Reliable. Durable. Growing.
2019 ANNUAL REPORT
Key strategic
achievements
6x
Distribution increased 6 times
in 6 years
6.5%
Adjusted Funds from Operations
(AFFO)/unit growth 5-year CAGR
5.8%
Net Asset Value (NAV)/unit
growth 5 year CAGR
BBB+ & BBB
(high)
Investment grade credit ratings
75%
Reduced AFFO Payout Ratio
to 75%
43%
Reduced debt to gross
book value to 43%
8+ million sq.ft.
Gross Leaseable Area (GLA)
added to portfolio since IPO
Growing distributions
and conservatively
managing payout ratio
90%
85%
80%
75%
70%
65%
88%
2.0%
82%
2.6%
79%
3.0%
4.0%
4.0%
76%
76%
75%
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
$0.78
$0.76
$0.74
$0.72
$0.70
$0.68
$0.66
$0.64
$0.62
$0.60
$0.58
Payout Percentage
Annual Distribution
FRONT COVER: Canadian Tire’s Bolton Distribution Centre (DC) in Caledon, Ontario. CT REIT acquired the 1.4 million
square foot DC from Canadian Tire Corporation in 2016. It was awarded a LEED Gold certification by the Canada Green
Building Council for exceptional sustainability efforts in 2018 and is one of the first buildings of this size to be recognized
with such an achievement.
BACK COVER: Leslie and Lakeshore, Toronto, Ontario. CT REIT acquired this Canadian Tire anchored property at the
time of its initial public offering in 2013. Since then, CT REIT has continually invested in the tenant mix in order to maximize
the value of this asset, most recently through the development of new Farm Boy and LCBO locations at the property.
Management's Discussion and Analysis
CT REIT
Fourth Quarter and Full Year 2019
TABLE OF CONTENTS
Forward-looking Disclaimer
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
2.0
3.0
4.0
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
5.0
5.1
5.2
6.0
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
Preface
Basis of Presentation
Definitions
Accounting Estimates and Assumptions
Quarterly and Annual Comparisons in this MD&A
Key Operating Performance Measures and Additional Non-GAAP Measures
Review and Approval by the Board of Trustees
Nature and Formation
Growth Strategy and Objectives
Summary of Selected Financial and Operational Information
Overview of the Property Portfolio
Property Profile
Revenue by Region
Six Largest Urban Markets
Fair Value of Property Portfolio
2019 Investment Activities
Development Activities
Investment and Development Funding
Lease Maturities
Top 10 Tenants Excluding CTC Related Tenancies
Leasing Activities
Recoverable Capital Costs
Results of Operations
Financial Results for the Three Months and Year Ended December 31, 2019
Non-GAAP Measures
Liquidity and Financial Condition
Liquidity
Discussion of Cash Flows
Credit Ratings
Debt and Capital Structure
Interest Coverage Ratio
Indebtedness Ratio
Class C LP Units
Debentures
Mortgages Payable
3
4
4
4
4
4
5
5
5
6
7
8
8
10
10
11
13
14
16
16
18
18
18
19
19
23
25
25
26
26
27
29
29
30
31
32
CT REIT 2019 ANNUAL REPORT 1
TABLE OF CONTENTS (continued)
6.10
6.11
6.12
6.13
Credit Facilities
Capital Strategy
Commitments and Contingencies
Base Shelf Prospectus
7.0
Equity
7.1
7.2
7.3
7.4
8.0
9.0
9.1
9.2
9.3
Authorized Capital and Outstanding Units
Equity
Distributions
Book Value Per Unit
Related Party Transactions
Accounting Policies and Estimates
Significant Areas of Estimation
Standards, Amendments and Interpretations Issued and Adopted
Standards, Amendments and Interpretations Issued but Not Yet Adopted
10.0
Non-GAAP Measures
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Net Operating Income
Funds From Operations and Adjusted Funds From Operations
AFFO Payout Ratio
Diluted Non-GAAP per Unit Calculations
Adjusted Cash Flow From Operations
Earnings Before Interest and Other Financing Costs, Taxes and Fair Value Adjustments
Non-GAAP Measures Referenced in Other Sections of the MD&A
Selected Quarterly Consolidated Information
11.0
Enterprise Risk Management
12.0
Internal Controls and Procedures
12.1
12.2
12.3
Disclosure Controls and Procedures
Internal Control Over Financial Reporting
Changes in Internal Control Over Financial Reporting
13.0
Forward-looking Information
32
33
33
34
34
34
36
36
38
38
40
40
40
42
43
43
45
48
48
48
49
50
50
50
55
55
56
56
56
2 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
Forward-looking Disclaimer
This Management’s Discussion and Analysis (“MD&A”) contains statements that are forward-looking. Actual results or events may
differ materially from those forecasted in this disclosure because of the risks and uncertainties associated with the business of
CT Real Estate Investment Trust® and its subsidiaries, (referred to herein as “CT REIT”, “Trust” or “REIT”, unless the context requires
otherwise), and the general economic environment. CT REIT cannot provide any assurance that any forecasted financial or
operational performance will actually be achieved or, if achieved, that it will result in an increase in the price of CT REIT’s Units.
See section 13.0 in this MD&A for a more detailed discussion of the REIT’s use of forward-looking statements.
CT REIT 2019 ANNUAL REPORT 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
1.0 Preface
1.1 Basis of Presentation
The following MD&A is intended to provide readers with an assessment of the performance of CT REIT® for the year ended
December 31, 2019 (also referred to as “2019”) and should be read in conjunction with the REIT’s audited consolidated financial
statements (“consolidated financial statements”) and accompanying notes for 2019 which have been prepared in accordance with
International Financial Reporting Standards (“IFRS”). In addition, the following MD&A should be read in conjunction with CT
REIT’s forward-looking information found in section 13.0 of this MD&A. Information about CT REIT, including the Annual Information
Form (“AIF”) and all other continuous disclosure documents required by the Canadian securities regulators, can be found on the
System for Electronic Document Analysis and Retrieval (“SEDAR”) website at www.sedar.com and on CT REIT’s website at
www.ctreit.com under the tab Investors in the Financial Reporting section.
1.2 Definitions
In this document, the terms “CT REIT”, “REIT” and “Trust” refer to CT Real Estate Investment Trust® and its subsidiaries unless
the context requires otherwise. In addition, “Company”, “CTC” and “Corporation” refer to Canadian Tire Corporation, Limited, entities
that it controls and their collective businesses unless the context requires otherwise.
This document contains certain trade-marks and trade names of CTC and is the property of CTC. Solely for convenience, the
trade-marks and trade names referred to herein may appear without the ® or ™ symbol.
Any term not defined in this MD&A can be found in the Glossary of Terms in the 2019 Annual Report filed on SEDAR at
www.sedar.com and on CT REIT's website at www.ctreit.com under the tab Investors in the Financial Reporting section.
1.3 Accounting Estimates and Assumptions
The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgments and
estimates that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period. Refer to section 9.0 in this MD&A for further information.
Financial data included in this MD&A includes material information as of February 10, 2020. Disclosure contained in this document
is current to that date, unless otherwise indicated.
1.4 Quarterly and Annual Comparisons in this MD&A
Unless otherwise indicated, all comparisons of results for Q4 2019 (three months ended December 31, 2019) are against results
for Q4 2018 (three months ended December 31, 2018) and comparisons of results for the year ended 2019 are against results for
the year ended 2018.
All amounts in this MD&A are in thousands of Canadian dollars, except per unit, unit, square foot amounts or unless otherwise
indicated. Rounded numbers are used in this MD&A and, as such, totals may not add up to 100 percent.
4 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
1.5 Key Operating Performance Measures and Additional Non-GAAP Measures
The key operating performance measures used by management may not be comparable to similar measures presented by other
real estate investment trusts or enterprises. Net income prepared in accordance with IFRS is also subject to varying degrees of
judgment, and some meaningful differences in accounting policies exist between publicly traded entities in Canada. Accordingly,
net income as presented by CT REIT may not be comparable to net income presented by other real estate investment trusts or
enterprises.
Net operating income (“NOI”), same store NOI, same property NOI, funds from operations (“FFO”), FFO per unit - basic, FFO
per unit - diluted, adjusted funds from operations (“AFFO”), AFFO per unit - basic, AFFO per unit - diluted, AFFO payout ratio,
adjusted cashflow from operations (“ACFO”) and earnings before interest and other financing costs, taxes and fair value adjustments
(“EBITFV”) are measures used by management to track and assess CT REIT’s performance in meeting its principle objective of
creating Unitholder (as defined below) value (collectively referred to as “non-GAAP measures”). These non-GAAP measures are
not defined by IFRS, also referred to as generally accepted accounting principles (“GAAP”), and therefore should not be construed
as alternatives to net income or cash flow from operating activities calculated in accordance with IFRS.
For further information on the non-GAAP measures used by management and for reconciliations to the nearest GAAP measures.
Refer to section 10.0 of this MD&A.
1.6 Review and Approval by the Board of Trustees
The Board of Trustees (the “Board”), on the recommendation of its Audit Committee, approved this MD&A for issuance on
February 10, 2020.
1.7 Nature and Formation
CT REIT is an unincorporated, closed-end real estate investment trust established on July 15, 2013 pursuant to a declaration of
trust under, and governed by, the laws of the Province of Ontario as amended and restated as at October 22, 2013 (the “Declaration
of Trust”). CT REIT commenced operations on October 23, 2013. The principal, registered and head office of CT REIT is located
at 2180 Yonge Street, Toronto, Ontario M4P 2V8. CTC owned a 69.4% effective interest in CT REIT as of December 31, 2019,
consisting of 33,989,508 of the issued and outstanding units of CT REIT (“Units”) and all of the issued and outstanding Class B
limited partnership units (“Class B LP Units”) of CT REIT Limited Partnership (the “Partnership”), which are economically equivalent
to and exchangeable for Units. The holders of Units and Class B LP Units are collectively referred to as “Unitholders”. CTC also
owns all of the Class C limited partnership units (“Class C LP Units”) of the Partnership. The Units are listed on the Toronto Stock
Exchange (“TSX”) under the symbol CRT.UN.
CT REIT has one segment for financial reporting purposes which comprises the ownership and operation of primarily retail
investment properties located across Canada.
CT REIT 2019 ANNUAL REPORT 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
2.0 GROWTH STRATEGY AND OBJECTIVES
The following section contains forward-looking information and readers are cautioned that actual results may vary.
The principal objective of CT REIT is to create Unitholder value over the long-term by generating reliable, durable and growing
monthly distributions on a tax-efficient basis. To achieve this objective, management is focused on expanding the REIT’s asset
base while also increasing its AFFO1 per unit.
Future growth is expected to continue to be achieved from a number of sources including:
1.
The portfolio of Canadian Tire store leases generally contains contractual rent escalations of approximately 1.5% per
year, on average, over the initial term of the leases and have a weighted average remaining lease term of 9.8 years;
2. CT REIT has contractual arrangements with CTC whereby CT REIT has a right of first offer (“ROFO”)2 on all CTC
properties which meet the REIT’s investment criteria and preferential rights, subject to certain exceptions, to participate
in the development of, and to acquire, certain new retail properties; and
3. CT REIT will continue to seek to use its relationship with CTC to obtain insights into potential real estate acquisitions
and development opportunities in markets across Canada.
1 Non-GAAP measure. Refer to section 10.0 for further information.
2 The ROFO Agreement shall continue in effect until the later of October 2023 and such time as CTC ceases to hold a majority of the voting units, being the Units and Special
Voting Units (as defined in section 7.0).
6 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
3.0 SUMMARY OF SELECTED FINANCIAL AND OPERATIONAL INFORMATION
Readers are reminded that certain key performance measures may not have standardized meanings under GAAP. For further
information on the REIT’s operating measures and non-GAAP measures, refer to sections 1.0 and 10.0.
(in thousands of Canadian dollars, except unit, per unit and square footage amounts)
Year Ended
For the periods ended December 31,
2019
2018
2017
Property revenue
EBITFV 1
Net operating income 1
Net income
Net income per unit - basic 2
Net income per unit - diluted 3
Funds from operations 1
FFO per unit - diluted (non-GAAP) 1,2,4
Adjusted funds from operations 1
AFFO per unit - diluted (non-GAAP) 1,2,4
Distributions per unit - paid 2
AFFO payout ratio 1
Excess of AFFO 1 over distributions:
Cash retained from operations before distribution reinvestment 5
Per unit - diluted (non-GAAP) 2,4,5
Cash generated from operating activities
Adjusted cashflow from operations 1
Weighted average number of units outstanding 2
Basic
Diluted 3
Diluted (non-GAAP) 1,4
Period-end units outstanding 2
Total assets
Total indebtedness
Book value per unit 2
Market price per Unit - Close (end of period)
OTHER DATA
Weighted average interest rate 6
Indebtedness ratio
Interest coverage (times)
Weighted average term to debt maturity (in years) 6
Gross leasable area (square feet) 7
Occupancy rate 7,8
1 Non-GAAP measure. Refer to section 10.0 for further information.
2 Total units means Units and Class B LP Units outstanding.
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
489,013
370,693
368,795
307,193
1.380
1.193
261,861
1.175
224,300
1.007
0.757
75.2%
55,982
0.251
362,328
228,366
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
472,483
350,637
349,283
300,906
1.401
1.098
246,032
1.144
205,173
0.954
0.728
76.3%
48,845
0.227
331,722
206,056
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
443,303
334,160
326,018
317,277
1.501
1.232
237,617
1.124
194,371
0.919
0.700
76.2%
46,795
0.221
317,154
195,723
222,559,681
214,805,646
211,310,245
314,615,032
336,142,459
313,338,770
222,791,571
215,040,074
211,456,486
228,216,876
220,249,239
213,738,161
6,024,512
2,572,294
14.61
16.14
$
$
$
$
5,708,692
2,573,489
14.01
11.53
$
$
$
$
5,455,398
2,544,972
13.39
14.50
4.08%
42.7%
3.40
8.0
4.08%
45.1%
3.35
9.0
4.08%
46.7%
3.46
10.0
27,556,341
26,537,359
25,849,773
99.1%
98.7%
98.6%
3 Diluted units determined in accordance with IFRS includes restricted and deferred units issued under various plans and the effect of assuming that all of the
Class C LP Units will be settled with Class B LP Units. Refer to section 7.0.
4 Diluted units used in calculating non-GAAP measures include restricted and deferred units issued under various plans and exclude the effect of assuming that all
of the Class C LP Units will be settled with Class B LP Units. Refer to section 7.0.
5 Refer to section 7.0 for further information.
6 Excludes the Credit Facilities. Refer to section 6.10 for definition.
7 Refers to retail, mixed-use commercial and industrial properties and excludes Properties Under Development. Refer to the Glossary of Terms in the 2019 Annual Report for
definition.
8 Occupancy and other leasing key performance measures have been prepared on a committed basis which includes the impact of existing lease agreements contracted
on or before December 31, 2019, December 31, 2018 and December 31, 2017.
CT REIT 2019 ANNUAL REPORT 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
4.0 OVERVIEW OF THE PROPERTY PORTFOLIO
4.1 Property Profile
The property portfolio as at December 31, 2019 consists of 348 retail properties, four industrial properties, one mixed-use
commercial property and four Development Properties (collectively, the “Properties”). The Properties are located in each of the
provinces and in two territories across Canada. The retail properties, industrial properties and mixed-use commercial property
contain approximately 27.6 million square feet of gross leasable area (“GLA”).
CT REIT’s consolidated financial position, results of operations and property portfolio metrics include the REIT’s one-third interest
in Canada Square, a mixed use commercial property in Toronto, Ontario (“Toronto (Canada Square), Ontario”). CTC is CT REIT’s
most significant tenant. At December 31, 2019, CTC represented 92.5% of total GLA (December 31, 2018 - 93.2%) and 91.7%
of annualized base minimum rent (December 31, 2018 - 92.7%).
CT REIT's property portfolio's occupancy, excluding Properties Under Development, is as follows:
(in square feet)
Property Type
Retail
Canadian Tire stores
Other CTC Banners 1
Third party retail tenants
Industrial properties
Mixed-use property
Total
As at December 31, 2019
GLA
Occupied
GLA Occupancy rate 2
21,094,518
21,094,518
567,301
1,699,265
3,914,871
280,386
567,301
1,558,838
3,812,248
264,895
27,556,341
27,297,800
100.0%
100.0%
91.7 %
97.4 %
94.5%
99.1%
1 May include Mark’s and L’Équipeur, SportChek, Sports Experts, Atmosphere, and Canadian Tire Bank (referred to herein as “Other CTC Banners”).
2 Occupancy and other leasing key performance measures have been prepared on a committed basis which includes the impact of existing lease agreements contracted on
or before December 31, 2019.
(in square feet)
Property Type
Retail
Canadian Tire stores
Other CTC Banners 1
Third party retail tenants
Industrial properties
Mixed-use property
Total
1 May include Other CTC Banners.
As at December 31, 2018
GLA
Occupied
GLA
Occupancy rate 2
20,359,163
20,359,163
548,317
1,434,622
3,914,871
280,386
548,317
1,308,013
3,713,456
273,044
26,537,359
26,201,993
100.0%
100.0%
91.2 %
94.9%
97.4 %
98.7%
2 Occupancy and other leasing key performance measures have been prepared on a committed basis which includes the impact of existing lease agreements contracted on
or before December 31, 2018.
8 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
The REIT's property portfolio consists of:
As at
Canadian Tire single tenant properties
Other single tenant properties
Multi-tenant properties anchored by Canadian Tire store
Multi-tenant properties not anchored by Canadian Tire store
Industrial properties
Mixed-use property
Total operating properties
Development Properties
Total properties
As at
Gas bars at retail properties
December 31, 2019
December 31, 2018
257
25
60
6
4
1
353
4
357
255
13
52
6
4
1
331
11
342
December 31, 2019
December 31, 2018
109
106
CT REIT’s Properties by region, as a percentage of total GLA, as at December 31, 2019 are as follows:
Properties by Region ¹ ²
(% of Total GLA)
Atlantic Canada
8.5%
Western Canada
26.4%
Ontario
41.9%
Quebec
23.2%
1 Excluding Properties Under Development.
2 Occupancy and other leasing key performance measures have been prepared on a committed basis which includes the impact of existing lease agreements
contracted on or before December 31, 2019.
CT REIT 2019 ANNUAL REPORT 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
4.2 Revenue by Region
CT REIT’s Properties by region, as a percentage of annualized base minimum rent, as at December 31, 2019 are as follows:
Properties by Region ¹ ²
(% of Annualized Base Minimum Rent)
Atlantic Canada
7.4%
Western Canada
28.0%
Ontario
44.5%
Quebec
20.1%
1 Excluding Properties Under Development.
2 Occupancy and other leasing key performance measures have been prepared on a committed basis which includes the impact of existing lease agreements
contracted on or before December 31, 2019.
4.3 Six Largest Urban Markets
A significant portion of CT REIT’s Properties are located in the following six largest urban markets:
As at
Vancouver
Edmonton
Calgary
Toronto
Ottawa
Montreal
Percentage of Annualized Base Minimum Rent 1, 2
1 Excluding Properties Under Development.
December 31, 2019
December 31, 2018
3.2%
4.2%
2.6%
21.0 %
4.0%
11.3 %
46.3%
3.3%
4.0%
2.4%
21.7 %
4.2%
11.6 %
47.2 %
2 Occupancy and other leasing key performance measures have been prepared on a committed basis which includes the impact of existing lease agreements contracted on
or before December 31, 2019.
10 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
4.4 Fair Value of Property Portfolio
The fair value of the Properties represents 99.7% of the total assets of CT REIT as at December 31, 2019.
Year Ended
December 31, 2019
Year Ended
December 31, 2018
Income-
producing
properties
Properties
Under
Development
Total
investment
properties
Income-
producing
properties
Properties
Under
Development
Total
investment
properties
$
5,568,961 $
127,233 $
5,696,194 $
5,337,515 $
99,082 $
5,436,597
(in thousands of Canadian dollars)
Balance, beginning of period, as
previously reported
Transition adjustment - right-of-use assets 1
66,589
—
66,589
—
—
—
Restated balance, beginning of period
5,635,550
127,233
5,762,783
5,337,515
99,082
5,436,597
Property acquisitions (including transaction
costs)
75,669
Intensifications
Developments
Development land
Capitalized interest and property taxes
Transfers
Right-of-use assets 2
Fair value adjustment on investment
properties
Straight-line rent
Recoverable capital expenditures
Dispositions
—
—
—
—
144,783
(2,343)
47,306
14,130
20,549
(2,780)
—
39,448
48,222
1,918
2,080
(144,783)
—
—
—
—
—
75,669
39,448
48,222
1,918
2,080
—
89,429
—
—
—
—
—
18,625
47,079
12,642
2,752
52,947
(52,947)
(2,343)
—
47,306
14,130
20,549
(2,780)
53,628
18,404
17,699
(661)
—
—
—
—
—
89,429
18,625
47,079
12,642
2,752
—
—
53,628
18,404
17,699
(661)
Balance, end of period 3
$
5,932,864 $
74,118 $
6,006,982 $
5,568,961 $
127,233 $
5,696,194
1 Refer to section 9.2 for further information.
2 Reflects impact of ground lease amendments.
3 Includes purchased lands for $12,946 (December 31, 2018 - $13,911) held for development.
Included in CT REIT's portfolio are 10 properties which are situated on ground leases with remaining initial terms up to 36 years,
and an average remaining initial term of 14 years. Assuming all extensions are exercised, the ground leases have remaining terms
between 4 and 51 years with an average remaining lease term of up to 31 years.
As at December 31, 2019, management’s determination of fair value was updated for current market assumptions, informed by
market capitalization rates provided by independent appraisal professionals. On a periodic basis, CT REIT obtains independent
appraisals such that approximately 80% of its properties, by value, will be externally appraised over a four-year period.
Valuations determined by the overall capitalization rate (“OCR”) method are most sensitive to changes in capitalization rates.
Valuations determined by the discounted cash flow (“DCF”) method are most sensitive to changes in discount rates.
CT REIT 2019 ANNUAL REPORT 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
The significant inputs used to determine the fair value of CT REIT’s income-producing properties are as follows:
Number of properties
Value at December 31, 2019
Discount rate1
Terminal capitalization rate1
Overall capitalization rate1
Hold period (years)
Properties valued by
the OCR method
Properties valued by
the DCF method
287
70
$
4,240,942
$
1,766,040
—%
—%
6.17%
—
7.01 %
6.56%
—%
10
1 Weighted average rate based on the fair value as at the period end date
The following table summarizes the sensitivity of the fair value of income-producing properties to changes in the capitalization
rate and discount rate, respectively:
Rate sensitivity
+ 75 basis points
+ 50 basis points
+ 25 basis points
December 31, 2019
- 25 basis points
- 50 basis points
- 75 basis points
OCR Sensitivity
Change in fair
value
Fair value
DCF Sensitivity
Change in fair
value
Fair value
$
$
$
3,795,258 $
(445,684) $
1,585,694 $
3,932,504
4,080,638
(308,438)
(160,304)
1,640,800
1,699,732
4,240,942 $
— $
1,766,040 $
4,415,156
4,605,102
174,214
364,160
1,830,296
1,903,008
4,813,073 $
572,131 $
1,982,280 $
(180,346)
(125,240)
(66,308)
—
64,256
136,968
216,240
12 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
4.5 2019 Investment Activities
The following table presents income-producing properties acquired, intensified, developed, or redeveloped during the year ended
December 31, 2019.
(in thousands of Canadian dollars, except for GLA amounts)
Transaction date
GLA
Total
investment cost
Property Location
Canmore, AB 1
Toronto (Leslie Lakeshore), ON 2
Calgary, AB 3
Mount Forest, ON 4
Grand Falls-Windsor, NL 4
Grande Prairie, AB 4
Bradford, ON 2, 5
Huntsville, ON 2
Sherwood Park, AB 4
Minden, ON 1
Matane, QC 1
Brampton Bramalea, ON 2
Hamilton Rymal, ON 2, 5
Innisfil, ON 2, 5
BMO Portfolio 1
Thetford Mines, QC 1
North Battleford, SK 1
Welland, ON 6
Atholville, NB 2
Antigonish, NS 3
Val-d’Or 2
Pad developments 7
Total
1 Acquisition of income-producing properties.
2 Intensification of an existing income-producing property.
3 Redevelopment property.
4 Development property.
5 Land lease.
6 Acquisition of land.
7 Relates to third party pad development projects.
February 2019
February 2019
February 2019
March 2019
March 2019
March 2019
March 2019/June 2019
May 2019
May 2019
June 2019
June 2019
July 2019
September 2019
September 2019
October 2019
November 2019
November 2019
November 2019
December 2019
December 2019
December 2019
Various
49,927
20,038
47,000
33,609
71,677
150,774
5,317
9,710
122,065
28,833
53,297
5,507
—
—
82,119
57,636
38,233
—
20,616
191,562
25,917
11,950
1,025,787 $
209,464
In Q4 2019, CT REIT completed a sale-leaseback transaction to acquire a national portfolio consisting of 11 Bank of Montreal
retail bank branches. The REIT also completed the acquisition of existing Canadian Tire stores in North Battleford, Saskatchewan
and Thetford Mines, Quebec, the redevelopment of a multi-tenant property anchored by an existing Canadian Tire store in
Antigonish, Nova Scotia, the intensifications of two Canadian Tire stores in Atholville, New Brunswick and Val d'Or, Quebec and
the disposition of a free standing CIBC bank branch in Calgary, Alberta.
In Q3 2019, CT REIT completed the intensification of a Canadian Tire store in Brampton, Ontario, the development of Canadian
Tire Gas+ gas bar in Innisfil, Ontario and the development of Canadian Tire Gas+ gas bar and car wash in Hamilton, Ontario.
In Q2 2019, CT REIT completed the intensification of an existing Canadian Tire store in Huntsville, Ontario and the development
of a single tenant Canadian Tire store located in Sherwood Park, Alberta. The REIT also completed the acquisition of two properties,
from CTC, located in Minden, Ontario and Matane, Quebec both with a Canadian Tire store and a Canadian Tire Gas+ gas bar
and the intensification of three existing properties for third party pad developments.
CT REIT 2019 ANNUAL REPORT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
In Q1 2019, CT REIT completed the acquisition of a single tenant property with a Canadian Tire store located in Canmore, Alberta
from a third party. The REIT also completed the development of a third party grocery store in Toronto (Leslie Lakeshore), Ontario
and the redevelopment of a previously acquired redundant Canadian Tire store for a third party grocery store in Calgary, Alberta.
In addition, CT REIT completed the development of three single tenant Canadian Tire stores located in Mount Forest, Ontario,
Grand Falls-Windsor, Newfoundland and Labrador, and Grande Prairie, Alberta and the intensification of a Canadian Tire Gas+
gas bar and carwash in Bradford, Ontario.
