Slate for total consideration of $1.14 billion during the first quarter
of 2018.
2 Includes Cominar’s proportionate share in joint ventures
3 Refer to section "Non-IFRS Financial Measures".
The decrease in adjusted net income for fiscal 2019, compared with fiscal 2018, is mainly due to properties sold in 2018 and 2019,
partially offset by growth in same property net operating income.
77
Funds from Operations and Adjusted Funds from Operations
Although the concepts of funds from operations ("FFO") and adjusted funds from operations ("AFFO") are not IFRS financial measures,
they are widely used in the real estate investment trust industry as they adjust net income for items that are not related to the trend in
occupancy levels, rental rates and property operating costs.
REALpac defines FFO as net income (calculated in accordance with IFRS), adjusted for, among other things, change in the fair value
of investment properties, deferred taxes and income taxes related to a disposition of properties, initial and re-leasing salary costs,
adjustments relating to the accounting of joint ventures under the equity method and transaction costs incurred upon a business
combination or a disposition of properties.
REALpac defines AFFO as FFO net of rental revenue derived from the recognition of leases on a straight-line basis, capital expenditures
for maintaining the ability to generate income and leasing costs.
FFO and AFFO are not a substitute for net income established in accordance with IFRS when measuring Cominar’s performance. While
our methods of calculating FFO and AFFO comply with REALpac recommendations, they may differ from and not be comparable to
those used by other entities.
The fully diluted weighted average number of units outstanding used for the calculation of FFO and AFFO takes into account the potential
issuance of units under the long-term incentive plan, when dilutive.
The following table presents a reconciliation of net income, as determined in accordance with IFRS, and FFO and AFFO:
Funds from Operations and Adjusted Funds from Operations
Periods ended December 31
Net income (net loss)
Taxes on dispositions of properties
Deferred income taxes
Initial and re-leasing salary costs
Change in fair value of investment properties 2
Capitalizable interest on properties under development
— joint ventures
Transaction costs
Impairment of goodwill
Derecognition of goodwill
FFO 2, 3
Provision for leasing costs
Recognition of leases on a straight-line basis 2
Capital expenditures — maintenance of rental income
generating capacity
AFFO 2, 3
Per unit information:
FFO (FD) 3, 4
AFFO (FD) 3, 4
Weighted average number of units outstanding (FD) 4
Payout ratio of AFFO 3, 4
Quarter
2019
2018
$
$
319,265
(353,353)
—
(49)
866
372
—
713
%Í
(190.4)
(100.0)
(100.0)
21.5
Year
2019
2018 ¹
$
$
462,504
(212,282)
—
(49)
3,347
6,763
(6,539)
3,348
%Í
(317.9)
(100.0)
(99.3)
—
(272,303)
276,459
(198.5)
(277,814)
267,397
(203.9)
161
1,225
—
—
49,165
(7,658)
(390)
(5,495)
35,622
0.27
0.20
159
2,866
120,389
3,278
50,883
(7,613)
(1,020)
(3,203)
39,047
0.28
0.21
1.3
(57.3)
(100.0)
(100.0)
(3.4)
0.6
(61.8)
71.6
(8.8)
(3.6)
(4.8)
676
6,463
—
—
195,127
(32,182)
(262)
(21,723)
140,960
621
22,847
120,389
3,872
206,416
(29,225)
(2,036)
(15,004)
160,151
1.07
0.77
1.13
0.88
8.9
(71.7)
(100.0)
(100.0)
(5.5)
10.1
(87.1)
44.8
(12.0)
(5.3)
(12.5)
182,566,952
182,253,193
182,370,671
182,322,596
90.0%
85.7%
93.5%
89.8%
1 FFO and AFFO for the year ended December 31, 2018 include results of 95 non-core properties sold for total consideration of $1.14 billion during the first quarter of 2018.
2 Including Cominar’s proportionate share in joint ventures.
3 Refer to section "Non-IFRS Financial Measures".
4 Fully diluted.
78
FFO and AFFO for the year ended December 31, 2019 include, among others, a severance allowance paid following the departure of
an executive officer, debenture redemption costs, restructuring costs, penalties on mortgage repayments before maturity and a
settlement from Target Canada. Excluding these adjustments, FFO and AFFO would have been as follows:
Penalties on mortgage repayments before maturity
5,236
Periods ended December 31
FFO 2, 3
Severance allowance
Restructuring costs
Target settlement
Debenture redemption costs
Governance and strategic alternatives consulting fees
FFO adjusted 2, 3
AFFO 2, 3
Severance allowance
Restructuring costs
Target settlement
Mortgage repayment before maturity
Debenture redemption costs
Governance and strategic alternatives consulting fees
AFFO adjusted 2, 3
Quarter
2019
2018
$
$
49,165
50,883
%Í
(3.4)
Year
2019
2018 ¹
$
$
195,127
206,416
—
—
—
—
—
735
(100.0)
—
—
—
—
0.0
—
100.0
—
310
(100.0)
1,043
4,774
(1,028)
5,236
1,095
—
54,401
51,928
35,622
39,047
4.8
(8.8)
3,839
(100.0)
206,247
210,990
(2.2)
140,960
160,151
—
—
—
5,236
—
—
735
(100.0)
—
—
—
—
0.0
—
100.0
—
310
(100.0)
1,043
4,774
(1,028)
5,236
1,095
—
40,858
40,092
1.9
152,080
164,725
(7.7)
3,839
(100.0)
%Í
(5.5)
41.9
100.0
(100.0)
100.0
100.0
(12.0)
41.9
100.0
(100.0)
100.0
100.0
735
—
—
—
—
735
—
—
—
—
1 FFO and AFFO for the year ended December 31, 2018 include results of 95 non-core properties sold for total consideration of $1.14 billion during the first quarter of 2018.
2 Including Cominar’s proportionate share in joint ventures.
3 Refer to section "Non-IFRS Financial Measures".
FFO for fiscal 2019 decreased from fiscal 2018 due mainly to the sale of $260.6 million of properties during 2019, several infrequent
items, partially offset by growth in same property NOI. Excluding these infrequent items, FFO per unit would have been $1.13 in 2019
compared to $1.16 in 2018.
AFFO for fiscal 2019 decreased from fiscal 2018 due to the decrease in FFO, to a $3.0 million increase in the provision for leasing costs
and a $6.7 million increase in capital expenditures to maintain rental income generating capacity. Excluding several infrequent items,
AFFO per unit would have been $0.83, $0.07 short of fiscal 2018, mainly due to increases in the provisions for leasing costs and capital
expenditures to maintain rental income generating capacity.
79
Track record of funds from operations per unit
Years ended December 31
2019
2018
2017
2016
2015
Funds from operations (FD) 1, 2
1 Fully diluted.
2 Non-IFRS financial measure.
$
1.07
$
1.13
$
1.35
$
1.68
$
1.79
The chart below presents Cominar's funds from operations over the past 10 years.
Funds from Operations
302,240
289,924 ¹
255,150
249,689 ¹
225,855
200,450
206,416 ¹
195,127 ¹
103,073
111,927
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
1 Decreases in funds from operations due mainly to dispositions of income properties of $260.6 million in 2019 [$1.151 billion in 2018 and $104.4 million in 2017].
80
Track record of adjusted funds from operations per unit
Years ended December 31
2019
2018
2017
2016
2015
Adjusted funds from operations (FD) 1, 2
1 Fully diluted.
2 Non-IFRS financial measure.
$
0.77
$
0.88
$
1.14
$
1.47
$
1.57
The chart below presents Cominar's adjusted funds from operations over the past 10 years.
Adjusted Funds from Operations
265,430
252,662 ¹
224,398
197,746
210,427 ¹
166,944
99,090
91,685
160,151 ¹
140,960 ¹
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
1 Decreases in adjusted funds from operations due mainly to dispositions of income properties of $260.6 million in 2019 [$1.151 billion in 2018 and $104.4 million in 2017].
Provision for Leasing Costs
The provision for leasing costs which Cominar deducts in computing the AFFO represents the amortization, over the terms of the
leases, of leasehold improvements and initial direct costs, which include brokerage fees incurred when negotiating and preparing
leases. This allows for better reconciliation of the investments made with the operating revenues generated over the terms of the
leases. During fiscal 2019, the actual costs incurred by Cominar were $34.6 million in leasehold improvements and $9.0 million in initial
direct costs, while the provision for leasing costs amounted to $32.2 million.
81
Periods ended December 31
Leasehold improvements
Initial direct costs
Actual leasing costs — Cominar's proportionate share 1, 2
Provision for leasing costs in the calculation of AFFO 3
Quarter
Year
2019
$
10,498
2,456
12,954
7,658
2018
$
9,717
2,851
12,568
7,613
2019
$
34,596
8,974
43,570
32,182
2018
$
50,308
10,878
61,186
29,225
1 See the reconciliation of capital expenditures as per the financial statements in section "Acquisitions, Investments and Dispositions".
2 Refer to section "Non-IFRS Financial Measures".
3 Including Cominar’s proportionate share in joint ventures.
Capital Expenditures - Maintenance of Rental Income Generating Capacity
The $21.7 million of capital expenditures related to maintenance of rental income generating capacity for the fiscal year ended December
31, 2019 ($15.0 million in 2018) corresponds to management’s estimate of the non-income generating portion of actual expenditures
incurred primarily for major repair and maintenance expenditures, for example, some common areas, roofing, parking, as well as the
replacement of equipment. In order to establish the allocation of capital expenditures between maintenance of rental income generating
capacity and increase of rental income generating capacity, Cominar analyzes the work carried out according to its nature (common
areas, roofing, parking, equipment, etc.), the age and location of the properties, the property type, market conditions as well as historical
data. Capital expenditures related to maintenance of rental income generating capacity do not include current repair and maintenance
costs, as they are already included in determining NOI.
Capital expenditures incurred that are designed to create, improve or increase net operating income of our income properties are
considered as a way of increasing rental income generating capacity and constitute investment activities for Cominar (see the
"Investment in income properties" section). The calculations of AFFO and ACFO do not take into account these capital expenditures
aiming to increase rental income generating capacity.
82
Adjusted Cash Flow from Operations
Adjusted cash flow from operations ("ACFO") is intended to be used as a measure of a company’s ability to generate stable cash flows.
ACFO does not replace cash flow provided by operating activities as per the consolidated financial statements prepared in accordance
with IFRS. Our method of determining the ACFO complies with REALpac recommendations but may differ from and not be comparable
to that used by other entities.
The fully diluted weighted average number of units outstanding for the calculation of ACFO takes into account the potential issuance
of units under the long-term incentive plan, when dilutive.
The following table presents a reconciliation of the cash flows provided by operating activities as per the consolidated financial
statements with ACFO:
Quarter
Year
Periods ended December 31
Cash flows provided by operating activities as per the consolidated
financial statements
Adjustments — investments in joint ventures
Provision for leasing costs
Initial and re-leasing salary costs
2019
$
79,712
1,566
(7,658)
866
2018
$
74,118
439
(7,613)
713
Changes in adjusted non-cash working capital items 2
(40,003)
(28,417)
Capital expenditures — maintenance of rental income generating capacity
Amortization of deferred financing costs and other costs
Amortization of fair value adjustments on assumed mortgages payable
Transaction costs
Capitalizable interest on properties under development — joint ventures
(5,495)
(950)
66
1,225
161
(3,203)
(758)
68
2,866
159
2019
2018 ¹
$
$
191,868
4,838
182,939
4,534
(32,182)
(29,225)
3,347
(5,564)
(21,723)
(3,595)
264
6,463
676
3,348
(14,017)
(15,004)
(3,002)
1,440
22,847
621
ACFO 3, 4
Per unit information:
ACFO (FD) 4, 5
29,490
38,372
144,392
154,481
0.16
0.21
0.79
0.85
Weighted average number of units outstanding (FD) 5
182,566,952
182,253,193
182,370,671
182,322,596
Payout ratio 4, 5
112.5%
81.8%
91.1%
90.8%
1 Adjusted cash flow from operations for the year ended December 31, 2018 includes results of 95 non-core properties sold for total consideration of $1.14 billion during the first
quarter of 2018.
2 Includes working capital changes that, in management’s view and based on the REALpac February 2017 whitepaper, are not indicative of sustainable cash flow available for
distribution. Examples include, but are not limited to, working capital changes relating to prepaid realty taxes and insurance, interest payable, sales taxes and other indirect taxes
payable to or receivable from applicable governments, income taxes and transaction cost accruals relating to acquisitions and dispositions of investment properties.
3 Including Cominar’s proportionate share in joint ventures.
4 Refer to section "Non-IFRS Financial Measures".
5 Fully diluted.
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 Cominar’s distributable income to unitholders. Distributable income generally means net income determined in accordance
with IFRS, before adjustments to fair value, transaction costs, rental revenue derived from the recognition of leases on a straight-line
basis, the provision for leasing costs, gains on the disposition of investment properties, changes to goodwill and certain other items
not affecting cash, if applicable.
Distributions to Unitholders
Periods ended December 31
Distributions to unitholders
Per unit distribution
Quarter
2019
$
32,773
0.18
2018
$
32,749
0.18
%Í
0.1
Year
2019
2018
$
$
131,068
143,730
0.72
0.79
%Í
(8.8)
83
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:
Periods ended December 31
2019
(three months)
$
2019
(twelve
months)
$
2018
(twelve
months)
$
2017
(twelve
months)
$
Net income (loss)
319,265
462,504
(212,282)
(391,725)
Cash flows provided by operating activities - Financial
statements
Distributions to unitholders
Surplus (deficit) of cash flows provided by operating
activities compared with distribution to unitholders
79,712
32,773
46,939
191,868
131,068
60,800
182,939
143,730
233,225
246,523
39,209
(13,298)
For the three-month and twelve-month periods ended December 31, 2019, cash flows provided by operating activities presented
a $46.9 million surplus, and a $60.8 million surplus, respectively, over distributions to unitholders.
The chart below presents Cominar's distributions over the past 10 years.
Distributions Paid
251,295
254,456
246,523 ²
203,375
182,977
164,021
87,027
95,567
143,730 ³
131,068
1.440¹
1.440¹
1.440¹
1.440¹
1.453¹
1.470¹
1.470¹
1.333¹
0.790¹
0.720¹
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
1 Amount of the distribution in dollars per unit.
2 On August 3, 2017, Cominar decreased the monthly distribution to $0.095 per unit, or $1.14 per unit on an annualized basis.
3 On March 7, 2018, Cominar decreased the monthly distribution to $0.06 per unit, or $0.72 per unit on an annualized basis.
Liquidity and Capital Resources
During fiscal 2019, Cominar generated $191.9 million in cash flows provided by operating activities (financial statements). Cominar
foresees no difficulty in meeting its short-term obligations and its commitments, including the monthly payment of distributions and
the repayment of debentures at maturity, using funds from operations, asset sales, proceeds from new mortgages payable, proceeds
from debenture issuance and amounts available on its unsecured credit facility which stood at $552.6 million as at December 31, 2019.
Debt Management
Cominar spreads the maturities of its debt instruments over a number of years to manage interest rate and refinancing risk, and to
provide flexibility in maintaining the overall debt level of the portfolio, taking into account availability of financing, market conditions,
as well as the financial terms of the leases that produce its cash flows. Cominar finances itself primarily with long-term, fixed-rate debt
and seeks to maintain a conservative debt to gross book value ratio.
84
As at December 31, 2019, Cominar’s debt ratio stood at 51.4% consisting of mortgages, senior unsecured debentures and bank loans
less cash and cash equivalents. Mortgages represented approximately 58.5% of total debt, senior unsecured debentures represented
approximately 36.5%, while bank borrowings represented approximately 5.0%. As at December 31, 2019, the weighted average annual
contractual rate was 4.06% and the residual weighted average remaining term was 3.7 years.
As at December 31, 2019, 93.8% of Cominar’s total debt was fixed rate and 6.2% was variable rate.
During 2019, Cominar redeemed $300.0 million of Series 2 senior unsecured debentures before maturity using available cash and the
credit facility. During the year, Cominar also repaid $238.2 million of mortgages before maturity at an average loan to value ratio of
37% and an average interest rate of 4.82% using proceeds from the refinancing of one property for $285.0 million (net increase of
$68.0 million on that mortgage).