Toronto (Canada Square), Ontario
In Q2 2019, CT REIT and its co-owners entered into a conditional Consolidated, Amended and Restated Ground Lease with the
Toronto Transit Commission that provides the terms upon which the co-owners can proceed with planning for the redevelopment
of the Toronto (Canada Square), Ontario property. The ground lease will provide for an extension of the term and a renewal option
and will incorporate an additional two acres of land once the conditions have been satisfied and will bring the total land area to
approximately nine acres. A conditional lease agreement was also entered into with CTC for a new head office building to anchor
Phase I of the redevelopment.
Subsequent to year end, CT REIT and one of the co-owners of the Toronto (Canada Square), Ontario property increased their
respective ownership interests in the property from a 33% interest to a 50% interest. The REIT will recognize an increase in its
proportionate share of the assets, liabilities, revenues and expenses of the co-ownership in its financial statements. The transaction
closed on January 9, 2020.
The following section contains forward-looking information and readers are cautioned that actual results may vary.
4.6 Development Activities
The following table provides details of the REIT's development activities as at December 31, 2019. The total building area represents
the maximum anticipated area of the developments. The “Not committed to lease” column includes areas which may be under
construction but not committed to lease. The “Committed additional investment” column represents the approximate financial
commitment required to complete the “Committed to lease” areas and related site works.
14 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
Gross leasable area
(in square feet)
Total investment
(in thousands of Canadian dollars)
Anticipated date
of completion
Committed
to lease
Not
committed
to lease
Incurred
to-date 10
Committed
additional
investment 10
Total
Total
10,000
29,000
13,000
320,000
225,000
23,000
—
—
—
34,000
11,000
—
Property 1
Bradford, ON 2
Kincardine, ON 2
Rouyn-Noranda, QC 2
Q1 2020
Q2 2020
Q2 2020
Orillia, ON - Phase 1/Phase 2 3
Q2 2020/Q4 2021
Niagara Falls, ON 3
Yarmouth, NS 4
Fort St. John, BC - Phase 1 5
Buckingham, QC 2
Pad developments 6
Midland, ON 2
Brampton Trinity Commons, ON 2
La Plaine, QC 2
Sept-Iles, QC 2
Mission, BC 2
Brampton McLaughlin, ON 2
Welland, ON 4
Fenelon Falls, ON 2
Dryden, ON 2
Calgary, AB 7
Toronto (Canada Square), ON 8,9
TOTAL
Q2 2020
Q2 2020
Q4 2020
Q4 2020
2020/2021
Q2 2021
Q2 2021
Q4 2021
Q4 2021
Q4 2021
Q4 2021
Q4 2021
Q2 2022
Q4 2022
TBD
TBD
10,000
29,000
13,000
286,000
214,000
23,000
144,000
20,000
10,000
41,000
16,000
21,000
18,000
7,000
28,000
79,000
26,000
43,000
TBD
TBD
7,000
151,000
—
5,000
—
—
—
—
—
—
—
—
—
TBD
TBD
20,000
15,000
41,000
16,000
21,000
18,000
7,000
28,000
79,000
26,000
43,000
TBD
TBD
1,028,000
57,000
1,085,000 $ 74,118 $
145,667 $ 219,785
1 Properties Under Development under 5,000 square feet that are not anticipated to be completed within the next 12 months have not been included.
2 Intensification of an existing income-producing property.
3 Redevelopment property.
4 Acquired development land for the intensification of an existing income-producing property.
5 Development property.
6 Relates to third party pad development projects that are estimated to be completed in the next 12 months.
7 Development land. Potential building area and investment costs to be determined (“TBD”).
8 Redevelopment property. Potential building area and investment costs to be determined (“TBD”).
9 Land lease.
10 Includes amounts related to projects in early stages of development.
CT REIT 2019 ANNUAL REPORT 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at December 31, 2019, CT REIT had committed lease agreements for 1,028,000 square feet, representing 94.7% of total GLA
under development, of which 79.4% has been leased to CTC. A total of $74,118 has been expended to date on such developments,
and CT REIT anticipates investing an additional $145,667 to complete the developments of which $132,607 is due to CTC. These
commitments exclude the development activities at the Calgary, Alberta and Toronto (Canada Square), Ontario Properties.
4.7 Investment and Development Funding
Funding of investment and development activities for the three months and year ended December 31, 2019 was as follows:
Q4 2019 Investment and Development Activity
(in thousands of Canadian dollars)
Funded with working capital to CTC
Funded with working capital to third parties 1
Capitalized interest and property taxes
Issuance of Class B LP Units to CTC
Total costs
$
$
Property
investments
Development
land Developments Intensifications
4,200 $
1,900 $
— $
15,285 $
23,404
—
10,545
18
—
—
1,691
371
—
6,277
—
—
38,149 $
1,918 $
2,062 $
21,562 $
Total
21,385
31,390
371
10,545
63,691
1 Includes $3,025 for the construction of Other CTC Banner stores.
2019 Investment and Development Activity
Total
81,503
59,139
2,080
13,285
11,330
(in thousands of Canadian dollars)
Property
investments
Development
land Developments Intensifications
Funded with working capital to CTC
$
15,945 $
1,900 $
41,276 $
22,382 $
Funded with working capital to third parties 1
Capitalized interest and property taxes
Issuance of Class B LP Units to CTC
Mortgages payable
Total costs
35,109
—
13,285
11,330
18
—
—
—
6,946
2,080
—
—
17,066
—
—
—
$
75,669 $
1,918 $
50,302 $
39,448 $
167,337
1 Includes $10,735 for the construction of Other CTC Banner stores.
Funding of investment and development activities for the year ended December 31, 2018 was as follows:
2018 Investment and Development Activity
Property
investments
Development
land
Developments
Intensifications
7,258 $
8,546 $
30,155 $
68,181
—
13,990
4,096
—
—
16,860
2,752
64
8,890 $
9,735
—
—
Total
54,849
98,872
2,752
14,054
89,429 $
12,642 $
49,831 $
18,625 $
170,527
Funded with working capital to CTC
Funded with working capital to third parties 1
Capitalized interest and property taxes
Issuance of Class B LP Units to CTC
Total costs
$
$
1Includes $4,784 for the construction of Other CTC Banner stores.
4.8 Lease Maturities
CTC is CT REIT's most significant tenant. As at December 31, 2019, CTC, including Canadian Tire stores and Other CTC Banners,
had leased 25.5 million square feet of GLA, with approximately 85.6% and 14.4% of the GLA attributable to retail and office, and
industrial properties, respectively. The weighted average term of the retail leases with CTC, including Canadian Tire stores and
Other CTC Banners, was 9.7 years, excluding the exercise of any renewal options. The weighted average term of the Canadian
16 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
Tire store leases was 9.8 years, with a weighted average rental rate of $13.78 per square foot. The weighted average lease term
for the CTC industrial properties was 13.8 years. The weighted average lease term of all leases in the REIT's portfolio, excluding
Properties Under Development, was 9.7 years.
The following graph presents the lease maturity profile from 2020 to 2039 (assuming tenants do not exercise renewal options or
termination rights, if any) as a percentage of annualized base minimum rent and GLA as of the time of the lease expiry.
Initial Term Lease Expiry by % of Annualized Minimum Rent and GLA(1)(2)(3)(4)
Annualized Base Minimum Rent
Square Feet (millions)
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
13.6%
10.1%
9.4%
7.9%
6.9%
8.2%
7.8%
7.1%
5.5%
5.3%
6.0%
4.8%
2.0%
2.6%
0.7% 0.8%
0.9%
0.0% 0.0% 0.2%
’20
’21
’22
’23
’24
’25
’26
’27
’28
’29
’30
’31
’32
’33
’34
’35
’36
’37
’38
’39
Annualized Base Minimum Rent
Canadian Tire Retail GLA
Distribution Centre GLA
Other GLA
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1 Excludes Properties Under Development.
2 Total base minimum rent excludes future contractual escalations.
3 Toronto (Canada Square), Ontario is included at the REIT's one-third interest. Refer to section 4.5 for further information.
4 Occupancy and other leasing key performance measures have been prepared on a committed basis which includes the impact of existing lease agreements contracted on
or before December 31, 2019.
CT REIT 2019 ANNUAL REPORT 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
4.9 Top 10 Tenants Excluding CTC Related Tenancies
CT REIT’s 10 largest tenants, excluding all CTC related tenancies, as represented by the percentage of total annualized base
minimum rent, are:
Rank Tenant Name
1
2
3
4
5
6
7
8
9
Save-On-Foods/Buy-Low Foods
Loblaws/Shoppers Drug Mart/No Frills
Bank of Montreal
Canadian Imperial Bank of Commerce
Sobeys/FreshCo/Farm Boy
Winners/Marshalls
Metro
Dollarama
Best Buy
10
GoodLife Fitness
Percentage of total
annualized base
minimum rent 1
0.72%
0.54%
0.52%
0.45%
0.44%
0.43%
0.26%
0.24%
0.23%
0.21%
4.04%
1 Occupancy and other leasing key performance measures have been prepared on a committed basis which includes the impact of existing lease agreements contracted on
or before December 31, 2019.
4.10 Leasing Activities
The future financial performance of CT REIT will be impacted by occupancy rates, trends in rental rates achieved on leasing or
renewing currently leased space, and contractual increases in rent. As at December 31, 2019, the REIT's occupancy rate was
99.1% (Q4 2018 - 98.7%), excluding Properties Under Development. Refer to section 4.1 for further details.
4.11 Recoverable Capital Costs
Many of the capital costs incurred by CT REIT are recoverable from tenants pursuant to the terms of their leases. These recoveries
typically occur either in the year in which such expenditures are incurred or, in the case of a major item of replacement or betterment,
on a straight-line basis over the expected useful life thereof together with an imputed rate of interest on the unrecovered balance
at any point in time. Capital expenditures of $4,728 and $20,549 (Q4 2018 - $5,778 and YTD 2018 - $17,699) were incurred during
the three months and year ended December 31, 2019, respectively. Most of the REIT’s recoverable capital expenditures relate
to parking lots, roofs and heating, ventilation and air conditioning. These capital expenditures are typically seasonal in nature and
as a result, the actual recoverable capital costs may vary widely from period to period.
18 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
5.0 RESULTS OF OPERATIONS
5.1 Financial Results for the Three Months and Year Ended December 31, 2019
CT REIT's financial results for the three months and year ended December 31, 2019 and December 31, 2018 are summarized
below:
(in thousands of Canadian dollars, except per unit
amounts)
Three Months Ended
Year Ended
For the periods ended December 31,
2019
2018
Change
2019
2018
Change
Property revenue
Property expense
$
123,692 $
119,322
3.7 % $
489,013 $
472,483
(26,763)
(26,804)
(0.2)%
(106,088)
(108,636)
General and administrative expense
(3,647)
(3,453)
Net interest and other financing charges
(27,033)
(26,086)
5.6 %
3.6 %
(14,285)
(12,189)
(108,753)
(104,380)
3.5 %
(2.3)%
17.2 %
4.2 %
Fair value adjustment on investment properties
10,641
11,522
(7.6 )%
47,306
53,628
(11.8 )%
Net income and comprehensive income
Net income per unit - basic
Net income per unit - diluted
$
$
$
76,890 $
74,501
3.2 % $
307,193 $
300,906
0.338 $
0.294 $
0.343
0.271
(1.5 )% $
1.380 $
8.5 % $
1.193 $
1.401
1.098
2.1 %
(1.5 )%
8.7 %
Property Revenue
Property revenue includes all amounts earned from tenants pursuant to lease agreements including property taxes, operating
costs and other recoveries. Many of CT REIT’s expenses are recoverable from tenants pursuant to their leases, with the REIT
absorbing these expenses to the extent that vacancies exist.
Total revenue was $123,692 which was $4,370 (3.7%) higher compared to the same period in the prior year primarily due to
contractual rent escalations, and additional base rent related to properties acquired and intensifications completed during 2019
and 2018. Total revenue for the three months ended December 31, 2019 also included expense recoveries in the amount of $25,288
(Q4 2018 - $24,923).
Total revenue was $489,013 which was $16,530 (3.5%) higher compared to the same period in the prior year primarily due to
contractual rent escalations, and additional base rent related to properties acquired and intensification completed during 2019
and 2018. In addition, the REIT assigned all of its interest in and to its claim against Sears Canada Inc. under the Companies
Creditors Arrangement Act (“the Assigned Claim”) to a third party. The proceeds received from the assignment are non-recurring
and are included in property revenue. Total revenue for the year ended December 31, 2019 included expense recoveries in the
amount of $100,378 (2018 - $99,900).
The total amount of base rent to be received from operating leases is recognized on a straight-line basis over the term of the
lease. For the three months ended December 31, 2019, straight-line rent of $3,485 (Q4 2018 - $4,535) was included in total
property revenue. For the year ended December 31, 2019, straight-line rent of $14,130 (2018 - $18,404) was included in total
property revenue.
CT REIT 2019 ANNUAL REPORT 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
Property Expense
The components of property expense consist primarily of property taxes, operating costs, property management costs (including
the outsourcing of property management services), ground rent and other recoveries. Refer to section 9.2 of this MD&A for further
details on changes in ground rent expense. The majority of property expenses are recoverable from tenants, with CT REIT absorbing
these expenses to the extent that vacancies exist.
Property expenses for the three months ended December 31, 2019 decreased by $41 (0.2%) compared to the same period in
the prior year primarily due to reduced ground rent expense of $975 as a result of the adoption of the new lease accounting
standard - IFRS 16 partially offset by operating expenses related to property acquisitions completed during 2019 and 2018.
Property expenses for the year ended December 31, 2019 decreased by $2,548 (2.3%) compared to the same period in the prior
year primarily due to reduced ground rent expense of $3,902 as a result of the adoption of the new lease accounting standard -
IFRS 16, partially offset by operating expenses related to property acquisitions completed during 2019 and 2018.
General and Administrative Expense
CT REIT has a number of broad categories of general and administrative expenses: (i) personnel; (ii) public entity and other costs,
including external audit fees, trustee compensation expense, legal and professional fees, travel, income tax expense (recovery)
related to CT REIT GP Corp.'s (“GP”) activities; and (iii) outsourced costs, which may fluctuate depending on when such costs
are incurred. The personnel, public entity and other costs reflect the expenses related to ongoing operations of CT REIT. The
outsourced costs are largely related to certain administrative, financial, information technology, internal audit and other support
services provided by CTC to the REIT pursuant to the Services Agreement, as further described in section 8.0 of this MD&A.
(in thousands of Canadian dollars)
Three Months Ended
Year Ended
For the periods ended December 31,
2019
2018
Change
2019
2018
Change
Personnel expense 1
Services Agreement with CTC
Public entity and other 1
$
$
2,524
$
2,177
15.9 % $
7,953
$
543
702
893
383
(39.2)%
83.3 %
2,500
4,156
6,233
3,345
2,611
3,769
$
3,453
9.2 % $
14,609
$
12,189
Less: allocated to property operating costs
General and administrative expense
As a percent of property revenue
Adjusted general and administrative expense
as a percent of property revenue 2
(122)
3,647
2.9%
2.4%
—
3,453
2.9%
3.5%
— %
5.6 %
(324)
14,285
—
12,189
2.9%
2.5%
2.6%
2.8%
27.6 %
(25.3)%
59.2 %
19.9 %
— %
17.2 %
1 Includes unit-based awards including (gain) loss adjustments as a result of the change in the fair market value of the Units of $659 (Q4 2018 - $(668)) and $2,029 (YTD 2018
- $(1,239)) for the three months and year ended December 31, 2019.
2 Adjusted for fair value adjustments on unit-based awards.
The REIT had historically outsourced a number of its functions with respect to property management and support services. The
REIT contracted to install an information system (“ERP”), which became operational as of May 1, 2019. The REIT, in the second
half of 2019, realized a positive impact related to general and administrative expenses and property operating expenses related
to this initiative.
20 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
General and administrative expenses amounted to $3,647 or 2.9% of property revenue for the three months ended December 31,
2019 which is $194 (5.6%) higher compared to the same period in the prior year primarily due to:
•
•
•
•
increased personnel compensation and increased trustee fees due to the fair value adjustment on unit based awards;
partially offset by
decreased Service Agreement costs as a result of the new ERP CT REIT implemented during 2019;
decreased personnel expenses due to prior year CFO transition costs; and
higher income tax recovery recorded in connection with GP's activities which resulted in an increase in the REIT's
deferred tax assets.
General and administrative expenses amounted to $14,285 or 2.9% of property revenue for the year ended December 31, 2019
which is $2,096 (17.2%) higher compared to the same period in the prior year primarily due to:
•
•
•
increased personnel compensation and trustee fees due to the fair value adjustment on unit based awards; partially
offset by
decreased Service Agreement costs as a result of the new ERP CT REIT implemented during 2019; and
decreased personnel expenses due to prior year CFO transition costs.
Net Interest and Other Financing Charges
As at December 31, 2019 the Partnership had 1,451,550 Class C LP Units outstanding with a face value of $1,451,550 and bearing
a weighted average distribution rate of 4.70% per annum. The Class C LP Units are subject to redemption rights. Accordingly,
the Class C LP Units are classified as financial liabilities and distributions on the Class C LP Units are presented in the net interest
and other financing charges in the Consolidated Statements of Income and Comprehensive Income.
CT REIT 2019 ANNUAL REPORT 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
Net interest and other financing charges are comprised of the following:
(in thousands of Canadian dollars)
Three Months Ended
Year Ended
For the periods ended December 31,
2019
2018
Change
2019
2018
Change
Interest on Class C LP Units 1
$
17,055 $
17,055
— % $
68,219 $
68,219
Interest and financing costs - debentures
8,890
9,001
(1.2 )%
35,723
35,187
Interest and financing costs - Credit Facilities 2
Interest on mortgages payable
Interest on lease liabilities 3
Interest costs - Bridge Facility 4
278
440
851
—
371
408
—
—
(25.1)%
7.8 %
— %
— %
1,466
1,763
3,317
—
1,561
1,532
—
351
— %
1.5 %
(6.1)%
15.1 %
— %
(100.0)%
$
27,514 $
26,835
2.5 % $
110,488 $
106,850
3.4 %
Less: capitalized interest
(269)
(643)
(58.2)%
(1,351)
(2,245)
(39.8)%
Interest expense and other financing charges
Less: interest income
Net interest and other financing charges
$
$
27,245 $
26,192
4.0 % $
109,137 $
104,605
4.3 %
(212)
(106)
100.0 %
(384)
(225)
70.7 %
27,033 $
26,086
3.6 % $
108,753 $
104,380
4.2 %
1 CTC elected to defer receipt of distributions on Series 3-9 and Series 16 and 19 of Class C LP Units for the three months and year ended December 31, 2019 in the amount
of $16,916 (Q4 2018 -$16,916) and $62,027 (YTD 2018 - $62,027), respectively, until the first business day following the end of the fiscal year. The deferred distributions have
been netted against interest payable on Class C LP Units and are included under the heading “other liabilities” on the Consolidated Balance Sheets.
2 See section 6.10 for detailed on Credit Facilities.
3 Refer to section 9.2 for further information.
4 Paid to CTC pursuant to a bridge loan facility entered into in December 2017 and used solely for the purpose of facilitating the acquisition of portfolio of certain investment
properties (“Bridge Facility”).
Net interest and other financing charges for the three months ended December 31, 2019 was $947 (3.6%) higher compared to
the same period in the prior year largely due to increased interest expense on lease liabilities as a result of the adoption of the
new lease accounting standard - IFRS 16, as well as decreased interest capitalization on development projects in 2019.
Net interest and other financing charges for the year ended December 31, 2019 was $4,373 (4.2%) higher compared to the same
period in the prior year largely due to increased interest expense on lease liabilities as a result of the adoption of the new lease
accounting standard - IFRS 16, decreased interest capitalization on development projects in 2019 and higher interest on debentures
issued in February 2018, partially offset by savings resulting from repayment of the Bridge Facility in Q1 2018.
Fair Value Adjustment on Investment Properties
The fair value gain on investment properties for the three months ended December 31, 2019 was $10,641, a decrease of $881
compared to the same period in the prior year. The decrease in the fair value adjustment on investment properties is primarily
due to higher increases in property values across the portfolio in the prior year.
The fair value gain on investment properties for the year ended December 31, 2019 was $47,306, a decrease of $6,322 compared
to the same period in the prior year primarily due to higher increases in property values across the portfolio in the prior year.
Income Tax Expense
Management operates CT REIT in a manner that enables the REIT to continue to qualify as a real estate investment trust pursuant
to the Income Tax Act (Canada) (“ITA”). CT REIT distributes 100% of its taxable income to Unitholders and therefore does not incur
income tax expense in relation to its activities. The REIT only records income tax expense or recovery in relation to the GP activities.
22 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
If CT REIT fails to distribute the required amount of taxable income to Unitholders, or if CT REIT fails to qualify as a REIT under
the ITA, substantial adverse tax consequences may occur. Refer to section 11.0 for further information.
Net Income
(in thousands of Canadian dollars, except per unit amounts)
Three Months Ended
Year Ended
For the periods ended December 31,
2019
2018
Change
2019
2018
Change
Net income and comprehensive income
Net income per unit - basic
Net income per unit - diluted
$
$
$
76,890 $
74,501
3.2 % $
307,193 $
300,906
0.338 $
0.294 $
0.343
0.271
(1.5 )% $
1.380 $
8.5 % $
1.193 $
1.401
1.098
2.1 %
(1.5 )%
8.7 %
Net income increased by $2,389 (3.2%) for the three months ended December 31, 2019 compared to the same period in the prior
year for the reasons previously discussed.
Net income increased by $6,287 (2.1%) for the year ended December 31, 2019 compared to the same period in the prior year for
the reasons previously discussed.
Net income per unit - basic decreased by $0.005 (1.5%) and $0.021 (1.5%) for the three months ended and year ended December 31,
2019 compared to the same periods in the prior year primarily due to the growth of the weighted average number of Units outstanding
- basic exceeding the increased net income.
Net income per unit - diluted increased by $0.023 (8.5%) and $0.095 (8.7%) for the three months ended and year ended
December 31, 2019 compared to the same periods in the prior year primarily due to an increase in net income, as previously
discussed, as well as by a decrease in the weighted average number of Units outstanding - diluted.
5.2 Non-GAAP Measures
In addition to the GAAP measures previously described, management uses non-GAAP measures in assessing the financial
performance of CT REIT. Refer to section 1.0 and 10.0 in this MD&A for further information.
(in thousands of Canadian dollars, except per unit
amounts)
Three Months Ended
Year Ended
For the periods ended December 31,
2019
2018
Change
2019
2018
Change
Net operating income
Same store NOI
Same property NOI
Funds from operations
FFO per unit - basic
FFO per unit - diluted (non-GAAP)
Adjusted funds from operations
AFFO per unit - basic
AFFO per unit - diluted (non-GAAP)
AFFO payout ratio
ACFO
EBITFV
$
$
$
$
$
$
$
$
$
$
$
93,444
90,223
91,031
66,797
0.293
0.293
57,397
0.252
0.252
75.0%
60,422
93,686
$
$
$
$
$
$
$
$
$
$
$
88,943
88,072
88,179
62,037
0.286
0.286
51,848
0.239
0.239
5.1 % $ 368,795
$ 349,283
2.4 % $ 352,663
$ 341,957
3.2 % $ 355,434
$ 342,733
7.7 % $ 261,861
$ 246,032
2.4 % $
2.4 % $
1.177
1.175
$
$
1.145
1.144
10.7 % $ 224,300
$ 205,173
5.4 % $
5.4 % $
1.008
1.007
$
$
0.955
0.954
76.2%
(1.6 )%
75.2%
76.3%
52,975
88,229
14.1 % $ 228,366
$ 206,056
6.2 % $ 370,693
$ 350,637
5.6 %
3.1 %
3.7 %
6.4 %
2.8 %
2.7 %
9.3 %
5.5 %
5.6 %
(1.4 )%
10.8 %
5.7 %
CT REIT 2019 ANNUAL REPORT 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
Net Operating Income
NOI for the three months ended December 31, 2019 increased by $4,501 (5.1%) compared to the same period in the prior year
primarily due to the acquisition of income-producing properties and Properties Under Development completed in 2019 and 2018,
which contributed $1,649 to NOI growth. NOI for Properties Under Development for the three months ended December 31, 2019
was $571.
Same store NOI and same property NOI for the three months ended December 31, 2019 increased by $2,151 (2.4%) and $2,852
(3.2%), respectively, when compared to the prior year primarily for the following reasons:
•
•
•
•
•
contractual rent escalations of approximately 1.5% per year, on average, contained within the Canadian Tire store,
Canadian Tire Gas+ gas bar and CTC industrial leases, which are generally effective January 1st, contributed $929 to
NOI growth;
intensifications completed in 2019 and 2018 contributed to $701 to same property NOI growth;
recovery of capital expenditures and interest earned on the unrecovered balance contributed $572 to NOI growth;
property management expenses, pursuant to Property Management Agreement amounted to $302 NOI increase; and
the impact of tenancy changes at 11 Dufferin Place SE and 25 Dufferin Place SE Calgary, Alberta.
NOI for the year ended December 31, 2019 increased by $19,512 (5.6%) compared to the same period in the prior year primarily
due to the acquisition of income-producing properties and Properties Under Development completed in 2019 and 2018, which
contributed $6,811 to NOI growth. NOI for Properties Under Development during the year ended December 31, 2019 was $2,408.
Same store NOI and same property NOI for the year ended December 31, 2019 increased by $10,706 (3.1%) and $12,701 (3.7%),
respectively, when compared to the prior year for the following reasons:
•
•
•
•
•
contractual rent escalations of approximately 1.5% per year, on average, contained within the Canadian Tire store,
Canadian Tire Gas+ gas bar and CTC industrial leases, which are generally effective January 1st, contributed $5,563 to
NOI growth;
recovery of capital expenditures and interest earned on the unrecovered balance contributed $2,243 to NOI growth;
intensifications completed in 2019 and 2018 contributed $1,995 to NOI growth;
the impact of tenancy changes at 11 Dufferin Place SE and 25 Dufferin Place SE Calgary, Alberta, and the proceeds
received from the Assigned Claim increased NOI by $1,553; and
property management service expenses, pursuant to Property Management Service Agreement, contributed $769 to
the NOI increase.
Funds From Operations
FFO for the three months ended December 31, 2019 amounted to $66,797 or $0.293 per unit - diluted (non-GAAP) which was
$4,760 (7.7%) higher or $0.007 per unit - diluted (non-GAAP) (2.4%) higher than the same period in 2018 primarily due to the
impact of NOI variances, discussed earlier, partially offset by higher interest expense.
24 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
FFO for the year ended December 31, 2019 amounted to $261,861 or $1.175 per unit - diluted (non-GAAP) which was $15,829
(6.4%) and $0.031 per unit - diluted (non-GAAP) (2.7%) higher than the same period in 2018 primarily due to the impact of NOI
variances, discussed earlier, partially offset by higher interest expense.