Including the $90.0 million of mortgages repayments before maturity subsequent to year end, Cominar will have repaid a total of $328.2
million at an average loan to value ratio of 34% and an average interest rate of 4.91%. These transactions allowed Cominar to refinance
two mortgages for $388.0 million ($285.0 million in 2019 and $103.4 million in 2020) with maturities ranging from 5 to 10 years, at an
average loan to value ratio of 60% and an average interest rate of 3.78%. These new mortgages are collateralized by only 18 out of the
52 initial properties, unencumbering 34 properties, of which 10 were unencumbered as at December 31, 2019 and 24 subsequent to
year end. Costs associated with this series of transactions amounted to $5.2 million in 2019 and $4.5 million in Q1-2020 and will be
offset by annual interest savings of approximately $4.0 million.
Debt Summary
As at December 31
Mortgages payable
Debentures
Bank borrowings secured
Bank borrowings unsecured
Total debt
Cash and cash equivalents
Net debt
2019
Weighted
average
contractual
rate
$
3.84%
4.41%
4.05%
4.05%
4.06%
2.20%
Residual
weighted
average
term
$
4.8 years
2.3 years
2.3 years
1.6 years
3.7 years
$
2,114,021
1,320,962
180,000
—
3,614,983
(152,634)
3,462,349
2018
Weighted
average
contractual
rate
$
4.03%
4.23%
—%
4.40%
4.14%
1.70%
Residual
weighted
average
term
$
5.0 years
2.2 years
—
0.7 years
3.5 years
$
1,742,227
1,722,586
—
152,950
3,464,813
(1,498)
3,463,315
Long Term Debt Maturities
As at December 31, 2019
$ million
85
$481
Nov
$100
July
$300
$81
$484
$508
Dec
$200
June
$300
$329
May
$225
$456
May
$200
$289
$308
$184
$256
$127
$289
$104
$127
$51
$51
$31
$31
$241
$241
$122
$122
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
15%
16.3%
15.5%
10.6% 14.6% 4.1% 9.3% 1.6% 1.0%
3.9% 7.7%
86
Mortgages Payable
As at December 31, 2019, the balance of mortgages payable was $2,114.0 million, up $371.8 million from $1,742.2 million as at
December 31, 2018. This increase is explained by new mortgages payable contracted of $666.2 million at a weighted average contractual
rate of 3.72%, offset by repayments of $238.2 million at a weighted average contractual rate of 4.82% and by monthly repayments of
capital totalling $54.2 million. As at December 31, 2019, the weighted average contractual rate was 3.84%, down 19 basis points from
4.03% as at December 31, 2018. As at December 31, 2019, the effective weighted average interest rate was 3.95%, down 16 basis
points since December 31, 2018.
Contractual maturities of mortgages payable
Years ending December 31
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030 and thereafter
Total
Repayment
of principal
$
Balances at
maturity
$
51,680
46,186
44,607
42,611
41,111
31,466
18,716
17,319
14,470
11,857
7,928
80,974
307,862
184,248
104,292
255,750
127,490
288,510
50,968
30,836
122,134
240,762
Total
$
132,654
354,048
228,855
146,903
296,861
158,956
307,226
68,287
45,306
133,991
248,690
327,951
1,793,826
2,121,777
Weighted
average
contractual
rate
4.34%
4.16%
3.35%
3.91%
3.47%
3.47%
3.52%
3.85%
4.48%
3.56%
4.01%
3.84%
Cominar’s mortgages payable contractual maturities are staggered over a number of years to reduce risks related to renewal. As at
December 31, 2019, the residual weighted average term of mortgages payable was 4.8 years, compared to 5.0 years as at December
31, 2018.
Senior Unsecured Debentures
Date of
issuance
Contractual
interest
rate
Effective
interest
rate
May 2013
4.00%
4.24%
July 2013 1
4.94%
4.81%
December 2014
4.25%
4.34%
June 2015
4.16%
4.25%
May 2016
4.25%
4.34%
May 2019
4.50%
4.41%
4.82%
4.49%
Dates of
interest
payments
May 2 and
November 2
July 27 and
January 27
June 8 and
December 8
June 1 and
December 1
May 23 and
November 23
May 15 and
November 15
Maturity
date
Nominal value as at
December 31, 2019
$
November 2020
July 2020
December 2021
June 2022
May 2023
May 2024
100,000
300,000
200,000
300,000
225,000
200,000
1,325,000
Series 3
Series 4
Series 8
Series 9
Series 10
Series 11
Weighted average interest rate
Total
1 Re-opened in January 2014 ($100.0 million) and March 2014 ($100.0 million).
As at December 31, 2019, the residual weighted average term of senior unsecured debentures was 2.3 years.
On May 15, 2019, Cominar issued $200.0 million in Series 11 senior unsecured debentures bearing interest at a rate of 4.50% and
maturing in May 2024.
On June 21, 2019, Cominar reimbursed at maturity its Series 7 senior unsecured debentures totaling $300.0 million and bearing interest
at 3.62% using available cash and its unsecured renewable operating and acquisition credit facility.
87
On September 26, 2019, Cominar early redeemed $300.0 million in aggregate principal of 4.23% Series 2 senior unsecured debentures
using available cash and its unsecured renewable operating and acquisition credit facility. Cominar paid $1.1 million in yield maintenance
fees and other costs in connection with the redemption.
Bank Borrowings
As at December 31, 2019, Cominar had an unsecured renewable credit facility of up to $400.0 million maturing in July 2021. This credit
facility bears interest at the prime rate plus 110 basis points or at the bankers’ acceptance rate plus 210 basis points. This credit facility
contains certain restrictive covenants, with which Cominar was in compliance as at December 31, 2019. As at December 31, 2019, the
credit facility was undrawn and availability was $400.0 million.
On September 20, 2019, Cominar entered into a 4-year agreement for a new secured credit facility maturing in September 2023. This
new credit facility bears interest at the prime rate plus 70 basis points or at the bankers’ acceptance rate plus 170 basis points. As at
December 31, 2019, $180.0 million was drawn on the credit facility. This credit facility is secured by immovable hypothecs on investment
properties with a book value of $298.8 million.
Debt Ratio
Debt ratio is a non-IFRS measure used by Cominar to manage debt levels. Debt ratio is calculated by adding mortgages payable,
debentures, bank borrowings less cash and cash equivalents divided by the total assets minus cash and cash equivalents. Cominar’s
Declaration of Trust limits the indebtedness of Cominar to a maximum of 65% of its total assets.
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
2019
$
(152,634)
2,114,021
1,320,962
180,000
3,462,349
6,739,786
51.4%
2018
$
(1,498)
1,742,227
1,722,586
152,950
3,616,265
6,542,213
55.3%
1 The debt ratio is equal to the total of bank borrowings, mortgages payable and debentures less cash and cash equivalents, divided by total assets less cash and cash equivalents.
2 Refer to section "Non-IFRS Financial Measures".
The decrease in the debt ratio is due mainly to the use of the $260.6 million proceeds from the sale of properties during fiscal 2019.
Debt/EBITDA Ratio
The debt to earnings before interest, income taxes, depreciation and amortization ("EBITDA") ratio is a non-IFRS measure widely used
in the real estate industry and measures Cominar’s ability to pay down its debts. Cominar defines EBITDA as net operating income
minus adjusted Trust administrative expenses and recognition of leases on a straight-line basis.
As at December 31
Mortgages payable
Debentures
Bank borrowings
Total debt
NOI
Adjusted Trust administrative expenses ¹
Recognition of leases on a straight-line basis
EBITDA ²
Debt/EBITDA ratio 2
2019
$
2,114,021
1,320,962
180,000
3,614,983
358,322
(16,211)
(288)
341,823
10.6x
2018
$
1,742,227
1,722,586
152,950
3,617,763
372,464
(18,681)
(2,030)
351,753
10.3x
1 Excludes severance allowances paid to executive officers and governance and strategic alternatives consulting fees.
2 Refer to section "Non-IFRS Financial Measures".
88
Interest Coverage Ratio
The interest coverage ratio is a non-IFRS measure used by Cominar to assess Cominar’s ability to pay interest on its debt from operating
revenues and is calculated using net operating income minus adjusted Trust administrative expenses, divided by adjusted finance
charges.
As at December 31
NOI
Adjusted Trust administrative expenses ¹
Adjusted finance charges ²
Interest coverage ratio 3
2019
$
358,322
(16,211)
342,111
144,720
2.36:1
2018
$
372,464
(18,681)
353,783
152,237
2.32:1
1 Excludes severance allowances paid to executive officers and governance and strategic alternatives consulting fees.
2 Excludes finance charges related to mortgages repayments before maturity and yield maintenance fees and costs paid in relation to the Series 2 senior unsecured debenture
redemption.
3 Refer to section "Non-IFRS Financial Measures".
Unencumbered Assets and Unsecured Debt
As at December 31
2019
2018
Unencumbered income properties 1, 5
140
2,125,836
291
2,864,637
Number of
properties
Fair value of
properties ($)
Number of
properties
Fair value of
properties ($)
Unencumbered assets to unsecured net debt ratio 2, 3
Unsecured debt-to-total-debt ratio 3, 4
1.82:1
36.5%
1.53:1
51.8%
1 Includes investment properties held for sale.
2 Fair value of unencumbered income properties divided by unsecured net debt.
3 Refer to section "Non-IFRS Financial Measures".
4 Unsecured debt divided by total debt.
5 During the first quarter of 2019, Cominar reassessed its number of properties by grouping individual addresses within the same plot of land or related plots of land as one property.
As at December 31, 2019, the unencumbered assets to unsecured net debt ratio stood at 1.82:1, well above the required ratios of 1.30:1
and 1.35:1 contained in the restrictive covenant of the outstanding debentures and the credit facility, respectively.
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
construction contracts and emphyteutic leases on land held for income properties.
Financial Instruments
Classification and Fair Value
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 2019 and 2018.
The fair value of cash and cash equivalents, 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.
Financial liabilities and their carrying amounts and fair values, when the fair values do not approximate the carrying amounts, are
classified as follows:
89
As at December 31
Financial liabilities
Mortgages payable
Debentures
Risk Management
2019
Carrying
amount
$
2018
Fair
value
$
Carrying
amount
$
Fair
value
$
Level
2
2
2,114,021
1,320,962
2,164,680
1,368,398
1,742,227
1,722,586
1,764,084
1,703,866
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 the operating revenues and by conducting credit assessments on all new tenants.
Cominar has a broad, highly diversified client base consisting of about 3,700 clients occupying an average of approximately 9,200 square
feet each. The top three clients, Société québécoise des infrastructures, Public Works Canada and Canadian National Railway Company,
account respectively for approximately 5.8%, 4.1% and 3.4% 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 14.1% of operating revenues
come from government agencies, representing approximately 100 leases.
Cominar regularly assesses its accounts receivable and records an expected credit loss for 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 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.
Almost all mortgages payable and all debentures bear interest at fixed rates.
Cominar is exposed to interest rate fluctuations mainly due to bank borrowings, 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 $0.3 million increase or decrease in Cominar’s net loss
for the fiscal year ended December 31, 2019 [$0.5 million in 2018].
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 the management of its capital structure, the continuous monitoring of current and projected cash flows
and adherence to its capital management policy.
90
Undiscounted contractual cash flows (interest and principal) related to financial liabilities as at December 31, 2019 were as follows:
Mortgages payable
Debentures
Bank borrowings
Accounts payable and accrued liabilities 1
Lease liability
1 Excludes sales taxes and other non-financial liabilities
Property Portfolio
As at December 31
Income properties — Cominar’s proportionate share 1
Properties under development and land held for future
development — Cominar’s proportionate share 1
Investment properties held for sale
Number of income properties 2, 3
Leasable area (sq. ft.) 2
Under
one year
$
222,452
458,371
7
107,786
578
Cash flows
One to
five years
$
1,292,149
1,007,627
200
—
2,440
Over
five years
$
1,080,025
—
—
—
17,288
2019
$
6,584,312
155,509
11,730
317
35,895,000
2018
$
6,224,956
143,835
188,727
428
38,127,000
%Í
5.8
8.1
(93.8)
1 Refer to section "Non-IFRS Financial Measures".
2 Includes investment properties held for sale.
3 During the first quarter of 2019, Cominar reassessed its number of properties by grouping individual addresses within the same plot of land or related plots of land as one property.
Summary by property type
As at December 31
Office
Retail
Industrial and flex
Total
2019
Number of
properties 1
80
46
191
317
Leasable area
(sq. ft.)
Number of
properties
Leasable area
(sq. ft.)
2018
11,056,000
9,488,000
15,351,000
35,895,000
96
136
196
428
11,707,000
10,714,000
15,706,000
38,127,000
1 During the first quarter of 2019, Cominar reassessed its number of properties by grouping individual addresses within the same plot of land or related plots of land as one property.
Summary by geographic market
As at December 31
2019
2018
Montreal
Québec City
Ontario - Ottawa 1
New Brunswick
Total
Number of
properties 2
198
100
19
—
317
Leasable area
(sq. ft.)
Number of
properties
Leasable area
(sq. ft.)
23,690,000
9,763,000
2,442,000
—
35,895,000
281
126
20
1
428
25,327,000
10,264,000
2,476,000
60,000
38,127,000
1 For presentation purposes, the Gatineau area is included in the Ottawa geographic market.
2 During the first quarter of 2019, Cominar reassessed its number of properties by grouping individual addresses within the same plot of land or related plots of land as one property.
91
Acquisitions, Investments and Dispositions
Investments in Income Properties and Investment Properties Held for Sale
Cominar continues to invest in its investment properties in the normal course of business. Investments made include expansions,
modernizations, modifications and upgrades to existing properties with a view to increasing or maintaining their rental income
generating capacity.
During fiscal 2019, Cominar incurred $68.7 million [$145.2 million in fiscal 2018] in capital expenditures specifically to increase the
rental income generating capacity of its properties. These capital expenditures include, among others, investments of $25.7 million in
revitalization and redevelopment, $1.3 million in property expansion, $40.5 million in structural work and $1.2 million in facade
renovation. Cominar also incurred $21.7 million [$15.0 million in fiscal 2018] in capital expenditures to maintain rental income generating
capacity, consisting mainly of major repair and maintenance expenses, as well as property equipment replacements. Capital
expenditures related to maintenance of rental income generating capacity do not include current repair and maintenance costs, as
these are already deducted from revenues in determining NOI.
Finally, Cominar invested in leasehold improvements that aim to increase the value of its buildings through higher lease rates and higher
occupancy, 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 depends closely on lease renewals and the signing of new leases. The level of investment also depends
on increases in rental space through expanded, upgraded or acquired properties, or rental space transferred from properties under
development. During fiscal 2019, Cominar made investments of $34.6 million in leasehold improvements and $9.0 million in leasing
costs [$49.8 million in leasehold improvements and $10.7 million in leasing costs in fiscal 2018].
The following table shows the details of the capital expenditures and leasing costs reported in the consolidated financial statements
with respect to our income properties, including investment properties held for sale and Cominar’s proportionate share in joint ventures:
Periods ended December 31
2019
2018
2019
2018
Quarter
Year
$
$
%Í
$
$
%Í
Capital expenditures — increase of rental income
generating capacity
Revitalization and redevelopment
Property expansion
Structural work for common areas, parking,
preparation of base building etc.
Facade renovation
Others
Capital expenditures — maintenance of rental income
generating capacity
Total capital expenditures 1
Leasehold improvements
Leasing costs
Total — Financial statement 1
Capital costs — Properties under development —
Financial statements
Total capital expenditures
9,267
342
10,138
267
—
5,803
25,817
10,498
2,456
38,771
3,595
42,366
19,638
354
9,985
3,921
3,081
3,203
40,182
9,632
2,851
52,665
—
52,665
(52.8)
(3.4)
1.5
(93.2)
(100.0)
81.2
(35.7)
9.0
(13.9)
(26.4)
100.0
(19.6)
25,732
1,297
40,464
1,166
—
21,723
90,382
34,596
8,974
57,776
1,613
63,391
10,398
12,055
15,004
160,237
49,801
10,662
133,952
220,700
24,776
158,728
15,382
236,082
(55.5)
(19.6)
(36.2)
(88.8)
(100.0)
44.8
(43.6)
(30.5)
(15.8)
(39.3)
61.1
(32.8)
1
Includes income properties, investment properties held for sale and Cominar's proportionate share in joint ventures.