Adjusted Funds From Operations
AFFO for the three months ended December 31, 2019 amounted to $57,397 or $0.252 per unit - diluted (non-GAAP) which was
$5,549 (10.7%) or $0.013 per unit - diluted (non-GAAP) (5.4%) higher than the same period in 2018 primarily due to the impact
of NOI variances, discussed earlier, partially offset by higher interest expense.
AFFO for the year ended December 31, 2019 amounted to $224,300 or $1.007 per unit - diluted (non-GAAP) which was
$19,127 (9.3%) and $0.053 per unit - diluted (non-GAAP) (5.6%) higher than the same period in 2018 primarily due to the
impact of NOI variances, discussed earlier, partially offset by higher interest expense.
Adjusted Funds From Operations Payout Ratio
The AFFO payout ratio for the three months ended December 31, 2019 was 75.0%, which decreased 1.6% from the same periods
in 2018 due to higher AFFO per unit for the reasons previously discussed.
The AFFO payout ratio for the year ended December 31, 2019 was 75.2%, which decreased 1.4% from the same periods in 2018
due to higher AFFO per unit for the reasons previously discussed.
Adjusted Cashflow From Operations
ACFO for the three months and year ended December 31, 2019 increased by $7,447 (14.1%) and $22,310 (10.8%), respectively,
over the same periods in 2018 primarily due to the impact of NOI variances, discussed earlier, partially offset by higher interest
expense.
Earnings Before Interest and Other Financing Costs, Taxes and Fair Value Adjustments
EBITFV for the three months and year ended December 31, 2019 increased by $5,457 (6.2%) and $20,056 (5.7%), respectively,
over the same periods in 2018, primarily due to the impact of NOI variances discussed earlier.
6.0 LIQUIDITY AND FINANCIAL CONDITION
The following section contains forward-looking information and readers are cautioned that actual results may vary.
6.1 Liquidity
CT REIT intends to fund capital expenditures for acquisitions and development activities through a combination of (i) cash on
hand, (ii) issuances of Class B LP Units and/or Class C LP Units, (iii) draws on Credit Facilities, (iv) assumption of existing debt,
and/or (v) new public debt or equity
CT REIT 2019 ANNUAL REPORT 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars)
As at
Cash and cash equivalents
Unused portion of available Credit Facilities 1
Liquidity
1 See section 6.10 for details on Credit Facilities.
December 31, 2019
December 31, 2018
$
$
9,734 $
294,442
304,176 $
4,991
282,633
287,624
Cash flow generated from operating the property portfolio represents the primary source of liquidity to service debt and to fund
planned maintenance expenditures, leasing costs, general and administrative expenses and distributions (other sources being
interest income as well as cash on hand).
(in thousands of Canadian dollars)
For the periods ended December 31,
Cash generated from operating activities
Cash used for investing activities
Cash used for financing activities
Cash generated from (used for) the period
1 NM - not meaningful.
6.2 Discussion of Cash Flows
2019
362,328 $
(161,867)
(195,718)
4,743 $
Year Ended
2018
331,722
(169,154)
(168,479)
(5,911)
$
$
Change 1
9.2 %
(4.3)%
16.2 %
NM
Cash generated for the year ended December 31, 2019 of $4,743 was primarily the result of cash generated from operating
activities, and the 2019 REIT Offering, partially offset by distribution payments and investing activities.
On September 19, 2019, CT REIT completed a joint equity offering of an aggregate of 16,846,000 Units comprised of the issuance
of 6,316,000 Units from treasury for net proceeds of $86,140 after deducting issuance cost of $3,863 (the “2019 REIT Offering”)
and the sale of 10,530,000 Units by CTC (the “2019 Secondary Offering” and, together with the “2019 REIT Offering”, hereinafter
referred to as the “2019 Equity Offering”).
6.3 Credit Ratings
The senior unsecured debt of CT REIT is rated by S&P Global Ratings acting through Standard and Poor's Rating Services
(Canada), a business unit of S&P Global Canada Corp. (“S&P”) and by DBRS Morningstar (“DBRS”), two independent credit
rating agencies which provide credit ratings of debt securities for commercial entities. A credit rating generally provides an indication
of the risk that the borrower will not fulfill its full obligations in a timely manner with respect to both interest and principal commitments.
Rating categories range from highest credit quality (generally “AAA”) to default in payment (generally “D”).
These ratings are related to and currently equivalent to those of CTC, as CTC holds a significant ownership position in CT REIT
and CTC is CT REIT’s most significant tenant.
The following table sets out the credit ratings of CT REIT's senior unsecured debt:
Credit Ratings (Canadian Standards)
26 CT REIT 2019 ANNUAL REPORT
DBRS
S&P
Credit Rating
BBB (high)
Trend
Credit Rating
Stable
BBB+
Trend
Stable
MANAGEMENT'S DISCUSSION AND ANALYSIS
6.4 Debt and Capital Structure
CT REIT’s debt and capital structure is as follows:
(in thousands of Canadian dollars)
As at
Class C LP Units
Mortgages payable
Debentures
Credit Facilities
Total indebtedness
Unitholders' equity
Non-controlling interests
Total capital under management
December 31, 2019
December 31, 2018
$
$
$
1,451,550 $
48,049
1,070,695
2,000
2,572,294 $
1,464,939
1,869,166
5,906,399 $
1,451,550
37,100
1,069,844
14,995
2,573,489
1,306,355
1,778,554
5,658,398
CT REIT’s total indebtedness at December 31, 2019 was lower than at December 31, 2018 primarily due to lower amounts drawn
on the Credit Facilities, partially offset by an increase in mortgages payable. Refer to section 6.6 of this MD&A for further details.
CT REIT’s Unitholders’ equity and non-controlling interests at December 31, 2019 increased as compared to December 31, 2018
primarily as a result of the 2019 Equity Offering and net income exceeding distributions.
Future payments in respect of CT REIT’s indebtedness as at December 31, 2019 are as follows:
(in thousands of Canadian dollars)
2020
2021
2022
2023
2024 and thereafter
Total contractual obligation
Unamortized portion of mark to market
on mortgages payable assumed on the
acquisition of properties
Unamortized transaction costs
$
$
Mortgages payable
Principal
amortization
Maturities
400
419
255
—
—
37,133
—
9,460
—
—
Class C LP
Units
251,550
Debentures
Credit
facilities
— $
2,000
—
—
—
150,000
150,000
—
1,200,000
775,000
—
—
—
—
Total
291,083
150,419
159,715
—
1,975,000
1,074 $
46,593 $
1,451,550 $
1,075,000 $
2,000 $
2,576,217
—
—
358
24
—
—
—
(4,305)
—
—
358
(4,281)
1,074 $
46,975 $
1,451,550 $
1,070,695 $
2,000 $
2,572,294
Interest rates on CT REIT’s indebtedness range from 2.16% to 5.00%. The maturity dates on the indebtedness range from March
2020 to May 2038. Total indebtedness at December 31, 2019 had a weighted average interest rate of 4.08% and a weighted
average term to maturity of 8.0 years, excluding the Credit Facilities.
As at December 31, 2019, floating rate and fixed rate indebtedness were $39,133 and $2,533,161, respectively.
CT REIT 2019 ANNUAL REPORT 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at
Variable rate debt
Total indebtedness
Variable rate debt / total indebtedness
December 31, 2019
December 31, 2018
$
39,133
$
2,572,294
1.52 %
52,128
2,573,489
2.03%
CT REIT's variable rate debt to total indebtedness ratio as at December 31, 2019 decreased as compared to December 31, 2018
primarily due to a lower level of borrowing on the Credit Facilities, and the assumption of a fixed rate mortgage in connection with
a property acquisition in Q1 2019.
The following table presents the contractual obligations of CT REIT:
Total
2020
2021
2022
2023
2024
2025 and
thereafter
Payments Due by Period
Class C LP Units 1
Debentures
$ 1,451,550 $
251,550 $
— $
— $
1,075,000
—
150,000
150,000
Payments on Class C LP Units 1
Interest on debentures
Credit Facilities
Undiscounted lease liabilities
Mortgages payable
Obligations for the completion of
developments
Other liabilities
Distributions payable 2
Payable on Class C LP Units, net of
loans receivable
Interest on mortgages payable
Total
716,425
204,478
2,000
152,331
47,667
145,667
32,979
14,976
5,685
1,406
62,258
34,949
2,000
4,033
37,533
84,207
28,004
14,976
5,685
746
58,000
33,330
—
4,143
419
47,640
4,975
—
—
446
58,000
29,572
—
4,127
9,715
13,820
—
—
—
214
—
—
58,000
27,433
—
— $ 1,200,000
—
775,000
52,750
27,433
—
427,417
51,761
—
4,076
3,776
132,176
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 3,850,164 $
525,941 $
298,953 $
265,448 $
89,509 $
83,959 $ 2,586,354
1 Assumes redemption on Initial Fixed Rate Period for each series.
2 On Units and Class B LP Units.
The table below presents CT REIT’s interest in investment properties at fair value that are available to it to finance and/or refinance
its debt as at December 31, 2019:
(in thousands of Canadian dollars)
Unencumbered investment properties
Encumbered investment properties
Total
Number of
properties
Fair value of
investment
properties
355 $
5,907,840
2
99,142
357 $
6,006,982
Percentage of
total assets
Mortgages
payable
Loan to value
ratio
98.1% $
1.6 %
99.7% $
—
48,049
48,049
—
48.5%
0.8%
28 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
The table below presents CT REIT’s secured debt as a percentage of total indebtedness:
(in thousands of Canadian dollars)
As at
Secured debt
Total indebtedness
Secured debt / total indebtedness
December 31, 2019
December 31, 2018
$
48,049
$
2,572,294
1.87 %
37,100
2,573,489
1.44 %
CT REIT's secured debt to total indebtedness ratio at December 31, 2019 increased as compared to December 31, 2018, primarily
due to the assumption of a mortgage in connection with a property acquisition in Q1 2019, which was partially offset by decreased
borrowings drawn on the Credit Facilities.
The table below presents CT REIT’s indebtedness to EBITFV ratio:
(in thousands of Canadian dollars)
As at
Total indebtedness
EBITFV 1
Total indebtedness / EBITFV
1 Non-GAAP measure. Refer to section 10.0 for further information.
December 31, 2019
December 31, 2018
$
2,572,294 $
370,693
6.94
2,573,489
350,637
7.34
CT REIT's indebtedness to EBITFV ratio at December 31, 2019 decreased as compared to the indebtedness to EBITFV ratio at
December 31, 2018 primarily due to the growth of EBITFV exceeding the growth of total indebtedness. The growth of EBITFV was
primarily due to increased NOI, as discussed earlier.
6.5 Interest Coverage Ratio
Interest coverage ratios are used to measure an entity’s ability to service its debt. Generally, the higher the ratio is, the lower the
risk of default on debt. The ratio is calculated as follows:
(in thousands of Canadian dollars)
For the periods ended December 31,
EBITFV 1 (A)
Interest expense and other financing charges (B)
Interest coverage ratio 1 (A)/(B)
1 Non-GAAP measure. Refer to section 10.0 for further information.
Three Months Ended
Year Ended
2019
2018
2019
2018
$
$
93,686 $
88,229 $
370,693 $
350,637
27,245 $
26,192 $
109,137 $
104,605
3.44
3.37
3.40
3.35
The increase in interest coverage ratio for the three months and year ended December 31, 2019, as compared to the same period
in 2018 is primarily due to the growth of EBITFV exceeding the growth of interest and other financing charges.
6.6 Indebtedness Ratio
CT REIT has adopted an indebtedness ratio guideline which management uses as a measure to evaluate its leverage and the
strength of its equity position, expressed as a percentage of financing provided by debt. CT REIT’s Declaration of Trust limits its
indebtedness (plus the aggregate par value of the Class C LP Units) to a maximum of 60% of the gross book value, excluding
CT REIT 2019 ANNUAL REPORT 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
convertible debentures, and 65% including convertible debentures. Gross book value is defined as total assets as reported on
the latest Consolidated Balance Sheets.
CT REIT calculates its indebtedness ratio as follows:
(in thousands of Canadian dollars)
As at
Total indebtedness 1 (A)
Total assets (B)
Indebtedness ratio (A)/(B)
December 31, 2019
December 31, 2018
$
$
2,572,294
6,024,512
$
$
2,573,489
5,708,692
42.7%
45.1%
1 Total indebtedness reflects the value of the Class C LP Units, mortgages payable, debentures and draws on the Credit Facilities.
The indebtedness ratio as at December 31, 2019 decreased compared to the indebtedness ratio as at December 31, 2018 primarily
due to CT REIT's 2019 acquisition, intensification and development activities and fair value adjustments made to its investment
property portfolio, and a decrease in total indebtedness.
6.7 Class C LP Units
As at December 31, 2019, there were 1,451,550 Class C LP Units outstanding, all of which were held by CTC. The Class C LP
Units are designed to provide CTC with an interest in the Partnership that entitles holders to a fixed cumulative monthly payment,
during the initial fixed rate period for each series of Class C LP Units (the “Initial Fixed Rate Period”), equal to a weighted average
rate of 4.70% of the aggregate capital amount ascribed to the Class C LP Units. Such payments are made in priority to distributions
made to holders of Class B LP Units and units representing an interest in the GP (subject to certain exceptions) if, as and when
declared by the Board of Directors of the GP and are payable monthly at an annual distribution rate for each series as set out in
the table below. In addition, the Class C LP Units are entitled to receive Special Voting Units, in certain limited circumstances.
Refer to section 7.0 for further details.
On expiry of the Initial Fixed Rate Period applicable to each series of Class C LP Units, and each five-year period thereafter,
each such series of Class C LP Units is redeemable at par (together with all accrued and unpaid payments thereon) at the option
of the Partnership or the holder, upon giving at least 120 days’ prior notice. The Partnership further has the ability to settle any
of the Class C LP Units at any time at a price equal to the greater of par and a price to provide a yield equal to the then equivalent
Government of Canada bond yield plus a spread, so long as such redemption is in connection with a sale of properties.
Such redemptions of Class C LP Units (other than upon a change of control of CT REIT) can be settled at the option of the
Partnership, in cash or Class B LP Units of equal value.
The Partnership did not settle any Class C LP Units in 2019.
During the five-year period beginning immediately following the completion of the Initial Fixed Rate Period, and each five-year
period thereafter, if not redeemed, the fixed payment rate for Class C LP Units will be reset, and the holders of Class C LP Units
will be entitled, subject to certain conditions, to elect either a fixed rate or floating rate option.
30 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table presents the details of the Class C LP Units:
Series of Class C LP Units
Series 3
Series 4
Series 5
Series 6
Series 7
Series 8
Series 9
Series 16
Series 17
Series 18
Series 19
Total / weighted average
Current
Non-current
Total
6.8 Debentures
Series
A, 2.85%, June 9, 2022
B, 3.53%, June 9, 2025
C, 2.16%, June 1, 2021
D, 3.29%, June 1, 2026
E, 3.47%, June 16, 2027
F, 3.87%, December 7, 2027
Annual
distribution rate
during Initial
Fixed Rate Period
4.50%
4.50%
4.50%
5.00%
5.00%
5.00%
5.00%
2.42%
2.39%
2.28%
2.28%
4.70%
Initial
subscription
price
200,000
200,000
200,000
200,000
200,000
200,000
200,000
16,550
18,500
4,900
11,600
1,451,550
251,550
1,200,000
1,451,550
$
$
$
$
Expiry of Initial
Fixed Rate Period
% of Total Class C
LP Units
May 31, 2020 (0.4 years)
May 31, 2024 (4.4 years)
May 31, 2028 (8.4 years)
May 31, 2031 (11.4 years)
May 31, 2034 (14.4 years)
May 31, 2035 (15.4 years)
May 31, 2038 (18.4 years)
May 31, 2020 (0.4 years)
May 31, 2020 (0.4 years)
May 31, 2020 (0.4 years)
May 31, 2020 (0.4 years)
10.1 years
13.78%
13.78%
13.78%
13.78%
13.78%
13.78%
13.78%
1.14 %
1.27 %
0.34%
0.80%
100.0%
December 31, 2019
December 31, 2018
Face value
Carrying
amount
Face value
$
150,000 $
149,625 $
150,000 $
200,000
150,000
200,000
175,000
200,000
199,101
149,751
199,130
174,142
198,946
200,000
150,000
200,000
175,000
200,000
Carrying
amount
149,475
198,949
149,577
198,995
174,036
198,812
$
1,075,000 $
1,070,695 $
1,075,000 $
1,069,844
Debentures as at December 31, 2019 had a weighted average interest rate of 3.25% (December 31, 2018 - 3.25%).
For the three months and year ended December 31, 2019, amortization of transaction costs of $229 (Q4 2018 - $261) and $850
(YTD 2018 - $1,043) is included in net interest and other financing charges on the consolidated statement of income and
comprehensive income. Refer to Note 15 of the consolidated financial statements.
The debentures have been rated “BBB+” by S&P and “BBB (high)” by DBRS, both with a stable outlook. The debentures are direct
senior unsecured obligations of CT REIT. Refer to section 6.3 for further details.
CT REIT 2019 ANNUAL REPORT 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
6.9 Mortgages Payable
Mortgages payable, secured by certain CT REIT investment properties, include the following:
(in thousands of Canadian dollars)
As at
Current
Non-current
Total
December 31, 2019
December 31, 2018
Face value
Carrying
amount
Face value
Carrying
amount
$
$
37,533 $
37,696 $
37,133 $
37,100
10,134
10,353
—
—
47,667 $
48,049 $
37,133 $
37,100
Mortgages payable at December 31, 2019 had a weighted average interest rate of 3.82% (December 31, 2018 – 3.81%).
6.10 Credit Facilities
Bank Credit Facility
CT REIT has a committed, unsecured $300,000 revolving credit facility with a syndicate of major Canadian third party banks
(“Bank Credit Facility”) expiring in December 2024. The Bank Credit Facility bears interest at a rate based on the bank’s prime
rate of interest or bankers’ acceptances plus a margin. A standby fee is charged on the Bank Credit Facility.
As at December 31, 2019, no borrowings were drawn on the Bank Credit Facility. At December 31, 2019, borrowings under the
Bank Credit Facility had a weighted average interest rate of nil (December 31, 2018 - 3.46%).
CTC Credit Facility
In Q4 2019, CT REIT entered into an uncommitted, unsecured $300,000 revolving credit facility with CTC (“CTC Credit Facility”)
expiring in December 2020. The CTC Credit Facility bears interest at a rate based on the bank's prime rate of interest or bankers'
acceptances plus a margin.
As at December 31, 2019, $2,000 of borrowings were drawn on the CTC Credit Facility. At December 31, 2019, borrowings under
the CTC Credit Facility had a weighted average interest rate of 3.95%.
The Bank Credit Facility and the CTC Credit Facility are collectively referred to herein as the “Credit Facilities”.
The table below summarizes the details of the Credit Facilities as at December 31, 2019:
Maximum draw
amount Cash advances
Letters of
credit
Available to be
drawn
$
$
300,000 $
— $
5,558 $
294,442
300,000 $
2,000 $
— $
— 1
(in thousands of Canadian dollars)
Bank Credit Facility
CTC Credit Facility
1uncommitted facility subject to CTC discretion.
32 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following section contains forward-looking information and readers are cautioned that actual results may vary.
6.11 Capital Strategy
Management expects the REIT’s future debt will be in the form of:
•
•
•
•
Class C LP Units (treated as debt for accounting purposes);
funds drawn on the Credit Facilities;
unsecured public debt; and
secured debt.
Management’s objectives are to access an optimal cost of capital with the most flexible terms, to have a maturity/redemption
schedule (for fixed term obligations) spread over a time horizon so as to manage refinancing risk and to be in a position to finance
acquisition and development opportunities when they become available. The Declaration of Trust and the trust indenture dated
June 9, 2015, as supplemented by supplemental indentures thereto (the “Trust Indenture”) limit the REIT’s overall indebtedness
ratio to 60% of total aggregate assets, excluding convertible debentures, and 65% including convertible debentures.
As at December 31, 2019, CT REIT’s indebtedness ratio was 42.7%. Refer to section 6.6 of this MD&A for the definition and
calculation of CT REIT’s indebtedness ratio.
At December 31, 2019, CT REIT was in compliance with the financial covenants contained in the Declaration of Trust, the Trust
Indenture and the Credit Facilities.
CT REIT has also adopted interest coverage guidelines which provide an indication of the REIT’s ability to service or pay the
interest charges relating to the underlying debt.
For the three months ended December 31, 2019, CT REIT’s interest coverage ratio was 3.4 times. Refer to section 6.5 of this
MD&A for the definition and calculation of CT REIT’s interest coverage ratio.
Assuming a future economic environment that is substantially similar to the current environment, management does not foresee
any material impediments to refinancing future debt maturities.
The following section contains forward-looking information and readers are cautioned that actual results may vary.
6.12 Commitments and Contingencies
As at December 31, 2019, CT REIT had obligations of $145,667 (December 31, 2018 - $129,163) in future payments for the
completion of developments, as described in section 4.6 of this MD&A. Included in the commitment is $132,607 due to CTC.
CT REIT 2019 ANNUAL REPORT 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
CT REIT has sufficient liquidity to fund these future commitments as a result of (i) its conservative use of leverage on the balance
sheet, (ii) liquidity on hand, (iii) its Credit Facilities, (iv) an investment grade credit rating, (v) unencumbered assets, and (vi)
sufficient operating cash flow retained in the business.
6.13 Base Shelf Prospectus
CT REIT renewed its short form base shelf prospectus in Q2 2019 under which it could raise up to $2.0 billion of debt and/or
equity (including the sale of Units by CTC) over the 25-month period ending May 24, 2021.
7.0 EQUITY
7.1 Authorized Capital and Outstanding Units
CT REIT is authorized to issue an unlimited number of Units. As of December 31, 2019, CT REIT had a total of 103,927,385 Units
outstanding, 33,989,508 of which were held by CTC, and 124,289,491 Class B LP Units outstanding (together with a corresponding
number of Special Voting Units, as hereinafter defined), all of which were held by CTC.
Class B LP Units are economically equivalent to Units, are accompanied by a special voting unit (“Special Voting Unit”) and are
exchangeable at the option of the holder for Units (subject to certain conditions). Holders of the Class B LP Units are entitled to
receive distributions when declared by the Partnership equal to the per Unit amount of distributions payable on the Units. However,
Class B LP Units have limited voting rights over the Partnership.
The following tables summarize the total number of Units issued:
Total outstanding at beginning of year
Units issued 1
2019 REIT Offering
Total outstanding at end of period
1 742,946 issued pursuant to the REIT's distribution reinvestment plan.
Total outstanding at beginning of year
Units issued 1
2018 REIT Offering
Exchange of Class B LP Units for Units
Total outstanding at end of year
1 274,642 issued pursuant to the REIT's distribution reinvestment plan.
As at December 31, 2019
Units
Class B LP
Units
Total
96,848,606
123,400,633
220,249,239
762,779
6,316,000
888,858
—
1,651,637
6,316,000
103,927,385
124,289,491
228,216,876
As at December 31, 2018
Units
Class B LP
Units
Total
90,645,295
123,092,866
213,738,161
279,897
1,052,181
5,179,000
744,414
—
(744,414)
1,332,078
5,179,000
—
96,848,606
123,400,633
220,249,239
Each unit is transferable and represents an equal, undivided beneficial interest in the REIT and in any distributions from the REIT.
Each unit entitles the holder to one vote at all meetings of Unitholders.
34 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
Special Voting Units are only issued in tandem with Class B LP Units, or in limited circumstances, to holders of the Class C LP
Units and are not transferable separately from the Class B LP Units or Class C LP Units to which they relate. Each Special Voting
Unit entitles the holder thereof to one vote at all meetings of Unitholders or with respect to any written resolution of Unitholders.
Except for the right to attend meetings and vote on resolutions, Special Voting Units do not confer upon the holders thereof any
other rights.
Net income attributable to Unitholders and weighted average units outstanding used in determining basic and diluted net
income per unit are calculated as follows:
For the Year ended December 31, 2019
(in thousands of Canadian dollars, except unit amounts)
Units
Class B LP
Units
Net income attributable to Unitholders - basic
$
136,667 $
170,526 $
Income effect of settling Class C LP Units with Class B LP Units
Net income attributable to Unitholders - diluted
Weighted average units outstanding - basic
Dilutive effect of other Unit plans
Dilutive effect of settling Class C LP Units with Class B LP Units
Weighted average units outstanding - diluted
Income effect of settling Class C LP Units with Class B LP Units
Net income attributable to Unitholders - diluted
Weighted average units outstanding - basic
Dilutive effect of other Unit plans
Dilutive effect of settling Class C LP Units with Class B LP Units
Weighted average units outstanding - diluted
(in thousands of Canadian dollars, except unit amounts)
Units Class B LP Units
Net income attributable to Unitholders - basic
$
128,030 $
172,876 $
98,990,726
123,568,955
222,559,681
231,890
91,823,461
314,615,032
For the Year ended December 31, 2018
Total
307,193
68,219
375,412
Total
300,906
68,219
369,125
$
$
91,326,658
123,478,988
214,805,646
234,427
121,102,386
336,142,459
CT REIT 2019 ANNUAL REPORT 35
MANAGEMENT'S DISCUSSION AND ANALYSIS
7.2 Equity
(in thousands of Canadian dollars)
As at
Equity - beginning of period, as previously reported
Transition adjustments - IFRS 16
Restated equity - beginning of period
Net income and comprehensive income for the period
Issuance of Units from 2019/2018 REIT Offerings, net of issue costs
Issuance of Class B LP Units, net of issue costs
Distributions to non-controlling interests
Distributions to Unitholders
Issuance of Units under Distribution Reinvestment Plan and other
December 31, 2019
December 31, 2018
$
3,084,909 $
2,861,441
1,314
3,086,223
307,193
86,140
13,275
(93,925)
(75,469)
10,668
—
2,861,441
300,906
62,276
14,022
(90,208)
(67,050)
3,522
Equity - end of the period
$
3,334,105 $
3,084,909
The following section contains forward-looking information and readers are cautioned that actual results may vary.
7.3 Distributions
CT REIT’s primary business goal is to accumulate a portfolio of high-quality real estate assets and deliver the benefits of such
real estate ownership to Unitholders. The primary benefit to Unitholders is expected to be reliable, durable and growing distributions
over time.
In determining the amount of the monthly distributions paid to Unitholders, the Board applies discretionary judgment to forward-
looking cash flow information, such as forecasts and budgets, and many other factors including provisions in the Declaration of
Trust, the macro-economic and industry-specific environment, debt maturities, covenants and taxable income.
The Board regularly reviews CT REIT’s rate of distributions to ensure an appropriate level of distributions. The Board has discretion
over the determination of monthly and annual distributions.
On November 4, 2019, CT REIT's Board reviewed the current rate of distribution of $0.757 per Unit per year and approved an
increase in the annual rate of distribution to $0.787 per Unit per year, or $0.06562 per Unit monthly, commencing with the December
31, 2019 record date
On December 13, 2019, CT REIT’s Board declared a distribution of $0.06562 per Unit payable on January 15, 2020 to holders of
Units and Class B LP Units of record as of December 31, 2019.