92
Disposition of Income Properties in 2019
On June 14, 2019, Cominar completed the sale of an industrial and flex property located in Quebec City, for a total selling price of
$1.8 million.
On December 12, 2019, Cominar completed the sale of a retail property located in Montreal, for a total selling price of $0.7 million.
Transfer to Income Properties in 2019
At the end of the third quarter of 2019, Cominar transferred a property from properties under development to income properties. The
retail building was valued at $16.2 million at the time of the transfer has a leasable area of 56,000 square feet and is located in Québec
City.
Investment Properties Held for Sale in 2019
Cominar has engaged in a process to sell certain income properties and expects to close these transactions within the next few months.
During the quarter ended March 31, 2019, Cominar transferred 3 income properties having a value of $18.5 million to investment
properties held for sale.
During the quarter ended June 30, 2019, Cominar transferred 4 income properties and 2 land held for future development having a
value of $24.2 million to investment properties held for sale
During the quarter ended September 30, 2019, Cominar transferred 12 income properties having a value of $40.1 million to investment
properties held for sale
During the quarter ended December 31, 2019, Cominar transferred 1 land held for future development having a value of $1.9 million to
investment properties held for sale and transferred 2 investment properties held for sale having a value of $6.8 million to land held for
future development.
During the period of twelve months ended December 31, 2019, Cominar sold 44 investment properties held for sale for a total selling
price of $258.1 million.
Years ended December 31
2019
Investment properties
Balance, beginning of year
Transfers from income properties
Transfers from properties under development and
land held for future development
Capitalized costs
Change in fair value
Dispositions
Transfer of goodwill
Derecognition of goodwill
Balance, end of year
Office
properties
Retail
properties
Industrial
and flex
properties
$
$
$
Total
$
50,486
21,280
—
3,708
(1,033)
111,041
37,068
27,200
17,586
188,727
75,934
1,855
321
274
—
45
(45)
1,855
4,074
(804)
(74,441)
(138,829)
(44,786)
(258,056)
—
—
—
—
—
11,730
—
—
—
—
—
11,730
2018
Total
$
1,143,500
191,241
—
7,070
(4,934)
(1,148,150)
3,872
(3,872)
188,727
93
Dispositions of Investment Properties Held for Sale in 2019
Address
Property
type
Area
Leasable
area
sq. ft.
Transaction
date
Selling
price
$
768-790, boulevard Décarie, Montréal (Qc)
Montreal
Office
35,000
January 11, 2019
4,100
4600, boulevard Sainte-Anne, Québec (Qc)
170, boulevard Curé-Labelle, Rosemère (Qc)
3773, boulevard de la Côte-Vertu, Montréal (Qc)
7405, autoroute Transcanadienne, Montréal (Qc)
3900, boulevard de la Côte-Vertu, Montréal (Qc)
3950, boulevard de la Côte-Vertu, Montréal (Qc)
7355, autoroute Transcanadienne, Montréal (Qc)
5101, rue Buchan, Montréal (Qc)
1059-1095, boulevard Jean-Baptiste-Rolland Ouest, Saint-Jérôme (Qc)
1035-1049, boulevard Jean-Baptiste-Rolland Ouest, Saint-Jérôme (Qc)
1105-1135, boulevard Jean-Baptiste-Rolland Ouest, Saint-Jérôme (Qc)
1051-1055, boulevard Jean-Baptiste-Rolland Ouest, Saint-Jérôme (Qc)
2400, autoroute Transcanadienne, Pointe-Claire (Qc)
1199 St-George Boulevard, Moncton (Nouveau-Brunswick)
1950, rue Léonard-De Vinci, Sainte-Julie (Qc)
933, boulevard Armand Frappier, Sainte-Julie (Qc)
484, 25e Avenue, Saint-Eustache (Qc)
101, boulevard Arthur-Sauvé, Saint-Eustache (Qc)
1200, Place Nobel, Boucherville, Québec (Qc)
324, boulevard Curé-Labelle, Sainte-Thérèse (Qc)
255, boulevard Crémazie Ouest, Montréal (Qc)
2986, boulevard Saint-Charles, Montréal (Qc)
7, Place du Commerce, Montréal (Qc)
4211-4219, rue Wellington, Montréal (Qc)
3005, rue King Ouest, Sherbrooke (Qc)
1479-1481-1483-1485, boulevard Saint-Bruno, Saint-Bruno (Qc)
375, boulevard Sir-Wilfrid-Laurier, Mont-Saint-Hilaire
19701, avenue Clark-Graham, Baie-d'Urfé (Qc)
920, rue Douglas, St-Jean-sur-Richelieu (Qc)
1837, chemin Gascon, Terrebonne (Qc)
325, boulevard Honorius-Charbonneau, Mont-Saint-Hilaire (QC)
1156, boulevard de la Rive-Sud, Lévis (QC)
1400, boulevard de la Rive-Sud, Lévis (QC)
4635, 1re Avenue, Québec (QC)
320, chemin de la Canardière, Québec (QC)
280, rue Racine, Québec (QC)
5, rue d'Orléans, Québec (QC)
100, rue Chabot, Québec (QC)
2195, boulevard Guillaume-Couture, Lévis (QC)
2160, boulevard Guillaume-Couture, Lévis (QC)
329, rue Seigneuriale, Québec (QC)
5150-5200, boulevard de l'Ormière, Québec (QC)
50, boulevard Lionel-Groulx, Sherbrooke (QC)
1333-1363, rue Belvédère Sud, Sherbrooke (QC)
Quebec
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Nouveau-
Brunswick
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Quebec
Quebec
Quebec
Quebec
Quebec
Quebec
Quebec
Quebec
Quebec
Quebec
Quebec
Montreal
Montreal
Industrial
and flex
Retail
Office
Office
Office
Office
Office
Office
Retail
Retail
Retail
Retail
39,000
January 14, 2019
3,000
January 16, 2019
53,000
February 15, 2019
82,000
February 15, 2019
29,000
February 15, 2019
24,000
February 15, 2019
23,000
February 15, 2019
1,200
1,841
4,600
8,350
2,000
2,000
1,500
117,000
February 15, 2019
10,200
78,000
February 15, 2019
24,000
February 15, 2019
77,000
February 15, 2019
17,000
February 15, 2019
3,150
3,150
3,150
3,150
Industrial
and flex
121,000
March 26, 2019
26,000
Office
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Office
Industrial
and flex
Retail
Retail
Office
Office
Office
Office
Retail
Retail
Retail
Industrial
and flex
Retail
Retail
Retail
Retail
Retail
Retail
60,000
4,000
14,000
4,000
3,000
64,000
4,000
4,000
2,000
17,000
7,000
6,000
516,000
50,000
April 18, 2019
April 29, 2019
May 30, 2019
May 30, 2019
May 30, 2019
8,020
750
4,135
1,725
925
May 30, 2019
10,435
May 30, 2019
May 30, 2019
May 30, 2019
May 30, 2019
May 30, 2019
June 6, 2019
June 20, 2019
June 20, 2019
1,870
1,255
1,175
5,505
975
850
67,358
8,966
145,000
July 19, 2019
14,000
4,000 September 13, 2019
4,000 September 13, 2019
19,000 September 26, 2019
33,000
December 4, 2019
1,450
1,450
3,425
5,100
77,000
December 4, 2019
12,600
41,000
December 19, 2019
13,000
December 19, 2019
16,000
December 19, 2019
6,000
December 19, 2019
60,000
December 19, 2019
6,000
December 19, 2019
73,000
December 19, 2019
4,000
December 19, 2019
159,000
December 19, 2019
5,000
December 19, 2019
16,000
December 19, 2019
3,580
1,545
1,830
930
3,586
825
5,370
1,065
8,955
1,108
2,902
2,158,000
258,056
Property type
Office
Retail
Industrial and flex
Total
94
Number of
properties
Leasable area
sq. ft
Fair value
$
12
28
4
44
643,000
1,150,000
365,000
2,158,000
74,441
138,829
44,786
258,056
Properties Under Construction and Development Projects
Palladium (Ford)
During the third quarter of 2019, Cominar commenced the development of 800 Palladium Drive which is part of the Palladium Campus
in Kanata. This 100,000 square foot office building project is now 100% leased, of which 96% will be occupied by Ford Canada to house
an expansion of its connected city and innovation center. The completion of the building is scheduled for Fall 2020.
Société en commandite Chaudière-Duplessis - Ilot Mendel
Cominar continues to review its alternatives for the development of Ilot Mendel, a 2.0 million square foot retail development site located
at the intersection of Highways 40 and 540, two of the main arteries of Québec City. Ilot Mendel is located next to Québec city's IKEA
store, which occupies just over 1 million square feet, including the parking areas. In September 2019, a 57,000 square feet Decathlon
sporting goods store opened to the public. The Decathlon store construction cost was $12.6 million.
As announced by the competent authorities, the site will eventually be served by the new public transit network (Tramway) with a station
directly on site. A densification study is ongoing to evaluate the possibility of adding other uses at the site, including residential. Further
development of this site will depend on market conditions, tenant demand and zoning changes, if necessary. Discussions are on-going
with the City of Quebec in that regard.
In addition, Cominar owns land located south of the retail project that is intended, among other things, for industrial purposes, with a
potential developable area of 250,000 square feet, for which a zoning change is necessary.
Société en commandite Bouvier-Bertrand (Québec City) and Société en commandite Marais (Québec City)
Cominar and Groupe Dallaire are limited partners in Société en commandite Bouvier-Bertrand and Société en commandite Marais.
The limited partnerships were created to carry out the development of land in Québec City.
95
Real Estate Operations
Occupancy Rate
Occupancy rate track record
Property type
Office
Retail
Industrial and flex
Portfolio total
Committed occupancy rate
Committed
In-place
Dec. 31,
2019
December
31, 2018
December
31, 2019
December
31, 2018
December
31, 2017
December
31, 2016
92.9%
94.1%
97.1%
95.1%
91.5%
93.8%
95.0%
93.6%
89.2%
87.3%
96.2%
91.7%
95.1%
86.5%
85.5%
93.7%
89.2%
93.6%
84.4%
87.3%
91.4%
87.9%
92.6%
85.4%
88.4%
89.5%
87.9%
92.4%
As at
Montreal
Québec City
Ottawa
Total
December 31, 2019
Committed In-Place Committed In-Place Committed In-Place Committed In-Place
Property type
Office
Retail
Industrial and flex
Portfolio total
90.5%
95.3%
96.9%
94.8%
85.4%
88.5%
96.0%
91.5%
98.5%
92.6%
97.9%
96.0%
97.4%
87.7%
96.5%
93.3%
94.2%
90.9%
N/A
91.9%
63.3%
N/A
93.7%
87.5%
As at December 31, 2019
In-place occupancy
Space under redevelopment
Signed leases that will begin in the next few quarters
Committed occupancy
Numerator
sq.ft
A
32,680,000
—
797,000
33,477,000
Denominator
sq.ft
B
35,637,000
(439,000)
—
35,198,000
92.9%
94.1%
97.1%
95.1%
89.2%
87.3%
96.2%
91.7%
Occupancy
A/B
91.7%
95.1%
Committed occupancy rate refers to the leasable area occupied by clients to which we add the leasable area of signed leases which
have not started yet divided by the leasable area of the portfolio, excluding space under redevelopment. This metric highlights the area
considered to be leased over the area that is actually available for lease.
The in-place occupancy rate refers to the leasable area occupied by clients, divided by the portfolio’s leasable area. This metric highlights
the leasable area that currently generates rental income.
The spread between the committed occupancy rate and the in-place occupancy rate for the portfolio was 3.4% as at December 31,
2019. For the retail portfolio, this spread was 6.8% and consisted of several signed leases with a total area of approximately
257,000 square feet, of which 100% will come into force in 2020 and 425,000 square feet of space under redevelopment. For the office
portfolio, this spread was 3.7% and represents signed leases of which approximately 100% will come into force in 2020. As for the
industrial and flex portfolio, the variance was 0.9%, representing 150,000 square feet of signed leases, which will come into force in
2020.
The following table shows changes in the leasable space of the signed leases that began during the fiscal year or that will begin in the
next few quarters:
Signed leases that will begin in the next few quarters
96
Balance, beginning of year
New signed leases
Leases that began in the year
Balance, end of year
Year ended December 31, 2019
sq. ft.
950,000
1,816,000
(1,969,000)
797,000
The 0.8 million square feet of signed leases will commence during the next 4 quarters and will, in the end, contribute approximately
$14.3 million to net operating income on an annualized basis. Of this amount, $7.5 million comes from the office segment, $4.9 million
from the retail segment and $2.0 million from the industrial and flex segment. This contribution to net operating income will be partially
offset over the coming quarters by expiring leases that will not be renewed as well as by unanticipated departures and rent reductions.
Leasing Activity
Leases that matured in 2019
Number of clients
Leasable area (sq. ft.)
Renewed leases
Number of clients
Leasable area (sq. ft.)
Retention rate
New leases
Number of clients
Leasable area (sq. ft.)
Unexpected departures
Number of clients
Leasable area (sq. ft.)
Office
Retail
Industrial
and flex
193
525
195
Total
913
1,368,000
1,571,000
1,915,000
4,854,000
130
303
133
566
1,016,000
1,221,000
1,514,000
3,751,000
74.3%
77.7%
79.1%
77.3%
71
606,307
18
113,377
70
471,011
39
88,749
78
891,884
27
232,352
219
1,969,202
84
434,478
During the year ended December 31, 2019, 77.3% [75.8% in 2018] of the leasable area maturing in 2019 was renewed. During the year,
new leases were also signed, representing 2.0 million square feet of leasable area, while tenants whose leases were not expiring that
left before the end of their lease, totaled leasable area of 0.4 million square feet.
Growth in the average net rent of renewed leases
Years ended December 31
Property type
Office
Retail
Industrial and flex
Growth in the average net rent of renewed leases
2019
4.1%
(1.7%)
10.1%
2.8%
2018
0.3%
(1.8%)
5.6%
0.6%
Growth in the average net rent on renewed leases is measured by comparing the rent at the end of the lease to the rent at the beginning
of the lease’s renewal.
For the office portfolio, the average net rent on renewed leases in the Montreal, Québec City and Ottawa markets increased by 3.3%,
2.1% and 10.7%, respectively.
For the industrial and flex portfolio, the average net rent on renewed leases in the Montreal and Québec City markets increased by 11.5%
and 6.9%, respectively.
For the retail portfolio, the average net rent of renewed leases in Ottawa market increased by 3.8%, while the Montreal and Québec City
markets decreased by (2.8)% and (0.6)%, respectively.
97
Sears Update
Location
Quartier Laval, Laval
Carrefour Saint-Georges, Saint-Georges
Galeries de Hull, Gatineau
Mail Champlain, Brossard
Galeries Rive Nord, Repentigny
Les Rivières shopping centre, Trois-Rivières 2
Pierre-Bertrand Boulevard, Québec City
(industrial segment)
Total
Area (square feet)
Leasable
area
Signed
leases
Area in
advanced
discussions
Area in
preliminary
discussions
Available
area
43,147
54,221
128,040
153,600
125,471
144,398
23,947
672,824
43,147
43,859
61,940
48,054
40,517
51,818
23,947
313,282
—
—
18,729
22,354
34,659
37,467
—
—
9,083
31,867
33,107
12,156
—
6,034
9,267
18,680
3,042
10,826
Common
area 1
—
4,328
29,021
32,645
14,146
32,131
—
—
—
—
113,209
86,213
47,849
112,271
1 Common areas have been removed from leasable area as at December 31,2019.
2 Shadow tenant for which Cominar acquired the building during the third quarter of 2018.
100.0%
46.6%
16.8%
12.8%
7.1%
16.7%
As at December 31, 2019, the area previously occupied by Sears for which leases were signed or in advanced discussions was 63.4%.
Lease Maturities
Years ending December 31
2020
2021
2022
2023
2024
Office
Leasable area (sq. ft.)
Average minimum rent ($/sq. ft.)
% of portfolio — Office
Retail
Leasable area (sq. ft.)
Average minimum rent ($/sq. ft.)
% of portfolio — Retail
Industrial and flex
Leasable area (sq. ft.)
Average minimum rent ($/sq. ft.)