On January 15, 2020, CT REIT’s Board declared a distribution of $0.06562 per Unit payable on February 18, 2020 to holders of
Units and Class B LP Units of record as of January 31, 2020.
One of CT REIT's objectives is to grow monthly distributions. The distribution payments and increases since December 31, 2014
are as follows:
36 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
20202
2019
2018
2017
2016
2015
2014
Monthly
distribution per
Unit1
% increase
Annualized
distribution
per Unit
Annualized
increase
per Unit
$
$
$
$
$
$
$
0.06562
0.06310
0.06067
0.05833
0.05667
0.05525
0.05417
4.0% $
4.0% $
4.0% $
2.9% $
2.6% $
2.0% $
— $
0.787 $
0.757 $
0.728 $
0.700 $
0.680 $
0.663 $
0.650 $
0.0300
0.0290
0.0280
0.0200
0.0170
0.0130
—
1 The Board has discretion over the determination of monthly and annual distributions.
2 Approved by the Board on November 4, 2019.
Net income prepared in accordance with IFRS recognizes certain revenues and expenses at time intervals that do not match the
receipt or payment of cash. Therefore, in applying judgment, consideration is given to AFFO (a non-GAAP measure of recurring
economic earnings used to assess distribution capacity, refer to section 10.0) and other factors when establishing distributions to
Unitholders.
(in thousands of Canadian dollars, except per unit amounts)
Three Months Ended
Year Ended
For the periods ended December 31,
2019
2018
2019
Distributions before distribution reinvestment - paid
Distribution reinvestment
Distributions net of distribution reinvestment - paid
Distributions per unit - paid
$
$
$
43,080 $
39,449 $
168,318 $
3,728
39,352 $
0.189 $
996
38,453 $
0.182 $
10,395
157,923 $
0.757 $
2018
156,328
3,453
152,875
0.728
Distributions for the three months and year ended December 31, 2019 are higher than the same period in the prior year due to
higher weighted average number of units outstanding and the increase in the annual rate of distributions effective with the first
distribution paid in 2019.
CT REIT’s distributions for the three months and year ended December 31, 2019 are less than the REIT’s cash generated from
operating activities, cash generated from operating activities reduced by net interest and other financing charges, and AFFO, a
non-GAAP measure which is an indicator of CT REIT's distribution capacity.
(in thousands of Canadian dollars, except per unit amounts)
Three Months Ended
Year Ended
For the periods ended December 31,
AFFO 1
Distributions before distribution reinvestment - paid
Excess of AFFO over distributions paid (A)
Weighted average units outstanding - diluted (non-GAAP)1(B)
Excess of AFFO over distributions paid per unit (A)/(B) 1
1 Non-GAAP measure. Refer to section 10.0 for further information.
2019
2018
2019
57,397 $
51,848 $
224,300 $
43,080
39,449
168,318
14,317 $
12,399 $
55,982 $
2018
205,173
156,328
48,845
227,887,268
217,107,359
222,791,571
215,040,074
0.063 $
0.057 $
0.251 $
0.227
$
$
$
CT REIT 2019 ANNUAL REPORT 37
MANAGEMENT'S DISCUSSION AND ANALYSIS
7.4 Book Value Per Unit
Book value per Unit represents total equity from the Consolidated Balance Sheets divided by the sum of the period end Units and
Class B LP Units outstanding. It is an indication of the residual book value available to Unitholders. As well, book value per unit
is compared to the REIT’s Unit trading price in order to measure a premium or discount.
(in thousands of Canadian dollars, except for per unit amounts)
As at
Total equity (A)
Period-end Units and Class B LP Units outstanding (B)
Book value per unit (A)/(B)
December 31, 2019
December 31, 2018
$
$
3,334,105 $
3,084,909
228,216,876
220,249,239
14.61 $
14.01
CT REIT’s book value per unit as at December 31, 2019 increased from the book value per unit as at December 31, 2018 primarily
due to net income exceeding distributions.
8.0 RELATED PARTY TRANSACTIONS
On December 31, 2019, CT REIT’s controlling Unitholder, CTC, held a 69.4% effective interest in the REIT, through the ownership
of 33,989,508 Units and all of the issued and outstanding Class B LP Units.
In addition to its ownership interest, CTC is CT REIT’s most significant tenant representing approximately 91.7% of the annualized
base minimum rent earned by CT REIT and 92.5% of total GLA as at December 31, 2019.
In the normal course of its operations, CT REIT enters into various transactions with related parties that have been valued at
amounts agreed to between the parties and recognized in the consolidated financial statements. Investment property transactions
with CTC amounted to $94,788 (2018 - 68,903) for the year ended December 31, 2019. Refer to Note 4 to the consolidated
financial statements for additional information.
CT REIT entered into the CTC Credit Facility. Refer to section 6.10 of this MD&A for additional information.
CT REIT’s policy is to conduct all transactions and settle all balances, with related parties, on market terms and conditions.
Pursuant to the Declaration of Trust, all related party transactions are subject to the approval of the independent trustees of CT
REIT.
CT REIT and CTC are parties to a number of commercial agreements which govern the relationships among such parties, including
the Services Agreement and the Property Management Agreement which are described below.
Services Agreement
Under the services agreement among the Partnership and CTC entered into on October 23, 2013 (“Services Agreement”), CTC
provides the REIT with certain administrative, financial, information technology, internal audit and other support services as may
be reasonably required from time to time (the “Services”). CTC provides these Services to the REIT on a cost recovery basis
38 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
pursuant to which CT REIT reimburses CTC for all costs and expenses incurred by CTC in connection with providing the Services,
plus applicable taxes. The Services Agreement is automatically renewable for one year terms, unless otherwise terminated in
accordance with its terms. The Services Agreement was automatically renewed for 2020 and CTC will continue to provide such
Services on a cost recovery basis.
Property Management Agreement
Under the property management agreement, among the Partnership and CTC entities entered into on October 23, 2013 (“Property
Management Agreement”), CTC provides the REIT with certain customary property management services (the ‘‘Property
Management Services’’). CTC provides these Property Management Services to the REIT on a cost recovery basis pursuant to
which the REIT reimburses CTC for all costs and expenses incurred by CTC in connection with providing the Property Management
Services, plus applicable taxes. The Property Management Agreement is automatically renewable for one year terms, unless
otherwise terminated in accordance with its terms. The Property Management Agreement was automatically renewed for 2020
and CTC will continue to provide such Property Management Services on a cost recovery basis.
Refer to CT REIT’s 2019 AIF available on SEDAR at www.sedar.com for additional information on related party agreements and
arrangements with CTC.
The following table summarizes CT REIT’s related party transactions as at December 31, 2019, excluding acquisition, intensification
and development activities which are contained in section 4.0:
(in thousands of Canadian dollars)
For the periods ended December 31,
Rental revenue
Property Management and Services Agreements expense
Distributions on Units
Distributions on Class B LP Units 1
Interest expense on Class C LP Units
Interest expense on the Bridge Facility
1 Includes distributions deferred at the election of the holders of the Class B LP Units.
Year Ended
2019
437,391 $
4,253 $
31,139 $
93,925 $
68,219 $
— $
2018
426,104
5,383
41,737
90,209
68,219
351
$
$
$
$
$
$
CT REIT 2019 ANNUAL REPORT 39
MANAGEMENT'S DISCUSSION AND ANALYSIS
The net balance due to CTC is comprised of the following:
(in thousands of Canadian dollars)
As at
Tenant and other receivables
Class C LP Units
Amounts payable on Class C LP Units
Loans receivable in respect of payments on Class C LP Units
Other liabilities
Distributions payable on Units and Class B LP Units 1
Loans receivable in respect of distributions on Class B LP Units
CTC Credit Facility 2
Net balance due to CTC
1 Includes distributions deferred at the election of the holders of the Class B LP Units.
2 See Note 9 of the consolidated financial statements.
9.0 Accounting Policies and Estimates
9.1 Significant Areas of Estimation
December 31, 2019
December 31, 2018
$
(1,890) $
(849)
1,451,550
1,451,550
67,712
(62,027)
6,695
29,589
(19,202)
2,000
67,712
(62,027)
9,474
28,634
(18,038)
—
$
1,474,427 $
1,476,456
The preparation of the consolidated financial statements requires management to apply judgments, and to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates are based upon historical
experience and on various other assumptions that are reasonable under the circumstances. The result of ongoing evaluation of
these estimates forms the basis for applying judgment with regards to the carrying values of assets and liabilities and the reported
amounts of revenues and expenses. Actual results may differ from estimates. CT REIT’s critical judgments and estimates in applying
significant accounting policies are described in Note 2 of the consolidated financial statements, the most significant of which is
the fair value of investment properties.
Fair Value of Investment Properties
To determine fair value, CT REIT uses the income approach. Fair value is estimated by capitalizing the cash flows that a property
can reasonably be expected to produce over its remaining economic life. The income approach is derived from two methods: the
overall capitalization rate (“OCR”) method, whereby the net operating income, a non-GAAP measure, is capitalized at the requisite
OCR, or the discounted cash flow (“DCF”) method, in which the cash flows are projected over the anticipated term of the investment
plus a terminal value discounted using an appropriate discount rate. Properties Under Development are recorded at cost and are
adjusted to fair value at each balance sheet date with the fair value adjustment recognized in earnings.
9.2 Standards, Amendments and Interpretations Issued and Adopted
The following amendments have been issued and are effective for the fiscal year ended December 31, 2019, and accordingly,
have been applied in preparing these consolidated financial statements.
(i) Leases
Effective in the first quarter of 2019, CT REIT adopted IFRS 16 - Leases (“IFRS 16”), which replaced IAS 17 - Leases (“IAS 17”)
and related interpretations. IFRS 16 provides a single lessee accounting model, requiring the recognition of assets and liabilities
for all leases. IFRS 16 substantially carries forward the lessor accounting in IAS 17 with the distinction between operating leases
40 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
and finance leases being retained. The adoption of IFRS 16 has resulted in the recognition of right-of-use assets (classified as
investment property) and lease liabilities for all operating leases where CT REIT is a lessee.
As permitted by the transition provisions in IFRS 16, CT REIT has elected not to restate comparative figures with the cumulative
effect of initially applying the new standard recognized in retained earnings on January 1, 2019. Accordingly, the information
presented in these financial statements for the prior year does not reflect the requirements of IFRS 16 and therefore is not
comparable to the information presented in the current period under IFRS 16.
The following table summarizes the cumulative impact of transition adjustments:
As previously reported under IAS 17
December 31, 2018
IFRS 16 transition
adjustments
Investment properties
Other assets - Non-current
Lease liabilities - Current
Lease liabilities - Non-current
Other liabilities - Current
Equity
$
$
$
$
$
$
5,696,194 $
2,801 $
— $
— $
33,048 $
3,084,909 $
66,589 $
(1,466) $
5,982 $
59,141 $
(1,314) $
1,314 $
Restated balance
January 1, 2019
5,762,783
1,335
5,982
59,141
31,734
3,086,223
On adoption of IFRS 16, CT REIT recognized lease liabilities in relation to 10 ground leases which were previously classified as
‘operating leases’ under the principles of IAS 17. Ground rent incurred on these leases was previously included in property expense.
The lease liabilities are measured at the present value of the remaining lease payments, discounted using CT REIT’s incremental
borrowing rate as of January 1, 2019. The weighted average incremental borrowing rate applied to the lease liabilities on January
1, 2019 was 5.0%. On adoption, the ground leases had a weighted average remaining term of 36 years assuming all renewal
options are exercised.
The following table reconciles the operating lease commitments disclosed under IAS 17 as at December 31, 2018 to the opening
balance for lease liabilities as at January 1, 2019:
Operating lease commitments as at December 31, 2018
Add: adjustments for extension options reasonably certain to be exercised
Effect of discounting using CT REIT's incremental borrowing rate
Lease liability recognized as at January 1, 2019
$
$
43,761
114,895
(93,533)
65,123
The associated right-of-use assets for these leases are accounted for as investment property under IAS 40 - Investment Property
and are measured at fair value at the date of initial application. Finance costs associated with the lease liabilities are recognized
in net interest and financing charges in the Consolidated Statements of Income.
In applying IFRS 16 for the first time, CT REIT has not reassessed, under IFRS 16, contracts that were identified as leases under
the previous accounting standard (IAS 17) as a practical expedient permitted by IFRS 16. CT REIT has used hindsight in determining
the lease term when the lease contracts contain options to extend or terminate the lease.
CT REIT 2019 ANNUAL REPORT 41
MANAGEMENT'S DISCUSSION AND ANALYSIS
(ii) IASB annual improvements
In December 2017, the IASB issued amendments to four standards, including IFRS 3 - Business Combinations, IFRS 11 - Joint
Arrangements, IAS 12 - Income Taxes and IAS 23 - Borrowing Costs. These amendments became effective for annual periods
beginning on or after January 1, 2019. The implementation of these amendments did not have a significant impact on CT REIT.
9.3 Standards, Amendments and Interpretations Issued but Not Yet Adopted
The following new standards, amendments and interpretations have been issued but are not effective for the fiscal year ended
December 31, 2019, and, accordingly, have not been applied in preparing these consolidated financial statements.
(i) IASB annual improvements
In 2019, the IASB amended IFRS 10 - Consolidated Financial Statements and IAS 28 - Investments in Associates and Joint
Ventures with respect to accounting for loss in control of subsidiary. This amendment is effective for reporting years yet to be
determined by the IASB and the impact on CT REIT is currently being assessed.
In 2019, the IASB amended IFRS 9 - Financial Instruments and IFRS 7 - Financial Instruments Disclosure regarding interest rate
benchmarks used for hedge accounting. These amendments are effective for reporting years starting January 2020 and the impact
on CT REIT is currently being assessed.
(ii) Definition of material
In October 2018, the IASB issued amendments to IAS 1 - Presentation of Financial Statements and IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors, clarifying the definition of material. Under the amended definition, information is
material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of
general purpose financial statements make on the basis of those financial statements, which provide financial information about
a specific reporting entity. The amendments also clarify the explanations accompanying the definition of material.
The amendments are effective from 1 January 2020 and are required to be applied prospectively. The implementation of these
amendments is not expected to have a significant impact on CT REIT.
(iii) Definition of business
In October 2018, the IASB issued amendments to IFRS 3 - Business Combination. The amendments narrowed and clarified the
definition of a business. The amendments will help companies determine whether an acquisition is of a business or a group of
assets. They also permit a simplified assessment of whether an acquired set of activities and assets is a group of assets rather
than a business. Distinguishing between a business and a group of assets is important because an acquirer recognizes goodwill
only when acquiring a business.
The amendments apply to transactions for which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after January 1, 2020. The implementation of these amendments is not expected to have a significant
impact on CT REIT.
42 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
10.0 NON-GAAP MEASURES
CT REIT uses non-GAAP measures including NOI, same store NOI, same property NOI, FFO, FFO per unit - basic, FFO per unit
- diluted (non-GAAP), AFFO, AFFO per unit - basic, AFFO per unit - diluted (non-GAAP), AFFO payout ratio, ACFO and EBITFV.
CT REIT believes these non-GAAP measures and ratios provide useful supplemental information to both management and
investors in measuring the financial performance of CT REIT in meeting its principle objective of the creation of Unitholder value
by generating reliable, durable and growing monthly distributions. When calculating diluted FFO and AFFO per unit, management
excludes the effect of settling the Class C LP Units with Class B LP Units, which is required when calculating diluted units in
accordance with IFRS.
These measures and ratios do not have a standardized meaning prescribed by GAAP and therefore they may not be comparable
to similarly titled measures and ratios presented by other publicly traded entities, and should not be construed as an alternative
to other financial measures determined in accordance with GAAP.
10.1 Net Operating Income
CT REIT defines NOI as property revenue less property expense adjusted further for straight-line rent and land lease expense.
Management believes that NOI is a useful key indicator of performance as it represents a measure of property operations over
which management has control. NOI is also a key input in determining the value of the portfolio.
(in thousands of Canadian dollars)
Three Months Ended
Year Ended
For the periods ended December 31,
2019
2018
Change
2019
2018
Change
Property revenue
Less:
Property expense
$
123,692 $
119,322
3.7 % $
489,013 $
472,483
3.5 %
(26,763)
(26,804)
(0.2)%
(106,088)
(108,636)
(2.3)%
Property straight-line rent revenue
(3,485)
(4,535)
(23.2)%
(14,130)
(18,404)
(23.2)%
Add:
Straight-line ground lease expense
Transition adjustments - IFRS 16: 1
Ground lease expense
Straight-line ground lease expense
—
—
—
15
(100.0)%
960
(15)
(100.0)%
(100.0)%
—
—
—
62
(100.0)%
3,840
(100.0)%
(62)
(100.0)%
Net operating income
$
93,444 $
88,943
5.1 % $
368,795 $
349,283
5.6 %
1 2018 net operating income has been adjusted to exclude ground lease expense and straight-line ground lease expense to achieve consistency in reporting under IFRS 16.
Refer to section 9.2 for further information.
Same Store NOI
Same store NOI is a non-GAAP financial measure which reports the period-over-period performance of the same asset base
having consistent gross leasable area in both periods. CT REIT management uses this measure to gauge the change in asset
productivity and asset value.
CT REIT 2019 ANNUAL REPORT 43
MANAGEMENT'S DISCUSSION AND ANALYSIS
Same Property NOI
Same property NOI is a non-GAAP financial measure that is consistent with the definition of same store NOI above, except that
same property includes the NOI impact of intensifications. CT REIT management uses this measure to gauge the change in
asset productivity and asset value, as well as measure the additional return earned by incremental capital investments in existing
assets.
The following table summarizes the same store and same property components of NOI:
(in thousands of Canadian dollars)
For the periods ended December 31,
Same store
Intensifications
2019
2018
Same property
Acquisitions, developments and dispositions
2019
2018
Net operating income
1 NM - not meaningful.
Three Months Ended
Year Ended
2019
2018
Change 1
2019
2018
Change 1
$
90,223 $
88,072
2.4 % $
352,663 $
341,957
3.1%
682
126
—
107
— %
17.8 %
1,171
1,600
—
776
$
91,031 $
88,179
3.2 % $
355,434 $
342,733
2,013
400
20
744
NM
(46.2)%
5,206
8,156
80
6,471
$
93,444 $
88,943
5.1 % $
368,796 $
349,284
—%
NM
3.7%
NM
26.0%
5.6%
44 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
10.2 Funds From Operations and Adjusted Funds From Operations
The following table reconciles GAAP net income and comprehensive income to FFO and further reconciles FFO to AFFO:
(in thousands of Canadian dollars, except per unit
amounts)
Three Months Ended
Year Ended
For the periods ended December 31,
2019
2018 Change 1
2019
2018 Change 1
Net Income and comprehensive income
$
76,890 $
74,501
3.2 % $
307,193 $
300,906
2.1 %
Fair value adjustment on investment property
(10,641)
(11,522)
(7.6 )%
(47,306)
(53,628)
(11.8 )%
GP income tax expense
(467)
(274)
70.4 %
Lease principal payments on right-of-use assets 2
Fair value adjustment of unit based compensation
Internal leasing expense
Funds from operations
Property straight-line rent revenue
Straight-line ground lease expense
171
659
185
—
(668)
—
NM
NM
NM
(360)
(201)
2,029
506
(7)
—
(1,239)
—
NM
NM
NM
NM
$
66,797 $
62,037
7.7 % $
261,861 $
246,032
6.4 %
(3,485)
(4,535)
(23.2)%
(14,130)
(18,404)
(23.2)%
—
15
(100.0)%
—
62
(100.0)%
Normalized capital expenditure reserve
(5,915)
(5,669)
4.3 %
(23,431)
(22,517)
Adjusted funds from operations
FFO per unit - basic
FFO per unit - diluted (non-GAAP) 3
AFFO per unit - basic
AFFO per unit - diluted (non-GAAP) 3
$
$
$
$
$
57,397 $
51,848
10.7 % $
224,300 $
205,173
0.293 $
0.293 $
0.252 $
0.252 $
0.286
0.286
0.239
0.239
2.4% $
2.4% $
5.4% $
5.4% $
1.177 $
1.175 $
1.008 $
1.007 $
1.145
1.144
0.955
0.954
Weighted average units outstanding - basic
227,646,716 216,940,471
4.9% 222,559,681 214,805,646
Weighted average units outstanding - diluted (non-GAAP) 227,887,268 217,107,359
5.0% 222,791,571 215,040,074
Number of units outstanding, end of period
228,216,876 220,249,239
3.6% 228,216,876 220,249,239
4.1 %
9.3 %
2.8%
2.7%
5.5%
5.6%
3.6%
3.6%
3.6%
1 NM - not meaningful.
2 Refer to section 9.2 for further information.
3 For the purposes of calculating diluted per unit amounts, diluted units includes restricted and deferred units issued under various plans and excludes the effects of settling
the Class C LP Units with Class B LP Units.
Funds From Operations
FFO is a non-GAAP financial measure of operating performance used by the real estate industry, particularly by those publicly
traded entities that own and operate income-producing properties. FFO should not be considered as an alternative to net income
or cash flows provided by operating activities determined in accordance with IFRS. CT REIT calculates its FFO in accordance
with Real Property Association of Canada's (“REALPAC”) “White Paper on Funds From Operations & Adjusted Funds From
Operations for IFRS” (“White Paper on FFO & AFFO”) issued in February 2019. The use of FFO, together with the required IFRS
presentations, has been included for the purpose of improving the understanding of the operating results of CT REIT.
Management believes that FFO provides an operating performance measure that, when compared period-over-period, reflects
the impact on operations of trends in occupancy levels, rental rates, operating costs and property taxes, acquisition activities and
interest costs, and provides a perspective of the financial performance that is not immediately apparent from net income determined
in accordance with IFRS.
CT REIT 2019 ANNUAL REPORT 45
MANAGEMENT'S DISCUSSION AND ANALYSIS
FFO adds back to net income items that do not arise from operating activities, such as fair value adjustments. FFO, however, still
includes non-cash revenues related to accounting for straight-line rent and makes no deduction for the recurring capital expenditures
necessary to sustain the existing earnings stream.
Adjusted Funds From Operations
AFFO is a non-GAAP measure of recurring economic earnings used in the real estate industry to assess an entity’s distribution
capacity. AFFO should not be considered as an alternative to net income or cash flows provided by operating activities determined
in accordance with IFRS. CT REIT calculates its AFFO in accordance with REALPAC's White Paper on FFO & AFFO.
CT REIT calculates AFFO by adjusting FFO for non-cash income and expense items such as amortization of straight-line rents.
FFO is also adjusted for a reserve for maintaining productive capacity required for sustaining property infrastructure and revenue
from real estate properties and direct leasing costs. As property capital expenditures do not occur evenly during the fiscal year or
from year to year, the normalized capital expenditure reserve in the AFFO calculation, which is used as an input in assessing a
REIT's distribution payout ratio, is intended to reflect an average annual spending level. The reserve is primarily based on average
expenditures as determined by building condition reports prepared by independent consultants.
46 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table compares capital expenditures during the period 2015-2019 to the normalized capital expenditure reserve used
in the calculation of AFFO:
(in thousands of Canadian dollars)
For the periods indicated
Q1
Q2
Q3
Q4
Year ended December 31, 2016
2017
Q1
Q2
Q3
Q4
Year ended December 31, 2017
2018
Q1
Q2
Q3
Q4
Year ended December 31, 2018
2019
Q1
Q2
Q3
Q4
Year ended December 31, 2019
Normalized
capital
expenditure
reserve
2016
Capital
expenditures
Variance
$
$
$
$
$
$
$
$
4,407 $
259 $
4,581
4,666
4,741
4,898
8,551
1,862
18,395 $
15,570 $
5,065 $
348 $
5,109
5,139
5,173
5,445
8,307
4,862
20,486 $
18,962 $
5,598 $
(371) $
5,618
5,632
5,669
2,425
9,867
5,778
22,517 $
17,699 $
5,779 $
257 $
5,854
5,883
5,915
5,253
10,311
4,728
23,431 $
20,549 $
4,148
(317)
(3,885)
2,879
2,825
4,717
(336)
(3,168)
311
1,524
5,969
3,193
(4,235)
(109)
4,818
5,522
601
(4,428)
1,187
2,882
The normalized capital expenditure reserve exceeded actual capital expenditures by $12,049 during the four year period of
2016-2019. The normalized capital expenditure reserve per square foot has increased since 2015 which reflects changes in asset
mix (primarily due to an increase in multi-tenanted retail investment properties) and inflation in expected costs. Management
expects there will be periods in the future where actual capital expenditures will exceed the normalized capital expenditure reserve.
The current period reserve is based upon unit costs that are anticipated to be realized in work to be completed in the current
period.
The normalized capital expenditure reserve varies from the capital expenditures incurred due to the seasonal nature of the
expenditures. As such, CT REIT views the normalized capital expenditure reserve as a more meaningful measure. Refer to
section 4.11 for additional information.
CT REIT 2019 ANNUAL REPORT 47
MANAGEMENT'S DISCUSSION AND ANALYSIS
10.3 AFFO Payout Ratio
The AFFO payout ratio is a non-GAAP measure of the sustainability of the REIT's distribution payout. CT REIT uses this metric
to provide transparency on performance and the overall management of the existing portfolio of assets. Management considers
the AFFO payout ratio to be the best measure of the REIT's distribution capacity.
Three Months Ended
Year Ended
For the periods ended December 31,
2019
2018
Change
2019
2018
Change
Distribution per unit - paid (A)
AFFO per unit - diluted (non-GAAP) 1 (B)
$
$
0.189
0.252
$
$
0.182
0.239
4.0 % $
0.757
5.4 % $
1.007
$
$
0.728
0.954
AFFO payout ratio (A)/(B)
75%
76%
(1)%
75%
76%
4.0 %
5.6 %
(1)%
1 For the purposes of calculating diluted per unit amounts, diluted units includes restricted and deferred units issued under various plans and excludes the effects of settling
the Class C LP Units with Class B LP Units.
10.4 Diluted Non-GAAP per Unit Calculations
Management calculates the weighted average units outstanding - diluted (non-GAAP) by excluding the full conversion of the Class
C LP Units with Class B LP Units which is not considered a likely scenario. As such, the REIT's fully diluted per unit FFO and
AFFO amounts are calculated excluding the effects of settling the Class C LP Units with Class B LP Units, which management
considers as a more meaningful measure.
The following table reconciles the calculation of the weighted average units outstanding - diluted (non-GAAP) to weighted average
units outstanding - diluted:
For the periods ended December 31,
2019
2018
2019
2018
Weighted average units outstanding - diluted (non-GAAP)
227,887,268
217,107,359
222,791,571
215,040,074
Dilutive effect of settling Class C LP Units with Class B LP Units
91,823,461
121,102,386
91,823,461
121,102,386
Weighted average units outstanding - diluted
319,710,729
338,209,745
314,615,032
336,142,460
Three Months Ended
Year Ended
10.5 Adjusted Cash Flow From Operations
ACFO is a non-GAAP financial measure developed by REALPAC for use by the real estate industry as a sustainable economic
cash flow metric. ACFO should not be considered as an alternative to cash flows provided by operating activities determined in
accordance with IFRS. CT REIT calculates its ACFO in accordance with REALPAC's “White Paper on Adjusted Cashflow from
Operations for IFRS” (“White Paper on ACFO”) issued in February 2019. The purpose of the White Paper on ACFO is to provide
guidance on the definition of ACFO to promote consistent disclosure amongst reporting issuers. Management believes that the
use of ACFO, combined with the required IFRS presentations, improves the understanding of the operating cash flow of CT REIT.