% of portfolio — Industrial and flex
Portfolio total
Leasable area (sq. ft.)
Average minimum rent ($/sq. ft.)
% of portfolio
1,420,000
1,414,000
17.37
12.8%
18.55
12.8%
891,000
17.25
8.1%
1,108,000
1,259,000
19.90
10.0%
18.40
11.4%
1,536,000
1,044,000
20.80
16.2%
21.37
11.0%
812,000
23.36
866,000
16.94
913,000
19.79
8.6%
9.1%
9.6%
3,184,000
1,887,000
2,263,000
1,906,000
1,507,000
6.66
20.7%
6.77
12.3%
6.52
14.7%
7.73
12.4%
8.08
9.8%
6,140,000
4,345,000
3,966,000
3,880,000
3,679,000
12.67
17.1%
14.11
12.1%
12.38
11.0%
13.26
10.8%
14.52
10.2%
The following table summarizes information on leases as at December 31, 2019:
Residual weighted
average term
(years)
Weighted average
term of leases
(years)
Average leased
area per client
(sq. ft.)
Average
minimum rent
($/sq. ft.)
Property type
Office
Retail
Industrial and flex
Weighted average of total portfolio
5.3
5.3
7.0
6.0
8.5
8.2
7.6
8.0
11,600
4,600
1,620
9,200
17.74
20.43
6.96
13.52
Cominar has a broad, highly diversified client base consisting of approximately 3,700 tenants occupying an average of 9,200 square feet
each. The top three clients, Société québécoise des infrastructures, Public Works Canada and Canadian National Railway Company,
account respectively for approximately 5.8%, 4.1% and 3.4% of operating revenues from several leases with staggered maturities. The
stability and quality of cash flows provided by operating activities are enhanced by the fact that approximately 14.1% of operating
revenues come from government agencies, representing over 100 leases.
Top 10 clients
The following table presents our top ten clients by percentage of operating revenues:
98
Client
Société québécoise des infrastructures
Public Works Canada
Canadian National Railway Company
Infra MTL Inc. 1
Desjardins Property Management
Winners
Marie-Claire Boutiques Inc. 2
Dollarama
Société des alcools du Québec
Shoppers Drug Mart
Total
% of operating
revenues
5.8%
4.1%
3.4%
2.2%
0.8%
0.7%
0.7%
0.7%
0.7%
0.7%
19.8%
1 Infra MTL inc. is a wholly owned subsidiary of the Caisse de dépòt et placement du Québec.
2 Approximately 40 leases.
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.
Year ended December 31,
2019
Year ended December 31,
2018
Units issued and outstanding, beginning of year
Repurchase of units under NCIB
Exercise of options, conversion of restricted units and deferred units
Units issued and outstanding, end of year
Units
181,956,349
—
155,016
182,111,365
Additional information
Issued and outstanding units
Outstanding unit options
Deferred units, restricted units and performance units
Long Term Incentive Plan
Units
184,629,497
(2,709,500)
36,352
181,956,349
March 3, 2020
182,442,197
4,727,250
832,975
The long-term incentive plan is a compensation tool used to attract, motivate and retain key executives who contribute to Cominar's
continued success and to increased value for unitholders. It consists of performance units, deferred units, restricted units and unit
options.
Year ended December 31, 2019
Outstanding, beginning of year
Granted
Converted
Forfeited or cancelled
Expired
Accrued distributions
Outstanding, end of year
Vested units/options, end of year
Performance
units
Deferred
units
Restricted
units
164,425
174,972
—
(9,246)
—
19,615
349,766
—
315,435
107,555
(100,809)
(6,102)
—
18,036
334,115
197,781
2,946
—
(507)
(225)
—
97
2,311
1,039
99
Unit options
Weighted
average
exercise price
Quantity
8,689,400
—
(53,700)
(2,186,300)
(1,213,500)
—
5,235,900
4,712,800
$
14.86
—
13.63
14.82
18.07
—
14.15
14.22
As at December 31, 2019, the maximum number of units that may be issued under the long-term incentive plan is 16,395,538 units.
Disclosure Controls and Procedures and Internal Control over
Financial Reporting
The President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer of Cominar are responsible for
establishing and maintaining disclosure controls and procedures ("DC&P") and internal control over financial reporting ("ICFR"), as
defined in Canadian Securities Administrators’ Multilateral Instrument 52-109.
Evaluations are performed regularly to assess the effectiveness of DC&P, including this MD&A and the consolidated financial statements.
Based on these evaluations, the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer
concluded that the DC&P were effective as at the end of the fiscal year ended December 31, 2019, and that the current controls and
procedures provide reasonable assurance that material information about Cominar, including its consolidated subsidiaries, is made
known to them during the period in which these reports are being prepared.
Evaluations are also performed to assess the effectiveness of ICFR. Based on those evaluations, the President and Chief Executive
Officer and the Executive Vice President and Chief Financial Officer of Cominar concluded that ICFR was effective as at the end of the
fiscal year ended December 31, 2019, 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 2019 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"), as issued by the International Accounting Standards Board ("IASB"). The accounting policies and application methods
thereof have been consistently applied throughout each of the fiscal years presented in these consolidated financial statements,
with the exception of IFRS 16 – “Leases,” which came into effect on January 1, 2019 and for which Cominar has recorded a right-
of-use asset in income properties and a corresponding lease liability in accounts payable and accrued liabilities as of that date.
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 management’s
internal measurements and valuations from independent real estate appraisers, performed in accordance with recognized
100
valuation techniques, as well as definitive agreements to sell investment properties. Techniques used include the direct
capitalized net operating income method that involves stabilized net operating income and overall capitalization rates, and
the discounted cash flow method that involves estimating expected future cash flows, as well as discount and terminal
capitalization rates.
Management’s fair value internal measurements rely on internal financial information and are corroborated by capitalization
rates obtained from independent experts. However, internal measurements and values obtained from independent appraisers
are both subject to significant judgments, estimates and assumptions about market conditions at the balance sheet date.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of a business combination is the value, at
the acquisition date, of the assets transferred, liabilities incurred and Unitholders’ equity instruments issued in exchange for
control of the acquired business. When the cost of a business combination exceeds the fair value of the assets acquired
and liabilities assumed, such excess is recorded as goodwill. Transaction-related costs, as well as costs related to the
acquisition of real estate assets, are expensed as incurred.
Cominar accounts for investment property acquisitions in accordance with IFRS 3 - "Business Combinations" ("IFRS 3"), only
when it considers that a business has been acquired. Under IFRS 3, a business is defined as an integrated set of activities
and assets that could be conducted and managed for the purpose of providing a direct return to investors in the form of
lower costs or other economic benefits. If the investment properties acquisition does not correspond to the definition of a
business, a group of assets is deemed to have been acquired. If goodwill is present, the acquisition is presumed to be a
business. Judgment is therefore used by management in determining if the acquisition qualifies as a business combination
in accordance with IFRS 3 or as an acquisition of a group of assets.
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 acquisition of a group of assets.
Joint arrangements
Upon the creation of a joint arrangement, Cominar’s management reviews its classification criteria to determine if it is a joint
venture to be accounted for using the equity method or if it is a joint operation for which we must recognize the proportionate
share of assets, liabilities, revenues and expenses. Cominar holds 50% and 75% interests in its joint arrangements. It has
joint control over them since, under the contractual agreements, unanimous consent is required from all parties to the
agreements in decisions concerning all relevant activities. The joint arrangements in which Cominar is involved are structured
so that they provide Cominar rights to these entities’ net assets. Therefore, these arrangements are presented as joint ventures
and are accounted for using the equity method.
Impairment of goodwill
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the net identifiable assets
acquired. Its useful life is indefinite. It is not amortized but is tested for impairment on an annual basis or more frequently if
events or circumstances indicate that it is more likely than not that goodwill may be impaired. Goodwill resulting from business
combinations is allocated to each group of cash-generating units ("CGU") expected to benefit from the combination. To test
impairment, Cominar must determine the recoverable value of net assets of each group of CGU, making assumptions about
expected future net operating income as well as discount and terminal capitalization rates. These assumptions are based
on Cominar’s past experience as well as on external sources of information. The recoverable value is the higher of the fair
value less costs to sell and the value in use. 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-based compensation
The determination of the unit-based compensation expense resulting from Cominar's granting of deferred units and
performance units awards depends on valuation models, which by their nature are subject to measurement uncertainty.
Using different valuation methods, Cominar determined that the best estimate of the fair value for both deferred unit and
performance unit was equivalent to the market value of Cominar units on the date of the grant.
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.
•
•
•
•
•
•
101
Investment properties
An investment property is an immovable property held by Cominar to earn rentals or for capital appreciation, or both, rather than
for use in the production or supply of goods and services or for administrative purposes, or for sale in the ordinary course of
business. Investment properties include income properties, properties under development and land held for future development.
Cominar presents its investment properties based on the fair value model. Fair value is the amount for which the property could
be exchanged between knowledgeable, willing parties in an arm’s length transaction. Any change in the fair value is recognized
in profit or loss in the period in which it arises. The fair value of investment properties should reflect market conditions at the end
of the reporting period. Fair value is time-specific as at a given date. As market conditions could change, the amount presented
as fair value could be incorrect or inadequate at another date. The fair value of investment properties is based on measurements
derived from management’s estimates and valuations from independent appraisers, plus capital expenditures made after the
valuation date and deemed to increase the rental income generating capacity of the property, or according to definitive agreements
to sell investment properties. Management regularly reviews appraisals of its investment properties between the appraisal dates
in order to determine whether the related assumptions, such as stabilized net operating income and capitalization rates, still apply.
These assumptions are compared to market data issued by independent experts. When increases or decreases are required,
Cominar adjusts the carrying amount of its investment properties.
The fair value of Cominar’s investment properties recorded on the balance sheet in accordance with IFRS is the sum of the fair
values of each investment property considered individually and does not necessarily reflect the contribution of the following
elements that characterize Cominar: (i) the composition of the property portfolio diversified through its client base, geographic
markets and business segments; (ii) synergies among different investment properties; and (iii) a fully integrated management
approach. Therefore, the fair value of Cominar’s investment properties taken as a whole could differ from that appearing on the
consolidated balance sheet.
Properties under development in the construction phase are measured at cost until their fair value can be reliably determined,
usually when development has been completed. The fair value of land held for future development is based on recent prices
derived from comparable market transactions.
Capitalization of costs
Cominar capitalizes into investment properties the costs incurred to increase their capacity, replace certain components and
make improvements after the acquisition date. Cominar also capitalizes major maintenance and repair expenses providing benefits
that will last far beyond the end of the reporting period. For construction, expansion or major revitalization projects of income
properties that take place over a substantial period of time, Cominar capitalizes the borrowing costs that are directly attributable
to the investments in question.
Leasehold improvements, incurred directly by Cominar or through an allowance to tenants, which represent capital investments
that increase the service capacity and value of properties and for which the economic advantage will extend beyond the term of
the lease and will mainly benefit Cominar, as well as initial direct costs, mostly brokerage fees incurred to negotiate or prepare
leases, are added to the carrying 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.
Investment properties held for sale
Investment properties held for sale are classified as being held for sale if their carrying amount will be recovered mainly through
a sale transaction rather than through continuing use. Investment properties held for sale continue to be measured using the fair
value model.
Financial instruments
Cominar groups its financial instruments into classes according to the purpose for which they were acquired and to their
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 and accounts receivable are classified as "Financial assets at amortized cost." 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 "Financial
liabilities at amortized cost." They are initially measured at fair value. Subsequently, they are measured at amortized cost
using the effective interest method.
102
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.
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.
Performance units
Cominar recognizes a compensation expense on performance units, 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 a 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.
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.
Unit options
Cominar recognizes a compensation expense on unit options 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.
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 (net loss) per unit is calculated based on the weighted average number of units outstanding for the period. The
calculation of net income (net loss) per unit on a diluted basis considers the potential issuance of units under the long-term
incentive plan, 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.
103
c) New accounting policy
On January 1, 2019, Cominar adopted the following standard:
IFRS 16, “Leases”
Following the adoption of this new accounting standard, Cominar has recorded a right-of-use asset of $9,757 in income properties
and a corresponding lease liability in accounts payable and accrued liabilities for emphyteutic leases on lands held for income-
producing properties using modified retrospective approach. The accounting standard 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 cancels and replaces the previous standard, IAS 17 - “Leases,” and related interpretations.
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 its significant capital expenditures from time to time. There can be no assurances that Cominar will have access to
sufficient capital (including debt financing) on terms favourable to Cominar for future property acquisitions and developments, for the
financing or refinancing of properties, for funding operating expenses or for other purposes. In addition, Cominar may not be able to
borrow funds under its unsecured revolving credit facility or other sources 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 further materially adversely impact Cominar. See "Risks and Uncertainties - Risk Factors Related to the Ownership
of Securities - Credit rating”.
Market events and conditions, including disruptions that sometimes affect international and regional credit markets and other financial
systems and global economic conditions, could impede Cominar’s access to capital (including debt financing) or increase the cost of
such capital. 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 development program.
Debt Financing
Cominar has to have substantial outstanding consolidated borrowings comprised primarily of hypothecs, mortgages, debentures, and
borrowings under its unsecured revolving credit facility. Cominar intends to finance its growth strategy, including developments and
acquisitions, through a combination of asset sales, 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 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 current stated amount of $400 million is repayable in July 2021. As at December 31, 2019,
it was undrawn. In 2019, Cominar entered into a 4-year agreement for a new secured credit facility maturing in September 2023. As at
December 31, 2019, $180.0 million was drawn on the secured credit facility.
Between July 2020 and May 2024, $1.325 billion of Senior Debentures will come to maturity, with $300.0 million aggregate principal
amount of Series 4 Senior Debentures due first in July 2020 and $100.0 million aggregate principal amount of Series 3 Senior Debentures
due in November 2020. Cominar is exposed to debt financing risks, including the risk that the existing hypothecary borrowings secured
by its properties, the unsecured revolving credit facility or the Senior Debentures cannot be refinanced or that the terms of such
refinancing will not be as favourable as the terms of the existing loans.
A downgrade of the credit rating assigned by DBRS to Cominar and to the unsecured debentures could materially adversely impact
Cominar. See "Risks and Uncertainties - Risk Factors Related to the Business of Cominar - 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.
104
The value of Immovable Property and improvements thereto may also depend on the solvency and financial stability of tenants, the
economic environment in which they operate and the increase in interest rates. Due to difficult conditions in the Canadian retail
environment, certain retailers have announced the closure of their stores, including Sears Canada Inc. and other retailers, who were or
are, as the case may be, tenants of Cominar. Other retailers may follow. Cominar has also been impacted by vacancies and by the
downward review of rents in the Montréal Area’s suburban office market (including Laval) and the Ottawa Area office market. 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 similar properties. The failure to rent unleased space on a timely basis or at all or at rents that are equivalent to or higher than
current rents would likely have an adverse effect on Cominar’s financial position and the value of its properties.
Certain significant expenditures, including property taxes, operating and maintenance costs, capital repairs and enhancements,
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. In order to retain desirable rentable space and to generate adequate
revenue over the long term, Cominar must maintain or, in some cases, improve each property's condition to meet market demand.
Maintaining a rental property in accordance with market standards can entail significant costs, which Cominar may not be able to
recover from its tenants. In addition, property tax reassessments based on updated appraised values may occur, which Cominar may
not be able to recover from its tenants. As a result, Cominar could have to bear the economic cost of such operating costs and/or taxes
which may adversely impact Cominar's financial condition and results from operations and decrease the amount of cash available for
distribution to Unitholders. Numerous factors, including the age of the relevant building, the materials used at the time of construction
or currently unknown building code violations could result in substantial unbudgeted costs for refurbishment or modernization. The
timing and amount of capital expenditures may indirectly affect the amount of cash available for distributions to Unitholders. In addition,
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 value of its properties.
Leases for Cominar’s properties, including those of significant tenants, will mature from time to time over the short and long term.
There can be no assurance that Cominar will be able to renew any or all of the leases upon maturity or that rental rate increases will
occur or be achieved upon any such renewals. The failure to renew leases or achieve rental rate increases may adversely impact
Cominar’s financial position and results of operations.
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 8
to 9 of the 2018 AIF.
Climate Change
Climate change has continued to attract the focus of governments, the scientific community and the general public as an important
threat, given the emission of greenhouse gases and other activities continue to negatively impact the planet. As a real estate property
owner and manager, Cominar faces the risk that its properties will be subject to government initiatives aimed at countering climate
change, such as reduction of greenhouse gas emissions, which could impose constraints on its operational flexibility. To the extent
any such initiative would require Cominar to ensure its tenants compliance and/or constrain their activities in any way, this could have
an undesirable effect on Cominar’s ability to successfully pursue its leasing strategy. Furthermore, Cominar’s properties may be exposed
to the impact of events caused by climate change, such as natural disasters and increasingly frequent and serious weather conditions.
Such events could interrupt Cominar’s operations and activities, damage its properties, diminish traffic and require Cominar to incur
important additional expenses. Cominar’s financial position and results from operations, as well as its ability to secure and maintain
lucrative leases, would be adversely affected by the materialization of any of the risks identified herein related to climate change.
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.
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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.
Property Development Program
Information regarding Cominar’s development projects, development costs, capitalization rates and expected returns are subject to
change, which may be material, as assumptions regarding items such as, but not limited to, tenant rents, building sizes, leasable areas,
project completion timelines and project costs, are updated periodically based on revised site plans, Cominar’s cost tendering process,
continuing tenant negotiations, demand for leasable space in Cominar’s markets, the obtaining of required building permits, ongoing
discussions with municipalities and successful property re-zonings. There can be no assurance that any assumptions in this regard
will materialize as expected and any changes in these assumptions could have a material adverse effect on Cominar’s development
program, asset values and financial performance.
The feasibility, timing and profitability of certain of Cominar’s intensification and densification opportunities may be affected by the
completion of certain mass transit initiatives such as the REM, the extension of the Metro, tramways and trambuses, and light rail
trains. There can be no assurance that any such initiatives will be completed or as to the timing thereof. Such intensification and
development initiatives may also be impacted by escalating construction costs and required zoning changes. There can be no assurance
that any such zoning changes can be obtained. Special taxes, levies and assessments may be incurred by Cominar in respect of such
developments.
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 "Risks 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 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
and deductibles, and will continue to carry such insurance if it is economical to do so. Should an uninsured or underinsured loss occur,
Cominar could lose its investment in, and anticipated profits and cash flows from, one or more of its properties, but Cominar would
continue to be obligated to repay any 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 operations and decrease the amount
of cash available for distribution.
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. Cominar's operations require it to use and store personally
identifiable and other sensitive information of its tenants and employees. The collection and use of personally identifiable information
is governed by Canadian federal and provincial laws and regulations. Privacy and information security laws continue to evolve and may
be inconsistent from one jurisdiction to another. The security measures put in place by Cominar in that regard cannot provide absolute
security, and Cominar’s information technology infrastructure may be vulnerable to cyberattacks, including without limitation, malicious
software, attempts to gain unauthorized access to data hereinabove mentioned, and other electronic security breaches that could lead
to disruptions in critical systems, corruptions of data and unauthorized release of confidential or otherwise protected information. 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 by Cominar’s operations. These
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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.
Cominar has developed an IT security risk management program based on the NIST framework and focuses across a broad spectrum
of preventative and protective measures. These measures include, but are not limited to, security awareness and training programs for
all employees, patch and technological debt management, identity and access control, regular security posture assessment performed
by specialized third parties and various monitoring activities. The overall strategic security plan focuses on identifying Cominar’s risk
profile and prioritizing the appropriate security measures and its threat management initiatives.
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 for Cominar to distribute to
Unitholders any fixed amount and reductions in, or suspensions of, distributions may occur that would reduce yield based on the market
price of the Units. In addition, the market price for the Units may be affected by changes in general market conditions, fluctuations in
the markets for equity securities, changes in the economic environment and numerous other factors beyond the control of Cominar.
Structural Subordination of Securities
In the event of a bankruptcy, liquidation or reorganization of Cominar or any of its subsidiaries, holders of certain of their indebtedness
and certain trade creditors will generally be entitled to payment of their claims from the assets of Cominar and those subsidiaries
before any assets are made available for distribution to the holders of securities. The securities will be effectively subordinated to most
of the other indebtedness and liabilities of Cominar and its subsidiaries. Neither Cominar nor any of its subsidiaries will be limited in
their ability to incur additional secured or unsecured 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. A $400 million Credit Facility was established in 2019 which matures in July 2021.
See "Risks and Uncertainties - Risk Factors Related to the Business of Cominar - Debt financing".
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 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
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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 Cominar’s obligation were to be made by a Unitholder, such
Unitholder would be entitled to reimbursement from the available assets of Cominar.
Article 1322 of the Civil Code of Québec effectively states that the beneficiary of a trust is liable towards third persons for the damage
caused by the fault of the Trustees of such trust in carrying out their duties only up to the amount of the benefit such beneficiary has
derived from the act of such Trustees and that such obligations are to be satisfied from the trust patrimony. Accordingly, although this
provision remains to be interpreted by the courts, it should provide additional protection to Unitholders with respect to such obligations.
The Trustees will cause the activities of Cominar to be conducted, with the advice of counsel, in such a way and in such jurisdictions
as to avoid, to the extent they determine to be practicable and consistent with their duty to act in the best interests of the Unitholders,
any material risk of liability on the Unitholders for claims against Cominar.
Dilution
The number of Units Cominar is authorized to issue is unlimited. The Trustees have the discretion to issue additional Units in other
circumstances. Additional Units may also be issued pursuant to the DRIP (which is currently suspended), 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 to Canadian non-resident withholding tax on 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. For details concerning the reduction in the monthly distribution occurred in fiscal 2017 and
concerning the reduction in the monthly distribution occurred in the first quarter of fiscal 2018 see, “PART 3 - General Development of
the Business - 3.3 Three Year History - Financing, Rating and Equity Activities”.
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 a 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 Unitholders and to deduct such distributions and designations for income
tax purposes. In the context of the sale of a significant part of its Investment Properties, Cominar could end up with a substantial
taxable profit that would require it to make a sizeable additional special distribution to avoid having to pay taxes itself.
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 SIFT entities as well as those individuals who invest in SIFTs. Under the SIFT
Rules, a SIFT is subject to tax in a manner similar to corporations on income from business carried on in Canada and on income (other
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than taxable dividends) or capital gains from “non-portfolio properties” (as defined in the Tax Act), at a combined federal/provincial
tax rate similar to that of a corporation.
The SIFT Rules apply unless (among other exceptions not applicable here) the trust qualifies as a “real estate investment trust” for the
year (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 the remainder of fiscal 2018 and any other subsequent year.
Risk Factors Related to the Ownership of Senior Debentures
Credit Ratings
The credit rating assigned by DBRS to Cominar and to the Senior 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.
Cominar’s rating has remained BB (high) with a stable trend since August 2017, as provided for in DBRS’ rating report dated October
24, 2018. Any further downgrade of the credit rating assigned by DBRS to Cominar and to the Senior Debentures could have a material
adverse effect on Cominar.
Trading Market for Senior Debentures
There is currently no trading market for Senior Debentures. 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 the liquidity of these securities, prevailing interest rates and the markets for similar securities, the market price of
the Units, general economic conditions and Cominar’s financial position, historic financial performance and future prospects.
Market Price or Value Fluctuation
If the Senior Debentures are traded after their initial issuance, they may trade at a discount from their initial public offering price. The
market price or value of the Senior Debentures depends on many factors, including liquidity of the Senior Debentures, prevailing interest
rates and the markets for similar securities, general economic conditions and Cominar’s financial condition, historic financial
performance and prospects. Assuming all other factors remain unchanged, the market price or value of the Senior Debentures, which
carry a fixed interest rate, will likely decline as prevailing interest rates for comparable debt instruments rise, and increase as prevailing
interest rates for comparable debt instruments decline.
Challenging market conditions, the health of the economy as a whole and numerous other factors beyond the control of Cominar may
have a material effect on the business, financial condition, liquidity and results of operations of Cominar. In recent years, financial
markets have experienced significant price and volume fluctuations that have particularly affected the market prices of securities of
issuers and that have often been unrelated to the operating performance, underlying asset values or prospects of such issuers. There
can be no assurance that such fluctuations in price and volume will not occur. Accordingly, the market price of the Senior Debentures
may decline even if Cominar’s operating results, underlying asset values or prospects have not changed. In periods of increased levels
of volatility and market turmoil, Cominar’s operations could be adversely impacted and the market price of the Senior Debentures may
be adversely affected.
Senior Debentures Redemption Right Risk
Cominar may choose to redeem the Senior Debentures prior to maturity, in whole or in part, at any time or from time to time, especially
when prevailing interest rates are lower than the rate borne by the Senior Debentures. If prevailing rates are lower at the time of
redemption, a purchaser may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as
high as the interest rate on the Senior Debentures being redeemed.
Inability of Cominar to Purchase Senior Debentures on a Change of Control
Cominar may be required to purchase all outstanding Senior Debentures upon the occurrence of a change of control. However, it is
possible that following a change of control, Cominar will not have sufficient funds at that time to make any required purchase of
outstanding Senior Debentures or that restrictions contained in other indebtedness will restrict those purchases.
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Consolidated
financial
statements
Cominar Real Estate Investment Trust
December 31, 2019
110
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 maintain
the necessary system of internal controls designed to ensure
that transactions are duly authorized, assets are safeguarded
and proper records are maintained.
As at December 31, 2019, 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 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 approval. Other key responsibilities of the Audit
Committee include reviewing our internal control procedures
and their updates, the identification and management of risks,
and advising the trustees on auditing matters and financial
reporting issues.
PricewaterhouseCoopers LLP, a partnership of independent
the
professional chartered accountants appointed by
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, 2019 and their report follows. The auditors
have full and unrestricted access to the Audit Committee to
discuss their audit and related findings.
SYLVAIN COSSETTE
President and Chief Executive Officer
HEATHER C. KIRK, B.Com., CFA
Executive Vice President
and Chief Financial Officer
Québec, March 3, 2020
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Independent auditor's report
To the Unitholders of Cominar Real Estate Investment Trust
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Cominar
Real Estate Investment Trust and its subsidiaries (together, the Trust) as at December 31, 2019 and 2018, and its financial performance and
its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (IFRS).
What we have audited
The Trust's consolidated financial statements comprise:
the consolidated balance sheets as at December 31, 2019 and 2018;
the consolidated statements of unitholders' equity for the years then ended;
the consolidated statements of comprehensive income for the years then ended;
the consolidated cash flow statements for the years then ended; and
the notes to consolidated financial statements, which include a summary of significant accounting policies.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are
further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Trust in accordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.
Other information
Management is responsible for the other information. The other information comprises the Management's Discussion and Analysis and the
information, other than the consolidated financial statements and our auditor's report thereon, included in the annual report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and,
in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the consolidated financial
statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and
for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free
from material misstatement, whether due to fraud or error.
PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l.
Place de la Cité, Tour Cominar, 2640 Laurier Boulevard, Suite 1700, Québec, Quebec, Canada G1V 5C2
T: +1 418 522 7001, F: +1 418 522 5663
“PwC” refers to PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., an Ontario limited liability partnership.
112
In preparing the consolidated financial statements, management is responsible for assessing the Trust's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Trust or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Trust's financial reporting process.
Auditor's responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an independent auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing
standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control;
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by management;
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Trust's ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's
report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or
conditions may cause the Trust to cease to continue as a going concern;
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair
presentation;
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Trust to
express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of
the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor's report is François Berthiaume.
Québec, Quebec
March 3, 2020
1 CPA auditor, CA, public accountancy permit No. A125971
113
December 31, 2019
December 31, 2018
Note
$
$
4
5
5
6
7
8
9
10
6, 10
11
12
13
22
22
6,412,739
41,471
100,507
6,554,717
11,730
97,456
15,721
37,930
22,232
152,634
6,892,420
2,114,021
—
1,320,962
180,000
126,543
93
—
3,741,619
3,150,801
6,892,420
6,058,191
34,293
93,750
6,186,234
188,727
92,468
15,721
41,162
17,901
1,498
6,543,711
1,742,104
123
1,722,586
152,950
103,347
142
6,763
3,728,015
2,815,696
6,543,711
Consolidated Balance Sheets
[in thousands of Canadian dollars]
As at
Assets
Investment properties
Income properties
Properties under development
Land held for future development
Investment properties held for sale
Investments in joint ventures
Goodwill
Accounts receivable
Prepaid expenses and other assets
Cash and cash equivalents
Total assets
Liabilities
Mortgages payable
Mortgages payable related to investment properties held for sale
Debentures
Bank borrowings
Accounts payable and accrued liabilities
Deferred tax liabilities
Current 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.
René Tremblay
Chairman of the Board of Trustees
Michel Théroux, FCPA, FCA
President of the Audit Committee
114
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
Total
$
Balance as at January 1, 2019
3,226,929
Net income and comprehensive income
Distributions to unitholders
Unit issuances
Long-term incentive plan
14
14
14
—
—
1,974
—
1,649,516
462,504
—
—
563
—
(131,068)
—
—
Balance as at December 31, 2019
3,228,903
2,112,583
(2,197,010)
—
—
(1,277)
2,409
6,325
462,504
(131,068)
697
2,972
3,150,801
(2,065,942)
5,193
2,815,696
Unitholders'
contributions
$
Cumulative
net income
$
Cumulative
distributions
$
Contributed
surplus
$
Note
Total
$
Balance as at January 1, 2018
3,265,995
1,861,029
(1,922,212)
3,949
3,208,761
Net income and comprehensive income
Distributions to unitholders
Unit issuances
Repurchase of units under NCIB
Long-term incentive plan
14
14
14
14
—
—
464
(39,530)
—
(212,282)
—
—
—
769
—
(143,730)
—
—
—
Balance as at December 31, 2018
3,226,929
1,649,516
(2,065,942)
—
—
(359)
—
1,603
5,193
(212,282)
(143,730)
105
(39,530)
2,372
2,815,696
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Comprehensive Income
For the years ended December 31
[in thousands of Canadian dollars, except per unit amounts]
115
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
Note
15
17
17
18
19
Change in fair value of investment properties
4, 5, 6
Share in joint ventures' net income
Transaction costs
Restructuring costs
Impairment of goodwill
Derecognition of goodwill
Net income (loss) before income taxes
Income taxes
Current
Deferred
Net income (loss) and comprehensive income
Net income (loss) per unit (basic and diluted)
See accompanying notes to the consolidated financial statements.
7
20
21
8
6
22
22
23
2019
$
2018
$
704,041
734,650
(160,611)
(169,652)
(15,456)
(345,719)
358,322
(151,051)
(17,254)
276,475
7,200
(6,463)
(4,774)
—
—
462,455
—
49
49
462,504
2.54
(169,630)
(176,958)
(15,598)
(362,186)
372,464
(152,237)
(23,255)
(267,098)
5,176
(22,847)
—
(120,389)
(3,872)
(212,058)
(6,763)
6,539
(224)
(212,282)
(1.17)
116
Consolidated Statements of Cash Flows
For the years ended December 31
[in thousands of Canadian dollars]
Operating activities
Net income (loss)
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
Derecognition of goodwill
Impairment of goodwill
Recognition of leases on a straight-line basis
Changes in non-cash working capital items
Cash flows provided by operating activities
Investing activities
Acquisitions and investments in income properties
Acquisitions and investments in properties under development and land held for
future development
Refund of costs related to properties under development and land held for future
development
Net proceeds from the sale of investment properties
Contributions to the capital of a joint venture
Change in other assets
Cash flows provided by investing activities
Financing activities
Cash distributions to unitholders
Bank borrowings
Mortgages payable
Net proceeds from issuance of debentures
Unit issuance net proceeds
Repurchase of units under NCIB
Repayment of debentures
Repayments of mortgages payable
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
Cash distributed by a joint venture
See accompanying notes to the consolidated financial statements.