CT REIT calculates ACFO from cash flow generated from operating activities by adjusting for non-operating adjustments to changes
in working capital and other, net interest and other financing charges and normalized capital expenditure reserve.
48 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
A reconciliation from the IFRS term “Cash Generated from Operating Activities” (refer to the Consolidated Statements of Cash
Flows for the year ended December 31, 2019 and December 31, 2018) to ACFO is as follows:
(in thousands of Canadian dollars)
Three Months Ended
Year Ended
For the periods ended December 31,
2019
2018
Change 1
2019
2018
Change 1
Cash generated from operating activities
93,986 $
83,887
12.0%
362,328 $
331,722
Non-operating adjustments to changes in working
capital and other
Net interest and other financing charges
Normalized capital expenditure reserve
(787)
843
(27,033)
(26,086)
(5,915)
(5,669)
Lease principal payments on right-of-use assets 2
171
—
NM
3.6%
4.3%
NM
(1,577)
1,231
(108,753)
(104,380)
(23,431)
(22,517)
(201)
—
9.2%
NM
4.2%
4.1%
NM
Adjusted cashflow from operations
60,422 $
52,975
14.1%
228,366 $
206,056
10.8%
1 NM - not meaningful.
2 Refer to section 9.2 for further information.
The non-operating adjustments to changes in working capital and other for three months ended and year ended December 31,
2019 is primarily due to the timing of commodity taxes payable.
10.6 Earnings Before Interest and Other Financing Costs, Taxes and Fair Value Adjustments
EBITFV is a non-GAAP measure of a REIT’s operating cash flow and it is used in addition to IFRS net income because it excludes
major non-cash items (including fair value adjustments), interest expense and other financing costs, income tax expense, losses
or gains on disposition of property, and other non-recurring items that may occur under IFRS that management considers non-
operating in nature. EBITFV should not be considered as an alternative to net income or cash flows provided by operating activities
determined in accordance with IFRS.
EBITFV is used as an input in some of CT REIT’s debt metrics, providing information with respect to certain financial ratios that
CT REIT uses in measuring its debt profile and assessing its ability to satisfy its obligations, including servicing its debt.
For the three months and year ended December 31, 2019, EBITFV was calculated as follows:
(in thousands of Canadian dollars)
For the periods ended December 31,
Three Months Ended
Year Ended
2019
2018 Change 1
2019
2018 Change 1
Net income and comprehensive income
$
76,890 $
74,501
3.2 % $
307,193 $
300,906
2.1 %
Fair value adjustment on investment properties
(10,641)
(11,522)
(7.6 )%
(47,306)
(53,628)
(11.8 )%
Fair value adjustment on unit-based awards
659
(668)
NM
2,029
(1,239)
NM
Interest expense and other financing charges
27,245
26,192
4.0 %
109,137
104,605
4.3 %
GP income tax expense
EBITFV
1 NM - not meaningful.
(467)
(274)
70.4 %
(360)
(7)
NM
$
93,686 $
88,229
6.2 % $
370,693 $
350,637
5.7 %
CT REIT 2019 ANNUAL REPORT 49
MANAGEMENT'S DISCUSSION AND ANALYSIS
10.7 Non-GAAP Measures Referenced in Other Sections of the MD&A
The interest coverage ratio under section 6.5 is calculated using a non-GAAP measure.
10.8 Selected Quarterly Consolidated Information
(in thousands of Canadian dollars,
except per unit amounts)
As at and for the quarter ended
Q4
2019
Q3
Q2
Q1
Q4
2018
Q3
Q2
Q1
Property revenue
Net income
Net income per unit
- basic
- diluted
FFO per unit - diluted (non-GAAP) 1
AFFO per unit - diluted (non-GAAP) 1
$ 123,692 $ 121,763 $ 121,994 $ 121,564 $ 119,322 $ 117,662 $ 118,880 $ 116,619
$
$
$
$
$
76,890 $
80,138 $
78,720 $
71,445 $
74,501 $
79,147 $
74,744 $
72,514
0.338 $
0.362 $
0.357 $
0.324 $
0.343 $
0.369 $
0.350 $
0.294 $
0.301 $
0.297 $
0.273 $
0.271 $
0.296 $
0.282 $
0.293 $
0.303 $
0.291 $
0.288 $
0.286 $
0.289 $
0.292 $
0.252 $
0.261 $
0.249 $
0.245 $
0.239 $
0.241 $
0.241 $
0.339
0.276
0.277
0.233
Total assets
Total indebtedness
$6,024,512 $6,001,912 $5,928,005 $5,853,296 $5,708,692 $5,676,689 $5,592,575 $5,555,324
$2,572,294 $2,570,162 $2,609,049 $2,580,000 $2,573,489 $2,596,482 $2,581,316 $2,596,152
Total distributions, net of distribution
reinvestment, to Unitholders - paid
Total distributions per unit - paid
Book value per unit
Market price per unit
- high
- low
- close (end of period)
$
$
$
$
$
$
39,352 $
39,337 $
39,337 $
39,877 $
38,453 $
38,169 $
38,069 $
38,184
0.189 $
0.189 $
0.189 $
0.189 $
0.182 $
0.182 $
0.182 $
14.61 $
14.46 $
14.31 $
14.15 $
14.01 $
13.90 $
13.71 $
16.30 $
15.05 $
14.77 $
14.45 $
13.03 $
13.72 $
13.53 $
14.51 $
13.97 $
13.54 $
11.47 $
11.26 $
12.37 $
12.80 $
16.14 $
15.03 $
14.22 $
14.36 $
11.53 $
12.85 $
12.90 $
0.182
13.54
14.68
12.50
13.30
1 Non-GAAP measure. Refer to 10.0 section for further information.
Property revenue, distributions and other financial and operational results noted above have grown at a steady rate. However,
macroeconomic and market trends may have an influence on the demand for space, occupancy levels, and consequently, the
REIT's operating performance.
Refer to CT REIT's respective annual and interim MD&A's issued for a discussion and analysis relating to those periods.
11.0 Enterprise Risk Management
Enterprise Risk Management Framework
To preserve and enhance Unitholder value over the long term, CT REIT takes a balanced approach to risk taking together with
effective risk management. The effective management of risk within CT REIT is a key priority for the Board of Trustees and
senior management, as such the REIT has adopted an Enterprise Risk Management Framework (“ERM Framework”) for
identifying, assessing, monitoring, mitigating and reporting key risks.
The ERM Framework is designed to provide an integrated approach to the management of risks, through a disciplined manner
that:
50 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
•
•
•
•
Safeguards the REIT’s reputation;
Supports the achievement of the REIT’s growth strategy and objectives;
Preserves and enhances Unitholder value; and
Supports business planning and operations by providing a cross-functional perspective to risk management, integrated
with strategic planning and reporting processes.
Risk Governance
Through the ERM Framework, there is oversight over key risks and emerging risks. The foundation of the REIT’s ERM Framework
is a governance approach that includes a set of policies approved by the Board of Trustees together with the following key
elements; the Board of Trustees and Chief Executive Officer (“CEO”), supported by the senior leadership team and a three-
lines of defence operating model. Clearly defined roles and responsibilities, coupled with timely monitoring and reporting, assist
in supporting a strong risk culture and effective governance of risk.
The CEO is supported in discharging his responsibilities with respect to managing strategies in alignment with the REIT’s risk
appetite, identifying various risk related policies for the Board’s approval and evaluating the effectiveness of the REIT’s processes
and controls that aim to mitigate risk and support strategic objectives. The REIT monitors its risk exposures to assess that it is
operating within approved limits, strategies and risk appetite.
Key Risks
CT REIT monitors its business to identify and assess key risks that alone, or in combination with other interrelated risks, could
have a significant adverse impact on the REIT’s financial position, and/or ability to achieve its strategic objectives. The key risks
are enterprise-wide in scope and represent strategic, financial and operational risks. The mitigation and management of key
risks is approached holistically with a view to ensuring all risk exposures are considered. Although the REIT believes the
measures taken to mitigate risks are reasonable, there can be no assurance that they will effectively control all risks that may
have a negative impact. In addition, there are numerous other risk factors that are difficult to predict and could adversely affect
the REIT’s financial results, operations and strategic objectives.
The following table provides an overview of each of the REIT’s key risks and related risk management strategies. Further
information on the REIT’s key risks is presented in the REIT’s 2019 Annual Information Form (“2019 AIF”). CT REIT cautions
that the discussion of risks, including those risks described in the REIT’s 2019 AIF, is not exhaustive. When considering whether
to purchase or sell Units of the REIT, investors and others should carefully consider these factors as well as other uncertainties,
potential events and industry specific factors that may adversely impact the REIT’s future results.
CT REIT 2019 ANNUAL REPORT 51
MANAGEMENT'S DISCUSSION AND ANALYSIS
Key Risks
Risk Management Strategy
External Economic Environment
The REIT regularly monitors and analyzes external economic,
The REIT is subject to risks resulting from fluctuations or fundamental
demographic, consumer behaviour and competitive developments in
changes in the external business environment. These fluctuations or
Canada related to its business. Results are shared with the REIT
fundamental shifts in the macroeconomic environment as well as the
executives, who are accountable for any necessary amendments to
regions and local marketplaces where the REIT conducts its business
the strategic and operational plans and for on-going investment
could include:
decisions in order to respond to evolving market and economic
• changes in the current economic environment and uncertainty with
trends.
respect to potential future economic disruption including recession,
depression, or high inflation impacting business and consumer
confidence and spending;
• changes in the economic stability of local markets such as business
layoffs, industry slow-downs, changing demographics and other factors
impacting tenants’ revenues and their ability to pay rent, and the REIT’s
ability to lease space, renew leases and derive income from the
properties in the affected market;
• changes in the economic condition and regulatory environment of the
regions in which the REIT’s properties are concentrated, which may
have a material adverse effect on the REIT’s business, cash flows,
financial condition, results of operations and ability to make distributions
to Unitholders;
• changes in retail shopping behaviours and habits of consumers and
the introduction of new “technologies” and competitors impacting the
relevance of the products, sales channels, or services offered by the
REIT’s key tenant, which may result in a negative impact on their
financial position culminating in a decrease in the demand for physical
space, which could adversely affect the REIT’s financial performance;
and
• increased competition amongst investors, developers, owners and
operators of properties similar to those of the REIT could negatively
impact the availability of suitable acquisition opportunities thereby
increasing the REIT’s cost of acquisition as well as its’ ability to lease
properties, renew leases and achieve rental increases, which may
adversely impact the REIT’s financial condition and results of
operations.
52 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
Key Business Relationship
The REIT’s relationship with its majority Unitholder, CTC, is integral to
The REIT benefits from the stability offered by CTC businesses
its business strategy and could affect the REIT’s cash flows, operating
including Canadian Tire Retail, one of Canada’s most shopped general
results, overall
financial performance and
its ability
to make
merchandise retailers with high recognition and a strong reputation
distributions. Key factors inherent to this relationship include:
throughout the communities it serves. Appropriate governance
• situations where the interests of CTC and the REIT are in conflict,
structures, including policies, processes and other management
CTC may utilize its ownership interest in, and contractual rights with
activities and practices are in place to maintain and monitor the
the REIT, to further CTC’s own interest which may not be the same as
relationship between the REIT and CTC. In addition, Management
the REIT’s interest in all cases, causing the REIT not to be able to
regularly monitors the operating results and credit ratings of CTC.
operate in a manner that is to its favour, which could adversely affect
the REIT’s cash flows, operating results, valuation, and overall financial
condition;
• the dependence of the REIT’s revenues on the ability of its key tenant,
CTC, to meet its rent obligations and renew its tenancies. While CTC
has held investment grade credit ratings for over 20 years, there is no
assurance that it will maintain such ratings or that its financial position
will not change over time. The future financial performance and
operating results of CTC’s business are subject to inherent risks,
perceptions and uncertainties. A downturn in CTC’s business resulting
in an inability to meet their obligations under their leases or if a
significant amount of available space in the properties was not able to
be leased on economically favourable lease terms could have a material
effect on the financial performance of the REIT, its cash flows, and the
REIT’s ability to make distributions to Unitholders; and
• the REIT’s dependency on the services of key personnel including
certain CTC personnel who supply necessary services to operate the
REIT for its effective management and governance. Failure to receive
these services or the need to replace the service provider in a short
period of time could have a material adverse effect on the REIT.
CT REIT 2019 ANNUAL REPORT 53
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial
Risks associated with macroeconomic conditions which are highly
The REIT has a Board-approved financial risk management policy in
cyclical and volatile could have a material effect on the REIT’s financial
place that governs the management of capital, funding, and other
position and its ability to achieve its strategic goals and aspirations.
financial risks. The indebtedness and Class C LP Units of the REIT
Such risks include:
are predominantly at fixed rates and its floating interest rate exposure
• fundamental changes in the economic environment, significant events
is minimal. The weighted average term to redemption/maturity of the
or volatility in the financial markets resulting in changes in interest rates
REIT’s debt portfolio is managed to align with the weighted average
that affect the value of real estate, the value of the REIT’s Units, the
term to maturity of the REIT’s assets. The REIT manages refinancing
economics of acquisition activity and the availability of capital impacting
risk by maintaining a diversified debt redeeming/ maturity schedule
the financial position of the REIT and its ability to make distributions to
to limit the amount of debt maturing in any one year. The REIT may
its Unitholders; and
use interest rate hedges from time to time to manage interest rate
• the REIT’s ability to manage fluctuations in interest rates, access to
risk and to provide more certainty regarding the FFO available to
capital and liquidity, the price of the REIT’s Units and the REIT’s degree
Unitholders, subject to the REIT’s investment and guidelines and
of leverage. Failure to develop, implement, and execute effective
operating policies.
strategies to manage these risks may result in insufficient capital to
absorb unexpected losses and/or changes in asset value negatively
affecting the REIT’s financial performance and increasing the REIT’s
vulnerability to a downturn in business or the economy.
Legal and Regulatory Compliance
Failure to adhere to laws and regulations by the REIT may result in
The REIT has appropriate governance structures, including policies,
regulatory related issues or decrease investor confidence and a decline
processes and controls in place to comply with legal and regulatory
in the REIT’s Unit price. Changes to laws and regulations applicable to
requirements, including but not limited to the REIT’s ability to
the REIT may adversely affect the REIT’s financial condition, results of
continue to satisfy the conditions to qualify as a closed end mutual
operation, and distributions to Unitholders, including:
fund trust and to comply with environmental laws and address any
• changes in income tax laws such that the REIT would not qualify as
material environmental issues, including climate change. Processes
a mutual fund trust for purposes of the Income Tax Act (“ITA”), including
are also in place to monitor any legal and regulatory changes that
the treatment of real estate investment trusts and mutual fund trusts,
may impact the REIT.
or the exclusion from the definition of “SIFT TRUST” for a trust qualifying
as a “real estate investment trust” for a taxation year under the ITA,
which could have a material and adverse impact on the value of the
Units, and on distributions to Unitholders;
• changes in various federal, provincial, territorial and municipal laws
relating to environmental matters, including climate change, which may
result in the REIT bearing the risk of cost-intensive assessment,
technologies, and the removal of contamination, hazardous or other
regulated substances causing an adverse effect on the REIT’s financial
condition, results of operation, cash available for distribution to
Unitholders.
54 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
Operations
The REIT has appropriate governance structures, including policies,
The REIT is subject to the risk that a direct or indirect loss of operating
processes, contracts, service agreements and other management
capabilities may occur due to:
activities in place to maintain the operational performance of the
• inadequate or failed operations processes (property management,
REIT and to support the REIT’s business and strategic objectives.
development, redevelopment and renovation risks such as substantial
unanticipated delays and expenses or the inability to initiate or complete
activities) that could have an adverse effect on the REIT’s reputation,
financial condition, results of operations, cash flow, trading price of the
Units, distributions to Unitholders and the ability of the REIT to satisfy
its principal and interest obligations;
• internal or outsourced business activities and business disruptions
(such as disasters, cyber incidents, climate change) and ineffective
business continuity and contingency planning, which could adversely
affect the reputation, operations and financial performance of the REIT;
and
• talent shortages due to external pressure or the inability to effectively
attract and retain talented and experienced employees, which may
negatively impact the REIT’s ability to operate its business and execute
its strategy.
12.0 Internal Controls and Procedures
12.1 Disclosure Controls and Procedures
Management is responsible for establishing and maintaining a system of controls and procedures over the public disclosure of
financial and non-financial information regarding CT REIT. Such controls and procedures are designed to provide reasonable
assurance that all relevant information is gathered and reported, on a timely basis, to senior management, including the CEO and
the Chief Financial Officer (“CFO”), so that they can make appropriate decisions regarding public disclosure.
CT REIT’s system of disclosure controls and procedures include, but are not limited to, its Disclosure Policy, its Code of Business
Conduct, the effective functioning of its Disclosure Committee, procedures in place to systematically identify matters warranting
consideration of disclosure by the Disclosure Committee, verification processes for individual financial and non-financial metrics,
and information contained in annual and interim filings, including the consolidated financial statements, MD&A, Annual Information
Form and other documents and external communications.
As required by CSA National Instrument 52-109 (“NI 52-109”) Certification of Disclosure in Issuers’ Annual and Interim Filings, an
evaluation of the adequacy of the design (quarterly) and effective operation (annually) of CT REIT’s disclosure controls and
procedures was conducted, under the supervision of management, including the CEO and CFO, as at December 31, 2019. The
evaluation included documentation review, enquiries and other procedures considered by management to be appropriate in the
circumstances. Based on that evaluation, the CEO and the CFO have concluded that the design and operation of the system of
disclosure controls and procedures were effective as at December 31, 2019.
CT REIT 2019 ANNUAL REPORT 55
MANAGEMENT'S DISCUSSION AND ANALYSIS
12.2 Internal Control Over Financial Reporting
Management is also responsible for establishing and maintaining appropriate internal control over financial reporting. CT REIT’s
internal control over financial reporting include, but are not limited to, detailed policies and procedures related to financial accounting,
reporting and controls over systems that process and summarize transactions. CT REIT’s procedures for financial reporting also
include the active involvement of qualified financial professionals, senior management and its Audit Committee.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
As also required by NI 52-109, management, including the CEO and CFO, evaluated the adequacy of the design (quarterly) and
effective operation (annually) of CT REIT’s internal control over financial reporting as defined in NI 52-109, as at December 31,
2019. In making this assessment, management, including the CEO and CFO, used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). This evaluation included
review of the documentation of controls, evaluation of the design and testing the operating effectiveness of controls, and a conclusion
about this evaluation. Based on that evaluation, the CEO and the CFO have concluded that the design and operation of the internal
control over financial reporting were effective as at December 31, 2019, in providing reasonable assurance regarding the reliability
of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS.
12.3 Changes in Internal Control Over Financial Reporting
During the quarter and year ended December 31, 2019, there have been no changes in CT REIT’s internal control over financial
reporting that have materially affected, or are reasonably likely to materially affect, CT REIT’s internal control over financial reporting.
13.0 FORWARD-LOOKING INFORMATION
This MD&A, and the documents incorporated by reference herein, contain forward-looking statements that involve a number of
risks and uncertainties, including statements regarding the outlook for CT REIT’s business results of operations. Forward-looking
statements are provided for the purposes of providing information about CT REIT’s future outlook and anticipated events or results
and may include statements regarding known and unknown risks and uncertainties and other factors that may cause the actual
results to differ materially from those indicated. Such factors include, but are not limited to, general economic conditions, financial
position, business strategy, availability of acquisition opportunities, budgets, capital expenditures, financial results including fair
value adjustments and cash flow assumptions upon which they are based, cash, taxes, plans and objectives of or involving CT
REIT. Particularly, statements regarding future acquisitions, developments, distributions, results, performance, achievements,
prospects or opportunities for CT REIT or the real estate industry are forward-looking statements. In some cases, forward-looking
information can be identified by such terms such as “may”, “might”, “will”, “could”, “should”, “would”, “occur”, “expect”, “plan”, “anticipate”,
“believe”, “intend”, “estimate”, “predict”, “potential”, “continue”, “likely”, “schedule”, or the negative thereof or other similar expressions
concerning matters that are not historical facts.
56 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
Some of the specific forward-looking statements in this document include, but are not limited to, statements with respect to CT
REIT's:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
growth strategy and objectives under section 2.0;
fair value of property portfolio under section 4.4;
investment activities under section 4.5;
development activities under section 4.6;
leasing activities under section 4.10;
recoverable capital costs under section 4.11;
fair value adjustment on investment properties under section 5.1;
capital expenditures to fund acquisitions and development activities under section 6.1;
capital strategy under section 6.11;
commitments as at December 31, 2019 under section 6.12;
distributions under section 7.3;
capital expenditures under section 10.2;
access to available sources of debt and/or equity financing;
expected tax treatment and its distributions to Unitholders;
ability to expand its asset base, make accretive acquisitions, develop or intensify its Properties and participate with CTC
in the development or intensification of the Properties; and
ability to continue to qualify as a “real estate investment trust”, as defined pursuant to the ITA.
CT REIT has based these forward-looking statements on factors and assumptions about future events and financial trends that
it believes may affect its financial condition, results of operations, business strategy and financial needs, including that the Canadian
economy will remain stable over the next 12 months, that inflation will remain relatively low, that tax laws remain unchanged, that
conditions within the real estate market, including competition for acquisitions, will be consistent with the current climate, that the
Canadian capital markets will provide CT REIT with access to equity and/or debt at reasonable rates when required, that CTC
will continue its involvement with CT REIT on the basis described in its 2019 AIF, and that the ERP will operate as expected.
Although the forward-looking statements contained in this MD&A are based upon assumptions that management of CT REIT
believes are reasonable, based on information currently available to management, there can be no assurance that actual results
will be consistent with these forward-looking statements. Forward-looking statements necessarily involve known and unknown
risks and uncertainties, many of which are beyond the REIT’s control, that may cause CT REIT’s, or the industry’s, actual results,
performance, achievements, prospects and opportunities in future periods to differ materially from those expressed or implied by
such forward-looking statements. These risks and uncertainties include, among other things, the factors discussed under the “Risk
Factors” section of the 2019 AIF.
For more information on the risks, uncertainties and assumptions that could cause CT REIT’s actual results to differ from current
expectations, please also refer to CT REIT’s public filings available on SEDAR at www.sedar.com and by a link at www.ctreit.com.
CT REIT cautions that the foregoing list of important factors and assumptions is not exhaustive and other factors could also
adversely affect its results. Investors and other readers are urged to consider the foregoing risks, uncertainties, factors and
CT REIT 2019 ANNUAL REPORT 57
MANAGEMENT'S DISCUSSION AND ANALYSIS
assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such forward-
looking information. Statements that include forward-looking information do not take into account the effect that transactions or
non-recurring or other special items announced or occurring after the statements are made have on CT REIT’s business. For
example, they do not include the effect of any dispositions, acquisitions, asset write-downs or other charges announced or occurring
after such statements are made. The forward-looking information in this MD&A is based on certain factors and assumptions made
as of the date hereof or the date of the relevant document incorporated herein by reference, as applicable. CT REIT does not
undertake to update the forward-looking information, whether written or oral, that may be made from time to time by it or on its
behalf, to reflect new information, future events or otherwise, except as required by applicable securities laws.
Information contained in or otherwise accessible through the websites referenced in this MD&A does not form part of this
MD&A and is not incorporated by reference into this MD&A. All references to such websites are inactive textual references and
are for information only.
58 CT REIT 2019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
Commitment to disclosure and investor communication
The Investors section of the REIT’s website by a link at www.ctreit.com includes the following documents and information of interest
to investors:
•
Annual Information Form;
• Management Information Circular;
•
•
•
the Base Shelf Prospectus and related prospectus supplements;
quarterly reports; and
conference call webcasts (archived for one year).
Additional information about the REIT has been filed electronically with various securities regulators in Canada through SEDAR
and is available online at www.sedar.com.
If you would like to contact the Investor Relations department directly, call Marina Davies (416) 544-6134 or email
investor.relations@ctreit.com.
February 10, 2020
CT REIT 2019 ANNUAL REPORT 59
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
Management's Responsibility for Financial Statements
Independent Auditor's Report
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Note 1 Nature of CT Real Estate Investment Trust
Note 2 Basis of Presentation
Note 3 Significant Accounting Policies
Note 4
Investment Properties
Note 5 Class C LP Units
Note 6 Mortgages Payable
Note 7 Debentures
Note 8
Leases
Note 9 Credit Facilities
Note 10 Equity
Note 11 Unit Based Compensation Plans
Note 12 Non-Controlling Interests
Note 13 Revenues and Expenses
Note 14 General and Administrative Expense
Note 15 Net Interest and Other Financing Charges
Note 16 Changes in Working Capital and Other
Note 17 Segmented Information
Note 18 Commitments and Contingencies
Note 19 Related-Party Transactions
Note 20 Financial Instruments and Risk Management
Note 21 Capital Management and Liquidity
Note 22 Subsequent Event
Glossary of Terms
60 CT REIT 2019 ANNUAL REPORT
61
62
64
65
66
67
68
68
73
79
81
83
83
84
85
86
89
90
90
91
92
92
92
93
93
95
97
98
99
Management's Responsibility for Financial Statements
The management of CT Real Estate Investment Trust ("CT REIT") is responsible for the integrity and reliability of the accompanying
consolidated financial statements. These consolidated financial statements have been prepared by management in accordance
with International Financial Reporting Standards, and include amounts based on judgments and estimates. All financial
information in our Management's Discussion and Analysis is consistent with these consolidated financial statements.
Management is responsible for establishing and maintaining adequate systems of internal control over financial reporting. These
systems are designed to provide reasonable assurance that the financial records are reliable and form a proper basis for the
timely and accurate preparation of financial statements. Management has assessed the effectiveness of CT REIT's internal
control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) and concluded that CT REIT's internal control over financial
reporting was effective as at the date of these consolidated statements.
The Board of Trustees oversees management’s responsibilities for the consolidated financial statements primarily through the
activities of its Audit Committee, which is comprised solely of trustees who are neither officers nor employees of CT REIT. This
Committee meets with management and CT REIT's independent auditors, Deloitte LLP, to review the consolidated financial
statements and recommend approval to the Board of Trustees. The Audit Committee is responsible for making recommendations
to the Board of Trustees with respect to the appointment of and, subject to the approval of the Unitholders authorizing the Board
of Trustees to do so, approving the remuneration and terms of engagement of CT REIT’s auditors. The Audit Committee also
meets with the auditors, without the presence of management, to discuss the results of their audit.