Note
7
4, 5, 6
14
22
6
8
4, 6
24
4, 24
5, 24
3, 4, 6
7
14
10
11
14
14
11
10
10
7
2019
$
2018
$
462,504
(212,282)
(4,838)
(276,475)
4,830
2,972
(49)
—
—
(288)
3,212
191,868
(4,238)
267,098
3,066
2,372
(6,539)
3,872
120,389
(2,030)
11,231
182,939
(132,978)
(254,516)
(31,344)
—
260,606
(150)
(1,047)
95,087
(131,068)
27,050
662,773
197,143
697
—
(600,000)
(238,183)
(54,231)
(135,819)
151,136
1,498
152,634
148,823
2,362
(21,129)
7,800
1,037,594
(1,931)
(3,774)
764,044
(143,730)
(467,416)
134,947
—
105
(39,530)
—
(385,984)
(50,805)
(952,413)
(5,430)
6,928
1,498
157,850
938
117
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
[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, 2019, Cominar owned and
managed a real estate portfolio of 317 high-quality properties that covered a total area of 35.9 million square feet in the Province of
Quebec and in Ottawa.
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 City, 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 3, 2020.
2) Significant Accounting Policies
a) Basis of presentation
Cominar’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
("IFRS"), as issued by the International Accounting Standards Board ("IASB"). The accounting policies and application methods
thereof have been consistently applied throughout each of the fiscal years presented in these consolidated financial statements,
with the exception of IFRS 16 – “Leases,” which came into effect on January 1, 2019 and for which Cominar has recorded a right-
of-use asset in income properties and a corresponding lease liability in accounts payable and accrued liabilities as of that date.
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 management’s
internal measurements and valuations from independent real estate appraisers, performed in accordance with recognized
valuation techniques, as well as definitive agreements to sell investment properties. Techniques used include the direct
capitalized net operating income method that involves stabilized net operating income and overall capitalization rates, and
the discounted cash flow method that involves estimating expected future cash flows, as well as discount and terminal
capitalization rates.
Management’s fair value internal measurements rely on internal financial information and are corroborated by capitalization
rates obtained from independent experts. However, internal measurements and values obtained from independent appraisers
are both subject to significant judgments, estimates and assumptions about market conditions at the balance sheet date.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of a business combination is the value, at
the acquisition date, of the assets transferred, liabilities incurred and Unitholders’ equity instruments issued in exchange for
control of the acquired business. When the cost of a business combination exceeds the fair value of the assets acquired
and liabilities assumed, such excess is recorded as goodwill. Transaction-related costs, as well as costs related to the
acquisition of real estate assets, are expensed as incurred.
Cominar accounts for investment property acquisitions in accordance with IFRS 3 - "Business Combinations" ("IFRS 3"), only
when it considers that a business has been acquired. Under IFRS 3, a business is defined as an integrated set of activities
and assets that could be conducted and managed for the purpose of providing a direct return to investors in the form of
lower costs or other economic benefits. If the investment properties acquisition does not correspond to the definition of a
business, a group of assets is deemed to have been acquired. If goodwill is present, the acquisition is presumed to be a
118
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 acquisition of a group of assets.
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 acquisition of a group of assets.
Joint arrangements
Upon the creation of a joint arrangement, Cominar’s management reviews its classification criteria to determine if it is a joint
venture to be accounted for using the equity method or if it is a joint operation for which we must recognize the proportionate
share of assets, liabilities, revenues and expenses. Cominar holds 50% and 75% interests in its joint arrangements. It has
joint control over them since, under the contractual agreements, unanimous consent is required from all parties to the
agreements in decisions concerning all relevant activities. The joint arrangements in which Cominar is involved are structured
so that they provide Cominar rights to these entities’ net assets. Therefore, these arrangements are presented as joint ventures
and are accounted for using the equity method.
Impairment of goodwill
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the net identifiable assets
acquired. Its useful life is indefinite. It is not amortized but is tested for impairment on an annual basis or more frequently if
events or circumstances indicate that it is more likely than not that goodwill may be impaired. Goodwill resulting from business
combinations is allocated to each group of cash-generating units ("CGU") expected to benefit from the combination. To test
impairment, Cominar must determine the recoverable value of net assets of each group of CGU, making assumptions about
expected future net operating income as well as discount and terminal capitalization rates. These assumptions are based
on Cominar’s past experience as well as on external sources of information. The recoverable value is the higher of the fair
value less costs to sell and the value in use. 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-based compensation
The determination of the unit-based compensation expense resulting from Cominar's granting of deferred units and
performance units awards depends on valuation models, which by their nature are subject to measurement uncertainty.
Using different valuation methods, Cominar determined that the best estimate of the fair value for both deferred unit and
performance unit was equivalent to the market value of Cominar units on the date of the grant.
Income taxes
Deferred taxes of Cominar’s subsidiaries are measured at the tax rates expected to apply in the future as temporary differences
between the reported carrying amounts and the tax bases of the assets and liabilities reverse. Changes to deferred taxes
related to changes in tax rates are recognized in income in the period during which the rate change is substantively enacted.
Any changes in future tax rates or in the timing of the reversal of temporary differences could affect the income tax expense.
•
•
•
•
•
Investment properties
An investment property is an immovable property held by Cominar to earn rentals or for capital appreciation, or both, rather than
for use in the production or supply of goods and services or for administrative purposes, or for sale in the ordinary course of
business. Investment properties include income properties, properties under development and land held for future development.
Cominar presents its investment properties based on the fair value model. Fair value is the amount for which the property could
be exchanged between knowledgeable, willing parties in an arm’s length transaction. Any change in the fair value is recognized
in profit or loss in the period in which it arises. The fair value of investment properties should reflect market conditions at the end
of the reporting period. Fair value is time-specific as at a given date. As market conditions could change, the amount presented
as fair value could be incorrect or inadequate at another date. The fair value of investment properties is based on measurements
derived from management’s estimates and valuations from independent appraisers, plus capital expenditures made after the
valuation date and deemed to increase the rental income generating capacity of the property, or according to definitive agreements
to sell investment properties. Management regularly reviews appraisals of its investment properties between the appraisal dates
in order to determine whether the related assumptions, such as stabilized 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.
119
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.
Investment properties held for sale
Investment properties held for sale are classified as being held for sale if their carrying amount will be recovered mainly through
a sale transaction rather than through continuing use. Investment properties held for sale continue to be measured using the fair
value model.
Financial instruments
Cominar groups its financial instruments into classes according to the purpose for which they were acquired and to their
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 and accounts receivable are classified as "Financial assets at amortized cost." 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 "Financial
liabilities at amortized cost." 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.
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.
120
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.
Performance units
Cominar recognizes a compensation expense on performance units, 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 a 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.
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.
Unit options
Cominar recognizes a compensation expense on unit options 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.
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 (net loss) per unit is calculated based on the weighted average number of units outstanding for the period. The
calculation of net income (net loss) per unit on a diluted basis considers the potential issuance of units under the long-term
incentive plan, 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.
c) New accounting policy
On January 1, 2019, Cominar adopted the following standard:
IFRS 16, “Leases”
Following the adoption of this new accounting standard, Cominar has recorded a right-of-use asset of $9,757 in income properties
and a corresponding lease liability in accounts payable and accrued liabilities for emphyteutic leases on lands held for income-
producing properties using modified retrospective approach. The accounting standard IFRS 16 sets out the principles for the
recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (lessee) and the
supplier (lessor). IFRS 16 cancels and replaces the previous standard, IAS 17 - “Leases,” and related interpretations.
121
3) Acquisitions and Dispositions
Dispositions of Income Properties Held for Sale in 2019
Date
January 11, 2019
January 14, 2019
January 16, 2019
February 15, 2019
March 26, 2019
April 18, 2019
April 29, 2019
May 30, 2019
June 6, 2019
June 20, 2019
July 19, 2019
September 13, 2019
September 26, 2019
December 2, 2019
December 18, 2019
Property type
Number of properties Geographic market
Total selling price ($)
Office
Industrial and flex
Retail
Office and Retail
Industrial and flex
Office
Retail
Retail
Retail
Office and Retail
Industrial and flex
Retail
Office
Office
Office, retail and
industrial and flex
1
1
1
10
1
1
1
9
1
1
1
2
1
2
11
44
Montreal
Québec City
Montreal
Montreal
Montreal
Moncton, Nouveau-Brunswick
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Montreal
Québec City
Montreal and Québec City
4,100
1,200
1,841
41,250
26,000
8,020
750
28,000
850
76,324
14,000
2,900
3,425
17,700
31,696
258,056
These properties sold during fiscal 2019 have been subject to an overall increase in their carrying amount to their fair value of $5,004
in 2019. These properties had been subject to an overall decrease in their carrying amount to their fair value of $14,888 in 2018.
Dispositions of Income Properties in 2019
On June 14, 2019, Cominar completed the sale of an industrial and flex property located in Quebec City, for a total selling price of $1,825.
On December 12, 2019, Cominar completed the sale of a retail property located in Montreal, for a total selling price of $725.
These properties sold during fiscal 2019 have been subject to an overall increase in their carrying amount to their fair value of $20 in
2019. These properties had been subject to an overall decrease in their carrying amount to their fair value of $9 in 2018.
Transfer to Income Properties in 2019
At the end of the third quarter of 2019, Cominar transferred a property from properties under development to income properties. The
retail building was valued at $16,249 at the time of the transfer has a leasable area of 56,000 square feet and is located in Québec City.
Acquisitions in 2018
On June 20, 2018, Cominar completed the acquisition of the property of a shadow tenant located on the land of Les Rivières shopping
centre, in Trois-Rivières, for an amount of $3,500.
On September 24, 2018, Cominar acquired, for $36,000, the land and superficies rights (the equivalent of air rights in Quebec) related
to a property located in the Québec City area, in which Cominar had been leasing the superficies rights associated with its office building.
The other superficies rights are leased by the operator of a hotel that shares the site. This acquisition was the result of a purchase
option Cominar acquired as part of an earlier transaction.
Dispositions of Investment Properties Held for Sale in 2018
On March 27, 2018, Cominar completed the sale of 95 properties, comprised of 35 office properties, 23 retail properties and 37 industrial
and flex properties, located in the Greater Toronto Area, Western Canada and the Atlantic Provinces, for an amount of $1,140,000 before
the closing adjustments of $7,578 and $105,992 in mortgages payable that were assumed by the purchaser.
The following table summarizes this transaction:
Selling price
Closing adjustments
Mortgages payable assumed by the purchaser
Net proceeds
122
$
1,140,000
(7,578)
(105,992)
1,026,430
Following the transaction, the net proceeds of $1,026,430 were used to repay a $75,000 bridge loan, $321,623 in mortgages payable,
to reduce the bank borrowings by $549,700 and the balance was allocated to the Trust’s general needs.
On December 13, 2018, Cominar completed the sale of one office property located in the Montreal area, for a total selling price of
$8,150.
These properties sold during fiscal 2018 had been subject to an overall decrease in their carrying amount to their fair value of $5,490
in 2018.
Disposition of an Income Property in 2018
On August 31, 2018, Cominar completed the sale of one industrial and flex property located in Saguenay, for an amount of $2,850. This
property had been subject to a decrease in its carrying amount to its fair value of $1,032 in 2018.
4) Income Properties
Years ended December 31
Balance, beginning of year
Acquisitions and related costs
Change in fair value
Right-of-use assets
Capital costs
Dispositions
Transfers to investment properties held for sale
Transfers from properties under development and land held
for future development
Change in initial direct costs
Recognition of leases on a straight-line basis
Balance, end of year
Note
3
3
6
5
Change in Fair Value of Investment Properties
2019
$
6,058,191
538
278,580
9,409
120,284
(2,550)
(75,934)
14,932
8,974
315
6,412,739
2018
$
6,239,383
39,710
(242,307)
—
204,325
(3,014)
(191,241)
—
9,819
1,516
6,058,191
Cominar opted to present its investment properties in the consolidated financial statements according to the fair value model. Fair
value is determined based on valuations performed during the year using management’s internal estimates and by independent real
estate appraisers, plus capital expenditures made after the valuation and deemed to increase the rental income generating capacity
of the property, or according to definitive agreements to sell investment properties. External valuations were carried out by independent
national firms holding a recognized and relevant professional qualification and having recent experience in the location and category
of the investment properties being valued.
As per Cominar’s methodology on valuing investment properties, during fiscal 2019, management revalued the entire real estate portfolio
and determined that a net increase of $276,475 was necessary to change the carrying amount in fair value of investment properties
[decrease of $267,098 in 2018]. The change in fair value related to investment properties held as at the year-end date amounts to
$271,450 [$260,563 in 2018]. In 2019, the fair value of investment properties from external valuations or source represented 56% [19%
in 2018] of the total fair value of all investment properties.
Internally valued investment properties have been valued mainly using the direct capitalized net operating income method. Externally
valued investment properties have been valued either with the direct capitalized net operating income method or the discounted cash
flow method. Here is a description of these methods and the key assumptions used:
Direct capitalized net operating income method - Under this method, overall capitalization rates are applied to stabilized net operating
income in order to comply with current valuation standards. The stabilized net operating income represents adjusted net operating
123
income for items such as management expenses, occupancy rates, the recognition of leases on a straight-line basis and other non-
recurring items. The key factor is the overall 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 for recent transactions.
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 terminal
capitalization rates are estimated using available appraisals market comparables and market surveys.
To the extent that the capitalization rate ranges change from one reporting period to the next, or if another rate 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 the results.
Cominar has determined that an increase or decrease in 2019 of 0.1% in the applied capitalization rates for the entire real estate
portfolio, excluding for the investment properties held for sale, would result in a decrease or increase of approximately $111,462
[$101,100 in 2018] in the fair value of its investment properties.
Capitalization and discount rates used in both the internal and external valuations are consistent with each other.
Office properties
Direct capitalized net operating income method
Overall capitalization rate
Discounted cash flow method
Discount rate
Terminal capitalization rate
Retail properties
Direct capitalized net operating income method
Overall capitalization rate
Discounted cash flow method
Discount rate
Terminal capitalization rate
Industrial and flex properties
Direct capitalized net operating income method
Overall capitalization rate
Discounted cash flow method
Discount rate
Terminal capitalization rate
Total
Direct capitalized net operating income method
Overall capitalization rate
Discounted cash flow method
Discount rate
Terminal capitalization rate
2019
2018
Range
Weighted
average
Range
Weighted
average
4.7% - 7.5%
5.7%
4.8% - 8.5%
5.5% - 8.5%
5.0% - 7.8%
6.6%
6.0%
5.0% - 5.8%
5.5% - 7.3%
4.7% - 8.5%
6.3%
4.8% - 8.5%
5.5% - 8.8%
5.0% - 8.3%
7.0%
6.4%
5.0% - 7.5%
5.5% - 8.0%
4.8% - 8.0%
6.4%
4.8% - 8.0%
5.5% - 8.3%
5.0% - 7.5%
5.0% - 7.8%
5.5% - 8.3%
6.8%
6.1%
6.0%
6.8%
6.2%
6.0%
5.9%
5.2%
6.3%
6.6%
5.8%
6.5%
6.2%
5.7%
6.2%
6.2%
5.5%
In 2019, 63% of investment properties were valued using the discounted cash flow method and 37% were valued using the direct
capitalized net operating income method compared to 15% valued using the discounted cash flow method and 85% using the direct
capitalized net operating income method in 2018. Consequently, the weighted average overall capitalization rates, discount rates and
terminal capitalization rates may not be comparable year over year.
124
5) Properties Under Development and Land Held for Future
Development
Years ended December 31
Balance, beginning of year
Change in fair value
Capital costs
Disposition of a portion of land
Net transfers to Income Properties
Transfer to investment properties held for sale
Capitalized interests
Change in initial direct costs
Balance, end of year
Breakdown:
Properties under development
Land held for future development
Note
3, 4
6
2019
$
128,043
(1,301)
24,776
—
(14,932)
(1,855)
6,634
613
141,978
41,471
100,507
2018
$
129,272
(19,857)
15,382
(2,400)
—
—
5,546
100
128,043
34,293
93,750
6) Investment Properties Held for Sale
Cominar has engaged in a process to sell certain income properties and expects to close these transactions within the next few months.
During the quarter ended March 31, 2019, Cominar transferred 3 income properties having a value of $18,450 to investment properties
held for sale.
During the quarter ended June 30, 2019, Cominar transferred 4 income properties and 2 land held for future development having a
value of $24,203 to investment properties held for sale.
During the quarter ended September 30, 2019, Cominar transferred 12 income properties having a value of $40,121 to investment
properties held for sale.
During the quarter ended December 31, 2019, Cominar transferred 1 land held for future development having a value of $1,855 to
investment properties held for sale and transferred 2 investment properties held for sale having a value of $6,840 to land held for future
development.
During the period of twelve months ended December 31, 2019, Cominar sold 44 investment properties held for sale for a total selling
price of $258,056.
Years ended December 31
2019
Office
properties
Retail
properties
Industrial
and flex
properties
Note
$
$
$
Total
$
Investment properties held for sale and
goodwill
Balance, beginning of year
Transfers from income properties
Transfers from properties under development
and land held for future development
Capitalized costs 1
Change in fair value
Dispositions
Transfer of goodwill
Derecognition of goodwill
Balance, end of year
4
5
3
8
50,486
21,280
—
3,708
(1,033)
111,041
37,068
27,200
17,586
188,727
75,934
1,855
321
274
—
45
(45)
1,855
4,074
(804)
(74,441)
(138,829)
(44,786)
(258,056)
—
—
—
—
—
11,730
—
—
—
—
—
11,730
1 Includes $(27) ($514 in 2018) of recognition of leases on a straight-line basis.
2018
Total
$
1,143,500
191,241
—
7,070
(4,934)
(1,148,150)
3,872
(3,872)
188,727
Years ended December 31
2019
Office
properties
Retail
properties
Industrial
and flex
properties
Note
$
Mortgages payable related to investment
properties held for sale
Balance, beginning of year
Monthly repayments of principal
Repayments of balances
Mortgages payable assumed by the purchaser
10
Transfer of mortgages payable related to
investment properties held for sale
Balance, end of year
123
(123)
—
—
—
—
$
—
—
—
—
—
—
$
—
—
—
—
—
—
Total
$
123
(123)
—
—
—
—
125
2018
Total
$
276,350
(2,400)
(167,958)
(105,992)
123
123
7) Joint Ventures
As at December 31
Joint ventures
Address
City/province
Société en commandite Complexe Jules-Dallaire
2820 Laurier Boulevard
Québec, Quebec
Société en commandite Bouvier-Bertrand
Société en commandite Marais
Espace Bouvier
Du Marais Street
Québec, Quebec
Québec, Quebec
2019
Ownership
interest
75%
50%
75%
2018
Ownership
interest
75%
50%
75%
The business objective of these joint ventures is the ownership, management and development of real estate projects.The following
table summarizes the financial information on the investments in these joint ventures accounted for under the equity method:
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 and comprehensive income
Cash distributions by a joint venture
Investments in joint ventures, end of year
2019
$
92,468
150
7,200
(2,362)
97,456
2018
$
86,299
1,931
5,176
(938)
92,468
Contractual rights and obligations
The formation of each joint venture is recognized by limited partnership agreements and unanimous shareholder agreements of the
general partner, in which the rights and obligations of each limited partner or shareholder are provided for. Among these terms and
conditions, the important decisions with regard to joint ventures are taken unanimously by the limited partners for the limited
partnerships, and by the shareholders for the general partners. Capital contributions are made on a pro rata basis between the limited
partners. In addition, each limited partner has the right of first refusal, should the other limited partner transfer its participation in the
joint venture. In the event that one of the limited partners is subject to a change of control, or if its assets are sold, the other limited
partner has a purchase option for the participation at the fair market value. Recourse or purchase option mechanisms benefits each
limited partner in respect of the other limited partner if it is in default under the agreements or if it becomes insolvent.
The following tables summarize the joint ventures’ net assets and net income as well as Cominar’s proportionate share:
Joint ventures
Cominar's proportionate share
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 joint ventures
2019
$
243,680
11,800
10,181
1,716
(120,071)
(8,200)
(2,782)
136,324
2018
$
237,400
14,782
11,200
1,481
(123,762)
(8,000)
(2,412)
130,689
2019
$
171,573
5,900
7,631
1,164
(82,981)
(4,100)
(1,731)
97,456
2018
$
166,765
7,392
8,400
983
(85,534)
(4,000)
(1,538)
92,468
1 Société en commandite Bouvier-Bertrand has a $12,500 credit facility, which is secured by the joint venturers.
126
Years ended December 31
Operating revenues
Operating expenses
Net operating income
Finance charges
Administrative expenses
Change in fair value
Net income
8) Goodwill
Joint Ventures
Cominar's proportionate share
2019
$
24,735
(10,499)
14,236
(5,669)
(39)
58
8,586
2018
$
23,478
(9,811)
13,667
(5,633)
(97)
664
8,601
2019
$
17,194
(7,361)
9,833
(3,953)
(19)
1,339
7,200
2018
$
16,445
(6,952)
9,493
(3,968)
(50)
(299)
5,176
At year-end, Cominar tested its industrial and flex portfolio for impairment of goodwill by determining the recoverable value of the net
assets of that CGUs and comparing it to the carrying amount, including goodwill. As at December 31, 2019, the recoverable value of
this CGU was determined based on the value in use and calculated by discounting future net operating income expected to be generated
from continuing use. For fiscal years 2020 to 2030, net operating income projections are based on management’s budget projections
supported by past experience, assuming stable increase in net operating income. The discount and terminal capitalization rates are
estimated based on the segment weighted average overall capitalization rate. As at December 31, 2019, goodwill was not impaired
and was impaired by $120,389 as at December 31, 2018.
Goodwill is measured using Level 3 inputs of the fair value hierarchy, which means that the inputs used are not based on observable
market data.
Balance as at January 1, 2018
Transfer to investment properties held for sale
Impairment of goodwill
Balance as at December 31, 2018
Impairment of goodwill
Balance as at December 31, 2019
Note
7
Office
properties
Retail
properties
Industrial
and flex
properties
$
79,496
(1,725)
(77,771)
—
—
—
$
44,648
(2,030)
(42,618)
—
—
—
$
15,838
(117)
—
15,721
—
15,721
Total
$
139,982
(3,872)
(120,389)
15,721
—
15,721
The discount and terminal capitalization rates used to value the recoverable amount as at December 31, 2019 and December 31, 2018
of each group of CGUs are as follows:
As at December 31, 2019
Terminal capitalization rate
Discount rate
As at December 31, 2018
Terminal capitalization rate
Discount rate
Office
properties
Retail
properties
Industrial
and flex
properties
—%
—%
—%
—%
6.0%
6.6%
Office
properties
Retail
properties
Industrial
and flex
properties
6.2%
6.9%
6.2%
7.2%
6.5%
7.1%
9) Accounts Receivable
As at December 31
Trade receivables
Expected credit losses
Interest-bearing accounts receivable 1
Security deposits
Other receivables and accrued income
Total
1 Average effective interest rate
10) Mortgages Payable
127
2019
$
26,518
(6,482)
20,036
543
482
16,869
37,930
2018
$
25,408
(6,326)
19,082
872
486
20,722
41,162
7.12%
5.79%
Years ended December 31
2019
2018
Note
6
Balance, beginning of year
Mortgages payable contracted
Monthly repayments of principal
Repayments of balances
Mortgages payable assigned
Plus: Fair value adjustments on assumed mortgages
payable
Less: Deferred financing costs
Balance, end of year ¹
Weighted
average
contractual
rate
4.03%
3.72%
—%
4.82%
—%
3.84%
$
1,747,991
666,200
(54,231)
(238,183)
—
2,121,777
463
(8,219)
2,114,021
Weighted
average
contractual
rate
4.22%
4.02%
—%
4.66%
3.72%
4.03%
$
2,153,896
347,500
(50,805)
(596,608)
(105,992)
1,747,991
727
(6,491)
1,742,227
1 As at December 31, 2018, includes $123 in mortgages payable related to the properties held for sale at that date.
Contractual maturities of mortgages payable are as follows as at December 31, 2019:
Repayment
of principal
Balances at
maturity
For the years ending December 31
2020
2021
2022
2023
2024
2025 and thereafter
Total
$
51,680
46,186
44,607
42,611
41,111
101,756
327,951
$
80,974
307,862
184,248
104,292
255,750
860,700
1,793,826
2,121,777
Total
$
132,654
354,048
228,855
146,903
296,861
962,456
Mortgages payable are secured by immovable hypothecs on investment properties with a book value of $4,009,348 [$3,505,827 as at
December 31, 2018]. They bear annual contractual interest rates ranging from 3.00% to 6.61% as at December 31, 2019 [2.52% to 6.94%
as at December 31, 2018], representing a weighted average contractual rate of 3.84% as at December 31, 2019 [4.03% as at December
31, 2018], and mature at various dates from July 2020 to April 2034. As at December 31, 2019, the weighted average effective interest
rate was 3.95% [4.11% as at December 31, 2018].
As at December 31, 2019, nearly all mortgages payable were bearing interest at fixed rates. Some of the mortgages payable include
restrictive covenants, with which Cominar was in compliance as at both December 31, 2019 and December 31, 2018.
128
11) Debentures
Years ended December 31
Balance, beginning of year
Issuance
Repayment
Less: Deferred financing costs
Plus: Net premium and discount on issuance
Balance, end of year
2019
2018
Weighted
average
contractual
rate
4.23%
4.50%
3.93%
4.41%
$
1,725,000
200,000
(600,000)
1,325,000
(4,423)
385
1,320,962
Weighted
average
contractual
rate
4.23%
—%
—%
4.23%
$
1,725,000
—
—
1,725,000
(3,350)
936
1,722,586
On May 15, 2019, Cominar issued $200,000 in Series 11 senior unsecured debentures bearing interest at a rate of 4.5% and maturing
in May 2024.
On June 21, 2019, Cominar reimbursed at maturity its Series 7 senior unsecured debentures totaling $300,000 and bearing interest at
3.62% using available cash and its unsecured renewable operating and acquisition credit facility.
On September 26, 2019, Cominar early redeemed $300,000 in aggregate principal of 4.23% Series 2 senior unsecured debentures using
available cash and its unsecured renewable operating and acquisition credit facility. In addition to paying accrued interest of $3,964,
Cominar paid a yield maintenance fee of $1,008.
The following table presents characteristics of outstanding debentures as at December 31, 2019:
Date of issuance
Contractual
interest rate
Effective
interest rate
Maturity
date
Par value as at
December 31, 2019 ($)
Series 3
Series 4
Series 8
Series 9
Series 10
Series 11
May 2013
July 2013 1
December 2014
June 2015
May 2016
May 2019
4.00%
4.941%
4.25%
4.164%
4.247%
4.50%
4.41%
4.24%
4.81%
4.34%
4.25%
4.34%
4.82%
4.49%
November 2020
July 2020
December 2021
June 2022
May 2023
May 2024
1 Re-opened in January 2014 ($100,000) and March 2014 ($100,000).
100,000
300,000
200,000
300,000
225,000
200,000
1,325,000
The debentures, under the trust indenture, contain restrictive covenants, with which Cominar was in compliance as at December 31,
2019 and 2018.
12) Bank Borrowings
As at December 31, 2019, Cominar had an unsecured renewable credit facility of up to $400,000 maturing in July 2021. This credit
facility bears interest at the prime rate plus 110 basis points or at the bankers’ acceptance rate plus 210 basis points. This credit facility
contains certain restrictive covenants, with which Cominar was in compliance as at December 31, 2019. As at December 31, 2019, the
credit facility was undrawn and availability was $400,000.
On September 20, 2019, Cominar entered into a 4-year agreement for a new secured credit facility maturing in September 2023. This
new credit facility bears interest at the prime rate plus 70 basis points or at the bankers’ acceptance rate plus 170 basis points. As at
December 31, 2019, $180,000 was drawn on the credit facility. This credit facility is secured by immovable hypothecs on investment
properties with a book value of $298,755.
As at December 31, 2018, Cominar had an unsecured renewable operating and acquisition credit facility of up to $700,000 that matured
in August 2019. This credit facility bore interest at the prime rate plus 110 basis points or at the bankers’ acceptance rate plus 210 basis
points. This credit facility contained certain restrictive covenants, with which Cominar was in compliance as at December 31, 2018.
As at December 31, 2018, bank borrowings totalled $152,950 and availability was $547,050.
13) Accounts Payable and Accrued Liabilities
As at December 31
Trade accounts payable
Accrued interest payable
Prepaid rent and tenants’ deposits
Other accounts payable and accrued expenses
Commodity taxes and other non-financial liabilities
Total
129
2019
$
3,610
18,110
25,620
70,159
9,044
2018
$
3,064
18,061
25,494
47,753
8,975
126,543
103,347
14) 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.
Years ended December 31
2019
Units
$
2018
Units
$
Units issued and outstanding, beginning of year
181,956,349
3,226,929
184,629,497
3,265,995
Repurchase of units under NCIB
—
Exercise of options, conversion of restricted units and deferred units
155,016
—
1,974
(2,709,500)
36,352
(39,530)
464
Units issued and outstanding, end of year
182,111,365
3,228,903
181,956,349
3,226,929
During the fiscal year ended December 31, 2018, Cominar repurchased 2,709,500 units under its normal course issuer bid of a maximum
of 17,596,591 units expired on November 14 , 2018, at an average price of $14.58, for total consideration of $39,530, including transaction
costs.
Long Term Incentive Plan
Performance units
Performance 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 unit granted based on performance is multiplied by an adjustment factor according
to the total return for Cominar’s unitholders with respect to the total return of a reference group made up of entities comparable to
Cominar. Vesting periods are determined by the Board of Trustees on the date of the grant. These rights are usually vested after
three years from the grant date. For each cash distribution on Cominar units, an additional number of performance units is granted to
each participant. The fair value of performance units is represented by the market value of Cominar units on the date of the grant.
Years ended December 31
Outstanding, beginning of year
Granted
Forfeited
Accrued distributions
Outstanding, end of year
Vested units, end of year
2019
Units
164,425
174,972
(9,246)
19,615
349,766
—
2018
Units
—
158,614
(2,148)
7,959
164,425
—
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 vested 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 his or
her 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.
130
Years ended December 31
Outstanding, beginning of year
Granted
Converted
Forfeited
Accrued distributions
Outstanding, end of year
Vested units, end of year
2019
Units
315,435
107,555
(100,809)
(6,102)
18,036
334,115
197,781
2018
Units
175,748
145,432
(23,225)
(1,107)
18,587
315,435
123,504
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.
Years ended December 31
Outstanding, beginning of year
Granted
Converted
Forfeited
Accrued distributions
Outstanding, end of year
Vested units, end of year
2019
Units
2,946
—
(507)
(225)
97
2,311
1,039
2018
Units
5,026
1,135
(3,427)
—
212
2,946
225
Unit options
Cominar has granted unit options to management and employees under the long-term incentive plan. As at December 31, 2019, options
to purchase 5,235,900 units were outstanding.
The following table shows characteristics of outstanding options at year-end:
Date of grant
December 15, 2015
December 13, 2016
August 24, 2017
As at December 31, 2019
Graded vesting
method
33 1/3 %
33 1/3 %
33 1/3 %
Expiration date
December 15, 2022
December 13, 2023
August 24, 2024
Exercise
price $
Outstanding
options
Exercisable
options
14.15
14.90
13.46
1,505,300
1,769,400
1,961,200
5,235,900
1,505,300
1,769,400
1,438,100
4,712,800
As at December 31, 2019, the average weighted contractual life of outstanding options was 3.9 years.
The following table presents changes in the number of options for the years indicated:
Years ended December 31
2019
2018
Outstanding, beginning of year
Exercised
Granted
Forfeited or cancelled
Expired
Outstanding, end of year
Exercisable options, end of year
Weighted
average
exercise price
$
14.86
13.63
—
14.82
18.07
14.15
14.22
Options
8,689,400
(53,700)
—
(2,186,300)
(1,213,500)
5,235,900
4,712,800
Weighted
average
exercise price
$
15.28
14.15
—
14.93
17.76
14.86
15.19
Options
12,928,000
(9,700)
—
(2,430,400)
(1,798,500)
8,689,400
6,461,100
As at December 31, 2019, the maximum number of units that may be issued under the long-term incentive plan is 16,395,538 units.
131
Unit-based compensation
The compensation expense related to performance units and deferred units granted in January 2019 was calculated based on the
market price of Cominar units on the grant date, which was $11.20.
The compensation expense related to deferred units granted in November 2019 was calculated based on the market price of Cominar
units on the grant date, which was $13.39.
The compensation expense related to restricted units and deferred units granted in March 2018 was calculated based on the market
price of Cominar units on the grant date, which was $13.84.