The consolidated financial statements have been audited by Deloitte LLP, in accordance with Canadian generally accepted
auditing standards. Their report is presented below.
<< Kenneth Silver >>
<< Lesley Gibson >>
Kenneth Silver
Chief Executive Officer
February 10, 2020
Lesley Gibson
Chief Financial Officer
CT REIT 2019 ANNUAL REPORT 61
Independent Auditor’s Report
To the Unitholders of CT Real Estate Investment Trust
Opinion
We have audited the consolidated financial statements of CT Real Estate Investment Trust (the “REIT”), which comprise the
consolidated balance sheets as at December 31, 2019 and 2018, and the consolidated statements of income and
comprehensive income, changes in equity and cash flows for the years then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the REIT
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 (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Statements section of our report. We are independent of the REIT in accordance with the ethical requirements that are relevant
to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Other Information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
•
The information, other than the financial statements and our auditor’s report thereon, in the CT REIT 2019 Annual
Report (the “Annual Report”).
Our opinion on the financial statements does not cover the other information and we do not and will not express any form of
assurance conclusion thereon. In connection with our audit of the 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 financial
statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have
performed on this other information, we conclude that there is a material misstatement of this other information, we are
required to report that fact in this auditor’s report. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the work we will
perform on this other information, we conclude that there is a material misstatement of this other information, we are required
to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and
for such internal control as management determines is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the REIT’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 REIT or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the REIT’s financial reporting process.
62 CT REIT 2019 ANNUAL REPORT
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS 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 financial statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
•
•
•
•
•
Identify and assess the risks of material misstatement of the 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 REIT’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 REIT’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 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 REIT to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
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 Timothy Wilson.
/s/ Deloitte LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Ontario
February 10, 2020
CT REIT 2019 ANNUAL REPORT 63
Consolidated Balance Sheets
(Canadian dollars, in thousands)
As at
Assets
Non-current assets
Investment properties
Other assets
Current assets
Tenant and other receivables
Other assets
Cash and cash equivalents
Total assets
Liabilities
Non-current liabilities
Class C LP Units
Mortgages payable
Debentures
Lease liabilities
Other liabilities
Current liabilities
Class C LP Units
Mortgages payable
Credit Facilities
Lease liabilities
Other liabilities
Distributions payable
Total liabilities
Equity
Unitholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
Note December 31, 2019 December 31, 2018
4
$
6,006,982 $
5,696,194
1,674
6,008,656
2,801
5,698,995
2,882
3,240
9,734
15,856
2,145
2,561
4,991
9,697
6,024,512 $
5,708,692
1,200,000 $
1,451,550
10,353
1,070,695
61,374
4,975
—
1,069,844
—
3,348
2,347,397
2,524,742
251,550
37,696
2,000
884
35,904
14,976
343,010
2,690,407
1,464,939
1,869,166
3,334,105
—
37,100
14,995
—
33,048
13,898
99,041
2,623,783
1,306,355
1,778,554
3,084,909
5,708,692
$
$
5
6
7
8
5
6
9
8
10
10
10, 12
$
6,024,512 $
The related notes form an integral part of these consolidated financial statements.
<< David Laidley >>
<< Anna Martini >>
David Laidley
Trustee
64 CT REIT 2019 ANNUAL REPORT
Anna Martini
Trustee
Consolidated Statements of Income and Comprehensive Income
(Canadian dollars, in thousands, except per unit amounts)
For the year ended December 31,
Note
2019
2018
Property revenue
Property expense
General and administrative expense
Net interest and other financing charges
Fair value adjustment on investment properties
Net income and comprehensive income
Net income and comprehensive income attributable to:
Unitholders
Non-controlling interests
Net income per unit - basic
Net income per unit - diluted
13
13
14
15
4
12
10
10
$
$
$
$
$
$
489,013 $
(106,088)
(14,285)
(108,753)
47,306
307,193 $
136,667 $
170,526
307,193 $
1.380 $
1.193 $
472,483
(108,636)
(12,189)
(104,380)
53,628
300,906
128,030
172,876
300,906
1.401
1.098
The related notes form an integral part of these consolidated financial statements.
CT REIT 2019 ANNUAL REPORT 65
Consolidated Statements of Changes in Equity
(Canadian dollars, in thousands)
Note
Units
Retained
Earnings
Unitholders'
Equity
Non-
controlling
interests
Total
Equity
December 31, 2018, as previously reported
Transition adjustments - IFRS 16
Restated balance at January 1, 2019
Net income and comprehensive income for the period
Issuance of Class B LP Units, net of issue costs
Distributions
Issuance of Units from 2019 REIT Offering, net of
issue costs
Issuance of Units under Distribution Reinvestment
Plan and other
Balance at December 31, 2019
2
10
10
10
11
$
$
960,688 $
345,667 $
1,306,355 $ 1,778,554 $ 3,084,909
—
578
578
736
1,314
960,688 $
346,245 $
1,306,933 $ 1,779,290 $ 3,086,223
—
—
—
86,140
10,668
136,667
136,667
—
—
170,526
13,275
307,193
13,275
(75,469)
(75,469)
(93,925)
(169,394)
—
—
86,140
10,668
—
—
86,140
10,668
$ 1,057,496 $
407,443 $
1,464,939 $ 1,869,166 $ 3,334,105
Balance at December 31, 2017
$
884,090 $
284,687 $
1,168,777 $ 1,692,664 $ 2,861,441
Note
Units
Retained
Earnings
Unitholders'
Equity
Non-
controlling
interests
Total
Equity
Net income and comprehensive income for the period
Issuance of Class B LP Units, net of issue costs
Exchange of Class B LP Units for Units
Distributions
Issuance of Units from 2018 REIT Offering, net of
issue costs
Issuance of Units under Distribution Reinvestment
Plan and other
10
10
10
10
11
—
—
10,800
128,030
128,030
—
—
172,876
14,022
—
10,800
(10,800)
300,906
14,022
—
—
(67,050)
(67,050)
(90,208)
(157,258)
62,276
3,522
—
—
62,276
3,522
—
—
62,276
3,522
Balance at December 31, 2018
$
960,688 $
345,667 $
1,306,355 $ 1,778,554 $ 3,084,909
The related notes form an integral part of these consolidated financial statements.
66 CT REIT 2019 ANNUAL REPORT
Consolidated Statements of Cash Flows
Note
2019
2018
(Canadian dollars, in thousands)
For the year ended December 31,
Cash generated from (used for):
Operating activities
Net income
Add/(deduct):
Fair value adjustment on investment properties
Property straight-line rent revenue
Deferred income tax
Straight-line ground lease expense
Net interest and other financing charges
Changes in working capital and other
Cash generated from operating activities
Investing activities
Income-producing property
Development activities and land investments
Capital expenditures recoverable from tenants
Proceeds of disposition
Cash used for investing activities
Financing activities
Proceeds from REIT Offerings, net
Proceeds from issuance of debentures, net
Unit distributions
Class B LP Unit distributions paid or loaned
Payments on Class C LP Units paid or loaned
Credit Facilities (repayments) draws, net
Lease principal payments on right-of-use assets
Mortgage principal repayments
Net interest paid
Class B LP Unit issuance costs
Cash used for financing activities
Cash generated from (used for) the period
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
The related notes form an integral part of these consolidated financial statements.
4
13
2
16
10
7
5
9
3
6
$
$
$
$
$
$
307,193 $
300,906
(47,306)
(14,130)
(360)
—
108,753
8,178
362,328 $
(52,002)
(90,197)
(22,448)
2,780
(161,867) $
86,255
—
(64,368)
(93,555)
(68,219)
(12,995)
(778)
(323)
(41,735)
—
(195,718) $
4,743 $
4,991
9,734 $
(53,628)
(18,404)
(7)
62
104,380
(1,587)
331,722
(75,187)
(75,516)
(19,112)
661
(169,154)
62,348
198,661
(62,985)
(89,890)
(68,219)
(164,946)
—
(6,915)
(36,501)
(32)
(168,479)
(5,911)
10,902
4,991
CT REIT 2019 ANNUAL REPORT 67
Notes to the Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(All dollar amounts are in thousands, except unit and per unit amounts)
1. NATURE OF CT REAL ESTATE INVESTMENT TRUST
CT Real Estate Investment Trust is an unincorporated, closed-end real estate investment trust. CT Real Estate Investment Trust
and its subsidiaries, unless the context requires otherwise, are together referred to in these consolidated financial statements as
“CT REIT” or the “REIT”. CT REIT commenced operations on October 23, 2013, and was formed to own income-producing
commercial properties located primarily in Canada. The principal and registered head office of CT REIT is located at 2180 Yonge
Street, Toronto, Ontario M4P 2V8.
Canadian Tire Corporation, Limited (“CTC”) owned a 69.4% effective interest in CT REIT as of December 31, 2019, consisting
of 33,989,508 of the issued and outstanding units of CT REIT (“Units”) and all of the issued and outstanding Class B limited
partnership units (“Class B LP Units”) of CT REIT Limited Partnership (the “Partnership”), which are economically equivalent to
and exchangeable for Units. CTC also owns all of the issued and outstanding Class C limited partnership units (“Class C LP
Units”) of the Partnership (see Note 5). The Units are listed on the Toronto Stock Exchange (the “TSX”) under the symbol CRT.UN.
2. BASIS OF PRESENTATION
(a) Fiscal year
The fiscal years for the consolidated financial statements and the notes presented for 2019 are for the years ended December 31,
2019 and 2018.
(b) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”) using the accounting policies that are described
herein.
These consolidated financial statements were approved for issuance by CT REIT’s Board of Trustees (the “Board”), on the
recommendation of its Audit Committee, on February 10, 2020.
(c) Basis of presentation
These consolidated financial statements have been prepared on the historical cost basis except for investment properties and
liabilities for unit-based compensation plans, which are measured at fair value.
68 CT REIT 2019 ANNUAL REPORT
These financial statements are presented in Canadian dollars (“C$”), which is CT REIT's functional currency, rounded to the
nearest thousand, except per unit amounts.
(d) Critical judgments in applying significant accounting policies
The following are the critical judgments that have been made in applying CT REIT’s accounting policies and that have the most
significant effect on the amounts in the consolidated financial statements:
(i) Leases
CT REIT as a lessor
The REIT’s policy for revenue recognition as a lessor is described in Note 3(e). In applying this policy, judgments are
made with respect to whether tenant improvements provided in connection with a lease enhance the value of the leased
property, which determines whether such amounts are treated as additions to investment property as well as the point
in time at which revenue recognition under the lease commences, or constitutes a tenant incentive that is amortized as
a reduction of lease revenue over the initial term of the lease.
The REIT also makes judgments in assessing the classification of its leases with tenants as operating leases, in particular
long-term leases in single tenant properties. The REIT has determined that all of its leases are operating leases.
CT REIT as a lessee
For the measurement of lease liabilities with respect to the ground leases with third party landlords, the REIT considers
all factors that create an economic incentive to exercise extension options, or not exercise termination options available
in its leasing arrangements. Extension options, or periods subject to termination options, are only included in the lease
term if the REIT determines it is reasonably certain to be extended or not terminated. The assessment is reviewed if a
significant event or a significant change in circumstances occurs which affects this assessment and that is within the
control of the lessee.
The REIT uses its incremental borrowing rate to account for the ground leases with third party landlords. The implicit
rates in the ground leases, fair value of the underlying value and the initial direct costs incurred by the lessor related to
the leased assets are not readily available information from the lessor. The REIT determines the incremental borrowing
rate as the rate of interest that it would pay to borrow over a similar term and with a similar security the funds necessary
to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
(ii) Investment properties
CT REIT applies judgment in determining whether the properties it acquires are considered to be asset acquisitions or
business combinations. CT REIT considers all properties acquired to date to be asset acquisitions.
Judgment is applied in determining whether certain costs are additions to the carrying amount of the investment property.
On a periodic basis, CT REIT obtains independent appraisals such that approximately 80% of its properties, by value,
will be externally appraised over a four-year period.
CT REIT 2019 ANNUAL REPORT 69
(iii) Income taxes
CT REIT makes judgments that, with the exception of transactions involving CT REIT GP Corp. (the “GP”), deferred
income taxes are not recognized in CT REIT’s financial statements on the basis that CT REIT can deduct distributions
paid such that its liability for income taxes is substantially reduced or eliminated for the period, and CT REIT intends to
continue to distribute its taxable income and continue to qualify as a real estate investment trust for the foreseeable
future.
(iv) Consolidation of the Partnership
CT REIT makes judgments in the application of IFRS 10 - Consolidated Financial Statements in its assessment of control
over the Partnership, including the purpose for which the Partnership was created, the power to direct the relevant
activities of the Partnership, its exposure or rights to the variable returns of the Partnership and its ability to use its power
to affect its returns.
(v) Proportionate consolidation of interest in Canada Square
CT REIT makes judgments in the application of IFRS 11 - Joint Arrangements in its assessment of joint control over the
interest held in Canada Square, a mixed-use commercial property in Toronto, Ontario (the “Co-Ownership”), and its rights
to the assets and obligations for the liabilities related to the Co-Ownership.
(e) Critical accounting estimates and assumptions
CT REIT makes estimates and assumptions that affect the carrying amounts of assets and liabilities, disclosure of contingent
assets and liabilities, and the reported amount of earnings for the period. Actual results may differ from estimates. The estimates
and assumptions underlying the valuation of investment properties, as set out in Note 4, are considered critical.
(f) Standards, amendments and interpretations issued and adopted
The following amendments have been issued and are effective for the fiscal year ended December 31, 2019, and accordingly,
have been applied in preparing these consolidated financial statements.
In December 2017, the IASB issued amendments to four standards, including IFRS 3 - Business Combinations, IFRS 11 - Joint
Arrangements, IAS 12 - Income Taxes and IAS 23 - Borrowing Costs. These amendments were effective for annual periods
beginning on or after January 1, 2019. The implementation of these amendments did not have a significant impact on CT REIT.
Leases
Effective in the first quarter of 2019, CT REIT adopted IFRS 16 - Leases (“IFRS 16”), which replaced IAS 17 - Leases (“IAS 17”)
and related interpretations. IFRS 16 provides a single lessee accounting model, requiring the recognition of assets and liabilities
for all leases. IFRS 16 substantially carries forward the lessor accounting in IAS 17 with the distinction between operating leases
and finance leases being retained. The adoption of IFRS 16 has resulted in the recognition of right-of-use assets (classified as
investment property) and lease liabilities for all operating leases where CT REIT is a lessee.
As permitted by the transition provisions in IFRS 16, CT REIT has elected not to restate comparative figures with the cumulative
effect of initially applying the new standard recognized in retained earnings on January 1, 2019. Accordingly, the information
70 CT REIT 2019 ANNUAL REPORT
presented in these financial statements for the prior year does not reflect the requirements of IFRS 16 and therefore is not
comparable to the information presented in the current period under IFRS 16.
The following table summarizes the cumulative impact of transition adjustments:
As previously reported under IAS 17
December 31, 2018
IFRS 16 transition
adjustments
Investment properties
Other assets - Non-current
Lease liabilities - Current
Lease liabilities - Non-current
Other liabilities - Current
Equity
$
$
$
$
$
$
5,696,194 $
2,801 $
— $
— $
33,048 $
3,084,909 $
66,589 $
(1,466) $
5,982 $
59,141 $
(1,314) $
1,314 $
Restated balance
January 1, 2019
5,762,783
1,335
5,982
59,141
31,734
3,086,223
On adoption of IFRS 16, CT REIT recognized lease liabilities in relation to 10 ground leases which were previously classified as
‘operating leases’ under the principles of IAS 17. Ground rent incurred on these leases was previously included in property expense.
The lease liabilities are measured at the present value of the remaining lease payments, discounted using CT REIT’s incremental
borrowing rate as of January 1, 2019. The weighted average incremental borrowing rate applied to the lease liabilities on January
1, 2019 was 5.0%. On adoption, the ground leases had a weighted average remaining term of 36 years assuming all renewal
options are exercised.
The following table reconciles the operating lease commitments disclosed under IAS 17 as at December 31, 2018 to the opening
balance for lease liabilities as at January 1, 2019:
Operating lease commitments as at December 31, 2018
Add: adjustments for extension options reasonably certain to be exercised
Effect of discounting using CT REIT's incremental borrowing rate
Lease liability recognized as at January 1, 2019
$
$
43,761
114,895
(93,533)
65,123
The associated right-of-use assets for these leases are accounted for as investment property under IAS 40 - Investment Property
and are measured at fair value at the date of initial application. Finance costs associated with the lease liabilities are recognized
in net interest and financing charges in the Consolidated Statements of Income.
In applying IFRS 16 for the first time, CT REIT has not reassessed, under IFRS 16, contracts that were identified as leases under
the previous accounting standard (IAS 17) as a practical expedient permitted by IFRS 16. CT REIT has used hindsight in determining
the lease term when the lease contracts contain options to extend or terminate the lease.
(g) Standards, amendments and interpretations issued but not yet adopted
The following new standards, amendments and interpretations have been issued but are not effective for the fiscal year ended
December 31, 2019, and accordingly, have not been applied in preparing these consolidated financial statements.
CT REIT 2019 ANNUAL REPORT 71
(i) IASB annual improvements
In 2019, the IASB amended IFRS 10 - Consolidated Financial Statements and IAS 28 - Investments in Associates and
Joint Ventures with respect to accounting for loss in control of subsidiary. This amendment is effective for reporting
years yet to be determined by the IASB and the impact on CT REIT is currently being assessed.
In 2019, the IASB amended IFRS 9 - Financial Instruments and IFRS 7 - Financial Instruments Disclosure regarding
interest rate benchmarks used for hedge accounting. These amendments are effective for reporting years starting
January 2020 and the impact on CT REIT is currently being assessed.
(ii) Definition of material
In October 2018, the IASB issued amendments to IAS 1 - Presentation of Financial Statements and IAS - 8 Accounting
Policies, Changes in Accounting Estimates and Errors, clarifying the definition of material. Under the amended definition,
information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions
that the primary users of general purpose financial statements make on the basis of those financial statements, which
provide financial information about a specific reporting entity. The amendments also clarify the explanations
accompanying the definition of material.
The amendments are effective from January 1, 2020 and are required to be applied prospectively. Early application is
permitted. The implementation of these amendments is not expected to have a significant impact on CT REIT.
(iii) Definition of business
In October 2018, the IASB issued amendments to IFRS 3 - Business Combination. The amendments narrowed and
clarified the definition of a business. The amendments will help companies determine whether an acquisition is of a
business or a group of assets. They also permit a simplified assessment of whether an acquired set of activities and
assets is a group of assets rather than a business. Distinguishing between a business and a group of assets is important
because an acquirer recognizes goodwill only when acquiring a business.
The amendments apply to transactions for which the acquisition date is effective the beginning of the first annual reporting
period beginning on or after January 1, 2020. Earlier adoption is permitted. The implementation of these amendments
is not expected to have a significant impact on CT REIT.
72 CT REIT 2019 ANNUAL REPORT
3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements, except as noted below.
(a) Basis of consolidation
These consolidated financial statements include the accounts of CT REIT and its consolidated subsidiaries consisting of the
Partnership and the GP and its subsidiaries, which are the entities over which CT REIT has control. Control exists when CT REIT
has the ability to direct the relevant activities of an entity, has exposure or rights to variable returns from its involvement with the
entity and has the ability to affect those returns through its power over the entity. CT REIT reassesses whether or not it controls
an entity if facts and circumstances indicate that there are changes to one or more of the three elements of control.
Consolidation of a subsidiary begins when CT REIT obtains control over the subsidiary and ceases when CT REIT loses control
of the subsidiary. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between
CT REIT and its subsidiaries, and among subsidiaries of CT REIT, are eliminated on consolidation.
Net income and comprehensive income are attributed to the Unitholders of CT REIT and to the non-controlling interest even if
this results in the non-controlling interest having a deficit balance.
CT REIT holds all of the Class A limited partnership units (“Class A LP Units”) of the Partnership, which are the sole class of
Partnership units that carry voting rights. In addition, CT REIT holds all of the shares of the GP, the general partner of the
Partnership, which has the power to direct the relevant activities of the Partnership. Accordingly, CT REIT is exposed to variable
returns from its interest in the Partnership and has the ability to direct the relevant activities thereof to affect its returns. Therefore
CT REIT consolidates the Partnership.
Non-controlling interests in the equity of the Partnership, which consists of Class B LP Units held by a wholly owned subsidiary
of CTC, are shown separately in equity on the Consolidated Balance Sheets.
(b) Joint arrangements
A joint arrangement is an arrangement in which two or more parties have joint control. Joint control is the contractually agreed
sharing of control whereby decisions about relevant activities require unanimous consent of the parties sharing control. A joint
arrangement is classified as a joint operation when the parties that have joint control of the arrangement have rights to the assets
and obligations for the liabilities related to the arrangement. A joint arrangement is classified as a joint venture when the parties
that have joint control of the arrangement have rights to the net assets of the arrangement. A party to a joint operation records
its interest in the assets, liabilities, revenue and expenses of the joint operation.
CT REIT acquired a one-third interest in a co-ownership, pursuant to a co-ownership arrangement. The co-ownership is a joint
arrangement as the material decisions about relevant activities require unanimous consent of the co-owners. This joint
arrangement is a joint operation as each co-owner has rights to the assets and obligations for the liabilities related to the Co-
CT REIT 2019 ANNUAL REPORT 73
ownership. Accordingly, CT REIT recognizes its proportionate share of the assets, liabilities, revenue and expenses of the Co-
Ownership in its financial statements.
(c)
Investment properties
Investment properties include income-producing properties and properties under development that are held by CT REIT to earn
rental income. CT REIT accounts for its investment properties in accordance with IAS 40 - Investment Property (‘‘IAS 40’’). For
acquired investment properties that meet the definition of a business, the acquisition is accounted for as a business combination
in accordance with IFRS 3 - Business Combinations (‘‘IFRS 3’’), otherwise they are initially measured at cost including directly
attributable acquisition costs. Subsequent to acquisition, investment properties are carried at fair value, which is determined based
on available market evidence at the balance sheet date including, among other things, rental revenue from current leases and
reasonable and supportable assumptions that represent what knowledgeable, willing parties would assume about rental revenue
from future leases less future cash outflows in respect of capital expenditures. Gains and losses arising from changes in fair value
are recognized in net income in the period of change.
The initial cost of properties under development includes the acquisition cost of the properties, direct development costs, realty
taxes and borrowing costs attributable to properties under development. Borrowing costs associated with direct expenditures on
properties under development are capitalized. The amount of capitalized borrowing costs is determined first by reference to
property-specific borrowings, where relevant, and otherwise by applying a weighted average cost of borrowings to eligible
expenditures after adjusting for borrowings associated with other specific developments. Where borrowings are associated with
specific developments, the amount capitalized is the gross cost incurred on those borrowings less any investment income arising
on their temporary investment. Borrowing costs are capitalized from the commencement of the development until the date of
practical completion. The capitalization of borrowing costs is suspended if there are prolonged periods when development activity
is interrupted. Practical completion is when the property is capable of operating in the manner intended by management. Generally,
this occurs on completion of construction and receipt of all necessary occupancy and other material permits.
If considered reliably measurable, properties under development are carried at fair value. Properties under development are
measured at cost if fair value is not reliably measurable. In determining the fair value of properties under development, management
considers, among other things, the development risk of the property, the provisions of the construction contract, the stage of
completion and the level of reliability of cash inflows after completion.
Leasing costs incurred by CT REIT in negotiating and arranging tenant leases are added to the carrying amount of investment
properties. Payments to tenants under lease contracts are characterized as either capital expenditures in the form of tenant
improvements that enhance the value of the property or as lease inducements. Tenant improvements are capitalized as part of
investment properties. Lease inducements are capitalized as a component of investment properties and are amortized over the
term of the lease as a reduction of lease revenue.
When an investment property is sold, the gain or loss is determined as the difference between the net disposal proceeds and the
carrying amount of the property, and is recognized in net income in the period of disposal.
74 CT REIT 2019 ANNUAL REPORT
(d) Business combinations
CT REIT accounts for investment property acquisitions as a business combination if the particular assets and set of activities
acquired can be operated and managed as a business in its current state. CT REIT applies the acquisition method to account for
business combinations. The consideration transferred for a business combination is the fair value of the assets transferred, the
liabilities assumed from or incurred to the former owners of the acquiree and the equity interests issued by CT REIT. The total
consideration includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable
assets acquired as well as liabilities and contingent liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date. Acquisition related costs incurred in a business combination are expensed as incurred.
CT REIT recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at
the non-controlling interest’s proportionate share of the recognized amounts of the acquiree’s identifiable net assets.
(e) Leases
Lessee
The REIT assesses whether a contract is or contains a lease, at inception of the contract. Leases are recognized as a right-of-
use asset and corresponding liability at the commencement date. Each lease payment included in the lease liability is apportioned
between the repayment of the liability and a finance cost. The finance cost is recognized in net interest and other financing charges
in the Consolidated Statements of Income and Comprehensive Income over the lease period, so as to produce a constant periodic
rate of interest on the remaining balance of the liability for each period. Lease liabilities include the net present value of fixed
payments (including in-substance fixed payments), variable lease payments that are based on an index or a rate or subject to a
fair market value renewal, amounts expected to be payable by the lessee under residual value guarantees, the exercise price of
a purchase option if the lessee is reasonably certain to exercise that option, and payments of penalties for terminating the lease,
if the lease term reflects the lessee exercising that option. The REIT allocates the consideration in the contract to each lease
component on the basis of the relative standalone price of the lease component and the aggregate stand-alone price of the non-
lease components. The lease liability is net of lease incentives receivable. The lease payments are discounted using the interest
rate implicit in the lease or, if that rate cannot be determined, the lessee’s incremental borrowing rate. The period over which the
lease payments are discounted is the reasonably certain lease term, including renewal options that the REIT is reasonably certain
to exercise. Renewal options are included in a number of leases across the REIT.
Payments associated with short-term leases and leases of low-value assets are recognized as an expense on a straight-line basis
in General and Administrative Expenses in the Consolidated Statements of Income and Comprehensive Income. Short-term leases
are leases with a lease term of 12 months or less. Variable lease payments that do not depend on an index or a rate or subject
to a fair market value renewal are expensed as incurred and recognized in General and Administrative Expenses in the Consolidated
Statements of Income and Comprehensive Income.
Right-of-use assets are measured at fair value and are included in Investment Properties in the Consolidated Balance Sheets;
and corresponding fair value adjustments are reflected in Fair Value Adjustment on Investment Properties in the Consolidated
Statements of Income and Comprehensive Income.
CT REIT 2019 ANNUAL REPORT 75
Sale and Leaseback
The accounting treatment of a sale and leaseback transaction is assessed based upon the substance of the transaction and
whether the transfer of an asset is considered as a sale when the control of the asset has been transferred to the purchaser.