The compensation expense related to performance units and deferred units granted in April 2018 was calculated based on the market
price of Cominar units on the grant date, which was $12.78.
The overall compensation expense for the fiscal year ended 2019 was $2,972 [$2,372 in 2018].
Distributions to Unitholders
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 fair value adjustments, transaction costs, rental revenue derived from the recognition of leases on a straight-line basis,
provision for leasing costs, gains on disposal of investment properties and certain other items not affecting cash, if applicable.
Years ended December 31
Distributions to unitholders
Distributions per unit
2019
$
131,068
0.72
2018
$
143,730
0.79
On March 7, 2018, Cominar decreased the monthly distribution from $0.095 per unit to $0.06 per unit, beginning with the distribution
of March 2018 paid in April 2018.
15) Operating Revenues
Revenues from other services are estimated based on operating costs billable to tenants.
Year ended December 31, 2019
Lease revenues
Parking revenues
Revenues from other services
Total
Year ended December 31, 2018
Lease revenues
Parking revenues
Revenues from other services
Total
Office
properties
Retail
properties
Industrial
and flex
properties
Total of
operating
revenues
$
242,515
21,411
21,794
285,720
$
237,180
470
21,274
258,924
$
152,306
31
7,060
159,397
$
632,001
21,912
50,128
704,041
Office
properties
Retail
properties
Industrial
and flex
properties
Total of
operating
revenues
$
258,741
20,070
25,187
303,998
$
250,511
441
21,848
272,800
$
149,772
17
8,063
157,852
$
659,024
20,528
55,098
734,650
16) Operating Lease Income
a)
The future minimum lease payments from tenants are as follows:
As at December 31, 2019
- Less than one year
- More than one year to five years
- More than five years
$
393,088
1,116,488
916,949
132
b)
Contingent rents included in revenues for the year are as follows:
Years ended December 31
Contingent rents
2019
$
6,090
2018
$
6,726
17) Operating Costs and Property Management Expenses
The following table presents the main components of operating costs and property management expenses based on their nature:
Years ended December 31
Repairs and maintenance
Energy
Salaries and other benefits
Other expenses
Total
18) Finance Charges
Years ended December 31
Interest on mortgages payable
Interest on 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
2019
$
63,739
55,399
33,285
23,644
2018
$
64,742
60,332
36,391
23,763
176,067
185,228
2019
$
80,840
70,669
3,995
(555)
4,150
(264)
(7,784)
2018
$
77,404
73,084
7,929
(520)
3,520
(1,440)
(7,740)
151,051
152,237
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 interest rate used in 2019 was 4.31% [4.05% in 2018].
Interest on debentures for the periods ended December 31, 2019 includes $1,008 associated to the yield maintenance fee paid for the Series
2 senior unsecured debentures redemption. Finance charges also include $87 of costs related to that transaction.
19) Trust Administrative Expenses
Years ended December 31
Salaries and other benefits
Compensation related to the long-term incentive plan
Professional fees
Public company costs
Governance and strategic alternatives consulting fees
Other expenses
Total
2019
$
11,259
2,972
879
801
—
1,343
17,254
2018
$
11,840
2,372
809
711
3,839
3,684
23,255
Salaries and other benefits for the years ended December 31, 2019 and December 31, 2018 include $1,043 and $735, respectively,
associated with the departure of executives.
20) Transaction Costs
Years ended December 31
Brokerage fees
Professional fees
Assumed head leases
Penalties on debt repayment
Closing adjustments
Other
Total
21) Restructuring Costs
133
2019
$
2,192
544
217
41
3,400
69
6,463
2018
$
5,790
2,912
4,201
945
8,244
755
22,847
During the quarter ended June 30, 2019, Cominar announced an organizational restructuring to streamline and enhance the
effectiveness of operations which the outcome, among others, has been the reduction of its workforce. During the quarter ended
June 30, 2019, Cominar recorded a provision of $3,916 related to this organizational restructuring, primarily related to severance
benefits. An additional provision of $858 has been recorded during the quarter ended September 30, 2019 to include the second phase
of the organizational restructuring. Up to December 31, 2019, $2,559 had been paid since the beginning of the restructuring.
22) 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, 2019 and 2018, Cominar believes that it met all of these conditions and
qualified as a REIT. As a result, the SIFT trust tax rules for 2019 and 2018 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 tax expense (income) 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 this difference:
Years ended December 31
Net income (loss) before income taxes
Canadian combined statutory tax rate
Tax income at the statutory tax rate
Loss (income) not subject to income tax
Other
Income taxes
2019
$
2018
$
462,455
(212,058)
27.08%
125,233
(125,254)
(28)
(49)
29.38%
(62,303)
59,417
3,110
224
Following the disposition of 95 non-core properties, income taxes of an incorporated subsidiary became due during the fiscal year
ended December 31, 2018.
134
Changes in the current income tax account are shown in the following table:
Years ended December 31
Balance, beginning of year
Deferred taxes that became payable
Taxes paid
Changes in current income taxes
Balance, end of year
2019
$
(6,763)
—
6,763
—
—
2018
$
—
(6,539)
—
(224)
(6,763)
Deferred taxes relating to incorporated subsidiaries are shown in the following table:
As at December 31, 2019
2019
2018
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
Investment properties
Deferred taxes (net)
Changes in the deferred income tax account were as follows:
Years ended December 31
Balance, beginning of year
Deferred tax income recorded in the consolidated statements of comprehensive income
Balance, end of year
$
—
—
—
(93)
(93)
2019
$
142
(49)
93
$
—
21
21
(163)
(142)
2018
$
6,681
(6,539)
142
Changes in deferred income tax assets and liabilities during the year, excluding the offsetting of balances within the same tax jurisdiction,
were as follows:
Mortgages
payable
$
Tax losses
$
Total
$
Deferred tax assets
Balance as at January 1, 2018
Origination and reversal of timing differences included in profit or loss
Balance as at December 31, 2018
Reversal of timing differences included in profit or loss
Balance as at December 31, 2019
7
(7)
—
—
—
353
(332)
21
(21)
—
Deferred tax liabilities
Balance as at January 1, 2018
Reversal of timing differences included in profit or loss
Balance as at December 31, 2018
Reversal of timing differences included in profit or loss
Balance as at December 31, 2019
360
(339)
21
(21)
—
Income
properties
$
(7,042)
6,879
(163)
70
(93)
23) Per Unit Calculation Basis
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
135
2019
Units
2018
Units
182,183,995
182,156,628
186,676
—
182,370,671
182,156,628
The calculation of the diluted weighted average number of units outstanding does not take into account the effect of the conversion
into units of 2,256,773 options and unvested performance units, deferred units and restricted units outstanding at the end of the year
ended December 31, 2019 [9,038,590 in 2018], due to the fact that their conversion or exercise price, including the unrecognized portion
of the related compensation expense, is higher than the average price of the units or due to the fact they are antidilutive.
24) Supplemental Cash Flow Information
Years ended December 31
Accounts receivable
Prepaid expenses
Accounts payable and accrued liabilities
Current tax liabilities
Changes in non-cash working capital items
Other information
Accounts payable and accrued liabilities relating to investing activities
Accounts receivable relating to investing activities
2019
$
3,232
(4,747)
11,490
(6,763)
3,212
14,895
4,014
2018
$
10,829
(453)
(5,908)
6,763
11,231
13,602
4,014
25) Key Management Personnel Compensation
Compensation of key management personnel is set out in the following table:
Years ended December 31
2019
2018
Short-term benefits
Contribution to the retirement savings plans
Long-term incentive plan
Severance allowances
Total
$
4,795
165
1,079
2,779
8,818
$
5,256
170
1,558
735
7,719
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 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.
26) 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.
136
Cominar’s capitalization is as follows:
As at December 31
Cash and cash equivalents
Mortgages payable
Debentures
Bank borrowings
Unitholders' equity
Total
Debt ratio 1
Interest coverage ratio 2
2019
$
(152,634)
2,114,021
1,320,962
180,000
3,150,801
6,613,150
2018
$
(1,498)
1,742,227
1,722,586
152,950
2,815,696
6,431,961
51.4%
2.36:1
55.3%
2.32:1
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 (excluding governance and strategic
alternatives consulting fees as well as the severance allowance paid to an executive officer) divided by finance charges (excluding finance charges related to mortgages repayments
before maturity and yield maintenance fees and costs paid in relation to the Series 2 senior unsecured debenture redemption).
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, 2019,
Cominar had maintained a debt ratio of 51.4% and was complying with the Contract of Trust.
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, 2019, the interest coverage ratio was 2.36:1, reflecting Cominar’s capacity to meet its debt-related obligations.
Capital management objectives remain unchanged from the previous period.
27) 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 were no transfers made between hierarchy levels during the fiscal years 2019 and 2018.
The fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, distributions payable to
unitholders 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:
Recurring valuations of non-financial assets
Income properties
Investment properties held for sale
Land held for future development
Financial liabilities
Mortgages payable
Debentures
As at December 31, 2019
As at December 31, 2018
Carrying
amount
$
Fair
value
$
Carrying
amount
$
Fair
value
$
Level
3
3
3
2
2
6,412,739
6,412,739
6,058,191
6,058,191
11,730
100,507
11,730
100,507
188,727
93,750
188,727
93,750
2,114,021
1,320,962
2,164,680
1,368,398
1,742,227
1,722,586
1,764,084
1,703,866
137
28) 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 property type and geographic portfolio diversification, staggered lease maturities, and diversification
of revenue sources through a varied tenant mix as well as by avoiding dependence on any single tenant by ensuring that no individual
tenant contributes a significant portion of operating revenues and by conducting credit assessments on all new tenants.
Cominar has a broad, highly diversified client base consisting of about 3,700 clients occupying an average of approximately 9,200
square feet each. The top three clients, Société québécoise des infrastructures, Public Works Canada and Canadian National Railway
Company, account respectively for approximately 5.8%, 4.1% and 3.4% 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 14.1% of
operating revenues come from government agencies, representing approximately 100 leases.
Cominar regularly assesses its accounts receivable and records an expected credit loss for 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 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.
Accounts receivable, except for the receivables bearing interest, and accounts payable and accrued liabilities do not bear interest.
Almost all mortgages payable and all debentures bear interest at fixed rates.
Cominar is exposed to interest rate fluctuations mainly due to bank borrowings, which bear interest at variable rates.
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 affected Cominar’s net income by more or less $320 for the year ended December 31, 2019
[$547 in 2018].
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, 2019 are as follows:
Mortgages payable
Debentures
Bank borrowings
Accounts payable and accrued liabilities 1
Lease liability
1 Excludes consumption taxes and other non-financial liabilities
Under
one year
$
222,452
458,371
7
107,786
578
Cash flows
One to five
years
$
1,292,149
1,007,627
200
—
2,440
Over
five years
$
1,080,025
—
—
—
17,288
Note
10
11
12
13
138
29) Segmented Information
Cominar’s activities include a diversified portfolio of three property types located in the Province of Quebec and in Ottawa, Ontario.
The accounting policies followed for each property type are the same as those disclosed in the significant accounting policies set out
in note 2. 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 column reconciles 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.
Industrial
and flex
properties
Cominar's
proportionate
share
Joint
ventures
Consolidated
financial
statements
Years ended
December 31, 2019
Office
Properties
Retail
Properties
$
$
Rental revenue from investment properties
301,414
260,424
Change in fair value of investment properties
47,797
(130,598)
Net operating income
145,609
129,007
Share of joint ventures’ net income
December 31, 2018
—
$
—
$
$
159,397
360,615
93,539
—
$
Rental revenue from investment properties
319,010
274,232
157,853
Change in fair value of investment properties
(82,791)
(264,991)
Net operating income
Share of joint ventures’ net income
152,017
138,471
—
—
80,385
91,469
—
$
721,235
277,814
368,155
—
$
751,095
(267,397)
381,957
—
$
(17,194)
(1,339)
(9,833)
7,200
$
(16,445)
299
(9,493)
5,176
$
704,041
276,475
358,322
7,200
$
734,650
(267,098)
372,464
5,176
As at December 31, 2019
Income properties
Investment properties held for sale
Investments in joint ventures
As at December 31, 2018
Income properties
Office
Properties
Retail
Properties
Industrial
and flex
properties
Cominar's
proportionate
share
Joint
ventures
Consolidated
financial
statements
$
$
$
$
$
$
2,547,654
2,237,849
1,798,809
6,584,312
(171,573)
6,412,739
—
—
$
11,730
—
$
—
—
$
11,730
—
$
—
97,456
$
11,730
97,456
$
2,452,567
2,340,041
1,432,348
6,224,956
(166,765)
6,058,191
Investment properties held for sale
50,486
111,041
27,200
188,727
—
Investments in joint ventures
—
—
—
—
92,468
188,727
92,468
30) Subsequent Events
On January 6, 2020, Cominar repaid $2,204 in mortgages payable before maturity using available cash.
On January 7, 2020, Cominar repaid $3,004 in mortgages payable before maturity using available cash.
On January 8, 2020, Cominar repaid $80,205 in mortgages payable before maturity using available cash.
On January 16 and February 19, 2020, Cominar declared a monthly distribution of $0.06 per unit for each of these months.
On January 21, 2020, Cominar completed the sale of two retail properties held for sale located in the Montreal area for a total amount
of $850.
On January 23, 2020, Cominar completed the sale of an investment property held for sale (retail land) located in the Québec city area
for a total amount of $1,855.
On March 3, 2020, Cominar contracted a new mortgage of $83,360 with a 5.5 years term and bearing interest at 2.86%.
On March 3, 2020, Cominar refinanced a mortgage having a balance of $5,352, maturing in November 2024 and bearing interest at
3.90% with a new mortgage of $20,000 maturing in March 2027 and bearing interest at 3.48%.
139
Corporate Information
Board of Trustees
René Tremblay 5
Corporate Director
Luc Bachand 1,4
Corporate Director
Christine Beaubien 1,2
Corporate Director
Paul Campbell 2,4
Corporate Director
Mitchell Cohen 3,4
Corporate Director
Zachary R. George 3,4
Co-Founder, Portfolio Manager
FrontFour Capital Group
Johanne M. Lépine 2,3
Corporate Director
Michel Théroux, FCPA, FCA 1,3
Corporate Director
Sylvain Cossette
President and Chief Executive Officer
Cominar Real Estate Investment Trust
1 Member of the Audit Committee
2 Member of the Human Ressources Committee
3 Member of the Nomination and Governance Committee
4 Member of the Investment Committee
5 Systematically attends all committee meeting
Key Officers
Sylvain Cossette
President and Chief Executive Officer
Heather C. Kirk, B. Com., CFA
Executive Vice President and
Chief Financial Officer
Marie-Andrée Boutin, MBA
Executive Vice President,
Retail and Development
Bernard Poliquin
Executive Vice President, Office and Industrial
and Chief Real Estate Operations Officer
Wally Commisso
Executive Vice President,
Operations and Property Management
Jean Laramée, Eng.
Executive Vice President, Development
Michael Racine
Executive Vice President,
Leasing - Office and Industrial
140
Unitholders Information
Cominar Real Estate
Investment Trust
Complexe Jules-Dallaire - T3
2820 Laurier Boulevard, Suite 850
Québec City (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 Boulevard, Suite 700
Montreal (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 2019, 10.65% of the distributions made by Cominar to
unitholders were returns of capital, reducing the adjusted cost
base of the units.
Legal Counsel
Davies Ward Phillips & Vineberg LLP
Auditors
PricewaterhouseCoopers LLP
Annual Meeting of Unitholders
May 13, 2020
Hotel Plaza Québec
3031 Laurier boulevard
Québec City (Quebec)
Unitholders Distribution Reinvestment Plan
Cominar Real Estate Investment Trust offers unitholders the
opportunity to participate in its Unitholders Distribution
Reinvestment Plan (the "DRIP"). The DRIP allows participants
to receive their monthly distributions as additional units of
Cominar. In addition, participants will be entitled to receive an
additional distribution equal to 3% of each cash distribution
reinvested pursuant to the DRIP, which will be reinvested in
additional units.
On August 3, 2017, Cominar suspended the distribution
reinvestment plan, starting with the distribution of August
2017, which was payable in September 2017. If Cominar
decides to resume the plan in the future, the unitholders who
were registered in the plan at the time of its suspension and
who are still registered at the time of its resumption shall
automatically resume their participation in the plan.
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.