If the transfer of the asset to the REIT as buyer-lessor is considered a sale, the REIT assesses the classification of the lease as
a finance or operating lease; and follows IFRS 16 lessor accounting accordingly. If the transfer is not considered a sale, the REIT
does not recognize the underlying asset and records a financial asset under IFRS 9 for amounts paid to the seller-lessee.
(f) Revenue recognition
CT REIT has retained substantially all of the risks and benefits of ownership of its investment properties and therefore accounts
for leases with its tenants as operating leases. Revenue recognition under a lease commences when the tenant has a right to
use the leased asset. Generally, this occurs on the lease inception date or, where CT REIT is required to make additions to the
property in the form of tenant improvements that enhance the value of the property, upon substantial completion of those
improvements. Property revenue includes all amounts earned from tenants related to lease agreements including property tax,
operating cost and other recoveries.
The total amount of lease payments to be received from operating leases is recognized on a straight-line basis over the term of
the lease. A straight-line rent receivable, which is included in the carrying amount of investment properties, is recorded for the
difference between the rental revenue recorded and the contractual amount of minimum base rent received or receivable.
(g)
Income taxes
CT REIT is a “mutual fund trust” under the Income Tax Act (Canada). The Trustees intend to distribute or designate all taxable
income directly earned by CT REIT to Unitholders and to deduct such distributions for income tax purposes.
Legislation relating to the federal income taxation of Specified Investment Flow Through (“SIFT”) trusts or partnerships provide
that certain distributions from a SIFT will not be deductible in computing the SIFT’s taxable income and that the SIFT will be
subject to tax on such distributions at a rate that is substantially equivalent to the general tax rate applicable to Canadian
corporations. However, distributions paid by a SIFT as a return of capital should generally not be subject to tax.
Under the SIFT rules, the taxation regime will not apply to a real estate investment trust that meets prescribed conditions relating
to the nature of its assets and revenue (the “REIT Exception”). CT REIT has reviewed the SIFT rules and has assessed their
interpretation and application to CT REIT’s assets and revenue. While there are uncertainties in the interpretation and application
of the SIFT rules, CT REIT believes that it meets the REIT Exception. Accordingly, with the exception of transactions with the GP,
no net current income tax expense or deferred income tax assets or liabilities have been recorded in the consolidated financial
statements.
(h) Class C LP Units
Each series of the Class C LP Units are redeemable, at the option of the holder, at a specified future date and can be settled at
the option of the Partnership in cash or a variable number of Class B LP Units. Accordingly, the Class C LP Units are classified
as financial liabilities and fixed payments on the Class C LP Units are presented as interest expense in the consolidated statement
of income and comprehensive income using the effective interest method.
76 CT REIT 2019 ANNUAL REPORT
(i) Non-controlling interests
Class B LP Units are classified as non-controlling interests and are presented as a component of equity as they represent equity
interests in the Partnership not attributable, directly or indirectly, to CT REIT.
(j) Provisions
A provision is a liability of uncertain timing or amount. Provisions are recognized when CT REIT has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the
amount can be reliably estimated. Provisions are not recognized for future operating losses. Provisions are measured at the present
value of the expenditures expected to be required to settle the obligation using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the obligation. Provisions are remeasured at each balance sheet
date using the then current discount rate. The increase in the provision due to the passage of time is recognized as interest
expense.
(k) Unit based compensation plans
CT REIT offers a Deferred Unit Plan (the “DU Plan”) for trustees who are not employees or officers of CT REIT or any of its Affiliates,
whereby such trustees may elect to receive all or a portion of their annual compensation in deferred units (“DUs”). CT REIT has
a Restricted Unit Plan (the “RU Plan”) for executives, whereby the executives of CT REIT may be issued discretionary grants or
may elect to receive all or a portion of their annual short-term incentive plan awards in restricted units (“RUs”), and a Performance
Unit Plan (the “PU Plan”) whereby the performance units (“PUs”) are granted to certain employees of CT REIT as part of their
long-term incentive plan.
DUs, RUs and PUs are recorded as liabilities and expensed as compensation expense over the vesting period. Accrued
compensation costs under the plans are adjusted to the fair value of the vested units at each reporting date.
(l) Cash and cash equivalents
Cash and cash equivalents include cash and short-term investments with original maturities of three months or less.
(m) Financial instruments and derivatives
Financial assets and financial liabilities are recognized in the Consolidated Balance Sheets when the REIT becomes a party to
the contractual provisions of a financial instrument or non-financial derivative contract. All financial instruments are measured at
fair value on initial recognition.
Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities, other than
financial assets and financial liabilities classified as FVTPL, are added to or deducted from the fair value on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities classified as FVTPL are recognized
immediately in net income.
The REIT classifies financial assets, at the time of initial recognition, according to the REIT’s business model for managing the
financial assets and the contractual terms of the cash flows.
CT REIT 2019 ANNUAL REPORT 77
Financial assets are subsequently measured at amortized cost if both of the following conditions are met and they are not designated
as at FVTPL: a) the financial asset is held within a business model whose objective is to hold financial assets to collect contractual
cash flows; and b) the contractual terms of the financial asset give rise to cash flows on specified dates that are solely payments
of principal and interest on the principal amount outstanding. These assets are subsequently measured at amortized cost using
the effective interest rate method, less any impairment, with gains and losses recognized in net income in the period that the asset
is derecognized or impaired.
Financial liabilities are subsequently measured at amortized cost using the effective interest rate method with gains and losses
recognized in net income in the period that the liability is derecognized. The REIT measures all financial instruments at amortized
cost, except for liabilities for unit based compensation plans which are included in other liabilities and carried at fair value.
The REIT recognizes a loss allowance on a forward looking basis at an amount equal to the lifetime ECL on its financial assets
measured at amortized cost. Lifetime ECL represents the expected credit losses that will result from all possible default events
over the expected life of a financial instrument.
78 CT REIT 2019 ANNUAL REPORT
4.
INVESTMENT PROPERTIES
The following table summarizes CT REIT's investment property portfolio holdings:
Year Ended
December 31, 2019
Year Ended
December 31, 2018
Income-
producing
properties
Properties
Under
Development
Total
investment
properties
Income-
producing
properties
Properties
Under
Development
Total
investment
properties
$
5,568,961 $
127,233 $
5,696,194 $
5,337,515 $
99,082 $
5,436,597
66,589
—
66,589
—
—
—
5,635,550
127,233
5,762,783
5,337,515
99,082
5,436,597
75,669
—
—
—
—
—
39,448
48,222
1,918
2,080
144,783
(144,783)
(2,343)
47,306
14,130
20,549
(2,780)
—
—
—
—
—
75,669
39,448
48,222
1,918
2,080
—
(2,343)
47,306
14,130
20,549
(2,780)
89,429
—
—
—
—
—
18,625
47,079
12,642
2,752
52,947
(52,947)
—
53,628
18,404
17,699
(661)
—
—
—
—
—
89,429
18,625
47,079
12,642
2,752
—
—
53,628
18,404
17,699
(661)
Balance, beginning of period, as
previously reported
Transition adjustment - right-of-use
assets 1
Restated balance, beginning of
period
Property acquisitions (including
transaction costs)
Intensifications
Developments
Development land
Capitalized interest and property taxes
Transfers
Right-of-use assets 2
Fair value adjustment on investment
properties
Straight-line rent
Recoverable capital expenditures
Dispositions
Balance, end of period 3
$
5,932,864 $
74,118 $
6,006,982 $
5,568,961 $
127,233 $
5,696,194
1 See Note 2(f).
2 Reflects impact of ground lease amendments.
3 Includes purchased lands for $12,946 (December 31, 2018 - $13,911) held for development.
Included in CT REIT's portfolio are 10 (December 31, 2018 – 10) properties which are situated on ground leases with remaining
initial terms up to 36 years (December 31, 2018 – up to 37 years), and an average remaining initial term of 14 years (December 31,
2018 – 14 years).
To determine fair value, CT REIT uses the income approach. Fair value is estimated by capitalizing the cash flows that the property
can reasonably be expected to produce over its remaining economic life. The income approach is derived from two methods: the
overall capitalization rate (“OCR”) method, whereby the net operating income is capitalized at the requisite OCR, or the discounted
cash flow (“DCF”) method, in which the cash flows are projected over the anticipated term of the investment plus a terminal value
discounted using an appropriate discount rate.
As at December 31, 2019, management’s determination of fair value was updated for current market assumptions, informed by
market capitalization rates provided by independent appraisal professionals.
CT REIT 2019 ANNUAL REPORT 79
On a periodic basis, CT REIT obtains independent appraisals such that approximately 80% of its properties, by value, will be
externally appraised over a four-year period.
The fair value of investment properties is based on Level 3 inputs (see Note 20(a) for definition of levels). There have been no
transfers between levels during the period.
The significant inputs used to determine the fair value of CT REIT’s income-producing properties are as follows:
Number of properties
Value at December 31, 2019
Discount rate1
Terminal capitalization rate1
Overall capitalization rate1
Hold period (years)
1 Weighted average rate based on the fair value as at the period end date
Properties valued by the
OCR method
Properties valued by the
DCF method
287
$4,240,942
70
$1,766,040
—%
—%
6.17%
—
7.01 %
6.56%
—%
10
Valuations determined by the OCR method are most sensitive to changes in capitalization rates. Valuations determined by the
DCF method are most sensitive to changes in discount rates.
The following table summarizes the sensitivity of the fair value of income-producing properties to changes in the capitalization
rate and discount rate, respectively:
Rate sensitivity
+ 75 basis points
+ 50 basis points
+ 25 basis points
December 31, 2019
- 25 basis points
- 50 basis points
- 75 basis points
OCR Sensitivity
DCF Sensitivity
Fair value
Change in fair
value
Fair value
Change in fair
value
$
$
$
3,795,258 $
(445,684) $
1,585,694 $
3,932,504
4,080,638
(308,438)
(160,304)
1,640,800
1,699,732
4,240,942 $
— $
1,766,040 $
4,415,156
4,605,102
174,214
364,160
1,830,296
1,903,008
4,813,073 $
572,131 $
1,982,280 $
(180,346)
(125,240)
(66,308)
—
64,256
136,968
216,240
2019 Investment and Development Activity
Funding of investment and development activities for the year ended December 31, 2019 was as follows:
80 CT REIT 2019 ANNUAL REPORT
Funded with working capital to CTC
$
15,945 $
Property
investments
Development
land Developments
1,900 $
41,276 $
Intensifications
YTD 2019 Investment and Development Activity
35,109
—
13,285
11,330
18
—
—
—
6,946
2,080
—
—
22,382 $
17,066
—
—
—
Total
81,503
59,139
2,080
13,285
11,330
$
75,669 $
1,918 $
50,302 $
39,448 $
167,337
Funded with working capital to third parties
Capitalized interest and property taxes
Issuance of Class B LP Units to CTC
Mortgages payable
Total costs
2018 Investment and Development Activity
Funding of investment and development activities for the year ended December 31, 2018 was as follows:
YTD 2018 Investment and Development Activity
Funded with working capital to CTC
Funded with working capital to third parties
Capitalized interest and property taxes
Issuance of Class B LP Units to CTC
Total costs
$
$
5. CLASS C LP UNITS
Property
investments
7,258 $
68,181
—
13,990
Development
land Developments
8,546 $
30,155 $
Intensifications
4,096
—
—
16,860
2,752
64
8,890 $
9,735
—
—
Total
54,849
98,872
2,752
14,054
89,429 $
12,642 $
49,831 $
18,625 $
170,527
The Class C LP Units entitle the holder to a fixed cumulative monthly payment, during the initial fixed rate period for each Series
of Class C LP Units (the “Initial Fixed Rate Period”), equal to a weighted average rate of 4.70% of the aggregate capital amount
ascribed to the Class C LP Units, in priority to distributions made to holders of the Class B LP Units and units representing an
interest in CT REIT GP Corp. (“GP”), subject to certain exceptions.
On expiry of the Initial Fixed Rate Period applicable to each series of Class C LP Units, and each five-year period thereafter,
each such series of Class C LP Units is redeemable at par (together with all accrued and unpaid payments thereon) at the option
of the Partnership or the holder, upon giving at least 120 days’ prior notice. The Partnership further has the ability to settle any
of the Class C LP Units at any time at a price equal to the greater of par and a price to provide a yield equal to the then equivalent
Government of Canada bond yield plus a spread, so long as such redemption is in connection with a sale of properties.
Such redemptions of Class C LP Units (other than upon a change of control of CT REIT) can be settled at the option of the
Partnership, in cash or Class B LP Units of equal value.
The Partnership did not settle any Class C LP Units in 2019.
CT REIT 2019 ANNUAL REPORT 81
During the five-year period beginning immediately following the completion of the Initial Fixed Rate Period, and each five-year
period thereafter, if not redeemed, the fixed payment rate for Class C LP Units will be reset, and the holders of Class C LP Units
will be entitled, subject to certain conditions, to elect either a fixed rate or floating rate option.
The following table presents the details of the Class C LP Units:
Series
Series 3
Series 4
Series 5
Series 6
Series 7
Series 8
Series 9
Series 16
Series 17
Series 18
Series 19
Expiry of Initial
Fixed Rate Period
Annual
distribution rate
during Initial
Fixed Rate Period
Carrying amount
at December 31,
2019
Carrying amount
at December 31,
2018
May 31, 2020
May 31, 2024
May 31, 2028
May 31, 2031
May 31, 2034
May 31, 2035
May 31, 2038
May 31, 2020
May 31, 2020
May 31, 2020
May 31, 2020
4.50% $
200,000 $
4.50%
4.50%
5.00%
5.00%
5.00%
5.00%
2.42%
2.39%
2.28%
2.28%
200,000
200,000
200,000
200,000
200,000
200,000
16,550
18,500
4,900
11,600
200,000
200,000
200,000
200,000
200,000
200,000
200,000
16,550
18,500
4,900
11,600
Weighted average / Total
4.70% $
1,451,550 $
1,451,550
Current
Non-current
Total
$
$
251,550 $
1,200,000
1,451,550 $
—
1,451,550
1,451,550
For the year ended December 31, 2019, interest expense of $68,219 (2018 - $68,219) was recognized in respect of the Class C
LP Units (see Note 15). The holders of the Class C LP Units may elect to defer receipt of all or a portion of distributions declared
by CT REIT until the first business day following the end of the fiscal year. If the holder so elects to defer receipt of payments,
CT REIT will loan the holder an amount equal to the deferred payment without interest, and the loan will be due and payable in
full on the first business day following the end of the fiscal year in which the loan was advanced, the holder having irrevocably
directed that any payment of the deferred payments be applied to repay such loans. At the election of the holder, payments on
the Class C LP Units for the year ended December 31, 2019 of $62,027 (2018 – $62,027), were deferred until the first business
day following the end of the fiscal year and non-interest bearing loans equal to the deferred payments were advanced. The net
amount of payments due in respect of the Class C LP Units at December 31, 2019 of $5,685 (2018 – $5,685) is included in other
liabilities on the Consolidated Balance Sheets. The loans deferred as at December 31, 2019 were settled on January 2, 2020.
82 CT REIT 2019 ANNUAL REPORT
6. MORTGAGES PAYABLE
Mortgages payable, secured by certain CT REIT investment properties, include the following:
Current 1
Non-current 1
Total
December 31, 2019
December 31, 2018
Face
value
37,533 $
10,134
47,667 $
Carrying
amount
37,696 $
10,353
48,049 $
Face
value
37,133 $
—
37,133 $
Carrying
amount
37,100
—
37,100
$
$
1 Includes the fair value of the $11,330 mortgage assumed in connection with Property investments. See Note 4.
Future repayments are as follows:
Total contractual obligation
Principal
amortization
Maturities
400 $
37,133 $
419
255
—
9,460
1,074 $
46,593 $
2020 $
2021
2022
$
Unamortized portion of mark to market on mortgages payable assumed
on the acquisition of properties
Unamortized transaction costs
Total
37,533
419
9,715
47,667
358
24
$
48,049
Mortgages payable have interest rates that range from 3.62% to 4.50%, and have maturity dates that range from March 2020 to
July 2022. Mortgages payable at December 31, 2019 had a weighted average interest rate of 3.82% (December 31, 2018 –
3.81%). At December 31, 2019, floating rate and fixed rate mortgages were $37,133 (December 31, 2018 – $37,133) and $10,534
(December 31, 2018 – $0), respectively.
Investment properties having a fair value of $99,142 (December 31, 2018 – $77,050) have been pledged as security for mortgages
payable.
7. DEBENTURES
Series
A, 2.85%, June 9, 2022
B, 3.53%, June 9, 2025
C, 2.16%, June 1, 2021
D, 3.29%, June 1, 2026
E, 3.47%, June 16, 2027
F, 3.87%, December 7, 2027
December 31, 2019
December 31, 2018
Face value Carrying amount
Face value
$
150,000 $
149,625 $
150,000 $
200,000
150,000
200,000
175,000
200,000
199,101
149,751
199,130
174,142
198,946
200,000
150,000
200,000
175,000
200,000
Carrying
amount
149,475
198,949
149,577
198,995
174,036
198,812
$
1,075,000 $
1,070,695 $
1,075,000 $
1,069,844
Debentures as at December 31, 2019, had a weighted average interest rate of 3.25% (December 31, 2018 – 3.25%).
CT REIT 2019 ANNUAL REPORT 83
For the year ended December 31, 2019, amortization of transaction costs of $850 (December 31, 2018 – $1,043) are included in
net interest and other financing charges on the Consolidated Statements of Income and Comprehensive Income (see Note 15).
8. LEASES
(a) CT REIT as lessee
CT REIT has entered into 10 ground leases with third party landlords. The remaining initial terms of the ground leases are between
two and 36 years, with an average remaining initial term of 14 years. The majority of the ground lease agreements are renewable
at the end of the current lease term. Assuming all extensions are exercised, the ground leases have remaining terms between 4
and 51 years with an average remaining lease term of 31 years. For the calculation of lease liabilities, it was determined that all
lease renewal options are reasonably certain to be exercised. There are no variable lease payments or guaranteed residual
payments with respect to the ground leases.
Current
Non-current
Total
The contractual undiscounted cash flows of CT REIT lease liabilities are as follows:
Less than one year
Between one and five years
More than five years
Total
December 31, 2019
$
$
884
61,374
62,258
December 31, 2019
$
$
4,033
16,123
132,176
152,332
CT REIT has in place a leverage and liquidity policy to manage its exposure to liquidity risk associated with the contractual lease
liabilities. Details of how CT REIT manages this risk are further discussed under Note 20.
There were no expenses in 2019 relating to leases of low-value assets or short-term leases. As well, there were no variable lease
payments included in lease liabilities at any time during 2019.
The total cash outflow for leases in 2019 was $4,095. There were no gains or losses arising from sale and leaseback transactions
in 2019.
(b) CT REIT as a lessor
CT REIT leases income-producing properties (investment properties) to tenants under operating leases. The leases have staggered
initial terms ranging from 1 to 20 years, with a weighted average remaining initial term of approximately 10.0 years. Annual base
minimum rent for leases have weighted average annual rent escalations of approximately 1.5% per year.
84 CT REIT 2019 ANNUAL REPORT
For all income-producing properties, the rental income is fixed under the contracts, but some leases require the lessee to reimburse
certain cost incurred by CT REIT, such as tax and insurance costs of CT REIT. When this is the case, these amounts are determined
annually.
The following table sets out a maturity analysis of lease payments, showing the undiscounted lease payments to be received after
the reporting date.
Minimum lease receivable
$
367,375
368,111
370,088
365,897
353,283
2,014,262 $ 3,839,016
2020
2021
2022
2023
2024
Thereafter
Total
9. CREDIT FACILITIES
CT REIT's draws on its credit facilities are comprised of the following:
Bank Credit Facility
CTC Credit Facility
(a) Bank Credit Facility
December 31, 2019 December 31, 2018
$
$
— $
2,000
2,000 $
14,995
—
14,995
CT REIT has a committed, unsecured $300,000 revolving credit facility with a syndicate of major Canadian third party banks
(“Bank Credit Facility”) expiring in December 2024. The Bank Credit Facility bears interest at a rate based on the bank’s prime
rate of interest or bankers’ acceptances plus a margin. A standby fee is charged on the Bank Credit Facility.
As at December 31, 2019 no borrowings were drawn on the Bank Credit Facility and $5,558 (December 31, 2018 – $2,372) of
letters of credit were outstanding under the Bank Credit Facility. At December 31, 2019, borrowings under the Bank Credit Facility
had a weighted average interest rate of nil (December 31, 2018 – 3.46%).
(b) CTC Credit Facility
In Q4 2019, CT REIT entered into an uncommitted, unsecured $300,000 revolving credit facility with CTC (“CTC Credit Facility”)
expiring in December 2020. The CTC Credit Facility bears interest at a rate based on the bank's prime rate of interest or bankers'
acceptances plus a margin.
As at December 31, 2019, $2,000 of borrowings were drawn on the CTC Credit Facility. At December 31, 2019, borrowings under
the CTC Credit Facility had a weighted average interest rate of 3.95%.
The Bank Credit Facility and the CTC Credit Facility are collectively referred to herein as the “Credit Facilities”.
CT REIT 2019 ANNUAL REPORT 85
10. EQUITY
Authorized and outstanding units
CT REIT is authorized to issue an unlimited number of Units.
The following tables summarize the changes in Units and Class B LP Units:
Total outstanding at beginning of year
Units issued 1
2019 REIT Offering
Total outstanding at end of period
1 742,946 issued pursuant to the REIT's distribution reinvestment plan.
Total outstanding at beginning of year
Units issued 1
2018 REIT Offering
Exchange of Class B LP Units for Units
Total outstanding at end of year
1 274,642 issued pursuant to the REIT's distribution reinvestment plan.
As at December 31, 2019
Units
96,848,606
762,779
6,316,000
Class B LP
Units
123,400,633
888,858
—
Total
220,249,239
1,651,637
6,316,000
103,927,385
124,289,491
228,216,876
Units
90,645,295
279,897
5,179,000
744,414
As at December 31, 2018
Class B LP
Units
123,092,866
1,052,181
—
(744,414)
Total
213,738,161
1,332,078
5,179,000
—
96,848,606
123,400,633
220,249,239
On September 19, 2019, CT REIT completed a joint equity offering of an aggregate of 16,846,000 Units comprised of the issuance
of 6,316,000 Units from treasury for net proceeds of $86,140 after deducting issuance cost of $3,863 (the “2019 REIT Offering”)
and the sale of 10,530,000 Units by CTC (the “2019 Secondary Offering” and, together with the “2019 REIT Offering”, hereinafter
referred to as the “2019 Equity Offering”).
On November 28, 2018, CT REIT completed a joint equity offering of an aggregate of 21,115,000 Units comprised of the
issuance of 5,179,000 Units from treasury for net proceeds of $62,276 after deducting issuance costs of $2,720 (the “2018
REIT Offering”) and the sale of 15,936,000 Units by CTC (the “2018 Secondary Offering” and, together with the 2018 REIT
Offering, referred to as the “2018 Equity Offering”). In connection with the 2018 Secondary Offering, CTC exchanged 744,414
Class B LP Units for 744,414 Units, in accordance with the terms of the Class B LP Units, which were then sold pursuant to the
2018 Secondary Offering.
86 CT REIT 2019 ANNUAL REPORT
Net income attributable to Unitholders and weighted average units outstanding used in determining basic and diluted net income
per unit for years December 31, 2019 and 2018, are calculated as follows, respectively:
For the Year ended December 31, 2019
Net income attributable to Unitholders - basic
$
136,667 $
170,526 $
Units
Class B LP
Units
Total
307,193
68,219
375,412
$
Income effect of settling Class C LP Units with Class B LP Units
Net income attributable to Unitholders - diluted
Weighted average units outstanding - basic
Dilutive effect of other Unit plans
Dilutive effect of settling Class C LP Units with Class B LP Units
Weighted average units outstanding - diluted
98,990,726
123,568,955
222,559,681
231,890
91,823,461
314,615,032
For the Year ended December 31, 2018
Net income attributable to Unitholders - basic
$
128,030 $
172,876 $
Income effect of settling Class C LP Units with Class B LP Units
Net income attributable to Unitholders - diluted
$
Units
Class B LP
Units
Total
300,906
68,219
369,125
Weighted average units outstanding - basic
91,326,658
123,478,988
214,805,646
Dilutive effect of other Unit plans
Dilutive effect of settling Class C LP Units with Class B LP Units
Weighted average units outstanding - diluted
Distributions on Units and Class B LP Units
234,427
121,102,386
336,142,459
The following table presents total distributions paid on Units and Class B LP Units:
For the year ended December 31,
Units
Class B LP Unit
2019
2018
Distributions
per unit
Distributions
per unit
$
$
0.757 $
0.757 $
0.728
0.728
On November 4, 2019, CT REIT's Board reviewed the current rate of distribution of $0.757 per Unit per year and approved an
increase in the annual rate of distribution to $0.787 per Unit per year, or $0.06562 per Unit monthly, commencing with the
December 31, 2019 record date.
CT REIT 2019 ANNUAL REPORT 87
On December 13, 2019, CT REIT’s Board declared a distribution of $0.06562 per Unit payable on January 15, 2020 to holders of
Units and Class B LP Units of record as of December 31, 2019.
On January 15, 2020, CT REIT’s Board declared a distribution of $0.06562 per Unit payable on February 18, 2020 to holders of
Units and Class B LP Units of record as of January 31, 2020.
Units
Each Unit is transferable and represents an equal, undivided, beneficial interest in CT REIT and any distributions from the REIT,
whether of net income, net realized capital gains, or other amounts, and in the event of the termination or winding-up of CT REIT,
in CT REIT’s net assets remaining after satisfaction of all liabilities. All Units rank among themselves equally and ratably without
discrimination, preference or priority. Each Unit entitles the holder thereof to one vote at all meetings of Unitholders or with respect
to any written resolution of Unitholders. The Units have no conversion, retraction or redemption rights.
Non-controlling interests
The Class B LP Units are exchangeable on a one-for-one basis (subject to customary anti-dilution provisions) for Units at the
option of the holder. Each Class B LP Unit is accompanied by a Special Voting Unit. The holders of Class B LP Units are entitled
to receive distributions when declared by the Partnership equal to the per Unit amount of distributions payable to each holder of
Units. However, the Class B LP Units have limited voting rights over the Partnership.
Special Voting Units
Special Voting Units are only issued (i) in tandem with Class B LP Units of the Partnership or (ii) in limited circumstances to
holders of the Class C LP Units and are not transferable separately from the Class B LP Units or Class C LP Units, as the case
may be, to which they relate. Upon any transfer of Class B LP Units or Class C LP Units, as the case may be, such Special
Voting Units will automatically be transferred to the transferee of the Class B LP Units. As Class B LP Units are exchanged for
Units or purchased for cancellation, the corresponding Special Voting Units will be cancelled for no consideration.
Each Special Voting Unit entitles the holder thereof to one vote at all meetings of Unitholders or with respect to any resolution in
writing of Unitholders. Except for the right to attend and vote at meetings of the Unitholders or with respect to written resolutions
of the Unitholders, Special Voting Units do not confer upon the holders thereof any other rights. A Special Voting Unit does not
entitle its holder to any economic interest in CT REIT, or to any interest or share in CT REIT, or to any interest in any distributions
(whether of net income, net realized capital gains, or other amounts), or to any interest in any net assets in the event of termination
or winding-up.
CT REIT’s Board retains full discretion with respect to the timing and quantum of distributions. Declared distributions are paid to
Unitholders of record at the close of business on the last day of the month on or about the 15th day of the following month.
88 CT REIT 2019 ANNUAL REPORT
11. UNIT BASED COMPENSATION PLANS
Deferred Unit Plan for Trustees
CT REIT offers a Deferred Unit (“DU”) Plan for members of its Board who are not also employees or officers of the REIT or any
of its Affiliates. Under this plan, eligible trustees may elect to receive all or a portion of their annual trustee fees in DUs. DUs are
paid out in equivalent Units of CT REIT or, at the election of the trustee, in cash, following the trustee's departure from the Board.
As at December 31, 2019, accrued DU compensation costs, which are included in other liabilities, totaled $2,589 (2018 – $1,384).
Compensation expense recorded related to DU's for the year ended December 31, 2019 was $715 (2018 - $(386)). The fair value
of DUs is equal to the trading price of Units, which is a Level 1 input (see Note 20(a)).
Performance Unit Plan for Employees
CT REIT offers Performance Units (“PUs”) to certain employees that generally vest after three years. Each PU entitles the employee
to receive a cash payment equal to the fair market value of Units of CT REIT, multiplied by a factor determined by specific
performance-based criteria, as set out in the Performance Unit Plan.
As at December 31, 2019, accrued PU compensation costs, which are included in other liabilities, totaled $3,555 (2018 - $2,030).
Compensation expense recorded for the year ended December 31, 2019 for PUs granted to employees was $2,425 (2018 - $1,027).
The fair value of PUs is equal to the trading price of Units, which is a Level 1 input (see Note 20(a)).
Restricted Unit Plan for Executives
CT REIT offers a Restricted Unit (“RU”) Plan for its executives. RUs may be issued as discretionary grants or executives may
elect to receive all or a portion of their short term incentive plan in RUs. At the end of the vesting period which is generally three
years from the date of grant (in the case of discretionary grants) or five years from the short term incentive plan bonus payment
date (in the case of deferred bonus grants), the executives will receive an equivalent number of Units issued by CT REIT or, at
the executive's election, the cash equivalent thereof.
As at December 31, 2019, accrued RU compensation costs, which are included in other liabilities, totaled $1,360 (2018 - $1,150).
Compensation expense for the year ended December 31, 2019 was $537 (2018 - $282). The fair value of RUs is equal to the
trading price of Units, which is a Level 1 input (see Note 20(a)).
CT REIT 2019 ANNUAL REPORT 89
12. NON-CONTROLLING INTERESTS
Details of non-wholly owned subsidiaries of CT REIT that have material non-controlling interests are as follows:
Proportion of ownership interests held
by non-controlling interests
Net income and comprehensive income
allocated to non-controlling interests
Name of Subsidiary
CT REIT Limited Partnership
54.46%
56.03% $
170,526 $
172,876
As at
December 31, 2019
As at
December 31, 2018
For the year ended
December 31, 2019
For the year ended
December 31, 2018
There are no restrictions on CT REIT’s ability to access or use the assets and settle the liabilities of its subsidiaries and there are
no contractual arrangements that could require CT REIT to provide financial support to its subsidiaries.
13. REVENUES AND EXPENSES
(a) Property revenue
The components of property revenue are as follows:
Base minimum rent
Straight-line rent
Subtotal base rent
Property operating expense recoveries
Capital expenditure and interest recovery charge
Other revenues
Property revenue
Base minimum rent
Straight-line rent
Subtotal base rent
Property operating expense recoveries
Capital expenditure and interest recovery charge
Other revenues
Property revenue
90 CT REIT 2019 ANNUAL REPORT
CTC
330,468 $
13,612
344,080 $
83,979
9,325
7
Other
For the Year ended
December 31, 2019
32,190 $
518
32,708 $
16,399
131
2,384
362,658
14,130
376,788
100,378
9,456
2,391
437,391 $
51,622 $
489,013
CTC
316,342 $
18,298
334,640 $
84,347
7,110
7
$
$
Other
30,312
106
30,418
15,553
102
306
426,104 $
46,379
$
For the Year ended
December 31, 2018
346,654
18,404
365,058
99,900
7,212
313
472,483
$
$
$
$
$
$
(b) Property expense
The major components of property expense consist of property taxes and other recoverable operating costs:
For the year ended December 31,
Property taxes
Recoverable operating costs
Property management 1
Ground rent 2
Property expense
1 Includes $1,753 (2018 - $2,038) payable to CTC. See Note 19.
2 See Note 2(f).
14. GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense is comprised of the following:
For the year ended December 31,
Personnel expense 1
Services Agreement with CTC 2
Public entity and other 1
Less: allocated to property operating costs
General and administrative expense
$
$
$
$
$
Year ended
2019
88,056 $
14,202
3,830
—
106,088 $
Year ended
2019
7,953 $
2,500
4,156
14,609 $
(324)
14,285 $
2018
86,643
13,360
4,583
4,050
108,636
2018
6,233
3,345
2,611
12,189
—
12,189
1 Includes unit-based awards including (gain) loss adjustments as a result of the change in the fair market value of the Units of $2,029 (2018 - $(1,239)) for year ended December 31, 2019.
2 See Note 19.
CT REIT 2019 ANNUAL REPORT 91
15. NET INTEREST AND OTHER FINANCING CHARGES
Net interest and other financing charges are comprised of the following:
For the year ended December 31,
Interest on Class C LP Units 1
Interest and financing costs - debentures
Interest and financing costs - Bank Credit Facility
Interest on mortgages payable
Interest on lease liabilities 2
Interest costs - Bridge Facility 1
Less: capitalized interest
Interest and other financing charges
Less: interest income
Net interest and other financing charges
1 Paid or payable to CTC.
2 See Note 2(f).
16. CHANGES IN WORKING CAPITAL AND OTHER
Changes in working capital are comprised of the following:
For the year ended December 31,
Changes in working capital and other
Tenant and other receivables
Other assets
Other liabilities
Other
Changes in working capital and other
17. SEGMENTED INFORMATION
Year ended
2019
68,219 $
35,723
1,466
1,763
3,317
—
110,488 $
(1,351)
109,137 $
(384)
108,753 $
Year ended
2019
(737) $
446
8,269
200
8,178 $
2018
68,219
35,187
1,561
1,532
—
351
106,850
(2,245)
104,605
(225)
104,380
2018
(179)
230
(1,115)
(523)
(1,587)
$
$
$
$
$
$
CT REIT has one segment for financial reporting purposes which comprises the ownership and operation of primarily retail
investment properties located across Canada.
92 CT REIT 2019 ANNUAL REPORT
18. COMMITMENTS AND CONTINGENCIES
CT REIT has agreed to indemnify, in certain circumstances, the trustees and officers of CT REIT and its subsidiaries.
As at December 31, 2019, CT REIT had obligations of $145,667 (December 31, 2018 – $129,163) in future payments for the
completion of developments. Included in the commitments is $132,607 due to CTC.
In Q3 2019, CT REIT and one of its co-owners of the Toronto (Canada Square), Ontario property committed to increase their
ownership interest in the property to 50% from 33%. Refer to Subsequent event Note 22.
19. RELATED-PARTY TRANSACTIONS
In the normal course of operations, CT REIT enters into various transactions with related parties that have been measured at
amounts agreed to between the parties and are recognized in the consolidated financial statements.
(a) Arrangements with CTC
Services Agreement
Under the services agreement among the Partnership and CTC entered into on October 23, 2013 (“Services Agreement”), CTC
provides the REIT with certain administrative, financial, information technology, internal audit and other support services as may
be reasonably required from time to time (the “Services”). CTC provides these Services to the REIT on a cost recovery basis
pursuant to which CT REIT reimburses CTC for all costs and expenses incurred by CTC in connection with providing the Services,
plus applicable taxes. The Services Agreement is automatically renewable for one year terms, unless otherwise terminated in
accordance with its terms. The Services Agreement was automatically renewed for 2020 and CTC will continue to provide such
Services on a cost recovery basis.
Property Management Agreement
Under the property management agreement, among the Partnership and CTC entities entered into on October 23, 2013 (“Property
Management Agreement”), CTC provides the REIT with certain customary property management services (the ‘‘Property
Management Services’’). CTC provides these Property Management Services to the REIT on a cost recovery basis pursuant to
which the REIT reimburses CTC for all costs and expenses incurred by CTC in connection with providing the Property Management
Services, plus applicable taxes. The Property Management Agreement is automatically renewable for one year terms, unless
otherwise terminated in accordance with its terms. The Property Management Agreement was automatically renewed for 2020
and CTC will continue to provide such Property Management Services on a cost recovery basis.
CTC Credit Facility
In Q4 2019, CT REIT entered into the CTC Credit Facility expiring in December 2020. The CTC Credit Facility bears interest at a
rate based on the bank's prime rate of interest or bankers' acceptances plus a margin.
CT REIT 2019 ANNUAL REPORT 93
(b) Transactions and balances with related parties
Transactions with CTC are comprised of the following, excluding acquisition, intensification and development activities with CTC
which are contained in Note 4:
For the year ended December 31,
Rental revenue
Property Management and Services Agreement expense
Distributions on Units
Distributions on Class B LP Units 1
Interest expense on Class C LP Units
Interest expense on the Bridge Facility
1 Includes distributions deferred at the election of the holders of the Class B LP Units.
The net balance due to CTC is comprised of the following:
As at
Tenant and other receivables
Class C LP Units
Amounts payable on Class C LP Units
Loans receivable in respect of payments on Class C LP Units
Other liabilities
Distributions payable on Units and Class B LP Units 1
Loans receivable in respect of distributions on Class B LP Units
CTC Credit Facility 2
Net balance due to CTC
1 Includes distributions deferred at the election of the holders of the Class B LP Units.
2 See Note 9.
Note
13
15
15
$
$
$
$
$
$
Year ended
2019
437,391 $
4,253 $
31,139 $
93,925 $
68,219 $
— $
2018
426,104
5,383
41,737
90,209
68,219
351
December 31, 2019 December 31, 2018
$
(1,890) $
(849)
1,451,550
1,451,550
67,712
(62,027)
6,695
29,589
(19,202)
2,000
67,712
(62,027)
9,474
28,634
(18,038)
—
$
1,474,427 $
1,476,456
(c) Compensation of executives and independent trustees
The remuneration of (i) the chief executive officer, chief financial officer, chief operating officer, and (ii) the trustees who were not
employees or officers of the REIT or any of its Affiliates, is as follows:
For the year ended December 31,
Salaries and short-term employee benefits
Unit-based awards 1
Total
$
$
2019
2,674 $
2,642
5,316 $
2018
2,975
491
3,466
1 Unit-based awards, as described in Note 11, includes increase (reduction) in expense as a result of the change in the fair market value of the Units of $2,029 (2018 - $(1,239)).
The remuneration of the chief executive officer, chief financial officer and chief operating officer consist principally of base salary,
short-term cash incentives and long-term incentives (in the form of unit-based awards). The remuneration is determined by CT
REIT’s Board of Trustees, on the recommendation of the Governance, Compensation and Nominating Committee.
The compensation of trustees, who are not employees or officers of CT REIT or any of its Affiliates, consists of an annual retainer
and meeting fees.
94 CT REIT 2019 ANNUAL REPORT
20. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
a) Fair value of financial instruments
For financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the
inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety,
which are described as follows:
•
•
•
Level 1 inputs: Are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access
at the measurement date;
Level 2 inputs: Are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability,
either directly or indirectly; and
Level 3 inputs: Are unobservable inputs for the asset or liability.
The fair value of the Class C LP Units is determined by discounting contractual principal and interest payments at estimated
current market interest rates for the instrument. Current market interest rates are determined with reference to current benchmark
rates for a similar term and current credit spreads for debt with similar terms and risks.
The fair value of the Class C LP Units, debentures and mortgages payable at December 31, 2019, is $1,602,884, $1,098,627 and
$48,301 respectively. The fair value measurement of the Class C LP Units and mortgages payable is based on Level 2 inputs.
The significant inputs used to determine the fair value of the Class C LP Units and mortgages payable are interest rates, term to
maturity, and credit spreads. The debentures are actively traded on the secondary market and the fair value is determined using
Level 1 inputs. There have been no transfers during the period between levels.
Financial assets consist of cash and cash equivalents, tenant and other receivables and deposits which are classified at amortized
cost. Financial liabilities, other than those discussed in the preceding paragraph, consist of other liabilities, Credit Facilities and
distributions payable, which are carried at amortized cost, except for liabilities for unit based compensation plans which are included
in other liabilities and are carried at fair value, equivalent to the trading price of Units, which is a Level 1 input. The carrying
amounts of the liabilities for the unit based compensation plans approximate their fair value due to their short-term nature.
(b) Financial risk management
In the normal course of business, CT REIT has exposure to risks from its use of financial instruments. CT REIT is exposed to
liquidity and credit risk in connection with its financial instruments. Financial risk management policies are established for CT
REIT to identify and analyze the risks faced by CT REIT, to set acceptable risk tolerance limits and controls and to monitor risks
and adherence to limits. CT REIT is not exposed to significant currency or market risk arising from financial instruments.
Additionally, CT REIT’s exposure to interest rate changes is limited as a significant portion of its indebtedness is at fixed interest
rates. Exposure to interest rate changes is dependent on the extent to which CT REIT has short term borrowings under its credit
facilities, any new debt is issued or assumed on acquisitions, new series of Class C LP Units are issued to finance future real
estate transactions or any existing Class C LP Units being re-priced or redeemed, as all are market dependent (see Note 5).
CT REIT 2019 ANNUAL REPORT 95
Liquidity risk
Liquidity risk is the risk that CT REIT will encounter difficulty in meeting the obligations associated with its financial liabilities that
are settled by delivering cash or another financial asset. CT REIT’s approach to managing liquidity is to ensure that it has sufficient
liquidity available through cash, assets readily convertible to cash and committed bank lines of credit to support its monthly cash
distributions to Unitholders, meet operating and plan requirements and meet unexpected financial challenges. CT REIT has in
place a leverage and liquidity policy to manage its exposure to liquidity risk.
Management has identified key financial credit metric ratios and calculates these ratios in a manner to approximate the methodology
of debt rating agencies. Management monitors these metrics against industry-accepted targets to maintain investment-grade
ratings from two credit rating agencies.
CT REIT uses a detailed consolidated cash flow forecast model to regularly monitor its near-term and longer-term cash flow
requirements, which assists in optimizing its cash distributions to Unitholders and evaluating longer-term funding strategies.
CT REIT has access to the following financing sources to ensure that the appropriate level of liquidity is available to meet its
monthly distributions and objectives: committed Bank Credit Facility totaling $300,000, direct access to debt and equity markets
subject to consent from CTC, and contributions from CTC to the extent cash flows from property operations are not sufficient.
Credit risk
Credit risk is the risk of financial loss if a counterparty to a financial instrument fails to meet its contractual obligations and arises
principally from CT REIT’s tenants and from investment securities counterparties. Credit risk arises from the possibility that CT
REIT’s tenants may experience financial difficulty and be unable to meet their lease obligations. CTC is CT REIT’s most significant
tenant and will be for the foreseeable future with Canadian Tire retail stores and distribution centres. CT REIT’s revenues will be
dependent on the ability of CTC to meet its rent obligations and CT REIT’s ability to collect rent from CTC.
CT REIT has a Financial Risk Management Board Policy in place for management of counterparty risk related to investing activity.
The overall credit risk compliance mechanisms established in this policy include credit rating requirements, approval authorities,
counterparty limits, notional limits, term to maturity and portfolio diversification requirements. CT REIT limits its exposure to credit
risk by investing only in highly liquid and rated term deposits, bankers’ acceptances or other approved securities and only with
highly rated financial institutions and government counterparties.
Interest rate risk
Interest rate risk is the potential for financial loss arising from increases in interest rates. CT REIT has minimal exposure to interest
rate changes as the initial rate on the Class C LP Units, debentures and certain mortgages payable are at fixed interest rates and
variable rates, and CT REIT currently has $2,000 (2018 - $14,995) in short-term borrowings outstanding under its Credit Facilities.
96 CT REIT 2019 ANNUAL REPORT
21. CAPITAL MANAGEMENT AND LIQUIDITY
CT REIT’s objectives when managing capital are to ensure access to capital and sufficient liquidity is available to support ongoing
property operations, developments and acquisitions while generating reliable, durable and growing monthly cash distributions on
a tax-efficient basis to maximize long-term Unitholder value.
The definition of capital varies from entity to entity, industry to industry and for different purposes. CT REIT’s strategy and process
for managing capital is driven by requirements established under its Declaration of Trust and the trust indenture dated June 9,
2015, as supplemented by supplemental indentures (collectively, the Trust Indenture), pursuant to which the debentures were
issued, and the Credit Facilities.
The following schedule details the capitalization of CT REIT:
As at
Liabilities
Class C LP Units
Mortgages payable
Debentures
Credit Facilities
Equity
Unitholders' equity
Non-controlling interests
Total
December 31, 2019 December 31, 2018
$
1,451,550 $
48,049
1,070,695
2,000
1,464,939
1,869,166
$
5,906,399 $
1,451,550
37,100
1,069,844
14,995
1,306,355
1,778,554
5,658,398
CT REIT’s Class C LP Units have a fixed, cumulative, preferential cash distribution, if, as and when declared by the board of
directors of the GP.
Under the Declaration of Trust, the Trust Indenture, and the Credit Facilities, key financial covenants are reviewed on an ongoing
basis by management to monitor compliance with the agreements. The key financial covenants for CT REIT are as follows:
•
a requirement to maintain, at all times:
◦
◦
◦
◦
◦
a specified maximum ratio of total indebtedness of CT REIT (plus the aggregate par value of the Class C LP
Units) to gross book value of assets
a specified maximum ratio of total secured indebtedness of CT REIT (plus the aggregate par value of the Class
C LP Units) to gross book value of assets
a minimum Unitholders’ equity
a ratio of unencumbered assets to unconsolidated unsecured indebtedness
a specified minimum debt service coverage ratio defined as earnings before interest and taxes as a percentage
of interest expense, which for greater clarity includes payments on the Class C LP Units
As at December 31, 2019, CT REIT was in compliance with all of its financial covenants. Under these financial covenants, CT
REIT has sufficient flexibility to fund business growth and maintain or amend distribution rates within its existing distribution policy.
CT REIT 2019 ANNUAL REPORT 97
CT REIT’s strategy is to satisfy its liquidity needs using cash flows generated from operating activities and cash provided by
financing activities. Rental income, recoveries from tenants, interest and other income, draws on the Credit Facilities and further
issuance of debt and equity are CT REIT’s principal sources of liquidity used to pay operating expenses, distributions, debt service,
and recurring capital and leasing costs in its investment property portfolio.
The principal liquidity needs for periods beyond the next year are for Unit distributions, redemptions of Class C LP Units upon
scheduled expiry of the Initial Fixed Rate Period and capital expenditures. CT REIT’s strategy is to meet these needs through
cash flows generated from operating activities and further issuance of debt and equity.
The following table presents the contractual maturities of CT REIT’s financial liabilities:
Payments Due by Period
Total
2020
2021
2022
2023
2024
2025 and
thereafter
$1,451,550 $ 251,550 $
— $
— $
— $200,000 $ 1,000,000
1,075,000
— 150,000
150,000
—
—
Class C LP Units 1
Debentures
Credit Facilities
Mortgages payable
Other liabilities
Payments on Class C LP Units 1
716,425
62,258
58,000
58,000
58,000
52,750
Interest on debentures
204,478
34,949
33,330
29,572
27,433
27,433
Distributions payable 2
14,976
14,976
Payable on Class C LP Units, net of
loans receivable
Interest on mortgages payable
5,685
1,406
5,685
746
—
—
446
214
2,000
2,000
47,667
37,533
—
419
—
9,715
32,979
28,004
4,975
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
775,000
427,417
51,761
—
—
—
—
—
—
TOTAL
$3,552,166 $ 437,701 $247,170 $ 247,501 $ 85,433 $ 280,183 $ 2,254,178
1 Assumes redemption on Initial Fixed Rate Period for each series.
2 On Units and Class B LP Units.
22. SUBSEQUENT EVENT
Subsequent to year end, CT REIT and one of the co-owners of the Toronto (Canada Square), Ontario property increased their
respective ownership interests in the property from a 33% interest to a 50% interest. The REIT will recognize an increase in its
proportionate share of the assets, liabilities, revenues and expenses of the co-ownership in its financial statements. The transaction
closed on January 9, 2020.
98 CT REIT 2019 ANNUAL REPORT
GLOSSARY OF TERMS
Glossary of Terms
“Affiliate” means an affiliate, as such term is defined in the Securities Act (Ontario) of CT REIT (including a partnership or trust
controlled by the REIT).
“AFFO” is a non-GAAP financial measure and has the meaning given to that term in Real Property Association of Canada’s white
paper titled “White Paper on Funds From Operations & Adjusted Funds from Operations for IFRS” (the “White Paper on FFO &
AFFO”) issued in February 2019. It is calculated as FFO subject to certain adjustments to remove the impact of recognizing
property rental revenues or expenses on a straight-line basis, and the deduction of a reserve for normalized maintenance capital
expenditures, tenant inducements and leasing commissions.
“Atlantic Canada” means the provinces of New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island.
“Board” means the Board of Trustees of the REIT.
“Change of Control” means the acquisition by a person, or group of persons acting jointly or in concert, directly or indirectly, other
than CTC or any of its Subsidiaries, of more than 50% of the aggregate voting rights attached to the Units and Special Voting
Units of the REIT (taking into account (i) full dilution from the exchange of all then-outstanding Class B LP Units into Units of the
REIT; and (ii) in respect of any other securities that are convertible or exchangeable into Units of the REIT, only dilution resulting
from the conversion or exercise of such other convertible or exchangeable securities held by such person or group of persons).
“Class A LP Units” means, collectively, the Class A limited partnership units of the Partnership. “Class A LP Unit” means any
one of them.
“Class B LP Units” means, collectively, the Class B limited partnership units of the Partnership, and “Class B LP Unit” means
any one of them.
“Class C LP Units” means, collectively, the Class C limited partnership units of the Partnership, and “Class C LP Unit” means
any one of them.
“Competitor” means a person who carries on business, or any person who controls or is controlled by such person, in one or
more of the following categories: hardware, automotive, sporting goods, apparel and housewares.
“CTC” means Canadian Tire Corporation, Limited together with its Subsidiaries (excluding the REIT and the REIT’s Subsidiaries),
or, as the context requires, any of them.
“CTC Banner” means a CTC name or trademark, including the Canadian Tire, Mark’s , Sport Chek, Sports Experts and Atmosphere,
names or trademarks.
“CTREL” means Canadian Tire Real Estate Limited, a wholly-owned Subsidiary of CTC.
CT REIT 2019 ANNUAL REPORT 99
GLOSSARY OF TERMS
“Development Agreement” means the development agreement among the REIT, the Partnership, CTREL and CTC entered into
on October 23, 2013, as further described under “Arrangements with CTC - Commercial Agreements with CTC - Development
Agreement” of the AIF.
“Development Properties” means those Properties being developed or redeveloped, but excludes properties undergoing
intensification activities, consisting of the construction of additional buildings on existing assets and modifications to existing
buildings, as well as the redevelopment of mixed-use properties.
“EBITFV” is a non-GAAP measure of operating cash flow. It is calculated as net income in accordance with GAAP, adjusted by
removing the impact of; (i) non-cash adjustments including fair value adjustments on investment properties; (ii) interest expense
and other financing costs; (iii) income tax expense; (iv) gains or losses the sale of investment properties; and (v) non-recurring
items that may occur under IFRS.
“ECL” means expected credit losses.
“FFO” is a non-GAAP financial measure and has the meaning given to it in the White Paper on FFO & AFFO. It is calculated as
net income in accordance with GAAP, adjusted by removing the impact of: (i) fair value adjustments on investment properties; (ii)
other fair value adjustments; (iii) gains and losses on the sale of investment properties; (iv) incremental leasing costs; (v) operational
revenue and expenses from right-of-use assets; and (vi) deferred taxes.
“FVTPL” means fair value through profit or loss.
“GAAP” means generally accepted accounting principles in Canada (which for Canadian reporting issuers is IFRS) as in effect
from time to time and as adopted by the REIT from time to time for the purposes of its public financial reporting.
“GLA” means gross leasable area.
“Gross Book Value” means at any time the total assets of the REIT as shown in its then most recent Consolidated Balance
Sheets.
“IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Board and as
adopted by the Chartered Professional Accountants of Canada in Part I of The CPA Canada Handbook - Accounting, as amended
from time to time.
“Intensification” means the development of a property, site or area at a higher density than currently exists, through development,
redevelopment, infill and expansion or conversion of existing buildings.
“Investment Properties” means the portfolio of properties owned by the REIT
“NOI” means property revenue less property expense and is further adjusted for straight-line rent.
100 CT REIT 2019 ANNUAL REPORT
GLOSSARY OF TERMS
“Property Management Agreement” means the property management agreement among the Partnership, CTC and CTREL
entered into on October 23, 2013, as further described under “Arrangements with CTC - Commercial Agreements with CTC -
Property Management Agreement” of the AIF.
“Properties Under Development” means that portion of any (i) Development Property, (ii) Properties undergoing intensification
activities, consisting of the construction of additional buildings on existing assets and modifications to existing buildings, and (iii)
mixed use properties being developed or redeveloped.
“REIT Exception” means the exclusion from the definition of “SIFT trust” in the Tax Act for a trust qualifying as a “real estate
investment trust” under the Tax Act.
“ROFO Agreement” means the right of first offer agreement among the REIT, the Partnership and CTC entered into on October
23, 2013, as described under “Arrangements with CTC - Commercial Agreements with CTC” of the AIF.
“Services Agreement” means the services agreement among the REIT, the Partnership and CTC entered into on October 23,
2013 pursuant to which CTC or certain of its Subsidiaries provide the Services, as further described under “Arrangements with
CTC - Commercial Agreements with CTC - Services Agreement” of the AIF.
“SIFT Rules” means the specified investment flow-through rules applicable to SIFT trusts and SIFT partnerships in the Tax Act.
“Special Voting Units” means special voting units of the REIT, and “Special Voting Unit” means any one of them.
“Unitholders” means holders of Units, and “Unitholder” means any one of them.
“Units” means trust units in the capital of the REIT, other than Special Voting Units, and “Unit” means any one of them.
CT REIT 2019 ANNUAL REPORT 101
CT Real Estate Investment Trust
2180 Yonge Street
P.O. Box 770, Station K
Toronto, Ontario, Canada
M4P 2V8
Visit our website at
ctreit.com